Uba: A Sustenance Of Growth Momentum

By Andy Nssien


The United Bank for Africa (UBA) Plc,  made history early last month when its  N30.5 billion bond was listed onThe Nigerian Stock Exchange, NSE and the Financial Market Dealers Quotation, over-the-counter (FMDQ-OTC) market.

The UBA bond is the first corporate bond to be admitted on the FMDQ platform and the first of its kind on a fixed income OTC in Africa.

The Pan-African bank, in December 2014, had successfully raised N30.5 billion Tier II capital through the issuance of seven-year fixed rate unsecured notes, maturing in 2021. Tier-II capital is the part of a bank’s capital that includes debt and revaluation reserves, excluding equity.

The need for the bank to raise Tier II capital in compliance with the Central Bank of Nigeria (CBN) directive on capital adequacy ratio is consistent with  Basel II requirements which implementation was expected to commence in Nigerian banking industry from the end of last year.

As UBA announced its full year results for the period ended December 2014, its initiative on the Tier II capital is one of the survival kits it needs to steer the turbulent banking environment that requires sound risk management in the years ahead..

According to the  group results, gross earnings rose by 9.6 per cent to N290 billion from N264.7 billion, while net income grew by 2.8 per cent to N106 billion in 2014 from N103.2 billion achieved in the corresponding period in 2013.  Also, profit before tax increased marginally to N52.6 billion, while profit after tax at N47.9 billion, indicated a growth of 2.8 per cent from N46.6 billion earned in the similar period.

Earnings received a boost from both interest and non-interest income showing the bank’s diversified and stable income base. Interest income rose by 5.91 per cent to N197 billion in December 2014 from N186 billion, while non-interest income rose by 18.17 per cent to N93.3 billion from N79.0 billion in 2013. Total assets went up by 4.6 per cent to N2,763 billion; total loans and advances jumped by 14.3 per cent toN1,072 billion; while total deposits rose to N2,170 billion in 2014, reflecting a rise of 0.39 per cent when compared to N2,161 billion in the previous year.

However, analysis of some key ratios are instructive. While net interest margin rose to 5.96 per cent in 2014 from 5.90 per cent, cost of funds went up to 3.81 per cent from 3.60 per cent in 2013. Also, while the bank achieved an increase in its loan- to -deposit ratio of  49.40 per cent, the non-performing loan ration (NPL) rose to 1.55 per cent from 1.20 per cent in 2013. The bank should work harder to ensure that in its pursuit of risk assest, the integrity and quality of the loans and advances are not compromised. Another item which will inhibit the bank’s ability to pay enhanced dividend as enunciated in the CBN directive is the Capital adequacy ratio (CAR) which the bank should pay attention to. During its operation for the period ended December 2014, CAR dropped from 19 per cent in 2013 to 17 per cent in 2014, just below the regulatory threshold. But thanks to the N30.5 billion Tier II capital which the bank raised in December last year.  However, with the post-regulatory approval of the Tier II capital factored in, the UBA CAR  will be 18 per cent, which is higher than the minimum regulatory stipulation.

It is not unlikely that the above slips have combined with other considerations to offer less return to the shareholders when compared with what they received the previous year. In proposing a dividend of 10k per share in 2014, down from 50k per share in 2013, the bank endeavored to strike a balance between giving short term return to investors and the commitment to create sustainable long term value to all shareholders.

Fortunately, the bank’s first quarter report recently released attests to the sustainability of the UBA growth momentum, showing significant growth in earnings and profits in the first three months of the 2015 financial year.

The results, which cover the period January to March 2015, indicated that the bank witnessed a 22 percent growth in gross earnings to N83.1 billion as at March 2015 from a comparative figure of N68.1billion made in the first three months of the 2014 financial year.

Also, the bank recorded 36 per cent growth in profit before tax to N18.4 billion as at March 2015 compared to N13.5 billion as at March 2014. The bank’s profit after tax also grew by 35 percent to N17 billion from N12.6 billion within the same period.

If the significant growth in profit after tax is sustained, the bank’s earnings per share at the end of the 2015 financial year is forecast to rise by 35 per cent to N2.06 from N1.53, while return on equity (ROE) is expected to rise to 24.8 percent from 22.1 per cent within the same period.

However, for the shareholders to benefit from this quantum leap, the bank needs to effectively keep a tight lid on the non-performing loan ratio which increased from the year-end figure to 1.6 per cent during the first three months of this year.

United Bank for Africa Plc, one of Africa’s largest financial services institutions, swept the global banking awards in London last year, winning in five categories to become one of the highest single winning bank brands  at the 2014 awards.

Source : Independent

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