UBA: Credit losses drop to the lowest figure in four years

United Bank for Africa (UBA) closed the 2018 financial year with an after tax profit of N78.6 billion, flat on a restated N77.5 billion the bank posted in 2017. This is on target of our full year projection of after tax profit in the region of N80 billion. It is also a slowdown in profit performance for the second year as expected.

Group profit had decelerated sharply in 2017 to the slowest growth in three years from a 21% increase in 2016 to 7.3%. Another sharp slowdown in 2018 left profit flat at 1.4% – the worst profit growth record since 2014.

Two major developments in the year led to the sustained slowdown in the bank’s profit performance. One is the weakening of revenue growth from 20% in 2017 to 7% in 2018, which was led by non-interest income. The other development in the year is that interest expenses rose close to five times as fast as gross earnings and nearly three times ahead of interest income.

The bank’s management moderated the impacts of these developments on the income statement by slashing loan loss expenses by more than 86%. With that, credit losses dropped to the lowest figure in four years at the end of 2018 and one of the lowest figures since 2011.

The bank earned N494 billion in gross income at the end of the 2018 financial year, an increase of 7% year-on-year. Interest income accounted exclusively for the revenue improvement in the year with an increase of 11.5% to N363 billion. Led by a drop of 35.6% in net trading income, non-interest income went down by 3.5% to N131 billion against a 29% growth in 2017.

Revenue growth stepped up in the final quarter and that pushed the full year figure 3% ahead of the forecast revenue closing region of N478 billion for UBA in 2018.

Interest expenses raced up for the second year, claiming more than all the increase in interest income at the end of the year. At over N157 billion, interest expenses grew by more than 33% in 2018 – about three times the 11.5% increase in interest income. That claimed over 43% of interest income, rising from 36% in the preceding year.

It was the highest growth in interest expenses the bank has seen in five years. The sharp growth caused a marginal decline in net interest income at N205.6 billion. Net interest income had grown by 26% in 2017.

Moderating the impacts of the slowdown in revenue growth and the sharp growth in interest expenses is a cut down in net loan impairment expenses. Loan loss expenses fell by 86.2% to N4.5 billion in the year against an increase of 19% at the end of 2017.

Write backs of previous credit losses to the tune of N37 billion accounted for the sharp drop in net impairment charges. This enabled the bank to lift operating income net of loan loss expenses by a clear 15% to over N201 billion.

UBA also saved some costs through a moderated increase in operating expenses. At N197 billion, operating cost increased by 4%, which lowered the cost margin slightly to under 40%.

Cost savings from loan loss expenses and operating cost enabled the bank to keep profit from declining in the year. After tax profit crept up 1.4% to N78.6 billion at the end of 2018, the lowest profit growth record in five years. The marginal growth was made possible by a restatement of the 2017 profit figure. The bank lost profit margin from 16.8% in 2017 to 15.9% at the end of 2018, a further decline from 18.1% in 2016.

UBA earned N2.20 per share at the end of 2018, against N2.19 over the review period. It has announced a final cash dividend of 65 kobo per share, up on an interim dividend of 20 kobo per share paid at the end of its half year trading in June. Total dividend is unchanged from the 85 kobo per share it paid for the 2017 operations. Dividend qualification date is 2nd April and payment date is 23rd April 2019.