UBA lifts profit by four times to N449bn in Q3 on FX, trading income boost

United Bank for Africa (UBA) Plc multiplied after-tax profit close to four times to N449.2 billion at the end of the third quarter (Q3) operations on a major boost of net trading and foreign exchange (FX) earnings.

At N450.3 billion, net FX and trading income jumped close to 12 times year-on-year to power the strong revenue growth the bank has seen so far this year.

The bank’s unaudited financial report for the third quarter ended September 2023, shows that the exceptional growth in net trading and foreign exchange income is the highpoint of its earnings story so far in the 2023 financial year.

The income line accounts for 36.3 percent of gross earnings of N1.24 trillion at the end of Q3, advancing from less than 7 percent in the same period last year.

The bank also recorded a strong growth in interest income, which rose by 55.6 percent year-on-year to N666.3 billion at the end of September. The figure has already beaten the total interest income figure of N557.2 billion the bank generated in the entire 2022 financial year.

The good report on the side of earnings, however, comes with some challenges on the other side of costs. Two major rising costs claimed increased proportions of revenue over the review period.

The first is interest expenses, which rose by 62 percent to N223.2 billion at the end of Q3, well ahead of the 55.6 percent increase in interest income. However, this is a slowdown from an increase of 88 percent in interest expenses at half-year.

The slowdown in interest expenses reflects a moderated growth in Q3 when the cost of funds grew by 26.3 percent — slower than the over 46 percent growth in interest income in the quarter.

The second major rising cost is net impairment charge on loans and advances, which multiplied more than ten and a half times year-on-year to N144.6 billion at the end of Q3.

Despite the increase in net loan loss charges year-on-year, the figure represents a drop from N153.9 billion at half year, as the Q3 recorded a net write-back of N9.3 billion.

The nine-month asset impairment figure still stands close to three and a half times the bank’s total net impairment expenses on financial assets of N42 billion for the 2022 full year. This is the second year of a high rise in credit losses for the bank after net impairment charges multiplied more than three times in 2022.

Despite the incursion of interest expenses on interest earnings, net interest income still grew substantially at 56.8 percent to close at over N443 billion at the end of Q3, reflecting a much stronger growth in the quarter.

With the slowdown of interest expenses in the third quarter, net interest earnings rose by 57 percent to N165 billion for the quarter — the highest quarterly growth rate so far this year, accounting for 37 percent of the nine-month figure.

Also, the net write-back position in Q3 reduced the weight of net loan loss charges on the bank’s cost-income balance.

Net interest income after loan impairment expenses reversed from a drop of 26.6 percent at half-year, to an increase of 11 percent year-on-year to N298.5 billion at the end of Q3.

A robust expansion of non-interest income, driven by net trading and foreign exchange gain, reinforced the upturn in interest earnings net of credit losses. Total non-interest income of the bank rose by 335.6 percent to N574.5 billion over the review period.

The huge inflow made the difference in the bank’s earnings story at the end of Q3 with operating income surging up two and half times to over N1 trillion at the end of September.

With gross earnings rising by 124.7 percent to N1.24 trillion at the end of the third quarter — the strongest revenue growth for the bank in decades — UBA is going strong on earnings for the second year, having raised gross income by 29.2 percent to N853 billion at the end of 2022.

The biggest leap in revenue happened in the second quarter (Q2), which contributed N732 billion or 59 percent of the gross earnings figure at the end of Q3.

The operating cost margin went down from 47.6 percent in the same period last year to less than 30 percent at the end of Q3. The cost saving has lifted net profit margin from 21 percent to 36.2 percent over the review period — the highest in years.

The strength of the bank in the earnings field this year lies in rapidly growing revenue and the big gain in profit margin.