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UBA Weathers Storm To Remain Outstanding

Phillips Oduoza, UBA - MD

Amidst challenges in Nigeria banking environment, UBA, according to experts is outstanding in her banking services. United Bank for Africa Plc is delivering on its commitment to superior returns to shareholders.

Among the several regulatory headwinds that deposit banks  in Nigeria have grappled with is the recent single treasury account (STA) directive by the Federal Government of Nigeria (FGN).

The Central Bank of Nigeria (CBN) and other regulatory policies that the banks have had to whether include the reduction on Commission on Turnover (CoT) fees, increase in contribution to the Asset Management Corporation of Nigeria (AMCON) and Nigeria Deposit Insurance Corporation (NDIC) levies and high Cash Reserve Ratios (CRRs) are also depleting banks’ profits.

Consequently, some banks that hitherto made huge profits, are now struggling to survive, no thanks to the impact of tougher regulatory demands on their profits.

That is not all. The result of the last CBN liquidity stress test on the banking sector released in May this year jolted many observers and stakeholders in the industry. The test conducted on 23 banks, showed that ‘six small banks’ Capital Adequacy Ratios (CARs) fell below regulatory threshold.  CAR is a ratio of a bank’s assets to its risks.

Deputy Governor, Financial System Stability of the CBN, Dr. Joseph Nnanna said the unnamed ‘small banks’ CARs fell to 8.85 per cent, against stipulated 10 per cent for lenders operating only in Nigeria and 15 per cent for those with foreign subsidiaries.

The test was conducted using both the bottom-up and top-down approaches specified in the modified International Monetary Fund (IMF’s) stress test framework, captured the diverse nature of individual bank’s balance sheet and observed weaknesses.

Although, the deputy governor defended the stability of the banking sector, the result of the test gave insight to the grave situation faced by lenders.

Standing Out

However, it is not totally a bad story for the Nigerian banking sector. While some banks grapple with headwinds, a few are actually reporting stellar results. The United Bank for Africa (UBA) Plc is one of the outstanding banks in the industry today.

Ranking in the top-three bracket of the Nigerian banking sector in terms of market share and returns on equity, UBA Plc, impressed stakeholders with its second quarter results.

The financial markets were generally impressed with pan-African financial services group; UBA Plc results for the first quarter of 2015 but the second quarter financial performance has surpassed their expectations.

UBA released its half year audited results on September 3, 2015 which showed earnings grew strongly by 21 per cent to N166.9 billion during the period, compared to N138.2 billion in the same period of June 2014. The bank’s profit before tax (PBT) also rose 35.1 per cent to N39.0 billion, while profit after tax (PAT) was up a significant 40 per cent to N32 billion within the same period.

Further analysis of the UBA 2015 half year results showed significant improvement in operational efficiencies. The Bank’s net operating income rose 21 per cent to N108.7 billion in June 2015, compared to N90 billion in the comparable period of 2014. The Bank has continued to focus on operational efficiency, with a cost to income ratio of 64 per cent; as against 68 per cent in the same period in 2014.

UBA maintained a healthy loan book, with non-performing ratio at just 1.8 per cent of total loans granted, one of the lowest in the banking industry. These asset quality metrics are a reflection of its prudent approach to lending and disciplined focus on less volatile segments of the market.

As a reward to shareholders, the Bank announced the payment of an interim dividend of 20 kobo per share.

Decision to Pay Interim Dividend

Group Managing Director and CEO of the UBA Group, Mr. Phillips Oduoza, explained that the decision to pay interim dividend was reached after carefully considering the capital need of the bank over the near to medium term, earnings prospect, and varying investment objectives of its diversified shareholder base, some of whom require consistent dividend payment, especially given the bearish equity market.

“Having fortified our capital base, well ahead of the June 2016 timeline for BASEL II capital compliance, we found it imperative to meet the varying expectations of our diversified shareholder base, some of whom require consistent dividend payment” Oduoza explained during a conference call with analysts.

He also explained that while UBA did not have a target dividend pay-out, the bank ensures that its “dividend policy adequately balances our need for earnings retention for growth opportunities and the need for return to shareholders, by way of dividend payment.“

“Given our current earnings and prospect as well as our capital position, we believe our decision to pay 20 kobo interim dividend on every ordinary share is justified” he said.

Oduoza also assured that that the bank is confident on the quality of its loan portfolio, including exposure to the oil and gas sector.

He explained that so far, the bank had to restructure a cumulative N10 billion loan to give breathing space to the concerned obligors in the oil and gas sector, due to the lower crude oil price.

He, however, reiterated that the loans were performing and the restructuring, which is majorly tenor elongation, was a part of the bank’s partnership with its customers to ensure mutual success, as the restructuring improved the cash flow of the customer and  enhanced working capital position for increased production activities.

He further explained that following an internal stress test conducted on the bank’s loan book, which sensitises its exposures to different macroeconomic variables, including lower crude oil price, the management is comfortable with the quality of the loan book and does not expect any further restructuring.

Oduoza, while speaking to analysts at a conference call explained that the bank has been very cautious and risk conscious in growing its loan book to the oil and gas sector and other sectors of the economy which has resulted in it having one of lowest non-performing loans ratio in the banking industry.

“Our diligent assessment of risk and return of every opportunity will sustain the quality of the balance sheet and thus ensure that our asset quality remains one of the best-in-class in the industry” Oduoza said.

Sustaining Improved Performance

The UBA boss also assured the bank’s shareholders that the bank will sustain the improved performance recorded in the first and second quarters of the year.

“I am convinced that we are now in a much better position to deliver sustainable and superior return to our shareholders. Thus, let us take the journey together as we build a truly great pan-African bank that we can all be proud of” said Oduoza.

The UBA Group, he added, is one of Africa’s leading financial institutions, operating in 19 African countries, as well as New York, London and Paris.

“The Group provides a sophisticated suite of banking services to almost 9 million individual customers, SMEs, corporate clients, organisation and public institutions across Africa, priding itself on bringing financial inclusion to the continent and supporting Africa’s next generation of entrepreneurs, “he stated.

Financial Analysts’ View

Financial analysts have commended the results for outperforming market expectations with the bank’s share price advancing by more than 30 per cent within four trading sessions, following the release of the results.

Analysts at CSL Stockbrokers while reaffirming their “Buy” rating on UBA Plc’s stocks and a target price of N7.20, noted that based on the half year results, UBA Plc is likely to surpass their current profit and earnings forecasts.

Also analysts from Chapel Hill Denham were of the view that some key strategic decisions taken by UBA Plc in the last few months had brought impressive results, adding that this was evident from increased earnings reported by the bank.

“We like the aggressive stance UBA Plc took on expanding its loan book, which appreciated by 8.5 per cent since the beginning of the year. We maintain our earnings forecasts, with a BUY rating on UBA Plc.”

Renaissance Capital analysts also noted “UBA Plc’s numbers read well versus our estimates. We note that profit before tax growth in the second quarter of 2015 was supported by a decent top line growth, and a decline in impairment charges, down by 51 per cent.” The investment banking firm reaffirmed their “Buy” rating on UBA Plc stock with a target price of N8 per share.

With additional report from Thisday.

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