The handwriting was boldly written. International crude oil prices were dangerously down, there was a slur in fuel prices in Nigeria, dollar was seriously drying up, national revenue down, foreign investors skeptical, the Treasury Single Account (TSA) implementation was mopping liquidity from banks’ vault.
Only the wise and prudent could have survived the situation. The United for Bank (UBA) did, and had some success story to tell, with it’s bottom line recording some improvement over the previous year.
“2015 was a challenging year, without question. We witnessed not only continuing stress in the global economy with China’s slow-down casting a long shadow across our region , and the impact of a number of specific market and regulatory dynamics in some of our operating environment in Africa”, said chairman of the bank, Tony Elumelu.
The view of the group managing director was not too far. In more detailed comments, he told shareholders that the economic effect was quite severe in some oil-exporting countries where external reserves were depleted in an attempt to maintain currency stability.
But in spite of these, he explained that UBA was able to keep it’s head above waters.
“Despite these developments, UBA SA able to retain its competitive position within the banking industry by implementing world class risk management standards to manage cash flows, optimizing cost-saving opportunities of its IT infrastructure and ensuring effective controls to minimize exposure”, said Phillips Oduoza.
Income statement analysis
Gross earnings which is made up of both interest and non-interest income grew by 9.5 per cent year-on-year (YoY) to 314.8 billion, spite total assets reap aiming flat.
Notably, weak liquidity in the foreign currency market and a host of regulatory policies moderated the foreign currency fees and trading income just as relatively flat loan book reduced credit related fees.
But, the intensified competition for deposits, interest expense grew barely six per cent, thus resulting in a benign funding cost of four per cent.
Leveraging on new cost management initiatives, the bank’s operating expense rose barley five per cent lower than the prevailing inflation rate of 9.6 per cent as at that time. The bank boasted that he feat aw achieved despite external cost-pressures such as higher energy cost and security cost, rising from the Asset Management Corporation of Nigeria (AMCON) level and exchange rate-induced rise in maintenance cost across most markets.
The bank said, notwithstanding the impact if currency translation -with some African currencies depreciating against the naira, the African business recorded a strong 16 per cent YoY growth in gross earnings, with 21.5 per cent contribution to the group’s top-line.
Te scarcity of foreign currency and myriad of regulations moderated income from Foreign Currency Yield (FCY)-related businesses in Nigeria; albeit the African businesses increased their respective shares of trade flows and remittance; thus partly compensating for the relatively weak non-funded income in Nigeria.
The financial reports said, in Nigeria, e bank’s focus was on market share and asset quality defence, as macroeconomic/political uncertainties and implementation of TSA moderated on risk appetite. “Contrarily, the group leveraged it’s enhanced risk management practice and increased scale and scope operations in a number of African subsidiaries to grow deposits, loans and overall balance sheet size”, it said.
Liquidity and funding
The bank maintained a very liquid balance sheet to hedge against uncertainties in the macroeconomic environment and also to take advantage of the rising yield on government securities during the year.
Notwithstanding te implementation of the TSA, the group remained very liquid given its stable, low-cost and diversified funding base, with low-cost current and savings accounts (CASA) representing three quarter of te group’s deposit base.
Reflecting the enhanced risk management framework and culture, te group maintained its asset quality through the challenging business environment, with a non-performing loan ratio of 1.7 per cent.
The credit portfolio is week diversified across various sectors and geographies, with particular focus on quality obliges in less volatile sectors and segments of the market.