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UBA Not Affected By Non-Performing Loans, NPLs

UBA-Kennedy-and-PhillipsUnited Bank for Africa, UBA, Plc has assured of continued profitability with good asset quality, occasioned by sustained low Non-Performing Loans, NPLs, and provisions. The bank made this known in reaction to Vanguard Newspapers report on bad loans and banks profitability, published recently

. Rasaq Abiola, Head of Investor Relations at UBA in response to Vanguard, explained that the bank’s “non-performing loan ratio at 1.7% in the first quarter of 2016 was laudable on a global standard, best-in-class in the Nigerian banking industry; and reflects the sound risk management and governance practice of UBA as well as the quality of our loan book.”

According to him, UBA recorded N1 billion impairment charge in first quarter of 2016, which are largely being portfolio impairment charge required by the International Financial Reporting Standard, IFRS, on loans  not individually impaired, but on which the bank had to conservatively make provision for, particularly due to the operating environment. “The provisions made by the Bank has been adjudged by reputable institutions, including global rating agencies as prudent and reflective of the quality of loans created by UBA Plc. Notably, the provisions made in the first quarter of the year translates to a modest 0.1% of our loan book (annualized at 0.4%), 1.4% of the gross earnings and  less than  2% of the net operating income,” Abiola explained

. UBA,  leveraging its sound risk management and governance to maintain a strong asset quality and profitability,  grew profit by 22% to  N68.5 billion in 2015 and sustained the strong profitability in the first quarter of the year, with a profit before tax of  N18 billion. “Whilst your  report claimed that nine banks, including UBA, made  N345 billion in provisions in 2015 financial year, It is important to  note that  UBA Plc made a total provision of  N5 billion in 2015, which is barely 1.4% of the referenced amount. UBA Plc made a total impairment charge of  N3.2 billion in 2014, which is also 2.2% of the referenced amount  of N144bn. It is, therefore, unfathomable why the report would cast UBA on the headline and indeed any part of the story,”  said Rasaq Abiola.

Meanwhile several independent financial analysts, who track the bank’s performance attest to good quality of the bank’s loan book and financial performance. African Alliance, a foremost Africa-focused brokerage and investment banking firm, in a recent report, attributed UBA’s asset quality to its diversified loan book across geographies, sectors and segments of the market. The firm in a recently published report said: “UBA has demonstrated extraordinary resilience in the face of macroeconomic headwinds mainly on the back of a well-diversified credit portfolio. Increased exposure to other African markets has also provided some insulation from the headwinds in Nigeria

. “Consequently, the bank has outperformed its peers in profitability and asset quality. Return on average equity, ROaE, was 20.0% in 2015 and 19.6% in first quarter “of 2016 which compares favorably to the 17.4% and 17.8% average reported over the same period within other Nigerian banks’  universe. UBA’s NPL ratio and Cost of Risk (1.7% and 0.4%) also sit better than peers (6.3% and 1.4%)” The brokerage firm in its report emphasized that diversification bred quality and that UBA was efficiently leveraging its prudent diversification to maintain a quality balance sheet, with low exposure to the stressed sectors and segments of the markets.

Similarly, analyst at BPI Capital Africa, an investment banking subsidiary of the listed Portuguese bank based in South Africa, noted that UBA’s African strategy supports earnings diversification and mitigates risk, with over 20% of the loan book outside of the Nigerian market and about a quarter of profit from the African subsidiaries outside of Nigeria. The analyst concluded that UBA was a strong and highly profitable player with 20% return on equity and consequently rated   UBA as the most preferred bank to invest in Nigeria, particularly given the current valuation of the shares.

Also, analysts at CSL Stockbrokers, a division of FCMB Bank (UK) Limited in a recently published report, entitled, ‘Cost of risk – bridging the gulf,’ noted that UBA had fared better than they had anticipated in managing its risk assets and safe guarding the quality of the overall portfolio. The analysts said: “We have become more comfortable with the bank’s handling of its oil & gas exposure, and in consequence we have revised down our 2016 CoR estimate, under IFRS, from 1.7% to 1.0%.”

The pan-Africa financial services group, reported a strong set of results in the first quarter of the year, with gross earnings of  N74 billion and profit before tax of  N18 billion for the three months ended March 2016. On the back of its strong performance, improved governance and disclosure to the market, the share price has rallied 28% year-to-date to close at  N4.32 at the close of market on June 09, 2016. Analysts see significant value in UBA, with consensus valuation that the stock will rally towards N7 by year-end.

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