UBA: Examining the N2.4tr earnings

United Bank for Africa (UBA) Plc has set a new threshold with gross earnings of N2.4 trillion. The latest results of the pan-Africa bank show remarkable growths across all performance indices, drawing plaudits from most critical analysts. In this report, Deputy Group Business Editor, Taofik Salako, examines the fundamental structure of UBA’s earnings report and its implications for future returns

Financial analysts are unanimous on the positive trajectory of United Bank for Africa (UBA) Plc’s earnings report. Cordros Capital Group highlighted how “stellar growth” in incomes “boosted profitability”. FSDH Capital stated that the third quarter 2024 results were “blockbuster” and “robust”, noting investors’ positive reaction to the results. CardinalStone pointed at the pivotal importance of the “robustness of the bank’s core earnings” in the overall performance. Other analyses followed similar trend.

Financial analysis takes into consideration not only the individual entity performance but also sectoral and general operating environments. Corporate earnings are situated within the context of the global and domestic macroeconomic dynamics, industry peculiarities, historical performance, structural components and sustainability. The position of an analyst summarises the overall impression of the company’s results in the light of the face figures and underlying facts.

By training, financial analysts dwell mostly on figures, with few key words to convey their impressions. While generally conservative, but they do get excited with impressive figures. Thus, they tend to use admirable terms from time to time. It appears most analysts are excited with UBA’s third quarter results.

Financial highlights       

For the nine-month ended September 30, 2024, UBA reported 83.2 per cent growth in gross earnings to N2.398 trillion, almost a double on N1.308 trillion recorded in third quarter 2023. Operating income rose from N1.02 trillion in third quarter 2023 to N1.54 trillion in third quarter 2024, an increase of about 51 per cent. Profit before tax increased to N603.48 billion compared with N502.09 billion recorded in third quarter 2023. After taxes, net profit also rose from N449.26 billion in third quarter 2023 to N525.31 billion in third quarter 2024. Earnings per share thus improved from N12.93tr to N14.78tr.

Group balance sheet size expanded by 54 per cent to N31.80 trillion by September 2024 as against N20.653 trillion recorded at the end of December 2023. The bank benefitted largely from its technology-led initiatives targeted at improving customer experience over the past few years, with total deposits rising to N26.50 trillion, representing a 52.7 per cent rise from N17.355 trillion at the end December 2023. Deposit base was driven by increased brand appeal across the retail and corporate markets. Customers’ deposits had jumped from N14.8 trillion to N22.97 trillion while deposits from banks increased from N2.46 trillion to N3.53 trillion. Loans and advances to customers grew by 46.8 per cent from N5.23 trillion in December 2023 to N7.68 trillion in September 2024. While the paid up share capital remained unchanged at N17.10 billion, total equity jumped by 76.8 per cent from N2.03 trillion in December 2023 to N3.59 trillion in September 2024.

Facts behind the figures

UBA Group’s overall performance was anchored on outstanding growth in the bank’s core banking business and other income lines, providing a resilient buffer against the inflationary pressure and other macroeconomic headwinds. Net Interest income which stood at N443.0 billion at the end of the third quarter in 2023, rose by 149 per cent to N1.103 trillion in third quarter 2024. Fee and commission income doubled by 105 per cent from N114.29 billion in third quarter 2023 to N233.85 billion in third quarter 2024. Gains from foreign exchange (forex) revaluation jumped by 671.2 per cent to N251.37 billion in third quarter 2024. Forex trading incomes grew by 222 per cent to N91.39 billion while incomes from investment securities rose by 68.5 per cent to N83.10 billion. However, fair value loss on derivatives of N243.38 billion in third quarter 2024, as against gain of N340 billion in third quarter 2023, moderated the total non-interest income by 59.5 per cent from N574.54 billion in third quarter 2023 to N435.84 billion in third quarter 2024.

A strong top-line growth and increasingly efficient credit risk management enabled the bank to ride through less controllable macroeconomic headwinds, with inflationary pressure at a peak and disposable incomes at lower end. Net operating income after impairment loss on loans and receivables grew by 62.7 per cent from N873.01 billion in third quarter 2023 to N1.42 trillion in third quarter 2024. This helped to absorb a double in operating expenses (opex), which rose by 119 per cent from N370.91 billion in third quarter 2023 to N812.2 billion in third quarter 2024. The jump in opex was due mainly to increases in wages, fueling and maintenance, contract services, and regulatory fees. Personnel costs had doubled by 103 per cent to N225.42 billion, fuels repairs and maintenance had risen by 128 per cent to N104.7 billion while regulatory payments to the Asset Management Corporation of Nigeria (AMCON) and Nigeria Deposit Insurance Corporation (NDIC) increased by 71.9 per cent and 110.1 per cent to N70.33 billion and N34.21 billion respectively. Nigeria’s inflation rate stood at 32.70 per cent in September 2024, compared with 26.72 per cent in September 2023.

A breakdown of the deposit performance showed improvements across all the segments, from retail to corporate customers, savings to term and current deposits. Savings notably rose from N3.25 trillion in December 2023 to N5.09 trillion in September 2024, an addition of N1.84 trillion within nine months. Term deposits by retail customers also improved from N471.51 billion to N556.39 billion while current retail deposits leapt to N2.59 trillion by September 2024 from N1.62 trillion in December 2023. Total retail deposits thus increased from N5.34 trillion in December 2023 to N8.23 trillion in September 2024. Total deposits by corporate customers increased from N9.55 trillion to N14.74 trillion, with terms and current deposits rising from N1.69 trillion and N7.86 trillion in December 2023 to N2.53 trillion and N12.21 trillion respectively by September 2024.