UBA’s H121 profitability metrics excite stakeholders

 

BY KENNETH EZE

 Relevant stakeholders are still buoyed-up by the audited H1 2021 results unveiled by the United Bank for Africa Plc recently.

Seasoned chartered accountant and financial analyst, Abel Agholor said, “The results seem reassuring of a stable outlook for the bank.”
He pointed out that “in interim financial results, nothing gives more comfort than the word ‘audited’.”

A lot of people, particularly investors, would have been gladdened with the 33 per cent year-on-year growth in profit and the interim dividend of 20 kobo declared by the bank, but not the longstanding investment analyst and auditor.

He is more interested in the long than the short term.

Agholor noted that “people outside the profession would have been delighted with several highlights on the half year results, including ‘interim dividend,’ ‘operating profit,’ and many more. But, those who know would feel reassured that UBA showed dexterity by publishing audited interim results.”

He maintained that ‘audited’, on interim financial results implied underlying value.

“There are several interesting angles to appreciate the results from, but I will point out just two. The first is that the bank has demonstrated strong internal corporate governance standards. The second is that UBA has shown that its manpower is topnotch,” he noted.
He explained that auditors normally watch out for corporate governance issues so that they can protect stakeholders’ interests by ensuring operators’ compliance.

“So, for UBA to achieve complete auditing in time on interim basis, it implies that the bank is a due process-driven institution, with almost zero error margin permitted among employees,” Agholor explained.

He noted that corporate governance policies cannot be self-propelling.

“Kudos must go to the institution and the employees for showcasing loyalty and competence. There’s a certain high degree of proficiency that the workforce must have to support audited interim financial results.

“In a nutshell what this means is that UBA has in place strong internal quality controls, hired and trained the right human capital to the level where each person knows what to do and is delivering on it,” he added.

Auditing, Agholor noted was largely investigative and consistently aimed at protecting the interests of absent stakeholders, which explains the demand for high integrity and thoroughness from auditors, which can never be time friendly.

“For the auditors to have been able to round-off due diligence and append their names to the financial results speaks volumes about the inner strength of the bank,” he noted.

Weeks ago, UBA released an audited half-year results, for the period ended June 30, 2021, showing a 5.1 per cent year-on-year, growth in gross earnings to N316.0 billion, year-to-date, total assets growth of 8.0 per cent to N8.3 trillion, whilst profit before tax grew 33.4 per cent YoY to N76.2 billion.

Consequently, the bank declared an interim dividend of 20 kobo per share, on the basis of basic and diluted earnings per share of 169 kobo for the period.

In a related development, days after the release of the audited H1 2021 financial statements, global rating agency, Fitch Ratings affirmed UBA’s long-term issuer default rating at ‘B’.

In the report, the agency disclosed that UBA’s national short-term IDR had also been upgraded to ‘F1+(nga)’ from ‘F1(nga)’, a reflection of “the bank’s continuing solid funding and liquidity profile, which is a rating strength.”

In what looks like being in tandem with Nigerian’s financial analysts’ position, Fitch stated, “The outlook on the bank is stable.”

On the financial results, UBA’s Group Managing Director/Chief Executive Officer, Kennedy Uzoka, said, “This has been a strong first half for us, as global economic recovery exceeded expectations, creating a positive rub-off on consumer and corporate confidence, savings, and investment activities.

“We saw this positively impact our business, as we continued to leverage our key strategic levers – People, Process and Technology, and our Customer 1st Philosophy to revolutionise customer experience in UBA.”

While Uzoka and Agholor agree on people and process, industry watchers hold that technology and customer satisfaction are primary drivers of today’s businesses, particularly the financial services segment.

Uzoka added, “Our H1 2021 performance reflects our progressive efforts in building on the strong momentum that we started the year with.
“As a purpose-driven organisation, we remain resolute in our drive for sustained growth in customer acquisition, transaction volumes and balance sheet, as we consolidate our ‘Africa’s Global Bank’ market position in the years ahead, uplifting livelihoods across the continent.”

Similarly, UBA’s Group Chief Finance Officer, Ugo Nwaghodoh, said, “Our overarching goal is to achieve marked improvement in our earnings quality, maintain positive operating leverage, and a topnotch asset quality.”

Fitch, in the report, noted that, “UBA’s asset-quality losses had been limited to date and net loans remained low at 32 per cent of total assets at end-1H21.”

In addition, “asset-quality metrics improved in 1H21, with the impaired (Stage 3 under IFRS 9) loans ratio falling to 3.5 per cent at end-1H21 (2019: 4.8 per cent),” Fitch stated.

The Fitch report also pointed out that total reserves coverage of impaired loans for the bank rose, to 95 per cent, the highest among the peer group, in the period under review.

“Our asset-quality assessment also considers UBA’s lower oil and gas exposure – at 13 per cent of net loans compared with the sector average of 30 per cent – and high exposure to Nigerian government securities,” Fitch added.

The global rating agency also stated that remarkable improvement in earnings as pointed out by Nwaghodoh remained largely achievable.

It stated that “UBA’s profitability metrics have been consistently strong through the cycle. The bank reported an increase in its operating profit,” in H1 2021.

“It expressed the view that UBA’s transnational spread conferred on the bank an added advantage which could help it ride the storms of the Nigerian economic environment.

“UBA’s geographical diversification provides some cushion to the pressures in Nigeria,” Fitch stated.

Uzoka, appeared aligned with Fitch’s position, when he said, “The benefits of Pan-African business diversification accruing to the Group is once again evident, with gross earnings and interest income growth of 5.1 per cent and 8.3 per cent respectively, despite the low yield environment in our largest market, Nigeria.”