UBA shows strength in Q1 amid economic downturn

United Bank for Africa Plc, the lender operating in 19 countries on the continent has shown strength in the first quarter of the year as it remained profitable amid a combination of lower oil prices and a weak currency.

The stock market reacted to the bank’s stellar performance as stock price was up (+1.25) to N3.25, on the floor of the bourse.

For the first three quarters through March 2015, UBA’s net income remained flattish at N16.98 billion as against N16.95 billion as at March 2014.

Net interest income increased by 11.82 percent to N34.42 billion in March 2015 from N30.78 billion.

The growth in net interest income was driven by a 26.39 percent drop in interest expense despite high interest rate environment.

Analysts had anticipated weak financial results of lenders in the first quarter of the year on the back of a harsh and unpredictable macro environment.

The first quarter financial results of  Ecobank Transnational inc; African’s most geographically diverse lender, showed net income dropped by 34 percent to N16.21 billion while tier one lender Zenith bank had profit dip by 4.01 percent to N26.57 billion.

Lenders in Africa’s largest have been grappling with plummeting price of crude and the weakening of the naira.

They are also exposed to oil and gas sector risks as collateralize assets have lost value since loans were granted to oil companies when prices were high.

Asset quality may also go weak as NPLs may rise.

Growth in Nigeria slowed to 2.8 percent last year, the weakest level since 1999 and down from 6.2 percent recorded in 2014.

Inflation rate increased to 12.80 percent in March from 11.40 percent in February, signalling a potential rise in interest rate by the apex regulator in order to curb inflation.

“The asset quality impact is more difficult to estimate, but we expect an increase in cost of risk (CoR) to 2.4 percent on average in FY16, vs 1.7 percent in 9M15,” said Adesoji Solanke, head of research renaissance capital in a recent note to Businessday.

“The outlook appears grim and management teams allude to this but in our view, the banks are not reflecting this sufficiently in their guidance,” said Solanke.

Despite the economic downturn, UBA was able to minimize costs as total operating expenses fell by 1.19 percent to N32.14 billion in 2015 compared with N32.53 billion as at March 2014.

Cost to income ratio was down by 7 basis point to 63.98 percent in the period under review.

The ratio gives investors a clear view of how efficiently the firm is being run – the lower it is, the more profitable the bank will be.

UBA plans to expand to Angola and South Africa as the lender continues to seek high interest yielding assets with a view to increasing its share of the market.

BALA AUGIE