UBA’s increased lending shows resilience amid headwinds
The Monetary Policy Committee (MPC) at its last meeting on July 27, 2021, applauded the continued resilience of the banking system in the face of severe shocks to both the domestic and global economies.
Covid-19 was one of the major headwinds that has disrupted the global economy and many other companies but the banking sector has shown resilience due to increased buffers thanks to the Monetary Authority.
Nigeria’s banking sector resilience was demonstrated in its strong Prudential indices and credit extension to the real sector of the economy, for which the members of the committee encouraged the banks to extend more credit to consumers and firms to enhance consumption and production activities necessary to strengthen the recovery.
The industry’s Capital Adequacy Ratio (CAR) and the Liquidity Ratio (LR) both remained aboUBA’s increased lending ve their prudential limits at 15.5 and 41.3 per cent in June 2021.
Non-Performing Loans ratio (NPLs) of the sector at 5.70 per cent in June 2021 showed progressive improvement, compared with 6.4 per cent in June 2020. The Committee, however, urged the Central Bank to sustain its tight prudential regime to bring the NPLs below the 5.0 per cent prudential benchmark.
According to the CBN, aggregate credit of the banking sector at the end of May 2021 stood at N24.23 trillion, compared with N22.68 trillion at the end of December 2020. This represents a year-to-date increase of N1.55 trillion.
This was largely due to CBN’s Loan to Deposit Ratio (LDR) policy and increased credit demand by businesses and households as economic activities picked up following the lifting of COVID-19 restrictions.
A look at the first quarter (Q1) of 2021 financial results of the sector showed that eight Nigerian banks gave out loans and advances worth N760 billion in the period in an effort to stimulate economic growth constrained by numerous headwinds.
The banks include United Bank for Africa (UBA) Plc Access Bank Plc, FBN Holdings Plc, FCMB Holdings Plc, Fidelity Bank Plc, Stanbic IBTC Holdings Plc, United Bank for Africa (UBA) Plc, Wema Bank Plc and Zenith Bank Plc.
UBA granted a total of N178 billion credit to its customers, in the three months under review to put its loan portfolio to customers at N2.733 trillion, from N2.555 trillion.
UBA has maintained strong asset quality consistently during the last four years and has managed recent crises better than its peers, according to Coronation Asset Management in a recent report on the banking sector.
The bank’s NPLs fell from 6.7 percent in FY17 to 4.8 percent in FY20, below the statutory limit. The bank’s CoR of 0.8 percent in FY20 was also better than most of its peers.
“In 2021E, we do not anticipate a significant deterioration in asset quality. However, UBA has a relatively high loan-book exposure (N242.94bn) to the power sector – 9.1% of its loan book. Given Nigeria’s power sector challenges, we view this as a risk to our investment case. Nonetheless, we are confident that UBA can absorb impairments in this area, given its profitability and equity base,” the report stated.
According to the report, the management is not aggressive on risk-asset creation in the near term due to the current weak macro environment. However, management still sees significant headroom for retail loan growth and has plans to take market share in the high-margin retail lending space.
UBA is aggressively driving its recently launched Click Credit, which has gained significant acceptability across its subsidiaries. Management plans to grow retail loans to N1.0trn in the medium-to-long term (FY20: N181.08bn).
“We model 15.0% loan growth (unadjusted for FX devaluation) for 2021E (2022E-2024E: 6.3% on average), and we expect NPLs to average 4.0% over 2021E-2024E,” the report said.
Kennedy Uzoka, group managing director/CEO, said, “Despite the tumultuous impact of Covid-19 pandemic globally and across our 23 countries of operation, we created N519.0 billion additional loans as we continued to support our customers and their businesses”.
He said the bank’s passion for Small Businesses and great ideas has never been in doubt and is evident in the firm support given the business community as its loan products are tailored specifically to meeting the varying needs of all its customers.
The bank’s capital adequacy and liquidity ratios stood at 22.4 per cent and 44.3 per cent, well above the respective regulatory minimum of 15 per cent and 30 percent.
“Our primary strategy will continue to focus on providing excellent services from our customers’ standpoint, putting the customer first always. Looking ahead, I am inspired by the achievements we have made since the launch of our transformation programme,” Uzoka said.
Looking ahead, Uzoka was inspired by the achievements the bank had made since the launch of its transformation programme.
“We have expanded market share considerably across the geographies where we operate and are consolidating our digital banking leadership in Africa. We will continue to leverage our diversified business model and dedicated workforce to further strengthen our position as ‘Africa’s Global Bank,” he said.
Speaking on the bank’s performance, Ugo Nwaghodoh, Group Chief Financial Official, said the persistently low-interest-rate environment in 2020 exerted significant downward pressure on margins. Notwithstanding, the bank’s interest income for the year grew by 5.7 per cent (to N427.9 billion), driven by 8.2 per cent and 7.5 per cent year-on-year growth on interest income on loans and investment securities respectively.
“Our interest expense declined by eight per cent (to N168.4billion) driven largely by a 34.2 per cent decline in interest expense on customer deposits in our Nigerian operations, bringing down the Group’s cost of funds to 2.9 per cent, from four per cent in 2019,” Nwaghodoh said.
Anant Rao, Group Head Consumer Lending, who gave an insight to the bank’s array of loan products changing the dynamics in the industry, noted some of the products and intrinsic benefits to customers as he said Click Credit is one of the bank’s vibrant facility, which seamlessly supports customers.
He said it is an automated loan with no form of documentation, paperwork or queue, adding that customers can get up to N1 million instantly and pay through a period of 12 months.
This loan product of UBA, he said is known for speed, efficiency and competitive rate. This product is available to all salaried customers. Customers can apply by dialling *919*28#, sending “Loan” to Leo and clicking on the “Click Credit” feature on the mobile app or Internet banking.
On Asset Finance, which is one of the bank’s products, was designed to facilitate the purchase of physical assets ranging from household appliances to alternative power solutions and devices by our retail customers through approved partnering vendors, giving them the convenience to pay over a period. Customers must be employees of the bank’s approved counterparties.