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UBA triumphs over regulatory headwinds as FY13 earnings spike



United Bank for Africa PLC (UBA) plc was incorporated on February 23, 1961 and was the first of the international banks operating in Nigeria at the time to be registered under Nigerian Law.

UBA provides corporate, commercial, consumer and investment banking, and investment management services.

Through a joint venture, UBA offers life insurance. The Bank operates in Africa, and has offices in the United States, the Cayman Islands, and the United Kingdom.

The bank has 32.98 billion shares outstanding with shareholders fund standing at N235.05 billion as at December 31, 2013.

Financial Results for 2013

United Bank for Africa (UBA), for the year ended December 2013 grew gross earnings by 20.34 percent year on year to N264.64 billion from 220.13 billion in the same period of the prior year (FY12).

Profit before tax (PBT) rose slightly by 7.78 percent y/y to N56.06 billion in FY13 compared to N52.01 billion as at FY12.

Despite the AMCON fees which all banks are mandated to contribute, and which has also been eating deep into the banks’ earnings base, UBA was able to record profits growth.

AMCON acts 2010 mandates all banks in Nigeria to contribute 0.5 percent of their total assets to it on a yearly basis. The contribution was 0.3 percent but was increased in August 2013 to 0.5 percent.

Furthermore, the Central Bank of Nigeria’s refusal to taper its tightening stance on the benchmark interest rate is also an additional cost crimping the growth potentials of commercial banks in African most populous nation Nigeria.

Higher effective tax rate in the period under review pressured profit after (PAT) as it declined by 14.91 percent y/y to N46.60 billion in 12M13 compared to N54.77 billion in 12M12.

Interest income for the year ended December 2013 spiked by 23.80 percent to N185.70 billion in FY13 from N150.0 billion as at FY12, while interest expense jumped by 41.25 percent to N82.47 billion.

In addition, net interest income in the review period climbed by 12.68 percent y/y to N103.23 billion as against N91.62 billion same period of the prior year (FY12).

The bank was able to reduce costs to the barest minimum hence enhancing efficiency of operation as operating expenses rose slightly by 5.13 percent y/y to N107.85 billion in FY13 from N102.59 billion in 2012 thus operating expenses ratio (OPEX ratio) reduced to 40.74 in 12M13 percent from 46.60 in 12M12 2012.

Return on Average Equity (ROAE) slid to 23.45 percent in FY13 as against 28.45 percent as at FY 2013, while Return on Asset (ROAA) remained stable at 2 percent in the review period.

Net margin, a measure of profitability and efficiency slumped to 17.61 percent in 12M13 from 24.88 percent in 12M12, while Net interest margin (NIM) remained flat at 5.90 percent.

Loans and advances to customers were up by 42.30 percent y/y to N937.62 billion in 2013 compared to N658.92 billion in 2012, while loans to deposit ratio increased to 43.37 percent from 38.31 in 2012- which means the bank has improved its risk appetite for loan growth.

Deposits from customers also spiked by 25.65 percent to N2.16 trillion in FY13 as against N1.72 trillion in the same period of the prior year (FY12).

UBA has expanded its assets base as total assets in the year ended December 2013 increased by 16.25 percent to N2.64 trillion as against to N2.27 trillion in the corresponding period of 2012.

Share Performance and Outlook.

The bank’s share price closed trading on the floor of the exchange at N6.98 on the 7th of April 2014.

The market capitalization of the bank was N230.21 billion on the same day.

Current Price Earnings Ratio and Estimated price earnings ratio were 4.59x and 4.25x respectively.

Additionally, Price to Book Ratio (PBR) and Price to Sales were 1.21x and 0.98x respectively.