UBA: Growth Driven by In-depth Fundamentals

Kayode Tokede

Explain why UBA should remain investors’ toast and the key factors driving the company’s performance on the Nigerian Exchange.

United Bank for Africa Plc (UBA) has improved on Nigerian Exchange Limited (NGX) over the years backed by management’s drive to grow its Pan-African franchise and remain investors toast.

The financial institution has displayed well-entrenched risk management and strong corporate governance practices, among others that have impacted on its stock price on the bourse.

Specifically, the stock price of UBA has appreciated by 96 per cent per share Year-till-Date (YtD) to N14.9 per share as of July 21, 2023 from N7.6 per share it opened for trading this year.

This means investors who invested in the stock of UBA have reap 96 per cent of their investment in terms of stock appreciation.

UBA is the second highest gainer in YtD, after   Access Holdings (115.88 per cent) as listed Tier-1 banks continued to rally on the bourse amid Central Bank of Nigeria (CBN) foreign exchange policies. 

The market capitalisation of UBA reached N509.57billion as of July 21, 2023 from N261.6billion it closed in 2022.

The group’s return on investment increased significantly, backed by sustained shareholders interim and final dividend pay out, a major contributing factor driving its stock price.

Key drivers of what make UBA’s stock investors desire on NGX include: best in class corporate governance & risk management framework, strong financial profile delivers high Return on average Equity (RoaE), high quality diversified, low risk asset portfolio, pioneer in digitisation with a growing customer base, among others.

Corporate governance,  risk management

UBA over the years has maintained a well-entrenched risk management and strong corporate governance practices, contributing to the brand expansion and collaborations.

This contributed to its acceptance into the premium board of the NGX. The financial institution’s robust regulatory understanding and interface led by dynamic management team across geographies played critical part in its corporate governance and expansion across Africa.

The Pan-Africa institution is among leading banks in maintaining low cost of risk, a reflection of effective cost management.

Cost of risk stood at 0.8per cent as of first quarter ended March 31, 2023, rated among the lowest of listed Tier-1 banks in Nigeria.  Cost of risk had closed the 2022 financial year at 0.6 per cent and in 2021, it was at 0.4per cent.

Also, UBA’s Non-Performing Loan (NPL) closed Q1 2023 at 3.4 per cent and 125.4per cent NPL coverage as at the period under review.

In 2022 financial year, UBA’s NPL ratio was at 3.1 per cent from 3.6 per cent in 2021 and it is coming on the backdrop of domestic/foreign operation business challenges and increased loan book.

In addition to risk management framework, UBA is well-capitalized and compliant under Basel prudential standards with Capital Adequacy Ratio (CAR) at 28.3 per cent as of December 31, 2022, and it is providing a sufficient buffer for emerging opportunities.

Financial profile delivers high RoAE

UBA remains investors toast with its impressive financials that have continued to deliver value. The financial institution is the 3^rd largest bank by total assets, total deposits, and shareholder funds in Nigeria.

UBA closed 2022 with total assets of N10.86 trillion, a 27.1per cent increase from N8.54 trillion reported in 2021. The increase in total assets is driven by 28.1 per cent and 21.4per cent increase in customer deposits and loans to customers, respectively.

The 28.1per cent growth in deposits to N9 trillion in 2022 from N7.02trillion in 2021 is attesting to high service quality & customer confidence, while loans to customers stood at N3.44trillion, a 21.4 per cent from N2.83trillion reported in 2021.

Customer deposits continue to dominate the Bank’s funding mix (83per cent) with a 22.9per cent YoY deposit growth.

This demonstrates combined efforts towards deepening wallet share of corporates, commercial and retail customers. The remarkable deposit growth (mostly low cost) enabled the funding of investment securities and other earning assets.

On RoAE, UBA closed 2022 with a strong profits growth that impacted on RoAE – 22.65per cent as of Q1 2023 with consistent growth in earnings (17per cent CAGR 2020 – 2022FY). ROAE was at 19.7 per cent in 2022 from 15.6per cent in 2021 on the back of significant increase in profit.

UBA had reported N200.88billion profit before tax in 2022, an increase of 31.2 per cent from N153.07billion in 2021, while profit after tax stood at N170.3billion in 2022, an increase of about 44 per cent from N118.7billion reported in 2021.

Its stable & sticky deposit base with low funding costs and robust risk management have led to improved profitability. The group-wide efficiency efforts supported the path to enhanced profitability and it has affected investors’ surge demand.

 Low risk asset portfolio

The management of UBA over the years have continued its diversification strategy across Africa and its impact felt in profit accretion.

Increased geographic diversification has contributed about 43per cent earnings & 44 per cent it is assets from Africa (ex-Nigeria) and rest of World.

The Executive Director/Chief Executive Officer, UBA, Abiola Bawuah had disclosed recently that the subsidiaries leverage digital offerings and products across the board to gain large market shares across the different regions of operations in Africa.

Bawuah, noted that notwithstanding the impact of devaluations and double-digit inflation in Nigeria and a number of other African countries where the bank operates, the subsidiaries have been performing well, contributing significantly to the growth and development of trade, infrastructure and finance on the continent.

Business model diversification of UBA revealed that its revenues are driven from corporate that contributed 34.3 per cent; retail, 38.9per cent and Treasury & Capital Markets, 25.9per cent

UBA has remained preferred partner for multi-nationals and sector leaders and predominantly deposit funded with significant room for growth.

Digitisation and growing customer base

UBA has remained leadership in technology as its LEO is the first AI Bot launched in Financial services in Sub-Saharan Africa.

Leo is UBA’s digital financial assistant deployed to help customers meet their banking needs quickly, conveniently, and seamlessly; right inside their favourite chat apps like WhatsApp, Facebook Messenger, and Apple Business Chat.

The pan-African bank is the 2nd largest acquirer in the industry with over 500,000 POS terminals and processing over 25million transactions.

UBA mobile app processes over 60million transactions monthly and currently ranks 2nd highest in the industry in Nigeria. Recognized for innovation in African banking (Asian Banker and Finnovex Awards, 2019).