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UBA banks on African operations to retain growth momentum

By on September 8, 2013

Amid the rising cost of operation occasioned by the prevailing stringent conditions, United Bank for Africa Plc has continued to reap bountifully from its spread in the African market, reports Festus Akanbi

With many banks coming under pressure from the Central Bank of Nigeria’s (CBN) cut on banking fees, UBA’s African operations are providing a buffer to its earnings.  UBA Plc has operations in 18 African countries, besides Nigeria. The bank’s foresight in spreading across Africa is now yielding fruits as recent CBN policies put pressure on the earnings of Nigerian banks.

The CBN, in the last few months, has cut the Commission on Turnover or CoT by 40 percent to N3 per mil from the previous N5 per mil with a target to phase out CoT totally by 2016. The apex bank has also directed banks to fix interest on savings at a minimum of 30 percent of the Monetary Policy Rate (MPR), effectively moving up interest rate on savings to a minimum of 3.6 percent. Other policies that are having a negative impact on Nigerian bank earnings include the rise in Asset Management Corporation of Nigeria (AMCON) levy from 0.3 percent to 0.5 percent of assets and the significant increase in cash reserve ratio (CRR) on public sector deposits from 12 percent to 50 percent.

Nigerian bank earnings have thus come under significant pressure from the different policies, which have seen many banks experience drop in earnings growth and profits in the released financial results for the first half of the year ended June 2013. However, UBA is one of the few Nigerian banks that have been able to retain its growth momentum for the first half of 2013 despite the pressure on earnings and increased cost of operations arising from the CBN policies. Analysts link the bank’s resilience to its extensive operations across Africa. The bank’s 18 African subsidiaries outside Nigeria contributed an average of 20 percent of first half deposits in 2013.
“The bank’s operations across Africa are a significant advantage now that earnings are coming under pressure in Nigeria.  With most of those subsidiaries now coming into their own, whatever earnings are lost in Nigeria, can be made up from the African operations,” said one analyst familiar with the bank’s operations.   “UBA’s net interest margin was largely stable at 5.8 percent despite the regulatory induced pressure on industry earnings,” said UBA CEO Phillip Oduoza, during the half-year presentation by the bank to investors.
“We expect to see improvement, following recent and ongoing loan book expansion,” he explained.

The bank’s presentation to investors showed that its loan book for the first half of the year grew a significant 10.7 percent to N761.2 billion compared to the position as at full year 2012 and a higher 14.3 percent when compared to the position as at first quarter of 2013, indicating an increasing appetite to create new risk assets.

A significant proportion of the bank’s loan book, an average of 60 percent, is directed at corporate clients with another 18 percent going to retail customers, the bank’s presentation to investors’ shows.

Impressively, despite the increased appetite for risk assets, the UBA group asset quality is one of the best in the Nigerian banking industry, with non- performing loans ratio at an industry low of two percent, well below the CBN recommended threshold of five percent.

The low non-performing loan book is a result of the aggressive clean up by the bank’s management of its loan books recently and heightened attention on the risk management process especially credit risk.  Insiders say the bank has put in place a rigorous credit approval process that ensures only high quality credits are created.

For the first half ended June 2013, the UBA group was able to grow its earnings by a significant 16.7 percent to N126 billion as of June 2013 from N108 billion in June 2012. Within the same period, the bank’s operating income rose to N89 billion, representing a growth of 12.4 percent while profit for the period rose an average of 9.9 percent to close at N28 billion.

The bank also had an impressive growth in deposits within the period, an indication of increasing depositors’ confidence in the brand. Deposits stood at N2.02 trillion as at the end of June 2013, an impressive 13.5 percent increase from the N1.78 trillion as of June 2013. This is despite the increasing competition and tightening in the regulatory space.

The UBA group closed the first half of the year with total assets of N2.43 trillion, inching closer to its target of taking over the number one position in the Nigerian banking industry. Including off balance sheet items, the UBA Group total assets stood at a higher N2.85 trillion.
UBA Plc has the highest number of African subsidiaries of any Nigerian bank and had the foresight to expand well ahead of other banks that are still at the early stages of building their African operations.  The implication is that while other Nigerian banks still require years for their African operations to become profitable, majority of UBA’s African operations are already profitable and contributing to the UBA Group’s bottom line.

The UBA Group operates in 19 African countries including Nigeria and also with business offices in New York, Paris and London, serving more than seven million customers from 700 business offices spread across the 22 countries.

 

 

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