None of those who invested their hard earned earnings in its 2007 initial Public Offer and right issues would forget in a hurry the huge misfortunes that befell them ;the stock bought at N35 has not hit close to that price in the last one decade and is now selling below N8.00 per share
It is, indeed , not just for fun that the United Bank for Africa, UBA Plc , prides itself “the global bank for Africa’’ . First, between a corporate size and performance in commercial organizations are the scale benefits or advantages of economies of scale . Two , it is an animating dream or the strategic intent to sell its size advantage to the whole world : an ambitious and compelling strategic intent that provides the emotional energy for its corporate journey. .
. UBA, a true banking behemoth , surely positions itself to capture certain advantages associated with bigness .Having a capacity to match the resources and global distribution of large competitors brings advantages. Large companies tend to devote a disproportionate share of their resources to training and education ; it also opens the door to many of tomorrow’s mega-opportunities. Most importantly, volume of output helps an organization to recover high cost of capital through economies of scale .
Sequel to those dreams , UBA has continued to build its size across the continent of Africa and complement this with the appropriate financial assets . It has total assets rising to N10.9trillion in 2022 from N8.5 trillion in 2021 ;it is the leading sub-Saharan African bank with over 21 million customers, 20,000 employees, and 1,000 branches across 20 African countries.
Unfortunately , however , despite the above potentialities of its size , when you peep hard into the interior workings of this behemoth , what one sees as the issues preoccupying the senior management of UBA , criteria and benchmarks by which progress is being measured , dreams and fears on the faces of employees and shareholders and other dynamics of its operating engine are far from any serious expectations .
One big fact that stares you in the face is that UBA is on the fast lane to becoming a shadow of its former self . It is now glaring that this financial supermarket that once bestrode the financial landscape as an industry leader is now in catch-up mode .
UBA ,once known to be influential in setting the new rules of competition in the industry, does not seem to be playing the same role again neither does it regularly defining the new ways of doing business, building new capabilities and setting new standards for customers satisfaction ;it is now less a rule maker than a rule taker within its industry, less intent on challenging the industry status quo than protecting it , not fully alert to the dangers posed by new ,unconventional rivals ; less keen at reinventing the current business model and regenerating core strategies as it is more at re engineering the core processes .
Moreover , its management seems to be more of a maintenance engineer keeping today’s business than an architect imagining tomorrow businesses while the balance between the hope and anxiety in the bank is more of fear ,at least from its shareholders’ perspective.
This is the fate of UBA in the last few years . Since its former CEO ,Tony Elumelu ,stepped aside as directed by the regulatory authorities after his ten year- tenure stipulated for every bank’s CEO , the bank has found it difficult to maintain its leadership momentum .
To some , to capture the strategic position of UBA as done above might be adjudged hash , but that is a fact . Or how could one tell the story of a corporate entity with the necessary and competitive physical and financial assets that fails to live up to its shareholders’ expectations relative to smaller competitors?
A comparative analysis of UBA with another tie one bank may be a better way to explain the above assertion .GTCO’s total assets as at 2022 ,for instance, stood at N6.5 trillion as against UBA’s N10.9trillion in 2022 while its total equity was N931b as against UBA’s N887
Despite its smaller asset size relative to UBA’s, GTCO has proved itself and has continued to dominate UBA for more than a decade with better strategic capability .This is palpable from the wide gap between the two in terms of profitability in the last one decade or more as UBA aspires and struggles helplessly to catch up with it . Between 2018 and 2021, UBA’s profit after tax inched up incrementally from N78.6 b , N89b , N118.7b and N109b compared to GTCO whose profit ranged from N184.7b , N196.9b , N201.4b and N174.8b within the same period .
From those profitability data above, two signals are sent to the industry’s stakeholders : Between 2018 and 2021 , UBA is nothing but a lame duck despite its huge asset size and its so called claim as the Africa’s global bank
The reason for the above less impressive strategic position of UBA is not unfathomable. While bigness is a resource , it may not necessarily deliver any competitive advantage targeted by any corporate entity unless appropriately deployed to create competence .
Since the strength or strategic capability of an organization is measured by values delivered to its stakeholders and not by geographical reach or size of its assets , UBA’s inability to generate competitive advantage, to outperform competitors and sustain leadership as expected is a function of its deficiency in the possession of unique resources and robust competences and could be pinned down to its current uninspiring strategic position .
The consequences of this are more palpable on its shareholders who are at the receiving end of the above uninspiring scenario than other stakeholders . Naturally, different industries or sectors have different stakeholder groups with different products or services features they value . .Although there are service features or stakeholder values at threshold level needed by each player to survive in business, there are certain features particularly valued by certain stakeholder groups where every player is expected to excel and outperform competition and these are the critical success factors ; every bank has to satisfy five main constituencies or stakeholders needs which are considered to be critical success factors or features particularly valued by different stakeholders groups
In banking one of these stakeholder groups is the surplus units or depositors from which it borrows . These units demand the best possible term in rates of interest and maturity structures and the maximum liquidity to enable them to have the funds back when they want them , or as agreed . The second constituency is the deficit units which borrow from the banks; they want to borrow when they need the funds and as cheaply as possible .Like the lenders or depositors , the borrowers also impose the obligation of maximum liquidity on the banks to enable them to obtain funds when they need them .
In addition to satisfying the surplus and the deficit sectors ,the shareholders must also be satisfied .The shareholders require maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed .To this is added the fourth constituency , the regulatory authorities ,whose interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements .
Finally, there is the community at large. As the provider of the environment within which it operates , the bank owes an obligation to the community to be a good corporate citizen, capable of maximizing the exploitation of the opportunities available and minimizing the threats in the environment .
UBA, no doubt , has continued to prove itself against all odds meeting some of the above critical success factors of its stakeholders highlighted above . A critical analysis of UBA’s books over some years shows the bank has continued to satisfy the liquidity of its depositors and borrowers as well as asset quality requirements of the regulatory authorities while the communities are equally satisfied in terms of social responsibilities without raising an eyebrow .
In the financial year 2022 for instance , the bank retained the confidence reposed on it by the banking public with 28.1% growth in deposits to N9 trillion , an attestation to its high service quality and customer confidence ; it also lived up to the expectations of the regulatory authorities with non performing loans moderated to 3.1%, on the back of increased loan book and strong capital adequacy at 28.3%, providing sufficient buffer for emerging opportunities while borrowers got better deal as loans to customers grew by 21% from N2.83trillion to N3.44 trillion
However , while the bank has conveniently lived up to those critical success factors satisfying some stakeholder groups like its depositors , borrowers , regulatory authority and the community at large , what exposes UBA’s uninspiring performances over the years and confined it to the back seat among tier one banks is its inability to outperform its competitors and deliver better value for money to its shareholders , the most critical stakeholder group’s success factor .
And this is raising concerns from its shareholders. To whom much is given much is expected. Shareholders require maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed.
The failure of UBA in this regards ,however , should not spring any surprise . Surely, when an organization fails to evolve a strong strategic capability that delivers a competitive advantage that could enable it to outperform competition, or unable to sustain its competitive advantage with unique resources or robust competence , its shareholders become the victim of the ugly scenario while it continues to play catch up game due to its inability to deliver better value for money to them.
In fact , UBA’s history of miserable value delivery to its shareholders is legendary and this is a key drawback on its leadership and brand image in the last few years . None of those who invested their hard earned earnings in its 2007 initial Public Offer and right issues would forget in a hurry the huge misfortune that befell them .
United Bank for Africa, Nigeria’s biggest bank then , created excitements in the capital market with the launch of its N54 billion hybrid offer. The mandate, which was one of the largest in recent times and a historic milestone for UBA, includes a Public Offer of 1,127,400,000 ordinary shares of 50k each at N35 per share and a Rights Issue of 423,600,000 ordinary shares of 50k each at N34 per share.
As at the time its stock was placed on technical suspension it was at N37.99 per share, indicating the public offer and rights issues were attractively priced at 8.5% and 11.7% discount respectively .
However , it remains a disastrous decision till today for those who bought its share at that price as the collapse of the capital market due to the 2008 and 2009 global financial meltdown led to a colossal loss for those investors that participated in the offer . Since then the price of UBA’s stock per share has failed to hit close to that peak . The stock bought at that price is now selling below N8.00 per share ,
Over the past year UBA stock under performed the industry with a shareholder return of -0.7% against its -2.5% and the market which returned 7.5% over the same period
One way to confirm UBA’s miserable or less competitive strategic position despite the competitive resources at the disposal of its management is to view its earnings power and what goes to its investors . A good way to determine earnings to the investor is the Earning Per Share (EPS), which is the monetary share value or what every share issued by the bank will receive from declared earnings. The higher the EPS, the more profitable the bank is. Full Year EPS for the United Bank for Africa in 2022 comes to about 4.84 per share, as compared to N6.14 for GTBank and 7.14 per share for Zenith Bank . This means that investors holding shares of GTCO and Zenith get 1.30k and 2.30 more respectively . Before the above sudden flight in profitability in 2022 , the basic and diluted earnings per share (Naira) for UBA were just too miserable relative to its peers in the last five years .
While in terms of EPS, a corporate value , UBA is not living up to the expectations , in terms of dividend yield which indicates the cash value to the investors, UBA in 2022 is a bit more competitive .Shareholders in UBA are paid slightly higher percentage as its dividend yield at 14% compared to GTCO’s 12.4% but slightly lower than Zenith Bank 14.6% .
However , its shareholders are usually getting highly disenchanted when it comes to UBA’s dividend payout . In 2022 , the same miserable payout was dished out its shareholders at 21% compared to 52% and 45% paid by GTCO and Zenith respectively ;this is the worst among tier 1 banks . Their attitude to the style of UBA may not be misplaced . While dividend yield is the more commonly known , many believe the dividend payout ratio is a better indicator of a company’s ability to distribute dividends consistently in the future as it is highly connected to a company’s cash flow.
A final measure to consider is the Price to Earnings Ratio (P.E.) which is the Price of the stock divided by the earnings of the stock. P.E. is useful in determining how “cheap” or expensive a stock is. Based on market price, Zenith Bank began the year 2023 with N24.00 per share this year while GT Bank stock per share traded N23.00 and UBA at N7.60 .
From the above figures , UBA posts the lowest P.E of 1.7 followed by Zenith Bank which posts a lower P.E of 3.4 while GTBank posts the highest P.E. of 3.9 . What this means is that UBA’s is the cheapest and with the current rates of earning in UBA , it will take less than 2 years to match the market prices of both GTBank and Zenith Bank shares.
However , this prediction depends on the fundamentals of UBA . Though P/E Ratio helps investors gauge the market value of a share compared to the company’s earnings ; currently , its fundamentals do not appear to align with this prediction relative to its peers ,at least when the reason why share price is low is under performing over some time is considered .
Investors are no fools, usually they like to know the underlying worth of an equity share before investing, knowing full well that risk, returns, cash flows, and corporate governance remain the various aspects through which they analyze each equity .
The above scenario is why UBA’s stock price has failed to be competitive and consequently the bank’s lower market value among tier 1 banks . Currently , its market value is the lowest at ₦268.5b. while Zenith Bank is the most valuable at ₦689.2b followed by GTCO at ₦532.6b . ; even Stanbic IBTC is more valuable than UBA at ₦461.3b
The prospect for future value is also not impressive as UBA’s forecast earnings growth at 6.3% per year is below the savings rate 12.3% .Its earnings at 6.3% per year are forecast to grow slower than the market’s 13.5% per year . Moreover , though its earnings are forecast to grow, but not significantly.
The irony is that while the shareholders , the goose that laid golden egg , are sentenced to absolute penury , most of the top management staff and board members are living in affluence. A report from a a top financial firm indicated that the MDs/CEOs of six listed Nigerian banks received an aggregate sum of N821 million as remuneration in the first half of 2022, a 17.4% increase compared to N699 million earned in the corresponding period of 2021. Mr. Kennedy Uzoka, the former Group Managing Director/CEO of United Bank for Africa (UBA) who resigned from the company board effective, on July 31, 2022 and handed over to Mr. Oliver Alawuba earned a sum of N128 million in just six months as emoluments from UBA, a significant increase from N70 million received in the corresponding period of 2021.
What a bank CEO earns should not bother any shareholder if the bank is delivering value for money for its shareholders and this should be reflected in the dividend paid and capital gain .
UBA CEOs in relative terms failed this test and this is clear from its books relative to some better run rivals . The bank has continued to exhibit traits more of a laggard than a champion ; its current management seems to be contended to follow than to lead as expected by its shareholders . In other words , the bank has continued to play catch up game than leading as it was known for in those days of Tony Elumelu ,its former CEO .
UBA is a victim of a strategic lacuna . A more comparative analysis of two tier 1 banks drives home this explanation on UBA, a bank staying on the treadmill for long . When GTCO ,one of the banks that demonstrate this better with smaller financial assets than others, is pitched with a bank like UBA it becomes easier to see clearly this lacuna . By its corporate strategic intent, GTCO has continued to demonstrate it could not be intimidated by the so called Africa’s global bank’s mantra . As opposed to UBA emphasis on its geographical and financial assets , the bank’s Managing Director and Chief Executive, Segun Agbaje often reiterates its bank corporate belief on resourcefulness : “we are not in the race for revenue and assets size but in competition for scaled overall business growth and underlying profitability”. This is confirmed by its asset size relative to UBA’s .GTCO’s total assets as at 2022 stood at N6.5 trillion as against N5.4trilion in 2021 while its total equity was N931b as against N883b .
From this perspective , the case with UBA is clear : bigness without stretch and leverage is obesity, just as smallness without stretch and leverage is impotence. GTCO’s dominion over UBA by wide margin in terms profitability could be linked simply to its management’s resourcefulness . What gives GTCO an edge over UBA are simply foresight, stretch, and leverage, all which provide the energy and rationale for proactive advantage building and industry re-engineering . A corporate entity that is deficient of these is bound to be in a catch up mode like UBA.
A detailed analysis of its books over the years exposes why UBA has failed to outperform competition , deliver better value for money or sustain leadership .
The problem with UBA remains its inability to reconfigure its profit engine : its deep seated beliefs about what business it is in, what it is delivering to customers , how money is made in this business , what assets and skills are critical , who its competitors are ,among others , is decisive factor that defines its fortunes .
As indicated earlier , it is only strategic capability or how resources and competences might create competitive advantage that is more critical in determining every company’s strategic position in any industry . And for an organization to create a competitive advantage, it must be delivering services that are particularly valued , performing better than its rivals and possess resources and competences that are robust to imitation .
The above are the traits of corporate leadership and the critical determinants of the relative qualities of each player’s ability to live up to what its stakeholder’s values. That is why the starting point for understanding strategic capability is an understanding of what stakeholders value .
However , it appears the problem with UBA is that it is not properly and competitively endowed with the necessary strategic capability to gain competitive advantage and outperform competition . Rather , the bank is focused more on restructuring or process innovation as the primary driver of profitability. However , these gains, if materialized at all, are often incremental or short-lived. The fact is that any corporate player that embarks on the above strategies or adopt such as its organization culture may find it difficult to gain leadership position.
Truly , its profit before tax increased phenomenally between 2021 and 2022 with a 31.2 percent growth, to close the year under review at N200.8 billion, rising from N153.01 billion recorded at the end of the 2021 financial year; its profit after tax (PAT) grew by 43.5 percent to N170.2billion in 2022, compared to N118.7 billion recorded the year before. However , maximum or adequate returns required on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed were still unfulfilled by the bank .
The bank must know , the race to competition should be perceived as a race to build competencies ,that occurs in three distinct, overlapping stages .While the first is the competition to foresight and intellectual leadership and the second stage is the competition to actively shape the emergence of that future industry structure to one’s own advantage. , the competition shifts to a battle for market share and market position with fairly well defined parameters of value ,price, cost and service . The race to competition is not simply to gain immediate market share by assets or geographical reach . UBA needs to rejig its profit engine to gain better advantage from foresight and intellectual leadership and shape the industry structure to its advantage for superior market performance .
