In the last few decades, the Nigerian Bankosphere has been on a roller coaster ride, ala a race to the top. The prize? The most profitable bank in Nigeria . In the first half of 2023 , on the back of a hefty earnings and springing profits, UBA ,indeed , has clinched it , leaving Zenith Bank , the traditional winner of that laurel , behind it . Not only Zenith Bank was displaced. GT Bank and its recent challenger , Access Bank were overtaken suddenly in the first six months of 2023 .
UBA, a true banking behemoth, had worked effortlessly to a true profitable continental leader. The growth in its profit was ,no doubt, seismic and enough to rank it among one of the most best performing in the industry.
To clinch that enviable laurel , the bank had to grow and leverage its assets better than ever .Total assets zoomed to N15.4 trillion mark in the twelve months,a 42% increase. .A puffy assets level could indicate improved strengths in mopping up transactions, including a better position in maturity transformation- the stuff banks are best suited for. It can also mean that the bank has applied some elastic to its wings in the form of more customer touch points, branches and Point of Sale devices. For UBA, it was all of these and more.
The Group delivered a 164 percent phenominal growth in its gross earnings which rose to N981.78 billion as of June 2023, up from N372.36 billion recorded in June 2022 ; its operating income surged by 206.3% to N783.96b from N256b with foreign currency revaluation gains and fair value gain on derivative becoming a clear game changer at ₦377.6bn or 1,942% compared to ₦20.5bn in H1’22 .This specifically drove its operating income uniquely . Also, in the first half of 2023 its operating income was driven by its interest income by nearly 56% .What bolstered its interest income was the massive increase in its loan volume. All the above aided its capability to grow swiftly and drive its bottom line.
Consiquently , it posted the biggest profit before tax ever , amounting to N404 billion, an increase of 371 percent compared to the N85.75 billion and profit after-tax profit of N378.2 billion , a leap of 437.8 percent from N70.33 billion.
To cement its place as the most profitable bank,its return on equity (ROE), and return on assets (ROA), improved to 57.4 per cent and 5.77 per cent in 2023 half year ended June from 19.7 per cent and 1.76 per cent respectively from the corresponding period 2022
Also , its chain of returns swiftly trended up in the period; operating profit margin moved from 69percent to 80percent, suggesting that every naira expended yielded 80kobo in operating profit. This is ,indeed , a record breaking performance.
Consequently , its basic and diluted earnings per share skyrocketed . A good way to determine earnings to the investor is the Earning Per Share (EPS), which is the monetary share value, i.e., 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 UBA stood at N10.95 per share from N1.98 per share in the comparable periods
Although , EPS does not indicate cash value to the investors , even UBA’s dividend yield which does so is impressive in the period under review. The dividend yield of UBA was 8.1 % , which means that investors received higher cash yield per invested share compared to the previous year .
A final measure to consider is the Price to Earnings Ratio (P.E.) which is the Price of the stock divided by the earnings per share. UBA posts a lower P.E of 1.2x . P.E. is useful in determining how “cheap” or expensive a stock is. What this means is that with the current rates of earning in UBA , it will take just 1.2 years to match the market price of its closest competitors’ shares. In essence, United Bank shares are cheaper and hence it is still very attractive to every valued investor because of its potential for a future capital gain.
UBA Stock Market Performance
The above factors remain the key drivers of this bank share price in the recent time . The table below explains better how UBA has made its shareholders millionare suddenly this year .
1WK 4WK 3MO
+3.31% +12.5% +20.8%
6MO 1YR YTD
+104% +145% +126%
The current share price of United Bank for Africa (UBA) is NGN 17.25. UBA closed its last trading day (Tuesday, October 10, 2023) at 17.15 NGN per share on the Nigerian Stock Exchange (NGX), recording a 0.3% drop from its previous closing price of 17.20 NGN. United Bank for Africa began the year with a share price of 7.60 NGN and has since gained 126% on that price valuation, ranking it 29th on the NGX in terms of year-to-date performance. Shareholders can be optimistic about UBA knowing the stock has accrued 12% over the past four-week period—15th best on NGX.
United Bank for Africa is the most traded stock on the Nigerian Stock Exchange over the past three months (Jul 12 – Oct 10, 2023). UBA has traded a total volume of 3.46 billion shares—in 28,545 deals—valued at NGN 51.1 billion over the period, with an average of 54.9 million traded shares per session. A volume high of 962 million was achieved on July 20th, and a low of 6.39 million on August 25th, for the same period.
The above performance in the first half of the current financial year ,indeed , sent shockwaves across the industry and sprung a big surprise . Moreover , the irony behind this seismic performance is that it happened when the forces from the inclement operating environment bitted harder on every player ; it happened within an ‘environment’ fraught with plenty of hick ups . Nigeria’s economy is on the descendancy in the fiscal year, hardly creating a little or no leeway for corporations to head north in their financial performance.
Economic data confirm this as much . Though the economy has been on 11th consecutive quarter of economic expansion at a GDP growth rate of 2.51% in Q2 2023, Nigeria is not in a good performing frontier with external reserves falling by about $2.8 billion in the first half of 2023, reaching around $34.1 billion in June, public debt maintaining an upward trend as debt stock hit N49.85 trillion as at March 2023 and inflation reaching 22.79% in June 2023, up by 4.1% from the 18.6% recorded in June 2022.
However ,despite the above limiting conditions of operations, the bank was able to expand growth levels uniquely compared to the year before.
This should not spring any surprise . UBA’s mission has provided employees and stakeholders with clarity about what it is fundamentally there to do just as its vision has expressed its aspiration that would enthuse, gain commitment and stretch its performance . UBA’s mission is to be a role model for African businesses by creating superior value for all stakeholders, abiding by the utmost professional and ethical standards, and building an enduring institution . And its vision is be the undisputed leading and dominant financial services institution in Africa
With the above sterling performance, this is , indeed , a celebration time for UBA as it turned the table to emerge the most profitable bank in Nigeria, outperforming its competitors as confirmed by the above critical performance ratios
The above performance was not ,however, that easy as the bank battled hard the inclement operating environment with dexterity and experience.
The question remains , how did this happen in this highly inclement operating environment? First , the new strategic position of UBA could be associated with its new leadership and CEO whose work evokes brilliance , resilience , resourcefulness and hardworking . The man no doubt , has resolved to lift the banner of his bank to a lofty height irrespective of the tough challenges. .
One highlight of the bank’s performance since he came on board is his savvy for balance sheet management ; its new CEO has kept on sustaining , and where possible ,enhancing profitability while controlling and limiting different risks inherent in banking as well as complying with constraints of monetary policy prudential regulation and maintaining liquidity , solvency and deposit safety .
Two key hard nuts before him is the ever rising costs of funds and credit risks that positioned themselves as potential spoilers .Bu despite the skyrocketing expenses and loans loss impairment charges , the bank expanded its profit driven by its earnings from the ever volatile trading segment of its business
FIRST HALF RESULTS :HOW UBA OUTPERFORMS COMPETITORS, EMERGES THE MOST PROFITABLE BANK
UBA, Nigeria’s new biggest bank by profitability, had gross earnings in the first half of 2023 increased by a whooping 163.7% and wrenched up bottom line with a deft application of management’s experience beginning from leveraging its ballooning operating income driven by its trading income, suppressing its operating expenses and non performing loan ratio .
By hauling up net interest income by 56.7 percent to N278.11 billion from N177.46 billion, the bank showed its capability to squeeze water from stone
Its hardest challenge is the concomitant rising cost of funds. This is indicated by 88% increase in its interest expenses , a big potential spoiler to the bottom line . . But the above potential spoiler was mitigated by the massive absolute figure enabled by its sizable loan volume deployed.
This is not only challenge. Another threat came from the loan loss impairment charges which skyrocketed to N154billion from N12billion
Sequel to the above damage from the interest rate and credit rate risks , the bank’s net interest income had to slip by 27% percent to N124.2 billion from N169.2 billion . The negative impact of these spoiler came up vividly on its cost-of-risk which rose to 3.40% from 0.38% and its net interest margin which improved marginally to 5.99% from 5.53%
But the above potential spoilers were frustrated by the management of UBA. The strategy that achieved this is not unusual in the corporate world but came from an unusual segment. The bank resorted to a conventional wisdom which a good manager of a financial institution or bank usually employs in a difficult period like this .It revved up its non -interest income items on its balance sheet because they help to stabilise earnings especially in a time the world or a country interest volatility is a factor .
Its non interest income increased by 380% to N 553b from N115b with Net trading and foreign exchange gain contributing 75% of the total . . Its fees and commission income which increased to N125.9b from N96.40b contributed 23 %
The bank’s non- interest income did not only frustrated the above potential spoilers from the core banking by its absolute figure , its impact on the cost to income and margins is historical in the operations of UBA. Its cost-to-Income Ratio stood at 28.9% as against 63.2% in the corresponding period of 2022 . This eventually boosted its Return on Average Equity at 57.4% as against 17.1% and its Return on Average Asset which improved to 5.8% compared to 1.5% last year
