UBA’s FY 2019 audited numbers showed Interest Income growth of 12% y/y to N404.8 billion, slightly above our estimate of N392.1 billion.

According to the group, the growth in Interest Income was largely supported by higher interest income earned on loans and advances to customers reflecting the growth in the bank’s loan book (Net loans to customers grew 20% y/y).

Like most other banks, we believe the strong double-digit growth in the bank’s loan book came on the back of management’s efforts in creating risky assets given CBN’s requirement that banks should maintain LDR of 65% by December 2019 (an upward revision from the initial 60% to be maintained by September 2019).

Interest Expense on the other hand, rose by 16% y/y to N182.9bn in FY 2019, in line with the increase in Interest Bearing Liabilities (up 15% y/y). Consequently, Net Interest Income grew at a slower pace, up 8% y/y to N221.8bn in FY 2019.  On a q/q basis however, Net Interest Income grew significantly, up 29% q/q on the back of the strong increase in Interest Income (up 15% q/q).

Non-Interest Income grew strongly (up 21% y/y) buoyed by increase in Net Fee and Commission Income (+22% Y/Y) and a growth of 20% y/y in other Operating Income (Net trading and foreign exchange income, Dividend income, Rental Income). On a q/q basis however, Non-Interest Income fell sharply, down 50% q/q, as Net Fee and Commission Income declined significantly (down 39% q/q). Other Operating Income also declined (N628 million in Q4 2019 compared to N7.3 billion in Q3 2019).

Impairment Charge grew significantly by 3.03x y/y and 2.27x on a q/q basis. The surge in Impairment Charge was due to the significant decline in recoveries in allowance for credit loss (N2.2bn in FY 2019 compared to N36.9 billion in FY 2018). Consequently, Cost of risk rose by 62 bps to 0.92% in FY 2019, which is above our estimate of 0.6%.

The bank recorded a 10% y/y growth in OPEX. The slower increase in OPEX, when compared to the growth in Operating Income (up 12% y/y to N346.3 billion), supported the improvement in Cost to Income Ratio (ex-provisions) to 62.7% in FY 2019 compared to 64.0% in FY 2018.

Overall, Pre-tax Profit grew 4% y/y to N111.3 billion while Profit after tax grew faster by 13% y/y to N89.1 billion (FY 2018: N78.6 billion), supported by a lower effective tax rate of 20% in FY 2019 compared to 26% in FY 2018. On a q/q basis, Pre-tax Profit fell 53% while Profit after tax declined by 70% y/y.

EPS came in at N2.52/s in FY 2019 (FY 2018; N2.20). ROAE was 16% in FY 2019, a marginal improvement from 15% in FY 2018.

The bank declared a final dividend of N0.80, bringing the total dividend in FY 2019 to N1.00. Based on the latest closing price of N6.45, the final dividend translates to a dividend yield of 12.4%.

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