April - June 2017 •
The Lion King
• 7
BY ABIOLA RASAQ
DEFYING MACRO UNCERTAINTIES;
UBA WAXING STRONGER!
BUSINESS
T
he year 2017 has been a mixed
bag for African economies, banks
and indeed markets. Whilst com-
modities such as crude oil have seen
modest price recovery, following
the volatility in 2016, cocoa prices
remained weak. In West Africa, con-
sumer good prices are beginning to
stabilize, after a highly inflationary
2016, however the lagged impact of
drought, politics and structural factors
are brewing inflationary pressures in
East Africa. From the West to the East
coast, the asset quality of the banking
sector is showing signals of deteriora-
tion, with sector non-performing loan
(NPL) ratio rising to 10%, 14% and 18%
in Kenya, Nigeria and Ghana respec-
tively. Broadly, markets have been
relatively bearish, with yields on fixed
income instrument rising to new-highs,
in line with the inflationary trend and
broader macro uncertainties. Equity
markets have also been soft, just as
local currency units remained rela-
tively weak.
Interestingly, amidst the mixed trend,
United Bank for Africa Plc (UBA) is wax-
ing stronger, breaking new grounds
and achieving new milestones. In the
first quarter of the year the Group
reported an unprecedented N101 bil-
lion gross earnings within the first three
months of the year, a 38% year-on-
year growth compared to the cor-
responding period of 2016. More so,
the Group leveraged its enhanced
operational efficiency to deliver N25.5
billion in profit, an impressive 41% year-
on-year growth when compared to
the performance of 2016. In an indus-
try with rising NPL ratio, UBA leveraged
its prudent risk management practice,
sound governance and diversified
portfolio to sustain its healthy balance
sheet, thus maintaining one of the
best asset quality metrics in the sector;
2% cost of risk, 3.9% NPL ratio, and a
135% provisions coverage.
Reflecting its strong profitability, capi-
talization and liquidity, the Group
prides a BASEL II capital adequacy
ratio of approximately 21% in the first
quarter of the year, with average
liquidity ratio of 42%, well above the
regulatory requirement of 15% and
30% respectively. This balance sheet
metrics, which reflects the strength
and broad financial capacity of UBA
are better appreciated when put in
the context of peer banks, which are
either seeking additional capital or
pressured by the tight market liquidity.
It’s a harvest period for UBA’s invest-
ments outside of Nigeria, as the
Group’s Africa businesses (ex-Nigeria)
contributed over a third of earnings
in the first three months of the year,
reinforcing the diversification benefit
of the Group’s painstaking investment
in these attractive markets.
Beyond the financial performance,
the bank added another feather to
its cap, Standards and Poor’s (S&P), a
leading global rating agency initiated
a credit rating on UBA, assigning a
rating of “B” on the Bank. This rating,
which is currently the highest for any
Nigerian bank, ranks at par with S&P’s
rating on the Nigerian Sovereign, thus
reinforcing the strong fundamentals of
UBA and its credibility.
With some 80% of its deposits com-
ing from low cost savings and cur-
rent accounts, UBA recently deep-
ened its funding base with the suc-
cessful issuance of a debut USD500
million Eurobond, which attracted
investments from diverse geogra-
phies across the world, including the
United States, United Kingdom, Rest
of the Europe, Asia and the Middle
East. Notably, the Eurobond was 240%
oversubscribed, the highest level of
demand for a debut Eurobond by a
Pan-African bank, with Nigerian origin.
In recognition of the strong fundamen-
tals of the Bank and compelling pros-
pect, the shares, which are listed on
the Nigerian Stock Exchange rallied
33% in 2016, defying the 6% loss in the
overall market index. More so, as at
8th June, the shares of UBA has gained
96% in 2017, reinforcing the strong
investor confidence in the Bank. This
capital gain on the share price is in
addition to the consistent dividend
payment on the shares, an average
of 13% dividend yield over the past
two years. More so, global analysts at
reputable research houses, such as
HSBC, Renaissance Capital, Investec
and Standard Bank believe the stock
is still grossly undervalued at N8.84,
being the close price on 8th June.
It is undisputable that the Bank will
continue to deliver superior return to
its shareholders, especially as the new
Management focuses on the bedrock
of sustainable financial performance –
customer service!
