With a record N51.3 billion surge in market value in three and half months, investing in the forthcoming rights issue by United Bank for Africa Plc (UBA) seems the wisest decision and the right path to profitability for existing and prospective investors in the Nigerian economy.
The Pan African financial institution has been able to record an outstanding performance year in and year out owing to its consistency, long growth history and crisis-free succession plan that have become its permanent features over the years and have set UBA high among others in the sector. These characters will speak for the lender when it opens its rights issue.
75 years of contributing to Nigeria, Africa’s growth
Currently, United Bank for Africa Plc (UBA) is celebrating 75th anniversary of the pan-African financial institution’s growth in Nigeria and expansion across 20 countries, including having branches in USA, France, United Kingdom and United Arab Emirates. In its 75 years of operating in Nigeria and other countries, UBA has proven to be the undisputed leading and dominant financial services institution in Africa.
The chairman of UBA, Tony Elumelu with his “Africacapitalism” slogan has earned its position as one of the largest employers in the financial sector on the African continent, with 25,000 employees and serving over 45 million customers globally, Elumelu who is also the Chairman of Heirs Holdings, an African investment conglomerate with interests in financial services, healthcare, insurance, energy, hospitality, power, real estate, and technology, has led UBA to consolidate a firm Pan-African leadership base which has seen it facilitate intra-Africa and international trade, cross-border payments and remittances, making it a preferred partner for the last-mile distribution of donor flows across the continent.
African Expansion Programme
UBA, under the Pan-African financial model, provides retail, commercial and institutional banking services, leading financial inclusion and implementing cutting edge technology across several countries on the African continent and outside, foraying into the USA, France, the United Kingdom and the United Arab Emirates.
The expansion across Africa has brought about N14.89 trillion deposits from customers as of 2023, 589.04 per cent rising from N2.16 trillion in 2013, while its loans and advances to customers stood at N5.23 trillion in 2023 from N937.62 billion in 2013. The financial institution over the years has played a critical role in the growth of Small and Medium scale Enterprises (SMEs), Oil & gas, agricultural, commerce, among others.
Specifically, the financial institution recently rolled out comprehensive financing solutions of $6 billion for SMEs across the continent in an initiative to provide robust and comprehensive financing solutions to support and boost their activities across the African continent. Through this initiative, UBA will be allowing SMEs to access financing for small businesses that specialise in the key sectors of agro-processing, pharmaceuticals, automotive, transport and logistics. The financing initiative is powered by UBA’s recent partnership with the African Continental Free Trade Area (AfCFTA) secretariat. It is designed to provide financing for up to $6 billion over the next three years to eligible SMEs across Africa
With this, UBA and AfCFTA will promote SMEs operating in four sectors under the first phase of the partnership which are largely import dependent, by providing technical and financing solutions for intra-African/domestic alternatives. These economic sectors are agro-processing, automotive, pharmaceuticals, transport and logistics. This aligns with Elumelu’s position over the years that the main aim of the financial institution is to support African companies – particularly SMEs – that want to do cross-border business and help international companies do business in the continent. “We also work with governments to provide physical and social infrastructure across Africa – all activity to support and catalyze economic development,” he had said.
To this, Deputy Managing Director of UBA, Muyiwa Akinyemi noted that being Africa’s global bank, UBA remains committed to supporting the growth and development of SMEs across Africa. “This is in line with our strategic focus on the SME segment being a catalyst for the economic development of Africa,” he said.
On recapitalisation in Nigeria
Currently, the commercial banks are facing minimum capital thresholds of N500 billion for international authorisation and N200 billion for national authorisation. Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20 billion and N10 billion, respectively in line with the CBN directive that all commercial banks meet the minimum capital requirement within 24 months commencing from April 1, 2024, and terminating on March 31, 2026.
UBA is in a good stead for this having, as of 2023, N2.03 trillion total equity rising from N922.1 billion reported in 2022. The financial institution has N17.1 billion and N98.72 billion share capital and share premium, respectively in 2023 and 2022, while its retained earnings grew by 114.2 per cent to N919.87 billion from N429.53billion declared in 2022.
Elumelu assured that the bank will meet the new minimum capital requirement set by the CBN in the stipulated time frame, hinting at the willingness of the shareholders to reinvest significant stakes in the bank. Also, the bank’s customers from 19 other African countries where UBA currently operates, who have been yearning to become shareholders of the bank, are seeing it as an opportunity to join the fold.
To ensure this happens, the shareholders at the last AGM in May in Abuja, authorised the bank to raise additional capital through issuance of securities comprising ordinary shares, preference shares, convertible and/or non-convertible notes, bonds, or any other instruments, in the Nigerian and/or international capital markets, among others.
However, with a shareholders’ fund of over N2 trillion and a deposit base that doubled to N18 billion from N9 billion in 12 months, Elumelu said,”UBA will accomplish recapitalisation before the stipulated time frame because we have shareholders who want to reinvest in their bank”.
“We have customers who want to become shareholders while customers in the 19 other African countries where the bank operates are also yearning to become shareholders of the bank. And the board has approved that we will do private placements to give opportunities to our customers and friends across Africa to invest in UBA.”
“So, when all of these investments come in, plus the rights issue, the reinvestment by existing shareholders, and even the wider Nigerian public, it would be an easy accomplishment”, a confident Elumelu said, noting, “Our deposit base moved from N9 billion last year to N18 billion this year”.
Existing shareholders are aware that the rights issue presents another opportunity to increase their investments in the financial institution, while it is fantastic news for those who are still outside the fold to partake in the opportunity to become a shareholder and get that stock that they could not afford before.
For Mukhtar Muhammed, a policy analyst and the chief executive officer of Finance With Mukhtar, the offering by UBA is good news especially when one look at UBA as a brand, what the bank has achieved so far, the management team, the goal and aspiration, the drive towards the rights issue and the strategy the bank has employed.
Sound Balance Sheet
UBA stock price opened June 1 at N22.20 per share, gained 6.8 per cent or N1.50 per share and rising to N23.70 per share by September 13 on the floor of the Nigerian Exchange Limited (NGX), bringing its market capitalisation to N810.5 billion
The stock price would have risen above the current N23.70 having opened the year at N25.65, but uncertainty in the recapitalisation exercise of the CBN affected UBA, and others in the listed banking sector on the exchange. Findings show the uncertainty scraped the lender’s value by N66.69 billion Year-till-Date when its price fell by 7.6 per cent or N1.95 per share from N25.65 per share the stock opened for trading this year to the current N23.70 per share. UBA, however, has a way of overcoming such challenges over the years and has always scored first.
Although the financial institution has not released its audited Half-Year results for June 2024, its scorecard in the first quarter has reinforced a belief for another robust performance and interim dividend to shareholders when the Half-Year report is finally out.
UBA in the first quarter of 2024 reinforced the liquidity of its balance sheet with its cash-based assets peaking at N7.7 trillion. The performance, and equally, the major expansion of risk and investment asset portfolios, the bank’s balance sheet swelled by N4.7 trillion to N25.4 trillion in three months, reclaiming for it, the height it had long held in the past as Nigeria’s second largest banking institution by asset base.
The bank’s interim financial report for the first quarter ended March 2024 shows that an unprecedented leap in earnings and assets that happened for the bank last year is yet gaining speed in 2024, a year in which banking liquidity is coming to test once again. UBA seems to have taken an early step to recharge its cash and bank balances, dwarfing its rivals and did a massive top-up of N1.7 trillion in cash-based assets over the three months of the first quarter.
At N7.7 trillion, cash and bank balances stood above its customer loans and advances of N7.3 trillion at the end of the first quarter. No other player among the banking majors has anything close to this level of cash-asset matching. Yet, loan advances, and investment portfolios among others are expanding even more rapidly than they happened last year.
In 2023, UBA grew the size of the balance sheet by N9.8 trillion to N20.6 trillion and close to one-half of the increase has been achieved in the three months of the first quarter of the current 2024 financial year.
Customers’ loan advances expanded by over N2 trillion to N7.3 trillion in three months to March 2024, the same margin of increase in the 2023 financial year. UBA’s huge investment portfolio is also up by N1.1 trillion from the closing figure of N7.4 trillion last year – one of the largest investment portfolios in the Nigerian banking space.
Asset expansions are funded by an N3.5 trillion expansion in customer deposits over the three months, over N4 trillion swelling of liabilities and an N581 billion increase in equity base. Assets expansion has powered the bank’s earnings capacity with interest income jumping by 130 per cent year-on-year to close at N440 billion at the end of the first quarter. This is the highest growth margin in interest earnings for UBA in many years, beating the exceptional rise of 93 per cent to N1.07 trillion in the 2023 full year.
Net fee and commission income is also up by 114.5 per cent year-on-year to over N62 billion while other income soared from N997 million to N3.8 billion in the period. The only earnings weakness came from foreign exchange income which dropped by 54.4 per cent year-on-year to less than N12 billion, after leading revenue growth for the second year in 2023.
Net trading and foreign exchange earnings had grown by about 814 per cent last year and led UBA’s 143 per cent advance in gross earning to over N2 trillion in the year, and at N570 billion at the end of March 2024, gross earnings are up by 110.3 per cent year-on-year.
On the side of cost, the bank’s management has diffused the pressure from the cost of funds and credit losses last year. Interest expenses slowed down in the first quarter at an increase of less than 94 per cent to N140 billion compared to last year when the cost of funds rose ahead of interest earnings at 107 per cent to about N368 billion. With the cost saving from interest expenses, net interest income jumped by over 151 per cent to N300 billion in the first quarter.
Net impairment charges on financial assets also changed direction from two years of high-speed growth to a drop of 53.4 per cent to N3.3 billion at the end of the first quarter. The cost saving again lifted net income after impairment charges by 122.5 per cent to N375 billion. Some cost savings were also extracted from total operating expenses that grew by 104 per cent to almost N219 billion over the review period, representing a decline in operating cost margin from 39.6 per cent to 38.4 per cent in the period.
UBA’s first quarter earnings story summarises that the rapidly expanding balance sheet elevated revenue performance to which management added all-around cost savings and stretched out the profit margin. Net profit margin increased from 19.8 per cent in the same period last year to 25 per cent at the end of the first quarter – one of the highest profit margins the bank has seen in many years.
With triple-digit revenue growth and cost savings all the way, UBA grew after-tax profit by 166 per cent to N142.6 billion at the end of the first quarter, marking 2024 as another strong year in the making for UBA after lifting after-tax profit by almost 257 per cent to N607.7 billion in 2023. The outstanding performance ensured the bank ended the first quarter operations in March 2024 with earnings per share of N3.96, rising from N1.47 per share in the same quarter last year.
An elated Oliver Alawuba, UBA’s Group Managing Director said the first quarter performance is an offshoot of the solid momentum of 2023, as well as the ongoing execution of its long-held strategy of customer focus, geographic diversification and effective risk management and governance.
“Our record Q1 profit before tax was delivered with triple-digit gross earnings growth, supported by a strong interest and non-interest income. Fees and Commissions rose by 118 per cent year-on-year from improved efficiencies and continued digital adoption. This helps to drive the improvement in efficiency and customer satisfaction, with the Group’s cost-to-income ratio held at 57.8 per cent.”
Why Investing In UBA
UBA’s performance so far, according to Mukhtar Mohammed, is the biggest or the strongest investment case for the Pan-African institution especially as outstanding performance has been its permanent feature in its 75 years of existence.
He explained that UBA has a positive history and how the bank has evolved with time is a case study especially when one considers its peers in the banking sector that have been bedevilled with crisis. “There are lots of banks with a history of crises and I don’t want to mention any name but we all know those banks that are going through one challenge or the other”.
UBA has been consistent in terms of the crisis-free management team, in terms of who is the largest shareholder, in terms of its metamorphous from the UBA of old, the UBA merger with Standard Trust Bank (STB) and becoming a bigger UBA which has, since then, been a big bank in terms of expansion, its product, in corporate governance, and also, its succession plan that is devoid of crisis as seen in most of the banks that are of the same generation.
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