GCR Keeps UBA Sound Ratings with Stable Outlook

 GCR Ratings (GCR) has affirmed United Bank for Africa Plc’s long-term national and international scale ratings of AA+ (NG) and B respectively, with a Stable Outlook. Concurrently, GCR has affirmed the national scale short-term rating of A1+ (NG).

According to the note, the ratings of United Bank for Africa Plc reflect the creditworthiness of UBA Group.

The rating affirmation balances the Group’s sound competitive position, robust capitalisation, good risk profile, adequate funding, and liquidity against the weaker operating environments of major African countries where the Group operates, GCR stressed.

UBA is rated as one of the top five banks in Nigeria by total assets and has a strong Pan-African franchise with operations across twenty African countries.

The Group is also present in the United Kingdom, the United States of America, France, and the United Arab Emirates. UBA registered a balance sheet size of NGN 7.4 trillion or USD 16.4 billion as of 31 December 2022.

 The Pan African lender controls 12.3%, 12.7% and 10.0% of the Nigerian banking industry’s total assets, gross loans, and customer deposits respectively, according to the rating note.

GCR said UBA Group’s franchise strength is underpinned by a customer base of about 35 million customers with a good retail and corporate mix, served through multiple digital platforms and a wide branch network that includes cash centres across Africa.

 Over the years, operating revenues have maintained an upward trajectory, registering a 3-year cumulative average growth rate (CAGR) of 35.5% to NGN1.0 trillion or USD 1.3 billion, translating to a return on equity and return on assets of 25.3% and 1.6% respectively at the Group level as of 30 September 2023.

Additionally, earnings are largely from stable net interest income which averaged 66.2% over the last three years.

However, market-sensitive income contributed a higher 42.2% (versus 12.2% in December 2022) to operating revenue in the first nine months of 2023 ending 30 September 2023 buoyed by increased trading and revaluation gains.

“We expect the Group’s sound competitive profile to be sustained over the rating horizon. Our assessment of capital and leverage is positive to the ratings”, GCR said in the rating note.

In the 2023 financial year, shareholders’ funds spiked by 94.3% to NGN1.7 trillion or USD2.2 billion as of 30 September 2023 on account of increased internal capital generation as well as translation and revaluation gains from the devaluation of the reporting currency, the Naira.

The Group’s GCR core capital ratio remained strong at 26.3% from 26.4% in December 2022 despite a 58.7% increase in Risk Weighted Assets (RWA) largely from the naira devaluation, analysts said in the report.

Additionally, GCR Ratings maintained that the group coverage of impaired loans was adequate, registering over 100% in the first nine months of 2023.

The GCR core capital ratio is expected to remain within a similar range over the next 12-18 months, providing adequate headroom for the absorption of losses, the rating note added.

 Risk assessment is positive, according to GCR, reflective of UBA’s strong asset quality metrics, prudent underwriting standards, and good risk management framework.

Gross loans and advances grew by 15.9% to NGN3.2 trillion as of 31 December 2022 and by a further 60.8% to NGN5.2 trillion as of 30 September 2023.

As of the same date, the NPL ratio registered at 3.6% from 3.4% in 2022, comparing favourably with peers.

As of 30 September 2023, the credit losses ratio registered at a high of 4.6%, a steep increase from 1.4% recorded in 2021 reflecting possible credit migrations occasioned by the prevailing weak macroeconomic environment.

 Notwithstanding, analysts said UBA’s loan book remains well diversified across sectors with no single sector contributing up to 20% to gross loans and there has been no breach in the single obligor limit.

“While asset quality metrics are susceptible to the weak operating environments of most African markets, we expect the Group’s asset quality metrics to remain stronger than the market’s average over the next 12-18 months”.

GCR Rating said assessment of funding and liquidity is sound, supported by a stable funding structure and adequate liquidity.

UBA Group’s funding structure is largely dominated by customer deposits, which grew by 22.9% to NGN7.8 trillion or USD17.5 billion as of 31 December 2022 and recorded an additional 48.6% growth to NGN11.6 trillion or USD15.1 billion in the first nine months of the financial year 2023.

This was underpinned by improved customer deposits mobilization and the bloating impact of the Naira devaluation on foreign currency deposits.

As of 30 September 2023, customer deposits accounted for 82.9% of the funding base, with low-cost current and savings deposits contributing 85.5% to the deposit book.

This translated to a moderate cost of funds of 2.6% from 2.1% in 2022.

Further augmenting the funding base were short and long-term borrowings from the CBN and diverse international financial institutions, financing about 4.0% of the Group’s total assets.

The deposit book was well diversified, with the twenty largest depositors accounting for a lower 11.6% of customer deposits as of 31 December 2022. Nigeria Eurobond Slumps after CBN Resumes OMO Auction

Again, GCR said its assessment of the Group’s liquidity is positive; liquid assets covered wholesale funding 11.7x while liquid assets to customer deposits was 55.6%, which analysts consider adequate.

“We do not expect any considerable changes in the funding and liquidity profile over the next 12 to 18 months”, analysts said.

The rating firm said a stable outlook reflects its expectation that UBA’s asset quality metrics will be sustained at sound levels.

Sufficient internal/external capital generation is expected to provide adequate cushioning for losses over the next 12-18 months, keeping the GCR core capital ratio within the 25%-27.5% range over the rating horizon.  Similarly, the funding structure and liquidity position are expected to remain adequate.