UBA: High Cost, Impairment Charge Drag Earnings

UBA: High Cost, Impairment Charge Drag Earnings Performance

United Bank for Africa, UBA, reported a mild growth at the topline in the first half of 2020 earnings release. Amidst rising economic and health challenges, lender’s earnings per share bolted more than 23% year on year.

Profit for the period dropped more than 21% when compare with the results achieved in the comparable period in 2019.

In its first half 2020 results, the group reported mild 2% year on year growth in gross earnings to ₦300.3 billion, outperforming Vetiva estimates of ₦287.1.9 billion.

The growth was driven by a 6% year on year uptick in non-interest income to ₦94.7 billion while Interest Income remained flat.UBA: High Cost, Impairment Charge Drag Earnings Performance

However, net interest income did improve by 8% year on year to ₦119.3 billion, in line with some analysts’ estimates, thanks to a 9% year on year drop in interest expense.

Vetiva Capital said the good news ended there, as the bank recorded a 150% year on year spike in impairment charges to ₦7.8 billion, quite above Vetiva estimate of ₦7.2 billion.

Meanwhile, operating expenses jumped 36% to ₦149.4 billion.

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A review of its numbers show that the hike in operating expenses was due to an increase in contract services and donations, both of which added a whopping ₦9.5 billion to the bank’s expense line, although these may be one-off expenses.

As expected, UBA’s Q2 performance was a mixed bag as it reflects actual impact of COVID-19 on operating.

Analysts said whilst interest income declined 12% quarter on quarter to ₦96.5 billion amid a 3% decline in net loan book, non-interest income improved 49% quarter on quarter, on the back of an impressive 185% quarter on quarter rise in foreign exchange and securities income (₦26.1 billion).

Vetiva Capital said the bank took on a 95% increase in impairments in the quarter, with total allowances for credit losses increasing by 14% year to date as a result of the economic impact of the virus.

Looking forward, analyst said they expect impairments to remain high.

Recalled that the board approved an interim dividend of N0.17 per share for every ordinary share of N0.50 each held by its shareholders.

In the period, deposits from customers increased impressively by 25.2 percent to N4.8 trillion despite the challenging business and economic environment occasioned by the Covid-19 pandemic.

UBA: High Cost, Impairment Charge Drag Earnings Performance

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