UBA Recovers N1b Bad Loans, Boosts Profit Capacity In Q1



UBA Recovers N1b Bad Loans, Boosts Profit Capacity In Q1 -

United Bank for Africa Plc [UBA] recovered over N1 billion of previously written off bad loans in the first quarter of 2021. The development lowered net loan impairment expenses and expanded profit capacity. A major turnaround happened for the bank from a 48 percent rise in loan impairment expenses last year to a drop of 48 percent in the first quarter of 2021.


The loan recovery figure represents an increase of over 67 percent over the corresponding figure last year. Substantial cost saving from the reduction in loan impairment expenses provided part of the strength for improved profit performance in the first quarter.

UBA grew profit by close to 27 percent to N38 billion in the quarter from a modest increase of 2.4 per cent in gross earnings.


The bank improved profit margin from less than 22 per cent to 27 per cent on year-on-year reading. Cost-saving permitted the gain in profit capacity for the bank and the cut in loan impairment expenses accounted for a good part of it.


The bank also made major cost-saving from interest expenses and this is happening for the second year. Cost of funds dropped by close to 22 per cent to N34 billion year-on-year – an accelerated drop from the 8 per cent recorded at the end of 2020.



UBA generated gross earnings of N141 billion in the first quarter, which is an increase of N3.3 billion or 2.4 per cent over the review period. The increase was accounted for exclusively by non-interest earnings, which improved by 13 per cent to over N32 billion.


The weakness in the bank’s main income line – interest income that occurred last year is sustaining in the current financial year. There was a slight decline in interest earnings during the period to close at about N109 billion at the end of March 2021. From the slowest increase in interest income last year, a decline set in the first quarter.


Cost-saving from the two quarters of credit loss and interest expenses remedied the weakness in revenue performance during the quarter. The combination of dropping cost of funds and falling loan impairment expenses provided the profit enhancement strategy for the bank in the first quarter.


The drop in interest expenses more than countered the decline in interest income and enabled an increase of almost 14 per cent in net interest income to close at over N74 billion at the end of the review period.


The drop in net loan loss charges powered an increase of roughly 15 per cent in net operating income after the loan impairment charge. At N106.6 billion, net operating income grew by 13.5 per cent over the review period.


The cost-saving success of the bank could not be extended to operating cost. Led by other operating expenses, the bank’s total operating expenses rose by 10 per cent to over N64 billion in the first quarter. Total operating cost consumed an increased proportion of gross earnings from 42.6 per cent to 45.7 per cent over the review period.


The cost savings from interest expenses and loan impairment costs compensated for the bank’s inability to grow revenue in the first quarter. This enabled the bank to absorb the increased operating cost and convert an increased proportion of revenue into profit. Net profit margin has stretched out to the highest mark in many years.


Net profit margin has been improving from 15.4 per cent in 2019 to 18.3 per cent in 2020 and further to 27 per cent at the end of the first quarter. The further improvement in the first quarter is the explanation for strong profit growth in the face of the inability to achieve a reasonable improvement in gross earnings.


UBA closed the first quarter operations with an after-tax profit of a little over N38 billion, which is a growth of nearly 27 per cent year-on-year. The ability to keep profit growing that rapidly will be tested in the upcoming quarters.


The drop in interest expenses can be expected to sustain through the year but the ability to keep loan impairment expenses down appears uncertain for UBA in 2021. How far the bank’s management can keep loan impairment expenses going down through the year will be a key development to watch on UBA this year.


The recorded an explosive growth of 37 per cent in the size of the balance sheet in 2020 and further expansion is taking place this year. UBA ended the first quarter operations with total assets of N7.9 trillion, rising from the closing figure of N7.7 trillion at the end of 2020.


The bank expanded loans and advances to customers by 7 per cent to N2.7 trillion in the first quarter. Its investment portfolio amounted to N2.6 trillion. Cash and bank balances stood in the region of N2 trillion at the end of the quarter.


The bank’s deposit base was nearing N6 trillion at the close of the first quarter and shareholders’ funds stood at over N731 billion at the end of March 2021.


UBA earned N1.04 per share at the end of the first quarter compared to 83 kobo in the same period in 2020.

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