In 2014 ,United Bank for Africa continued to leverage on continental expansion as a growth and risk governance strategies to report performance figures that are competitive. Its African Strategy appears to be paying off as the revenue contribution of its 18 African subsidiaries increased to N64billion against N56.8billion in the preceding year. Truly UBA is the undisputed leader among Nigerian Banks in terms of presence outside Nigeria.
By 2014, these subsidiaries are already contributing about 20% to the revenue base and the bank is strongly pushing to further increase this percentage in the next few years.
Gross earnings for the year was N228billion following a figure of N213billion in 2013. It was the 4th highest figure reported by banks during the year and underlie the fact that UBA is making a success of its efforts to come to the No. 1 position.
Out of the reported earnings, interest income accounted for N160billion or 70% of total earnings. The proportion was virtually unchanged from 69% in 2013. An analytical view of earning structure in the industry shows that UBA has done relatively better that most of its peers in the area of fee and commission related income with about 30% of total earnings.
During the year, the bank took some measures to right size staff numbers and quality which resulted in reduction of staff from 10,303 to 9939. Staff cost proportion of operating expenses accordingly fell from 42% in 2013 to 40%, but other overheads increased leading to a spike in operating costs from N91billion to N105billion.
Accordingly Profit after tax declined by 16% from N46.5billion to N40billion. Return on average equity followed with a decline from 19% to 15% just as earning per share also N1.41 to N1.22. Notwithstanding the adverse turn on profits the bank rewarded shareholders numbering about 276,803 with a cash dividend f 10k per share.Also interim result in 2015 have completely reversed the declines.
Asset Quality and Impairment of Credits
In terms of size, UBA in 2014 was the 6th largest fund provider to the economy among the banks in Nigeria. With a gross loan of N895billion, the bank impacted on a wide range of economy sectors. This means that it is exposed to volatilities that was the lot of many sectors during the period, but used diversification and other risk mitigation methods to ensure a relatively clean portfolio.
Interestingly, UBA reported what could be described as one of the highest quality loan assets in the industry. Non-performing loan ratio was reported at first 1% in 2014, the same as was reported in 2013. Our analyses shows that only about 2 other banks reported so favourably with the performance by the bank. This is a result of proper identification, assessment and implementation, monitoring, controlling and reporting embedded in the bank’s risk management process.
Deposit Liabilities and Liquidity
As one of the biggest banks in the system the bank had total assets of N2.34trillion, making it the 3rd largest by this measure, it is typical that UBA would enjoy the benefit of patronage from many account customers. The bank in 2014 could boast of some 8million customers across it’s channels with substantial loyalty identified in the relationships. Part of what had sustained this loyalty would appear to be the confidence that the bank is ever ready to meet obligations as they fall due.
To this effect, the bank had always tried to maintain in high capacity in terms of liquidity which can be seen from the substantial investment made in cash and short term assets of about N999billion in 2014, up from N895billion in 2013. This accounted for some 43% of total assets, with adjusted liquidity ratio of about 37%. Only about 5 banks appeared as liquidity conscious during the year. It actually had the highest cash ratios in the industry and these proved comfortably above thresholds considered adequate to meet regulatory requirements and obligations to counter-parties.
By most measures, UBA situates on the top 5 of the most capitalized banks in Nigeria. Because of its growth inclination and the imperative for functional and spatial expansion, the bank had no choice than to grow its capital. This has over the years been affected from internal and external sources. As at 31st December, 2014, the bank had accumulated shareholders fund of N282billion with almost N266billion in the form of reserves.
This among is considered by our analysts to provide adequate comfort to all of the bank’s clientele and regulators that risk inherent in the level of business undertaken by the bank is within acceptable standards. Our estimate of this coverage is a ratio of 18%, slightly up from 17% in 2013. Considering the regulatory minimum of 15% for its class of banks, we consider that the bank still has substantial latitude to pursue its growth options at current level of capital.
Indeed it can choose to double the existing level of risk assets and still be within the minimum requirements. However, for the business of banking, We believe that it is always better, from the perspective of risk management to have more capitl. In the post 2014 period, the bank indeed raised further capital by way of rights offer. We shall be examining these 2015 developments in the bank in details by April 2016.