UBA’s Latest Blow Out Result Is Fantastic But Should We Be Worried About Something Else?

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• For the first nine months through September 2015, UBA’s net income increased by 44.04 percent to N48.55 billion compared with N33.62 billion last year. The growth in profits can be attributed to the impressive surge in earnings.
• Interest income jumped by 17.19 percent to N175.09 billion in September 2015 as against N149.40 billion, thanks to contributions from interest on loans and advances in the period under review.
• The lender was efficient in deploring the latest technology in controlling costs while growing profit as cost to income ratio fell to 64.59 percent in 2015 as against 68.70 percent the previous year.
• Operating expenses were up by 11.91 percent to N104.60 billion in June 2015 as against N93.46 billion the previous year.
• Loans and advances fell by 5.16 percent to N1.01 trillion in the period under review as against N1.07 trillion. We in Nairametrics had anticipated slow loan growth given the liquidity squeeze by the Central Bank.
• Deposits from customers increased by a mere 0.46 percent to N2.17 trillion in 2015 from N2.16 trillion last year. The slow economic growth that has affected retail business as consumer wallets remain pressured means people are depositing less money in banks.
• Loans to deposits ratio reduced to 46.54 percent in 2015 as against 49.53 percent the previous year.
• Total assets increased by 3.98 percent to N2.87 trillion in 2015 as against N2.76 billion the previous year.

Bad loans are a concern

• Investors should be wary of the rising provision for bad loans of tier 1 lender United Bank for Africa (UBA). The write-offs have been piling since the beginning of the year as this surge may dent bottom lines in subsequent quarters.

• In the three-month period (Q3) to September 2015, UBA’s net impairment loss on financial assets increased by 62.93 percent to N1.89 billion from N1.16 billion in the April to June Quarter (Q2).

• This will be of much concern to shareholders and investors as historically, banks tend to turnout more bad loans in the fourth quarter since audited financial statement will be presented to owners of the business.