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ANALYSIS: Is UBA’s high funding cost pressuring NIMs?

The bank reported NIMs of 6.2% in FY 2018 compared to 7.0% in 2017. We estimate NIMs will close 2019e at 6.3%.



United Bank for Africa Plc

United Bank for Africa Plc saw a rise in funding cost in 2018, which, according to the bank, was due to the tight liquidity situation within the sector. And with yields on interest earning assets remaining relatively flat, Net Interest Margin (NIM) was pressured. The bank reported NIMs of 6.2% in FY 2018 compared to 7.0% in 2017. We estimate NIMs will close 2019e at 6.3%.

UBA reports healthy asset quality ratios with Cost of Risk (COR) of 0.3% reported for FY 2018 and NPL ratio of 6.5%, which is expected to decline to 5.2% post reclassification of its 9Mobile exposure from stage 3 to stage 2. The bank’s capital ratios are comfortably above regulatory limits. CAR of 20% was reported for UBA Nigeria in FY 2018, comfortably about the 16% minimum for systemically important banks. As such, we do not believe the bank will be raising debt or equity in the near to medium term.


Growing contribution from its Pan African subsidiaries (contributed 40% of group earnings in 2018) also gives some versatility to the business and valuations remain compelling (PE 3.5x, PBV 0.54x). Consequently, we maintain our Buy recommendation on the stock with a revised price target of N12.44/s from N12.49/s previously.

Loan growth: UBA’s Net Loans and Advances to customers were up 3.9% and the bank guides to 12% net loan growth in 2019. The group has 37% of its loan book is in foreign currency. The group sees more loan growth opportunities from its other African subsidiaries such as Uganda and Kenya and anticipates they will come from the following sectors; general commerce, retail, oil and gas, and agriculture. Considering the low risk appetite for loans in Nigeria, both from the demand and supply side, we have estimated a 10% net loan growth to customers in 2019.

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Deposit growth: Deposits to customers were up 22.5% y/y on the back of a strong drive to build its retail deposit base. The group grew retail deposits by 48% and estimates deposit growth of 18% for 2019e compared to our forecast of 15%. The group’s deposit book is made of c.20 FCY deposits.

Profitability: UBA’s Interest Income was up 11% y/y mainly on the back on growth in
Interest Income on Treasury Bills. On the flip side, Interest Expense also grew significantly, up 33% y/y. Higher growth in Interest Expense relative to Income resulted in a 1% y/y marginal decline in Net Interest Income, causing NIMs to decline to 6.2% in 2018 from 7.0% in 2017. UBA saw an increase in funding costs in 2018 to 4.2% from 3.7% in 2017. This was attributed to the tight system liquidity.

We have assumed cost of funds will decline by a marginal 10bpbs in 2019e, given that yields are expected to remain relatively attractive despite expectations of a slight
moderation. We forecast a 15% y/y growth in the group’s Net Interest Income and forecast NIMs will close 2019e at 6.3%.

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Fee and Commission Income: Net Fee and Commission Income declined marginally. Though Fee and Commission Income was up 13.3% y/y, Fee and Commission expense grew more significantly, mainly on the back of a significant growth in E-banking expense. While income lines like trade transaction income and e-banking income showed significant growth, credit related fees remained pressured. Management noted that credit fees for loans booked late were yet to hit the books and the impact will be seen in 2019. We forecast a 13% growth in Net Fees and Commissions in 2019.

Other Income: Other Income (Net trading/FX Income and Other Operating Income)
was down 30% y/y, mainly due to FX revaluation loss of N31.5bn. The Group CEO noted that the derivate book was at c.US$850m dollars at the end of the year while the Net open position is c.US$200m. We forecast a 7.1% decline in Other Income in 2019.

Update on asset quality: Impairment charge was down 86% y/y to N4.5bn from
N32.9bn in 2017, bringing Cost of Risk (COR) down to 0.3% in FY 2018 compared to
2.0% in 2017 and significantly below our previous forecast of 1.1%. On its 9Mobile
exposure, the Managing Director noted that it is the single largest NPL of the group
and has been resolved. The bank took 35% provision on the exposure and the amount
outstanding is N22bn.

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The exposure is expected to be reclassified as a stage 2 loan
from stage 3 previously and this should bring down the group’s NPL ratio from 6.5% reported for 2018 to 5.2%. NPL ratio for Nigeria alone was 4.2% inclusive of the 9Mobile exposure. The group took N48bn in additional Impairment Charge as expected under IFRS 9 and this was passed through equity.

The oil and gas sector accounted for 43% of the group’s NPL ratio. According to the group, this relates mainly to an exposure to a Ghanaian company. Provision coverage on the exposure is c.85% while provision coverage on the group’s NPL inclusive of regulatory risk reserves comes to 79%. We forecast FY 2019 COR of 1.1%.

Capital Adequacy Ratio (CAR): The bank’s capital ratios are comfortably above
regulatory limits. CAR of 20% was reported for UBA Nigeria in FY 2018, comfortably
about the 16% minimum for systemically important banks
Pan African business: The subsidiaries contributed 40% of the group’s earnings in
2018 and the managing director was of the view that the subsidiaries can contribute
about c.50% of group profit.


The bank proposed a final dividend of N0.65/s, bringing total dividend to N0.85/s and
implying a dividend yield of 11.0% based on yesterday’s closing price of N7.70/s.
Overall, Pre and Post tax profits grew marginally by 2% and 1% y/y respectively. The
bank’s Return on Average Equity (ROAE) of 15.3% compares with 16% in FY 2017.

Valuation: We retain a Buy recommendation on UBA with a revised price target of
N12.44/s (current price: N7.70/s) from N12.49/s previously. UBA rates well based on
capital adequacy and stable asset quality and valuations remain compelling. Key
inputs to our valuation include risk free rate of 15.0%, long term sustainable ROE of
17.8% and a cost of equity of 21.9%.



Member of the Nigerian Stock Exchange,

First City Plaza, 44 Marina,

PO Box 9117,

Lagos State,


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FG hands over National Theatre to CBN, Bankers Committee, to create 1 million jobs



CBN issues guidelines to Finance Institutions on establishment of Subsidiaries and SPVs, CBN injects $2.63 billion to defend naira in one month, CBN’s COVID-19 N50 billion targeted credit facility, CBN’s heterodox policies buoys credit growth

The Federal Government has announced the official hand over of the National Arts Theatre Complex at Iganmu Lagos, to the Central Bank of Nigeria (CBN) and the Banks under the aegis of the Bankers’ Committee, in order to commence the renovation of the facility.

This was contained in a tweet post by the Presidential Aide to President Muhammadu Buhari on New Media, Tolu Ogunlesi, on his official Twitter handle on Sunday, July 12, 2020.


During the event which was attended by the Minister for Information and Culture, Lai Mohammed and the Lagos State Governor, Babajide Sanwo-Olu, the CBN Governor, Godwin Emefiele, said the bankers were targeting 1 million jobs from this project in the next 5 years.

In the tweet post, Tolu Ogunlesi said, ‘’The Nigerian Government on Sunday officially handed over the National Theatre complex in Lagos to Central Bank of Nigeria and Banks under the aegis of the Bankers’ Committee, to commence the renovation of the facility.’’

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Emefiele said the handover of the facility to the committee was timely, considering the external headwinds facing the country’s economy at the moment. He said that the renovation of the facility which would be completed in 18 months, would have transformed the facility into Nigeria’s Creative Industrial Centre.

According to the CBN boss, the National Arts Centre will be comparable to other world-class entertainment and convention centres in any part of the world. He said the activities in the centre which would include music, movies, fashion and ICT, could be a very important source of growth and reduce the dependence on revenues from crude oil.

He pointed out the creative industry has the potential to generate over $20 billion annually for Nigeria with its human capital resources and an enabling environment that would harness the creative talents of her youths.

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Emefiele said: “We must do more to encourage the innovative works of these young talented Nigerians as they can make significant contributions to the growth and development of our country.’’

“Secondly, given our growing population of close to 200m people, out of which 60 per cent are under the age of 35, it is imperative that we strive to create opportunities that will keep our youths engaged, as it would portend great dangers for the progress of our nation if we allow these talents go to waste”

Emefiele said that the Creative Industries Financing Initiative which was set up in December 2018 was to support startups and existing businesses as well as foster development of Nigeria Creative Industries Centre in 4 major cities in Nigeria. He said the bankers’ committee would support the creative industry with about N25 billion of initial funding.

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He said upon the completion of the renovation works at the theatre with the supporting facilities, the committee intends to set up similar creative industries centres in Kano, Port-Harcourt or Enugu.

He also said that the theatre would support skills acquisition and job creation for over 1 million Nigerians. These Nigerians will be empowered with funds at a single digit interest rate, high-level training using state of the art tools and networks that will enable them to turn their ideas into a reality.

He revealed that the supporting facilities like retail outlets, hotels, entertainment centres and an international conference centre would also help to reposition the centre as a viable location for high-level international meetings and conventions.


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Economy & Politics

FG disburses N349.5m in Conditional Cash transfer to poor households in Kaduna 

The disbursement was done under the federal government’s Conditional Cash Transfer.



The Federal Government has successfully disbursed a total of N349.5 million to 34,946 poor and vulnerable households in Kaduna State, under the conditional cash transfer programme. 

According to the Head of Cash Transfer Unit in the State, Hajiya Hauwa Abdulrazaq, the disbursement lasted a period of 10 days, from July 1 to July 10.  


Speaking in an interview with the News Agency of Nigeria (NAN) on Sunday, Abdulrazaq explained that the benefiting households were drawn from 9 local government areas in the state – 4,470 from Kajuru; 8,032 in Birnin Gwari; 1,963 in Kauru; 1,406 in Sanga, 4,380 in Lere2,021 in Kachia; 5,478 in Ikara; 2,784 in Chikun, and 4,412 in Kubau LGAs.  

She noted that the disbursement was done under the federal government’s Conditional Cash Transfer, a Households Uplifting Programme targeting poorest of the poor households in the country, and that each of the households received N10,000 each, being payment for the months of May and June at N5,000 per month. 

“The households uplifting programme is one of the national social investment programmes which implementation began in September 2016,” she said. 

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NAN reports that the programme began in 2017 in Kaduna state with about 10,000 beneficiaries, but expanded to 22,380 in April 2020.  

In May, a total of 12,566 new beneficiaries were added summing the figures to 34,956 beneficiaries in the state.   

The state government had also commenced the process of capturing poor and vulnerable households into the social register in the remaining 14 LGAs, from which beneficiaries of the cash transfer would be extracted in subsequent months.  

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Evacuation: 247 Nigerians arrive home from Malaysia, Thailand 

The returnees were evacuated with a chartered Air Peace flight APK-7813.



Evacuation: 247 Nigerians arrive home from Malaysia, Thailand 

The Federal Government of Nigeria has safely evacuated and returned home, two hundred and forty-seven Nigerians who were stranded in Malaysia and Thailand 

The returnees were evacuated with a chartered Air Peace flight APK-7813 which arrived the Nnamdi Azikiwe International Airport, Abuja at about 11p.m. on Saturday. 


According to Mr Gabriel Odu, the Head of Media and Public Relations Unit of the Nigerians in Diaspora Commission (NiDCOM) who spoke to NAN, some of the returnees disembarked in Abuja, while the others proceeded to Murtala Muhammed International Airport, Lagos. 

READ ALSO: Nigerians willing to travel abroad will wait a bit longer – Aviation Ministry

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In line with the protocols announced by the Presidential Task Force on COVID-19, all of the returnees presented a negative COVID-19 test result before boarding the evacuation flight, and upon arriving Nigeria, are expected to proceed on a 14-day self-isolation 

Since four weeks ago, from the federal government, through the ministry of Foreign Affairs announced the resumption of evacuation flights, hundreds of stranded Nigerians have been returned home to their families from different countries including the United States of America, United Kingdom, Egypt, Malaysia and Thailand.  

READ ALSO: COVID-19 could impoverish additional 5 million Nigerians – World Bank  

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The returnees bear the cost of their flight tickets and are expected to self-isolate for four weeks, upon their return to Nigeria. Returnees who receive a clean bill of health after the isolation, are given their passports and allowed to go home.  

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