United Bank for Africa Plc [UBA] recorded further progress in improving overall credit quality standards in the second quarter. Loan impairment charges dropped and loan recoveries continued to grow as per the bank's audited accounts for the half-year ended June 2021. Fresh impairment charge on customer loans and advances fell by over 61 per cent year-on-year at half-year to stand at N2.7 billion. Also, impairment expenses on off-balance sheet items went down by 40 per cent to N1.6 billion over the same period.
The developments were further boosted by the recovery of previously written off bad loans, which grew from N1 billion in the first quarter to N1.6 billion at the end of half-year operations in June 2021. The favourable developments sustained the rapid drop in net loan impairment expenses recorded in the first quarter. Against a 48 per cent growth in loan impairment expenses last year, the bank recorded a drop of 47 per cent in loan impairment charges to N4.1 billion at the end of half-year operations. Substantial cost saving from the reduction in loan impairment expenses has continued to give the bank a good millage in profit growth so far this year.
UBA achieved an accelerated profit growth from 27 per cent in the first quarter to 36 per cent year-on-year at half-year to close at N60.6 billion. Interest expenses continued to provide another cost-saving area for the bank though the rate of decline slowed down in the second quarter. Cost of funds went down by 13.6 per cent year-on-year at a half year compared to about a 22 per cent drop in the first quarter. The impact of that is a decline in profit margin from 27 per cent at the end of the first quarter to 19.2 per cent at the half year. Compared to the same period last year, however, the net profit margin improved from 14.8 per cent. UBA generated gross earnings of over N316 billion at half a year, which is an increase of more than N15 billion or 5 per cent year-on-year.
The increase reflects a rebound in interest earnings in the second quarter from a slight decline in the first quarter to an increase of 8 per cent to N223 billion at half a year. On the other hand, non-interest earnings changed direction from a 13 per cent growth in the first quarter to a decline of 2 per cent to 93.4 billion at half a year. The upturn in interest income, therefore, filled the gap in non-interest revenue and accounted exclusively for the improvement in gross earnings at the end of the period. The step-up in revenue growth plus cost saving from credit loss and interest expenses powered the profit acceleration the bank achieved at the end of half-year operations. These constitute the tripod for the bank's profit enhancement for the first six months of the current financial year.
The increase in interest income was reinforced by the drop in interest expenses, which enabled an accelerated growth in net interest income from 14 per cent in the first quarter to 24 per cent to stand at N148 billion at the end of June 2021. Further support came from the drop in net loan loss charges, which resulted in an increase of 29 per cent in net operating income after loan impairment charge to N144 billion – accelerating from 15 per cent in the first quarter. There was also some cost-saving from operating cost in the second quarter, as total operating expenses slowed down from a 10 per cent increase in the first quarter to a flat position at half a year to close at less than N133 billion. Total operating cost claimed a reduced proportion of gross earnings from 44 per cent to 42 per cent over the review period.
This means UBA achieved an all-around cost saving from interest expenses, loan impairment and operating costs during the review period. This combined with revenue improvement over the period to explain the elevated profit performance of the bank at the half year. UBA closed the half-year operations with an after-tax profit of N60.6 billion, which is a growth of over 36 per cent year-on-year. How far the bank's management can keep interested and loan impairment expenses going down through the year remains key development to watch on UBA in the second half. The bank expanded the size of its balance sheet by 8 per cent to N8.3 trillion over the six months of the year, rising from the closing figure of N7.7 trillion at the end of 2020. UBA earned N1.69 per share at the end of June 2021, improving from N1.24 per share in the same period in 2020.
Inside Business
