United Bank for Africa (UBA) return-on-equity or ROE increased to 57.7 per cent in the six-month period to June 2023, from 17.1 per cent as at June 2022, as earnings surged on the back of foreign exchange revaluation gains.
“UBA is currently on the path to surpassing its FY-22 earnings per share or EPS of N4.84 by 4.5 times yoy,” analysts at Chapel Hill Denham said.
“We highlight that UBA’s H1-23 PAT of N378.24bn is ahead of GTCO’s N280.48bn and Zenith’s N291.73 billion,” the analysts said.
Banks’ profit rose to an all-time high in the first six months as they earned more from customers and benefitted from a hike in interest rates and currency devaluation by the central bank.
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The average return on equity of the largest and most liquid lenders rose to 32.35 per cent in June 2023 from 14.35 per cent as at June 2022, according to MoneyCentral calculations.
A higher ratio beckons these firms to be efficient in utilising their resources or equity to generate higher profit.
Aside from higher interest rates which paved the way for lenders to enjoy juicy yields, they made a lot of money from foreign exchange revaluation gains.
For instance, the nine largest banks that have released their half-year results saw combined net income surge by 233.37 per cent to N1.32 trillion as at June 2023 from N396.76 billion as at June 2022, according to data gathered by MoneyCentral.
The expansion and operating income and cost control mechanism put in place by management led to a reduction in cost to income ratio also helped lift profit margins.
Guaranty Trust Holding Company (GTCO) Plc’s ROAE rose to 52.63 per cent in June 2023 from 14.55 per cent as at June 2022.
Analysts at Chapel Hill Denham in a recent note to clients said GTCO is on track to outperform full year (FY-22) earnings per share (EPS) of N5.95 and deliver an ROAE of above 40 per cent, the first time in the last 10 years.
“Our positive views on GTCO are driven by the impact of the FX revaluation gains as well as management’s resolve to remain cost-efficient through the rest of the year,’ said the analysts.
Zenith Bank’s ROE rose to 36.91 per cent in the period under review from 14.09 per cent as at June 2022.
FBN Holdings Plc’s ROE increased to 31.91 per cent in June 2023 from 9.52 per cent the previous year.
Access Bank’s ROE rose to 18.28 per cent in the period under review from 15.58 per cent the previous year.
Fidelity Bank’s ROE moved to 34.58 per cent in June 2023 from 13 per cent the previous year.
First City Monument Bank Plc’s ROAE rose to 22.82 per cent in June 2023 from 8.80 per cent as at June 2022.
Most of the Tier 1 lenders have earned a Buy rating on their stocks by analysts with an upward review on target price as a strong profit expansion validates attractive valuation that means their stocks are cheap.
Guaranty Trust Bank’s shares trade at a price-to-book ratio of 0.9x; UBA, (0.6x); Access Bank, (0.4x); Zenith (0.7x); FBHN, (0.9x), and Fidelity Bank, (0.7x).
While an uptick in profit has strengthened ROE, an increase in risk-weighted assets (RWA) weighed on the capital adequacy ratio of some banks. That means they will need to raise more capital to shore up liquidity
Group Managing Director/Chief Executive Officer of UBA, Oliver Alawuba, who addressed participants at the H1 2023 Investor Conference Call Presentation on Thursday, explained that the bank’s impressive performance was characterised by robust revenue generation, prudent cost management, and strategic capital allocation.
He said these achievements have provided the bank with a solid foundation upon which to further enhance its position as a leading financial institution in Africa and beyond.
In its first half results ended June 30, 2023, UBA showcased its financial resilience and strength, surpassing expectations with remarkable performance as it reported a profit before tax of N404 billion, representing a rise by 371 per cent, compared to N85.75 billion recorded in the first half of 2022.
With that performance, UBA has become the most profitable financial institution in Nigeria.
The result also showed that Operating Income grew by 206.6 per cent to N783.96 billion in June 2023; higher than N255.67 billion reported a year earlier, just as it delivered a 164 per cent growth in its Gross Earnings which rose to N981.78 billion as at June 2023, up from N372.36 billion recorded last year in June 2022.
Alawuba said, “These figures reflect our ability to finance future growth and help individual customers, families, businesses and non-profit organisations to carry out their projects. At UBA, we remain focused on our Customer First philosophy and growing our share in the various markets we operate.
Continuing, he said, “Thanks to our scale, geographic footprint and business diversification. We have numerous opportunities to grow, which should allow us to remain our customers’ first choice and to make the most of those opportunities. Our focus is on implementing plans that enhance the existing network across all the countries and businesses, and improving the profitability of our core businesses through disciplined capital allocation.”