United Bank for Africa’s 2024 Half-Year Earnings: A Mixed Bag of Performance and Promising Dividends

United Bank for Africa (UBA) has recently unveiled its half-year earnings for 2024, showcasing a pre-tax profit of N401.5 billion. This figure reflects a slight decline of 0.5% from the N403.6 billion reported in the same period last year. Despite this marginal decrease, the bank’s performance is noteworthy, particularly in the context of its core business fundamentals and strategic focus on net interest income.

Robust Net Interest Income Drives Profitability

One of the standout features of UBA’s half-year results is the remarkable increase in net interest income, which surged to N614.4 billion after impairments. This represents a staggering 395% increase compared to the N124.1 billion recorded in the first half of 2023. Such a dramatic rise underscores the bank’s ability to generate income from its core lending activities rather than relying on volatile foreign exchange gains.

The bank’s net interest income for the second quarter alone reached N317 billion, marking an astonishing 2,640% increase from the same quarter a year earlier. This growth is indicative of UBA’s successful strategy in expanding its loan portfolio, which now stands at N6.9 trillion, a 49% increase year-on-year.

A Closer Look at Second Quarter Performance

While the overall half-year results are impressive, the second quarter presented a mixed picture. Pre-tax profits for Q2 were reported at N245.2 billion, a decline of 28% compared to the same period in 2023. This drop can largely be attributed to the absence of significant forex gains that bolstered profits in the previous year. When adjusted for these forex gains, the second quarter of 2024 reflects one of UBA’s strongest earnings performances.

Key highlights from the second quarter include:

• Net Interest Income: N317 billion (+2,640%)
• Net Fees and Commission: N82.9 billion (+68%)
• Operating Income: N496.7 billion (+8%)
• Operating Expenses: N251.5 billion (+111%)
• Pre-tax Profits: N245.2 billion (-28%)
• Earnings Per Share (EPS): N5.08

These figures illustrate a bank that is not only growing but also adapting to changing market conditions.

Quality of Earnings: A Shift in Revenue Sources

A significant aspect of UBA’s performance this year is the shift in revenue sources. In 2023, a considerable portion of the bank’s profits stemmed from trading income and foreign exchange gains, amounting to N418.2 billion. In stark contrast, the bank reported only N98 billion in forex-related income for 2024. This shift indicates a more sustainable and stable earnings model, with a focus on core banking activities.

The bank’s net interest income has more than tripled to N674.6 billion, with over half of this amount—N510.7 billion—coming from loans to individuals and corporations. This diversification in income sources bodes well for UBA’s long-term profitability.

Fee and Commission Growth

UBA also reported a significant increase in fees and commissions, totaling N250.6 billion, which is a 100% increase from the N125.9 billion recorded in the previous year. A substantial portion of this income was generated from electronic banking, which highlights the bank’s successful digital transformation strategy. However, it is worth noting that UBA incurred N83.1 billion in electronic banking expenses, which could impact future profitability if not managed effectively.

Foreign Exchange Gains Reversed

In 2023, UBA’s profits were heavily influenced by forex-related gains, which are now under scrutiny for potential taxation by the government. In 2024, the bank’s gross trading and FX income decreased to N409.7 billion, down from N418.2 billion in the previous year. Additionally, UBA reported a significant net fair value loss on derivatives of N311.6 billion, contrasting with a fair value gain of N348.4 billion in the first half of 2023. These losses primarily stemmed from derivative transactions, indicating a need for careful risk management moving forward.

Record Interim Dividend Declared

In a move that has delighted investors, UBA declared an interim dividend of N2 per share for 2024, a significant increase from the 50 kobo declared in the previous year. This marks the highest interim dividend ever declared by the bank, reflecting its commitment to returning value to shareholders. The dividend will be paid to shareholders registered by October 14, 2024, and has already resulted in a 10% surge in the bank’s stock price.

Conclusion: A Promising Future Ahead

In summary, UBA’s half-year earnings for 2024 present a complex picture of growth and challenges. While the slight decline in pre-tax profits raises questions, the substantial increase in net interest income and the declaration of a record interim dividend signal a bank that is well-positioned for future success. As UBA continues to focus on its core business fundamentals and navigate the evolving financial landscape, stakeholders can remain optimistic about its prospects in the coming months.

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