By Modupe Gbadeyanka
The national scale ratings of AA-(NG) and A1+(NG) in the long and short term respectively assigned to United Bank for Africa (UBA) have been affirmed by Global Credit Ratings (GCR).
The Nigeria-based rating agency, in a statement, disclosed that it also affirmed the long term international scale rating of B+ assigned to the lender with the outlook accorded as stable.
However, GCR stressed that downward ratings movement may emanate from a significant deterioration in asset quality, liquidity, capital and profitability metrics, noting that the international scale rating will be sensitive to changes in the sovereign rating of Nigeria.
In the statement, GCR explained that UBA’s ratings reflect its established franchise, significant domestic market share (being one of the top-tier banks in Nigeria) and status as a systemically important bank.
It added that further rating support was derived from the bank’s risk appropriate capitalisation, comfortable liquidity, as well as geographic and earnings diversification, with operations in 20 African countries and offices in three global financial centres (London, Paris and New York).
UBA’s capitalisation is considered satisfactory for the current risk level, with a risk weighted capital adequacy ratio of 20 percent and 18.4 percent at FY17 and 3Q FY18 respectively, above the regulatory minimum of 15 percent.
Supported by strong internal capital generation, shareholders’ funds grew consistently over the years and stood at N529.4 billion at FY17, representing a compounded annual growth rate of 22.5 percent over a five-year review period.
The gross non-performing loans (NPL) almost doubled (rising by 89.8 percent) to N114.8 billion at FY17, largely impacted by the downgrade of a single large exposure, underpinning the gross NPL ratio rise to 6.7 percent at FY17, from 3.9 percent at FY16.
According to management, remedial action on the loan has commenced and recovery prospects are considered high. Specific provision coverage of impaired loans stood at 22.0 percent at FY17 (FY16: 36.0 percent).
Consequently, capital value at risk (NPLs net of provisions to capital) was a higher 9.7 percent at FY17 (FY16: 1.9 percent). At 3Q FY18, the NPL ratio stood at 7.2 percent.
“Although the contractual and behavioural mismatch of assets and liabilities in FY17 reflected a liquidity gap of N1,631.7 billion and N712.7 billion respectively within the critical ‘less than one-month’ maturity bucket (equivalent to 3.1x and 1.3x of shareholders’ funds respectively), liquidity risk is mitigated through maintaining a sizeable portion of liquid assets.
“The bank’s liquidity profile is further supported by $500 million Eurobond facility raised during the year, as well as available credit lines from other financial institutions.
“UBA’s statutory liquidity ratio ranged between 33.8 percent and 55.5 percent in FY17, against the regulatory minimum of 30 percent,” the rating agency said.
In 2017 financial year, UBA reported a pre-tax profit of N105.3 billion, representing a 16.1 percent year-on-year growth. While net interest income was largely supported by improved investment yields and funding costs, non-interest income was driven by increase in transaction related income and foreign exchange gains.
Operating expenses rose by 23.7 percent on the back of increase in staff costs, IT and other administrative expenses, resulting in a cost to income ratio of 57.8 percent at FY17 (FY16: 56.3 percent).
Overall, the return on average equity and assets stood at 16.6 percent (FY16: 19.0 percent) and 2.1 percent (FY16: 2.3 percent) respectively in FY17.
In 3Q FY18, the bank delivered a pre-tax profit of N79.1 billion, comparing favourably with the corresponding period in FY17 and in line with budget on annualised basis.
Substantially improved asset quality, positive earnings profitability, and capitalisation metrics, as well as further enhancement of geographic and earnings diversification benefits, would be positively considered.
Aduragbemi Omiyale 
Dipo Olowookere