UBA’S PERFORMANCE RAISES CONCERNS AS PROFIT FALLS BEHIND PEERS

  UBA’S PERFORMANCE RAISES CONCERNS AS PROFIT FALLS BEHIND PEERS

The decomposition of Tier 1 banks’ performance in H1 2024 has revealed a surprising trend, with United Bank for Africa (UBA) trailing behind its peers in terms of profit growth. Despite having one of the largest assets and earnings in the industry, UBA’s profit fell short of expectations, raising concerns about its operational structure.

According to analysts, the bank’s commitment to technology integration and elevated energy costs has put significant pressure on operating expenses. However, diverting away from a brick-and-mortar structure has paved the way for banks like GTCO to hedge the headwinds.

In absolute numbers, Access Corp had the highest gross earnings at N2.20trn, but UBA trailed behind with a gross earnings of N1.84trn. GTCO had the lowest gross earnings at N1.39trn but was the only bank to achieve a trillion PBT in H1 2024.

The pattern was reflected in financial ratios such as CIR and Net interest margin (NIM), where GTCO and Zenith Bank led, with Access trailing ETI and FBNH. Zenith Bank had the highest nonperforming loans amongst five tier 1 peers, with an NPL of 4.50%, while Access Corp had the lowest nonperforming loan amongst six tier 1 banks on Proshare’s Bank Strength Index (PBSI).

Meanwhile, GTCO’s market capitalisation stood at 1.39trn with the lowest P/E ratio of its peers of 1.40x, followed by Zenith Bank with a 1.19trn market cap and a P/E ratio of 1.94x.

Analysts say UBA must be cautious about fresh loan creation to conceal exposure and adopt a tighter cost-containment strategy to avoid weakened performance in H2 2024.

However, UBA still appears to have hidden investor value opportunities, with its recent price of N27.50 lower than independent market analysts’ valuation of N30.70, representing a hidden value potential of 11.64%.