SINCE 2005, when the then Standard Trust Bank took about 27 per cent shareholding interest in the old United Bank for Africa Plc, the new UBA has never known any dull moment as it strives to put its shareholders on the top as one of the biggest wealth-creating institutions, not only in the Nigerian banking sector but also in the West African sub-region.
That singular exercise of merger also remained, perhaps the most remarkable during the last phase of consolidation, carried out in the industry. It merged the first to conclude the exercise for which the Central Bank of Nigeria appropriately recognised and rewarded it with a preferential allocation of $50 million foreign exchange for management.
Following this exercise, the monetary authorities came down hard on several consolidated banks for their slow process of integration which placed customers in unbearable difficulties. But the new UBA stood out clearly with a speed of integration of processes, human capital and brand assets in such a manner that earned it wide acclaim. To those close to the merging entities, this was not surprising because of high technological input in their pre-merger operations. Hence within a short time, customers were able to enjoy on-line, real-time services across the entire network of about 380 branches that existed immediately after the business combination.
However, it must be stressed that while other banks struggled with integration challenges, UBA has since commenced a strategy of massive expansion aimed at moving to the top of industry in terms of size.
To start with, it has since expanded its initial business network to about 460 business offices nationwide effectively making it the bank next door.
With this, it has been able to achieve a customer-reach of about six million core and walk-in customers.
Industry Analysts posit that in the industry, perhaps not many managers of banks appreciate the import of size and competitiveness than those of UBA. Accordingly, growth and plot of strategy for growth is a favourable past-time in the Bank. And growth has come at astonishing speed. It is also interesting to observe while several merged banks ponder on the appropriate staff strength to ensure competitiveness in the emerging environment, UBA has since engaged new staff to meet the demands of the rapid growth.
With an average staff strength of about 3,787 in 2005, the level has increased to about 4,565 in 2006. This is also complimentary to the fact that its management of human capital issues in the integration process was exemplary and seamless.
The Bank has not limited its growth focus on the core business of retail banking within the country. During the course of 2006, it acquired 51 per cent shareholding interest in UBA (Ghana) Ltd. and thus joined the chase for the West African market that remained largely unexplored. It also took advantage of the current comprehensive economic reforms of government to set up the UBA Pension Custodian Ltd. Due to its advanced technology, the subsidiary is now a preferred custodian to several Pension Fund Administrators and in the process, impacted positively on the Group’s cash flow. UBA also has subsidiaries in the insurance, asset management and capital markets.
To UBA, it is not all about business and profits. There is an abiding commitment to corporate social responsibility on the scale that is strategically impacting on the society. In line with this, it set up a unique vehicle known as the UBA Foundation to consummate this commitment. Under the umbrella of this Foundation, it inaugurated the UBAF’s Clean-up Project in collaboration with the relevant environmental agency of Lagos. It also partners the National Conservation Foundation in similar projects.
Perhaps one other area the Foundation’s impact has been felt is in the area of education and “social” employment. Recently, it embarked on a joint initiative with two other organisations to set up a web portal – afroscholars.com for the benefit of African students and young professionals. More than N17.6 billion is dedicated to this project in 2006. During the period, about N65.0 million was spent by the Foundation of projects of high societal impact.
However, it is to be noted that UBA has embarked on these laudable initiatives in appreciation of the adage that to whom much is given, much is expected. 2006 was indeed an exceptionally good one for the Bank given the figures recently released for the 18 months financial year ended September 30, 2006.
The result showed that the various efforts towards growth were very successful. Specifically, total assets of the Bank were increased from N249 billion as at March 2005 to N851 billion. However, if off balance sheet assets are added, this would amount to N1.02 trillion. This is the first time such a figure is being reported in the Nigerian banking sector and effectively put the Bank back into contention for the biggest bank in Nigeria and West Africa. To underscore the significance of this figure, it should be realised that UBA’s assets stagnated at about N200 billion for three consecutive years from 2002 by which time industry watchers overlooked it in various positions of leadership in the sector. It is perhaps no longer in doubt that the bank meant every bit of its goal to be undisputed leading and dominant financial service institution in Africa.
SURGE IN EARNINGS AND PROFITS
The momentous leap in business volume naturally resulted in commensurate explosion in earnings. Gross earning for the 18 months period to September 2006, was reported at N86 billion, up from the preceding year’s level of N25.5 billion.
Expectedly, interest and discount income was more important in achieving this growth having increased 295 per cent from N14.5 billion to N57.2 billion. The Bank devoted great energy to take advantage of high deposit liabilities to create highly productive risk assets and deposit placements.
But it also paid substantially for this increase with direct interest cost rising 611 per cent from N3.5 billion to N24.9 billion. The portfolio also witnessed astronomical increase in indirect cost of funds as net provision for assets rose from just N4.0 million to N5.2 billion. This resulted largely from clean-up measures involving transferred facilities from Continental Trust which it acquired during the period. It was not only cost of funds that witnessed significant growth, overhead costs also increased by 177 per cent from N15.7 billion to N53.5 billion reflecting the new business size and high cost of consolidation.
However, profit margin was slightly conserved with equally massive rise in commissions and fees in response to increased business volume and diversification. Accordingly, Profit After Tax for the period closed at N11.5 billion against N4.7 billion in the preceding 2005 period.
Notwithstanding the 145 per cent increase implied by this performance, key relative earnings and profit measures turned up with mixed results. While earnings per share declined from 249 kobo in 2005 to 168 kobo, return on average equity rose from 26 per cent to 35 per cent.
As a way of handsomely rewarding shareholders who had to wait for the past 18 months, directors proposed a cash dividend of N1.00 per share in addition to bonus dividend of one for every five ordinary shares held. The market has received this as a favourable financial information for which the company’s share price has responded accordingly. The current dividend payment is better appreciated when placed alongside 60 kobo per share paid in the preceding year, and underscores the Bank’s commitment towards wealth creation for shareholders numbering about 144,500.
SAFETY AND CAPITAL BASE
From the onset, managers of the new UBA were not in doubt as to the imperative of expansive capital base in their growth initiatives. By 2005 financial year, they took steps to increase authorised share capital from N2.0 billion made up of 4.0 billion ordinary shares at 50 kobo each to N6.0 billion made up of 12.0 billion ordinary shares.
As a result of consolidation that was undertaken between the old UBA and the then existing Standard Trust Bank, the Bank’s capital base (including revaluation reserve) shot up from N17.7 billion to N47.6 billion as at September 30, 2005.
In the competitive run to occupy the top position of the industry, UBA has not foreclosed any options including further acquisitions in the near term.
In terms of current figures, Analysts believe that reported level of capitalisation remains consistent with prudential standards and provides comfortable cushion for current operations and expansion in the immediate future.
Existing shareholders’ fund (inclusive of revaluation reserve), covers approximately 14.3 per cent of adjusted risk assets against the traditional minimum of 10 per cent. This is also better than 11.3 per cent estimated for 2005 year end. Hence, as risk assets are created, the Bank is conscious of the necessity to improve capital base. Equally, capital to net loans also increased from 26 per cent to 44 per cent over the period.
However, reports suggest that relative exposure of depositors to default risk increased marginally as capital to deposit ratio declined from nine per cent to 6.2 per cent.
This is not surprising as total deposit liabilities increased by more than 269 per cent from N205 billion to N757 billion. This underscores the fact that if the Bank must sustain the rapidity of its growth achieved in 2006, it must necessarily fast-track its capital growth strategy notwithstanding the adequacy of current capital structure.
QUALITY OF ASSETS AND LIABILITY
The growth in balance sheet totals of UBA expectedly arose from increases in the key asset and liability items of loans and deposit liabilities respectively.
For any banking institution, the quality and stability of these two goes a long way in measuring its health and bottom-line performance.
With quantum quantitative leap in these two items, UBA naturally took measures to ascertain that quality is not seriously compromised.
First of all, it constructed a portfolio that tilted more towards the risk aversion orientation. Risk asset proportion of total assets declined phenomenally from approximately 63 per cent to 39 per cent just as proportion of short-term asset increased from 68 per cent to 78 per cent. In other words, the Bank put more resources in cash, treasury bills and other short-term assets and in the process improve capacity to meet demands and expectations of burgeoning customer base.
But while liquidity increased, the quality of risk assets lowered but with the increase in non-performing loans ratio from 3.5 per cent to 12.8 percent. This is explained to have arisen largely from acquired portfolio during the consolidation exercise but it sign-posts a challenge that must be tackled to sustain a place in the top league of industry risk managers having ratios below 10 per cent. The current level is nonetheless significantly better than industry average of about 20 per cent.
