United Bank of Africa’s (UBA) Chairman Tony Elumelu spent the past 16 years crafting together a diversified African Banking empire that is just being embraced by other Nigerian lender’s.
Beginning in 2004 with UBA Ghana Limited, the group has expanded to include 20 sub-Saharan countries, as well as offices in the United Kingdom, France and the United States.
Elumelu and his team spent time, effort and capital to pull off the unique feat. Total investments in subsidiaries between 2004 and 2017 (including UBA Pensions Custodians Limited) was equivalent to N103.2 billion as at June 2020, according to data from the Group financials.
The huge investments in rest of Africa, UK and U.S subsidiaries are paying off big as the Nigerian banking regulatory environment becomes tighter.
For instance, while Rest of Africa and Rest of World operations contributed 38.6 percent and 10.5 percent to half year 2019 profits after tax, for a combined 49.1 percent, the ratios flipped for 2020 half year with Rest of Africa operations bringing in more profits for the Group for the first time, compared to Nigerian operations.
For the Half year 2020 period, UBA’s Rest of Africa operations were responsible for 72 percent of profits for the period (See Chart).
UBA’s move to diversify its revenues is ahead of the curve according to Renaissance Capital.
“We think the barrage of regulatory and macro dynamics the banks are faced with buttress the need for any management team serious about creating economic value to revisit its underlying business model. This is with a view to finding high impact and differentiated, yet low capital intensive and high return areas to which it can allocate capital to bolster group returns. We have recently been proponents of opportunities within payments and asset management. Banking returns are challenged and fresh thinking is critically required,” Adesoji Solanke an analyst at Renaissance Capital said in a note to clients released in May.
Recent Naira devaluation is important for the Nigerian banks with large overseas operations like UBA, with revaluation and FX translation gains providing a meaningful buffer against which they can offset some of their impairment losses.
Nigerian Bank Revenues are under immense pressure from low interest rates, an excessively high cash reserve ratio (one of the highest across frontier and emerging markets) with liquidity implications, and cuts to banks’ fees.
UBA’s broader operations in the Rest of Africa has helped to mitigate some of the tighter monetary policy in the home country of Nigeria.
An example can be seen with the banks restricted balances with central banks which was equivalent to N1.55 trillion for Nigerian operations and only N23.18 billion for rest of Africa operations freeing up funds which could be used to create risk assets.
UBA’s total financial assets for Nigerian operations was equivalent to N3.924 trillion as at June 2020, while rest of Africa assets stood at N2.08 trillion.
Total Headcount for UBA at 11,200 as at June 2020 is the largest among Nigerian banks with the lender providing jobs across Africa.
Other Nigerian Banks Follow the Leader and rework plans
The economic downturn in Nigeria as a result of the coronavirus pandemic is forcing the rest of the nation’s lenders to rewrite their business plans.
Guaranty Trust Bank Nigeria’s biggest lender by market value said last week it will transition to a holding company next year to allow diversification to reduce reliance on banking.
It plans to establish units in insurance, asset management, payments and pensions. It also plans to split the banking division into four subsidiaries covering Nigeria, West Africa, East Africa and the U.K.
Access Bank Nigeria Plc Nigeria’s biggest bank by assets is expanding throughout Africa. It plans to open a unit in Mozambique in the second half and in Guinea next year. Earlier this year, it opened a unit in Cameroon and bought Transnational Bank Ltd. in Kenya.
The lender said it is executing a five-year plan to be “Africa’s gateway to the world” by increasing its presence in the continent.
Stanbic IBTC Holding Plc, the Nigerian unit of South Africa-based Standard Bank Group Ltd., is seeking regulatory approval to establish a wholly owned Life Insurance unit.
It plans to own 99.9 percent of the unit to be named Stanbic IBTC Insurance Ltd.
UBA Plc remains in a strong position to continue to grow despite the coronavirus induced lockdowns and slowdown in economic growth across Africa.
The diversified business operations gives it a strong earning’s buffer against current market uncertainty.
UBA’s Half year 2020 Group results showed a 3.3 percent increase in total comprehensive income for the period to N64.1 billion.
The tier-one lender also declared an interim dividend of N0.17 for every ordinary share of 50 kobo each, subject to applicable withholding tax.