UBA Leads Nigerian Banks’ With 57.7% ROE vs. Peer Average of 32%

United Bank for Africa (UBA) return-on-equity or ROE increased to 57.7 percent in the six months period to June 2023, from 17.1 percent as at June 2022, as earnings surged on the back of foreign exchange revaluation gains.

“UBA is currently on the path to surpassing its FY-22 earnings per share or EPS of N4.84 by 4.5 times yoy,” said analysts at Chapel Hill Denham.

“We highlight that UBA’s H1-23 PAT of N378.24bn is ahead of GTCO’s N280.48bn and Zenith’s N291.73 billion,” said the analysts.

Banks’ profit rose to an all-time high in the first six months as they earned more from customers and benefitted from a hike in interest rates and currency devaluation by the central bank.

The average return on equity of the largest and most liquid lenders rose to 32.35 percent in June 2023 from 14.35 percent as at June 2022, according to MoneyCentral calculations.

A higher ratio beckons these firms to be efficient in utilising their resources or equity to generate higher profit.

Aside from higher interest rates which paved the way for lenders to enjoy juicy yields, they made a lot of money from foreign exchange revaluation gains.

For instance, the nine largest banks that have released their half-year results saw combined net income surge by 233.37 percent to N1.32 trillion as at June 2023 from N396.76 billion as at June 2022, according to data gathered by MoneyCentral.

The expansion and operating income and cost control mechanism put in place by management led to a reduction in cost to income ratio also helped lift profit margins.

Guaranty Trust Holding Company (GTCO) Plc’s ROAE rose to 52.63 percent in June 2023 from 14.55 percent as at June 2022.

Analysts at Chapel Hill Denham in a recent note to clients said GTCO is on track to outperform full year (FY-22) earnings per share (EPS) of N5.95 and deliver an ROAE of above 40 percent, the first time in the last 10 years.

“Our positive views on GTCO are driven by the impact of the FX revaluation gains as well as management’s resolve to remain cost-efficient through the rest of the year,’ said the analysts.

Zenith Bank’s ROE rose to 36.91 percent in the period under review from 14.09 percent as at June 2022.

FBN Holdings Plc’s ROE increased to 31.91 percent in June 2023 from 9.52 percent the previous year.

Access Bank’s ROE rose to 18.28 percent in the period under review from 15.58 percent the previous year.

Fidelity Bank’s ROE moved to 34.58 percent in June 2023 from 13 percent the previous year.

First City Monument Bank Plc’s ROAE rose to 22.82 percent in June 2023 from 8.80 percent as at June 2022.

Most of the Tier 1 lenders have earned a Buy ratings on their stocks by analysts with an upward review on target price as a strong profit expansion validates attractive valuation that means their stocks are cheap.

Guaranty Trust Bank’s shares trade at a price to book ratio of 0.9x; UBA, (0.6x); Access Bank, (0.4x); Zenith (0.7x); FBHN, (0.9x), and Fidelity Bank, (0.7x).

While an uptick in profit has strengthened ROE, increase in risk weighted assets (RWA) weighed on the capital adequacy ratio of some banks. That means they will be needing to raise more capital to shore up liquidity.