Says 2016 Forex Revaluation Gains Sustainable
Apparently encouraged by results of its diversification into African countries in recent years, the management of United Bank for Africa Plc says it plans to forage into six more nations across the continent as competition from its home base- Nigeria becomes keener by the day.
With operations in 18 African countries besides Nigeria, the plan would bring UBA Group’s footprints to 25 countries over the next six.
At the end of the 2016 financial year ended December 31, the group’s African subsidiaries together contributed 33% to gross earnings and about 31% to profit, levels the management hopes to raise over the coming years, with the possibility that the segment competes favourably with its parent company across key parameters.
Fielding questions on the group’s performance, UBA Group’s Chief Financial Officer, Ugo Nwagodoh said Friday that the group is only now beginning to benefit from its foresight in foraging into those countries when it did and helping to integrate the continent at a time intra-African trade was insignificant. The result, he continued, is the growth in the contribution of the African business to the group as reflected in its top and bottom-line.
But unlike in the past when the group had to go into each country to acquire fresh operating licence, he assured that the scenario is slightly different, going by the existence of economic blocs like the Francophone African countries that have a common central bank and the Central African economic regional community. This means a central licence held in one could serve as a passport into a neighbouring country, in which case the new country becomes almost like a subsidiary of an existing one.
The expansion bid, coming after a deliberate slow-down in recent years, Abiola Razak, the group’s Head of Investor Relations explains, would make the bulk of capital already deployed better exploited to extract more value from their capital employed.
Across Africa, he said the group’s initiatives are beginning to mature, adding that “our Ghanaian business (subsidiary) can stand shoulder-to-shoulder with many other Nigerian banks.”
Contribution from the African subsidiaries, he expects, would be even bigger this than in 2016 and coming years, going by the IMF’s growth forecast for Sub-Saharan Africa, which would rub off on the financial services industry.
“We deployed much more resources across Africa and it is yielding results… Africa is a centerpiece of our business… We are pioneering electronic banking solutions in some of these markets, driving financial inclusion.
“We believe with what we are doing already across Africa, we can do a lot more in the years ahead,” Nwagodoh enthused.
The group, he continued, also remains diversified in its credit portfolio, across geography, industry and sectorial limits, remaining strong however in oil and gas, agric, telecommunications, power, manufacturing, medium-sized general commerce, financial institutions (with its New York subsidiary providing correspondent banking services to a number of banks) and insurance brokerage, among others.
What business and sector the bank extends loans, Razak continued, is determined by the impact of such on the customer and the overall economy.
Power for example, is being supported because of the multiplier effect of getting that critical industry right and the after effect on economic growth, job creation and the wellbeing of the citizenry, considering the huge amount spent on generating private power supply, he stressed.
For example in the UBA Group, “if we get 24-hour power supply, our operating cost will drop by 200 basis points, with each branch currently having two standby generating sets, besides installing inverters and in some cases, solar power to avoid any down time.
“It is for the same reason that over 4% of our loan book goes to agriculture to help contribute to food security,” he added.
Nwagodoh assured that the juicy foreign exchange revaluation gain in 2016 would be sustained, going forward, judging by the fact that 40% of the bank’s balance sheet is foreign currency denominated.
Consequently, “we are able to generate revenue stream in foreign currency, so when there a revaluation, you will have an upside, hence the net impact in the 2016 figures.
“Sustainability is a function of so many things like: exchange rate, loan book, interest earnings, assets, Eurobond (investment), Western Union, MoneyGram and other cash remittances… The most important factor is the exchange rate movement. Our revenue stream is sustainable and we can only surpass.”
Razaq added that the group is nonetheless very formidable on the retail front, with non-interest income accruing from over seven million cards in issue, as well as the remittance business that provides opportunity for stable deposits, just as the savings account deposits grew by over 30% in 2016.