United Bank for Africa Plc, Nigeria’s fifth-largest lender by market value, plans to increase loans by as much as 40 percent this year to fund oil, power and manufacturing projects.
“We have some deals in the power sector,” besides investments in “oil and gas that have the largest chunk of our portfolio,” Ugochukwu Nwaghodoh, the Lagos-based bank’s chief financial officer, said in a telephone interview on May 14. That compares with growth of about 13 percent last year to 659 billion naria ($4.2 billion), he said.
UBA sold its bad loans to the Asset Management Corp. of Nigeria, or Amcon, set up by the government in 2010 to buy troubled debts from the country’s lenders and stabilize the financial system when loans to stock market speculators and gasoline importers threatened the industry with collapse following the global financial crisis.
Having improved risk management and with a non-performing loans-to-assets ratio of about 2 percent, “one of the bank’s key focus is robust loan growth,” Nwaghodoh said, with loan-to-deposit ratio expected to be 45 percent this year.
Nigeria, Africa’s top oil producer, is selling majority stakes in power plants and letting private investors acquire holdings of as much as 60 percent in six transmission and 11 power-distribution companies spun out of the former state-owned utility. Banks have also increased lending to the oil industry as smaller producers expanded drilling. Companies including London-based Heritage Oil Plc and Lagos-based Neconde Energy Ltd. bought stakes in fields owned by Royal Dutch Shell Plc, Eni SpA and Total SA.
“UBA’s loans-to-deposit ratio is a mere 33 percent so it can be aggressive on lending if it chooses to,” Bunmi Asaolu, an analyst at Lagos-based FBN Capital Ltd., said today in e-mailed response to questions. “The opportunities are real based on what all the banks are collectively saying.”
The lender is targeting a profit growth of 15 percent to 30 percent in 2013 and return on equity of 20 percent, Nwaghodoh said, “as the central bank introduced a new banking tariff that will see a reduction in earnings” and a new Amcon rule requires lenders to pay more toward its costs.
The Central Bank of Nigeria said March 27 lenders in sub-Saharan Africa’s second-biggest economy will drop charges on commission on sales and cut fees and commissions on other transactions starting April 1 to minimize conflict between banks and their customers. Amcon, which is partly funded by the nation’s lenders, increased the assets banks need to contribute to its sinking fund to 0.5 percent this year, from 0.3 percent. It said it spent 5.6 trillion naira in 2011 to acquire non-performing loans.
UBA isn’t considering raising capital this year for its operations, though it has approval to sell bonds as the need for capital arises, Nwaghodoh said.
“We have enough for our operations at present, with a balance sheet of over 2 trillion naira, more than 70 percent being earning assets,” he said.
Net income for the three months through March increased to 16.3 billion naira from 12.3 billion naira a year earlier, according to a May 13 filling to the Nigerian Stock Exchange. Revenue rose to 62.8 billion naira from 52.4 billion naira.
UBA, which has operations in 22 countries, plans to increase income from units outside Nigeria to 40 percent in the next two to three years from 20 percent last year, Nwaghodoh said. The lender may open in Angola this year if regulators there approve, he said.
“Otherwise we don’t plan any other offshore expansion in the short to medium term,” he said.
The bank’s shares rose 2.5 percent to close at 8.70 naira in Lagos, the highest in two months. The stock has risen 97 percent this year, compared with 25 percent gain for the Bloomberg Nigerian Stock Exchange Banking 10 Index, which tracks the country’s 10 largest lenders.