Despite the slight moderation in asset yields in Q1’22, we remain constructive on UBA’s FY’22 NIM, which we expect to improve by 20bps from FY’21 level. Our positive view on NIMs is built around the following potential drivers:

  1. The MPC-induced rise in interest rates is likely to filter through to asset yields
  2. The sustained increase in interest-earning assets (5-year CAGR of 14.2%) bodes well for interest-income
  3. The high proportion of CASA in the deposit mix is expected to limit the negative passthrough of higher interest rates

Elsewhere, we forecast non-interest income (NIR) to rise by 20.7% YoY to N152.4 billion (vs N147.9 billion previously). Our upward NIR adjustment should reflect improvements in net fee & commission income and its trading book. Our argument for the former is likely supported by the increase in transaction volumes on e-banking channels. The 3-year e-banking income CAGR of 31.1% also corroborates this position, especially given that the line item constitutes c.40.0% of the total fee and commission income. Similarly, our view on trading income is partly hinged on the potential impact of CBN’s fresh hawkish disposition on market volatility.

The income gains highlighted above are likely to come at a slightly higher cost (FY’22E OPEX: 14.8% YoY to N320.4 billion). The projected operating cost increase could mirror the expected expansion in regulatory cost (typically a function of asset base) and domestic inflation-induced pressures on fuel, repairs & maintenance, contract services, etc. On this wise, we forecast the cost-to-income ratio at 63.0% for FY’22 (vs 3-year mean of 62.6%).