Wema Bank: From Volatility To Stability
Wema Bank Plc closed the 2019 operations with a strong profit growth for the second year – marking a change of direction from the rise and fall pattern of the preceding years to reasonable stability. Revenue accelerated in the year to give the bank the strongest improvement in gross earnings since 2013.
This is in line with our outlook on the bank – that the prospects were very good for breakout growth in profit for the second year. Despite that profit slowed down in the final quarter on increased tax expense, the bank still finished the year with after-tax profit up by one-third to a new peak at N4.4 billion.
A long dividend holiday ended with a cash dividend of 3 kobo per share at the end of 2018. Dividend information was yet to be given at press time but the bank has attained the stability needed to support a regime of regular dividends.
Mr. Ademola Adebise, managing director/CEO, Wema Bank Plc, is the man who engaged the new growth momentum for the bank in 2018 when he assumed the headship of the bank and kept it firing all the way in 2019. Moving against the general industry trend, Adebise achieved some of the highest revenue and profit growth numbers in the entire banking industry in the year.
An upswing in profit happened in the third quarter and the bank realised close to 46 percent of the third quarter closing profit within the three months to September. Wema Bank ended the third quarter with a profit already well above the full-year figure in 2018 at over N4 billion compared to N3.3 billion.
The bank’s unaudited report for 2019 full year shows that a downswing followed in the final quarter – which contributed only N317 million or roughly 7 percent to the closing profit for the year. The downswing in profit followed a big increase in income tax expense in the final quarter when more than 65 percent of the tax expense for the year was booked.
Yet with management’s cost-income rebalancing strategy, Wema Bank ended 2019 operations with profit advancing to a new peak for the second year. Adebise was able to surmount the operating challenges that confronted banks generally last year and kept the bank on good stead.
In less than two years of his leadership of the bank, he has underscored the weight of good management quality on corporate results. He has built a bigger profit capacity for the bank so far than any time in over a decade. The bank’s shareholders haven’t seen the bank this promising for many years.
Wema Bank grossed N91.5 billion at the end of 2019, accelerated growth of 28 percent from an increase of 9.6 percent in 2018. This is the highest revenue growth the bank has seen in seven years against a general slowdown in earnings in the banking industry in 2019. The actual figure is 5 percent ahead of our full-year projection of N87 billion gross income for 2019.
Against a general constraint in interest earnings in the banking industry last year, Wema Bank raised interest income by 16.7 percent to N67.8 billion at the end of 2019, which is an accelerated growth from 8.6 percent in the preceding year. The improvement in earnings capacity follows a boost in key earning assets with investments more than doubling at 110 percent to N150 billion and credit volume growing by 15 percent to N290 billion.
Non-interest income was the revenue growth driver with net trading income leading the way at an increase of 167 percent to N14.8 billion. At N23.75 billion, total non-interest income rose by 71 percent at the end of the year. The bank’s growth rates in earnings are nowhere else to be found in the rest of the banking industry in 2019.
Two major challenges faced the bank’s management in the year – rising interest expenses and growing credit losses. Interest expenses overtook interest income on the growth track and rose by 43 percent to N44 billion at the end of the year. That was more than two and a half times the increase of 16.7 percent in interest income. The development caused a drop of over 11 percent in net interest income during the year.
At N4.1 billion, net impairment expenses on financial assets grew by 17 percent in the year – which is a sharp slowdown from an increase of 61 percent in the preceding year. This is a deceleration for the second year, suggesting improving loan recovery and overall credit quality standard of the bank. However net credit loss expenses claimed an increased share of net interest income at 17 percent in 2019 compared to 13 percent at the end of the preceding year.
Operating cost moderated relative to revenue and provided a cost-saving centre for the bank that diluted the cost increases in interest and loan impairment expenses. That reduced operating cost margin from 45.5 percent in the prior year to 40.7 percent at the end of 2019 – the lowest mark in several years.
The bank closed the year with a slight improvement in net profit margin at 4.8 percent. After-tax profit amounted to N4.4 billion for Wema Bank at the end of 2019, which is an increase of 32.5 percent for the year. With the loss of momentum in the final quarter, actual profit was well below the full-year forecast of N5.6 billion.
Wema Bank closed the 2019 operations with earnings per share of 11 kobo, improving from below 9 kobo per share in the preceding financial year. It resumed dividend payment at the end of 2018 with 3 kobo per share and it is expected to sustain dividend pay-out and further improve it from the 2019 operations.
The bank recorded an industry-leading growth in the size of the balance sheet at over 47 percent to N721 billion. This is an accelerated growth from an increase of 26 percent in asset base in 2018. The bank’s assets are built on customer deposits of N579 billion and an equity standing of N54 billion.
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