Wema Bank Plc recorded a strong second quarter in which profit jumped a clear 367 per cent quarter-on-quarter to N2.4 billion. The profit figure for the second quarter represents 65 per cent of the closing after-tax profit of N3.7 billion for the bank at half-year ended June 2021.
The bank’s outstanding performance in the second quarter reflects an upturn in revenue that has reversed a downward movement in gross earnings the bank was experiencing for the second year in the first quarter.
Unlike in the first quarter when the bank’s management struggled to jerk up profit against a drop in revenue, a robust revenue growth in the second quarter created a much easier path to profitability for Wema Bank.
A 30 per cent growth in revenue quarter-on-quarter to N22.6 billion in the second quarter is the most impactful development on the bank’s earnings story in the second quarter. It is a rebound from a drop of 11 per cent in gross earnings for the bank in 2020 and a decline of six per cent in the first quarter.
The second factor in the robust profit growth in the second quarter is a strong gain in profit margin, indicating that costs were kept under check as revenue grew. This is a further improvement on the first quarter position in the ability of management to convert revenue into profit.
Net profit margin has continued to improve from 5.6 per cent at the end of last year to 6.7 per cent in the first quarter and further to 10.6 per cent in the second quarter. Wema Bank hasn’t seen a profit margin this high in more than a decade. It is an outcome of strong revenue improvement and significant cost savings for the bank.
Despite increases in interest expenses and loan impairment charges in the second quarter, the bank was able to raise net interest income after impairment charges by 82 per cent quarter-on-quarter to nearly N9 billion.
Operating income grew by 45 per cent to N13.5 billion for the quarter while a moderated growth of 23 per cent in operating expenses helped to reinforce the growth of the bottom line.
The year-to-date position for Wema Bank shows gross income of over N41 billion at the end of June 2021. The strong rebound recorded in the second quarter has overturned the bank’s earnings record from a six per cent drop in gross earnings in the first quarter to year-on-year growth of eight per cent at the end of half-year operations.
The bank still needs to step up revenue growth in the second half of the year for it to be able to match or exceed the revenue peak of N91.5 billion it attained in 2019.
Interest income accounted exclusively for the revenue growth achieved at the end of half-year operations. It grew by about 13 per cent to N33.7 billion at the end of June, a turnaround from a decline of about three per cent in the first quarter.
On the other hand, non-interest income continued declining at the end of half-year operations. The margin of decline, however, has reduced considerably from 21.5 per cent in the first quarter to less than eight per cent at the half-year. The main drawback is net trading income, which dropped by 82.5 per cent year-on-year over the review period.
Interest expenses remain a major cost-saving area for the bank this year and this is happening for the second year. The cost of funds dropped by about 15 per cent to over N15 billion at the end of June 2021 after going down by 23 per cent in 2020.
The growth recorded in interest income and the drop in interest expenses made a good combination for Wema Bank at the end of the first six months of trading this year. It resulted in a 55 per cent leap in net interest income to N18 billion at the end of the period.
The bank was able to retain much of the gains in income as loan impairment expenses remained relatively low. Loan impairment expenses changed direction from a 66 per cent drop in the first quarter to a 12 per cent growth year-on-year at half-year but remain low at N861 million.
Net income has kept on accelerating from 27.5 per cent at the end of last year to over 39 per cent increase in the first quarter and further to 58 per cent advance to close at N17.4 billion at the half-year in June 2021.
The favourable combination of revenue improvement and cost moderation over the review period stretched out margins for the bank. Net profit margin improved from 3.9 per cent in the same period last year to nine per cent at the end of half-year operations this year.
Improvement in revenue and the increase in the ability to convert the same into profit is the strength in operations for Wema Bank so far this year. This enabled a leap of one and half times in after-tax profit year-on-year for the bank to N3.7 billion at the end of June 2021.
At current growth rates, fiscal 2021 looks very much like an exceptional year for the bank – most likely to produce the highest profit improvement in many years. The bank earned close to 10 kobo per share at the end of half-year operations, a major improvement from less than 4 kobo earnings per share in the same period last year.
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