Wema Bank more than doubled after-tax profit to over N2.8 billion at the end of the first quarter following strong growth in revenue and an improvement in profit margin. An impressive first-quarter earnings result seems to set the pace for the bank for another top record growth this year after finishing the 2021 financial year as a star performer.
The unaudited result of the bank for the first quarter ended March 2022 shows a strong acceleration in both revenue and profit growth numbers from the elevated records of the preceding year. The Ademola Adebise-led management of the bank appears poised to sustain the institution on the path of defiant growth for the fifth year running.
The bank closed the period with gross earnings of N30.6 billion, which is a towering year-on-year growth of 57 per cent. It is growing revenue for the second year and the strongest growth in many years looks quite likely for Wema Bank in 2022. The increase in gross earnings achieved in the first quarter is well over four and half times the increase of 12.2 per cent recorded at the end of 2021.
The bank lifted after-tax profit by 119 per cent to about N2.9 billion year-on-year in the first quarter. This is beating the applauded leap of 94 per cent in profit the bank posted at the end of 2021. Wema Bank had raised after-tax profit from N4.6 billion in 2020 to roughly N9 billion in 2021 and the strongest profit improvement looks likely for the bank with the strength of its first-quarter outing.
The ability to grow profit more than twice the increase in revenue derives from cost savings that reinforced revenue gains, which stretched out the profit margin. The biggest cost saving came from operating expenses, which was led by a moderated growth of 12.8 per cent in personnel costs to close at N4.4 billion for the quarter.
Also, other operating expenses moderated relative to revenue at an increase of 25 per cent year-on-year to N6.7 billion over the same period. The bank also maintains a key operating advantage of low credit loss expenses, which amounted to N278 million for the first quarter.
This is a strong indication that favourable risk asset quality conditions that led to a drop of 77 per cent in loan impairment expenses last year to N1.3 billion are still being maintained for the current financial year.
The advantage of low credit loss expenses for the bank is the ability to convert interest earnings into net income. Net income after loan impairment charges grew by 14.5 per cent to N9.8 billion, quite close to the 15 per cent increase in net interest income to N10 billion during the review period.
An outstanding growth of 83.8 per cent in non-interest income to N5.6 billion presents a positive force in the bank’s overall solid earnings growth in the first quarter. This is a major acceleration from an increase of 11 per cent in non-interest income at the end of 2021.
The major leap in non-interest earnings added to an increase of 52.4 per cent in interest income to produce a 57 per cent growth in gross earnings in the first quarter.
The accelerated revenue record in the first quarter reflects an all-round growth in income lines, unlike last year. Net trading and other income – two revenue lines that dropped rapidly last year, recorded top speed growths in the first quarter.
The challenge for the bank in the current year is coming in the area of the rising cost of funds. A huge cost saving made last year from a slight increase in interest expenses completely disappeared in the first quarter.
Interest cost rose far ahead of interest earnings at 95 per cent to almost N15 billion compared to the 52 per cent increase in interest income. This is a reverse of last year’s position when interest earnings grew by 12.5 per cent compared to a 2.7 per cent increase in interest expenses.
Cost of funds claimed an increased proportion of interest income in the first quarter at 60 per cent – a high jump from 46.6 per cent in the same period in 2021 and 47.7 per cent at the end of last year.
The strong growth in revenue and cost savings elsewhere enabled the bank to more than counter the incursion of interest expenses on revenue in the first quarter. This permitted a gain in net profit margin from 6.7 per cent in the same period last year to 9.3 per cent at the end of the first quarter in 2022.
Wema Bank delivered earnings per share of almost 30 kobo in the first quarter, a big increase from less than 14 kobo per share in the same period in the preceding year. The bank is paying a cash dividend of 24 per share to shareholders by 10th May 2022 for the 2021 operations.