Wema Bank Plc found a new strength in converting revenue into profit in 2023 and that helped its bottom line to multiply more than three times to close at N36 billion for the full year.
It was a big feat accomplished by the bank, breaking free from many years as a bottom ranker when it comes to who is where on profit margin in the Nigerian banking industry. The bank’s audited accounts for the full year ended December 2023 show the most significantly enhanced ability to extract profit from revenue it has recorded in many years.
Net profit margin advanced from 8.5 per cent in 2022 to 15.9 per cent at the end of 2023, rising above the single-digit margin corridor where it has played since its sustained return into profitable operations in 2013.
In a wide-ranging profit margin record in the Nigerian banking industry, Wema Bank’s net profit margin ranged between 3.5 per cent and 5.6 per cent between 2013 and 2020. Its best year was 2021 when the bank pushed up to a net profit margin of 9.5 percent.
Fiscal 2023 therefore saw the first double-digit profit margin for the bank in years, which has elevated it from the bottom liners on profit margin to the medium rangers. The top industry players can convert 40 to 45 per cent of gross earnings into after-tax profit. It is a new pedestal for Wema Bank when it comes to how banks stand on their ability to convert revenue into profit – a signal for how big the returns to shareholders are.
Increased ability to convert the naira of revenue into profit was reinforced by substantial growth in earnings in the year to propel the bottom line to jump more than three times ahead of gross earnings. The bank ended the year’s operations with gross earnings of about N227 billion, an accelerated growth from 42 per cent in 2022 to 70.5 per cent in 2023.
Leading the high growth in revenue in the year is other income, which was powered by net foreign exchange gains of N13.6 billion to jump from less than N3 billion in the preceding year to N15.5 billion at the end of 2023.
The bank’s main income line – interest earnings also grew impressively by 71.8 per cent to N185.6 billion – the most rapid growth the bank has seen in more than a decade at least. Net fee and commission income rose by 50.5 per cent to almost N25 billion, one of the strongest increases in the income line over the years.
Earnings were pressured by the rising cost of funds, which grew by 74.5 per cent to about N94 billion compared to the 71.8 per cent increase in interest income. It is the strongest advance in the cost of funds for the bank since 2013. Pressure also mounted from net impairment loss on financial assets, which jumped by about 122 per cent in the year to N10.6 billion, marking a major increase in credit losses for the second year.
The two cost increases claimed increased shares of interest earnings and net interest income after loan loss charges grew by 64 per cent to N81 billion.
The robust non-interest income driven by other income and net fee and commission income kept up the momentum, enabling operating income to rise by 64 per cent to N122.4 billion at the end of the year. To this, management added cost saving from total operating expenses that grew at 32 per cent to N78.8 billion compared to 70.5 per cent growth in gross earnings.
With that, management lowered the operating cost margin from 44.8 per cent in 2022 to 34.7 per cent in 2023 – the lowest operating cost margin for the bank in more than a decade. This means the bank used a much reduced total operating cost to earn the naira of its revenue in 2023, which propelled the increase in profit margin and provided profit-building capacity in the year.
Pre-tax profit jumped by 193.4 per cent to N43.7 billion while after-tax profit surged by 217 per cent to N36 billion for the year.
The bank closed the year’s operations with earnings per share of N2.80, up from 88 kobo per share in 2022. The directors have proposed a cash dividend of 50 kobo per share for the bank’s operations in 2023.
