Wema Bank In A New Momentum
MICHAEL MOSES
Wema Bank broke free from its slow but stable pace in operations last year and engaged a new growth momentum that delivered a 47.5 percent advance in after tax profit in 2018. The new growth momentum is still in motion in the current year with profit growth accelerating to 50 percent at the end of the first quarter.
Improving profit performance is rooted in revenue improvement rather cost cutting that has become the norm in the banking industry. Gross earnings have picked up from 10 percent increase at the end of 2018 to 22 percent expansion in the first quarter in March 2019. Wema Bank hasn’t seen revenue growth that high since 2013.
With profit growing more than twice as fast as gross earnings, the bank shows quite a promising start for another outstanding profit growth at the end of 2019. Improving profit capacity raises hopes for sustaining dividend payment for the second year after breaking its long record of non-payment of dividend to shareholders with a cash dividend of 3 kobo per share at the end of 2018.
Wema Bank returned to profitable operations in 2013 and has maintained the path of profitability since then. Its profit hasn’t hit the jumbo scale but with slow and steady progress the bank is successfully emerging from the bad operating season that the banking industry has faced generally since 2013.
The bank has recorded a great deal of earnings stability compared to the volatile records of the big industry players induced by huge credit losses. Despite some slips along the way, the bank’s management has been able to keep revenue and profit improving over the past six years.
The bank ended the 2018 operations with a good report: profit grew well ahead of revenue, indicating significantly improved ability to covert revenue into profit. The favourable earnings story is being sustained so far for the second year in 2019. The outlook for the bank is that the biggest profit capacity in seven years is in the making.
Wema Bank has been building key earning assets since 2018 with loans and advances to customers growing by 17 percent to N252 billion at the end of the year. The expansion was sustained in the first quarter with a further increase of N14 billion in customer lending and a 56 percent advance in investment assets to over N111 billion.
The buildup in earning assets is boosting earnings performance with interest income leading the way at an increase of 27 percent year-on-year. The bank closed the first quarter with gross earnings of N19.6 billion, an increase of 22 percent year-on-year.
The full year revenue expectation is in excess of N80 billion for the bank in 2019. This indicates that the strong growth seen in the first quarter may slow down in the course of the year. The bank had grown gross income by less than 10% in 2018. An accelerated growth is nevertheless expected in the current financial year.
Interest expenses continue to show a benign behaviour, growing slightly below interest income. That permitted a substantial growth of 29 percent in net interest income to N5.6 billion at the end of the first quarter.
A challenge came from net impairment expenses on financial assets, which rose by 74 percent to N354 million during the period. This runs contrary to the trend in the banking industry where huge cost savings from declining loan impairment expenses have been the key profit performance driver since 2018.
Despite the relative smallness of the loan impairment expenses, the bank could not save cost from there during the review period. Besides, Wema Bank is seeing rapid growth in loans loss expenses for the third year running.
Two compensatory developments came from the strong growth in revenue and a moderated increase of 15% in operating expenses. These provided the strength for the bank to achieve a strong profit improvement in the first quarter.
Wema Bank closed the first quarter operations in March with an after tax profit of N1.14 billion. This is a strong growth of 49.6 percent year-on-year. Profit growth is accelerating for the bank for the second year after a top record growth of 47.5 percent to N3.33 billion in 2018.
The new growth momentum is the outcome of strategic initiatives being implemented by the bank’s management in pursuit of market share extension. It has focused largely on four major areas of innovation and technology, customer service improvement, risk management and broadening of the bank’s national footprint.
The bank closed the first quarter with a balance sheet size of N584 billion, a net lending position of N266 billion, a customer deposit portfolio of N383 billion and an equity stock of N52 billion. It earned 3 kobo per share, improving from less than 2 kobo per share in the same period last year with a full year outlook of 13 kobo per share.
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