Wema Bank Plc experienced quite a rosy year in 2021 with a N6.2 billion closing profit for the third quarter, well ahead of the full-year figure of N4.6 billion in 2020. The profit figure for the nine months of operations is a high jump of 138.5 per cent year-on-year from the corresponding figure of N2.6 billion in the prior fiscal year.
Wema Bank is looking quite good to register the 2021 financial year as one of outstanding earnings performance.
Based on the quarterly profit records, the bank could come close to doubling the closing profit at the end of the year.
Its exceptional growth is a function of three major developments on both sides of cost and income with cost reductions leading the way.
Big cost savings are coming from interest expenses as well as loan impairment charges and management is converting the same into profit. Defying the rising cost of funds in the financial markets, the bank cut interest expenses by 12 per cent year-on-year to N23 billion at the end of September.
That represents a cost reduction of over N3 billion in interest expenses over the review period. This is further to a reduction of 23 per cent in the cost of funds at the end of 2020.
A major development on the side of cost reduction in the third quarter was recorded in loan impairment expenses with the appearance of a net write back in the quarter. That overturned the bank’s position from a 12 per cent growth in loan impairment charges at half a year to a drop of 56.5 per cent year-on-year at the end of the third quarter.
The bank closed the third quarter trading with a loan impairment charge of N811 million. It closed the preceding financial year with a loan loss expense of N5.6 billion. The drop in credit losses represents a reduction of over N1 billion over the review period.
On the side of earnings, three income lines held up Wema Bank’s revenue performance in 2021. Net fee and commission income grew at a cruising speed of 69 per cent year-on-year to close at N8.7 billion at the end of September 2021.
Other income followed with a year-on-year increase of over 52 per cent to N1.6 billion. The bank’s main revenue line – interest income also grew by 11 per cent to N51.5 billion over the period.
The revenue increases were diluted by a drop of 76 per cent in net trading income to close at a little over N1 billion. That lowered the year-on-year growth in the gross income of the bank to 9 per cent to close at over N63 billion at the end of September.
This is a step up in gross earnings from an 8 per cent improvement at half a year. Wema Bank sustained a rebound at the end of the third quarter from a drop of 11 per cent in gross earnings at the end of the preceding year.
With the drop in interest expenses against an improvement in interest income, the bank achieved a robust growth in net interest earnings. Net interest income rose by 41.5 per cent year-on-year to over N28 billion at the end of the third quarter.
The impressive growth was still improved by the drop in loan impairment expenses, leading to top record growth of 51.5 per cent in income net of loan loss charges, amounting to N27.6 billion at the end of the third quarter.
The bank maintained a good combination of improving revenue and generally declining costs, which powered its multiplying profit in the year. It can retain a good part of the gains in revenue as interest and loan impairment expenses drop over the review period.
The favourable cost-income balance stretched out margins further for the bank in the third quarter. Net profit margin improved from 4.6 per cent in the same period in 2020 to almost 10 per cent at the end of the third quarter operations in 2021.
It is also a further improvement in net profit margin from 9 per cent at the half-year. The bank has not attained a profit margin that high in many years. That seems to set the stage for one of the most improved corporate earnings stories from the banking industry to come from Wema Bank in 2021.
The bank earned over 21 kobos per share at the end of the third quarter operations, up from 9 kobos per share in the same period in the prior fiscal year.
Wema Bank closed the 2020 operations with earnings per share of 12 kobos. Dividend per share has been regular at 4 kobos per share over the preceding two years.
. This article was published on the website of the Nigerian Exchange Group Plc.
