Company Analysis

Wema Bank: Slow but steady on the path of profitability


Wema Bank is staying the path of profitability so far since it returned to profit in 2013. Growth momentum is at the low end but the bank is able to keep profit from falling. It closed last year with profit flat, which has crept up to a moderate improvement at the end of the first quarter of the current year.

Defending profit without a reasonable growth in revenue is the summary of the bank’s operations at the end of the first quarter. The strength to accomplish that came from an unexpected place – impairment loss on financial assets, which remains quite low compared with the general trend in the banking industry.

The bank closed the first quarter trading with gross earnings of N16.07 billion, a yea-on-year growth of 5%. That level of growth was made possible by a 21% expansion in non-interest income to N3.43 billion, pushing up a flat growth of 1.6% in interest income to N12.64 billion.

Gross earnings had grown by 20% at the end of last year to N65.27 billion – the highest growth rate since 2013. Based on the growth momentum in the first quarter, the ability to maintain the growth record of the preceding year seems to be farfetched.

The constraint in interest income seems to reflect declining risk asset volume. Loans and advances to customers went down last year and the downward movement continued at the end of the first quarter.

Interest expenses declined by close to 2% at the end of the first quarter against the marginal improvement in interest income. That permitted an increase of 9% in net interest income to N4.34 billion at the end of March.

A big respite continues to come from loan impairment expenses, which remain quite low and has been swinging from net write backs to moderate charges since 2013. A net credit impairment loss of N203 million at the end of the first quarter left only a little scratch on net interest income.

Operating cost however grew well ahead of revenue at over 12% at the end of the first quarter. It therefore claimed an increased share of gross income, raising operating cost margin from 39% in the same period in 2017 to 41.5% at the end of March 2018. The bank has however reduced its operating cost margin from 45.6% at the end of 2016 to 41% at the end of 2017. The cost margin has maintained a declining trend since 2012.

Cost savings from loan loss and operating expenses countered the increase in operating cost and that helped the bank to defend profit margin at 4.7%. This is better than the profit margin of 3.4% the bank recorded at the end of last year.

The full year outlook indicates good prospects for stretching out profit growth from the flat position last year to attain a new peak. The bank earned 8 kobo per share at the end of the first quarter, improving from 7.5 kobo in the same period last year.

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