With the release of a double digit profit before tax ,PBT, in the full year 2021,Wema Bank had, indeed, sent out strong glimpses of brilliant performance within and at end of this ongoing financial year ; it recorded N12.4 billion as its PBT and set a target of N15billion for 2022 . It is with this level of expectations that investors and indeed the financial world waited to see Wema Bank first quarter result for 2022 .
The bank did not disappoint ; in first quarter which ended March 30, 2022 the company reported profit before tax of N3.30b,up 119% from N1.51b for the same period in 2021. This leaves investors craning to take another look at the bank’s performance. The bank’s performance promises an harbinger of a juicier outing in the 2022 financial year.
Wema Bank in the first quarter of the ongoing financial year led by Adebisi Adebise has once again proved that irrespective of its size it is proficient in the art of lending profitably and safely .Since the major earnings assets of a bank are loans and advances , interest earnings should be a prime function of its credit portfolio size; this is risk taking ,which is fundamental nature of banking , that is inherent in the maturity transformation , another fundamental feature of banking . Wema Bank’s management understands this wisdom as much , displaying strong earnings quality as one of its hallmarks
The bank re-confirmed this by its first quarter results for 2022 with approximately 82% of its gross earnings coming from its interest income though it was 84.3% in 2021 This was generated from its first quarter from its gross loans and receivables of N450.83b as against N435.
It also lent out profitably. What eventually goes into a bank as its profit depends on the gap between the cost of funds which is determined by the sources of its investible funds and yields on loans and investments, the main outlets or the spread between the rates at which the funds are borrowed and the rate at which they are invested or loaned out ; it got a better spread in the period under review .
Wema Bank management has been putting up a good fight, battling the risk of mismatches between assets and liabilities and between borrowing and lending rates ; it seemed to have to have developed an iron teeth to break the metaphorical hard nut in the heart of banking .
By their fruits one should know the quality of this management .Asides the profit before tax , other performance metrics pointed sharply northward . Gross earnings rose by 57% to N30.63b from N19.47b in 2021 driven by the interest income which jumped by 52.4% to N25.03b from N16.42b .
However ,the jump in the Net interest income was moderate at 15% to N10.08b from N 8.76b.This could be quickly situated on the overwhelming increase in the bank’s Interest expense ;it skyrocketed by 95.2% to N14.95b from N7.66b.This was further brought down by 43.4 % Net impairment loss on financial assets leading to a Net interest income after impairment charge for credit losses of N9.80b from N8.57b, a 14.4% rise
The reason behind the scenario above may not be far to seek . First ,the negative impact of low interest rate environment is seismic though systemic . Also , a good analysis of its deposit mix moderated bank’s size is a big challenge ; it money market deposits diminished to N13.01b from N40.70b ;deposit mix from retail customers with the costly term deposit amounted to 40% of the total while saving deposit stood at 49% leaving the balance of 11% to the cheapest current account deposit. This is what is partly responsible its high cost of funds financing its earnings assets .
Not only that . The corporate customer deposits were dominated by high cost term deposit amounting 59% of the total corporate deposits ;overall , term deposits formed approximately 54% of the total deposits in the first quarter of 2022 as against 72% in 2021 ; though this is an improvement compared to its 2021 figure , it is not still good for competitive performance .
Even the maturity profile of customers’ deposit shows some high pressure on the funding deposits with greater portion or 69% falling due under 3 months.
Despite the above challenges Adebise is not relenting ,driving the bank to greater height as he ensured the cost of funds followed the direction of downward trending assets, thereby counterbalancing its negative impact . From 2017 to 2021 the yields on assets nosedived from 17.76%, 17.75%,
16.47% , 12.01% to 14.33% but the management led by Adebise equally drove the cost of funds down from 10.00,7.00%, 7.00%,4.33% to 3.25
It was the dexterity of this management that continues to curtail the negative impacts of its cost of funds and low yield environment and consequently its competitive net interest margins .These efforts manifested on the bank’s impressive and competitive Net Interest Margin ,NIM, as it moved from 6.61% ,7.08%, 6.42%, 5.74% to 6.21%
The management under Adebisi Adebose equally wrenched up bottom line with a deft application of management’s experience by leveraging noninterest income as the strong momentum of its interest income was slowed down by disproportionate rise in interest expense in 2022 . Net gain on FVTPL investment securities rose remarkably by 2363% to N 557.33m from N22.63b, Net fee and commission income 58.6% by N4,05b from N2.56b, Net trading income by 245.9% to N415.12m N120. 02b while the Other income rose by 65.4% to N579.28mfrom N350.29m
Though the impressive scenario in its non interest income curtailed the negative impact of the bank’s its high interest expense ,another potential spoiler was the high operating expenses which stood at 19.7%. Consequently, its cost to income in the first quarter stood at 78.6% as against an improvement from 87% in the first quarter of 2021
Despite this high cost to income and 119% increase in Income tax expense to N445.77b from N203.59b, the bank’s net income grew by triple 119% to N2.86b N1,31b The positive impact of this could be seen on its profit margins .Its pre tax profit margins improved to 10.8% from 7.7% while its net income margins rose to 9.3 % from 6.7%
In the recent years , in managing risks, its core business ,the bank has continued to improve in a bid to satisfying t its shareholders who require maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources when needed ..
One of the immediate benefits of new strategic choices is better dividend to its shareholders by its share reconstruction. . Although the proposed dividend of 8kobo per share last financial year was based on the total number of shares that existed as of 31st December 2021,however with the regulatory approvals relating to the share capital reconstruction already obtained , the proposed dividend of 8kobo per share would now translate to 24kobo per share as the number of shares would have reduced from 38,574,466,082 units as of 31 December 2021 to 12,858,155,360 units while the amount of dividend declared remains the same.
To confirm its improving profitability its return on equity (ROE), and return on assets (ROA), improved to 15.6 per cent and 0.8 per cent in 2022 from 7.6 per cent and 0.4 per cent annualized respectively in 2021 indicating increasing profits made for each naira from shareholders’ equity and profits with each investment naira invested in the company’s total assets .
A good way to determine earnings to the investor is the Earning Per Share (EPS), which is the monetary share value, i.e., what every share issued by the bank will receive from declared earnings. The higher the EPS, the more profitable the bank is. Full Year EPS for Wema Bank comes to about 29.6 per share in 2022 compared to13.6 in 2021. This means that investors holding shares of Wema get more value per share
By this investors can see they’re getting good returns on their money, while a company can evaluate how efficiently they’re utilizing the firm’s equity.
Not only the shareholders . Other banking constituencies including the surplus units from which it borrows that demand the best possible term in rates of interest , maturity structures and the maximum liquidity to enable them to have the funds back when they want them , or as agreed .The impact of this could be seen increasing deposits from customers in the first three months of 2022. Total deposit inched up by to N1.009trillion from N927.471m In its 2021 financial results its customer deposits grew by 15.2% to ₦927.5 billion (FY 2020: ₦804.9 billion) while its retail deposits make up 31.6%of the total whilst corporate deposits make up 68.4%.
Current deposits both increased by 14.2%to ₦242.5 billion (FY 2020: 212.3 billion) and while savings deposits grew by 26.8%to ₦152.3 billion (FY 202: ₦120.1 billion) due to deliberate effort to grow deposits and improve deposits mix .However , its term deposits grew by 6.1%to ₦456.1 billion (FY 2020: ₦429.8 billion) due to growth in customer activities supported by our digital strategy
The deficit units which borrow from the banks that want to borrow when they need the funds as cheaply as possible with their obligation of maximum liquidity were satisfied by the bank as its gross loans increased the period under review .Gross earnings rose by 57% to N30.63b from N19.47b in 2021 driven by the interest income which jumped by 52.4% to N25.03b from N16.42b .
The he regulatory authorities ,whose interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements were not disappointed with its non performing falling with the minimum regulatory requirement Its asset quality is within the minimum regulatory minimum . Total non-performing loans increased to 4.9% despite the fact that its Local currency NPLs grew by 2.7%.; NPLs declined for manufacturing, agriculture, forestry and fishing, human health and social work activities, and professional, scientific, and technical activities while other sectors increase
The Bank continued to maintain strong capital positions Capital Adequacy Ratio (CAR) of 15.46% in 2021 above the regulatory minimum of 10%.Tier 1 capital remained a very significant component of the Group’s CAR standing at 11.59% representing 75% of the Bank’s CAR of 15.46% .The robust Capital position provides headroom for the Group to meet future expansion and capacity for additional risk-taking.The Bank’s Capital has been sensitized for Basel III compliance and found robust enough to meet the requirements for additional capital for conservation and Counter-cyclical buffers.
Moreover , Wema Bank has continued to serve well the community at large as a responsible corporate citizen financially critical economic sectors including agriculture , small scale businesses and housing among others
To the provider of the environment within which it operates . the bank has proved to be a good corporate citizen, capable of maximizing the exploitation of the opportunities available and minimizing the threats in the environment despite the apparent conflict in satisfying those different constituencies
The bank ,according to the management .ha positioned its capital and ready for growth ,got majority shareholders consent for capital restructure and capital raise, regulatory approvals from CBN Financial Reporting Council and SEC and held Court Order meeting and EGM to approval share reconstruction and capital raise.
It is also raising capital through rights issue to existing shareholders just as it has engaged shareholders to drive share raise especially majority shareholders ,commenced utilization of raised capital to drive growth phase for the bank and accelerate improvements in the share price and deepened value creation , increased credit creation ,improve digital play with technology acquisition. And increase geographic expansion
Furthermore it is deploying one stop digital platform to strengthen digital play for the bank and increasing customer acquisition and retention in the youth, SME and financial excluded segments as well as increasing valuation of financial services business because of improved size.
It is equally ready to become a systemically important Bank. s with maximum liquidity, adequate capital and profitability