Wema Bank Remains Impressive Amid Challenges

Darasimi Adebisi
With several companies struggling to stay in business following economic headwinds induced by the Covid-19 pandemic, a few have managed to not only stay in business, but continue to post excellent results.

Most results released to the Nigerian Exchange Limited (NGX) showed impressive performance fuelling speculations that the rest of the year will be better. Leading the pack is Wema Bank Plc. With growing gross earnings and net interest income, Wema Bank Plc maintained growth in key financial parameters in its half year (H1) ended June 30, 2021 result and accounts.

The national bank in the period under review recorded growth in profit & loss figures and balance sheets to underline the prudential management of the board.

One of the oldest bank in the Nigeria reported modest increase in loans & advances and deposits to drive total assets across the N1trillion mark.
Wema bank grew key financial metrics despite the challenging macro-economic environment arising from the COVID-19 pandemic.

Sectoral analysis revealed that Wema Bank is the only bank with double-digit increase in profits according to unaudited results released to the NGX by listed banks.

The H1 2021 result and accounts is a continuation of the 2020 full year result of the bank which saw the bank paying dividend to its investors for the third time consecutively. The solid financial performance for the period affirms Wema Bank as one of the industry leadership position in ratios, and consistency in achieving its strategic objectives despite the challenging business environment.

Key Indicators
Extract from the Wema bank’s profit & loss figures showed 4.93 per cent increase in gross earnings to N39.82billion in H1 2021 from N37.95billion reported in H1 2020, reflecting the higher interest rate environment, notably in loans and advances. Given a low-yield environment, the bank also reported interest income that rose by 7.27 per cent to N32.18billion in H1 2021 from N30billion reported in H1 2020 as interest expenses dropped to N15.39billion in H1 2021 from N14.79illion reported in H1 2020.

Wema bank benefitted from loan growth and higher yield environment as interest income on loans and advances to banks and customers hits N28.33 billion in H1 2021 from N25.65billion reported in H1 2020. Also, interest expenses on deposits from customers dropped by 37 per cent to N10.42billion in H1 2021 from N16.58billion reported in H1 2020. Consequently, Net-interest income rose by 55.17 per cent to N18.3billion in H1 2021 from N11.80 billion reported in H1 2020.

Growth in Net-interest income also play critical role in Net interest margin that improved to six per cent in H1 2021 from 5.3per cent in H1 2020 on a faster reduction in cost of funds relative to reduction in asset yields. The bank, however, reported Non-interest income decline of 7.95 per cent to N7.64 billion in H1 2021 from N8.30billion reported in H1 2020 due to the 82.6 per cent decline in net trading income.

Meanwhile, the bank in its H1 2021 reported Net impairment loss on financial assets at N861.6million in H1 2021 from N766.34million in H1 2020. The bank reported 72 per cent increase in Net fee and commission income to N5.4billion in period under review from N3.14billion reported in prior period Other income grew strongly, up 361 per cent to N1.42billion in H1 2021 from N307.65bmillion reported in H1 2020, supported by N1billion growth in foreign exchange revaluation.

On expenses, Wema Bank’s Operating expenses increased by 18.1 to N20.79billion in H1 2021 from N17.6billion reported in H1 2020, driven largely by regulatory costs, and to a lesser extent, reflective of the high inflation environment and currency devaluation. AMCON levy rose 52.1per cent year-on-year to N2.6 billion, due to the growth in asset base and contingents while NDIC premium rose 95.2% to N1.9 billion, impacted by growth in deposits. Growth in repairs and maintenance (+20.9per cent) and others (+6.6per cent) primarily reflects the impact of the inflationary environmentIn addition, to operating expenses was 4.4per cent increase in wages and salaries was as a result of growth in personnel and promotion. The bottom-line performance showed that, Profit before income tax rose by 148.6 per cent to N4.30billion in H1 2021 from N1.73billion reported in H1 2020. Despite 148.8 per cent increase in Income tax expense to N580.61million in H 2021 from 233.36million in H1 2020, Wema bank’s grew profit after tax by 148 per cent to N3.72billion in H1 2021 from N1.50 billion reported in H1 2020. In addition to profit & loss figures, the bank closed H1 2021 with Earnings Per Share of 19.20 kobo, about 146.2 per cent from N7.80 kobo reported in H1 2020. The bank offers its clients a wide range of corporate, investment, business and personal banking products and solutions. It is one of the biggest and most profitable banks in Nigeria.

Stronger Financial Position
The impressive performance of Wema bank profit & loss figures was impacted by stronger balance sheet in the period under review. Specifically, the bank crossed N1trillion mark in total assets to N1.02 trillion as at June 30, 2021, an increase of 4.81 per cent from N968.6billion reported in 2020 full year result and accounts. In the period, the lender reported N373.1billion loans and advances to customers, 3.61 per cent increase from N360.1 billion reported in 2020 Full Year (FY) results as the bank continued to support its customers across multiple sectors of the economy. In addition to total assets is Deposits that inched up by 0.50 per cent to N808.9billion as at June 30, 2021 from N804.9billion reported in 2020 FY. Further analysis revealed that Wema Bank’s Retail deposits make up 32.6 per cent of the total whilst corporate deposits make up 67.4per cent. Also, Corporate and savings deposit both grew by 6.3per cent to N225.7 billion (N212.3 billion: 2020) and N127.7 billion (2020: N120.1 billion) respectively due to deliberate effort to improve deposit mix

Term deposits declined by 7.8per cent to N396.3 billion (FY 2020: N429.8 billion) due to terming out of expensive deposit. Also, liquidity position of Wema bank was further sustained by expanding reach of its services on digital platform and increased agent banking/customer acquisition. The modest increase in loans and advances to customers position was Wema bank’s Loan-to-Deposit Ratio which declined to 44.73 per cent in H1 2021 from 49.65 per cent in H1 2020. However, Shareholders’ Funds of Wema bank rose significantly by 10.67 per cent to N61.2 billion from N55.3billion reported in 2020 FY.

Stronger Asset Quality
The bank’s total nonperforming loans (NPL) declined on more efficient loan book in terms of repayment leading to a decline in the NPL ratio to 3.5 per cent from 5.58 per cent reported in H1 2020. Local and foreign currency NPLs declined by 30.2per cent and 74.8per cent respectively as NPL for the finance and insurance, and transportation and storage grew while other sectors declined. The bank’s Cost of risk increased to four per cent in H1 2021 from 3.6 per cent in H1 2020 predominantly due to the growth in loan book.

Meanwhile, Capital adequacy ratio at 13.2per cent for H1 2021 is higher than the regulatory requirement (10 per cent). The bank’s management planed on boosting the capital base by N40 billion to grow risk assets underwriting. The Bank disclosed recently that “it is considering” the acquisition of a Fintech firm or a merger with another bank, as part of its growth plans. The bank’s Deputy Managing Director, Moruf Oseni, said a merger and acquisition (M&A) was part of its plan to ensure organic growth.

Digital Banking
The bank had maintained that its digital channels remain a priority in meeting customer needs and closing the financial inclusion gap. Its mobile payment app, ALAT with Wema bank recorded N715.2 billion in transaction value in H1 2021 and 18.1 million in transaction count on ALAT with 402,965 new downloads in H1 2021 (+34.7per cent) relative to H1 2020. The bank also recorded about 2.1 million digital customers at H1 2021 The bank’s Unstructured Supplementary Service Data (USSD) recorded over 37.8 million in transaction count (+116.8per cent) and transaction value of N220 billion (+95.8per cent), reaffirming its focus on H1 2021 grow channel usage. In the same vein, agent banking base increased to >100k in H1 2021 (H1 2020: 63.5k). The volume/value of funds transfer (+264.5 per cent) and bill and airtime payment (+202per cent) grew to 6million and 5,870 respectively in H1 2021 driven by larger footprint of our agents and customer behavior. The agent banking was key to supporting customers mostly in the rural areas and hard to reach regions of the country during the lockdown due to COVID-19.

Management’s Position on Results
Commenting on the bank’s performance, the Managing Director of Wema Bank, Mr. Ademola Adebise said, “We are pleased to release our results for the first half of the year. Our performance speaks to the spirit of resilience that runs through the organization as we have strongly bounced back from the COVID-19 impacted performance of the same period in 2020.

“As the economy opens back up fully, we expect to see a stronger performance for full year 2021. Over the course of the second half of 2021, the bank will continue its strong focus on the digital business, pushing for further gains in customer acquisition, consumer lending and transaction volumes while on the commercial side of the bank, we will continue to aggressively grow our commercial lending business alongside trade and other revenue lines.”

On his part, the Chief Finance & Strategy Officer, Tunde Mabawonku said, “We are delighted to announce the Bank’s H1 2021 results. The performance shows growth in key financial metrics despite the challenging macro-economic environment arising from the COVID -19 pandemic.”

Mabawonku said bank had started a process that would hopefully grow its capital base to N100 billion.
According to him, “When the CRR dropped below 15 per cent the board approved immediate implementation of the bank’s capital management plan to bring shareholders capital from existing N60 billion plus to above N100 billion mark.”

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