Wema Bank Surpasses Analysts’ Expectation amid Challenges

Kayode Tokede

Amid domestic and external macro economic challenges, Wema Bank Plc, sustained its growth trajectory in 2023 unaudited result & accounts and it is expected to surpassed analysts, and shareholders expectation in the year under view.

The Nigeria’s first digital bank has continued its growth trajectory and momentum across all key performance indicators and it is poised to shareholders return and stock price appreciation.

Wema Bank hits all-time high in profit before tax and profit in third quarter (Q3) ended September 30, 2023, driven by 59.08 per cent increase in gross earnings, and 168.53 per cent growth in other income.

Targeting N22.5billion profit before tax in 2023 financial year (FY), Wema Bank reported N22.15billion in Q3 2023, an increase of 133.86per cent from N9.46 billion reported in Q3 2022.

The financial institution in 2022FY performance declared N14.88billion profit before tax from N12.28billion in 2021FY. In 2020FY, it reported N5.93billion profit before tax from N6.76billion in 2019FY and N4.8billion profit before tax in 2018FY.

Profit after tax also increased significantly in Q3 2023 to N18.88 billion from N8.19billion in Q3 20222, another milestone achievement for the current management of Wema Bank.

In 2022FY, Wema Bank declared N11.35billion profit, representing an increase of about 27.17per cent from N8.93billion reported in 2021FY.

With the growth in profit, the group’s Return on Average Equity increased to 29.32 per cent in Q3 2023, highest so far in the history of the lender. The 2023FY guidance is 20 per cent.

However, the impressive performance in the period back by N151.69billion gross earnings in Q3 2023, an increase of 59.08 per cent from N95.35billion in Q3 2022.

The increase in gross earnings is due to an increase of 61.40per cent and 57.54per cent in Interest Income and Non-Interest Income respectively.

In the period under review, Wema Bank announced N126.67billion interest income, an increase of 61per cent from N78.48 billion in the same period prior year.

The likes of N82.71billion interest on loans and advances in Q3 2023, a growth of 36per cent from N62.25 billion in Q3 2022; N38.43billion investment securities in Q3 2023 from N15.18 per cent in Q3 2022 and cash and cash Equivalent of N3.82billion in Q3 2023,  a growth of 260per cent from N1.06 billion in Q3 2022 impacted positively on interest income  reported in the period under review.

Wema Bank’s interest expenses stood at N71.72billion in Q3 2023, representing an increase of 73 per cent from N41.5billion in Q3 2022, driven primarily by N59.74billion interest expenses on Deposits from customers in Q3 2023, an increase of 74 per cent from N34.4billion in Q3 2023.

The interplay between interest expenses and interest income placed Wema Bank’s net income net interest income at N55.74billion in Q3 2023, an increase of 45 per cent from N38.47billion in Q3 2022.

Wema Bank’s net impairment loss on financial assets increased to N3.38billion in Q3 2023, a growth of 59 per cent from N2.13billion in Q3 2022 as Net interest income after impairment charge for credit losses stood at N52.36billion in Q3 2023 from N36.35billion reported in Q3 2022.

Wema bank’s income mix that is made up of Interest Income of 83.75per cent and Non-Interest Income of 16.25 per cent (Q3 2022: Interest Income 83.61per cent, Non-Interest Income: 16.39per cent).

Non-Interest Income stood at N24.23 billion in Q3 2023, a growth of 57.52per cent from N15.38 billion in the same period of the prior year. The growth in non-interest income was driven by  Net Fees and Commission of N16.84 billion, a growth of 40.16per cent in Q2 2023 from N12.02 billion in Q3 2022; Net Trading Income increased to N0.83 billion from N0.11 billion in Q2 2022 and Other Income of N5.41 billion, a growth of 169.15per cent from N2.01 billion in Q3’2022.

Key drivers of operating expenses

In the period under review, Wema Bank declared operating expenses of N54.47billion in q3 2023, representing an increase of 29 per cent from N42.27billion in Q3 2022, substantial portion of the increase is due to the increase in statutory expenses based on increase in the book size.

Personnel expenses moved to N19.04billion in Q3 2023 from N15.32billion in q33 2022, while Depreciation and amortization closed Q3 2023 at N4.36billion in Q3 2023 from N3.26billion in Q3 2022.

In addition to operating expenses is N31.07billlion other operating expenses in Q3 2023, representing an increase of 31.1per cent from N23.69billion in Q3 2022.

The increase brings it Cost to income ratio (CIR) closed at 71.11per cent, down from 81.70per cent in Q3 2022, a 10.59per cent reduction. The management disclosed that its focus remains driving topline growth expansion while mitigating excessive cost growth and it is expected to result in a sustainable downtrend in the cost-to-income ratio.

With the significant increase in profit, Wema Bank’s earnings per share stood at 199.6 kobo in Q3 2023 from 84.8 in Q3 2022.

Improved asset utilization

As of September 30, 2023, Wema bank declared N2trillion in total assets from N1.44trillion in 2022 financial year ended December 31.

Loans and advances to customers closed September 30, 2023 at N661.3billion, representing an increase of 27 per cent from N521.43billion in 2022FY. 

Wema bank diversified loan book comprises of 16per cent general commerce, 15 per cent general, 20 per cent oil & gas, 14 per cent manufacturing, four per cent construction, six per cent agriculture, forestry and fishing; five per cent transportation and storage; three per cent finance and insurance, three per cent government and 10 per cent others.

The management noted the oil and gas exposure comprises of downstream trading entities and an upstream syndicated loan.

It expressed further that the “As the country reopened further post covid-19, we have seen a resurgence in general commerce and lending to the manufacturing space. Deliberate increased focus on the short-cycle transactions as a proportion of our overall loan book.”

The financial institution Non-Performing Loan (NPL) dropped to 4.70 per cent as of September 30, 2023 from 6.01 per cent in 2022FY.

Deposits from customers stood at N1.65trillion as of September 30, 2023, representing an increase of 42 per cent from N1.17trillion in 2022.

Cost of funds now 5.40 per cent in Q3 2023 from 4.17per cent in FY 2022. Retail and Corporate deposits grew due to growth in customer activities supported by its digital strategy.

The Bank has over 90 fintech partners in the digital space that utilize our digital wallet infrastructure and other services to drive their businesses. This reaffirms our path towards digital dominance.

As of Q3 2023, Wema bank’s total volume of transactions has reached an impressive 114 million transactions. In addition, the total value of transactions for the same period stands at a remarkable N4.7trillion.

Capital position remains within the CBN limits

Wema bank’s Capital Adequacy Ratio (CAR) stood at 13.31perr cent as of Q3 2023, above the Central Bank of Nigeria (CBN) minimum of 10per cent. 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.

“Enhancing the capital position remains in focus and we expect this to be concluded by the end of Q4 2023,” the management said.

The bank has also succeeded in the completion of raising its AT1 capital amounting to N21 billion after obtaining CBN approval, This signifies a critical milestone for our organization, and it further underscores its commitment to maintaining a robust capital structure in accordance with regulatory requirements, 

The bank has also commenced its N40billion Capital raising exercise with its application to SEC to approve the issue. It has the yearned and consulted several critical shareholders and stakeholders, with a plan to wrap up before year end 2023.