Wema Bank is on the way to rebuilding profit for the second year after two preceding years of losses. Revenue is growing despite some disappointments is two main earning lines. There is a major increase in after tax profit at the end of the second quarter but the strength to convert revenue into profit remains weak with the lowest profit margin in the banking industry. The bank is carrying a retained deficit that will take many years of profitable operations to wipe off.
Mr. Segun Oloketuyi, Managing Director/Chief Executive Officer of the bank is making reasonable progress in improving operating capacity. He has accomplished a major change in the bank’s operating structure so far. This is in respect of an overall improvement in the cost-income structure, which has enabled the bank to show a profitable operation at half year. Improving revenue and moderating cost have paved the way for the bank to sustain the profit recovery it started last year.
The bank reported an interest income of N17.66 billion, which is an increase of 33.3% over the corresponding period last year. Fee/commission income failed to grow at N2.47 billion, other income dropped sharply by 71.5% during the same period and trading revenue grew significantly, almost matching the full year figure in 2013. In all, gross earnings grew by more than 22% to about N21 billion at the end of the second quarter.
Based on the second quarter growth rate, gross income is projected at N45 billion for Wema Bank in 2014 – an expected increase of 25% over the 2013 figure. Gross earnings amounted to about N36 billion at the end of last year.
The bank closed the second quarter with an after tax profit N1.45 billion, which is an increase of 289% over the corresponding period last year. The bank posted an after tax profit of N1.6 billion at the end of 2013. Full year profit is projected at N2.8 billion for Wema Bank at the end of 2014. This will be a growth of 75% over the full year figure in 2013. Many years of sustained high profit growth will be needed for the bank to clean up a retained deficit of N34.22 billion built up from accumulated losses.
Improving profit performance is induced by a decline in the cost-income ratio of the bank. Favourable cost behaviour is led by interest expenses, which were flat at N7.95 billion in the second quarter while interest income grew by 33.3% during the same period. With that, net interest income rose at an impressive rate of 81.5% to N9.71 billion. The flat growth in interest expenses also reflects inability to grow deposit base, which declined slightly at N216.3 billion over the first six months of the year.
Operating expenses also grew moderately at 2.8% to N9.82 billion, which is a slowdown relative to revenue growth. This led to a decline in operating cost margin from 56% in the second quarter of 2013 to 47.2% at the end of the June 2014.
Loan loss provision is however on the rise again this year and the ability to realize the profit projected for the year depends on the ability of management to keep impairment charges from speeding up in the second half of the year. Against a net write back of N862 million in the second quarter of last year, net provision for risk asset losses amounted to N355 million at the end of June. The bank’s credit portfolio has grown by 17.1% over the closing figure in 2013.
Despite an improvement in the cost-income structure, profit margin is at the lowest end of the banking industry numbers. Net profit margin improved from 2.2% to 6.9% over the review period. It is also a further improvement from the net profit margin of 4.5% at the end of 2013. The bank is a watch candidate to see if it will be able to sustain the gain in profit margin or not.
Earnings per share came to 8 kobo per share for the bank at the end of the second quarter, rising from 4 kobo in June last year. Full year outlook indicates earnings per share of 18 kobo for Wema Bank in 2014. It earned less than 9.0 kobo in 2013.
