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Published On: Mon, Jul 31st, 2017

Wema: Declining deposits, rising profits

FELIX OLOYEDE|

Signs of a sector-wide economic recovery were reflected in the financial performance of Wema Bank Plc in the first six months of 2017 as it defied a marginal fall in deposits from customers to increase its profit-after-tax (PAT).
Although deposits from customers dropped marginally by 0.84 percent slumping from N253.84 million in H1 2016 to N251.74 million in the corresponding period of this year, it succeeded in growing its PAT 10.45 per cent to N1.43 billion during the period (H1 2016: N1.3 billion). The decline in total customer deposits was caused by a 19.47 per cent in term deposit and 8.94 per cent drop in current deposits of corporate customers, attributable to the high yields (16-18 per cent per annum) in fixed income market sucking in investment funds during the course of the year.
Wema Bank’s positive performance at the end of first half of the year was hinged on its interest income which appreciated to N25.45 billion in H1 2017, or 25.84 per cent better than the N20.16 billion it generated this time last year. The bank also increased its net fees and commission earnings by 25.83 per cent to N3.89 billion (H1 2016: N3.09 billion), while its net trading income declined 24.23 per cent to N527.06 million in H1 2017 from N695.64 million in H1 2016, other incomes rose significantly by 84.63 per cent to N589.26 million during this period against N319.15 million in the corresponding period in 2016. At the end of Q2 2017, the lender’s operating income was up 5.58 per cent to N13.4 billion instead of N12.70 in Q2 2017.
Meristem Securities Limited in an email to Business Hallmark said, “Based on the bank’s performance in H1: 2017 and expected growth in the digital banking space, we envisage that ALAT would contribute positively to growth in customers’ deposits and drive down the cost-to-income ratio. However, we do not rule out the possibility of decline in growth given the fragile state of the Nigerian economy.”
The Nigerian economy has been battling with recession since Q1 2016 and its Gross Domestic Product (GDP) contracted -0.52 per cent in Q1 2017. Analysts have expressed optimism that the country’s economy would recover at the end of Q3. Dr Biodun Adedipe, chief consultant, Abiodun Adedipe and Associates has projected that Nigeria would achieve 0.24 per cent growth rate at the end of 2017. But the Central Bank of Nigeria called for caution at the end of its Monetary Policy Committee (MPC) meeting last week, saying the economy was still fragile.
Mr Andrew Esene, research analyst, Futureview Financial Services Limited in a telephone conversation said if the economy continues on a recovery path, Wema Bank would surpass its 2016 performance at the end of the year. “If nothing goes out of the ordinary, I am very sure Wema Bank will post a better result this year than it did in 2016,” said he.
For MrAbayomiAjayi, research analyst, EDC Securities Limited, Wema Bank’s impressive performance in the first six months of this year, was buoyed by its decision to improve customer satisfaction. “2017, things would not look all that good but in 2018 we expect sterling performance from the bank,” he posited.
The commercial lender spent 45.13 percent more to generate interest income in H1 2017 as its interest expenses came to N16.89 billion (H1 2017: N11.63 billion) but it was able to trim its impairment provisions down -2.24 per cent to N8.39 billion during this period.
Wema Bank total loans to customers increased 19.60 per cent in H1 2017 to N205.71 billion (H1 2016: N171.99 billion) as term loans surged 22.23 per cent to N188.09 billion against N153.89 billion in the same period in the preceding year.
However, the bank’s total assets and liabilities were down marginally by -2.19 per centand -3.24 per cent to N391.76 billion and N333.45 billion respectively in H1 2017 (H1 2016: N383.17 billion and N344.59 billion respectively).
Meanwhile, the commercial lender made frantic efforts to cut personnel costs to N5.13 billion in H1 2017, -0.95 per cent lower than N10.35 billion it spent in H1 2016, but its other expenses were higher by 11.93 per cent to N5.69 billion due to the bank’s N554.2 million investment in technology and alternative channels, which it did not make in Q2 2016 and business expenses which ballooned 66.39 per cent to N126.9 million (Q2 2016: N76.27 million).
In an emailed response to Business Hallmark’s enquiry into the banks half year result, Mr Abiodun Aderibigbe, Wema Bank Media Relations Officer, explained that the bank deposits fell over the period because of a deliberate and strategic repricing of its liabilities in May 2017. This he said, was done to preserve margins, arising from a high inflation and interest rate environment.
He also pointed out that, “on the loan book, we recorded a 9.38% decline in net asset from N227.01 billion as at FY 2016 to N205.71 billion in HI 2017.
According to him, “this decline resulted from payments and restructuring, with repayments accounting for a sizeable portion of the decline.
Interestingly, the banks guidance for risk assets growth (loan) remained unchanged at between 1% and 2%, necessitated by what has been seen as a challenging business environment.
He pointed out that the banks continued focus on its risk assets have begin to yeild significant gains. Its non-performing loan (NPL’s) fell below the regulatory threshold of 5%, it was at 4.91% by HI 2017 (HI 2016: 5.07%)
Wema Bank’s earnings per share dropped -4.82 per cent to N6.32 in H1 2017 against N6.64 in H1 2016.
The bank’s share which traded 55 kobo on Thursday has lost -26.67 percent of its value in the last one year and its current price-earnings ratio 7.84.
Wema Bank, which has been in operations for over 70 years, had upgraded to a national bank from a regional lender last year.

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