The third quarter earnings season is here and as usual, companies have been declaring their results. It has been a mixed grill. While some firms have done very well, some have declared disappointing results, dampening hopes for good returns at the end of the year. However, stakeholders have focused their attention more on the banking sector due to its significant position in the Nigerian economy. Also, shareholders have been apprehensive of the kind of Q3 figures the banks will announce. This is so because of the tight regulation of the sector that has continued to affect the margins of banks.

Just like the manufacturing firms that have been declaring mixed results, the banks have been reporting average performance with some witnessing slight decline in bottom-lines.

However, Wema Bank Plc has so far recorded the highest growth in profit among the banks that have announced their results. Wema Bank, which is reputed as the longest surviving and most resilient indigenous Nigerian bank, reported a growth of 345 per cent in profit before tax(PBT) and profit after tax(PAT).


Corporate History
Wema Bank was incorporated in 1954 as Agbomagbe Bank Limited and commenced banking operations in the same year. It later transformed into a Public Limited Company (PLC) in April 1987 and got listed on the Nigerian Stock Exchange (NSE) in January 1990.

The bank got a universal banking licence from the Central Bank of Nigeria (CBN), to provide the Nigerian public with diverse financial and business advisory services. In 2009, Wema Bank underwent a strategic repositioning exercise following the acquisition of 25 per cent stake by SW8 Investment Limited.

Apart from SW8 Investment Limited, Odu'a Investment Company Limited owns 10 per cent of the bank’s shares. The remaining shares are held by other private investors and staff of the bank.

Its board is led by Mr. AdeyinkaAsekun as the chairman while Oloketuyi is the MD/CEO. NurudeenAdegbenro is executive director, South-West Bank; AdemolaAdebise, executive director (Lagos and South-South Bank) and MorufOseni, Abuja Bank.
Other non-executive directors of the bank include:


OpeBademosi, AbubakarLawal, Ramesh Hathiramani, Samuel Durojaiye, Tina Vukor-Qaushie, andOmobosolaOjo
Wema Bank’s Vision
The bank has a vision to maintain and sustain an adaptive, responsive corporate culture in all facets of its operations. It is committed to improving overall asset and liability management, asset quality and achieving lower cost of funds, in order to achieve and sustain superior financial returns. Also as service-oriented institution, the bank is determined to continually upgrade its service delivery quality through steady investments in human capital development, business process improvement and technology enhancement.


Financial Performance
Wema Bank Plc posted highly impressive results for the nine months ended September 30, 2014, indicating that the efforts to reposition the bank have started yielded fruits. Wema Bank recorded an increase of 26 per cent in operating income, from N15 billion to N19 billion. Profit before tax jumped by 345 per cent from N560 million to N2.5 billion. Loans and advances to customers grew by 30 per cent from N98.6 billion in December 2013 to N129 billion in 2014.

Customer deposits rose by eight per cent to N234.5 billion, up from N218 billion in December 2013, just as total assets rose to N351.4 billion compared with N330.9 billion as at December 2013. Cost to income ratio stood at 86.8 per cent, down from 95.2 per cent in 2013. Non-performing loans ratio fell to 6.9 per cent compared to 7.0 per cent in 2013. Return on equity stood at 7.9 per cent compared to 3.9 per cent as at December 31, 2013.

The Managing Director/ Chief Executive Officer of Wema Bank, Mr. SegunOloketuyi said: "While we remain on course in achieving our growth targets as set out by our growth plan, Project LEAP, we are delighted to announce continuous quarter-on-quarter improvement in our financial performance as displayed in our Q3 results.”

According to him, the bank’s operations are also becoming more efficient with cost-to-income ratio down 900 basis points to 86 per cent from 95 per cent at year-end.

“These achievements, when combined with our growing deposit base illustrate that our turnaround initiatives are indeed yielding results,” he said.

He said Wema Bank opened three new branches in the last quarter, and embarked on a renovation exercise of its branch network in key commercial and retail hubs, while keeping a keen eye on possible opportunities in the market to grow our business inorganically.

“We have obtained our PCI-DSS recertification and continue to improve our technology and electronic payment platforms. We intend to continue to leverage the efficiency gains from Project LEAP, and invest in key areas to achieve superior returns to our shareholders over the next quarter and through to next year" Oloketuyi said.


Analysts’ Comments
Assessing the results, analysts at Meristem Securities Limited (MSL) said Wema Bank continued to be buoyed by the comparatively low base of 2013, although they expect that the impressive earnings growths may persist in the short term as the bank is expected to graduate to a national bank, which should consequently result in profit expansion if complimented by the right strategy.

According to them, Wema Bank grew gross earnings by 20 per cent to N31.65 billion from N26.32 billion, supported by a laudable 29.24 per cent growth in interest income, even as non-interest income declined by 9.65 per cent. The marked increase in interest income to N26.14 billion from N20.22 billion may be directly linked to the 30.25 per cent increase since 2013 in loans and advances, although investment securities declined by 23.50 per cent in the same period.

“Non-interest income declined by 9.65 per cent to N5.51 billion,(N6.10 billion in 2013) primarily due to the significant decline in net fees and commissions income which pared by 27.17 per cent to N3.73 billion (N5.13 billion in 2013), even as net trading income grew significantly by 214.89 per cent in the period. Deposits from customers increased by 7.70 per cent to N234.51 billion from N217.73 billion since 2013 to bring the bank’s loans-to-deposits (LTD) ratio to 54.78 per cent, which is well below the statutory limit. Although deposits growth lags growth in loans and advances significantly, the fair LTD ratio means that they are still capable of driving loan growth for the rest of the year to boost income generation for 2015,” the analysts said.

They added that the 345 per cent growth in profit resulted from a combination of higher income generation and benefits of a lower comparative base acted to magnify this performance.
“The bank’s RoAE and RoAA pegged at 7.65 per cent and 0.95 per cent respectively, which is representative of their improved profitability as the ratios improved quarter on quarter.

Also, operational efficiency as measured by the cost-to-income ratio pegged at 86.82 per ent, deteriorating marginally QoQ as operating expenses accelerated beyond the run-rate, recording a 13.28 per cent growth to N16.51 billion from N14.58 billion.
We expect that this figure will possibly not trend below 85 per cent by full year of 2014 as the increasing level of operating expenditure expected from the bank’s growth strategy is unlikely to allow for any abatement,” they said.

MSL analysts added that they expect that the bank will be able to maintain this impressive earnings growth figures by the end of 2014 and in the short term especially if the plan to upgrade to a national bank is executed in 2015.They said this to temper in the mid-term in any case.


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