Wema Bank Nigeria Plc reported its worst profit in more than four years, buffeted by the sharp drop in net treasury yields that undermined revenue as the coronavirus pandemic created a new layer of concerns.
Net income fell by 2.50 percent to N5.06 billion in December 2020 from N5.19 billion the previous year, according to preliminary results released last week Thursday. That was the biggest decline since a similar drop in 2017, according to data gathered by MoneyCentral.
The small and midsized lender saw operating income dip by 2.49 percent to N42.96 billion in the period under review, no thanks to a deep drop in interest on treasury bills as the central bank’s decision to bar individuals and domestic firms from the Open Market Operation (OMO) and a slash in monetary policy rate sent yields crashing.
Despite the wrought caused by the coronavirus pandemic that paralyzed business activities across the country and hindered customers from honoring their obligations, Wema Bank’s impairment charge on assets reduced by 32.13 percent to N4.18 billion as at December 2020.
However, impairment losses are also anticipated to surge on the back of guidelines prescribed by IFRS 9.
The key import of IFRS 9 is the introduction of a forward-looking “expected loss” impairment standard that requires banks to provide more timely recognition of expected credit losses (ECL), based on future expectations, in place of the “incurred loss” model.
Wema Bank’s gross earnings reduced by 14.79 percent to N80.85 billion in the period under review as against N94.89 billion as at December 2019.
Similarly, interest income and similar charges was down 8.41 percent to N64.73 billion as at December 2020 from N70.68 billion the previous year.
A breakdown of interest income shows interest income on loans and advances to customers and banks increased by 12.83 percent to N53.90 billion as at December 2020,
Despite the low yield environment, net interest income increased by 25.44 percent to N31.03 billion in the period under review as against N25.98 billion the previous year.
The growth in net interest income was largely driven by a 24.59 percent reduction in interest expense, which helped compensate for the sharp drop in gross earnings.
Net interest income is a financial performance measure that reflects the difference between the revenue generated from a bank’s interest-bearing assets and expenses associated with paying on its interest-bearing liabilities.
Wema Bank has expanded its loan book as loans and advances were up 27.49 percent to N368.74 billion in December 2020 from N289.23 billion the previous year.
Deposit from customers was up 45.39 percent to N812.09 billion in the period under review from N577.28 billion the previous year.