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Nigeria Bank Analysis | Public Credit Rating
Wema Bank Plc Nigeria Bank Analysis
July 2020
Financial data:
(USDm comparative) ⱡ
31/12/18 31/12/19
NGN/USD (avg.) 305.6 306.4
NGN/USD (close) 306.5 306.5
Total assets 1,579.8 2,306.0
Primary capital 166.0 180.0
Secondary capital 80.5 80.6
Net advances 822.8 943.7
Liquid assets 353.0 982.7
Operating income 133.8 163.8
Profit after tax 10.9 17.0
Market cap.* N20.8bn/USD67.9m
Market share 1.7% ⱡCentral Bank of Nigeria (“CBN”) exchange
rates. *As at 30 June 2020
**Based on industry assets at 30 December 2019.
Rating history:
Initial rating (March 2016)
Long-term rating: BBB-(NG)
Short-term rating: A3(NG)
Rating outlook: Stable
Last rating (June 2019)
Long-term rating: BBB-(NG)
Short-term rating: A3(NG)
Rating outlook: Stable
Related methodologies/research:
Global Criteria for Rating Banks and Other
Financial Institutions, updated March 2017
Wema Rating Reports (up to 2019)
Glossary of Terms/Ratios, February 2017
GCR contacts:
Primary Analyst
Adeyinka Olowofela
Senior Analyst
yinka@gcrratings.com
Committee Chairperson
Dave King
Analyst location: Lagos, Nigeria
Tel: +23 41 904-9462
Website: www.globalratings.com.ng
Summary rating rationale
Wema Bank Plc (“Wema”, “the bank”) is a mid-sized commercial
bank in Nigeria based on key balance sheet metrics, having an
estimated market share of about 2%, of the banking industry’s
total assets at FY19.
While Wema’s total shareholders’ funds rose 8.4% to N55.2bn at
FY19 (mainly fueled by internal capital generation and thus
recording good buffer above the statutory minimum capital
requirement for the bank’s license category), this translated to a
weakened risk weighted capital adequacy ratio (“CAR”) of 13.6%
(FY18: 18%) due to a more elastic growth in risk assets. Hence,
management’s plan to raise additional equity capital over the
medium term to support capitalisation is considered appropriate.
Non-performing loans (“NPL”) rose by 70.8% to N22.2bn,
translating to a weaker gross NPL ratio of 7.4% at FY19 (FY18:
5%). Further concerning is the decline in total arrears coverage
ratio to 54.5%, down from 72.3% at FY18.
Wema’s liquidity position was under pressure during FY19, as the
bank recorded a shortfall in the statutory liquidity ratio below the
minimum requirement at some point in FY19 (recording lowest
ratio of 23.5%), albeit normalised at year end to 32.4%.
Furthermore, matching of the bank’s asset and liability maturities
at balance sheet date displayed negative cumulative liquidity gap
across all maturity bands. The contractual liquidity gap in the ‘less
than three months’ maturity bucket stood at N201.1bn (2.5 times
of capital).
The bank maintained an upward trajectory in profitability over the
last three years, attaining a review period high of N6.8bn in FY19.
Performance in FY19 was supported by non-interest income,
which grew 74.2% to N24.2bn (buoyed by growth in securities
trading). Notwithstanding the notable rise in operating expenses
(largely staff cost related) cost ratio declined to 74.3% in FY19
(FY18: 79.7%). Accordingly, return on average equity and assets
(“ROaE” and “ROaA”) improved to 9.8% and 0.9% in FY19 from
6.6% and 0.8% in prior year respectively.
Factors that could trigger a rating action may include
Positive change: Upward movement in the rating could result from
an enhancement of market position, and an improved funding mix
that could strengthen the bank’s liquidity profile as well as
profitability metrics.
Negative change: A rating downgrade could follow a weakening in
competitive positioning, and sustained pressure on earnings, asset
quality, and liquidity metrics.
Rating class Rating scale Rating Rating outlook Expiry date Long-term National BBB-(NG)
Negative May 2021 Short-term National A3(NG)
Nigeria Bank Analysis | Public Credit Rating Page 2
Organisational profile
Corporate summary1
Wema, incorporated in 1945 (under the old name of
Agbonmagbe Bank Limited), is Nigeria’s longest
surviving indigenous bank. The bank became a public
limited liability company in 1987 and its shares were
subsequently listed on The Nigeria Stock Exchange
(“NSE”) in 1991. Following a strategic repositioning
exercise in 2009, Wema opted for a regional banking
licence, focusing on its key market jurisdictions and
strengths. Pursuant to meeting CBN requirements
(including the minimum capital requirement for a
national bank), Wema was granted a national banking
licence by CBN in November 2015. The bank
provides a range of retail and small and medium
enterprise (“SME”) banking, corporate, treasury, trade
services and financial advisory products/services to its
numerous corporate and individual customers.
Ownership structure The bank’s shareholding structure remained relatively
stable in FY19, comprising a well-diversified
ownership base. Wema’s shares were held by over
244,522 corporate and individual investors at 31
December 2019. Table 1, shows the major
shareholders with stake above 5%.
Table 1: Major shareholders % Holding
FY18 FY19
Neemtree Limited 27.7 27.8
Odu’a Investment Company 10.0 8.3
Petrotrab Limited 8.5 8.5
Sw8 Investment Company Limited 8.2 14.9
Others (<5%) 45.6 40.5
Total 100.0 100.0
Source: Wema AFS.
Strategy and operations
Wema’s medium term strategy is geared towards
attaining and sustaining strong profitability growth,
particularly within the retail banking segment. To this
end, the bank has continued to improve service
delivery through better use of technology and a robust
contact centre. The bank also ensures continuous
brand refreshing for improved acceptability. The
bank’s digital banking platform, ‘ALAT’ is being
used to drive growth aggressively within the retail
market and SMEs, which according to management,
has delivered notable increase in transaction volume
conducted by customers via the digital platform.
Similarly, ‘SARA’, a product designed to help women
scale up their businesses has also accelerated the pace
of increase in the bank’s client base. The bank also
launched some healthcare products recently.
Wema’s operations are supported by the latest version
of Finacle. At end-December 2019, Wema operated
through a network of 157 branches, 7,156 active POS
terminals, 382 ATM, 3,186 Agency partners and a
staff complement of 1,172.
1 Refer to previous report issued by GCR for a detailed background.
Governance structure
The composition of the bank’s board of directors
(“board”) and its governance structure are in line with
CBN’s code of corporate governance for banks in
Nigeria, and that of the Securities and Exchange
Commission (“SEC”) for listed companies. The
bank’s board composition and adherence to selected
aspects of appropriate corporate governance are as
highlighted below.
Description Findings
Board size 11 members
Number of executive directors 4 (Including Managing Director)
Number of non-executive directors 7 (Including Chairman)
Independent directors Yes, 2
Tenure of non-executive directors 4 years each/max. 2 cycles
Number of board committees 5 (Risk Management, Audit, Credit, Finance and General Purpose, Nomination and Governance, and Statutory Audit)
Internal audit and compliance Yes, independent unit
External auditors and rotation policy
Deloitte & Touche/10 year tenure (renewable annually)
Financial reporting
The audited financial statements were prepared in
accordance with International Financial Reporting
Standards (“IFRS”), the Banks and Other Financial
Institutions Act and the Financial Reporting Council
of Nigeria requirements. The bank’s external auditor,
Deloitte & Touche, issued a clean audit opinion on the
FY19 financial statements.
Operating environment
Economic overview
The Nigerian economy sustained growth momentum
in 2019, with the gross domestic product (“GDP”)
expanding by 2.27% y/y, up from 1.91% registered in
2018. The recorded growth was largely underpinned
by the curtailed pipeline vandalism, calmness in the
oil-producing regions, and the relative stability in
global crude oil prices and foreign exchange (“FX”)
market. While the oil sector registered a robust growth
of 4.59% (2018: 0.97%), the non-oil sector improved
slightly by 2.06% in 2019 relative to 2% recorded in
2018. However, the Nigerian economy is currently
witnessing a sharp slowdown due to the coronavirus
disease (“COVID-19”), which is being compounded
by the contraction in crude oil demands and dwindling
prices at the international market. In a bid to stimulate
prices, the Organisation of Petroleum Exporting
Countries (OPEC) and its allies in mid-April 2020
agreed to a global production cut of about 10 million
barrels per day. This production cut, coupled with the
gradual easing of lockdown across most countries
resulted in an uptick in global crude oil prices, which
hovers between USD30/barrel and USD40/barrel in
June 2020.
The headline inflation rate increased to 12.4% in May
2020, for the ninth consecutive months owing to
supply constraints, higher input costs and increased
Nigeria Bank Analysis | Public Credit Rating Page 3
system liquidity. To curtail inflationary pressures,
CBN increased the cash reserve requirement (“CRR”)
by 500 basis points to 27.5% in January 2020, and has
also recently released some policies to cushion the
adverse impact of the COVID-19 pandemic on the
economy. These measures include, among others, a
reduction in interest rates on all CBN intervention
facilities to 5% from 9% (for one year with effect
from 01 March 2020), and the creation of N50bn
targeted credit facility to households and SMEs
negatively affected by the pandemic. However, the
pressures of the current macroeconomic challenges
have resulted in the depreciation of FX rate to
N360/USD and N380/USD from N306.5/USD and
N360/USD at the official window and Investors’ &
Exporters’ window, respectively. Similarly, the
external reserves declined to USD36.6bn at end-May
2020 from USD38.6bn as at 31 December 2019, with
further contractions expected over the short term on
account of the relatively low FX earnings. Given that
the Nigerian economy is heavily dependent on the oil
sector, which has overtime accounted for over 90% of
foreign exchange earnings and over 60% of
government budgetary revenues, the current
dwindling global crude oil price remains a major
concern.
In a bid to consolidate growth over the medium term,
the Federal Government of Nigeria (“FGN”) had
maintained an expansionary policy, with a budget of
N10.59tn for 2020 fiscal year (2019: N8.92tn). The
estimate was based on an oil benchmark of
USD57/barrel, a daily production output of 2.18mbpd,
new value added tax rate of 7.5% (from 5%
previously), inter alia. In light of the current
macroeconomic challenges, the FGN reviewed the oil
benchmark downwards to USD28/barrel, daily
production output to 1.8mbpd, while also indicating
external borrowing plans to cushion the economic
impact of the pandemic. GCR however, expects the
continuing slowdown in economic activities to have
significant implications for budget implementation
and its already elevated credit risk profile.
The Nigerian Stock Exchange (“NSE”) All-Share
Index (“ASI”) sustained a negative trend in 2020,
contracting by 5.9% as at end-May 2020. The bearish
stock market performance was largely driven by the
challenges in the macroeconomic landscape,
underwhelming trends in foreign portfolio
investments as well as profit takings.
Industry overview
As part of measures to boost credit extension and
stimulate lending to the real sector of the economy,
CBN in July 2019 issued a circular mandating
Deposits Money Banks ("DMBs") to maintain an
initial minimum loan to deposits ratio (“LDR”) of
60% by 30 September 2019 and subsequently
reviewed to 65% with effect from 31 December 2019.
According to CBN, failure to comply with this
specification would attract an additional CRR of 50%
to the lending shortfall of the target LDR. To allay
concerns of a possible spike in the industry's NPLs,
CBN in October 2019 granted DMBs' approval to
directly debit bank accounts belonging to loan
defaulters across all banks in the country, through
bank verification number and in collaboration with the
Nigeria Inter-Bank Settlement System Plc. While
cognizance is taken of the positive economy impact of
the minimum LDR, the increment of CRR to 27.5%
(from 22.5%) could exert liquidity pressures on most
banks within the short term, as well as constrain their
earnings capacity. Furthermore, CBN during 2019
restricted domestic investors and non-bank corporates
from participating in the Open Market Operation
(“OMO”) instruments. This restriction has
consequently led to a significant decline in yields on
fixed-income securities, which currently trend below
the average inflation rate.
Banking sector recorded improvement in profitability
in 2019, underpinned by growth in interest income on
account of expansion in loan book as well as fee and
commission income as transactions volume on digital
platforms increased. Per CBN statistics, total banking
sector assets stood firmer at N41.9tn at end-December
2019 (December 2018: N37.2tn), while credit
exposures increased by 12.6% to N22.3tn, as most
banks sustained efforts to comply with the stipulated
minimum LDR. The recorded expansion in loan
portfolio coupled with the sustained resilience of the
banking system saw the industry’s average NPL ratio
moderated to 6.1% at end-December 2019 (December
2018: 11.6%), while CAR declined by 80 basis points
year-on-year to 14.5%. The oil and gas remained the
dominant sector, accounting for over 30% of the
Nigerian banking sector’s credit portfolio at end-
December 2019. However, the slowdown in economic
activities and the current challenges in the oil and gas
sector (exacerbated by dwindling global crude oil
prices) pose a significant credit risk to the banking
sector and could impact NPLs and profitability alike
over the short term. To cushion this effect, CBN in
March 2020, introduced a number of monetary
policies, inter alia, include; extension of moratorium
on all regulatory intervention facilities; granting of
regulatory forbearance on loans to businesses and
households which are highly vulnerable to COVID-19
pandemic.
Statistics as at 31 December 2019 reveals that
Nigeria’s financial sector comprised twenty-two
commercial banks, four financial holding companies,
five merchant banks, two non-interest banks, and over
4,000 other financial institutions. The commercial
banks include eight international banks, eleven
national banks, and three regional banks. Nigeria’s
five largest commercial banks accounted for over 70%
of total industry’s assets at 31 December 2019. The
competitive landscape of the Nigeria financial system
remains stiff. This is further intensified by the
issuance of operational licence to payment service
Nigeria Bank Analysis | Public Credit Rating Page 4
banks (PSBs), financial technology companies
(Fintechs), and super agents to deepen financial
inclusion through the provision of diversified financial
services.
Competitive position
Wema ranks among the mid-tier banks in Nigeria,
with a market share of about 2% based on industry’s
total assets as at 31 December 2019. Wema’s
established position within the retail space in the
highly competitive Nigerian banking industry is well
noted. However, compared to other mid-sized banks,
Wema lags peers in balance sheet size and
profitability. Table 3 shows the bank’s key
performance indicators against selected peers.
Financial profile
Likelihood of support
Given the relatively small size of the bank within the
Nigeria banking industry, support is limited to its
shareholders.
Funding composition
Wema is mainly funded by customer deposits,
comprising 84.3% of the total funding at FY19
(FY18: 79.3%). Other funding sources include equity
(8.1%) and borrowings (7.7%). Details of each source
of funding are discussed below.
Customer deposits
Customer deposits rose significantly by 56.4% to
N577.3bn at FY19, supported by the various
innovations adopted by the bank (including digital
platform) and the aforementioned decline in yield on
fixed-income securities following CBN’s restriction,
which has led domestic investors’ to source for higher
returns on investments during the year. Wema
harnessed this opportunity by offering a slightly
higher rate to investors. Accordingly, term deposit
dominated the bank’s deposit mix at FY19, registering
an 86.9% growth and accounted for 61% of total
deposits at the balance sheet date. Current and
savings deposits also grew by 28.9% and 20.4%
(reflecting the bank’s intensified deposit mobilisation
efforts within the retail banking space) and accounted
for 22.8% and 13.1% respectively of the deposit book.
Looking ahead, management hopes to achieve 4%
growth in customer deposits by FY20, as efforts are
being intensified to penetrate a number of state
government for deposits.
Table 2: Deposit book characteristics (%) By type
Demand 22.8 Term 61.0 Savings 13.1 Others 3.1 Concentration Single largest 8.2 Ten largest 20.8 Five largest 16.2 Twenty largest 27.3
Maturity 0-3 months 58.9 6-12 Months 6.1 3-6 Months 21.7 > 12 Months 13.4
Source: Wema AFS.
The maturity profile of the deposit book is generally
short, with the bulk (58.9%) of the deposit liabilities
maturing within three months. Concentration risk
appears minimal, with the single and twenty largest
depositor accounting for 8.2% and 27.3% of the
deposit book at the balance sheet date.
Capital and borrowings
Wema’s total shareholders’ funds rose 8.4% to
N55.2bn at FY19 (mainly fueled by internal capital
generation and thus recording good buffer above the
statutory minimum capital requirement for the bank’s
license category). However, this translated to a
weakened risk weighted capital adequacy ratio
(“CAR”) of 13.6% (FY18: 18%) due to a more elastic
growth in risk assets. Hence, management’s plans to
raise additional equity capital over the medium term
to support capitalisation is considered appropriate.
Table 4: Capitalisation FY18 FY19
N'bn N'bn
Tier 1 capital 25.5 25.3
Tier 2 capital 8.6 8.5
Total regulatory capital 34.1 33.9
Total risk weighted assets ("RWA") 189.5 248.9
Regulatory capital: RWA (%) 18.0 13.6
Source: Wema AFS.
Outstanding borrowings stood at N48.8bn at FY19,
representing a year-on-year 7.3% growth. The
breakdown of the liability pool at the balance sheet
date is shown in Table 5. The bank’s borrowings
comprise various credit facilities secured from
financial institutions, including intervention funds Table 3: Competitive position*
Ecobank UBN FCMB Sterling Wema Wema vs. selected banks
As at 31 December 2019
Shareholders’ funds (N’bn) 264.3 245.8 175.1 119.6 55.2
Total assets (N’bn)† 1,980.9 1,836.6 1,593.4 1,167.9 706.8
Net loans (N’bn) 811.6 550.6 693.0 618.7 289.2
Net profit after tax (N’bn) 1.3 24.4 13.6 10.6 5.2
Total capital/Total assets (%) 12.8 15.3 15.3 13.9 11.3
Liquid and trading assets/total short-term funding (%) 31.8 50.3 20.3 26.9 32.5
Gross NPL ratio (%) 3.3 5.8 3.7 2.2 7.4
Net interest margin (%) 5.7 5.7 7.6 7.9 7.0
Cost ratio (%) 76.6 74.5 70.3 81.2 74.3
ROaE (%) 13.3 10.5 9.8 9.8 9.8
ROaA (%) 1.5 1.5 1.1 0.9 0.9
*Ranked by total assets. †Excludes balances held in respect of letters of credit. Source: Audited Financial Statements.
Nigeria Bank Analysis | Public Credit Rating Page 5
granted by Nigerian government-owned financial
institutions (CBN and Development Bank of Nigeria
(“DBN”) and Bank of Industry (“BOI”)) under its
agriculture, micro, small and medium scale enterprise
and manufacturing sectors special intervention funds
for on-lending to qualified customers.
Table 5: Borrowings FY18 FY19
N'm N'm
Qualifying Tier 2 capital 24,676.3 24,705.9
Wema SPV 24,676.3 24,705.9
Other borrowings 20,772.3 24,064.5
National Housing Fund 93.6 83.6
CBN MSMEDF 1,000.1 572.2
BOI 2,776.5 2,001.8
CBN Agricultural loan 825.2 1,945.2
Shelter Afrique 2,938.3 2,025.1
AFDB 5,639.4 4,920.9
ICD 7,493.8 -
DBN 5.4 12,515.7
Total 45,448.6 48,770.4
Source: Wema AFS.
Also included in the bank’s borrowings is a fixed rate
unsecured bond issued by Wema Funding SPV during
2016 and 2018 respectively, which qualifies as Tier 2
capital.
Liquidity positioning Wema’s liquidity position was under pressure, as the
bank recorded a shortfall in the statutory liquidity ratio
below the minimum requirement at some point during
FY19 (recording lowest ratio of 23.5%), albeit
normalising at year end at 32.4%. Furthermore, matching
of the bank’s asset and liability maturities at balance
sheet date shows a negative cumulative liquidity gap
across all maturity bands. The contractual liquidity gap
in the ‘less than three months’ maturity bucket stood at
N201.1bn (2.5 times of capital). Nonetheless, the
behavioral trend in the Nigerian banking space
indicates that a significant portion of deposits are
usually rolled over at maturity, offers some comfort
regarding liquidity risk severity.
Table 6: Net liquidity gap profile (N'bn)
<3 months
3-6 months
6-12 months
>1 year
Assets 189.8 48.5 144.1 149.8
Liabilities (390.9) (130.3) (44.7) (86.0)
Net liquidity gap (201.1) (81.8) 99.4 63.8
Cumulative liquidity gap
(201.1) (282.9) (183.5) (119.7)
Source: Wema AFS.
Operational profile
Risk management
Wema’s risk management framework is set up on
established policies to guide in the process of
identifying, analysing, managing and monitoring the
various risk inherent in the activities of the bank, as
well as setting appropriate risk limits and controls to
align the risks with the strategic objectives. The board
is responsible for the overall risk management of the
bank. These functions are performed through board
committees, which are assisted by management
committees. The bank has in place a full compliance
unit, aimed at ensuring adherence to the credit
approval process, as well as credit monitoring and
supervision.
Asset composition
Wema’s asset base expanded by 46% to N706.8bn at
FY19 and ended up at N776.1bn at 1Q FY20, fuelled
by increased funding. A review of the asset mix
shows a strong increase of 178.4% in cash and liquid
assets, which constituted a higher 42.6% of the
enlarged asset base. While net loans and advances
increased by 14.7% in absolute term, it constituted a
lower 40.9% of total assets at FY19, given the
quantum of increase in other components of the
balance sheet.
Table 7: Asset Mix FY18 FY19
N'bn % N'bn %
Cash and liquid assets 108.2 22.3 301.2 42.6
Cash 17.1 3.5 20.6 2.9
Liquidity reserve deposits 58.1 12.0 137.4 19.4
Treasury bills and bonds 12.6 2.6 107.0 15.1
Balances with other banks 20.4 4.2 36.3 5.1
Customer advances 252.2 52.1 289.2 40.9
Other investment securities 59.0 12.2 43.1 6.1
Property, plant and equipment 18.6 3.8 20.6 2.9
Other assets 46.2 9.5 52.5 7.4
Total 484.2 100.0 706.8 100.0
Source: Wema AFS.
On the other hand, the bank’s investment securities
(comprised treasury bills and bonds) declined 26.9%
and accounted for a lower 6.1% of the asset base at the
balance sheet date.
Loan portfolio
Gross loans and advances rose 15.2% to N301.3bn at
FY19. The bank possesses a relatively diversified
credit portfolio, with no sector exposure exceeding
20% of the book at the balance sheet date.
Table 8: Loan book characteristics (%)
By Sector:
Agriculture 3.9 Manufacturing 5.6
Oil & gas 19.2 Real estate 7.5
Construction 14.1 Transport 8.0
General commerce 16.6 General 8.7
Public sector 5.7 Others 10.9
Concentration: Maturity:
Single largest 4.4 0-3 months 27.7
Five largest 17.0 3-12 months 34.0
Ten largest 29.5 >12 months 38.3
Twenty largest 46.6
Product type:
Term loans 9.1 Others 1.4
Overdrafts 89.5
Source: Wema AFS.
Furthermore, concentration risk by obligor is
considered moderate, with the single largest obligor
accounting for 4.4% and 16.4% of gross loans and
shareholders’ funds respectively, while the twenty
largest obligors represented 46.6% of the book. The
maturity profile of the loan book is short-dated, with
61.7% of the exposures maturing within one year.
Nigeria Bank Analysis | Public Credit Rating Page 6
Going forward, given the current macroeconomic
environment characterised by the decline in crude oil
price and COVID-19 pandemic, management intends
to shift lending focus to sectors perceived to be
resilient. The bank has however projected a growth of
about 12.4% in loan book for FY20, while still
maintaining its stance on quality exposures.
Contingencies Off-balance sheet commitments increased by 33.3% to
N83.9bn at FY19, equivalent to 105% of the total
capital at FY19 (FY18: 83.3%). These comprised;
guarantee and indemnities (80.6%), bonds (4.7%), and
clean-line facilities and irrevocable letters of credit
(14.7%).
Asset quality Rapid loan growth impacted negatively on asset quality
in FY19. NPL rose by 70.8% to N22.2bn, translating to a
weaker gross NPL ratio of 7.4% at FY19 (FY18: 5%).
Further concerning is the decline in total arrears
coverage ratio to 54.5%, down from 72.3% at FY18.
However, management expects its strict loan selection
process, and a more aggressive approach in managing
stressed loans to minimise the risk of further
deterioration in asset quality on account of the prevailing
inclement operating environment.
Table 9: Asset Quality FY18 FY19
N'bn N'bn
Gross Advances 261.6 301.3
Performing 248.6 279.1
Impaired 13.0 22.2
Provision for impairment (9.4) (12.1)
12-month ECL (5.5) (7.1)
Lifetime ECL not credit-impaired - (0.4)
Lifetime ECL credit-impaired (3.9) (4.6)
Net NPLs 3.6 10.1
Selected asset quality ratios:
Gross NPLs ratio (%) 5.0 7.4
Net NPLs ratio (%) 1.4 3.4
Net NPLs/Capital (%) 4.8 12.6
Source: Wema AFS.
Financial performance
A five year financial synopsis together with three
months unaudited results to 31 March 2020, is
presented on page 7 of this report, supplemented by
the commentary below.
The bank maintained an upward trajectory in
profitability over the last three years, attaining a review
period high of N6.8bn in FY19. Performance in FY19
was supported by non-interest income, which grew
74.2% to N24.2bn (buoyed by growth in securities
trading). Notwithstanding the notable rise in operating
expenses (largely staff cost related) cost ratio declined to
74.3% in FY19 (FY18: 79.7%). Accordingly, return on
average equity and assets (“ROaE” and “ROaA”)
improved to 9.8% and 0.9% in FY19 from 6.6% and
0.8% in prior year respectively.
Table 10: Budget vs. interim results (N’bn)
Actual FY19
Budget FY20
Actual 1Q FY20
% of budget*
FY20
Income statement Net interest income 26.0 31.0 6.7 86.5
Other income 24.2 19.8 3.9 78.8
Total income 50.2 50.8 10.6 83.5
Impairment charge (6.1) (7.5) (0.6) 32.0
OPEX (37.3) (38.3) (8.9) 93.0
NPBT 6.8 5.0 1.1 88.0
Balance sheet
Customers deposits 577.3 600.0 596.4 99.4
Net advances 289.2 325.0 313.8 96.6
Total assets 706.8 733.5 776.1 105.8
Tier 1 capital 55.2 56.9 56.1 98.6
*Annualised Source: Wema.
Per management, the current macroeconomic
dynamics have been considered in drawing up the
revised budget. As such, a 26.5% decline at the pre-
tax profit level was forecast, which is to be driven by
income growth. However, for the three-month period
ending 31 March 2020, the bank delivered a pre-tax
profit of N1.1bn, translating to 88% of the budget on
annualised basis. Nevertheless, management remains
optimistic that the recorded unfavorable variance in
performance would be offset in the remaining period
of the year based on various initiatives put in place.
Nigeria Bank Analysis | Public Credit Rating Page 7
Year end: 31 December
Statement of Comprehensive Income Analysis 2015 2016 2017 2018 2019 Q1 2020*
Interest income 37,128 44,560 53,073 57,635 70,682 16,893 Interest expense (19,408) (25,910) (33,306) (30,643) (44,696) (10,178) Net interest income 17,720 18,650 19,767 26,992 25,986 6,715 Other income 8,664 9,801 12,196 13,895 24,208 3,884 Total operating income 26,383 28,451 31,963 40,887 50,194 10,598 Impairment charge 78 (412) (2,180) (3,511) (6,131) (566) Operating expenditure (23,470) (24,793) (26,774) (32,579) (37,303) (8,902) Net profit before tax 2,991 3,245 3,009 4,798 6,760 1,130 Tax (718) (685) (754) (1,471) (1,560) (153) Net profit after tax 2,273 2,561 2,255 3,326 5,200 977 Other comprehensive income 22 (154) 140 0 472 (5)
Total comprehensive income 2,295 2,407 2,396 3,327 5,672 972
Statement of Financial Position Analysis
Subscribed capital 68,157 68,157 27,985 27,985 27,985 27,985 Reserves (incl. net income for the year) (22,093) (19,687) 21,630 22,904 27,175 28,147 Hybrid capital (incl. eligible portion of subordinated term debt) 25,000 12,732 6,328 24,676 24,706 24,706 Total capital and reserves 71,064 61,202 55,943 75,565 79,867 80,839
Bank borrowings (incl. deposits, placements & REPOs) - 37,434 26,575 - 3,638 51,810 Deposits 265,494 198,091 180,428 316,291 499,950 531,541 Short-term funding (< 1 year) 265,494 235,525 207,003 316,291 503,588 583,351
Deposits 19,484 85,212 74,033 52,908 77,334 64,900
Other borrowings 27,290 19,362 33,131 20,772 24,064 22,325
Long-term funding (> 1 year) 46,774 104,574 107,164 73,681 101,398 87,225
Payables/Deferred liabilities 12,766 14,501 12,558 18,681 21,932 24,677 Other liabilities 12,766 14,501 12,558 18,681 21,932 24,677
Total capital and liabilities 396,098 415,802 382,669 484,219 706,785 776,092
Balances with central bank 53,386 48,162 26,496 58,054 137,393 186,765 Property, Plant and Equipment 15,968 16,614 17,079 18,603 20,638 20,845 Receivables/Deferred assets (incl. zero rate loans) 43,709 42,197 61,799 46,177 52,485 113,093 Non-earnings assets 113,062 106,973 105,373 122,834 210,516 320,702
Short-term deposits & cash 9,535 12,951 13,268 17,115 20,634 27,793 Loans & advances (net of provisions) 185,597 227,009 215,840 252,190 289,240 313,799 Bank placements 46,404 6,431 3,675 20,422 36,255 23,693 Marketable/Trading securities 12,319 3,396 19,569 12,589 106,958 67,685
Other investment securities 28,789 58,680 24,898 59,029 43,143 22,380
Investment in properties 394 362 46 40 39 39
Total earning assets 283,036 308,828 277,296 361,385 496,269 455,390
Total assets† 396,098 415,802 382,669 484,219 706,785 776,092
Contingencies 19,057 37,526 48,301 62,920 83,890 99,780
Ratio Analysis (%)
Capitalisation
Internal capital generation 5.0 5.0 4.8 6.5 10.3 1.7
Total capital / Net advances + net equity invest. + guarantees 30.4 18.9 19.4 20.2 19.2 18.5
Total capital / Total assets 17.9 14.7 14.6 15.6 11.3 10.4
Liquidity ‡
Net advances / Deposits + other short-term funding 65.1 70.8 76.8 68.3 49.8 48.4
Net advances / Total funding (excl. equity portion) 59.4 66.7 68.7 64.7 47.8 46.8
Liquid & trading assets / Total assets 17.2 5.5 9.5 10.4 23.2 15.4
Liquid & trading assets / Total short-term funding 25.7 9.7 17.6 15.8 32.5 20.4
Liquid & trading assets / Total funding (excl. equity portion) 21.9 6.7 11.6 12.9 27.1 17.8
Asset quality
Impaired loans / Gross advances 2.7 5.1 4.9 5.0 7.4 7.4
Total loan loss reserves / Gross advances 1.3 1.3 1.4 1.1 1.0 0.9
Bad debt charge (income statement) / Gross advances (avg.) (0.0) 0.2 1.0 1.5 2.2 0.2
Bad debt charge (income statement) / Total operating income (0.3) 1.4 6.8 8.6 12.2 5.3
Profitability
Net income / Total capital (avg.) 2.8 3.6 4.1 5.1 7.3 1.2
Net income / Total assets (avg.) 0.6 0.6 0.6 0.8 1.0 0.1
Net interest margin 8.1 7.7 8.2 10.0 7.0 6.2
Interest income + com. fees / Earning assets + guarantees (a/avg.) 5.8 5.7 6.0 7.2 4.7 1.0
Non-interest income / Total operating income 32.8 34.4 38.2 34.0 48.2 36.6
Non-interest income / Total operating expenses (or burden ratio) 36.9 39.5 45.6 42.6 64.9 43.6
Cost ratio 89.0 87.1 83.8 79.7 74.3 84.0
OEaA (or overhead ratio) 6.0 6.1 6.7 7.5 6.3 1.2
ROaE 5.1 5.4 4.6 6.6 9.8 7.0
ROaA 0.6 0.6 0.6 0.8 0.9 0.5
Nominal growth indicators
Total assets 4.2 5.0 (8.0) 26.5 46.0 9.8
Net advances 24.3 22.3 (4.9) 16.8 14.7 8.5
Shareholders funds 5.2 5.2 2.4 2.6 8.4 1.8
Total capital and reserves (24.3) (13.9) (8.6) 35.1 5.7 1.2
Deposits (wholesale) 10.0 (0.6) (10.2) 45.1 56.4 3.3
Total funding (excl. equity portion) 15.4 8.9 (7.6) 24.1 55.1 10.8
Net income (3.3) 4.8 (0.5) 38.9 70.5 (31.5)
*Unaudited results as at end-March 2020
† Excludes balances held in respect of letter of credit.
‡ Please note that for these ratios, liquid assets exclude the statutory reserve balance.
Wema Bank Plc(Naira in mill ions except as noted)
Nigeria Bank Analysis | Public Credit Rating Page 8
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