Since 1945 when it commenced operations, Wema Bank has continued to show sufficient resilience having survived through numerous challenging times and circumstances to stand today as the only surviving bank among its indigenous peers. As at 2014, it operated with a regional banking license with branches spread across some 130 locations.
As Wema Bank re-engineered itself, it re-engaged the market on the basis of differentiating core values of mutual respect, performance driven, professionalism and innovation. This is because the bank like many others, had come to realise that strong service culture embedded in strong core values can be valuable shield against error of strategy.
A major decision of strategic importance taken by the bank in 2014 is the decision to dispose of interest in an associate company – Associated Discount House. This is subsequent to a decision by the later to convert to the business of Merchant Banking. This decision is consistent with provisions of CBN’s regulation.
Wema Bank is owned by about 248,900 shareholders, it has about 1,172 staff members and serves customers who up to 2014 concentrated mostly within the geographical areas of South West and South South, the area covered by the regional license held by the bank in 2014. As at 31st December 2014, total asset base was N383 billion which made the bank one of the smallest banks in the industry.
Deposit Liabilities and Liquidity
Notwithstanding the tight monetary policy that brought enormous pressure to the money market, Wema Bank succeeded in growing deposit appreciably from N218 billion in 2013 to N259 billion leveraging on strong loyalty of customers.
Inclusive of other short term liabilities, vulnerable liabilities are estimated by our analysts to be in the region of N276 billion.
With liquid assets worth some N152 billion, the bank appeared to have maintained a reasonable level of liquidity sufficient to just meet the requirements of customers and satisfy regulatory prescriptions. Adjusted liquidity ratio came down remarkably from a high of 51% in the preceding year to 30%. The proportion of liquid to total assets also declined to 40% from 43% in the earlier period.
The figures suggest that the bank may have faced some challenges in meeting obligations far more then what was minimally prescribed by regulation. The key indication adopted by management of the bank in measuring, monitoring and controlling liquidity risk is the liquid asset to total assets ratio. The measure is actively assessed periodically and within the general framework of the Enterprise wide Risk Management System. This apparently enabled the bank to walk the narrow part of its liquidity during the period without unduly harming operations.
In 2013 Wema Bank courageously approached the capital market by way of private placement to raise fund required to shore up the capital base which would among others strengthen the resolve from the bank to restore its national operations. The offer proved very successful with issue proceeds of about N40 billion which made shareholders’ funds to close in positive territory of approximately N41 billion. In 2014, this increased to N44 billion which translated to risk weighted asset ratio of 19%. This is considerably adequate and comfortable for the nature of banking license the bank held for that period and the restricted coverage of operations.
As the bank restructured its balance sheet and returned to good financial health after some past operational and regulatory challenges, it moved to restore earnings potential and resumed the process of growing lending operations. This further witnessed a boost in 2014 as gross amount of loans closed at N152 billion, up from N142 billion in 2013. With the benefit of recent experience, the bank instituted credible risk management processes such that non performing loan ratio actually remained at approximately 2% between 2013 and 2014.
Unlike in the past when it ran into serious regulatory challenges in meeting prescribed figures, the bank met the Basel II requirements which means vastly improved risk management framework. The figure shown for asset quality, all things being equal, was one of the best reported in the industry during the period,.
With strict adherence to prescribed standards which included disciplined internal credit risk rating methods, approval limits for various exposures classified according to geography and product, the bank was able to maintained high quality standard comparable to those of leading risk managers and competitors in the industry.
Earnings and Profitability Performance
During the 2014 financial year, Wema Bank was able to produce gross earnings of N42 billion up from N37 billion it achieved in 2013. Interest component of this amount was as high as N35 billion or about 84% which shows that Wema Bank relied the most on this traditional source in the entire industry for which it was able to achieve an adjusted margin of 52%. Interestingly this margin is not competitive enough as only 2 other banks reported figures that showed lower margins.
On the other hand, the relatively high quality of risk assets required that impairment charges to the profit and loss account is muted at level that closed match that of then preceding year. Coming down to line, operating expenses rose slightly on the back of some significant rise of N1.1 billion on personnel costs and marginal rise on other overheads.
Summarising, the impact of these factors is a rise in profit after tax from N1.6 billion in 2013 to N2.40 billion in 2014. In absolute terms, this is the lowest figure reported in the industry in 2014 Annual Bank Review. In relative terms, it also yielded a humble return on average equity of 6%, slightly worse than 7% in the preceding year. Earnings per share also turned out to be the lowest at 6k. No dividend was reported as the bank continued to move towards strengthening its capital base to support future expansion.
As we prepare Wema Bank 2015 full year coverage in the next Annual Review of Banks coming up in April 2016 the interim results is showing significant improvements amidst some headwinds. We are expecting to give the 2015 analytics of Skye brand'”s financials in April 2016;