Money Market

Analyzing Wema Bank’s Decision to Right Issue in Q3, Off Rating Watch List

Published

2 years ago

June 23, 2021

By Niyi Jacobs, Editor

Spotlight on Wema Bank Financial Position

Wema Bank Plc plans to boost its capital position with a right issue in the third quarter of the financial year 2021.

BUSINESS EDITOR, NIYI JACOBS, in this analysis writes on this decision which may removes the bank from Fitch’s Rating Watch negative list.

Wema Bank Plc closed at 55 Kobo per share on Friday, currently valued below N22 billion on 33.57 billion outstanding shares on the Nigerian Exchange. That means to raise N10 billion, the lender would probably need to issue 20 billion shares.

Recently, Fitch Ratings affirmed the lender’s Long-Term Issuer Default Rating (IDR) at ‘B-‘ or highly speculative and removed it from Rating Watch Negative (RWN) last month with a stable outlook. It said the removal of the RWN on Wema’s IDRs, Viability Rating (VR) and National Ratings reflects Fitch’s expectation that, having recently received shareholder approval, plans for a significant rights issue in 3Q-2021 will likely proceed as intended and improve capitalisation and leverage to more acceptable levels”.

The rating agency said this also reflects a view that loan and asset growth will evolve at a slower pace than in recent years and near-term risks to the bank’s financial profile from the economic fallout of the pandemic have receded. It added that the stable outlook on Wema’s Long-Term IDR reflects view that the current rating has sufficient headroom to absorb moderate shocks from sustained downside risks to the operating environment over the next 12-18 months.

Meanwhile, lender’s IDRs and National Ratings were driven by its stand alone credit worthiness, as expressed by its ‘b-‘ VR.Fitch said the VR considers the concentration of the bank’s activities within Nigeria’s challenging operating environment, a small franchise, high credit concentrations and a weak funding profile.In addition, it also considers easing pressures on asset quality and profitability from the economic fallout of the pandemic and our expectation of a material improvement in capitalisation and leverage following the rights issue. “Capitalisation and leverage have weakened significantly in recent years as a result of an aggressive growth strategy, with the tangible leverage ratio declining to 4% at end-Q1-2021 from 7.6% at end of 2017, which is weaker than peers’.

Wema’s Fitch Core Capital ratio printed 14.4% at end of Q1-2021, broadly in line with peers’ but is considered in view of the bank’s particularly low risk-weight density at 27% at end of Q1-2021.The rating explained that Wema’s capital adequacy ratio of 14.8% at end of Q1-2021, which is supported by Tier 2-qualifying subordinated debt, is comfortably above the 10% minimum requirement for a bank with a national license.“The removal of the RWN mainly reflects our view that the large rights issue planned for Q3-2021 will likely proceed as intended and will significantly improve the tangible leverage ratio to over 7%, which is more consistent with peers’.

“This follows the recent approval of the resolution to raise additional capital at the annual general meeting, commitment from the largest shareholders to participate in the rights issue, and the commencement of the regulatory approval process”, the ratings said.Wema’s impaired loans -stage 3 loans under IFRS 9 – ratio increased moderately to 5.2% at end-2020 from 3% at end-2019 as a result of the pandemic.Also, Stage 2 loans also increased to 9.8% of gross loans at end-2020 from 5% at end-2020.

The bank’s impaired loans ratio declined to 3.8% and stage 2 loans declined to 6.5% of gross loans at end-Q1-2021 owing to customer repayments due to a recovery in economic activity.

Fitch said although the overwhelming majority of customers are making principal repayments following the expiry of most debt relief measures at end of Q1-2021, loan quality remains under pressure as a high percentage of gross loans (46% on a cumulative basis at end-Q1-2021) have been restructured since the start of the pandemic.The ratings noted that specific coverage of impaired loans which printed at 38% at end of Q1-2021 is fairly low due to continued recovery expectations and sound coverage by collateral. “Single-borrower concentration is significantly higher than peers’, with the 20-largest customer exposures equivalent to 39% of gross loans at end-2020”, Fitch said.

However, the rating agency added that exposure to the problematic oil and gas sector is lower, representing 17% of gross loans and exposure to the riskier upstream segment is limited.Foreign-currency lending which accounted for 11% of gross loans at end-2020 is also distinctly lower than peers’, which results in less exposure to foreign currency shortage and naira devaluation risks. “Our asset-quality assessment also considers substantial non-loan assets (64% of total assets at end of Q1-2021) that largely comprise Nigeria sovereign fixed-income securities and cash reserves at the Central Bank of Nigeria (CBN)”.

Fitch said Wema Bank profitability metrics tend to be considerably lower than those of larger peers, with operating returns on risk-weighted assets averaging 2.1% over the past four years, due to weaker net interest margins (NIMs) and a high cost-to-income ratio. “Weaker NIMs are explained by a greater reliance on more expensive term-deposit funding, whereas the high cost-to-income ratio is a function of weak revenue generation, investments in marketing and digitisation, and high regulatory costs applicable to all Nigerian banks”, it added.

Lender’s operating returns on risk-weighted assets declined to 1.7% in 2020 from 2.6% in 2019, largely reflecting a material reduction in trading income from the high levels experienced in 2019. Wema’s NIM remained broadly stable at 5.9% in 2020, with the fall in sovereign fixed-income yields and increased cash reserves at the CBN being offset by a material decline in cost of funding.Loan impairment charges, which equalled 1.2% of average gross loans in 2020, were fairly contained as a result of strong collateral underpinning newly-classified impaired loans.

Operating returns on risk-weighted assets recovered to 2.2% in Q1-2021 as a result of a significant decline in loan impairment charges.Fitch concluded that Wema’s National Ratings reflect the bank’s creditworthiness relative to that of other issuers in Nigeria. “They are at the lower end of the Nigerian national scale, primarily reflecting Wema’s small franchise, constrained profitability, adequate leverage following the rights issue and a weak funding profile”, it noted.

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Money Market

Fidelity Records PBT Of N76.3bn For H1 2023

Published

3 weeks ago

September 4, 2023

Business Echo Magazine

Fidelity Bank Records Stellar Performance in FY 2022

…Declares interim dividend of 25 kobo Per Share

Leading financial institution, Fidelity Bank Plc has recorded an impressive 204.4% growth in Profit Before Tax for the first half of 2023 to N76.3bn according to the bank’s recently issued financial result.

A review of the results published on the Nigerian Exchange Group (NGX) on Friday, 1 September 2023, showed a positive performance across all financial indices, reaffirming the Bank’s position as one of the fastest-growing and well-managed financial institutions in Nigeria. Gross earnings for the period grew by 59.6% to ₦247.1billion from ₦154.8billion reported in June 2022. Profit After tax stood at ₦61.9billion representing a growth of 166.0% over ₦23.3billion recorded in the corresponding period. This translates to an Earning per Share of 194kobo. The Bank’s Net Loans & Advances grew by 25.1% from ₦2.1trillion recorded as of December 2022 to ₦2.6trillion in June 2023 with corresponding growth in Customer Deposits which increased by 23.2% to ₦3.2trillion from ₦2.6trillion in December 2022.

The Bank’s balance sheet remained strong with a 27.4% growth in Total Assets from ₦3.9trillion in December 2022 to ₦5.1trillion. The Bank’s non-performing loans remained low and within the regulatory threshold at 3.24% with adequate coverage of 111%. Return on Equity (ROE) and Return on Assets (ROA) closed at 34.9% and 2.8% respectively.

On the back of the strong H1 2023 performance, the board of the bank approved an interim dividend of 25k per share making it the second consecutive year the bank would be paying interim dividends and another demonstration of its capacity to provide shareholders with sustainable value.

Commenting on the Bank’s laudable performance, Nneka Onyeali-Ikpe, MD/CEO, Fidelity Bank Plc noted, “We are pleased to report on another period of quality growth across all financial and non-financial indices. Our performance during the first half of the year reflects the resilience of our bank and the fundamental strength of our business to deliver long-term sustainable value at a time that has been characterized by global economic headwinds. As a bank, we remain committed to our goal of helping individuals to grow, inspiring businesses to thrive, and empowering economies to prosper.

The Bank’s impressive H1 2023 results come to join a string of recent achievements by Fidelity Bank. It would be recalled that the Bank’s stock was reclassified from small-price stock to medium-price stock by the NGX in July 2023 on the back of a consistently impressive performance.

Similarly, the bank recently emerged as the company with the highest earnings per share on the NGX based on half-year financial figures for the second year running.

To sustain this sterling performance, the bank’s shareholders, at an Extra-Ordinary General Meeting held on 11 August 2023, unanimously approved a capital raising exercise via a Public Offer and Rights Issue.

“We will continue to monitor and proactively manage the evolving risks in the economy while ensuring our commitments to our customers and shareholders are fulfilled. The interim dividend of 25kobo per share, a 150% increase compared to the 10kobo interim dividend in 2022FY, attests to the value we place on the unwavering support from our shareholders”, stated Onyeali-Ikpe.

Fidelity Bank is a full-fledged commercial bank operating in Nigeria with over 8 million customers serviced across its 250 business offices and digital banking channels. The bank was recently recognized as the Best SME Bank Nigeria at the 28th annual Euromoney Awards for Excellence 2023; and the Best SME Bank Nigeria 2022 by the Global Banking & Finance Awards. The bank has also won awards for the “Fastest Growing Bank” and “MSME & Entrepreneurship Financing Bank of the Year” at the 2021 BusinessDay Banks and Other Financial Institutions (BAFI) Awards.

Money Market

Fidelity Bank To Aid Schools Prepare For New School Sessions With Edu Loan Product

Published

3 weeks ago

September 3, 2023

Business Echo Magazine

Fidelity Bank records highest earnings per share on the NGX for H1 2023

By Moninuola Sulaiman

As the summer break winds down, leading financial institution, Fidelity Bank Plc, has emphasised its devotion to help schools prepare adequately for the next session and deliver quality education.

Through its bespoke product known as the Fidelity Edu Loan, administrators of registered private primary, secondary and tertiary institutions in Nigeria can access loans of up to N180million.

In a chat with journalists, Divisional Head, Product Development, Fidelity Bank Plc, Osita Ede said, “At Fidelity Bank, we recognize the pivotal role quality education plays in the development of any nation and this informed our introduction of the Fidelity Edu Loan. Through the offering, privately-run educational institutions can access loans at a friendly rate for working capital needs like minor renovation on their school property, financing the purchase of school supplies like books, teaching materials, furniture or uniforms; and making salary payments.

“Similarly, schools can leverage the Fidelity Edu Loan to purchase fixed assets like school buses, generators and construct new school buildings.

To be eligible for the product, the requesting customer must have operated their educational institution for at least three years and should be duly registered with the relevant authorities.

“The Fidelity Edu Loan is part of our larger education finance proposition at Fidelity Bank as we aim to empower everyone within the education ecosystem, including the schools, parents, and contractors, with amazing financial and non-financial products and services.

For instance, we have the Fidelity Personal loan which provides instant loans of up to N5 million to employees of private and public organisations by simply dialing *770*08# from their mobile phones. This can become handy for paying school fees or meeting other personal needs”, explained Ede.

Fidelity Bank is a full-fledged commercial bank operating in Nigeria with over 8 million customers serviced across its 250 business offices and digital banking channels. The bank was recently recognized as the Best SME Bank Nigeria 2022 by the Global Banking & Finance Awards. The bank has also won awards for the “Fastest Growing Bank” and “MSME & Entrepreneurship Financing Bank of the Year” at the 2021 BusinessDay Banks and Other Financial Institutions (BAFI) Awards.

Money Market

Global Alliance For Banking On Values Visits LAPO Microfinance Bank

Published

3 weeks ago

September 2, 2023

Business Echo Magazine

Global Alliance For Banking On Values Visits LAPO Microfinance Bank

Rashidat Okunlade Writes

Martin Rohner, Director, Global Alliance for Banking on Values (GAVB) has visited LAPO Microfinance Bank, a member of the Global Alliance for Banking on Values (GAVB) and founding member of the GAVB- Africa Chapter.

Globally, the discussions on sustainable finance and climate change are on the front burner between State and Non-State actors. Energizing and leading this discourse are institutions and organized bodies such as LAPO MfB and GAVB. In 2019, LAPO MfB in partnership with GAVB organized the first-ever international sustainability conference themed “Enhancing Sustainable Finance in the Microfinance sub-sector” https://www.lapo-nigeria.org/Environmental-Social-Governance

Left-Right: Israel Aibuedefe, Executive Director, Business Support, Cynthia Ikponmwosa, MD, LAPO MfB, Martin Rohner, Executive Director, Global Alliance for Banking on Values, Faith Osazuwa-Ojo, Executive Director, Operations, LAPO Microfinance Bank.

In a statement released by the bank, Oluremi Akande, Director of Marketing and Communications, says, “Beyond Savings and Loans, LAPO MfB is deliberate about its social performance. In essence, the bank has carefully designed social components into its business operations, products, and services it provides, to ensure a positive impact on people, and the planet, and profit in the most sustainable manner.

Akande reiterates, “Our vision is to continue to deliver triple-bottom-line returns through our genuine commitment to the implementation of our various ESG mandates, partnerships, and advocacy programs aimed at improving the lives of members of low-income households, especially, women and children”.

https://www.linkedin.com/feed/update/urn:li:activity:7087356785497452545

The earth is our habitat; its sustenance largely depends on deliberate individual and collective actions!