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

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Wema Bank Set To Delight Shareholders With Improved Dividend

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.

Money Market

Sterling Positions For Expansion With New Structure

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Sterling showers Nigerian youths with Top Performing Equities

Olushola Okunlade Writes

With the unanimous support received from its shareholders, Sterling Bank, soon to be known as Sterling Financial Holdings Company, is firmly positioned to expand its financial services footprint from traditional banking and deliver more value to its shareholders.

According to the publicly available filings reviewed from the website of the Nigerian Exchange Limited (NGX), upon final ratification by the regulators, the commercial banking subsidiary of the holding company, Sterling Bank; will continue to operate with its current name as a limited liability company, with shares transferred from the publicly traded company transferred to the newly formed Sterling Financial Holdings Company.

At a recently held court-ordered meeting where the resolution was approved by the bank’s shareholders, the chairman of the bank’s board, Asue Ighodalo, said, “Following the implementation of the scheme, shareholders will exchange their shares in the Bank for shares in HoldCo in the same proportion as their current holdings in the Bank, which will be a regulated entity for CBN purposes.”

The Chairman added that the scheme would provide several benefits to the shareholders of the Bank, some of which include facilitating diversification into other permissible business lines, thereby promoting growth and enhancing shareholder value and facilitation a consolidated financial strength of the group, which will improve access and ability to raise capital.

According to Chief Executive of Sterling Bank, Abubakar Suleiman, the advantages of the newly formed holding company include value creation to maximise earnings through new businesses, agility to optimise for opportunities and adapt to a rapidly changing market, maximise current and future talent potential with opportunities within the group and subsidiaries to nurture and engage its wealth of young and innovative talent.

The holding company also affords Sterling another opportunity to leverage its successful HEART strategy, which has seen the bank make consolidated investments in the Health, Education, Agriculture, Renewable Energy, and Transportation sectors, growing the company’s year-on-year profits to record highs despite strong economic headwinds.

With the adoption of a Holdco structure, Sterling now possesses the latitude to make inroads into other sectors within financial services, such as pensions, asset management, payment services, real estate, and different verticals, along with the current banking licenses held by the commercial and non-interest banking subsidiaries, Sterling Bank and The Alternative Bank. 

In recent times, the bank has doubled down on digitisation with specialised products through the development and introduction of Specta, OneBank, I-invest, Gazelle, and Omni X to fulfill the market’s needs for innovative retail and commercial banking solutions.

A holding company, or Holdco, is a company set up for the purpose of making and managing, for its own account, equity investment in two or more companies, being its subsidiaries, engaged in the provision of financial services, one of which must be a bank.

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Money Market

FirstBank Partners Verve International

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FIRSTBANK UNVEILS A FULLY AUTOMATED SELF SERVICE BRANCH, STRENGTHENS DIGITAL TRANSFORMATION IN NIGERIA

…Makes Customers Millionaires In FirstBank Verve Card Promo

Olushola Okunlade Writes

In partnership with FirstBank – Nigeria’s premier and leading financial inclusion services provider – Verve International, Africa’s leading payment technology and card business, has launched its third National Consumer promo designed to reward users of FirstBank verve card with exciting gifts and cash prizes to appreciate their patronage and use of the card to carry-out their electronic banking transactions.

The ongoing 2-month promo will end on 30 October 2022 as 20 customers (10 customers per month) with the highest transaction count during the promo will be made millionaires, winning the sum of N1 million each. Also, N20,000 will be won by 25 customers monthly.

On the other hand, 2620 FirstBank verve cardholders that double their transactions every week, stand a chance to enjoy 10% cashback capped at N2,000 per customer.

Speaking on the promo Chuma Ezirim, Group Executive, e-Business & Retail Products, FirstBank said “we appreciate our partnership with Verve Card through the years; a partnership of empowerment and opportunities which include growing the economy, supporting new businesses, and preventing unemployment. FirstBank verve card holders are encouraged to keep using their cards as it is a card offering that promotes a safe, convenient, and rewarding digital banking experience with 20 customers standing a chance to be millionaires at the end of the promo.” 

Verve card is a secure debit card that allows cardholders to conveniently meet their daily financial needs such as payment for goods and services, airtime recharge, bill payments, funds transfer, etc. Verve card is accepted across all ATMs, POS, Web, and Mobile Platforms in Nigeria.

The promo is also opened to new verve cardholders as non-verve cardholders are encouraged to visit the nearest FirstBank branch today to pick up a Verve card and start getting rewarded!

Only recently, FirstBank – in partnership with Verve – rewarded over 2601 FirstBank verve cardholders with various prizes; including N20,000 cash prize, N10,000 cash prize, N10,000 worth of airtime; power generating sets, refrigerator, cooking gas, smart TV, and the grand prize of a brand-new car to a lucky winner.

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My Pikin & I Raffle Draw: LAPO Microfinance Bank To Reward Savers

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Olushola Okunlade Writes

LAPO Microfinance Bank Limited (LAPO MfB) a premium microfinance institution in Nigeria is committed to its vision of social and economic empowerment of members of low-income households by deploying responsive products and financial services.

My Pikin & I Raffle draw is scheduled to hold on the 30th of September, 2022 by 10:00 am to reward its savers who have participated in the promo by saving a minimum of N5,000 monthly for a period of 3 months or more during the campaign.

The LAPO Microfinance Bank event will be streamed Live on Facebook and YouTube to reward its loyal customers.

My Pikin & I savings account is a product of deep research, carefully designed to cater to low-income earners with very low entry requirements to enable parents or guardians, especially women to achieve targeted savings to secure a sustainable future for their children/wards.

The promo will end on Friday 30th of September, 2022, savers will be rewarded with amazing prizes and keep saving to benefit from the scholarship, insurance, and interest rate on their savings.

My Pikin & I also provide an easy and secure platform to save, the dynamics of products ensure that its objective of inculcating a savings culture is achieved by setting savings milestones.

In a bid to stimulate more interest in saving for the future, the bank embarked on the My Pikin & I promo that provided a simple savings platform with very huge life-changing benefits:  1-year free insurance cover (fire, burglary & health), scholarship, and interests on savings.

In 2019, the Southern Swamp Associated Gas Solutions project was commissioned, and the SPDC JV is planning to reduce associated gas flaring further through its Forcados Yokri gas-gathering project, of which large parts are set to be completed in 2022. Despite such efforts to reduce continuous flaring, unfortunately flaring intensity (the amount of gas flared for every tonne of oil and gas produced) at both SPDC- and SNEPCo-operated facilities increased in 2021 owing to short-term operational issues. Flaring from SPDC-operated facilities increased by around 5% in 2021 compared with 2020. The increase was primarily because of the extended outage of the gas compression system in SPDC’s shallow-water operations. The system was restored and became operational from January 2022. Flaring at SNEPCo-operated facilities rose by around 160% in 2021 compared with 2020. This was mainly because of an increase in flaring on the Bonga floating production, storage and offloading (FPSO) vessel. Repairs to a flex-joint on the Bonga FPSO’s gas export riser in the second quarter took longer than expected, in part because of weather conditions. While repairs were under way, the FPSO continued to produce oil and therefore flaring was necessary for safety reasons. The repairs were safely concluded in July 2021. Although flaring intensity levels rose in 2021, SPDC and SNEPCo over the last 10 years have almost halved the combined amount of hydrocarbons they flare from 1.5 million tonnes in 2012 to 0.8 million tonnes in 2021. This reduction is the result of a strict flaring reduction management process and both SPDC and SNEPCo will continue to work in close collaboration with joint-venture partners and the government to make progress towards ending routine flaring of associated gas. NIGERIA LNG EXPANSION UNDERWAY Global demand for LNG continues to grow as the world increasingly seeks reliable supplies of lowercarbon energy. Shell’s investment in Nigeria’s gas infrastructure for export is expected to help 6 This is according to a data provided by global research and consultancy business Wood Mackenzie. the country benefit further from revenues. Shell Gas B.V. and its partners took a final investment decision in 2020 on a new LNG processing unit – known as Train 7 -- at NLNG. The expansion is expected to create around 12,000 jobs for Nigerians during construction and stimulate growth of the local oil and gas service sector, with 55% of engineering and procurement of goods and services being sourced in-country. Train 7 is expected to ensure Nigeria’s continued place as a global player in a lower-carbon energy source. Once operational, Train 7 will add around 8 million tonnes per annum of capacity to the Bonny Island LNG facility, taking the total production to around 30 million tonnes per annum. In 2021, NLNG began awarding procurement and construction contracts. Early works started at the site. The first phase of the worker village is expected to be ready for occupancy in 2022 and the new material offloading facility ready for use by the end of 2022. NLNG’s Train 7 is expected to come onstream in the middle of the 2020s. KEY LICENCE RENEWED FOR DEEP-WATER SNEPCo has interests in four deep-water blocks in the Gulf of Guinea, two of which it operates. Today, nearly one-third of Nigeria’s deep-water oil and gas production comes from the Bonga and the nonoperated Erha fields.6 Since production began in 2005, Bonga alone has produced more than 950 million barrels of oil with the 2021 average oil production per day at 105,000 barrels. The Bonga FPSO vessel has a total production capacity of 225,000 barrels of oil per day and 150 standard cubic feet of gas export per day. In 2021, the availability of the FPSO vessel increased to 80% from 70% in 2020. In addition to Bonga, SNEPCo’s exploration activities have led to several significant discoveries of oil and gas over the last two decades, including the Bolia and Doro fields (Shell interest 55%). Nigeria Briefing Notes Helping to power Nigeria’s economy 13 In the right investment climate, SNEPCo believes that there are opportunities to expand. In 2021 the OML 118 (Bonga) production sharing contract was renewed and the lease extended for 20 years. Bonga North and Bonga South West Aparo (BSWA) oil fields are two such potential opportunities. Bonga North is a proposed tie-back project to the existing Bonga FPSO with Phase 1 comprising 14 wells. BSWA is a development of a new FPSO with Phase 1 comprising 23 wells. SUPPORTING RENEWABLE ENERGY STARTUPS Millions of Nigerians are excluded from the country’s power grid and Shell Companies in Nigeria have established and provided substantial funding for a not-for-profit, impact-investing company called All On. Operating as an independent company, All On works to bring reliable electricity – often from renewable energy sources -- to off-grid urban and rural customers. This support aims to build a solid pipeline of viable businesses that can create the scale required to address Nigeria’s access to energy gap. In December 2019, SPDC and SNEPCo made a significant additional 10-year financing commitment of $160 million in All On, bringing the total commitment to $200 million. By the end of 2021, All On had provided investment capital to over 40 renewable energy start-ups in its portfolio – an increase of more than 30% from 2020. One such company is Infibranches Technologies Limited, to which All On has committed $2 million, which is expected to enable the indigenous technology company to expand sales of solar home systems via its more than 13,000 agent banking partners across Nigeria. With the support of the Rockefeller Foundation, the All On Hub was established in 2020 to provide nonfinancial support and build the capabilities of off-grid energy entrepreneurs. In 2021, the hub supported 81 ventures – nearly double the 41 supported in 2020. Also in 2021, All On, Odyssey Energy Solutions and the Global Energy Alliance for People and Planet launched a $10 million equipment financing facility as part of the DART pilot programme in Nigeria. 7 Hydraulic flying leads support the delivery of hydraulic fluid and/or chemicals between subsea equipment. 8 Subsea trees are an assembly of valves and other components used to monitor and control the production of a subsea well. DART will combine demand pooling, aggregated purchasing of solar equipment, and access to affordable finance to unlock economies of scale for solar companies, achieve cost savings for end-users, and accelerate the growth of the renewable energy sector in Nigeria and beyond. DEVELOPING LOCAL CONTENT AND SKILLS Shell Companies in Nigeria contribute to the growth of Nigerian businesses that can provide technical and support services to the industry. This includes the manufacture of tools and technical kits, the operation of helicopter flights in the Niger Delta, and strategic partnerships between foreign and local companies to stimulate technology transfer and capacity development. While there are government-required programmes in some areas, such as the Nigerian and Community Content Strategy embedded in the Assa North/Ohaji South gas development project, Shell Companies in Nigeria deliberately seek to contract local businesses wherever possible. In 2021, Shell Companies in Nigeria awarded $800 million worth of contracts to Nigerian-registered companies. Of these, 92% were companies with at least 51% Nigerian ownership. SNEPCo has awarded major engineering and construction contracts to companies that are indigenous, have local staff, or possess domestic capabilities in the country. At present, the manufacture and rebuild of hydraulic flying leads7 (HFLs) is being carried out in-country by wholly indigenous companies. Pressure Controls Systems Nigeria Limited, another Nigerian company, continues to refurbish old subsea trees.8 Sometimes, a lack of access to capital hinders Nigerian companies from competing for and executing contracts effectively. Shell Companies in Nigeria have provided access to nearly $1.6 billion in loans to 901 Nigerian vendors under the Shell Contractor Support Fund since 2012. These loans help improve their tendering opportunities.

In a media briefing, Mr. Oluremi Akande, Head, Communications and Branding, said “although LAPO Microfinance Bank has become a household name for micro-credits, the bank is equally in the forefront of promoting savings as a platform to drive financial inclusion, bridge social/material gaps as well as building sustainable wealth.

Hence, we recorded huge participation in the My Pikin & I Promo by existing and new clients; an indication of trust in the LAPO brand as a preferred destination for savings.

Savers in the My Pikin & Promo shall be rewarded in a raffle draw event scheduled to hold on the 30th of September in Lagos where our lucky customers shall win a star prize of a tricycle among many other life-transforming prizes.

With the My Pikin & I Savings Account, savers stand a chance to win amazing prizes like Generators, Deep Freezers, and Tricycles among others when you save N5,000 for at least 3 months. Customers can save for their child’s future and gain attractive interests, with benefits like free hospital cash-back insurance cover, and a chance for their child to win a LAPO Microfinance Bank scholarship.

Visit the link here to apply today https://www.lapo-nigeria.org/campaign/my-pikin/apply this offer ends soon.

With the My Pikin & I Savings Account, you stand a chance to win amazing prizes like Generators, Deep Freezers, and Tricycles among others when you save N5,000 for at least 3 months! Now you can save for your child's future and gain attractive interests, with benefits like free hospital cash-back insurance cover, and a chance for your child to win a LAPO scholarship. Visit the link below to apply today! https://www.lapo-nigeria.org/campaign/my-pikin/apply NOTE: This offer ends soon!

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