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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.

Education

Wema Bank Organise Financial Literacy Programme For Students To Mark the 2023 Global Financial Literacy Day

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Wema Bank Organise Financial Literacy Programme For Students To Mark the 2023 Global Financial Literacy Day
By Moninuola Sulaiman
Wema Bank Plc, Nigeria’s leading Innovative Financial Institution is championing financial literacy for the next generation by participating in Global Money Week to commemorate Financial Literacy Day on March 23, 2023.
In alignment with the theme “Plan your Money, plant your Future”, Wema Bank organized financial literacy sessions for secondary school students across all states where the Bank is represented. This is to instill an early understanding of the significance of building a solid financial foundation and achieving financial stability and success from a young age.

Wema Bank Organise Financial Literacy Programme For Students To Mark the 2023 Global Financial Literacy Day

Students at a Financial Literacy Programme Organized by Wema Bank Plc to mark the 2023 Global Financial Literacy Day.

The Deputy Managing Director of Wema Bank, Mr. Wole Akinleye, led the Financial Literacy Session at Yola Model School, Adamawa State. The students were trained on personal finance topics such as budgeting, emergency funds, saving for goal actualization, investment, and donating for positive societal impact amongst others. He further encouraged the students on the importance of developing financial literacy as a life skill.
Speaking on the significance of Financial Literacy Week, Mr. Akinleye emphasized Wema Bank’s commitment to empowering young minds with the skills and knowledge necessary to make informed financial decisions. In his words, “Our hope is that through these initiatives, we can empower more individuals to take control of their finances and achieve financial stability.”
Financial literacy is vital for the achievement of financial stability, and it is essential to ensure that everyone has the necessary tools to manage their finances effectively and achieve their financial goals. Wema Bank Plc is committed to providing educational resources and opportunities for children through the Royal Kiddies Account and a range of other savings products, supporting financial empowerment for the next generation.

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Money Market

More Naira Notes As Banks Get Old Notes Deposited With CBN Today

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More Naira Notes As Banks Get Old Notes Deposited With CBN Today

Written by Rashidat Olushola Okunlade

Following several complaints about the scarcity of old and new naira notes in Nigeria.

Reliable sources in the Central Bank of Nigeria (CBN) said banks have been instructed to collect the old Naira noted they deposited in CBN and that before the end of the week, the country would be awash with Naira notes.

Recalled on October 26, 2022, the Governor of the Central Bank of Nigeria, Godwin Emefiele, announced the introduction of new N200, N500, and N1000 notes.

Mr. Emefiele said that the decision would address cases of kidnapping, terrorism, and other financial crimes.

However, since the policy took effect, the scarcity of both the old and new naira notes has affected a lot of businesses in the country.

The situation further worsened the problems being faced by traders in the market, especially due to the challenges of inadequate storage facilities that lead to post-harvest losses.

 

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Money Market

FirstBank Calls For Application To 3rd Edition Of FirstBank Management Associate Programme FMAP

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By Moninuola Sulaiman

First Bank of Nigeria Limited, Nigeria’s premier and leading financial inclusion services provider has announced the call for participation in the third season of its FirstBank Management Associate Programme (FMAP).

 

Interested participants are required to submit their application via https://hdbc.fa.em2.oraclecloud.com/hcmUI/CandidateExperience/en/sites/CX.

 

The application is extended to the general public as it closes on 24 March 2023.

 

The FirstBank Management Associate Programme (FMAP) is a 24-month fast-track comprehensive program targeted at young, dynamic, and highly driven individuals that are passionate about making a difference in the financial services industry. The program is designed to build the next generation of leaders to drive the Bank’s vision of being Africa’s Bank of First choice.

 

FMAP equips participants with an extensive wealth of experience comprised of both classroom and real-life work that affords an insightful and balanced insight into the world of work. The program is targeted at hi-potential young professionals who possess acute thinking skills, financial and methodical skills, and a distinctive ability to communicate effectively and synthesize ideas, information, and data to aid decision-making.

 

Speaking on the FMAP Season III, Olumuyiwa Olulaja, Group Head, Human Capital Management and Development, said “since its inauguration in half a decade, we are delighted with the giant strides and impact the initiative has had in promoting the career development of emerging talents in the financial services industry as they are instilled with the tenets and ethics of the banking industry in line with global best practice.

 

The FMAP initiative is amongst the many ways we reinvest in our human capital as we build the next generation of leaders through their exposure to various opportunities essential to preparing their readiness for the future.

 

Since its launch in 2018, FirstBank has successfully trained and onboarded up to fifty talented individuals in 2 editions (2020 and 2022), who have all been deployed into strategic roles in the Bank and making a difference in the organization, while we continue to support their leadership growth and development.

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