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

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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.

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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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The ratings were solicited by, or on behalf of, Wema Bank Plc, and therefore, GCR has been compensated for the provision of the ratings.

Wema Bank Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

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The information received from Wema Bank Plc and other reliable third parties to accord the credit rating included the latest audited annual financial statements as at 31 December 2019 (plus four years of audited comparative numbers), latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2020, most recent year-to-date management accounts to 31 March 2020 reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

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