Announcements Financial Institutions Rating Alerts

GCR Affirms Wema Bank Plc’s Rating of BBB-(NG); Outlook Stable

Lagos Nigeria, 19 June 2019 – Global Credit Ratings has affirmed the national scale credit ratings assigned to Wema Bank Plc of BBB-(NG) and A3(NG) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until April 2020.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Wema Bank Plc (“Wema” or “the bank”) based on the following key criteria:

Wema ranks among the mid-sized commercial banks in Nigeria in terms of balance sheet size, and geographical spread across the country. Wema’s total assets amounted to N484.2bn (representing a market share of 1.0%) at FY18.

Total shareholders’ funds improved by 2.6% to N50.9bn at FY18, while an additional N17.7bn raised in Tier 2 capital during the year accelerated total capital by 35.1% to N75.6bn at FY18 and translated to an increase in risk weighted capital adequacy ratio to 18.0% (FY17:14.3%).

Wema’s asset quality remained fairly strong, with the gross non-performing loan (“NPL”) ratio ending at 5.0% in FY18 (FY17: 4.9%), well within the peer average of 6.5%, and tolerable limit of 5% set by the regulator. Given that fully provisioned NPL of N898m was written off during the year, impaired loans’ coverage by specific provisions improved to 60% in FY18 (FY17: 20.6%).

A mismatch of asset and liability maturities was evident in FY18, with the bank recording a liquidity gap of N206.4bn in the ‘less than three months’ maturity band, equating to 2.7x capital. Cumulative negative liquidity gaps were also recorded across the ‘up to one year’ maturity bands. Cognisance has been taken of the behavioural liability pattern, with a significant portion of deposits normally rolled over at maturity. In terms of statutory compliance, Wema’s liquidity ratio remained above the required minimum, albeit with a thin buffer throughout FY18, ranging between 30.9% and 38.1% to close the year at 34.6%.

Wema reported a pre-tax profit of N4.8bn in FY18, an improvement of 59.5% over FY17. Performance was supported by both interest and non-interest income which, saw total operating income grow 27.9% to N40.9bn. Although there was an increase in operating expenses during the year, underpinned by increases in technology cost and personnel cost, the bank was able to achieve a level of efficiency given the decline in cost ratio to 79.7% in FY18 (FY17: 83.8%). Accordingly, return on average equity and assets (“ROaE” and “ROaA”) improved to 6.6% and 0.8% in FY18 from 4.6% and 0.6% in prior year respectively.

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. A rating downgrade could follow from a weakening in competitive positioning, and sustained pressure on earnings, asset quality, and liquidity metrics.

NATIONAL SCALE RATINGS HISTORY

Initial rating (March 2016)
Long term rating: BBB-(NG)
Short term rating: A3(NG)
Rating outlook: Stable

Last Rating (May 2018)
Long term rating: BBB-(NG)
Short term rating: A3(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Adeyinka Olowofela
Credit Analyst
yinka@globalratings.net

Committee Chairperson
Dave King
King@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Wema rating reports (up to 2018)
Nigerian Banking Sector Bulletin, 2017
Glossary of Terms/Ratios (February 2016)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLI WEB SITE AT: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE ON THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT www.globalratings.com.ng.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and (d) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

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.

The credit ratings above were disclosed to Wema Bank Plc with no contestation of/changes to the ratings.

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 2018 (plus four years of audited comparative numbers), latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2019, most recent year-to-date management accounts to 31 March 2019 reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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