By Omoh Gabriel, Business Editor
With the conclusion of recent consolidation exercise in the banking industry, Wema Bank emerged as the longest surviving indigenous banking initiatives in Nigeria having been established in 1945 under the name Agbomagbe bank. Not only that, it is perhaps the only leg standing of all those banks inspired by nationalist fervour of its era during the colonial period. All the others have either failed or acquired by other banks.
Ironically, during the recently concluded phase of banking sector consolidation, it acquired National Bank which hitherto was the only surviving one that pre-dated it.
Without doubt, this is a testimony of how resilient and successful an institution founded on indigenous capital and management can be.
It is therefore, not surprising how serious the Bank has approached financing and advisory support to cocoa farmers of Western Nigeria in the past, a few examples of recent intervention to strengthen indigenous entrepreneurs and make them competitive will suffice.
In the past, Bacita Sugar Company was s household name and a leading sugar confectionery franchise in Nigeria. But along the line, it lost great steam and needed to be re-positioned. Some indigenous entrepreneurs stepped in, acquired and commenced the necessary restructuring under a new name ‚Äì Josephdam Sugar company. Lacking the required financial muscle, they had to lean towards Wema Bank which not only provide financial support but also the accompanying advisory services.
It is well-known that the telecommunications sector requires enormous capital with long gestation period and dominated by foreigners. As part of the ambitious programme by the O‚Äôdua Group to bring quality telephony services to the grassroots, commencing from the South-West, it put together an IT vehicle ‚Äì O‚ÄôNet to achieve this purpose.
Again, capital posed some difficulties and Wema Bank again stepped in to offer the required services. In fact, the Bank provided the back-up which enabled the company to obtain a new license to operate on the 800MHZ frequency. The company was also enabled to acquire a state of the art wireless interface technology which runs on the CDMA IX platform.
According to the Bank‚Äôs Chief Executive Officer, with the completion of first phase of recapitalisation and consolidation which increased its capacity to also handle big ticket transactions, the Bank is now ready to assist more and more indigenous entrepreneurs to remain competitive.
Although its acquisition of National Bank was hailed by industry watchers, to the bank, it was a very challenging exercise which momentarily distracted it from its traditional business. It also came with substantial exceptional costs. The process of integration progressed well, although it made the Bank re-evaluate its training strategy and productivity programmes. Its training centre was upgraded and training budget increased accordingly as a reflection a consciousness the place of human capital in the emerging competitive space.
During the period, the Bank up-scaled remuneration packages of staff to improve productivity. But this was after a staff audit exercise involving an international firm of management consultants which conducted a staff competency assessment programme to determine those that fit strategically into the new Wema Bank. At the end of the day, about 300 staff left in a mutually beneficial disengagement exercise that was largely rancour-free just as new recruitment were also made.
During the review period, the Bank also made gradual progress towards full integration of its IT resources through the strengthening of the existing Wider Area Network (WAN). As at end of 2005, about N2.0 billion had already been invested in the IT infrastructure while additional 38 branches were hooked on to the on-line real time network.
With the conclusion of consolidation in 2006 and subsequent increase in branch offices to 136, the challenge of putting all branches into the network was central to its IT programme for the year. As at end of 2006, a few of the branches were yet to be effectively covered particularly those in the remote locations.
Nonetheless, the Bank plans to increase total branch network to 200 by the end of the 2007 financial year and part of the new branching strategy is to gradually make in-roads into other key business centres outside the South-West.
As a way of complementing the roll out of new branches, the Bank is also putting strong emphasis on non-human services delivery channels by continuing with the expansion of its Automated Teller Machines. Six of such machines were installed and commissioned in the preceding financial year and more are being acquired.
In order to effectively support its modest expansion of IT based solutions, it recently also installed the Data Protection Management Back-up System (NETAPP 90D Series) for effective disaster recovery and services delivery. Information system was also enhanced to provide customer-alert services at no extra cost to customers.
Perhaps another area Wema Bank has made impact on its customers is the area of nurturing small and medium-scale business. This is not surprising, given the CEO‚Äôs inclination towards that sector. As at March 31, 2005, it had committed about N408 million to nine of such projects out of N764 million already set aside. However, by July 2006, actual disbursement had increased to N696 million in 14 projects covering Agro-Allied, Information Technology, Telecommunications, Manufacturing, Services and Construction sectors.
This shows a disbursement rate of 90 per cent against industry average of 40 per cent.
The drive for competitiveness and desire to make the Bank a key financial supermarket in Nigeria let it to establish subsidiaries in other key sub-sectors of the financial system. These include Wema Trustees Ltd., Wema Registrars Ltd., Wema Insurance Brokers Ltd. and Wema Homes (Savings and Loans) Ltd.
While one of these subsidiaries is quite visible and performing well in the market, the others still faced a number of challenges hence the results are not yet significant enough to be consolidated in the accounts of the Bank.
Moreover, the Bank had to contend with a number of challenges with its subsidiary investments during the period in the areas of regulatory requirements, ownership and control. However, a number of issues arising from the later has now been resolved in favour of the Bank and these investments are expected to contribute substantially to the top-line in the coming years. Although the current interim report released did not have the details, indications are that sharp increases in performance will be reported in the end-period accounts.
PROFILE OF FINANCIAL PERFORMANCE
The advent of consolidation in the industry forced Wema Bank, like several others, to focus more an issues relating to integration and this adverse impact on earnings in 2006. In fact, gross earning declined from N15.29 billion in 2005 to N14.84 billion, according to the un-audited report recently released by the Bank. Interestingly, non-interest earnings in the form of fees and commissions suffered more as proportion of interest income increased from 61 per cent in 2005 to 83 per cent. This arose largely from short-term investments. But the Bank took advantage of downward interest rates in response to the cut in minimum rediscount rate during the period. Hence, while the industry reeled under the suffocating impact of shrinking unit margins, the Bank was able to report a respectable net interest margin of N6.69 billion against N2.53 billion in the preceding year.
Hence, notwithstanding the marginal decline in the top-line and the extra-ordinary costs of recapitalisation and consolidation, the Bank reported a Profit After Tax of N2.24 billion (un-audited), some 165 per cent increase from N844 million reported in 2005. This translates to 11.8 per cent return on average shareholder‚Äôs fund, up from 5.2 per cent achieved in 2005. Per share also increased from 9.5 kobo to 26 kobo. Although these figures are below industry averages, it reflects an encouraging positive reversal in bottom-line performance. Moreover, the interim result for first quarter of current financial year suggests a consolidation of this positive performance. The Bank reported a current first quarter Profit After Tax of N1.70 billion against N266 million reported in the earlier period. If this trend is sustained, the result will be an impressive full year report for the period ending March 31, 2007.
Wema Bank was one of the banks that responded early enough to the Central Bank‚Äôs call for recapitalisation in the banking industry. During the 2004/2005 financial year, it offered some 5.0 billion ordinary shares to the public for subscription at a price of N3.50 per share.
The offer received substantial support such that about 4.75 billion shares were subscribed and paid for.
This boosted shareholders‚Äô fund to N24.26 billion by March 31, 2005 from N8.04 billion prior to the exercise. This has further increased to N26.23 billion as at end of 2006 financial year.
Like several others that scaled the re-capitalisation hurdle, the Bank is now better energised to handle big ticket transactions and be more relevant to the economy. So far, it has not disappointed and yet seem poised to take particularly indigenous entrepreneurs to high levels.
However, although the current level of capital seemed adequate for actual level of operations, the fact of its closeness to the minimum requirement of N25 billion means that it may need to increase further to remain competitive in its chosen area of enterprise finance.
QUALITY OF BALANCE SHEET
Over the past few years, Wema Bank had to face increasing challenges of credit risk management as it strived to eke out more earnings to cushion shrinking margins. As a result, non-performing loans ratio increased from 17 per cent in 2004 to 29 per cent in 2005. The pre-consolidation industry average was about 22 per cent and these suggested that the Bank found its performance in 2005/2006 by the below par facilities inherited from National Bank. However, Wema Bank, to significant measures to address the phenomenon which included deployment of a comprehensive risk management framework on the preventive side, arrangement with regulatory authorities on the write-off of certain hard core facilities and aggressive recovery. Interim report of current year result suggest tremendous success in handling the challenges and this has resulted in more impressive bottom-line results.