Why the early season results shows tier one sized banks are hitting double digits growth, tier two banks are hitting single digits as Wema Bank hits a single digit profit of N2.26 billion in full year 2017.
BusinessDay investigation showed Wema Bank recorded a drop in its profit before tax by 7.38 percent to N3.01 billion in the period under review of 2017 from N3.25 billion in 2016. Also, the profit after tax went down by 11.72 percent to N2.26 billion in 2017 from N2.56 billion in 2016.
“Despite the slow start to the year, 2017 recorded significant progress, highlighted by the introduction of the Investor & Exporters (I&E) window and recovery in oil prices,” Segun Oloketuyi, Managing Director and CEO of Wema Bank said.
“Our target market is the upwardly mobile youth segment, the young entrepreneurs, the young professionals and the financially excluded, where we continue to leverage incremental innovation and integral capabilities,” the Wema Bank MD said.
Analysts are concern if other midsized banks will continue in the single digit profit like Wema as another midsized bank First City Monument Bank (FCMB) recorded a single digit profit of N9.4 billion in its full financial year of 2017 compare to N14.3 billion in 2016.
During the year under review, Wema Bank’s loan to deposit ratio was 84.82 percent from 70.86 percent as at December 2016, while the Non-Performing Loans (NPL) Ratio closed at 3.52 percent in 2017 against 5.07 percent as at December 2016.
Also, the NPL Coverage Ratio was 136.98 percent as at December 31, 2017 compared with 100 percent as at December 2016, while the Capital Adequacy Ratio (CAR) stood at 14.32 percent in the period under review.
Total assets depreciated by 8.46 percent to N388.15 billion in 2017 from N424.04 billion in 2016 while customers’ deposits declined by 10.18 percent to N254.46 billion in 2017 from N283.30 billion in 2016.
The bank’s earnings from non-interest income remained strong, growing by 24.44 percent from N9.80 billion in 2016 to N12.19 billion in 2017; surpassing its 2017 guidance of 19 percent growth rate. Also, shareholders’ funds increased in 2017 by 2.31 percent to N49.62 billion in 2017 from N48.50 billion in 2016.
Interest income of the bank grew by 19.10 percent to N53.07 billion as against N44.56 billion reported in 2016. Net Interest Income also increased from N18.65 billion in 2016 to N19.77 billion in 2017. Trading income for the reporting period grew by over 100 percent to N4.98 billion as against N2.12 billion in 2016.
The innovative bank, which launched ALAT, Africa’s first fully digital bank, confirmed the growth of its gross earnings by 20.07 percent from N54.36 billion in FY2016 to N65.27 billion in FY2017.
The growth was supported by the launch of ALAT, enhancing Wema Bank’s already existing alternate platforms which recorded a combined growth rate of 205.67 percent in transactions executed and with an estimated 30,000 accounts opened monthly.
“We approached the money market in November 2017 to raise N25 billion in two series under a commercial paper program; series 1 N10 billion – 182-day tenor and series 2: N15 billion- 270-day tenor. Given the relative decline in interest rates and possible growth within the economy, the bank will be re-opening the 2nd series of its N50 billion debt issuance program. This should commence from the second quarter of the year,” Oloketuyi added.
In recent times, there have been concerns raised about the status of midsized banks operating in Nigeria as foreign financial agencies and state owned Central Bank of Nigeria (CBN) are worried about the survival of small and mid-size banks in the country, they express concern about its over exposure to the oil industry, which is still recovering from the 2014 price crash and the recent recession.
In its recent Credit Outlook, Moody’s said Nigeria’s midsize banks face greater risk of losing business to financial technology (fintech) companies because they tend to provide retail banking and payment services to individuals and small and midsize enterprises.
According to Moody’s, these financial institutions’ lower capital over the years constrain their ability to grow their business in key sectors of the nation’s economy.
The report by Moody’s pointed out that mid-size banks in Nigeria were limiting their loss-absorption capacity against unexpected losses, and that this would restrain their asset growth and revenue generation.
“These financial institutions’ lower capital over the years constrains their ability to grow their business in key sectors of the nation’s economy,” Moody noted.
Fitch Ratings in February this year disclosed a number of Nigeria’s tier-2 banks (banks with total assets less than N2 trillion) will fall below the capital adequacy ratio of the CBN should the Naira depreciate to N450 per dollar.
Also, International Monetary Fund (IMF) last month released its Nigeria country report, noting that tier-I banks’ capital adequacy ratio had declined to 10.8 per cent in September 2017 from 16.3 per cent in December 2016 and 17.1 per cent in 2013, and was now at its lowest level in the past five years.
IMF has advised the CBN to carry an asset quality review of Nigerian banks to determine their potential capital need.
Recall, the Washington DC-based agency had last year advised the Nigerian regulator to recapitalise the banking industry against the backdrop of the capital deterioration the industry had experienced as a result of the 2015 fall in global oil prices and the recession.
Also last Tuesday, the CBN released its bank stress test results, which showed the banking system’s capital vulnerability is driven by midsize banks’ weaker capital conditions.
The CBN said the decline in the CARs was attributable to the challenges in the oil and gas sector coupled with the slow recovery in the domestic economy, which resulted to a rise in NPLs and capital deterioration.
The Nigerian banking industry has about 30 per cent of loan portfolio in the oil and gas sector.
Dipo Oladehinde
