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Wema Bank: N2.6bn Uncollectible Loans Gulp 20% of Three Years Profit

Managing director, Wema Bank, Ademola Adebise

…Directors’ Cost Shrinks in COVID-19

BEVERLY HILLS, May 23, (THEWILL) – Wema Bank Plc, a player in the minor league of Nigeria’s deposit money banks cancelled loans and advances valued at N2.6 billion in three years.  These are facilities granted to its customers which could not be recovered,even when overdue. Their cancellations were made during the last three financial years (2018 – 2020).  Details of the facilities in terms of their number, beneficiaries and sectors concerned, were not contained in the bank’s annual financial statements for the periods where the data was obtained.

The figures which, appeared as Loans and Advances “Written off in the year as uncollectible,” formed part of the explanatory notes to the Loans and Advances in the Assets side of the ‘Statement of Financial Position’ (Balance Sheet).The report showed that a total of N166.87 million was cancelled in 2020; while N1.52 billion was written off in 2019.  In 2018, the amount cancelled was N897.95 million.

The cumulative cancelled sum of N2.6 billion which has a negative impact on the shareholders’ assets represents 14 percent of the combined pre-tax profit  (N18.52 billion); or 19.15 percent of post-tax profit  (N13.58 billion) of the bank for the period.

Wema Bank recorded post-tax profits of N3.32 billion, N5.19 billion and N5.06 billion in 2018, 2019 and 2020 financial years respectively. During the period, a total of N84.3 billion was achieved asNet Interest Income which soothed the pains of the N2.6 billion lost to bad and doubtful debts (cancelled, uncollectible facilities) for the period. This represents 3 percent of the total NII before impairment charges for credit losses.

The highest NII of N31 billion was recorded in 2020, a year that incidentally has the lowest cancelled loans of N166.87 million; while 2019 with the highest cancelled loans of N1.52 billion recorded the lowest NII of N25.98 billion. This is followed by NII of N26.99 billion and cancelled loans of N897 million recorded in 2018.

It could be deduced that the bank applied strict prudence in the management of its facilities as the necessary Impairment Charges for credit losses were adequately provided.  The same applies to Prudential Adjustments. In 2018, this was N17.07billion when a total of N897.95 million loans were cancelled against Profit After Tax (PAT) of N3.32 billion and NII of N26.99 billion.

Wema Bank’s strong position in technology remains its unique selling point and it hasreaped bountifully from this innovation. For instance, the lender harvested N2.27 billion and N2.45 billion as revenue from Technology& Alternative Channels in 2018 and 2019 respectively.  Surprisingly, the figure dropped to N1.46 billion in 2020 when other banks used the COVID-19 environment to record bumper harvest in this aspect of banking operations.

Fees on Electronic Products also recorded a similar trend: N2.84 billion, N3.75 billion and N2.6 billion in 2018, 2019 and 2020 respectively. The bank harvested N3.62 billion in 2018 from Treasury Bills investments which jumped to N14.52 billion in 2019, but dropped to N3.62 billion in 2020. The dropped could be attributed to dovish policy of the CBN in the last three years which led to low interest environment in the fixed market window, as investors throng  the equity market.

wema bank

Customers’ deposits witnessed a quantum leap during the period – from N369.2 billion in 2018 to N577.28 billion in 2019, representing 56.35 percent; then climbed 40.67 percent to hit N812.1 billion in 2020. This represents a growth of 120 percent over the period.  Compared to the total loan and advances of  N910.15 billion, the bank is in good stand with the regulatory requirements in terms of  the 65 percent Loan Deposit Ratio.

Directors’ cost did not move proportionately with the recorded improvement in Profit, unlike many firms where directors’ expenses and remunerations took an upward trend while profit dipped.  The directors’ expenses in 2018 was N106 million while their fees was N99.64 million totaling N205.7 million.  In 2019, directors’ expenses dropped to N34.95 million while they received N56.91 million as fees, a total of N91.86 million.

The figures dropped further in the COVID-19 year (2020), when the directors’ cost came to a total of N64.46 million – made up of N27.3 million and N37.16 million.  This represents a drop of N27.4 million or 30 percent compared to the previous year (2019). The bank has 12 directors.

The bank’s Head of Corporate Communications, Olumide Omolayo, confirmed that the bank did not record an increase in directors’ cost during  the 2020 financial year when businesses battled with the rampaging impact of COVID-19.   According to him,“the bank did not increase directors’ emolument in 2020FY. Also, due to the pandemic, there was no international training for the directors during the year, hence the reduced cost”.

On the cancelled loans, the bank’s spokesman explained that loans can be written off to clean up the books as is the practice in the banking industry. He however added that such facilities are not taken as lost.  The  “write off from the books does not mean that the loans have been forgiven. Recovery is still ongoing and is subsequently treated as loan recovery in the P&L (Profit & Loss). The bank has a well-structured loan recovery team. Loan balances recovered are clearly stated in the FS (Financial Statements) note,” Omolayo stated in a note to THEWILL last week.

A major expenditure item was the high cost of Diesel totaling N1.75 billion during the period.  The bank recorded N757.42 million as Diesel Expenses in 2018, N568.35 million and N430.05 million in 2019 and 2020 respectively. Added to Electricity Expenses (N241.32 million, N264.05 million and N465.48 million for 2018, 2019 and 2020 respectively) totaling N970.85 million, Wema Bank burnt N2.72 billion on Energy for the period.

The NDIC premium and AMCON levy constituted a huge drain in the bank’s balance sheet with the regulatory commitments gulping N5.33 billion and N8.3 billion respectively, totaling N13.63 billion during the period.

A further peep into the bank’s report revealed its active involvement in the Central Bank of Nigeria  and Bank of Industry intervention funds for agriculture and small and medium enterprises development.  The total (on lending) exposure during the period rose from N4.6 billion in 2018 to N4.52 billion in 2019.  The figure for N2020 was N17.84 billion. This could mean that Wema Bank took active part in the CBN 2020 intervention funds created for several sectors to weather the storm of COVID-19.

Like the proverbial stitch that saves nine, the CBN sector-specific intervention funds constitute a booster to the economy that was near being totally ravaged by the COVID-19 pandemic, compounded by the impact of the 15-months land border closure that ruined many businesses and led to thousands of job losses. Then, recession emerged.

The intervention funds include the N50 billion Targeted Credit Facility as a stimulus package created by the apex bank to support households and micro, small and medium enterprises  affected by the COVID-19 pandemic. A one-year extension of a moratorium on principal repayments for CBN intervention facilities was also approved by the apex bank.

Others include additional N100 billion intervention funds in healthcare loans to pharmaceutical companies and healthcare practitioners intending to expand/build capacity. There were also N1 trillion in loans to boost local manufacturing and production across critical sectors. The CBN also approved a reduction of the interest rate on intervention loans from 9 percent to 5 percent.

Analysts have expressed mixed feelings over Wema Bank’s 2020 performance and its position in the financial services sector.  But the bank’s managing director, Ademola Adebise, has assured that the bank remains on strong financial fundamentals and reliable performance metrics.

Mr Adebise, said this while reacting to a recent media report (not THEWILL) alleging a dip in the bank’s liquidity status following the unaudited report for 2020 submitted to the Nigeria Exchange Group (formerly Nigerian Stock Exchange). He said the report was only a deliberate campaign to create panic among Wema Bank stakeholders by adopting the circulation of false news. He urged members of the public to discountenance the report.

According to him, the strength and viability of financial institutions are not measured on the solo performance of one outlier year 2020, a year when COVID-19 induced a lockdown and a disruption of such magnitude that negatively impacted businesses, industries and economies the world over.  He noted that Wema Bank has continually exhibited not just resilience, but admirable viability over the years with a 30.95 percent increase in earnings recorded in just 2019.

He added that despite the difficulties in 2020, the bank succeeded in achieving impressive results in key areas such as net earnings from fees and commissions while growing the bank’s asset base significantly.

“That’s not all; customer credibility in the Bank was also accentuated with a massive increase in customer deposits over the previous year. This is an audacious show of confidence from the customers of Wema Bank.

“These performance metrics, amongst others, are testament to our smart balance sheet optimisation approach which will be affirmed by the time the audited and official 2020 Financial Report is released in the coming weeks, ”Adebise said.

In 2018, Wema Bank announced  its first dividend in 14 years as the profit rose 47 per cent. The bank’s board approved a dividend of 3 kobo per share to the shareholders in that year. The dividend increased to 4 kobo per share in 2019 and 2020 financial years.