GCR Accords Wema Bank Plc an Initial Rating of BBB-(NG); Outlook Stable

31 Mar 2016 In Rating Notifications

GCR Accords Wema Bank Plc an Initial Rating of BBB-(NG); Outlook Stable

Lagos Nigeria, 31 March 2016 — Global Credit Ratings has accorded national scale ratings of BBB-(NG) and A3(NG) in the long-term and short-term respectively to Wema Bank Plc; with the outlook accorded as Stable. The ratings are valid until March 2017.

RATING RATIONALE

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

The ratings of Wema Bank Plc (“Wema” or “the bank”) reflect its relative position within the mid-sized banks in Nigeria, and its management’s efforts toward rebuilding franchise value following a strategic repositioning exercise in 2009. The bank’s evolving presence within its niche segment (the middle market) is also noted.

Underpinned by a successful Tier 1 capital raising of N40bn during 2013, the bank’s shareholders’ funds improved to N41.4bn. This increased the bank’s risk weighted capital adequacy ratio (“CAR”) to 27% at FYE13, a departure from the negative position recorded in the prior years. While the CAR remained sound at FYE14, a sizeable rise in risk weighted assets resulted in the CAR falling to 14.8% at FYE15 (however, CAR remained well above the 10% regulatory minimum). Furthermore, Wema plans to raise Tier 2 capital in 2Q F16 and thereafter issue additional Tier 1 capital before FYE16, to support its capitalisation.

Asset quality was poor prior to 2011, with the non-performing loan (“NPL”) ratio reaching a high of 89% at FYE09. Gross NPLs reduced to 7.1% of the loan book at FYE11, following a substantial clean-up during the year, and subsequently fell below CBN’s maximum tolerable limit of 5% at FYE14. Although asset quality is currently sound (NPL ratio at 2.3%), supported by the overhaul of the bank’s enterprise risk management framework, the increasingly tough operating environment, especially within Wema’s target sectors, could trigger a rise in delinquent assets by FYE16. Note is also taken of the moderated loan loss provision coverage ratio of 55.8% at FYE15 (FYE14: 88.6%).

Replicating the liquidity constraints within the operating environment during 2015, Wema (similar to peers) witnessed liquidity pressure, as evidenced by its regulatory liquidity ratio of 33.6% at FYE15 being only marginally higher than the regulatory minimum of 30%. While liquidity is expected to rise in F16 as the Federal Government of Nigeria and Central Bank of Nigeria (“CBN”) pursue expansionary policy, the bank’s ability to successfully complete the planned capital raising exercise would provide additional comfort.

Low earnings, together with consistently rising operating expenses have been the primary drivers of the bank’s bottom line over the years. Like the prior years, efficiency (as indicated by the cost/income ratio) remained weak in F15, keeping the net profit after tax flat at N2.3bn. Although management expects improved performance by FYE16, the cost/income ratio is expected to remain high due to the ongoing franchise rebuild.

The bank’s ability to successfully complete the proposed capital raising exercise, establish a balanced funding structure, and significantly enhance market position, would be favourably considered. However, downgrade pressure on Wema’s ratings could emanate from a weakening in competitive positioning and declining profitability and/or liquidity.

NATIONAL SCALE RATINGS HISTORY

Initial/last rating (not applicable)
Long-term: first time/new rating
Short-term: first time/new rating
Rating outlook:  first time/new rating

ANALYTICAL CONTACTS

Primary Analyst
Femi Atere
Credit Analyst
.(JavaScript must be enabled to view this email address)

Committee Chairperson
Dave King
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015
Nigerian Banking Sector Bulletin, 2015
Glossary of Terms/Ratios, February 2016


RATING LIMITATIONS AND DISCLAIMERS

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. 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 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 2015 (plus four years of comparative numbers), latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2016, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. 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 THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

 

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://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. 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 THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2013 Global Credit Rating Company Limited. THE INFORMATION CONTAINED HEREIN MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED , IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information. GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.

Click on logo below to view more information about Global Credit Ratings Africa

Recent Rating Reports

10 Oct 2017: Rand Merchant Bank Nigeria Limited

10 Oct 2017: Leadway Assurance Company Limited

10 Oct 2017: North South Power Company Limited

10 Oct 2017: First Bank of Nigeria Limited

10 Oct 2017: Nigeria Mortgage Refinance Company Plc

10 Oct 2017: Dangote Cement Plc

10 Oct 2017: Fortis Microfinance Bank Plc

10 Oct 2017: Flour Mills of Nigeria

10 Oct 2017: Sterling Investment Management SPV PLC

10 Oct 2017: FSDH Merchant Bank Limited

Purchase Rating Reports

Parties interested in purchasing individual or sectoral rating reports and/or bulletins from Global Credit Rating Company Limited are kindly requested to contact us on the following telephone numbers or email address.

Telephone: (+2341) 462 2648, 460 5001, 0805 615 8393, 0803 352 871

Email: bisi@warltd.com

Email: tunde@globalratings.net

Recent Bulletin Releases
Rating Sectors
Credit Ratings

For a full list of Credit Ratings performed by Global Credit Ratings Company Limited please click here