One of Nigeria’s mid-tier lenders, Wema Bank Plc on April 09 came to the Nigerian Stock Exchange (NSE) for a “Facts behind the Figures”. Peter OBIORA of InvestAdvocate in his usual manner captured a Question and Answer Session involving Segun Oloketuyi, Managing Director and his management team on the true situation of the Bank at 70 years.
“Incorporated in 1945 as a Private Limited Liability Company (under the old name of Agbomagbe Bank Limited) and commencing banking operations in Nigeria the same year, Wema Bank later transformed into a Public Limited Company (PLC) in April 1987 and was listed on the floor of the Nigerian Stock Exchange (NSE) in January 1990. On February 5, 2001, Wema Bank Plc was granted a universal banking licence by the Central Bank of Nigeria (CBN), thus allowing the Bank provide the Nigerian public with diverse financial and business advisory services,”
(Source: Wema Bank Plc)
Wema Bank Plc by the statistics that we see is 70 years old, if Wema Bank was a human being, we would probably be talking about more than a matured person (Grandfather ) I think that Wema Bank truly have been around for a very long time. And the best of memories I have is beyond the building, I haven’t seen much at Wema Bank, agreed it has undergone a lot of phases, I do think that there is much more a bank can do at 70 years old. I’m sure if you look back, we have a number of institutions in the industry that are much younger. So, in terms of drive, where do you see Wema Bank? Possibly in the next 70 years, in terms of banking, we will try to balance where we find ourselves. Then talking about “The Facts behind the Figures” Still in line with another 70 years, where do you see Wema Bank? If I’m to invest in Wema Bank, talking about transformation, where do you see our stock price for instance? I’m even more interested in the now, 70 years coming, I hope to still be around. So, in terms of our projection this year or maybe five (5) years from now, where do you see the bank and what would I be looking forward to as an investor in Wema Bank?, is to be paid dividend.
(These are the words Segun Oloketuyi, MD of the bank opened the session with)
Below are excerpts of the Q & A session:
Wema Bank started as a national Bank, do you intend to go national or remain a regional bank?
We are national and the bank is a bank to be invested in, I don’t think investors would mind, let’s have some appreciation, where to be, I certainly would not be in Wema Bank anyway, but for the fact that we had a bank that was in crisis, and if you haven’t forgotten in 2006, there was consolidation in the industry, I worked for a bank at that time and five (5) of us came together to form a bank and people leveraged the new platform. Just like Skye Bank and a bank like Sterling Bank emerged and people took advantage, in fact you know what they did, they immediately went to the market and then leveraged the new platform and raised more capital for themselves and were able to use same to do a whole lot. My bank Wema did not, in fact we were unfortunate that we went into a long and protracted management and board crisis and the Central Bank of Nigeria (CBN) moved in 2008 when things were certainly going down the hills and said let’s arrest this situation and we had a sole administrator who ran the bank for nine (9) months and you can imagine what that means.
Thereafter, we had an interim management and board that managed the bank. A new team came in and that’s the team I lead, five (5) years ago or thereabout to arrest the situation. Now, should I compare myself to younger banks that are doing so well? Yes and that’s what keeps us going, we lost grounds when other people were making progress; but can we recover, certainly we can, the journey and what we are showing you is our recovery process. Now, I would rather share a situation that we are on a recovery process.
I showed you a slide, end of 2009, we were a totally insolvent institution, negative capital was N45 billion, when I took over management with my team, negative capital was N66 billion, in a space about seven (7) months thereafter and we moved on those who were owing us money and recovered some and were able to improve on this and recovered over N20 billion in that space of seven (7) months to put us back at N45 billion, we were then able to turn positive at about N14.8 billion in 2010.
Thereafter, we improved on that in 2013 with an additional capital raising. So, if we lose sight of where we are coming from, is like someone wanting to repair our country today and then we lose sight of the things we had lost and decide to compare ourselves with countries like Denmark and Switzerland. It will be an unfair comparison and I’m saying I’m not making excuses; but I need to give this background just in the event we do not know.
Now, where do we see Wema in the next 70 years, I wish I’m around because I really want to live long. But I tell you, what we have done is to build an institution in Wema, the bank is not a private property, is not my father’s estate; but an institution. We have built and we are still building, structures and processes are in place, we have corporate governance framework that is running and the result of all that is what we are seeing today. The work we put in rebuilding this institution in the last five (5) years has been enormous, this is not self praise; but we are encouraged with the result that we have gotten and don’t forget we are not the only one pronounced distressed or to have been in grave situation. Some banks are no longer available, they have gone and I don’t want to start mentioning names; but we survived it to the delight of our shareholders, some of these other banks, the shareholders lost all and are still fighting that in court, but we are alive and well and improving. In 70 years, what do we see? We see an institution that is built on a stronger foundation and can stand competition.
FACTS CHECK ON CATALOGUE OF CONTROVERSIES IN WEMA BANK PLC:
On January 2008, Adebisi Omoyeni was sent on compulsory leave by the regulatory authorities in the banking sector, contrary to assertions from the bank that he went on annual leave. The Central Bank of Nigeria (CBN), said Omoyeni’s problems came as a result of a breach in “prudential guidelines.”
Also, the Nigeria Deposit Insurance Corporation (NDIC) confirmed Omoyeni was directed to proceed on compulsory leave due to corporate governance issues at Wema Bank.
On April 03 2008, the Independent Corrupt Practices and Other Related Offences Commission (ICPC) accused Tunde Lemo, a Deputy Governor of the CBN of concealing a debt of N8.1 billion when he was the Managing Director of Wema Bank. Others accused of a systemic financial sleaze then were Samuel Adegbite, the chairman of Wema Securities and Lekan Are a Director in WEMASEC.
APPOINTMENT OF JOHN ABOH:
John Aboh, Executive Director (Banking Operations & Services) of First Bank of Nigeria Plc was appointed acting MD Wema Bank after Omoyeni’s exit.
In a couple of months, the CBN appointed three (3) new members to complement the existing members of Wema Bank’s board, they were Layi Alabi, acting Managing Director/CEO, Christy Okoye, Executive Director and Mr. Iliya Dauda Rapu Ndirpaya, Executive Director.
At 70, how will depositors who want to bank with Wema Bank do so, when you just have one branch network along the Orile and under bridge along Okoko Express axis?
We started as a national bank, now we are operating as a regional bank, to open a branch is a lot easier than closing a branch of a bank those days, it just so happened that a new licensing regime came up where you can decided to switch your operations. For somebody who wants to repair, we carried a whole lot of weight that is not doing us any good; in fact dragging us down, that was the structure of Wema that we had. We went national; but without doing what other people did. What did we do? We were posting over half a billion losses from 13 branches in a year, it occurred to us to take advantage of the licensing regime, shutdown these non-profitable branches; could we have made them profitable? Yes; but how soon? I wasn’t so sure it was something to do so easily.
So, if you go leaner and you manage your resources where you have impact, and the places where we had impact were places where we choose to do business. And we decided to use the lean resources we had to create a new platform, a new and efficient brand. We then leveraged on the efficiency and new platform we had created and went back been national. Today what do we need to be a national bank? N25 billion and we have N44 billion in the kitty and for your information, I would say to you today that a lot of us talk about national banking. I have engaged people on what we call regional bank by name, some banks are actually regional by operation and I would ask, Citi Bank is that a national bank? Standard Chartered, are they national? They operate where Wema Bank operates; but they carry a national banking licence; but they are not everywhere in Nigeria, they stay where they would efficiently deploy resources and get their businesses.
What we have done is that we have played to our strength. Where we operate today takes the lion share and contributes the lion share of the gross domestic product (GDP) of this country. Take Agric away, it used to contribute about 42 percent or thereabout to national GDP, a lot of that is coming from a particular side of the country. But bank assets in agric at some point was less than one (1) percent. So, 42 percent in agric and banks were not participating; where they are participating is the economy where they are running their businesses. We have an efficient bank today and a platform that we have built and we are sure; we can then leverage this platform to go anywhere we want to go; but for national banking, business henceforth is not by joining the bandwagon, this syndrome was a lot of what some of the banks did.
We are going to be looking for where there are businesses and that is exactly what we are doing. So, we have applied for our national banking licence, but I’m saying that national banking licence is not Wema in every Local Government, not even Wema in every State of the Federation, is Wema where there are businesses, that’s where we want to go.
For so many years, investors didn’t get anything for their investment how do you compensate them?
At the risk of belabouring the issue, my shareholders are happy with me, I’m not saying 100 percent happy, some people invested because they are in their old age, and they would want their shares to work for them and give them some cash to spend. I would rather as a shareholder have my investment intact in the bank than disappearing. So, we appeal to our shareholders we are in a state where we are building, it just needs some patience and cooperation, the day the dividend will start to come, they would come in good quantum. We haven’t paid dividend as you rightly observed in a number of years; but we are almost there at the point of paying dividend and the days of wait is almost gone. I’m not putting a date to it; because there are couples of things to do, once they are done, very soon and I mean very soon, shareholders will start to get returns; but what they are getting today, is that we are giving some things to them by putting a bank together where there is some value in the shares that they have, we have built that value and we are still building it; but the days of getting cash in terms of reward is very near the corner.
You have retained earnings in negative of N34.8 billion, and if I take the level of your performance currently and I say you make an average of N6 billion per year, you are not likely to clear debt in another five (5) years. Again, keying into regulatory position as far as CBN is concerned and the risk that you need to carry and what you need to provide, How is that in tandem with the chances of a dividend coming; because the truth of the matter is for very many persons who are looking at Wema Bank, they are looking at the bank from the point of what is capital appreciation. Interestingly in the first quarter of the year, they did drop in terms of capital appreciation and coupled with the fact that you are not also paying any cash dividend; yes its true they haven’t lost their investments; but it’s also important that you didn’t realise talking about investor relation that an investor basically wants all the best and not interested in the fact that some persons have lost their money if he hasn’t lost his.
On the level of communication, investor relation, we will improve; but basically we can’t do too much of it, sometimes what people call over communication is better than not communicating enough, we will improve on it. Last year, we did three (3) conference calls and we have done the one for the end of the year. We are working on it and will definitely improve.
Again, you are wondering how we want to pay dividend when we have a negative retained earnings account. We know by law we can’t even do it, you will not be able to pay dividend if your retained earnings is in red. What we have done is to make necessary applications to the regulators and we are coming to the annual general meeting (AGM) 2014 to get the resolution as well. Also, to strengthen our position, two (2) companies in this industry quoted on the Nigerian Stock Exchange did the same; they took their share premium account with the approval of their shareholders to use the share premium account to clean up their retained earnings. We are in the process already and all the regulators that are meant to give their consent, we have our request with them, and they are looking at it, some queries have been raised and we think we would be able to clarify them.
In any case, we reminded them that there is precedents already that two major companies who are members of the Stock Exchange have done it like I said earlier, so why not us. Two of us in the banking sector are in the same situation. We are speaking to them to allow us to do it, if the shareholders says we don’t have any problem using their share premium account to clean up the retained earnings account, once that is done then we are in a position to pay dividend and we think we should be able to get that done; hopefully before the year runs out; that’s about paying dividend.
I made a commitment a couple of years back that we would start paying dividend preparing the books, this means putting our retained earnings in a proper shape. Like I said earlier, the process is going on and I’m hopeful we should be able to complete that this year. These include getting shareholders approval, getting a court ordered meeting and getting the shareholders to support us at the court ordered meeting. Thereafter, we go back to the court for instruction to move money from one capital account to the other. So, hopefully our expectation is that the process will be completed this year and once this is done, we will then be in a position to pay dividend.
Why no available forecast in your presentation?
This kind of event is not just about asking questions, it gives a lot of suggestions. Another one is maybe when we have the opportunity again to come for “Facts behind the Figures” we would give a forecast, a peep into the future, what it will look like, we have a budget we are running, we can share that; anyway we also have something we submitted to the Exchange, at the beginning of the year you submit your forecast to them, so we can share that with you next time.
Your strategy for reducing cost, would it also include shutting down some branches and laying off staff? Also, your capital adequacy ratio, is it based on Basel 11 calculation model? Again, what are your increase in risk asset as well as the percentage increase in your qualifying capital in the year under review?
Strategy for reducing cost, will it include shutting down branches and laying off staff. In 2009, we did a whole lot of that, laying off staff in 2009 wasn’t so much even about number. It’s about those who can key into the new vision, to the new risk that we want to run. Those who can key to the change process that will happen and those who couldn’t either by age or by how long they have been on the job after discussing with them, we let them go. We also shut down a number of branches; not just the branches we are not operating, even where we are operating, branches that were not making so much, fortunately, we are talking about financial inclusion which is good but it can be achieved in some efficient manner rather than setting up huge structures in villages and they are not paying their bills.
A lot of these situations that we have, we shut down those branches. And I think we have done a lot of things and I’m not sure we would want to go back to that; whether we are laying off staff or shutting down branches, usually when you say you want to reduce costs, the first place to go is retrench, sometimes you also need quality people to help you reduce cost. Reducing costs does not necessarily mean in absolute terms you reduce the amount of expenses, you can keep the same level of expenses; but increase productivity, your revenue goes up, your cost to income ratio comes down. So, what we have today is a situation whereby we are demanding more from our staff; produce more and they are responding quite nicely to our clarion call and you could see that from 2014. Expenses went up slightly by five (5) percent; but productivity went up by about 26 percent. So, that brought down the cost to income ratio, we are demanding more from our people and that way, we have been able to reduce cost.
EDITOR’s PICK:
Wema Bank Plc’s profit after tax (PAT) rose by 48.5 percent to N2.37 billion in 2014 audited year end from N1.59 billion recorded last year, the bank said in a filing with the Nigerian Stock Exchange (NSE).
Similarly profit before tax (PBT) climbed up 58.9 percent to N3.09 billion from N1.94 billion in the same period of 2013.
Explain how soon you will exit the paying down of your tier two capital? Why have you not been able to clear your books and declare dividend as you promised in 2013?
Largely we have submitted the forecast to the NSE earlier on in the year and by that we have also circulated another insight into the 2015 plan to members. First and foremost, the computation of capital adequacy in the book is Basel II, that’s the requirement from the Central Bank to all banks. Basel I is no longer been used, computation is based on Basel II capital.
On the tier two capital, we started the repayment process and it will end September 2016 and we are paying in equal quarterly instalments and by September 2016, the existing tier two capital in the books would have been fully repaid; hence the reason we have pushed harder, first tranche of $100 million to come in to replace this and as we scale up obviously, we bring in more. For us it’s really about capacity to grow and utilise the existing capital, you don’t bring in much more than you can handle at a particular point in time.
Yes tier two on the books; but repayment started on January 2, 2015 and will end September 2016 like I said earlier
On increase in risks assets, year-on-year, it grew by 39 percent; qualifying capital grew by around eight (8) percent in 2014. 2014 was a particular year for us in the sense that we had to scale up loan growth, now we have capacity to do business and engage our existing customers and it has impacted on our ROE and yield numbers. In terms of our forecast, for loan growth, it’s slightly lower in 2015, given the economic outlook and what we have seen in the political space. We have surpassed loan growth between 10 to 15 percent this year.
End
