WITHOUT doubt, Wema Bank is one proud legacy of the indigenous banking initiative during the colonial era. The strength of quality financial results it has continued to report every other year is clearly indicative of a bank that have achieved character. With this quality, the bank remains the only one of its peers that presently operate in the top 10 by most size indicators in the Nigerian banking industry. As at close of its 2004 financial year, it operated with total asset base of N71.42 billion which placed it as the nineth biggest bank by this criterion.
By shareholders’ fund, it once again placed ninth. But its network of 110 branches placed it on the sixth position. It is remarkable to note that Wema Bank recently resolved to embark on a rapid branch expansion programme on a national basis rather than the past strategy of undue concentration in the South Western part of the country. To that extent, out of the massive 15 new branches established during the 2004 financial year, two were located in Lagos, three in south South region, two in south east, two in North West, three in North East and three in North Central. This is perhaps part of a deliberate strategy towards attaining an earlier defined goal of booking a place permanently in the industry top five.
Just as Wema Bank intensified its rapid branch networking, it continued to bring more branches into its IT Wide Area Network (WAN) such that by the end of 2004 financial year, 53 branches already had on-line, real time banking capabilities. It is envisaged that 78 branches would be in the network before the end of 2005 financial year. Wema Bank has also done so much in the area of developing innovative products and services.
Prominent among the innovative products include Marital Savings Account (MASA), Home Ownership Saving Account (HOSA), Household Appliances Target Savings Account (NATSA), Save and Grow Education Savings Account (SAGESA), Pilgrim Savings Account (PISA), Share Acquisition Savings Account (SASA), Artisan/Apprentices Savings Account (AASA), Vacation Savings Account (VASA), Xmas/Sallah Savings Account (XSCA), Retirement Savings Scheme (RESSA), and Wema Open Plant Account. The long list of these products is indicative of deliberate policy to utilise product channel as a complementary to the rapid branching strategy towards achieving the move into the top five.
EARNINGS AND PROFITABILITY
During the 2004 financial year, the bank continued to achieve a steady growth in earnings in line with expansion in scope of business. Accordingly, gross earning rose from N9.726 billion in 2003 to N12.86 billion in 2004, a level of income that once again placed nineth in the industry. Structurally, however, more than 72 per cent of the earning figure was attributed to interest income. But perhaps the key item that pointed to downward movement in the bottom line is net interest margin which declined successively since 2001. From 65 per cent in 2002, it declined to 32 per cent in 2004. This result largely from an exceptional increase in indirect cost of funds which had to be provided for during the 2004 financial year. Although other costs moved up as well, this particular item was significant in pulling down our proxy measure of cost efficiency from 23.5 per cent in 2003 to only 11 per cent in 2004. Hence despite the increase in earning efficiency (which in any case marginally rose from 18.4 per cent to 19.4 per cent) net profit naturally declined from N1.48 billion to N0.97 billion which also translated to a decline of return on average shareholders’ fund from 26.3 per cent to 12.7 per cent.
Accordingly, earning and profit performance was down-graded from average rating (B) the bank achieved on the P.A. Data Rating scale in 2003 to modest (B-) in 2004.
SAFETY AND CAPITALISATION
As one of the key banks handling high volume business in the industry, Wema Bank is clearly conscious of the imperative of maintaining adequate capital base. This is why it had in several ways, accumulated about N8.04 billion in shareholders fund as at the end of 2004 financial year. In absolute terms, this amount also placed as the nineth highest figure in the industry and also represented 16.8 per cent of estimated riskiness of asset portfolio. Although this i still in excess of the minimum requirement of 10 per cent, it was substantially below 23.1 per cent estimated for 2003. Definitely, the massive expansion of risk assets during the year under review considerably decreased the very high margin reflected by the previous year’s capital base, notwithstanding that Analysts believe that safety level remained above average. Accordingly, it received the above average rating (B+), which though, is a step lower in rating than (A-) achieved in 2003.
LIQUIDITY AND RISK ASSET QUALITY
In order to counteract the adverse effect of shrinking margins in the industry, most banks resorted to a less conservative portfolio strategy to use volume and achieve profit objectives. Wema Bank happen to fall into this category. In 2004 financial year, it increased risk asset considerably and in the process, saw proportionate liquid asset holdings decline considerably.
In fact, as portfolio riskiness proportion increased from 51 per cent in 2003 to 67 per cent in 2004, proportion of volatile liabilities invested in cash and near-cash assets dropped from 68 per cent to 44 per cent. Moreover, the proportion of non-performing loans increased from 14.6 per cent to 17 per cent. This implies that a greater percentage of loan facilities proved problematic. Although this quality measure declined, and which prompted industry specialists P.A. Data Rating to down-grade performance from A- in 2003 to B+ in 2004, Analysts still consider the entire balance sheet risk quality to be slightly above average. This is on the account of the industry average for 2003 which is put at approximately 22 per cent.
Summarising therefore, it must be re-stated that Wema Bank has proved to be a solid financial institution. Not only that most of its size indicators locate within the industry to 10, but also the fact that it has acquired.
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