presentation to analysts & investors 2016 full year … bank's... · 2017 half year result...

2017 Half Year Result Presentation to Analysts & Investors Slide No. 1

APRIL 2017

VALUE-DRIVEN RELATIONSHIP BANKING

Since 1945

2016 FULL YEAR RESULTPRESENTATION TO ANALYSTS & INVESTORS


1 Business & Operating Highlights

Global & Macro Economic EnvironmentBanking Industry Highlights2017 Half Year HighlightsProgress on Strategic PrioritiesALAT Progress Update Non-Financial HighlightsTrend Overview

Presentation Outline

05060708091011

2017 Half Year Financial Performance

Financial Highlights Improving Earnings TrendEfficiencyMargin AnalysisProfitabilityDepositsLoan Portfolio & AnalysisAsset Quality Capital RatioManaging Risk Key Financial Metrics

2 1314151617181920212223

Outlook & Strategy

2017 OutlookGuidanceAppendix

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Business & Operating Highlights

Global & Macro Economic Environment

Banking Industry Highlights

2017 Half Year Highlights

Progress on Strategic Priorities

ALAT Progress Update

Non-Financial Highlights

Trend Overview

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Global & Macro-Economic Review Global Environment▪ Global environment fraught with uncertainty and volatility arising from

inability to execute reform agenda and Brexit.• The Eurozone, China and Japan record improving growth, as measured by

released economic data1 with the U.S and U.K showing concerns.• Normalization of rates by the U.S and other advanced economies

expected.

Domestic Environment• Domestic economy is improving, as measured by PMI data while reform

efforts continue.

Oil Price, Foreign Reserve and Borrowings• Oil prices continue to remain volatile (H1’17 average; $52.74/bbl.)3 as

resurgent Shale oil producers counteract production cuts led by OPEC andsome non-OPEC members. Nigeria’s oil production rises to 2.2mb/d from1.6mb/d (Dec’16).

• Government issues bonds - Eurobonds, Savings bonds & Diaspora bondsas it seeks to both deepen the available investible instruments and fundits 2016 budget deficit

• The CBN continues with its intervention in the FX market, as gross foreignreserves increased 16.87% from $25.84 billion (Dec’16) to $30.27 billion(June’17) due to increased oil production. And the NAFEX market.

Inflation, Interest rates and Markets.Inflation rate trends downward year-on-year (base effect) to 16.10% as at

June 2016.• Average 1mth NIBOR rate was 17.93% (Jan-Jun’17) as against 8.96% (Jan-

Jun’16). • Yields on NTB (av. Jan- Jun’ 17) closed at 20.53%, an increase of 11.44

percentage points from 9.09% (Jan – Jun’16). • Average bond yields increased by 3.93 percentage points to 16.65% (Jan

– Jun’17) from 12.59% (Jan – Jun’16). 1 PMI & Inflation2European Central Bank, Bank of England & Bank of Canada3Average oil price (H1’16) was $41.18/bbl. Brent Crude referenced.

Inflation Rate & 1mth NIBOR

3mth Avg. Brent Crude Data

Naira-Dollar Exchange Rate

35.24

46.91 47.0351.03

54.6450.82

25

35

45

55

65

Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17

$/b

bl

Source: Bloomberg, CBN, FMDQ,

323352

475 490

390

283 305.25 305 306.35 305.90

200

300

400

500

600

Q1'2016 Q2'2016 Q3'2016 Q4'2016 Q1'2017 Q2'2017

N/$

Parallel Market Rate CBN Rate NAFEX Rate

12.77

16.48 17.8518.55

17.2616.1

11.46

18.90 17.7216.72

19.52

10

15

20

Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17

%

Inflation 1mth NIBOR


Policy Highlights

JAN

FEB

MAR

APR

MAY

JUN

▪ MPC maintains MPR AT 14%alongside liquidity and CashReserve Ratio at 30% and 22.5%respectively, with considerationto headwinds impacting theglobal and domesticenvironment.

▪ The CBN reviews upward foreign borrowing limit bybanks from 75% to 125% of shareholders’ fund. NetOpen Position (NOP) is also increased from 5% to10%, arising from the devaluation of the Naira

▪ CBN commences the weekly sale of foreignexchange (FX) for Personal Travel Allowance (PTA),Business Travel Allowance (BTA) and school fees.

▪ MPC maintains MPR at 14%. Liquidity andCash Reserve Ratio (CRR) maintained at30% and 22.5%, as global and domesticenvironment continue to be characterizedby headwinds.

▪ Guidelines on Bancassurance referralmodel revised

▪ CBN commences sale of dollars($20,000/quarter) to improve eligibleimports by Small and Medium Enterprises(SMEs).

▪ CBN introduces form “Q”, in its bid tofurther improve access to FX by SMEs.

▪ Investors & Exporters window established(NAFEX) to boost FX liquidity while ensuringtimely execution and settlement oftransactions.

▪ Continued uncertainty in theglobal environment and fragilityin the domestic environmentensures MPC leaves ratesunchanged for the third time in2017.

▪ Having established the Investor &Exporters FX Market, the CBNissues directive relating to thefurther liberalization of the FXmarket.

Policy highlights reflective of the CBN’s effort to resolving the FX illiquidity.

Comments


1.7mnCUSTOMER BASE

EARNINGSN30.37bn

25.19%

CREDITRATINGS

ALTERNATECHANNELS

BRANCHGROWTH

NATIONAL LICENSE

IMPROVED SERVICE RATING

No 1. bank to offer a full digital banking experience

BBB- (NATIONAL LONG TERM RATING)

F3 (LONG TERM RATING)

BBB- (SHORT TERM RATING)

A3 (LONG TERM RATING)

ATMs 277

POS 5,588

Branches 151

ISMS ISO certified

2017 Half Year Highlights

Continued improvements recorded in the retail space


Progress on Strategic Priorities

EXPERTISE

• Grow deposit volume through Retail and Digital Partnerships.o Additional 120,000 retail accounts opened between Jan. – Jun. 2017. o Deposit volumes declined by N20billion in a bid to reprice balance sheet. o Savings deposit increased by 5.09% from N53.41 billion (2016FY) to N56.13 billion (H1’2017).

• Continued refreshing of existing branch network & additional strategic openings o Re-opened Kaduna branch with expansion plans underway at Aba, Warri & Enugu branches. Abule-

Egba branch completed during the review period.

Strategic Priorities Tasks Status

EXCELLENCE

• Improving service rating across the Bank by implementing the Purple Rules (service delivery) Charter.o Industry rating improved from 13th to 8th (KPMG). The Bank is expected to attain top-5 next year.

EFFICIENCY

• Continue deployment of alternate channels – POS, ATMs , mobile applications. & agency bankingo ATM deployment increased by 2.59% from Jan – Jun. 2017 to 277.o POS machines increased by 1.45% (Jan –Jun. 2017) to 5588 o Number of active cards increased by 55.46% to over 350,000 o Subscribers & transaction volume on USSD platform (945#) increased by 73.82% & 240.60% from

Jan. – Jun. 2017 respectively.o Total of 2,517 merchants enrolled on mCASH o Agency banking fully embedded into business model.

• Improving operational efficiency through increasing use of technology in processeso OPEX increased by 5.02% (Y-o-Y) in H1’2017 and below June inflation rate of 16.10%.o Cost to income ratio at 89.30%; a decline of 0.47% from H1’2016.o Net Interest Margins at 5.33%.

• Launched Nigeria’s first fully digital Bank (ALAT).


9app revisions released to customers since launch • Finger Print Login (biometrics)• Refer a friend (viral marketing)• Sign up with a signature and

selfie

41,360transactions executed totaling N850M

26,737Accounts opened

N251,089,418.77

Total balance across all accounts.

2,967savings goals created across 1,762customers with a total of N100.3 million

010110

101100

101011

011000

More partnership engagements underway

N N N

Upcoming Features

QR PaymentsRecurring bill

paymentsVirtual card for foreign

paymentsCardless withdrawal

ALAT Progress Update

Since the launch of ALAT in May 2017 , we have on-boarded over 26,000 customers as at June 30, 2017 .


Campus Storms

The Bank has been involved in over 10 University Campus storms, as we continue onboarding the younger generation

Non-financial Highlights

The Launching of theFirst Digital Banking in Nigeria by Wema Bank - ALAT

Kaduna Branch Opening

His Excellency, Nasir El-Rufai, Governor of Kaduna State in attendance during the formal opening


11.53% ; 5yr CAGR (Assets), 10.20%, 4yr CAGR (Deposits); 11.88%; 4yr CAGR (Gross earnings)). CAGR indicative of the period 2012-2016.

Total Asset Deposit (customer)

Gross earnings Loans & advances (net)

Stable and Consistent Performance


H1’2017 Financial Performance

Financial Highlights

Improving Earning Trend

Efficiency

Margin Analysis

Profitability

Deposits

Loan Portfolio & Analysis

Asset Quality

Capital Ratio

Managing Risks

Key Financial Metrics

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21

22

23

Sect

ion

2


Financial Highlights

Earnings, Profit, Capital

H1’2017 H1’2016 2016FY

Deposits (customer) N251.74bn N253.84bn N283.33bn

Loans (net) N205.71bn N171.99bn N227.01bn

Interest income N25.37bn N20.16bn N44.45bn

Non-interest income N5.01bn N4.11bn N9.80bn

H1’2017 H1’2016 2016FY

Net interest margin 5.33% 6.71% 6.56%

ROAE (annualised) 4.96% 4.73% 5.48%

ROAA (annualised) 0.61% 0.56% 0.63%

NPL (%) 4.91% 2.83% 5.07%

Loan to deposits 81.72% 61.90% 80.12%

Coverage ratio (%) 101.07% 101% 100.00%

Revenue Generation

Operating Efficiency

H1’2017 H1’2016 2016FY

Cost-to-income 89.30% 89.77% 88.32%

Yield on Assets 15.95% 13.92% 15.65%

Operating expenses N11.97bn N11.39bn N24.79bn

Margin & Asset Quality

H1’2017 H1’2016 2016FY

Gross earnings N30.37bn 24.26bn N54.25bn

PBT N1.43bn 1.30bn N3.28bn

PAT N1.22bn 1.10bn N2.59bn

CAR 12.74% 13.36% 11.07%


Improving earnings trend Gross Earnings

Interest Income

Non-interest Income

Non-Interest Income (H1’2017)

Non-Interest Income (H1’2016)

Income Mix (H1’2017) Income Mix (H1’2016)

17.5020.16

25.37

3.374.11

5.01

0.54 0.33 0.08

14.0017.39

21.45

2.962.44

3.84

0.00

5.00

10.00

15.00

20.00

25.00

30.00

H1'2015 H1'2016 H1'2017

N'b

n

Cash & cash equiv. Loans & Adv. Invest Sec.


Efficiency

External headwinds impacting on cost management

Operating Expenses

Comments

• Operating expenses increased by 5.02% from N11.39 billion from N11.97 billion as at H1’2017. Drivers for the increase were;

➢ High energy and power costs.➢ Incremental costs from technology upgrades and licences.

• Cost to income declined marginally from 89.77% to 89.30%. We expect further streamlining of our processes, the continued on-boarding of customers on ALAT and migration of our customers to our alternative platforms should lead to reductions in our cost to serve.

11.1011.39 11.97

Cost-to-income

4.99 5.18 5.13

1.13 1.13 1.15

4.98 5.085.69

0

2

4

6

8

10

12

14

H1'2015 H1'2016 H1'2017

N'b

n

Personnel Exp. Dep & Amort. Other Opex


Margin Analysis

Net Interest Margin

Comments

▪ Yield on assets (YOA) shows improvement, increasing by 15.58% from 13.92% (H1’16) to 15.95%. Drivers for this include;➢ Re-pricing of risk assets. ➢ Higher yield environment recorded in Money market and Fixed Income market.

▪ The relative high interest rate environment however also impacted on the Bank’s Cost of Funds..

▪ Net Interest Margin (NIM) declined marginally to 5.33% from 5.89%, on account of high interest rates and increased cost of funding. We expect improvements in subsequently reported NIMs, due to the downward re-pricing of deposits in the month of June.

Yield on Assets


Profitability

Comments

▪ Despite the challenging macro economic environment, theH1’2017 result highlights gains from improved operatingperformance. The drivers include;

o Interest income expanded by 25.84% (Y-o-Y) from N20.16billion (H1’2016) to N25.37 billion as at H1’2017.

o Non- Interest income recorded a 21.92% increase from N4.1billion (H1’2016) to N5.0 billion (H1’2017).

▪ Fee based income increased from N3.09 billion in H1’2016 toN3.89 billion as at H1’2017, an increase of 26.83%.

▪ We note that the high interest rates counteracted some ofthe gains made but was constrained by growth recorded inalternate channel incomes.

o Profit before Tax (PBT) increased (y/y) by 10% from N1.30billion to N1.43 billion.

▪ The continued improvement recorded in H1’17, highlightsour growing brand acceptance in the market place. Given thelaunch of ALAT in the month of May, we envisage itscontinued acceptability amongst the youth, youngentrepreneurs and young professionals.


Deposits

Deposits (customer)

Deposit Type (H1’2017) Deposit Type (2016FY)

Deposit Mix (H1’2017) Deposit Mix (2016FY)

▪ The high interest rate environment impacted on the Bank’s ability togrow deposits optimally. Deposits recorded a 11.15% decline fromN283.33 billion (2016FY) to N251.74 billion (H1’2017)

.▪ Our retail franchise continues to benefit from increasing market

appeal and brand recognition. This was highlighted in the Bank’sdeposit mix which recorded 35.23% increase in savings accountdeposit from N41.50 billion (H1’2016) to N56.13 billion (H1’2017).

▪ Customer acquisition initiatives involving partnerships with Telco's,campus storms and ALAT have improved our customer base.

Going forward, we expect continued growth in retail deposits due toincreasing market penetration.

Comments

Corporate 10%

Retail16%

Treasury 6%

Commercial/SME68%

Term 56%

Current 27%

Savings 17%


Loan Portfolio and Analysis

▪ The Oil and Gas exposure is largely in the downstream trading segment.▪ General Sector comprises mainly all the personal loans, religious organizations, NGOs and logistic

companies while “General Commerce’ Sector covers loans to commercial businesses that deal on generalgoods.

▪ Construction Sector contains loans that are meant for contract-based construction where repayments areobtained from contract payments whereas, Real Estate Sector covers loans for commercial and residentialreal estate where repayments come from rents, sales and leases proceeds.

SECTORH1’2017

(N'bn)

2016FY

(N'bn)

Agriculture, Forestry & Fishing 3.13 2.26

Capital Market 4.43 5.12

Construction 31.07 35.41

Education 2.67 2.77

Finance and Insurance 2.57 3.33

General 22.20 27.99

General Commerce 16.10 20.70

Government 12.88 13.39

Manufacturing 10.65 11.61

Oil & Gas 40.43 41.05

Professional, Scientific and Technical 10.58 12.01

Power & Energy 11.56 10.47

Real Estate 27.66 34.21

Transport & Storage 12.10 6.99

Others 0.81 0.78

Total 208.84 228.09

Breakdown of Loans and Advances Loan Analysis H1’2017

Comments

Transportationand Storage

6% Power andEnergy

Professional, Scientific & Technical Services

5%6%

Manufacturing

5%

Oil & Gas

19%

Government

6%

General Commerce

10%

General

12%

Finance & Insurance

1%Education

1%Capital Market

2%

Agriculture, Forestry & Fishing

2%

Construction

14%

Real Estate Activities

11%


Asset QualityEfficient Risk Management culture evidenced by continued low NPL ratio

▪ Gross loans declined from N229. 84 billion (2016FY) to N208.84 billion(H1’2017) due to paydowns and refinancing.

▪ NPL ratio closed at 4.91%, a decline from 5.07% as reported in 2016FY.Recoveries largely accounted for the reduction in NPL ratio.

▪ Coverage ratio (incl. risk reserve) remains robust at 101.07% (100%;2016FY) , ensuring level of provision remains adequate.

Comments

NPL

SECTORH1’2017

(N'bn)%

Real Estate 0.08 0.79

Construction 0.05 0.48

Manufacturing 0.52 5.08

General 4.45 43.47

General Commerce 2.04 19.95

Power and Gas 0.30 2.89

Education 0.16 1.54

Agriculture 1.18 11.55

Finance and Insurance 0.67 6.53

ICT 0.09 0.83

Others 0.71 6.89

Total 10.24 100

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

0

50

100

150

200

250

2015FY 2016FY H1'2017

N'b

n

Gross loans Net loans Loan to Deposit ratio


Total Regulatory Capital N22.13 billion

Total Risk Weighted Assets N174.14 billion

Capital Adequacy Ratio 12.71%

Capital Ratio & Funding

▪ Capital Adequacy Ratio (CAR) as computed under Basel II requirementsincreased during the review period from 11.06% (2016FY) to 12.71% asat H1’2017. This was due to the reduction in quantum of risk weightedassets.

▪ The second tranche of tier II capital raise will open in Q3’17.

▪ Shareholders’ fund has grown at a 4 year CAGR of 4.04% from N41.40billion as at 2013FY to N48.50 billion in 2016FY.

Comments

The minimum capital adequacy ratio for commercial bank with national authorization is 10%.

Capital Adequacy Ratio

Funding Sources

Deposits from banks10%

Deposits from customers

66%

Current tax liabilities

0%

Long term liabilities

6%

Other liabilities5%

Shareholders' fund 13%


Risk Management remains at the core of our business model

Continuing Challenges in the Oil

and Gas Sector

Exchange Risk and Trade Finance

opportunities

• Weakening of government revenues poses a threat tothe fragile economic recovery.

• Despite some respite in the direction of oil prices,market remains volatile

• Domestic political risk is heightening due to the 2019election cycle.

• A gradual reduction in loan portfolio can be seen as loanpaydowns exceed rate of risk asset creation in keepingwith the Bank’s more conservative stance

• Technology and Cyber-risks remain at the fore ofoperational risks and we continue to ensure these areasof the Bank are adequately resourced.

• There has been some respite in the paucity of ForeignExchange as oil revenues improve and dollar liquidityhas improved significantly

Managing Risk

Increasing Inflation Rate and

Interest Rate

Government Remains key to economy

A more conservative loan book


Key Performance Metrics

H1’2017 2016FY 2015FY 2014FY 2013FY

Yield on Assets (%) 15.95 15.65 14.50 14.25 13.62

Net Interest Margin (%) 5.33 6.56 6.92 7.46 5.98

Loan to Deposit Ratio (%) 81.72 80.12 65.59 57.65 47.02

Cost to Income Ratio (%) 89.30 88.32 88.49 87.72 95.15

Coverage Ratio (%) 101.07 100.00 133.61 119.38 113.0

Non-Performing Loan Ratio (%) 4.91 5.07 2.67 2.49 3.87

Return on Average Equity (%) 4.96 5.48 5.18 5.42 3.86

Return on Average Asset (%) 0.61 0.63 0.60 0.67 0.55


Outlook & Strategy

2017 Outlook

Guidance

Appendix

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2017 Outlook

Global Economy Domestic Economy Domestic Market

• Uncertainty expected to characterise theU.S and UK, arising from new releases ofinformation on Russia and Brexitrespectively.. We expect continued growthin Japan and China.

• New trade agreements and partnerships asnew geo-political alliances emerge.

• Oil prices to remain volatile, resulting fromincreasing oil output from the U.S.

• The economy records expansion given PMIdata. However, political risk alongsidepossible production cuts by OPECbecoming a concern.

• GDP growth rate expected at c. 0.80%(IMF)

• Inflation rate expected to moderate - longrun adjustments to earlier policy shocks.Though possible reversals could occur.

• Foreign exchange liquidity might beimpacted by global energy markets.

• Equity market trading levels to bedependent on the NAFEX window.

• Money and Fixed Income market yieldsexpected to remain unchanged due toperceived revenue challenges.


Guidance

Customer Deposit growth

2016FY

-0.58%2017E

5%COMMENTS

Deposit growth expected from continued brand acceptance. Positive contribution

from ALAT.

Retail Penetration(Personal Accounts – share of Deposit)

2016FY

12.54%2017E

15%COMMENTS

Improved retail volumes from campus storms, the alliance with Telcos & Fintechs,

mobile and digital banking (ALAT)

Loan Growth

2016FY

22.31%2017E

1%-2%COMMENTS

Loan growth to slow as we monitor the domestic environment.

Growth in Non-interest Income

2016FY

19%2017E

15%COMMENTS

Increased fee income driven by transaction turnover and retail volumes.

Cost-to Income Ratio

2016FY

88.33%2017E

80%COMMENTS

Impact of further process improvements and growth in top line revenue.

Net Interest Margin

2016FY

5%2017E

6.5%-7.0%COMMENTS

Benefits from improving deposit mix


Thank YouVALUE-DRIVEN RELATIONSHIP BANKING

Since 1945


History

Fully repositioned … in pursuit of growth


The Board In the course of the year, the following changes were made to the Board

• Mr. Babatunde Kasali (wef. May 2017) joined the Board as Chairman, replacing Mr. Adeyinka Asekun .• Ademola Adebise (wef. January 2017) was appointed Deputy Managing Director.


You Don’t Need a Bank Branch

• Schedule recurring payments and forget about it. This includes transfers, bills payments etc.

• Carry out Easy Transfers

• Buy Airtime

• Buy Data

• … Do much more!

Nigeria’s 1st Digital Bank


Digital Product Offerings

(MasterCard, Visa, Verve, Interswitch) partnership with global and domestic card issuers ensures seamless payments to our customers and non-customers

A menu driven mobile banking solution which provides 24/7 access to an account holder via his/her mobile phone.

A web based application which provides real time access to account holders.

Allows Wema Bank account holders to initiate transaction via their mobile phones

An innovative solution designed to facilitate low value retail payments by providing an accessible electronic channel.

WemaDebit & Credit Cards

WemaMobile

WemaOnline

*945#

mCash

A novel initiative that allows the bank customers authorize 3rd party cash withdrawal from any Wema Bank ATM.

A product offering unique to the Bank that takes card security to the next level above PIN by allowing customers choose when to render both card and PIN inactive/active via their mobile or online banking platforms

A consolidated web payment internet gateway which involves turning customers’ website to an e-commerce platform.

Wema Bank partners with MoneyGram and Western Union, two of the world’s leading International Money Transfer Operators (IMTOs) ensuring safe, secured and quick remittances.

Cash on the Go

Card Control

WebPay

IMTOs


Cautionary Note

• This presentation contains or incorporates by reference “forward-looking statements” regarding the belief or current expectations of Wema

Bank Plc, the Directors and other members of its senior management about the Bank’s businesses and the transactions described in this

presentation. Generally, words such as ‘‘could’’, ‘‘will’’, ‘‘expect’’, ‘‘intend’’, ‘‘anticipate’’, ‘‘believe’’, ‘‘plan’’, ‘‘seek’’ or similar expressions identify

forward-looking statements.

• These forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and

involve known and unknown risks, uncertainties and other factors, many of which are outside the control of the Bank and are difficult to predict,

that may cause actual results to differ materially from any future results or developments expressed or implied from the forward-looking

statements. Such risks and uncertainties include, but are not limited to, regulatory developments, competitive conditions, technological

developments and general economic conditions. The Bank assumes no responsibility to update any of the forward looking statements

contained in this presentation.

• Any forward-looking statement contained in this presentation, based on past or current trends and/or activities of Wema Bank should not be

taken as a representation that such trends or activities will continue in the future. No statement in this presentation is intended to be a profit

forecast or to imply that the earnings of the Bank for the current year or future years will necessarily match or exceed the historical or published

earnings of the Bank. Each forward-looking statement speaks only as of the date of the particular statement. Wema Bank expressly disclaims

any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any

change in Wema Bank’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is

based.

presentation to analysts & investors 2016 full year … bank's... · 2017 half year result...

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