section page - wema bank...9 9 financial highlights h1’2016 h1’2015 2015fy gross earnings...
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11
section page
1 Overview and Financial Highlights 3
2 H1’2016 Financial performance 9
3 Bond Transaction Details and Outlook 23
2
1.7 millionCustomer Base
CardControl
EarningsN24.3bn
16.65%
CreditRatings
AlternateChannels
BranchGrowthNational License
Improved Service Rating
Giving customers totalcontrol of their Payment cards
BBB- (national long term rating)
F3 (long term rating)
BBB-(stable)
BBB- (short term rating)
A3 (long term rating)
ATMs 246
POS 5,359
Branches 142
ISMS ISO certified
H1’2016 HIGHLIGHTS
Continued growth recorded on growing the retail space
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44
The following changes in the operating environment impacted performance in H1’2016
Global developments continue to have an
impact on local economy - Brexit
implementation, slowing growth in Asia
Implementation of Fiscal policies have
impacted on money supply and economic
growth
Oil Price & Output and Exchange rate
stability
Regulatory policies and impact on industry
growth
Reduced disposable income and slowing
consumer demand
• Growth in developed economies remains slow; US
numbers however show some resurgence. Brexit
fears impacted on Eurozone exchange rates. Political
stability has improved outlook.
• Slow pace of implementation of fiscal initiatives and
budget spend impacting on economic growth. GDP
has declined in consecutive quarters. Economic
activities expected to pick up in 3rd -4th quarter.
• Oil production continues to be affected by disruptions.
However, price has stabilized in recent months.
Exchange rate has remained volatile. The new rate
regime is still being implemented. Stability expected
by end of Q3.
• The Monetary Policy Committee has decided to
increase MPR given the impact of depreciated
exchange rate on inflation and consumer prices.
Additional requirements on capital adequacy also
expected.
• Inflationary pressure has affected disposable income
and this will invariably impact the level of savings.
Exchange rate impact has also affected discretionary
spending.
Overview of Operating Environment
55
Updates on 2016 Commitments
OBJECTIVES TASK
Grow the Franchise • Grow Deposit volumes within Retail segment of market through campus storms,
prepaid accounts, partnership with telcos on agency and mobile bankingo Customer Deposit improved 17% (Y-o-Y) from ₦237.43 billion in the previous
period to ₦277.87 billion in H1 2016; however, there was a decline of 2.49% in
comparison to ₦284.98 billion in Dec. 2015.
• Expand branch network in new markets and additional branches in existing
commercial hubs o Opened new branches in Lagos, PH & Abuja, also opened Lokoja branch
Enhance Asset
Quality and Capital
• Improving capital and funding
o Awaiting final SEC clearance for Tier 2 Capital.
o Consistent repayment of existing Tier 2 capital
Improving efficiency • Improved operational efficiency through better use of technologyo OPEX growth of 2.7% in 2016 below H1 inflation average of circa 9.2%o Net Interest Margins of 6.71%.o Cost to income ratio of 89.8% still below target of c. 75%-80%.
Improve
Organizational
Capability
• Improved service rating across the Bank by implementing the Purple Rules (service
delivery) Charter.o Industry rating improved from 19th to 13th, expected to reach top-10 next year
Deploy alternative
channels
• Continued deployment of alternative channels – POS, ATMs and mobile applicationso ATM deployment increased by 17.14%;o POS increased by 17.78%;o Number of active cards increased by 26%
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66
INCOME STATEMENT HIGHLIGHT
GROWTH
16.27%
H1 2016
H1 2015
24.3
20.9
Gross Earnings (₦’bn)
GROWTH
8.33%
H1 2016
H1 2015
1.3
1.2
PBT(₦’bn)
GROWTH
11.11%
H1 2016
H1 2015
1.1
0.99
PAT(₦’bn)
GROWTH
3.42%
H1 2016
H1 2015
12.69
12.27
Operations Income (₦’bn)
INCREASE
2.70%
H1 2016
H1 2015
11.4
11.1
Operations Expense (₦’bn)
INCREASE
37.96%
H1 2016
H1 2015
11.63
8.43
Interest Expense (₦’bn)
DECLINE
135.94%
H1 2016
H1 2015
0.062
(0.171)
Impairment (₦’bn)
GROWTH
20.59%
H1 2016
H1 2015
4.1
3.4
Non-interest Income (₦’bn)
GROWTH
15.43%
H1 2016
H1 2015
20.2
17.5
Interest Income (₦’bn)
6
Aminu Kano, Abuja Lekki-Ajah, Lagos Trans-Amadi, Port-Harcourt
Awolowo Road, Lagos Ifo, Ogun Ado-Badore, Lagos Admiralty, Lekki, Lagos
NEW BRANCH DEVELOPMENTS
7
section page
1 Overview and Financial Highlights 3
2 H1’2016 Financial performance 9
3 Bond Transaction Details and Outlook 23
8
99
FINANCIAL HIGHLIGHTS
H1’2016 H1’2015 2015FY
Gross earnings N24.3bn N20.9bn N45.9bn
PBT N1.3bn N1.2bn N3.1bn
PAT N1.1bn N0.99bn N2.3bn
CAR 13.36% 18.90% 15.10%
EPS 6K 5k 6k
Financial
Highlights
Deposits N277.87bn N237.43bn N284.98bn
Loans (net) N172.0bn N134.6bn N185.6bn
Interest income N20.2bn N17.5bn N37.1bn
Non-interest income N4.1bn N3.4bn N8.7bn
Cost-to-income 89.8% 90.4% 88.5%
Cost of fund 6.56% 6.28% 5.70%
Operating expenses N11.4bn N11.1bn N23.4bn
Net interest margin 6.71% 7.72% 5.91%
ROAE (annualised) 4.74% 4.51% 5.18%
ROAA (annualised) 0.56% 0.55% 0.60%
NPL (%) 2.83% 2.90% 2.67%
Loan to deposits 61.90% 56.70% 65.13%
Coverage ratio (%) 101% 96.37% 109%
Liquidity ratio 31.37% 33.20% 33.57%
Revenue
Generation
Operating
Efficiency
Margin &
Asset Quality
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1010
IMPROVING EARNINGS TREND
Interest income
84%
Non-interest income
16%
H1’2015
Interest income
83%
Non interest income 17%
H1’2016
3.09 2.17
5.66 0.69
0.66
1.78
0.31 0.54
1.22
H1'2016 H1'2015 2015FY
Non-interest Income (N’bn)
Other income
Trading income
Fee and commission
0.33 0.54 1.09
17.3913.99
30.292.44
2.96
5.75
H1'2016 H1'2015 2015FY
Interest Income (N’bn)
Investment Securities
Loans & Advances to Banksand Customers
Cash & Cash equivalent
20.20 17.50
37.13 4.1
3.4
8.7
H1'2016 H1'2015 2015FY
Gross Earnings (N’bn)
Non-interest income
Interest income
10
1111
OPERATING EXPENSES
COMMENTS
Operating expenses grew by 2.61% to N11.39
billion. This was due to the impact of higher energy
prices and inflation.
Cost-to-income declined by 0.74% to 89.77%
(H1’2016) compared to 90.44% (H1’2015), as the
Bank remained focused on cost management. The
deliberate and strategic expansion migration of
customers to e-platforms are expected to minimize
cost further.
Net interest margin declined by 13.2% due to
increased cost of funding.
Cost of fund increased by 4.46% (YoY) to 6.56%
(H1’2016) from 6.28% (H1’2015).
6.70%
7.72%
5.91%
6.56%6.28%
5.70%
H1'2016 H1'2015 2015FY
Net interest margin Cost of funds
89.77%
90.44%
88.50%
H1'2016 H1'2015 2015FY
Cost-to-income ratio
Mitigating external headwinds with internal optimisation
5.18 4.99
9.791.13 1.13
2.25
5.08 4.98
11.37
H1'2016 H1'2015 2015FY
Operating Expenses (N’bn)
Others
Depreciation and Amortisation
Personnel expenses
11.39 11.10
23.41
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1212
PROFITABILITY
COMMENTS
In H1’2016, the Bank recorded the following;
Profit before Tax (PBT) increased by 10.26% to N1.29 billion (H1’2016) from N1.17 billion (H1’2015). The increase
resulted in growth from gross earnings, conscious cost management and improvement in fee based income.
Profit after Tax (PAT) increased by 10.62% to N1.10 billion. Effective tax rate for the periods H1’ 2016 & 2015 was at
15%.
We expect subdued growth in earnings, given the present high interest regime.
1.291.17
3.05
1.100.99
2.33
H1'2016 H1'2015 2015FY
Profit before Tax Profit after Tax
4.74%
5.30% 5.18%
0.56% 0.55% 0.60%
H1'2016 H1'2015 2015FY
ROAE ROAA
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1313
DEPOSITS
COMMENTS
As at H1’2016, the Bank recorded the following;
Deposits grew by 17.0% to N277.87 billion
(H1’2016) from N237.43 billion (H1’2015).
Growing retail franchise led to an increase in
retail deposits from 19% (H1’2015) to 33%
(H1’2016) and making up for lost public
sector deposits (TSA).
Going forward, the Bank will continue to grow its
retail deposits resulting in lower funding cost.
253.84
234.10
284.98
H1'2016 H1'2015 2015FY
Deposits from Customers (N’bn)
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1414
LOAN GROWTH AND ANALYSIS
BREAKDOWN OF LOANS AND ADVANCES
SECTOR H1'2016
(N'bn)
2015FY
(N'bn)
Oil & Gas 32.15 32.24
General 5.67 3.96
Hotel & Leisure 7.23 5.34
Personal and Professional 15.18 14.96
General Commerce 22.4 17.91
Construction 18.52 10.6
Real Estate Activities 17.16 34.93
Manufacturing 12.06 8.89
Government 10.6 10.07
Power and Energy 8.79 3.34
Professional, Scientific and Technical 8.28 11.5
*Others 14.2 19.74
Capital Market - 7.67
Total 172.24 181.15
Loan analysis H1’2016
Oil & Gas, 18.67%
General ,3.29%
Hotel & Leisure, 4.20%
Personal and Professional ,
8.81%
General Commerce,
13.01%Construction ,
10.75%
Real Estate Activities, 9.96%
Manufacturing , 7.00%
Government , 6.15%
Power and Energy, 5.10%
Professional, Scientific and
Technical , 4.81%
*Others, 8.24%
COMMENT
* Capital market activities has been included in “others” (H1’2016), as it accounted for less than 3% of the loan book.
* Others comprises of Education, Agriculture, Finance & Insurance, Transportation, Arts & Entertainment, ICT, Water
Supply and Sewage Management and Administration.
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1515
NPL by Sectors
NPL (N’mn)
Hotel, Leisure and Hospitality 1,060.10 21.79%
Retail and Consumer Finance 1,729.63 35.54%
Manufacturing 753.76 15.49%
General Commerce 635.99 13.07%
Power and Energy 192.62 3.96%
Oil and Gas 133.14 2.74%
Others 360.83 7.42%
Total 4,866.07 100.00%
COMMENTS
Total NPL was N4.87 billion (H2’2016
from N3.98 billion (H1’2015).
A significant share of this relates to
legacy loans
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1616
Asset Quality
Efficient Risk Management culture evidenced by low NPL ratio
COMMENTS
Despite the challenging economic environment, the Bank recorded the
following;
NPL ratio at 2.83% remains below the regulatory limit (5%) and
industry average (10%; Q1’2016).
Liquidity ratio is above the regulatory limit of 30% (31.37%;
H1`2016)
Coverage ratio stood at 101%, ensuring adequate provisioning for
known impairments and losses.
175.10
137.44
188.00
172.00
134.57
185.60
H1'2016 H1'2015 FY 2015
N'b
n
Gross loans
Net loans
101.00%
96.37%
109.00%
90.00%
92.00%
94.00%
96.00%
98.00%
100.00%
102.00%
104.00%
106.00%
108.00%
110.00%
2.55%
2.60%
2.65%
2.70%
2.75%
2.80%
2.85%
2.90%
2.95%
H1'2016 H1'2015 FY 2015
NPL
Coverage ratio
2.83% 2.90% 2.67%
10.10%
5% 5.30%
H1'2016 H1'2015 FY 2015
NPL ratio
Industry average
16
1717
CAPITAL AND LIQUIDITY
COMMENTS
As at H1’2016, the Bank recorded the
following;
CAR was above the regulatory limit of
10% despite the introduction of
regulatory changes.
Liquidity ratio was above the regulatory
limit of 30%.
We note that the Bank’s CAR which was
reported as 15.10% (2015FY) declined
due to regulatory changes by the CBN
and came into effect in 2016. However,
we remain confident that despite the
current macro economic environment, the
Bank remains well positioned weather
negative shocks.
H1 2016 H1’2015 2015FY
Capital Adequacy
Ratio (CAR)
13.36% 18.94% 15.10%
13.36%
18.94%
15.10%
31.37%
33.20%
33.57%
30.00%
30.50%
31.00%
31.50%
32.00%
32.50%
33.00%
33.50%
34.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
H1'2016 H1'2015 2015FY
CAR Liquidity ratio
17
1818
KEY PERFORMANCE METRICS
H1'2016 2015FY 2014FY 2013FY 2012FY 2011FY
Net Interest Margin (%) 6.71 7.17 8.27 7.01 6.44 6.72
Cost of Funds (%) 6.56 5.65 5.21 5.87 5.42 3.07
Loan to Deposit Ratio (%) 63.02 65.59 57.65 47.02 42.31 40.81
Capital Adequacy Ratio (%) 13.36 15.09 18.22 27.00 -16.00 -13.50
Liquidity Ratio (%) 31.37 33.57 32.80 76.61 64.53 64.00
Cost to Income Ratio (%) 89.8 88.50 87.72 95.15 142.56 140.19
Provision for Loan Loss (N'billion) 3.12 3.79 3.98 9.10 10.00 32.00
Non-Performing Loan Ratio (%) 2.83 2.67 2.49 14.20 13.83 52.97
Return on Average Equity (%) 4.74 6.78 7.27 9.13 -133.58 -37.65
Cost of Risk (%) 1.80 1.70 2.01 5.98 8.08 35.24
18
1919
H2’2016 OUTLOOK
GLOBAL
ECONOMY
DOMESTIC
ECONOMY
DOMESTIC
MARKETS
• Uncertainty to characterize the global economy.
• E.U and Britain try to find a common ground on the “Brexit”
referendum.
• China might post GDP numbers lower than 6.7%.
• Oil prices to remain volatile but low.
• Uncertainty regarding the extent of budget implementation.
• Economy to record increased activity as the government starts spending
• Diversification into the solid minerals space might pose a greater
challenge than expected given the fragile nature of the global economy.
• Inflation rate expected to moderate - long run adjustments to earlier policy shocks.
• The FX market will continue to be closely monitored, given current
inadequacies.
• Equity markets to remain volatile, as investors remain cautious.
• Inflation–adjusted return on money market instruments should
become positive, as inflation rate moderates.
19
2020
KEY INITIATIVES
The Bank will continue to focus and grow the retail and commercial segment of its business.
E-BUSINESS
SOLUTION
digital strategies
will continue to be
leveraged upon.
BRANCH
EXPANSION
its optimization
will be pursued.
COST
OPTIMIZATION
alongside
continued process
review will be
ensured.
SERVICE
DELIVERY
remains at the fore
of the bank’s
ethos; creating
superior customer
experience.
20
21
Headlines 2015FY 2016E Comments
Customer Deposit
Growth
10% 7-10% Deposit growth expected to remain
double digits; largely from a realignment
of volumes from institutional to retail and
commercial sources.
Retail penetration –
(Personal accounts -
share of deposit)
14% 15-20% Improved retail volumes from campus
storms, prepaid accounts, partnership
with telcos on agency and mobile
banking.
Loan Growth 25% 5% Slow and cautious loan growth; will pick
up in H2, 2016.
Growth in Non-Interest
Income
10% 15% Increased fee income driven by
transaction turnover and retail volumes.
Cost-to-Income Ratio 88.5% 88.5% Impact of further process improvements
and growth in top line revenue.
Net Interest Margin 7.17% 6.5-7.0% Impact of higher cost of funds.
GUIDANCE
section page
1 Overview and Financial Highlights 3
2 H1’2016 Financial performance 9
3Bond Transaction Details and
Outlook23
22
2323
Issuer Wema Funding SPV Plc (“Wema SPV”)
Sponsor Wema Bank Plc (“Wema” or “the Bank”)
Issue Rating BBB- (GCR)
Description Fixed Rate Unsubordinated Unsecured Bonds (the “Bonds”) to be issued under a NGN50 billion Debt Issuance
Programme (the “Programme”)
Securities Offered: Up to NGN[20] billion Fixed Rate Unsubordinated Unsecured Bonds (the “Bonds”) issued under the Programme
Use of proceeds: To grow the SME segment of the Bank’s business
Issue Date Sep 2016
Issue Price Will be issued at par (N1,000)
Issue Size NGN[20] billion
Tenor 7 years
Method of Distribution Offer for subscription by way of a Book Build
Status Eligible for investment by PFAs
Coupon Rate Competitive premium above the FGN 2022 bond
Coupon Payment Date Semi-annually in arrears on [•] 2016 and every 6 months thereafter up to and including the Maturity Date
Maturity Date The bonds will be redeemed in full at par on [.] , 2023
Repayment Bullet repayment on Maturity Date
Call Option Callable after 5 years and 1 day
Minimum Subscription Minimum of NGN20,000,000 (i.e. 20,000 units @ NGN1,000/unit) and multiples of NGN5,000,000 thereafter .
Sponsor Rating BBB- (GCR and Fitch rating agencies)
Listing FMDQ
Transaction Term Sheet
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2424
1. Wema Funding SPV Plc. (“Wema SPV”) issues bonds to the investing public in consideration for cash.
2. Wema SPV invests 55% of the proceeds in Wema Bank Tier 2 Subordinated Bonds and 45% in FGN Bonds.
3. Wema Bank Plc. (“Wema”) pays interest and principal in accordance with the Master Bonds Purchase Agreement (“MBPA”) to
Wema SPV and Wema SPV receives interest payments from its investment in FGN Bonds.
4. Wema SPV pays its investors coupon from its two sources of interest revenue.
5. The FGN bonds would be controlled by the SPV and the Trustees and out of reach by Wema as long as the subordinated
bonds are in issue.
6. Based on precedent transactions in this market, by investing 45% of the SPV bond proceeds in AAA rated paper and 55% in a
Wema subordinated bond rated BB, the issue achieves a minimum of 2 notches enhancement to BBB-.
Schematic Representation of the Credit Enhancement Structure Advantages of the deal structure for
investors
Significant collateral of 45% gives
investors comfort that they are well
protected from downside risk
Rating of the bond would rise in synch
with the banks upgrades over time
More secure compared to a regular
subordinated bond issued by a bank
High degree of visibility on where the
coupon payments will come from –
close to 40% from the FGN bond
coupon
Transaction Structure
24
FGN 2024 BondTrustees
Bond Holders
Cash of 55%
of bond issue
Investors pay Cash
Wema Funding SPV Bonds
Wema Funding
SPV PLC(100% Subsidiary)
Sell Tier 2Sub-
debt to SPV
45% of Bond proceeds invested in FGN 2024 Bonds
Lien on Bonds
2
1FGN bond Coupon
3
5
1
2
2SPV pays
investors coupon
4Pay coupon
on Tier 2 sub
debt to SPV3
2525
Issuer Amount (NGN) Tenor (years)Rating
(at issuance)Coupon
Margin*
(at issue)Issue Date
Wema SPV 20.00bn 7 BBB-(GCR) TBD 1.50% - 2.00% Sep-16
Sterling SPV 7.97bn 7 BBB (GCR) 16.50% 1.50% Jul-16
Fidelity 30.00bn 7 BBB(GCR) 16.48% 2.54% May-15
UBA III 30.50bn 7 A (GCR) 16.45% 1.00% Dec-14
FCMB 26.00bn 7 BBB (GCR) 14.25% 0.63% Nov-14
Stanbic IBTC 15.44 bn 10 A (GCR) 13.25% 0.83% Sept-14
UBA I I 35.00bn 7 A-(GCR and Agusto) 14.00% 1.92% Sept-11
UBA I 20.00bn 7 A+ ( Agusto) 13.00% 3.10% Sept-10
Recent subordinated bonds issued by peers offers guidance on the credit spread above equivalent FGN Bond for Wema SPV Bonds.
See table below
Source: FMDQ, Bloomberg
TBD – To Be Decided
A
B
C
D
D
D
A – Priced Above 15.10 APR 2017 Bond
Priced above 16.00 JUN 2019 BondB –
C –
D –
Priced above 14.20 MAR 2024 Bond
Priced above 16.39 JAN 2022 Bond
Trends from the above table:
•Margin at issue has narrowed over time
•Fidelity was priced at 200bps margin to the underwriters but based on a 30 DMA of FGN 2022 bid yield
•Premium rises marginally for each notch down the credit rating table
•Narrow margin on FCMB caused by rise in FGN yields between close of book building and issuing of the bond
•Wema to be priced off FGN 2022 bond
•Target margin of 1.50% to 2.00% makes Wema pricing extremely attractive in a market with above average bond yields
Target Pricing for the Bond
25
Thank You
26
Appendix
27
HISTORY
Fully repositioned… in pursuit of growth
28
2929
• Two Independent Directors
• Varied experience from Banking, Industry, Law and other relevant sectors
• Implementing strong governance and risk controls
29
BOARD OF DIRECTORS
3030
Cautionary Note Regarding Forward Looking Statements
• 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.
30