2016 HALF YEAR RESULTS Presentation to Analysts and Investors. July 2016

Transcription

1 2016 HALF YEAR RESULTS Presentation to Analysts and Investors July

2 section page 1 Business and Operating Highlights 3 2 H1 Financial performance 8 3 Outlook & Strategy 19 2

3 H HIGHLIGHTS Continued growth recorded on growing the retail space Giving customers total control of their Payment cards Card Control N24.3bn Earnings 16.65% Credit Ratings BBB- (short term rating) A3 (long term rating) BBB- (national long term rating) F3 (long term rating) BBB-(stable) Improved Service Rating ISMS ISO certified 1.7 million Customer Base Branch Growth National License Alternate Channels ATMs 246 POS 5,359 Branches 142 3

4 Overview of Operating Environment The following changes in the operating environment impacted performance in H 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 3 rd -4 th 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. 4 4

5 Updates on 2016 Commitments OBJECTIVES Grow the Franchise Grow Deposit volumes within Retail segment of market through campus storms, prepaid accounts, partnership with telcos on agency and mobile banking o (Customer Deposit improved 17% (Y-o-Y) from billion in the previous period to billion in H1 2016; however, there was a decline of 2.49% in comparison to billion in Dec ) TASK Enhance Asset Quality and Capital 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 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 technology o 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 iimplementing the Purple Rules (service delivery) Charter. o Industry rating improved from 19 th to 13 th, expected to reach top-10 next year Deploy alternative channels Continued deployment of alternative channels POS, ATMs and mobile applications o ATM deployment increased by 17.14%; o POS increased by 17.78%; o Number of active cards increased by 26% 5 5

6 INCOME STATEMENT HIGHLIGHT Gross Earnings ( bn) PBT( bn) PAT( bn) GROWTH 16.27% H H GROWTH 8.33% H H GROWTH 11.11% H H Operations Income ( bn) Operations Expense ( bn) Interest Expense ( bn) GROWTH 3.42% H H INCREASE 2.70% H H INCREASE 37.96% H H Impairment ( bn) Non-interest Income ( bn) Interest Income ( bn) DECLINE % H H (0.171) GROWTH 20.59% H H GROWTH 15.43% H H

7 section page 1 Business and Operating Highlights 3 2 H1 Financial performance 8 3 Outlook & Strategy 19 7

8 FINANCIAL HIGHLIGHTS Financial Highlights Revenue Generation H H FY 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 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 Operating Efficiency Margin & Asset Quality 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% 8 8

9 IMPROVING EARNINGS TREND 9 9

10 OPERATING EXPENSES Mitigating external headwinds with internal optimisation 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)

11 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 H & 2015 was at 15%. We expect subdued growth in earnings, given the present high interest regime

12 DEPOSITS COMMENTS As at H1 2016, the Bank recorded the following; Deposits grew by 17.0% to N billion (H1 2016) from N 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

13 LOAN GROWTH AND ANALYSIS SECTOR BREAKDOWN OF LOANS AND ADVANCES H1'2016 (N'bn) 2015FY (N'bn) Oil & Gas General Hotel & Leisure Personal and Professional General Commerce Construction Real Estate Activities Manufacturing Government Power and Energy Professional, Scientific and Technical *Others Capital Market Total Loan analysis H 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

14 NPL by Sectors NPL (N mn) Hotel, Leisure and Hospitality 1, % Retail and Consumer Finance 1, % Manufacturing % General Commerce % Power and Energy % Oil and Gas % Others % Total 4, % COMMENTS Total NPL was N4.87 billion (H from N3.98 billion (H1 2015). A significant share of this relates to legacy loans 14 14

15 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 139%, ensuring adequate provisioning for known impairments and losses

16 CAPITAL AND LIQUIDITY Capital Adequacy Ratio (CAR) H H FY 13.36% 18.94% 15.10% 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 However, we remain confident that despite the current macro economic environment, the Bank remains well positioned weather negative shocks

17 Managing Risk Risk Management remains at the core of our business model Impact of decline in Government Revenue on Credit Risk Continuing Challenges in the Oil and Gas Sector Technology related risks and operational threats Exchange Risk and Trade Finance opportunities Credit Exposures to Sticky Economic Sectors Increasing Inflation Rate and Interest Rate Expected decline in industry loan quality amidst global low commodity prices and with government as the major business driver. However, the Bank is poised to maintain high asset quality through improved efficiency in loan collections and monitoring, as well as lending to highly structured and stable companies with good track record. The bank has reined in lending to this challenged sector and existing loans are given more attention and monitoring to arrest deterioration Appropriate controls and regular vulnerability/penetration tests being conducted on our electronic and alternative payment platforms to protect depositors and the bank against cyber-attacks and consequent operational losses Illiquidity and volatility in the foreign exchange market continue to pose significant threats to trade businesses and other income lines Continuous review of our credit risk appetite and tightening of risk tolerance limits on sectors/borrowers with negative outlooks In response to rising inflationary trends, we will continue to insulate our interest margins against any rate shocks via strategic gapping of rate sensitive assets and liabilities 17 17

18 KEY PERFORMANCE METRICS H1' FY 2014FY 2013FY 2012FY 2011FY Net Interest Margin (%) Cost of Funds (%) Loan to Deposit Ratio (%) Capital Adequacy Ratio (%) Liquidity Ratio (%) Cost to Income Ratio (%) Provision for Loan Loss (N'billion) Non-Performing Loan Ratio (%) Return on Average Equity (%) Cost of Risk (%)

19 section page 1 Business and Operating Highlights 3 2 H1 Financial performance 8 3 Outlook & Strategy 19 19

20 H OUTLOOK GLOBAL ECONOMY 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. DOMESTIC ECONOMY 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. DOMESTIC MARKETS The FX market might be fully liberalised, given the 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

21 KEY INITIATIVES 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. The Bank will continue to focus and grow the retail and commercial segment of its business

22 GUIDANCE Headlines 2015FY 2016E Comments Customer Deposit Growth Retail penetration (Personal accounts - share of deposit) 10% 7-10% Deposit growth expected to remain double digits; largely from a realignment of volumes from institutional to retail and commercial sources. 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, 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% % Impact of higher cost of funds. 22

23 Thank You 23 23

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25 BOARD OF DIRECTORS Two Independent Directors Varied experience from Banking, Industry, Law and other relevant sectors Implementing strong governance and risk controls 25 25

26 NEW BRANCH DEVELOPMENTS Aminu Kano, Abuja Lekki-Ajah, Lagos Trans-Amadi, Rivers Awolowo, Lagos Ifo, Ogun Ado-Badore, Lagos Admiralty, Lekki, Lagos 26

27 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. 27