1 1 section page 1 Overview and Financial Highlights 3 H12016 - - PowerPoint PPT Presentation

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section page 1 Overview and Financial Highlights 3 2 H1’2016 Financial performance 9 3 Bond Transaction Details and Outlook 23

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1.7 million

Customer Base

Card Control

Earnings

N24.3bn

16.65%

Credit Ratings

Alternate Channels

Branch Growth

National License

Improved Service Rating

Giving customers total control 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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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

• f

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

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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 banking

• 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

• Opened new branches in Lagos, PH & Abuja, also opened Lokoja branch

Enhance Asset Quality and Capital

• Improving capital and funding
• Awaiting final SEC clearance for Tier 2 Capital.
• Consistent repayment of existing Tier 2 capital

Improving efficiency

• Improved operational efficiency through better use of technology
• OPEX growth of 2.7% in 2016 below H1 inflation average of circa 9.2%
• Net Interest Margins of 6.71%.
• 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.

• 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 applications
• ATM deployment increased by 17.14%;
• POS increased by 17.78%;
• Number of active cards increased by 26%

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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

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section page 1 Overview and Financial Highlights 3 2 H1’2016 Financial performance 9 3 Bond Transaction Details and Outlook 23

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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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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 17.39 13.99 30.29 2.44 2.96 5.75 H1'2016 H1'2015 2015FY

Interest Income (N’bn)

Investment Securities Loans & Advances to Banks and 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

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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 9.79 1.13 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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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.

1.29 1.17 3.05 1.10 0.99 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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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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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. 14

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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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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'bn

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

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CAPITAL AND LIQUIDITY

COMMENTS

As at H1’2016, the Bank recorded the following;

• CAR was above the regulatory limit of

10% despite the introduction

• f

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

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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

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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

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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

• f the bank’s

ethos; creating superior customer experience. 20

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Headlines 2015FY 2016E Comments Customer Deposit Growth 10% 7-10% Deposit growth expected to remain double digits; largely from a realignment

• f 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 3 Bond Transaction Details and Outlook 23

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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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• 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

• f

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

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FGN 2024 Bond

Trustees

Bond Holders

Cash of 55%

• f 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 1

FGN bond Coupon

3 5 1 2 2

SPV pays investors coupon

4

Pay coupon

• n Tier 2 sub

debt to SPV 3

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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 Bond

B – 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

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Thank You

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Appendix

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HISTORY Fully repositioned… in pursuit of growth

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• Two Independent Directors
• Varied experience from Banking, Industry, Law and other relevant sectors
• Implementing strong governance and risk controls

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BOARD OF DIRECTORS

30 30 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

• nly 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.

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