WEMA BANK: RISING FRAUD PROFILE ,MARGINAL MODE RAISE DEEP CONCERNS .
What is actually stagnating the corporate destiny of Wema Bank Plc? Resource handicap? ,managerial ineptitude or malfeasance? Surely, all these factors have tied this one time powerful brand and oldest local lender to the treadmill for long. Worst of all , the bank has become so porous that it is now a gateway for frauds of different categories.
Even as the bank is making frantic efforts to meet the new recapitalization challenges , the concern is more about its leadership capability to deliver better value for its shareholders and secure the deposiors’ money .This is particularly imperative for the existing and potential investors with its request for more money from them to boost its capital base as demanded by the regulatory authorities.
Wema Bank incurred N8.067 billion in court cases as at September 2023 and also lost N239.920 million to fraud and burglary in the nine-month to September 2023.However, the litigation claims represent only 3.2 percent from N8.331 billion reported in December 2022.
Similarly, the fraud and burglary losses in the third quarter of 2023 represents a 73 percent reduction from a loss totalling N880.154 million recorded in the corresponding period of 2022 .
On the cybersecurity framework contravention, Wema Bank received a fine of N2 million, but the lender was fined N20 million for breaching Section 19(3A) of BOFIA, 2020. Also, Wema Bank was made to pay N17.45 million for violating the CBN circulars on KYC. The bank further paid a fine of N10 million for the late rendition of final returns..
Fraud and burglary are still big risks for the bank, which lost N256.387 million to them in 2023. However, this was far lower than N880.154 million lost by the bank in fraud and burglary cases in the corresponding period of 2022.
.From all indications , though other forces in the operating environment could also be responsible, its leadership remains the number one culprit.of those lapses that continue to generate deep concerns and create strong anxiety about its future .
More importantly,their concerns are directed towards its continued laggard status and attitudes over a long time .These are palpable everywhere when you peep deep into its operations . The most obvious of them all is its leadership habit of devoting too much energy to preserve the past and not enough to create the future , a corporate attitude that could be pinned down to a senior management that lacks clear and broadly shared understanding of how the industry may be different in the future , a leadership whose “headlights” fails to shine farther out than its competitors and whose point of view about the future is not competitively unique.
Today, the bank is heavily paying for that as a marginal bank..The negative impacts of the above laxity over years are usually very enormous . The bank has remained at the backseat ; it has neither gained any tangible influence in setting the new rules of competition within its industry or in terms of defining new ways of doing business, building new capabilities, and setting new standards of customer satisfaction over the years . In other words , it has lost the position of a rule-maker and become completely a rule-taker within its industry because of its less intent on challenging the industry status quo than protecting it.
This should not spring any surprise. Its senior management has not been fully alert to the dangers posed by new, unconventional rivals and has not understood their potential threats to its current business model.
Moreover, when senior executives do not possess a keen sense of urgency about the need to reinvent the current business model or when the task of regenerating core strategies is not receiving as much top management attention on the task of re engineering core processes, a corporate entity like Wema is not expected to change its spot from the treadmill.
Its inability to either pursue growth and new business development with as much passion as it is pursuing operational efficiency and downsizing or to increase the percentage of its improvement efforts that focuses on creating advantages new to the industry better than the percentage that focuses on merely catching up to its competitors , is believed to be below expectations
The above are the other negative corporate attitudes of this bank working against its leadership dream and for which the bank is yet to overcome. .Consequently ,what is driving its improvement and transformation agenda has remained the actions of its competitors rather than its own view of future opportunities. Moreover, its transformation agenda has been less offensive and more defensive. This scenario could only take place in a bank that is more under a maintenance engineer keeping today’s business humming along, than an architect imagining tomorrow’s businesses.
At the end of the day. the balance between hope and anxiety in the bank , between confidence in its ability to find and exploit opportunities for growth and new business development and concern about its ability to maintain competitiveness in its traditional businesses ,between a sense of opportunity and a sense of vulnerability, both corporate and personal, has remained more of fear than hope .
This is why some analysts and observers believe raising additional funds to meet its recapitalisation challenge may not be that easy .The only way to convince the existing and potential investors is to justify the current investments with better value for money. But the management of this bank has been unable to do this .
This is ithe investors’ grouse against its leadership..Against this view of its investors and analysts the most annoying thing about the bank is that its leaders sometimes blamed the above scenario more on resources than any other factor. To them , its limited resources are the key handicaps against its competitiveness .
No doubt , strong reputations, technological riches, and deep pockets bestow special advantages on corporate organizations . With a huge resource base organizations could hire the most talented people in their industry, had sizable market shares, and, in most cases, had a worldwide distribution presence. All these may not be accessible smaller organizations . Sequel to this , those resource advantages incumbents tend to dismiss competitors with meager resource endowments.
But the above observation is not always true , particularlyabout WemaBank .The reality in the corporate world , is that so many big companies with bigger volume of resources were known to have lost much of their leadership to firms with far fewer visible resources in varying degrees. This is because size is an advantage only when there’s a stretching aspiration that engenders great creativity in the use of the firm’s resource endowment
The above view is confirmed by a saying that the starting resource positions are a very poor predictor of future industry leadership. A firm can sit atop mountains of cash and command legions of talented people, and still lose its preeminent position. Likewise, a firm can sometimes overcome enormous resource handicaps and successfully scale the heights of industry In Nigeria ,in fact that there are so many examples of companies that overcame seemingly insuperable resource handicaps and built positions of global leadership
The story of Wema Bank is diametrically opposite of the above, moving from a resource rich entity to resource handicaped organization. Its fate is a typical case study of a child born decades ago that remains a toddler . The bank is a victim of bad leadership. It was not a question of resources ,but ineptitude leadership and managerial malfeasance that destroyed this bank . Unfortunately, its three CEOs ,from Oloketuyi and Adebise to the current management led by Moruf Oseni have failed to convince its stakeholders they have what it takes to return the oldest local lender to relevance.
Wema Bank : Before Oloketuyi
Its unfortunate fate started with the swirl of corporate governance missteps over a long period that saw the bank swoon . Before 2009 the deposit money bank (DMB) saw itself punched into a squared corner, as board infighting, rising operating expenses, huge toxic loan baggage and fragile insider-related loan conditions created a perfect storm. The struggle for the heart of the soul of Wema was not unknown to most members of the investing public, it was boiling to the surface, and insiders became trapped in a web of splintering camps and splitting loyalties that culminated in the welcoming posture of the CBN as an undertaker ; the shadowboxing and leg-shuffling in the boards created high tension
Lethargy, sentiments, outright frauds convention, myopia, and elitism are much more its real and much more substantial enemies than its resource disadvantage as it became competitively enfeebled
Its organizational culture was no doubt obsolete.There is no doubt that the way managers perceive their industry, their bank , their roles, and the ways in which these perceptions predispose them to behave in particular circumstances . The concern here is over the way that managers are genetically encoded to think. For Wema Bank ,outdated organization culture or lifestyle contributed to its miserable performance .For their managerial malfeasance , a richly endowed entity with resources and talent , was turned a shadow of former itself.
The bank , a victim of the carnage and painful upheavals , became ruptured some years back under some circumstances for which its past leaders were held culpable . First for their failure to anticipate and shape the future industry and imagine it ahead of its competitors. Two, for its build the necessary and relevant core competences to translate its dream to reality and thirdly for lack of innovation to capture a disproportionate share of the future markets.
Based on the above negligences its success was eroded and destroyed by the tides of technological, demographic, and regulatory change and order-of-magnitude productivity and quality gains made by nontraditional competitors like ZenithBank,GTCO and others ..
For the failure of its successive leaders appointed to rescue it , to refashion the basic beliefs and assumptions about which markets to serve, which technologies to master, which customers to serve, and how to get the best out of employees of the past the foundations of its past success got shaken and fractured with the industrial terrain changing shape faster than its management could cope .
Stagnant growth, declining margins, and falling market share became the realities of its competitive problems for about a decade or more .
Its classification in 2009 among the distressed banks in Nigeria, given its negative capital position at that time nearly ended its going concern but for the CBN that resued it .
Under Oloketuyi.: Wema Bank’s Darkest Period
The period after 2009 was the most challenging period for Wema Bank and only a strategic and visionary leader could redeem its past glory .To achieve this ,the way out is to imagine the future , change the rules of the game and build a relevant strategic architecture with destiny changing strategic intent and leverage to achieve more with less put ; it needed a leader with the capability to reinvent the future.
But Segun Oloketuyi ,its Chief executive Officer from 2009 up to 2018, some analysts believed, was just a mere maintenance engineer not an architect imagining tomorrow.
Sequel to his laxity, after 2009 the bank had to cope with a tense Central Bank that chose to lean heavily on its board of directors in search of a regulatory solution for preventing its failure . The bank was relegated to a regional license holder to stabilise it by all means
The negative impacts of the past poor corporate governance and other issues inherited by Oloketuyi,had almost sent the bank to the gallow. The bank was put serious watch and its management almost micromanaged by CBN ,sources revealed.
.The regulatory efforts may not be farfetched. How well a company survives lies in the quality of its board of directors, their understanding and preparedness to pursue a defined corporate purpose. Where the goal is unclear, the company sees itself drifting into crisis. Even where clarity of purpose exists,a weakness of executive commitment to implementing set objectives inevitably bludgeons the company into despair and possibly disaster.
.From the aspirational but shadowy administration of Segun Oloketuyi to the conservative and minimalist management of Ademola Adebise the bank swung from one transition to another with uninspiring performance . Under them the bank had to cope with CIR, CAR and NPL difficulties; as it inelegantly dropped to its knees.
Issues related to cleaning up of the bank’s delinquent loan books, addressing the niche and value proposition as well as establishing better governance were at the front burner.
Oloketuyi fell into the deep-end with 3 certain reality checks that called for attention. He had to deal with a mountain of bad loan assets, a work culture that stood on bureaucracy and formality, and insider politics that threatened best practice corporate governance . Between 2015 and 2016 the bank’s cost to income ratio improved from N90.4 per cent to 89.78 per cent in 2016, while loan to deposit ratio rose to 61.9 per cent from 56.7 per cent. Return on average asset improved from 0.29 per cent to 0.30 per cent, while return on average equity declined from 2.28 per cent to 2.40 per cent.
Wema Under the Tenure of Adebise
Adebise that took over from him was also helpless . In 2020 financial year he was battled illiquidity and capital inadequacy . Wema Bank’s liquidity ratio stood at 14.53% as of September 2020 instead of 32.04% it had the same period the prior year, while the benchmark liquidity ratio is 30%.
The bank’s Capital Adequacy ratio (CaR) was 11.35% as of the third quarter of 2020 compared to 14.78%, which was below the industry average of 11.5%, while the regulatory threshold is 15%.
The bank’s Capital Adequacy ratio (CaR) was 11.35% as of the third quarter of 2020 compared to 14.78%, which was below the industry average of 11.5%, while the regulatory threshold is 15%.
For this , commercial lenders in Nigeria were averse to extending loans to the bank because of its capital which has fallen below the regulatory threshold. Also , the results of the bank posted to the Nigerian Stock Exchange (NSE) shows that it did not get a single deposit from banks in the 2020 financial year compared to the N3.64 billion it attracted from them in the previous year.
WEMA BANK TODAY with Moruf Oseni
The story is not different today . The ongoing ongoing tenure of Moruf Oseni is not proving to be different .
2023 Full Year Results:Impressive But Trailled By Reservations .
Though the financial results of Wema Bank Plc have continued to register some improvements that are commendable in the last two years . But that is when they are measured on year on year basis . When the results are benchmarked relative to its competitors or the best in class in the industry, the bank is reduced to nothing but a laggard . That is why the expected excitements over those results are usually shortlived and trailed with deep-seated reservations .
For its 2023 results the story is not different .The fears this time over the performance are its sustainability that is in doubt as well as insecurity that came in terms of embarrassing frauds and court cases that drained the bank heavily.
Truly , its 2023 results surely look impressive on the basis of historical comparison or when benchmarked with the previous year figures . At the end of 2023 financial year , Wema Bank saw its gross earnings and profitability (PBT) soar by +70.63% and +193.34% to N225.75bn and N43.66bn, respectively, the highest growth rate in 5 years. Its total assets have climbed to N2.25trn, with commensurate growth in shareholder’s fund to N139.30bn in FY 2023.
The positive gross earnings and profitability performance fed into the bank’s key financial ratios in FY 2023. The return on equity and assets rose to 25.83% and 1.60% in FY 2023 from 19.25% and 0.79% in FY 2022, implying a better utilization of shareholder funds and assets. The cost-to-income ratio moderated to 64.34% in FY 2023 from 80.15% in FY 2022, showing better cost optimization. Despite the high default risk environment, Wema Bank’s non-performing loan ratio declined to 4.31% in FY 2023 from 6.80% in FY 2022, driven by N96.32bn recovered loans and N624.77m written off as bad debt. Wema Bank’s share price had a fairly bullish run, with a gain of +43.59% as of December 30, 2023.
But the question remains :is the performance sustainable? No one could emphatically answer this ;stakeholders are gripped more by the fear of its unsustainability than ever when certain circumstances behind the achievement of the above results are considered.
FEAR OF SUSTAINABILITY
Most importantly, the new highs in earnings and profitability attained by it could be traced to the revaluation gains from naira depreciation and increase in the monetary policy rate (MPR) hike . The high-interest rate environment and FX devaluation drove a +71.83% growth in interest income to N185.64bn and a +75.73% growth in non-interest income in FY 2023.
Although , the persistent appreciation of naira has reversed again , the fact the CBN ) has instructed that local banks keep a zero-forward position on their foreigndenominated assets means they cannot take advantage of unused FX balances for trading gains indicates the pipe of the earnings windfall may dry up .
Also , though the bank’s non performing loan ratio moving to 4.31% in FY 2023 from 6.80% in FY 2022, nothing as such has signified the bank’s risk management had witnessed a turnaround . What exposed this fear is its impairment charge on financial instruments that increased by +121.81% from N4.76bn in FY 2022 to N24.96bn in FY 2023, driven by higher impairment on loans and advances, off-balance sheet, and investment securities.
Another potential threat to its ability to sustain its current improvement on its asset quality is the CBN persistent increase in its Monetary Policy Rate . This week MPR was jerked up to 26.5%.
With this development ,the bank’s profit may be threatened by higher risk of default and low demand from the customers leading to higher provisioning and impairment
Moreover , though the bank’s lower NPL suggests less risk on asset quality, the increased loan loss provision to N10.56bn in FY 2023 from N4.76bn in FY 2022, driven by higher provision on bonds/treasury bills and off-balance sheet is not that encouraging . In addition , the improved asset quality was driven by N96.32bn recovered loans and N624.77m written off as bad debt that might not be sustainable .
Excessive cost over revenue is usually the drawback on Wema Bank good performance. Though in 2023 ,the bank demonstrated to be on top of this situation, its current cost to income might not be sustainable too . The reason for this fear may not be far to seek . First, it was the strong earnings performance that prevented the bank from using nearly all its income to service operating costs as done in the past , making its cost-to-income ratio to decline to 64.34% in FY 2023; in the past five years its cost-to-income ratio hovered at an average of 82.78%. In this current year , the earning windfall may not repeat itself with the current CBN position revaluation gain .
The same fear could be justified by the speculations over the likely rising banking sector’s operational costs in 2024 due to various triggers, such as the recent removal of subsidies for current Band A customers. This might negatively impact further on the banking sector’s asset quality as a higher operating cost environment could hurt manufacturers, putting pressure on their profitability and ability to service debt.
Moreover, despite the so called improvements recorded in its 2023 results on its impact on the share price appreciation, investors are yet to throw their confidence behind the management as the bank shares are seemed to be priced below its earnings with the price-to-earnings (P/E) at 3.04x in FY 2023, lower than the peer average of 4.20x and the price-to-book value at 0.78x, confirming the investors’ position and fear over its stock .
HIGH LEVEL FRAUDS PUT IN INSECURED MODE
Wema Bank incurred N8.067 billion in court cases as at September 2023 and also lost N239.920 million to fraud and burglary in the nine-month to September 2023.
The CBN circulars on KYC were targeted at reducing money laundering and other forms of financial crimes.“There is no doubt that having sufficient information about your customer and making use of that information is the most effective weapon against being used to launder the proceeds of crime. In addition to minimizing the risk of being eing used for illicit activities, it provides protection against fraud, reputational and fnancial risks and enables individual financial institutions to recognize suspicious activities,” the CBN says in its KYC manual.
WEMA BANK TOMORROW
Wema Bank still remains on the treadmill as its corporate wings have been clipped by the size of its capital and absence of ambitious and creative leaders with enough muscles to change its current status. But is the bank destined to remain a marginal bank for life ? This is the question whose answer continues to hang in the balance .
To some observers, the answer is definitely no . As indicated above the problem is with its leadership . Currently , the industry structure has been tilted in favour of the market leaders and against it as its strategic position is already in a dangerous state.
First , the existing industry structure constituting the barriers to entry, market segments and present patterns of rivalry, works to the disadvantage of everyone save the industry leader .
Also, the impact on strategy of the external environment , internal resources and competences as well as the expectations and influences of the stakeholders , all which are critical determinants of what strategic choices it needed use to gain advantages over its competitors, is ,indeed,miserable.
The ugly status of the bank’s strategic position may not be farfetched. Any company that is more of a bystander than a driver on the road to the future will find its structure, values, and skills becoming progressively less attuned to an ever-changing industry reality. Such a discrepancy between the pace of change in the industry environment and the pace of change in the internal environment spawns the daunting task of organizational transformation. This organizational transformation challenge faced by so many companies today is usually a the direct result of its leadership failure to reinvent their industries and regenerate their core strategies a decade or more ago ;its leaders were driving toward the future while looking out the rear-view mirror.
The bank’s crisis-proportion organizational transformation problems which include reskilling employees, selling off businesses wholesale, slash-and-burn restructuring came up because it had surrendered leadership in the task of industry transformation.
For this bank to gain advantages over its competitors in the operating environment requires strong and unique resources and core competences to prevail on threats in the environment . Moreover, positive stakeholders influences and organizational culture are imperative too .
Unfortunately, the expected and relevant resources and core competences to deploy the resources to live up to its stakeholders expectations of the industry leadership is grossly inadequate, a reason it remains on the treadmill.
The only option available to turn the table against the current industry leadership is for Wema Bank to change the rules of the game By that, it could gain the capacity to transform the structure of the industry to its advantage as well as new business creation and the capability to shape that future and regenerate success again and again in the years and decades to come .
But this may not be easy with the current stuff of its leadership. Firms eager to overturn the present industry order must challenge the “accepted practice,”redraw segment boundaries, set new price-performance expectations and reinvent the product or service concept.
To achieve the above , the bank needs a leadership with the powers of foresight ,strategic intent , architecture , stretch and leverage .
Wema Bank ,indeed, needs a transformative leadership that could identify and accomplish heroic goals in tomorrow’s marketplace ; a leadership that could make commitments to particular skill areas far ahead or in advance of the emergence of specific end product markets or services .
Such commitments are usually made by managers or leaders with foresight ; leaders who spend less time worrying about how to position a firm in existing competitive space and more time creating fundamentally new competitive space and perceive the race to competition as a race to build competencies not simply to gain immediate market share.
It needs a leadership that could ease the tension between competing today and clearing a path toward leadership in the future. .This is imperative for this bank to be taken seriously by investors.
None of its past leaders has done the above; those initiatives were sacrificed on the altar selfishness and greediness .Instead of rewriting the rules when the competitive problems became inescapable they were doing a different thing entirely.
Buffeted by the forces from ever changing environment , they picked up the knife and began the brutal work of restructuring to carve away layers of corporate fat, jettison under performing businesses, and raise asset productivity. But those initiatives failed to deliver its stakeholders expectations ; the bank lost of its control of its own destiny to the smarter and non conventional competitors.
. But can this bank be fortunate to be led by leader with the above sterling qualities? An analyst who spoke to this medium believed, “the fate of this bank could only be reversed by those that are not content to follow, ,unafraid of orthodoxy, more inclined to build than to cut ,those concerned to make the difference than making career and those who absolutely committed to staking out the future first .”
Wema Bank , from all indications , has only come under dilettantes and merely intellectually curious leaders .Consequently, the above initiatives go unattended to simply because its senior managers have failed to admit to themselves and to their employees, that they are less fully in control of the bank’s future , or that what they know today—the knowledge and experience that justify their position in the corporate pecking order— is irrelevant or wrong-headed for the future.
The negative effect of the above laxity is that the urgent has continued to drive out the important while the future has remained largely unexplored with the capacity to act, rather than the capacity to think and imagine, becoming the sole measure of leadership. Moreover , what has been occupying its senior management’s attention in two words are restructuring and re engineering.
But while downsizing and core process redesign ,the key attributes of restructuring and re engineering, are legitimate and important tasks, they have more to do with shoring up today’s businesses than creating tomorrow’s industries. Neither is a substitute for imagining and creating the future or will ensure continued success if the bank fails to regenerate its core strategies. Any company that succeeds at restructuring and re engineering, but fails to create the markets of the future, will find itself on a treadmill, trying to keep one step ahead of the steadily declining margins and profits of yesterday’s businesses.
Even its present leadership is not doing things differently as the status of this bank as a laggard remains the same.
In as much as the leadership of Wema Bank continues to preserve the past more to survive with few initiatives for creating the future,,the bank may never recover from the old injuries just as its laggard status may remain unchanged ..
Wema Bank needs a leadership with capability to transform this bank by fundamentally changing its organizational structure ,core product or service ,portfolio,systems, processes, people—the way of the employees work and technology to upturn its treadmill status.
The above initiative is expected to enable it to generate significant improvements in revenue growth, cost reduction, and/or customer satisfaction as merely short-term operational improvements do not augur well for a sustainable transformation. No doubt, it needs a long-term growth strategy in place and a leadership that could challenge the foundations of its business model.Its future ,however,depends on the capability of its leadership to wake up on time
