When will Wema Bank Plc , one of the oldest banks in Nigeria, be lifted out of the treadmill and shed the the toga of a glorified community ? This is a question yet to be answered but continues recur in the last few years .
The bank ,no doubt ,at point in time had gone out of the industry radar as its leadership was confronted with certain challenges for which it had no solution for fast enough .At a point , the bank was demoted from its national status to a regional for its lack of strength . Like an explorer attempting the first winter crossing of Antarctica, the bank is facing a long ,difficult journey full of material risks . The risks it faces arise from multiple challenges confronting its successive leaders and handicapping them to grow the bank and to prevail on the inclement macroeconomic environment as well as intense competition in the industry .
The fate of this bank has been quite unfortunate. Like a dinosaur threatened by cataclysmic climatic changes, Wema Bank Plc ,once a household and strong brand , has been finding it difficult, if not impossible ,to remain competitive and change its current uninspiring status for its inability to adapt fast enough to the cataclysmic or radically altered business environment in the past .
The laxity of this corporate dinosaur leadership is not hidden as its“genetic coding, from all indications, was outdated . In other words , its beliefs, values, and norms about how best to motivate people; the right balance of internal cooperation and competition; the relative ranking of shareholder, customer, and employee interests; and what behaviors to encourage and discourage , which at least in part, are the product of its industry environment had changed rapidly and radically. Consequently , this had become a threat to its survival simply because its leadership failed to compete for the future .
However, in the recent time , one may be tempted to tag Wema Bank Plc a corporate champion looking at certain performance data from the bank . at least from the face value .
In 2022 , particularly when the growth recorded in various areas of its activities in that financial year is measured by a year on year yardstick, this temptation becomes more irresistible . That year , if nobody was tempted to do so , its management did . At the end of that financial year , the management told its investors in its analysis the bank had sustained revenue growth across all its income lines, improved its asset utilization and efficiency resulting to higher returns despite the worsening macro-economic headwinds. By implication , the management of Wema Bank believed it has delivered a better value for money to its stakeholders , particularly its investors .
Its management is banking on certain figures . Between 2021 and 2022 its gross earnings , profit before tax ,profit after tax ,total deposits , total assets and total Loans took a double-digit upward flight by 42%,19%, 26% ,23% and 24% respectively .This was not accidental ,it has remained the trend in the bank in the recent time .
Viewing this bank’s strategic position from the above perspective surely depicts a highly impressive picture .Creating this perception, however, appears to be usually tactically done by its top management year on year rather than being a coincidence to convince its stakeholders of its change of fortune. ; either by commission or omission , it sells this dummy to its customers and investors yearly to create a positive perception towards the brand. .
But Wema Bank is not a champion in the true sense of it , except by the above standard . To truly ascertain the health and competitiveness of any corporate organization, analysts and investors do not only usually look for the above standard ; they measure performance of a corporate entity by its capability to outperform competition or deliver better value for money . Beyond that , they look at the track record of its new business creation, dreams and fears on the faces of its employees , the company’s ability to shape the future and regenerate success again and again in the years and decades to come . In a nutshell , they ask themselves : is this company competing for the future and delivering a better value for money ? By this , they could conclude whether a corporate entity is a champion or a laggard .
To think otherwise, to them , is to be highly be disingenuous . Despite its survival as a going concern , when Wema Bank is viewed from the above critical success factors relative to its competitors and juxtaposed with what its stakeholders particularly valued , the bank is reduced to a merely threshold player .Its returns to its shareholders which have remained highly inadequate and miserable over both the short and long term most importantly confirm this view . Moreover , its poor returns on equity ,earnings per share and dividend yield and payout are set to continue,at least , given the pressures facing it which are structural and not cyclical in nature .
When Wema Bank performance indicators over years are juxtaposed with its competitors and the best in class standards , the bank’s uninspiring strategic position ,no doubt, becomes clearer .Even its so called supersonic performance in the 2022 and half 2023 for instance is a mere ruse when bench marked with the industry or sector morns or best in class figures. .
Despite the fact that its profit before tax increased from N6.9b in 2020 to N11.2b in 2021 and N14.8 billion in 2022 , the fact that its cost to income stayed within 84% ,80% and 81% respectively is a pointer to the less resourcefulness of its leadership and its pathetic strategic position in the industry .At a point , the bank had long been written off by investors as a clunker, characterized by low growth, low margins with an unmatched ability to destroy shareholder value. It became competitively enfeebled, experiencing downturn in every imaginable dimension
Its performance in the last few years relatively is still believed to be too cold for comfort at the industry level as it remains a threshol player . While the Total assets of the Nigerian banking industry experienced substantial growth, increasing by N14.36 trillion (24.24%) from N59.24 trillion in 2021 to N73.59 trillion in 2022 , Wema Bank controlled 2% of it at N1.44 trillion . Also the local banking industry experienced deposit growth in 2022, rising by 18.43% from N38.42 trillion in December 2021 to N45.50 trillion as of December 2022, suggesting high liquidity for onward lending and support for real sector growth . However , out of this only 3% belonged to Wema Bank .Due its inability to meet the regulatory stipulation of 65% loan to deposit , the bank’s gross earnings only composed of 19% interest income with 44% loan to deposit ratio while 81% of its income came from the non interest income segment.
The only bank among the tier 2 banks that Wema Bank could claim to outperform is Unity Bank , a bank with negative shareholder funds . A 2021 analysis tagged Tier 2 Banks in the Afrinvest Paradigm and published by Proshare , a financial firm, confirms this assertion. Wema Bank ranked the least overtaking only Unity Bank in all performance indicators amongst tier 2 banks . Its gross earnings, profit before tax, profit after tax , total asset, shareholders fund, customers deposit and net loans and advances are all under performing its competitors . And its 2022 figures confirm its treadmill position too .Even when its progress is measured using historical bench marking , the bank in 2022 and years before displayed the fact that it remains a laggard in the industry with the least profit after tax .
The negative impact of the above ugly scenario is palpable . Its stock price has remained diminutive below N5 per share, a product of the investors’ poor perception of its value delivery and unstable dividend track record .Looking at this bank profit from its earnings to the investors or earnings per share [EPS] confirms an observation that the bank needs a better top management to fulfill its destiny or to exploit its full potentials .
Wema Bank net profit margin , a metric that helps investors assess if a company’s management is generating enough profit from its revenues and whether operating costs and overhead costs are being contained., also follows a similar diminutive trend .Its ratio of return on Equity which suggests a company’s ability to return profits to its shareholders is speaking the same language. This picture looks more pathetic when the country inflation figures in the recent years are factored in or juxtaposed against what goes to its shareholders .
Is Wema Bank Destined to Remain a Threshold Bank ?
. A big concern over the current status of Wema Bank is why the bank has refused to respond to the initiatives of its past leadership and remains stunted for long with uninspiring returns to its shareholders .
The fate of Wema Bank is a question of adequate and appropriate resources and leadership that has what it takes to deploy its resources effectively and efficiently . In other words , turning around any corporate entity like Wema Bank depends on how its strategist or leadership can think through and manage better its current ugly strategic position as well as the strategic choices available to its leadership. It also concerns with how the strategy employed actually takes shape and what its strategists do.
Although an inclement macroeconomic environment and tough competition among the players are the major handicaps , a critical challenge before the leadership of Wema Bank’s remains how to rebuild it and repair its deep-seated damaged past that continues to hunt it .
The crisis in Wema started with boardroom squabbles and bickering as well as allegations outright mismanagement that nearly grounded the bank particularly after exit of Mr Tunde Lemo ,one of its brightest leaders. The story of Wema Bank change of fortune, indeed, is purely a case study of an alleged managerial malfeasance as well as leadership ineptitude , a situation that led to the lost of its leadership to some unconventional players ; consequently , the bank later saw its success destroyed ,or to say the least , eroded heavily by the tides of technological ,demo -graphical and the regulatory change and the order of magnitude productivity and quality gains made by non traditional competitors .
No doubt, the foundation of the bank’s past had shaken and fractured terribly as the industrial terrain changed shape faster than the top management could refashion its basic beliefs and assumptions on which markets to serve ,which technologies to master ,which customers to serve and how to get the best out of employees .Haunted by its ugly past , the bank has remained on the treadmill .
Moreover ,beyond its ugly past are the forces from the inclement operating environment. Nigeria has continued to experience reduction in its economic growth of its GDP. It fell to 3.0 percent in 2022, down from 3.6 percent in 2021 .Another is the skyrocketing inflation in the country .In a bid to reduce the growth in inflation , the Monetary Policy Committee (MPC) raised the benchmark rate, on a cumulative basis starting July 2022, by 500 basis points to 16.5 percent by November 2022 to curb inflationary pressures. The baseline rate has been raised twice by 250 basis points in 2023 and currently stands at 18.5%.. Buffeted by the above forces which none of its leaders in the past was able to arrest has led to the lost of the control of its destiny .
Overcoming Managerial Malfeasance and Leadership Ineptitude
But the hopelessness surrounding the return of this bank to its leadership or competitive position could be traced the caliber of those its destiny is entrusted upon .This bank needs a strong strategic leadership . This is because waking up a laggard like Wema Bank and turning it to an industry leader is a function of a leadership with appropriate strategic capability to fight a competitive battle in a race to leadership . Such a strategic leader needs competitive strategic capabilities representing resources and competencies to combat the threats and exploit opportunities in its operating environment for a battle which takes place in three overlapping stages: competition for industry foresight and intellectual leadership, competition to foreshorten migration paths, and competition for market position and market share.
At the first stage of this battle for industry leader the challenge is having the i capability that could help its leaders to gain a deeper understanding than competitors of the trends and discontinuities—technological, demographic, regulatory, or lifestyle—that could be used to transform industry boundaries and create new competitive space. This skill is expected to help them to be prescient about the size and shape of tomorrow’s opportunities. In short, this will enable such its leader to imagine the future.
In the second stage of competition for the industry leadership that its leaders needed to embark upon is a race to accumulate necessary competencies (and overcome technical hurdles), to test and prove out alternate product and service concepts (by progressively discovering what customers really want), to attract coalition partners who have critical complementary resources, to construct whatever product or service delivery infrastructure may be required, and to get agreement around standards, if necessary. If competition in the first stage is competition to imagine a new opportunity arena, competition in the second stage is competition to actively shape the emergence of that future industry structure to the bank’s advantage.
Finally, at the last stage, competition between alternate technological approaches, rival product or service concepts, and competing channel strategies is believed to have been largely settled. Competition now shifts to a battle for market share and market position within fairly well-defined parameters of value, cost, price, and service. Innovation is focused on product line extensions, efficiency improvement, and what are usually marginal gains in product or service differentiation.
But it is unfortunate that Wema Bank has ,no doubt, lost the first two pre-market stages due mostly to quality of its leadership due its leadership’s ineptitude . At the pre-market stages , this battle is won by those with foresight, stretch, and leverage , the three critical elements ,that provide the energy and rationale for proactive advantage building and industry re-engineering. Moreover , since the industry standards are largely settled and industry structure now tilted in favour of the bigger players, the only option before the leadership of Wema Bank is to change the rule of the game .
In the early 90s , some Nigerian banks resorted to the above strategy to displace the incumbents ..In a bid to displace some old banks ,the architect of this change, indeed, slugged it out with the old timers which had dominated the Nigeria bank sphere for many decades in a fierce battle for the industry leadership .They strategically turned themselves the industry rebels and firebrands ;these unorthodox challengers, refused to be dilettantes or merely intellectually curious. . With these attributes, they suddenly changed the leadership equations in the banking industry.
During that period powers swiftly changed hands among few top players as the Nigerian banking sphere came under strong competitive dynamics ; behind this change were the few new generation banks ceos with brilliant visions and breathtaking guts. Among them were the likes of Fola Adeola ,Guaranty Trust Bank ;Jim Ovia ,Zenith Bank and few others .
To turn the table around to its advantage Wema Bank ,,however, needs to adopt a robust business model, that could be very difficult for its competitors to replicate. It needs to operate a low cost, revenue efficient model that relies less on manpower but more on prudent risk asset allocation while attracting cheap deposits. . To do this , it needs unique resources and core competences . .
But Wema Bank has not been fortunate to have a leaders with the above skills and drive . Because of the poor quality of its strategic capability relative to forces in the operating environment , turning around this bank has become like squeezing water out of a rock, which , no doubt , is a herculean task . In a simple language , definitely , the upheavals that rocked Wema Bank ,indeed, reflected the failure of some of its past leaders to keep up with the accelerating pace of the industry change and to achieve the expected turnaround due to their lack of foresight .
Only a leader with the capability to turn Wema Bank to a company competing for the future could restore its past glory ; the task is not for dillittantes, not for merely intellectually curious but for those not content to follow, who desire to rewrite the rules of the game ,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 .
For its turnaround , Wema Bank is dire need of a leadership that evokes brilliance , resilience and resourcefulness ; it needs a hardworking CEO who has resolved to lift the banner of this bank to a lofty height . One very significant hallmark of a leader expected to live up to such an expectation of turning it around from its current ugly strategic position of laggard is an understanding of appropriate strategic choices, including the bases for such choices as well as the options for developing them in terms of both the directions and methods of development .Since the same strategic choices must relate back to analysis of its peculiar strategic position, such choices have to be made in the context of its strategic position to achieve the expected results
To pull out this bank from the treadmill needs a leader with smart understanding of how it entered the camp of the laggard. In other words , for a better understanding its current uninspiring strategic position in the industry and to gain the right capability to turn it around , such a leader needs a good analysis of the degree of the damage done to it or the degree of the decay in the bank inflicted on it that led to its change of fortune .
Unfortunately, its leadership has been unable to achieve this feat.Those drafted to wake up the sleeping giant were less fully in control of its future and deficient of the iron teeth necessary to break the metaphorical hard nuts indicated above .An industry observer and analyst in an interview with this medium noted :though the past damage was deep seated , those drafted to rescue it must admit that what they knew ,the knowledge and experience that justified their position in the bank’s pecking order , was either irrelevant or wrongly headed for the future Wema Bank has not been lucky to have a CEO with strong zeal or ambition of those in early 90s. The leadership of Wema Bank , no doubt , grew its resources and deploy those resources to create competences but at threshold level.
The only battle it is now fighting now is majorly for the market share as the industry structure is now overwhelmingly in favour of the big and smarter players . Moreover , the banking industry in Nigeria is matured while the standards are settled already .
Leaders drafted to rescue Wema Bank from the doldrums after its collapse some years back , no doubt , appeared to have failed the above litmus test . Consequently , the penalty for the failure of those corporate leaders to heed the above warning or live up to those expectations is glaringly the bank’s inability to get off the treadmill for long or shake off the stigma of a laggard.
The question is : in the absence of the above initiatives and capabilities , what were the leaders of this one time glorious bank doing ? To fill the gap created by the above laxity , the past leaders of Wema Bank , more than anything , were busy devoting too much energy to preserving the past and not enough to create g the future; instead of creating the future or regenerating its core strategies
STRATEGIC CHOICES THAT KEEP THE ON THE THRESHOLD.
.Occupying the attention of these leaders, in two words, are restructuring and re engineering .These decisions or strategic choices , though legitimate , no doubt , were believed to be the bank’s key strategic errors that continue to keep it too long on the treadmill. This is particularly so because these strategic choices ought to be combined with or more of other choices or initiatives that are forward looking .
In other words, the management of Wema Bank’s strategic choices of restructuring and re engineering are expected to be balanced with a drive to compete for the future in order to gain a disproportionate share of the opportunity share rather than market share.
However, to gain the above advantage may be very challenging . Fist , analysts believed certain questions must be answered by its management with the above drive which include what share of future opportunities it is likely to capture given its management current skills, or competencies ? which new competencies it ought to build and how its definition of its served market “has to change, for it to capture a larger share of future opportunities?
By answering the above questions the management is expected to attract and strengthen the skills that form the competencies that provide a gateway to future opportunities and help it to gain a disproportionate share of future profits . However to know which competencies to build, policy-makers and corporate strategists must be prescient about the broad shape of tomorrow’s opportunities; its management must be just as obsessed with maximizing opportunity share as with maximizing market share ,though the commitment to build competence leadership in new areas is usually long before the precise form and structure of future markets comes completely into view.
But in the absence of the strategic capability to live up to the above expectations and faced with competitive problems of stagnant growth, declining margins and falling market share, the past leadership just embarked upon restructuring .
In order to save the bank, each successive CEO of Wema Bank consequently picked up a knife and started the work of brutal restructuring . The goal of this was usually to carve away the layers of corporate fat ,jettison under performing businesses and raise the asset productivity. And the fear ,usually, is that those executives who don’t find room for emergency surgery in this type of situation might lose their jobs .
The pressing motive is to improve the return on investment ,ROI and gain market share . To achieve this , usually a leader usually targets one of the two components of ROI which include the numerator or net income and the denominator or investment, net assets or capital employed. In a service industry like banking ,headcount may be appropriate denominator.
However ,for Wema Bank knowing that raising net income is usually a harder slog than cutting assets and headcount, its leadership preferred and opted for the first option which entails cutting the assets . Grappling with the challenge of competing in a harsh environment., the bank was at work, sleeves rolled-up, digging a trench for bad and delinquent loans .To its management , it was the sinecure for a stronger balance sheet in the future
The reason for the management’s denominator cutting option is simple: to grow the numerator , top management must have a point of view about where the new opportunities lie ,must be able to anticipate changing customer needs ,must have invested in building new competencies and so on
However , since the above initiative is usually difficult when such a top management is under a quick pressure to improve ROI, assets cutting is usually preferable to some corporate leaders like those of Wema Bank . Indeed , the past leaders of Wema Bank were glaringly under a severe pressure to improve the bank’s returns on investments or turn the bank around for better value delivery .
To cut the denominator, however , top management doesn’t need more than a pencil . The reason why managers are usually obsessed with the denominator is simply to gain efficiency and higher productivity or to be able to get to the future first and get there for less . Sequel to this ,its management from one leader to another, from all indications , only reached out for the lever that brings the quickest ,surest improvement in ROI and began to cut the bank’s to generate better returns to justify its leadership . This exactly was what those leaders did.
But the negative impacts are clear too . Wema Bank lost its weight to its rivals to the extent that its capital base became almost completely depleted .An aggressive denominator reduction, under a flat revenue stream ,is simply a way to sell market share profitability cheaply , what marketing strategists term a ‘harvest strategy ‘and consider a no brainer. But that was the option preferred by some past leaders of Wema Bank
The above are partly the reason why the option is usually less preferable or desirable to analysts as a route to productivity or return improvement ; some analysts prefer the second option or strategy as it helps a company to reap productivity and efficiency by growing the revenue stream atop slower growing or constant capital and employment base . .
But Wema Bank over the years did not only embark on restructuring as strategy of its survival, it also added reengineering its processes .The reason for this clear: reengineering is a necessity child of restructuring.
Recognizing that restructuring is ultimately a dead end , smart companies have moved on to reengineer their processes. The management of Wema is not left out . First , this is to root out needless work and get every process in the bank for customer satisfaction, reduced cycle time and increased total satisfaction.
However , one good observation that should be noted is that though the ostensible goal of reengineering is to focus each and every process on customer satisfaction, its main purpose is the promise of reduced costs.
Despite the above frantic efforts , Wema Bank has remained on the treadmill for so long and less competitive as it is still held hostage by the worst cost of doing business in the industry. Wema Bank had the highest cost of funds at 4% and cost to income ratio is above 80%, going by its 2022 results . The most damaging is that the bank is neither better nor bigger relative to its competitors .
The failure of those strategic choices to remove the bank from the treadmill , however , should not spring any surprise .Whereas downsizing, or restructuring and core process redesign , or reengineering are legitimate and important tasks , analysts believed they have more to do with shoring today’s businesses than creating tomorrow’s industries .Also , neither is a substitute for imaging the future nor will ensure continued success if a firm fails to regenerate its core strategies .
Analysts explained that any company that succeeds at restructuring and reengineering, but fails to 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 .
In a situation where a bank or other corporate entity is run by managers not leaders ,by maintenance engineer not architect , the urgent usually drives out the important , the future goes largely unexplored and the capacity to act rather than the capacity to think and imagine becomes the sole measure of leadership.
Moreover , a company that succeeds at restructuring and re-engineering but fails to create the markets of the future could not gain the position of leadership.This is because the process re-engineering and advantage building efforts are more about catching up than getting out in front .
Furthermore , any company that is more successful at restructuring than re-engineering will become more smaller faster than getting better as Wema Bank is currently .This is because re-engineering offers at least the hope , if not the reality, the hope of getting better as well as getting smaller. But the issue is that a company with those strategic choices surrenders today’s businesses when it gets smaller faster than it is getting better, surrenders tomorrow businesses, when it gets better without getting different .
In addition to the above , one of the inevitable results of downsizing is the plummeting employee morale just as it seldom results in fundamental improvements in the business. At best , some analysts believed , it buys time . That is why a savvy investor is usually encouraged to look at restructuring announcement as a signal to sell rather than to buy .
The simple fact is that getting smaller is not enough since downsizing is believed to be an equivalent of corporate anorexia and could make a company thinner not necessarily healthier
The Need To Regenerating its Core Strategies
The current status of Wema Bank is not only unfortunate but highly worrying as none of those appointed to lead the battle for its resurgence has succeeded . For several years, Wema Bank was a leading player ; it was not merely a household name; it was a verb. But for more than two decades now , the bank had been swiftly dethroned by some unconventional competitors that have dominated the industry since then .
But the hope is not lost yet . To lift Wema Bank of the treadmill analysts believed it needs a leader who must be capable of fundamentally re-conceiving itself, of regenerating its core strategies and of reinventing its industry;it must be capable of getting different .
To create new businesses, the bank must or will have to regenerate its core strategies and reinvent its very concept of self — its channels, processes, customers , criteria for promoting managers metrics for measuring success and so on .
It needs a leadership that could create new value and competitive advantages for the future. Beyond building competitive advantages in relation to current competitors, it also needs to identify growth opportunities for the future and create new products and services, technologies, resources and capabilities.
In other words, the bank needs a strategic entrepreneur as a leader to embark on advantage -seeking strategy activities and opportunity-seeking entrepreneurial activities to create value. While the leadership strategy aspect supports this by forming competitive advantages, its entrepren- eurship contributes the identification of new opportunities in the market or environment. The latter involves entrepreneurs that innovate by identifying and exploiting new ideas and inventions that result in innovations.
Strategic entrepreneurship and its outcome, innovation , are essential for the long-term survival and success of all organizations; entrepreneurship and one of its most central ingredients and outcomes, innovation, are fundamental not only for creating value for customers, organizational growth and prosperity, but also generally for today’s economy. The management of this has failed to do the above at least competitively
