Size is a critical factor that sometimes determines human perception of how important or valuable an entity is . Sequel to this , beyond any doubt ,bigness in the corporate world confers status .
Investors usually prefer them to smaller entities for several reasons. First, having a capacity to match the resources and global distribution of large competitors brings advantages. Second, large companies also tend to devote a disproportionate share of their resources to training and education. Third, they open the door to many of tomorrow’s mega-opportunities will require significant resources ; they are equally significant employers. All the above attractions make big corporate entities irresistible to some investors . Not only in the corporate world , in other arena of life, bigness delivers special and unique advantages
For the above reasons and more , organizations boost their assets and equities to rule their industries . However ,not many corporate entities could live up to the above expectations for diverse reasons either by commission or omission .Consequently , handicapped by size disadvantage, at least in relative term , some organizations stayed on the treadmill for life .
Wema Bank ,unfortunately ,is one of them that could not lay claim to any of the above size advantages; .Its balance sheet size confirms this view . Though , its total Assets inched up by 41.6% to N1.88 trillion from N1.33 trillion between June 2022 to June 2023 , and its shareholders funds by 23.4% within the same period to N89.3b from N72.3b, the bank remains the smallest when benchmarked with any other player except Unity Bank that is still ridden by negative equity .
But to pin down Wema Bank uninspiring position in the industry strictly to its size is to be disingenuous simplly because bigness has its has own limitation too: it doesn’t determine the capability to deliver a better value for money at all time . What determines the place of a corporate entity is not the size of its resources but leadership capabilities to deploy and get better value for money .
For this , the goal of those gunning for big companies should not be to keep dinosaurs alive at all costs. Since not all big companies are competitive or have the capability to deliver better value for money , not all of them get the attention of investors .Sequel to this , shrewd investors are not deceived by mere big size. Their view is predicated on the fact that bigness without stretch and leverage is obesity just as smallness without stretch and leverage is impotence.
Not only that, values created is a question of leadership. Experts believe that so many companies overcame seemingly insuperable resource handicaps and built positions of global leadership; they prefer corporate entities with foresight, stretch, and leverage because these provide the energy and rationale for proactive advantage building and industry re-engineering.
Small firms eager to overturn the present industry order are known to challenge “accepted practice, redraw segment boundaries, set new price-performance expectations, and reinvent the product or service concept
It is ,however, a tragedy when a company is not big and is equally not competitive like Wema Bank ; this bank is operating at the treadmill and unable to deliver better values for money ; all it could do is to provide the service features or values required by the stakeholders at the threshold level dictated largely by its threshold resources and competences ..
The above ugly strategic position of Wema Bank which could be pinned down to its leadership inability to do any of the above and deliver better values for money in its industry for years is generating deep concern.
Why are the resources at the disposal of Wema Bank’s management considered to be threshold despite the jumps of 41.6 % and 23.4% both total assets and shareholdersfunds between the first halfof 2022 and the corresponding period in 2023 respectively .
The above view may not be farfetched. . Its assets by size relative to other players are no doubt threshold or for its mere survival .While its historical growth between the first half of last and the corresponding period of this year is impressive, relative to other tier 2 banks , Wema Bank still remains a back bencher among its peers by its financial resources because the management had been not growing its assets and equity dramatically or competitively increased its resources over years until the above period . .
This singular negligence or weakness has impacted negatively on its capability to gather cheap deposits and dispense loans adequately to build its revenues competitively relative to its peers .
But while its resources could be adjudged to be at threshold level relative to its competitors and constitute a critical factor against its competitiveness , more critical is its inability to deploy those resources to deliver better value for money relative to its competitors. And this leadership ineptitude could not allow this bank to outperform its peers in any critical segment .
A detailed analysis of this bank’s operations in certain critical segments shed more light on this assertion..In banking, there are five critical segments or audiences every player is expected to satisfy , each with its critical success factors .In other words .in the business of financial intermediation , a bank has to satisfy five main constituencies.
One of these is the surplus units from which it borrows .These units demand the best possible term in rates of interest and maturity structures and the maximum liquidity to enable them to have the funds back when they want them , or as agreed . The second constituency is the deficit units which borrow from the banks . They want to borrow when they need the funds and as cheaply as possible .Like the lenders ,the borrowers also impose the obligation of maximum liquidity on the banks to enable them to obtain funds when they need them . In addition to satisfying the surplus and the deficit sectors ,the shareholders must also be satisfied .These require maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed .
To the above is added the fourth constituency , the regulatory authorities ,whose interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements .There is , finally the community at large. As the provider of the environment within which it operates . the bank owes an obligation to the community to be a good corporate citizen, capable of maximizing the exploitation of the opportunities available and minimizing the threats in the environment .
However , as a profit making organisation, the most critical constituency at the receiving end of this bank’s leadership ineptitude is the shareholders .What has become incurable headache for the management is its inability to outperform competitors , meet the critical success factors of its stakeholders in this segment and consequently deliver better values for money to them . .Specifically , risk and cost management remains a hard nut for its leadership . Unfortunately for it, no shareholder is comfortable with values or service features at any cost. Every stakeholder wants either product or service features to be delivered efficiently and effectively .
For a company to outperform and deliver a better value for money it must be competent at managing cost and or deliver unique service .to meet shareholders expectations and generate sufficient profit. In other words , a corporate organization’s ability to deliver either product or service at a better value for money is equally critical not its mere profitability ; such a company must have the capability to deliver better value for money by gaining the most advantageous combination of cost, quality and sustainability to meet stakeholders requirements.
Unfortunately, for a laggard like Wema Bank, this has become a mirage and a source concern for its stakeholders .
To some observers ,however ,,the above view is considered too hard on this bank and their key argument particularly is the recent phenomenal growth in its profitability in the first half of 2023 . Its Profit moved swiftly by 99 % to N105b in the first half of 2023 from N5.3b in the corresponding period of 2022
To others, particularly those well grounded or prominent in the business of financial analysis and interpretation , to consider Wema Bank’s recent profitability extraordinary is to be highly disingenuous. They believe, to either to hide under the above absolute figures or to use historical performance yardstick as a basis for asserting the health or competitiveness of any organization without benchmarking it with its competitors or relating it to its value for money is disputable . In other words , to any informed observer , mere profit figures are not enough to ascertain a company’s competitiveness .
Though looking at the performance of an organization in relation to previous years or quarters in order to identify any significant changes is imperative because without it such an organization is likely to lose its competitiveness ;however ,the danger in it is that it can lead to complacency since it is the rate of improvement compared with that of competitors that is important.
Even on the basis of the absolute figures, a comparative analysis of Wema Bank’s performance with its competitors shows the bank is the worst , at least from the point of view that the above profit figure is the least in the industry ,when Unity Bank with its negative equity is exempted .
More importantly, when certain critical success factors are employed , Wema Bank is not conveying a different picture than that of a laggard status . particularly among the tier 2 banks . .
WEMA BANK’S POOR VALUE FOR MONEY
One critical performance indicator that exposes Wema Bank’s status is its profit margin. Looking at Wema Bank from its latest results in the first half of the ongoing financial year confirms this as much , contrasting sharply its historical performance year on year that gives it a deceptive picture of competitiveness .
Its pre tax margin increased to13.5% in the first half of this year compared to 10.1% in the similar period last year ; it decreased to 11.2 % in the full year 2022 from 13.2% in the 2021 full financial year . Its net profit margins follow the same trend rising to 11.7% in 2023 half year period from 8.8% last year June . At the end of 2022 it was 8.5% compared to 9.5 % in 2021 . The implication of the above uninspiring trend is that for every N100 revenue generated at the top line less than N10 is converted to profit after the tax man has been settled . .
The above picture is uninspiring as it is uncompetitive , very far below the inflation rates . Profit margins , whether operating ,pre tax or net profit margin are indicators pointing to how well a company manages its financial resources ; when a net profit margin, for instance , is below inflation rate , it represents a negative real earning in an economy while a positive profit margin figure over inflation rates represents a gain to investors ; a declining net profit margin takes a toll on reserves .
Deeper and critical interpretations of these metrics ,particularly its profitability metric, also give uninspiring picture in another dimension . 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. A good way to determine earnings to the investor is the Earning Per Share (EPS), which is the monetary share value, i.e., what every share issued by the bank will receive from declared earnings. The higher the EPS, the more profitable the bank is. Full Year EPS for Wema Bank in the last five years comes to about 88.3k , 23.1k , 11.9k , .13.5k and 8.6 k per share between 2022 and 2018; in the first half of 2023 it is 163k compared to 82k in the corresponding period of 2022 .
When the prevailing high of inflation is factored into the values given to its investors by EPS, this is nothing but miserable return to investors. Is Wema Bank Plc under any jinx to remain on treadmill perpetually ? For decades now ,the bank has remained a weakling it was when it was saved from extinction by the regulatory authorities .during the banking consolidationperiod midwifed by CBN ..
Its stock price has remained diminutive below N5 per share, for long , a product of the investors’ poor perception of its value The stock’s unbounded volatility is another dent on the image of the bank . Compared to industry and market , its Average weekly movement or votality is 11.6%, the rate at which it is adjudged to be the most volatile in the industry and the market Average Movement 8.3%
The diminutive price of Wema Bank’s stock could be strictly pinned down its uninspiring performance over the years and unstable dividend track record .This is the reason for its miserable value delivery to its shareholders . . Its current dividend yield is 4% and dividend payout ratio is 20
The stakeholders worst hit by the above position are the shareholders that require maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed . Beyond mere profit figures ,delivering a better value for money is preferred by investors as a better measure of competitiveness .
One can now see why the investors’ perception towards its stock has been unimpressive ; it has remained diminutive as the values created by it for its shareholders
WHEN THRESHOLD RESOURCES AND COMPENTENCES BECOME A BIG HANDICAP
Why should this once a powerful brand remain on the treadmill ? As indicated above, the values this bank could deliver to its shareholders could only be adjudged a threshold .But not only the shareholders are at the receiving ends , this player’s values to other constituencies are equally not different . In fact , it is its inability to be competitive in other areas or constituencies that stymies the return on its shareholders investments. As its leadership is unable to grow the bank’s resources competitively and apply stretch and leverage to create better value for money it continues to be confined to the treadmill in other areas .
Limited either by its threshold resources or competences as against the unique resources and core competences of its competitors , the bank has found it herculean to convince the surplus units from which it borrows to gain better patronage and competitive volume or generate favorable mix of deposits that could help it to deliver better value for money to its stakeholders . Although its deposit from its customers in the first half of 2022 to the first half of 2023 rose by 32% to N1.4trillion from N1.1trillion in 2022 ,as against 25.7% at the end of the 2022 full year to N1.2 trillion from N928b in the corresponding period of 2021 , its deposit mix dominated by expensive or costlier term deposit , a source of serious concern .This has a serious implication on the cost funds, a potential spoiler on its drive to gain efficiency or wider spread between what it pays on deposits and what it receives on loans to customers .
This becomes more difficult to achieve because these units demand the best possible term in rates of interest and maturity structures and the maximum liquidity to enable them to have their funds back when they want them , or as agreed . Wema Bank , though liquid , no doubt , may not find it easy to compete big banks and more liquid among its peers when the above criteria become the standards .
From the deficit units which borrow from it , Wema Bank by its historical comparison of its figures has not been doing badly . In 2022 , it increased its net loan by 24% at N521b compared to the previous year amount of N419b . In the first half of 2023 its loans to customers hit N627b from N521b, an increase of 20% in the corresponding period of 2022 . While these by historical comparison is impressive , the increase is limited by its equity and deposit . Beyond these limitations , a critical challenge before Wema Bank is that while its borrowers want to borrow as cheaply as possible, the bank whose sources of funds is majorly from the costlier units is in dilemma .Ultimately , the negative impact of these challenges on the yield on its loans definitely hit its interest income hard .
The fourth constituency , the regulatory authorities ,whose interest is to ensure that the bank does not undertake excessive risks and to ensure it operates prudently and within stipulated regulatory requirements is equally less satisfied with the management of Wema Bank too . When the sources of a bank fund is costlier relative to its competitors and the yields on loans must be increased to get a better spread there is a greater probability to incur a greater credit risk when interests on loans are raised to get a better spread , otherwise the spread must be reduced by the bank to attract borrowers .
. However , navigate this risk segment , get better spread between its cost of funds and yield on loans as well as to minimize the credit risk has continued to call the proficiency of its top management to question . Wema had for greater part of existence been confronted with the challenges of toxic loans and low spread between interest income and interest expenses . Consequently , grappling with the challenge of competing in a harsh environment , the bank is at work, sleeves rolled-up, digging a trench for bad and delinquent loans . Despite cleaning up for years , Wema is still battling this ailment with its reflection on its high non performing loan ratio.
THE WAY OUT FOR WEMA
To turn the table around to their advantage they adopted a robust business model, considered to be very difficult for their competitors to replicate. They operate a low cost, revenue efficient model that relies less on manpower but more on prudent risk asset allocation while attracting cheap deposits. .
No leader of Wema Bank has displayed this .For this lacuna, Wema has remained nothing but a laggard ;its leaders seem to prefer to be complacent as their watchword than becoming an industry challenger; they are content to follow than rewriting the rules of the game; afraid of orthodoxy and more inclined to cut than build
The ugly strategic position may not be farfetched. In business, as in art, what distinguishes leaders from laggards, and greatness from mediocrity, is the ability to uniquely imagine what could be. In the Nigerian Banking subsector ,as in elsewhere, the story is not different . By each player’s fruits one shall know where it belongs . While some are merely playing catch-up and operating on the treadmill , few have demonstrated the capability for leadership and greatness .
What determines where each player belongs are the organizational and strategic paradigms chosen to gain competitive advantage and outperform competitors .In the recent time , the voices calling for a new organizational paradigm (leaner, flatter, virtual, modular, etc.) have been numerous and vocal just as the concomitant clamor for a new strategy paradigm is gathering serious momentum . Despite this , the way many companies “strategize” is just as out of date, and just as toxic, as the way they organize . But few CEOs have not only demonstrated the capability to imagine , build or to create the future but to get to the future first .
However , many are still yet to get off the restructuring treadmill and get beyond the reengineering programs that simply rev up today’s performance. Sequel to this ,capturing the riches that the future holds in store for them has been a mirage .
One of the players in the Nigerian Banking industry that has remained in the treadmill and catch-up mode for long is Wema Bank Plc . Although this bank is lean and fit, analysts believe it still needs a brain as well because what makes the difference among corporate leaders is the conception and application of certain strategies, an organization’s brain that helps some players to gain competitive advantages and outperform competitors.
The brain needed , however , is not the brain of the CEO or strategic planner ; it is an amalgamation of the collective intelligence and imagination of managers and employees throughout the company who must possess an enlarged view of what it means to be “strategic.”
Viewing Wema Bank from its strategic position in the industry, one could not be mistaken or far from the truth to say the bank is a mere corporate laggard .
But does it really make sense to this bank does not have the brain? No .For this reason some analysts are quick to pin down its less inspiring performance to something else . To them what its senior managers know today—the knowledge and experience that justify their position in the corporate pecking order—may be irrelevant or wrong-headed for the future.
However , unlike the leadership of Sterling Bank ,those that get the joker right or organizations with such a brain know they must unlearn much of their past before they can find the future ; that it is not enough to optimally position a company within existing markets .They overcome the challenge piercing the fog of uncertainty and develop great foresight into the whereabouts of tomorrow’s markets.
They know it is more than an incrementalist, annual planning rain dance and acknowledge that what is needed is a strategic architecture that provides a blueprint for building the competencies needed to dominate future markets.
Moreover , they are less concerned with ensuring a tight fit between goals and resources but more concerned with creating stretch goals that challenge employees to accomplish the seemingly impossible. ; they know that only a view of strategy that is more than the allocation of scarce resources across competing projects but about the quest to overcome resource constraints through a creative and unending pursuit of better resource leverage is the way out of the treadmill ;they are not only competing within the boundaries of existing industries, but competing to shape the structure of future industries ; they recognize that competition for core competence leadership precedes competition for product leadership, and that which conceives of the corporation as a portfolio of competencies as well as a portfolio of businesses.
The above are the components of the brain that not only enables a company to compete for today but the future, not only to imagine the future but create it as well ; it separates the champions from the laggards . .
The Nigerian banking industry witnessed such a crop of s CEOs in the early 90s with the brains of the champions highlighted above .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. To turn the table around to their advantage they adopted a robust business model, considered to be very difficult for their competitors to
replicate. They operate a low cost, revenue efficient model that relies less on manpower but more on prudent risk asset allocation while attracting cheap deposits
No doubt , Wema Bank is one of the banks in dire need of the corporate brain of a champion if it must gain a competitive advantage to outperform competitors and be fully in control of the bank’s future. The absence of this , however , is raising serious concerns and questions from the observers of its ugly strategic position
