Plans by Wema Bank to carry out a Scheme of Capital Reduction whereby the Share Premium Account of the lender is reduced from N48.870 billion to N8.698 billion has been approved by shareholders.
The approval came at the bank’s Extraordinary General Meeting held at the weekend in Lagos. They consented that the N40,171,876,000 be transferred to the Capital Reduction Account. This will clear out the negative balance of N39,127,546,000 in the bank’s revenue reserve account and accommodate the balance due from the exercise.
The move is expected to make the bank eligible to pay dividends from profits made in the future, provided there are subsisting covenants or contracts entered into by the bank to the contrary.
The exercise is in line with the procedures set out in Sections 105, 106, 107, 108, 109, 110, 111 and 120 of Companies and Allied Matters Act (CAMA) and Rules 4(d), 4(g) and 5(4) of the Company Proceedings Rules 1992.
Wema Bank is pursuing this holistic approach to enable it position its balance sheet for better efficiency. Having been transformed to one of the leading banks within the retail banking space, Wema Bank with its national authorisation has reemerged a stronger, more efficient, resilient and customer-focused organisation with a robust risk and governance structure.
Wema Bank’s Chairman, Babatunde Kasali, told the Board of Directors that the macro environment in 2016 was challenging on a number of fronts for the bank. He said the economic realities especially the unstable and poor forex supply, liquidity challenges, economic contraction among others were dominant factors within the economy.
He said that despite these systemic challenges, the Wema Bank recorded 12.64 per cent growth in its post-tax profit for the fiscal year.
“We appreciate the patience and continued support by our shareholders and understand the importance of returns on any investment decision. To this effect, we have considered it necessary to explore all alternatives within the regulatory confines, to position the bank for greater efficiency,”he said.
. With this approval, Wema Bank would give effect to the creation of a Capital Reduction Account (CRA), the transfer the negative balances in the retained revenue account to the Capital Reduction Account (CRA), reflect the carrying amounts on the specified assets based on their current economic values while effectively setting-off these balances against the share premium account.
As part of the next steps, the bank will approach the Federal High Court for approval on the resolutions passed by the shareholders. The approval is expected to be received within the next few weeks, leading to the passage of all accounting entries before the 2017 financial year end.
The exercise is expected to make shareholders alongside the investment community witness a more efficient balance sheet, improvements in our performance ratios — as the plough back of successive years’ profits lead to the continued growth of the Wema Brand. In addition, the Bank would also be well positioned to commence payment of dividend payments.
Commenting on the unaudited third quarter 2017 financial results of the bank, the Managing Director/CEO, Wema Bank Plc, Segun Oloketuyi provided further insights into the performance of the Bank during the period.
Despite the economic conditions, Wema Bank continues to show signs of resilience, evidenced by its growing brand acceptance and increased customer patronage.
“Gross earnings grew by 16.79 per cent from N37.89 billion in third quarter 2016 to N45.38 billion as at third quarter of 2017. This was supported by increased contribution from non-interest income which rose by 35.74 per cent from N5.96 billion in third quarter of 2017 to N8.09 billion. The high interest rate environment continued to impact earnings, as interest expense increased year on year. Despite this, the Bank recorded a growth in Profit before Tax (PBT) by 20.81 per cent to N1.80 billion. We expect that as interest rates trend downwards, our funding cost will decline, leading to improvements in our margins,” the bank said.