Wema Bank Says Devaluation Would Increase NPL ratio

Wema Bank’s non-performing loan (NPL) ratio will rise if the naira is devalued as expected later this year, a senior executive at the mid-tier Nigerian lender said early this week.
Nigeria has been running short of dollars after its oil revenues fell along with the price of crude. That has driven the naira to a low of N520 to the dollar on the black market, far weaker than the official interbank rate of N305.
On Monday, the central bank said it would supply retail customers with dollars at a 20 percent premium to the official rate to try to clear a demand backlog and narrow the spread between the official and black market rates.
“A lot of banks have priced in a possible devaluation in terms of the way they measure risk and collateral requirements,” Wema Bank Chief Finance Officer Tunde Mabawonku told Reuters. “There might be a devaluation.”
“If there is a 100 naira adjustment in rates to N400, we expect a 50 basis point rise in NPLs to 3.4 per cent,” he said, adding that Wema did not plan to expand its loan book in 2017 following two years of growth.
Wema’s NPLs hit 2.9 per cent in 2016, still within the industry limit of 5 percent set by the central bank. Mabawonku said the bank’s loan book grew 10 per cent in 2016 and 32 per cent in 2015.
Shares in Wema have underperformed the broader market both this year and in 2016. They have fallen 7.4 per cent since the start of January while the main index .is down 6.4 per cent.
Wema shares slumped 46 per cent last year as the banking sector in general, and smaller lenders in particular, came under pressure from the naira crisis and economic slowdown. Shares in mid-tier rivals such as Skye Bank and Diamond Bank, for example, lost more than 60 per cent.
Several Nigerian lenders have adapted their business models after low crude prices put pressure on the once lucrative oil and gas sector and drove the economy into its first recession in a quarter of a century.
Mabawonku said while retail customers made up 90 per cent of its depositors, they only contributed 30 percent of overall deposits. He said the bank was aiming to change that so that by 2020, retail clients contributed 90 per cent of its deposits.
He said the bank planned to use digital platforms to attract more deposits, reopen some branches it closed due to capital constraints and add 10 new outlets this year to its network of 149 branches.
The bank’s finance chief said Wema planned to tap the bond market later this year to fund expansion.
It had planned to raise 20 billion naira last year but only managed 6.5 billion due to high interest rates so would approach debt markets again in the third quarter, as long as interest rates stayed under 18 percent.
(C) Reuters News

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