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Chairman’s Statement


Distinguished Shareholders, Ladies and Gentlemen, I welcome you all to our bank's 2010 Annual General Meeting. It is also my honour and privilege to present to you the Annual Report and Financial Statement for the year ended December 31, 2010.


As is the norm, I will also like to present a review of the socio-economic environment in which the bank operated during this period. As a prelude to other interesting developments within the bank during the period under review, please permit me to announce upfront that your bank has been fully recapitalized. It is a great relief to the board and management that we have been able to resolve the critical challenge of under-capitalization which has threatened the going concern status of the bank since the outcome of the forensic examination of the bank's loan book carried out during the joint examination by the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation in September 2009.


Global Economy


The Global economy continued its gradual recovery from the worst recession we have seen since 1946. While unemployment remained a worry in most economies, the IMF estimates that the Gross World Output grew by 5% in 2010. This growth was driven largely on the strength of rebounding exports, with developing countries contributing significantly.


Developed countries continued to lag behind global growth estimates, held back by uncertainties in mortgage and financial markets. As expected most countries chose to pursue expansionary monetary and fiscal policies to counteract the sustained contraction witnessed during the preceding recession. Consequently, most countries ran budget deficits as a result of the fiscal stimulus packages put in place in the 2009/2010 period. Clearly the elephant in the room remains the growing threat of inflation and how best to combat it by raising interest rates without stifling growth.


The prospect for growth in the coming years is expected to slow down as depleted inventories are rebuilt and optimal capacity is once again approached. The IMF's 2011 Growth estimates in emerging and developed economies hover around 6.5%and 2.5% respectively compared to the growth of 7% and 3% achieved last year.


Nigerian Economy


The Nigerian economy grew in 2010 according to statistics made available by the National Bureau of Statistics (NBS) showing that the nation's Gross Domestic Product (GDP) in the third quarter grew by 7.9% as against a growth of 7.3% in 2009. While the increase in output has been attributed to the relative peace in the Niger-Delta region of the country with a subsequent increase in oil production accompanied by a corresponding increase in exports, the fact that the nation was blessed with adequate rains within the period could also account for some of the increased productivity as agricultural production soared. A further breakdown of the nation's output reveals that the non-oil sectors contributed about 85% while the oil sector contributed only 15% to overall output. The sectors with the highest growth rates include Telecommunications 35%; Solid Minerals 12.5%; Hotel and Restaurant 11.9%; Wholesale and Retail 11.8% and Real Estate which grew by 11.2%.


Both the International Monetary Fund and the World Bank have predicted that with continued increase in growth in the non-oil sector, particularly Agriculture, a GDP growth rate of between 7.1% and 7.5% is achievable.


The velocity of trading activities increased as credit slowly seeped back into the economy with banks resuming lending following the conclusion of the Central Bank's banking sector reforms. The Central Bank must also be credited for implementing initiatives aimed at injecting money into the real sector to jumpstart its development. One such initiative was the CBN/Bank of Industry Small and Medium Scale Industries Guarantee Scheme.


It has become obvious that for the government to spur improved productivity in the nation's output, it needs to focus on sectors with immense growth prospects like telecommunications, agriculture, and power. Power remains the missing key for unlocking the nation's industrial and entrepreneurial capacity.


With the rebound in oil prices, the nation's coffers largely fed by oil revenues are expected to swell. The expectation is that Nigeria's external reserves should receive a boost in the year 2011. This will be a welcomed reversal from the continuous depletion of the reserves in 2010 when the external reserves position as at December 31, 2010 stood at US$32.35bn, decreasing by 23.72%, when compared with the December 2009 figure of $42.41bn.


Two factors largely contributed to the depletion of the reserves. On the one hand, the government continued to spend as a means of propping the economy (injecting over six hundred billion naira into the banking sector in the 2009/2010 period to rescue ailing banks), on the other hand, the Central Bank sought to achieve naira exchange rate stability, supporting the naira with the reserves. As a counterweight to the accumulation of foreign reserves, the current administration sought and obtained the approval of the Council of States to establish a Sovereign Wealth Fund the Council of States to establish a Sovereign Wealth Fund (SWF).


According to the Debt Management Office, Nigeria's total public debt stood at US$34.6 billion as at 31 December 2010. External debt was US$4.8 billion (provisional), while Nigeria's domestic debt was N4.5 trillion (provisional) or US$29.8 billion. Additionally, in December 2010 the Government entered into a US$899.5 million credit agreement with the infrastructure projects. Draw-downs under this facility will be tied to project completion milestones and as at 31 December 2010 no amount had been drawn.


During the period under review, the money market experienced increased liquidity as a result of several factors, chief amongst which were the various injections of liquidity to troubled banks, distribution of the monthly statutory allocation to the states as well as distribution of the proceeds of the excess crude oil account. The liquidity in the system was further exacerbated by the reluctance of banks to lend to small and medium scale enterprises. As a result of the increased systemic liquidity, rates in the inter-bank market dropped significantly resulting in a corresponding reduction in deposit rates across board. The clearest sign of this aversion to risk taking was the upsurge in investment in government securities leading to their oversubscription.  Consequently, the prices of government securities rose and their yields correspondingly dropped. It was a tough time for the banking industry and consumers alike.


To stem this tide, the CBN increased Monetary Policy Rate (MPR) and the resumed mopping up funds through its Open Market Operations (OMO) to tighten the market. As a result, deposit rates inched up; prices for government securities moderated and yield on fixed income securities once again increased.


The Banking Industry


The global financial crisis of 2009, which triggered a steep decline in the Nigerian equities market, resulted in the assumption of significant provisions by a number of Nigerian banks, and subsequently led to a special examination of all Nigerian banks by the CBN. Following the special examination, the CBN mandated Wema Bank, amongst others, to address observed irregularities and resolve their capital adequacy issues. As part of the mechanisms for resolution, the CBN with the support of the Federal Ministry of Finance proposed the creation of the Asset Management Company of Nigeria (AMCON). The specific mandate of AMCON is to “purchase a significant portion of the non-performing assets in the Nigerian banking sectors and assist in recapitalizing undercapitalized banks to help restore the health of the banking sector”. As at December 2010, AMCON had issued approximately N1 trillion in Zero coupon bonds in exchange for the non-performing assets of a number of banks.


Fellow Shareholders, I am happy to announce that largely as a result of the sale of hitherto provisioned assets to AMCON, in combination with capital raising efforts that yielded the sum of N7.5billion in fresh capital and recovery of some of the delinquent loans in the loan portfolio, your bank was able to scale the hurdle of recapitalization.


As part of the banking sector reforms, the Central Bank also reviewed its policy with regards to the Universal Banking Model. All banks were mandated to turn in their Universal Banking Licenses in exchange for licenses that will reflect the new regime whereby a bank may only engage in one facet of banking, Commercial, Investment (merchant), or Specialized. In addition banks were allowed to define their geographical spread either as Regional, National or International. Wema Bank has chosen to play to its strengths and has applied for a Commercial Banking License with Regional Scope under the new banking regime. The Bank's application is receiving due consideration and we are confident that it will be approved.


Business Review


The bank's performance in the period under review was driven largely by loan recovery. While we witnessed a significant boost to our bottom-line, it must be pointed out that a significant portion of this profit is accounted for by write-backs to the profit and loss account from recovered loans.


Having said this, I do not want to take anything away from our hardworking Management and Staff who made this possible. Indeed our operational efficiency has been improving and the business should achieve operational profitability within the first half of 2011.


The Bank's gross earnings for the 12-month period of 2010 was N19.93 billion compared to a gross earnings of  N16.27 billion for the 9-month period to December 2009. The profit after tax rose to N16.24 billion driven largely by write-backs to the profit and loss account. The corresponding figure for the 9-month period to December 2009 was a loss of N2.09 billion.


The Bank's gross earnings for the 12-month period of 2010 was N19.93 billion compared to a gross earnings of  N16.27 billion for the 9-month period to December 2009. The profit after tax rose to N16.24 billion driven largely by write-backs to the profit and loss account. The corresponding figure for the 9-month period to December 2009 was a loss of N2.09 billion.


The Group Gross Earning grew by 14.7% increasing to N21.79 billion in the reporting period from N18.99 billion of the 9-month period to December 2009, Group’s Profit After Tax also grew from loss position of N7.53 billion to N17.46 billion translating to growth of 331.7% within the same period. It is expected that this will be the last year in which these accounts will be consolidated as the Bank moves to divest its interest in seven non-core subsidiaries and absorb the two subsidiaries whose operations are complementary to its business; namely Wema Securities & Finance Plc and Wema Homes (Savings & Loans) Limited.


There was a minor change in the board composition during the period. Mr. Festus Ajani, a non-executive director, who served over a period of seven years from his membership of the board of the acquired National Bank, resigned from the board in December 12, 2010. We are deeply appreciative of the meritorious services given to the bank by Mr. Ajani particularly when he had to steer the troubled ship of the bank as the Acting Chairman in the period the bank was enmeshed in management and financial crisis. Please join me to wish him well in his other endeavours.  During the year two new non-executive directors; namely Dr. Ayo Akinyelure and Prof. Taiwo Osipitan (SAN) joined the board to strengthen its oversight responsibilities with their individual impeccable professional knowledge and experience in the corporate world. This meeting will also like to formally welcome the new directors to Wema Bank family.


Outlook for 2011


With the global recovery on course, and the banking reforms in full steam, we expect a better business horizon with a number of opportunities for an agile and nimble bank such as ours to take. While the upcoming elections for public offices might engender some apprehension, we are hopeful that the elections will be conducted without and chaos or economic dislocation.


Regardless of the political party that shall assume leadership in government following the 2011 polls, we believe the current reforms by the Central Bank in the banking sector, as well as that of the Federal Government in the power sector shall be sustained. These reforms which are critical to economic advancement in the country shall bring with them a veritable bouquet of opportunities which your bank is suitably positioned to benefit from. Our growth will be disciplined and governed by a firm adherence to the tenets of risk management, good corporate governance and exemplary corporate social responsibility.


In closing, let me extend a warm welcome to our new shareholders who took advantage of the special placing of our shares in September 2010 to buy into the bank. This class of shareholders saw enough value in our shares to purchase them at a significant premium relative to the market price at the time of issue and it is our belief that their faith in the bank shall be rewarded appropriately. To my fellow shareholders who have stood by the bank in its most trying period, I convey the Board's appreciation to you all and restate our commitment to continue to work towards building a bank that will be the pride of all stakeholders. To the Management and Staff, I say thank you, for you are the bedrock on which this institution stands.


God bless you and God bless Wema Bank Plc.




Chief Samuel Bolarinde


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