Fitch Ratings has affirmed Wema Bank’s Long-Term Issuer Default Rating (IDR) at ‘B-’ with a Stable Outlook.
Similarly, the National Long-Term Rating has been upgraded to ‘BBB(nga)’ from ‘BBB-(nga)’, reflecting the bank’s increased creditworthiness relative to that of other issuers in Nigeria
The IDR of Wema are driven by its standalone creditworthiness, as expressed by its Viability Rating (VR) of ‘b-’.
The VR reflects the concentration of the bank’s activities within Nigeria’s challenging operating environment, aggressive loan and balance-sheet growth – which it expect to continue over the medium term. It also reflects Fitch’s expectation of a significant improvement in capitalisation and leverage, due to a material rights issue due to be concluded by end-2021.
The Stable Outlook reflects Fitch’s view that risks to Wema’s credit profile are captured by the current rating, with sufficient headroom under it’s base case to absorb the fallout from operating-environment pressures.
Operating conditions in Nigeria are gradually stabilising. Fitch forecasts 1.9 per cent GDP growth in 2021, following a 1.8 per cent contraction in 2020. Our baseline scenario is that business volumes and earnings should continue to rebound in 2021, while the rally in oil prices is also a positive factor.
Nevertheless, Fitch ssid downside risks linger generally, given inherently volatile market conditions, with banks still exposed to foreign currency (FC) shortages, potential further currency devaluation, rising inflation and regulatory intervention by the Central Bank of Nigeria (CBN).
“Wema’ had 2 per cent of domestic banking-system assets at end-2020. Its market shares have improved slightly in recent years, reflecting aggressive growth, which has resulted in a significant increase in leverage.