Fitch revises Wema Bank’s outlook to positive, upgrades rating

Investing.com -- Fitch Ratings revised Wema Bank PLC’s outlook to positive from stable on Tuesday, while affirming its Long-Term Issuer Default Rating at ’B-’. The agency also upgraded the bank’s National Long-Term Rating to ’A-(nga)’ from ’BBB(nga)’.

The outlook revision reflects expectations that Wema’s core capital buffers will strengthen over 2025-2026, supported by capital raisings and higher internal capital generation. This improvement benefits from higher interest rates and a shift away from expensive time deposits.

Wema’s ratings are driven by its standalone creditworthiness, expressed by its ’b-’ Viability Rating. While the bank has a small franchise representing only 2% of domestic banking system assets at end-2024, it maintains a leading position in digital banking, which has reduced its reliance on term deposits.

The bank’s impaired loans ratio increased to 5.7% at end-1Q25 from 5.1% at end-2023, mainly due to currency devaluation and challenging operating conditions. However, its Stage 2 loans ratio declined to 4.8% from 7.8% during the same period.

Profitability has strengthened with operating returns on risk-weighted assets reaching 8.2% in 2024, up from 5.8% in 2023. This improvement was driven by higher margins and foreign exchange revaluation gains.

Wema’s FCC (BME:FCC) ratio improved to 18.6% at end-2024 from 14.5% at end-2023, supported by its NGN40 billion rights issue and stronger internal capital generation. Fitch expects this ratio to reach almost 30% by end-2025, backed by NGN200 billion capital increases and strong internal capital generation.

The bank’s funding profile has also improved, with reliance on expensive term deposits declining to 21% of total deposits at end-1Q25, compared to 46% at end-2022. Deposit concentration has also decreased, with the 20 largest deposits representing around 24% of total customer deposits at end-1Q25, down from 52% at end-2022.

A downgrade could result from aggressive balance-sheet expansion not supported by core capital injections or from a marked increase in the impaired-loans ratio. An upgrade would require a stronger business profile, indicated by larger market share and sustainable profitability.

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