Having been given the confirmation that the value of their investments in the bank would not diminish in terms of shareholding, owners of Wema Bank at the weekend agreed to a reduction in share premium account from N40 billion naira to N8 billion by transferring the sum of N40 billion to the Capital Reduction Account.
The move, according to the bank, will help to clear out the negative balance of up to N39 billion in the bank’s revenue reserve account and accommodate the balance due from the capital reduction exercise.
With the approval given by its shareholders, Wema Bank will give effect to the creation of a Capital Reduction Account (CRA), the transfer of 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 the balances against the share premium account.
The management of the bank believes the move will make Wema Bank eligible to pay dividends from profit made in the future, provided there are no subsisting covenants or contracts entered into by the bank.
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As at December 31st, 2016, there was a negative balance in the bank revenue reserve account which left N39 billion in it.
The significant operating loss was recorded due to the high incidence of non-performing-loans and write off of legacy loans which culminated in accretion of negatives in the bank’s revenue reserves account.
However, since the change of management and implementation of several strategic initiatives by the board, the challenges facing the bank now appears to be over, as the bank now appears healthier with positive post tax profit of N2.59 billion, N2.32 billion, N2.37billion, and N1.59 billion naira as at 31st December of 2016, 2015,2014, and 2013 respectively.
They are as against loss of N5.04 billion and N4.22 billion recorded in 2012 and 2011 respectively.
As part of the next steps, Wema 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 performance ratios — as the plough back of successive years’ profits lead to the continued growth of the Wema Brand.
