Wema Bank, one of the leading financial institutions in Nigeria, has announced plans to raise a staggering N150 billion in new capital. The bank aims to achieve this through a combination of a rights issue and a special private placement.
This move comes as Wema Bank seeks to strengthen its financial position and meet regulatory requirements. According to Tunde Mabawonku, the bank’s Executive Director, the capital-raising exercise is a strategic priority for the institution.
“We have obtained shareholder approval to raise N150 billion in qualifying capital. We will be doing this through a combination of a rights issuance and a special private placement,” Mabawonku explained during the bank’s recent investor and analyst conference call.
The bank’s current shareholders’ funds stand at around N200 billion, with its qualifying capital at N67 billion. To maintain its status as a commercial bank with national authorization, Wema Bank needs to raise the additional capital in the coming months, ensuring it meets the regulatory requirements.
Mabawonku emphasized that the capital-raising process is expected to commence towards the end of 2024, with completion anticipated in the first quarter of 2025, within the remaining 18 months of the regulatory timeline.
While the bank’s management is focused on this capital-raising exercise, Mabawonku clarified that merger or acquisition talks are not currently on the agenda. “M&A conversations might seem a bit premature at this level. Our focus is on capitalizing in line with regulatory requirements and continuing to do business,” he stated.
Wema Bank’s recent financial performance has been impressive, providing a strong foundation for the capital raise. In the first half of 2024, the bank reported a 100.5% increase in gross earnings, reaching N178.63 billion, up from N89.09 billion in the same period of 2023.
This surge in earnings can be attributed to a 91% increase in interest income and a 155% rise in non-interest income. The bank’s profit before tax (PBT) also saw a remarkable 153.5% jump, climbing to N30.56 billion from N12.05 billion in the same period last year.
These positive financial results are underpinned by improvements in key ratios, such as the Net Interest Margin (NIM), which increased to 7.43% in the first half of 2024, up from 6.12% in the same period of 2023. The Return on Average Equity (ROAE) also remains impressive at 36.16%, despite a slight decline from the previous year.
Furthermore, the bank’s Non-Performing Loan (NPL) ratio has declined to 3.69%, and the NPL coverage ratio has increased to 100%, indicating a stronger loan portfolio.
However, the bank’s rising Cost-to-Income Ratio, which stood at 66.65% in the first half of 2024, and the increasing cost of funds, which reached 7.0%, are areas of concern that need to be addressed.
Wema Bank’s share price has been a bright spot, gaining 12.50% Year-to-Date (YtD) despite a broader decline in the banking sector. The bank’s current earnings multiple of 0.8x, lower than the sector average of 2.28x, may provide an attractive entry point for investors.
As Wema Bank moves forward with its capital-raising plans, investors and analysts will closely monitor the bank’s ability to address the identified challenges and capitalize on its strengths to create long-term value. The success of this exercise will be crucial in determining the bank’s future growth and competitiveness within the Nigerian financial landscape.
