Wema Bank has announced plans to raise N150 billion new capital through a hybrid of rights issuance, public offer and private placement.
While disclosing this during its first half year 2024 investor and analyst conference call, the Bank’s Executive Director, Tunde Mabawonku, highlighted the bank’s strategy.
In his words, “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.
Our expectation is to initiate this process towards the end of the year, with completion expected in Q1 2025, all within the remaining 18 months of the regulatory timeline.
While shareholders’ funds are currently around N200 billion, our qualifying capital stands at N67 billion. To maintain our status as a commercial bank with national authorization, we need to raise this capital in the coming months, ensuring we meet our licensing requirements.”
Speaking on potential merger discussions, Mabawonku clarified that such talks are premature at this stage. “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.”
Recently, Wema Bank recorded a significant growth in its first half of 2024 results. The bank reported a strong 100.5% increase in gross earnings, reaching N178.63 billion, up from N89.09 billion in the first half of 2023. The bank attributes this surge to a 91% increase in interest income and a 155% rise in non-interest income.
The bank’s profit before tax (PBT) also saw an impressive 153.5% jump, climbing to N30.56 billion from N12.05 billion in the same period last year.
This represents over 100% of 2023 figures. This even surpassed the bank’s pre-tax profit 5-year compound annual growth rate of 45%.
These results are underpinned by improvements in key financial ratios. For instance, Wema Bank’s Net Interest Margin (NIM) improved to 7.43% in the first half of 2024, up from 6.12% in the same period of 2023.
This uptick indicates that the bank is efficiently managing its interest-earning assets, a critical factor in maintaining profitability in a high-interest-rate environment. An improved NIM is often a sign of a well-managed balance sheet.
The Return on Average Equity (ROAE) also paints a favorable picture.
Although slightly down from 39.28% in 2023, Wema Bank’s ROAE of 36.16% in the first half of 2024 remains significantly higher than the 19.25% recorded in 2022.
This indicates that the bank continues to generate substantial returns on shareholders’ equity, which should be attractive to investors considering participating in the capital raise.
Furthermore, the Non-Performing Loan (NPL) ratio, which measures the percentage of loans either in default or close to default, has declined to 3.69%. This reflects a significant enhancement in the quality of Wema Bank’s loan portfolio.
Additionally, the NPL coverage ratio has increased from 76% to 100%, showing that the bank now has more than enough provisions to cover its non-performing loans.
However, not all the numbers are as rosy as they might initially appear. Some significant area of concern Cost-to-Income Ratio and Cost of funds.
Wema Bank’s share price has been a relatively bright spot. Despite a broader decline in the banking sector, where the average performance has been a drop of 1.31%, Wema Bank’s share price has gained 12.50% Year-to-Date (YtD).
In all, while Wema Bank’s current performance offers several reasons for optimism, investors will need to assess whether the potential rewards outweigh the risks associated with the upcoming capital raise.