by Niyi Jacobs
Wema Bank’s plan to raise N150 billion in new capital has sparked concern among investors. While the bank’s financial performance has shown significant growth, areas such as cost management, loan impairment, and valuation multiples raise questions about the wisdom of investing in this capital raise.
Wema Bank Plc share price movement has shown that the tier-2 lender is now trading at about 50% to its highest price level seen within the last 52 weeks.
The price movement has been tight despite the fact that transactions on the financial services company shares have been large. But mostly, the transaction volume has been sell side actors driven.
The bank share closed slightly lower at N6.30 on Friday, according to data obtained from the Nigerian Exchange platform. The Tier-2 bank with 21.43 billion shares outstanding on the Nigerian Exchange was valued at N135 billion in the local bourse on Friday.
BusinessNG notes that Wema Bank’s recent announcement to raise N150 billion in new capital through a rights issuance, public offer, and private placement has generated interest among investors.
However, a closer examination of the bank’s financial performance and underlying concerns has raised questions about the potential risks and rewards of participating in this capital raise.
On one hand, Wema Bank’s financial results for the first half of 2024 show significant growth, with a 100.5% increase in gross earnings and a 153.5% jump in profit before tax.
An investors while speaking with BudinessNG noted that the bank’s Net Interest Margin (NIM) has also improved, indicating efficient management of interest-earning assets. Additionally, the Return on Average Equity (ROAE) remains high, and the Non-Performing Loan (NPL) ratio has declined.
Meanwhile, some financial analysts also raised concerns about the bank’s Cost-to-Income Ratio, which has increased significantly, indicating growing operational costs.
Furthermore, the cost of funds has risen, and loan impairment charges have surged.
These factors could moderate profitability and raise questions about the bank’s ability to manage its expenses and loan portfolio effectively.
BusinessNG however notes that investors will carefully consider these factors and weigh the potential rewards against the risks associated with Wema Bank’s capital raise.
While the bank’s strong profitability and improved financial ratios offer optimism, the underlying concerns cannot be ignored.
As the bank seeks to raise capital, investors must assess whether the potential returns justify the risks and decide accordingly.
