Nairametrics| Wema Bank intends to boost its capital base by raising N20 billion debt between the second and third quarter of 2017. A repayment of the final tranche of a N50 billion CBN loan had left its capital adequacy ratio at 11.1%, just above the 10% requirement set by the apex bank. It also intends to grow its loan book marginally between 1% and 2% this year. Total loans by the bank stood at N227 billion for the period ended December 2016.
The bank has made a smart move by raising capital early. The combination of economic recession, forex crisis and doubtful loans granted to struggling companies has left many banks undercapitalised. Raising the needed funds through a Rights Issue or Public Offer is difficult to achieve this year. Domestic investors are more interested in higher yielding money and fixed income instruments. Wema Bank’s negative retained earnings could hinder it from paying dividends anytime soon. Its low share price also means it would have to issue a large volume of shares to meet the required amount.
While the Federal Government has borrowed massively from debt markets this year, the bank still stands a chance of a successful issue. Other banks are yet to reveal their recapitalisation plans. Zenith Bank, for instance, which had initially planned to raise additional capital of N100 billion, later shelved the idea due to negative sentiments by the investor community, and its inability to explain the purpose for the funds to be raised.
Wema Bank has stated its intent for raising additional funds and is targeting a modest amount. A 50% subscription level – the bank’s worst case scenario – will generate N10 billion which covers its immediate needs. This is a positive signal for the bank.
