Wema Bank seeks “too big to fail” status as N150 billion rights issue starts

Wema Bank said the capital it intends to raise through the sale of N150 billion worth of shares to current shareholders will help set it on the path to joining the class of systemically important banks, a category of lenders often described as “too big to fail” because their collapse could pose profound threats to the financial system.

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The rights issue, which is set for launch on Monday, “will consolidate the Bank’s vision of becoming a Systematically Important Bank (SIB) and creating value for our esteemed shareholders,” the lender said in an announcement on Thursday.

Domestic SIBs, just like lenders with international banking licences, need to have at least a capital adequacy ratio (CAR) of 15 per cent to be classified as such, according to the Central Bank of Nigeria.

The CAR of Wema Bank, which holds a national banking permit, was 19.7 per cent as of the end of last year, its latest financial report shows.

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The rights issue is putting 14.3 billion shares up for sale on the basis of two new shares for every three held by shareholders as of 5 March. The offer is priced at N10.45 per share, 4.6 per cent discount to the closing price of the stock on Thursday.

A separate N50 billion private placement for institutional and affluent investors is to complete the N200 billion the bank needs to meet the new minimum capital requirements for banks with national authorisation as set by the Central Bank of Nigeria last year.

Wema Bank has up till next March to meet the new threshold from the previous N25 billion.

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“By increasing the minimum capital requirements, the CBN aims to ensure banks have a robust capital base to absorb unexpected losses and capacity to contribute to the growth and development of the Nigerian economy,” the regulator said at the time.

Ratings agency Fitch foresees that new capital rules could fuel to a series of mergers and acquisitions among small- and mid-tier banks, most of whom may be incapable of raising the minimum capital on the their own.

Wema Bank’s net profit for last year expanded 139.7 per cent to N86.3 billion, enabled by a sharp surge in interest income.