Wema Bank Plc (H1 2025) - Solid Earnings Momentum and Balance Sheet Expansion Support Upside Potential

Wema Bank is delivering a compelling earnings recovery, underpinned by strong net interest income growth, recovering asset quality, and an expanding loan book. Catalysts driving the upside include:

• Net Interest Income Surge: A 105% YoY increase to ₦129.2 billion (H1 2025), fueled by aggressive asset re-pricing and increased lending activity, supported by a ₦225 billion growth in loans and advances (now ₦1.43 trillion).
• Diversified Non-Interest Income: Fee and commission income rose 91% YoY to ₦45.4 billion, with stable gains from trading, FVTPL securities, and other income totaling ₦63.1 billion.
• Digital and Retail Strategy Payoff: The bank continues to benefit from its focus on digital banking (ALAT) and retail franchise, growing its deposit base and maintaining low-cost funding channels.
• Industry Tailwind: The rising interest rate environment enhances bank margins. The digital adoption trend in Nigeria also aligns with Wema’s fintech-integrated business model.

📊 Assumptions

• Revenue: Projected to grow at 18% CAGR over the next five years, reaching ₦900 billion by FY 2030, supported by aggressive retail banking expansion, digital penetration, and loan book growth.
• Earnings: With operating leverage and asset quality improvement, profit before tax is expected to compound at ~15% CAGR, exceeding ₦200 billion by 2030. Net income margin is assumed to stabilize at 15%.

⚠️ Risks

• Cost Pressures: Operating expenses rose by 74% YoY to ₦91.2 billion in H1 2025. Persistent inflation and staff cost inflation could compress margins despite top-line strength.
• Asset Quality Concerns: Although impairments turned positive in Q2, credit risk from SME and retail exposures remains elevated in a volatile macroeconomic environment.
• Regulatory Headwinds: CRR debits, FX policy shifts, and possible recapitalization mandates from CBN may pressure liquidity or require dilution through capital raising.
• Competitive Pressure: Larger Tier-1 banks with stronger capital buffers may erode Wema’s share in wholesale banking segments.

📈 Valuation Outlook

• Near-Term (3 Years): Wema is on track to double pre-tax profit from ₦100.6 billion (H1 2025 annualized) to ₦200 billion by FY 2027. With ROE improving and digital strategy scaling, valuation multiple could expand from ~0.5x P/B to 0.9x P/B.
• Medium-Term (5–10 Years): Assuming continued digital innovation, improved NPL ratios, and higher returns on equity, Wema could transition from a Tier-2 to Tier-1 competitive bank, justifying a P/B multiple of 1.1x–1.3x, especially as equity grows past ₦500 billion by 2030.

🧠 Recommendation: BUY

Strengths:

• Robust revenue and earnings momentum
• Fast-growing digital and retail banking footprint
• Improving net interest margins
• Growing equity base and retained earnings

Weaknesses:

• High operating cost base
• Exposure to FX and interest rate risk
• Capital adequacy remains a monitoring point

Bottom Line: Wema Bank is showing clear signs of scale transformation, driven by digital leadership and retail lending. While risks remain around cost control and regulatory uncertainty, its improving profitability and expanding balance sheet support a BUY recommendation for investors with a medium-to-long-term horizon.