Business
Diamond Bank result rekindles hope, posts 71% Q3 profits
. Union Bank declares improved Q3 results
By OKEY ONYENWEAKU
Shareholders of Diamond Bank plc could not be more pleased with the bank than the present as its recently declared third quarter (Q3) result for 2017 shows a strong turnaround of its fortunes as virtually all corporate financial indices moved up. The banks digital leadership strategy and its cost containment policy have, in a short space of time, added heft to its bottom line.
The banks Q3 results signalled a 71 per cent growth in profit before tax (PBT) driven mainly by strong growth in interest income and a significant cut back in interest expenses leading to widening net interest margins suggesting a major improvement in income generation in its core business of financial intermediation. The banks PBT rose from N3.892billion in Q3 2016 to N6.7 billion in Q3 2017.
Diamond’s operating costs rose by 16 per cent to N54.3 billion from N46.7 billion in the corresponding period of last year, principally resulting from huge investment in technology making a bank a leader in digital banking in the country.
Equally notable is that the banks Impairment charges shrunk by 16 per cent to N35.3 billion year-on-year, reflecting management’s more conservative approach to loan writing, while net interest income was stronger than what obtained last year.
Further review reveals that while the bank’s fee and commission income and total assets dropped marginally, it recorded commendable recoveries from loan losses.
The Bank’s capital adequacy and liquidity ratios remained stable at 15.8 per cent and 32.7 per cent, which were both above the regulatory requirements of 15 per cent and 30 per cent respectively.
Happy about the progress of the bank Group Managing Director, Uzoma Dozie noted that the bank would continue to remain focused on existing strategy to improve operational performance and returns to shareholders funds.
He explained that the bank was strategically pursuing its technology-driven retail segment to optimise cost, boost performance in the medium to long term and strengthen support for micro, medium and small scale businesses (MSMEs).
Dozie expressed his pleasure with the progress has made with the bank’s,’ technology-led retail strategy and in areas of our financial performance, but there is more to do in the remaining quarter and beyond. Specifically, we are committed to further developing our technology and operational infrastructure that allows us to scale rapidly, efficiently and cost effectively across Nigeria’.
Financial analysts believe that times have gotten tougher for financial institutions given that the economy was just emerging from a recession. They explain that Diamond bank’s performance gives hope that the worst may have been over.
A Lagos- based stockbroker, Mr Mike Ezeh reckons that Diamond Bank’s performance in the third quarter was a remarkable improvement on its results for the corresponding period of the previous year.
’There is no doubt strong improvement in the bank’s performance. However, investors hope the management continues same way till the end of the year. They hope to see an improvement in the banks dividend payout and dividend yield’, he said.
For one of the banks shareholders, Mr. Okezie Boniface, the profit growth of 71 per cent was an indication that the bank is recovering. He however, warned the bank to watch its loans.
In the corresponding period of 2016, the bank was struggling like its peers. But that period reflected an economy weighed down by high inflation (about 17 per cent), foreign exchange volatility and a steep plunge in the price of crude oil, the major revenue earner of the country.
Although the macro-economic environment has not changed much given that the Gross Domestic Product (GDP) is crawling at 0.55 per cent and is still feeble, the bank appears to be drawing up strategies to enhance performance by growing top and bottom lines. The share price of the bank has risen 11per cent year to date.
In a similar vein, despite economic tightness, Union Bank of Nigeria Plc has grown its Group’s earnings by 16 per cent from N94.8 billion in 2016 to N109.5 billion for the nine months ending September 30, 2017.
The bank attributed the growth in earnings to a 22 per cent rise in interest income.
Highlights of the bank’s results show that interest income rose to N88.5billion from N72.3billion reported in 2016.
The bank’s loans grew to N507 billion from N412 billion in Q3 2016.
However, Union Bank recorded a marginal drop in its Profit Before Tax (PBT) to N13 billion from N13.3 billion the previous year..
Commenting on the Bank’s results for the nine month period, Chief Executive Officer, Mr. Emeka Emuwa, said: ‘We remain encouraged by the results of our customer acquisition strategy, as customers continue to respond to our targeted market offerings and increased brand awareness, following the debut of a new advertising campaign to support the launch of Union Bank’s new digital platform, including our revamped mobile banking app and *826#, SMS platform.’
Emuwa noted that customer deposits were up 17 per cent from December 2016 to close the period at N767.9 billion.
Group Gross Earnings, at N109.5billion, reflect a 16 per cent growth compared to the period ended 30 September 2016.
According to the bank’s chief executive officer,’… a challenging macro-operating environment, characterised by double-digit inflation, continued to create headwinds for businesses, constrict consumer purchasing power and pressure operating expenses as well as portfolio quality. Consequently, core pre-tax earnings for the period were marginally lower at N13.0billion’.
This was marginally lower than the N13.3billion posted in Q3 2016. The bank observes that with a N50 billion capital issue underway, it remains focused on its strategic priorities and expects the new capital to deliver the momentum.
On his part, the Bank’s Chief Financial Officer, Oyinkan Adewale noted that, ‘The Group’s net interest income after impairments improved significantly by 16 per cent from N35.2billion to N40.9billion compared to the period ended 30 September 2016.’
He further observed that, “Non- interest income was down by six per cent compared to Q3 2016, which included one-time revaluation gains.’
“With our continued focus on early problem recognition and prudent provisioning, our coverage ratio has strengthened to 203 per cent as at 30 September 2017, from 182 per cent as at December 2016.
“The impact of Naira devaluation, coupled with the inflationary environment, has pressured our cost-to-income ratio, especially as we continue to make investments in technology critical to our long-term business strategy.
We are confident that these investments will deliver the expected cost benefits in the medium term. We also expect improved capital adequacy and higher revenues, fuelled by N50 billion of new capital.”
Analysts believe that the bank will be successful in its capital issue by way of a Rights Issue which was marketed between September 20th and October 30th , 2017.
The bank which has a vision of being Nigeria’s most reliable and trusted banking partner, parades total assets of N1.12 trillion and total equity of 251.3billion. With a total customer of 3.2million and work force of 2,700 employers, Union Bank is still struggling to get back her numerous customers that migrated to other banks during the banking system crisis in 2009/2010 that nearly engulfed it.
This, however, resulted in growing its customer base on its mobile and online banking platforms by nearly 350% and about 50 per cent respectively, and brought in 73 per cent more new-to-bank customers during the year.
The bank’s momentum is strongly up beat again after the setback it experienced when it almost went distressed a few years back.
However, Union Bank has not paid dividend since 2009 (Seven years) when the CBN sacked its then chief executive officer and that of 4 other banks for financial mismanagement. The strain of that exercise has weighed down heavily on the second oldest bank in Nigeria which appears determined to make record successes in the future. Union Bank stock has appreciated 10.2 per cent year to date.
