Diamond Bank Plc has given up its international banking license and chosen to remain a national bank in line with a strategic overhaul of its business processes and vision. The bank adopted a reversion to national licence to reduce the burden that regulatory requirements were placing on its bottom line and liquidity.
The change Diamond banks licence will entail the bank maintaining a lower minimum capital requirement of 10% as against 15% required for international banks.
Analysts suggest that this would create room for the bank to deploy more capital in achieving stronger business growth in quarters ahead, especially through additional investment in technology, customer acquisition and expansion of loans to critical segments of the economy.
According to a press-statement made available to Business Hallmark on Friday November 30, 2018, Diamond Bank Plc has received approval of the Central Bank of Nigeria (“CBN”) following its application to operate as a National Bank with immediate effect (subject to conclusion of the sale of Diamond Bank UK- DB UK Plc).
With this approval, the bank said it would cease to operate as an International Bank.
Investment analysts believe that the bank which has been struggling with high non-performing loans (NPLs) over recent years found itself incapable of competing at a level justifying an earlier classification of being one of eight, ‘systemically important banks’ (SIBs).
There is a consensus that Diamond Bank fell off the high ladder because of its inability to resolve toxic assets and grow its domestic deposit portfolio, a combination of factors that squeezed net interest income and deflated operating earnings.
Diamond Bank may have fallen short of regulatory prudential benchmarks. The bank’s non-performing loans stood at 12.3 per cent in the first half of 2018, compared to the 5 per cent threshold set by the CBN.
More worrisome is that its capital adequacy ratio (CaR) is also very weak at 16.6 per cent, representing only 1.6 per cent above CBN’s 15 per cent peg for tier 1 banks, which Diamond Bank belongs to. It had 40.2 per cent liquidity ratio against 30 per cent required by the regulator.
These have painted a picture of weakness in the banks abilities to compete favourably with its peers in the banking industry, drawing attention of the banking public to its wobbly disposition.
In fact, shareholders and other industry stakeholders are beginning to discuss the banks sagging position in whispers on Broad and Marina streets of Lagos.
“It appears a major investor has taken over the bank, though I don’t have the details yet. So, to enable it take over control of the bank, they have asked those Directors to resign,” David Adonri, Managing Director, Highcap Security told Business hallmark through the telephone on Saturday.
The bank’s board chairman, Oluseyi Bickerseth and three other directors of Diamond Bank resigned last week. “The directors are resigning for varied personal reasons, which will include focusing on their priorities. Diamond Bank will update the market with any further development in due course. Bickersteth was appointed as chairman of the bank in July,” explained Mr. Uzoma Uja, company secretary, Diamond Bank, in a statement sent to the Nigerian Stock Exchange (NSE).
The bank has a plan to bring in new investors, which would help address its liquidity and capital adequacy challenges. Even the MD would likely go in the months ahead, Moses Ojo, Head, Research and Business Development, PanAfrican Capital Holdings told Business in a phone.
Adonri believes the performance of the Diamond Bank under the leadership of Uzoma Dozie, its current Group Managing Director has not been very impressive in the last few years.
“If they don’t bring in a new investor, another option they may have is for the CBN to take over,” Ojo further stated. He claimed that the lender’s performance has been hobbled by its over aggressiveness in creating credit without commensurate risk management, which has created high non-performing loans challenge.
But Chioma Afe, Head, Corporate Communications, Diamond Bank told BH that the directors who resigned did so for personal reasons but refused to respond to the enquiry on a new investor taking over the bank.
Diamond Bank Q3 2018 results released on Friday showed that its post-tax profit dipped -38.89 per cent to N2.26 billion, underpinned on net interest income, which declined -13.64 per cent. It suffered N9 billion loss in 2017 and if the current trend does not reverse, the bank may post another loss at the end of this year, which would make two successive losses after its profit crashed -86.31 per cent in 2016 financial year.
The lender recorded -0.56 per cent decline in gross revenue to N142.1 billion in Q3 2018, slowed down by drop in interest income and weak growth in fee and commission earning, which only rose by 1.46 per cent to N28.45 billion during this period.
Impairment provision on loans and advances, which was cut by -24.21 per cent to N25.17 billion and 261.77 per cent rise in other income and 97.22 per cent in net trading earnings were not strong enough to buoy Diamond Bank performance in Q3 2018.
The bank is still grappling with high operating costs as its operating expenses was up 2.89% year-on-year to N66.20 billion in Q3 2018, and interest expense up 18.32 per cent to N41.26 billion. But the bank said cost containment measures are underway with the digitization process contributing to quarter-on-quarter gains with OPEX declining 0.36 per cent from N22.07 billion (Q2 2018) to N22.15 billion (Q3 2018).
Customer deposit dropped by -8 per cent year-on-year to N1,107 billion, due to re-pricing and non-rollover of high priced maturing deposits, and migration to government securities while Liquidity position remains strong as current and savings account balances increased from 77.4 per cent (FY2017) to 78.08 per cent of total deposits in September 2018.
However, Uzoma Dozie, CEO, said: “The move towards a national banking license marks a continuation of our strategy to focus on Nigeria’s significant fundamental trends, including a large underbanked population and Africa’s biggest economy. By focusing and optimizing our resources towards Nigeria and the priority area of retail banking, we will be better positioned for longer term growth and greater profitability.
“The reduction in minimum capital requirement also increases our capacity to expand the quantum of business and product services we can offer consumers, as well as representing a key step in strengthening our financial position.”
This development according to the bank, does not affect the bank’s ability to offer services to its clients in international locations; Rather, with focus on its domestic business being priority, the bank also intends to pay down in full, the Eurobond loan of $200m at maturity in May 2019. There will be no refinancing of the loan as the intent to pay down with foreign exchange generated from its internal operations, a reflection of the solidity of its operations and funds flow in the last few years.