Diamond Bank to reposition for enhanced profitability

By FELIX OLOYEDE

In a bid to avoid travelling the rout of Skye Bank, which was recently taken over by the Central Bank of Nigeria (CBN), struggling Diamond Bank is aggressively in search of survival strategies that would pull it out of the woods.

The lender is at an advanced stage of getting a core investor, who will inject fresh funds into the bank, which has been battling liquidity challenges, and very high toxic loans, Business Hallmark authoritatively gathered.

Diamond Bank have has 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.

Managing Director of Diamond Bank, Uzoma Dozie noted in his comment on the performance of the bank in Q3 2018 that : “The global economy is currently witnessing a shift in trade relations alongside continued interest rate adjustments. This has led to greater volatility across markets and increasingly fragile economies. Nigeria’s economy has not been immuned to certain headwinds so that while the economy recorded quarters of expansion, the rate of growth has weakened. However, against this backdrop, our digital-led retail strategy has remained robust. Through this strategy, we have been able to continue scaling up by reaching a wide pool of customers both cost-effectively and efficiently.”

He explained that as a result of the bank’s network and digital infrastructure, during Q3 2018, it reached the N1 billion mark in total loans disbursed to Small and Medium Enterprises (SMEs).

“As we move into the final quarter of the year, we expect headwinds to continue driven by emerging situations in developed economies as well as our domestic political realities. Despite this, our investors can expect a further decline in Non-Performing Loans (NPLs), a further increase in our digital footprint and completion of the sale of the UK subsidiary. Through these actions, we remain optimistic about the medium to long-term outlook of Diamond Bank and its return to strong profitability,” he added.

Meanwhile, Diamond Bank stock gained 20 per cent to closed at N1.44 to emerge highest gainer on the Nigerian Stock Market last week. But, it has declined -8.28 per cent year-to-date.