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Diamond Bank: $750m boost for infrastructure devt and profitability

By Babajide Komolafe

Inadequate infrastructure has been severally identified as the biggest challenge to Nigeria’s economic development. Addressing this challenge requires billions of naira, which is beyond what the budget of the three tiers of government  can provide, hence the public private partnership approach to solving the infrastructural challenge.

The private sector raises the fund to develop the projects and manage for some time to recoup their money. To do this, the private sector operators turn to banks for the needed funds to develop the projects. For example, four banks recently teamed up with another Nigerian finance company to provide $225 million loan to fund a gas pipeline project in Akwa Ibom. Thus, the nation’s infrastructural challenge became a huge money making opportunity for banks.

Diamond Bank wants to have a significant piece of this action. The bank is seeking avenues to further grow its profitability, at least to prove to shareholders that its return to profitability in 2012 was not a fluke, and to complement its growing status as a major player in the retail banking market, and leading supporter of Micro, Small and Medium Enterprises (MSMEs) in the country.

To achieve this, the bank’s management realise it must not only play in the increasingly lucrative infrastructure finance market, but it must play big, and this requires deep pockets. It has to do so because infrastructure development requires big money, and Nigeria needs between $10 billion and $15 billion annual investment to meet its infrastructural needs. That is about N1.5 trillion to N3 trillion funding opportunity for banks to earn interest and make profit for shareholders.

To position the bank effectively to utilise this opportunity, the management of Diamond Bank decided to deepen its pocket by raising additional $750 million capital.

“The bank would use the funds to increase lending to the oil and gas, power and infrastructure sectors”, Alex Otti, Managing Director/Chief Executive, Diamond Bank, told shareholders at the annual general meeting held penultimate week. To convince shareholders that the bank can profitably deploy the additional capital, he pointed to its results for the 2012 operating year, which showed a return to profitability.

2012 performance
During the year, profit grew by 253 percent to N27.4 billion from a N17.9 billion loss in 2011. Similarly, after tax profit increased by 261.1 percent to N22.1 billion from N18 billion losses in 2011. The sharp increase in profitability was occasioned by 35 percent growth in gross earnings to N138.8 billion from N102.7 billion recorded in the previous year.

This growth was due to increased public confidence in the bank, which resulted into 51 percent jump in money deposited by customers to N910 billion from N603 billion the previous year. The bank also increased its share of the credit market by 51 percent, extending N585 billion loan to customers, up from N388 billion the previous year.  This improved performance resulted to 48.7 percent growth in the bank’s total asset, which crossed the trillion naira mark, rising to N1.178 trillion from N796 billion.

According to Otti, “2012 performance is a reflection of our collective decision to place the bank on a growth pedestal towards becoming one of the leading financial institutions in Nigeria having achieved N1 trillion balance sheet size. The year saw us building on our strong reputation for customer focus, innovative product development and quality service, thus returning to profitability after the cleanup exercise in 2011. These principles will continue to steer our growth on an impressive and sustainable path.”

“Leveraging on these principles and the focused development of our service delivery infrastructure, systems and technology, we have gained momentum and scale in all our markets. Our strong balance sheet, large customer base and solid risk management framework have helped us to build a robust institution capable of guaranteeing quality growth,” he added.

Shareholders’ optimism
Though the bank’s performance translated to earnings per share of 159kobo for the year, the bank is not giving dividend. This, Otti said, is part of its strategy to boost the bank’s capital for expansion and increased profitability. “It would not be better to declare dividend and still come back to seek more capital from our shareholders. Our focus is to optimise balance sheet efficiency while increasing returns and minimise risks, all within the context of financial intermediation, which is our primary mandate,” he said.

This frankness bought over shareholders; hence despite their disappointment at not getting any dividend, they approved the proposal to raise $750 million, expressing optimism that the exercise would enhance the bank’s profitability. The National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu, said the shareholders were impressed with the bank’s return to profitability, stressing that they would always support the bank’s growth plans.

The new capital, he said, would put the bank in good position to become the industry’s leader in the nearest future, adding that the board has demonstrated that it would utilise the fund well to the advantage of the shareholders.

National Chairman, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said the shareholders were impressed with the way the bank was run, stressing they had implicit confidence on the management to deliver.

Okezie submitted that though the bank did not give dividend this year, they were impressed with the results posted in key financial indices.


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