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DIAMOND bank Plc: Comfort in strong capital

Because of its relevance to the banking sector and the entire economy, Diamond Bank indeed merited the classification as one of the 8 Systematically Important Banks (SIBs) in Nigeria by CBN. As it got to the third year in a journey to “Reclaim the Diamond”, the bank had reasons to celebrate about 25 years of high impact banking in Nigeria.

•Chris Ogbechie, Chairman, Diamond Bank & •Uzoma Dozie, MD/CEO.
•Chris Ogbechie, Chairman, Diamond Bank & •Uzoma Dozie, MD/CEO.

With total asset of N1.75trillion as at 31st December 2014 and occupying the 7th position by this size ranking, it is only logical to see Diamond Bank assume such importance under recognition in the system.

Not surprisingly when the International Finance Corporation (IFC) desired partnership with some Nigerian banks to provide funding and technical support to local businesses, it was not hard to identify Diamond Bank as a credible partner. Since 2008, this partnership has worked and small scales Enterprises financing.

As part of its orientation to upscale business in this all important sector, the bank in 2011 launched a unique credit product style “Borrow for Free” promo aimed at providing easy access to capital and advisory services for the MSME segment of the market.

Earnings and Profitability

In 2014 Diamond Bank achieved gross earnings performance of N188billion against N165billion reported in the preceding year.  This was the 6th highest ranked    performance for the year of which interest related income accounted for 79% down from 81%.  Fees and foreign exchange income rose slightly in proportion notwithstanding the extent of increase in loan assts. Charges associated with impairment of risk assets rose by almost N14billion just as operating expenses also increased. The challenges of adverse regulation and deterioration of asset quality, as measured by specifications, resulted in a reduction on profit after tax from N29.7billion to N22.1billion.

In relative terms, this implied a decline in Return on Average Equity from 24% to 13% and Earnings Per share from N2.05 to 95k.

Capital Adequacy

In 2013, shareholders of Diamond Bank approved some USD750,000,000 capital raising programme. During the 2014 review year, the bank succeeded in raising about N50.4billion by way of rights issue. The success of this capital raising exercise in a period of tight capital market conditions says much about the investment appeal of the bank to actual and potential investors. On the strength of this, the bank also attracted the interest of private equity investors on the past. In fact, the bank had in 2007 entered into a private equity deal with Actis Capital  worth N17billion, then regarded as the single biggest of such deals as at that time. These capitalization deals boosted the banks” capital base.

The shareholders fund of the bank rose to N206billion from N138billion in the preceding year. This remarkably lifted coverage of estimated size of risky asset portfolio from 17% to 21%. Under Basel II, this coverage is about 18%. In any case, the figures clearly reflect the strength of Diamond Bank’s cushion or margin of comfort to counter parties when compared with 16% minimum required for Systematically Important Banks. By all measures, the bank is one of the top 8 capitalized banks in Nigeria and accordingly has enhanced capacity to extend big ticket transactions.

Not surprisingly, it participated in such critical deals as USD200m Dangote Industries Fertilizer Plant/Refinery Project, N2billion Pinnacle Estate, N$40million Omotosho Power Plant project, $663million E & P syndicated reserve-based lending for Eroton, $200million syndicated Risk participation Funding for Smiles LTE Network Expansion, $415million First Independent Power Ltd for Rivers State and $50million OLAM’s export business.

Moreover, Diamond Bank is one of the banks actively seeking growth using global strategy. This means that capitalization would continue to remain crucial to the bank even beyond the thresholds of regulatory requirement. The bank has indeed been proactive in managing its capital base.

Asset Quality

In 2014, Diamond Bank increased loan book more aggressively by N137billion to close at N747billion as it continued with a journey to rediscover the Diamond. This involved commitments to both the MSME and “big ticket” sectors. This however, came at  elevated cost. Non-performing loans ratio  rose from 3% to 4% requiring substantial increase in provisions from N24billion to N38billion. The implication is that asset quality declined during the period but not enough to remove the bank from the ranking as one of the operators with cleanest portfolio. According to the view of analysts, non-performing loan ratios not exceeding 5% can be considered  high quality.

Liability Generation and Liquidity Risk

By the end of 2014, Diamond Bank’s customer base crossed the 4.0million mark, a feat that suggests that it is one of the most patronized banks in the industry. To be able to achieve this, it has over the years launched a number of products and channels to the delight of customers. The Diamond Mobile App” and Touch Identity “Recognition” are pioneering tech-related services. All these may have  brought phenomenal success to the banks liability generation efforts.

As at 31st December 2014, total deposit liabilities amounted to N1.35trillion after the different deposit mobilization initiatives yielded a net addition of about N251billion. The loyalty and confidence of the banks customers appear to be rooted on the banks capacity to meet obligations as they  fall due.

As much as N828billion was invested in assets considered wihin the category of cash and short term assets, up from N566billion in  2013. Accordingly liquid to total asset ratio increased from 42% to 47% just as adjusted liquidity ratio rose from 37% to 42%. These levels suggested that Diamond Bank was among the top 3 banks that operated with the least liquidity risk at the end of 2014. But with the increasing microeconomic headwinds we hope the 2015 banking reports we are already working for April 2016 would show a sustained good performance



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