Diamond Bank office

Goddy Egene writes that with N18 billion profit in the third quarter of 2012, Diamond Bank is consolidating after a loss for the year ended in 2011

Shareholders of Diamond Bank Plc are very happy at the moment unlike this time last year when they wore long faces. This time last year when many banks were sending positive signals to their shareholders of a bountiful harvest for the year ended December 31, 2011, Diamond Bank Plc sent a negative signal.

The bank, in line with good corporate governance and tenet of full disclosure, sent a profit warning that it would end the year with a loss, due to decision to clean up its books of bad loans. This action led to the bank ending 2011 financial year with a loss of N11 billion.

As a result of the loss, shareholders did not receive any dividend. However, the story will be different for the current financial year as the Diamond Bank is on its way to profitable 2012 financial year.

Impressive Financial Performance
The bank gave a tip of the goodies to come when it announced its result for the third quarter (Q3) ended September 30, 2012, last week.

The Diamond Bank result was the first Q3 to be announced in the banking subsector. According to unaudited result, Diamond Bank grew its gross earnings from N74.646 billion in Q3 of 2011 to N110.108 billion in 2012.

Profit before tax stood at  N23.216 billion, compared with a loss of N6.924 billion in 2011, while profit after tax  was N18.17 billion as against a loss of N6.1 billion in 2011.

An analysis of the bank’s income Diamond Bank witnessed significant growth business activities as fee and commission income grew from N12.043 billion to N16.56 billion. Similarly, foreign exchange income rose from N1.643 billion to N2.442 billion.

Net interest income grew by 38 per cent from N52.16 billion to N72.39 billion, while non-interest income recorded a higher growth of 162 per cent from N8.03 billion to N21.06 billion in 2012.

The bank strove to reduce general expenses from N12.322 billion to N11.568 billion, personnel expenses rose from N12.583 billion to 15.628 billion. In terms of deposits, Diamond Bank remain a strong and trusted brand among customers as its deposits from them rose by 29 per cent from N603.02 billion to N776.78 billion.

There have been reports of banks not willing to lend as expected but the loans and advances basket of Diamond Bank showed a growth of N38 per cent. The financial institution gave out loans of N539.6 billion to customers at the end of Q3, up from N391.9 billion in 2011.

In all, the bank ended the period with shareholders’ funds of N106.69 billion, showing an increase of 10.7 per cent while total assets grew by 28 per cent from N803 billion to N1.028 trillion.

Net interest margin (NIM), Return on average equity (ROAE) and liquidity ratio (LR) have   witnessed steady climb from end of last year to the Q3 of 2012. For instance, NIM improved from 2.2 per cent at the end of 2011 to 6.7 per cent in Q2 and 7.0 per cent in Q3 of 2012. ROAE also rose from negative 11.2 per cent from 2011 to positive 2.0 per cent in Q2 of 202 and improved to 17.8 per cent growth in Q3.
In the same vein, LR improved from 46.5 per cent in 2011, 65.4 per cent in Q2 of 2012 and 69.5 per cent in Q3 of 2012.

By the end of Q3, the capital adequacy ratio of Diamond Bank was 16.2 per cent, which was an improvement from 13.1 per cent in second quarter.

Executive Comments
The Group Managing Director and Chief Executive Officer of Diamond Bank Plc, Mr. Alex Otti,   attributed profit recorded by the bank to improvement in various areas of the group’s balance sheet.
According to him, it is delightful to announce that it has achieved a balance sheet size in excess of N1 trillion the end of Q3 third quarter 2012. “While the bank achieved a net interest income of N72.4 billion (up 39 per cent from third quarter, 2011), it recorded interest and similar income of N88.4 billion (up 46 per cent from third quarter, 2011),” he said.

He added that the bank had increased operating income figures by 107 per cent, having turned around the performance of the Bank to profitability from the loss recorded last year.

The bank was recently granted a $70 million seven-year convertible subordinated loan facility by the International Finance Corporation and Africa Capitalisation Fund Limited.

Otti said the facility, which is the first of its kind to be granted to a Nigerian bank, is to help boost its Capital Adequacy Ratio. “Our deposit base is growing at an accelerated pace, evidencing the bank’s ability to attract retail deposits that mitigate our cost of funding. We are now in a robust position to carry this performance through to the end of the year,” he added.

Research Analysts’ Assessment
It has been positive assessments by research analysts and stock market operators since the result was released last week. Analysts at FBN Capital Limited, for instance, said “Diamond Bank has delivered a strong set of financials for the third quarter in a row, confirming that its recovery from a very challenging 2009-11 is well advanced.

Diamond Bank’s Non-performing loan (NPL) ratio fell from 7.6 per cent  in Q2 to 5.2 per cent, just above the CBN’s preferred 5 per cent, and in line with the rest of the banks in our universe (as of Q2). It is also reassuring to see that the bank’s capital adequacy ratio improved to 16.2 per cent (up from 13.1 per cent in Q2),” they said.

Analysts as Afrivest West Africa Limited, another investment bank, said they remain buyers of Diamond Bank’s shares. According to them, with trailing earnings per share (EPS) of N1.23, translating to a price earnings ratio (P/E) of 3.6x trailing earnings, “Our forecasts currently indicate an intrinsic value of N5.91, yielding a full year estimate 2012  target  price of N8.07, showing an upside 80.5 per cent)”.

Also commenting, analysts at Meristem Securities Limited noted that in a total asset of N1.03 trillion Diamond Bank holds five per cent of the banking industry’s total assets.

According to them, aggressive resumption of lending saw the loan book of the bank growing by 38 per cent, noting that the bank recorded N1.20 billion in debt recovery (3.2 per cent of 2011 loan impairment charge), greater emphasis on recovery would assist the bank in lowering its cost of risk from 7.3 per cent towards tier 1 and tier II average of 1.6 per cent and 5.2 per cent respectively.

“We stress the consistent improvement in net interest margin despite the 88 per cent year-on-year (yoy) run rate on interest expense which we consider benign on cost of funds at 2.6 per cent compared to peer’s average of above 4.5 per cent.

“Increase in operating expenses, 18 per cent yoy, was largely hinged on rise in personnel cost slightly driving up the cost to income ratio to 67 per cent. Post adjustment we review upwards our 2012 target price to N4.53 and EPS of N1.16,” they said.

Diamond Bank’s Metamorphosis
Incorporated on December 20, 1990, Diamond Bank began operations began as a private liability company on March 21, 1991.

Ten years later, the bank became a universal bank. And in  January 2005, following a highly successful Private Placement share offer which substantially raised the bank's equity base, Diamond Bank became a public limited company. It got listed on the Nigerian Stock Exchange (NSE) in May 2005.

In January 2008, Diamond Bank's Global Depositary Receipts (GDR) was listed on the Professional Securities Market of the London Stock Exchange; the first bank in Africa to record that feat.

In 2008, and to ensure we grow with the needs of our customers, we streamlined our operations into three distinct strategic business segments: Retail banking, corporate banking, and public sector.

From a humble beginning, Diamond Bank, as at today, is one of the leading banks in Nigeria. The bank is respected for its excellent service delivery, driven by innovation and operating on the most advanced banking technology platform in the market.

Diamond Bank has over the years leveraged on its underlying resilience to grow its asset base and to successfully retain its key business relationships. Diamond Bank has won several awards including the prestigious ‘Nigerian Bank of the Year, 2009’, the ‘Most Improved Bank of the Year, 2007’ and ‘Best Bank in Mergers & Acquisition, 2006’ all by the ThisDay Annual Awards.

Besides, the bank has retained excellent relationships with a number of well-known international banks, allowing it to provide a bouquet of world class banking services to suit the business needs of our clients.

These international banking partners include: Citibank; HSBC Bank; ANZ Banking Group; ING BHF Bank AG, Standard Chartered Bank, Belgolaise Bank S.A; Deutsche Bank, Commerzbank, and Nordea Bank Plc.

Diamond Bank's A rating by Fitch Ratings, Agusto & Co, and AA- rating by GCR, reflects the bank's sustainable liquidity, sound and professional practices and good standing as a high investment grade institution.