Diamond Bank plc has recorded a 12.67 percent rise in interest income as the Nigerian lender plans to slow lending growth due to slump in naira.
For the year ended December 2014, the bank’s interest income increased by 12.67 percent to N161.30 billion from N143.12 billion the same period of the corresponding year (FY) 2013.
Net operating income increased by 9.56 percent N127.38 billion in 2014, as against N116.26 billion in 2013, while net interest and similar income moved by 4.37 percent to N109.37 billion.
The growth at the top-line is coming amid regulatory headwinds as the Central Bank of Nigeria (CBN) hiked the interest, devalue the naira with a view to stabilising the depleting external reserve that has come under immense pressure due to fall in oil price.
The CBN increased the MPR on private sector deposit to 13 percent. The volatility in exchange rate forced the CBN to abandon its official auction window for the interbank forex market. This effectively devalued the naira by 16 percent to $1/N197.
However, due to regulatory induced costs and tough operating environment that pushes costs of most firms in Nigeria, its bottomline declined.
Profit after tax fell by 10.72 percent to N25.48 billion in 2014, compared with N28.54 billion in 2013 as regulatory induced costs continue to suppress profit.
Operating expenses increased by 19.89 percent to N92.86 billion in 2014 from N77.40 billion in 2013.
Cost-to-income ratio, which measures the ability of a bank in cutting costs while boosting profit, reduced to 72.30 percent in 2014 as against 66.57 percent in 2013.
The bank, which operates in four other West African nations, increased loan growth as loans to customers spiked by 31.94 percent to N1.08 trillion in 2014 as against N818.53 billion in 2013.
Deposits to customer rose by 23.06 percent to N1.56 trillion in 2014, compared with N 1.26 trillion in 2013.
Loans to deposit increased to 69.23 percent in 2014, compared with 64.96 percent in 2013.
Recall that Diamond Bank plans to cut loan growth to 10 percent this year from 20 percent in 2014, as the market is very bearish.
The Nigerian lender is also targeting loans to support the small and medium enterprises, agric and energy industries.
“Diamond’s business model is inherently riskier than most banks from a customer-focus perspective given the greater proportion of retail/SME in the loan book,” said Olubunmi Asaolu, equity research analyst with FBN Capital in a March 30 note.
“If the extent of the negative surprise was already this high in Q4, questions will be asked about the likely deterioration in the loan book through 2015,” said Asaolu
Diamond’s average return on equity was 14.65 percent, while the return on average assets was 1.48 percent.
Total assets were up by 27.81 percent to N1.93 billion in 2014, compared with N1.51 billion in 2013.
The Nigerian lender’s share price closed at N4.46, while its one year return dropped by -22.89 percent as of April 1, 2015, according to data compiled by Bloomberg. Market capitalisation was N64.56 billion.
“As at the end of last week, Diamond Bank shares had lost -28 percent ytd (ASI: -11.8%). Although the shares recovered some ground today, adding 4.5 percent (ASI: 1.7%), we believe this is likely to be short-lived once the market’s attention shifts to asset quality concerns. A proposed dividend of 10 kobo is well below the 30 kobo paid out in 2013. The corresponding yield is 2.4 percent. We rate Diamond Bank shares underperform,” said Asaolu.
BALA AUGIE
