Diamond Bank plc, a Nigerian lender, started the year on an impressive note by recording a profit after tax of N7.16 billion in the first quarter, even as companies in Africa’s largest economy faced increased risk to earnings from an uncertain political environment during the period.
For the first three months through March 2015, the bank’s gross earnings increased by 5.33 percent to N51.53 billion from N48.92 billion in the same period of the corresponding year (Q1) 2014.
Its interest expense increased by 8.27 percent to N11.64 billion in 2015 from N10.75 billion in 2014, as net interest income and similar expense increased by a single digit 4.84 percent to N28.84 billion.
The Central Bank of Nigeria has tightened liquidity in the system, which has increased interest rates in a bid to stem the decline in the naira. The naira has come under pressure, losing about 4.5 percent of its value against the dollar this year, because of declining crude prices, which fell by almost half in 2014.
Africa’s largest oil producer, Nigeria, relies on crude exports for 95 percent of its foreign exchange and 70 percent of government income.
Diamond Bank’s cost to income ratio increased to 74.29 percent in 2015 from 71.51 percent in 2014, as huge energy costs due to the use of diesel oil to run generators at head offices and branches.
Additionally, costs incurred on the acquisition of assets with a view to increasing share of the market may have led to increased operating expenses. Operating expenses were up by 3.88 percent to N24.19 billion from N23.20 billion, considered by analysts as moderate given the challenges faced by Nigeria companies.
These challenges took a toll on the bank’s bottomline as profit after tax (PAT) fell by 15.16 percent to N7.16 billion in Q1 2015 compared with N8.44 percent as of March 2014.
Analysts had envisaged the bank will record lower loan growth as the large chunk of its lending was to the retail and Small and Medium Enterprises, which are susceptible to the weak macro-economic environment fuelled by currency volatility.
“Our main focus looking ahead to the conference call with management is the bank’s outlook on asset quality, given Diamond’s high exposure to the retail/SME sectors relative to the average Nigerian bank,” said Olubunmi Asaolu, equity research analyst with FBN Capital in an April 13 note.
“We would not expect loan or deposit growth guidance to exceed 10 percent (pre-FX devaluation impact),” said Asaolu.
Diamond Bank’s loans and advances to customers remained flattish at N1.08 trillion in 2015, while deposits to customers moved by 11.05 percent to N1.93 trillion. The bank still remained aggressive about lending as loan to deposit ratio increased to 55.93 percent in 2015 from 49.70 percent in 2014.
Its share price closed at N4.30 on the floor of the exchange, while market capitalisation was N106.53 billion.
“Our estimates are under review. We rate Diamond Bank shares Underperform,” said Asaolu.
BALA AUGIE
