Tuesday, May 10, 2016 5:22 PM / Research
The macro-economic challenges remain daunting; with corresponding strict industry regulations. The new policy by Federal Government on full implementation of Treasury Single Account played a significant role on the liquidity challenges within industry. The continued tightening of liquidity posture amid scarcity of FX further reflect difficult business environment in 2015.
There are strong indications that microeconomic challenges that influenced business outlook in 2015 financial year are likely to persist in 2016. The low oil price, FX scarcity and market volatility would continue to adversely impact business.
As a result of difficult operating environment in the 2015 financial year, Diamond Bank Plc delivered unimpressive performance, with significant plunge in profitability posture and challenged top-line performance for 2015 FY. Significant drop in volume of trades and huge impairment charges on risk assets are the key factors.
In both Q4’15 and Q1’16 periods- the performance outlook remain unchanged, as the bank posted 4% and 3% growth its top-line respectively while its PAT closed with negative growth of 78% and 19% respectively. The sustained weakness in interest income impacted the outlook.
Though, it was observe non-interest income remain strong and healthy in both periods. This had has translated to unimpressive returns to shareholders fund as ROE in 2015FY closed lower at 2.7% against 14.7% recorded in 2014 FY, similar pattern was recorded for Q1’16 to close at 10.6% against 13.4% posted in Q1’15.
Also, the NPL ratio closed above regulatory threshold of 5%, the bank posted 6.9% and 7.10% in both Q4’15 and Q1’16 periods respectively against 5.1% and 5.0% recorded in Q4’14 and Q1’15 respectively.
However, the operating efficiency and cost management came in stronger, though with a bloated CIR of 61.0% in Q4’15 against 54.6% recorded in 2014 FY. Also, the CIR moderated at 60.6% in Q1’16 against 62.0% posted in Q1’15
Summarily, below are the key takeaways from the 12Months 2015 and 3months 2016 earnings presentation as presented by the management of the bank;
• Implementation of TSA impacts deposit posture
• Corporate banking loans increased by 13% Y-o-Y on the strength of emerging opportunities in relationships with blue chip companies
• Payment gateways impacted deposit growth
• Loan volume gained marginal weight on Q-on-Q, driven by new emerging opportunities in the industry
• The low cost deposit aided the improved and efficient deposit structure
• Prudential provisions to power, Oil and Gas and general commerce sectors contributed to the decline in PAT
• Delayed in payment from Oil and Gas calls for loan structure
• The non-interest income remains strong and healthy
• The bank is expecting recovery on NPL in near term
• Majority of loans to upstream companies would restructured
• The bank is unlikely to be invited for questioning by EFCC
• Exposure to Oando Plc is not significant