|FITCH ASSIGNS A BBB+ RATING TO DIAMOND BANK|
Fitch Rating of 2010 placed Diamond Bank’s Long-term National ratings at BBB+ (nga) and reaffirmed Diamond’s Foreign Currency Long-term Issuer Default Rating (IDR) at B with a negative outlook. The Negative Outlook on Diamond’s Long-Term IDR reflects the Outlook assigned to the Nigerian Sovereign rating. Therefore, the Diamond’s Long-Term IDR and National Ratings are expected to change in the same direction as that of Nigeria’s Sovereign ratings.
In line with the bank’s retail strategy, retail deposits increased to almost 47% of customer deposits at end-2010 (end-2009: 23%) on the back of strong growth during the year. During 2010, Diamond’s funding costs also benefited from the reduction in more expensive term deposits.
Diamond recorded net earnings of NGN1.3bn which was supported by strong growth in net interest income following lower funding costs and improving efficiency. This was achieved despite the pressure Diamond’s financial performance went through in 2010 due to high impairment charges in respect of NPLs and provisions for exposures in subsidiaries.
Fitch noted that Diamond’s Net interest income rose by an annualized 28% during 2010 as a result of lower funding costs and retail credit growth, which was partially offset by lower interbank rates. Consequently, the Bank’s net interest margin improved to 9.8% (FY09:7.5%).
Despite the decrease of Non-interest income by 8.5% (annualized) during 2010 on account of weaker trading and foreign exchange income, total fee and commission remained almost unchanged as retail fee income continued to benefit from the Bank’s retail focus. This led to fee and commission income increasing to 77.8% of non-interest income in 2010 (FY09: 70.8%).
Fitch pointed out that Diamond’s cost optimization efforts caused the bank’s operating expenses to grow by a low 3.3% in 2010 albeit increase in other operating expenses (up 7.6%). Generally, efforts of the Bank’s management to improve efficiency saw cost/income ratio decline to 63.9% in 2010.
Diamond appointed a new Chief Executive Officer/Group Managing Director and Chief Financial Officer in 2011 following the resignation of their predecessors. Following the management changes in 2011, management’s short-term focus include the bank’s divestment from and integration of its non-bank subsidiaries, cost optimization and improved asset quality. In addition, Diamond seeks to strengthen the bank’s financial performance and market share by growing its retail business and expanding the scope of its activities in the corporate segment. In support of the bank’s growth objectives, management intends to raise Tier 2 capital during 2011.
The bank plans to strengthen its retail franchise through a rapid expansion in its branch infrastructure. Management advised Fitch that it plans to grow its branch network by an additional 100 outlets by end-2013.