Fitch Ratings on 15 December 2009 affirmed Diamond Bank's Long-term National ratings at 'A-(nga)' and Foreign Currency Long-term Issuer Default Rating (IDR) at 'B' with a Stable Outlook. The ratings were based on the Bank’s earnings and diversified/stable deposit base. It however noted the negative impact of loan loss provision on the Bank’s profitability.

According to Fitch, the bank’s net interest income improved 78.4% to NGN42.4bn during full year ended April 30, 2009 (FY09) from FY08 of NGN23.7bn due to an increase of 92.2% in gross interest income on loans. This increase led to a substantial improvement in net interest margin to 8.3% during FY09 (FY08: 6.9%). The widening of the net interest margin can partially be attributed to the increase in gross interest income from placements and short‐term funds to NGN21.4bn (FY08: NGN4.5bn).

The international rating agency noted that non‐interest income increased by 23% to NGN29.5bn (FY08: NGN24bn) and accounted for 41.1% of the bank’s gross income in FY09 (FY08: 50.3%). The growth in net fees and commissions arising from increased credit‐related fees was more moderate given slowing loan book growth in FY09, increasing by 25.7% (FY08: 69.3%). Operating income was further supported by gains on trading, which rose by 36.6%, with foreign exchange income of NGN3bn (FY08: NGN1.9bn) representing the bulk of the gain.

Diamond Bank’s net profit reduced significantly - by 59.7% to NGN5.2bn - during FY09 (FY08: growth of 122.2%) due to a 387.6% increase in the loan impairment charge, despite strong growth in net interest income. The consolidated net earnings, which were lower than the bank entity’s net income, were negatively affected by a loss of NGN2.9bn in Diamond Securities Limited as a result of the adoption of the mark‐to‐market (MTM) approach for its margin‐ or share‐based lending portfolio. Loan loss provisions rose steeply by 387.6% (FY08: 113.2%) to NGN23.2bn during FY09 due to significant absolute growth in NPLs. The MTM of margin‐ or share‐based lending in Diamond Bank and DSL contributed NGN4.3bn towards this provision. Provisions arising from the downstream petroleum industry (NGN6bn) and other assets (NGN2.8bn) were the other major contributors to the impairment charge.

Fitch Ratings however downgraded Diamond Bank's Individual Rating to 'D/E' from 'D'. The agency stated that the downgrade of the bank's Individual Rating reflects the bank's weaker financial performance and deteriorating asset quality in an increasingly challenging operating environment. Fitch recognized that the Nigerian banking sector has been confronted with a number of challenges in the Nigerian operating environment in 2009. The Nigerian Stock Exchange (NSE) lost 62.3% of its value between 1 January 2008 and 30 September 2009, significantly affecting the banks’ margin‐lending portfolios. The reduction in the crude oil price also resulted in direct losses for Nigerian banks from their petroleum industry exposures as the crude oil price reduced to a nominal average of USD58.8 per barrel in 2009 (until end‐September 2009) from USD101.8 per barrel in 2008.

The bank’s customer deposits increased by 11.3% to NGN466.9bn at FYE09. The deposit base is relatively diversified and the mix between retail (13.8%). While wholesale deposits (80.6%) increases the potential volatility of this source of funding, deposits by SMEs represent 59.9% of wholesale deposits, which deposits are typically more stable in nature.

Diamond Bank was one of the five banks in the first grouping of 10 banks to pass the CBN’s special examination in August 2009. The bank provides universal banking services and is quoted on the Nigeria Stock Exchange (NSE) and the London Stock Exchange (LSE). The bank has 203 outlets in Nigeria as at end-November 2009. The bank has several consolidated subsidiaries, including Diamond Bank S.A. Benin (DBB), Diamond Pension Fund Custodian Limited, Diamond Mortgages Limited, Diamond Capital and Financial Markets Limited (DCL) and ADIC Insurance Limited. DCL has two wholly‐owned subsidiaries, namely Diamond Securities Limited and Diamond Registrars Limited. During April 2007, Actis DB Holdings Limited (Actis) acquired a 19.1% stake in Diamond. Actis is an emerging‐markets private equity investor, with USD7.3bn of funds under management. Actis’s investment in Diamond stood at 14.8% at FYE09.

Diamond Bank will continue to expand its operations, both inside and outside of Nigeria. The bank intends to roll out additional outlets in 2010, whilst improving direct distribution channels and IT infrastructure. Diamond is also close to extending its business into Senegal, Togo and Côte D’Ivoire and has already injected funds into DBB as prerequisite to a licence to operate in these countries. In the short term, The bank’s immediate objective is to ensure that it is fully poised for organic growth when the economic cycle turns, which management expects to be in the second quarter of the 2010 calendar year.