GCR Affirms Diamond Bank Plc’s rating of A-(NG); Outlook Stable

13 Nov 2015 In Rating Notifications

GCR Affirms Diamond Bank Plc’s rating of A-(NG); Outlook Stable

Lagos Nigeria, 13 November 2015 — Global Credit Ratings has today affirmed the national scale long term rating assigned to Diamond Bank Plc of A-(NG) and upgraded the national scale short term rating to A1-(NG); with the outlook accorded as Stable. The ratings are valid until October 2016.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Diamond Bank Plc based on the following key criteria:

While the accorded ratings reflect the position of Diamond Bank Plc (“Diamond” or “the bank”) as a leading Tier 2 bank in Nigeria, and its status as a systemically important bank (“SIB”), with an estimated market share of 7.0% (FYE13: 6.2%) by industry assets at FYE14, cognisance was also taken of evident asset quality challenges and relatively lower profitability in the review period.

Diamond’s capital level is considered satisfactory, with a risk weighted capital adequacy ratio of 17.5% (calculated in line with Basel II) at FYE14 relative to 17.3% at FYE13, above the prudential minimum of 16.0% for a SIB. The capital level was supported by a successful Rights Issue of N50.4bn in August 2014, and strong internal capital generation during the year.

The bank’s asset quality came under pressure in F14, with the gross non-performing loan (“NPL”) ratio rising to 5.1% from 3.5% at FYE13. The bank’s management attributed the sharp increase in impaired loans to a major exposure within the real estate sector. However, the specific arrears coverage ratio appears adequate, rising from 61.8% to 76.9% at FYE14. While the NPL ratio stood at 4.7% at 3Q F15, recent initiatives by the bank (which include a stricter credit selection process, enhanced risk management processes, aggressive loan recovery activities and no/low loan growth) are expected to see the ratio lowered by FYE15.

Key liquidity metrics appeared strong throughout F14, with the statutory liquidity ratio maintained at 41.7% at FYE14, well above the regulatory minimum of 30%. However, the ratio reduced to 36.7% at 3Q F15, reflecting the tough monetary policy stances of Central Bank of Nigeria and challenging operating conditions. GCR foresees a further decline given the Federal Government of Nigeria’s directives on the Treasury Single Account which has led to a gradual withdrawal of all public sector funds from the Nigeria financial market.

The bank delivered a lower net profit after tax of N25.5bn (F13: N28.5bn) in F14, impacted by higher funding costs, impairment charges and operating expenses. At 3Q F15, Diamond reported a pre-tax profit of N18.6bn, translating to 74.4% of the F15 budget. While management expects a better result by FYE15 through streamlining costs, growing non-interest income and lowering impairment charges. That said, the challenging operating conditions pose major threats to the achievement of the full year budget.

An improvement in the quality of assets, higher profitability, and an enhanced capitalisation and market position would be favourably considered. However, a rating downgrade could emanate from further declines in asset quality, liquidity pressure, and deterioration in operating conditions.

NATIONAL SCALE RATINGS HISTORY

Initial rating (September 2006)
Long term: AA-(NG)
Short term: A1(NG)
Rating outlook:  Stable

Last rating (October 2014)
Long term: A-(NG)
Short term: A2(NG)
Rating outlook: Positive

ANALYTICAL CONTACTS

Primary Analysts
Femi Atere/Julius Adekeye
Credit Analyst/Senior Credit Analyst
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Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2015
Nigerian Banking Sector Bulletin, 2014
Diamond rating reports (2006-14)
Glossary of Terms/Ratios, February 2015


RATING LIMITATIONS AND DISCLAIMERS

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT WWW.GLOBALRATINGS.COM.NG


SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, Diamond Bank Plc, and therefore, GCR has been compensated for the provision of the ratings.

Diamond Bank Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Diamond Bank Plc with no contestation of/changes to the ratings.

The information received from Diamond Bank Plc and other reliable third parties to accord the credit ratings included the latest audited annual financial statements as at 31 December 2014 (plus three years of comparative numbers), latest internal and/or external audit report to management, full year detailed budgeted financial statements for 2015, most recent year-to-date management accounts to 30 September 2015, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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