GCR downgrades Diamond Bank Plc’s rating to BBB+(NG), placing it on Rating Watch.

12 Jul 2016 In Rating Notifications

GCR downgrades Diamond Bank Plc’s rating to BBB+(NG), placing it on Rating Watch.

Lagos Nigeria, 12 July 2016—Global Credit Ratings has downgraded the national scale long term and short term ratings assigned to Diamond Bank Plc to BBB+(NG) and A2(NG) respectively. The ratings have been placed on ‘Rating Watch’ pending the conclusion of the Bank’s annual rating review by the end of August 2016.

SUMMARY RATING RATIONALE

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

In November 2015, GCR affirmed Diamond’s national scale long term rating of A-(NG), reflecting the Bank’s leading position within the Tier 2 banks in Nigeria, its strong liquidity profile and capital adequacy position during the period, and its status as a systemically important bank. Concern was, however, raised on the Bank’s relatively low profitability and weakened asset quality (with the non-performing loan ratio escalating to 5.1% at FYE14 (FYE13: 3.5%). The bank’s management represented to have established several initiatives (including a stricter credit selection process, an enhanced risk management process, aggressive loan recovery activities and no/low loan growth) to see asset quality improve by FYE15.

Based on the full year results for 2015 it is, however, evidenced that the bank’s exposure to the troubled oil and gas sector (representing about 31% of loan exposure at FYE15) has adversely impacted the Bank’s asset quality and profitability position. Diamond’s NPL ratio escalated further to 6.9% from 5.1% at FYE14. This necessitated a sizeable impairment charge of N55bn, eroding the net profit before tax to N7bn (down from N28bn in F14).

Factors which continue to support the accorded ratings include the Bank’s strategically important status, and the implied likelihood of state support (if necessary). Also, CBN’s recent publication regarding the sound status of Nigerian commercial banks, provides additional comfort.


NATIONAL SCALE RATINGS HISTORY

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

Last rating (November 2015)
Long term: A-(NG)
Short term: A1-(NG)
Outlook: Stable


ANALYTICAL CONTACTS

Primary Analyst
Femi Atere/Julius Adekeye
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+234 1 462 2545


Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for rating Banks and Other Financial Institutions, updated March 2016
Nigerian Bank Sector Bulletin, 2016
Diamond Bank rating reports (2006-15)
Glossary of Terms/Ratios, February 2016

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.

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 2015 (plus four years of comparative numbers), and most recent year-to-date unaudited accounts to 31 March 2016. In addition, information specific to the rated entity and/or industry was also received.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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