BY AMOS ADETUNJI
Diamond’s Bank Southward Journey Is Self Immolation
The takeover of Diamond Bank Plc by Uzoma Dozie, the scion of the Chairman of the bank , Dr. Paschal Dozie, as the Chief Executive Officer was greeted with high hopes and expectations. It was, indeed, a plan accomplished. To some analysts and observers in the financial industry, he was a round peg in a round hole and a fitting successor to the throne. It was believed that he had surely earned his stripe in the high intensity, high adrenalin-pumping banking business in Nigeria as he was regarded a master strategist. With operating skills and strong attention to minute details that would make all the difference on both the top line and the bottom line, Diamond Bank was believed to be in a right hand However, four financial years after his assumption as the chief executive officer of the bank,, it has become a hope gone sour. The last financial year of 2017, no doubt, was the worst as the bank continued to sink deeper into oblivion . The bank registered a loss before tax N11.6b and a loss after tax of N9b in the financial year ended December 2017 as against a profit before and after tax of N3.4b and 3.5B respectively in 2016. The bank’s total comprehensive income fell from positive from N12b in 2016 to N2.8b negative in 2017 .Its Earning per share crashed to a negative or loss position of 39kobo from a positive of 15k in 2016.
This unimpressive development has continued to hit hard on the fortunes of the bank. And Uzoma Dozie is now getting the lion share of the blame with the bank’s investors at the receiving end . Stock price of mid tier lender, Diamond Bank has halved in the last six months with most of the shave in price occurring in the last one week. The reason for the steep southward movement is pinned on the bank’s less than inspiring full year run.
As of the close of trade on the nation’s bourse Thursday 17th of May ,2017,, the bank’s stock price was N1.46, a far cry from the N3.50 they went for in early January. This represents a capital loss of 136 percent or N2.02. The steep losses investors have had to contend with have had the stock underperforming the market by a very wide margin of an estimated 30 percent.
The market seems miffed at the poor run of the bank in the full year of 2017 when gross earnings expanded by a slim 3 percent to N189.6 billion from N184 billion and ultimately delivering a negative bottom line as net losses reached N12.9 billion from gains of N2 billion the year before.
It was a year the bank allowed the pace of interest expenses outpace that of interest income as interest income grew 13.7 percent to N145.32 billion from N127.81 billion and interest expenses jumped 50 percent to N47 billion from N31.3 billion. Thankfully, net interest income was in positive territory, albeit at a slow pace of 1.8 percent over last year’s at N98.3 billion against N96.54 billion.
The slow growth of net income suggests the bank’s failure to attract interest rates that can significantly boost its level of profitability. It also indicates that the bank is prone to interest rates risk. But the high level of net interest income may also suggest a peak in the level of interest that the bank can attract.
But the bank moved to reduce credit risk by reducing the loan deposit ratio down to 65 percent from 69 percent. This was as deposits dropped 18.5 percent to N1.16 trillion from N1.42 trillion and the loan book jumped 24 percent to N755.5 billion from N995.33 billion.
That impairment charges remain high in the period, inching down only by 0.32 percent, the asset quality of the bank are not as solid as they were a few short years ago. Impairment was N56.83 billion in the period compared to N57 billion the year before. This contributed in shaving net operating income which also suffered from rising operating cost. Net operating income sank 11 percent to N77.3 billion from N86.94 billion, leading to a drop in operating margin to 41 percent from 47 percent. It means the bank’s operating efficiency slacked in the period relative to the previous year.
The bank sank deep into a pre-tax income losses of a hefty N11.5 billion in the period compared to the pre-tax profit of N3.37 billion achieved in the equivalent period last year. On a marginal basis, prep-tax lose margin sank to a negative 6 percent compared to 1.08 percent. It means where the bank used to wring out 1 kobo from every naira, it now loses N6.
The losses above culminated in net losses for the bank as the losses widened to N12.9 billion from a net positive position of N2 billion and a net loss margin of 6.8 percent from a positive but insignificant 1 percent.
The losses incurred means erosion in shareholder funds by that amount and also possibly more leverage should the bank insist on paying out dividends. The effect of dipping into shareholders funds may put pressure on its Capital Adequacy Ratio (CAR) that has been falling progressively over the years from 16.4 percent in 2015 to 15 percent in 2016; while a resort to more leverage would substantially impact the capital structure of the bank and affect interest margins in the 2018 financial year.
Delivering superior performance while building the capability to do it again and again is the definition of great organization .But most organizations and their leaders fail to achieve this .The roots of their failure lie in their approach . T he battle for survival in the Nigerian banking landscape is becoming tougher and challenging separating the men from the boys . Analysts and industry observers believe that banks which must succeed under the prevailing turbulent macroeconomic headwinds in Nigeria, must acquire the power of corporate kinetics, remain dynamic to make the move, respond to new customer demands fast enough and tag with staff who have big hearts to make powerful decisions as situations demand, have strong knack for risk taking within the limits of corporate definition, seize new market opportunities immediately, innovate continuously and collaborate well.
Fradette and Michaud in their book, The power of Corporate Kinetics: How to be a kinetic company, the authors notes that top industry executives must redesign the structure of their companies, bring their strategic purpose to life, look for workers with brains and attitude, prepare workers to act kinetic, create the right conditions for innovation, use unexpected market opportunities to their benefit and satisfy unexpected customer demands. The question remains: could Uzoma achieve this feat?
- To accomplish the above tasks, deep knowledge to compete for industry foresight and intellectual leadership, foreshorten migration paths, market position, market share are highly imperative. This may not be misplaced. A deeper understanding than competitors of the trends and discontinuities that could be used to transform industry boundaries and create competitive space; battle to influence the direction of industry development and market share within the fairly well defined parameters of value, costs ,price and service. At the first stage of the battle, the competition is to conceive fundamentally new types of customer benefits or to conceive radically new ways of delivering existing customer benefits; the second is where the race is to accumulate necessary competencies, tests and prove out alternate product and service concepts. The third is focused on product line extension, efficiency improvement and what are usually marginal gains in product or service differentiation
- But the move by the bank to sell its UK subsidiary should free up capital to save it from what would have otherwise been a tight situation in the 2018 financial year. The capital provided from the sale should assuage the concerns that may have arose from covering g the losses with shareholders’ funds; and the possible resort to leverage or more gearing.
Diamond Bank Plc (“the Bank”) has signed a Share Sale and Purchase Agreement with a member of GFG Alliance, for the disposal of its entire shareholding in its international subsidiary, Diamond Bank (UK) Plc (“DBUK”).
The disposal is in line with the Bank’s objective of streamlining its operations to focus resources on the significant opportunities in the Nigerian retail banking market. The transaction follows the bank’s divestment from its West African business, Diamond Bank S.A., which was completed in November 2017.
The Bank and GFG Alliance are committed to, and are pursuing a quick completion of the transaction subject to approval of the Financial Conduct Authority and Prudential Regulation Authority who regulate banking business in the United Kingdom.
Commenting on the transaction, Diamond Bank’s CEO Uzoma Dozie said:
“Diamond Bank’s strategic objective is to be the fastest growing, and most profitable technology-driven retail banking franchise in Nigeria. This strategic intent requires the Bank to optimize the use of its resources which means, where necessary, divesting from its non-core assets, and focusing on the priority area, namely Nigerian retail banking. In recent years, the Bank has laid the foundation for growth in Nigeria with acquisition of over 15 million customers, many of whom are owning bank accounts for the first time.
The Nigerian market has vast potential due to its strong fundamentals, including millions of people who are either underbanked or unbanked, and changing lifestyles that favour the use of mobile devices to complete multiple financial transactions at the consumer’s convenience. This is also underpinned by significant economic potential driven by an entrepreneurial spirit, and a growing culture of innovation.
Moreover, by harnessing technology and fostering a digitally led approach, the Bank will have further positive impact on the overall development of the financial system, and the Nigerian economy in general.”
The sale of the international subsidiaries is not expected to cause service disruptions for the Bank’s customers located around the world as they can continue to enjoy enhanced and convenient banking services through the Bank’s digital channels