Introduction After keeping shareholders in the doldrums in the last four years, Diamond Bank Plc again gave them a reason to believe that their investment in the bank is not at least a waste. The bank gave out a dividend of 30kobo per share. This amount was given out of about 168 kobo distributable to shareholders per share from the bank's profit in the financial year ended December 31, 2013.
The bank's ability to pay dividend in 2013 was due largely to its return to profitability in 2012, a status it lost between 2009 and 2011 when it consistently recorded negative earnings.
Now that it appears to have returned to profit-making going especially by its unaudited half -year financial results for the year ending December 31, 2014, would it safe to conclude that the good days are here for shareholders of the bank?
Brief history Diamond Bank Plc has been doing banking business at least for over two decades. It evolved from being a private limited liability company to being a publicly quoted company in 2005 and today prides itself as a leading universal bank with strong offerings in retail and corporate banking.
Perhaps one of the things that is working for the bank is its partnership with key international institutions like the International Finance Corporation (IFC) and Actis, a renowned equity investment corporation both of which have generously boosted the bank's liquidity through their investments in it. IFC reportedly injected $70 million (about N11billion) into the bank in 2012 while Actis brought in N17 billion.
Niche market It is believed that one area where the bank stands out is its exploration of the huge small scale business market in Nigeria or its quest to meet the needs of entrepreneurs or small scale business owners. To satisfy the capital need in this market segment, the bank has creatively developed various products that will help small business owners gain access to financing. This could be a reason why the bank was able to double its customer base in a space of two years between 2011 and 2013 when deposits increased from N603billion to over N1 trillion. The bank is also actively involved in fuelling the fire of entrepreneurship among the youth (mostly young school leavers).
Quest for additional capital Like Oliver Twist, Diamond Bank will always seek ways to boost capital so that it can have a robust base for creating liquidity to satisfy its growing customers. The bank is issuing 8,685,145,863 ordinary shares of 50 Kobo each which will be sold to existing shareholders whose names appear on the Registrar of Members and transfer books of the bank as at the close of trading on Friday, June 13, 2014, at N5.80 kobo.
The stocks will be allocated on the basis of three ordinary shares for every five held. The shares are payable in full on acceptance and tradeable on the floor of the Exchange throughout the period of the Issue. The acceptance list opened since Wednesday, July 30, 2014 and closes at the close of business on Tuesday, August 26, 2014.
The GMD/CEO, Diamond Bank Plc, Dr Alex Otti, disclosed to shareholders the three cardinal centers for the funds, which include branch network expansion and renovation, information technology upgrade and up-scaling of the retail segment of its operations.
"The bank intends to expand its branch network to 350 from the current 257. Following this projection, more than eighty per cent of the money raised will be injected into it, Otti said.
A part of the funds will be channeled toward strengthen its competitive capacity in the middle market by developing and sharpening its strategic focus, especially in the area of MSMEs, sole proprietorship and the corporate business sector.
"The retail end of the market is very important to us, therefore we will be investing 86%, which is about N42 billion in that area while development of IT infrastructure will consume about 4% and the remainder will be a part of the working capital. We do understand that to remain competitive we must think and work ahead," he added.
Half year financial scorecard To a large extent, the bank's financial report for the unaudited half year financial period ended June 30, 2014 was cheery to investors as key performance measuring ratios recorded modest growth.
Earnings growth Gross earnings (total revenue) increased by 14 per cent from N86.52 billion in June 30, 2013 to N98.34 billion in the comparable period in 2014. Breakdown of total earnings indicates that total interest income (cash from interest charges) stood at N78.73 billion up by 12.4 per cent in June 2014 compared to N70.05 billion posted in half year 2013 while net interest income stood at N55.40 billion as against N51.44 billion in June 2013. Income from fees and commissions (money realised outside core banking business of lending) improved appreciably by 13.3 per cent from N13.75 billion in June 2013 to N15.58 billion in June 2014 while trading income grew significantly by 70.6 per cent to N2.99 billion in June 2014 from N1.75 billion in June 2013.
Profitability For the first time since 2009 the bank recorded profit in 2012. The trend has been maintained since the end of the financial year ended December 31, 2012 till the review half year period ended June 30, 2014. Though profit before tax dropped by 8.5 per cent between June 30, 2013 and June 30, 2014 from N17.56 billion to N16.07 billion, after tax profit appreciated by 9.03 per cent to N13.79 billion in the review half year period as against N12.64 billion in June 2013. The saving grace was that provision for taxes in June 2014 was 53.5 percent less than N4.92 billion provision made for taxes in June 2013.
Balance sheet performance review About 75 per cent of the bank's total assets earned money for shareholders as at June 30, 2014. While total assets stood at N1.74 trillion in June 2014 from N1.52 trillion in 2013, total earning assets was N1.30 trillion from N691 billion in June 2013. Though more money was made available in June 2014 for all classes of its assets, cash and balances with other banks and financial assets for trading purposes by the bank were given priority. Cash and balance with other banks increased by about 126 per cent from N129.36 billion in 2013 to N292.30 billion in 2014 while financial assets held for trading also by 119.12 per cent to N7.51 billion as at June 2014. On the liability side, savings and deposit liabilities increased moderately by 8.5 per cent and 12 per cent from N1.21 trillion to N1.31 trillion and N1.26 trillion to N1.41 trillion respectively.
Profitability ratios Most of the bank's profitability ratios in half year period ended June 2014 recorded marginal improvement compared with the figures in the proceeding period of June 2013. After tax profit margin remained at 14 per cent as it was in 2013 while return on assets grew to 0.81 per cent.