A major accomplishment by Diamond Bank in 2013 is the rebuilding of its retained earnings account and therefore the reinforcement of its equity cushion. The wipe off of negative retained earnings has positioned the bank for regular dividend payment going forward. The bank also succeeded in defending profit margin against the general weakening of margins in the banking sector in 2013.
The bank made a full retention of its profit in 2012, which was the major action it took to rebuild the reserve account. This was a necessary step to counter the effect of past losses on the capital account, which built a peak negative general reserve of N24.11 billion at the end of 2011. At the end of 2013, the negative retained earnings, which stood at N6.63 billion at the beginning of the year, changed to a positive number of N17.48 billion.
With the full profit retention in 2012, the bank ended the downslide in its equity base and raised it from the five-year low of N85.98 billion at the end of 2011 to N108.86 billion at the end of 2012. A further build up of the equity resources happened in 2013 with the bank’s capital stock shooting up to N138.85 billion. This has positioned the bank for a balanced growth in the asset side of the balance sheet.
Earnings performance shows an overall stable growth in the 2013 financial year. A strong growth in profit was achieved up on the major turnaround it recorded in the preceding year. The summary of the bank’s operations last year is that it achieved a balance between its revenue improvement and cost increases during the year.
The bank’s main cost lines were kept within their previous limits relative to revenue so that costs and incomes grew at virtually equal pace. This enabled it to defend profit margin during the year.
The bank raised gross earnings by 30.5% to N181.20 billion in 2013, compared to a stronger growth of 44.2% in the preceding year. The actual figure is 3.3% ahead of our forecast gross income of N175.4 billion for Diamond Bank in 2013. A slowdown in revenue growth is a general development in the banking sector in 2013.
Revenue growth was led by other operating income, which advanced from N98 million in 2012 to N3.59 billion in 2013. Interest income grew by 27.4% to N143.13 billion in the year and remains the dominant source of revenue for the bank, representing 79% of gross earnings in the year. It had grown by 34.8% in the preceding year.
The bank realised an after tax profit of N28.54 billion at the end of 2013, an increase of 29.1% over the net profit figure in the preceding year. Actual profit figure is 4.9% better than our forecast full year net profit of N27.2 billion for the bank in 2013. The bank managed to keep costs generally within their previous limits, which enabled it to defend profit margin during the year.
The bank recorded significant cost increases in some lines and moderations in others during the year. The net effect was virtually neutral on revenue, which permitted the strong growth in profit recorded in the year. Two major cost lines made significant incursions into revenue in the year. These are interest expenses and loan loss expenses, which rose well ahead of revenue at 67.4% and 37% respectively.
Two other cost elements moderated to save revenues for the bank during the year. These include operating expenses, which increased by 22.8% against the rise of 30.5% in gross earnings. The moderated growth led to a decline in operating cost margin from 49.4% in 2012 to 46.5% in 2013. This remains a considerably higher cost margin than the best industry numbers. The second cost line that moderated is income tax expense, which dropped by 34.3% in to N3.53 billion in the year. It was therefore the main cost saver for the bank in 2013.
The outcome of the cost and revenue behaviours in the year is that the ability of the bank to convert revenue into profit was largely preserved. It recorded a net profit margin of 15.7% in the year, slightly down from 15.9% it recorded in the preceding year. The bank was therefore largely shielded from the general declines in profit margin in the banking industry in 2013.
The major increase in interest expenses is compensated largely by an equally strong growth in deposit liabilities. Deposit liabilities of the bank rose by about 34% to N1.26 trillion in 2013. Due to banks grew more than twice as fast at about 75%, which largely accounted for an increase in the average cost of funds in the year.
The increase of 37% in loan loss expenses is against an increase of 12.9% in the risk asset portfolio of the bank. The more rapid growth in loan loss expense is indicating that the bank still carries significant problem assets in its portfolio.
Earnings per share came to N1.97 in 2013, increasing from N1.53 in the preceding year. The bank has resumed dividend payment after a two-year break with a proposed dividend of 30 kobo per share. The register of shareholders is scheduled to close between 17th -18th April and payment date is 26th April 2014.
