Diamond Bank Half year profit falls on increased operating expenses

The operating efficiency of Diamond Bank, a Nigerian lender, has weakened given the rising operating expenses that culminated in a reduction in half year profit by 11.82 percent as companies in Africa’s largest economy face an increased risk to earnings from a slump in oil and the naira.

Profit was N12.15 billion in 2015 as against N13.78 billion the same period of the corresponding year (HY) 2013.

Diamond Bank’s couldn’t tame growth in operating expenses as cost to income ratio (CIR) increased to 78.30 percent in 2015 from 75.05 percent the previous year.

A lower CIR means a lender is reducing costs while increasing profit.

Analysts say the bank should leverage on technology and optimize processes to contain operating expenses growth.

The bank may have incurred huge expenses on the renovation and expansion of branches, a recurring exercise for lenders in Africa largest oil producer.

Operating expenses were up by 5.95 percent to N51.22 billion in the review period while impairment charge for credit losses surged 44.08 percent to N13.04 billion.

The tight regulatory environment combined with its inherent headwinds took a toll on Diamond Bank’s loan growth as loans to customers increased by an abysmal 0.32 percent to N793.67 billion, from N791.09 billion last year.

The bank had forecast loan growth of 10 percent this year from 20 percent in 2014 as business risks heighten.

Deposits from customers reduced by 9.39 percent to N1.35 trillion in 2015 from N1.49 trillion in the previous year as business risk heightens.

Diamond Bank, which operates in four other West African nations,  made gains from the sale of foreign exchange translation differences from foreign operations of N2.25 billion, representing a 1078 percent surge from N191.78 million recorded in 2014.

The bank felt the hit of the high interest rate environment as interest and similar expenses were up 5.18 percent to N24.54 billion in 2015 as against N23.33 billion last year.

Diamond Bank’s total assets were down 5.81 percent to N1.83 trillion in the period under review compared with N1.93 trillion the previous year.

The bank’s share price closed at N3.99 on the floor of the exchange while market capitalization was N92.41 billion.

BALA AUGIE