Banking
Diamond Bank’s Solvency Crisis Will Further Worsen—Moody’s Warns
**Downgrades Bank’s Ratings
By Dipo Olowookere
The baseline credit assessment (BCA) and adjusted BCA of Diamond Bank Plc have been downgraded from caa3 from caa1 by Moody’s Investors Service.
In a statement obtained by Business Post, the foremost global rating agency explained that the action was as a result the Nigerian lender’s weakened solvency, governance tensions and foreign currency liquidity challenges.
“In Moody’s view, the bank will face a further deterioration of its solvency that will likely undermine investor confidence and make foreign currency funding increasingly costly and difficult to access, or the bank will receive external capital support from either existing or new shareholders, or from the government, boosting its solvency and addressing its foreign currency vulnerability,” the statement said.
On the downgrading of the ratings, the statement noted that, “The primary driver for the two-notch downgrade of Diamond Bank’s BCA to caa3 is Moody’s view that the lack of progress in resolving NPLs adds pressure on its already weak solvency profile,” the statement said.
Also, the rating firm downgraded Diamond Bank’s long-term local currency and foreign currency deposit ratings to Caa1 from B3.
The rating agency placed the deposit and other senior ratings and assessments on review with direction uncertain.
Diamond Bank’s Not Prime (NP) short-term local and foreign currency deposits and counterparty ratings and NP(cr) short-term counterparty risk assessments have been affirmed, Moody’s said.
“Moody’s action follows the departure of Diamond Bank’s chairman of the board and three other non-executive board members, and the subsequent announcement of the bank’s third quarter financial results which showed a lack of progress in reducing problematic exposures, in contrast with the improvements that the rating agency had expected.
“The downgrade reflects Diamond Bank’s (1) weak solvency that is characterised by low provisions set aside for its high level of non-performing loans (NPLs) that outsize its tangible common equity (TCE), (2) corporate governance tensions that will likely divert management’s focus from resolving NPLs and could potentially undermine investor confidence, and (3) vulnerable foreign currency repayment obligations in 2019,” the statement said.
It further said the placement of the ratings on review reflects potential for diverging outcomes for Diamond Bank.
Moody’s said its previous assignment of a positive outlook on Diamond Bank’s deposit ratings in June 2018 had been based on expectations of substantial NPL reduction in the following 12 months; however, Moody’s said it now expects NPLs and provisioning needs to remain high.
Diamond Bank’s NPLs ratio stood at about 40 percent of gross loans as of September 2018 from 42 percent at year-end 2017, and only about 20 percent of the NPL stock is covered by provisions. Moody’s estimates that the provisioning requirements currently outsize the bank’s TCE.
“A second driver for the downgrade is the weakened corporate governance of the bank, following the recent unexpected departure of the bank’s chairman and three members of the board of directors. This development reveals tensions that the rating agency expects will delay the resolution of the bank’s large portfolio of NPLs and could potentially undermine investor confidence in the ability of the bank’s management to turn around Diamond Bank’s financial performance.”
A third related factor for the downgrade is Diamond Bank’s vulnerable foreign currency funding profile. The rating agency views the risk that the weak solvency and corporate governance tension may erode customer and depositor confidence, further impairing the bank’s financial performance and negatively affecting Diamond Bank’s funding profile.
“The bank will face significant refinancing needs in the first half of 2019, including a $200 million Eurobond maturing in May 2019.
“Diamond Bank’s liquid foreign currency assets at year-end 2017 amounts to about 25 percent of the debt and borrowings that are maturing in 2019, and the bank is currently looking at various market options to meet its foreign currency funding needs,” the rating firm said.
Moody’s said counterbalancing the aforementioned negative factors, it believes there is a high probability of government support for Diamond Bank, in case of need, reflecting the bank’s designation as a Domestic Systemically Important Bank in Nigeria and its large retail client base of about 10 million clients.
“Diamond Bank’s Caa1 long term deposit and issuer ratings benefit from a two notch support uplift from the bank’s BCA of caa3,” it said.
It said the review on Diamond Bank’s Caa1 deposit ratings will focus on the lender’s ability to address its solvency and foreign currency challenges.
The rating agency said it will assess the likelihood of some of the lenders converting their convertible debt to equity, or the bank raising new capital externally through other means, including any possible takeover.
In addition, Moody’s said it will assess any financing structures and plans that Diamond Bank will put in place in order to boost its foreign currency liquidity, balanced against any deterioration of its foreign currency resources, including any foreign currency deposit outflows.
“During the review period, Moody’s will also monitor steps taken by the bank’s shareholders to strengthen corporate governance, including the potential for Diamond Bank to appoint non-executive and independent directors that will meet the Central Bank of Nigeria’s (CBN) approval,” it ended.
By Aduragbemi Omiyale
The Central Bank of Nigeria (CBN) has reaffirmed that the old and new Naira notes will continue to be used for financial transactions in the country beyond December 31, 2024.
There had been rumours that the old and redesigned N200, N500, and N1,000 banknotes would no longer be legal tender from Wednesday, January 1, 2025, because the central bank would phase out the notes in compliance with a Supreme Court judgement of November 29, 2023.
But the apex bank, in a statement signed by its acting Director of Corporate Communications, Mrs Hakama Ali, on Friday, clarified that the apex court’s judgement being cited did not authorise the bank to phase out the banknotes by the end of this year.
According to her, the court allowed the CBN to leave the old and new notes to be used concurrently until it decides to gradually phase out the former.
The central bank’s spokesperson urged members of the public to disregard claims suggesting the old series of these denominations would cease to be valid at the end of this year.
She urged them to continue to accept all Naira notes for daily transactions, encouraging banks to also adopt alternative payment methods such as electronic channels to reduce the pressure on physical cash usage.
“The Central Bank of Nigeria (CBN) has observed the misinformation regarding the validity of the old N1000, N500, and N200 banknotes currently in circulation.
“In line with the bank’s previous clarifications and to offer further assurance, the CBN wishes to reiterate that the subsisting Supreme Court ruling granted on November 29, 2023, permits the concurrent circulation of all versions of the N1000, N500, and N200 denominations of the Naira indefinitely.
“For the avoidance of doubt, all versions of the naira, including the old and new designs of N1000, N500, and N200 denominations, as well as the commemorative and previous designs of the N100 denomination, remain valid and continue to be legal tender without any deadlines,” the statement noted.
By Adedapo Adesanya
Access Bank Plc, the banking subsidiary of Access Holdings Plc, has entered into a binding agreement with South African-based Bidvest Group Limited for the acquisition of 100 per cent equity stake in Bidvest Bank Limited.
The deal for the 24-year-old South African lender is due to be completed in the second half of 2025, upon regulatory approval.
This shows Access Bank’s further expansion plans in line with goals set by its late founder, Mr Herbert Wigwe.
The agreement to acquire 100 percent stake in Bidvest Bank reflects Access Bank’s commitment to strengthening its footprint in South Africa and consolidating on its position as the continent’s gateway to global markets as it seeks to optimise the benefits of recent acquisitions and accelerate its transition towards a greater focus on efficiencies.
Bidvest Bank, founded in 2000 is a niche and profitable South African financial institution providing a diverse range of services, including corporate and business banking solutions and diverse retail banking products.
As of its year ended June 2024, Bidvest Bank reported total assets equivalent of $665million and audited profit before tax of $20million.
Upon conclusion of this acquisition, Bidvest Bank will be merged with the bank’s existing South African subsidiary to create an enlarged platform to anchor the regional growth strategy for the SADC region.
This is coming just as the bank opened a new branch in Malta as part of efforts to focus on international trade finance after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
The Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
By Modupe Gbadeyanka
To strengthen Europe-Africa trade ties, Access Bank has opened a new branch in Malta. It will focus on international trade finance, employing approximately 30 people in its initial phase, with plans for controlled expansion over time.
It was learned that this Maltese branch was established by Access Bank UK Limited, the subsidiary of Access Bank Plc, which is also the subsidiary of Access Holdings Plc, which is listed on the Nigerian Exchange (NGX) Limited.
Access Bank Malta Limited commenced operations after obtaining a banking licence from the European Central Bank (ECB) and the Malta Financial Services Authority (MFSA).
Access Bank said the licence marks a transformative milestone in bolstering Europe-Africa trade flows.
Malta, a renowned international financial centre, and a gateway between the two continents, is strategically positioned to play a pivotal role in advancing commerce and fostering economic partnerships.
This strategic expansion into Malta enables The Access Bank UK Limited to leverage growing trade opportunities between Europe and Africa.
It underscores the organisation’s commitment to driving global trade, financial integration, and supporting businesses across these regions.
“By establishing operations in Malta, we will gain a foothold in a market that bridges European and North African economies, moving us one step closer to our goal of becoming Africa’s Gateway to the World.
“It further enhances our bank’s capacity to support clients with innovative solutions tailored to cross-border trade and investment opportunities,” the chief executive of Access Bank, Mr Roosevelt Ogbonna, stated.
“Europe has emerged as Africa’s leading trading partner, driven by initiatives such as the Economic Partnership Agreements between the EU and African regions and the African Continental Free Trade Area (AfCFTA).
“With Europe-Africa economic relations entering a new phase, The Access Bank Malta Limited is ideally positioned to deepen trade and meet the financing and banking needs of our clients in these expanding markets,” the chief executive of Access Bank UK, Mr Jamie Simmonds, commented.
Also speaking, the chief executive of Access Bank Malta, Renald Theuma, said, “Malta is uniquely positioned as a bridge between Europe and Africa, making it an ideal location for our subsidiary. This move allows The Access Bank Malta Limited to engage more closely with customers in Europe and deliver tailored financial solutions that drive growth and connectivity across both continents.”
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