Banking
Fitch Downgrades Diamond Bank over Solvency, Liquidity Risks
By Dipo Olowookere
Fitch Ratings has announced downgrading the Long-Term Issuer Default Rating (IDR) of Nigeria’s Diamond Bank Plc to ‘CCC’ from ‘B-‘.
In a statement on Friday, Fitch said it has also lowered the bank’s Short-Term IDR to ‘C’ from ‘B’ as well as the National Long-Term Rating, which was dropped to ‘B(nga)’ from ‘BB+(nga)’.
The rating agency said the two-notch downgrade of Diamond Bank’s Long-Term IDR reflects uncertainty over its solvency and liquidity in view of very weak asset quality, highly vulnerable capital position as well as tight foreign currency (FC) liquidity ahead of an upcoming maturing $200 million Eurobond in May 2019.
The bank has some contingency plans, such as the sale of its UK subsidiary, but execution may be challenging, especially considering the recent resignation of four board members, it said.
In a statement, Fitch said Diamond Bank’s IDRs are driven by its standalone credit profile, as defined by its Viability Rating (VR).
It noted that the lender’s VR is highly influenced by very weak asset quality, which renders its capital position highly vulnerable to any further deterioration, with the VR also reflecting limited FC liquidity.
In the statement, Fitch said Stage 3 loans under IFRS 9, including past due not impaired, which better captures asset quality in our view, accounted for a very large of 37 percent of gross loans at end-1H18, compared with a reported impaired loans ratio (under IAS39) of 13 percent for the same period.
Diamond Bank’s stage 2 loans were a further 23 percent of gross loans, mostly comprising restructured loans. Diamond Bank has the highest share of problem loans (total stage 2 and stage 3 loans as a proportion of gross loans) among Nigerian rated banks, it said, adding that loan loss allowance cover is very low at 19 percent of stage 3 loans.
“We view Diamond Bank’s capital buffers as limited, given very weak asset quality, despite a relatively high Fitch Core Capital (FCC) ratio of 17.5 percent at end-1H18.
“In our view capital remains highly vulnerable given the bank’s low loan loss allowances. Higher reserve coverage would erode considerably the bank’s capital base. Unreserved stage 3 loans were 110 percent of FCC at end-1H18,” the statement said.
Diamond Bank has a small buffer over its 15 percent regulatory total capital adequacy ratio requirement (Total CAR at 16.3 percent at end-9M18).
Fitch said it understands that Diamond Bank has received the approval from the Central Bank of Nigeria (CBN) to obtain a national banking licence, and therefore lower its minimum total capital requirements to 10 percent. However, it stressed that this is subject to the completion of the sale of the UK subsidiary.
Diamond Bank’s FC liquidity improved in 2017, in line with easing FC liquidity conditions in Nigeria. However, FC liquidity remains tight, as Diamond Bank’s FC loans/customer deposits ratio reached 180 percent at end-1H18.
The bank has a number of large bullet repayments due in the short term, including its $200 million Eurobond maturing in May 2019, $100 million from Afrexim due in March 2019, and $70 million from the International Finance Corporation due in July 2019. The bank had about $300 million of liquid assets held as unrestricted cash and cash equivalents and loans to foreign banks at end-1H18.
“We understand that the bank aims to negotiate the refinancing of international financial institution funding, while the improved cash flows from the oil loan book and the disposal of its subsidiary in the UK will be the main contributors to redeeming the Eurobond.
“However, the refinancing has not yet been agreed, while subsidiary disposal has yet to be approved by the Prudential Regulation Authority in the UK and cash flows from the troubled oil sector are uncertain.
“Therefore we see significant execution risk with this plan. Although FC supply has improved, we do not expect Diamond Bank to be able to swap significant volumes of local currency to repay foreign currency obligations,” Fitch said.
Fitch also noted that Diamond Bank’s Long-Term IDR also considers governance shortfalls following the resignation of four members of the board in October 2018, including the chairman (only appointed in 2018) and three non-executive directors, raising questions around effective oversight and ongoing operational capability of the bank. It may also create difficulties in refinancing its obligations with existing lenders.
It said Diamond Bank’s National Ratings reflect its creditworthiness relative to the country’s best credit and relative to peers operating in Nigeria. The Long-term National Rating has been downgraded by several notches due to its weaker credit profile.
“Diamond Bank’s senior unsecured debt has been downgraded to ‘CCC’/’RR4’, reflecting our assessment that average recoveries are a plausible outcome for senior bondholders in the event of a default, albeit this is sensitive to changes in assumptions,” the statement said.
Furthermore, it said Diamond Bank’s Support Rating (SR) and Support Rating Floor (SRF) reflect uncertainty over the ability of the authorities to support banks, particularly in FC.
In addition, there are no clear messages from the authorities regarding their willingness to support the banking system.
“Our view is that senior creditors cannot rely on receiving full and timely extraordinary support from the authorities should a bank become non-viable. Therefore, the SRF of all Nigerian banks is ‘No Floor’ and all Support Ratings are ‘5’,” the statement added.
Diamond Bank’s IDRs are sensitive to any change in its VR. The VR is sensitive to further weakening of precarious asset quality, including a migration of Stage 2 loans to Stage 3 and from further reserving shortfalls of Stage 3 loans, eroding capital.
The VR is also sensitive to any increase in the probability for being able to meet FC obligations. The VR is also sensitive to continuing governance weaknesses stemming from the resignation of four directors, it stated. Fitch said rating upside is unlikely in the short term given the bank’s very fragile financial position. An upgrade of the bank’s VR may result from reduced execution risk in meeting FC obligations or a structural shift in capitalisation, increasing Diamond’s ability to build loan loss allowances, adding that the bank’s National Ratings are sensitive to a change in its creditworthiness relative to other Nigerian issuers.
By Adedapo Adesanya
Guaranty Trust Holding Company (GTCO) Plc recently completed the raising of N209 billion out of its targeted N400.5 billion public offer in the ongoing recapitalisation efforts directed by the Central Bank of Nigeria (CBN) to create resilient banks amid rising external shocks in the global environment.
Speaking on this development, the chief executive of the firm, Mr Segun Agbaje, said the equity capital raising has set a strong foundation for accelerated development.
“We extend our sincere appreciation to our new and existing shareholders, as well as the regulatory authorities, for their unwavering support during this initial phase of our equity capital raise.
“The strong participation and successful capital verification exercise and allotment process reaffirm the confidence investors have in our fundamentals and execution capabilities.
“This sets a solid foundation for accelerating our strategic roadmap, which aims to pivot the Group for transformational growth and unlock greater value across the Group’s Banking and Non-Banking businesses,” the banker stated.
GTCO had launched a public offer of 9.0 billion ordinary shares of 50 Kobo each at N44.5 per share, with N209.41 billion realized, representing 52.3 per cent of the total offer size.
The offer garnered substantial interest from domestic retail investors, raised a total of N209.41 billion from 130,617 valid applications for 4.706 billion ordinary shares, fully allotted.
“This milestone concludes the first phase of GTCO’s phased equity capital raise programme, which is structured on a balanced allocation strategy based on an equal split between institutional and retail investors. This balanced approach aligns with GTCO Plc’s commitment to fostering a well-diversified and robust investor base,” GTCO stated.
The announcement followed completion of the capital verification exercise conducted by the CBN and the approval of the basis of allotment of the offer by the Securities and Exchange Commission (SEC).
By Modupe Gbadeyanka
No fewer than 30 pregnant women at the Mushin Primary Health Centre in Lagos have received maternity kits from Fidelity Bank Plc.
The gesture from the financial institution is part of its efforts to support improved maternal health in the metropolis.
It was gathered that the items were given to the beneficiaries through the Fidelity Helping Hands Programme (FHHP), a Corporate Social Responsibility (CSR) initiative of the lender aimed at promoting staff involvement in community development under the Great Minds Inductees Class.
“The project was borne out of the need to support pregnant women by providing them with essential materials for a safe delivery,” the Divisional Head for Brand and Communications Division at Fidelity Bank, Mr Meksley Nwagboh, explained.
“Maternal mortality remains a significant public health challenge in Nigeria, with the country accounting for a substantial proportion of global maternal deaths.
“In fact, a 2023 United Nations report indicate that nearly 28.5% of global maternal deaths occur in Nigeria.
“This is an alarming statistic and as a bank given to improving the welfare of our host communities, we deemed it fit to support initiatives to address this challenge in the Mushin community with this donation,” he stated.
One of the beneficiaries, Mrs Mary Olusanya, expressed her heartfelt appreciation for the bank’s support.
“I appreciate Fidelity Bank for helping us. Many pregnant women cannot afford these kits, but this donation ensures that we can have safe deliveries and better healthcare,” she said.
The Medical and Health Officer for Mushin Local Government Area, Dr Kayode Odufuwa, said, “This intervention by Fidelity Bank will help reduce maternal mortality and encourage more women from less-privileged backgrounds to register for antenatal care.”
“On behalf of the Chairman of Mushin LGA, Mr Emmanuel Bamgboye, we want to express our heartfelt gratitude to Fidelity Bank for extending its donation of maternity kits to pregnant women at this centre.
“We appeal for continued collaboration with the Bank to further strengthen healthcare services within the area,” he stated.
On her part, the Apex Nurse and Deputy Director of Nursing Services in Mushin LGA, Mrs Bolanle Odunlami, said, “The donation is a much-needed relief for many mothers who are unable to afford essential delivery kits. Fidelity Bank has truly shown empathy by coming to the aid of our patients, and for that, we are extremely grateful.”
Business Post reports that through the FHHP, employees of the bank identify projects that benefit their immediate community and gather funds to implement them.
The bank’s management then matches this contribution with an equivalent amount and allocates it for the chosen projects.
By Aduragbemi Omiyale
The management of First Bank of Nigeria (FBN) Holdings Plc has assured that the boardroom crisis rocking the company would not affect its operations.
Recall that a group of shareholders with 10 per cent equity stake in the financial institution asked for an Extra-ordinary General Meeting (EGM) under section 215 (1) of CAMA for the removal of the chairman of the board, Mr Femi Otedola, and a non-executive/deputy chief executive of Geregu Power Plc, Mr Julius Omodayo-Owotuga.
They argued that Mr Otedola, who owns Geregu Power, was plotting full control of FBN Holdings by planting his loyalists on the board.
The aggrieved shareholders pointed out that the businessman was planning to take charge of the proposed private placement of N360 billion shares of the firm, accusing him of removing those he felt were blocking his way.
To calm nerves, FBN Holdings issued a statement on Thursday, informing its stakeholders that the crisis does not pose a threat to its services.
“This matter does not in any way impact the operations of the company, and all the businesses within the Group continue to provide uninterrupted services to its customers.
“We assure our valued customers, shareholders, investors, other stakeholders and the general public that we are taking all necessary steps to protect the interests of the company and its subsidiaries.
“The Group’s performance continues to improve, resulting in a higher market capitalisation even as we work towards surpassing the regulatory minimum capital well ahead of the deadline.
“In the meantime, the Registrar and Lead Issuing House are collating the returns from all receiving agents in respect of the company’s rights issue which closed on December 30, 2024.
“FBN Holdings and its subsidiaries remain committed to the highest level of corporate governance,” the notice signed by its scribe, Mr Adewale Arogundade, said.
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