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S&P Downgrades Diamond Bank Ratings, Raises Alarm

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S&P Downgrades Diamond Bank Ratings, Raises Alarm

By Dipo Olowookere

The long and short-term issuer credit ratings on Nigeria-based Diamond Bank Plc have been lowered by S&P Global Ratings, Business Post has learnt.

A statement issued by the rating agency disclosed that the ratings were downgraded to ‘CCC+/C’ from ‘B-/B’, with the outlook negative.

In addition, S&P said it also lowered its issue rating on the bank’s senior unsecured debt to ‘CCC+’ from ‘B-‘, with the long and short-term Nigeria national scale ratings on the bank dropped to ‘ngBB-/ngB’ from ‘ngBBB-/ngA-3’.

According to the statement, the rating action reflects Diamond Bank’s dependence on favourable business, financial, and economic conditions to meet its financial obligations.

“We believe that Diamond Bank will have to set aside higher provisions than we initially expected, following the adoption of International Financial Reporting Standard No. 9 (IFRS 9), which implies weaker asset quality than we expected and exerts significant pressure on the bank’s capitalization.

“Following Diamond Bank’s successful disposal of its West African subsidiaries, and imminent disposal of its UK subsidiary, we expect it will convert its license into a national banking license. The license conversion would mean a lower minimum capital adequacy ratio (10 percent versus 15 percent currently) and lower risk of breach.

“However, the timing is uncertain, and we consider that there is significant pressure on its capital position.

“Moreover, four of the bank’s 13 board members have resigned recently, which could create instability if left unresolved in the near term,” the statement said.

It was disclosed that as of December 31, 2017, the bank’s regulatory capital adequacy ratio reached 16.7 percent, dropping to 16.3 percent in September 30, 2018, on the back of IFRS 9 implementation and amortization of tier-2 capital instruments.

The initial implementation of IFRS 9 resulted in the bank taking N2.5 billion deduction from retained earnings at June 30, 2018.

S&P said it believes Diamond Bank will have to take higher provisions for IFRS 9, using the N31 billion of regulatory risk reserves that it holds under the local prudential guidelines.

“Based on peers’ experience and the bank’s weak asset-quality indicators, we estimate the impact will significantly exceed the regulatory risk reserves and estimate that our risk-adjusted capital (RAC) ratio will reach 3.4 percent to 3.9 percent in the next 12-24 months compared with 5.3 percent at year-end 2017.

“The impact will be somewhat tempered by the capital gain when the sale of the bank’s UK subsidiary is finalized. We expect the bank’s credit losses to average 5 percent over the same period, while nonperforming loans (NPLs; including impaired loans and loans more than 90 days overdue but not impaired) will remain above 35 percent in the next 12 to 24 months after reaching 40 percent at September 30, 2018.

“Overall, we think the bank will display losses in the next 12 to 24 months. In May 2019, Diamond Bank will have to repay its maturing Eurobond principal of $200 million. The bank plans to use its foreign-currency liquidity and the proceeds from the sale of its UK subsidiary for the repayment, among other sources.

“Any delays or unexpected developments could exert downward pressure on the ratings.

“Following the recent resignation of board members, the bank could face some outflows of deposits, but the granularity of its deposit base and its historically good retail franchise are mitigating factors,” the agency said.

It explained that the negative outlook reflects the pressure on the bank’s capitalization from weaker-than-expected asset-quality indicators, and on its foreign-currency liquidity due to a large upcoming maturity in May 2019.

“We could lower the ratings if provisioning needs proves higher than what we currently expect, leading to a decline in capitalization as measured by our RAC ratio (below 3 percent) or a breach in the local regulatory requirements.

“We could also lower the rating if the bank is unable to secure sufficient foreign-currency funding for the repayment of its Eurobond. When the latter is repaid, we may revise the outlook to stable if the banks’ asset quality and capitalization improves, and the make-up of its board stabilizes,” the statement said.

Business Post reports that shares of Diamond Bank rose by 3 kobo or 2.54 percent at the local stock market at the close of business on Wednesday.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via dipo.olowookere@businesspost.ng

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Banking

Oyo Catholic Diocese Gets Licence to Operate Microfinance Bank

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Microfinance Banks

By Adedapo Adesanya

The Catholic Diocese of Oyo State has obtained a licence in principle from the Central Bank of Nigeria (CBN) to operate Ave Maria Microfinance Bank and provide financial services to about 1.5 million residents in the Iwajowa Local Government and the entire Oke Ogun area of the state.

The diocesan coordinator of the Justice, Development and Peace Movement (JDPM), Rev Fr. Gabriel Adeleke, said the financial institution will allow individuals and businesses to have access to affordable financial products and services that meet their needs in a responsible and sustainable way.

The non-existence of commercial banks in the Iwajowa Local Government had denied the people the right to pursue their dreams to the full because they were excluded from the formal financial sector. This lack of access to financial tools impacts the socioeconomic mobility of the population.

The Oyo Catholic Diocese explained that it came up with an idea to float a microfinance bank that can give people in the Oke Ogun area access to basic financial services such as formal bank accounts, insurance, transaction services, loans, and other permissible services.

Fr. Adeleke expressed delight with the reception of the Approval in Principle license from the central bank.

He disclosed that the proposed bank will bring a series of impactful interventions in the lives of the people in Iwajowa Local Government area and of the Oyo Diocese at large irrespective of religion, race, or gender.

According to him, the services the people will enjoy from the proposed bank include deposits including savings, time, target and demand from individuals, groups, and associations; except public sector deposits; provision of credit to its customers, including formal and informal self-help groups, individuals, and associations; as well as the promotion and monitoring of loan usage among its customers by providing ancillary capacity building in areas such as record keeping and small business management.

Others are the issuance of redeemable debentures to interested parties to raise funds from members of the public with the prior approval of the CBN; collection of money or proceeds of banking instruments on behalf of its customers including clearing of cheques through correspondent banks; agency services for the provision of mobile banking and micro-insurance services to its clients; and provision of payment services such as salary, gratuity, pension for employees of the various tiers of government.

It will also provide loan disbursement services for the delivery of the credit programme of government, agencies, groups, and individuals for poverty alleviation on a non-recourse basis.

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Banking

Afreximbank, APPO to Establish African Energy Bank

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Special Energy Bank

By Adedapo Adesanya

A Memorandum of Understanding (MoU) for the establishment of a multi-billion dollar African energy bank has been signed between the African Export-Import Bank (Afreximbank) and the African Petroleum Producers Organization (APPO).

The institution will scale up private sector investment in African oil and gas projects and will not be a substitute for private investment but serve as a catalyst for Africa-directed investment.

As per terms of the MoU, the bank will provide critical financing for new and existing oil and gas projects, as well as energy developments across the entire value chain.

This will help strengthen the continent’s energy sector which has been further weakened by international oil company divestment and the shift in global investment trends.

The MoU was signed by Mr Rene Awambeng, Director & Global Head, Client Relations, Afreximbank, and Mr Omar Farouk, Secretary General of APPO, in the presence of Mr João Lourenço, President of the Republic of Angola, APPO Ministers and Mr NJ Ayuk, African Energy Chamber (AEC) Executive Chairman.

The proposed African Energy Bank will operate in the same way as the APPO-created Africa Energy Investment Corporation – a developmental financial institution created to channel resources towards the development of Africa’s energy sector.

“The African Energy Chamber has been pushing for the creation of an African Energy Bank, one that is African-based and Africa-focused, and I am proud to announce that the Afreximbank and APPO have taken the first steps towards its creation.

“The bank will be critical for Africa’s energy sector, serving as a catalyst – not a substitute – for private investment in African energy. This is a practical strategy for prosperity and a pragmatic vision that must be embraced by all who want to make energy poverty history and fight climate change.

“Why should our pension funds go to European banks who say they will not finance Africans and call us risky? We need to use that money to finance oil and gas,” Mr Ayuk said.

Based in Africa, the bank will operate as an independent entity, regulated and led by experienced professionals that know and understand Africa’s energy needs.

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Banking

NowNow Unveils New Features to Boost Contactless Payments

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NowNow

By Adedapo Adesanya

A leading African fintech startup, NowNow Digital Systems Limited, has launched a first of its kind fully integrated near field communication (NFC) enabled wallet which allows complete contactless payments on the platform.

This new function provides fast, easy, and safe cashless payments for NowNow customers using android smartphones, automated teller machine (ATM) cards, and point of sale (POS) devices.

The most innovative feature of this technology turns smartphones into digital point of sale terminals for micro to small-sized businesses including individuals, agents, and merchants.

With the NFC integration on NowNow wallets, the company’s new Tap & Pay and SoftPOS features enable the acceptance and performance of seamless contactless transactions without the need for any additional hardware.

The Tap & Pay feature allows wallet to wallet transactions on NowNow, while the SoftPOS feature allows ATM card to wallet and wallet to POS transactions.

Speaking on the new NFC wallet integration, Mr Mahesh Nair, Co-Founder and Chief Operating Officer, NowNow Digital Services, expressed excitement at the feat and affirmed that the new feature highlights NowNow’s commitment to enabling seamless financial services in Nigeria.

“We are excited to be the first fintech wallet in Nigeria to launch a fully integrated NFC wallet for our users that enables them to perform contactless payments. The Tap & Pay and SoftPOS solutions represent our dedication to providing seamless digital payments in Nigeria.

“As a leading fintech, it is important for us to provide services that promote financial inclusion. Today, our customers, agents, and merchants can make smooth contactless payments on our platform. Using the feature is easy with no hardware or maintenance required coupled with a simple onboarding process,” he said.

The new NowNow NFC enabled Tap & Pay and SoftPOS solutions provide customer-to-customer (C2C) and customer-to-business (C2B) services, including agent-to-customer offerings.

These options enable NowNow merchants and individuals to use payment solutions that are secure and easy to set up.

NowNow’s mission is to deliver best-in-class financial services having built an ecosystem for seamless digitized payments for customers.

The NFC integration on NowNow wallets will further enhance NowNow’s existing services for consumer banking, agency banking, and merchant payment, driving financial empowerment and inclusion for micro to small businesses and individuals alike.

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