2018 looked to be an annus horribilis (horrible year) for Diamond Bank, but it is slowly turning around.

The MTN fine

The bank was one of three lenders fined by the Central Bank of Nigeria (CBN) over certificates of capital importation issued to telecommunications giant, MTN Nigeria. While the fines are yet to be reversed, the apex bank has hinted that the saga is close to a settlement.

Mass resignation

Barely few weeks after this was a mass resignation of several non-executive directors. Mr Oluseyi Bickersteth, Mr Rotimi Oyekanmi, Mrs Juliet Anammah and Mrs Aisha Oyebode. While the bank had stated that resignation had been for personal reasons, several media reports had stated that the resignation was to pave way for the injection of funds into the bank.

Reports then broke out that the bank was one of three that the CBN had flagged for having low capital adequacy ratio. The bank has since denied that stating that it was far from a dire situation, with a Capital Adequacy Ratio of 16%, higher than the 15% it required.

The bank then debunked another set of claims that it had been in discussions with tier one lender Access Bank to acquire it. Access Bank also denied the rumours.

Share price has taken a beating

The bank’s share price has taken an unfair beating due to the various unfounded rumours and is currently trading at a 5 year low of N0.65, trading far lower than peers such as FCMB which is trading at N1.45 and Sterling Bank trading at N1.66

The storms may be over

The bank last week sent a notice to the Nigerian Stock Exchange (‘NSE’) and the General Public that Diamond Bank Plc (“The Bank”) has received the approval of the Central Bank of Nigeria (“CBN”) to its application to operate as a National Bank (subject to conclusion of sale of Diamond Bank UK “DBUK”). With this approval, the bank will cease to operate as an International Bank.

Implications of this

The conversion to a national bank would see Diamond bank closing the chapter on its oil and gas loan legacy. There would be thus no need for the bank to raise capital. This would also finally put to rest rumours of a planned capital injection and purported acquisition

The new IFRS guidelines allowing for improved provisioning of impaired loans will enable the bank to accommodate legacy loans and with lower CAR requirements for a National Bank, Diamond Bank will have more room to do more business in the new year.

Going Forward

At its current price, the bank is trading at 0.06 times book value, far lower than peers such as Sterling Bank which is trading at 0.4 times book value and FCMB which is trading at 0.1 times book value.

Year to date, the stock is down 56.57%, doing far worse than the NSE All Share Index which is down 19.27%.

We think the stock has been unfairly beaten and should witness a rebound in the short to immediate term.

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