S&P lowers Diamond Bank rating to ‘B-/C’ over reduced earnings, FX Risk

S&P Global Ratings has lowered its long- and short-term counterparty credit ratings on Diamond Bank PLC to ‘B-/C’ from ‘B/B’ and placed the long-term rating on CreditWatch with negative implications.
Similarly, it lowered its long- and short-term Nigeria national scale ratings on the bank to ‘ngBB/ngB’ from ‘ngBBB-/ngA-3’ and placed the long-term national scale rating on CreditWatch negative.
S&P said that at year-end 2015, Diamond reported a sharp 37% rise in nonperforming loans (NPLs) to 7.1%, and a 96% increase in the cost of risk to 6.7%, compared with a peers’ average of about 6.0% and 3.0%, respectively.
It said that these increases resulted in low profitability overall and demonstrated the sensitivity of the bank’s assets to the downturn in the economic cycle in Nigeria.
The rating agency said: “We think Diamond’s asset quality and earnings stability is vulnerable to further contraction in Nigeria’s economy over the next 12 months, especially given its balance sheet concentrations including a sizable sectoral concentration on oil and gas (31% of total loans and 12% of NPLs), most of which has been restructured over the past 12 months by extending the tenor of loans;
“Exposure to other cyclical sectors, such as general commerce, manufacturing, and real estate and construction, which together accounted for 40% of total loans and 62% of NPLs as of March 31, 2016; and Single-obligor and foreign currency lending concentrations, where the top-20 loans accounted for about 35% of total loans and one-half of the NPLs at year-end 2015; while approximately 50% of loans were denominated in foreign currency.”