BASED on the performance of Diamond Bank Plc in its first quarter result, Renaissance Capital has reiterated a positive outlook projection for the financial institution in 2012.According to the analysts, the Diamond Bank N4.58 billion profit after tax for the first quarter translates to 53 per cent of its full year 2012 forecast.From a valuation perspective, Renaissance Capital in its report titled 'Diamond Bank: Looking to make profit in FY 2012', explained that the bank remains attractive.Making reference to the bank's recently reported full year 2011 and first quarter 2012 results, the analysts said: 'As we expected, the bank reported a full year 2011 loss.'However, the loss after tax of N11.3 billion was better than our forecast of a N15.7billion. First quarter 2012 results showed profit after tax of N4.9billion.'Full year 2011 gross loan grew 20 per cent year-on-year, but adjusting for Asset Management Corporation of Nigeria (AMCON) loan sales during the year of N67 billion. The bank delivered robust underlying credit growth of 40 per cent year-on-year on our numbers.'The deposit book was up 46 per cent with a positive bias towards demand deposit which increases 69 per cent.'The analysts argued that the Non Performing Loans (NPL) has improved marginally from 9.6 per cent as at December 2011 to 8.2 per cent as at first quarter 2012.The analysts also notes that the coverage ratio improved from 54 per cent at full year 2011 to 75 per cent as at first quarter 2012, adding that management guidance suggests a coverage ratio of more than 80 per cent by the end of the year. 'We believe this will align Diamond Bank more closely with its peers'.Diamond Bank's loan book grew in full year 2011. On a reported basis, gross loans were up 20 per cent to N409billion and net loans up 26 per cent to N388billion.Renaissance Capitalrecalled that the bank sold a total N48billion and net loans up 26 per cent to N388billion. 'We note the bank sold a total of N48billion of Non Performing Loans (NPLs) to AMCON and a furtherN19billion of performing assets.'If we account for this N67 billion, the underlying rate of growth in the loan book rises to 40 per cent. This is well ahead of most of its peers.'The loan book remains heavily weighed to General Commerce (25 per cent), Oil and Gas (19 per cent and manufacturing (12 per cent).'However, of concern to us is the contribution of NPLs by the two top sectors. General Commerce accounts for 35 per cent of NPLs, up from 27 per cent in FY 2010. We are concerned that Diamond Bank may not have the right risk assessment tools to lend profitability in these two sectors.'Wethink this year will be important in demonstrating the improved quality of these books and we do not believe investors can simply give management the benefit the benefit of the doubt until there is tangible proof of an improvement.'Great strives were made in growing the deposit book and changing the deposit mix. The book grew 46 per cent to N602 billion. Of this N602 billion, 57 per cent is now made up of demand deposits, up from 49 per cent in full year 2010.'The more expensive time deposit grew at a slower pace of 20 per cent and now account for 22 per cent, down from 27 per cent in F Y 2010. The balance of deposits is in savings.The management of the bank, recently, explained that its repositioning drive and the conclusion of its balance sheet clean-up has started yielding profitable results.The Group Managing Director of the Bank, Dr. Alex Otti, explained that the first quarter results indicates that the Bank is on track towards making significant improvement in its returns-on-investment and profit-before-tax in 2012.While profit before tax increased by 316.7 per centfrom N1.8 billion in March 2011 to N7.5 billion in March 2012, net interest income increased by 47.2 per cent from N12.3 billion in March 2011 to N18.1 billion in March 2012.The bank also recorded a 51.2 per centincrease in gross earnings from N20.3 billion in March 2011 to N30.7billion in March 2012.Otti said: 'We have shown that our industry leading net interest margin is sustainable, and that our operating efficiency is robust and yielding strong operating performance.'With our balance sheet clean-up now completed, our cost of risk is returning to acceptable levels allowing for our operating performance to trickle down to the bottom-line and translate into a return to profitability as demonstrated by our significant rise in year on year profit-before-tax at the end of the first quarter.
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