The third quarter result of Diamond Bank Plc recently released at the floor of the Nigerian Stock Exchange has revealed a negative trend which may have impacted on market hearsay and unfavorable market reactions.
The bank’s Q3 2016 results for the period ended September 30th 2016 published by the Nigerian Stock Exchange (NSE) showed that PBT of –N6.6bn , against a profit of N4.4billion in the comparable period of 2015, the bank reported a PBT of N3.8 billon in Q2 2016.
Loan loss provisions grew by 230 per cent y/y and by over 100 per cent q/q to N21billion. This single result overshadowed a 17 per cent y/y growth in profit before provisions of N40billion.
However, of the two revenue lines, net interest income grew 7 per cent to N28 billion while non-interest income grew much faster, by 51 per cent y/y to N11bn. The non-interest income result was weaker than expected, despite the strong growth delivered Q2; the q/q change in Q3 was a -10 per cent decline.
Though the opex grew 8 per cent y/y and surprised negatively, the impact was significantly subdued compared with loan loss provisions 230 per cent.
FBNQuest posted result release comment noted that the provisions line will be the sole focus of the market as far as these results are concerned. Diamond had guided to a cost of risk estimate of around 5 per cent for the year. “It is likely to breach that figure now since the 9M figure equates to a full year 5 per cent cost of risk figure will imply, unless the bank is able to find recoveries in Q4. We do not expect the market to give the bank the benefit of the doubt on this point, given the challenging operating environment” the analysts company pointed.
Though reactions following release of the result noted due to the impact of challenging times on financial institutions, investors may begin to avoid tier 2 banks and focus on tier I banks many of which are currently undervalued. “. Although the shares are trading at a year’s low, we would expect them to sell-off more on the back of these results” further compounding the -53 per cent ytd loss against -5 per cent ASI y/the analyst’s report noted. Meanwhile, the bank’s broader performance is relatively healthy and should provide some offset.
While hinting that the fourth quarter of the bank may further spring surprise on loan loss provisions, higher operating expenses and foreign exchange related pressure, market may react negatively to the result and my trigger run on the bank’s shares, a capital market analysts noted.