Diamond Bank solvency crisis deepens as Moody downgrade status

https://nationaldailyng.com/wp-content/uploads/2019/03/966-Babe-320x100.gif

 

While the Central Bank of Nigeria (CBN) is yet to make a clear statement on the true solvency status of Diamond Bank, recent downgrade of its baseline credit assessment by Moody’s Investors Service suggests the crisis is deepening.

The foremost rating agency recently downgraded Diamond Bank’s baseline credit assessment (BCA) to Caa3 from Caa1, a move industry experts said portend danger for the bank’s capital adequacy ratio.

The downgrade reflects Diamond Bank’s weak solvency that is characterised by low provisions set aside for its high level of non-performing loans (NPLs) that outsize its tangible common equity (TCE).

In Moody’s view, the bank will face a further deterioration of its solvency that will likely undermine investor confidence and make foreign currency funding increasingly costly and difficult to access.

Moody’s said its previous assignment of a positive outlook on Diamond Bank’s deposit ratings in June 2018 had been based on expectations of substantial NPL reduction in the following 12 months; however, Moody’s said it now expects NPLs and provisioning needs to remain high.

A second driver for the downgrade is the weakened corporate governance of the bank, following the recent unexpected departure of the bank’s chairman and three members of the board of directors.

This development reveals tensions that the rating agency expects will delay the resolution of the bank’s large portfolio of NPLs and could potentially undermine investor confidence in the ability of the bank’s management to turn around Diamond Bank’s financial performance.

The third is also related factor for the downgrade is Diamond Bank’s vulnerable foreign currency funding profile. The rating agency views the risk that the weak solvency and corporate governance tension may erode customer and depositor confidence, further impairing the bank’s financial performance and negatively affecting Diamond Bank’s funding profile.

Explaining more on the downgrading of the ratings, Moody’s averred that “The primary driver for the two-notch downgrade of Diamond Bank’s BCA to caa3 is Moody’s view that the lack of progress in resolving NPLs adds pressure on its already weak solvency profile.”

Diamond Bank’s NPLs ratio stood at about 40 percent of gross loans as of September 2018 from 42 percent at year-end 2017, and only about 20 percent of the NPL stock is covered by provisions.

 

NO COMMENTS

LEAVE A REPLY