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DIAMOND BANK PLC 9M'17 Earnings - Weak Q3 weighs on earnings as PAT misses estimate

Weak Q3 weighs on earnings as PAT misses estimate                                                                   

DIAMONDBNK released its 9M’17 results, showing a weaker than expected earnings trend. Earnings had earlier shown signs of recovery in Q1’17 and Q2’17 following a tough operating environment in FY’16. However, Q3’17 came in tougher than expected with the bank reporting a ₦3.4 billion loss for the quarter. Whilst loan loss provision remained the main sore point for earnings within the quarter (up 54% q/q to ₦15.0 billion vs our ₦11.3 billion estimate), Interest and Non-Interest Income were also less convincing. Higher than expected provisioning aside, Interest Expense continued to race north (in line with industry trend), up 46% y/y and 4% above our estimate – putting pressure on earnings. Overall, PAT rose 68% y/y to ₦5.9 billion, albeit 56% behind our estimate.                                                                        

With Q3’17 performance coming in significantly lower than we had estimated, we cut our estimates across most line items to reflect the miss. Although our Gross Earnings estimate is little changed at ₦222 billion, we revise the respective contributions of Interest and Non-Interest Income to reflect the weaker fees & commission and FX trading income. Also, we raise our Interest Expense forecast to ₦56.3 billion (Previous: ₦54.2 billion) to reflect the high interest rate environment. Furthermore, our loan loss provision is raised to ₦48.1 billion (Previous: ₦42.2 billion). Overall, we cut our PAT estimate forecast to ₦9.9 billion (Previous: ₦17.8 billion).