Shares of Diamond bank have gained as much as 30.7 percent in the last three days, as investors believe that the tier-two lender will be needing less regulatory-imposed capital than expected.
The Central Bank of Nigeria’s (CBN) approval for Diamond Bank to operate solely as a national bank means the lender’s capital adequacy ratio has reduced to 10 percent, from the 15 percent required of local banks with international operations.
Diamond Bank, which has a capital adequacy ratio of 16 percent, has suffered a sell-off in the past month by investors who feared the bank would be needing to raise cash to meet up with regulatory requirements.
“Investors that feared the worst are now breathing easy, knowing that the bank is no longer in desperate need to raise fresh capital,” said Wale Okunrinboye, head of research at Sigma Pensions, a local pension fund manager.
Shares of the Lagos-based bank climbed 8.97 percent to N0.85 per unit, Wednesday, as it followed up on two day gains of 9 percent each on Monday and Tuesday.
Some 15.1 million shares of the bank were traded Wednesday, the third highest volumes after First Bank and Access Bank.
“The share price rally could be sustained if the excess capital unlocked from the reduced adequacy ratio is used to clean up the bank’s balance sheet,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham.
“That may come at a cost to capital adequacy ratio but could prove a game changer,” Ibrahim added.
Yields on the bank’s $200 million Eurobond due 2019 also fell to 29 percent December 5, after hitting as high as 30 percent last Friday, according to FMDQ data.
A torrid month of November had seen the bank slapped with two credit downgrades in the space of one week by global ratings agencies Standard & Poor’s and Moody’s.
Chioma Afe, the Bank’s spokesperson, said “the recent approval of the bank’s National license by the Central bank has provoked positive reactions and feedback from both retail and corporate customers.
“It has shown the bank’s stability,” Afe said in a text message to Business Day.
The retail lender sold its West African operations about a year ago to focus on Nigeria, and is in the process of selling its U.K. unit, which Stanbic IBTC Stockbrokers estimates could fetch from $60 million to $70 million.
Diamond Bank’s dollar obligations next year also include a $51 million International Finance Corp. loan, according to Stanbic IBTC.
“Ultimately, if we get clarity on the financial close of the sale of the U.K. entity, we get more comfort in terms of understanding the road map for Diamond Bank to meet its important Eurobond obligation due in May next year,” Stanbic IBTC Stockbrokers said.
Diamond Bank said last week that it was confident it can meet its obligations, and was in talks with unnamed development finance institutions and multilateral agencies for dollar funding to help it meet the Eurobond repayment.
Diamond Bank is among small Nigerian lenders trying to recover from an economic contraction in 2016 and a decline in oil prices that caused bad loans to rise above the regulatory threshold.
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