Diamond Bank Nigeria to Curb Loan Growth on Naira SlumpEmele Onu and Boason Omofaye
Diamond Bank Plc, a Nigerian lender, plans to slow lending growth as companies in Africa’s largest economy face an increased risk to earnings from a slump in the naira, Chief Executive Officer Uzoma Dozie said.
The bank, which operates in four other West African nations, plans to cut loan growth to 10 percent this year from 20 percent in 2014 as “the market is very bearish,” Dozie said during an interview Tuesday in Lagos, the commercial capital. “There is increasing business risk.”
The naira has come under pressure, losing about 4.5 percent of its value against the dollar this year, because of declining crude prices, which fell by almost half in 2014. Africa’s largest oil producer relies on crude exports for 95 percent of its foreign exchange and 70 percent of government income. The currency was 0.8 percent weaker at 193.65 per dollar by 11:20 a.m. in Lagos.
“The bank is being conservative by its decisions which is good,” Mike Nwanolue, an analyst at Lagos-based brokerage Greenwich Trust Group Ltd. said by phone. “They will protect its capital and reduce exposure to non-performing loans. They’re the kind of decisions that investors will expect from a bank at this time.”
Some companies plan their cash flows well in advance and they can’t easily adjust to currency fluctuations, Dozie said. Exchange-rate volatility and difficulty in accessing dollars have resulted in “companies that are profitable, becoming less profitable and those that are marginal now suffering,” he said.
Diamond Bank increased customer loans by 18 percent to 689 billion naira ($3.6 billion) in 2013, according to a statement published on its website. It seeks a gain of 30 percent this year, Chief Financial Officer Abdulrahman Yinusa said in April. The bank will target small- and medium-sized businesses, manufacturing companies, and the agriculture and energy industries for funding this year, Dozie said.
Diamond Bank dropped 0.3 percent to 4 naira as of 11:19 a.m. in Lagos, after rising as much as 5 percent earlier. The stock has declined 28 percent this year, the worst performer on the Nigerian Stock Exchange All-Share Index.
The Abuja-based Central Bank of Nigeria devalued the naira in November, raised the benchmark interest rate to a record 13 percent and banned the use of dollars purchased at its twice-weekly auctions for the import of items such as electronics, telecommunication equipment and generators.
Governor Godwin Emefiele said last week that the central bank may halt the sale of dollars to companies importing the types of goods that are already locally manufactured.
The central bank’s commitment to defend the naira is blunting the impact of currency volatility for businesses, Dozie said. The lender, which has about 45 percent of its loan book in foreign currencies, is this year targeting non-performing loans at less than 5 percent of their holdings, he said.
The bank also operates in Benin, Togo, Senegal and Ivory Coast and has a presence in London, according to its website.
Oil has gained about 20 percent from a six-year low reached in January to trade at $54.87 a barrel on Thursday in London.
(An earlier version of this story was corrected because it had the wrong share price.)
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