DTB Outshines Four Other Banks With Best Financial Results

Of the four banks that have so far announced 1Q17 numbers, Diamond Trust Bank posted the best results with a 7 percent y/y rise in EPS to 5.92 shillings. Numbers were mainly boosted by a 28.4 percent y/y decline in loan loss provision.

Operating income before loan loss provision was down 3.3 percent y/y. Notably, regional performance was positive delivering 29.9 percent/y growth in PAT (28.8 percent contribution from 24.1 percent in 1Q16)
Positives that emerged from Diamond Trust Bank results were as follows:

1. Positive regional performance.Among listed banks, DTB retains the highest contributing regional units. Deposits grew 6.7 percent y/y (28.4 percent of total deposits) while loans shed 1.7 percent y/y (26.9 percent of total loans).  Net Interest Income (NII) and Non-Interest Revenue (NIR) were up 5.1 percent y/y and 2.0 percent y/y respectively. The positive regional contribution, aided mainly by the bank’s key shareholder, Agha Khan Fund for Economic Development (AKFED), continues to shield the bank from over-reliance on the Kenyan unit.
2. Non-Performing Loans (NPL) remained stable y/y at 3.5 percent.This was however up 30 bps q/q from 3.2 percent. There was slight weakness in the regional unit where NPLs grew 13.7 percentq/q. Regional NPL ticked up for the first time in 4 quarters to 3.5 percent. We positively note the slowdown in lending in the unit and therefore expect at worst, a maintained NPL level. Kenya NPL rose 7.7 percent q/q with NPL ratio closing at 3.5 percent from 2.7 percent in 1Q16. DTB has the lowest NPL ratio among listed banks as well as the highest coverage ratio. The 28.4 percent y/y decline in loan loss provision came as a surprise to us considering the bank has been keen on maintaining coverage levels at 90 percent. We expect to see more aggressive coverage going forward given the bank’s management has been consistently stable in strategy.
3. Non-Interest Revenue (NIR) up 8.3 percent y/y.This was on the back of a 7.5 percent y/y and 10.1 percent y/y growth in fees & commission income and FOREX income respectively. NIR to total income remained one of the lowest in the sector at 21.7 percent. We do not foresee the contribution rising significantly in the near term though we expect FOREX income growth to continue being sustained by the bank’s regional franchise.
4. Cost To Income (CTI) below industry average at 44.9 percent.Despite a 10.3 percent jump in total operating costs, the bank’s CTI was in line with historical average of 43 percent. Historically, DTB has retained above sector cost growth though managed below sector CTI. We do not expect to see significant erosion on CTI going forward given that the firm is on the tail end of its expansion strategy.