Diamond Trust Bank FY’2016 Results: EPS increased by 16.6% to Ksh.28.9 per share from Ksh.24.8
DTB released their FY’2016 earnings, recording an increase in core earnings per share (EPS) by 16.6 percent to Ksh.28.9 per share from Ksh.24.8 per share in FY’2015. This was due to a 22.6 percent increase in operating revenue despite a 30.1 percent increase in operating expenses.
Key points to note include:
- Operating revenue increased by 22.6 percent to Ksh.24.4 billion from Ksh.19.9 billion in FY’2015. This was driven by Net Interest Income that rose 27.4 percent to Ksh.19.4 billion from Ksh.15.2 billion in FY’2015, following a 30.8 percent growth in Interest Income despite Interest Expense increasing by 35.7 percent.
- Despite Interest Expense outpacing Interest Income, the Net Interest Margin increased to 7.4 percent from 7.2 percent in FY’2015 as the Net Interest Income growth of 27.4 percent was faster than the growth of average interest earning assets of 22.2 percent to Ksh.286.7 billion from Ksh.234.6 billion in FY’2015.
- Non-Funded income increased by 7.3 percent to Ksh.5.1 billion from Ksh.4.7 billion in FY’2015. This was driven by an increase in other fees and commission by 12 percent to Ksh.2 billion from Ksh.1.8 billion in FY’2015. This takes the revenue mix to 79:21, Funded: Non-Funded from 76:24, previously.
- Operating expenses increased by 30.1 percent, driven by a 96 percent increase in Loan Loss Provisions (LLP) to Ksh.4.3 billion from Ksh.2.2 billion in FY’2015. This increase in LLP was due to the increase in Non-Performing Loans (NPLs) evidenced by the NPL ratio increasing to 3.9 percent from 2.7 percent in FY’2015. Staff costs increased slightly by 2.9 percent to Ksh.3.4 billion from Ksh.3.3 billion in FY’2015.
- The Cost to Income ratio deteriorated to 55.1 percent from 52 percent in FY’2015. Without LLP, the CIR improved to 37.6 percent from 41 percent in FY’2015.
- Total assets increased by 20.8 percent to Ksh.328 billion from Ksh.271.6 billion, driven by a 97.1 percent increase in Government securities holdings to Ksh.92.8 billion from Ksh.47.1 billion in FY’2015. This is mainly due to the interest rate caps that have prompted banks to prefer lending to the government.
- Loans increased by 4.9 percent to Ksh.186.3 billion from Ksh.177.5 billion in FY’2015. Total liabilities increased by 20.9 percent to Ksh.282.2 billion from Ksh.233.3 billion in FY’2015, driven by a 22.7 percent increase in deposits to Ksh.238.1 billion from Ksh.194.1 billion. The high increase in deposits could be attributed to the fact that DTB was among the payout agents for Imperial Bank’s depositors. The deposit growth outpacing loan growth is good for the bank as this improves their capital position as they have more capital vs risk assets. This is evidenced by their Tier 2 ratio improving to 16.2 percent from 14.8 percent in FY’2015.
- Given that deposit growth outpaced loan growth, the Loan to Deposit ratio declined to 78.2 percent from 91.5 percent in FY’2015.
- The bank recommended payment of a final dividend of Ksh.2.6 per share translating into a dividend yield of 1.8 percent.
Going forward, DTB’s growth will be driven by:
- Increased efficiency through cutting down of costs by opening more digital branches offering 24/7 customer service.
- A continued branch expansion strategy having opened 3 new branches in 2016, which is expected to drive increased deposit mobilization.
- Increasing exposure to government securities as they have done throughout the year, as growth of their loan book continues to slow down due to the cap on interest rates given DTB is largely a SME bank
- Leveraging on new and innovative products such as bancassurance through Diamond Trust Insurance Agency Ltd and increased card partnerships like those with Nakumatt, NationHela and MI-Card; in a bid to increase non-funded income.
Challenges they face include:
- Stiff competition in the SME banking market.
- Exposure to different political, economic and regulatory environments.
- Decreasing asset quality as is evident from the sudden increase in the NPL ratio to an average of 4 percent in 2016 from an average of 8 percent in 2015.
In addition, DTB announced their intention to acquire Habib Bank. This will be carried out through a share swap transaction, which will involve issuance of 13.3 million new shares at a price of Ksh.137.4 per share, at a premium of 33.4 percent compared to its current share price of Ksh.103, and will dilute existing shareholders by 4.8 percent. This translates to an acquisition multiple of 0.8x price to book, compared to 0.9x for current market average and 2.0x for recent bank transactions. This highlights the low valuations in the market as the transaction was carried out at a 60 percent discount, when compared to recent bank transactions of 2.0x.