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'Spring cleaning' and an improved risk management strategy

Article - August 2, 2013
Diamond Bank has shed its bad loans and is ready to finance more, worthier projects
After the banking sector’s consolidation in 2006 and the central bank intervention five years later, Nigeria’s surviving banks can proudly boast stronger than ever fundamentals that will enable them to operate above board, transparently and successfully for many, many years to come.  
Diamond Bank is no exception, though making the grade has been far from easy. According Dr Alex Otti – appointed Group Managing Director and CEO at the height of the AMCON and CBN stress testing – the bank had to go on a sort of rampage to clear out all bad and overly risky loans. Two years ago, it was facing grave liquidity problems, but Dr Otti’s spring cleaning – of both non-performing loans and non-performing employees – helped the bank live to tell the tale.
“When I joined the bank in March 2011, I was surprised by the quality of the loan book,” he explains. “Nonetheless, I still believed we had a good bank. The first thing I did was to sit with my colleagues and look at the fundamentals from a critical point of view, to learn and make sure that we do not commit the same mistakes.” 
What he discovered was a weak risk management department, so he told the bank’s Board of Directors that he needed a highly qualified, independent executive director to run the risk management function.
“Our ED was tasked to populate the place with skilled and qualified people – some of whom were from other banks. There were also expatriates,” he says.
His next step as Group MD and CEO was to examine Diamond’s largest loans, ranging from N500 million (£2 million) to N12 billion. 
“We then went to market and disclosed a very challenging risk asset portfolio. In terms of stock price, we must have lost 75 to 80 per cent. We took it in our stride and made provisions. At the end of the year, we wrote off bad loans close to N45 billion and sold almost N60 billion to AMCON,” recalls Dr Otti. “We had to do it in one fell swoop.”
“Having done that, with the help of the new risk management directorate, we set clear standards, indicating the kind of loans we wanted and were able to do. We established sectorial limits, did score cards, and bought technology to deploy our retail proposition. We did a lot just to make sure we did not revert to where we were.”
Consequently, 2012 was a year of tremendous growth for Diamond Bank. Gross earnings and total assets rose to N13.8 billion and N1.178 trillion from N102.7 and N796 billion, respectively, in 2011. More impressively, operating income jumped 149.4 per cent to N96 billion, while profit before tax soared 252.6 per cent to N27.5 billion. Its coverage ration as of September last year was well over 128 per cent.
Established in 1991 as a private limited liability company, Diamond Bank was converted into a universal bank in 2001. In 2005 after a successful private placement share offer, it became a public limited company listed on the Nigerian Stock Exchange.

“We are better in retail banking than anybody else in the market today.
It is the sector of the future”

Dr Alex Otti,
Group Managing Director and CEO of Diamond Bank.
Early in 2008, the bank made Nigerian banking history when it listed its global depository receipts on the Professional Securities Market of the London Stock Exchange (LSE). 
Today, Diamond Bank operates three distinct business segments, namely retail banking, corporate banking and the public sector. Dr Otti remarks that the bank’s approach to retail has been especially successful.
He says: “We’ve been in retail banking for the last 24 years. Literature would tell you that it’s risky. However, I think the risk depends on the mindset you enter the market with. If you enter with a corporate banking mindset, you are going to lose money. You need all the requisite skills and technology proposition. We spent money developing those. That is why we are better in retail banking than anybody else in the market today. It is the sector of the future, so we cannot ignore it.
“We had an expat over who had retired from Barclay’s Bank. He had done retail banking all his life. He helped us set up what we have today. He was also able to train a lot of people here.”
One area Dr Otti is certainly proud of is the investments Diamond Bank has made in technology and people.
“We have clinics for those interested in building viable small and medium-sized enterprises (SMEs) – retraining them and helping them articulate and formulate their ideas into a profitable business. We’ve moved these clinics from one location to another, and we’ve received great support from the International Finance Corporation (IFC), Enhancing Financial Innovation & Access (EFInA) an other multilateral partners who like what we’re doing,” he says. 
“We charge a little fee that does not cover our cost; it just makes sure that we only get those who are really serious about training. So far it was worked very well.” 
Attendees learn how to prepare balance sheets, understand figures, separate personal and business finance, among other things.
In terms of larger-scale banking, Diamond Bank is quite active in Abia State, where it is funding Geometric Power Systems Ltd (GPSL), the first indigenously owned private power-sector company. GPSL has built the Aba Integrated Power Project with 141 MW of capacity in what is now deemed a case book study of how the private sector can help alleviate Nigeria’s power shortages. 
Also in Abia, Diamond Bank in collaboration with the government is revitalising a shoe factory and putting the pressure on the state government to rehabilitate the road network.
Looking further afield, the bank’s plans to establish a presence in Europe will soon come to fruition, thanks to Diamond’s recent 100 per cent acquisition of Intercontinental Bank’s UK subsidiary. “If we get it right in London, then ultimately it is Diamond Bank’s customers in West Africa that will feel the benefit of that, and they will want to do more business through this channel,” said Diamond Bank’s UK CEO Rollo Greenfield in a recent interview.