Diamond Trust Bank posted a 9.3% y/y growth in after tax profits to KES 2.0 billion from KES 1.8 billion reported in 1Q2018. The increase in profitability was primarily due to a 61.5% y/y decline in loan loss provisions to KES 268.4 million and a 15.3% y/y growth in non-funded income to KES 1.5 billion.
Total interest income declined by 5.1% y/y to KES 8.1 billion owing to a 10.1% y/y dip in income from loans and advances to KES 4.9 billion; as the group’s loan book contracted by 2.9% y/y to KES 188.6 billion and the yield on loans shed 90bps to 10.3%.
Interest income from government securities grew by 2.4% y/y to KES 3.1 billion as the group’s holding of government securities edged up by 5.3% y/y to KES 125.7 billion; the yield on government securities remained flat at 10.4%.
Total interest expenses fell by 3.0% y/y to KES 3.6 billion owing to an 8.9% y/y drop in customer deposit expenses to KES 3.0 billion – driven by a 60 bps decline in the cost of customer deposits to 4.3% as customer deposits grew marginally by 1.3% y/y to KES 275.3 billion.
Owing to the faster decline in total interest income compared to total interest expenses, net interest income declined by 6.6% y/y to KES 4.5 billion resulting in a NIM of 5.6% (1Q2018: 5.9%).
Non-funded income edged up by 15.3% y/y to KES 1.5 billion due to a 75.8% y/y growth in foreign exchange trading income to KES 643.0 million. Consequently, the contribution of non-funded income to total operating income rose to 25.3% from 21.5% in 1Q2018.
Operating expenses (excluding provisions) grew marginally by 3.3% y/y to KES 2.9 billion. The cost-to-income ratio (excluding provisions) increased by 240 bps to 47.4%, mostly occasioned by lower total operating income (-1.9% to KES 6.1 billion).
Loan loss provisions fell by 61.5% y/y to KES 268.4 million (1Q2018: KES 696.5 million) despite a 4.8% y/y increase in gross non-performing loans to KES 29.7 billion. This led to a slightly higher NPL ratio (as measured against the net loan book) of 15.8% (1Q2018: 14.6%).
We note with concern over the slow growth in customer deposits, the decline in the loan book and consequent dip in net interest income. However, we are optimistic about the growth in non-funded income.