October 24, 2018 / 7:32 PM / 2 months ago

UPDATE 2-Nigeria's Diamond Bank directors quit, paving way for recapitalisation

(Updates with details, background)

By Chijioke Ohuocha and Didi Akinyelure

LAGOS, Oct 24 (Reuters) - Four Diamond Bank directors quit with immediate effect, the bank said on Wednesday, paving the way for new investors to recapitalise the Nigerian mid-tier lender.

Local lenders have been trying to raise fresh capital after huge loan losses worsened by an economy that has just recovered from a recession. The crisis turned a once lucrative oil sector loan book sour with banks looking for new avenues to make money.

Two banking sources told Reuters that the lender was in talks with new investors. Diamond Bank said chairman Oluseyi Bickersteth and three other directors have resigned.

It did not provide any reason for the resignation of Bickersteth, appointed in July, or for the other directors, but said in a statement to the local bourse that it would update the market in due course.

Shares rose to their highest in almost two months in late trading, gaining 9.45 percent, valuing the lender at 32.19 billion naira.

“The bank has been facing capital challenges which has been a major drawback for the share price. With a new investor coming on board that has boosted confidence,” one trader said.

Local newspaper ThisDay reported that Chief Executive Uzoma Dozie would continue to run the bank until next year and then resign.

“News of board resignations is supposed to be bad news but investors started to buy the stock,” another trader said.

Analysts have noted that the bank has maintained a 16 percent capital adequacy ratio, the minimum required by the central bank, which has limited growth and profitability.

Diamond Bank has 61.9 percent free float while private equity firm Carlyle owns 17.75 percent. Pascal Dozie who founded the bank in 1990, holds 14.2 percent together with his family.

FRESH CAPITAL

Rival lender Unity Bank has been seeking to raise fresh funds after the central bank asked three lenders to recapitalise by 2016 as they failed to meet a minimum capital ratios, but later gave them more time due to economic recession in the country.

Another lender Skye Bank had its license withdrawn last month by the central bank after it failed to recapitalise. Skye’s asset was transferred to a “bridge bank” Polaris wholly-owned by the state-backed asset management company AMCON.

In 2016, Diamond said it was conducting a capital management plan and would ensure it met regulatory requirements, adding that it was considering raising fresh capital and selling some assets to strengthen its capital base.

“Talk of new investors is positive ... people are positioning for the future since capital is coming in,” one analyst said.

Nigerian banks face stiff competition from rapidly growing financial technology firms that are undercutting a sizable portion of the payments market in Africa’s most populous nation.

In May, Diamond Bank posted a 2017 loss, its first time in the red in six years, despite asset sales.

The mid-tier lender struck a deal with British industrialist Sanjeev Gupta earlier this year to sell its UK subsidiary, after selling its West African business last year, bringing to an end its 18-year push abroad. (Editing by Matthew Mpoke Bigg)

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