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KOTAK MAHINDRA BANK
Financing business going strong; capital market businesses disappoint
Kotak Mahindra Bank (KMB) reported consolidated PAT (excluding life insurance) of
INR 3.6 bn in Q3FY11, 15% Y-o-Y (3% Q-o-Q growth). Higher opex (due to mid-year
increment and 25th year anniversary expenses) and muted performance from capital
market-related businesses (viz., securities, IB, asset management business) dented
earnings. Advance growth sustained robust momentum (37% Y-o-Y growth) and
credit costs came off sharply as NPLs continued the declining trend. NIMs continued
to reel under pressure amidst rise in deposit rates and change in the portfolio mix
towards secured retail/low yielding corporate segment.
• Banking business profits grew 32% Y-o-Y (down 4% Q-o-Q) to INR 1.88 bn—
NIM decline, investment depreciation of INR 300 mn, and higher opex partially
offset robust advance growth of 35% and sharp decline in credit cost (to 20bps).
• Kotak Mahindra Prime reported 53% Q-o-Q rise in profits buoyed by recovery
of a loan long due (LLP was lower by INR 400 mn and interest income higher by
INR 300 mn). Auto advances grew 36% Y-o-Y and margins were sustained.
• Kotak Securities reported 10% Q-o-Q decline in profits to INR 466 mn due to
expense build up and lower commission yields. Average daily trading volume
inched up 11% Q-o-Q and market share was sustained at 3.7%. Profitability of
investment banking remained subdued at INR 76 mn.
• Domestic AMC business reported PAT of INR 73 mn. However, AUMs remained
sluggish with domestic AUM declining to INR 276 bn and offshore and private
equity AUM remaining flat Q-o-Q at USD 2 bn and INR 53 bn, respectively.
Outlook and valuations: Strong financing business; maintain ‘BUY’
The operating performance of financing business was strong in 9mFY11 with
robust advance growth and consistent decline in NPLs. However, considering the
high inflation and rising interest rate environment, management moderated loan
growth target to 30% for FY11 (from 35-40% earlier). Reported NIMs, which
have also come off 90bps since Q4FY10 to 5.4%, are expected to sustain in the
5.0-5.4% range over FY10-12E. Earnings of capital market businesses will
continue to reel under pressure due to increased fragmentation, lower yields,
and redemption pressure. We are revising our earnings estimates down 5% for
FY11 and FY12 to INR 19.6 and INR 23.6, respectively. The stock is currently
trading at 2.3x FY12E book and 16.2x earnings (excluding life insurance). Our
SOTP fair value for the stock stands at INR 480 per share for FY12E. We believe
continued momentum in financing business and huge embedded value in
stressed asset business will offset pressure in capital market-related businesses.
We maintain ‘BUY/ Sector Performer’.
Business overview
Banking: Higher opex and margin pressure dents earnings
• KMB continued with robust advance growth in Q3FY11 as well, growing 9% Q-o-Q
and 35% Y-o-Y to INR 289 bn. Though growth was broad-based across segments,
traction was higher in commercial vehicles, construction equipments, and home
loans.
• NIMs (calculated) were sustained at 5.5%. However, spreads dipped 20bps Q-o-Q as
margins included an impact of ~30bps due to equity infusion from Sumitomo Mitsui
in August 2010. NIMs gained support from 80bps expansion in investment yields,
which alongwith 20bps increase in lending yields helped offset 80bps rise in funding
cost. Management has guided for sustaining NIMs atleast at 5% in the near future.
Net interest income grew 17% Y-o-Y to INR 5.7 bn despite robust asset growth.
• Operating costs were higher during the quarter at INR 4.2 bn, up 18% Q-o-Q and
43% Y-o-Y. The higher costs were on account of mid-year increments given to select
employees during the quarter and one-off expenses incurred on marketing, admin
etc. as the bank completed 25 years of existence on November 21.
• Asset quality continued to surprise on the positive; gross NPLs (excluding stressed
assets) came off to 1.66% in Q3FY11 from 1.82% in Q2FY11 (2.38% in Q4FY10)
primarily due to strong growth in advances and lower retail NPL formation. The bank
has maintained its provisioning coverage (including technical write-off) above the
RBI mandated norm of 70% by September 2010 at 72%. Adequate coverage has
resulted in sharp decline in credit costs from ~80bps in Q2FY11 to ~20bps in
Q3FY11 after adjusting for provisioning on account of investment depreciation which
constituted 50% of the consolidated provisioning.
• KMB’s CASA ratio (period end), excluding IPO floats, drifted down marginally by 1%
during the quarter to 28% as incremental funding was in the form of Certificate of
Deposit in Q3FY11. The proportion of low-cost sweep deposits (not clubbed with
reported CASA) was estimated at 8%.
• The bank added 31 new branches in Q3FY11, taking the total tally to 298 as
strengthening retail deposits continues to be the focus. Management maintained its
guidance of 320 branches by FY11 and to 500 by FY12.
• In a high inflationary and increasing interest rate environment, management
indicated a cautious stance on loan growth and moderated the growth guidance to
30% for FY11 against 35% indicated earlier. The structural shift in product portfolio
towards secured retail loans will continue, more so on the semi-urban side with
focus on commercial vehicles, tractors, construction equipment etc., as rural
incomes are registering healthy growth. Also, management stated it is refraining
from ‘big ticket concentrated lending’ given the uncertain environment on the back
of high inflation.
• We are building in advance growth of 30% CAGR over FY10-12. Accretion to NPLs is
slowing down and we expect gross NPLs to decline further. With provisioning
coverage now in line with RBI’s mandatory requirement of 70%, KMB’s credit cost
will continue to be low in coming quarters. We expect the banking business to grow
its profitability at 28% CAGR over FY10-12E.
Kotak Mahindra Prime: Recovery supports bottom line
• KMP reported INR 937 mn of PAT, up 53% from the low of last quarter which was
marred by higher provisioning of INR 80 mn (particularly relating to commercial real
estate). As was the case in the previous quarter, there was negligible fee income
from debt market activity in Q3FY11.
• The company has recovered one of the loans long due and there was write-back of
provisioning of ~INR 400 mn on the same. Revenue growth of 50% Y-o-Y to INR 3.8
bn also includes ~INR 340 mn of cumulative interest accrued on the loan that was
recovered during Q3FY11.
• Credit off take in auto financing registered a growth of 2% Q-o-Q (36% Y-o-Y) to
INR 79.5 bn. Overall, advances (including LAS, commercial real estate, etc.) in KMP
grew 5% Q-o-Q (40% Y-o-Y) to INR 104 bn.
• Management indicated that NIMs were sustained in the auto financing business.
• We expect the growth momentum in auto advances to continue and provisioning to
be relatively lower. We expect auto financing to report profit CAGR of 42% over
FY10-12E (albeit on a lower base in FY10).
Kotak Securities: Earnings slip while trading volumes inch up
• Kotak Securities reported 10% Q-o-Q decline in profit to INR 466 mn, despite
revenues being flat at INR 1.9 bn. While average daily trading volume inched up
11% Q-o-Q to INR 51 bn (from INR 36 bn in Q4FY10), the industry trend of decline
in commission yields was supposedly faced by Kotak Securities as well. Its market
share was sustained at 3.7% in Q3FY11.
• We expect industry-wide trading volumes to grow marginally through FY11 and FY12.
Kotak Securities should be able to maintain its market share at ~3.5-4.0%, though
commission yields may remain under pressure (due to increased proportion of
options volume). We expect profits to remain more or less flat over FY10-12. Also,
management indicated that the securities business continues to face pressure and
increased fragmentation. Although the company intends to continue investing in the
business as it holds long term value.
Investment banking: Subdued once again
• Profitability of the investment banking business was once again subdued at INR 76
mn (compared to INR 73 mn in Q2FY11).
• It was involved in public offerings of Coal India (INR 152 bn), Prestige Estate
Projects (INR 12 bn), and Oberoi Realty (INR 10 bn).
• Management sounds confident on the franchise and brand it has developed in the
business and expects to improve profitability significantly over the coming years.
Asset management: Earnings revival still a long way to go
• Domestic asset management business reported profit of INR 73 mn, a decline of
60% Y-o-Y. It came in below our expectation despite the fact that the segment had
reported INR 39 mn loss in Q2FY11 due to a one-time MTM hit on liquid funds (more
than 90 days) due to the accounting change.
• Concerns arise on the business due to sluggish build up in domestic MF AUMs which
remained flat Q-o-Q at INR 276 bn. Management expects challenges to continue for
this segment in the absence of incentives for distributors. Also, high interest rates
make debt instruments a more lucrative option, straining fund flow to equity
markets further.
• The company also disappointed on earnings in offshore and private equity funds;
though AUMs were sustained we believe cost pressure dented earnings
Life insurance: Cost cutting underway
• Weighted new business premium (WNRP) came off more than 40% Y-o-Y to INR 1.6
bn; renewal premium formed ~69% of gross written premium.
• Life insurance business reported profit of INR 236 mn, reflecting the benefit of
higher regular premium, lesser new business strain, and decline in operating
expenses.
• Going forward, management will focus on increasing the proportion of traditional
policies (up to 30%) in its product mix to maintain profitability post regulator
imposed restriction on ULIP pricing.
• At Q3FY11 end, AUM stood at INR 78 bn, up 37% Y-o-Y and 3% Q-o-Q.
• The number of branches stood at 203 (Q2FY11 214), reflecting an aggressive
measure in controlling costs.
Outlook and valuations: Positive; maintain ‘BUY’
The operating performance in financing business was strong in 9mFY11 with consolidated
advance growth being robust at 37% and gross NPLs consistently following a declining
trend. However, considering the high inflation and rising interest rate environment,
management moderated loan growth target to 30% for FY11 (from 35-40% earlier).
Reported NIMs have also come off 90bps since Q4FY11, despite equity infusion by
Sumitomo Mitsui, due to rising deposit rate and skew in portfolio mix towards low
yielding corporate and secured retail loans. We expect NIMs to remain in the 5.0-5.4%
range over FY10-12E. Earnings of capital market businesses will reel under pressure due
to increased fragmentation and redemption pressure; while the company will continue
investing in these businesses as they holds long-term value. We are revising our
earnings estimates down 5% for FY11 and FY12 to INR 19.6 and INR 23.6, respectively.
The stock is currently trading at 2.3x FY12E book and 16.2x FY12E earnings (excluding
life insurance). Our SOTP fair value for the stock stands at INR 480 per share for FY12E
We believe continued momentum in financing business and huge embedded value in
stressed asset business will offset pressure in capital market-related businesses. We
maintain ‘BUY’ on the stock and rate it ‘Sector Performer’ on relative return basis.
Company Description
KMB is India’s leading full services financial conglomerate, dominating the securities and
investment banking space. It is currently focused on growing its banking, asset management,
and insurance businesses. It began operations in 1986 as a bill discounting and leasing NBFC
under Kotak Mahindra Finance and converted itself into a bank in 2003. The group has a
widespread presence across 370 cities and services close to 5.6 mn customer accounts.
Kotak Securities has a network of over 1000 offices, KMB has 298 branches, and Kotak Life
has 203 branches. The group has a decent platform to cross-sell its products, given its
presence in the financial spectrum. Kotak Securities has ~3.7% market share in overall
market volumes and is one of the prominent domestic investment bankers. Amongst
commercial banks, KMB is still at a nascent stage with ~0.7% share in advances and ~0.5 %
share in deposits. It is developing its presence in the asset management and insurance
businesses, where it has 3-5% market share.
Investment Theme
KMB has been conservative in lending through the whole of FY09, focusing more on
asset quality, margins and being liquid (capital adequacy of 20%). Moreover, volatile
capital market conditions led to depressed earnings in securities, IB and asset
management businesses in FY09. However, business outlook is getting more favourable
for KMB considering improving macro environment, higher activity levels in capital
markets and increasing inflows into asset management. Also, asset quality and business
growth outlook is looking better in the banking business (CV segment already showing
signs of improvement and pace of incremental slippages slowing down in unsecured
portfolio). We believe KMB is a better play on capital market revival, given its strong
franchise, leadership positioning and quality management.
Key Risks
Our base case scenario of revival in macro environment in H2FY10, if deferred beyond
anticipation, could adversely affect our growth assumptions, and hence, valuations.
We believe intense competition from global and local players in equity markets may pose a
major challenge to KMB in maintaining its market share and leadership position.
Loss of key personnel could disrupt the company’s operations and client relationships.
Our numbers build in the expansion in branch network, and therefore, improvement in the
low cost deposit franchise. Delay in execution of these plans and higher than anticipated
deterioration in asset quality could impact our earnings estimates.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
KOTAK MAHINDRA BANK
Financing business going strong; capital market businesses disappoint
Kotak Mahindra Bank (KMB) reported consolidated PAT (excluding life insurance) of
INR 3.6 bn in Q3FY11, 15% Y-o-Y (3% Q-o-Q growth). Higher opex (due to mid-year
increment and 25th year anniversary expenses) and muted performance from capital
market-related businesses (viz., securities, IB, asset management business) dented
earnings. Advance growth sustained robust momentum (37% Y-o-Y growth) and
credit costs came off sharply as NPLs continued the declining trend. NIMs continued
to reel under pressure amidst rise in deposit rates and change in the portfolio mix
towards secured retail/low yielding corporate segment.
• Banking business profits grew 32% Y-o-Y (down 4% Q-o-Q) to INR 1.88 bn—
NIM decline, investment depreciation of INR 300 mn, and higher opex partially
offset robust advance growth of 35% and sharp decline in credit cost (to 20bps).
• Kotak Mahindra Prime reported 53% Q-o-Q rise in profits buoyed by recovery
of a loan long due (LLP was lower by INR 400 mn and interest income higher by
INR 300 mn). Auto advances grew 36% Y-o-Y and margins were sustained.
• Kotak Securities reported 10% Q-o-Q decline in profits to INR 466 mn due to
expense build up and lower commission yields. Average daily trading volume
inched up 11% Q-o-Q and market share was sustained at 3.7%. Profitability of
investment banking remained subdued at INR 76 mn.
• Domestic AMC business reported PAT of INR 73 mn. However, AUMs remained
sluggish with domestic AUM declining to INR 276 bn and offshore and private
equity AUM remaining flat Q-o-Q at USD 2 bn and INR 53 bn, respectively.
Outlook and valuations: Strong financing business; maintain ‘BUY’
The operating performance of financing business was strong in 9mFY11 with
robust advance growth and consistent decline in NPLs. However, considering the
high inflation and rising interest rate environment, management moderated loan
growth target to 30% for FY11 (from 35-40% earlier). Reported NIMs, which
have also come off 90bps since Q4FY10 to 5.4%, are expected to sustain in the
5.0-5.4% range over FY10-12E. Earnings of capital market businesses will
continue to reel under pressure due to increased fragmentation, lower yields,
and redemption pressure. We are revising our earnings estimates down 5% for
FY11 and FY12 to INR 19.6 and INR 23.6, respectively. The stock is currently
trading at 2.3x FY12E book and 16.2x earnings (excluding life insurance). Our
SOTP fair value for the stock stands at INR 480 per share for FY12E. We believe
continued momentum in financing business and huge embedded value in
stressed asset business will offset pressure in capital market-related businesses.
We maintain ‘BUY/ Sector Performer’.
Business overview
Banking: Higher opex and margin pressure dents earnings
• KMB continued with robust advance growth in Q3FY11 as well, growing 9% Q-o-Q
and 35% Y-o-Y to INR 289 bn. Though growth was broad-based across segments,
traction was higher in commercial vehicles, construction equipments, and home
loans.
• NIMs (calculated) were sustained at 5.5%. However, spreads dipped 20bps Q-o-Q as
margins included an impact of ~30bps due to equity infusion from Sumitomo Mitsui
in August 2010. NIMs gained support from 80bps expansion in investment yields,
which alongwith 20bps increase in lending yields helped offset 80bps rise in funding
cost. Management has guided for sustaining NIMs atleast at 5% in the near future.
Net interest income grew 17% Y-o-Y to INR 5.7 bn despite robust asset growth.
• Operating costs were higher during the quarter at INR 4.2 bn, up 18% Q-o-Q and
43% Y-o-Y. The higher costs were on account of mid-year increments given to select
employees during the quarter and one-off expenses incurred on marketing, admin
etc. as the bank completed 25 years of existence on November 21.
• Asset quality continued to surprise on the positive; gross NPLs (excluding stressed
assets) came off to 1.66% in Q3FY11 from 1.82% in Q2FY11 (2.38% in Q4FY10)
primarily due to strong growth in advances and lower retail NPL formation. The bank
has maintained its provisioning coverage (including technical write-off) above the
RBI mandated norm of 70% by September 2010 at 72%. Adequate coverage has
resulted in sharp decline in credit costs from ~80bps in Q2FY11 to ~20bps in
Q3FY11 after adjusting for provisioning on account of investment depreciation which
constituted 50% of the consolidated provisioning.
• KMB’s CASA ratio (period end), excluding IPO floats, drifted down marginally by 1%
during the quarter to 28% as incremental funding was in the form of Certificate of
Deposit in Q3FY11. The proportion of low-cost sweep deposits (not clubbed with
reported CASA) was estimated at 8%.
• The bank added 31 new branches in Q3FY11, taking the total tally to 298 as
strengthening retail deposits continues to be the focus. Management maintained its
guidance of 320 branches by FY11 and to 500 by FY12.
• In a high inflationary and increasing interest rate environment, management
indicated a cautious stance on loan growth and moderated the growth guidance to
30% for FY11 against 35% indicated earlier. The structural shift in product portfolio
towards secured retail loans will continue, more so on the semi-urban side with
focus on commercial vehicles, tractors, construction equipment etc., as rural
incomes are registering healthy growth. Also, management stated it is refraining
from ‘big ticket concentrated lending’ given the uncertain environment on the back
of high inflation.
• We are building in advance growth of 30% CAGR over FY10-12. Accretion to NPLs is
slowing down and we expect gross NPLs to decline further. With provisioning
coverage now in line with RBI’s mandatory requirement of 70%, KMB’s credit cost
will continue to be low in coming quarters. We expect the banking business to grow
its profitability at 28% CAGR over FY10-12E.
Kotak Mahindra Prime: Recovery supports bottom line
• KMP reported INR 937 mn of PAT, up 53% from the low of last quarter which was
marred by higher provisioning of INR 80 mn (particularly relating to commercial real
estate). As was the case in the previous quarter, there was negligible fee income
from debt market activity in Q3FY11.
• The company has recovered one of the loans long due and there was write-back of
provisioning of ~INR 400 mn on the same. Revenue growth of 50% Y-o-Y to INR 3.8
bn also includes ~INR 340 mn of cumulative interest accrued on the loan that was
recovered during Q3FY11.
• Credit off take in auto financing registered a growth of 2% Q-o-Q (36% Y-o-Y) to
INR 79.5 bn. Overall, advances (including LAS, commercial real estate, etc.) in KMP
grew 5% Q-o-Q (40% Y-o-Y) to INR 104 bn.
• Management indicated that NIMs were sustained in the auto financing business.
• We expect the growth momentum in auto advances to continue and provisioning to
be relatively lower. We expect auto financing to report profit CAGR of 42% over
FY10-12E (albeit on a lower base in FY10).
Kotak Securities: Earnings slip while trading volumes inch up
• Kotak Securities reported 10% Q-o-Q decline in profit to INR 466 mn, despite
revenues being flat at INR 1.9 bn. While average daily trading volume inched up
11% Q-o-Q to INR 51 bn (from INR 36 bn in Q4FY10), the industry trend of decline
in commission yields was supposedly faced by Kotak Securities as well. Its market
share was sustained at 3.7% in Q3FY11.
• We expect industry-wide trading volumes to grow marginally through FY11 and FY12.
Kotak Securities should be able to maintain its market share at ~3.5-4.0%, though
commission yields may remain under pressure (due to increased proportion of
options volume). We expect profits to remain more or less flat over FY10-12. Also,
management indicated that the securities business continues to face pressure and
increased fragmentation. Although the company intends to continue investing in the
business as it holds long term value.
Investment banking: Subdued once again
• Profitability of the investment banking business was once again subdued at INR 76
mn (compared to INR 73 mn in Q2FY11).
• It was involved in public offerings of Coal India (INR 152 bn), Prestige Estate
Projects (INR 12 bn), and Oberoi Realty (INR 10 bn).
• Management sounds confident on the franchise and brand it has developed in the
business and expects to improve profitability significantly over the coming years.
Asset management: Earnings revival still a long way to go
• Domestic asset management business reported profit of INR 73 mn, a decline of
60% Y-o-Y. It came in below our expectation despite the fact that the segment had
reported INR 39 mn loss in Q2FY11 due to a one-time MTM hit on liquid funds (more
than 90 days) due to the accounting change.
• Concerns arise on the business due to sluggish build up in domestic MF AUMs which
remained flat Q-o-Q at INR 276 bn. Management expects challenges to continue for
this segment in the absence of incentives for distributors. Also, high interest rates
make debt instruments a more lucrative option, straining fund flow to equity
markets further.
• The company also disappointed on earnings in offshore and private equity funds;
though AUMs were sustained we believe cost pressure dented earnings
Life insurance: Cost cutting underway
• Weighted new business premium (WNRP) came off more than 40% Y-o-Y to INR 1.6
bn; renewal premium formed ~69% of gross written premium.
• Life insurance business reported profit of INR 236 mn, reflecting the benefit of
higher regular premium, lesser new business strain, and decline in operating
expenses.
• Going forward, management will focus on increasing the proportion of traditional
policies (up to 30%) in its product mix to maintain profitability post regulator
imposed restriction on ULIP pricing.
• At Q3FY11 end, AUM stood at INR 78 bn, up 37% Y-o-Y and 3% Q-o-Q.
• The number of branches stood at 203 (Q2FY11 214), reflecting an aggressive
measure in controlling costs.
Outlook and valuations: Positive; maintain ‘BUY’
The operating performance in financing business was strong in 9mFY11 with consolidated
advance growth being robust at 37% and gross NPLs consistently following a declining
trend. However, considering the high inflation and rising interest rate environment,
management moderated loan growth target to 30% for FY11 (from 35-40% earlier).
Reported NIMs have also come off 90bps since Q4FY11, despite equity infusion by
Sumitomo Mitsui, due to rising deposit rate and skew in portfolio mix towards low
yielding corporate and secured retail loans. We expect NIMs to remain in the 5.0-5.4%
range over FY10-12E. Earnings of capital market businesses will reel under pressure due
to increased fragmentation and redemption pressure; while the company will continue
investing in these businesses as they holds long-term value. We are revising our
earnings estimates down 5% for FY11 and FY12 to INR 19.6 and INR 23.6, respectively.
The stock is currently trading at 2.3x FY12E book and 16.2x FY12E earnings (excluding
life insurance). Our SOTP fair value for the stock stands at INR 480 per share for FY12E
We believe continued momentum in financing business and huge embedded value in
stressed asset business will offset pressure in capital market-related businesses. We
maintain ‘BUY’ on the stock and rate it ‘Sector Performer’ on relative return basis.
Company Description
KMB is India’s leading full services financial conglomerate, dominating the securities and
investment banking space. It is currently focused on growing its banking, asset management,
and insurance businesses. It began operations in 1986 as a bill discounting and leasing NBFC
under Kotak Mahindra Finance and converted itself into a bank in 2003. The group has a
widespread presence across 370 cities and services close to 5.6 mn customer accounts.
Kotak Securities has a network of over 1000 offices, KMB has 298 branches, and Kotak Life
has 203 branches. The group has a decent platform to cross-sell its products, given its
presence in the financial spectrum. Kotak Securities has ~3.7% market share in overall
market volumes and is one of the prominent domestic investment bankers. Amongst
commercial banks, KMB is still at a nascent stage with ~0.7% share in advances and ~0.5 %
share in deposits. It is developing its presence in the asset management and insurance
businesses, where it has 3-5% market share.
Investment Theme
KMB has been conservative in lending through the whole of FY09, focusing more on
asset quality, margins and being liquid (capital adequacy of 20%). Moreover, volatile
capital market conditions led to depressed earnings in securities, IB and asset
management businesses in FY09. However, business outlook is getting more favourable
for KMB considering improving macro environment, higher activity levels in capital
markets and increasing inflows into asset management. Also, asset quality and business
growth outlook is looking better in the banking business (CV segment already showing
signs of improvement and pace of incremental slippages slowing down in unsecured
portfolio). We believe KMB is a better play on capital market revival, given its strong
franchise, leadership positioning and quality management.
Key Risks
Our base case scenario of revival in macro environment in H2FY10, if deferred beyond
anticipation, could adversely affect our growth assumptions, and hence, valuations.
We believe intense competition from global and local players in equity markets may pose a
major challenge to KMB in maintaining its market share and leadership position.
Loss of key personnel could disrupt the company’s operations and client relationships.
Our numbers build in the expansion in branch network, and therefore, improvement in the
low cost deposit franchise. Delay in execution of these plans and higher than anticipated
deterioration in asset quality could impact our earnings estimates.
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