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3Q results review
In 3QFY11, banking sector earnings growth surprised positively (up 22%
YoY) but most other sectors disappointed. Key positives were healthy
loan growth and better than expected NIMs, but we see pressure going
forward as loan growth moderates and margins contract. Asset quality
pressures seem to be moderating and we believe that this will be the key
to earnings growth in FY12. We were positively surprised by results of
Axis and BOI.
Earnings surprise positively even as other sectors disappoint
The 3QFY11 results of the banking sector surprised positively whereas many other
sectors disappointed largely due to pressure on margins
During 3QFY11, Indian banks reported 22% YoY growth in net profit, higher than
our expectations driven largely by higher growth in NII that grew by 36% YoY.
While sector’s income growth was strong, trends in profit growth were divergent
due to sharp differences in asset quality pressures.
Loan growth picked up and margin improved but both are at peak
During 3QFY11, loan growth (of banks under coverage) picked-up to 26% YoY led
by rising demand for working capital loans.
NIMs also expanded by 10bps QoQ (40bps YoY), supported by healthy CASA growth
and early phase of rise in interest rates (loans reprice faster than deposits).
We were positively surprised by the CASA growth, especially of SBI, and believe
that this will cushion against margin pressures going forward.
We expect loan growth to moderate and margins to be under pressure as hike in
deposit rates over past 3-6 months has been higher than hike in lending rates.
Asset quality pressures moderating, will be key to FY12 earnings
3QFY11 results indicate that asset quality pressures have begun to moderate with
net delinquency ratio at 0.9% of last year’s loans falling from 2Q level of 1.3%.
Our interaction with banks indicates that overall asset quality trends have improved
and borrowers are able to bear the hike in lending rates, but an extra ~100bps rise
in rates in a short-period of time can pose new risks especially in SME segment.
We believe that moderation in asset quality pressures and NPL provisioning will be
key to earnings growth in FY12.
Lower asset quality and provisioning pressures will also help PSU banks to amortise
pension liabilities (most revised upwards) with limited earnings impact.
Axis and BOI surprised positively
We were positively surprised by results of Axis Bank and BOI due to higher margins
and lower slippages. HDFC Bank and BOB reported consistently strong results.
Results of ICICI and SBI were a mixed-bag as ICICI reported pick-up in loan
growth but moderation in CASA growth and SBI reported stronger margins, but
continued asset quality pressures.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
3Q results review
In 3QFY11, banking sector earnings growth surprised positively (up 22%
YoY) but most other sectors disappointed. Key positives were healthy
loan growth and better than expected NIMs, but we see pressure going
forward as loan growth moderates and margins contract. Asset quality
pressures seem to be moderating and we believe that this will be the key
to earnings growth in FY12. We were positively surprised by results of
Axis and BOI.
Earnings surprise positively even as other sectors disappoint
The 3QFY11 results of the banking sector surprised positively whereas many other
sectors disappointed largely due to pressure on margins
During 3QFY11, Indian banks reported 22% YoY growth in net profit, higher than
our expectations driven largely by higher growth in NII that grew by 36% YoY.
While sector’s income growth was strong, trends in profit growth were divergent
due to sharp differences in asset quality pressures.
Loan growth picked up and margin improved but both are at peak
During 3QFY11, loan growth (of banks under coverage) picked-up to 26% YoY led
by rising demand for working capital loans.
NIMs also expanded by 10bps QoQ (40bps YoY), supported by healthy CASA growth
and early phase of rise in interest rates (loans reprice faster than deposits).
We were positively surprised by the CASA growth, especially of SBI, and believe
that this will cushion against margin pressures going forward.
We expect loan growth to moderate and margins to be under pressure as hike in
deposit rates over past 3-6 months has been higher than hike in lending rates.
Asset quality pressures moderating, will be key to FY12 earnings
3QFY11 results indicate that asset quality pressures have begun to moderate with
net delinquency ratio at 0.9% of last year’s loans falling from 2Q level of 1.3%.
Our interaction with banks indicates that overall asset quality trends have improved
and borrowers are able to bear the hike in lending rates, but an extra ~100bps rise
in rates in a short-period of time can pose new risks especially in SME segment.
We believe that moderation in asset quality pressures and NPL provisioning will be
key to earnings growth in FY12.
Lower asset quality and provisioning pressures will also help PSU banks to amortise
pension liabilities (most revised upwards) with limited earnings impact.
Axis and BOI surprised positively
We were positively surprised by results of Axis Bank and BOI due to higher margins
and lower slippages. HDFC Bank and BOB reported consistently strong results.
Results of ICICI and SBI were a mixed-bag as ICICI reported pick-up in loan
growth but moderation in CASA growth and SBI reported stronger margins, but
continued asset quality pressures.
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