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Asset-quality pressure easing
• Asset quality improved on
both YoY and QoQ bases
• Among the few banks to see a
QoQ improvement in NIM
• Management guides for
higher-than-industry loan
growth for FY12
ƒ What's new
ING Vysya Bank (VYSB) balancesheet growth momentum has picked
up along with the continued
improvement in its asset quality. It
was among the few banks that saw
their NIMs improve on a QoQ basis
for 4Q FY11. Profitability was driven
by a sharp decline in provisioning.
ƒ What's the impact
VYSB’s 34% YoY net-profit growth
was driven by a 96% YoY drop in
provisioning expenditure. Its
operating profit, however, declined
by 20% YoY, as the bank provided
Rs360m during 4Q FY11 towards
employee-pension and gratuity
benefits, which are one-off in nature.
VYSB’s 28% YoY loan growth was
quite robust, driven by SME and
corporate lending. We believe that
these segments, coupled with retail
mortgages, can help drive aboveindustry-average loan growth for the
bank over the next two years.
Asset quality is one area where the
bank has seen significant
improvements, with gross and net
NPLs declining both in percentage
terms and absolute amounts.
Management does not expect any
significant fresh NPL formation in the
future. We believe that high provision
coverage of 83% would provide a
sufficient cushion in the case of
unforeseen asset-quality pressure.
The bank has also now disclosed all
of its pension liabilities (Rs1.2bn). It
has already provided for Rs473m in
FY11 (Rs287m related to pensions
for retired employees and Rs186m
toward pensions for existing
employees). The balance of Rs744m
would be amortised over the next
four years.
ƒ What we recommend
On basic parameters (balance-sheet
growth, asset-quality improvements)
the bank now seems to be doing well.
Management suggests that any
pressure on NIMs is likely to be slight.
We believe that improving asset
quality would lead to lower credit
costs and should drive the 32% YoY
rise in net profit that we forecast for
FY12. The current PBR of 1.4x on our
FY12E BVPS is extremely compelling,
in our opinion, and represents a
steep discount to those of its peers.
We maintain our 1 (Buy) rating, and
six-month target price of Rs460,
based on a target PBR of 1.9x on our
FY12E BVPS.
ƒ How we differ
We are probably more bullish on the
bank’s NIM sustainability and asset
quality than most other brokers in
the market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asset-quality pressure easing
• Asset quality improved on
both YoY and QoQ bases
• Among the few banks to see a
QoQ improvement in NIM
• Management guides for
higher-than-industry loan
growth for FY12
ƒ What's new
ING Vysya Bank (VYSB) balancesheet growth momentum has picked
up along with the continued
improvement in its asset quality. It
was among the few banks that saw
their NIMs improve on a QoQ basis
for 4Q FY11. Profitability was driven
by a sharp decline in provisioning.
ƒ What's the impact
VYSB’s 34% YoY net-profit growth
was driven by a 96% YoY drop in
provisioning expenditure. Its
operating profit, however, declined
by 20% YoY, as the bank provided
Rs360m during 4Q FY11 towards
employee-pension and gratuity
benefits, which are one-off in nature.
VYSB’s 28% YoY loan growth was
quite robust, driven by SME and
corporate lending. We believe that
these segments, coupled with retail
mortgages, can help drive aboveindustry-average loan growth for the
bank over the next two years.
Asset quality is one area where the
bank has seen significant
improvements, with gross and net
NPLs declining both in percentage
terms and absolute amounts.
Management does not expect any
significant fresh NPL formation in the
future. We believe that high provision
coverage of 83% would provide a
sufficient cushion in the case of
unforeseen asset-quality pressure.
The bank has also now disclosed all
of its pension liabilities (Rs1.2bn). It
has already provided for Rs473m in
FY11 (Rs287m related to pensions
for retired employees and Rs186m
toward pensions for existing
employees). The balance of Rs744m
would be amortised over the next
four years.
ƒ What we recommend
On basic parameters (balance-sheet
growth, asset-quality improvements)
the bank now seems to be doing well.
Management suggests that any
pressure on NIMs is likely to be slight.
We believe that improving asset
quality would lead to lower credit
costs and should drive the 32% YoY
rise in net profit that we forecast for
FY12. The current PBR of 1.4x on our
FY12E BVPS is extremely compelling,
in our opinion, and represents a
steep discount to those of its peers.
We maintain our 1 (Buy) rating, and
six-month target price of Rs460,
based on a target PBR of 1.9x on our
FY12E BVPS.
ƒ How we differ
We are probably more bullish on the
bank’s NIM sustainability and asset
quality than most other brokers in
the market.
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