UBS: Banking & Finance - W eak quarter ahead

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


UBS Investment Research
India Banking & Finance Sector
W eak quarter ahead
􀂄 Earnings momentum weak
Q1FY12 earnings growth for Indian banks and financials is likely to be muted on
back of sluggish growth, NIM compression, MTM losses (for PSU banks) and
elevated credit costs. We expect Private banks to fare better compared to PSU
banks (PPoP growth sector 13%, PSU banks 4% Pvt banks 31%) due to lower asset
quality pressure. We estimate 19% y/y PPoP growth for NBFCs.
􀂄 NIMs to decline across board q/q
Lower CD ratios, lag in re-pricing of liability, increase in SA deposit rate and
limited lending rate hikes should lead to 15-30 bps decline in NIMs for banks. The
pressure is likely to be more acute for PSU banks on account of interest loss due to
high slippages. We expect NBFCs to witness 10-40 bps decline in NIMs as impact
of higher wholesale rates show up with a lag.
􀂄 Asset quality trends mixed
We expect slippages and credit costs to remain high for PSU banks due to
transition to system-based NPLs, while asset quality trends for Private banks and
NBFCs are expected to be stable. Regulatory changes in terms of higher
restructured provisions should keep credit costs elevated for PSU banks.
􀂄 Prefer private banks, avoid PSU banks
We maintain our preference for private banks; we like ICICI Bank and Federal
bank. We like SBI amongst PSU banks and expect quarterly trends to improve.
SHTF and MGFL are our preferred picks amongst NBFCs. Our least preferred
names are BOI and LICHF.
Muted performance expected in Q1FY12
We expect overall earnings to be under pressure for banks and financials in
current quarter. Key trends that we expect in current quarter are:
􀁑 NIM pressure due to 1) deposit re-pricing catching up while bulk of asset repricing
already reflected in NIMs 2) declining CD ratios as gap between
deposit and credit growth has narrowed further 3) savings rate hike of 50 bps.
􀁑 Slippages to remain high for PSU banks, stable asset quality for private
banks and NBFCs. One-off provisions on account of restructured assets and
higher IRAC norms.
􀁑 Increase in investment provision and lower treasury gains due to rise in bond
yields (30 bps q/q).
􀁑 Decline in staff costs for PSU banks will support operating profitability.
􀁑 NBFCs will likely witness further 10-40 bps q/q decline in NIMs on account
of higher cost of funds; however, growth trends will likely be healthy at
20%+.