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J&K Bank (J&KBK)
Banks/Financial Institutions
Strength of liquidity and slow growth. A strong quarter with earnings growth of
25% yoy driven by healthy NII growth of 19% (NIMs at high levels of 3.8%) and lower
provisions. From an NIMs perspective, a low CD ratio of 60% and high CASA ratio is
positive while coverage ratio of 90% levels gives adequate comfort for strong loan
growth. However, aggressive loan growth outside J&K at lower NIMs remains a key risk.
Maintain ADD with TP of `950 (from `900 earlier).
Loan growth slow at 15% levels; risks remain on aggressive growth
Despite a strong outlook on loan growth by the management for FY2012E, J&K Bank had a fairly
muted performance in the current quarter at 15% yoy (1% qoq). We do note that yoy comparison
does not reflect the true picture of loan growth as 4QFY11 saw the impact of loans lent to state
government removed from the books of the bank, inline with RBI’s directive of taking over the
operations of the state government. J&K state contributed to about 8-9% of the overall loans of
the bank. However, qoq growth at 1% is still lower.
Our key risk remains on the 25% growth expectations that the management is targeting in
FY2012-13E by growing more aggressively outside J&K- where the liability franchise is weak and
loan growth strategy is more driven by participation in various consortiums (relative pricing power
and ability to make non interest income is low).
Strong liquidity and slow loan growth resulting in NIM expansion of 10 bps
Net interest income increased by 19% yoy (5% qoq) to `4.4 bn as margins expanded by 10 bps
qoq. However, we are positively surprised by just the 2 bps (annualized) qoq increase in cost of
deposits in the current quarter. Savings deposits contribute 31% of total deposits and the impact
of 50 bps hike in the current quarter (even if it were for two months) should have been much
higher. Yield on advances improved by 27 bps qoq while yields on the investment portfolio were
flat. Deposit growth was inline with loan growth at 15% yoy (4% qoq decline) to `431 bn with
CASA ratio for the quarter was flat at 40%. Given the low CD ratio of the bank at 60% levels and
high CASA ratio of 40% levels, J&K Bank would see limited downside to margin assumption but
risk remains on the strategy adopted on loan growth, especially outside the state of J&K.
Asset quality stable; coverage ratio healthy at 90% levels
Asset quality of the bank continues to show strong performance with gross NPLs flat qoq at 2% of
loans (`5.3 bn in June 2011 compared to `5 bn in March 2011). Coverage ratio (excluding writeoffs)
at 90% levels is one of the best in the industry today. Net NPLs increased to `584 mn (from
`532 mn in March 2011). While we do not expect the bank to maintain coverage ratio at such low
levels but it provides comfort against any large slippage and its impact on P&L.
Other highlights for the quarter
Non-interest income trends were weak in the current quarter at `670 mn (29% yoy
decline) as fee income growth was subdued at 5% and treasury gains declined 70% yoy.
Income (excluding treasury) declined by 5% yoy. We await clarity if there has been any
impact due to J&K state business in the current quarter.
Cost-income ratio for the quarter was at 37% as against 44% in March 2011 as the bank
took the complete charge on revised retirement charges in 4Q as against amortization
benefit taken by all other banks.
Overall capital adequacy stands comfortable at 13.7% with tier-1 ratio at 11.8%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
J&K Bank (J&KBK)
Banks/Financial Institutions
Strength of liquidity and slow growth. A strong quarter with earnings growth of
25% yoy driven by healthy NII growth of 19% (NIMs at high levels of 3.8%) and lower
provisions. From an NIMs perspective, a low CD ratio of 60% and high CASA ratio is
positive while coverage ratio of 90% levels gives adequate comfort for strong loan
growth. However, aggressive loan growth outside J&K at lower NIMs remains a key risk.
Maintain ADD with TP of `950 (from `900 earlier).
Loan growth slow at 15% levels; risks remain on aggressive growth
Despite a strong outlook on loan growth by the management for FY2012E, J&K Bank had a fairly
muted performance in the current quarter at 15% yoy (1% qoq). We do note that yoy comparison
does not reflect the true picture of loan growth as 4QFY11 saw the impact of loans lent to state
government removed from the books of the bank, inline with RBI’s directive of taking over the
operations of the state government. J&K state contributed to about 8-9% of the overall loans of
the bank. However, qoq growth at 1% is still lower.
Our key risk remains on the 25% growth expectations that the management is targeting in
FY2012-13E by growing more aggressively outside J&K- where the liability franchise is weak and
loan growth strategy is more driven by participation in various consortiums (relative pricing power
and ability to make non interest income is low).
Strong liquidity and slow loan growth resulting in NIM expansion of 10 bps
Net interest income increased by 19% yoy (5% qoq) to `4.4 bn as margins expanded by 10 bps
qoq. However, we are positively surprised by just the 2 bps (annualized) qoq increase in cost of
deposits in the current quarter. Savings deposits contribute 31% of total deposits and the impact
of 50 bps hike in the current quarter (even if it were for two months) should have been much
higher. Yield on advances improved by 27 bps qoq while yields on the investment portfolio were
flat. Deposit growth was inline with loan growth at 15% yoy (4% qoq decline) to `431 bn with
CASA ratio for the quarter was flat at 40%. Given the low CD ratio of the bank at 60% levels and
high CASA ratio of 40% levels, J&K Bank would see limited downside to margin assumption but
risk remains on the strategy adopted on loan growth, especially outside the state of J&K.
Asset quality stable; coverage ratio healthy at 90% levels
Asset quality of the bank continues to show strong performance with gross NPLs flat qoq at 2% of
loans (`5.3 bn in June 2011 compared to `5 bn in March 2011). Coverage ratio (excluding writeoffs)
at 90% levels is one of the best in the industry today. Net NPLs increased to `584 mn (from
`532 mn in March 2011). While we do not expect the bank to maintain coverage ratio at such low
levels but it provides comfort against any large slippage and its impact on P&L.
Other highlights for the quarter
Non-interest income trends were weak in the current quarter at `670 mn (29% yoy
decline) as fee income growth was subdued at 5% and treasury gains declined 70% yoy.
Income (excluding treasury) declined by 5% yoy. We await clarity if there has been any
impact due to J&K state business in the current quarter.
Cost-income ratio for the quarter was at 37% as against 44% in March 2011 as the bank
took the complete charge on revised retirement charges in 4Q as against amortization
benefit taken by all other banks.
Overall capital adequacy stands comfortable at 13.7% with tier-1 ratio at 11.8%.
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