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● SBI has presented at Credit Suisse’s ASEAN conference where it
highlighted its continued NIM focus. The bank expects NIMs to
hold up at 3.5% levels in FY12 even as the upward repricing of
the deposit base comes through on the back of the recent base
rate hike (50 bp) and the additional benefit of 1,000-day deposits
maturing. However, better NIMs are being offset by slowdowns in
fees and treasury income.
● While it expects NPL accretion in SME and mid-corp segments to
pick up, it targets to contain gross slippages at ~2.5% in FY12
(versus 3.1-3.3% over past two quarters). Most of catch-up
provisioning (post new RBI norms) has already been done.
● Tier-one is at a low 7.6% and the bank expects to raise capital in
3Q11 partly from government and the balance from the public
(targets to raise Rs200 bn – 30% of the current book).
● Psot 1Q earnings miss and a slowdown in fees, higher tax rate
and treasury loss, we reduce our FY12E/FY13E EPS by 13%/4%
but raise NIM forecast. Our new target price is Rs2,180, at 1.3x
FY12E book value, in line with historic average. NEUTRAL.
NIMs to hold up at 3.5% level
SBI has highlighted that margins continue to be its key focus area.
The bank recently increased the base rate by 50 bp (currently at 10%)
followed by a 100 bp of lending rate increases in April and May.
Management expects NIMs to hold up at 3.5% levels in FY12 (versus
3.3% in FY11) aided by these lending rate increases and the repricing
of the legacy term deposits. We slightly increase our FY12 NIM
estimate to 3.5% (versus 3.35% earlier). Loan growth is expected to
moderate to 16-18% levels in FY12 and the fee income growth is also
likely to lag asset growth with slowing corporate activity. It aims to
contain FY12 operating expenses growth to less than 20% YoY.
Slippages likely to moderate from 3%+ levels
The bank expects slippages to moderate from 3%+ levels over the
past couple of quarters to ~2.5% in FY12. Most of the catch-up
provisioning (based on new RBI norms) is done and only Rs5.5 bn is
left for 2Q12. The bank is closely monitoring the project and infra
finance exposures, and while some of these projects are 6-12 months
behind schedule it does not expect them to become NPLs. SBI is now
very selective in incremental infra lending and is stringent on predisbursement
milestones. Following rate increases and the macro
slowdown, the bank expects SME and mid-corporate NPLs to rise but
targets to contain gross slippage at 2.5% of loans in FY12 and bring
down net NPLs to 1.5% (currently at 1.6%). Our forecast FY12-13
credit costs are at 1.1-1.0%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● SBI has presented at Credit Suisse’s ASEAN conference where it
highlighted its continued NIM focus. The bank expects NIMs to
hold up at 3.5% levels in FY12 even as the upward repricing of
the deposit base comes through on the back of the recent base
rate hike (50 bp) and the additional benefit of 1,000-day deposits
maturing. However, better NIMs are being offset by slowdowns in
fees and treasury income.
● While it expects NPL accretion in SME and mid-corp segments to
pick up, it targets to contain gross slippages at ~2.5% in FY12
(versus 3.1-3.3% over past two quarters). Most of catch-up
provisioning (post new RBI norms) has already been done.
● Tier-one is at a low 7.6% and the bank expects to raise capital in
3Q11 partly from government and the balance from the public
(targets to raise Rs200 bn – 30% of the current book).
● Psot 1Q earnings miss and a slowdown in fees, higher tax rate
and treasury loss, we reduce our FY12E/FY13E EPS by 13%/4%
but raise NIM forecast. Our new target price is Rs2,180, at 1.3x
FY12E book value, in line with historic average. NEUTRAL.
NIMs to hold up at 3.5% level
SBI has highlighted that margins continue to be its key focus area.
The bank recently increased the base rate by 50 bp (currently at 10%)
followed by a 100 bp of lending rate increases in April and May.
Management expects NIMs to hold up at 3.5% levels in FY12 (versus
3.3% in FY11) aided by these lending rate increases and the repricing
of the legacy term deposits. We slightly increase our FY12 NIM
estimate to 3.5% (versus 3.35% earlier). Loan growth is expected to
moderate to 16-18% levels in FY12 and the fee income growth is also
likely to lag asset growth with slowing corporate activity. It aims to
contain FY12 operating expenses growth to less than 20% YoY.
Slippages likely to moderate from 3%+ levels
The bank expects slippages to moderate from 3%+ levels over the
past couple of quarters to ~2.5% in FY12. Most of the catch-up
provisioning (based on new RBI norms) is done and only Rs5.5 bn is
left for 2Q12. The bank is closely monitoring the project and infra
finance exposures, and while some of these projects are 6-12 months
behind schedule it does not expect them to become NPLs. SBI is now
very selective in incremental infra lending and is stringent on predisbursement
milestones. Following rate increases and the macro
slowdown, the bank expects SME and mid-corporate NPLs to rise but
targets to contain gross slippage at 2.5% of loans in FY12 and bring
down net NPLs to 1.5% (currently at 1.6%). Our forecast FY12-13
credit costs are at 1.1-1.0%.
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