ING Vysya Bank : 1Q14 results: in line, asset quality normalizing :: JPMorgan

ING Vysya Bank reported 1Q14 PAT of Rs1.75B, up 16% y/y and in line
with our estimate. Revenue and PPOP growth were strong, led by higher
fee and treasury income and lower opex growth. Credit costs inched
upwards – against the backdrop of a weak economy, this was in line with
our expectations. Overall the customer asset growth was higher than the
industry average with more focus on large corporates and mortgages. We
maintain our OW on the better long-term growth outlook for the stock.
 Credit cost inched upwards. Credit costs doubled in 1Q FY14 and
stood at 84bp. This was mainly on account of two accounts which
slipped into the NPL category amounting to Rs1.15B in the mid-sized
segment. Management expects some stress in the mid-market segment
and is consciously reducing its exposure to this segment. Given the weak
macro environment we expect credit costs to remain elevated in the
medium term. We maintain our credit cost estimate of 78bp for FY14.
 Strong customer asset growth. Customer asset growth was strong at
18% YoY, although overall loan growth was 13% YoY. Loan growth
was driven by low-risk mortgages and the wholesale segment, which is a
good strategy in the current weak macro environment. Management
expects loan growth to be higher than the system average, in line with
our expectations.
 Decline in NIMs on expected lines. NIMs stood at 3.56%, down 17bp
QoQ, mainly due to lower YOA, which was down 18bp QoQ.
Management had earlier guided that the 3.7% NIM reported in 4Q FY13
was not sustainable, so the decline was along expected lines. Given the
focus on good-quality low-risk loans, management is likely to trade off
lower margins for asset quality in the current weak environment. CASA
ratio declined 230bp QoQ as overall CASA decreased 8% QoQ, partly
due to seasonality in 1Q FY14.

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