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India Financial Sector ----------------------------------------------------- Maintain UNDERWEIGHT
NIM pressures evident, credit quality concerns expected to follow
● Pressure on NIMs is clearly evident in the quarterly results of the
banks released so far. Four of the five banks reported a QoQ
decline in NIMs and/ or had to manage the NIMs by allowing the
LDR to rise. This is in line with our forecasts.
● Going forward, we expect concerns to shift to asset quality.
Historically, slowing credit growth (evident now) and rising interest
rates (trend over the past year) have been accompanied by a
general deterioration in credit quality.
● Strong expansion in bank credit to sectors such as commercial
real estate and power is an added asset quality risk and we prefer
banks such as HDFC Bank and ING Vysya that have lower
exposures to these segments.
● Banks are still trading at or only at a modest discount to their
historical multiples; and, as their profitability comes under
pressure from the twin forces of NIM compression and rise in
credit costs, we see further downside and recommend
UNDERWEIGHT. We are cautious on Yes Bank, ICICI, BOI and
SBI.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Financial Sector ----------------------------------------------------- Maintain UNDERWEIGHT
NIM pressures evident, credit quality concerns expected to follow
● Pressure on NIMs is clearly evident in the quarterly results of the
banks released so far. Four of the five banks reported a QoQ
decline in NIMs and/ or had to manage the NIMs by allowing the
LDR to rise. This is in line with our forecasts.
● Going forward, we expect concerns to shift to asset quality.
Historically, slowing credit growth (evident now) and rising interest
rates (trend over the past year) have been accompanied by a
general deterioration in credit quality.
● Strong expansion in bank credit to sectors such as commercial
real estate and power is an added asset quality risk and we prefer
banks such as HDFC Bank and ING Vysya that have lower
exposures to these segments.
● Banks are still trading at or only at a modest discount to their
historical multiples; and, as their profitability comes under
pressure from the twin forces of NIM compression and rise in
credit costs, we see further downside and recommend
UNDERWEIGHT. We are cautious on Yes Bank, ICICI, BOI and
SBI.
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