ING Vysya Bank - Steady quarter, encouraging signs on operating leverage front::Credit Suisse

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● ING Vysya reported healthy 1Q FY12 results on 18 July. Asset
growth was strong (5% QoQ) and operating costs fell (14% QoQ)
enabling sequential PAT growth (3%), despite NIM compression
(28 bp QoQ). Credit quality remained sound.
● NIMs contracted (28 bp) QoQ. Cost of deposits rose 79 bp QoQ
and was only partly offset by loan yields (up 43 bp QoQ). Further,
the LDR declined (from 78% to 76%) impacting NIMs by ~8 bp.
NIMs should improve going forward, as wholesale rates have
dropped, assets are repricing and advances should pick up.
● Operating costs dropped on a 14% QoQ basis to levels seen in
2Q and 3Q FY11 levels as the one-off effects of FY11 (pension)
dropped out. Underlying cost growth is expected to be modest this
year as the bank consolidates after a year of investment.
● With strong asset quality and capital position, the bank is well
positioned for accelerated growth. This in turn should result in
improved profitability as operating leverage kicks-in. We maintain
our OUTPERFORM rating with a target price of Rs460.