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J&K Bank (JKBK)
Banks/Financial Institutions
Lower provision drives earnings. J&K Bank reported a fairly stable quarter with
earnings growth of 13% yoy driven by sharp decline in provisions (43% yoy) and
healthy NII growth of 16% yoy. NIMs declined 13 bps qoq to 3.7% but a low CD ratio
of 60% and healthy CASA ratio of 40% levels offers comfort. Aggressive loan growth
outside J&K at lower NIMs remains a key risk. There has been limited pressure on asset
quality. Maintain ADD with TP of `950 (from `900 earlier).
Loan growth improves to 20% yoy; maintain a cautious stance on growth outside J&K
After many quarters, J&K Bank has finally stepped up the pace of loan growth. Loan growth grew
by 22% yoy (8% YTD) to `282 bn. 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, in line 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.
Our key risk remains on the 25% growth expectations that the management is targeting in
FY2012-13E. As against our initial expectation of growth outside J&K state, we note that the bank
is targeting a more balanced approach. However, growing aggressively outside J&K, to make up
for any shortfall in growth, is likely to be margin dilutive - 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).
NIMs decline 13 bps qoq to 3.7%; CD ratio comfortable at 59%
Net interest income increased by 16% yoy ( -1% qoq) to `4.3 bn but NIM declined 13 bps qoq on
the back of relatively lower improvement in investment yields and decline in CD ratio. Yield on
advances improved by 90 bps qoq while yields on the investment portfolio improved only by 38
bps qoq. Cost of deposits increased by 79 bps qoq. Despite a low CD ratio, the bank continued to
mobilize deposits. Deposit growth was in line with loan growth at 20% yoy (10% qoq increase) to
`474 bn. CASA ratio for the quarter declined marginally to 38%. Given the low CD ratio of the
bank at 60% levels and high CASA ratio, J&K Bank would see limited downside risk to NIMs.
Asset quality stable; coverage ratio healthy, remains comfortable at 90% levels
Balance sheet continues to remain impressive with limited asset quality concerns. Gross NPLs
increased in line with balance sheet growth at 20% yoy to 1.9% of loans (`6.4 bn in September
2011 compared to `5.1 bn in September 2010). Coverage ratio (excluding write-offs) at 90%
levels is one of the best in the industry today. Net NPLs are currently at 0.2% of loans. Healthy
coverage ratio offers strong comfort against any sharp deterioration in macro environment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
J&K Bank (JKBK)
Banks/Financial Institutions
Lower provision drives earnings. J&K Bank reported a fairly stable quarter with
earnings growth of 13% yoy driven by sharp decline in provisions (43% yoy) and
healthy NII growth of 16% yoy. NIMs declined 13 bps qoq to 3.7% but a low CD ratio
of 60% and healthy CASA ratio of 40% levels offers comfort. Aggressive loan growth
outside J&K at lower NIMs remains a key risk. There has been limited pressure on asset
quality. Maintain ADD with TP of `950 (from `900 earlier).
Loan growth improves to 20% yoy; maintain a cautious stance on growth outside J&K
After many quarters, J&K Bank has finally stepped up the pace of loan growth. Loan growth grew
by 22% yoy (8% YTD) to `282 bn. 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, in line 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.
Our key risk remains on the 25% growth expectations that the management is targeting in
FY2012-13E. As against our initial expectation of growth outside J&K state, we note that the bank
is targeting a more balanced approach. However, growing aggressively outside J&K, to make up
for any shortfall in growth, is likely to be margin dilutive - 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).
NIMs decline 13 bps qoq to 3.7%; CD ratio comfortable at 59%
Net interest income increased by 16% yoy ( -1% qoq) to `4.3 bn but NIM declined 13 bps qoq on
the back of relatively lower improvement in investment yields and decline in CD ratio. Yield on
advances improved by 90 bps qoq while yields on the investment portfolio improved only by 38
bps qoq. Cost of deposits increased by 79 bps qoq. Despite a low CD ratio, the bank continued to
mobilize deposits. Deposit growth was in line with loan growth at 20% yoy (10% qoq increase) to
`474 bn. CASA ratio for the quarter declined marginally to 38%. Given the low CD ratio of the
bank at 60% levels and high CASA ratio, J&K Bank would see limited downside risk to NIMs.
Asset quality stable; coverage ratio healthy, remains comfortable at 90% levels
Balance sheet continues to remain impressive with limited asset quality concerns. Gross NPLs
increased in line with balance sheet growth at 20% yoy to 1.9% of loans (`6.4 bn in September
2011 compared to `5.1 bn in September 2010). Coverage ratio (excluding write-offs) at 90%
levels is one of the best in the industry today. Net NPLs are currently at 0.2% of loans. Healthy
coverage ratio offers strong comfort against any sharp deterioration in macro environment.
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