Mumbai: ICICI Bank, India's No.2 lender, expects its loan book to grow after at least five quarters of contraction as its focus on corporate and mortgage loans gains from a rise in business confidence in Asia's third largest economy.
The bank posted a small but surprise rise in quarterly profit on trading gain and lower costs that offset a rise in bad debts and analysts expected its loan growth to resume from this quarter.
The unexpected net profit rise sent its shares up as much as 4.9 per cent on day. By 0943 GMT, the shares were up 2.3 per cent at Rs 789.05.
Rising business confidence in Asia's third-largest economy is expected to bring back corporate, housing, auto and retail demand helping Indian banks boost sagging loan growth.
"We have been a bit skeptical but I think the worst is behind. The bank is looking a lot healthier," said CEO of KR Choksey Deven Choksey. "The stock should get re-rated by 15 per cent to 20 per cent." He manages about $120 million in the firm's wealth management arm.
ICICI has slowed lending as it tackles a jump in bad loans in its mainstay retail market.
"There will not be any balance sheet contraction as we are seeing growth in the segments we like," said Managing Director Chanda Kochhar.
The bank, which focused largely on the fast-growing retail market dominated by unsecured personal loans, consumer finance and credit cards, is shifting focus to the stable corporate, mortgage and auto sectors.
Chanda expected the bank to post a single digit loan growth for the year ending March 2010, while analysts estimate it to be between 5 per cent to 8 per cent, still a far cry from a more than 30 per cent surge over the past few years.
Analysts expect a full-fledged recovery in the year to March 2011, in line with a banking industry that is expanding its loan book at about 13 per cent.
PAGE_BREAK
ICICI's positive outlook comes amidst the world's leading banks warning bad debts would continue to weigh and signs of recovery were not clear.
ICICI said its total loan book fell 3.6 per cent to $39.7 billion in July-September from the June quarter.
Gross bad debts rose to 4.7 per cent of advances from 4.2 per cent , but Chanda said going forward bad debts should start falling as it is in the final stages of restructuring its souring portfolio.
ICICI was not worried by the central bank move to raise provision ratio for bad debts and was awaiting the details, she said.
"On face of it, it looks like a large impact but when the detailing comes out it could look very different," Chanda said.
ICICI has a provision cover of 52 per cent and Nomura estimated the bank's provision shortfall at Rs 13.6 billion.
Surprise rise
The bank said net profit was Rs 10.4 billion ($221 million) in its fiscal second quarter, versus Rs 10.14 billion a year ago, as trading income - primarily in bonds and shares - stood at Rs 2.97 billion compared to a loss of Rs 1.53 billion, as markets perked up after the global downturn.
A Reuters poll of analysts had forecast net profit of Rs 9.5 billion.
Trading income has boosted the net profit of almost all Indian banks, including smaller private sector rivals HDFC Bank and Axis Bank.
Top lender State Bank of India is likely to say July-September profit rose nearly 9 per cent, helped by bond trading income, when it reports on Saturday.
At end-September, 10-year bond yields were about 140 basis points lower than a year earlier, while the stock market had risen by about a third. Bond prices move inversely to yields.
ICICI's net interest income - the difference between interest earned and interest paid - fell 5.2 per cent to Rs 20.36 billion and net interest margin, a key measure of efficiency, rose to 2.5 per cent.
The bank's capital adequacy ratio, a measure of its financial efficiency, stood at 17.69 per cent from per cent in the quarter.
Shares of ICICI, valued at more than $21.3 billion, rose by a quarter in July-September, beating a 20 per cent rise in the sector index and an 18 per cent gain on the benchmark index.
Comments
0 comment