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Banks See Mixed June Qtr Earnings On Muted Loan Growth

17 July, 2009

Indian mid-cap banks are likely to report mixed numbers in the April-June quarter as muted loan growth put pressure on margins, forcing them to book gains from non-core income, analysts said.

Indian banks’ loan growth has slowed from around 27 percent in November 2008 to 15.8 percent in June 2009, recovering partially to 19.7 percent in July, Reserve Bank of India data showed.
“First quarter was a sedate one in terms of core business growth for banks,” said Vaibhav Agrawal, banking analyst at Angel Broking.
“Net interest incomes are also expected to be lower on slower credit growth,” Agrawal said.
Moreover, the central bank has cut its main lending rate by 425 basis points since last October to lift a slowing economy. Commercial banks have responded by reducing rates by 150-200 basis points since then, analysts said.
Accordingly, temporary re-pricing gaps in loans and deposits would impact net interest margins – a measure of spread between yield on loans and cost of deposits- in the short-term, Angel’s Agarwal said.
In early part of June quarter, bond yields have corrected by 50-100 basis points across maturities, providing profit-taking opportunities, although yields rose in later part of the quarter, analysts said.
Non-core incomes like treasury income, and lower operating expenses are likely to aid earnings, Kotak Securities said in a research note.
“The trend is clear, gains will mostly come from non-core earnings even as margins will be under pressure,” said Alpesh Mehta, analyst with Motilal Oswal.
Non-performing assets, a key concern for banks following the global economic downturn, are also expected to remain stable in the first quarter, analyst reports said.
Bad assets are not expected to rise as most problematic loans have been restructured in March quarter and some would happen in the current quarter, P S Subramaniam, analyst with SBICAP Securities Ltd, said his research note.
However, net interest margins were expected to stabilise from October-December quarter onwards as deposits re-price lower, especially bulk deposits contracted at peak rates during September-October 2008, Angel’s Agrawal added.
Allahabad Bank, reporting results on July 18, is expected to more than double profits to 2.07 billion rupees on better margins and treasury gains, a Reuters poll of brokerages show.
Andhra Bank is set for a 73.37 percent rise in profit to 1.34 billion rupees, while Indian Bank may post a 31.79 percent profit rise to 2.86 billion rupees, it showed.
Union Bank’s profit may jump 50.59 percent to 3.43 billion rupees, while Yes Bank is set for a 41.68 percent rise in profits to 769.75 million rupees.
Yes Bank and Oriental Bank of Commerce will announce results on July 21, while Central Bank of India will announce on July 27 and Syndicate Bank on July 31.


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Banks See Mixed June Qtr Earnings On Muted Loan Growth

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