- Domestic loan growth moderates further on bank’s cautious stance
- NIM weakened in domestic business; bank hopeful of sustaining NIM above 3%
- Fee growth remained disappointing; sharp jump in opex increases C/I ratio
- Asset quality continues to surprise negatively; lower provisioning drives a decline in PCR
- Retain MP with 9-month price target of Rs873
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||88,449||87,226||1.4||76,720||15.3|
|Net Interest Income||28,409||28,623||(0.7)||26,555||7.0|
|(Rs mn)||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Global yield on advances||9.0||9.1||(0.1)||9.5||(0.5)|
|Global yield on inv||7.8||7.8||(0.0)||7.7||0.1|
|Global cost of deposits||5.8||5.9||(0.0)||5.7||0.2|
|Non-interest income (%)||22.8||22.4||0.4||30.2||(7.4)|
|Cost to Income (%)||38.7||35.4||3.3||31.5||7.3|
|Gross NPA (%)||2.4||2.0||0.4||1.5||0.9|
|Net NPA (%)||1.1||0.8||0.3||0.5||0.6|
Domestic loan growth moderates further on bank’s cautious stance
BOB’s loan growth moderated significantly to 15% yoy from 22% yoy in the previous quarter. On sequential basis, it grew by marginal 2% against our expectation of 5-6%. Domestic loan book growth continued to be muted driven by bank’s cautious stance given challenging credit environment. The domestic credit portfolio has seen a flattish growth in the first nine months of the year. The domestic retail book continues to grow faster and its share increased further to 17.6%. International credit growth remained strong at 5% qoq/22% yoy and its share in overall advances increased to 33%. In our view, BOB may grow 200-300bps behind the system in FY13.
Domestic deposits mobilization also weakens; CASA stabilizes at 32%
Domestic deposits grew by modest 1% qoq/16% yoy. Growth in domestic CASA continued to be sluggish at 10% yoy, but the ratio slightly improved to 32.2% from 31.7% in the previous quarter. Savings deposits growth remained muted at 11% yoy due to attractive retail TD rates. In our view, CASA ratio would improve in the longer term aided by softening of retail TD rates, improved maturity of branched added in rural/semi-urban during FY11/12 and better liquidity conditions. The bank has added 231 branches in 9M FY13 and plans to add 365 branches in Q4.
NIM weakened in the domestic business; bank hopeful of sustaining NIM above 3%
BOB’s domestic NIM declined 15bps qoq to 3.1% during Q3 FY13. While the cost of deposits was static, yield on advances came off 18bps qoq driving the margin lower. The lending yield would remain under pressure as the bank has announced further 25bps Base Rate cut recently. On the other side, domestic NIM would receive support from re-pricing of retail TDs at lower rates, productive use of balance sheet liquidity and significant reduction in high-cost bulk deposits (currently at ~Rs490bn against ~Rs820bn in March 2012; targeting Rs320bn by Q4 FY13 end). International NIM improved marginally to 1.6% aided by decline in funding cost. In the medium-to-longer term, we expect BOB to sustain domestic NIM above 3%.
Fee growth remained disappointing; sharp jump in opex increases C/I ratio
Fee growth weakened further to being flat on yoy basis. We lower our fee growth assumption for FY13 to 2-3%, significantly behind the growth in balance sheet. Trading profit at Rs1.4bn was higher than Q2 FY13. Both the employee cost and other opex increased materially by 6% qoq and 13% qoq respectively. Resultantly, the cost/income ratio deteriorated significantly to 38.7%.
Asset quality continues to surprise negatively; lower provisioning drives a PCR decline
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