United Bank-BUY
3Q earnings are expected to be fairly healthy notwithstanding the poor stock sentiment and overhang of asset quality and growth issues. Balance sheet growth is likely to be 3-4% sequentially and margins too are likely to improve sequentially as the base rate hikes of July take full impact and lower slippages should take away less from interest income as system-based NPL recognition no longer remains an overhang.
3Q earnings are expected to be fairly healthy notwithstanding the poor stock sentiment and overhang of asset quality and growth issues. Balance sheet growth is likely to be 3-4% sequentially and margins too are likely to improve sequentially as the base rate hikes of July take full impact and lower slippages should take away less from interest income as system-based NPL recognition no longer remains an overhang.
PSU banks are likely to fare well at the operating profit level (15% y/y growth) given
better margins. However, 33% y/y increase in provisions is likely to translate into 12% net profit growth. On a sequential basis however, provisions are likely to be lower (for reasons mentioned above) propping up net profit growth by 19%. PVT banks are likely to fare almost equally well as their PSU peers except that provisioning pressure isn't likely to be as much leading to 20% y/y net profit growth.
better margins. However, 33% y/y increase in provisions is likely to translate into 12% net profit growth. On a sequential basis however, provisions are likely to be lower (for reasons mentioned above) propping up net profit growth by 19%. PVT banks are likely to fare almost equally well as their PSU peers except that provisioning pressure isn't likely to be as much leading to 20% y/y net profit growth.
Margins & Asset quality: We are likely at near peak margin levels this and next quarter
after which any rate cuts would likely impact loan yields quicker than deposit costs. Also, we may see improved NPL recoveries and optically lower slippages particularly at PSU banks as system-recognition of NPLs ended in Sep11. However, we see the scope of increasing loan restructurings across a variety of sectors including SEBs, airlines, metals and various export-linked SMEs which is likely to act as a continuous sentiment dampener until clarity emerges on a turning economic cycle.
after which any rate cuts would likely impact loan yields quicker than deposit costs. Also, we may see improved NPL recoveries and optically lower slippages particularly at PSU banks as system-recognition of NPLs ended in Sep11. However, we see the scope of increasing loan restructurings across a variety of sectors including SEBs, airlines, metals and various export-linked SMEs which is likely to act as a continuous sentiment dampener until clarity emerges on a turning economic cycle.
Capital requirements: A host of PSU and PVT banks are likely to see capital infusion over the next 2 years, the former mainly from the Government and the latter mainly from the markets. With Basle-3 draft guidelines under debate and implementation spread over FY12-18, banks with higher capital levels are likely to be viewed more positively, including HFCs.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
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