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Banks see mixed June quarter earnings on muted loan growth

Banks see mixed June quarter earnings on muted loan growth
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First Published: Fri, Jul 17 2009. 11 01 AM IST
Updated: Fri, Jul 17 2009. 11 01 AM IST
Mumbai: 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% in November 2008 to 15.8% in June 2009, recovering partially to 19.7% 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, PS 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 18 July, is expected to more than double profits to Rs2.07 billion on better margins and treasury gains, a Reuters poll of brokerages show.
Andhra Bank is set for a 73.37% rise in profit to Rs1.34 billion, while Indian Bank may post a 31.79% profit rise to Rs2.86 billion, it showed.
Union Bank’s profit may jump 50.59% to Rs3.43 billion, while Yes Bank is set for a 41.68% rise in profits to Rs769.75 million.
Yes Bank and Oriental Bank of Commerce will announce results on 21 July, while Central Bank of India will announce on 27 July and Syndicate Bank on 31 July.
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First Published: Fri, Jul 17 2009. 11 01 AM IST