Mumbai: ICICI Bank, India’s largest private-sector bank, said investment losses caused by market turmoil in the wake of the subprime crisis could wipe up to 9% off this year’s profit.
ICICI’s shares dropped more than 9% to their lowest since last September before trimming losses to end down 5.2% after the bank said the loss came from its investments being marked to market — assigned a value at current market prices — rather than provisioning for a subprime loss as many large international banks have done.
“We don’t have any direct exposure to subprime. It’s not technically a subprime loss,” joint managing director Chanda Kochhar said in a conference call with reporters.
The bank did not specify what financial instruments were behind the losses.
Minister of state for finance Pawan Kumar Bansal earlier told parliament that following the subprime crisis, ICICI Bank’s foreign operations had reported a marked-to-market loss of $264.34 million from its exposure to credit derivatives and investments as on 31 January.
Kochhar said the bank had already provided for $90 million, including $20 million for its subsidiaries, and would provide for another $70 million, including $20 million for subsidiaries.
The figure stated by the minister would be accurate only if the bank sold its securities, which it did not intend to do at present, she said.
Asked about the impact on the bank’s profit, she said: “It would be a single-digit number.”
ICICI Bank, which has a market value of about $27 billion, reported a profit of $313 million in the December 2007 quarter, and is expected to post a full-year profit of $1 billion in the fiscal year ending 31 March, according to Reuters Estimates.
Kashyap Jhaveri, banking analyst at Emkay Share and Stock Brokers said the impact of profit may be 5%.
“There could be a 5% hit on the full-year bottom line. They are saying they will take another $50 million this quarter, which looks okay. But the figure $264 million is a bit stretching,” he said
“Anyway, at this price I am positive on the ICICI stock. And I am positive on the whole banking sector in the longer run, even though there are short-term concerns.”
V.K. Sharma, head of research at Anagram Stock Broking, said the impact may be higher and more details were needed.
“If the provisioning is because of the derivative products sold to their clients, then the repercussions could be larger. We could be seeing other banks also making such announcements.”
“That’s why public sector banks look better. (They) would not do anything wrong because of the government control.”
Kochhar said ICICI Bank directly held securities with a face value of $1.6 billion, and a subsidiary held securities worth $0.5 billion.
“The face value continues to remain the same because there is no default and everybody is paying as per schedule,” she said.
She said these securities had a payment schedule of four to four-and-a-half years.
“When we recoup it over a four-year period, the benefit will come back to the profit-and-loss account.”
Indian banks are believed to have little or no direct exposure to problems in the US subprime mortgage lending market, which have hammered many US and European banks as well as some Asian peers.
Kochhar said the bank had suffered only because of the interest rates.
“In general, interest rates have widened in the global economy, and since this is a portfolio of securities you have to mark this to the global interest rates as they move globally. That is the indirect impact,” she said.
ICICI Bank’s shares fell as much as 9.3%, touching their lowest since 18 September2007, and closed down 5.2% at 971.60, their weakest finish since 21 September 2007, in a Mumbai market that fell 2%.