ICICI Bank’s planned $4.3 billion(Rs17,630 crore) domestic and international stock offering won’t be as large as China Citic Bank’s April sale of $5.4 billion of securities. The banks are of similar size and their deals’ pricing, comparable.
However, ICICI is India’s second largest bank, whereas China Citic is only the eighth largest bank in China. That, combined with China’s bad debt problem, makes the Indian investment a smarter choice.
ICICI has $79 billion total assets compared with $85 billion for Citic. Both banks have large affiliates carrying out brokerage and insurance, not directly owned by the banks themselves. Their stock ratings are also similar—at 27 times forecast earnings and 3.8 times book value for ICICI compared with Citic’s 32 times forecast earnings and 2.5 times book value.
Citic is currently more profitable, and has a larger capital base in terms of its total assets. That can be regarded either way; one can argue that ICICI has more room to eliminate inefficiencies or that Citic has more room to grow.
However, the two market positions are very different.
Citic is predominantly state-owned and only the eighth largest bank in China. It faces severe competition from banks such as Industrial and Commercial Bank of China, eight times its size.
Moreover, even though it operates in China’s most market-friendly region, it is unlikely to have escaped the overhang of bad loans in the Chinese banking system. That was estimated at $911 billion, about 30% of total loans, by Ernst and Young in May 2006, and may have grown since.
Citic’s own non-performing loans were 2.7% of loans in 2006, but that would not include loans that were being rolled over. A liquidity crisis in China could thus cause a banking system collapse.
ICICI is a private sector bank, the largest in India, where only State Bank of India is larger. Its non-performing loans ratio is 1.4%, and there seems no reason to suppose any great probability of a systemic collapse. Thus, ICICI’s upside potential as India grows appears greater than Citic’s and its downside risk much less.