Foreign banks register strong profit growth4 min read . Updated: 14 Jul 2015, 12:22 AM IST
Deutsche Bank and Standard Chartered see profits almost double in fiscal 2015; high NPAs still an issue
Foreign banks led by Deutsche Bank AG and Standard Chartered Plc reported strong profit growth from their Indian operations in the year ended 31 March on demand for loans and income from trading.
However, the spectre of non-performing assets (NPAs) have continued to haunt these banks. Standard Chartered and Hong Kong and Shanghai Banking Corp. Ltd (HSBC) have seen a rise in bad loans as a percentage of total advances, even as Singapore-based DBS Bank Ltd slipped to its first loss in India as it set aside money to cover bad loans because of delinquencies the bank suffered in the previous fiscal year.
Net profits of both Deutsche as well as Standard Chartered almost doubled in the year ended 31 March from the previous fiscal year. Citibank NA, however, maintained its position as the most profitable foreign bank in India.
Standard Chartered’s net profit rose 93% to ₹ 3,051 crore in the year ended March from ₹ 1,584 crore in the previous year, helped by a drop in provisions as it kept expenses under check.
Provisions for NPAs dropped 24% to ₹ 2,862 crore from ₹ 3,743 crore in March 2014 as net NPAs as a percentage of net advances dropped to 0.34% from 0.45% at the end of March 2014. However, the gross NPA ratio increased to 8.9% from 7.82% at the end of March 2014, making it the bank with the second-largest gross NPA ratio in India for the fiscal year ended March.
Only Kolkata-based United Bank of India has a larger portfolio of gross NPAs with 9.49% of its total loans classified as bad.
Standard Chartered declined to comment on its India earnings citing a regulatory “closed period" ahead of their global results for the first half of 2015.
HSBC’s India net profit increased 9% to ₹ 1,629 crore from ₹ 1,490 crore due to a rise in both interest as well as non-interest income. Net NPAs rose to 0.51% from 0.24% in March 2014 while gross NPA inched up to 1.68% from 1.62%. An HSBC spokesman declined to comment on the bank’s results.
DBS Bank was the worst of the large foreign banks in terms of profit, as it reported its first loss in India in financial year 2014-15, weighed down by higher provisions and a write-off of NPAs which had risen sharply in the previous year.
For the year ended 31 March, the bank’s India operations reported a net loss of ₹ 275 crore, compared to a ₹ 2 crore profit in the previous fiscal.
However, the bank bought down its net NPAs to 4.15% of net advances from 10.19% in the year ended March 2014 as it either wrote off or provided for bad loans. Its gross NPAs dropped from the then higher 13.49% in March 2014 to 7.79% in March 2015.
Although foreign banks have done well in terms of profit, they may be besieged by global problems in their home markets, particularly in Europe and also as all the risks that these banks take are not reflected in their Indian balance sheets, said Purvesh Shelatkar, head of research at BoB Capital Markets Ltd, an arm of state-owned Bank of Baroda.
“These banks also give guarantees to companies abroad which may not reflect in their profit numbers but in the current volatile scenario could implode in their faces. All these banks are under some trouble or another and though these banks have reported excellent numbers from India they have done so at times when rates are coming off. Things may get tougher here and globally, and that is when we will know who is better than the rest," Shelatkar said.
Germany’s largest lender Deutsche Bank’s India profit almost doubled to ₹ 1,406 crore in the fiscal year ended March from ₹ 729 crore in 2014, riding on earnings from trading and even as its loan book rose 25% from a year earlier. Lower costs also helped the lender as it cost-to-income ratio, a measure of cost overheads, fell to 35% from 47% in March 2014.
Analysts said these banks rode on trading income as interest rates headed downwards and also because India’s macro economy was in a much better footing last financial year.
Foreign banks were also helped by the fact that their exposure to the troubled infrastructure sector was lower, according to Piyush Singh, managing director of financial services in India at consulting firm Accenture.
“Their books in India are very small compared to their local peers so profits are not large, but yes, we can give them some credit for bringing NPAs under control. However, the real proof of whether they have done well will come in the current fiscal year when they will face increased competition from local lenders as the economy improves," said Singh, who closely works with many foreign banks.
Deutsche Bank’s net NPA inched up to 0.13% from 0.09% last year, however its gross NPA dropped to 0.33% from 0.57% in March 2014.
Citibank’s net profit increased 18% to ₹ 3,423 crore from ₹ 2,893 crore in the previous year, helped by corporate demand for loans and services even as the US-based lender kept costs under check.
Net NPAs improved to 0.4% from 1.24%, while gross NPAs dropped to 1.3% in March 2014 from 2.60% in March 2014.
“Both our corporate and consumer portfolios performed very well during the year, resulting in very healthy NPA levels. The improvement in our NPAs was aided by the successful management and recovery against one large corporate account," Niraj Parekh, chief financial officer at Citibank India, said in reply to an emailed query.