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Friday October 30, 04:50 PM
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ICICI Q2 net up; balance sheet set to grow again
By Narayanan Somasundaram
MUMBAI (Reuters) - ICICI Bank (ICICIBANK.NS : 902 -7.35
), India's No.2 lender, expects its loan book to grow after at least five quarters of contraction as its focus on corporate and mortgage loans gains from a rise in business confidence in Asia's third largest economy.
The bank posted a small but surprise rise in quarterly profit on trading gain and lower costs that offset a rise in bad debts and analysts expected its loan growth to resume from this quarter.
The unexpected net profit rise sent its shares up as much as 4.9 percent on day. By 0943 GMT, the shares were up 2.3 percent at 789.05 rupees.
Rising business confidence in Asia's third-largest economy is expected to bring back corporate, housing, auto and retail demand helping Indian banks boost sagging loan growth.
"We have been a bit skeptical but I think the worst is behind. The bank is looking a lot healthier," said Deven Choksey, CEO of KR Choksey "The stock should get re-rated by 15 to 20 percent." He manages about $120 million in the firm's wealth management arm.
ICICI has slowed lending as it tackles a jump in bad loans in its mainstay retail market.
"There will not be any balance sheet contraction as we are seeing growth in the segments we like," Managing Director Chanda Kochhar told reporters in a conference call.
The bank, which focused largely on the fast-growing retail market dominated by unsecured personal loans, consumer finance and credit cards, is shifting focus to the stable corporate, mortgage and auto sectors.
Kochhar expected the bank to post a single digit loan growth for the year ending March 2010, while analysts estimate it to be between 5-8 percent, still a far cry from a more than 30 percent surge over the past few years.
Analysts expect a full-fledged recovery in the year to March 2011, in line with a banking industry that is expanding its loan book at about 13 percent.
ICICI's positive outlook comes amidst the world's leading banks warning bad debts would continue to weigh and signs of recovery were not clear.
ICICI said its total loan book fell 3.6 percent to $39.7 billion in July-September from the June quarter.
Gross bad debts rose to 4.7 percent of advances from 4.2 percent , but Kochhar said going forward bad debts should start falling as it is in the final stages of restructuring its souring portfolio.
ICICI was not worried by the central bank move to raise provision ratio for bad debts and was awaiting the details, she said.
"On face of it, it looks like a large impact but when the detailing comes out it could look very different," Kochhar said.
ICICI has a provision cover of 52 percent and Nomura estimated the bank's provision shortfall at 13.6 billion rupees.
SURPRISE RISE
The bank said net profit was 10.4 billion rupees ($221 million) in its fiscal second quarter, versus 10.14 billion rupees a year ago, as trading income -- primarily in bonds and shares -- stood at 2.97 billion rupees compared to a loss of 1.53 billion rupees, as markets perked up after the global downturn.
A Reuters poll of analysts had forecast net profit of 9.5 billion rupees.
Trading income has boosted the net profit of almost all Indian banks, including smaller private sector rivals HDFC Bank and Axis Bank.
Top lender State Bank of India (SBIN.NS : 2319 +13.45
) is likely to say July-September profit rose nearly 9 percent, helped by bond trading income, when it reports on Saturday.
At end-September, 10-year bond yields were about 140 basis points lower than a year earlier, while the stock market had risen by about a third. Bond prices move inversely to yields.
ICICI's net interest income -- the difference between interest earned and interest paid -- fell 5.2 percent to 20.36 billion rupees and net interest margin, a key measure of efficiency, rose to 2.5 percent.
The bank's capital adequacy ratio, a measure of its financial efficiency, stood at 17.69 percent from percent in the quarter.
Shares of ICICI, valued at more than $21.3 billion, rose by a quarter in July- September, beating a 20 percent rise in the sector index and an 18 percent gain on the benchmark index.
(Additional reporting by Prashant Mehra; Editing by Deepak Kannan, Jarshad Kakkrakandy)
(For Quotes and Interactive Charts of ICICI Bank click http://in.reuters.com/money/quotes/chart?symbol=ICBK.BO)
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