ICICI Bank (IBN) Stock Up 9.2% Despite Lower Q3 Earnings

ICICI Bank IBN reported third-quarter fiscal 2019 (ended Dec 31) net income of INR16.05 billion ($230 million), down 3% year over year.

Despite decline in net income, shares of ICICI Bank gained 9.2% on the NYSE following the earnings release. Perhaps improvement in asset quality and higher loans and deposits were the primary reasons for the bullish investor sentiment.

Also, rise in net interest income, higher non-interest income and strong capital position were the tailwinds. These were partially offset by an increase in operating expenses.

Growth in Revenue Components Offset by Higher Expenses

Net interest income jumped 21% year over year to INR68.75 billion ($985 million). Net interest margin was 3.40%, up 26 basis points (bps) from the year-ago quarter.

Non-interest income, excluding treasury income, came in at INR34.04 billion ($488 million) up 10% from the prior-year quarter. Notably, fee income increased 16% to INR30.62 billion ($439 million).

Operating expenses totaled INR46.12 billion ($661 million), increasing 21% year over year.

Loans & Deposits Increase

As of Dec 31, 2018, ICICI Bank’s total advances amounted to INR5,643.08 billion ($80.9 billion), up 12% year over year. The rise was mainly driven by 22% loan growth in the retail segment.

Total deposits grew 17% from the prior-year quarter to INR6,067.55 billion ($87 billion) as of Dec 31, 2018. Moreover, as of the same date, current and savings account ratio was 49.3%.

Credit Quality Improves

As of Dec 31, 2018, net nonperforming assets (NPA) ratio was 3.58%, decreasing 107 bps sequentially. This was the lowest figure over the last 12 quarters.

Further, gross NPA additions declined 33% sequentially to INR20.91 billion ($300 billion) as of Dec 31, 2018. Recoveries, upgrades and resolution of non-performing loans through sale were INR40.63 billion ($582 million) during the reported quarter.

However, provisions and contingencies were up 6% from the prior quarter to INR42.44 billion ($608 million).

Strong Capital Ratios

In compliance with the Reserve Bank of India's guidelines on Basel III norms, ICICI Bank's capital adequacy was 17.15% and Tier-1 capital adequacy was 15.14% as of Dec 31, 2018. Both the ratios were well above the minimum requirements.

Our Take

ICICI Bank seems to have reported a decent quarter. Improving asset quality is a major tailwind, which is expected to support the company's financial performance, going forward. While mounting expenses (owing to continued investment in franchise and digital initiatives) are likely to adversely impact the bank’s bottom line, it remains well positioned to capitalize on growth opportunities driven by increased dependence on domestic loans and a stable fund base.

ICICI Bank currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Release Dates of Other Foreign Banks

UBS Group AG UBS reported fourth-quarter 2018 net profit attributable to shareholders of $696 million against loss of $2.4 billion in the prior-year quarter. Notably, the company’s performance in the quarter reflects lower expenses. However, results were affected by fall in net fee and commission income (down 2.1% year over year) and lower net interest income (down 13%).

HSBC Holding HSBC and Barclays BCS are scheduled to announce results on Feb 19 and Feb 21, respectively.

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