ICICI Bank Limited’s (IBN) fiscal second quarter 2012 (ended September 30, 2011) profit came in at INR15.03 billion (US$307 million), reflecting a 22% surge from INR12.36 billion (US$252 million) in the year-ago quarter.
Improved results were primarily driven by higher net interest income, fee income and a substantial decline in loan loss provisions, partly mitigated by higher operating expenses. Additionally, asset quality continued to show signs of betterment and capital ratios remained strong during the quarter.
Quarterly Details
ICICI Bank’s net interest income surged 14% year over year to INR25.06 billion (US$512 million) from INR22.04 billion (US$450 million) reported in the prior-year quarter. Similarly, the company’s fee income also improved 7% year over year to INR17 billion (US$347 million) from INR15.90 billion (US$325 million).
Operating expenses for the quarter totaled INR18.44 billion (US$400 million), up 23.0% year over year. The increase was primarily a result of the enhanced branch network.
ICICI Bank has the largest branch network among private sector banks in India. As of September 30, 2011, the bank had 2,535 branches and 6,913 ATMs.
Provisions for the reported quarter declined 50% year over year to INR3.19 billion (US$65 million).
As of September 30, 2011, ICICI Bank’s total advances were INR2,339.52 billion (US$47.8 billion), up 20% from INR1,942.01 billion (US$39.6 billion) at September 30, 2010.
As of September 30, 2011, ICICI Bank’s savings account deposits totaled INR701.49 billion (US$14.3 billion) while current account deposits were INR329.97 billion (US$6.7 billion). Despite the systemic decline in demand deposits as of September 30, 2011, the current and savings account (CASA) ratio dropped to 42.1% from 44.0% as of September 30, 2010.
Asset Quality
ICICI Bank witnessed a continuous improvement in asset quality during the quarter under review. As of September 30, 2011, net nonperforming assets were INR22.36 billion (US$457 million) sinking 30% from INR31.92 billion (US$652 million) in the prior-year quarter. The bank's net nonperforming asset ratio stood at 0.80%, down 57 basis points from the year-ago period.
Capital Ratios
As per the Reserve Bank of India's Basel II norm, ICICI Bank's capital adequacy was 18.99% and Tier-1 capital adequacy was 13.14% as of September 30, 2011, well above the requirements of 9.0% and 6.0%, respectively.
Competitor Performance
ICICI Bank’s close peer HDFC Bank Ltd. (HDB) reported fiscal second quarter 2012 (ended September 30, 2011) net profit of INR11.99 billion (US$0.26 billion), up 31.5% over the prior-year quarter. Results improved primarily based on strong growth in net revenue and a decline in provisions and contingencies (primarily comprising loan loss provisions), partially offset by higher operating expenses.
Our Take
We are concerned about ICICI Bank’s highly competitive operating environment and below-average credit quality. Nevertheless, we anticipate continued synergies from the company’s increased dependence on domestic loans, almost stable funding base, improving asset mix and enhanced pricing power.
ICICI Bank currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. However, considering the fundamentals, we maintain our long-term “Neutral” recommendation on the stock.
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