ICICI Bank Ltd.’s IBN second-quarter fiscal 2016 (ended Sept. 30) net profit came in at INR30.30 billion ($462 million), up 12% year over year.
Results benefited from a rise in net interest income and non-interest income, partly offset by mounting operating expenses. Capital ratios remained strong, while growth in loan and deposit balances was impressive. However, continued deterioration in asset quality was a headwind for the quarter.
Details
Net interest income grew 13% year over year to INR52.51 billion ($801 million). Net interest margin improved 10 basis points to 3.52%.
Non-interest income was INR30.07 billion ($458 million), up 10% from the prior-year quarter. The reported quarter included INR1.90 billion ($29 million) net foreign exchange gains relating to overseas operations.
Operating expenses totaled INR31.00 billion ($477 million), increasing 15% year over year. The increase was primarily triggered by expansion of the bank’s branch network. ICICI Bank has the largest branch network among private sector banks in India. As of Sep 30, 2015, the company had 4,054 branches and 12,964 ATMs.
Additionally, the cost-to-income ratio was 37.5%, up from 36.5% recorded a year ago.
ICICI Bank’s credit quality continued to worsen. As of Sep 30, 2015, net nonperforming assets were INR68.28 billion ($1.04 billion), surging 71% year over year. Further, provisions increased 11% year over year to INR9.42 billion ($144 million).
As of Sep 30, 2015, ICICI Bank’s total advances amounted to INR4,096.93 billion ($62.5 billion), up 13% year over year. The rise was mainly driven by robust growth in the retail segment, with a 25% year-over-year increase in total retail loan portfolio.
ICICI Bank’s total deposits rose 9% year over year to INR3,846.18 billion ($58.6 billion) as of Sep 30, 2015. Moreover, as of the same date, the current and savings account (“CASA”) ratio came in at 45.1%.
In compliance with the Reserve Bank of India's guidelines on Basel III norms, ICICI Bank's capital adequacy was 16.15% and Tier-1 capital adequacy was 12.09% as of Sep 30, 2015. These stood well above the minimum requirements.
Our Take
We believe the company’s increased dependence on domestic loans, focus on improving fee income, a stable fund base and market leadership in the insurance business will continue to generate synergies. Moreover, the company will carry on with its expansion in India and other overseas locations.
However, a highly competitive operating environment, continuously rising expenses, deteriorating asset quality and stringent regulatory requirements will likely dampen ICICI Bank’s financial performance.
At present, ICICI Bank carries a Zacks Rank #4 (Sell).
Other Foreign Banks
HDFC Bank Ltd. HDB reported second-quarter fiscal 2016 (ended Sep 30) net profit of INR28.70 billion ($0.44 billion), up 20.5% year over year. Quarterly results continued to reflect top-line growth with both net interest income and non-interest revenues recording a rise. However, elevated operating expenses as well as provisions marginally weighed on the results.
Including certain one-time expenses, Deutsche Bank AG DB reported net loss of €6 billion ($6.7 billion) in the third quarter of 2015, as compared to €92 million ($122 million) in the prior-year quarter. Lower provision for credit losses was the positive. However, higher non-interest expenses due to litigation provisions and decline in revenues were the concerns.
Mitsubishi UFJ Financial Group, Inc. MTU is scheduled to announce results on Nov 13.
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