ICICI Bank Limited’s (IBN) fiscal first quarter 2012 (ended June 30, 2011) profit came in at INR13.32 billion (US$298 million), up 29.8% from INR10.26 billion (US$230 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. However, higher operating expenses and lower other non-interest income were the headwinds. 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 21% year over year to INR24.11 billion (US$539 million) from INR19.91 billion (US$230 million) reported in the prior-year quarter. Similarly, the company’s fee income also improved 12% year over year to INR15.78 billion (US$353 million) from INR14.13 billion (US$316 million).
Operating expenses for the quarter totaled INR17.74 billion (US$392 million), up 24.5% 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. At June 30, 2011, the bank had 2,533 branches.
Provisions for the reported quarter plummeted 43% year over year to INR4.54 billion (US$102 million).
At June 30, 2011, ICICI Bank’s total advances were INR2,206.93 billion (US$49.4 billion), up 20% from INR1,843.78 billion (US$41.2 billion) at June 30, 2010.
As of June 30, 2011, ICICI Bank’s savings account deposits grew 18% year over year to INR668.58 billion (US$15.0 billion). The current and savings account (CASA) ratio dropped to 41.9% as of June 30, 2011 from 42.1% as of June 30, 2010, despite the systemic decline in demand deposits.
Asset Quality
ICICI Bank witnessed a continuous improvement in asset quality during the quarter under review. Net nonperforming assets fell 33.0% year over year to INR23.51 billion (US$526 million) as of June 30, 2011. The bank's net nonperforming asset ratio stood at 0.91%, down 71 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 19.57% and Tier-1 capital adequacy was 13.36% as of June 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 first quarter 2012 net profit of INR10.85 billion (US$0.24 billion), which marked an impressive 33.7% increase over the prior-year quarter. Results improved primarily on a strong growth in net revenue and a decline in provisions and contingencies (primarily comprising loan loss provisions), partially offset by higher operating expenses.
Our Viewpoint
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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