banks: Q4 earnings: Street bets on corporate banks to shine all else in financials

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Mumbai: Corporate banks are set to drive earnings recovery for the banking sector in March quarter, helped by a decline in credit costs, expanding margins and also a lower base.

Relatively lower provisioning requirements, as analysts believe there is negligible unrecognised stress in the system, are also likely to help bank earnings on improving asset quality.

“We expect bank earnings to pick up sharply, led by stable/expanding NIMs ( net interest margins), moderate credit costs, stability in fee income and treasury book. The margin cycle is set to recover as loan book re-prices over FY19, offsetting the impact of higher cost of funds,” Motilal Oswal said in a note.

Motilal Oswal Securities expects private banks to report around 79 per cent year-on-year (YoY) net profit growth, led by a sharp pick-up in profitability of Axis Bank and ICICI Bank as the provisioning requirement moderates.

However, net profit growth is likely to remain muted at around 2 per cent sequentially, as banks will be making higher provisioning towards IL&FS exposure (like IndusInd Bank) and the resolution of key NCLT cases is getting delayed, Motilal Oswal analysts said.

The brokerage expects state-run banks to report net profit growth of around 2 per cent sequentially on the back of lower slippages and a decline in the provisioning requirement, though it remain optimistic on the earnings trajectory during fiscal years 2020 and 2021.

Deutsche Bank analysts expect Nifty Financials to report a robust increase in net income — 430 per cent YoY.

“The results should be aided by strong loan growth, improving NIMs and lower slippages, besides the supportive base effect. NBFC development has also been favorable for banks, helping growth and pricing power increment all,’ Deutsche Bank analysts said.

Kotak Institutional Equities expects banks under coverage to show stable operating performance though the massive recapitalization in public banks could result in lower net NPL ratios for them.

Kotak analysts said loan growth has been stable at around 14-15 per cent for the quarter with negligible pricing pressure resulting in net interest income (NII) growth of 21 per cent.

“Asset quality will show further improvement. We maintain our positive outlook on corporate banks (ICICI Bank and SBI). IndusInd Bank would have a challenging quarter (IL&FS exposure) while HDFC Bank would be in focus on revenue composition. Third-party fees would be lower considering revision on upfront/trail fees from mutual funds. Yes Bank would see a sharp slowdown in business growth and the commentary from the new management would be a key monitorable,” said Kotak analysts.

In a note on April 10, CLSA said it expects banks under its coverage to see an around Rs 50,000 crore swing in profit as they turn from a loss of Rs 32,000 crore in March quarter of 2018, to a profit of around Rs 15,000 crore this March quarter.

“ A fall in credit costs is a key driver, so PSUs and corporate private banks will see the highest delta,” CLSA analysts said.

“Even in terms of NII, this should be among the best quarters as buoyant loan growth, peak margins, and a low base drive a 21% YoY rise,” the CLSA analysts said.



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