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ING Vysya Bank: NIMs at six year high

Oct 20, 2012

ING Vysya Bank declared the results for second quarter and first half of financial year 2012-13 (1HFY13). The bank has reported 26% YoY growth in net interest income for 1HFY13 while net profits have grown by 34% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows 32% YoY in 1HFY13 backed by 21% YoY growth in advances.
  • Net interest margin improves to 3.4% in 1QFY13 from 3.2% in 1HFY12.
  • Cost to income ratio comes down to 58% in 1HFY13 from 62% in 1HFY12.
  • Bottomline grows 34% YoY in 1HFY13 despite higher loan loss provisioning.
  • Net NPA to advances at 0.1%, provision coverage at 93% in 1HFY13. The bank has, however, not divulged the restructured assets at the end of the second quarter.
  • Capital adequacy ratio (CAR) at 13.0% in September 2012 as against 15.0% in September 2011.

(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Interest income 9,330 11,975 28.3% 18,038 23,687 31.3%
Interest Expense 6,295 8,288 31.7% 12,382 16,569 33.8%
Net Interest Income 3,035 3,687 21.5% 5,656 7,118 25.8%
Net interest margin (%)       3.2% 3.4%  
Other Income 1,625 1,689 3.9% 3,029 3,398 12.2%
Other Expense 2,767 3,100 12.0% 5,323 6,067 14.0%
Provisions and contingencies 175 64 -63.4% 236 330 39.8%
Profit before tax 1,718 2,212 28.8% 3,126 4,119 31.8%
Tax 565 710 25.7% 1,031 1,317 27.7%
Profit after tax/ (loss) 1,153 1,502 30.3% 2,095 2,802 33.7%
Net profit margin (%) 12.4% 12.5%   11.6% 11.8%  
No. of shares (m)         151.3  
Book value per share (Rs)*         276.6  
P/BV (x)         1.6  
*Book value as on 30th September 2012

What has driven performance in 1HFY13?
  • Backed by rise in exposure to retail loans (particularly personal loans and vehicle loans), the growth in loan book and deposits for ING Vysya Bank in 1HFY13, have been well in line with expectations. At 21% YoY growth in advances, the bank managed to catch up with some of its larger peers in private sector banking. During the second quarter the bank received repayment of Rs 11 bn of loans from a corporate client in the telecom space. Also 81% of the retail loan book at the end of September 2012 was concentrated in mortgages (16% of overall credit book). While the accretion of low cost deposits slowed down, the bank managed to avert the pressure on its net interest margins due to re-pricing of deposits. The bank's proportion of CASA deposits improved marginally to 32.8% in 1HFY13 from 32.6% in 1HFY12. The NIMs may not be sustainable at the current level of 3.4% (six year high). However, as the bank grows its franchise and re-prices its assets, we expect them to bring in more long term stability in ING's margins.

    Steady pace of growth
    (Rs m) 1HFY12 % of total 1HFY13 % of total Change
    Advances 248,591   300,403   20.8%
    Retail 69,605 28.0% 77,504 25.8% 11.3%
    Corporate 178,986 72.0% 222,899 74.2% 24.5%
    Deposits 307,123   361,694   17.8%
    CASA 99,970 32.6% 118,508 32.8% 18.5%
    Term deposits 207,153 67.4% 243,186 67.2% 17.4%
    C/D ratio 80.9%   83.1%    

  • ING Vysya has made a commendable effort in improving its cost efficiency over the years. From having one of the highest cost to income ratio in the sector, ING Vysya has effectively put an effort on this front since FY10. In 1HFY13 too, the cost to income ratio stood at 58% as against 62% in 1HFY12. There was however no addition to branches over the last 12 months. Also the bank has reduced the number of temporary sales staff. The average number of salary accounts though has doubled over the last two years bringing in more CASA. Also one needs to note the fact that ING's cost to income ratio has now come very close to most large PSU and private sector banks.

  • ING Vysya has in the past few quarters also addressed its concerns with regard to its lower provision coverage. The bank's NPA coverage ratio has gone up from 84.8% (in 1HFY12) to 93.1% in 1HFY13. While the net NPA level has come down to 0.1% from 0.3% in the past 12 months, the gross NPAs decreased from 2.0% of advances in 1HFY12 to 1.9% of advances in 1HFY13. The bank believes that most of the slippages that were coming from personal loans segment have now been curtailed. Having said that, unlike most of its peers, ING has not clearly divulged the quantum of loans in its restructured loan book. 36% of the bank's loan customers were rated AAA to AA at the end of September 2012.

  • The proportion of other income to total income has dropped from 35% to 32% over the years and needs improvement to enhance the quality of earnings. Fee to total income was at 16.3% as against 19.7% at the end of FY12.

What to expect?
At the current price of Rs 449, the stock is trading at 1.1 times our estimated FY15 adjusted book value. While we are enthused by the bank's emphasis on cost reduction measures and margin sustainability, marginal deterioration in asset quality cannot be ruled out. Going forward however, ING Vysya Bank is expected to have a streamlined approach for the future growth of the bank. We reiterate our Buy recommendation on the stock.

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