Banks net to plunge 11% QoQ: StanChart Secs

Led by state-run banks which are set to report increased strains on asset quality, the banking sector is set to see profits decline by 11% in Q1 sequentially but a 43% spike in the same on an annualised basis, says a StanChart Securities report.
 
The state-run banks will see increased strains on their asset quality and more loan recasts pulling down their first quarter profit by 14 percent quarter on quarter (QoQ), though there will a full 53% spike in post-tax profit on an annualised basis, says the report.
 
With a comparatively better show by the private sector banks, the report says overall earnings for banks will see a likely decline of 11% quarter on quarter (QoQ) but an annualised growth of 43%.
 
The report further says though private sector banks remain better placed in terms of overall asset quality, they too will see stress on their assets with the overall profit declining by 5% QoQ and a growth of 30% year on year (YoY).
 
"We expect net profit for state banks to grow 53% year-on-year (primarily due to the low base effect for SBI) and decline 14% quarter on quarter in the first quarter of the fiscal.
 
"We expect net profit for private banks to grow 30% YoY and decline 5% QoQ. Overall earnings for banks will likely grow 43% YoY and decline 11% QoQ," the report titled 'India Financial-Q1FY13-Stress loans in focus again' prepared by Mahrukh Adajania and Rounak Agarwal of StanChart Securities said here today.
 
The report attributes poor number to flat loan growth, sharp growth in overseas loans due to rupee fall, high trading gains and/or write-back of investment depreciation due to volatility in G-secs and corporate bond yields, pressure on core fee income due to weak corporate activity, lower quarterly net interest margins due to high cost of deposits but no material dip and lower tax rates.

On the asset quality side, the report says, "the asset quality will remain mixed. Private banks will likely continue to show stable slippages and restructuring but the  state-run banks will be a mixed bag."
 
There is a high probability that State Bank will show lower than guided slippages, the report says, adding so will Punjab National Bank and Bank of Baroda which are also likely to show QoQ improvement in slippages but fresh restructuring.
 
However, due to the large exposure to SMEs both Allahabad Bank and Union Bank are likely see higher slippages and/or fresh loan restructuring, says the report, adding the same remains high for Bank of India as well.
 
On the trading front, the report says all the private banks are likely to show strong earnings and asset quality and hence the brokerage sees strong trading gains on Axis Bank due to the Max sale, followed by HDFC Bank and ICICI Bank .
 
From the state-run packs include PNB. On BoB it warned that the change of guard will remain a key overhang for the city-based lender.