Oriental Bank of Commerce's (OBC) third quarter net profit plunged 91.3 percent year-on-year to Rs 19.5 crore, dented by reduction in the book value of security receipts. The profitability was also impacted by higher provisions but higher other income restricted fall in profits.
Vaibhav Agrawal, VP - research banking, Angel Broking says on the asset quality front, the numbers were especially disappointing. Slippages must have been high, he adds.
He will revise his target price ahead. According to him, the company's net interest margin is largely in line with expectation.
Below is the verbatim transcript of Vaibhav Agrawal's interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.
Reema: What did you make of Oriental Bank of Commerce’s (OBC) earnings and post this 7 percent cut do you think it is pricing in the bad news from its earnings?
A: The numbers were clearly quite disappointing for OBC especially on the asset quality front. Even excluding the Rs 137 crore prior period item the provisions this time around are much higher than what they have been seeing in the last few quarters. In spite of that their net non performing assets (NPAs) have also increased by Rs 500 crore. Clearly their slippages would have been quite high during this quarter and below rate details on that.
Overall these are pretty poor set of numbers for OBC. Our target price would go under review post these numbers and would come out with a revised target price.
Sumaira: What was your estimate of where their net interest margins could land up? I mean do you see a significant worsening there as well?
A: As far as net interest margins are concerned they broadly delivered in line with expectation. Net interest income growth has been subdued for the banks in last few quarters and 5 percent growth this time around it is broadly inline with our expectation in fact slightly better on the net interest income front.
Other income is higher because of most likely treasury gains it is just that the provision line item is where the real disappointment is which is much higher than the previous quarters.
Reema: The management had told us that you do not expect the slippages or anything to worsen from September levels but going by the asset quality numbers that we have it is quite likely that you know even the other slippages or the restructured assets slightly that it is worsened a bit. So, given thought the high provisions that the bank has made Rs 885 crore this quarter do you think the asset quality is only going to get worse in terms of gross non performing assets (NPA) and you spoke about revising your estimates lower how much lower do you think you could potentially lower it by?
A: As far as estimates are concerned, Rs 500 crore increase in net NPA itself would impact the book value to a similar amount. However, apart from that as far as the trend is concerned we would wait for some management commentary whether there were some large chunky slippages in this quarter because the overall view for the sector still remains plateauing and a sort of gradual improvement in asset quality. So we would not like to straight away assume this indicates more bad news to come in coming quarters and would wait for further management commentary on that.
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