ICICI Bank's Profit Soars - Analyst Blog

ICICI Bank Limited's (IBN) 2011 fiscal third quarter (ended December 31) profit came in at INR14.37 billion (US$321 million), up 30.5% from INR11.01 billion (US$246 million) in the year-ago quarter.

Results in the reported quarter were primarily driven by higher fee income and a substantial decrease in loan loss provisions. Interest income also improved during the quarter. However, increased operating expenses and lower lease and other income were the downside. However, asset quality continued to show signs of improvement and capital ratios remained strong.

Performance in Detail

ICICI Bank's net interest income increased 12.3% year over year to INR23.12 billion (US$517 million). Fee income increased 14.3% year over year to INR16.25 billion (US$363 million).

Operating expenses were INR17.07 billion (US$382 million), up 27.2% year over year. The increase was primarily a result of enhanced branch network and full impact of the cost of erstwhile Bank of Rajasthan during the quarter. The company had completed the acquisition of Bank of Rajasthan in August 2010.

ICICI Bank has the largest branch network among private sector banks in India. At December 31, 2010, the bank had 2,512 branches.

Loss provisions were down 53.6% year over year to INR4.65 billion (US$104 million).

At December 31, 2010, ICICI bank's total deposits were INR2,177.46 billion (US$48.7 billion), up 10.2% year over year. Total advances were INR2,066.92 billion (US$46.2 billion), up 15.3% from INR1,792.69 billion (US$40.1 billion) at December 31, 2009.

As of December 31, 2010, ICICI Bank's savings account deposits grew 26.5% year over year to INR645.77 billion (US$14.4 billion). The current and savings account (CASA) ratio rose to 44.2% as of December 31, 2010 from 39.6% as of December 31, 2009.

Asset Quality

ICICI Bank witnessed an improvement in asset quality during the reported quarter. Net nonperforming assets fell 34.9% year over year to INR28.73 billion (US$643 million) as of December 31, 2010. The bank's net nonperforming asset ratio was 1.16%, down 103 basis points from the year-ago quarter.

Capital Ratios

As of December 31, 2010, ICICI Bank's capital adequacy as per the Reserve Bank of India's Basel II norm was 19.98% and Tier-1 capital adequacy was 13.72%, well above the requirements of 9.0% and 6.0%, respectively.

Our Take

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 global syndication network, cost containment measures, improvement in asset mix and enhanced pricing power.

ICICI Bank's close competitor – HDFC Bank Ltd. (HDB) is scheduled to release its third quarter results on January 27.

ICICI Bank currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. However, considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock.

 
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