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Banking Sector Q4 FY11 Review
Banking Sector FY11 Review
In FY11 overall banking performance was lacklustre as the sector faced headwinds in H2 FY11 from an
environment of higher interest rates and rising employee expenses. Banking sector performance was hit further
towards Q4FY11 as poor performance of PSU banks impacted overall results. Private sector banks
outperformed public sector banks in FY11, and by wide margin especially in Q4FY11. Profitability of PSU
banks came down further in Q4FY11 due to rise in the cost of deposits and higher employee costs (such as,
provisions for pension). Our analysis of the banking sector includes only the banks listed on the stock exchanges
– a total of 40 banks, of which 24 are public sector banks and 16 from the private sector. The key highlights of
Q4FY11 and for full FY11 follows:
Lacklustre Performance In FY11: Despite improvement in overall top line, due to a rise in Net
Interest Income (NII) in H1FY11, net profit was brought down due to higher operating costs and
provisions. Impact of rising interest costs became much evident towards H2FY11. Net profit also
witnessed a sharp slowdown in growth in the last two quarters of FY11. Stellar performance by private
sector banks in FY11, especially in the troubled second half, lifted the wilting results.
H2 FY11 Difficult For Banking Sector: Banking sector overall performance deteriorated in the
second half of the year. Higher interest costs due to rising policy interest rates, along with higher
employee provisions, impacted profitability of public sector banks. Public sector banks, which
dominate the banking sector, weighed down the overall banking sector performance in H2 FY11,
despite good results by private banks.
Overall Banking Sector Performance Deteriorated In Q4: Overall banking top line in Q4FY11
grew slower by 14.5% YoY compared with 20.2% YoY in Q3FY11. Banking sector witnessed rising
costs of deposits in Q4FY11 and as a result NII income growth declined from 40.1% YoY in Q3 FY11
to 20% YoY in Q4. Net profit of the banking system also showed sharp decline in growth from 24% in
Q3 FY11 to 1.4% YoY in Q4FY11.
Q4 FY11 Bad For Public Sector Banks: Total income grew slower by 11.5% YoY compared with
20% YoY in Q3 FY11. Net Interest Income grew by 18.6% YoY in Q4FY11 compared with 45% YoY
growth in Q3 FY11. Net profit saw even further decline as higher costs -- such as pensions and
provisioning -- impacted the growth in fourth quarter. Net profit growth declined by 9.5% YoY
compared with 21% YoY growth a quarter ago.
NIM Declined In Q4 For Majority of Banks: NIMs declined in Q4FY11 for majority of banks due to
higher cost of deposits. PSU banks were seen to be hardest hit compared with private sector banks.
Major Banks -- such as SBI, Punjab National Bank -- saw a decline in NIMS during Q4FY11. HDFC
and Yes Bank saw no change in NIMS over the quarter. United Bank, Dhanlaxmi Bank, ING Vysya
saw sequential improvement in NIMs.
Credit Growth Came Down In Q4: Credit growth of Scheduled Commercial Banks (SCBs) in Q4
came down to 21.4% YoY compared with 26.7% YoY in Q3 FY11. Credit growth in Q4 FY11 for
whole of banking system stood at 21.3% YoY compared with RBI’s target of 20% YoY.
Deposits Growth Did Not Pick Up In Q4FY11 And Lagged RBI’s Target Of 18%: Deposits
growth of SCBs stood lower at 15.8% YoY compared with 16.5% YoY in Q3FY11.Deposits growth
has improved post Q4FY11 and now stands at 17.6% YoY for the week ending May 13, 2011.
Quick Glimpse of Banking Sector Trends in FY11: Banking sector performance in FY11 was
lacklustre as the sector performed poorly in the second half of the year. Despite an improvement in the overall
top line, due to a rise in Net Interest Income (NII) in H1FY11, net profit was brought down due to higher
operating costs and provisions. Impact of rising interest costs became overly evident towards H2FY11. Net
profit also witnessed a sharp slowdown in growth in the last two quarters of FY11. Private sector stellar
performance in FY11 especially in the troubled second half lifted the wilting results.
Overall banking topline in FY11 grew by 15.6% YoY compared with 11.4% YoY in FY10. Despite rise in NII
income by 39.3% YoY in FY11 from 16.7% YoY in FY10, net profit growth of the banking system slowed to
18.6% in FY11 from 20.9% YoY in FY10 due to rise in operating costs by 12.9% YoY compared with 9.6%
YoY in FY10.
Banking Sector trends, % YoY
Quarterly Trends % YoY
Employee Expenses, % YoY
Interest Expenses % YoY
Annual Banking Sector Trends in FY11:
In FY11, private sector banks saw a higher improvement in top line compared with public sector banks.
Private sector banks saw a growth of 13.5% YoY versus 2.7% YoY compared with 16.3% YoY vs
14.7% YoY for the public sector banks.
NII growth was higher for Public sector banks with 43.4% YoY growth compared with 26.8% YoY of
private sector banks.
Operating expenses of public sector banks witnessed 12.6% YoY growth versus 14.5% YoY in FY10
compared with 13.8% YoY of private sector banks versus (-)3% YoY in FY10.
Net profit growth of private sector banks stood sharply higher at 32.8% YoY compared with 13.6%
YoY of public sector banks.
Total Income Trends, % YoY
NII Trends, % YoY
Operating Expenses Trends, % YoY
Net Profit Trends, % YoY
Performance Deteriorated In H2 FY11 Due To Public Sector Banks: Overall banking sector
performance deteriorated in the second half of the year. Despite growth in top line, the net profit slowed down
due to higher operating expenses, caued in the main by rising interest costs and employee expenses. Public
sector banks, which dominate the sector, contributed to the decline in performance despite good results by
private banks.
Public sector banks hit with rising interest costs: Rising interest cost resulted in lower NII in H2
FY11 for public sector banks, while private sector banks maintained NII margins.
Private banks’ profitability improved: Private banks net profit improved in H2 FY11 compared
with public sector banks. Private banks posted 26% YoY growth in H2 FY11 compared with 4.3%
YoY of public sectors banks.
Topline Trends, % YoY
Operating Expenses Trends, % YoY
Half Yearly NII, % YoY
Half Yearly Net Profit, % YoY
Performance Of Banking Sector In Q4FY11
The banking sector’s performance was subdued in Q4FY11 as rising interest costs and poor performance of
PSU banks had a significant impact on the overall results. The overall performance in Q4FY11 was mixed as
private sector banks posted stellar performance compared with public sector banks which fared poorly in the
fourth quarter. On the whole, Q4FY11 marked a departure from the trend of the past two years when PSU banks
out-performed private banks.
Overall banking topline in Q4FY11 grew slower by 14.5% YoY compared with 20.2% YoY in Q3FY11.
Banking sector witnessed rising costs of deposits in Q4FY11 and, as a result, NII income growth declined from
40.1% YoY in Q3FY11 to 20% YoY in Q4. Net profit of the banking system also showed a sharp decline in
growth from 24% in Q3 FY11 to 1.4% YoY in Q4FY11.
Private VS PSU banks
%YoY QoQ% % YOY
Amt (`cr) Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q4FY11 Q4FY11 FY11
Total Banks Total Income 127104 138552 144329 154927 14.5 7.3 15.6
NII 40898 45107 48550 45526 20.0 -6.2 39.3
PAT 15595 14942 17986 14325 1.4 -20.4 18.6
Banking sectors trends , % YoY
Banking sectors trends , % QoQ
Public Vs Private Banks
Private banks outperformed public sector banks in Q4:
Public Sector Banks: Public sector banks fared poorly in Q4FY11 due to rise in cost of deposits and higher cost
of pensions and provisioning seen in the sector.
Total income grew slower by 11.5% YoY compared with 20% YoY in Q3 FY11.
Net Interest Income grew by 18.6% YoY in Q4FY11 compared with 45% YoY growth in Q3 FY11.
Net profit saw even further decline as higher costs such as pensions and provisioning impacted the
growth in fourth quarter. Net profit growth declined by 9.5% YoY compared with 21% YoY growth a
quarter ago.
Private sector Banks
Total income grew higher by 23.3% YoY compared with 20.9% YoY in Q3 FY11.
Net Interest Income maintained growth momentum by 24.2% YoY in Q4FY11 compared with 24.6%
YoY growth in Q3 FY11.
Net profit saw moderation though continues to be high compared with public sector banks. Net profit
growth stood at 25.1% YoY compared with 32.7% YoY in Q3.
%YoY QoQ% % YOY
` Crore Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q4FY11 Q4FY11 FY11
Public Sector Total Income 100381 109377 113378 111754 11.5 -1.4 16.3
Banks NII 31899 35406 38141 34184 18.6 -10.4 43.4
PAT 11717 10615 13015 8781 -9.5 -32.5 13.6
%YoY QoQ% % YOY
`crore Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q4FY11 Q4FY11 FY11
Private Sector Total Income 26723 29175 30951 43173 23.3 39.8 13.5
Banks NII 8999 9701 10409 11342 24.2 8.9 26.8
PAT 3878 4327 4972 5545 25.1 11.8 32.8
Public Sector bank Trends , % YoY
Private sectors trends , % YoY
Quarterly Trends
Public Sector Banks: Public sector banks fared poorly in Q4FY11 due to rise in cost of deposits and higher
provisioning seen in the sector.
Total income contracted by 1.4% QoQ compared with 3.7% QoQ rise in Q3 FY11.
Net Interest Income declined by 10.4% QoQ in Q4FY11 compared with 7.7% QoQ growth in Q3
FY11.
Net profit declined due to a rise in interest costs. The quarter also saw major banks such as SBI
cleaning up their books. Net profit growth declined by 32.5% QoQ compared with 22% QoQ growth a
quarter ago.
Private Sector Banks Posted A Stellar Show:
Total income grew higher by 39.4% QoQ compared with 6.2% QoQ in Q3 FY11.
Net Interest Income growth improved by 9% QoQ in Q4FY11 compared with 7.3% QoQ growth in Q3
FY11.
Net profit saw moderation though continues to be high compared with public sector banks. Net profit
grew 11.5% QoQ compared with 15% QoQ in Q3 FY11.
PSU Banks Quarterly Trends, QoQ %
Private Banks Quarterly Trends, QoQ %
Employee Expenses Impacted Profitability
Employee costs for banks under our analysis increased in Q4FY11 as PSU banks saw a sharp rise in
employee cost by and provisions towards pensions by 46% YoY.
Employee expenses as a percentage of total income rose to 13% compared with 11.7% in Q3 FY11.
Trends in Employee Expenses, % YoY
Employee Expenses % of Total Income
Employee Expenses As A % Of Total Income
NIM Declined In Q4 For Majority of Banks
Net Interest Margins (NIMs) declined in Q4FY11 for majority of banks due to higher cost of deposits.
PSU banks were seen to be the hardest hit compared with private sector banks. Major banks -- such as
State Bank of India, Punjab National Bank -- saw a decline in NIMS in Q4FY11. HDFC, Yes Bank
saw no change in NIMS over the quarter. United Bank, Dhanlaxmi, ING Vysya were among the few
banks which witnessed a sequential improvement in NIMS.
QoQ Movement in NIMS in Q4FY11, (bps)
Banking Sector Dynamics
Credit Growth Declined During Q4 But Stayed Above RBI’s Target For FY11
Credit growth in Q4 came down to 21.4% YoY compared with 26.7% YoY in Q3 FY11.
Credit growth in Q4 FY11 for whole of banking system stood at 21.4% YoY compared with RBI’s
target of 20% YoY.
Deposits Growth Did Not Pick Up In Q4FY11 And Lagged RBI’s Target Of 18%
Deposits growth stood lower at 15.8% YoY compared with 16.5% YoY in Q3FY11.
Deposits growth has improved post Q4FY11 and now stands at 17.6% YoY for the week ending May
13, 2011.
Scheduled Commercial Banks Position
`crs `crs % YoY % YoY
Q4 FY11 Q3FY11 Q4 FY11 Q3FY11
Deposit 52,04,703 49,71,390 15.8 16.5
Credit 39,38,659 37,65,372 21.38 26.7
Food 64,283 65,948 32.57 45.78
Non-Food 38,74,376 36,99,424 21.21 26.4
Source: RBI
Credit Growth Trends % YoY
Deposits Growth Trends % YoY
Highlights of Few Banks
Credit Growth% YoY, Q4FY11
Deposits Growth % YoY, Q4FY11
Credit-Deposit Ratio:
Credit to Deposit ratio of SCBs remained almost unchanged in Q4FY10 at 75.7% compared
with 74.5% in Q3FY10 as both credit and deposits showed moderation in growth in Q4FY11.
SCBs Credit/Deposit Ratio, %
Credit to Deposit (%) Ratio Of Select Banks
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