Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Over the last couple of months, the premium on <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-adr" target="_blank" rel="noopener" data-smartkarma-citation="entities:559:1">HDFC Bank (ADR) (HDB US)</a> has dropped from around 23% to 11%. Over the same period the local stock <a href="https://www.smartkarma.com/entities/hdfc-bank-limited" target="_blank" rel="noopener" data-smartkarma-citation="entities:558:1">HDFC Bank (HDFCB IN)</a> is down 8% and the INR is weaker by 3.5% against the USD.In this Insight, we take a look at the historical premium on the ADR and its history, movement in local shares available to Foreign Portfolio Investors (FPI), and estimate the impact of upcoming index flows and potential index inclusions on the ADR premium.

Over the last couple of months, the premium on HDFC Bank (ADR) (HDB US) has dropped from around 23% to 11%. Over the same period the local stock HDFC Bank (HDFCB IN) is down 8% and the INR is weaker by 3.5% against the USD.In this Insight, we take a look at the historical premium on the ADR and its history, movement in local shares available to Foreign Portfolio Investors (FPI), and estimate the impact of upcoming index flows and potential index inclusions on the ADR premium.

HDFC Bank - Case of the Collapsing ADR Premium

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

The beloved bank reported exceptionally high growth in non-performing assets (NPAs) rising from INR111bn to INR119, from 2Q19 to 3Q19. And this is flattered, as it is after write-offs.  Its doubtful 3 loans, rose by 33% in the quarter. The bank’s additions to NPAs during the period, also increased - a more objective figure, before write-offs. The figure was INR40bn in 1Q19: INR39bn in 2Q19; and rose to INR46bn in 3Q19. This is not data that we expect most analysts to focus on, as much lays hidden in the bank’s Pillar 3 disclosure. The result of deteriorating credit metrics: 21% higher growth in credit costs QoQ and 64% YoY in 3Q19.

The beloved bank reported exceptionally high growth in non-performing assets (NPAs) rising from INR111bn to INR119, from 2Q19 to 3Q19. And this is flattered, as it is after write-offs.  Its doubtful 3 loans, rose by 33% in the quarter. The bank’s additions to NPAs during the period, also increased - a more objective figure, before write-offs. The figure was INR40bn in 1Q19: INR39bn in 2Q19; and rose to INR46bn in 3Q19. This is not data that we expect most analysts to focus on, as much lays hidden in the bank’s Pillar 3 disclosure. The result of deteriorating credit metrics: 21% higher growth in credit costs QoQ and 64% YoY in 3Q19.

HDFC Bank – Quarterly Credit Deterioration

<a href="https://www.smartkarma.com/entities/558" target="_blank" data-smartkarma-citation="entities:558:1">HDFC Bank (HDFCB IN)</a> continues to expand loans more aggressively than peers. Where this is occurring alongside higher interest rates and a rapidly depreciating currency, there is greater default risk. If economic growth were set to expand or if there were signs of this already in place, the story could be different. Without this, relatively higher ‘unseasoned loans’ is a red flag and HDFC Bank stands out worse than peers. Last week one India bank announced a bad loan divestment at 25 cents on the dollar, an exceptionally low figure and not suggestive of an improving outlook.

HDFC Bank (HDFCB IN) continues to expand loans more aggressively than peers. Where this is occurring alongside higher interest rates and a rapidly depreciating currency, there is greater default risk. If economic growth were set to expand or if there were signs of this already in place, the story could be different. Without this, relatively higher ‘unseasoned loans’ is a red flag and HDFC Bank stands out worse than peers. Last week one India bank announced a bad loan divestment at 25 cents on the dollar, an exceptionally low figure and not suggestive of an improving outlook.  

HDFC Bank – Aggressive Lending Against Higher Rates Is a Red Flag

Unique in <a href="https://www.smartkarma.com/entities/558" target="_blank" data-smartkarma-citation="entities:558:1">HDFC Bank Limited (HDFCB IN)</a>'s newly released annual report for fiscal year 2018, is its table on asset classification 'divergence.'  It is not only testimony to a stricter Reserve Bank of India (RBI) but that this haloed-bank is not immune from credit risk or the perennial under-reporting of bad loans as with peer banks. The tables that always draw ire from analysts are those on restructured loans, as they are prepared in landscape format, unlike the rest of the report. The data is…

Unique in HDFC Bank Limited (HDFCB IN)'s newly released annual report for fiscal year 2018, is its table on asset classification 'divergence.'  It is not only testimony to a stricter Reserve Bank of India (RBI) but that this haloed-bank is not immune from credit risk or the perennial under-reporting of bad loans as with peer banks. The tables that always draw ire from analysts are those on restructured loans, as they are prepared in landscape format, unlike the rest of the report. The data is…

HDFC Bank – Newly Released Annual Report Holds Troves of Granular Data, Not All of Which Is Positive

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* New COO, essentially replaces current CEO - who is under investigation; and * As discussed in our May 9, 2018 note, this bank is an absolute mess which in all likelihood should fail . We wish COO Bakshi all the best. However, this bank would be a challenge to even the best turnaround artists. <h2>Investment Summary</h2>ICICI Bank (ICICI.IN/ICN.US) announced the appointment of Mr. Sandeep Bakhshi – an ICICI veteran – as a full-time director and Chief Operating Officer (COO). subject to regulatory…

* New COO, essentially replaces current CEO - who is under investigation; and * As discussed in our May 9, 2018 note, this bank is an absolute mess which in all likelihood should fail . We wish COO Bakshi all the best. However, this bank would be a challenge to even the best turnaround artists. Investment SummaryICICI Bank (ICICI.IN/ICN.US) announced the appointment of Mr. Sandeep Bakhshi – an ICICI veteran – as a full-time director and Chief Operating Officer (COO). subject to regulatory…

ICICI Bank - New COO Cannot Turn The Titanic Around

India

HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.

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HDFC Bank (ADR) (HDB US)

HDFC Bank - Case of the Collapsing ADR Premium

Over the last couple of months, the premium on HDFC Bank (ADR) (HDB US) has dropped from around 23% to 11%. Over the same period the local stock...

Brian Freitas

HDFC Bank – Quarterly Credit Deterioration

The beloved bank reported exceptionally high growth in non-performing assets (NPAs) rising from INR111bn to INR119, from 2Q19 to 3Q19. And this is...

Daniel Tabbush

HDFC Bank – Aggressive Lending Against Higher Rates Is a Red Flag

HDFC Bank (HDFCB IN) continues to expand loans more aggressively than peers. Where this is occurring alongside higher interest rates and a rapidly...

Daniel Tabbush

HDFC Bank – Newly Released Annual Report Holds Troves of Granular Data, Not All of Which Is Positive

Unique in HDFC Bank Limited (HDFCB IN)'s newly released annual report for fiscal year 2018, is its table on asset classification 'divergence.' It...

Daniel Tabbush

ICICI Bank - New COO Cannot Turn The Titanic Around

* New COO, essentially replaces current CEO - who is under investigation; and * As discussed in our May 9, 2018 note, this bank is an absolute mess...

Thomas J. Monaco

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