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

Equity Bottom-Up

*Another Awful Result: Punjab National Bank (PNB.IN) [PNB] reported FY 4Q21 net income of INR 5.9 bn, increasing INR 803 mn  (15.9%) linked quarter. Excluding the gains in the consecutive quarters, PNB’s core operating results would have been a negative INR 3.9 bn in FY 4Q21 and negative INR 7.4 bn in FY 3Q21. Not good, but operating losses did moderately decline – or did they? Bizarrely, as gross stated NPLs increased 10.5% linked quarter, PNB in its infinite wisdom decided to cut loss provisions INR 7.5 bn (13.7%) linked quarter which was substantially additive to what appears to be an overstated bottom-line; and*Accelerating Credit Risk Leads to Technical Insolvency: Inclusive of the INR 68 bn NCO, we find that PNB’s level of net new NPLs actually increased INR 167 bn or 70.7% on an annualized basis. While we have very little confidence in PNB’s reporting of problem assets at this stage, we take their word for current NPLs and find that loss reserves are now light by at minimum of INR 1.1 bn  - or approximately 124% of stated book value. This is without accounting for the delayed or backlog provisions associated fraud accounts and ageing provisions.

*Another Awful Result: Punjab National Bank (PNB.IN) [PNB] reported FY 4Q21 net income of INR 5.9 bn, increasing INR 803 mn  (15.9%) linked quarter. Excluding the gains in the consecutive quarters, PNB’s core operating results would have been a negative INR 3.9 bn in FY 4Q21 and negative INR 7.4 bn in FY 3Q21. Not good, but operating losses did moderately decline – or did they? Bizarrely, as gross stated NPLs increased 10.5% linked quarter, PNB in its infinite wisdom decided to cut loss provisions INR 7.5 bn (13.7%) linked quarter which was substantially additive to what appears to be an overstated bottom-line; and*Accelerating Credit Risk Leads to Technical Insolvency: Inclusive of the INR 68 bn NCO, we find that PNB’s level of net new NPLs actually increased INR 167 bn or 70.7% on an annualized basis. While we have very little confidence in PNB’s reporting of problem assets at this stage, we take their word for current NPLs and find that loss reserves are now light by at minimum of INR 1.1 bn  - or approximately 124% of stated book value. This is without accounting for the delayed or backlog provisions associated fraud accounts and ageing provisions.  

* Flummoxed: A competitor hosted a virtual conference with the management of the State Bank of India (SBIN.IN) [SBI]. To say the call was a disappointment would be an understatement. Nothing meaningful was stated on credit quality, and for some reason management is “comfortable” with capital; and *Reserve Challenges Should Lead To LARGE Capital Raise: Net new NPLs increased INR 193.2 bn or 65.9% on an annualized versus – accelerating over the awful FY 3Q21 result of INR 145.7 bn and 41.6%.  These figures are quite troublesome - even for an Indian SOE bank. Given the capital challenges even prior to the Yes Bank (YES.IN) risk, SBI needs to prepare for additional losses. By our calculation, we find that SBI’s reserves are short INR 1.2 tn - nearly four years of pre-tax results or 61% of market-cap.

* Flummoxed: A competitor hosted a virtual conference with the management of the State Bank of India (SBIN.IN) [SBI]. To say the call was a disappointment would be an understatement. Nothing meaningful was stated on credit quality, and for some reason management is “comfortable” with capital; and *Reserve Challenges Should Lead To LARGE Capital Raise: Net new NPLs increased INR 193.2 bn or 65.9% on an annualized versus – accelerating over the awful FY 3Q21 result of INR 145.7 bn and 41.6%.  These figures are quite troublesome - even for an Indian SOE bank. Given the capital challenges even prior to the Yes Bank (YES.IN) risk, SBI needs to prepare for additional losses. By our calculation, we find that SBI’s reserves are short INR 1.2 tn - nearly four years of pre-tax results or 61% of market-cap. 

State Bank of India – Lights On, No One Home

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.

Thematic (Sector/Industry)

India was in a banking crisis before 2020 and the impact of the current crisis is far worse than in most other countries. Quarterly data of banks reveals dramatic deterioration in credit metrics during March 2021.

India was in a banking crisis before 2020 and the impact of the current crisis is far worse than in most other countries. Quarterly data of banks reveals dramatic deterioration in credit metrics during March 2021. 

India Financials

Saumya Agarwal

The Monetary Policy Committee (MPC) of the RBI, in its June meeting, has kept the policy rates unchanged and decided to continue with the accommodative monetary stance, till the time needed. It has also expanded the scope of the Resolution 2.0 framework for the MSME and individual borrowers impacted by the Covid. Both these decisions are favorable and should help mitigate the stress of the small borrowers

The Monetary Policy Committee (MPC) of the RBI, in its June meeting, has kept the policy rates unchanged and decided to continue with the accommodative monetary stance, till the time needed. It has also expanded the scope of the Resolution 2.0 framework for the MSME and individual borrowers impacted by the Covid. Both these decisions are favorable and should help mitigate the stress of the small borrowers

The RBI Radar: Soft Borrowing Costs + Widened Scope of Resolution, to Boost Recovery

Alpha-Centric ESG Research

Kyle Rudden

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in <a href="https://www.smartkarma.com/insights/bitcoin-on-balance-sheets-indirect-crypto-exposure-considerations-for-crypto-leery-esg-investors" target="_blank" data-smartkarma-citation="insights:52207" rel="noopener">Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors</a>. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates <a href="https://www.smartkarma.com/entities/bitcoin-usd" target="_blank" data-smartkarma-citation="entities:25895:1" rel="noopener">Bitcoin (XBT)</a>'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates Bitcoin (XBT)'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

India

ICICI Bank Limited operates as a bank. The Bank offers saving accounts, loans, debit, credit cards, insurance, investments, mortgages, and online banking services. ICICI Bank serves customers worldwide.

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ICICI Bank Ltd (ICICIBC IN)

Punjab National Bank – Cipher

PUNJAB NATIONAL BANK: PNB's operating results were a negative INR 3.9 bn in FY 4Q21. Bizarrely, as gross stated NPLs increased 10.5% linked...

Thomas J. Monaco

State Bank of India – Lights On, No One Home

STATE BANK OF INDIA: A competitor hosted a disappointing call with management. By our calculation, we find that SBI’s reserves are short INR 1.2 tn...

Thomas J. Monaco

India Banks – Still In Crisis?

India was in a banking crisis before 2020 and the current crisis is worse than in many other countries. Unlike most regions, India latest quarterly...

Daniel Tabbush

The RBI Radar: Soft Borrowing Costs + Widened Scope of Resolution, to Boost Recovery

The RBI decision to continue with the accommodative monetary stance and expanding the scope of Resolution, for MSME and individual borrowers,...

Saumya Agarwal

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

Bitcoin holdings by issuers and investors is driving crypto custody demand. Big banks are stepping. A big opportunity, but some ESG investors might...

Kyle Rudden

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