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

*Results Highly Reliant On Gains: Canara Bank (CBK.IN) [Canara] reported bottom-line results of INR 10.1 bn for FY 4Q21, improving INR 6.0 bn (85.5%) linked quarter. Results were driven one factor alone: am INR 9.3 bn (21.8%) increase in various sundry gains - securities, F/X, et al. As awe calculate, these various low quality items and gains amounted to INR 48.9 bn during FY 4Q21 or nearly 5x Canara’s stated bottom-line result; and  * Credit Leads To Solvency Concerns: Given the INR 27.3 bn in NCO, we calculate that annualized net new NPLs amount to 21.7%. We remain highly concerned about Canara’s credit outlook, given the concentrations of SMA loans, ‘BBB’ and below corporate, and MSME loans; and poor collection efficiency.  By our calculation, Canara’s loan loss reserve falls short by INR 674.0 bn or by 180.2% - representing 115% of Canara’s equity base and implying a lack of solvency.

*Results Highly Reliant On Gains: Canara Bank (CBK.IN) [Canara] reported bottom-line results of INR 10.1 bn for FY 4Q21, improving INR 6.0 bn (85.5%) linked quarter. Results were driven one factor alone: am INR 9.3 bn (21.8%) increase in various sundry gains - securities, F/X, et al. As awe calculate, these various low quality items and gains amounted to INR 48.9 bn during FY 4Q21 or nearly 5x Canara’s stated bottom-line result; and  * Credit Leads To Solvency Concerns: Given the INR 27.3 bn in NCO, we calculate that annualized net new NPLs amount to 21.7%. We remain highly concerned about Canara’s credit outlook, given the concentrations of SMA loans, ‘BBB’ and below corporate, and MSME loans; and poor collection efficiency.  By our calculation, Canara’s loan loss reserve falls short by INR 674.0 bn or by 180.2% - representing 115% of Canara’s equity base and implying a lack of solvency.

Canara Bank – India’s Trash Compactor

*Another Unwarranted Provision Reduction: Federal Bank’s (FB.IN) results were likely managed, as it posted FY 4Q21 bottom-line result of INR 4.8 bn – improving INR 737 mn (18.2%) linked quarter. One factor, which was simply ridiculous, given the state of Federal Bank’s balance sheet, drove the improvement – aggressively cutting loss provisions again; and*Reserve Cover Is Shallow: Net new problem loans increased INR 8.4 bn or 78.4% on an annualized basis – dangerously accelerating over FY 3Q21. We remain discouraged that management hasn’t taken the opportunity to more aggressively address the risk sitting pon balance sheet. In fact, we find that reserve cover is increasingly light by close to INR 84.5 bn (versus being short INR 50.0 bn just a quarter ago) – nearly 20 years of core operating performance.

*Another Unwarranted Provision Reduction: Federal Bank’s (FB.IN) results were likely managed, as it posted FY 4Q21 bottom-line result of INR 4.8 bn – improving INR 737 mn (18.2%) linked quarter. One factor, which was simply ridiculous, given the state of Federal Bank’s balance sheet, drove the improvement – aggressively cutting loss provisions again; and*Reserve Cover Is Shallow: Net new problem loans increased INR 8.4 bn or 78.4% on an annualized basis – dangerously accelerating over FY 3Q21. We remain discouraged that management hasn’t taken the opportunity to more aggressively address the risk sitting pon balance sheet. In fact, we find that reserve cover is increasingly light by close to INR 84.5 bn (versus being short INR 50.0 bn just a quarter ago) – nearly 20 years of core operating performance.    

Federal Bank – A Five Year Hole Has Developed

*Improved Operating Performance: ICICI Bank (ICICIBC.IN/IBN.US) [ICICI] reported FY 4Q21 earnings of INR 44.0 bn, decreasing INR 5.4 bn (10.9%) linked quarter. Excluding gains, FY 4Q21 core operating results increased INR 2.5 bn (6.5%) over the same period. In our view, ICICI’s results were of higher quality than last quarter; and*Credit Improvement Coming: With NCOs of INR 42.2 bn, we find that net new NPLs actually continued to increase - up INR 34.9 bn or at a decelerated pace of 33.1% on an annualized basis. With credit quality continuing to breakdown at ICICI and virtually every financial institution in India, we find that ICICI – like its competitors, is still short on reserves to the tune of INR 229 bn or four quarters of PBT.

*Improved Operating Performance: ICICI Bank (ICICIBC.IN/IBN.US) [ICICI] reported FY 4Q21 earnings of INR 44.0 bn, decreasing INR 5.4 bn (10.9%) linked quarter. Excluding gains, FY 4Q21 core operating results increased INR 2.5 bn (6.5%) over the same period. In our view, ICICI’s results were of higher quality than last quarter; and*Credit Improvement Coming: With NCOs of INR 42.2 bn, we find that net new NPLs actually continued to increase - up INR 34.9 bn or at a decelerated pace of 33.1% on an annualized basis. With credit quality continuing to breakdown at ICICI and virtually every financial institution in India, we find that ICICI – like its competitors, is still short on reserves to the tune of INR 229 bn or four quarters of PBT.

*Earnings Miss: HDFC Bank (HDFCB.IN) [HDFCB] released a weak FY 4Q21 balance sheet update several weeks back, following it up with an even more disappointing FY 4Q21 bottom-line result of INR 81.9  bn - declining INR 5.7 bn (6.5%) on a linked quarter basis. The earnings disappointment came from both an increase in loss provisions and costs; and*Credit Challenged Still: Restructured loans did increase INR 10 bn (19.8%) linked quarter to INR 65 bn or 0.6% of loans. Inclusive of NCOs of INR 49.0 bn during the quarter, we calculate that net new NPLs actually increased INR 49.2 bn or 130.4% on an annualized basis which  is quite worrisome – especially considering the challenges at HDFCB’s NBFC subsidiary, HDB Financial Services.  We would be more comfortable if HDFCB was a bit more aggressive with its provisions. By our calculation, reserves are currently short by nearly INR 242 bn or nearly a half year of core operating results.

*Earnings Miss: HDFC Bank (HDFCB.IN) [HDFCB] released a weak FY 4Q21 balance sheet update several weeks back, following it up with an even more disappointing FY 4Q21 bottom-line result of INR 81.9  bn - declining INR 5.7 bn (6.5%) on a linked quarter basis. The earnings disappointment came from both an increase in loss provisions and costs; and*Credit Challenged Still: Restructured loans did increase INR 10 bn (19.8%) linked quarter to INR 65 bn or 0.6% of loans. Inclusive of NCOs of INR 49.0 bn during the quarter, we calculate that net new NPLs actually increased INR 49.2 bn or 130.4% on an annualized basis which  is quite worrisome – especially considering the challenges at HDFCB’s NBFC subsidiary, HDB Financial Services.  We would be more comfortable if HDFCB was a bit more aggressive with its provisions. By our calculation, reserves are currently short by nearly INR 242 bn or nearly a half year of core operating results.   

*Pre-release Says Nothing About Capital And Credit: Bajaj Finance (BAF.IN) [Bajaj] released a FY 4Q21 balance sheet update, ahead of its scheduled earnings update. Key highlights were limited to: AUM growth; new customer acquisition; and deposit growth; and  *Credit Challenges Far From Over With: The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 23.0 bn during FY 3Q21 – increasing at 520% on an annualized basis. By our calculation, reserves need to increase INR 177 bn or nearly 8x - representing nearly three years of PBT and over 50% of shareholder’s equity.

*Pre-release Says Nothing About Capital And Credit: Bajaj Finance (BAF.IN) [Bajaj] released a FY 4Q21 balance sheet update, ahead of its scheduled earnings update. Key highlights were limited to: AUM growth; new customer acquisition; and deposit growth; and  *Credit Challenges Far From Over With: The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 23.0 bn during FY 3Q21 – increasing at 520% on an annualized basis. By our calculation, reserves need to increase INR 177 bn or nearly 8x - representing nearly three years of PBT and over 50% of shareholder’s equity.

India

Punjab National Bank provides financial services such as corporate and personal banking, industrial finance, agricultural finance, financing of trade and international banking. The Company provides services to domestic conglomerates, medium and small industrial units, exporters, non-resident Indians and multinational companies.

Canara Bank Ltd. provides a full range of banking services throughout India. The Group's activities include retail banking, commercial and personal banking, investment management, treasury & NRI services, cash management and assorted ATM facilities.

Bank of Baroda owns and operates commercial banks in India.  The Group's banks provide the traditional forms of banking services, including CD's, Credit Card services and a variety of car loans, in addition to gold banking and a range of insurance services.  The Group also owns IBU International Finance Limited, an international banking company in Hong Kong.

Union Bank of India Limited provides a full range of banking services throughout India. The Company's activities include retail banking, commercial and personal banking, investment management, treasury and NRI services, cash management and assorted ATM facilities. Union Bank has an online tele-banking facility for all its core banking customers.

IndusInd Bank Limited is a Mumbai-based Indian new generation bank established in 1994. The Bank provides a range of banking and financial services including  wholesale banking, credit monitoring, risk management, tele-banking, investment banking and commercial lending. IndusInd Bank operates branches throughout India as well as an office in Dubai and London.

IDBI Bank Limited provides a range of banking and financial services. The Bank's services include fund-based operations, such as venture capital and fee-based activities, which include merchant banking and debenture trusteeship.

YES BANK Limited provides banking services. The Bank offers deposits, personal loans, e-banking, trade finance, corporate, and business banking services. YES BANK serves the food and agribusiness, life sciences, healthcare, biotechnology, telecommunications, media, information technology, and infrastructure development industries in India.

Indian Bank is a full service bank owned by the Government of India. The Bank offers a wide range of services including a foreign currency banking unit at Colombo and specialized overseas branches at Chennai, Bangalore, and Mumbai exclusively for handling foreign exchange  transactions arising out of export, import, remittances and non resident Indian business.

Bank of India, through its subsidiaries, provides corporate, commercial, personal banking, retail, rural, and development banking.  The Group specializes its services towards corporate and medium businesses, in addition to upmarket retail customers.

Central Bank Of India is a full service commercial bank. The Bank's services include taking deposits, lending services, and investing. Central bank operates branches throughout India.

CIMB Group Holdings Berhad provides commercial banking and related financial services. The Company and its subsidiaries, operate as a regional universal bank offering a full range of financial products and services, covering corporate and investment banking, consumer banking, treasury, insurance and asset management.

Bank of the Philippine Islands, through its subsidiaries, provides commercial banking services. The Company's products includes ATM, debit card system, credit card, electronic cash card, internet platform and other services.

BDO Unibank Inc provides banking services. The Bank offers saving accounts, investment, loans, credit and debit cards, remittance, insurance, and trade financing services. BDO Unibank serves customers in Philippines.

Public Bank Berhad provides a range of banking and financial services which include leasing and factoring, stock and futures broking, financing for the purchase of licensed public vehicles, and other financial services. The Group's overseas operations include branches in Hong Kong, Sri Lanka, Laos, Cambodia, and Vietnam.

Bank for Investment and Development of Vietnam provides commercial banking services. The Company offers deposits, personal loans, e-banking, guarantees, and trade finance for customers, corporate, and financial institutions. Bank for Investment also offers foreign exchange, money market, derivatives, and debt market services.

Bank of Nanjing Co., Ltd. operates commercial banking businesses. The Company offers deposits, loans, settlement, discounting, financial bond issuance, government bond underwriting, bank guarantee, and other related financial services. Bank of Nanjing provides services for enterprises and individuals.

First Financial Holding Co., Ltd. is a holding company.  Through its subsidiaries, the Company accepts deposits, provides loans and discount, letters of credit, and guarantee services, invests in marketable securities, provides securities brokerage and investment services, as well as provides insurance services.

E.Sun Financial Holding Company Ltd. is a holding company.  Through its subsidiaries, the Company provides banking, brokerage and dealer services.

Bank of Beijing Company Ltd. attracts deposits and offers commercial banking services.  The Bank offers short-, medium- and long-term loans, insurance, foreign exchange, international settlement, government bonds, and other products and services.

Shinkin Central Bank is a central bank for shinkin banks nationwide, operating as a cooperative financial institution.  The Bank has developed businesses in a variety of fields that contribute the shinkin banking industry.  The Bank's services include enhancement of the credit standing, efficient use of shikin bank's surplus funds, and settlement of domestic exchange transaction.

Indian Overseas Bank operates some 1,429 banking branches in India, as well as six branches in overseas locations.  The Group's banks provide loan and deposit schemes, Internet banking, and a full range of banking services.

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Indian Overseas Bank (IOB IN)

Canara Bank – India’s Trash Compactor

CANARA BANK: Canara reported QOQ bottom-line improvement of 85.5%, reliant on gains. Net new NPLs amount to 21.7%, but its reserve shortfall...

Thomas J. Monaco

Federal Bank – A Five Year Hole Has Developed

FEDERAL BANK: FB's FY 4Q21 bottom-line QOQ result improved 18.2% due to an unwarranted provision cut. Net new NPLs accelerated 78.4% QOQ, while ...

Thomas J. Monaco

ICICI Bank – Much Better

ICICI BANK: ICICI reported a 6.5% linked quarter improvement in FY 4Q21 operating results. Credit weakness is still there, but the breakdown in net...

Thomas J. Monaco

HDFC Bank – Big Credit Disappointment

HDFC BANK: HDFCB released a disappointing FY 4Q21 bottom-line, declining 6.5% QOQ, due higher provisions and costs. Net new NPLs increased 130.4%...

Thomas J. Monaco

Bajaj Finance – Who’s Kidding Whom?

BAJAJ FINANCE: Bajaj gave a FY 4Q21 update on AUM; customer acquisition; and deposit growth. No disclosure on how it will deal with India's worst...

Thomas J. Monaco

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