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

<ul>
<li>
Profit Beat: State Bank of India 9SBIN.IN) [SBI] reported FY 3Q20 profit before tax of INR 110 bn, led by 45% YOY growth in operating profit - driven primarily by lower-than-expected loan loss provisions.</li>
<li>
Expect EPS Downgrades: Despite the EPS beat, underlying pre-provision operating earnings declined 4% linked quarter - reflecting weak loan and deposit growth. As such, earnings cuts should be expected across the board. </li>
<li> Garbage Collector: After management successfully merged its six subsidiary banks in 2018, it remains our belief that it will be asked to merge with another struggling bank. This should definitely keep downward pressure on SBI's valuation - despite any perceived improvement in credit.  </li>
</ul>



Profit Beat: State Bank of India 9SBIN.IN) [SBI] reported FY 3Q20 profit before tax of INR 110 bn, led by 45% YOY growth in operating profit - driven primarily by lower-than-expected loan loss provisions.

Expect EPS Downgrades: Despite the EPS beat, underlying pre-provision operating earnings declined 4% linked quarter - reflecting weak loan and deposit growth. As such, earnings cuts should be expected across the board. 
 Garbage Collector: After management successfully merged its six subsidiary banks in 2018, it remains our belief that it will be asked to merge with another struggling bank. This should definitely keep downward pressure on SBI's valuation - despite any perceived improvement in credit.  


<ul>
<li>LIC Housing Finance (LICHF.IN) [LIC] reported FY 3Q20 earnings results of INR 5.98 bn (flat YOY), missing consensus by some 12% as a result of higher loan loss provisions. Asset quality across home loans, LAP, and developer loans has yet to bottom out.   </li>
<li>Despite the increase in NPLs, early stage delinquencies rose 80 bp linked quarter to 5.7% - which is a pretty good indication that future NPLs will be on the rise. Stage 3 reserve coverage increased QoQ from 43.6% to 45.4%, and total coverage remained stable at 46% - far from being enough given the level of risk in this portfolio. </li>
</ul>


LIC Housing Finance (LICHF.IN) [LIC] reported FY 3Q20 earnings results of INR 5.98 bn (flat YOY), missing consensus by some 12% as a result of higher loan loss provisions. Asset quality across home loans, LAP, and developer loans has yet to bottom out.   
Despite the increase in NPLs, early stage delinquencies rose 80 bp linked quarter to 5.7% - which is a pretty good indication that future NPLs will be on the rise. Stage 3 reserve coverage increased QoQ from 43.6% to 45.4%, and total coverage remained stable at 46% - far from being enough given the level of risk in this portfolio. 


LIC Housing Finance - Credit Headaches Continue

<ul>
<li>
OK Quarter: ICICI Bank (ICICIBC.IN) [ICICI] reported reasonable operating performance with strong NIMs (adjusted for the impact of the Essar Steel recovery) increased 13 bps linked quarter, healthy revenue growth, and contained cost ratios.</li>
<li>
Costs Bear Watching: With cost growth was 21% YOY, ICICI will be challenged to get operating expenses under control.</li>
<li>
No Such Thing As One Off: Credit slippages were modestly due to large "one-off" corporate loans and an increase in ICICI's below investment grade (BIG) book due to one large telecom company.  We just don't believe that these are one-off credit events and that ICICI should not get a free pass. </li>
</ul>



OK Quarter: ICICI Bank (ICICIBC.IN) [ICICI] reported reasonable operating performance with strong NIMs (adjusted for the impact of the Essar Steel recovery) increased 13 bps linked quarter, healthy revenue growth, and contained cost ratios.

Costs Bear Watching: With cost growth was 21% YOY, ICICI will be challenged to get operating expenses under control.

No Such Thing As One Off: Credit slippages were modestly due to large "one-off" corporate loans and an increase in ICICI's below investment grade (BIG) book due to one large telecom company.  We just don't believe that these are one-off credit events and that ICICI should not get a free pass. 


ICICI Bank - One-Offs? Impact Credit Quality

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)

When bankers talk about loan seasoning, they are referring to when a loan is tried and tested in a downturn. Generally these are new loans done within the past two years, and may be termed unseasoned. The idea is that a real new loan will not likely default, as monies from the loan are available. But, where and as economic, business, personal conditions worsen, modeling shows that loan default rates rise sharply after two years, holding all else equal.  For India, we often focus on banks and NBFCs with sizable credit growth in recent years, for this very reason. We continue to believe that there is generally more risk with those banks with over-sized credit growth during the last two to three years, than banks that have kept credit growth constrained.

When bankers talk about loan seasoning, they are referring to when a loan is tried and tested in a downturn. Generally these are new loans done within the past two years, and may be termed unseasoned. The idea is that a real new loan will not likely default, as monies from the loan are available. But, where and as economic, business, personal conditions worsen, modeling shows that loan default rates rise sharply after two years, holding all else equal.  For India, we often focus on banks and NBFCs with sizable credit growth in recent years, for this very reason. We continue to believe that there is generally more risk with those banks with over-sized credit growth during the last two to three years, than banks that have kept credit growth constrained.

<ul>
<li>HDFC Bank's (HDB.US) FY 3Q20 result was a mixed bag, as improved operational metrics (fees and costs) and a loan growth were offset by weaker credit metrics.</li>
<li>While the bottom-line surged, the quality of the result was poor, as HDB relied heavily on capital gains, lower reserve cover, and a reduced tax rate. </li>
</ul>


HDFC Bank's (HDB.US) FY 3Q20 result was a mixed bag, as improved operational metrics (fees and costs) and a loan growth were offset by weaker credit metrics.
While the bottom-line surged, the quality of the result was poor, as HDB relied heavily on capital gains, lower reserve cover, and a reduced tax rate. 


HDFC Bank - Stable Quarter But Higher Credit Slippage

India

State Bank of India provides a wide range of banking and financial services to corporate, institutional, commercial, agricultural, industrial and individual customers throughout India.  The Bank also provides international banking to its Indian customers and has operations in other countries.

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State Bank Of India (SBIN IN)

State Bank of India - Slip Sliding Away

Profit Beat: State Bank of India 9SBIN.IN) [SBI] reported FY 3Q20 profit before tax of INR 110 bn, led by 45% YOY growth in operating profit -...

Thomas J. Monaco

LIC Housing Finance - Credit Headaches Continue

LIC Housing Finance (LICHF.IN) [LIC] reported FY 3Q20 earnings results of INR 5.98 bn (flat YOY), missing consensus by some 12% as a result of...

Thomas J. Monaco

ICICI Bank - One-Offs? Impact Credit Quality

OK Quarter: ICICI Bank (ICICIBC.IN) [ICICI] reported reasonable operating performance with strong NIMs (adjusted for the impact of the Essar...

Thomas J. Monaco

India – Loan Seasoning

When bankers talk about loan seasoning, they are referring to when a loan is tried and tested in a downturn. Generally these are new loans done...

Daniel Tabbush

HDFC Bank - Stable Quarter But Higher Credit Slippage

HDFC Bank's (HDB.US) FY 3Q20 result was a mixed bag, as improved operational metrics (fees and costs) and a loan growth were offset by weaker...

Thomas J. Monaco

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