EM Financials: Closing the Underweight - EM Funds Put Some Faith Back into Chinese Banks.

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Equity Bottom-Up

ICICI Bank's second-quarter result was fairly subdued. The result benefited from a one-off INR 56.8 billion gain for selling its 12.63% stake in its insurance arm, ICICI Life, through an IPO. Excluding the gain, the bank would have posted a quarterly loss from higher provisioning for nonperforming assets, or NPA, which has continued to deteriorate in the second quarter. NPA increased both on an absolute basis and as a percentage of total loans; they now make up 6.8% of total loans, versus 5.8% in the prior quarter. The bank continues to alter its portfolio mix to reduce its exposure to vulnerable sectors. While a higher contribution from the retail portfolio is likely to improve credit quality in the long term, we expect nonperforming assets to remain elevated in the near term, as the change in portfolio mix will occur gradually. We lift our provisioning forecast to account for the higher-than-expected provisioning in the second quarter, and our earnings forecasts are adjusted lower. Our fair value estimate is unchanged at INR 270. The result does not alter our thinking that the bank will continue to gain market share from public-sector banks in India, and that it is positioned well for the country's long-term economic growth prospects. However, the bank's nonperforming assets remain elevated, and we expect its growth rate to lag that of its higher-quality peer HDFC Bank.Analyst: Michael Wu, CAIA

ICICI Bank's second-quarter result was fairly subdued. The result benefited from a one-off INR 56.8 billion gain for selling its 12.63% stake in its insurance arm, ICICI Life, through an IPO. Excluding the gain, the bank would have posted a quarterly loss from higher provisioning for nonperforming assets, or NPA, which has continued to deteriorate in the second quarter. NPA increased both on an absolute basis and as a percentage of total loans; they now make up 6.8% of total loans, versus 5.8% in the prior quarter. The bank continues to alter its portfolio mix to reduce its exposure to vulnerable sectors. While a higher contribution from the retail portfolio is likely to improve credit quality in the long term, we expect nonperforming assets to remain elevated in the near term, as the change in portfolio mix will occur gradually. We lift our provisioning forecast to account for the higher-than-expected provisioning in the second quarter, and our earnings forecasts are adjusted lower. Our fair value estimate is unchanged at INR 270. The result does not alter our thinking that the bank will continue to gain market share from public-sector banks in India, and that it is positioned well for the country's long-term economic growth prospects. However, the bank's nonperforming assets remain elevated, and we expect its growth rate to lag that of its higher-quality peer HDFC Bank.Analyst: Michael Wu, CAIA

ICICI Bank's Q2 Result Subdued as Asset Quality Deteriorates

ICICI Bank Ltd

ICICI Bank's Q2 Result Subdued as Asset Quality Deteriorates