1. Oriental Bank of Commerce gets ‘Neutral’ rating Motilal Oswal says care performance is weak

Oriental Bank of Commerce gets ‘Neutral’ rating Motilal Oswal says care performance is weak

Slippages and net slippages were elevated at R27 billion and R24 billion (annualised slippage ratio of 7.3%), with slippages from restructured portfolio at R9.2 billion.

By: | New Delhi | Published: February 11, 2017 4:17 AM
Slippages and net slippages were elevated at R27 billion and R24 billion (annualised slippage ratio of 7.3%), with slippages from restructured portfolio at R9.2 billion. (PTI) Slippages and net slippages were elevated at R27 billion and R24 billion (annualised slippage ratio of 7.3%), with slippages from restructured portfolio at R9.2 billion. (PTI)

Oriental Bank of Commerce (OBC) delivered a weak core performance with reported loss of R1.3 billion (est. of earnings of R2billion), primarily led by weak core operating profit (-9% y-o-y to R5.5 billion) and high NPL provisions (R14.3 billion – second highest in the history of the bank; est. of R6.1 billion).

Slippages and net slippages were elevated at R27 billion and R24 billion (annualised slippage ratio of 7.3%), with slippages from restructured portfolio at R9.2 billion.

Restructured pool was at 4.5% of loans. NII was 13% below estimate, led by a 52bp q-o-q decline in NIM. This was on account of Rs 1.4 billion of reversal of interest on S4A and SDR accounts.Operating expenditure was 24% below estimate, as the bank changed its depreciation policy, leading to a write-back of R1.6 billion. Trading gains were high at R7 billion (est. of R3.2 billion; 129% of core operating profit). CASA grew strongly by 33%, with SA deposits up 37% y-o-y and CASA ratio up 580bp q-o-q to 32.3%.

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Loan book declined 3% y-o-y. While the bank has already classified and provided a large proportion of its loan book as bad over last few quarters, a sharp rise in slippages is concerning. Despite undemanding valuations, we maintain ‘neutral’ due to its weak return profile.

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