Restructured assets formation remained benign for the last two quarters at around R3.4bn. Due to this; outstanding restructured assets remained steady at 2.4% of total advances.
Slippages stood at R5.4bn (annualised slippage ratio of 1.25%). Additions to stressed assets were well spread out across the sectors/accounts. The management maintained that additions to stressed assets (fresh slippages and new restructuring) were likely to remain at R10 bn on quarterly basis. There are no surprises in the pipeline of stress assets since the last 2/3 quarters. The management continued to guide credit cost at 85-90 bps for FY13/14 (annualised credit cost in Q3FY13 was at 80bps).
CASA ratio bottoming out: Daily average CASA (current account and savings account) balance has steadily declined from a peak of 41% in Dec 2010 to 36% as of March 2012. Since the last three quarters, average CASA has remained in the range of 35-36%. The decline in CASA in FY11/12 was a function of the poor economic situation which has impacted the current account balances. Savings deposit growth has remained healthy in the last two quarters (20% y-o-y growth) and the trend is expected to continue. Management stated the CASA ratio is almost at the bottom and unlikely to decline further as a pick-up in investment activity should provide support to low-cost deposits, particularly current account balances.
Aggressive growth in retail advances: Retail loans grew by 45% y-o-y driven largely by mortgage loans. Retail loans constitute 27% of overall loan book vs 20% in FY11. Retail loan growth is likely to remain strong and should constitute 29-30% of the overall loans by FY14, from 27% currently.
Other conference call takeaways: (i) NIM (net interest margin) improved by 10bps quarter-on-quarter due to the marginal decline in cost of funds and the uptick in yield on loans given the change in loan mix (higher SME loans and lower agriculture loans).
NIM is likely to remain stable at 3.5% in FY14. (ii) Business growth is likely to remain higher than the industry supporting increasing focus on the retail loans.
Action and recommendation: Axis is one of our top picks. The stock trades at 1.7x (times)