Morgan Stanley
ING Vysya Bank?s F1Q14 PAT at R175 crore (+35%y-o-y) was in line with our estimates, but underlying trends were weak. PBT ex-capital gains were 7% below MSe. Casa growth (only +3% y-o-y) was weak and NIM contraction was higher than MSe.
Slippages/credit costs picked up sharply. We reduce earning estimates and reduce target price to R490 from R575 and downgrade the stock to ?underweight?.
NII growth moderated to 24% y-o-y from 33% y-o-y last quarter, as margins declined by 17 bps q-o-q from all-time highs of 3.73% (MSe: 8-bps decline q-o-q). Apart from seasonal factors, weak Casa progression likely weighed on NIMs, even as CD ratio expanded (85% vs 82%). In our view, NIMs can further decline by 10 bps on likely higher funding costs. Customer assets growth was broadly stable (18% y-o-y).
Non-interest income growth (+43% y-o-y) was driven by strong capital gains/recoveries: Core fee income grew 23% y-o-y supported by strong FX and derivatives (+60% y-o-y). Core cost-to-income ratio improvement was on track (55.5% vs 58.9% in F1Q13).
New NPLs up to 1.9% of loans, annualised (0.1% in F413) driven by two mid-sized corporate accounts. Credit costs spiked q-o-q to 80 bps from 3 bps. Given weakening macro, asset quality in business banking can also come under pressure (MSe credit costs at 50 bps in F14 vs 30bps in FY13). Coverage was lower at 89% vs. 98%.