Also with R2,600 crore of losses in the past two quarters, BOI’s CET-1 ratio has dipped to 7%, despite a government capital infusion. The viscous cycle of low profitability, higher stress and low capital levels looks difficult to break. We thus maintain our cautious stance on BOI.
BOI reported slippage of R9,800 crore in 3QFY16 (2.5% of loans) and management indicated that 4QFY16 will likely remain weak due to the RBI audit. Cumulatively, BOI has had R300 billion (8% of loans) slippages in the past four quarters and extrapolating the 3QFY16 trend we see no near-term respite.
Seventy percentage coverage, 40% write-off of the restructured and 5:25 book and 50% write-off their security receipt book leads to a loss given default of +100% of BOI’s current net worth on recognised stress loans.