BANKS MAY POST LOWER PROFITS IN SEPTEMBER QUARTER

Faced with a slowdown in credit demand, higher provisions towards rising bad loans and depressed margins on account of high interest rates, banks are likely to post lower profits for the quarter ended September.

Banks are likely to see mark-to-market losses from treasury operations due to the rise in bond yields towards the end of September, said analysts.

CREDIT GROWTH

The deteriorating investment climate has impacted credit growth and this trend is expected to continue, going ahead. The credit offtake, so far this year, is largely on account of loans that were sanctioned earlier, said analysts.

A report by Standard Chartered Bank said that year-on-year loan growth is likely to be 18 per cent in the current financial year, against 25 per cent last year. Loan growth in FY13 is also likely to be 18 per cent.

“We believe our target for FY12 is achievable due to utilisation of undrawn limits and demand for working capital loans. However, if new project approvals continue to slow, our FY13 forecasts could have downside risks,'' the report said.

Net interest income of banks will be hurt due to the slower credit expansion and will remain flat on a quarter-on-quarter basis. It is expected to grow by 14.7 per cent on a year–on-year basis, according to a report by Sharekhan.

While public sector banks are likely to report a Q-o-Q growth of 2.9 per cent in NII, private sector banks are expected to report a growth of 3.5 per cent.

The banking sector is likely to see a rise in provisions due to the increase in restructured loans. Though restructured assets are likely to see higher slippages, the one-time hit due to change in provisioning norms in the first quarter is likely to negate the sequential impact on provisions, a report from IDBI Capital said.

However, according to StanChart, there is unlikely to be any major non-performing loan shocks in the July–September period. “While some state banks (public sector banks) could report very high NPLs in 2Q, it will largely be driven by system based migration. The NPL build up will likely be scattered over the next 6-10 quarters,'' the StanChart report said.

Restructuring of micro finance loans and some small and medium enterprises loans would also add to the increased provisions, said the report from Sharekhan.

NON-INTEREST INCOME

Banks are unlikely to get any major relief on the non-interest income front as well — either from fee income or from trading profits.

With a slowdown in syndication activity and sluggish growth in distribution of third party products, such as insurance and mutual funds, fee income would see only a modest growth. Further, the adverse interest rate scenario and weak capital markets would limit the treasury profits during Q2 FY2012, said Sharekhan.

IDBI Capital said that with bond yields having moved up by 25 basis points at the end of the quarter compared to June 2011, banks could post losses in their bond portfolios.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article2526044.ece