When the SBI Chairman tells the media that his CRR plus NPA total over Rs 1100Bn, about 11-12 per cent of the Asset base is non functional and non contributory to earnings. On top of that Deposit rates are being raised to meet the CD mismatch of about 4 per cent.
It is apparent that the Repo of 7.5 per cent and the MSF of 9.5 per cent are not large enough to meet the growth needs of PSU banks. Either domestic savings have to grow or credit growth has to get lowered. Or finally, the Banks have to be recapitalised by a virtually bankrupt government. If neither of the latter happen, then lending rates will remain perpetually high and the corporates struggling under large borrowings will continue to approach CDR cells and add to the 5.5 per cent load of NPAs. Some analysts forecast NPAs to rise to 10 per cent, making no case for putting money into any Bank. * Last decade was good for Asian banks, with credit costs declining structurally. This was helped by strong GDP growth and low rates – both are turning. Banks to avoid are in CAD economies with strong trailing loan growth – India, Indonesia. Relatively, we would own banks in DM Asia – HK, Taiwan. Banks in EM Asia (especially India and Indonesia) * *have been under pressure over the last month – *The question being asked is whether investors should buy them, given the structural growth embedded into these names. We would stay away for now. Real rates are likely on a structural uptrend with global liquidity ebbing. This is coming in the backdrop of slowing GDP growth, generally not good for the NPL outlook. * All the ingredients of an NPL cycle are present in * *Asia – *strong trailing loan growth, slowing economy, higher rates and tightening credit standards. Corporate leverage has increased meaningfully and the changing economic backdrop will likely cause some losses. The way out for banks would be a decline in interest rates – if the global liquidity situation turns buoyant. ** *Which banks are most exposed – *We run four screens across countries: 1) Current account balance; 2) unseasoned loan book (loans created in the last two years), as these loans are riskiest when the cycle turns; 3) profitability (PPoP margin) – how much credit costs banks can take before hitting book value; and 4) loan-todeposit ratios, given rates are rising. The most affected are in India and Indonesia, while the best-placed banks on these screens are in Taiwan, Malaysia and HK. -- -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no gurantee for the genuineness of the same." --- You received this message because you are subscribed to the Google Groups "TEAM STOCKRESEARCHERS" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. For more options, visit https://groups.google.com/groups/opt_out.
