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There is no major bank in Asia-Pacific that is growing loan as fast as HDFC Bank. Over the past two years, from FY16 to FY18, the bank expanded its gross loans from INR4,873 billion to INR7,000 billion. This 44% growth comes during a time of unprecedented weakness in the domestic economy, as evidenced by India’s banks having the highest non-performing loan (NPLs) ratios in the region. Average NPL ratios were 9.9% as at calendar year-end 2017 for India’s banks compared with 1-3% for others in Asia-Pacific. This does not include restructured loans, which as at the most recent fiscal year-end ave...
Krungthai Card PCL (KTC) was already one of Asia’s most profitable lenders during 2016 and 2017. With 1Q18 ROA at an
unprecedented 6.7%, it makes historically high returns look paltry. This is despite recent Bank of Thailand (BOT) regulations
implemented during September 2017, which lowered the maximum rate charged on credit cards from 20% to 18%.
Malaysia Building Society (MBSB) is one of Malaysia’s lesser-known financials and more of a specialized
lender in personal loans. But major positive changes are happening. MBSB is showing some of the best
improvements in credit metrics and returns of most any bank in Asean, let alone in Malaysia.
With MBSB’s recent acquisition of
Asian Finance Bank (AFB), MBSB is moving forward. It will now transform itself to a full-fledged Islamic
bank. Merger risks are now lessened and the bank completes its transformation by April 2018; when it
marks its Islamic bank operational readiness and a full...
For 16 China banks with non-performing loan (NPL) distribution detail, loss NPL growth was 63% YoY in 2017. There is marked
deterioration in the worst category of NPLs, where banks are least likely to be repaid and that require the most loan loss
reserves (LLR). What these figures conceal is far greater distress at four banks, where loss NPL growth averaged 165% YoY.
NPLs are in sharp decline, its merger is nearly done, and in April it re-brands. ROA doubled last year, but it's not finished. Having the best capital position in Malaysia, means its especially safe, but also that it can maintain a high payout. We see only three analysts covering the bank, where profit estimates for 2018 seem far too low.
China banks' asset growth has not been lower in 11 years. Even the paltry 7% rate currently, is flattered from a higher share of government lending. Decelerating lending to other financial corporations is also a critical signal. There are negative implications for bank earnings. The gap between perception and reality of China's economic and lending strength, grows.
US credit metrics are worsening. This is contrary to what most believe, and most visible at the fringe. Where interest rate increases in the US are not driven by increased demand for money but rather Fed policy, the risks of loan defaults are exacerbated. The reality is that net-charge offs (NCOs) and loan loss provisions (LLP) are rising dramatically for many consumer lenders in the US, suggesting an underlying frailty. And when consumer lenders start blaming theirmodels, we know something is wrong.
Despite higher oil prices in 4Q17, United Overseas Bank (UOB) reported a steep quarterly rise in non-performing loans (NPLs). In absolute terms, the bank’s NPLs have not been higher in the past 12 years. UOB’s NPLs rose to S$4.2 billion in 4Q17 representing 12% growth QoQ. Despite this, the bank aggressively ran down NPL cover and also despite 60% higher 'Loss' NPLs. This is not sustainable.
Tisco now reports the best margins in Thailand, the best ROA improvement, and still with conservative NPL cover and lending. With margins at 4.84% in the latest quarter, it not only surpasses all Thai peers, but most all banks in Asia-Pacific, with Indonesia as the only exception.
We believe it is not well understood how aggressive HDFC Bank has been at adding new credit risk during the prolonged economic downturn and that it is a driving force for the bank's accelerating credit costs, more so than most peers. The risk is that this continues, and it is far from what most expect for this beloved bank.
China’s banks will see increased credit costs and worsening returns in 2H17 and 2018. Data from the National Bureau of Statistics is telling. The China Business Cycle Signal Index is low and similar to periods when the economy was fragile and when banks saw rising bad loans. The 10-variable composite index is 30 points lower than its critical 100 level, above which is considered ‘expansionary.’
With a newly classified NPA, far higher credit costs, HDFC Bank appears less immune than ever. We show its high NPL ratios in many sectors, but eseentially invisible due the bank's aggressive consumer loan growth. Risks remain as the bank has expanded aggressively, even in weak sectors, alongside an economic downturn.
There is little evidence that HSBC’s sprawling footprint supports connectivity across customers and geographies. Its non-interest income compares poorly with peer large banks, while its fee income continues to come down. Net insurance income has been in loss for years. A broad gauge of operating returns - operating income/assets - continues to trend lower and where this is not distorted by credit costs. If HSBC were benefitting from its unique global position, these measures would appear more robust. It is a long-standing misperception; the reality is different.
The track record of HSBC to at...
The Reserve Bank of India (RBI) proposes to recapitalize state banks with
INR2.1 trillion of capital. This misses the point: non-performing loan
(NPL) formation. In the first place, this new capital does not address weak
companies; sector-specific stresses; corruption, inefficiencies rife at
state banks; or risk-management system, processes at banks. Secondly, the
amount is simply too low considering NPLs, restructured loans and total
Suddenly there is a top-10 bank listing in Vietnam, where even data
vendors have not fully taken notice. We must surmise that commentators and
analysts have also limited knowledge of this highly profitable bank. In of
itself this creates opportunities, but ultimately Vietnam Prosperity Bankâ€™s
(VPB) financials stand on their own merit, and set within a young
demographic and high growth region. VPB is like no other in the Vietnam,
and fairly unique in Asia-Pacific. Its emphasis is on unsecured consumer
lending, unlike for most banks, which focus on corporate lending. With a
The ultimate consumer bank in Asean is not a bank at all, but rather a
credit card issuer and personal
loan provider. Krungthai Card Public Co. Ltd. (KTC) is a credit card
company in Thailand, one of just
several listed in Asia-Pacific and one of the few listed in Asean. For the
most part credit card segments
are contained within banks so that KTC offers a rare direct exposure to
this high return consumer
finance business. KTC borrows at 3-4%, lends at 20-28%, with credit costs
at 6% of loans, in a country which is not yet
saturated and where banks are losing market share.
We wonder if new and granular disclosure by China Merchants Bank (CMB)
provides rare clarity on the true credit quality
of Chinaâ€™s banks? Under the liquidity coverage ratio (LCR) guideline from
the Basel Committee on Banking Supervision
(BCBS), banks must calculate how they can handle a 30-day stressed
liquidity scenario. CMB saw its LCR decline sharply from 115% to 83%, from
to 1H17, well below to what will be required.
By 1 January 2018 banks will have to take full life-time expected credit
for an exposure as and when there is a significant increase in credit risk.
In the past, banks only had to do this when an
actual impairment was recognized. We believe that Singaporeâ€™s banks will be
vulnerable from their exposure to the oil
and gas service sectors.
There is little in the China bank numbers that suggests sustainability in
profit or strength in earnings. A
detailed examination of their disclosures invariably offers a dimmer
picture of credit quality than
headline figures suggest. We find that a traditional cost measure, may
actually lend more insights to
credit quality and key banking practices, although with especially poor
â€‹Thailand's KTC is one of few credit card and personal loan companies listed in Asia, with an ROA at 3.9% beating most all banks in the region. As ROA continues to expand, from lowering funding costs, improving recoveries and market share gains, its market capitalisation will surpass US$1 billion. Perhaps its scarcity premium will also expand?
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