ICICI Bank sees better asset quality after 3 bad years

Loan growth is gaining momentum and credit costs are normalising.

ICICI Bank is looking at a better year ahead, as asset quality trends are picking up after three bad years and loan growth gains momentum to 10.5% YoY, says Maybank Kim Eng.

Here's more from Maybank Kim Eng:

We believe asset quality woes may be nearing the end for ICICIBC. During the quarter fresh accretion to NPLs at INR43b was lowest in the last nine quarters. However, ageing of existing NPLs and increase in provision cover led to high credit cost at 3%. Exposure to stressed sectors came down to 10.8% of loans from 11.3% the last quarter. Although near-term provisioning could remain high, we expect a sharp fall by FY20E. Our credit-cost forecast for FY18E is 2.6%, before dwindling to 1.5% in FY19.

Loan growth is gaining momentum led by retail loans. Domestic loans grew at 16%, with retail loans clocking 22% YoY growth. Share of SME and retail loans improved to 4.9%, +30bps in the last one year. Another area of strength was CASA deposits, which grew 12.4% YoY. CASA ratio inched up to 50.4% from 49.9% last year.

ICICIBC is trending towards better asset quality after three bad years. Pick-up in loan growth, normalisation of credit costs and control over opex will lead to rebound in earnings for FY19-20E. We forecast medium term ROEs of 12-13%.

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