Union Bank dips as gross NPAs widen in Q4-Business Standard 09.05.2014
Gross NPAs, as a percentage of total assets, increased to 4.08% in the March quarter from 3.85% at the end of December quarter.
Union bank of India has dipped over 7% to Rs 138 on the BSE, after the bank said its gross non-performing assets (NPAs), as a percentage of total assets, increased to 4.08% in the March quarter from 3.85% at the end of December quarter.
Net NPAs, too, rose to 2.33% in the March quarter from 2.26% three months earlier, Union Bank of India said in a statement.
Meanwhile, the state-owned bank has reported a 26.6% year-on-year drop in net profit at Rs 579 crore for the quarter ended March 31, 2014 (Q4), due higher operating cost and provisioning for bad loans. The bank had posted a profit of Rs 789 crore in the same quarter last year.
Net interest income, the difference between interest earned and paid, grew marginally 3.6% to Rs 2,052 crore as against Rs 1,979 crore in the corresponding quarter of previous fiscal.
The stock opened at Rs 148 and touched a high of Rs 149 before the announcement of results. A combined 8.4 million shares changed hands on the counter so far on the NSE and BSE.
Rising bad loans and slowing advances weigh on Union Bank-LiveMint-09.05.2014
Union Bank of India has been growing its balance sheet very slowly compared with the industry growth--By Sri Krishna Merchant
Union Bank of India’s shares slumped 9% on Thursday after March quarter earnings showed that bad loans continued to pile up while growth in advances slowed drastically.
Gross non-performing assets (NPAs) as a portion of loan book increased to 4.08%, at a four-year high. The slippages rose marginally compared with the previous quarter to Rs.1,200 crore and were concentrated in the corporate and small enterprise segments. Asset quality woes remain for the bank as restructured loans rose by a third to Rs.1,330 crore compared with the previous quarter.
However, like all other banks, recoveries increased to Rs.1,316 crore as it went after recalcitrant borrowers. The management has announced a restructuring pipeline of Rs.1,700 crore, according to analysts. Their restructured book against total advances remained high at around 6.7%.
Union Bank of India has been growing its balance sheet very slowly compared with the industry growth of around 14%-15%. The advances growth nearly halved to 10% because their low capital base precluded them from pushing higher loan growth. While the retail, agriculture and small businesses book grew at a robust pace, the corporate loan book declined. Even deposit growth slowed to 13% from 19% in the previous quarter.
A sharp drop in other income and increased operating expenses, primarily for employee provision, weighed on overall profitability. As a result, the net profit declined to Rs.579 crore, lower by 27% compared with a year ago. Net interest margin improved 10 basis points to 2.62% as their low-cost current and savings account share in the total deposits improved to 29.5% during the quarter.
Union Bank of India’s shares have rallied around 28% in the past three months, outperforming the S&P BSE Bankex. Even after the recent run up, the shares are among the cheapest among state-owned banks as the stock is trading at 0.5 times price to book multiple for 2014-15.
An analyst from a leading brokerage firm said, “While their tier 1 capital has increased to 7.5% in the March quarter, it is still below a comfortable ratio of 8%, therefore, they will continue to grow their loan book at a slower pace.”
The stock may remain under pressure as asset quality woes and high credit costs continue to affect profitability.
Is Union Bank a buy post earnings-driven correction? CNBC-TV18’s Ekta Batra and Reema Tendulkar spoke with Nitin Kumar of Quant Broking and Hatim Broachwala of Karvy to discuss the results and the stock’s valuation.
Reema: What would you do with the stock now, it has already lost close to about 4.5-5 percent on the back of these earnings? Do you think just prima facie that there could be more weakness in store for Union Bank?
Reema: What would you do with the stock now, it has already lost close to about 4.5-5 percent on the back of these earnings? Do you think just prima facie that there could be more weakness in store for Union Bank?
Kumar: This is another public sector undertaking (PSU) bank wherein we have been maintaining a sell call and I think the concerns for Union Bank have been multifold. Firstly, it is very much short on capital. So the tier I [capital] is close to 6.3 percent and that in all likelihood is likely to deteriorate further as the bank announces a dividend . This is severely impacting the loan growth. If you look at the first nine months for the fiscal FY14, the loan growth stood at barely 7-8 percent. Growth will remain very low for the bank over the coming years while the asset quality, the gross NPL at 4 percent and tier-I at 6.2 doesn’t look very good. This is in addition to the restructured book, which is also close to 5 percent of the total loans. So for all these concerns, I think despite cheap valuations, Union still remains a ‘Reduce’ for us.
Ekta: What is your first take on Union Bank?
Broachwala: Numbers on the net income interest (NII) front are slightly better than expectations. We were expecting Rs 2,081 crore, it came in at Rs 2,052 crore, non-interest income is low, we are expecting it to be lower because corresponding quarter last year they had a very big amount on treasury income, which is expected to be not there this quarter. Operating expenses has been 7-8 percent higher than expectations so that is where probably the surprise is there, profitability is below expectation, NPL provisions are high because we were expecting numbers on the slippages and asset quality to do bad so there the provision had to be higher. On the slippages side, we don’t have the exact number as such but gross non-performing assets (GNPA) is looking even worse than what we were expecting. We were expecting around Rs 2,000 crore slippage number during the quarter. So I think the number has come even higher than that. Overall numbers are bad but it is trading at pretty inexpensive valuations. Looking at the results and it also is issuing tier I -- tier I last quarter it was 6.7 percent so it was very low. So looking at overall things, as of now we have a hold rating on the stock.For Detailed Reading Use Link of CNBC
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