Banking Industry - Cygnus 1 June 09
Banking Industry - Cygnus 1 June 09
Banking &
Financial Services
CONTENTS
INDUSTRY AT A GLANCE
MARKETING
¾ US Bank expands presence in Orange County
¾ Union Bank offers home loan at 8%, India
¾ BoB on overseas expansion spree, to open 10 offices this year, India
FINANCE
¾ Allied Bank suffers 50% drop in income California
¾ French bank Natixis posts massive first-quarter loss
¾ IndusInd Bank to raise Rs2.50bn, hire 700 this fiscal, India
¾ Tata Motors taps LIC to raise Rs2.50bn, India
CORPORATE
¾ TD Bank ranks highest in customer satisfaction for fourth year in a row, Canada
¾ Bank of America raises US$13bn in share sale, US
¾ UK panel blames bonus-driven pay practices for banking crisis
¾ German ‘bad bank’ scheme criticism rejected
¾ Gulf banks prepare for next generation of multi-use payment cards & personal card, UAE
¾ UAE urged to issue licences to Indian banks
¾ Japanese banks in expansion mode
¾ Agricultural bank raises US$7.3bn in bond sale, China
¾ Tata group re-enters housing finance, India
¾ RBI imposes Rs0.1m penalty on CKP Co-op Bank, India
¾ SBI to push for mergers of associate banks, India
¾ Deutsche Postbank (India) cuts RBLR
¾ Fitch downgrades credit outlook of Axis Bank, India
¾ 2 PSU banks may dilute govt stake, India
¾ BoI implements core banking system in all branches, India
¾ ICICI Bank tweaks deposit rates; IDBI Bank slashes, India
¾ Dena bank targeting business of Rs1260bn in 3 years, India
¾ Axis Bank cuts benchmark lending rate by 0.5%, India
GOVERNMENT INITIATIVES
¾ Obama bets on ‘toxic’ asset plan, US
¾ Opening up banking sector for foreign players deferred, India
KEY DEVELOPMENTS
Marketing
America
US Bank expands presence in Orange County
US Bank recently completed converting more than 170 former Downey Savings & Loan centres
throughout California and Arizona, thereby increasing its presence in Orange County. The firm now
offers twice as many branches in the Los Angeles and Orange County areas. US Bank acquired the
banking operations of the Newport Beach-based firm in November of last year and now has nearly 560
branches and 890 ATMs in California. It's a 37% increase in offices in less than a year.
Asia-pacific
India: Union Bank offers home loan at 8%
Union Bank of India recently launched its Special Housing Loan Scheme with a combination of fixed and
floating rate of interest. During the tenure of the loan, 8% fixed rate of interest will be applicable for the
first year. The floating rate will become applicable from the second year till the loan is fully repaid. Under
the scheme, applicable only to new accounts, the bank will offer home loans for a maximum tenure of 20
years and the loan ceiling will be Rs5m. The scheme is open up to September 30, 2009.
Finance
America
California: Allied Bank suffers 50% drop in income
Allied Banking Corp suffered a 50% drop in its earnings in the first quarter after recording higher
expenses and losses from foreign exchange and securities trading. A consolidated income statement filed
at the Philippine Stock Exchange showed the bank earned only P150.9m in the first three months of the
year, half of the P302.64m notched in the same period last year.
Europe
France: French bank Natixis posts massive first-quarter loss
Natixis known as the youngest bank in France has posted €1.8 billion first-quarter loss, triggered by its
toxic assets. Natixis' performance in the first quarter is really frustrating, compared with a profit of €69m
a year earlier. Its two main shareholders, Banque Populaire and Caisse d'Epargne, will give a capital
injection totalling €3.5 billion in order to maintain a solid capital structure. The so-called toxic assets are
blamed for the heavy loss. Natixis' assets of the toxic portfolio amounted to €33.7 billion in the first
quarter, which makes the bank suffer a loss of €1.9 billion.
Asia-pacific
India: IndusInd Bank to raise Rs2.50bn, hire 700 this fiscal
IndusInd Bank may raise Rs2.50 billion of tier 2 capital after July this year to fund its growth. The bank
managing director & CEO Romesh Sobti announced that the bank would need this capital if its lending
grows 25-30%. To support its growth, IndusInd Bank has also decided to hire 700 managers in the lower
and middle management level. It may be recalled that it hired 2200 people last fiscal. It has a headcount of
2700 now.
Corporate
America
Canada: TD Bank, ranks highest in customer satisfaction for fourth year in a row
TD Bank, America's Most Convenient Bank, is ranked highest in customer satisfaction in the Mid- tlantic
region according to the J.D. Power and Associates 2009 Retail Banking Customer Satisfaction Study(SM).
This is the fourth year in a row TD Bank has ranked highest in customer satisfaction.
Europe
UK panel blames bonus-driven pay practices for banking crisis
At a time when the British economy continues to reel under recession, an expert panel has blamed
"reckless" risk-taking stoked by bonus-driven executive compensation practices as the prime reason for
the nation's banking crisis. The UK Treasury Committee report declared that the banking crisis has
exposed serious flaws in remuneration pattern in the sector.
Asia-pacific
Japan: Japanese banks in expansion mode
Japanese banks, which have recently observed some of the constraints on simultaneously providing
banking and broking services revoked in their domestic market, have been swift to capitalise the
opportunities offered by the global financial crisis to boost their investment banking skills. Mitsubishi
Government Initiatives
America
US: Obama bets on ‘toxic’ asset plan
The long-awaited Obama administration’s plan to rid banks of their ‘toxic’ assets was announced recently.
The gist is that a public-private partnership will be established to acquire loans and securities from banks
through a ‘Legacy Loans Program’ and ‘Legacy Securities Program’. In the first, pools of loans will be
auctioned to private investors who will be provided with financing from the Federal Deposit Insurance
Corporation (FDIC) to acquire the loans. Both Government and the private sector will contribute to the
initial capital. If and when the loans are recovered or sold off, the Government gets a share of the profits.
Asia-Pacific
India: Opening up banking sector for foreign players deferred
The Reserve Bank of India has deferred the opening up of the banking sector for foreign players and
decided to continue with the current policy and procedures governing the presence of foreign banks in
India. In its Annual Policy Statement 2009-10, the RBI declared that, In view of the current global
financial market turmoil, there are uncertainties surrounding the financial strength of banks around the
world. Further, the regulatory and supervisory policies at national and international levels are under
review.
INDUSTRY STATISTICS
Overview of Scheduled Commercial Banks' Investments – India
(Rs Bn)
3500
-500
Mutual
Commercial
Securities
Shares
Funds
Debentures
Bonds /
SLR
Paper
SERVICE FOCUS
Credit Card
Overview
A credit card is a system of payment named after the small plastic card
issued to users of the system. In the case of credit cards, the issuer lends
money to the consumer to be paid to the merchant. In contrast, a credit
card allows the consumer to 'revolve' their balance, at the cost of having
interest charged. Most credit cards are of the same shape and size, as
specified by the ISO 7810 standard. The most common credit card size, known as ID-1, is 85.60 ×
53.98mm. Most of the banks in India issue credit cards through partnerships with various foreign credit
card issuers and banks to provide their customers wider acceptability.
Major Credit Card Brands
Global scenario 9 UnionPay
The global financial crisis has shown a huge affect on the credit card 9 Visa
market, in China after five consecutive years of growth in the credit card 9 Master
market has now finally started its adjustment from second quarter of 9 American Express
2008. China’s banks have stopped to issue credit cards due to the 9 Capital One
degradation of international credit market and that banks needed to 9 Citi
control risks. As a result, the increase of issue of credit cards was down 9 JCB
more than 50% from a year ago. But the absolute number of credit cards 9 First PREMIER
still went beyond 150m in China in 2008 in spite of the slowdown of
issue. In China credit card market UnionPay is occupying 64.6%, Visa 18.0%, MasterCard 15.2%,
American Express 0.7% and JCB 1.6% by the end of year 2008.
Globally Chase Platinum credit card is Global Credit card Market share:2008
occupying first place in terms of market
share by 24% and the credit outstanding
stood at US$183.32 billion by the end C apital one
of 2008. The second position is taken C iti A.E
8%
by Bank of America by maintaining its 14% 12%
credit outstanding at US$166.32 billion, Discover
7%
3rd , 4th and 5th positions has been taken BOA Wells Fargo
by Citi (US$106.74bn), American 22% 5%
Express (US$88.02bn) and Capital one
(US$60.08bn) with there outstanding C hase
HSBC
amounts respectively. 4%
24%
USAA US Bank
Indian scenario 2% 2%
In past few years, credit card market has Source: Credit card.com; Cygnus Research
shown remarkable developments. Banks
had issued more than 27m credit cards at the end of FY08, but the number has dropped in current fiscal
as the current liquidity crunch has made banks more cautious on their move regarding credit card
issuance. Now the banks are reviewing their credit card limits in wake of the economic slowdown and
credit crunch to reduce the possible risk of defaults to its existing and potential new customers. Some of
the banks also stopped issuing credit cars.
%
card base in the country currently stands at 20
m
Gold and Platinum Cards - Gold and platinum credit cards are a status symbol for any credit card
holder, bringing prestige since getting gold and platinum cards usually require that you have good credit
rating and a higher income levels. Gold and platinum cards offer higher limit for cash advance
withdrawals and sometimes can provide higher credit limits as compared to standard or silver cards.
Co-branded Credit Cards - They are credit cards, which are associated with a particular firm like an
airlines or retail outlet. These cards can be used just like regular credit cards but they also offer benefits to
users of the relevant product like frequent travel points and special discounts.
Advantages Disadvantages
¾ Need not carry cash ¾ You may need to pay annual fee - undesirable
¾ Need not run to ATM in case you need money cost. So, it’s better to go for the credit card that
urgently does not charge such a fee.
¾ Sometimes you get cash back ¾ There is tendency to spend more especially if
¾ You can buy tickets/shop online easily you are an impulsive buyer.
¾ You can build your credit rating ¾ You need to carry it safely.
Outlook
Indian consumers spend an average of Rs4,000 a month on their credit cards. It is only 1% of their total
purchases. Although this figure is quite below the world average of 9%, yet banks and credit cards issuers
fear high default rate in near future because of the global slowdown and high inflation in the country.
In the year 2008-09 the credit losses were Rs3420 per active card per year compared to Rs3070 in the US
and Rs1220 in Australia, although the purchasing power of Indian consumers was lower compared to the
customers in these markets. Also, Indian customers use their cards less frequently and for lower amounts.
The credit card is most popular mode of online payment making, in India 91% of net user ‘window shop’
online, 74% travel buyers have bought train tickets online and 34% air tickets. In the year 2008-09 credit
card business is expected come down in its growth percentage from the last year growth.
COMPANY SCAN
Mission: - To provide superior, proactive banking services to niche markets globally, while providing
cost-effective, responsive services to others in its role as a development bank, and in so doing, meet the
requirements of the stakeholders.
Vision: - To become the bank of choice for corporates, medium businesses and upmarket retail
customers and to provide cost effective developmental banking for small business, mass market and rural
markets.
Products List
Deposits Loans NRI Cards
9 Saving 9 Personal Loan 9 Housing Loans to NRIs/PIOs 9 Debit
9 Current 9 Agriculture Sector 9 NRI Deposit Schemes 9 Credit
9 Term 9 SME 9 NRI -Yield Enhancing Scheme
9 Tax Saving 9 Commercial Loans 9 Securities Transaction Tax
9 NRI 9 Trade Finance 9 Foreign Currency Deposit Scheme
9 NRI Loans 9 Ac Opening Form for NRI
Source: Company; Cygnus Research
KEY RATIOS
2007-08 2006-07 2005-06 2004-05
Credit Deposit Ratio 73.58 70.29 69.87 67.05
Cash Deposit Ratio 7.02 5.98 5.50 5.41
Investment Deposit Ratio 28.64 31.46 35.00 37.16
NIM (Net Interest Income/Total Funds) 2.65 2.71 2.54 2.49
Capital Adequacy Ratio 12.95 11.58 10.75 11.52
Net Profit/Total Funds 1.26 0.88 0.68 0.38
Return on Net Worth (%) 27.58 21.25 15.37 8.36
Source: Company; Cygnus Research
Performance Analysis
Indian economy is mirrored by the financial sector of the country. Credit growth has slowed down in the
banking industry, to 17.3% after staying in the range of 28-30% during most part of the OND08. Sudden
dip in credit growth is on account of repayment of oil marketing companies, slowdown in industrial
production, lower working capital requirement and delay in execution of capex plans. Credit growth
somehow remained healthy in the past on account of desperate need for funds as other source of capital
for corporate India such as ECB, and FCCB had totally dried up.
Agricultu
154000 re
14%
104000 Corpora
te SME
49% 22%
54000
Retail
15%
Rs m
4000
2005-06 2006-07 2007-08 2008-09
During 2008-09 BOI’s global business mix increased by 26.30% to Rs3344.40 billion. The domestic
business mix increased by 26.77% to Rs580.37 billion and the foreign business increased by 24.16% to
Rs115.99 billion. The banks deposits during 2008-09 increased by 26.46% to Rs396.96 in which domestic
deposit contributed more than the foreign deposit. The domestic gross advance increased by 26.08% to
Rs239.66 and the foreign advance increased by 25.52% to Rs59.73 against the previous year 2007-08. In
2008-09 the networth of the bank increased by 29.16% to Rs111.44 billion from Rs86.29 billion. Return
on asset improved to 1.49% in March 2009 from 1.25% in March 2008.
During JFM09, the banks operating profit increased by 16.17 % from Rs12.12 billion to Rs14.08 billion.
The other incomes of the company have increased by 20.23% to Rs7.85 billion. Net profit increased by
7.40% from Rs7.57 billion to Rs8.10 billion. In the year 2008-09, the book value of the share has
increased to Rs211.89 from Rs164.05 in the year ago.
In 2008-09, interest expenses as percentage of operating incomes increased by 59.27bps against 2007-08.
Operating expenses declined by 248.15bps and stood at Rs30.93 billion in 2008-09 against the previous
year. Staff cost has also reduced by 155.99bps compared to the previous year 2007-08. The bank has
shown tax efficiency, even though operating income has increased from 2004 to 2008. When all the
expenses are compared, the interest expenses take the major part of cost structure (around 65.34% of the
operating income). Other operating expenses include the cost occurred on making any short term
investments by the bank, it has been declined by 92.16bps against 2007-08. The tax paid by the bank in
the year 2008-09 has increased by 161.23bps as the percentage of operating incomes, against previous
year.
Stock Performance
90
The company’s stock price, which was 80 Cost Structure
as a % of sales
Rs295.00 at the end of May 2008, has 70
60
fallen to Rs235.15 by April 2009, because 50 2007-08
of market fluctuation and global 40 2008-09
30
slowdown. The 52-week high share price 20
10
of the company recorded as Rs295.00 in 0
the month of May 2008, and the 52-week -10
es
s
s
ge
se
se
se
ns
2008. The poor performance of the scrip
ar
pe
pe
pe
pe
Ch
Ex
Ex
Ex
Ex
is due to the negative market sentiments.
x
Ta
st
g
af
tin
tin
In the year 2008-09 the bank declared 80%
re
St
te
ra
ra
In
pe
of its profits as the dividend i.e Rs8 per
pe
O
O
share. About major stock of share i.e. 65%
e r
th
O
are in the hands of promoters, institutions
hold 27% of the company’s shares and rest of the shares i.e. 8% is with the hands of public.
80 Public
8%
60
Institutio
40 BSE Sensex
ns
BSE Banking 27%
20
BOI promoter
0 s
65%
Feb-09
Mar-09
Apr-09
May-08
Jul-08
Aug-08
Jun-08
Sept-08
Oct-08
Nov-08
Dec-08
Jan-09
Outlook
Interest rates have remained high for over a year and the ill effects have already been seen in the form of
slowing IIP & GDP. There has been a sharp deterioration in the global financial environment, which has
impacted domestic money, and forex markets with a marked increase in volatility and a sharp imbalance
on market liquidity as reflected in the movements in overnight interest rates and the high recourse to the
Liquidity Management Facility.
BOI has strong presence in the well industrialised and growing western India. This region accounts for
largest share (37%) of credit in the banking industry. BOI also has a strong international presence with
international operations contributing to about 20% of the total business. It has plans to diversify its client
base and embark on retail business as well. BOI has also made its intentions clear to grow inorganically
with a view to increase its international presence. Till now the bank has shown good growth performance
in terms of its Net Interest Incomes. In the year 2008-09 saving bank deposits increased by 14.27% to
Rs379.44 billion against Rs332.07 in the pervious year. The aggregate deposits of the bank increased by
27.24% to Rs1581.21 billion in the year 2008-09. The bank is maintaining its PLR at 12.00% less than SBI
and ICICI Bank. In the coming quarters the bank is expected to perform well and increase its market
network globally.
STOCK SCAN
140
Relative Market Cap performance
130 BSESensex
BSE Bankex
120 SBI
IC IC I
110
100
90
16-Apr
17-Apr
18-Apr
19-Apr
20-Apr
21-Apr
22-Apr
23-Apr
24-Apr
25-Apr
26-Apr
27-Apr
28-Apr
29-Apr
30-Apr
1-May
2-May
3-May
4-May
5-May
6-May
7-May
8-May
9-May
10-May
11-May
12-May
13-May
14-May
15-May
130
Relative Market Cap performance
120 BSESensex
BSE Bankex
110 CANARA
100
90
16-Apr
17-Apr
18-Apr
19-Apr
20-Apr
21-Apr
22-Apr
23-Apr
24-Apr
25-Apr
26-Apr
27-Apr
28-Apr
29-Apr
30-Apr
1-May
2-May
3-May
4-May
5-May
6-May
7-May
8-May
9-May
10-May
11-May
12-May
13-May
14-May
15-May
Source: BSE India; Cygnus Research
The scrip moved This week the scrip The scrip further Good positive
with its index and went against Sensex declined by 3.00% to sentiments of the
rose by 3.65% to and declined by Rs1325.15 due to lack market and good
Rs1307.80. This was 0.35% to of bulk deals in the financial
due to the good Rs1277.07. market. performance of the
SBI
result shown by the company had made
company by year the scrip rise by
end 2009. 4.09% to Rs1312.25.
The scrip rose by Scrip continued the This week the scrip Huge investment by
1.43% to Rs432.50, positive movement declined by 1.60% to FIIs had brought big
during this week and rose by 2.09% Rs520.60. movement in the
ICICI
and followed its to Rs477.75. This scrip registering an
BANK
banking index. was due to good increase of 9.74% to
positive sentiment Rs574.45.
of the market.
In this week the The scrip remained The good results This week the scrip
scrip rose by 2.24% flat in this week. declared by the continued the
CANARA and stood at company made the positive movement
Rs194.35 and scrip rise by 8.16% to and increased by
followed its index. Rs224.70. 5.90% to Rs228.95.
UPCOMING EVENTS
1. Event Banks Insurance & Real Estate
Date Jun 17-20, 2009
Venue Beirut International Exhibition & Leisure Centre, Beirut, Beyrouth
Highlights Banks Insurance & Real Estate is the first exhibition to bring together banks,
credit card companies, insurance companies, property developers and real estate
brokers. Banks, insurance & real estate is a one-stop-shop for corporate
Lebanon.
Contact Details Promofair S.A.L, Accaoui, Media Center II Building, P.O. Box 165972,
Achrafieh, Beirut, Lebanon. Tel: +(961)-(1)-561600
2. Event 6th AFE Conference
Date Jul 02-04, 2009
Venue Samos Island, Greece
Highlights The AFE Conference has run annually for the past five years, and continuing
the tradition will seek to address the many challenges and new directions on the
field of financial economics. Providing keynote speakers, plenary sessions,
workshops and forums, the conference aims at promoting research and
provides an opportunity for intensive interdisciplinary interaction and debate
between academics and practitioners with research interests in the field of
finance, accounting and business management.
Contact Details Research and Training Institute of the East Aegean (INEAG). Kambos
Vourlioton, 83100, Samos, Greece
Tel: + 30 6976021240; Fax: + 30 2273094537
Email: afe@ineag.gr; Web: www.ineag.gr
3. Event The Global Business and Finance Research
Date Jul 08-11, 2009
Venue London Hilton on Park Lane, London
Highlights The Global Business and Finance Research Conference, London (GBFR)
brings together academicians and professionals from all areas of related
business fields and related fields to interact with members inside and outside
their own particular disciplines. The conference will provide opportunities for
publishing researcher's paper as well as providing opportunities to view other's
work. All the accepted papers will be published. Doctoral students are highly
encouraged to submit papers to GBFR for competitive review.
Contact Details Dr. Turan Senguder. Executive Chair. 6051 North Ocean Dr., # 506,
Hollywood, FL 33019, Fax: 954-449-6237
E-mail: E-mail: drsenguder@aol.com; Web: www.jaabc.com
4. Event Money Expo
Date Aug 01-03, 2009
Venue Pragati Maidan, Pragati Bhawan, New Delhi, India
Highlights The Money Expo is characterised as pivotal event for tapping investment and
finance opportunities of throughout the world. It is emerged out as a leading
event which proves to offer complete insurance options in the marketplace.
The event offers financial solutions and helps in providing networking
opportunities across the globe.
Contact Details Media Expositions & Events. 112-A Sant Nagar, G. F., East of Kailash, New
Delhi, India. Tel: +(91)-(11)-26236933; Fax: +(91)-(11)-41620861