ICICI Bank of India (IBN) is a recent entry to the Cara 100. As the leading lender, with a phenomenal five-year Compound Annual Growth Rate of 89.7% for mortgage loans and 66.3% for consumer loans, ICICI dominates the marketplace in a fast-growing India.
The best time to sell IBN was in the Distribution Zone in early February when the stock was trading above 44. Yesterday the stock was $36.75, and appears to be sinking, with further room to fall.
The other side of the coin with ICICI Bank is that borrowing costs are rising faster than lending rates, and lending rates are starting to stretch the customer’s ability to pay.
In response to the central bank of India’s hike in the Cash Reserve Ratio [CRR] by +50 bp and the short-term lending rate (repo) by +25 bp, ICICI Bank had to lift.
ICICI Bank had to lift lending rates by +100 bp. About two-third of its loans (= 40% of assets) are floating rate, so customers are deeply affected.
In addition, the recent +2.5-3.0% increase in term deposit rates has been hurting ICICI more than competitor banks given its smaller proportion of cheaper current/saving deposits as well as lower margins. For example, HDFC Bank (HDB) has a 3.95% net interest margin vs 2.02% for ICICI.
ICICI does not expect any pressure on asset quality, but the Credit Suisse analysts see the situation somewhat differently. For instance, in mortgage, ICICI said 90% of all borrowers are likely to see a roughly +20% increase in monthly installments from their payment six months ago.
Credit Suisse points to the declining quality of ICICI’s loan backing:
• Monthly installment for 45% of borrowers has already been raised and all 90% borrowers on floating rates will now face a +20% increase,
• About one quarter of ICICI mortgages are to customers with monthly income less than Rs.20,000 (US$450) who generally stretch in order to buy a home,
• About one-fifth of ICICI mortgages are believed to be for investment property, i.e. not owner-occupied,
As to the broad market in India, I think the tide turned as soon as banks started tightening and growth in personal income couldn’t keep pace with consumption patterns. Something had to give. The India equity market, as well as ICICI Bank and HDFC Bank, have had a remarkable four-year run. The Bull cycle is over. It’s time to let these prices come to you.
The +1% hike in mortgage rates announced in February was effective from 1 April, as is the current +1%, hence it’s a one-shot increase of +2%, and
• Property prices, that had risen several-fold in past 3-4 years, could soften.
They also say that ICICI’s unsecured consumer loans, up +126% Y/Y as of December 2006, may come under pressure as well.
Another Cara 100 company from India, and a competitor to ICICI Bank, is HDFC Bank. It too is falling in price for the same reasons.
The best time to sell IBN was in the Distribution Zone in early February when the stock was trading above 44. Yesterday the stock was $36.75, and appears to be sinking, with further room to fall.
The other side of the coin with ICICI Bank is that borrowing costs are rising faster than lending rates, and lending rates are starting to stretch the customer’s ability to pay.
In response to the central bank of India’s hike in the Cash Reserve Ratio [CRR] by +50 bp and the short-term lending rate (repo) by +25 bp, ICICI Bank had to lift.
ICICI Bank had to lift lending rates by +100 bp. About two-third of its loans (= 40% of assets) are floating rate, so customers are deeply affected.
In addition, the recent +2.5-3.0% increase in term deposit rates has been hurting ICICI more than competitor banks given its smaller proportion of cheaper current/saving deposits as well as lower margins. For example, HDFC Bank (HDB) has a 3.95% net interest margin vs 2.02% for ICICI.
ICICI does not expect any pressure on asset quality, but the Credit Suisse analysts see the situation somewhat differently. For instance, in mortgage, ICICI said 90% of all borrowers are likely to see a roughly +20% increase in monthly installments from their payment six months ago.
Credit Suisse points to the declining quality of ICICI’s loan backing:
• Monthly installment for 45% of borrowers has already been raised and all 90% borrowers on floating rates will now face a +20% increase,
• About one quarter of ICICI mortgages are to customers with monthly income less than Rs.20,000 (US$450) who generally stretch in order to buy a home,
• About one-fifth of ICICI mortgages are believed to be for investment property, i.e. not owner-occupied,
As to the broad market in India, I think the tide turned as soon as banks started tightening and growth in personal income couldn’t keep pace with consumption patterns. Something had to give. The India equity market, as well as ICICI Bank and HDFC Bank, have had a remarkable four-year run. The Bull cycle is over. It’s time to let these prices come to you.
The +1% hike in mortgage rates announced in February was effective from 1 April, as is the current +1%, hence it’s a one-shot increase of +2%, and
• Property prices, that had risen several-fold in past 3-4 years, could soften.
They also say that ICICI’s unsecured consumer loans, up +126% Y/Y as of December 2006, may come under pressure as well.
Another Cara 100 company from India, and a competitor to ICICI Bank, is HDFC Bank. It too is falling in price for the same reasons.