We maintain our long-term 'Neutral' recommendation on
ICICI Bank Ltd.
(
IBN
), reflecting its stable fiscal first quarter (ended June 30)
performance, which recorded a remarkable 36% year-over-year rise.
Moreover, we expect synergies from the company's reliance on
domestic loans, stable funding base and leadership position in the
insurance business. Nevertheless, the company's highly competitive
operating environment and rising operating expenses remain causes
of concern.
ICICI Bank's fiscal first quarter results benefited mainly from
higher top line. Stable asset quality and strong capital ratios
were the other positives. However, a significant jump in operating
expenses marginally marred the results.
With domestic loans representing a major portion of ICICI Bank's
loan portfolio, the company is less likely to be affected by the
sluggish international economic environment. The company has been
marketing retail deposits on a large scale, mainly to bring down
the cost of funds and create a stable funding base. All these
factors will enable it to efficiently deal with the challenging
economic scenario.
Further, ICICI Bank is expanding overseas by offering
technology-based banking services and opening additional offshore
branches. The primary areas of focus for the company include
amassing a solid retail deposit base, building a global syndication
network and achieving top-tier status for overseas acquisitions of
Indian corporate accounts. Moreover, the company has been improving
its services for offshore banking units via foreign currency
deposits.
On the flip-side, ICICI Bank has been expanding its branch network
for quite some time, which is resulting in higher operating costs.
Higher operating expenses will likely drag down its financials over
the near term. In addition, the company is expected to face higher
expenses due to the probable rise in inflation rate as well as the
recent ratings and outlook downgrades by Moody's, a ratings arm of
Moody's Corp.
(
MCO
), S&P and Fitch Ratings.
In addition, though ICICI Bank has been witnessing a continuous
improvement in asset quality, we anticipate near-term pressure on
its asset quality. This is primarily due to the company's increased
proportion of higher margin (and higher risk) unsecured loans in
its portfolio mix.
Currently, ICICI Bank retains its Zacks #3 Rank, which translates
into a short-term Hold rating.
ICICI BANK LTD (IBN): Free Stock Analysis
Report
MOODYS CORP (MCO): Free Stock Analysis Report
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