Overview of Banking Sector and Credit Analysis Of
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Transcript of Overview of Banking Sector and Credit Analysis Of
CREDIT ANALYSIS OF BANKS AND NBFC
Submitted by:
Nirvika Mohan
PGDM - Finance
Company Overview
• DBS Bank Ltd is a Singaporean Bank known as Development Bank of Singapore• Set up by Government of Singapore in June 1968.• It is the largest bank in South East Asia by assets and
among largest banks In Asia.• It has market dominant position in consumer banking,
treasury and markets, asset management etc.• Named safest bank in Asia by Global Finance for six
consecutive years from 2009 to 2014.
Background of the project• Credit analysis of large private sector banks namely
HDFC Bank, ICICI Bank and Axis Bank• Credit Analysis of Tata Capital• Ratio analysis
Credit Analysis of Banks• Credit analysis is done to understand the ability of the
bank to meet its liabilities.• Seeks to understand the level of default risk associated
with investing in that entity.• CAMELS- Capital Adequacy, Asset quality,
Management Quality, Earnings, Liquidity, Sensitivity to Market risk.
Methodology• Spreading of financial data from annual reports• Computation of relevant ratios• Preparing a camels analysis on the banks and nbfc.
Scope and Limitations• The scope of the project covered banks and nbfcs• The financial analysis was only limited to private
sector banks
Capitalization• Capitalization levels continued to remain strong with
CRAR and tier 1 ratio at 16.8% and 13.7 %• Total networth increased by 43% to USD 9.7B• Networth to weaker assets ratio remained better than
peers.• Overall we derive comfort from the bank’s strong
capitalization and ability to successfully raise equity capital from the market.
Asset Quality• Bank’s balance sheet total assets grew by 20% in FY
2015 to USD 92.7B• Asset portfolio comprises of loans and advances
(62%), investments (28%), cash and bank balances (5%) and others (5%)• HDFC Bank mainly focuses on retail loans which
account for 53% of the loan portfolio• Bank maintains strong credit quality as seen from their
low level of NPAs.
• Gross and Net Npa were stable at 0.93% and 0.26 % • Total investment portfolio increased by 37% to USD
26B primarily includes investments in G-secs (72.3%).• Non SLR portfolio of the bank stood at USD 7.2B and
primarily includes investments in bonds issued by Banks and FIs (45.9%)• It can be expected that the bank’s asset quality will
remain better than peers on account of underwriting standards and granular loan portfolio.
Management team• HDFC bank’s risk management is considered to be
good reflective of the bank’s financial position.• Chairman Mr. C.M Vasudev was replaced by Mrs.
Shymala Gopinath.• Senior management has shown consistency in
performance of the bank.• HDFC Bank has strong distribution network and retail
customer franchise .
Earnings profile• Total net operating income increased by 19% to USD
4.9B.• Net interest income increased by 21.2% to USD 3.5B • Operating profitability margin also increased
marginally to 1.8%• PAT increased by 20% to USD 1.6B • ROAA and ROAE in FY15 stood at 1.9% and 19.4%
respectively
Funding• Total Liabilities excluding networth increased by 18%
to USD 83B on account of deposits• CASA deposit ratio was at 44% in line with peer
average• Credit deposit ratio increased to 81.6% however was
lower than peer average• Based on ALM statement of the bank, there was no
negative funding gap.• Comfort can be derived from overall funding profile
Sensitivity to Market Risk• HDFC Bank is exposed to market risk arising from its
investment portfolio of USD 26B• A percent increase in interest rates could result in a
loss of USD 314.6 M on AFS and HFT portfolio.• Amounts to 3.2% of its networth• Total commitments and contingencies for HDFC bank
stood at USD 153B which accounts for 1.65 times of bank’s total assets and 15.7 times its networth.
Conclusion• The Bank can be evaluated well based on its strong
business position, capitalization levels, good asset quality, stable earnings and funding profile• Further it can be rated based its position as second
largest private sector bank in terms of total assets with market share of 5% of total advances and deposits.
Efx- Scoping and Strategy Evaluation• FX all leading independent electronic foreign
exchange platform of Thomson Reuters• Provides liquidity to active traders, asset managers,
corporate treasuries, market makers, broker dealers etc.• Offers liquidity upto one week tenor and 3 months
incase ISDA is signed with the bank
Objectives of the project
• Evaluating what should be extent of marketing efforts by DBS India Treasury sales team.• Onboard more bank clients on efx platform• To understand the FX All platform with respect to its
interface with clients.• To promote DBS as a liquidity provider on FX All• To understand the various issues and raise the same to
the head office
Scope of the project• Indian banks onshore branches• Offshore branches of the Indian banks where they are
currently not onboarded
Limitations of the project• Limited to banks only• Limited to promoting FX All platform
Methodology
• Primary Research which involved telephonic survey.•Meeting Traders to understand the FX All platform• For new onboardings, liaising between client’s back
office and DBS Singapore for settlement instructions.• Once the CLS settlement is in place, call vendor to get
client onboarded and transact a deal
Findings• Stale pricing•Wide bid ask quotes compared to other banks.• Rejection issues due to the minimum notional amount
or latency.• Clients want RFQ for swaps which DBS is not
providing at the moment.
Recommendations
• DBS should refresh their quotes on timely basis to avoid stale pricing.• Pricing issues should be raised to the head office as
this leads to removal from the ladder• DBS should quote for swaps on RFQ basis
Conclusion• DBS being a late entrant in the Efx space for Indian
clients needs to market itself more rigorously as a liquidity provider.• There are many competitors in the Efx domain
therefore DBS needs to offer the best quotes to attract more revenue.• It should try to expand clientele through other
platforms as well.