Canara Bank: Rising loan book, margins help growth
Canara Bank's investors should be happy with the latest set of numbers, marked by an improvement in margin and high advances growth, after the state-owned bank reported a 30% YoY fall in its net profit in the March 2010 quarter.
By ET Bureau |
ET INTELLIGENCE GROUP
Canara Bank’s investors should be happy with the latest set of numbers, marked by an improvement in margin and high advances growth, after the state-owned bank reported a 30% YoY fall in its net profit in the March 2010 quarter.
The bank had reported a net interest margin (NIM) of 3% in the June 2010 quarter, much higher than what it reported in any of the past four consecutive quarters. This may well lead to a positive change in investors’ perception of the bank’s stock.
Canara Bank has been successful in growing its loan book at a higher-than-industry rate for a while now. It has managed to maintain this trend by growing its advances at 24% in the quarter-ended June compared with the 20% growth in overall loan growth in the banking industry.
Among large state-owned banks, Canara Bank was one of the few, which struggled with poor asset quality in the previous financial year. For instance, its net non-performing assets formed 1.85% of its advances in the December 2009 quarter. In an industry, where banks strive to restrict their bad loans to 1%, or below, of the total advances, Canara Bank’s performance was found wanting at the end of the last quarter. However, the bank has improved its asset quality since then. Its net NPA constituted 1% of its net advances at the end of the June quarter.
During the quarter-ended June, the bank has also improved its provision coverage ratio to 78% against the mandated minimum coverage of 70%. That would mean that Canara Bank has provided adequately for its bad loans. However, it is clear that there is a scope for scaling up asset quality, considering that bigger banks such as Bank of Baroda and Punjab National Bank have much lower bad loan ratios in percentage terms.
Clearly, Canara Bank has made significant progress during the June quarter. But it also needs to raise the proportion of low-cost current account and savings account (CASA) deposits, which is now 30% of its total deposits. This looks reasonable. An improvement in CASA is key to raising its NIM to 3% or more.
An improving NIM and an ability to grow its loan book at a high rate indicates that Canara Bank should be able to continue its growth momentum.
Canara Bank’s investors should be happy with the latest set of numbers, marked by an improvement in margin and high advances growth, after the state-owned bank reported a 30% YoY fall in its net profit in the March 2010 quarter.
The bank had reported a net interest margin (NIM) of 3% in the June 2010 quarter, much higher than what it reported in any of the past four consecutive quarters. This may well lead to a positive change in investors’ perception of the bank’s stock.
Canara Bank has been successful in growing its loan book at a higher-than-industry rate for a while now. It has managed to maintain this trend by growing its advances at 24% in the quarter-ended June compared with the 20% growth in overall loan growth in the banking industry.
Among large state-owned banks, Canara Bank was one of the few, which struggled with poor asset quality in the previous financial year. For instance, its net non-performing assets formed 1.85% of its advances in the December 2009 quarter. In an industry, where banks strive to restrict their bad loans to 1%, or below, of the total advances, Canara Bank’s performance was found wanting at the end of the last quarter. However, the bank has improved its asset quality since then. Its net NPA constituted 1% of its net advances at the end of the June quarter.
During the quarter-ended June, the bank has also improved its provision coverage ratio to 78% against the mandated minimum coverage of 70%. That would mean that Canara Bank has provided adequately for its bad loans. However, it is clear that there is a scope for scaling up asset quality, considering that bigger banks such as Bank of Baroda and Punjab National Bank have much lower bad loan ratios in percentage terms.
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Clearly, Canara Bank has made significant progress during the June quarter. But it also needs to raise the proportion of low-cost current account and savings account (CASA) deposits, which is now 30% of its total deposits. This looks reasonable. An improvement in CASA is key to raising its NIM to 3% or more.
An improving NIM and an ability to grow its loan book at a high rate indicates that Canara Bank should be able to continue its growth momentum.
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