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Strong growth and resilient asset quality leading to 5‐6% ABV upgrades

The stand‐out highlights of ICICBC’s Q3 FY21 performance were a sharp uptick in loan growth, firm NIM despite higher interest reversals, and lesser‐than‐expected deterioration in asset quality causing lower provisioning. Even in the current challenging quarter (not so supportive growth and delinquency environment), the bank delivered 1.6% RoA and 15% RoE on computed basis. The significant loan growth was driven by mortgages (up 7% qoq), auto loans (up 7% qoq), business banking (up 12% qoq) and domestic corporate lending (up 8% qoq). The stock of proforma slippages at Rs82bn (120 bps of adv.) and invoked restructuring at Rs25bn (36 bps of adv.) were below our expectations, and highlights the strength of the balance sheet. The bank carries significantly higher‐than‐regulatory provisions on these pools, and a Covid‐ related buffer of 0.9% of advances which cushions the P&L from incremental pandemic‐driven slippages. In addition, the normalizing overdue trends across segments underpins Management’s confidence about a normal credit cost of 1.2‐1.3% in FY22.

Our earnings and ABV estimates for FY22/23 undergo material upgrade, as we raised loan growth assumption and pruned credit cost forecast. We now expect the bank to deliver average 1.7% RoA and 14‐15% RoE over FY22‐23 with high capitalization levels. The core bank trades at 1.6x FY23 P/ABV, attractive in a scenario of improving growth and strong profitability. Retain BUY and raise 12m PT to Rs675, as we also assign a better multiple now. 

Management Commentary

Key highlights

* Mortgage disbursements were significantly higher qoq ‐ entire underwriting has been automated – strong growth in the portfolio driven by market improvement and strengthened distribution and execution.  

* Auto disbursements crossed pre‐Covid level.

* Rs126bn disbursements under the ECLGS scheme.

* Disbursements still lower than pre‐Covid times in the CV financing segment.

* Domestic corporate loans grew 8.5% qoq – driven by lending to PSU entities and large corporate groups.  

* Overdues portfolio (0‐90 dpd) improved further  ‐  Retail overdue portfolio currently 1.5% above normal – but has come down from 4% above normal as of Sept 30.

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