ICICI Bank (IBN) Reports Lower Q1 Earnings, Stock Falls 2.5%

Shares of ICICI Bank Ltd. (NYSE:IBN) fell 2.5% on NYSE following the release of first-quarter fiscal 2018 (ended Jun 30) results. The company’s net profit declined 8% year over year to INR20.49 billion ($317 million).

Results were adversely impacted by lower non-interest income, a rise in expenses and higher provisions. However, increase in net interest income (reflecting rise in loans) was not enough to support the profits.

Net Interest Income Growth Offset by Higher Expenses

Net interest income grew 8% year over year to INR55.90 billion ($866 million).

However, non-interest income of INR33.88 billion ($525 million) dipped 1% from the prior-year quarter. Notably, it included exchange rate gain related to overseas operations and quarterly dividend from ICICI Prudential (LON:PRU) Life Insurance Company (ICICI Life).

Operating expenses totaled INR37.94 billion ($587 million), increasing 12% year over year.

Loans & Deposits Increase

As of Jun 30, 2017, ICICI Bank’s total advances amounted to INR4,640.75 billion ($71.9 billion), up 3% year over year. The rise was mainly driven by robust growth in the retail segment, with a 19% year-over-year increase in total retail loan portfolio.

ICICI Bank’s total deposits rose 15% from the prior-year quarter to INR4,862.54 billion ($75.3 billion) as of Jun 30, 2017. Moreover, as of the same date, the current and savings account ratio came in at 49%.

Deteriorating Credit Quality

As of Jun 30, 2017, net nonperforming assets were INR253.06 billion ($3.9 billion), increasing 65% year over year. Also, provisions and contingencies rose 4% year over year to INR26.08 billion ($404 million).

Net loans to companies whose facilities have been restructured were INR23.70 billion ($367 million) as of Jun 30, 2017.

Capital Ratios Improve

In compliance with the Reserve Bank of India's guidelines on Basel III norms, ICICI Bank's capital adequacy was 17.69% and Tier-1 capital adequacy was 14.59% as of Jun 30, 2017. Both the ratios were well above the minimum requirements.

Our Take

We believe that the company’s increased dependence on domestic loans, focus on improving fee income, a stable fund base and market leadership in the insurance business will continue to generate synergies. While worsening asset quality and mounting expenses remain major concerns, the company’s several digital initiatives especially in rural areas are likely to benefit it going forward.

At present, ICICI Bank carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Performance & Upcoming Releases

Deutsche Bank AG (NYSE:DB) reported net income of €466 million ($512.4 million) in second-quarter 2017, significantly up on a year-over-year basis. Income before income taxes more than doubled to €822 million ($903.9 million) on a year-over-year basis.

HSBC Holdings (LON:HSBA) plc (NYSE:HSBC) and The Royal Bank of Scotland Group (LON:RBS) plc (NYSE:RBS) are scheduled to announce second-quarter 2017 results on Jul 31 and Aug 4, respectively.

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