Bank Stocks - Quick Overview

            Union Bank Ltd

Union Bank Ltd      (updated - 25 Sept 2009)
The Union Bank stock has risen 22 per cent over the past month or so, more than many of its peers in the industry. The Street is probably banking on a better set of numbers for the rest of the year because the June 2009 quarter results were disappointing.

While the net profit was boosted by treasury gains, the net interest margin (NIM) came in at 2.3 per cent, a fairly steep drop of 50 basis points sequentially resulting in a rise in the net interest income of just 1.6 per cent year-on-year. That was mainly because while the bank was lending at lower rates in a falling interest rate environment, deposits were getting repriced only with a lag.

Analysts were, however, taken aback at the extent of the fall in the NIM and believe that spreads appear to be narrowing incrementally. As such, they don’t expect margins to recover soon, even after deposits are repriced. Also, the credit-deposit ratio fell by 400 basis points year-onyear with incremental deposits probably being channelled into relatively low-yielding assets.

Moreover, the share of cheaper current and savings accounts (CASA) which came off by 270 basis points in the December 2008 quarter, hasn’t recovered meaningfully and was up 30 basis points sequentially to 30.5 per cent. That again, could have pressured the NIM.

The management is hoping to grow the loan book by about 25 per cent in the current year which is not too ambitious given that the economy is recovering and demand for credit should pick up; should that be achieved, margins could improve.

What Union Bank has going for it is a relatively clean balance sheet - gross non-performing assets (npa) were stable at 1.95 per cent sequentially and were lower by about Rs 50 crore. Moreover, gross of floating provisions, the coverage for loan losses remains at a high 80 per cent. However, the stock has seen a sharp run up and at the current price of Rs 246, trades at 1.3 times price to adjusted book value (P/BV), capturing near term upsides.
source - BS

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