Yes Bank Slumps After Brokerages Cut Target Price On Asset Quality Weakness

Private sector lender Yes Bank Ltd. returned to profit in the April-June 2019 quarter but reported poor asset quality, as the bank new chief executive Ravneet Gill continued to clean up the lenders books.

The bank’s gross non-performing asset ratio rose to 5.01 percent from 3.22 percent in the previous quarter. The net NPA ratio rose to 2.91 percent from 1.86 percent in the January-March period. In absolute terms, bad loans rose 53 percent to Rs 12,092 crore.

Moreover, the bank still has a Rs 10,000 crore watchlist of potentially stressed loans. It also has a book of over Rs 29,000 crore in below-investment grade exposure, which has risen due to two large financial firms being downgraded this quarter. Shares of the private lender were down 10.4 percent to Rs 88.10 apiece on the NSE after opening nearly 20 percent lower.

Brokerages have taken note of this asset quality weakness and cut target price for the stock.

CLSA

• Slippages high and stressed loans high.
• Consolidation of assets also affects CASA growth.
• Change in norms and ratings downgrade consume capital.
• Capital raise and managing CASA growth is key.

Morgan Stanley

• Key negative was weaker than expected progression on key metrics.
• Slippages were high and more importantly, BB & below rated exposure rose sharply.
• CET-1 moved lower QoQ to 8 percent despite decline in loan book.

Credit Suisse

• June quarter review: Drop in CASA deposits highlights pressing recap needs.
• Bank loan book contracted 2 percent QoQ as it looked to conserve capital.
• Cut EPS by 72 percent on the back of larger dilution, weaker growth and higher credit costs.

Jefferies

• Q1 turned out to be far worse than what we had anticipated 10 days back.
• CET-1 hits 8 percent regulatory floor for March 2020, with more rating downgrades/NPLs to come.
• Management assures capital infusion in Q2, but the optics are too unsettling.

Edelweiss

• June quarter was impacted by weak asset quality, precarious capital position, softer growth and lower NIM.
• Bank is still in early stages of transition in strategy, asset quality recognition and capital.
• Upside will hinge on bank’s ability to raise capital.

Nomura

• Bank reported weak Q1 despite muted expectation.
• Asset quality weak; management’s guidance seems overly optimistic.
• Path to recovery could be challenging.

Antique

• Place rating and target price under review as uncertainties are high.
• Asset quality continues to surprise on the negative side.
• Higher mark-to-market provisions of Rs 1,100 crore was not included in credit cost guidance.

Axis Capital

• Place the stock under review till we get clarity on the timelines, capital raise.
• Uncomfortable on the current capital position and its ability to raise fresh capital.
• Any dilution at current levels will be RoE dilutive for the long term.

Philip Capital

• Expect loan growth to remain muted in absence of capital.
• Expect bank to continue to report higher slippages over next few quarters.