HDFC Bank’s net interest income for the quarter increased 12.4% year-over-year to INR22,239 million (US$474 million), with net interest margin (NIM) at 4.3%, compared to 4.2% in the preceding quarter.

Non-interest revenues for the quarter were INR8,530 million (US$182 million), down 9.2% from the prior-year quarter. While fees and commissions increased from the prior-year quarter, the company experienced a loss of INR265 million (US$6 million) on revaluation/sale of investments in the quarter. The largest component of the non-interest revenue was fees and commissions of INR7,237 million (US$154 million), up 12.4% over the year-ago quarter.

Continued improvements in productivity were evidenced by stable operating expenses. HDFC Bank’s operating expenses for the quarter were INR14,532 million (US$310 million), down 0.5% from the year-ago quarter. Operating expenses were 47.2% of net revenues compared to 50.0% in the prior-year quarter.

Provisions and contingencies for the quarter were INR4,477 million (US$96 million), down 15.8% from INR5,318 million (US$113 million) in the prior-year quarter.

Asset quality improved, with gross non-performing assets (NPAs) to gross advances decreasing 20 basis points (bps) sequentially to 1.60%. Net NPAs also remained healthy at 0.45% of net advances, down 5 bps sequentially.

HDFC Bank’s total capital adequacy ratio (CAR) as of Dec. 31, 2009, (computed as per Basel 2 guidelines) remained strong at 18.3%, versus the regulatory minimum of 9%. Tier-I CAR was 13.8% as of Dec. 31, 2009.

Zacks Investment Research

(HDB) HDFC Bank’s Profit Increases

Though the rating agency reaffirmed its negative outlook, it said that the acquisition of $12 billion in Guaranty Bank assets will significantly strengthen the bank’s presence in Texas, which housed 105 Guaranty bank branches. The acquisition would take the bank deeper into Texas and California, accelerating the company’s strategy to become a regional U.S. bank.

BBVA Compass will receive an additional investment of $440 million from its parent in the form of common stock as a result of the transaction.

Currently, the company’s long-term issuer credit rating is Aa3, and its financial strength rating is B-. The overall outlook on the company is negative.

The negative outlook mirrors the risks related to the company’s exposure to consumer loans, mortgages, home equity lines and loans, as well as credit cards. If the economic turmoil worsens further, the company’s exposure to these loans might lead to losses causing weaker results, which may strain the company’s capital base.

Despite having problem loans in its portfolio, last month the group (BBVA) reported a 35% rise in net profit in the second quarter. In addition, the bank has improved its position in all its markets by strengthening relationships with customers. This is borne out by its increased market share of savings and current accounts in the three main retail areas: Spain & Portugal, Mexico and South America.

BBVA’s capital base is sound. Despite the complex economic situatio,n it maintains its capacity to generate capital in an organic and recurrent manner. It is the only one of the 28 big European and American banks that did not need government aid or fresh capital in the crisis.

Zacks Investment Research
View original at: Zacks.com News Feed

(BBV) Moody’s Reaffirms BBVA Compass Bank Ratings

There’s a hot new Spanish model that has everyone in Europe going ga-ga.

No, it’s not a runway or swimsuit model. It’s Spain’s banking model.

The Bank of Spain forced Spanish banks to follow a very conservative banking model using what they call “dynamic provisioning” requirements. These requirements forced Spanish banks to build reserves during the good times. This left the banks with capital to draw upon which is helping them survive the downturn.

The Bank of Spain also restricted local banks from piling into mortgage securities. And Spain has a small credit-card and commercial property market which limited risk exposure for the banks. But the banks did their part too. They focused on the retail market rather than risky investment banking, as did their American counterparts.

This new ‘hot’ model from Spain definitely offers profit opportunities for investors in the banking sector.

The Big Banks

So despite the collapse of the Spanish construction boom (a bubble), the country’s largest lenders – BBVA (NYSE:BBV) and Banco Santander (NYSE:STD) have so far proved resilient. They reported first half profits of 2.8 billion euro and 4.4 billion euro respectively.

A rise in bad loan provisions helped cause their earnings to slip 4 percent compared with 2008. Even then, Santander’s bad loans were 2.8% of its book and BBVA’s bad loans were 3.2% of its book. Both figures were well below their peers’ 4.6% average.

Both banks are well capitalized because of the “dynamic provisioning” requirements. They have written down or restructured their exposures to real estate developers, residential mortgages are well-capitalized, and both banks have a comfortable amount of provisions to fall back on.

It is no wonder that EU regulators are planning to adopt the “Spanish model” of banking throughout Europe. Investors who are looking to invest in the banking industry should look across the Atlantic and fall in love with a Spanish model.

A Globally Diversified Banking Leader

Banco Santander (NYSE:STD) is Europe’s largest bank by market capitalization and the third largest bank in the world in terms of profits. Santander has a banking empire with 14,000 branches in 40 countries, with an emphasis on three key geographic areas – Europe, the UK, and Latin America.

Profits for Santander have held up well as the bank has wisely steered clear of subprime or toxic assets and risky derivatives.

First half profits for the bank declined by over 4% year-on-year. However, this year-on-year comparison was distorted by a number of factors. The positive impact of Santander’s integration of their UK acquisitions – Alliance and Leicester, Bradford and Bingley – was offset by the drag from the consolidation of its U.S. acquisition – Sovereign Bancorp.

Santander also suffered losses in their Mexican operations. Mexico, of course, is in a deep downturn because of their close economic ties to the United States.

In most markets, Santander benefited greatly from a wide spread between the costs of deposits and the interest charged on loans. Therefore, net interest income for the six month was up about 25%.

Santander and Brazil

A major part of Santander’s corporate strategy is to buy and fix troubled banks. That was the plan when Santander bought the Brazilian bank two years ago from ABN Amro. Santander chairman, Emilio Botin, identified the Brazilian operations as a key piece in the bank’s overall strategy. Plans were revealed last year for it to become the most profitable listed bank in Brazil. Then Santander gave the bank its turnaround treatment.

Santander’s Brazilian arm is currently tied for third place with Bradesco for market share of domestic deposits. It also boasts a 14 percent market share in Brazil for loans. The unit, which contributed about a fifth of Santander’s first half profits, earns fat loan spreads of more than 16 percent.

Banco Santander has announced that they intend to offer a 15% share in the rapidly expanding Brazilian operation – Banco Santander Brasil – through an initial public offering (IPO) in Brazil.

Brazil’s two largest private banks – Bradesco and Itau Unibanco- trade on an average trailing price to tangible book multiple of 2.8 times. Therefore, most estimates for the valuation of the initial public offering of Santander’s Brazilian arm are in the $30 billion range.

Quite a nice payday for Santander!

The profitable payday from the upcoming IPO of their Brazilian arm is making Banco Santander even more attractive as an investment. And during this financial crisis, Santander is the most profitable bank in the world outside of China. The company’s net income will top the combined profits of the three largest U.S. banks last year.

Banco Santander is trading relatively cheaply at 1.9 times 2009 forecast book value and with a single-digit PE ratio. The stock also pays a decent dividend with a yield of about 4%.

So despite problems in the Spanish economy, Santander has been very successful by keeping their focus on a simple and conservative retail banking business strategy. And it is taking this cost-consciousness around the world. When the global economy recovers, Santander should continue to benefit from its geographic diversity and strong capital structure, and so will investors who bank on it.

Good investing,

Tony Daltorio

View original at: Investment Advice and Investment Research with a Contrarian Point of View

(BBV) Hot New Spanish Model for Banking