Shares of Bank of India gained after Credit Suisse upgraded the bank to ‘outperform’ on improving profitability and a strong capital position.
The Bank of India has seen an improvement in profitability, with the return on assets up 17%, aided by a pickup in loan growth, healthy growth across segments, and strong net interest margins, the research house said in a Dec. 7 note.
“While NIMs have seen a strong 50 basis point improvement in the second quarter, with benefit from the 50bps repo repo rate hike in September 2022, 90% share of floating rate loans, and 70% loan-to-deposit ratio—with investment yields 150bp lower than loans—we expect NIMs to move up further in the third quarter,” Credit Suisse said.
Given the higher share of floating-rate loans, low loan-to-deposit ratio, and slower increase in deposit rates, net interest margins are likely to be more stable, the research note said.
“We expect FY24E NIMs to be more than 50 bps higher than FY22. System growth is also accelerating, with corporate loans up 10% year-over-year in October,” it said.
“Asset quality trends for the Bank of India have improved, with gross slippages contained at more than 2% in the first half of FY23 and healthy upgrades and recoveries resulting in 0.3% net slippage. Restructured loans have moderated and are now at 2.6% vs. 5.1% YoY,” the note said.
Credit costs were elevated in the first half of FY23 due to higher standard asset provisions, and the Bank of India’s management is expecting to see some of this reverse, the research house said. “We expect them to remain contained at 1.4% in FY24/25,” the note said.
Credit Suisse raised the price target for Bank of India shares from Rs 42 to Rs 105, implying a potential upside of nearly 6%.
The lender’s shares rose 6.14% to Rs 98.55 apiece as of 12:41 p.m., compared to a 0.14% gain in the benchmark Nifty 50.
The three analysts tracking the company maintain a ‘buy’ rating, according to Bloomberg data. The average 12-month consensus price target implies that the return potential of the stock is 6.5%.