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Federal Bank Ltd. reported a good quarter with better than expected net interest income and loan growth of 13%/17% YoY, healthy traction in fee income, contained opex and limited credit costs.
Consequently, core pre-provision operating profit margin improved to 1.7% and return on asset stood at 1.1% for the quarter.
Net interest margin at 3.22% benefitted from moderation in cost of fund to 4.2% and rise in loan-deposit ratio by ~300 basis points QoQ.
However, given that repo linked external benchmark lending rates loans reprice immediately upon rise in rates for the bank, its limited NIM improvement (6 bps QoQ) alludes to very competitive loan pricing.
Gold loans yields (12% of advances) declined by ~60 bps QoQ led by teaser loans. 48% of Federal Bank’s loans are linked to EBLR, including repo and treasury-bill linked loans. We consequently build in slightly lower NIM versus earlier for FY23/24E.
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