ICICI Bank - UK investment has zero exposure to US

ICICI Bank, the largest private sector lender in the country whose shares suffered heavy hammering on the bourses, on Monday allayed fears over its overseas exposure.

In a statement issued today, the bank said that 98 per cent of ICICI Bank UK PLC’s non-India investment book of $ 3.5 billion is rated investment grade and above. Of this, exposure to US is only about 18 per cent.

“ICICI Bank UK PLC has zero exposure to US sub-prime credit, whether directly or through credit derivatives such as CDOs/CLNs/CDS,” the statement said.

This unsolicited statement from the country’s second largest bank seems to be an effort to quell the general negative sentiment and the fears over the bank’s overseas exposure.
One year-low

Shares of the bank closed at a one-year low of Rs 493.3, down 12.11 per cent from Friday’s close of Rs 561.25, on the BSE, on Monday. The stock touched a low of Rs 483 during day trade.

It was a case of ‘extreme pessimism’ driving the stock down, said a banking analyst.

The fears were on account of both international and domestic developments.

On the international front, the fear is that the bank may face mark-to-market losses given it exposure to overseas financial institutions.

On the domestic front there are concerns about the high exposure to residential mortgages and credit card receivables, both segments which are likely to see a rise in defaults, said a banking analyst with a broking house.

According to the head of research of a securities firm, ICICI Bank is likely to see a rise in small ticket defaults i.e. personal loans and credit card receivables, which will impact revenues.

Also, the bank has not been able to make good its treasury losses of the last fiscal, on account of forex derivative transactions, due to the volatile market conditions. This too is likely to put pressure on earnings, he said.

Almost 30 per cent of the retail book consists of housing loans. As on June 30, 2008, the bank’s outstanding on credit cards was Rs 8,500 crore, on personal loans Rs 12,000 crore and on home loans 65,600 crore.

A recent report by Merrill Lynch, said that the bank is likely to post a modest growth of 13 per cent due to weaker loan growth (15 per cent) and a likely hit of $30 million on its CDS book (as part of the Indian balance sheet) and higher non-performing loans provisions .

A report by Motilal Oswal estimated that ICICI Bank will see only 1 per cent growth in earnings in the second quarter, against the sector earnings growth of 15 per cent.

The concern over asset quality is not restricted to ICICI Bank alone, but is a concern for the banking sector.

“With the extent of an economic slowdown and interest rates remaining high, there will be some deterioration in the asset quality,” said Mr Abhishek Agrawal, analyst, Angel Broking Ltd.