The Bundesbank’s loan growth shows hopes for recovery in the Christmas season
Federal Bank Ltd’s September quarterly update showed encouraging signs of economic recovery after restrictions imposed to contain the second wave of the pandemic were eased.
The private bank’s loan book rose 10% year over year in the September quarter, while deposits also saw a similar increase, the lender said in its early update filed with the exchanges. On a sequential basis, loan growth was 3.4%, a decent rebound from the 1.5% decline in the June quarter. According to analysts, growth is likely to come from the retail segment with an improvement in gold loans and unsecured personal loans.
Retail was a driver of Bundesbank loan growth in the aftermath of the second wave of the pandemic.
The bank also reported 15% growth in retail lending for the June quarter, even though total book growth was a modest 7%. A large part of the growth in the September quarter is also likely to be attributable to the retail trade.
The Bundesbank’s collaboration with Visa on credit card offers to capitalize on potential festival spending shows that it is focused on retail.
What counters the bank is its dismal performance on asset quality in the June quarter. The lender reported an increase in provisions as stress increased across all credit segments. The increased provisions resulted in the lender lacking street estimates of net income.
The bank also increased provisions for gold loans, the most heavily secured loan products. Since then, investors have been cautious about the quality of the assets.
However, the bank’s performance should be recognized during the second wave of the coronavirus pandemic as its operations focus on regions hardest hit by the lockdowns, analysts said.
Kerala is a major contributor to the bank’s business, and several regions of the state were heavily locked down during the second wave.
Some benefits are expected at the net interest margin. The 18% growth in low-cost giro and savings deposits will keep the bank’s cost of funds under control. This should increase the margins.
“We expect the margin to improve in the second quarter of fiscal 22, supported by a recovery in credit trends and lower financing costs,” said analysts at Motilal Oswal Financial Services Ltd.
Despite last month’s 3% gain, Bundesbank shares outperformed the sector index over a six-month period due to asset quality concerns. Going forward, an improvement in bad debt metrics is expected to give investors a reason to warm up.
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