Bank suffers MTM losses on credit derivatives exposure; Q4 net profit rises 39 per cent. ICICI Bank today said it has made additional provisions of around $45 million (Rs 180 crore) for mark-to-market losses (MTM) on its credit derivative obligations (CDOs) and credit-linked note (CLN) portfolio during February and March 2008. This takes the bank's total provision for these instruments to $170 million (Rs 680 crore) during the year.
"We have no sub-prime assets but only exposure to CDOs and CLNs. We have seen no deterioration of our portfolio. The provisioning is only for the MTM losses due to widening of credit spreads. In fact, post March 31, the credit spreads have tightened and we have made a saving of $16 million (Rs 64 crore)," Chanda Kochhar, joint managing director and chief financial officer, said. For the fourth quarter of 2007-08, India's largest private bank reported a 39 per cent growth in net profit to Rs 1,150 crore, as against Rs 825 crore in the corresponding period last year. ICICI Bank's total exposure to CLNs and CDOs was estimated at $1.6 billion (Rs 4,240 crore), comprising 70 per cent of Indian corporates. Credit derivatives are instruments for which the underlying asset is a loan or a bond. Marking to market means valuing a portfolio based on the prevailing market price. Despite this, the bank has seen an 8 per cent rise in provisions during the fourth quarter to Rs 948 crore, as against Rs 876 crore during January-March 2007. Most of the other private sector banks, such as Axis Bank and HDFC Bank, have seen significant rise in non-tax provisions and contingencies mainly due to provisions for derivatives. ICICI Bank, however, did not disclose the details of its derivative deals. Asked about the cases filed by companies related to the derivative deals, Kochhar said, "Corporates take derivative products to hedge their exposure. Some corporate clients have taken a mark-to-market loss. The bank does not disclose any profits or losses incurred by its clients. There are a few cases which are under dispute and the bank has made adequate provisions for it." The bank's treasury income dipped 63 per cent to Rs 164 crore during the quarter, as against Rs 445 crore in the corresponding quarter last year. Other income is up 12 per cent to Rs 2,361 crore. Fee income increased 32 per cent to Rs 6,627 crore from Rs 5,012 crore. Of the total fee income, retail and small and medium enterprises contributed around 52 per cent and the balance came from overseas operations. Foreign operations account for about 25 per cent of the bank's business. The bank's portfolio of advances grew 15.2 per cent while the retail book grew 3.1 per cent year-on-year. Advances through overseas branches increased 95.6 per cent and others by 5.6 per cent. ICICI Bank has sold close to Rs 14,000 crore worth of retail loans across product categories across the year. The bank's net interest margin stood at 2.40 per cent as against 2.28 per cent in the corresponding quarter last year. Its cost of funds has eased to 7.4 per cent from 7.5 per cent. Net non-performing assets to advances increased to 1.55 per cent from 1.02 per cent. Its capital adequacy ratio stood at 13.97 per cent.
"We have no sub-prime assets but only exposure to CDOs and CLNs. We have seen no deterioration of our portfolio. The provisioning is only for the MTM losses due to widening of credit spreads. In fact, post March 31, the credit spreads have tightened and we have made a saving of $16 million (Rs 64 crore)," Chanda Kochhar, joint managing director and chief financial officer, said. For the fourth quarter of 2007-08, India's largest private bank reported a 39 per cent growth in net profit to Rs 1,150 crore, as against Rs 825 crore in the corresponding period last year. ICICI Bank's total exposure to CLNs and CDOs was estimated at $1.6 billion (Rs 4,240 crore), comprising 70 per cent of Indian corporates. Credit derivatives are instruments for which the underlying asset is a loan or a bond. Marking to market means valuing a portfolio based on the prevailing market price. Despite this, the bank has seen an 8 per cent rise in provisions during the fourth quarter to Rs 948 crore, as against Rs 876 crore during January-March 2007. Most of the other private sector banks, such as Axis Bank and HDFC Bank, have seen significant rise in non-tax provisions and contingencies mainly due to provisions for derivatives. ICICI Bank, however, did not disclose the details of its derivative deals. Asked about the cases filed by companies related to the derivative deals, Kochhar said, "Corporates take derivative products to hedge their exposure. Some corporate clients have taken a mark-to-market loss. The bank does not disclose any profits or losses incurred by its clients. There are a few cases which are under dispute and the bank has made adequate provisions for it." The bank's treasury income dipped 63 per cent to Rs 164 crore during the quarter, as against Rs 445 crore in the corresponding quarter last year. Other income is up 12 per cent to Rs 2,361 crore. Fee income increased 32 per cent to Rs 6,627 crore from Rs 5,012 crore. Of the total fee income, retail and small and medium enterprises contributed around 52 per cent and the balance came from overseas operations. Foreign operations account for about 25 per cent of the bank's business. The bank's portfolio of advances grew 15.2 per cent while the retail book grew 3.1 per cent year-on-year. Advances through overseas branches increased 95.6 per cent and others by 5.6 per cent. ICICI Bank has sold close to Rs 14,000 crore worth of retail loans across product categories across the year. The bank's net interest margin stood at 2.40 per cent as against 2.28 per cent in the corresponding quarter last year. Its cost of funds has eased to 7.4 per cent from 7.5 per cent. Net non-performing assets to advances increased to 1.55 per cent from 1.02 per cent. Its capital adequacy ratio stood at 13.97 per cent.
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