Axis Securities: City Union Bank Posts Steady Q1 Performance
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Axis Securities Report
City Union Bank Ltd. reported a better-than-expected profit performance led by treasury gains, improved cost controls, stable net interest margin and contained provisions.
Loan growth was moderate at 7% YoY, however, net interest margin improved to 4% from 3.9% QoQ resulting in net interest income growth of approximately 5% to Rs 4,370 million.
Non interest income was supported by higher treasury gains of Rs 1,085 million. On the opex front, cost to income ratio improved to 40.4% from 44% QoQ. Asset quality improved on an optical basis with lower slippages (Rs 34 million) on account of moratorium dispensation.
However, company has reported a significant decline in moratorium book to 12.5% from 52% in the previous quarter. Management stated that activity levels are better than expected leading to collection efficiency improvement with 77% customers by value having paid two or more equated monthly installment up to June 2020.
While FY21 will be challenging year for micro, small and medium enterprises (MSMEs), restructuring and government guaranteed schemes will provide some impetus.
We believe astute management, granular deposit franchise and stable capital adequacy ratio are key positives amidst tough macro conditions.
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