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13.03.2008 - MDM Comment: HCFB released good 07 IFRS results
Home Credit and Finance Bank (Ba3/B+) has today released its 2007 unaudited IFRS results, which look quite positive. Conference call will take place today at 2pm London time. Our first impressions from the results are below:
- Strong loan book growth (+31% in Q4 and +93% y-o-y). This growth is funded primarily by bond issuance (including a recent credit-card loan backed deal), syndicated loans and both deposits and equity injections from a parent company
- Improving profitability on the back of strong interest margins, economies of scale and better risk management
- Decent quality of assets: NPLs went lower in Q4 (12.1% vs 13.1% in Q3 and 14.2% in 2006). However, that was likely distorted by strong growth of proportion of unseasoned loans in Q4
- Sustainability of the bank to global liquidity turmoil appears to be sufficient. Despite very significant reliance on relatively short-term wholesale funding, we take comfort from TCAR around 20%, short-term nature of loan book (85% of loans maturing in less than 2 years) as well a large cash position (11.5% of assets)
- We also highlight continued diversification of the bank's business as it develops its franchise in the regions and shift towards revolving card and cash loans and mortgages.
We continue to like short-dated local bonds of HCFB (yielding 11.0%-11.25%) as a leveraged carry play over the repo rate of the Central Bank (6.25%) since these bonds are on the Central Bank's Lombard List.
