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Oriental Bank of Commerce rises 3% on Goldman Sachs upgrade

Over FY14-FY18E, it expects OBC‘s ROA to rise 42 bps on the back of decline in credit costs from 1.33 percent in FY14 to 0.9 perent in FY18E; fall in operating ratio from 1.67 percent in FY14 to 1.45 percent in FY18E; and better net interest margins (partly on better asset quality as impaired loans likely to decline from FY16 onwards).

October 13, 2014 / 02:37 PM IST
 
 
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Moneycontrol Bureau

Shares of Oriental Bank of Commerce (OBC) climbed as much as 3.1 percent intraday Monday after Goldman Sachs upgraded the stock to buy from neutral with a target price of Rs 350, citing positive risk reward.

Over the last 3 months, OBC has underperformed the Sensex and Bank Nifty by 25 percent and 29 percent. However, the return on assets (ROA) differential between OBC and other banks has narrowed over FY12-FY14 from 30 basis points to 11 bps. The brokerage expects it to narrow further to 4 bps.

Over FY14-FY18E, it expects OBC’s ROA to rise 42 bps on the back of decline in credit costs from 1.33 percent in FY14 to 0.9 perent in FY18E; fall in operating ratio from 1.67 percent in FY14 to 1.45 percent in FY18E; and better net interest margins (partly on better asset quality as impaired loans likely to decline from FY16 onwards).

Goldman Sachs sees early signs of macro improvement. "As this gathers steam, we believe it will lead to better asset quality and hence better ROA," it said.

Key risks, according to the report, are prolonged macro recovery as delay in asset quality would derail ROA improvement; any major setback from coal block de-allocation could impact asset quality; Tier I ratio of 8.9 percent as of Mar’14 may not be adequate to support significantly higher loan growth; and lack of visibility on CMD appointment as the post lies vacant as of now.

At 12:36 hours ISt, the stock was quoting at Rs 228.95, up Rs 4.95, or 2.21 percent on the BSE.

Posted by Sunil Shankar Matkar

first published: Oct 13, 2014 12:57 pm

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