S&P Global Ratings says Axis Bank has enough capital to absorb Q4 loss led by Citi takeover

S&P Global Ratings said Axis Bank Ltd has adequate capital to absorb the loss it posted for the fourth quarter which was mainly due to an asset write-down related to a deal to buy some Citigroup assets.

The private lender on Thursday announced wider-than-expected losses for the March quarter of the financial year 2022-23 owing to the takeover of Citi group.

The bank closed a $1.4 billion deal to buy Citigroup Inc's local consumer and non-banking finance businesses in March, after which it wrote off goodwill and intangibles generated on the acquisition.

That pushed Axis to a standalone loss of Rs 5,728 crore for the January-March quarter, compared to a profit of Rs 4,118 crore a year earlier, the bank reported on Thursday.

"Axis Bank's risk-adjusted capital ratio will likely decline to 7.0%-7.5% from the 8.4% level of March 31, 2022," S&P said in a note.

Despite the decline, the bank's capitalization remains adequate for a 'BBB-' rating and a 'stable' outlook, it said.

The ratings agency expects Axis's credit costs could stay below 1% since its asset quality risks are manageable and provisioning coverage is adequate.

And while Axis's operating expenses are likely to remain high over the next 18 months due to integration costs, S&P expects the bank's profitability to be supported by contained credit costs, a margin boost from higher interest rates, and an increasing share of unsecured retail loans.

ICICI Securities said that while Axis has "reasonable" common equity tier 1 of 14% and strong internal accrual, it could look to raise capital, which should propel even stronger growth.

Kotak Institutional Equities said the bank is "well-poised" for a re-rating as most of the key headwinds are behind it.

Both brokerage firms rate Axis Bank's stock a "buy".

The stock opened 0.4 per cent higher on Friday before reversing course. It was last trading down about 3 per cent near a session low of Rs 855.10 rupees, while the benchmark Nifty 50 was 0.29 per cent higher.

With Reuters Inputs