Indian banks posted some of the best total stock returns among their Asia-Pacific peers for the second consecutive quarter as they continued to benefit from solid financial metrics, a resurgent equities market and growth prospects for the country's economy.
Indian banks occupied 11 of the 15 slots in a list compiled by S&P Global Market Intelligence of Asia-Pacific bank stocks with the highest total returns in the quarter ended Dec. 31, 2022. Three lenders posted total returns of more than 100%. Punjab & Sind Bank led the group with total returns of 118.01%, followed by The Jammu and Kashmir Bank Ltd. and China's Bank of Jinzhou Co. Ltd.
Apart from Indian banks, three banks from mainland China and one from Japan made it to the list of top performers in the fourth quarter of 2022. The stock performance of Indian banks has been broad-based, with both small and big lenders posting positive total returns.
Indian bank "valuations are not expensive, given visibility on earnings growth," Jefferies analysts Prakhar Sharma and Vinayak Agarwal said in a Jan. 3 research report. "Healthy credit growth along with stable asset quality will support profitability." They noted that the Nifty Bank index, which represents the 12 most liquid and large capitalized bank stocks that trade on India's National Stock Exchange, rose 21% in 2022, outperforming the broader benchmark Nifty 50 index's 5% gain.
The Nifty Bank index rose more than 11% in the fourth quarter of 2022, compared to 5.9% for Nifty 50. Meanwhile, the S&P BSE BANKEX index, which comprises constituents of the S&P BSE 500 classified as members of the banks sector, rose 10.7% during the quarter.
Net interest margins, a key measure of banks' profitability, may not moderate in the next fiscal year that starts April 1, according to the Jefferies report. Still, "any pressure on that front can be managed by scaling down on [operating expenses]. This will protect profits and therefore aid rerating," the report added.
Indian banks have benefited from a pickup in credit growth and improving asset quality as the country's economy continues to consolidate a recovery. The results of a recent Reserve Bank of India stress test show that Indian banks are well capitalized, capable of absorbing shocks and would comply with minimum capital requirements even under adverse stress scenarios.
Gross domestic product is expected to grow at 7.0% in the current fiscal year ending March 31, according to India government estimates released Jan. 6. This is slightly lower than the 8.7% growth in the prior fiscal year, though still among the fastest out of the major global economies.
Worst performers
All but three banks on the list of the 15 Asia-Pacific bank stocks with the lowest total returns in the fourth quarter of 2022 came from Indonesia and Vietnam, with PT Bank Jago Tbk leading the pack with negative total returns of 43.64%, Market Intelligence data shows. All the banks on the list were smaller lenders with market caps ranging between $3.85 billion and $110 million.
The stock price declines among Indonesian and Vietnamese banks in the fourth quarter of 2022 were in line with the performance of the countries' broader stock exchanges. The Jakarta Stock Exchange Composite Index and the Vietnam Ho Chi Minh Stock Index fell 2.7% and 11%, respectively, in the quarter.
South Korea's Pureun Mutual Savings Bank Co. Ltd., China's Harbin Bank Co. Ltd. and Sri Lanka's Sampath Bank PLC also showed up on the list of bank stocks with the worst returns in the fourth quarter of 2022.
