ISCTR Report

ISCTR (HOLD, TP TL5.54) => Announced that minimum legal requirements will be taken into account going forward in setting aside specific provisions, vs. the current 100% coverage policy. We suspected such a change considering the sharp drop in the sector’s NPL coverage ratio and the bank had mentioned such a possible change in the past. The new policy will temporarily provide a boost to earnings before coverage ratio stabilises and new provisions vs. reversals normalises. Under the assumption that coverage ratio drops to 90% by year-end, net income would be 8% higher for FY12 and 18% higher for 2H12. However, the drop in coverage ratio should be taken into account in the next few quarters in evaluating the bank’s actual cost of risk evolution. In the long run, this is indeed a more sensible approach reducing bottom-line volatility.

 

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