Shinsei Bank, Ltd. :SKLKF-US: Earnings Analysis: Q2, 2018 By the Numbers : December 19, 2017

Shinsei Bank, Ltd. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of Shinsei Bank, Ltd. – National Australia Bank Limited, National Bank of Greece S.A. Sponsored ADR and National Bank of Canada (NAUBF-US, NBGGY-US and NA-CA) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 569.15 million, Net Earnings of USD 127.57 million.
  • Net interest income margins widened from 45.27% to 51.08% compared to the same period last year.
  • Net loan assets changed -4.36% compared to same period last year and 1.57% from previous period, total deposits changed -6.70% compared to same period last year and 1.41% from previous period.
  • Earnings decline from worsening in operating margins as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 569.15 588.63 615.32 618.51 649.05
Revenue Growth (%YOY) -12.31 -24.15 -19.09 -7.7 -2.82
Earnings (mil) 127.57 98.5 64.84 168.58 163.6
Earnings Growth (%YOY) -22.02 29.79 -41.78 92.06 33.74
Net Margin (%) 22.41 16.73 10.54 27.26 25.21
EPS 0.49 0.38 0.25 0.65 0.63
Return on Equity (%) 1.72 1.34 0.9 2.28 2.11
Return on Assets (%) 0.61 0.47 0.32 0.8 0.73

Access our Ratings and Scores for Shinsei Bank, Ltd.

Market Share Versus Profits

Revenues History
Earnings History

SKLKF-US’s change in revenue this period compared to the same period last year of -12.31% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SKLKF-US is holding onto its market share. Also, for comparison purposes, revenues changed by -3.31% and earnings by 29.51% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

{arg3)’s earnings declined year-on-year because of the increases in loan loss provisions. Its net interest income after provisions margins went from 36.29% to 34.72%. The fall in earnings would have been worse were it not for the fact that the company’s net interest income margins improved, from 45.27% to 51.08%. For comparison, net interest income margins were 48.82% and net interest income after provisions margins 35.29% in the immediate last period.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

SKLKF-US’s improvement in net interest income margins came in spite of relative drops in the levels of net loan assets and total deposits. On an absolute basis, net loan assets changed -4.36% compared to the same period last year and 1.57% from the previous period. Total deposits changed -6.70% compared to the same period last year and 1.41% from the previous period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Contraction of operating margins from 12.57% to 8.21% and (2) One-time items that contributed to a decrease in pretax margins from 24.60% to 23.36%

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

Access our Ratings and Scores for Shinsei Bank, Ltd.

Company Profile

Shinsei Bank, Ltd. engages in the business of banking services. It operates through the following segments: Institutional Global Markets, and Individual Group. The Institutional Group segment comprises of Institutional Business Sub-Group, which provides financial products and services for corporate and public sectors; Structured Finance Sub-Group, which includes businesses such as real estate finance and specialty finance; Principal Transactions Sub-Group, which covers credit trading and private equity business; Showa Leasing, and Others including advisory business and asset-backed investment. The Global Markets Group segment comprises of Financial Institutions Sub-Group, which provides financial products and services for financial institutions; Markets Sub-Group, which deals with foreign exchange, derivatives, and other capital markets business; Treasury Sub-Group, which undertakes asset liability management related transactions; and Others which covers asset management, wealth management, and Shinsei Securities business. The Individual Group segment comprises of Retail Banking business, Shinsei Bank Card Loan, subsidiaries Shinsei Financial, Shinki, APLUS Financial, and Shinsei Property Finance. The company was founded on December 1, 1952 and is headquartered in Tokyo, Japan.

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