Citigroup, the third-largest U.S. bank, gets more than half of its profit from emerging markets, CEO Vikram Pandit, 54, said in March. Consumer lending in Asia jumped 41 percent in the two years through June to $66.7 billion, as deposits rose 27.7 percent. In India, Pandit's native country, the bank boosted lending to corporate clients by 33 percent in the year ended March 31. Loans to small and medium enterprises jumped 35 percent, according to a company statement.
While second-quarter revenue from its consumer bank's Latin American and Asian units rose a combined 13 percent to $4.46 billion, profit fell 14 percent.
"They will have to rein in what has obviously been a real surge in consumer lending," said Richard Staite, a London-based analyst with Atlantic Equities, who has an "overweight" rating on Citigroup shares. "Investors will want reassurance going forward about the level of credit quality."
Missed Estimates
Citigroup has a "well-balanced, focused growth strategy in the emerging markets," Jon Diat, a New York-based spokesman, said in an e-mailed statement. "In India and Brazil, Citi has a very focused consumer strategy that targets the most creditworthy clients, and our corporate business works closely with top-tier local corporate and multinational entities."
Second-quarter earnings reports may provide more clues on the outlook for nonperforming loans and bank earnings in emerging markets. At least 126 companies in the MSCI Emerging Markets Financials Index are scheduled to report results in the next 30 days, according to data compiled by Bloomberg. Last quarter, profits missed analysts' estimates by 3 percent on average, the data show.
"We are only at the beginning," said Mohamed Abdel-Hadi, whose HC GEM Sector Rotation Fund has climbed 7.4 percent this year, beating 86 percent of peers, in part because of bets that financial stocks would underperform. "Over the next few quarters, we expect to see NPLs rising across emerging-market banks."