Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

<ul>
<li>BBVA Mexico delivered premium return on equity (ROE) of the big nine Mexican banks to November, at 20%+ and, through opex control, “works” its healthy core capital ratio hard</li>
<li>The bank system trends remain healthy, with improving NPL ratios and healthy coverage; Banorte and BanBajio continue to screen better than peers on combined credit quality metrics to November</li>
<li>We like mid-cap bank BanBajio for its good value, and are positive on BBVA for its Mexican exposure; we remain cautious on Banorte to a degree, due largely to valuation</li>
</ul>


BBVA Mexico delivered premium return on equity (ROE) of the big nine Mexican banks to November, at 20%+ and, through opex control, “works” its healthy core capital ratio hard
The bank system trends remain healthy, with improving NPL ratios and healthy coverage; Banorte and BanBajio continue to screen better than peers on combined credit quality metrics to November
We like mid-cap bank BanBajio for its good value, and are positive on BBVA for its Mexican exposure; we remain cautious on Banorte to a degree, due largely to valuation


Mexican Banks’ November Data Looking Positive on Credit Quality, Lending Spread Stable

<ul>
<li>BBVA Bancomer continued to deliver the best return on equity (ROE) of the biggest nine Mexican banks, on a trailing twelve months basis to August; <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-s-a-b-de-c-v" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte (GFNORTEO MF)</a> retained its second place with upper-teens ROE</li>
<li>To August 2021, bank system ROE recovered further from historically low levels, despite cost of risk edging higher MoM</li>
<li>Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose again in September, which should be spread supportive</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> continue to screen better than peers on credit quality metrics to August, with best-in-class combination of low NPL ratios and healthy coverage</li>
<li>In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their healthy levels of core capital harder than their peers</li>
<li>We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value in the context of improving consumer credit quality</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer continued to deliver the best return on equity (ROE) of the biggest nine Mexican banks, on a trailing twelve months basis to August; Grupo Financiero Banorte (GFNORTEO MF) retained its second place with upper-teens ROE
To August 2021, bank system ROE recovered further from historically low levels, despite cost of risk edging higher MoM
Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose again in September, which should be spread supportive
Banorte and Banco del Bajio SA (BBAJIOO MM) continue to screen better than peers on credit quality metrics to August, with best-in-class combination of low NPL ratios and healthy coverage
In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their healthy levels of core capital harder than their peers
We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value in the context of improving consumer credit quality
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges


Mexican Banks’ August Data; Another Solid Month

<ul>
<li>BBVA Bancomer continued to deliver the best return on equity (ROE) of the biggest nine Mexican banks, on a trailing twelve months basis to July; <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-s-a-b-de-c-v" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte (GFNORTEO MF)</a> retained its second place with upper-teens ROE</li>
<li>To July 2021, bank system ROE recovered further from historically low levels, supported by a contained cost of risk</li>
<li>Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose further in July, which should be spread supportive</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> continue to screen better than peers on credit quality metrics to July, with best-in-class combination of low NPL ratios and healthy coverage</li>
<li>In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their core capital harder than their peers</li>
<li>We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer continued to deliver the best return on equity (ROE) of the biggest nine Mexican banks, on a trailing twelve months basis to July; Grupo Financiero Banorte (GFNORTEO MF) retained its second place with upper-teens ROE
To July 2021, bank system ROE recovered further from historically low levels, supported by a contained cost of risk
Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose further in July, which should be spread supportive
Banorte and Banco del Bajio SA (BBAJIOO MM) continue to screen better than peers on credit quality metrics to July, with best-in-class combination of low NPL ratios and healthy coverage
In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their core capital harder than their peers
We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges


Mexican Banks’ July Data Show Strong Balance Sheets, and Continuing Improvements in Returns

Grupo Financiero Banorte SAB d / Equity Bottom-Up

Grupo Financiero Banorte SAB d (GFNORTEO MF)

<ul>
<li>BBVA Bancomer continued to deliver the best returns of the biggest nine Mexican banks, on a trailing twelve months basis to May; <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> retained its second place with upper-teens ROE</li>
<li>To June 2021, bank system ROE recovered further from historically low levels, helped by low cost of risk</li>
<li>Top line returns were supported by limited erosion of credit spreads, and higher benchmark rates from June should be spread supportive</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> screen better than peers on credit quality metrics to June, with best-in-class combination of low NPL ratios and to healthy coverage</li>
<li>In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte “work” their core capital harder than their peers</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer continued to deliver the best returns of the biggest nine Mexican banks, on a trailing twelve months basis to May; Grupo Financiero Banorte-O (GFNORTEO MF) retained its second place with upper-teens ROE
To June 2021, bank system ROE recovered further from historically low levels, helped by low cost of risk
Top line returns were supported by limited erosion of credit spreads, and higher benchmark rates from June should be spread supportive
Banorte and Banco del Bajio SA (BBAJIOO MM) screen better than peers on credit quality metrics to June, with best-in-class combination of low NPL ratios and to healthy coverage
In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte “work” their core capital harder than their peers
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges


Mexican Banks ROE Recovery Continues into June

<ul>
<li>BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis to May; <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a>  retained its second place with mid-teens ROE</li>
<li>Mexican banks continue to address the pandemic’s credit quality challenges by taking bigger bad loan write-offs</li>
<li>To May 2021, bank system returns continued their recovery from historically low levels helped by low cost of risk</li>
<li>Top line returns have been supported by limited erosion of credit spreads, and BanXico raised benchmark rates in June</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> continue screen better than peers on credit quality metrics, particularly on NPL ratio and to a lesser degree on coverage; they both also have healthy core capital ratios</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis to May; Grupo Financiero Banorte-O (GFNORTEO MF)  retained its second place with mid-teens ROE
Mexican banks continue to address the pandemic’s credit quality challenges by taking bigger bad loan write-offs
To May 2021, bank system returns continued their recovery from historically low levels helped by low cost of risk
Top line returns have been supported by limited erosion of credit spreads, and BanXico raised benchmark rates in June
Banorte and Banco del Bajio SA (BBAJIOO MM) continue screen better than peers on credit quality metrics, particularly on NPL ratio and to a lesser degree on coverage; they both also have healthy core capital ratios
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure and a further worsening of credit quality resulting in higher credit charges


Mexican Banks Continue to Address NPL Issues in May

Mexico

Banco del Bajio S.A. provides a full range of commercial banking services. The Bank offers mortgages loans, saving, investment option, pension advice, and electronic billing services. Banco del Bajio operates in Mexico.

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Banco del Bajio SA (BBAJIOO MM)

Mexican Banks’ November Data Looking Positive on Credit Quality, Lending Spread Stable

November Mexican bank sector credit quality data are positive, with little spread erosion. BBVA Mexico remains the local benchmark based on...

Victor Galliano

Mexican Banks’ August Data; Another Solid Month

August Mexican banks' returns further recover with credit cost growth limited & opex growth contained; good credit quality & coverage trends imply...

Victor Galliano

Mexican Banks’ July Data Show Strong Balance Sheets, and Continuing Improvements in Returns

Mexican banks' returns continue recovering to July as credit costs recede & opex growth is contained; healthy credit quality & coverage trends...

Victor Galliano

Mexican Banks ROE Recovery Continues into June

June data shows Mexican banks' ROE is rising helped by falling cost of risk; capital is sound, NPLs are contained; BBVA Bancomer & Banorte employ...

Victor Galliano

Mexican Banks Continue to Address NPL Issues in May

Mexican banks' May data shows rising write-offs as pandemic-related NPLs are addressed (Fig2), with better cost of risk; NPL coverage is healthy...

Victor Galliano

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