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

Grupo Financiero Banorte SAB d / Equity Bottom-Up

Grupo Financiero Banorte SAB d (GFNORTEO MF)

<ul>
<li>BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis to April; <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>  was second with mid-teens ROE</li>
<li>The rising bad loan charge offs show that Mexican banks continue to be proactive in addressing credit quality risks</li>
<li>To April 2021, bank system returns continued to recover from historically low levels; in large part, future returns depends upon the direction of cost of risk and efficiency ratio</li>
<li>Returns have been supported by limited erosion of credit spreads; spreads ticked up in April due to lower funding costs</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 well on credit quality metrics, particularly on NPL coverage and ratio; they both also have higher than average 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 April; Grupo Financiero Banorte-O (GFNORTEO MF)  was second with mid-teens ROE
The rising bad loan charge offs show that Mexican banks continue to be proactive in addressing credit quality risks
To April 2021, bank system returns continued to recover from historically low levels; in large part, future returns depends upon the direction of cost of risk and efficiency ratio
Returns have been supported by limited erosion of credit spreads; spreads ticked up in April due to lower funding costs
Banorte and Banco del Bajio SA (BBAJIOO MM)  screen well on credit quality metrics, particularly on NPL coverage and ratio; they both also have higher than average 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


<ul>
<li>BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis; <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> was a close second</li>
<li>Mexican banks have generally been proactive in addressing credit quality risks, through cost of risk and bad loan charge offs</li>
<li>To March 2021, bank system returns have started to recover from historically low levels; in part, future returns depends upon the direction of cost of risk and efficiency ratio</li>
<li>Returns have been supported by limited erosion of credit spreads, despite historically low benchmark rates</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 well on credit quality metrics, particularly on NPL coverage and ratio</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; Grupo Financiero Banorte-O (GFNORTEO MF) was a close second
Mexican banks have generally been proactive in addressing credit quality risks, through cost of risk and bad loan charge offs
To March 2021, bank system returns have started to recover from historically low levels; in part, future returns depends upon the direction of cost of risk and efficiency ratio
Returns have been supported by limited erosion of credit spreads, despite historically low benchmark rates
Banorte and Banco del Bajio SA (BBAJIOO MM) screen well on credit quality metrics, particularly on NPL coverage and ratio
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


Thoughts on Mexican Bank Trends to March 2021

<ul>
<li>Mexican loan appetite was soft to February, as seen in the yoy decline in system loan balances</li>
<li>There was a further erosion of system credit spreads in February, which we see as the lagged impact of past benchmark rate cuts and a changing loan mix</li>
<li>Despite these headwinds, there are some encouraging signs, as seen in the improving trend in opex to assets ratio, and the slightly lower system cost of risk</li>
<li>In terms of balance sheets, NPL coverage ratios remain healthy, even with loan charge-offs increasing, and core capital ratios are reassuring</li>
<li>Based on our spider charts, <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> leads among the big five banks in terms of trailing twelve month returns and most other metrics; in the mid-caps, <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> looks solid in terms of credit quality, coverage and capital</li>
<li>Risks to our positive view on Banorte and BanBajio include a slower than expected recovery which hurts credit quality and therefore cost of risk as well as intense competition driving credit spreads lower</li>
</ul>


Mexican loan appetite was soft to February, as seen in the yoy decline in system loan balances
There was a further erosion of system credit spreads in February, which we see as the lagged impact of past benchmark rate cuts and a changing loan mix
Despite these headwinds, there are some encouraging signs, as seen in the improving trend in opex to assets ratio, and the slightly lower system cost of risk
In terms of balance sheets, NPL coverage ratios remain healthy, even with loan charge-offs increasing, and core capital ratios are reassuring
Based on our spider charts, Grupo Financiero Banorte-O (GFNORTEO MF) leads among the big five banks in terms of trailing twelve month returns and most other metrics; in the mid-caps, Banco del Bajio SA (BBAJIOO MM) looks solid in terms of credit quality, coverage and capital
Risks to our positive view on Banorte and BanBajio include a slower than expected recovery which hurts credit quality and therefore cost of risk as well as intense competition driving credit spreads lower


Mexican Banks February 2021 Data Chart Book: Potential Signs that the Worst Is Past

<ul>
<li>The Mexican banks’ outlook is more constructive; there is GDP growth recovery potential, even if the credit quality drag is likely to worsen in the near term</li>
<li>An early look at 1Q 2021 via the January data shows that loan growth trends are recovering from their lows</li>
<li>The NPL ratio continues to deteriorate, especially in the consumer category post expiry of relief programmes, and cost of risk remains high into January and could potentially go higher in the near term</li>
<li>Despite these challenges, we see that Mexican banks are well provisioned against higher NPLs and also well capitalised</li>
<li>Our core picks in Mexican banks are <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>, and in the mid-caps <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>; they stand out for their attractive value and better-than-peers credit quality metrics as well as solid capital adequacy ratios</li>
<li>Risks to our view include softer than expected loan growth recovery and worse than expected NPLs, combined with credit spread erosion</li>
</ul>


The Mexican banks’ outlook is more constructive; there is GDP growth recovery potential, even if the credit quality drag is likely to worsen in the near term
An early look at 1Q 2021 via the January data shows that loan growth trends are recovering from their lows
The NPL ratio continues to deteriorate, especially in the consumer category post expiry of relief programmes, and cost of risk remains high into January and could potentially go higher in the near term
Despite these challenges, we see that Mexican banks are well provisioned against higher NPLs and also well capitalised
Our core picks in Mexican banks are Grupo Financiero Banorte-O (GFNORTEO MF), and in the mid-caps Banco del Bajio SA (BBAJIOO MM); they stand out for their attractive value and better-than-peers credit quality metrics as well as solid capital adequacy ratios
Risks to our view include softer than expected loan growth recovery and worse than expected NPLs, combined with credit spread erosion


Mexican Banks; an Early Look at 2021 Data

<ul>
<li>CNBV’s August banks data this week is positive at the sector level</li>
<li>Credit quality trends in particular are constructive at the sector level, and credit spreads stable even if loan growth has slowed</li>
<li>
<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>  is also looking positive with a notable downturn in cost of risk in August, steady loan growth, well controlled opex and a healthy credit spread trend</li>
<li>Banorte also bucks the sector trend with a slight improvement in the adjusted credit card NPL ratio to August</li>
<li>Names to watch are <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> and <a href="https://www.smartkarma.com/entities/regional-sab-de-cv" target="_blank" data-smartkarma-citation="entities:27996:1" rel="noopener">Regional SAB de CV (RA MM)</a>, even though the trends to August suggest that the cost of risk could continue to pressure returns</li>
<li>Investor sentiment towards Mexico – and Banorte – seems to be improving, and Banorte’s valuations look attractive, in our view</li>
<li>Risks to our positive view on Banorte include a further worsening of credit quality, an erosion of credit spreads and a spike in opex</li>
</ul>


CNBV’s August banks data this week is positive at the sector level
Credit quality trends in particular are constructive at the sector level, and credit spreads stable even if loan growth has slowed

Grupo Financiero Banorte-O (GFNORTEO MF)  is also looking positive with a notable downturn in cost of risk in August, steady loan growth, well controlled opex and a healthy credit spread trend
Banorte also bucks the sector trend with a slight improvement in the adjusted credit card NPL ratio to August
Names to watch are Banco del Bajio SA (BBAJIOO MM) and Regional SAB de CV (RA MM), even though the trends to August suggest that the cost of risk could continue to pressure returns
Investor sentiment towards Mexico – and Banorte – seems to be improving, and Banorte’s valuations look attractive, in our view
Risks to our positive view on Banorte include a further worsening of credit quality, an erosion of credit spreads and a spike in opex


Mexican Banks Data for August Is Positive for Banorte (GFNORTEO MM)

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Banco del Bajio SA (BBAJIOO MM)

Mexican Bank Trends to April 2021

April was another solid month for credit quality among Mexican banks; BBVA Bancomer continues to lead on TTM returns, followed by Banorte with its...

Victor Galliano

Thoughts on Mexican Bank Trends to March 2021

Our key metrics spider charts for the top 5 Mexican banks highlight BBVA Bancomer and Banorte for premium returns; system data is reassuring,...

Victor Galliano

Mexican Banks February 2021 Data Chart Book: Potential Signs that the Worst Is Past

Latest Mexican bank data shows negative loan growth and credit spread erosion, but also good opex control and potentially signs of cost of risk...

Victor Galliano

Mexican Banks; an Early Look at 2021 Data

Mexican banks' January 2021 data implies loan growth recovery, but also higher risk costs; yet Banorte and BanBajio stand out positively on...

Victor Galliano

Mexican Banks Data for August Is Positive for Banorte (GFNORTEO MM)

August data for the Mexican bank sector adds conviction to our positive view on Banorte, in terms of credit quality, cost control and credit spreads

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)