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>Brazil’s credit quality trends to August remain broadly constructive</li>
<li>System loan growth slowed slightly on a YoY basis to 15.9% in August from 16.2%, driven by slower growth in corporate loans</li>
<li>Compared to July, consumer credit quality seemed well controlled although household arrears (15-90 days delay) data to August could be an amber signal for the medium-term NPL ratio, not least with household debt levels rising further</li>
<li>Credit quality of corporates showed that risks improved in micro-enterprises and SMEs further, and the differential in default rates narrowed further with large corporates</li>
<li>The NPL ratio worsened slightly in the case of private international banks, albeit from low levels and these delinquencies – along with the banking system generally – were more than fully covered by provisions</li>
<li>Credit spreads edged higher in August, on a MoM basis, and we expect the sharp  rise in benchmark rates to feed through with a time lag</li>
<li>We remain constructive on the Brazil bank sector, and retain our positive view on <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a>  for its value attributes</li>
<li>Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads</li>
</ul>


Brazil’s credit quality trends to August remain broadly constructive
System loan growth slowed slightly on a YoY basis to 15.9% in August from 16.2%, driven by slower growth in corporate loans
Compared to July, consumer credit quality seemed well controlled although household arrears (15-90 days delay) data to August could be an amber signal for the medium-term NPL ratio, not least with household debt levels rising further
Credit quality of corporates showed that risks improved in micro-enterprises and SMEs further, and the differential in default rates narrowed further with large corporates
The NPL ratio worsened slightly in the case of private international banks, albeit from low levels and these delinquencies – along with the banking system generally – were more than fully covered by provisions
Credit spreads edged higher in August, on a MoM basis, and we expect the sharp  rise in benchmark rates to feed through with a time lag
We remain constructive on the Brazil bank sector, and retain our positive view on Banco Do Brasil Sa (BBAS3 BZ)  for its value attributes
Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads


Brazil Banking Data Trends to August in Ten Charts

<ul>
<li>Brazil’s credit quality trends to July remain positive</li>
<li>System loan growth slowed slightly on a YoY basis to 16.2%</li>
<li>Compared to June, consumer credit quality was well controlled and arrears (15-90 days delay) data remain a constructive signal for medium-term NPLs</li>
<li>Credit quality of corporates showed that risks improved in micro-enterprises and SMEs further, and the differential narrowed with large corporate whose NPL ratio rose slightly</li>
<li>The NPL ratio rose in the case of private international and domestic banks, yet these delinquencies were more than fully covered by provisions, as is also the case of the banking system generally</li>
<li>Credit spreads edged lower in July, on a MoM basis, due to lower spreads for individual borrowers and despite the continuing rise in benchmark rates</li>
<li>We remain positive on the Brazil bank sector, and stick to our positive view on <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a>
</li>
<li>Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads</li>
</ul>


Brazil’s credit quality trends to July remain positive
System loan growth slowed slightly on a YoY basis to 16.2%
Compared to June, consumer credit quality was well controlled and arrears (15-90 days delay) data remain a constructive signal for medium-term NPLs
Credit quality of corporates showed that risks improved in micro-enterprises and SMEs further, and the differential narrowed with large corporate whose NPL ratio rose slightly
The NPL ratio rose in the case of private international and domestic banks, yet these delinquencies were more than fully covered by provisions, as is also the case of the banking system generally
Credit spreads edged lower in July, on a MoM basis, due to lower spreads for individual borrowers and despite the continuing rise in benchmark rates
We remain positive on the Brazil bank sector, and stick to our positive view on Banco Do Brasil Sa (BBAS3 BZ)

Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads


Brazil Bank Sector Trends to July in Ten Charts

<ul>
<li>Brazil’s credit quality trends to June remain constructive</li>
<li>System loan growth accelerated slightly on a YoY basis to 16.3%</li>
<li>Compared to May, consumer credit quality was well controlled and arrears (15-90 days delay) data remains an encouraging early signal for medium-term NPLs</li>
<li>Credit quality of corporates showed that risks improved in micro-enterprises and SMEs, even if the differential was still wide with large corporate whose NPLs were well contained</li>
<li>The NPL ratio rose in the case of private international banks, yet these delinquencies were more than fully covered by provisions as in the case of the banking system generally</li>
<li>Credit spreads edged higher in June, on a MoM basis, with corporates offsetting the marginally lower spreads for individual borrowers</li>
<li>We continue to see value in the Brazil bank sector, and stick to our positive view on <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a> </li>
<li>Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads</li>
</ul>


Brazil’s credit quality trends to June remain constructive
System loan growth accelerated slightly on a YoY basis to 16.3%
Compared to May, consumer credit quality was well controlled and arrears (15-90 days delay) data remains an encouraging early signal for medium-term NPLs
Credit quality of corporates showed that risks improved in micro-enterprises and SMEs, even if the differential was still wide with large corporate whose NPLs were well contained
The NPL ratio rose in the case of private international banks, yet these delinquencies were more than fully covered by provisions as in the case of the banking system generally
Credit spreads edged higher in June, on a MoM basis, with corporates offsetting the marginally lower spreads for individual borrowers
We continue to see value in the Brazil bank sector, and stick to our positive view on Banco Do Brasil Sa (BBAS3 BZ) 
Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads


Brazil Bank Sector Trends to June in Ten Charts

<ul>
<li>Brazil’s credit quality trends to May remain broadly positive</li>
<li>Loan growth on a YoY basis is steady in the mid-teens</li>
<li>Compared to April, consumer credit quality seems controlled and arrears (15-90 days delay) data is an encouraging signal for medium-term NPLs</li>
<li>Credit quality of corporates shows that risks are increasing in micro-enterprises and SMEs whereas large corporate NPLs are well contained</li>
<li>NPLs are rising fastest in the case of public sector banks, yet these are well covered by provisions as in the banking system generally</li>
<li>Credit spreads trended lower in May for individual borrowers</li>
<li>We continue to see value in the sector and find <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a> attractive</li>
<li>Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads</li>
</ul>


Brazil’s credit quality trends to May remain broadly positive
Loan growth on a YoY basis is steady in the mid-teens
Compared to April, consumer credit quality seems controlled and arrears (15-90 days delay) data is an encouraging signal for medium-term NPLs
Credit quality of corporates shows that risks are increasing in micro-enterprises and SMEs whereas large corporate NPLs are well contained
NPLs are rising fastest in the case of public sector banks, yet these are well covered by provisions as in the banking system generally
Credit spreads trended lower in May for individual borrowers
We continue to see value in the sector and find Banco Do Brasil Sa (BBAS3 BZ) attractive
Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads


Brazil Bank Sector Trends to May in Ten Charts

<ul>
<li>We screen 35 GEM Banks in this report with its accompanying charts, and identify the following names as investment opportunities</li>
<li>In LatAm, we highlight <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a> , <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 <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a> </li>
<li>In Asia, our preferred stocks are <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a> , <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a> , <a href="https://www.smartkarma.com/entities/hana-financial-group" target="_blank" data-smartkarma-citation="entities:12843:1" rel="noopener">Hana Financial (086790 KS)</a> and <a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" data-smartkarma-citation="entities:160:1" rel="noopener">State Bank Of India (SBIN IN)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> and <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc-cde59529-fb78-4659-85d0-127942b44ba7" target="_blank" data-smartkarma-citation="entities:27581:1" rel="noopener">Sberbank of Russia PJSC (SBER RM)</a> stand out in CEMEA</li>
<li>Risks to our positive view on these select GEM banks include worse than expected GDP growth leading to worse than anticipated credit quality and slower than expected loan growth, along with limited investor appetite for GEM banks</li>
</ul>


We screen 35 GEM Banks in this report with its accompanying charts, and identify the following names as investment opportunities
In LatAm, we highlight Banco Do Brasil Sa (BBAS3 BZ) , Grupo Financiero Banorte-O (GFNORTEO MF) and Credicorp Ltd (BAP US) 
In Asia, our preferred stocks are Postal Savings Bank of China (1658 HK) , China Construction Bank H (939 HK) , Hana Financial (086790 KS) and State Bank Of India (SBIN IN) 

Commercial International Bank (COMI EY) and Sberbank of Russia PJSC (SBER RM) stand out in CEMEA
Risks to our positive view on these select GEM banks include worse than expected GDP growth leading to worse than anticipated credit quality and slower than expected loan growth, along with limited investor appetite for GEM banks


Brazil

Banco do Brasil is a Brazilian financial services company offering a wide range of banking products and services, including retail and corporate banking, investment management, insurance, and agribusiness loans. It serves individuals, companies, and the public sector, with a strong leadership position in retail banking in Brazil. The company is headquartered in Brasília, Brazil, and was founded on October 12, 1808.

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Banco do Brasil (BBAS3 BR)

Brazil Banking Data Trends to August in Ten Charts

August Brazil bank data remains healthy, yet some consumer & household NPL data may be flagging up amber signals, which can worsen given rising...

Victor Galliano

Brazil Bank Sector Trends to July in Ten Charts

July's corporate & consumer credit data remains positive, & Brazil Central Bank's monetary tightening should impact higher interest rates & spreads...

Victor Galliano

Brazil Bank Sector Trends to June in Ten Charts

June credit quality trends were sound, with arrears, the early warning on NPLs, looking good; loan growth accelerated, credit spreads were stable;...

Victor Galliano

Brazil Bank Sector Trends to May in Ten Charts

Brazil system YoY loan growth to May accelerated, with mixed credit quality data; NPLs worse in consumer credit but arrears are improving; SME &...

Victor Galliano

GEM Banks 1Q21 Screens

Our GEM bank picks are derived from value and growth, plus balance sheet, metrics; we highlight Banco do Brasil, Banorte, Credicorp, PSBC, CCB,...

Victor Galliano

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