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>In October, we see more mixed data on credit arrears (15-90 days overdue) with the NPL ratios for consumer “high octane” categories of credit card and auto credits worsening further</li>
<li>System loan growth was +15.8% for the twelve months to October, a deceleration from the September YoY rate (+16.4%), due largely to slower corporate loan growth</li>
<li>New credit spreads rose further MoM, and average loan spreads are set to remain elevated into 2023; we favour Banco do Brasil, despite political concerns which we believe are overdone</li>
</ul>


In October, we see more mixed data on credit arrears (15-90 days overdue) with the NPL ratios for consumer “high octane” categories of credit card and auto credits worsening further
System loan growth was +15.8% for the twelve months to October, a deceleration from the September YoY rate (+16.4%), due largely to slower corporate loan growth
New credit spreads rose further MoM, and average loan spreads are set to remain elevated into 2023; we favour Banco do Brasil, despite political concerns which we believe are overdone


October Brazil Bank Data in Charts – Credit Quality Early Warning Trends More Mixed This Month

<ul>
<li>In September, we highlight that data on credit in arrears (15-90 days overdue) showed MoM improvements in all our measures; this implies a positive leading indicator for NPLs</li>
<li>System loan growth was +16.8% for the twelve months to September, a slight acceleration from the August YoY rate (+16.7%), due largely to faster corporate loan growth</li>
<li>New credit spreads appear to have peaked, even if spreads on average loans are set to remain elevated; we favour Banco do Brasil, for good credit quality and attractive valuations</li>
</ul>


In September, we highlight that data on credit in arrears (15-90 days overdue) showed MoM improvements in all our measures; this implies a positive leading indicator for NPLs
System loan growth was +16.8% for the twelve months to September, a slight acceleration from the August YoY rate (+16.7%), due largely to faster corporate loan growth
New credit spreads appear to have peaked, even if spreads on average loans are set to remain elevated; we favour Banco do Brasil, for good credit quality and attractive valuations


September Brazil Bank Data Charts – Arrears Imply Better NPLs Trends to Come; Have Spreads Peaked?

<ul>
<li>Brazil’s consumer credit quality trends to June showed an improvement across most series, with the exception of the credit cards category</li>
<li>System loan growth was +17.8% for the twelve months to June, an acceleration from the YoY rate for May (+16.9%), due largely to the pick-up in corporate loan growth</li>
<li>The BCB’s latest consensus estimates suggest that benchmark rate have now peaked at 13.75%; our preferred Brazilian bank remains Banco do Brasil, for good credit quality and attractive valuations</li>
</ul>


Brazil’s consumer credit quality trends to June showed an improvement across most series, with the exception of the credit cards category
System loan growth was +17.8% for the twelve months to June, an acceleration from the YoY rate for May (+16.9%), due largely to the pick-up in corporate loan growth
The BCB’s latest consensus estimates suggest that benchmark rate have now peaked at 13.75%; our preferred Brazilian bank remains Banco do Brasil, for good credit quality and attractive valuations


June Brazil Bank Data in Twelve Charts – Credit Spreads Keep Rising, NPLs More Benign

<ul>
<li>Brazil’s consumer credit quality trends to April deteriorated further, and within corporates, SME credit quality trends also worsened</li>
<li>System loan growth was +16.8% for the twelve months to April which slightly accelerated from the YoY rate for March (+16.5%), due largely to the strong consumer loan growth (+21.9%)</li>
<li>The BCB’s latest consensus estimates point to further benchmark rate rises this year of another 50bps to 13.75%; this impacts credit quality, yet Brazilian banks benefit from higher loan spreads</li>
</ul>


Brazil’s consumer credit quality trends to April deteriorated further, and within corporates, SME credit quality trends also worsened
System loan growth was +16.8% for the twelve months to April which slightly accelerated from the YoY rate for March (+16.5%), due largely to the strong consumer loan growth (+21.9%)
The BCB’s latest consensus estimates point to further benchmark rate rises this year of another 50bps to 13.75%; this impacts credit quality, yet Brazilian banks benefit from higher loan spreads


April Brazil Bank Data in Twelve Charts; Consumer and SME NPLs Worsened, Higher Credit Spreads

<ul>
<li>Banco Central do Brasil has been raising benchmark interest rates aggressively since 1H2021 and we believe it is approaching the peak of its tightening cycle; this feeds into loan spreads</li>
<li>1Q22 Brazil bank results showed limited evidence of widening spreads, due to a time lag, but loan quality is worsening due to the hiking interest rates amid the soft economy</li>
<li>Disciplined loan origination should support bank returns, especially in the consumer and SME segments, containing credit cost charges growth as spreads expand; deep-value Banco do Brasil remains our top pick</li>
</ul>


Banco Central do Brasil has been raising benchmark interest rates aggressively since 1H2021 and we believe it is approaching the peak of its tightening cycle; this feeds into loan spreads
1Q22 Brazil bank results showed limited evidence of widening spreads, due to a time lag, but loan quality is worsening due to the hiking interest rates amid the soft economy
Disciplined loan origination should support bank returns, especially in the consumer and SME segments, containing credit cost charges growth as spreads expand; deep-value Banco do Brasil remains our top pick


Brazil Banks – Returns Tug of War Between Spreads and Credit Costs, Stick with Banco Do Brasil

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)

October Brazil Bank Data in Charts – Credit Quality Early Warning Trends More Mixed This Month

October Brazil banks data imply worse credit risk for longer, with a more negative mix of arrears data, fast rising credit card and auto loan NPLs;...

Victor Galliano

September Brazil Bank Data Charts – Arrears Imply Better NPLs Trends to Come; Have Spreads Peaked?

Credit in arrears (15-90 days overdue) showed MoM improvements in all our metrics, implying a positive leading indicator for NPLs; new credit...

Victor Galliano

June Brazil Bank Data in Twelve Charts – Credit Spreads Keep Rising, NPLs More Benign

In June, the Brazil bank sector experienced accelerating credit growth, rising loan rates and spreads as well as improving near term NPL trends,...

Victor Galliano

April Brazil Bank Data in Twelve Charts; Consumer and SME NPLs Worsened, Higher Credit Spreads

April Brazil banks data shows that consumer and SME credit quality trends worsened further, yet loan growth accelerated and credit spreads widened;...

Victor Galliano

Brazil Banks – Returns Tug of War Between Spreads and Credit Costs, Stick with Banco Do Brasil

Higher benchmark interest rates feed into wider spreads for Brazil banks, and in the returns tug of war between higher spreads and bigger credit...

Victor Galliano

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