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>Lula increased his verbal offensive against the Central Bank’s independence and its monetary policy; is this a storm in a teacup or a threat to the Central Bank’s status quo?</li>
<li>With the appointment of Fernando Haddad as left-leaning finance minister, there is genuine concern regarding the scope for potential interference by the Lula administration in forthcoming monetary policy</li>
<li>Government interference could lead to public sector banks offering more subsidized credit to lower income groups; although this is Caixa Economica Federal’s domain, this could increasingly include Banco do Brasil</li>
</ul>


Lula increased his verbal offensive against the Central Bank’s independence and its monetary policy; is this a storm in a teacup or a threat to the Central Bank’s status quo?
With the appointment of Fernando Haddad as left-leaning finance minister, there is genuine concern regarding the scope for potential interference by the Lula administration in forthcoming monetary policy
Government interference could lead to public sector banks offering more subsidized credit to lower income groups; although this is Caixa Economica Federal’s domain, this could increasingly include Banco do Brasil


Lula Hits Out at Central Bank Independence; Time to Take Profits on Banco Do Brasil

<ul>
<li>In December many NPL ratio categories improved MoM, but there are still some areas of concerns namely household and SME credit</li>
<li>System loan growth for full year 2022 decelerated further (from an annualized 14.7% in November) but still grew by +14%, due primarily to slower consumer loan growth</li>
<li>New credit spreads declined MoM, along with lending rates implying that this was not due solely to funding costs; we favour Banco do Brasil, and are cautious on Santander Brasil</li>
</ul>


In December many NPL ratio categories improved MoM, but there are still some areas of concerns namely household and SME credit
System loan growth for full year 2022 decelerated further (from an annualized 14.7% in November) but still grew by +14%, due primarily to slower consumer loan growth
New credit spreads declined MoM, along with lending rates implying that this was not due solely to funding costs; we favour Banco do Brasil, and are cautious on Santander Brasil


December Brazil Bank Data in Charts – Household and SME NPL Metrics Are the Focus Points

Banco Santander Brasil  / Equity Bottom-Up

<ul>
<li>In November most consumer NPL ratio categories, except credit cards, worsened with corporate delinquencies, especially in micro and SME, also deteriorating; the system NPL ratio is approaching its pre-pandemic high</li>
<li>System loan growth continues to decelerate; +14.7% for the twelve months to November is a further reduction from the October rate (+15.7%), due to slower corporate and consumer loan growth</li>
<li>New system credit spreads rose further MoM, and we expect average loan spreads to remain elevated into 2023; we favour Banco do Brasil, and are cautious on Santander Brasil</li>
</ul>


In November most consumer NPL ratio categories, except credit cards, worsened with corporate delinquencies, especially in micro and SME, also deteriorating; the system NPL ratio is approaching its pre-pandemic high
System loan growth continues to decelerate; +14.7% for the twelve months to November is a further reduction from the October rate (+15.7%), due to slower corporate and consumer loan growth
New system credit spreads rose further MoM, and we expect average loan spreads to remain elevated into 2023; we favour Banco do Brasil, and are cautious on Santander Brasil


November Brazil Bank Data in Charts – Household and Corporate NPL Metrics Broadly Worsening

<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

Thematic (Sector/Industry)

<ul>
<li>Lula’s narrow win in the second round of the Brazilian Presential election has so far passed in relative calm, although sitting President Jair Bolsonaro has yet to concede defeat</li>
<li>Markets will be hoping for a peaceful transition, and influential Bolsonaro allies have asked Brazilians to respect the result, to avoid social unrest and any potential intervention by the military</li>
<li>It is unclear how anti-market Lula’s policies will be but we expect downside risk for Brazilian financials and fintechs; Banco do Brasil is in for volatility, Itausa may be defensive</li>
</ul>


Lula’s narrow win in the second round of the Brazilian Presential election has so far passed in relative calm, although sitting President Jair Bolsonaro has yet to concede defeat
Markets will be hoping for a peaceful transition, and influential Bolsonaro allies have asked Brazilians to respect the result, to avoid social unrest and any potential intervention by the military
It is unclear how anti-market Lula’s policies will be but we expect downside risk for Brazilian financials and fintechs; Banco do Brasil is in for volatility, Itausa may be defensive


Brazilian Presidential Election; What Could a Lula Victory Mean for Financials and Fintech?

Brazil

Banco do Brasil S.A. attracts deposits and offers retail and commercial banking services.  The Bank offers consumer, commercial, and agribusiness loans, asset management, foreign exchange, private pension, insurance, lease financing, credit cards, and Internet banking services.

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Banco do Brasil (BBAS3 BZ)

Lula Hits Out at Central Bank Independence; Time to Take Profits on Banco Do Brasil

Lula hitting out at the Central Bank means growing political risk for Banco do Brasil; we downgrade it to neutral on spread erosion risk from...

Victor Galliano

December Brazil Bank Data in Charts – Household and SME NPL Metrics Are the Focus Points

December Brazil banks data saw negative NPL trends for households & MSMEs; credit rates & spreads slipped MoM, from November highs; we stay...

Victor Galliano

November Brazil Bank Data in Charts – Household and Corporate NPL Metrics Broadly Worsening

To November, consumer & corporate NPL ratios worsened, with the system NPL ratio near its pre-Covid high; we expect spreads to stay high, we favour...

Victor Galliano

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

Brazilian Presidential Election; What Could a Lula Victory Mean for Financials and Fintech?

Lula's victory is near term negative for Brazil risk assets; in fintech & financials, we see volatility risk for Banco do Brasil, we are negative...

Victor Galliano

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