Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

At Creative Portfolios, we do not like overcrowded trades. Regarding EM banks, there are a number of popular choices. As <a href="https://www.smartkarma.com/profiles/steven-holden" target="_blank" data-smartkarma-citation="accounts:1337" rel="noopener">Steven Holden</a> shows us, there are fewer more popular trades in EM financials than <a href="https://www.smartkarma.com/entities/hdfc-bank-limited" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a>, <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc" target="_blank" data-smartkarma-citation="entities:24142:1" rel="noopener">Sberbank Of Russia Pjsc (SBER LI)</a> , <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</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 MM),</a><a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a> and the Indonesian duo of <a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" data-smartkarma-citation="entities:440:1" rel="noopener">Bank Central Asia (BBCA IJ)</a> and <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-perser" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Perser (BBRI IJ)</a>. No one is disputing that these are good companies. We argue that they might not be good investments.We cover <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc" target="_blank" data-smartkarma-citation="entities:24142:1" rel="noopener">Sberbank Of Russia Pjsc (SBER LI)</a> closely with insights such as <a href="https://www.smartkarma.com/insights/sberbank-the-beast-from-the-east" target="_blank" data-smartkarma-citation="insights:18727" rel="noopener">Sberbank: The Beast from the East</a> and <a href="https://www.smartkarma.com/insights/sberbank-even-trends-at-favourites-erode" target="_blank" data-smartkarma-citation="insights:31125" rel="noopener">Sberbank: Even Trends at Favourites Erode</a> while colleague <a href="https://www.smartkarma.com/profiles/victor-galliano" target="_blank" data-smartkarma-citation="accounts:3251" rel="noopener">Victor Galliano</a> has Banorte covered. <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> and <a href="https://www.smartkarma.com/profiles/hemindra-hazari" target="_blank" data-smartkarma-citation="accounts:941" rel="noopener">Hemindra Hazari</a> over the years have cast a sceptical eye over wildly favoured HDFC. Creative Portfolios has published repeated insights into Indonesian banks, and finds the aforementioned banks dear.There is another "loved" bank in the EM universe- <a href="https://www.smartkarma.com/entities/otp-bank-nyrt" target="_blank" data-smartkarma-citation="entities:28806:1" rel="noopener">OTP Bank Nyrt (OTP HB)</a> .We take a look at whether OTP merits such status.The fundamental trends underway at OTP are not bad, a tad better than average for its region. ROAA, ROAE, and NIM are very high relative to region: this is attractive for investors. However, this must be seen in the context of pressure on the top-line from escalating Funding Costs and a non-interest Income loss combined with high OPEX growth. Erosion in Capital Adequacy also catches the eye (not surprising given credit splurge) as well as a sharp drop in Provisioning given the progress made on reducing the NPL ratio. Moving forward, Asset Quality must surely be compromised by the heated pace in Loan growth.We adjudge a FV of 29% is high while a P/B of 1.89% captures to an extent the elevated ROE. (Big question is how sustainable the Profitability ratio and NIM are). The Dividend Yield of 1.48% is low for an EM bank. The Total Return Ratio at 2.5x is more supportive while the Earnings Yield is no better than the median regionally.Our conclusion is that from separate CFR and CP analysis, caution should prevail. CP's VFM rankings position the bank in the bottom decile of opportunity globally from &gt;1400 banks while CFR points to an increased weighting which can be a contrarian indicator depending on how investors interpret Steve's data. As an investment opportunity, OTB is not all that it is cracked up to be.

At Creative Portfolios, we do not like overcrowded trades. Regarding EM banks, there are a number of popular choices. As Steven Holden shows us, there are fewer more popular trades in EM financials than HDFC Bank (HDFCB IN), AIA Group Ltd (1299 HK), Sberbank Of Russia Pjsc (SBER LI) , Ping An Insurance (H) (2318 HK) , Grupo Financiero Banorte-O (GFNORTEO MM),Credicorp Ltd (BAP US) and the Indonesian duo of Bank Central Asia (BBCA IJ) and Bank Rakyat Indonesia Perser (BBRI IJ). No one is disputing that these are good companies. We argue that they might not be good investments.We cover Sberbank Of Russia Pjsc (SBER LI) closely with insights such as Sberbank: The Beast from the East and Sberbank: Even Trends at Favourites Erode while colleague Victor Galliano has Banorte covered. Daniel Tabbush and Hemindra Hazari over the years have cast a sceptical eye over wildly favoured HDFC. Creative Portfolios has published repeated insights into Indonesian banks, and finds the aforementioned banks dear.There is another "loved" bank in the EM universe- OTP Bank Nyrt (OTP HB) .We take a look at whether OTP merits such status.The fundamental trends underway at OTP are not bad, a tad better than average for its region. ROAA, ROAE, and NIM are very high relative to region: this is attractive for investors. However, this must be seen in the context of pressure on the top-line from escalating Funding Costs and a non-interest Income loss combined with high OPEX growth. Erosion in Capital Adequacy also catches the eye (not surprising given credit splurge) as well as a sharp drop in Provisioning given the progress made on reducing the NPL ratio. Moving forward, Asset Quality must surely be compromised by the heated pace in Loan growth.We adjudge a FV of 29% is high while a P/B of 1.89% captures to an extent the elevated ROE. (Big question is how sustainable the Profitability ratio and NIM are). The Dividend Yield of 1.48% is low for an EM bank. The Total Return Ratio at 2.5x is more supportive while the Earnings Yield is no better than the median regionally.Our conclusion is that from separate CFR and CP analysis, caution should prevail. CP's VFM rankings position the bank in the bottom decile of opportunity globally from &gt;1400 banks while CFR points to an increased weighting which can be a contrarian indicator depending on how investors interpret Steve's data. As an investment opportunity, OTB is not all that it is cracked up to be. 

OTP Bank: Cracks in the Lustre of Popularity

Hungary

OTP Bank Nyrt. attracts deposits and offers retail and commercial banking services. The Bank offers currency exchange, private banking, insurance, personal and mortgage loans, and Internet banking.  OTP operates through a nationwide network of branches in Hungary.

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OTP Bank: Cracks in the Lustre of Popularity

At Creative Portfolios, we do not like overcrowded trades. Regarding EM banks, there are a number of popular choices. As Steven Holden shows us,...

Paul Hollingworth