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

Postal Savings Bank of China C / Equity Bottom-Up

<ul>
<li>We screen the 4Q20 results for credit quality and value of thirty five GEM banks</li>
<li>We add a new screen showing tangible book value per share growth from 2016 to 2020, and compare this to 2020 PTBV ratio</li>
<li>Specifically we identify six banks that screen well on these combined factors; <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>, <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a>, <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/hana-financial-group" target="_blank" data-smartkarma-citation="entities:12843:1" rel="noopener">Hana Financial (086790 KS)</a>, <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> and – in the higher risk category – <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> of Egypt</li>
<li>A name to watch, albeit a higher risk GEM bank on attractive valuations, is <a href="https://www.smartkarma.com/entities/turkiye-garanti-bankasi-as" target="_blank" data-smartkarma-citation="entities:25026:1" rel="noopener">Turkiye Garanti Bankasi As (GARAN TI)</a> in Turkey; nevertheless, the unpredictable Erdogan factor still calls for near term caution</li>
<li>Private sector Indian banks trade on demanding valuations, in our view; public sector bank SBI is the deep value, but relatively high risk, name in India with its relatively low NPL coverage levels</li>
<li>Risks to our positive view on these six GEM banks generally include increased political and geo-political tensions, as well as a weaker than expected GDP growth recovery leading to worsen than expected credit quality  and weak loan growth</li>
</ul>


We screen the 4Q20 results for credit quality and value of thirty five GEM banks
We add a new screen showing tangible book value per share growth from 2016 to 2020, and compare this to 2020 PTBV ratio
Specifically we identify six banks that screen well on these combined factors; Grupo Financiero Banorte-O (GFNORTEO MF), Credicorp Ltd (BAP US), Banco Do Brasil Sa (BBAS3 BZ), Hana Financial (086790 KS), Postal Savings Bank of China (1658 HK) and – in the higher risk category – Commercial International Bank (COMI EY) of Egypt
A name to watch, albeit a higher risk GEM bank on attractive valuations, is Turkiye Garanti Bankasi As (GARAN TI) in Turkey; nevertheless, the unpredictable Erdogan factor still calls for near term caution
Private sector Indian banks trade on demanding valuations, in our view; public sector bank SBI is the deep value, but relatively high risk, name in India with its relatively low NPL coverage levels
Risks to our positive view on these six GEM banks generally include increased political and geo-political tensions, as well as a weaker than expected GDP growth recovery leading to worsen than expected credit quality  and weak loan growth


Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Thematic (Sector/Industry)

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value. 

China Banks – Big Capital Raises Coming

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

If one presumes the backdrop is improving, than de-risking would not be the best path during FY20. This large China bank not only shows some of the most robust credit growth, but also robust growth in loan loss reserves.

If one presumes the backdrop is improving, than de-risking would not be the best path during FY20. This large China bank not only shows some of the most robust credit growth, but also robust growth in loan loss reserves. 

Postal Savings Bank of China – Growing Into Recovery

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Strategic and systemically-important Postal Savings Bank dedicates itself to mainly consumer credit (57% of Loan book), with mortgages commanding a high weighting, but also corporate segments (35% of credit), backed mainly by source of funding from time deposits (64%) but also transaction accounts (36%).FY20/19 results show subpar fundamental trends. Results can be characterized by light deterioration in general as changes in key variables were not so pronounced. There was a modest reduction in Profitability and in Liquidity. There was also lightweight erosion in headline Asset Quality, in Efficiency, in NIM plus Spread, and in Equity/Assets though not all Capitalization ratios given the capital raise, while robust Provisioning was fortified further. “Core Income” showed stolid growth YoY, supported by above-system credit expansion, and to a lesser extent by a robust increase in fee and commissions, while a surprisingly high increase in LLPs reduced Comprehensive Income growth to 8.3% YoY.<div class="content-highlight"> A FV of 5%, a PBV of 0.76x, a Dividend Yield of 4.4%, an Earnings Yield of 13.3% and a Total Return Ratio of 1.6x are not unappealing, though on the face of it, less optically attractive than other SOE banks. Relative valuation may signal that PSBC is in fact a lower risk than some other SOEs especially after the capital raise last year which cushions against higher requirements, the low Debt/Equity, high LCR and NSFR, the elevated Provisioning, and the low LDR: this may also relate to a consumer-centric profile in contrast to other more corporate-heavy banks. PSBC commands a subpar PH Score™ (3.5) which captures value-quality trends, including a moderately supportive valuation variable. This Score may seem harsh to the bank given the “near misses” in our binary system, a mildly positive picture relative to peers, and given a sufficient Reserving level and the adept control of receding risk. The bank, in contrast to other SOEs, still has ample scope to perform better on Efficiency front. We are prepared to give PSBC the benefit of doubt despite the PH Score™.</div>

Strategic and systemically-important Postal Savings Bank dedicates itself to mainly consumer credit (57% of Loan book), with mortgages commanding a high weighting, but also corporate segments (35% of credit), backed mainly by source of funding from time deposits (64%) but also transaction accounts (36%).FY20/19 results show subpar fundamental trends. Results can be characterized by light deterioration in general as changes in key variables were not so pronounced. There was a modest reduction in Profitability and in Liquidity. There was also lightweight erosion in headline Asset Quality, in Efficiency, in NIM plus Spread, and in Equity/Assets though not all Capitalization ratios given the capital raise, while robust Provisioning was fortified further. “Core Income” showed stolid growth YoY, supported by above-system credit expansion, and to a lesser extent by a robust increase in fee and commissions, while a surprisingly high increase in LLPs reduced Comprehensive Income growth to 8.3% YoY. A FV of 5%, a PBV of 0.76x, a Dividend Yield of 4.4%, an Earnings Yield of 13.3% and a Total Return Ratio of 1.6x are not unappealing, though on the face of it, less optically attractive than other SOE banks. Relative valuation may signal that PSBC is in fact a lower risk than some other SOEs especially after the capital raise last year which cushions against higher requirements, the low Debt/Equity, high LCR and NSFR, the elevated Provisioning, and the low LDR: this may also relate to a consumer-centric profile in contrast to other more corporate-heavy banks. PSBC commands a subpar PH Score™ (3.5) which captures value-quality trends, including a moderately supportive valuation variable. This Score may seem harsh to the bank given the “near misses” in our binary system, a mildly positive picture relative to peers, and given a sufficient Reserving level and the adept control of receding risk. The bank, in contrast to other SOEs, still has ample scope to perform better on Efficiency front. We are prepared to give PSBC the benefit of doubt despite the PH Score™. 

PSBC: Subpar Trends but Risk May Be Subsiding

*Excess Provisioning Eats Away At 4Q20 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 4Q20 results of CNY 11.4 bn – decreasing CNY 7.8 bn (40.8%) linked quarter. PSB’s struggles were twofold: loss provisions were too high; and an operating expenses accelerated; and * Credit Quality Risk Peaking: HOH, stated NPLs nominally increased CNY 605 mn or 1.2% to CNY 50.4 bn and amount to 88 bp to total loans – flat linked quarter. The growth in level of net new NPLs was CNY 9.3 bn or decelerating to 18.4% on an annualized basis. PSB’s loss provision increased CNY 2.9 bn (41.1%) linked quarter, almost seeming pointless given the reserve cover of 4.01x (4.03x at 3Q20) and the annualized NCO rate of 61 bp.

*Excess Provisioning Eats Away At 4Q20 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 4Q20 results of CNY 11.4 bn – decreasing CNY 7.8 bn (40.8%) linked quarter. PSB’s struggles were twofold: loss provisions were too high; and an operating expenses accelerated; and * Credit Quality Risk Peaking: HOH, stated NPLs nominally increased CNY 605 mn or 1.2% to CNY 50.4 bn and amount to 88 bp to total loans – flat linked quarter. The growth in level of net new NPLs was CNY 9.3 bn or decelerating to 18.4% on an annualized basis. PSB’s loss provision increased CNY 2.9 bn (41.1%) linked quarter, almost seeming pointless given the reserve cover of 4.01x (4.03x at 3Q20) and the annualized NCO rate of 61 bp.

Postal Savings Bank of China – Excess Provisioning

China

Postal Savings Bank of China Co., Ltd. provides banking services. The Company offers deposits, loans, fund settlement, and other services. Postal Savings Bank of China provides its services to individuals, enterprises, and other clients.

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Postal Savings Bank of China C (1658 HK)

GEM Bank Screens; 4Q20, The Final Cut

We pick 6 GEM banks - Banorte, Credicorp, Banco do Brasil, Hana Financial, Postal Savings Bank of China & Commercial International Bank of Egypt -...

Victor Galliano

China Banks – Big Capital Raises Coming

CHINA BANKS: The PBOC and CBIRC released finalized new capital standards for the country’s D-SIBs. Equity raises require P/BV over 1.0x and many of...

Thomas J. Monaco

Postal Savings Bank of China – Growing Into Recovery

If the backdrop is improving, than de-risking is not the way to go. This large China bank not only shows some of the most robust credit growth, but...

Daniel Tabbush

PSBC: Subpar Trends but Risk May Be Subsiding

PSBC has certain advantages over other Chinese SOEs. 2020 results were about "near misses" though risk seems to have subsided. Shares are not...

Paul Hollingworth

Postal Savings Bank of China – Excess Provisioning

POSTAL SAVINGS BANK: PSB reported a 40.8% decline in QOQ results, as loss provisioning was too high relative to risk is peaking; and an operating...

Thomas J. Monaco

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