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>BBVA Bancomer continued to deliver the best return on equity (ROE) of the biggest nine Mexican banks, on a trailing twelve months basis to July; <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-s-a-b-de-c-v" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte (GFNORTEO MF)</a> retained its second place with upper-teens ROE</li>
<li>To July 2021, bank system ROE recovered further from historically low levels, supported by a contained cost of risk</li>
<li>Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose further in July, which should be spread supportive</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> continue to screen better than peers on credit quality metrics to July, with best-in-class combination of low NPL ratios and healthy coverage</li>
<li>In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their core capital harder than their peers</li>
<li>We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer continued to deliver the best return on equity (ROE) of the biggest nine Mexican banks, on a trailing twelve months basis to July; Grupo Financiero Banorte (GFNORTEO MF) retained its second place with upper-teens ROE
To July 2021, bank system ROE recovered further from historically low levels, supported by a contained cost of risk
Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose further in July, which should be spread supportive
Banorte and Banco del Bajio SA (BBAJIOO MM) continue to screen better than peers on credit quality metrics to July, with best-in-class combination of low NPL ratios and healthy coverage
In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their core capital harder than their peers
We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges


Mexican Banks’ July Data Show Strong Balance Sheets, and Continuing Improvements in Returns

Grupo Financiero Banorte SAB d / Equity Bottom-Up

<ul>
<li>BBVA Bancomer continued to deliver the best returns of the biggest nine Mexican banks, on a trailing twelve months basis to May; <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> retained its second place with upper-teens ROE</li>
<li>To June 2021, bank system ROE recovered further from historically low levels, helped by low cost of risk</li>
<li>Top line returns were supported by limited erosion of credit spreads, and higher benchmark rates from June should be spread supportive</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> screen better than peers on credit quality metrics to June, with best-in-class combination of low NPL ratios and to healthy coverage</li>
<li>In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte “work” their core capital harder than their peers</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer continued to deliver the best returns of the biggest nine Mexican banks, on a trailing twelve months basis to May; Grupo Financiero Banorte-O (GFNORTEO MF) retained its second place with upper-teens ROE
To June 2021, bank system ROE recovered further from historically low levels, helped by low cost of risk
Top line returns were supported by limited erosion of credit spreads, and higher benchmark rates from June should be spread supportive
Banorte and Banco del Bajio SA (BBAJIOO MM) screen better than peers on credit quality metrics to June, with best-in-class combination of low NPL ratios and to healthy coverage
In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte “work” their core capital harder than their peers
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges


Mexican Banks ROE Recovery Continues into June

<ul>
<li>BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis to May; <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>  retained its second place with mid-teens ROE</li>
<li>Mexican banks continue to address the pandemic’s credit quality challenges by taking bigger bad loan write-offs</li>
<li>To May 2021, bank system returns continued their recovery from historically low levels helped by low cost of risk</li>
<li>Top line returns have been supported by limited erosion of credit spreads, and BanXico raised benchmark rates in June</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> continue screen better than peers on credit quality metrics, particularly on NPL ratio and to a lesser degree on coverage; they both also have healthy core capital ratios</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis to May; Grupo Financiero Banorte-O (GFNORTEO MF)  retained its second place with mid-teens ROE
Mexican banks continue to address the pandemic’s credit quality challenges by taking bigger bad loan write-offs
To May 2021, bank system returns continued their recovery from historically low levels helped by low cost of risk
Top line returns have been supported by limited erosion of credit spreads, and BanXico raised benchmark rates in June
Banorte and Banco del Bajio SA (BBAJIOO MM) continue screen better than peers on credit quality metrics, particularly on NPL ratio and to a lesser degree on coverage; they both also have healthy core capital ratios
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure and a further worsening of credit quality resulting in higher credit charges


Mexican Banks Continue to Address NPL Issues in May

<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


<ul>
<li>The politics in Mexico is not a major concern, and the macro-economic outlook remains constructive</li>
<li>We continue to recommend <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> , seeing it as a core holding in EM portfolios</li>
<li>
<a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> is also attractive, as a mid-cap holding and it has potential for a further re-rating</li>
<li>
<a href="https://www.smartkarma.com/entities/banco-santander-mexico-s-a" target="_blank" data-smartkarma-citation="entities:27672:1" rel="noopener">Banco Santander Mexico-B (BSMXB MM)</a> shares are trading at an 6% premium to the share offer from the parent (MXN24.45 cum dividend); even factoring in the dividend yield, the potential for further SanMex share price upside seems limited</li>
<li>Risks to our positive view on Banorte, BanBajio include worse than expected credit quality and softer than expected loan demand impacting volumes and spreads; risks to our cautious view on SanMex shares include an enhanced offer by Santander or an increased dividend attributable to current shareholders</li>
</ul>


The politics in Mexico is not a major concern, and the macro-economic outlook remains constructive
We continue to recommend Grupo Financiero Banorte-O (GFNORTEO MF) , seeing it as a core holding in EM portfolios

Banco del Bajio SA (BBAJIOO MM) is also attractive, as a mid-cap holding and it has potential for a further re-rating

Banco Santander Mexico-B (BSMXB MM) shares are trading at an 6% premium to the share offer from the parent (MXN24.45 cum dividend); even factoring in the dividend yield, the potential for further SanMex share price upside seems limited
Risks to our positive view on Banorte, BanBajio include worse than expected credit quality and softer than expected loan demand impacting volumes and spreads; risks to our cautious view on SanMex shares include an enhanced offer by Santander or an increased dividend attributable to current shareholders


Mexican Banks: Stay the Course with Our Two Key Positive Picks, Cautious on SanMex

Mexico

Grupo Financiero Banorte S.A.B. de C.V. is a financial institution in Mexico. The Company offers banking services, premium banking, wholesale banking, leasing and factoring, warehousing, insurance, pensions and retirement savings.

Grupo Financiero Banorte SAB d (GFNORTEO MF)

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Grupo Financiero Banorte SAB d (GFNORTEO MF)

Mexican Banks’ July Data Show Strong Balance Sheets, and Continuing Improvements in Returns

Mexican banks' returns continue recovering to July as credit costs recede & opex growth is contained; healthy credit quality & coverage trends...

Victor Galliano

Mexican Banks ROE Recovery Continues into June

June data shows Mexican banks' ROE is rising helped by falling cost of risk; capital is sound, NPLs are contained; BBVA Bancomer & Banorte employ...

Victor Galliano

Mexican Banks Continue to Address NPL Issues in May

Mexican banks' May data shows rising write-offs as pandemic-related NPLs are addressed (Fig2), with better cost of risk; NPL coverage is healthy...

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

Mexican Banks: Stay the Course with Our Two Key Positive Picks, Cautious on SanMex

Political checks to the AMLO political agenda are market positive, as is the US economic recovery; we stick with the Banorte & BanBajio bull calls,...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)