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.

Thematic (Sector/Industry)

<ul>
<li>BBVA Bancomer delivered the best return on equity (ROE) of the biggest nine Mexican banks to September, at 20%, improving on a MoM basis due largely to a sub 40% efficiency ratio; in terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their healthy levels of core capital harder than their peers</li>
<li>The bank system trends seem healthy, with well controlled NPL ratios and healthy coverage; one core risk to this rosy scenario is, in our view, worse than expected GDP growth leading to an up-tick in consumer delinquencies going forward, which would warrant an increase in cost of risk charges. Another factor that could upset returns is eroding credit margins due to rising funding costs</li>
<li>
<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>  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 August, with best-in-class combination of low NPL ratios and healthy coverage. Despite its good metrics, we recently turned negative on Banorte, due largely to valuation and increasing competition; we would highlight mid-cap bank BanBajio for its better relative value, and in the context of improving consumer credit quality</li>
</ul>


BBVA Bancomer delivered the best return on equity (ROE) of the biggest nine Mexican banks to September, at 20%, improving on a MoM basis due largely to a sub 40% efficiency ratio; in terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their healthy levels of core capital harder than their peers
The bank system trends seem healthy, with well controlled NPL ratios and healthy coverage; one core risk to this rosy scenario is, in our view, worse than expected GDP growth leading to an up-tick in consumer delinquencies going forward, which would warrant an increase in cost of risk charges. Another factor that could upset returns is eroding credit margins due to rising funding costs

Grupo Financiero Banorte (GFNORTEO MF)  and Banco del Bajio SA (BBAJIOO MM) continue to screen better than peers on credit quality metrics to August, with best-in-class combination of low NPL ratios and healthy coverage. Despite its good metrics, we recently turned negative on Banorte, due largely to valuation and increasing competition; we would highlight mid-cap bank BanBajio for its better relative value, and in the context of improving consumer credit quality


Mexican Banks’ September Data Looks Benign, but Not Without Potential Challenges

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 August; <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 August 2021, bank system ROE recovered further from historically low levels, despite cost of risk edging higher MoM</li>
<li>Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose again in September, 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 August, 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 healthy levels of 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 in the context of improving consumer credit quality</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 August; Grupo Financiero Banorte (GFNORTEO MF) retained its second place with upper-teens ROE
To August 2021, bank system ROE recovered further from historically low levels, despite cost of risk edging higher MoM
Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose again in September, which should be spread supportive
Banorte and Banco del Bajio SA (BBAJIOO MM) continue to screen better than peers on credit quality metrics to August, 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 healthy levels of core capital harder than their peers
We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value in the context of improving consumer credit quality
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’ August Data; Another Solid Month

<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

Mexico

Banco Santander Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero Santander Mexico provides commercial banking services. The Bank offers personal and corporate loans, saving accounts, deposits, credit cards, mutual funds, lease financing, investment facilities, and business consulting services. Banco Santander Mexico serves its customers in Mexico.

Regional SAB de CV provides banking services. The Bank offers deposits, personal loans, e-banking, mortgage lending, auto finance, and other banking services. Regional serves customers in Mexico.

CFE Capital, S. de R.L. de C.V. operates as a real estate investment trust. The Company acquires and owns assets of transmission, generation, and distribution of electric power, as well as infrastructure projects. CFE Capital, S. de R.L. serves electric sector in Mexico.

Bolsa Mexicana de Valores SAB de CV operates full service cash and derivatives exchanges, with equities and fixed income securities listings. The Group offers fully electronic platforms for cash equities, financial derivatives and OTC fixed income and derivatives. Bolsa Mexicana's post trade activities include central counterparts and clearing services.

Bolsa Mexicana De Valores Sab (BOLSAA MM)

Grupo Financiero Inbursa, SAB de C.V. is a holding company.  The Company, through its subsidiaries, attracts deposits and offers retail and commercial banking services.  The Bank manages stock and fixed income funds, and offers fire, transportation, automobile, agriculture, liability, casualty, and health insurance.  Inbursa also offers automobile and equipment lease financing.

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)

Unifin Financiera, S.A.B. de C.V. S.O.F.O.M. E.N.R. operates as a multiple purpose financial company. The Company offers financing products, including leasing, factoring, credit and insurance to individuals and corporate customers.

Atlantic Union Bankshares Corporation provides banking services. The Bank checking accounts, lending, credit cards, online and mobile banking, and wealth and treasury management services. Atlantic Union Bankshares serves customers in the United States.

International Bancshares Corporation, through its bank subsidiaries, provides commercial and retail banking services through offices in south and southeast Texas.  The Bank accepts deposits from the general public and uses those funds to make a variety of loans.

Fulton Financial Corporation is a multi-bank holding company. The Banks offer a full range of general retail and commercial banking services, including deposits, loans, equipment leasing and financing, and credit cards. Fulton operates in Pennsylvania, Maryland, Delaware, and New Jersey.

The Bank of East Asia, Limited and its subsidiaries provide general banking, related financial, business corporate, and investor services.

Huishang Bank Corporation Limited is a commercial bank. The Bank provides banking services including loans, money market operations, treasury business, investment and trading services, and valet transactions.

The Bank of Kyoto, Ltd. is a regional bank in Kyoto.  The Bank provides banking services including deposits, savings, loans, foreign exchange transactions, and securities investments.  The Bank of Kyoto also provides financial services such as letter of credit, leasing, loans, and credit cards.

Hong Leong Financial Group Berhad is a banking and financial services holding company. The Company provides a range of services including commercial and consumer banking, investment banking, and insurance broking. Through its subsidiaries, Hong Leong Financial underwrites life/general insurance, provides funds management, corporate advisory, and stock and share broking services.

Ameris Bancorp is a multi-bank holding company. The Banks provide a broad range of retail and commercial banking services to its customers, including checking and savings deposits, commercial and consumer loans, trust services, discount brokerage services, and electronic funds transfer services. Ameris Bancorp operates in Georgia, Florida, and Alabama.

United Community Banks, Inc. is a multi-bank holding company with locations throughout north Georgia and western North Carolina.  The Banks are community oriented and offer retail and corporate banking services including checking, savings, and time deposit accounts, secured and unsecured loans, wire transfers, trust services, and rental of safe deposit boxes.

Associated Banc-Corp is a Midwest banking franchise headquartered in Green Bay, Wisconsin. The Bank offers a full range of financial products and services through banking locations serving communities throughout Wisconsin, Illinois, and Minnesota, and commercial financial services in Indiana, Michigan, Missouri, Ohio and Texas.

Banco del Bajio S.A. provides a full range of commercial banking services. The Bank offers mortgages loans, saving, investment option, pension advice, and electronic billing services. Banco del Bajio operates in Mexico.

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Banco del Bajio SA (BBAJIOO MM)

Mexican Banks’ September Data Looks Benign, but Not Without Potential Challenges

Mexican banks data to September are healthy, but rising funding costs threaten credit spreads, and any potential GDP slowdown could worsen consumer...

Victor Galliano

Mexican Banks’ August Data; Another Solid Month

August Mexican banks' returns further recover with credit cost growth limited & opex growth contained; good credit quality & coverage trends imply...

Victor Galliano

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

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