Deutsche Bank – Equity Research – Latin America
Mexican Banks – Loan growth slows, NPLs decline, and results show a mixed start to 4Q15
03 December 2015
Loan growth slows, but asset quality improves
The CNBV released system data for October, reflecting slower loan growth, but better asset quality. After reaching a near four-year high last month, total loan growth decelerated in October, due to a slowdown in commercial lending. However, the NPL ratio fell to its lowest level in over two years, due to better asset quality in the consumer segment. Finally, results at the banks showed a mixed start to 4Q15, as the large cap names posted mixed operating trends and Compartamos’ earnings declined, but due to intercompany expenses, which should not impact Gentera’s results.
Commercial loans decelerate, but continue to drive growth
Total loans were basically flat in October (+0.1% mom) and slowed to +14.4% yoy (vs. +15.5% in September), mainly due to slower commercial loan growth of +17.2% yoy (vs. +19.2% in September), which offset faster consumer loan growth of +9.9% yoy (vs. +9.3% in September), while mortgages remained fairly stable at +10.6% yoy. Finally, the system NPL ratio fell 10bps mom to 2.8%, due to lower consumer NPLs (-10bps mom).
Consumer loans accelerate for a fifth month in a row with better asset quality
Consumer loan growth accelerated to +9.9% yoy, its fastest pace since February 2014, driven by faster growth in personal loans of +13.6% yoy (vs. +11.4% in September), which offset still weak growth in credit cards (+2.6% yoy). Meanwhile, consumer NPLs reached a three-year low, as lower personal (-40bps) and payroll (-30bps) NPLs offset higher credit card NPLs (+20bps).
Mixed start to 4Q15 for the large caps; Compartamos impacted by higher opex
Banorte’s banking results fell 3% mom (+5% yoy) with ROE declining to 14.2% from 14.8% last month. Positively, NIM expanded 10bps mom to its highest level this year at 5.0%. However, this was more than offset by an 11% mom increase in expenses (albeit +2% yoy) and a 27% mom spike in provisions, as NPLs rose 10bps mom. As such, net income is running at 74% of our 4Q15 estimate of Ps4.8bn vs. 81% in 3Q15 and 78% last year. Meanwhile, Santander Mexico’s results rose 1% mom (+28% yoy) with fairly stable ROE of 14.5%, benefiting from much higher trading gains (+44% mom) and other income of Ps324mn vs. a quarterly avg of Ps15mn this year. This offset steady NIM of 4.7%, albeit the lowest level this year, and a 13% mom decline in fees (+10% yoy). Net income is running just above our Ps4.0bn forecast for 4Q15. Finally, Compartamos’ (Gentera’s banking sub) results fell 10% mom (-18% yoy) with ROE declining to 28.1% from 32.2% last month, mainly due to higher opex (+9% mom), which reflect intercompany expenses that should not impact the group’s results. Excluding the intercompany expenses, we estimate that net income is running 9% above our Ps823mn estimate for the quarter.
Valuation and risks
While system trends remain supportive, results at the large cap banks benefited partially from high other income and core operating trends were somewhat mixed. We continue to prefer the smaller cap names, which offer higher growth potential and much stronger profitability. Our PTs are derived from the GGM (COEs of 11.0-11.6%, ROEs of 15-25%). Main upside risks include faster recovery in the economy and stronger loan growth. Main downside risks include potential asset quality deterioration.
Tito Labarta, Deutsche Bank – Equity Research, +1(212)250-5944 – [email protected]
iCrowdNewswire - Dec 8, 2015