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Signum Research

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Signum Research

Signum Research es una empresa independiente de análisis financiero y bursátil conformada por analistas y expertos de amplia experiencia en el medio y por un consejo de asesores integrado por personalidades de alto reconocimiento en los mercados financieros. Signum Research cuenta con la más avanzada tecnología y sistemas que le permiten realizar sus cálculos y modelos analíticos de manera eficiente, en tiempo real, y publicarlos oportunamente en su portal de análisis financiero.<br /> Nos hemos establecido como meta el producir el mejor análisis bursátil independiente: un análisis oportuno, sencillo, confiable, asequible e interesante, de manera que los mercados financieros puedan ser intelectualmente accesibles a una mayor parte de la población. Nuestro objetivo final es, a través de nuestro análisis, encontrar la señal detrás del ruido cotidiano en los mercados, una señal que fundamente sólidamente nuestras recomendaciones de inversión.<br /> En Signum Research sabemos que los mercados financieros son una importante herramienta de desarrollo, Signum Research busca contribuir en la difusión de una cultura financiera y de inversión que permita a quien carezca de experiencia –pero que tenga el interés- participar del progreso que brindan los mercados financieros.<br /> Signum Research se ha asociado con The Competitive Intelligence Unit, una empresa de consultoría estratégica especializada en áreas de análisis de oportunidades de negocio, telecomunicaciones, regulación y economía para desarrollar y publicar análisis sectoriales y en materia de regulación.

Signum Perspective


Grupo Financiero Banregio and Banco del Bajío share many similarities, as both banks are regional, medium-sized, and highly specialized in granting business loans. However, over and above their obvious similarities, banks go through different periods of growth, profitability and specific risks that enrich the comparison.

Loan portfolio and geographical presence

If we analyze the loan portfolio of both banks, we find that business or retail loans account for more than 80% of the total portfolio, this percentage being slightly higher in Banregio’s case. However, BBAJIO’s loan portfolio is mostly comprised of loans to financial and government entities while in Banregio’s consists mainly of consumer and mortgage loans.

Small variations in the portfolio’s composition would appear to determine the NPL ratio (1.7% for GFREGIO vs 0.9% for BBAJIO as of Q317), as consumer and mortgage loan portfolios are relatively riskier than bank and government loan portfolios. However, this is not actually the case, as Banregio has strict loan origination and collection policies, so its loan portfolios have a similar NPL ratio of between 1.7% and 1.8%. On the other hand, BBAJIO’s consumer and mortgage loan portfolios have much higher NPLs. So why does Banco del Bajío have a much lower NPL ratio? Basically because the quality of its business loans is very high; in Q317, the group reported an IMOR of 0.7% vs. 1.8% for Banregio. Both banks have default indexes below the sector average of 2.10%.

In terms of growth, in the case of GFREGIO, the loan portfolio displays a clear downtrend converging towards sector growth of +10% YoY, while BBAJIO is reporting incremental increases and grew at a pace of more than 2x the sector last quarter.

Banco del Bajío’s fast growth rate can be explained by analyzing its geographical presence and the large number of branches it has, which double Banregio’s. BBAJIO’s strong presence in the Mid West Zone has enabled it to grow at fast rates, as in recent years, the region has surpassed Nuevo Leon and the national total in terms of economic growth.

NAFTA-related risks

An issue that is currently generating a lot of uncertainty among various industries in Mexico is what would happen to these banks if Trump decided to withdraw from NAFTA? To address this question we need to analyze the composition of their business loan portfolios. In the case of both banks, these account for over 80% of their total loan portfolios, so their performance determines aggregate performance.

Given the high level of integration with the U.S. (80% of Mexico’s exports go there) almost all industries would be impacted if NAFTA were cancelled; however, the level of deterioration varies greatly; for example, the services sector would not be that impacted while the agriculture and manufacturing sector could be impacted relatively more.

Regarding the manufacturing loan portfolio, we find that the two banks have a similar share of around 15%; however, within that portfolio exposure to the auto sector is low in both cases. The opposite is the case of the agriculture sector, to which BBAJIO has a 9% exposure vs. GFREGIO’s 3%. Currently, under NAFTA rules, most of these products do not pay tariffs and cancellation of the agreement would imply an average tariff of 6%.

BBAJIO’s agriculture sector loan portfolio, which represents around 9% of the business portfolio, is strongly positioned in the central/midwest/northwest region and the loans are often guaranteed by development banks (FIRA).

By product share, the main product BBAJIO finances is avocado, which is currently not subject to duties under NAFTA rules, so cancellation of the agreement would imply a duty of USD$0.112- USD$0.132 per kilo, which is what countries with no trade agreement currently pay according to the USITC (United States International Trade Commission).

Mexico accounts for more than half of world avocado production, 80% of which goes to the US, but the US also imports 80% of its avocado consumption from Mexico, so demand is not likely to decrease even at higher tariffs. This product is not very elastic and has no substitutes, which means a higher tariff would be passed on to the final consumer or buffered by exchange rate variations. Other avocado producing countries are not very competitive, as producing and exporting a container of 18,000 kilos to the U.S. from Mexico costs around ~USD$1,800 vs ~USD$5,000 from Peru.


BBAJIO and GFREGIO have similar funding structures with a 34% share of demand deposits and ~40% of time deposits; the rest is divided among negotiable instruments, interbank loans and payables under repurchase agreements. However, both banks have recently displayed different trends in sources of funding, which has impacted their cost of funding.

Banco del Bajío has reported consistant double-digit increases in its demand deposits while time deposits have increased at a comparatively lower rate such that demand deposits have won an increasing share of total funding. In the aggregate, traditional funding, which includes demand deposits, demand deposits and negotiable instruments has been growing at a 3-year CAGR of 11.7%.

In the case of Banregio, 3-year CAGR in traditional funding has been 14.5%; however, both demand and time deposits show a clear downward trend in line with loan portfolio growth.

Regarding the cost of funding, Banbajío has maintained a lower cost than the reference rate and Banregio. This is because although both have the same percentage of demand deposits, BBAJIO’s have a lower implied rate, and have won share in total funding while Banregio’s have remained stable.

Banco del Bajío has managed to achieve very low cost funding thanks to the following factors:

A large number of branches – With more than double the branches that Banregio has, BBAJIO can capture resources more efficiently.

Incentives program – BBAJIO rewards its executives that capture low-cost resources from clients with a bonus and fees program.

Negotiating power – The focus on SMEs in certain sectors means that for many clients Bajio is the only source of credit, which gives the bank negotiating power.

IPO – The recent initial public offering has enabled Banco del Bajío to fund its operations at a lower cost and use some of the proceeds to pay high cost debt.

Margins, efficiency and profitability

Both banks have a very similar balance sheet composition and are very sensitive to monetary policy, as more than 80% of loans carry a variable weight. Thus the net interest margin of both banks responds positively to increases in the TRM.

Nevertheless, GFREGIO has registered a much higher NIM than BBAJIO since interest rate normalization began, increasing 125 bp vs. BBAJIO’s 80 bp even taking Banbajío’s lower funding rate into account. The reason for this is the lending rate; Banregio currently charges an average 11.2% for its productive assets vs. 8.3% in the case of BBAJIO. This rate has been achieved by prioritizing prices over volume, an area in which management has said it is not willing to sacrifice margins for loan portfolio growth and has therefore favored more profitable loans.

If we analyze profitability based on ROE, which find that GFREGIO continues out in front but the gap is fast closing and while GFREGIO has maintained relatively the same profitability for the last 7 years, BBAJIO’s shows a marked rising trend.

We have already mentioned GFREGIO’s higher margins; in terms of the cost of risk, both banks provision 0.8% - 0.9% of the loan portfolio and fees and trading income represent a small percentage of total income in both cases. Operating expenses have been the key. If we measure their performance using the efficiency index (operating expenses/total income), we find that the efficiency gap is also closing fairly quickly. While GFREGIO has displayed slow and discreet progress in this item, BBAJIO has substantially improved. BBAJIO is making strides in terms of efficiency with many new branches and is completing a period of consolidation in which expenses are trending lower vs. revenues. BBAJIO almost tripled the number of branches between 2006 and 2012.

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