Banorte’s fourth-quarter results clearly show the impact of the Covid pandemic.
Net income fell 33.8% compared with 4Q2019 – largely caused by the bank’s decision to frontload Ps2.4 billion of provisions. However, Banorte’s management is confident that will draw a line under pandemic losses.
The bank’s loan portfolio actually performed better than anticipated. As of the end of the quarter, 99% of the re-profiled portfolio had returned from the grace periods, and the overdue ratio was 6%, much better than initial management expectations of 20% delinquency.
The bank also forecast a strong recovery from what should be the low point of the crisis, as its Ps33.5 billion-to-Ps35 billion net income range implies earnings growth of 12% at mid-point.
This is led by a double-digit decline in provisions, as well as 6% growth in pre-provisioning profits driven in part by better credit dynamics that offset lower net interest margin (NIM) expectation.
Analysts at Credit Suisse expect the bank to restart dividends – perhaps as soon as the first quarter of 2021.
Rosier picture
These results certainly don’t paint a picture of a cratering Mexican economy – despite the sparse fiscal and monetary support given by the Mexican government and the country’s central bank.
The country’s fiscal rescue package last year was equivalent to just 1.1% of GDP. It has created the impression of Mexico as something of a safe haven.
Meanwhile, Brazil has thrown more than 8% of GDP in fiscal relief at its economy. And the recent bank results there were not materially better given the huge difference in the fiscal impulse: credit losses led year-over-year 4Q results at the banks to fall by an average of 20.6%.
Which is better, of course, but given the government’s inability to turn off the fiscal taxes and the growing fears of a debt crisis as the Brazil government’s borrowing becomes high – approaching 100% of GDP – and more short-term in nature, the value for money of this spending is already questionable.
