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Opinion

Do Banorte’s results validate Mexico’s low-cost strategy?

The bank's management is confident that pandemic losses will be contained.

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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


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