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7、platform.If you want more such Insights delivered to you in real time on your desktop or mobile,visit .Cover Photo by Christian WiedigerTable of Contents1.Liberbank-Unicaja Agreed Merger4 By Jesus Rodriguez Aguilar2.Banks-A Turning Point14 By Daniel Tabbush3.Banorte(GFNORTEO MF)To Boost Provisions;N

8、ovember Banks17 Data in Charts Reflects Systems Strength By Victor Galliano4.Bank Credit Weekly:Moving the Goal Posts29 By Hank Calenti5.Karnataka Bank Q3FY21:Re-Shuffling Loans and Improved38 Recoveries Positive but Write-Offs Spike By Saumya Agarwal6.Yes Bank Volunteers Data on Its Asset Quality;B

9、ut Will Other42 Banks Be So Transparent?By Hemindra Hazari7.Emerging Market Overweights Series.Part 1:Indian Financials47 By Steven Holden8.Bank Mandiri Persero(BMRI IJ)-Time to Look Forward59 By Angus MackintoshLiberbank SA|Event-DrivenLiberbank-UnicajaAgreed MergerBy Jesus Rodriguez Aguilar|03 Jan

10、 2021EXECUTIVE SUMMARYOn 29 December,the Boards of Unicaja Banco SA(UNI SM)and Liberbank SA(LBK SM)approved at last the merger of both entities.Unicaja,which willabsorb Liberbank,will control 59.5%of the resulting entity,while Liberbankwill have the remaining 40.5%.On 30 December,the deal presentati

11、on tookplace.Unicaja+Liberbank will have combined assets pro-forma over 108.9 bn andwill become the fifth biggest bank operating in Spain.The exchange ratio is 0.360845 Unicaja shares per Liberbank share.0.24x implied equity value/BV,10.4x deal value/EPS(trailing fourquarters)and 24.8x deal value/ta

12、ngible equity upon announcement(25.0 x last close).Cost savings are the cornerstone of the project.Unicaja and Liberbank plan toclose up to 20%of the branch network.The combined entity expects to haverecurring cost savings of approximately 192 mn per year(fully from 2023),which will allow a signific

13、ant improvement in the efficiency ratio by 11percentage points.The generation of synergies will make it possible toincrease EPS by approximately 50%compared to 2023 analysts estimates.Restructuring costs could reach around 400-500 mn.But now thebanks have a stronger capital position to face them.Uni

14、cajas topquality capital ratio is 14.4%and Liberbanks is 14%.Both entities coulduse their excess capital from 11.5%to increase provisions and improvetheir coverage rates.This merger has all the chances to succeed,and should close in six to sevenmonths.According to market consensus,it is a win-win te

15、xtbook operation.Following the recent drop in the share price of Liberbank,the gross spread is-2.3%.Recommendation is Long 1.0 Liberbank/short 0.360845 Unicaja shares.Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar4Jesus Rodriguez AguilarEuropean Event-driven AnalystJesus Rodriguez Aguilar lo

16、oks across sectors at opportunities arising from securities mispricing(both credit and equity),share classes,bid announcements,prospective bids,and special situations.He has served as Economic and Business Advisor at the Spanish Congress in Madrid and at a number of roles at Bloomberg,Merrill Lynch,

17、and more.Areas of Expertise Primary Asset Class:Multi-Asset Geography:Europe Countries:Generalist Sectors:GeneralistContent Verticals Event-DrivenDETAILHistory of the Liberbank-UnicajacourtshipDecember 2018.Unicaja and Liberbank acknowledge conversations afterseveral dailies reported the plans of bo

18、th entities to merge.Mediobanca andDeutsche Bank were hired as advisers(and have stayed since).February 2019.Abanca acknowledges to the CNMV its interest in acquiringLiberbank in the middle of the merger conversations between Liberbank andUnicaja,although it finally withdraws its offer after not bei

19、ng able to accessthe books of Liberbank.May 2019.Liberbank and Unicaja break up the negotiations for their mergerafter not reaching an agreement.Some attributed this to differencesregarding the exchange ratio and others to gentle requirements from theEuropean Central Bank(ECB)to increase capital(wit

20、h the banks tradingunder 0.4x P/BV).November 2019.Large shareholders of the two banks press the Boards toresume the merger process between the two entities.The representatives ofthe boards of directors deny that they have re-negotiated a transaction.July 2020.In the midst of the coronavirus crisis,t

21、he ECB decided to open itshand to facilitate bank mergers and for banks to regain lost profitability.Thesupervisor became more flexible with the capital required from the entityresulting from an integration and showed its confidence in new andupcoming unions.Unicaja and Liberbank trusted on the ECB

22、providing a new impulse to thecreation of the fifth largest Spanish bank by assets.Both institutions hadlong worked separately with the single supervisor to get the go-ahead fortheir internal models for calculating risks.Both banks entered in Novemberthe final approval phase,which meant lightening t

23、heir capital burden andallowing them to have a stronger position to cover restructuring costssubject to their closing their merger deal.Liberbank had already maintained advanced negotiations with the ECB toachieve this accounting relief,which would raise its current maximumquality capital ratio from

24、 14%to over 15%.The bank estimated animprovement of about 150 bps points before the introduction of the newaccounting regulations on defaults and that it would have slightly loweredthese internal calculations.Liberbanks management team expected to havethe go-ahead in 2021,although now the ECB has ac

25、celerated the green lightfor IRB models as a spur to their possible merger.Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar5Unicaja will also benefit from this accounting tool that allows lowering thelevel of risk-weighted assets.Using internal models,the combined entitywould calculate its ris

26、k based on its own experience with customers andwould not use a standard approach,which is usually more conservative.During merger talks with CaixaBank,the ECB gave Bankia the final approvalof its models internal calculation of provisions for the mortgage portfolio,which increased its solvency to 14

27、.87%.With this accounting adjustment inthe retail mortgage portfolio,the leaders of Unicaja and Liberbank havefound an additional way to generate capital and avoid a capital increase.Thesole supervisor would now accept an integration without having to raisefresh equity.After the pandemic,the ECB has

28、 relaxed the requirements tofavour bank concentration and relief the battered profitability.Among thenew rules,ECB does not require the combined entity to retain the highestcapital ratio of the merged entities.October 2020.Unicaja and Liberbank acknowledge through marketdisclosures,a new approach to

29、 explore their integration.The two entities negotiate against the clock under the pressure of theeconomic effects of the pandemic,the market and the supervisors.The twobanks opened their data rooms on 14 October,with PwC working forUnicaja and Deloitte for Liberbank.Both Unicaja and Liberbank have s

30、trengthened their solvency since the talksbegan.At the end of June,according to the latest audited accounts,Unicajahad a solvency ratio of 14.4%and that of Liberbank was 14%.November 2020.On 20 November,a pre-agreement between Unicaja andLiberbank was reached:Unicaja would control 59.5%of the new ba

31、nk.December 2020.Both entities call their respective Boards to approve thecreation of the fifth largest bank in Spain by assets.On 29 December,theBoards of both entities approved their merger.Unicaja,which will absorbLiberbank,will control 59.5%of the resulting entity,while Liberbank willhave the re

32、maining 40.5%.On 30 December the deal presentation tookplace.If the operation does not go ahead,the regulations oblige the duediligence to be redone and drawn up with the Q3 2020(which both bankswant to avoid in order to rush in the merger).Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar6Libe

33、rbank and Unicaja share prices(last 6 months,normalised)(Source:S&PMI)Both parties had already agreed since long that the headquarters of thefuture bank will be in Malaga.The president of the merged bank will beManuel Azuaga,current president of Unicaja,and the CEO,ManuelMenndez,who now heads Liberb

34、ank.Both banks are negotiating what willhappen at the top when Azuaga,73,retires.Unicaja suggested that theAzuaga-Menndez tandem only last two years,to later give way to a newleadership.However,Menndez does not seem willing to let his power go sosoon.Deal termsConsideration.Exchange ratio 0.360845 U

35、nicaja shares per Liberbankshare.Liberbank has 2,979,117,997 shares,therefore Unicaja will issue1,074,999,834 shares.Deal value:762.175 mn,upon announcement;768.625 mn at lastclose.0.24x implied equity value/BV,10.4x deal value/EPS(trailing fourquarters)and 24.8x deal value/tangible equity upon anno

36、uncement(25.0 x last close).Liberbank,will control 59.5%of the resulting entity,while Liberbankwill have the remaining 40.5%(no surprises here,it was widelyspeculated by the market since November).Conditions and approvals.ECB,Bank of Spain and CNMC.The mergerconversations have been ongoing for a lon

37、gtime and there are few branchoverlaps.Green light is expected.Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar7Timeline.The next step would be to ask an independent expert to prepare areport certifying that the approved exchange ratio is justified and that thevaluation methods used are adequa

38、te.That report typically takes a month tocomplete.The EGMs are expected to approve the merger in Q1 2021.Dealcompletion should occur by the end of Q2 or early in Q3 2021,pendingregulatory approvals.Main shareholders.The Unicaja Foundation,which has almost 51%ofUnicaja,would be diluted above 30%,whic

39、h would allow it to retain certaintax advantages.The Unicaja Foundation has already requested to temporarily increaseits shareholding above 50%to have more than 30%of the new group.Infact,Unicaja Banco announced the amortisation of some of its treasurystock,to enable Fundacin Unicaja temporarily hol

40、d 50.81%(with theauthorization of both the ECB and Bank of Spain).This will ensure thatits shareholding in the merged entity will be at least 30%,therefore itwill not lose its current tax advantages.Unicaja and Liberbank side-by-sideBy assets,Unicaja has 57%of the sum of both,which is close to 108.9

41、 mn.Unicaja is worth 1,130 million in the stock market,compared to the 750mn of Liberbank.Likewise,tied in the highest quality capital ratios(CET 1fully loaded)with 14.5%for Unicaja and 14%for Liberbank,above otherlisted banks,Unicaja has greater coverage of doubtful and foreclosed assets.Liberbank

42、has been more aggressive in granting credit.Thus,although thereis a 25%gap in assets,in credit it is barely 3%.Unicaja has a loan investmentof 27,495 mn at the end of the Q3,while in Liberbank it was 26,614 mn(5.3%increase vs.Q2).Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar8Data upon annou

43、ncementUnicaja Banco,SALiberbank,SAPeriod Ended30/9/2030/9/20Balance Sheet(000)Total Assets62,145,00746,814,000Net Loans to Customers27,495,97326,749,000Total Deposits from Customers46,847,10426,530,000Total Equity4,074,6133,232,000Equity Attributable to Parent Company4,074,1393,232,000Total Equity/

44、Total Assets(%)6.566.90Profitability(000)Net Profit90,60573,316Net Profit Attributable to Parent90,60873,316ROAE(%)2.252.33ROAA(%)0.150.17Cost-to-Income(%)65.6962.38Asset Quality(%)Loan Provision/Avg Loans at Amortised Cost0.630.48Market DataOrdinary Shares Outstanding(actual)1,579,682,8672,917,517,

45、997Basic Book Value per Share()2.551.11Basic Tangible Book Value per Share()2.501.05Basic EPS()0.040.03SupplementalOrdinary Equity(000)4,026,6423,232,000Total Intangible Assets(000)72,533157,000Pre-tax Profit(000)72,30190,996Net Interest Income(000)568,681504,371Customer Loans Impairment Expense(000

46、)175,291122,860Reserve on Loans to Customers(000)28,274,000429,000Total Liabilities(000)58,070,39443,582,000Gross Loans to Customers(000)55,769,97327,178,000EPS after Extra()0.040.03Tangible Equity/Tangible Assets(%)6.456.59Loan Loss Reserves/Gross Loans(%)50.701.58Tangible Assets(000)62,072,47446,6

47、57,000Tangible Equity(000)4,002,0803,075,000Tangible Common Equity(000)3,954,1093,075,000Provisions/Avg Loans(%)0.540.47Minority Interests(000)4740Net Fee&Commission Income(000)229,398239,082Operating Expense(000)661,979391,748Equity Hybrid Securities(000)47,4970Gross Impaired Loans/Loans at Amortis

48、ed Cost(%)2.31Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar9Net Interest Income/Recurring Revenue(%)56.4380.32Net Fee&Commissions/Operating Income(%)22.7638.07Net Trading Income(000)102,8556,209Net Loans to Customers Held at Amortised Cost(000)27,495,97326,614,000Operating Income(000)1,007,

49、743627,988Pre-impairment Operating Profit(000)345,764236,240(Source:Liberbank,Unicaja)Where there are more differences is in the size of the branch network andthe workforce.At the end of Q2,Unicaja had 6,274 employees and 1,028branches,almost double in both magnitudes than the 3,668 workers atLiberb

50、ank and its 579 branches.In this way,the business ratios per office oremployee are much higher in Liberbank.Thus,assets per branch are 61.3mn in the case of Unicaja and 79.14 mn in Liberbank,while assets peremployee are 10.04 and 12.49 million respectively.The difference isgreater in the equivalent

51、gross margin relative to the size of the bank.InUnicaja,it is equivalent to 1.03 mn per office and 117,000 per employee,compared to the ratios of 1.37 mn and 220,000 respectively of Liberbank.The two banks have as a handicap the low profitability that they drag inrecent years,below their listed peer

52、s.However,they have more capital and,theoretically,less exposure to the segments potentially most damaged byCOVID,such as consumer credit or SMEs.Rationale for a dealUnicaja+Liberbank will have combined assets pro-forma over 108.9 bn andwill become the fifth biggest bank operating in Spain.The merge

53、r seeks to increase profitability in a context of low income due tothe pandemic.The outlook for the evolution of economic activity in Spain inthe near future and in the medium term is not particularly promising.Theeffects of the pandemic on activity have been devastating this year(it is notclear how

54、 much the drop in GDP will amount to in 2020,but in any case itwill exceed 10%and the recovery in 2021 will not will be enough tocompensate it)which will imply significant problems for the banks.Negative interest rates,which are going to last much longer than was thoughtuntil recently,significantly

55、reduce the ability to generate income at the topof the income statement because there is not much demand of solvent creditand the one that exists is disputed by all banks.Good proof of this is thealmost continuous drop in the interest rates offered on mortgage operations.In this situation,practicall

56、y the only weapon left to the banks is to reducethe physical points of sale,the commercial network,concentrating theactivity through the remote channels that the development of technology isallowing.Lockdowns forced the banks to implement and promote remotework,but users also had to join these new h

57、abits due to the practicalimpossibility of visiting the branches.This situation makes the need toreduce the number of branches and employees more defensible.Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar10Both the negative interest rates and the increase in delinquency that,sooner or later,w

58、ill end up arising from loans in arrears will have and impacton the profit and loss accounts of the banks.Ranking by assets in SpainAssets(EUR bn)CaixaBank+Bankia628.7BBVA403.5Santander352.3Sabadell190.9Unicaja+Liberbank108.9Bankinter96.8Abanca(unlisted)64.5Kutxabank(unlisted)63.2IberCaja(unlisted)5

59、7.5Cajamar(unlisted)52.7Source:financial entities,data as of Q3 2020.Cost savings are the cornerstone of the project.Unicaja and Liberbank plan toclose up to 20%of the branch network.The combined entity expects to haverecurring cost savings of approximately 192 mn per year(fully from 2023),which wil

60、l allow a significant improvement in the efficiency ratio by 11percentage points.The generation of synergies will make it possible toincrease EPS by approximately 50%compared to 2023 analysts estimates.Both entities would add more than 1,600 branches,concentrated in the mainmarkets of each bank:Anda

61、lusia and the two Castiles.If the plan goesahead,the future bank would close down some 300 branches and lay offmore than 1,500 workers.The greatest duplications will be concentrated inMadrid,Toledo and Extremadura.Cost savings would exceed 50%of Liberbanks expense base,or 20%ofthe combined entity co

62、mbined cost base.For comparison,in the case of the merger between CaixaBank andBankia,estimated cost synergies account for 42%of the base ofBankia.The duplication of offices would occur especially in Madrid,Toledo,Extremadura and some cities of Castilla and Len.Both banksstrengthened their presence

63、in these areas as a result of previousacquisitions,such as Caja Castilla-La Mancha(CCM)by Liberbank andBanco Ceiss(Caja Duero and Caja Espaa)by Unicaja.Combined market shares in these central regions,albeit modest incomparison with those of large banks,would exceed 20%in Castilla yLen and Extremadur

64、a,and would reach close to 14%in Andalusia.A year and a half ago,before they broke up their last attempt atintegrating,management teams estimated cost synergies of c.150 mn.Since 2018,entities have made an effort to reduce their cost bases:Unicaja has lowered its expense bill by 3.1%and Liberbank by

65、 4.7%.Cost cutting would imply,as usual,a considerable staff adjustment.Together,both entities would have almost 10,000 employees.Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar11Restructuring costs could reach around 400-500 mn.But now thebanks have a stronger capital position to face them.U

66、nicajas topquality capital ratio is 14.4%and Liberbanks is 14%.Both entities coulduse their excess capital from 11.5%to increase provisions and improvetheir coverage rates.Both Unicaja and Liberbank do not cover their cost of capital,but anintegration would bring them close to this goal.Cost savings

67、 are key toincrease profitability.The merged bank would have the capacity to raise itsreturn on tangible capital(ROTE)to around 4.5-5.6%in 2022,according toCapital IQs estimates,or c.6%by 2023,according to management estimates.The resulting bank,after making significant provisions to accelerate ther

68、eduction of non-performing assets,will reach a maximum quality capitalratio(CET 1 fully loaded)of 12.4%,one of the highest among Spanish listedentities,and will rank first in coverage(67%)and second among listedentities with the lowest NPL ratio,3.8%.BadwillUnicaja and Liberbank have the potential t

69、o strengthen their combinedbalance sheet thanks to the negative goodwill(badwill)that would begenerated in the operation.This accounting benefit from buying Liberbankat a price lower than its book value would exceed 2 bn and would allow thecombined entity to raise its coverage ratio to 75%,which wou

70、ld imply a totalcost of 860 mn.Unicaja and Liberbank add more than 4.6 bn in doubtful and foreclosedassets,although the level of coverage(provisions on doubtful loans)of theformer is higher:61.6%compared to 50.4%.The coverage ratio for non-performing assets would be c.56.5%.To raise itto 75%,above t

71、he sector average,the merged banks would have to increasethe provisions on the doubtful loan portfolio by c.335 mn,according toestimates.The negative goodwill would also allow them to cover a large partof the restructuring costs.Unicaja and Liberbank start with levels above 14%and would be diluted t

72、o12.4%after assuming the restructuring costs and the increase in coverage.However,this level would rise to around 13%after the approval by the ECBof Liberbanks internal models for calculating risks,known as IRB models.Liberbank also benefits from EDPs stock market rerate,which has risenmore than 6%i

73、n October,and which will inject some extra capital intoLiberbank.The bank owns 3.2%of the electricity company through thecompany Oppidum,which it created together with Corporacin Masaveu.Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar12RecommendationThis merger has all the chances to succeed,

74、and should close in six to sevenmonths.According to market consensus,it is a win-win textbook operation.Following the recent drop in the share price of Liberbank,the gross spread is-2.3%.Recommendation is Long Liberbank/short 0.360845 Unicaja.Gross spread Liberbank/Unicaja(exchange equation adjusted

75、)Disclosure&CertificationI/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is

76、 not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any specific opinion on the sec

77、urities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Jesus Rodriguez Aguilar(09 Oct 2020)Liberbank-Unicaja Agreed MergerJesus Rodriguez Aguilar13Thematic(Sector/Industry)Banks-A Turning PointBy Daniel Tabbush|0

78、7 Jan 2021EXECUTIVE SUMMARYThe theme for global banks is one of lowered credit costs,improved loandemand and better fee income.The comparative to last year should beexceptional for many banks.Where flu season ends in about two months andwith vaccinations starting,this further improves the economic o

79、utlook,andtherefore credit risk of banks.DETAILIt should be obvious to most by now that lockdowns do more harm thangood,that data from last year will be better analyzed now,and that even ifnot fully endowed with wisdom,we should not expect an identical set ofeconomic,human demise this year.The flu s

80、eason in US and Europe will endin about two months,where this will be a major driver of inflated deathfigures.Inoculations have already started in many countries,and this shouldalso mean less fear-fuelled government policies.The Great Barrington Declaration(see link below)and other analysis likethis

81、 are likely to become more acceptable than during most of last year.Thisis because there far more irrefutable data showing that lockdowns do notwork,that this virus is essentially a concern for only the very sick andelderly,and that a more humane compassionate and focused response isbetter.https:/gb

82、declaration.orgBanks tend to use forward-looking probability of default(PD)and loss givendefault(LGD)when assessing their credit costs.Under new regulations,thecurrent period credit costs can be onerous,taking into account loan lifetimecredit risks not those only related to the current period.Where

83、economicshutdown is less dire or less likely,where vaccines are now availableglobally,and where it is increasingly clear that what governments did lastyear caused more harm than doing good,banks assessments on credit riskcan improve.Some of this has already occurred during some quarters lastyear,but

84、 we may now have a full year of positive credit cost deltas.The factthat flu season inflates death rates,and that flu season ends around March,can too de-mark a critical turning point.To understand where the potential for far less credit costs is greatest,welook to the worlds largest banks by market

85、 capitalization and compare theirmost recent nine months impairment costs with the past nine months in thetwo preceding years.Banks-A Turning PointDaniel Tabbush14Daniel TabbushAsian bank research and consultancy|Tabbush ReportDaniel Tabbush has 25 years of experience analysing Asia-Pacific banks an

86、d global banking issues.He was the Head of Asian Bank research at CLSA for most of his career,and started Tabbush Report,his own independent bank research and consultancy,in 2012.Areas of Expertise Primary Asset Class:Equities Geography:Asia Pacific Countries:Generalist Sectors:FinancialsContent Ver

87、ticals Equity Bottom-Up,Thematic(Sector/Industry)JPMorgan Chase&Co(JPM US)JPM the largest bank in our sample atUSD401bn market capitalization,saw its total impairment costs rise toUSD19.4bn during 9M20 compared with USD3.3bn during 9M18,this puts its9M20/9M18 multiple at 5.9x,higher than many of the

88、 largest banks globally.Wells Fargo&Co(WFC US)still stands out,where this multiple is 11.7x,farhigher every bank in our sample,other than one.WFC appears to have muchgreater ability to see a greater credit cost delta than most all other very largemarket cap banks,globally.HSBC Holdings(HSBA LN)does

89、rank well here,with its total impairments ofUSD9bn during 9M20 compared with USD914m during 9M18.We are thoughnot convinced that this bank will benefit from a radical delta like mostothers,given its poor track record at risk assessment and with sizeablegoodwill impairments often upsetting its result

90、s.PNC Financial ServicesGroup(PNC US)tops the list with 9M20 impairment costs at 13.2x its 9M18impairment costs,and perhaps this bank can see the most claw-back duringfiscal year 2021.At the lower end of the spectrum,many banks in China have seen only ameager rise of impairment costs.This is not alt

91、ogether negative in of itself,these banks have better managed the variance than others globally,and thisdoes have value.But it also means that Chinas banks are not likely to seeany major positive delta in credit costs,at least on par with US banks andmany others globally.China Merchants Bank A(60003

92、6 CH)reports its totalimpairment costs up only 1.1x from 9M18 to 9M20,the lowest in our sampleof large global banks.Large SOE banks are higher,but still pale incomparison to many in US and globally.Bank Central Asia(BBCA IJ)in South East Asia,appears at the end of oursample set,with exceptionally hi

93、gh credit costs in the most recent ninemonths,and this high-margin,high-return bank continues to stand out inthe region with significant ability to see a major ROA recovery.Where BCA isalso considered by most bank analysts one of the best managed banks in theregion,there can be some further degree o

94、f comfort,when credit costs aredramatically reduced.This will not be the case for all banks in the region,orglobally.Banks-A Turning PointDaniel Tabbush15Large Market Cap Banks Total Impairment Costs(USDm)BankCountryMkt Cap9M209M199M189M20/9M18(x)JPMorgan ChaseUSA40119,3694,0483,2945.9Bank of Americ

95、a CoUSA27811,2672,6372,3624.8ICBCChina22225,70320,07917,9711.4CCBChina18623,13416,06215,3341.5China Merchants BkChina1727,5116,5506,8871.1Citigroup IncUSA13617,0956,0955,5043.1Wells Fargo&CoUSA13514,3082,0431,22311.7Agricultural BkChina12919,90915,18215,7621.3RBCCanada1202,9111,0317483.9HSBCUnited K

96、ingdom1149,0042,0519149.9HDFC BankIndia1071,1678595632.1TDCanada1064,6771,6071,4133.3BOCChina10113,8588,8698,4941.6SberbankRussia805,3469501,6263.3US BancorpUSA743,3651,1091,0113.3Truist Finl CorpUSA672,1584574295.0PNC FinancialUSA663,42955226013.2Bank Nova ScotiaCanada653,6621,5951,2622.9Industrial

97、 BankChina638,3986,0584,2562.0PT Bank Central AsIndonesia6.7Source:S&P Global Market Intelligence,Note:Market cap in USDbn,largestmarket cap banks in Asia,N America,Europe where data is well populated,fiscal year end is not identical to calendar year in India,Canada,Japan,socomparatives a

98、re not on par with banks outside these regions.Disclosure&CertificationI/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as ap

99、propriate.This insight does not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this i

100、nsight or hold any specific opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Daniel Tabbush(07 Jan 2021)Banks-A Turning PointDaniel Tabbush16Grupo Financiero Banorte-O|Equity Bottom-UpBano

101、rte(GFNORTEOMF)To BoostProvisions;NovemberBanks Data in ChartsReflects SystemsStrengthBy Victor Galliano|07 Jan 2021EXECUTIVE SUMMARYGrupo Financiero Banorte-O(GFNORTEO MF)announced that it is toboost loan loss provisions by MXN2bn in 4Q20 reflecting theheightened pandemic credit risksWe see this as

102、 a“kitchen sinking”of 2020 earnings via cost of riskcharges,but this creates a base for earnings recovery into 2021 and2022The Mexican banks November data underscores the need for bolsteringprovisions among the big banks;BBVA Bancomer,Banco SantanderMexico-B(BSMXB MM),HSBC Mexico and CitiBanamex cou

103、ld all take asimilar path to BanorteWe reiterate our positive view on Banorte,which screens well versusother EM banks on valuation and compares favourably in terms ofcredit quality and capital adequacy to its key Mexican peersRisks to our positive Banorte view include worse than expected creditquali

104、ty going forward,leading to higher credit charges,as well as softloan growth and credit spread erosionDETAILInvestment thesisWe expect Banorte to see a hit to earnings in 4Q20,driven by the additionalloan loss provisions in order to absorb the sharp rise in NPLs in 4Q20(seeFigure 3),due to the end o

105、f the pandemic relief programme;this representsBanorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVictor Galliano17Victor GallianoFinancials&FinTech,EM&Southern Europe|Gallianos Latin NotesVictor Galliano is an experienced equity banks analyst,having cover

106、ed Latin America banks and non-bank financials for over 12 years,and more recently covering Italian banks and Fintech.He has worked in sell-side equity research for 30 years at institutions like Barclays,HSBC,and NatWest.Areas of Expertise Primary Asset Class:Equities Geography:LatAm Countries:Gener

107、alist Sectors:FinancialsContent Verticals Equity Bottom-Up,Thematic(Sector/Industry)a“kitchen sinking”of 2020 earnings.For 2021,we expect Banortes earningsto be relatively clean of pandemic related loan loss charges;consensus ROEof c 15%for 2021(see Figure 1 below)seems very achievable,in our view.F

108、igure 1:Banorte consensus ROE 2021ESource:S&P Capital IQ Consensus EstimatesWe reiterate our positive view on Banorte,which screens well versus otherEM banks on valuation,as shown in Figure 2 below.Versus its Mexicanpeers,Banorte also stands out well in terms of efficiency ratio and returns inthe Ra

109、dar charts(see Figures 13,15 and 16)and has a sound balance sheet interms of credit quality and capital adequacy;see Figures 17 through 19.Figure 2:EM Banks Valuation and ReturnsSource:S&P Capital IQ Consensus EstimatesBanorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Sy

110、stems StrengthVictor Galliano18Figure 3:Banorte,NPL ratios rise post reliefprogrammeSource:CNBVFigure 4:Banorte,credit card NPLs on the riseSource:CNBV*Adjusted NPL ratio includes credit card charge-offsBanorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVi

111、ctor Galliano19Mexican Bank System Charts,November 2020Figure 5:System consumer loan growth seemsto be bottoming out as economic activity(IGAE)recoversSource:CNBVFigure 6:System credit spreads(green line)have been resilient,despite the cuts inbenchmark ratesSource:CNBVBanorte(GFNORTEO MF)To Boost Pr

112、ovisions;November Banks Data in Charts Reflects Systems StrengthVictor Galliano20Figure 7:System ROE under pressure(fromcredit costs mainly),despite positive fee trendSource:CNBVFigure 8:System consumer NPL ratio spikereflects the end of the relief programme in 4Q,rising cost of risk to cover worsen

113、ing NPLsSource:CNBVBanorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVictor Galliano21Figure 9:System Credit card balances increasedsharply in November,and headline NPL ratiospikedSource:CNBV*Adjusted NPL ratio includes credit card charge-offsFigure 10:Sy

114、stem cost of risk is rising wellbelow the level of the GFC;Mexican bankbalance sheets in better shape than in 2008Source:CNBV,INEGIBanorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVictor Galliano22Mexican Bank System&top five banksRadar charts,November 2

115、020(returnsannualized)Figure 11:Net interest income to Average TotalAssets%Source:CNBV dataFigure 12:Fees to Average Total Assets%Source:CNBV dataBanorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVictor Galliano23Figure 13:Efficiency RatioSource:CNBV data

116、Figure 14:Cost of RiskSource:CNBV dataBanorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVictor Galliano24Figure 15:Return on Average Assets%Source:CNBV dataFigure 16:Return on Average Equity%Source:CNBV dataBanorte(GFNORTEO MF)To Boost Provisions;November

117、 Banks Data in Charts Reflects Systems StrengthVictor Galliano25Mexican Bank System and top fivebanks,credit quality and capitaladequacyFigure 17:NPL ratios,Banorte stands outSource:CNBV dataBanorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVictor Gallian

118、o26Figure 18:CitiBanamex stands out on NPLcoverage,followed by BanorteSource:CNBV dataFigure 19:Banorte stands out,along withCitibanamexSource:CNBV data,NB latest data is for October 2020Risks to our positive Banorte view include worse than expected creditquality going forward,leading to higher cred

119、it charges,as well as soft loangrowth and credit spread erosion.Banorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVictor Galliano27Disclosure&CertificationGallianos Latin Notes Ltd is an Appointed Representative of Messels Ltd which is authorized and regu

120、lated by the Financial ConductAuthority(FCA)I/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does

121、 not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any specific

122、 opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Victor Galliano(07 Jan 2021)Banorte(GFNORTEO MF)To Boost Provisions;November Banks Data in Charts Reflects Systems StrengthVictor Galliano

123、28iShares Barclays USD Asia High Yield Bond Index ETF|CreditBank Credit Weekly:Moving the Goal PostsBy Hank Calenti,CFA|09 Jan 2021EXECUTIVE SUMMARYDemocratic Party control of the Senate has clearly moved the goal posts forfixed income investors.The reflation trade is back.This requiresrepositioning

124、 by bank credit investors.The good news is that the rise in Treasuries is beneficial to bank securitiesover the short term,especially since it is occurring in tandem with continuedbear steepening from the short end of the curve.Globally,higher netinterest margins should follow from the steepening of

125、 the U.S.yield curve asexcess reserves are allocated into US$securities.However,the impact onIndia-headquartered banks may be less as we discuss within.There are two less positive impacts.First,if the rise in rates is a reflectionthat inflation is expected to return,then this is not duration friendl

126、y.In fact,long duration fixed income securities suffered over the last week.Theoretically,credit curves should flatten in response to the yield curvesteepening.However,given the enormous level of monetary accommodationover the last nine months,the question then becomes,how much furthercan spreads ti

127、ghten?Credit only has limited upside in the currentreflation scenario.Second,higher rates will raise the real effective US$exchange rate.All else equal,a higher real effective US$exchange rate isdollar positive.Asia and emerging market(EM)securities could suffer.Against this backdrop,higher risk Add

128、itional Tier 1(AT1)bank bondsoutperformed,principally driven by Thailand-and other higher risk China-centric securities on expectations of increased economic activity.Thai banksperformed across the credit continuum in Senior Unsecured,Tier 2 and AT1notes.This seems to be a case of cognitive dissonan

129、ce which ignoresvaccine distribution and time extension risks.The COVID-19 situation isdeteriorating in Thailand and elsewhere.High financial market valuationsseem inconsistent with economic activity.A pronounced degradation ofasset prices could materialize.Our preference is to fade the Thai-bank ra

130、lly.Frances central bank noted that systemic risk may rise over thecoming months due to high corporate debt and the current round ofCovid-19 lockdowns.The regulator stated that a significant rise in defaultscould occur in a slow economic recovery.Please see BNP Paribas:Capital,Forbearance and CDS fo

131、r our assessment of this situation.Bank Credit Weekly:Moving the Goal PostsHank Calenti,CFA29Hank Calenti,CFAFinancials Credit Analyst|CreditContinuumHank has over 30 years experience analysing and supervising financial institutions as a sell-side analyst and central banker.He has been part of firms

132、 like Wells Fargo Securities,Socit Gnrale,Moodys Investors Service,and has been an Advisor to the Governor of the Central Bank of the United Arab Emirates.Areas of Expertise Primary Asset Class:Credit Geography:Global Emerging Markets Countries:Generalist Sectors:FinancialsContent Verticals Credit,D

133、ebt Capital MarketsIn addition,we note thatCommerzbank AG(CBK GR)set a high bar forbalance sheet clean-up by announcing a 50%increase in loan lossprovisions for COVID-19.We would not be surprised to see additionalhealthy increases in loan loss provisioning.In fact,credit investors shouldbe concerned

134、 if there are limited additional provisions taken.US banks kick-off the global bank earnings season on Friday.Market Outlook:Absent another behavioral lapse by the US President,ebullience over the prospects of additional stimulus spending shouldcontinue to positively impact the markets.Another lapse

135、 by the USPresident could see a temporary rise in demand for safe-haven assets.Eventually,the real issue of how much is too much stimulus as the vaccine isrolled-out will lead to concerns on how the Fed reacts.In this environment,artificially engineered credit costs may come back to hurt bank invest

136、ors.Credit only has limited upside in the current reflation scenario and durationis not your friend at this point in the cycle.DETAILTreasuries Steepen on StimulusExpectationsSource:Bloomberg,CreditContinuum Ltd.Bank Credit Weekly:Moving the Goal PostsHank Calenti,CFA30Democratic Party control of th

137、e Senate has clearly moved the goal posts forfixed income investors.The change in regime drove US Treasuries higher onexpectations of greater fiscal spending under President-elect Biden.Throwing caution to the wind,the President-elect stated that he wouldpropose a stimulus spending package in the tr

138、illions.Ten-year Treasuriessmashed the 1%level and finished the week at 1.12%,up 20 basispoints(bps).The reflation trade is back.This requires repositioning by bankcredit investors.The good news is that the rise in Treasuries is beneficial to bank securitiesover the short term,especially since it is

139、 occurring in tandem with continuedbear steepening from the short end of the curve.Globally,higher netinterest margins should follow from the steepening of the U.S.yield curve asexcess reserves are allocated into US$securities.However,for Asia-centricinvestors,the impact on India-headquartered banks

140、 may be less as wediscuss below.Given the high correlation between bank equity prices and Treasury rates,bank equity securities rose once again confirming our belief that the best USbank equity analysts are experts in Treasury markets.However,higherrevenues are not the only outcome of higher Treasur

141、y rates.There are two less positive impacts.First,if the rise in rates is a reflectionthat inflation is expected to return,then this is not duration friendly.In fact,long duration fixed income securities suffered over the last week.Theoretically,credit curves should flatten in response to the yield

142、curvesteepening.However,given the enormous level of monetary accommodationover the last nine months,the question then becomes,how much furthercan spreads tighten?Credits only have limited upside in the reflationscenario.Second,higher rates will raise the real effective US$exchange rate.All elseequal

143、,a higher real effective US$exchange rate is dollar positive.Asia andemerging market(EM)securities could suffer.EM Capital Flows Rise on New YearAllocations,Despite US$StrengthBank Credit Weekly:Moving the Goal PostsHank Calenti,CFA31Source:Bloomberg,CreditContinuum Ltd.Although the US$strengthened

144、on higher rates,emerging market capitalflows continued to rise.This is most likely due to pre-set new yearallocations,as investors are yet to consider the full ramifications of lastweeks events.Further inflows may be dependent on US dollar strength orweakness.Almost everyone expects a weakening doll

145、ar.This is not agood sign.Although stimulus may be positive for US risk assets,higher long-term ratesmay not be EM friendly.The question is how high it too high.Fortunately,the dynamic duo of Janet Yellen as the head of the TreasuryDepartment and Jerome Powell at the Fed could lead to more coordinat

146、edfiscal and monetary policy.Concurrently,US risk-free assets may benefitfrom carry-trade investing until the Fed adjusts its asset-purchase programto favor longer-dated securities.However,a cap on longer-term rates maynot be bank friendly.We caution that Fed programs are forever,so becareful what y

147、ou wish for.Remember when Quantitative Easing ended?The Fed is now buying about$80 billion a month of Treasuries.The minutesof its last meeting,released Wednesday,showed officials unanimouslybacked holding the pace of asset purchases steady,although a coupleindicated they were open to weighting purc

148、hases toward longer maturities.Fed Rate Outlook Spikes on SlightlyHigher Inflation ExpectationsSource:Bloomberg,CreditContinuum Ltd.Future interest rate paths were reset on a higher likelihood of a largestimulus package due to both the outcome of the Senate run-off electionsand the current wave of C

149、ovid-19 infections.Juxtaposed with continuingmonetary accommodation,inflation expectations rose slightly over themedium term.Bank Credit Weekly:Moving the Goal PostsHank Calenti,CFA32Eurodollar futures contracts now foresee one rate hike in 2023 almost two in2024 and three by 2025,up materially from

150、 the prior weeks expectations oftwo by 2025.Nonetheless,Eurodollar futures do not price-in a meaningfulreaction to overshooting a 2%inflation target over the next few years.So long as yields are rising due to expectations of economic growth,all isgood;however,if yields are rising due to expectations

151、 of rapidly increasinginflation,then a market correction is inevitable as investors re-assesspolicymakers commitment to overshooting inflation targets.We likely havea combination of both forces behind interest rate moves at this moment.Theconcern is that inflation outpaces economic recovery while th

152、e commitmentto overshooting inflation targets is less than expected.In this scenario,theasset purchases may be curtailed earlier than anticipated.That would bebad for EM valuations.Much depends on what and how the Fedcommunicates.Federal Reserve Bank of Atlanta President Raphael Bostic stated this w

153、eekthat the Fed might taper its bond purchases later this year if the distributionof vaccines boosts the U.S.economic outlook.This follow prior statementsby Robert Kaplan,the Federal Reserve Bank of Dallas President,questioningthe longevity of the Feds bond purchases,just days after the Fed announce

154、dthat they would continue until it was confident of economic recovery.President Bostic is a voting member of the Federal Open Market Committeein 2021.Signs of wavering from overshooting could spark a mini-tapertantrum.RBI Reverse-Repo Activity May FurtherCompress SpreadsSource:Bloomberg,CreditContin

155、uum Ltd.Bank Credit Weekly:Moving the Goal PostsHank Calenti,CFA33Liquidity draining 14-day reverse repurchase(repo)agreement operations bythe Reserve Bank of India(RBI),announced on Friday,should drain cash,and raise short-term yields.Ample cash in the banking system,due in partto low credit demand

156、,pushed these yields below the RBIs revere repo rate of3.35%since early October.Until recently the RBI prioritized growth overinflation concerns;however,with oil prices rising and inflation above target,the central bank needed to act.This is monetary tightening in our view.Ifshort-term rates were we

157、ll below the policy rate,then the policy rate wasmisstated.Given the swift revival of the Covid-19 virus globally,this actionmay be premature.Given Indias relatively closed economic system with strict rules on localcurrency convertibility,plus restrictions on bank non-Rupee assets andliabilities,the

158、 impact of the steepening in the US interest rate curve isunlikely to materially benefit India-headquartered banks directly.Nonetheless,to the extent that the rise in US rates reflects expectations ofglobal economic revival,then these banks may benefit indirectly,albeit witha time lag.Asias AT1 Debt

159、 Outperforms onEconomic Stimulus HopesSource:Bloomberg,CreditContinuum Ltd.Against this backdrop,higher risk Additional Tier 1(AT1)bank bondsoutperformed,principally driven by Thailand-and other higher riskChina-centric securities.Thai banks performed across the board in SeniorUnsecured,Tier 2 and A

160、T1 notes.High Yield Senior Unsecuredunderperformed as ICICIs(ICICIBC IN)2027 maturity security softened byanother 49bps following the prior weeks 55bps widening.IndusInd Bank(IIB IN)also reversed recent tightening,to close 12bps wider during theweek.IndusInd may report results this week,according to

161、 Bloomberg.Bank Credit Weekly:Moving the Goal PostsHank Calenti,CFA34Thai bank bonds also outperformed in December.This seems to be a caseof cognitive dissonance which ignores vaccine distribution and timeextension risks.The COVID-19 situation is deteriorating in Thailand andelsewhere.We understand

162、that the Thai government has refrained fromimposing a broader lockdown and allowed each province to set its ownmeasures.Nonetheless,rolling lockdowns do not improve consumerconfidence and lower Q1 economic output in Europe,the US and elsewheremay ensue.This could impact Asia asset values and our pre

163、ferencewould be to fade the rally in Thai bank AT1.We note thatCommerzbank AG(CBK GR)set a high bar for balancesheet clean-up by announcing a 50%increase in loan loss provisionsfor COVID-19.This would take the banks full year credit costs to 0.71%ofaverage loans,net of bank lending.This is,in part,d

164、ue to the customarybath undertaken by new management towards improving its future resultcomparatives.It may also signify the reality that economic recovery couldtake significantly longer than market expectations.In addition,Frances central banks noted that systemic risk may rise over thecoming month

165、s due to high corporate debt and the current round ofCovid-19 lockdowns.The regulator stated that a significant rise in defaultscould occur in a slow economic recovery.The rise in loan loss provisionswould weigh on bank results.Bank Credit Weekly:Moving the Goal PostsHank Calenti,CFA35Bank Credit We

166、ekly:Moving the Goal PostsHank Calenti,CFA36Disclosure&CertificationI/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appro

167、priate.This insight does not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insi

168、ght or hold any specific opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Hank Calenti,CFA(09 Jan 2021)Bank Credit Weekly:Moving the Goal PostsHank Calenti,CFA37Karnataka Bank|Equity Botto

169、m-UpKarnataka BankQ3FY21:Re-ShufflingLoans and ImprovedRecoveries Positive butWrite-Offs SpikeBy Saumya Agarwal|13 Jan 2021EXECUTIVE SUMMARYKarnataka Bank kicked-off the Q3FY21 earnings season for Indian Banks.With the asset quality standstill benefit lapsing now,Q3 saw a spike in write-offs even as

170、 the overall gross NPAs trended lower,for Karnataka Bank.TheBank has been re-balancing its advances portfolio and improving itscollection efficiency to offset the impact but reigning in Write-offs crucialDETAILKey takeawaysClear signs of re-balancing of advances towards Retail and mid-corporate,and

171、away from the large corporate segment.Advances book shrank 3%y-o-y and 2%q-o-q led by a sharp declinein Corporate loans(-15%q-o-q)even as Retail(+2%q-o-q)and mid-corporate loans(0.04%q-o-q)registered modest growth.Gross NPA trended lower to 3.2%and Net NPA was down to 1.7%as atend Dec versus 4.0%and

172、 2.2%respectively,driven by improved cashrecoveries and higher write-offsSpecific Provision cover appeared modest at 46%but including thetechnical write-offs was 80%.Capital ratios were strong at 14%.Net profit(standalone basis)was up 10 y-o-y and 13%q-o-q to Rs 1.4Billion in Q3FY21.Karnataka Bank Q

173、3FY21:Re-Shuffling Loans and Improved Recoveries Positive but Write-Offs SpikeSaumya Agarwal38Saumya AgarwalIndia FinancialsSaumya Agarwal has 12 years of experience analysing the BFSI sector,from both a credit and equity perspective.Saumya was previously a rating and credit risk assessment analyst

174、at CRISIL,Indian Banks equity analyst at HSBC Securities,and Investment Banking analyst at JPMorgan.Areas of ExpertisePrimary Asset Class:Multi-Asset Geography:Asia Pacific Countries:India Sectors:FinancialsContent Verticals Equity Bottom-Up,Thematic(Sector/Industry)Karnataka Bank Q3FY21 financial p

175、erformanceKarnataka Bank(KBL IN)reported a net profit(standalone basis)ofRs1.4billion in Q3FY21,up 10%y-o-y and 13%q-o-q.This was driven by a7%q-o-q increase in Net interest income,but Other income declined 17%q-o-q.As a result,the share of non-interest income declined to 30%from36%a quarter ago.Ope

176、rating expenses increased 11%q-o-q mainly led by an increase in supperannuation benefits.As a result,cost-to-income ratio deteriorated to 51%inQ3 versus 45%in Q2.Net interest margin(NIM)was 3.1%in Q3FY21 versus 3%in Q2FY21 and2.8%in Q3FY20 aided by lower cost of fundsOn the Balance sheet side,Karnat

177、aka Banks advances shrank 3%y-o-y and2%q-o-q to Rs 531 billion.Deposits grew 3%q-o-q to Rs 738 Bn.CASA ratioimproved to 30%on the back of a 13%y-o-y growth in CASA depositsThis was led by a sharp 15.3%q-o-q decline in corporate loans even as Retailand Mid-corporate loans grew 2%and 0.04%q-o-q respec

178、tively.The Bankhas been increasingly re-balancing its portfolio in favor of Retail and mid-corporate loans even as it steers clear of Corporate loans.As at end Dec,Retail and mid corporate loans together accounted for 85%ofloans versus 82%a quarter ago and 75%a year ago.The share of Corporateloans d

179、eclined to 15%from 18%a quarter ago and 25%a year ago.As at end Dec 2020,Gross NPA was 3.2%and net NPA was 1.7%versus 4.0%and 2.2%respectively,as at end Sep.As at end Dec 2020,Gross NPA bysegment was as follows.Karnataka Bank Q3FY21:Re-Shuffling Loans and Improved Recoveries Positive but Write-Offs

180、SpikeSaumya Agarwal39With the asset quality standstill benefit lapsing low,Q3FY21 numbers showthe full impact of NPA additions.As at end Dec,restructured loans were Rs6.9Bn and translated to 1.3%of advances.For Karnataka Bank,while the asset quality numbers improved on asequential quarter basis,this

181、 was driven by improved cash recoveries andhigher write-offs.Write-offs during Q3 was Rs 3.9Bn,up 82%q-o-q and 20%y-o-y.Even the share of Write-offs as a%of opening gross NPA has risen to18%versus 8%a quarter ago.Reigning in write-offs is crucial tomaintaining the asset quality.The Bank also makes s

182、izeable technical write-offs.As at end Dec 2020,Technical write-offs amounted to Rs 35Bn.Specific provision cover was modest at 45%as at end Dec.including thetechnical write-offs(which are 100%provided),provision cover is 80%.Karnataka Bank Q3FY21:Re-Shuffling Loans and Improved Recoveries Positive

183、but Write-Offs SpikeSaumya Agarwal40Conclusion:Karnataka Bank has been re-shuffling its loan book towardsRetail and mid-corporate segment and focusing on improving recoveries tomanage the adverse impact of the crisis.This has helped it to largely manageits asset quality in Q3.However,write-offs cont

184、inue to be sizeable and theBank should make sustained efforts to reign these in.On the profitabilityfront,while NIMS have improved due to focus on the high yielding Retailand mid-corporate segments,shoring up CASA would be key to maintainingthe deposit costs.Disclosure&CertificationI/We intend to ha

185、ve position(s)in one or more of the securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any non-publi

186、c,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any specific opinion on the securities referenced thereinI

187、/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Saumya Agarwal(13 Jan 2021)Karnataka Bank Q3FY21:Re-Shuffling Loans and Improved Recoveries Positive but Write-Offs SpikeSaumya Agarwal41Yes Bank|ESGYes Bank VolunteersData on Its Asse

188、tQuality;But Will OtherBanks Be SoTransparent?By Hemindra Hazari|25 Jan 2021EXECUTIVE SUMMARYA commendable feature in Yes Bank(YES IN)s 3QFY2021 resultsdeclared on January 22,2021 was the continued level of transparencymade available to investors on its asset quality,despite reporting theinevitable

189、huge increase in stress loans.Around 30%of private sectorbanks loans were under the Covid-19-induced moratorium,3QFY2021is the first quarter in which the impact of the lockdown on assetquality will be visible.Yes Bank not only provided a detailedbreakdown of its non-performing and stressed assets an

190、d theprovisions made against them,but also reported its exposures notclassified as non-performing on account of the Supreme Court order.Most importantly,it also continued to disclose its 30-60 days and 61-90days overdue loans(first disclosed in 3QFY2020 presentation),and thecapital market can take i

191、ts call on providing estimates on theadditional provisioning required.No doubt,since its bailout,Yes Bank needs to reassure the market onits asset quality,transparency and the credibility of its accounts.Thesewere all areas where this analyst had major reservations when thebank was led by Rana Kapoo

192、r,who is currently a guest of the state.Covid-19 and the stringent and ill-planned lockdown by the Indiangovernment have ravaged the economy,and especially the informalsector,small and medium enterprises.Hence the asset quality of thebanking sector is highly suspect.In such an environment,it isheart

193、ening to note that a bank which has just been provided a secondlife is confident to continue to disclose details on its asset quality,toreassure the market.In such times the banking industry would do wellto follow the voluntary disclosures made by Yes Bank.Yes Bank Volunteers Data on Its Asset Quali

194、ty;But Will Other Banks Be So Transparent?Hemindra Hazari42Hemindra HazariSpecialist in Indian banking and economic researchHemindra Hazari is a SEBI-registered research analyst with over 25 years of experience in Indian capital markets with a specialisation in banking and economy research.He has wo

195、rked with prominent firms such as UBS and Societe Generale and is respected for his non-consensus views.Areas of Expertise Primary Asset Class:Equities Geography:Asia Ex Japan Countries:India Sectors:FinancialsContent Verticals ESG,Thematic(Sector/Industry)DETAILYes Bank declared 3QFY2021 results on

196、 January 22,2021,and its net profitsgrew by 16%qoq to Rs 1,507 mn.A positive feature of its resultspresentation was the voluntary detailed break-up of the banks asset quality.In addition to the mandatory disclosure of gross and net non-performingassets(NPAs),the bank disclosed its restructured asset

197、s and those assetswhich the Supreme Court order prevented the banks from disclosing asNPAs,as well as Covid-related stress loans,and the provisions made againstthese categories of assets.In addition,and in a welcome disclosure,the bankcontinued to report(first disclosed in 3QFY2020)its 31-60 days an

198、d 61-90days past due loans.Asset Quality as Disclosed by Yes Bank3QFY2021AmountProvisionNetRs mnRs mn%Rs mn1Gross NPA295,470226,90076.868,5702Non-performing invest+restructured127,54066,37052.061,1703NPAs not classified as per SC order83,22026,83032.256,3904Interest reversal8,00000.08,0005Covid19 re

199、lated loans36,92000.036,9206NPA+Stress(1+2+3+4+5)551,150320,10058.1231,050731-60 days overdue97,41000.097,410861-90 days overdue65,37000.065,370931-90 days overdue(7+8)162,78000.0162,780Total713,930320,10044.8393,8302QFY2021AmountProvisionNetRs mnRs mn%Rs mn1Gross NPA323,440244,76075.778,6802Non-per

200、forming invest+restructured107,01053,36049.953,6503NPAs not classified as per SC order23,91019,18080.24,7304NPA+Stress(1+2+3)454,360317,30069.8137,060531-90 days overdue67,16000.067,160Total521,520317,30060.8204,220Source:Yes BankAs compared with 2QFY2021,Yes Bank has reported a significant increase

201、 inits stress accounts,as well as in the 30+days past due loans.The increasewas inevitable,as the 3QFY2021 is the first quarter in which banks will haveto disclose the full impact of the governments ill-planned Covid-19-relatedlockdown on asset quality.Around 30%of private sector bank loans wereunde

202、r a moratorium,and hence many companies,especially in the realestate,hospitality,small and medium enterprises and informal sectorswould have been impacted.Yes Bank gross stress assets are 29%of grossloans,while net stress assets are around 14%of net loans.Yes Bank Volunteers Data on Its Asset Qualit

203、y;But Will Other Banks Be So Transparent?Hemindra Hazari43Source:Yes BankThese disclosures provide a comprehensive view of the banks asset quality,and it is indeed refreshing to note that a bank which this analyst had earlierhighlighted for its dubious accounting,lack of transparency in its assetqua

204、lity and poor governance under the then leadership of Rana Kapoor has,under a new management,come clean on its asset quality.With suchdisclosures,analysts can make their own assumptions to estimate the banksadditional provisioning requirements and its adjusted book value in order todetermine Yes Ban

205、ks valuation on the equity market.Estimated Additional Provisioning Required by Yes Bank3QFY2021AmountProvisionNetRs mnRs mn%Rs mn1Gross NPA295,470226,90076.868,5702Non-performing invest+restructured127,54091,87872.035,6623NPAs not classified as per SC order83,22060,11872.223,1024Interest reversal8,

206、0008,000100.005Covid19 related loans36,92025,84470.011,0766NPA+Stress(1+2+3+4+5)551,150412,74074.9138,410731-60 days overdue97,41014,61215.082,799861-90 days overdue65,37012,74719.552,623931-90 days overdue(7+8)162,78027,35916.8135,421Total713,930440,09961.6273,831Source:Yes Bank and Hemindra Hazari

207、Yes Bank Volunteers Data on Its Asset Quality;But Will Other Banks Be So Transparent?Hemindra Hazari44In estimating the additional provisions required by Yes Bank this analyst hasmade the following assumptionsi.Total provisions for NPAs,stress assets and Covid-problem loansestimated at 75%ii.100%pro

208、vision for interest reversaliii.For 31-60 days overdue loans,assumed 30%would become NPAsrequiring 50%provisionsiv.For 61-90 days overdue loans,assumed 30%would become NPAsrequiring 65%provisionsThe additional provisions estimated as on December 31,2021 would be Rs120 bn.(Rs 440 bn Rs 320 bn).Impact

209、 of Additional Provisions on CET1,Book Value and Price/BVRs mn3QFY2021CET1311,918Risk Weighted Assets2,381,050CET1(%)13.1BV(Rs)14.8Share Price(Rs)17P/BV1.1Adjusted CET1191,919Adjusted CET1(%)8.1Adjusted BV(Rs)9.1Adjusted P/BV1.9Source:Yes Bank and Hemindra HazariAssuming additional provisions were m

210、ade on 3QFY2021 results,the banksCET1 will decline from 13.1%to 8.1%and book value by 39%from Rs 14.8 toRs 9.1.As a result P.BV will increase from 1.1x to 1.9x.The bank hasannounced plans to raise Rs 100 bn as equity or convertible bonds.In reality the banks earning will come under severe pressure f

211、rom suchadditional provisions.For the 9-month period ended December 31,2020,thebank reported standalone pre-provision profits of Rs 48 bn and a net profitof Rs 3.3 bn,and Yes Bank has an outstanding deferred tax asset of Rs 83.95bn which will eventually have to be written-off from future profits.By

212、voluntarily providing such detailed and relevant information on its assetquality,Yes Bank needs to be commended and its practice followed by thebanking industry.Yes Bank Volunteers Data on Its Asset Quality;But Will Other Banks Be So Transparent?Hemindra Hazari45Disclosure&CertificationI/We have no

213、position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any non-public,material

214、information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any specific opinion on the securities referenced thereinI/We have si

215、gned the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Hemindra Hazari(25 Jan 2021)Yes Bank Volunteers Data on Its Asset Quality;But Will Other Banks Be So Transparent?Hemindra Hazari46Quantitative AnalysisEmerging MarketOverweights Series.Part 1:Ind

216、ianFinancialsBy Steven Holden|28 Jan 2021EXECUTIVE SUMMARYIn this report,we screen for the largest overweight Country/Sectors acrossGlobal EM by analysing the allocations of long-only active Emerging Marketfunds.In part one of the series,we focus on Indian Financials.We look at wherecurrent allocati

217、ons sit versus history,drill down to find the most widely heldstocks in the sector,the key overweight and the key underweight holdings.We find that despite it being the largest overweight holding,IndianFinancials exposure is far from excessive,both versus its own history andversus peers.Furthermore,

218、recent activity points to an increase in exposureamong managers.Our Emerging Market fund universe consists of 242 Global Emerging Marketactive long-only funds,with combined AUM of$450bn.DETAILTo screen for overweights within the Emerging Markets universe,we take theaverage holding for each Country/S

219、ector among the 242 active EM funds inour analysis.We subtract each average from the weight in the benchmarkMSCI Emerging Markets Index(for our analysis,we use the iShares MSCIEmerging Markets(EEM US),adjusted to remove cash).The below chart shows the average Country/Sector allocations relative tobe

220、nchmark for all major countries and sectors.In total,there are 11underweight and 5 overweight Country/Sectors that are greater than 0.5%away from the I-Shares MSCI Emerging Markets benchmark,highlighted bythe darker red and blue squares in the chart below.Emerging Market Overweights Series.Part 1:In

221、dian FinancialsSteven Holden47Steven HoldenAsset Allocation&Fund Positioning|Copley Fund ResearchSteven Holden is the CEO and Founder of Copley Fund Research,an independent provider of research on equity fund positioning and performance.Set up in 2014,Copley focuses on global,GEM,US,Asia Ex-Japan,an

222、d China active equity funds,covering over$4t in assets across 1,300 active managers.Areas of Expertise Primary Asset Class:Equities Geography:Global Emerging Markets Countries:Generalist Sectors:GeneralistContent Verticals Cross Asset Strategy,Equity Bottom-UpThe largest overweight positions are in

223、Indian Financials,ArgentinianConsumer Discretionary and Taiwan Technology stocks.In this report,wewill focus on Indian Financials and follow up with 2 further reports onArgentina Consumer Discretionary and Taiwan Information Technologyholdings.Emerging Market Overweights Series.Part 1:Indian Financi

224、alsSteven Holden48Indian FinancialsDespite being the largest overweight position,Indian Financials representthe 4th largest Country/Sector holding with an average weight of 3.45%inEM active portfolios.They are also the 4th most widely held,with 86%offunds currently exposed.Although being the largest

225、 Country/Sector overweight holding,GEMmanagers are at their lowest overweight level since 2014.Across our 4 mainownership measures below,exposure is off the highs but remains towardsthe higher end of the 12 year range.Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden49Of the 8

226、6%of funds who hold a position in Indian Financial stocks,mosthold between 2%and 4%,with the higher allocations represented byAggressive Growth funds.Wasatchs EM Select Fund(19.55%)and MorganStanleys EM Leaders Fund(13.25%)top the list.Emerging Market Overweights Series.Part 1:Indian FinancialsSteve

227、n Holden50Indian Financials have long been a target for EM growth investors.Averageweights among Aggressive Growth managers have consistently been abovethe other style groups,with todays level of 5.50%well above peers.Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden51Drilling

228、 down to a stock level,the most widely held Indian Financialcompany is HDFC Bank(HDFCB IN),held by 45.5%of the 242 funds in ouranalysis at an average weight of 0.95%.HDFC Limited(HDFC IN)and ICICIBank Ltd(ICICIBC IN)are also well held before a significant gap down toKotak Mahindra Bank(KMB IN),held

229、by just 16.5%of funds.Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden52In terms of overweight holdings,HDFC Bank accounts for the entireoverweight within the sector given its exclusion from the index.Outside ofHDFC Bank,overweights are marginal,with ICICI Bank Ltd(ICICIBC IN

230、)(+0.06%),Kotak Mahindra Bank(KMB IN)(0.05%)and Shriram TransportFinance(SHTF IN)(0.04%)held much closer to benchmark,on average.The largest underweight holdings are led by Axis Bank Ltd(AXSB IN),heldby just 11.57%of EM funds at an average weight of 0.08%.Bajaj Finserv(BJFIN IN)and State Bank Of Ind

231、ia(SBIN IN)are very lightly held amongGEM active managers.Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden53Despite being at the higher end of historical holdings on an average weightbasis,it is more balanced when we look at the historical holdings ofindividual managers.The c

232、hart below shows the Z-Score of Indian Financialweights for each fund in our analysis since 2008(100%indicates currentholdings are at their highest level,0%the lowest).Only half of all currentand previous holders have a Z-Score of above 52%,with many funds well offtheir highest allocations and in so

233、me cases having closed out altogether.Byno means would we describe Indian Financials positioning as excessive orover-owned.Fund ActivityMoreover,fund activity over the last 6-months has been net positive.Thechart below shows Indian Financials capturing a net 10.2%more buyers thansellers over the las

234、t 6-months(the 4th highest across all Country/Sectors)and the highest net cash inflows of$687m.On a dollar basis,TouchstoneSands,Baron Emerging Markets and Invesco were the largest buyers.Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden54On a stock level,Bandhan Bank(BANDHAN

235、IN),Bajaj Finance(BAF IN)andKotak Mahindra Bank(KMB IN)saw investment levels increase the most,with the percentage of funds invested in each rising in conjunction with netcash inflows.The largest cash inflows belonged to HDFC Bank(HDFCB IN)with$409m over the period.On the negative side,there were ne

236、t closures for Indiabulls Housing Finance(IHFL IN)and ICICI Bank Ltd(ICICIBC IN).Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden55Analysing stock activity down to a fund level,among the larger newpositions opened over the last 6-months were HDFC Bank(HDFCB IN),Bandhan Bank(B

237、ANDHAN IN)and Bajaj Finance(BAF IN).In terms of closures,HDFC Bank(HDFCB IN)also features,alongside ICICIBank Ltd(ICICIBC IN)and Indiabulls Housing Finance(IHFL IN).Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden56ConclusionsIndian Financial stocks represent the largest over

238、weight Country/Sectorholding among EM active managers.They will therefore be an importantdriver of relative returns through 2021.Whilst the key holdings are HDFCBank(HDFCB IN),HDFC Limited(HDFC IN)and ICICI Bank Ltd(ICICIBCIN),EM managers are increasing exposure to the 2nd tier,from BandhanBank(BAND

239、HAN IN)to Bajaj Finance(BAF IN).More importantly,current allocations do not feel stretched.Our data doesnot find Indian Financials exposure to be excessive,both versus their ownhistory and versus peers.With recent fund manager activity showing as netpositive,there is clearly the potential for EM Act

240、ive investors to increaseIndian Financials exposure further from here.Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden57Disclosure&CertificationI/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reflects my/ou

241、r personal opinion(s)about the referenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as ap

242、plicable law in thecountry from which it is postedI/We have not been commissioned to write this insight or hold any specific opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Steven Holden(

243、28 Jan 2021)Emerging Market Overweights Series.Part 1:Indian FinancialsSteven Holden58Bank Mandiri Persero|Equity Bottom-UpBank Mandiri Persero(BMRI IJ)-Time toLook ForwardBy Angus Mackintosh|31 Jan 2021EXECUTIVE SUMMARYBank Mandiri Persero(BMRI IJ)announced its 4Q2020 and FY2020 results,which saw a

244、 credible perfomance with PPOP falling-5.1%YoY although netprofit declined by-37%due to higher COVID-19 related provisions.The banks loan book grew by+7.7%over the year,with higher growthcoming from corporate loans and micro,with commercial loans alsoexpanding from a low base.Deposits grew by+12.2%d

245、uring 2020 whilst current accounts grew by+22%YoY last year,boosting CASA and helping to reduce the cost of funds.One key positive was that the cost of credit ended the year at 2.35%,whichwas below the banks guidance of 2.5%-3.5%for the year.Bank Mandiri Persero(BMRI IJ)s mobile banking goes from st

246、renth tostrength with the value of tranactions outstripping those through ATMs andat 25%of the cost.The bank is optimistic that 2021 will see+6%loan growth,driven by arecovery in the economy and a strong liquidity position,with a continuingdrop in the cost of credit.Bank Mandiri Persero(BMRI IJ)rema

247、ins a core holding as a play onthe recovery of loan growth as the economy recovers andprovisioning levels fall.The bank is trading at 1.5x FY21E PBV whichis below its 3-year average of 1.74x but its can easily trade higher inlight of the recovery.Bank Mandiri Persero(BMRI IJ)-Time to Look ForwardAng

248、us Mackintosh59Angus MackintoshASEAN Insight Provider|CrossASEAN ResearchAngus Mackintosh has been in Equity Sales and Research for more than 25 years covering Asian markets.He possesses in-depth knowledge of a wide range of companies,economies,and markets in Asia.Areas of Expertise Primary Asset Cl

249、ass:Equities Geography:ASEAN Countries:Indonesia Sectors:GeneralistContent Verticals Equity Bottom-Up,Thematic(Sector/Industry)DETAILSolid results despite the pandemicBank Mandiri Persero(BMRI IJ)announced its 4Q2020 and FY2020 results,which saw credible perfomance,with PPOP falling-5.1%YoY but net

250、profitdeclining by-37.7%due to higher COVID-19 related provisions.Provisionsincreased further by+33%QoQ in 4Q2020 but we would expect provisions tostart to decline in the coming quarters,given the bank has been quiteaggressive in front loading its COVID-19 related provisioning.The bank keptcosts wel

251、l-under control last year,as well as reducing its cost of funds.Bank Mandiri Persero(BMRI IJ)announced a credible set of numbers despitethe pandemicFY2019FY2020FY2021Loans Consildated(average balance)IDR813.7 Tn871.3 Tn+7.1%Third Party Funds933 Tn1.047 Tn+12.2%Cost of Funds2.86%2.53%-0.3%Operational

252、 Expenses40.1 Tn40.6 Tn+1.4%PPOP48.5 Tn46.1 Tn-5.1%Source:Bank Mandiri Persero(BMRI IJ)Loan book grew despite the pandemicThe banks loan book increased by+7.1%over the year,with the strongestgrowth coming from corporate loans at+8.1%YoY,commercial loans at+8.6%YoY,and microloans at+7.5%YoY.Corporate

253、 loans made up thelargest portion of the portfolio at 39.8%of the total and micro at 13.6%commercial loans are at 16.7%of total and also grew at+8.6%but comingfrom a low base having fallen for a couple of years due to legacy problems.Consumer loans remained steady at 10.2%of the portfolio with growt

254、h of+2.0%YoY,whilst SME loans shrunk by-6.1%given that segment wasprobably worst impacted by the pandemic.The groups subsidiariescontinued to register strong growth of+11.0%YoY,making up 13.6%of totalloans.Bank Mandiri Persero(BMRI IJ)-Time to Look ForwardAngus Mackintosh60Funding position solid as

255、a rockThird-party funds grew by+12.2%overall during 2020 whilst currentaccounts grew by+22%YoY making up 25.2%of deposits,boosting CASAand helping to reduce the cost of funds.Savings accounts grew by+6.5%making up 31.4%of deposits,and time deposits grew+11.6%,making up30.3%of total deposits.Subsidia

256、ry deposits grew+16.4%YoY and made up13.1%of total 3rd party funds.Due to deep cuts in time deposit(TD)rates,the bank reduced its cost of funds to only 1.92%,helping it to realize animprovement in net interest margin of-30 bps in 4Q2020.It reduced its TDrates to only 3.25%versus 5.5%at the end of Ju

257、ne.The cost of funds in4Q2020 fell by-0.3%to 2.53%reflecting the rapid decline in time deposits.Bank Mandiri Persero(BMRI IJ)-Time to Look ForwardAngus Mackintosh61Source:Bank Mandiri Persero(BMRI IJ)A prudent approach to retailBank Mandiri Persero(BMRI IJ)prudently managed its retail loan portfolio

258、,including micro and consumer loans during 2020.There was a focus withinthe micro-segment on growing government-guaranteed KUR loans,whichsaw growth of+30.4%YoY,whilst it even reduced its salary-based loans by-13.6%and micro productive loans by-11.3%.Consumer loans fell acrossthe board with mortgage

259、s being the most resilient,only falling by-1.6%YoYand making up 50.4%of the consumer portfolio.Auto loans fell by-13.8%making up 34.6%YoY of the consumer portfolio,whilst credit cards fell by-21.1%YoY,bringing the total decline in consumer loans to-8.4%.Bank Mandiri Persero(BMRI IJ)took a conservati

260、ve view on its retail loansSource:Bank Mandiri Persero(BMRI IJ)(ending balance numbers)Bank Mandiri Persero(BMRI IJ)-Time to Look ForwardAngus Mackintosh62Increasing provisions within expectationsBank Mandiri Persero(BMRI IJ)increased its provisions by+5.8%in 4Q2020and has now seen its restructured

261、loans plateau out,with the COVIDrestructuring as a portion of total loans reaching 12.2%,significantly belowthe overall Indonesian banking sector number of 18.0%.The bank had aneven split on restructured loans between wholesale and retail loans.Morethan half of the banks restructured loans(64%)fall

262、into the low riskcategory,with 25%medium risk,11%seen as high-risk.This reflects therelatively high-quality of the banks loan portfolio.Source:Bank Mandiri Persero(BMRI IJ)Bank Mandiri Persero(BMRI IJ)-Time to Look ForwardAngus Mackintosh63Conservative on provisions and interest incomeThe OJK has gi

263、ven a 1-year extension for COVID-19 restructured loans,requiring banks to add provisions for high-risk loans.Bank Mandiri Persero(BMRI IJ)is conducting selective restructuring extensions.The impact of theextension will a delayed recovery to NIMs as the bank applies a cash accrualfor interest income

264、from COVID-19 restructured loans.There will also be aslight delay to NPL recognition for extended restructuring.There will belittle impact on cost of credit,as the bank has front-loaded provisions in2020.One key positive in 2020 results was that the cost of credit ended theyear at 2.35%,which was be

265、low the banks guidance of 2.5%-3.5%for theyear.Provisions related to COVID-19 account for 0.61%and normalprovisions at 1.74%bringing the NPL ratio to 3.1%with a current NPLcoverage ratio of 229%and loans at risk coverage of 69.2%.Fee income benefited from digital banking but e-money suffferedBank Ma

266、ndiri Persero(BMRI IJ)non-interest income(bank only)fell by-2.4%YoY with loan and trade related fees falling-13.0%whilst depostitrelated fees fell by-5.2%.Credit card fees were also weak,falling by-21.3%and ATM fees fell-7.0%due to decreased usage.Fees frim ADC machinesalso fell-26%due to less retai

267、l activity and fees from e-money,where BankMandiri Persero(BMRI IJ)has 70%market share fell by-36%givenresttrictions on movement affecting the use for toll roads and othertransport.On the positive side of things,fees from mobile and internetbanking saw growth of+19.0%YoY,whilst treasury income rose

268、by+31%andFX and derivative by+50.2%YoY.Its subsidiaries also saw strong growth infee income boosted primarily by Link Aja.We would expect a good recoveryin non-interest income in 2021 as the economy recovers.Digital drivers getting strongerBank Mandiri Persero(BMRI IJ)s digital strategy continues to

269、 take shapedrive by its mobile banking,where it is now possible to open a savingsaccount in around 12 minutes and get a loan approved in around threehours.The bank continues to add to its ecosystem,with around 350 digitalpartners,as well as 30 adding new channels in FY2020.It has also investedto inc

270、rease its processing speeds by+50%and it has also now reducedmaintenance costs by-80%YoY.The bank is onboarding around 3,000 newaccount a day currently with 323,000 new mobile accounts and+72,000accounts since September 2020.It now has around 4.5m active users but stillhas significant potential upsi

271、de with a total of 28m deposit accounts.Theincreasing number of mobile accounts is helping to drive transaction valueand local costs,with transactions through mobile banking 25%cheaper thanthrough ATMs for the bank.The value of transactions through Mandiri Online have surpassed thosethrough ATMsBank

272、 Mandiri Persero(BMRI IJ)-Time to Look ForwardAngus Mackintosh64Source:Bank Mandiri Persero(BMRI IJ)Single digit loan growth in 2021The bank is optimistic that 2021 will see+5%-6%loan growth with acontinuing drop in the cost of credit.Management will continue to track therecovery as the year progres

273、ses,with the potential for upgrades toexpectations.Certain sectors such as FMCG,telecoms,and healthcarecontinue to outperform.The bank will continue to focus on its key corporateclients and their related value chains plus relatively lower risk payrollaccounts.There should also be ongoing improvement

274、s in credit quality atthe same time.Bank Mandiri Persero(BMRI IJ)is very well positioned interms of liquidity to benefit from the recovery.Bank Mandiri Persero(BMRI IJ)is well-positioned from a liquidityperspectiveKey RatiosFY20199M2020FY2020QoQYoYNIM5.56%4.68%4.65%-3bps-91bpsCost to Income ratio45.

275、7%45.6%47.4%+181bps+175bpsRoAA2.18%1.37%1.25%-13bps-93bpsRoAE-after tax14.25%10.11%9.16%-96bps-5bpsCASA Ratio65.3%65.4%66.5%+108bps+113bpsLoan to Deposit Ratio96.5%84.4%84.3%-13bps-13bpsCAR20.9%19.52%19.48%-5bps-142bpsLiquidity Coverage Ratio177.1%202.6%207.8%+5bps+30bpsNPL Coverage144.3%205.2%229.1

276、%+24bps+85bpsLoans at Risk Coverage36.8%64.7%69.2%+5bps+30bpsCost of Credit1.4%2.24%2.35%+11bps+95bpsGross NPLs2.33%3.33%3.09%-24bps+76bpsSource:Bank Mandiri Persero(BMRI IJ)Bank Mandiri Persero(BMRI IJ)-Time to Look ForwardAngus Mackintosh65Bank Mandiri Persero(BMRI IJ)remains a coreholdingBank Man

277、diri Persero(BMRI IJ)remains a core holding as a play on therecovery of loan growth as the economy recovers.It has successfully front-end loaded its provisioning and will likely see much lower levels this year.The bank is in a strong liquidity position with a loans to deposit ratio of only83%.It als

278、o continues to reduce its cost of funds with low time deposit ratesand by increasing its retail exposure through mobile banking and thebenefits of its digital strategy will continue to manifest themselves in 2021.The bank is trading at 1.5x FY21E PBV which is below its 3-year average of1.74x but its

279、 can easily trade higher in light of the recovery,with EPSforecast to grow+49%and+18.6%for FY2021E and FY2022E respectively.Earnings EstimatesFY2020AFY2021EFY2022EEPS IDR360.2536.6633.1Growth-38.0%+49.0%+18.6%PER18.2x12.2x10.4xDividend IDR257.0270.5298.2Yield3.9%4.1%4.5%ROE8.7%12.9%14.4%ROA1.3%1.7%2

280、.0%PBV1.6x1.5x1.4xSource:Bank Mandiri Persero(BMRI IJ)Peer Group ComparisonFY2021EPERFY2021E EPSgrowthFY2021EROEFY21EPBVBank Mandiri Persero(BMRI IJ)12.2X+49.0%12.9%1.5xBank Central Asia(BBCA IJ)27.4x+22.6%15.8%4.1xBank Rakyat Indonesia Persero(BBRI IJ)16.8x+63%15.1%2.4xBank Negara Indonesia Persero

281、(BBNIIJ)9.8x+222%9.6%0.85xSource:Capital IQBank Mandiri Persero(BMRI IJ)-Time to Look ForwardAngus Mackintosh66Disclosure&CertificationI/We have no position(s)in the any of securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the re

282、ferenced securities and issuers and/orother subject matter as appropriate.This insight does not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from w

283、hich it is postedI/We have not been commissioned to write this insight or hold any specific opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Angus Mackintosh(29 Jan 2021)Bank Mandiri Perse

284、ro(BMRI IJ)-Time to Look ForwardAngus Mackintosh67SMARTKARMA RESEARCH:This publication is published by Smartkarma Innovations Pte Ltd(Smartkarma),the operator of online investment research .The Publication contains content authored by Smartkarma and by selected third party Insight Providers,which ha

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