The quarterly survey of the main EMU banks carried out by the ECB reveals that demand for credit is increasing, although at a slower pace. According to Bankinter analysts, the indices which measure the trend in demand confirm the rise in consumer credit, a certain loss traction in the mortgage business and weakness in the corporate segment.
With regard to the spreads, the banks are relaxing their loan criteria for private individuals and maintaining them for companies. Amongst the main EMU countries, the increase across all segments of demand in France stands out. In Spain, the weakness in corporate demand is confirmed (-20 vs 0 previously), while it remains stable in the mortgage and consumer markets. In Italy, demand from private individuals has risen but significantly contracted in the corporate segment (-13 vs 25 previously). Analysts at Bankinter say:
We believe that the deterioration in the corporate segment is closely linked to the fact that there has been some delay in companies’ investment plans, as well as the fact that the big firms are taking more advantage of funding opportunities in the capital markets. We view the improvement in demand forecast for the coming months as positive. And from a supply point of view, it is worth highlighting the banks’ increased willingness to lend, which is mainly the result of improved solvency ratios and the decline in credit risk.
Investment strategy
The decline in the sector as a whole in the year to date (over -20%) is closely related to the downwards revision to earnings’ forecasts (around -26% for the year as a whole), the increase in competition and fears that regulatory requirements will become even tougher in the future. In spite of that, the sector is trading at record low multiples (0.6 P/BV vs a historic 0.9 P/BV). The recent rally in the stock market (+11% over the last month) supports our recommendation to take advantages of buy opportunities in the sector. Finally, experts add:
In fact, in our quarterly strategy report for Q4’16, we have revised our stance on the banking sector from Sell to Neutral. Our top picks in this environment are BNP, SocGen, BBVA and Bankia.
