UBS | China growth concerns and oil price weakness have undermined market sentiment and heightened risk a version in recent weeks. Given EM banks’ credit exposure to commodities/energy sector, estimated at less than 5%, there are also growing concerns over bank sector fundamentals. Although our regression analysis shows overall a relative low relationship between changes in oil price and bank share prices (average R – square score of 0.21), directionally, EM banks tend to correlate positively with oil price movements with potential winners being banks in South Africa, Turkey and India, assuming oil prices stay low and potential losers being those in Russia and Brazil.
Brazilian banks 4Q15 preview
Brazilian banks will start to report 4Q results this week, led by Santander Brasil on January 27th and Bradesco (January 28 th ). We expect 4Q15 results to continue to reflect the challenging macro – economic scenario, with loan growth decelerating and asset quality deteriorating. Despite the prudent measure by banks to use one – time gains to set aside additional reserves in 3Q15, we believe loan loss provisioning should remain at an elevated level in 4Q15.
Mexican banks 4Q15 preview
Banks in Mexico are among the few in EM that in our view are at an early stage in the credit cycle, with system – wide loan growth rebounding to 13.3% in November 2015, from a trough of 8.2% in October 2014. Based on our coverage of Mexican large banks, we forecast loan growth 14.5% yoy in 4Q15 (versus 16.5% in 3Q15), positive trends for NIM, mixed trends for opex and NPLs, culminating in a 18.1% qoq increase in aggregated net income. Weekly Performanc e (US$ terms, closing prices as of Thursday, January 21st) Best performer was Santander Chile down – 0.4%, while the worst was Porto Seguro down – 17.8%.