Nigeria, Vietnam, Ghana, Sri Lanka banks also look attractive
Across our emerging market coverage of 91 banks in 20 markets, we forecast 12% median loan growth, 11% top-line growth and 14% net profit growth in 2020. The sector trades at 1.0x 2020f PB, 5.6x PE and offers 5.2% dividend yield. We forecast 16.3% ROE in 2020f, up from 16.1% in 2019f.
In the full report we give a country-by-country assessment of the main financial metrics for the banking sector, while on page 11 we map our covered markets and stocks on key industry themes.
Top large-cap picks
- GUARANTY NL should keep delivering industry-leading ROE with the quality to successfully negotiate the uncertain regulatory environment.
- MCBG MP should continue to see good growth from its international trade and structured finance loans.
- UBL PA delivers strong earnings growth with an attractive risk-reward profile given its solid capital base and limited international risk.
- VPB VN should see continued consumer loan growth at FE Credit. Risk costs could fall given legacy NPLs are now fully provisioned.
Top small-cap picks
- BRAC BD profits from its superior funding, asset quality and margins, while its bKash arm dominates the mobile money landscape.
- HNB SL is well-placed to benefit from better loan growth and asset quality, given its superior capital and provisioning base.
- CIEB EY should continue to generate superior ROE to peers, supporting its high dividend payout.
- GCB GN has scope for funding and operating cost synergies as well as good loan growth prospects.
- Egyptian banks are attractively valued with strong growth and profitability prospects. Given COMI EY’s strong outperformance, we would focus on second-tier names.
- Pakistan banks should deliver the biggest ROE improvement over the coming 12-18 months on higher margins.
- Nigerian banks are cheap, but with limited near-term growth.
- Vietnam banks benefit from a strong macro environment which supports growth and asset quality.
- Among smaller markets, banks in Ghana, Rwanda and Sri Lanka appear attractive.
- We would limit exposure to GCC banks, where growth and margin dynamics appear unfavourable relative to elsewhere.
- The outlook in Argentina is extremely uncertain; any moves to cut interest rates or restructure debts to put the economy on a firmer footing could stress the banks.
- After their strong rally in 2019, Russian banks do not scan well in terms of valuation and risk profile.