The shares of banks listed on the Mexican Stock Exchange (BMV) registered declines in the fourth quarter of the year, impacted by different factors, such as high inflation, the increase in the level of the benchmark interest rate of Banco de Mexico, and now the Omicron variant of Covid-19 that affects the prospects for recovery of the global economy.
Between October 1 and December 1, the biggest drop in the price of its shares is registered by Banco Regional, which is trading at 99.17 pesos per unit, this is a loss of 16.52 percent.
The second place is held by Banco de Bajío, whose securities have fallen 9.38% so far in the fourth quarter of the year, to be sold for 35.34 pesos on the BMV.
The microfinance company Gentera, the parent company of Compartamos Banco, operates on the Stock Market with a discount of 8.17% in its share price, to trade at 11.01 pesos. Banorte has lost 2.93% in the price of its papers in the last two months, which are sold at 128.69 pesos each.
The most resilient to the economic outlook are Inbursa, which so far in the last quarter of 2021 has had an increase of 7.45% in the price of its papers, and Banco Santander México, which although it is in the process of delisting, its shares are They sell at 26.50 pesos, gaining 13.34% in two months from the end of September until this Wednesday.
“There is a relationship between the perspectives on monetary policy and the evolution of share prices based on two elements: comparative preferences of investors by type of assets (stocks and bonds), as well as the impact that rates have on the financial valuation process ”, explained Carlos Hernández, senior analyst at Masari Casa de Bolsa.
Fourth consecutive hike
The Bank of Mexico (Banxico) registered its fourth consecutive interest rate hike in 2021 on November 11, placing it at a level of 5 percent.
In addition, the most recent report from Banxico on market expectations considers that there will be a last increase of 25 basis points to close 2021 with an interest rate of 5.25 percent.
Therefore, the demand for credit for banks decreases, although it is offset by a higher percentage of profits. Banks have a benefit as a result of higher interest income charged on current loans, although they will have a reduction in demand for them.
Heriberto Sandoval, Investment Advisor at Increase Kapital consulting firm, explained that “banks are one of the few sectors that can benefit from the increase in rates, since due to the nature of their business, higher rates have better income; however, at a certain level of rate increases, they can also be affected by the decrease in the volume of loan applications ”.
In addition to having both effects, stocks are doubly affected because the equity market loses its appeal when stocks pay higher interest rates.
“In general, the increase in rates has a negative impact on the stock market, since on the one hand, the cost of financing companies increases, affecting their profitability and discouraging loan applications that are channeled to investment projects”, Sandoval added.
On the other hand, the increase in inflation in Mexico also puts pressure on banks, since it discourages investment, in a context where the rate of return is lower than inflation.
For Carlos Hernández, inflation has an impact on financial firms in two ways. “In operational terms, it temporarily impacts their margins. In monetary terms, it affects the valuations of companies, ”he said.
Janneth Quiroz, deputy director of Economic Analysis at Monex, commented that “the main issue that was present in the eleventh month of the year was related to inflation. Bets began to be adjusted on when central banks will begin to modify their monetary policy ”.
In fact, according to the monetary aggregates and Banxico’s financial activity, in October the total current portfolio showed a real annual contraction of 6.1%, bringing the balance to 4.7 trillion pesos. In September the fall was 7.7 percent.
Specialists explain that this is due to the fact that, although at the beginning of the pandemic, companies resorted to existing credit lines to face the effects of the contingency, they subsequently stopped the demand for credit or resorted to other sources of financing.
Reference-www.eleconomista.com.mx