XNOR GFNORTE GBOOY Best Bank 2019 México 1 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App 4Q19
Solid macroeconomic fundamentals remain in place GDP CPI inflation Central bank foreign reserves % yoy % yoy US$bn 10.0 300 6.0 FCL 4.0 Reserves 0.8 200 2.0 0.0 5.0 3.6 -0.1 100 -2.0 -4.0 0.0 0 -6.0 2001 2004 2007 2010 2013 2016 2019 2001 2004 2008 2012 2016 2020 2001 2004 2008 2012 2016 2019 Current account deficit and FDI Government debt Oil related fiscal revenues % of GDP, US$bn % of GDP % of total revenue Foreign (LHS) 60 Current account (LHS) FDI (RHS) Domestic (LHS) 60 Average duration (RHS) 3 40 60 6 40 26 19.1 40 4 1 20 20 0.2 20 2 0 -1 0 0 0 2001 2004 2007 2010 2013 2016 2019* 2001 2005 2009 2013 2017 2001 2005 2009 2013 2017 *Note: 2019 figures available up to 3Q19 Source: INEGI, Banxico, Ministry of Finance 2 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
The usual deceleration of the first year of a new administration has been further impacted by temporary shocks and a delay in investment GDP at the beginning of each Investment during the first year 2019 GDP forecast % yoy, contribution in bps administration of administration 1.8 % yoy Index (Dec of the previous year=100) 2.0 8 2001 2007 1.5 2013 2019 -40bps 6 1.0 2019f (previous) 2019f (actual) 108 4 0.5 106 -69bps 2.3 104 1.4 2 0.0 102 -89bps -0.1 100 -0.5 0 Forecast in late 2018 Global manufacturing Transitory shocks Delay in public and private Current forecast -0.1 98 -0.4 -2.9 -2 96 deceleration -4.4 94 investment -4 92 90 -6 88 -6.3 Dec* Feb Apr Jun Aug Oct Dec -8 1994 1999 2004 2009 2014 2019 Source: INEGI, Banorte 3 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
Nevertheless, sentiment among the private sector has started to pick up, resulting in a better scenario for 2020 Business confidence Mexbol Diffusion index Index 54 47,000 First Agreement Banxico on USMCA 53 46,000 rate cut 45,000 52 Gas pipeline controversy 44,000 is solved 51 Phase 1 US- 43,000 China 50 deal 42,000 49 41,000 Construction 48 Manufacturing 40,000 Commerce 47 39,000 Non-financial services 46 38,000 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 jun.-19 ago.-19 nov.-19 ene.-20 Source: INEGI, Bloomberg 4 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
Private consumption is still supported by solid employment and higher real wages Formal employment and growth Real wage growth Credit cycle Index (Jan-09=100) % yoy % yoy in real terms, % of total portfolio 160 4 Labor Banking credit (LHS) 20 4.5 3.77 reform NPLs (RHS) 150 (2012) 3 15 4 140 2 10 130 3.5 1 5 120 3 0 0 Formal 110 employment 2.5 -1 -5 GDP Proxy (IGAE) 100 -2 -10 2 90 Dec-09 Dec-14 Dec-19 Nov-09 Nov-14 Nov-19 Jan-09 May-14 Sep-19 Source: INEGI, Banxico 5 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
Although it has been impacted by the overall economic slowdown Private consumption and retail sales % yoy 5 4 3 2 1 0 -1 Private consumption Retail sales -2 -3 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Source: INEGI 6 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
Credit penetration continues to be a significant opportunity for banks in Mexico, while credit continues to grow at about 2x nominal GDP Commercial bank credit to the non-financial Commercial bank credit to the non-financial private sector private sector % of GDP % yoy in real terms 20 6 Credit-to-GDP ratio (LHS) Chile 79 Credit-to-GDP growth (RHS) 19 Average (RHS) 5 18 Brazil 48 4 17 16 3 Colombia 44 15 2 14 Peru 23 1 13 Mexico 18 12 0 2Q10 4Q11 2Q13 4Q14 2Q16 4Q17 2Q19 Source: JP Morgan, INEGI, Banxico 7 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
USD/MXN, inflation, and reference rate forecasts MXN forecasts Inflation forecasts Reference rate forecasts USD/MXN % yoy, bi-weekly frequency % 20.2 5.5 9.0 Headline 20.0 8.0 5.0 2018: Core 4.8 2019: 19.8 2018: 2020: 7.0 7.25 19.69 2020: 4.5 19.80 19.6 6.50 6.0 2020: 2019: 19.4 4.0 3.6 2.8 5.0 19.2 3.5 4.0 19.0 2019: 3.0 3.0 18.8 18.93 18.6 2.5 2.0 Dec-18 Dec-19 Dec-20 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Dec-15 Dec-17 Dec-19 Source: Bloomberg, INEGI, Banxico, Banorte 8 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
Low growth potential for Mexbol FV/EBITDA Mexbol forecasts Times Points 11 58,000 Last 10y – 2 FV/EBITDA U10a 10a - 2 σ Last 6.8x 8.0x 7.4x 53,756 53,000 48,466 10 48,000 43,000 43,176 9 38,000 . 33,000 8 Jan-17 Dec-17 Dec-18 Dec-19 Dec-20 EBITDA Net debt MEXBOL Estimated FV/EBITDA 7 2020E 2020E 2020E return 8.0X 53,756 20.1% 7.7X 51,111 14.2% $8,816 $16,774 7.4X 48,466 8.2% 6 +9.4% +6.6% 7.1X 45,821 2.3% Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20 6.8X 43,176 -3.6% Source: Bloomberg, Banorte 9 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
The latest budget continued to deliver fiscal responsibility, while increasing state governments income, and partially reversing the cut in social transfers (Fraction 23) Public balance Public debt % of GDP (as measured by the PSBRs) % of GDP (as measured by the HBPSBRs) 48.7 0 50 46.6 -1 48 45.8 44.9 45.3 45.6 45.4 45.2 45.0 44.8 44.7 -1.1 -2 46 42.6 -3 -2.2 -2.7 -2.6 -2.2 -2.3 -2.3 -2.4 -2.4 44 -2.8 -4 42 -4 -4.5 -5 40 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Federal tax collection corresponding to state and Fraction 23: Social transfers to state and municipal governments municipal governments MXN$bn (Participaciones, Ramo 28) MXN$bn (Provisiones Salariales y Económicas, Ramo 23) 430 442 494 505 535 578 607 679 743 812 920 944 1,000 200 156 142 132 131 127 800 123 150 113 600 83 77 100 66 63 49 400 50 200 0 0 2009 2011 2013 2015 2017 2019 2009 2011 2013 2015 2017 2019 Source: MoF 10 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
Therefore, state and country budgets will not suffer significant changes Budgetary dependence on Fraction 23 State debt % of federalized spending (2018) % of federal tax collection corresponding to states (4Q18) Campeche 10.3 Chihuahua 267.4 Sinaloa 9.6 Coahuila 245.2 Baja California Sur 9.2 Nuevo León 237.2 Durango 8.4 Quintana Roo 225.9 Colima 8.1 Sonora 137.7 Coahuila 8.0 Veracruz 116.9 Guerrero 7.7 Ciudad de México 114.7 Yucatán 6.9 Zacatecas 103.3 Tlaxcala 6.7 Michoacán 99.7 Querétaro 6.5 Nayarit 99.3 Michoacan 6.4 Oaxaca 96.3 Q. Roo 6.2 Colima 88.7 Puebla 6.2 Baja California 85.6 Aguascalientes 5.9 Durango 85.3 México 5.7 Chiapas 81.7 CDMX 5.4 Tamaulipas 66.7 Zacatecas 5.4 Morelos 62.2 Tamaulipas 5.4 México 47.1 Nayarit 5.3 Jalisco 42.3 Oaxaca 5.2 Hidalgo 41.5 Tabasco 5.0 Campeche 38.0 Hidalgo 4.8 Aguascalientes 37.1 Chiapas 4.8 Sinaloa 35.2 Veracruz 4.4 Baja California Sur 33.9 San Luis Potosí 4.0 Yucatán 33.1 Sonora 3.8 Guerrero 31.7 Baja California 3.8 San Luis Potosí 26.0 Chihuahua 3.3 Tabasco 24.6 Morelos 3.1 Puebla 19.3 Jalisco 2.7 Guanajuato 18.9 Nuevo León 2.7 Querétaro 4.4 Guanajuato 2.1 Tlaxcala 0.0 0 2 4 6 8 10 12 0 100 200 300 Source: MoF 11 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
About Banorte 12 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
GFNORTE – a Leading and Profitable Financial Franchise in Mexico 1 2 3 Adequate business mix Sound Fundamentals Solid corporate governance Strong retail, wholesale and premium banking Independent Board Members represent platforms, as well as leading insurance and Increasing profitability, solid asset quality, high 71% of total board composition and best pension fund management units, serving more liquidity and strong capitalization ratios. practices in minority shareholder right than 21 million clients. protection. One of the most public companies in Mexico GFNorte is #1 in trading at BMV, and has the top Relative Weighting on S&P/BMV IPC Index, rated OTCQX Best 50 Global. market capitalization of US 16 billion, float of almost 86% and more than 4,000 investors, including large global institutional funds. Investment grade ratings by S&P, Fitch, Moody's and HR Ratings. 13 Eco Hist DB NIM Rev C / I NI Div ROE TI L D Dep Loan ICAP BAP Guid Mkt App
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