Goldman Downgrades Santander Mexico To Sell

Mexico’s leading economic indicators point towards weakness, and the credit cycle could be “in the process of inflecting downwards,” Goldman Sachs’ Carlos G. Macedo said in a report. He downgraded the rating on Santander Mexico Fincl Gp SAB deCV (ADR) BSMX from Neutral to Sell, with a price target of P$31.50.

Analyst Macedo mentioned that Santander Mexico’s shares were trading at a premium to the closest peer, and that the price target represented 9 percent downside, versus an average 6 percent upside “for the remainder of our coverage universe.”

Leading Indicators Suggest Weakness

“While loan growth and asset quality have been solid for the Mexican system (currently close to the best levels since 2012), we expect that conditions will turn negative,” Macedo wrote. Consumer confidence has already turned negative. Unemployment is near historical troughs, suggesting limited room for improvement. Inflation is accelerating, which affected credit affordability.

System loan growth is expected to decelerate from 15 percent to below 12 percent. Asset quality, which is currently the strongest it has been since 2012, would likely weaken from early 2017.

Higher Risk For Santander Mexico

“While the turn in the cycle should affect all banks, those that have been more aggressive with growth recently, like Santander Mexico, are especially at risk, in our view,” the analyst commented. He explained that Santander Mexico had been aggressively investing to gain market share in certain segments, particularly payroll loans, which could result in greater pressure in 2017.

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