These are dangerous times for Lloyds Banking Group and its investors.
Already being battered by that dreaded combination of revenues stagnation and loan impairments, a perfect illustration of a rapidly-slowing domestic economy, things threaten to get even more troublesome if the UK ambles down the path of a destructive no-deal Brexit.
In recent days I explained why betting on Bank of Georgia may be a better choice in this climate for investors determined to grab a slice of the banking sector. But this is not the only financial giant I’d rather buy over Lloyds today — indeed, I also consider Banco Santander (LSE: BNC) to be a superior stock than the Black Horse Bank.
Key markets are flying
We all know about the terrific growth rates in emerging markets, a phenomenon that’s still driving trade at Santander, despite the impact of political and economic events on business in its traditional territories of the UK and mainland Europe.
This was abundantly clear in the bank’s robust first-quarter period, three months in which it saw excellent lending in key Latin American markets of Brazil and Mexico (and a stable-if-unspectacular performance from Chile) to nudge group income 2% higher at constant rates to €12.1bn.
The numbers again illustrated the brilliant pent-up demand for banking products in these fast-growing regions — in Brazil, for instance, retail loans and consumer finance bulged by double-digit percentages whilst deposits boomed by 14%.
They also underlined the massive progress Santander is making in the red-hot digital banking arena, the number of customers using such services leaping by 6.5m customers year-on-year to total 33.9m in quarter one. The recent launch of financial advice app Santander On and online investment platform Pi in its gigantic Brazilian marketplace certainly helped light a fire under customer numbers.
A Latin lovely
And judging from recent research by McKinsey & Company, Santander has a lot more to look forward to here. The management consultancy said that “we expect Latin America to remain the growth leader in banking,” noting that banking revenues in the territory have grown around 6% faster each year than the global average and more than any other region between 2012 and 2017.
More specifically, McKinsey predicts that total Latin American banking revenues will increase at a compound annual growth rate of around 10% in the next five years, excluding the cost of risk. And underpinning these likely increases will be the region’s “very low” banking penetration — only 30% to 50% of citizens over 15 years old have a bank account, the firm estimates, versus some 90% in the UK, US or Spain — as well as a young and expanding population facilitating quicker growth.
The long-term outlook for Santander, then, looks a lot more robust than over at Lloyds, where the prospect of a no-deal Brexit is casting a suffocating cloud. Indeed, my view of the bank’s likely profits generation became a lot dimmer following an Office for Budget Responsibility report released last week.
So forget about Lloyds and predictions of more big dividends, I say. I’d much rather grab Santander and its 5.6% forward yield.
