It is hardly news that life has become more challenging for
Brazil's big banks. With economic growth slowing and the Selic
benchmark interest rate falling to earthly levels, lenders are
waving goodbye to profitability rates above 20%.
Although consumer credit has not brought the bubble many
feared, there is still the danger that lenders may have
overextended, particularly if the economy - which few can count
on any more to grow at the 6% of years past - turns for the
On top of this, the government has been piling pressure on
credit providers to lower the rates charged to consumers for
loans, credit cards and other products. Private lenders are
additionally challenged in that they have to compete with
state-owned Banco do Brasil and Caixa Econômica Federal,
which enjoy lower-cost federal funding.
Brazil's larger banks are best equipped to withstand lower
profits and an increase in impairments, as well as the new
lower interest rate environment. The key will be keeping credit
"The Selic is in an adjustment phase and is moving towards a
normal rate that is compatible with the solid fundamentals the
Brazilian economy now has," Bradesco CEO Luiz Trabuco Cappi
tells LatinFinance. "The quality of our economy means there is
no longer any reason for double-digit interest rates.
Bradesco's working scenario is one in which Brazil has changed
for the better and this change is permanent."
Bank of the Year
& Best Bank Brazil: Bradesco
For the second year in a row, Bradesco's diversification and
retail focus leave it in a strong position to confront these
challenges. Focused on organic retail growth and buoyed by an
insurance business responsible for 30% of its profits, the
well-capitalized bank has nearly caught up with Itaú -
Brazil's biggest bank since its merger with Unibanco in 2008 -
in terms of total assets.
As of June 30, Itaú was Brazil's largest bank by
assets with $888 billion reais ($437 billion), with Bradesco at
$831 billion reais. In 2008, the gap was much larger, with
Itaú leading by $632 billion reais to $454 billion
reais. The growth has been entirely organic. Since the
Itaú-Unibanco merger, organic expansion has been the key
for all the players, with no remaining large banks left to
While other banks have made small acquisitions abroad,
Bradesco still sees plenty of room to grow in Brazil. The bank
has been aggressively expanding its retail operations this
year, redirecting resources after losing out on the postal bank
contract to Banco do Brasil.
"The price in the auction was too high," says Luiz
Angelotti, the bank's executive managing director, explaining
why Bradesco did not continue with the contract. "We had an
alternative plan which we decided was better. We made the
correct decision. This adds more value for the company."
The bank opened 1,000 new branches in the second half of
2011. Bradesco reckons it can retain the postal clients who
will be reluctant to shift their accounts.
"We don't expect to invest in retail abroad," Angelotti.
"Our main strategy is to invest in the Brazilian retail
business. There is plenty of opportunity for growth in
The bank sees its limited presence abroad solely as a means
of supporting Brazilian companies overseas.
"We have a better return here in Brazil and we know the
market very well," says Angelotti. He highlights upward trends
in social mobility over the last eight years and points out
that 40 million Brazilians have yet to tap banking
Its extended presence across the country, its broad range of
clients and its insurance business, leaves Bradesco better
placed to compete with the other large domestic banks.
Its insurance business also offers plenty of room to expand.
Brazil has exceptionally low insurance premiums for such a
large country. This stands at about 3.2% of GDP, and compares
with 8% in the US and 11% in Japan.
Bradesco also believes there are opportunities to be found
in the consolidation of the Brazilian insurance market where
there are still many small companies.
Trouble from Brasilia
As the country's benchmark rate plummets, the government is
pressing lenders to charge customers fees closer to
international norms. In September, Bradesco lowered its
interest rates on credit card products, along with other
Improving efficiency is the key to operating in this new
environment. In this regard, Trabucco Cappi says the bank's
prospects are "good." The main challenge for Bradesco is how to
do this while also expanding the scale of its activity, Trabuco
Cappi says. As part of this the bank also wants to enlarge the
relationships it has with existing clients who are demanding
new products and services.
The bank sees ROE in the long term to be in the region of
18%-20%, compared to 20% this year. The spread adjustments
should continue in the future, says Angelotti, and there are
some factors are not under Bradesco's control, such as the
delinquency ratio, taxation and administrative costs. Angelotti
expects delinquencies to reduce in the future, but says the
government needs to do its share to reduce taxes and
"We are taking measures to reduce the cost of our credit and
credit card operations," Trabuco Cappi says. "The reduction in
interest rates will improve default ratios and expand the loan
portfolio. These effects are positive for banking."
So far, the impact of these reductions in spreads has been
mostly marginal - even for state banks, according to Fitch.
This is mostly due to asset growth remaining strong and to
reductions in deposit rates. The ratings agency expects that
the effect on overall margins will become more important over
time, as they will more clearly highlight operational
Lower spreads, increased competition, the outlook for slower
GDP growth, and greater capital requirements will limit
Bradesco's future profitability ratios, Fitch says, but they
will be at good levels and better than the peer average.
Coping with a new reality
Non-performing loans have been an increasing problem for
Brazil's banks. Bradesco's delinquency ratios have nudged up
this year, though not as much as other banks. Small and
medium-sized business lending was affected in 2011, and this
year vehicle loans have caused concern, affecting the
delinquency ratios for banks including Itaú and Banco do
The sector's NPL rate has reached 6% this year, according to
Fitch, compared to 2% in some Latin American countries, and a
4% emerging markets average. Angelotti expects Bradesco's
delinquency ratio to reduce in the second half to around 4%
(where it was at the beginning of the year).
"The decrease should continue in 2013," Angelotti says. "In
this area, structurally lower Selic rates are a good thing, as
businesses and individuals will find it easier to make
Solid employment figures will have a positive effect on
individuals' ability to make payments. The bank expects the
unemployment rate to improve from an already low 5.6%. Fitch
says the bank's credit quality is in line with its peer average
and its loan loss coverage among the highest in the sector.
Bradesco's large competitors have started to venture into
the payroll lending segment, once the focus of the sector's
mid-size banks. Normally, experimentation starts with smaller
players and trickles up to the likes of Bradesco and
Itaú. This year Itaú formed a $1 billion reais
joint venture with mid-sized lender Banco BMG for payroll
lending. The deal allows Itaú access to the fast-growing
payroll lending segment while keeping the risks at arm's
length. If it goes well the joint venture could be a model for
other large players to follow.
Itaú has also moved this year to bring credit card
processing in-house, spending more than $5 billion to buy up
all of the shares in Redecard. Though seen as an expensive
acquisition, the synergies created are expected to be positive
for the bank.
With inflation threatening to rise in 2013 - possibly
forcing the central bank to lift rates next year- this may not
yet be the time to experiment. Still the steady expansion seen
for Brazil's economy ahead should provide ample room for
Brazil's large banks to keep growing.
Bradesco plans to continue to expand organically to keep
pace with its large public and private competition. At the same
time lower funding costs and continued government pressure to
lend more to stimulate the economy should help Banco do Brasil
and Caixa continue to grow stronger.
"The greater participation by the federal banks on the
market is positive and creates a challenging situation,"
Trabuco Cappi says. "However, challenges have always been part
of banking activity in Brazil. The current situation is
motivating us to redouble our efforts and overcome these
challenges once again." LF
Best investment bank: Itaú
Although investors' expectations for Brazil have cooled, the
domestic investment banking landscape continues to invite
competition. For the moment, the larger Brazilian institutions
still claim a lion's share of the business.
The offerings should grow next year, as lower interest rates
force investors to diversify -with implications for both local
fixed income and equities. The domestic corporate bond market
is set to expand as investors need more non-government bonds.
Infrastructure financing will also require more bonds and bank
lending. Brazilians have issued in the cross-border markets
this year along with the rest of the region and the brisk pace
looks set to continue.
"With rates going down and perhaps staying low, investors
are looking to shift resources to other asset classes,"
Jean-Marc Etlin, head of investment banking at Itaú,
tells LatinFinance. "In fixed income, investors are hungry for
yield and there is growing demand for credit across the ratings
Itaú led the league tables in the awards period for
DCM for Brazilian clients, including international and local
market deals, with $9.69 billion of issuance in the year to
June 30, according to Dealogic data. This included a $5.9
billion local market portion, also the largest during the
Establishing a liquid secondary market will be key to
deepening the local fixed-income markets, Etlin says. The
introduction of fixed coupons as opposed to the existing
inflation-linked instruments will be central to this effort, he
The growing demand for credit is already having a salutary
effect on Brazil's local fixed-income market. Infrastructure
spending, bringing banks such as Itaú the opportunity to
lend as well as raise funds through new asset classes such as
infrastructure debentures, should continue to provide
M&A activity will continue to be characterized by
foreign interest in Brazil. Itaú advised EBX on its $2
billion sale of a 5.63% stake to Mubadala in March. Latin
America remains a source of appeal to global players, Etlin
says. Ongoing consolidation in the key industry sectors
alongside continued, private equity activity should also prove
The equity capital markets, however, have been a poor source
of revenues for all players in Brazil. Itaú booked $1.22
billion in ECM deals from Brazilian clients, the most during
the awards period. Bankers are hopeful there will be a pick-up
in issuance in 2013, following two years of disappointing
volumes, as investors that once found the country expensive may
now be motivated by falling valuations to return.
In the meanwhile, ECM attention has shifted this year to
LatAm's ex-Brazil markets, which debt investors have also
focused on. This is a fact not lost on Itaú or its
largest Brazilian competitor BTG Pactual. Already established
in Chile, Itaú hopes to diversify its activity across
Latin America. This year, it was a bookrunner on Santander
Mexico's $4 billion IPO.
"We have been quietly expanding beyond Brazil's borders,"
Etlin says. "Investment banking activity outside of Brazil is
real and growing." LF
Best bank: Banorte
Mexico's banking sector is in good shape with the country's
largest lenders largely isolated from global turmoil and well
poised to capitalize on the economy's expected growth. Output
is likely to get a boost in the coming years thanks to
favorable global trends, with promised reforms from a new
government possibly adding a further fillip.
All of Mexico's big banks should benefit from the improving
conditions. While not the system's largest by assets, Banorte
has used its integration following the 2011 merger with Ixe
Financial Group to gain ground on foreign-owned players.
"OECD discussions are about deleveraging, while the story in
Mexico is about leveraging," Banorte chief executive Alejandro
Valenzuela tells LatinFinance.
Mexico's strengthened fundamentals and economic growth have
successfully lifted the country's financial sector after a
prolonged phase of intermittent financial crises, Valenzuela
says. With stronger Mexican economic growth forecasted, Banorte
sees itself in a position to cater to the growing business
The bank has been integrating operations that resulted from
its merger with Ixe in 2011 - a deal that has made it the
third-largest financial institution in Mexico, surpassing
Santander. This has brought size as well as a stronger
investment banking operation. With no overhang from concerns of
a foreign parent, the bank is in a strong position to grow.
It has also been expanding non-bank assets. In January, the
bank merged its Afore Banorte pension operation with Afore XXI,
one of the country's other large operators, becoming a 50%
partner in Afore XXI Banorte with the Mexican Social Security
Institute. Banorte's pension assets under management reached
$225 billion pesos ($17.8 billion) at mid-year, up from just
$86 billion pesos in 2010.
Banorte's strategy for the next 12 months will focus on
continued integration, says Valenzuela. It will center on
increasing profitability by extracting synergies from mergers.
The bank also wants to take advantage of opportunities for
banking penetration that exist in Mexico, and by cross-selling
consumer products to its increasing client base.
Additional acquisitions could play a role here, particularly
those that would allow it to achieve greater scale in the
pension and retirement fund business. Valenzuela says Banorte
is analyzing opportunities to scoop up the BBVA pension assets
in Mexico, part of a package the Spanish bank is looking to
unload that also includes assets in Chile, Colombia and
"We want to look and see if those assets could generate
value and if we can afford them," Valenzuela says, noting that
the bank is in the early stages of analysis. "We will have a
clearer picture of where it stands within three to four
Banorte's banking assets increased to $890 billion pesos as
of June 2012, which represents 14% growth from the first half
of 2011. The real growth in its total assets under management -
up to $1.4 trillion pesos at mid-year from $1.3 trillion pesos
the year before and from $712 billion pesos two years before -
has come from the pension and broker-dealer growth.
Banorte still sits third behind BBVA Bancomer and Banamex is
most credit categories, but has seen stronger growth in several
areas in the last 12 months, most notably credit cards and
government-related lending. It says it has the second largest
market presence in commercial and SME lending following the
integration of the Ixe operations. The bank has seen an overall
increase in market share over the past 12 months to 13% from
12% in deposits and to 14% from 13% in loans.
The bank has one of the lowest non-performing loan rates in
the Mexican financial system. NPLs also remain low in the
second half of 2012, at 1.8% of total loans versus the Mexico
average of 1.9% and smaller than the 2.4% reported during the
same period last year.
Banorte will continue to work in partnership with the IFC to
support small and medium-size enterprise financing with special
guarantees, as well as other priority sectors such as
agribusiness, low and middle income housing and infrastructure
financing. SME lending does not yet match the SME's
contribution to GDP.
Profitability has also been strong. The bank's 14% and
return on assets of 1.2% at mid-year were among the system's
Best investment bank: Banamex
If Mexico is truly the place to be in Latin America in the
next few years, there will be no shortage of investment banking
and capital markets opportunities. So far this year there have
already been signs of increased equity and debt capital markets
This will mean greater competition for the largest banks,
particularly Banamex, which has again shown itself able to
offer the widest range of options for Mexican clients.
"In the last year we've seen tremendous activity compared to
what we had two or three years ago," says José Antonio
González, Citi's head of global banking for Mexico.
(Citi bought the Banamex Financial Group in 2001.)
Mexico benefited from a strong banking sector during the
2008-2009 crisis and has built on that. So, with Mexico's GDP
growing at around 4% annually - at a faster pace than Brazil -
it is ready with a full slate of services for the uptick in
Citi and Banamex led the league tables in total DCM volume
for Mexican issuers, counting both domestic market and
cross-border transactions, with $5.43 billion. This year, the
bank lead managed a $2 billion 2044 note for the Mexican
sovereign and a ¥80 billion ($1 billion) three and
five-year Samurai that was the first from the region without a
Japan Bank for International Cooperation guarantee.
Citi also brought large offerings to the international
buy-side from corporate issuers including the CFE, Bimbo and
Mexico's local debt capital market has remained active while
many of the region's other local markets have only seen
sporadic activity. With some $70 billion pesos issued - year to
date (through late September), González says around $130
billion pesos could be issued in 2012 - this is up from around
M$100 billion pesos last year.
Banamex, headed up by chief executive Enrique Zorilla,
booked just over $2 billion-equivalent in domestic bond
transactions over the past twelve months. Large transactions on
the local side have included a $7 billion peso 2015 and 2021
bond sale from government development bank Banobras, deals from
corporate heavyweights Mexichem and Grupo Carso, and a $4
billion peso sale from retailer Liverpool.
"In the local market we've seen spread tightening," says
González . "Issuers have taken advantage of lower rates.
Everyone is still bullish on rates. The macroeconomic
conditions of the country are favorable. It is a dream come
true for an economist and certainly also for an investment
He says the Afores (pension funds) are still liquid and
there should be little in the way of inflationary pressure. He
foresees a pickup in specialized deals in the local market,
with real estate transactions and auto loan securitizations
likely to appear more frequently in 2013.
More recently, the bank handled more than $2 billion in debt
and equity transactions for Mexichem, following M&A work
that occurred during the awards period. Mexicans buying abroad
- América Móvil has been another notable example
- is a theme that has many banks eager to generate business in
several product areas.
"I expect a process of internationalization of Mexican
companies," says González. "In the next three years we
will see Mexican companies taking advantage of different
valuations, mainly in Europe. If these companies explore
international expansion they will have access to capital"
South America is also a destination for acquisitive Mexican
comapnies, says González. Citi-Banamex advised on more
than $5.7 billion in M&A deals involving Mexican
corporations in the twelve months to the end of August, the
Banamex's $374 million Mexican ECM volume made it a leader
for the period though historically this figure is not
Later in 2012, however, the fortunes for new issuance looked
set to pick up, spurred by deals including Santander Mexico's
$4 billion IPO. Bankers expect more opportunities for small and
mid-size Mexican issuers.
"We have a number of new issuers," González says.
"There is visible supply getting prepared."
Best bank: Banco Davivienda
Colombia's banks have been on a roll for the past two years,
but they face stiff competition from abroad. The country's
robust growth has buoyed the banking sector and fuelled a
diversification of banking activities and lending - a
development not lost on foreign institutions eyeing the market.
Canada's Scotia Bank bought control of Colpatria for $1
billion, and Chile's Corpbanca has taken Santander Colombia for
$1.23 billion and Helm Bank, if completed, for $1.28
Though these moves make headlines, they are still far from
shaking up the regional pecking order, where Bancolombia and
Banco de Bogotá sit on the top. Colombia's Banco
Davivienda, the system's third-largest has been steadily
growing to diversify its lending away from mortgages, under the
watch of its president, Efrain Ferero.
The bank has now has become a regional player following its
agreement this year to acquire HSBC's operations in El
Salvador, Honduras and Costa Rica for $801 million - a change
in strategy that reflects a strengthening of its position at
home. "This acquisition was a surprise because they've never
gone outside the country," says Felipe Carvallo, an analyst at
A diversified bank with a 50% commercial lending footprint
and the rest split between mortgage and consumer products.
Banco Davivienda has evolved since the 1990s from being a
mortgage finance company, to achieve a balance sheet for which
corporate lending has become increasingly important.
Commercial and mortgage loans have played a large role in
recent portfolio growth, with the net portfolio at $25.9
trillion pesos ($14.4 billion), up 18.2% from the year
Net income for the first quarter of 2012 was $215 billion
pesos, up 9.9% compared to the fourth quarter last year and
25.5% versus the same quarter in 2011. Its SME segment also
grew 24% compared to the year before. Its housing portfolio
grew some 23% to $4.4 trillion pesos, inclusive of housing
Davivienda will need to maintain its growth in diverse
business areas to keep pace with both foreign and domestic
As with other large Colombian banks, Davivienda enjoys
diverse access to funding. While local mortgage securitization
is part of its way of life, Davivienda tapped the international
bond markets for the first time this June. Its $500 million
2022 issue attracted some six times demand. The sale followed a
$400 billion peso subordinated domestic bond issuance, and was
preceded by a $500 million peso domestic sale.
Best investment bank: Bancolombia
The race for space in Colombia's banking sector has been
running for some time. In addition to the retail transactions
that make headlines, foreign interest has boosted investment
banking operations. In theory, this will benefit all bank
players but, for the moment, Bancolombia's unmatched scale
across product areas gives it a substantial lead over its
The follow-up business to Grupo Sura's $3.8 billion purchase
of ING's pension assets offers a strong example for
"For the Suramericana transaction, the largest that a
Colombian company has ever done, we were a one-stop shop for
them," says Jean Pierre Serani, vice president for origination
at Bancolombia's investment banking arm.
"We provided credit, we provided M&A, and we provided
the equity capital market access."
Bancolombia, headed by Carlos Raúl Yepes, undertook
evaluations of indicative and binding offers, and helped
arrange lines of credit for $1.1 billion credit with three
local banks. The process, culminating in a public equity sale,
took three months, Serani says.
"More Colombian blue chips are looking to expand abroad," he
says. "Also, there is going to be more local consolidation and
global private equity shops coming for acquisitions given the
growing consumer base and strong internal demand."
Inbound M&A, seen most heavily in 2012 in the financial
sector, looks set to continue. There is intense international
interest in Colombian assets and plenty of scope for
consolidation. Serani expects M&A focus will be in the
middle market of $30 million-$150 million next year.
The $1.8 billion-equivalent equity follow-on to raise funds
for Sura's purchase was done during a tricky patch in the
international markets, and raised less from public investors
than had been aimed for. That said, it was still what the
issuer described as Colombia's largest-ever equity raising by a
non-government entity. Bancolombia also raised $900
million-equivalent for itself in the international and domestic
equity market during the awards period.
"Equity issuance has been a little more quiet his year,"
Serani says. "The market is still digesting what they acquired
last year. Also, the effects of the crisis in Europe have made
portfolio managers more conservative. Next year we will
probably see more activity."
Bancolombia led the domestic DCM and ECM league tables with
dollar equivalent figures of $927 million for DCM and $2.05
billion for ECM.
Among the most compelling growth areas is infrastructure
finance and in particular its implications for Colombia's fixed
income market. The country's growth has left its roads below
regional standards - something a $25 billion government program
aims to address.
However, Serani says funding it will be well beyond the
capacity of the local bank market, the traditional source of
project finance. Domestic bonds backed by government payment
certificates - as have been done in Peru - should be the way
"This is going to trigger the development of the project
bond market, but we need to do short-term financings from the
banks to take care of the money needed for construction,"
Serani says. LF
Best bank: Banco de Chile
In a market peppered with other well-positioned banks, Banco
de Chile remains one of the country's strongest, with a
432-branch network and 1.7 million customers - some 22% of the
Chilean workforce - along with a solid funding structure and
It is the country's largest bank by a host of measures
including net income, return on average capital, total loans.
Though it is not the country's largest bank by assets, with
total assets of $44.9 billion, Banco de Chile is the most
profitable, with a return on equity of 23% as of June, and
return on assets of 2.1%.
Like many countries in the region, Chile has maintained
robust economic growth against the backdrop of slowing global
output. GDP expectations of between 4.8% and 5.0% for 2012, and
levels of growth seen around 4.5% for the next year paint an
encouraging picture says Pedro Samhan, Banco de Chile's
Cooling economic growth, will mean that "the banking sector
will continue growing, but at a slower pace than it has grown
during the last four months," Samhan says.
Banco de Chile is focused on expanding its retail business
via new product offerings, a new internet delivery platform and
updated mobile banking application. Meanwhile, the small and
medium enterprise segment has also been an area of competitive
advantage for the bank, says Samhan, as it looks to strengthen
customer loyalty to maintain market leadership.
In the first half of 2012, Banco de Chile led in development
agency-backed Corfo (Chilean Economic Development Agency)
guarantees, with 190 billion pesos in funding. Credit cards and
retail mortgage loans are an emphasis as well, as they are key
to relationship building with customers, the bank says.
Banco de Chile's commercial strategy is to keep growing its
retail business and increasing its profitability in the
wholesale segment, while on the retail side, it will continue
to expand in consumer loans and fee products, he says. And on
the wholesale side, the bank will look to increase
cross-selling as it looks to grow in areas such as foreign
trade letter of credit, cash management, and treasury
"Our focus will continue to be to expand in the consumer
segment, because we still have some room to grow," Samhan says.
"This is the most profitable business."
The bank will keep looking for new customer segments in
retail and wholesale and establish metrics for measuring
quality, and seek to provide competitive service, inclusive of
As it grows, the bank's funding has become more diversified.
It registered a bond line for $720 million-equivalent in
Mexican pesos, becoming one of the few foreign banks to tap the
Mexican bond market, raising $110 million-equivalent in pesos
at the end of last year. It will continue watching the market
for the right environment to issue debt, Samhan says. The bank
took advantage of international interest in Chilean debt to
place $50 million-equivalent in 2027 bonds trading on the Hong
Kong market in September.
It recently announced plans for an equity capital increase
of $530 million-equivalent, aimed at solidifying the capital
Best investment bank: Banchile-Citi
Foreigners, with regional integration in their sights,
staked out positions in Chile's investment banking market in
2012. This is likely to shake up the domestic competition,
especially with the welcome the country's debt and equity
issuers have received internationally. Despite the backdrop,
the longstanding international partnership of Banchile-Citi,
stands out as the most balanced provider of investment banking
Chile has seen a relatively high level of equity issuance
over the awards judging period, particularly when compared to
other markets. Andrés Bucher, managing director at
Banchile-Citi, says that total ECM activity in 2012 will be $5
billion, lower than 2011's $7.2 billion, but still much higher
than the $1.5 billion-$2 billion levels seen in prior years.
Banchile has worked on several large offerings during the
period, including follow-on transactions for Sigdo Koppers,
Quiñenco, Aguas Andinas and Essbio and Essval.
The local bond market, however, has proceeded in spurts, but
mostly in line with the historical average.
Bucher says the $3 billion expected in Chile's local DCM is
in line with averages in recent years. Banchile-Citi led deals
for clients including Inversiones Southwater, Quiñenco
and Agrosuper, giving it a league table topping $960
million-equivalent volume during the awards period.
A November 2011 sale for Movistar featured a $66 billion
peso tranche that Banchile says is the largest-ever corporate
placement of debt denominated in pesos. Local investors are
still conservative, a fact that limits the range of potential
issuers, with lower-rated borrowers having access to the local
bank loan market.
"The local bond market has advantages for local companies,"
Bucher says. "Local issuers can always rely on it when the
international market closes."
However, Chilean companies typically enjoy good access to
international investment, with this year's cross-border
issuance to date already surpassing last year's $6 billion
Lower rates should attract more issuers. Higher-yielding
Chilean names are increasingly welcome, as long as they issue
dollar-denominated debt. Also of note is Chile's emergence as
an exporter of capital, with a Santiago stop becoming customary
on LatAm DCM and ECM issuers' roadshows.
"Maybe trading in the MILA platform [the Andean stock
exchange] is relatively small, but the concept of the MILA is
one that is here to stay," Bucher says.
Though not the region's largest market, Chile should
continue to attract M&A interest thanks to the perceived
quality of the economy and strong credit rating, Buchers says.
Strategic and sovereign wealth funds are likely to play a
Banchile-Citi advised Morgan Stanley Infrastructure Partners
on the sale of 50% of the Inversiones Saesa utility to Canadian
pension fund Alberta Investment Management. The sale fetched
$550 million, and came at a multiple of more than 16 times
The bank also advised Spain's Enagas on its purchase of 40%
in the GNL Quintero liquid natural gas terminal from BG Group.
The deal was seen at the time reaching $352 million, depending
on certain milestones.
Chilean companies will continue to expand throughout the
Andes and elsewhere in Latin America. although there remains a
shortage of quality assets for sizeable M&A deals, Buchers
says. Most of the growth should be organic.
In the last six months, local investment banks IMTrust and
Celfin have been taken over by foreign investment banks
expanding in the region. The key is offering a broad selection
"This is becoming regional. Chile is a very competitive
environment, and will become more competitive with the entrance
of regional investment banks," Bucher says.
Banco Santander Río
The Argentine government doesn't make it easy for banks.
Although they mostly remain in good shape, a slowing economy
has thrown up yet another challenge for the country's financial
The government forecasts growth of 3.4% in 2012, down from
8.9% last year, while output in 2013 - as a growing number of
forecasters now predict -could be still slower.
Banco Santander Río is the biggest bank in the
country and the strongest in retail lending, which remains the
largest business line for the country's banks. Its $10.65
billion in assets as of year-end 2011 grant it a cushion that
leaves it well positioned to deal with a deteriorating economic
"In the past two or three years Santander Río has
been the best performer in terms of growth, profitability and
cost efficiency," says Santiago Gallo, an analyst at Fitch.
Retail lending has been the focus for the bank's growth.
Commercial lending is growing too, but uncertainties facing the
private sector are a challenge.
"In the coming years most of the growth in Argentina will be
in retail lending," Gallo says. "The government's economic
model is based on strong local demand and consumption. That
fosters retail lending."
Santander Río has the largest private-sector loan
portfolio (8.8% market share) and deposit base (9.7% market
share) in Argentina. During 2011, Santander Río says the
bank accounted for 36% of the total system's expansion in new
The bank's net income in 2011 was $406 million, up 5%
year-on-year. It is also the most profitable with a return on
equity of 43%. Santander Río continues to be the most
efficient private-sector bank compared to peers with a
cost-to-income ratio of 46%.
"Banks in Argentina are in good shape," Gallo says. "The
risk mainly comes from the economy, from the government and the
So far there have been no adverse effects from any troubles
from its Spanish parent. Santander plans to float part of its
profitable Argentine operation - just as it did with its
Mexican unit in September in an operation that appears to have
been successful so far. Santander Río's connection to
Santander has also allowed it to have one of the top capital
markets operations in the country.
Argentina's economic slowdown could lead to a deterioration
in asset quality, though Gallo says Santander Rio's strengths
leave it in a strong position to face these risks, and
historically it has always maintained a high asset quality.
Gallo points out there are some factors benefitting the
country's economy, such as a high soy price. Nobody is
expecting a crisis, but Santander Río is again the best
prepared to face any challenges ahead. LF
Best bank: Banco de la República Oriental del
Uruguay, where GDP growth last year hit a five-year average
of 6.1%, is the envy of many larger economies in the region.
Yet the greater dynamism in its economy reflected in its recent
investment grade rating, however, has not yet translated into
greater competition in its banking sector. While the likes of
Santander and HSBC have units that have gained in size, the
government bank still dominates the system.
With a share of assets above 43%, it is hard to ignore Banco
de la República Oriental del Uruguay and its place in
the country's system. It continues to dominate most areas of
business, and has yet to be seriously challenged by any of the
The state-owned bank says its main strategy is to extend
universal access to financial service offerings to every corner
of the country. It is aiming to grow in the microfinance
sector. Banco de la República has opened its first
microfinance business - República Microfinanzas - a
business specializing in products and services in the
microfinance sector with operations starting in 2010 and
generating since then, adding a large number of clients and
volume of credits in the local market.
Assets under management were $12.07 billion pesos at
mid-year, up from $11.38 billion pesos the same period last
year, and representing 43% of the system. Deposits grew to
$10.4 billion pesos versus $9.73 billion pesos. The bank has a
45% of market share in deposits.
The positive trends for Uruguay, and for Banco de la
República look set to continue. Banking activity
continues to grow along with the economy, Fitch says, and
credit quality remains at historically high levels. Banking
institutions are characterized by solid levels of liquidity and
The profitability of Uruguayan banks has not been as
positive as other indicators, Fitch says. This is thanks to low
international interest rates reducing margins, exchange rate
fluctuations and inflation.
However, Banco de la República posted a return on
equity of 28.1% for the 12 months though to June and return on
assets of 2.9%, up from 12.5% and 1.4%, respectively from the
corresponding period one year before. This compares to a 9.9%
ROE and 0.8% ROA average for the system.
Best bank: BBVA Continental
BBVA Continental, Peru's second-largest bank, has positioned
itself well to capitalize on Peru's booming growth.
A surge in output in the Andean economy has seen banking
services extend far and wide - a trend that has also meant
consumer loans growth at twice the rate as that of corporate
loans over the past year.
Loans are growing at roughly 2.5-3.5 times GDP, driven by
mortgages, consumer and credit card loans.
BBVA Continental's CEO Eduardo Torres-Llosa tells
LatinFinance it's a trend he expects to continue. "The number
of debtors in the system is pretty low, and we see a lot of
opportunities in this segment of the population." He expects
the bank to double in size over the next five years.
Like its other large and successful domestic competitor
Banco de Crédito del Perú, the well-capitalized
Continental enjoys ready access to funds. In August, it issued
a 10-year, $500 million senior bond, which came in around 16
times oversubscribed, Torres-Llosa says.
Challenges ahead for Peru's banks include making sure credit
doesn't expand too rapidly if the economy shows signs of
overheating. Equally, banking authorities are also expected to
double up efforts to find skilled professionals to staff the
With $12 billion in loans and another $12 billion in
deposits, BBVA Continental is the most profitable bank in Peru,
Torres-Llosa says, with ROE around 35%. Its efficiency ratio is
36%, and the bank says its past-due loans ratio, at 1.2% is the
best in the system; it also has the highest coverage ratio of
non-performing loans in the system at 350%.
Torres-Llosa points to mortgage lending as one of the bank's
core strengths. The mortgage sector is growing more than 20%
annually - an expansion that's likely to continue as more of
the population gains access to the financial system. Meanwhile,
the bank has been aggressively expanding its distribution
network, increasing the number of branches and ATMs by some
40%-50% in the last three years.
BBVA Continential has pushed for an increased presence in
the payroll segment, where it has continued to grow its market
share with new products and services, jumping from 22% to 29%
in recent years. It is also number one in the medium enterprise
sector, where it has reinforced its market share, while it
looks to beef up its small enterprise expertise.
"That's a very attractive segment," Torres-Llosa says. "But
you have to know how to manage that segment, because there is a
lot of risk."
Though Colombia has been the focus of internationally-driven
M&A activity this year, foreigners beyond BBVA and Scotia
may be eyeing Peru more closely. Continental expects to see
more international competitors enter the country, drawn by its
growth prospects and relatively appealing regulatory
"We have to work with a sense of urgency in terms of getting
the loyalty of our clients and increasing our presence in
Peru," Torres-Llosa says. LF
Best bank: Banco Mercantil Santa Cruz
Bolivia's financial system has advanced steadily this past
year. A healthy pickup in GDP growth - to 5.1% in 2011 from
4.1% in 2010 - has lifted the economy and allowed total assets
in the system to increase by 16.4% in that time, while profits
have grown 36%.
The scale of the market's largest bank, Banco Mercantil
Santa Cruz has meant it has no peer in terms of strength and
"The country is going through a positive economic
performance which is tied to the performance of the financial
system," Darko Zuazo BMSC's president, tells LatinFinance.
The bank has hit two important milestones, he says: its loan
portfolio reached $1 billion in the first semester of 2011, and
BMSC now has over $2 billion in assets.
The bank has $1.79 billion in deposits - a growth of 17.2%
in the second half of 2011, easily maintaining its position as
the largest in the country. Profitability for BMSC on an ROE
basis was 23.4% in 2011 year-end versus 26.8% as of the same
period last year.
Its return on assets increased slightly to 1.53% as of
year-end 2011, versus 1.31% at the end of 2010. The increase
was in part thanks to a new cash processing area, which the
bank says has reduced operating costs.
The bank has reduced its non-performing loans through its
special operations division and decreased non-performing loan
assets as a percentage of the loans from a NPL ratio of 6% in
2010 to 3.42%.
With its position well established, BMSC's main strategy is
to continue to modernize its technology: this includes
implementing the first self-service electronic platform in
Bolivia, and new services for customers through ATMs and
Its 2013 strategic plan includes increasing the number of
branches and ATMs while leveraging technology to grow its
assets and loan portfolio, Zuazo adds. The bank has also
initiated operations of Empresa de Transporte de Valores, a new
company that transports cash and valuables.
One channel for growth in Bolivian banking could be through
the country's growing and profitable microfinance segment. BMSC
would like to increase its presence in microfinance, although
Zuazo says the bank does not expect a substantial expansion in
this area in the short to medium term.
"There is talk there could be entities for sale, but it is
not a buyer's market with only four to five known microfinance
entities in the country," says Zuazo. LF
Best bank: Banco Pichincha
In an increasingly competitive marketplace, one of the chief
aims of Ecuador's Banco Pichincha over the past year was to
diversify its services, says Jorge Chiriboga, the bank's vice
president for financial control.
The bank's total assets grew by 13.6% from December 2011 to
August 2012 to $7.67 billion, with consumer credit growing by
19.6% and commercial credit by 18.8%. But the bank's
profitability was down, to give a return on equity of 13.8%
from 15% and a return on assets of 1.3% from 2.1%.
In fact, the profitability of the entire financial system
declined, as changes to the regulatory environment hit balance
sheets and forced banks to become more adaptable.
ROE for the sector dropped from 18.9% in December 2011 to
14.9% in 2012.
This has called for nimble planning and strategy, says
Chiriboga. Measures have included price ceilings on interest
rates and fees on financial services, as well as tax reforms,
and divestment of assets.
"These levels of performance are the result of a strategy
that favors efficiency and strict cost control, and whose focus
is to generate adequate levels of profitability and solvency,"
As part of regulations introduced this April, financial
institutions are limited in which services they can charge for.
This, added to another layer of restrictions - announced in
July 2011 but which came into force this July - has prevented
private sector financial institutions from holding stakes in
insurance and brokerage companies.
The bank has sold off its Fondos Pichincha, Seguros del
Pichincha, Pichincha Casa de Valores and Consorcio del
Pichincha plans to increase its national presence and to
attract more customers to the formal banking sector. It is
looking to expand its non-bank network to some 5,000 so it can
cover more ground, Chiriboga says.
The bank bought Lloyds Bank's assets and liabilities for $20
million in 2010. It bought GMAC's assets in 2011 for $38.5
million. The Lloyds acquisition heightened relationships with
corporate clients, and the latter helped Pichincha consolidate
in vehicle financing, says the bank.
Further expansion through M&A remains a possibility,
though the bank indicates that it "does not rule out the
evaluation of opportunities that may be of interest in the
country and the region."
Pichincha is weighing up issuing a dollar bond - possibly
for $100 million - in the international markets, though timing
has yet to be determined. (The bank has issued shorter-term
dollar debt domestically but has yet to sell long-term debt
Presidential elections next February will play a large part
in determining the future regulatory environment for banks -
and analysts say a win by incumbent Rafael Correa could mean
yet more controls on financial institutions.
Best bank: BBVA Provincial
Venezuela presents a challenging environment for any bank.
But high margins tend to make up for problems caused by
inflation and an uncertain operating climate.
October's re election of Hugo Chávez as president has
re-assured Venezuelans, if nothing else, that there will be
political continuity - though the economic outlook remains
"It is a complicated economic and regulatory environment for
banks to operate in," says Theresa Paiz-Fredel, an analyst at
Fitch. "The cost of inflation weighs on their efficiency."
BBVA Provincial stands out in Venezuela, not least for
having an ample cushion to deal with the uncertainty.
Its total assets of 82.9 billion Bolívares ($19.3
billion) as of mid-year, are smaller than those of Banesco and
state-owned Banco de Venezuela, according to the country's bank
regulator. But it is more profitable, with a return on average
assets of 6.5% and a return on average equity of 62.6%.
For the second straight year, BBVA Provincial's size and
strength mean remains best placed in the banking system to face
these challenges. In addition to being among the most well
capitalized banks, the bank's risk management and strong asset
quality also set it apart from its peers. The bank has higher
loan loss reserve levels and capital coverage as well as lower
exposure to government assets than most of the sector, which is
dominated by public sector banks with, in general, lower asset
"Banks in Venezuela tend to be highly profitable in nominal
terms," says Paiz-Fredel. "They have wide interest rate margins
which can compensate for credit costs and inefficiency."
Higher margins - the net average interest in 2011 was 11% -
have insulated Venezuela's stronger banks. There has also been
a shift to less regulated segments, and to retail lending,
which has higher margins. Growth was strong in 2012, thanks to
loose monetary and fiscal policy in the lead-up to the
Nationalization talk died down before the elections, and the
government, despite lingering perceptions that this will not
always be the case - has not taken over a financial institution
since mid-sized bank Banco Federal in 2010.
Fitch expects 2013 to be more challenging, but not
necessarily detrimental to domestic banks' overall performance.
There has not yet been a deterioration in asset quality,
Paiz-Fredel says, and the banks remain adequately capitalized.
Best bank: Banco de Costa Rica
Costa Rica's banking system is dominated by three large
government-backed banks that are similar in size, and compete
in many of the same areas. This year, Banco de Costa Rica
stands out from the other two for having weathered an economic
environment that still throws up challenges, despite having
largely recovered from the 2008-2009 crisis.
Costa Rica's economy is expected to grow by 3.7% in 2012,
down a touch from the rates above 4.0% seen in 2010 and 2011
supported by industry and services and steady recovery in
consumer credit. And in general, the economic recovery of
recent years has meant an increase in demand for banking
BCR is the second largest bank in Costa Rica with $5 billion
in total assets, a 24% market share, according to Fitch. Like
all state-owned banks, it benefits from an explicit sovereign
guarantee; it also possesses the largest branch and ATM network
in the country - a fact that's contributed to an ample and
diversified deposits base.
"We are always measuring ourselves internally but also
externally," BCR chief executive Mario Rivera Turcios says.
A reordering of the private banking sector is on-going with
greater competition emerging from foreign banks, he says. In
January, Colombia's Davivienda bought HSBC's assets in Costa
Rica El Salvador and Honduras, and so could be in a better
position to grow more strongly than HSBC.
That said, little has happened in recent years to disturb
the dominant hold that BCR, Banco Nacional de Costa Rica and
Banco Crédito Agrícola have on the sector.
Turcios says credit has been BCR's greatest growth area, in
both business and personal banking. The bank's credit portfolio
grew 18% in 2011, thanks to growth in segments including debit
and credit card services, internet banking and mobile
BCR's main focus is to increase its loan portfolio. This
includes a focus on growth in residential mortgages and
consumer loans, while also striving to increase its lending to
small and medium-sized enterprises.
The bank is also planning to diversify its funding sources.
Turcios says it plans to issue an international bond early next
year. As of late October, Costa Rica's government - benefitting
from ratings upgrades as BCR has - was planning its first
sovereign international bond since 2004, which should help set
a benchmark. LF
Best bank: Banco Agrícola
Despite an uptick in GDP growth, the competitive balance
between El Salvador's banks is little changed from 2011.
Banco Agrícola remains the largest and strongest bank
in the country. Its $3.07 billion in assets at mid-year are up
from $3.54 billion 12 months earlier, according to the bank,
and are nearly double the second place bank, according to
Banco Agrícola is also the most profitable. It posted
a return on average assets of 2.54% as of mid-year, as head of
the banking system, and its return on average equity of 17.64%
was second highest.
The bank's financial performance have been driven by
declining credit costs, gradually rising margins and a slight
growth in its loan portfolio. Banco Agrícola's market
share in terms of assets at year end was 28.2% and deposits
Its business, as of mid-year, is split between its
commercial operations, accounting for 46% of its business,
consumer banking, 40%, and mortgage lending 14%.
The bank represents a strategic presence for Bancolombia,
which acquired the bank in 2007, in the country as well as in
Central America. El Salvador has seen little other foreign
competition since then.
As with the dominant banks in many of Latin America's
smaller economies, Banco Agrícola's size leaves it in
the safest position to withstand an economic downturn that
might threaten asset quality.
This is particularly important in El Salvador this year. The
economy, closely tied to that of the US, continues to slow
while fiscal pressures and increasing public debt leave it
vulnerable to external shocks.
Fitch forecasts GDP growth of 2% for 2012 and 2.3% for 2013.
Foreign competitors, such as Citi, HSBC, Banco G&T
Continental and Scotia have yet to match Agrícola's
numbers, and should find it difficult to do so given the
prospect of continued slow growth. LF
Best bank: Banco de Desarollo Rural (Banrural)
Mergers in the past decade have seen Guatemala's banking
system come to be dominated by its two largest banks, Banco
Industrial and Banco G&T Continental. Against this backdrop
however, well managed Banco Rural (Banrural) has grown -
quietly, but with vigor.
Banrural's assets stood at 35.48 billion quetzals ($4.53
billion) at mid-year, up from 30.35 billion quetzals the year
before and just 24.31 billion quetzals three years ago,
according to central bank data. It has nearly caught up to
second-placed G&T Continental's 35.91 billion quetzals, and
has become the second largest by deposits. That said, catching
Banco Industrial's 50.11 billion quetzals of assets is still a
A focus on consumers and micro and small enterprises has
served Banrural well. Its profitability compares favorably with
the country's two largest banks. And it posted a return on
equity of 23.9% as of mid-year, second only to Continental,
which it bested in terms of return on assets of 2.7% to
Banrural efficiency ratio dipped over the awards period - a
concern for analysts given the bank's size and consumer lending
concentration - from 40.1% to 39%. Yet despite "weak"
efficiency metrics, the bank "compensates with high margins,"
says Edgar Cartagena, an analyst at Fitch Ratings.
Still, the focus of its lending, and a more limited revenue
diversification than the big banks, could leave it vulnerable
to any economic downturns. The bank is mainly geared towards
financing consumption, as well as micro, small and medium
companies, with a smaller share in corporate lending.
Guatemala's economy grew at 3.9% in 2011, and the growth
rate should average 3.3% between 2012 and 2014, according to
Fitch. Among today's chief sources of concern are the country's
high crime rate and social instability, as well as in the
prospect of a downturn in the US economy.
But Banrural's sound local franchise, high profitability,
strong capital metrics and ample deposit base, as well as its
improving capital ratios over the past five years (which have
stabilized over in the last two fiscal years) have left the
bank on a relatively sound footing. The bank's core capital to
risk weighted assets stood at a high of 15.1% this June, well
above the average of the Guatemalan banking system.
Best bank: Banco General
Panama has a deserved reputation as having Central America's
most dynamic banking sector - and recent economic growth has
meant there has been even more room for expansion. But this
growth has, as yet, to lead to major changes in market share,
with Banco General still the dominant player.
The bank, as Panama's largest locally owned bank, possesses
one of the largest branch networks in the country, significant
market share and a reputation for consistency and conservative
"Banco General has consistently executed a conservative
strategy, building on its strengths and cautiously yet
decidedly approaching new business initiatives," says Diego
Alcazar, an analyst at Fitch.
"You don't see rapid growth such as you see in Peru and
Colombia, but Banco General has steady margins, a well
diversified portfolio and the largest market share in
mortgages. It has been able to solidify its corporate lending
and consumer lending with a conservative approach."
The bank had $9.88 billion in total assets as of mid-year,
up from $8.97 billion the year before. Its market share in
loans was 17.9% and deposits 24.9% keeping it at the top of the
banking system. Profitability remained about the same, with
return on assets of 2.77% up from 2.64% the year before and
return on equity of 21.48% down slightly from 21.76%.
Because of its slippage as the market leader for loans and
deposits, the bank's strategic plan for 2012-2014 involves
bolstering its competitive position, as it bets on sustained
economic growth rates.
But the country's banks need to be careful: while economists
are sanguine on growth, inflation is threatening to hit 6% this
year - higher than the government would like. Fears that
authorities may be overspending have stoked fears of imbalances
ahead that could hurt growth.
"There are hiccups, yes, but Panama has a stable economic
environment and that consistency is reflected in the overall
stability of the country," says Alcazar.
Banking sector growth is expected to be mainly in the retail
sector, where Banco General has been cautiously seeking to
increase its market share.
Expansion abroad - albeit organically - also remains a goal,
says Fitch. Banco General operates in Mexico, Guatemala, El
Salvador, Colombia and Costa Rica. But strategic acquisitions
are also possible, the ratings agency says.
The cost of credit should gradually increase as the bank
enters riskier markets and promotes riskier products, says
Fitch. But given the bank's risk-averse culture, the dangers of
such a move are likely to be limited - with the rewards,
ultimately, significant. LF
Best bank: Banco Popular Dominicano
This year has been a challenging one for banks in the
Dominican Republic. Despite some growth in retail, mortgage and
consumer credit, the story for the country's lenders has been
largely one of less growth and profitability.
The run up to presidential elections this year witnessed a
fiscal expansion that has led to a deterioration of the
country's fiscal accounts, according to Barclays. It estimates
a fiscal deficit of 4.3% of GDP in 2012, likely to shrink to
3.0% of GDP next year.
Against this backdrop, the central bank was forced to take a
conservative stance: interest rates have therefore been higher,
leading to a decline in consumer lending. Banks are also
investing more in government assets and directing fewer
resources to lending. A 1% tax on banks' financial assets in
effect from June 2011 to June 2013 has also made life difficult
and challenged growth levels.
In this context, Banco Popular Dominicano -the country's
biggest private bank in terms of assets -has maintained growth
above the rest of the system. Its size has served it well in a
more challenging environment. Total asset levels rose 15%
increase at year-end to $5.3 billion from its $4.6 billion in
2010. It also saw its net loan portfolio rise 16% from the year
before to $3.3 billion.
"Compared with its peers, the bank has a wider deposit base,
and that's the source of liquidity to grow," says Larisa
Arteaga, director at Fitch.
The bank's diversity, retail lending and deposits have all
contributed to its maintaining a solid portfolio, she says. The
bank's consumer loan portfolio, meanwhile, aside from credit
cards, grew to $35 million, and it is the biggest mortgage
lender in the country, with 25.4% of the market in 2011.
Banco Popular Dominicano has, in terms of asset volume, a
33% share in the banking market. Its total deposits grow about
14% to around $4.5 billion.
The bank has 28.2% of the market for commercial loans, which
continues to grow. The bank says it is the largest issuer in
the Dominican Republic of credit and debit cards.
Its prospects are boosted by a fiscal reform package
unveiled this October by the new administration, which analysts
say is likely to revive a flagging economy - and, with any
luck, create a better environment for the nation's banks.
Best bank: National Commercial Bank
Jamaica's economic woes have not made life easy for its
banks - and conditions are not expected to improve soon.
After struggling through a prolonged recession, last year
Jamaica's real GDP grew by 1.5% and is forecast to grow by just
0.5% this year, according to Fitch, which expects an average
growth rate of 1.0% for 2013-2014.
National Commercial Bank of Jamaica, which had total assets
of J$379.4 billion ($4.23 billion) as of mid-year - up by
J$31.5 billion dollars from the year before - remains the
country's largest player, rendering it best equipped to handle
any further economic deterioration.
NCB accounts for nearly a third of the assets in the banking
system. At the end of the first quarter, it held the largest
market share in loans (38.1%) and deposits (38.4%) in the
commercial banking industry, according to the central bank. It
also has the largest branch network and capital base.
NCB has concentrated recently on developing its retail
operations - particularly consumer credit and unsecured
consumer loans, credit cards, mortgages and car loans. Small
and medium-sized business (SME) lending is also growing, which
is a positive sign for the bank, says Theresa Paiz-Fredel, an
analyst at Fitch.
The bank has grown in spite of the country's poor economic
activity. Loans were up by 18.4% compared to June last year,
and non-performing loans stand at 7.1% of gross loans, as
opposed to 7.3% the year before. Deposits were also up 13.3%
from June 2011.
NCB ranks top in loan share, deposits and equity, generally
dominating its market ahead of much smaller banks, Paiz-Fredel
says, noting that foreign banks' presence has offered some
competition, though not enough to knock NCB from its perch.
As of March this year, NCB was the leader in terms of loan
market share, at 38.1%, and deposits 38.4% on the commercial
side, according to the bank. Its size means it does not need to
rely on any one specific product area.
"Relative to other banks in similar markets, NCB's income
streams are much more diversified," Paiz-Fredel says.
While NCB's loan portfolio has been highly concentrated, it
is diversifying as corporate lending declines, Paiz-Fredel
says. The bank has also invested in technology and IT, so its
efficiency should improve down the line. NCB says it plans to
continue focusing on deposit portfolio growth.
For the year ahead, it highlights strategic initiatives that
include centralizing underwriting and delinquency management
Trinidad & Tobago
Best bank: Republic Bank
Trinidad and Tobago, home to four large commercial banks and
four smaller institutions, boasts a competitive financial
sector. But size and stability give Republic Bank an edge not
just over its domestic rivals but over most other Caribbean
markets as well.
The bank has the largest market share in terms of deposits
and loans, and - in an environment of excess liquidity and low
interest rates - profited from increases in credit demand.
Assets at the bank have risen to about $47 billion, from
approximately $46 billion in 2010, and net profit after taxes
of $1.2 billion is up from approximately $1.1 billion in 2010.
Its return on average assets climbed to 2.51% from 2.43% while
its return on average equity stands at 16.0%, compared to 15.3%
Growth has come from its real estate and vehicle market
lending as well as credit card-related technology developments.
Banks able to improve their informational systems and curb
operational costs can make up for revenues from private
operations, says Moody's analyst Alexandre Albuquerque - a fact
that's also positive for margins.
Mortgage lending continues to thrive, he says , and is the
only market segment where the outlook remains solid. The credit
system grew 3.1% nationally to March, driven by the real estate
market, which went up by 9.8% first quarter. Business lending,
by contrast, was 5.7% in June, and was down to 5.1% in
But compared to historical standards, overall credit growth
is weak, at 2.9% in August on an annual basis. This has led
banks to remain conservative in terms of their approach to new
and existing business.
"Most of the concern over the economy is due to the fact
that prices in the energy sector are still going down," says
Albuquerque. Trinidad and Tobago is seeking to expand its oil
and gas output to take advantage of strong demand for gas in
South America, Europe and Asia.
Albuquerque predicts GDP growth forecasts ranging from 0.9%
to 1.2% for the year ahead following a 1.4% contraction in
2011. But he says that on the positive side, banks are well
capitalized, have quality assets and so are cushioned against
the worst effects of potential losses. LF
Best regional strategy
Much talk has been made of European, and particularly
Spanish, banks' troubles in recent years. But the effects of
the European crisis have yet to have any major impact on their
For international banks such as BBVA and Santander, these
regional operations represent their crown jewels. The name of
the game has been monetizing assets without pulling out of the
Santander found itself needing to address a €6.47
billion ($10.08 billion) capital shortfall to meet new
requirements imposed by European regulators last year. Its
profits were sagging as well, falling from €8.18 billion
in 2010 to €5.35 billion in 2011. Profits at the Latin
American units have held up well, declining only from
€4.73 billion to €4.66 billion.
Santander has raised a large chunk of capital through the
sale of parts of its best operating assets in the region. The
strategy is still underway, and, when complete, should have
resulted in the IPOs of all of its units in the region that
have not yet gone public.
In December 2011, the bank raised $949 million by floating
an additional 7.8% of its Chilean bank. The sale drew more than
$1.95 billion in orders, and was buoyed by a decision to extend
the lock-up period for the shares to one year. About 70% of the
buyers were international, up from the one-third foreign
participation often seen in Chilean equity deals. The bank,
considered one of Chile's two strongest along with Banco de
Chile, has a 33% free float.
On the same day of the flotation, Santander made perhaps a
bolder move, exiting completely from Colombia.
The Spanish bank was unlikely to do anything in the
Colombian market, with its unit there holding $4 billion in
total assets, and representing a 2.7% market share in loans and
4.7% in deposits. Financial assets in Colombia have been going
for pricey multiples in the past year, so Santander was able to
raise $1.23 billion by selling the bank to Chile's Corpbanca -
itself a growing regional player through Andean
These transactions were followed this year by the much
anticipated IPO of its Mexican unit, perhaps the most highly
regarded of its Latin operations in an economy that has become
an investor favorite. The $4.1 billion sale represents Mexico's
largest-ever IPO and analysts expect it to prove a boost for
equity activity in the country.
With investors putting in for more than three times demand,
the issuer could have priced at the top of the range, but left
some breathing room and came at the midpoint. The sale
represents a 25% float, valued the bank at $17 billion, and
stands out in what has been a poor year for ECM. The shares
have gained more than 20% since the IPO as of late October.
The asset sales should continue. An IPO for Santander Rio,
the largest bank in Argentina, is reportedly also on the card.
Santander has a shelf allowing it to sell an additional 8.2% of
its Brazilian unit, which could bring in about $2 billion.
Struggles in the Brazilian new issuance market may have
compelled the bank to wait.
The outlook for Europe remains uncertain, but Santander has
managed to boost its capital while still retaining a dominant
hold on its successful operations. BBVA, already putting
pension businesses up for sale, is expected to follow suit with
a flotation of its Latin American business.
Inter-American Development Bank
Typically, multilateral lenders come to the fore in moments
of crisis and retreat from the spotlight once better times
But this past year, a kind of limbo has descended. No one
can argue that all is well: on any day the wrong European
headline can freeze up financial markets across the whole of
Latin America. But at the same time, many financial
institutions have become inured to global uncertainties and,
armed with a belief in the region's inherent stability, have
pressed on regardless.
This is the backdrop for multilateral lenders operating in
Latin America: they must be ready to intervene in case of
crisis, but also continue to find ways to facilitate the flow
of capital - even in markets where prospects appear more
Over the period from the second half of 2011 to the first
half this year, the Inter-American Development Bank (IADB) has
done both. The bank, led since 2005 by Luis Alberto Moreno, had
approved $4.46 billion in the year to August 30, and has
disbursed $3.67 billion in that period.
Unsurprisingly, the IADB sees infrastructure as a key growth
area, especially as lending capabilities at many of the
region's commercial banks languishes at low levels.
And it has been taking the initative in financing projects:
The bank led a $430 million A/B loan for the Empresa Brasileira
de Terminais Portuários (Embraport) in Brazil in
November 2011, after more than a year of structuring.
The $100 million 15-year 'A' loan came directly from the
development bank. The $330 million 12-year 'B' loan portion
pays Libor plus 300bp and counted WestLB, Santander, Caixa
Geral, and HSBC as participants. A 633 million reais BNDES loan
and $255 million in equity from sponsors Odebrecht Transport,
Dubai Port World, and Coimex completed the funding. The new
container terminal at Brazil's Santos port facility can handle
1 million teu.
The deal is a rare project financing for Brazil and the port
sector where, in both instances, more balance sheet-oriented
financings are the general rule. Embraport is the first major
greenfield port transaction in Brazil with full market risk and
the deal is notable for having closed during the depths of the
European debt crisis.
Also that month, the IDB agreed to lend Sao Paulo's state
government $1.15 billion to support construction of the
northern segment of the Rodoanel Mario Covas, also known as the
São Paulo ring road. The loan features a five-year grace
period and adds to $980 million coming from Brazil's federal
government and $890 million from the state government.
"Infrastructure is more cyclical - the projects take time to
develop and it depends on the political cycle to push the
projects forward," says Jean-Marc Aboussouan, head of the
bank's infrastructure division.
He expects a wave of opportunities on the back of
legislative advances to public-private partnerships (PPPs) in
countries such as Mexico, Uruguay and Colombia. This should
begin to materialize in the middle of 2013.
Brazil's recently announced infrastructure spending also
offers a number possibilities. However, it is a trickier
environment for multilaterals, despite successes such as
Embraport and the Rodoanel. Aboussouan says the bank must work
to find its place alongside massive lending from BNDES and
other Brazilian government institutions.
The IADB is also keen to promote renewable energy;
Aboussouan says the bank has financed nearly 800MW of the
2,000MW of power generation installed in the region.
The bank provided a $76 million equivalent peso-denominated
loan for the Macquarie Infrastructure Fund's Mareña wind
project in Oaxaca, Mexico, part of a $950 million total project
cost. The IADB is also identifying opportunities - particularly
in solar and hydroelectric generation - in other countries,
including Uruguay and Peru.
The bank has also sought to aid the development of local
markets by supporting financial institutions. In May it
partnered Banamex with a $150 million partial credit guarantee
facility to back issuance of Mexican local debt securities.
This followed a similar facility for corporate issuance by
Leasing Operations de Mexico, in a framework agreement with Ixe
Casa de Bolsa.
Chile's Banco BICE and Brazil's BicBanco became the first
financial institutions in the region to tap an IADB credit
facility to boost lending to health and education. The banks
were lent $50 million each directly, in addition to a
syndicated portion for BicBanco.
Looking to the future, bank officials talk about the need to
get better access to different pools of liquidity.
In March, the IADB and Export-Import Bank of China announced
plans to start a $1 billion fund to invest in Latin America.
The fund is on the verge of starting operations, with $150
million contributions initially to be made by each party.
"The trend will have to be finding ways to work with
institutional investors, beyond just working with financial
institutions," says Jozef Henriquez, the bank's head of
syndications. "That's where the liquidity resides right
Henriquez points to the recent Oaxaca II and IV wind project
bonds and the bond financing for SBM Offshore's floating
production, storage and offloading vessel (FPSO) as positive
developments. He says there should be a role for bank lending
alongside institutional investors and to use the IADB's
guarantee products to provide enhancements.
"With Basel III coming up, all of the multilaterals active
in Latin America will have to find a way to work beyond with
just the banks," Henriquez says. "You have to find different
pockets of liquidity." LF