In an increasingly competitive marketplace, one of the chief aims of Ecuador¹s Banco Pichincha over the past year was to diversify its services, says Jorge Chiriboga, the bank¹s vice president for financial control.
The bank¹s 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 bank¹s 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.
³These 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,² says Chiriboga.
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 units.
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 Bank¹s assets and liabilities for $20 million in 2010. It bought GMAC¹s 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 ³does not rule out the evaluation of opportunities that may be of interest in the country and the region.² 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 internationally.) 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. LF