Industry Report: Latin America’s Top 100 Banks

Strong Growth, Good Outlook

Latin Trade ranks the top 100 banks in Latin America and asks three leading bankers for their outlook.

By John Otis and Ruth Bradley

BOGOTA — Carlos Raúl Yepes, president of Colombia’s top bank, Bancolombia, sees plenty of opportunities these days — and not just among big companies in the cities. In June, he visited one of Bancolombia’s newest branches — in the remote town of San Jose de Guaviare — in southeast Colombia.  The size of the town? 45,573 inhabitants.
“We are designing strategies to reach 14 million people who today don’t have access to the financial system, due to the high cost or their geographic location,” Yepes says. “We want to reach what we call la otra Colombia [“the other Colombia”], which means outlying areas like Amazonas and Guaviare departments.”
Next up?  A branch in Leticia, on Colombia’s southern border with Peru and Ecuador, by the end of the year.
“You can’t just be where everything is profitable, where everything is fine, where there are no problems,” Yepes tells Latin Trade. “We have a strategy to be a universal bank and be in the most number of towns in Colombia.”
Yepes, 46, took over as president of Bancolombia in February, replacing long-time president Jorge Londoño. Yepes previously served as vice president at Grupo Argos, a cement and energy company based in Medellin.
Bancolombia last year boosted its assets by 27.1 percent to $25.4 billion. Its net income grew 25.8 percent to $615.5 million.

STRONG GROWTH
However, it’s not the only bank doing particularly well in Latin America.  The top 100 banks in the region increased their assets last year by an average of 29.7 percent. All in all, they reached assets of $3.3 trillion, according to Latin America’s Top 100 Banks list from Latin Trade.
The performance of Latin America’s banks is striking in contrast to European institutions grappling with sovereign debt crises and the U.S. sector still dealing with a legacy of bad loans.
The global recession that began in 2008 prompted ratings agency Moody’s to assign a negative outlook to the sector in Latin America. That outlook, based on the possibility of credit ratings downgrades, persisted into 2009, “but it was more an expression of the uncertainty,” says Celina Vansetti-Hutchins, managing director for Latin American bank ratings at Moody’s. By last year, Moody’s had revised the outlook to stable.
“There’s very little legacy to the crisis,” Vansetti-Hutchins says. “Some systems are seeing a very good recovery.”
In Brazil, Peru and Colombia, in particular, “there’s a tremendous increase in credit this year compared to recent years,” she says.
Even Mexico, whose economy is closely tied to the United States and therefore its GDP is growing at a slower pace compared with other countries, is moving along at a steady 3 percent to 4 percent rate, Vansetti-Hutchins notes. “No spikes, no falls.”
Latin America also has continued to stand out as a bright spot for global banks.
Profits in Mexico, along with those in Turkey, are credited with offsetting a downturn in its home market for Spain’s BBVA. BBVA Bancomer, its Mexican subsidiary, was sixth in the ranking of Latin America’s top 100 banks, the same spot as last year.
UK-based HSBC announced in August thousands of layoffs and the closure or divestiture of some businesses as part of a global restructuring. Although annual revenue was flat for the group in 2010, the bank highlighted double-digit revenue growth in Latin America.
And while cutting jobs in Europe, HSBC will continue to hire in markets such as Brazil. HSBC Bank Brasil ranks eighth on the list, the same spot as last year.
The Latin America banking markets that are growing most are Brazil, Colombia and Peru, Vansetti-Hutchins says. “Even Mexico, [although it’s] less than what it was at the peak, but more than what it has been recently,” she says.

"You can’t just be where everything is profitable, where everything is fine, where there are no problems." Carlos Raúl Yepes, President of Bancolombia. Courtesy of Bancolombia

BRAZIL DOMINATES
Brazil dominates the ranking of Latin America’s biggest banks. The top five banks, and seven of the top 10, are all from Brazil. All in all, 33 Brazilian banks make the list, accounting for $2.2 trillion in assets, or 67 percent of the total assets of the top 100 banks. Brazilian banks also performed better, with their assets growing at an average of 36.1 percent last year.
State bank Banco do Brasil tops the ranking of Latin America’s biggest banks, with assets of $486.8 billion, an increase of 19.6 percent. Itaú Unibanco follows in second place, with assets of $453.2 billion, a 29.7 percent increase from 2009. Bradesco came in third, with $382.6 billion in assets, which was 31.6 percent higher than in 2009.
However, BTG Pactual showed the strongest asset growth in Brazil last year — a whopping 251 percent to $44.2 billion. That was the third-highest asset growth in Latin America. As a result, the bank jumped 20 spots on the ranking — from 33rd place in 2009 to 13th place last year.
Roberto Setúbal, CEO of Itaú Unibanco, says the overall macroeconomic environment is good, supporting ongoing growth.
“We still have pretty much controlled the fiscal situation,” he says. “The public debt is low, below 45 percent of the gross domestic product. Inflation is under control. We have a high level of [foreign] reserves; external accounts are in good shape. This gives the whole country confidence that the growth that we are having today is pretty much sustainable when we look over the next few years.”
Compared with nearly a decade ago, the CEO sees different challenges for Brazil. “Today we have a challenge of infrastructure. We have a lot to do in terms of infrastructure: airports, ports and improvements in roads, energy,” Setúbal says. “We need to do investments in infrastructure to keep the [macro] growth at this 4 to 5 percent level.”
The bank’s loan portfolio expanded 20.5 percent in 2010, the same rate as the Brazilian credit market as a whole. The bank’s results already reflect government measures to rein in lending. Itaú Unibanco reported that new loans to consumers fell by more than 7 percent from November 2010, just before the measures were implemented, to March of this year.
“We are the No. 1 private bank in terms of volumes of housing and real estate. It is a good opportunity,” Setúbal says. “In Brazil, the mortgage industry is still very small. In our case, it represents less than 3 or 4 percent of our balance sheet. So there are a lot of opportunities in that segment.”
He predicts that the bank’s mortgage lending business will account for a greater share of lending activity when interest rates in Brazil come down. “Today the interest rates are still too high to make this financing attractive for homebuyers,” he says.
In April, Itaú Unibanco acquired a 49 percent share in Banco Carrefour, the local consumer finance arm of French retailer Carrefour. The purchase fits into its long-term strategy of increasing its domestic business in Brazil.
On the commercial lending side, Setúbal is focusing on projects related to commodities, such as metals and agricultural products, where he sees Brazil as having a competitive advantage.
“Today the most attractive investments are not in manufacturing. It’s much more in those commodity-producing segments. We will have to reinforce the industries around those commodities and not try to compete with Chinese electronic products,” he says. “We have a lot of commodities projects, including the pre-salt oil production that, from our perspective, seems to be very, very feasible and will give good returns for the investors. For that reason, we are financing those projects. They are good projects.”
Looking ahead over the next 10 years, Setúbal sees plenty of room for Itaú-Unibanco to grow at home.
“We are in the market that is growing and a market that still has low levels of financial assets to GDP. Brazil has 46 or 47 percent of loans to GDP [ratio], which is low; we still have a lot of room to grow,” he says. “If you put 4 to 5 percent of GDP growth, plus a growth in this relation of financial assets to GDP, plus inflation, we are talking about a 15 percent to 20 percent on financial assets a year. It is a lot.”
Setúbal plans to continue to reinvest profits in Brazil, given the potential, while looking at opportunities around the region, though he emphasizes that he is in no rush.
“We realize that even if I have a good position in many countries in Latin America, I would still be an 80 percent Brazilian bank, given the growth that we have in Brazil,” he says.
Another Latin American market will be Itaú-Unibanco’s first step toward internationalization, a process Setúbal is approaching deliberately.
“Today we are not prepared to be a global bank,” he says. “We still have to build a management structure of governance to become a global bank. We still lack a lot of things to achieve that level. “
“Over time we will build this governance, this process of becoming a global bank, and probably have a more intense presence outside of Brazil — probably in Latin America and the United States,” Setúbal says.

"We are one of the most efficient banks in emerging markets." Mauricio Larraín, president of Banco Santander Chile. Courtesy of Banco Santander Chile

CHILE: SOLID
Chile accounts for 10 of the top 100 banks in Latin America, and their combined assets reached $216.4 billion last year. On average they increased their assets by 13.2 percent.
Banco Santander remains the top bank, with assets of $47.2 billion, an increase of 15.2 percent. Banco del Estado de Chile followed, with assets reaching $40.2 billion, a 20.7 percent increase.
The local unit of Canada’s Scotiabank managed to outperform its rivals in Chile when it comes to profit growth. Last year the bank boosted net income by a whopping 289 percent to $154 million. That was the sixth-highest profit growth in Latin America, according to a Latin Trade analysis.
Meanwhile, two other Chilean banks — Security and the local unit of Bilbao Vizcaya Argentaria — were among the top 10 asset and profit growth losers in Latin America last year. Security saw its assets fall 1.9 percent to $6.7 billion. Bilbao Vizcaya Argentaria posted a 23 percent fall in profits to $103 million.
Mauricio Larraín, president of Banco Santander Chile, says the forecast is bright for his institution.
“Last year our loan book increased 14 percent,” he says, adding that the growth rate in 2011 is on track for 16 percent to 17 percent. He predicts another 15 percent increase in 2012.
“There is still a lot of room for growth in consumer lending,” Larraín says.
“The ratio of consumer loans to GDP in the economy is 15 percent, including all players. The debt-servicing cost ratio is only 11 percent per household. Wages are growing, and unemployment is also falling,” he says. “At the same time, on the product side there are other indicators that reflect the strong growth potential of this segment. For example, the number of Chileans in the workforce with a checking account is less than 35 percent. The percentage of transactions done with a credit card is less than 25 percent.”
The bank’s return on equity was 25.7 percent in 2010, and, for the first five months of 2011, it achieved a 29.2 percent return. Larraín expects the rate to fall between 25 and 29 percent for the full year. “The ROEs are a reflection of our focus on retail banking activities. Roughly 65 percent of our loan book is lending to individuals and SMEs, the highest percentage among the top banks in Chile,” he notes. “At the same time, we are one of the most efficient banks in emerging markets. Our efficiency ratio or cost over income is 35 percent, and this is an important driver of our profitability.”
Interest rates in Chile have been rising, but Larraín says the bank’s core deposit base, non-institutional clients, has been increasing at annual rate of more than 35 percent. He cites those deposits as the bank’s cheapest source of funding and they now account for 75 percent of total deposits.
He adds that Banco Santander Chile has the highest credit rating in the region. “This has permitted us to obtain cheap long-term funding from the market,” Larraín says. “For example, last year we issued the first corporate global Chilean peso bond abroad, the first short-date FRN in recent history from the region and the first Chilean bond issued in Swiss francs, all at very attractive rates.”
Although consumer lending, mortgages and loans to small and mid-sized companies will fuel loan growth, Larraín says Chile is not likely to develop a consumer finance problem, akin to the United States. “The sub-prime problem was related to mortgage lending to people who had poor credit ratings,” he says. “This risk was dispersed among the global economy, and many banks also had poor capital levels.”
Chilean markets have been rocked by the revelations of credit irregularities at retailer La Polar, which have triggered criminal and regulatory investigations. “In Chile, La Polar is a single case in which the risk is clearly identified only in that company and not system-wide,” Larraín emphasizes. “Banks in Chile are well regulated, all risk is on the balance sheet, and the banks are well-capitalized. The banks in Chile went through the 2009 recession and the 2010 earthquake, two very real stress tests, with minimal problems. This clearly reflects the strength of the local banking system.”
Chile’s macroeconomic strengths should help protect the local banking industry from some of the risks associated with the global economy, Larraín says. Although the local regulatory environment is advanced, “future global banking regulations to a certain extent can be considered a risk factor, as there is still much uncertainty regarding what will be the final outcome of discussions regarding new capital and liquidity requirements for banks globally,” he says.
Larraín emphasizes that Chile already has lived through a big banking crisis in the early 1980s that forced it to bring regulations up to date.
“I was superintendent of banks during that period, so the impacts of that crisis on the banking sector are fresh on my mind as well as other persons working in this industry,” he says.
Many regulations and standards under discussion in other markets around the world already are in place in Chile, says Larraín, who notes that Santander Chile exceeds minimal capital and core capital requirements.
He counsels a conservative approach, regardless of the prospects of global macro-prudential regulations.
“If you do a good job as a banker and stick to plain vanilla-brick and mortar banking activities while maintaining high levels of liquidity and ample capital, as we have done until now, in the end this should not pose a major risk to our strategy or growth potential,” Larraín says.

"We are the No. 1 private bank in terms of volumes of housing and real estate." Roberto Setúbal, CEO of Itaú Unibanco. Courtesy of ITAÚ Unibanco

COLOMBIA: STRONG POTENTIAL
Colombia accounts for nine of the top 100 banks in Latin America, and their combined assets reached $105.0 billion in 2010. On average they increased their assets by 30.9 percent last year.
Apart from Bancolombia, the country’s top banks include Banco de Bogota, Davivienda, BBVA and Banco de Occidente.
However, another bank led the way in asset growth last year: Helm Bank. Its assets grew by 60.3 percent to $5.1 billion. That was the seventh-highest asset growth in Latin America last year, according to the Latin Trade analysis.
Despite the good growth at Bancolombia last year, bank president Yepes has high expectations for an even better performance this year. “This year will be better, partly because the Colombian economy is expected to [grow by] 5 percent,” he says. “Our portfolio in Colombia could grow by 15 percent or even more this year.”
Bancolombia is aggressively pursuing new business, both retail and commercial.
“We have a micro-credit program called Mi Negocio [“My Business”] in which we’ve loaned about 100 billion pesos [about $57 million],” he says of efforts to tap smaller businesses. “In our … pymes [SME] program, we have a portfolio of 7.8 trillion pesos in loans. We have a portfolio of 25.6 trillion pesos for large businesses.”
Yepes notes that Bancolombia is second only to state-owned Banco Agrario in terms of branches. Its network of nearly 2,600 branches is complemented by 3,000 ATMs, the largest number of machines compared with any other Colombian institution, giving it a presence in 700 of Colombia’s 1,069 cities and townships. Bancolombia already is the market leader in credit cards.
On the international front, Bancolombia purchased Banco Agricola in El Salvador in 2007. In July of this year, the bank’s parent company, Grupo Sura, announced its purchase of the Latin American insurance operations of ING, the Dutch giant. The deal, valued at nearly $4 billion, includes ING’s pension, life insurance and investment management operations in Colombia as well as in Mexico, Peru, Chile and Uruguay.
“The Banco Agricola acquisition gave us one million clients, and 20 percent market share in El Salvador. Little by little, we have been expanding geographically,” Yepes says. The bank already has a presence in Miami, Puerto Rico, Panama, Peru and the Cayman Islands, and “we want to be very active in foreign acquisitions,” he says.
Yepes, who has been affiliated with Bancolombia for 18 years and served on the board of directors with Londoño, says his plans are to build on the bank’s current foundations.
“Rather than changes at Bancolombia, I would call them evolutions,” he says of his plans for the bank. “We are focusing on innovation, efficiency, international operations and inclusion — which means reaching more people not connected to the banking system.”

MEXICO GROWS
Mexico accounts for 15 of the banks on the rankings list, and their combined assets reached $405.7 billion in 2010. On average they increased their assets by 71.2 percent last year.
BBVA Bancomer remains the top Mexican bank, followed by Banamex and Santander. BBVA Bancomer’s assets grew by 10.2 percent last year to $94.4 billion. Banamex assets grew somewhat slower — by 7.9 percent — to $90.1 billion, while Santander managed to outperform its two top rivals by boosting assets 22.1 percent to $55.1 billion.
Among Mexico’s top five banks, HSBC also did well, increasing assets by 14.9 percent to $34.7 billion.
But it was Barclays in Mexico that showed the strongest asset growth in percentage terms last year — a whopping 497.1 percent. That was the best performance in Latin America, according to a Latin Trade analysis.
ING in Mexico also was among the region’s top five asset growth leaders last year, doubling assets to $9.9 billion. That catapulted ING to 45th place on the ranking, up 32 spots from the previous year.
Meanwhile, two banks in Mexico ­— the local unit of Germany’s Deutsche Bank and HSBC — were among the top 10 profit growth winners last year. Deutsche saw its profits jump 401 percent to $23.6 million, while HSBC noted a 237 percent increase in net income to $35.1 million.
However, two Mexican banks also were among the top 10 profit losers. IXE saw net income fall 600 percent after posting a loss of $1.4 million. And Barclays (the asset growth winner), saw a 75 percent decline in net income to $3.5 million.

VENEZUELA LOSES
Venezuelan banks were the big losers on the Top 100 list. Venezuela accounted for six of the 10 worst performers in asset growth (all showing declines), while three banks from the South American country accounted for the five worst declines in the ranking.
Banco Occidental de Descuento in Venezuela led the way in asset declines, showing a 43.5 percent fall in assets to $6 billion.  That resulted in drop of 37 spots in the rankings — from 38th place in 2009 to 75th place last year.
Banesco followed, with a 39.5 percent drop to $12.1 billion. That resulted in a drop of 17 places in the rankings — from 20th place in 2009 to 37th last year.
Banco Mercantil, Banco Provincial, Bicentenario and Banco de Venezuela followed, rounding out the six worst performers in Latin American asset growth last year.
However, Bicentenario did manage to boost its profits by 604 percent to $20.8 million, the second-best performance in profit growth in Latin America last year.

Otis reported from Bogota, and Bradley reported from Santiago. With additional reporting by Jane Bussey in São Paulo and Joachim Bamrud and Mary Sutter in Miami.
editorial@latintrade.com

Latin America’s Top 100 Banks

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