BBVA: Changing times, same old challenge

July ended with a few moves on the BBVA chessboard. The bank opened a new phase in the development of its retail business by appointing Ignacio Deschamps to head a division that combines global retail banking with its Latin America Group business.

Deschamps, who is currently the top executive of BBVA’s Mexican subsidiary Bancomer, is well versed in the challenges involved in expanding access to financial services in Latin America.  BBVA Bancomer currently leads Mexican banks in offering services geared towards the “unbanked” sector of the population.

“Our emphasis starts with encouraging saving, improving the banking culture and managing personal finances,” he says. “Our strategy has three pillars: a low-cost account, promoting alternative channels to the branch network, and innovation through technological platforms.”

One example is the “express account,” which allows people to  instantly open an account, and manage it, with their mobile phone. It’s simple, available at a low cost, and offers high security. The account holder also receives an international debit card for purchases at business outlets and for use at automatic tellers.

In Venezuela meanwhile, BBVA Provincial offers the Standard Payroll Plan, aimed at low-income emplo-yees. The plan’s card can be used to withdraw money paid in by employers, or to make purchases in stores.

As for the poorest citizens, in 2007 the bank created the BBVA Microfinance Foundation with the goal of including this group in the financial system. The foundation, which is not formally a part of Grupo BBVA, operates in Latin America. It has eight microfinance entities that provide services to more than 1 million clients, and it’s thought to benefit another four mi-llion people indirectly. The median credit line is for $1,293. The default rate is 3.1 percent, and 60 percent of its clients are women. Almost half of the clients have incomes of less than nine dollars per day. But there’s another interesting figure: the total volume of microcredits stands at a lofty $946 million.

At what point will the financial inclusion of this sector of Latin Americans start to benefit BBVA? The 2011 annual balance sheet offers a hint in a standout increase of loans in the region.  And a directive from the bank takes note: “Historically, it was not expected that the credit segment would be at the core of the retail business for BBVA in the region.” However, in recent years, favored by an auspicious economic environment, it adds, this segment of the business grew, “with emphasis only on clients who can prove their ability to pay.”

BBVA’s efforts towards financial inclusion in Latin America are paying off in other ways. According to first quarter results, 72 percent of the Group’s pro-fits were generated in this region. This target segment of low-income clients contributed about 8.6 million active clients, who generated credit card financing of $3.716 billion, and consumer financing of $9.648 billion.

All this data has not escaped the notice of Fitch Ratings. According to a recent report, the credit rating agency believes that Latin America is strategically important to BBVA, “since it be-nefits from its geographic diversification through the capacity of Latin American markets to generate revenues at the international level and compensate for its modest results in Spain.”


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