Scotiabank wants to make the grade
A BANKER ONCE told Euromoney: "Banking sector consolidation will leave five or six banks running the whole banking world one day." This might seem a distant prospect but some banks are trying hard to make it come true in Latin America.
Names such as Citi, HSBC and Scotiabank have been bandied around for a couple of years already, but now we are also seeing certain regional banks, such as Bancolombia, join the banking consolidation frenzy on the continent. So far the large banks have employed distinctive aggressive acquisition strategies. Scotiabank and Citi are yet to make a big move in Brazil as they run their Latin American operations out of Mexico instead. HSBC is looking towards the Andean countries, and the leading investment banks are working on consolidating their positions in each individual market in the region.
Colombian opportunity
One country where foreign banks do not dominate is Colombia. Other than BBVA, no other foreign bank has a significant presence there. As the country’s economy now matures it is expected that a lot of banking consolidation will take place in coming months.
In Colombia, the top spot by market share is held by Bancolombia, with Banco de Bogotá coming in a close second. Peter Shaw, the senior director for Latin American banks at Fitch Ratings, says: "Bancolombia is definitely an interesting opportunity from a buyer’s perspective. Colombia is at a much earlier stage in its up cycle than many of the other countries in the region, like Brazil, Chile and even Peru, and so for this reason I think there could well be some activity from foreign banks in coming months."
But Jorge Londoño, CEO of Bancolombia, says: "We are not looking to sell this institution. Instead we are raising capital through equity issues, like the one we made earlier this year, and we are looking at regional opportunities for our next steps of growth. We see there is a lot of interest in Colombia. We recently had HSBC enter the country and General Electric made a purchase. I expect they will be looking to buy more once they are established.
"Consolidation has increased in Colombia, and as more foreign banks enter so more consolidation will happen. I don’t think our main competitor, Banco de Bogotá, is looking for a buyer either and so we will both defend our place in this market strongly. It will be interesting to see what the foreign banks go for eventually."
Presently the only foreign bank that has a significant market share is BBVA, through its BBVA Ganadero operation, which is the third-largest bank in Colombia. Vicente Rodero, BBVA’s head of Latin America, says: "We will continue expanding in Latin America" but he does not outline a specific plan in Colombia.
Citi is also present in Colombia, with a share of 5% to 10% depending on the product. Raul Anaya, head of the global consumer group for Latin America at Citi, says: "We like Colombia a lot. It is a very interesting country." Ricardo Stern, the country head for Brazil at JPMorgan agrees with this assessment. For the past decade Colombia has had dynamic economic growth rates, reaching nearly 8% for the past three quarters. Londoño says that the banking sector has been growing at two to three times the rate of the overall economy.
Regional footprint
As the foreign banks consider growth strategies inside Colombia, Bancolombia is searching for opportunities elsewhere in Latin America. In May, it completed the acquisition of Banco Agricola, the leading retail bank in El Salvador. "We are very happy with the acquisition that we made in El Salvador," says Londoño. "The country has one of the most developed institutional frameworks in central America and so El Salvador is a good way into that region. We do not make a secret of the fact that we are looking at other opportunities in Central America. We are not doing anything else yet but we are certainly looking at expanding our presence there."
Bancolombia joined Scotiabank in the small central American country: "Since we went into El Salvador all the banks have been bought up so the market has consolidated a lot and the competition certainly is heating up, but we were the first international bank to buy in El Salvador, so we feel that we’ve got a bit of a head start," says Peter Cardinal, head of Latin America at Scotiabank.
Scotiabank also has a presence in Costa Rica, which it expanded last year with the acquisition of Banco Interfin, and it is now looking to see if there is synergy between the two central American operations. Like other foreign players, Scotiabank aims to work central America as a single block. Citi’s Anaya says: "Of course each country has its own particular reality but they are all highly integrated markets that are relatively stable with good economic performances."
Fitch’s Shaw adds: "If you go back five years or so you saw the beginnings of region-wide franchises being built in central America, and it is these franchises that have now changed hands and are owned by the foreign banks. I think the foreign guys were interested because the banks had a regional footprint to sell. I don’t think any of the banks in an individual country would have been attractive but when you look at them as a regional franchise then they did become attractive." This theory is backed up by the fact that in central America there are now no regional footprint banks that aren’t foreign owned.
Citi is also looking at the central American countries as a single block. In the past 12 months, the US bank has extended its Mexican empire down into the region, having bought Grupo Financiero Uno, a card-focused business, and Grupo Cuscatlán, a leading financial group in central America. These acquisitions gave Citi a network of more than 400 customer cash points throughout the region and more than 200 branches, making the US bank the number one provider of cash access points. In contrast to Citi, the Spanish banks, BBVA and Santander, which are active in south America, are not likely to do much in central America.