Country Awards for Excellence 2014: Latin America

Argentina Best bank: Santander Río

The Argentine government is attempting to re-integrate its economy into the rest of the world. The recent debt repayment agreement with the Paris Club is the latest evidence of tentative reductions in political risk. The run-up to the 2015 presidential election looks set to be one of gradual growth, but the economy in which local banks are operating and the persistence of strict government regulations on lending rates to retail SME segments still present operational challenges.

In this environment, the larger banks that have less risky loan portfolios have an advantage. Santander Río maintained its market leading position in total loans to and deposits from the private sector, as well as in commercial loans. Its market ranking in mutual funds, credit cards and personal loans is second. This volume, mixed with strong risk-management practices, continues to serve the bank well: the bank increased net income by 17.1% in the last year (in dollar terms, and reporting before the impact of devaluation earlier this year). The bank’s return on equity fell 703 basis points – reflecting the increasing cost of regulation affecting the entire sector – but remains at the elevated level of 34.2%. The return on assets ratio also dipped (by 38bps to 3.8%) and NPLs remained low at 1.14%.

International investors began to look at Argentina with renewed interest in the past year, and capital markets deals have begun to close – most notably YPF’s $150 million international DCM transaction in September 2013 – but the volumes are, as yet, still too low to justify an award for best investment bank.

Bolivia Best bank: Banco Mercantil Santa Cruz

Banks in Bolivia had been enjoying the country’s burgeoning economic growth but a recent financial services law has created a lower-margin environment. The law – which contains 540 articles – is still being finalized and the details absorbed by the banking sector but the main thrust is clearly to constrain banking profits. However, there is hope and expectation that the government will recognize the banking sector’s role in the country’s recent growth (6.5% in 2013), which in turn enabled it to raise $500 million from the international capital markets in 2012, and not make the total impact of the new law too punitive for financial institutions.

Banco Mercantil Santa Cruz retains the distinction as the best bank in the country. The bank increased its topline by 15.2%. The bank’s loan portfolio grew by more than $210 million and deposits grew by more than $300 million. Despite this growth, the impact of regulation led to a drop in profits of 7.7%. The bank’s return on equity fell to 16.55% from 17.54%, and return on assets also dropped to 0.94%, from 1.05%. However, the bank’s fall in profitability was less than for its competitors, with the bank managing to increase revenues while lowering NPLs to 2.24% (from 2.53%).

Brazil Best bank: Bradesco Best investment bank: Bradesco BBI

Brazil’s economy continues to disappoint: GDP growth for 2014 looks set to be lower (below 1.5%) than last year, which was an already disappointing 2.3%. The slowing economy has been feeding into dramatically lower rates of loan expansion for the Brazilian banks (except for the publicly owned banks that continue to lend as part of the government’s attempt to use them as a macro-prudential policy tool). With slowing growth and an outlook of lower margins (the Selic base rate is again rising, but the pressure on net interest margins that took place last year before the current hiking cycle is expected to return soon) the name of the game for Brazilian banks is efficiency. The large banks that dominate the Brazilian retail market have all been focusing on it, and the leader to date is Bradesco. The bank was the first to initiate a radical overhaul of its IT systems and push out programmes to lower the cost of sales using IT. Bradesco has some way to go – for example its website is not enabled for mobile platforms and so its market-leading adoption of buying keywords isn’t as effective as it could be – but the bank’s focus on technology and efficiency is clearly paying off. Bradesco’s efficiency ratio is 40.1% (in March) – by way of comparison, Itaú Unibanco, which became the largest company in the Brazil’s iBovespa in 2014 thanks to changes in the index’s methodology, had an efficiency ratio of 47.7% for the first quarter of this year.

Bradesco’s net income for the awards’ qualification period was R$12.7 billion ($5.6 billion), up 9.6%, while assets grew 3.1% to R$922.2 billion and shareholders’ equity reached R$73.3 billion, with a return on equity of 20.5%. The bank’s loan portfolio was R$432.2 billion in March, up 10.4% on the previous year, while the bank’s delinquency ratio was at its lowest since 2008 – at 3.4% – with a coverage ratio of 193.8%.

Renato Ejnisman has led Bradesco BBI to the top of the rankings

Bradesco’s investment bank, Bradesco BBI, is an ever-more important source of total revenues. Last year the unit, led by managing director Renato Ejnisman, advised its clients on a total of more than 200 deals, worth about R$136 billion. Bradesco BBI is the momentum investment bank in Latin America’s largest market. The bank leads the rankings in local and international DCM and project finance and is also a top-three shop in ECM and M&A.

Competitors have long tried to paint Bradesco BBI’s inclusion in mandates as a sop to pre-existing client relationships – accusations that also dogged Itaú BBA’s emergence and development into a market-leading investment bank. There is no denying the bank’s balance sheet has been put to good use – but the investment bank can now clearly prove its ability to originate independently and execute swiftly and effectively. Since 2007 Bradesco BBI has achieved a CAGR of 31.5%, despite many of these recent years seeing only light capital markets activity. Between 2012 and 2013 the bank grew revenues by 17.3% and the bank posted annual revenues of about R$650 million. Clients and competitors attest to the bank’s ability to lead complex, cross-border structures.

The bank’s strength has traditionally been in debt, and its strength remains. The bank now tops the domestic and international rankings. Bradesco BBI’s large number of deals include non-vanilla highlights such as Petrobras’ $4 billion real-estate receivables structure, which achieved a low cost of financing, helped by the trade’s tax-exempt status under infrastructure financing law 12, 431 (and the bank was also active on Petrobras’ euro/Sterling deal in January). The bank also structured and distributed an inaugural railway project for Vale that also qualified for this tax exemption. The bank led on the Brazilian sovereign’s liability switch, in which $3.25 billion of a new 10-year benchmark was sold consecutively with tenders for nine existing bonds – generating good price compression for the republic. The bank can justifiably claim to be punching its weight within syndicate – one example of which was the bank’s advice to Marfrig to issue its $500 million earlier this year without a roadshow. Despite some market uncertainties, it convinced its fellow bookrunners and the issuer of its case, demonstrating both soundness in and self-confidence of its own judgment.

The bank has also built its ECM business. It leveraged its knowledge of its sizeable insurance business, Bradesco Seguros, to lead the valuation discussions and marketing efforts on Banco do Brasil’s spin-off of its insurance group Seguridade. The IPO was the largest in the world last year and unlocked R$21.3 billion of value. Brazilian IPOs have been notoriously tough to price, but Bradesco BBI can point to its delivery of anchor investor General Electric on the Smiles IPO, which also encouraged others to participate. The deal priced within the range. Bradesco BBI played a leading role in 11 of the 17 ECM transactions in 2013, including being global coordinator on Via Varejo’s IPO and adviser to the Klein Family throughout the process, which priced amid a difficult market.

The bank is also an important player in Brazilian M&A and has cemented itself as a top-three house. It worked on many transformational, complex and cross-border deals, including: advising MMX in the sale of a controlling stake to Mubadala and Trafigura, as well as advising on MPX’s sale of a 29% stake to E.On; advising Cemig in the creation of Alianca Geracao de Energia with Vale; adviser to JBS in its acquisition of Seara; adviser to Blackstone in its 70% acquisition of Alphaville; and advising Anhanguera in its merger with Kroton.

Chile Best bank: Banco de Chile Best investment bank: Citi/Banchile

The new government in Santiago has raised questions about whether Chile can sustain its reputation as the region’s most disciplined economy. GDP growth slowed in 2013 (to 4.2% from 5.5% in 2012) and the economy seems to have lost its way in early 2014, GDP growth was 2.6% over the year in the first quarter of 2014 and inflation was up to 4.3% in April, from 3.5% in March. Uncertainty regarding the new government’s ambitious spending programmes and lower commodity prices for the economy’s export staples will provide a challenging macro-economic environment over the coming year. Banco de Chile appears to be more able than most to react: the bank raised Ch$253 billion ($452 million) of new equity from its shareholders in early 2013 but this didn’t have a dilutative effect on earnings: the bank posted the highest returns on equity (24%) and assets (2.1%) in the country. The bank posted net income of Ch$514 billion, which was 10% higher than in the previous year and equal to 27% of total sector earnings. The bank’s loan portfolio grew by 11% to a market share of 19%. The bank focused on the more profitable retail segment, reporting 12% growth in this area and increasing market share by almost 300bp, to 17.2% at the end of 2013. The bank continued to diversify its sources of external funding, taking advantage of its market-leading credit rating to tap new markets such as Switzerland, as well as raising funds in Japan and Hong Kong.

Citi/Banchile demonstrates market leadership across the investment-banking suite of products. It not only tops the league tables in terms of leading on local corporate bonds and international bonds but it has done some exceptionally innovative work. For example, the bank led the first every hybrid bond from Chile for AES Gener – which was also the first-ever dollar-denominated corporate hybrid in Latin America. The bank also led on Falabella’s inaugural international CLP bond, which generated participation from 245 accounts. The bank also tops the ECM volume league tables (helped by Banco de Chile’s follow-on) and led tender offers for MetLife and Bupa, and an international follow-on for CCU. Citi/Banchile also advised Christus Health on its acquisition of 40% of Red Salud – the largest cross-border transaction in the Chilean healthcare industry. Other notable deals include its role as adviser to Enagas & Oman Oil in its acquisition of 40% of GNL Quinteiro.

Colombia Best bank: Banco de Bogotá  Best investment bank: Banca de Inversión Bancolombia

Colombia continues to perform well and attract international investment. The economy has grown by more than 4% for the past three years and its strong banking sector has both played a part in delivering this growth and benefited from the economic expansion. Banco de Bogotá wins the award for the best bank in the country for the excellence of its financial results and its strategy for future growth.

Banco de Bogotá now has a formidable business franchise in Colombian and central American markets. In its domestic national market, it is the second-largest bank in terms of assets, gross loans, deposits and net income. It is the one of the best performing: reporting return on equity of 15.8% (only BBVA has higher), return on assets of 2.1% (the highest in the market) and a consolidated NPL ratio of 1.7% (only Davivienda has lower). The bank also increased assets and its loan portfolio by 25% and 28.1% respectively, and net income by 5.6%, to Ps1,400 billion ($736 million). The bank’s ambitious regional expansion continues apace, with acquisitions in Grupo Financiero Reformador in Guatemala and BBVA Panama, as well as buying AFP Horizonte, a pension fund management company, in Colombia.

The best investment bank award goes to Banca de Inversión Bancolombia (BIB), which has enjoyed a breakthrough year in leading international capital market transactions for Colombian issuers and broadened its local market dominance into a platform that will be competitive across the board. The bank, whose head of investment banking is Ricardo Jaramillo Mejia, structured the first simultaneous equity issuance of shares for a Colombian company for Cementos Argos. The deal of $766 million-worth of preferred shares was sold in the domestic and international markets and was also the first Ps1 billion-plus trade constructed under the book-building methodology in the local market. BIB was also the lead structurer and book-builder for the successful $1.3 billion equity offering from Bancolombia – the transaction was conducted amid high volatility in emerging markets in early 2014 and was highly oversubscribed (2.7 times bid to cover). BIB also advised CorpBanca on its tender offer for the preferred shares of Helm Bank (transaction value of $150 million). The bank can also point to big DCM transactions, such as being the arranger and lead bookrunner for Celsia’s $414 million local market transaction – the largest in Colombian capital market history and twice the average maturity at 11.2 years. The bank is the leading arranger of local DCM issuance in terms of volumes – a deep and important source of finance to Colombian companies.

Ecuador Best bank: Banco Pichincha

Ecuador’s banks were hit last year by government regulations that had the twin negative effects of increasing costs and decreasing revenues. Banco Pichincha responded speedily to the new operating environment and limit the impact on its financial results: the bank grew its total portfolio by 10.8% to a 31.2% market share. Assets increased 11.5%, from $8.093 billion in 2012 to $9.024 billion in 2013. However, the bank’s return on equity fell to 7.2% from 9.4% in 2012, and return on assets fell to 0.6% (from 0.9% in 2012). The bank blames the government’s new tax redistribution law for falling margins, which were seen throughout the banking system.

Mexico Best bank: Santander México Best investment bank: BBVA Bancomer

Mexico has raised hopes and expectations of fast-paced economic growth with its succession of reforms – not least its energy reforms, which could unleash rapid economic expansion. These projections are, for the moment, taking focus away from the surprisingly lacklustre recent growth: 2014’s first-quarter growth was just 1.8% higher than the same period in 2013, which was lower than many expected, albeit better than the fourth quarter of 2013’s paltry 0.7%.

While this favourable outlook is driving investors into shares of Mexican banks, the current performance of the system’s standout bank, Santander México, is drawing particular attention. Despite disappointing macro-economic growth, the bank achieved growth of 12.6% throughout its portfolio and an increase in net earnings of 17.1%. The bank enjoys the best efficiency rate in the country, at 39.5%, delivered by being the third-biggest bank in terms of market share but fourth in number of branches and fifth in number of employees. The bank also has the highest capitalization index, at 15.9% and reported return on equity of 22% (up 3.8bps) and return on assets of 2%.

BBVA Bancomer is the best investment bank in Mexico, demonstrating impressive strength and depth across the suite of investment banking products. The bank participated in nine ECM transactions with an aggregate value of $6.3 billion in the 12 months to the end of March 2014 – topping the league tables in number of deals and volumes, with leading roles on stand-out deals including OHL Mexico, Grupo Lala, Fibra Hotel and Fibra Danhos.

BBVA Bancomer also led the M&A league table in the number of deals (nine), including being the sole financial adviser to Afore Afirme Bajío’s portfolio sale to Profuturo and advising Suez Environnoment and Industrias Penoles in its disposal of its 49.9% stake in DC – the largest water transaction in Mexico and central America. The bank also advised Cemex in its re-organization of its European operations with Holcim. The bank is also exceptionally strong in local DCM, participating in 37 issuances, worth $3.1 billion – 20.4% of the total (and increasingly liquid) market.

Paraguay Best bank: Banco Itaú Paraguay

Paraguay’s economy is struggling to deliver on its potential: GDP growth has slowed from 13% in 2010 to -1.4% in 2013. Hopes are high that president Horacio Cartes – who was elected last year – will integrate the country into regional and international capital flows and provide some fresh impetus for investment-led growth. The country’s 2013 bond issuance is a step in the right direction – and proves the underlying attraction and stability of the country. The winner of the best bank award also brings its international perspective to bear on what has been rapid retail growth. Banco Itaú Paraguay – the third-smallest of the top four banks that together have a 60% share of the banking sector – has imported its parent’s know-how of growing its consumer banking business.

The bank is well placed to continue this rapid growth if economic expansion returns because there remains a large, unbanked population. The bank is already very profitable: its return on assets and return on equity are 4.4% and 35.5% respectively. The bank grew its total assets by 32.9% in the last 12 months and total revenues by 19.5%

Peru Best bank: BBVA Continental Best investment bank: Citi

Peru has been the fastest growing economy in the region in recent years, attaining GDP growth rates above 6% for 2011 and 2012, and in 2013 the country still registered 5.4% despite a sharp slowdown amid concerns about the outlook for the country’s export base. However, Peru remains one of the best-managed economies and its banks have been benefiting from the country’s positive momentum. The best bank in the country is BBVA Continental, which ranks first with an efficiency ratio of 36.55% and return on equity of 29.79%. It has a high-quality loan portfolio, resulting in a NPL ratio of 1.74% and a coverage ratio of 258.8% – the lowest and highest in the bank’s peer group respectively.

Citi’s Peruvian franchise takes the award for the best investment bank in the country thanks to another very active year. The bank led on two important international DCM trades for Banco de Credito del Peru, as well as inaugural international trades for Corporación Lindley and Transportadora de Gas del Peru and San Miguel Industries (among others), and it was also active in the local debt capital markets. In ECM, the bank participated in the NS107.5 million ($38 million) block trade of Luz del Sur shares; in M&A Citi advised Petrobras in the sale of its Peruvian assets, as well as being the sole financial adviser to Pluspetrol in its sale of its 12.38% indirect equity participation in Transportadora de Gas del Peru.

Uruguay Best bank: Banco de la República Oriental del Uruguay

In June Moody’s upgraded Uruguay to Baa2, two years after the country first regained investment grade status. This rating reflects the steady progress that the economy has made over recent years, with its orthodox macroeconomic management differentiating the country from Argentina and minimizing the contagion of troubles imported from its large neighbour.

The country’s relatively small banking sector is increasingly competitive, with gains in recent years from Santander, BBVA and Itaú, but none has yet come close to challenging the state-backed Banco de la República Oriental del Uruguay in terms of scale and profitability. The bank enjoyed another strong year, growing to a market share of 43%. The bank’s return on equity jumped to 23.6% from 13.5%, while return on assets grew to 2.15% from 1.32%. Despite having 37.5% of total loans (and a 44.8% share of deposits) the bank’s NPLs stand at 1.7%

Venezuela Best bank: BBVA Provincia

Venezuela becomes more volatile and difficult for businesses to navigate. One beacon of stability in otherwise treacherous waters is the leading bank: BBVA Provincial. It remains the leading bank in the system, growing deposits by 76.6% to take a market share of 12.7% – an increase of 64bps. The bank increased net profits by 78.5%, to Bs9.13 billion ($1.45 billion). Return on equity was 65.7% and return on assets was 6.4%. The bank continues to invest in technology, improving both its efficiency levels and using capital generated by the bank in anticipation of more bank-friendly financial repatriation regulations at some point in the future.