Awards for Excellence 2016
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Also shortlisted: |
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DBS |
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Emirates NBD |
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Citi |
Shifting economic cycles, client demands, regulation and technology have conspired to clip the wings of global universal banks in emerging markets. The likes of HSBC, Citi and Standard Chartered have beaten a retreat from a clutch of low-margin retail markets, while regional players downplay their cross-border ambitions and focus on their competitive strengths.
Against this challenging backdrop, BBVA’s rise across emerging markets – offering new products through largely conventional channels – proves the traditional banking model, for some at least, is alive and well.
BBVA’s diversity and relative lending prudence have helped cushion the maelstrom in Spain, its home market. BBVA aims to become a top-three player in most countries where it is active. In recent years, it has redoubled its diversification strategy, focused on retail banking in growth markets, investment in digital technology, and its expansion of the retail and corporate product offering of its market-leading franchises.
Since the 1990s, BBVA has expanded in eight Latin American countries – Argentina, Chile, Colombia, Peru, Venezuela, Uruguay, Paraguay and Mexico – and is now the largest financial institution in the latter market by assets, loans, deposits, profitability and branches.
Signalling its intent to increase its exposure to retail banking in emerging markets while intermediating cross-border flows, BBVA raised its stake in Garanti, Turkey’s largest bank by market capitalization, in November 2014 to 39.9%, gaining exposure to a retail network of nearly 1,000 branches. It’s a canny move: Garanti is the largest player in the country for mortgages, consumer loans, auto finance and credit cards.
BBVA remains, in market-cap terms, modestly sized compared with HSBC, but it is generating annual gross income at similar levels at current exchange rates, averaging around €20 billion over the past seven years. BBVA boasts impressive geographic diversity in its earnings, with around 60% of revenues derived from emerging markets.
Its exposure to Mexico – which drives 40% of the group’s earnings in a market where only 39% of the population is in the formal banking system – and Turkey, ensures it can pursue organic growth while managing the cost base associated with retail banking, thanks to its large market share.
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Jorge Sáenz- |
Jorge Sáenz-Azcúnaga, BBVA’s business director for Spain, the US and Turkey, explains the bank’s growth strategy: “We are one of the only global banks doing universal banking in emerging markets. In emerging markets, we look for long-term growth and take advantage of our experience in universal banking in other developed markets.” He adds: “Turkey is a country with a large [78 million] and very young population [85% under 59 years old], which is important for us because it’s an under-penetrated market with significant potential for credit growth. Garanti is Turkey’s biggest bank in terms of market capitalization. We are the most dynamic bank there by far, and the most technologically advanced, with a strong management team.”
Ignacio Lacasta, Mexico and Latin America business director at BBVA, explains further. “Since 1995, we have invested $21 billion in our emerging markets,” he says. “We have completed our $3.5 billion investment plan in Mexico and $2.5 billion in South America. It takes time and money to develop a retail banking franchise, and we have the scale needed to cover the cost of such an operation, while some of our global competitors have retrenched. We are the first or second bank in customer experience in all our branches in Latin America and the largest global bank in terms of franchise in Latin America.”
BBVA’s profitability is principally driven by Latin America. Mexico and South America contributed 49.3% and 18.4%, respectively, to the group’s 2016 first quarter. Turkey added 13.4%. But BBVA’s representative offices in Asia, corporate banking footprint, and its ambition to grow in new markets suggest it will continue to diversify its earnings in the years ahead.
Sáenz-Azcúnaga and Lacasta say BBVA seeks to maximize the efficiency of its local retail operations using globally managed corporate centres, while providing blue-chip companies with a range of corporate banking products across markets to capitalize on cross-border flows.
Investment in digital banking in recent years is also paying off. BBVA Wallet, a mobile banking channel, is now available in Spain, Turkey, USA, Chile and Mexico. Between December 2015 and March 2016, South American digital sale rates, the percentage of loan sales through digital channels, grew from 8.7% to 16.5%. As of March 2016, BBVA has over 15.5 million digital customers engaged in online banking.
