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| Regional results |
Country Awards for Excellence: Latin America
Country Awards for Excellence: Central America and Caribbean
Latin America countries
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Argentina
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The Argentine banking system is beginning to return to a semblance of normality, with signs such as positive interest rates. But the road back to international standards is a long one. After many years of economic dysfunction and highly prescriptive banking regulations (including mandatory lending to segments and floors and caps on interest rates), it will take a long time for an orthodox banking sector to appear.
More recently, the banks have also had to deal with the challenge of a recession as president Mauricio Macri’s administration goes about the painstaking job of rebuilding a sound macroeconomic environment. The green shoots of recovery have begun to appear, but loan portfolio growth is still tracking below inflation and there is pressure on banks’ returns on equity as net interest margins fall.
However, bank analysts are almost universally upbeat about the medium-term outlook for Argentina’s financial system if Macri’s reform agenda continues. This year’s mid-term elections are being watched with keen interest. UBS thinks the country’s real loan growth could hit around 28% a year for the next five years (from an admittedly low base), so this year has mainly been about the banks preparing for that growth.
None has been more aggressive in its preparation than Banco Supervielle, which grabbed the opening of the international capital markets for Argentine issuers – along with the funding initiative – to perform an IPO and sell a $300 million international peso-denominated bond. In May 2016, the bank, chaired by Julius Patricio Supervielle, sold a $323 million IPO in New York and generated a book three times that amount from international demand.
The bank’s equity and debt transactions allow it to continue to grow at breakneck speed; its loan book grew by 50% in the year leading up to these deals that addressed its capital position and its funding base. This year the bank is projecting real loan growth of around 25%.
Citi wins the award for best investment bank in Argentina. Capital markets and M&A activity are beginning to increase in the country, but the real prize for banks in the country is positioning for the anticipated rush to come. Citi can claim market dominance thanks to its role in some of the key M&A and DCM deals. As well as working on the $16.5 billion return of the Argentine sovereign in April 2016, it acted on the subsequent international bonds for the provinces of Buenos Aires, Mendoza, Salta, Santa Fe and Entre Rios.
In June this year, it was also joint lead bookrunner on Argentina’s $2.75 billion 100-year bond sale.
Citi also brought corporates back to tap the seemingly inexhaustible appetite of international investors for Argentine paper, including deals for Petrobras Argentina, Arcos Dorados and Pampia Energia. Citi also advised the last of these, Pampia, on its $892 million acquisition of 67.2% of Petrobras Argentina’s shares.
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Bolivia
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Banco Mercantil Santa Cruz (BMSC) has deftly balanced the demands of recent Bolivian banking regulation for all banks to increase their exposure to mandated sectors (such as social housing and “the productive sector”) and its search for profitability. On the latter, it undoubtedly succeeded, achieving an 80% increase in net income (up by $18 million).
BMSC continues to dominate the small market that is Bolivia and is the clear leader in terms of assets, deposits and loans. The bank also managed to keep the government and the regulators happy with its progress on targeting 60% of its loan portfolio at mandated lending – BMSC reports it is up to 52.57% in 2016 and expects to achieve full compliance by 2018.
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Brazil
Best investment bank: Bradesco BBI |
It seems that whatever the economic situation, or whether financial flows to the country are positive or negative, Brazilian banks continue to increase profits. And, despite a lingering and deep recession in a country with rising unemployment, the large banks have continued to report higher net profits.
Consolidation partly explains how the leading banks have managed to defy gravity in a toxic economic and political environment. Consolidation also explains why profitability was much harder to achieve for smaller banks. HSBC and Citi both gave up trying to break the market – despite its obvious potential – and left. Their departure gave third-placed Santander Brasil a rare chance for acquisitive growth, but Itaú and Bradesco snuffed out that chance by outbidding the Brazil-listed subsidiary of the Spanish bank.
No matter. Santander has managed to create sufficient momentum in the market to claim the prize of being best bank in Brazil through purely organic growth. It is a remarkable story, and one that looks sustainable. The model is an effective blend of offering a full suite of products, targeted effectively through new and efficient digital channels. Throw in a happy and motivated workforce to keep customer satisfaction scores high and you have a potent mix that has driven considerable local outperformance.
As geographical footprints become less of a strategic issue for competing in such a vast country, Santander has reported increased net profits for the last 13 quarters (with one provision-led exception). In 2016, Santander increased net income by 10.8% while other leading banks went sideways or fell. Santander increased its return on equity from 12.8% to 13.3% (while the others, again, did not). Although it still lags the competition, it is heading in the right direction.
This growth has been achieved without adding risk – its non-performing loan ratio in the fourth quarter of 2016 was below the market average, at 3.4%. Although the bank’s turnaround, led by CEO Sergio Rial, predates 2016, the results really began to show in the last 12 months.
Even the bank equity analysts, who had turned sceptical after years of disappointing results that followed the bank’s IPO in 2009, have begun to increase their target prices on the stock – but not quickly enough to keep up with investors’ valuations of the turnaround story. In 2016, the bank saw a 103.1% increase in its share price, higher than its competitors (Bradesco returned 60.2% and Itaú 42.7%) and the benchmark (with the iBovespa rising 42.9%).
Santander Brasil has also made big strides in its wholesale and investment banking division, but the market leader and our winning investment bank remains Bradesco BBI. It has grown quickly in its domestic market by unashamedly using its balance sheet to win its way onto capital markets mandates. That has got Bradesco BBI to the table, but it has had to work hard to remain there – and then thrive.
Leandro Miranda, head of Bradesco BBI, credits the stability of the team as part of the reason the bank has been able to report its best-ever results in the last 12 months. Bradesco BBI grew its gross revenues by 47% and net income by 45% despite an insipid Brazilian market. BBI added to its traditional domination of local DCM with impressive league table results in international DCM, M&A, ECM and project finance.
It is the bank’s ability to demonstrate its leadership in deals across these segments that cements its place in the market. It led big deals in M&A, such as advising Valepar on its sale to Vale for R$65 billion ($19.6 billion), the largest M&A transaction in Latin America. Bradesco was also the exclusive financial adviser to Grupo Ultra in its R$2.8 billion acquisition of Liquigas from Petrobras.
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Chile
Best investment bank: Santander Chile |
Chile’s banks had to navigate a flat operating environment in 2016, but loan growth looks to be returning to more healthy levels again – this year analysts anticipate around 7% growth. In this environment, strong cost control is usually key and that is something that Santander Chile has been particularly effective at, while still achieving top line growth.
The bank, led by country head Claudio Melandri, wins the award for best bank in Chile for its ability to grow net income by 13%, while its success on the cost side drove improvements in its efficiency ratio (now 42.7% compared with the system average of 50.4%) and an increase in its ROE to 17% (compared with a sector average of 11.6%).
A strong part of both of these results was the growth of more efficient digital channels: Santander Chile represents 40% of all private banks’ online transactions and 30% for the banking sector as a whole.
The bank’s scale also helped it to deliver strong results. As of December 2016, the bank was the largest bank in Chile in terms of total assets ($55 billion, representing a 17% market share) and total loans ($40.3 billion and 19.4%). The bank leads the retail segments with market shares of 22.2% in loans to individuals, 23.4% in consumer loans, 21.6% in mortgage lending and almost 30% in credit cards. Santander grew total loans by 6.5% last year despite low GDP growth, led by mortgages (up 10.3%) and small and medium-sized enterprise loans (9%) – both of which also reflect the bank’s strategic shift to less risky segments due to recent banking regulation changes.
Santander Chile also claims the award for the country’s best investment bank, making it a rare double win for a bank in Chile. As with many markets around the region last year, deal activity was depressed, but Santander claimed an impressive share of what was available, winning both the local and combined local and international bond tables through a strong second place performance in the international category.
Landmark deals for the bank, led by Fred Meller, head of Santander Global Corporate Banking Chile, include Codelco, Celulosa Arauco and Telefonica, as well as Transelec’s international deal and CPMC’s first Chilean green bond.
Santander also continues to lead in terms of project finance, a key segment for the market. This year the bank led the multi-currency financing of the concession for Santiago’s international airport, as well as highways, transmission lines and the largest public-private partnership of the year for Hospital Felix Bulnes.
In M&A, Santander had a mix of domestic consolidation mandates, such as Colbun’s acquisition of SunEdison’s assets, advising local clients going abroad (Abastible/Empresa Copec’s acquisition of Repsol’s LPG business in Peru and Ecuador) and advising inward investment in Enel’s sale of 20% of GNL Quintero.
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Colombia
Best investment bank: Banco de Inversion Bancolombia |
Colombia’s economy slowed in 2016, in part due to weaker mining and oil, but inflation appeared to peak and the outlook is brightening. The business environment for banks was stable but modest, with low loan growth and a slight compression in net interest margins.
It was in this humdrum context that Bancolombia managed to post relative outperformance that not only cemented the bank as the biggest in its domestic market, but also saw it jump three places regionally to become Latin America’s seventh largest bank in terms of assets.
The bank managed to grow its net interest margin by 6% for the year, net income by 13.75% and net interest income by 34.1%. Net fees increased by 16.4% in 2016, reflecting growth in Bancolombia’s credit and credit cards, and progress in cross-selling insurance products through the bank’s branch network. The bank’s efficiency ratio fell to 51% – a very large 355 basis point drop from the previous year, which the bank attributes in part to strong cost control. Return on equity hit 14.5%
Like Santander in Chile, Bancolombia also manages to make it a domestic double: its investment banking unit, Banco de Inversion Bancolombia (BIB), wins the award for best investment bank in Colombia. Led by Jean Pierre Serani Toro, head of investment banking at BIB, the local player has been expanding and improving rapidly in recent years. This year, it presented an impressively rounded portfolio of transactions.
It is a leader in domestic capital market deals, an increasingly important and liquid corporate financing tool in Colombia. BIB arranged and placed bonds worth $853 million during this year’s qualification period. However, the bank is not limited to arranging financing in its local market as its $250 million project financing for AES in Panama demonstrates.
However, it is BIB’s M&A credentials that mark it apart in Colombian investment banking. The bank closed 28 transactions for a total deal value of $3.65 billion, which generated more than $16 million in fees.
BIB reports that this equates to $252,000 a banker, which is an impressive rate for the Colombian market.
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Ecuador
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Ecuador’s economy and people were taken by surprise by a strong earthquake in April 2016. The best bank in the country, Banco Pichincha, played its part in the country’s recovery story by forgiving $16.8 million in debt to more than 40,000 micro-businesses and low-income individuals. The bank also authorized special loans worth a total of $247 million to stabilize the country.
The bank says strong internal cost controls managed to mitigate the financial aspects of both its direct financial support and the impact from the poor economic environment. Pre-tax profits fell by 8% on revenues that were 6.5% lower, while return on equity dipped by 140bp to 5.6%. However, it could have been worse, and the bank has been focusing on improving its efficiency ratio to take advantage of an expected improvement in the economy over the next 12 months, driven largely by the recovery in oil prices.
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Mexico
Best investment bank: Santander Mexico |
The Mexican banking system has had a lot to contend with in recent years – and it has come through those tests in good shape. Top-down challenges remain but the bottom-up fundamentals continue to show resilience across the sector. Credit demand remains robust and asset quality is not showing signs of strain (NPLs are low and stable) and the risk to NIMs appears to be on the upside.
In this environment, BBVA Bancomer reported the strongest performance and wins the best bank award. It used its leading market share and funding advantage (through its large share of time deposits) to pip its closest competitors.
The bank grew its net income by 18.3% on the back of a 10.7% increase in revenues – a result that reflects a 243bp improvement in its efficiency ratio, which, at 39.4%, is some way below the market’s average of 46.3%. Its return on equity rose from an already more than respectable 20% in 2015 to 22.2% by the end of 2016 (the market’s average is 13.7%).
BBVA Bancomer credits its strong performance to a transformation plan launched in 2013 that focused – ahead of the competition – on technology and innovation. The plan has seen $2.9 billion of investment to date, but the push to digital channels is paying off in terms of both costs and revenues. During 2016, the number of consumer credits granted through digital channels was five-times higher than those granted in 2015 and accounted for 40% of all the bank’s new consumer credits.
Mexico’s universal banks are beginning to heat up the competition with traditional investment banks. Last year, BBVA won the award; this year Santander Mexico is acknowledged as the best investment bank in Mexico because of its rapid growth. Santander may not be the biggest investment bank in the market, but with the rest of the candidates having a so-so year, Santander Mexico stands out for pulling off what amounts to a breakthrough performance.
The investment bank, led by Jorge Arce, head of Santander Global Corporate Banking, had a particularly eye-catching performance in equities, working on a diverse array of deals and all at bookrunner level. This list includes a $190 million follow-on transaction for the country’s only mortgage real estate investment trust (at a 1% discount), a global offering for energy company IEnova, which was oversubscribed eight-times, and Cuervo’s IPO – the prestige deal of the year.
In M&A, the bank leveraged its Spanish connections to advise on two outbound acquisitions by Mexican corporates and in DCM the bank is beginning to build out from its top-three position in local markets towards an international presence (although it still has a lot of work to do to catch the established players such as Citi, HSBC and BBVA). The bank has the relationships to build upon to achieve this.
In the awards period, Santander Mexico arranged Ps53 billion ($2.92 billion) of financing for its global banking clients in Mexico across a range of term loans, revolving credit facilities, bridge loans and leveraged transactions. It is also the leading franchise for project finance.
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Paraguay
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Paraguay had the eyes of the world on it this year when the Inter-American Development Bank conference was held in Asunción. Delegates came away impressed with the economy’s resilience in the face of deep recessions in neighbouring Argentina and Brazil.
Part of that resilience stems from the country’s ability to attract investment from these countries, lured by business-friendly regulation and taxes. And it is a Brazilian subsidiary in Paraguay that again wins the award for best bank in the country.
Banco Itaú Paraguay blows nearly all of the competition away when it comes to key reporting metrics, such as return on equity (40%) and efficiency (42.4%) and, unsurprisingly, this is based on leading market shares in terms of assets and deposits.
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Peru
Best investment bank: Bank of America Merrill Lynch |
Peru enjoys one of the most stable economies in the region thanks to strong macroeconomic fundamentals – one of which is its banking sector, which has consolidated into a few profitable players. On the economic front, the new government is trying to diversify away its dependence on mining and energy, but on the banking side there seems little room for new players, given the strength of the incumbents. That is most true for the biggest and best: Banco de Crédito del Perú (BCP).
BCP, led by CEO Walter Bayly, spans the entire economy. It has a 32.9% share of direct loans, a 32.1% share of deposits and delivered a return on equity of 22.7% in 2016. The bank grew total revenues by 6% despite a tough operating environment that affected all of the banks – in the first quarter of 2017, the north of the country was impacted by El Niño.
Despite this, the bank reported stable net income, an improved efficiency ratio and a better net interest margin. BCP remains many equity analysts’ top regional pick, and investors seem to agree, the bank’s market capitalization has increased by 75%.
Peru saw a quiet year for investment banking but Bank of America Merrill Lynch was the pick of the bunch, claiming the leading deals from the country.
BAML claimed top spot for DCM with two large deals, including an impressive NS10.25 billion ($3.12 billion) new issue and liability management exercise for the sovereign, which represents the largest-ever sol-denominated single offering by the Republic. It is also the largest-ever local currency transaction issued in the international capital markets by a Latin American issuer.
BAML also advised in some of the country’s M&A deals in the toll road and energy sectors. There was just one ECM deal in Peru in the qualification period – Hochschild Mining’s $50 million follow on, which was sole led by a single bank.
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Uruguay
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For a long time, it seemed that the only serious problem facing the Uruguayan economy was its stubbornly high inflation. It also seemed to defy the economic crises in neighbouring Brazil and Argentina and carry on growing regardless.
However, since 2014, the economy has sagged and the banking sector has been impacted by the repatriation of money held in the large private banking sector, primarily to Argentina, but also to Brazil.
The banking sector is, however, standing up to these challenges pretty well. The country’s state bank, Banco de la República Oriental del Uruguay (BROU), led by its president Jorge Polgar, wins the award for the best bank in the country for the stability it provides to the system.
BROU holds 43% of all assets in the financial system.
Despite a difficult environment that has seen lower net profits and NIMs in both the public and private sector, the bank has been able to focus on optimizing its operational structure, cutting costs (and branches) and has seen its efficiency rate improve from 61% in 2014 to 55% in 2016.
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Venezuela
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In a country nearing political, economic and financial collapse, the aim of banks became very short-term: to survive.
But Mercantil Banco Universal says that it is benefiting from taking the opposite approach and is looking at the opportunities that the country might represent in the long term.
In Venezuela, endemic inflation warps all the banks’ results (Mercantil increased revenues by 127.9% and net income by 170.1%) but Mercantil stands out by its ability to control costs through its focus on digital operations.
The bank now has some 14,300 active users of its corporate app and more than 960,000 users of the individual retail banking app that, together, carried out over 139 million transactions during 2016. But for real growth the country itself needs to change.
It is to be hoped that Mercantil’s current investments in its future will pay off sooner rather than later.
Central America and Caribbean countries
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Costa Rica
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Costa Rica’s economy hit GDP growth of 4.3% in the awards period; it has been consistently one of the highlights of the region in recent years. BAC San José continues its market leadership, which spills into domination in some segments – it has a 49% share of all credit card transactions by volume and over 1 million customers.
For a relatively small market, this is a big bank: it has $5.4 billion in total assets, $3.9 billion in net loans and $3.6 billion in total deposits. In 2016, the bank generated $92 million in net income – equivalent to 20.7% of the entire banking system’s profits. Unsurprisingly, then, it also leads the market in terms of return on equity (19.3%), thanks, in part, to a net interest margin of 7.4%. Its return on assets is 3.2%.
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Dominican Republic
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The continued economic success story that is the Dominican Republic is becoming increasingly entwined with that of the state bank BanReservas. Since 2012 president Danilo Medina has been using the bank as a means to stimulate the economy and that continues, under the new (August 2016) leadership of CEO Simon Lizardo, who was previously minister of finance for the Caribbean nation. But the remarkable thing has been its ability to recapitalize itself through cash flow and its ability to not only provide credit but to do so profitably.
In 2016, the Dominican Republic registered 6.6% GDP growth on the back of continued diversification. BanReservas is financing that growth; the bank increased its total assets in 2016 by 14.5% (and revenues by 13.5%). And this growth is very strategic – for example, the bank established a tourism division and grew its loans to the segment by 86.7% in 2016 alone.
At the same time, BanReservas has maintained a high return on equity of 21.2% and a net interest margin of 7.88%. It has improved its retail model, increasing its share of deposits by 4.75 percentage points to 32.7%. The bank continues to invest in technology and infrastructure for the future. Its efficiency ratio – although high at 73.2% – fell 391 basis points in 12 months.
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El Salvador
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BAC El Salvador is shaking up the country’s banking sector through the effective use of digital banking products. BAC has introduced tablet and mobile apps for corporate and retail customers and has pioneered third-party alliances, such as its 2016 contract with Aeropost that gives customers access to payment facilities in the US for the first time.
The results have been impressive. The bank increased its revenues by 8.3% and its net profit by 26.3% in 2016. Return on equity increased from 10.12% to 12.69% and it lowered its efficiency ratio 100bps to 60%. BAC is clearly benefiting in El Salvador from its ability to implement its regional technology against local competitors. It looks set to extend its leadership in the coming year.
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Guatemala
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Guatemala’s economy slowed in 2016, with growth down from 4.1% in 2015 to 3.1%. The country’s best bank, Banco Industrial, shrugged this off and posted a 3.9% increase in net income – well above the system average, which actually contracted 6.5%.
Not only is Industrial the biggest bank (it has a 28% market share in assets, 27.2% in loans and 24.1% in deposits), but it is also the most conservative. It has an NPL ratio of 0.6% and a coverage ratio of 249.2%, compared with the banking sector average of 2.3% and 110% respectively. And, with an efficiency ratio of 53.4% and a return on equity of 21.9%, it is also the most profitable.
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Honduras
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BAC Honduras is another of the regional bank’s local operations that wins the award for best bank in its market – a sign that the regional player’s ability to spread technological and other costs throughout the network is a big advantage over banks isolated in single markets.
That was certainly the case in Honduras last year; no one else was able to match BAC’s revenue growth of 7.6% or net income growth of 12.2%. The bank increased its return on equity to 18.77% and lowered its efficiency ratio to 58%.
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Nicaragua
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Nicaragua’s banks enjoyed a very healthy operating environment over the last year. GDP growth was virtually the same as the year before, at 4.7%, and employment participation grew at a double-digit rate while inflation remained low and stable. The country’s best bank, Banco de la Producción (Banpro) continued to enjoy its market leadership while tweaking its strategy to further improve profitability.
Banpro sought to increase the weight of retail loans in its portfolio and adjusted the mix of its deposits (from term deposits to current accounts), as well as seeking opportunities through digital channels. It seems to be working – revenues increased 17.8% and net income jumped 22.2%. Growing revenues and maintaining costs saw the efficiency ratio improve to 47.6% and the bank earned a 24.1% return on equity (up 120bp).
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Panama
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Banco General is the leading bank in a country famous for them. That it comfortably retains the award for best bank in Panama is testament to its ability to maintain its scale, efficiency and profitability. The bank, led by CEO Raul Aleman, is unsurpassed in the full range of loan segments (mortgages, consumer loans and corporate loans), as well as deposits – enjoying 27.1% of all private deposits. General is also growing its corporate and investment banking credibility – and fees.
The internal statistics are just as impressive: an increase in revenues of 11.2% and net income by 14.2% in 2016. Return on equity increased by 270bp to 20.6% and its efficiency ratio improved by 500bp to 35.4%. As yet, there appears to be little answer to Banco General’s performance in Panama from its private-sector competitors.
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Puerto Rico
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Santander Puerto Rico has been using its competitive advantage as the country’s only investment grade bank to outperform the market. Led by country head Fredy Molfino, the bank has undertaken a three-year strategic plan to increase its client retention scores. Part of this is being driven by technological innovation. For example the bank’s mobile app has market-leading functionality – an important differentiator given 24% of the nation’s population already uses smart phones.
The strategy is already effective. Despite lower revenues, net income increased 185.3% and its efficiency ratio fell from 74.3% in 2015 to 65.7% in 2016. The bank says its aim is not to be the biggest bank in the country, but it has already built significant scale with assets of $5.3 billion and deposits of $4.3 billion.
