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| Regional awards |
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Latin America
Central America and Caribbean
Latin America
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Argentina
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Throughout 2017, Argentina’s leading banks had started to look forward to a very different banking system to the one they had experienced for more than a decade. With positive real interest rates and an inflation-targeting central bank, which was also cutting many of the prescriptive operational rules, change seemed to be in the air.
It was also evident on the ground: new branches opened and banks were on the road showcasing equity and debt transactions that would ensure that they could remain at the forefront of the normalization of the system. Credit portfolios grew – mortgages were even becoming an important (although still nominally small) feature – and banks were jockeying for position in a market expected to consolidate rapidly.
Such optimism was thrown into question when the central bank acted in May this year to shore up the currency by raising its benchmark rate to 40%. All of a sudden Argentina’s economic and credit growth has been thrown into question. How long will these interest rates persist? What impact will they have on the real economy, given low credit penetration? Will demand for credit dwindle or disappear? Will banks continue to invest in physical and digital infrastructure while facing domestic economic headwinds? Will the political fallout of IMF support and the prospect of large fiscal cuts threaten president Mauricio Macri’s chances of re-election in 2019?
We should have a good idea about at least some of these questions by next year. For this year, however, we can survey the activity of those banks operating in a more benign macroeconomic environment. On this basis, the bank that best responded to the opportunity by growing loan and deposits while maintaining risk discipline was Banco Macro.
Under the leadership of Gustavo Alejandro Manriquez, Banco Macro delivered exceptionally strong performance. The bank remains extremely profitable. Its return on assets was 5.2% and its return on equity was 28.6%, despite high levels of equity from capital it raised to pay for a potential acquisition of Banco Patagonia.
The acquisition of Patagonia was the juiciest opportunity to grow market share; BBVA and Galicia were also understood to be interested. BBVA was believed to have been sufficiently aggressive in pricing and other terms to have been in pole position, but ultimately the deal fell apart due to a minority shareholder veto.
Meanwhile, Macro hasn’t been putting all its eggs in the M&A growth basket; it has also been growing its branch network. This is very strong outside the province of Buenos Aires and the bank has the financial agency business of four provinces (Salta, Misiones, Jujuy and Tucuman).
Loan growth was a more-than-healthy 56% year on year, well above the 25% level of inflation in March 2018. The bank’s net interest margin hit 17.7% (compared with 12.97% for Galicia and 10.6% for BBVA Francés) and it also beat its peers in terms of its efficiency ratio, at 42.5% when none of the other leading banks broke 50%.
All the leading Argentine banks recorded strong years and 2017’s winner, Banco Supervielle, deserves an honourable mention for maintaining its post-IPO growth, but Macro had the best year. Although not a factor in this award, it is worth noting that Macro also has a larger-than-average exposure to government securities as part of its income and so already has an advantage as the industry moves into a less-certain operating environment.
The awards period was the first time in many years that Argentina can be said to have been a true investment banking market, with equity and debt capital markets and M&A all offering good volumes.
Reflecting this market breadth, this year’s best investment bank is Bank of America Merrill Lynch. It can point to work in all investment banking segments and especially in ECM, which was a key area of activity last year.
In total, Argentina saw $5 billion of equity issued, in what amounted to 17% of all equity raised in Latin America. BAML worked on six of the eight IPOs and follow-ons from Argentine issuers – equal to 83% of all Argentine ECM volume. The bank was global coordinator on two of these deals (Grupo Supervielle’s follow-on and Central Puerto’s IPO) and claimed the largest economics on four (IPOs for Loma Negra and Central Puerto, and the follow-ons for Corporacion America Airports and Supervielle).
BAML was also a top-four bank in M&A. It worked on important deals for Mercuria Energy Group in its sale of its Argentine subsidiary to Andes Energia and advised QBE on its sale of its Latin American operations to Zurich. Rounding out the product suite, the bank also worked on some landmark DCM transactions, including the inaugural debt issuance for the province of Rio Negro, the first global, local currency-denominated, fixed rate transaction by an Argentine financial institution or corporate since the 2001 sovereign crisis.
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Bolivia
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Banco Mercantil Santa Cruz (BMSC) continues to tighten its grip on Bolivia’s domestic banking system by again growing faster than its peers. Last year, this result was helped by – although not exclusively attributed to – the completion of the bank’s acquisition of Banco PyME Los Andes Procredit.
The deal diversifies BMSC’s credit risk while it continues to expand its market share elsewhere (BMSC was the only bank to increase market share in the last 12 months). In total, the bank surpassed $5 billion in assets for the first time and recorded a net profit of $46 million, representing an 18.9% return on equity (a 400 basis point increase, to a level that is comfortably above the industry’s average).
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Brazil
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Brazil’s recovery from its sharp recession of 2015/16 has been tentative. Normally the country enjoys an immediate bounce as it exits downturns – the famous chicken-flight economic growth charts – and banks are as accustomed to taking advantage of those soaring years as they are to mitigating risk from the negative years.
This recovery has been different: GDP growth just reached 1% in 2017; expectations for 2018 are being downgraded monthly and now stand at around 1.5%. One reason for this is the corruption enquiry Lava Jato, which complicates the recovery in corporate lending while that, in turn, frustrates the recovery in employment and so has slowed consumer credit demand.
The lack of certainty about the next administration – and its likely appetite for fiscal adjustment – is also preventing investment decisions. Meanwhile, the fiscal crisis has led to a steep decline in disbursements from development bank BNDES and other public banks, which has weakened another typical driver of the economy.
Itaú Unibanco was caught out by some of the large-scale insolvencies (recession and Lava Jato-related) during the downturn. However, the sheer scale of Itaú’s balance sheet meant that the increase in provisions was manageable, and the bank has reported strong profitability throughout recent years. Now that those defaults have largely been digested (although there was one more R$500 million ($132.6 million) loss in the last quarter due to an exposure to an infrastructure company, it had already been provisioned), there is now a real prospect that some of the already-made provisions will soon return to the bank’s assets column as companies recover.
The bank was making so much money that in the last year, under new chief executive Candido Bracher, it changed its capital management strategy. It first increased the maximum payout ratio to 45%, before scrapping any upper limit months later in order to pay dividends that keep a common equity tier-1 ratio of 13.5%. Analysts expect a dividend yield of 7.4% this year. Meanwhile return on equity of 20% seems to be the floor for the bank.
Itaú runs less unsecured retail and small and medium-sized enterprise risk than most of its competitors, although these segments are increasing their share of the bank’s total credit portfolio as corporate credit stagnates. This lowers risk in the current challenging outlook but could limit the upside if the Brazilian economy begins to gain positive momentum. So much so, in fact, that one of the bank’s equity analysts recently made a rare plea for the bank to cut its conservative risk process and take greater exposure to riskier segments. That suggestion received short shrift from Bracher – probably because the bank is making so much profit with its current risk approach and the bank could change its portfolio relatively quickly should growth return.
While the lower central bank overnight Selic rates have not impacted the Brazilian banks’ retail business as yet (NIMs are stable as asset quality improves and the mix skews to higher margin business), the same is not true for the corporate loan book. Historically low domestic interest rates and continued low international rates mean that those corporates seeking finance have been looking to the capital markets rather than bank loans. Bracher says the increased activity of Itaú’s investment banking platform, BBA, has not led to enough fees to compensate for lost loan revenues.
However, it was an undeniably supportive environment for Brazilian investment banks. International investors, who had become underweight Brazilian risk in recent years, sought primary equity and debt issues. Domestic investors were also looking to add risk to boost portfolio returns subdued by the lower rates paid by sovereign risk. M&A also perked up from an already respectable level.
In this positive market many banks enjoyed strong deal flows and fee generation. And while the locals claimed league table dominance, in large part due to their ability to demand joint bookrunning mandates from companies that have or want to have balance sheet commitment, the performance of Morgan Stanley stood out.
Morgan Stanley’s team can point to deal leadership across investment banking products over the last 12 months. One of the ways the international banks can do this transparently in ECM is to take Brazilian companies to list in New York and that is what Morgan Stanley (with Goldman Sachs) did with PagSeguro’s $2.6 billion IPO – the largest Latin American tech IPO in history and largest Latin American IPO since 2013.
Alessandro Zema, head of investment banking for Brazil in São Paulo, of course says that was not the reason for the decision to take the listing away from the Brazilian exchange, but presumably it does help differentiate the bank from the locals. Yet local deals are also important. Morgan Stanley led on Nexa Resources’ IPO and participated in Petrobras Distribuidora’s $1.3 billion-equivalent IPO, as well as leading on follow-ons for Rumo and BR Malls.
The bank was global coordinator of more (eight) ECM deals in Brazil than any other international bank, stabilized more deals (five) than any other bank and can also claim the highest execution rate in the market. Morgan Stanley priced 14 IPOs and pulled just two – an unbeatable ratio.
Morgan Stanley can also claim a prestigious list of clients and deals in its M&A transactions. The bank was sole sell-side adviser to Votorantim in its sale of Fibria to Suzano for $14.4 billion. It was also sole financial adviser to Cofco International in the sale of Nidera Seeds to Syngenta for $1.4 billion.
In DCM, Morgan Stanley clocked up sovereign transactions (a $1.5 billion re-tap of the Republic of Brazil’s 2047 notes); quasi-sovereigns, such as Petrobras’s $4 billion multi-tranche deal in May 2017; corporate deals for Votorantim and Braskem; a green bond deal for Klabin; and inaugural deals for companies such as Hidrovias do Brasil. Morgan Stanley was also global coordinator for the bond issuance/re-tap/liability management trade for Gol.
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Chile
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While many other large markets in Latin America faced obstacles to growth in 2018, Chile’s economy has begun to accelerate thanks to a mix of low political risk, historically low interest rates and investment clarity.
Chile has always led the region in terms of risk-ratings (it is steadily investment-grade while others rise and fall), but the banking industry has been strong rather than stellar – in large part due to prescriptive and conservative regulation.
All banks have performed well, but the stand-out, for the third year in a row, is Santander Chile. Last year the bank, led by Claudio Melandri, focused on boosting profitability – and it succeeded. Santander generated record profits in 2017 and into the first quarter of 2018 – increasing by 19.2% and boosting return on equity by 180bp to (coincidentally) 19.2% – both results outperforming its closest rival. The bank’s return on assets increased to 1.6% from 1.4%.
These results are a direct product of the bank targeting higher income segments with better asset quality. Exposure to this segment now makes up 69% of the total loan portfolio (up from 59%), while exposure to the riskier retail segment is now just 3%. The bank’s net interest margin (net of risk) increased 30bp to 3.2% and was the key driver of profitability.
The bank attributes its ability to increase its market share in this desirable consumer sector to focused training that has steadily improved loyalty scores. This has been complemented by investment in the bank’s digital platform; the bank upgraded its app in 2017 and increased distribution to include insurance products. Santander now enjoys a 38.6% market share in these channels.
Banchile is one of Santander Chile’s strongest competitors and the strength of its local corporate relationships helped Citi claim the award for investment banking in Chile. In a steady year for deals, Citi stood out across the product mix. In ECM Citi won a market share of 47%, according to Dealogic. The bank worked on four of the five largest equity transactions, including being sole lead on the largest, SACI Falabella’s $297 million follow-on in June 2017.
The biggest deal of the year was an M&A transaction in which BBVA sold its 68.19% stake in BBVA Chile to Scotiabank. That transaction was not a local mandate, however, and shows that Citi’s formidable network in the region continues to pay off. BBVA had mandated Morgan Stanley in Argentina to advise it on the potential acquisition of Banco Patagonia, but Citi reportedly so impressed BBVA (not least through its advice not to take FX risk by making a US dollar-denominated bid) that BBVA rewarded the bank with the mandate as exclusive financial adviser on the $2.2 billion deal.
Unsurprisingly given the scale – the transaction was the region’s largest FIG deal last year – Citi also topped the M&A rankings. The bank also claimed a top-three ranking in DCM activity, thanks to a wide range of deals including the global local currency transaction for the Republic of Chile and two $500 million bonds for financial institutions Santander Chile and Banco de Crédito e Inversiones.
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Colombia
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In 2017, the Colombian economy continued to be negatively impacted by the oil price shock that started in 2014 and the 2016 tax reform that hit consumer and investment confidence. However, there were signs of greater economic dynamism from the middle of last year due to lower inflation, stimulating monetary policy and improving commodity prices. GDP growth of 1.8% is expected to pick up to around 2% this year and 3% in 2019.
In this modest macroeconomic environment, the bank that stood out was BBVA Colombia. The only large international bank in a market dominated by locals, it finally made its difference count by leveraging the bank’s international digital investment to grow its market share across a range of core banking areas. Under the leadership of chief executive Oscar Cabrera Izquierdo, BBVA Colombia grew its share of loans (up 40bp to 10.4%) and deposits (up 28bp to 11.8%). The bank performed particularly strongly in targeted, low-risk segments: payroll loans increased by 111bp to a share of 16.9% and commercial loans grew by 60bp to 7.3%.
These market share improvements were driven by the success of the digital platform. The bank grew its digital customer base by 31% in 2017, cut branches by 3.4% and reduced headcount by 14.9%. This cost control more than compensated for IT investments, and the bank’s efficiency ratio fell 267bp to 46%. The bank’s net interest income grew by 18.9% and it recorded a return on equity of 11.5%.
Low economic growth in Colombia recently has meant subdued investment banking deal flow – especially from companies looking at the international markets. Local investment bank Banco de Inversión Bancolombia (BIB) was the go-to bank for local companies. The bank raised more than $4.4 billion-equivalent with 28 transactions, including 13 structured finance deals in the infrastructure sector worth more than $2.7 billion – not an easy task, given the scandals in that industry.
A specific highlight was the $465 million cross-border project financing for Renance that will be used for the construction and startup of a fourth hydroelectric plant that will consolidate the company as the main private generator of renewable energy in Guatemala. BIB also led on straight debt issuance, such as Odinsa’s $135 million debt transaction.
BIB also structured a $517 million follow-on issuance for local company Celsia – the first equity transaction in Colombia for four years. And BIB demonstrated its full-service investment banking franchise in Colombia by closing M&A deals worth a combined $658 million, including the cross-border acquisition of Inpaecsa in Ecuador by Grupo Familia.
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Ecuador
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Ecuador’s economy shrugged off a recession in 2016 and appears to be finding a firmer footing. The increase in oil prices has clearly helped, as has a trade agreement with the European Union, which has boosted exports. The country predicts growth of around 2.5% this year, although challenges remain on the fiscal front and the country remains heavily indebted to China.
The banking market has long been dominated by Banco Pichincha, but the last year was notable for seeing Banco del Pacífico break clear of the pack to become the leading challenger bank. Pacífico’s profits grew to $70 million from $40 million. The bank’s credit portfolio has grown 21.5% since 2016 and Pacífico is now the second biggest bank in the country, driven largely by an increase in mortgage loans and educational loans – a segment it dominates.
The growth has also been channelled through the launch of Pacífico’s digital wallets for payments. The investment has certainly paid off. As well as seeing rapid loan and deposit growth of 8.15%, the use of digitization has spurred better profitability. According to Ecuador’s banking supervisor, the bank is now the most profitable in the system. Pacífico’s return on equity leapt to 12.6% from 7.3% in 2016 and return on assets almost doubled to 1.3% from 0.7%.
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Mexico
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Mexico is home to the region’s most dynamic and competitive banking sector. Citibanamex is being reinvigorated since Citi made the country one of its priorities and its turnaround is well underway: loan growth of 11.5% reflects its greater risk appetite and greater capitalization. Meanwhile, HSBC Mexico wins the region’s award for best transformation as its new management improves that bank’s fortunes.
Banorte is also growing strongly, leveraging its existing client base for growth through its new technology platform to increase efficiency and net income (up 24% over the year). Santander Mexico saw a solid result that would be a highlight in most markets. But in terms of sheer banking excellence, BBVA Bancomer has set a bar that the rest are making good progress towards but none has yet managed to reach.
BBVA Bancomer is Mexico’s leading bank in virtually all segments, but its management, led by Eduardo Osuna Osuna, isn’t resting on its laurels. The continuous transformation programmes initiated in 2013, which have seen $3.1 billion invested to date, have helped BBVA stay one step ahead of the competition. It has the best NIM (5.8%), best return on equity (23.56%), best return on assets (2.15%) and, thanks to its scale (the bank has a 23% market share of loans), it is by far the most efficient (37.8%), a result that also reflects the bank’s costs growing below the rate of inflation.
BBVA’s recent growth in lending has also been accompanied by strong risk control. At the end of 2017, the non-performing loan ratio had improved by 12bp to 2.1% along with the coverage ratio, which closed the year at 139.2%. The cost of risk fell from 3.3% in 2016 to 3.2% in 2017.
But it is BBVA’s market leadership in digital banking that is probably the main driver of its performance. At the end of 2017, the bank had 5.3 million customers (up 36% on the previous year, while mobile customers grew by 60% to 4.5 million) and more than 50 digital products, including ‘one-click’ pre-approved loans.
BBVA Bancomer also wins the best investment banking award in Mexico, although the competition, especially in the case of Citi, was closer. Under the leadership of wholesale and investment banking head, Adrián Otero Rosiles, BBVA led the Dealogic DCM and ECM deal tables during the awards period.
In ECM, BBVA was global coordinator for the $966 million IPO of Grupo Mexico Transportes and Terrafina’s $317 million follow-on. BBVA’s ability to lead international and local bookbuilding processes allows the bank to maximize orders for deals of all sizes.
The bank’s ability to play across different pools of investor liquidity also applies to debt sales and the bank worked on deals that raised nearly $16 billion for Latin American issuers in 10 deals. Highlights include deals for Grupo Cementos de Chihuahua, CFE, Atento, Mexichem and a large green project bond for the new Mexico City Airport.
Meanwhile, the bank also led on 72 local issues – a key funding source for most Mexican companies, given the liquidity of the local markets. Highlights here included deals for GM Financial de Mexico, Aeromexico, Grupo Bimbo and Grupo Lala.
BBVA also has an impressive deal count in M&A. During the qualification period, the bank advised on seven large transactions, including advising Grupo Mexico in the $2.1 billion cross-border acquisition of Florida East Coast Railway from Fortress. It also advised Enel Green Power on its sale of an 80% stake in a 1.712 megawatt wind and solar portfolio for $2.6 billion – one of the largest-ever deals in the region’s renewable energy sector.
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Paraguay
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Paraguay continues to pull off the trick of being immune to the economic problems of its neighbours Brazil and Argentina. The country is growing strongly – Moody’s expects GDP growth of 4.5% in 2018 – and the banking system has also benefited from currency and commodity price stability. Asset risk has been falling quickly from the spike in problem loans that followed the twin commodity-price and exchange-rate shocks in 2015.
In this benign environment, banks have all had strong years, with strong profitability backed by stable margins and lower credit costs, although the banks that have larger exposure to the agricultural sector (such as Banco Regional) still have some legacy issues from 2015.
Banco Itaú Paraguay remains the most profitable of the leading banks across key metrics. Returns on equity and assets hit 44.5% and 3.5% respectively in December 2017, while the efficiency ratio is 46.1%. The bank continues to invest in its online and digital tools – particularly its Cockpit app – and, according to an independent satisfaction survey in 2017, Itaú was highest ranked in its core private banking segment, up from third in 2016. The bank also claimed second place in the rankings for corporate clients, just beaten to top spot by GNB.
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Peru
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Peru has been the region’s best performing economy for many years. It has grown by an average of just under 5% since 2010, and inflation has hovered around 3%. That growth is set to continue. The banks also benefit from the emergence of a young middle class with relatively low credit penetration.
In this attractive macroeconomic environment Interbank, which is part of Intercorp Financial Services, has been expanding strongly. The bank itself has been growing its retail and credit cards business consistently above the system average and the group has been rounding out its proposition, with the 2017 acquisition of one of Peru’s leading insurance companies to complement its existing wealth management and brokerage divisions.
This year, the bank, led by chief executive Luis Felipe Castellanos, has increased profitability by improving its cost of risk. Interbank’s international debt deals, including a successful asset/liability transaction in 2017, also improved the bank’s funding costs and diversification.
Interbank has also improved its asset quality, specifically in the riskier loan segments such as credit cards. In total, loans have grown by a compound annual rate of 8.6% since 2017. The bank has also been investing in its digital platform, increasing the number of digital customers by 43% year on year in the first quarter of 2018 and boosting off-branch transactions by 94%.
The bank clearly has the momentum in the market and already has a return on equity comparable with Banco de Crédito del Perú, the country’s largest bank, at around 19.1% and a better NIM at 5.5%. The group’s efficiency ratio was 35.3% in March 2018.
Meanwhile it was a quiet year for investment bankers in Peru – there were no equity transactions from Peruvian issuers, for example. But while volumes were light, Bank of America Merrill Lynch dominated what there was sufficiently to justify being given the award for excellence.
The bank came top of Dealogic’s league tables for both M&A and DCM transactions on the back of some notable successes. In M&A, BAML was involved in seven deals, including being the exclusive adviser to Kenon on its $3.5 billion sale of IC Power’s Latin American and Caribbean business to I Squared Capital – this involved the largest-ever inbound acquisition in the Peruvian power and utility sector and was the second-largest single foreign investment in Peru’s history. In DCM, the bank captured a 58.9% share of international deals, including the sovereign’s inaugural Euroclear transaction for NS10 billion ($3.1 billion) – the largest-ever local currency denominated transaction.
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Uruguay
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Uruguay saw its 15th consecutive year of economic growth in 2017 when it recorded a 2.7% increase in GDP. Such a result certainly puts its neighbours Brazil and Argentina to shame. That growth has been largely achieved by fostering an open economy, welcoming foreign direct investment, adopting new technologies and diversifying industries.
Over that time, the banking system has consolidated so that today there are relatively few private banks in a system that is dominated by a public sector made up of two banks that enjoy a 43% market share. Of the private-sector banks Santander Uruguay is the country’s largest, with a strategy focused on growing in the retail and SME segments.
In 2017, the bank increased its lending in both these areas and increased its attributable profit (to the Santander Group) by 19% to €103 million, driven by an increase in gross income at a rate almost double that of operating expenses.
Underneath this headline success was an effort to improve customer satisfaction through digital channels, particularly among the higher income segments. The bank’s digital customer base increased by 42% in the year. Meanwhile the bank’s efficiency ratio improved 290bp to 48.5% in 2017.
Central America and Caribbean
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Costa Rica
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The private-sector banks in Costa Rica have long faced an operational disadvantage compared with the public banks, whose cheap cost of finance has skewed the competition. But now that Banco de Costa Rica is being mandated to take over troubled Bancredito, there may be an opportunity to take advantage of a potential slip in the focus of the country’s dominant lender – integrating Bancredito will certainly not be an easy task.
BAC San José looks best placed to capitalize on the moment. The bank has already carved out a profitable business and is set to extend its position as the leading private-sector bank in Costa Rica.
In the last three years, BAC has increased its market share considerably, with its share of assets growing by 104 basis points, receivables by 100bp and deposits by 137bp.
In 2017, BAC reported assets of $5.9 billion and a total loan portfolio of $4.2 billion.
Importantly this growth has been consistently profitable. Last year it generated $77.2 million of net income, generating a return on equity of 11.9% and a return on assets of 1.4%, well above the country’s system average of 6% and 0.7% respectively.
If BAC can continue this momentum as Banco de Costa Rica enters a difficult merger, it could get another boost.
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Dominican Republic
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The recent strong performance of the Dominican Republic’s economy has been a differentiating factor in recent years and in 2018 the sovereign was finally able to complete its objective of selling an international local-currency bond. The success of the deal should be a shot in the arm for the onshore capital markets and is testament to the country’s sound financial system.
It is during this recent history of macroeconomic growth that Banco BHD León was formed by the 2013 merger of the Dominican Republic’s third and fourth largest banks. Since then, the bank has become an effective challenger to the country’s two largest banks: the public sector’s BanReservas and the dominant private-sector bank, Banco Popular Dominicano.
Last year the bank, led by president Luis Molina Achécar, generated results that indicate the completion of the merger. Its efficiency ratio is now 55.3% – considerably below Banreservas’ 73.8% and Popular’s 68.6%. It is also more profitable, with a return on assets of 2.3% and a return on equity of 20.5%.
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El Salvador
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The El Salvadoran banking system is increasingly competitive and attractive: regional players BAC and Scotiabank are targeting the relatively stable economy. However, in 2017 Banco Agrícola de El Salvador shrugged off those challenges – and the economic uncertainties – and not only defended its market-leading position but grew across the board in terms of revenues, loans and profits. It closed last year with a 26.2% share in net loans and a 27% share of deposits.
Banco Agrícola recorded net profit of $67.8 million, up 4.1% compared with 2016, and equivalent to a return on equity of 13.2% and on assets of 1.6%. Meanwhile the bank invested in its soft infrastructure – such as its network of agents and its electronic channels – to increase the reach of its distribution. The increase in costs led Agricola’s efficiency ratio to nudge up to 49.4% (from 48.1%), but it is still the best ratio in the local banking system.
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Guatemala
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Guatemala’s economy continued to slow down in 2017, with GDP growth dipping to 2.8% from 3.1% in 2016, while growth in the financial system also decelerated.
However, Banco Industrial, which accounts for roughly one- quarter of the banking sector (a 28% market share in total assets, 27.2% share of total loans and 24.7% of deposits) managed to sustain the strong growth of the last five years – with compound annual growth rate of 9.5% in assets and 10.9% for loans.
Continuing this pace in 2017 in a slowing economy was done without jeopardizing asset quality. Industrial’s NPL ratio was 0.9% in 2017 and the bank has a coverage ratio of 194.2% as of March 2018, compared with the banking system’s average of 2.5% and 118.1%, respectively.
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Honduras
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In 2017, Banco Ficohsa Honduras completed the integration of Citi’s Honduran bank. The bank now has around a 20% market share of assets and loans. The acquisition led to a moderate increase in its NPL ratio between 2016 and 2017, which prompted management to introduce stricter loan approval and disbursement policies.
However, the overall impact has been positive, and the bank has emerged as a clear market leader and is already leveraging its greater scale – the bank is ranked first in terms of assets, loans, and equity (and is ranked second in deposits) and saw growth of between 3% and 10% across all these categories.
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Nicaragua
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Political risk has spiked in Nicaragua recently and Ovidio Reyes, president of the country’s central bank, estimates that growing uncertainty will knock at least two percentage points off this year’s GDP growth. This year’s winner of the award for excellence in the Nicaraguan market, Banco Lafise Bancentro, will be best-positioned to enter a slowdown because it is already the country’s most profitable bank. It is already in a position of strength, with better returns on assets (2.9%) and equity (25%) than competitors such as Banpro or BAC.
Lafise’s net financial margin in 2017 was 9.45%, helped by the bank’s increasingly diversified book of business. And that strategy continues. In March 2018, the IFC structured a $115 million transaction, in cooperation with the Opec Fund for International Development, that will fund Lafise’s loan growth to SMEs. This agreement was the largest transaction ever made with a central American bank by the IFC.
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Panama
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The large number of banks present in Panama does not translate into a competitive retail banking sector. Under chief executive Raul Aleman, Banco General is becoming an increasingly dominant universal bank in the private sector. It is ranked number one across a wide range of metrics: private deposits (with a market share of 26.3%), loans (19.6%), assets under management ($10.2 billion) and private pensions (59.3% market share).
The bank also has the largest ATM network (30.1% market share) and processes nearly 50% of all the country’s transactions. The bank is also aggressively growing its non-retail franchise: its investment banking platform captures 28.2% of all non-government debt in the domestic capital market.
Unsurprisingly, Banco General’s scale feeds into profitability: the bank racked up a CAGR of 14% between 2007 and 2017; in 2017 the bank’s net income growth was an on-trend 14.3%. The bank’s return on equity is 21.3% and return on assets 2.5%, with an operating efficiency ratio of 34.7%.
