Awards for Excellence 2018
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Banks throughout Latin America have been seeking to increase their exposure to the small and medium-sized enterprise segment in recent years. Not only is it good diversification and a good potential source of larger corporate clients in the future, it also pays well.
The margins are often closer to those found in consumer portfolios than on large corporates. But while the attraction is obvious, it is not an easy addition, both in terms of originating a book of business or pricing the risk.
One bank that has been doing it well for a long time is Mexico’s Banregio Grupo Financiero. About 80% of the bank’s total credit portfolio is lent to SMEs. Investors love the bank’s expertise in the segment (the NPL ratio is just 1.7%) and its results. In 2017, the bank increased its net interest margin by 70bp to 6.3% and NIM of total loans was 6.8%.
The loan portfolio grew by 11% and net income grew 14.4%; funding was helped by a 28.6% increase in time deposits and a 13% increase in demand deposits.
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Manuel Rivero Santos |
Return on assets was 2.6% and return on equity just scraped its head on the 20% threshold (19.6%). Banregio’s management, under CEO Manuel Rivero Santos, explains that ROE has been lower because of its deliberate decision to maintain capitalization for growth in recent years.
The bank is explicit that it has ample room to improve this metric through above-average portfolio growth, increasing dividends (the bank’s tier-1 and -2 ratio was 14.3% in December 2017) and/or a share buyback programme.
