Banco Santander’s headquarters are in Europe, but the centre of gravity of its operations has been drifting westward to Latin America for many years now. Over the review period, the bank posted a solid year of progress among many of its Latin American markets, which comprise Brazil, Mexico, Chile, Argentina, Uruguay, Colombia and Peru.
Surprisingly, given the importance to the franchise and its recent strong performance, Santander’s bank in Brazil underperformed. Santander Brasil was more aggressive than the market in terms of recognizing asset-quality deterioration and this has dragged on its recent performance.
But Santander, led in the region by Carlos Rey, regional head for south America, remains well run and profitable, and it is seeking to expand into new products and credit segments. Its bet on agriculture looks well made, given the recent outperformance of the sector, and the fundamentals of the business should see the bank’s profitability return to industry benchmarks over the coming year.
Brazil’s lacklustre performance makes some other of Santander’s regional business look exceptionally strong on a relative, as well as nominal, basis. Santander’s banks in Mexico – the second biggest market in the region – Chile and Uruguay had particularly strong years. Its business in Argentina is also a market leader, while the presidential election next year could lead to positive momentum for the economy and the financial sector.
In Mexico, Santander generated return on equity (RoE) of 30.8% in the first quarter of this year, reflecting aggressive growth combined with low-cost deposit funding. In Chile, a similar growth strategy with an added engine of new clients from the small and medium-sized enterprise segment saw RoE hit 21.6%. And in Uruguay the bank extended its market leadership, its efficiency ratio was 49% (its nearest private sector competitor was 65%) and the bank returned an RoE of 21%.
What is increasingly evident is that these strong performances in individual markets are down to cross-border growth as well as country-specific factors. The bank’s regional award for wealth management is a good example of this but it is not alone: Santander has very deliberately been bringing market-leading products from one Latin American country to another. The bank’s Getnet payment product is a good example – created in Brazil, it has been implemented throughout the region. Not only does this give all the regional operations access to tried and tested product innovations, but it lowers the cost of technological development and implementation.
Santander has very deliberately been bringing market-leading products from one Latin American country to another
The total number of clients in Latin America rose by 11% to 69.5 million. Santander’s revenue in the region rose 18% to €18 billion, with net operating income at €11.4 billion and an underlying attributable profit of €3.7 billion. The region had an average RoE of 18.8% and generated 31% of total group profits.
With Santander Brazil expected to return to form in the coming year and with regional currencies likely to appreciate against the euro, the importance of Latin America to Santander is only likely to grow.
