Latin America increases domination of Santander profits

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By:
Sudip Roy
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Latin America could account for half of Santander’s total profits within three years, with Brazil, Mexico and Chile leading the way, says a senior executive at the Spanish bank.

The region already contributes 43% of the group’s net income but its importance to Santander will be greater still as the growing disparity in economic outlook between it and the bank’s core markets in Europe becomes more marked.

Santander’s net profit in Latin America in 2010 reached €4.8 billion ($6.9 billion), a 25% increase on the previous year. The bank has a presence in seven countries in the region.

Francisco Luzon, head of Latin America at the bank, says: “If you look at the financial systems in the region, they are growing on average at 15% to 20% – in Brazil it’s 25% – so we feel we are in a good position to see a continued growth in profits in Latin America of 20% or more.”

He adds: “Over the next two years, the region should contribute between 45% and 50% of the group’s total profits, and in three years it could be 50%.”

Brazil leads the way

Leading the way will be Brazil, says Luzon. The country accounts for one-quarter of Santander’s bottom line, nearly double Spain’s contribution.

Santander has invested $27 billion in Brazil in the past 10 years. Last year the bank made a net profit of €2.8 billion in Latin America’s biggest economy, up 31% on 2009.

Still, it hasn’t been all plain sailing in Brazil. Santander Brasil is the worst-performing bank stock in the benchmark Bovespa index, with the shares down 24% since the unit undertook an $8 billion IPO in October 2009.

In contrast, its two big private-sector rivals, Itau Unibanco and Bradesco, have seen their shares gain more than 2% over the same period.

Despite the Brazil subsidiary’s performance, the fact is, as Luzon admits, the market expected more. “We were engaged in completing the integration of Santander and Banco Real. Also, we are very prudent in growth in credit,” he explains. Santander’s lending in Brazil increased 16% last year, compared with growth of about 20% by the country’s biggest banks.

Luzon believes the high rate of credit growth in Brazil is not sustainable but downplays concerns about a potential bust. “We are not especially worried,” he says.

He adds, however, that Santander is well positioned if there was a slowdown in Brazil. “We are well capitalized and our credit quality is good,” he says.

Star performer

In Mexico, the bank is moving away from low-income customers, focusing more on the high end and middle. One of its aims is to become the number one bank of choice for three million of its eight million customers in the country. “Mexico will be our star for the next three years,” says Luzon.

Santander has a market share of 13.5% in loans and 15.1% in savings in Mexico, where its net profit increased last year by 38% to €682 million. The bank hopes to IPO its Mexico unit within the next 18 months, a process that its Argentina business is currently undertaking.

Santander Rio filed with the US and Argentine regulators last week for a potential dual listing in New York and Buenos Aires. Rio is one of the leading financial institutions in Argentina. In 2010, it generated an attributable profit of €297 million, up 31.5% on the previous year. With the Brazil and Chile units already publicly listed, the group’s plan is to have its four main businesses in the region separately capitalized.

Elsewhere in the region, Luzon has high hopes for Colombia and Peru. The bank would contemplate an acquisition in either market, though valuations are expensive. “We would like a stronger presence in Colombia. Our market share there is less than 3%. The country is our main target for growth over the next three years,” says Luzon.