Consolidation looming as Argentina’s banks seek scale
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Consolidation looming as Argentina’s banks seek scale

Volume key for profitability as banking market normalizes; flurry of equity deals to fuel M&A and organic growth.

Banco Galicia might add its name to the growing list of Argentina’s banks that have issued equity to fund growth.

In mid-August, Galicia sought shareholder approval to issue around $400 million-equivalent in fresh equity to give it strategic flexibility.

Sergio Grinenco suit-160x186

Sergio Grinenco,
Banco Galicia

“We have two years in which to conduct any equity transaction and we have not scheduled one,” Sergio Grinenco, CEO of Banco Galicia, tells Euromoney.

He adds that, at a minimum, the bank will wait until after the mid-term elections on October 22 to remove political risk from impacting on investor sentiment.

However, with a regulatory capital ratio of 11.8% in 2Q17, it is unlikely that Banco Galicia will rush to issue new equity absent the need to finance a specific acquisition.

The deal follows an IPO from Banco Supervielleand follow-on transactions from Banco Macro and BBVA Frances.

Supervielle has also secured shareholder agreement to issue fresh equity – up to 145 million shares, worth around $600 million – as it signals to the market that it intends to maintain its market-leading growth rates. Last year it saw credit portfolio growth of more than 50%.

Nerio Peitiado, COO at Banco Supervielle, says the bank is looking to organic growth as its primary strategy, but would look at any acquisitions that could bring access to new business segments. The possible opportunities, however, could “probably be counted on one hand”.

“We believe that there will be concentration in the market, but that phenomenon won’t necessarily play out at a fast pace because the size of Argentina’s financial system is very low and there is lots of room for all the banks – even the small ones – to grow business,” he says.

However, Peitiado is clear that over time the pressure on margins and the increase in the relative value of dollar-denominated credit – with much lower net interest margins – will speed up the pace of consolidation.

He points to Santander Rio’s acquisition of Citi’s business in the country as a good example.

“We are not a top-10 bank, but we are growing faster than the average while many other banks are protecting their profitability but losing market share,” he says. “This will lead to organic consolidation, with those banks that pursue expansionist policies taking market share from those that seek to protect margins.”


Frederic de Mariz,

In a client report, Frederic de Mariz, analyst at UBS, sees the need for Argentine banks to increase their capital base with or without M&A.

“While we believe M&A is a likely key driver [of equity deals], we do not think it is the only one: we expect loan growth of 37% in 2017 for [Macro, BBVA Frances, Patagonia and Supervielle],” he says.

“Assuming the capital raisings go ahead, we estimate tier-1 ratio of Banco Macro would jump to 25% (from 17% in 1Q17), BBVA to 25% (from 13% in 1Q17), 26% for Supervielle (11% in 1Q17).”

Ivana Recalde, banking analyst at Standard & Poor’s, says: “You have three of four banks that are going to issue equity and they will need that capital for lending as they are prepared for growth."

The only notable consolidation to date has been Banco Comafi’s acquisition of Deutsche Bank’s business in the country – the deal, which was for an undisclosed fee, gave Comafi’s custodian business a significant boost – and Banco Santander Rio’s acquisition of Citi for $200 million.

Juan Cerruti, head of public policy and external communications at Santander Rio, says that the bank is close to completing its integration of Citi, which was agreed in October.

“If we finish in the next two months it will be a record for the Argentine banking system in terms of time to fully integrate an acquisition,” he says.

Cerruti says the Citi acquisition has brought important penetration in the ABC1 client segment – private banking clients – as well as 70 branches and 500,000 new clients.

He declines to comment on future acquisition strategies, but his broader comments can be taken as a hint that the bank would be interested in opportunities that come along and will certainly be aggressive in seeking growth opportunities.

“The financial system in Argentina is one of the most competitive in the region,” he says. “There are 78 banks in the market and loans to GDP stands at just 13%. So it is a small market with a lot of different banks.

“We are the largest private bank and we have just 11% market share. The top five banks in the country have a market share of between 35% and 37%, and in Chile, Colombia and Brazil it is between 70% and 85%.”


160x186 Maria Valeria Azconegui
Maria Valeria
Azconegui, Moody’s

The major asset on sale in the market is Banco Patagonia, but disagreements between majority shareholder Banco do Brasil and minority shareholders have so far prevented any sale being agreed, and an IPO now seems to be the likely divestment strategy.

“Banco Macro wants to buy something,” says Maria Valeria Azconegui, banking analyst at Moody’s in Buenos Aires, of the bank that raised $770 million in new equity this year. With Patagonia apparently off the table, the other often-discussed target is HSBC.

Although HSBC always says it is committed to retaining its Argentina business, not everyone in the market is convinced.

“I have a contact at Macro who tells me they have analysed HSBC three times,” says one Buenos Aires banking professional.

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