Latin Finance - July 2008 - (Page 26)

banorte outlook Managing Fast Growth by Greg Brosnan hen the CEO credited with Banorte’s outperformance and innovation in recent years jumped ship in April to head HSBC’s aggressive local unit, he left a question mark over the future of Mexico’s fifth largest bank. Many wondered how long the last sizeable indigenous Mexican financial institution could stay independent but relevant amid such crushing competition. BBVA, Citi, Santander and HSBC – the global giants whose subsidiaries dominate the Mexican banking system – are piling on pressure for market share, resources and top executives. But with Banorte’s strong profits and earnings capacity, praised by analysts even as the economic climate darkens, the vessel Luis Peña departed is anything but a sinking ship. Interim CEO Alejandro Valenzuela – widely tipped to assume the role permanently – says he is more than ready to take up the challenge, adding that being local and a little smaller forces Banorte to stay on its toes. “Because we have the decision-making process done in Mexico, we’re faster than the competition,” he tells LatinFinance in an exclusive interview at the bank’s headquarters in Mexico City’s Santa Fé district. “A smaller bank needs to question itself every day,” he adds. “We don’t have a big brother or a dad we can call collect and tell – “listen I messed up, send me the money please.”” W Mexico’s last big indigenous financial institution is doing a roaring trade with mortgages, SMEs and state banking. It is apparently not for sale. losses in consumer portfolios. Moody’s says that bigger banks have considered tightening underwriting policy due to an increase in non-performing loans (NPLs), especially with regard to credit cards. But in general, it says the system looks more than solid. US giants like Citi may struggle with losses from subprime, but the Mexican system is still growing, albeit not as fast as before, and analysts agree that the concern of Banorte, as well as of the other banks in the system, should be to not let the guard down with regard to quality of expansion. “Their main challenge is to continue competing with large banks without easing their underwriting policies and to maintain the performance that they have exhibited in the last three or four years,” says Leonardo Bravo, Mexican banking analyst at Standard & Poor’s. “That is the challenge for Banorte and the rest of the system, to keep up the good work.” Valenzuela takes that advice to heart. But the 46 year-old – who has spent five years at Banorte, previously as head of the bank’s treasury and its brokerage, and also served as head of international relations at Mexico’s central bank – also relishes being at the helm of a bank that is still doing well. The banker, who has a master’s degree in economics from UCLA, peppers his seamless, American-accented English with idioms like “to make a long story short.” He expects Banorte’s loan portfolio to grow about 25% this year compared with 32% last year. Meanwhile, the banker predicts ROE as high as 23%, versus 26% in 2007, and also forecasts ROA of 2.5%, down from 2.6% last year. The bank aims Faster than the competition: Valenzuela banking system – if not still booming – is chugging along at a healthy clip. Assets in the system as a whole system expanded 11% in 2007 to just under 3 trillion pesos, while total loans grew 18% to 1.7 trillion pesos. Return on assets (ROA) was 2.75% and return on equity (ROE) was 19.93%. At Banorte, ROA dropped slightly from 2.8% in 2006 to 2.6% in 2007, as did ROE, which was 24.9% in 2006 and 22.6% in 2007. Moody’s says it expects “adequate” performance from Mexico’s banking sector this year after stellar business in 2006 and decent results in 2007, even as industry leaders face tougher competition and hostile market conditions. The agency says certain signs last year hinted that 2008 would be more challenging, including a general decline in profitability in the second half of 2007 due partly to The Growth Challenge Mexico’s banking sector is barely recognizable from the system that was in shreds little more than a decade ago, reeling from a double whammy of almost a decade of state control, followed by the devastating Tequila crisis of 1994-1995. Now, just as Mexico’s economy is surprising analysts with resilience in the face of a glowering US slowdown, the 26 LATINFINANCE July/August 2008

Table of Contents Feed for the Digital Edition of Latin Finance - July 2008

Latin Finance - July 2008 Contents Investment Banking Outlook Compensation Survey Colombia Investment Banking Borrowers vs. Investors Banorte Profile Braskem Financing Strategy Brazil Hydro Finance Peru Port Privatization Panama Money Flows Argentina Local Markets Guide to Banking Technology Who Said That?

Latin Finance - July 2008

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