LatinFinance - November/December 2013 - 57

BANK OF THE YEAR CENTRAL AMERICA

Grupo BAC Credomatic
As trade between Central
American countries picks
up, one bank is poised
to take advantage of the
growth
Banking in Central America is a rapidly
changing business. Countries in the region
are trading more with each other, as well
as deepening links with Colombia and the
US. And the banking landscape is being
reshaped following a flurry of acquisitions
in the region by Colombian lenders taking
advantage of a European retreat. Moreover,
many now expect the region's economic
fortunes to imprive as the US economy
recovers.
BAC Credomatic is noteworthy for having
kept its strategy consistent, despite the
vagaries of the external environment.
"Over the past 15 years, we've moved
the steering wheel a little depending on the
circumstances," says Ernesto Castegnaro,
chairman of the bank. "But in general,
our idea is to develop, in all the countries,
financial operations in corporate,
consumer, and mortgage lending.
"We try to keep around a third of the
portfolio in each of these areas, although
occasionally we let one grow faster and
another more slowly depending on how we
see the outlook."
BAC's regional footprint is formidable,
although it is a small bank in the markets
that it operates. It held total assets of $11.3
billion at the end of June. Its market share
ranged from 3% of assets in Panama to 23%
in Nicaragua in April.
Yet the fact that it operates across all of
Central America except Belize - as well as
its strong growth over the past year - sets it
apart as the Central American Bank of the
Year.
Its regional reach also helps it capture
business related to intra-regional trade.
"We're not the biggest bank in any of the
countries we operate in," says Castegnaro.
"Our strength is more in the fact that we
have a presence in all of them - we're an
organization that's designed and orientated
towards operating in an integrated market
of six countries."

The bank's Colombian ownership -
Grupo Aval's Banco de Bogotá bought it
from General Electric in 2010 - also helps
BAC capitalize on rapidly expanding trade
with the country. Colombian exports
to Central America have risen roughly
four-fold, from less than $1 billion a year in
2007, as free trade agreements have come
into force.
That has fueled strong growth. BAC's
asset base grew 5% in the first six months
of the year.
That is set to rise sharply with two
acquisitions that are awaiting regulatory
sign-off. The bank agreed to buy the
assets of BBVA Panamá for $490 million
in July. The bank has a $1.5 billion loan
book, of which close to half is made up of
commercial credit.
That came a month after agreeing
to buy Guatemala's Grupo Financiero
Reformador for $411 million. That bank
has a $988 million portfolio, of which
nearly three-quarters is commercial
lending.
"We had a relatively small market share
in both countries," says Castegnaro. "We
needed to double the scale to properly
carry out our strategy. These acquisitions
allow that. We achieve a greater presence
in each country: we're talking about
countries that are strategic in Central

ERNESTO CASTEGNARO,
BAC CREDOMATIC

"DEFINITELY, VOLATILITY IN INTEREST RATES
AND THE PRICES OF
FINANCIAL INSTRUMENTS HAS A REPERCUSSION IN THESE
MARKETS. CENTRAL
AMERICA IS VERY TIED
TO WHAT HAPPENS
WITH THE DOLLAR. IN
COUNTRIES WITH A
DOLLARIZED ECONOMY, THEY ARE LINKED
TO WHAT HAPPENS
THERE"

America, and for us. Guatemala is the
region's largest economy, and Panama is
the fastest-growing. The big corporations
in each country tend to have operations at
a regional level, so with a greater presence
we can offer these companies a better panregional service."
The bank has financed these acquisitions
through syndicated loans and by
securitizing credit card receivables. It
financed the Reformador acquisition
with such a securitization - and its parent
company is planning to add $500 million to
its equity base before year-end to support
the BBVA Panamá purchase.
Regional spread
While Central America is set to benefit from
a pick-up in US activity, it is also vulnerable
to financial volatility that many believe
is inevitable in the years ahead. The US's
quantitative easing program has driven
cash into Central American economies such
as Costa Rica, pushing up currencies and
local bond prices. Already markets across
Latin America have seen the sharp changes
possible when developed world stimulus is
unwound, when the US Federal Reserve in
May began discussing an end to QE. Market
uncertainty is likely to continue for some
time.
"Definitely, volatility in interest rates
and the prices of financial instruments
has a repercussion in these markets," says
Castegnaro. "Central America is very tied to
what happens with the dollar. In countries
with a dollarized economy, they are linked
to what happens there. But, despite the
fact that other countries have their own
currencies, there is a correlation between
global interest rates and what happens in
the local markets. Other considerations,
like liquidity and domestic inflation stop it
being a direct correlation, though."
The bank is taking a supremely cautious
approach, he says, but he acknowledges
that risks exist.
"It all depends on when rates go up," he
says. "If there were a very rapid upward
move in US interest rates, which I don't
think will happen, there would be some
impact on our portfolio, particularly
mortgage and longer term loans," he says.
Nonetheless, the bank's regional
diversification protects it to some degree
from the worst effects of problems in any
one country.
"We view Central America's economy
as doing pretty well," he says. "Some
countries are growing faster than others

November/December 2013 - L ATINFINA NCE.COM 57
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