Latin Finance - November/December 2009 - 44

2009 maintain the status quo. Though a merger of the three state-backed banks always seems to be a talking point, Rivera says the focus short-term is more about seeking economies of scale and developing areas such as interconnecting networks and technological advances that would be cost-prohibitive individually. Competition from foreigners – Costa Rica is seen as among the last Central American markets lacking big external presence – should also be on hold. “We can’t lose sight of the HSBCs and the Scotias in the crisis,” Rivera says. “They’ve been weakened a bit. The crisis has given us a bit of time in this respect from the standpoint of competition. But the global economic picture will eventually improve, and they will be significant competitors,” he adds. LF Best Bank – Popular Dominicano Dominican Republic anco Popular Dominicano, the second largest bank in the Dominican Republic after state-owned Banco de Reservas, with a 25% market share based on assets, is known for a conservative risk culture and adequate asset quality, according to Fitch, which assigns a AAlocal rating. Fitch analyst Pedro El Khaouli tells LatinFinance that the bank is considered a safe haven and that this was proven during the 2003 crisis, when clients transferred money from other, smaller institutions to Popular. Deposits have increased to 99.3 billion pesos in June 2009 from 95.1 billion pesos in 2008. The bank has fared relatively well in the recent crisis. Not only did it post profit of 1.4 billion pesos, its assets have increased to 149.3 billion pesos from 139.3 billion pesos the previous year. And while other major banks in the Dominican Republic saw a decrease in return on equity (ROE), Popular’s increased to 15.8% from 11.2%. But although the bank is seeing a decrease in return on average assets Popularity Uncontested B (ROAA) and an increase in nonperforming loans (NPL), the ratings agency seems optimistic about the bank’s prospects. Fitch expects ROAA to hit 2.0% by the end of the year. As of June 2009 it stood at 0.9%, a drop from 1.4% in June 2008. NPLs have risen to 2.9% as of June 2009 compared to 1.3% the previous year due to an increase in retail loan activity and deterioration in the economic environment. But further diversification of the loan portfolio may stop the rot. El Khaouli adds that Popular has been active in controlling risk by taking time to undertake sophisticated analysis to determine the profile of borrowers. He adds that deterioration is in line with what is seen elsewhere in the Dominican banking sector. “Popular’s large market share has benefitted not only its ability to diversify its loan portfolio, but also its ability to generate profits, which Fitch believes will be maintained,” says the ratings agency. Popular was established in 1963 and has a network of 186 branches and more than 600 ATMs. It has over 2 million customers in the Dominican Republic. LF Best Bank – Banco Pichincha Ecuador he impact of the credit crisis is a theme for all LatAm banking systems, and in Ecuador there is the added question of political volatility. In 2009, caution is again the smartest policy as economic growth returns. And again Banco Pichincha is the Bank of the Year in Ecuador. “The problem we are facing is that the policy the government is following is one where it is trying to control everything in the financial system,” Pichincha general manager Fernando Pozo tells LatinFinance. He explains the banks cannot manage risks through interest rates, as the government is setting what they can charge, and also regulates fees. Nevertheless, Pozo says the financial Double the Trouble T system is strong overall in terms of liquidity and quality of assets. Pichincha remains Ecuador’s largest bank. Assets were $4.34 billion in June, some 26% of the market, compared to $2.30 billion for its closest rival, Banco Guayaquil. Size provides a liquidity cushion at a time when the effects of the credit crisis are still playing out in domestic banking systems. Pichincha also holds 27% of the system’s deposits. “At this time no one is challenging Pichincha’s position,” says Diego Alcázar, analyst at Fitch. He adds that any challenger would have to sacrifice asset quality by entering somewhat riskier segments, and risk profitability by expanding a network and assuming higher credit costs at times of crisis. Despite Pichincha’s strength, profitability has taken a hit over the last year, with ROA at 1.2% in June compared to 2.1% a year earlier, and ROE at 11.6% down from 20.6% in June 2008. The system’s numbers have taken a similar drop – ROA fell to 1.3% in June from 2.3%, while ROE hit 12.8% from 23.4%. Number –two Guayaquil has shown slightly higher profitability (ROE of 19.4%, ROA at 1.4%). The lower profitability may be a result of Pichincha’s conservative provisioning policy and of Guayaquil’s higher leverage, Alcazar says. Such leverage is risky in a dollarized country without a central bank that acts as a lender of last resort, he adds. Pichincha also has a larger, more costly network to maintain. The process of replacing it should be completed in 2010, Pozo says. Pichincha’s size also leaves it best prepared for the threats facing the system, such as additional intervention in the banking system, and the sustainability of dollarization, as the government depletes reserves to compensate for falling oil prices. “We are trying to explain to the central bank and the superintendency [of banks] that if they want to increase the growth rate of the economy, we need to increase credit and deposits as a percentage of GDP,” Pozo explains. “The only way to do that is to increase efficiency in the country and generate confidence. With these policies we cannot do that.” LF 44 LatinFinance November/December 2009

Latin Finance - November/December 2009

Table of Contents for the Digital Edition of Latin Finance - November/December 2009