Chilean and Brazilian banks dominate Emerging Markets's ranking of the "Best banks in the Mercosur" bloc of countries. These two countries have stronger economies and a more advanced banking industry than other members of the trade bloc – Argentina, Paraguay, Uruguay and Bolivia (which along with Chile is an associate member).
In both Chile and Brazil, the emphasis is on retail lending. In Chile, consumer lending including mortgage loans represents about 30% of total loans. In Brazil, the figure is much lower, but in both countries the potential for greater lending is evident. Robert Moreno, manager of investor relations at Banco Santander Santiago says that in Chile "as interest rates have fallen significantly in the past few years, banks have begun to intensify their search for higher margin products and services that retail banking provides."
In Brazil, banks are equally focused on improving consumer lending, although nominal interest rates are still at a high18.75%, and vast members of the population can't afford to access credit. "The big winners this year will be banks with a focus on the retail and lending business," says Carlos Torres, managing director at WestLB Brazil.
Much of this renewed optimism stems from Brazil's economic success over the past two-and-a-half years. With GDP growth predicted to be around 5% in 2005, the future looks bright. National and international players are increasing their consumer finance operations.
Partnering with supermarkets and other retailers to expand distribution channels and to raise profile has, for example, become a big trend that is set to continue. In the most recent deal, in February, Banco Itau, Brazil's second largest private bank, announced a new partnership worth R$240 million with store chain Lojas Americas. "The Brazilian banking sector is very efficient and progressive," says Augusto Brauna, managing director, international division, at Banco do Brasil.
But the provision of long-term lending to consumers still has its problems. Bankruptcy laws are weak; credit card rates remain exorbitant. "Only the largest corporations and the top income levels have access to credit at competitive levels," says Walter Molano, managing partner at BCP Securities. "Members of the middle class have limited access to credit, but usually at triple digit rates. The lower income stratum has no access to credit."
"The consumer side of financing is still evolving," says Marcelo Salomon, chief economist at Unibanco. "What needs to be developed is a mortgage market." Despite these problems, new opportunities are arising. "Great opportunities are developing for wholesale banks, as more financing products come up," says Torres.
In Chile, too, banks are expanding their products and not just in retail lending. On the corporate side, Moreno says about 60% of Santander Santiago's operating profits in the corporate lending segment come from non-lending activities such as cash management, corporate finance and treasury services. "These businesses are higher than lending, but to penetrate these markets many times, it is necessary to provide lending in order to attract clients and cross-sell the higher yielding products."
Emerging Markets profiles some of the leading banks in the Mercosur bloc
Banco de Chile
Banco de Chile is the country's second biggest bank. Founded in 1893, the bank's present structure is a result of a merger three years ago with Banco de A Edwards.
Last year was one of the bank's best as fee income increased by almost 30%, reaching a record high 52.8% ratio of fees over operating expenses as of December 2004. The bank's loan portfolio has grown by 7.4% over the last 12 months, while its past due loans ratio improved significantly to 1.23% at the end of 2004.
The bank is principally engaged in commercial banking in Chile, providing services to large corporates, small- and medium-sized enterprises and individuals. The bank has 241 branches, over 1,000 ATMs and other electronic distribution channels.
Banco de Chile's operations are organized in six main commercial divisions: large corporations, middle market companies, retail banking, consumer, international banking, treasury and money market operations. The bank also has eight non-banking financial service subsidiaries including insurance, broking and investment management.
The bank's corporate banking services include commercial loans – covering working capital facilities and trade finance – foreign exchange, capital market services, cash management and non-credit services such as payroll and payment transactions.
It also offers a wide range of treasury and risk management products to its corporate customers, and provides its individual customers with credit cards, residential mortgage, auto and consumer loans as well as traditional deposit services such as checking and savings accounts and time deposits.
Banco Itau
Brazil's second biggest private-sector bank reported its ninth quarter of consecutive growth in February. Driven by strong concern for its shareholders, the bank is focusing on consumer lending and on increasing its range of payable services.
Itau is expanding partnership agreements with retailers to raise its profile as a consumer finance institution. This year it announced a new deal with the chain store Lojas Americas, a big Brazilian retailer. Last year, the bank completed a similar joint venture with Brazil's biggest supermarket chain, Companhia Brasileira de Distribuicao. Partnering with retail stores has become a trend in the Brazilian banking sector, where banks are competing hard for new clients.
Growth in its credit portfolio helped Itau achieve its two-year long growth run and record profit margins. But the bank also manages its own finances better than its rivals. Itau covers 186% of personnel costs through service fees, which have risen to 33% in the last two years.
About 20% of fee revenues come from current accounts, with the remainder resulting from services such as asset management and corporate banking. According to Roberto Setubal, chief executive, the surge in fee income is being spurred by the country's economic recovery. "To the extent that the economy expands, this also is going to grow."
Banco Bradesco
Brazil's economy is booming, and banks are providing more individual loans to domestic consumers. Bradesco, Brazil's largest private bank, is keeping clients happy by modernizing and focusing on technological innovation. Selling products over the internet and servicing clients online is a key priority for the bank.
Bradesco is committed to being at the forefront of the bank automation process. About 50% of its customers are now online, up from 36% in 2002. The bank's stated aim is to provide clients with all the financial services they require. "Our goal is to have our customers look to us for all their banking, insurance and pension needs," reads a statement on its website.
The bank wants to grow in the domestic market and tap into the 40 million Brazilians who do not have a bank account. New customers are attracted through Banco Postal, which was established two years ago with Correios, the Brazilian post office. "Bradesco will never have retail banking outside of Brazil. The domestic market has a lot of space to grow," says President Marcio Cypriano.
The strategy is paying off. Bradesco enjoyed impressive income growth last year, as earnings per share rose to a record R$6.45, up from R$1.45 reais the year before.
Bradesco has bought 20 banks since 1997 and continues to look for new acquisitions. "When there is a state bank for sale, we always look at it because it has national government accounts and accounts of the state government functionaries. This is important to us," says Cypriano.
Emerging Markets profiles some of the leading banks in the Mercosur bloc
Banco de Chile
Banco de Chile is the country's second biggest bank. Founded in 1893, the bank's present structure is a result of a merger three years ago with Banco de A Edwards.
Last year was one of the bank's best as fee income increased by almost 30%, reaching a record high 52.8% ratio of fees over operating expenses as of December 2004. The bank's loan portfolio has grown by 7.4% over the last 12 months, while its past due loans ratio improved significantly to 1.23% at the end of 2004.
The bank is principally engaged in commercial banking in Chile, providing services to large corporates, small- and medium-sized enterprises and individuals. The bank has 241 branches, over 1,000 ATMs and other electronic distribution channels.
Banco de Chile's operations are organized in six main commercial divisions: large corporations, middle market companies, retail banking, consumer, international banking, treasury and money market operations. The bank also has eight non-banking financial service subsidiaries including insurance, broking and investment management.
The bank's corporate banking services include commercial loans – covering working capital facilities and trade finance – foreign exchange, capital market services, cash management and non-credit services such as payroll and payment transactions.
It also offers a wide range of treasury and risk management products to its corporate customers, and provides its individual customers with credit cards, residential mortgage, auto and consumer loans as well as traditional deposit services such as checking and savings accounts and time deposits.
Banco Itau
Brazil's second biggest private-sector bank reported its ninth quarter of consecutive growth in February. Driven by strong concern for its shareholders, the bank is focusing on consumer lending and on increasing its range of payable services.
Itau is expanding partnership agreements with retailers to raise its profile as a consumer finance institution. This year it announced a new deal with the chain store Lojas Americas, a big Brazilian retailer. Last year, the bank completed a similar joint venture with Brazil's biggest supermarket chain, Companhia Brasileira de Distribuicao. Partnering with retail stores has become a trend in the Brazilian banking sector, where banks are competing hard for new clients.
Growth in its credit portfolio helped Itau achieve its two-year long growth run and record profit margins. But the bank also manages its own finances better than its rivals. Itau covers 186% of personnel costs through service fees, which have risen to 33% in the last two years.
About 20% of fee revenues come from current accounts, with the remainder resulting from services such as asset management and corporate banking. According to Roberto Setubal, chief executive, the surge in fee income is being spurred by the country's economic recovery. "To the extent that the economy expands, this also is going to grow."
Banco Bradesco
Brazil's economy is booming, and banks are providing more individual loans to domestic consumers. Bradesco, Brazil's largest private bank, is keeping clients happy by modernizing and focusing on technological innovation. Selling products over the internet and servicing clients online is a key priority for the bank.
Bradesco is committed to being at the forefront of the bank automation process. About 50% of its customers are now online, up from 36% in 2002. The bank's stated aim is to provide clients with all the financial services they require. "Our goal is to have our customers look to us for all their banking, insurance and pension needs," reads a statement on its website.
The bank wants to grow in the domestic market and tap into the 40 million Brazilians who do not have a bank account. New customers are attracted through Banco Postal, which was established two years ago with Correios, the Brazilian post office. "Bradesco will never have retail banking outside of Brazil. The domestic market has a lot of space to grow," says President Marcio Cypriano.
The strategy is paying off. Bradesco enjoyed impressive income growth last year, as earnings per share rose to a record R$6.45, up from R$1.45 reais the year before.
Bradesco has bought 20 banks since 1997 and continues to look for new acquisitions. "When there is a state bank for sale, we always look at it because it has national government accounts and accounts of the state government functionaries. This is important to us," says Cypriano.