Some of the big Latin American banks are concentrating on new retail products to attract the unbanked segment of the population and thus grow market share. Monica Campbell reports.

Now that many big foreign banks play a major role in Latin America’s financial system, the race is on to capture a bigger chunk of the market, including its evolving commercial marketplace. Although most banks still thirst for wealthy clients, they are also slowly recognising the potential of Latin America’s enormous unbanked population.

Mexico

Banco Bilbao Vizcaya Argentaria (BBVA) recently reaffirmed its commitment to Mexico by offering to pay $4.1bn for the 40.6% of shares it does not already own in the country’s largest bank, Grupo Financiero BBVA-Bancomer. If Mexican authorities approve the deal, Bancomer (which manages more than nine million accounts and about 25% of the local market) would have the chance to further bolster its position ahead of number-two Banamex, owned by Citigroup (US).

Bancomer will continue to offer its well-heeled clients a range of financial products, from VIP service to investment options. Reaching out to the 50% of the Mexican population that has yet to enter a bank will be more tricky. “It’s a challenge to tap these clients,” says José María García, who heads Bancomer’s retail banking division. “We’re talking about people who have never asked for credit.”

Bancomer is reaching out to the lower-income segment by offering simplified and more accessible products, such as pre-paid credit cards or cards with fixed monthly payments. To cultivate a culture of savings in Mexico, Mr García stresses Bancomer’s El Libretón, a savings account-debit card combo that is available to consumers for a minimum deposit of about $70. The bank has also stepped up its public presence by teaming up with Grupo Wal-Mart México, the local arm of the US retail giant, to offer a credit card that is accepted at any of the retailer’s numerous stores and affiliates.

Bancomer, like many large banks in Latin America, is also developing a keener focus on the growing mortgage business. It is planning to offer below-market interest rates, along with longer payment terms, in a drive to increase its competitive standing in the market. “This area is set to grow substantially in the coming years,” says Mr García.

Brazil

In Brazil, institutions are now on the mend after suffering severe losses following political jitters and economic contagion from Argentina in 2002. They are poised to attract the estimated 40 million unbanked Brazilians. Santander Banespa, the Spanish-backed bank that enjoys the largest presence in Sao Paulo, Brazil’s capital, manages about 5.1 million customers and 1800 branches. It has grown steadily in recent years and is considered a local darling. “We’re now directing a lot of our force toward the commercial area, which has led to growth in our personal lending, car financing, insurance and investment funds,” says Gabriel Jaramillo, president of Banespa. “We’re always analysing market trends and anticipating our clients’ desires.”

It helps that local interest rates are dropping and that Brazil’s government has introduced incentives to increase credit. For example, payroll loans, whereby installments can be debited directly from workers’ pay cheques, are now permitted. Spotting this opening, Banespa sealed a deal with Brazil’s three biggest unions to offer competitive loans to their members. The bank will spend about $3.47bn for the loans and it should be a win-win move for Banespa: payments on the loans will be deducted directly from workers’ wages, presenting a relatively low-risk scenario, while the bank builds loyalty among Brazil’s low-income population.

Argentina

Times are tougher in Argentina, which was once Latin America’s wealthiest nation. In the 1990s, retail banking blossomed along with the economy. But all that ended with the government debt default of early 2002, which led to a wave of sour private-sector loans that crushed the system and caused several foreign banks to take flight. A gradual economic recovery is under way but record-high poverty and unemployment rates are leaving local banks with little room to maneouvre in terms of offering new products to their clients.

Banco Credicoop should be in a position to grow again soon. A survivor, it is the country’s seventh-largest bank, with 225 branches throughout the country. It is also Argentina’s only remaining, relatively large co-operative bank – a dying breed in Latin America. The collective element helped to keep it afloat. Depositors, many of whom were linked to small-to-medium-sized businesses, are also Credicoop partners and elect a local delegate to represent the interests of their particular branch to headquarters.

This structure, which stresses communication and community support, “has been important in terms of rebuilding confidence”, says Sergio Clur, vice-president of retail banking at Credicoop. “I have positive expectations for the bank this year. We’re developing a business plan to produce strong results, while also increasing our market share in line with economic realities.” Although the new business model has yet to be finalised, proposals are on the table to offer more competitive credit cards, longer terms of payment and below-market interest rates.

Venezuela

Venezuela represents another rough spot for retail banking in Latin America. BBVA Banco Provincial, another Spanish-owned bank, is a leading institution with a little more than 14% of total market share. It must still navigate the rocky political and economic environment that has persisted since Hugo Chávez was elected president in 1998. The tough situation has shrunk the banking system and has left local bankers facing steep hurdles: a drop in real salaries, rising unemployment, a sharp currency depreciation and subsequent exchange controls.

These obstacles have left Provincial, like many of its counterparts, heavily dependent on its head office in Madrid for breathing room. “Many people are preferring to stow their money abroad because of the dilemma we’re in,” says Carlos Bedia, executive vice-president of commercial banking at Provincial. So the bank is trying to keep its consumers within the local system and, in the meantime, offer products that are more flexible in terms of payments. “We’re lucky. Venezuelans are good payers, some of the best in Latin America. So we’re still showing good results; we still have a good client base,” says Mr Bedia.

In the meantime, Provincial is also trying to capture more marginal clients. “But we still have to be prudent. We’re still in a dilemma here. So we keep close tabs on accounts and analyse them month to month.”

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