Guatemala's economy has decelerated sharply since 2007, but it resisted the shocks of the global recession well, recording 0.6% growth in 2009, compared with negative growth in all the other countries of Central America except Panama.
Maria Antonieta de Bonilla, president of Banco de Guatemala, the country's central bank, attributes this fortitude mainly to the increased diversification of the economy. Relatively new Guatemalan industries such as energy, call centres and tourism are now making an important contribution to growth, while traditional agricultural exports such as sugar, bananas, coffee and cardamom continue to be important.
Moreover, such is the nation's steady course of recovery that even two natural disasters - the Pacaya volcano eruption and Hurricane Agatha, both in May - did not lead Ms Bonilla to lower a previous central bank forecast for 2010 of 2.5% economic growth, which is about the same as the country's population growth. Guatemala's recovery is based on a sound macro-economy, disciplined fiscal and monetary policies and first-quarter improvements in trade, capital flows and remittances from abroad - which normally account for 11% of gross domestic product (GDP) but fell sharply in 2009, hitting domestic consumption.
Resilient banking sector
Guatemala's banking sector was also not contaminated by investments in high-risk assets and remained well capitalised and liquid during the financial crisis. The country's five biggest banks (Industrial, G&T Continental, Banrural, Agromercantil and Reformador) are all Guatemalan-owned and account for 80% of the system's assets of Q145bn ($18.8bn), equivalent to about 45% of GDP at the end of June. There are just seven foreign-owned small and medium-sized banks, accounting for 16.4% of system assets. Thus the Guatemalan banking industry was largely insulated from the international financial chaos. Roberto Ortega, president of Guatemala's national banking association and managing director of G&T Continental, the country's second largest bank, says: "Banks got through the crisis without any scratches."
A further sign of the resilience of the country's largely home-spun and traditional banking sector is that deposits recorded a 9% year-on-year growth last year. And despite a significant decline in the demand for private sector credit in 2009, credit growth in Guatemala never moved into negative territory as it did in neighbouring El Salvador, where 85% of total bank assets are foreign-owned.
Edgar Barquin, the head of the Superintendencia de Bancos, Guatemala's national banking regulator, also forecasts credit growth of about 5% by the end of this year, signalling a recovery. Bank profits in the country in 2009 (with average returns on equity and on assets of 17.1% and 1.7%, respectively) were better than in 2007 and 2008 and this is expected to be maintained this year, says Mr Barquin.
There are downsides in the economy, however, including a reduction in exports to the US (sales of manufactured and industrial goods fell by 15% to 20%, respectively, in 2009). These have hindered the passage of a comprehensive tax reform, a central policy of president Alvaro Colom's centrist government, which has faced stiff opposition from the country's Confederation of Chambers of Commerce and has been stalled in congress for more than two years. Many industry experts consider the passing of the tax measures to be essential to keep down both the country's fiscal deficit, which increased slightly in 2009, and the public debt ratio, which currently stands at 23% of GDP.
Additionally, with tax collection stuck at about 10% of GDP, one of Latin America's lowest rates, government efforts to reduce poverty, which affects 7 million people in Guatemala, or half the population, and carry out badly needed investment in health, law and order, education, public security and infrastructure are seriously constrained.
Guatemala's comparative advantages in Central America - its size, demographic make-up and the potential of its economy - are also under-utilised when it comes to attracting investment.
Slow to internationalise
The modernisation and efficiency that sophisticated international banks could bring to Guatemala's banking system is also being delayed. Fernando Delgado, the International Monetary Fund's resident regional representative for Central America, says: "I see the internationalisation of the banking system as unavoidable [in the region]. But it will happen more slowly in Guatemala than in other Central American countries. It will not happen here any time soon."
One reason for this is that, following the financial crisis, the big banks that are protagonists in Central America have changed. In 2006, during an economic boom, Citigroup bought two large banks in the region (Banco Uno and Banco Cuscatlan) and HSBC bought Panama's Banistmo. In July this year, the financial arm of the US's General Electric, GE Capital, sold BAC Credomatic, its Central America-based corporate bank and credit card group. BAC was purchased by regional bank group Grupo Aval (owner of Banco de Bogota, the second largest bank in Colombia) for $1.9bn in what was the first divestment in Central America by a big international bank in many years.
Moreover, Scotiabank of Canada, which also acquired banks in Central America before the crisis (including a small operation in Guatemala), and HSBC, which has an office in Guatemala, have not taken action to expand these operations since then. In addition to this, Citigroup has seen its medium-sized operations in Guatemala lose market share, falling from being the fourth largest bank in the country to the sixth largest. This is despite the bank spending two years bolting on Banco Uno's credit card business and Cuscatlan's commercial bank to its Panama-based merchant bank franchise, as well as integrating its management, cultures and systems.
Juan Miro, general manager of Citibank in Guatemala, says the group has remained a market leader in corporate banking and credit cards in the region. He adds that Citibank's operations in Guatemala used to be too labour-intensive but are becoming more automated. "Citibank is not an asset-intensive organisation any more. We emphasise profitability," he says.
Maria Antonieta de Bonilla, president of Banco de Guatemala
Edgar Barquin, the head of the Superintendencia de Bancos
Focus on domestic market
Meanwhile, where other banks in Central America built up regional franchises, possibly with a view to increasing their chances of making a sale to a big international bank (this was apparently the case with the Nicaraguan-owned BAC Credomatic sold to GE Capital in 2005), Guatemala's leading banks adopted a strategy of strengthening and expanding their positions in the home market, not to capitulate but to compete with the foreign banks, says the management team at Banco Industrial.
Banco Industrial is Guatemala's biggest bank, accounting for 28% of the banking system's deposits and 25% of its loans, as well as comfortably housing the largest branch network. Despite this dominance, Industrial says it has no intention to expend further domestically. However, Luis Fernando Prado, the bank's international division manager, says that in order to build a franchise for its corporate clients and be more competitive at a regional level, Industrial recently bought a bank in Honduras and obtained a banking licence in El Salvador; the next step, he says, will be to establish a presence in Costa Rica and Panama and expand in southern Mexico.
Unlike the international banks, which have tended to focus on entering specific niche markets in the country (such as corporate banking for multinationals and consumer credit for the affluent), Guatemala's big banks are universal banks, combining investment banking and retail banking under the same roof. They provide local business clients with a comprehensive service, extending credits and services to the company and also to all its employees, suppliers and even creditors, making it almost impossible for a competing bank to steal customers away. "It is very difficult for a company [to which] we provide services to change banks, because we are attending to [its employees] from the chief executive officer to the cleaners," says Juan Miguel Torrebiarte, who is chairman of the board and president of Banco Industrial.
Integration with industry
Local banks and local industries also tend to be very interconnected in Guatemala, with the members of bank councils sitting on the boards of companies, while just a few families own and control the biggest banks and biggest companies.
Following the crisis, local banks have also had more time to upgrade systems and customer services, and to diversify into new segments. Banco Industrial, G&T Continental, Banrural, which is 33% state-owned, and Agromercantil, in recognising that foreign banks will be tough competitors in corporate banking for large corporations, have started providing more services to medium-sized companies, especially to fast-growing export-orientated ones.
The country's core target market, however, and the focus of most big local bank investments in recent years, has been retail banking, especially consumer credit and credit cards for moderate-income groups. Banco Agromercantil, which targets employed Guatemalans who need financing for homes, insurance and credit cards, has invested $10m a year in retail banking improvements and trebled the number of its branches since 2006, according to Christian Schneider, the bank's general manager.
Banco Industrial, for its part, has been working to ensure high-quality customer service and investing substantially in retail products and internet and phone banking. It prides itself on the fact that 60% of its daily transactions are now carried out electronically, a high percentage for Latin America.
By far the most significant change of late in Guatemalan retail banking, however, led by Banco Industrial, G&T Continental and Banrural - and encouraged by the authorities - is an attempt to attract mass-market customers as a way to compensate for greater competition from foreign banks in high-income segments. Indeed, Banco Industrial managers say the bank aims to attract the 43% of the population that remains outside the banking system, the highest proportion of non-banked population in Central America.
Meanwhile, helping local banks reduce the high costs of opening and maintaining more branches, recent regulations allow banks to establish point-of-sale (POS) terminals at grocery shops in remote communities, and to draw up contracts with the shop owners to act as banking agents, who are capable of managing small banking operations, such as cashing cheques, receiving remittances, making small bank deposits and paying utility bills. So far, Banco Industrial, G&T Continental and Banrural have established about 2000 POS terminals; and Mr Barquin, the national bank regulator, says this number could increase to 5000 by the end of next year.
