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AmericasOctober 2 2005

Banorte: Mexico’s homegrown success

Banorte, Mexico’s fifth-largest bank, is doing well under the leadership of chief executive Luis Peña Kegel.Monica Campbell reports from Mexico City.These days, Luis Peña Kegel, the 45-year old chief executive of Banorte, has reason to relax in his spacious Mexico City office. Talk about a strong year. In the second quarter of 2005, Banorte delivered earnings totalling $192m, a 249% jump compared to the same 2004 period.
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Net interest income grew 48%. The rock-hard results prove that Banorte – Mexico’s fifth-largest bank and the only major institution left in Mexican hands – is holding its own in an increasingly competitive market.

Part of the massive rise in earnings can be explained by one-off gains from a tax adjustment and the sale of bonds from Altos Hornos de México, a large Mexican steelmaker. On a more recurrent basis, a notable increase in lending is another major factor. Banorte is a leader in lending to Mexico’s small and medium-sized businesses.

Banorte is based in Monterrey, Mexico’s third-largest city, located almost 1000 kilometres north of Mexico City. Even though Monterrey is a strategic location – the city is a modern, industrial hub, complete with high-end corporate parks – Banorte’s top brass is more often found in the company’s Mexico City offices, the country’s financial centre. Mr Peña recently spoke to The Banker in his ninth-floor office, located off a stately avenue and overlooking the Angel of Independence, the capital’s most recognisable monument.

“If you look at our recent numbers, you’ll see a two-fold increase in nearly every area, from net equity to share price,” says Mr Peña. “But the best is yet to come.”

Indeed, all major banks in Mexico recognise the country’s potential: the country’s economy is buoyed by steady US trade ties, it houses a relatively strong regulatory environment, and it is considered politically stable (even with a left wing candidate expected to win next year’s presidential election).

Market share

It is estimated that in Mexico, with a population of 105 million, only about 19% of its citizens has a bank account, compared to about 74% in the US. The gap has Banorte mainly competing for market share with Mexico’s four largest banks. Ranked by assets, they are: Bancomer, owned by Spain’s Banco Bilbao Vizcaya Argentaria; Banamex, controlled by US-based Citigroup; Serfin, owned by Spain’s Santander, and the UK’s HSBC.

All of the institutions are continuously rolling out new, more accessible consumer products, including pre-paid credit and debit cards, no-fee promotions, lower minimum-balance requirements and competitive interest rates.

Competition is just as fierce when it comes to taking new customers to next-level banking, with record-low interest rates being spotted in the mortgage market. Special offers on car loans and other products, including life insurance, are also being offered to customers in rapid-fire succession.

“There’s a large opportunity to tap the unbanked market,” said Mr Peña, who left second-place Banamex to run Banorte. “I can’t imagine an industry that is more competitive today in Mexico than banks. Every week there is a new marketing offer, with lower interest rates.”

As the recent quarterly results show, Banorte is on track to maintain its reputation as one of Mexico’s most solid banks, with Tier 1 capital of 13.6%, according to The Banker’s Top 1000 listing. It helps that a good chunk of Banorte’s client base is found in northern Mexico, where the bulk of the country’s top manufacturers are located. However, what the bank could use is more market share in Mexico City, a huge, consumer-oriented market that is currently dominated by the foreign-backed heavyweights.

Remittance market

Also on Banorte’s radar is Mexico’s huge remittance market. In the first half of 2005, Mexicans living abroad sent home $9.3bn in cash, up nearly 18% compared with the same period in 2004, according to the central bank. That means Mexico’s total remittances for 2005 are set to reach $20bn, up from $16.6bn last year. Two US-based money-transfer giants, Western Union and MoneyGram, still dominate the market, but banks are slowly chipping away at their lead, offering cheaper rates and faster, more integrated services.

The first target area in the remittance market is, naturally, the US, where most Mexicans abroad reside. There, Banorte is adopting a two-pronged approach, which involves aligning with small, community banks based in parts of the US with growing Hispanic populations. Banorte recently linked with Citizens South Bank, a North Carolina-based commercial institution. Together, the banks offer basic banking services at so-called Bodega banks, or kiosk-style branches set inside popular and middle-income retail stores that largely cater to Hispanics.

Joining forces

The other element of Banorte’s US strategy is to team with a larger, more established player. So far, it has partnered with San Francisco-based Wells Fargo in order to allow customers to open cross-border debit cards.

In Mexico, Banorte has linked with MoneyGram and, most recently, with state-run telegraph offices, which are present in many small towns that banks have yet to reach. The alliance is in the pilot phase now, but will eventually allow clients to withdraw cash, make deposits, check balances and open a Banorte account at the 1554 telegraph offices. The telegraph project, by the time it is completed at end-2005, stands to treble the number of municipalities where Banorte offers its products from 318 to 1114. In all, Banorte operates 960 full-service branches, with 275 additional branches planned within three years.

Last year, Banorte reportedly managed about $600m of the binational remittance market. This year the bank expects to transfer about $1bn. “It’s a small but growing amount,” says Mr Peña. “We’re trying to complement our strategy on the receiving side with an institution that has muscle on the sending side.”

Acquisition target

All the while, Mr Peña must fend off the constant rumours that Banorte is ripe to be acquired by a foreign heavyweight. During his chat with The Banker, Mr Peña preferred to talk about the perks of being Mexican-run. “People frequently ask us if there’s an attribute or something to exploit in being the last bank standing and we think there is,” he says. The edge, Mr Peña explains, is that Banorte’s management is Mexican and therefore all decisions – including key credit decisions – are made in Mexico.

“It’s often the case [in the foreign-owned banks] that a small business is taken to New York or Madrid or London during the credit-decision process,” says Mr Peña. “Those decisions are not made in Mexico. And it is very frequently the case that the decline rates for companies that are not very well known outside of Mexico are higher.”

Banorte stresses that its credit decisions are made in Mexico and, often, at the branch level. “That’s why, without any doubt, we’re the leading bank in terms of lending to small businesses. And that has given us a lot of advantages.”

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