BIG PLAYERS THINKING SMALL

Ecuador 2014 | FINANCE | INTERVIEW

TBY talks to Ricardo Cuesta D., Executive President of PRODUBANCO-Grupo Promerica, on growth strategies, regional banking, and the middle class.

Ricardo Cuesta D.
BIOGRAPHY
Ricardo Cuesta D. pursued an MA in Business Administration at the Florida International University before going on to hold numerous positions through out his career at companies such as Motorisa S.A., Citibank, Banco Aserval, Thompson Bankwatch Calificadora de Riesgos, Asociación de Bancos Privados del Ecuador, and many others, as well as his current position as CEO–President at Banco de la Producción (Produbanco). Delgado also held instructive positions for VISA International’s Latin America Division, and Citibank N.A., where he was Director and Instructor for Corporate Seminars.

What motivated Grupo Promerica's acquisition of Produbanco in Ecuador?

There were several factors behind this very important decision. Banco Promerica has been present in Ecuador for 14 years in what has been a successful experience. It rose from a small finance company to the eighth-largest bank in a very competitive environment. Another reason was that Grupo Promerica was looking to expand its banking business, and Central America is already concentrated and saturated. The third reason is that Produbanco was the fourth largest bank and was considered one of the best operators in Ecuador. Additionally, Grupo Promerica decided to increase its presence in this market; combining both banks gives us around a 12.3% market share. I would also have to add that Ecuador is a dollarized economy with a healthy macroeconomic performance, and the fact that it has a hard currency is also crucial in making such decisions.

What is the significance of this acquisition for Grupo Promerica?

Grupo Promerica is a Central American banking group with over $10 billion in assets. Promerica is present in nine countries in Latin America: Ecuador, Panama, Costa Rica, El Salvador, Honduras, Nicaragua, Guatemala, and the Dominican Republic. Additionally, the principal shareholders of Promerica Financial Corporation own Terrabank N.A., a community banking operation in south Florida, US. Produbanco and Banco Promerica combined will represent approximately 39% of the group's total assets. However, one of Promerica's initiatives is to ensure that no country represents more than a 25% share of the group's assets. So in essence, the banking operations in all other countries will continue to grow in order to balance out this 39% share. Grupo Promerica grows approximately $600 million in assets per year across the nine countries. Eventually we will reach this goal, where we (Produbanco) should account for no more than 25%.

Would you now consider Produbanco to be an international player in Ecuador's banking sector?

Produbanco is a local bank with international shareholders. Produbanco is the fourth largest bank in Ecuador, and has a solid and impeccable reputation over its 35 years of operations in this market. Grupo Promerica's strategy in the nine countries it operates in is to promote itself as a local bank. Part of Promerica's success has been based upon being close to the client. You can have a regional umbrella, but not necessarily be viewed as an international global bank. We compete against that view. We like to be considered local and we want to be very close to our clients.

What does being local mean for the way you do business in Ecuador?

First of all, we are in a country witnessing the burgeoning presence of local corporations and entrepreneurs. What we are doing with the Promerica umbrella here is giving local corporations an alternative view of banking not only in Ecuador, but also outside Ecuador. Produbanco joining Promerica thus widens the umbrella of opportunities for these clients. Produbanco is the key corporate bank in Ecuador. In that role, we can also help corporate clients to expand their business. For example, Ecuador is an importer of many products including consumer goods and other raw materials. We need increasingly large lines of credit for trade finance. Produbanco and other competitors are subject to country risk and its limits. Grupo Promerica has a definite advantage as our credit limits are in line with our presence in nine countries and thus we, internally, can compensate with the excesses experienced in the other markets. In essence, we have introduced this value-added strategy into what is already a solid bank. This is propelling it into an international arena that Produbanco was not previously a part of.

How has growth of the middle class changed the banking sector in Ecuador?

First of all, it allowed banking to become national. Originally, the banks were either from Quito or Guayaquil, and they stayed within their regions. Since 2001, inflation rates are obviously closer to those observed in the US, so actual growth in income has clearly benefited lower income groups, which, in turn, have advanced into this growing middle class. Once basic needs are met there is the will to direct excess funds elsewhere. That has transpired into housing and auto loans, credit cards, and other consumer products. It helped people start to experience a better quality of life, as the banking sector was there with products that allowed them to purchase new consumer and household products.

What role can the financial sector play in supporting the transformation of the productive matrix?

It does make a large contribution to the success of that venture. However, there are major industries that greatly exceed our capacity to fund; the large hydroelectric projects, refinery, petrochemical projects, and so on. We already fulfill our social responsibilities within the banking industry, which is to recirculate and be an intermediary for funds. The main issue for the banking sector revolves around how everyone can work to increase the short-term nature of Ecuadoreans' savings into a longer-term scenario where funding becomes available for expansion. Today I would say, being responsible, we are probably at the limit of what that gap should be. We should not take any further risk engaging in long-term financing with short-term funding. We also need to work with the authorities toward a consensus. The ideas being proposed are excellent, and we want to play our part in any subsequent transition, but in a technical and professional manner. My responsibility and the responsibilities of everyone at Produbanco today are mainly directed towards our depositors. I have to make sure that we have sufficient liquidity to operate the bank safely. This is a highly important issue that we need to look at from a technical perspective. The ultimate responsibility of a bank's CEO is toward the depositors, not credit, the latter being a matter of fact. If I offered a 10-year credit facility at 1% interest, I would have a line of keen customers from here to Colombia. But taking long-term deposits requires confidence, and involves the building up of a bank. It is a question of assuring your depositors that money is always available.