TBY talks to Nicole Reich de Polignac, CEO of Grupo Financiero Scotiabank México, on organic growth possibilities and the role local capital markets could play.

How do you rank the strength of Mexico's commercial banking system relative to the other Latin American countries in which Scotiabank is operating?

I think the Mexican financial system is one of the most solid in the world, and it proved itself during the last financial crisis. The average capitalization rate for Mexican banks is above 16%. I think one of the things that allowed Mexico to be more solid today was the 1994 “Tequila Effect" crisis. The regulators and the banks learned their lessons and we didn't make the same mistakes again. Therefore, when this new crisis came around the banks all had very solid policies and very solid capitalization, and were thus very resilient to the crisis. Mexico's GDP dropped in 2009 by around 6.5%, which was one of the worst declines in GDP it had ever seen. Regardless, no bank was hurt in a significant way.

Where does Mexico fit into Scotiabank's expansion plans?

Mexico is one of the most important markets we have. We have not carried out an acquisition, as we haven't found the right strategic partner we need at the right price. We have, however, continued to invest organically and we have grown in Mexico in a very important way. Five years ago we had less than 200 branches, and now we have more than 700. We used to have less than 1 million customers, and now we are about to reach 3 million. We had less than 6,000 employees and now are near 12,000. Therefore, we have not had the luxury or the opportunity of carrying out any inorganic play in Mexico yet, but we have continued to invest and grow organically in a very important manner. Of course, if the right opportunity appears at the right price we'll go for it. Until then, we will continue with organic growth.

“If the right opportunity appears at the right price we'll go for it. Until then, we will continue with organic growth."

How has your risk management analysis contributed to your strong performance?

We are a bank that is known for being very conservative and very strong in risk management. It's in the DNA of this organization worldwide to be a very prudent risk taker, and that has helped us. Adding up delinquencies and write offs over the past years, we probably have one of the best performance rankings in the market depending on the product. We carry out basic banking, and attach great importance to understanding the customer and making sure the sale of today is not the problem of tomorrow.

Mexico's current credit rating is considered stable by major rating agencies. How do you see this trend evolving in the future?

I think it will remain at its current level or improve. I believe it is a very stable financial system, and Mexico has been on a very good route macro-economically. I don't anticipate any changes. We are entering an election year, but I believe no matter who wins that the macro-economic basics will remain. That's very important because if you look at Mexico 30 years ago we were always nervous about the new government. Now all the parties respect and understand the importance of having a reasonable deficit and having healthy public finances.

What is your assessment of the corporate market in Mexico and which sector is currently attracting the most favorable financing?

From a broad perspective I think that the capital markets are still very young and very green. There is still a lot of opportunity to grow. We should have more companies publicly traded. The framework is there, but it is a question of culture. Mexico still has a lot of family-owned companies that don't see the advantage to being publicly traded. Companies are motivated to be publicly traded when they see a clear advantage in obtaining funds from the public rather than the banks. However, the rates are so low right now there is not a lot of incentive to do that. If you decide to be publicly traded the framework is there, but you need to comply with a lot of things from a corporate government perspective. Why would you do that if you still have funds available at a cheaper price?

© The Business Year - November 2011