STAY SAFE, STAY STRONG
TBY talks to Marcos Martínez Gavica, Executive President of Santander Mexico, on the banking sector, ratings changes, and the fund industry.
BIOGRAPHYMarcos Martinez was born in Mexico City and graduated in Chemical Engineering, later earning a Master’s degree in Business Administration. He has developed his professional career in the field of finance. He worked at Grupo Financiero Banamex-Accival, today Citi Banamex, for 18 years. He joined Grupo Santander Mexico in 1997 as General Director, and since 2002 he has been the Executive President.
Global Finance has recently declared Santander Mexico to be the safest bank in Mexico in 2011. What factors do you feel have contributed the most to this result?
The reasons are mainly in the policies of the bank regarding its control of operations and the efficiency of the bank's processes, but also in the long term-credits and the total assets. It's also an extremely safe bank because we excel at covering aspects related to money laundering. These awards are proof of our strong position in Mexico and our confidence in growth expectations.
How would you evaluate the bank's performance in 2011?
Santander Mexico is ranked fourth in terms of the contribution of benefits to the group. It has built a very solid retail banking franchise; some years ago we bought two banks here in Mexico in bad terms and now we are the biggest investment bank in the country. We are also the strongest commercial banking franchise in the country, not in terms of size but of effectiveness. These numbers have made us one of the most productive banks in the global group.
How have ratings fluctuations affected Santander Mexico?
It hasn't affected us at all. If cuts continue for European banks, then it is possible we could be affected at some point. Our corporate policy is that our subsidiaries work in an autonomous way. This doesn't mean that we are independent from our HQ, but we have a certain level of autonomy that allows us to take special actions based on local market conditions. At the same time, in 2011, Mexico has been one of the key markets for the group and we are experiencing strong consolidation in all segments. So for the moment, I don't envision any changes in our current corporate structure as a result of changes from the ratings agencies.
What share does the SME segment have in your lending portfolio?
The bank considers the SME segment as one of its key targets in its expansion strategy. Our target is to have a 20% market share, and we think there is impressive growth potential in this area. We had a market share of 4% in 2007, now we have 19%. Our growth this year was at 40% in the portfolio, with positive estimates of 30% in 2012 also in our portfolio. We have products suited to the needs of SMEs that allow them to become better organized both administratively and financially, such as POS terminals. We have deals with different companies such as PwC and Windows in order to offer SMEs an affordable package allowing them to learn how to use programs to produce quality information on accounts and corporate organization. We are the top partner of Nacional Financiera—a government bank that targets SME industrial development—to offer SME-accessible credits.
What led Santander to acquire GE Capital's mortgage assets as well as Bank of America's 24% share in Santander Mexico?
The acquisition of Bank of America's 24% stake was a way of growing in a country where there is a lack of quality M&A opportunities. The acquisition is aimed at consolidating our presence in the country. At present, banks in the US are under heavy pressure from the international markets as they exit the debt crisis. We thus decided that it was the right time to make the acquisition. Concerning GE Capital's mortgage assets, according to our expansion program, we found it the most attractive deal in the market in order to increase our penetration in this segment, but I have to underline that we have recorded important organic growth also. With this acquisition, Santander Mexico became the second most important bank in the market and the first in residential mortgages, which was our target.
What will be the main focus of your growth strategy for 2012?
We are looking at increasing our participation in the SME segment by around 30%; 25% in credit for consumers; 22% in the mortgage segment; and 18% in the large corporations segment. We will continue to give emphasis to our insurance operations, as of 2011 we grew 50%, and in 2012 we expect to grow in this sector by around 35% with an innovative product in car insurance.
Mexico's banking sector displays a large gap between corporate and consumer lending volumes. How do you expect this to evolve in the medium term?
There had been an increase in consumer lending for several years, which has slowed down due to the global financial crisis. The main problem in the market is credit card usage with respect to the size of the economy. In commission terms, the rate is quite low in Mexico. For these reasons, consumer lending is a promising opportunity regarding the young population entering the market. Obviously, this allows for an increase in consumption and allows the banks to meet the needs of a growing population.
Mexican banks are generally considered to be well capitalized. How has this strong capital adequacy contributed to the banking system's resilience in the face of global volatility?
Mexico has a huge advantage in four very important aspects: a well-capitalized financial system; a portfolio of good quality; good provisions for that portfolio; and a market that has good levels of liquidity. Mexico has a sound financial system and the expectations for the economy's growth are also very promising. Thanks to all of these factors, the banking system has been able to face global volatility much better than other regions.
What is your assessment of Mexico's fund industry, and how will it evolve?
In our country we have a mature and low-risk investment funds industry. It is exceptional to hear examples of crises relating to these financial instruments as are seen in other markets. In our case, we offer our customers different schemes, even with international funds where other institutions take part as brokers. We don't offer schemes to everybody because we need to be conscious about each profile, and because our clients always welcome having the best options. Our bank has found success in motivating its customers in using these instruments. Our strategies are always focused on our clients.
Mexico's sovereign credit rating is considered stable. Do you envision any change in this rating taking into account the coming election period?
Fortunately no. We have already mentioned that Mexico has a sound financial system. Its macroeconomic fundamentals are the other factors making Mexico a market for growth, attractive and with a very different behavior. It has a debt ratio of 30% of its GDP, a deficit of 0.5%, and a low inflation rate.
All these factors make Mexico a good quality risk country and, therefore, the sovereign risk is financed at low prices and its volatility is minimal in relative terms. In this past crisis, Mexico's sovereign risk has been around 100 and 200 basic points, which is a relatively low margin. In fact, the probability is for the rating to be raised rather than lowered.