In the race for market share, Banco Santander Central Hispano and Banco Bilbao Vizcaya are running out of time.
THE FLAMING-RED LOGO OF BANCO SANTANDER Central Hispano and the more discreet white-on-blue stars of Banco Bilbao Vizcaya have sprouted on prominent street corners in Sao Paulo, Rio de Janeiro, Salvador and other Brazilian cities over the past 12 months. Despite their growing visibility, the Spanish banks are up against mammoth challenges in Brazil to break into the top tier of retail banking. Both banks vow to be among the five leading banking institutions, but it will bean uphill battle.
Having spent billions to acquire medium-sized banks, Santander and BBV have just about put their houses in order--cleaning up bad debt, overhauling computer systems and dealing with some unexpected skeletons in the closet. Santander turned a profit of US$31 million in 1998, slightly higher than the previous year. BBV, on the other hand, which purchased failed Excel Economico in mid-year, registered a massive loss of $883 million, compared with a loss of $40 million in 1997. In the first quarter of 1999, profits improved as both banks made a killing from foreign-exchange operations during the real devaluation. Santander reported a first-quarter profit of $16 million and BBV, $49 million.
The banks are now lathe process of luring new customers from among the estimated 6 million Brazilians that enter the banking market each year, as well as to entice clients away from other banks. However, with market shares in the neighorhood of 1%-2% in terms of deposits and assets, neither bank has a significant presence in Brazil.
Each insists it is poised for expansion. 'With our current structure, we can easily double or triple our volume of operations," says Walter Shinomata, vice president of Banco Santander Brasil. However, the jury is still out on whether either Santander or BBV can grow fast enough to challenge frontrunners Banco Bradesco, Banco Itau, Unibanco and the biggest foreign bank in Brazil, Banco Real, purchased last year by Holland's ABN Amro. "Up till now, neither Santander nor BBV has shown what they are made of," says Erivelto Rodrigues, director of Austin Asis, a bank rating firm in Sao Paulo. A recent report on the Brazilian banking sector by Moody's Investors Service arrives at the same conclusion: "The ability of the new foreign banks in Brazil to adapt and grow their franchises in order to compete with the local powerhouses still remains to be seen."
Unlike other Latin American countries, in which two or three private banks dominate, the massive Brazilian market is still largely controlled by state-owned institutions Banco do Brasil and Caixa Economica Federal, which together account for roughly 40% of total deposits and assets. By comparison, Bradesco, Latin America's largest private bank, accounts for a mere 9% of total deposits in Brazil and 7% of total assets.
Room for how many? The arrival of foreign banks in Brazil has stimulated an all-out push by the local giants to improve efficiencies. "Santander and BBV brought with them the concept of scale and low-cost operations," says Rodrigues of Austin Asis, noting that the local banks were quick to rise to the challenge. With the local banks leaner and meaner, however, analysts question whether Santander or BBV have the wherewithal to compete.
Despite some progress, the Spanish banks "haven't managed to become efficient yet," says Rodrigues. BBV has been handicapped by the purchase of troubled Excel Economico "BBV bought a bank with very low-quality assets," says Rodrigues. "Excel Economico was synonymous with failure."
Santander faced the additional task of combining two different banks (Banco Geral de Comercio and Banco Noroeste), creating compatible systems and a common culture. It cleared one major hurdle in March of this year when the computer...