Banco BMG, BRAZIL
Ricardo Gelbaum (pictured right), chief financial officer at Banco BMG, says the banks success is a result of its unwavering focus on payroll-deducted loans, which the bank began to offer in 1998. This involves negotiating with public sector or private sector employees to take payments straight from their pay cheque, substantially reducing lender risk.
BMG has built up a portfolio of about $7bn, concentrating on public employees, who account for 80% of BMGs credit portfolio. This makes the vast bulk of our portfolio equivalent to sovereign risk because the payee is the government, says Mr Gelbaum. The portfolios net charge-off has averaged about 1% in the past five years. The low-risk nature of the portfolio has proved a blessing in turbulent times for credit.
The market has been changing fast, particularly in the past year, says Mr Gelbaum. Competition has become more charged, with private sector giants such as Bradesco entering in force through its purchase of BMC, another specialist bank in the area; with foreign banks, including Société Générale and BNP Paribas, entering the market; and with state banks, such as giant Banco do Brasil, ramping up.
Nevertheless, Mr Gelbaum believes that BMG will continue to thrive and claims that other banks have an Achilles heel. They dont want to cannibalise other products, such as overdrafts, credit cards and personal loans, because profits on these loans are higher, he says. By focusing purely on payroll-deducted loans, BMG avoids those conflicts.
The bank is expanding its model to the untapped mortgage market, durable goods and auto loans. [In] the next few years, we will focus on how to increase and cross-sell different products as well as motivating other Brazilians to use payroll deduction, says Mr Gelbaum.
Banco Daycoval, BRAZIL
The secret of Daycoval Banks success has been to focus on the mid-market segment and consumer loans, and keep a tight rein on leverage, enabling it to access funding cheaply. By keeping to conservative borrowing, we can raise money at 103% of the CDI [inter-bank lending] rate, compared with a more typical 107% for peers, says Carlos Dayan, executive director of the São Paulo-headquartered bank.
The bank also uses multiple funding strategies to ensure diversification, including a fast-growing deposit base, which is increasing by about 50% per year; FIDCs (funds with securitised assets) to move corporate and consumer loans off-balance sheet (it has issued two and is planning a third); and tapping international markets, including through its successful 940m-reais ($562m) IPO last year, when foreigners snapped up 70% of the offering.
The bank has been rolling out a programme of regional branch openings to reach companies in all of Brazils states; it had 25 at the end of last year (Brazil has 26 states and a federal district). Managers at these branches are expected to visit and talk to farm and business owners. Thats something that big banks rarely make the time to do, says Mr Dayan.
Competition in this middle market segment is heating up, with Bradesco creating a dedicated subsidiary, but Daycoval has the track record and expertise to keep its lead, Mr Dayan reckons.
Daycoval is also competing aggressively in the consumer credit area and built a 650m-reais auto-loan business in a year. The secret, again, is in picking overlooked markets: while its competitors are chasing the new car market, Daycoval is funding used car purchases.
Banco PanAmericano, BRAZIL
Banco PanAmericano has been a pioneer in serving one of Brazils most difficult markets to tap, the low-income segment that is chronically underserved in Brazil. Classes C, D and E have been rapidly gaining in economic prowess thanks to large increases in the minimum salary and falls in unemployment in the country.
The low-to-middle income [population] is hugely underbanked and yet this is exactly the area with the greatest need for credit, says Wilson de Aro (pictured right), finance director at the banks São Paulo headquarters. There is a minimum of 46 million working Brazilians who do not have a bank account and we have 38 years of experience in serving the market, he notes.
Growth of credit to individuals, at 33%, is outpacing growth of corporate credit, at 18%, says Mr de Aro, while PanAmericano has been growing at annualised rates of 38%. The bank has two main segments: collateralised loans on vehicles and housing, where longer tenors and lower rates are the order of the day, in addition to the rapidly growing market for credit cards and personal loans.
PanAmericano has built up a rich mine of information on low-income consumers, and Brazilians are much less leveraged than US citizens. A Brazilian saves up and buys when he has accumulated the money he gets his first good car at 40. An American spends his whole life in debt, says Mr de Aro.
The bank has consistently beaten its forecasts on provisioning, which although high at 4.1% is much below the 6% that the bank forecast, Mr de Aro notes.