Could you outline a brief summary of Banco Occidente During the last five years?
Banco de Occidente was established as a full service financial entity close to 120 years ago. The Bank is the oldest Financial Institution in Central Americ In many ways thanks to its seniority, the bank has developed the experience and know-how to compete effectively in a dynamic environment where there are thirty-five banks doing business in a small country, and where only 5 % of those banks are competing in growth. Five years ago most banks, particularly the oldest established banks were experiencing disproportionate profit- loss statement structures; high expenditures were incurred with administrative functions and a very low portion was dedicated to business promotion or income generating practices. Five years ago we decided to change this, tendency. We determined the need to change the approach and initiated a very strict reorganization process for the entire company. Five companies basically comprise Corporación de Occidente, when we internally merged those companies, not every company had an internal General Manager. We continued with our internal merger and developed a corporate structure with divisions, where each division was responsible for their internal re-structuring. Each division manager was made responsible for his or her units´ independent performance and accountable for sound legal advice of each company;The prior scenario allowed us to become a more streamlined entity. We have managed to be more efficient and have down sized to an approximate total staff of 752 employees. Last year the bank was the most profitable financial institution in absolute terms for the Guatemalan community (as of this interview). Today it is evident how successful the bank has been in a relatively short period of time. Five years ago, the bank was eighth in profits.
Many Banks are merging worldwide- this is a trend. Also, there are new products appearing in the market relative to the development of those countries. What can you tell Forbes about the products of the Bank?
The decisions to develop and restructure the bank,
has not allowed us to introduce many new products
in the country. The change within the bank itself
was more a result of our perception of what was
happening outside the country rather than what was
happening inside the country and with our competitors.
To date, competitors continue opening branches and,
continue to have a disproportionate growth in their
fixed operating expenses. Also, five years ago
Banco Occidente had the highest past due ratio and
today it is the lowest. We also introduced a program
to reinforce the risk management function, so that
any new business that was placed on the books had
improved credit quality parameters. Additionally,
it wasn't just more of the same client portfolio
but a continued portfolio increase with new business
opportunities obtained. The merge process that exists
today in Guatemala is not business focused but is
driven, by a combination of functional problems
that exists in the banking industry and in individual
banks where the only way to mend or attempt to fix
these problems is to merge with other organizations.
This is not what you will find in other countries
where you merge one company that has one set of
products with another that has another set of products
and you seek to become more efficient and, or you
can cheaply penetrate in a field or a market cheaper
to acquire another company, then to try to gain
market a better market share. In this case, what
you find is a lax supervisory and regulatory banking
environment, which has resulted in, with very few
exceptions, seeing probably most of the banks as
being technically bankrupt. If you were in any
other environment going able to keep the doors open
and continuing operations and as the rules for the
Basel Agreement slowly come into the local regulation,
banks can no longer exist the way they are today.
For example, the majority of larger banks do not
make it as far as capital asset ratios are concerned.
The Basel agreement requires 8% as of this year,
local banking regulations required 10% minimum capital
and with the exception of two or three banks, most
of the large banks do not have 5%, so if you have
a bank in any other country without 8% minimum capital,
you would have to come up with a plan where you
can prove that within a very short time, you are
going to reach the minimum capital requirements.
What I found hard about the merger process in Guatemala
is that you do not find a highly under capitalized
bank merging with a highly over capitalized bank
and then you fix the problem. You take the unused
growth capacity of one bank to supplement the over
leveraged situation of the other bank. What you
find are two highly under capitalized banks merging.
The end result is a larger bank with a larger capital
deficiency that does not make a lot of good business
sense. |
On the surface does the outlook
of the next three years look interesting for the
economy in Guatemala and what the banking by this
point be a more organized system?
Right now, the economy appears at total standstill for the first time in many years. The business sector is without any tangible indication of where the economy is going. The investment environment for attracting foreign investment remains very unclear. The few privatizations that took place in the recent past are constantly under attack by the current government-, this stance scares off any new investments. Because rules can change drastically, it has been a detrimental factor. Probably the best incentive to attract foreign investors is stability and not constant change.
How does one create an investors banking environment from international perspective?
Stability, honoring existing contracts at least in the energy sector. They want to change contracts that already exist. That scares off any new potential player and because local government do not have any accountability or credibility. As to documents you sign today, two years from now, who knows if they will be honored under the current government policies.
Nevertheless, you have done very well is not
that the economy is at a standstill, but your bank
is doing quite well, is this not so?
We have moved up a few notches, that is partly due to our internal efficiency. As mentioned before, from the highest past due loan portfolio to the lowest past due loan Portfolio system". Obviously it had an impact to our income generation stream. And by eliminating 300 employees, also and obviously: space reduction less fixed expenses! We claim to have the most diversified business generation group of any bank Guatemalan within the system. We are also very conscious of inter-company lending and of related lending which is another problem the banking industry as a whole has; there are banks that have up to 95% of their loan portfolio in a related state. I do not know the exact figures, but there are very few banks that do not have related loans or related lending problems.
How long have you been in banking?
Twenty-five years
How long have you been in Guatemala?
7 years
In your opinion, in the banking sector, one of
the things we have seen is that there is a long
tradition in the business sectors with strong leaders,
what are the reasons for having these prominent
leaders in the commuity?
Protectionist economic policy of the government- because usually the same families that you hear talked about at some point in time during Guatemala's history had been involved in politics. You find few large industries existing in Guatemala because there are few natural resources, it is still mostly a coffee, sugar, and banana region where, sugar imports are still prohibited.
Our report is focused towards the investment community worldwide, what would be your underlining message to these Forbes Global readers?
Guatemala is a country with a lot of opportunities. The government is new and needs to restructure much of its policy in order to make the country investor friendly. Once the changes have been implemented, there is no reason for the country to prosper or for the investor to prosper along with them. |
