Mr. Martinez, since Banco Santander acquired the majority control of Grupo Financiero Invermexico, the new group was the leading financial institution in Mexico, offering commercial and investment financial services. The latest move was the acquisition of Banca Serfin this May, for more than 15 billion pesos. Why Banca Serfin, how does Banco Santander profit from this acquisition?
Because it was the best alternative to complete the Santander corporation in Mexico, which means that Banca Serfin is very well positioned in terms of commercial banking. Their network complements Santander's network. Both of them together make a complete branch network to be competitive and to cover the country. It's a good franchise. Banca Serfin had a very wide client portfolio that has been with that bank through bad times. The opportunity of having them with Santander is a good opportunity for the Group. I think it was the best offer in economical terms with the Mexican government, because it was the combination of the qualification of the bank and the expectations of Santander regarding the future development of the Mexican economy.
Grupo Santander is present in 12 Latin American Countries, reaching results of almost 500 MMDls in the first semester of this year. What are the figures on the Mexican market?
We started in '97 with loses of 52 MMDls in 97 and in '99, we had 82 million and this year's first semester we had consolidated profits of 66 billion dollars. With those earnings, we have been the first financial group in the country in terms of ROE, even though Banco Santander Mexicano has 7% of the market and Bancomer has 24% of the market share. The other one was Banamex. In terms of profitability, we are currently number one. All this happened in three years.
Commercial deposits and market shares increased from 1 billion dollars in December '96 to almost 4 billion. The market share started at 4.5 and now we are in 7.3. In terms of cost of those deposits, we were the most expensive bank in the system and actually is in the average. In terms of portfolio, the focus during the first stage was to obtain a better quality portfolio, not increasing it at the moment because the country was in no terms of being aggressive regarding credit. What we have at this moment is the best portfolio in the market and it's more diversified than it used to be.
We have reduced in real terms 30% the total expenses of the Group. A new culture has been introduced in the Group. In terms of headcount, comparing the Group at the beginning, not taking in account the new branches we opened these three years, we are now operating with 50% of the people we worked with 3 years ago. We started with 8,000 and now there are 4,000. Despite we have opened 30% more branches than we had in the past, the total increase in positions is 40% less.
Your main competitors in Mexico are BBVA-Bancomer, and Banamex- Accival. How do you foresee the development in the future? There are banks such as Citibank penetrating the Mexican market, who is going to be your main competitor during the next years?
As a matter of fact, after buying Serfin, they are all the competitors: Banamex, Citibank, Banorte and the rest of the market. What happened with the new acquisition is that we have "critical mass". But the objective is to be the best financial group in the country, not only in terms of profitability but also in terms of service and efficiency. Actually, what we have at this moment is the number-one financial group, not in terms of size. We are not trying to be as big in terms of market share as BBVA Bancomer, that is, 30%. We want to reach 20% of the market share in terms of deposits and to be the most efficient and profitable group in the country.
Mexico went through a tremendous crisis in December 1994. Would you agree that today the banks are still struggling to reach former market values or do you think they are already in a position to say they have left the crisis behind?
I think the crisis is behind. The process of reinforcing the banks has been accelerated. It's not finished but in the past months we have seen the consolidation of the financial system. The most important banks in the country have taken big leaps to be solid again and to be competitive and be ready for the new Mexico. As you have seen, the regulators have forced the financial system to be solid in international and internal terms. For example, in our case, we now have completed all the requirements they have established for three years more. We are going even further. What we suppose is that other leading groups have to do the same. When you are thinking of being as solvent and as solid as the other international players, you are talking about a very different system compared with the '94 crisis.
Let us take a look into the immediate future. Internet is already the main tool for financial institutions in order to increase efficiency and profitability. Banco Santander Central Hispano bought in March 75% of Patagon.com, which defines itself as a "financial services supermarket". What can Patagon.com offer you and your clients?
I think it's complementary. Patagon is a BSCH tool to have an alternative for their clients covering the same areas where BSCH is operating. I suppose they will have their own menu of products to offer to the BSCH clients, regardless of Santander in Mexico and the rest of the countries, they must have their own Internet products, their own alternative for their local clients. What can be very important is that a group such as BSCH can offer to our Mexican clients a commercial bank, an Internet alternative for domestic products. We will offer an alternative with Latin American coverage. That is very important for the companies that are in this area of the world. They will have three different alternatives in a single group.
What are the actual results of transactions through the Internet in Mexico for you and to what extent are you going to do business through the Internet here in Mexico?
We are doing two different things: we are remodeling the Santander channel and in a few weeks a new menu will be available for our clients. Internally, we are transforming the bank's process via Internet, which will decrease our operation costs and increase our efficiency. We will cover different clients which the Group currently does not count with. We don't see one as a competition of the other, they are complementary. For our own operation it's an opportunity to reduce our operation costs. We are sure that by converting some of the bank's process to Internet, we will reduce costs. The branch network will still be a very important part of the commercial banking operations. It will take longer for this country to see it as the best or the only alternative for clients. A high percentage of the clients will not change to Internet in some years. Our Internet channel and products have to be at the level of the competition because we want to be very successful in the market place but we have to reduce the cost of operations in a percentage close to 40% and if we do that, and we will in the coming years, the branch network will still be profitable despite of the fact that part of the clients will be operating through Internet. Internet will not substitute the branch network. | Which do you think will be the most requested services through Internet and why?
What is being more requested is information. In the future, it will mainly substitute our telephone services: balance transfers. In the future, what we have to do is to develop different products for that market cluster that will be specialized. In other words, we are not trying to place the same products we have in the branches but rather to develop different products to fit the customers' needs. Our special attention is to let the clients introduce their own products through us by Internet and we are working on it.
What are your efforts to promote the important steps you have taken, as the acquisition of Serfin or the improvement in your services field?
We are not promoting our present product too much, we know it. It's been in the market for some months and some of our competitors have written huge notes about their Internet product as an alternative in their banks. We wanted to review the whole concept and change it and in the end, even though Internet is here and is growing so fast and may become the main way of doing business in the future, we prefer to do the right things, talking less about our products but to have them very well focused in the future. We'll take a few weeks to do that and when we're ready, we will do what we have to do: tell the clients we have a better product than the rest available in the market.
Very intensive negotiations have been going on between Singapore and Mexico as well as between Japan (JETRO) and Mexico (SECOFI) concerning future free trade agreements. What is your assessment on that development?
I think Mexico has been looking at Asia during the last decade carefully as a very important sector where the relationship between them has great potential. After the NAFTA, that interest has grown. Consider that the year that the NAFTA began (1994), Mexico had a US$5 billion trade deficit with the U.S., equal to the deficit Mexico had with Asia of also US$5 billion. After only five years of NAFTA, the trade position with the U.S. has turned around into a US$15 billion surplus in 1999. However, in the same period, the trade deficit with Asia has expanded to US$11 billion. I'm sure that with new trade agreements between Mexico and the most important countries of the Asian region, a similar trend would develop for the trade flows between the two regions and both Mexico and Asia would benefit from having access to the U.S. market. Given that both Asia and Mexico are seeking for a place in the biggest market in the world and that the exported goods from each country are very complementary, a trade agreement would represent benefits to both countries. I have seen an enormous interest from the industrial sectors, which together with the government, have been focusing in Asia, not only as a trade partner to export to the U.S., but also recognizing the huge potential as a market for Mexican products, which is growing in a natural way. As you mentioned, maybe it's the last part of the world to negotiate with, but I think that the different participants of the country, both the industry and government, recognize the importance of the project and that Mexico will reach an agreement to form an alliance with the Asian region. After such an agreement, our trade flows will grow as fast, or even faster than those with the European Union after the European Agreement.
Taking into consideration a growing Asian investment in Mexico, what could be the role of Banco Santander Mexicano in order to improve asian investment figures in Mexico?
We, in BSCH, will continue bringing together Mexican and Asian businessmen in both countries. BSCH, which has a presence in Asia, mainly in Singapore and Japan, is always functioning as the link between Mexican companies and their exports to the Asian market. At the same time the Group is always looking for opportunities for Asian products and companies in the Mexican market, not only as exporters, but also as foreign investors willing to come to Mexico to establish a plant or a business to attack the market directly or to export to the U.S.
What is it that you expect from the new administration under President Vicente Fox?
The next steps, in terms of the framework that has to exist for the financial system to be effective in order to help the country's growth (the legal framework and exercise of the law), with all that has been happening from the crisis until today, if he follows, and he will, in this direction, that will be very important to aid the financial system in helping the growth of economy that the new government expects. It's not easy, but that will help. The control and reduction of inflation is a key for the new Mexico and what we have seen is that the new government agrees. The democracy we have witnessed has been very good news for the international community, but especially for Mexicans. I believe that the fact that it happened has already triggered results. We have seen that international investment is looking at Mexico more aggressively than in the past. The fact that democracy prevailed in the past elections, made them realize that Mexicans have changed their mentality. More importantly than if the PAN or the PRI won is that there was a real proof of democracy. It gives the Mexican community a new atmosphere, everything is more positive. If the new president carries out the steps he campaigned with, then he will have the support from the Mexican people. They will be patient with the new administration, giving it time to do what they have said they will do. What we have now noticed is that some of the international companies have increased their objective to Mexico in terms of investment, plans and they are duplicating their budget because of the election result.
Let's imagine a client who is walking in the street and sees a sign of Banco Santander Mexicano. What is going through his mind in this very moment?
His better choice. That's what we are trying
to do, that's our challenge because what the rest
of the banks are trying to do is to maintain their
clients. What we have done is to bring new clients
to the bank because the commercial part (Invermexico)
was a corporate bank. At the beginning, they came
because we were very successful when the AFORE process
was in the market place, and we started at the same
time, and the advertising was fresh. After that,
to bring new clients will take a combination of
price (we focused on that last year) and service
(this year). We are not wholly satisfied. We have
one of the best services in the Mexican market.
That combination will bring new clients to us and
maintain our current clients. If we adapt our bank
to the needs of the future Mexican clients, both
companies and individuals, then we'll be the best
bank for the time. That's the way we are approaching
this, by Internet, etc. We don't know if our clients
will ask for the same loans or credits they asked
in the past. We suppose they won't because many
of them suffered with the crisis and they are afraid
of how to access credit. We have to be very careful
and cover their needs, but better than in the past
and taking on account the new mentality the customers
now have. That's what we will have to do in the
future. |
Banco Santander