• Print
• E-Mail
• Feedback

10/27/2009

Analysts say even an greater upside is still to come. According to Citigroup figures, the ratio of loans to GDP in Brazil -- a key indicator of banking-sector maturity -- now stands at just 40 percent, about half that of regional rival Chile. And Brazil's ratio of retail deposits to GDP is comparable to that of Colombia, which is both smaller and poorer. Santander Chairman Emilio Botin thus clearly has a big opportunity to bring more of Brazil's 190 million citizens into the banking sector.

"Brazil remains a pretty untapped retail market, and that's where Santander has strengths," says Xavier Vives, a professor of economics at IESE Business School in Barcelona.

The bank's strategy is already taking hold. Since rising to prominence in its home market during the 1980s, Santander has combined aggressive cost-cutting -- especially through the use of proprietary back-office software -- with proactive cross-selling of financial products to customers. The bank is following a similar path in Brazil: Operating expenses over the first half of the year, for instance, fell more than 3 percent compared with the same period last year even as revenues grew. And the efficiency ratio of its Brazilian branches -- based on expenses versus total revenues -- improved by seven percentage points year over year, falling to 37.9 percent: one of the lowest ratios for any bank in Brazil.

The opening of 600 new branches over the next four years will also help sell more products such as mortgages and credit cards to Brazil's increasing affluent middle class. Tellingly, Santander has focused its expansion in the South American country's southeast region, particularly around Sao Paulo, where per capita GDP is almost double that of the country's north.

Tough Competition

Still, Santander's Brazilian ambitious plan isn't a sure thing. Both domestic and international banks are falling over themselves to tap the country's booming economy. That's particularly true for state-owned Banco do Brasil, which remains the country's largest bank and is aggressively diversifying its financial products, particularly into insurance.

And while Brazil and, to a lesser extent, Santander's recent foray into the US represent the bank's main growth prospects, a rising number of nonperforming loans in Spain could still hit the bank's profitability. Santander says it has sufficient capital to weather further financial problems.

To succeed in Brazil, the Spaniards will draw on their previous experience of expanding successfully into other South American countries and across Europe during the past 15 years. And by tapping investors for $8.1 billion, Botin & Co. will find themselves in a strong position in one of the world's fastest-growing financial markets. It's no wonder, then, that Santander is widely viewed as among the biggest winners to emerge from the Great Recession.

• Back
• 1
• | 2

• Part 1: Spain's Santander Banks on Brazil
• Part 2: Untapped Market