Ecuadorean Bank Finds a Niche With Emigrants in Spain

MADRID — Rosalia Efigenia Guamán, one of 540,000 Ecuadorean emigrants living in Spain, jumped on the news that the biggest privately owned bank in Ecuador, Banco Pichincha, had also moved here.

Rekindling her relationship with the bank she had used back home allowed Ms. Guamán, a housekeeper and waitress, to lower the cost of her remittances, she said, as well as to buy a life insurance policy.

“I feel very reassured to know that it will be much easier for my mother in Ecuador to get back everything possible if anything goes really wrong for me here,” she said.

Pichincha received its Spanish commercial banking license in the spring of 2010, just as Greece became the first euro zone member to seek a bailout, setting off a sovereign debt crisis that has also left Spain and its banking sector reeling.

Since then, the bank’s Spanish unit has grown beyond the expectations of its own management by pulling off a trick that companies the world over seek to perform: selling familiarity to a loyal, nearly captive clientele far from home.

Its timing also proved fortuitous, as Spanish banks that had previously sought to attract Latin American migrants started to pull back from this line of business as the euro zone’s financial crisis put pressure on them to cut noncore activities.

“The crisis has meant that our competition simply vacated the space that was our obvious target, in terms of clients,” said Jorge Ignacio Marchán Riera, who heads Pichincha’s operations in Spain.

Mr. Marchán said his bank would make a profit this year on its Spanish business, two years ahead of schedule. Assets under management in Spain are expected to double, after having reached €63 million, or nearly $84 million, at the end of 2011, up from €27 million a year earlier. And while most Spanish banks are downsizing their consumer networks, Mr. Marchán wants “at least” 20 branches across Spain by the end of the year, up from 12 at present.

Still, it may be too early to call Pichincha more than a small and timely success story in an otherwise bleak Spanish banking landscape.

“Pichincha is doing well partly because it comes from zero and so doesn’t carry the heavy load of bad loans that banks here have accumulated,” said Javier Santomá, professor of financial management at IESE, a Spanish business school. “The real test for any bank, however, always comes, not when it lends, but when it eventually tries to get its money back.”

Banking to migrants, however, looks promising. Migration worldwide is expected to continue rising, which in turn should benefit Pichincha and other financial institutions from developing countries that have expanded overseas to cater to migrants who send part of their earnings home.

Last year, remittance flows to developing countries rose 8 percent, to $351 billion. They are likely to reach $441 billion by 2014, according to a report published in December by the World Bank.

The World Bank noted that remittance outflows from Spain had remained “fairly resilient” and in fact grew 15 percent in the first half of last year as “migrants have cut into savings and even consumption in order to send remittances, and perhaps to prepare for an eventual return.”

Yet so far, and despite Spain’s struggling with a jobless rate of almost 23 percent, only a few thousand Ecuadoreans have packed their bags to go back home. Senami, Ecuador’s national migration secretariat, said that in the second half of last year, 2,794 registered Ecuadoreans had sought information on how to benefit from a state-sponsored assistance program to return home from Spain.

According to Spain’s immigration statistics, the number of registered Ecuadoreans fell by about 35,000 in the past two years, but that figure includes those who, like Ms. Guamán, acquired Spanish citizenship.

While the United States dwarfs other countries as a destination for Latin American emigrants, Spain comes second, receiving about one in 10 Latin American migrants each year, according to the World Bank. Over all, Spain registered about five million migrants in a decade, now equivalent to 12 percent of its population. Ecuadoreans form the largest Latin American community in Spain, spearheading migration to the country after a devastating economic crisis in 1999 that led to a 70 percent depreciation of Ecuador’s currency, the sucre, and a default on its external debt. The crisis occurred just as Spain’s construction-led boom was getting under way.

The newcomers from Latin America did not go unnoticed among Spanish banks that then had the liquidity to extend credit. In fact, before applying for its own banking license, Pichincha discussed forming an alliance with Banco Popular, one of the biggest Spanish institutions. In 2006 Popular had started MundoCredit, a subsidiary with 60 branches, aimed at migrants and their soaring remittances. Money outflows from Spain rose almost fivefold from 2001 to 2007, reaching $15.2 billion in that year, according to the World Bank.

But the negotiations between Popular and Pichincha stalled, and last year Popular shut MundoCredit as a stand-alone entity, following in the footsteps of Banco Bilbao Vizcaya Argentaria, or BBVA, which also closed down a similar business called Dinero Express.

Behind such closures, “the logical thinking is that you are dealing with clients whose track record is hard to establish and who are in the front line in terms of job vulnerability,” said Emilio Ontiveros, chairman of Analistas Financieros Internacionales, a research consulting firm in Madrid.

In the meantime, however, Santander and BBVA, the two biggest commercial banks in Spain, expanded aggressively into Latin America to offset weakening domestic revenues. Net earnings at both banks fell 35 percent last year. While a booming Brazilian business helped cushion the fall for Santander, Mexico overtook Spain as the market contributing most to BBVA’s earnings.

Pichincha has managed to pick up clients by not charging for remittances to Ecuador or to other countries, like Peru and Colombia, where Pichincha operates. In addition, the bank has been expanding its microcredit business in Spain, as well as setting lower thresholds for clients to earn interest on their deposits — currently 3.5 percent a year on an account with as little as €600. The cultural affinity, meanwhile, is strengthened by Latin Americans’ accounting for four-fifths of the bank’s employees in Spain.

On the other hand, shifting money from Ecuador to Spain remains complicated and costly because the bank “is simply not as integrated on an operational level as might seem,” said Manuel Romera, director of the financial sector of the IE business school, who helped a small Ecuadorean company this month with such a money transfer.

Pichincha’s other — and arguably riskier — expansion strategy has involved buying assets from Spanish institutions that need to lift their capital ratios to comply with new banking rules. Last year, for instance, Pichincha paid €5.5 million for a Latin American consumer credit portfolio from Bankia, one of Spain’s biggest savings banks. Such purchased assets have contained on average 9 percent of bad or doubtful loans, thereby raising the overall level held by Pichincha in Spain to 7 percent. That percentage, however, remains below the 7.7 percent average for the Spanish banking sector.

Mr. Marchán, Pichincha’s chief in Spain, recognizes the risk but believes his bank, a survivor of the roller-coaster economy of Latin America, is equipped to handle it.

“I come from a country that has itself been in crisis for as long as I’ve lived,” he said, “so what is happening now in Spain certainly doesn’t feel like something that we wouldn’t know how to cope with.”

Leave a Reply