Following a year taken up mostly by efforts to stabilize operations, the banking sector is ready to regain full financial footing and begin growing loan portfolios in 2012. All that activity should yield a much-needed positive effect on the economy, several high-ranking bankers told News is my Business.
“In 2011 we entered a stabilization phase when we saw a mix of positive indicators that reflect an improvement in economic activity, but on the other hand, we’re still facing challenges both on the local and global scale,” said Aurelio Alemán, CEO of FirstBank. “Twenty eleven was a decisive year for local banking, when we stabilized the system and managed to attract foreign investment.”
Saying the banking system “is on the right track toward regaining its financial health,” Alemán, who also heads the Puerto Rico Bankers Association, predicted a return to profitability this year.
“In 2012 we hope to continue the stabilization period, with the advantage of a strengthened financial system returning to profitability, increased lending activity, a recovering real estate market, and a retail market on the rise,” he said.
His optimism comes through despite the fact that he said banks will still need to address internal challenges, such as managing a high volume of assets in default and deal with the uncertain effects that external factors — such as the price of oil, the situation in Europe and the future allocation of federal funds — could represent.
More banking consolidations possible
José Rafael Fernández, CEO of Oriental Financial Group agreed with his colleague’s assessment, saying that a number of banking institutions still have work to do to improve their balance sheets and took his predictions a step further by saying there is still opportunity for additional consolidation.
“I think there’s too much banking going on in Puerto Rico considering the size of our economy, which is something that makes banking less profitable,” he said. “If the economy is stagnant and banking is affected by the events of the last five years, it almost becomes like a game of ‘cat and mouse’.”
Despite losing three players in 2010 — Westernbank, Eurobank and R-G Premier Bank — Rico still hosts a healthy banking community, which could “improve profitability and generate a higher loan production” if it were to consolidate further, Fernández said.
While he predicted there will be no economic growth this year, Fernández stressed Puerto Rico’s “resiliency” and ability to hang in there despite experiencing a five-year recession that shrank the economy by 13 percent as a positive point.
“I believe that not since the Great Depression of the 1930s had there been a country in the world that has gone through five consecutive years of recession, as Puerto Rico has experienced,” Fernández said. “Despite seeing our economy contract by 13 percent, the fact that we got through it shows our resiliency and that our economy has great strength.”
Moving forward will be ‘joint effort’
For Alemán, improvement will also hinge on coordinated public-private initiatives to implement steps that contribute to creating jobs and getting over the recession.
“It is extremely important to recognize that to achieve a full economic recovery we need to continue strengthening relations with the outside, looking 360 degrees (north, south, east, west) not just to the north, but to the rest of the world. We have much to offer that may be attractive to others,” Alemán noted.
To achieve that, Puerto Rico must play up its natural resources, human capital and its privileged position as a bridge between the Americas, he said.
“Our main goal is to focus on efforts to attract foreign investment, given that local capital is limited, to achieve real economic growth. Whether by projecting ourselves as a tourist or manufacturing destination, or as the best destination to establish a second residence,” he said.
Furthermore, Fernández said Puerto Rico must capitalize on its strengths, including its sophisticated manufacturing sector, to lock down its future economic development.
Attempts to reach representatives from Banco Popular, Doral Bank, Banco Santander and Scotiabank were unsuccessful.