If the two banking consolidations currently underway in Puerto Rico materialize, after the dust settles, the trio of big financial institutions that will be left will “compete fiercely” for the local market, Popular Inc. CEO Ignacio Álvarez said.
While Oriental is moving forward on its acquisition of Scotiabank’s assets in a deal that should close by year’s end, this week First BanCorp. announced its intention to pick up Banco Santander’s local property. That transaction is slated to close in mid 2020.
If all of the regulatory requirements are met, then the two international banks — Scotiabank and Santander — will make their exit.
“Santander is a gigantic international bank that was in fourth place in Puerto Rico. It makes no sense for a bank of that scale to be in such a small market like ours. That doesn’t move their needle,” said Álvarez, to a group of business reporters.
“Scotiabank wasn’t dedicating much resources, it was already gone,” he said. “Scotia and Santander weren’t focused on this market.”
However, he said the three large local banks that will remain “live and die in this market, so they’re clearly going to compete. And the other two are going to come at us in full-force.”
But, Álvarez noted that one thing is to have fewer banks and the other is to have fewer international banks. Citibank and Banesco will remain in the market serving their specific client bases.
The corporate market, mostly served by outside banks like Wells Fargo and Bank of America, will continue doing business with them to finance so-called Class A properties that require significant funding.
Meanwhile, Banco Popular, First Bank and Oriental will continue to compete for the middle commercial market, and credit unions will fight to keep their grip on personal and auto loans, Álvarez predicted.
“Obviously, we see great opportunities because perhaps some of the clients of the international banks that are leaving were there because they are international,” he said. “Popular will try to compete in every segment.”
On Wednesday, Popular Inc. reported net income of $165.3 million for the third quarter ended Sept. 30, 2019, compared to net income of $171.1 million for the quarter ended June 30, 2019.
“The third quarter was another solid one as we continued to build on the strong performance of the first half of the year,” he said. “While results reflect higher operating expenses due to investments in key areas such as technology, compliance and our people, we maintained our net interest income stable despite the interest rate environment, increased our non-interest income and benefited from a lower provision expense.”
Popular added 12,000 new clients during the quarter, pushing the total of new customers to 37,000 during the first nine months of the year that ended Sept. 30.
“We’ve added 37,000 new clients to the bank so far this year. That’s 37,000 new Social Security numbers…people who had no relationship with the bank,” Álvarez said.
During his meeting with the media, Álvarez responded to general concerns about Puerto Rico’s ongoing outmigration, and its effects on the banking industry.
He cited a recent study by consumer credit reporting agency TransUnion that confirmed that a significant portion of the people who left Puerto Rico did not have a relationship with a bank, so the effect was not significant to the sector.
“That doesn’t mean that going forward, it’s going to be the same. So, I think that we all have to prepare for a smaller Puerto Rico,” he said. “That’s why I think three big local banks, plus other players, are sufficient for the market.”
“The question for us as a society is how do we adopt this demographic reality and try to make the best of it? The best of it would be if we’re smaller, then, let’s be richer. That’s good for banks and that’s good for everybody,” Álvarez said.