Over the last decade we’ve gotten used to reading articles about companies with big plans to expand in China: Wal-Mart (WMT), McDonalds (MCD), Starbucks (SBUX), IBM (IBM)… and the list could go on and on.
That will go on for a while, but you know that for the next sevearl years, especially in the lead-in to 2016, we’re going to read A LOT more stories about companies with big ambitions in Brazil.
Spanish banking giant Banco Santander (STD) is thought to have potentially gigantic problems, but for now, they’re expanding while other banks are in retreat, and the South American giant is big, juicy target.
Der Spiegel: The money will be put to good use. Santander aims to reinforce its own capital reserves, expand its local branch network in Brazil by one-third by 2013, and jump-start lending in the country’s growing but still underserved commercial-banking sector. “Santander’s move into Brazil has been smart and well-thought-out,” says Robert Tornabel, a banking professor and former dean of ESADE business school in Barcelona. “It’s a fast-growing economy that’s becoming an important part of the bank’s profitability.”
Indeed, Brazil accounted for more than one-fifth of Santander’s €4.5 billion ($6.8 billion) in “attributable profit,” or net minus capital gains, in the first half of this year. (Attributable profit is the only earnings measure for which the bank provides a breakdown by country.) That’s up from just 11 per cent for the same period in 2008. Analysts say the change is due primarily to the consolidation of Brazil’s Banco Real, which Santander bought for $16 billion in 2007 as part of the ill-fated takeover and carve-up of Dutch financial giant ABN Amro by Santander, Royal Bank of Scotland, and Fortis.
Besides Brazil’s likely top-line growth, there’s a big opportunity to expand banking and lending in the country.
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 per cent, 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.