Simon Hughes of International Banker interviews Mr. Ricardo Cuesta, CEO of Produbanco.
Today International Banker is joined by Ricardo Cuesta, CEO of Produbanco, to discuss the bank’s continued strong year-end performance and commitment to innovation in retail banking. Now, Ricardo, let’s start with last year. Would you say that 2016 was a good year performance-wise? And in particular what was the biggest highlight of the year, and which area do you think needs more improvement?
Thank you. Yes. 2016 was, I would say, taken in to respective standards of Ecuador a very good year. However, our return on equity was still very low as compared to an average of Latin American returns on equity in the banking industry. We have developed and consolidated…. 2016 was for us the first full year of our consolidation process with the Grupo Promerica. So in essence I would say it was a very good year because we completed the consolidation process, and also we achieved our financial goals. We still need to do a number of things, and especially we’re working on our cost process. We need to focus more into our operating costs and also on our strategic plan. We are focusing on the differentiation process within our industry where we don’t have that many leverages to do that so what we’re doing now is basically focusing on customer service as part of this, our differentiation plan.
And thinking about market sectors, you are a market leader in corporate banking. What would you say have been some of the main reasons for your success in this area?
Well, Produbanco has been in business for 38 years. And initially it started as a corporate bank. What we focus on is trying to become or acquire the best people for the job. So our corporate banking sector is led by a senior banker that has leadership over several managers in this area. But basically we focus on long-term relationships with our Triple A corporate clients. For instance, 2015 was a very difficult year for Ecuador since liquidity went drastically down. We were able to secure our own funding from multilateral and bilateral organizations from outside Ecuador for about $100 million. So that helped us to increment our loan portfolio, even though our liquidity was coming down. So that focus is really appreciated by our clients, and obviously we have created a lot of loyalty. Additionally we have several strong alliances with two or three top names like General Motors Corporation, where we finance for them. We have another strong alliance with the major supermarket chain in Ecuador, where we handle most of the business that that corporate line requires.
Now when you talk about the strategy, the overall strategy, which is kind of based on four areas—your main focus, though, for that is customer excellence above everything else.
Looking after the customer. Now what are some of the practical ways in terms of examples of customer-service excellence in which you’re trying to achieve that goal?
Correct. Since we merged with Group Promerica in Ecuador, we have been introducing a new cultural value within the new Produbanco, I would say. And that is customer focus and customer excellence. Like I said before, I think it’s the only way to differentiate within our peer group and other competitors. Since banking has become mostly a commodity-based product, especially in a heavily controlled economy like ours. So what we’ve actually done is review our processes from the customer in the bank rather than from the bank to the customer the way they were established before. So with that, we’re working on a lean process strategy where we are cutting a lot of different timely and bureaucratic and consuming steps, where we are doing things a lot better. This involves a lot of new technology also.
Now we’ve mentioned the kind of challenges of the kind of, if you like, the kind of economic situation that Ecuador’s in. It’s in recession at the moment. How has that impacted the business? And do you expect the country to exit recession this year?
As we were discussing earlier, Simon, the oil price dropped 50 percent in Ecuador’s case. So it created a big hole for government financing. That impacted our liquidity overall. So since the end of 2014, in obviously 15 and 16, Ecuador has been under a recession period. Last year our growth was negative. GDP growth was minus 1.5. And in 2015 it was close to zero. This year, 2017, they’re expecting official numbers, they are expecting it to grow a little bit, probably around 1.6. However, other analysts are still predicting negative growth. So in essence until we actually replace the income, the oil income, lost, we are still going to be hurting as far as our economic growth.
Now do you see the oil prices increasing at all, or any notion they might head higher this year?
Well, if you look at all the analysts, oil prices are based on the WTI index in that it’s been…. Actually, the medium- and long-term assessment, it’s going to stay around $50 per barrel. So I don’t see it growing at all. However, in the government’s budget, it’s still fixed at around $50. What we need to do is as far as the macroeconomic sector in Ecuador is to balance the spending side of the equation for the government and replace that income that was lost.
Now an important factor in that will be the kind of support, if you like, the agility of the SME customer segment. How important are they in the overall business model? And in terms of products and services, do you have anything in the pipeline you would hope will expand your presence amongst SMEs?
That’s a very good question. Since we are a major corporate bank, our strategy included to go down scale into middle market and SME and then in the SME market. Because we already have the relationships from the corporate clients, and these other companies are their providers and their clients. So in essence, what we’ve created is like an atom relationship where we’re going inside and trying to optimize most of those clients. So what we’re doing right now is using our top corporate names and in working with them in a chain reaction with all the suppliers and clients in opening accounts and making their lives easier, connecting the supply chain. Additionally for downscale SMEs, we have launched a new credit card, which is basically an SME credit card, with a revolving line of credit but that can separate capex and also operating expenses. That way, we have implemented technology again in innovation into that market.
Now you’ve mentioned them a couple of times. How would you describe the bank’s relationship with the Grupo Promerica? Is there anything that can be done in your opinion to integrate the relationship further for more opportunities for prosperity between the two institutions?
Interesting. Grupo Promerica is today one of the, I would say, the fastest growing international groups within Central and Latin America. Its presence covers nine countries in all Central America, Ecuador, Dominican Republic, Cayman Islands. And also the shareholders run a local bank based in South Florida in the United States. Total assets of the group are reaching over $13 billion. For Latin American standards, that is a pretty good-sized group. Promerica was running a bank in Ecuador for the last 15 years. The opportunity arrived to buy the majority ownership of Produbanco and incorporate Produbanco within the group. So what we’ve done is consolidated into one bank. And now Produbanco is actually the number two private bank in the, by total assets, in Ecuador. It would be number three if we include a state-owned bank. But that has become very important because we have aggregated to the total group’s assets. But also because we have become, I would say, a think tank for the group. Saving the opportunistic words that I’m mentioning because Produbanco had technology, Produbanco had experience, and obviously over its 38-year history, it has become a leader in the banking industry in Ecuador. So we are exploring some of that. What we are acquiring from Promerica Group is actually the leverage that as a group we obtain with the corresponding banking relationships in the world, the global banks of the US and the global banks in Europe. Where our lines of credit are not viewed as individual banks. Our lines of credit are viewed as a group. So we obtained several breaks as far as costs and also as a major participant in the banking world in Latin America. We could do a lot more. And we are actually working toward that. However, we run independent banks because of different sizes, geographies and regulations, each of the banks in the Promerica Group are independent. But we are leveraging on all the important areas such as compliance. We have internal auditing in technology where those things are actually very expensive to have as one bank. We leverage as a group.
As a group. So there are benefits of being associated with the whole group.
Now you’ve been CEO for three years or so. Of which, if you had to pick one, achievement have you been most proud? And which one aspect of the bank would you most like to improve going forward?
Well, this is still very early being the CEO in Produbanco, but I would say that we went through the consolidation process flawlessly. We had concerns that the corporate clients from Produbanco, the old Produbanco, might leave or might have some insecurities because they didn’t know Promerica. But that didn’t happen. I think we handled, we handled the transition very well. Today we run a mixed team where there’s some old Promerica people and old Produbanco people building the new Produbanco. And I would say that that achievement is not only a pride of myself, but it’s really a teamwork achievement. Going forward we are diversifying the bank from just a corporate or mainly a corporate bank into other sectors like the SME sector, middle market and consumer in order to diversify income and also diversify our loan portfolio. So that would be the challenge.
Now interestingly you just mentioned the kind of, the blend of old and new, and different kind of talent. How do you ensure you are attracting and retaining some of the most talented banking professionals in the industry?
Well, we’ve done several things in this transition, including moving into a new building. The financial and the banking industry specifically are also changing into, I would say, the digital area. And all industries are impacted. So what we’ve done is we have a management-training program for young talent that includes rotation within the bank. But also we sponsor several of these, I would say, the most talented kids to apply for a master degree. The bank subsidizes those degrees. Some of them are outside Ecuador so they cut their careers. They go out for a couple of years and come back to the bank and obviously fit in in different areas. But we are sponsoring them. Additionally the whole cultural concept when we move to the new building, it’s more, I will use the word Google ambient, where you have open office spaces, you have views from the new building, which is ideally located within a park. And also what we’ve done is set up things that the new kids look into a working space, which is sufficient parking. You have a cafeteria that is actually more than a restaurant. And we have a gym, and we have bicycling racks and bicycling. We have showers and other things which the young people are really attracted to. Some of these things, and also having Produbanca’s name behind it.
So the new building definitely has already had some impact on the business.
Now you’ve mentioned technology a number of times, and one of the stated strategic objectives is to focus on innovative technology. What are some of the most notable innovations the bank’s developed in recent times?
Correct. We embarked into moving, I would say, past the 21st century, as I say to my group. We are looking at the digital-banking future. And we are developing several things. For instance, our mobile-payment process using smartphones is actually one of the most advanced platforms in Ecuador, and I would probably say within Latin America. We recently have most of the items that a major European or US bank has. Additionally to that, our omni-channel strategy is not the only presence at the mobile set. We’re also looking at a customer starting a transaction using his mobile and probably ending at a branch. But the platform has to be the same in order to maintain the quality and the interest of a potential client. We have launched three different strategies. We have the SME credit card, which is a very innovative product. We have an alliance that we call Payphone, which is a credit card within your smartphone. So you don’t have to use your plastic. It’s actually tied to, it’s very similar to the PayPal brand of payments. This is owned by Produbanco. And recently we’ve launched the first digital account in Ecuador, fully digital, we call it Be by Produbanco, it’s the Be in English, is to Be. So this is catering mostly to the Millennial generation, but also we’ve seen demand for this product from the 35-to-45-year-old segment, where you started opening an account on a cell phone, and you never have to use paper again. These are examples of what we’re talking about in the consumer-banking area.
And one of the things we always touch on, too, apart from technology, which plays such an important role, is kind of the environmental impact that businesses have. How aware is the bank of its environmental impact? And are you taking any specific measures to reduce that?
Correct. We take it very seriously. I think it’s a responsibility that most of the industries have, and it’s very difficult for a bank to actually do or make an impact in this area. So what we’ve done is measure our footprint of CO2 exposure to the air. And we have in Ecuador a company that has the measurements of the total footprint. And what we can’t absorb by projects such as LED lighting, I think that’s how you say it, in systems in paper reduction and all, we support the forests. Actually today we have 950 hectares of virgin forest in the south of Ecuador, which compensates for the footprint of both buildings. The main building in Quito, and the main building in Guayaquil.
Now another area we always like to touch on is the kind of corporate social responsibility with which Produbanca is involved. That’s improving financial education for various communities. Have you noticed any real measurable improvement in such communities as a result of that kind of work?
Yes. This is a long-standing project that Produbanca has had since its actual charter 38 years ago. It’s called Fundación Su Cambio por el Cambio, which is “your change for somebody else’s change”. And actually what this does is support kids that are underprivileged, in the streets, and we give them education from the 6th grade through the 12th grade. And they graduate with a high-school diploma plus some kind of a technical profession within these years of study. We sponsor approximately 450 kids per year. And they graduate with this diploma. And obviously are more ready to assume their current adult life in Ecuador. And with that, we also include their families as far as teaching the responsibility of managing their own financing. Their household financing. How to handle their budget. How to handle a current account. How to handle a consumer account. And we have been able to explore those e-learning sessions using our own technology. So we do it through different e-learning channels that we have secured, and also with this school that I’ve just explained. So on both sides.
Fantastic. Ricardo, thank you very much indeed for your time today. Thank you.
Thank you, Simon. Thank you very much.