Latin CEO / March-April 2002
By Larry Luxner
Alberto Vallarino is no stranger to volatility. When the US invaded Panama in 1989 and Manuel Noriega's chaotic regime collapsed, he was a board member of Panama's largest private bank, Banco del Istmo. After the bank's manager disappeared, literally, Vallarino was thrust into the position of president and CEO.
"When the crisis hit, all the banks were shut and the manager decided to leave the country and set up residence in Miami," he says. "The rest of the board members decided I was the only one with any banking experience, so I took the job."
Today the institution - now called Banistmo - has a national market share of 20 percent, and is growing fast. Total assets are US$4 billion, up from US$1.2 billion in 1997, a growth spurt prompted by a campaign of mergers and acquisitions. The most recent takeover was of rival Primer Banco de Ahorros (Pribanco), for US$90 million in cash and US$75 million in stock.
To some extent, Banistmo is filling a vacuum, and jumping in where other banks are bailing out. It's no secret that Panama's international banking system has lost must of its luster. Electronic banking, global branch networks and a worldwide crackdown on money laundering have eroded Panama's once-numerous competitive advantages to the point where the country now has 83 banks with a combined US$37.6 billion in assets - down from 120 banks with US$49 billion in assets 20 years ago. Over the same period, the proportion of foreign-based banks has fallen from 90 percent to 54 percent.
As international banks have left, Banistmo has been ready to fill their shoes. Last year, Banistmo acquired the assets and liabilities of ABN Amro's Panamanian operations, for an undisclosed sum. Vallarino has pushed to rapidly integrate these facilities as well as those of Pribanco.
"We finished the integration process ahead of our original projections and expect to benefit from the synergies in 2002," says the 51-year-old Vallarino. "Banistmo now has the most extensive private branch network throughout Panama, with 41 branches and agencies, 10 drive-through banks and 53 automatic-teller machines." Last year, Banistmo reported total deposits of US$2.79 billion and net income of $43.7 million, compared to total deposits of US$907.2 million and net income of US$22.6 million in 1997.
Vallarino is not alone in his strategy of picking up the pieces. Banistmo's major competitors have also grown by acquisition. London-based HSBC recently bought Chase Manhattan's Panamanian operations, and Spain's BBV purchased Banco Exterior. "With those acquisitions, both HSBC and BBV will be much stronger competition in the local market than Chase and Exterior were before," says Vallarino.
That competition will focus not just on international business. Many overseas banks with operations in Panama, including HSBC, are now targeting the local and corporate market. That has increased their dependence on consumer lending - a limited prospect given Panama's current economic stagnation.
"Business is sluggish, because there's a big drop in credit demand," Vallarino admits. "The service industry is doing OK, but they're not big users of credit. Construction is not doing well, agribusiness is slow, and industry is in a recession."
To offset Panama's doldrums, Vallarino continues to eye the rest of Central America, a policy born from a 1999 expansion strategy developed with consultant McKinsey & Co. In August of that year, Banistmo bought Banex, Costa Rica's largest private-sector bank, which had total assets over US$850 million. It also purchased Banco Metropolitano, a small Costa Rican bank. Banistmo doubled Banex's profits from US$7 million in 1999 to US$14.3 million in 2000, earning US$12 million from its 84-percent ownership of Banex's stock.
In Nicaragua, Banistmo was outbid by US$500,000 in the auction of state-owned Banic. "We're glad we lost. That bank ran into tremendous problems afterwards," says Vallarino. "In socialist governments, you find very problematic loan portfolios."
Nevertheless, Vallarino - who harbors political ambitions and may run for president in Panama's next elections - is still pursuing the Central American strategy. The name of the game, in Panama and worldwide, is consolidation. "As margins shrink, banks are forced to find economies of scale. …If we have a very strong presence in the market, even though we may have competitors coming out with products priced lower than ours, it's OK because we're so large we'll be able to withstand the competition."