Source: www.latinfinance.com
by Staff Reporters
Smaller financial institutions are grappling with the benefits of sustainability and governance and there is wide divergence in performance. Those involved in microfinance are pulling ahead.
Mid-Cap Bank Sustainability Top 20
Bicbanco and Mibanco wrestle for a lead
Bank Country Score
1 Mibanco Peru 91.10% 2 BicBanco Brazil 86.30% 3 Compartamos Mexico 76.03% 4 Indusval Multistock Brazil 73.29% 5 Daycoval Brazil 65.75% 6 Hipotecario Argentina 64.38% 7 BNB Brazil 62.33% 8 ABC Brazil 60.27% 9 Interbank Peru 58.22% 10 Panamericano Brazil 56.85% 11 BRB Brazil 54.11% 12 Banese Brazil 52.74% Pine Brazil 52.74% 13 Patagonia Argentina 50.00% 14 Banco de Comercio Peru 47.26% 15 Banco del Caribe Venezuela 44.52% 16 Banestes Brazil 41.10% 17 Invex Controladora Mexico 39.73% 18 Cruzeiro do Sul Brazil 32.88% Mercantil Brazil 32.88% 19 Amazônia Brazil 32.19% 20 Paraná Brazil 31.51%
Source: Management & Excellence
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LatAm banks are increasingly seeing the benefits of sustainability and strong governance, which are more in demand by stakeholders as the crisis dissipates. However, while some mid-cap financial institutions have been forced in line by equity listings, others have not yet brought systems up to par. The third annual ranking of mid-cap banks for corporate social responsibility, governance and sustainability by Management & Excellence (M&E) in association with LatinFinance, shows continued disparity, both between banks of similar size, and institutions in the same country. In particular, units of some of the banking’s household names do poorly in the survey, while those engaged in microlending are doing well. “There is a long way to go for LatAm mid-cap banks,” says Angelica Blanco, São Paulo-based analyst at M&E. The study notes a general absence of very basic transparency, such as updating bank websites, which are the first port of call for investors and analysts. M&E adds that many institutions do not even publish investor relations contact details, suggesting that they may not be prepared to deal with stakeholders. Nonetheless, M&E notes that mid-cap banks have some specific characteristics that differentiate them from larger institutions. A focus on microfinance, social lending and philanthropy are some of the highlights. This year’s survey highlights improvements in sustainability practices generally for mid-caps, despite the fact that the overall score stayed the same. The main evidence of this is that the top six all do better than the winner did last year. At the top of this year’s ranking – up from second in 2008 – is Peru’s Mibanco, which was founded as a bank
dedicated to social lending. “Mibanco is showing a strong business model in which sustainability is not only about complying with a list of guidelines, but about a coherent business model,” says Blanco. She adds that Mibanco was one of LatAm’s first banks to professionalize microlending, when larger institutions were still considering it high risk. According to M&E, roughly 90% of Mibanco’s coverage is micro businesses, which it claims are often more responsible than their larger counterparts. “As a rule, they are oneperson entrepreneurs who take their business commitments more seriously,” says Blanco. However, Mibanco’s ascension highlights lack of standardization within countries. “The disparity of Peruvian banks is alarming,” says Blanco. This is largely due to an absence of disclosure – an area M&E highlights as having most room to improve. “While Mibanco is the champion of this study with 91.10% of compliance, there are four banks with less than 10.00% of compliance: Santander,
HSBC, Deutsche and Falabella,” says Blanco. Particularly surprising is the fact that three of the offenders are units of leading global financial institutions. “International banks face the challenge of being aligned to the headquarters’ strategies and, at the same time, meeting their national market needs and demands,” says Blanco. In second place, down from first in 2008, is Brazil’s BicBanco, which has undertaken significant investment in training to boost its standing in sustainability, including formulating a code of ethics. “Mid-caps that operate this way are learning from decades of experimentation at big caps around the world,” says Blanco. And in third place is Mexico’s Banco Compartamos, a new entrant to the M&E survey. The microfinance specialist has a track record of sustainable growth, acting as an intermediary between large investors and lower income segments. As further evidence that the field is getting more competitive, Banco Pine maintained its percentage compliance in this year’s study, but it drops to 12 from third place. “The main reason for this is that Banco Pine is not yet publishing CSR [corporate social responsibility] measures and policies through the website,” says Blanco. However, M&E points out that criticism of expensive CSR policies, such as giving away money to communities, is growing as banks become more cost conscious and the returns for CSR remain foggy at best. While big banks have been experimenting for years with models of measuring the success of CSR investment, no successful system has emerged at middle market, says M&E. “Investments are more in less marketing oriented measures, such as IT, training and prudent financial management,” says Blanco. “There is a trend toward trying to measure the financial returns of sustainability and CSR investments,” she adds. Stagnation in CSR is likely over the next few years as companies see the difference between sustainability – which revolves around operating efficiency – and CSR, which is advertising in one form or another. As such, CSR spending can be expected to rise and fall with advertising, and be at the whim of CEOs, says Blanco. Argentina and Mexico are the nations with the best averages, at 57.19% and 49.54% respectively. However, the survey includes just two Argentine and only three Mexican entities. The Brazilian average is 47.09%, which includes data from 16 entities in that country. M&E highlights the investment the Brazilian financial market has been making for the past years in sustainability. Meanwhile in Venezuela, M&E says that absence of regulation on disclosure undermines the showing there. The average of the 11 banks researched was just 12% and none got more than 50% compliance. LF UPDATE > For more on corporate governance, see www.latinfinance.com
HSBC, Deutsche and Falabella,” says Blanco. Particularly surprising is the fact that three of the offenders are units of leading global financial institutions. “International banks face the challenge of being aligned to the headquarters’ strategies and, at the same time, meeting their national market needs and demands,” says Blanco. In second place, down from first in 2008, is Brazil’s BicBanco, which has undertaken significant investment in training to boost its standing in sustainability, including formulating a code of ethics. “Mid-caps that operate this way are learning from decades of experimentation at big caps around the world,” says Blanco. And in third place is Mexico’s Banco Compartamos, a new entrant to the M&E survey. The microfinance specialist has a track record of sustainable growth, acting as an intermediary between large investors and lower income segments. As further evidence that the field is getting more competitive, Banco Pine maintained its percentage compliance in
this year’s study, but it drops to 12 from third place. “The main reason for this is that Banco Pine is not yet publishing CSR [corporate social responsibility] measures and policies through the website,” says Blanco. However, M&E points out that criticism of expensive CSR policies, such as giving away money to communities, is growing as banks become more cost conscious and the returns for CSR remain foggy at best. While big banks have been experimenting for years with models of measuring the success of CSR investment, no successful system has emerged at middle market, says M&E. “Investments are more in less marketing oriented measures, such as IT, training and prudent financial management,” says Blanco. “There is a trend toward trying to measure the financial returns of sustainability and CSR investments,” she adds. Stagnation in CSR is likely over the next few years as companies see the difference between sustainability – which revolves around operating efficiency – and
CSR, which is advertising in one form or another. As such, CSR spending can be expected to rise and fall with advertising, and be at the whim of CEOs, says Blanco. Argentina and Mexico are the nations with the best averages, at 57.19% and 49.54% respectively. However, the survey includes just two Argentine and only three Mexican entities. The Brazilian average is 47.09%, which includes data from 16 entities in that country. M&E highlights the investment the Brazilian financial market has been making for the past years in sustainability. Meanwhile in Venezuela, M&E says that absence of regulation on disclosure undermines the showing there. The average of the 11 banks researched was just 12% and none got more than 50% compliance. LF
UPDATE >
For more on corporate governance, see
www.latinfinance.com