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Francisco Luzon Director of The Americas Division of Santander Bank: “Almost half of the benefit this year will come from Latin America”.

Francisco Luzon

Francisco Luzon (Cuenca, 1948), director of the Americas Division of Santander Bank, started in banking in 1973, which has allowed him to experience many banking crises. Some from the chairmanship of Banco Exterior and then from Argentaria. The scrambled years scared off Americans and Europeans. He is convinced that Santander has won due to its perseverance.

In an interview with the spanish newspaper El Pais , Mr. Luzon  said that “we have almost 20 years in Latin America. We have weathered the Russian crisis, the Asian dot.com, that of the Latin American currencies and now the global crisis. It is time to reap the rewards,” says Luzon. According to his calculations, “this year 45% of the profit of Santander will come from our Latin America group, compared with 36% in 2009. The drop in results from Spain and Brazil soaring is to blame. Colombia and Peru are the countries where the group plans to buy banks to gain share.

Question. Why such optimism about Latin America?

Response. I’m an inveterate optimist and rational.  If you want to become a banker or businessman you must be rationally optimistic. If you are not an optimist then you should do something else. In 2002 the region experienced a radical change of direction. Governments made an orthodox and sustanaible economic policy enabling them to overcome this crisis with ease. The continent entered the virtuous circle that will take it reasonably to be in 2020 at the gates of development. We should send Spanish SMEs and large enterprises to Latin America because it is easier to do business here in comparison to  China, Asia, Pacific and Russia.

P. Is Brazil represent 23% of the group and will the country continue being so important to the group?

R. Latin America is the anker of the group’s growth and I would like to see the market believing in the potential of the region.  Santander has  irreplicable franchisee´s in Brazil, Mexico and Chile, the three largest.  All Spanish banks, including BBVA, have done things right in Latin America, and this will create enormous value. Until March, the region accounted for 38.3% of the profit of the group. By the end of the year, the region will contribute with the 45%.

P. What is the explanation for this? Is this value due to own growth or  due to the decline of Spain?

R. The weight of the United Kingdom, Latin America and the United States will soar and on the contrary Spain will go lower. The Santander group collects the results of the 41 billion dollars invested (apart from retained earnings) compared to 15 billion from BBVA. Including results, the Spanish banking system will have invested 85 billion dollars in Latin America.

P. What is the area that interests them most?

R.  In the continent, for us, there are seven major countries: Argentina, Brazil, Chile, Mexico, Colombia, Peru and Uruguay.  These seven countries are fairly homogeneous in terms of language, race, democracy, and account for 85% of the regional GDP. Mexico and Brazil have the ability to pull the continent, will be like France and Germany in Europe.

P. Why these seven countries?

R. The seven account for 92% of the financial system, the 25 remaining countries are almost irrelevant. They have levels of capital, delinquencies and profitability that now would be even better than the European average and the USA.

P. What is Latin America for Santander?

R. To have a global operation you have to be clear that overall you should have a significant presence in the emerging markets, and  by doing so you will not give up an essential part of your ability to create value. The credit in the developed world will grow between 2% and 4%, compared to an increase of 15% of the emerging countries.

P. Do not fear a return to the banking crisis?

R. The region has experienced 42 banking crises over the past 30 years, some of them in Argentina, which dissolved the financial system. The orthodoxy of the governments and the leverage given to the region by the Spanish banks,  have caused a positive development.

P. Do you agree in saying that if you don´t do business in Brazil , then  you are not in Latin America?

R. Of course. Brazil represents 67% of the financial system of the region and encompasses 86% of the benefit of the region.

P. Do you think that Santander could become partly public being in the stock market in Mexico, as was done in Brazil?

R. Not in the short term, but in the long run the idea has not been discarded.

P. The countries of the Bolivarian revolution can slow the progress of the continent?

R. These countries have much presence in the media, but the main ones are committed to democratic rules. There will always be marginal issues that  should not be minimized.

P. Is poverty, organized crime and corruption negative issues in the region?

R. In these seven countries, poverty is at 29%. In Chile there has been a dramatic decline, as in Peru. We must not minimize the drug trafficking and organized crime because they are a major scourge. The drug trade has moved from Colombia to Mexico, Peru and Venezuela. On the corruption issue  the region needs to improve, and has started to do so in parallel to the improvment of the government structures.

P. What are the risks?

R. They are the weakness of the state and political party structures, where there is much to do, education, which needs deep reforms, the risk that the private and public sector return to the high indebtedness of the past and the fourth risk is complacency because the region is still in development. Until 2020 will have a cumulative annual growth of 3.5% and income per capita will increase from $ 12,000 to 26,000. That if they do their homework …

P. Brazil is the star for the region and for Santander?

R. Has been doing its homework since 1998, but exploded in 2005 with the arrival of Lula. The next three years is almost assured that it will go well.

P. Was the purchase of Banco Real in Brazil the biggest change made by Santander?

R. Yes, because it gave us critical mass. It is impossible to be profitable in commercial banks without a fee (credit plus  savings) in excess of 5%. Using the recent capitalization , in Brazil (9.1% control) we will open 600 offices and we will have 15% of the banking market. In Mexico is 15% and we would like 20%. In Chile we’re fine with 20%. In Uruguay, 18%. In Argentina we are the first bank with 11%, but we can reach 15%. In Peru there are only a branch, accounting for 0.7%. In Colombia it is necessary to have 10% (now 2.8%). By 2015, if economic circumstances are as they should, we will have more presence in Peru and Colombia.

P. What is the big challenge in the region?

R. The credit-to-GDP ratio,  in Latin America is at 29% compared to 59% from Asia. We should raise the rate to 54% in 10 years. If we set the goal in the shorter term, we should raise the ration credit to GDP -known as elevel of banking activity- by 12 points in the next five years. This means to double the current levels of savings and credit.

P. Russia, one of the BRICs, is the only one where santander decided to leave, the bank is gone from Russia. Why?

R. In addition to Russia, China, Brazil and India there are also other countries with great potential such as Mexico, Indonesia, Vietnam and South Africa. In Russia we have stopped. We are looking at what to do there. Clearly it is not as easy as investing in Latin America.  READ MORE HERE (in spanish)