Mexican bank continues to expand

Banorte, one of Mexico’s biggest banks, has acquired Afore Bancomer, making it the largest pension fund manager in the country, and the third-largest in Latin America

Author: David Suarez, head of investor relations and corporate development, Banorte
September 13, 2013

Grupo Financiero Banorte (GFNorte) is the third-largest financial group in Mexico in terms of deposits and loans (14.5 percent and 14.4 percent of market share as of March 2013, respectively) and one of the country’s most profitable financial institutions over the past decade. Banorte, its banking subsidiary, offers products and services to almost 12 million banking clients as of March 2013 (a 14 percent year-on-year increase) through an integrated model serving the premium, wholesale and mass retail segments, and has been making inroads with the unbanked population through innovative financial inclusion initiatives.

Banorte offers products and services to almost 12 million banking clients as of March 2013

GFNorte also provides a wide array of products and services to almost 15 million additional clients through its insurance, annuities and pension fund management companies; as well as through its broker dealer, mutual funds, leasing and factoring company and warehousing. It also has presence in Texas with Inter National Bank, in New Jersey and California through its remittance companies Uniteller and Motran, and in New York through Banorte-Ixe Securities.

Growth potential
GFNorte is recognised by its rapid growth and strong fundamentals, good asset quality, sound capital levels and ample liquidity. During the last 12 months, it has implemented a variety of initiatives to consolidate its presence in the Mexican market and strengthen its financial position amid an improved economic environment, especially through the acquisition of Afore Bancomer, which transformed Afore XXI Banorte into the largest pension fund manager (Afore) in Mexico and the third largest in Latin America. As a result, GFNorte’s assets under management have posted favourable dynamics, increasing by 37 percent from MXN1.3trn in 1Q12 to MXN1.83trn in 1Q13. This initiative is part of GFNorte’s strategy to generate value by increasing its share in businesses with attractive growth potential and latent synergies.

Banorte’s strategy has focused on increasing profitability, taking advantage of the banking penetration opportunities in Mexico, enhancing relationships with the existing client base through the continuous offering of innovative products developed in-house or by other GFNorte subsidiaries, increasing its service standards and modernising its operations and IT. As the largest financial group controlled by Mexicans, its path to becoming the third-largest financial institution in Mexico has been forged through a combination of organic growth, mergers, acquisitions and alliances. Banorte has been able to achieve sustainable and solid growth with emphasis on increasing margins, strengthening capitalisation levels, and maintaining good asset quality through conservative risk management.

Aiming to expand its customer base, Banorte has developed a culture of high service quality and financial products suitable to the changing needs of its customers. This has resulted in an important expansion of its franchise over the past 12 months. Banorte provides easy-access banking services through a large variety of channels, consolidating its position as one of the largest distribution networks in the country. As of 1Q13 the bank had 1,320 branches (a two percent rise year-on-year), 6,696 ATMs (a three percent rise year-on-year) and 120,464 POSs (a 24 percent rise year-on-year). It has almost 1.4 million internet banking clients, 27 percent more compared to a year ago, and the value of transactions through its web platforms for individuals and small- and medium-sized enterprises (SMEs) increased by 17 percent in the last 12 months.

Moreover, through the bank’s mobile platform ‘Banorte Movil’, over 3.9 million transactions were carried out during the first three months of 2013, growing by 122 percent year-on-year. Additionally, continuing the strategy to penetrate the un-banked population, Banorte has a growing correspondent network of 4,075 contact points, 39 percent more than 12 months ago, through agreements with 7-Eleven, Telecomm-Telégrafos and Tiendas Extra. In 2012 Banorte launched MiFon, a service that enables its users to transfer money via mobile devices, providing the un-banked population with an option to access the financial system.

Additionally, it launched Pago Movil, a mobile phone application to transact with credit and debit accounts without the use of the plastic card. During the last year, Banorte expanded its SME segment with 10 new SME centres, increasing the total to 12 specialist offices. As part of its strategy to provide top customer quality assurance, in September of 2012 Banorte inaugurated the Roberto González Barrera Call Centre. This facility, which entailed an initial investment of over MXN600m, will integrate the operation of 14 Banorte call centres throughout the country, aiming to achieve important synergies. It will provide almost 12 million of Banorte’s banking clients with a state-of-the-art technology platform and security systems.

In spite of the volatility in the international financial markets and the problems that some of Banorte’s international peers are facing in their home countries, Banorte has delivered strong results. In 1Q13, Banorte’s profits grew by 27 percent year-on-year; return on investment increased year-on-year to 15.1 percent in 1Q13 from 13.7 percent a year earlier, and its total loan portfolio grew 13 percent year-on-year to MXN413.22bn. Banorte has strengthened its position in products that have high-growth potential and attractive margins such as the retail banking segment – particularly payroll loans, credit cards and home mortgages – as well as loans to SMEs. Banorte continued to be very active in attending the financing needs of government entities, a low-risk and profitable segment considering the comprehensive business relationships that it generates. Banorte ranks first in the market in state and municipal government lending (22.4 percent market share as of March 2013), second in mortgages (16.2 percent), third in car (17.2 percent) and payroll lending (16.7 percent) and fourth in credit cards (6.7 percent). Furthermore, Banorte has been able to grow its SME loan portfolio by 20 percent in the last 12 months, positioning itself as the second most important player in this segment, and was awarded with the Galardón PyME 2012 by the Ministry of Economy for being the bank that granted the most SME loans in the country through government programmes.

Financial inclusion
Banorte is highly committed to promoting financial inclusion and access to banking products and services by lower income segments. The company has leveraged its partnership with the IFC in order to support SME financing with special guarantees, as well as other priority sectors including agribusiness, low- and middle-income housing and infrastructure financing.

The bank has also penetrated the un-banked population through third-party correspondents, and it recently launched MiFon. Banorte also reinforced its commitment to the United Nations Global Compact – an initiative that aims to integrate 10 principles in the areas of human rights, labour, the environment and anti-corruption into organisational business strategy and operations. Banorte participated for a third year in the carbon disclosure project, and has been selected once again for a place on the Mexican Stock Exchange’s Sustainability Index. The bank has been very active in its community engagement and environmental protection throughout Mexico. Banorte is also committed to exceeding best market practices in corporate governance. Currently, 67 percent of the board members are independent, more than doubling the percentage required by the current stock market legislation in Mexico. The Audit and Corporate Practices’ Committee is fully comprised of independent members, ensuring transparency in the bank’s operations, disclosure and in overseeing minority shareholders’ rights.

During the last 12 months, GFNorte implemented a variety of initiatives aiming to boost profitability by taking advantage of the favourable conditions in Mexico and increasing its cross selling ratios. In February 2013, Banorte successfully completed the acquisition of Afore Bancomer through Afore XXI Banorte, becoming the largest retirement savings manager in Mexico in terms of number of accounts managed (11.68 million, with 26.9 percent of market share as of March 2013) and assets under management (MXN559bn, with a 27.7 percent of market share as of March 2013).

With the acquisition of Afore Bancomer, Banorte will significantly benefit from the diversification and enhancement of its asset and revenue base, as well as from the synergies generated. Additionally, GFNorte and IBM announced in March of 2013 the formalisation of a 10-year strategic agreement that will allow Banorte to create a new customer-centric banking model, while substantially improving its efficiency.

The agreement seeks to create an expandable and sustainable platform to achieve world-class efficiencies as well as high levels of customer service and segmentation, retention and contact with clients. This agreement establishes an unprecedented transformational relationship in the Latin American banking industry, setting an example of innovation through an intelligent use of advanced technologies and the adoption of better risk processes.

Since the acquisition of Ixe Grupo Financiero in 2011, GFNorte has carried out a corporate restructuring process, which is still in progress, and resulted in the merger of Ixe Banco with Banorte. This merger will not impact in any way the products and services that GFNorte offers at Ixe branches, nor the focus of Ixe towards the mass affluent market segment. It will provide significant operational and financial benefits.

GFNorte believes having two networks focused on its traditional market segments will strengthen the Financial Group and will help Banorte to continue its consolidation as one of the most important banks in Mexico and Latin America; as this enables us to evolve fully into a client-centric bank, always looking to provide the best service. In the coming years, GFNorte plans to continue growing organically through strategic acquisitions, and leverage the capabilities of its new credit card unit – as well as other subsidiaries with high growth potential, such as insurance, annuities and Afore.