The bank prides itself on understanding the needs as well as the strategies of its clients in order to provide them with customised services efficiently and quickly. The bank focuses on corporate clients with annual revenues above R$150m.
Its culture led to fast growth throughout its more than twelve years of existence, positioning Banco PINE as one of the most profitable among its peers. Clients’ needs at Banco PINE are assessed on an individual basis, as are credit risks, resulting in personalised solutions.
The agility and creativity when serving clients are the main features of the bank and were achieved thanks to the management model combined with the bank’s concise internal structure with a reduced number of levels and a meritocracy-based culture, which enhances the performance of the bank’s best talents.
With a culture marked by its pioneering spirit, on April 2, 2007, Banco PINE became the first Brazilian mid-sized bank to do an IPO, and trade its shares on the Bovespa, raising R$517m through the issuance of preferred shares. The IPO was a natural consequence of the ongoing corporate governance practices carried out by the bank even as a closed-capital company.
Banco PINE has broad expertise and knowledge of the entire credit cycle, which has historically ensured a high-quality loan portfolio and low default rates. Banco PINE’s corporate loan portfolio is well diversified across various economic sectors. It operates prudently and with diversification in each of these industries, mainly through short-term collateralised credit operations.
Total corporate loan portfolio reached R$4.1bn in December 2009 and R$4.5bn in March 2010. In 2009, the corporate loan portfolio grew at a higher rate (29.1 percent) than the average growth rate of corporate loans in the Brazilian banking sector for the same period (13.1 percent), according to data published by the Brazilian Central Bank.
The bank has a conservative management philosophy. As of March 31, 2010: 98.3 percent of the credit portfolio was rated between “AA” and “C”; and the provision for loan losses covered 95.8 percent of the credit portfolio rated D-H. It has no material direct exposure to market risks (VaR represented 0.14 percent of the shareholders’ equity as of March, 2010), and it maintains a strict policy of matching assets and liabilities and seeking to maintain adequate liquidity.
The bank has developed a unique credit-approval policy. In addition to the efficient and conservative analysis carried out by the bank’s credit analysis professionals, the Credit Committee has also implemented:
– a “collateral policy” to ensure that the loan portfolio is adequately collateralised;
– regular monitoring and analysis of both the performance of clients and the structure of the credit transactions before, during and after approval of the loan;
– analysis and monitoring of the economic sectors in which clients are active; and
– domestic and global macroeconomic research.
Global financial crisis
Banco PINE was well prepared for the period of turbulence during the financial crisis in 2008 and 2009. Some of their clients, particularly institutional, experienced large cash needs in the first few months of the crisis, which led our total deposits to contract during the fourth quarter of 2008. As of December 31, 2008, time deposits totalled R$1,204m. As of March 31, 2010, time deposits surpassed historic levels, totalling R$2,437.8m.
During the crisis, the bank was able to reduce operating expenses, maintained its conservative policy for managing assets and liabilities and made additional provisions for loan losses (in excess of the minimum levels required by the regulations of the Central Bank). Banco PINE maximised profitability within conservative risk limits, maintaining the cash position at relatively high levels, which allowed the bank to repurchase a portion of its own shares and outstanding medium-term notes, even during the most difficult period of the global financial crisis.
In May, 2010, Fitch Ratings, upgraded PINE’s ratings and attributed this upgrade to the bank’s consistent performance during the global financial crisis, besides the adequate credit quality and favourable capital ratios.
According to the agency, the bank’s rating reflects its agility in adapting to economic volatility, its strategy of consistently managing risks and its prudent credit management and liquidity, among others.
Capital adequacy ratio
As of March 31, 2010, PINE’S capital adequacy ratio was 14.9 percent, which exceeded the minimum ratios required by the Central Bank (11 percent) and by the Basel Accord (eight percent). As part of the strategy to maintain a strong capital base in order to support the Bank’s continuous growth, in February, 2010, Banco PINE concluded the issuance and listing abroad of subordinated notes, in the amount of $125m with maturity of seven years. After a successful roadshow, the Notes were globally distributed, with orders from all major investor centres, including Asia, Europe, USA and Latin America. The issuance was incorporated into Banco PINE’s Tier II Reference Equity and represents approximately 350 basis points in the Capital Adequacy Ratio.
In order to diversify its sources of revenues, in the last few years, Banco PINE has grown its range of products offered to clients (such as hedge products, credit funds, private equity funds, among others), and it also have commenced relationships with new companies, particularly companies with annual revenues in excess of R$500m, increasing cross-selling opportunities. As a result, the penetration of products per client and the profitability per client have improved.
In particular, the bank has implemented a strategic plan that incorporates each of its functional areas on pursuing cross-selling opportunities. In furtherance of the cross-selling efforts, PINE analyses the performance of its employees’ cross-selling efforts on a weekly basis and have instituted changes in the remuneration metrics for the initiated officers, establishing a bonus system for those that increase product penetration per client.
The cross-selling efforts are exemplified by the services provided to one large Brazilian exporter. The bank began its relationship with this company by extending a traditional working capital facility to it. Having developed a relationship with this company, the commercial officer responsible for this client introduced their trading desk and international support professionals to this company, which resulted in its use of hedge and international loan products. As a consequence, the profitability level with this company greatly exceeds that of the average corporate client.
Opportunities for the near future
Banco PINE is entirely focused on corporate financial needs related to loans, trading desk operations and investment products, and there is also a macro reason for this, justifiable by the way the bank understands economics: the main variable of the Brazilian economy is corporate investment. It is highly correlated with GDP, it is a source of demand and employment, it increases potential output, and it is totally dependent on corporate (long term) credit as well as on intelligent products and structures that mitigate its long term risk.
The bank expects the Brazilian GDP to reach an average rate of growth of at least 5.5 percent per annum during the next two to three years. It should be pushed both by corporate gross investment between 2010 and 2013 and by the decrease of the Selic rate after 2011, augmenting substantially the demand for long and short term corporate credit within this period, which should expand at least at 20 percent per annum (in nominal terms). Henceforth, PINE’s appetite for organic growth based on corporate credit is justifiable on the grounds of increasing GDP growth rates and higher gross investment over GDP ratios, above five percent and 20 percent, respectively.
Additionally, considering the bank’s loan portfolio industry breakdown, it has an especially positive impact coming from the government programme PAC, the World Cup and the Olympics. Banco PINE has long relationship with infra-structure companies and their suppliers: 13 percent of PINE’s loan portfolio was allocated to this industry in December 2009.