Banco Santander now looks to China
Despite sluggish growth in the banking industry, Spain’s Banco Santander is tiding over the challenge through its unique business model, said a senior executive at the euro zone’s largest lender by market value.
Juan San Roman, CEO of the bank’s Asia Pacific region, said that to boost profitability, Santander’s usual policy is to focus just on the markets where it can achieve a significant market share, which allows for a better cost efficiency ratio.
“We are not like other international banks, which like to have a presence in all countries around the world regardless of its potential market share,” said San Roman.
He added the goal for Santander is to “obtain critical mass”.
The bank currently has 10 core markets across the globe including Spain, Portugal, the UK, Germany, Poland, Brazil, Argentina, Chile, Mexico and the US.
Santander is playing a key role among all the banks in those countries, particularly in retail and commercial banking.
It is the largest bank in Chile by assets and equity, with a market share of more than 20 percent, the second- largest in Argentina and the third in Brazil.
By the end of 2012, Latin America contributed about 50 percent of the group’s total profits. San Roman said that is in part because the bank has “used traditionally its cash flow from more mature markets to invest in the emerging markets”.
Another aspect of Santander’s business model is its “prudent risk culture”, he added.
It is one of the most efficient banks in the world with the lowest cost-to-income ratio, even in the most adverse economic scenario, the CEO said.
In the past three years, its average return on equity has been some 8 percent, according to an industry report.
“Separation of risk from the business line has been critical in preserving financial sanity,” said San Roman, noting that the risk management operation at Santander has always reported directly to the board.
Last July, Santander was named Best Bank by the prestigious magazine EuroMoney.
The bank is also strongly committed to supporting higher education through its well-known Santander University Program.
Started 17 years ago, the program whose mission is to “invest in culture” began to help universities handle scholarships, professorships, exchanges of students and other academic activities.
Last year, it invested some $170 million in the program.
More than 1,000 universities have now established partnerships with Santander, including Renmin University, Fudan University and Peking University in China.
Business in China
In addition to close academic ties, Santander also began to shift its focus to the huge domestic market in China, the second-largest economy in the world.
In 2008, the bank opened its first branch in Shanghai to serve the growing trade and investment flow between China, Spain and the rest of the world.
“Shanghai is a very large industrial center for multinationals, and we have a lot of clients who have commercial activities in the city,” said San Roman.
Santander then started doing business with Chinese companies investing in Latin America and Europe.
“That is the second phase of our customer development. Most of the companies have a presence in Beijing,” he added.
In China’s second-and third-tier cities, San Roman said the short-term difficulty lies in finding the “right strategic partner” to help finance trade flows between local operations and the bank’s global markets.
Santander is trying hard to find partners in China and has done well in car finance, he added.
In December 2011, its subsidiary Santander Consumer Finance signed an agreement to create the joint venture Fortune Auto Finance with auto manufacturer Anhui Jianghuai Automobile Co, or JAC.
The joint venture is now providing car loans through JAC’s dealerships across the nation.
In April 2013, Banco Santander was granted the approval from China Banking Regulatory Commission to become a strategic investor of the Bank of Beijing Consumer Finance Company.
It will also take a 20 percent stake of BOBCFC, which is one of the four pilot companies in China authorized by the State Council to offer consumer finance products to retail customers in the country.
On August 1, Banco Santander received a preliminary approval from CBRC to establish a Beijing branch. The branch is expected to open during the first half of 2014.