Major financial firms have recently announced the closure of their operations in Latin American and Central American countries to focus their business strategy in Mexico, in an environment of economic recovery and political changes in the region.

Banco Azteca and Gentera are the companies that decided to leave their businesses in Peru and Guatemala, respectively, with the promise of strengthening their digital developments and offering better services to the Mexican public, in an environment of increased competition with the presence of new players, particularly in the technological financial sector, better known as fintech.

Last July, Gentera reported the transfer of its microcredit business in Guatemala, Compartamos, to the Genesis Empresarial Foundation of that country, with the aim of focusing on the Mexican and Peruvian markets. On the subject, the company said that the market in the Central American country did not cease to be attractive, but the firm's business strategy is focused on its clients in the microfinance sector in Mexico.

"It is not that the market has ceased to be attractive for Gentera. We undertook this transaction because we prefer to align our efforts with the strategy and priorities we have outlined for ourselves, securing our resources to better serve our clients in Mexico and Peru," explained Gentera's executive director of mergers and acquisitions, Javier Fernández Cueto.

"We are convinced and happy that Fundación Génesis Empresarial will maintain our 10-year legacy, and is the best ally in Guatemala to continue offering a great service to clients," he detailed.

He emphasized that despite the uncertainty that some governmental decisions in Mexico may represent, the company's focus is centered on promoting recovery in the communities where they operate, in the face of the challenge posed by the economic impact of COVID-19. "Gentera has always focused on the client, on their needs. We know that they currently need to continue receiving financing so that their businesses can recover and the economy of their communities can benefit, and that is what we are working on. The need for financial inclusion is very great and we are focused on serving this segment in the best way possible, developing more efficient products and services".

Farewell to Peru

In November 2020, Grupo Elektra announced the sale of all of Banco Azteca's shares in Peru to a group of local investors, without disclosing the amount of the transaction. "The transaction was carried out in strict compliance with current regulations and was formalized by the parties involved, who were in contact with the Superintendencia de Banca, Seguros y Administradoras Privadas de Fondos de Pensiones (SBS) of Peru," the company said.

It detailed in its financial reports sent to the Mexican Stock Exchange (BMV) that, at the time of the sale, the operations of Banco Azteca del Perú represented a non-material proportion in relation to the total activities of Grupo Elektra's financial business. "As a result of this transaction, the company will concentrate its efforts in Mexico, the United States, and Central America, which could further boost its solid prospects," it said.

Regarding the operation, the Peruvian risk rating agency Class & Asociados made an analysis of the challenge represented for the financial firm, owned by Mexican businessman Ricardo Salinas Pliego, its operation in the South American country, recalling that since its inception, the bank focused its operations in the C and D socioeconomic segments, replicating the business model that Grupo Salinas managed in Mexico.

"This segment presents greater risk due to the existing informality in these businesses and the uncertainty in the generation of economic flows, as well as the lack of financial culture. In the beginning, this model worked," he said.

However, the Peruvian financial market evolved rapidly, leaving Banco Azteca's model out of date, and this was compounded by deficiencies in the credit admission process, he added in his analysis. "As a result, the bank began to show a marked deterioration in terms of the loan portfolio and portfolio quality," he added.

The consultant recalled that after several attempts to recover market share and improve delinquency, among other factors, in 2019 the bank changed its business model, which began to show results at the end of that same year. Said adjustment focused on granting personal loans aimed at banked customers with a better risk profile, as a complement to the traditional model that Banco Azteca handled.

"In December 2020, the bank completed the process of selling all of its shares to a group of Peruvian investors, who continued with the new business model implemented in 2019, but with an emphasis on entrepreneurs and their families, from socioeconomic levels C and D, due to the COVID-19 situation," he added.

Challenging environment

Earlier this month, Moody's downgraded Banco Azteca's long-term deposit ratings to Ba2, with a stable outlook, in a difficult recovery scenario after facing delinquencies and a decrease in its portfolio placement.

According to the firm, although Banco Azteca has reported higher loan growth since 2020 compared to the Mexican financial system average, the reduction in provisioning expenses and the favorable effect of increasing interest rates will contribute to improving future earnings generation to pre-pandemic levels.

"Banco Azteca's outlook is now stable, reflecting the bank's demonstrated ability to manage asset risk during the deep crisis caused by the pandemic, despite the relationship of its operations to the consumer and employment markets, two sectors hard hit in 2020," Moody's said.

"The stable outlook also incorporates favorable trends in the bank's asset quality and profitability, which will support the bank's continued capital replenishment capacity to mitigate the bank's intrinsic credit and business concentrations," it added.

Outstanding position

According to the Economic Commission for Latin America and the Caribbean (ECLAC), Mexico is the second-largest investor in Latin America. Especially in Central America, it is one of the most important investors for all countries, with the exception of Panama, where its investments have been lower.

"However, the lower dynamism of its investments in recent years suggests a readjustment in the investment strategies of Mexican companies. Most Mexican companies that have invested in the Central American region are considered large trans-Latin companies; some of these companies began their internationalization process in Central American countries," he added.

In the text Mexican Investment in Central America, ECLAC says that Central America is a potential market for new Mexican companies, especially those specializing in new sectors, or small and medium-sized companies that have not yet internationalized.

"Some multinational companies have encouraged other companies to extend their activities to Central American countries, but there are still few small Mexican companies that have decided to invest in Central America," ECLAC explained.

Thus, a greater focus on attracting and supporting this type of companies would be necessary, both on the part of the investment attraction offices of Central American countries, as well as on the part of Mexican institutions.

Source: El Siglo de Torreon