Carlos Slim lends more to consumers as bank hits record

carlos-slim-forbes-crop-2By Patricia Laya Aug 12, 2014 4:24 PM

Grupo Financiero Inbursa SAB is trading at a record as investors bet that billionaire Carlos Slim’s bank will benefit from a recovery in Latin America’s second-biggest economy with expanded consumer lending.

Inbursa has rallied 14 percent this year as the bank’s strategy to increase its share of the retail lending business pays off, with personal loans more than doubling last quarter and auto loans and credit cards expanding, helping boost profits. At the same time, loan repayment levels are improving after the company restructured earlier deals.

Mexico’s economic expansion will accelerate in the second half of the year to 3.5 percent in the fourth quarter, according to forecasts compiled by Bloomberg, providing fuel for Inbursa’s growth. A flurry of new laws to stimulate competition, including energy and telecommunications overhauls spearheaded by President Enrique Pena Nieto, is being enacted after months of legislative deliberation.

“You’re looking for that inflection point. The country is going to grow, and when you see GDP growth you want to be present with consumers as well, not just companies,” Frederic De Mariz, a UBS AG analyst, said in a telephone interview from Sao Paulo. “Inbursa wants to get retail loans, which have higher spreads; they have higher margins.”

The bank’s shares rose 0.4 percent to 42.41 pesos at 9:21 a.m. in Mexico City trading, after reaching an all-time closing high of 42.23 pesos yesterday.

Inbursa has been increasing its physical presence to attract retail consumers, De Mariz said. The Mexico City-based bank added 18 branches in the past year for a total of 324. Retail loans are more profitable because they are riskier than lending to big companies, meaning banks can charge higher interest rates.

Chrysler Acquisition

Auto loans represent more than half of the bank’s retail portfolio, advancing 7 percent in the second quarter to 19.7 billion pesos ($1.49 billion). While Mexican domestic auto sales expanded 0.5 percent in June from a year earlier, growth surged to 11 percent in July, suggesting the industry is gaining momentum. Inbursa acquired Chrysler Financial Corp.’s Mexican unit in 2010 for 5.61 billion pesos to build its auto-loan business.

Mexico’s economy is estimated to grow 3 percent in the third quarter and 3.5 percent in the last quarter of the year, according to an average of eight economists compiled by Bloomberg.

Inbursa’s ratio of nonperforming loans fell to 3.4 percent in June from 4.3 percent a year earlier, even as the average of Mexican banks’ delinquent loans increased during the same period to 3.3 percent from 3 percent, according to data from the Finance Ministry. Inbursa’s number of personal loans more than doubled in the second quarter, reaching almost 250,000 clients and expanding its retail portfolio to 20 percent of total loans.

‘Very Positive’

“The growth in consumer loan portfolio was very positive,” Rafael Escobar, an analyst at Vector Casa de Bolsa SA, said in a phone interview from Mexico City. “Even though it still represents a small percentage, it benefits margins.”

Inbursa provisionally appointed CaixaBank SA Chief Executive Officer Gonzalo Gortazar to its board in July, reflecting a commitment to its new strategy as the Spanish bank has core retail businesses, Escobar said.

The Mexican bank, whose Chairman Marco Antonio Slim Domit is the second-oldest son of telecommunications tycoon Slim, reported second-quarter net income of 4.6 billion pesos, beating the adjusted net income estimate of 3.8 billion pesos by Banco Bilbao Vizcaya Argentaria SA. Slim Domit didn’t return messages seeking comment.

Formed in 1984, Inbursa is one of Slim’s oldest companies and his largest holding after America Movil SAB, the mobile-phone operator that made him the second-richest person in the world, with a $78.8 billion fortune.

Bank Distrust

Inbursa’s loan growth could reach 16 percent in 2015, UBS said in a note, citing the company’s forecasts. That compares with 2.5 percent in the first half of this year.

Credit use has been slow to take hold in Mexico, with adoption at half of the rate of Brazil as of 2008, according to data from the World Bank.

Many Mexicans have a distrust of banks and have stayed away since the industry was nationalized in the 1980s, privatized in the 1990s and hit by a banking crisis in the same decade. Since then, banks focused on strengthening their balance sheets and made fewer loans, and as a result the population is largely underbanked, Richard Peck, who manages the Wells Fargo Advantage Emerging Markets Equity Fund, said last month.

Pena Nieto signed into law a bill in January that proponents say will encourage lending in the country and give banks more power to recover collateral in Mexico.

Pricey Stock

Inbursa’s share price values the company at about 20 times its estimated earnings in the next 12 months, the highest among banks in the region, according to data compiled by Bloomberg. New accounting measures are forcing the company to revert reserves and distribute them back to investors, pushing the valuation higher, UBS’s De Mariz said.

Inbursa has also had the most rating downgrades among Latin American banks in the past three months after Banco do Brasil SA and Grupo Financiero Santander Mexico SAB, according to Bloomberg Intelligence data.

The bank’s loan growth relies heavily on Mexico’s economy meeting estimates, Citigroup Inc.’s Accival unit said. Its rapid expansion has also come at a price. While the bank’s rate of delinquent loans has lowered in general, the number of nonperforming retail loans increased to 5.2 percent of total loans in June from 4 percent a year earlier.

The risk comes with reasonable profits and a more diversified portfolio, Jorge Benitez, an analyst at Corporativo GBM SAB, said in a phone interview from Monterrey, Mexico.

“It is one of the most capitalized banks of the market,” Benitez said. “If there’s an increase in credit demand, one of the banks with the most capacity to attend to this is Inbursa.”

Source : Bloomberg