Niche multi-service bank gears up for international competition

Founded in 1954, Banco del Caribe is a niche operation that provides a diverse range of financial products. The bank has always had an international profile, cemented in 1997 when the Bank of Nova Scotia purchased a 25 percent stake. In the words of the bank’s Chairman, Edgar Alberto Dao, this gives Banco del Caribe “an international bridge,” a head start in terms of technology and expertise, and a competitive edge.

EDGAR ALBERTO DAO Chairman of Banco del Caribe

Mr. Dao is no recent convert to international banking and the benefits of closer integration. His family has been doing it for 50 years. However, the pace of global developments and banking trends in recent years has required an immediate response. And Banco del Caribe wants to be in the vanguard of change.
Mr. Dao views Venezuela as a potential candidate for inclusion in the North American Free Trade Agreement (NAFTA) in the medium term. While entrance to such an exclusive club might seem distant from today’s standpoint, Mr. Dao believes it is fundamental to position the bank for such an eventuality. This also explains why the Bank of Nova Scotia, as a ‘NAFTA bank’, represents such an apt strategic fit.

Banco del Caribe’s strategic partner is also present throughout Latin America, Mexico and the Caribbean, principally on the island of Curaçao, which is 35 miles north of Venezuela. The Bank of Nova Scotia also has long-standing ties with trade operations in Venezuela. Without such a supportive strategic shareholder, Banco del Caribe’s organic growth and international expansion would be constrained.
Mr. Dao believes that Banco del Caribe will benefit from the next round of inevitable consolidation in Venezuela’s banking system. Venezuela’s banks currently lack scale and move a volume of assets that would place them in the fourth or fifth tier in the U.S. banking industry, according to Mr. Dao. Many second- and third tier entities in Venezuela are ripe for sector reorganization.

BANCO DEL CARIBE has ridden out tough times to enjoy an increase in profits of more than 25 percent

The result of the first stage of consolidation, in Mr. Dao’s eyes, will be the emergence of 15 competitive, well-capitalized entities. Mr. Dao predicts that Banco del Caribe, currently ranked number nine by assets under management, will claim an eight to nine percent market share by 2005, compared to four percent today.
Banco del Caribe has already made a start. In 2001, it purchased ABN AMRO’s retail banking assets in Venezuela, while BankBoston acquired the Dutch operation’s branches in Chile.
There has also been extensive internal consolidation. In 1998, the management merged the operational activities of its subsidiaries and attained immediate gains in efficiencies.
Now international rating agency Fitch cites Banco del Caribe’s capital adequacy and its strong presence in the middle market as definite strengths. In addition, Fitch highlights the bank’s robust positioning in both retail and agricultural lending.

While ratings are constrained by the so-called sovereign ceiling, they are also influenced by the operational support provided by the Bank of Nova Scotia that now holds a 26.6 percent share. In addition, Banco del Caribe benefits from a $62.5 million capital commitment from Bank of Nova Scotia.
Contrary to the sector trend, Banco del Caribe is not overly dependent on domestic public debt. Loans represent the lion’s share of the asset base, and income from interest lending is the main contributor to gross revenues. According to the Latin American database, Econamatica, income from lending represented 81 percent of total revenues for the first half of 2002.

Despite the impact of a sharp devaluation and a tough operating environment this year, shareholders’ funds were an adequate 16.7 percent of assets for the first half of this year. Net profit expanded by a healthy 25.6 percent in dollar terms, with annualized returns on assets and on equity rising to 3.1 percent and 18.5 percent, from 1.6 percent and 13.6 percent for the same period last year.
One contributor to the bottom line was a 43 percent reduction in direct operating costs and a 37 percent trim in salaries and benefits in dollar terms.
Banco del Caribe now has a base from which to expand, and Mr. Dao is ready for fewer, more efficient and competitive, international banks in Venezuela.