While conditions are broadly stabilizing in Latin America, following an economic slowdown and weak labor markets, banks' loan portfolios will likely continue to face pressures for some time amid gradual GDP recovery, leading banks in some cases to write off bad loans and sell them off to third-party credit management firms.
They have a potential buyer in Costa Rica's Gestionadora de Créditos, the firm's CEO told S&P Global Market Intelligence.
The firm recently announced that it purchased a $1.87 billion nonperforming credit card and consumer loan portfolio from Mexico's BBVA Bancomer SA Institución de Banca Múltiple Grupo Financiero BBVA Bancomer, adding to a string of deals it has made throughout Mexico and Central America. According to Gestionadora de Créditos chief executive Carlos Valenciano, the credit management company has set its sights on further asset purchases, including in new South American countries.
The Bancomer portfolio purchase, among the firm's largest, comes as Mexico's banks have continued to see deterioration in some parts of their credit portfolios, even as delinquencies overall have shown incremental improvement. While the sector's adjusted nonperforming loan ratio declined to 4.8% as of May 2017 from 5.0% at year-end, consumer loan NPLs have ticked higher over that period, rising by about 30 basis points to 12.7%.
In a recent report, Fitch Ratings predicted that bank lending in Mexico would continue to face pressures in the second half of 2017, though profitability should gradually improve as NPLs decline.
To be sure, the nonperforming assets involved in these types of deals rarely impact banks' current balance sheets. In the case of the BBVA Bancomer deal, for instance, the portfolio sold to Gestionadora de Créditos was already written off completely, wholly reserved and taken off balance sheet, a representative with the bank confirmed to S&P Global.
"BBVA Bancomer makes sales of nonperforming and written-off portfolios as part of its strategy, so it can focus on the management of past-due loans with lower arrears," the representative said in an email. "[The 2017 portfolio] is no longer on the bank's balance sheets but on the memorandum accounts, so it will not have an impact on the "nonperforming loans" line on the balance sheet."
Still, the sale of such assets is an important process for the banking institutions, as "it helps them to free up the capital adequacy requirements," Valenciano noted.
Gestionadora de Créditos has acquired several large NPL portfolios in recent years from international banks, including an $800 million portfolio from Scotiabank Inverlat SA Institución de Banca Múltiple's Crédito Familiar unit and an $870 million book following Citigroup Inc.'s sale of its Costa Rican unit, now known as Bank of Nova Scotia (Costa Rica) SA, to Bank of Nova Scotia. The company currently operates in Mexico, Guatemala, El Salvador, Nicaragua, Costa Rica, Panama and the Dominican Republic.
Valenciano said that his firm is continuing to vie for more NPL portfolio deals, including the next one from Bancomer, "Starting in January, [Bancomer] is once again auctioning the new 2018 portfolio and we are going to participate," the CEO said.
But Gestionadora de Créditos is also looking to expand its footprint further south into the South American continent. To start, Valenciano said, the company is looking "mainly in Peru and Colombia, which are the countries where banks have asked us to come."
Those ambitions come as both Andean countries are emerging from economic conditions that led to higher delinquency rates.
Peru's central bank recently warned that loan delinquencies could increase in the aftermath of the El Niño weather phenomenon, while the country's banking regulator called on banks to be more selective in lending, in part because of rising delinquency levels.
Meanwhile, banks in Colombia, which have been plagued with credit quality issues tied to the liquidation of Electricaribe, have been battling the effects of an economic slowdown in 2016 and a still-weak labor market.
"The economic deceleration in 2016 caused borrower repayment capacity to weaken," Moody's wrote in a recent report in which it upgraded its outlook on Colombia's banking sector to stable. "Although the lingering effects of the slowdown will continue to pressure banks' loan exposures this year, we expect additional deterioration will be modest."
Time and trust
Valenciano stressed that NPL asset purchases can take some time, both in the negotiation process and in building a relationship with the banking institutions.
"We are an established company of over two decades, known by regulators in each of these countries where we work and a company that in one measure or another is dedicated solely to this business," he said.
The deal with BBVA Bancomer was struck after 10 months of negotiations and an auction where the Costa Rican company had to beat out a number of Mexican and international players, according to the CEO. The firm will take on the NPL in four installments — two of which have already been completely and two others set to transfer in October and December.
According to BBVA Bancomer, the portfolio contains nonperforming credit card and consumer loans that are, on average, 30 payments behind.
Despite the length of the delinquencies, however, Valenciano expressed optimism that his firm can strike deals with delinquent borrowers where the banks could not. Gestionadora de Créditos has a call center and staff in each of the countries where it operates to negotiate with clients.
"We buy at a discount and we can offer these customers better payment conditions than the banks could originally offer," he said.