2023-11-30 08:42:16
Banesco USA, a regional US bank with six branches between south Florida and Puerto Rico, reached $3.71bn in total assets in the third quarter of this year, a 24% year-to-date increase.
CEO and president, Calixto Garcia-Velez, told The Banker the business outlook for south Florida and how the bank is executing its strategic plan despite rising interest rates and market volatility.
The state-chartered bank, established in 2006, is an independent financial institution that is part of the Banesco brand. Its primary shareholder leads a privately owned multinational banking group with about $80bn assets in the banking space, including Abanca in Spain and Portugal, and several banks in Latin America.
Q: How do you see the market at the moment for banks?
A: It’s a fairly complex time to be in the banking business given the volatility in the markets and the high cost of funding. Many of our fixed-rate loan rates from the last five years are relatively low. There’s definitely compression in our net interest margin. However, we are bullish on the markets in which we operate.
Post-pandemic, we’ve seen a very significant increase in the amount of people moving down to Florida from other states in search of quality of life and favourable tax conditions — capital is flowing into the region from the north-east, Europe and Latin America. Puerto Rico is experiencing an important economic surge as a result of federal funding, with gross domestic product growing for the first time in many years.
This year, we’re expecting to grow our loan portfolio by about 25% with a similar expansion for 2024.
Q: Banesco is currently deploying capital from the US Treasury Department’s Emergency Capital Investment Program (ECIP). What’s the aim of this initiative?
A: Banesco received $250m in ECIP capital and was the only bank in Florida and Puerto Rico selected to participate in this programme. The aim of the programme is to accelerate lending to minority communities in the United States. Given that we’re a Hispanic-owned bank, this initiative makes total sense for us. We have submitted a very extensive business plan to the US Treasury on how we are going to deploy that money and help minority communities.
Our bank is primarily focused on south Florida and Puerto Rico where there is a huge population of minorities. Under ECIP, Banesco USA has originated over $850m in ECIP-qualified loans as of September 2023, which translates to more than 220 loans.
Q: Banesco USA is mostly a commercial bank. How are you dealing with the current commercial real estate woes?
A: We are seeing a slowdown in the commercial real estate segment, with the market being very sensitive to the interest rate movement. That is why we have been heavily investing in growing our support to operating companies which, even in a high-rate environment, still need lines of credit. We’ve shifted our focus away from commercial real estate towards commercial and industrial lending.
But I also think south Florida and Puerto Rico are different. Because of the population growth and the amount of capital flowing into these markets, the commercial real estate segment is not weakening like it is in other parts of the country. To give you an example, we don’t have issues such as too-big office buildings because there’s a lot of demand for office space.
Q: What are your priorities in terms of regulatory and compliance?
A: The regulators are keeping a very close eye on the commercial real estate market and we have to pay extra close attention to our existing clients. We’re doing a lot of proactive management of our portfolio, doing stress tests, making sure that we’re aware of which clients may be vulnerable.
Secondly, there is a very strong regulatory focus on things like cyber security risk and anti-money laundering.
Q: How do you see Banesco USA evolving in the medium term?
A: We are very focused on executing on our growth plans as our shareholders would like to have a much bigger presence in the United States. Many of these banks the group owns in other countries are much bigger.
We have been growing fairly well while diversifying the lines of business. In terms of geographic expansion, our focus is Florida and Puerto Rico. I don’t see us growing beyond Florida in the next five years as for the time being our market shares are relatively small with plenty of growth opportunities. I believe that you need to focus to be successful and I don’t want to spread ourselves too thin and be worrying about other markets.
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