Last week Citi announced plans to withdraw from retail banking in several markets in LATAM and Asia, including Costa Rica, El Salvador, Guatemala, Nicaragua and Panamá, amongst others. The banking sector in this region has been fairly active in terms of expansion and M&A activity, particularly given the elevated liquidity levels of stronger players. In recent weeks, Costa Rican Bansol was recently sold to Panamanian regional private banking group, Grupo Prival (assets under management of over USD1.7 billion) for an undisclosed sum, and as part of its regional expansion plans, Banrural merged with the Honduran subsidiary of Procredit earlier this month (Procredit’s focus is mostly on loans to small business). Citi’s announcement followed the release of a sector report by Fitch earlier in the month, noting several trends in the regions banks – focusing on the varying growth patterns within the region. Given the ongoing growth in credit, particularly consumer credit, combined with plans for growth and a highly liquid banking system, the Central American banking sector will undoubtedly witness further M&A activity in coming months.

Helicopter view of the sector…

According to the 2013 Top 100 Central American banks data the top 100 banks in the region held USD15.4 billion Tier 1 capital. Unsurprisingly, the Panamanian banking sector is the largest at USD8.1bn of the top 100 banks in the region (52% of the market), and most diversified in terms of players in the Central American region – featuring Colombian, Israeli, Peruvian, Portuguese, Spanish and American groups, in amongst regional players.

Distribution of Tier 1 capital across the top 100 banks by country per The Banker 2013 survey as follows:

141023.Banks_Dist_by_country_Pie_chart Figure 1. Central American bank size by tier 1 capital (source:

Net interest margins (NIM) reflect the cost of financial intermediation – as banks seek improvement in NIM, consolidation is expected to continue in the sector. Recent research focused on Honduras by Nassar, Martinez and Pineda (2014), found that operating costs are the most important drivers of banks’ net interest margins, and that competition among banks has led to higher concentration and funding by parent banks that positively impacts foreign banks’ net interest margins. Combining these factors suggests that banks (especially foreign banks), are under pressure to consolidate and reduce operating costs to be more competitive and gain greater market share.


Figure 2. NIM comparisons between Central American banks (source: World Bank Database)

Foreign ownership varies between markets – although with the Colombian expansion into the region in 2012-13 as acquirers of the HSBC businesses, Colombian ownership continues to climb as international banks exit.

Growing at different paces with solid balance sheets…

Whilst the Fitch report on the region’s banking sector noted the lack of financial system depth and challenges for growth in the absence of improvements in per capita income – the overall outlook was reasonably positive due to low default rates and well capitalised institutions. Profitability in the region’s banks remains fairly solid, and well capitalised institutions and high liquidity in the banking system will undoubtedly underwrite further M&A activity.  Over the past twelve months, assets of Central American banks have grown by approximately 10%, mostly due to portfolio growth, with Fitch seeing this growth as relatively healthy given solid balance sheets and stable profitability (Fitch: Banca Centroamericana Creciendo a Ritmo Diferente con Balances Sólidos). Loan growth has dramatically outpaced deposit growth, and so in the absence of increased default rates, this represents positive organic growth. However, in the longer term this is somewhat constrained until there is a sustained growth in wages. Should consumer sentiment deteriorate, growth prospects could also be undermined. Whilst at face value bank metrics appear relatively solid in the region, the lack of depth in the financial system and high level of dollarization ensure that this is a necessity to absorb, or mitigate, macro level risks predominantly from currency related movements.

Adios, Citi, que vaya bien… Goodbye Citi, best wishes…


Whilst Citi is understandably seeking to become more focused on its core operations, the announcement comes at a time when the region is experiencing significant growth in consumer lending combined with high liquidity in the financial system. The Group sold its consumer banking and credit cards businesses in Honduras in April 2014 to local bank Banco Ficohsa for an undisclosed sum – making Ficohsa the nation’s largest lender. Interestingly, Citi was the first foreign owned bank to enter Honduras in 1965. Citi’s actions follow HSBC’s exit from the region in early 2013, with operations in Costa Rica, El Salvador and Honduras being sold to Colombia’s Banco Davivienda in 2012, and its sizeable business in Panama sold in February 2013 to Bancolombia. Whilst 2012-13 was the period of Colombian groups’ expansion into the region via acquisitions, local groups remain active, and whilst Guatemalan banks are likely to require capital injection to grow further, strong balance sheets and high liquidity will ensure Citi’s exited units are well bid upon sale.

Whilst available data showing the split between consumer vs business banking is not readily available, data for Citi’s overall businesses in the region have been sourced from the 2012 Top 100 Central American banks database ( – whilst the Nicaraguan business has been a solid performer, it is small relative to the wider regional exposure. Other regional businesses indicate relatively disappointing return metrics and elevated cost income ratios – this could prove to work in favour of an acquiring group by providing an attractively priced opportunity to expand in the region.


Figure 3. Citi by country (source:

More of same?

Perhaps. The banking sector in the region is generally well capitalised, and M&A activity remains fairly robust, spurred by the exit of the likes of Citi, growth aspirations and pressure on operating costs for regional players. Colombian banks have been active acquirers in the region in recent years, and as these constituents continue to experience growth in their home markets, there is greater motivation to seek growth opportunities further afield, and capitalise on a growing Central American platform.

Macro concerns around currency vulnerability and dollarization are a regional concern. Against the lack of depth of the financial system, balance sheet strength and solid tier 1 capital are even more essential in this region to insure against severe impacts of external shocks to the system. Whilst the outlook for growth in the region is fairly benign, high liquidity and a thirst for growth will likely continue to drive M&A activity…


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