Banco Sabadell has finally emulated its Spanish rivals BBVA and Santander and entered the Mexican banking market. Initially, Sabadell Mexico is offering corporate and business banking services but it plans to offer retail banking services to middle-class and high-net-worth consumers in 2017, with a strong digital focus. Robin Arnfield reports
Sabadell is to go head to head in Mexico with BBVA Bancomer and Banco Santander, two of Mexico’s largest banks. CaixaBank, also has a presence in Mexico through a minority investment in Grupo Financiero Inbursa, a banking and financial services group controlled by Mexican billionaire Carlos Slim.
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“We have a strategic alliance with Inbursa which involves sharing our expertise in retail banking to help Inbursa’s expansion in Latin America,” a CaixaBank spokesperson tells RBI. “We don’t have a joint venture or any specific projects with Inbursa, but Inbursa does give us advice on our Latin American expansion.”
Sabadell
In May 2016, Sabadell officially launched its Mexican banking business. The move is part of the lender’s international expansion plans, along with its acquisition of TSB in the U.K. Internationalisation is one of the three pillars of Sabadell’s Triple strategic plan for 2014-2016 along with transformation and profitability.
Speaking at the launch, Josep Oliu, Sabadell’s President, said he hoped Mexico, which he characterised as a market with low banking penetration and highly concentrated banks, will become a key part of Sabadell’s expansion plans. “From the moment when we started taking about Sabadell’s international diversification, Mexico was the first country we had in mind,” he said. “We expect Mexico to represent at least 5% of our business within a year, which is the same percentage that the U.S. represents in Sabadell’s business.”
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By GlobalDataSabadell obtained a Mexican banking licence in August 2015, and began operating as a bank in January 2016 with six SME centres and three corporate banking centres. It has also held a 20% stake in Mexico’s Banco del Bajío for 14 years.
By June 2016, Sabadell Mexico had won 140 corporate clients customers, and had granted over MXN1.5bn ($83m) in business banking loans and over MXN22 bn in corporate banking loans.
“We will be providing services addressing all the retail banking needs of our clients, from transactions, savings to credit,” says Marc Armengol, COO of Sabadell’s Americas and International Network. “Our focus will be affluent customers.”
Due to the major incumbent banks’ domination of the Mexican market, Armengol admits that launching a new bank with a new brand in Mexico is a challenge. “Beyond the publicity from launching our business bank, the launch process requires a significant investment to build brand awareness and a specific strategy to position ourselves correctly in the Mexican market,” he says.
Armengol argues that being a Spanish bank is an asset in Mexico, due to cultural affinity between Mexico and Spain as well as the excellent work that other Spanish banks have already done in Latin America.
“Our banking model in Mexico will marry the best of the digital world with the best of the physical world,” Armengol says. “We plan to launch retail banking services based on three main components. The first is the deployment of advanced information management capabilities, allowing us to provide our customers with the most relevant information at all times.
The second is a mobile application that will feature the latest security and user experience technologies. Finally, we aim to establish strong links between our customers and our managers. We think this third factor is key to providing optimal customer experience for the segments we are targeting.”
Sabadell does not aim to open a large number of branches in Mexico. “We believe that having a physical presence plays a role in the customer experience and in helping to develop the publicity and customer awareness that the launch of a new bank requires,” Armengol says. “We plan to offer ATM access through partnerships with Mexico’s ATM networks.”
The Americas
Currently, Sabadell is only focusing on providing retail banking services in one Latin American country, Mexico, Armengol says.
In 2015, Sabadell took a 4.99% stake in Colombia’s Banco GNB Sudameris and said that it plans to collaborate with GNB Sudameris in the Colombian, Paraguayan and Peruvian banking markets.
“Our relationship with GNB Sudameris promotes and reinforces Sabadell’s internationalisation strategy,” says Armengol. “We already have representative corporate finance offices in Colombia and Peru .”
Sabadell operates a US domestic bank in Miami, Florida, Sabadell United Bank, which it has built through a series of acquisitions. It also operates the Sabadell International Branch in Miami, which provides offshore private banking services to Latin American individuals and families and corporate banking to companies operating in the Americas. The Sabadell International Branch coordinates Sabadell’s network of representative offices for its corporate finance business in the Americas.
Sabadell United Bank
Sabadell United Bank has a fairly narrow market focus, a Sabadell US spokesperson says. “We’re not trying to be the ubiquitous retail bank on every street corner,” she says. “We primarily serve wealthy individuals, small- and medium-sized businesses, law firms, developers and other high net-worth clients. We also work with foreign clients who are moving to or working in South Florida.”
Sabadell United Bank doesn’t have a focus on Spanish-speaking customers, the spokesperson says. “But, because of Florida’s proximity to Latin America, a large portion of our clients are international and are Spanish-speakers,” she says. “Our location in Miami, coupled with our parent company’s international expertise make us a natural resource for South Americans living here.”
Compared to major US banks which have a presence in Florida, Sabadell United Bank with its 27 branches, is a small player.
“We like to think of ourselves as a ‘super-community bank,’” the spokesperson says. “We’re big enough to be involved in the major businesses that we want to be involved in, but, in dealing with clients, we feel boutique-y and we feel small. We think that our size is an advantage, which allows us to provide high-end personal services meeting our clients’ unique needs. In our opinion, it’s the unrivalled service and the relationships we build with our clients that make us different. We have consistently maintained exceptionally strong capital ratios and have grown to serve over 40,000 clients in the U.S.”
The spokesperson says Sabadell United Bank’s strategy for success is to “strive to continuously deliver the very best to our clients and to stand behind our promise to be ‘For Modern Times, A Classic Bank.’”
Sabadell United Bank has made significant digital technology investments to be able to service its clients’ needs through offerings such as online banking, mobile banking, remote deposit capture, and treasury management, the spokesperson says. “But I think we are ‘high-tech, but also high-touch,’” she says.
Analyst comments
“The fact that Sabadell is Spanish will pay off more from an internal perspective than for its customers,” says Juan Mazzini, a Senior Analyst, Financial Services, at Celent. “When they hire people, the bank’s executives will speak the same language as the people they recruit and I don’t just mean the Spanish language. They will share the same cultural background. Sabadell understands the Latin American market and culture, whereas an Anglo-Saxon bank trying to get started in Mexico would face cultural barriers.”
Mazzini says Sabadell has publicly admitted that it is taking a different approach in Mexico than it has in Spain. “Sabadell doesn’t have to do in Mexico what it has done in Spain,” he notes. “Its new Mexican bank has a mandate to try different things and act like a start-up with no legacy infrastructure. Also, Sabadell can apply what it learns in Mexico at TSB and also at its U.S. subsidiary, and what it has found to be successful in Spain, it can also do in Mexico.”
While Sabadell Mexico has a big focus on digital, it does need to have branches, Mazzini says. “In Mexico, Sabadell isn’t a digital-only start-up targeting digital natives or millennials like (Mexican digital-only bank) Bankaool,” he says. “Digital-only banks face a problem in how they will scale up to meet customer demand, whereas established banks have the infrastructure to allow for expansion. So Sabadell Mexico will have branches to cater for different customer segments such as affluent clients who use branches.”
Mazzini applauds Sabadell Mexico’s strategy of standing in the middle between being digital-only and having a big branch infrastructure. “Established banks know they need to be multichannel to cater for different customer segments,” he notes. “Being a 100% digital bank doesn’t work for high-net-worth individuals and high-income customers, as they want face-to-face service.”
The challenge for Sabadell Mexico will be finding bank executives with the ability to experiment and do things differently, Mazzini says. “There are not many examples in the Mexican banking industry of people doing things differently,” he says. “Sabadell Mexico will need to hire talented people for its digital operation.”
Sabadell profits rise 20.7%
Banco Sabdell posted ended the first half of 2016 with a 20.7% year-on-year increase in attributable net profit, totalling €425.3m. During the first six months of the year, net interest income amounted to €1.94bn, a 49.5% increase year-on-year.
Other highlights included a fall in the bank’s non-performing loans ratio to its lowest level (6.83%) since the first quarter of 2012.
Provisions during the first half of the year totalled €901.8m million, a 48.4% decline compared to the same period last year.
Gross loans and advances increased (by 3.2%) for the first time in four years while market shares continued to improve during the second quarter of 2016.
In the UK, TSB’s performance surpassed targets set out in its strategic plan. Operating profit before tax more than doubled year-on-year, to £107.7m, representing a 144.8% increase compared with the first half of 2015.
Digital bank ActivoBank, exceded €1bn in customer funds in the first half of 2016 for the first time.
Other first half highlights included the creation of Sabadell Venture Capital aimed at companies in more advanced stages of development than those taking part in BStartup, Banco Sabadell’s programme to support entrepreneurs. Sabadell Venture Capital has already invested €1.5m in three technological projects: ForceManager, CornerJob and MyTwinPlace.
There are also representative offices in New York, Caracas, Sao Paulo and the Dominican Republic.
