Itaú Unibanco Holding grew to become the largest private-sector lender in Brazil through its sharp focus on middle-class and affluent consumers and major corporations. So there’s more than a little irony in CEO Roberto Setubal’s latest bid to drive growth at the bank.
In July, Itaú formed a joint venture with Banco BMG, the country’s leading payday lender, to make payroll loans. The move is uncharacteristic for the upmarket Itaú, but Setubal points out that payroll loans are second only to mortgages among consumer loans in Brazil. The loans are high quality, being secured by workers’ paychecks, and the venture will expand the bank’s customer base and provide plentiful opportunities to cross-sell everything from credit cards to mortgages.
“This will be big business for us,” Setubal tells Institutional Investor in an interview after the International Monetary Fund and World Bank meetings in Tokyo last week.
Itaú is adjusting to a more-difficult environment after years of strong growth. The Brazilian economy has slowed to a crawl over the past year, and the government is encouraging state-owned banks like Banco do Brasil and Caixa Econômica Federal to expand their activities in an effort to bring down lending margins and stimulate growth.
“We are feeling this competition,” says Setubal. “We have to reposition ourselves in the market.”
Itaú managed to expand its lending by 15 percent in the first half, and the bank should be able to sustain that growth rate if the economy recovers to a 3-4 percent growth pace, as many economists are projecting, Setubal says.
Payroll lending is only one avenue that Itaú is pursuing. The bank is also looking to bolster its credit card business, where it enjoys a 35 percent market share. In September, Itaú paid 10.5 billion reais ($5.2 billion) to buy out minority shareholders in Redecard, the country’s second-largest credit card payments processor. The business is growing strongly and is not very capital intensive, a key factor as banks get ready to meet the higher capital requirements of Basel III. The deal will also enable Itaú to integrate Redecard’s payment services into the bank, a key strategic objective given the rise of electronic payments and the expected takeoff of mobile payments, Setubal says.
The CEO isn’t just looking to Brazilian consumers for growth. He is also seeking to extend Itaú’s international footprint. The bank is preparing to open a representative office in Colombia before the end of the year to service growing trade between the two countries, Setubal says. He’s also considering opening similar offices in Peru and Mexico. Itaú already has operations in Argentina, Chile, Paraguay and Uruguay, and the bank is determined to extend its presence across the continent.
“We have all the conditions to be the regional player in Latin America,” Setubal says. “We are on our way to doing it.” With U.S. and European banks retrenching across the region because of problems at home, Itaú has ample opportunity to grow, he contends.
Meanwhile, Setubal welcomed a landmark ruling by Brazil’s Supreme Court last week that convicted three top aides to former president Luiz Inacio Lula da Silva, including chief of staff Jose Dirceu, of corruption. The men were found guilty of making monthly payments -- or mensalao, as the case is called in Brazil – to members of Congress in return for their votes.
“It’s a big, big change in Brazil,” says Setubal. “We can now say we have independent judiciary power. This gives people much more confidence about the rule of law in Brazil.”
