Latin Finance - April 2008 - 49

mid-cap banks Mid-Caps Make Strides fter a fairly dire 2007, mid-cap financial institutions are making progress in ethics, sustainability and corporate governance. The second annual survey of this sector by LatinFinance, in association with Management & Excellence (M&E), highlights gains in an increasingly interesting sector for investors. Despite the fact that most of these banks have no tradition of governance – many still do not fully understand the concept – scores are up across the board, and the trend suggests further improvement over the next 12 months. Fresh systems impacting operating efficiency are expected to take hold, while training programs should ensure that personnel will be more effective and efficient. In particular, going public has forced small financial institutions to make strides in ensuring the independence of directors on auditing committees, for example, or rotating auditors at least every five years. “Mid-caps are new and risky investments because of their lower capitalization and smaller operations,” says William Cox, managing director at M&E, the Madrid-based sustainability research and rating firm specialized in LatAm banks. “More even than with big banks, investors need to look at what makes them tick – i.e. sustainability; governance and related data – to determine if they are going to grow and are solid in terms of systems and compliance with accepted standards.” While most have improved versus 2007 – in part dramatically – there are huge differences in compliance with the more than 330 accepted norms covered in the 2008 M&E study. Most smaller banks have no tradition of governance: they are family or private investor institutions run in a familial style by a few people. They typically feel the need A LatAm mid-cap banks have become much more dynamic, raising their game in ethics, sustainability and corporate governance. But there is still a wide gulf in standards. Tracking Mid-Cap Bank Progress Bicbanco inches ahead Overall score (%) Bicbanco (Brazil) Mibanco (Peru) Pine (Brazil) ABC (Brazil) Bisa (Bolivia) Discount (Uruguay) República (Uruguay) Supervielle (Argentina) Banesco (Venezuela) Mercantil (Bolivia) Safra (Brazil) Ciudad de Buenos Aires Bancaribe (Venezuela) Credicoop (Argentina) Da Amazônia (Brazil) Interbank (Peru) Nuevo Comercial (Uruguay) BBM (Brazil) Hipotecario del Uruguay Mercantil (Brazil) Source: M&E bring their systems up to par. Bigger Scores Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Rank in 2007 In last year’s ranking only one bank, Mibanco, scored 2 1 over 50%. This year, 1 -1 both Bicbanco and 6 3 Mibanco break the 20 16 60% barrier, with 5 0 Pine and ABC 7 1 exceeding 50%. In 14 7 the case of ABC, the 3 -5 reason for a jump of 4 -5 16 places is that the 19 9 bank actively 15 4 responded to a 8 -4 questionnaire, 9 -4 drawing on inside 10 -4 information. Its 11 -4 externally available 12 -4 information is still 13 -4 weak, however. 16 -2 Several banks 17 -2 with lower scores 18 -2 made impressive improvements this year, such as Republica Oriental del Uruguay, which more than doubled to 46.06%. Safra meanwhile jumped 20 points to 37.27%. These increases pale in the light of Mercantil Bolivia’s ascension to 38.48% from 10.30%. The main gains in ethics include more detailed codes, fewer scandals and better processes of implementation, says M&E. For sustainability, it also notes much stronger financials, professional training programs, better feedback channels for Change 64.24% 60.00% 53.64% 52.73% 49.09% 47.27% 46.06% 43.94% 43.33% 38.48% 37.27% 28.79% 27.88% 24.85% 24.55% 19.39% 19.39% 16.06% 13.94% 12.73% for antiquated governance structures, including centralized rule, to advance in other areas of sustainability. Banks that have already gone public are required by investor communities and stock exchanges to comply with higher governance and sustainability standards. However, with the sector growing quickly, LatAm banks are getting bigger and producing better financials, but have not had time to April 2008 LATINFINANCE 49

Latin Finance - April 2008

Table of Contents for the Digital Edition of Latin Finance - April 2008