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2001 Was An Intense Year For Financial Institutions

Highlights included historic interest rate cuts, refinancing boom


January 3, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Most of Puerto Rico’s leading financial institutions experienced solid growth in 2001. Profits were boosted by several factors, including an unprecedented series of eleven consecutive cuts in interest rates by the Federal Reserve, along with the ongoing–albeit slower than expected–implementation of financial modernization.

The Federal Reserve’s interest rate cuts were certainly one of the main catalysts for local banks’ better-than-expected performance throughout the year.

"The drop in interest rates has benefited banks by expanding profit margins, reducing the cost of funds, and increasing net income growth, thus achieving improved results," Puerto Rico Bankers Association (PRBA) President David Chafey told CARIBBEAN BUSINESS at the height of the rate-cutting spree.

As Oriental Financial Group president and CEO Jose Enrique Fernandez pointed out, at this time a year ago the cost of funds for his bank was 6.75%. Within less than a year, it fell to under 2%.

In 2001, local financial institutions also saw their new insurance subsidiaries–the result of the implementation of financial modernization–begin to contribute positively to their bottom line. However, as PRBA Executive Vice President Arturo Carrion indicated, the implementation of financial modernization was slower than had been expected at this time a year ago.

In anticipation of insurance sales being integrated into banking operations islandwide, the year saw several hundred bank officials from throughout the island seek state licensing as insurance agents.

A good year for the giant

The first nine months of the year saw double-digit profit growth for financial industry giant Popular Inc., with net income jumping from $201 million as of Sept. 30, 2000 to $229 million as of Sept. 30, 2001, a 14.2% increase.

Among its subsidiaries, Popular Mortgage registered the most impressive growth. Under President Silvio Lopez’s leadership, loan production soared. During the height of the refinancing boom–from June through October 2001–loan production almost doubled, reaching $622 million, compared to $342 million during the same period last year.

Along with the favorable interest rate climate and refinancing boom that was also enjoyed by other top mortgage banking institutions, Lopez told CARIBBEAN BUSINESS that into its third year of operations, Popular Mortgage was increasingly reaping the benefits of its full cross-selling potential. The company invested more heavily than its competitors in high-profile media campaigns.

Doral and R-G scaled new heights

Meanwhile, the mortgage and commercial banking subsidiaries of both Doral Financial Corp. and R&G Financial Corp. also experienced a banner year.

Doral Financial Corp. registered the greatest growth, with net income during the first nine months of 2001 surging by more than 50%, to $95.5 million, compared to $61.9 million during the same period last year.

In terms of profit growth rates, R&G Financial Corp. wasn’t far behind, with net income during the first six months of 2001 reaching $45.8 million, compared to $31.6 million during the same period last year.

In addition to a strong housing market continuing to fuel growth year after year, 2001 saw the biggest refinancing boom in the industry since 1993. Nearly half of the mortgage loans produced during the first nine months of 2001 were refinancings.

In the commercial banking sector, the fortunes of Doral Bank continued to rise impressively in 2001. It was projected to be the third consecutive year in which Doral Bank experienced the greatest growth rates across the board (assets, loans, deposits, and net income) in the sector.

Stateside, Doral Bank New York continued its borough-by-borough expansion in the Big Apple, receiving accolades for its state-of-the-art, personalized service to the City’s chronically underserved minority communities.

For the second consecutive year, R-G Premier Bank accounted for more than 50% of R&G Financial’s net income. R&G Financial ended the year with the announcement of its incursion into stateside commercial banking by acquiring central Florida-based Crown Bank.

Movement among major players

Due to slippage in its assets column, in 2001 Santander BanCorp was displaced by First BanCorp as the island’s second largest commercial bank. Net income at Santander BanCorp fell substantially in comparison to last year, with the financial holding company reporting $44.4 million in net income during the first nine months of 2001, compared to $59 million during the same period in 2000.

A bright spot for Santander BanCorp was found in its mortgage loan production, which reached $376 million for the nine-month period ended Sept. 30, 2001, compared to $190 million for the same period in 2000 (a 102% increase).

Meanwhile, First BanCorp was the picture of robust health in 2001. Net income during the first nine months of the year surged to $62 million, compared to $50 million during the same period in 2000. First BanCorp’s total assets surged from $5.6 billion as of Sept. 30, 2000 to $7.7 billion as of Sept. 30, 2001.

The company’s loans also increased by 20%, from $3.3 billion as of Sept. 30, 2000 to $4.0 billion as of Sept. 30, 2001. The year also saw First BanCorp increase its presence in the stateside market, doubling its ownership stake in one South Florida bank (Southern Security) and picking up a 5% stake in a new South Florida banking venture (Premier American).

A change of command at BBVA Puerto Rico also occurred in 2001, with Antonio Uguina arriving in August to replace Jaime Guardiola, who was tapped to head BBVA Banco Frances’ operations in Argentina and Uruguay. BBVA registered strong earnings growth throughout the year, with net income jumping 54% during the first nine months of 2001 to $31 million, compared to $21 million for the same period in 2000. Among his first moves in his new post, Uguina indicated that he would step up the bank’s aggressive investments in technological infrastructure, as well as provide full backing to the expansion of investment and brokerage arm BBVA Capital markets.

Meanwhile, W Holding Inc., the financial holding company of Westernbank, was also the focus of significant attention throughout the year. The island’s third largest local bank reported net income for the nine-month period ended Sept. 30, 2001 of $46 million, a 37% increase compared to the $33 million reported for the same period a year ago.

On a year-to-year basis, total assets for W Holding Inc. reached $5.1 billion at Sept. 30 2001, a 27% increase compared to Sept. 30, 2000. During the course of the year, W Holding added a new subsidiary dedicated to receivables financing (Westernbank Business Credit), increased market penetration with the introduction of new products such as Edu.Trust, and closed the year with a high-profile entry into the New York Stock Exchange, along with the acquisition of Hato Rey Tower.

Citibank Puerto Rico saw further erosion of its assets and deposits ledgers in comparison to a year ago, while also moving forward with branch expansion plans. The bank’s year was marked by the sadness of the illness and death of country manager Roberto Lopez, and his replacement by Marcela Perez de Alonso.

Fast-paced development

For Oriental Financial Group, 2001 was a year of fast-paced development. Building upon its well-established success marketing traditional IRA accounts, Oriental initiated implementation of an aggressive expansion strategy to make its integrated financial planning services available on an even broader scale.

Among the developments, Oriental President and CEO Jose Enrique Fernandez added Small Business Administration lending to the mix, announced he would double the firm’s number of financial planners, and introduced a promising new product–the Education IRA. Oriental posted assets growth of 13% during the first nine months of 2001, reaching $4.6 billion, compared to $4.1 million during the same period in 2000. Deposits increased 17% during the first nine months of 2001, standing at $868 million, compared to $743 million during the same period last year.

This Caribbean Business article appears courtesy of Casiano Communications.
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