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Banco BVA to consolidate its middle market leadership

Article - August 30, 2011
The Rio de Janeiro-based credit bank has seen net profits soar in recent years by focusing on medium-sized companies and expanding its products

Brazil is home to seven of the 10 biggest banks in Latin America, including the top five, according to Global Finance magazine’s ranking for 2010. While giants such as Banco do Brasil and Itau Unibanco dominate the sector, smaller, nimbler banks including Banco BVA S.A. have been able to find niches where they can excel and grow much more rapidly than their bigger rivals.
Banco BVA, which was founded in 1995, began a period of rapid growth in 2006, after Ivo Lodo joined the lender as president. He shifted the bank’s strategy to focus almost exclusively on medium-sized companies, a move that paid off within a few years in terms of profit and asset growth.

The bank went from a net profit of R$20 million (US$12.6 million) in 2006, to R$48 million in 2009 and R$89 million in 2010. Total assets increased from R$361 million in 2006 to R$4.5 billion last year. Given those results, the bank is happy with its strategy and plans to continue it, while broadening the range of products it offers its clients, according to Mr. Lodo. 

“We are a credit bank, focusing on medium-sized enterprises, and this will not be changed in any way,” he says. “We have two important things to do this year that will consolidate our position in the middle market. One includes increasing equity alternatives through structured or foreign funds, and bringing the middle market into the capital market, which has not been done before in Brazil.”

The other important new effort to consolidate BVA’s position will be to start offering medium-sized companies more long-term debt alternatives, Mr. Lodo adds. Such companies currently don’t have the kind of access that bigger businesses have to lending from abroad.

“It’s important to note that these emerging companies, which make up 60% to 70% of the country’s economy, are the least favored by any type of loan, financing, or even equity,” says Mr. Lodo. “We want to improve our instruments in order to offer new products. Big banks and investment banks don’t work with this segment of the market, preferring instead to deal with [big companies such as] Vale, Braskem, and Petrobras.”

The Rio de Janeiro-based lender is looking to the U.S. and other countries to find partnerships that will help BVA, and its clients, gain that access to foreign financing. The bank is already talking to some American companies, though no decision has been made yet regarding which one it will be.

A joint venture will serve two purposes, Mr. Lodo explains. BVA will be able to provide foreign companies seeking business opportunities in Brazil with local market experience and know-how, and the foreign partner will share its knowledge of international markets with BVA.

“We believe the best strategy is to form joint ventures with well-established companies or banks in other countries that can manage cross-border operations,” says the bank’s president. “The goal is to start businesses here that will attract foreign capital. “

BVA is of course also active in attracting financing from within Brazil as well. One of its main tools for this is the Vitoria Asset unit, which is the fund management division for the bank. Vitoria Asset’s young but experienced managers oversee R$3.1 billion in various investment funds, and BVA is considering steps to take to ensure fast growth into the future.

One plan Mr. Lodo and his executives are considering is dividing the unit into two sections, one managing equity funds and the other handling fixed income. BVA is still studying whether to keep the two separate sections together under one roof, so to speak, or split them entirely.

BVA has a busy schedule for this year. The bank is planning to sell shares to the public by the end of the year, and is looking for a good moment in the stock market. The process of selling shares to the public will be positive for the bank, for its clients and for its current owners, according to Mr. Lodo.

The bigger profile the bank will gain from a share sale will also help it in other areas, such as its plan to expand around the country.

Right now BVA has offices in São Paulo and Belo Horizonte, in addition to its headquarters in Rio de Janeiro.

The growth strategy will take regional economic growth into account, considering that the northeastern and northern areas are expected to grow the most over the next few years. Mr. Lodo is of course also working to make sure the bank’s financial growth will continue unabated in years to come.

“From now on my biggest challenge is making sure the bank experiences continual growth,” he says. “Because of our macroeconomic structure, we can experience above average growth that worries the competition. However, our growth will always depend on what Brazil has to offer.”

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