Banco de Bogotá targets Mexico to grow, purchase seems likely - analysts

Monday, March 14, 2011

Colombian bank Banco de Bogotá's plans to expand to Mexico make sense, as the purchase of Central American banking group BAC Credomatic will give the bank a stronger platform to attack that country, and a purchase should not be ruled out, analysts told BNamericas.

Banco de Bogotá, Colombian holding company Grupo Aval's main asset, in December closed the process of buying BAC Credomatic for US$1.9bn. The purchase represents more than 50% of Banco de Bogota's assets and will allow the bank to enter six Central American markets.

BAC has a small credit card operation in the state of Guadalajara, which has strong growth prospects given Mexico's growing population and economic potential, Banco de Bogotá chairman Alejandro Figueroa told Colombian daily Portafolio.

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While the bulk of BAC's contribution to Banco de Bogotá's growth and bottom line would come from its six main subsidiaries - in Honduras, Guatemala, El Salvador, Nicaragua, Costa Rica and Panama - the Mexican credit card business has huge untapped potential, Colombian brokerage Interbolsa analyst Felipe Toro said.

"The purchase of BAC gives the bank a very good platform to grow more aggressively in Mexico. Despite that BAC's presence in that country is very small, they could use it as starting point, and I do not rule out that they could be looking at acquisition opportunities in the country," analyst at brokerage Bolsa y Renta David Peláez told BNamericas.

BAC is the largest credit card player in Central America and is the region's only issuer and acquiring bank of American Express (NYSE: AXP). Through its subsidiary in Miami, the group processes credit and debit card operations for more than 50 banks in 18 countries across Latin America and the Caribbean, as well as the US.

Besides, Grupo Aval and its subsidiaries still have strong cash positions and leverage capacity, and the destination of the group's ongoing share issue is still uncertain. "They might use those funds for other purchases," he said.

Grupo Aval recently approved the issuing of 800mn-1.6bn preferred, non-voting shares at a nominal price of 1 peso each. While the issue's final price will be determined by the board over the next 10 days, analysts believe the group could raise some 2.4tn pesos (US$1.28bn).

The issue is part of a process that will see Grupo Aval list shares on the US market.

Grupo Aval's four banks represent about a third of the Colombian banking system's loans. It also owns the country's largest private pension fund manager, AFP Porvenir.