The Niche Provider

What has the Ecuadorean Social Security Institute Bank (BIESS) achieved in the last 12 months of operations?

The last 12 months have been very positive; we have not only achieved all of our planned goals, but surpassed them. Our operations in 2011 were 60% higher than the previous year. We have generated an increase in construction through mortgage loans and consumer credit. We have allocated a total of $1.6 billion in mortgage loans, starting in June 2008 with the Ecuadorean Social Security Institute (IESS), and now as BIESS. Our portfolio of unsecured loans is close to $1.2 billion, which makes us one of the most important players in the market.

How was the transition process from IESS to BIESS, and why was the decision made to change from one type of institution to the other?

The IESS is a tremendously large institution with a lot of responsibilities and unlimited requirements, because it has to attend to one of the most basic human needs, which is health. Years ago, the IESS health service was inadequate, and the improvements that have been implemented over the last four years are helping people to trust the IESS again. This has generated more pressure on those services, which have already been improved, to keep improving, and it is very hard to close the gap. An institution with such a large operating budget has to invest time in the management of its finances, but all of the IESS’ time was taken up with the managing of health services. Therefore, the need arose to separate the financial part and house it in a dedicated financial institution, hence the bank.

To what extent are you involved in investment banking?

We are very active and firm believers in the stock market. We expected to end 2011 with funds amounting to $7.8 billion, of which 40% is dedicated to the public sector. These are investments that have been made in the public sector, especially in bonds issued by the Ecuadorean government. We have invested a total of $3.3 billion. Our trend has been to decrease investment in bonds and increase our investment in strategic government projects such as the oil project in Pañacocha, in which we invested $135 million. Another is a thermoelectric project that will help to produce electric power in the drought season so we won’t suffer any more blackouts; we have invested $130 million in that project. There is also the hydroelectric project at Toachi-Platón, which will demand an investment of $250 million, of which we have already disbursed $100 million.

What is your investment plan for 2012?

We plan to continue growing our mortgage loan portfolio, but not at the 45% growth rate we saw in 2011. In 2012 we plan to grant $900 million in mortgage loans; in 2011 we granted $750 million. The other important item is consumer credit; we plan to allocate $1 billion in 2012. We also have a very small portfolio of pledge loans having to do with jewelry and gold items, which is a service we provide for the entire community. I actually see it as a social responsibility issue, because we attend to people that are not necessarily affiliated with social security but who require emergency loans of small amounts, $400 on average. They come and leave their jewelry, and they receive a six-month loan at a 20% annual interest rate, which is lower than the ones usually found in this type of businesses. We also plan to invest $300 million in the stock market in 2012.

Do you always invest in sectors you consider strategic?

Even though we aren’t dependent upon the general government budget, we are aligned with President Correa’s policies. Therefore, we don’t invest in sectors that increase the budget deficit, such as the automobile and electronics industries, because these products are mostly imported. We invest in companies that generate employment. For example, in 2011 we invested in Industrias Ales, which is a 40-year-old Ecuadorean company, we have shares in La Favorita, and recently we purchased a stake in Industrias Lácteas TONI. In 2011 we invested a total of approximately $260 million, and in 2012 we plan to invest $300 million.

Do you have a vision for the future of supporting international investment in strategic sectors?

We work with some foreign companies indirectly; for example, we invested $25 million in Nestlé’s operations. We do have a vision of supporting foreign companies that operate here. We are working on a $600 million portfolio of commercial documents from companies with AAA ratings. Our goal is to allocate it outside, in international markets, as a way of attracting international resources to the country.

What has your non-performing loan (NPL) rate been?

In order to answer that, I first need to explain how the bank operates, because if I were to tell you, you wouldn’t believe me. Our rate of delinquency is zero. We have granted 42,000 mortgage loans and of those, we have only had problems with nine. Of those, eight have found solutions; there has only been one mortgagee who said, “Keep the house.” Why does this happen? First, the defaulters have been unemployed, because as long as our clients have a job the payments of the loan are deducted directly from their paychecks. This is an advantage that no other bank offers. For our consumer loans the delinquency rate is also zero, because if a client doesn’t pay for three months we take the payment out of their reserve funds or severance funds. This is the way all our loans work.

With that advantage, as well as the advantage of being able to offer loans at such low rates, how can the private banking sector compete with you?

We function to complement the private banking sector. For example, we don’t finance cars, although people do ask for that service; there’s another sector that specializes in that. Years ago, it was very difficult to get a mortgage loan for longer than seven years in this country. If you got one for 10 years it was because you had a lot of influence inside the financial sector. So, we launched 10-, 15-, and 25-year mortgage loans, which private banks cannot offer. It’s true that this bank offers a lot of benefits, but it has to look for market niches in which to operate. Another factor is that most of our loans are for amounts of $35,000 or less, something that the private banks don’t offer.