August 9, 2017 / 4:11 PM / a year ago

Santander Brasil bets on agricultural loans in race for market share

SAO PAULO (Reuters) - Banco Santander Brasil will take advantage of declining interest rates and government subsidy-reduction efforts to boost loans to agribusiness, which is enjoying fast growth bolstered by record harvests, Chief Executive Officer Sérgio Rial told the Reuters Latin America Investment Summit.

Santander Brasil SA's chief executive officer, Sergio Rial poses for a photograph after an interview with Reuters in Sao Paulo, Brazil August 8, 2017. Picture taken August 8, 2017. REUTERS/Paulo Whitaker

Agribusiness - encompassing agriculture, cattle ranching and food processing - accounts for about 20 percent of Brazil’s gross domestic product and employs almost 16 percent of its workforce. Rial said Santander Brasil’s share of the sectoral loan market has doubled to 8 percent over the past year.

To ramp up Santander Brasil’s agribusiness lending without fanning credit risk, Rial is hiring specialists to help bankers understand how each subsector works, while setting up rural offices where farmers and ranchers can seek loans. He expects such outposts to increase fivefold to 100 by year-end 2018.

About 4.4 percent of Santander Brasil’s 257 billion-real ($82 billion) loan book was rural credit as of June, the second smallest of its 10 credit segments. Rial expects lower rates to fan agribusiness lending, which has for decades hinged on subsidized credit and been dominated by state-controlled Banco do Brasil SA (BBAS3.SA), which has a 70 percent market share.

Two consecutive years of record harvests have boosted the role of Brazilian agriculture in global food production. As Latin America’s largest economy recovers from its harshest recession on record, larger rivals will also ramp up their presence in the segment, Rial said in the interview late on Tuesday.

Santander Brasil is the country’s fifth-largest bank by assets.

“The key for this segment is to change the mindset of our bankers and teach them to understand the sector as much as possible,” Rial said at the bank’s headquarters in São Paulo.

Rial, previously chief financial officer of Cargill Inc and CEO of Marfrig Global Foods SA, has drawn from those experiences the “ability to understand the many faces of a sector that’s complex to read,” he said.

His remarks suggest that Brazilian banks are worrying less about lingering credit quality woes as the economy recovers and rates fall. While it still may take longer for Brazil to fully emerge from its three-year slump, improving business confidence and lower rates are spurring a recovery, he said.

LOWER BORROWING COSTS

Since taking the helm of Santander Brasil in September 2015, Rial has focused on growing interest and fee income.

His strategy has helped the bank’s units (SANB11.SA) - a blend of Santander Brasil’s common and preferred shares - more than double in that period. Units fell 1 percent to 26.81 reais on Wednesday.

Under Rial, Santander Brasil has seen its share in parent Banco Santander SA’s (SAN.MC) earnings rise to 26 percent from about 15 percent.

Santander Brasil’s return on equity reached 15.6 percent in the second quarter, surpassing the target it aimed to reach in December 2018. Rial vowed to keep deploying its excess capital growing areas like payment processing and investment banking as well as payroll and other consumer lending.

Larger private-sector rivals Itaú Unibanco Holding SA (ITUB4.SA) and Banco Bradesco SA (BBDC4.SA) are likely to pass on lower borrowing costs to consumers in the coming months as the central bank cuts interest rates further, he noted.

Santander Brasil is gearing up for an increase in corporate and consumer credit, Rial said, adding that he also expects capital markets activity to gain traction.

Additional reporting by Daniel Flynn; Editing by Christian Plumb and Phil Berlowitz

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