Booming Banorte

As chief credit risk officer of growing Grupo Financiero Banorte, the only major fully owned Mexican bank, Heleodoro Ruiz is working to ensure the bank continues its climb to the top. By Arielle Weliky

Monterrey-based Grupo Financiero Banorte’s success and absence of foreign investment has led to speculation the bank is ripe for acquisition. That Banorte is now seen as a potential target for takeover is partly due to the revamping of the company’s credit risk methodology. Under chief credit risk officer Heleodoro Ruiz’s stewardship, Banorte implemented a new credit risk model in 2000 that increased its loan portfolio and helped propel the bank to become the fourth largest in Mexico and eighth largest in Latin America.

“Ten years ago, we were nobody in Latin America,” says Ruiz. Now he says the bank has made a name for itself, partly due to the money generated from new loan investments – the fruits of its credit model.

The model, which the bank purchased from Toronto-based vendor Algorithmics, is Merton-based, using a creditworthiness index that calculates the probability of default and helps to determine the risk-adjusted return on capital for default and for migrations to all possible credit ratings. The model has improved regulatory and economic capital management, reducing capital requirements and freeing capital for investment. It has also improved risk-reward analysis, helping Banorte identify risks and investment opportunities.

One of the model’s main attractions was the ability to measure unexpected losses for an entire portfolio, says Ruiz. Banorte was previously only able to calculate unexpected losses on a loan-by-loan basis. The extra ability has helped it diversify its portfolio and establish target markets for investment. Recent results illustrate the success of the strategy. Banorte’s second-quarter results for 2004 revealed it had increased the loan portfolio by 17% compared with the previous quarter. Now it is focusing on high-return portfolios, mainly in consumer loans and small to medium-size enterprises, contributing to organic growth (rather than growth by acquisition). The Central Bank of Mexico and National Banking Commission in Mexico are both following Banorte’s lead, and banks from eastern Europe, Asia and throughout Latin America have all expressed interest in the model, says Ruiz.

Another component of the bank’s credit strategy is the use of the nascent Mexican derivatives markets, in particular for asset/ liability management, a problem of particular concern for emerging markets.

“We have some fixed-rate loans that are hard to hedge in a market as volatile as Mexico,” says Ruiz.

The bank uses a mix of interest rate swaps and cross-currency swaps but is very conservative, only using derivatives for hedging, and cautious in its choice of instruments. That said, the Mexican derivatives market is still young and Ruiz hopes it will offer the bank more opportunities to capitalise on.

Identifying opportunities has always been one of Ruiz’s strengths, whether in the market, his education or career. His professional career spans 20 years and includes roles in corporate finance, corporate banking, consumer loans and portfolio management. He began his secondary education at the Universidad National Autonoma de Mexico studying computer science. He started his professional career as a credit analyst for Mexico-based Serfin Bank, now Santander Serfin, a subsidiary of Spain’s Grupo Santander. He then worked for the bank in the IT department. While at the bank, he realised that finance and credit were the core of banking and was eager to move from the back to the front office. So in 1990 he pursued a Masters of Finance degree at the Instituto Technologico de Estudios Superiores de Moneterrey and then an MBA at the Instituto Panamericano de Alta Direccion de Empresas. He has been in his current position for seven years.

During that time, Banorte has also grown via acquisition. Back in 1992, it had a scant 125 branches concentrated in the north of Mexico and only a 3% market share of Mexico’s loan portfolios. In the interim, it has bought other Mexican banks, including Bancentro, Banpais and Bancrecer. The bank now boasts more than 1,000 branches scattered throughout the country and by 2003 had a 15.5% market share of loan portfolios. It is now the eighth largest bank ranked by assets in Latin America. The bank’s success recently attracted attention following announcements of the chief executive’s departure and the imminent cut of 1,500–2,000 positions, fuelling talk that it is repositioning itself for acquisition. Banorte has profited from the strides the Mexican market has made since the peso crisis 10 years ago. If turmoil strikes Mexico again, Banorte hopes its emphasis on credit risk management will leave it better prepared than its competitors.