:
A SUCCESSFUL PUBLIC BANK
IN LATIN AMERICA
José Mena V.
BID Seminar on Public Banks
February 2005
CONTENT

INSTITUTIONAL AND MACRO FRAMEWORK

MICROECONOMIC SETTING

VISION & MISSION OF BANCOESTADO

RECENT PERFORMANCE

CONCLUSIONS
I. INSTITUTIONAL AND MACRO FRAMEWORK

A relatively stable and growing economy

A comparatively adequate financial development, but
still large sectors without access to financial services

Pro-market financial regulation and supervision in
place

A relatively concentrated banking industry with a large
participation of foreign banks

A “leveled playing field” where BancoEstado plays by
the same rules than private banks
II. MICROECONOMIC SETTING
(Underlying Bank’s conditions)

BancoEstado’s Profile:
(Consolidated)*

Total Assets

Net worth
US$ 816 millions

N° of branches
311

N° of employees
8,500

N° of clients
10 millions

N° transactions/month
20 millions
*It includes its nine affiliates
US$ 15 billions

It basically operates as a commercial bank,
not as a development bank

Social responsibility (role) in the context of
sound and competitive policies (no subsidies),
intended to maximize social return

It
is
fully
autonomous
(from
the
government/Ministry of Finance or any other
political influence) to define its loan and
pricing policies

Strong
corporate
compliance
governance
and
full

Capable and participative management

A permanent struggle for improving available
factors’ productivity and efficiency (economies
of scope and scale) to minimize costs and prices

Commercial policy focused on providing a full
range of financial services, at the lowest
possible cost, to people and businesses without
access to private banks
III. VISION & MISSION OF BANCOESTADO
• Vision => To become a world class institution and
accomplish its social mission.
• Mission => To offer competitive financial services
that contribute to Chile’s development and facilitate
the access of all Chilean to products and services that
improve their welfare and economic security.
• BancoEstado’s vision and mission are shared and
decidedly supported by both workers union and
management through their solid long-lasting strategic
alliance.
IV. RECENT PERFORMANCE
(Trajectory/Evolution of main indicators)
 Market Completeness
1.886
2.000
1.800
300
1.600
311
250
1.400
1.200
350
197
200
1.000
800
150
935
600
100
400
50
200
0
0
1996
1998
2000
ATM's & other Automated Services
2002
2004
Branch Network
 Growing menu of new financial services offered
mainly to low-income clients and small businesses
millions
Scale of Operations with Individuals
and Microbusinesses
6
4,96
5
4
3
2
1,79
1
0
2000
2004
Scale of Operations (stock)
 Leading bank in the provision of:
BancoEstado
Private Banks
Long-Term Commercial Loans (%)
71
51
Market share in Housing Loans (%)
Total loan stock
27
N° of transactions
75
Poor People Housing
87
Infraestructure Financing for Private Concessioners
Total Investment (2001-04)
US$ 1,7 billion
 Resource (Savings) Mobilization for Development
 Leader in the market for family (passbook) savings
Market Share in Passbook Savings (in %)
Savings Stock
Total Accounts
BancoEstado's Accounts (in millions)
1996
2004
78
91
9,4
79
90
10,6
 Invaluable Contributions to public confidence and
financial stability through sound policies and solvency
Solvency and Asset Quality (in %)
Total risk-based capital ratio
International Credit Risk Rating
Standard & Poor's
Moody's
Past-due loans/Total Loans
BancoEstado
Banking Industry
* Considering this year's expected capitalization
1996
11,3
2001
11,8
2004
11,0*
ABaa1
ABaa1
A
Baa1
2,2
1,5
1,3
1,6
0,8
1,2
 Enhancement of monetary policy transmission
BancoEstado's share in Total Net Loans (in %)
14
12
13,2
10,2
11,2
10
8
6
4
2
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
 Promotion of entrepreneurship
Microbusinesses Served by BancoEstado
(in thousands)
160
139,4
140
120
88,4
100
80
60
40
20
9,6
0
1998
2001
2004
 Promotion of competition in a concentrated
banking industry
Interest Rates on Consumer Loans* (in %)
BancoEstado
Average Banking Industry
* As of October 2004
Loan Amount
US$ 1.500 US$ 6.000
1,84
1,02
2,27
1,33
 “Lender of last resort” in critical financial episodes
 It provided a large amount of capital to bankrupt
banks in the severe and generalized 1982-83 private
banking crisis
 It supplied liquidity to the financial system, with the
proper safeguards, during the recent “Inverlink affair”
 High Profitability and Growing Transfers to
“Social Budget”
Profitability, Efficiency & Transfers to Govt
ROE (before Tax)
BancoEstado
Banking Industry
Cost/Income Ratio
BancoEstado
Banking Industry
Transfers to Government*
1996
2004
Average 1991-2004
17,8
17,2
22,1
19,9
20,7
17,4
68,8
65,8
66,6
68,1
57,2
62
US$ 745 millons (≈US$ 98 million/year)
(Accumulated 1996-2003; in US$ dic.'03)
*They include taxes and dividends
V. CONCLUSIONS
(Final comments)

A dynamic institutional and macro framework and
a
correspondingly
efficient
microeconomic
(business) setting are both critical factors for a
public bank’s success in emerging economies

A rock solid compromise from workers and
management with a clear Bank’s vision and
mission has also been a precondition for success

A public bank’s social role or development
contribution must be realized by systematically
applying sound and competitive policies (no
subsidies), and without interference from any
political influence

The long term experience of BancoEstado is a clear
(irrefutable) evidence that a financially and socially
efficient operation of a public bank may render a
significant support to the development of a small
open economy