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Banrisul jumps on Rio Grande do Sul’s economic bandwagon

Banrisul jumps on Rio Grande do Sul’s economic bandwagon
(Gazeta Mercantil/Finanças & Mercados, Issue 08/20/2008. Page 2 and Cover)

A happy coincidence boosted the performance of Banco do Estado do Rio Grande do Sul (Banrisul) in 2008. Positive trends in Rio Grande do Sul’s economy have led to an upturn in credit demand, a demand which can be fulfilled thanks to the R$800 million raised at the IPO held by the Institution in late July last year, a few days prior to the outbreak of the subprime crisis that bittered the mood of the global financial market. If the transaction had taken a little longer, it might not have been accomplished, admitted Banrisul’s CEO, Fernando Lemos, who heads the bank since 2003.

The two previous good harvests, favorable commodities prices and buoyant industrial activities, combined with the bank’s readiness to take advantage of the auspicious scenario, led Banrisul to post an increase of 45% in its loan portfolio at the end of the first half-year, exceeding the results disclosed by the Brazilian major banks. Consequently, the bank ended the first six months of the year with a portfolio amounting to R$10 billion, a sum that had been estimated for the end of December at the start of the year. Now the forecast calls for a year-end figure of R$12 billion. The initial estimate on credit increase for the year was 30%. “Now we figure a percentage ranging between 37% and 40%”, Lemos said. “This is partly due to Rio Grande do Sul’s economy, whose growth exceeded that of the domestic economy. We became more aggressive and recovered market share. We hold 30% of bank businesses in the state, and 70% of Rio Grande do Sul’s bank clients are our clients”, added Lemos, who became CEO at the invitation of then governor Germano Rigotto (PMDB - Brazilian Democratic Movement Party) and was kept in the position by Rigotto’s successor, governor Yeda Crusius (PSDB - Brazilian Social Democracy Party). In 2007, Brazil’s GDP increased 5.4% while Rio Grande do Sul’s grew by 7%.

Corporations were the star of Bank’s credit performance in the semester. Demand grew 75% over June 2007 and reached R$3.4 billion. Work capital lines alone grew 87.6%, amounting to R$2.8 billion. “The bank does a lot of businesses with small and medium-sized companies. Banricompras, a corporate credit via consumption, is a competitive edge for us: it is the debit card used by all of our account holders. There are three million cards accredited at about 60,000 points of sale. We can grant credit securely since it means a receivable against Banrisul. We give credit to those who can’t get it anywhere else. The locksmith who works at the corner owns this card”, Lemos said.

Low delinquency

Despite the accelerated credit trend, the current delinquency rate is 3.2%, one of the market’s lowest rates. According to Lemos, the secret lies with the management model that was implemented. “When I came to the bank, the Selic rate was high-close to 30%-but we knew it was going to decrease. Therefore, we prepared ourselves, designing the bank’s business model for credit and pre-approved credit, as well as a variable compensation model for our employees. Delinquency is part of this process. Previously, our salesmen did not care about delinquency; they only cared about selling. Now that it generates cash, the salesmen are concerned about delinquency, managing their clients and portfolios. If client delinquency exceeds the bank’s average, the salesman loses his bonus”, explained Lemos, stressing that 85% of Banrisul’s portfolio is within the top three ratings (from A to C).

2008 marks the bank’s 80th anniversary, having been acknowledged as one of the best five Brazilian retail banks this year in a ranking by Austin Rating, which was published in Gazeta Mercantil’s Balanço Financeiro magazine.

With a focus on the state, where 394 of its 423 branches are located, Banrisul is pursuing new growth opportunities. Although admitting it would somehow make sense to purchase the Banco do Estado de Santa Catarina (Besc), which is set to merge with Banco do Brasil (BB), Lemos denied that the bank intended to make acquisitions for reasons such as legal limitations. Still, the Company pursues organic growth, especially in Santa Catarina, where the bank has 13 branches and will open another 10 by year-end. “Our growth will take place in our own base”, he affirmed. One of Banrisul’s targets is to move forward with credit cards. According to Lemos, the decision on whether to brand the cards-currently numbered at between 1.2 and 1.3 million-is in its final stage. “We will decide whether to select the brand or to let the client choose”, Lemos said, highlighting a migration taking place for the whole base to multifunctional smart cards, considered immune to fraud in Internet banking operations. Provided with a chip with the Multos operating system, the card combines debit/credit functions, internet banking and the ability to file income tax returns through the Federal Treasury’s website.

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