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Focus: How Santander's Brazil unit is driving growth with car loans

Reuters  |  SAO PAULO 

By Carolina Mandl

PAULO (Reuters) - At BM Multimarcas, a used-car on the outskirts of Paulo, owner Santel de can show you jalopies that most big banks would not touch.

There is a faded blue 2003 hatchback with 195,000 kilometers on the dial. And a Gol Turbo so old that it could vote.

But when he needs to seal a deal, Bernardo has a go-to option for financing: the Brazilian unit of Spain's

It has grabbed 25 percent of the market for in Latin America's largest country, in part by extending credit to borrowers shunned by other mainstream banks. That means financing working-class customers in need of cheap motorcycles and cars up to two decades old.

That business helped power Madrid-based Santander through Brazil's recent deep recession, even as domestic rivals and Banco SA hit the brakes, and other foreign banks such as London-based and U.S. sold their struggling Brazilian

There are risks to Santander's strategy, as any used-car veteran will tell you.

"When an old down, its owner prefers spending money to fix it rather than paying down debt," said Bernardo of BM Multimarcas. "That's why many banks don't like financing old cars."

Yet Santander, Brazil's third-largest private-sector bank, is cruising. Its 90-day default ratio is the lowest among Brazil's largest private banks, at 2.9 percent in September.

Year-over-year consumer loan growth in hit 22.6 percent in September, more than triple the industry average of 7 percent. unit profitability, which for years has lagged peers, jumped to 19.4 percent from 16.3 percent in the same period. That beat Bradesco, the country's second-largest private lender, and narrowed the gap with industry-leading Itau.

Santander's increasing reliance on shows how emerging markets can still provide a jolt of growth. The Brazilian unit contributed 26 percent of group profits in the first nine months of 2018, up from 19 percent four years ago. Santander Brasil's stock price has surged more than two thirds in the last 12 months, vastly outperforming the shares of its parent company, as well as those of Itau and

Still, Santander Brasil's outsized auto loan portfolio, and its willingness to bet on borrowers and vehicles avoided by competitors, could presage a bumpier road ahead in a country with a history of economic volatility.

"Certainly, Santander's growth strategy is a success story so far," said Andre Martins, an at Investimentos. "But the will be the one most exposed to defaults if the Brazilian economy turns down."

(For a graphic on Santander Brasil's share of auto loans in Brazil, see


For now, Brazil's economy appears to be on the upswing. And Santander executives say their strategy is battle-tested.

Around 80 percent of the Brazil unit's auto loans are on cars aged four years or less, and down payments are hefty, averaging 36 percent.

"If Santander's loan book were problematic, it would already have popped after a 3-year historic recession," said Angel Santodomingo, for "Our success in credit quality is related to our ability to analyze and price individuals' risk."

Santodomingo would not reveal Santander's secret sauce. But the is harnessing big data to glean information beyond borrower income and savings. And Brazil risk officers are using company tools that have proven successful elsewhere, including the United States, where Santander is a major

The has also embraced the internet to grow its business, leveraging generated through WebMotors, a top that it owns.

Two years ago it launched an app that allows dealers to arrange within minutes for buyers who provide eight pieces of information, an innovation that is now being copied by other Brazilian banks. That process had previously taken at least a day and required to provide reams of documentation. If a loan is approved, clients sign the contract digitally.

"It saves a lot of time," said Eduardo de Jesus, a at Basile Center Car, located in a middle-class neighborhood on Paulo's northwest side.

Santander plans to use that model to grow its business in Brazil with loans for vacations, building materials and solar panels, according to Andre Novaes, of Santander's unit. Many Brazilian banks have avoided such lending because of the high default risk and shaky collateral.

To safeguard its portfolio, Santander said it has encouraged highly-indebted clients to refinance and consolidate different types of loans in arrears into a single loan with more amicable terms.

Some bankers, however, view the practice as a way to mask Santander's default ratio.

Severe losses in 2011 forced Itau and to stop financing low-end motorcycles, and to ban cars aged ten years and older from their portfolios. They also increased down payments and shortened loan maturities, which had stretched as long as 70 months.


Santander has been in Brazil since 1982. It has made a few good-sized acquisitions, including the purchase of the Brazil unit of Amsterdam-based in 2007.

But most of its organic growth spurt has come under Sergio Rial, who took the job at in January 2016.

A lawyer and economist, served a stint as at the and as a at He was of the Brazilian meatpacker when Ana Botin, the of Santander Group, tapped him for the top job in Brazil.

While have juiced growth, has also bet on safer credit lines, including payroll loans and mortgages, as well as credit cards. Overall, Rial has been strengthening Santander's to the detriment of corporate loans. Consumer loans comprise 70 percent of the bank's loan book, up 12 percentage points from when Rial took post.

To engage the bank's employees, Rial has tied more of their compensation to performance; variable compensation increased 16 percent from 2015 to 2017 even as the bank's payroll shrunk roughly 7 percent. The number of clients has increased for 40 straight months, reaching 23.4 million in September.

Still, the auto loan business remains the bank's standout in terms of growth. De Jesus, the car at Basile Center Car, said Santander's rivals are paying attention.

"When clients come to a store, they want to know exactly if the down payment suits their pockets, and Santander's tools show it immediately," he said. "Other banks are copying it now."

(Reporting by Carolina Mandl; Editing by and Marla Dickerson)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, January 11 2019. 13:30 IST