Brazil has been the engine driving Santander’s growth in the region. In 2018, the bank’s operations in Brazil had a record year, with its return-on-equity hitting an all-time high 21.1%. Latin America is now responsible for more than 40% of the Spanish bank’s global profits.

Despite economic headwinds, the bank has continued to increase its consumer business, while expanding its menu of financial services, such as wealth management.

The bank is also placing big bets on technology that will allow customers to access services through digital channels rather than traditional branches. The bank also sees huge potential in the region’s underbanked population.

Santander Group CEO José Ántonio Álvarez recently spoke with LatinFinance about the bank’s recent triumphs in Latin America and its plans for the future. The interview was edited for space and content.

How does Latin America, in particular Brazil, fit into the broader scope of Santander Group?

The performance in Brazil in the last four or five years has been remarkable, both in terms of volume and in terms of capacity to generate profits.

As a matter of fact, we went from a kind of 13% return on taxable equity to north of 20% return on equity in four years. So this is a remarkable achievement.

Why did this happen? During the financial crisis in 2008-2011, we went through a large integration of our operations in Brazil, with Banco Real that we bought at the time.

The franchise took off and started to gain significant market share with an approach that was a combination of high flexibility and a capacity to tap the markets in areas in which we found our presence was previously limited or non-existent.

In credit cards, six, seven or eight years ago, our share was probably in the region of seven or eight percent and now it is 15%.

In consumer finance, particularly auto-lending, we launched a proposition, highly digital. We went to a market share of 25%.

The majority of these achievements happened at a time when the economy of Brazil was in recession. We were able to enter into a recession period of 2015-2016 to produce a significant uplift in our franchise in terms of quality and in terms of capacity to earn profits. The team has done a great job.

During the recession, we pushed ahead when other Brazilian banks were somehow tightening their underwriting standards.

But our position was different than theirs and we pushed ahead and we were right.

What is the result of this? Now we have a franchise, in terms of profitability that is head-to-head with the top two lenders in the country, which are Bradesco and Itaú.

You are building a supermarket of banking and financial services in Brazil. What can you tell me about your wealth management operations in Brazil, and more broadly in the rest of Latin America?

Two years ago, we launched a global wealth management division for the group. At that time, we only had a global management division that was Corporate Investment Management.

We see significant growth in this field going ahead. I’m fairly optimistic that we’re going to grow in this space. We are starting from a very low level, a relatively low level. Probably we are in a position to grow more than 20% and to continue to show superior growth compared with our peers.

There is an impression that banks in Latin America tend to bolt on existing technology, rather than grow it organically. What technological innovations are you looking to implement or expand in Latin America?

Probably the most important one, in qualitative terms, not in quantitative terms, is what we call SuperDigital. As you know, in the region, roughly speaking, I would say 40% of the population has no access to financial services. Why is that? Because the traditional distribution model in banking was the branch. And to serve customers through branches is relatively expensive, particularly for those people that have low income. And this part of the population remains outside the financial system.

What is happening today? With the digital tools that we have, it’s possible to serve, I would say, in a profitable way, those customers that previously were left outside the financial system. And this is exactly the proposition of SuperDigital, in which we already have close to 1 million customers. We launched in Brazil. We are launching right now in Chile. We have launched already in Mexico, and we plan to be launching the same proposition all across the [region]. This is a proposition that allows you to have a card, that you can use [to deposit] your salary and you can use ATMs and pay with the card. So this is a cheap way to serve customers with low income.

The other proposition that we launched is Prospera. It is a kind of microcredit. In some cases, it’s microcredits in the traditional way and in some others its working capital for small businesses..

Those propositions are probably the ones that use significantly technology to tap into new markets, particularly low-income markets and potential customers that we weren’t able to serve before.

Drilling down the income scale to tap underutilized and underbanked areas has huge potential and the technology is making it cost-effective. Explain.

So the traditional branch, as I said to you, is very expensive, while the new technology using existing infrastructure like ATMs and cards and new payment system allow you to provide basic financial services of good quality to very low income people. In Latin America there is the massive use of cash. We need to find ways to improve the payment systems and at the same time allow people to pay electronically.

This is something we are betting on and we are working with the utility companies and the phone companies in some countries where the payments are still made in cash, in order to [use] direct debit and to improve significantly the payment systems in order to reduce the overall cost to society of making payments that in some countries is extremely high.

Where do you think the biggest growth in process is going to happen in the next year?

At our investor day back in April, the view we were sharing with investors is that on average we can grow, let’s say double-digit in local currencies. I mean double-digit in the loan book, double-digit in the deposit book and in the overall balance sheet, and that we can keep profitability in line with a 20% return on taxable equity. In some countries, slightly above. In some other countries a little bit below. But overall around 20% return on equity. We shared this with our investors and the financial community as our best estimate for the region in the medium-term, three to four years. We still think that this holds, even though the slowdown in the world economy is also affecting, as you know, these countries.