So far, so good. As of August, the bank was able to increase its return on average equity (ROAE) to 16.3% from 9.8% a year earlier, according to company information. It also grew return on average assets (ROAA) to 2.1% from 1.2% in the same period. These are the highest ROAE and ROAA in the Salvadoran banking sector, according to the local banking association, Abansa.

For instance, as of August, Abansa data show that Scotiabank had ROAE of 3.9% and ROAA of 0.4%. HSBC had ROAE of 6.27% and ROAA of 0.8% while Citi claims ROAE of -13.8% and ROAA of 0.2%. Moreover, according to Fitch, the average ROAE of Salvadoran banks is 6.9% and average ROAA 0.9%.

Agrícola’s better performance comes despite a weak economic situation in El Salvador, says the bank’s chairman Sergio Restrepo. “Like other countries in the region, El Salvador was negatively impacted during the financial crisis, mostly because of its close relationship with the US,” he tells LatinFinance. Restrepo adds that the slowdown caused remittances from the US to drop significantly and exports to the US to dwindle.

As the local economy begins showing signs of growth, Restrepo expects the bank’s performance to continue improving. “Remittances are picking up and jobs [related to exporting companies] are once again being created. We expect El Salvador’s economy to grow,” Restrepo says.

Walter Molano, head of research at BCP Securities, forecasts that El Salvador will see GDP rebound by 1.5% in 2010 and another 2.4% in 2011. In 2009, the economy contracted by 3.3%.

Among signs of growth already taking place is an increase in remittances, which according to the local central bank totaled $293 million in July, a 2.3% year-over-year improvement. July was the fifth consecutive month showing an increase in remittances, according to the central bank. This flow helps the bank obtain more deposits and enhances loan demand, says Restrepo.

Besides being assisted by growth in the economy, it also helps that Agrícola is the largest bank in El Salvador, with 28.7% market share by assets. Its closest competitor, Citi, has some 17.8%, according to data from the Salvadoran bank association Abansa.

However, non-performing loans (NPL) at the bank have been increasing since 2008. As of March 2010, NPLs at Banco Agrícola represented 2.9% of total loans. That is up from 1.9% in March 2009 and 1.8% in March 2008.

To be fair, this trend is also observed in other banks locally. For example, Citi saw NPLs rise to 5.7% in March 2010 from 4.1% a year before. Fitch points out that the average NPL/total loan ratio in El Salvador’s banking system was 4.0% in June.

Agrícola forecasts continued expansion. Restrepo notes that since Bancolombia took over the bank, it has been able to provide commercial credit to companies in Guatemala and Costa Rica, where he expects the bank to continue the build. LF