Santander targets Mexican consumers for loan growth after failed CitiBanamex bid

Spanish lender Banco Santander SA wants to boost growth in Mexico through higher consumer lending after its bid for Citigroup Inc.'s Mexican retail banking business was rejected.

Santander announced July 22 that it was no longer part of the bidding process for CitiBanamex, which could be worth as much as $9 billion, after its nonbinding offer was rejected. A deal for CitiBanamex would have made Banco Santander México SA Institución de Banca Múltiple Grupo Financiero Santa Mexico's largest lender by total assets, S&P Market Intelligence data shows.

The lender will now turn its attention to growing its Mexican loanbook in areas including auto loans and credit cards, where it has only recently established a presence.

"We're going to focus more on individuals," CEO José Antonio Álvarez said during a second-quarter earnings call July 28. "Our market share in the corporate space [in Mexico] is higher than it is in the individual space. The organic growth is going to be focusing [on] the customer base, individuals."

Mexican profits

Mexico generated €3.35 billion in revenue and €877 million in net profit in 2021, Market Intelligence data shows. This compares to €46.56 billion in revenue and €9.65 billion in net profit in 2021 for the Santander group as a whole. Spanish rival Banco Bilbao Vizcaya Argentaria SA's Mexican subsidiary BBVA México SA Institución de Banca Múltiple Grupo Financiero BBVA México is the largest bank in Mexico and generates about a third of the group's revenues and more than 40% profits, Market Intelligence data shows.

Santander entered the Mexican auto lending market in 2018 with the launch of digital loan product Super Auto Santander. Auto lending is a major source of income for Santander in the U.S. and Europe. The bank's share of the Mexican auto loan market has grown to 14% since then, said Álvarez.

The Madrid-based bank is targeting similarly speedy growth for its credit card business on the back of the launch of a new card in September, said Álvarez. "[We are] selling 100,000 cards a month and we are growing well there. It's accelerating," the CEO said.

Santander confirmed in February that it was interested in buying CitiBanamex. Questions about how Santander would fund the deal hung over the bank in the months that followed. Chairman Ana Botín repeatedly stated that the bank planned to finance the acquisition through organic capital generation and would not raise new capital to buy CitiBanamex or eat into existing reserves that would push its key capitalization ratio below 12%.

Disciplined offer

Santander's offer for CitiBanamex was "disciplined," said Álvarez. "We put a price [on CitiBanamex], asking for a return on investment that was attractive for our shareholders."

Álvarez said the offer done was on the basis that the bank had a "good chance of gaining market share in the new situation, growing organically and adding several percentage points of market share in Mexico with our existing franchise."

The Spanish lender could nonetheless still benefit from the CitiBanamex sale due to the disruption caused to the business as it is off-loaded, said Álvarez. "It reminds me a little bit of the situation we faced in Brazil a couple of years ago when Bradesco bought HSBC," he said, referring to Brazilian lender Bradesco buying HSBC's Brazil business in 2016 for $5.2 billion.

"On the back of this, we were able to gain two or three percentage points in market share in Brazil [even while it was in recession]," said Álvarez.

Meanwhile, Santander on July 28 reported an increase in second-quarter net profit, with a big revenue rise offsetting higher loan-loss provisions and costs. The bank posted a net profit of €2.35 billion, an increase from €2.07 billion a year earlier.