A SUCCESSFUL PUBLIC A SUCCESSFUL PUBLIC BANK IN LATIN AMERICABANK IN LATIN AMERICA

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José Mena V.José Mena V.BID Seminar on Public BanksBID Seminar on Public BanksFebruary 2005February 2005

CONTENT

INSTITUTIONAL AND MACRO FRAMEWORK

MICROECONOMIC SETTING

VISION & MISSION OF BANCOESTADO

RECENT PERFORMANCE

CONCLUSIONS

A relatively stable and growing economy

A comparatively adequate financial development, but still large sectors without access to financial services

Pro-market financial regulation and supervision in place

A relatively concentrated banking industry with a large participation of foreign banks

A “leveled playing field” where BancoEstado plays by the same rules than private banks

I. INSTITUTIONAL AND MACRO FRAMEWORKI. INSTITUTIONAL AND MACRO FRAMEWORK

BancoEstado’s Profile: (Consolidated)*

Total Assets US$ 15 billions

Net worth US$ 816 millions

N° of branches 311

N° of employees 8,500

N° of clients 10 millions

N° transactions/month 20 millions*It includes its nine affiliates

II. MICROECONOMIC SETTING II. MICROECONOMIC SETTING (Underlying Bank’s conditions) (Underlying Bank’s conditions)

It basically operates as a commercial bank, not as a development bank

Social responsibility (role) in the context of sound and competitive policies (no subsidies), intended to maximize social return

It is fully autonomous (from the government/Ministry of Finance or any other political influence) to define its loan and pricing policies

Strong corporate governance and full compliance

Capable and participative management

A permanent struggle for improving available factors’ productivity and efficiency (economies of scope and scale) to minimize costs and prices

Commercial policy focused on providing a full range of financial services, at the lowest possible cost, to people and businesses without access to private banks

• Vision => To become a world class institution and accomplish its social mission.

• Mission => To offer competitive financial services that contribute to Chile’s development and facilitate the access of all Chilean to products and services that improve their welfare and economic security.

• BancoEstado’s vision and mission are shared and decidedly supported by both workers union and management through their solid long-lasting strategic alliance.

III. VISION & MISSION OF III. VISION & MISSION OF BANCOESTADO BANCOESTADO

IV. RECENT PERFORMANCE IV. RECENT PERFORMANCE

(Trajectory/Evolution of main (Trajectory/Evolution of main

indicators)indicators)

935

1.886

197

311

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

1996 1998 2000 2002 2004

0

50

100

150

200

250

300

350

ATM's & other Automated Services Branch Network

Market Completeness

Growing menu of new financial services offered mainly to low-income clients and small businesses

Scale of Operations with Individuals and Microbusinesses

1,79

4,96

0

1

2

3

4

5

6

2000 2004

millions

Scale of Operations (stock)

Leading bank in the provision of:

BancoEstado 71Private Banks 51

Total loan stock 27N° of transactions 75Poor People Housing 87

Total Investment (2001-04) US$ 1,7 billion

Long-Term Commercial Loans (%)

Market share in Housing Loans (%)

Infraestructure Financing for Private Concessioners

Resource (Savings) Mobilization for Development Leader in the market for family (passbook) savings

1996 2004

Savings Stock 78 79

Total Accounts 91 90

BancoEstado's Accounts (in millions) 9,4 10,6

Market Share in Passbook Savings (in %)

Invaluable Contributions to public confidence and financial stability through sound policies and solvency

1996 2001 2004Total risk-based capital ratio 11,3 11,8 11,0*International Credit Risk Rating

Standard & Poor's A- A- AMoody's Baa1 Baa1 Baa1

Past-due loans/Total LoansBancoEstado 2,2 1,3 0,8Banking Industry 1,5 1,6 1,2

* Considering this year's expected capitalization

Solvency and Asset Quality (in %)

Enhancement of monetary policy transmission

BancoEstado's share in Total Net Loans (in %)

13,210,2

11,2

0

2

4

6

8

10

12

14

1996 1997 1998 1999 2000 2001 2002 2003 2004

Promotion of entrepreneurship

Microbusinesses Served by BancoEstado (in thousands)

9,6

88,4

139,4

0

20

40

60

80

100

120

140

160

1998 2001 2004

Promotion of competition in a concentrated banking industry

US$ 1.500 US$ 6.000BancoEstado 1,84 1,02Average Banking Industry 2,27 1,33

* As of October 2004

Interest Rates on Consumer Loans* (in %)

Loan Amount

“Lender of last resort” in critical financial episodes

It provided a large amount of capital to bankrupt banks in the severe and generalized 1982-83 private banking crisis

It supplied liquidity to the financial system, with the proper safeguards, during the recent “Inverlink affair”

High Profitability and Growing Transfers to “Social Budget”

1996 2004 Average 1991-2004ROE (before Tax)

BancoEstado 17,8 22,1 20,7Banking Industry 17,2 19,9 17,4

Cost/Income RatioBancoEstado 68,8 65,8 66,6Banking Industry 68,1 57,2 62

Transfers to Government*(Accumulated 1996-2003; in US$ dic.'03)

*They include taxes and dividends

Profitability, Efficiency & Transfers to Govt

US$ 745 millons (≈US$ 98 million/year)

A dynamic institutional and macro framework and a correspondingly efficient microeconomic (business) setting are both critical factors for a public bank’s success in emerging economies

A rock solid compromise from workers and management with a clear Bank’s vision and mission has also been a precondition for success

V. CONCLUSIONS V. CONCLUSIONS (Final comments)(Final comments)

A public bank’s social role or development contribution must be realized by systematically applying sound and competitive policies (no subsidies), and without interference from any political influence

The long term experience of BancoEstado is a clear (irrefutable) evidence that a financially and socially efficient operation of a public bank may render a significant support to the development of a small open economy