Shortly over one decade after the 2008 recession, Puerto Rico's banking industry has managed to strengthen itself and, in light of concerns regarding another possible global recession, the president and CEO of Banco Popular, Ignacio Álvarez, assured that the island's banking market is better equipped to handle another financial depression.
"The situation back then was very difficult and forced us to be more rigorous, especially with mortgages. In terms of the difference, today, Popular, as well as the rest of the industry in Puerto Rico, is better prepared to endure another blow. Capital ratios are almost double what they were in 2007 and risk management systems are more sophisticated," Álvarez told THE WEEKLY JOURNAL.
During that economic collapse, Popular was forced to borrow $946 million from the U.S. Department of Treasury, which were lent via the Troubled Asset Relief Program (TARP). In those times, more than 600 banks from all U.S. jurisdictions received nearly $200 billion—money that was later returned by the banks.
Álvarez explained that the global financial crisis of 2008 was directly unleashed by the collapse of the real estate bubble in the United States and that, unlike the circumstances then, the current loan portfolio is more diverse.
"In 2007 there were far more construction loans, which are now significantly less," he observed.
After the rescue and 10 years after the crisis, the institution's performance has maintained a sustained trend of increasing numbers and operations. The most recent data indicates that for the second quarter of this year, Popular registered net income of $171 million and added roughly 71,000 additional clients in the past 12 months.
"Credit metrics have been good, so losses have been lower than we had estimated. It has been a good year so far and we are happy. I recognize that we have started a little slower than in the United States, but we operate there in expensive markets," he explained.
Compared to the period of the crisis, the industry is more consolidated, but the executive understands that it is also more balanced. Popular in the past decade acquired the now inexistent Westernbank and part of the assets of Doral Bank. This is in addition to the other consolidations of other institutions, such as Oriental with BBVA, and more recently with Scotiabank.
"The banks' composition has changed. We have a smaller industry, but in turn more balanced. The economy is not going to grow at an accelerated pace and the population is declining, so banking is adjusting to the new reality. We are less and do not see the possibility of entering new institutions because world organizations are looking for growing markets," Álvarez stated.
Although the Popular CEO acknowledged that economic indexes do not point to an improvement in the future, he noted that he does not foresee a fiscal emergency for the banking industry, at least within the next five years.
"In the next three to five years, money from federal funds will come in that will activate the economy. I see no danger and I am very comfortable with the coming years. The problem is not a crisis, it is how we transform the economy to be sustainable in the long term," Álvarez reasoned.
However, he stressed that the story could be another one in 10 years, if the agreements made as part of the restructuring of the government debt are not sustainable in the future.
"If it is not a successful restructuring, it will have a disastrous effect within 10 years. There are many important agreements that can have a negative impact if they are not well negotiated," he opined.
Moreover, in response to Puerto Rico's crisis in the public sector, Álvarez indicated that, although it had a negative impact in the investment market, he doesn't believe it will have a long-term effect.
"I had my fears, because of what happens in the United States that every time the president speaks the market goes down. But I don't think the local crisis affects the investment market because Governor Wanda Vázquez has handled it very well and has brought stability," he said.
The bank executive affirmed that what could pose a threat are the corruption schemes that have been discovered in the island. He also stated that, while the local economy remains in a standstill, there are countries where corruption indexes have decreased and the economy has begun to take off.
"Corruption is even stronger and is an issue that must be handled. This is something that worries me in the long term and a lot. That image affects investments because good investors do not want to go to jurisdictions where they think the rules are not fair and that they will lose their money," Álvarez said.