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How Santander’s Brazil unit is driving growth with car loans

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SAO PAULO (Reuters) – At BM Multimarcas, a used-car dealer on the outskirts of Sao Paulo, owner Santel de Abreu Bernardo can show you jalopies that most big banks would not touch.

Santander bank office building is seen in Sao Paulo, Brazil January 9, 2019. Picture taken January 9, 2019. REUTERS/Amanda Perobelli

There is a faded blue 2003 Renault hatchback with 195,000 kilometers on the dial. And a Volkswagen Gol Turbo so old that it could vote.

But when he needs to seal a deal, Bernardo has a go-to option for financing: the Brazilian unit of Spain’s Banco Santander.

It has grabbed 25 percent of the market for car loans in Latin America’s largest country, in part by extending credit to borrowers shunned by other mainstream banks. That means financing working-class customers in need of cheap motorcycles and cars up to two decades old.

That business helped power Madrid-based Santander through Brazil’s recent deep recession, even as domestic rivals Itau Unibanco Holding SA and Banco Bradesco SA hit the brakes, and other foreign banks such as London-based HSBC Plc and U.S. Citigroup sold their struggling Brazilian retail businesses.

There are risks to Santander’s strategy, as any used-car veteran will tell you.

“When an old car breaks down, its owner prefers spending money to fix it rather than paying down debt,” said Bernardo of BM Multimarcas. “That’s why many banks don’t like financing old cars.”

Yet Santander, Brazil’s third-largest private-sector bank, is cruising. Its 90-day default ratio is the lowest among Brazil’s largest private banks, at 2.9 percent in September.

Year-over-year consumer loan growth in Brazil hit 22.6 percent in September, more than triple the industry average of 7 percent. Brazil unit profitability, which for years has lagged peers, jumped to 19.4 percent from 16.3 percent in the same period. That beat Bradesco, the country’s second-largest private lender, and narrowed the gap with industry-leading Itau.

Santander’s increasing reliance on Brazil shows how emerging markets can still provide a jolt of growth. The Brazilian unit contributed 26 percent of group profits in the first nine months of 2018, up from 19 percent four years ago. Santander Brasil’s stock price has surged more than two thirds in the last 12 months, vastly outperforming the shares of its parent company, as well as those of Itau and Bradesco.

Still, Santander Brasil’s outsized auto loan portfolio, and its willingness to bet on borrowers and vehicles avoided by competitors, could presage a bumpier road ahead in a country with a history of economic volatility.

“Certainly, Santander’s growth strategy is a success story so far,” said Andre Martins, an analyst at XP Investimentos. “But the bank will be the one most exposed to defaults if the Brazilian economy turns down.”

(For a graphic on Santander Brasil’s share of auto loans in Brazil, see tmsnrt.rs/2GtCxFR)

RISK MANAGEMENT

For now, Brazil’s economy appears to be on the upswing. And Santander executives say their strategy is battle-tested.

Around 80 percent of the Brazil unit’s auto loans are on cars aged four years or less, and down payments are hefty, averaging 36 percent.

“If Santander’s loan book were problematic, it would already have popped after a 3-year historic recession,” said Angel Santodomingo, chief financial officer for Santander Brasil. “Our success in credit quality is related to our ability to analyze and price individuals’ risk.”

Santodomingo would not reveal Santander’s secret sauce. But the bank is harnessing big data to glean information beyond borrower income and savings. And Brazil risk officers are using company tools that have proven successful elsewhere, including the United States, where Santander is a major subprime auto lender.

The bank has also embraced the internet to grow its business, leveraging online sales generated through WebMotors, a top car-selling website that it owns.

Two years ago it launched an app that allows dealers to arrange car loans within minutes for buyers who provide eight pieces of information, an innovation that is now being copied by other Brazilian banks. That process had previously taken at least a day and required car buyers to provide reams of documentation. If a loan is approved, clients sign the contract digitally.

“It saves a lot of time,” said Eduardo de Jesus, a salesman at Basile Center Car, located in a middle-class neighborhood on Sao Paulo’s northwest side.

Santander plans to use that model to grow its consumer finance business in Brazil with loans for vacations, building materials and solar panels, according to Andre Novaes, head of Santander’s consumer finance unit. Many Brazilian banks have avoided such lending because of the high default risk and shaky collateral.

To safeguard its portfolio, Santander said it has encouraged highly-indebted clients to refinance and consolidate different types of loans in arrears into a single loan with more amicable terms.

Some bankers, however, view the practice as a way to mask Santander’s default ratio.

Severe losses in 2011 forced Itau and Bradesco to stop financing low-end motorcycles, and to ban cars aged ten years and older from their portfolios. They also increased down payments and shortened loan maturities, which had stretched as long as 70 months.

RIAL AT THE HELM

Santander has been in Brazil since 1982. It has made a few good-sized acquisitions, including the purchase of the Brazil unit of Amsterdam-based ABN AMRO in 2007.

But most of its organic growth spurt has come under Sergio Rial, who took the CEO job at Santander Brasil in January 2016.

A lawyer and economist, Rial served a stint as chief financial officer at the grains trader Cargill Inc and as a board member at ABN AMRO. He was chief executive of the Brazilian meatpacker Marfrig when Ana Botin, the executive chairman of Santander Group, tapped him for the top job in Brazil.(Santander Brasil share’s outperform rivals: tmsnrt.rs/2ADY3Cx)

While car loans have juiced growth, Rial has also bet on safer credit lines, including payroll loans and mortgages, as well as credit cards. Overall, Rial has been strengthening Santander’s retail arm to the detriment of corporate loans. Consumer loans comprise 70 percent of the bank’s loan book, up 12 percentage points from when Rial took the CEO post.

Santander bank office building is seen in Sao Paulo, Brazil January 9, 2019. Picture taken January 9, 2019. REUTERS/Amanda Perobelli

To engage the bank’s employees, Rial has tied more of their compensation to performance; variable compensation increased 16 percent from 2015 to 2017 even as the bank’s payroll shrunk roughly 7 percent. The number of clients has increased for 40 straight months, reaching 23.4 million in September.

Still, the auto loan business remains the bank’s standout in terms of growth. De Jesus, the car salesman at Basile Center Car, said Santander’s rivals are paying attention.

“When clients come to a store, they want to know exactly if the down payment suits their pockets, and Santander’s tools show it immediately,” he said. “Other banks are copying it now.”

Reporting by Carolina Mandl; Editing by Christian Plumb and Marla Dickerson

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Future of Ottawa: Coffee with Francis Bueckert

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Francis Bueckert: When it comes to the current landscape of coffee-roasting companies and independent cafes in Ottawa, I think we are at a really interesting moment in time. There are more local roasters that are doing artisanal small-batch production—with more attention to the quality and origin of the beans.

With larger corporations such as Starbucks closing locations, it has opened a bit of space for local players to grow. We have been lucky to work with many folks in the coffee-roasting community, and we have found that there is a willingness to collaborate among different coffee roasters. For example, when Cloudforest started back in 2014, we were roasting our coffee at Happy Goat and it was the expertise of their head roaster Hans that helped me learn how to roast. Other companies such as Brown Bag Coffee have also lent a hand when we needed extra roasting capacity. There are others, such as Lulo, Mighty Valley Coffee, Bluebarn, The Artery, and Little Victories that are also part of the growing local coffee community. It’s small roasters like these who have shown me what a coffee community can look like, and that we can help to elevate each other, rather than being locked in competition.

If you care to make a prediction… What’s happening to the local café industry in 2021?

We believe that there is hope and that 2021 can be a big pivot year for small roasters and cafes.

This year will not be ideal from a business point of view. However, it could create a shift in people’s attitude toward where they get their coffee. We are holding out hope that people will support the roasters and cafes that are local to help them economically survive what is in all reality a very difficult time.

It all depends on where consumers decide to go this year. People are starting to recognize that supporting large corporations at this moment will be at the cost of the local roasters and cafes. There is the growing realization that a future where there is only Amazon, Walmart, and Starbucks would be pretty bleak. So we have an opportunity this year to support the kind of local businesses that we want to see thrive.

In your wildest dreams, what will the landscape for local coffee roasters and cafés look like in your lifetime?

In my wildest dreams, all of the coffee roasters and cafés would be locally owned and independent. They would all be focused on direct trade and artisanal coffee. Each different coffee roaster and café would know exactly where their coffee came from. Ideally, each company would be a partnership between the farmers who grow the beans and the people here selling them. There would be a focus on how to cooperate and collaborate with the farmers in the countries of origin to share the benefits around. We would all work together and share orders of cups, lids, and other packaging so that we could get better bulk pricing. In this way, we would make our local coffee community so efficient that the large corporate coffee companies wouldn’t even be able to compete.

We would also like to see people use coffee as a way to create social good. For example, we started Cloudforest as a way of helping support farmers in Ecuador who were taking a stand against large mining companies. This remote community stood up to protect their environment, so that they could have clean drinking water and soil for the next generation. They started an organic coffee cooperative to help show that there are other models of development, and we are doing our part year after year to help support their vision. They have a vision of development that does not include mass deforestation and contamination, and organic coffee is a key (among others) to show that another way forward is possible.

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Special events in the Ottawa Valley dominate annual OVTA tourism awards

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The Ottawa Valley Tourist Association hopes that its annual tourism awards will provide a little sunshine during what is a dark time for local tourism operators because of the pandemic.

The Ottawa Valley Tourism Awards are presented annually by the Ottawa Valley Tourist Association (OVTA) to individuals, businesses, and events that recognize the importance of working together for the growth of the local tourism industry, as well as offering exceptional visitor experiences.

“After a year that saw a lot of businesses in the hospitality and tourism industry being challenged like never before, the annual Ottawa Valley Tourism Awards represent a bit of light on the horizon” said Chris Hinsperger, co-owner of the Bonnechere Caves.

The Ottawa Valley Tourist Association’s (OVTA) Awards Committee co-chairpersons, Meghan James and Chris Hinsperger, said they were very pleased with the recent nominations received, especially in the Special Events category. Submissions were received for The Farm to Fork Dinner Series at the Whitewater Inn; Light up the Valley; The Eganville Curling Clubs’ Rock the Rings; The Ontario Festival of Small Halls ; The Bonnechere Caves On-line Underground Concert Series; The Opeongo Nordic Ski Clubs’ Ski Loppet; The Tour de Bonnechere — Ghost de Tour 2020; and The Bonnechere Caves Rock ‘n Roll Parking Lot Picnic.

“During a time when communities were challenged, it is nice to see that people still made an effort to get together and celebrate, albeit under certain conditions. It just shows the creativity and resiliency of our tourism Community here in the valley” said Meghan James, director of sales at the Pembroke Best Western.

There are three Award categories: The Marilyn Alexander Tourism Champion Award, The Business of Distinction and The Special Event of the Year.

Hinsperger, is excited about this year’s awards.

“During this pandemic the hospitality and tourism industry was the first to be hit, was the hardest hit and will be the last of our industries to fully recover. As Valley entrepreneurs we owe it to ourselves, to our businesses and to our communities to be an active part of that recovery. Our livelihood and economic recovery depends on our efforts. And we will get back to welcoming people from all over the world to share a little bit of the place we are privileged to call home. This awards process leaves myself and others fully optimistic about our positive outcomes.”

Award winners will be announced at the Ottawa Valley Tourist Association’s virtual annual general meeting on Monday, May 31.

The OVTA is the destination marketing organization for the Upper Ottawa Valley and proudly represents more than 200 tourism businesses, comprised of attractions and outfitters, accommodation, food, beverage and retail establishments, artists and galleries, municipalities, as well as media and industry suppliers. The OVTA is supported by the County of Renfrew, Renfrew County municipalities and the City of Pembroke.

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Future of Ottawa: Farming with Jeremy Colbeck

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Jeremy Colbeck: Well first, let’s talk about what we mean by farming. Although farms, and farming as an occupation, are in decline across Canada, they are still a major part of our rural landscape. That’s even more true for a strange city like Ottawa which includes a LOT of rural areas and whose urban boundary takes, what, three hours to cross? About 40 per cent of the rural land in Ottawa is farmland. Most of that farming is corn and soybean cash-crop, as well as some dairy and livestock farming. That’s mostly conventional farming (the kind that is profitable but not exactly where you take your kids on a Saturday).

There are also a lot of agri-tourism businesses in Ottawa, which give you that oh-so-good Saturday spot for family donkey-petting and apple-picking. And it’s totally understandable from a business perspective, but sometimes surprising to find out, that even though they grow some of the Christmas trees they sell, they might also be reselling some that come from much larger farms far away. The farmland around Ottawa is also inflated in price because of its proximity to the city, where it is in demand by would-be hobby farmers—folks who want to do some farming on their property in their spare time but make their money (to subsidize their small-scale farming habit) elsewhere. Unfortunately, many of these properties will have large mansions built on them, which will then make them completely unaffordable for the average farmer

There’s also a segment of small-to-medium-sized Ottawa farms that grow “premium” (artisanal, unique, extra-fresh, ecologically- or organically-grown etc…) products that they sell directly to local eaters via farmers’ markets or other direct marketing channels, including on-farm stores and farm stands. That’s where BeetBox fits in.

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