US embassy cable - 05TEGUCIGALPA800

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 000800 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CEN, WHA/EPSC, AND EB 
STATE PASS AID FOR LAC/CAM 
STATE PASS USTR 
TREASURY FOR DDOUGLASS 
GUATEMALA FOR COMATT MLARSEN 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, SMIG, HO 
SUBJECT: HONDURAS:  BANCO FICOHSA:  A BANK THAT GETS IT 
 
This cable is Sensitive But Unclassified.  It contains 
business confidential information and is not intended for 
internet distribution.  Protect accordingly. 
 
1. (SBU) SUMMARY: While not a world-class bank, Ficohsa is 
arguably one of the best-placed Honduran banks to survive the 
continuing market consolidation.  Ficohsa is noteworthy for 
its efforts to explore innovative financial products, adopt 
new technologies, and craft a market strategy that will allow 
it to compete, for a while at least, against the new regional 
banks entering the formerly isolated Honduran market.  With 
its focus on financial and cash management services, trade 
finance, and remittances, Ficohsa is demonstrating that it 
sees the coming market shifts and understands it must adapt 
or face oblivion.  End summary. 
 
2. (SBU) Unlike too many Honduran banks, which seem overly 
risk-averse and mired in the past, Banco Ficohsa understands 
that globalization means increased competition, and it is 
actively seeking new products that push its own performance 
envelope.  On April 8, EconChief sat down with Ficohsa 
Executive Vice President Javier Atala, International Vice 
President Abel Garcia, and Corporate Vice President Max 
Contag to discuss Ficohsa's current posture and its future 
market strategy. 
 
3. (SBU) The Ficohsa Financial Group is already a force to be 
reckoned with in the Honduran market.  Founded 15 years ago, 
Ficohsa is now the fourth largest bank in Honduras in assets 
and also includes an exchange house, a real estate 
development arm, and the largest insurance company in 
Honduras.  (The most recent set of full quarterly statistics 
on Banco Ficohsa can be found at 
http://ftp.cnbs.org/boletines/oct-dec2004.exe .)  Ficohsa is 
also the only Honduran Bank with a presence in the U.S., 
where it operates nine "Ficohsa Express" wire-transfer 
offices catering to Hondurans resident in the U.S. who send 
remittances back to Honduras.  Those offices are in Florida 
(3), Georgia (2), New York (2), North Carolina (1), and 
Virginia (1).  Ficohsa has plans to establish two new offices 
in 2005, in Houston, Texas and in New Jersey.  This presence, 
combined with a high-visibility branding effort (Ficohsa is 
one of the official sponsors of the Honduran national soccer 
team), has paid off handsomely:  Atala said that in 2004 
Ficohsa received 20 percent of all foreign exchange transfers 
into Honduras, or approximately USD 50 million per month. 
Atala told EconChief that this figure has doubled in the 
first two months of 2005 compared to 2004, reaching USD 100 
million per month. 
 
4. (SBU) Atala estimated that his bank's business is 
currently 80 percent corporate loans and 20 percent personal 
loans.  He hopes to shift that to a 70/30 allocation in the 
near future.  The personal loans are nearly all for housing 
mortgages and include loans backed by a USD 2.5 million fund 
for mid-market mortgages up to USD 75,000 each and a USD 48 
million fund (from the Central American Bank for Economic 
Integration, CABEI) for up-market mortgages up to USD 135,000. 
 
5. (SBU) Corporate loans -- which Atala admitted are approved 
based largely on relationships -- tend to fall into a few key 
sectors, including light industrial (textiles and apparel) 
and export-oriented agricultural production (such as shrimp, 
melons, tilapia whitefish, coffee, and citrus).  Ficohsa has 
also been a participant in syndicated loans to major hotel 
projects, energy generation projects, the national brewery 
(owned by SAB/Miller), and the InterAirports consortium.  As 
with all Honduran banks, Ficohsa would prefer to lend only to 
top-tier corporations, but with increasing regional 
competition from Nicaraguan bank BAC, Salvadoran Cuscatlan, 
and Panamanian BGA, Ficohsa is being forced to "diversify" 
into the upper mid-market. 
 
6. (SBU) To compete with the regional entrants, Ficohsa has 
actively adopted new technologies.  Ficohsa was the first 
Honduran bank to adopt the SWIFT system for interbank 
transfers, the first bank to establish a web-page, and the 
first bank to offer to perform client payroll services 
electronically through their network of over 200 ATMs.  This 
final service is of particular importance to their large 
industrial clients, who resented the logistical and security 
nightmare caused by weekly payroll disbursements in cash. 
The ATM-based arrangement, by also creating a reliable 
mechanism by which Ficohsa could directly debit payments from 
paychecks, has also allowed the bank to explore offering 
loans to credit-worthy working-class borrowers -- something 
all too rare in Honduras. 
7. (SBU) Ficohsa, Atala said, must also compete with the 
regional banks by offering improved regional services. 
Rather than seek to establish a presence in every country in 
the region, as some banks have done, Ficohsa has instead 
sought out strategic relationships with strong banks in each 
country, such as Banco Industrial in Guatemala, Banco 
Salvadoreno in El Salvador, and BanCentro in Costa Rica. 
This allows Ficohsa to offer cross-border payroll services, 
one-stop shopping for accounts in various regional 
currencies, and, most importantly, in Corporate Vice 
President Max Contag's view, deeper knowledge of the local 
markets in each country. 
 
8. (SBU) Ficohsa has also expanded into trade finance, 
providing over USD 200 million in "factoring" (credit issued 
against accounts receivable).  Atala told EconChief that 
Ficohsa was the first bank in Honduras to offer this type of 
financing.  He described it as an alliance with CIT and 
Wachovia Bank in the U.S.  The group offers financing to 
Honduran exporters of up to 70 percent of the value of the 
Purchase Order on 90-day terms.  The receivable is endorsed 
over to Ficohsa, while CIT backs the line of credit in case 
of bankruptcy of the U.S. buyer.  (Comment:  Given the 
long-standing and well known failure of the Honduran court 
system to guarantee contract enforcement, it is unsurprising 
that factoring against receivables is rarely, if ever, 
offered to Honduran firms producing for domestic consumption. 
 End comment.) 
 
9. (SBU) Garcia highlighted another market that Ficohsa is 
approaching with cautious optimism: families receiving 
remittances.  Under an agreement with the Interamerican 
Development Bank's Multilateral Investment Fund, Ficohsa 
would receive USD 5 million in subordinated debt for such 
loans, if it could secure a senior lender for an additional 
USD 20 million.  Ficohsa is currently in talks with Citigroup 
and hopes to close such a deal by July 2005.  Under the 
program as envisioned, Hondurans working in the U.S. could 
use a documented history of remittance payments back to 
Honduras, backed by an account with a defined minimum 
balance, to qualify for a three to five year loan to finance 
such projects as home construction or improvements to the 
family home in Honduras.  This program would not go as far as 
one recently pioneered in Guatemala, which Contag described 
as "full blown securitization of remittances," since the bank 
account would serve as a guarantee for the loan. 
 
10. (SBU) Ficohsa's aggressive (by Honduran standards) 
banking practices have not come at the expense of sound 
financial practices, according to Atala.  Ficohsa is the only 
domestic Honduran bank to have sought out a rating (rated BBB 
by Fitch), and it recently successfully issued USD 50 million 
in bonds to increase its capitalization.  That issue was 
placed entirely within Central America and helped Ficohsa 
lower is risk weighted average of assets/capital to 14.5 
percent. 
 
11. (SBU) Comment:  Ficohsa is not a world-class bank -- it 
cherry-picks the market for only top-tier exporters with hard 
currency earnings, admits that most lending is still 
relationship-based, and presumably benefits greatly from its 
close political ties to the current administration (CEO and 
President Camilo Atala is also the current Minister for 
Investment Promotion and a close economic advisor of the 
President).  That said, it is refreshing to talk to a bank 
that sees market opportunities beyond passbook savings 
deposits and short-term government securities.  In a country 
where inertia and inefficiency allow banks to wallow in 
double-digit interest rate spreads, where change is feared, 
and going out into the market to solicit business unheard of, 
Ficohsa's modest efforts at modernization and innovation are 
noteworthy.  End Comment. 
 
Palmer 
 
Palmer