Riding out the storm: how Ecuador's top retail banker Fidel Egas, has managed to survive Ecuador's worst financial crisis in decades - Strategies

While most people look forward to Fridays, Fidel Egas has a different reaction. For Ecuador's leading retail banker and his Banco de Pichincha, Fridays in late 1998 and early 1999 meant hundreds of customers lining up to withdraw all or most of their money The stampedes were driven by rumors the bank would not re-open the following Monday, and would instead become another victim of the country's economic tempest--which in the last year has claimed 16 banks.

"As soon as we noticed any unusual movement, we would call the Central Bank to ask for more bills," Egas recalls. "We were ready or at least tried to be ready."

As the bank continued to re-open on Mondays, the weekend runs subsided. Customers who had waited in long lines on Fridays "just got tired of waiting and wasting time," Egas says. These tests also helped build Pichincha's reputation as one of Ecuador's few solid banks.

The fact that Pichincha has survived at all is a testimony to Egas' skills as a banker and businessman, Ecuador today faces its worst economic crisis in 70 years. According to government figures, the country last year lost more than 200,000 jobs and 40 percent of its productive capacity. Inflation is raging at 60 percent annually and the country last year defaulted on US$6 billion worth of Brady Bonds and US$500 million worth of eurobonds.

Facing a string of bank failures, the government last year nationalized Ecuador's largest banks and formed two megabanks, Pacifico and Filanbanco. Pichincha was left standing as the third-largest bank in terms of assets and today has the largest retail network in the country, according to Moody's. It is also the largest privately owned bank.

"Only the ones who had a conservative policy and looked after their own resources were able to withstand [the crisis]," says Mario Canessa, president of the Association of Private Banks. "These were the medium-sized banks and the smaller ones." Egas' team, he adds, knew "how to manage its liquidity in a time when banks were playing a sort of Russian roulette with improvisation and risk."

Even though the bank has survived, Moody's has continued to downgrade Pichincha's rating since late 1997. Today it has a "D" financial strength rating and a "Caa2" foreign currency deposit rating, both near the bottom of the rating scale. Egas would not discuss the Moody's report.

In fairness to Pichincha, Moody's doesn't fault management, but blames the economic situation for the dismal rating. In its 1999 report, Moody's touted the bank as having the strongest franchise value in the system, a low-cost core funding base, competent credit management and a reputation as a safe haven for depositors. "The bank's current profitability is the best of the system," according to Moody's, and Pichincha "is positioned to continue to lead in retail banking in Ecuador." In 1999, the bank's return on assets was 2.28 percent compared to peer Banco del Progreso's ratio of .64 percent and a system average of 1.7 percent, according to Moody's.

Among the bank's challenges, Moody's cited the very weak operating and regulatory environment and the fact that non-performing loans will likely deteriorate as the economy worsens. In light of this, Pichincha's performance is admirable, though the test of the bank's endurance is far from over.

Ironically when Fidel Egas first went to work for the Bank of Pichincha more than 25 years ago, he wanted nothing to do with banking. He was a law student at the time, certain he would one day be among the country's best attorneys. After graduating, however, Egas became disillusioned with the law and embarked on a series of entrepreneurial ventures. Starting as a car salesman, he built an Alfa Romeo dealership and then later founded the country's Diner's Club franchise. After amassing a fortune, he began buying into Banco del Pichincha. Today, Egas owns about 85 percent of the bank.

After taking control, Egas concentrated on changing Pichincha's image from a weak regional bank to a solvent and powerful institution with operations nationwide and beyond. Prior to the recession, the bank enjoyed steady revenue and profit growth, thanks largely to Egas' broad client base. Pichincha became recognized as the businessman's bank and, at the same time, as the blue collar bank that specialized in savings and checking accounts. Official figures reveal that one out of every five checks issued in Ecuador in 1998 was stamped by the Bank of Pichincha.

Over the years, Egas also developed a reputation as a hands-on manager. His face-to-face meetings with clients went a long way toward calming nerves during the collapse of Ecuador's biggest banks in 1999.

Today, Pichincha employs more than 5,000 people in more than 200 branches across Ecuador, with a smattering in Colombia and Peru. Although the bank is his largest and most complicated endeavor, Egas' businesses span several industries. He also owns an advertising agency a travel agency, a small publishing company and the second largest movie- theater chain in Ecuador.

The test of his career, however, will be Banco del Pichincha. "The crisis currently affecting the banking system will continue to affect the banks in the future," says Jorge Rodrigues, president of the South American Association of Economists. "[that's when] we will know how strong Banco del Pichincha really is."

COPYRIGHT 2000 Americas Publishing Group
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