What do you do when good growth opportunities are
not matched by local funding possibilities? South America
has the potential to provide an ever-increasing part of
the world's food requirements, although self-funding its
expanding asset base is proving to be a bit of a dilemma
for Rabobank International.
Pressure
Erik Peek has a pecuiiar problem with self-
funding. In the past few years Rabobank
Brazil has attracted BRL 1.5 billion (USD 875
million) by selling rural-loan linked LCA
deposit notes to high net-worth individuals.
But Rabobank Brazil has little use for these
deposits. lts newfound funds are mainly
invested in government bonds. "Over
the last ten years we have built a strong
franchise in F&A," explains Rabobank Brazil's
general manager. 'This country has become
a real powerhouse in commodities such as
soy beans, coffee and cotton. But all trade
is in US dollars, not local currency. So most
of our funding is in dollars, not in BRL. And
local regulations prevent us from taking BRL
funding and swapping those into US dollars.
From a funding perspective we need to
have dollars, not the local currency."
Local funding currently represents some
twenty percent of Rabobank Brazil's balance
sheet, nowhere near the seventy percent
that Rabobank has set itself as target for
2014. And it is highly unlikely that Rabobank
Brazil will reach that target. Neither will
any of Rabobank International's (RI's) other
subsidiaries in South America, expects
South America Regional Manager Guillermo
Bilbao. "Every year we will be doing more
and more, but the idea that we are going
to have seventy percent self-funding in
South America within two to three years is
not likely to happen. It is more a question of
moving in the right direction and sharing
the funding resources we have as a group,
where it makes sense and when it makes
sense."
Bilbao explains that Rl to date does not
have the businesses in South America that
can generate the kind of funding that
Basel III is focusing on. "To the credit of
Utrecht and our board, as we set out to
review our strategy for Rural Retail a year
ago, funding was already on the agenda. We
have been thinking ahead of the curve, but
our actions and business structures in many
markets, and South America in particular,
have lagged behind. In Chile we are working
hard to have the deposit and flow products
to attract cliënt funding, but it takes time in
all these markets to get there, even if you
have the right structures in place."
The urgency of more local funding is not
questioned at Rabobank's affiliates in South
America. But the ability to achieve seventy
percent self-funding within R&R depends
on a number of factors. In countries where
Rl has retail networks or direct banking
facilities, increased marketing for deposits
is already showing promising results. In
regions where retail deposits are not an
obvious source of funding, Rl will have to
come up with alternatives. Or allow for
transfer funding.
The need for transfer funding is more or
less incorporated in a strategy that focuses
on F&A, which was chosen because that
is where Rabobank has its roots, has the
expertise and can add value while making
decent returns. The F&A focus has been
decisive in the choice of regions and
countries that Rl wants to be represented in.
issue 25 Rl WORLD
