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Mexico’s Compartamos Eyes 20% Profit Growth, Deals In 2010

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MEXICO CITY (Dow Jones)–Mexican microfinance bank Banco Compartamos SA (COMPART.MX) plans to grow its profit 20% this year and is looking for acquisitions in other Latin American countries, top executives said Tuesday.

“In Mexico, we think the best way to grow is organically, but outside of Mexico we are open to and looking for opportunities to acquire a well-managed institution with a focus similar to our own,” said Fernando Alvarez Toca, Compartamos’ chief executive, in an interview.

Alvarez Toca said the company has an internal team looking for acquisitions.

“Colombia, Peru and Brazil are countries that we think have the best environment for an operation like ours, but we aren’t ruling any [country] out,” he said.

Last week, Mexican consumer finance company Financiera Independencia SAB (FINDEP.MX) closed the acquisition of Financiera Finsol in a deal that boosted its domestic microfinance business and gave it a foothold in Brazil.

Microfinance, or the provision of small-scale financial services such as small working-capital loans, savings accounts and insurance policies, has gained popularity worldwide in recent years as a way to combat poverty.

It’s also a very lucrative business, with Compartamos, the largest microfinance lender in Latin America, reporting a whopping 43% return on equity last year.

“Compartamos’ financial structure means we are strongly capitalized and one of the best ways to make use of that capital is through acquisitions,” Alvarez Toca said.

Compartamos reported financial results Tuesday that handily beat management’s full-year 2009 guidance for a 20%-25% increase in net profit and loan growth of more than 20%.

This year, the bank expects to expand its loan portfolio by about MXN1.8 billion, add 310,000 new clients and increase net profit by about 20%, said Patricio Diez de Bonilla, director of treasury and financing.

The bank’s net profit grew 33% on the year to MXN1.49 billion in 2009 thanks to a big increase in lending even though the country suffered its worst recession since the 1995 peso crisis.

The Bank of Mexico expects the economy to grow as much as 4.2% this year, after it contracted 6.5% in 2009.

Compartamos’ total loans increased 33.4% to MXN7.64 billion at the end of December, while the number of active clients rose 30% to 1.5 million.

Compartamos provides small working-capital loans to low-income individuals and business owners, such as crafts manufacturers and food vendors, whose activities are largely recession-proof.

About three-quarters of loans corresponded to its Credito Mujer product for groups of women.

Riskier home improvement loans represented 13% of total loans last year, up from 8% in 2008, which contributed to a deterioration in asset quality.

Home improvement loans shouldn’t represent more than 15% of the overall loan portfolio in the coming years, said Toca, adding the bank’s focus will continue to be working capital loans.

The bank plans to pilot a savings account with a debit card this year with a view to make the product fully available to its clients during 2011, Alvarez Toca said.

Compartamos was one of 10 banks that received preliminary authorization from the National Banking and Securities Commission last December to offer basic financial services through banking agents, which are third parties like retailers hired by a lender to conduct transactions for their clients.

Compartamos’ clients can already pay their loans at Oxxo convenience stores and Chedraui supermarkets, and the savings account product will also rely on third parties because the bank’s network of 325 offices isn’t able to accept deposits, Alvarez Toca said.

“The first step we want to take is to offer a product for our current clients rather than the general public,” he said.

Creating a retail deposit base will allow Compartamos to diversify its sources of funding, which today depends heavily on development banks like government-run Nafin.

Last year, Compartamos boosted its liquidity by selling MXN1.5 billion in three-year notes.

Alvarez Toca said the bank has the resources to fund its growth this year, but even so will look to make another bond issuance if market conditions permit.

“The amount might be a little less than [last year’s]; the tenure, three years if possible, if we can get more we’ll go for a longer term,” he said.

Compartamos’ O shares fell 0.1% to close at MXN64.99 Tuesday. The shares rose 170% last year, compared to a 43.5% gain for the benchmark IPC stock index.

-By Ken Parks, Dow Jones Newswires; 52-55-5980-5177; ken.parks@dowjones.com

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