Saint Mary's Catholic University of Antigua

Banking and Finance

Professor: Donaldo Fong

Cuscatlán Bank Case

Daniela Palma 8-913-2492

Juan Diego Medina 8-927-2228
Mariana Calvo E-8-135-289
Jussuelis Aliendres 128592571

Marketing of Financial Products

24 - Octubre–2017
 Background

In 1972, the Cuscatlán Bank of El Salvador was founded by Roberto Hill, one
one of the most visionary men in the world of Salvadoran banking. He was
constituted as a corporate bank and was aimed at the population of
middle class upward. Banco Cuscatlán came to break the molds
traditional ways of doing business. It was characterized by having a focus on
long-term growth and financial creativity to offer solutions. It was
the first bank in El Salvador that established account executives that were going to
the companies to personally attend to the needs of the customers.
It was also the first bank to employ women as tellers. In addition, the
the bank focused on technological innovation, being the first to bring
cajeros automáticos, el primero en tener tele-banca y el primero en tener la
online banking.
Then in 2004, the Union of Banks is consolidated through five companies.
of Cuscatlán International. The Bank of Cuscatlán was operating.
as holding in the countries El Salvador, Costa Rica, Honduras, Guatemala and
Panama. It positioned itself as one of the leading banks in Central America. Thus
as the following figures recorded at the end of 2004 from the Union of
Cuscatlán International Banks:

UTILITIES US$ 64.7 million

TOTAL ASSETS US$ 4,437.2 million
NET LOAN PORTFOLIO US $ 2,578.6 million
PUBLIC DEPOSITS US$ 2,914.0 million
HERITAGE US$ 523.9 million

At the end of the year 2004, the Cuscatlán Bank of El Salvador recorded the following
figures:
Assets US$2,335.6 million

As part of these, productive assets (loans, investments and

deposits abroad and the Central Bank) accounted for 90.0%, being the
interest received by them, the main source of income generation.

Gross Loan Portfolio US $ 1,412.8 million

With a risk category structure made up of 85% by

loans A and B, being those with the lowest credit risk.

Banco Cuscatlán had more than 4,400 employees in the region and 2,225
employees in El Salvador of which 49% were men and 51% were women.
The average age was 8 years. The average age of the employees.
he was 33 years old.
62% of them had advanced higher education or had already graduated and
the average experience of the employees was 5 years. The network of
the distribution that the bank had was made up of 188 branches, and
166 ATM.

Vision

The bank's vision is "to be the leading bank in El Salvador, recognized for
to provide maximum satisfaction to its customers, creating value in a way
responsible for its clients and the country.

Risk Rating

Fitch Ratings granted a risk rating of 'AA' to the bank.

Cuscatlán and placed its outlook to stable. In the statement, Fitch explained
that the bank's financial profile would strengthen if improvements are made to 'the
income generation capacity”, as “currently it is limited
due to credit costs and high operating expense levels."Bank
Cuscatlán is the fifth largest bank in the Salvadoran financial system.
Fitch Ratings pointed out.

Environmental Management System

Environmental management at Banco Cuscatlán began in September 1999, at

request from the International Finance Corporation (IFC for its acronym in)
English) who granted a loan to Banco Cuscatlán for US$25 million. For
At that time, the bank did not have an environmental management system.
identified environmental and social aspects only to finance them
funds granted by IFC. It later expanded to financed projects
with funds from the Multisector Investment Bank (BMI) and from the Bank
Central American Economic Integration Bank (BCIE).

In 2001, the Environmental Law came into effect, as well as the need
to create an environmental policy with its management system, which was approved
by the board of directors of Banco Cuscatlán in the same year. This law required to
all companies to improve their environmental behavior, being necessary
the realization of an environmental diagnosis accompanied by a program of
adaptation for ongoing projects and the conduct of a Study of
Environmental Impact for new projects.

According to the law, an environmental permit was required for all activities and/or
project, with penalties ranging from fines to closures
definitive measures for companies that did not comply with the legislation. This constituted
a risk for the financed projects as there was a greater likelihood of
delays in payments, and in some cases, it would have to go as far as collection
judicial for the closure of a company. The Salvadoran private sector, not having
with a system for identifying and managing environmental risk, it was seen in
risk of being penalized. As well as economic losses, loss of image and
up to legal conflicts.
Situation that forced them to require specific lines of financing and
suitable for developing environmental projects, adaptation works and
clean technologies. As state demands were increasing,
NGOs and international organizations for law enforcement. The
the environmental policy established by Banco Cuscatlán committed it to ensure that
that projects funded with own or external funds were developed in
compliance with the environmental and social legislation of the country where it is
they localize, as well as compliance with their own environmental policy
bank.

By the end of 2004, the Environmental Management System of the Bank

Cuscatlán was constituted by: a system of identification and management of
risks; green financial products; an eco-efficiency policy; and practices
support social services for the community. The department in charge was the Unit
of Environment, which depended on the Risk Management of Banking
Companies.
The risk identification and management system was based on identification and
categorization of environmental risk through the use of a matrix
environmental assessment, provided there was a direct visit to the project. In
otherwise, an environmental category was assigned to the company or project
through the use of a list, where activities were grouped according to
with the environmental impacts they generated.

The environmental categorization system consisted of the classification of the

projects in three categories identified by the colors:

Green
Yellow
Red
Based on the damage or benefit of the project to the environment, the
compliance with environmental and labor regulations, and the disposal of the
headlines to address environmental and labor issues.

Corporate Governance
According to the provisions set forth in the Corporate Governance Code for the
Financial Entities, the Bank has implemented a Governance Code
Corporate as well as the guidelines for the functioning of the Committee of
Risks, Operational Risk Committee, and Credit Risk Committee. The
preparation of an annual report in compliance with the requirements of the regulations
it has been part of the corporate governance practices that have been adopted.
Regarding the government structure, the regulated subsidiaries of
IFC conglomerate of El Salvador has a Board of Directors and a Senior Management.
Administration who are the primary responsible parties for the management of the
business. Each executive of the Senior Management of a regulated entity
will report to the Executive Director of the country. There are also Direcciones,
Submanagers, specific management, heads, and departments that are
they consider convenient for the management of the Group's businesses. Among the
Government policies established in the respective Code are indicated:

Política de Conflicto de Intereses

Selection, Compensation, Evaluation or Training Policy
Policies on Customer Relationship
Policies on Supplier Relationships
Policies on Intragroup Relations
Policies on Shareholder Relations
Policy on Disclosure and Access to Information
Rotation Policies
Remuneration and Performance Policies

Profit and Profitability

The low profitability of Banco Cuscatlán reflected the operating loss recorded.
in June 2016. This resulted from lower operating income due to reimbursement of
expenses for the technology and communications factory, which
belonged to the previous shareholder, as well as high credit costs
associated with the major punishments carried out. Nevertheless, the net income from
Interest generated by the portfolio was the result of the business's wide margin.
of consumption.

Funding and Liquidity

In June 2016, all of the bank's funding came from deposits of

public. Some corporate deposits and the funding lines with the shareholder
previously were canceled and temporarily replaced with deposits of
entities belonging to the new shareholder group for an initial amount of $60
millions, which have decreased in the subsequent months. As
result, the concentration among the 20 largest depositors remained
close to its previous level, at 11% of total deposits. Regarding the balance of
deposits reported as of June 2016, the agency does not rule out a migration
greater corporate deposits in the subsequent months. The structure of
liquid assets as of June 2016 showed a reduction of $185 million in
the investments, after the separation from the corporate operation. The liquidity
reported as of that date was broad and close but lower than that of previous years
previous. Liquid assets, mainly placed in cash and deposits
in banks, they covered 41% of the deposits, which the agency considers
suitable.

Products, how they are marketed and their distribution channels

Products and their requirements:

savings accounts
Minimum opening amount of $300.00
For individuals to be over 16 years old
General accounts
Natural persons must be over 18 years old.
Minimum opening amount of $300
Contract signing, sworn statement and signature registration

CITI signature
General conditions:
22% CITI Signature credit card
Nominal interest rate for purchases and cash withdrawals.
The cash withdrawal fee is $70.
The maximum late fee for non-payment is $25. It must be
present proof of income.
Present proof of the current address such as: receipts
account statements, etc. in case the document address of
identity differs from current address

Business banking loans

general conditions: the account is canceled from the system after more than 6
months with zero balance are also canceled due to mismanagement.

requirements: submit documentation

photocopy of DVI and NIT of the legal representative of the company
photocopy of the written deed of incorporation of the company
 photocopy of certification of the minutes point when required
approval of the board of directors for the opening or contracting.

Fixed-term deposits
General conditions:
Minimum opening amount of $300
If the deposit is greater than $7000, you must fill out the form for
transactions for the money laundering law
The payment of interest will be at the end of the term.

Requirements:

Submit the following documentation

Photocopy of DVI and NIT of the legal representative of the company. In the
in the case of a foreign person, present a valid passport and ID card
resident.
Photocopy of the company's NIT
Form required by the anti-money laundering law.
Photocopy of the VAT registration card

CITI business ready credit

General conditions
Credit line of up to $250,000
No tangible guarantee required for amounts up to $100,000
Amounts of up to 2 times the highest value of the guarantee for loans
under $250,000

Requirements
Minimum annual sales of $150,000
Present financial statements
Submit income tax and VAT declarations
Shareholder information of the company
2 years or more of commercial operation

Distribution channels

The bank's distribution channels would be the means through which

which we obtain the resources offered by the bank. Those from the Bank
CUSCATLAN are:
 1. Physical branches and representative offices: they are the physical locations.
from the bank that customers can visit to request services,
information about products already purchased, and any action that
requires the contact between client-institution. The bank has in El
Salvador has approximately 2,225 employees; on the other hand, in the region
they operate in 4,400. The bank has 31 branches in it.
Salvador and also 9 minibanks

2. Internet: through the internet, banking transfers are provided.

línea; se solicita información; atención al cliente; y otras acciones que no
they require the physical presence of customers in the banks. The Cuscatlan
it was the first to have the telebanking service, which is banking by
internet

3. ATM machines: allow the customer to withdraw money at different locations

of the country where the bank is located. Cuscatlán has 166 ATMs
automatic

SWOT analysis
Fortresses

Presence of Citigroup and risk policies adhering to standards

international: These risk policies are aligned with the
international standards help provide security and certainty to the
clients from a place where their money transactions are carried out.

Gender equality at the time of hiring: First Bank

in El Salvador in employing women as they make up 51% of the total
empleados . El banco se enfoca en la igual de genero , siendo uno de
the values that are most fought for in the 21st century.

Technological innovation: the bank was focused on innovation

technological since its beginnings. He was the first to bring ATMs
automated, the first to have telebanking, the first to have banking
online over the Internet, in El Salvador. He cares a lot about the
element of globalization, an important theme in the 21st century. Something that
many banks do not pay attention.

Adequate level of solvency: The bank has a position

strong equity reflected in a Capital Base indicator of 28% as of June
since 2016. The bank's equity position provides a backing
wide for the growth contemplated by the new shareholder.

Opportunities
 Development of new products and services: The operating environment limits
the growth of financial institutions and causes a
strong competition among these. This is why the focus is only on
consumption is not optimal for this banking institution and it can take
see this as an opportunity and focus on products
commercial and not so much consumer.

Weaknesses

High Delinquency and Adequate Reserves: The portfolio continued to decline at

a rate lower than that of 2015. This trend reflects greater punishments
than their historical average, which reduced the overdue loans
at 3.96% of the total portfolio, a figure still high compared to the
average of the local financial system. The coverage of reserves
remained adequate at 91%.

Low Profitability: In the agency's opinion, improvements in capacity

bank income generation would strengthen its financial profile.
current capacity is limited by credit costs and levels of
high operational costs.

Concentrated Funding in Deposits: The entirety of the bank's funding

deposits from the public as of June 2016. Some deposits
corporativos y las líneas de fondeo con el accionista anterior se
they canceled and temporarily replaced with deposits from entities
related, which have decreased in the months following
As the sources of funds have diversified

Threats

Competitive environment: it may be true that in the environmental aspect the

Cuscatlán bank has the advantage over other banks, just like its
trajectory in this area but the other banks are not going to
fall behind and can copy or improve the ideas of Banco Cuscatlán,
being these ideas of pure success.

Effects of a crisis (liquidity): although any bank says that

you may be prepared for a crisis, that is not known until
It happens. The best banks have faced liquidity issues in
crisis, having bankruptcy or merging as the only option. That is why
that in the face of any crisis, the bank's liquidity problem would be a
serious threat.
 Challenging Operating Environment: The performance of the banking sector is
limited by the slow growth of the economy, the increase in
competition and the government's liquidity needs, aspects that
they could increase funding costs. The adverse operating environment is a risk
for the quality of the assets and the growth prospects of
medium-term of the bank.

Political-economic environment: Banco Cuscatlán has been functioning very well.

Well, their environmental strategies, but what would happen if they want to expand?
to a country that benefits it 100% but the government of that country does not believe
in environmental policies? That would directly affect the expansion
from the bank and would lose a unique opportunity. Therefore, their strength should not
It is not only environmental policies but also others that the market needs.
when these obstacles arise.

Reader's Questions

1. What ́ consequences would it generate

́ for a financiaĺ institution, the
presence of a negative impact on the environment and/or the community
caused by the activities of one of its clients?

Undoubtedly, we have seen that over the years, the economies of

various countries have been affected by different environmental problems,
recently we have seen how many entrepreneurs lost everything with
the recent natural events in Mexico. Due to poor
constructions, where many people died because the buildings
they were not done as they should have been. Or Explosion in the Ixtoc oil well
One, Mexico (1979) that affected 1,600 square kilometers of the sea
Mexican, Toxic cloud over the Indian city of Bhopal (1984) a leak of
pesticide in Bhopal (India) caused by the American company Union
Carbide left thousands dead and affected in December 1984.
Chernobyl continues to claim victims (1986) On April 26, 1986, the incident occurred.
nuclear accident considered one of the greatest disasters
environmental disasters in history, along with the nuclear accident of
Fukushima in 2011 the reactor that contained uranium dioxide and others
radioactive compounds exploded emitting a gigantic toxic cloud that
it spread throughout Europe due to the wind. During the first ten
In days, 130,000 people were evacuated and there were 200,000 dead in Belarus.
Russia and Ukraine.
In these times, the environment is the most valuable in every sense of the word.
The word. Activists around the world are concerned about reaching the media.
with the damages caused by man so that they become aware of it
what they do. That is why a negative impact from one of the clients
X financial institution would impact the reputation of the bank.
First of all, because surely the environmental activists will take it
occurred in the public arena. Then, it could affect the client portfolio.
of the financial institution and whether the country where the institution is located
financial has environmental protection laws that can lead to a
sanction.

I believe that a destructive action for the environment by a

bank client would generate a reaction of displeasure in the community and of
the impotence of being unable to prevent such actions. We live in
times when people take care of the environment
very seriously about global warming; so, if a community sees
that the bank is providing the necessary means to a person so that
lucre a costa de destruir el medio ambiente, dudo que a una persona le
I would like to have some kind of relationship with such a bank. This leaves it to the imagination.
the concept of 'if they finance such a class of clients, imagine what
What other things should they have under the table?

2. Hoẃ has Banco Cuscatlan benefited by including ́

environmental and social guidelines in their operations? Are these
guidelines an advantage over the competition?

The company generates much more trust among its customers, the community, and
above all to the government, because it is a company that seeks to ensure the
safety of the same and compliance with regulations
environmental.

These environmental guidelines are a total advantage for the bank because
they sell themselves to the customer as a company that is interested in making a profit, but they profit

respecting the environment that surrounds them. It benefits any company.

this kind of guidelines.

It is a total advantage over the competition because it focuses on the

trust and in the environment. That is why we see that the bank
Cuscatlan has obtained 5 benefits:
 Access to international financing: the projects that a
accredited submit for consideration increase their level of
eligibility for financing
Better credit decisions: credit environments are generated that
it considers both traditional risks and risks
environmental and social, a comprehensive analysis of feasibility is achieved
of the project and, therefore, of its repayment capacity
Boosting organizational transparency: within the
organizations are creating an environment of transparency and
awareness about the possible effect that a project may have
to have in social groups and in the environment
The increase in brand reputation: implement frameworks
sustainable in policies, manuals, and processes increases value
from the brand of the companies; this is not a minor issue, if taken into
it is estimated that reputation represents between 20% and 25% of the value of the
companies
Promotion of innovation: sustainable development in the entities
Financial incentives encourage the generation of products and services
innovative, greener, and more environmentally friendly, that
meet consumer needs while being
socially responsible

3. Will the
́ SGA of Banco Cuscatlan
́ be sustainable over time?

We consider that all companies are heading in that direction, I feel that the
the world is headed towards ensuring the meticulous fulfillment of the
regulations and parameters, this in relation to the latest
events that have occurred in the world and the issue of global warming
global. Currently, countries are more interested just as the
people in what happens with planet earth and how we affect it
less our habitat, so I believe they are on the right track, they are taking the
advantage and they will undoubtedly lead the implementation of this initiative.

As we mentioned earlier, we live in a world where the

The environment has become a priority. That is why the application
the SGA will be sustainable over time as it has been in recent years and
that many banks aspire to have. However, there is also the possibility
that customers do not want these policies because they are expensive and
cumbersome, considering the possibility of moving to other countries and being not
sustainable for the bank. That is something we cannot determine 100%
since one of the most changing factors is thought of the
consumer.
 Yes, I believe that the Environmental Management System will be sustainable over time.
They are investing in the protection of the environment; in these times in
those that the destruction and pollution of the environment is many
sometimes taken lightly, a company that cares about this is a
a company worthy of admiration and therefore a company that is a pleasure to be in
work or receive their services.

RECOMMENDATIONS
Diversify the portfolio, as the company is concentrating too much on the
consumer wallets, could expand a little more to the corporate market and
agricultural.

Another point would be to reduce expenses by focusing only on certain areas and
setting aside other innovations that the bank has made previously,
An example is Citibank, allowing for a real focus on the areas that
they generate the highest amount of income.

Digitize all the bank's processes, so that customers feel that connection.
good actions of the bank towards the environment.

Thoroughly control environmental permits and the process of

preparation of the various bank clients, accompanying this with rates
competitive which compensates for the limitations.

Create a project that benefits those companies that engage in

proven environmental projects with preferential rates thus encouraging
to the constant contribution and greater growth to environmental culture.