Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 2: Tim Stenebek on Bloomberg Radio. Well, next guests has a
Speaker 2: great view on the consumer, albeit a very specific specific
Speaker 2: consumer in a very specific geography. He runs a bank
Speaker 2: that does it all commercial consumer, auto, mortgage lending, financial planning,
Speaker 2: and more. It serves customers in Puerto Rico and the
Speaker 2: US Virgin Islands. We got with us Jose Raphael Fernandez,
Speaker 2: CEO of OFG Bank Corp. He joins us here in
Speaker 2: the Bloomberg Interactive Brokers studio. Welcome, how are you.
Speaker 3: I'm doing great, Tim, great to be here.
Speaker 2: It's good to have you with us. Listen, we'll talk
Speaker 2: about the bank. The results publicly traded, but you have
Speaker 2: such a good understanding of what the consumer is doing
Speaker 2: in the areas that you serve. What do you see
Speaker 2: when you look out?
Speaker 3: So when first when we look at Puerto Rico and
Speaker 3: when we look at the Puerto Rico market, we've had
Speaker 3: several decades of really tough time in the island economically
Speaker 3: with the hurricanes and earthquakes, et cetera.
Speaker 1: So there was a bit of.
Speaker 3: A difficult time, but most recently consumers have gotten back.
Speaker 3: Lots of investments gone into reconstruction in Puerto Rico. So
Speaker 3: Porto Rico's economy has improved. And now when we look
Speaker 3: at the consumer and when we look at our clients,
Speaker 3: we really look at how how do we serve our
Speaker 3: customers better by bringing to them digital solutions and differentiating
Speaker 3: ourselves from our market. And we are a challenger bank
Speaker 3: in the island.
Speaker 2: We try that.
Speaker 3: Means it means really bringing in digital solutions to move
Speaker 3: away from the branches, all the interactions that you can
Speaker 3: do anywhere, anytime on your own, so that we can
Speaker 3: liberate the branches for really value add and to give
Speaker 3: advice and good service.
Speaker 2: We've spoken to a couple of CEOs in recent mind
Speaker 2: of banks that are similar in sort of geographic footprint
Speaker 2: to you, but by embracing digital it's allowed them to
Speaker 2: go nationwide. Would you do that?
Speaker 3: So we do have a little bit of exposure in
Speaker 3: the US, but it's more on the commercial side, not
Speaker 3: on the consumer side, and it's really limited. We would
Speaker 3: consider it going forward, but it's a real big challenge
Speaker 3: here in the market in the States to compete with
Speaker 3: the big guys.
Speaker 2: Is that who you see yourself competing with. Do you
Speaker 2: compete with the big guys in Puerto Rico? Do they
Speaker 2: have a presence there?
Speaker 1: They don't.
Speaker 3: But there's a big guy in Puerto Rico and it
Speaker 3: has sixty percent market share. And that's why we're the
Speaker 3: challenger bank too. We gotta do things differently, and we
Speaker 3: got to present ourselves to the customers and to the
Speaker 3: market in a different way. So the way we define it,
Speaker 3: or at least the way we call it internally is
Speaker 3: digital first. We bring in the digital technology before anyone
Speaker 3: in the market. So we are like first at market
Speaker 3: change the behavior, and then by doing that, we bring
Speaker 3: in a differentiation. And that differentiation certainly contrasts with our
Speaker 3: bigger competitor in the island.
Speaker 2: So how is the Puerto Rican consumer right now?
Speaker 3: The Puerto Rican consumer is pretty solid. It's got good liquidity,
Speaker 3: they have highest levels of savings in a while. Really, Yeah,
Speaker 3: Puerto Rico's economy right now is doing pretty well.
Speaker 2: In the context of the wider US. We've heard about
Speaker 2: savings being diminished post pandemic. That sort of pillow being
Speaker 2: gone a little bit happened in Puerto Rico.
Speaker 3: Two yeah, so you get the excess savings kind of
Speaker 3: fading away a little bit. But in Puerto Rico, two
Speaker 3: things have happened. One is lower unemployment. We used to
Speaker 3: have thirteen percent of employment. It's around five point eight
Speaker 3: right now.
Speaker 1: We used to have wages.
Speaker 3: Around let's say, in come per capita around twenty thousand.
Speaker 1: Dollars per person, which is lower than.
Speaker 3: Mississippi, which is a lower the poorer stay in the
Speaker 3: Union read right now closer to the thirty thousand. And
Speaker 3: the reason for that is because wages have gone up.
Speaker 3: So when we look at the consumer and when you
Speaker 3: look at our clients, they do have higher levels of
Speaker 3: liquidity and they are using it on the consumer side
Speaker 3: as well as on the saving side and to some
Speaker 3: degree on the investing side. So we're really in a
Speaker 3: really good spot.
Speaker 1: Right now in Puerto Rico.
Speaker 2: How does that profile differ from the profile of the
Speaker 2: customer and the US Virgin Islands and your and what's
Speaker 2: your presence there?
Speaker 3: In the US Virgin Islands. We have three branches. They
Speaker 3: are pretty much in Saint Thomas and Saint Croix. We
Speaker 3: have some virtual tellers and kiosks also in addition to
Speaker 3: the branches, it's a smaller presence, it's a smaller market.
Speaker 3: Porto Ricu is a market. Our economy is around one
Speaker 3: hundred billion dollars. The Virgin Islands is significantly lower. So
Speaker 3: it's a different kind of market in terms of the demographic.
Speaker 3: But it's still very very interest in Puerto Rico. To
Speaker 3: be honest, tourism is not necessarily the primari driver of
Speaker 3: the economy's manufacturing. Actually, oh that's interesting, Yeah, yeah, yeah.
Speaker 3: I remember my last visit there a few years ago,
Speaker 3: driving from the airport to where we were going, passing
Speaker 3: a lot of pharmaceutical company facilities.
Speaker 2: Yep.
Speaker 3: That was driven by some tax incentives that were given
Speaker 3: back in the nineties, eighties and nineties and they were
Speaker 3: taken away.
Speaker 1: And that's actually one.
Speaker 3: Of the drivers of why we had a really difficult
Speaker 3: economic time from two thousand and six to twenty seventeen
Speaker 3: or eighteen.
Speaker 2: Okay, So what about moving forward in Puerto Rico? What
Speaker 2: are you what are you seeing as the economic drivers?
Speaker 2: And how are you watching what happens in the US election.
Speaker 2: I mean, it's I don't need to tell you this,
Speaker 2: but you don't have candidates visiting Puerto Rico.
Speaker 3: I wouldn't know, don't We don't vote, so we don't
Speaker 3: vote in the presidential election, so it really we don't
Speaker 3: have any saying there.
Speaker 2: I'm sure that perspective though, about how that is being
Speaker 2: part of the US in a sense but not having
Speaker 2: a voice in the so election.
Speaker 1: Puerto Rico is unique.
Speaker 3: It's been unique for sixty years in the sense of
Speaker 3: our political.
Speaker 1: Definition.
Speaker 3: We are called the commonwealth here in the States. In
Speaker 3: Spanish is estado liberta as sociato you want to translate that,
Speaker 3: it's free and associated state. Talk about an oxymoron, right,
Speaker 3: but because you can't be free state and associated so
Speaker 3: it's a little bit complex. So we don't vote for
Speaker 3: the president. We don't pay federal taxes. We do pay
Speaker 3: state taxes. We do receive some of the benefits in
Speaker 3: terms of Social Security, Medicare and Medicare because we pay
Speaker 3: those taxes as part of works salary deductions.
Speaker 1: And really Puerto Rico goes to war.
Speaker 3: We have common currency, we have common defense, we have
Speaker 3: common citizenship.
Speaker 1: We're American citizens.
Speaker 3: So what's really driven Puerto Rico in the last sixty
Speaker 3: years has been an industrialization of the island. And it
Speaker 3: was done really because of our excellent or I guess
Speaker 3: our geographic location.
Speaker 1: Within the Cold War.
Speaker 3: Once the Cold War kind of ended, those benefits and
Speaker 3: those tax incentives started to be unwound.
Speaker 2: How how are you viewing the presidential election given that
Speaker 2: you're in a unique position in Puerto Rico, but you're
Speaker 2: still an executive who runs a company where customers and
Speaker 2: employees might have and probably do have different views.
Speaker 3: Yeah, So we really don't get into politics because it's
Speaker 3: really uh. Each individual, we encourage them to go out
Speaker 3: and vote locally as they have the right to do so.
Speaker 3: In terms of the national US politics, where you know,
Speaker 3: it's really complicated what's going on in here in the States?
Speaker 3: From from my perspective in a personal way, I think
Speaker 3: there's so much polarization that it's inhibiting the United States
Speaker 3: to achieve their ultimate potential. And I think it's a
Speaker 3: it's really sad Ian. We need to have a little
Speaker 3: bit more consensus, We need to have more common purpose
Speaker 3: here to drive the benefits of what this great nation provides.
Speaker 3: And in the last several not say, let's say, the
Speaker 3: last ten years or so, the poll the polls have
Speaker 3: been driving the uh, the discussion and the center is
Speaker 3: too silent, So that's.
Speaker 1: Kind of an an outsider's view.
Speaker 3: I'm never involved in politics, but I think the United
Speaker 3: States is the best economy in the world, is performing
Speaker 3: the best ever.
Speaker 1: By many measures.
Speaker 3: And you know, I just think that economics drives well
Speaker 3: being and capitalism is the way to go globally, and
Speaker 3: the United States is the poster child of that. So
Speaker 3: but in terms of politics, I don't want to go
Speaker 3: into specific.
Speaker 2: So that's fine. I'm not going to push you there.
Speaker 2: We do have a couple of minutes left, and I
Speaker 2: wanted to get an idea from you about where you
Speaker 2: see growth in terms of your bank. I mentioned you
Speaker 2: do it all commercial concern, auto, mortgage lending, financial planning.
Speaker 2: The list goes on, where's the biggest area of growth
Speaker 2: for you?
Speaker 3: For us, it's on the consumer side and the commercial
Speaker 3: middle and small commercial clients. There's a good growth of
Speaker 3: small and midsize commercial clients in Puerto Rico, and we're
Speaker 3: deploying the technology, We're deploying the bankers to tract I
Speaker 3: think the key to a stable kind of growth economy
Speaker 3: in the future is a strong middle and small businesses size.
Speaker 3: And I think US as a bank or purpose is
Speaker 3: just to provide progress.
Speaker 1: To those.
Speaker 3: Business people and businesses in general to grow. So that's
Speaker 3: kind of one area where we are really focusing on.
Speaker 3: And the other area, certainly is on the retail side.
Speaker 3: We see the residential mortgage as well as the auto
Speaker 3: lending growing for us.
Speaker 2: Your view on rates, I'd be remiss if we didn't
Speaker 2: ask about this.
Speaker 3: I think the FED is people think towards a lower
Speaker 3: rate environment. It's going to be higher than we've been
Speaker 3: experiencing in the last couple of decades because inflation is
Speaker 3: going to stay relatively higher than normal, but I think
Speaker 3: the next one hundred and fifty basis.
Speaker 1: Points going down.
Speaker 2: Thanks for joining us.
Speaker 1: Good to see you, Tam, Thank you for having me here.
Speaker 2: Yeah, come visit us again next time you're in New
Speaker 2: York City. Jose Rafael Fernandez is CEO of OFG Bankcorp.
Speaker 2: He joins us here in the Bloomberg Interactive Brokers studio.