WEBVTT - OFG Bancorp CEO on Banking in Puerto Rico

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>You're listening to Bloomberg Business Week with Carol Messer and

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<v Speaker 2>Tim Stenebek on Bloomberg Radio. Well, next guests has a

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<v Speaker 2>great view on the consumer, albeit a very specific specific

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<v Speaker 2>consumer in a very specific geography. He runs a bank

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<v Speaker 2>that does it all commercial consumer, auto, mortgage lending, financial planning,

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<v Speaker 2>and more. It serves customers in Puerto Rico and the

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<v Speaker 2>US Virgin Islands. We got with us Jose Raphael Fernandez,

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<v Speaker 2>CEO of OFG Bank Corp. He joins us here in

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<v Speaker 2>the Bloomberg Interactive Brokers studio. Welcome, how are you.

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<v Speaker 3>I'm doing great, Tim, great to be here.

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<v Speaker 2>It's good to have you with us. Listen, we'll talk

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<v Speaker 2>about the bank. The results publicly traded, but you have

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<v Speaker 2>such a good understanding of what the consumer is doing

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<v Speaker 2>in the areas that you serve. What do you see

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<v Speaker 2>when you look out?

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<v Speaker 3>So when first when we look at Puerto Rico and

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<v Speaker 3>when we look at the Puerto Rico market, we've had

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<v Speaker 3>several decades of really tough time in the island economically

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<v Speaker 3>with the hurricanes and earthquakes, et cetera.

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<v Speaker 1>So there was a bit of.

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<v Speaker 3>A difficult time, but most recently consumers have gotten back.

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<v Speaker 3>Lots of investments gone into reconstruction in Puerto Rico. So

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<v Speaker 3>Porto Rico's economy has improved. And now when we look

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<v Speaker 3>at the consumer and when we look at our clients,

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<v Speaker 3>we really look at how how do we serve our

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<v Speaker 3>customers better by bringing to them digital solutions and differentiating

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<v Speaker 3>ourselves from our market. And we are a challenger bank

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<v Speaker 3>in the island.

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<v Speaker 2>We try that.

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<v Speaker 3>Means it means really bringing in digital solutions to move

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<v Speaker 3>away from the branches, all the interactions that you can

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<v Speaker 3>do anywhere, anytime on your own, so that we can

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<v Speaker 3>liberate the branches for really value add and to give

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<v Speaker 3>advice and good service.

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<v Speaker 2>We've spoken to a couple of CEOs in recent mind

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<v Speaker 2>of banks that are similar in sort of geographic footprint

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<v Speaker 2>to you, but by embracing digital it's allowed them to

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<v Speaker 2>go nationwide. Would you do that?

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<v Speaker 3>So we do have a little bit of exposure in

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<v Speaker 3>the US, but it's more on the commercial side, not

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<v Speaker 3>on the consumer side, and it's really limited. We would

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<v Speaker 3>consider it going forward, but it's a real big challenge

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<v Speaker 3>here in the market in the States to compete with

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<v Speaker 3>the big guys.

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<v Speaker 2>Is that who you see yourself competing with. Do you

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<v Speaker 2>compete with the big guys in Puerto Rico? Do they

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<v Speaker 2>have a presence there?

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<v Speaker 1>They don't.

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<v Speaker 3>But there's a big guy in Puerto Rico and it

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<v Speaker 3>has sixty percent market share. And that's why we're the

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<v Speaker 3>challenger bank too. We gotta do things differently, and we

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<v Speaker 3>got to present ourselves to the customers and to the

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<v Speaker 3>market in a different way. So the way we define it,

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<v Speaker 3>or at least the way we call it internally is

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<v Speaker 3>digital first. We bring in the digital technology before anyone

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<v Speaker 3>in the market. So we are like first at market

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<v Speaker 3>change the behavior, and then by doing that, we bring

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<v Speaker 3>in a differentiation. And that differentiation certainly contrasts with our

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<v Speaker 3>bigger competitor in the island.

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<v Speaker 2>So how is the Puerto Rican consumer right now?

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<v Speaker 3>The Puerto Rican consumer is pretty solid. It's got good liquidity,

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<v Speaker 3>they have highest levels of savings in a while. Really, Yeah,

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<v Speaker 3>Puerto Rico's economy right now is doing pretty well.

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<v Speaker 2>In the context of the wider US. We've heard about

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<v Speaker 2>savings being diminished post pandemic. That sort of pillow being

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<v Speaker 2>gone a little bit happened in Puerto Rico.

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<v Speaker 3>Two yeah, so you get the excess savings kind of

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<v Speaker 3>fading away a little bit. But in Puerto Rico, two

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<v Speaker 3>things have happened. One is lower unemployment. We used to

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<v Speaker 3>have thirteen percent of employment. It's around five point eight

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<v Speaker 3>right now.

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<v Speaker 1>We used to have wages.

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<v Speaker 3>Around let's say, in come per capita around twenty thousand.

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<v Speaker 1>Dollars per person, which is lower than.

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<v Speaker 3>Mississippi, which is a lower the poorer stay in the

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<v Speaker 3>Union read right now closer to the thirty thousand. And

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<v Speaker 3>the reason for that is because wages have gone up.

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<v Speaker 3>So when we look at the consumer and when you

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<v Speaker 3>look at our clients, they do have higher levels of

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<v Speaker 3>liquidity and they are using it on the consumer side

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<v Speaker 3>as well as on the saving side and to some

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<v Speaker 3>degree on the investing side. So we're really in a

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<v Speaker 3>really good spot.

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<v Speaker 1>Right now in Puerto Rico.

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<v Speaker 2>How does that profile differ from the profile of the

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<v Speaker 2>customer and the US Virgin Islands and your and what's

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<v Speaker 2>your presence there?

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<v Speaker 3>In the US Virgin Islands. We have three branches. They

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<v Speaker 3>are pretty much in Saint Thomas and Saint Croix. We

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<v Speaker 3>have some virtual tellers and kiosks also in addition to

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<v Speaker 3>the branches, it's a smaller presence, it's a smaller market.

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<v Speaker 3>Porto Ricu is a market. Our economy is around one

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<v Speaker 3>hundred billion dollars. The Virgin Islands is significantly lower. So

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<v Speaker 3>it's a different kind of market in terms of the demographic.

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<v Speaker 3>But it's still very very interest in Puerto Rico. To

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<v Speaker 3>be honest, tourism is not necessarily the primari driver of

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<v Speaker 3>the economy's manufacturing. Actually, oh that's interesting, Yeah, yeah, yeah.

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<v Speaker 3>I remember my last visit there a few years ago,

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<v Speaker 3>driving from the airport to where we were going, passing

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<v Speaker 3>a lot of pharmaceutical company facilities.

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<v Speaker 2>Yep.

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<v Speaker 3>That was driven by some tax incentives that were given

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<v Speaker 3>back in the nineties, eighties and nineties and they were

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<v Speaker 3>taken away.

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<v Speaker 1>And that's actually one.

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<v Speaker 3>Of the drivers of why we had a really difficult

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<v Speaker 3>economic time from two thousand and six to twenty seventeen

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<v Speaker 3>or eighteen.

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<v Speaker 2>Okay, So what about moving forward in Puerto Rico? What

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<v Speaker 2>are you what are you seeing as the economic drivers?

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<v Speaker 2>And how are you watching what happens in the US election.

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<v Speaker 2>I mean, it's I don't need to tell you this,

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<v Speaker 2>but you don't have candidates visiting Puerto Rico.

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<v Speaker 3>I wouldn't know, don't We don't vote, so we don't

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<v Speaker 3>vote in the presidential election, so it really we don't

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<v Speaker 3>have any saying there.

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<v Speaker 2>I'm sure that perspective though, about how that is being

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<v Speaker 2>part of the US in a sense but not having

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<v Speaker 2>a voice in the so election.

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<v Speaker 1>Puerto Rico is unique.

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<v Speaker 3>It's been unique for sixty years in the sense of

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<v Speaker 3>our political.

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<v Speaker 1>Definition.

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<v Speaker 3>We are called the commonwealth here in the States. In

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<v Speaker 3>Spanish is estado liberta as sociato you want to translate that,

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<v Speaker 3>it's free and associated state. Talk about an oxymoron, right,

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<v Speaker 3>but because you can't be free state and associated so

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<v Speaker 3>it's a little bit complex. So we don't vote for

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<v Speaker 3>the president. We don't pay federal taxes. We do pay

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<v Speaker 3>state taxes. We do receive some of the benefits in

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<v Speaker 3>terms of Social Security, Medicare and Medicare because we pay

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<v Speaker 3>those taxes as part of works salary deductions.

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<v Speaker 1>And really Puerto Rico goes to war.

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<v Speaker 3>We have common currency, we have common defense, we have

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<v Speaker 3>common citizenship.

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<v Speaker 1>We're American citizens.

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<v Speaker 3>So what's really driven Puerto Rico in the last sixty

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<v Speaker 3>years has been an industrialization of the island. And it

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<v Speaker 3>was done really because of our excellent or I guess

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<v Speaker 3>our geographic location.

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<v Speaker 1>Within the Cold War.

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<v Speaker 3>Once the Cold War kind of ended, those benefits and

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<v Speaker 3>those tax incentives started to be unwound.

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<v Speaker 2>How how are you viewing the presidential election given that

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<v Speaker 2>you're in a unique position in Puerto Rico, but you're

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<v Speaker 2>still an executive who runs a company where customers and

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<v Speaker 2>employees might have and probably do have different views.

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<v Speaker 3>Yeah, So we really don't get into politics because it's

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<v Speaker 3>really uh. Each individual, we encourage them to go out

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<v Speaker 3>and vote locally as they have the right to do so.

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<v Speaker 3>In terms of the national US politics, where you know,

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<v Speaker 3>it's really complicated what's going on in here in the States?

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<v Speaker 3>From from my perspective in a personal way, I think

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<v Speaker 3>there's so much polarization that it's inhibiting the United States

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<v Speaker 3>to achieve their ultimate potential. And I think it's a

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<v Speaker 3>it's really sad Ian. We need to have a little

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<v Speaker 3>bit more consensus, We need to have more common purpose

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<v Speaker 3>here to drive the benefits of what this great nation provides.

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<v Speaker 3>And in the last several not say, let's say, the

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<v Speaker 3>last ten years or so, the poll the polls have

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<v Speaker 3>been driving the uh, the discussion and the center is

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<v Speaker 3>too silent, So that's.

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<v Speaker 1>Kind of an an outsider's view.

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<v Speaker 3>I'm never involved in politics, but I think the United

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<v Speaker 3>States is the best economy in the world, is performing

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<v Speaker 3>the best ever.

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<v Speaker 1>By many measures.

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<v Speaker 3>And you know, I just think that economics drives well

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<v Speaker 3>being and capitalism is the way to go globally, and

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<v Speaker 3>the United States is the poster child of that. So

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<v Speaker 3>but in terms of politics, I don't want to go

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<v Speaker 3>into specific.

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<v Speaker 2>So that's fine. I'm not going to push you there.

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<v Speaker 2>We do have a couple of minutes left, and I

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<v Speaker 2>wanted to get an idea from you about where you

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<v Speaker 2>see growth in terms of your bank. I mentioned you

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<v Speaker 2>do it all commercial concern, auto, mortgage lending, financial planning.

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<v Speaker 2>The list goes on, where's the biggest area of growth

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<v Speaker 2>for you?

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<v Speaker 3>For us, it's on the consumer side and the commercial

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<v Speaker 3>middle and small commercial clients. There's a good growth of

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<v Speaker 3>small and midsize commercial clients in Puerto Rico, and we're

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<v Speaker 3>deploying the technology, We're deploying the bankers to tract I

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<v Speaker 3>think the key to a stable kind of growth economy

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<v Speaker 3>in the future is a strong middle and small businesses size.

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<v Speaker 3>And I think US as a bank or purpose is

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<v Speaker 3>just to provide progress.

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<v Speaker 1>To those.

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<v Speaker 3>Business people and businesses in general to grow. So that's

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<v Speaker 3>kind of one area where we are really focusing on.

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<v Speaker 3>And the other area, certainly is on the retail side.

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<v Speaker 3>We see the residential mortgage as well as the auto

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<v Speaker 3>lending growing for us.

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<v Speaker 2>Your view on rates, I'd be remiss if we didn't

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<v Speaker 2>ask about this.

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<v Speaker 3>I think the FED is people think towards a lower

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<v Speaker 3>rate environment. It's going to be higher than we've been

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<v Speaker 3>experiencing in the last couple of decades because inflation is

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<v Speaker 3>going to stay relatively higher than normal, but I think

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<v Speaker 3>the next one hundred and fifty basis.

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<v Speaker 1>Points going down.

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<v Speaker 2>Thanks for joining us.

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<v Speaker 1>Good to see you, Tam, Thank you for having me here.

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<v Speaker 2>Yeah, come visit us again next time you're in New

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<v Speaker 2>York City. Jose Rafael Fernandez is CEO of OFG Bankcorp.

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<v Speaker 2>He joins us here in the Bloomberg Interactive Brokers studio.