PR Banking Industry Report – January to December 2013

The local banking industry’s 2013 pre-tax ROE adjusted for the sale of NPAs portfolios by Popular and FirstBank during the first two quarters of the year was 7.6%, the highest level since 2006 but still well below pre-2006 levels. Continuous cost rationalization measures, increasing pricing and fees, leveraging economies of scale and expansion in other markets of those banks with non-PR operations will be critical during 2014 and beyond to raise returns given a local context of continued diminishment of banks’ assets and few organic growth opportunities. Obtaining precrisis levels of profitability remains elusive in the short-term given economic hardships dating back to 2006 and Puerto Rico’s general obligation debt rating dip to non investment grade in early February 2014 by S&P, Moody’s and Fitch.