The Puerto Rico Banking Sector Continues to Consolidate

6 de octubre, 2019

The announced acquisition of Scotiabank’ operations in Puerto Rico by Oriental Bank comes after a long period of consolidation in the island’ banking sector. Through this acquisition, Oriental Bank will increase its assets and deposits market shares from 10% and 9% to 16% and 14%, respectively, and will significantly strengthen its position in the mortgage origination and servicing businesses.

The announced acquisition of Scotiabank’ operations in Puerto Rico by Oriental Bank comes after a long period of consolidation in the island’ banking sector. Since the April 2010 Federal Deposit Insurance Corp.-assisted transactions involving Westernbank, Eurobank and R-G Financial Corp., the number of banks in Puerto Rico was reduced from 10 to 4. A deep and prolonged economic recession has also driven the 38 percent and 24 percent reduction in total assets and total deposits, respectively, between 2009 and 2016 (see Figure 1).

Since 2016, the banking sector has reverted this downward trend, and total assets and deposits have increased by 16 percent and 20 percent, respectively. Meanwhile, the banks’ footprint has continued to drop (9 percent reduction in the number of branches) and the total number of employees has only increased by 2 percent. In other words, since 2016, banks have managed to grow their business with a smaller footprint and similar human resources, improving their efficiency levels and fueling their profitability.

As was mentioned in our recent insight «2018, a turning point for the profitability of local banks?&quot, the Puerto Rico banking sector reached similar profitability levels to the U.S. banking sector in 2018, after more than 10 years showing lower profitability. The efforts to digitize and automate processes, and to push online acquisition and transaction processing channels by most banks has played an important role in the efficiency improvement.

The consolidation has resulted in a market-share distribution that is very different from the one in 2009. Banco Popular has been the clear winner both in terms of business and footprint, increasing the assets share from 25 percent in 2009 to 58 percent in 2019, and the branches share from 37 percent to 56 percent. The other big market-share winner has been Oriental Bank, through the acquisition of Eurobank in 2010, Banco Bilbao Vizcaya Argentaria-Puerto Rico (BBVA) in 2012 and now Scotiabank. As can be observed in Figure 2, Oriental Bank will accumulate 16 percent of total banking assets and 14 percent of deposits after acquiring Scotiabank (compared to 7 percent and 3 percent in 2009, respectively).

Scotiabank’ loan portfolio is mainly concentrated in mortgage loans, followed by commercial and auto loans. As a result, Oriental will significantly grow its mortgage portfolio share from 9 percent to 20 percent, which is close to the second player, FirstBank’ 24 percent, although the mortgage originations of a consolidated Oriental and Scotiabank are still far from FirstBank’ originations (a 22 percent vs. 37 percent share, respectively). Additionally, Oriental Bank now consolidates its second position in the auto loan industry with a 27 percent market share, strengthening a strategy that was initiated with the BBVA acquisition that included that bank’ strong auto loan origination operation. Oriental’ commercial loan portfolio will represent 16 percent of the island’ total commercial loan business after the Scotiabank acquisition, which is still far from FirstBank’ second position. However, Oriental Bank will be acquiring an important expertise from Scotiabank in terms of midsize and large companies’ commercial products, including cash management and trade solutions.

Finally, Oriental is also adding Scotiabank’ powerful mortgage servicing business. While this represents a respectable diversification of revenue sources, the local servicing business is not free of challenges. As was mentioned in the past industry report, local mortgage servicing margins are negatively impacted by several factors in Puerto Rico, including lower average loan sizes and higher delinquency rates compared to the U.S. market.

Puerto Rico’ consolidation process, however, may not be over yet. There have been periodic rumors of Santander Puerto Rico following the same strategy as BBVA in Puerto Rico. While banks have benefited from economies of scale in the consolidation process, consumers will be penalized through reduced competitive pressure and fewer providers from which to choose. With Puerto Rico financial system well-integrated with the States, this trend could change through the ongoing development of online solutions from U.S. banks and nonbanking financial enterprises.



V2A Banking Indicators Portal (, Federal Deposit Insurance Corporation (FDIC) Comparison Reports (, Office of the Commissioner of Financial Institutions (OCIF)


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