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Enrique Garcia: President of CAF.

Moody's Investment Services downgraded 15 of the world's largest banks, including Barclay's and Citigroup, on June 15.The same day, CAF Banco de Desarrollo de America Latina, received its 16th credit upgrade.

The juxtaposition of events isn't surprising, said CAF President Enrique Garcia, who has led the Caracas-based development bank since 1991. "Non-performing loans make up zero percent of our portfolio," Garcia told Latin Trade in an interview from his once. "We have been very careful in what we do."

Credit agencies have taken note. The bank's long-term debt currently carries an A+ investment grade rating from Standard & Poor's and Fitch Ratings, and an A1 investment grade rating from Moody's Investment Services.

CAF was a small regional trade bank when it began operations in 1970. Assets were less than $1 billion, and it had five shareholders--the governments of Bolivia, Colombia, Ecuador, Peru and Venezuela. Today the bank, formerly known as Corporacion Andina de Fomento, has more than $21 billion in assets. The number of shareholders has now grown to 18 countries, including Brazil, Spain and Portugal, as well as 14 private banks.

Garcia said innovation and sound banking principles were key to CAF's growth. "To be relevant, I knew we had to be more than just a bank for five countries," said Garcia, a former vice president of the Inter-American Development Bank (IADB).

To grow its operations, CAF focused on three key areas: credit expansion, membership, and funding, all of which were intertwined. "The bank's original role was in trade finance and we knew we had to broaden that," Garcia said. "We saw that there was a need for development finance, especially in infrastructure."

Focusing on transportation and energy projects, CAF began extending credit to its sovereign shareholders. Attracted by its early successes, more countries applied for membership, which boosted the company's capital, allowing it to expand lending.

As of Dec. 31, the bank's loan portfolio totaled $15.1 billion. "The mix between public and private sector loans is about 70 percent to 30 percent," Garcia said.

The bank's success has occurred in spite of regional credit crises, and the troubles of individual members, who have weathered devaluations, foreign exchange controls, and radical shifts in economic policies since the bank's creation. For Garcia, the most difficult challenge came when Venezuela's banking system melted down in 1994-1995, threatening to undermine that country's private borrowers and their ability to repay CAF. "We were meeting non-stop with members of the Venezuelan government in a bid to avert a crisis," said Garcia. "It was a tiring time but we succeeded."

The bank has also successfully overcome ideological differences among its members, some of whom embrace neo-liberal economic systems, while others tend toward a more active state role in their economies. "We are very respectful of the different cultures, the different countries who are our shareholders," said Garcia. "They may have different ideas of the role of the state, but there has never been an ideological impasse."

Garcia, who is starting his fifth five-year term as president, said the words that will guide CAF's future are growth and consolidation.

"Assets of the bank should double in the next five years to more than $40 billion," Garcia said. "In 20 years, our assets should be above $100 billion."

The bank forecasts increased lending throughout the region. "Our objective has always been to provide financing for development projects that are sustainable, high quality and spur economic growth," Garcia said. "We see that continuing in the next 20 years."

Peter Wilson reported from Caracas.
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Author:Wilson, Peter
Publication:Latin Trade
Geographic Code:3VENE
Date:Nov 1, 2012
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