OFG Bancorp CEO on Banking in Puerto Rico

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You're listening to Bloomberg Business Week with Carol Messer and Tim Stenebek on Bloomberg Radio. Well, next guests has a great view on the consumer, albeit a very specific specific consumer in a very specific geography. He runs a bank that does it all commercial consumer, auto, mortgage lending, financial planning, and more. It serves customers in Puerto Rico and the US Virgin Islands. We got with us Jose Raphael Fernandez, CEO of OFG Bank Corp. He joins us here in

I'm doing great, Tim, great to be here.

It's good to have you with us. Listen, we'll talk about the bank. The results publicly traded, but you have such a good understanding of what the consumer is doing in the areas that you serve. What do you see when you look out?

So when first when we look at Puerto Rico and when we look at the Puerto Rico market, we've had several decades of really tough time in the island economically with the hurricanes and earthquakes, et cetera.

So there was a bit of.

A difficult time, but most recently consumers have gotten back. Lots of investments gone into reconstruction in Puerto Rico. So Porto Rico's economy has improved. And now when we look at the consumer and when we look at our clients, we really look at how how do we serve our customers better by bringing to them digital solutions and differentiating ourselves from our market. And we are a challenger bank in the island.

We try that.

Means it means really bringing in digital solutions to move away from the branches, all the interactions that you can do anywhere, anytime on your own, so that we can liberate the branches for really value add and to give advice and good service.

We've spoken to a couple of CEOs in recent mind of banks that are similar in sort of geographic footprint to you, but by embracing digital it's allowed them to go nationwide. Would you do that?

So we do have a little bit of exposure in the US, but it's more on the commercial side, not on the consumer side, and it's really limited. We would consider it going forward, but it's a real big challenge here in the market in the States to compete with the big guys.

Is that who you see yourself competing with. Do you compete with the big guys in Puerto Rico? Do they have a presence there?

They don't.

But there's a big guy in Puerto Rico and it has sixty percent market share. And that's why we're the challenger bank too. We gotta do things differently, and we got to present ourselves to the customers and to the market in a different way. So the way we define it, or at least the way we call it internally is digital first. We bring in the digital technology before anyone in the market. So we are like first at market change the behavior, and then by doing that, we bring

So how is the Puerto Rican consumer right now?

The Puerto Rican consumer is pretty solid. It's got good liquidity, they have highest levels of savings in a while. Really, Yeah, Puerto Rico's economy right now is doing pretty well.

In the context of the wider US. We've heard about savings being diminished post pandemic. That sort of pillow being gone a little bit happened in Puerto Rico.

Two yeah, so you get the excess savings kind of fading away a little bit. But in Puerto Rico, two things have happened. One is lower unemployment. We used to have thirteen percent of employment. It's around five point eight right now.

We used to have wages.

Around let's say, in come per capita around twenty thousand.

Dollars per person, which is lower than.

Mississippi, which is a lower the poorer stay in the Union read right now closer to the thirty thousand. And the reason for that is because wages have gone up. So when we look at the consumer and when you look at our clients, they do have higher levels of liquidity and they are using it on the consumer side as well as on the saving side and to some degree on the investing side. So we're really in a really good spot.

Right now in Puerto Rico.

How does that profile differ from the profile of the customer and the US Virgin Islands and your and what's your presence there?

In the US Virgin Islands. We have three branches. They are pretty much in Saint Thomas and Saint Croix. We have some virtual tellers and kiosks also in addition to the branches, it's a smaller presence, it's a smaller market. Porto Ricu is a market. Our economy is around one hundred billion dollars. The Virgin Islands is significantly lower. So it's a different kind of market in terms of the demographic.

Yep.

That was driven by some tax incentives that were given back in the nineties, eighties and nineties and they were taken away.

And that's actually one.

Of the drivers of why we had a really difficult economic time from two thousand and six to twenty seventeen or eighteen.

Okay, So what about moving forward in Puerto Rico? What are you what are you seeing as the economic drivers? And how are you watching what happens in the US election. I mean, it's I don't need to tell you this, but you don't have candidates visiting Puerto Rico.

I wouldn't know, don't We don't vote, so we don't vote in the presidential election, so it really we don't have any saying there.

I'm sure that perspective though, about how that is being part of the US in a sense but not having a voice in the so election.

Puerto Rico is unique.

It's been unique for sixty years in the sense of our political.

Definition.

We are called the commonwealth here in the States. In Spanish is estado liberta as sociato you want to translate that, it's free and associated state. Talk about an oxymoron, right, but because you can't be free state and associated so it's a little bit complex. So we don't vote for the president. We don't pay federal taxes. We do pay state taxes. We do receive some of the benefits in terms of Social Security, Medicare and Medicare because we pay those taxes as part of works salary deductions.

And really Puerto Rico goes to war.

We have common currency, we have common defense, we have common citizenship.

We're American citizens.

So what's really driven Puerto Rico in the last sixty years has been an industrialization of the island. And it was done really because of our excellent or I guess our geographic location.

Within the Cold War.

Once the Cold War kind of ended, those benefits and those tax incentives started to be unwound.

How how are you viewing the presidential election given that you're in a unique position in Puerto Rico, but you're still an executive who runs a company where customers and employees might have and probably do have different views.

Yeah, So we really don't get into politics because it's really uh. Each individual, we encourage them to go out and vote locally as they have the right to do so. In terms of the national US politics, where you know, it's really complicated what's going on in here in the States? From from my perspective in a personal way, I think there's so much polarization that it's inhibiting the United States to achieve their ultimate potential. And I think it's a

Kind of an an outsider's view.

I'm never involved in politics, but I think the United States is the best economy in the world, is performing the best ever.

By many measures.

And you know, I just think that economics drives well being and capitalism is the way to go globally, and the United States is the poster child of that. So but in terms of politics, I don't want to go into specific.

So that's fine. I'm not going to push you there. We do have a couple of minutes left, and I wanted to get an idea from you about where you see growth in terms of your bank. I mentioned you do it all commercial concern, auto, mortgage lending, financial planning. The list goes on, where's the biggest area of growth for you?

For us, it's on the consumer side and the commercial middle and small commercial clients. There's a good growth of small and midsize commercial clients in Puerto Rico, and we're deploying the technology, We're deploying the bankers to tract I think the key to a stable kind of growth economy in the future is a strong middle and small businesses size. And I think US as a bank or purpose is just to provide progress.

To those.

Business people and businesses in general to grow. So that's kind of one area where we are really focusing on. And the other area, certainly is on the retail side. We see the residential mortgage as well as the auto lending growing for us.

Your view on rates, I'd be remiss if we didn't ask about this.

I think the FED is people think towards a lower rate environment. It's going to be higher than we've been experiencing in the last couple of decades because inflation is going to stay relatively higher than normal, but I think the next one hundred and fifty basis.

Points going down.

Thanks for joining us.

Good to see you, Tam, Thank you for having me here.

Yeah, come visit us again next time you're in New York City. Jose Rafael Fernandez is CEO of OFG Bankcorp. He joins us here in the Bloomberg Interactive Brokers studio.