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Banco Real:

Banking on
Case Analysis
Submitted to:
Dr. Ayesha Afzal
Submitted by:
Harris Khurram
Muhammad Shahid
Rana Noraiz
Malik Sultan Haider
Awais Haider
Shariq Hanif
Being the 4
largest privately owned bank in Brazil and number 15 on the list of
brazils most admired companies, Banco Real had to play an important role and live
up to the expectations president Lula had from private sector. With the advent of the
sustainability theme, Banco Real had ventured into socio-environmental screening for
credit analysis, environmentally focused products, micro-finance, socio-environmental
tests for suppliers, internal reduction of waste and recycling, and workforce diversity.
Trouble in paradise: Problems of the
Brazilian economy
After attaining its independence in 1822, brazil quickly emerged as south Americas
leading economic power. However, 1980s saw a plethora of problems, such as
declining Real growth, runway inflation, unserviceable foreign debt and lack of policy
direction, besetting the economy. Environmental deficiencies, poor transportation
network and bureaucracy were breathing down the publics neck. Homicide rate was
50 per 100,000 residents and drug cartels were expanding their influence.
Banking sector:
Brazilian banking sector was divided among:
Federally owned banks
State owned banks
Brazilian controlled banks
Foreign controlled banks
During the 1980s, inflation was rampant with levels in excess of 200% leading to
banks becoming increasingly becoming dependent on float revenues. This resulted in
two consolidation efforts by the government. In 1994, Plano Real was introduced
which was aimed at reducing inflation by using inflation rate as an anchor. The second
effort came in response to the worldwide recession that forced the government to
identify institutions with problems and ask them to hand over their control to

Banco Real:
Banco Real was a well-established financial group that traced back its origins to 1925.
During the wave of consolidation in the Brazilian economy, Banco Real was acquired
by ABN AMRO S.A. this acquisition posed a new problem of creating a new and
stronger culture in the organization administering its effective implementation.

The change process:
Banco Real wanted value creation by fostering a new model of growth aiming at
satisfying both customers and specific ethical & environmental standards. It decided
to focus on customer stressing relationship rather than transaction. The bank boasts a
positive track record in terms of CSR action, programs and policies. Banco created the
education and sustainable development department which was responsible for
education and training.
The management explained that it was seriously committed to economic, social,
environmental development of stakeholders, employees, clients, suppliers and society
at large. Its commitment was reaffirmed through the expansion of loan via
microfinance program which the bank argued was the most important instrument to
stimulate economic and social development. Banco Real divided its activities in
different categories, such as micro finance, ethical funds, socio environmental
financing, social and cultural investment, ecoefficieny and suppliers. These all support
Banco Reals main objective of customer satisfaction and specific ethical and
environmental standards.
Banco Real adopted the corporate social and environmental responsibility approach
because it was the way forward and it aligned with the new course the organization
wanted to take. The bank could have stuck with the traditional banking approach of
gathering deposits and making loans to large organizations that promised safer returns
but it would have been counterproductive for the economy already in shambles and
the acquisition of Banco Real by ABN AMRO would have failed to generate useful
results for the acquirer.

Measuring the success of Banco Real:
Risks present opportunities; competitive advantages that can reposition an
organization and place it in an entirely new spectrum. BANCO REAL, one of Brazils
top five largest privately owned banks, is among those leading financial institutions to
have chosen a distinct pathway by placing corporate social responsibility at the center
of all their business activities. Their business model has revolutionized the South
American banking industry, demonstrating to others how an organization can be
profitable while maintaining an ethical attitude.
At a time when several other acquisitions were taking place in the banking sector,
competition was strong. Many of their bigger competitors did not only have a better
technological infrastructure, but also stronger brand recognition. At the same time,
poverty combined with a poor infrastructure, a high level of income disparity, and
increasing environmental deficiencies afflicted the country although Brazil was
defined as one of South Americas leading emerging economies. Mr. Barbosa
believed there is limited value in succeeding in a country which does not enjoy the
same success itself. Given the competitive landscape in the industry and the huge
societal problems, he knew it was possible to establish a new bank; a bank that would
not only be distinguished from its competitors, but, most importantly, one that would
have a new identity that could transform the society. Such a bank would be respected
and admired by all its stakeholders, not only its investors. Inspired by the vision of
creating a new bank for a new society, Mr. Barbosa and other senior executives of
the bank believed they could succeed by doing the right things, the right way. This
entailed developing strategies that centered on corporate social responsibility. They
wanted to move beyond mere philanthropy, and intended to demonstrate that it was
possible to be profitable and at the same time create value for the society. Their
emphasis on value creation led them to introduce the bank of value concept in 2001.
Like most unexplored pathways, this one was also filled with many uncertainties.
Nevertheless, although there was some initial resistance, most senior executives,
including Mr. Barbosa and Ms. Pinto, stuck to the new way of doing business, as they
believed this was the right thing to do. This was contrary to the old way, which
emphasized transactions, while the new way meant focusing more on the type and
quality of the customer relationships. For their vision to be successfully carried out,
the relevant senior executives knew it was crucial to establish an internal team
dedicated to ensuring that corporate social responsibility would be ingrained in all
their business activities. Consequently, a committee was appointed to discuss and
develop ways that could bring about the desired change, while work groups from
various areas of the bank carried out the implementation of the projects. In 2002, the
committee created under the bank-of-value concept was divided into three
committees: management, market, and social action. While the management
committee was responsible for eco-efficiency, employee diversity, and suppliers, the
market committee was focused on the products, customers, and credit risk analysis.
The social action committee was accountable for social investment and community
A crucial step had been taken by appointing committees that would serve to integrate
the banks new business model. However, before aiming to transform the outer world,
the management knew they had to change the company from within. The banks
business processes were therefore started analyzed and redesigned to make them more
socio environmentally sustainable. In 2001, BANCO REAL introduced their 3Rs
Eco efficiency program (reduction, re-utilization, and recycling). Most of the banks
efforts to reduce its environmental footprint were primarily focused on reducing water
and energy consumption, and the usage of recycled resources, such as paper, batteries,
and ink used for their printing devices. Through these initiatives, the energy
consumption was reduced by 12 per cent during the last three years; currently,
approximately 90 per cent of all the paper used is derived from recycled paper.
A key determinant to creating a better bank for a better society was to mobilize
others to adopt more sustainable practices. The management knew that alone they
would not be as successful, but by sharing corporate social responsibility with others,
they could come closer to making their vision a Reality. This meant, for example, that
the bank would only engage with those customers who shared the same principles,
otherwise those principles would be meaningless. Consequently, the bank screened
out those customers whose activities would pose high socio-environmental risks. This
process generated much resistance at first, as many managers thought the bank would
lose a significant client base and their assets would decline.
Financially, Banco Real is facing its fair share of ups and downs. Their deposit base
has drastically increased by 284% from 2000-2004 with net profits showing an
increase of almost 91%. However the banks ROE and ROA have dropped over the
years indicating that it has been inefficient in using its deposits to generate profits.

Key elements of change:
Change process in the company was initiated by two very different type of events one
positive and other negative. There was a filthy and abandoned alley close to the bank
which was home of thugs and drug dealers. The bank took responsibility of
transforming the alley and constructed new pavement and a garden. The basic idea
behind this initiative was that the whole world could be changed, if every person takes
the responsibility of transforming the place next door.
On the negative side, an employee of the bank sold a long term bond to a 70 year old
person which would not mature for decades. From that point onwards, the
organization felt the need to change its inner culture and decided that it was better to
lose a deal than losing a relationship.
In the new approach Bank of value corporate social responsibility was placed at the
center of the business activities to make an impact. Company believed that this new
approach could be beneficial not only in terms of profit but also in terms of creating
value for their customers and society. In accordance to their Bank of Value
approach two new campaigns were introduced which were a new bank for a new
society and Bank of Your Life. President and other managers of the bank believed
they could succeed by Doing the right things, the right way. Although this concept
was applauded by 80% of the employees but some thought it was practically
impossible as you cant give everything to everyone.
To move forward with their Socio-Environmental approach Bank introduced first
Socio-Environmental product Ethical Mutual Funds in 2001. This was an equity
fund comprised of companies that practiced sound corporate governance and
integrated economic-financial and socio-environmental considerations. Over 3 years
after its launch the ethical mutual fund was composed of stock from 25 companies,
had R$75 million under management and had a 159.5% return since its inception.
Although the funds asset was still a fraction of the R$29.4 billion managed by the
company, it showed that investment in the socio-environmentally responsible
companies could pay off in long run.
In addition to this, bank saw a market in financing projects to improve socio-
environmental performance. Hence Socio-environmental financial products were
introduced and different lines of financing were introduced for corporate customers
and consumers. Moreover, company managed to gain the World Bank loan pool of
US$51 million to lend for socio-environmental and corporate governance
improvements. Company also started to give small loans to very poor people for
income-generating self-employment projects under Micro-finance. By doing this
company also tapped into a new market.
In the next step of change process, company involved its suppliers in their social
responsibility programs. Idea was to combine companies into mutual learning process.
So as a result in 2003, new guidelines for supplier relationships were defined and
supplies were asked to sign terms of service declaring that they know the banks
policies and are willing to follow them.
To implement the change process effectively there was a need to shape the culture
inside the bank. So company introduced two campaigns The 3Rs and Diversity.
Activities such as Environmental Week and Diversity Day were launched to stress the
importance of these campaigns. Overall, a bank culture was formed that was based on
employee participation, creativity, employee development, and focus on
communication. Company also involved its customers in its change process.


The wheel of change represents all the aspects of the change process that was initiated
in Banco Real.
Barriers to change
After the acquisition, the bank integrated a new element that resulted in the tuning of
the whole organization in order to incorporate that change. That new element was the
value creation on which they were emphasizing. Banco Real had to unfreeze their
existing state, bring in the change, and refreeze. Handling social and environmental
risk was crucial for Banco Real because failure in this regard could have cost them
with both reputation and financially. In adapting to the changes being shaped, Banco
Real was availing the new opportunity but was facing the threat by giving some room
to its competitors to capture the market share Banco Real have had.
Some barriers mentioned in the article are:
The bank had to walk away from the clients that were posing social and
environmental risks. Hence some clients were lost due to the strong
commitment of Banco Real. This did pose a threat but the bank projected itself
as an organization that wouldnt hesitate going to any level required in order to
meet their goals.
Incorporating socio-environmental matters into the companys wasnt easy as
well. All the financial statements couldnt be accounted for as financial
statements were not often audited in Brazil.
Social matters such as child labor or compliance with regulations were hard to
prove. Not all aspects can be monitored and proved.
Large corporations werent happy with them being audited and Banco Real
would only work with the organizations clearing the audits as followers of
socio-environmental organization. The leaders couldnt do a thing because the
corporations were humongous.
In 2001 Banco Real launched ethical mutual fund which resulted against them
as people thought of ethical fund being the only fund meeting ethical standards.
The problem was never sorted at all.
The Banco Real was always conveying their goals through demonstration by
themselves, by following ethical standards but there were loop hole between
them and their suppliers. Around 30% payments werent made to its suppliers
due to mere lack of discipline.
Banco Reals leaders had decided that the bank would be customer focused
thus emphasizing more on relationship building than anything else. But some
executives thought of it as impossible business strategy. According to them it
wasnt feasible to give everything to everyone.
7 skills of change leaders
Turning in to the environment
It was accomplished as they had excellent leadership group who found out the
opportunities and then decided what to aspire. Not only did they changed themselves
but also motivated and encouraged everyone involved with them including clients.
Kaleidoscope thinking, stimulating breakthrough ideas
This was practiced by leaders. In fact it was due to this that they came up with the
concept Banco de Valor that formed the basic goal.
Setting the theme
This skill was present in the leaders and they used this in encouraging and motivating
their employees and fellow staff. Not only did they adopt social responsibility, they
also convinced some clients in adopting it too.
Enlisting backers and supporters
A great deal of the work of innovation and change is to reach deeply into, across and
outside the organization to identify key influencers and get them interested and
supportive. Certainly they had used this skill.
Developing the dream, nurturing the working team
The leaders involved the working force in achieving the goal of the organization and
empowered them where needed so that their confidence is build up.
Mastering the difficult middles, persisting and preserving
The leaders had this skill almost 50%. At times they took steps out of the box in
solving the problems but at other times problems were left unresolved.
Celebrating accomplishments
Making everyone a hero wasnt clearly observed in Banco Real. Since
accomplishments werent shown nothing can be said about this one.

What the future holds for Banco Real:
To put the ambitions formulated in specific policies into practice, the bank needs to
devote considerable attention and resources to capacity building, training, motivating
and rewarding its employees. All employees involved need to be trained with regard
to the social and environmental issues related to the sectors. Specific attention should
be paid to internalizing the banks mission and specific goals by employees.
Additionally, a sustainable human resources policy attracts, stimulates and rewards
people who are able to contribute to the banks mission and sustainability goals most
effectively. Banco shouldnt give its employees (including Board members) bonuses
for mere quantity of business achieved, margins and short-term profits. Rather it
should reward employees who seriously work on the implementation of the banks
policies. The bonus system should integrate sustainability and longer time horizons
and attribute positive value to prudent decision making. The bank should also move
towards sector wide implementation of the corporate social responsibility guidelines
in coordination with the government agencies and NGOs. This would help in shaping
up the banking sector for further improvement and transparency.