market has had a robust first-half period, fuelled by growing
demand for personal loans. Bad debt levels are rising, however, and
inflation is cutting into growth – but the general feeling is that
this emerging South American market still offers good
opportunities, says Rodrigo Amaral.
Brazil is grabbing most of the headlines when it
comes to South America’s banking markets. But apart from Venezuela
and president Hugo Chavez’s nationalisation drive, other economies
on the continent are also garnering strong interest.
Go deeper with GlobalData
Colombia’s banks have taken good advantage of favourable local
economic conditions, for instance, posting excellent results that
contrast with the difficulties faced by their peers in North
America and the wider developed world.
The only problem is that the consumer banking market may have
grown too quickly over the past few years, with high consumer debt
compounded by high interest rates.
According to BBVA’s Economic Research Department, South
America’s overall economy is expected to grow 5.5 percent in 2008,
despite the current international financial turbulence. South
America as a whole ended 2007 with record GDP growth of 6.9
percent; Colombia itself posted growth of 5.9 percent in 2007,
though this is forecast to fall to 4.8 percent in 2008, and nearer
4 percent by 2010.
“So far, 2008 has been a very good year for banks in
Colombia,” states José Fernando Restrepo, a financial markets
expert at Medellín-based broker Interbolsa.
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By GlobalDataAt the end of the half-year period, profits among the 16
universal banks operating in the country were up 30.3 percent on
average. The largest player in the market, Bancolombia, a
domestically-owned outfit, reported net profits of COP629.2 billion
($304 million) at the end of the first half, a 40.6 percent
increase year-on-year. Banco de Occidente, the second largest, saw
a 48.9 percent net profit increase, while the third-largest banking
group, Banco de Bogotá, was also above average, at 32.6
percent.
And retail banking has been the main revenue source, driven by
demand for credit and consumer finance in an economy where many
people are starting to make wider use of mainstream banking
services. Interest income has played a huge part, according to
Restrepo, growing an average of more than 40 percent in the first
half, fuelled by the Central Bank’s high basic rate (now at 10
percent). Revenues from commission and fees have fared well too,
closing up 30.6 percent on average as of the end of
June.
Across the sector, total loans – retail and corporate lending
combined – increased by more than 18 percent in the first half of
the year; for the year 2007, the rate of growth was 23 percent, and
in 2006 it reached 36 percent. But consumer credit has risen
faster, up nearly 50 percent in 2006, 31.2 percent last year and,
by the end of July this year, 17.6 percent.
“This has concerned both banks and regulators in terms of
[growing] delinquency levels, as the growth of consumer lending has
been accompanied by the rise of interest rates,” Restrepo said. “As
a result, banks have been forced by regulators to boost their
provisions.”
Rising bad debt
In fact, delinquency levels have increased significantly,
touching 3.68 percent in June – against 2.91 percent a year before.
“The quality of loan portfolios has deteriorated,” Restrepo
said.
Bancolombia’s ratio of past due loans to total loans as of 30
June increased to 3.5 percent against 3.4 percent in Q108 – though
the bank also stressed that the ratio of allowances to loans
classified as C, D and E (those of an inferior quality as measured
by their number of days past due) at the end of Q208 decreased to
125.9 percent from 131.4 percent in Q108.
The bank’s allowances for loan and accrued interest losses
represented 4.2 percent of gross loans and financial leases, while
non-performing loans represented 2 percent of gross loans and
financial leases.
But despite these concerns over bad loans, bancarisation levels
in Colombia remain modest even in Latin American terms, and banks
are still developing their presence in some parts of the country
with an eye on future growth and opportunities.
Colombia’s long civil conflict has abated recently thanks to
strong-arm policies adopted by the government, a social change
which is helping to open up parts of the country that have until
recently been off-limits.
According to Restrepo at Interbolsa, by the end of the first
half, some 55 percent of the adult population – Colombia has more
than 31.5 million people aged over 15 – now makes use of or has
purchased at least one financial product or service. A year ago,
the level of banking penetration was at 45 percent.
“So there is still a lot of space for growth, even though the
rate of growth of bancarisation has been sharp lately,” he
added.
Beneficial policies
The expansion of banking services has also been boosted by
official policies. The Colombian government has been pushing
forward with a plan to promote banking services via non-bank
entities like convenience stores and post offices.
As a result, more than 4,500 non-banking establishments now
offer cash withdrawals, bill payment services, account opening and
other services available to people who, previously, may have been
denied them.
Colombian banks have bought into the idea and have been rapidly
setting up these facilities (known as corresponsales no
bancarios). The Colombian subsidiary of Citibank has
progressed the quickest so far, with 3,880 corresponsales
already up and running by the end of July, according to
Superfinanciera, the country’s financial markets authority.
“It is also interesting that many of them have been set up in
urban areas, particularly in slums and other poor regions, and not
only in far away parts of the country,” said Restrepo.
Serving the underbanked
Serving poorer Colombians, a significant part of the population,
is one of the bigger challenges banks are facing as they strive to
expand their business.
Banking in Colombia is traditionally focused on better-off
clients, but more than half of the population live with low
incomes, Restrepo points out.
The market in financing very small companies is already fierce,
and many new banks breaking into the market or preparing to get
into the market are focusing on microfinance.
Banco Procredit, which belongs to a German group, and Bancamía,
which has links with Spain’s BBVA Foundation, are the first to
focus exclusively on this market, but Restrepo says some Panamanian
banks with experience in the segment have their sights set on it
too.
So far the Colombian market is dominated by locally-owned banks:
Restrepo estimates that Bancolombia and the four outfits that
belong to the Alva Group (Banco Av Villas, Banco de Bogotá, Banco
de Occidente and Banco Popular) hold a share of over 50 percent of
the market.
According to AsoBancaria, Colombia’s national banking
association, Bancolombia’s market share of the Colombian financial
system as of August this year was: 18.7 percent of total deposits,
20.8 percent of total net loans, 19.4 percent of total savings
accounts, 20.8 percent of total checking accounts and 15.7 percent
of total time deposits.
Foreign banks already established
But some of the biggest foreign banking groups are already there
too, or at least are starting to build their presence in the
country.
Citibank, for instance, boasts a 100 year-long operation in
Colombia, and the two Spanish giants, BBVA and Banco Santander, are
present too.
On 10 June this year, Citibank, underscoring its commitment to
the country, rolled out its Citibank Direct service in Colombia,
offering personal loan and credit card applications online with an
immediate response.
HSBC acquired a small operation along with the purchase of
Central America’s Banistmo, in 2006, while Royal Bank of Scotland
is starting up in the country by means of ABN AMRO’s former
Colombian subsidiary.
But Restrepo does not believe that, at the moment, any
international group has the appetite to fully acquire a company
based in an emerging market like Colombia.
“I think there could be some kind of consolidation taking place
here, but we are probably more likely to see Colombian banks
looking for opportunities abroad,” he concluded.
