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DE RUEHBO #2897/01 0901759
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R 311759Z MAR 06
FM AMEMBASSY BOGOTA
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INFO RUEHLP/AMEMBASSY LA PAZ MAR LIMA 3498
RUEHME/AMEMBASSY MEXICO 6797
RUEHQT/AMEMBASSY QUITO 4156
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UNCLAS BOGOTA 002897 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN
SUBJECT: COLOMBIAN BANKING SECTOR: REVIEW AND PROSPECTS 
 
REF: BOGOTA 00010564 
 
¶1. (Summary) 2005 was a year of continued growth and 
consolidation for the Colombian banking sector, with banks 
registering a record 2.4 billion USD in profits, an increase 
of 46 percent over the previous year.  Colombia's financial 
regulatory bodies were also consolidated in 2005 to improve 
general oversight and ensure compliance with international 
standards.  The GOC is capitalizing on the current economic 
climate to continue the privatization of state-run banks. 
During 2005, the sector witnessed a record number of mergers, 
reducing the number of banks from 41 to 21.  The recently 
concluded FTA will promote significant change in the 
regulatory environment, and should positively affect 
penetration rates.  (End Summary). 
 
------------ 
PROFITS GROW 
------------ 
 
¶2. The banking sector experienced 8.2 percent growth in 2005 
(reaching a total value of USD 32.8 billion), driven by a 46 
percent increase in profits.  Much of the growth can be 
explained by an increase in the consumer credit segment, 
which grew 30.9 percent.  Profits derived from consumer 
credit accounts totaled 1.5 billion USD, almost half recorded 
by the entire sector.  Most experts attribute this spike in 
consumer credit to a tax-rebate implemented by the GOC to 
encourage more credit card (therefore traceable) 
transactions.  In 2005, business loan issuances also grew 
close to 20 percent over 2004 while at the same time 
micro-credit disbursements grew 70 percent, making Colombia a 
regional leader in micro-business financing.  Other areas of 
notable growth include foreign bank participation, which 
registered 38 percent increase, and an increase in gross 
outstanding loans of 45 percent.  The only underperforming 
segment in 2005 was the agregate national mortgage portfolio, 
which fell 6.4 percent, despite increased loan issuances. 
 
Profits for 2005 by Bank 
 
BanColombia (Private bank)     330 USD 
Banco Bogota (Private bank     176 USD (Grupo Aval) 
Davivienda (Private bank)      119 USD 
Banco Agrario (Public bank)     94 USD 
Banco Popular (Private bank)    81 USD (Grupo Aval) 
Banco Occidente (Private bank)  80 USD (Grupo Aval) 
Colpatria (Private bank)        54 USD 
Granbanco (Public bank)         49 USD (BanCafe) 
Citibank (Foreign bank)         48 USD 
BBVA  (Foreign bank)            47 USD 
AV Villas (Private bank)        38 USD (Grupo Aval) 
Megabanco (Public bank)         29 USD 
Banco Credito (Private bank)    28 USD 
BCCS (Foreign bank)             27 USD 
GNB Sudameris (Foreign bank)    21 USD 
Superior (Private bank)         16 USD (Davivienda) 
Santander (Foreign bank)        13 USD 
Banco Union (Private bank)       7 USD (for sale) 
Banistmo (Foreign bank)          6 USD 
ABN Amro (Foreign bank)          2 USD 
   (in millions of dollars - exchange rate 2250=1USD) 
 
Privately owned Banks (USD millions) 
 
                   2004     2005     percent 
                                     growth 
Total Assets       67,870   87,163    28 
Gross Loans        12,894   17,379    35 
Total Deposits     17,533   22,929    31 
Total Equity        2,705    4,006    48 
Net Income          4,167    4,563     9 
Cost/Income            40.7     33.1 
Cost/Assets             7.1      5.2 
Equity/Assets          11.1     12.4 
Gross Loans/Assets     53.1     53.6 
Investments/Assets     31.2     33.0 
NPL/Gross Loans         3.8      3.3 
 
Publicly held Banks (USD millions) 
 
                   2004    2005    percent 
                                   growth 
Total Assets       6,526   7,832     20 
Gross Loans        2,370   2,959     24 
Total Deposits     4,247   5,491     29 
Total Equity         619     810     31 
Net Income           943     854     -9 
Cost/Income           39.6    33.6 
Cost/Assets            5.8     4.1 
Equity/Assets          9.5    10.3 
Gross Loans/Assets    36.3    37.8 
Investments/Assets    45.4    47.5 
NPL/Gross Loans        3.9     3.9 
 
------------------------ 
Mergers and Acquisitions 
------------------------ 
 
¶3. During 2005 more mergers, acquisitions, and consolidations 
took place than in the previous 5 years combined.  Overall 
the number of independently branded and managed institutions 
declined from 41 to 21.  The most notable mergers were Banco 
Caja Social's absorption of Banco Colmena to become BCSC, 
Bancolombia's purchase of Corfinsura and Conavi, in addition 
to Davivienda's entrance into the consumer credit market via 
the purchase of BanSuperior.  In the last 12 months, the 
number of credit cards and the volume of credit card 
transactions has increased 27 and 15 percent respectively. 
Experts agree the increases indicate at least some improved 
intermediation rates among previously underserved or untapped 
client segments.  The World Bank recently ranked Colombia 5th 
among Latin American economies with a 27 percent rate of 
banking penetration.  Colombia ranks above Mexico, which has 
only a 16.7 percent penetration rate, but lower than Bolivia 
which boasts a 42 percent penetration rate. 
 
---------------- 
REGULATORS UNITE 
---------------- 
 
¶5.  In late November of 2005 the Commission on Banking and 
the Commission on Securities merged to become the Finance 
Commission under the leadership of Agusto Acosta.  The new 
commission monitors the sector along operational lines and by 
risk-product categories thus allowing commissioners to become 
experts in product categories or in a particular institutions 
management and operations.  While Gerardo Hernandez, 
Executive Director of the Central Bank, has expressed concern 
that the fusion may create a tendency towards overregulation, 
most experts believe the consolidation of the two regulatory 
bodies will lead to greater efficiencies and an improved tool 
to combat money-launderering. 
 
-------------------- 
SELLING FAILED BANKS 
-------------------- 
 
¶6. In 2006, Colombia's Fondo de Garantias de Instituciones 
Financieras (FOGAFIN - www.fogafin.gov.co), plans to 
administer the sale of 15 of Colombia's 40 state-held 
financial institutions (including failed stock brokerage 
firms, insurance companies, fiduciary companies and other 
lender-like cooperatives).  On March 16, FOGAFIN completed 
the sale of Megabanco, a key provider of services to lower- 
and middle-income Colombians.  Six compnaies, including two 
foreign companies, participated in the competition.  Grupo 
Aval's Banco de Bogota won the bid, paying 5.2 times the 
bank's book value.  The purchase gives Grupo AVAL a 27 
percent market share in the sector and access to Megabanco's 
extensive national network of branch offices.  Other 
privatizations planned for 2006 include a second auction for 
Bancafe (which failed to attract a bidder in 2004), the 
Instituto Fomento Industrial (a small business lender) and 
Caja Agrario (a traditional agricultural bank with an 
extensive domestic network).  Fogafin expects that with two 
successful bank privatizations, Granahorrar in 2005 (reftel) 
and Megabanco this year, Bancafe will finally find a buyer. 
Other sales planned for 2006 include: 
 
 - Banco Andino Colombia 
 - Banco Intercontinental 
 - Banco Central Hipotecario 
 - Banco Standard Chartered de Colombia 
 
------- 
COMMENT 
------- 
 
¶7. Throughout 2005, critics admonished the sector for 
colluding on interest rate prices and not aggresively seeking 
new clients in lower socio-economic groups.  A recently 
published International Monetary Fund report on Latin 
American banking penetration rates shows that Colombia's 
banking penetration rate is close to 27 percent.  Argentina 
and Brazil, which are often compared to Colombia each have 50 
and 72.2 percent penetration rates respectively.  Proponents 
of the sector disagree with these critics, and argue that the 
last 6 months of falling loan interest rates along with 
increases in credit and debt card accounts demonstrate that 
the sector is expanding its reach into previously untapped 
client groups. 
 
¶8.  The recently negotiated FTA with the United States will 
bring significant change to the regulatory environment of 
Colombia's financial sector.  In part to meet its FTA 
committments, the GOC is preparing a comprehensive 
legislative package to present when the newly-elected 
Congress convenes in July 2006.  The new regulations will 
allow fully integrated universal/multi-banking, improve 
lender repossesion rights, and address the sale of off-shore 
banking products.  (End Comment) 
 
WOOD