VZCZCXYZ0005
RR RUEHWEB

DE RUEHBO #8255/01 3311531
ZNR UUUUU ZZH
R 271531Z NOV 07
FM AMEMBASSY BOGOTA
TO RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/SECSTATE WASHDC 0293
INFO RUEHBR/AMEMBASSY BRASILIA 7918
RUEHCV/AMEMBASSY CARACAS 9588
RUEHPE/AMEMBASSY LIMA 5663
RUEHZP/AMEMBASSY PANAMA 0900
RUEHQT/AMEMBASSY QUITO 6355
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BOGOTA 008255 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
WHA/EPSC FOR PMAIER; EEB/OMA FOR ASIROTIC; TREASURY FOR 
MEWENS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON CO
SUBJECT: IMPROVING SECURITY AND STRONG ECONOMY BOOST 
COLOMBIAN BANKING SECTOR 
 
 
¶1. (SBU) SUMMARY: Strong economic growth and record levels of 
foreign direct investment (FDI) are bolstering Colombian bank 
balance sheets as well as foreign financial institutions' 
interest in investing in the sector. Following a period of 
consolidation, three Colombian-owned banking groups have 
attained a majority share of the market.  Foreign 
participation, mainly Spanish and U.S., totals approximately 
20 percent and is expected to rise as Colombia's security and 
investment climate continues to improve.  Although access to 
banking services has grown in recent years, Colombians still 
face challenges in obtaining access to mortgages and small 
business credit.  Increased foreign investment in the banking 
sector should foster innovation needed to expand credit 
access for Colombia's growing consumer class. END SUMMARY. 
 
Fewer but Stronger Banks 
------------------------ 
 
¶2. (SBU) Since 1995, Colombia's banking sector has 
consolidated from 32 institutions to 16, largely as a result 
of  mergers sparked by the economic recession in the late 
1990s and early 2000s, and sector analysts expect further 
consolidation by 2010.  Three domestic banking groups (Aval, 
Bancolombia, and Banco Davivienda) now control 60 percent of 
Colombia's USD 71 billion in deposits.   All three 
institutions benefited from strong management during the 
recession and purchased weaker rivals.  Since 2005 their 20 
percent average return on equity has exceeded most 
institutions in the region. 
 
¶3. (U) Colombian billionaire and business mogul Luis Carlos 
Sarmiento Angulo is the primary shareholder and president of 
Grupo Aval, which comprises four banking brands (AV Villas, 
Banco de Bogota, Occidente and Popular) as well as additional 
holdings in telecommunications and real estate.  Sarmiento is 
widely considered Colombia's richest businessman. 
Bancolombia is closely linked to the business community in 
Medellin and Antioquia Department.  Medellin-based investment 
group Suramericana de Inversiones and industrial conglomerate 
Grupo Argos are the bank's largest shareholders. 
Bogota-based Banco Davivienda is a subsidiary of Sociedades 
Bolivar, a financial holding group with 13 companies active 
in pensions, insurance, leasing, and construction, controlled 
by Jose Alejandro Cortes Osorio. 
 
¶4. (U) The sector's consolidation has facilitated the 
diversification of the remaining banks' portfolios thereby 
spreading risk and increasing the number and types of 
services offered by each bank.  The restructuring has 
increased profitability (up 15 percent in the last year) and 
spurred a 29 percent jump in lending since 2005.  Reflecting 
this solid performance, the regional business publication 
America Economia recently ranked Aval as Colombia's second 
best company based on profitability, management, and 
efficiency.  The growth in Colombia's banking sector occurred 
while the GOC simultaneously consolidated regulatory 
oversight into the Financial Superintendency 
(Superfinanciera) and increased monitoring of the industry. 
 
Growing Foreign Investment 
-------------------------- 
 
¶5. (SBU) Although total FDI in Colombia has quadrupled since 
2002 to an expected USD 8 billion in 2007, foreign banks own 
only about 20 percent of local banking assets.  Most experts 
expect foreign participation to rise over the next five years 
due to Colombia's improved security conditions, strong 
investment climate, and solid economic growth.  In December 
2005, Spanish bank BBVA purchased local mortgage lender 
Granahorrar, transforming BBVA into Colombia's fourth largest 
bank with an 11 percent market share.  In 2006 London-based 
HSBC purchased Colombia's smallest bank, Banco Banistmo, 
while General Electric's financial arm, GE Money, bought a 39 
percent stake in Banco Colpatria for USD 228 million in 2007. 
 The other major foreign institution in the financial sector, 
Citibank, has operated in Colombia since 1929 focusing 
primarily on corporate banking, retirement services, and 
investment banking. 
 
¶6. (SBU) To compete with BBVA the other existing foreign 
banks will need to buy a sizable domestic bank.  Many local 
 
observers believe GE Money will exercise its five-year option 
to expand its stake in Banco Colpatria while rumors have 
circulated that Citibank, which currently has a 3 percent 
share of the Colombian banking market, seeks to acquire 
Bancolombia or another local bank.  Citibank country director 
Francisco Aristeguieta told the Ambassador recently his 
bank's outlook for Colombia is very positive, but highlighted 
the Colombian export sector's increasing dependence on the 
frothy Venezuelan economy as a potential concern for the 
banking industry. 
 
¶7. (U) Meanwhile, Colombian domestic banks' stable footing 
has made new capital relatively accessible. Bancolombia 
raised recently $886 million in subordinated debt and shares, 
mostly from foreign institutional investors, while Banco 
Davivienda and Bancoldex both conducted successful 
international bond issuances of USD 150 million each in 2007. 
On November 28, Boutique Banco de Credito, 80 percent-owned 
by a U.S. citizen, is launching a five-day public share 
offering on the domestic market valued at USD 125 million. 
 
Rising Consumer Demand for Services 
----------------------------------- 
 
¶8. (SBU) Amid robust economic growth (6.8 percent in 2006 and 
a projected 7 percent in 2007), Colombia's growing consumer 
class is increasingly demanding access to banking services. 
According to the national banking association, ASOBANCARIA, 
only 31.5 percent of Colombians have a bank account.  High 
transaction fees and limited branch networks remain the 
largest obstacles to increasing the "banked" population. 
Demand is also growing for consumer finance, credit cards, 
mortgage lending, and small business credit.  However, high 
interest rates and traditionally restrictive lending 
practices limit the housing and small and medium enterprise 
sectors. 
 
¶9. (SBU) Nevertheless, rising consumer demand augurs well for 
increased partnerships with foreign institutions.  As 
international banks with more experience in products such as 
mortgages, small business loans, and credit cards gravitate 
to the Colombian market, they will look to partner with local 
banks' existing branch networks and superior customer 
knowledge.  Such partnerships should improve services through 
greater innovation and help increase access to credit 
necessary to promote long-term consumer- and private 
sector-based economic development. 
Brownfield