Colombia’s financial services industry thrives despite domestic tumult - Banking, Regulation & Risk -
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South American country has seen rise in interest from foreign lenders amid a challenging environment.

In recent years, successive Colombian governments have sought to diversify the nation’s economy beyond its over-reliance on commodities, and nowhere has this been more apparent than in the financial services industry.

Despite battling the devastating impact of the Covid-19 pandemic, the Superintendencia Financiera de Colombia (SFC) – the government entity charged with supervising the nation’s financial and stock market systems – has received a slew of licensing applications from entities wanting to expand into the country.

International expansion

“The financial system in Colombia has changed a great deal in recent years,” says Sergio Olarte, chief economist with Scotiabank Colpatria, the local partner of Canada’s Scotiabank, in Bogotá. Scotiabank Colpatria is now partnering with the Italian multinational utility Enel to provide new financial services for residential customers, as well as small and medium-sized businesses. The move will be highlighted by an expansion of Scotiabank’s credit card business, which will enable customers to use the card for a wider range of services than previously possible.

“Since 2012, the regulations in terms of capital markets have changed significantly: the taxes have been reduced by a great deal and that allowed a lot of offshore actors to come here,” Mr Olarte says, highlighting how the country’s floating exchange rate and the independence of the Banco de la República, Colombia's central bank, provide added incentives.

“Since 2012, the regulations in terms of capital markets have changed significantly… that allowed a lot of offshore actors to come here

Sergio Olarte

“That’s big for Colombia because we have a very conventional financial system, but lately we have learned a lot about derivatives, forwards, hedging and aspects like that,” he says.

In addition to Scotiabank, international investment banks JPMorgan and Brazil’s BTG Pactual are seeking commercial banking licenses. The local Gilinski family, the moving force behind Banco GNB Sudameris, obtained approval to open Colombia’s first fully digital bank, named Lulo Bank, last month.

The biggest banks in Colombia by total assets are Bancolombia, Banco de Bogota Banco Davivienda, BBVA Colombia and Banco de Occidente, according to The Banker Database.

Troubled past

The expansion of international lenders into Colombia has come during what has been a tumultuous year for the nation, which has been led by centre-right president Iván Duque Márquez since August 2018.

The killing of a man by police in the capital in September set off days of riots in which at least 13 people were killed. A steady drumbeat of assassinations of environmentalists, social leaders and members of Colombia Humana – the political movement led by leftist senator Gustavo Petro, who Mr Duque defeated for the presidency two years ago – have rocked the nation.

According to the UN high commissioner for human rights, more than 30 massacres have taken place across Colombia so far this year, which some have charged is a reappearance of the large-scale violence that had largely dissipated since the right-wing Autodefensas Unidas de Colombia paramilitary organisation officially disbanded more than a decade ago.

As if that was not enough, former president Álvaro Uribe Velez, Mr Duque’s mentor, and founder and senator of the Centro Democrático party to which both men belong, was placed under house arrest by the nation’s supreme court in August as part of a complex case involving those same paramilitaries.

Promising future

Nevertheless, in addition to the large international banks, several smaller entities are seeking the go-ahead to operate as part of the Sociedades Especializadas en Depósitos Electrónicos, Colombia’s digital deposit and payment system, and remain bullish on the country’s prospects. Among them is the Chilean online payments platform Global66.

“We think that Colombia is going to stand up and flourish even more in the next few years,” says Global66’s expansion manager, Cristóbal Valle. “We wouldn’t be investing to get the new license in place if we didn't. At this time, even with some of the things happening, we’re confident with Colombia’s capacity to overcome them.”

We think that Colombia is going to stand up and flourish even more in the next few years

Cristóbal Valle

The growth of the sector has not entirely escaped Colombia’s political tumult, however. Two senators, David Barguil of the Partido Conservador Colombiano and Armando Benedetti of the Partido Social de Unidad Nacional, have been particularly aggressive in pushing for major changes in the sector regulation, including trying to get individual risk agencies to wipe out clients' histories to make them eligible for loans and lowering interest rates.

In 2019, Mr Barguil authored a bill limiting the fees that banks could charge and, earlier this year, he was one of the co-authors of a new financial law which stipulates that Colombians who catch up with any outstanding financial obligations in the 12 months after the law’s enactment will have negative records removed from these databases of credit bureaus within six months.

In a paper jointly published by Colombia Risk Analysis, a political risk consulting firm based in Bogotá, and the consulting firm Monodual, the two companies concluded that Colombia's financial sector had “been the target of all sorts of criticism since the beginning of the economic crisis of Covid-19” and “the inability of the sector to understand this enormous challenge and respond to citizens with generosity and empathy has led to the real possibility of greater regulation of the financial system that may affect the profitability” of the banks.

“I think the sector is under a lot of pressure, both from investors to continue the very positive results the Colombian financial sector has had and more in terms of regulatory pressure from populist legislators who want to cajole the sector even more,” says Sergio Guzmán, the director of Colombia Risk Analysis.

“A lot of politicians see this with a mixture of jealousy and frustration that, even with a 15% contraction in the last quarter, the financial services sector posted COP8.5tn ($2.2bn) in profits. And it’s to a large degree because their costs are passed onto the consumer.”

Next year will be one of positioning for candidates ahead of Colombia’s general elections, to be held in 2022. As Mr Duque cannot run for office again, it is likely that some of those vying to replace him will present themselves as champions of Colombia’s consumers. Colombia’s financial services sector, despite its robust growth, will no doubt have to navigate these waters carefully if the industry is to expand and thrive.

This article first appeared in FDI Intelligence

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