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Bancolombia outperforms rivals

The Colombian banking sector outperformed analysts' expectations in 2021, with improved profitability and higher Tier 1 capital. Barbara Pianese reports.
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The Covid-19 pandemic led to Colombia’s biggest recession on record. In 2020, its economy contracted by 7% in response to lockdowns and the collapse of global growth. However, last year the country grew by 10.6%, driven by a rebound in consumer demand after pandemic curbs were eased, according to the National Administrative Department of Statistics.

As a result, the performance of Colombia’s banking system largely outpaced Fitch Ratings’ expectations for 2021. Lenders focused on rebuilding profitability and net interest margins that were badly hit during the Covid-19 pandemic. Operating profit, net income and capital levels were higher than the rating agency projected, with both asset and loan growth exceeding 2019 levels.

Banks had markedly higher capital ratios in 2021 compared to pre-pandemic levels, due to the alignment to Basel III standards.

Bancolombia, the largest Colombian bank by both Tier 1 capital and assets, ranks first in this year’s best-performance table with best scores in growth, profitability, asset quality, return on risk and leverage, having placed fifth last year. A more sustained economic activity in the second half of last year led to a rise in mortgages and consumer credit in the overall loan book, according to a note by S&P. Pre-tax profits grew by a massive 1570%, to $1.50bn, after a lacklustre 2020.

Banco de Bogotá, the second biggest lender in the country, is pushed down one position to second this year for overall performance. It places first in operational efficiency and second in leverage, return on risk and profitability. It was also one of top five banks in the region for return on capital, with a ratio of 24.11%.

Mortgage specialist Banco Davivenda is third in the performance table, while being the best in terms of soundness. Its Tier 1 capital grew almost 50% in 2021, the second-highest mover among banks in Latin America and the Caribbean.

Banco de Occidente and Banco Popular, which are much smaller than the three largest banks with less than $1bn in Tier 1 capital last year, are fourth and fifth place in terms of overall performance, respectively. Banco de Occidente topped the liquidity category.

Banco Popular was the only one of the five to see a decrease in pre-tax profits in the year ending in December 2021, albeit a small one of 3.6%.

After much consternation around the outcome of the recent presidential election, Colombian banks are likely now more concerned about economic challenges the country is facing.

Tighter fiscal and monetary policies will create downside risks to the Colombian banking sector’s performance this year, according to Fitch Ratings. However, the largest Colombian commercial banks’ key operating, growth and capital metrics are at pre-pandemic levels. The lenders are better positioned for such a macroeconomic risk environment. Higher interest rates should also increase profitability on commercial and retail loans and, therefore, net interest margins should improve, according to analysts.

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Barbara Pianese is the Latin America editor at The Banker. She joined from Mergermarket, where she spent four years covering mergers and acquisitions across Europe with a focus on the consumer sector. She holds an MA in International and Diplomatic Affairs from the University of Bologna having studied in Brazil and France as well.
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