Spanish banks in Colombia were burnt by the economic downturn, but domestic and foreign players consider the worst to be over. 

DeSpanish Conquistador Gonzalo Jiménez de Quesada and his weary troops were looking for El Dorado when they found the 2600m high plateau where Colombia's capital Bogotá was founded. "Good land! Good given land! Land that puts an end to our suffering," they are said to have exclaimed.

This has proved far from the case for BBVA and Banco Santander, the two Spanish banks that are only now beginning to emerge from the red. Colombia is one of the few Latin American countries where foreign banks do not dominate. Instead, Bancolombia and Banco de Bogotá are the two largest ones, owned by local conglomerates Grupo Empresarial Antioqueño and Grupo Aval respectively, and the most successful, while BBVA Banco Ganadero, Citibank and Banco Santander follow far behind in terms of market share.

As for profitability, the two local banks win hands-down, with return on equity in double digits last year (Banco de Bogotá 23% and Bancolombia 24% – Citibank scored 18%) while the Spaniards posted negative numbers.

Stephen Puig, head of Citibank in Colombia, argues its success is partly due to history. "Citibank has been in Colombia since 1929 and has grown organically, which allows us to have a vision of the market. We've reinvested continually and we are of the scale to be relevant. Others got to that size by buying, which has its risks," he says.

Bad timing

Both Spanish banks bought local ones before the economy turned down, and posted a fall of 4% in 1999, with sky-high interest rates, a dearth of investment and a sharp rise in bad loans.

"They did their research during the expansion and invested in the crisis," says Jorge Londoño, president of Bancolombia.

The crisis of 1999 left Colombia with a healthier banking system. But further changes look set to happen: consolidation is inevitable when even New York-listed Bancolombia, the largest bank, has only 12.4% of the loan market. But Mr Londoño denies his bank wants to buy Bancafé, a sanitised bank with the third largest network in the country and one which provides a unique opportunity to buy market share. The government was forced to take it over a few years ago and is now looking to sell it as part of its International Monetary Fund programme.

Lack of interest

The question, though, is who will buy it when both local and foreign banks deny any interest. "We already have universal products and a network and are not interested in Bancafé," says Mr Londoño. Citibank and the Spanish banks say the same – in any case it is doubtful their shareholders would approve a further commitment to Colombia.

Also, there are doubts over how healthy the bank really is. Some bankers argue its solvency is less than satisfactory and that any buyer will have to inject capital. Between a dearth of buyers and doubts over its health, a high price seems unlikely. The government has been trying to make it more attractive by, for example, agreeing to take over its pension liabilities. Other formulas are being looked at following a political kerfuffle when a low proposed price was leaked. The Contraloría General de la República, the state auditing office, says the government should get as much out of it as it put in.

In terms of ongoing business, the banks are starting to benefit from a rise in consumer demand as the economy picks up. Gross domestic product grew 1.7% last year – mainly in the second half – and is forecast at 2% for 2003, according to conservative government estimates.

BBVA Banco Ganadero is optimistic. Following reports that the Spanish bank planned to leave the country, chairman Francisco González earlier this year visited the country to reassure the government of its commitment.

Luis Juango, president of BBVA Banco Ganadero, says that with all the reforms the government is undertaking the economy will grow in the medium term.

"We are focusing fundamentally on profitable clients for the bank. We see very good possibilities of developing segments like small- and medium-sized business and people of a certain economic solvency. In fact, we are already seeing positive results," he says. "Let us be clear, though, that we will still pay attention to segments where we stand out, like treasury, corporate and banking services for the state."

Chief financial officer Alfredo Castillo adds: "We are looking for clients where we can cross-sell. Otherwise we are not interested. Last year we got rid of 180,000 clients because it was not possible to cross-sell to them and this year our goal is another 350,000."

The bank says its losses of $5.8m last year were due to heavy provisioning for losses on central and local government debt (see Bracken page 8) and the high cost of halving the number of employees. There are now 14 employees per branch versus 32 before. High provisions will continue until 2005 which will affect the results, although this year the bank is looking for a substantial profit.

Local hero

Bancolombia, meanwhile, says profits of $52.7m last year came about due to its effectiveness in growing the small- and medium-sized business sector and consumer banking – consumer credit grew 32% last year – as well as the ability to finance itself cheaply. The prime rate is currently at 7.5%, an historic low.

Mr Londoño says the bank has been very insistent on growing fee income – 30% of net profit last year – and has 20% of the bancassurance market in the country. It is also the principal market-maker in Colombian debt.

Banco de Bogotá is one of the most profitable banks, posting profits of $71bn last year. Almost 80% of its loan book is corporate and in the last four years it has made a major push to sell more products to companies. It also owns two other large local banks, Banco de Occidente and Banco Popular. Due to an historical oddity, like its rival Bancolombia, it has a separate mortgage bank.

This is one of the reasons the local and foreign banks throw stones at each other about their levels of provisioning. Foreign banks argue the local ones do not properly consolidate their mortgage banks (among other complaints), while the local ones argue it is just sour grapes at not posting decent profits.

But at least both agree that banking supervision has improved and is close to international standards. "The Superintendencia Bancaria is becoming stricter every day," says German Salazar, international vice-president of Banco de Bogotá.

Crime crackdown

As for the issue of money laundering, the banks have made huge strides at great expense and say that banks abroad, especially in offshore centres and banking centres such as New York and London, are probably more delinquent.

"We, the banks, are a police authority. We have been very serious about money laundering. I need to have incredible technology to ensure I can track funds," says Juan Fernando Posada, president of Banco Union Colombiano, a niche bank that lends to small- and medium-sized local businesses and high net-worth individuals who are often their owners.

However, despite Mr Posada's claims that "we are proudly small", it is doubtful the bank will escape being taken over.

The competitiveness of the banking market militates against it. Margins have fallen over the previous years, but appear to have stabilised at about 7% for the larger banks, while the upturn in the economy will help keep bad loans in check and increase revenues. But economies of scale are still a major factor in banking, as is knowing your market. Colombia has not proven an El Dorado but things are looking up for the Spanish and local banks.


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