Colombia offers financial opportunities to acquisitive global banks but problems such as tax and access continue to hinder growth. Courtney Fingar reports.

With economic growth accelerating and security improving in Colombia, consumer spending is picking up rapidly and money is flowing back into the country.

“New players have come to Colombia recently – not just foreign investors but Colombians who had money invested abroad and are bringing it back,” says Carlos Alberto Sandoval, vice-president of Asobancaria, the Colombian banking association.

“There is a clear correlation between the decisions of the government in terms of security and the increase in investments. The re-election of the government and the possibility that these policies will continue will have an impact on investors and they will bring even more money to Colombia,” Mr Sandoval adds.

Foreign banks have taken notice of the recent positive changes in the country. HSBC was granted permission early last month to open a representative office, and intends to step up its presence on the heels of its purchase of Panama-based Grupo Banistmo, which has several branches in Colombia. HSBC chief executive Michael Geogheagan has indicated that the bank will continue its acquisition trail in Colombia.

Cleaned up

Public sector bank Bancafe, which is due to be sold off soon, might also present an opportunity. Previously, Colombia began the privatisation process, which then stalled. “[The government] needed to clean it up first before selling it; a new organisation has been created. It is looking much better than before – it is much more solid and robust,” says Mr Sandoval.

There are several potential bidders, including Colombian, as well as international, banks, he says. “The government sees some good opportunities here and it should be a good bidding process.” The sell-off will take place before the year is out.

Sector consolidation has already turned 34 banks into 18, the largest of which is BanColombia, with 20% of assets. The shareholdings of banks owned by private Colombian investors has increased since 2000, from 57% to 70% of the total, while public sector participation has been reduced from 25% to 11%. Meanwhile, the participation of foreign banks has remained roughly the same, at 19%. BBVA (with a 47.2% share of the foreign-owned sector), Santander (15.7%) and Citigroup (17.5%, see box) are among the major foreign players.

The finance sector is the second largest recipient of foreign investment after mining, but the participation of foreign banks in Colombia is still lower than in many other Latin American markets, including Mexico, Argentina, Chile, Peru and Brazil. “The possibility for foreign investors to come to Colombia is there and we expect that participation to increase in the future,” Mr Sandoval says.

Foreign investors still face hurdles, however. The industry has been lobbying the government for the removal of the interest rate ceiling, which presents an obstacle to banking business – but it is a politically tricky issue and therefore change is unlikely to be imminent.

Tax on financial transactions, implemented in 1998, has been increased to 0.4%. “This imposes an important limitation on the sector. It means that some people prefer dealing in cash to avoid the tax. It is very negative for the sector and the economy,” Mr Sandoval says. The industry is also discussing this with the government but no changes have yet been presented to Congress.

A third challenge is the compulsory investment in government bonds. This benefits the agriculture sector but hurts banks – and, because they pass the costs on, their customers. Asobancaria believes this requirement will not be lifted.

Under-served population

The most important priority, according to Mr Sandoval, is to increase the number of people participating in the financial sector. Colombia ranks low in Latin America in terms of credit and debit card use, and about average for the number of cash machines per 100,000 inhabitants. Banks need broader penetration throughout the country and to reach potential customers in areas not currently served (2115 municipalities have no bank branches at all).

Colombia is middle-ranking in Latin America for loan portfolios as a percentage of gross domestic product (GDP), and the large public debt has been financed primarily by bonds. As a result, investments are increasing as a percentage of assets. “Banks have realised investments are a good way to increase margins,” Mr Sandoval says. “While the national government keeps running a significant fiscal deficit, of course that will be reflected in the financial market, and Colombian banks’ participation in Colombian debt will increase.”

The mortgage market is still a tough one because the financial crisis that began in 1998 has left many people sceptical of borrowing money for house purchases. But the quality is nonetheless high, and the number of bad debts and non-performing loans is coming down.

“We have seen significant recovery of losses from the crisis – we are over that period,” Mr Sandoval says.

The banking sector took a hit between May and July due to the US Federal Reserve’s decision to raise the interest rate, but August and September were less painful. “In spite of the losses, capital solvency of the banks as a whole remains strong,” says Mr Sandoval.


Franco Moccia: ‘There is an excellent entrepreneurial spirit here’

“Colombia is a special country that is not well known outside of it, even elsewhere in South America,” says Franco Moccia, president of Citigroup Colombia, an Argentine who relocated two years ago. But the US bank knows Colombia, having operated in the country since 1929 and been the first to introduce telebanking, internet banking and cash-deposit banking there. “Our track record in Colombia has been pretty good – we have been profitable here for 77 years,” says Mr Moccia.Citigroup is more bullish than ever about this largely untapped and underserved market. In 2005, it hired 750 people and opened six branches in Colombia; this year it will open nine branches. It has also seen its consumer business double in the past few years. Colombia is one of three Latin American markets that Citi has pinpointed for huge future growth, along with Mexico and Brazil. Its large, urban consumer market is a prime reason. With a population of 43 million, the country has five cities of more than one million people, which is unusual for Latin America. Citi has branches in Bogota, Cali, Medellin, Barranquilla, Cartagena and Bucaramanga, and is considering further expansion. Its Bogota head office does front-end work for the corporate and investment banking business and houses the senior management for the consumer business. Private pension fund Colfondos (of which Citi recently bought the remaining 20% it did not already own), will move in by December. An onsite call centre serves 11 countries and there are four other Citigroup offices in Bogota, excluding the branches. All told, the bank employs 3700 people in Colombia. These people, Mr Moccia says, are the main reason for the bank’s success in the country. “Colombia’s most important strength is its human capital,” he says. “There is an excellent entrepreneurial spirit here that is not very common in Latin America. And in the rest of Latin America, you are restricted by the ability to hire the right people – not so in Colombia.”Colombia has become a breeding ground for management talent and Colombian-trained managers are being exported to Citigroup’s offices around the world. “We’ve brought three or four senior managers here [from abroad] to see it for themselves,” he says. “The only way to understand Colombia is to come here and get to know the people.”



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