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DatabankNovember 12 2019

Positive signs for Colombia’s banks

The IMF is continuing to forecast healthy economic growth for Colombia, in contrast to many of its neighbours. Will this provide fertile ground for the country’s banks? Marie Kemplay reports.
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Last month the IMF rowed back on its 2019 growth forecasts for Latin America’s biggest economies, with countries such as Brazil, Mexico and Argentina all seeing substantial downgrades. But there was one notable exception, despite a small downgrade: Colombia’s GDP is on track to grow 3.4%, a clear lead among the region’s six largest economies. This is no mean feat in a region where several economies are currently facing major challenges, including immediate neighbour Venezuela.

As reported in July’s issue of The Banker, Colombia’s banking system displays a number of promising growth areas, including the expansion of its core business of attracting deposits and offering corporate and consumer loans, as well as mortgages. Consumer loans and mortgages have both increased in the past three years with, for instance, Bancolombia (the country’s top bank by Tier 1 capital) lending $16.75m in consumer loans in 2018, compared with $12.44m in 2015. On mortgages, it advanced $6.98m in 2018 compared with $5.43m in 2015. Banks are also keen to be involved with the country’s infrastructure boom: several multi-billion dollar projects are in the pipeline.

However, there are some areas of concern. For example, at the macro level, the country has experienced persistently high levels of unemployment, with rates standing at 10.2% as of September 2019, according to Colombia’s official statistics body. For banks specifically there are also some hurdles that could slow growth, such as corporate income tax reforms which have put Colombian financial firms at a disadvantage compared with other businesses.

Fundamentally Colombia’s banks appear to be in a good position to respond to whatever comes next, with Tier 1 capital steady or growing at its biggest banks over the past five years.

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