Interview: Luis Carlos Sarmiento Gutiérrez
How will the new tax and fiscal reforms affect the banking sector in Colombia?
LUIS CARLOS SARMIENTO GUTIERREZ: The fiscal reform introduced at the beginning of 2017 brought mixed results for the sector. The main positive outcome is the reduction in corporate tax from the current costly rate of 40% to 33% by 2019, which is still high but more investor friendly. One of the negative effects, however, is the continuity of the tax on financial transactions, which has a harmful effect on the formalisation of the economy and financial inclusion. In addition, the increase in value-added tax, from 16% to 19%, and the elimination of some eligible tax deductions will negatively impact the disposable income of the working class, and thus might affect the quality of the banking sector’s consumer portfolio.
What efforts are being made to increase banking penetration throughout the country?
SARMIENTO: Banking penetration, measured as gross loans to GDP, will reached 47% by the end of 2016, which is relatively low when compared to regional peers and well below the ratio of developed markets. It has increased at a rate of 150-200 basis points per year in the last five to 10 years, mainly driven by faster growth in the consumer portfolio. We expect loan growth will continue to outpace GDP growth, and by 2020 banking penetration should reach an acceptable 60%, doubling the ratio at the beginning of this century but still showing potential.
Banking a larger population of Colombians will demand a combined economic and regulatory effort from the financial system and the government. This effort will involve the launch of non-traditional, custom-made products offered through alternative channels and governed by credit models that will not penalise banks too harshly with loan-loss provisions based on speculation of loan quality. Instead, provision models will be fully established once the programme proves it can achieve the goal of deeper credit penetration.
Which trends are evident in terms of loans to small and medium-sized enterprises (SMEs)?
SARMIENTO: Loans to SMEs have increased in the last few years in Colombia, but they still remain relatively low compared to the overall size of the loan portfolio. As of September 2016 total loans to SMEs reached close to COP30bn ($9m) of a total of COP230bn ($69bn) for commercial loans and COP$390bn ($117m) of total loans, according to data released by the Financial Superintendence of Colombia.
Cautious growth of SME loans is expected to continue, as the formalisation of the economy continues to evolve. The quality of those loans, however, will be crucial, as SMEs tend to be the most vulnerable during economic downturn cycles. In order to avoid taking excessive risks on their balance sheet, banks are deploying resources in specialisation and innovation. We must develop tailor-made solutions and constantly experiment in the market to find an appropriate balance between risk and return, while at the same time ensuring that the products we offer meet the companies’ standards. The key to being successful requires broad financial education and a highly educated sales force that can fully inform the clients of the necessary requirements for obtaining a loan.
Have companies made progress in terms of implementing good corporate governance?
SARMIENTO: Listed companies in Colombia have generally made good progress in terms of corporate governance over the past decade. In particular, there is greater awareness of the importance that disclosure and timely access to information has for stakeholders. Listed companies have found common ground regarding the importance of having robust internal control and risk-management systems as the means of attaining timely and accurate production of information, including financial performance, ownership structures, risk management and governance frameworks.
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