Colombia: Strong growth in banking
High profit margins and an optimistic growth outlook are leading an increasing number of foreign banks to invest in Colombia’s financial sector at the same time as some of the country’s largest banks look to exercise their own ambitions for regional expansion. With reports of new acquisitions and market entries growing, it seems 2012 could be the year the Colombian banking sector transforms into one of the most competitive in Latin America.
Driven by strong growth, four financing companies with operations in the country are expected to go through the regulatory process to become registered banks before the end of 2012. Among their ranks are Serfinansa, which specialises in retail financial services; Macrofinanciera, which specialises in consumer loans; and Finamérica, which concentrates on micro loans.
These firms are responding to an expansion in consumer lending, which was up 24.8% in February year-on-year, local media reported. It was this growth that led the Chilean retailer and financial services provider Falabella to enter the local banking sector last July and has many others vying for a similar opportunity.
Outside consumer lending, the numbers are up across the board. In January and February 2012, net earnings for the sector totalled $631m, up from $561m the year prior. According to a report by Fitch Ratings, lending has returned to its pre-2008 levels, and in 2011, credit expanded some 22%.
As a result, Falabella was not the only Chilean bank to enter the country in 2011. In July, Banco CorpBanca made a heavy investment in Colombia, purchasing UK-based Santander’s Colombian subsidiary for a total of $1.23m.
The first big acquisition of 2012 took place in January when the Canadian Scotiabank purchased a 51% controlling stake in Colombian bank Colpatria. Prior to the acquisition, Colpatria was known as the second-largest distributor of credit cards in Colombia and a national leader in both commercial and consumer lending.
A similar announcement is expected in the coming weeks regarding the Colombian Helm Bank. Helm, a full-service bank, is reported to have sold a controlling stake in the firm to Brazilian financial conglomerate, Itaú Group. While OBG was unable to confirm these reports at the time of writing, markets were responding favourably to the possible sale. Shares in Helm increased by 16%, marking the largest gain in the stock since it started trading more than four years ago.
While many international players are searching for a proper entry point into Colombia’s banking sector, some of the country’s largest and most-established banks have set their sights on regional expansion. In January, for example, the country’s third-largest bank, Davivienda, purchased HSBC’s subsidiaries in Costa Rica, El Salvador and Honduras for a total of $801m.
Efrain Forero, CEO of Davivienda, told local press that he expects this investment in Central America to increase the bank’s portfolio by $16.5bn while allowing for growth of more than 20% through 2012. Ultimately, Davivienda’s ambitions are aimed further north, as the bank’s management is hopeful that its purchases in Central America will allow it to meet its goal of listing on Wall Street before the end of the year.
“The contrast is evident,” Colombian President Juan Manuel Santos said in a statement to local press, “While in Europe and the US, banks and the financial sector are desperately trying to rebuild themselves and save the business, in Colombia, the banking sector is solid, buoyant, and producing profits and high-quality assets. This is the fruit of many years of effort.”
While Santos is right to point out the sector’s accomplishments, there is still much to be done, especially in terms of banking penetration, which stood at 62% as of May 2011. In order to maintain their rapid growth levels, banks will have to continue reaching out to the segments of the population that remain un-banked.
This task may prove slightly more difficult, as the Central Bank raised the benchmark interest rate 225 basis points between February 2011 and February 2012. This was done in an attempt to cool down the rapid credit expansion, and in particular growth in household debt. Lending rates have remained high, however, despite these measures.
Colombian banks’ next challenge will be to remain profitable as competition increases and the expanding market share becomes a battle more hard fought. This will require a serious effort from banks to increase efficiency while maintaining a focus on expanding penetration.