VZCZCXYZ0005
RR RUEHWEB
DE RUEHBO #8255/01 3311531
ZNR UUUUU ZZH
R 271531Z NOV 07
FM AMEMBASSY BOGOTA
TO RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/SECSTATE WASHDC 0293
INFO RUEHBR/AMEMBASSY BRASILIA 7918
RUEHCV/AMEMBASSY CARACAS 9588
RUEHPE/AMEMBASSY LIMA 5663
RUEHZP/AMEMBASSY PANAMA 0900
RUEHQT/AMEMBASSY QUITO 6355
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS BOGOTA 008255
SIPDIS
SENSITIVE
SIPDIS
WHA/EPSC FOR PMAIER; EEB/OMA FOR ASIROTIC; TREASURY FOR
MEWENS
E.O. 12958: N/A
TAGS: EFIN ECON CO
SUBJECT: IMPROVING SECURITY AND STRONG ECONOMY BOOST
COLOMBIAN BANKING SECTOR
1. (SBU) SUMMARY: Strong economic growth and record levels of
foreign direct investment (FDI) are bolstering Colombian bank
balance sheets as well as foreign financial institutions'
interest in investing in the sector. Following a period of
consolidation, three Colombian-owned banking groups have
attained a majority share of the market. Foreign
participation, mainly Spanish and U.S., totals approximately
20 percent and is expected to rise as Colombia's security and
investment climate continues to improve. Although access to
banking services has grown in recent years, Colombians still
face challenges in obtaining access to mortgages and small
business credit. Increased foreign investment in the banking
sector should foster innovation needed to expand credit
access for Colombia's growing consumer class. END SUMMARY.
Fewer but Stronger Banks
------------------------
2. (SBU) Since 1995, Colombia's banking sector has
consolidated from 32 institutions to 16, largely as a result
of mergers sparked by the economic recession in the late
1990s and early 2000s, and sector analysts expect further
consolidation by 2010. Three domestic banking groups (Aval,
Bancolombia, and Banco Davivienda) now control 60 percent of
Colombia's USD 71 billion in deposits. All three
institutions benefited from strong management during the
recession and purchased weaker rivals. Since 2005 their 20
percent average return on equity has exceeded most
institutions in the region.
3. (U) Colombian billionaire and business mogul Luis Carlos
Sarmiento Angulo is the primary shareholder and president of
Grupo Aval, which comprises four banking brands (AV Villas,
Banco de Bogota, Occidente and Popular) as well as additional
holdings in telecommunications and real estate. Sarmiento is
widely considered Colombia's richest businessman.
Bancolombia is closely linked to the business community in
Medellin and Antioquia Department. Medellin-based investment
group Suramericana de Inversiones and industrial conglomerate
Grupo Argos are the bank's largest shareholders.
Bogota-based Banco Davivienda is a subsidiary of Sociedades
Bolivar, a financial holding group with 13 companies active
in pensions, insurance, leasing, and construction, controlled
by Jose Alejandro Cortes Osorio.
4. (U) The sector's consolidation has facilitated the
diversification of the remaining banks' portfolios thereby
spreading risk and increasing the number and types of
services offered by each bank. The restructuring has
increased profitability (up 15 percent in the last year) and
spurred a 29 percent jump in lending since 2005. Reflecting
this solid performance, the regional business publication
America Economia recently ranked Aval as Colombia's second
best company based on profitability, management, and
efficiency. The growth in Colombia's banking sector occurred
while the GOC simultaneously consolidated regulatory
oversight into the Financial Superintendency
(Superfinanciera) and increased monitoring of the industry.
Growing Foreign Investment
--------------------------
5. (SBU) Although total FDI in Colombia has quadrupled since
2002 to an expected USD 8 billion in 2007, foreign banks own
only about 20 percent of local banking assets. Most experts
expect foreign participation to rise over the next five years
due to Colombia's improved security conditions, strong
investment climate, and solid economic growth. In December
2005, Spanish bank BBVA purchased local mortgage lender
Granahorrar, transforming BBVA into Colombia's fourth largest
bank with an 11 percent market share. In 2006 London-based
HSBC purchased Colombia's smallest bank, Banco Banistmo,
while General Electric's financial arm, GE Money, bought a 39
percent stake in Banco Colpatria for USD 228 million in 2007.
The other major foreign institution in the financial sector,
Citibank, has operated in Colombia since 1929 focusing
primarily on corporate banking, retirement services, and
investment banking.
6. (SBU) To compete with BBVA the other existing foreign
banks will need to buy a sizable domestic bank. Many local
observers believe GE Money will exercise its five-year option
to expand its stake in Banco Colpatria while rumors have
circulated that Citibank, which currently has a 3 percent
share of the Colombian banking market, seeks to acquire
Bancolombia or another local bank. Citibank country director
Francisco Aristeguieta told the Ambassador recently his
bank's outlook for Colombia is very positive, but highlighted
the Colombian export sector's increasing dependence on the
frothy Venezuelan economy as a potential concern for the
banking industry.
7. (U) Meanwhile, Colombian domestic banks' stable footing
has made new capital relatively accessible. Bancolombia
raised recently $886 million in subordinated debt and shares,
mostly from foreign institutional investors, while Banco
Davivienda and Bancoldex both conducted successful
international bond issuances of USD 150 million each in 2007.
On November 28, Boutique Banco de Credito, 80 percent-owned
by a U.S. citizen, is launching a five-day public share
offering on the domestic market valued at USD 125 million.
Rising Consumer Demand for Services
-----------------------------------
8. (SBU) Amid robust economic growth (6.8 percent in 2006 and
a projected 7 percent in 2007), Colombia's growing consumer
class is increasingly demanding access to banking services.
According to the national banking association, ASOBANCARIA,
only 31.5 percent of Colombians have a bank account. High
transaction fees and limited branch networks remain the
largest obstacles to increasing the "banked" population.
Demand is also growing for consumer finance, credit cards,
mortgage lending, and small business credit. However, high
interest rates and traditionally restrictive lending
practices limit the housing and small and medium enterprise
sectors.
9. (SBU) Nevertheless, rising consumer demand augurs well for
increased partnerships with foreign institutions. As
international banks with more experience in products such as
mortgages, small business loans, and credit cards gravitate
to the Colombian market, they will look to partner with local
banks' existing branch networks and superior customer
knowledge. Such partnerships should improve services through
greater innovation and help increase access to credit
necessary to promote long-term consumer- and private
sector-based economic development.
Brownfield