Capitalizing On Euro Crisis, Colombia Moves Into Banking Big Leagues
Jenny González

BOGOTA - If Latin America were a game of Monopoly, we would be watching as one player put all his chips in the bank. That is the big offensive of Colombian banks, which have expanded from 35 international branches in 2007 to 175 last March.

In 2007, Bancolombia bought the Banco Agricola conglomerate in El Salvador, becoming the leading bank in that country and gaining a million clients. “Our most important contribution was to create a sense of confidence in our goal of becoming a regional bank,” explains Carlos Alberto Rodriguez, the bank’s international vice-president.

Then, in 2010 a series of other acquisitions by other Colombian banks and brokerage firms gave them an increased presence throughout Central America and in the United States.

The Colombian banks have taken advantage of the European debt crisis and the withdrawal of financial institutions from markets where the profit margins are not very high. “It opened a space in the market that allowed banks from emerging countries to enter the market,” explains Javier Galan, director of the Economic, Financial and Business Observatory at the University of Sergio Arboleda in Colombia.

Statistics show how Central America has been the primary stage for this shopping spree – 77.36% of Colombian banks’ international assets are located there.

For analysts, the concentration of growth in this region in consistent with the fact that legislation is relatively open, while there are low levels of banking accessibility and financial education, which means there is a real niche to conquer. “There are a lot of needs in terms of personal banking,” says Juan Carlos Gutierrez, a finance professor.

For Rodrigues, from Bancolombia, the idea is to look for scenarios where they can implement a successful model. “The financial sector has evolved a lot in the past 10 years, and we see that it is possible to participate in the process and add value.”

Keeping clean

The Colombian financial crisis at the end of the 1990s left the country with some important impacts, including new banking regulation with high standards. The regulations, which resemble closely the global regulatory standards of Basel III, include provisions to protect against economic fluctuations and safeguard against model risk while promoting high standards for corporate governance. They also required banks to be well capitalized, and to manage risks prudently.

“That made the Colombian banks immune to the international banking crisis, allowing them to attain an important international position. Among the 500 most important banks in the world there are three Colombian banks,” Galan says.

The international expansion has allowed the banks to diversify their risks in terms of income, and to increase their client base by almost five million clients as well as defend themselves from competition for foreign banks operating in Colombia, a country with low levels of banking access.

Of the South American banks, the most aggressive is the Grupo Sura, which has looked to expand internationally because it is already a key player in Colombia. “This non-organic growth, through acquisitions, has to be done outside of Colombia, because we’ve reached a limit of what we can do here,” explains the company’s president, David Bojanini. Around 75% of the mutual funds and pensions managed by Sura are outside of Colombia.

The strict controls designed to prevent money laundering is another major advantage that Colombian banks can bring to other countries, along with the banks’ experience managing accounts in times crisis as well as microcredit.

“There are some things that Colombian banks do very well, like the management of risks and investments, technology and human resources,” Bojanini explains.

For Bancolombia, its experience with using Banking Correspondents, which are agreements that allow customers to do simple banking at stores that have an agreement with the bank, is something that it plans to replicate in El Salvador to increase banking access.

“In this market full of fusions, acquisitions and liquidations, there are still many opportunities for Colombian banks looking to expand in Latin America. They could maximize those opportunities by taking advantage of the synergies with financial institutions from other countries, such as those in Chile.

According to Gutierrez, Colombian banks should also look to the south more often, and take more risks to increase their potential competitive advantages. They should also innovate more in their mortgage offerings and infrastructure, he believes.

Now, these new actors in the region know that it is not just about putting the pedal to the medal. “International development has to fit well with the business model that we have and that we know well, with additional factors such as differences in the market, cultural differences and different business practices,” Bancolombia’s Rodriguez emphasizes. “Right now everyone wants to expand internationally, but you have to do it carefully.”

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