Published on December 17, 2014
The richest coffee, the finest emeralds and the happiest people in the world - all these can be found in this vibrant Latin American country. It is cosily nestled in the north-western corner of South America and presents the unique geographic diversity: its territories encompasses the mountain range of the Andes, the coastal areas of both the Pacific ocean and the Caribbean sea as well as the flora and fauna of the great Amazon rainforest. Can you guess what country it is? Yes, we are talking about Colombia. And specifically today we will be giving you an overview of the financial industry of this great Andean country.
The Colombian banking and finance sector has evolved significantly over the past two decades thanks to the economic reforms introduced within the 20th century. The banking crisis of the early 90s left the industry in quite a poor shape: small in size, high in segmentation and inefficiency. The main cause of those conditions was the repressive and dominant presence of the government. The majority of financial institutions were nationalized, while the state controlled 50% of the banking system’s assets and the central bank enjoyed the exclusive right to buy and sell foreign currency. The overall economic and financial health of the region was suffering severely and demonstrating low GDP and high inflation due to inefficient resource allocation. Thankfully, the wake up call happened at the dawn of the 20th century when the ambitious macroeconomic policies were launched to solve the challenges and revive the Colombian economy. First of all, the previously nationalized institutions were re-privatized and the public sector gave up some privileges to welcome more healthy competition. As the result, the number of financial institutions rose from 91 to 148 between 1989 and 1995. Secondly, more businesses had a chance to enter the market, as the barrier to entry (and exit) has been lowered significantly. Moreover, they were given access to external credit to help in starting up or renewing operations. Previously restricted and forced to be turned into jointly-owned, the foreign-owned banks regained their freedom within the newly established framework. The government started encouraging the inflow of foreign direct investment by introducing the Law 9 which emphasized equality of treatment for nationals and foreigners and equal investment opportunities in terms of access to resources and support. This liberalization process has improved the administrative efficiency, resource allocation processes as well as the overall structure of the financial industry.
Ever since the banking crisis shook the country’s economy, Colombia’s financial system has been managed with caution and care. Analysts describe it as “highly profitable, well capitalized and conservatively run”. According to Jorge Saza, a partner with consultants Sustainable Finance Partners, Colombia has two strengths: one is the performance of the sector and the other is the quality of supervision in Colombia. Thanks to the Andean country’s previous experience with its own crisis two decades before, its financial industry demonstrated growth of 12.6 per cent with net profits of $2.82 billion during the global economic crisis in 2009.
The Colombian finance industry is saturated with few foreign players. It is also dominated by complex conglomerates which hold approximately 80% of the total industry assets. Specifically within the banking sector, three major Colombian banks - Bancolombia, Banco de Bogota and Davivienda - control 60% of the total banking system assets. In terms of loans, there are top five players (including the aforementioned three domestic banks plus BBVA and Corpbanca) account for 74% market share, as of January 2014. The largest foreign bank is BBVA, which has around 10% market share in total loans, consumer loans, total deposits, and checking accounts. Colombian institutions have been actively engaging in their merger and acquisition strategies with the special focus on Central America.
In recent years, Colombia has been reporting double-digit credit growth since 2010. Financial analysts are expecting this trend to continue due to improving consumer confidence and rising demand for durable goods. Looking at mortgages alone, although they make only 9% of the total credit in the country, they have been growing tremendously as well - at the impressive rate of 28% year over year. With the low interest rates and fiscal policy supporting the construction industry, this growth might well continue into the future.
Just like its vibrant landscapes and cultural traditions, Colombian finance industry is also diverse and welcoming for business-related visitors - expats and interns. As the Andean country has been opening doors for foreign investment in recent years, especially within the banking sector, there are opportunities for foreign workers to seek there.. If you are thinking of gaining valuable experience and exploring the breath-taking sceneries in Colombia, here is a mini business etiquette guide for your to review on the plane! Handshaking is a common way of greeting, especially for business people, but keep in mind that Colombians take their time in it instead of offering a short handshake to show respect. Same applies to business agendas: be prepared for your Colombian colleagues to take as much time as they need to cover all the topics and address all the issues, as the conversation might drift into other directions throughout the meeting. Just like in most Latin American and Spanish cultures, most business meetings start with relaxed informal conversations to break the ice. You can talk about family and health, but by all means avoid any conversations about religion and politics. In terms of non-verbal communication, Colombians express the majority of their messages in the body language as their verbal communication is rather indirect. For example, if your colleague tells you “I will see if I can do it”: chances are that he or she is unable to follow your request, however, he or she prefers not to say it directly. Colombians also stand closer to each other when talking compared to Europeans and North Americans, however, they don’t engage in as much physical contact compared to their Latin American neighbors. Finally, be aware that it is of the utmost importance for Colombians to protect relationships and face, so try to follow their lead and you will definitely enjoy your experience in this amazing country.
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Photo 2. The Intern Group