There are 67 financial institutions in Colombia where 22 are banks that have to work hard. Colombia can face a credit crunch (credit squeezed) in 2013 if Central Bank and private banks do not take attention of the credit cycle. Colombian credit cycle reached its peak and it starts the declining path. Solution can be pointed though lowering lending private interest rate and lowering the difference between lending and borrowing rate as it was made in 2009 to sort out the financial crisis. Central Bank can lowering her intervention interest rate as complement, this policy will bring a decline of private lending interest rate in almost same percentage. These economic policies will keep the GDP growth and the society welfare.
Economist,
e-mail: zhumber@gmail.com
Colombia has 67 financial institutions where 56 are private and 11 are government financial institutions (each one has many branches around Colombia). From these 56 there are 22 private banks where Grupo Aval owns 4 of them, Grupo Antioqueño owns 1 and Grupo Bolivar owns 1. From these 22 private banks there are 11 from abroad and 2 are mixed (local and foreign capital). Profits from these 22 private banks showed a share of 0.72% of GDP in 2011 as figure 1 shows (approximately US$2.5 billions). There has not been a year that private banks face losses. Private banks’s profits shared between 0.6% and 0.7% of GDP between 2004 and 2011 and the difference between lending interest rate and borrowing interest rate showed an average of 6% as figure 2 shows, it means that for each Col$1 that people borrows banks get Col$0.06 and the value of credit in Colombia reached Col$215,305 billion in 2011 (US$120 billion in 2011).
Figure 1. Colombia private banks’ profits as percentage of GDP 2004 - 2011
(%)
Source: Own calculations and Government finical supervisor (Superintendencia Financiera).
Private banks help to get out of 2009 economic crisis (this crisis was due to 2008 global financial crisis) through lower interest rates that let a lower difference between lending and borrowing interest rates as figure 2 shows. It is right to highlight that private banks make profits in 2008, 2009 and so, therefore they can work with lower difference interest rates and make high profits.
Figure 2. Difference between lending and borrowing interest rate
2004 - 2012
(%, monthly data)
Nowadays (2012) it appears that private credit reached its cycle peak and the cycle starts its declining path as figure 3 shows. Therefore, Colombia can start a credit crunch (credit squeeze) if financial authorities and private banks do not take the right decisions.
As in 2009 when Colombia faced the global financial crisis and private banks were aware of making a lower difference between lending rate and borrowing rate, now it is time to repeat the formula to not let a credit squeeze. This policy will bring welfare to everybody due to more credit to customer and high benefits to private banks as it was in 2009.
Figure 3. Private banks credit cycle in Colombia 2004-2012
(monthly data normalized by maximum value)
Source: Own calculations and Government finical supervisor (Superintendencia Financiera).
Moreover, Colombia Central Bank should be work through lowering her intervention interest rate from 4.25%, this policy can let private banks decline their lending rate and society can keep the welfare. Figure 4 shows the relation between private lending interest rate and Central Bank intervention interest rate, one can conclude that as Central Bank moves her interest rate, then private banks do it in the same direction and in the same percentage.
Figure 4. Lending interest rate and Central Bank intervention rate
2004 - 2012
(%, monthly data)
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