Colombia banks to see 'healthy moderation' in loan growth

Following a decade of rapid economic growth, Colombia is currently facing a more challenging economic scenario triggered by the decrease in global commodities prices, with a slowdown in GDP growth and a devaluation of the peso which also contributed to above-target inflation in 2015.

Amid the current economic climate, banks are shifting their focus towards driving profitability through increased efficiency rather than loan growth, reducing new loans particularly among risker segments.

BNamericas spoke to Santiago Castro, head of Colombian banking association Asobancaria, about the outlook for loan growth in the country this year.

BNamericas: What are the nominal and real growth projections for the loan portfolio this year?

Castro: We expect that loan growth will continue with a healthy moderation, taking into account the reduced traction in economic activity. We forecast 5.2% real growth [11.1% in nominal terms] of the portfolio in 2016. Although this figure is lower than the loan growth in 2015, it will continue to enable the expansion of the productive sector, which in 2016 will reach 2.3%. This in turn will also enable the depth of the financial system in Colombia to continue to increase.

BNamericas: Which segments will drive growth?

Castro: The mortgage portfolio will continue to drive credit expansion thanks to government programs and the interest rate subsidy, programs which have had the commitment and support of the banking sector. We expect that this segment will grow 8.7%, which although lower than the 11.5% registered in 2015, is positive in the current environment.

The dynamics of the corporate and consumer portfolios will be affected substantially by the economic slowdown and higher interest rates. We expect the corporate portfolio to expand by 5.2% this year and the consumer portfolio by close to 4.0%. Finally, we expect the micro lending portfolio, which is the most sensitive to economic cycles, to grow by 1.6%.

BNamericas: What is the expected effect of the implementation of 4G infrastructure projects for the banking sector this year?

Castro: The banking sector has been supporting these projects not just through financing, but also by contributing to the solution of several issues that have arisen on this front. We have insisted that to achieve the implementation of these projects, the government must adopt measures to mitigate the construction risks associated with environmental licensing and prior consultation. The banking sector is not only working, but will also continue to demonstrate its commitment to the development of these projects. In fact, several organizations have said publicly that they intend to fund these works and contribute a large part of the resources for their financing.

These projects will not only imply enormous benefits in terms of competitiveness and productivity, but they will also enable the generation of greater credit penetration. Despite the fact that we're expecting the majority of the positive effects in terms of growth to be generated in the coming years, the speed with which they materialize will depend on the speed with which financing is closed for the projects.

BNamericas: In general, are you expecting a deceleration in growth of the loan portfolio this year given the current macroeconomic environment, or are there banks that are looking to grow?

Castro: We're expecting a healthy moderation in the growth of the portfolio this year. In fact, we're forecasting growth of close to 5.2%, much lower than the growth levels registered in the previous years. The mortgage portfolio perhaps has the greatest potential, given that the economic policies oriented towards the development of the real estate sector are still being maintained. However, each organization has different underwriting policies, and therefore each of them will evaluate the risks in their respective niches to determine the appropriate strategy.