Fitch Ratings offers a cautiously optimistic assessment of Colombia’s banking sector, noting that the five leading local banks demonstrate solid financial health despite ongoing macro risk and political uncertainty following the 2022 elections. The agency highlights robust operating profits, stronger net income, and healthy capital buffers that exceed earlier expectations. Asset and loan growth have returned to pre-pandemic levels, and in some cases surpassed them, while loan impairments fell more than anticipated, improving the coverage of impaired assets. Collectively, the five largest banks hold a substantial share of the system’s assets, with the top three expanding their geographic reach and diversifying income streams to support resilience.
Yet Fitch anticipates a relatively modest, stable profitability trajectory for the sector. Net interest margins may narrow slightly, but reductions in impairment charges could mitigate some of that pressure. Incremental fee income and continued access to low-cost funding from retail deposits are expected to sustain steady returns and prudent lending growth across the major institutions.
The assessment also factors in higher policy rates as a potential tailwind for loan originations by big commercial lenders, aligned with a gradual economic recovery. Fitch recently revised its outlook for Colombia’s real GDP growth upward, from 3.9% to 5.2% for the current year, reflecting the positive momentum observed in the economy’s fourth quarter and ongoing domestic momentum.
Capital adequacy remains solid, with the five largest banks reporting a median common equity tier 1 ratio around 11.5% last year, up from about 7.7% in 2019 before the pandemic. Fitch notes that Colombian banks are likely to satisfy Basel III capital requirements during the 2024 period, though they may lag behind some regional peers in the pace of full implementation.
External risks, including the ongoing war in Ukraine, inflation, and rising commodity prices, present potential headwinds for the banking system. Policy shifts following the elections, along with global growth trajectories and credit demand, could influence growth and credit dynamics. Energy price inflation and sporadic supply chain disruptions might contribute to broader macroeconomic uncertainty and affect employment levels in the near term.
Despite a higher interest rate environment, the improving economy is expected to support continued expansion in banking activity. Fitch cautions that if rates rise quickly amid inflationary pressures, an abrupt increase in borrowing costs could pressure asset quality and slow the recovery. Nevertheless, the sector retains resilience given its funding profile and earnings power across the major banks.
These insights reflect Fitch’s assessment of market dynamics, macro risks, and the financial resilience of Colombia’s banking system under evolving global and domestic conditions, drawing on Fitch’s 2024 evaluation and formal attribution.