|
Colombia Banking
Financial services, a large and important component of
the
service sector, included private financial institutions
that
facilitated business and individual loans, as well as
public
institutions that directed funds to socially desirable
activities
that might not meet the credit requirements of private
banks. The
government played a major role in the financial sector
because of
the unwillingness of banks to make long-term loan
commitments to
riskier programs, such as coal development, and because of
the
necessity for periodic public intervention to stabilize
financial
markets. Although the banking system grew in the 1960s and
1970s
and was considered relatively modern, it entered a period
of deep
crisis in 1982, which forced the government to redefine
the basic
structure of the private financial system.
One problem was the banking sector's concentration of
ownership
in the hands of a few large conglomerates. This reduced
competition
and made lending a precariously balanced game in which
funds were
shuttled among the larger institutions.
The economic downturn of the early 1980s also
threatened the
profitability of banking. Colombian financial institutions
came
under increasing pressure as the 1981 recession induced
retrenchment of the manufacturing sector. This, in turn,
caused a
sharp rise in loan defaults. Real interest rates at the
time
averaged 10 to 12 percent, which exacerbated the payment
problems
of indebted companies. The number of loans considered
unlikely to
be collected as a percentage of the lending portfolio
increased
from 5.6 percent in 1982 to 11.3 percent in 1984. Foreign
interests
in Colombian banks also began to withdraw capital rather
than
deposit it, which further drained reserves necessary to
meet
regulatory requirements. Subsequent bank failures and
nationalizations resulted in a decline in public
confidence and led
to massive government intervention.
In an effort to increase liquidity, the government
reduced
reserve requirements for certain types of deposits and
shifted
public funds into the financial system. In 1985 the
government
created the Financial Institutions Guarantee Fund (Fondo
de
Garantías de Instituciones Financieras) as the authority
responsible for intervening in or recapitalizing, if
necessary,
financial institutions on the brink of bankruptcy. Despite
these
efforts, the government was forced to nationalize banks as
they
approached insolvency. Eighty percent of the Colombian
financial
industry had come under government control through this
mean by the
mid-1980s.
Notwithstanding increased government supervision, a
large
infusion of public capital, and improved economic
conditions, the
remaining private financial institutions continued to
flounder in
the late 1980s. Because of high inflation and unstable
real
interest rates, most depositors placed their money in
readily
accessible accounts such as checking accounts or
short-term
certificates of deposit. This constrained lending
strategies,
because larger portions of loan portfolios now had to be
constructed with short-term arrangements in mind. Much of
the longterm credit for mortgages and business investment had to
be secured
through the central bank or any one of the many
government-operated
development funds.
By 1988 the financial sector's problems appeared to go
beyond
a difficulty with short-term liquidity. Ownership remained
highly
concentrated, and inflation continued to increase the cost
of
transactions. An inadequate capital base, gross management
inefficiencies, and high operating costs were other
persistent
problems. Loan defaults also occurred at alarming rates.
To
compensate, the government provided credit directly
through public
financial institutions financed with public funds or by
forced
investment from businesses and pension funds. These
financial
entities included the Institute of Industrial Development
(Instituto de Fomento Industrial--IFI), the Land Credit
Institute,
and the Agrarian Bank; they served the long-term credit
needs of
industry, urban housing, agriculture, and other special
interest
groups.
Despite continuing doubts about the soundness of
Colombia's
banks, there were some signs that the financial sector was
becoming
more stable in 1988. Market interest rates began to fall,
and the
government used forced investment less frequently to
attract
lending funds. In addition, financial authorities planned
to
strengthen both the financial sector and the stock market
by
selling shares of the expropriated banks to small and
medium-sized
investors.
In 1988 the government announced plans to reprivatize
the
banking sector, beginning with the sale of the Bank of
Bogotá
(Banco de Bogotá). The government authorized the central
bank to
extend credits to the public that could be used to
purchase shares
of the expropriated bank. Restrictions were placed on the
sale of
the bank to avoid the ownership and management problems
that had
contributed to the institution's failure. Specifically,
none of the
previous owners were permitted to purchase bank shares,
and no
individual or family could acquire more than 3 percent or
10
percent, respectively, of any one bank. Authorities hoped
that
these measures would lead to other bank sales and return
stability
to a sector that was vital to the development of the
national
economy.
Data as of December 1988
|
