Thursday, March 23, 2023

Colombia tightens bank rules amid economic strains

Colombia’s government said Friday it will force some banks to set aside higher provisions, or reserves, on new consumer credit due to a worrisome rise in past-due loans and amid signs of strain in the economy.

The new rules for the banks “aim for stability in the financial system and in particular consumer loans,” Colombian Finance Minister Juan Carlos Echeverry said. “We’ve been worried that there’s been a rise, still moderate, in some consumer loans in some financial institutions.”

The announcement comes as Colombia’s strong oil-fueled economy starts to show signs of vulnerability. Industrial production data out Thursday showed a decline in March, the first negative number in three years. The Colombian peso, one of the strongest currencies in the world during the first four months of the year, has weakened 3% this week alone, to COP1,814 for a dollar.

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Echeverry said past-due loans have increased by 26% this year after declining modestly in 2011, “which worries us.”

The new rules will apply only to those banks showing higher levels of delinquencies in consumer loans, the Finance Ministry said in a statement. Banks whose past-due consumer loans “have accelerated” will have to put up additional reserves that would be “calculated adding 0.5% to the probability of default of each obligation,” according to the statement.

The ministry said the new rules are on top of those set by regulators last year that required a 9% annual increase in provisions. Outstanding consumer loans in Colombia total some 62 trillion pesos ($34.2 billion), and about COP3 trillion are past due.

The government didn’t specify which banks the new rules would apply to, but last week Colombia’s top lending institution, Bancolombia (BCOLOMBIA.BO, CIB) noted in its first-quarter earnings report a rise in delinquent loans.

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Bancolombia said in a conference call the delinquencies were mostly on the consumer side, and said it planned to instead try to increase its loan portfolio by making more corporate loans.

Bancolombia’s shares in Bogota have fallen more than 6% since it noted the rising delinquencies, and the share price was down 0.3% Friday at COP27,500, while the overall market was up 0.3%.

Colombia’s economy has seen healthy annual growth of around 5% for the past three years, but as oil prices begin to fall due to Europe’s debt crisis and a persistently sluggish U.S. economy, Colombian officials have begun to sound warning bells.

“From Europe, tough times are coming,” Echeverry told reporters Thursday, adding that the next “12 to 18 months that won’t be at all easy are on their way.”

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