Taking the lead: The nation’s best performing banks are poised to expand regionally

The top six banks together account for 63.05% of all banking assets, 66.19% of all loans and 64.76% of all deposits in the system. While Bancolombia is the biggest stand-alone bank, accounting for 20.29% of all banking assets, Banco de Bogotá (ranked second by assets), Banco de Occidente (fifth), Banco Popular (sixth) and Banco AV Villas (eighth) – all of which are controlled by financial conglomerate Grupo Aval – together account for 26.22% of all assets, making this the single-largest banking group in the country. These two banking groups alone account for nearly half of all assets in the Colombian banking system, signifying a high degree of concentration. Davivienda is the third-ranked bank by assets, while Spanish-owned BBVA (fourth) is the only foreign bank among the top six.

By virtue of their scale domestically and their aggressive regional expansion efforts (see analysis), the largest Colombian banks have become important players in the wider Latin American region in their own right. In 2011 the top five were ranked among the top 50 in the region, with Bancolombia and Banco de Bogotá making the top 25. Given their prominence on the acquisition trail, it is likely that they will keep climbing the regional rankings to become bona fide pan-regional players.

BANCOLOMBIA: Headquartered in Colombia’s second-largest city, Medellín, Bancolombia is the largest commercial bank in the country and one of the largest in Latin America. It is well-diversified, providing a full range of financial products domestically, and it also operates in Panama, El Salvador, Puerto Rico, the Cayman Islands, Peru, Brazil, the US and as far afield as Spain. Banagricola, the bank’s Salvadorian subsidiary, was acquired in 2011 and is a leading financial conglomerate in that country.

In December 2012 Bancolombia acquired 40% of Guatemala’s Banco Agromercantil for $216m with an agreement to acquire up to 70% over a sevenyear period. The risks inherent in aggressive regional expansion were demonstrated in July 2013, however, when a downgrade to El Salvador’s sovereign rating caused ratings agency Fitch to downgrade its rating of Banagricola from BB+ to BBB-. At the time, Fitch noted that this purely reflected broader developments in the Salvadorian economy, rather than changes in the bank’s performance.

PERFORMANCE: Bancolombia accounted for 21.63% of lending in Colombia at the end of 2012. Although the bank’s loan portfolio grew at a rate of 21.7% in 2012, ahead of the 15.2% credit growth seen across the system that year, it is not among the most profitable banks in the country. Return on equity (ROE) for 2012, at 11.9%, was significantly lower than that of its peers and the banking system as a whole (14.7%). Although slightly below the industry average of 2.1%, the bank’s return on assets (ROA) of 2% was more in line with its peers’ performances.

Diseconomies of scale could be one possible explanation for Bancolombia’s sub-par profitability, given that its cost-to-income efficiency ratio – at 49.94% – is higher than that of its peers. The bank brought in strategic management consulting firm McKinsey to help improve its overall efficiency. The corporate reorganisation that resulted can be expected to bear fruit in the coming years.

SERVICES: Together with its subsidiaries, Bancolombia provides savings, lending, stock brokerage, investment banking, leasing, factoring, consumer finance, foreign exchange, treasury, asset management, insurance, fiduciary and trust services, among others. By late 2012 the bank employed a total of 24,585 workers, boasted more than 7m customers and had a branch network of 978, the largest private sector branch network in the country. It also provides services through 3700 ATMs, 1170 banking agents and via other electronic channels.

The bank has teamed up with Blackberry to develop a dedicated app that provides mobile banking solutions for its customers and employees. The bank also acquired a 70% stake in mobile virtual network operator Uff! Movil for $11.5m in August 2012, demonstrating its intent to pursue ambitions in mobile banking. As well as being listed on the national stock exchange, Bancolombia has been listed on the New York Stock Exchange (NYSE) since July 1995, and it is the first Colombian firm to secure a full listing. Bancolombia is part of the Grupo Empresarial Antioqueño (GEA), a conglomerate controlled by a complex web of cross-holdings. The GEA, with 50.2% of common equity, has majority control, while Colombian pension funds (18.4%), international shareholders (14.9%) and other domestic shareholders (15.5%) control the remainder. BANCO DE BOGOTÁ: Founded in 1870, Banco de Bogotá is the oldest commercial bank in the country and the flagship banking unit of Grupo Aval, Colombia’s leading financial conglomerate. It is traditionally a multi-service bank with a particular focus on the commercial lending segment.

In the past decade, the bank has undergone a strategic shift, doubling its share of the consumer lending market. Strong organic growth has been supplemented by strategic acquisitions. The 2006 acquisition of Megabank, for instance, contributed to its increased market share in consumer lending. More recently, it has, like its peers, joined the Central American acquisition trail, buying BAC Credomatic from US conglomerate General Electric for $1.9bn in 2010. The acquisition of Costa Rica-based BAC gave Banco de Bogotá a firm foothold across the Central American region, notably in the credit card and consumer lending segments. As well as promising an attractive financial return, the BAC acquisition also brought to the bank valuable know-how in credit card lending – information that can be applied domestically to boost the bank’s presence in that market segment in Colombia.

In May 2013 Grupo Aval announced that it would follow in the footsteps of Bancolombia by seeking a listing on the NYSE. Following its filing with the US Securities and Exchange Commission, it is expected that an initial public offering consisting of some $100m preferred American Depository Shares will follow in due course. This fundraising effort was sandwiched between announcements of the group’s latest acquisitions: the $541.4m acquisition of 99% of BBVA Horizonte, the Spanish bank’s Colombian pension fund unit; the $411m acquisition of Grupo Financiero Reformador in Guatemala through its Central American arm, BAC Credomatic; and the $490m acquisition of BBVA’s Panamanian unit. Following the announcement of the last of these transactions, Fitch reaffirmed its BBB credit rating and stable outlook for the bank, noting that while recent acquisitions would diminish its capital ratios to some degree, they would remain healthy enough to justify its investment grade rating.

Domestically, Banco de Bogotá operates through four subsidiaries: Almaviva (focused on logistics), Leasing Bogotá (providing administration and advisory services for asset management), Fiduciaria Bogotá (focused on consumer finance) and Valores Bogotá (dealing with securities trading). Speaking about the inclusion of leasing in an increasing number of banking groups’ services, Miguel Antonio Posada Samper, the president of Leasing Bolívar, told OBG, “The financial reform three years ago allowed large groups to incorporate leasing companies within their structures.”

In addition to BAC, Banco de Bogotá operates subsidiaries in Panama and the Bahamas, and has agencies in New York and Miami. The bank offers a range of personal, social, microfinance, and small and medium-sized enterprise banking services, along with commercial lending. Banco de Bogotá employs more than 9000 staff, boasts more than 2m clients, and operates over 2000 ATMs and 734 service points across Colombia. Banco de Bogotá is well-managed and profitable, with a clear growth strategy. With an ROE of 15.6% and a ROA of 2.9%, the bank outperforms most of its peers and the industry averages (14.7% and 2.1%, respectively) in terms of profitability. Moreover, its 38.04% cost-to-income efficiency ratio is significantly better than its peers.

DAVIVIENDA: Founded in 1972 with a focus on providing financial services to households, Davivienda is part of Grupo Empresarial Bolívar, the third-largest conglomerate of its kind in Colombia. Mortgages, credit cards and international wire transfers were traditionally the mainstay of the bank’s business, although it now provides a range of financial services to both businesses and households.

Following a growing trend among leading Colombian banks, in 2012 Davivienda snapped up HSBC’s operations in Costa Rica, El Salvador and Honduras, giving the bank a footprint in the wider region for the first time. These Central American assets now account for a fifth of the bank’s total, providing a degree of geographical diversification to its activities. Davivienda also operates a branch in Miami to facilitate international wire transfers. Davivienda’s Salvadorian subsidiary was also hit by a Fitch ratings downgrade, from BB to BB-, with its outlook downgraded from stable to negative. At 1.9% and 13.9%, respectively, Davivienda’s ROA and ROE are lower than industry averages, while non-performing loans (NPLs), at 3.3%, are slightly higher than average. Given the bank’s heavy exposure to the consumer credit sector, this may be a source of concern, unless the acceleration in system-wide NPLs moderates. More positively, Davivienda has an early mover advantage in mobile banking, its DaviPlata platform registering more than 1.6m subscribers by the end of 2012.

BBVA: The Spanish banking group is long-established in Colombia, having entered the market with the acquisition of 40% of Banco Ganadero in 1996, building up its stake to gain majority control in 1998 and 95% ownership in 2001. Banco Ganadero had been established in 1956 with the primary aim of supporting agricultural activity, before it widened its range of services on offer. Having had a minority government shareholding for much of its history, the bank listed preferred stock on both the domestic and New York stock markets in 1994 before its later acquisition by BBVA. The bank has been trading solely under the BBVA trademark since 2004.

Although BBVA Colombia trades on the national stock market and provides a generous dividend yield, trading is characterised by low liquidity and a small free float of 5%. The bank is active in both the commercial and consumer lending segments. While the bank’s ROA is relatively low at 1.6%, its ROE of 16.8% outperforms the industry average. Profits have been growing, moreover, at a compound rate of 18% in recent years. At 46%, its cost-to-income efficiency ratio is in line with the average for the sector, while its NPLs, at 1.88%, are among the lowest.

BANCO DE OCCIDENTE: Headquartered in Cali, Colombia’s third-largest city, and founded in 1965, Banco de Occidente is also part of Grupo Aval. Initially the focus of its operations was the Occidente region around Cali, in the west of the country, hence the bank’s name. The bank expanded its footprint in the 1970s and 1980s, both domestically and internationally with the establishment of a Panamanian subsidiary in 1982. The acquisition of Banco Aliadas and Banco Union Colombiano in the 2000s saw the bank expand both in size and in terms of services offered. Currently, it offers a range of financial services for consumers and businesses, including leasing, car loans and lending to smaller corporates. The bank’s ROA and ROE – at 2.3% and 15.9%, respectively – are above average for the sector, while its NPLs (2.48%) and cost-to-income efficiency ratio (41.45%) are below average.

BANCO POPULAR: Founded in 1950, and part of Grupo Aval as well, Banco Popular has traditionally had a strong presence in the payroll loan segment, providing discounted loans to consumers secured against future income. This segment is characterised by high interest rates and relatively low rates of default. As a result, Banco Popular is one of the most profitable in the sector, with an ROA of 2.4% and an ROE of 18.6% – the highest among its closest peers. Its NPLs, at 2.11%, are also notably below the industry average of 2.83%, while its cost-to-income efficiency ratio is slightly above average, at 47.45%.