Colombia regulator urges banks to hold profits due to loan portfolio deterioration

RIO DE JANEIRO, BRAZIL – Colombia banks are being asked to retain close to 68% of the profits they made in 2020 to boost assets in the face of an expected further deterioration in their loan portfolios this year, the country’s banking regulator said on Friday, February 26th.

Bank earnings plummeted 55.3% last year to 6.1 trillion pesos (US$1.7 billion) because of adjustments made to manage debt that was overdue by more than 30 days.

Overdue debt totaled 5.4% – equivalent to some 26.5 trillion pesos – of all debt on banks’ balance sheets in 2020, well above the average for the last decade. The trend is expected to continue this year.

“It will not be an easy year in terms of easing of risk, the portfolio will continue to deteriorate and it’s natural that will occur in proportion with a lag between the behavior of the economy and the behavior of attention to (debt) obligations,” said Jorge Castano, the head of the Superintendency of Finance.

“While we are uncertain how it will change in the future, it is prudent at this time not to distribute these dividends, to leave that money within the entity so it can support unexpected loss,” he added.

Banks, supported by the central bank and the government, have opened credit opportunities for individuals and companies amid the coronavirus pandemic and related shutdowns.

Banks had loan loss provisions of 39.7 trillion pesos at the close of 2020, Castano said, more than the amount of past due debt, meaning the sector remains solvent and ready to provide credit in a reactivating economy.