Our take:  The below article allows us to highlight the banking industry in Colombia.  Currently, the Colombian banking sector has about 34 private banks, in which eight are foreign and one is a public bank.  At the end of the first quarter of 2012, the banking sector had assets of approximately US $151.1 billion; liabilities of approximately US $130.3 billion; and accumulated net profits for the 1Q 2012 of US $1 billion.  The return on assets was more than 2.71% with overdue loans of about 2.80% on average for the sector.  The solvency ratio for the banking system was 15.2% for the period, with a minimum mandatory level of 12%.

Analysts note that there is a need for more banks to increase competition as well as lower interest rates.  Currently, interest rates for SMEs range from 15-25%, and some with short-term loan periods (1-2 years max), especially for first-time investors, which combined make it difficult to grow a middle class.  Additionally, local banks don’t have enough capital to fund the amount of large infrastructure projects, which are projected to cost US$50 billion over the next 10 years.  Enter private equity.

In 2005, Colombia had two private equity funds servicing new investments, especially in the extractive industries.  By 2010, the number of funds grew to 11.  These funds have raised more than $900 million to invest in the infrastructure, tourism, oil & gas, and mining sectors.  Just last year, several other international investment firms entered the Colombian market, touting Colombia’s strong macro-economic indicators, political stability, and significant room for growth.

However, there is still growth for U.S. consumer banks to enter Colombia and service the growing middle class.

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Spanish Bank Santander Sells Stake in Colombian Subsidiaries

EUP20120530085005 Paris AFP (North European Service) in English 0817 GMT 30 May 12

MADRID, May 30, 2012 (AFP) — Spain’s Santander bank, the biggest in the eurozone by market value, said on Wednesday [ 30 May] it had sold a 51-percent stake in its Colombian offshoots for $624 million (497 million euros).

Profits from the sale would go to strengthening the bank’s balance sheet, it said in a statement.

The bank had announced in December an agreement to sell its subsidiaries Banco Santander Colombia and Santander Investment Trust Colombia to Chilean group Corpbanca for $1.225 billion.

The sale would now take place in two stages, it said: first, the just-completed sale of a 51-percent stake and then the sale of the remainder by June 30 this year at the latest.

This would give Corpbanca the time to raise capital for the purchase, Santander said.

Overall, the transaction would generate profits of 615 million euros, to be used to protect the bank from future declines in the value of its property-related assets.

“The profits will allow provisions to be made of approximately 900 million euros to partially cover the cleaning up of property assets that must be completed by the end of the financial year,” it said.

The government this month instructed banks to set aside an extra 30 billion euros in 2012 in case property-related loans go bad, on top of 53.8 billion euros required under reforms enacted in February.

Santander has calculated that the latest reform will require it to set aside an extra 2.7 billion euros this year.