Banrep: solvency of banks is good, despite deterioration of the portfolio

The Bank of the Republic considers that despite the slowdown in credit and a gradual deterioration in its quality, The Colombian financial system has liquidity and solvency levels that are not only above those required by the internationally accepted parameters, but would even be sufficient to face the materialization of extreme, low-probability risks.

(See: Banrep banknote ink supplier condemned for corruption).

In the Financial Stability Report for the first semester, the Issuer It should be noted that credit institutions in Colombia have high levels of capital and adequate liquidity indicators that would allow them to face the materialization of various risks. For its part, profitability has shown a downward trend since mid-2022.

He says that credit has reduced its growth rate in recent months after showing very high rates of expansion, at the same time that greater defaults have been observed in the portfolio.

“This dynamic is mainly explained by the mode of consumption and could continue in the first half of 2023”, mentions the report.
Ensures that sensitivity exercises related to the collapse of Silicon Valley Bank and other regional banks in the United States “had no direct impact on local financial institutions”.

(See: New Banrep calendar to disclose interest rates).

And he mentioned that toheSome characteristics that protect the Colombian financial system They are a conservative balance sheet structure for both the active and passive sides of the entities, the general practice of valuing the investment portfolio at market prices, and adequate liquidity risk management.
The Banco de la República report warns that household indebtedness remains at levels close to all-time highs.

“Household savings have recovered, but remain below pre-pandemic levels. Households have sufficient liquid resources to cover short-term obligations”, assures the report.

He says that if the portfolio maintains a path of low growth, a decrease in debt to income ratio. Likewise, it reveals that the credit risk indicators of the commercial portfolio are at low levels and a slight deterioration is observed for certain sectors.

He says that most of the corporate sector’s foreign currency debt has exchange risk mitigation mechanisms.

(See: Remittances to April reach US$3,212 million, according to the Issuer).

The report considers that the profitability of non-bank financial institutions has shown a recovery, although it remains below pre-pandemic values.
“Open collective investment funds without a permanence agreement have shown falls in their liquidity indicators in recent months, but these remain well above the regulatory minimums”, indicates the report.

Stress tests were conducted to assess the resilience of credit institutions in an adverse, extreme, and unlikely scenario that considered several elements.

Between these, the fall in the terms of trade as the reduction in the price of oilthe greater perception of country risk, a strong contraction of domestic demand, an increase in unemployment and the gradual liquidation of the public debt portfolio of foreign investors.

(See: April, best monthly record in direct foreign investment).

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