Fitch: Prospects Good for Colombian Banks Heading toward BIS III

BOGOTA, Colombia--(BUSINESS WIRE)-- The international guidelines recommended under Basel III set higher capital requirements with an emphasis on capital quality rather than quantity, but Fitch Ratings does not expect implementation of these new standards to have an immediate impact on Colombian banks' ratings.

Current Colombian regulation stablishes a minimum 9% of total regulatory capital, where Basic Capital should be at least 4.5% (Basel III Common Equity Tier 1). In order to align local regulation to Basel III, Colombian regulatory authorities have issued a series of regulations over several years aimed at introducing capital rules that allow the use of instruments with greater loss absorption capacity. The replacement process of current subordinated bonds is not included in such regulation and is in an earlier stage.

Colombian regulatory authorities have not yet defined the time period by which financial institutions must phase out of legacy secondary capital (Tier 2) currently outstanding in order to meet the new standard. In Fitch's opinion, the delay in setting a harmonization deadline could result in an unwanted ongoing increase in secondary capital instruments since their issuance is still allowed. At year-end 2014, secondary capital represented a minority of total regulatory capital (36%), mostly in the form of subordinated bonds.

Currents levels of profitability at Colombian financial institutions are among the highest in the region. The gradual convergence of profitability levels toward the regional median in the medium term, suggests that the earlier that capital adjustments are made and subordinated instruments are replaced, the easier it will be for entities to take advantage of higher rates of internal capital generation.

In Fitch's opinion, the application of Basel III standards would have no effect on this view and therefore no immediate impact on bank ratings. On the opposite, in the way that Basel III standards involve the use of more instruments with capital components, Fitch could view better bank capitalization, including such instruments as part of its Eligible Capital Ratio. Fitch highlights the overall ability of the Colombian financial system to adapt to higher capital requirements.

Additional information is available at 'www.fitchratings.com'.

Colombian Banks' Road to BIS III

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866803

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Fitch Ratings
Andres Marquez
Director
+57-1-326-9999 Ext. 1220
Fitch Ratings Colombia
Calle 69A # 9 - 85
Bogota, Colombia
or
Alejandro Martinez
Analyst
+57-1-326-9999 Ext. 1620
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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