by Raúl Gallegos

Buying a majority stake in Colombia’s Correval brokerage: $76 million. Acquiring control of Colombia’s Colpatria bank: $1 billion. Purchasing Santander’s Colombia unit: $1.2 billion. Getting a footprint in Colombia’s financial system: priceless.

Foreign banks eager to enter the growing Colombian financial sector have propelled bank valuations to new highs over the last six months, and the shrinking pool of potential targets suggests prices can only go higher. The largest Colombian banks are, at the same time, seeking to expand beyond their borders, leading many observers to conclude that the mergers and acquisitions activity coming from the Andean country has yet to run its course.

The December sale of Santander’s Colombia business is an example of what is happening in Colombia. Chile’s Corpbanca and CorpGroup, eager to break into the market, paid the Spanish bank $1.225 billion for access to Colombia, a purchase price that amounted to 2.7 times the book value of the unit, and a cut above prices for traded shares of comparable Colombian banks.

Scotiabank’s October purchase of a 51% stake in Colombia’s Colpatria also set a high water mark. The Canadian bank paid $1 billion for the assets, a price of 3.6 times book value and an implied share price that amounted to 12 times the bank’s earnings – a hefty price tag for a bank that caters to low-income consumers.

Some Colombian financial institutions, themselves flush with cash and ambition, have ventured to buy other banks in the region, such as Colombia’s Davivienda, the country’s third largest financial institution, which in January acquired HSBC’s units in Costa Rica, El Salvador and Honduras for $801 million.


“Colombia’s [banking] sector has become the most attractive one in the region from the point of view of profitability and growth opportunities,” says Gerard Cremoux, head of Latin American financial institutions within investment banking at UBS.

Cremoux’ unit has had an advisory role in nearly every major transaction involving Colombia’s financial sector with the exception of the Santander sale for which no investment banks were hired. Cremous and other observers believe that large transactions will be hard to come by in Colombia going forward, but M&A activity is far from done.

Sound Backdrop

A look at Colombia’s economic metrics offers an inkling of why so many want a way into the country’s financial sector. A country that for many years was associated in the global imagination with leftist guerrillas and larger-than-life drug kingpins now boasts Baa3/BBB- investment grade credit ratings from Moody’s and Standard & Poor’s respectively.

Under President Juan Manuel Santos the country continues to follow a path of sound macroeconomic measures, fiscal reforms and a progressively smaller debt burden. All of this is happening at a time when the country enjoys rising investment in the oil sector and a briskly rising income per capita, an ideal backdrop for financial sector growth.

Colombia’s banking services penetration remains stubbornly low, however, with a large segment of the growing population still left out. As of September 2011, 63.1% of Colombian adults received some kind of banking service, an indicator that has been steadily growing over the past two years.

Foreigners see in this an opportunity to grow the business in a country with a stable democracy and in many ways enviable economic prospects. The country’s banks have long been known for a rather staid competitive outlook. Indeed, the sector with 23 banks and $165 billion in assets is largely dominated by the top seven financial institutions which together hold more than 73% of the system’s assets. Grupo Aval alone owns four banks in the system and controls 28.9%, according to estimates from Colombia’s Bolsa y Renta brokerage firm.

“The largest players are not for sale,” notes David Pelaez, a banking sector analyst for Bolsa y Renta in Bogota. “Many midsized and small banks could be potential acquisition targets, but expect to see high valuations for some of these.”

Some smaller banks are already putting themselves out of the realm of acquisition possibilities. Officials at Helm Bank in Colombia, which holds 4% of the sector’s assets, recently stated publicly that the bank is not for sale. Simple math indicates that any remaining M&A activity in the sector will involve small deals. Some local observers point to HSBC as a potential candidate to divest its unit in Colombia which accounts for roughly 1% of the sector’s assets.

Some foreign banks have circumvented the M&A route into Colombia by directly opening branches in the country. Brazil’s Banco Itaú, for instance, got a green light from Brazilian regulators in November to open Itaú BBA Colombia, the Brazilian financial powerhouse’s own bet on the sought-after financial sector.

Broker consolidation

Brokerage firms in Colombia have also come under the radar of major international players, primarily due to the advent of the Mercado Integrado Latinoamericano (MILA), the 2011 integration of the Peru, Colombia and Chile equity markets under one single platform.

The consolidation under MILA is a key catalyst for potential mergers among Andean brokerages going forward. The MILA is prompting talk about acquisitions because a consolidated Andean equities market can bring added liquidity to the securities business and with it more transactional revenue.


In early December Peru’s Banco de Crédito bought a 51% stake in the Correval brokerage in Colombia for $76 million in what is largely seen as one of the first acquisitions spurred on by MILA’s equity market combination. In a similar move, the region’s largest investment bank, Brazil’s BTG Pactual in February put the final touches on the August 2011 acquisition of Chilean brokerage firm Celfin. Back in Colombia, rumors have swirled for some time about Interbolsa, one of the largest brokerages in the country, being open to selling itself to a larger financial institution.

Indeed large banks in Colombia have managed to build generous levels of liquidity that they can now use to purchase assets at home and abroad. Davivienda’s purchase of HSBC’s assets as way into Central America was the latest example of Colombian banks seeking scale overseas, though many observers believe it is unlikely Davivienda would look for more assets in Central America.

“The natural colonizers of Central America are bound to be the Colombians,” notes an M&A investment banker with knowledge of the regional banking business. “But nearly everyone that looks at the CA region is looking for a regional footprint, not just participation in a particular country.”

Colombia’s Grupo Aval acquired Panama-based BAC Credomatic in 2010 for $1.9 billion, a deal which gave Aval a presence in Costa Rica, El Salvador, Guatemala, Nicaragua, Honduras, as well as Mexico and Florida. Bancolombia officials have expressed interest in expanding its presence in Central America and even in Peru going forward. “Bancolombia may seek to add a larger regional player in Central America,” says Pelaez. “Grupo Aval, on the other hand, may add smaller players since it already has a sizeable presence in CA, and it has the liquidity to continue buying.”

The strength of Colombian banks balance sheets and the attractiveness of its economic story may well give way to much more intra-regional M&A business in the Andes and Central America as Europe and its banks struggle to strengthen their capital bases, and Latin America continues to benefit from high commodity prices and a recovering U.S. economy. Banking in Colombia might just be worth more than many expected. LF