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Local financial sector ‘particularly open to international competition’

Interview - July 27, 2015

Highly respected banker and former President of Bancolombia Jorge Londoño Saldarriaga provides an insight into Colombia’s banking sector, the global standards it meets and recognition it receives, and the industry’s importance in enabling small and medium-sized enterprises reach their goals.


According to the IMF, Colombia was the third fastest-growing economy in 2014, and according to Mr. Uribe from Banco de la República (Central Bank of Colombia) it will be the fastest-growing economy this year. Some studies are showing a huge drop in the FDI in the country, although President Santos has stated that this is just a cloudy moment. Bloomberg named the Colombian economy as one of the 15 most miserable in the world, while the Daily Telegraph has mentioned that is one of the strongest in the region. Apparently it all depends on the eye of the beholder. How do you assess the Colombian economy for 2015?

I think that we bankers, in general, must be always optimistic, and the Colombian economy is giving us reasons to be so. The main strength of our economy is diversification. The particular current situation we are going through is making us focus on that once again. Colombia has a strong industry, a great variety of products, and even potential exports which will grow hand in hand with the new dollar exchange rate. The country has the chance to reinforce its diversification and start an era of economic growth, especially under the leadership of the infrastructure sector, which will prove to be very dynamic in the short term. This sector represents a great way to overcome this global situation of general slowdown.

Colombia is expecting to enter the OECD in 2016. What could the country learn from this organization, and what could it contribute to the rest of the member countries?

The fact that the OECD had looked upon Colombia favorably is really remarkable. These international connections have not only been favorable from the point of view of access to the international capital market or new markets for our products, but also for fixing international standards into our economy. From accounting to the economic rules we apply, they all comply with the standards that our foreign investors expect. Our goals are also oriented towards equality; it's no secret that these stages of development are sensitive and can lead to processes of concentration. To be connected to an organization like the OECD will definitely help alleviate that risk.

2015 will be a milestone if peace is finally established in the country, after more than five decades of conflict. What role does the private sector play in the peace process and in the post-conflict era?

The fact of having lived through 50 years of conflict means that we have had to assume a series of costs, and we have some severe scars. This means that we can't overlook the difficulty of the Colombian culture to create the required environment for the peace process, which of course implies a huge psychological and moral effort for large segments of our society.

However, the private sector has to be a bastion for peace. Private entrepreneurship will be a fundamental element in the process that will unfold after the signing of the peace agreement, when we start to incorporate people and areas that have been virtually outside the reach of the state, the economic development, and the entrepreneurial activity.

The country is carrying out the most ambitious infrastructure works in its entire history. How do you think this will affect the economy, the financial sector, and the companies that will take part in this huge project?

This is obviously a project that we need to develop, and it was highly demanded by the population. If you look at our country's topography you will notice that it's not easy to develop infrastructure here. The bulk of its economy and population is located in an area that includes not one, but actually three mountain ranges, because the Andes divides into three when it enters the Colombian territory. To tackle this project for the development of infrastructure is a huge challenge, for the financial sector as well as the construction sector. We must be able to provide the financing for this great benefit, and we must work on quality development – that's our big commitment as a nation. The development of infrastructure has a really high multiplier effect, so that's why it makes a lot of sense that the government is investing in that sector, because it's extremely profitable.

Infrastructure projects are usually financed by development banking or through the issuance of debt. In Colombia, the private banking sector is assuming this responsibility and making billions of dollars available. In order to make the investment easier and more attractive, the government has modified the legal framework. What's your opinion on the new laws, the Public Private Association Law and the Investment Law? What challenges do you identify when it comes to the financial aspects of these projects?

Colombia has been very careful in selecting the institutional infrastructure required for these sorts of projects. The Agencia Nacional de Infraestructura (National Infrastructure Agency) and the Financiera Nacional de Desarrollo (National Development Financer) have been very positive institutions in this process. The government allowed these two agencies to be created with the spirit of a private company, promoting the partnership with institutions such as the International Finance Corporation (IFC), or the Sumitomo Mitsui Banking Corporation (SMBC) from Japan. The private company concept is the one that prevails in its decision-making process, and they have the hard task of structuring the project in a way so that the country's commercial banks and the capital market can participate in its financing. These kinds of projects require long-term investment, with different stages, and where different segments of the financial sector must take part.

One of the distinctive features of the Colombian banking sector is that it is dominated by local capital, unlike other countries in the region. Is this an advantage or a disadvantage?

It's an interesting feature of the financial market, the fact that the local banks are maintaining their control over the national banking system. It has many positive effects, for instance, on how the Colombian banking has defended its market in a very effective manner. This characteristic is not the product of having regulations against competition; on the contrary, the local financial sector is particularly open to international competition. The Colombian banking sector is very transparent and with really high standards. These are banks that stand out in the region because of their good management.

Even though you are not exactly working in banks anymore, for 15 years you have worked on the growth of the Bancolombia Group: you managed to internationalize it and list it in the New York Stock Exchange (NYSE). Which moment brought you greater satisfaction during your work with Bancolombia?

The satisfactions were countless. Indeed, having listed the bank in the NYSE in 1995, when Colombia was famous for everything except its good economy and financial sector, was very satisfying. The fact that the capital market was able to appreciate an institution from Medellin, a bank that was small back then, and consider it as a suitable destination for investment, was indeed a big challenge. Another event was the consolidation of Bancolombia as the most successful universal bank in the region. It was very important for the development of the country to have a consolidated universal bank, one that provides every kind of financial service.

In your opinion, how did the listing of Bancolombia in the NYSE affect the relations between Colombia and the United States?

Entering the international market through the NYSE is a way of acknowledging that the good relations between the two countries are a truly important element in terms of development. We have benefited from that access into the US market to sell our goods, and were able to get financing in an extraordinary way. To access the NYSE means, for a company from Colombia, to access an unlimited volume of resources.

During 2014 some financial institutions from the US have benefited from gaining clients from Latin America. According to a research by Daniel Murgo, economy professor at the Florida International University, “Many people in Latin America prefer, for several reasons, to keep their savings and investments in the United States, especially in Miami”. On the other hand, according to a Fitch Ratings report, in 2015 the banks from Colombia and Peru are among the strongest in Latin America. If Colombia has one of the most solid financial sectors in the continent, why do people chose to save and invest in the US?

I think that's very positive. People talk about capital flight or brain drain, but I think these are the wrong ways to put it. Neither capital nor brains leave a country because they'll be performing abroad for a while. On the contrary, the resources invested by Colombians abroad represent the main source of potential resources for the country. They are the first to respond to the opportunities presented.

It's the same with the human resources, those who have the possibility of working or studying in different economies, when they come back to the country constitute an enormous wealth, they bring with them a lot of innovation and experience. You can't constrain the capital, that's a mayor disincentive.

As you know, we will be publishing through The Worldfolio magazine in the G20 and the B20 summits. One of the topics to be addressed is the global expansion of SMEs, the biggest generator of employment in the countries, and the encouragement of entrepreneurship as a way to promote economic growth. What are the challenges and opportunities in Colombia?

We already have an important entrepreneurial richness concentrated in our SMEs. Obviously we want the SMEs to become big companies. To achieve this, we have to promote a way of development for these companies to reach their goals. SMEs and family businesses are essential for the continued growth of the country, because they are the fuel of the economy; they are the employment creators that are needed in order to improve. Besides, Colombia nowadays is incorporating mechanisms of innovation, of technological development and upgrading its companies, and because of that we need more and more of these kind of companies.

Pablo Picasso said that the quality of an artist depends on the amount of past he brings with him. Medellin is, without a question, a city with a significant past. What experience and moments have shaped this dreamlike city?

Medellin has elements that turn its past into a valuable asset in order to create sustainable development for the future. For example, during the latter half of the XIX and early XX century, in Medellin and Antioquia there was a process of accumulation based on the mining sector, which allowed for the consolidation of the capitals that later gave rise to the development of trade and industry. During those years, Colombian mining companies invested their capital in the European stock exchanges, something that wasn't done again until Bancolombia was listed on the NYSE. The mining industry was the breeding ground that created the necessary entrepreneurship for the development of big companies in sectors like trade, infrastructure, and oil exportation.

Which was the most important lesson you learned from Dr. Jorge Molina Moreno?

For me he was an unparalleled teacher and mentor. I think he thought all of us in Medellin had two very important strengths: the ability to administrate and understand complex companies; and the humbleness, the ability to accomplish everything with total discretion, without running over anybody, and always thinking about the community. He was an extremely valuable person for us.