Approach to Recent Profits and Losses of Banks in Colombia.

The interest rates according to the entity in charge of supervising the banks, that the banks recognize for the 360 day CDTs fell as expected and as of june 28, they were the following for the banks with the largest assets in the financial system. In Bancolombia 10.75%, Banco de Bogotá 10.87%, BBVA 10.41%, Davivienda 10.39% and Scotiabank 9.8%. For their part, banks that have fewer assets recognized slightly higher rates, such as Bancamía 11.5%, Banco Unión 11.42% and Banco Contactar 11.2%.

In turn, the current bank interest rate corresponding to ordinary and consumer credit reaches 20.56% for that month of june. On the other hand, according to analysts, the difference between the rates they charge and the rates they recognize is the intermediation margin and the main source of profits for banks is bank credit. In this case for the month of june, the intermediation margin would be almost 10%, which is the difference between one and the other.

It should be noted that the highest rate in recent years for ordinary and consumer credit was 31.39% obtained in the month of april 2.023. For that date, the CDT rates were around 13%, so the intermediation margin was higher and reached 18% (we will return to this result later in this note).

The latest figures available from the entity in charge of financial supervision regarding banks' profits are those accumulated up to the month of april and it is observed that in total the banks had profits of $2.4 billion, but when detailed at the level of bank by bank, only one of them, Bancolombia, had a profit of $1.8 billion, followed in second place by Banco de Bogotá with $0.4 billion, Davivienda $0.2 b and Banco Agrario $0.1b. For the rest of the banks in that month there are banks with losses such as Banco Popular -$0.1 b, BBVA -$0.2 b, Bancamía -$0.1 b and also several other banks with losses but lower than the previous ones such as Scotiabank, Pichincha, Falabella and AV Villas.

From the above, the reason for the low profit or losses of the banks, except for a few that concentrate most of the profits, is fundamentally due to the recession in the country's economic activity, which presented reduced GDP growth of 0.6% and 0.7%. for the total year 2.023 and for the first quarter of 2.024 respectively. The recession of the previous year was greater than expected and the intermediation margin that was mentioned before for that year remained high due to the magnitude of the decline in the growth of the loan portfolio due to a drop in the country's own credit demand in recession as already mentioned. */

This recession shapes the economic activity of the country because although the result of the GDP for the year 2.023 is not negative enough to classify it as a technical recession, it is so low as to be considered as such because the country came from a higher GDP growth of more than 7 % in the previous year 2.022 (7.5%).

For the current year 2.024, after the official source revealed an economic monitoring index (ISE) of 5.5% for april, a second quarter is expected with results in terms of GDP higher than the first and so on, advancing during the year to end with a GDP growing in the end between 1.7% and 2%. This therefore leads to a recovery, during the second semester mainly, of the demand for credit (as an engine of the economy) and on the banks' side, a recovery in profits, including those that presented losses since there will be a greater placement of resources for credit, which will make it possible to overcome the effect that the lower level may have on the intermediation margin and thus obtain positive results expressed in higher profits.

In fact, given that during the current year 2.024 there will be a higher economic growth than the previous year and with the forecast of analysts and think tanks of a higher GDP growing 3% for the next year 2.025, it is expected that in these two years with the greater growth of the loan portfolio, the banks present profits in such a way that some exceed those of the year 2.023 and others that had losses make profits.

Analysts and bank officials knew that in periods of recession the bank portfolio stagnates or grows less with the consequent drop in profits, and they also know that when the economy grows or there are periods of boom that credit portfolio still grows significantly and thus profits increase.

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*/ According to the entity in charge of supervising banks, the loan portfolio went from growing 16.7% between 2.021 and 2.022 to growing only 2% between 2.022 and 2.023.