Structure of the Colombian financial sector 2002
COLOMBIAN FINANCIAL SECTOR
Index
1. Introduction
2. Structure and organization
3. Products, services and lines of financing offered by financial institutions in Colombia
4. Control entities of the Colombian financial sector
5. Institutional Objectives
6. National Planning
7. Bank Of The Republic
1. Introduction
The Colombian financial sector is made up of public and private entities that carry out activities related to the management, use and investment of the country's collection resources.
There are 4 types of entities like this:
Financial institutions
Exercise
Capture in public currency resources in demand or term deposits, to place them through loans for housing, construction or for free consumption, discounts, advances or other credit operations.
Entities that make it up
• Commercial and mortgage banking establishments (eg Banco de Occidente, Banco de Bogotá, Banco Popular, etc.)
• Financial corporations
• Savings and housing corporations
• Commercial finance companies (finance trade)
• Cooperative organizations of a higher degree and of a financial nature (the client becomes a saver and partner)
Other Financial Institutions
Exercise
They stimulate savings through the constitution of money capitals in exchange for single or periodic disbursements, with the possibility of early reimbursements through drawings.
Entities that make it up
Capitalization companies (raise money through CDT's and bonds and place it in investment projects)
Financial Services Societies: They do not collect massive public money, they work with their own capital and manage the money they receive from their clients.
Entities that make it up
• Trustees (Manage assets and investments, can receive letters, changes or money orders)
• Financial leases: Leasing (leasing of machinery or real estate in which the first purchase option is obtained by the client. Eg: Western Leasing)
• Factoring (they buy client portfolio and take charge of collecting them)
• General warehouses for deposits (they conserve, manage, distribute and safeguard the merchandise and the purchase - sale of their clients)
Insurance entities and insurance intermediaries
Exercise
Assume the losses that are protected as risk, by virtue of an insurance contract to cover eventual claims suffered by its clients
Entities that make it up
• Insurance companies and reinsurance companies or cooperatives
• Insurance Agencies
Societies That Have A Special Regime
Exercise
Perform development credit functions, in accordance with the specific purposes contemplated in the law that created them.
Entities that make it up
• Finagro
• IFI, FEI, Bancafé, FINDETER, ICETEX, BANCOLDEX, FONA
Below it will be shown that each of these Special Regime financial entities is dedicated.
Finagro
The Fund for the Financing of the Agricultural Sector, FINAGRO, was founded on January 22, 1990, as a felt need of the Colombian rural sector, which required an autonomous and specialized entity to manage credit resources, dispersed in various agencies that assigned them as a complementary variant of macroeconomic policy, basically in the hands of the Banco de la República
2. Structure and organization
Law 16, of January 22, 1990, created, first of all, the National System of Agricultural Credit, SNCA, whose main objectives are: the formulation of credit policy for the agricultural sector and the coordination and rationalization of the use of its financial resources and, as a key entity, FINAGRO itself.
The SNCA is comprised of: FINAGRO, the banks, livestock funds and other financial entities whose main objective is the financing of agricultural and forestry activities. The SNCA administration will be in charge of the National Commission of Agricultural Credit, integrated by the Minister of Agriculture, the Head of the National Planning Department, the Manager of the Bank of the Republic, two representatives of the President of the Republic, a representative of the entities that make up the National Agricultural Credit System. The Technical Secretariat of the National Commission of Agricultural Credit is exercised by FINAGRO.
FINAGRO's management and administrative bodies are: The shareholders' meeting, the board of directors and the president, who is its legal representative.
Credit lines
FINAGRO offers lines of credit for Working Capital with a maximum term of 24 months to finance up to 100% of the direct costs of labor, technical assistance, acquisition of supplies, water, energy and hiring of specialized services required for the proper execution of productive activities.
The medium and long-term maturation projects are financed through the Investment lines, executed with the aim of increasing the formation of gross fixed capital in the agricultural sector (civil works, acquisition of machinery and equipment, purchase of breeding stock for livestock farms, establishment of medium and late yield crops) to increase the competitiveness of production and increase the profitability of the rural business.
The term and the grace period will be in accordance with the cash flow of the productive activity.
Industrial Development Institute
The Industrial Development Institute -IFI- is a Mixed Economy Society of the National Order dedicated to financial activities and linked to the Ministry of Economic Development.
It supports the country's economic and social development through business credit and venture capital investment, and through its subsidiaries, FIDUIFI and IFILEASING, offers trust and financial leasing services.
To carry out these financial operations, the Institute captures resources in the national capital market through issuance of a Term Deposit Certificate (CDT's) and General Guarantee Bonds. In international markets, loans are obtained from Multilateral and Commercial Banks and through Eurobonds. To access these markets, the IFI has the country risk rating given by Standard & Poor's, as BBB- and by Duff and Phelps Co. BBB.
In January 1998, we have been selected by the Ministry of Finance and Public Credit as a market-creating entity in order to settle public debt through Treasury Securities (TES).
Bancoldex
This bank is a joint-stock company with a mixed economy, supervised by the Colombian Ministry of Foreign Trade, the national government being its largest shareholder. It operates in Colombia as a rediscount bank, offering financial products and services to companies related to Colombian foreign trade.
It is a financial instrument of the Colombian state by supporting the Strategic Export Plan.
BANCOLDEX offers Colombian entrepreneurs a comprehensive financing scheme, which allows meeting all the financial needs required at the different stages of the production and marketing chain of services related to foreign trade. It offers and lends its resources through rediscount operations through previously authorized financial intermediaries.
customers
Natural and legal persons are beneficiaries of the resources, as follows:
- Direct Exporters (Companies dedicated to directly producing and selling services in the foreign market)
- Indirect Exporters: (Companies that produce or import raw materials, goods used in the manufacture or marketing of export products and services)
- Importers (Companies not related to the export chain, that import raw materials or supplies)
- Partners or Shareholders (of direct or indirect exporting companies, when they require financing capital contributions)
- Financial Intermediaries (Like banks, Corporations)
Icetex
Colombian Institute of Educational Credit and Technical Studies Abroad, is a public establishment of the national order attached to the Ministry of National Education.
goals
Facilitate students access to the best training programs in the country and an increasing number of study opportunities abroad, in institutions of recognized international prestige.
Obtain investment financing alternatives, with the participation of the nation, the departments and the municipalities; the productive sector, higher education institutions, private savings and international cooperation.
Products And Services Portfolio
ICETEX offers the following:
- Educational Credits (as credit reimbursement, offering three modalities: short, medium and long term)
- International Scholarships
- Funds in Administration (ICETEX is depositary of funds to finance the training of human resources, granted by the public and private company; at the same time it coordinates the use of these funds to improve training opportunities in the country and abroad)
- TA E (Title value that allows anyone to save to fully or partially insure the costs of higher education in the country or abroad)
- Counseling (guides and advises people who wish to pursue studies in another country)
- Complementary Services (discounts on tickets and / or exemptions on departure taxes)
- Services for companies
Findeter
The Financiera de Desarrollo Territorial SA FINDETER, is a second-tier bank that operates under the regime of state industrial and commercial companies, attached to the Ministry of Finance and Public Credit, and its purpose is to contribute to improving the quality of life of Colombians through the strengthening of territorial entities through the competitive granting of credit resources and technical assistance for the execution of sustainable investment projects over time.
Features
1. Rediscount credits to Territorial Entities, to their decentralized entities, to metropolitan entities, to associations of municipalities, among others.
2. Capture internal savings through the issuance of Securities and the subscription of other documents, as well as enter into internal credit contracts
3. Receive deposits from public entities
4. Hold external credit operations
5. Directly manage the issuance of securities and enter into trust, guarantee, agency or payment contracts.
6. Enter into fiduciary contracts to manage the resources transferred by the Nation or other public entities.
7. Acquire, negotiate or sell movable or immovable property
8. Turn, accept, endorse or negotiate securities
9. Cancel labor liabilities and the costs of executing employee retirement plans.
10. Grant financing to officials and workers.
3. Products, services and lines of financing offered by financial institutions in Colombia
Financial Institutions, such as CAVs and Banks, offer the following products to the Colombian market:
Deposits: They belong to the entity's liabilities, allowing it to receive resources from the public and in return it pays them a return generated by an established interest rate. They offer products such as Savings Accounts, Checking Accounts and CDT´S.
• Savings Accounts: They are offered interchangeably in CAVs and Banks. They are created with the purpose of perceiving resources whose reciprocity is the pre-established interest that is generated. There are a number of types of savings accounts that vary according to the financial institution.
• Checking Accounts: They are offered only as a financial product of Banks, which is used by issuing the security, called a check. It does not generate interest.
• CDT'S: It is a certificate expressed in pesos, which supports a deposit and is redeemed within an agreed period between the Corporation and the client, generating the returns caused according to the agreed interest rate. They are carried out in pesos, in days or months, generating a value of free negotiation in the capital market, it is irredeemable until the expiration date, with a minimum amount of appeal established according to the entity.
• CAPITALIZATION: Liquidation of the capital initially invested plus interest at the expiration of the term agreed upon at the time of opening.
• PROFITABILITY: Settlement of interest in expired or anticipated periods, while the initial capital remains until the maturity of the title.
There is another variation of Fixed Term Deposit Certificates known as the CDAT, which is a savings contract expressed in pesos, whose payment of returns is due. Despite their broad resemblance to CDTs, they are not considered securities, therefore they cannot be traded. Its term is a term not greater than 29 days.
PLACEMENT: they belong to the assets of the entity, allowing the entity to supply the medium and long-term credit needs of the clients. There are generally 4 varieties of credit:
1. Mortgage Credit Allows the client to build, buy or reform a property intended for housing or other than housing. When the loan is granted, the property is mortgaged in the first degree in the name of the financial institution as collateral for the debt, hence the name of the credit. They present an interest rate of UVR + additional fixed points, managing terms, when they are for home purchases between 5 and 15 years, and when they are free investment from 5 to 10 years. This type of credit is handled almost exclusively by CAVs as specialists in this field.
2. Consumer Credit Free investment loans are handled by Banks as specialists in this type of credit. There are 3 main modalities:
- Fixed Term: It is a consumer credit for natural persons, granted for a fixed term with an admissible guarantee or source of payment. It manages fixed monthly installments, managing periods of minimum 6 months, maximum 36. The interest rate handled by these credits is effective.
- Libranza: It is a consumer credit, whose support is a libranza or authorization to discount the value of the credit of the payroll and social benefits. It manages fixed installments, with an effective interest rate and a period between 6 to 36 months. The collection of the fee is through the company's payroll, being the same, in charge of making payments to the financial institution.
- Credit Card: It is a revolving credit modality with a fixed amount by the issuer, which allows the consumer to make purchases of goods or services and pay in installments. Additionally, you can make advances in cash and ATMs. It manages an annual effective interest rate.
3. Business Credit: It is a credit offered to legal entities. This type of credit is also traditionally managed by Banks, although CAV'S are currently venturing into this type of credit. Among other modalities we find:
- Ordinary Portfolio: It is a credit to meet the needs of working capital and capital investment in companies. It is managed with rotating quotas, whose term is maximum up to one year as working capital, and between 3 and 7 years for a specific operation. Manages a DTF interest rate + additional fixed points.
- Treasury: It is a credit to attend to situations of momentary illiquidity and that do not replace ordinary portfolio operations. They handle terms of 30, 60 or 90 days. Up to 30 days it handles an interbank rate + additional fixed points, and from 31 days to 90 it handles a DTF rate + additional fixed points.
4. Builder Credit: It is the financing granted only to legal persons, whose economic activity has as its main objective the Construction of real estate for sale or for its own use. The terms that are granted depend on the duration of the work + additional months for the sale (in total approx. Between 12 and 18 months). There is within this credit the VIS Credit (Social Interest Housing) modality, which is managed with a UVR rate + additional points.
4. Control entities of the Colombian financial sector
Banking Superintendency
Function
The Banking Superintendency is a technical body attached to the Ministry of Finance and Public Credit which, in its capacity as the supervisory authority for financial, insurance and pension activity, is in charge of fulfilling the following objectives:
• Ensure public confidence in the financial, insurance and pension system, and ensure that the institutions that comprise it maintain permanent economic strength and appropriate liquidity ratios to meet their obligations;
• Supervise comprehensively the activities of the entities subject to its control and surveillance, not only with respect to compliance with financial rules and regulations, but also in relation to exchange rate provisions;
• Supervise the activities carried out by the entities subject to its control and surveillance in order to ensure the adequate provision of the financial, insurance and pension service, that is, that its operation is carried out in conditions of safety, transparency and efficiency;
• Prevent unauthorized persons, in accordance with the law, from exercising exclusive activities of the supervised entities;
• Prevent situations that may lead to the loss of public confidence, protecting the general interest and, particularly, that of bona fide third parties;
• Comprehensive and consolidated supervision of compliance with the prudential supervision mechanisms that must operate on such bases, particularly with respect to subsidiaries abroad of credit establishments;
• Ensure that in the performance of the inspection and surveillance functions, adequate attention is given to monitoring compliance with the regulations issued by the Board of Directors of Banco de la República;
• Ensure that the entities subject to its supervision do not engage in restrictive free market business practices and carry out their activities subject to the rules and practices of good commercial faith, and
• Adopt inspection and surveillance policies aimed at allowing supervised institutions to adapt their activity to the evolution of sound practices and technological developments that ensure their proper development.
5. Institutional Objectives
Risk control
The priority of the Banking Superintendency should be oriented to the early detection of the different risks, both financial and operational, and of the payment system. This, in order to maintain the stability of the financial system and ensure that crises - individual or systemic - do not prevent the sector from fulfilling its functions.
Strengthening the supervision of the entities under surveillance
The backbone of the Banking Superintendency is the inspection area which should be in charge of strengthening the supervision scheme to be developed directly by the entities. Based on adequate desk supervision instruments (off-site), alerts should be established to prioritize the supervision work directly on the entities (on-site).
Information Transparency
Clients in the sector must have adequate information on prices and qualities of the services offered. The provision of information must be timely, reliable and accurate on the part of both the Banking Superintendency and the entities under surveillance.
Transparency and Control of Conflicts of Interest
Establish necessary rules to ensure public confidence in the financial, insurance and pension system, and promote equal conditions between intermediaries.
Set clear rules of conduct that prevent the generation of situations in which the security, equal opportunities and competitiveness that must prevail in the market are really or potentially affected.
Consumer protection
A competitive and efficient financial sector must benefit its users. In turn, they must clearly know what their rights and obligations are vis-à-vis the sector.
Organizational structure
The Banking Superintendency has an organizational structure in accordance with the type of entities that it is required to monitor, made up of three (3) areas of supervision: Pensions and Unemployment, Insurance and Capitalization and Financial Intermediation, which will operate through five (5) Delegations, which in turn are divided into technical directions named according to the areas of supervision
The municipalities attached to the Offices of the Delegated Superintendents were abolished, being called Technical Directions.
The Banking Superintendency will be directed by the Banking Superintendent, together with the Delegated Superintendents.
The Banking Superintendency according to Decree 2489 of December 15, 1999, will have the following organic structure:
Office of the Bank Superintendent
Office of Internal Management Control
General Secretary
Delegations
Office of the Delegated Superintendents
Delegation for Intermediation One
Delegation for Intermediation Two
Delegation for Intermediation Three
Delegation for Insurance and Capitalization
Delegation for Entities Adm. Pensions and Unemployment
Legal Office
Technical Office
Delegation for Financial Intermediation One
Technical Direction Intermediation One «A»
Technical Direction Intermediation One «B»
Technical Direction Intermediation One «C»
Delegation for Financial Intermediation Two
Technical Direction Intermediation Two «A»
Technical Direction Intermediation Two «B»
Technical Direction Intermediation Two «C»
Delegation for Financial Intermediation Three
Technical Direction Intermediation Three «A»
Technical Direction Intermediation Three «B»
Technical Direction Intermediation Three «C»
Delegation for Pensions and Unemployment
Prima Media Technical Management
Technical Directorate for Individual Savings
Trustees Technical Directorate
Delegation for Insurance and Capitalization
Technical Directorate of Insurance One
Technical Directorate of Insurance Two
Legal Office
Sub-Directorate for Conflict Resolution, Complaints and Customer Service
Regulation and Consultation Branch
Legal Control Branch
Subdirectorate of Judicial Representations and Legal Issues
Technical Office
Subdirectorate of Computing
Systems Division
Operations Division
Development Branch
Statistics Division
Organization and Methods Division
Actuarial Branch
Financial and Risk Analysis Branch
General Secretary
Administrative and Financial Subdirectorate
Financial division
Administrative divition
Human Resources Branch
Advisory and Coordination Bodies
Advisory Board
Coordination Committee
Internal Control Committee
Communications Consulting
Personnel Commission
Procurement and Tender Board
The supervision areas will be directed by the Delegated Superintendents. The Banking Superintendent will indicate the number of mayors in each supervision area
Watched
It is responsible for the surveillance and inspection of the following entities.
(Historical of Minimum Capitals)
- Credit establishments
They comprise the following classes of financial institutions: banking establishments, financial corporations, savings and housing corporations, commercial finance companies, and financial cooperative entities.
Credit institutions are considered to be financial institutions whose main function is to capture in public currency resources in deposits, at sight or at term, to place them again through loans, discounts, advances or other active credit operations.
- Insurance Sector
The insurance sector in Colombia is made up of the following types of entities:
1) Insurance entities. Insurance companies are insurance companies and cooperatives and reinsurance companies.
2) Insurance intermediaries. Insurance brokers are insurance intermediaries, as well as insurance policy-setting agents and agencies.
3) Reinsurance intermediaries. Reinsurance brokers are reinsurance intermediaries.
- Financial services
Financial service companies are trust companies and general deposit warehouses whose function is to carry out the operations provided for in the legal regime that regulates their activity.
Financial services companies have the character of financial institutions.
- Pension Sector
Administrators of Pension and Severance Funds
Administrators of the Average Premium Regime with defined benefit
Administrators of the Individual Savings Regime with Solidarity
- Capitalization companies
They are financial institutions whose purpose is to stimulate savings through the constitution, in any form, of specific capitals, in exchange for single or periodic disbursements, with or without the possibility of early reimbursements through drawings.
- Foreign exchange market intermediaries
Foreign exchange market intermediaries are commercial banks, financial corporations, savings and housing corporations, commercial finance companies, the national energy finance company -FEN-, and Colombia's foreign trade bank -BANCOLDEX- and exchange houses..
Notwithstanding being foreign exchange market intermediaries, savings and housing corporations and commercial finance companies may only carry out all the operations authorized to foreign exchange market intermediaries when their minimum amount of paid-in capital and legal reserve reaches the minimum amount that must be accredited for the constitution of a financial corporation. Otherwise, its operations will be limited to those established in Chapter II, Title II of Resolution 21 of 1993 of the Board of Directors of Banco de la República. The exchange offices may only carry out the expressly authorized operations.
- Special Official Institutions
Banco de la República, Financial Institutions Guarantees Fund, Foreign Trade Bank, Development Projects Financial Fund, FINDETER, National Energy Finance, FINAGRO, ICETEX, National Savings Fund.
Conpes
National Council for Economic and Social Policy. This entity defines the guidelines and programs from which the executive develops its policies and works for economic and social development. It is an advisory, study and evaluation body that analyzes and determines the actions to be followed and that identify socio-economic policies.
The government establishes in CONPES the goals in terms of economic growth and, in accordance with these projections, defines the strategies to be followed, establishing guidelines to which the various ministries and agencies that depend directly and indirectly on the head of state must comply.
6. National Planning
Decree 2410 of 1989 restructured the National Planning Department, thus:
"The DNP, as an institutional body, and the CONPES as the main advisory body of the administration, constitutes the conduit through which the President of the Republic exercises his function as the maximum guide for national planning"
Features:
- Formulates the National Plan for Economic and Social Development. He directs the preparation and control of the general budget of the Nation regarding investment expenses.
- Prepares and coordinates, with the collaboration of the pertinent organisms and entities, policies, plans, programs and projects related to productive activity and private investment.
- Prepares, together with the Ministry of Finance, the financial plan for the public sector.
Treasury
It corresponds to the Ministry of Finance and Public Credit to formulate and develop on behalf of the national government the policies of the State in fiscal, tax, customs, public credit, budget of income and expenses, treasury, exchange, monetary and credit matters, without prejudice to the powers conferred on the board of directors of Banco de la República.
Among the general functions assigned to this portfolio are:
• Set the policies that correspond to the State in the regulation of financial activities, stock markets, insurers and any other related to the management, use and investment of resources obtained from the public
• Exercise supervision and inspection of the persons who carry out the aforementioned activities through the Banking and Securities Superintendencies, in the manner indicated by the Political Constitution and the law.
Development Ministry
The following tasks correspond to this Ministry:
• Participate in the formulation of economic policy and economic and social development plans and programs.
• Formulate government policy in the branches of industry, industrial technology, internal trade, tourism, urban development and social housing.
• Collaborate, together with the Ministry of Finance, in the formulation of tax policy.
Ministry of Foreign Trade
Body in charge of directing, coordinating, executing and monitoring foreign trade policy.
Features
- Direct, coordinate, execute and monitor the foreign trade policy of goods, services and technology in accordance with the economic and social development plans of the country, and guarantee its proper execution.
- Determine the scope of the international trade agreements signed by Colombia in interpreting the tariff and foreign trade provisions.
- Ensure the stability and proper application of incentive policies, rules and procedures.
- Promote the country's trade relations abroad and preside over the Colombian delegations in bilateral and multilateral foreign trade negotiations that the country leads.
Incomex
Colombian Institute of Foreign Trade. It works as a public establishment, with legal status, administrative autonomy and independent assets, in charge of executing foreign trade policy.
Features
• Exercise the policy of import and export of goods, technology and services within the general criteria established
• Keep the record of foreign trade, and in particular the imports and exports of national production, international prices, users of foreign trade and issue the relevant certifications.
• Investigate the international prices of import and export goods and services, to adopt the necessary measures to control their under-invoicing as soon as there is national production.
Fogafin
Financial Institutions Guarantees Fund, created by art. 1 of Law 117 of 1985, is an autonomous legal person, of public law and of a unique nature, subject to the supervision of the Superbank.
Its general objective is to protect the confidence of depositors and creditors in the registered financial institutions, preserving the balance and economic equity and preventing unjustified economic or any other benefits from shareholders and administrators causing damage to financial institutions..
Features
- Serve as an instrument for strengthening the heritage of the affiliated institutions
- Participate temporarily in the capital of the registered institutions
- Ensure that the registered institutions have the means to grant liquidity to financial assets and goods received in payment.
- Temporarily assume the administration of financial institutions, to achieve their economic recovery.
7. Bank Of The Republic
It is a legal person under public law, which functions as a state body, of constitutional rank, with its own legal regime, of its own and special nature, with administrative, patrimonial and technical autonomy.
the bank of the republic, shall exercise the functions of central banking, in accordance with the provisions contained in the Political Constitution and in this law. It will ensure the purchasing power of the currency
Most Important Functions
• It exercises exclusively and cannot be delegated the state attribute of issuing the legal currency consisting of banknotes and metal coins.
• As a banker and lender of last resort for public and private credit institutions, you may grant them temporary liquidity support, intermediate external lines of credit for their placement, provide fiduciary, deposit, compensation and money order services.
• It will manage international reserves in accordance with the public interest, for the benefit of the national economy and with the purpose of facilitating the country's payments abroad.
Most Important Attributions
• Set and regulate the fit of the different categories of credit establishments and, in general, of all the entities that receive demand, term or savings deposits, indicate whether or not their remuneration and establish the penalties for infringement.
• Regulate interbank credit to meet transitory liquidity requirements of credit institutions.
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