Colombia's banks in strong position, M&A and new entrants on the horizon, regulator says

BOGOTA, May 10 (Reuters) - Colombia has the right conditions for mergers and acquisitions in its banking industry, as well as new players, despite a wave of quarterly losses, and the country plans to refine regulations and improve procedures to expand the sector, its top regulator told Reuters.

Banks operating in the country saw profits fall by half to 925.4 billion Colombian pesos ($238.1 million) during the first two months of 2024, with 12 out of 29 banks reporting losses amid high interest rates and stubborn inflation.

However, even as loan portfolios have deteriorated, banks remain healthy with solvency indicators higher than demanded by authorities, said Cesar Ferrari, head of Colombia’s financial services regulator.

"When you look at the figures of the banking system, this is a system that has many possibilities. It must surely experience some mergers, some new entries," he said in an interview late on Thursday.

Ferrari has met executives from a number of international and domestic banks interested in buying others, but declined to name names.

"There's all sorts. There's a mix of Mexicans who are buying a bank ... and there are Colombians too," he said adding that one major bank had expressed a willingness to merge with others or buy assets and liabilities as needed.

Ferrari said the regulator is working on a number of projects, including refining rules to eliminate excess regulation, digitizing oversight, and evaluating emerging risks like climate issues, social change and cybersecurity.

A modification to financial licenses would empower financial services companies to transition to being banks without incurring additional costs.

"Let's eliminate this barrier to the entry for new financial entities," he said. "We want financial development in Colombia ... which means we have to make the cake bigger."

Ferrari ruled out any negative impact on the financial system due to tense politics amid difficulties for the government of President Gustavo Petro, which is struggling to pass its flagship social and economic reforms in Congress.

"The political whirlwinds are circumstantial, and they are not based on realities, but simply subjective points of view. The realities are what we see in the numbers, and those do not deceive," he said. ($1 = 3,887.3600 Colombian pesos) (Reporting by Nelson Bocanegra; Writing by Oliver Griffin; Editing by Jonathan Oatis)