Year: 2012

When Chile’s oldest private bank decided to expand into the Colombian market last year, it was seen as a sign of the growing confidence in Latin American banks. It also reflected the emergence of Colombia as a country that was ready to build upon the previous decade of economic growth and welcome international investment. The deal saw Chile’s CorpBanca buy a 92 percent controlling stake in Banco Santander Colombia. Originally agreed in December 2011, it was confirmed in June after the bank raised $530m in a share issue. Worth up to $1.1bn, the acquisition is the bank’s largest foreign investment to date and makes them the first Chilean firm to own a foreign bank subsidiary. It will also give them around a three percent share of the Colombian banking sector.

CorpBanca has operated in Chile since its inception in 1871. Originally formed as Banco de Concepcion, the bank became known as CorpBanca in 1997 after a restructuring of the business. New strategic definitions and a refocus towards personal financing, middle-income and medium-sized companies has allowed CorpBanca to compete with
Chile’s largest institutions.

Today, CorpBanca offers a wide range of commercial and retail banking services, as well as financial advisory services, mutual fund management, and insurance and securities brokerage services through a number of subsidiaries. In 2004, the bank was listed on the New York Stock Exchange. Operating out of Santiago, the bank has built a staff of nearly 3,500 employees and operates almost 120 branches throughout Chile.

Gaining a foothold
Expansion of the business into other markets is something that CorpBanca has been eager to pursue. Within the region there are a number of markets that have grown, while others have suffered.

In a statement upon the confirmation of the Banco Santander deal, CorpBanca released a statement saying: “With this acquisition, CorpBanca aims at supporting Chilean companies in their expansion through Latin America and participating in the growing Colombian banking industry, one of the most attractive in the world.”

“The blocks could easily draw hundreds of millions of dollars. We have the conditions to guarantee investment.”

Taking over Santander’s operations in Colombia was seen as the perfect way for the CorpBanca to gain a significant foothold in this growing country’s banking sector. Santander’s assets in Colombia were more than $4bn at the time. It expects to grow the business over the coming years, and hopes to double the market share by 2015.

Many foreign investors have been looking to get a holding in the Colombian financial sector in recent times, with a record $7.56bn spent on acquisitions 2011; five times more than 2010’s figure. By contrast, Northern America saw a drop of 8.9 percent in these transactions, according to Bloomberg. Such deals include Scotiabank’s purchase of Colpatria for $1bn in October last year.

Colombia forms part of a new wave of emerging economies that investors are eager to tap into. The so-called CIVETS, representing Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, have caused much excitement from international investors as a result of their diverse economies and rapidly growing young populations. These economies also benefit from comparatively stable financial systems, controlled inflation, and an abundance of natural resources.

Moving on from the past
The growth in the financial sector in Colombia has been fuelled by a stabilisation of the political climate, which has seen an emergence of pro-business politicians eager to open the country up to trade. Alongside the rise of this more business-focused governing class, there has also been a steady drop in the crime rate, which blighted Colombia’s attractiveness to international business in the past. The country suffered over 40 years of trouble with terrorist groups, mostly as a result of a drug trade that successive governments failed to control. However, as a result of policies launched in 2003, crime has dropped, confidence has grown, and this has resulted in foreign investment growing five times during this period.

With South America notoriously susceptible to financial crises over the years, it is interesting to see the region proving so attractive to investors from more developed nations that are currently suffering crises of their own. Part of the reason for this is the experience that countries like Colombia have gained from such crises. It has developed a robust regulatory environment that was born out of the county’s own banking crisis during the 1990s, while consolidation of the major banks over the last decade has resulted in stronger institutions with better corporate governance.

Alejandro Santo Domingo, whose Santo Domingo Group entered into an agreement with CorpBanca in December 2011, and has already invested $100m into the company in order to help it grow both in Chile and Colombia, said in a statement that the country is an attractive new proposition for investors: “Colombia has financial regulation that has given the sector order, security and strength, and it has some sophisticated and professional players with whom there is an important challenge for new banking competitors.”

According to Finance Minister Juan Carlos Echeverry, the country was prepared for international crises because it had been saving during recent years in anticipation of such a slowdown. He said that the government needed to maintain a strategy to help its sectors continue to grow, telling reporters recently that much still needed to be done: “We can’t be complacent. We need measures that help the economy in precisely the next six or 12 months. Sectors where such measures must be more effective are agriculture and industry. I see other sectors growing as well.”

Improving infrastructure
Jaime Munita, the man in charge of CorpBanca’s Colombia operations, says the country presents a number of different opportunities for investors, including capital markets, pensions, real estate and infrastructure. He says that a growing mid-income population means there is an increasing amount of people that require banking services, something that had been relatively untapped in the past. Infrastructure is a particular area that CorpBanca is looking at, as much of the country’s network is severely undeveloped.

Munita believes that a huge amount of investment is required, and CorpBanca are in a good position to help facilitate that, not least because of their relationship with Chilean firms that have experience in large infrastructure projects.

The opportunities in this sector are evident from a World Economic Forum report that placed Colombia 79th out of 139 countries in terms of developed infrastructure last year. The Colombian government, led by President Juan Manuel Santos, announced last year a national infrastructure investment plan that included a 10-year investment of $55bn aimed at improving the country’s creaking transport network.

In a recent interview, Echeverry said that the government was determined to turn its focus to improving the undeveloped infrastructure of the country. “For 30 years, Colombia has not paid attention to its infrastructure. We paid attention to education, healthcare and pensions – and the war. Now we are getting back to building the infrastructure.”

According to Munita, the advantage that countries like Colombia and Peru currently possess is a higher level of liquidity than other emerging economies, with each country willing to invest in one another. Local banks are also at an advantage over their international competitors because of their knowledge of the region and lack of exposure to far-away crises. The country is steadily seeing the “bankerisation” of its 50 million population, says Munita, with a growing middle class providing the banking industry with many opportunities. In fact, since accounting for just 15 percent of the population in 2002, the middle class grew to 28 percent in 2011, according to a social mobility study by Bogota’s Andes University.

Natural resources
Colombia is also at an advantage from its oil and gas reserves, producing the third-largest amount of oil in South America. Earlier this year, the country sought $500m in investment into the exploration of gas trapped in shale rock. The government’s Hydrocarbons Director, Julio Cesar Vera Diaz, pointed out the massive potential in March: “The blocks could easily draw hundreds of millions of dollars. We have the conditions to guarantee investment.”

CorpBanca expects to grow further into Colombia with more strategic acquisitions. It is rumoured to be looking at buying a stake in Helm Bank, Colombia’s highest-performing stock in 2012. It currently has a market share of around 4.2 percent in Colombia, and would offer CorpBanca further expertise in the corporate and business lending parts of their business. The bank is also said to be looking into purchasing a brokerage firm in Colombia, further strengthening its offering in the country. This expansion shows that CorpBanca is serious about developing its presence in Colombia, and is a vote of confidence for a country that is slowly emerging as a leading player among the new wave of emerging markets.