ANNEX II: Summary Assessments of Observance of Standards and Codes
The banking system comprises banks (including those specialized in housing finance, BECHs), finance corporations, commercial finance and leasing companies, and cooperatives of superior grade.
The current loan classification has five categories (A–E), with loans C–E considered higher risk ones (e.g., substandard, doubtful, and loss) and was introduced in 1999.
The gap ratio is calculated as the ratio of the cumulative three-month gap, excluding liquid assets to three months, to total liquid assets (defined as cash, interbank deposits and repos, and negotiable debt securities).
Based on the proportion of government debt securities in the securities portfolio, the core operational income (i.e., excluding valuation gains on government securities) to gross income was estimated as 82 percent versus the ratio of operating plus provisioning expenses to gross income of 63 percent.
It should be noted that most countries do not require capital against interest rate risk on loans held in the banking books as Colombia does.
These estimates are based on a model developed jointly by the Colombian authorities and the World Bank.
A survey by authorities revealed that financial institutions are only allocating about US$0.1 million on risk aggregation and stress testing versus US$1 million on credit risk (SARC).
Significant revisions of the legal framework were undertaken in the period 1999–2003 with a number of modifications of the Banking Law (Law 510 in 1999, Decree 1720, in 2001 and Law 795 in 2003) which raised minimum bank capital requirements for credit and market risk, in addition to providing the legal background for the early warning system, prompt corrective actions, and consolidated supervision. The Banking Law also sought to protect consumers and to diversify the supply of bank products (Article 7). In addition, the SBC issued regulations to define a new system of risk-based loan classification and provisions, encompassing specific and general provisioning requirements.
The definition of nonzero risk weights on banks’ holdings of government debt for capital requirement purposes—in line with Basel II—is an area where conflicting views may emerge.
In the aftermath of the crisis, 35 institutions were intervened and later on liquidated from 1998 to 2003, while 20 were voluntarily liquidated by their shareholders. Among the 14 institutions managed by FOGAFIN, 6 have been liquidated, 2 have been sold (the recent auction of Banco Aliadas earned 1.7 times book value), 2 have been merged, 2 are in an auction process, and 2 remain in the hands of FOGAFIN.
The ROSC is expected to be sent for IMF/World Bank proforma review around April 2005.
Joint comments of the Ministry of Finance and Public Credit, the Directorate General of Financial Regulation, the Banking Superintendency, the Superintendency of Securities, and the Banco de la República. Draft April 5 / 2005.
Due to the fact that GDP fell by 4.5 percent in 1998, this test uses more stringent economic growth assumptions than the one used by the mission.
Although it could happen in some individually institutions.
4 Disposable funds + Net Interbanking Funds + resale agreements - repurchase agreements - negotiable securities.
Obtained as the residual of Total Liquid Assets - Liquid Assets
6 Deposits + interbank + negotiable securities