A. Introduction

1. Like many emerging market countries, Colombia has been affected by the ongoing turmoil in global financial markets. The resulting decline in asset prices, depreciation of the exchange rate, and increase in financing costs have important implications for the balance sheets of both the public and private sector, including corporates.

2. The capacity of the corporate sector to respond to these shocks will depend not only on the size of the shocks, but also on the initial health of the financial sector at the onset of the crisis. In this chapter, we provide an assessment of financial sector indicators in the Colombian corporate sector, relying mainly on balance sheet and profitability analysis for a substantial number of firms. Foreign exchange exposure in 2007 is also analyzed for a smaller number of corporates. While the balance sheet and income statement analysis provides a good sense of the health of the corporate sector, it does not incorporate a forward-looking risk assessment from market participants. To address this, we also look at expected default frequencies (EDFs) under the Contingent Claims Approach (CCA), using Moody’s KMV data.

3. The analysis suggests that the Colombian companies are overall in good financial health. The Colombian corporate sector is well capitalized, leverage is relatively low, and liquidity remains adequate. Profitability of the corporate sector has improved over the years, thanks mostly to efficiency gains. Analysis for a selected number of firms suggests that corporates in Colombia have low foreign exchange risk, although additional information on derivative positions could help provide a more complete assessment. EDF analysis supports the conclusions of the balance sheet analysis. Colombia has historically reported lower EDFs than the rest of the region; consequently, the implicit credit quality of Colombia’s corporates compares well with others in the region.

4. The rest of the chapter is organized as follows. Section B describes some structural features of the corporate sector using two comprehensive datasets.² Section C presents the balance sheet and profitability analysis. Section D discusses the foreign exchange exposure, and Section E presents analysis on EDFs, both for a selected number of corporates. Section F concludes the main body of the text, while two appendices address data issues.

B. Structural Features of the Corporate Sector in Colombia

5. The Colombian corporate sector is highly segmented. First-tier companies have a significant market share and many of them are quoted in the Colombian stock exchange, with access to a more diversified pool of financing sources than smaller firms. The top 10 percent of corporates accounts for about 60 percent of the sector’s assets, and 53 percent of liabilities. Smaller companies are generally non-exporters and are likely to depend more on bank lending or own resources for financing.

6. The corporate sector is dominated by companies in the service sector, which accounts for more than half of the total number of corporates (Table 1). Assets and liabilities are concentrated in manufacturing and services. The distribution of net profits differs, however, as “other sectors” (dominated by construction companies) represent about ¼ of total profits, despite accounting for only 10 percent of total sales. In all sectors, about 75 percent of the companies make profits, a ratio which has increased over time, except for agriculture. ³

Table 1.

Colombia: Sectoral Characteristics of the Corporate Sector, 2002∓07

(in percent of total, unless specified)

Source: BdR and author’s calculation.

^1/Includes fishing and forestry.

^2/Includes construction, eletricity, and mining.

Table 1.

Colombia: Sectoral Characteristics of the Corporate Sector, 2002∓07

(in percent of total, unless specified)

				2002	2003	2004	2005	2006	2007
Agriculture1/
		Assets		4	3	3	3	3	3
		Liabilities		4	3	3	3	3	3
		Sales		7	3	3	3	3	3
		Net profits		6	1	1	0	0	1
		Number of companies (total)		559	558	545	545	544	550
			of which reporting positive net profits	77	74	68	66	70	69
Manufacturing
		Assets		36	41	41	41	39	39
		Liabilities		42	42	42	42	41	41
		Sales		44	42	43	41	41	43
		Net profits		82	37	33	27	34	42
		Number of companies (total)		1,741	1,734	1,733	1,713	1,697	1,695
			of which reporting positive net profits	78	78	80	82	83	81
Services
		Assets		52	47	47	48	49	48
		Liabilities		44	46	44	43	43	43
		Sales		42	47	44	46	47	45
		Net profits		-8	37	36	44	38	31
		Number of companies (total)		3,449	3,455	3,468	3,479	3,491	3,489
			of which reporting positive net profits	71	75	78	78	79	78
Other2/
		Assets		8	9	9	9	9	10
		Liabilities		10	10	11	12	13	14
		Sales		7	8	10	10	10	10
		Net profits		20	25	31	29	27	25
		Number of companies (total)		627	629	630	639	644	642
			of which reporting positive net profits	66	70	71	75	76	77

Source: BdR and author’s calculation.

^1/Includes fishing and forestry.

^2/Includes construction, eletricity, and mining.

View Table

Table 1.

Colombia: Sectoral Characteristics of the Corporate Sector, 2002∓07

(in percent of total, unless specified)

				2002	2003	2004	2005	2006	2007
Agriculture1/
		Assets		4	3	3	3	3	3
		Liabilities		4	3	3	3	3	3
		Sales		7	3	3	3	3	3
		Net profits		6	1	1	0	0	1
		Number of companies (total)		559	558	545	545	544	550
			of which reporting positive net profits	77	74	68	66	70	69
Manufacturing
		Assets		36	41	41	41	39	39
		Liabilities		42	42	42	42	41	41
		Sales		44	42	43	41	41	43
		Net profits		82	37	33	27	34	42
		Number of companies (total)		1,741	1,734	1,733	1,713	1,697	1,695
			of which reporting positive net profits	78	78	80	82	83	81
Services
		Assets		52	47	47	48	49	48
		Liabilities		44	46	44	43	43	43
		Sales		42	47	44	46	47	45
		Net profits		-8	37	36	44	38	31
		Number of companies (total)		3,449	3,455	3,468	3,479	3,491	3,489
			of which reporting positive net profits	71	75	78	78	79	78
Other2/
		Assets		8	9	9	9	9	10
		Liabilities		10	10	11	12	13	14
		Sales		7	8	10	10	10	10
		Net profits		20	25	31	29	27	25
		Number of companies (total)		627	629	630	639	644	642
			of which reporting positive net profits	66	70	71	75	76	77

Source: BdR and author’s calculation.

^1/Includes fishing and forestry.

^2/Includes construction, eletricity, and mining.

C. Balance Sheet and Profitability Analysis

7. This section focuses on the financial features of the Colombian corporate sector, both in terms of balance sheet structure and corporate performance. The analysis indicates that leverage is relatively low for the sector as a whole, and liquidity remains adequate. Further, the profitability of the corporate sector has improved over the years, thanks mostly to efficiency gains. Despite a period of strong economic growth and macroeconomic stability, the balance sheet structure and financial ratios have remained relatively stable.

A Snapshot of the Corporate Sector in 2007

8. Overall, the nonfinancial private sector is in good health, with assets more than double liabilities (Table 2). Based on the cross-sectional dataset, accounting capital (the difference between assets and liabilities) for the sector as a whole is estimated at 35 percent of GDP. Assets are predominantly long-term (64 percent of total assets), while liabilities remain mainly short-term (70 percent of total liabilities). Corporates that export and/or receive FDI report a better equity position, and FDI recipients are best capitalized. Three percent of the firms—representing 0.2 percent of total assets and 0.7 percent of total liabilities—are technically bankrupt (i.e., reporting negative accounting capital).

Table 2.

Colombia: Corporate Sector Financial Information, 2007

Sources: BdR and author’s calculations.

^1/Debt is the sum of current and long-term liabilities. The equity measure used here is accounting capital, a book value concept

^2/Current assets minus inventories to current liabilities.

^3/Current assets to current liabilities.

^4/Operating earning (EBIT) in percent of sales.

^5/Net profit in percent of sales.

^6/Net profit in percent of accounting capital.

Table 2.

Colombia: Corporate Sector Financial Information, 2007

				Total	Non-exporters	Exporters
Balance sheet (in percent of GDP)
		Total assets		100	58	42
		Total liabilities		36	18	19
			Current liabilities	25	12	13
			Long-term liabilities	11	5	5
		Accounting capital		63	40	23
Financial ratios
		Leverage and debt structure
			Debt to equity 1/	0.6	0.4	0.8
			Short-term debt to total debt	0.7	0.7	0.7
		Liquidity indicators
			Quick ratio (in percent) 2/	97.6	99.2	96.1
			Current ratio 3/	1.4	1.4	1.4
		Profitability indicators
			Gross margins (in percent) 4/	29.2	30.1	28.5
			Net margins (in percent) 5/	6.5	7.1	6.1
			Return on equity (annual) 6/	7.9	6.0	11.3
Income statement (in percent of GDP)
		Sales		77.2	34.1	43.1
		Gross profit		22.6	10.3	12.3
		Operating earning		7.3	3.1	4.2
		Net profit		5.0	2.4	2.6

Sources: BdR and author’s calculations.

^1/Debt is the sum of current and long-term liabilities. The equity measure used here is accounting capital, a book value concept

^2/Current assets minus inventories to current liabilities.

^3/Current assets to current liabilities.

^4/Operating earning (EBIT) in percent of sales.

^5/Net profit in percent of sales.

^6/Net profit in percent of accounting capital.

View Table

Table 2.

Colombia: Corporate Sector Financial Information, 2007

				Total	Non-exporters	Exporters
Balance sheet (in percent of GDP)
		Total assets		100	58	42
		Total liabilities		36	18	19
			Current liabilities	25	12	13
			Long-term liabilities	11	5	5
		Accounting capital		63	40	23
Financial ratios
		Leverage and debt structure
			Debt to equity 1/	0.6	0.4	0.8
			Short-term debt to total debt	0.7	0.7	0.7
		Liquidity indicators
			Quick ratio (in percent) 2/	97.6	99.2	96.1
			Current ratio 3/	1.4	1.4	1.4
		Profitability indicators
			Gross margins (in percent) 4/	29.2	30.1	28.5
			Net margins (in percent) 5/	6.5	7.1	6.1
			Return on equity (annual) 6/	7.9	6.0	11.3
Income statement (in percent of GDP)
		Sales		77.2	34.1	43.1
		Gross profit		22.6	10.3	12.3
		Operating earning		7.3	3.1	4.2
		Net profit		5.0	2.4	2.6

Sources: BdR and author’s calculations.

^1/Debt is the sum of current and long-term liabilities. The equity measure used here is accounting capital, a book value concept

^2/Current assets minus inventories to current liabilities.

^3/Current assets to current liabilities.

^4/Operating earning (EBIT) in percent of sales.

^5/Net profit in percent of sales.

^6/Net profit in percent of accounting capital.

9. Leverage, liquidity, and profitability seem adequate, with some differences depending on export orientation. Exporters are more leveraged, with the debt-to-equity ratio double the level of non-exporters. All categories report similar debt maturity structures, with 70 percent of liabilities being short-term—a relatively high level. Liquidity seems adequate for the sector and across categories. Profitability indicators look also healthy, with aggregate gross margins of 29 percent and return on equity (RoE) of 8 percent, but does not compare well with the region (see next section). Non-exporters are less profitable.

10. Sales and income are skewed toward exporters, especially toward those benefiting from FDI. Exporters are likely to be larger companies, on average, than those devoted to the domestic market. In light of their larger size, these firms may be benefiting from increasing returns to scale. Exporters, which represent 17 percent of the total number of corporates, account for about 55 percent of sales, and about half of net profits for the sector. Exporters that benefit from FDI are the most profitable. About 20 percent of total firms in the sample reported net losses in 2007—most of them are firms dedicated fully to the domestic market, and represent 13 percent of total assets, and about 9½ percent of total sales. Given the slowdown in economic growth projected for both Colombia and the world economy in 2009, the number of companies with negative profits is likely to increase in the coming year.

11. Stress testing suggests that the corporate sector is in a robust financial position. In order to assess the sensitivity of the corporate sector to potential adverse events, we consider a significant and negative shock to the value of assets and an increase in liabilities. A 20 percent decrease in the value of total assets would translate into 3,386 firms entering into technical default, although these firms are relatively small in size. They represent about 0.5 percent of GDP in accounting capital, and 6.5 percent of GDP in total liabilities. A 20 percent increase in liabilities would bring about 2,725 firms into technical default. Those represent about ¼ percent of GDP in terms of accounting capital and 5.5 percent of GDP in total liabilities. Given that the likelihood of such a shock is low, the results suggest the corporate sector could weather a large shock without posing significant systemic consequences.

The Performance of the Corporate Sector during 2002∓07

12. Over time, the balance sheet of the aggregate corporate sector has shrunk significantly (Table 3). Time-series data indicate that the consolidation occurred mainly in 2003∓04. Assets have shrunk by 25 percent of GDP, and liabilities by 10 percent of GDP between 2002 and 2007. Corporates, however, have remained well-capitalized, with capital of 48 percent of GDP in 2007.

Table 3.

Colombia: Corporate Sector Financial Information, 2007

Source: BdR and author’s calculation.

^1/Debt is the sum of current and long-term liabilities. The equity measure used here is accounting capital, which is a book value concept.

^2/Current assets minus inventories to current liabilities

^3/Current assets to current liabilities.

^4/Gross profit in percent of sales.

^5/Net profit in percent of sales.

^6/Net profit in percent of accounting capital.

Table 3.

Colombia: Corporate Sector Financial Information, 2007

				2002	2003	2004	2005	2006	2007
Balance sheet (in percent of GDP)
		Total assets		102	81	76	77	77	75
		Total liabilities		37	33	29	27	27	27
			Current liabilities	22	21	19	18	19	18
			Long-term liabilities	14	11	9	8	8	8
		Accounting capital		65	48	47	51	50	48
Financial Ratios
		Leverage and debt structure
			Debt to equity 1/	0.6	0.7	0.6	0.5	0.5	0.5
			Short-term debt to total debt	0.6	0.6	0.7	0.7	0.7	0.7
		Liquidity Indicators
			Quick ratio 2/	92.6	91.9	97.3	97.9	94.0	98.0
			Current ratio 3/	1.3	1.3	1.4	1.4	1.4	1.4
		Profitability Indicators
			Gross margins (in percent) 4/	29.1	29.2	28.8	29.0	28.9	29.8
			Net margin (in percent) 5/	2.6	4.6	5.5	6.9	6.6	6.9
			Return on equity (annual) 6/	2.5	5.9	6.3	7.5	7.6	8.2
Income statement (in percent of GDP)
		Sales		63.4	62.2	55.1	55.2	57.4	57.2
		Gross profit		18.4	18.1	15.9	16.0	16.6	17.0
		Operating earning		4.7	4.4	4.9	5.2	5.8	5.8
		Net profit		1.6	2.8	3.0	3.8	3.8	3.9

Source: BdR and author’s calculation.

^1/Debt is the sum of current and long-term liabilities. The equity measure used here is accounting capital, which is a book value concept.

^2/Current assets minus inventories to current liabilities

^3/Current assets to current liabilities.

^4/Gross profit in percent of sales.

^5/Net profit in percent of sales.

^6/Net profit in percent of accounting capital.

View Table

Table 3.

Colombia: Corporate Sector Financial Information, 2007

				2002	2003	2004	2005	2006	2007
Balance sheet (in percent of GDP)
		Total assets		102	81	76	77	77	75
		Total liabilities		37	33	29	27	27	27
			Current liabilities	22	21	19	18	19	18
			Long-term liabilities	14	11	9	8	8	8
		Accounting capital		65	48	47	51	50	48
Financial Ratios
		Leverage and debt structure
			Debt to equity 1/	0.6	0.7	0.6	0.5	0.5	0.5
			Short-term debt to total debt	0.6	0.6	0.7	0.7	0.7	0.7
		Liquidity Indicators
			Quick ratio 2/	92.6	91.9	97.3	97.9	94.0	98.0
			Current ratio 3/	1.3	1.3	1.4	1.4	1.4	1.4
		Profitability Indicators
			Gross margins (in percent) 4/	29.1	29.2	28.8	29.0	28.9	29.8
			Net margin (in percent) 5/	2.6	4.6	5.5	6.9	6.6	6.9
			Return on equity (annual) 6/	2.5	5.9	6.3	7.5	7.6	8.2
Income statement (in percent of GDP)
		Sales		63.4	62.2	55.1	55.2	57.4	57.2
		Gross profit		18.4	18.1	15.9	16.0	16.6	17.0
		Operating earning		4.7	4.4	4.9	5.2	5.8	5.8
		Net profit		1.6	2.8	3.0	3.8	3.8	3.9

Source: BdR and author’s calculation.

^1/Debt is the sum of current and long-term liabilities. The equity measure used here is accounting capital, which is a book value concept.

^2/Current assets minus inventories to current liabilities

^3/Current assets to current liabilities.

^4/Gross profit in percent of sales.

^5/Net profit in percent of sales.

^6/Net profit in percent of accounting capital.

13. Despite improved economic conditions and high economic growth, leverage ratios have improved little, while liquidity has remained stable. Compared to the cross-sectional dataset, the firms in the sample are marginally less leveraged, with a debt-to-equity ratio of 0.5. Despite some improved leverage over time and strengthening of economic fundamentals, the reliance on short-term liabilities has remained stable, at 70 percent of total liabilities. Further study is needed to assess the reasons why there is such high reliance on short-term liabilities, given the greater vulnerabilities associated with short-run funding.

14. Profitability has improved over time. Gross margins have remained relatively stable, but returns on assets and on equity have improved as corporates have reduced assets and equity over time. Profitability has also improved as a result of the streamlining of costs.

15. Large firms are in a marginally better financial condition than the corporate sector overall. Large firms merit separate examination, given the systemic implications of their operations. The data reveal that the top 10 percent of corporates (according to asset size, about 675 firms in 2007) account for about 80 percent of total assets, and about 80 percent of capital. The leverage structure of large firms is in line with that of the cross-sectional sample. These firms also have maturity structure for liabilities. Liquidity remains at levels comparable to the sector as a whole. Large firms, which are more likely to be exporters and receive FDI, are more profitable. While capturing 64 percent of total sales, they account for about 80 percent of total net profits.

16. From a regional perspective, Colombian corporates have relatively low levels of leverage, but report weaker liquidity and profitability indicators (Table A2). The cross-country analysis is based on a reduced sample of corporates (between 640 to 750 firms, and 20 large firms for Colombia) in light of data availability constraints. Keeping this caveat in mind, the data suggest that over time, leverage indicators have improved, especially in terms of the maturity structure of debt. Despite efficiency gains reported for the previous analysis for a larger sample, profitability is well below the regional average.

D. Assessing the Foreign Exchange Exposure of the Corporate Sector

17. This section analyzes the exposure of a selected number of corporates to exchange rate movements. Given the high volatility of the peso compared to other currencies in the region, an assessment of the effects of changes in the peso on the financial situation of corporates is of great interest. The analysis in this section uses data for 78 firms in 2007,⁴ with aggregate assets and liabilities accounting for about a fifth of the cross-sectional sample. Foreign-exchange assets and liabilities represent a low share of total assets and liabilities. Foreign exchange assets are small (less than 1 percent of total assets). The share of total foreign-currency debt is low on average, about 7 percent, and half of the firms hold no foreign currency denominated liabilities. With respect to long-term liabilities, about 22 percent were denominated in foreign exchange; for short-term liabilities, the corresponding figure was 12 percent. The low level of foreign exchange liabilities could be a reflection of balance-sheet restructuring after the 1998 crisis and the resulting losses for firms with high levels of foreign currency debt. It could also be the consequence of firms’ limited access to foreign financing, or the preference of firms to finance investment with FDI or the wide availability of domestic credit in recent years.⁵

18. The foreign exchange rate exposure of the corporate sector is low. The aggregate foreign exchange exposure—measured by the difference between foreign exchange assets and liabilities—of these firms was a positive US$2 billion at end-2007 (6¼ percent of capital). However, the aggregate data understates exposure as long-term foreign exchange exposure should not be netted out from the short-term exposure of other firms. In the sample, 24 firms reported positive foreign exchange exposure. Among the firms with negative foreign-exchange exposure, the median position of the top 10 firms amounts to 17 percent of capital, while for the first quartile it is 24 percent of capital. The top ten exporters (with exports accounting, on average, for about 60 percent of their sales) report a better position, as they benefit from their “natural hedge” as exporters.⁶ For these firms, foreign exchange exposure equals 4½ percent of capital. Four non-exporters report a net foreign exposure above 10 percent of capital.

19. Stress testing reveals that the corporate sector is resilient to a change in the value of the peso. A significant depreciation of the peso (of 50 percent) would only bring one company in the sample under technical default. This is mainly because of the limited foreign exchange exposure, as well as the fact that these firms are well capitalized, and their “domestic position” (the difference between domestic assets and liabilities) is quite strong.

20. Additional information on derivative positions could help provide a broader assessment of potential exchange rate risks. The balance sheet data do not incorporate information on firms’ foreign exchange derivative positions. An additional challenge—faced by the Colombian authorities and other emerging markets—is how to assess information on risks related to off-shore derivative positions. Nevertheless, incorporating this information into the analysis would be helpful in providing a more comprehensive picture of potential risks.

E. Market-Based Assessments of Selected Corporates in Colombia

21. This section uses contingent claims analysis (CCA) to assess risks in a selected number of Colombian corporates.⁷ The CCA approach is based on the estimation of the default probability by an entity on its obligations, and is used to assess creditworthiness in the corporate sector. The analysis here uses Moody’s-KMV estimates of expected default frequencies (EDFs) for Colombian and other Latin American corporates, which are constructed with market-based data. While the balance sheet and income statement analysis provides a good sense of the health of the corporate sector, it is based on historical data. The CCA approach, in contrast, is based on market data, which presumably incorporates a forward-looking, collective view of risk by market participants. Such a forward-looking element cannot be captured by traditional balance sheet measures.

22. Colombia has historically reported lower EDFs than the rest of the region (Figure 1). Estimated EDFs for Colombian firms have been relatively stable since 2003 (the earliest year for which data are available), and the average median EDF is estimated at 0.15 percent.⁸ The corporate sectors of both Colombia and other Latin American countries have benefited from the positive environment from 2003 to end-2007, as equity market and credit conditions eased significantly, thanks to buoyant liquidity. The estimated average EDF for the region was 0.40 percent, but there was a sharp decrease in EDFs during 2003-mid 2006.

Expected Default Frequencies, 2003∓08

(in percent)

Citation: IMF Staff Country Reports 2009, 024; 10.5089/9781451808964.002.A002

Source: Moody’s KMV dataset.1/ Unweighted average for Argentina, Brazil, Chile, Mexico and Peru.

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Expected Default Frequencies, 2003∓08

(in percent)

Citation: IMF Staff Country Reports 2009, 024; 10.5089/9781451808964.002.A002

Source: Moody’s KMV dataset.1/ Unweighted average for Argentina, Brazil, Chile, Mexico and Peru.

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Expected Default Frequencies, 2003∓08

(in percent)

Citation: IMF Staff Country Reports 2009, 024; 10.5089/9781451808964.002.A002

Source: Moody’s KMV dataset.1/ Unweighted average for Argentina, Brazil, Chile, Mexico and Peru.

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23. Through the current financial turbulence, corporate sectors throughout Latin America have been negatively affected, as reflected by increasing EDFs. The average EDF for Colombia is 2.65 percent, well below the average for the region (5.55 percent). Corporates in the region have been affected by increasing default frequencies for both high-risk and low-risk firms (Figure 2). EDFs have increased most sharply in Colombia for the highest risk firms (those in the top 75 percent of the distribution of EDFs), in line with the region. Across sectors, construction and services companies have been most affected, with significant increases in EDFs since September 2008.

Colombia: EDFs for Selected Corporates, 2008

(in percent)

Citation: IMF Staff Country Reports 2009, 024; 10.5089/9781451808964.002.A002

Source: Moody’s KMV Model.1/ Unweighted average of corporate sector’s estimated EDF for Argentina, Brazil, Chile, Mexico and Peru.

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Colombia: EDFs for Selected Corporates, 2008

(in percent)

Citation: IMF Staff Country Reports 2009, 024; 10.5089/9781451808964.002.A002

Source: Moody’s KMV Model.1/ Unweighted average of corporate sector’s estimated EDF for Argentina, Brazil, Chile, Mexico and Peru.

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Colombia: EDFs for Selected Corporates, 2008

(in percent)

Citation: IMF Staff Country Reports 2009, 024; 10.5089/9781451808964.002.A002

Source: Moody’s KMV Model.1/ Unweighted average of corporate sector’s estimated EDF for Argentina, Brazil, Chile, Mexico and Peru.

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24. In line with lower EDFs, the implicit credit quality of Colombia’s corporates compares well with other corporates in Latin America. Tables 4 and 5 provide details on the distribution of EDFs and the implicit credit rating for Colombia and Latin America as a whole. The reported implicit credit rating for the median Colombian firm is Ba1, while the average for the Latin American region is Ba2. 50 percent of the Colombian companies report EDFs consistent with investment grade status.

Table 4.

Colombia: Number of Firms by EDF’s Credit Rating ^1/

Source: Moody’s KMV data.

^1/Data as of December 2008.

Table 4.

Colombia: Number of Firms by EDF’s Credit Rating ^1/

	Latin America	Colombia
Caa-C	101	1
B	143	4
Ba	168	5
Baa	120	5
A	78	3
Aaa-Aa	60	2

Source: Moody’s KMV data.

^1/Data as of December 2008.

View Table

Table 4.

Colombia: Number of Firms by EDF’s Credit Rating ^1/

	Latin America	Colombia
Caa-C	101	1
B	143	4
Ba	168	5
Baa	120	5
A	78	3
Aaa-Aa	60	2

Source: Moody’s KMV data.

^1/Data as of December 2008.

Table 5.

Colombia: EDF Distribution by Credit Quality ^1/

Source: Moody’s KMV data.

^1/Data as of December 2008.

Table 5.

Colombia: EDF Distribution by Credit Quality ^1/

		Colombia			Latin America
Distribution		EDF	Credit Rating	EDF	Credit Rating
	Minimum	0.01%	Aa1	0.01%	Aaa
	First quartile	0.10%	A3	0.23%	Baa1
	Median	0.38%	Ba1	1.12%	Ba2
	Third quartile	1.66%	B1	5.50%	B2
	Maximum	35.00%	C	35%	C

Source: Moody’s KMV data.

^1/Data as of December 2008.

View Table

Table 5.

Colombia: EDF Distribution by Credit Quality ^1/

		Colombia			Latin America
Distribution		EDF	Credit Rating	EDF	Credit Rating
	Minimum	0.01%	Aa1	0.01%	Aaa
	First quartile	0.10%	A3	0.23%	Baa1
	Median	0.38%	Ba1	1.12%	Ba2
	Third quartile	1.66%	B1	5.50%	B2
	Maximum	35.00%	C	35%	C

Source: Moody’s KMV data.

^1/Data as of December 2008.

F. Conclusions

25. The Colombian corporate sector is in good health.

• Balance sheet analysis suggests that the Colombian corporate sector is well capitalized, leverage is relatively low, and liquidity remains adequate. Further, the profitability of the corporate sector has improved over the years, thanks mostly to efficiency gains. However, despite a period of strong economic growth and macroeconomic stability, the balance sheet structure and financial ratios have remained relatively stable, with high reliance on short-term liabilities.

• Analysis for a selected number of firms suggest that corporates in Colombia face low foreign-exchange risk, and that the corporate sector is robust to large shocks, including from the external sector. Additional information on derivative positions could help provide a broader assessment of potential exchange rate risks.

• Market-based measures of risk confirm the conclusions from the balance sheet analysis. Colombia has historically reported lower EDFs than the rest of the region; and although corporate sectors in Latin America have been negatively affected through the current financial turbulence, a modest share of Colombian corporates have been affected. In line with lower EDFs, the implicit credit quality of Colombia’s corporates compares well with the region.

26. Further work could be undertaken on identifying the determinants of EDFs. Once these factors are identified, they could potentially serve as early warning indicators and thus help anticipate changes in the financial condition of the corporate sector. This, in turn, could be helpful for assessing the macroeconomic risks associated with changes in corporate sector health.