Financial Stability Report - First Half of 2022

Office of the Deputy Technical Governor; Vargas-Herrera, Hernando; Office for Monetary Operations and International Investments; Cardozo-Ortiz, Pamela; Financial Stability Department; Osorio-Rodríguez, Daniel Esteban; Liquidity Support and Risk Control Section; Cardozo-Alvarado, Nathali; Systemic Risk Surveillance Section; Cabrera-Rodríguez, Wilmar Alexander; Cely, Jorge; Chipatecua, Orlando; Clavijo-Ramírez, Felipe; Gamba-Santamaría, Santiago; Gómez-Molina, Andrés Camilo; Gualtero-Briceño, Daniela; Meneses-González, María Fernanda; Lizarazo-Cuellar, Angélica María; Narváez, Alida; Piñeros, Hernán; Pirateque-Niño, Javier Eliecer; Rodriguez-Novoa, Daniela; Sánchez-Quinto, Camilo Eduardo; Sarmiento-Paipilla, Nestor Miguel; Segovia-Baquero, Santiago David

Financial Stability Report - First Half of 2022

Shaded section 1: Importance of Monitoring Credit Institutions’ Consolidated Balance Sheets (700.51 KB)

Box 1: Negative Currency Mismatch of Colombia’s Real Sector in 2021 (796.77 KB)

Box 2: Results of the International Monetary Fund/ World Bank’s Colombian Financial Sector Assessment Program (451.01 KB)

Financial Stability Report - First Half 2022

Date published

2023-09-25

ISSN

1692 - 4029

Document language

eng

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Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

Abstract

Banco de la República’s main objective is to preserve the purchasing power of the currency in coordination with the general economic policy that is intended to stabilize output and employment at long-term sustainable levels. Properly meeting the goal assigned to the Bank by the 1991 Constitution critically depends on preserving financial stability. This is understood to be a general condition in which the financial system evaluates and manages the financial risks in a way that facilitates the economy’s performance and efficient allocation of resources while, at the same time, it is able to, on its own, absorb, dissipate, and mitigate the appearance of risks that may arise as a result of adverse events. This Financial Stability Report provides Banco de la República’s diagnosis of the financial system’s and the recent performance of its debtors as well as of the main risks and vulnerabilities that could affect the stability of the Colombian economy. That is why the financial market participants and the public are being informed, and public debate on trends and risks affecting the system is being encouraged. The results presented here also serve the monetary authority as a basis for making decisions that will enhance financial stability in the general context of its objectives. This edition marks the twentieth anniversary of the Financial Stability Report, which was first published in July 2002. Over these past twenty years, the credit and macroprudential policy framework in Colombia has been continuously reinforced while financial regulation and supervision have closely followed international standards. As a result the Colombian financial system has expanded its services to the economy and has weathered diverse economic circumstances while remaining sound and stable, since 2002. Over the course of time, the Financial Stability Report has been and continues to be permanently updated by Banco de la República in order to improve its usefulness to the general public. The analysis presented in this Report allows us to conclude that the recovery of lending activity in Colombia has been consolidated in recent months. Credit (in all its categories) has picked up and the decline in past-due and risky loans continues. The capital adequacy and liquidity indicators of credit institutions are comfortably above the regulatory minimums. The performance of credit institutions and nonbanking financial institutions, in a context of increased market volatility, reflects the soundness and stability of the Colombian financial system. At the same time, the combination of various global events and the recent trend in lending poses some vulnerabilities for the stability of the financial system. First, as mentioned in the previous edition of the Report, the exposure of the Colombian economy and financial institutions to sudden changes in global financial conditions has persisted in recent months in an environment of high uncertainty. Second, recent months have seen a rapid expansion of loans to households in Colombia in both the housing category and, especially, the consumer category. The trend in credit growth could eventually cause fragilities given that the ratio of household indebtedness to disposable income is around its historical maximum. In any case, the results presented in this Report indicate that the financial system has shown itself to be sufficiently resilient to adverse scenarios on both vulnerability fronts. In compliance with its constitutional objectives and in coordination with the financial system’s security network, Banco de la República will continue to closely monitor the outlook for financial stability at this juncture and will make the decisions that are necessary to ensure the proper functioning of the economy, facilitate the flow of sufficient credit and liquidity resources, and further the smooth functioning of the payment system. Leonardo Villar Gómez, Governor