Colombian mortgage and commercial lending are unexpectedly resilient after the central bank’s steepest-ever series of interest rate rises, according to the head of the nation’s biggest bank.
(Bloomberg) — Colombian mortgage and commercial lending are unexpectedly resilient after the central bank’s steepest-ever series of interest rate rises, according to the head of the nation’s biggest bank.
Bancolombia SA expects its lending to grow by 6% to 8% in nominal terms, from about 23% last year, Chief Executive Officer Juan Carlos Mora said. Some home buyers are taking into account the possibility of refinancing at lower rates in the future, he added.
Consumer loans, however, are flat after fast inflation and higher borrowing costs hit households’ spending power, he said, on the sidelines of a banking event in Cartagena.
As higher interest rates bite and the economy cools, the lender is braced for a deterioration in credit quality this year. The bank will increase its provisions for bad loans to about 2.4% of average gross loans in 2023, from 0.6% last year, Mora said.
“In a year of low economic growth, high inflation, and high interest rates, some clients will have to carry out some profiling or restructuring, which implies making additional provisions,” he said.
The bank’s preference shares have fallen 21% over the last year, in line with the 20% drop in the benchmark Colcap index.
Interest Rate Transmission
Bancolombia expects the central bank to keep interest rates unchanged for several months until there are clear signals that inflation is cooling, Mora said.
“Reading between the lines of the central bank governor’s message, I think they will wait a bit to see if the downward inflation trend consolidates, and then they will start to lower the rates,” Mora said.
Interest rate rises take about six to eight months to transfer to lending rates, but when the central bank starts to ease monetary policy, that transmission will be faster, Mora said.
Colombia’s inflation slowed for a second consecutive month in May to 12.4% from a peak of 13.3%, but it is still more than four times the central bank’s target of 3%.
Central bank governor Leonardo Villar told bankers in Cartagena that the inflation rate is “unacceptably high” and that consumer price rises are in the early stages of a gradual convergence toward their target. Colombia has increased borrowing costs by 11.5 percentage points over the last year and a half to 13.25%.
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