Transcript Regional environment - Superintendencia Financiera de Colombia

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ENHANCING THE SUPERVISORY INTENSITY
AND EFFECTIVENESS OF SYSTEMIC BANKS
ASBA PERSPECTIVE
Gerardo Hernández Correa
Financial Superintendent
XVII ASBA Annual Assembly
9th High level meeting on global banking standards and regulatory
and supervisory priorities in the Americas
Lima, November 2014
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Agenda
1. Basel recommendations and their implementation at
the regional level
2. Regional environment
3. Adjustment to international best practices
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Agenda
1. Basel recommendations and their implementation at
the regional level
2. Regional environment
3. Adjustment to international best practices
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Basel III
Fuente: BIS. Basel Committee on Banking Supervision. Basel III overview table.
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Regulatory reforms
Challenges for implementation
•
The main implementation challenges focus on the following reforms related to Basel III:




Capital and liquidity (Basel III).
Derivatives markets OTC.
G-SIFIs, including resolution mechanisms.
Banking systems in Europe and United States(EMIR, Dodd Frank Act)
•
Concerns about the potential consequences of these reforms are in a qualitative level (not
quantitative), reflecting that the implementation process in the region is in an early stage.
•
The implementation of these reforms represent major challenges for each economy and the
need for proper coordination to identify and mitigate potential negative effects.
•
Attention has focused on liquidity ratios considering that most banks will comply the capital
requirements.
•
Most G20 countries have a major reforms in the adoption of the new standars, while most
emerging economies opted for a gradual process of adaptation in response to the needs of
each of their financial systems.
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Regulatory reforms
Some effects of reforms
•
Regulatory reforms have affected the credit behavior of banks.
•
Some international banks continue to increase their capital in order to comply in 2019 with the
full set of measures introduced by Basel III that are part of the minimum capital requirements.
•
Concerns focus on action at the local level and the potential cross border impacts:
 Coordination among
jurisdictions for the recognition of equity instruments,
identification of differences in practices for risk management and the risk weighting of
assets between parent and subsidiary.
 Resistance to activate counter-cyclical capital buffers in some emerging economies,
from the difference in cycle time credit compared to other economies.
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Agenda
1. Basel recommendations and their implementation at
the regional level
2. Regional environment
3. Adjustment to international best practices
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Regional framework
•
Sound macro economic policies and adoption of macro and micro prudential measures
contributed to the performance of the financial sector in the region during the financial crisis.
• High levels of capitalization of banks in the region, the absence of “toxic assets” on their
balance sheets and low leverage levels helped to mitigate the impact of the international
crisis in Latin America.
•
There is still a gap between the financial development of the region with respect to most
advanced economies. However there have been significant changes that show a stronger
financial system in the region.
•
Banking systems are characterized by an important concentration on big banks.
•
Regulation and supervision standards are uneven in the region.
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24 23 23 18
17 17 16 16 15 13 12 11
Nicaragua
Uruguay
El Salvador
Bolivia
Costa Rica
Paraguay
Peru
Dom. Rep.
Honduras
Banks
Mexico
Ecuador
Dom. Rep.
Argentina
Peru
Colombia
Nicaragua
Guatemala
Bolivia
Average Latam
Venezuela
El Salvador
Costa Rica
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Guatemala
Colombia
35
Chile
51 47
Uruguay
Total loans / GDP
Ecuador
15%
180
160
140
120
100
80
60
40
20
0
Venezuela
0%
Honduras
20%
Mexico
33%
Brazil
60%
Panama
80%
Chile
100%
Argentina
120%
Panama
Argentina
Ecuador
Mexico
Dom. Rep.
Uruguay
Venezuela
Nicaragua
Guatemala
Peru
Bolivia
140%
Brazil
Uruguay
Ecuador
Bolivia
Nicaragua
Chile
Peru
Argentina
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Average Latam
Honduras
CAR (Solvency)
Average Latam
Colombia
40%
Dom. Rep.
Guatemala
Costa Rica
Honduras
El Salvador
Brazil
Chile
Panama
160%
Mexico
Venezuela
Brazil
Colombia
El Salvador
Paraguay
Regional environment
Deposits / GDP
40%
155
81
6
Source: FMI, World Bank. Figures as of December 2013, own calculations.
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1.0%
0.5%
0.0%
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0%
Uruguay
100%
Ecuador
171%
Costa Rica
300%
Costa Rica
400%
El Salvador
Honduras
Brazil
Bolivia
Panama
Mexico
Chile
Guatemala
Average Latam
Coverage indicators (Provisions/NPL)
Chile
El Salvador
200%
Paraguay
1.5%
Argentina
1.7%
Colombia
2.5%
Mexico
500%
Honduras
3.0%
Brazil
3.5%
Uruguay
20%
Average Latam
600%
Dom. Rep.
ROA*
Guatemala
4.0%
Panama
Quality indicators (NPL/Total loans)
Colombia
0%
Dom. Rep.
0%
Peru
10%
Peru
1%
Nicaragua
1.7%
Nicaragua
3%
Paraguay
60%
Bolivia
5%
Argentina
70%
Venezuela
4%
Venezuela
Ecuador
Costa Rica
Brazil
Honduras
Bolivia
Chile
Uruguay
Guatemala
El Salvador
Mexico
Panama
6%
Ecuador
Venezuela
Panama
Nicaragua
Guatemala
Ecuador
Uruguay
Bolivia
Argentina
2.0%
Average Latam
Peru
Dom. Rep.
Average Latam
Dom. Rep.
Peru
Nicaragua
Paraguay
Colombia
Argentina
Venezuela
2%
Costa Rica
Chile
El Salvador
Paraguay
Honduras
Brazil
Colombia
Mexico
Regional environment
ROE**
50%
40%
30%
17.4%
Source: FMI, World Bank. Figures as of December 2013, own calculations. *, **The information of Panamá corresponds to December 2012.
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Regional framework
•
International crisis lead to a regional financial integration.
•
Regional integration is not only in the banking sector, but also in insurance, securities
and pension fund administration vehicles.
•
Banks in the region are now bigger and have new risks due to integration.
•
Colombia is a good example.
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Regional environment
Banking systems movements
Buyer Bank
Bank aquired
Corpbanca
Banco Santander (Colombia)
Itaú Unibanco
Corpbanca
Bancolombia
Grupo Banagricola
Banco de Bogotá
Grupo BAC Credomatic
Davivienda
HSBC (Costa Rica, Honduras, El Salvador)
GNB Sudameris
HSBC (Colombia, Perú, Paraguay)
Bancolombia
HSBC Panamá
Banco de Bogotá
Grupo Reformador de Guatemala
Banco BBVA Panamá
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Presence of Colombian financial institutions
abroad
In the last years Colombian Financial
institutions began expanding abroad. As
of December 2013 they accounted for 208
subsidiaries abroad.
Country (#
subsidiaries)
Country (#
subsidiaries)
Panama (57)
El Salvador (24)
Costa Rica (22)
Peru (17)
Guatemala (15)
Chile (11)
Mexico (11)
Honduras (9)
Cayman Islands (6)
Netherlands (6)
Nicaragua (6)
USA (4)
British Virgin Islands (3)
Uruguay (3)
Bahamas (2)
Barbados (2)
Bolivia (2)
Dominican Rep. (2)
Ecuador (2)
Luxemburg (1)
Paraguay (1)
Puerto Rico (1)
At the end of 2013 Colombian
subsidiaries in Central America
accounted ca. 22.2% of total
assets of the financial sector of
the region, excluding Belize.
Spain (1)
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New players
In recent years it has been common the entry of new players, driven by strong domestic activity and good
performance of the financial system.
New players
Banks
Financial
corporations
Jul 2012
Acquired the previous Banco Santander
Oct 2013
Dec 2012
Mergers and conversions
Finance
companies
Mar 2014
Mar - 2013
Jun 2013
Mergers
Jun 2014
Conversions
Sep 2013
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Colombian banks abroad
Higher participation of Colombian banks abroad
Colombian financial institutions have increased their presence in the region. Subsidiaries represent
around 18.5% of the total assets of Colombian credit institutions.
BANKING SYSTEM
ASSETS
% OF COUNTRY’S
BANKING SYSTEM
COUNTRY
ASSETS
Salvador
7.676
14.363
53,44%
Panama
23.780
102.690
23,16%
Nicaragua
1.253
5.678
22,06%
Honduras
2.804
15.433
18,17%
Costa Rica
5.416
40.292
13,44%
Guatemala
2.187
29.875
7,32%
Paraguay
779
18.720
4,16%
Peru
1.522
96.640
1,58%
- USD million. Data as of 6/30/2014
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Insurance companies
Insurance companies have also participated in the regional expansion
Recently the Colombian insurance companies entered into regional markets based on the expansion of
banks. Subsidiaries represent around 12% of the total assets of the Colombian insurance companies.
COUNTRY
ASSETS
Salvador
Panama
Honduras
Peru
Dominican Rep.
Chile
Ecuador
Costa Rica
Mexico
151,76
311,18
73,32
1.314,02
53,23
1.455,28
28,58
11,62
31,87
INSURANCE
SECTOR ASSETS
728,96
2.051,00
593,71
10.973,60
926,83
56.000,00
1.734,22
3.160,16
56.253,94
% OF COUNTRY’S
INSURANCE SECTOR
20,82%
15,17%
12,35%
11,97%
5,74%
2,60%
1,65%
0,37%
0,06%
USD million. Data as of 6/30/2014.
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Agenda
1. Basel recommendations and their implementation at
the regional level
2. Regional environment
3. Adjustment to international best practices
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Adjustment to international best practices
• The question is what to do with this new financial enviroment?
• The answer is further implementation of international standards
• Implementation and trainning are key elements in the new enviroment.
• Cooperation between regulators and supervisors is a top priority
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Regional context
Level of compliance with international standards
Source: ASBA, 2014. Sharing of Members’ Experience in Promoting Financial Stability, VI Meeting of the FSB Regional Consultative Group for the Americas.
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Regional context
Level of compliance with international standards
Source: ASBA, 2014. Sharing of Members’ Experience in Promoting Financial Stability, VI Meeting of the FSB Regional Consultative Group for the Americas.
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Adjustment to international best practices
Roadmap
•
Considering the regional expansion of both D-SIFIS and G-SIFIS and the increasing entry of
new international players, it is necessary the institutional strengthening of the supervisors based
on the cooperation and the adoption of international best practices.
Basel III
Best practices
Strengthening
prudential req.
Integrated
supervision of
risk
Role of
operational risk
Risk-based
Supervision
Leverage
indicators
Conglomerates
supervision
Explore
developments
in liquidity
Stress testing
Cooperation and exchange
of information
MOUs with foreign
authorities
Colleges of
supervisors
Fellowships and
memberships with
multilaterals
Systemically
important bank
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A tentative road map
Strengthening
of prudential
requirements
Procyclality
Reduction
Challenges
Reforms to adapt or adopt capital, liquidity and risk
exposures regulations should take into account the
experience of supervisors and the recommendations
issued by international organizations (BIS, IOSCO, IAIS).
Instruments that considered countercyclical elements are
crucial to mitigate effects due to changes in the economic
cycle
•
•
•
•
Requirements for systemically important institutions.
Optimally risk coverage and measurement.
Evaluate and implement leverage standards.
Adjustments to prudential requirements of non-banking
institutions (brokerage firms).
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A tentative road map
Regional Framework
Peru
Colombia
• In 2012 issued regulation for the liquidity risk
management, introducing LCR.
• The IRL was adjusted following the guidelines
set out in the Basel III LCR (Liquidity Coverage
Ratio). In addition to the already in place 7 days
requirement, a 30-day horizon was introduced.
Brazil
• Since 2012 has a regulatory framework in line
with BIS guideline. The regulation of LCR is
being implemented.
Chile
• Regulation of LCR is being implemented.
Central
America
• It is necessary to assess the relevance,
advantages and disadvantages of implemented
the Basel liquidity scheme in the region.
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Risk-based Supervision
It is necessary to migrate to risk based supervision in order to respond to the following
needs:
•
Have a complete view of the risks Financial Institutions (FIs) are exposed to either as a single
institutions or as part of a conglomerate whether they are domestic or foreign.
•
Have one single view of the sector.
•
Increase efficiency in allocation of supervisor’s resources focused on key areas of risk of FIs.
•
Be more prospective.
•
Adopt international best standards.
Risk Based Supervision methodology
•
Ensures a comprehensive view of the risks.
•
Has a fundamental emphasis on the risks of FIs.
•
Increases efficiency of the oversight process and allows supervisors to be more forward looking
in analysis and diagnosis.
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The Supervisory Framework
Rule Based Supervision
Risk Based Supervision
• Strict compliance of defined rules
(checklist).
• Based on a historical analysis of the
performance of the institution.
• Case-to-case evaluation of individual
operations.
• Emphasis on the activities developed by
the institution (lines of business)
• Evaluation of risk profile is based on the
institutions capacity to manage risk and
the implementation of adequate controls
to mitigate them.
Advantages of Risk Based Supervision
•
Promotes higher level of transparency.
•
Incorporates “early-warning” signals, enabling for a more prospective approach to
supervision.
•
Promotes an auto-evaluation of risk on behalf of supervised institutions.
•
Enhances efficiency and effectiveness in the supervisory process (scarce
resources are better allocated, according to risk profile and systemic importance).
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Stress testing
Objective
•
FIs are exposed to different risks that in case of materialization could affect his financial
stability and viability, as well as the financial system integrity and the public perception
about it.
•
To avoid this situations, the supervisors must consider and scheme to develop and
implement periodically stress testing by the entities, allowing identify, measure, control
and monitoring in a best way the financial risks.
•
Stress testing has become in a fundamental part of the international best standards
(FSAP, Bank of England, BIS).
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Integrated supervision
Roadmap
Integrated
supervision
strengthening
Conglomerates
supervision framework
• Risk analysis methodologies on a consolidated level including
analysis of new risks inherent in financial conglomerates and
cross-border activities.
• Defining
regional standards for financial conglomerate
supervision, including holdings or parent companies and powers
of the supervision for the purpose of exercising supervision on a
consolidated.
• The objective of risk management systems should be integrated,
Integrated supervision
of risk
avoiding the segregation of each risk, allowing an analysis of the
risks of the financial conglomerate, providing a comprehensive
understanding of their operations.
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Cooperation and exchange of
information
Given the expansion of LATAM FIs abroad, the supervisors must established different channels
with foreign authorities in order to receive and exchange information.
• Actually the most of statutory bodies only covers banks and their subsidiaries, excluding the nonregulated parent companies and associated. Supervisors has no authority to change the structure
of a financial conglomerate, prudential requirements do not cover the entire group as a whole.
• It is necessary to consider schemes of integrated supervision
How we do it?
•
Signing of Memoranda of Understanding (MOU's) bilateral and multilateral.
•
Be a part of international entities of supervisors, fellowships and memberships with multilaterals
i.e. Central Council of Supervisors of Banks, Insurance and Other (CCSBSO), ASSAL, IOSCO,
among others.
•
Member of the International Committees to develop mechanisms for cooperation in the region
•
Regular exchange of information through all supervisors of the region.
•
Visits to subsidiaries abroad, in coordination with the relevant supervisors.
•
Colleges of supervisors.
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Thank you
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Colombia
Overview
•
•
•
•
•
•
Credit institutions are the intermediaries with the largest share of the Colombian financial
system’s assets.
The rate of credit growth in Colombia is one of the highest in Latin America, registering a
growth between 14% -15% nominal annual.
The quality and coverage of the loan portfolio continue at adequate levels.
Deposits in credit institutions increased mainly at saving products. Colombians access for the
first time to the financial system primarily through savings accounts.
Dynamic of Credit institutions has been supported by favorable indicators of solvency and
profitability.
In Colombia, the level of financial deepening registered an increase of 3.2 percentage points,
going from 29.8% to 33.0% between December 2012 and 2013.
Risk Assessment
•
•
•
Oil dominates the Colombian economy and has traditionally accounted for almost 80 percent
of export revenue. For this reason, Colombia is sensitive to fluctuations in international
commodity prices.
United States is the main trading partner of Colombia, thereby, the growth prospects of
Colombia depend on the performance of the US economy.
Infrastructure of roads and ports still being inadequate for a robust growth.
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Mexico
Overview
•
The level of financial deepening registered an increase of 1.5 percentage points, going
from 16.6% to 17.9% between December 2012 and 2013.
•
Mexico's institutional framework is aligned with international standards, except for IFRS,
which are expected to be taken within the next five years.
•
Congress approved the financial reform (26, November 2013), which provides a more
preventive approach to bank risk and may reduce the sector's vulnerability to financial
crises.
Risk Assessment
•
United States is the main trading partner of Mexico. For this reason, the growth prospects
of Mexico depend on the performance of the US economy.
•
Mexico has one the lowest ratios of domestic credit to private sector and nonfinancial
public enterprises-to-GDP in Latin America, at about 24%.
•
The low banking penetration is partly due to the following factors:
 Large share of informal economy
 Low average incomes (measured by GDP per capita)
 Borrowers' relatively weak track record for paying off loans.
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Brazil
Overview
•
The level of financial deepening registered an increase of 2.2 percentage points, going
from 53.9% to 56.1% between December 2012 and 2013, higher than the regional average
(32.9%).
•
The three largest banks (Itau Unibanco, Bradesco, and Santander) have controlled about
56.7% of the market during the past five years, and this figure has been increasing
recently.
•
Brazilian banking penetration remains relatively low compared with some of its regional
and most of its global peers. However, the leverage has been increasing steadily in recent
years (The private sector credit to GDP was 56.1% in December 2013).
Risk Assessment
•
The economic imbalances have increased as a result of rapid credit expansion amid a
slowly growing economy, further increasing the household debt burden.
•
Banks‘ lower profitability is mainly due to falling reference interest rates and competition
from government-owned banks through their lower margins. Nevertheless, due to rising
inflation and global volatile financial conditions, the Central Bank increased reference rates
by 375 bps since April 2013.
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Chile
Overview
•
The level of financial deepening registered an increase of 4.8 percentage points, going
from 73.2% to 78.0% between December 2012 and 2013, the highest in South America.
•
Financial performance has remained healthy, with average return on assets of 1.29%,
portfolio credit quality of 2.0% and solvency of 13.3%.
•
Rising house prices and mortgage lending could pose credit risks and pressure asset
quality.
Risk Assessment
•
Copper dominates the Chilean economy and has traditionally accounted for almost 40
percent of export revenue. For this reason , Chile is sensitive to fluctuations in international
commodity prices.
•
The complex ownership structures of conglomerates in the country compared with other
parts of Latin America, along with these groups' relatively large scale and influence on the
national economy, complicate the supervision of the banking system.
•
Banks has gradually reduced credit growth commercial and to a lesser extent, consumer
credit in response to the slowing economy.
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Basel III
Basel III
Capital Quality
Systemically
Important Banking
Institution
Procyclality
Reduction
Interconnection
and size
Countercyclical
Capital
Provisions
Prospectives
Another
Mechanisms
(Conservation
Buffer)
Risk
Measurement
Credit Risk
Operational Risk
Market Risk
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Leverage
Indicator
Liquidity
Standards
• Review of prudential
requirements (solvency,
liquidity) following the
proposal of Basel III
• Proposal for Credit
Institutions regarding
the strengthening of :
i. Capital
quality.
ii. Liquidity.
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Integrated Supervision: An Overview
Advantages
Challenges
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