Banking and the parallel development in Colombia Jornada Colombiana, University of St. Gallen March 28, 2017 Andrés Felipe Marín Salazar Vice-President Head, Private Banking Colombia & CA, Credit Suisse

Agenda Development of banking in Colombia Banking today and its main trends Peace process, tax reform and banking in Colombia Final remarks

Overview of banking in Colombia Financial system started to grow in the 1950s with specialized entities, e.g. Banco Cafetero, Banco Ganadero Sector adapted strong AML regulations in the 1980s In the 1990s, the banking system took a turn to an universal banking system centred in commercial banks Foreign investment in the financial sector and the financial crises in the 1980s and late 1990s (La Crisis de Fin de Siglo) led to closures and M&A that facilitated the consolidation of today’s banking system Banking today: solid and efficient with less entities, regulated and supervised, gaining public trust

Banking today and its main trends 4 financial institutions dominate the sector Grupo AVAL (ca. 29%) Bancolombia (ca. 21%) Davivienda (ca. 12%) BBVA (ca. 11%) () coverage in Colombia and abroad LATAM (El Salvador, Panama, Costa Rica, Peru) and North America () number of players – entering of foreign financial institutions Banco Itau, Banco de Crédito del Peru, Citibank Banking and financial sector contributed the most to the GDP’s growth in 2016 – 5% growth Grupo AVAL: genera más de 50 000 empleos, entre 37 000 colombianos y 15 700 centroamericanos, esta presente en Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica y Panama Bancolombia: esta presente en Peru, Puerto Rico, Miami, El Salvador, Panama Davivienda: also in Costa Rica, El Salvador y Honduras BBVA

Banking today and its main trends () wealth – more HNWI / UHNWI leading to higher demand of PB services Consolidation of the industry’s main players () private consumption / lending Household consumption will likely continue to provide the biggest support for real GDP growth () opportunities for M&A

Source: DANE, Central Bank, Credit Suisse

Figure 4: Source: DANE, Central Bank, Credit Suisse

? Strengthening the future of the banking system in Colombia? Peace process ? Tax reform

Peace process, tax reform and banking in Colombia Reallocation of resources (governmental and private expenditures) Increase of private foreign investments Increase of involvement of international financial institutions (e.g. WB, IDB, IMF) More lending opportunities for rural development and post- conflict agreements Robust labour dynamics Structural tax reform (OECD recommended) Contributes the funding of current fiscal deficit of 4% Tax benefits for foreign investments Financial sector directly involved in the implementation of tax reform Less foreign debt in terms of GDP for this and next year

Final remarks A successful implementation of both processes could foster the continuous development of the banking system in Colombia and its expansion within Latin America At the same time, the banking system will be an important channel for the implementation of both processes The banking industry in Colombia will work closely with the government in order to offer a more democratized process for lending to low-income households and “desmovilizados”. With the implementation of the tax reform in 2017, it is expected that the government meets its target fiscal deficits of 3.3% of GDP this year and 2.7% of GDP in 2018.

Thank you for your attention Andrés Felipe Marín Salazar Vice-President Head, Private Banking Colombia & CA, Credit Suisse