190
Financial Services and Preferential Trade Agreements
Flexibility and expansion. Early during the period from 1990 to1998, a wave of structural reform involved important changes in the organization and operation of the financial sector. Between 1990 and 1995, the Colombian economy grew at an average rate of 4.5 percent, enhanced by the growth of private consumption and investment. The period also saw significant expansion of the banking sector. The positive economic development and financial liberalization process led to an important improvement in financial deepening. The M3-to-GDP ratio increased from 28 percent of GDP in 1990 to 43.2 percent of GDP in 1997. The number of financial institutions increased, which advanced privatization and reduced government participation in financial intermediation. In the banking sector, the ratio of public bank to total bank assets fell from 37 percent in 1991 to 11 percent in 2004, whereas the share of foreign bank assets increased from 7 percent to 18 percent in the same period (figure 6.2). Nevertheless, despite increased inflows of foreign investment to the banking sector, such investment is still smaller than in other Latin American countries. For instance, in Argentina, Chile, Mexico, and Peru, foreign bank assets represent nearly 60 percent of the total assets of the banking system, and even in Brazil, a less open economy, this percentage is slightly higher than in Colombia. The entrance of foreign capital into the financial sector occurred in three different ways
share of total assets of commercial and housing bank sector (percent)
Figure 6.2
Assets of Public and Foreign Banks, 1991–2004
40 35 30 25 20 15 10 5 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 year foreign banks
public banks
Source: Data provided by the Superintendencia Financiera. Note: Data on Banco Agrario and BCH are excluded from the calculations. All dates are as of March of the year shown.