Risk practices prove popular

Created in 1950 as a state-owned bank, Banco Popular in Colombia cites improved credit risk management for improved results


Banco Popular became the property of Luis Carlos Sarmiento Angulo in 1996, one of the most outstanding economic groups in the country. Angulo in turn owns important financial institutions comprising Grupo Aval, with additional participation as well in areas such as real estate, public works, agro industry, gas and communications.

Group Aval is the largest financial group in the country, with 30.7 percent of the banking system’s total assets. It is comprised of Banco Popular and three other banks: Bogota, Occidente and AV Villas; as well as Corporacion Financiera Colombiana, Fondo de Pensiones y Cesantias Porvenir, and various affiliates of each entity which offer insurance, trust and stock market  services, and logistics for foreign trade operations.

Banco Popular’s membership of Grupo Aval has given it a significant strength for its business growth, thanks to the support and synergies obtained from the group’s nationwide integrated customers service network and the technological and operative optimisation of processes.

Commercial trend
Banco Popular ranks seventh among the 18 banking entities in Colombia by asset size, with total assets of $6.6m as of December 2010.

The bank mainly directs its activity towards financial intermediation, that is, credit granting, so that 69 percent of its assets are placed in its credit portfolio. As of December 2010 this showed a total of $4.5m, a 26 percent year-on-year increase.

Banco Popular has a defined orientation to consumer credit, and is leader in retired and employees credits, with wage income as payment source, by means of discounts on their salaries made by the employer and transferred directly to the Bank. This product, called ‘libranzas,’ allows beneficiaries to take care of their needs regarding education, health, housing improvement and recreation, and assures the bank high financial return, the atomisation of risk and low default. As of December 2010, this credit line totalled $2.3m – 52 percent of the bank’s total credit portfolio.

Also, due to its state-owned origin, the bank has a particular strength dealing with public sector clients, in services as well as in deposits and credit portfolio, mainly in libranzas.

Among the strategies launched in recent years is targeting of the medium-sized enterprise segment (companies with annual sales or income between $1m and $20m), without disregarding its participation in larger enterprises and corporate credits.

Additionally, the bank offers customers other services and products such as chequing accounts, savings, term deposits, credit and debit cards and electronic banking services.

With the merging of its affiliate Leasing Popular last year, other products were included in the bank’s portfolio such as factoring, real estate leasing, capital goods leasing, infrastructure and lease back, which enlarged its customers’ ability to enhance their business needs.

Besides the credit portfolio, the bank has an investment portfolio in fixed income securities, well controlled regarding size and risk, reducing the effect of market volatility. This generates significant liquidity benefits, as it allows  Banco Popular to obtain credits from the central bank, guaranteed with securities, most of them issued by the Colombian government.

Geographic and online coverage
Banco Popular has a broad national coverage through its own branch network and transactional integration with Grupo Aval entities. It is present in all main cities of the country and in most of the municipalities.
The bank has taken care to attract attention  and new customers with its sites, opening new offices, ATMs, non banking correspondents and technological centres – where internet services, ATMs and telephones are available.

Along with traditional services, the bank has made important efforts in developing electronic banking, offering products and services online or by other transactional networks.

Profits and quality
The results of the permanent updated strategy of the bank are shown in its profit performance, which in recent years has ranked among the top performers in the banking industry – and in some quarters, led the field.

With last year’s net profit of $184m, Banco Popular obtained a return over equity of 23.5 percent as of December 2010, far higher than the 16.7 percent average of the Colombian banking sector.

This result follows from the suitable strategies developed for the management of the banking business variables – including the bank’s emphasis on financial intermediation, with high productivity standards and low risk.

The bank’s growth has been accompanied by efficient management of credit risk, using a strict control on new credits and an appropriate payables collection process, which allows the bank to maintain better than average levels of credit portfolio. This is how the productive assets of the bank represented 91 percent of the total assets as of December 2010.

The bank also develops commercial strategies on segmentation in order to assist clients according to their particular needs, helping both client retention and recruitment.

On the other hand, Banco Popular maintains a funding mix for credit hedging, mainly through chequing accounts, savings accounts, term deposits, and controlling financial expenses with a considered balance of cost and term.

A large portion of the bank’s deposits are obtained by means of banking services agreements with clients, who are committed to maintain average amounts in their accounts as a reciprocity; these resources are characterised by their high level of permanence and contribute to the funding stability.

Better indicators of administrative efficiency have also contributed to the bank’s profits. As of December 2010, the operative expenses vs. financial income ratio was 33.8 percent – better than the 44.5 percent of the total Colombian banking system.

With the aim of offering a fast and secure service to its clients, the bank has made important investments to keep its technology up to date and optimise its internal processes – focused on strengthening its internal platform, data storage systems, telecommunications and security schemes. This has enabled the broadening of services and products offered, along with the business strategy for each one of the target segments of the bank.

The bank also works with alternate contingency and operation centres – which, in the event of an accident in its primary data centre, would allow the bank to restore operations and recover its processing and production capacity. For this reason, ICONTEC has ratified during the last six years the quality certificate ISO 9001 that was granted to the bank in the year 2004 for some of its products and services, including libranzas.

Conservative risk management
In accordance with the orthodox policies of the bank, the handling of risk is part of its culture and complies with all legal regulations regarding credit, market and liquidity risk, operative risk and assets money laundering control, established by the Colombian Financial Superintendence, according to the Basilea Committee guidelines.

The strong performance of the bank is acknowledged by risk rating agencies BRC Investor Service SA and Value and Risk Rating SA, which have granted maximum rating AAA for long term debt and ‘+1’ for short term debt.

These rating entities support the results in the equity capacity of the bank, its positive financial results, the credit portfolio growth, the focus on specific market niches and the outstanding position of quality and hedging indicators. As one rating agency states, “They manage to keep the bank as one of the soundest and most profitable credit establishments of the Colombian financial system.”

During the past years of world crisis, Colombia showed a positive performance, due to the conservative management of the monetary and fiscal policies and to the stability and soundness of the financial sector.
This has produced economic growth, improved the average living standards of the population and increased the foreign investment in different sectors such as mining, oil, energy and telecommunications.

For 2011 the country is expected to keep up its growth rhythm, which forecasts a good prospect for Banco Popular’s performance and continuance of its excellent indicators.