Increase Focus | Sofia Ocampo, Cristian Medina, & Andrés Mojica – Outstanding Universe
The landscape of Colombia’s economy and society has been profoundly shaped by the concentration of power within its banking sector. This situation, where a small number of major banks hold the lion’s share of the country’s financial capital, has led to restricted competition and limited access to credit for small and medium-sized businesses. Despite claims from these large banks that they are working towards greater financial inclusion, the reality of their dominance in the industry has only exacerbated existing inequalities.
In 2024, the government of Colombian President Gustavo Petro floated a controversial proposal aimed at redirecting citizens’ savings towards various productive projects, including expanding agricultural land, housing, and renewable energies. This initiative was designed to support decarbonization efforts and other national development goals. However, the proposal faced significant opposition from private banks, who were resistant to the idea of being compelled to invest in sectors deemed to be of national interest by the government. This stand-off highlighted the considerable influence that the major banks wield over national policy decisions.
At the heart of the disagreement over Petro’s proposal lay a fundamental question about the purpose of private savings – whether they should primarily serve corporate interests or the broader public good. Following extensive lobbying efforts, the larger banks emerged victorious in this conflict, underscoring their immense power within Colombia’s economic landscape. This debate must be viewed against the backdrop of significant changes that have characterized the country’s banking system over the past two decades, with thirteen major conglomerates coming to dominate the sector. These conglomerates not only control banks but also hold sway over pension funds and insurance companies, consolidating their grip on economic and political power.
The roots of Colombia’s banking concentration can be traced back to the financial reforms of the 1990s, creating a departure from the specialized lending entities and state-controlled practices of the past. The economic crisis of the 1980s and subsequent debt crises in the region paved the way for neoliberal policies that aimed to attract foreign investment and integrate Colombia more fully into international markets. Under the guidance of organizations like the IMF and the World Bank, the country pursued financial liberalization that emphasized stability and efficiency, with the market becoming the primary driver of financial activities.
These reforms ushered in a new era of banking in Colombia, characterized by the entry of foreign banks, deregulated interest rates, and reduced state influence in the sector. Prior to these changes, state participation in banking across Latin America was widespread, with some countries having majority state ownership of financial institutions. While these reforms were successful in many ways, the Colombian banking sector saw its fair share of challenges, with the 1990s credit boom leading to a subsequent financial crisis marked by high public debt and economic instability.
In response to the crisis, reforms were undertaken that saw the transformation of savings and housing corporations into commercial banks and the consolidation of smaller entities in the sector. Banks such as Banco Andino and Banco Selfín folded operations, while others like Megabanco were sold off to larger groups like Grupo Aval. This period marked a shift towards increasing concentration within the Colombian banking industry, setting the stage for the dominance of a few major players in the new millennium.
