Colombian banking sector not at risk despite homogeneity – paper

A working paper published by the Central Bank of Colombia has concluded there is some degree of homogeneity in the nation’s banking sector.

This lack of diversity, however, does not imply the Colombian banking system is vulnerable to systemic risks. “It is inadequate to draw conclusions about systemic risk based solely on how homogeneous the banking system is,” author Carlos León argues.

In his paper, Banks in Colombia: how homogeneous are they?, León finds the “distance” among Colombia’s largest banks tends to be rather low. “The lending, investment, and funding portfolios of the two largest banks by asset size are particularly homogeneous,” he says.

In his breakdown of the results, the Colombian economist notes homogeneity varied depending on the portfolio under examination. He expresses surprise that the two largest banks’ investment portfolios were less homogeneous than the lending and funding portfolios.