Regulation and Supervision
Foreign Investment
Lending Institutions

Regulation and Supervision

The main body of regulation for Colombian banks and other financial institutions is the Financial System Organic Statute (Decree 663 of 1993). In addition, financial institutions are subject to regulations issued by the Central Bank (mainly regarding foreign exchange transactions and short-term credit for liquidity purposes) and the superintendent of banks. The supervision of financial institutions is conducted by the latter, who is appointed by the president of Colombia for an indefinite term and may be removed at any time.


A bank must be incorporated as a share corporation subject to the provisions of the Commercial Code. The prior authorization of the superintendent of banks is necessary before incorporation can take place.

In order to obtain the authorization to incorporate a bank, applicants must submit satisfactory documentation covering a number of matters to the superintendent, including:

  • the availability of the intended capital and the manner in which it will be paid;

  • the résumé or corporate professional record of the individuals or companies that will participate as initial shareholders of the financial institution;

  • the résumé of the intended directors and officers; and

  • a study regarding the viability of the financial institution, as well as its intended technical and operational infrastructure, and the control procedures that will be put in place.

The superintendent will make a decision within six months from the date all the required documentation has been submitted. The authorization will be denied where all legal requirements are not met. In the event the requirements have been complied with, the law allows the superintendent to make a discretionary decision based on his perception of the intended shareholders, directors and officers.

Once authorization has been granted, the bank may be incorporated. However, a licence will only be issued when evidence is submitted to the superintendent to the effect that, among other requirements:

  • the initial capital has been paid;

  • the bank is technically able to begin operating as described in the viability study; and

  • the bank has been registered with the Financial Institutions Guarantee Fund (the government agency providing deposit insurance).

Foreign Investment

Colombian law allows foreign investment in banks and other financial institutions, without any limitation as to the proportion of the capital that may be held by foreign shareholders. Foreign investment may be made either at the time of incorporation or through the purchase of existing shares of Colombian financial institutions. If the foreign investor intends to hold 10% or more of the share capital of the local entity, the investment is subject to the prior authorization of the superintendent of banks. The superintendent will review (among other things) the investor's activities, professional record and source of funds. This requirement is also applicable to local investors.

Further, in the event the foreign investor intends to acquire, directly or indirectly, the control of the Colombian institution, the superintendent may require that the applicant submit evidence that (i) the local entity will be subject to the supervision, on a consolidated basis, of the foreign authority supervising the controlling shareholder, and (ii) foreign authority has issued its authorization for investment in Colombia, in the event the latter is required under applicable law. In practice, this means that, in the event a controlling interest is at stake, the superintendent may refrain from considering an application from a foreign investor that is not a financial institution.

Foreign financial institutions may not operate branches in Colombia. Their activities in Colombia must be conducted through locally-incorporated subsidiaries.

Lending Institutions

Colombian financial institutions belong to one of the following categories:

  • credit establishments;

  • financial services companies;

  • long-term savings companies; and

  • other financial institutions.

There are several types of financial institution that provide credit in Colombia, all of them grouped within the credit establishments category. Credit establishments are defined as financial institutions whose main activity is to receive Colombian peso deposits from the public, in order to then lend them through credit transactions (eg, loans, discounts, bankers acceptances and credit cards). The credit establishments category comprises the following types of institution:

  • banking establishments, which may be either commercial banks or mortgage banks;

  • development banks;

  • savings and housing corporations;

  • commercial finance companies; and

  • financial cooperatives.

Banking establishments
The main activity of banking establishments is to receive deposits into checking accounts, as well as sight or time deposits, in order to then use the corresponding funds in credit transactions. Both commercial and mortgage banks engage in commercial banking activities, the only significant difference being that mortgage banks additionally make long-term loans, payable in instalments and secured with mortgages on real estate.

Development banks
Development banks take time deposits in order to effect credit transactions or make investments, whose principal purpose is the creation, expansion and reorganization of companies in various sectors of the economy. Development banks are also allowed to conduct investment banking activities.

Savings and housing corporations
Savings and housing corporations take deposits in order to lend them through long-term loans secured with mortgages on real estate. These loans are made either to construction companies or to real estate owners. Several savings and housing corporations have recently changed their status to that of mortgage banks, given that it allows them to keep their former operations while being able to engage in commercial banking activities.

Commercial finance companies take time deposits in order to use them in the financing of commercial transactions.

Financial cooperatives are entities incorporated not as companies subject to the Commercial Code, but as cooperative associations. They take deposits from the public and use them in credit transactions.

There is a trend towards the consolidation of financial institutions, with smaller entities being acquired by larger ones. This trend has been encouraged by the government, especially because smaller institutions have been seriously damaged by the crisis that has affected the Colombian financial system since 1998.

For further information on these topics please contact Juan Carlos Duran at Holguin Neira y Pombo Abogados by telephone (+57 1 312 2473) or by fax (+57 1 312 2513) or by email ([email protected]).

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.