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Into the Isthmus: Consolidation in Central America's banking sector

Into the Isthmus: Consolidation in Central America's banking sector

In recent years, Central America's banking sector has seen a wave of acquisitions by Colombian banks, who have sought new growth avenues beyond their home market. Altogether, once the last pending transaction closes, the Colombian-led M&A drive will represent some US$7 billion in investment. The banks are now a significant presence in the region, in some cases having snatched up the largest players in the local banking system. What fueled this cross-border spending spree, and why did it happen in Central America? Will the Colombian banks keep on buying? Is there anything else left to buy?

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Enter Colombia
A confluence of factors has precipitated Colombian groups’ entrance into Central America, up to this point comprising a total of seven acquisitions, perhaps the most obvious being the opportunity created by the retreat of certain international banks, such as HSBC. However, it is also true that the large acquisitions made would not have been easy elsewhere in Latin America.

Central America’s banking systems
Central America can be divided geographically, with the wealthier nations in the southern half of the isthmus and the less developed ones in the north and to some degree this division is also applicable to the local banking systems. The southern Central American countries of Panama and Costa Rica are home to the region’s respective number one and number two banking markets in terms of total assets.

What’s left?
Now that the dust has nearly settled, one would expect the Colombian banks to slow down their M&A drive. There are several reasons to think this. First and foremost, it would be the logical step after an intense round of asset buying, while Moody’s also believes that increased exposure to Central America could further strain the Colombian banks’ capital levels, which are already stretched thin in comparison with their regional peers.

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