Colombia Tightens Capital Rules to Protect Banks From ‘Viruses’

Colombia tightened capital rules for banks to vaccinate the banking system from financial “viruses,” outgoing Finance Minister Juan Carlos Echeverry said.

“The financial sector has been developing internationally, with the introduction of new agents in the local market, and the expansion of our banks into foreign markets, which reinforces the need to bring our regulations closer to international standards,” the Finance Ministry said in a statement.

The new rules take effect August 2013, and lay the foundations for Colombia to reach Basel III standards, said Gerardo Hernandez, head of the country’s financial regulator.

“The measure keeps at 9 percent the minimum adequacy level, that is, the relation that ought to hold between capital and assets, and introduces a new measure, that of basic adequacy, that affects the relation between ‘purer’ capital and assets, with a minimum level of 4.5 percent,” the ministry said in its statement.

The measures help address the central bank’s concerns with the pace of credit growth said Francisco Rodriguez, a New York-based economist at Bank of America Merrill Lynch.

In the statement accompanying its August policy meeting today, the central bank said consumer credit growth remains at high levels, even though it has moderated.

Policy makers cut their benchmark interest rate a quarter point for a second straight month, to 4.75 percent, citing the slowing world economy that’s curbing demand for the Andean nation’s commodities exports.

“This is consistent with the idea that the government wanted to allay concern with credit growth at the central bank, which may have been behind resistance to further rate cuts,” Rodriguez said, in response to an e-mailed question.

Central bank co-director Carlos Gustavo Cano said in a February interview that it is difficult for any central bank to pursue multiple goals, including its inflation target and financial stability, using only interest rates.