The steps taken by Colombia toward gradually adopting Basel III requirements will lead to improved bank capital adequacy, which is a credit positive, Fitch Ratings said June 7.
Capitalization is one of the main credit weaknesses of Colombian banks, Fitch said. "While current regulatory capital ratios in Colombia remain at good levels by local standards, they trail international peers that use more conservative and globally accepted capital standards," the rating agency added. However, Fitch said it expects the banks' capitalization to improve gradually.
The country's Finance Ministry launched a consultation on recently published draft rules for the Basel III standards. The proposal aims to introduce additional capital buffers and Basel leverage ratios, while updating the definition of capital and the calculation of risk-weighted assets, Fitch said.
The rating agency noted that the proposal still lags when compared to Colombia's regional peers, given that the changes are not completely aligned with Basel III capital rules.
"The proposal excludes capital charges for operational risk, lacks a countercyclical buffer (although this is partially compensated for by the maintenance of excess loan loss provisions) and calls for a less stringent systemic conservation buffer. Additionally, the proposal does not address implementation of liquidity requirements under Basel III guidelines," Fitch said.
The transition to Basel III would lift banks' Fitch core capital ratios by about 200 basis points to 300 basis points, as higher capital buffers and reduced risk-weighted assets more than offset additional deductions from Tier 1 capital.
Overall, the agency believes Fitch-rated banks will be able to meet the new capital standards within the proposed five-year transition period.
