Failure to Curb Colombia Deficit Is a ‘Major Worry’ for Bank CEO

(Bloomberg) -- The head of Colombia’s largest bank warned that failure to rein in the fiscal deficit risks driving away bond investors and causing a further deterioration of the nation’s sovereign credit rating.

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“When it comes to major worries, that’s one of mine,” said Juan Carlos Mora, Chief Executive Officer of Bancolombia, which has 30 million clients and $64 billion in deposits in Colombia, Central America and the US.

President Gustavo Petro’s administration forecasts that the budget deficit will widen to the equivalent to 5.3% of gross domestic product this year, from 2.7% in 2023, as sluggish economic growth dents tax revenue.

Finance Minister Ricardo Bonilla has floated the possibility of asking congress to modify the fiscal rule, or balanced-budget act, to allow the government to maintain spending on social programs. Mora sees this as risky.

“The fiscal rule exists for a reason, to keep government spending within certain parameters,” Mora said Thursday, in an interview on the sidelines of a banking conference in Cartagena. “Flexibilizing the fiscal rule doesn’t send a positive message to investors or to Colombia’s economy.”

Fitch Ratings and S&P Global Ratings have already cut Colombia to junk, while Moody’s Ratings scores it Baa2 — the second-lowest investment grade rating.

Bad Loans

Mora said Colombia’s high interest rates are taking a toll on borrowers. That’s also impacting Bancolombia, which has seen loan payments overdue by more than 30 days rising to 5.3% of the total, from 4.5% a year earlier.

The central bank cut its benchmark interest for a fourth straight meeting in April, to 11.75%, but that’s still the highest among major inflation-targeting economies in Latin America. The bank is forecast to continue monetary easing at its June 28 meeting.

“We hope decreasing rates will lessen the financial burden on households, and ultimately stop past due loans from growing,” Mora said.

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