tiprankstipranks
Bancolombia (CIB)
NYSE:CIB
US Market
Holding CIB?
Track your performance easily

Bancolombia (CIB) Risk Factors

283 Followers
Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Bancolombia disclosed 38 risk factors in its most recent earnings report. Bancolombia reported the most risks in the “Finance & Corporate” category.

Risk Overview Q4, 2023

Risk Distribution
38Risks
50% Finance & Corporate
21% Legal & Regulatory
13% Macro & Political
5% Tech & Innovation
5% Production
5% Ability to Sell
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2020
Q4
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Bancolombia Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q4, 2023

Main Risk Category
Finance & Corporate
With 19 Risks
Finance & Corporate
With 19 Risks
Number of Disclosed Risks
38
-10
From last report
S&P 500 Average: 31
38
-10
From last report
S&P 500 Average: 31
Recent Changes
1Risks added
4Risks removed
7Risks changed
Since Dec 2023
1Risks added
4Risks removed
7Risks changed
Since Dec 2023
Number of Risk Changed
7
+2
From last report
S&P 500 Average: 3
7
+2
From last report
S&P 500 Average: 3
See the risk highlights of Bancolombia in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 38

Finance & Corporate
Total Risks: 19/38 (50%)Below Sector Average
Share Price & Shareholder Rights3 | 7.9%
Share Price & Shareholder Rights - Risk 1
Preemptive rights may not be available to holders of American Depositary Receipts ("ADRs") evidencing ADSs.
The Bank's by-laws and Colombian law require that, whenever the Bank issues new shares of any outstanding class, it must offer the holders of each class of shares (including holders of ADRs) the right to purchase a number of shares of such class sufficient to maintain their existing percentage ownership of the aggregate capital stock of the Bank. These rights are called preemptive rights. United States holders of ADRs may not be able to exercise their preemptive rights through The Bank of New York Mellon, which acts as depositary (the "Depositary") for the Bank's ADR facility, unless a registration statement under the Securities Act is effective with respect to such rights and class of shares or an exemption from the registration requirement thereunder is available. The Bank is obligated to file a registration statement or find a corresponding exemption only if it determines to extend the rights to holders of the ADRs. Although it is not obligated to do so, the Bank intends to consider at the time of any rights offering the costs and potential liabilities associated with any such registration statement, the benefits to the Bank from enabling the holders of the ADRs to exercise those rights and any other factors deemed appropriate at the time before it makes a decision as to whether to file a registration statement. Accordingly, the Bank may in some cases decide not to file a registration statement. Under the deposit agreement between the Bank and the Depositary, only the Depositary is entitled to exercise preemptive rights, and the Depositary has no obligation to make available preemptive rights to holders of ADRs. If the Bank offers or causes to be offered to the holders of any deposited securities, including preferred shares of the Bank, any rights to subscribe for additional preferred shares of the Bank or any rights of any other nature, the Depositary has discretion as to the procedure to be followed in making such rights available to any holders of ADRs or in disposing of such rights on behalf of any holders of ADRs and making the net proceeds available to such holders of ADRs. If by the terms of such rights offering or for any other reason, the Depositary does not either make such rights available to any holders of ADRs or dispose of such rights and make the net proceeds available to such holders of ADRs, then the Depositary will allow the rights to lapse. Whenever the rights are sold or lapse, the equity interests of the holders of ADRs will be proportionately diluted.
Share Price & Shareholder Rights - Risk 2
Relative illiquidity of the Colombian securities markets may impair the ability of an ADR holder to sell preferred shares.
The Bank's common and preferred shares are listed on the Colombian Securities Exchange, which is relatively small and illiquid compared to securities exchanges in major financial centers. In addition, a small number of issuers represent a disproportionately large percentage of market capitalization and trading volume on the Colombian Securities Exchange. A liquid trading market for the Bank's securities might not develop on the Colombian Securities Exchange. A limited trading market could impair the ability of an ADR holder to sell preferred shares (obtained upon withdrawal of such shares from the ADR facility) on the Colombian Securities Exchange in the amount and at the price and time such holder desires and could increase the volatility of the price of the ADRs.
Share Price & Shareholder Rights - Risk 3
The Bank's preferred shares have limited voting rights.
The Bank's corporate affairs are governed by its by-laws and Colombian law. Under the Bank's by-laws and Colombian law, the Bank's preferred stockholders may have fewer rights than stockholders of a corporation incorporated in a U.S. jurisdiction. Under the Bank's by-laws and Colombian corporate law, holders of preferred shares (and, consequently, holders of ADRs) have no voting rights in respect of preferred shares, other than in limited circumstances as described in "Item 10. Additional Information – B. Memorandum and Articles of Association – Voting Rights – Preferred Shares". Holders of the Bank's preferred shares, including holders of ADRs, are not entitled to vote for the election of directors or to influence the Bank's management policies.
Accounting & Financial Operations3 | 7.9%
Accounting & Financial Operations - Risk 1
Holders of the Bank's ADRs may encounter difficulties in the exercise of dividend and voting rights.
Holders of the Bank's ADRs may encounter difficulties in the exercise of some of their rights with respect to the shares underlying ADRs. If the Bank makes a distribution to holders of underlying shares in the form of securities, the Depositary is allowed, in its discretion, to sell those securities on behalf of ADR holders and instead distribute the net proceeds to the ADR holders. Also, even in those limited instances in which the preferred shares represented by the ADRs have the power to vote, under some circumstances, ADR holders may not be able to vote by giving instructions to the depositary. This may occur if ADR holders do not receive from the Depositary a notice of meeting sufficiently prior to the instruction date to ensure that the Depositary will vote the preferred shares represented by the ADRs in accordance with instructions received from such holders. There are no circumstances in which holders of ADRs may vote in a way other than by providing instructions to the Depositary.
Accounting & Financial Operations - Risk 2
Changed
The Bank's financial results may be negatively affected by changes to accounting standards.
The consolidated financial statements of the Bank are prepared in accordance with IFRS, issued by the IASB, as well as the interpretations issued by the International Financial Reporting Interpretations Committee (hereinafter refer to as IFRS-IC). Changes to IFRS or its interpretations may cause future reported results and financial position to differ from current expectations. Such changes may also impact the Bank's regulatory capital and financial ratios. Management monitors potential accounting changes and, when possible, determines their potential impact, disclosing significant future changes in the Bank's consolidated financial statements that are expected as a result of those changes. For further information about developments in financial accounting and reporting standards, see Note 2.F to the Consolidated Financial Statements, Material accounting policies, Recently issued accounting pronouncements.
Accounting & Financial Operations - Risk 3
Changed
The Bank's financial results may be negatively affected by changes to assumptions supporting the value of our goodwill.
The Bank tests for impairment, at least annually, the goodwill that has been recognized with respect to the financial positions of its operating segments. The impairment test for assets recognized as of December 31, 2023, indicated that the Bank's goodwill balances are not impaired. The impairment test requires that management make assumptions regarding estimated earnings, discount rates, and long-term growth rates that impact the recoverable amount of the goodwill associated with each operating segment, as well as estimates of the carrying amounts of the operating segments to which the goodwill relates. Additionally, the impairment test requires that management analyzes the macroeconomic and political environment of the geographies in which each cash-generating unit ("CGUs") is located. If actual results in future periods deviate from the earnings and other assumptions on which the impairment testing is based, the value of the goodwill in any one or more of the Bank's businesses may become impaired in the future, resulting in expense charges. For further information, see Note 2.E to the Consolidated Financial Statements, Material accounting policies, Use of estimates and judgments.
Debt & Financing12 | 31.6%
Debt & Financing - Risk 1
Changed
The Bank has significant exposure to sovereign risk, and especially Colombian, United States and Salvadoran, Panama and Guatemala sovereign risk, and the Bank's results could be adversely affected by decreases in the value of its sovereign debt instruments.
The Bank's debt portfolio is primarily composed of sovereign debt securities. Therefore, the Bank's results are exposed to credit, market, and liquidity risk associated with sovereign debt, in particular risk associated with securities issued or guaranteed by the Colombian Government. As of December 31, 2023, the Bank's total debt instruments represented 7.32% of its total assets, and 29.97% of these securities were issued or guaranteed by the Colombian Government, and 8.90% were issued or guaranteed by the El Salvador Government. A significant decline in the value of the securities issued or guaranteed by the Colombian Government could adversely affect the Bank's debt portfolio and consequently the Bank's results of operations and financial position. In addition, during the last year, the sovereign risk associated with the securities issued or guaranteed by the Panama, Guatemala and United States Governments have increased. Its 5-year credit default swap, credit derivative contracts that enable investors to swap credit risk on a company, a country or another entity, showed an increase during 2023 due to political uncertainty in Panama and Guatemala, and the concern about United States government finances and its debt burden. The securities issued or guaranteed by the governments of Panama, Guatemala and United States represented 5.38%, 4.12% and 14.18% of the Bank's total debt instruments, as of December 31, 2023, and a significant decline in the value of these securities could affect the Bank's debt instruments portfolio.
Debt & Financing - Risk 2
Changed
The Bank is subject to credit risk with respect to its non-traditional banking businesses including investing in securities and entering into derivatives transactions. The Bank is subject to market, liquidity, operational and counterparty credit risks associated with its derivative transactions.
Non- traditional sources of credit risk can arise from, among other things: investing in securities, entering into derivative contracts under which counterparties have obligations to make payments to the Bank, executing securities, or currency trades from the Bank's proprietary trading desk that fail to settle at the required time due to non-delivery by the counterparty or system failures by clearing agents, exchanges, clearing houses or other financial intermediaries. A significant increase in exposure to any of these non-traditional risks, or a significant decline in the credit quality or the insolvency of any of the counterparties, could materially and adversely affect the Bank's results of operations and financial position. The Bank enters into derivative transactions for hedging purposes on its own account and for its customers. The Bank is subject to market, liquidity (due to the difficulty in closing out a trade prior to maturity if bid-ask spreads are too large, representing a significant cost) and operational risk associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder). In addition, the market practice and documentation for derivative transactions is less developed in the jurisdictions where the Bank operates as compared to other more economically developed countries, and the court systems in such jurisdictions have limited experience in dealing with issues related to derivative transactions. As a result, there are increased operating and structural risks associated with derivatives transactions in these jurisdictions. In addition, the execution and performance of derivatives transactions depend on the Bank's ability to develop adequate control and administrative systems, and to hire and retain qualified personnel. Moreover, the Bank's ability to adequately monitor, analyze and report these derivative transactions depends, to a great extent, on its information technology systems. These factors may further increase the risks associated with these transactions and could materially and adversely affect the Bank's results of operations and financial position.
Debt & Financing - Risk 3
Downgrades in the credit ratings of the Bank and its subsidiaries would increase their cost of borrowing funds and make their ability to raise new funds, attract deposits or renew maturing debt more difficult.
The credit ratings of Bancolombia and its subsidiaries are an important component of the liquidity profile of the Bank and each of its subsidiaries. The Bank's ability to successfully compete depends on various factors, including the financial stability of each of its entities, as reflected by their credit ratings. A downgrade in the credit ratings of the Bank or its subsidiaries would increase the cost of raising funds from other banks, or in capital markets. Furthermore, purchases of Bancolombia's securities by institutional investors could be reduced if these securities experiment a decline in their credit ratings. The ability of the Bank or its subsidiaries to renew maturing debt could become restricted and the terms for such renewal could become more expensive if their credit ratings were to decline. The Bank's, lenders and counterparties in derivative transactions are also sensitive to the risk of a credit rating downgrade. A downgrade in the credit rating of the Bank or its subsidiaries may adversely affect perception of their financial stability and their ability to raise deposits, which could make each entity less successful when competing for deposits and loans in the marketplace. In January 2024, Standard & Poor's revised Colombia's sovereign credit rating outlook from stable to negative, due to concerns about low levels of public and private investment that could affect the medium-term growth capacity of Colombia's GDP. The agency affirmed its 'BB+' long-term foreign currency and 'BBB-' long-term local currency sovereign credit ratings in Colombia. This revision was followed by a revision by Standard & Poor's of its outlook from stable to negative for three Colombian commercial banks and subsidiaries and for two government-owned banks (including Bancolombia and its Panama-based subsidiaries, Banistmo S.A. and Bancolombia Panama S.A.). Due to the direct and indirect impacts that sovereign stress can have on banks' business operations and creditworthiness, the agency typically do not rate Colombian financial institutions higher than the foreign currency sovereign ratings.
Debt & Financing - Risk 4
The value of the collateral securing the outstanding principal and interest balance of the Bank's loans may not be sufficient to cover such outstanding principal and interest. In addition, the Bank may be unable to realize the full value of the collateral or guarantees securing the outstanding principal and interest balance of its loans.
The Bank's loan collateral primarily includes real estate, owned assets used for financial leasing transactions and other assets that are located primarily in Colombia, El Salvador, Panama and Guatemala, the value of which may significantly fluctuate or decline due to factors beyond the Bank's control. Such factors include market factors, environmental risks, macroeconomic factors and political events affecting the local economy. In addition, the Bank may face difficulties in enforcing its rights as a secured creditor. Timing delays, procedural problems enforcing collateral and local protectionism may make foreclosures on collateral and enforcement of judgments difficult. Any decline in the value of the collateral securing the Bank's loans may result in a reduction in the recovery from collateral realization and may have an adverse impact on the Bank's results of operations and financial condition.
Debt & Financing - Risk 5
The Bank is subject to risks from concentration in its loan portfolio. Problems with one or more of its largest borrowers may adversely affect its financial condition and results of operations.
As of December 31, 2023, the aggregate outstanding principal amount of the Bank's 20 largest economic groups, on a consolidated basis, represented 110.9% of the Bank's Tier 1 and 13.4% of the Bank's loan portfolio. No single group exposure represented more than 1.5% of the loan book. Problems with one or more of the Bank's largest economic groups could materially and adversely affect its results of operations and financial position.
Debt & Financing - Risk 6
The Bank is subject to credit risk and estimating exposure to credit risk involves subjective and complex judgments.
A number of our products expose the Bank to credit risk. These products include loans, financial leases, guarantees, financial derivatives and lending commitments. The Bank estimates and establishes reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions about the ability of our borrowers to repay their loans. This process is also subject to human error as the Bank's employees may not always be able to assign an accurate credit risk rating to a client, which may result in the Bank's exposure to a higher credit risk than one indicated by the Bank's risk rating system. The Bank may not be able to timely detect these risks before they materialize, or due to limited resources or available infrastructure, the Bank's employees may not be able to effectively implement its credit risk management system, which may increase the Bank's exposure to credit risk. Moreover, the Bank's failure to continuously refine its credit risk management system may result in a higher risk exposure for the Bank, which could materially and adversely affect its results of operations and financial position. Overall, if the Bank is unable to effectively control the level of non-performing or poor credit quality loans in the future, or if its loan loss reserves are insufficient to cover future loan losses, the Bank's financial condition and results of operations may be materially and adversely affected. The amount of the Bank's non-performing loans may increase in the future as a result of factors beyond the Bank's control, such as changes in the income levels of the Bank's borrowers, increases in the inflation rate or an increase in interest rates, the impact of macroeconomic trends and political events affecting Colombia and other jurisdictions in which the Bank operates or has exposure (especially Panama, El Salvador and Guatemala) or events affecting specific industries. Any of these developments could have a negative effect on the quality of the Bank's loan portfolio, requiring the Bank to increase provisions for loan losses resulting in reduced profits or in losses.
Debt & Financing - Risk 7
The Bank is exposed to ESG risks that could affect the Bank's financial condition and results of operations.
With respect to social, environmental and sustainability (ESG) trends, the financial sector faces a significant challenge in its role as a catalyst in the fight against climate change, with the sector playing a crucial role in the transition to a low-carbon economy and adaptation to climate threats, including providing financing to projects and companies aligned with the Sustainable Development Goals. The focus on ESG also highlights the importance of good governance practices related to the evaluation and supervision of non-financial and emerging risks, and the importance of social considerations to the growth of organizations. The Bank may not be able to appropriately address ESG concerns that may arise, including as a result of its business activities and failure to meet regulatory (such as the External Circulars 031 of 2021 from Superintendecia Financiera de Colombia – SFC) or stakeholder expectations on environmental impact, including climate change. The implementation of climate risk management systems represents a challenge, since it is necessary to alter traditional risk processes for the implementation of methodologies, policies and procedures that adequately manage these particular risks. In relation to clients' physical risks related to climate change, the potential impact on the Group is observable through the Bank's expected credit loss (ECL) and probability of default (PD) models involving clients that have been prioritized by the Bank for analysis. The output of these models is driven by the potential operational losses that climate change may have on the productive activities of our clients and on their ability to satisfy their payment obligations to us. Additionally, when considering economic sectors with an intensive carbon footprint, transition risks can result in risks to the Bank (as they may increase spending by clients in these sectors) which could increase the probability of default on financial obligations. Serious climate events can affect business continuity, infrastructure, processes and headcount at branches and offices. As a consequence, the Group is faced with the management and administration of physical risks (both in respect of its own facilities and operations and those of its clients) and transition risks, which could negatively impact the value of the assets delivered to the Bank in payment and of its own fixed assets such as buildings, branches and ATMs, as well as the assets and operations of its clients. Physical risks of climate change for our customers are exacerbated by their dependence on natural resources for their operations and activities, loss of biodiversity, impacts on critical ecosystems and deforestation. Our customers could also be affected by climate-related legislation and policy developments, and business trends and changes in consumer behavior related to climate change and technology (such as the process of transitioning to a lower-carbon economy).   Physical and transition risks may result in capital losses either due to market changes or non-compliance with new climate-related regulations or interpretations of existing laws requiring enhanced disclosure obligations, affecting our customers' financial conditions, results of operations and cash flows and, consequently, their ability to make required payments. Our challenges to strengthening our ability to adapt to, and resiliency against, the risks of climate change include the need for the emergence of new businesses focused on resilient infrastructure, early warning systems and strategies to face climate change; identifying and accessing the funds and resources to support the transition to a low-carbon economy; and strengthening of corporate governance and risk processes that guide progress and strategies with respect to these matters, usually tied to compliance with ESG Key Performance indicators (KPIs). Failure to comply with these KPIs may result in negative consequences for the Bank, such as reputational damage and loss of trust by clients, potential regulatory sanctions by government authorities that seek the integration of ESG indicators in financial supervision, the risk of financial losses and the deterioration of the value of assets due to environmental liabilities. Inadequate management of the tracking and monitoring of ESG indicators may result in risks for the Bank, both in the short and long-term and loss in market share.
Debt & Financing - Risk 8
The Bank is subject to market risk and its income from its proprietary trading activities is highly volatile.
The Bank is directly and indirectly affected by changes in market conditions. Market risk, or the risk of losses in positions arising from movements in market prices, is inherent in the products and instruments associated with our operations, including securities, bonds, proprietary trading in assets and liabilities and derivatives, among others. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, and changes in the implied volatility of interest rates and foreign currency exchange rates, among others. The Bank derives a portion of its profits from its proprietary trading activities. Income from this activity is highly volatile and depends on numerous factors beyond the Bank's control, such as the general market environment, overall market trading activity, interest rate levels, fluctuations in exchange rates, oil prices and general market volatility. A significant decline in the Bank's trading income, or the incurrence of a trading loss, could adversely affect the Bank's results of operations and financial position.
Debt & Financing - Risk 9
Future restrictions on interest rates or banking fees could negatively affect the Bank's profitability.
In prior years, the regulators of the jurisdictions in which the Bank operates have considered various legislative and/or regulatory initiatives regarding interest rates and banking fees. Although most of such initiatives have not been adopted in the past, there may be renewed attempts to impose restrictions on interest rates or banking fees in the future. If we are prohibited or otherwise limited (including by limits with respect to pricing) from continuing to charge our clients for certain products or services, including specified types of transactions, or from imposing charges for products or services that might be introduced in the future, our results of operations and financial condition could be adversely affected.
Debt & Financing - Risk 10
The Bank's results of operations are sensitive to fluctuations in interest rates.
The Bank holds a substantial portfolio including loans, deposits, securities, bonds, long-term debt and short-term borrowings and derivatives as swaps that have both fixed and floating interest rates. Therefore, changes in interest rates could adversely affect our net interest margins as well as the value of the debt instruments. Increases in interest rates may reduce the market value of the Bank's debt instruments, leading to smaller gains or larger losses on these investments (a 100 bps increase in interest rate could reduce the market value of the debt instruments in approximately 1.3%). Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. On the other hand, cuts in interest rates may cause margin compression and lower net interest income as the Bank usually holds more assets than liabilities at variable rates. Decreasing interest rates also may trigger loan prepayments which could negatively affect the Bank's net interest income. Generally, in a declining interest rate environment, prepayment activity increases, reducing the weighted average maturity of the Bank's interest earning assets and adversely affecting its operating results. Prepayment risk also has a significant adverse impact on the Bank's earnings from its credit card and collateralized mortgage obligations, since prepayments could shorten the weighted average life of these portfolios, which may result in a mismatch in funding or in reinvestment of the prepayment proceeds at lower yields. In addition, these risks could significantly impact the Bank's portfolio as well as portfolios managed by the Bank and owned by third parties. To the extent we experience withdrawals of third-party assets, our asset management revenues and related income could be adversely affected. Given the expectations of interest rate decreases in 2024, we would expect a reduction of net interest margin and a new valuation of the Bank's debt instrument portfolio.
Debt & Financing - Risk 11
The Bank's policies and procedures may not be able to detect money laundering, terrorism financing, corruption or other illegal or improper activities fully or on a timely basis.
The Bank is required to comply with applicable anti-money laundering, anti-terrorism and anti-corruption laws and regulations. These laws and regulations require the Bank, among other things, to adopt and enforce "know your customer" policies and procedures and report suspicious and large transactions to the applicable authorities; such regulations are contained in the "SARLAFT Manual" (AML Manual) that is reviewed and updated annually or earlier if there are any relevant changes in the applicable regulation. While the Bank has adopted policies and procedures, based on risk approach, (including ultimate beneficial owners identification) aimed at preventing and detecting the use of its banking network for money laundering and terrorism financing activities and by terrorists and terrorist-related organizations and individuals generally, as the methods used by criminals evolve and become increasingly sophisticated, such policies and procedures may not completely eliminate the risk that the Bank may be used by other parties to engage in money laundering, terrorism financing, corruption or other illegal or improper activities. The Bank is subject to laws and regulations that prohibit corrupt payments to public officials and other forms of corruption, including the U.S. Foreign Corrupt Practices Act and Colombian regulations on transnational bribery, domestic bribery and others forms of corruption. The Bank has anti-corruption policies and procedures, aimed at preventing, detecting and responding to acts of corruption potentially committed by our directors, employees, suppliers and other relevant constituencies. These include its anti-corruption policy, which is reviewed biannually and updated as needed, training based on behavioral science, reporting channels such as the Ethics Line, monitoring, internal investigations, sanctions and the whistleblower protection policy. While this system is designed to prevent and detect corrupt behavior, it does not eliminate the risk that the Bank´s directors, employees, suppliers and other relevant counterparts may engage in corrupt practices. If the Bank fails to fully comply with applicable laws and regulations, it may face fines, penalties or other liabilities including restrictions on its ability to conduct business. In addition, the Bank's business and reputation could suffer if it is not able to prevent and detect money laundering, terrorism financing, corruption, or other illegal practices.
Debt & Financing - Risk 12
The Bank is subject to operational risks and losses.
The Bank is exposed to operational risk. These include the risks of fraud by employees or third parties, human errors, inadequate process definition, or technological failures that affect the availability of services or result in the improper processing, authorization, and recording of transactions and operations. The financial sector is particularly vulnerable to the risk of fraud due to the increasing digitization of its processes and services, including the implementation of customer experiences that allow customers to carry out transactions at any time and from anywhere, among other factors. This vulnerability makes it necessary not only to strengthen the technological infrastructure and cybersecurity of banks but also to enhance the financial education of their customers. It is essential to continually reinforce concepts related to the security and privacy of passwords and transactions. Given that the Bank has an extensive network of suppliers essential for the provision of its services, failures and weaknesses in these suppliers or their inability to manage any of their risks appropriately could impact the operation of the Bank. These supplier issues could result in increased costs, compromise confidential information, and result in a decline in the quality or continuity of product and service offerings. The Bank, in its process of evolution, aims to have a better value proposition through digital channels, the design of new business models supported, for example, by Banking as a Service, and the adoption of new technologies and systems that enable its transformation process. However, these new technologies and business models can bring about new risks or amplify existing ones.
Corporate Activity and Growth1 | 2.6%
Corporate Activity and Growth - Risk 1
Acquisitions and strategic alliances may not perform in accordance with expectations or may disrupt the Bank's operations and adversely affect its profitability.
An element of the Bank's business strategy is to identify and pursue growth-enhancing strategic opportunities. The Bank may base assessments of potential acquisitions and alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect, and any future acquisitions, investments and alliances may not produce the anticipated synergies or perform in accordance with the Bank's expectations which could adversely affect its operations and profitability. In particular, the Bank holds a minority financial investment, through a private equity fund, in an infrastructure project located in Colombia. In previous years, the main shareholder of the project and the concession company faced negative press related to irregular practices. If any of these situations result in sanctions or convictions then the company in which the Bank indirectly holds a minority stake, which is the holder of a toll road concession, may suffer a reputational harm, which in turn may have an adverse impact on its results of operations and financial condition and the return on the Bank's investment.
Legal & Regulatory
Total Risks: 8/38 (21%)Above Sector Average
Regulation3 | 7.9%
Regulation - Risk 1
The Bank faces risks relating to regulatory compliance in general, and in particular with respect to laws relating to anti-competitive practices, consumer protection and protection of personal data.
The Bank must comply with laws and regulations related to, among other things, anti-competitive practices, merger control unfair, competition provisions, personal data protection and consumer protection. While responsibility for compliance is covered by different divisions of the Bank that work as an integrated compliance framework, the Bank has also been implementing a special unit for overseeing and ensuring regulatory compliance in general, which is constantly evolving. To ensure compliance for personal data law, the Bank has developed a comprehensive data protection program. The risk of non-compliance with these laws and regulations may result in significant sanctions. The Bank may not be able to prevent all risks associated with regulatory compliance or detect all instances of non-compliance with the regulations described above. Any failure by the Bank to detect and prevent those practices in a timely manner could damage the Bank's reputation and cause it to incur substantial fines and penalties which could adversely affect the Bank's results of operations and financial position.
Regulation - Risk 2
The Bank is subject to regulatory inspections, examinations, inquiries or audits in Colombia and in other countries where it operates, and any sanctions, fines and other penalties resulting from such inspections, examinations, inquiries or audits could materially and adversely affect the Bank's business, financial condition, results of operations and reputation.
The Bank is subject to comprehensive regulation and supervision by the financial authorities of Colombia, Panama, El Salvador, Guatemala, and the other jurisdictions where the Bank operates. These financial authorities have broad powers to adopt regulations and impose other requirements affecting or restricting virtually all aspects of the Bank's capitalization, organization and operations, including the imposition of anti-money laundering measures and the authority to regulate the terms and conditions on which the Bank can extend credit. In the event of non-compliance with applicable regulations, the Bank could be subject to fines, sanctions or the revocation of licenses or permits to operate its business. In Colombia, for instance, if the Bank encounters significant financial problems or becomes insolvent or in danger of becoming insolvent, banking authorities would have the power to take over the Bank's management and operations. Any sanctions, fines or other penalties resulting from non-compliance with regulations in Colombia, El Salvador, Guatemala, Panama and other jurisdictions in which the Bank operates could materially and adversely affect the Bank's business, financial condition, results of operations and reputation.
Regulation - Risk 3
Changed
Changes in banking regulations in Colombia and in other jurisdictions where the Bank operates could adversely affect the Bank's consolidated results.
Banking laws and regulations, or their official interpretation, in Colombia and in other jurisdictions in which the Bank operates have a material effect on the Bank's business and operations. Banking laws and regulations may change frequently, and changes may be adopted, enforced or interpreted in a manner that may have an adverse effect on the Bank's business. In August 2022, Colombia shifted to a new government with a political agenda that could affect the financial sector and have impacts on capital-intensive industries. Additionally, the increasing tendency to improve financial consumer protection standards among legislators, regulators and higher courts, could result in additional operational costs and a reduction in the Bank's income. Although at the Congressional level, flagship projects (health reform, pension reform and labor reform) continue through legislative procedure, the risks to the financial sector could derive from provisions adopted by other authorities, such as potential intervention on interest rate limits (as indicated in item 4.B.8.1) or fees. This may limit the ability of the Bank and other lenders to manage credit risks. The SFC has submitted for public comment new rules regarding the implementation of the internal capital and liquidity adequacy assessment process rules and stress testing procedures. The Bank could face potential financial impacts in case the rules of the SFC are more server than the Basel Committee on Banking Supervision Standards, which could result in higher capital adequacy and liquidity requirements at a system level.
Litigation & Legal Liabilities1 | 2.6%
Litigation & Legal Liabilities - Risk 1
Allegations of corruption against the government, politicians, and the private sector in the countries where we operate could create economic and political uncertainty and could expose us to additional credit risk.
Allegations of corruption against the government, politicians, and the private sector in the countries where we operate could create economic and political uncertainty. For example, findings or convictions of illicit conduct committed by such entities, including government personnel, or alleged wrongdoings, could have adverse effects on the political and economic stability of the countries where the Bank operates. These adverse political and economic effects may negatively impact our business, by depressing business volumes, reducing our ability to recover amounts we have lent to persons or projects involved in illicit or allegedly illicit conduct.
Taxation & Government Incentives4 | 10.5%
Taxation & Government Incentives - Risk 1
Any additional taxes resulting from changes to tax regulations or the interpretation thereof in countries where the Bank operates, could adversely affect the Bank's consolidated results.
Uncertainty related to tax legislation represents a constant risk for the Group. Changes in legislation, regulation, and developments resulting from judicial judgments, could affect the Group's tax burdens by increasing tax rates and fees, creating new taxes, limiting deductions and exemptions, and eliminating incentives and non-taxed income. The Bank does not adopt aggressive positions on tax law interpretation; however, the national or local tax authorities may not apply the tax law in the same way that we expected. Different interpretations of tax regulations could result in future tax audits, litigation, and associated costs, which could negatively affect our results.
Taxation & Government Incentives - Risk 2
The Bank and most of its Subsidiaries are subject to the U.S. Foreign Account Tax Compliance Act of 2010 and the OECD's Automatic Exchange of Information - Common Reporting Standard (CRS).
Bancolombia and most of its subsidiaries are considered foreign financial institutions ("FFIs") under the Foreign Account Tax Compliance Act of 2010 ("FATCA") (see "Item 4. Information on the Company – B. Business Overview – B.8. Supervision and Regulation – International regulations applicable to Bancolombia and its subsidiaries"). Additionally, Bancolombia and some of its subsidiaries are subject to reporting obligations derived from the Common Reporting Standard ("CRS") Multilateral Competent Authority Agreement ("MCAA") developed by the OECD. In light of this and Colombian law, we have taken measures and implemented policies and procedures aimed to comply with FATCA and CRS. However, if Bancolombia or its Subsidiaries fail to comply with the requirements thereunder, certain payments to Bancolombia, or its Subsidiaries may be subject to withholding under FATCA or other penalties that tax authorities may impose according to their domestic regulations. Such withholding or penalties could adversely affect our results of operations and financial condition. In addition, compliance with the provisions of the intergovernmental agreements ("IGA"), FFI agreements entered into with the IRS, the CRS-MCAA, domestic laws or any other regulations enforced in the relevant jurisdictions, may increase our compliance costs.
Taxation & Government Incentives - Risk 3
The tax haven regulation in the countries where the Bank operates could adversely affect its business and financial results.
As a result of the tax haven regulation adopted in Colombia and El Salvador, the Bank's clients who are residents in the territories designated as such would be subject to (i) higher withholding tax rates on interest and dividends, mainly derived from investments in the securities market, (ii) non-deductibility of payments made to such residents or entities located in tax havens unless the required tax amount has been withheld, (iii) requests by the tax authorities for the disclosure of additional information for transactions with related companies  and (iv) increased probability of tax audits, any of which could have a negative impact on Bancolombia's business and financial results.
Taxation & Government Incentives - Risk 4
Changes in Colombia's tax regime may affect ADRs tax treatment.
ADRs do not have the same tax treatment as other equity investments in Colombia. ADRs represent Bancolombia's preferred shares and are held through a fund of foreign capital in Colombia which is subject to a specific tax regulatory regime. Accordingly, the applicable law in Colombia to equity investments, in particular, those relating to dividends and profits from sale, do not apply to ADRs, including the Bank's ADRs. Notwithstanding the above, the tax regime applicable to ADRs may change, considering that the Colombian tax regime has undergone several changes in recent years. For more information, see "Item 10. Additional Information. – E. Taxation – Colombia Taxation".
Macro & Political
Total Risks: 5/38 (13%)Above Sector Average
Economy & Political Environment4 | 10.5%
Economy & Political Environment - Risk 1
The Bank's results could adversely be affected by high levels of inflation.
High levels of inflation increase the interest rates, generating effects such as increases in the cost of funding, increases in credit risk, a slowdown in the placement of loans and, the potential reduction of net interest income. Additionally, high levels of inflation reduce the market value of the Bank's debt instruments, while increasing the market risk. Another impact of inflation is its effect on the real interest rate. When the inflation rate is higher than the nominal interest rate, negative real interest rates discourage savings, and increase uncertainty and risk in the loan market and the stock market. Recently, the inflationary challenge that started in 2022 has largely been addressed in El Salvador, Guatemala, and Panama, such that it is not a significant source of concern in any of these countries today. CPI Inflation went from 7.3% in the end of 2022 to 1.2% in the end of 2023 in El Salvador, from 9.2% to 4.2% in Guatemala, and from 2.6% to 2.1% in Panama. However, the situation in Colombia is somewhat different. The annual inflation measured by the Consumer Price Index started to decline in Colombia beginning in the second quarter of 2023, which resulted in the annual CPI decreasing from 13.1% at the end of 2022 to 9.3% at the end of 2023; however, this is still significantly above the Central Bank's medium-term target of 3%. In Colombia, there are persistent upside risks that suggest the process of reducing inflation will be lengthy, and it is highly possible that even by the end of 2024, target levels may not be achieved. Risks in this regard stem from the impact of the El Niño climate phenomenon on food prices and electricity tariffs, a significant increase in the minimum wage (12% in nominal terms, against a 9.3% year-end annual inflation), as well as the government-mandated increases in the price of diesel and toll rates on the country's main national roads. All of this indicates that, despite the Central Bank initiating a reduction in interest rates since December 2023, the normalization process for inflation and interest rates will be lengthy. It is reasonable to expect that the demand for credit portfolios will remain modest, and the reduction in interest rates could start negatively impacting the net interest margin of credit institutions. Therefore, 2024 may pose a more challenging year than previous years for the operation of financial intermediation due to an inflationary challenge that will continue to be more formidable compared to other major economies in Latin America, the United States, and the European Union.
Economy & Political Environment - Risk 2
Changed
The economies of the countries where the Bank operates are vulnerable to external effects as result of economic difficulties experienced by major regional trading partners or by general contagion effects resulting from economic or geopolitical shocks, which could have a material adverse effect on economic growth in these countries and their ability to service their public debt.
A significant decline in economic growth or a sustained economic downturn of any of Colombia, Panama, El Salvador or Guatemala's major trading partners or countries with close economic ties (i.e., the European Union, the United States, China and other Latin American countries for Colombia; and the United States and European Union for Panama, Guatemala and El Salvador) could have a material adverse impact on Colombia, Panama, El Salvador and Guatemala's foreign trade, remittances inflows and foreign direct investment, resulting in lower economic growth. Deterioration in the economic and political situation in neighboring countries could adversely affect the economy and cause instability in Colombia, Panama, El Salvador and Guatemala by disrupting their diplomatic or commercial relationships with neighboring countries. Any future tensions may cause political and economic uncertainty, instability, market volatility, low confidence levels and higher risk aversion by investors and market participants that may negatively affect economic activity in any of those jurisdictions. Events occurring in a market where we do not operate may cause international investors to have an increased risk perception of an entire region or class of investment, which could in turn negatively affect market prices and liquidity of securities issued or owned by the Bank. Recent global geopolitical fragmentation poses a greater risk for the countries where the Bank has a presence. This has resulted and may continue to result in a decrease of capital flows towards countries with emerging economies and exert pressure in such countries, leading to a higher level of volatility than what would be considered normal in commodity price behavior, especially for commodities like oil. This situation may impact inflation trends, particularly in El Salvador, Panama, and Guatemala. Conflicts in Ukraine and the Middle East can result in additional uncertainty and volatility in international markets, which could negatively affect the Bank's financial condition and results of operations. Meanwhile, the global context of economic deceleration and persistently high interest rates, despite expectations of a decrease in 2024, creates an environment where financial stress and the high reactivity of capital flows to emerging economies can keep financial stress elevated. As a result of this, it is reasonable to expect that debt service payments in government spending budgets will continue to be high from an historical perspective. This combination of low economic growth and, although decreasing, still high interest rates (with greater relevance in Colombia and El Salvador) represents a short-term risk inherent in the economic cycle these countries are experiencing. It requires responsible macroeconomic management by authorities. In respect of this, the primary challenge for Colombia and El Salvador relates to public finances and how adverse risks in this area may play out in 2024 and the subsequent years, due to significant risks to achieving the tax revenues necessary to reliably finance spending goals.
Economy & Political Environment - Risk 3
Colombia and El Salvador have experienced several periods of violence and instability that could affect the economy and the Bank.
Colombia has experienced periods of criminal violence over the past five decades, primarily due to the activities of guerilla groups and drug cartels. Colombia is currently implementing the peace treaty signed with the Revolutionary Armed Forces of Colombia ("Fuerzas Armadas Revolucionarias de Colombia" or "FARC"). There are presently a number of other illegal armed groups in Colombia, such as the National Liberation Army ("Ejército de Liberación Nacional" or "ELN"), among others. Furthermore, the Colombian government has started peace negotiations with several rebel groups throughout the country, yet negotiations are at a very early stage. Notwithstanding the implementation of these peace treaties and dialogues, the successful integration of illegal armed groups into Colombian society may not be achieved. An escalation of violence or drug-related crime may have a negative impact on the Colombian economy and on the Bank as a result of the downgrade of sovereign ratings increasing the funding costs, discouraging foreign investment, and leading to an economic slowdown. Additionally, in El Salvador, the increase in violence led the legislative assembly, to adopt certain exceptional measures on March 27, 2022, conferring some powers to the Executive Power and suspending four constitutional guarantees. The suspension of constitutional guarantees has been extended 22 times, with the most recent suspension occurring from March 12, 2024 to April 10, 2024.
Economy & Political Environment - Risk 4
Changes in economic and political conditions in the countries where the Bank operates may adversely affect the Bank's financial condition and results of operations.
The Bank's financial condition, results of operations and asset quality depend on the macroeconomic and political conditions prevailing in Colombia, Panama, El Salvador, Guatemala, and the other jurisdictions where the Bank operates. Accordingly, a slowdown in the economic growth rate, periods of negative growth, increases in inflation, changes in economic policy, or future judicial interpretations of policies involving exchange controls and other matters such as currency depreciation, interest rates, taxation, banking laws and regulations, and other political or economic developments in such jurisdictions may affect the overall business environment and may, in turn, negatively affect the Bank's financial condition and results of operations. In particular, the governments of Colombia, Panama, El Salvador, and Guatemala have historically exercised substantial influence on their economies, and in the future, they may implement decisions that could impact the business and results of companies in such countries (including the Bank), market conditions, and prices and rates of return on securities of local issuers (including the Bank's securities). Potential changes in laws, public policies and regulations may cause instability in Colombia, Panama, El Salvador and Guatemala, and their respective markets. The evolution of government policies and polarization could adversely affect the financial and commercial condition of the Bank and the market value of its securities. Furthermore, it is foreseeable that in the coming years this risk will become more significant, due to the global trend of 'pendulum movement' within the political spectrum in the elections of political leaders in different countries, increasing global tensions, international conflicts, polarization, distrust in governments and growing social discontent, which could increase social protests. This combination of elements could trigger a medium-term environment in which instability and political risks may be greater than those that have predominated in recent years. In Colombia, our expectation is that GDP growth will slow down as the government attempts to reduce inflation to target levels through the current high interest rate policy of the Central Bank. 2024 is expected to be one of the slowest years of GDP growth in the current economic cycle for Colombia after an already weak 2023 (0.6% of annual GDP growth, a figure lower than what is typically considered as representing potential growth capacity). The slowdown in economic growth has resulted and may in the future result in weakening of the labor market and decrease in domestic demand, factors that have impacted and may continue to stress the ability of our customers to meet their financial obligations. Meanwhile, in 2024, the ongoing discussions around the comprehensive reform agenda that the government is implementing (pensions, labor, healthcare, and public services) has and may continue to create uncertainty (including with respect to fiscal sustainability and capital markets) and affect investment and consumer confidence. On January 2024, Standard & Poor's revised Colombia's sovereign credit rating outlook from stable to negative, due to concerns about low levels of public and private investment that could affect the medium-term growth capacity of Colombia's GDP. In the next 24 months, there could be another downgrade in Colombia's sovereign rating if the government does not implement initiatives to boost productive investment or control public finances. While the recent changes in market interest rates that the Government pays on its debt is already higher than what would be reasonable given its current sovereign rating, indicating that the market has incorporated the possibility of a new credit rating downgrade, the primary medium-term impact could be a steeper yield curve for sovereign debt. This, in turn, would affect long-term interest rates for households and businesses and represent an additional constraint on the investment capacity in the country. Despite some evidence in 2023 of Colombian institutional strength, which allowed for a partial recovery of investor confidence, a weakened government following the 2023 local elections could continue to cause political, economic, and institutional uncertainty in 2024, which could adversely affect our operations. El Salvador continues to face medium-term challenges with its public finances. The fiscal outlook for the country is uncertain, and although short-term liquidity risks have been addressed with measures adopted by the government in 2023, fiscal pressures may still have negative impacts on public finances. These uncertainties are having negative effects on the country's access to capital markets for financial resources, making it dependent on capital flows from multilateral entities or other countries. Uncertainty also exists with respect to the possibility of the country reaching an agreement with the International Monetary Fund (IMF) because of El Salvador maintaining Bitcoin as legal tender, which has led to the deterioration of the relationship between the government and the IMF. On the other hand, Guatemala faces significant short-term risk arising from the political environment following the 2023 elections. The president-elect's party is undergoing questioning as to the validity of its constitution as a political party, which could lead to the invalidation of the election results and social mobilizations by the government's supporters. This constitutes a significant risk for the country, as it represents a shift from the traditional political and economic stability that has characterized Guatemala and may disrupt its economy. Additionally, the country continues to face a structural risk due to its high dependence on remittances, primarily from the United States. A weakening of the U.S. labor market could profoundly affect Guatemala's economic growth capacity. In Panama, challenges arising from the potential impacts of the tensions between China and the United States and the conflicts between Russia and Ukraine and in the Middle East may result in adverse impacts in the medium-term global trade and the flow of trade routes through the Panama Canal, which results in a significant risk to the country's economy. In the short-term, there is uncertainty arising from the dispute between Panama and the operator of Cobre Panama, which could lead to an extended halt of operations. This could have significant implications for the country's trade balance, current accounts, labor market, public finances, and short-term growth rate. In addition, the El Niño climate phenomenon could limit Panama Canal operations during the first half of 2024 if water levels continue to be affected by a period of drought, which could lead to continued restrictions on ships that can access the canal and lower the number of vessels allowed to transit per day. As a result of such phenomenon, the country's income derived from the operation of the Panama Canal would be adversely impacted. In 2024 there will be general elections in Panama and the new government may carry out changes to the country's economic policy approach, which may result in uncertainties which could adversely affect our operations. Recent polls do not reflect a clear favority candidate, resulting in a high level of uncertainty in this electoral process compared to what is typical for these processes. However, the economic proposals of most of the candidates can be categorized as convential or moderate, so the probability of a profound change in the country's economic policy direction resulting from these elections is low.
Capital Markets1 | 2.6%
Capital Markets - Risk 1
Exchange rate fluctuations may adversely affect the Colombian economy, the market price of the Bank's ADSs, and the dividends payable to holders of the Bank's ADSs.
Colombia has adopted a floating exchange rate system. The Central Bank maintains the power to intervene in the exchange market in order to consolidate or dispose of international reserves, and to control any volatility in the exchange rate. From time to time, and in particular during the past two years, there have been significant fluctuations in the exchange rate between the Colombian peso and the U.S. dollar. Unforeseen events in the international markets, fluctuations in interest rates, volatility of the oil price in the international markets, or changes in capital flows, may cause exchange rate instability that could generate sharp movements in the value of the peso. Because a portion of our assets and liabilities are denominated in, or indexed to, foreign currencies, especially the U.S. dollar, sharp movements in exchange rates may negatively impact our results. In addition, exchange rate fluctuations may adversely impact the value of dividends paid to holders of our ADSs as well as the market price and liquidity of ADSs.
Tech & Innovation
Total Risks: 2/38 (5%)Below Sector Average
Cyber Security1 | 2.6%
Cyber Security - Risk 1
Added
The Bank is subject to a wide range of cybersecurity incidents.
Amid the dynamic landscape of the digital era, we recognize the growing importance of addressing cyber risks in bank operations. In addition, the United States Securities and Exchange Commission (SEC) has introduced in July 2023 new regulations requiring additional disclosures related to cybersecurity processes, risks, and incidents. Complying with these directives is crucial for our organization to ensure transparency and adhere to regulatory standards. As the Bank continues to develop its technology and business models to offer new and better financial solutions for its customers, such as the banking-as-a-service business model or digital wallets, the Bank faces increasing significant challenges and risks in terms of information security, including those resulting from the use of Application Programming Interfaces (APIs) in our systems. In 2023 there was a significant increase in phishing attacks on our clients (compared to 2022) in which the Bank identified and dismantled approximately 45 thousand fraudulent sites. Similarly, incorporating artificial intelligence (AI) into control tools enhances our capabilities, but this technology and others such as generative AI also introduce risks of disruption, technological failures, manipulation, modification or destruction of digital assets and reputation. Today, attacks are increasingly sophisticated and supported by AI itself. Another factor that increases our exposure to cybersecurity risks is our joint work with third party service providers, whether through the use of their software or in the development of products and services. Working with third party service providers allows us to obtain the benefit of capabilities and efficiencies that are relevant to our business strategy. However, this results in risks related to ensuring the confidentiality, integrity and availability of our information assets and exposes us to malware attacks and ransomware, among others, that could impact the Bank through shared files or connections with these service providers and that could cause interruptions in our operations, loss of critical information, loss of clients, cost overruns and economic losses associated with the occurrence of cybersecurity incidents. The exposure of services on the Internet combined with the exploitation of software vulnerabilities is another of the cybersecurity risks that we face. Cybercriminals constantly seek to exploit system vulnerabilities. These vulnerabilities arise due to the dynamic changes and rapid obsolescence faced by technology and represent a challenge for both software service providers and their customers, as service providers must quickly put in place solutions for these vulnerabilities and customers, in turn, have to apply these solutions as swiftly as possible. To face the new demands of our competitive landscape, we have adopted certain workplace strategies that result in additional challenges for cybersecurity risk management. As an example, we have employees who work virtually in remote and hybrid models, these models bring challenges such as remote software updating, as well as control backdoors that can lead to data leaks. This leaves employees exposed to email phishing, social engineering, and the use of vulnerable applications. To date, there have not been any material cybersecurity incidents. However, our strategy, results of operations and financial condition could be materially affected by cybersecurity risks and any future material incidents. A failure to adhere to the Bank's cybersecurity policies, procedures or controls, employee misconduct, or human, governance or technological error could also endanger the Bank's ability to protect itself against cyber-attacks. For further information see "Item 16 k. Cybersecurity".
Technology1 | 2.6%
Technology - Risk 1
The Bank's businesses rely heavily on data collection, processing and storage systems, the failure of which could materially and adversely affect the effectiveness of its risk management, reputation and internal control system as well as its financial condition and results of operations.
All of the Bank's principal businesses are highly dependent on the ability to timely collect and process a large amount of financial and other information at its various digital and physical channels across numerous markets, at a time when transaction processes have become increasingly complex with increasing volume. The proper functioning of financial control, accounting or other data collection and processing systems is critical to the Bank's businesses and to its ability to compete effectively. A partial or complete failure of any of these primary systems could materially and adversely affect the Bank's decision-making process, its risk management and internal control systems, the quality of its service, and the Bank's ability to respond on a timely basis to changing market conditions. If the Bank cannot maintain effective data collection, processing, storage and management systems, its business operations, financial condition, reputation, and results of operations could be materially and adversely affected. The Bank is also dependent on information systems to operate its website, process transactions, respond to customer inquiries on a timely basis and maintain cost-efficient operations. The Bank may experience operational problems with its information systems as a result of system failures, viruses, computer hackers or other causes. Any material disruption or slowdown of its systems could cause information, including data related to customer requests and other client information, to be lost, compromised, or to be delivered to the Bank's clients with delays or errors, which could reduce demand for the Bank's services and products, resulting in additional costs for the Bank and potentially fines and penalties by regulators which could materially and adversely affect the Bank's results of operations and financial position. To guarantee service continuity, the Bank plans and implements exercises related to business continuity and disaster recovery as well as cybersecurity risks and vulnerabilities´ management, according to internal and external control areas requirements. There can be no assurance that these measures will successfully eliminate or substantially mitigate the risk associated with failure of our data collection, processing, and storage systems.
Production
Total Risks: 2/38 (5%)Below Sector Average
Employment / Personnel1 | 2.6%
Employment / Personnel - Risk 1
The Bank's ability to attract and retain specialized talent could impact some business objectives.
The current economic outlook requires our workforce to exhibit new skills and attributes such as creativity, innovation and flexibility, which are necessary to adapt the Bank's operations to constant technological advances and update business models and strategies to develop new products and services. The quality and competitiveness of the Bank's employees are essential to its long-term performance and stability and the success of its strategic objectives. As a result, the inability to attract or retain highly skilled professionals or key employees would result in a decrease in operational efficiency and the inability to adapt quickly to market changes and could negatively affect our financial condition and results of operations. Financial institutions, including the Bank, continue to face challenges identifying specialized workers to fill positions that require specific and highly developed knowledge, as well as retain existing talent in this regard.
Costs1 | 2.6%
Costs - Risk 1
Changed
The Bank may be exposed to increased costs and liabilities in the event of the failure of its service providers to perform their obligations under key services contracts.
The Bank enters into contracts with third parties who provide certain key services that are essential to its business. These services include core banking services, online banking platforms, data processing and payment services, clearing and settlement services, software for processing credit and debit card services and technological infrastructure, among others. The Bank faces the risk of operational disruption, failure or capacity constraints due to its dependency on such third-party vendors for certain components of its systems. While the Bank conducts due diligence prior to engaging with third party service providers and performs ongoing monitoring during the relationship with these (such as evaluations on business continuity plans, levels of cybersecurity and data protection measures), it does not control their operations. If any of the Bank´s key service providers fail to fulfill any of their contractual obligations or causes disruptions in services, (including, failure to handle current or higher volumes, or poor performance of services and failure to comply with applicable laws and regulations), the Bank's ability to conduct its businesses could be adversely affected and could also negatively impact its results of operations and financial position. In addition, the Bank may be required to incur significant additional costs to find replacement providers. Furthermore, the unavailability of the services provided by some technology and other vendors could result in the interruption of services at certain channels through which our clients execute transactions until a replacement provider is engaged, which could result in lost revenue, additional costs and, potentially, adverse regulatory consequences and reputational harm.
Ability to Sell
Total Risks: 2/38 (5%)Below Sector Average
Competition1 | 2.6%
Competition - Risk 1
The Bank is subject to increasing competition which may adversely affect the results of its operations.
The Bank operates in a highly competitive environment and management expects increasing competition in the jurisdictions where the Bank operates. Intensified merger activity in the financial services industry has produced larger, better capitalized and more geographically diverse firms that are capable of offering a wider array of financial products and services at more competitive prices. Also, the expansion of financial technologies companies (known as "FinTech"), unregulated financial intermediaries (known as "shadow banking"), may increase competitive risks for the Bank. The Bank's ability to maintain its competitive position depends mainly on (i) its ability to fulfill new customers' needs through the development of new products and services, (ii) the ability to offer adequate services and strengthen its customer base through cross-selling (iii) the capacity to continue with the digital and technological transformation to support growth and (iv) the ability to attract and retain human talent. For that reason, the Bank's business will be adversely affected if the Bank is not able to maintain efficient service strategies. Finally, the Bank's efforts to offer new services and products might not succeed if product or market opportunities develop more slowly than expected or if the profitability of opportunities is undermined by competitive pressures.
Brand / Reputation1 | 2.6%
Brand / Reputation - Risk 1
Digital misinformation could adversely affect the Bank's reputation as well as its operational and financial results.
The increase in digital interconnectedness has increased the spread and distribution of digital content across social media networks. References to the Bank decreased by over 15% in 2023 compared to 2022; this was the first year, since the pandemic, that this figure decreased. Nonetheless, the Bank still has a strong digital presence, with a reach of 28.71 million digital users, an increase of 179% compared to 2019, and accordingly the risk of misinformation remains high. The Bank has been mentioned in media such as press articles, photos, audio, and videos. Some of these references to the Bank were used with the intent to, among other purposes, commit fraud. As a result, managing the risk of digital misinformation remains a challenge for the Bank. Digital misinformation can be characterized by inaccurate, exaggerated, or untrue information which increases negative sentiment towards the brands in question and, including those of the Bank, if used to defame the Bank's reputation and negatively affect the trust of customers and other interest groups. Such developments could lead to reduced business and market share for the Bank, which would negatively affect the operational, economic, and reputational performance of the Bank.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
    The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
      They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
        It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
          How do companies disclose their risk factors?
          Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
            Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
              Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
                According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
                  How can I use TipRanks risk factors in my stock research?
                  Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
                    You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
                      Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
                        A simplified analysis of risk factors is unique to TipRanks.
                          What are all the risk factor categories?
                          TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
                          1. Financial & Corporate
                          • Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
                          • Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
                          • Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
                          • Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
                          2. Legal & Regulatory
                          • Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
                          • Regulation – risks related to compliance, GDPR, and new legislation.
                          • Environmental / Social – risks related to environmental regulation and to data privacy.
                          • Taxation & Government Incentives – risks related to taxation and changes in government incentives.
                          3. Production
                          • Costs – risks related to costs of production including commodity prices, future contracts, inventory.
                          • Supply Chain – risks related to the company’s suppliers.
                          • Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
                          • Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
                          4. Technology & Innovation
                          • Innovation / R&D – risks related to innovation and new product development.
                          • Technology – risks related to the company’s reliance on technology.
                          • Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
                          • Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
                          5. Ability to Sell
                          • Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
                          • Competition – risks related to the company’s competition including substitutes.
                          • Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
                          • Brand & Reputation – risks related to the company’s brand and reputation.
                          6. Macro & Political
                          • Economy & Political Environment – risks related to changes in economic and political conditions.
                          • Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
                          • International Operations – risks related to the global nature of the company.
                          • Capital Markets – risks related to exchange rates and trade, cryptocurrency.
                          What am I Missing?
                          Make informed decisions based on Top Analysts' activity
                          Know what industry insiders are buying
                          Get actionable alerts from top Wall Street Analysts
                          Find out before anyone else which stock is going to shoot up
                          Get powerful stock screeners & detailed portfolio analysis