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(Updates with rate decision in fourth paragraph.)
Oct. 28 (Bloomberg) -- Colombian banks are selling the most peso bonds in at least five years to finance a lending boom amid the fastest economic growth since 2007.
Bancolombia SA and Banco Davivienda SA are among banks that led a 32 percent jump in Colombian lenders’ bond sales in the first nine months of the year to 5.04 trillion pesos ($2.5 billion). Private bank lending rose 29 percent in Colombia in August from a year ago, compared with 20 percent in Brazil and 12 percent in Mexico.
“The economy is doing well and people and companies remain optimistic about future growth, leading to this surge in lending,” said Pedro Ospina, a fixed-income analyst at Interbolsa SA, Colombia’s biggest brokerage. “Banks are boosting bond sales to keep up” with funding, he said.
Loan growth has fueled the biggest jump in retail sales in more than a decade and faster-than-expected inflation in September, making Colombia the only Latin American country where traders expect interest-rate increases this year. While policy makers left the key rate unchanged today at 4.5 percent for a third month, matching the forecasts of 28 of 29 economists surveyed by Bloomberg, they signaled they may raise rates “should international confidence tend to be reestablished.”
Brazil cut borrowing costs twice since August and central bankers in Mexico, Chile and Peru signaled they may do the same.
Bank lending will fuel growth of as much as 6.5 percent in Latin America’s fifth-largest economy this year, according to the central bank. That would be up from 4.3 percent in 2010. Inflation accelerated to 3.73 percent in September, compared with the 3.43 percent median estimate of analysts surveyed by Bloomberg. The central bank is targeting inflation of between 2 percent and 4 percent this year.
Deposits in private banks grew 20 percent in August from a year ago compared with 29 percent growth in loans outstanding, according to the financial regulator.
Bonds placed by lenders in Colombia account for 83 percent of the 6.1 trillion pesos issued through September, according to the stock exchange. That’s up from 63 percent a year ago.
Credit growth has “stabilized at a high level,” central bank chief Jose Dario Uribe said after the Sept. 30 meeting.
Banco Davivienda, Colombia’s third-biggest bank, sold seven-year peso bonds in March to yield 3.88 percentage points above inflation. In February 2010, it sold seven-year securities to yield 5.25 percentage points above the consumer price index.
In May, Leasing Bancolombia SA, the leasing arm of Colombia’s biggest bank, sold five-year and 10.5-year bonds to yield 8.04 percent and 9.05 percent, respectively. In August 2010 it sold five-year and 10-year securities to yield 7.5 and 8.14 percent.
Medellin-based Bancolombia may add to recent bond sales by year end as its loan portfolio “grows steadily,” Alejandro Mejia, head of investor relations, said in an e-mailed response to questions.
President Juan Manuel Santos told investors at a conference this week that the economy isn’t showing signs of slowing and that third quarter growth likely surpassed the second quarter’s 5.2 percent, which was the second-fastest pace in three years.
Francisco Chaves, an analyst at brokerage Corredores Asociados SA in Bogota, says faster inflation last month and higher growth will prompt the central bank to raise its key rate to 5 percent by year-end.
The economy shows a “very clear” need for higher interest rates, central bank co-director Cesar Vallejo said in an Oct. 4 interview. Meanwhile, in an Oct. 12 presentation posted on the bank’s website, another co-director Juan Jose Echavarria said the economy “continues to behave extremely well,” while noting “international uncertainty is gigantic.”
Colombia’s three-month interest-rate swaps at 4.55 percent show traders pricing in a quarter percentage point increase in the benchmark rate in December, according to data compiled by Bloomberg. The interest-rate swap reflects traders’ views of the likely average of future benchmark rates during the life of the contract.
That differs from a central bank survey published this month in which most of the analysts forecast Colombia’s benchmark lending rate will remain at 4.5 percent through year end. A month ago the majority of economists surveyed expected the key rate to end at 4.75 percent. None expect cuts this year.
Colombian retail sales surged 23 percent in April, the biggest increase since at least January 2000. The pace slowed to 9.7 percent in August. Vehicle sales jumped annual 23 percent to 32,320 in March, the most since at least 1994, according to figures from Econometria.
“Credit is too cheap and it’s driving this boom in sales of durable goods including vehicles,” said Camilo Contreras, an analyst at brokerage Ultrabursatiles SA in Bogota who expects the key rate to rise as high as 5.5 percent next year. “Colombia is in a different mood than the rest of the world.”
--With assistance from Sebastian Boyd in Santiago. Editors: Brendan Walsh, Philip Sanders
To contact the reporters on this story: Andrea Jaramillo in Bogota at firstname.lastname@example.org.
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