Methods of Payment
Most products are imported through letters of credit or time drafts. Soft and long-term financing are important sales tools, especially for government imports or public tenders. Foreign suppliers, financial intermediaries in Colombia, or foreign financial institutions, may finance Colombian imports.
Colombian importers may freely negotiate payment terms with their suppliers, but importers must list the agreed payment terms on the import documents and may not subsequently change them. This generally takes between one and six months for imported products for immediate consumption, including raw materials, intermediate goods, and consumer goods, with almost no term limitations for capital goods, which are payable within the timetables set on the import documentation, plus a grace period of three additional months. Foreign payments may be authorized in installments, but in no case can the original terms listed on the import documents be changed.
General trade finance is freely available, and letters of credit are widely used in Colombia. Methods, terms, and conditions of payment vary with the type of credit. Most imports of equipment are paid via irrevocable 180-day letter of credit (L/C), payable on sight against shipping documents. Normal payment term is 60 days. There are transactional cases in which suppliers may extend terms to 120 days by time draft, but this is not a common practice. When a satisfactory trading relationship has been established, terms are those generally applied in international trade. Short-term is considered any term less than one year; medium-term is from one to four years; and, long-term ranges from five years up to 20 years.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.
Banking Systems
Colombia’s financial system operates under the supervision of the Financial Superintendent, created in 2005 from the merger of the Banking Superintendent and the Stock Exchange Superintendent. The financial system is relatively large in comparison with the nation’s gross domestic product. It has many highly sophisticated institutions with state-of-the-art technology. However, financial services are still very costly and intermediation remains the most important financial activity.
Following the 1998-1999 financial crises, almost half of banking and non-banking institutions were closed, taken over, or forced to merge. Many weaker financial institutions merged or are now affiliated with more experienced and financially sound owners. Still, experts consider that the sector has not reached its ideal size. The presence of foreign banks has intensified competition and investment in advanced technologies and government authorities have made significant efforts to improve the health of the financial sector. In January 2012, Scotia Bank of Canada acquired Colpatria Bank for USD 1 billion. Helm Bank was purchased by the Chilean group Corpbanca in October 2012 for USD 1.3 billion.
Commercial banks are allowed to complete all authorized credit operations, with the exception of leasing operations and real estate sector investments. Only commercial banks provide checking accounts. Within this group, some institutions specialize in housing and construction financing (mortgage banks). Commercial banks dominate the financial market, accounting for over 80 percent of the financial system’s assets.
Colombia has not reached the banking coverage of developed countries. However, almost all financial entities are expanding the infrastructure and coverage of their banking services, and access to virtual banking has improved significantly.
In 2009 a new law reforming the financial sector was passed. The reforms increased protection for financial customers, including requirements that financial institutions properly disclose the costs associated with their operations. They also forbid agreements in which consumers waive their rights and provisions shifting the burden of proof to the consumer. The reforms created Advocate for Financial Consumers positions, which every financial institution must have. They are responsible for ensuring that financial institutions do not violate consumers’ rights. The new law also introduced greater flexibility to the pension fund system by creating the multi-fund structure to allow for various risk investment profiles. It allows foreign banks and foreign insurance companies to operate locally without having to incorporate a Colombian entity, although they do have to set up a branch in Colombia, subject to all relevant legal requirements. Finally, the law establishes mechanisms to promote microfinance, securitization and the development of capital markets.
The Pandemic’s Impact on Banking and the Economy
The pandemic led to Colombia’s largest recession on record, but the economy bounced back strongly in 2021. The banking system weathered the shock well, with the help of a strong policy and support response and strong initial position. Benefiting from an effective policy response to the pandemic and highly favorable terms of trade, Colombia’s economy grew at one of the fastest rates among emerging economies in 2022. This demand-led recovery, however, contributed to internal and external imbalances, for which policy tightening measures have been enacted.
A new administration took office in August 2022, with social equity and climate at the center of its ambitious reform agenda. Like the rest of the world, Colombia has been facing high rates of inflation since 2021. Colombia’s central bank transitioned to a more restrictive monetary policy in the second half of 2022, closing the year with interest rates at 12%. Under these conditions, and with an expectation of lower—though still high—terms of trade, the Colombian economy is expected to grow only 1.1% in 2023.
Foreign Exchange Controls
Colombia imposes no foreign exchange controls on trade. However, exchange regulations require that the following transactions be channeled through intermediaries (i.e. banks or other recognized financial institutions) authorized for such purposes, and must be declared to the Central Bank:
- Derivative or secondary financial operations, e.g. forwards, swaps, caps, floors, or collars.
- Endorsements and guarantees in foreign currency
- External loans and related financing costs
- Imports and exports of goods
- Investment in foreign securities and assets and their associated profits
- Investment of capital from abroad and remittances of profits thereon
- Investment of Colombian capital abroad, as well as remittances of yields
Colombia has reduced foreign exchange controls significantly in recent years. External Resolution No. 6 of 2000 abolished prior deposit requirements with the Central Bank for public and private external loans as well as for foreign financing of imports into Colombia. Also, Resolution 11 allows residents to make payments to other residents in U.S. dollars through checking accounts held abroad, and Resolution 8 authorizes stock brokerage firms to act as intermediaries in the foreign exchange market. The Colombian peso is convertible and investors report no untoward restrictions on access to hard currency.
Projects performed by companies with foreign capital in special sectors such as the exploration and production of oil, natural gas, coal, nickel, and uranium are subject to a special foreign exchange policy. Under the special policy, investors are not bound to repatriate export-generated foreign currency. Companies devoted to technical services related to hydrocarbon exploration and production activities may carry out operations in a foreign currency with no repatriation obligation. Furthermore, foreign investors are not obligated to reimburse Colombia with foreign currency obtained from the sale of products in these operations. Expenses incurred abroad that are related to the development of these projects must be paid in foreign currency. Companies interested in being covered by these special provisions must notify the central bank.
The Ministry of Finance issued Decree 4145 on November 5, 2010 reinstating a withholding tax of 33 percent on interest paid on foreign debt. This decree will raise the cost of capital for local borrowers. The purpose of the decree is to reduce the inflow of foreign currency. Decree 4145 does not supersede a lower rate of withholding tax provided in Colombia’s tax treaties with Spain and Chile.
For more information, please visit the 2023 Investment Climate Statement Report for Colombia prepared by the U.S. Department of State.
U.S. Banks and Local Correspondent Banks
Virtually all Colombian banks have correspondent banks in the United States. The following are major Colombian banks and U.S. banks with which they have correspondent relationships:
AV Villas:
Banco de Occidente USA
Bancolombia:
Bank of America
Bank of New York Mellon
Citibank
Deutsche Bank
Banco de Bogotá:
Citibank
Bank of America
Deutsche Bank
JP Morgan
Bank of New York Mellon
Banco de Occidente:
American Express Bank
Bank of America
Bank of New York Mellon
Citibank
Banco Popular:
Bank of America
Bank of New York Mellon
Bayerische Hypound-Vereins Bank
Citibank
Dressner Bank
HCBC Bank
ING Bank
Regions Bank
TD Bank
BBVA Colombia:
BBVA Bank New York
BBVA Bank Miami
CoBank:
American Express Bank
International Bank of Miami
JP Morgan Chase
Lloyds TSB Bank
Regions Bank
Colpatria Bank:
Bank of America
Davivienda:
Bank of New York Mellon
Citibank
Davivienda Internacional
JP Morgan Chase