Sunrise Over El Dorado : Tuesday 22

DAILY THOUGHT : On a relatively quiet news day many of the headlines were reserved for the horrors of last week and the future relationship with the ELN, the leaders of which are currently marooned in Cuba. In the meantime someone overseas did ask me why the death of 20 innocent police cadets had dropped off the international news stands so quickly and sadly the reality remains that from a distance violence is still seen as part and parcel of Colombian life - the hope has to be that one day just a single violent death in this country makes headlines.......

Monday featured, as expected, a quiet session (USD7mn) as the COLCAP rose 0.43% to 1398.94pts, closing in fast on the 1400 psychological level - of that traded volume fully 1/3 was during the auction which in the add accounted for most of the positive movement on the day. In terms of movement CLH (+4.88%) & PFGrupoArgos (+3%) fared well whilst ETB (-0.78%) was about the only stock missing out. The Peso traded on a next day basis and closed at 3124.

The bond market featured little in terms of volatility on an understandable quiet day, the 2024 benchmark 2024 fell 0.7bp to 6.153% whilst the 2032 was down 1.1bp to 7.159%.

BANKING Speaking over the past 24 hours the head of Asobancaria stated that according to the Federation after a couple of tough years with very slow expansion rates and problems with NPL 2019 is likely to feature loan growth of 4.5% (real terms) featuring some changes in trends. This will see the key commercial area return to growth after suffering for two years, this caused to an extent by a number of headline grabbing bad loans and the knock-on effects therein - meantime consumer loans will continue their growth whilst mortgages which have fared so well recently may well peddle back somewhat. Switching to NPLs, which will close 2018 around 4.84%, there should be improvement to 4.1% over the next 12 months. In the meantime at the end of last week the same Federation confirmed that they have submitted a law suit against the Government related to the tax reform, the basis of which is that the sector is being singled out unfairly as they will be the only entities who do not benefit from the recently announced cuts in corporation tax. This will clearly take some time to be addressed by the courts however as this relates to 2019 profits there are 12 months for the case to be heard - this is worth USD100mns to the Government and is a case that is worth following.

ENERGY The new Minister for Mining (arguably the toughest cabinet post in Colombia judged by the turnover) speaking yesterday touched on the forthcoming energy auction and the country's ambitions to increase renewable energy to 9-10% of the current supply - ambitious would be the word as that will entail increasing the portfolio from 50 Mw to 1500 Mw.

The country has come to the game late when one considers the extended sunlight and the two coastlines however the minister points out that there are examples of countries which have moved from 0%-20% in 5 years so the goal is clearly achievable given the right circumstances. Colombia obviously is relatively 'clean' due to it huge hydro-electric system however El Niño always brings this into focus as reservoir levels drop - on top of that the Hidroituango disaster has also brought debate about just how reliable these mega projects are, in terms of that particular news story the minister said she has no further updates and there are no guarantees as to whether it will come into service in 2021. The auctions next month will be segregated into two areas, on the 28th energy will be auctioned to the traditional channels however before that on the 26th there will be a separate auction dedicated to renewables - wind and solar make a natural hedge to the hydro-electric power because clearly as the country heats up the more hours of sunshine we see and there is also a pick up in the wind. Colombia has everything long term to ween itself completely off traditional power and must set such policies in stone.