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Grupo Cibest (CIB) Risk Analysis
Risk Overview Q4, 2023
Source: the company's latest filing for the period ended Dec 31, 2023, filed Mar 26, 2024
Risk Change Over Time
- Accounting & Financial Operations - Risk 1The 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 2The 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 & Financing - Risk 3The 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 4The 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.
Risk Highlights Q4, 2023
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 38
- Share Price & Shareholder Rights - Risk 1Preemptive 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 2Relative 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 3The 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.
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