Informe especial de estabilidad financiera: concentración y competencia en los mercados de depósitos y crédito - Segundo semestre de 2020

En este informe se analiza el nivel de concentración de los mercados de crédito y de depósitos, debido a la importancia que tiene este aspecto en los riesgos de crédito y de liquidez. Adicionalmente, se realiza un análisis con el fin de determinar el grado de competencia de los intermediarios financieros en el mercado de crédito

Informe especial de estabilidad financiera: concentración y competencia en los mercados de depósitos y crédito - Segundo semestre de 2021

En este informe se analiza el nivel de concentración de los mercados de crédito y de depósitos, debido a la importancia que tiene este aspecto en los riesgos de crédito y de liquidez. Adicionalmente, se realiza un análisis con el fin de determinar el grado de competencia de los intermediarios financieros en el mercado de crédito

Examining Macroprudential Policy through a Microprudential Lens

Este documento estudia los efectos financieros y reales de la política macroprudencial asociada con el nivel de gasto en provisiones por deudor que debe realizar el sector bancario en Colombia. Por consiguiente, se estudia la cartera de créditos comerciales durante el periodo 2008-2018 y se compara localmente aquellas empresas que se aproximan por arriba y por debajo a los umbrales regulatorios relacionados con el cálculo del gasto en provisiones. Los resultados indican que el esquema de provisiones induce a los bancos a incrementar su gasto en provisiones dirigido a las firmas que presentan una reducción en su calificación. Lo anterior implica que, para créditos con un perfil de riesgo similar, pero con un cambio discontinuo en su calificación, los bancos otorgan un menor monto de crédito, demandan garantías de mejor calidad e imponen una mayor cobertura por provisiones por medio de la medida de pérdida ante incumplimiento. En particular, un aumento de un punto porcentual (pp) en la razón de provisiones a crédito conlleva a una reducción de hasta 15 pp en la tasa de crecimiento del crédito y reduce la probabilidad de acceder a un nuevo crédito en hasta 11 pp. Por su parte, el análisis que vincula estos resultados con las principales variables de desempeño de las firmas sugiere que las firmas que exhiben una reducción en su calificación son posteriormente restringidas en sus decisiones de inversión y experimentan una contracción en sus pasivos, patrimonio y activos.In this paper, we examine the financial and real effects of macroprudential policies with a new identifying strategy that exploits borrower-specific provisioning levels for each bank. Locally, we compare similar firms just below and above regulatory thresholds established in Colombia during 2008--2018 for the corporate credit portfolio. Our results indicate that the scheme induces banks to increase the provisioning cost of downgraded loans. This implies that, for loans with similar risk but with a discontinuously lower rating, banks offer a lower amount of credit, demand higher quality guarantees, and impose a higher level of provision coverage through the loan-loss given default. To illustrate, a 1 percentage point (pp) increase in the provision-to-credit ratio leads to a reduction in credit growth of up to 15pp and lowers the probability of receiving new credit by up to 11pp. When mapping our results to the real sector, we find that downgraded firms are constrained in their investment decisions and experience a contraction in liabilities, equity, and total assets.Enfoque Luego de la crisis financiera de 2008 se ha observado un interés creciente por cuantificar y entender a profundidad el impacto que las políticas macroprudenciales pueden ocasionar sobre las condiciones de acceso a crédito y el desempeño de los distintos deudores de la economía. Lo anterior ha estado en línea con las recomendaciones del Comité de Supervisión Bancaria de Basilea sobre la implementación de medidas contra cíclicas y el creciente uso de herramientas macroprudenciales tanto en economías emergentes como en avanzadas. Este documento utiliza el esquema de provisiones contra cíclicas establecido en Colombia en 2007 y estudia sus efectos para el sector comercial durante el periodo comprendido entre el primer trimestre de 2008 y el cuarto trimestre de 2018. Con respecto a la medición de sus efectos sobre las variables financieras, este documento utiliza una estrategia de identificación innovadora basada en el diseño de regresión discontinua. Por su parte, para vincular estos resultados a la dinámica de las principales variables de desempeño de las firmas se utiliza la metodología de diferencias en diferencias. Contribución Este estudio complementa la escasa evidencia empírica relacionada con los efectos financieros y reales que se derivan de la imposición de requerimientos macroprudenciales como respuesta de política. En particular, el documento muestra la relevancia de un esquema de provisiones contra cíclico y los posibles efectos no intencionados que se pueden ocasionar por su implementación. Estos son aspectos preponderantes en la labor de los hacedores de política y se convierten en las bases para entender el papel de este instrumento en complemento o en contraposición a las principales directrices de regulación internacional relacionadas con el establecimiento de un requerimiento de capital contra cíclico y la migración a los estándares internacional de reporte de información denominados IFRS 9, los cuales se encuentran relacionados con el cálculo prospectico de pérdidas esperadas en el cálculo del nivel de provisiones. Por otra parte, los aportes a la literatura que estudia los efectos del esquema de provisiones en Colombia se resumen en el uso de una estrategia de identificación que permite aislar completamente aquellos factores de demanda que pueden influenciar la dinámica de las variables en estudio y en la longitud del periodo analizado. Específicamente, el presente documento estudia una década completa de vigencia del esquema de provisiones y no se restringe a los efectos de la introducción de la política. Resultados Los resultados indican que el esquema de provisiones induce a los bancos a incrementar su gasto en provisiones dirigido a las firmas que presentan una reducción en su calificación. Lo anterior, implica que, para créditos con un perfil de riesgo similar, pero con un cambio discontinuo en su calificación, los bancos otorgan un menor monto de crédito, demandan garantías de mejor calidad e imponen una mayor cobertura por provisiones por medio de la medida de pérdida ante incumplimiento. En particular, un aumento de un punto porcentual (pp) en la razón de provisiones a crédito conlleva a una reducción de hasta 15 pp en la tasa de crecimiento del crédito y reduce la probabilidad de acceder a un nuevo crédito en hasta 11 pp. Por su parte, el análisis que vincula estos resultados con las principales variables de desempeño de las firmas sugiere que las firmas que exhiben una reducción en su calificación son posteriormente restringidas en sus decisiones de inversión y experimentan una contracción en sus pasivos, patrimonio y activos

El marco institucional de la política monetaria y macroprudencial en Colombia en los últimos 30 años: las lecciones del pasado y los desafíos para el futuro

En los últimos 30 años la política monetaria y macroprudencial de Colombia transitó hacia la búsqueda de un objetivo de inflación bajo y creíble, así como de un sistema financiero estable. La prolongada inflación que comenzó a comienzo de los años setenta fue superada a comienzo del nuevo siglo con la ayuda del nuevo régimen para la formulación de la política monetaria, de meta de inflación. En el ámbito de la política macroprudencial, la crisis financiera de finales de los años noventa llevó a importantes avances institucionales para la coordinación de la política macroprudencial y para la evaluación del riesgo sistémico. A lo largo de estos desarrollos importantes lecciones han sido aprendidas. Una de ellas es que, para preservar la estabilidad macroeconómica, el objetivo de estabilidad de precios debe ser complementado con el de estabilidad financiera, así como con la política macroprudencial. Otra lección es que el nuevo marco institucional para la formulación de la política monetaria ayudó al Banco de la República a superar 25 años de inflación, entonces llamada inflación moderada. Entre los retos están continuar preservando la estabilidad de precios y la estabilidad financiera, reforzar el papel del Banco de la República en la política macroprudencial y continuar fortaleciendo los canales de coordinación y cooperación internacional en la política macroprudencial.Over the past 30 years, monetary and macroprudential policy in Colombia evolved towards the pursuit of a low and credible inflation target and a stable financial system. The protracted inflation that began in the early seventies was defeated at the turn of the century with the help of the new framework for monetary policy formulation, inflation targeting. In the field of macroprudential policy, the financial crisis of the late nineties led to important institutional developments in the formulation and coordination of macroprudential policy, as well as in the assessment of systemic risk. Along with these developments, important lessons have been learnt. One is that, to preserve macroeconomic stability, the price stability objective must be complemented with the financial stability objective, as well as with macroprudential policy. Another lesson is that the new institutional framework for monetary policy formulation helped Banco de la República overcome 25 years of inflation, then called moderate inflation. The challenges for the future include to continue preserving price and financial stability, strengthening the role of the Banco de la República in macroprudential policy, and to continue strengthening the channels of international coordination and cooperation in macroprudential policy.Enfoque En los últimos 30 años la política monetaria y macroprudencial de Colombia transitó hacia la búsqueda de un objetivo de inflación bajo y creíble, así como de un sistema financiero estable. En el campo de la inflación, su aumento a comienzos de los años setenta se convirtió en un fenómeno persistente que generó tasas de crecimiento de los precios de más de 20 por ciento anual durante casi tres décadas, aunque en comparación con otras economías de América Latina se destaca que Colombia no llegó a experimentar fenómenos de hiperinflación. Al comienzo del nuevo siglo, en el marco del nuevo régimen de política monetaria de metas de inflación, esta métrica se redujo gradualmente hacia la meta de largo plazo. En lo que se refiere a estabilidad financiera, el inicio de las reformas de principios de los años noventa coincidió con una acumulación de riesgos que facilitaron el estallido de la crisis de fin de siglo. En lo corrido del siglo XXI se han presentado importantes avances institucionales, entre ellos la creación en 2003 del Comité de Coordinación y Seguimiento del Sistema Financiero (CCSSF) como mecanismo de discusión y coordinación de las políticas macroprudenciales. Además, la creación del Departamento de Estabilidad Financiera en el Banco de la República y la producción de sus evaluaciones semestrales de la estabilidad del sistema financiero han sido contribuciones importantes para el seguimiento y diagnóstico del sector en este contexto. Contribución El artículo hace un recuento de los elementos que llevaron al marco institucional inherente en la formulación de la política monetaria y macroprudencial en Colombia en los últimos 30 años. Además, el análisis permite identificar las principales lecciones aprendidas, así como algunos de los retos para el futuro. Resultados La experiencia de los últimos treinta años en la implementación del marco de política monetaria y macroprudencial deja lecciones importantes. Una de ellas es que la estabilidad macroeconómica no se garantiza únicamente por medio del objetivo de la estabilidad de precios. Para preservar la estabilidad macroeconómica el objetivo de estabilidad de precios requiere ser complementado con el de estabilidad financiera y con la política macroprudencial. En lo monetario, el nuevo marco institucional ayudó al Banco de la República a centrarse en el objetivo de inflación y facilitó la implementación de políticas contra-cíclicas que contribuyen a la estabilidad del crecimiento. Pese al significativo repunte de la inflación en el período más reciente, el esquema de política ha permitido que las expectativas de inflación de mediano plazo se mantengan en rangos acordes con la meta. Otras lecciones se refieren a la interacción entre las políticas monetaria y macroprudencial. Las medidas macroprudenciales y la política monetaria son complementarias, ya que su efecto sobre el crecimiento del crédito es mayor cuando ambas políticas se utilizan simultáneamente. Además, como ambas políticas actúan a través del sistema financiero, tanto el desarrollo del sistema financiero como las políticas macroprudenciales vigentes pueden influir en la transmisión de la política monetaria. El reto hacia el futuro es continuar preservando la estabilidad de precios y la estabilidad financiera. La lucha contra la inflación es la tarea inmediata y el Banco de la República está bien equipado para alcanzar este objetivo con el actual marco de política. En cuanto a la estabilidad financiera, una tarea importante es seguir reforzando el papel del Banco de la República en el análisis de los riesgos sistémicos del sector y de la política macroprudencial. Adicionalmente se deben continuar fortaleciendo los canales de coordinación y cooperación internacional dado que Colombia es a la vez sede de bancos extranjeros y matriz de bancos en el exterior.

Informe especial de estabilidad financiera: análisis de la cartera y del mercado inmobiliario en Colombia - Primer semestre de 2021

Este Informe Especial analiza el desempeño del mercado inmobiliario y del crédito de vivienda, e identifica fuentes potenciales de riesgo en el escenario de recuperación económica que se espera. Para ello estudia la dinámica de los indicadores de oferta, demanda y precios. Los resultados sugieren que la desaceleración de los precios todavía recoge una dinámica rezagada, pero a medida que continúe creciendo la demanda de vivienda y la oferta se mantenga estable, los precios en el agregado nacional podrían registrar una corrección al alza. Lo anterior ha estado acompañado por un incremento notable en los desembolsos de crédito de vivienda, pese a una reducción en la disposición de compra de los consumidores

Informe especial de estabilidad financiera: riesgo de crédito - Primer semestre de 2022

Monitorear el riesgo de crédito es fundamental para preservar la estabilidad del sistema financiero. Este informe presenta, para cada modalidad de cartera, un análisis de las condiciones de crédito y de los principales indicadores de riesgo

Financial Stability Report - September 2015

From this edition, the Financial Stability Report will have fewer pages with some changes in its structure. The purpose of this change is to present the most relevant facts of the financial system and their implications on the financial stability. This allows displaying the analysis more concisely and clearly, as it will focus on describing the evolution of the variables that have the greatest impact on the performance of the financial system, for estimating then the effect of a possible materialization of these risks on the financial health of the institutions. The changing dynamics of the risks faced by the financial system implies that the content of the Report adopts this new structure; therefore, some analyses and series that were regularly included will not necessarily be in each issue. However, the statistical annex that accompanies the publication of the Report will continue to present the series that were traditionally included, regardless of whether or not they are part of the content of the Report. In this way we expect to contribute in a more comprehensive way to the study and analysis of the stability of the Colombian financial system. Executive Summary During the first half of 2015, the main advanced economies showed a slow recovery on their growth, while emerging economies continued with their slowdown trend. Domestic demand in the United States allowed for stabilization on its average growth for the first half of the year, while other developed economies such as the United Kingdom, the euro zone, and Japan showed a more gradual recovery. On the other hand, the Chinese economy exhibited the lowest growth rate in five years, which has resulted in lower global dynamism. This has led to a fall in prices of the main export goods of some Latin American economies, especially oil, whose price has also responded to a larger global supply. The decrease in the terms of trade of the Latin American economies has had an impact on national income, domestic demand, and growth. This scenario has been reflected in increases in sovereign risk spreads, devaluations of stock indices, and depreciation of the exchange rates of most countries in the region. For Colombia, the fall in oil prices has also led to a decline in the terms of trade, resulting in pressure on the dynamics of national income. Additionally, the lower demand for exports helped to widen the current account deficit. This affected the prospects and economic growth of the country during the first half of 2015. This economic context could have an impact on the payment capacity of debtors and on the valuation of investments, affecting the soundness of the financial system. However, the results of the analysis featured in this edition of the Report show that, facing an adverse scenario, the vulnerability of the financial system in terms of solvency and liquidity is low. The analysis of the current situation of credit institutions (CI) shows that growth of the gross loan portfolio remained relatively stable, as well as the loan portfolio quality indicators, except for microcredit, which showed a decrease in these indicators. Regarding liabilities, traditional sources of funding have lost market share versus non-traditional ones (bonds, money market operations and in the interbank market), but still represent more than 70%. Moreover, the solvency indicator remained relatively stable. As for non-banking financial institutions (NBFI), the slowdown observed during the first six months of 2015 in the real annual growth of the assets total, both in the proprietary and third party position, stands out. The analysis of the main debtors of the financial system shows that indebtedness of the private corporate sector has increased in the last year, mostly driven by an increase in the debt balance with domestic and foreign financial institutions. However, the increase in this latter source of funding has been influenced by the depreciation of the Colombian peso vis-à-vis the US dollar since mid-2014. The financial indicators reflected a favorable behavior with respect to the historical average, except for the profitability indicators; although they were below the average, they have shown improvement in the last year. By economic sector, it is noted that the firms focused on farming, mining and transportation activities recorded the highest levels of risk perception by credit institutions, and the largest increases in default levels with respect to those observed in December 2014. Meanwhile, households have shown an increase in the financial burden, mainly due to growth in the consumer loan portfolio, in which the modalities of credit card, payroll deductible loan, revolving and vehicle loan are those that have reported greater increases in risk indicators. On the side of investments that could be affected by the devaluation in the portfolio of credit institutions and non-banking financial institutions (NBFI), the largest share of public debt securities, variable-yield securities and domestic private debt securities is highlighted. The value of these portfolios fell between February and August 2015, driven by the devaluation in the market of these investments throughout the year. Furthermore, the analysis of the liquidity risk indicator (LRI) shows that all intermediaries showed adequate levels and exhibit a stable behavior. Likewise, the fragility analysis of the financial system associated with the increase in the use of non-traditional funding sources does not evidence a greater exposure to liquidity risk. Stress tests assess the impact of the possible joint materialization of credit and market risks, and reveal that neither the aggregate solvency indicator, nor the liquidity risk indicator (LRI) of the system would be below the established legal limits. The entities that result more individually affected have a low share in the total assets of the credit institutions; therefore, a risk to the financial system as a whole is not observed. José Darío Uribe Governo

Financial Stability Report - Second Semester of 2021

Banco de la República’s main objective is to preserve the purchasing power of the currency in coordination with the general economic policy that is intended to stabilize output and employment at long-term sustainable levels. Properly meeting the goal assigned to the Bank by the 1991 Constitution critically depends on preserving financial stability. This is understood to be a general condition in which the financial system assesses and manages the financial risks in a way that facilitates the economy’s performance and efficient allocation of resources while, at the same time, it is able to, on its own, absorb, dissipate, and mitigate the shocks that may arise as a result of adverse events. This Financial Stability Report meets the goal of giving Banco de la República’s diagnosis of the financial system’s and its debtors’ recent performance as well as of the main risks and vulnerabilities that could affect the stability of the Colombian economy. In this way, participants in financial markets and the public are being informed, and public debate on trends and risks affecting the system is being encouraged. The results presented here also serve the monetary authority as a basis for making decisions that will enhance financial stability in the general context of its objectives. In recent months, several positive aspects of the financial system have preserved a remarkable degree of continuity and stability: the liquidity and capital adequacy of financial institutions have remained well above the regulatory minimums at both the individual and consolidated levels, the coverage of past-due loans by loan-loss provisions remains high, and the financial markets for public and private debt and stocks have continued to function normally. At the same time, a surge in all the types of loan portfolios, a sharp downturn in the non-performing loan portfolio, and a rise in the profitability of credit institutions can be seen for the first time since the beginning of the pandemic. In line with the general recovery of the economy, the main vulnerability to the stability of the Colombian financial system identified in the previous edition—uncertainty about changes in the non-performing loans portfolio—has receded and remains on a downward trend. In this edition, the main source of vulnerability identified for financial stability in the short term is the system’s exposure to sudden changes in international financial conditions; the results presented in this Report indicate that the system is sufficiently resilient to such scenarios. In compliance with its constitutional objectives and in coordination with the financial system’s security network, Banco de la República will continue to closely monitor the outlook for financial stability at this juncture and will make the decisions necessary to ensure the proper functioning of the economy, facilitate the flow of sufficient credit and liquidity resources, and further the smooth functioning of the payment system. Leonardo Villar Gomez Governor Box 1 -Decomposition of the Net Interest Margin in Colombia and Chile Wilmar Cabrera Daniela Rodríguez-Novoa Box 2 - Spatial Analysis of New Home Prices in Bogota, Medellín, and Cali Using a Geostatistical Approach María Fernanda Meneses Camilo Eduardo Sánchez Box 3 - Interest Rate Model for the SYSMO Stress Test Exercise Wilmar Cabrera Diego Cuesta Santiago Gamba Camilo Gómez Box 4 - The Transition from LIBOR and other International Benchmark Rates Daniela X. Gualtero Briceño Javier E. Pirateque Niñ

Reporte Estabilidad Financiera - Primer Semestre de 2020

In the face of the multiple shocks currently experienced by the domestic economy (resulting from the drop in oil prices and the appearance of a global pandemic), the Colombian financial system is in a position of sound solvency and adequate liquidity. At the same time, credit quality has been recovering and the exposure of credit institutions to firms with currency mismatches has declined relative to previous episodes of sudden drops in oil prices. These trends are reflected in the recent fading of red and blue tonalities in the performance and credit risk segments of the risk heatmaps in Graphs A and B.1 Naturally, the sudden, unanticipated change in macroeconomic conditions has caused the appearance of vulnerabilities for short-term financial stability. These vulnerabilities require close and continuous monitoring on the part of economic authorities. The main vulnerability is the response of credit and credit risk to a potential, temporarily extreme macroeconomic situation in the context of: (i) recently increased exposure of some banks to household sector, and (ii) reductions in net interest income that have led to a decline in the profitability of the banking business in the recent past. Furthermore, as a consequence of greater uncertainty and risk aversion, occasional problems may arise in the distribution of liquidity between agents and financial markets. With regards to local markets, spikes have been registered in the volatility of public and private fixed income securities in recent weeks that are consistent with the behavior of the international markets and have had a significant impact on the liquidity of those instruments (red portions in the most recent past of some market risk items on the map in Graph A). In order to adopt a forward-looking approach to those vulnerabilities, this Report presents a stress test that evaluates the resilience of credit institutions in the event of a hypothetical scenario thatseeks to simulate an extreme version of current macroeconomic conditions. The scenario assumes a hypothetical negative growth that is temporarily strong but recovers going into the middle of the coming year and has extreme effects on credit quality. The results suggest that credit institutions have the ability to withstand a significant deterioration in economic conditions in the short term. Even though there could be a strong impact on credit, liquidity, and profitability under the scenario being considered, aggregate capital ratios would probably remain at above their regulatory limits over the horizon of a year. In this context, the recent measures taken by both Banco de la República and the Office of the Financial Superintendent of Colombia that are intended to help preserve the financial stability of the Colombian economy become highly relevant. In compliance with its constitutional objectives and in coordination with the financial system’s security network, Banco de la República will continue to closely monitor the outlook for financial stability at this juncture and will make the decisions that are necessary to ensure the proper functioning of the economy, facilitate the flow of sufficient credit and liquidity resources, and further the smooth functioning of the payment system. Juan José Echavarría Governo

Financial Stability Report - Second Semester of 2020

The Colombian financial system has not suffered major structural disruptions during these months of deep economic contraction and has continued to carry out its basic functions as usual, thus facilitating the economy's response to extreme conditions. This is the result of the soundness of financial institutions at the beginning of the crisis, which was reflected in high liquidity and capital adequacy indicators as well as in the timely response of various authorities. Banco de la República lowered its policy interest rates 250 points to 1.75%, the lowest level since the creation of the new independent bank in 1991, and provided ample temporary and permanent liquidity in both pesos and foreign currency. The Office of the Financial Superintendent of Colombia, in turn, adopted prudential measures to facilitate changes in the conditions for loans in effect and temporary rules for rating and loan-loss provisions. Finally, the national government expanded the transfers as well as the guaranteed credit programs for the economy. The supply of real credit (i.e. discounting inflation) in the economy is 4% higher today than it was 12 months ago with especially marked growth in the housing (5.6%) and commercial (4.7%) loan portfolios (2.3% in consumer and -0.1% in microloans), but there have been significant changes over time. During the first few months of the quarantine, firms increased their demands for liquidity sharply while consumers reduced theirs. Since then, the growth of credit to firms has tended to slow down, while consumer and housing credit has grown. The financial system has responded satisfactorily to the changes in the respective demands of each group or sector and loans may grow at high rates in 2021 if GDP grows at rates close to 4.6% as the technical staff at the Bank expects; but the forecasts are highly uncertain. After the strict quarantine implemented by authorities in Colombia, the turmoil seen in March and early April, which was evident in the sudden reddening of macroeconomic variables on the risk heatmap in Graph A,[1] and the drop in crude oil and coal prices (note the high volatility registered in market risk for the region on Graph A) the local financial markets stabilized relatively quickly. Banco de la República’s credible and sustained policy response played a decisive role in this stabilization in terms of liquidity provision through a sharp expansion of repo operations (and changes in amounts, terms, counterparties, and eligible instruments), the purchases of public and private debt, and the reduction in bank reserve requirements. In this respect, there is now abundant aggregate liquidity and significant improvements in the liquidity position of investment funds. In this context, the main vulnerability factor for financial stability in the short term is still the high degree of uncertainty surrounding loan quality. First, the future trajectory of the number of people infected and deceased by the virus and the possible need for additional health measures is uncertain. For that reason, there is also uncertainty about the path for economic recovery in the short and medium term. Second, the degree to which the current shock will be reflected in loan quality once the risk materializes in banks’ financial statements is uncertain. For the time being, the credit risk heatmap (Graph B) indicates that non-performing and risky loans have not shown major deterioration, but past experience indicates that periods of sharp economic slowdown eventually tend to coincide with rises in non-performing loans: the calculations included in this report suggest that the impact of the recession on credit quality could be significant in the short term. This is particularly worrying since the profitability of credit establishments has been declining in recent months, and this could affect their ability to provide credit to the real sector of the economy. In order to adopt a forward-looking approach to this vulnerability, this Report presents several stress tests that evaluate the resilience of the liquidity and capital adequacy of credit institutions and investment funds in the event of a hypothetical scenario that seeks to simulate an extreme version of current macroeconomic conditions. The results suggest that even though there could be strong impacts on the credit institutions’ volume of credit and profitability under such scenarios, aggregate indicators of total and core capital adequacy will probably remain at levels that are above the regulatory limits over the horizon of a year. At the same time, the exercises highlight the high capacity of the system's liquidity to face adverse scenarios. In compliance with its constitutional objectives and in coordination with the financial system's security network, Banco de la República will continue to closely monitor the outlook for financial stability at this juncture and will make the decisions that are necessary to ensure the proper functioning of the economy, facilitate the flow of sufficient credit and liquidity resources, and further the smooth operation of the payment systems. Juan José Echavarría Governo