Impact of sale of Salvadoran banks

As I noted a few weeks ago, the largest banks in El Salvador have now all been sold to foreign owners. Raúl Gutiérrez has written an article on the Inter Press Service predicting bad results from these developments:

SAN SALVADOR, Jan 5 (IPS) - International financial consortia have already squeezed local shareholders out of banks in El Salvador, and now they are expected to sideline the state, all of which will contribute to widening the gap between rich and poor.

Salvadoran financial groups ended the year with enormous revenues from the sales of most of their bank shares to transnational conglomerates, such as Canada's Scotiabank, the U.S.'s Citigroup, Bancolombia, and Panama's Banistmo which was then sold to Hong Kong & Shanghai Banking (HSBC).

The coup de grace was given by Bancolombia, which bought the Banco Agrícola (Agricultural Bank), the last remaining financial group owned by local capital, in December.

While supporters of this sort of transaction argue that they make the banking system more competitive and provide advantages to clients, economists and political scientists consulted by IPS take the view that the Salvadoran state's weakness and the lack of regulations put the country at risk of "greater dependency and subordination to multinational economic powers."

Transnational capital "will become a new political class which, although resident abroad, will wield great power, and could turn this Central American country into another banana republic," said one analyst....

The analysis of the article does not necessarily hold up. While the Salvadoran owners of these banks are selling their interests to large multinational financial institutions, the argument that banks like Citibank will become a new political class in El Salvador lacks any logic. The current owners of those banks exercise considerable (overwhelming?) influence over the policies of El Salvador's government, influence which was not usually directed towards the common good. So how will this change of ownership worsen conditions in El Salvador?

El Salvador's largest bank, Banagricola, was sold to Colombia's largest bank, Bancolombia. In related news this week, Bancolombia executives were charged with fraud in the 1997 merger which created Colombia's largest bank:

Jan. 5 (Bloomberg) -- Shares of Bancolombia SA, the nation's biggest bank, fell as much as 9 percent after the company's president, Jorge Londono, was accused of fraud and ordered arrested.

Colombia's Attorney General Mario Iguaran ordered yesterday that Londono, 59, and Bancolombia Vice President Federico Ochoa be held under house arrest as part of a probe of the 1997 merger that created the company.

Although the Colombian bank is not itself the target of this prosecution, it's not a good sign to have your top officers accused of fraud. It's not clear whether this development will have any impact on the pending sale of the Salvadoran banking group.