While the financial sectors of some developed nations are in turmoil, Colombia's may be entering its heyday, attracting big-name foreign banks while robust local players try their hand at expanding across Latin America.

Colombia is emerging from almost a half-century of war and foreign investors are flooding its financial sector to tap into its newly won stability, growing banking clientele and increasing consumer spending.

Latin America is the best place to confront the global crisis. It has its fiscal accounts in order, has cash and survived its own crisis a decade ago, said Julian Marquez, an economist with Interbolsa, Colombia's biggest brokerage.

But Colombia has the upside. The weighting used to be all about fear of the war. Now, it's all about the upside in the economy.

While the United States and many European countries struggle to shore up their fiscal accounts, Colombia's financial management and security advances were rewarded this year with a coveted investment grade.

That investment rating was lost a decade ago after a financial crisis that shuttered banks and left many Colombians laden with debt. The higher rating comes on the heels of crushing blows against rebels that triggered a wave of foreign investment, direct and portfolio.

Colombia is now following Peru's lead, which drew in billions of dollars into its banking sector after defeating the Shining Path rebels at the end of the 1990s.

The economic boom is also enabling Colombia to flex its muscles abroad, an advance perhaps best illustrated by last year's $1.9 billion (1.2 billion pounds) purchase by Banco de Bogota of Credomatic, Central America's No. 1 credit card issuer.

For decades, foreign investors treated Colombia as a pariah because Marxist guerrillas and paramilitaries kidnapped business leaders for ransom.

Increased stability has helped bring in about $13 billion in foreign investment this year, with more than $1 billion to the financial sector.

One major player waiting to enter is Banco do Brasil , which industry sources say is poised to spend money after rival Banco Itau said this year it would set up commercial and investment banking in Colombia.

Over the next five to 10 years, we are going to see big ones coming in, the big banks, said Marquez.

Drawn by Colombia's low banking penetration, foreign financial entities hope to attract new clients to open accounts. Millions of poor Colombians are turned off by hefty transaction fees, preferring to keep their cash under the mattress, or they live in remote areas where there are few banks.

Just 44 percent of Colombians participate in the banking system, compared with the Latin American average of 51 percent, according to the Andean Development Corporation. Even so, banking has grown enormously since Colombia's financial crisis in 1999, with assets soaring more than 470 percent.

In September this year, Colombia banks had assets worth $154 billion and deposits of $95 billion, Chilean banks had $260 billion in assets and $151 billion in deposits, and Peruvian banks held $69 billion in assets and $44 billion in deposits, according to Felaban, a Latin America banking association.

Any major resurgence by the insurgent groups could put at risk the nascent investor confidence.

RESPECTING INVESTORS

Banking in Colombia has evolved from a specialized system to a broader-ranged one that attracts new players to the unexploited segments, Colombia's banking association said in a report.

In a sign of that, Chile's CorpBanca said last week it would pay $1.3 billion for the Colombian unit of Banco Santander in one of the biggest such deals for Colombia.

Colombia now has the best prospects in Latin America, Mario Chamorro, general manager of CorpBanca, told Reuters.

Colombia has a much bigger market in terms of population than we have in Chile, which means at some point they will want access to financial services, he said.

It has respectable institutions, which all makes it a very attractive environment for investment.

Foreign entities are also attracted to the nation's strong regulatory framework and a credit boom, which has boosted lending to five times that of economic growth.

Colombia is respecting investors, treating them right and giving them stable rules of the game, said Alberto Bernal, head of fixed income research for Bulltick Capital Markets. If Europe doesn't completely collapse, Colombia will do well.

Among other big players, Spain's BBVA has said it is seeking to expand in Colombia. Canada's Scotiabank bought 51 percent of Colombia's Banco Colpatria this year, and Banco de Credito de Peru acquired 51 percent of Correval, the third-largest brokerage.

Four new banks set up shop in 2011, including Chile's Banco Falabella and Ecuador's Banco Pichincha .

We have about 22 applications pending for new branches of financial institutions and representative offices, Gerardo Hernandez, chief financial market regulator, told Reuters.

Others are simply restructuring, but all are foreign entities interested in the Colombian market.

Even as foreign investors make efforts to enter, Colombia's biggest banks are seeking investment opportunities outside Colombia as they outgrow the local market.

Banking tycoon Luis Carlos Sarmiento is looking at investment opportunities overseas for Grupo Aval , his $35 billion conglomerate, which controls a third of Colombia's banking assets.

We are beginning to see possibilities of purchasing other banks that could eventually merge with the banks we already have, to grow our presence there, said Sarmiento's son, Luis Carlos Sarmiento Gutierrez. His banking rivals, Bancolombia and Banco Davivienda, said they are also looking outside Colombia.

(Editing by Andrew Cawthorne, Daniel Wallis and Steve Orlofsky)