Grupo Cibest SA (CIB) 2003 Q2 法說會逐字稿

Good morning and welcome, everyone, to the Bancolombia second-quarter year 2003 earnings conference call. Today's call is being recorded. With us today we have the President and Chief Executive Officer, Mr. Jorge Londono, and the Financial Vice President, Mr. Jaime Velasquez. At this time, I would like to turn the call over to Mr. Londono.

Thank you. I wish to thank each and every one of you for your interest and attendance in this conference call, which we have prepared to share with you Bancolombia's results. We would like to remind you that since the previous quarter, the Bank's financial information includes the consolidated results of all Bancolombia's subsidiaries in which it holds, directly or indirectly, 50 percent or more of the outstanding voting shares and not (indiscernible) in the financial sector as we did last year. In the press release you received on Friday, we have restated the figures for the year 2002.

Let's -- (technical difficulty) -- some facts about the Columbian economy in the recent months. The economic activity has been able to maintain its dynamic and growth (indiscernible) very high rate and higher-than-expected. At the end of the second quarter, the National Planning Department estimated the GDP growth of three percent for the year -- for the first semester of this year, compared to two percent, which was the government target. During the month of June, the economy created about 200,000 new jobs, compared with the same period of the previous year (indiscernible) the unemployment rate was at 14 percent, two percentage points lower than what we have in the same month last year. The consumer price index decreased during the month of June slightly -- half a percentage point -- .05 percent -- resulting in an annual inflation of 7.21 percent, compared to 7.35 percent at the month of May, which (indiscernible) process of (indiscernible) of prices in Columbia. The Central Bank maintained its general outline of the economic policy. There are not foreseeable substantial changes in the immediate future. Despite the high productivity of the exchange rate during the first half of the year as a result of Central Bank (ph) monetary policy, we do not expect extreme devaluations or revaluations in the short and medium-term. At the end of July, there was a moderate devaluation of about 11 percent in annual terms.

Now, as far as the result of the Bank during the second quarter, we would like to highlight the following points -- Bancolombia's net income amounted to Ps122.8 billion during the quarter ended in June 30, as compared to a net income of Ps82 (indiscernible) for the quarter ended on March. Net interest margin increased quarter-over-quarter to 9.9 percent from 8.3 percent in the previous quarter. This growth is the result of almost 17 percent increase in total interest income and the total interest expense grew only 5.7 percent.

If we go to the balance sheet, we find that the assets during the quarter had a very dynamic growth -- seven percent -- mainly due to the growth of the loan portfolio and (indiscernible). In addition, leasing operations continued showing an increase of 8.4 percent during the second quarter.

In regard to the loan portfolio, we are confident on the economic (indiscernible) and therefore, decreasing the loan portfolio continues and we foresee that we continue very favorably and particularly the corporate portfolio has begun to reactivate. During the second quarter, Bancolombia's total gross loans increased 7.2 percent. We would like to highlight that during the quarter, corporate loans displayed a very good performance, increasing 7.5 percent, mainly due to the dynamic of working capital loans and trade financing. At the same time, retail loans increased 6.5 percent during the quarter with again working capital loans for small and medium-sized enterprises and personal loans and credit cards increasing the most.

From the point of view of asset quality, as of June 30th, the Bank's past-due loans as a percentage of total loans were 1.8 percent, as compared to 2.7 percent at the end of March, 2003. The level of allowances of the Bank's past due loans increased to 265 percent in the second quarter from 227 percent in the previous quarter. During the second quarter, Bancolombia had loan charge-offs of Ps89.6 billion. During the quarter, total deposits increased 4.5 percent, driven by the dynamic show by short-term deposits in the Bancolombia Panama. On the line of equity, we have very interesting results. Bancolombia's shareholders equity increased 15.2 percent during the second quarter of 2003, due to the positive results of the year and also from the unrealized gains from investment (indiscernible) securities, which grew 17 percent.

We would like to remind you that in the month of September, 2002, the Superintendent (indiscernible) adopted a new investment securities classification for the Columbian financial situation. According to the (indiscernible), investments were classified are either trading (indiscernible) maturity or available for sale. The trade (indiscernible) level for sale categories were further divided into debt and equity securities. Valuations in fair value (indiscernible) held-for-sale securities are recorded in shareholders equity as unrealized gains or losses. As of June 30, 2003, the Bank's consolidated (indiscernible) capital to (indiscernible) assets was 12.5 percent.

Let's look in more detail to our income statement. As we mentioned previously, Bancolombia's net income amounted to Ps122.8 million during the quarter. This increase was mainly due to the growth of net interest income and other operating income. The net interest income increased 22 percent during the second quarter of the year as a result of 16.8 percent growth in total interest income, while total interest expense grew only five to seven percent. In consequence, net interest margin improved to 9.9 percent, as we already mentioned. (indiscernible) total interest income, we would like to note the increase in interest and loans, which grew to 12.7 due to higher volume of the loan portfolio and interest on investment securities, which increased 22.5 percent from gains on sales and debt securities on higher valuations (sic).

Provisions -- in (indiscernible) provisions for the second quarter, those amounted to Ps61.4 billion. That includes provisions for (indiscernible) assets and other assets.

Operating expenses -- operating expenses increased 1.1 percent during the quarter. Administrative and other expenses decreased as a result of the reclassification of (indiscernible) expenses related to fees and other services. Bancolombia's efficiency ratio reached 48.6 percent for the quarter ended in June 30, (indiscernible) from 55.7 in the previous quarter.

During the quarter ending June 30, total other operating income increased 11.6 percent as a result of higher unit income from Bancolombia's foreign exchange business (indiscernible) which grew 75.3 percent when compared with the previous quarter. In addition, revenues from conventional subsidiaries increased 45.6 percent, and those are mainly due to the positive results of (indiscernible). Bancolombia Panama had a very dynamic quarter with total deposits increasing 24 percent, driven by checking accounts and (indiscernible) deposits. As a consequence, the total assets increased 23.4. Those included mainly both portfolio and overnight (indiscernible). The increasing overnight (indiscernible) was a result of the dynamics in short-term deposits and lower volume on investment securities. Bancolombia Panama reported a net income of 11.7 million during the second quarter. In (indiscernible) ratings (indiscernible) DLC (ph ) Investor Services rated (indiscernible) Columbia with AA plus for the long-term debt and BLC (ph) for short-term obligations. On the other hand, just going on ratings and acknowledgments, Bancolombia was acknowledged in June as the best bank for Internet services in Columbia by the magazine Global Finance for the fourth consecutive year. In late May, (indiscernible) Colombia began managing the (indiscernible) (indiscernible) for over 1200 new clients, which is a very big gain of clients managed by this (indiscernible). (indiscernible) Investor Services again upgraded the rating of (indiscernible) from (indiscernible) Columbia from AA plus to AAA. Additionally, that reached ratings (inaudible) the AAA rate for (indiscernible) Colombia (indiscernible) (indiscernible).

In today's presentation we have reviewed the good conditions of the Colombia economy, the increasing pace of growth of the financial sector and the pace of growth of Bancolombia in particular (indiscernible) results for our second quarter and for the current semester as a whole and the whole balance sheet of the Bank that allows us to be optimistic of the possibilities of taking advantage of the ongoing recovery of the Colombian economy. I thank you very much for your attention, and I would be glad to take any questions that you might have.

(OPERATOR GIVES CALLER INSTRUCTIONS). Gustavo Terra (ph).

First of all, congratulations on your results -- very, very impressive. How much in the quarter was trading and marked-to-market gains (sic)? Can you give us -- you separate what out of the total revenues what was trading gains and marked-to-market gains?

I am afraid that I don't have the figure, Gustavo. Thank you very much, by the way, for your expressions from the figures. We have (indiscernible) we mentioned during the presentation we have some gains that come from marked-to-market and valuazation. I could give you criticize the precise figure probably on the phone later on. But the important point is this -- I would say that just about (indiscernible) of our (indiscernible) portfolio is in on marked-to-market at the moment. In other words, two-thirds of it is not reflected on the net income of the Bank because it's not in a trading category, which is the only one that affects that p&D (ph). So whatever it is, it is, again, about a third of the impact of what we have in our balance.

Would it be fair to say that the quarter did include a substantial amount of this marked-to-market or trading gains and that those probably will not be maintained in the third and fourth quarter?

Okay. That is an interesting question, and let me tell you that even though it doesn't include substantial -- I mean, the main figure of the net income is not coming from that -- I will say that the results are including an interest margin which might not be sustainable for the near future. I am confident that the prices of the debt is going to be roughly stable in the near and the coming future, so we don't perceive any high risk from that. But we perceive that the interest margin might be on a strong attack and might decline a little bit. But from the other side, what we have (indiscernible) here is that the impact of the growth of the economy is (indiscernible) in each and every indicator of the Bank. For instance, if we take the unconsolidated figures at the end of July, as you probably saw, we have 22 percent growth of our loan portfolio. That is unprecedented since the crisis of 1998. So, from the one hand, we might perceive some reduction in interest margins and from the other hand, we also have a good expectation of growth of the loan portfolio.

As we very explicitly mentioned, there is a -- in total figure of unrealized gains in our total portfolio, which protects us against any foreseeable modification of the prices of investment -- which, again, I don't see why they might take less.

Okay, thank you very much.

(OPERATOR GIVES CALLER INSTRUCTIONS). Ricardo Chavez (ph).

Good morning. I'd like to know what your level of restructured loans over total loans is, please.

Again, I can't (indiscernible) very precise questions. In the page -- in page three of our press release, we have all the loan portfolio by classification. I will say that the restructured loans are mainly either D or C. But I put -- a great deal thought is already made, because to gain the A category, you have to have obtained two capital payments on that loan so that it recovers the A-level. So, they both are mainly B and C. I could give you probably over the phone later on a precise figure for restructured loans.

All right, thank you.

Bill Ladtler (ph).

It's (indiscernible) from UBS. Just for a general question really -- both on the corporate loan growth side and then the slightly better loan classification numbers -- C, D and D (ph) -- where are you're seeing those better trends by economic sector? Where are you seeing the loan demand and where are you seeing the relatively better asset quality?

That is interesting and allows me to comment a little bit on the specificities of the market. We have been perceiving dynamic demand in the small and medium-sized companies and the consumer retail trade in general since the year 2002. What is new in the last few months is that we have been also perceiving a dynamic in the corporate demand for loans, and not only treasury credits -- very short-term credits -- but working capital and longer-term operations. We are perceiving already some demand for credit for investment, and that is very positive. That is what makes us a little bit more bullish than what we were at the end of previous quarters. We have maintained the demand for consumer credits and we, in the coming future, see that those two lines are going to come together. But as you very well know, the largest volume of our loan portfolio comes from the corporate sector, so that is going to maintain the very dynamic figure of our growth of assets.

If you look at the loan classification, you can see that the B, C, D and E --in particular, the C, D and E -- has been reduced significantly. The quarter ending March, we had 11 percent of loans (indiscernible) C, D and E category and at the end of June, we had only 6.5. Of course, we made a substantial figure of write-offs, but on the other hand, we also have very clear situations that the addition of credits have not deteriorated. Most of the Company (indiscernible) going forward (indiscernible) recovery part, and we don't see any significant problems in the pipeline.

Could I just follow-up? Within the corporate loan growth, what economic sectors are you seeing the most growth, and which are lagging?

Okay. Well, the first thing is construction, mainly the housing and other sectors, which are being dynamic since last year in the construction area. Also in that area are some new sectors (indiscernible) coming the road construction, particularly those projects linked to the construction of public transportation systems in the major cities of the country. Also, there (indiscernible) in the export sector, in textiles and particular. Actually, the reaction of Colombian exports is very important and very significant, very good (indiscernible) because Colombia has been able to more than substitute the exports lost to Venezuela. Gentlemen, I don't have to stress to you the difficulties that we have suffered as a result of the economic condition of Venezuela; that was our second partner for international trade, but the fact is that even with that, Colombia has been increasing the total volume of exports very well and therefore, there is a very strong line in financing of the expansion of the operating industry and the textile industry and also in trade financing for that area. I will say that those are the most important, the most dynamic sectors, but we are also starting to receive some indications in the very much industrial area for new investments and new development. Colombia had, at the end of last year, still a substantial level of unused capacity in its industrial infrastructure, but due to the important growth of the industrial sector, the demand for the industrial sector, many companies are starting to review its growth and investment plans.

Great, thank you very much.

Gustavo Terra (ph).

Yes, I have another question. I realize this may be a little bit too soon, but with such strong results, are you considering increasing your dividend rate?

Well, yes, it is a little bit soon. It is still half of the year, and that is mainly a decision of our shareholders. But I would say, from the point of view of the administration, that having a similar policy as we have applied in previous years. It's in accordance with what we are judging the possibilities of growth of the Colombian economy. We have to maintain a well-capitalized bank to be able to take the opportunities of growth of the economy.

Thank you.

Okay. If you don't have any more questions, I want to thank you again. As usual, I want to offer you that is Jaime Velasquez or (indiscernible) will be very pleased to answer whatever additional questions and those that were pending those particular (indiscernible) questions asked today. Thank you very much.

This concludes today's conference call. You may now disconnect. (CONFERENCE CALL CONCLUDED)