Grupo Cibest SA (CIB) 2003 Q4 法說會逐字稿

Welcome everyone to Bancolombia fourth quarter year 2003 earnings conference call. Today’s call is being recorded. With us today, we have the president, Jorge Londono Saldarriaga, the Financial Vice President, Mr. Jaime Velasquez, and the [indiscernible] Vice President Mr. [indiscernible] will be there.

At this time, I would like to turn the call over to Mr. Saldarriaga. Please go ahead sir.

Thank you, and good morning. I wish to thank every one of you for your interest and attendance to this conference call, which we share with you [indiscernible].

Before reviewing our fourth quarter results, I would like to comment on the main developments on the Colombian economy, and the evolution of the financial sectors at the end of last year.

The economy grew 4.2% during the third quarter, and 3.5% is estimated for the year. The financial sectors grew at a rate four times higher than the economy, near 16%. Exports are, and will be, the basis for the economic growth, and investment has been increasing in the last two quarters.

The economic indicators are improving. Inflation is still at very low levels, 6.5% for the year end, and it is slightly lower than what we had in the previous year. The interest rates remain below 8%. The exchange rate remains at competitive levels, although it was very volatile during the last week, but still, it is over 120% with the comparative level that we have set for many years in the Colombian economy.

During the current year, of 2004, we are expecting higher economic growth. We believe that the inflation is going to remain low, and the target of the Central Bank of inflation is between 5.5% and 6% is going to be achieved. We also believe that during the whole year, we are going to have some moderate devaluation and maybe a slight increase of the interest rates.

The external factors, as we already mentioned, were very important for the Colombian economy during the year 2003, and we expect that it will remain [indiscernible] during the next year. It is an important source of opportunities and it is going to be the main element for the strength in the economy.

We are today confident in the process of new agreements and new negotiations that are underway right now in the country, at the [indiscernible], the Free Trade Agreement, which is under negotiation, and the [indiscernible] that should be effective in the year 2005.

I will refer to the financial sector. We most know that the total loans of the Colombian economy increased by over 9% over the year, but if we exclude mortgage loans, the increase was almost 17% in the year. By the loans, a percentage of the total loans for the banking sector have improved, coming from 9.5% in 2002 to 7.3% at the end of the year 2003. Additionally, allowances to pay the loans went from below 83% to more than 93%.

As far as Bancolombia fourth quarter results, we would like to highlight the following: net income for the year 2003 amounted to 470b pesos, increasing 123% when compared with the 210b pesos that we had in the year 2002.

This was mainly due to our better structure of our assets, and an improvement in the bonded mix of the bank. Also, we have some progress in our efficiency levels.

Bancolombia’s net income amounted to 146b pesos during the fourth quarter, and that compares very favorably to the 118b pesos that we had for the third quarter of the year. This was achieved mainly as a result of higher net interest income and lower net provisions because of higher recoveries.

Net interest margin for the year increased to 9.3%, and that compares also very favorably to the 7.3% that we had in the year 2002.

The annualized return on average equity and return on average assets for the year were 31% and 3.4% respectively.

Our new subsidiary in the consumer finance business, Sufinanciamiento, total net loans increased 35% over the quarter, and 30% clear of the year.

With respect to the assets during the quarter, the total assets increased 8.8%. The increase for the bank in total assets was primarily due to a larger loan portfolio. Bancolombia’s total gross loans increased 8.3% over the quarter, and 29.6% for the entire year. We would like to highlight that during the quarter, retained loans increased 18%, of which Sufinanciamiento explains 75%.

At the same time, corporate loans increased almost 4% during the same period, with working capital loans being the most dynamic element. The bank passed the loans as a percentage of total loans were 1.5%, and that is a stable figure when compared with the previous quarter.

Total deposits increased also in line with [indiscernible] 8% in the quarter. The bank’s bonded mix improved as a result of a 26% increase in non-interest bearing deposits, while interest-bearing deposits increased only 4%.

As of December last year, the bank’s consolidated ratio uptake of capital to risk related assets was just about 13%. On realized gains, on investment securities, the total was 89.5b pesos at the end of the year.

Net interest income during the quarter increased 36.5%, as a result of better dynamic on the average of interest earning assets, a better seasonal bonded mix and the incorporation of Sufinanciamiento.

Total net provisions for the fourth quarter of 2003 amounted to 26b pesos, as we mentioned previously, decreasing 44% which compares with the previous quarters, as a result of our recovery of about 14b pesos of provisions.

In spite of the increase of 8.7% in the income from fees and other [indiscernible] during the quarter, total main fees increased only just about 1% during the fourth quarter, and this is explained because of higher expenses related to [indiscernible] cuts and also to the fact that Sufinanciamiento’s expenses were incorporated for the entire year in the last quarter.

During the quarter, operating expenses grew 16%, approximately 31m pesos, of which Sufinanciamiento also represents 71% being also incorporated in this quarter.

Bancolombia Panama’s total assets increased 4.4% in the quarter, driven by an increase in overnight funds sold as a result of higher short-term deposits. This subsidiary reported a net income of $15.3m during the quarter, and that compares very well to the $10m in the previous quarter. This increase was due to higher net interest income.

Yesterday we had our general shareholders meeting for the bank. It was held in Medellin, and the meeting approved the proposal on a dividend that was presented by the growth of [indiscernible]. The bank will pay a dividend of 272 pesos per [indiscernible] per quarter on the first working day of each quarter, beginning on April 1.

In addition, the meeting appointed some new individuals as members of our board of directors. We published the new board yesterday, but I would like to mention that the new persons that are on the board, are Juan [indiscernible]. He has been appointed the day before yesterday as the new President of [indiscernible] replacing Mr. [indiscernible]. Juan [indiscernible] has been for a long time in the organization of our permanent shareholders, and he has been the president of [indiscernible], a corporate bank that belongs to the group.

Also, another new member of the board is [indiscernible]. He is the president of Investura, the insurance company of the group of our dominant shareholders. In other words, in these two new participants, there are no changes, because they represent the same jobs of the persons that have changed responsibilities or have retired from the group.

On other directors, we have two new names also, [indiscernible]. He is a very highly educated individual with a very important background. He has been a manager, a shop manager of the Central Bank, he has made a career on economic research and has held other very highly important jobs in the technical areas.

[Indiscernible] is also a person very highly educated, with degrees in Economics and Mathematics, and is part of the think-tank [indiscernible]. He has been working with [indiscernible] for the past two years. He is a very notorious person in the area of research and economics in the country.

We also want to mention that the risk-rating firm, Duff & Phelps de Colombia ratified the bank’s Triple A rating for long-term debt, [indiscernible] for the short-term obligation. This is the highest rate given in the national financial sector.

Bancolombia was rated also first in credit card satisfaction, but they told me that we won twice a year, which is called [indiscernible] in Colombia. This [indiscernible] is performed by the firm Tecnologia y Gerencia which is an independent firm, and among the credit card business ranks, the bank has ranked first with its Bancolombia American Express card and third with its Bancolombia Mastercard and fourth with the Bancolombia Business Card.

An affiliated program that we have been drawn in for the last year and a half, what we call Affiliate Integration Project was very important for the year for the bank and its subsidiaries. During that period, during the last year, the Affiliate Integration Project consolidated the integration of what we call Bancolombia’s organization. This process enabled the combination of efforts and the achievement of better efficiency levels.

In [indiscernible] the organization is prepared to offer integrated financial services to our private clients, enhancing the development of their businesses. At the same time we can take advantage of the synergies generated by this integration with the agility and the approach of the specialized institutions. The conclusion of this integration constitutes one of the most important strategic developments of the bank.

We have a new person who is going to be in charge of the IR in the bank. Maria A. Villa is going to move to our commercial area, and he is going to be a manager in the area of our preferred clients, and from today, Mauricio [indiscernible] is going to be in charge with the relations with you and other investors of the bank. He will be available on the same telephone numbers and through the same channels as Maria A Villa has been usually attending to.

I will be very glad now to attend to any questions, and other comments that you have on the results that we have presented. Thank you.

Operator, could you please ask if there are any questions from the audience?

No problem, sir. If you would like to ask a question, please press * and then the number 1 on your telephone keypad. We will pause for just a moment to compare the Q&A roster.

At this time, sir, there are no questions. I’m sorry sir, you do have a question from Scott Piper of Morgan Stanley.

Hi, I was wondering if you could comment on the rather dramatic drop in provisions as you mentioned, down 44%. What should we expect, given the pretty strong loan growth you’re experiencing? What should we expect in upcoming quarters in terms of the level of provisioning that you should expect? I mean, how one-offish was this dramatic drop in the fourth quarter?

Yes, I’m very glad to comment on that. In fact, what we mentioned was that the total amount of net provisions don’t do in the fourth quarter – they were 44% lower than the total amount of net provisions done during the third quarter, and this was due, not because the bank had a lower volume of provisions made, but because we had a higher volume of recoveries obtained. In fact, at the end of the year, we are, with total provisions, about 300%, as compared with our total party loans.

This is adequate because of what you mentioned, that it is going to be the important reactivation that we are also expecting in the total loans of the country.

We feel rather comfortable. You know, we haven’t mentioned it again, but our target is to remain our 100% provisions. We are much above that now, and that is in line with the development of new practices in risk management in the bank, and also with the particular time that we are running in, which we believe that party loans are at the lowest level for the bank due to the particular situation of the economy, but we don’t believe that that should be projected to the future.

As a matter of fact, the current situation is being one of the best for the bank in its recent history.

If I could just follow up, I mean, given the fact that the economy is strengthening, which is leading to high level of recoveries, your coverage ratio, which is about 300%, seems a little excessive. Is there any plan on possibly bringing that down? That’s the first question.

The second question is just, provisions as a percentage of average loans is, as you mentioned, decreased to 1.5% which is a pretty strong improvement from 2%. Do you feel that that 1.5% figure will be a stable figure throughout 2004, or will it revert back to, say, 2%?

Okay, the situation is that I find it reasonable to our expectations that the top level of provisions might be coming down because of the current situation of the bank. However, we don’t want to make a budget on that, since the new tendencies in risk management make us project our total provisions rather than the volume, and the long-term patterns of behavior of our loan portfolio and not in the short-term situation that we are limited to that is a particularly good one, as I mentioned.

So, we would rather think on the future, maintaining the levels of provisions rather stable, and it comes to be [indiscernible] then I don’t think we should go much more above 300%, certainly we will have to diminish it, but we don’t want to make a budget on that.

On the other hand, yes, we think that 1.5% is particularly low. Actually, our model tends to show [indiscernible] slightly higher level of party loans. The model that we operate for, giving credit to the market, show us that something between 2% and 3% is something entirely reasonable for the operation of the bank, but we actually are happier if it is below that, as it is at the moment.

Okay, thank you.

You’re welcome. Okay, we presented the results of the last quarter of the year. We are very happy with the result, 470b pesos for the entire year, and a very good result from the fourth quarter. As you know, there is some seasonality on our results, and the fourth quarter is usually the best of the year, but nevertheless, it was a particularly good one, and we are very optimistic of what this year could have for the economy, because the economy is recovering its rate of growth.

So thank you very much for your participation, and as you know, if you have further questions that require further information in the lower part of the press release, there are the telephone numbers of the people of the bank who will be ready to attend to those questions. Thank you very much, and goodbye.