Grupo Cibest SA (CIB) 2004 Q1 法說會逐字稿

Welcome, everyone, to the Bancolombia first-quarter 2004 earnings conference call. Today's call is being recorded. This call will be available for replay beginning Monday, May 17th at 8:00 AM Eastern Time through 11:59 PM Eastern Time on Monday -- I'm sorry, on May 20, 2004. The conference ID number for the replay is 653-7513. Again, the conference ID number for the call is 653-7513. The number to dial for the replay is 1-800-642-1687 or 706-645-9291.

With us today we have the President and Chief Executive Officer, Mr. Jorge Londono; the Financial Vice President, Mr. Jaime Velasquez; the Executive and Services Vice President, Mr. Federico Ochoa; and the Corporate Banking Vice President, Mr. Gonzalo Toro. At this time I would like to turn the call over to Mr. Toro:

I wish to thank every one of you for your interest and attendance to our conference call which we have prepared to share with you the Bancolombia results. As a matter of agenda I will cover first the information related to the performance of the Colombian economy and later on I will turn things on to Mr. Jorge Londono who is going to cover the results of Bancolombia in more detail.

As regards to the evolution of the Colombian economy, I would like to say that the economy grew by 4.2 percent during the first-quarter of 2004 driven mainly by private investment. That growth rate was very well in line with the bank estimated growth rate of the economy for the year which is also 4.2 percent. Thanks to the fiscal reform the government met its IMF target of combined public sector deficit of 2.8 percent of GDP in year 2003. Besides that, during the IMF's last visit to Colombia all the government economic policies were approved by them.

As to the inflation rate, it remains at very low levels with (indiscernible) inflation of 0.46 percent in April which is the lowest rate in 37 years lowering the twelve-month accumulated inflation rate to 5.49 percent. That is below the central bank target that is between 5.5 and 6 percent. Because of that good result in the development of the inflation rate, the central bank had room enough for an additional reduction of 50 basis points in the interest rate that now is at 6.75 percent.

In regard to the external sector, even though the nominal exchange rate has been volatile during the past few months, there is not much concern about it because the real exchange rate index is still at competitive levels since it is at 126 percent as of April of 2004. It is also very important to mention that as a result of the benefit from the (indiscernible) trade agreement with the United States we have seen a very positive development in exports of manufacturing goods and particularly textile and clothing manufacturers to the United States.

It is also very important to mention that Fitch rating upgraded the outlook for the Colombian economy from negative to stable. In summarizing our review of the economic situation we would say that it was characterized by a strong business confidence, low interest rate and the continuation of the economic expansion. All those factors creating a very positive environment for our business. Now after having covered -- after that rapid review of the Colombian economy, I would like to turn things to Mr. Londono who is going to cover Bancolombia results.

Thank you, Gonzalo. In relation with our results we would like to highlight the following points. Net income for the first-quarter amounted to 124 billion pesos, increasing 51.5 percent when compared with the 82 million for the same period of last year. At the same time income before taxes amounted to 200 billion and that is an increase of 111 percent when we compare it with the 95 billion that we had before taxes last year. The annualized return on equity and return on assets for the quarter were 31.9 and 3.5 percent respectively. The efficiency ratio improved to 48.4 percent which compares with the 55.7 for the same period of last year.

Now let's take a look at Bancolombia's balance sheet during the first-quarter. Bancolombia's total loans have increased 23 percent when we compare them to the previous year first-quarter. Obviously the first-quarter shows a small decline because of seasonal factors that are I expect very well known by you. But we still remain confident in the reactivation of the loan demand and we are seeing very positive indicators of the growth of investment. On the side of the asset quality, the bank's past due loans remain at a very low percentage of 1.8 percent at the end of the quarter.

The increased duration and better funded mix explain the improvement in the bank's liability structure during the quarter. Total deposits increased slightly over the quarter; non-interest bearing checking accounts decreased also for seasonal factors which compared with the previous quarter but there is an increase of more than 13 percent when we compare them to the previous year. Bancolombia's shareholder equity was very stable during the quarter in spite of the payment of dividends and it shows an increase of 31.7 percent if we compare the equity on a year-to-year basis. Unrealized gains on investment debt securities totaled at the end of the quarter 122.5 billion pesos. As of March 31 the bank's consolidated ratio of technical (ph) capital to risk rated assets was at 12.7 percent.

Let's go now to the income statement. As we mentioned before, Bancolombia's net income amounted to 124 billion during the first-quarter -- which compares to 146.3 billion for the previous quarter -- the last quarter of last year, and also compares to 82 billion for the first-quarter of 2003. Net interest margin for the quarter was 10.4 percent. And that compares with a slightly higher margin during the last quarter of the last year of 11.1 percent and also compares with the 8.3 percent margin during the first-quarter of last year. So there is a very healthy increase in the margin. The net interest income during the quarter was 320 billion and this represents an increase of 40 percent on a year-to-year basis. The increase is explained by the growth on interest of loans and also by higher interest margins.

During the year 2003 total provisions amounted to 192 billion. There was some volatility and changes quarter-by-quarter but in the entire year we had 192 billion in total provisions -- in net provisions. And for the first-quarter of the year we have almost 35 billion in provisions. Decreasing approximately 25 percent as compared to last year's quarterly average. That is basically showing an improvement in the state of the economy.

We had very good results again in fees and income from services. Total net fees and other services income increased 4 percent over the quarter to 98.8 billion. This is also a 23 percent increase when we compare them to the first-quarter of last year. The most important drivers of this growth are commissions from banking services which are increasing 43 percent, commissions and fees from (indiscernible) sharing activities which are increasing 58 percent, and credit cards and debit cards fees which are increasing almost 22 percent. All of these increases are explained in a year-to-year basis. Bancolombia's credit card billings increased 31 percent during the first-quarter, gaining market share of the Colombian credit card business from 17.3 percent to 18.3 percent. At the same time we also increased the market share in plastics slightly from 13.3 to 13.5 percent and that was the result of an increase in the number of credit cards of 15 percent.

Operating expenses amounted to 223 billion during the quarter. This is a lower increase than our increase in our income which is 52 percent; but it is a high figure, also it includes Sufinanciamiento. But we remain very committed, as we have mentioned before, to our programs of cost reduction and increased efficiency and we are enlarging, as we announced previously, our program of Six Sigma during this year.

Other operating income during the first-quarter increased 15 percent and that is mainly due to higher dividend income from other affiliate companies such as Conali (ph), (indiscernible) and (indiscernible) on which the Bank holds less than 50 percent of the outstanding shares and therefore are not consolidated in our results. Bancolombia Panama, our main subsidiary consolidated in our results, Bancolombia Panama had a good quarter, total assets were stable and this subsidiary reported a a net income of $10 million during the quarter. That should be compared with the total income of $45 million during the year 2003.

In this quarter the risk rating (indiscernible) we are seeing better services -- gratify the bank's AAA rating for the long-term debt and the BFC1+ (ph) for the short-term obligations. These ratings are the highest given in the national financial sector. For the second consecutive year Bancolombia has received Deutsche Bank straight through processing excellence award in recognition of Bancolombia excellence in the quality of international payment processing.

We have reviewed this first-quarter in which we have obtained very good results and even though the rate of taxation of the Bank has increased because of the elimination or partial elimination of our tax yield we are obtaining a significant increase in our net income. We will be more than happy to hear your comments and take -- try to answer any questions that you might have.

(OPERATOR INSTRUCTIONS) Gustavo Terrin (ph), BBBA Bencomer (ph).

The question is on the effective tax rate, it went up quite a bit, as you mentioned, because you ran out of the tax loss carryforwards. Is that more representative now that -- the effective tax rate that I computed was 38 percent. Is that a more representative tax rate going forward or what would be a good number to use for let's say '04 and '05?

I think that on the consolidated basis we may expect that this year's total taxation may be at around 20 to 25 percent; that will be a good guess, Gustavo. You have to keep in mind that, as you mentioned, we have almost spent the tax shield because of the losses of 1998 and 1999, but the Bank still has some operations. An important part of our operation is in Panama which are not taxable, and also we have a good profile of managing of our total taxation in Colombia. So that we are not getting closer to that 38 percent which is the average -- the rate of taxation in Colombia.

Yes, the first-quarter had some special factors that accounted for that 38 percent?

Right. In the first-quarter we have some non deductible expenses, and if you want a detailed explanation of that which will be not practical to present in this conference call, or whoever would like that, just feel free to call Jaime Velasquez or Mauricio Ortero (ph) and they will send you a detailed explanation of those figures.

Very good. That's fine. We'll take the 20 to 25 percent which is a lot easier for us to work with. Let me follow with another question if you don't mind. The markets have changed considerably since the closing of the first-quarter -- volatility has increased quite a bit. Have we seen the best in net interest margin in the first-quarter anticipating that perhaps the second-quarter will have some lower market or trading gains or perhaps even losses?

Yes, I think it's a very good observation, Gustavo. As we mentioned, the net interest margin that we obtained during the first-quarter was not due exclusively to the valuation (ph) of our investment; but, yes, the valuation took a part of it. If you look at the figures in detail you can see that we have increased significantly our income on loans and we have made, as we mentioned in this presentation, improvements on the structure of funding of the Bank. But necessarily we are going to be affected by the volatility of the market; we don't know how the quarter is going to end up. We don't think that the rates at the end of the quarter are going to be the same as they are today.

What we have been experiencing in the market for the last couple of days is a more significant calm; not the panic that we perceived during the last couple of weeks. So we believe that it can moderate a little bit the valuation. But, yes, definitely we won't be expecting the same interest margins in the next quarter. If you remember, Gustavo, last year at the end of the year we said that the margin that we obtained during the last quarter was that we were not expecting to remain in the Bank. And actually during the first-quarter we obtained something very similar. We were not expecting that. I think that there is a correction of that. That is I think that even it's reasonable, it's understandable for the economy.

Thank you.

Valerie Fry, Santander.

I had actually a couple of questions. The first one has to do with the performance of the loan portfolio. We saw in the first quarter-numbers that the retail portfolio was up 5 percent, which is very, very strong; but the corporate portfolio was down 7 percent. You indicated in the press release that this was mostly due to seasonality. So I'm wondering what are your expectations for the full year in terms of these two segments? What growth should we be looking for in terms of the overall loan portfolio and within these two segments? And then the other question that I have is with regards to your coverage of past due loans which this quarter came down to 287 percent from over 300 percent in the previous quarter. I'm wondering whether you plan to maintain this level at the current level or whether you plan to decrease it even further or what exactly do we have to expect?

Very interesting, Valerie, thank you. Yes, the first question is very important. Actually retail was dynamic during the first-quarter and corporate was declining and that is what we mentioned that we believe it is in line with the seasonality of the Colombian economy. But we, as I tried to explain during the conference call, we remain confident that if the dynamics of the economy remain very well and that it is going to show in the demand for credit. Let me tell you one indicator that supports this expectation in the administration of the Bank.

We have seen on the leasing activity on a year-to-year basis a very significant growth of the total leasing is almost double today than what it was a year ago. And the backload of leasing, what we have in advances for new contracts and imports in process, is about four times what it used to be four or five months ago. So it's growing very dynamically. What we perceive, like many indicators, not only that one that I mentioned to you but because we have the feeling on the economy is that the people is investing and new projects in (indiscernible) are being developed and the confidence of the market and the confidence of the businessmen are at unprecedented high levels. So certainly we believe that we should expect better loan growth figures for the coming periods.

Now with respect to the coverage, as you remember when we used to mention what our policy was, we used to say that we had the policy of keeping over 100 percent coverage of our past due loans, now we are at close to 300. But we have come down a little bit from the 320 that we had to 280, but something. We don't expect that to come too much below that figure in the mid term. I think that that should remain at around those levels in the coming months if nothing extraordinary occurs.

Okay. Thank you very much. Just if I could ask one more question. I saw the unconsolidated numbers for the month of April that you sent out yesterday, and there was quite a significant reduction in the unconsolidated net income in April compared to the previous three months and I'm just wondering if that is somehow related to the volatility in the markets that have taken place in the last several weeks or if there is any other factor that has affected that month’s particular level of net income.

Yes, Valerie, you are absolutely right. Actually we made an effort to publish the April results before this conference call because we knew that there was a lot of expectation of how much the volatility of the market had affected us. And it did affect us, not dramatically but significantly and we just wanted to give you an idea of what was the impact of that on the Bank. I will say that entirely the change in the net income was due to that volatility of the market, the increase of the prices at the end of April.

Okay, thank you very much.

Ben Nadler (ph), UBS.

Just two quick questions if I may. Firstly just on asset quality, which remains very good, but if I look at the loan classification breakdown over time there seems to be at least a stabilization at around the 5 percent level and a small quarter-over-quarter pickup. I just wondered if that was a change of trends, what sort of numbers we could expect in coming quarters? And my second question, just a bit more generally, would just be within the corporate portfolio sectorally where are you seeing the demand and which sectors seem to be lagging?

I will take the first part of the question and ask Gonzalo (indiscernible) to comment to you on the second question. Yes, there is a slight increase in our past due loans but I wouldn't see anything of significance on that. Let's say that we expect the past due loans to be just above 2 percent, that is want our (indiscernible) should show. So we are still below what is incorporated in our management model. There is not anything at the moment that significantly should worry you. On the contrary, by the volume of total provisions that we did in the quarter, what we should show is that the average level of the average significance of the economy, the average state of the economy is improving.

You also have to take into consideration when you look at these total past due loans that since the beginning of this year we are including the financial leasing (ph) as part of our loans. Therefore that makes the figure not entirely comparable. So I will ask Gonzalo to go into the second question.

As to the future demand in the corporate sector, certain things I would say that the beauty of this economic expansion is that it is happening in almost all the economic sectors, different from what happened in the past that it was led by one or two particular sectors. Having said that and with an increase in the utilization rate of the store capacity that is now at a level of 76 percent, what we are expecting is a greater demand coming from almost all the different economic sectors but particularly strong from the manufacturing sector which is having some positive benefits from the trade agreement that we mentioned at the beginning of the conference call. The construction sector is also doing very well and we believe that they will keep on doing very strong with our strong performance during the last one or two years. Then with (indiscernible) to the infrastructure, the construction of the infrastructure so the landscape as a whole and the outlook looks positive because of the process. Again, the general growth in all the economic sectors.

That's great. Thank you very much.

(OPERATOR INSTRUCTIONS) Gustavo Terrin, BBBA Bencomer.

Just following up on that last comment, do you expect then loan volume to potentially keep up with last year's at 30 percent?

Thank you for remembering me; I forgot to answer that part of your question. Actually, yes, if you ask us what is our expectation, we believe that 15 percent should be a good guess for the growth of loans during this year.

30 percent?

No, 15, 1-5.

Gustavo Terrin. Oh, 1-5.

1-5 total growth of loans.

Down from 30 percent in 2003?

Right, right.

Okay. And another question is on loan loss provisions -- net loan loss provisions -- these have come down quite a bit in the past two quarters. The economy certainly has helped, but is that a sustainable rate as long as the economy stays at these levels to be provisioning at these low levels?

I don't think that the rate of provision is low. It's lower than what it was but it's just showing the recoveries of some of our clients that were being very strongly provisioned during the previous quarters. That is the main reason why the figure is coming slightly lower. There shouldn't be dramatic changes in that but, yes, we expect the total volume of provisions to be below what we did last year.

Right. Okay.

Okay, thank you. Thank you very much for your attendance. We are very happy that we had such interest in our quarter results. We presented some results from which we are very satisfied, even though there is a lot of interesting elements in the Colombian economy. We will be happy to answer any additional questions or giving you any detailed information that you may require. (indiscernible) is the name of Jaime Velasquez and Mauricio Ortero in the first page of our press release. Thank you very much.

This concludes today's Bancolombia conference call. You may now disconnect.