Grupo Cibest SA (CIB) 2004 Q2 法說會逐字稿

Good morning and welcome, everyone, to the Bancolumbia's second quarter year 2004 earnings conference call. Today's call is being recorded. With us we have President and Chief Executive Officer, Mr. Jorge Londono; the Financial Vice President, Mr. Jaime Velasquez; the Executive Vice President, Mr. Federico Ochoa; Corporate Banking Vice President, Mr. Gonzalo Toro and the legal council for this special internal affairs, Mr. Juan Luis Munera (ph).

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

Thank you very much and good morning. I want to thank each and every one of you for your attendance to this conference call which we have prepared to share with you Bancolombia's results.

I would like to mention that for today we have a slide presentation that is being made available in our company's investor relation website, bancolombia.com. If you want to follow it in this call, you are welcome to do so. Also I would express that those sites are not required for the understanding of what we are going to present today.

At this time, I would like to introduce Mr. Federico Ochoa, Executive Vice President of Bancolombia, who is going to explain briefly the latest facts of the Colombian economy.

Thank you, Dr. Londono. Before we begin our second quarter results I would like to make some short comments about the recent developments of the Colombian economy.

The main fact is that the Colombian economic recovery has consolidated, has taken firm hold. In the first quarter of 2004, the GDP growth rate was a 4.1%, and thereby we completed three consecutive quarters in which our Gross Domestic Product grew in excess of 4%.

Inflation continues to be at relatively low levels. The 12-month inflation rate for the period ended in July was 6.2%. Interest rates continue to be stable and they have benefited companies' capital expenditure plans. Low inflation rate has been beneficial in order to maintain the competitive position of the Columbian peso, because it has to be recognized that in the last year or so there has been some important appreciation of the Colombian peso vis-à-vis the U.S. dollar. However, the external sector continues to be a source of opportunities.

This year economic headlines have been dominated by international trade treaty talks. As we mentioned in our last conference call, the negotiations with the United States for a free trade agreement took off in May. Companies have already started to prepare for this challenge and we have seen a strong increase in loan demands arise (ph) from this.

Three years ago in a survey made by the Colombian association of manufacturers, ANDI, concerning the permits for the upcoming trade agreements, 35% of Colombian companies stated that they were adopting strategies to increase their own competitiveness and productivity for the approaching impact of the trade agreements. Nowadays, the answer to the same question is that 65% of local companies are investing relatively heavily preparing for a more open economy.

For the remainder of 2004 and for the next years, we expect to continue to have a dynamic economic growth situation, low inflation, stable interest rates and a basic and competitive exchange rate.

The combination of these factors will be beneficial for the development of the businesses or financial institutions. We are confident we are going to be able to avail ourselves of the opportunities generated by such economic situation.

That's basically the main point we wanted to convey to you regarding the background in which the bank is operating. I turn now this presentation to our Chief Executive Officer, Dr. Jorge Londono.

OK. Thank you, Federico. As far as Bancolombia's second quarter results, we would like to highlight the following points. As most of you already know, the bank's tax credit has reduced almost completely. Having said that, it is important to notice that quarterly income before income taxes has increased 10% in a year over year basis, amounting to COP 153 billion as compared to COP 139.5 billion during the second quarter of last year.

Net income, therefore, decreased 6% over the year from COP 122.8 billion to COP 116.6 billion as a result of the increase in the total income taxation that went from COP 16.7 billion to COP 36.9 billion.

During the second quarter interest on loans were COP 276 billion, increasing 31% percent as compared to the same period of the year 2003 while gross loans moved up 23.5%. This relatively high increase in interest income is derived from a better pricing strategy in all lines of credit that the bank operates.

On the other hand, interest from investment securities only reached COP 72.9 billion, decreasing 55% to the second quarter of 2003. This is due to the Colombian bond price declines which took place at the beginning of the second quarter when domestic rates incorporated the expectations at that time of the foreseeable rate increases by the U.S. Federal Reserve.

Net fees maintained a strong growth rate. During the second quarter of the current year, they amounted to COP 107.3 billion, increasing 32% as compared to the same period of the previous year. This figure reflects a good outcome of the bank's strategy of increasing fee income.

Annualized return on equity and return on assets reached 28.6% and 3.2% respectively. Now let's take a look at the balance sheet as of June 30, 2004.

As we just mentioned, we can see that in the slide number 6, that Bancolombia's total gross loans increased 6.2% over the quarter and 23.5% as compared to the second quarter of last year.

We had very positive figures over the quarter for corporate, small and medium enterprises and retail loan portfolios. If you are following the presentation, you can see that in this slide number 7. Over the year, corporate loans increased almost 10%, while the small- and medium-size enterprises and retail loans were up 46.5%. The bank has been effectively targeting the different sources of demand for credit.

On the other hand, financial leases increased 15% as compared with the first quarter, and 54% if we compared them to the next -- last year. This shows the positive dynamics of this business due to the recovery of private investment budget, confidence in business policies and more beneficial tax legislation on leasing contracts since the beginning of the year in order to stimulate private investment.

As shown in the slide number 8, the bank's past-due loans as a percentage of total loans remained at a very low level of 1.8%. Also the coverage ratio of 276% is very high. On the liability side we are very pleased to register the improvement of the bank's funding mix. Interest bearing deposits were up only 8% over the year, while non-interest bearing increased 20.5% during this same period of time.

In slide number 10 you can see that Bancolombia's shareholders equity had a slight increase of 1.9% over the quarter, but increased 16.5% as compared to the end of the second quarter of 2003.

Unrealized gains from investment debt securities totaled, at the end of the second quarter, COP 43.7 billion. As of June 30, the bank's consolidated ratio of technical capital to risk-weighted assets remained a stable -- at 12.5, very well above the legal limit in Colombia which is 9%. That can be also illustrated with the slide number 10.

On the income statement, as we already mentioned, the -- we had an impact of the increase in taxation level in the quarterly results and this is very clearly illustrated in the slide number 11. It is also very illustrative to show that net income before taxes during the first half of the year increased 51%, if we compare to the similar period of 2003.

Net interest income decreased to COP 236.9 billion during the second quarter. For the second quarter -- as mentioned before, this is the result of the volatility of domestic and international markets during the period. This explains why the interest margins reached 7.4% during the quarter, only.

Gross provisions and loans and interest amounted to COP 23.7 billion, increasing 14% if we compared with them with the first quarter of the year, while total net provisions only amounted to COP 3.8 billion. This decrease in net provisions is mainly explained by the recoveries related to previously charged-off loans.

In fee income we have a very interesting story. Fee income generations continues to be one of the bank's main strategies. Net fee income amounted, as we mentioned before, to COP 107 billion, as you can see in the slide number 13, increasing 8.6% over the quarter, which is a 32% increase when we compare it with the second quarter of 2003.

It is important to notice that during the second quarter, net fee income represented 29% of the total interest income, 49% of the total operating expenses and most important of all, 92% of the bank's net income.

We are very pleased to register that the bank has reached the first place in credit card billing during the quarter compared with the previous -- the semester, sorry, compared with the first semester of 2003 the increasing total billing is almost 31%. Therefore, we are now the major institution in credit card billing in the country.

Additionally, the number of outstanding credit cards increased 15.4%, resulting in a 13.6% market share as we also illustrated in slide number 15. Furthermore, Bancolombia outstanding debit cards increased 29.7% in a year over year basis, with a market share between 11.6% to 13.3%. Likewise, accumulated debit card billing increased almost 46%, reaching a market share of 16.6%, coming up from 14.2% in the previous year.

On the side of operating expenses, they were, during the quarter, rather stable, amounting to COP 220 billion. Nevertheless, due to the increasing net interest income explained before, the bank efficiency ratio appears to have deteriorated to 59.8%.

On other operating income, it totaled COP 34.9 billion in the quarter. This is a 34.4% decrease as compared with the previous quarter. This decrease resulted from a lower dividend income. The dividend income in Colombia, as you probably remember, is recorded when it is announced, which regularly takes place during the first quarter of the year in the general shareholders meetings of each one of the companies.

Talking about Bancolombia's Panama, the reported net income is $11.9 million during the quarter as compared to $10.1 million reported during the first quarter of the year.

We would like to review some of the recognitions received by the bank during the quarter. Euromoney magazine selected Bancolombia as the best bank in Colombia in its June edition. It stated, and I quote, "Bancolombia is the biggest and most transparent bank in Colombia. The bank is a single entity with a first-rate reputation, which makes its working and market position easier to understand." Unquote.

Also Bancolombia was ranked as the number one bank in Colombia by the magazine, The Banker, in its July edition. In June, Global Finance Magazine selected Bancolombia as the best bank in Colombia in trade finance and foreign exchange. The market research firm YANHAAS in its last evaluation of advertisement impact rated Bancolombia's plan as the leader among financial institution as well as the number one bank in customer intention of purchase.

This is the presentation that we have prepared for today. We will be glad to take any questions that -- or comments that you want to make. Thank you.

[Operator Instructions]

Your first question comes from Phillipe Cruz of Merrill Lynch.

Hello, Jorge and company, and everyone else on the call. I have a couple of questions.

The first one, I want to get a better sense of what kind of outlook should we expect for net provisions going forward? We saw a large recovery, as you noted, this quarter. Should we treat this as more of a type of non-recurring item or, given the improving economy similarities, do you expect to get some, you know, sizable recoveries?

And then my second question, I wanted to see if you could provide your loan growth targets both overall and by segment. If I'm not mistaken, last time around, you were talking around something like 16% to 18% percent in terms of loan growth given the Q2 figures, which were quite strong. Are you revising this growth target upward? That's -- those are my questions.

OK. Thank you very much, Phillipe. First, on the outlook of provisions, I would say that if the economy keeps going as it is we are actually viewing an improvement of our assets, and many provisions that were made on the previous year are being recovered. I will say that we are expecting that trend to continue and therefore a situation of a strong recovery, as you mentioned that we had during this quarter, is probably very much like what should be expected.

There wouldn't be any reason to expect why there is an additional new trend of deterioration of assets that will change that situation. We are very well covered and therefore some recovery should be on the line.

Yes, you are absolutely right, we were targeting, in our last conference call, loan growth target of about 16% to 18% and it has come a little bit higher. As we mentioned during this conference call, we are optimistic about the impact on the investment of the enterprises in the rest of the year as a consequence of the trade negotiations. And also the experience so far in leasing activity shows that the people is willing to make new investments.

If that is what happens, we will definitely be above what we were originally expecting in growth of assets and in growth of grades and loan growth. We still have to wait up an see, but I will say that, right now, the economy is looking better than what it was looking three months ago.

Perfect, Jorge. Thank you very much.

Thank you, Phillpe.

[Operator Instructions]

Your next question comes from Vin Lidier (ph) of UBS.

Everybody. Just a quick question on fee income, it continues to be extremely strong. Outside of the credit card business, could you just give a sense of to where the fee income growth is coming from? Whether we can expect this type of momentum to remain going forward? And also the numbers we should be looking at going into next year.

Yes. OK. Fee income is very dynamic. I will ask Gonzalo Toro to give you a review of the different elements that compound fee income.

Well, basically the result that we are seeing in this quarter as well as during the last three quarters is a consequence of, first, growth in the number of transactions and in the number of clouds (ph). Just to give you an idea the number of transactions carried out by the plans through the different electronic devices increased by 35% in June.

So on the one hand, we have a very positive volume, we have a very positive dynamic, and on the other hand, in the consumer banking as well as in corporate banking, we have introduced a very disciplined approach in for the managing of prices -- in pricing.

So we are benefiting from the combination of volume as well as a better, much better, pricing strategy. All in all, we expect a strong growth in the future, something in line with what we have seen during the last three quarters. And on top of that, with a value-added system that was introduced in the corporation one year ago, it has provided a perfect scenario for that pricing benefit and that pricing discipline that I just mentioned some minutes ago.

All in all, we believe it is going to be on line with positive outlook in the future.

Yes. Just to add a little word about that, you'll have to be very clear that fee generation activities don't consume capital and therefore the creation of value for each one of the agents is very high, so the people is very eager to pursue activities that increase fee income.

Great. Thank you very much.

You're welcome.

At this time, sir, there are no further questions.

OK. Thank you very much for your presence. We are very happy to present our second quarter results. We believe that they show that the bank is very dynamic and is taking very much the opportunities of the economy in the areas of growth of credit, of increasing our margins by the -- improving our structure of funding, and also taking the opportunity of expanding our products and services and generating more income.

We also see that the economy is doing well and that we believe that there could be a better performance of the economy for the second half of the year. We will be very happy to provide you any additional information or to answer any additional questions. In the contact that I stated at our press release this month, Jaime Velasquez, Mauricio Otero will be happy to answer your questions or to provide you more information.

Thank you and good bye.

This now concludes the Bancolombia second quarter year 2004 earnings conference call. You may now disconnect.