Grupo Cibest SA (CIB) 2004 Q3 法說會逐字稿

Good morning and welcome, everyone, to Bancolombia third quarter 2004 earnings conference call. Today’s call is being recorded. With us today, we have the President and Chief Executive Officer, Mr. Jorge Londono, the Financial Vice President, Mr. Jaime Velasquez. At this time, I would like to turn the call over to Mr. Londono. Please go ahead, sir.

Thank you. I want to thank each and every one of you for your interest and attendance to this conference call, which we have prepared to share with you Bancolombia’s results. I would like to mention that we have a slide presentation that is being made available in our website, bancolombia.com, and this is a good support but is not required to follow this presentation.

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

Thank you. Before reviewing our third quarter results, we would like to comment on the main developments of the Colombian economy. The economic recovery has [consolidated]. The GDP grew 4.3% during the second quarter compared with 4 consecutive quarters growing at levels that exceed the 4% target.

Inflation stayed at low levels. It was almost zero in October, decreasing the 12-month accumulated inflation rate to 5.9%. Interest rates are stable contributing to stimulate capital investment. On the other hand, the real exchange rate persisted in [competitive] levels in spite of this volatility and the application of the Colombian peso.

International trade agreements are 1 of the highest priorities of the government’s agenda. As we mentioned in the last conference call, the negotiations with the United States at the trade meeting to come in May, and the recent re-election of President Bush allows the Colombian government to advance, in fact, negotiations without any delay. Colombian companies keep [indiscernible] for the upcoming challenges, as can be seen in the long [indiscernible].

So we expect dynamic economic growth, stable interest rates, low inflation and a competitive real exchange rate. As you can see, this is a very continuous scenario for the financial business. Therefore, we are confident that the bank’s [indiscernible] will continue to improve as the performance of the Colombian economy maintains its trends.

After this quick review of the Colombian economy, I will turn to the page to Mr. Londono, who is going to explain Bancolombia’s results. Thank you.

Thank you, Jaime. As far as our Colombia third quarter results, we would like to highlight the following points. Net income for the third quarter increased 58% in a year-over-year basis, amounting to COP187b. That is 5 cents -- $0.5 per ADS.

It is a very important to understand what is in the basis of this positive change. First, the bank gross loans increased 24%, as compared with September 2003, while the investment portfolio was up only -- just below 11%. Regarding the income statement, we had interest on loans increasing 42% and interest on investments increasing 39%. Both compare with the previous year, while the interest expenses grew at a lower rate of 27% during the same period.

This allowed the bank to increase its net interest margin to 10.3% from 8% in the last year. Additionally net fees have maintained a positive trend. During the quarter they amounted COP109b, increasing almost 17% as compared with the same period of the previous year. After September, the results of the figures reviewed is an analyzed return on equity of 33.4% and an annualized return on assets of 3.7%.

As we have previously informed, Bancolombia, Corfinsura and Conavi are in the profits of the kind in a combination [indiscernible]. The companies are working with highly experienced international investment bankers to obtain evaluation and obtain independent finance opinions on the resulting exchange relations.

Now let’s take a look at the Bancolombia balance sheet for September. In[reference to assets, as we just mentioned you can see in the slide number 5 that we have obtained positive figures over the quarter. Bancolombia’s total gross loans increased 9.8% in the quarter and 24% in the year. The bank has been effectively targeting the different sources of demand for credit.

We also would like to point out the increase of 9% in the investment portfolio as compared to June 30, 2004 -- the decrease of 9% of the investment portfolio as compared with June. This has been a result of the higher demand for credit. Also important to notice that in this quarter the evolution of the loan portfolio reflected the increasing demand for corporate loans. Corporate loans grew more than 10%, while the small and medium enterprises loans and retail loans, only grew by less than 8%.

On the other hand, financial leases increased 17% as compared to the second quarter and 70% year-over-year. This confirms the positive dynamic of the businesses due to the recent sustained in previous presentations, such as the recovery of private investment budgets, confidence in business policies and a more beneficial tax legislation on leasing contracts since the beginning of the year, in order to stimulate private investment.

If you want to look at the slide number 7, we can say that the bank’s past due loans have -- past due loans as a percentage of total loans are in a lower level of 1.5%, as well as the [indiscernible] has [indiscernible] almost 3 times, 299% on September 30. But we consider it even more important that the coverage of loans classified C, D and E has reached the level of 115%. The Bank’s funding mix has been very stable during the quarter. Interest-bearing deposits were up 11% over the year, while non-interest-bearing deposits increased 10.6% during the same period.

On respect to shareholder’s equity, the slide number 9, you can see that Bancolombia’s shareholder’s equity increased 11.5% during the quarter, and that is 24% compared to the previous year at the end of the third quarter. As well, [exchange] from investment debt securities totalled COP50.6b.

On September 30, 2004, the Bank’s consolidated ratio of technical capital to risk-weighted assets reached 30%, very well above the legal limit for Colombia, which, as you know, is 9%.

The income taxation has increased significantly for the Bank as a result of the expiration of the tax [year] that we enjoyed in previous years. We can see that in slide number 11, and when we compare this year’s 9-months figures we see an increase in income before taxes, which provides 64%, whereas the income after taxes is increasing 32.5%

Net interest income has been an important element in this increase. As we can see in slide 11, net interest income increased COP347b during the third quarter, as compared to COP237b for the previous quarter and COP233b in the third quarter in the previous year. As mentioned before, this is the result of a strong increase in interest loans and investment loans with a much lower increase in interest expenses, resulting in a much healthier interest margin.

Gross provisions of loans and interest amounted to COP36.5b, increasing 0.53% as compared with the previous quarter, which in the previous quarter we have advised low levels of provisions. In [indiscernible], the total net provisions seem to have strongly increased. They only went back to regular levels after the second quarter with high recoveries of [charge-out] loans.

Fee generation continues to be one of the bank’s main objectives. Net fee income was very stable for the quarter, amounting to COP109b, but increasing almost 17% when compared with the third quarter of last year. As you can see in slide number 12, the 9-month accumulated net fees and income from services increased almost 25%.

In the slide 14, you can see the operating expenses performance. And the operating expenses increased 4.4% over the quarter, amounting to COP224.5b. Nevertheless, due to the increase in net interest income explained before, the Bank’s efficiency ratio reached 45.4% during the quarter.

In non-operating income, we had COP50.5b during this quarter. This is an increase of 50% when compared with the previous quarter. The increase resulted from higher dividend income, mainly dividend payments from Conavi, and this institution pays dividends twice a year. That’s why we accounted with in this quarter.

We would like to highlight the increase in loan demand of 20% over the quarter, which has led the subsidiary of Bancolombia Panama to decrease its investment security portfolios to almost half of it. As you can see in the slide 15, Bancolombia Panama reported net income of COP14.7m during the quarter as compared with almost COP12m reported in the second quarter of the year. So this is a very good result in figures and very good result in the structural process for our Panama affiliate company.

In ratings and recognitions for this period, we should mention that Duff & Phelps de Colombia gratified the bank’s AAA rating for long-term debt and BP1+ for the short-term obligations. These ratings are the highest given in the national financial sector. In September, the magazine The Banker selected Bancolombia for the third consecutive year as the Bank of the Year in Colombia. And for the second consecutive year, Latin Finance has selected Bancolombia as the Bank of the Year in Colombia.

I would like to conclude this presentation saying that we are very pleased of the results of this quarter. We have obtained very good results, and we have improved the structure of the assets of the bank by the recovery in the demand for loans. And we are particularly satisfied of the demand for loans in the corporate sector. This has also allowed us to reduce relatively our weight of the investment portfolio.

We will be glad to answer the questions that you might have at this moment.

[OPERATOR INSTRUCTIONS]. Your first question comes from Andreas Smirnez (ph).

Yes, congratulations first of all on the results. Very good. And my question would be -- I know it’s a little bit early, but can you anticipate something of what you expect for next year, or in the coming quarters? What would your growth be generating from?

Thank you very much, Andreas. Yes, we can probably react a little bit on our expectations on the economy for the coming quarter, but as you know we don’t make public announcements of our projections for the bank. We would be pleased, nevertheless to discuss with you your own projections and give our reactions to that.

But we are positive. We continually keeping being positive with the Colombian economy. As Jaime mentioned at the beginning, the Colombian economy is growing above 4%, and the investment is reacting. We are very optimistic about the possibility of a closing in the negotiations of the TLC, and that growth element because of the economy and the future of the TLC represent a very healthy stimulus to the growth of the economy and the growth of the investment.

Also this will have a very good impact in the financial sector. So we are very bullish about the economy, and we believe that those elements could be -- will be seen in the coming quarter.

Okay, thank you.

You’re welcome.

Your next question comes from Alex Wyan (ph) with Ramirez and Co.

Yes, good morning. Thank you very much. I would like, actually, to ask for maybe a bit of an update on the merger process, and in the light of 2 things. Firstly the deadline that Bancolombia has in order to dispose of its stake in Conavi, and second in the light of Coltabaco and Philip Morris announcing they are taking over this company. Things have been sort of [inaudible] recently. Can we expect any more delays in the Bancolombia and Conavi mergers?

Okay, thank you. Yes, I will be able to talk to you -- and I am very glad to do it -- about the Bancolombia, Confisura and Conavi process. I am not informed about the process of Coltabaco so I understand that that is [indiscernible].

In respect to our process, as we announced, we are expecting to be able to complete the legal and the statutory approvals before the end of this year. That has -- will allow us, also, to meet the target that you mentioned, which is required [indiscernible] for our investment in Conavi. As a matter of fact, the process that we are advancing will result in restriction of the investment in Conavi, because the way in which you can hold a percentage of over 10% in a bank -- a bank can hold a percentage of more than 10% in another bank if is with the purpose of merger.

So we believe that we will be able to establish that process very clearly before the end of this year and therefore meet that requirement. But more important than that, we are following the process according with the expectations. We made an earlier announcement procuring and getting the greatest transparency possible in the process. We made the announcement of the starting evaluation of the merger, and we have been proceeding in that task very successfully.

We have a number of people involved in the evaluation of the convenience of the merger, and we are convinced of that. And we are getting the legal approval of the authorities for being able to make general shareholders’ meetings of the different companies involved in this merger before the end of the year, to get the approval of our shareholders for the go-ahead with the merger.

And just to follow up, if -- I understand that your -- obviously your goal is to complete the merger by the end of the year. If for some reason there were some delays and that wasn’t possible, what would be the Plan B, so to speak, in order to dispose of the Conavi stake?

Yes, we certainly are not going to be able to complete the merger for the end of the year. We are going to get the authorities’ approval. I am sorry but your [inaudible] is getting a little bit of noise in the line.

Sorry, is that better?

It’s much better.

Okay.

We are going to be able to get the government and the authorities’ approval for the end of the year, and we will have the merger completed sometime during the next year, but I believe that that will give us ample way to manage the meeting of the requirements of our investment of Conavi, because, as I said, the way in which an institution can have more than 10% of another bank is when there is a clear definition that there is going to be a merger.

So we are pretty sure that we will be able to establish that clear process of merger for the end of this year, and we will do all the merger and the required integration of the companies thoroughly at the end of the first quarter or the beginning of the second quarter of the next year. But we will establish without doubt the process of the merger at the end of this year.

Excellent. Thank you.

You’re welcome.

Your next question comes from Felipd Cruz with Merrill Lynch.

Hello, everyone. Congratulations, as well, for your strong set of results. My question just has to do with -- with the only weak point I saw in the quarter, which was related to credit cards, both on the loan side as well as on the fee side. Is there any seasonality, or was there anything in particular that resulted in fairly weaker results on the credit card side?

And then, too, what can we expect on this segment going forward? Thank you very much.

Thank you. Thank you, Felipe. Yes, there is some seasonality in this quarter, and there was also some possibility of accounting differences in the 2 quarters. But credit cards fees and credit card business is keeping growing very strongly. We are satisfied that the Bank has consolidated its position as the first bank [indiscernible] on credit cards in the country, and we’ve seen the number of our plastics [indiscernible].

We are very with good expectations of what the end of the year might be. For the next year, we believe that the credit card business is going to keep growing. Also, there might be some modifications, as is happening all over the world, in the level of fees that are charged on credit cards.

Okay. Thank you very much.

You’re welcome.

[OPERATOR INSTRUCTIONS].

Okay, I want to-- Oh, go ahead.

Your next question comes from Ben Laidler with UBS.

Hi. Good morning, gentlemen. 2 slightly different questions, if I may. The first one -- just on the potential merger. I’m just wondering how much you can tell us at this stage about your thought processes, specifically vis-à-vis, whether the brand will be kept through a hypothetical merger, and what the rationale for that would be, and if that would take away from any synergy benefits?

And secondly, just on Corfinsura, whether you would expect their private equity assets to be stripped out prior to any merger?

That would be my first question. My second question would just be specifically on the quarter. The trade finance numbers, both on the consumer and corporate side, look very, very strong. I just wondered if you could give a little be of detail as to what was behind those numbers? Thank you.

Sorry, could you repeat for me the second question?

The second question was just on your trade finance loan growth. The numbers look very, very strong in the quarter. I just wondered if you could give some detail as to what was driving that and what sort of numbers we should expect there for the coming quarters?

Okay, going in the third question, yes, we have made clear that we are going to preserve the brands of this organization in the sense that we have very strong marketing performance of each 1 of the 3 companies involved, and they are very valuable brands in the market. We have very much related with the specialized businesses that are being operating, in particular, by Conavi and Corfinsura.

Conavi is the major brand in Colombia for mortgages and for savings accounts, and Corfinsura is the major banking brand in Colombia for investment banking and corporate activities -- corporate finance activities. So we believe, and we very clearly can see that there is some value in preserving those brands under the umbrella of the new organization.

Those are brands that are going to be preserved in the interest of the commercial activities developed by the new organization.

This is a little bit early to talk about what will be the details of the integration and particularly in the aspects that you referred, which is the equity investment in -- as part of Corfinsura. But what I can give you absolutely clarity is that will be judged in a very professional and very transparent way, and that is why we have kept this first tier and first group of investment bankers [indiscernible] and make evaluations, so that for the shareholders it is as transparent as possible.

Now, on the matter of the performance of the trade demand in the last quarter, you are right. There was some increase in the trade-related demands, but mainly it is an increase in the demand for dollar-denominated debt, which is the 1 that makes us very happy, because it represents the first very clear sign of an increase in the demand of corporate loans and an increase in the demand for investments.

As you remember in our previous presentations we have always point out the increase in the leasing activity, which was determined by high investment, but also we have [indiscernible] determined by the fiscal advantages that were given to the lease. But right now we have a very clear demand in dollar-denominated facilities that is supporting greater imports of machinery and high investment for -- in part of our clients.

And also some trade-related demand, which is in line with what has been going on in the economy. The export sector has been 1 of the sectors leading the recovery and the growth of the Colombian economy.

Thank you.

Okay, thank you.

At this time, there are no further questions.

Thank you. I would like again to thank everybody for the attendance of this conference call, and as usual I will invite you if you have further questions to direct your calls to Jamie Velasques or Mauricio Tero (ph) in the phone numbers and email addresses that are presented in our press release that we distributed to you yesterday.

Thank you, and goodbye.

This does conclude today’s Bancolombia third quarter 2004 earnings call. You may now disconnect.