Grupo Cibest SA (CIB) 2004 Q4 法說會逐字稿

Good morning and welcome everyone to the Bancolombia’s Fourth Quarter Year 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, the Executive Vice President, Mr. Federico Ochoa. I would like to turn the call over to Mr. Londono. Please go ahead sir.

Good morning. I wish to thank all of you for your interest and attendance to this conference call which we are prepared to share with you Bancolombia’s results.

I would like to mention that our slide presentation has been made available on the Company’s Investor Relations website if you want to follow it during this presentation. 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 Mr. Londono and good morning to everyone. During 2004 the Colombian economy showed [inaudible] results in solid performance. We are expecting that the final figures for [inaudible] growth will show a figure of [indiscernible]. The Central Banc met its year-long inflation target of 5.5%. Similarly, interest rates remain low and the [indiscernible] 7.6% and 8.0% maintaining low real rates and stimulating capital investments.

The Government’s fiscal [indiscernible] program policy and the growth in Pesos [inaudible] reduced the fiscal deficit as a percentage of [indiscernible] of 2.2%. Other significant improvements were [inaudible] in the reduction of the unemployment rate, which went from 17% at the end of 2003 to 12.1% at the end of last year.

[Indiscernible] and in spite of the year’s [indiscernible] of the Colombian Peso vis-à-vis the U.S. Dollar. The real exchange rate remains competitive as evidenced by the volume of Colombian exports.

The stock [indiscernible] have continued through this year. Inflation [indiscernible] of 1.02% totaling for the 12-month period ending December 31, 5.25%. Interest rates continue to show low levels and they remain stable. [Indiscernible] with international multi-funds aims at maintaining the [indiscernible] for fiscal sustainability and [indiscernible] structural performance growth and employment levels.

We believe that the Colombian economy will continue on this positive trend and [indiscernible]. However, we have to point out that corporate loan demand hasn’t been as dynamic as we had previously expected. This is a brief review of the Colombian economy, and I will turn things back to Mr. Londono who is going to reveal Bancolombia’s fourth quarter results.

Thank you. First on Bancolombia’s financial results, we would like to highlight the following points.

Net income for the year 2004 amounted to 578.7 billion Pesos, increasing 23.3% as compared to the 469.4 billion Pesos for 2003 mainly due to our better structure of our assets and improvement in the funding mix and in the bank’s efficiency levels. It is important to take into account the effect of the tax credit reduction mentioned in our previous conference call. As we have seen, the tax reduction is now expired, and if we take into consideration the increase of income before taxes, it’s 54%.

The bank’s gross loans increased 17% as compared to the end of 2003, and the investment security portfolio increased at almost the same level, 18% during the year.

Regarding the income statement on a year-over-year basis, we have interest on loans increasing 24%, while interest for investments was [indiscernible]. Total fees on income from services maintained a positive trend. During 2004, they amounted to 539 billion Pesos, increasing 20% as compared to the year 2003. The results of the figure reviews show an annual return of 32% and an annual return on assets of 3.6%.

Now let’s take a look at our balance sheet in more detail. First of all, as you can see for instance in slide number 5 for those of you who are following the presentation, we had very positive figures on assets during the year. Bancolombia’s total growth loans increased 2.7% over the quarter, and 17% over the year even though the Bank has been targeting [indiscernible] these figures are mainly explained by the growth of consumer loans and financial mix as you can see in a detailed manner in slide number 6.

Additionally, as we show in the following slide, number 7 the Bank’s past-due loans as a percentage of total loans dropped to a level of less than 1.5% -- 1.45%, with a coverage ratio of 302% on December 31. But what we considered more important is that the coverage of loans classified C, D, and E was 113%.

Now, taking a look at the liability side the Bank’s deposits increased 13% during the quarter and they grew in a very balanced way during the year, 16% non-interest [indiscernible]. It is important to take into that in a year-over-year basis, savings accounts increased 52% while time [ph] deposits all increased 3%, reducing the cost of funded, as you can see in the slide number 8.

Now on slide number 9, you can see on the shareholders equity that Bancolombia shareholders’ equity was up 8.8% over the quarter, increasing 24% as compared to the end of the fourth quarter of 2003. On realized gains from investment debt securities increased 31% over the quarter amounted to 104 billion Pesos, which is an equivalent of 48% of our fourth quarter income before tax.

As of December 31, the Bank’s consolidated ratio of [indiscernible] reached 13.4%, well above Colombia’s regulatory capital of 9%.

Now let’s go into the income statement. We have mentioned before that the Bank’s flat [ph] rate has been almost totally exhausted. This had an important impact on our net results on the current year, which is clearly seen in the illustration we have in slide number 10. When comparing this year’s results with the same period of 2003, you can see that net income before taxes increased, as we said, 54% while net income was up only 23%.

Now, as we can see in the illustration number 11, net interest income decreased to 315.4 billion Pesos during the quarter, as compared to 347 billion Pesos for the previous quarter. Interest to loans was paid while investment securities decreased by 21.3 billion Pesos and interested expenses increased by 13.10 Pesos. In general terms, we have to recognize that our interest margin [inaudible] at certain times is [indiscernible].

On provisions of loans, interest amounted to 30 billion Pesos decreasing 18.4% as compared to the previous quarter. Total net recovery amounted to 42 billion Pesos, which represented strong in crease of 292% due mainly to charge-off loan recoveries.

Fees and income from services continue to be one of the Bank’s main objectives. Total fee income amounted to 148.5 billion Pesos, increase 11.5% over the quarter as you can see in slide number 12. During the year 2004, the income totaled 579 billion Pesos increasing 20% as compared to the previous year. It is important to note that these figures represent 30% of the total [inaudible], 59% of total operating expenses, and most importantly about 93% of the Bank’s net income.

Operating expenses increased 10.10% over the quarter, amounting to 248.6 million [ph] Pesos. This increase, as we explained mainly depends on the donations that we usually make at the end of the year, which have significant benefit from the fiscal point of view. As you can see in this slide 13, the Bank’s efficiency ratio is up 51.1% year-over-year which represents an improvement of more than 3 percentage points compared to the 54.3% efficiency ratio for the year 2003.

On other operating income, we have a total of 45.3 billion Pesos during the fourth quarter of 2004 decreasing 10% over the quarter. This decrease however is explained by the dividend payment that we received from Conavi and we just recorded during the third quarter.

Now on the rest of the [inaudible], we can see that in slide 14 during 2004 Bancolombia Panama increased 30% its loan portfolio while its investment portfolio dropped 37%. Net income for the year amounted to $47 million, very favorable compared to the previous in which we had $46.5 million.

Currency rating, there are times to Bancolombia’s international rating and to Bancolombia’s experience where we receive a long-term foreign currency of Double-D [ph], short-term foreign Currency B, long-term lock-in currency, which is a significant indication of triple B, and short-terms lock-in currency S3 [ph]. We have an individual rating of C [ph], and the outlook on the long-term debt rating is stable. At the same time, the Bank’s support ratings are [indiscernible].

I would like to give you an update on the shortage of combination. As you very well know, the Bank has initiated the net side to eliminate the [inaudible] to combine with Corfinsura and Conavi. With this combination, we intend to develop synergies that will allow us to construct our financial institution able to respond to the ever-growing demand of today’s economic [indiscernible] and the international finance market.

As we announced on February 18, according to the rare devaluation of the respective contribution of the 3 companies set forth in the valuation presented by VMP [ph] adopted by the 3 companies and taking into the account the stock that Bancolombia and Corfinsura and Conavi, as well as the stock that Bancolombia holds in Corfinsura, we have declared that once the mandate is completed it is estimated that Bancolombia shareholders will hold 79.25% of the merged entity, while shareholders of Conavi and Corfinsura will hold the remaining 20.75%.

It is important to highlight that VMP who rendered a fairness opinion, assisted by Bancolombia’s Board of Directors a level rate in the exchange radius provided and calculated by VMP report. Bancolombia aims to profit from Conavi’s and Corfinsura’s certificate strength. Corfinsura is the country’s small [inaudible] respected investment bank, with renowned Financial Certificates and Solicits [ph], which is the biggest leasing company in the country with a market share of 29.7%.

On the other hand, Conavi is the country’s leading mortgage holder, with 84.7% market share with a wide client base that makes Conavi’s total savings rank third in the country, with a market share of 9.5%. We look forward to this new challenge. Recently, the Board of Directors of Bancolombia, Conavi, and Corfinsura [inaudible] management to sign the agreement for the Manager of the Company with the prior spin-off of Corfinsura investment [inaudible]. The Boards also decided to [inaudible] the combination to the respective shareholders on the annual shareholders’ meeting that will take place on March 28 of this year. It is our strategy to approve by the Company’s shareholders; the Manager will then be submitted for the authorization of Superintendency of [indiscernible].

Corfinsura will also have to submit a spin-off for the approval of the Superintendency of Security. Once they acquire authorization [inaudible], the spin-off of Corfinsura and the [indiscernible] with Conavi and Corfinsura into Bancolombia, it will be completed. We estimate that this will take place at the beginning of third quarter of 2005.

That was the presentation we have for you. We will be very happy to hear your questions and your comments and please we ask the Operator to take care of that. We are ready for the questions now.

(OPERATING INSTRUCTIONS). Felipe Cruz, Merrill Lynch.

Hello everyone, I just have a couple of questions. The first one has to do with the provisioning level. You had a significant recovery last year. I just wanted to have a sense of where you think the normalized provisioning and rates should be and when will you reach that level? Do you expect significant recoveries in ’05 as well?

And then the second question is how you see the outlook for corporation long growth this year?

Okay, very important questions Felipe, thank you.

On this first thing is that yes, we have been saying that we believe that the Bank’s [inaudible] provision is an ample provision, but we have to see what is going to happen with the merger is complete. I believe that both Corfinsura and Conavi have good provisioning and also the more diversified nature of our portfolio will not require increased provisioning. On the contrary, it will [inaudible] our job of managing risk. But we believe that the situation of the economy, therefore justifies to be above the level required by law in the provision.

We have said always that we start to have a good provisioning of CD&E [ph] and we will have to just wait and see the combined figures to see what we expect. But the recoveries of this year were good, and we could go forward to say that this should be the trend in the coming years. We should have good recovery as a result of our good coverage of our [inaudible] loans.

Now on the other area, we believe that the demand for corporate growth is [indiscernible]. We have seen some weak reaction apart from the growth of leasing activities. We don’t see much demand on the corporate side. It has to do with the development of the determined capital market. Many big companies have gone into the bond issues, and therefore have refused the demand for the [indiscernible] of financial institutions. And the liquidity of the economy has been adequate, which has allowed us significant competition in interest rates.

So we don’t expect much more demand to come from that side. [Indiscernible] comes from this year, and the diversification of our areas of exploring for office is good news. It’s more medium-size, and [indiscernible] is very dynamic. It’s also the new way of micro-credit is dynamic, and consumer loans keep their dynamics as well.

Thank you very much.

Valery Fry, Sartander Investment.

Hi, just one question, I was wondering if you would be able to provide at this time some guidance regarding the potential cost synergies that you are expecting to achieve as a result of the merger with Conavi and Corfinsura.

No, unfortunately not Valery. That is a very important matter, the one that you bring out and personally we identified a lot of synergies, and we are working hard to present management estimate of those synergies very soon in the coming weeks, just as we get the general shareholders to the meeting approval for the measures. But we don’t want to run on it because we are in the integration theme in conjunction with our consultants are working on the evolution of those synergies.

Okay, thank you very much.

Scott Hypers [ph], Morgan Stanley.

Valery asked one of my questions, but I’ll ask 2 more and I apologize if you have already mentioned them because I was on and off the call. But with regard to asset quality, I think you mentioned that NPLs [ph] as a percentage of average loans finished the year at around 1.5%, which seems somewhat low given the pace of your loan growth, particularly the consumer loan growth. How do you see the evolution of that track in ’05?

And then my second question is with regard to the effect of the tax rate, what was it in 2004 and what do you see as the evolution of the effective tax rate going forward in 2005?

Okay on the first question, yes the asset quality we admit that it is below our expectations, below the figures we used with our models. However, we don’t think that there is going to be deceleration in the immediate future in the sense that although there are some difficulties remaining in the economy we don’t foresee a significant deceleration of a particular tax, so I will roughly believe that we are going to stay around those 1.5% average loans or slightly higher than that, but nothing significantly different.

On the other hand, [inaudible] actually what we have is that the tax rate during 2003 was very low and the year 2004 we are almost at 100% of our taxation rate and should be from now onwards in the coming year. You have to take into consideration when you look at the subtle taxation of the bank that we have a significant part of our operation in Panama and on the other hand, that the bank enjoys some tax stability comfort that reduces slightly our total rate of taxation.

So I will say for 2005 and 2006 you should expect a total taxation very similar to what we have experienced previously.

Okay, thank you.

Arthur Garnez [ph], Deltec [ph] Asset Management.

Assuming you get your shareholder votes on March 28 for the 3 different companies, how long does it take for the approvals that are then necessary, and when do you think that the merger would be effective?

Okay yes, I believe that the process of approvals and authorization is not complicated. It’s running smoothly and we don’t perceive any major difficulty in that. We are estimated that during the second quarter, we will manage most of the work required for the authorization and that we will be able to make the close enough to integration in the first week of the third quarter.

Thank you very much.

At this time, there are no further questions in queue.

Okay thank you very much for attending this conference call which we prepared to show you the results of Bancolombia’s year 2004 results, which show an increase in our net income of 23% after taxes and that show that the economy is in good condition for continued support to grow the financial sector. And also we attempted to show you what is the current state of our integration process with Corfinsura and Conavi. We again invite any additional questions that might be channeled through the [inaudible] that were provided to you in the press release that we distributed at the end of last week.

Thank you very much.

Thank you, this concludes today’s Bancolombia’s Fourth Quarter Year 2004 Earnings Conference Call. You may now disconnect.