Grupo Cibest SA (CIB) 2005 Q4 法說會逐字稿

Good morning and welcome, everyone, to the BANCOLOMBIA fourth-quarter year 2005 earnings conference call. With us today, we have the President and Chief Executive Officer, Mr. Jorge Londono; the Executive Vice President, Mr. Sergio Restrepo; and the Financial Vice President, Mr. Jaime Velasquez.

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

Thank you. I wish 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 our slide presentation has also been made available on the Company's investor relations website at bancolombia.com, which we strongly recommend to follow during this call.

At this time, I would like to introduce Mr. Sergio Restrepo, Executive Vice President of BANCOLOMBIA, who is going to explain briefly related parts of the Colombian economy.

During 2005, the Colombian economy had a very positive performance. In general terms, the fundamental economic variables behaved positively, improving confidence, internal demand and capital investment. In the third quarter of the year, the economy grew 5.75%, which represents an annualized growth of 4.8%. (Indiscernible) sector is within the rapid phase of expansion that is currently observed, the more dynamic sectors were construction, with 16%; retail, 9%; and transport, with 6%.

On the other hand, inflation for the year was 4.85%, meeting the targets set by the Central Bank, between 4.5 and 5.5%. Liquidity in the market allowed the interest rates to reach a minimum value for three-month CDs of 6.3%. [With an] exchange rate 119 in December, maintains a competitive level in spite of the nominal revaluation, while employment decreased 170 basis points compared to the previous year, reaching a level of 10.4% as of December '05.

The positive evolution of the economic variables, a consecutive three-year improvement in the fiscal front and sustained diminution of the external vulnerability of the country and a market liquidity explained the drop in Colombia's [MD] by almost 93 basis points during 2005, achieving minimum historical levels of 225 points. Additionally, as you probably know, Standard & Poor's upgraded Colombia's outlook rating last week from stable to positive. Today, Colombia long-term rate in foreign currency is BB.

The external sector continues to be a source of opportunities for the Colombian economy. During 2005, international trade presented an important dynamism, growing 26.6%. The trade balance closed the year with a commercial surplus of $1.4 billion in [SOB] value.

It is important to highlight that the free trade agreement negotiations with the United States ended this week. As we had mentioned many times in the past, we think this is an excellent opportunity to attract foreign investments, modernize the economy and continue to allow a greater amount of international participation in the Colombian economy. We don't expect major difficulties with the Congress approval, since the opportunities for the Colombian economy are obvious. As you can see, this is a positive scenario for the financial business, and we do not expect significant changes in the short term.

After this quick review of the Colombian economy, I will turn to Mr. Londono again, who is going to go over the Bank's results.

Thank you. I would like to remind you that this is the second time BANCOLOMBIA releases consolidated results since the merger that took place in July 30, 2005. And in order for these results to be comparable, we use pro forma figures for the year 2004. As far as BANCOLOMBIA's results, we would like to highlight the following points, which are illustrated in the slide number six.

Net income for the year amounted to 946.9 billion pesos; that is an increase of 18.2% compared with the 800 billion that we showed the pro forma for 2004. The Bank's loan portfolio keeps outperforming GDP growth. Net loans increased 14.8% in a year-over-year basis, with positive figures in all segments. The investment debt securities portfolio increased 7.8%, continuing to relocate assets to the loan portfolio as opposed to the investment portfolio.

Regarding the income statement, interest on loans increased 11.7% during the year, while interest on investments increased 8.8%. Net fees and income from services maintained its positive trend. They amounted to 768 million pesos during the year, increasing more than 22%. It is also important to highlight that during the fourth quarter, we were some nonrecurring items that we will be showing to you during this call.

Let's take a look at the results in a little bit more detail. The balance sheet of December 2005, that you can see some of the main figures in slide number seven, showed that we have positive growth figures. Total assets increased 12.5% during the year. The [demand] (indiscernible) has been increasing, allowing us to relocate assets to the loan portfolio. This way, net loans increased almost 15% while total investments increased just about 7%.

In slide number eight, you can see the positive year-over-year growth figures in all type of [credits]. Corporate loans were up 9.8%. Retail loans continued to be very dynamic, growing almost 22% on a financial basis [towards] corporate and small and medium-sized enterprises grew by 25%.

Regarding mortgages, we would like to mention the announcement that we made yesterday after the general shareholders' meeting. BANCOLOMBIA launched 1% per month fixed-rate ten-years mortgage, something similar to what has appeared in other countries like Mexico, for instance, and that has been the element that had triggered the growth of the housing activity. We are very confident on the growth that we can derive from this product.

Additionally, as we show in slide number nine, the Bank's past-due loans as a percentage of total loans go up to a level of 2.4% with a coverage ratio of 158% at December 31st of last year. Nonetheless, as we have said in the past, we prefer to focus on the ratio of allowances to loans classified C, D and E, which at the end of the year was at the level of 114%.

On liabilities, we would like you to see, as we show in slide number 10, how the Bank's deposit mix has been improving during the year. Checking and savings accounts increased 11% and 15.7%, respectively, whereas time deposits decreased 7% during the period of last year.

Refer to shareholders' equity in slide number 11. You can see how BANCOLOMBIA shareholder equity was up 21% on an annual basis on realized gains and investment debt securities amounting to 59 billion pesos. You can also see that the Bank's consolidated ratio of technical capital to risk-weighted assets reached almost 11%, well above Colombia's regulatory levels. However, we are confident that we are growing to have a capital ratio of approximately 13% -- actually more than 13.5%, after the distribution of profits that we declared in our general shareholders' meeting yesterday.

Let's take a look at the income statement. Net income for the year 2005, as we mentioned, amounted to 946.9 billion pesos, which represents an increase of more than 18% compared to the same period of the year 2004. The slide number 13 shows that during the year, net interest income increased 13.7% compared to the year 2004. Interest on loans continued its positive trend, increasing 11.7, and interest on investments were up 8.8%. You can see the net interest margin, that had been stable at 7.9 during the year, in spite of the quarterly fluctuations explained by the marked-to-market volatility of our investment portfolio. Net provisions for loans and interest amounted to 185 billion pesos during the last year, increasing almost 47% compared to the previous year. These provisions include 26 billion pesos that belong to adjustment to comply with the new provision and regulation explained previously, and 34 billion pesos were recoveries of fully provisioned notes. On the other hand, recoveries of charge-off loans and foreclosed assets maintained their positive trend, increasing more than 8% during the year.

Fee income generation continues to be one of the Bank's main strategies. During the year, net fees amounted to more than 768 billion pesos, increasing more than 22%, as you can see in slide number 15. It represented 48% of the operating expenses and 81% of the Bank's net income.

In slide number 16, you can see the dynamic of BANCOLOMBIA's credit cards. Their billing increased 17%, resulting in a 22% local market share. And the number of outstanding credit cards increased 13.5%, resulting in a 16% local market share in the number of plastics.

As we have mentioned before, Sufinanciamiento, our affiliate company working in the consumer finance, is working with the retail chain Exito, which is the largest retailer in the country, among others, in joint ventures to issue private credit cards. The result of these efforts that we have started mainly in the second half of last year can be seen in the growth figures of the slide number 16, not only in outstanding credit cards but also in billing. We are very excited in the growth of this program and the possibilities it shows.

On the side of operating expenses, which are illustrated in slide number 17, you can see the operating expenses increasing 7.4% during the year. However, this amount is not comparable, due to the sale of our Abocol by our investment banking company, Colcorp, which we are going to explain later in this presentation. As a result of this sale, there are nonrecurring items affecting positively both operating expenses and (indiscernible) from [commercial] subsidiaries.

We would like to call your attention on the fact that despite the merger process with expenses totaling 46 billion pesos during the year, the Bank's deferred charges decreased 50% in the last year, amounting at the end of the year only 27 billion pesos.

You can see in slide number 18 efficiency ratios reaching levels of 55% to net operating income on 5.6 to average total assets during the year. On nonoperating income, we can see an increase of more than 46%, amounting to 20 billion pesos. This increase is explained mainly by some nonrecurring events that took place during the fourth quarter of last year. We would like to mention the most important ones -- the sale of real estate from Corfinsura and Conavi, real estate that was not required during the process of the consolidation of the merger. That amounted to 21 billion pesos and the recovery of income tax provisions from previous (indiscernible) payments which amounted to 19 billion pesos.

As you can see in slide number (technical difficulty) and as we mentioned before, on the 29th of December our subsidiary, Colcorp, sold its position in Abocol. This was a fertilizer company that the old BANCOLOMBIA had for years, and that we were trying to sell, since it was not related at all with our core business. This company was sold to International Ventures, Inc. This transaction is in line with the Bank's plan to divest in nonstrategic business.

Just one brief mention to our operations abroad. In the slide number 20, you can see that our new operations abroad are performing in line with our strategies. With the license granted by Panama Securities Commission, Suvalor, the Bank's stockbroker, began operations on November 23, 2005, becoming the second Colombian brokerage firm operating in the Panamanian market.

On the other hand, by the end of the year, our subsidiary Suleasing Internacional opened a new office in Brazil, which seeks to penetrate one of the most important markets in Latin America. At the beginning of 2004, Suleasing Internacional began operations in this market and, as of December 2005, had approximately $16 million in leasing operations. And for 2005, we expect to have operations in Brazil more than double that figure.

ADR program evolution -- to finish the presentation, we would like you to see in slide 21 that not only register the excellent evolution of the ADR side, but also shows the growth of our program, which is $1.2 billion of market cap at the moment.

I want to thank you for your attention, and I will be happy with my colleagues to take your questions and comments.

(OPERATOR INSTRUCTIONS). [Andreas Jimenez].

First of all, congratulations on the strong results. My question would be, I see that you are very focused on the mortgage part, on the loan portfolio, very aggressively coming down to 12.68% on your announcement yesterday, which is 112 basis points below what [Allienta], your nearest competitor, was actually. What is the participation of increase that you expect this line to actually represent at the end of the year, or what is your strategy that you actually are incorporating? Where do you see it growing?

Thank you. It's an interesting question. Actually, I can illustrate you on our expectations by this information. In Colombia in 1997, just previous to the crisis of the (technical difficulty) the demand is going to be tremendous. We are very optimistic on the possibilities of the development of this product.

Actually, I wouldn't like to present projections, since it depends a lot on how the market of real estate is also going to react. But the opportunity, I think that it's great, for several reasons. The inflation has been coming down, the rate of interest has been coming down. And the crisis of real estate also -- they have increased slightly, not yet reacted as much as they should to the good situation and the good prices of other assets in the economy.

So I believe that our [side], I believe that the Colombians are going to realize that this is a good time to invest in real estate, to buy houses. And they will find our products very attractive.

(OPERATOR INSTRUCTIONS). Valery Fry, Banco Santander.

I just had a couple of questions. The first one is with regards to the amount of past-due loans, you show in your press release a reduction of 22% relative to the previous quarter. And my question is, is this a result of charge-offs that were made in the quarter or a reclassification of your loan portfolio to adjust for the merger?

And the second question is, with regards to your administrative expenses, these were also down like 30% in the quarter. And my question is whether, going forward, should we expect to see future administrative expenses to be closer to what we saw in the fourth quarter, or is the third quarter number a more reliable figure?

Yes, those are two positive events that, nevertheless, we would like to explain a little bit because they have nonrecurring events that have made them appear even more positive than what they are. With regards to past-due loans, we need a securitization of, let's say, the mortgage portfolio, which was [non-triple-A]. And therefore we reduced the volume of past-due mortgage credits. That was a successful operation that was done on by the securitization company that is being operated very successfully in Columbia. And we participated heavily in this last program during the month of December.

We have been reducing our total past-due loans, but that event of the securitization produce a strong impact. We have explained that we will feel comfortable, and we believe that we should be at the level of about 3% past-due loans, with the current structure of our loan portfolio.

On the other hand, of the reduction of our administrative expenses, yes, we had a normal [gearing] event that we tried to explain during the presentation, which was the sale of Abocol made us to reduce all the administration expenses of Abocol during the year, which naturally reduces [about] what our management committee has been able to achieve, reduce the (indiscernible) administrative costs, particularly during the last quarter.

Obviously, we have been doing a [strong] job in trying to reduce administrative expenses. And even though we are in the middle of the merger, we will try to get advancement in this process. And we are confident that we are going to manage to get progressive advance in these markets.

At this time, there are no further questions.

Okay. I would like to thank you again for your attendance to this conference call, and, as usual, I will be happy to offer to you the possibility to call Mr. Sergio Restrepo, Mr. Jaime Velasquez or Mr. Mauricio Botero at the telephones or at the e-mails that you have in the press release that you received yesterday, and they will be very happy to answer whatever questions you may have. Thank you very much.