Grupo Cibest SA (CIB) 2006 Q4 法說會逐字稿

Good morning and welcome everyone to the Bancolombia's conference call. Today's call is being recorded. 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, the Risk Management President Mr. Juan Moro. At this time I would like to turn the call over to Mr. Londono. Please go ahead sir.

Thank you and good morning. I wish to thank each and every one of you for joining [inaudible] attendance to this conference call, which we have prepared to share with you Bancolombia's results. I would like to mention that a slide presentation has been made available on the Company's investor relations website, which we strongly recommend you to follow during this presentation.

At this time I would like to introduce Juan Carlos Moro, Risk Management Vice President of Bancolombia, who is going to explain briefly the latest facts of the Colombian economy and financial markets.

Thank you Mr. Londono. During the third quarter of the year the economy grew 7.7%, driven mainly by the investment and consumption. Investment reached a growth rate of 24.9% [sic - see presentation] while household consumption increased 6.5%. From the supply side construction contributed the most to overall positive expansion by growing 19% with respect to the same quarter of 2005.

Last year's inflation target was in the range of 4 and 5%, and it was very well met by the Central Bank with an annual inflation of 4.48%. During the first two months of 2007, and after some CPI pressure, the Central Bank has increased interest rates to 8%. As of February inflation for the last 12 month period reached 5.25%. As you can see in the graph bond prices recovered partially during the quarter. The most liquid bond, the TES 2020, was traded at 10.5% at June 30, and at 9.56% at September. And today it did trade at 9.75%.

Finally, our perception is of economic stability, healthy GDP growth, low fiscal deficit. And we are optimistic about the capacity of the Central Bank to control the current increase on inflation, most of which comes from seasonal impact on food prices.

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

Thank you. The highlights for this presentation is that as far as Bancolombia's results we would like to highlight that during the fourth quarter we consolidated the strategic focus on growth, as we are going to show through this presentation. It is also important to highlight that during the fourth quarter there were some non recurring items that we will point out during this presentation.

The Bank loan portfolio was very dynamic. Net loans increased 3.5% over the quarter, and almost 33% in a year-over-year basis, with very positive figures in all segments. If we normalize the mortgage securitizations that took place during the year, net loans will increase 7.4% over the quarter and 38% over the year. Due to the rapid growth of the loan portfolio, investment in debt securities decreased 33% over the year. In a quarterly basis they increased 7.6% as a result of the purchase of mortgage backed securities announced in October and December.

Let's take a closer look through our balance sheet on December 31. The balance assets grew 12% over the year. We would like you to notice the process of asset shifting that took place during the second half of the year as the demand for credit increased, as you can see in the slide number five.

Last year the inflation target was in the range of 4 to 5%, and it was very well met by the Central Bank with an annual inflation of 4.48%. During the first two months of 2007 and after the pressure of the CPI, that Mr. Moro has just referred to, the -- sorry.

Now in slide number five you can see how the growth of loans has allowed them to represent 69% of the Bank's assets, when a year ago they were 58%. Additionally, debt securities went from representing 27% of Bancolombia's assets to reach 16% in just one year. In other words, there was an adjustment of the structure of our assets, which was very good because of the better growth of -- demand for credit from what we were expecting.

In slide number six you can see the positive loan growth in all segments. Corporate loans were up 33.7%. Retail and the small and medium size enterprises loans continued to be very dynamic growing 40%. Financial leases to both corporate and small and medium sized clients grew 33.6%. The mortgage business keeps having very positive evolution. Mortgage loans increased approximately 15% over the quarter, and 56% over the year in a normalized basis, excluding the effect of mortgage securitizations.

On slide number seven you can see that the number of loan approvals and loan disbursements more than tripled during the year. As we show, in slide number eight, you can see that despite the strong growth of loans in every business segment, the Bank's asset quality remains under control and improving. As of December 31 five year loans as a percentage of total loans reached the level of 2.3% with a coverage ratio of 148.6%, despite a high amount of recoveries that we are going to explain later. Additionally the ratio of allowances to loans classified as C, D and E was at a level of 135.1%.

We would like you to see in this slide number nine how the Bank's average weighted cost of deposits mix has been stable, below 4%, despite the interest rate hikes determined by the Central Bank during the quarter. In volume, checking and savings accounts increased strongly 27% and 33% respectively, whereas time deposits increased 18% over the year.

The Bank's shareholder's equity increased 8% over the last year. On realized gains from available for sale debt securities totaled COP10.7b at the end of December.

In slide number ten you can also see that the Bank's consolidated ratio of technical capital to risk weighted assets dropped from 11.2% to 11.05%, due basically to the solid growth of the loan portfolio and the process of asset shifting. Nonetheless, it is still well above Colombia's regulatory capital ratio of 9%.

Regarding the income statement you can see in this slide number 11, that net income for the fourth quarter amounted to COP285b, increasing 11% compared to last quarter of 2005 and accumulating COP749.5b for the year, which represents an annual increase of 20.8%. As you very well know, this is explained by the drop of bond prices during the second quarter that we have discussed deeply in past conference calls.

In the slide number 12 we want you to see that the net interest margin breakdown. It is important to highlight that the overall cost of loans was stable at 4.3%, allowing the loan portfolio margin to pick up during the fourth quarter, reaching 7.9%. Additionally, the debt investment interest margin was 4.5% as a result of a more stable environment on the Colombian bond prices. This is the kind of margin that we expect that can be sustainable for the investment portfolio during the medium term. As a result the total net interest margin decreased from 7.6% to 7.3% over the quarter.

During 2006 net provisions for loan and interest losses amounted to COP266b, increasing 43.5% compared to the previous years. And approximately COP105b from these provisions correspond to adjustments made by the new provisioning regulation. During the last quarter of 2006 provisions for loans and interest losses amounted to COP30.6b, decreasing 70% compared with the previous quarter. This decrease was mainly due to recoveries of the quarter which amounted to more than [COP50b].

These recoveries took place while the coverage ratio increase 148.6% as mentioned before. So we, in spite of the high recoveries did not deteriorate the good coverage that we have been showing.

Additionally, recoveries of provision for foreclosed assets increased strongly, as compared to the previous quarter, amounting [COP24,222m]. Due mainly to the recovery effect of approximately [COP18,000m] after the Bank made donation of assets as announced at the end of the year.

During 2006 net fees presented a positive performance amounting to COP867b, which represents an increase of 13% over the year, as you can see in the slide number 14. Net fees represented more than 20% of the Bank's total income and 48% of the Bank's operating expenses.

In slide 15, you can see the fast growth of the Bank's business of private label credit cards, previously mentioned, and performance in a number of regular credit cards. The private label credit card business is growing rapidly in terms of both billing and outstanding plastics. This business is a source of opportunities which we know was costly during the first year.

On the other hand, we have been losing ground against the market in the regular credit card business. The billing increased 17.5% resulting in a 20.6% local market share from 22% a year ago. And the number of outstanding credit cards increased 21%, resulting in a 14.8% local market share compared with 16% in December 2005.

In slide 16 you can see the hike in operating expenses. They increased 14% in 2006. Excluding the effect of non-recurring donations made in order to get additional income tax reductions, operating expenses increased 12.8% in the year, compared with 2005. As a result the Bank efficiency measured as operating expenses over average total assets was 6.54% during the quarter, and 5.74% for the whole year. Additionally, operating expenses through net operating income efficiency ratio was 63.3% during the quarter. And in an accumulative basis it reached 64.4%.

Finally, I would like to give you an update of the acquisition of Banagricola. The request for authorization from the Superintendency of Bank of Panama for the acquisition of Banagricola was filed on February 6. And after the normal review process in Panama, on February 23 the Superintendency of Banks granted authorization for the Bank to publish a notice to the public in Panama, announcing that the Superintendency of Banks is reviewing the Bank's request for authorization to purchase Banagricola. This is an important step because once the notice has been published in a newspaper in Panama for three days, a mandatory 15 day waiting period begins, after which the Superintendent of Bank may grant the final resolution approving the transaction.

On the other hand, in El Salvador, Bancolombia Panama has already filed the request for authorization from the Superintendency of Banks, and from the Anti Trust Superintendency. We will keep you posted on any advance we have on this transaction which we still expect to close during the second quarter of this year.

At this time I would like to thank you for the attention, and we will be happy to take your questions and comments.

We are open to take questions now. Marie-Anne?

[OPERATOR INSTRUCTIONS]. Your first question comes from the line of Ben Laidler of UBS.

Hi. Good morning. Would you just care to go into some detail into the cost spike we saw in the quarter, how much of that you think is non-recurring, how much of that you think is recurring? And what sort cost-income ratio you think you can do over the next -- for this year? Thanks.

Thank you. First of all we have to say that the total increase in costs was above our expectations. But we have to take in consideration that we have some non-recurring costs, as you suggested, and also we have a higher growth in both credits and transactions than what we were expecting for the year.

On the projections that you say we keep our projection of having a cost to income relation of about 55% for this year, below but it's 55%.

Would you be able to give some -- quantify the non-recurring expenses in terms of size?

The non-recurring expenses of the last quarter was mainly due to donations and the accounting from some special projects that were done during the last quarter.

Okay. Sorry if I could just have a follow up question? Would you just be able to talk a little bit about Banagricola, the performance in the last quarter? You obviously talked -- I think last time you talked to investors you only had up to the third quarter numbers. What was fourth quarter like, and maybe if you could just give an update on when you expect to close?

Banagricola had a good last quarter. The figures were slightly above the projections that we had for the quarter. And they won some [inaudible] acquisition. And the net profit was [70m] for the year. And we are satisfied with the behavior of the bank in the last quarter. And we are getting a return on equity during the year for Banagricola of 20%, which is very much in line with our expectation, even above the expectations.

And we have been visiting and keeping and getting in contact with the employees, and the team of Banagricola, and the people is happy with the process of the acquisition and they are working very well. There is not anxiety, there is not disruption of the activity, marketing activity is going well, so we are optimistic of the process.

And, as we were saying, yes we have filed all the applications. We started the process of getting the authorization, we already got a prompt response from the Panamanian authorities and are in the process of getting the responses from the Salvadorian authorities. And we have reasons to believe that we are going to be able to meet the schedule, which is that we close the transaction on the second quarter of this year.

Great. Thank you very much.

You're welcome. Thank you.

Your next question comes from the line of [Stephen Hughes] of [Corrigan Boyes].

Good morning. I just had a follow up question a little bit to the answer to the previous question. If you could say what these donations constitute?

And secondly, could you indicate what sort of labor cost inflation in terms of your costs that you've had to -- that you've been bearing in 2006?

Let me explain you about the donations. As a matter of fact in Colombia, from the foreclosed assets you can make donations. And by that way achieving some fiscal benefits, in the sense that you get tax deduction based on the historic price of the foreclosed asset, for instance, that you are donating. While the cost into our books has already get significant provision. Because of that donation, we have a reduction of COP7b in our taxes. Those donations are usually given to universities and education institutions which are registered by the government as institutions that can receive that benefit.

Now on the labor cost increase for the year, the labor cost inflation, we believe that we could be just looking at the already the agreements that we have made with the labor force. 6% for the year will be the figure to explain, because we have already made the increases that are going to be in force up to November this year.

Okay. And [excuse me], on the fee, could you just give me the history as well for the year to November last year?

The history of the --

What was operative in the previous year?

In the previous year we have the -- you mean the salary inflation?

Yes.

We've got 7% last year.

7%?

Last year we've got 7%.

Okay. Thank you.

You're welcome.

[OPERATOR INSTRUCTIONS].

It seems that we don't have more questions. We thank you for attending this conference call. We are happy with the results of the last quarter of the Bank. The total year had a reduction which is clearly explained by what happened in the second quarter of the year, as we mentioned during our presentation. And we are looking forward a reasonably stable economy, with keeping the growth rate that is beginning to effect. And we are optimistic of the capacity of the Central Bank to manage the control of the inflation of the first two months. That has been strongly impacted by increase in food prices. This is clearly a seasonal effect.

Thank you very much and if you have further questions please call to our Investor Relations people who will be happy to answer them. Thank you.

Thank you for participating in today's Conference, you may now disconnect.