Grupo Cibest SA (CIB) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Bancolombia fourth-quarter 2011 earnings conference call. My name is Bonita and I will be your coordinator for today.

At this time, all participants are in listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions)

Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital positions, credit-related expenses and credit losses. All forward-looking statements, whether made in this conference call, in future filings, in press releases or verbally, address matters that involve risk and uncertainty.

Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC.

With us today is Mr. Carlos Raul Yepes, Chief Executive Officer; Mr. Sergio Restrepo, Vice President of Capital Markets; Mr. Jaime Velasquez, Vice President of Corporate Development; Mr. Juan Carlos Mora, Vice President of Services; and Mr. Rodrigo Prieto, Vice President of Risk Management.

I would now like to turn the presentation over to Mr. Yepes. Please proceed, sir.

Good morning and welcome to our fourth-quarter 2011 results conference call. Let us start with a brief discussion of the main topics that impacted our business in this period.

First, I would like to highlight the growth in 2011. Our assets grew 26% during the year, something that we were not expecting 12 months ago. The great economic current environment and growing middle class and the inflation under control make a perfect mix for our business. That is how our loan portfolio grew 27% during the year. Good news is that quality remains very healthy and the balance sheet is in a strong position to grow. In order to strengthen our capital position, we completed a follow-on offering one month ago.

We raised $900 million in both local and international markets that went directly to enhance our Core Tier I capital by 210 basis points. The transaction was very successful and we received orders from existing and new investors from all over the world, which proves the confidence that markets have in Bancolombia, its strategy and the great growth opportunity that we face in the future.

Secondly, I would like to mention the progress that we are doing in financial inclusion in Colombia. In recent years, the number of people entering the middle class have [opened] more possibilities for us.

The increase in GDP per capita, which is close to $7,000 per year, is also an interesting part that expands the horizon for us to offer more products and services to more individuals. We certainly see financial inclusion as a part of profitable and sustainable growth in the coming years.

In 2011, Bancolombia opened branches in several towns that never had a bank. It played a key role in deploying remittances business, making more families eligible for getting mortgage loans and paying with the monthly remittances.

We continue making progress in mobile and e-banking and non-banking correspondents or agents, where we've reached 1,000 of them and we can proudly say that 40% of agent transactions are made with our Bank.

We believe that Bancolombia is the best suited Bank for taking advantage of these macro trends and we continue making progress in every single channel, product [under here].

Finally, we are making a significant progress in customer service and what I call the humanization of the banking business. This idea is about changing the way Bancolombia interacts with clients and the ultimate goal is to be perceived as an ally to achieve their goals.

It implies not only offering more embedded products, but also delivering them in an efficient way. This strategy is generating a positive impact in the reputation of the Bank.

Now, we will like to continue with a brief discussion regarding the macroeconomic environment. Let me turn the presentation to Juan Carlos Mora who will share our views on these matters. Juan Carlos, please.

Thank you, Carlos Raul. As usual, we have our slide presentation in our Investor Relations website. Let me start with slide number 2. Inflation for the 12 months ended February 2012 was 3.55% within the Central Bank range of 2% to 4%. Over the last year, the Central Bank has raised the repo rate to 5.25% in response to inflation sparks. We support this decision as we believe it will keep inflation under control with no need for macro prudential measures in the near future.

We expect the repo rate to remain above 5% for at least a couple of quarters and inflation to be within the mentioned range of 2% to 4%. Regarding GDP growth, we consider that the 7.7% achieved in third-quarter '11 was much better than what we were expecting and is a clear sign that the economy is gaining momentum. Consumption remains healthy and indicators like unemployment rate show that the economy is likely to remain in good shape in the foreseeable future.

During 2011, the Colombian economy created 1.2 million new jobs. All these lead us to believe that Colombia's GDP will grow close to 5% in 2012. At the end of 2011, Colombia experienced some impact from the European financial crisis as there was some slight quality effect that made the peso and the Colombian government securities to lose value. Fortunately, that trend has reversed in the first months of 2012. Although it could have some impact due to a slowdown in volume and prices of exports, the economy remains strong.

The investments of households remains in low levels and the quality of the loan portfolio in the whole financial system is very good.

After this quick review of economic environment, let me turn the presentation to Sergio Restrepo who will discuss the Bank's results. Sergio.

Thank you, Juan. Thank you, Carlos Raul. And thank you everyone for attending this fourth quarter and, of course, year-end 2011 numbers. Let me just throw four figures. Earnings for the quarter were COP504 billion and for the whole year was -- were COP1,663 billion. Return on equity 23% for the quarter, 20.2% for the whole year. The sale of the pension fund in El Salvador reported at COP138 billion pre-tax income which was recognized in the fourth quarter.

Taxes, we already discussed this one and there were new taxes that -- the tax on financial transactions and the wealth tax, the cost of it on the P&L was COP18 billion for the fourth quarter and COP71 billion for the whole year.

And finally, the effective tax rate for the fourth quarter was 21% and for the whole year 22%. This lower rate was because our leasing subsidiary has been able to take some advantages on deductions related to investments and acquisitions on fixed assets.

Referring to the presentation that Juan Carlos mentioned, let us move to slide number 3. First of all, let me focus on the loan growth. The US dollar denominated loan growth for the full year grew at a rate of 33.5%. It accounts for 28% of the book right now. And it is split in $3.6 billion in Colombia, $2.4 billion in El Salvador and $2.6 billion in other countries.

Secondly, consumer loans grew almost 43%, split in car loans growing to 49%, personal loans 28% and credit cards 26%. Mortgages, you probably see this is almost 60%. The -- when you account securities, the growth for the mortgages were 17.6% year over year. This 59% was basically because of the fiscal benefits or tax benefits ended by the year-end 2010. We securitized most of our mortgage portfolio. Therefore the base for the calculation is very low. But year over year when you account the securities, it's 17.6% again.

If we move to page number 4, to highlight here is the net provisions for the quarter, COP328 billion. It's significantly higher than what we had in the other quarters. Basically what we have here is a change in the provision models with COP25 billion. Certain deterioration on the loan portfolio moving from A to B, it cost us COP90 billion. The growth, as we pointed out, we have these countercyclical provisions, the growth of certainly -- sorry, around COP4 billion in the loan portfolio during the quarter had an impact on COP80 billion. Some standard scoring for the whole system, the whole financial system account for COP38 billion. And, finally, our semi-annual general scoring account for COP50 billion.

All of that end up in something like 1.1% of provisions to total gross loans in 2011, which is a reasonable number and then it's not that high.

And, finally, on this one the credit quality remains healthy and we maintain, as you see, a very conservative policy of charge-offs.

Slide number 5 regarding the asset quality, allowances to total loans is 4.6% and they represent 210% of the past due loans. Out of this, COP2.8 trillion of allowances that Bancolombia has right now related to A loans is almost COP1 trillion, COP1,000 billion. If you deduct that from the COP2.8, trillion, you end up with COP1.8 trillion covering the COP1.3 trillion past due loans. That means a coverage of 134%. If you do the same math regarding to C, D, and E loans, the coverage is 120%. So we -- in spite of being high, we believe that we have reasonable coverage.

If we move to the next slide, number 6, regarding the cost of deposits basically. The increase in cost of deposits reflects, clearly, the increase in the Central Bank interest rate. And that would be the trend further on as we saw two increases this year and it seems as we are (inaudible) signals from the Central Bank that the trend will remain only one or two more increases. Therefore we will see time deposits growing and probably the same trend with the saving deposits.

Right now, the mix that you can see reflects our strategy to contain costs. We will put more emphasis during the year to our checking and saving accounts and less emphasis on time deposits. The deposits by year end reached COP52 trillion, 69% of the total liabilities by the end of the fourth-quarter '11. And the deposits increased 8% during the quarter. We are going to discuss this one a couple of slides later.

We move to the slide number 7, the NIM, the final NIM -- the weighted average NIM, 5.6%, is mainly explained by the lower margin and the investment portfolio which presented a lower mark-to-market gains in the fourth-quarter '11. We were able to maintain the loan NIM, the 6.3% NIM. The significant -- the point here is that the significant growth on the consumer lending, with higher NIM, was offset by the growth of the US lending in corporate sector, which is a much lower NIM than the average.

So that's part of the NIM. Probably, secondly, we are growing fast on consumer but certainly the offset on the corporate side has been the reason to maintain this 6.3% per NIM. With the recent increase in Central Bank interest rates, we expect if not to maintain to grow the NIM. So remember the Bank is asset sensitive. Therefore we were optimistic about these increases in the Central Bank rates.

Moving to slide number 8 regarding fees and services, the total fees grew 5.5% year over year. If we exclude the pension fund fees that were included during 2010, the growth would have been 12%. As you remember, I mean -- as I really mentioned at the beginning of the presentation, we saw the pension fund in El Salvador and the gain on the sale was reflected in the fourth quarter as other operating income and it was COP138 billion.

Regarding the fees, credit and debit card fees for fourth-quarter '11 increased 12% versus the previous quarter and 21% versus the fourth-quarter '10. This represents one-third of the total fees. The significant increase is explained mainly by lower expenses in credit card rewards programs. We are making some efforts in order to contain the cost and this is one of the first results on this specific item. Third source of fee income was the brokerage fees and mainly because of the offerings of (inaudible) and Grupo Sura that took place during the fourth quarter of the year.

We move to the slide number 9 where we have OpEx. First of all, quarter after quarter the growth, I mean it was negative growth. It was a decrease of 2% and year over year it was 11% growth. The year after year increase include, first of all, the tax on financial transactions and on the wealth tax that we already discussed, COP18 billion for the quarter and COP71 billion for the year.

Secondly, the expenses related to the IT project with the completion on some of the models of our new IT platforms that are already working, we start amortizing the capitalized expenses. Total impact for the year 2011 was COP109 billion and that is specific topic.

The good news here is that the efficiency ratio was 50% for the fourth quarter and 58% for the whole year. It can show the path that we are going to follow during the next quarters. Certainly, we can make it the 50%. It won't be -- as we discussed before, it won't be immediately but certainly there is a clear path and a clear trend on that direction.

And to slide number 10 regarding the loan to deposit ratio, decreased a little bit from 106% to 105%. But, basically, the reason to be that high is the strong demand for credit over the last year and it was funded basically with a mix of deposits and bonds. We didn't put that pressure on the deposits and that's the reason we placed bonds locally and internationally. But, again, the goal for 2012 is to increase deposits and reduce these ratios.

And, in fact, during the fourth quarter, the growth in deposits was greater than the growth in loans and as a result we experienced a reduction that we saw in the ratio. Deposits grew at 8.2% in the quarter whereas the loans grew at 7%, both of them very healthy growth rates.

The decline of the capital equity ratio, you saw -- I mean, we lost around 220 basis points in the capital equity from 14.67% to 12.46%. The point there is that was the cost of growing at the rate that we did as Carlos Raul mentioned, I mean we grew 27% in our loan portfolio then on total assets. But again we have this COP900 million new capital our own that increased our Tier I. And the good news here again is that it went straight to Tier I in 210 basis points. That replenished -- that fully replenished the capital that we used to grow over the year.

Finally, slide number 11, return on equity which probably this is the -- our ultimate goal in terms of financials, there was 20.2% for the whole year and 23.1% for the fourth quarter.

Then to conclude we have a solid liquidity position. We have a moderate funding cost and we will maintain that trend. And finally the strength of our franchise and our solid capital base place us in an excellent competitive position to take advantage of the growth opportunities in this country and the countries where we operate.

At this moment we will be happy to take questions. Thanks.

(Operator Instructions) Regina Sanchez, Itau.

Congratulations on the results. I have two questions. The first is regarding this increasing provision for loan losses. How much of that was really related to the countercyclical provision and what was the reason for this countercyclical provision? Is there a methodology that by which the Bank will always adopt a countercyclical provision every time loans grow above a certain threshold?

And then my second question also related to asset quality. I mean, are you expecting any deterioration going forward because we're seeing actually a positive trend at the end of last year? I mean, what can you expect in terms of provision for loan losses as a percentage of average loans? Do you think this level around 1%, 1.1% is the one that we should work going forward? Thank you.

Thank you, Regina. Let me start with the countercyclical provision. This is part of the regulation here. Basically, we operate under two different matrices, one is the matrix on the growth time or the growth periods. And the other one is on the downsides periods.

Right now we have to make new provision, general provisions -- but no, actually those are not general, those are individual provisions but any new loan we have to make provisions between 1% to 2%. That's one of the reasons that we mentioned that as we grew COP4 billion over the year, the cost of that was roughly COP80 billion of new provisions. That's -- again, that's part of the regulation and I think that this is something that will remain.

Even though as I said that there's two different times it depends on the periods, we do not see a clear signaling from the regulator how to de-leverage the provisions once the economy start to slow down. But meanwhile we believe that we have enough ammunition to support any slowdown in quality.

Now, let me talk about the credit quality. With the growth on consumer lending and even in corporate lending, there's no doubt that it should be some deterioration ahead. We certainly believe that having 1.1% of provisions is below of the long-term average that we have had. Probably the number for this actual year will be something -- that the provisions will be between 1.3% to 1.5% of the gross loans.

The idea is to be very accurate in terms of risks, being able to reduce exposure in certain segments when we start seeing some deterioration and so far with unemployment or -- and new jobs, as Juan Carlos mentioned in the beginning of the presentation, this is one of the positive signals.

The whole thing is that Central Bank right now, they're increasing interest rates in order to slow down growth which we consider a positive measure, even though on increasing interest rates have a negative impact on the credit quality because the disposable income will be reduced. But at the end we believe that is -- this is a positive and cautionary measure from the government.

Okay. Thanks for answering the question. If I may ask just regarding the equity offering, did you expect to use this [residual] to expand the Bank organically when you continue to expand loans and maybe open more branches or is there any possibility for an M&A in Colombia or abroad? Thank you.

We grew -- as I said basically by the end of the presentation, the growth during the last year almost used the same amount of capital that we raised by the beginning of this year. The trend remains something between 15% to 20% that will have -- I mean, we will have capital to grow over the next three years without going to low levels on capital -- on equity. So as far as Colombia remains as healthy and as dynamic as it is, I think the best -- our best opportunity and our best option will be Colombia.

Okay, fantastic. Thank you so much.

Victor Galliano, HSBC.

Yes, I just wondered if you could run through, again focusing on credit quality, if you could run through that list of the breakdown really of the provision charge for 4Q. Let me see if I got this right, but I think you said first the change in the provision model was COP25 billion. The deterioration in credit quality from A to B was COP90 billion. Countercyclical provisions were COP80 billion. Then there was some standard scoring that was introduced for the system as a whole, it was COP38 billion and the semi-annual scoring adjustment was COP50 billion. Is that all correct?

Yes, Victor, that's correct.

Okay, great.

And if I may and the provision modeling was something introduced by the regulator. The impact, I mean, COP25 billion is not that big, but at the end is something that they introduced. Certainly, there was a slip from A to B. There's some deterioration from A to B loan portfolio, the ones that I mentioned already.

Generally, you're right. And then I've already mentioned in the last question. And this -- the financial sector is standard. The point here is that we have to harmonize the rating of all of our clients. If someone should default in other financial entity, we have to adjust that in our case even though if they are performing in our books. The idea that the regulator has is to avoid certain arbitrage among banks.

So that's the case for -- I would say, for everyone and probably will be certainly the same if someone is defaulting on our side. Whoever who has loans with them, they have to change the scoring. And finally the semi-annual general scoring is twice a year. We run a very comprehensive analysis on the scoring of the loan portfolio. And it takes place in June and December. Sorry, May and November, excuse me, May and November and usually it is reflected in next -- this month and the next month and that had an impact of COP50 billion. The other one, the remaining portion of it was basically the day to day iteration.

Okay. So that A to B, that COP90 billion, was that something that you reassessed internally or was that superintendencia asking you to re-categorize some borrowers from A to B?

Basically we do it internally.

Right.

And part of it is because of lack of information. And then moving from A to B is really -- it could be the start of some iteration but most of the time it's because we lack information and the clients getting some negative information that the P&Ls and the general ledgers and everything that we need to have up to date. So we have to decrease the qualification -- the scoring based on the lack of information.

Okay. Thank you. Just a quick follow up if I may on operating expenses. What do you think we can expect in terms of operating cost growth and by that I mean personnel and admin and including in that the cost of the IT project in 2012. Do you expect this to grow, I don't know, in line with inflation, ahead of inflation? Can you give us some sort of guidance between 5% and 10%? Any guidance you can give us would be helpful.

Victor, we believe that that will -- I mean they would be ahead of inflation no doubt. And the Bank is growing. The number should be something around 10%. Probably we hope that we can make it below 10%. But again as I said before about this IT project, we'll start extending some of the capitalized expenses that we have in the books.

But beyond, that we do not expect any surprises. The taxes were already there. There were taxes already, it's already there. It won't change. This is exactly same number that we had last year. And the financial transactions will move along with the volume, so it won't be significant I guess. So a number around 10% will be fair I think.

Okay, so high-single digits, 10% would be a good -- okay. And in terms of loan growth, what sort of guidance are you giving there?

We believe that's something between 15% to 20% would be fair. That's a clear change from the 27% that we had, but as Carlos Raul said at the beginning a year ago not even in the wildest dreams we thought about 27%. Right now what we like to do is to read the Central Bank's signaling and probably moving more towards this high 10s and probably a maximum of 20%.

Okay, thank you very much.

You are welcome.

Boris Molina, Santander.

I had a couple of questions. The first one related to the capital increase. You provided a pro forma number. Does this pro forma number take into account any sort of deduction from your capital base for the investment in Grupo Sura's asset management business in LatAm? Correct me if I'm wrong but apparently you have to deduct the full amount of the investment from your Tier I ratios. So I was just wondering if this is something that's already in that number.

And secondly, if you could give us an idea of whether the effective tax rate is going to remain at these levels going forward. You mentioned some impact related to your leasing operations. If this is a sustainable change or this is a one-off and if -- what could we expect for the effective tax rate in 2012?

Thank you Boris for the question. Regarding the interest in capital and -- let me go directly to the Sura investment or the pension fund in Latin American investment. As we are investing in a holding company, we do not have to deduct that fully from the capital. It will account as an [old way] average asset and with 9% capital equity on that side, it won't cost us more than $14 million.

The point and I would like again to mention that is we sold the pension fund in El Salvador which is kind of a same. We sold that for $100 million. We are going to sell -- we are just waiting for the final authorizations in Colombia and in El Salvador, the insurance company, and that will be over another $100 million. And again it happens exactly the same. They don't have the positive impact on the capital or 100%, have the impact as an investment as a portfolio investment.

So I would like to compare this to the divesture of the two companies that we have in El Salvador with the new investment in pensions in Latin America. So there is no [average] impact or a significant impact on the capital.

And secondly the tax rate, we will maintain the stability contract with the government in the leasing company. You probably know that in the leasing company, this is probably the biggest subsidiary that we have. Therefore we have a positive impact on taxes coming from that company and we expect that the ongoing tax for this year will be same as we saw in 2011 which is around 22%.

That is very interesting, thank you. Now a follow-on question. When you're investing in this investment in this asset management company, are there any expectations regarding the potential IPO or any timing of what's going to happen with these investments? And do you consider are there any possible assets that Grupo Sura might have acquired in more banking-related activities in the region as part of this transaction that you made buy from them, maybe asset management or something like that?

We consider this investment same as we did in the Colombian pension fund roughly 20 years ago, we made that investment. Our view on this $150 million we see it as a stepping stone in this country is that we consider will be the future for this Group. And we -- in Bancolombia we have the opportunity -- two opportunities. One of them will be that we will have one seat on the board of directors of the holding company. And secondly in the medium term, we expect that we could cross-sell some of our products through their already -- the network that they already have there.

Okay. Excellent, thank you very much.

You are very welcome, thank you Boris.

[Alfonso Vergara, Protection].

First of all, congrats for the results. My first question is regarding to the efficiency rating which could be the trend that you expect in the coming days. And the other one is if you expect any deterioration on the net interest margin because of the monetary policy? Thank you very much.

Hi Alfonso, good morning and thank you for your questions. Regarding efficiency ratio outside this -- here in the Bank there is a Steering Committee in charge of three of the vice presidents -- I mean the three of us are here on the table, [Jaime Velasquez], Juan Carlos Mora and myself. We are in charge of bringing down costs or improving efficiency ratio. As I said, our goal for 2014 is to be on 50%. We think we can make it and that's part of our goal. And the only point here is, as the economists used to say (inaudible), we do not expect any change in regulation or any significant external shock that could divert us from achieving that number. But certainly we are aiming for that number.

But in the fourth quarter of 2011, you get -- you reach 50%. So are we going to see the same data from here to 2015 or are we going to see any kind of volatility on this rate?

Well, the quarter was a very good quarter. We do not want to make promise that it will be the same for the next quarter or the next year. Again, the idea is to bring that and in a more stable way down to 50%. The year end was 58%, so moving from 58% to 50% in one year up the other one is not that easy. But again, our goal is to arrive to the end of '14 with something like a 50%. Regarding the NIM, Bancolombia is what we call asset sensitive. So, therefore any increase on the rates is positive for NIM. And let me to spend just couple words on that.

As we have a very strong saving accounts and check accounts, when interest rates are going down we have a floor and there is no way you can go, turn it down from zero, from near zero on the saving accounts. Whereas when the interest rates are going up, they tend to be more sticky towards low rates whereas the CDs go up and most of our loan portfolio is based on the [GTS] of the time deposits rate. Therefore an increase in interest rate and to decrease the NIM.

As I said during the presentation, the point here is that as we are growing fast on US dollar lending, that has offset our benefits of the increase on the interest rates in pesos. Today the US loan portfolio accounts for 28%. A year ago, the number was like a 25%. So that's good. The mix is one of the reasons we are not growing right now the NIM. If we grow faster this year on pesos than in dollars, probably the trend will be on the positive side.

Okay, thank you very much.

Felipe Toro, Interbolsa.

First of all, congratulations on the positive results. How about a couple of questions? The first one is following up on the NIM, I would like to have some guidance in the cost of deposits, as it seems that it may go change its strength. It has been positive in the last periods, now we see like a little bit of a deterioration. So I would like to have a guidance on that. Also I would like to go back on the last questions you had on the guidance and growth in loans basically in the USD denominated portfolio. How do you see that going forward? So if we can have an input on NIM. Thank you.

Thank you, Felipe. Let me start with cost of funds. We certainly will have a growth on that side. We are probably going to see this year something between 3% to 3.5% in terms of the overall cost accounts, which I have to highlight that it is significantly lower than the Central Bank rates. So that will be the time where our franchise will take value. The reason for that is probably that CB and we are going to see something in [CBs], running at 6%, 6.5% whereas savings would be half of it or 4% and checking accounts remains almost at zero.

With all that said in terms of costs, again, our goal is not exactly to focus on the cost of funds, our goal is to focus on the NIM, enable to maintain and to increase the NIM. And if the interest rates or the cost of funds goes as I mentioned to 3%, 3.5%, our goal is to transfer that cost to the loan portfolio, which, again having a loan portfolio that is floating that won't be difficult.

In terms of growth, you ask about the pesos and dollars. Even though we still have the benefit of the withholding tax for external indebtedness, I would say that the constraint or the limitation here will be the availability of funds. Growing the deposit base in dollar is probably not as easy as growing in pesos, therefore we want to grow on that side, we will have to tap again the international markets for bonds. But we have to consider carefully the pros and the cons on doing that. So probably the growth on US dollars won't be as dynamic as what we saw last year.

In terms of pesos on the contrary, we believe that there will be plenty of funds. One of the reasons is that the government, the income of taxes or the collection of taxes have been very positive for the government. It seems they want -- the government want the tapping the debt markets as there exist two and in fact the short-term treasuries or Colombian treasuries, they already said that they won't to go to the market for them. So we believe that there will be liquidity locally, so we could manage to grow our deposit base in pesos.

I think that I missed one of your questions. If you don't mind to remind me that.

No, I believe that you answered both of them completely. And I do have one other question and it is related to the fee income. I see that you presented some strength. I would like to hear the reasons. I know you already gave some guidance in the presentation, but also I see on a specific revenue in insurance that I would like to understand a little bit more.

Okay. The revenue (inaudible) insurance is not on the fee income, it is on the other operational income and it basically was that because we didn't manage to close the contract on the sale of the insurance company in El Salvador by year end whereas we did it on the pension fund, we have to reintroduce the numbers by year end because we -- during the year, we accounted that as discontinued operations. But again, as we didn't do the transaction, we have to account the numbers on our books because someone has to reflect the numbers on the books. And at that specific moment, (inaudible) do not have the ownership, and therefore we had to recognize other income, the COP45 billion income that we didn't recognize over the course of the year.

Okay. Thank you.

Welcome.

Chris Delgado, JPMorgan.

I just wanted to say congrats on the quarter. Just going back again to the fee income, basically as you mentioned, expenses have really come into focus and it helped your fee income for 4Q '11. So I just wanted to get an idea of what you guys saw going forward as the run rate for fee growth, and whether you saw more volumes driving it, or more just an emphasis on costs. That is my first question.

And then my second question, just given the rebound in the peso that you mentioned and the Colombian government's securities, what do you see happening with your NIMs going forward? Do you see them going back to 3Q levels, or staying at this level like 5.6% level range? Thanks.

Thank you, Chris. Regarding fee income, we prefer to be conservative on that side and basically because the fee income is under the scrutiny of everyone (inaudible). But we prefer to be very cautious on what to increase so the price on each of these services won't be significantly increased, basically would be along with inflation. And we have to waive some of the costs, we did it last year and probably that will be the trend this year. I mean we have to be very, very sensitive about what the consumers we believe it's cost efficient in terms of fees and services.

So after that, we believe that even though the loan growth will be between 15% to 20%, fee income we don't see anything more than 5% to 10%. And again there will be a combination of small increase in prices, volume but some [waves] that we have to give. And regarding the strengthening of the peso and the name of the securities, we do not believe that the third quarter or second quarter '11 is a reasonable number and I think we tend to believe, if you run the numbers as the securities were hedged to maturity, the real return of them will be more towards 2% to 3%.

So 1.4% as you can see, it's been one of the lowest. Already we saw that in the first quarter 10%, and in the fourth quarter 8%, but 5% and 4% it is not -- I mean again those are outliers. We tend to believe that it's more between 2%, 2.5%.

Okay great. Thanks.

You're very welcome.

Federico Rey, Raymond James.

My question regarding the regional expansion process. I read today in the [La Polita] newspaper that mentions the willingness of Bancolombia to go to the Italian market and they are there to expand the participation or their penetration through Panama. I would like to know if you can provide some color of about what should be the approach for this regional expansion, especially in Chile.

And also I'd like you --- if you can give us an idea of how do you see the competitive environment in the domestic market in Colombia? Thank you.

Okay. Thank you, Federico. Let me start with the last question about the competitive environment in Colombia. And I think it has started getting interesting. We are seeing some of the international players coming in, some of the international players going out. And then we see that our Santander dropped their investment in Colombia and CorpBanca came in and the Spaniards are going out, the Chileans are coming in. The (inaudible) business is exactly the same, Itau is coming with good amount of capital. And there are other ones, there are other ones coming not exactly as banks but as financial corporations and commercial lending companies, some of the retailers.

So the environment seems okay. I'd say that we haven't seen any competitor trying to do irrational things, but beyond that the thing that we've to highlight is that we gained market share over the last year.

All these changes are for good but we tend to believe and it happened to us when we merged this with three entities, we lost some market share at that -- just after the merger. So usually after a change of control, there is -- there are opportunities for the banks with other banks.

So again we see the competitive environment positive for Bancolombia.

Regarding the expansion, Panama is --- we have been operating in Panama for 40 years, almost 40 years as an international bank and we've seen how Panama has been developing itself, and then the country itself over the last four, five years in a very, very strong way.

So we had this local presence for many years but never --- actually we were there with a general license a long time ago. But right now we decided that it should be an opportunity to learn and specifically to corporations at the beginning. And there are plenty of Colombian companies going to Panama to do businesses, so we believe that we should follow them and do banking in Panama.

There was --- I mean there was that Carlos Raul mentioned (technical difficulty) it has to be very opportunistic. Chile is a country (technical difficulty) certainly if there's an opportunity, we'll look for that and same in the other countries in the region.

So regarding expansion I'd say that probably the only real thing right now is Panama as you said.

Okay. Thank you very much.

You are welcome.

Thank you for your questions. Now I'd like to hand it back to Carlos Raul. Thank you.

Okay. Thank you very much for your attendance today's conference call. We appreciate it and we hope to see you in three months with the first-quarter 2012. Thank you very much.

Thank you, ladies and gentlemen. That concludes your conference call for today. You may now disconnect. Thank you for joining and have a great day. Thank you.