Grupo Cibest SA (CIB) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to Bancolombia's first quarter 2012 earnings conference call. My name is Alicia and I will be your coordinator for today.

At this time, all participants are in a 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 future performance, capital position, 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 current 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 Strategy and Finance; Mr. Jose Humberto Acosta, Vice President of Finance; 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 first quarter 2012 results conference call. It is great pleasure to be with all of you who follow so closely our operations and results.

We have structured this conversation in such a way that I will present a summary of the main issues that have been relevant to our business in this quarter. Then Juan Carlos Mora, our Executive Vice President of Corporate Services will walk you through the macroeconomic trends, and finally Sergio, Vice President of Capital Market will present specific topics in detail.

Let us start with a brief discussion of the main topics that impacted our business in this period. First of course I would like to highlight the net income for the quarter. COP446 billion, which represents an ROE of 18.1%. This result is good news because it represents more returns than what we had a year ago. Also those returns are generated on a greater capital base.

In that sense, you will remember that last February we completed a follow-on offering, and bring COP1.7 trillion equivalent to $940 million. As a result, the bank runs today with a capital adequacy of 15.5% and a Tier 1 capital ratio of 12%. That is more impressive if we consider that in last March, the general shareholders meeting declared a dividend of COP708 per share per year equivalent to about $1.6 per ADR per year.

Secondly, I would like to mention the positive growth in the net interest income. It was 27% higher than the NII that we had one year ago. The growth of the long portfolios that we experienced in 2011 and during the first quarter in 2012 along with better net interest margin impacted top line in a positive way.

We have started to see this expansion in NIM mostly due to the increases in Colombia's Central Bank's reference rate. We believe this trend to remain during the rest of the year.

Regarding efficiency, we have also seen some progress. As revenues grow faster than expenses the cost to income ratio is reducing and reached 56% for the quarter, much lower than the 62% that we had one year ago. We continue to make progress in our goal of promoting financial inclusion and coverage in Colombia.

Today, we have more than 1,100 non-banking correspondents, and we keep growing in this channel. Expanding the ATM network and the presence in regions and towns where we do not have a leading position is also one of our goals and we remain focused on that. Our business in El Salvador is also doing well. Returns for Banco Agricola are above 20% and it remains being the leader in the market and a significant contributor to the overall performance of Bancolombia.

Finally, we continue making significant progress in customer service. The simplification of some sections for our clients. The increased level of service and the better understanding of their needs are just a few example of the fields where we are working. The progress in technology and a rigorous commercial strategy are key elements in this goal. Having said this, we would like to continue with a brief discussion regarding the macroeconomic environment. Let me turn the presentation to Juan Carlos Mora who will share our reviews on these matters. Juan Carlos.

Thank you, Carlos Raul. Good morning to everybody. As usual, we have our slide presentation in our investor relations website.

Let me start with slide 2. Inflation for the 12 months ended April 2012 was 3.43%, 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.

During the last two meetings, we have kept the rate stable as it seems that previous increases are having a positive impact in controlling inflation. And 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 in Colombia, the 5.9% achieved during the 2011 was a strong sign of economic activity. Consumption remains healthy and indicators like the 10.4% unemployment in March, which is low for Colombian historical standards show that the economy is likely to remain in good shape in the foreseeable future.

During the last 12 months ended in March, the Colombian economy created 900,000 new jobs, which is also a very positive sign. All these trends led us to believe that Colombia's GDP will grow around 5% in 2012. Regarding the external front we experienced a recovery in the price of Colombian treasuries. And during the quarter the Colombian peso appreciated 8% versus the dollar.

The Colombian external sector remains solid and exports, in particular, commodities are performing well. Although we could have some impact due to slow down in the world economy, the Colombian economy remains strong. The indebtedness of households is still in low levels and the quality of the loan portfolio in the financial system is behaving as we were expecting.

After this quick review of the economic environment let me turn the presentation to Sergio Restrepo who will discuss the bank results in detail. Thank you.

Thank you, Juan Carlos and thank you, Carlos Raul. Good morning again and thank you for your attendance in today's conference call.

I am going to use the slide presentation and I go directly to slide 3 where we have the loan volumes and the total assets. There is a slight compression in the whole book for the quarter, minus 1%. Our investment portfolio decreased 13% and the loan portfolio decreased 1% in the quarter, but the comparison year-over-year remains positive at almost 20% in the loan book.

The loan demand in Colombian pesos remain dynamic; I mean, 24.2% year-over-year and 4.1% over the quarter with consumer leading the trend. As you can see it is 5.9% during the quarter.

On the contrary, the US dollar demand was not as dynamic and it was a minus 7.1% on the quarter and 12% year-over-year. There were some big tickets that reduced that stock. It is not exactly the trend and we believe that our growth will be replenished easily over the year.

On top of that, there was a 7% appreciation of the Colombian peso that at the end had negative input about 1.6% in the total loan growth. We expect that commercial loans and financial leases to remain dynamic due to higher level of economic activity as Juan Carlos just explained.

For more details on the loan portfolio evolution, there is a table on page 5 on the first quarter press release available right now at Bancolombia investors relation website.

So move to slide 4, asset quality. The provision charges that were 1.3% on annualized base compared to gross loans. That is in line with our forecast. In terms of the new past due loans certainly there is a significant increase COP407 billion. Most of them are those early past dues. Basically 30 days across all categories was increased.

When we move to 90 days past dues, there is an improvement -- even an improvement in mortgages and leases. The big budgets of the third quarter 2011 and fourth quarter 2011 in credit cards, car loans and SMEs, are the ones with the biggest impact. There is a direct relation with the rainy season that impacted again this year, specifically if you go to commercial vehicles, had a higher deterioration on the loan portfolio.

Finally, we do not expect this number to be the trend but there is no doubt that with the growth that we had recently in consumer the number will be higher than the last year as we previously anticipated.

In slide 5, good news are that the past due loans to total loans, 2.7% remain healthy even though it is an increase between 2.2% and 2.7%. Again this is part of the dynamics between new past due loans and charge-offs. And if you remember, the charge-off were just 100, whereas the new past due loans were 400. Therefore, I mean, this is not a number that worries us.

The important thing is that we still maintain these allowances to past due loans at a 175%. Out of these, COP2.9 trillion of allowances, almost 40% of them are related to loans A, means that those are contra-cyclical provisions and that is the reason why we still remain with these high coverage of 175 or even 200 plus that we had at fourth quarter last year.

Allowances for loan losses as a percentage of C, D and E loans remains on a healthy number, I mean, 123%, and it's the -- the worst part of the past dues is fully covered and even more than that. 90 days past due coverage is almost 350, 3.5 times; and that is a clear evidence of our collection discipline in the first 90 days. I mean, 50% of the past dues, 30 days are performing after 90 days.

We move to page or slide 6, the net interest income. As we anticipated in former conferences the net interest income increased 27% and is basically because right now we are harvesting the growth in the loan portfolio under stable margins.

2012 would be a year when we will capture the full positive impact of the growth that we had last year. 20% increase in net interest income as we mentioned. The funding strategy remains focused on keeping cost on deposits under control. The value of the franchise [key] to grow as a reasonable cost.

At the same time, with the Central Bank pause, we will move more to time deposits. As you can see in time deposits today go from 34% of the total pie of the deposit to 37%. And the average real cost of funds moved from 2.84% to 3.04%. And as you remember, the Central Bank interest rate right now is 5.25%.

The forecast for the next quarter will be another increase probably between 3.15% to 3.20%, and that would be in line with basically time deposit growth aligned with Central Bank prices.

Total deposits reached COP52 trillion, 70% of the total liabilities by the end of first quarter 2012 and with a slight decrease during the quarter and 14% increase year-over-year.

If we move to page 7, the NIM, there is a slight expansion in the NIM; well, it isn't that slight. The total is from 5.6% to 6.2%. But it is slight in the loan portfolio which is the core business, from 6.3% to 6.4%. And part of it is our ability to transfer part of the increase in the cost of funds to loans. As we have discussed previously, the Bank is asset sensitive. Therefore, when you have an increase in the interest rate, in the Central Bank interest rate, there is a lag, but there is an increase in the NIM.

Another positive impact is the increase in the consumer lending of our commercial and in the mix as you saw a few slides before. It is positive on the segments that have a higher NIM. The same in the mix between Colombian pesos and US dollars. I mean Colombian pesos loan portfolio grew faster than the US dollar mix. Both of them as I said had a positive impact in the NIM.

Secondly, in the good performance of the investment portfolio due to appreciation of the Colombian government treasuries, and more than COP20 billion in income from residual value estimations related to mortgage securitizations. As you probably remember, the securitization of mortgages were not allowed to recognize any gains but at the very, very end of the securitization when they are basically ending. So therefore this is based on what we originated a few years ago. And then with the new capital we expect to see an improvement in the NIM.

If we move to page 8, non-interest income, basically fees. I have to highlight that the first quarter has a seasonal effect and there is a negative moving of 9% from last quarter last year and this quarter. But certainly we maintain our trend of 10% year over year.

We increased fees mid-February not early January as usual, and that was because of a new regulation that you have to give an advice with a month and a half before increasing the fees. Our credit and debit card business again remain as strong it has been.

We have 28% share in billing based on credit cards and 20% share on a number of plastics, on the credit cards and that do not account the private label credit cards. We maintain a conservative approach on fees and we expect again 10% year over year growth.

In slide number 9, in operating expenses the yearly increase is mainly explained by certainly salary increases and headcount, administrative and expenses growth. And basically they grew because advisory fees, maintenance of branches and fixed assets and a higher depreciation expenses related to operating leases in leasing on Colombia.

This last one is something that is going to see more and more in the coming years as operating leases is becoming a very dynamic business. Therefore, even though at the end they are a kind of financial business we have to treat them as an operating leases, therefore we have to recognize depreciation and we have to recognize the income as leases different from the NIM.

Secondly, the improvement in the efficiency ratio of the bank, 56% for the first quarter 2012, is certainly the result of greater revenues and moderate cost decreases.

If we move to slide number 10, they are liquidity in capital base. We have net loans to deposits ratio, stable on a 105. As you remember, we deduct the loans from development banks because they are fully matched both in the asset side and the liability side. But if you do it in the -- in the gross, I mean just go to numbers on the balance sheet, that number is 111% slightly lower than what we had in December but again this is something that do not really worry us because this is not a matter of liquidity. This is a matter that we -- over the last year, we issued bonds and we right now had bonds at the medium to long term. Therefore, there is a reason of having our liabilities long term, not based in deposit, is not on the side of the wholesale banking, is more on the side -- on the opposite side, meaning on the bond market.

The strong capital position again, 15.2%. This is basically thanks to the share issue that Carlos Raul mentioned, $940 million. That increased the Tier 1 up to 12%. Right now we're running at 12% Tier 1 and 15.5% in Tier 1 plus Tier 2. Today we have 852 million shares. Out of this one 60% of those are common shares and 40% are preferred shares.

Finally, on slide number 11, return on equity and return on assets. We had 18% return on equity on the quarter. Again, we already mentioned on the presentation that is because of the great capital base that we have today. We have again like COP1.6 trillion more in capital.

Secondly, as we discussed at the beginning of the year, we want to be able to make the 20% this year because of the new capital but certainly the trend for long term we continue, we maintained our goal in the long term. Probably this year and probably half next year we won't be able but after that we certainly believe that the bank will be able to return to that number.

Finally to conclude, we have a solid liquidity position. We have a moderate funding cost. We start seeing a slight expansion in the net interest income, sorry, in the NIM, a clear expansion in the net interest income, and a slight increase in the NIM which is positive. And we have right now a close management between growth and credit quality. It is one of the things that we are really putting most of the attention today.

At this moment, we will be happy to take your question and comments that you may want to present to us. Thank you.

(Operator Instructions) Regina Sanchez with Itau. Please proceed.

Hi, good morning everybody. We saw higher loan growth on consumer and SME loans in this quarter as well as the deterioration in the NPL ratio specifically related to those portfolios. Are you in any sense worried about the possibility of the government adopting macroprudential measures as a result of the continuous growth in those segments? Thank you.

Thank you Regina. If I may say, the chances or the risks for macroprudentials were more during the first quarter. I think that right now the growth had moderated a little bit, not too much. I mean we still have the risks. But the noise if I may call that from the Central Bank is not as strong as it was by the beginning of the year. We tend to believe that again there is a certain moderation in growth.

Talking with some of the directors, their biggest concern is not based on the banking loan growth but in the shadow banking or I would say probably the retailers and the non-banks. I think that from that side comes the biggest worries. Therefore, again I would say that the chances for these macroprudentials are lower right now than they were by the beginning of the year. It does not mean that they will not come. Probably, I mean who knows.

Okay, thank you very much. I appreciate.

Tito Labarta with Deutsche Bank. Please proceed.

Hi. Good morning and thanks for the call. Just a question in terms of asset quality. I know you mentioned a little bit about the increase in new NPLs but I just want to get a sense how much you think this can continue going forward. You know, new NPLs were much higher this quarter than previous quarters. How much could you attribute that to some seasonality or do you think that the new NPL formation could continue at the levels that we saw in the first quarter and how much do you think the NPL ratio could then increase for the full year. If you could just give some more color on that, I appreciate it.

Good morning Tito. Thank you. I mean I think it is the question for this conference call. First of all we do not believe that that number, I mean, COP400 billion will be the trend. But at the same time it won't be either the trend that we had last year.

We mentioned that with the growth that we are having in SMEs and consumer, we will see a higher increase in that. We tend to believe that the number will be more on an annual base of 1.3%, 1.6%. So at that level probably the quarterly number will be more between COP250 billion to COP300 billion instead of the COP400 billion that we already saw. But again as I said at the end of the presentation, this is something that we are looking very closely on because if we see the trend continues certainly what we are going to do is to put more emphasis in collections and probably we will get a more stringent credit scoring.

We reduced scoring during last year in order to grow in consumer. We have to balance if it is worth returning again to more strict credit standards as probably the Brazilians are doing right now. But again right now, we presume and we assume that we still have room to grow with the growth of the country.

Great, thank you, Sergio. Sorry just a quick follow on that. How about in terms of the charge-offs, I mean that has been relatively between 100 to 180 over the last few quarters. Do you think that trend should remain relatively stable or any changes in terms of your charge-off policy?

No basically, the charge-off won't change. As you remember, I mean, every time that we have something 100% provision we charge that off. So certainly usually charge-offs can have certain lag, I would say between 90 to 100 days, depending on if it is consumer or if it is commercial loans, but certainly our idea is to charge off as much as we can and not allow the ratio of past due to total loans to grow up.

Great, thank you.

Very welcome.

Jose Barea with Bank of America.

Hi. Good morning everyone. Thank you for taking my question. I would like to focus on NIM. We did see an increase in NIM over the quarter, and I noticed that your NIM from investments shot up again in the first quarter while your NIM from loans slightly edged up and we are seeing some pressure still on deposit cost. So I just want to get a sense from you on how you see this evolving throughout the rest of the year, if this level of securities NIM is sustainable, first?

Second, if you think that the improvements in mix and the effects of a higher benchmark rate will be enough to offset higher funding cost on the deposit side and competition in the lending side? Thank you.

Thank you Jose. First of all, the NIM on securities will not be that number over the year. I mean probably if you draw a line for the long term, the NIM for securities is something between 2% and 2.5%. There is some quarters when the prices of the government bonds goes up and you have this 4.5% and there are quarters when the government paper lose some price and then you have 0.5% whatever, but the average is 2% to 2.5%. So do not draw a line on that number.

The one that is more sustainable and where we see that we can either maintain as we have been seeing but let us have the positive news on our side is the loan portfolio NIM. We saw a slight increase from 6.3% to 6.4%. I think there is two things as you mentioned. One of them is the mix. Certainly the mix is, I mean, is putting some benefits on that, it is contributing to that. But at the same time as I said, the bank being asset sensitive, there is a clear possibility to move the incremental cost of funds into the NIM, into the price of loans. There is no doubt that we will be able to do it.

Again, there is a lag in time. We believe that with the global environment, we want to be able to go as fast as we could theoretically, because when you have international competitors and when you have funds from the Fed, at the price they are right now, you cannot really put much pressure in Colombian pesos, otherwise, they will have a shift into US dollars, and certainly the US dollar debt has a significantly lower NIM. But again, net-net, I think that the NIM would remain between 6% to 6.1% to 6.2% maximum, and we won't see any significant change in that.

Okay. I'm sorry, you said that the NIM should be between 6% and 6.2%?

Yes. The overall NIM.

I see. Now just following up on that. We did see a significant tightening cycle in 2011, but your NIM wasn't really growing throughout the year. In fact, NIM from loans actually came down. So, I just want to understand where we are seeing the disconnect in terms of higher benchmark rates transferring over in terms of higher NIM. Is it because your funding cost are rising significantly or is there significant competition on the lending side, which might prevent you from being able to pass higher cost to the consumers?

I would say there is -- there is a small portion of each of your questions in here. One of them is the mix. We changed the mix and we moved more towards US dollars over those years. Right now, as you saw we grow more in pesos than in dollars. Probably there is a return to the former mix.

And I would say still there is competition. There is no doubt. But we do not see today competition as one problem. I mean, we always see competition locally being rational. So we do not believe that that is the case today, not being able to transfer part of the NIM to the loans. But certainly NIM, that is part of it. I would say that probably is the new -- I would say that is the new global environment. I mean wherever you look you probably won't be able to return to the interest rates that we saw in the past.

Even though with the increase in the Central Bank, but it has not been -- has begun, and the minimal was 3%. Right now it is 5.25% and if we are talking about an inflation of 5% that is more reasonable. I mean, is 2.5% real interest rates? It is kind of returning to a more normal economic environment, not what we had during the last year, year and a half. And probably not what we had when we had 10% interest rates from the Central Bank.

Okay, thank you very much.

Chris Delgado with JPMorgan.

Hi, and good morning. Given the recent deterioration in asset quality, I just wanted to get an idea of what level of reserve coverage you're comfortable with. And also since you mentioned, basically some concerns around the retail portfolio and the deterioration there, kind of how do you see the loan growth evolving over the course of the year, in that portion of the portfolio? Thanks.

Thank you Chris. This 175% number that we have, I mean, it's high. We always said it's high. When you explain what belongs to A loans, almost 40% of it belongs to A loans. Therefore, you end up with a coverage of, like, something like a 120%, 125%. We do not target a number here. What we try to do is to have or to maintain, full coverage on our loans.

Easily today, with the numbers that we are seeing, we can go down to 160%, 150% without any problem at all. I mean, that's part of the, I would say this is a -- even the regulatory body, I mean, the superintendency had a contra-cyclical provision. We, at a certain point could claim that we internally have an annual contra-cyclical provision.

And if we end up at 200 plus by year end last year, we have plenty of reserves or plenty of provisions to spare over the year if there is a deterioration in this one.

Regarding the loan growth, you probably remember that we have been talking about 15% to 20%. And today, we are kind of running those number year-over-year. If there is a, as I said before to Tito's question, if we see that the deterioration continues, we certainly would put a brake on the scoring, we will increase the scoring that we use to grant loans. Therefore the approval rate will go down.

But so far, we remain positive. As Juan Carlos said, with an economy growing at 5%, there are plenty of buckets (inaudible). We see infrastructure picking up, we see some other sectors that were not as dynamic picking up. Therefore, we maintain that trend. Probably the mix will change again if we decide not to grow as fast in SMEs and consumer, probably there will be a grow on the corporate. But again, I mean, as an overall we maintain this 15% to 20%.

Okay. Just one quick follow-up then, kind of, on that. So as you mentioned, if you were to see a continued deterioration, does that mean more you're likely to end up on the low end of that range or you could actually fall below that?

I beg our pardon, could you please repeat the question?

Yes, just with regards to, you mentioned that if there was a -- a further deterioration to asset quality, you know, you would revise your models and whatnot. So I wanted to get a sense of, does that mean you'll end up on the lower end of that 15% to 20% range? Or you could actually go below that if you kind of revise your risk models?

I don't think so. I mean, when you look at what consumer loans represent in the -- our total book, it is really low. I mean it is like a 16% to 20%, the pure, pure consumer loans. Therefore, any significant deterioration on the credit quality and in the worst case scenario that we start to really close approvals, we didn't see a significant decline on the loan growth. I would say the loan growth basically will be driven more by the economy than by ourselves.

Okay. Great. Thanks.

Marcelo Telles with Credit Suisse.

Hi, good morning everyone. I have a follow-up question on asset quality. We saw, I mean, for the system as a whole there was also an asset quality deterioration in the first quarter of the year. But it seems that Bancolombia was still -- the increase was a little bit worse than the market. Do you think there is any, let's say, structural upward shift in asset quality that your marginal client is -- is definitely let's say, much worse than the client you had before? Do you think we should get used to a higher level of NPL ratio on a sustainable basis? Thank you.

Thank you Marcelo. Your question is right, and I would say that it is right in line with our policies during the last year, year and a half. If you look at the loan growth in the consumer side, year over year, pure consumer in pesos we grew 42%, which is kind of twice what the market grew in the same time frame.

So certainly, I mean, this is an option, this is a path that we consciously did, and consciously adopt to aggressively grow in consumer in order to get some market share specifically again in credit cards, car loans, payroll loans, I mean, when you put the asset layer on that part, you certainly will have some casualties.

But again, it is, I would say that it is -- this is under control and it was fully calculated. The point is that we carefully review, I would say, week after week if we are on track with that, or if it is time to slow down. As I mentioned before, basically the credit card vintages are behaving okay in line with the former vintages.

Car loans probably are the ones that are becoming the outliers. But we have to review how much of that is because of the credit quality or how much of that is because the rainy season that we mentioned, I mean, some of the commercial vehicles had difficulties on generating income. Therefore, it immediately translate into a past due. But again growing twice as fast as the system certainly has a tall meaning that we are growing faster in past dues.

Perfect. Just one follow-up question, if I may, on this issue. I mean, regarding provisions, I mean, you provision roughly 50% of the actual new NPLs formed in the quarter, right, about close to COP200 billion versus COP400 billion of new NPL formed. And you did mention that you had anticipated some of these provisions in previous quarters.

But going forward, I mean, even if you have like some improvement in that NPL formation rates, is it fair to say that your provision expenses could go up quite a bit compared to like the first quarter level?

Yes, as we said before, we are expecting that the provisions will run at a rate between 1.3% to 1.6% of the gross loans. If you do the math, certainly it is a little bit higher than we had a provision in the first quarter. But let me mention that this NPLs that we saw are -- most of them are 30 days NPLs. That's the reason that we do not make same provision. Because if they just run a 30 days, 40 days, 60 days past dues, the regulation tell us that you have to make just 20% provision on that amount of money. But when they go down to C, D and E, well, you start building up from 2200.

But as of today, they do not really, I mean, we do not have the means to have a higher provision on that new past due loans. The challenge right now is to return these new past due loans to performing loans. As I said, I mean, there's a big emphasis in collections right now. And usually the trend is that between 30 days to 90 days, we recovered 50% of that. So at the end, just half of it will have new provisions.

Perfect. Thanks so much for your answers. I appreciate it.

Thank you, Marcelo.

Felipe Toro with Interbolsa.

Yes, hello, everyone. Thank you for taking my question. I just want to go back to ask what is the guidance on gross loan growth for 2012 and 2013? It seems like the consumer is not going to be as strong as it was last year, you clearly have discussed that, but I just want to have a sense on what do you expect of the infrastructure? Is the impact from big ticket is going to be more in 2013 or you will see it happen as soon as 2012? Thank you.

Thank you Felipe. We maintain the number between 15% to 20%. And I mentioned infrastructure because one of the -- I would say the leader sectors today, you probably know them, I mean, there's some oil pipelines that are already being built. The airport is about to be finished, I expect, this year. So there are some projects that are already demanding funds. So I would say that even during this year and next year, infrastructure will demand and will be one of the drivers of the loan growth.

And just following on the question, do you expect like an impact on NIM from that consumer growth you had last year or the competition in the demand size is going to (inaudible).

As I said, I think that certainly competition and the new mix and new structure of the economy won't allow us to transfer 100% of the increase on the Central Bank rate into the NIM. But certainly a portion of it in the past years changed in a 100 basis points on the Central Bank rate, had impact on the NIM of approx 10 to 15 basis points. Right now, that's not or hasn't been the case, but again depending on the NIM, probably we would be able to do it.

I mean, in that case, from the minimum NIM to today's, it should be like 20, 25 basis points. We haven't been able to do that, probably we have been able to transfer just 10 basis points. But this is not, I mean, this is not perfect in terms of timing, in term of math. But again, I mean, we -- conference after conference, we have been saying that we expect the NIM to remain flat, and probably positive movements on our side. And the first quarter was a positive movement.

Okay. Thank you very much.

(Operator Instructions). Fabio Zagatti with Barclays.

Hi, good morning everyone. I have a follow-up on asset quality. I remember that during the fourth quarter results you had previously guided for loan-loss provisions to remain at a range of 1.3% to 1.5% in 2012. It is on an average loan basis. And you have just provided, I would say a guidance range which is a tad wider, so 1.3% to 1.6%.

In the first quarter we remain at a low end of this range, around 1.3%, although NPL formation has been quite significant. May I ask you what are the risks that loan-loss provisions would actually be at the top of this range, at the 1.6% or even breaching this -- the top of the range? Thanks.

Thank you, Fabio. We probably widened the range, you are right because what we saw new past due loans, I mean, the formation of new past due loans sent us a signal about debt. What are the risks? I mean, the risks are there.

When we have this range, as we said, and we'd believe that we will be within the range. If we were certainly foreseeing the number will be 1.6%, certainly we won't be afraid of mentioning the number. But I mean, that's a crystal ball. I mean, like, I cannot really understand what will be the behavior of the economy and what will be the behavior of the Central Bank if they decide to put as the first question of Regina said macroprudential measurements. And so that's our point. I mean, it's just an idea of how we see the behavior on that.

And how should we think about provisions, say in 2013, if this year LLPs will be at least 50% higher than last year. I mean, should we expect the loan loss provisions with average loans should remain at least at the 1.3% level, or maybe higher than that going forward? Thanks.

I don't know. Probably they move along with the behavior. I cannot -- I mean, I prefer not to commit with a number; I would say that certainly our real commitment is to maintain our books clean and healthy. So if there is a deterioration that would go up from that number, if there is an improvement on the quality, we will run on that number. But certainly, I mean, if I know what numbers by the year-end will be, I will give you exactly the numbers, but certainly this is pure dynamics. And again, we weren't expected those NPLs that we had in the first quarter. We weren't expecting that number by year-end last year.

Okay. Thank you.

Daniel Lozano with Serfinco.

Hi, thank you very much for the call. Basically, one of the highlights that we had from the results and would like to have some more information is on asset quality and mainly how the crops, or cosechas in Spanish, are developing on these loan segments that have had an increment.

Daniel, I think we already, I mean, we already answered that question around two or three times. But again, there is a -- when you look at the vintages, the third quarter, fourth quarters last year were probably the worst of them.

And basically it's when we reduced the credit scoring but we did it on purpose and we do the math and we do all the calculation for that. So what we are doing right now is really comparing as all the, I mean, the most modern standards of risk tell us is to compare vintage after vintage. And that's exactly what we're doing right now, and trying to understand what happened and where we did something wrong if you want to say that. And the last vintage is to try to correct right now. Or if it is not wrong but it was the more aggressive lending policies that is the case. And certainly, I have to say that was the case on those ones specifically.

So, again, most of them were calculated and we don't see different from what I said on car loans and some credit cards. We don't see any change on recent vintages.

Thank you very much for the answer, and furthermore, could we have some, I know this is pretty preliminary, but could we have some guidance on the process of adaptation that could have Bancolombia for BASEL III standards on Colombia?

We don't have regulation yet. Therefore, if we just do the math based on BASEL III International, we run okay, I mean, we don't have any problem at all in terms of capital.

Thank you very much.

Federico Rey with Raymond James. Please proceed.

Good morning. Thank you for taking my question. I have a question regarding loan growth during the quarter. Although the increase in the consumer business and SME business were very strong you're still a bank that a significant part of the portfolio refers to large corporations. So I would like to understand the reason of the decline that we saw during the quarter and if this refers to seasonal factors or the ongoing disintermediation process in the large corporate segment in Colombia or what could be the reason? Thank you.

The biggest change was certainly commercial lending in US dollars. The point here is sometimes depending on what we call the -- I would say the artificial pesos -- I mean, isn't structural lending -- synthetic -- yes, sorry, synthetic pesos, that moves the lending in US dollars in a wide spectrum and then if it is cheaper to lend dollars and hedge them into pesos and you get a lower rate, there will be a higher demand for dollars.

When the trend changes then you have a (inaudible) of dollars, and then that is the significant movement. With this 7% appreciation of the peso during the quarter certainly that was the case, a significant movement from one side to the other one. But the other ones, I mean, I would say the core loans remain healthy and remain on track.

Okay. You do not think that this could hurt your 15% to 20% loan growth expedition for this year?

We expect not. We expect that will turn back.

Okay, thank you.

Hi Boris. Please check your line to make sure you are not on mute.

Hello.

Hi. Go ahead with your question please.

Oh yes. Thank you. Thank you for taking my question. I would like to ask a little bit about the evolution of your IT project and cost increases. I mean costs are growing at 15% year on year in the first quarter. And to see whether you could provide us a guidance of how could we expect the cost line to evolve throughout the year, and when -- what guidance could you give us in terms of the timetables for your IT project and what developments have happened in the recent months on this issue?

Thank you Boris. This is Juan Carlos Mora. This year is a very important year for our IT project transformation. We are very close to go live with two key projects. Those are the Treasury software Murex that we are implementing to support our trading business. That is scheduled to go live by the end of this month.

And also we are expecting to go live with the foreign subsidiaries project by the end of June. So those two are very close and we are very confident that those implementations are going to have a very positive impact on the development of the businesses. Particularly the foreign subsidiaries project is very important because it is the whole new architecture working live and giving us as the same sort of what is going to be the whole IT infrastructure for Bancolombia in the future. So we are going to have that project as a kind of a pilot of how is going to be the whole architecture as I mentioned for the core banking system in Bancolombia.

On top of that by the end of the year, we are planning to go live with the e-card application, that SAP which is also very important to support the strategy of our card business which you know is very important as a fee generator and as a part of our portfolio for our customers.

So this year, as I mentioned, is key on that and we are going live with those three projects. In terms of cost, we have them on line, on track with our expectations. We are expecting to charge to the P&L this year something between COP150 billion and COP170 billion, which is in line of -- I mean pesos, which is in line with what we are expecting and we were forecasting. And going forward, we expect to keep with the project for another two years and affecting the P&L of about 3-1/2 more years.

And you would expect total cost for the bank in the year to hedge towards closer to the 20% growth or is it going to remain at 15%, just on the average?

No, no, we maintain our expectations that the total costs of the bank are going to grow around 10% including our IT transformation project. We are not changing our guideline on the cost growth and that includes the IT transformation projects.

Wonderful, thank you very much.

Those are all the questions we have at this time. I would like to hand the call back over to Mr. Carlos Raul Yepes. Please proceed.

Okay, thank you very much to everyone for attending and your questions during this first quarter 2012 result conference call. Again, thank you very much and nice to see you in the next second quarter 2012.

Ladies and gentlemen, thank you for joining today's conference. This concludes your presentation and you may now disconnect. Have a great day.