Grupo Cibest SA (CIB) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to Bancolombia's Fourth Quarter 2014 Earnings Conference Call. My name is Lorraine 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 our future performance, capital position, credit-related expenses and credit losses. All forward-looking statements, whether made in this conference call, in the 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. Jaime Velasquez, Chief Strategy and Financial Officer; Mr. Jose Humberto Acosta, Chief Financial Officer; Mr. Juan Carlos Mora, Chief Operating Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mr. Jorge Humberto Hernandez, Chief Accounting Officer; Mr. Alejandro Mejia, Investor Relations Manager and Mr. Juan Pablo Espinosa, Chief Economist. I would now like to turn the presentation over to Mr. Acosta, Chief Financial Officer of Bancolombia. Please proceed, sir.

Thank you. Good morning and welcome to our fourth quarter [2014] results conference call. It is a pleasure to be with you who follow so closely our operations and results.

Let's start with a brief discussion of the main topics that impacted our business in this period. You can follow the slide presentation available at our Investor Relations website.

We want to start this conference call summarizing the path that Bancolombia has improved over the last five years in order to put in perspective, the current situation and the forthcoming steps in our business plan. Perhaps, the most relevant part of our strategy since early 2010 has been the focus on growth. The size of our assets grew 2.4 times over that time frame and our loan portfolio is 2.6 times that amount at the end of 2009. This remarkable growth has come along with some changes in the macroeconomic, competitive and regulatory environments. In one hand, the lower inflation rates in the Colombian economy have increased the level of liquidity, which has made the competition tougher. The outcome of this mix of factors has been the compression of margins from high single digits five years ago to around 6% today.

On the other hand, [in a post 2003 world], we require more capital today to generate the same amount of net income. The growth that we experienced in 2010 and 2011 consumed capital that we replenished in 2012 and since then the pace of growth has been around 20% CAGR. Additionally, we did a significant acquisition, the Banistmo operation in Panama. We completed the cycle with the replenish of capital in early 2014. With a forecast of a more moderate economic growth in Colombia and low double digits loan expansion in 2014, we switched to a strategic focus on profitability and more moderate growth. We want to extract the value of the assets now we have originated and the results of the Bank are going to be in line with these interest rates.

Regarding Banistmo, 2014 was a year for integrating this institution under Bancolombia's control. We integrated several IT applications including the core banking system. During the year, we also posted some [applications] in the new operational model. We achieved a reduction of this sort of a past due loans from 9.94% to 1.66%, which means that we were released $120 million in allowances. This was possible due to a set up of our local collections area in Panama. Working on the brand and achieving recognition was another progress we did in Banistmo in 2014. Today the Bank is well regarded by both corporate and retail clients and that permitted to grow the loan portfolio after several years of reduction in size.

Despite having a full year of Banistmo expenses, we're just only two months in 2015, operating expenses only grew 13%. With a more moderate growth forecast, our efforts are now focusing being able to grow revenues faster than expenses. And therefore, improving the efficiency or cost to income ratio. This will be the trend in 2015 and 2016.

Fees and commission was another prong where we put our efforts in 2014. And we'd like to continue doing so in the next coming years. Remember, how fees were only growing at a pace of 6% in 2013 and how at the beginning of 2014 we were forecasting 8% to 10% growth. During the year, we put in place some specific initiatives to generate more fees. The first was to promote the utilization of our channels and products to purchase goods and services. This includes the issuance and use of debit and credit cards in merchants. Second, we did some adjustments to our pricing decisions on fees, which also contributed to real growth win. And third, we launched new and improved solutions for our corporate clients, in particular, cash management, corporate trust products and international trade financing. These ways fees grew 17% during the year, much better than we forecasted. Our intention is to keep growing these lines between 10% to 12% in 2015.

Having said these, about the main components of our business, I would like to present now the net income of 2014, COP1.89 trillion, which represents an increase of 24% compared to 2013 and a return on shareholders' equity of 12.5%. This return on equity was generated in despite of capital increase at the beginning of the year, that was $1.3 billion. All the operating trends of this year were positive and reflect the materialization of our strategic focus on profitability and efficiency. The operating income grew 24% during the year while operating expenses grew only 13%. In particular, our lending business now including a full year of Banistmo results, followed a path of consistent growth as the NIM expanded and volumes increased.

Now, we would like to continue with a brief discussion about the economic environment. For these purposes, we have Juan Pablo Espinosa, Bancolombia's Chief Economist who will elaborate more on these matters. Juan Pablo?

Thank you, Jose.

Now, I will ask you to go to slide number 3 in the presentation. As you can notice, in 2014, Colombia grew at an estimated rate of 4.7%, well above the average of 0.2% for Latin America, but the pace of growth has moderated recently, reflecting a slower expansion of consumption and a more pronounced negative contribution from net exports. We expect that this moderation will intensify this year because the lumping commodity prices will translate into lower national income and a slowdown of investment. However, the diversification of the Colombian economy, the resilience of internal demand and the execution of the infrastructure projects will serve as buffers against the shock. Hence, we forecast a growth rate of 3.4% in 2015 and 3.7% in 2016.

Lower oil prices will of course affect the country's external position, given that it accounts for more than half of Colombian exports. We anticipate that the current account deficit will widen from 5% of GDP last year to 6.1% in 2015. Going forward, a real depreciation of 13% this year, a reduced demand for imports and an eventual change in the trend of oil prices could lead to a correction of this deficit to 4% of GDP in 2016.

In terms of the exchange rate, we expect them to average 2,400 for this year. Public finances are also quite sensitive to the reduction of oil prices, because almost 20% of central government revenues are related to our activity. We estimate that the decrease in public revenues will be greater next year, leading total central government deficit to 3.3% of GDP, 1% higher than the structural deficit path set in the fiscal rule.

Regarding prices, we expect that the acceleration of inflation that we've seen in the past few months will start to lose ground in the second quarter of the year, but this process will be slow in part because we think that the transmission of currency depreciation to consumer prices has not concluded yet. Therefore, we forecast that inflation will move gradually from 3.8% by the end of this quarter to 3.4% in December.

In the monetary policy front, we think that the repo rate will be on hold this and the next year. Our call is based on the fact that inflation will remain above this target and that the central bank will be especially cautious that inflation expectations do not deteriorate. Also, because we consider that the oil price shock has a permanent effect on the economic performance, we shouldn't be compensated with monetary stimulus. In addition, moreover commodity policy would stimulate demand for imports which made the current account deficit even worse.

Let me conclude this section by saying that the prospect of [fairly low] oil prices over the medium term is a new challenging reality to which Colombian economy is already adjusting. But despite the risk that this entails, today the countries will equip to face these shocks and internal demand remains the main engine of growth. This is why we think that Colombia will continue to have the least volatile business cycle and we'll display one of the highest growth rates across major Latin American economies.

After this quick review of the economic context, let me turn the presentation back to Jose Acosta, who will discuss the Bank's results.

Thank you, Juan Pablo.

Now on Slide 4, we see the evolution of assets and its composition. During the quarter, the proportion of loans as a percentage of the total assets was 69% as we continue focusing in our lending business. The securities portfolio was 9%. The size of the securities portfolio is 1% lower than one year ago and the duration remains low at a level of 19 months. We continue originating loans with strict underwriting standards, in order to maintain the high credit quality of the loan portfolio especially in the consumer segment.

The loan growth in Colombian pesos reached 5.4% during the quarter and 13.1% during the year, driven by financial leases and commercial loans. The quarterly growth is explained by seasonal demand of loans, in particular small and medium-sized companies that require working capital for the last months of the year. We focused our growth in the less risky products as we want to maintain a very healthy balance sheet. On the other hand, US dollar denominated loans grew 3.7% during the quarter driven by commercial loans in our operation in Banistmo. The 80% depreciation of the Colombian peso versus US dollar during the quarter caused the growth of other loans to be higher when it's measured in Colombian pesos.

Let's remember that Bancolombia balance sheet is fully merged in terms of currency, which reduced impacts of FX variations on the shareholders' equity. Today, loans denominated in dollars represent 36% of the total loan book. During the last year, the overall loan portfolio grew 12%, but the depreciation of the Colombian peso during the quarter caused the overall growth in pesos was 20.2%.

As we have shared with you in the past, Bancolombia loan book in Colombia is a proxy of the overall economy. Nevertheless, oil and gas represents today around 2% of the total loan book. Due to the recent developments with international oil prices, we oversee that sector in order to prevent any deterioration of the loans. We'd like to emphasis the fact that the net interest income grew 22% more that the growth of the loan portfolio. Finally, we expect the loan growth target for 2015 around 10% to 15%.

Now in the Slide 5, we present the snapshot of the credit quality at the end of the quarter. In general terms, we see the portfolio with a healthy quality, well covered by allowances and with past due loans under control. The 30-day past due loans to total loans [in the quarter at a] level of 2.9%, lower than the September ratio. The 30-day coverage ratio increased to 154%. We forecast to have 30-day coverage ratio of around 150% in the medium term. We believe that is more than enough to absorb potential credit losses that the Bank will eventually have.

Similarly, past due loan should represent 3% to 4% of gross loans.

As we have a significant component, 30% of our loan portfolio outside Colombia, the 90-day threshold for measuring past due loans gains more relevance. That's why, in the next slide, we will analyze the 90-day past due loans.

In slide number 6, we compare the evolution of 30-day past due loans, which is the Colombian standard and the 90-day past due loans which is a better indicator of credit quality, as we have a significant portion of our assets in countries that use [direct] standard.

90-day past due loans has been very stable over the last [four years], as a result of a good credit origination process. We continue seeing a positive performance of the credit quality of Banistmo, product of a more proactive and disciplined maintenance in collection process, which we put in place in the first months of the acquisition. At the beginning of this year in 2014, Banistmo 90-day past due loans represented 1.94% of total gross loans. But today, they represent only 1.66%. This means that today, Banistmo has the lowest 90-day past due loan ratio among all subsidiaries of Bancolombia. Overall, the 90-day coverage ratio is 274%, which we believe is more than enough to absorb potential credit losses.

Slide number 7 shows the evolution of provision charges which were COP378 billion during the quarter. It was 1.48% of average gross loans when analyzing. For the whole year of 2014, the cost of credit risk was 1.47% of gross loans, lower than the 1.6% of 2013. In the shaded row of the table at the bottom, represent the amount of loans that became 30-day past due during the quarter. The COP342 billion reflects a lower duration compared to the third quarter. The most important thing regarding loan quality is that vintages originated over the last year present today a very good performance as a result of a strict credit underwriting standards and they should not present abnormal deteriorations in the next coming months.

As we mentioned before, the growth in 2014 was focused in a commercial loans and leases, which are the less risky products in our portfolio. We feel comfortable with the evolution of the loan portfolio and forecast to have provision charges between 1.5% to 1.8% of gross loans during 2015.

Moving onto slide number 8, we see the evolution of net interest income and funding cost and its composition. NII for the last quarter of last year was COP1.69 trillion, the highest record in Bancolombia's history and 25% above the same quarter of the previous year. Even more important is the fact that the NII for the whole year 2014 was 22% higher than in 2013. This is a combination of two factors; [more variable terms] and higher NIMs in the existing loan portfolio. The reduction of the funding cost in 2014 played a key role in expanding the net interest income and the NII. You can see at the bottom of the left-hand side table how Bancolombia reduced the overall funding cost by 12 basis points in 2014, even when interest rates of the Colombian Central Bank went up by 125 basis points.

During this year, we focus our efforts, not only in keeping the funding costs as low as possible, but also in increasing the average time to maturity of the stock of liabilities, in particular, CDs and long-term debt. Our goal is to keep funding cost as low as possible, while maintaining a conservative approach to liquidity risk management in an effort to defend or expand the net interest income and grow the NII. We have in our table the asset sensitive condition of our balance sheet, which is beneficial for NIMs in a hawkish environment.

Slide number 9 shows the evolution of the net interest margin. During last year, we saw a favorable evolution of NIM as the yield on assets improved and we reduced the funding cost. This trend was a contributor to the growth of NII. The NIM from loans ended at a level of 6.2% in the last quarter of last year, stable as compared to the third quarter and expanded 20 basis points as compared to the first -- to the last quarter of [2015]. The NIM expansion that we achieved during the year is more remarkable when we consider that last year, we had a greater proportion of the loan portfolio denominated in US dollar and those loans tend to have a lower NIM, and that was mainly explained because of the acquisition of Banistmo.

The securities NIM was 3.2% due to the gains of Colombian government securities at the end of the quarter. As we mentioned at the beginning of this presentation, the Colombian central bank increased their repo rate a 125 basis points to 4.5% in the remaining half this year. We capture a positive impact of these hikes and forecast that NIM should be around today's levels in the next coming quarters.

Fees are presented in the slide number 10. During last year, fees grew at a very healthy pace. They expanded [17%] for the whole year, a historic record of -- in this components of our revenues. Additionally, fees grew 4% during the quarter and 12% compared for the fourth quarter of 2013. We continue experiencing more credit and debit card transaction during this quarter, product of our efforts to promote the use of plastic to pay in the stores and increase the number of credit cards in new segments. In particular, online purchases and more cards outstanding contributed to the annual growth. Seasonal factors also contributed to a sound performance of these fees. As typically, in the last months of the year people tend to use more plastic for the holiday purchases.

Additionally, we saw a sustained level of insurance distribution fees, which generated COP212 billion, during the whole year of 2014. Finally, we saw a good performance of our asset management and investment banking business, product of our weighted volumes of assets under management and more deals during the quarter. We forecast a fee growth of 10% to 12% during 2015.

In the Slide 11, we present the evolution of expenses. The efficiency improved in 2014, as operating income grew 24%, while operating expenses only grew 13%. The expenses in our operation in Colombia, which represent 70% of the business only grew 4%, shows our strong commitment with efficiency in Colombia. The expenses that we have in US dollar represent more pesos due to the [24] depreciation of the Colombian pesos. The 13% growth in expenses during 2014 is also numbers that includes 12 months of Banistmo operation compared with only two months in the previous year, it means in 2013.

Seasonal factors and the way we reflect expenses in the income statement as we're including them impacted the evolution of OpEx during this year. This seasonality cost, the cost to import to go up during the quarter. Something relevant during the quarter is the change in the amortization period of the goodwill that we have in our books. We changed from 22 years to a 10 year amortization scheme and this increase the goodwill amortization charges. The goal of this change was to align the financial treatment of goodwill with the fiscal treatment.

During previous quarters, we were charging around COP50 billion per quarter, but in the last quarter of last year we charged COP242 billion. Our guidance for this year [is 7.7%], lower than the 8.5% at the end of September. The decrease was a result of the growth of assets.

It is necessary to highlight the treatment of ongoing earnings under the new Colombian Capital Regulation. The earnings of this year are not considered Tier 1 on the shareholder's equity item and become retained earnings, as a result of the COP1.89 trillion of revenue generated during last year are not included in the Tier 1 calculation. After the first quarter of this year numbers, the reported Tier 1 will increase as a result of reimbursements of earnings, maintaining that level at the level that we designed, which is 8% to 9% Tier 1. For the Tier 2 ratio, we've raised additional subordinated bonds in pesos in September in 2014. This contributed to increase the overall BIS ratio to 13.3%.

Slide number 13 shows the return on assets and return on equity of the Bank. Return on equity for 2014 was 12.5%, a number that is in line with our expectations, especially when we consider the [faster] goodwill amortization in the fourth quarter and the capital ratio at the beginning of the year. Return of assets was 1.4% and the trend is that this metric should continue growing towards 1.4% to 1.5% in 2015.

After presenting these slides with the fourth quarter numbers to you, I would just like to highlight where we stand today on our plans for the near future. First, all the operating metrics of the business are moving in the right direction, in particular, the operating income, which is the sum of the net interest income and commissions. Second, the performance of the past due loans and our level of provisions in the last quarter reflects a healthy and strong loan portfolio and prudence in the origination standards. And third, our balance sheet reflects a moderation of growth of the loan portfolio. The focus today for Bancolombia is to increase the profitability of our assets.

Having said this, we are happy to take any questions that you might have. Thank you.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Philip Finch, UBS.

My question is related to the goodwill amortization, some -- you've fastened. You've broke down which is about, when you say your guidance for 2015 was it -- you expect it to come down to and related to that. So could you repeat that please? And related to that the tax rate, that corporate income tax rate, obviously it was very low in the fourth quarter. I assume that's related to this, could you confirm that and going forward what you think is a sustainable level?

Yes. The level of taxation that you see, which is 8%, is basically the result of that. That include an increase of the goodwill amortization to tangibles, that was the reason why the level of the taxation is very low. The other point is, again we want to align the treatment of financial account with tax accounting. And remember that the taxation in Colombia, that will take us -- may face the numbers at the end of 2014. They are not taking in consideration for the next four years, the numbers under IFRS that's the reason why we decided to do that, in order to align that.

Good. Thank you, that's very helpful. So, in terms of my first question. The goodwill amortization charge outlook for 2015, should we assume that should be closer to zero?

That will not reflective in our financial statements, because it's not taken in consideration under IFRS. Remember that goodwill amortization only were under Colombian guidance. So that means that the next coming years, on the financial accounting system you will not see reflected the amortization of the goodwill.

Understood. Thank you. And in terms of the effective tax rate going forward, please.

Yes, based on the new regulation of new taxation in Colombia, we are expecting an increase of our tax from 27% that around to 32%, 33% in 2015.

Thiago Batista, Itau BBA.

I have one question regarding the ROE. Last year in 2014, your ROE was 12.5% and you had commented that the focus of the Bank from now on is on the profitability. So my question is, what is the level of profitability you believe is feasible for the next two or three years? And what will be the main lines that will lead to this better profitability?

Yes, the reason why return on equity this year or last year was 12.5% is, because again we increased the level of capital at the beginning of the year. But this is relevant because this is one of the years in which the NII increased a lot. So we expect to go back to the levels in the next coming years at around 14% to 14.5% in the next coming two or three years. Using the total capacity of capital downgrades in the last year, we would use the next coming two years basically (technical difficulty).

Okay. If I could ask a second question about asset quality, could you comment about your expectation on delinquency ratio and also the level of loans -- provision expenses in 2015?

Yes, Thiago. In terms of cost of credit, we are not expecting a big change, because as we've mentioned during the presentation, we don't foresee any specific concern regarding vintages or regarding corporate clients. So our guidance is to maintain cost of credit 1.4% to 1.6% and again we would talk about past due loans at a level of 3% at around 3% area, meaning that the 30-day past due loans.

Tito Labarta, Deutsche Bank.

My question is in terms of your net interest margin. We saw a good expansion in the quarter, mainly due to the securities portfolio. And you mentioned that partially due to the devaluation of the currency in a quarter, but could you quantify how much of that was due because of the currency depreciated and you also mentioned that you expect margins to remain around current levels. Is that including near the spike we saw in the securities margin or how should we think about the total net interest margin and the securities margin going forward as the currency kind of stabilizes?

Yes. Last quarter, the NIM of the securities portfolio went up, because of the volatility of the market. But again, 70% of our assets are loan portfolio. Now that was mainly the reason why the NIM increased. And they were focused that year on reducing funding cost. What we expect next year regarding the loan portfolio? We expect that at least to sustain the NIM based on the assumption that the DTF will increase and as you know very well, we are asset sensitive, so we probably will experience a little bit increase of the NIM on the loan portfolio basis.

On the securities portfolio, we don't expect neither big changes for the first quarter of this year, depends of the level of volatility. But again, the NIM impact was mainly reflected because of the loan portfolio, because of the reducing of funding cost and because of the high level of quality of the loan portfolio.

So just to follow up, if you look at the loan net interest margin was actually flat in the quarter and you saw a big spike in the securities margin. So, just trying to understand a little bit more kind of what drove that in the quarter because I know the number can be volatile a bit, but it's been close to zero, some of the last few quarters. Yes, so I'm not sure I understand why you're saying that the loans drove the increase in margin this quarter?

The loans sustained the same level. The NIM of the loan portfolio today is 6.2%. What we expect in the next coming quarters? An increase of the funding cost because the interest rate of the central bank has increased. But on the other side, we also expect an appreciation of the DTF, so that will be also reflected in the better NIMs. So at the end of the day, with the loan portfolio, we don't expect a big change. So we expect to maintain the level of 6% to 6.2%. We expect maybe as you said, the volatility of the securities portfolio, but that would be 2% to 4%, but we are not sure about what will happen with that and that is only 9% of the total assets.

Okay. So the securities margin should be between 2% and 4% you're saying?

Yes.

Jose Barria, Bank of America.

Just a follow-up on operating expenses. The line was disconnected when you were talking about the guidance for 2015, so if you could repeat that, that would be great.

And then on the expenses, what was the main driver, I mean, I'm looking at the fourth quarter, it was a big jump in operating expenses. Obviously, a lot of that had to do with the currency, but I wanted to try to strip that out and understand what is driving such a big increase other than seasonality in operating expenses when I look at bonus provisions and when I look at administrative expenses, the growth in the fourth quarter was very high. So can you just comment on that, and then also on the guidance?

Yes, I have to say that we feel so proud about the performance of the operating expenses in Bancolombia, because if you check the numbers in our operation in Colombia, we only grew 4%. That means that we are doing our job in terms of maintaining other controlled expenses. But remember in our previous conference, we changed the way we've reduced the expenses.

In the previous years, we maintained a kind of provision for expenses every month, based on the assumption that it has some seasonality. But last year, we decided to align with the higher provision standards, which means that we reduced the real expenses that we are doing. And if you check the numbers, there is a clear seasonality in the last quarter of the year, because all of the stakeholders of the Bank tend to increase the level of expenses at the end of this year and that is compensated with the first quarter when you see a very low level of expenses. Probably this year, we will experience the same. So expenses under IFRS, it couldn't be flat, that would be very seasonal, and that's the reason why this is high. And the other one is very clear, very clear because of devaluation.

Okay. Can you give us a rough idea more or less what percentage of the expenses are in US dollars? Is it similar to -- sorry, go ahead.

At about 25% to 30% -- 70% in local currency. At the 70%, grew 4%, and the rest grew because of the FX. And remember during the year, the devaluation was COP466, but in the last quarter, it had been COP370. So around 75% of the devaluation happened during the last quarter impacted in a very strong way all the numbers of the Bank.

Okay. Thanks. And then on the guidance for operating expenses for 2015?

8% to 10% and the main rationale behind that is remember that we are in the middle of the process with Banistmo implementing IT platform. So that we expect to end at the end of the third quarter of 2015.

(Operator Instructions) Saul Martinez, JP Morgan.

My question is on capital. 7.7% Tier 1, I understood this quarter you had to move -- you also had a bit of an impact of the currency inflating up the risk weighted asset growth and obviously more than capital grew, and you have the absence of capitalized earnings. Can you just give us a sense or adjusting for the capitalization of earnings, where you're Tier 1 stands at? By my rough calculation, it should be about 8.5%, is that right? And is that a level that you feel comfortable with right now, because on the surface, a core Tier 1 of 8.5% to a lot of folks in the investment community does not seem to be excessively comfortable.

Yes. As you remember our guidance to be comfortable in terms of Tier 1 is 8% to 9%. As you can see, we have the lowest level in past due loans in 90-days and the lowest level in 30-days. So, we have a very strong coverage in terms of provisions that help us a lot for difficult times. And you're right, probably in March, our level of Tier 1 could be at the highest 8%, which means 8.8% to 9%. So that's the number that we have been discussing with you guys with the rating agencies.

And again, based on the assumptions that we are maintaining a very strong level of past due loans, very well capitalized. Because our dividend payout is -- that will be one-third of our net profits. We are able to sustain the growth. And the other thing is, we are expecting to grow only 2 times or 2.5 times the GDP growth. So you saw the numbers this year, we only grew 13% (technical difficulty), but we are expecting to grow this year 12% in line with our expectations as same as we did last year, Saul.

Jose Restrepo, Serfinco.

Congratulations on the results. I want to know, if you can give us like a broad view, which will be the bigger effects of the adoption of IFRS in the coming quarters.

Yes. Of course we are right now running and try to release the first -- under IFRS. We did the calculations last year, and we have to say that we don't have a major impact under IFRS. Obviously, we are checking the leasing business, we are checking on the specific profits that we are having, but at the end of the day, based on the numbers that we were around last year or the previous quarter, we are not expecting a big change in our disruptor of our balance sheet. Maybe the big one change will be the amortization of goodwill. And that will be reflected in our numbers this year, because the profits come from the Banistmo operation we go directly to our P&L.

David Santos, Compass Group.

I want to ask about the wealth tax and the impact it might have in the results for 2015 and how it will be treated under IFRS?

Yes. The impact will be relevant, because there will be an increase of 9% of the total taxation. And obviously, we will let you know in the next coming quarters how the things are going. But obviously, there will be a very -- there will be an impact on the P&L and that is because of the marginal taxation, it's around 9% in terms of taxes. You know very well it's 1.15, that obviously -- that will be impacted in our financial statements under IFRS, you have to register in the month of January.

Boris Molina, Santander.

I wanted to elaborate a little bit more on the wealth tax, there was a debate about whether the wealth tax would be charged as a one charge at the beginning, or was it going to be phased in over time. And do you need to record deferred tax asset to record the full amount of the tax given that it's calculated on the basis of the year-end equity. And we say this because at the end of the day, the charge is going to be pretty big, you already had a substantial impact on your capital ratios. And under Colombia regulation, your base of fee is not fully implemented, so you still have to do charges for operating risk, for instance.

So we would like to see what kind of -- like the fully loaded base of free capital for Bancolombia is going to look like when servicing is fully applied. In that sense, we think it's pretty weak. So what it -- could you repeat it again what is the specific treatment of the wealth tax under IFRS, if you're going to go through the income statement or charge versus equity and do you need to create a deferred tax asset?

Yes, we have to do it every year in the month of January. And we have the possibility to do it through P&L or to do it through the balance sheet. So I mean, we are double-checking the possibility to go directly to our P&0, but that will be reflected in the month of January and depend on the condition of each bank.

So, it could be the month of January you have to reflect the full impact of the one-time charge for 2015?

Yes, Boris. Under IFRS, this taxation goes directly to our P&L. Under the Colombian regulation, we'll have the possibility to go to the P&L or to go directly to the balance sheet. So, we have to align both on the P&L at the first quarter of this year under IFRS treatment.

Carlos Macedo, Goldman Sachs.

A lot of the questions have been answered. I have a question on Panama and Banistmo, you gave us a little bit of insight and when you expect to roll out the platform, the IT. Can you talk a little bit about the profitability of the Bank, how it's coming along, if you're seeing the integration workout, what are your target for profitability there in the short to medium term?

Yes. As we mentioned during the presentation, the Banistmo operation is running very well. We are increasing the assets at a pace of 10%. We are expecting to close the IT platform at the end of this year. We expect to receive to -- to go back to the level of return on equity in that operation at around 12%. So again, the business in Banistmo is going back growing, return on equity 12%, past due loans under control. On their operating point of view, the things are running as expected. And the most relevant point is this, profits that would come from Banistmo that will be reflected directly on the P&L of the Bancolombia.

Okay. So just to get it right, directly in the sense that they will not incur additional taxes in Colombia?

No, the taxation is basically that -- we are paying the tax based on the results of the Bank. So that will be paid here in Colombia, once you incorporate the numbers of Banistmo operation.

Okay. And so, through the end of the third quarter, you'll be running the integration of systems. How will profitability be affected once that comes off?

The idea is -- the IT platform will be reflected in the performance of the Bank in the 2016 and 2017, mostly on the retail business, mostly on the liability side. Today, Banistmo operation is growing at a very healthy pace on the asset side, because we are focusing on corporates. And the way we are funding that is through international banks and through international markets. The next coming two years, because of the IT platform will be implemented on the customer service, will be a very good opportunity to increase the customer base. We will do see an increase of the liability side, funding the growth of the business in Banistmo. So that's what we are expecting in the Banistmo operation.

The first [two years], focused and oriented on asset growth under our standards and the next coming years focused and oriented on the liability side in order provide funding for these growth.

Edgar Romero, [BB-UBS]

I have two quick questions. The first one is, I don't know if you can give us a little more color on Banistmo's ROE in 2014? And maybe you can give us some guidance for this year? And the second question is, I don't know, you have guidance for the efficiency ratio for this year?

Yes. Again, going back to Banistmo, we expect this year 2015 at around 12%; last year was below 10%, because as you probably know, this is a brand operation for us. So we're just making adjustments, whereas spending a lot of money on IT platform. And regarding your second question, our efficiency, it's improving a lot. So we expect to go to the -- go back to the level of 15% in the next coming two years, because you saw the performance and it's growing at the half pace of the NII growth, which means that we are in the right direction, and this is one of our main focus in the next coming two years. Again, to go back to the level of efficiency level of -- at around 50%.

Saul Martinez, JP Morgan.

Hi, just a very quick follow-up guys. The move to IFRS, obviously, you're not going to take goodwill amortization on an ongoing basis, but rather take, have an annual impairment test for your goodwill. You have about [COP4 billion] of goodwill, most of which is for Banistmo, but you still have about, I forget maybe COP500 billion, COP600 billion from prior acquisitions you -- the Guatemalan acquisition as well.

Is there any concern there that you will have to take impairment charges on any of those given what were somewhat lofty valuations on some of the acquisitions paid obviously, or start with or has struggled as a country? Can you just comment on how could your level of comfort on whether there would need to be any sort of annual, and whether as of this stage, you would need to see or expect after taking the impairment charges on your intangibles because of IFRS?

Okay, Saul. No, we don't have a specific concern regarding the Banistmo operation. We know that under IFRS, that would not affect at the goodwill and we have to check the performance of the Bank today and based on the assumption that the things are running as we design, we don't have any specific concerns or change in valuation of the Banistmo operation.

What about Banagricola?

Banagricola is one of our most profitable operation that we are having, with the highest level of return on equity and the base on the optimal level of past due loan. So we don't have any specific concern neither with the Banagricola operation.

Thank you. At this time, we have no further questions, I would now like to turn the call over to Mr. Jose Humberto Acosta for closing remarks. Please go ahead.

Okay. Thank you very much for your time. Hope to see you in the next conference call. Thank you again for your questions and hope to see you soon. Thanks.

Thank you. And thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.