Grupo Cibest SA (CIB) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Bancolombia's second-quarter 2015 earnings conference call. My name is Lorraine and I will be your coordinator for today. (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 future filings, in press releases or verbally, address matters that involve risks and uncertainties.

Consequently these 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 exchanges, 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 Financial Strategy and Financial Officer; Mr. Jose Humberto Acosta, Chief Financial Officer; Mr. Rodrigo Prieto, Chief Risk 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 very much. Good morning and welcome to our second-quarter 2015 results conference call. It is a pleasure to be with you who follow the evolution of the Bank. 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 mentioning the fact that the last June we entered into an agreement to sell a 50% stake in Tuya [S.A.R.], our subsidiary specialized in retail financing through private label credit cards. Let's remember that this company is an agreement with Exito, the Colombia largest retailer. It was established in 2010 and today it serves at around 1.8 million clients.

Today Bancolombia has 100% ownership of the capital of the company and pays royalty to Exito in a way that the economic benefits are split 50-50. With the proposed transaction we will continue receiving 50% of the economic benefits of the entity but we will stop consolidating it. This will have a positive impact in some operating metrics such as credit quality and expenses.

As an outcome of the sale agreement we have started treating Tuya as a discounted operation and therefore we did not consolidate it, but presented in a couple of clients in our second-quarter financial statements and numbers. We expect to close the deal before year end.

With that remark in mind we move on to present a good operation performance a Bancolombia which we can summarize in four fronts. First, a good performance of the net interest margin; second, [greater] volumes of loans and asset allocation more focused on the lending business; third, with evolution of fees; and fourth, cost contract that it is reflecting in the efficiency [leverage] and today we are getting below 50%.

Despite [greater] competition in the Colombia marketplace we have been able to maintain the lending mean at around 6% during the last 12 months. At the same time we have reshaped the maturity profile of a significant portion of our liabilities, extended the [tender] of the stock of CDs and issuing long-term debt in a record low rate environment.

Coupled with the evolution of means we have also grown the size of our loan portfolio. Net loans grew 23% over the last year, or at around 12% if we exclude the impact of the depreciation of the Colombian peso against the US dollar. This greater volume of loans have cause the net interest income to grow 19% when we compare the first half of this year against the first half of last year.

Additionally, fees are growing in a very positive way as a result of our efforts to promote the usage of credit cards for more transactions, the distribution of insurance policy through our [network of] branches.

Finally, costs are growing in line with our expectations. Despite the fact that they have been negatively impacted by the strengthening of the US dollar. The cumulative growth expenses for the first six months of this year is 11%. The top line is therefore growing faster than the operating expenses and the result has been a positive contribution to efficiency at the bottom line.

Slide number 3 summarizes these ideas. Income before taxes for the first six months of this year grew 18% and despite the higher tax burden that Bancolombia subject in this year, net income is growing at a healthy pace.

Let's remember on the first quarter of this year we paid the wealth tax which we did not have in the second quarter. The result was a growth of 11% quarter over quarter in the net income line.

All in all we are proud about the performance of the bank in this first half of the year because: first, the operating trends are going in the right direction as net interest income -- it's growing in double-digits. Second, revenues are growing faster than expenses, which is reflected in the efficiency level. And third, we are getting the leverage of return equity at around 15%.

We remain cautious with the economic outlook and constantly make decisions to prevent any risks from materializing with focusing the efficiency and profitability.

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

Thank you, Jose (technical difficulty). Ask you to go to slide number 4 in the (technical difficulty).

Juan, are you on the line?

Yes.

Go ahead, please.

Okay, okay. Now I am going to start again. I will ask you to go to slide number 4 in the presentation. As we have mentioned in our previous calls, since last year the Colombian economy is adapting to an increasingly uncertain and challenging context. The extent and the speed of adjustments have been (technical difficulty) during the past few months. Thus we have made several revisions to our forecast.

In terms of economic activity our baseline growth estimate for 2015 and 2016 is 3.1%, a rate which is lower than the 4.4% average seen in the last decade. This deceleration reflects the effect of lower commodity prices on the value of Colombian exports as well as the reaction of internal (technical difficulty) the decrease in [national] income.

This year private income (inaudible) and investment were up (inaudible) most of these adjustments, while next year the moderation will be centered on public demand since the [foreign] dollar-related revenues will force the government to reduce expenditures in order to comply with the provisions of the fiscal rule. Our growth forecast from 2.6% to 3.4% this year and from 2.4% to 3.4% next year.

Regarding prices, we have revised upwards our inflation forecast for this year from 3.8% to 4.4% and for next year from 3.1% to 3.7%. Inflation will remain this year above the Central Bank targets range because of the increasing price pressures coming from the pass-through of currency depreciation and the implication of [La Nina] phenomenon on food and energy prices.

However, an economy expanding below potential will act as counterforce against these factors and will ultimately lead to a convergence of inflation to the [3%] mark. This process though will take longer than initially expected and will likely conclude in 2017. This represents a very [complex] scenario for the Central Bank.

Our call for monetary policy for the foreseeable future is that repo rate will remain at 4.5%. Nevertheless this scenario (inaudible) the risk of an additional deterioration of inflation expectations. Therefore as the expectations rise in the short-term the Central Bank will embark on a 50 basis point hike in cycle before the end of the year.

In the external sector these lumpy commodity prices will lead to widening of the current account deficit from 5.2% of GDP in 2014 to 6.2% in 2015. The combination of a weak peso and a reduced demand for imports will gradually correct this deficit during the remainder of this year and also next year.

However, we think that this process will be low given that oil prices will remain under pressure. As a result in our base scenario the current account deficit next year will be around 5.3% of GDP.

Regarding the exchange rate, our view is that the Colombian currency is structurally adjusting to a new reality in which terms of trade and external flows will return to levels seen before the booming commodities.

As a result we believe that the medium-term trend for the peso is of continued weakness. This will occur amid highly volatile markets conditions. Accordingly our range of forecasts for the end of this year is between [2,820] and [3,000] with a point estimate of 2,960.

Let me conclude this section by saying that Colombia, as well as other emerging countries, is not only facing more acute global headwinds but is also (inaudible) with the second line effects about the initial shock in commodity prices brought to the economy. This will translate into a more uncertain macro context and less construction growth and inflation mix.

Fortunately the country is equipped to navigate through these turbulent waters and we will be able to grow well above the region's average. After this review of the economic environment let me turn the presentation to Jose Humberto who will discuss the Bank's results.

Thank you, Juan Pablo. Moving on to slide 5 we see the evolution of assets and (inaudible) composition. We want to highlight the fact that during the last year we have increased the proportion of the loan portfolio to 75% of total assets.

This means that we are allocating more capital to our core business which is the lending business. At the same time we have been reducing the proportion of our securities portfolio to only 8% today. The duration of the securities portfolio remains low at a level of 24.2 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 Colombia pesos reached 2.3% during the quarter driven mainly by commercial and mortgage loans. We focused our growth in the less risky products as we want to maintain a very healthy balance sheet.

Regarding currency composition today, loans denominated in dollars represent 36% of the total loan book. These US dollar denominated loans fell 0.4% during the quarter. The general increase in assets in the quarter and the year is explained by organic growth as well as a significant depreciation of the Colombian peso versus the US dollar, which was 38.1% during the last 12 months.

Also let's keep in mind that Bancolombia balance sheet is fully matched in terms of currency which reduces impacts of FX variations on the shareholder's equity. We would like to emphasize the fact that the net interest income after provision expenses grew 19% when compared with the second quarter of last year, which is the result of the growth of the loan portfolio coupled with a stable means.

Going back to the loan portfolio, we are perceiving the first half of this year a deceleration of the loan growth. The first half only grew 6.9% and we believe that at the end of this year the loan growth portfolio will be at around 10% and that will be 15% including depreciation of the Colombian peso.

And based on the presentation of Juan Pablo, we believe that the loan growth of 2016 will be below that. We are contemplating a guidance of loan growth for 2016 at around 8%.

Now on slide 6 we present a snapshot of the credit quality at the end of the quarter. In general we see a healthy loan portfolio well covered by allowances and with past-due loans under control. The 30-day past-due loans to total loans ended the quarter at 3.1%, slightly higher than the December ratio at the 30-day coverage ratio is also decreased to 119%.

We forecast to have a 30-day coverage ratio of at around another 120% in the medium-term, which we believe is more than enough to absorb potential credit losses. Similarly, past-due loans should represent between 3% to 3.2% of gross loans.

At the bottom of the table we compared 30-day past-due loans, which is Bancolombia's standard, and 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 that standard.

90-day past-due loans have been very stable over the last two years as a result of our good credit origination process. They represent 1.8% of gross loans as of June of this year with an excellent coverage ratio of 215%.

Slide number 7 shows the provision charges which were COP416 billion during the quarter. They represented 1.4% of average gross loans when analyzed. In the shaded row of the table at the bottom we present the amount of loans that became 30-day past-due during the quarter.

The 446 billion new past-due loans is in line with seasonal factors as we were expecting a reduction compared with the first quarter of this year. The pace of the degradation shows our high standards in credit origination. The new past-due loans came mainly from retail clients and SMEs.

Let's remember that the numbers presented in this slide do not include the Tuya operations. One of the outcomes of non-consolidated Tuya is a lower nonperforming loans formation and higher credit quality.

The most important thing regarding loan quality is that the (inaudible) originated over the last year present today a very good performance as a result of the strict trade underwriting standards and they should not present abnormal deteriorations in the coming months.

As we mentioned before, the growth in the second quarter of this year was driven by commercial loans and mortgages which are the more reliable products in our portfolio. We feel comfortable with the evolution of the loan portfolio and forecast to have provision charges of at around 1.4% to 1.6% of [closed] loans during this year.

At this point it is important to remember the environment in which we are operating. The Colombian economy is growing less and we should see the impact in the next coming quarters. By that we mean that the [pace] of growth will be lower and we can see an increase in the number of delinquencies.

As of today we have not seen evidence of this trend, but we are taking the measures to prevent any negative impact in the next coming quarters.

Moving on to slide number 8, we see the evolution of the net interest income and funding cost along with funding composition. NII for the second quarter of this year was COP1.8 trillion, 90% greater than the same quarter of the previous year, driven by higher loan volumes and strong MIMs.

Bancolombia's funding cost was pressured upwards by change in market conditions and lower liquidity which fueled competition among banks of deposits. The total funding cost increased by 8 basis points, although the integration rate of the Colombian Central Bank remained stable at a level of 4.5%.

During this year we focused our efforts not only keeping the funding cost as low as possible, but also increasing the average time to maturity of the stock of liabilities. In particular time deposits and long-term debt. Our funding composition continues to emphasize short-term [shipper] credit at 11% of funding.

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 need and grow NII. We have in our favor the asset sensitive condition of our balance sheet which is beneficial for (inaudible).

Slide number 9 shows the evolution of the net interest margin. During the second quarter of this year we saw (inaudible) in our loans interest margin, a slight loss in our net investments margin which reflects the 10 basis point decrease of the NIM.

The NIM from securities was negative, 0.5% due to the depreciation of the Colombian government securities. Just to give you an idea, the test 2024 we are pricing 27 basis points during the second quarter, that affects our NIM in our securities portfolio. But we are talking just at around 8% of our total assets.

The Central Bank could raise rates in the near-term -- in the near- to medium-term since we know the Fed is likely to hike rates before the year end. The (inaudible) raise in rates is a good predictor of higher NIMs as we move into the end of this year and the beginning of next year.

Fees are presented in slide number 10. During the second quarter net fees increased by 8% compared to last quarter. We are experiencing a sustained growth in credit card growth and usage in Columbia due to rising wage and ample credit availability.

We continue to see more credit and debit card transactions in this year as a result of our commitment to promote the use of cards for in-store transactions. In addition, we are tapping into the new business segments when it comes to promoting and to reducing numerous benefits.

In addition, we saw a higher level of integration fees which generated COP69 billion during the second quarter of this year. We forecast a fee growth of at around 10% this year.

In slide 11 we present the evolution of expenses. The efficiency improved during the last 12 months currently at 40.8, 6.7, our long-term goal is to be at around 46% to 48%. Total operating expenses grew 12% year-by-year partially explained by the depreciation of the Colombian peso versus the US dollar.

Operating expenses consisted primarily of personal expenses and (inaudible) expenses which have been kept under control. Today Bancolombia is oriented towards developing channels with little marginal cost and growing expenses in line with nominal GDP. Our guidance for this year is an increase of expenses 8% to 10%.

Moving to slide 12 we see the evolution of the net loans to the deposit ratio which ended the quarter at 114% as a result of the loan growth. The proportion of loans that we do not fund with deposits are funded with long-term debt in order to have similar duration on both sides of the balance sheet.

This strategy reduces the volatility on the net income and shareholder's equity. It makes more sense to us to fund long-term loans with long-term liabilities and that is why the 114% is a level that gives us comfort about the liquidity position of the Bank. The liquidity and capital levels that Bancolombia presents to date are optimal for the business plan that we have designed.

Regarding capital, on the bottom right-hand side we present the capital adequacy ratio. The Tier 1 ended at a level of 8.2%, 366 basis points above the regulatory minimum of 4.5%. The tangible capital ratio, defined as shareholder's equity minus goodwill and intangible assets divided by tangible assets was 8.4% at the end of this quarter.

As we have said before, this is a level of Tier 1 (inaudible) operation of the Bank and we intend to keep it between 8% to 9%. For the Tier 2 ratio we ended the second quarter at a level of 5.5% for a total (inaudible) ratio of 13.7%.

Slide 13 shows the return on assets and return on equity of the Bank. Cumulative return on equity at the second quarter of this year was 15.02%, a number that is in line with our expectations. Cumulative return on assets was 1.7%. We expect to continue growing net income while maintaining solid (inaudible) indicators for the rest of this year.

As a conclusion, for the first half of this year we can conclude that Bancolombia maintains solid and stable loan interest margins based on a strategy of funding costs and pricing control.

Second, expenses remain under control and according to our projections, driving an improving efficiency levels.

Third, the impact of the exchange rate are reflected in the balance sheet increasing the size of the loan portfolio and consuming capital, and in the income statement increasing the earnings when profits comes from [foreign] operations are converted to Colombian pesos.

And finally, we do not see a relevant loan deterioration in the different segments.

For the second half of this year in general terms the market shows, as Juan Pablo mentioned, high volatility, lower growth forecast, high inflation, possibility of rate hikes. Consequently credit growth should begin to slow down which we anticipate will translate into 10% annual growth for this year.

We would like to remind everyone that the bank is asset sensitive, [so] any increase in interest rates would positively affect [NIMs]. Our funding costs will more than likely feel the pressure of reduced liquidity. We also expect to see a loan portfolio [degradation] in some specific cases and sectors.

We continue to strive for efficiency and we believe total expenses will not grow more than 10% this year. And the Bank's return on equity should be around 15.5% at the end of this year.

For 2016 we'll probably feel the impact of everything that is happening this year including the challenging macroeconomic environment. We will to continue to closely monitor these developments this year in order to shed more light on 2016 as we move through the second half of this year.

After presenting these slides with the second-quarter numbers to you I would like to invite our audience to ask any questions that you may have. Thank you.

(Operator Instructions). Tito Labarta, Deutsche Bank.

My question is I guess around provisioning levels. You mentioned with the slower growth you expect maybe some modest deterioration. You said provisions should be between 1.4% to 1.6% for the end of the year.

Just to follow up on that, if you think about 2016 do you think it is going to remain around that 1.4% to 1.6%? And would you expect it to be maybe more at the higher end if you do see some deterioration?

And then just a little bit further on that, if provisions end up closer to the higher end, how comfortable are you to reach that 15.5% ROE you said by the end of the year given ROE would probably need to at least remain stable? But if provisions are rising it may be a bit difficult to achieve that.

So we just want to understand a little bit of that better and how that is going to impact your profitability. Thank you.

Thank you, Tito. Regarding your first question, yes, we believe that we will be able to sustain the level of 1.6% of cost of credit in 2016. And this is because we are maintaining the control of our credit standards, we are maintaining and we are seeing again the (inaudible) remain under control. So we believe that we are able to maintain the number at the same level.

And regarding your second question, that is true, probably the level of provisions will be increased because of the situation. But also one of the highlights of our performance is the cost control. You see that we are reducing the cost and we are almost growing half of the pace of the NII, so we will maintain the same trend.

The last two years we have been very focused on cost control and the results you see very clearly. So again, based on the assumption that the provisions will be a little bit more obviously we have under our control cost control. So we will be able to get this (inaudible).

Great, thanks Jose Humberto. Just to follow up, you mentioned 1.6% for next year. So would you think it would then be at the higher end of that 1.4% to 1.6%? Because if you are closer to the 1.6% it could make a big difference in terms of your profitability (inaudible) being the 1.4%.

So I just want to get a sense -- are you saying you should be at the higher end of the range in terms of provisioning because of some potential deterioration?

It is hard to affirm that the target will be 1.6%. But again, the loan growth, it is right now below 10%, we expect next year below 10%. So based on that consideration we see as a ceiling 1.6%, but we don't know exactly what will happen first half of next year.

We have to see a certain level of inflation, certain level of exchange rate, certain level of go down of the economy to send you a strong message about the cost of credit for next year.

Sure, fair enough. I appreciate that. Thank you, Jose Humberto.

Saul Martinez, JPMorgan.

Thank you for the presentation and thank you for -- and I appreciate the caution and the acknowledgment of a more cautious landscape. I guess what I want to get at is how you think about downside risks and downside case scenarios.

Because sitting here in New York City looking at the micro oil is at $40 a barrel and according to any outlook isn't very positive. Your current (inaudible) deficit in Colombia is 6% GDP which is very, very wide, the widest in the region. There are fiscal headwinds, you have China devaluing, you have a Fed lift off at some point.

So the cross currents seem notably negative. And Colombia has been growing 4% to 5% a year for a lot of years on average. How do you think about -- I know you pointed the base case is X and maybe it could be a little bit worse, a little bit better.

But it seems to me like there is the risk that you see a multi-year period in which Colombia grows below its potential if some of these imbalances get worked out potentially growing even 2% a year for a few years.

How do you think about the probability of some scenario that is much worse than the base case scenario playing out? And how do you prepare the Bank to sustain profitability in this scenario?

Thank you, Saul. Yes, yes, as you hear from Juan Pablo, obviously we are very cautious about the future. The downside could be employment and employment data that could be (inaudible) probably. The downside could be the fiscal deficit that will be [impacted] because of the oil price.

But also there is an upside on the economy for next year. There will be infrastructure for example that will boost the economy or boost at least the loan portfolio for banks. And at the end of the year you see pros and cons and, again, we need more data to understand what would happen.

But again, we foresee a specific deterioration maybe in some sectors, that is true, that would be the impact in the provision side. The 8% that we are talking about, the loan growth is basically and because infrastructure and some of the consumer brackets of the population that still will remain very solid.

How we are preparing that -- first, because of our structural capital you see that Tier 1, 8% to 9%, it is a very solid level of Tier 1 of capital. Second, the liquidity. If you take our profile of the liability side we extended the tenors of those funding side just to prevent any particular deterioration or increase of the cost of funding.

So we expect next year, just to give an idea, a return on equity at around 15% to 16%. And that is because, again, and I want to emphasize the fact that the cost control is one of the tools that we have in our hands to raise the return on equity.

Okay, okay, that is a fair point. If I could just quick follow up. What would your Tier -- do you know what your Tier 1 would be if you were to adjust for retained earnings this quarter?

Yes, Saul, based on the assumption that we maintain the same dividend policy, including or adding some inflation, we will add up today an extra 60 basis points to the Tier 1 from 8.2% to 8.8%.

Remember that our dividend policy -- it is a factor of not the level of profit, it is a factor of the previous dividend. So this year, because we will have a very good level of profit, we will be able to capitalize the Bank at around 120 bps extra at the end of the period, which means the first quarter once we have -- will have a general (inaudible).

Okay, so you would expect your next year, the first quarter of 2016 when you capitalize your earnings, your retained earnings you would expect to have between 9% and 9.5% Tier 1, is that right?

That would be at the lower level of 9% because obviously we will grow in the second half of the year, that consumes capital as well. So the number would be at around 9%.

Okay, great. Thank you very much.

Natalia Casas, Serfinco.

Thank you for the presentation. I would like to know -- I have three questions. The first is do you have -- in the last conference you said that you expect a 10% or 12% increase in the loan portfolio in Central America. Do you still have this guidance or are you going to change it?

The second one is regarding the expenses, the operating expenses [growed] -- the increase was almost twice the increase in the revenues. So, do you have any plans to control these increases?

And the third one is can you translate into numbers the impact of the infrastructure [predict] for the Bank, please?

Okay, Natalia, thank you very much. First for Central America, in our previous conference call we talked about specifically the case of Banistmo, and in Banistmo we are expecting to maintain our growth at around 10% at least for the next two years. That is the guidance that we sent -- the message that we send you -- to all the investor community.

And regarding the operation in (inaudible), we are expecting to growth that around 3% to 4% this year. So that would be a combination of 10% Panama, 4% Salvador and maybe at around 8% to 10% in Colombia.

Regarding your second question, I would say, Natalia, it's the other way around. I mean we, our trend is we are growing half of the pace expenses that the income and that is reflected and an improvement in efficiency levels. So we are growing at a hard pace with expenses against income.

And your third question -- could you remind me your third question, please?

Yes, again (multiple speakers) on the second one -- do you see on a quarter-over-quarter basis, you see that the efficiency is deteriorating. And if you have the net interest income it increased 1.2% -- 2.2%, sorry, and the operating expenses expanded by 4.2%. So there is a difference there. I was asking about that.

Yes, Natalia, that is true on the quarterly basis view, but we are talking about on the semi-annual basis view. We have that kind of volatility of expenses, as you probably know. IFRS we have to register the real expenses that we are doing.

So that is the reason why you see a volatility there. But on a semi-annual basis we look much better because we are growing less in terms of expenses.

And third regarding infrastructure, obviously infrastructure we want to be very active in this market. You probably hear it on the news and all the banks are -- we want to participate on that, this is the first round.

So we believe that the next coming years we'll be very active in this market and we will probably maintain the same market share than we have today, which is at around 20% of the market share in terms of loans for infrastructure.

Juan Dominguez, Credicorp Capital.

Thanks for hosting this call. I have a couple of questions. First, you mentioned that you have improved the duration of your liability side. And also in the previous question you said that you were pretty interested on participating actively on infrastructure projects.

From a liquidity stance and from an asset liability management standpoint, how is your balance sheet structure now prepared for these long-term [disbursements]? I mean, do you see -- are you seeing some requirements of new bond issuances in this new scenario of lower liquidity? I wonder if you can give us some color on that side.

And my second question is on the effective tax rate. If you can provide us some color of what this figure will look like when the amortization of goodwill for tax purposes ends probably in 2019 and 2020. Thank you.

Thank you, Juan Domingo. Regarding your second question, tax rate, remember that the taxation is based not on IFRS financial statements, it is based on the Colombian GAAP financial statements. That is the reason why you see the number of below 25%. But the guidance for the end of this year is to have that tax rate base at around 26% to 28%.

Regarding your first question, yes, we have been preparing since last year we began to increase our tenors in our funding strategy. Remember that last year we touched the market with a subordinated debt in local currency.

And just to give you an idea, six weeks ago we raised CDs for three to five and seven years and we raised at around [$300 million] and that is preparing for the next future. I would say that the banks, we have to focus the year for on the funding side trying to raise money for long-term.

So we are doing our job in previous transactions, as I mentioned. And of course (inaudible) the next future we have to touch the market probably in local currency and probably for longer tenors. But all depends of the structure of the project that we are seeing on infrastructure.

Thank you. Just to follow up on effective tax rate. You mentioned that the Bank is paying taxes according to the Colombian -- I mean the (inaudible) accounting policies. And right now you are having a lot of -- a material tax benefit from goodwill amortization which was kept for tax purposes. I wonder if you can provide us how much these tax benefits are worth?

We don't have here the numbers internally, but just to give you an idea, last year amortization of goodwill was very important. Our previous acquisition of Banistmo, we decided to reduce the amortization plan from 20 years to 10 years and that is the benefit that we are [grabbing] for tax purposes.

So remember that we had a goodwill amortization of at around [$1.4 billion] for 20 years we reduced to 10 years. So if you do the math you will realize what was the benefit for us.

Okay. Thank you.

Victor Galliano, Barclays.

Could you just give us in terms of credit quality -- my main questions have been asked and answered, but in terms of Tuya, if you do a kind of like for like comparison on quality, what would the trends look like? Or have you already adjusted for those in the previous quarter and 2Q 2014?

And in terms of the IFRS and incurred credit loss methodology, it looks to me like the provisioning seemed relatively high in the second quarter. Would you expect to continue along at this level as a percentage of loans in quarters to come? Thank you.

Thank you, Victor. Regarding your first question, yes, Tuya, we did it for last year so it is comparable, the financial statements that we have presented to you, eliminating Tuya from interest income, from expenses, from fees and only putting in one line at the end of the P&L. So it is completely comparable.

Regarding your second question, yes, we had a very high level in the second quarter. But we want to highlight that the provisions that we had in the first half of last year was very low. So we are just -- it is a catching up process in terms of provisions.

So we believe that we would maintain under control at least for the next two quarters the level of past-due loans, again, as I said before, because of the (inaudible) that we are analyzing and we are starting we don't see any specific concern.

What will happen next coming quarters? Probably in some cases in some specific sectors we have to adjust the level of provisioning. But as a trend for this year, because again, we need more data to talk about 2016. But for this year we don't foresee any specific concern regarding any specific segment.

Okay, thank you. Quick follow up on Central America if I may. What was the contribution you had to the bottom line from Banistmo and (inaudible)?

Yes, the national operation give us at around 20% of the total net income, 30% of the total assets at around 18% of our total expenses.

Okay, thank you.

Boris Molina, Santander.

I have two questions. The first one is could you give us an estimate of what is the total size of issuance that you would need to do in the next let's say three years in order to fund the growth in longer-term lending associated with the infrastructure plans?

I mean it appears that many banks like yourselves, including (inaudible) banks in Colombia I suppose, are planning to do significant (inaudible). So have you looked at the size of the potential demand and where this is going to be able to be absorbed in (inaudible) from community, etc., etc., just to get an idea of how much you would be expecting (inaudible) probably between maybe 30% of the total market issuance for infrastructure (inaudible)?

And my second question is just a small detail about the other asset impairments of COP47 billion in the second quarter was relatively high versus the previous quarters. What type of asset impairments do you pass through this line servicing (inaudible)?

Yes, Boris, regarding your first question. Obviously it is a very complex answer because that depends of each transaction. The way we are facing [4G], it is basically a tailor made transaction. We will see every single transaction when we see how to fund it.

Obviously if you -- in our view we have to fund it on a very strict funding composition. I mean if we need to lend for 50 years we want to maintain a very solid funding behind that.

So at the end of the day each transaction (inaudible) we have today a bunch of funding, we have very longer channels, but it is very quite complex to give you a number because we don't know exactly when we are going to participation very actively in the first wage of infrastructure or in the second one.

So the capital markets in Colombia, it is quite big that offer us opportunities to do the pension funds to the insurance company. So we are for sure doing at the same level of when we participate on business we will touch the market with not only bonds, also with the CDs because the market right now is moving to CDs from longer channels.

Last year we did a successful transaction for CDs for 12 years for a specific pension fund and that was very successful. So think about that the way we will get funding is with, yes, bonds, but also time deposit held CDs.

Okay, okay, but it appears that you are talking about several billions of dollars for each bank. So do you foresee your loan to deposit ratio is going to go 120% or higher? Or do you think that the loan growth environment is going to allow you keep it more or less constant at current levels?

The ideal situation, Boris, is to maintain the levels that we are maintaining right now. Because 114% it is, as we explained, it is healthy because we are covering the gap with longer [general] debt which is good. So we believe that the 120% will be the number for the next coming years.

Okay. And about the impairment charge?

The impairment charge are from the foreclosed assets and currencies.

Wonderful, thank you.

Fred De Mariz, UBS.

Just a couple of follow-ups. Most of the questions have been answered. The first one is, would you mind just repeating your guidance on the tax rate? I am not sure I got your thoughts for this year and next year.

And the second question a bit more general on the sector. How do you see the other banks? How is the competition, the competitive landscape right now in Colombia? And do you feel that Bancolombia is losing market share or are you able to continue the deceleration or are you simply maintaining your market share? Thank you?

Yes, Fred, thank you for the questions. So the guidance for tax rate effectively this year will be 26% and next year will be at around the same level because we don't foresee any specific change on the taxation for corporate in Colombia. So we will maintain the same number.

Regarding your second question the competitive landscape, it is (inaudible) we are competing for funding and that will be the main competition landscape will be basically on the funding side. We see the banks in general terms with a good level of capitalization.

We see in our case, for example, because of the growth, the capital that we are having right now is enough to absorb loan growth of 10% to 15% at least the next two years.

The competition also will be in corporate loans of course. But the competition has some very interesting characteristics, the competition will be in local currency. So all of the banks we have to compete under the same circumstances which is the funding cost.

Regarding market share, if you double checked our track record the last three years we have been gaining consistently market share. Today we have a very comfortable level of market share in every single business line. And the purpose of our goal is to maintain the same level of market share. So we are not trying to gain, neither to lose.

That is great, it is very clear, thank you.

Victor Galliano, Barclays.

Sorry, just a quick follow up. Could you -- in terms of the costs, I mean clearly there is a huge emphasis on this going forward. And perhaps we will see -- you will see less top-line driven growth so you are going to need it coming through on the cost side.

Can you put a bit of flesh on the bones of the idea of how you are reducing your cost base and perhaps give us some examples of the initiatives you have in place going forward to bring that cost to income ratio down to around 48%?

Okay, thank you, Victor. Yes, and you are right. The two of them we have right now for the next at least two years is the cost control. We are, just to give you some examples very easy, branches, in the past we used to grow [6 to 70] branches per year and the branches it is a (inaudible) cost.

Today we are the other way around. We are reducing the number of branches and we are moving the transaction level to different channels. So we are promoting the different channels as a website, the app and we are right now trying to move the people to these channels. And I would say more than 92% of the daily transactions to date are processed through these channels. So this is a very good example.

The second one is the [type] of projects that we are facing in the Bank. In the past we used to have around on average 100 projects of -- for improving the (inaudible) products process. Today we have a ceiling of 50 projects and we (inaudible) to compete the projects each other because it is a limited space for that.

The other good example is we will maintain almost frozen the labor cost. And this is [trying] to people, for example, in the branches, to shift people from cashiers, so tellers, to people from sales. So we are right now [restructuring] the sales force and that gives us some flexibility on the cost control. I would say that those are the three -- good three examples how we are facing the cost control in the Bank.

Great, thank you.

Thank you. And I will now turn the call over to Jose Acosta For closing remarks.

Thank you very much, thank you for your questions and I hope to see you at the next conference call in three months. Thank you again.

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