Bancolombia's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Bancolombia S.A. (CIB)
by: SA Transcripts

Bancolombia S.A. (NYSE:CIB)

Q4 2013 Earnings Conference Call

March 18, 2014 9:00 AM ET

Executives

Jose Acosta – CFO

Juan Carlos Mora – COO

Analysts

Thiago Batista – Itaú BBA

Saúl Martínez – JPMorgan

Frederic De Mariz – UBS

David Santos – Compass Group

Cristian Hernández – Ultrabursatiles

Alonso Arumburu – BTG PACTUAL

Laura Mesa – Credicorp Capital

Laura Zuluaga – Credicorp Capital

Operator

Good day, ladies and gentlemen and welcome to Bancolombia’s Fourth Quarter 2013 Earnings Conference Call. My name is Adriana 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 and future filings and press releases or verbally addressed 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 SEC.

With us today is Juan Carlos Mora, Chief Operating Officer; Mr. Jaime Velasquez, Chief of Strategy and Financial Officer; Mr. Jose Acosta, Chief Financial Officer; Rodrigo Prieto, Chief Risk Officer and Alejandro Mejia, Investor Relations Manager.

I would now like to turn the presentation over to Mr. Acosta, Chief Financial Officer of Bancolombia. Please proceed, sir.

Jose Acosta

Thank you. Good morning, everyone and welcome to our fourth quarter 2013 results conference call. It is our great pleasure to be with all of you. Let us start with a *brief description of the main topics that impacted our business in this period. You can follow the slide presentation available in our investor relations website.

First, I want to open this conference call highlighting the successful capital raise that we just completed last week. As you probably know Bancolombia issued 110 million preferred shares at a price of COP24,200; COP22.7 trillion or the equivalent to US$1.3 billion. The demand was strong, 2.7 times oversubscribed and the appetite from local and international investors, in both retail and institution spectrum was surprisingly solid. With this -- capital plus the portion of earnings that was invested and appropriated by shareholders in the general meeting held yesterday the pro forma tier 1 ratio as of December 2013 was 9.2% and the total capital ratio was 14%.

The breakdown of this increasing of capital is as follows; because of the earnings reinvested we will increase our capital tier 1 ratio in 2.51% and because of the capital – and because of the earnings *reinvested we will increase 0.86%. These ratios put us in the optimum capital position that we wanted to have which is between 8% to 9%. In a country like Colombia where regulations regarding allowances and provision are very strict and balance sheet do not contain toxic assets this range of tier 1 is more than enough to operate. Therefore we believe we are more than fine to continue *growing organically for the next three or four years as we forecast growth of assets at around 15% per year and an increase in our dividends of around inflation plus 1% or 2% per year.

The transition of Banistmo in Panama is going as planned putting special emphasis in the implementation of its own IT systems and processes. The bank has completed important milestones such as the rebranding, the definition of the management level and the completion of the legal integration. The numbers now we are discussing today already included the Banistmo asset in the results of November and December last year.

After integration of Banistmo and this capital raise we are focusing our efforts in becoming a more efficient organization. We are already in the countries that we wanted to be; Colombia as our core market, El Salvador, Guatemala and Panama. Now we are entering in a process of optimizing all of these operations aiming a higher level of profitability. After completing these appreciations and capital raise Bancolombia has a diversified asset portfolio in terms of currency and geography. 32% of our total assets are now denominated in U.S. dollars and about 30% are in Central America. We believe that this mix, 70% Colombia and 30% abroad is an optimal combination that meet risk diversifications by growing in the most attractive economies in Colombia and Central America.

Over the next couple of years Bancolombia will be focused on efficiency trying to take advantage of the business that we have in Central America and Columbia and doing all the things required to achieve higher levels of profitability.

Last but not least I would like to present the results for the year 2013. During the year Bancolombia generated COP1.5 trillion which represents a return on equity of 12.7%. 2013 was a year with uncertainties in the international and local markets, a tapering announcement in May had a negative effect in debt securities across the globe and Bancolombia itself was impacted by that.

Excluding that effect the performance of the bank was in-line with our expectations; healthy organic growth, a completion of the [inaudible] acquisition, a solid balance sheet and a high level of coverage ratio. And a consolidation of leading competitive position not only in Colombia and also all the concession we are right now.

Bancolombia gained 2% of market share over the last 18 months. All those factors lead us to believe that 2014 will be a year of value generation and a successful strategic implementation. Having said this we would like to continue with a brief discussion about the economic environment. Let me turn the presentation to Juan Carlos Mora, our Chief Operating Officer who will share our views on this model. After that we will elaborate more on the bank’s results. Juan?

Juan Carlos Mora

Thank you Jose. Good morning everyone. For those of you following this live presentation I ask you to go to slide number three. Let’s start with some microeconomic figures. Inflation for the 12 months ended February 2014 was 2.3, at the low end of the Central Bank range of 2% to 4%. The Colombia Central Bank’s repo rate remains stable 3.25% which is low for Columbian standard, and we believe it will remain at that level at least for the first half of the year.

Towards the second half we could start seeing some tightening and rates could increase one or two times 25 basis points each to end the year around 3.75%. This low rate environment has cost the decline of the main benchmark rate in the Colombian market, the DPF which we mainly use to price our variable rate loans.

This decline has put some pressure on NIMs but this effect has been partially offset by a funding strategy focused on reducing the cost of deposits. Regarding the FX, the Colombian peso experienced a depreciation of 6.6% during the past two months of 2014 and 11.5% over the last year on ended February in exchange rate of COP2055 per dollar. The Colombian monetary authorities have expressed its satisfaction with this exchange rate as it is favorable for exports and reduces risks of [inaudible] and other negative impact generated by the strong peso.

It is worth mentioning the currency match of assets and liability in Bancolombia’s balance sheet which basically eliminates impacts of FX variations. Regarding GDP growth in Columbia the Central Bank is expecting a 4.3% expansion during 2014, slightly about 4.1% expected for 2013. We share that view and estimate that the second half of this year should be more dynamic as the level of expanding of the Columbian government picks up as well as households demand more goods.

We continue seeing a stable level of indebtedness of households and a sustained improvement of the credit quality across the financial system. That trend reduces the risk of higher loans deterioration and provision churns. Consumption remains healthy and unemployment dropped to 11.1% as of February, 1% less than the figure we saw same month one year ago. All these trends led us to believe that Columbia’s GDP be stronger this year as compared to 2013 and this will permit our business to continue expanding at a nice space. Let me turn the presentation back to Jose Humberto.

Jose Acosta

Thank you Juan. On the slide four for we see the evolution of assets and fixed composition. The proportion of loans as a percentage of total assets remains almost flat at 65% but we reduced the size and the proportion of the securities portfolio. After the events of 2Q, ‘13 we decided to reduce the volatility, the size of the portfolio and the duration of the debts securities portfolio in order to prevent negative impact in the banks results.

The growth of the loan portfolio moderated during the quarter, the growth of the loans denominated in pesos was 14.5% year-on-year and 1.3% during the quarter. These figures indicate that moderation in the pace of expansion of the portfolio as we expected. Nevertheless the overall growth experienced during the quarter is mostly explained by the consolidation of Banistmo in October. That event caused the loan portfolio to grow 14.6% year-on-year. Of course these new assets from Banistmo are denominated in U.S dollar, so the percentage of total assets denominated in this currency ended at 32% of the total assets.

We believe the combination of currencies and geographies that Bancolombia has today roughly 70% Columbia and 30% abroad is optimized as it reduces concentration risk and it still permits to capture growth opportunities in the regions where we operate. It is remarkable the contribution of Banistmo to the mortgage portfolio which went from representing 9% in September to 11.5% in December. In 2014 we forecast to grow the loan portfolio between 10% to 15% and we forecast to maintain the same structural base of the loan portfolio in terms of segments.

Slide number five shows the evolution of provision charges which was COP 273 billion during the quarter, it was 1.3% of the average gross loans when analyzed, which is a very low ratio. This was the product of our loan deterioration during the quarter. In the shaded row of the table at the bottom we present the amount of loans that became past due during the quarter. The COP 775 billion was abnormally high and includes the loans from Banistmo’s that are considered past due when measured by the stricter Colombian regulation which uses the 30 days threshold for considering a loan past due. Those loans accounted for COP 556 billion out of the COP 775 billion.

The remaining portion which means the COP 219 billion was the actual deterioration of the portfolio excluding the Banistmo impact. This amount was relatively low and stable compared with the previous quarter. The highlight here is the main deterioration was basically and mostly explained by the appreciation of Banistmo and because of the loans that comes from Banistmo.

The new business originated in 2013 presented a very good performance as a result of a strict credit underwriting standards. We feel very comfortable with evolution of the loan portfolio and forecast to have provision charges outside around 1.5% of gross loans during 2014.

Now on the slide six we present a snapshot at the credit quality end of the quarter. The past due loans to total loans ended the year at 2.9% slightly above the 2.7% of September because of the Banistmo loans that are considered past due under the Colombian standards. The coverage ratio ended at 156% declining against a 175% of September again due to the Banistmo loans.

In general terms we see the portfolio with a healthy quality, well covered by allowances and with past due loans under control. It is remarkable the fact that 90 days past due loans remained flat at a level of 1.5% as compared to the same metric in September. We forecast to have 30 day coverage ratio of around a 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 loans shown 2.5% of gross loans.

Moving on to slide number seven, we see the evolution of the NII and funding cost and composition. NII for 4Q ‘13 was COP 1.34 trillion 18% above the 3Q ‘13 period. This growth is explained by higher volumes of loans during the quarter and the contribution of Banistmo, which was incorporated again in October.

The securities portfolio reached a positive NII contribution of COP 8 billion during the quarter. The duration of the securities portfolio ended at 15 months and the [day] to maturity ended at 4.1%. The reduction of funding cost 93 basis points during the year was one of the main success of the bank with more liquidity in the market and lower pace of growth we were able to increase the proportion of check-in and savings account and reduce the proportion of more expensive funding services, such a long-term debt and time deposits.

Slide number eight shows the evolution of the net interest margin. The net interest margin from loans ended up 6% in 2013, slightly below the 6.2% at the end of third quarter of 2013. This reduction is mainly explained by the incorporation of Banistmo loans which are denominated in U.S. dollars and have a lower NIM.

You have to take in consideration that the NIMs for the operation in Banistmo it is currently at around 3.6%, 3.8%. We forecast the lending net interest margin to be between 6% to 6.2% for this year 2014. The securities NIM was 0.1% as it continues normalizing and moves forward to our estimation of 1%.

Fees are presented in slide number nine, the seasonal effect and integration of Banistmo contributed to 14% growth during the quarter. The net fees were COP 525 billion. In particular credit and debit card fees grew very well during the quarter due to the holiday season. Bancolombia has been focused in offering products to clients that generate fees. A good example is the bank assurance business where Bancolombia distributes insurance policies and received a commission for that. Just last year we generated around COP 200 billion from that service.

At slide 10 we present the evolution of expenses, which grew 6% during the quarter. This quarterly growth is totally explained by the Banistmo integration as cost of the – Banistmo operations actually decreased during the quarter. The cost-to-income ratio was 58.4% during the quarter. On the bottom right hand side we see how OpEx to total assets came down during the year.

Bancolombia has enabled to grow asset faster than expenses. Our efforts right now are focused on improving the efficiency of the bank. Revenue should grow faster than expenses and the main drivers of growth, cost growth headcount and branch network expansion is very stable. Our goal is to perform a fixed number of transactions through electronic and low cost channels such as mobile banking and edge.

Moving on to slide 11 we see evolution of the net loans-to-deposit ratio which declined during the quarter. We have been focusing in growing deposit faster than assets and still reducing the cost of both deposits. Also Banistmo which have more deposits than loans contributed to the reduction in the net loan-to-deposit ratio.

In the last two years the bank has been focused trying to increase our deposit base. As a result of that right now our loan-to-deposit ratio is below 100%. During 2014 this metric should range between 90% and 100% loan to deposit ratio.

At the bottom right hand side we present the current capital adequacy ratio at the end of the year. The Tier 1 ended at 5.8% lower than the 10.1% at the end of September. This decrease is explained by Banistmo consolidation and the acquisition of [Banistmo]. Nevertheless with the capital rate that we completed and the portion of earnings that was appropriated by shareholders yesterday the tier 1 ratio will look like 9.2% as of December.

And I want to go back with the previous numbers that I said at the beginning of the speech and the breakdown of how we will increase the capital flow, because of earnings we invested we will increase the tier 1 of 0.86% and because of the capital raised we increase our tier 1 in 2.51%. Let me clarify that we want to do. The 9.2% of tier 1 is well above the minimum required to operate in Colombia which is 4.5% and put us in a comfortable situation of equilibrium between strength of the balance sheet and return of the shareholders.

We estimate that the optimal level of tier 1 for us to operate in countries where we operate is 8% to 9% and this is accepted the range amount we are right now. Slide number 12 shows the return on assets and return on equity of the bank. Return on assets continue to improving as we were able to grow net income faster than assets and mitigate some of the volatility that impacted in 2Q ‘13.

Similarly return on equity improved during the 4Q and net debt and ended at the level of 16%. Considering the capital raise and our forecast for 2014 we are expecting a return on equity of around 14% for this year.

After presenting this slide with the fourth quarter numbers to you I would just like to highlight where we stand today and our plans for the near future. We had a very good year in 2013. Bancolombia grew 34% it’s assets and completed a very important acquisition. We raised capital in a very successful way raising $1.3 billion.

Additionally we put the balance sheet in optimal shape for the future and now we have stronger base to enter in a cycle of efficiency and improvement in results. Having said this we are happy to take any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from Thiago Batista. Go right ahead.

Thiago Batista – Itaú BBA

Hi guys, it’s Thiago Batista from Itaú BBA. I have one question first of all thanks for the opportunity. But I have one question about the mortgage. We saw that Bancolombia posted a really strong growth in the mortgage segment in Columbia during last year looking to the mortgage on incremental basis it went up almost 30% year-over-year. Could you give us your expectation for the segment for this year in terms of margins, delinquency ratio and also potential growth?

Jose Acosta

Thank you, Thiago. Yes in Banistmo operation only one-third of the assets are mortgaged loans. In the Columbia as you will remark we grew 30% last year we are expecting to maintain a growth at around 15% to 20% in the next coming years. Right now because of the increasing of the funding cost we want to maintain a cautious position in that market in that kind of business.

The delinquency level remains under control. The past due loans for 90 days for mortgage is at around 2.5%, 2.3%, so it is under control. So on the profitability there we have lending on our interest rates at around 11.5% to 12% and the funding cost for that kind of operation is at around 6% to 7%. So the margin in that kind of product is around 5%.

Operator

And our next question comes from Saúl Martínez from JPMorgan. Saul, go ahead please.

Saúl Martínez – JPMorgan

Thank you. Hi good morning guys, couple of questions first can you give us a little bit more color on what you think Banistmo’s earnings power is, I think one of the complaints that I get from investors is that the lack of disclosures to what the financials look like for Banistmo with the entity being consolidated and obviously there are lot of moving parts in the numbers last year but can you give us a sense or what your expectations are for the earnings contribution from Banistmo and whether there are risks in terms of implementation of technology, instituting your systems and bringing Banistmo over to Colombian GAAP provisioning requirement, whether that will have a negative effect on their provisioning load. So just a little bit more color on where you think that will go.

And then secondly your ROE guidance of 14% I want to clarify is that for the full year for 2014 or is that the run-rate you expect to get by year-end because obviously the capital raise implies that you are going to get diluted in terms of return on equity and on our numbers your ROE is closer to 12.5%, 13% initially after the deal. So it implies if it’s for full year it implies you expect ROEs and earnings to really increase substantially during the course of the year. I want to just clarify whether that’s a full year guidance number or whether that is your expectation for where you get to in terms of run-rate by year end ‘14?

Jose Acosta

Thank you, Saul. I will begin the answer with the second question. Yes we are expecting for the whole year to reach the 14%, which is challenging because you have to take in consideration the capital raise but it is for the whole year.

Saúl Martínez – JPMorgan

So you expect a good year then. Okay.

Jose Acosta

Yes and we have high expectations about it. And regarding the first question, Banistmo it’s a long-term acquisition. So we are expecting in the first two years we will increase in-line with the same banking industry in Panama which will be at around 10%. The next 18 months will be a consolidation for us because as you mentioned we have a big challenge there regarding IT.

Banistmo accounts 12% of our total assets and 13% of our total deposits. That would imply that at the end of the year we are expecting to receive from them around a $100 million of profit at the end of 2014. But we obviously we are expecting for the next three to five years to gain market share and to consolidate the operation there. In terms of scale of integration, Juan.

Juan Carlos Mora

Yes. Saul, it is Juan Mora. Let me give you some details about how the process of changing or improving the technology in Banistmo is going. As you know we started this process in February last year and so we start with a process that was mentioned by Jose Humberto during his presentation and that went very well. We started changing the technology to [become] Banistmo’s technology and then in October 28 last year we took control of the bank and started a new process of replacing some of the main applications.

As you probably know we under a PSA agreement with HSBC at this moment and we have been repatriating and changing some of their systems. Everything is on schedule, everything is going well we’ve been repatriating some of the applications on the systems now. And we expect to finish that process by mid next year without any inconvenience or affecting any of the operations of the bank. So that process is going well. We have the projects in place, they are on schedule and we are very happy with the results so far of that process.

Saúl Martínez – JPMorgan

Okay. That’s actually – that’s very helpful, thank you. Just a clarification, Jose Humberto, the 100 million of earnings for ‘14, I assume that is gross of the amortization on the transaction, correct?

Jose Acosta

No, it is only the net profit that comes from Panama.

Saúl Martínez – JPMorgan

Okay.

Jose Acosta

We have to take account and extract the amortization of the goodwill here in Colombia.

Saúl Martínez – JPMorgan

Okay. So there is that – so if you factor in the goodwill it’s something like COP 40 million or something to that effect, is that right?

Jose Acosta

At around.

Saúl Martínez – JPMorgan

Okay, got it.

Jose Acosta

Right, correct.

Saúl Martínez – JPMorgan

All right. Thanks so much.

Jose Acosta

Okay.

Operator

And our next question comes from Frederic De Mariz from UBS. Frederic go ahead.

Frederic De Mariz – UBS

Hi, good morning everyone. Thank you for the call. Two quick questions on my end. The first one on the efficiency and the second one on the acquisition. On the first one you touched upon your objective to improve the cost-to-income ratio which was 68% last year and you mentioned this would come from higher income but also from lower OpEx control I should say. Can you give a bit more color or maybe a few examples on what you can do on the OpEx side and also maybe try to quantify where the cost-to-income ratio would go in the next few years? So that was the first question.

And on the second one, acquisition you mentioned already acquired Banistmo, which is very exciting obviously acquisition for you guys. What do you see in terms of missing assets for you either in Central America or in other countries? In other words do you see anything else that would be interesting to add to your portfolio, or do you expect the next two, three years to be focused exclusively on what you already have in house? Thank you.

Jose Acosta

Okay. Thank you, Frederic. Regarding the second question, acquisition, if you check our track record we are doing big operations every five to seven years. That implies over the next three years as you mentioned we will be focused on the acquisition of Banistmo because we have a very tough standard to comply. So we are not expecting any important acquisition for the next three years. We will be focused trying to improve the operation in Panama and to take advantage of the momentum of the economy in Colombia.

Regarding your first question, efficiency level, yes our target is to go back to the level of 50% in the next three to four years and that will be because of combination of factors. First if you check the growth of expenses in Colombia in our bank, we’ve been growing at a pace of 6% to 7%. On consolidated basis we are growing at a pace of 8.5%. That reflects that we are having the cost control and we are increasing our level of income. So we as a result of that we expect this year cost-to-income ratio to be at around 53%, 54%.

Frederic De Mariz – UBS

Okay. That’s very clear, thank you.

Operator

(Operator Instructions). And the next question comes from David Santos from Compass Group. Go right ahead.

David Santos – Compass Group

Yeah. Good morning I wanted to ask a couple of questions. The first one is what to expect going forward on asset quality given that you if exclude Banistmo your numbers are improved. And the second one is in-line with what Saul asked about just talking about loan growth of this year, that 15% you mentioned includes Banistmo or is on top of Banistmo?

Jose Acosta

Thank you, David. Regarding the asset quality as you can see on the slides we have delinquents under control. We believe we now we will maintain the past due loans at around 3%, coverage around [50%] and cost of credit will be at around 1.5%. So we are not perceiving a deterioration of the loan portfolio in the next coming quarter and we are seeing also a slower pace of growth in the banking industry as a whole. So we are not expecting a major change or major deterioration regarding the quality of the loan portfolio.

Regarding the loan growth the breakdown is as follows: We are expecting to grow at 10% to 15% in Colombia, at around 10% in Panama and at around 3% in El Salvador. With a combination of that we are expecting a loan growth as a Group, 13% to 15% this year.

David Santos – Compass Group

Thank you very much.

Jose Acosta

Our pleasure.

Operator

And our next question comes from Cristian Hernández from Ultrabursatiles. Cristian go ahead.

Cristian Hernández – Ultrabursatiles

Thank you, guys congratulations on the conference call and the results actually. I was wondering what do you guys expect from competitions for the next few years especially in Panama and Colombia. And also my second question would be how do you guys feel about the NIM within this year, especially when we are all expecting an increase in the REPO rate of about a 100 point basis in Colombia? How should it effect, should it go higher or should it keep lowering according to the competition in Colombia? Thank you guys.

Jose Acosta

Thank you, Cristian. Regarding competition, yes in Colombia the competition will be very interesting, if I may say so, but that will be the things is the growth in terms of the local market it’s important, so we need another competitor to participate with this momentum of the economy. So for us we will be very interested in the participation of the Brazilians and the Canadians here in Colombia *because we have to absorb a part of this growth with the other colleagues.

In Panama the competition is very important but right now we really – we are convinced now we can gain market share because of the quality of the service now we’re providing or we want to provide and second because of the risk appetite that we will have in Panama, *that was a little bit different than the HSBC used to have in the last three years.

Regarding the NIM, yes we believe that the NIM will increase a little bit and because of several reasons. As you mentioned maybe the interest rate will go up a 100 bps, remember that for every single 100 bps that the interest rate goes up our NIM will increase eight bps to nine bps. But also because right now we have liquidity under control, remember last year we had $2.0 billion in cash, right now we use that cash with the acquisition of the operation in Panama and we are reducing the funding cost. So because of the combination of these factors we believe that we can increase – we are able to increase at least 10 bps or 20 bps more our net interest margin.

Cristian Hernández – Ultrabursatiles

At least what?

Jose Acosta

20 bps – 10 bps to 20 bps the *net interest margin.

Cristian Hernández – Ultrabursatiles

Right. So do you guys think the competition will remain on interest rates particularly in the corporate segment or should it translate to the competition in commissions?

Jose Acosta

That will be on the corporate side for sure.

Cristian Hernández – Ultrabursatiles

Especially because of the construction dynamics in Colombia, right?

Jose Acosta

Yes but that dynamic as you mentioned you will see the numbers at the end of the next year. The process here in Colombia it’s a very low pace in terms of infrastructure, so we don’t expect a major increase of volumes of concession at least 2014, we expect maybe in 2015.

Cristian Hernández – Ultrabursatiles

All right. Thank you very much.

Jose Acosta

Okay.

Operator

And our next question comes from Alonso Arumburu from BTG. Go right ahead Alonso.

Alonso Arumburu – BTG PACTUAL

Hi, good morning and thank you for the call. Just *following up on the NIM, I just wanted to clarify is your assumption of 10 basis points to 20 basis points increase, does that include a 100 basis points increase in the reference rate this year? And also if you can mention what you expect in terms of how your mix of loans are going to grow this year, how that effects the NIM as well?

Jose Acosta

We’re expecting in our – thank you, Alonso we’re expecting in our calculations on say interest rates will go up 25 bps for third quarter and another 25 bps in the fourth quarter. So we are *modulating our NIM based on the assumptions that the interest rate will only increase 50 bps. And would you remind me please the second question.

Alonso Arumburu – BTG PACTUAL

Yes, what kind of effect do you expect on the NIM from the changing mix of your portfolio given especially that you are growing faster in mortgages?

Jose Acosta

Yes. We are not expecting a major change in our composition of the loan portfolio. The big change was because of the appreciation of Banistmo. Previous to the acquisition of Banistmo mortgage in our books accounted at 8% of our total loans, right now it’s 11.5%. So we are not expecting Alonso to increase that composition into our loan portfolio.

Alonso Arumburu – BTG PACTUAL

Fantastic.

Jose Acosta

So we want to maintain the same composition regarding corporate versus SMEs and retail.

Alonso Arumburu – BTG PACTUAL

Okay. Thank you.

Operator

And your next question comes from Jose [inaudible]. Jose, go ahead.

Unidentified Analyst

Hi, thank you. Good morning everybody and congratulations for the results. I have one question regarding Banistmo. So far you have been operating the bank for two months or for almost four months. So which are the synergies that you are seeing right now after you actually are operating the bank, will be my first question. And the second I am very curious about the development of the mortgages in Colombia. What is happening in Colombia who actually is leading that growth in mortgages, not only for you – for the whole sector?

Jose Acosta

Thank you, Jose. Regarding the Banistmo, we are seeing Banistmo [tweak] opportunity to develop on the asset side, regarding corporates because there are a lot of Colombian companies there. So we believe that we can attain our Colombian clients in Banistmo. Also the level of service in Panama we can improve that because it’s, I may say very poor. So we want to replicate the same experience that we are having in Colombia operating the best-in-class service and the retail business we want to do exactly the same in Panama gaining some market share.

So at the end of the day the synergies is because we see a potential of growth in both sides on the corporate side and also on the retail side. Regarding the mortgage markets, as you said today there will be a slight correction of the price of the mortgage market because of the correction of the pace that happened at the end of the first half of last year. So we are not expecting to be aggressive in the market. You will see a correction of the old banking system regarding the mortgage. So you probably will see a different price for the next coming quarters in the Colombian market.

Cristian Hernández – Ultrabursatiles

Okay. Thank you.

Operator

And our next question comes from Laura Mesa from Credicorp Capital. Laura, go ahead. Miss Mesa your line is open.

Laura Mesa – Credicorp Capital

Good morning, thanks for hosting this call. I want to know what could we expect in terms of bond issuance for this year in order to form the strong increase seen in long-term loans such as mortgages? Thank you.

Jose Acosta

Thank you, Laura. As you have probably seen our numbers, we have been very focused trying to increase our deposit base. So that means that we are not expecting a huge activity in the bond market from Bancolombia in Colombia operation. But maybe over the next coming years you will probably hear from us in our operation in Panama because Panama offers a unique opportunity to get better funding cost touching the international market. So at least during this year you don’t expect from us coming to international market from Colombia – from the Colombia operation.

Laura Zuluaga – Credicorp Capital

Okay. Thank you.

Operator

And we have no further questions at this time. Gentlemen do you have any final remarks.

Jose Acosta

Okay. Thank you, everyone for the participation. Hope to see you soon in the next conference call that will take place in the next coming weeks in May to announce the first quarter result. Thank you again.

Operator

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

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