Good day, ladies and gentlemen. And welcome to Bancolombia Second Quarter 2015 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 and future filings and press releases or verbally, address matters that involve risk 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 exchange rates and interest rates, introduction of the 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 Velásquez, Chief Financial Strategy and Financial Officer; Mr. José 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’d now like to turn the presentation over to Mr. Acosta, Chief Financial Officer of Bancolombia. Please proceed, sir. José Humberto Acosta: 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 just 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 Web site. We want to start this conference call mentioning…

Thank you, Jose. We'll ask to go to Slide 4 in the presentation. José Humberto Acosta: Juan? Are you on the line?

Yes. José Humberto Acosta: Go ahead, please.

Okay, okay now I'm going to start again. I will ask you go to Slide Number 4 in the presentation. As we have mentioned in our previous calls, since last year the Columbian economy is adjusting to an increasingly uncertain and challenging context. The expense and the speed of adjustments have been paced fast during the past few months. Thus we have made several revisions to our forecast. In terms of economic activity our baseline growth estimates 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 Columbian exports as well as the reaction of internal demand for decrease in national income. This year rather than consumption and investment we’re up to most of these adjustments while next year the moderation will be centered on public demand since the fall in 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 stock bank targets range because of the increasing price pressures coming from the fast growth of currency depreciation and the implication of Romania phenomenon on food and energy prices. However an economy expanding the work potential will act as counterforce against these factors and will ultimately lead to a convergence of inflation to the three fairs in March. This process though will take longer than initially expected and will likely conclude in 2017. This represents a very…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We ask that you please limit yourselves to one question. [Operator Instructions] And our first question comes from Tito Labarta from Deutsche Bank. Please go ahead.

My question is on provisioning levels, you mentioned with this lower growth you expect maybe some modest deterioration, you said provision to be between 1.4% to 1.6% for the end of the year, so just a follow up on that if you think about 2016 do you think it's going to remain around that 1.4 to 1.6 or would you expect it to be maybe more at the higher end if you do see some deterioration? And then just a little further on that if provisions end up closer to 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 maybe a bit difficult to achieve that, so I just want to understand a little bit of that better and how that's going to impact your profitability? Thank you. José Humberto Acosta: 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 the cost we've maintained in control of our credit standards, we're maintaining our -- we're seeing again the interest rates remain under control, so we believe that we're able to maintain the number at the same level. And regarding your second question, that's true, probably the lower provisions would be increased because of the situation. But also one of the highlights of our performance is the cost control, you see that we're reducing the cost and we're almost growing the heart of the pesos in NII, so we'll maintain the same trend. The last year 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 0.5%.

Just a 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 I think the guess if you're closer to 1.6, it could make a big difference in terms of your profitability being the 1.4, so just want to get a sense that are you saying you should be at the higher end of the range in terms of provisioning because of some potential deterioration? José Humberto Acosta: It is hard to affirm then the target would be 1.6%, but again the loan growth is right now below 10%. We expect next year below 10% so based on that consideration, we see us subsiding 1.6, but we don't know exactly what will happen first half of next year. We have to see at certain level of the inflation, certain level of exchange rate, certain level of cool down of the economy to send you a strong message about the cost of credit for next year.

Thank you. And our next question comes from Saúl Martínez from JPMorgan. Please go ahead. Saúl Martínez: Thank you for the presentation and thank you for -- and I appreciate the caution and the acknowledgement of a more cautious landscape. I guess what I want to get at is how do you think about downside risks and downside case scenarios because if you're sitting here in New York looking at the macro oil is at $40 barrel. And according to any outlook isn't very positive, you're current account deficit for Bancolombia is 6% which is GDP which is very-very wide to apply this in the region, your fiscal headwind, you have China devaluing, you have a fed missed off at some point, so is the cross currency notably negative and Colombia has been growing 4% to 5% year or for a lot years on average, how do you think about I know you've pointed the base case is x and maybe it could be a little bit worse little bit better, but it seems to me like there is the risk that you see a multiyear period in which Colombia grows below its potential as some of these imbalances get worked out potentially growing even 2% a year or few years. How do you think about the probability of some scenario that's much worse than the base case scenario playing out and how do you prepare the bank to sustain profitability in this scenario? José Humberto Acosta: Thank you, Saúl, yes. As you hear from Pablo, obviously we are very cautious about the future, the downside could be unemployment debit that could raised probably, the downside could be the fiscal feasibility impart because of the oil price, but there is an upside in the economy for next year that the…

And our next question comes from Natalia Casas from Serfinco. Please go ahead.

I would like to know I have three questions, the first is do you have in the last conference you said that you expect 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 growth 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 infrastructure projects for the Bank please? José Humberto Acosta: First, for Central America in our previous conference call we talked about specifically the pace of Banistmo and in Banistmo we are expecting to maintain our growth at around 10% at least for the next two years, that’s the guidance and we think that the message that we send you to all the investor community. And regarding the operation in Salvador we are expecting to grow at 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 our trend is we are growing half of the pace expenses that are income and that is reflected in improving the efficiency level. So we are growing at a hard pace the expenses against income. And your third question, can you remind me your third question please? [Multiple Speakers]

Again on the second one, do you see an quarter-over-quarter basis you see that the efficiency is deteriorating and if you have the net interest income it increased 2.2% sorry and the operating expenses expanded by 4.2%. So, there is a difference there. I was asking about that. José Humberto Acosta: That is true on the quarterly basis view but we are talking about on the semi-annual basis view we have a annual volatility of expenses you probably know at operation 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 expense. And third regarding infrastructure obviously with infrastructure we want to be very active on 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 in the next coming years we’ll be very active in this market and we would 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.

Thank you. And our next question comes from Juan Domínguez from Credicorp Capital. Please go ahead.

I have a couple of questions. First as you mentioned that you have improved the duration of your liability side and also in the previous question you just said that you were pretty interested on participating actively on the infrastructure projects, from a liquidity stance and from an asset liability management standpoint, how is your balance sheet structure now prepared for this long-term disbursements, I mean if you see, are you seeing some requirements of new bond issuances in this new scenario of lower liquidity, I wonder if you can give 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 goodwill for taxable process and probably 2019-2020? Thank you. José Humberto Acosta: Thank you, Juan Camilo. Regarding your second question tax rate, remember that the taxation you paid not on IFRS financial statement it's based on the Columbian GAAP financial statements that’s the reason why you see another of below 25%. Like the guidance for the end of the year is to have that tax rate based at around 26% to 28%. Regarding your first question, yes, we have been preparing since last year we've began to increase our tenures in our funding strategy, remember the last year we touched the market with our super delivery test in local currency. And just to give you an idea, six weeks ago we raised our CDs for 3 to 5 and 7 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 the long-term. So we're doing our job in our previous transactions as I mentioned, and of course providing the next future we have to touch the market probably in local currency and probably for longer tenures, but all depends on the structure of the project that we're seeing on infrastructure.

Just follow-up on effective tax rate, as you mentioned that the bank is paying taxes according the Colombian, the defiance accounting policies. And right now you're having our material tax benefit from a goodwill amortization which was kept for a more taxable purpose, I wonder if you can provide us how much these tax benefits are worth? José Humberto Acosta: 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're driving for tax purposes. So remember that we had a goodwill amortization of at around $1.4 billion for 20 years we can use to 10 years, so if you do the math you will realize what was the benefit for us.

Thank you. And our next question comes from Victor Galliano from Barclays. Please go ahead.

Could you just give us in terms of credit quality, I mean, my questions have been asked and answered, but in terms of Tuya, if you do a kind of like-for-like comparison on credit quality, what would the trends look like or have you already adjusted for those in the previous quarters and 2Q14? And in terms of IFRS and incurred credit loss methodology and it looks to me like the provisioning seemed relatively high in the second quarter, and would you expect to continue along at level as a percentage of loans in quarters to come? Thank you. José Humberto Acosta: Thank you, Victor, regarding your first question, yes, Tuya, we did it for last year so it's comparable the financial statement 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's completely comparable. Regarding your second question, yes, we have at very high level at 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 have just its a catching up process in terms of provisions. So we believe that we will maintain under control at least for the next two quarters the level of Banistmo. Again as I said before because of the emphasis now we're analyzing and we're expanding 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 provision, but as a trend for this year because again we need more data to talk about '16, but for this year we don't foresee any specific concern regarding any specific segment.

A quick follow-up on Central America if I may, what was the contribution you had to the bottom line from Banistmo and Banco Del Istmo [ph]? José Humberto Acosta: Yes the national operation give us at around 20% of the total net income, 30% of the total assets and around 18% of our total expenses.

Thank you. And our next question comes from Boris Molina from Santander. Please go ahead.

Yes I have two questions, the first one is could you give us a little bit of what is the total size of issuance that you would need to do over the next let’s say three years in order to fund the growth in longer term lending associated with the infrastructure plans. Means it appears that many banks like yourself including Banco Del Istmo [ph] and Bancolombia suppose are planning to do significant additions also. So have you looked at the size of the potential demand and where this is going to be able to absorbed by the long haul pension fund community et cetera, et cetera so just to get an idea of how much you would be expecting fruition probably maybe 30% with the whole market issuance for infrastructure bank? And my second question is just a small detail about the other asset in terms of CLP47 billion in the second quarter was relatively high versus the previous quarters. What type of assets in terms that you pass through this line so that is related to loan portfolio? José Humberto Acosta: Yes Boris regarding your first question obviously it’s a very complex answer because that depends of each transaction the way we are facing for this is it’s basically tailor made transaction we’ll see every single transaction when we see how to fund it. Obviously in our view we have to fund it in a very straight funding composition I mean if we need to lend for 15 years we want to maintain a very solid funding behind us so at the end of the day each transaction we probably we have today a bunch of funding we have a very longer tenures but it’s very quite complex to give you a number, because we don’t know exactly when we are going to participate very actively in the first wage of infrastructure or in the second one, so the capital markets in Colombia is quite deep that offer us opportunities to do the pension funds with insurance company. So we are for sure doing at the same level as we participate on business we would go to the market with not only bonds also with the CDs because the market right now is moving to CDs for longer tenures. 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 agency yes bonds but also time deposit of CDs.

But it appears that you were talking about several billions of dollars for each bank, so do you foresee that your loan to deposit ratio is going to go up to 120% or higher or do you think that the lower growth environment is going to like keep it more or less constant at current levels? José Humberto Acosta: The ideal situation Boris is to maintain the level down we are maintaining right now. Because 114 it is as we explained it is healthy because we are covering the gap with longer tenure debt which is there. So we believe that the 120 would be the number for the next coming years.

And about the impairment charge? José Humberto Acosta: The impairment charge are from the -- for closed assets and guarantees.

Thank you. And our next question comes from Fred de Mariz from UBS. Please go ahead.

Just a couple of follow-ups and answer to the question that you’ve answered, the first one is would you mind just repeating your guidance on the tax rate I am not sure I got sure those for this year next year? And the second question is more general on the sector, how do you see the other banks how different is the competition and the competitive landscape right now in Colombia and do you feel that Bancolombia is losing market share or you’re able continuing a deceleration obviously maintaining your market share? Thank you. José Humberto Acosta: 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 is we are competing for funding and that will be the main competition landscape will be basically on the funding side. We see the other 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 have 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 local currency. So all of the banks would have to compete under the same circumstances, which is the funding cost. Regarding market share if you double check 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 above our goal is to maintain the same level of market share. So we're not trying to gain neither to lose.

Thank you. And our next question comes from Victor Galliano form Barclays. Please go ahead.

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'll see less top line driven growth so you're 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're 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%? José Humberto Acosta: Yes, and you're right, the tools that we have right now for the next at least 2 years is the cost control. We're just to give you some examples very easy, branches, in the past we used to grow 6 to 7 branches per year and the branches are the point of course. Today we're around we're reducing the number of branches and we're moving different section levels to different channels. So we're promoting the different channels of our Web site, the app. And we're right now trying to move the people to these channels and I will say that more than 92% of the daily transactions today are processed with through these channels. So this is a very good example. The second one is a tougher project that we're facing in the bank, in the past we used to have up around an average 100 projects for improving the banking products, process. Today we are exceeding of 50 projects, and we put to complete the projects each other because it's limited space for that. The other good example is we maintain all most gross in the labor cost and this is try to people for example in the branches to shift people from cashiers or tellers to people from sales. So we're right now re-circulating the salesforce and that give us some flexibility on the cost control. I will say that those are the three good three examples how we're facing the cost control in the bank.

Thank you. And I'll now turn the call over to José Acosta for closing remarks. José Humberto Acosta: Thank you very much. Thank you for your questions and I hope to you see in the next conference call in three months. Thanks again.