Good morning, ladies and gentlemen. And welcome to Bancolombia’s First Quarter 2016 Earnings Conference Call. My name is Sylvia 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 risks and uncertainties. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Jaime Velásquez, Chief Strategy and Finance Officer; Mr. José Humberto Acosta, Chief Financial Officer; Mr. Jorge Humberto Hernández, Chief Accounting Officer; Mr. Alejandro Mejia, Investor Relations Manager; and Mr. Juan Pablo Espinosa, Chief Economist. I would like to turn the call presentation over to Mr. Acosta, Chief Financial Officer of Bancolombia. Please proceed, sir. José Humberto Acosta: Thank you. Good morning and welcome to our results conference call for the first quarter of this year. It is a pleasure to be with you all who follow Bancolombia so closely. Before starting with the main topics related to the bank results, I would like to introduce you to Mr. Juan Carlos Mora, Bancolombia’s new CEO. As you know, Mr. Mora was appointed Chief Executive Officer of Bancolombia and took office on May 2nd. He has spent the last 25 years of professional carrier at the banks, starting in corporate banking and then leading investment banking division; then assuming the role of Chief Risk Officer and Chief Operations and Technology Officer. Last year, Mr. Mora was appointed Chief Innovation Officer with the mandate of leading the Digital Transformation of the bank and accelerated implementation of digital banking platforms, which will pave the way for the Bancolombia of the future. Now, I would like to turn the presentation to Mr. Mora, who will elaborate on some topics relevant to the business. Mr. Mora?

Thank you, José Humberto. Good morning, everyone. It’s an honor to be here with you today to share some of the recent developments at the bank as well as key strategic objectives as we look forward. In recent years, Bancolombia has grown significantly and it has become a major regional player with presence mainly in Colombia, Panama, El Salvador and Guatemala. That evolution has created a unique platform to provide financial services of all level of complexity to all types of clients and industries. Bancolombia as a participant in the financial services industry faces many challenges. Digitalization has changed the way individuals and corporations deal with their cash management, financing and savings or investment needs. And banks are operating in an environment where competition, regulation and then need for value creation present many challenges. These situations force banks to adopt quickly and also to be closer to clients who are more and more demand in terms of service, channels and products. At the same time, regulatory constraints and need to optimize capital, forces us to permanently assess our strategy, making sure that the business remains sustainable and profitable. With that in mind, we plan to address several issues. The foremost representatives are: First, our focus on profitability. All that we do must be reflected in long-term profitability and value creation. I firmly believe that the conditions combined Bancolombia's business case will allow us to achieve gross ROE of 16% in the mid-term. During this presentation, you will see very good operational results, solid margins, funding cost under control, good performance of fees, product of better and more capillary channels across their regions where we operate. Second, we believe that the value of the Bancolombia's franchise and the coverage network, both physical and electronic is unique to compete and create value.…

Thank you, José Humberto. Now, I’ll ask you to go to slide number four in the presentation. Leading indicators suggest that at the start of this year, the Colombian economy continued the process of soft landing. In terms of economic activity after expanding 3.3% during 4Q ‘15, we forecasted in 1Q ‘16 GDP growth was 3.2%. This pace of growth reflects the resilience of product consumption and a less negative contribution of net exports, which compensate the weak performance of investment. However, we expect that during the remainder of the year, the pace of growth will moderate as internal demand suggests to higher interest rates, low consumer confidence and a less rosy labor market. Hence, we keep our 2.6% growth forecast for the whole year. Regarding prices, during the first month of the year, the trend of higher inflation consolidated. So in March, 12-month rate [ph] was 7.98%, the highest in a decade and well above the ceiling of the central bank’s target range. But as the year passes and the economy grows, [ph] we’ll expect that price pressures will lose steam from a maximum adjustable pay percent in the short-term, we foresee that inflation will close this year at 5.4%. Moreover, our monetary policy call is that the current tightening cycle will come to an end soon with the maximum repo rate of 7.5%. In terms of the external sector, during the past months, we have seen a mild adjustment of the current account deficit due to our reduction of inputs. We forecast that current account deficit will adjust from 6.4% of GDP in 2015 to 5.5% of GDP in 2016. In addition, our view for the Colombian peso remains bearish. In fact, our average USDCOP forecast for the year is 3180. In the fiscal front, the 0.7% of…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Carlos Macedo from Goldman Sachs.

Couple of questions; first on the tax rate because as you mentioned, it was a little bit -- or significantly higher than what we've been seeing and the currency contributed. Is there any kind of visibility that you can give for the tax rate this year? Of course if the peso continues to gain value, the tax rate will be higher. Is there a rule of thumb, every 5% [ph] value, the effective tax rate is 100 basis points. Anything you can give us guidance in order for us to better forecast your bottom line. Second question, you mentioned that margins are probably reflected all that they will, at least the lending margins with the increase in rates that your credit costs -- the cost of risk is 1.5% for this quarter; it’s probably at the low end of your guidance for the year, which means it's going up that with the economy still growing, but not at a very fast pace that loan growth will probably not accelerate from credit levels, if anything decelerate. Excluding the tax, you probably did around a 15% ROE this quarter, should that be -- would that be a good level for the remaining of the year? I mean, given all this pressure, is that something that we should expect going forward or is 15% a little bit too strong? José Humberto Acosta: Regarding your first question, I have to highlight one specific thing, we are not talking about tax rate, we are talking about provisions of tax that would be at the end of the year based on the FX of the last day of the year. So, this is only a provisioning and we will expect to have a certain level of volatility. And just to give an idea, as we close the year at the same level of FX that we're having today, at the end of the day nothing will happen because at the beginning of the year FX rate was 3150, and as you heard from our Chief Economist, we expect kind of same FX rate. So, excluding that effect that obviously implies volatility, our tax could be at around 30%, 32% at the end of this year, excluding the effect of variation of FX.

Okay. José Humberto Acosta: Regarding your second question, yes, we believe that a kind of deterioration will come because you see the numbers, the growth of GDP is below as expected, maybe a little bit of unemployment rate, interest rate is going up. So that's the reason why we are keeping in mind that 20 bps extra for the next coming three quarters. So again, we continue our guidance in terms of cost of credit. We believe that today, it is 1.5% in a very orthodox way. We expect to close this year at a level of 1.7%. But again, as I mentioned during the presentation, our restructuring [ph] and we are now tightening [ph] the standards in order to prevent any potential deterioration. That deterioration as you saw basically is on SMEs and usually these kinds of companies are very impacted and very sensitive for FX variations and some buckets of the population in terms of consumer but nothing relevant or material in terms of deterioration.

Our next question comes from Thiago Batista from ITAÚ BBA.

I have two questions, the first one, Mr. Mora commented at the beginning of the call that the revenues tend to expand at faster pace than expenses in the coming years. Do you believe that the main highlight of the revenues will come from the margins or from the NII or from the fees? You mentioned that the fees already achieved 20% of your total revenues. How much do you imagine that this should achieve in the medium term? And my second question is about asset quality, especially on the corporate or the company segment. We saw some deterioration in this portfolio in the first Q, how much more do you believe that your PDL ratio should expand, especially in the corporate segment? José Humberto Acosta: Regarding your first question, the NII, the strong of the NII or the support of the NII for the next coming three quarters will come basically from the lending business. If you double check the presentation, the NIMs there are very positive. And the fee growth, again, as you mentioned, the growth 18% this year's the guidance, for us this year could be at around 10%. So, three-fourth of the total NII will come from the lending business and 25% will come from the fee income business. And the fee income business basically is supporting in the level of constructions [ph] and also based on the assumption that we will ask for more fees for our clients. So, the level of transactions is growing at a very good pace. So, that's the way we designed the NII for the year. And as the marginal point of view, the 8% of the securities would support in some quarters because of the volatility, for example, this quarter it helped us with 3% NIM. And remember that two quarters, the previous, the last quarter of last year was 0% of NIM. So that depends on volatility. Regarding your second question, the deterioration in corporate are very, very unique; I mean there is some specification, we don’t foresee any kind of deterioration as advantageous, because corporate loans and commercial loans in Colombia, for example, to give an in terms of U.S. dollar, they have a natural protection because they are exporters, so they have protection. So, we don’t see any specific deterioration. And in our operations outside in Central America, which means Guatemala, El Salvador and Panama, we don’t foresee any potential deterioration as a trend; always you will see and especially this case. And if you ask us about oil industry and regarding the industry related to oil, we have only an exposure of 1.4% of our total loan portfolio in those industries. So, we don’t expect the major deterioration.

Let me complement a little bit José Humberto; this is Juan Mora. And regarding your first question, we firmly believe that we need to work hard on expenses. So, when I say that we believe that income will grow faster than expenses means that we are working on both sides, but certainly believe that we have work to do on expenses and the bank to be more efficient. So, it’s both sides as José Humberto mentioned; we expect fees to grow since we have been working heavily on new products, and also the mix in our loan portfolio moving to segments with higher profitability, while working on risk and also our firm commitment keep working on expenses. José Humberto Acosta: To complement what Juan said, one of our main goals is to reach a level of efficiency at around 50% in the next coming two years. Obviously when you see our numbers, 40% of our expenses are related to FX. So, the impact of the evaluation or appreciation of the currency will put some volatility in our company.

Our next question comes from Nicolás Riva from Citi. Nicolás Riva: Yes. Thanks, José Humberto. My question is I’m going to go back to capital. So, your Tier 1 ratio did increase 70 basis points quarter-on-quarter this quarter, as you capitalize the return earnings from last year. However, this increase was slightly below your guidance of about 100 basis points increase; we’re expecting to be at about 8.5%. I know also, you’re not going to be capitalizing earnings for the next three quarters. But you will grow your assets and know you’re guiding for 10% loan growth this year and probably your risk weighted assets could grow in line with that. So that means that by the end of this year, your Tier 1 ratio could be very close to the 8% or below that, which is the minimum of the range that you think you feel comfortable without issuing equity. So what makes you confident that you will still not need to raise equity? And also something specific on this? Right now, the minim Tier 1 ratio in Colombia’s 4.5%. However, Colombia still not in Basel III. Is there a timeline in which Colombia is going to Basel III requirement and in that case is Colombia expected to impose additional capital requirements, which means that the minimum probably is not going to be 4.5% but higher than this? And then my second question on loan loss provisions, if you can repeat the number of provisions you booked for Conalvias this quarter and if you expect now to be fully covered your exposure to the Company? José Humberto Acosta: Regarding your first question, our guidance originally was, yes, to increase our level of Q1 of 100 basis points after our generally assembly. But, if you double check, the growth, the…

And next question comes from Ernesto Gabilondo from Bank of America Merrill Lynch.

Can you share with us, what are you hearing regarding the new tax reform, like there won’t be an increase in the value added tax in some government cuts? So, considering this impact and a tighter cycle insight goal to continue, are you comfortable with your expectations for a GDP growth of 2.6% for the year? And my second question is related to the net interest margin expansion. Could you share with us how much have you re-priced loans and do you have a sensibility of how much Bancolombia's net interest margin benefit from an increasing interest rates? And lastly, in terms of your expenses growth guidance, what are the measures behind to improve the cost to income level; can you give us more color on your process optimization?

I can maybe speak about the tax reform proposal. Well, basically what we have today is a series of recommendations by several commissions that have been analyzing the Colombian tax structure. However, these recommendations are not mandatory for the government. Actually the government is working at this moment on a proposal. So, at this moment, we don’t know the details of such proposal because that would be something would be present into congress by July. What we would expect from that reform is or basically the goals of that reform would be two-fold: First, increase the tax revenues by around 2% of GDP, but secondly, to adjust the fiscal -- I mean the tax efforts by the agents in the economy. So, there is a consensus in the country that especially the tax rate paid by corporations need to be revised. So, we would hope to expect those types of elements in the reform. But, as I mentioned, it is too early to be very specific on that. And because of that precisely, we do not include any type of tax effect on our growth forecast because we’d like to first see how would be the composition of the tax effort by components, so we can -- I mean be more if there is going to be an effect on internal demand during that.

Let me complement a little to Juan Pablo. We heard directly from the President two weeks ago that they will present the tax reform to the congress during the second semester of this year. And as Juan Pablo mentioned, we expect this to be positive, as you know, the tax structure in Colombia is complex. So, we hope that this reform simplifies the tax structure and allow us to predict taxes in a better way. José Humberto Acosta: And Ernesto, going to your question regarding NIMs, the sensitivity for every 100 basis points on the central bank moves the interest; our incentive [ph] NIM sits at around 9%. Regarding pricing of loans, it was a combination of factors. We increase on average our loan portfolio for corporate and consumer. On average, we increased 150 bps and therefore price occurred during this first quarter on a very important portion of the loan book. And obviously that effect you’ll see very important during these first two quarters but the second half of the year, you will see a kind of plateau in terms of NIM growth and NII growth. And Nicolás, regarding your previous question, I am sorry about that, regarding Basel III, remember that the local regulation is there is some specific points regarding Basel III, but we expect that the second wage of Basel III will take place maybe 2018 and they will be focused mainly on buffers of provisions; they would be focus on liquidity but we are not still working on that. But, the level that capital we are having today is the kind of Basel III. If you want to double check very, very internal details, we can share with you in another call.

[Operator Instructions] Our next question comes from Alonso Garcia from Credit Suisse.

Regarding the investment portfolio; and I know there might be somewhat little bit here. But, what kind of NIM do you believe would be fair to expect for the remainder of the year compared to a 3% this quarter or in terms of contribution compared to about COP 184 billion reported this first quarter? José Humberto Acosta: Our base, our models are suggesting that the NIM could be at around 1% to 1.5%. And this is a comparison between the benchmark interest rate against our trending cost of the total deposit base that what we are having, so 1% to 1.5% is the guidance for NIM for securities portfolio.

Our next question comes from Victor Galliano from Barclays.

You did mention talking about, little further about capital; I saw in your forecast that you're looking at a depreciating peso going through the year-end. There is obviously loan growth of about 10%. You’ve got over third of your assets in dollars, which is positive for your earning stream. But, can you explain to us -- I think you mentioned that you -- I don't know how, but that that was going to be some -- there was less sensitivity to the peso depreciation of the capital ratios. Can you explain to us a little more and give us a little more color on that about how you're doing that? Because the sense I have is that clearly your loan dollars, so that for this should actually adversely impact your capital ratios? And in addition to that it seems like you have a lot of your intangibles in dollars as well. José Humberto Acosta: Yes, Victor. First, yes, because of the further depreciation of the currency, we used at around 40 bps of Tier 1 last year because depreciation of 30%. As you can see in our forecast, we expect to close at around 3180 FX. So, we don't expect a huge impact in terms of consuming capital because of depreciation of the currency. But I have to highlight one specific factor. We have at around 20% of our equity in U.S. dollars that gives us a kind of protection in terms to protect us from the volatility of FX. So, with that in mind, we don't expect a major impact of capital because of devaluation.

Okay, but you have a lot of more assets in dollars, right? José Humberto Acosta: Yes. Right now, we have -- 40% of our assets are in U.S. dollar, but 22% of our equity also in U.S. dollar.

Our next question comes from Carlos Gómez from HSBC New York. Carlos Gómez: On the tax rate, you gave the guidance of 30% to 31%. Could you clarify that does or does not include a wealth tax? And then specific question about your credit card portfolio, we have looked at your 20-F, and when we look at your domestics credit card portfolio, it has declined 25% year on year, was that the reclassification or was that a natural reduction in your credit card business? José Humberto Acosta: Regarding your first question, we are not contemplating in our guidance a 30% to 32% tax; we have not contemplated the wealth tax. The wealth tax is assuming on the financial statements as expenses; it is not a tax. So, we're not contemplating that. Regarding your second question, as you mentioned, now we are losing some market share, we have to double check the numbers, if it's a billing or number of plastics sold, we'll call you back during the morning, just to clarify what happened with the local business.

But Carlos, in general terms, our credit card portfolio has been very dynamic in terms of plastics, number of plastics, in terms of fees, in terms of interest rates; it's one of our focus. The portfolio is growing, it's not just growing in Colombia but it's also growing in the other markets in Central America. So, we have to double check the numbers. But, in general terms, it's growing healthy. And we're keeping our focus on credit cards and on payments specific, and it's going to be one of our main sources of income, of revenue in the future. José Humberto Acosta: Carlos, probably what's happened is billing in U.S. dollars for Colombian population because of the FX variation; people reduced in a very domestic way, the appreciation in the U.S. dollar grew. So that was one of the reasons that billing maybe showed some drop but we'll double check with you.

We have no further questions at this time. I'll now turn the call back over to Mr. Acosta for final remarks. José Humberto Acosta: Thank you very much and thank you all of you. And I hope to see you in the next conference. And if you have any specific questions, feel free to contact us, Alejandro, even in person with me. Thank you again.

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