Good morning, ladies and gentlemen, and welcome to Bancolombia's Fourth Quarter 2016 Earnings Conference Call. My name is Hilda and I will be your operator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. [Operator Instructions] Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses and credit losses. All forward-looking statements, whether made in this conference call, in future filings, in press releases or verbally address matters that involve risk and uncertainty. Consequently, they 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 Velasquez, Chief Strategy and Finance Officer; Mr. Jose Humberto Acosta, Chief Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mr. Humberto Hernandez, Chief Accounting Officer; Mr. Alejandro Mejia, Investor Relations Manager; and Mr. Juan Pablo Espinosa, Chief Economist. I would now like to turn the presentation over to Mr. Mora, Chief Executive Officer of Bancolombia. Please proceed sir.

Good morning, everyone. It's a pleasure to be here with you today to comment on the performance of Bancolombia during the fourth quarter as well as the year in general. I want to start by highlighting the solid results of Bancolombia during 2016. The net profit of COP 2.8 trillion represented an increase of 14% as compared to the previous year. Several reasons explained the good results. The strong operational performance of Bancolombia during the year and in particular, our Intermediation business was reflected in the net interest income. After provisions it grew by 25% driven by several factors. Higher interest rates on loans with a focus on maintaining funding cost at low levels. This led to NIM expansion coupled with volume growth in the Colombian operation. This trend confirms our previous conference calls expectations and was in line with our forecast from the beginning of the year. Provision charges were mainly due to some segments advantages of costumers on SMEs loans. Although, we had some cases of corporate clients that defaulted and therefore required additional reserves. Nevertheless, the growth in net interest income was able to absorb this higher cost of credit which was in line with our guidance for the year of 1.8%. On the fee front, we continued to see a sustained growth trend, result of the increased number of transactions and new products that we have promoted over the last years. Cards and insurance distribution remained the top contributors to our fee revenues. For the year 2016, the cost-to-income ratio was 51% lower than the 54.6% of 2015. In particular, we are undertaking initiatives in digital transformation along with developing channels that allow us to deliver our products and perform transaction in a more efficient way. The combined effects of higher revenues and strict cost controls…

Thank you, Juan Carlos. Now, I will ask you to go to a Slide number 3 in the presentation. After experiencing one of the most severe external shocks of the past decades to the fall in oil prices during the second half of 2016, the Colombian economy bottom and managed to adjust its weight in deficits and to moderate the acceleration of prices. In terms of growth, we foresee a modest recovery in 4Q 2016. Our growth forecast for disappear at these 1.7%, a 0.5% touch point higher than previous quarters brand. Regarding prices, 12-month inflation has receded from its speaker for almost 9% in July to 5.75% in December 2016. This correction reflects the fact that this play shocks such as aluminum phenomenon on the pass through of depreciation to consumer prices anticipated. A key element at the end of 2016 was that Congress approved the tax reform. It will generate additional revenues that we allow the central government to meet its deficit targets for the following years. Furthermore, it contains several elements that will stimulate private investment over the medium term. For 2017 we foresee more constructive macroeconomic conditions. The economy will benefit from higher term substrate, a gradual rebound in real incomes and a better performance of key sectors such as mining, agriculture and utilities. As a result, we forecast that GDP will expand by 2.3% this year. However, this forecast implies that the economy will still expand below potential. On the other hand after accelerating in the short-term, we expect inflation to keep adjusting downwards as demand pressures will remain absent. However, the increase in the general VAT rate and the persistent of high inflation readings make it highly likely that inflation will close this year above that target range. Our point forecast for December 2017 is 4.3%. In terms of monetary policy, inflation prospects point less contractionary conditions going forward. After some process in the next few months, we expect the Central Bank to cut its reference rate to 6.25% by the end of the year. Finally, we forecast that thanks to the rebounding experts the current account deficit will adjust from 4.5% to 4% of GDP which implies less external financing needs. Accordingly, the USD COP would fluctuate this year between 2,900 and 3,000. After December view of the economic environment, let me turn the presentation to Jose Humberto Acosta, who will discuss the Bank's results. Jose?

Thank you, Juan Pablo. Good morning, everyone. I would like to start the presentation of 2016 results mentioning three topics that impacted the financial evolution of the Bank. First, we completed the sale process of our stake in Tuya, the consumer grade unit that we run with Éxito. Since the sales announcement, we have stopped consolidated it and started treating that operation as this continue. With the completion of the transaction, we totally eliminate the contribution of Tuya and recorded a one-off gain of COP 161 billion, product of the valuation of our remaining stake in Tuya. From now on, our stake in Tuya will be reflected in the equity method on dividend line. As a result, the economics of this joint venture remain unchanged in terms of the income generation for both companies, Éxito and Bancolombia. Second, we also completed the integration of Leasing Bancolombia and Bancolombia S.A. With these transaction assets and liabilities of Leasing Bancolombia were transferred to Bancolombia and therefore on a consolidated level, we had some minor reclassification of loans. Other bank simplification of the legal structure of the group there was no material impact in the consolidation financials. Third, the tax line presented volatility during the year mainly explained by these factors. First, the FX variations in particular during the first quarter. Second, in the last quarter of the year we had a significant reversal of income taxes due to the utilization of fiscal credits. Finally, at the end of the year annual tax reform was approved by the Colombian Congress. The main goal of this reform is to balance the tax codes in between corporations and individuals and mid fiscal sustainability of the government. The year end Bancolombia's financial statement reflects the impacts of the deferred taxes due to lower statutory rate in…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have a question from Tito Labarta from Deutsche Bank.

Hi, good morning, thanks for the call. Couple of questions. I guess first on expenses. We did see a big pickup in expenses in the quarter. I think, there was additional maybe bonuses paid given the high ROE for the quarter, but that was partially due to the negative tax rate. So, I want to understand what will be more recurring level of expenses going forward? I know you mentioned for the year if you strip out Banco Agromercantil and the appreciation of the currency, it would be around 8%. Is that the kind of growth that we should expect going forward or it could be even maybe below that given the additional bonuses paid in the quarter and then the second question I guess is on the tax rates, I understand with the tax reform, the tax rates coming down, but it just still be pretty high in 2017, I think around 40% or maybe just below that. So what would be an effective tax rate that we should expect, I guess for this year and next year? And do you think it will come down to that 32% in 2019? So if you could give some more color on that? Thank you.

Thank you, Tito. Yes, we are expecting for this year 2017 an increase of expenses at around 8%, as you mentioned that’s correct. The pickup of expenses in the fourth quarter was explaining those factors that you mentioned. Again the guideline will be 8% for 2017 and we don't expect any major change on the expenses front. Second, the effective tax rate, yes, was 30% for 2016, we expect 35%, at around 35% for 2017 and maybe the same level for 2018.

Thank you. Our next question comes from the Thiago Batista from Itau BBA.

Yes. Hi, guys. Thanks for the completely presentation. I still have one question on loan growth. During the presentation, you already mentioned most of the guidance for the mainline of the business in 2017. But you didn't mention anything about a loan growth. Could you share with us your loan growth expectation for this year, divided by the main segments of the bank?

Thank you, Thiago. Yes, the loan growth that we are expecting for 2017 will at around 7% to 8%. In our geographies, the upper side of that range will be the Columbian operation maybe reaching the level of 9% and on the lower side of the range will be our operation in Banco Agricola that will be between 3% to 4%. In corporate loans, we expect a growth of 9% in consumer and SMEs, we are expecting a loan growth in Columbia operation at about 10%.

Thank you. Our next question comes from Alonso Garcia from Credit Suisse.

Good morning everyone and thanks for taking my question. I would like to touch base again in net interest margin, considering the lower Central Bank rate you are anticipating and also in terms of the kind of the mix you're expecting for loan growth in terms of segments and currency, and what is your forecast for net interest margin this year and what kind of margin on that securities is embedded in that forecast? Thank you.

Basically the NIM that we are expecting for treasury business, this is very complex to talk about it. But we are expecting to maintain on NIM, based on the assumption that the sovereign papers will be at a level of 7% and the funding cost at a level of 6%. We are expecting on NIM of at around 1%. Regarding the NIM for 2017, what will happen in Columbia, that will be a slightly compression of the NIM, because interest rates will go down. So we will expect a compression of the NIM of 10 bps. As we mentioned on the speech, previous in the U.S. dollar lending, we will expecting an increase of the NIM because of the interest rate of the asset sensitive condition that we have in our internal operations. Basically what we are doing right now is to promoting the increase of the loan portfolio in consumer and SME segments. Meanwhile, the corporate loans remain at a level of 7%. So you'll see in the next coming years maybe at a slightly change on the composition of the loan portfolio, take it and back that of the momentum of the economy. So our efforts in Colombia operation will be focused on retail machines business, as well as in Banistmo operation in Panama.

Thank you. Our next question comes from Ernesto Gabilondo from Bank of America.

Hi, good morning and thanks for taking my call. Two questions on my side. One is given the new tax reform is likely to affecting the bid loss, what are you expecting for the consumer loan growth and for the cost of risk, do you expect to create additional provisions related to Electricaribe or Oxbridge. And can you share with us Bancolombia's exposure in both cases. My second question is about the tax reform, I just want to know if this has excluded the wealth tax and I would like to know how much do you expect it, this could strengthen the capital ratio?

Thank you, Ernesto. The tax reform, no doubt that we will impacted in the consumer segment at least for the first half of the year. That's the reason why we are expecting and we are telling you that our guidance of cost of credit will be 1.8% to 2%, assuming some deterioration at the consumer front. But we believe that the second half of the year, the number will be much better in terms of that. Regarding corporate loans, yes, we have been doing a provision regarding some specific cases and again that 2% that we are telling you about cost of risk is including additional provisions that probably we have to do in the corporate segment. Regarding the wealth tax, that would be the final and in the first quarter you’ll see the final quarter of wealth tax, but we don’t foresee any other tax regarding corporate tax for 2018 neither 2019.

Thank you. Our next question comes from Maria Barriga from Davivienda Corredores.

Hello. Thank you very much for taking the question. I had one question regarding El Salvador operation which is rating agencies have taken negative actions against the countries rating, so I was wondering if our further rating could impact your operations there or an impairment? Thank you.

Thank you. Regarding our Salvadorian operation, we are focusing there in profitability. As I mentioned previously, loan growth will be very low at a level of 2% or 3%. The only impact that we received from the current situation in El Salvador that was the evaluation of our securities portfolio that we have in sovereign bonds in El Salvador, but if you double check the numbers of El Salvador, the return on equity remains at a level - on a very stable level. We don’t foresee any specific concern regarding liquidity. The last two years we have been working, diversifying the funding structure you see probably that we went to the market two years ago with bond issuance. So at the end of the day the operation remains stable and we are trying to focus to maintain the book in a very healthy way. And you see that the level of provisions there it is very high and the level of past-due is under control.

Thank you. Our next question comes from [indiscernible].

Hi. Thank you very much for taking my questions. I have two doubts that I will be glad that you help me to solve. My first question is regarding your operation in Central America. Can you tell us more about how is the operation going there? And my second question is regarding asset quality. Do you have any concerns about Bogota massive transport companies and small and medium size enterprises here in Colombia?

Okay. The operations in Central America, the growth there is still low. We are there promoting the products we are replicating in our experience here in Colombia with services focusing on retail and individuals trying to implement products technology. So we see a huge potential of upside on the retail business. On the corporate business, we are taking advantage in Panama for example. The loan growth there is positive, so at the end of the day - the next two, three years we will focus there on efficiency and try to improving operations basically helping with the loan growth. Regarding the asset quality and both names that you raised, we have right now enough level of provisions and this is up very - we are monitoring every month the situation, as again the 2% will reflect our idea about how we will increase the provisions for 2017.

We are also working very closely with the authorities of Bogota and also with the operators of the mass transport systems to work out the solution for the debt of the system. As Jose Humberto mentioned, meanwhile we have enough reserves to cover the risks while we are in the process of solving the situation.

Thank you. Our next question comes from Neha Agarwala from HSBC.

Hi, I have a question on the deferred tax assets, have you see or do you expect to see the impact from the division in the tax rate on your deferred tax assets and should that affect your effective tax rate in the coming year’s annual rate? Thank you so much.

Thank you, Neha. Yes, our tax rate you see was 30% in 2016. We expect 36% in 2017 and we will expect a kind of same level for 2018. The tax reform you never know what happen in the medium-term loan, so our expectations is to maintain almost the same level for 2017 and 2018 again 35% or 37%.

Thank you. Our next question comes from Edgar Romero from BBVA.

Hi, good morning. Thanks for the call. I have two questions. The first one is how much can we spend Bancolombia to provision in Puerta del Sol during the first quarter 2017? And the second one is how much does Bancolombia as committed in financial closings for projects just to expect how much their Bank will cash during 2017? Thanks.

Edgar, thank you for your question, regarding Puerta del Sol, we are ahead on provisions of what the law requires. So we are very comfortable with the level of provisions that we have right now and we don't expect during the first quarter any change from that and we also suspect that the situation is going to evolve in a way that we can find a solution on that project that is going to help the continuity of the 4G projects in Colombia. So we are very optimistic and as a matter of fact there are news today about how that situation is going to be solved and as a matter of fact we don't see any additional provisions. Regarding our commitments on the 4G projects, I just want to say first that 4G and infrastructure projects are very important for Colombia for the development of Colombia and Bancolombia and also as a financial system have committed to promote the development of the projects and I think that should be the case going forward. In the case of Bancolombia so far we have commitments around COP 5 billion and those commitments are going to be completed in the next four years to five years. And as we mentioned during our speech, we will keep analyzing any project and how they are going to develop in the future, but we are optimistic that the way that Puerta del Sol is going to be solve, it is going to mark the track for the development of future projects on 4G.

Thank you. Our next question comes from Sebastian Gallego from Credicorp Capital.

Hi, good morning, everyone. Thanks for the presentation. I have two questions. The first one is regarding efficiency in Central America operation. Could you share with us current level of efficiency in each of the operations where you have a bank and also could you share with us the target for each operation in terms of cost to income ratio? And the second question from my side is also an asset quality, I know when you mention your guidance of 1.8% to 2% in cost of credit, but could you share a low cases scenario for this year? Thank you.

Sebastian, yes, in terms of efficiency we have a very mature operations in El Salvador for example, which the level is below 50% of efficiency. But we have as you know very well, our - if I may say brand new operation in Banistmo, we have to implement new systems. We have to implement new procedures. So the level of efficiency there is still very high level. So in both cases on Banco Agromercantil, the idea is in Guatemala and Panama try to reduce that level and that would be a very long run. So we have to do it and the new target of two to three years to take a level of the three operations at least at a level of 50% to 55% efficiency level. That's the idea in terms of their international operations along with a growth and increasing the NII. Regarding asset quality we have scenario a positive of scenario assuming that some of the corporate case will run in a better position that the cost of credit would be - again the range would be 1.8% to 2%, but could be 1.7% in very optimistic scenario.

Thank you. We have no further question at this time. Do you have any final remarks?

We would like to thank for attending these conference call and your interest on Bancolombia’s results. We expect 2017 to be a year and which we continue to consolidate our operations in Central America to continue the trend on gaining efficiencies and looking for ROEs in the line that we mention. Again thank you very much for your interest in Bancolombia and we hope to see you soon and expecting to be with you on the first quarter 2017 results. Thank you very much.

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