Good morning, ladies and gentlemen, and welcome to Bancolombia's First Quarter 2017 Earnings Conference Call. My name is Silvia, and I will be your coordinator for today. [Operator Instructions] Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit related expenses and credit losses. All forward-looking statements, whether made in this conference call, and future filings and press release or verbally, address matters and 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 and 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 will now turn the presentation over to Mr. Mora, Chief Executive Officer of Bancolombia. Please proceed sir.

Thank you. Good morning, everyone. We are glad to be back with you today to comment on the performance of Bancolombia during the first quarter of 2017. I want to start by highlighting the consolidated results of the bank during the first quarter. We had operated in a more challenging environment and that has been reflected in the moderated credit demand and higher provision charges. Nevertheless, our efforts in finding new sources of revenue such as fees and optimizing many processes across the organization have premier to offset these headwinds and to maintain a solid operational performance of the business. The net profit of COP 609 billion represented an increase of 53% as compared to the same quarter of the previous year. In general, we see very positive trends in the operational performance and despite higher deterioration these results are in line with our expectations. I wish to give you an update on our Central American operations. As you know, these operations are relevant component of our strategy to improve overall profitability of Bancolombia. Combined, our operations in Panama, El Salvador and Guatemala represents 25% of our assets and 20% of our profits. The incorporation process of Banistmo and Banco Agromercantil has involved amalgamation of risk, technology and operational standards. Now we are focusing our efforts in three main fronts. Efficiency gains, in particular in Panama and Guatemala where we have been optimizing the size of the branch network, as well as several operating processes. Fee generation, which today represents around 13% of the total revenues, a lower proportion than what fees represent for the whole group. We see fees as a perfect way to increase profitability while using the capital base of the bank in an optimal way. Introduction of new products. Connected to the fee generation strategy, we…

Thank you, Juan Carlos. Now I will ask you to go to Slide number 3 in the presentation. The Colombian economy started this year at a slow pace. During the first quarter, GDP grew 1.1%, slightly up below our forecast. The 4 activities with positive variations in that period were agriculture, financial services, social services and manufacturing. On the other hand, mining experienced largest contraction due to the negative performance of oil and metals production. Overall, this behaviour reflects the weakness of internal demand which was affected by the effects of the tax reform, especially the increase in the VAT rate and the higher tax burden for individuals. Other negative factors include increase in employment rate and the fact that the financial conditions remain tight. However, we continue to predict that activity will gradually gain traction during the year. The main drivers of this change in trend will be the moderation in inflation and the reduction of interest rate. In fact, during the past few months, several leading indicators have had more constructive readings. For example, energy demand construction rises as retail sales and the production and exports grew in March, while consumer confidence seemed to have bottomed. Finally, outstanding loans are again growing in real terms. Going forward, we estimate that GDP will accelerate. During the second half of the year, we will see higher expansion rate. Therefore, we keep our 2% growth forecast for the full year. In terms of prices and interest rates, we foresee that in the next few months, inflation will continue to soften, thanks to our supply and a positive base effect. However, after others, we anticipate some payback. Therefore, we forecast that inflation will grow the year at 4.2%, above the ceiling of the target range. This will gradually reduce the margin of…

Thank you, Juan Pablo. I would like to start the presentation for the first quarter of this year's results by elaborating on the evolution of assets and the position. We can go to side number 4. Total assets grew 3% year-over-year, impacted by the general appreciation of the peso during the year. When analyzing the growth by currency and geography, it was explained by 3 main components. First, loans in pesos in Colombia which give you 10.4%; loans in dollars in Colombia which decreased 10%; and loans in US dollars in Central American operations which grew 7.4%. Today, peso-denominated loans represents 64% of the total loan portfolio of Bancolombia, while dollar denominated represents 36%. The Colombian peso appreciate 3.8% over the last 12 months and the same percentage value over the past quarter as well. Now we - when we see the portfolio by segment, we see the following. In consumer loans which grew 16% year-over-year, we executed strategic targeting high-income individuals and segments with low indebtedness levels, while avoiding the riskier segments of the population. The main input for our scoring models in the east the track record of the client, along with the payment capacity, and this dynamic has also been an important driver of fees. In particular, we have been using data and analytics to estimate that credit capacity and offer lines of credit to clients that present attractive risk adjusted returns. Corporate loans, which grew 3% year-over-year, had a slower start of the year and we attribute this trend to low appetite of corporations to undertake new capital expenditure programs. Also, the low GDP growth of Colombia in the first quarter contributes to a lower pace of growth in corporate loans. Our guidance for this year, we will expect a loan growth at around 6% to…

We are ready to take questions.

Thank you. [Operator Instructions] And our first question comes from Domingues Costa from Itaú BBA.

Hi, good morning. And thank you for the presentation and the opportunity. My question is about the margins. Could you comment on the evolution of margins going forward? We saw a very good performance in this quarter due to the increase of spreads, the central growth [indiscernible] loans and also, the contraction in the cost of funding. But considering deferred contraction in the inventory cost rate, how do you see your margins evolving in the coming quarters? Do you expect a part of those positive effects we saw during this quarter to affect the contraction in the monetary cost rates?

Thank you. That’s a good question, very relevant for today's rate environment. Indeed, we are expecting more rate cuts in Colombia, but we have been positioning the balance sheet in a way that this effect is not as high on our NIMs, especially on the lending NIM. We have been promoting the origination of loans with a higher spread, and that’s basically is the main reason for the expansion that we saw in the fourth quarter 2016 and the first quarter 2017. Of course, we had a benefit from the performance of investments, which we believe, is not sustainable through the rest of the year. So we were basically putting our efforts in two fronts. First is maintaining the cost of funding of the bank as low as possible. We have around 60% of our total funding repricing or taking new rates within the next 12 months, so that's an advantage. And second, we're implementing some methodologies to better price each product that we originate today. That's, I'll say, the main component of our strategy, to price better our assets and to maintain margins as high as possible. For the rest of the year, we forecast NIMs combines loans and investment should range or move between 58 - 5.8% and 6%. So the 6.3% that we saw in the first quarter, we don't see it as a sustainable metric for the second or third quarter. It should experience some compression.

Okay, perfect. Thank you.

Our next question comes from Carlos Macedo from Goldman Sachs.

Good morning, guys. [indiscernible] but he is all right over there. A quick question, first, on taxes. 40% effective tax rate in the quarter, last year, you had a similar kind of behaviour and then in the fourth quarter, you reversed a bunch of taxes. I was trying to get an understanding what should we think about as the tax rate for this year and for the next quarters, really? Are we going to see a similar kind of path as last year? Second, asset quality. You talked a lot about the different categories, I just wanted to see if you had any visibility on two things. One, if there was already some sort of impact from the higher VAT on your newer vintages and even some of the older vintages in consumer lending in Colombia. And second, whether your forecast for higher unemployment in Colombia through the end of the year means more pressure on the asset volume of the consumer side. It was weaker on a 30 day, but it was stronger in a 90 day NPL comparison? Thanks.

Sure. Thank you, Carlos, for your question. Regarding taxes, remember this year we have a new tax regulation which basically eliminates some of the volatility that we have in 2016 in relation with the performance or the evolution of the FX. We were affected in our effective taxes that we paid in 2016 by the conversion of dollar denominated liabilities to pesos, and that created this high effective tax rate in 1Q and a reversion in the last months of the year. We do not forecast these volatilities in 2017. As a matter of fact, we are working ourselves with an effective tax rate, ranging from 35% to 37%, very much in line with a figure that we saw in 1Q. We're confident that we'll be able to forecast pretty accurately the income before taxes and this line should be less volatile and more predictable and basically, around 400 to 500 basis points below the statutory tax rate in Colombia. Remember, we have some operations outside Colombia, paying a lower statutory tax rate. Regarding asset quality, especially in the consumer side in this, we have seen a deceleration in consumption patterns, some loss of traction in the job creation process in Colombia. Basically, we have not seen that figure reflected yet in unemployment, but we are considering a potential negative impact in our performance, especially in credit demand and perhaps, some deterioration in these retail loans somehow related to the VAT increase that we had in 2017.

Regarding unemployment rate in Colombia, it has been flat during the past months. We are concerned it is not in that way for the next months, but we target credit policies in the last quarter of 2016, and we can see that for the end of the year, we are going to have a better behaviour of the consumer portfolios in both countries, in Panama and Colombia, they are the largest clients.

Okay. Thanks, guys. Thanks for the information.

Thank you.

Our next question comes from Jason Mollin from Scotiabank.

Hi. My question is related to the overall profitability levels. And we heard of ROE and ROA. We heard some comments that the near term, and I guess putting everything together, the margin that NIM expectation, 5.8% to 6%, expense growth in the 6% to 8%, provisions in the 2% of the risk, provisions to loans in the 2% range. It sounds like we're talking about ROEs in the 12% to 13% range going forward. When can we - when should we see some kind of turns, I mean, we're going to have the pressure on margins from rate, but when can we see this turn to the longer term 15% target that was mentioned as well for ROE? Thank you.

Thank you. Thank you, Jason, that's a very relevant question for strategy of Bancolombia. In this year, we are forecasting a ROE ranging from 12% to 13%. This is a year when our forecast on net income is relatively flat as compared to 2016, mainly impacted by high provision charges that we saw in the first quarter. We're finally seeing a positive impact of the efforts made in the efficiency front that should materialize in a different way in the second half of 2017. And we also forecast that in 2018, when the loan portfolio starts growing, we complete this credit cycle of higher NPL formation and provision charges that should be a boost for the bottom line of Bancolombia. So it is going to be a gradual process of ROE improvement. We intend to keep a similar level of leverage as the one we have today. So ROA gains will be the main driver for this ROE expansion, which again, should happen between 2018 and 2020, hitting this target 16% over the next 3 years. That is going to be a combined effect of lower provision charges, growth in the loan portfolio, therefore, growth in NII, sustained fee growth and cost control.

Thank you very much.

You’re welcome. Thank you.

Our next question comes from Nicolas Riva from Citi.

Yes. Thanks for taking my question is in loan loss provision. So I look at the cost of risk in the first quarter it was 2% which is just below last quarter and you're getting for 2% this year as you just said. At this level, this 2% level, it's still quite above the historical average for Bancolombia. If I go back 10 years, the average has been around 1.7% and given the current emphasis on commercial loans for many years in which cost of risk was even like 1.1%. So my question is it looks like the outlook for this year for loan loss provision is not going to be much of a change from the first quarter. But when can we expect the cost of risk to go back to your historical average? Thanks.

Well, we think that the situation in Colombia is not going to behave well as Juan Pablo told us in the economic review, but we think the cost of credit is going to be 2% in the year. The trend for the next year is going to be 1.6%, 1.5% if the economic conditions improve for the next 2 years. So I think that it is a year that we are going to see these levels, 2%, 1.9%, but for the next year, we are going to come back to the trend that we had during the last 5 or 6 years.

Sorry, so you said for next year, you are seeing the cost of risk, you said 1.5% to 1.6%, you said for next year?

I think that's for the next years, I mean, the 2018, 2019. But for this year, it's going to be to 2%, around 2%.

Okay. Thank you.

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

Hi, good morning and thanks for taking my call. Almost all of my questions have been answered, so just 1 from my side. So what are the challenges ahead for Bancolombia? How do you perceive the risks related to Electricaribe, System Integrale or [indiscernible] what is happening in El Salvador, and Grupo in Panama? On the other hand, despite the Central Bank continues to lower rates, how do you see that NIM for the year? I think you are no longer expecting NIM compression of 10 basis points, right? So that’s it. Thank you.

Thank you, Ernesto. Certainly, interesting questions. And several challenges, some of them are under the control of Bancolombia, some of them are not, in particular, the macro environment of the countries where we operate. Central America is a challenging region. You have seen the evolution of trends in Guatemala and El Salvador. We've got 2 significant operations that we also intend to improve in terms of profitability. So the macro in Central America as well as in Colombia will drive a significant portion of the growth that we will see in the coming years, and we are confident that the Colombian economy particular will rebound and will grow down faster in 2018 and 2018, driving credit demand and revenue generation. That's somehow is connected to the expectations and the challenges that we have in Central America. That's an operation that as Mr. Mora mentioned at the beginning of this call has been already integrated, but we still have many processes to be fine-tuned and improve to reach the levels of profitability that we want to have from this operation, bringing them up towards the average of the group, a help the overall improvement in the performance of Bancolombia. For this particular time in 2017, we are very concentrated on keeping the quality of the book. We saw already what happened in the first quarter in terms of NPL formation, we tend to keep this formation under control, in line with our risk appetite, and that involves making decisions to originate loans with better standards and follow the existing loans that you just mentioned, such as Electricaribe to try to recover those loans as possible, otherwise to make sure that we are conservative enough to make the provisions as to keep the coverage ratio in the level that we intend to have high hundreds for the 90 day standards. And finally, a long-term challenge or decisions that we have followed in the recent years is to improve the efficiency levels and the way that Bancolombia operates in an ever changing environment, particularly developing the and the channels they require the coming years to be more efficient in the distribution process of our products.

Thank you. About the expectations that the Central Bank continues to lower rates, how do you see the NIM for the year?

Yes. We are forecasting a year end rate of the Colombian Central Bank at 5.75%. Nevertheless, the sensitivity of our balance sheet today is lower than it used to be some years ago and we are positioning it in a way that we will not experience a NIM compression, or at least a significant NIM compression from this trend. We're paying special attention to the funding side of the business. It's very relevant, it permits to keep the funding costs relatively stable and low but most importantly, we are doing more - we're doing significant efforts in keeping the origination rates as high as possible, using better pricing strategies, selecting the best risk adjusted returns in our clients, using all the tools in our portfolio to maintain the NIM as high as possible, again we forecast 5.8% to 6% for the rest of the year.

Our next question comes from Marcelo Telles from Credit Suisse.

Hi. Good morning, gentlemen. Thanks for the time. My questions with regards to asset quality. You did mention the impact on your past due loans related to Electricaribe, I'd like if you could share with us what impact was on your provision expenses? And the other question related to asset quality is. You mentioned something like event credit origination, and risk policies, particularly on the consumer side. Can you detail a bit more what are you doing on that front to be more specific in those initiatives are systems that you have that is allowing you to be more or to better assess the risk of your client base? Thank you.

Okay. On the consumer side, we have [indiscernible] as I said since the last quarter of 2016 in both countries, Panama and Colombia. We had gone to other markets like low income that we are not going to be very emphasized on that segments of the market. So new that are - new loans that we licensed in January and February, those are quite good, so we expect a deterioration that we accumulated in the last year we are not going to have between in the second half of the year. So we consider that on the consumer side is going to improve for the second half of the year. Regarding SMEs, as we mentioned, we have funds last year with client factors and transportation - transportation problems with the sector in Colombia. We keep with that promise, but we at the end of the year, we are going to have on that portfolio of the loans, better behaviour. So we these policies on consumer side and SME side in Colombia and Panama. The other countries are behaving well, and we don't consider promise in Guatemala and El Salvador.

Our next question comes from Sebastián Gallego from CrediCorp Capital. Sebastián Gallego: Hi, good morning. Thanks for the presentation. I have 2 questions. Can you provide a breakdown of the deterioration on BBLs within the mortgage segment, first city in Colombia, and can you provide a bit more color on that front? And also, the second question is related to the Central America operation. Can you provide a target of ROEs for each of the operations in Panama, in El Salvador and Guatemala? Thank you.

The deceleration in the mortgage portfolio is more in the north part of Colombia and the central part. That's what we have seen. It's not very deep in regions, the range is about 5.5% and 7%, but it's not very different the behaviour in different cities in Colombia. And the second question Sebastian regarding... Sebastián Gallego: Second question was regarding the targets for ROEs, among the operations in Central America.

Yes, sure. Today, as you saw in the presentation, Central American operations combine our operating high-single digits ROE are under the IFRS standards. That is going to be a gradual process of improvement. We mentioned regeneration changes in mix in the loan portfolio, downsizing the size of the network and Guatemala in particular. We've believe having the right size is paramount for achieving efficiency levels that we intend to have. We wish to keep similar levels of efficiency across regions and certainly, Central America is a region that presents opportunities for improving this metric of bringing it down to levels to low 50s, more in line with the operation of the combined group. So for the next years, we will or we forecast an ROE even expansion of our on 1% for the year, we're moving up towards 14%, 15% that we have today in Guatemala. So the net contribution of the gain will be an improvement on the ROE on a consolidated basis for Bancolombia.

Our final question comes from Edgar Romero from BBVA.

Hi, good morning. Thanks for taking my questions. I have two, actually. The first one is can we speculate the second half of this year, margin from BBL to Electricaribe. And second one is related to a bank in Guatemala. I would like to have more detail on the results as long as even though there was drop in efficiency from 80% to 66% and net income actually dropped $10 million to $21 million, so what actually explains this drop in profitability? Thanks.

Could you repeat the question please. We didn't hear.

The first one or the second one?

The second one.

Okay, the second one is related to bank in Guatemala. Even, though inefficiency actually dropped from 80% to 66% in the quarter, the net income actually drop $10 million from $31 million to $21 million. So I'd like to see a little more detail on the results what actually explains this drop in net income?

Thank you, Edgar. In particular, in Guatemala, keep in mind that net income doesn't fully reflect efficiency condition of a band. Efficiencies calculated or we report it as operating expenses into operating revenues, that's before provision charges and Guatemala has been a market where we have accelerated the pace of provisioning, which of course, impacts the bottom line that you mentioned. And outside the most relevant part for our strategy in Guatemala is to reach the right size of the book, of the network of branches, excuse me. Basically, providing the platform that permits the bank to continue growing in this economy with the same infrastructure and capacity that we currently have, adjusting the back to the right size. And addition of the, we like the complement is we have accelerated the pace of amortization of intangibles that we have in that particular operation.

We have no further questions at this time. I'd like to turn the call over to Mr. Alejandro Mejia, Investor Relations Manager.

Thank you. Well, thank you all for being with us today in this 1Q '17 results. We expect to have you again in August when we report the second quarter numbers and if you have any further questions, please feel free to contact us. We'll be happy to help you. Thank you very much and have a great day.

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