Thank you, ladies and gentlemen, and welcome to Bancolombia’s Second Quarter 2017 Earnings Conference Call. My name is Karen. I will be your coordinator for today. [Operator Instructions]. Please note that this conference 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 risks and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, included -- including changes in general economic and business conditions, changes in currency exchange rate and interest rate, introduction of competing products by other companies, lack of acceptance of new products or services for 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. Rodrigo Prieto, Chief Risk Officer; Mr. Jorge Humberto Hernandez, Chief Accounting Officer; Mr. Alejandro Mejia, Investor Relations Manager; and Mr. Juan Pablo Espinosa, Chief Economist. I would now like to turn call over to Mr. Mora, Chief Executive Officer of Bancolombia. Please proceed sir.

Good morning, everyone. I am glad to be back with you today to comment on the performance of Bancolombia during the second quarter. I am pleased to present the results, which are in line with our expectations and behave according to our plan for 2017. They have been generated in a challenging environment that we’ll discuss during this call. Briefly, I want to point your attention to the following main topics. On the loan side, the portfolio maintains its growth dynamics and expands 8%. Colombia and Panama are the markets that lead the lease expansion and consumer loans. In particular is the segment that grows at a faster pace with a year-on-year increase of 19%. On the liability side, we continue growing the deposit base, especially CDs. Regarding capital, we continue with Tier 1 levels above 10%, which permit us to be prepared for the coming years with an adequate capital structure. During this quarter, we saw the 90-day past due loan ratio reach levels of 2.6%, mainly as a result of the economic cycle we are facing. In Colombia in particular, the deterioration comes from corporate clients and SMEs, which are impacted by sluggish demand and effects of problems experiencing in 2016 such as transportation strike and El Niño phenomenon and FX volatility. In the international front, we have experienced consumer deterioration in the segment, especially in Banistmo. Regarding NIM, and according to our initial forecast, we have been able to maintain it above 6%, mainly supported by maintaining the right funding structure while reducing the total cost -- funding cost. These numbers are the result of several strategies implemented over the last 18 months. Namely, focus on profitability. We continue growing the most profitable lines. In particular, consumer loans grow at levels close to 19%. This growth permits…

Thank you, Juan Carlos. Now I’ll ask you to go to slide number three in the presentation. During the second quarter of 2017, the Colombian economy continued to expand at a slow pace. For this period, we estimate a GDP growth of 1.4%, mainly due to a poor performance of internal demand, especially private consumption and investment. Households and firms are being cautious about their spending decisions because of several factors, including the negative effect of the latest tax reform, low confidence levels, a weak pace of job creation and still contractionary monetary conditions. On the positive side, the external sector is contributing positively to GDP growth, even their recovery of [indiscernible] exports and moderate variation of imports. Among sectors, it is worth mentioning the recovery that is experienced in agriculture and the resilience of financial and nonfinancial services, which, despite a moderating trend, are expanding above average. Going forward, we continue to predict that economy activity will slowly gain traction during the rest of the year. The cyclical shift will be driven by the reduction of interest rates and the transmission to financial market rates as well as a positive base effect. We estimate that in the second half of 2017 and the first half of 2018, growth rates will be slightly above 2%. Moreover, since the second half of next year, the economy should be growing around 3%. In terms of prices and the interest rate, after the downward [indiscernible] in August, we foresee that in the next few months, inflation will accelerate because of base effect and an upward correction of food prices. As a consequence, we foresee that inflation will close this year at 4.2%. As a result of these growing inflationary risks, the scope for the Central Bank to accommodate its monetary policy stance is…

[Operator Instructions] And we do have the first question from Guilherme Costa from Itaú BBA.

This is Guilherme Costa from Itaú BBA. I have 2 questions. First, could you give us some additional details about the reversion in the loss provision expenses of the Banistmo? What was the name of the 2 groups? You said Grupo Wisa. The other one I didn’t get the name. And have you reversed all the provisions you had for those 2 groups? And then my second question is about 2018. I know it’s too soon to talk about 2018, but could you comment on general terms, what are your main expectations for 2018, in terms of margins, loan growth, asset quality, fees and expenses? José Humberto Acosta: Thank you, Guilherme. Regarding your second question, our expectations about 2018. You see that the macro environment for the second half of the year is showing you a slight reduction of inflation, interest rates coming down, unemployment level, it remains stable. Industrial production is -- it’s beginning to growing up, exports also. So we believe that 2018 will be a year in which probably the GDP growth will be at around 2.3%, 2.5%. That means that probably the loan growth for 2018 will be 8% to 10%. So we do foresee a better environment for business, for corporate business and also for retail business. Regarding your first question, Wisa, remember that with Wisa, 2 quarters ago, we had a -- we had to increase the level of provisions because they were in an intervention. Finally in the second quarter of this year, we sold the project, the Soho Mall, and we were able to collect again the loan that we had. We only maintain a loan of at around 10% of the total exposure that we had in the past. So we reversed that provision in the second quarter. That explained the positive results of Banistmo that accounts -- and on this quarter more than 25% of the total income of the group.

[Operator Instructions] And our next question comes from Ernesto Gabilondo from Bank of America.

A couple of questions on my side. One question on NIMs. We saw the last 1.5 years, the re-pricing of your loan portfolio has helped net interest margins. But given the reduction of the reference rate by the Central Bank, I would like to know your view on NIMs for next year. My second question is on taxes. We saw that your effective tax rate was 29% in the second quarter. I just want to know if this should be the level for the next quarters. I remember that last year, you did some tax reversals in the last quarter of 2016, so I just want to know if there is room to do the same this year, or should we expect off year-over-year counts in the last quarter of the year? José Humberto Acosta: Thank you, Ernesto. Let me begin with your second question. The reason why the tax for this second quarter is low, below 30%, is because, as you saw in the presentation, that positive numbers coming from international operation are relevant. So remember that we are paying their 25% of tax, statutory tax, and also the FX help us, so when you increase the net income from international operations, you are having less tax to pay. And the other point is, we had also a very positive second quarter of the offshore operation in Panama. We pay 0% tax because it is an offshore. So because of combination of those 2 factors, that was -- our tax was below the 30%. For the year end, we expect a tax -- statutory tax range between 32% to 35% the second half of the year. Regarding your first question, NIMs, again, we are trying to maintain at a level of, as we mentioned, 5.7% to 6%. We expect that next year, based on the economy, growing -- and based on the interest rate, it remains probably at the same level. We are forecasting a NIM at the same level. I mean, the NIM for 2018 that we’re forecasting, it is between 5.6%, 5.7% to 6%. Basically, because we have strength in the funding cost, and we’re able to reduce the company cost as well.

And our next question from Jason Mollin from Scotiabank.

I’ll keep it to one. From a strategic point of view, we’ve seen you, according to the regulator numbers in Colombia, gaining market share, over -- looks like over 300 basis points from May 2016 to May 2017. Can you talk about that dynamic and this decision to grow faster than the system and maybe give us some color on who’s losing share, how you’re getting the share and maybe thinking about the dynamic of the asset quality, you mentioned the economy being difficult, and the decision to take the share at this point in time. José Humberto Acosta: Thank you, Jason. First, yes, we have been growing a lot, but we have been growing because of combination of 2 factors. The first one that we mentioned, which is consumer loans. We are growing at a pace of 25%. And yes, we are gaining market share on the consumer business here in Colombia. How we are doing that? Basically we are working with our current clients. Because of the analytics and the database that we have today, we are pre-approving credit to our current clients, and they’re taking advantage of that, and they are using the loans. So we are not increasing our consumer loans with new clients. It is with existing clients. And the math that we are doing is, the generation of NII, it’s better that the provisions that they are generated. So at the end of the day, it’s a business that is helping to increase over NNI -- NII to sustain the NIM and try to maintain the return on equity at a level below -- above 14%. Regarding other leasing operation, yes, we increased the loan volumes because remember that the last year, we merged our leasing operation in our loan book in Colombia. That’s the reason why it appears that we grew 300 basis points. It’s basically a consolidation process.

And our next question come from Tito Labarta from Deutsche Bank.

I’ll ask one question as well. I think Slide 4 on your presentation, it’s very helpful the breakdown by the different subsidiaries. But if we look at the ROE of each of them, if it wasn’t for the provision reversals at Banistmo, it looks like your ROE would be around 10% or maybe slightly below that given the different subsidiaries. So maybe if you can give some color for each of the subsidiaries. And what kind of ROE should we expect? I know you said 15% to 16% you expect in two, three years. But what about by subsidiary? Can you give maybe some granularity in each of the subsidiaries and where ROE should get to?

Thank you, Tito, for your question. Juan Mora here. Yes, you are right. The ROE of Banistmo at the second quarter of 2017 has some impact from our extraordinary income or the reversion of the provisions. What we are expecting regarding, ROEs on Banistmo, it’s to be around 10% this year, coming from 6% that you -- or around 5% last year. So it’s a big improvement on the ROE of Banistmo, taking out the extraordinary issues around provisions. So we are improving our operation in Banistmo. And for coming years, we expect that ROE to keep improving, reaching levels probably around 12% to 13%. In the case of the other operations, in Central America, Banagricola, we are expecting levels of ROE for the year around 11% to 12% and keeping at that level on the coming years. In the case of Banco Agromercantil, we are improving the entire operation. It’s slower than in the other ones. Since we just took control of the operation at the beginning of last year. So the ROE will be around maybe less than 10%, 8%. But we will keep improving the ROE also on BAM in the coming years.

And our next question from Carlos Macedo from Goldman Sachs.

A couple of questions, maybe following up a little bit on the last one. You talk about margins declining through the end of the year, cost of risk staying kind of where it is, loan growth not accelerating significantly, a bit of relief on expenses, but not too much. First half around 12% ROE. You talked about 12% to 13% maybe in the second half. Where does the difference come from given that you’re not going to have much relief from elsewhere in your income statement. And then following up again into next year, cost of risk at 2% for this year. Where do you think a through-the-cycle cost of risk can be? In the past it was as low as 1.5%. Is that something that you can return to once the cycle is done in Colombia? Or given the mix with more consumer now, would that be a bit higher? José Humberto Acosta: Yes, Carlos. Regarding your question, the ROE, how we will get to 12% to 13%. The main driver in our operation, how to increase the return on equity for the next coming quarters, is through the efficiency level. You are seeing that we came from 56% two years ago, and right now we are about a 51% area. So at the end of the year, again, 12% to 13%, because increasing of the equity side. But the key driver would be efficiency. Regarding the next year, basically, I’m sorry, you question was...

Yes, let me ask -- answer you the question, Carlos. Next year, we are expecting the cost of credit to be around 1.6%, 1.7%. We don’t expect next year to return to 1.5%. But on long run, we should expect to be around 1.5%. But not next year. Next year, we will be more around 1.6%, 1.7%. And let me complement the answer about this year ROE. You are right. Cost of credit is going to be around 2%. We wouldn’t expect an improvement there. As José Humberto mentioned, we still have some room on the efficiency side in expenses to improve. Also, fee generation is going to be a source of income that we expect to help us reaching the ROE that we are forecasting.

And we have our next question from Domingos Falavina from JP Morgan.

My question is more regarding those cost. I believe there was little bit of change in seasonality in this quarter. And also, I think, to Carlos’ question, the efficiency ratio is ultimately a consequence of your top line and your cost, right? And given you’re not expecting loans to accelerate too much next year and NIM to slightly come down, you would have to pretty much either cut cost or grow very close to zero. Is that the outlook you have for next year? José Humberto Acosta: Domingos, we expect to align the growth in expenses to inflation. So we expect next year that the increase of cost will be of the area of 4% to 5%. We have to invest it, we have an operational margin operations, but the relevant point is what’s going on through our channel distribution. You see that every single quarter, we are reducing the volumes through the branches, which is the big generating of cost. And today, we only process 4% of our total transactions through branches. So that would be the best way to maintain -- align the cost, basically, to inflation. So what we expect next year, we expect, as Juan mentioned, a reduction of cost of credit to 1.8%, maybe 1.7%, and expenses growth of around 5%. Loan growth will be of the area of 10% to 12%. If you combine those effects, we will probably get again a level of 14% to 15% of return on equity. But again, mainly -- the main driver will be efficiency. Fee generation today accounts only 8%, but this is basically, for the first half of the year, basically because of the economic cycle. But if you double check the numbers in the previous years, the fee generation, it’s on the arena of 12% to 15%. So with the economic activity increasing the second half of the year and maybe next year, you see again a re-bouncing of the fee generation, 10% to 12%.

And we have our next question from Alonso Garcia from Crédit Suisse.

In regard to the NIM, I would just like to confirm the kind of NIM [Indiscernible] that you expect or that you are embedding in your 5.7% to 6% NIM. I -- if I recall correctly, you had mentioned in the past that a normalized NIM on securities was close to 1%. So far this year, it has been above that. It was 3% -- 3.2% in the first few months, 2.3% in the second quarter. So I just wanted to check if you believe this 2.3% can be sustained? Or what kind of NIM [Indiscernible] is embedded in your guidance? José Humberto Acosta: Yes, Alonso, our forecast for the NIM of the securities always will be of the range 1%. What happened in the last 2 quarters. The 3% that we are having, this is basically because of the volatility of the [Indiscernible] interest rates. But we always forecast at around 1%, assuming cost of funding 3% and assuming the securities portfolio having an interest rate of 4%. So we don’t expect more [Indiscernible] of that.

And we have our question from Christina [Indiscernible]

On shareholders’ equity, we are seeing a significant increase of 13% in the cumulated of the others comprehensive fee income. What is causing this increase? Can we get more details about the situation? José Humberto Acosta: It is a combination of the FX. Remember that we have a portion of equity in U.S. dollars, and we are talking about that FX, the evolution of 5%. At the other end, it’s that we retain income from the previous periods. This is a relevant point, because if you double check the last 6 quarters, we have been gaining capital every quarter. And we will accumulate more, and the first quarter of next year when we have our general assembly.

And our next question comes from Sebastián Gallego from CrediCorp Capital. Sebastián Gallego: Just a follow-up on the -- on previous questions regarding efficiency. Do you have a specific target for branches for the next 12 months, or do you have other specific targets that you could comment on and you can share to reduce the OpEx? José Humberto Acosta: The target that we have -- as we mentioned previously is inflation, to increase same level of inflation. We don’t expect -- we don’t have especially task to reduce the branches, because it’s one of our strengths. We are optimizing and optimizing meaning maybe to merge some of them. But we don’t expect a more reduction in a very important way of branches. In Colombia, branches is critical, because it gives us capillarity and give us funding costs. On the international operation, we are contemplating an optimization of the branches in Banco Agromercantil in Guatemala. And you will see maybe more reductions in branches that we expect in the next coming quarters.

And our last question comes from Andres Duarte from Corficolombiana.

Regarding the tangible common equity ratio of 7.52% that you’re publishing, I wanted to know if you had a target ratio and what has been the evolution of it. José Humberto Acosta: Our target would be the range of 8%. And again, our target to maintain the Tier 1, which is more relevant, it is just to stay at the 9.5% to 10.5% the next 2 years.

And we have no further questions in queue.

We would like to thank you all for your interest on our presentation of the second quarter results. And we hope to see you on our next conference call. Thank you very much, and have a good day.

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