September 30, 2023

Bancolombia 1Q 2016 Net Income Dips Year-on-Year

Medellin-based Bancolombia – Colombia’s largest bank with a growing international presence – on May 23 announced that its first quarter (1Q) 2016 net income fell 37% year-on-year (y-o-y), to COP$397 billion (US$129 million), reflecting the impact of Colombia’s slowing economy.

However, Bancolombia’s net loan portfolio grew 21% y-o-y, “explained by organic net loan growth, the depreciation of the [Colombian] peso, and by the incorporation of the BAM [Banco Agromercantil de Guatemala] loan portfolio in 2015, which explains 6.4% of the total growth,” according to the company.

Net interest income grew 29.9% y-o-y, “explained by sustained growth in the loan portfolio and by an improving net interest margin, which increased from 5.6% in 1Q 2015 to 5.7% in 1Q 2016,” according to Bancolombia.

Net fees increased by 18.9% y-o-y, “mainly driven by an increase in fees related to banking services, electronic services, credit and debit cards, distribution of insurance products through the bank’s network, brokerage, and international wire transfers,” according to the company.

Net provisions increased 16.7% y-o-y “but were offset by the solid growth in net interest income. This increase in provisions is explained by specific defaults related to a few corporate clients and to some deterioration in the consumer segment,” according to the company.

Meanwhile, Bancolombia’s income tax surged 113% y-o-y, “explained by the inter-quarterly exchange rate fluctuations experienced last year [which] create differences between financial accounting and tax accounting, which in turn made the effective tax rate 56% in 1Q 2016,” according to the company.

In an earnings call with stock analysts, company CEO Juan Carlos Mora bragged that Bancolombia now has the largest market share in Colombia with nearly half of all banking transactions. Bancolombia also is the lowest-cost banking operator and enjoys a “more sustainable funding base,” Mora added.

Bancolombia “invested heavily in technology over the last six years” because the fastest-growing banking channels now are electronic and mobile, he said. “Digital banking is the best way to tap the markets where 50% of the GDP and the labor force is informal and where four out of five people do not have a credit product,” he added.

In the same conference call, Bancolombia chief economist Juan Pablo Espinosa cited the impact of a slowing Colombian economy, with a likely growth rate of just 2.6% this year, compared to earlier expectations of around 3%.

As for national inflation, Bancolombia expects recent price pressures to moderate from levels that had approached 8% earlier this year. As a result, full-year 2016 inflation is likely to come-in at around 5.4%, he said.

As for the Colombian peso/U.S. dollar forecast, Bancolombia expects the peso to be trading at around COP$3,180 to US$1 this year.

Bancolombia maintains about 20% of its equity in U.S. dollars, so “we don’t expect a major impact on [corporate] capital because of devaluation,” Espinosa added.

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