Medellin-Based Bancolombia Net Income Soars Despite Colombian Economy Dip

Bancolombia – already Colombia’s biggest bank and now operating in 10 countries in Latin America – on March 9 reported a 21% year-on-year (y-o-y) jump in fourth quarter (4Q) 2015 net income, to COP656 billion (US$207.9 million).

Full-year 2015 net income rose 5.5% y-o-y, to 2.5 trillion (US$792 million), according to the company.

The bank’s net loan portfolio increased 27.2% for full-year 2015 and 9.3% for 4Q 2015, “driven by commercial and mortgage loans” as well as the depreciation of the Colombian peso (COP) versus the U.S. dollar, according to Bancolombia.

Net interest income grew 20.4% y-o-y during 2015, and 13.6% y-o-y in 4Q 2015, according to the company. Net fees grew 9.2% in 2015 and 2.2% in 4Q 2015, “mainly driven by an increase in fees related to credit and debit cards, banking services and by the distribution of insurance products through the bank’s network,” according to the Medellin-based banking giant.

“The balance sheet remains strong. 90-day past due loans at the end 2015 were 1.8% of total gross loans (3.0% for 30 days) and the coverage ratio for these past due loans was 209% (115% for 30 days),” according to the company.

As of December 31, 2015, Bancolombia’s assets totaled COP 192.97 trillion (US$61 billion), up 28.9% in 4Q 2015 versus 4Q 2014.

“The increase in assets in the quarter and in the year was explained by the organic growth of the loan portfolio as well as by a depreciation of the COP versus the US dollar of 2.0% during the [fourth] quarter and 31.6% over the past 12 months,” according to Bancolombia.

“Mortgage loans denominated in COP presented a dynamic performance, growing 4.1% quarter on quarter. The dynamism of mortgage lending in Colombia is explained by lower long-term interest rates, as well as by the Colombian government’s interest rate subsidy programs.

“On the other hand, the mortgage balance denominated in currencies different from COP from our operation in El Salvador, Panama and Guatemala accounted for 43% of the mortgage loans at the end of 4Q 2015,” according to the company.

“Bancolombia maintains a strong balance sheet supported on an adequate level of loan loss reserves. Allowances for loan losses totaled COP 4.8 billion [US$152 million], or 3.4% of total loans at the end of 4Q 2015. This proportion decreased in comparison to the 3.6% presented at the end of 3Q 2015,” according to the company.  

On a related front, the “Bancolombia Panama SA” subsidiary recently paid US$151 million to acquire an additional 20% of the common stock of Grupo Agromercantil Holding S.A. (GAH), a Panamanian company that owns the Conglomerado Financiero Agromercantil of Guatemala, which includes among others, Banco Agromercantil of Guatemala (BAM).

Meanwhile, Bancolombia also announced March 14 an “alliance” with Netherlands-based ABN Amro Bank that will enable its institutional clients to tap ABN client services.

Colombian Economic Outlook

In a March 10 conference call with investment analysts, Bancolombia’s chief economist Juan Pablo Espinosa predicted that Colombia’s gross domestic product (GDP) will grow by 2.6% in 2016, down from 3.1% in 2015.

However, Colombia’s economy this year “will benefit from the substitution of imported goods for local production, the recovery of manufacturing, and the execution of the infrastructure projects,” Espinosa said.

What’s more, “we expect inflation to experience a significant correction in the second half of the year [2016] . . .

“Despite the weakening of the peso since 2014, we foresee that Colombian current account deficit this year will remain above 6% of GDP. This high level reflects the negative impact of lower commodity prices as well as low elasticity of both exports and imports to real depreciation.

“Therefore, not only Colombia will remain highly dependent on the international capital inflows but our view for the Colombian peso is still bearish. In fact, our year-end U.S. dollar forecast is [COP$]3,400 [per US$1].

“Regarding fiscal policy, the recent budget cut announced by [the national government] makes it more likely to meet central government’s deficit goal of 3.6% of GDP for this year. Nevertheless, we think that additional austerity measures, particularly in the expenditure side will be necessary in 2016 and 2017.

“Moreover, medium-term scenarios reveal that our comprehensive tax reform and that increase of central government revenues by 3% of GDP or more is key to achieve the path of deficit reduction set by the fiscal rule.

“Against this backdrop, we think the Colombia has the ability to achieve an ordered landing of its economy which is necessary to mitigate twin deficits and control inflationary pressures. This adjustment will pave the way to more constructive macro conditions next year,” he said.