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Bancolombia says improved credit quality will continue to drive profits

Bancolombia SA, which booked a 58% increase in its second-quarter profit, expects sustained loan growth and improving credit quality will continue to drive results through the second half of the year, executives said.

Speaking during an Aug. 6 conference call to discuss the bank's results, CEO Juan Carlos Mora credited the bank's improved result to both improved credit quality and customer expansion across its lending channels. Together, he noted, Bancolombia has been able to lend more without seeing an uptick in credit deterioration.

"The deterioration on the loan portfolio has decreased in recent months and that implies lower provision charges," Mora said, adding that a recent charge-off tied to the now-liquidated power company Electricaribe had improved credit quality ratios.

Past-due loans at the bank came to 4.71% of total loans at the end of the second quarter, down from 4.98% in the prior quarter and 5.20% a year earlier. Loan growth hit 9% year over year to 177.991 trillion pesos, driven in large part by a more than 26% jump in consumer loans.

"Cost of risk in 2019 will be below 2% as we expect the trend observed during the first half of the year to continue," the executive noted. Cost of risk excluding corporate cases, including Electricaribe and the scandal-plagued Ruta del Sol highway project, was 1.7% during the second quarter, according to the company.

These trends come as Bancolombia's total transactions rose 26%, with those conducted through mobile channels jumping more than 50%, the CEO noted. Bancolombia added some 1.3 million customers during over a 12-month period, while new channels like digital banking unit Nequi added about 100,000 new customers each month in recent quarters.

Economic recovery moderating

With the pace of Colombia's economic recovery has leveled off in recent months, the Medellín-based lender expects the Colombian economy to grow about 3%, in line with central bank forecasts. Bancolombia also expects Colombia's central bank, Banco de la República, to keep its benchmark interest rate at 4.25%.

Despite some volatility regarding the Colombian peso and sluggish economic conditions throughout Latin America, Mora said expectations for Bancolombia in the rest of 2019 remained in line with its performance so far, or "moderate growth on the loan portfolio, around 7%, stable margins of about 5% to 8%, efficiency ratio of around 48%."

As for Bancolombia's activities in Central America, CFO José Humberto Acosta Martin noted "positive trends," with Panama's Banistmo SA expanding its net interest margin and consistent loan book growth at El Salvador's Banco Agrícola SA, along with stable funding costs. For Banco Agromercantil de Guatemala SA, the CFO highlighted an update in the coverage of corporate clients as the main reason for a sharp decrease in net income at the unit during the second quarter.

As of Aug. 5, US$1 was equivalent to 3,468.30 Colombian pesos.