Grupo Cibest S.A.

Good morning, ladies and gentlemen, and welcome to Bancolombia's third quarter 2020 earnings conference call. My name is Vanessa, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touchtone phone. Please note that this conference is being recorded. 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 rather made in this conference call, in future filings, in press releases, or verbally, address matters that involve risk and uncertainty. 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 to new products or services by our targeted clients, changes in business strategy, and various other factors that we describe in our reports filed with SEC. With us today, Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Mauricio Rocio, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, Mr. George Humberto Hernandez, Chief Account Officer, Mr. Carlos Rod, Ambassador Relations Director, and Mr. Juan Pablo Espinoza, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer of Banco Lomita. Mr. Juan Carlos, you may begin.

Good morning, everybody, and welcome to our conference call for the third quarter of 2020. I hope all of you and your families are safe and healthy. During the third quarter, Colombia ended the mandatory preventive isolation. The country is now facing the double challenge of containing the second peak of infections, while at the same time, gradually reopening the economy. The data have shown that September was the best month since the start of the health crisis, reflecting a better performance of agriculture and mining sectors, complemented by the reactivation of retail and construction, activities that have benefited from more freedom of movement in the main urban centers. While we are still in a very uncertain environment During the third quarter, Bancolombia performed better than the previous one. The net income for this quarter was 280 billion pesos. Before getting to the details of the results, I want to mention two key topics. First, regarding credit risk, we recorded 31% less provision charges compared to the second quarter of this year, as a reflection of a better economic activity and the increase of mobility in the main cities of the country. The cost of risk decreased during the quarter, but it still reflects weak economic outlook related with the pandemic. This provisioning level and the lack in NPL's formation results in a coverage ratio of 232% for the quarter. The second point is regarding our digital strategy for Bancolombia. Digital transformation is a continuous process and a medium to generate solutions that meet the needs of people and companies. This has a higher goal. to promote sustainable economic development to achieve wellbeing for everyone. We started this strategy three years ago, and now we're showing very positive results. The actual health crisis has made possible to see the preparation of the bank in terms of digitalization. From the moment that providing isolation measures led us to limit physical operations, we were able to redirect most of our clients' needs to digital channels. Today, we have more than 12 million digital clients. At this point, I want to turn the presentation to Juan Pablo Espinosa, who will further elaborate on the performance of the Colombian economy. Juan Pablo. Thank you, Juan Carlos.

During the past few months, the Colombian economy has rebounded from the low since in April and May, as lockdowns came to an end. Due to a gradual resumption of activities in most sectors and higher mobility within the country, GDP variation went from minus 15.7% year-on-year during the second quarter to an estimate of minus 9.7% in the third quarter. Moreover, initial data suggests that at the start of the fourth quarter, the pace of contraction has adjusted further, to around minus 7.6% year-on-year. This recent recovery trend is consistent with our full-year, probably adjusted projection of minus 8.1%. Going forward, uncertainty and risks remain significant especially due to the possibility of rising COVID-19 cases that might force authorities to impose new containment measures. Nevertheless, we think that the negative output impact on the economy of such a scenario would not be as large as we saw in the first half of this year. Other relevant risks are the second round effects of the shocks that have taken place since March. including permanent job losses, the reduction of disposable income, and increasing poverty. However, moving into 2021, we also identified several factors that will promote economic growth. Low interest rates and stimulus programs laid by the government in sectors such as infrastructure and housing will combine with a more positive global context and higher terms of trade. As a result, next year we predict that GDP will recover at a probability adjusted rate of 5.2%. Consistent with this, we anticipate a mild improvement in the labor market. We expect that urban unemployment rate will average 19.3% in 2020 and will adjust to 17.3% in 2021. Regarding inflation, given the ample negative output gap, as well as an abundant supply of food, we think that downward pressures will continue to determine the performance of CEI, leading its annual variation to close this year near to 1.5%. Inflation will only start to accelerate gradually in the second half of 2021, and by then activity will start to gain traction, and some relief measures taken during the pandemic are reversed. Hence, by the end of next year, annual CPI change will go back to the lower half of the target range. Against this backdrop, we predict a long period of low and stable interest rates. We expect that reference rate will be at its current level of 1.75%, at least until the second half of 2021. when the central bank will do some upward fine-tuning in order to keep inflation expectations unchecked. Finally, a factor that will drive the performance of the Colombian economy during the next two years will be the adjustment of the central government's deficit after its large widening during the pandemic. Our scenario suggests that the pace of fiscal consolidation will probably be more gradual than initially estimated by authorities. However, implementing actions that lead to an stabilization of public debt will be key to maintain the country's investment rate and give access to external financing. Now, I want to turn the presentation back to Juan Carlos.