Grupo Cibest S.A.

Good morning, ladies and gentlemen. Welcome to Bancolombia's fourth quarter 2022 earnings conference call. My name is Sachi and I will be your operator for today's call. At this time, all participants are in listen-only mode. Following the prepared remarks, there will be a question and answer session. During this question and answer session, if you have a question, please press star then 1 on your touchstone 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, whether 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 of new products or services by 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. Mauricio Rosillo, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mrs. Catalina Tobon, Investor Relations and Capital Markets Director, and Mr. Juan Pablo Espinoza, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.

Good morning and welcome to Bancolombia's four-quarter results conference call. We are very pleased to share with you our results for 2022, a year in which we delivered a strong performance and moved forward in our pursuit for sustainable development in the countries where we operate. Their income was 6.8 trillion pesos for the year, attributable to the combined effect of a positive economic background despite interest rates as per a contractionary policy stance and the good operational performance of the bank. Due to inflationary pressures, the central bank rose the reference rate 900 basis points during the year. Despite this sharp increase, the loan book grew 3.8% quarter over quarter, and 22.5% for the year. A significant expansion albeit a slowdown in demand in the fourth quarter. Long growth during the year was even amongst segments aligned with the overall improvement in economic activity. Meanwhile, deposits grew 5.6% during the quarter and 19.3% year over year, reaching an 85% share of the total funding mix as a reflection of the bank's capacity to attract competitive low-cost resources to fulfill its growing funding needs, even under more challenging market conditions. As a result, the NIM expanded to 6.8% for the year end as interest income generation outpaced interest expenses driven by loan growth, higher interest rates, and our asset sensitive condition. This, without any doubt, is one of the key competitive advantages of the bank and one of the drivers for ROE expansion last year. On the other hand, provisions for credit losses for the last 12 months were 3.7 trillion pesos, equivalent to a cost of risk of 1.6%, an increase of 56%. percent and is basically explained by a long growth and the low base of comparison versus 2021. Furthermore, provision for credit losses for the quarter were 1.7 trillion pesos equivalent to a cost of risk of 2.6 percent. This represents an increase of 49 percent quarter over quarter driven by combination of loan deterioration during the period, mainly in consumer segment. Expected credit losses as the economy slows down and rates remain elevated, and consumer related parameters and less favorable macro inputs. As per year end, allowances represents 5.5% of total loans, a coverage of 254 for 90 days past due, while Basel III core equity tier one ratio stood at 10% and the total capital at 12.5%, well above the minimum regulatory capital. Higher income generation and our efforts in cost control initiatives contributed to offset the overall increase in expenses, posting an ROE of 19.8% However, less favorable macroeconomic conditions globally and locally, coupled with political uncertainty in the countries where we operate, make us more cautious with regards to this year's performance. Factors such as persistent inflation, interest rates, and unemployment, so as the potential economic and social impacts of raising from government's ambitious reform agenda may impair economic activity. For further detail on the macro outlook, I will turn the presentation to Juan Pablo Espinosa, our chief economist. Juan Pablo.

Thank you, Juan Carlos. Now, please go to slide number three in the presentation. Latest data indicate that the moderation in economic activity that we anticipated a few months ago has already begun. GDP for the last quarter of 2022 surprised on the downside, with a year-on-year growth rate of 2.8%, so that full-year 2022 print was 7.5%, lower than our 7.8% estimation. This performance was mainly driven by a slowdown in consumption, which had expanded at double digits by six consecutive quarters and grew just 2.2% year-on-year in the fourth quarter of 2022. On the other hand, investment was the most dynamic component of demand with a growth rate of 10.3%, but in absolute terms, it is still below pre-COVID levels. For 2023, we keep our view that the Colombian economy will land to a growth rate close to 1% as internal demand cools off in a context of high inflation and interest rates, stringent financial conditions, and continued uncertainty. Factors that recover sharply after the pandemic, including retail, manufacturing, construction, and services, will decelerate more than the rest of the economy. This scenario will lead to a deterioration in the labor market, in which average unemployment rate will increase from 11.4% in 2022 to 12.1% in 2023. With respect to interest rates and prices, we anticipate that the central bank will finish soon the current hiking cycle with a terminal rate of $13.25. This is consistent with an inflation that will reach its peak this quarter at 14.3% and then will moderate gradually to close the year at 9.3%. Given that this number would be well above Barnweb's target, We foresee that the monetary policy stance will remain contractionary for a long time. Therefore, we forecast that the reference rate by the end of this year will be at 12.5%. Regarding the exchange rate, we forecast an average USD cop rate of 49.30 for 2023, up from 48.08 in 2022. This means that factors supporting Colombian peso weakness, including tight financial conditions, a large current account deficit, and uncertainty regarding the reform agenda will remain relevant. Moreover, this depreciation would exert significant pressure on core inflation. Finally, on the fiscal side, we expect central government deficit to reduce from 5.6% of GDP in 2022 to 4.2% of GDP in 2023, a number that incorporates the additional collection from the latest tax reform as well as higher revenues by the oil sector. Actually, this will allow the government to meet with the fiscal rule targets and at the same time increase spending as is contemplated by the amendment of the public budget that was submitted to Congress a few days ago. After this economic overview, let me turn the presentation back to Juan Carlos. Juan?