Grupo Cibest S.A.

Good morning, ladies and gentlemen, and welcome to Bancolumbia's first quarter 2023 earnings conference call. My name is Ashia, and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Following the prepared remarks, there'll be an opportunity to ask questions. During the question and answer session, if you have a question, please press star, then one 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 a 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 risks and uncertainties. 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 Resilio, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, and Ms. Laura Clavijo, 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 first quarter 2023 results conference call. The results for the quarter show an overall good performance. Net income was 1.7 trillion pesos, driven by the bank's capacity to generate strong income on the loan and securities portfolios. that offsets higher operating costs on the back of peak inflation, high interest rates, and credit deterioration. As we will further elaborate after posting strong GDP growth in 2022, the countries in which we operate are now facing an economic slowdown. Particularly, Colombia is facing a deceleration in private consumption, adding pressures to an already challenging macro backdrop scenario with falling but still high deficits. The central bank in Colombia increased the reference rate up to 13.25% in its effort to control a picking inflation that reached 13.3% as of March. Given this macroeconomic scenario and the consequent adjustment in risk appetite in some portfolios, the loan book growth moderated in a quarter, posting a 1% drop on gross loans. On top of this, T-Peso appreciated 3.4% during the period, reducing the contribution of U.S. dollar denominated loans. Therefore, the loan book moderated its growth based on a yearly basis to 20%. Deposits were flat quarter over quarter and increased 20% year over year in line with the loan book performance. NIM was 7.2% with a slight 10% basis points drops quarter over quarter, but expanding 120 basis points year over year as a result of our asset-sensitive condition on which we will further elaborate. Net provisions for credit losses for the quarter were 2 trillion pesos, equivalent to a cost of risk of 3.1% for the quarter. This represents an increase of 17.5% quarter over quarter, driven mainly by consumer segment deterioration as household disposable income faces pressure on the back of high interest rates and persisting inflation. As expected, non-performing loans reflect the rollover deterioration with a 2.7% 90-day NPLs ratio. However, loan losses coverage remains strong at 218% for 90 days past due, while Basel III core equity Tier 1 ratio stood at 9.8% and total capital ratio at 12%, well above the minimum regulatory capital. OPEX decreased 4.6% quarter over quarter and grew 26% year over year, driven mainly by increases in wages and effects depreciation. Efficiency ratio for the quarter was 41%. All in all, higher income generation steaming out of the loan and securities portfolio contributed to offset the broad expense increase, posting an ROE of 17.7% for the quarter. However, as discussed in our previous call, less favorable global and local macro conditions have moderated Colombia's pace of growth after the strong rebound in the last two years after the pandemic. This, coupled with intensified political uncertainty, leads us to believe the economy will grow 0.6% during the year. It is still soon to assess other economic and social impacts arising from the government's ambitious reforms, particularly those related to fiscal imbalances. labor costs, and private consumption, as well as the new cabinet policy decision-making. We are following the situation closely as we continue committed to base our decisions on their combined short-term, long-term approach, confident on the strengths of Colombia's financial system and a robust regulatory framework. For further detail on the macro outlook, I will turn the presentation to Laura Cabijo, who was appointed as Bancolombia's chief economist after the resignation of Juan Pablo Espinosa. Laura?

Colombia experienced an impressive economic rebound following the significant impact of the COVID-19 pandemic. For the period comprising 2021 and 2022, the Colombian economy expanded at an average quarterly growth rate above 8% in real terms. spurred mainly by consumer demand, a dynamic services sector, and thriving activity in manufacturing. However, during the first months of 2023, economic activity has slowed significantly in response to higher inflation and rising interest rates. According to market forecasts, GDP is expected to grow below 1% with our forecast set at 0.6% for this end of year. For 2024, a moderate rebound is expected, coming from a lower growth base, with our estimates set at 1.6% of real GDP growth. High inflation has been a persistent theme in the Colombian economic outlook for the past few years, much in line with global rising prices. Inflation in Colombia peaked at 13.3% year over year during March and fell to 12.8% during this past April in what is thought to be the beginning of a much-anticipated downward trend. On the positive side, food prices increased at a much lower rate, enabling a drop from its 30-year peak of 27.8% in 2022 towards a lower level of 18.5% this past month of April. On the downside, there is an elevated risk of climate-related pressures to food prices for the second half of the year, in addition to sticky prices coming from regulated goods such as fuel and gas. Consequently, inflation is expected to fall to 9% this year and 4.8% in 2024, moving gradually closer but still far away from the central bank's target range of 2% to 4%. Even though inflation in Colombia remains a concern, subsiding core inflation may serve as a potential backdrop to halt further interest rate hikes. the central bank's reference rate saw at the beginning of May what could be its final rate increase of 25 basis points, reaching 13.25%, thus accumulating a 1,150 basis point increase since late 2021, when rates started to increase. Increasing interest rates have begun to pressure households and the financial sector's loan portfolio has deteriorated accordingly, especially in the consumer segment. Considering the economic slowdown, we anticipate the central bank will begin its cycle of interest rate cuts in the second semester of this year. On the fiscal side, higher than expected oil revenues and additional tax collection from 2022's budget reform will help the central bank's deficit to fall from the 7% to 8% level of the COVID years to around 4.4% of GDP in 2023, thus enabling the government to meet fiscal rule targets and at the same time increase social spending. Overall, the economic outlook for Colombia remains cautiously stable with moderating inflation and expected interest rate stability amidst an economic slowdown. Consumer confidence has dwindled to an all-time low amidst these economic challenges, political shifts, and social unrest. The left-wing government of Gustavo Petro has proposed significant changes to the status quo economic model through an ambitious agenda including tax, health, pension, and labor market reforms. More recently, a wide cabinet overhaul included the exit of Finance Minister Ocampo. This has set a new political scene in an attempt to advance in the approval of the reform agenda. Incoming Minister Bonilla, a close advisor to Petro, has announced continuity to former Minister Ocampo's agenda of prudent macroeconomic policy and fiscal sustainability. We will continue to closely monitor economic indicators, changing market conditions, and the political environment. Now, please let me turn back the presentation to Juan Carlos. who will present Banco on this quarterly performance.