Grupo Cibest S.A.

Good morning, ladies and gentlemen, and welcome to Ban Colombia's second quarter 2023 earnings conference call. My name is Alan, and I will 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 touch-tone 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 precision, 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 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, Mr. Rodrigo Prieto, Chief Risk Officer, Mrs. Catalina Tobon, Investor Relations and Capital Markets Director, and Mrs. 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 second quarter results conference call. To begin, please go to slide two. The results for the quarter reflect the less favorable macro conditions under which the bank is currently operating. In Colombia, in particular, the circumstances have become more challenging due to the economic slowdown driven by lower internal consumption lower trade flows and less dynamic foreign direct investment with an underlying high inflation that has kept interest rates high, as we will further elaborate. These circumstances have discouraged credit, harmed asset quality and elevated operational costs, driving a moderation on the loan book and income growth, resulting in a net income for the quarter of 1.5 trillion pesos. It is worth to highlight the stronger contribution that the Central American operations is delivering as all three banks in the region continue making progress on income generation, cost control, profitability, partially compensating the current slower growth of the Colombian operation and providing the merits of our diversification strategy. Due to the Colombian peso appreciation on the quarter that reduced the contribution of the U.S. dollar denominated loans, the consolidated loan book contracted quarter over quarter, albeit still growing at a much moderated rate year over year on the back of lower credit demand. Similarly, deposits also fell during the quarter due to FX appreciation and slowed its pace of growth on a yearly basis. Furthermore, as interest rates remained high, the shift from savings to time deposits continues, exerting more pressure on the funding cost. NIM remained high, posting a 6.7% for the quarter, driven by the lending margin as per our asset-sensitive condition. We recorded 2.1 trillion pesos in net provisions equivalent to a cost of risk of 3.1% for the period. However, it is showing a descending pace of growth, suggesting a better forecast in terms of deterioration as we will further elaborate. The coverage ratio of the 90-day NPLs is 207%. Basel III core equity tier 1 ratio increased to 10.4%, well above the minimum regulatory levels, reflecting the capacity to generate organic capital. OPEX increased mainly as a matter of inflation and higher taxes and efficiency ratio reached 44%. All things considered, strong NIMH and other operating income performance offset higher costs and expenses, which coupled with smaller loan book result in a ROE of 15.7% for the quarter. Going forward, even as the government's ability to pass through its ambitious reform agenda has lost some ground, it is still soon to assess the potential economic and social impacts that this or other set of initiatives may have particularly due to fiscal imbalances, labor costs, and deterioration on country risk sentiment. We continue committed on our long-term strategy, confident on the robustness of Colombian institutions and the regulatory framework. For further detail on the macro outlook, I will turn the presentation to Laura Clavijo, our chief economist. Laura?

Thank you, Juan Carlos. Indeed, our updated economic forecast for Colombia posed a more promising scenario for 2023 than previously expected. Nonetheless, modest growth for 2024. Despite the resilient performance of the Colombian economy with 3% GDP growth in the first quarter, we anticipate a further slowdown in economic activity during the second half of the year. For 2023, we have doubled our growth forecast to 1.2% from April scenario of 0.6%, driven mainly by the statistical carryover effects from solid first quarter growth, and we expect moderate GDP growth of 0.9% for 2024. In fact, weakening economic activity is already evident in monthly leading indicators that reflect a meager 0.5% growth as of May. Private consumption and investment have been pressured by high inflation, rising interest rates, and declining consumer confidence, impacting performance of key productive sectors such as retail, transportation, construction, mining, and manufacturing. On the positive side, inflation has consistently fallen over the course of the past few months. After peaking at 13.3% in March, PPI has decreased to 12.1% year over year as of June, driven by declining food prices. However, inflationary pressures to core inflation persist. Fuel price adjustments, indexation of service fees, particularly in housing, as well as increases in electricity and gas tariffs will remain stubbornly high. Consequently, we maintain our 2023 inflation forecast of 9% end of year, but foresee potential pressures to regulated goods and food prices in 2024, resulting from indexation and climate-led effects from the phenomenon of El Nino. Only in early 2026 should inflation return to the central bank's target. Receding inflation, labor market resilience, and overall stability in the financial sector has enabled the central bank to halt interest rate hikes and keep rates stable at 13.25%, during the past few months. If given the conditions, we expect the central bank to begin cutting rates as early as October and up to 75 basis points before year end. Expectations of an ending tightening cycle, both globally and locally, have contributed to easing market conditions and improving terms of trade. Finally, in comparison to a year ago, there are notable corrections in Colombia's macroeconomic imbalances, which have improved our country risk position, reflect better financing conditions, and reduce vulnerability to external shocks. Indeed, we've seen a process of adjustment in the current account deficit, which has improved from a 6.2% of GDP deficit in 2022 to an expected 3.6% deficit this year, unfortunately driven by a significant slowdown of both imports and exports. On the fiscal side, the central government's deficit is expected to adjust to 4.3% of GDP in 2023, which signals a significant improvement from the 7% level deficit of 2021. Nonetheless, the government relies on uncertain sources for additional income, such as litigation and tax collection efficiencies, amidst increasing social spending goals and decreasing global oil prices. In sum, 2023 began with an overall negative outlook regarding global growth and Colombia's expected economic performance. Even though this year will be, in fact, characterized by an economic slowdown, this is now expected to occur in a far more positive scenario, driven by receding inflation and expectations of an ending tightening cycle. Now, please let me turn the presentation back to Juan Carlos, who will present Bancolombia's quarterly performance.