Grupo Cibest S.A.

Good morning, ladies and gentlemen, and welcome to Banco Columbia's fourth quarter 2023 earnings conference call. My name is Robert, and I'll be your operator for today's call. At this time, all participants are on 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 hit star 1 on your telephone keypad. 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 current 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. Julian Mora, Chief Corporate Officer. Mr. Jose Humberto Acosta, Chief Financial Officer. Mr. Rodrigo Prito, Chief Risk Officer. Mrs. Catalina Tobin, Investor Relations and Capital Markets. Director and Mrs. Laura Clefio, Chief Economist. I'd now like to 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. Please go to slide two. As anticipated, 2023 has proven to be a year of significant challenges for the Colombian financial system. The prevailing high interest rates and inflation have had a discouraging effect on credit growth. resulting in reduced net interest income generation. Furthermore, these factors have adversely impacted loan quality and led to an overall increase in operating costs. In light of the prevailing macroeconomic environment, Bancolombia's net income for the quarter reached 1.4 trillion pesos. indicating a 3% reduction compared to the preceding quarter. For the entire year, the net income amounted to 6.1 trillion pesos, representing an approximate 10% annual decline. The primary drivers contributing to this decline are, firstly, a 1.5 quarterly and 6% annual contraction in the loan book portfolio due to the reduced credit demand and diminished risk tolerance, resulting in slower growth of interest income. Secondly, a net provision charge that increased by 7% quarterly and 97% annually consistent with the current credit cycle. Thirdly, higher operating expenses, which despite stringent cost control measures, remained under pressure due to increased taxes and labor costs. In addition, it is crucial to highlight the substantial 20.5% annual and 5.7% quarterly appreciation of the peso, leading to a decrease in the volume of loans and the interest income contribution of the dollar portfolio in the consolidated financial statements. As the loan portfolio experienced continued repricing at elevated interest rates, the cost of risk was recorded 2.7% for the quarter and 2.8% for the entire year. This reflects the anticipated slowdown in the past due loan formation compared to the first half of the year, which was a result of the comprehensive measures taken. Deficiency ratio ended the quarter at 49% and 45% for the entire year, indicating that the growth in operating expenses surpassed the growth in income, as previously discussed. The aforementioned factors exerted downward pressure on the return on equity, resulting in a 15.2% ROE for the quarter. and a 16.1% for the entire year. The total solvency ratio experienced a notable increase of 57 basis points during the quarter, ending in a year-in-figure of 13.4%. This positive development was primarily attributed to a significant expansion of 105 basis points in core equity Tier 1. and Colombia's robust organic capital origination capabilities, coupled with a reduction in the risk-weighted assets, were the driving forces behind this achievement. As a positive indicator and a testament of the bank's inherent capabilities, the generation of sound net interest margin has proven sufficient to absorb increased provision in expenses and costs while maintaining meeting return on equity. of Central American banks and offshore operations made a larger contribution to the overall group results, despite the prevailing economic and political environment in each country. We maintain our conviction that the recent downward inflationary trends in Colombia will enable the central bank to pursue a sustained interest rate reduction strategy. This, in turn, is expected to stimulate credit demand and improve asset quality in the long term. We anticipate opportunities for credit growth primarily in housing, renewable energy, and agribusiness sector as the government advances public spending. For a more in-depth analysis of the macro outlook, I will pass over the presentation to our chief economist, Laura Clavijo. Laura?

Thank you, Juan Carlos. Now, please go to slide three. The global economic backdrop of tight financial conditions, declining consumer demand, and lower commodity prices combined with local challenges due to high inflation, low investment, and receiving consumer sentiment carved the path to a significant economic slowdown in Colombia. Overall, 2023 proved to be a very challenging year for the Colombian economy and resulted in GDP growth of just 0.6% year over year, the lowest level in over three decades, excluding the COVID years, and well below market expectations and our own forecast of 1.2%. Despite the lackluster results, the final quarter of 2023 signaled a slight expansion of 0.3%, rebounding from a 0.6% contraction during the third quarter, mainly driven by 6% growth in agriculture and 5% expansion in public administration. Construction, manufacturing, and retail sales continue to underperform. The biggest culprit to economic stagnation lies with public and private investment, which fell close to 25% during 2023. Total investment as a percentage of GDP has consistently declined since the pandemic, from levels of 22% to just 17% last year. This scenario weighs heavily on our GDP outlook for 2024, which stands at 0.9% annual growth. On the more positive side, inflation has continued its downward trend, closing the year at 9.3% and falling further towards the 8.3% mark in early 2024. Receding food prices help explain much of the defense, but core inflation has come down consistently towards 7.9%. The drought season coming from El Nino has pressured energy prices to some extent, but has proven to be much milder than initially expected. We maintain our 5.9% year-end inflation forecast, considering some upward pressure from potential default price hikes and the effect of stubborn prices in services such as housing. Given this macro scenario of falling inflation amidst the economic slowdown, the central bank began cutting interest rates in late 2023 and early 2024, accumulating a 50 basis point reduction thus far. Currently, the intervention rate stands at 12.75%, and we expect it may come down towards the 9% level at year end. We maintain our view that 2024 will be a year of gradual recovery, especially during the second half of the year when interest rate cuts will begin to pick up speed. Now, please let me turn the presentation back to Juan Carlos, who will present Bancolombia's quarterly performance.