AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 2004
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 20-F
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(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number: 1-13850
BANCOLOMBIA S.A.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant's name into English)
REPUBLIC OF COLOMBIA
(Jurisdiction of incorporation or organization)
CALLE 50 NO. 51-66
MEDELLIN, COLOMBIA
(Address of principal executive offices)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
AMERICAN DEPOSITARY SHARES New York Stock Exchange
PREFERRED SHARES New York Stock Exchange*
------------------
* Bancolombia's Preferred Shares are not listed for trading, but only in
connection with the registration of American Depositary Shares, which
are evidenced by American Depositary Receipts each representing 4
preferred shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act
Not applicable
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Not applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Common Shares .................................. 398,259,608
Preferred Shares ............................... 178,435,787
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
PRESENTATION OF FINANCIAL INFORMATION............................................................................ i
FORWARD-LOOKING STATEMENTS....................................................................................... iii
PART I. ......................................................................................................... 1
ITEM l. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS............................................ 1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.......................................................... 1
ITEM 3. KEY INFORMATION.................................................................................. 1
A. SELECTED FINANCIAL DATA ................................................................................. 1
B. CAPITALIZATION AND INDEBTEDNESS ......................................................................... 5
C. REASONS FOR THE OFFER AND USE OF PROCEEDS ............................................................... 5
D. RISK FACTORS............................................................................................. 5
ITEM 4. INFORMATION ON THE COMPANY ...................................................................... 13
A. HISTORY AND DEVELOPMENT OF THE COMPANY................................................................... 13
B. BUSINESS OVERVIEW........................................................................................ 15
C. ORGANIZATIONAL STRUCTURE................................................................................. 48
D. PROPERTY, PLANT AND EQUIPMENT............................................................................ 48
E. SELECTED STATISTICAL INFORMATION......................................................................... 49
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS..................................................... 79
A. OPERATING RESULTS ....................................................................................... 79
B. LIQUIDITY AND CAPITAL RESOURCES.......................................................................... 89
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC...................................................... 93
D. TREND INFORMATION ....................................................................................... 93
E. OFF-BALANCE SHEET ARRANGEMENTS .......................................................................... 94
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS............................................................ 95
G. CRITICAL ACCOUNTING POLICIES AND ESTIMATES .............................................................. 95
H. RECENT U.S. GAAP PRONOUNCEMENTS ......................................................................... 97
1. RELATED PARTY TRANSACTIONS .............................................................................. 98
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ...................................................... 98
A. DIRECTORS AND SENIOR MANAGEMENT.......................................................................... 98
B. COMPENSATION ............................................................................................ 101
C. BOARD PRACTICES ......................................................................................... 101
D. EMPLOYEES ............................................................................................... 103
E. SHARE OWNERSHIP ......................................................................................... 103
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS................................................ 103
A. MAJOR SHAREHOLDERS....................................................................................... 103
B. RELATED PARTY TRANSACTIONS .............................................................................. 104
C. INTEREST OF EXPERTS AND COUNSEL ......................................................................... 105
ITEM 8. FINANCIAL INFORMATION. .......................................................................... 105
A. CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION ....................................... 105
B. SIGNIFICANT CHANGES...................................................................................... 108
ITEM 9. THE OFFER AND LISTING.................................................................................. 108
A. OFFER AND LISTING DETAILS................................................................................ 108
B. PLAN OF DISTRIBUTION .................................................................................. 109
C. MARKETS................................................................................................ 109
D. SELLING SHAREHOLDERS .................................................................................. 110
E. DILUSION............................................................................................... 110
F. EXPENSES OF THE ISSUE ................................................................................. 110
ITEM 10. ADDITIONAL INFORMATION ............................................................................. 110
A. SHARE CAPITAL.......................................................................................... 110
B. MEMORANDUM AND ARTICLES OF association ................................................................ 110
C. MATERIAL CONTRACTS .................................................................................... 110
D. EXCHANGE CONTROLS...................................................................................... 111
E. TAXATION .............................................................................................. 111
F. DIVIDENDS AND PAYING AGENTS............................................................................ 113
G. STATEMENT BY EXPERTS. ................................................................................. 113
H. DOCUMENTS ON DISPLAY .................................................................................. 113
I. SUBSIDIARY INFORMATION................................................................................. 113
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ......................................... 113
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ............................................. 135
PART II........................................................................................................ 135
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES .................................................... 135
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE PROCEEDS .......................... 135
ITEM 15. CONTROLS AND PROCEDURES ............................................................................ 135
ITEM 16. RESERVED ........................................................................................... 135
ITEM. 16.A AUDIT COMMITTEE FINANCIAL EXPERT.................................................................. 135
ITEM. 16.B CODE OF ETHICS.................................................................................... 136
ITEM. 16.C PRINCIPAL ACCOUNTANT FEES AND SERVICES............................................................ 136
PART III. .................................................................................................... 136
ITEM 17. FINANCIAL STATEMENTS ............................................................................... 136
ITEM 18. FINANCIAL STATEMENTS ............................................................................... 136
ITEM 19. EXHIBITS ........................................................................................... 137
PRESENTATION OF FINANCIAL INFORMATION
BANCOLOMBIA S.A., which may also act under the name of BANCO DE
COLOMBIA S.A. ("Bancolombia," "BC," the "Bank," "us" or "we"), is a banking
institution organized under Colombian law. We maintain accounting records in
Colombian pesos ("peso," "pesos" or "Ps"). The audited consolidated financial
statements of BC and its subsidiaries for the years ended December 31, 2001,
2002 and 2003 contained in this annual report on Form 20-F (the "Annual Report")
(collectively, including the notes thereto, the "Financial Statements") are
expressed in pesos. In this Annual Report, references to "U.S. dollar," "U.S.
dollars," and "US$" are to United States dollars.
This Annual Report translates certain peso amounts into U.S. dollars at
specified rates solely for the convenience of the reader. Unless otherwise
indicated, such peso amounts have been translated at the rate of Ps 2,807.2 per
US$1.00, which corresponds to the average of the Tasa Representativa del Mercado
("Representative Market Rate") for December 2003. The Representative Market Rate
is computed and certified by the Superintendencia Bancaria (the "Superintendency
of Banking"), the Colombian banking regulator, on a daily basis and represents
the weighted average of the buy/sell foreign exchange rates negotiated on the
previous day by certain financial institutions authorized to engage in foreign
exchange transactions (including BC). The Superintendency of Banking also
calculates and certifies the average Representative Market Rate for each month
for purposes of preparing financial statements, and converting amounts in
foreign currency to Colombian pesos. Such conversion should not be construed as
a representation that the peso amounts correspond to, or have been or could be
converted into, United States dollars at that rate or any other rate. On March
8, 2004, the Representative Market Rate was Ps 2,673.29 per US$1.00. As used in
this Annual Report, the term "billion" means one thousand million
(1,000,000,000).
Colombia experienced two-digit inflation rates until 1999 but has
experienced single-digit inflation rates thereafter (7.65%, 6.99% and 6.49% for
the years ended December 31, 2001, 2002 and 2003, respectively). From January 1,
1992 to December 31, 1998, Colombia's generally accepted accounting principles
("Colombian GAAP") required that financial statements of Colombian financial
institutions (including the Bank) be adjusted for inflation on a one-month's
lagging basis, by applying coefficients of changes in the Colombian
middle-income consumer price index for the relevant period to non-monetary
assets and liabilities, shareholders' equity (other than surplus from
reappraisal of assets and cumulative translation adjustments) and results of
operations. Effective January 1, 1999, Law 448 of 1998 eliminated the use of
inflation adjustments in income, expense and inventory accounts, and in April
2001, the Superintendency of Banking issued External Circular 014, which
eliminated the use of inflation adjustments in all the accounts of the financial
statements beginning January 1, 2001. See Note 2 to the Financial Statements.
Accordingly, financial information in this Annual Report is presented in nominal
pesos for the years ended December 31, 2001, 2002 and 2003, without adjustment
for inflation.
Accounting practices and the preparation of financial statements of the
Bank and its subsidiaries follow the special regulations of the Colombian
Superintendency of Banking, or, in the absence of such regulations, the
accounting practices generally accepted in Colombia. Together, these
requirements differ in certain significant respects from generally accepted
accounting principles in the United States, known as U.S. GAAP. References to
Colombian GAAP in this annual report are to Colombian GAAP as supplemented by
the applicable rules of the Colombian Superintendency of Banking.
For consolidation purposes, financial statements of the Bank and its
subsidiaries must be prepared under uniform accounting policies. In order to
comply with this, financial statements of foreign
i
subsidiaries were adjusted as required by Colombian regulations with regard to
investments, loans and leased assets.
The Bank consolidates companies in which it holds, directly or
indirectly, 50% or more of outstanding voting shares. The Bank's subsidiary
Bancolombia (Panama) S.A. sub-consolidates the following companies: Bancolombia
Cayman, Sistema de Inversiones y Negocios S.A., Sinesa Holding Company and
Future Net Inc. The Bank's subsidiary Almacenar S.A. consolidates the company
Unicargo de Colombia S.A. The subsidiary Colcorp S.A. consolidates the companies
Inmobiliaria Bancol S.A., Abocol S.A., Valores Simesa S.A. (a company resulting
from a spin-off by Simesa S.A. on December 31, 2000), Fundicom S.A. and Todo Uno
Colombia S.A.
ii
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and information relating to us that are not based on historical facts but
instead on beliefs of management as well as assumptions made by and information
currently available to us. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "predict," "target,"
"forecast," "guideline," "should" and "project" and similar expressions, as they
relate to us or our management, are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future
events and are subject to certain risks, uncertainties and assumptions. Many
factors could cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements that
may be expressed or implied by such forward-looking statements, including, among
others, 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
customers, changes in business strategy and various other factors, both
referenced and not referenced in this Annual Report on Form 20-F. Should one or
more of these risks or uncertainties materialize, or should our underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected, intended,
planned or projected. Forward-looking statements speak only as of the date they
are made, and the Bank does not intend, and does not assume any obligation, to
update these forward-looking statements in light of new information or future
events.
Factors that could cause actual results to differ materially and
adversely include, but are not limited to:
- Changes in general economic, business, political, fiscal or
other conditions in Colombia or changes in general economic or
business conditions in Latin America;
- Changes in capital markets or in markets in general that may
affect policies or attitudes towards lending to Colombia or
Colombian companies;
- Increased costs;
- Unanticipated increase in financing and other costs or the
inability to obtain additional debt or equity financing on
attractive terms; and
- The factors discussed under "Item 3 - Key Information - Risk
Factors"; Item 5, "Operating and Financial Review and
Prospects"; and elsewhere in this Annual Report and in the
documents that it incorporates by reference.
Important factors that could affect forward-looking statements are
subject to change and the Bank does not intend to update the foregoing list of
factors. New factors emerge from time to time, and it is not possible for the
Bank to predict all of these factors. By means of this cautionary note, the Bank
intends to avail itself of the safe harbor from liability with respect to
forward-looking statements provided by Section 27A of the Securities Act of 1933
(the "Securities Act") and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
iii
Neither our independent auditors, nor any other independent
accountants, have compiled, examined, or performed any procedures, with respect
to the prospective financial information contained herein, nor have they
expressed any opinion or any other form of assurance on such information or its
achievability, and assume no responsibility for, and disclaim any association
with, the prospective financial information.
iv
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
The selected consolidated financial data as of December 31, 2003 and
2002 and for each of the three years in the period ended December 31, 2003 set
forth below has been derived from our audited Consolidated Financial Statements
included in this Report. The selected consolidated financial data as of December
31, 2000 and 1999 and for each of the two years in the period ended December 31,
2000 set forth below have been derived from our audited consolidated financial
statements for the respective periods, which are not included herein.
1
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
1999 2000 2001 2002 2003 2003(1)
------------ ------------ ------------ ------------ ------------ -----------
(Ps million and U.S. dollars thousands (1), except per share and American
Depositary Shares "ADS" amounts)
CONSOLIDATED STATEMENT OF OPERATIONS:
COLOMBIAN GAAP:
Interest income................................. Ps 1,227,269 Ps 842,633 Ps 881,757 Ps 738,184 Ps 1,400,255 US$ 498,808
Interest expense................................ (821,203) (458,855) (529,074) (466,223) (480,513) (171,172)
------------ ------------ ------------ ------------ ------------ -----------
NET INTEREST INCOME.......................... 406,066 383,778 352,683 271,961 919,742 327,636
Provisions for loans and accrued interest
losses(2).................................... (250,153) (152,296) (73,953) (115,154) (162,058) (57,729)
Provision for foreclosed assets and other assets (50,396) (112,219) (63,537) (71,212) (68,892) (24,541)
------------ ------------ ------------ ------------ ------------ -----------
NET INTEREST INCOME AFTER PROVISIONS......... 105,517 119,263 215,193 85,595 688,792 245,366
Other operating income.......................... 330,436 341,971 620,188 828,977 674,647 240,327
Operating expenses.............................. (699,190) (618,352) (696,963) (755,801) (869,350) (309,686)
------------ ------------ ------------ ------------ ------------ -----------
NET OPERATING INCOME (LOSS).................. (263,237) (157,118) 138,418 158,771 494,089 176,007
Net non-operating income (loss)................. 55,362 67,792 51,000 79,787 37,600 13,394
Net monetary inflation adjustment............... (2,401) 4,209 - - - -
------------ ------------ ------------ ------------ ------------ -----------
INCOME (LOSS) BEFORE TAXES................... (210,276) (85,117) 189,418 238,558 531,689 189,401
Minority interest (loss)........................ (249) (767) (1,310) 14,440 330 118
Income taxes.................................... (29,642) (28,106) (31,575) (42,618) (62,635) (22,312)
------------ ------------ ------------ ------------ ------------ -----------
NET INCOME (LOSS)............................ Ps (240,167) Ps (113,990) Ps 156,533 Ps 210,380 Ps 469,384 US$ 167,207
============ ============ ============ ============ ============ ===========
Weighted average of Preferred and
Common Shares outstanding(3)................. 249,934,805 42,137,634 576,695,395 576,695,395 576,695,395
Net operating income (loss) per share(3)(4)..... Ps (1,053) Ps (290) Ps 240 Ps 275 Ps 857 US$ 0.31
Net operating income (loss) per ADS............. (4,213) (1,159) 960 1,101 3,427 1.22
Net income (loss) per share(3)(4)............... (961) (210) 271 365 814 0.29
Net income (loss) per ADS....................... (3,844) (840) 1,084 1,460 3,256 1.16
Cash dividends declared per share(5)............ - 36 84 132 272 0.10
Cash dividends declared per ADS................. - 144 336 528 1,088 0.39
U.S. GAAP:
Net income (loss)............................... Ps (168,958) Ps (38,915) Ps 226,048 Ps 207,152 Ps 474,419 US$ 169,001
Net income (loss) per share(6).................. (880) (119) 530 461 1,070 0.38
Net income (loss) per ADS....................... (3,520) (476) 2,120 1,844 4,280 1.52
--------------
(1) Amounts stated in dollars have been translated at the rate of
Ps 2,807.20 to US$1.00 which is the average Representative Market Rate
for the month of December 2003, as reported and certified by the
Superintendency of Banking.
(2) Includes a provision for accrued interest losses amounting to Ps 48,507
million, Ps 20,178 million, Ps 4,945 million, Ps 4,518 and Ps 5,784
million for the years ended December 31, 1999, 2000, 2001, 2002 and
2003 respectively.
(3) Includes Common Shares and 58,060,562 Preferred Shares for 1999; and
178,435,787 Preferred Shares for 2000, 2001, 2002 and 2003.
(4) Reflects all dividends per share distributed through December 31, 1999.
Calculated on the basis of average outstanding shares during the
period.
(5) This data is presented on an annualized basis.
(6) Reflects all dividends per share distributed up to December 31, 1999.
Under U.S. GAAP, these shares are considered outstanding since the
beginning of the earliest period presented. Net income per share under
U.S. GAAP is presented on the basis of net income available to common
stockholders divided by the weighted average number of Common Shares
outstanding (281 million for 1999 and 398 million for each of 2000,
2001, 2002 and 2003). See Note 30 to the Financial Statements.
2
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2003(1)
------------ ------------ ------------- ------------- ------------- ------------
(Ps million and U.S. dollars thousands(1), except per share and American Depositary
Shares "ADS" amounts)
CONSOLIDATED BALANCE SHEET
COLOMBIAN GAAP:
ASSETS:
Cash and dues from banks..................... Ps 490,293 Ps 428,466 Ps 536,813 Ps 643,405 Ps 848,052 US$ 302,099
Overnight funds.............................. 232,252 291,786 176,666 207,684 598,409 213,169
Investment securities, net................... 1,462,601 1,575,304 2,984,552 4,343,458 4,336,724 1,544,858
Loans, net................................... 4,530,943 4,826,506 5,078,476 5,864,991 7,642,405 2,722,430
Accrued interest receivable on loans, net.... 86,635 84,693 77,681 83,459 103,209 36,766
Customers' acceptances and derivatives....... 23,251 40,358 39,907 (15,662) 1,539 548
Accounts receivable, net..................... 135,867 106,557 106,764 181,663 167,423 59,641
Premises and equipment, net.................. 445,922 332,120 320,080 317,724 337,964 120,392
Foreclosed assets, net....................... 131,382 99,418 74,656 77,299 59,200 21,089
Prepaid expenses and deferred charges........ 154,148 107,848 84,483 58,421 27,832 9,915
Goodwill..................................... 202,750 164,201 141,552 118,904 99,910 35,591
Leasing, net................................. 211,083 192,883 241,866 341,791 533,093 189,902
Other assets................................. 105,610 94,884 169,236 116,634 166,956 59,472
Reappraisal of assets........................ 301,992 262,723 241,727 259,811 253,413 90,273
------------ ------------ ------------- ------------- ------------- ------------
TOTAL ASSETS.............................. Ps 8,514,729 Ps 8,607,747 Ps 10,274,459 Ps 12,599,582 Ps 15,176,129 US$5,406,145
============ ============ ============= ============= ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits..................................... Ps 5,945,510 Ps 6,116,022 Ps 7,580,848 Ps 8,788,158 Ps 10,231,997 3,644,912
Borrowings................................... 1,094,692 908,103 830,654 1,117,015 1,211,595 431,603
Other liabilities............................ 704,728 717,739 892,506 1,410,061 2,043,158 727,828
Shareholders' equity......................... 769,799 865,883 970,451 1,284,348 1,689,379 601,802
------------ ------------ ------------- ------------- ------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Ps 8,514,729 Ps 8,607,747 Ps 10,274,459 Ps 12,599,582 Ps 15,176,129 US$5,406,145
============ ============ ============= ============= ============= ============
U.S. GAAP:
Shareholders' equity......................... Ps 724,636 Ps 951,191 Ps 1,147,989 Ps 1,413,445 Ps 1,832,886 US$ 652,923
Shareholders' equity per share(2)............ 2,899 1,755 1,991 2,451 3,178 1.13
Shareholders' equity per ADS(2).............. 11,596 7,020 7,964 9,804 12,712 4.52
------------------
(1) Amounts stated in dollars have been translated at the rate of Ps
2,807.20 to US$1.00 which is the average Representative Market Rate
for the month of December 2003, as reported and certified by the
Superintendency of Banking.
(2) Shareholders' equity per share is calculated based on the number of
Common Shares and Preferred Shares. The weighted average (rounded to
the nearest million) of Preferred and Common Shares outstanding
amounted to 250 million for the year ended December 31, 1999; 542
million for the year ended December 31, 2000; and 577 million for the
years ended December 31, 2001, 2002 and 2003.
3
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
(percentages, except for operating data)
SELECTED RATIOS:(1)
COLOMBIAN GAAP:
PROFITABILITY RATIOS:
Net interest margin(2) ............................................ 6.69 6.45 4.70 2.95 8.02
Return on average total assets(3) ................................. (2.75) (1.44) 1.65 1.88 3.40
Return on average shareholders' equity(4) ......................... (22.16) (11.75) 14.58 20.42 31.14
EFFICIENCY RATIO:
Operating expenses as a percentage of net operating
income(5) ...................................................... 94.93 85.20 71.64 68.65 54.53
CAPITAL RATIOS:
Period-end shareholders' equity as a percentage of period-end total
assets ......................................................... 9.04 10.06 9.45 10.19 11.13
Period-end regulatory capital as a percentage of period-end risk-
weighted assets(6) (7) ......................................... 9.09 11.09 10.61 11.61 13.08
CREDIT QUALITY DATA:
Non-performing loans as a percentage of total loans(8) ............ 6.29 3.52 4.54 1.77 0.95
"C", "D" and "E" loans as a percentage of total loans(11) ......... 13.33 10.45 9.70 9.71 4.93
Allowance for loan and accrued interest losses as a
percentage of non-performing loans ............................. 119.27 175.98 122.91 316.80 515.13
Allowance for loan and accrued interest losses as a
percentage of "C", "D" and "E" loans(11) ....................... 56.27 59.23 57.57 57.71 99.07
Allowance for loan and accrued interest losses as a
percentage of total loans ...................................... 7.50 6.19 5.58 5.61 4.89
OPERATING DATA:
Number of branches(9) ............................................. 341 321 323 340 354
Number of employees(10) ........................................... 8,539 7,688 7,518 7,581 8,001
---------------
(1) Ratios were calculated on the basis of monthly averages.
(2) Defined as net interest income divided by average interest-earning
assets.
(3) Net income divided by average total assets.
(4) Net income divided by monthly average shareholders' equity.
(5) Net operating income includes net interest income, fees and income
from services, net and other operating income.
(6) For an explanation of risk-weighted assets and Technical Capital, see
Item 4. Information on the Company - B. Business Overview -
Supervision and Regulation - Capital Adequacy Requirements.
(7) The derivatives' risk-weigh percentage used in the calculation of the
total risk-weighted assets was changed by External Circular 076 of
2000 issued by the Superintendency of Banking.
(8) Non performing loans are small business loans and consumer loans that
are past due 60 days or more, commercial loans that are past due 90
days or more and mortgage loans that are past due 120 days or more.
(9) Number of branches does not include branches of the Bank's
subsidiaries.
(10) The number of employees includes employees of the Bank's consolidated
subsidiaries.
(11) See Item 5.E.3 - Classification of the loan portfolio for a
description of "C," "D" and "E" Loans.
4
EXCHANGE RATES
On March 8, 2004 the Representative Market Rate was Ps 2,673.29 per
US$1.00. The following table sets forth the high and low Peso/U.S. dollar
exchange rates for the last six months:
RECENT EXCHANGE RATES OF PESO PER US$1.00:
MONTH LOW HIGH
----- -------- --------
September 2003..................... 2,816.74 2,889.39
October 2003....................... 2,857.88 2,907.41
November 2003...................... 2,826.60 2,878.05
December 2003...................... 2,778.21 2,836.05
January 2004....................... 2,721.56 2,778.92
February 2004...................... 2,651.94 2,757.14
Source: Superintendency of Banking.
The following table sets forth the average Peso/U.S. dollar
Representative Market Rate for each of the five most recent financial years,
calculated by using the average of the exchange rates on the last day of each
month during the period. The Federal Reserve Bank of New York does not report a
rate for Pesos. The Superintendency of Banking calculates the Representative
Market Rate based on the weighted averages of the buy/sell foreign exchange
rates quoted daily by certain financial institutions, including BC, for the
purchase and sale of foreign currency.
PESO/US$1.00
----------------------------------------------
REPRESENTATIVE MARKET RATE
----------------------------------------------
PERIOD AVERAGE
--------------------------------- --------
1999............................. 1,770.30
2000............................. 2,104.72
2001............................. 2,301.74
2002............................. 2,534.22
2003............................. 2,875.05
Source: Superintendency of Banking.
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
The factors referred to below, as well as all other information
presented in this Annual Report, should be considered by investors when
reviewing any forward-looking statements contained in this Annual Report, in any
document included in this Annual Report by reference, in any of the Bank's
5
future public filings or press releases, or in any future oral statements made
by the Bank or any of its officers or other persons acting on its behalf. The
risks and uncertainties described below are not the only ones that the Bank
faces. Additional risk and uncertainties that the Bank does not know about or
that the Bank currently thinks are immaterial may also impair our business
operations. Any of the following risks, if they actually occur, could materially
and adversely affect our business, results of operations, prospects and
financial condition.
D.1. RISKS RELATING TO COLOMBIA
Most of the Bank's operations, property and customers are located in
Colombia. Accordingly, the quality of our assets, our financial condition and
results of operations depend primarily on macroeconomic and political conditions
prevailing in Colombia.
D.1.i. COLOMBIA HAS EXPERIENCED SEVERAL PERIODS OF VIOLENCE AND INSTABILITY
AND SUCH INSTABILITY COULD AFFECT THE ECONOMY AND THE BANK
The Colombian government (excluding departmental and municipal
governments) has historically exercised substantial influence over the Colombian
economy, and its policies may continue to have an important effect on Colombian
entities (including BC), market conditions, prices, and rates of return on
Colombian securities (including BC's securities).
The market value of BC's securities and the dividends thereon may also
be affected by changes in labor costs, inflation, interest rates, taxation,
social instability and other political or economic developments in Colombia. The
Bank can not provide any assurance that future developments in government
policies or in the Colombian economy will not impair its business or financial
condition or the market value of its stock.
Democratic presidential elections were held in May, 2002, and the new
government of President Alvaro Uribe Velez took office on August 7, 2002. The
new government has vowed to increase security within a democratic framework,
fight corruption and carry out economic and social reforms to ensure the
revitalization of the Colombian economy. However, the government may not decide
to continue its current economic policies, or these policies may no longer have
a positive effect on the economy or the Colombian financial sector.
Colombia has experienced several periods of criminal violence over the
past four decades, primarily due to the activities of guerilla groups and drug
cartels. In response, the government has implemented various security measures
and has strengthened its military and police forces by creating specialized
units. Despite these efforts, drug-related crime and guerilla activity continue
to exist in Colombia. Due to continued attacks by rebel groups against the
Colombian population, on August 10, 2002, the government declared a state of
"conmocion interior", which it extended until May 6, 2003, through Decree 245 of
2003. These activities, their possible escalation and the violence associated
with them may have a negative impact on the Colombian economy or on the Bank in
the future.
D.1.ii. POLITICAL, ECONOMIC AND FINANCIAL ENVIRONMENT
The following information illustrates the main aspects of the
political, economic and financial environment in Colombia during year 2003:
6
POLITICAL
The political environment in Colombia is stable. Despite the recent
negative result of a national referendum, which proposed certain amendments to
the Constitution that would have enabled financial and political reforms, the
Colombian Government maintains transparent and stable policies.
The Democratic Security Policy implemented by the current government
has generated progress in combating security problems, even though such problems
still persist as a result of the ongoing conflict between the government and
various guerilla forces. This progress is reflected in a decrease in the number
of homicides, kidnappings, and rebel attacks on the general population. During
2003, the number of homicides, kidnappings, and rebel attacks on the general
population were 23,013, 2,200 and 5, respectively, as compared to 28,837, 2,986
and 32, respectively, during 2002.
In the short term, economic and political changes in neighboring
countries are unlikely to affect national stability. However, further
deterioration in the economic and political situation of these countries could
affect the Colombian economy due to Colombia's commercial relationships with
these countries.
ECONOMIC
In 2003, the Colombian economy's basic indicators continued to show a
positive trend, suggesting a stable macroeconomic environment. According to the
National Administrative Department of Statistics ("DANE"), GDP increased 3.64%
in 2003 and unemployment declined 3.3%, from 15.6% in 2002 to 12.3% in 2003.
Inflation was at 6.49%, at a level close to the target rate set by the Central
Bank. Interest rates remained low and stable near 8%, contributing to renewed
investment. Relative political calm in Colombia has helped to generate
investment incentives and, accordingly, private investment has been estimated to
have increased 25.2% as reported by the National Planning Department ("DNP").
The Bank believes these positive economic indicators will help its performance.
The exchange rate remained at competitive economic levels.
Colombia's fiscal deficit and growing public debt could affect the
economy. According to estimates of the Ministry of Finance, the consolidated
public sector deficit was 2.8% of GDP in 2003, which fulfills commitments to the
IMF included in the Stand-by Agreement for 2004. In order to meet the IMF
commitments, the Colombian Government intends to implement structural reforms
and adopt certain measures to ensure greater transparency and fiscal austerity.
The development of clear and favorable economic variables may
positively affect BC's performance and results. The political and economic
circumstances of neighboring countries do not currently threaten Colombian
interests. However, future economic events in those countries could affect the
Colombian economy.
FINANCIAL
Trade and Payment Balance
Expectation for foreign trade and international economic relations
remain positive. Commercial agreements currently in force and pending completion
are expected to sustain and support growth allowing Colombia to meet the
increased demand for exports of Colombian products. As a result, Colombia's
trade deficit declined in 2003, but the future trends of the trade deficit will
depend on exogenous factors related to world markets.
The following table sets forth Colombia's commercial balance:
7
COLOMBIA'S COMMERCIAL BALANCE
2003
US$ MILLION FOB (FREE ON BOARD)
--------------------------------------------------------------------
PERIOD EXPORTS IMPORTS BALANCE
------------------ ------------ ------------- -------------
January 834 1,148 -313.2
January- February 1,878 2,104 -226
January- March 2,923 3,140 -217.0
January- April 4,027 4,195 -168.1
January- May 5,153 5,261 -107.1
January- June 6,177 6,231 -53.2
January- July 7,437 7,395 42.0
January- August 8,497 8,463 33.6
January- September 9,551 9,609 -57.9
January- October 10,708 10,774 -65.3
January- November 11,760 11,779 -19.8
January- December* 13,010 13,022 -12.3
Source: Exports DANE and Imports DIAN.
* The final figure for this period has not been published yet; this is a
preliminary figure.
As of the third quarter of 2003, the current account balance stood at a
deficit of US$370 million and net international reserves stood at US$10,863
million. These levels are considered adequate for a stable macroeconomic
environment.
Debt
According to the Ministry of Finance, in September 2003, non-financial
public sector debt was estimated at 51.2% of GDP. External debt comprises 59.2%
of total debt in this sector and is estimated to be 30.3% of GDP. Private sector
external debt remains relatively small, without major implications or risks for
creditors. Risk perception of foreign debt in Colombia has enjoyed a downward
trend. The JPMorgan EMBI Index decreased the Colombian Sovereign Debt rating
from 703 basis points in January 2003 to 363 basis points at the end of 2004.
The debt situation of a country affects its macroeconomic environment.
Since BC's investment portfolio holds a high volume of local sovereign debt,
sound government financial policies are important to the Bank.
D.1.iii. RESTRICTIONS REGARDING FOREIGN INVESTMENT IN COLOMBIA
Colombia's International Investment Statute (Decree 1844 of 2003)
regulates the manner in which non-Colombian-resident entities and individuals
can invest in Colombia and participate in the Colombian securities markets.
Among other requirements, the statute mandates registration of certain foreign
exchange transactions with the Banco de la Republica ("Colombian Central Bank")
and specifies procedures to authorize and administer certain types of foreign
investments. Decree 1844 modified Decree 2080 of 2000, simplifying the
procedures for foreign investors to register their investment in Colombia with
the Colombian Central Bank. Decree 1844 was regulated by the Central Bank by
means of External Circular DCIN 83 of November 2003, which sets forth in detail
certain procedures regarding registration of foreign investment in Colombia.
8
Investors who wish to participate in the Bank's ADR Facility and hold
American Depositary Shares ("ADSs") of the Bank will be required to submit to
the custodian of the ADR Facility certain information and comply with certain
registration procedures required under the foreign investment regulations in
connection with foreign exchange controls restricting the conversion of Pesos
into U.S. dollars. Holders of American Depositary Receipts ("ADRs") who wish to
withdraw the underlying preferred shares will also have to comply with certain
registration and reporting procedures. Under the foreign investment regulations,
the failure of a non-resident investor to report or register with the Central
Bank foreign exchange transactions relating to investments in Colombia on a
timely basis may prevent the investor from obtaining remittance rights,
constitute an exchange control infraction and result in a fine.
Despite the easing of restrictions imposed for foreign investment in
Colombia, we cannot assure that the Colombian Government, Colombian Congress or
the Central Bank will further eliminate restrictions to foreign investments, nor
that they will not implement more restrictive rules in the future. Currently,
Colombia has a free float exchange rate system. However, we cannot assure that
other restrictive rules for the exchange rate system will not be implemented in
the future. In the event that a more restrictive exchange rate system is
implemented, financial institutions, including the Bank, may be unable to
transfer U.S. dollars abroad to pay their financial obligations. See Item 4 -
Information on the Company - B.7 Supervision and Regulation and Item 10 -
Additional Information - E. Taxation.
D.1.iv. COLOMBIAN CORPORATE DISCLOSURE AND ACCOUNTING STANDARDS MAY DIFFER FROM
THOSE IN THE UNITED STATES
Colombian banking regulations are designed to ensure the safety and
soundness of the banking system and to limit its exposure to risk. While many of
the policies underlying these regulations are similar to those underlying
regulations applicable to banks in other countries, including those in the
United States, Colombian regulations can differ in a number of material respects
from those other regulations. For example, under Colombian GAAP, allowances for
non-performing loans are computed by establishing each non-performing loan's
individual inherent risk, using criteria established by the Superintendency of
Banking that differs from that used under U.S. GAAP (See Item 5. - C. Selected
Statistical Information - Allowance for Loan Losses). In addition, capital
adequacy requirements for banks under Colombian regulations differ from those
under U.S. regulations.
Changes in banking laws and regulations, or in their official
interpretation, may have a material effect on our business and operations. Since
banking laws and regulations change frequently, their interpretation, and the
manner in which these laws and regulations are applied to financial
institutions, is continuously evolving. No assurance can be given generally that
laws or regulations will be adopted, enforced or interpreted in a manner that
will not have an adverse effect on BC's business. Also, we cannot assure that
there will be no changes in banking laws or regulations in other countries where
the Bank has subsidiaries, such as Panama and Cayman Islands.
For more information see Item 4. Information on the Company - B.
Business Overview - B.7. Supervision and Regulation.
D.2. RISKS RELATING TO OUR INDUSTRY AND OUR OPERATIONS
D.2.i. THE QUALITY OF THE BANK'S LOAN PORTFOLIO AND OTHER ASSETS MAY DECLINE
If the Bank's loan portfolio continues to grow in all targeted segments
such as retail, small and medium-sized-companies and large corporations, the
Bank may experience higher levels of past due
9
and non-performing loans than in the past and may be required to increase its
allowances for non-performing loans.
In particular, if the Bank successfully increases the participation of
consumer credits in its loan portfolio, it may experience detrimental changes in
its credit risk levels. Furthermore, there can be no assurance that BC will
maintain its current level of asset quality and credit risk in the future.
D.2.ii. CONCENTRATION AND RELIANCE ON SHORT-TERM DEPOSITS MAY INCREASE BC'S
FUNDING COSTS
The Bank's principal source of funds are short-term savings, checking
accounts and demand deposits. Time deposits represented 39.6%, 34.2% and 33.4%
of the Bank's total funding at the end of 2001, 2002 and 2003, respectively.
Since it relies primarily on short-term deposits for its funding, there can be
no assurance that, in the event of a sudden or unexpected shortage of funds in
the Colombian banking system and money markets, BC will be able to maintain its
current level of funding without incurring higher costs or liquidating certain
assets.
D.2.iii. INCREASE IN COMPETITION AND CONSOLIDATION OF THE INDUSTRY COULD
ADVERSELY AFFECT OUR OPERATIONS
The Colombian financial system is highly competitive. In the last
decade, there has been a recomposition of Colombian banking as a consequence of
market deregulations, consumer growth, and the entry of international
competition, situation which has lead to a greater level of consolidation of the
financial system. We believe this will continue in the following years.
The consolidation will lead to the creation of larger institutions,
creating scale economies. We could not assure that the consolidation of the
financial system will not affect the financial condition of BC.
D.3. RISKS RELATING TO OUR ADRS
D.3.i. PESO DEVALUATION MAY DEPRESS THE VALUE OF DIVIDENDS PAYABLE TO HOLDERS
OF ADRS
In September 1999, the Central Bank significantly liberalized the
Colombian exchange market. Since then, the Central Bank has allowed the Peso to
float freely, intervening only when there are steep variations in the Peso's
value relative to the U.S. dollar. This mechanism is only used to control the
international reserves of Colombia or when the mobile average of the
Representative Market Rate for the preceding twenty days exceeds 4% of that
day's Representative Market Rate. Upon such an event, the Central Bank sells
call options, whereby the purchaser is entitled to buy from the Central Bank, on
a future date, a specified amount of dollars at a pre-established exchange rate,
thus reducing the volatility of the exchange rate.
The devaluation of the peso against the dollar was 2.8% in 2001 and 25%
in 2002. During 2003, the Peso appreciated against the U.S. dollar by 3.02%.
Absent modifying circumstances, a future peso devaluation would have a negative
impact on the U.S. dollar value of dividends paid to holders of American
Depositary Receipts ("ADRs"). Conversely, a Peso revaluation would have a
positive effect. Although the foreign exchange market is allowed to float
freely, there is no assurance that the Colombian Central Bank or the government
will not intervene in the exchange market in the future.
10
D.3.ii. REQUIRED GOVERNMENT APPROVALS RELATING TO OWNERSHIP OF OUR PREFERRED
SHARES AND ADRS MAY AFFECT THE MARKET LIQUIDITY OF THE PREFERRED SHARES
AND ADRS.
Pursuant to Colombian banking regulations, any transaction resulting in
an individual or corporation holding 10% or more of any class of capital stock
of any Colombian financial institution, including in the case of BC,
transactions in ADRs representing 10% or more of the Bank's Preferred Shares,
requires prior authorization from the Superintendency of Banking. Transactions
entered into without the Superintendency of Banking's prior approval are void,
and cannot be recorded in the stock registry of the relevant financial
institution.
In addition to the above restriction, pursuant to Colombian securities
regulations, any transaction involving the sale of publicly traded stock of any
Colombian company, including, in the case of BC, any sale of Preferred Shares
(but excluding any sale of ADRs) or Common Shares, for 66,000 or more Unidades
de Valor Real ("UVR")1, must be effected through the Colombian stock exchange.
D.3.iii. OUR PREFERRED SHARES HAVE LIMITED VOTING RIGHTS
Under BC's by-laws and Colombian corporate law, holders of Preferred
Shares (and consequently, holders of ADRs) have no voting rights in respect of
Preferred Shares, other than the right to one vote per Preferred Share, voting
separately as a class, in the following events:
- In the event that changes in BC's by-laws that may impair the
conditions or rights fixed for such shares and when the conversion of
such shares into common shares are to be approved.
- When voting the anticipated dissolution, merger, transformation of the
corporation or change of its corporate object.
- When the preferred dividend has not been fully paid during two
consecutive annual terms. In this event, holders of such shares shall
retain their right to voting until the corresponding accrued dividends
have been paid up to them.
- When the General Shareholders' Meeting orders the payment of dividends
with issued shares.
- If at the end of a fiscal period, the Bank does not produce sufficient
profits to cancel the minimum dividend, and the Superintendency of
Banking by its own decision, or upon petition of holders of Preferred
Shares representing at least ten per cent (10%) of these shares,
provides that benefits that decrease the profits to be distributed, had
been concealed or misled, it may determine that the holders of these
shares participate with right to speaking and voting at General
Shareholders Meeting, according to the provisions of the Law.
- When the register of shares at the Colombian Stock Exchange or at the
National Register of Securities is suspended. In this event, the right
to voting shall be maintained until the irregularities that determined
such cancellation or suspension disappear.
Holders of ADRs and Preferred Shares are not entitled to vote for the
election of directors or to influence BC's management policies.
The Bank's corporate affairs are governed by its by-laws and Colombian
laws. Under such
(1) The UVR is an inflation-adjusted monetary index generally used for pricing
home-mortgage loans.
11
laws, BC's preferred shareholders may have fewer rights than they might
otherwise have as shareholders of a corporation incorporated in a U.S.
jurisdiction.
D.3.iv. PREEMPTIVE RIGHTS MAY NOT BE AVAILABLE TO HOLDERS OF ADRS
The Bank's by-laws and Colombian law require that, whenever
the Bank issues new shares of any outstanding class, it must offer the holders
of each class of shares (including holders of ADRs) the right to purchase a
number of shares of such class sufficient to maintain their existing percentage.
These rights are called preemptive rights. United States holders of ADRs may not
be able to exercise their preemptive rights through The Bank of New York, which
acts as depositary (the "Depositary") for Bancolombia's ADR facility, unless a
registration statement under the Securities Act is effective with respect to
such rights and stocks or an exemption from the registration requirement
thereunder is available. Although the Bank is not obligated to, it intends to
consider at the time of any rights offering the costs and potential liabilities
associated with any such registration statement, the benefits to the Bank from
enabling the holders of the ADRs to exercise those rights and any other factors
deemed appropriate at the time, and will then make a decision as to whether to
file a registration statement. Accordingly, no assurance can be given that any
such registration statement will be filed.
To the extent holders of ADRs are unable to exercise these
rights because a registration statement has not been filed and no exemption from
the registration requirement under the Securities Act is available, the
Depositary may attempt to sell the holders' preemptive rights and distribute the
net proceeds from that sale, if any, to such holders. The Depositary, after
consulting with Bancolombia, will have discretion as to the procedure for making
preemptive rights available to the holders of ADRs, disposing of such rights and
making any proceeds available to such holders. If by the terms of any rights
offering or for any other reason the Depositary is unable or chooses not to make
those rights available to any holder of ADRs, and if it is unable or for any
reason chooses not to sell those rights, the Depositary may allow the rights to
lapse. Whenever the rights are sold or lapse, the equity interests of the
holders of ADRs will be proportionately diluted.
D.3.v. MARKET FOR ADRS AND PREFERRED SHARES; RELATIVE ILLIQUIDITY OF THE
COLOMBIAN SECURITIES MARKETS
The Bank's ADRs are listed on the New York Stock Exchange
("NYSE") and commenced trading in 1995 under the symbol "CIB." Average daily
trading volume of ADRs was 18,000 in 2001, 31,500 in 2002, and 37,600 in 2003.
Before 1,995, the Bolsa de Bogota (the "Bogota Stock Exchange"), the Bolsa de
Medellin (the "Medellin Stock Exchange") and the Bolsa de Occidente (the
"Occidente Stock Exchange") were the only trading markets for our Common Shares
and Preferred Shares. These three stock exchanges merged on July 3, 2001 into a
single exchange, the Bolsa de Valores de Colombia (the "Colombian Stock
Exchange"), headquartered in Bogota and with regional offices in Medellin and
Cali. The Colombian Stock Exchange is relatively small and illiquid compared to
stock exchanges in major financial centers. In addition, very few issuers
represent a disproportionately large percentage of market capitalization and
trading volume.
Future regulatory reforms are expected to increase the trading
volume on the Colombian Stock Exchange. There can be no assurance that a liquid
trading market for the common or preferred stock will continue or expand. A
limited trading market may impair the ability of an ADR holder to sell preferred
shares obtained upon withdrawal of such shares from the ADR Facility in the
Colombian Stock Exchange in the amount and at the price and time such holder
desires, and could increase the volatility of the price of the ADRs.
12
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Bancolombia (formerly, Banco Industrial Colombiano S.A.
("BIC")) was incorporated in the First Notary's Office of Medellin, Colombia, on
January 24, 1945. In January 1998, pursuant to a merger agreement approved on
December 3, 1997 by the shareholders of BIC and Banco de Colombia S.A., BIC
purchased 51% of the outstanding common shares of Banco de Colombia S.A. from
certain individual shareholders. Effective April 3, 1998, BIC merged with Banco
de Colombia (the "Merger"). In connection with the Merger, BIC changed its name
to Bancolombia S.A. and began conducting its commercial activities, products and
services under the commercial name of "Bancolombia."
The Bank was originally established for a fifty-year term,
starting on December 9, 1944. In 1994, this term was extended for fifty more
years, until December 8, 2044. The Bank is domiciled in Colombia and operates
under Colombian laws and regulations, mainly the Colombian Code of Commerce and
Decree 663 of 1993, as a sociedad comercial por acciones, de la especie anonima
(See Item 4. B.7 Supervision and Regulation for an explanation of the main
regulations governing the Bank's activities). The address and telephone number
of the Bank's principal place of business are: Calle 50 No. 51-66, Medellin,
Colombia; telephone +(574) 510-8896. Our agent for service of process in the
United States is Puglisi & Associates, presently located at 850 Library Avenue,
Suite 201, Newark, Delaware 19715.
Since 1995, the Bank is a New York Stock Exchange, Inc.
("NYSE") listed company, and its ADSs are traded under the symbol "CIB." See
Item 9 - The Offer and Listing.
RECENT DEVELOPMENTS
The following are important events in the development of BC's
business during 2003:
THE BANK OPENED ITS INTERNATIONAL BANKING AGENCY IN MIAMI:
In order to expand the Bank's current business and to
strengthen the international scope of services offered to its corporate and
retail customers, the Bank established a banking agency in Miami, Florida.
On March 27, 2003, the Federal Reserve of the United States
approved BC's application to open its first international banking agency in the
United States. On April 11, 2003, the Office of Financial Institutions of the
State of Florida issued its approval, and on December 5, 2003, the Office of
Financial Regulation of the State of Florida authorized Bancolombia to open an
agency, which began to operate on Monday, December 8, 2003. See Item 4 -
B.5.xii. New Products or Services - B.5.xii.a. Bancolombia Miami Agency, for a
summary of Bancolombia Miami Agency's main products and services.
THE BANK ACQUIRED SUFINANCIAMIENTO:
The Bank acquired 94.89% of the shares of Compania
Suramericana de Financiamiento Comercial S.A. ("Sufinanciamiento") from
Portafolio de Inversiones Suramericana S.A., Compania Suramericana de
Inversiones S.A. Suramericana, Compania Suramericana de Construcciones S.A.,
Fundacion Suramericana and Corporacion Financiera Nacional y Suramericana S.A.
Corfinsura. The remaining 5.10% of the shares of Sufinanciamiento have been
acquired simultaneously by related other subsidiaries.
13
On December 24, 2003, BC obtained the approval of the
Superintendency of Banking for the purchase of the shares of Sufinanciamiento.
The purchase price paid by BC and some of its subsidiaries for the acquisition
of 99.99% of Sufinanciamiento was Ps 75,016 million, which corresponds to Ps
50.31 per share. Since Sufinanciamiento's net assets were Ps 43,798 million, the
acquisition generated a goodwill of Ps 31,218 million.
Sufinanciamiento is a financial company that specializes in
vehicle loans. The acquisition of Sufinanciamiento will allow BC and its
subsidiaries to complement their portfolio of products by developing commercial
financing activities, mostly in vehicle loans. See Item 4 - New Products or
Service - B.5.xiii. Compania Suramericana de Financiamiento Comercial
("Sufinanciamiento") for an explanation of Sufinanciamiento's products.
CAPITAL EXPENDITURES AND DIVESTITURES
During 2001 the Bank invested US$1.37 million (Ps 3,846
million) in new branches and US$697,000 (Ps 1,957 million) in Ethernet
technology for the branches.
From 2002 through 2003, the Bank made the following capital
investments:
- From 2002 through 2003, the Bank updated the computer
technology for its administrative personnel to facilitate new
product development, increase employee efficiency and enhance
its security. As of December 31, 2003, the Bank had invested
US$4.64 million (Ps 13,025 million) in this process.
- During 2003, the Bank increased its processing capacity by
upgrading its central bank computer system from IBM AS/400 740
technology to IBM iSeries 840. As of December 31, 2003, the
Bank had invested US$3.62 million (Ps 10,162 million), of
which US$1.2 million (Ps 3,369 million) is due during the
first half of 2004.
- From 2002 through 2003, the Bank adjusted its internal systems
and marketing actions to be able to issue American Express
cards. As of December 31, 2003, the Bank has invested US $3.68
million (Ps 10,330 million) in this process.
- During 2003, the Bank acquired security equipment to enhance
physical security in its branches. As of December 31, 2003,
the Bank has spent US$1.73 million (Ps 4,856 million) for
equipment and installation.
- On December 29, 2003, the Bank and some of its subsidiaries
acquired Sufinanciamiento for a purchase price of Ps 75,016
million, which corresponds to Ps 50.31 per share.
- During 2003, the Bank invested US$2.14 million (Ps 6,007
million) in the opening of Bancolombia Miami Agency in Miami,
Florida.
- As of December 31, 2003 the Bank was in the process of
acquiring new ATMs and updating existing ATMs, at a total
investment of US$ 2.12 million (Ps 5,951 million) for 2003 and
2004.
14
All investments referred to above were funded by the Bank's
own resources. During 2003, the Bank's total capital expenditures, including
investments mentioned above (except for investment in Sufinanciamiento), were Ps
42,099 million, distributed as follows:
- Ps 27,443 million for hardware;
- Ps 8,684 million for furniture and equipment; and
- Ps 5,972 million for software.
The following table summarizes the Bank's capital
contributions and divestitures for the years 2001, 2002 and 2003:
CAPITAL CONTRIBUTIONS 2001 2002 2003 TOTAL
----------------------------- ------------- --------------- ------------- ---------------
Todo 1 Services US$ Ps 16,458,450 Ps 2,500,200 Ps 1,531,373 Ps 20,490,023
Conavi (Ps million) 52,490 - - 52,490
Multienlace S.A. (Ps million) 3,900 - - 3,900
DIVESTITURES 2001 2002 2003 TOTAL
------------------------------------- ----------- ----------- ----------- ----------
CTI Cargo S.A. (Ps million) (1) Ps - Ps - Ps 545 Ps 545
Industrias Forum S.A. (Ps million)(1) - - 4,480 4,480
Transmetano ESP S.A. (Ps million)(2) - - 2,673 2,673
(1) Investments Charged-off
(2) Investment Sale
During 2003, and as of the date of this Annual Report, there
have been no public takeover offers by third parties in respect to the Bank's
shares or by the Bank in respect to another company's shares, with the exception
of the Bank's acquisition of Sufinanciamiento, as mentioned above.
B. BUSINESS OVERVIEW
B.1. GENERAL
The Bank provides general banking products and services to
large industrial companies, small and medium-sized companies, and individuals.
We have two main segments: retail and corporate. Our products and services
include depositary services, personal and corporate loans, credit and debit
cards, electronic banking, cash management, warehousing services, fiduciary and
custodial services, and dollar-denominated products. In addition, BC's customers
have access to a large network of branches and ATMs in Colombia. BC believes
that it has the largest service network of any private financial institution in
Colombia, with 354 branch offices operating in 123 cities as of December 31,
2003. For the year ended December 31, 2003, BC had a positive return on average
assets of 3.4% and a positive return on average shareholders' equity of 31.1%.
See Item 5 - Operating and Financial Review and Prospects for a detailed
discussion on the results of the Bank's operations.
The following table sets forth the Bank's (unconsolidated)
market share of the Colombian banking market according to information compiled
by the Superintendency of Banking for the years 2001, 2002 and 2003:
15
BANCOLOMBIA'S JANUARY - DECEMBER JANUARY - DECEMBER JANUARY - DECEMBER
(UNCONSOLIDATED)MARKET SHARE 2001 2002 2003
---------------------------- ------------------ ------------------ ------------------
Total net loans 11.6% 12.4% 13.0%
Total checking accounts 16.6% 16.7% 17.4%
Total savings accounts 9.8% 10.4% 10.6%
Total time deposits 9.5% 11.3% 11.6%
Source: Superintendency of Banking. Average for the twelve-month period of each
year.
B.2. OPERATIONS
The following tables set forth BC's revenues by category of
activity for each of the last three fiscal years:
YEAR ENDED DECEMBER 31, 2001
Governmental
Small and Offshore
Retail Commercial Business Institutional Corporate Commercial
Banking Banking Banking Banking Headquarters Banking
---------- ---------- --------- ------------- ------------ ----------
Revenues from
external customers Ps 149,834 Ps 25,125 Ps 12,042 Ps 10,831 Ps (7,463) Ps 9,234
Revenues from
transactions with
other operating
segments of the
Bank 30,138 3,193 3,260 (1,603) (37,727) 7,170
Interest income 321,459 210,010 112,038 94,154 189,858 132,437
Provision for loans
losses Ps 31,142 Ps 2,890 Ps (2,630) Ps 4,070 Ps 53,984 Ps 16,790
All other
Trust Leasing Manufacturing Segments TOTAL
-------- --------- ------------- ---------- ----------
Revenues from
external customers Ps24,309 Ps 26,687 Ps 40,059 Ps 66,167 Ps 356,825
Revenues from
transactions with
other operating
segments of the
Bank 888 508 1,535 4,903 12,265
Interest income 6,158 12,385 1,230 25,859 1,105,588
Provision for loans
losses Ps 946 Ps 4,608 Ps 876 Ps 5,826 Ps 118,502
YEAR ENDED DECEMBER 31, 2002
Governmental
Small and Offshore
Retail Commercial Business Institutional Corporate Commercial
Banking Banking Banking Banking Headquarters Banking
---------- ---------- --------- ------------- ------------ ----------
Revenues from
external customers Ps 176,296 Ps 30,930 Ps 18,975 Ps 7,764 Ps (19,835) Ps 6,628
Revenues from
transactions with
other operating
segments of the
Bank 22,961 14,308 9,034 21,433 (69,367) (31,185)
Interest income 338,468 150,885 118,925 71,606 255,965 93,871
Provision for loan
losses Ps 17,269 Ps 5,851 Ps 3,187 Ps 231 Ps 39,303 Ps 64,951
All other
Trust Leasing Manufacturing Segments TOTAL
-------- --------- ------------- ---------- ----------
Revenues from
external customers Ps34,327 Ps 32,884 Ps (14,820) Ps 48,564 Ps 321,713
Revenues from
transactions with
other operating
segments of the
Bank 1,532 (244) 9,275 2,074 (20,179)
Interest income 6,338 3,848 1,914 24,099 1,065,919
Provision for loans
losses Ps 647 Ps 3,446 Ps 329 Ps 6,415 Ps 141,629
16
YEAR ENDED DECEMBER 31, 2003
Governmental
Small and Offshore
Retail Commercial Business Institutional Corporate Commercial
Banking Banking Banking Banking Headquarters Banking
---------- ---------- --------- ------------- ------------ ----------
Revenues from
external customers Ps 212,472 Ps 32,502 Ps 34,906 Ps 19,007 Ps (30,675) Ps 7,742
Revenues from
transactions with
other operating
segments of the
Bank 34,422 22,731 19,795 24,530 (83,150) (7,276)
Interest income 453,975 179,113 132,127 56,075 386,052 150,602
Provision for loans
losses Ps 62,068 Ps 12,781 Ps 365 Ps 1,133 Ps 59,152 Ps 50,360
All other
Trust Leasing Manufacturing Segments TOTAL
-------- --------- ------------- ---------- ----------
Revenues from
external customers Ps38,424 Ps 47,186 Ps 31,400 Ps 97,157 Ps 490,121
Revenues from
transactions with
other operating
segments of the
Bank 773 (314) 16,555 2,138 30,204
Interest income 5,366 8,174 (6) 23,951 1,395,429
Provision for loans
losses Ps 2,239 Ps 3,564 Ps 237 Ps 7,918 Ps 199,817
The following table sets forth BC's geographic revenues and
long-lived assets distribution as of December 31, 2001, 2002 and 2003
2001 2002 2003
---------------------------- ----------------------------- ------------------------------
LONG LONG LONG
GEOGRAPHIC REVENUES LIVED - ASSETS REVENUES LIVED - ASSETS REVENUES LIVED -ASSETS
INFORMATION (1) ------------ -------------- ------------- -------------- ------------ -------------
Republic of Colombia Ps 1,365,369 Ps 583,217 Ps 1,477,668 Ps 582,318 Ps 1,954,038 Ps 754,204
Republic of Panama 148,841 1,662 69,314 93,915 151,068 117,863
------------ -------------- ------------- -------------- ------------ -------------
Total 1,514,210 584,879 1,546,982 676,233 2,105,106 872,067
Eliminations (12,265) 87,603 20,179 (2,333) (30,204) (1,958)
------------ -------------- ------------- -------------- ------------ -------------
TOTAL, NET Ps 1,501,945 Ps 672,482 Ps 1,567,161 Ps 673,900 Ps 2,074,902 Ps 870,109
============ ============== ============= ============== ============ =============
(1) Information relating to Bancolombia Miami Agency is not included because it
has just started operating.
The following table summarizes and sets forth BC's total
revenue over the last three fiscal years:
2001 2002 2003
--------------- ------------- --------------
REVENUES
Total revenues for reportable segments Ps 1,377,748 Ps 1,292,716 Ps 1,792,508
Other revenues 136,462 254,266 312,598
--------------- ------------- --------------
Total 1,514,210 1,546,982 2,105,106
--------------- ------------- --------------
Elimination of intersegment revenues (12,265) 20,179 (30,204)
--------------- ------------- --------------
TOTAL REVENUES FOR REPORTABLE SEGMENTS Ps 1,501,945 Ps 1,567,161 Ps 2,074,902
=============== ============= ==============
17
The following table lists the main revenue-producing fees
along with their variation from the prior fiscal year:
AS OF GROWTH
DEC - 01 DEC - 02 DEC - 03 2003/2002
(Ps million)
MAIN FEES AND COMMISSIONS
Service charges Ps 132,410 Ps 145,561 Ps 180,888 24.3%
Credit card fees 39,960 48,992 59,041 20.5%
Credit and debit card annual fees 39,662 44,117 57,199 29.7%
Checking fees 37,674 40,972 45,252 10.4%
Warehouse and logistics services, net 32,973 38,873 42,705 9.9%
Fiduciary and trust activities 27,101 22,215 25,647 15.4%
Commissions on letters of credit 2,346 2,929 4,249 45.1%
Commissions expense (46,744) (51,351) (81,956) 59.6%
------------ ------------- -------------- --------
TOTAL Ps 265,382 Ps 292,308 Ps 333,025 13.9%
============ ============= ============== ========
B.3. OUR BUSINESS
The Bank is a universal bank engaged in retail banking,
corporate banking and other financial activities directed toward its two major
customer segments: retail and corporate. The Bank offers traditional banking
products and services, such as checking accounts, saving accounts, time
deposits, lending (including overdraft facilities), credit cards, and cash
management services. It also offers non-traditional products and services, such
as pension banking, bancassurance, international transfers, fiduciary and trust
services, leasing, brokerage services and investment banking.
SEASONALITY OF DEPOSITS
Historically, the Bank has experienced some seasonality in its
checking account deposits with higher average balances at the end of the year
when customers need increased liquidity and lower balances in the first quarter
of the year when customers move their funds from checking accounts to savings
and mortgage institutions. During December 2001, the aggregate amount deposited
in checking accounts was Ps 2,318 billion which decreased 15.2%, to Ps 1,966
billion by March 31, 2002. During December 2002, the aggregate amount deposited
in checking accounts was Ps 2,691 billion, which declined 7.1% to Ps 2,500
billion by March 31, 2003. As of December 31, 2003, deposits in checking
accounts represented 34.7% of the Bank's total deposits.
B.3.i. RETAIL BANKING
The Retail Banking segment of the Bank provides a wide range
of financial products and services to individuals and small-and-middle-sized
companies. This segment of the Bank is important for the Bank's funding and its
generation of revenue. The Retail Banking Division of the Bank services more
than 1.4 million customers as of December 31, 2003.
The total amount of retail banking loans, which includes all
types of credit extended to individuals and small-and-medium-sized companies,
was Ps 2,709,217 million in 2003, as compared to Ps 1,911,829 million in 2002
and Ps 1,837,434 million in 2001. As of December 31, 2001, 2002 and 2003, total
retail loans represented 34%, 31% and 34%, respectively, of the Bank's total
loan portfolio.
18
As of December 31, 2003, of the total retail loans, 3.07% were past due.
The Retail Banking segment comprises Personal Banking,
High-Income and Small-and-Medium-sized Companies.
B.3.i.a. PERSONAL BANKING SEGMENT
The Personal Banking segment provides a broad portfolio of
products and services to individuals such as self-employed persons, employees,
housewives, retirees, and students with an income of up to 11 current minimum
legal monthly salaries (Salario Minimo Legal Vigente, the " SMLV" - One SMLV =
Ps 332,000 per month for 2003, as established by the Government and published
monthly by the Ministry of Social Protection).
The following table sets forth the number of customers in the
Personal Banking sector for each of the last three fiscal years:
NUMBER OF CUSTOMERS IN THE PERSONAL BANKING SECTOR
2001 2002 2003
------- --------- ----------
SUB-SEGMENTS
Basic(1) 661,412 772,670 900,211
Medium(2) 126,371 135,986 185,225
Preferred(3) 91,991 96,550 129,175
======= ========= =========
TOTAL PERSONAL BANKING SEGMENT 879,774 1,005,206 1,214,611
-----------------------
(1) Individuals with income below 2.5 SMLV.
(2) Individuals with income equal to 2.5 SMLV and below 5 SMLV.
(3) Individuals with income between 5 SMLV and 11 SMLV.
PORTFOLIO
The Bank offers the following baskets of products and services
to its customers in the Personal Banking Segment. The Basic Portfolio is offered
to all customers of this segment while the Complementary Portfolio is offered
according to the customer's particular needs.
Basic Portfolio:
- Savings Accounts
- Debit Card
- Insurance Products
- Credit Card
- Personal Credit (draft, advance on payroll or consumer loan)
Complementary Portfolio:
- Checking Accounts
- CD-Time Deposits
- Pension funds
19
- International Wire Transfers
- Plan Semilla (investment fund) administered by Fiducolombia
- Fiducuenta (investment fund) administered by Fiducolombia
B.3.i.b. HIGH INCOME SEGMENT
The High Income Segment includes individuals with income or
salaries higher than 11 SMLV per month. Although there is no cap on the income
or salaries, customers within this segment with income higher than 22 SMLV per
month are offered personalized service by an account executive or a branch
manager of the Bank and a different portfolio of products and services.
The following table sets forth the number of customers in this
segment for each of the last three fiscal years:
NUMBER OF CUSTOMERS IN THE HIGH INCOME SEGMENT
2001 2002 2003
------- ------- -------
169,327 133,907 147,128
======= ======= =======
PORTFOLIO
The Bank offers the following baskets of products and services
to its customers in the High Income Segment. The Basic Portfolio is offered to
all customers of this segment while the complementary portfolio is offered
according to the customer's particular needs.
Basic Portfolio:
- Checking Account + Available Overdraft + Debit Card
- Savings Account
- Gold Credit Card, Green Amex, or Platinum Credit Card
- Audio Prestamo (loans disbursed by the Telephone or Virtual
Branch)
Complementary Portfolio
- Pension Banking
- Accounts in foreign currency
- Investment funds in national and foreign currencies
- Personal Loans / Vehicle Loan
- Bancolombia Cayman Credit Card
B.3.i.c. SMALL-AND-MEDIUM-SIZED COMPANIES SEGMENT
The Small and Medium-Sized Companies Segment includes
individuals with an independent economic activity and companies with revenue
greater than Ps 250 million and up to Ps 11.2 billion (or Ps 17.1 billion for
individuals and companies domiciled in the city of Bogota).
20
The following table sets forth the number of customers in this
segment for each of the last three fiscal years:
NUMBER OF CUSTOMERS IN THE SMALL-AND-MEDIUM-SIZED COMPANIES SEGMENT
2001 2002 2003
------ ------ ------
64,156 72,067 79,546
====== ====== ======
PORTFOLIO
The Bank offers the following products and services to its
customers in this segment. The Basic Portfolio is offered to all customers of
this segment while the complementary portfolio is offered according to the
customer's particular needs.
Basic Portfolio:
- Checking Account + Savings Account
- Company Credit Card
- ITM (Integral Treasury Management)
- Virtual Branch for Companies
- Payment orders
- Collections
- Remittances in national currency
- Payment of credits via internet / Discounting of Invoices
- Payment of national and customs taxes
Complementary Portfolio
- Remittances in foreign currency
- Visa Credit Card Distribution
- Investment funds in national currency
- Foreign Exchange and International Trade
- Payment means
- Compensation accounts in Bancolombia Miami Agency and
Bancolombia (Panama) S.A.
- Warehouse and logistics
- Acquiring services
- Special Lines of credit (Guaranteed by the National Guarantee
Fund and Agricultural Guarantee Fund)
B.3.ii. CORPORATE BANKING SEGMENT
The Corporate Banking Segment provides commercial banking
services to all sectors of the economy and is organized by the size of customers
assuring an adequate pricing according to their risk level, as follows:
21
- MIDDLE MARKET: Customers with annual sales above Ps 11.4
billion outside Bogota, or Ps 17.2 billion in Bogota, and
below Ps 50 billion in both cases.
- CORPORATE: Customers with annual sales above Ps 50 billion.
- INSTITUTIONAL: Customers subject to the supervision of the
Superintendency of Banking, the Superintendency of Securities,
the Superintendency of Health, or the Superintendency of
Family Subsidy; and electricity and public utility companies.
- GOVERNMENT: Includes public sector entities, such us
municipalities, the central administration, territorial and
decentralized entities.
The total amount of corporate banking loans, which includes
all types of credits extended to customers of this segment, was Ps 5,232,794
million in 2003, as compared to Ps 4,247,392 million in 2002 and Ps 3,478,260
million in 2001. As of December 31, 2001, 2002 and 2003, total corporate loans
represented 65%, 69% and 66%, respectively, of the Bank's total loan portfolio.
As of December 31, 2003, of the corporate banking loans, 0.68% were past due.
BC had as of December 31, 2003, 3,194 corporate customers
managed by Account Managers according to their economic sector. This has enabled
the Bank to have a better understanding of the customer's needs and financial
structure. In addition, this segmentation by sector allows the Bank to develop
new products and services. As of December 31, 2003, the customer distribution by
the main geographic regions and economic sectors was:
SECTOR / REGION ANTIOQUIA BOGOTA NORTH SOUTH TOTAL
--------------------------- --------- ------ ----- ----- -----
Agriculture(1) 58 80 26 53 217
Commerce(2) 146 345 70 105 666
Construction(3) 74 41 20 14 149
Government(4) 11 58 2 11 82
Manufacturing(5) 263 374 83 195 915
Telecom and Media(6) 9 47 10 11 77
Individuals(7) 43 83 42 34 202
Natural Resources 23 61 15 21 120
Financial Services(8) 68 219 12 38 337
Non Financial Services(9) 71 229 68 61 429
--- ----- --- --- -----
TOTAL 766 1,537 348 543 3,194
=== ===== === === =====
-----------------------
(1) AGRICULTURE: Classified into 15 sub-sectors, with crops, cattle,
poultry farming and fishing, as the most important economic activities.
(2) COMMERCE: Classified into 13 sub-sectors, with supermarkets,
distributors and retail, as the most important economic activities.
(3) CONSTRUCTION: Divided in the sub-sectors of infrastructure and
buildings.
(4) GOVERNMENT: Central administration, territorial and decentralized
entities constitute this sector.
(5) MANUFACTURING: This sector, which has 44 sub-sectors, includes all
companies with a manufacturing process.
(6) TELECOM AND MEDIA: Comprised of 5 sub-sectors, the most important of
which include telecommunications and media companies.
(7) INDIVIDUALS: Includes individuals related to companies in any sector,
who share the same risk as the company.
(8) FINANCIAL SERVICES: Composed of 9 sub-sectors that include all
companies in the financial sector.
(9) NON-FINANCIAL SERVICES: Divided into 10 sub-sectors, the most important
of which are education, health, transportation and tourism services.
22
B.4. DISTRIBUTION NETWORK
The Bank distributes its products and services through five
main channels: ATMs, Internet Banking, Automatic Payment Systems, PC Banking and
the Telephone Branch. BC has been consolidating its distribution channels to
efficiently provide its portfolio of financial products and services over a
broad geographic base across Colombia. As of December 31, 2003, the branch
network totaled 354 branch offices located in the most important urban centers
and regions of Colombia. This traditional distribution channel is reinforced by
a unified management system that includes Internet Banking, the network of ATMs,
modern systems of communication technology (e.g., telephone banking and mobile
banking) and client on-site branches. Through these channels, customers may
carry out most transactions related to deposit accounts or credit cards,
including inquiries, cash withdrawals, payment of credit card statements and
utility and other bills, transfers and deposits.
B.4.i. BRANCH NETWORK
BC's branch network has grown 4.1% during 2003, adding 14 new
branch offices for a total of 354 branches located in 123 Colombian cities. The
network is mainly concentrated in the major urban centers with 93 branches in
Bogota, 38 in Medellin, 25 in Cali and 18 in Barranquilla.
The Bank has 26 branches located in supermarkets and oriented
to individuals and small and medium-sized companies, and 29 client on-site
branches that serve our corporate customers and their employees, providing them
with the means to solve their transactional requirements during flexible working
hours. Additionally, there are 27 mobile branches located in towns where we have
no physical presence. BC also maintains its "light" branches, called NOVA, with
multifunctional employees and a low cost structure. As of December 31, 2003, of
the 354 branches, 36 were NOVA branches.
B.4.ii. ELECTRONIC DISTRIBUTION CHANNELS
BC has a network of alternative electronic distribution
channels, enabling cost-effective transactions. To decongest its branch offices,
the Bank has worked to transfer customer transactions from branch offices to
electronic distribution channels. Transactions effected through electronic
distribution channels increased from 71% of all transactions in 2002 to 78% of
all transactions in 2003.
The following are the electronic distribution channels offered
by the Bank:
B.4.ii.a. AUTOMATIC TELLER MACHINES
BC has 472 ATMs, located in 123 urban centers around the
country, an increase of 21 ATMs since 2002. A strategic alliance with Conavi (a
Colombian commercial bank) gives BC's customers access to 524 additional ATMs at
no additional cost, an increase of 4 ATMs since 2002. BC's continued its
strategic alliance with Conavi during 2003 in order to take advantage of
commercial opportunities, reduce costs and create new joint ventures.
BC's ATMs offer the Cirrus and Plus network's in addition to
the Colombian national network, Redeban and Multicolor. This channel is used not
only by our customers, but also by other banks' customers, whose transactions
during 2003 accounted for approximately 30% of all the transactions carried out
through our ATM network.
B.4.ii.b. INTERNET BANKING
The Bank estimates that during 2003 approximately 21% of the
Bank's transactions with its
23
customers were carried out over the Internet. The Bank offers the following
Internet channels:
Virtual Branch. Through the Virtual Branch, the Bank offers
24-hour services, including balance inquiries, savings and credit card
information, payment of credit card balances, disbursement of pre-approved
loans, blocking of credit and debit cards, counter-ordering of checks, transfers
among BC accounts and to Conavi accounts, requests for products and services,
payment of bills, purchases on commercial vendor websites and customer service.
During 2003, a monthly average of 110,500 users visited the
Virtual Branch, an increase of 20.8% over the monthly average of 91,500 users in
2002. Approximately 2,650,000 transactions were conducted monthly via the
Internet during 2003, compared to 1,851,000 transactions during 2002, an
increase of 43.2%.
TODO1 Alliance. During 2003, BC continued its alliance with
Mercantil Servicios Financieros of Venezuela and Banco del Pichincha of Ecuador
through TODO 1 Services ("TODO 1"). TODO1 is coordinating the development of
Web-based products and services for individual consumers and corporate
customers. This alliance enables BC to improve its e-business development and to
provide better services to its customers.
Corporate Virtual Branch also updated its technology platform
this year with TODO1, offering a solution for corporate treasury management in
accordance with international standards. Through this solution, corporate
customers can obtain credits online, pay services to third parties, make payroll
payments and pay providers with the possibility of approval from different
terminals, a new feature. The Bank launched this new version of the Corporate
Virtual Branch in October 2003.
Facturanet. During 2003, the number of customers using the
electronic bill payment system developed by TODO1 and available to Conavi and
Bancolombia increased 286.6%, totaling as of December 31, 2003, 46,332
customers, as compared to 11,983 customers in 2002. Through Facturanet,
customers can make monthly payments and receive alerts via e-mail when a new
bill is available for payment. During 2003, more than 38,600 bills were paid
through Facturanet, compared to 15,000 bills in 2002, a 57.3% increase.
B.4.ii.c. AUTOMATIC PAYMENT SYSTEMS
BC's customers may place standing payment orders and
pre-register payments, to be automatically and periodically debited from their
accounts. The Bank's automatic payment system also enables its customers to
perform transactions with any banking institution in Colombia, through the
country's authorized clearing house ACH.
During 2003, approximately 11,998,000 payments were conducted
via the automatic payment systems, compared to 8,163,000 during 2002, which
represents an increase of 47.0%.
B.4.ii.d. PC BANKING
The remote access platform to the Bank named Enlinea
BANCOLOMBIA allows corporate customers to connect to the Bank via modem through
an application installed on a computer at the customer's location. This treasury
management solution has fewer features than the Corporate Virtual Branch, but
has been operating as a corporate solution since before the creation of the
Corporate Virtual Branch product.
During 2003, approximately 28,177,000 transactions were
conducted via Enlinea compared to 20,909,000 transactions during 2002, which
represents an increase of 34.8%. As of December 31, 2003, there were 4,462 users
of Enlinea, as compared to 4,433 in 2002.
24
B.4.ii.e. TELEPHONE BRANCH
The Telephone Branch is the Bank's telephone-banking service
that allows customers to make inquires and monetary transactions over the phone
and to communicate with specialized staff at any time. The Telephone Branch is
available 24 hours a day, 365 days a year.
During 2003, an average of 237,000 customers used the
Telephone Branch, compared to an average of 173,000 customers during 2002, which
represents an increase of 36.4%. Approximately 20,787,000 transactions were
conducted monthly via the Telephone Branch during 2003, compared to 16,716,000
transactions during 2002, which represents an increment of 24.4%.
B.4.iii. SALES FORCE
BC's sales force includes more than 4,107 employees working as
advisors, vendors and customer service personnel, organized as follows:
- 578 Branch and Executive Managers, offering preferential
service to managed customers,
- 66 Account managers, divided in market segments according to
economic sectors, allowing them to give specialized advice to
clients,
- 1,405 commercial advisors who sell products and services in
the Bank's branches and other commercial offices,
- 520 specialists who offer more complex and higher added value
products, and
- 1,553 tellers and secretaries who refer customers to the other
commercial teams.
B.5. PRODUCTS AND SERVICES
B.5.i. LOAN PORTFOLIO
The following is the loan portfolio available for each of the
segments of customers of the Bank:
B.5.i.a. LOAN PORTFOLIO FOR PERSONAL BANKING
The main loans available for Personal Banking customers are
the following:
- PERSONAL LOAN: Line of credit for free destination investment
with short and medium-term financing for individuals who
qualify under the Bank's policies.
- AUDIO PRESTAMO: Revolving line of credit exclusively for
individuals. Disbursements can be made through the Virtual
Branch, the Telephone Branch or the alliance with Conavitel
(Conavi's electronic payment system). The funds are disbursed
in real time to the customer's primary account.
25
B.5.i.b. LOAN PORTFOLIO FOR SMALL AND MEDIUM-SIZED COMPANIES
- LOAN PORTFOLIO: Credit granted to an individual or company
considering the aggregate funds in that individual or
company's Checking Account, Savings Accounts and CD-time
deposits.
- TREASURY LOANS: Credit line designed to satisfy the customer's
working capital needs resulting from transitory situations of
illiquidity and payment of taxes.
- LOANS FUNDED BY COLOMBIAN DEVELOPMENT BANKS: Variable rate
loans based on CD-time deposit rates or LIBOR with maturities
between six months and five years.
- WORKING CAPITAL LOANS: These loans are predominantly variable
rate or based on CD-time deposits, rates with the rate reset
every quarter.
- TRADE FINANCING LOANS: Dollar-denominated, variable rate
loans. As of December 31, 2003, due to legal restrictions,
these loans have maturities of six months or less, whereas
some capital assets are financed up to 3 years.
The following table summarizes loans extended to individuals
and small and medium-sized companies in 7 categories and the amount past due for
each category:
AS A % OF AS A % OF
TOTAL TOTAL
LOAN LOAN PAST DUE/
PORTFOLIO PORTFOLIO PAST DUE TOTAL
2002 2003 2002 2003 LOANS 2003 TYPE OF LOAN
------------ ----------- --------- --------- ---------- ------------
(Ps million except percentages)
RETAIL (1)
Credit cards Ps 254,876 Ps 335,172 4.1% 4.2% Ps 12,204 3.6%
Personal loans 561,558 814,885 9.1% 10.1% 32,876 4.0%
Vehicle loans 24,476 229,737 0.4% 2.9% 6,453 2.8%
Overdrafts 68,490 81,294 1.1% 1.0% 7,967 9.8%
Loans funded by domestic 4.4%
development banks 276,157 330,246 4.1% 5,299 1.6%
Trade financing 28,112 19,644 0.5% 0.2% 355 1.8%
Working capital loans 698,160 898,239 11.2% 11.2% 18,084 2.0%
------------ ------------- ---- ---- ---------- ---
TOTAL RETAIL Ps 1,911,829 Ps 2,709,217 30.8% 33.7% Ps 83,238 3.1%
============ ============= ==== ==== ========== ===
(1) Includes loans to high-income individuals and small-and-medium-sized
companies.
B.5.i.c. LOAN PORTFOLIO FOR CORPORATE BANKING
BC has a wide range of products to satisfy the capital needs
of our Corporate Banking customers, including working capital loans, trade
financing and loans funded by Colombian development banks.
- Working capital loans is the most common type of loan in the
corporate market. These loans are predominantly variable rate
or based on CD-time deposits, and re-priced every quarter.
- Trade financing loans are typically dollar-denominated,
variable rate loans. As of
26
December 31, 2003, due to legal restrictions, the loans have
maturities of six months or less, whereas some capital assets
are financed up to three years.
- Loans funded by Colombian development banks are variable rate,
based on CD-time deposit rates or LIBOR with maturities
between six months and five years.
The following table summarizes loans extended to corporate
clients in six categories and the amount past due for each category:
AS A % OF AS A % OF
TOTAL TOTAL
LOAN LOAN PAST DUE/
PORTFOLIO PORTFOLIO PAST DUE TOTAL
2002 2003 2002 2003 LOANS 2003 TYPE OF LOAN
------------ ----------- --------- --------- ---------- ------------
(Ps million except percentages)
CORPORATE
Trade financing Ps 166,620 Ps 149,582 2.7% 1.9% Ps 2,841 1.90%
Loans funded by
domestic
development banks 376,378 394,947 6.1% 4.9% 1,149 0.3%
Working capital loans 3,650,585 4,687,153 58.9% 58.4% 30,706 0.7%
Credit cards 5,218 8,237 0.1% 0.1% 136 1.7%
Overdrafts 48,591 32,371 0.8% 0.4% 1,032 3.2%
------------ ----------- -------- -------- ---------- -----------
TOTAL CORPORATE Ps 4,247,392 Ps5,272,290 68.6% 65.7% Ps 35,864 0.7%
============ =========== ======== ======== ========== ===========
B.5.ii. DEPOSIT PRODUCTS
The Bank offers a variety of checking accounts, savings
accounts, time deposits and tax collection services to its customers. At
December 31, 2003, based on information compiled by the Superintendency of
Banking, BC was the largest bank nationwide in terms of deposits, with a total
of Ps 6,727,860 million on an unconsolidated basis, representing 12.3% of the
Colombian market. 37.8% of BC's (unconsolidated) total deposits are in checking
accounts, 30.9% in savings accounts, 28.2% in time deposits (including DATs) and
3.2% in other deposits.
B.5.ii.a. CHECKING ACCOUNTS
An on-site deposit product that allows a customer to deposit
sums of money in cash and/or checks and to dispose of balances, totally or
partially, through checks, automated withdraws/debits, cash withdrawals and
electronic transfers. As of December 31, 2003, on an unconsolidated basis, BC
had approximately 377,642 checking accounts with total deposits of Ps 2,542,854
million, an increase approximately 22% from Ps 2,085,981 million in 2002.
Checking accounts usually reach their highest level at the end of the year,
affected by seasonality.
B.5.ii.b. SAVINGS ACCOUNTS
BC savings accounts are designed for individuals and calculate
and disburse daily interest on available balances. BC savings accounts offer
different alternatives for yield, handling fee, transactions, and required
minimum balances, all according to customer needs. As of December 31, 2003, on
an unconsolidated basis, BC had approximately 1,172,927 savings accounts with
total deposits
27
of Ps 2,191,709 million, decreasing approximately 5% from Ps 2,305,795 million
in 2002.
B.5.ii.c. CDS (CERTIFICATE OF TIME DEPOSITS)
These certificates, negotiable in the secondary securities
market, permit management of liquidity surpluses at terms greater than 30 days,
and with interest rates greater than those paid in the savings accounts. As of
December 31, 2003, on an unconsolidated basis, BC had approximately 69,577 time
deposits totaling Ps 1,870,491 million, as compared to 74,503 time deposits
totaling Ps 1,686,350 million in 2002.
B.5.II.D. DAT (TIME DEPOSITS)
A short-term bank deposit agreement that permits its holder to
receive interest payments from BC according to a legal regime and specific
regulations approved by the Superintendency of Banking.
B.5.iii. CREDIT CARDS
The Bank operates in the Colombian credit card market through the
issuance of MasterCard, Visa and American Express cards for individuals and
corporate customers. As of December 31, 2003 total credit cards loans (retail
and corporate) totaled approximately Ps 343,410 million, representing
approximately 4.3% of the Bank's total loans.
The following table details the type and outstanding number of
credit cards offered by the Bank on an unconsolidated basis:
OUTSTANDING CARDS
TYPE OF CARD SEGMENT DEC. 31, 2002 DEC. 31, 2003
---------------------------------- ---------------------- ------------- -------------
PERSONAL CREDIT CARDS
Classic Visa and MasterCard Personal 163,001 162,157
Gold Visa and MasterCard High Income 35,858 37,843
Platinum MasterCard High Income 4,812 5,187
BC Exito Visa (1) Personal 33,155 32,267
Ideal Card (2) Basic Sub Segment - 5,086
E-card Retail 2,012 1,965
------- -------
TOTAL PERSONAL 238,838 244,505
------- -------
BUSINESS CREDIT CARDS
Visa "Empresarial" and MC Corporate Small-and-medium-sized
companies and
Corporate 20,200 24,790
Visa Distribution (3) Major retailers - -
------ ------
TOTAL BUSINESS 20,200 24,790
------ ------
AMERICAN EXPRESS (4)
Blue Personal 10,641 32,702
Green High Income 9,270 18,784
Gold High Income 5,182 8,833
------ -------
TOTAL AMEX 25,093 60,319
------- -------
TOTAL OUTSTANDING CREDIT CARDS 284,131 329,614
======= =======
-----------------------
(1) BANCOLOMBIA EXITO VISA: This co-branding card results from an alliance
between Bancolombia and Almacenes Exito, a supermarket chain, and is
directed specifically to Personal Banking segment customers. It
offers exclusive benefits at Exito stores.
28
(2) BANCOLOMBIA IDEAL CARD: With this card, the Bank introduces a
product directed to the "Basic" sub-segment of Personal
Banking. The target market is customers with annual income
between 1.5 and 2.5 SMLV, giving them an alternative mean
for financing purchases in Colombia. The limits granted are
between Ps 300,000 and Ps 1,000,000 and it has the support
of MasterCard in Colombia.
(3) BANCOLOMBIA VISA DISTRIBUTION CARD: This card is directed to
customers of major retailers, who may purchase products at
the retailer, allowing the Bank the management of
receivables and the retailers to conduct business more
efficiently.
(4) AMERICAN EXPRESS: BC is actually the only issuer of American
Express cards in Colombia. The Bank currently issues three
types of American Express card - Blue, Green and Gold -
following a market segmentation strategy. These cards offer
wide financing possibilities, as well as convenient means
for making payments and insurance and assistance to
cardholders.
As part of the Bank's strategy for the credit card market,
since 2003 the Bank has made its Bancolombia Free Miles program more flexible,
giving customers different options for redeeming their miles, including products
and tourist packages, and transferring their miles to other frequent flier
programs.
The following table shows the Bank's credit card business
market share on an unconsolidated basis:
ACCUMULATED CREDIT CARD BILLING GROWTH MKT. SHARE
(As of December 31, in Ps million) 2002 2003 2003/2002 2002 2003
------------ ------------ --------- ---- ----
Bancolombia MasterCard Ps 717,438 Ps 787,331 9.7% 10.6% 9.5%
Bancolombia VISA 341,758 406,802 19.0% 5.1% 4.9%
Bancolombia American Express 17,322 240,872 1,290.5% 0.3% 2.9%
------------ ------------ --------- ---- ----
TOTAL BANCOLOMBIA 1,076,518 1,435,005 33.3% 16% 17.3%
============ ============ ========= ==== ====
COLOMBIAN CREDIT CARD INDUSTRY Ps 6,751,628 Ps 8,295,597 22.9%
Source: Credibanco, American Express and Red Multicolor.
CREDIT CARD MARKET SHARE GROWTH MKT. SHARE
Number of outstanding credit cards as 2002 2003 2003/2002 2002 2003
of December 31, ------------ ------------ --------- ---- ----
Bancolombia MasterCard Ps 158,969 Ps 160,113 0.7% 7.2% 6.5%
Bancolombia VISA 100,069 109,182 9.1% 4.5% 4.4%
Bancolombia American Express 25,093 60,319 140.4% 1.1% 2.4%
------------ ------------ --------- ---- ----
TOTAL BANCOLOMBIA 284,131 329,614 16.0% 12.8% 13.3%
============ ============ ========= ==== ====
COLOMBIAN CREDIT CARD INDUSTRY Ps 2,216,322 Ps 2,479,554 11.9%
Source: Credibanco, American Express and Red Multicolor.
During 2003, the credit card business showed positive
performance. The Bank's accumulated credit card billing and number of
outstanding credit cards increased 33% and 16%, respectively, while the
industry's accumulated credit card billing and number of outstanding credit
cards increased 22.9% and 11.9%, respectively, resulting in greater market
share. Since their launch in November 2002, the Bank's American Express cards
have shown significant growth. The number of outstanding American Express cards
grew 140.4% during 2003 as compared to 2002, and accumulated credit card billing
increased 1,290.5% during the same period, as a result of a strong commercial
strategy.
B.5.iv. DEBIT CARDS
The Bank offers the following debit cards:
29
- BANCOLOMBIA MAESTRO DEBIT CARD: The Bank offers the Maestro
Debit card to customers with savings accounts at the Bank.
After a review of the customer's purchases, the customer is
offered various payment options for the handling fee and ATM
withdrawal charges. As of December 31, 2003, 1,038,411 Maestro
Debit cards issued by the Bank were outstanding.
- BANCOLOMBIA MASTERCARD DEBIT CARD: The Bank offers this card
to customers with a checking account at BC. It has worldwide
acceptance and assistance from MasterCard. As of December 31,
2003, 150,183 such cards issued by the Bank were outstanding.
- BANCOLOMBIA PREPAID CARD: BC offers this prepaid debit card to
individuals without an account at the Bank. Several companies
have contracted with BC to credit payroll for their temporary
employees to prepaid debit cards, with the Bank offering
various awards and incentives in return. As of December 31,
2003, 13,376 of such cards issued by the Bank were
outstanding.
B.5.v. OTHER BANKING PRODUCTS
As a complete service bank, BC offers a broad portfolio of
financial products and services. Some other important services include:
B.5.v.a. REMITTANCES
BC accepts for deposit checks drawn on other banks and from
cities other than the city where the account is held.
B.5.v.b. PAYMENT OF NATIONAL AND CUSTOMS TAXES
BC offers its customers the convenience of paying national and
customs taxes via its network of branches, with BC transferring funds to the
governmental entity. This is an important no-cost short-term funding source for
the Bank.
B.5.v.c. ACQUIRING BUSINESS
Since November 2002, the Bank has been the exclusive issuer
and acquirer agent for American Express credit cards in Colombia. The acquiring
business at the Bank is divided into two parts. First, as official partner of
American Express in Colombia, BC has responsibility for the franchise as the
only acquirer of its transactions in Colombia. BC is responsible for all the
processes related to acceptance, compensation and payment of all the American
Express merchant members in Colombia. Second, BC has responsibility for signing
up new merchants to the Visa, MasterCard and American Express franchises, and
the new merchant members receive payment for sales made with credit and debit
cards in BC accounts.
During 2003, the Bank has paid Ps 4.1 billion for debit and
credit card sales, representing 37.9% of the acquirer market, as compared to Ps
3.4 billion during 2002.
B.5.v.d. BANCASSURANCE - ("BANCASEGUROS")
The Bank offers, through its branch network, several insurance
products (life insurance, home insurance and personal accidents insurance) of
Compania Suramericana de Seguros, one of the
30
main insurance companies in Colombia.
During 2003, BC sold 91,524 insurance policies, compared to
68,174 during 2002, representing an increment of 34%. As of December 31, 2003,
180,432 insurance policies sold by BC were on effect, compared to 138,748 as of
December 31, 2002, which represent an increase in outstanding policies of 30%.
During the months of August and September, 2003, the Bank held
the campaign Ahorre y Proteja su Familia ("Save and Protect your Family") and
sold more than 35,327 life insurance policies and 686 home insurance policies.
B.5.v.e. PENSION BANKING - ("BANCAPENSIONES")
Through its branch network, the Bank offers a Voluntary
Pension Fund "Rentapension," administered by Fiducolombia. The fund allows
customers to obtain, through periodic contributions, tax benefits and interest
payments, a proposed voluntary saving goal to complement their state pension. BC
sold 4,580 pension plans in 2003, as compared to 6,075 pensions plans in 2002.
B.5.v.f. INTERNATIONAL WIRE TRANSFERS
In some of its offices, the Bank provides facilities for
customers to transfer funds abroad, exchange foreign currency, sell travelers'
checks, pay U.S. dollar-denominated credit card balances and receive MoneyGram
wired funds. In 2002, the Bank entered into an alliance with the Colombian
supermarket chain Almacenes Exito to offer these services in that company's main
stores.
In March 2003, the Bank agreed with the Banco Popular Group to
receive wire transfers from Colombian citizens residing in France and Spain.
Also during 2003, the Bank agreed with the U.S. government to allow retired
persons from the U.S. residing in Colombia to receive their Social Security
pension payments in BC accounts.
As of December 31, 2003, BC performed 91,997 wire transfers
for its customers totaling US$ 136.7 million, compared to 89,770 wire transfers
totaling US$ 95.3 million in 2002.
B.5.v.g. TREASURY PRODUCTS
The Bank's Treasury Division is responsible for the management
of the Bank's treasury operations and its proprietary liquidity, foreign
exchange and securities, positions, and participates with the Vice Presidency of
Risk in the management of market, liquidity, interest-rate and currency risks.
Treasury Products were more dynamic during 2003 due to several reasons, such as
an increase in some business lines including foreign exchange derivatives and
sovereign debt market. Other factors also contributed to the results of the
Bank's Treasury Products the most important of which was the volatility of
domestic and foreign interest rates, generating higher income from valuation of
portfolios in Colombia and Panama.
BC's treasury results during 2003 resulted primarily from a
positive investment portfolio dynamic, not only in local currency, but also with
regard to foreign currency.
In 2003, the local market situation was characterized by a
good liquidity supply resulting from the Central Bank's decision to reduce
interest rates, which, accompanied by high real interest rates in public debt
assets ("TES"), generated greater profits.
31
BC placed first in the Ministry of Finance's raking of
Creators of the Public Debt Market, trading an average monthly volume of Ps 300
billion, which produced significant income for the treasury division.
In the international market, high global liquidity levels led
to a decrease in interest rates and a fall in debt spreads. The debt spread of
the Republic of Colombia bonds fell approximately 160 basis points on average
during 2003. Because a high percentage of our investments in foreign currency
are concentrated in this issuer, the falling debt spread yielded positive
results for BC.
Foreign currency spots and forwards also generated important
income for Treasury.
This division conducts, among others, the following operations
for the Bank and for its clients:
INTER-BANKING: These are operations in which BC lends or borrows funds
in Colombian pesos or U.S. dollars to or from financial institutions for a short
term (30 days maximum), without receipt or delivery of a guarantee in exchange.
This product allows short-term management of liquidity surpluses or shortages.
REPO: In Repo operations BC lends or borrows funds in Colombian pesos
or U.S. dollars for a short term (maximum 30 days) to or from financial or
non-financial institutions, in exchange for a guarantee in securities.
ISSUANCE OF CDS: BC captures funds in Colombian pesos by issuing
certificates of deposit. Interest rates on such CDs can be linked to the DTF
(Colombia's average of term deposits), the CPI (consumer price index), or to a
fixed rate.
PRIVATE DEBT INVESTMENT PORTFOLIO: With its private debt portfolios, BC
purchases and sells securities issued by private entities of the Colombian
financial and industrial sectors.
PUBLIC DEBT INVESTMENT PORTFOLIO: With investment in public debt
portfolios, BC purchases and sells securities issued by public entities or those
managed by the Government of Colombia.
SPOT COLOMBIAN PESO / U.S. DOLLAR AND SPOT FOREX: In spot operations
involving the Colombian peso and the U.S. dollar, BC sells and purchases U.S.
dollars in exchange for Colombian pesos in order to serve its customers, assume
a long or short position in the course of an exchange rate swap, or hedge
operations involving derivatives, valuations, or obligations or rights of the
Bank in a foreign currency. In Spot Forex operations, BC performs the same role
with currencies other than the U.S. dollar.
SOVEREIGN AND CORPORATE SECURITIES INVESTMENT PORTFOLIO: BC invests in
fixed yield sovereign securities issued by the governments and corporations of
different countries.
CREDIT DERIVATIVES INVESTMENT PORTFOLIO: BC engages in credit
derivatives operations in which one party transfers to the other for a period of
time the credit risk associated with an issuer in exchange for a periodic
premium, which is defined as a Credit Default Swap ("CDS"). The investments made
can be as follows:
- Credit-Linked Note: a security issued by an international bank
that implicitly has the risk of a CDS.
- Credit-Linked Deposit: a deposit provided as a guarantee for a
CDS.
FORWARD COLOMBIAN PESO/U.S. DOLLAR: BC purchases and sells U.S. dollars
in exchange for futures contracts for Colombian pesos, determining a date,
price, and specific amount. This is done to fill customer needs, to take a long
or short position in connection with an exchange rate swap, or to hedge assets
and liabilities denominated in U.S. dollars. Such operations are not
standardized with respect to
32
length or minimum amounts. In forward forex operations, BC performs the same
role with currencies other than the U.S. dollar.
B.5.vi. FIDUCIARY
The Bank offers, through its subsidiary Fiducolombia, a family
of six mutual funds and one voluntary retirement fund, all of which are designed
to provide customers with the opportunity to diversify their investments. As of
December 31, 2003, it had Ps 1,386,307 million in total assets under management,
increasing 26.0% from Ps 1,100,175 million in 2002.
FIDUCUENTA: This fixed income fund seeks to attain stable income in the
short term, preserving the immediate availability of cash. As of December 31,
2003, it had Ps 1,028,183 million in assets under management, increasing 20.8%
from Ps 851,460 million in 2002. As of December 31, 2003, Fiducuenta had a
market share of 21.9% for this type of funds.
FIDURENTA: This fixed income fund seeks to attain stable income in the
medium and long term, with a minimum 30-day investment term. As of December 31,
2003, it had Ps 263,614 million in assets under management, increasing 40.9%
from Ps 187,104 million in 2002.
FIDUNACION: This fund, which comprises public debt instruments, seeks
to attain stable income in the medium and long term, with a minimum 30-day
investment term. As of December 31, 2003, it had Ps 780 million in assets under
management, decreasing 59.4% from Ps 1,921 million in 2002.
FIDUDIVISAS: This fund comprises fixed or variable income securities
issued in international markets, with a minimum 90-day investment term. As of
December 31, 2003, it had Ps 4,695 million in assets under management,
decreasing 27.0% from Ps 6,433 million in 2002. This decrease is explained by
the volatility of the exchange rate.
PLAN SEMILLA: This savings alternative pursues the goal of capital
accumulation, which can, in accordance with a customer's needs, assist in paying
for education, purchasing a home, or buying a vehicle. It has a minimum one-year
investment term. As of December 31, 2003, it had Ps 26,824 million in assets
under management, increasing 104.8% from Ps 13,096 million in 2002.
RENTA PENSION: This long-term programmed savings alternative enjoys tax
benefits and can either complement the mandatory state pension or assist in the
pursuit of capital accumulation goals. As of December 31, 2003, it had Ps 57,671
million in assets under management, increasing 51.5% from Ps 38,065 million in
2002.
INDEACCION: This investment alternative allows participation in the
local and international stock markets with the goal of long-term gains. As of
December 31, 2003, it had Ps 4,541 million in assets under management,
increasing 116.7% from Ps 2,096 million in 2002.
ASSET MANAGEMENT BUSINESSES
In the area of asset management businesses, as of December 31,
2003, the Fiduciary had Ps 9,566 billion in assets under management, increasing
19.7% from Ps 7,991 billion in 2002. Fiducolombia offers a broad range of
products and services by type of trust, among which the following stand out:
PUBLIC TRUST: When managing a public trust for state-owned companies,
Fiducolombia performs collection, payment and asset management operations while
simultaneously performing follow-up, control and reviews of performance as well
as any other activities provided for in the trust contract. As of December 31,
2003, such trusts had Ps 5,131 billion in assets under management, an increase
of 28.1% from Ps 4,006 billion in 2002.
33
MANAGEMENT AND PAYMENT TRUST: Fiducolombia manages assets transferred
to it by an individual or company, performing activities such as collection,
payment and portfolio control, document control, verification of budgetary
performance and presentation of operating results. As of December 31, 2003, such
trusts had Ps 1,529 billion in assets under management, an increase of 15.1%
from Ps 1,328 billion in 2002.
INDIVIDUAL INVESTMENT TRUST: Fiducolombia manages resources transferred
to it by an individual or a company, designing an investment portfolio that
takes into account the customer's requirements in terms of liquidity, security
and profitability. As of December 31, 2003, such trusts had Ps 1,548 billion in
assets under management, an increase of 19.3% from Ps 1,298 billion in 2002.
REAL ESTATE TRUST: Fiducolombia manages third-party resources
designated for the development of housing and/or commercial real estate projects
during the pre-sale, construction and title transfer stages, thus contributing
to project feasibility as well as promotional and sales activities. As of
December 31, 2003, such trusts had Ps 70,097 million in assets under management,
an increase of 41.2% from Ps 49,630 million in 2002.
GUARANTEE TRUST: Through this trust business, the trustee or founder of
a trust transfers ownership of one or several of his assets to an autonomous
entity in order to guarantee other financial obligations that the trustee or
founder has incurred. As of December 31, 2003, such trusts had Ps 1,288 billion
in assets under management, decreasing 1.6% from Ps 1,309 billion in 2002.
Other products and services offered by the Fiduciary are:
SECURITIES MANAGEMENT: Fiducolombia carries out management activities
with the goal of improving efficiency in the administration of the shareholders'
department in a corporation. Fiducolombia can also act as an agent for payments,
a recording agent and a transfer agent.
SECURITIZATION: This financial mechanism allows companies to obtain
financial resources through the public securities markets via the conversion of
assets that are traditionally illiquid into liquid assets, usually through the
establishment of an autonomous entity with assets that serve as collateral for
the issuance of securities. The fiduciary has participated in the securitization
process of cattle, real estate, and loan portfolios, among other items.
ISSUANCE MANAGEMENT: This product is specifically designed for
companies that wish to obtain resources directly from the capital markets by
issuing securities. Fiducolombia, as managing agent, provides advice, securities
issuance, placement through a local broker, interest payment and capital
redemption.
CUSTODY: Fiducolombia has been approved by Morgan Guaranty Trust and
The Bank of New York to act as custodian for ADRs and GDRs since May 1995.
B.5.vii. LEASING
Leasing Colombia, as a BC subsidiary specialized in leasing
activities, offers the following types of leasing:
- FINANCIAL LEASING: Through financial leasing, Leasing Colombia
allows customers to lease previously selected capital goods.
Customers lease the capital good with the option to purchase
after a determined term.
- OPERATIONAL LEASING: Leasing Colombia delivers leased
equipment for a fixed term. If Leasing Colombia initially
stipulates the sale of the goods for a commercial value at
their return, this value will be deducted from the monthly
lease payments.
34
The main activities that require lease financing are
infrastructure, import of goods, temporary import in Colombian pesos,
international leasing, real estate, vehicles for executives, leasing for
suppliers, and cattle raising.
The following table shows Leasing Colombia's number of
contracts, clients and the net value of its leased goods and loan portfolio
NET VALUE OF LEASED GOODS
NUMBER OF CONTRACTS OF AND LOAN PORTFOLIO
YEAR LEASING AND LOANS NUMBER OF CLIENTS (PS MILLION)
---- ---------------------- ----------------- -------------------------
2001 1,769 1,202 163,727
2002 3,909 2,442 270,099
2003 5,933 3,814 445,670
==== ===== ===== =======
B.5.viii. WAREHOUSE AND LOGISTICS
Almacenar, the warehouse and logistics subsidiary of BC,
offers the following portfolio of services:
- Warehousing: custody of customer merchandise.
- Custom Brokerage: assistance with import and export related
processes.
- Inventory Management: warehouse distribution, inventory
control.
- Picking and Packing: product handling, packing of point of
purchase material.
- Distribution: coordination of transportation.
- File Management: custody and file organization.
- Guaranties: issuance of certificates of deposit as guaranty
for bank loans.
Almacenar has been expanding its logistics business, which currently represents
62.7% of its portfolio of services.
B.5.ix. INVESTMENT BANKING
Colcorp S.A. is a subsidiary of BC that specializes in
providing investment banking services to a variety of the Bank's customers.
Colcorp engages primarily in asset management and financial advisory services.
As of December 31, 2003, Colcorp had over Ps 234,000 million under management.
Colcorp invests in companies in all sectors of the Colombian economy, including
agriculture, telecommunications, construction and the public sector. In
addition, Colcorp provides specialized financial advisory services to private
companies as well as government entities in areas such as mergers and
acquisitions, project and structured finance, valuation of business divisions
and restructurings, both within Colombia and abroad.
B.5.x. BROKERAGE
Comicol S.A. Comisionista de Bolsa, a subsidiary of BC, offers
brokerage services to the Bank's customers as well as its own customers. In this
area, Comicol offers two alternatives, fixed and variable yield instruments, as
well as portfolio management, foreign currency intermediation, investment
banking and management of investment funds.
35
B.5.xi. OFF-SHORE BANKING
Bancolombia (Panama) S.A. and Bancolombia Cayman, BC's
international subsidiaries located in Panama and the Cayman Islands,
respectively, provide a complete line of banking services mainly to Colombian
customers, including loans to private sector companies, trade financing, lease
financing, financing for industrial projects and a complete portfolio of cash
management products such as checking accounts, international collections and
payments and PC Banking. Through these subsidiaries, BC also offers to its high
net worth and private banking customers investment opportunities in U.S.
dollars, in savings and checking accounts, CD-time deposits and investment
funds. As of December 31, 2003, Bancolombia (Panama) had 8,772 clients, an
increase of 4.8%, from 8,368 in 2002. Additionally, Bancolombia Cayman issues
Visa credit cards. At December 31, 2003, 5,041 such cards issued by the Bank
were outstanding, an increase of 4.7% from 4,814 in 2002.
B.5.xii. NEW PRODUCTS OR SERVICES
During 2003, the Bank launched the following products and
services:
B.5.xii.a. BANCOLOMBIA MIAMI AGENCY
On December 2003, the Bank set up its international banking
agency in Miami, Florida. According to the applicable rules, the Bank can offer
through this agency services and products only to non-U.S. residents. Among
other products, the Agency offers its customers savings, money market and
checking accounts in U.S. dollars including the product now account, which is
offered only to individuals and permits unlimited monthly withdrawals, CD-time
deposits and transfers of funds abroad. The Agency also eases the clients'
access to credit facilities as working capital facilities (with a maximum term
of 5 years), pre-financing exports facilities, letters of credit for the payment
of import goods and management of collections of receivables. In addition, the
Agency offers international cash management tools to its clients including the
Virtual Branch and international payment services, among others.
B.5.xii.b. NEW PERSONAL BANKING SEGMENTS
During 2003, the Bank developed the following new segments:
MICROFINANCING: In order to boost the Colombian economy, for the last
two years, under a plan promoted by the government, Colombian banks have agreed
to open credit lines for small businesses. These resources are placed with very
small businesses, either directly by the Bank or through non-governmental
organizations.
Customers served under this initiative must meet the following
criteria:
- Annual sales greater than Ps 30 million and less than Ps 250
million;
- Age of business greater than one year;
- Owner between 21 and 69 years of age;
- Assets less than 501 SMLV;
- Up to 10 employees;
- Loans may be used for working capital such as purchasers of
raw goods, renovation of premises and purchasers of machinery,
equipment, furniture and fixtures.
PRIVATE BANKING: Since 2003, the Bank has developed its private banking
project, a special program servicing high net worth individuals (customers with
assets under management in excess of
36
US$100,000). The portfolio encompasses products of the Bank's subsidiaries,
including those in Colombia as well as those abroad. This project is expected to
begin in the second quarter of 2004.
The project's goals are:
- To improve the range of products and the quality of service
offered to high net worth individuals;
- To take advantage of the opportunities of a "one-stop
financial advice" relationship with this group of customers
(integrating the sale of services from BC subsidiaries);
- To offer local advice with access to global products;
- To increase the volume of assets under management.
B.5.xiii. COMPANIA SURAMERICANA DE FINANCIAMIENTO COMERCIAL ("SUFINANCIAMIENTO")
In December 2003, the Bank acquired Sufinanciamiento, a
Colombian consumer finance company that specializes in the vehicle financing
market with a total gross loan portfolio as of December 31, 2003, of Ps 279,354
million, total deposits of Ps 230,447 million and 125,489 customers.
Sufinanciamiento also has an agreement with Almacenes Exito, a major retail
chain in Colombia, to offer consumer loans to its customers. The acquisition of
Sufinanciamiento will allow the Bank and its subsidiaries to complement their
portfolio of products by developing commercial financing activities, in
particular in vehicle financing.
B.6. COMPETITION
B.6.i. DESCRIPTION OF THE COLOMBIAN FINANCIAL SYSTEM
The Colombian financial system was historically comprised of
specialized institutions operating in market niches that were regulated and
delineated by law. However, Law 45 of 1990, Law 35 of 1993 and the Estatuto
Organico del Sistema Financiero (Decree 663 of 1993, as amended), significantly
deregulated the Colombian financial system, providing commercial banks with the
opportunity to set up subsidiaries to compete in different markets, and
permitting other financial institutions to enter markets in the Colombian
financial system from which they had previously been excluded. These laws have
increased competition among the different types of financial institutions,
promoted consolidation of the financial industry and created considerable
overlap in the permitted scope of business activities of the various types of
financial institutions, particularly with respect to foreign exchange
operations. This legal framework also permits foreign investment in all types of
financial institutions.
Additional laws have since been promulgated with the purpose
of further deregulating the Colombian financial system. Besides Law 35 and
Decree 663, Law 510 of 1999, Law 546 of 1999 and Law 795 of 2003 further
broadened the scope of activities permitted to financial institutions, set forth
general circumstances under which the government may intervene in the financial
sector, prescribed the rules governing intervention and established the
instruments that the government may use.
As of December 31, 2003, the principal participants in the
Colombian financial system were: the Central Bank; 28 commercial banks (of which
14 were domestic banks, 9 were foreign banks and 5 were official banks); 4
finance corporations; 13 commercial finance companies, 11 leasing companies; and
9 government-owned development banks. In addition, insurance companies,
securities
37
brokerage firms, cooperatives and bonded warehouse and trust companies were also
present in the Colombian financial system.
As of December 31, 2003, 83.95% of the total assets of the
financial system were held by private entities, 16.05% were held by state-owned
or state-controlled entities. Specifically, of the total assets of the banking
system alone, private Colombian banks had a share of 63.5%, private foreign
banks 18.1% and state-owned or state controlled banks 18.4%. With respect to
deposits in the banking system, private Colombian banks had a share of 66.2%,
private foreign banks had a 16.9% share and state-owned or state controlled
banks had a 16.9% share
EVOLUTION OF THE FINANCIAL SYSTEM IN 2003
During 2003, the financial system showed a profit of Ps 1.8
trillion, compared to Ps 0.9 trillion during 2002.
The valuation of investments, decrease of costs of funds and
the control of management costs made by financial institutions led to the
improved climate. Market perceptions regarding the government's capacity to
solve fiscal difficulties was reflected in the reduction of spreads for external
public debt and the lower rates for internal public debt, which has improved the
valuation of bank portfolios. In addition, the current, expansive monetary
policy has altered the structure of funds in a manner favorable to financial
institutions. Lastly, the capitalizations, strengthening of portfolios,
reduction of expenses and diversification of the financial system that has
occurred in recent years has allowed greater flexibility in the generation of
net income and, as a consequence, greater profit.
B.6.ii. BANCOLOMBIA AND ITS COMPETITORS
BANCOLOMBIA'S INDICATORS AND ITS COMPETITION
The financial sector has been consolidating since the crisis
of 1999 and 2000, and the main financial indicators now suggest continuing
growth. BC's capital adequacy is 408 basis points above the required level,
which could leverage dynamic growth in risk assets. Allowances as a percentage
of past due loans are above 90%, and the quality of loan portfolios (past due
loans as a percentage of total loans) went from 11.0% in December of 2002 to
6.8% in December of 2003. The management expense index (administrative
expenses/total assets) decreased from 6.8% in December 2000 to 5.8% in December
2003, and institutions have made strong investments in technology, which
generates greater management efficiency. Among banks with the greatest assets, a
bracket that includes BC, all indicators are even stronger. Coverage of past due
loan portfolios (allowances as a percentage of total loans) is greater than 100%
and loan portfolio quality is less than 3%, which allows these larger banks to
assume greater risks.
The following table lists key indicators for BC and its main
competitors:
PAST DUE LOAN/ ALLOWANCES/PAST
ROAE ROAA TOTAL LOANS DUE LOANS CAPITAL ADEQUACY
----------------- --------------- --------------- --------------- ----------------
DEC-02 DEC-03 DEC-02 DEC-03 DEC-02 DEC-03 DEC-02 DEC-03 DEC-02 DEC-03
------- ------- ------ ------ ------- ------ ------ ------- ------ ------
Bancolombia 13.3% 20.1% 1.6% 2.8% 2.3% 1.6% 218.8% 298.5% 11.1% 13.2%
(unconsolidated)
Banco de Bogota 20.8% 23.2% 2.7% 2.9% 2.7% 2.2% 183.0% 212.8% 9.7% 9.8%
Banco de 18.7% 20.7% 2.2% 2.3% 2.6% 2.9% 279.0% 224.7% 10.0% 9.9%
Occidente
BBVA -10.7% 10.9% -1.0% 0.9% 5.1% 4.1% 189.7% 201.7% 11.5% 11.1%
Citibank 19.3% 12.6% 2.4% 1.9% 1.2% 1.0% 255.8% 219.4% 10.9% 13.6%
38
PAST DUE LOAN/ ALLOWANCES/PAST
ROAE ROAA TOTAL LOANS DUE LOANS CAPITAL ADEQUACY
----------------- --------------- --------------- --------------- ----------------
DEC-02 DEC-03 DEC-02 DEC-03 DEC-02 DEC-03 DEC-02 DEC-03 DEC-02 DEC-03
------- ------- ------ ------ ------- ------ ------ ------- ------ ------
Davivienda 11.0% 14.6% 1.2% 1.8% 16.7% 10.6% 63.2% 96.7% 13.9% 19.3%
Banco Popular 11.7% 18.8% 1.2% 1.9% 8.2% 5.5% 94.6% 116.4% 10.3% 9.6%
Source: Superintendency of Banking
BC is the market leader in the loan and deposit market. BC's
principal competitors in the corporate market include Banco de Bogota, Citibank,
BBVA and Banco de Occidente. In the retail market, the primary competitors are
Banco de Bogota, Banco Popular, Banco de Occidente and Conavi.
The following graphs show BC's (unconsolidated) and its main
competitors market share according to information compiled by the
Superintendency of Banking for the years 2001, 2002 and 2003:
TOTAL NET LOANS
MARKET SHARE
[BAR CHART]
JAN-DEC/01 JAN-DEC/02 JAN-DEC/03
BANCOLOMBIA 11.6% 12.4% 13.0%
BOGOTA 8.1% 9.1% 9.4%
BBVA 6.8% 6.7% 6.7%
DAVIVIENDA 7.2% 6.7% 6.4%
POPULAR 5.7% 5.5% 5.4%
CHECKING ACCOUNTS
MARKET SHARE
[BAR CHART]
JAN-DEC/01 JAN-DEC/02 JAN-DEC/03
BANCOLOMBIA 16.6% 16.7% 17.4%
BOGOTA 14.4% 15.3% 15.2%
BBVA 11.3% 11.1% 10.0%
OCCIDENTE 8.4% 9.0% 9.0%
POPULAR 8.0% 7.4% 6.9%
39
SAVINGS ACCOUNTS
MARKET SHARE
[BAR CHART]
JAN-DEC/01 JAN-DEC/02 JAN-DEC/03
BANCOLOMBIA 9.8% 10.4% 10.6%
CONAVI 11.4% 10.6% 9.9%
BOGOTA 6.8% 7.5% 8.4%
DAVIVIENDA 9.4% 8.4% 8.0%
BBVA 7.1% 7.2% 7.5%
TIME DEPOSITS
MARKET SHARE
[BAR CHART]
JAN-DEC/01 JAN-DEC/02 JAN-DEC/03
BANCOLOMBIA 9.5% 11.3% 11.6%
AV VILLA 8.7% 8.1% 8.1%
DAVIVIENDA 7.3% 7.8% 7.6%
BBVA 5.9% 5.9% 6.1%
CITIBANK 6.1% 4.8% 4.4%
B.7. SUPERVISION AND REGULATION
COLOMBIAN BANKING REGULATORS
The principal bodies regulating the Colombian financial system
are the Superintendency of Banking, the Superintendency of Securities, the
Ministry of Finance and the Board of Directors of the Central Bank. Colombia's
National Congress prescribes the general framework under which the government
may regulate the financial system.
- Superintendency of Banking: The Superintendency of Banking was
established in 1923 and is responsible for supervising and
regulating all entities classified as financial institutions
under Decree 663 of 1993, including commercial banks such as
BC, mortgage banks, finance corporations, commercial finance
companies, financial services companies (such as trust
companies, warehouse companies, and pension and severance pay
administration companies) and insurance companies. Financial
institutions must obtain the authorization of the
Superintendency of Banking before initiating operations.
- Violations to provisions of Colombia's financial system
are subject to administrative sanctions and, in some cases,
may have criminal consequences. The Superintendency of Banking
may inspect Colombian financial institutions on a
discretionary basis, and has
40
the authority to impose fines on such institutions, their
directors and officers for violations of Colombian laws,
regulations, or such financial institutions' own by-laws.
- In addition, the Superintendency of Banking makes on-site
inspections of Colombian banks, including BC, on a regular
basis.
- Ministry of Finance: As part of its duties, the Ministry of
Finance issues Decrees relating to financial matters that may
affect banking operations in Colombia.
- Superintendency of Securities: The Superintendency of
Securities supervises brokerage houses and stock exchanges and
monitors and regulates the market for publicly traded
securities. Since BC's Common Shares and Preferred Shares are
publicly traded on the Colombian Stock Exchange, certain
aspects of BC's operations are supervised by the
Superintendency of Securities.
- Central Bank: The Central Bank exercises the customary
functions of a central bank, including price stabilization,
legal currency issuance, regulation of currency circulation,
credit and exchange rate monitoring, and administration of
international reserves. Its Board of Directors is the
regulatory authority for monetary, currency exchange and
credit policies, and is responsible for the direction and
execution of the Central Bank's duties. The Central Bank also
acts as lender of last resort to financial institutions.
Pursuant to the Colombian Constitution of 1991, the Central
Bank has autonomy from the government in the formulation of monetary policy and
for administrative matters. More specifically, the Constitution of 1991
established administrative, technical, budgetary and legal autonomy for the
Central Bank and its Board of Directors in respect of monetary, credit and
foreign exchange matters. The Central Bank reports only to the National
Congress; its Board of Directors has seven members, one of whom is the Minister
of Finance.
REGULATORY FRAMEWORK FOR COLOMBIAN BANKING INSTITUTIONS
The basic regulatory framework for the operations of the
Colombian financial sector is set forth in Decree 663 of 1993, modified by Law
510 of 1999, Law 546 of 1999 and Law 795 of 2003. Laws 510 and 795 substantially
modified the control, regulation and surveillance powers of the Superintendency
of Banking. Law 510 also streamlined the procedures for the Fondo de Garantias
de Instituciones Financieras ("Fogafin"), a fund meant to assist troubled
financial institutions, to intervene on behalf of economically troubled
companies. The main objective of Law 510 is to increase the solvency and
stability of Colombia's financial institutions, by establishing rules for their
incorporation, the permitted investments of credit institutions, insurance
companies and investment companies. Law 546 of 1999 regulated the system of
long-term home loans. Later on, Law 795 was issued with the main objective of
broading the scope of activities to be performed by financial institutions and
to update Colombian regulations with the latest principles of the Basel
Committee. Law 795 also increased the minimum capital requirements in order to
incorporate a financial institution (for more information see "Minimum Capital
Requirements" below) and authorized the Superintendency of Banking to take
precautionary measures, consisting mainly in preventive interventions with
respect to financial institutions whose capital falls below certain thresholds.
Such financial institutions, in order to avoid a temporary take-over by the
Superintendency of Banking, must submit to the Superintendency a restructuring
program to restore their financial situation.
In order to implement and enforce the provisions related to
Colombia's financial system, the Superintendency of Banking and the Board of
Directors of the Central Bank issue periodic circulars and resolutions. In
External Circular 007 of 1996, as amended, the Superintendency of Banking
compiled all
41
the rules and regulations covering banking institutions, and in
External Circular 100 of 1995, as amended, it compiled all regulations
applicable to the accounting and financial treatment of banking institutions.
Violations of Laws 510, 795 and specified provisions of Decree 663 and
their relevant regulations are subject to administrative sanctions and, in some
cases, criminal penalties.
KEY INTEREST RATES
Colombian commercial banks, finance corporations and commercial finance
companies are required to report to the Central Bank, on a weekly basis, data
regarding the total volume (in pesos) of certificates of deposit issued during
the prior week and the average interest rates paid for certificates of deposit
with maturities of 90 days. Based on such reports, the Central Bank computes the
Tasa de Captaciones de Corporaciones Financieras ("TCC") and the Depositos a
Termino Fijo ("DTF") rates, which are published at the beginning of the
following week for use in calculating interest rates payable by financial
institutions. The TCC is the weighted average interest rate paid by finance
corporations during the second week preceding its publication for deposit
maturities of 90 days. The DTF is the weighted average interest rate paid by
finance corporations, commercial banks and commercial finance companies during
the second week preceding its publication, for the average interest rates paid
for certificates of deposit with maturities of 90 days. For the week of March
8-15, 2004, the DTF was 8.02% and the TCC was 8.86%.
CAPITAL ADEQUACY REQUIREMENTS
Capital adequacy requirements for Colombian financial institutions are
based on the standards of the Basel Committee. The regulations establish four
categories of assets, which are each assigned different risk weights, and
require that a credit institution's Technical Capital (as defined below) be at
least 9% of that institution's total risk-weighted assets.
Technical Capital for the purposes of the regulations consists of basic
capital ("Primary Capital") and additional capital ("Secondary Capital")
(collectively, "Technical Capital"). Primary Capital consists mainly of:
- paid-in capital stock;
- legal and other primary capital reserves;
- earnings retained from prior fiscal years;
- the total value, if positive, of the primary capital
revaluation account;
- the balance of the financial statements conversion
adjustment;
- current fiscal year profits in a proportion equal to
the percentage of prior fiscal year profits that were
allocated to the legal reserve, or capitalized, or
used to cover accrued losses;
- the total value of capitalized dividends; and
- any representative shares held as guarantee pending
compliance with a recovery program aimed at bringing
the Bank back into compliance with capital adequacy
requirements, if the Superintendency of Banking
established that such recovery program has failed;
Items deducted from Primary Capital are:
- any prior or current period losses;
- the total value of the primary capital revaluation
account (if negative);
42
- accumulated inflation adjustment on non-monetary
assets (provided that the respective assets have not
been transferred);
- capital investments in entities subject to the
supervision of the Superintendency of Banking
(including purchases of mandatory convertible bonds);
and
- investments in foreign financial institutions where
the investor holds at least 20% of the capital of
said institution.
Secondary Capital consists of other reserves and retained earnings,
which are added to the Primary Capital in order to establish the total Technical
Capital. Secondary Capital includes:
- 50% of asset reappraisal (excluding revaluations of
assets acquired by foreclosure or paid for in kind);
- mandatory convertible bonds (provided that the terms
and conditions of their issuance were approved by the
Superintendency of Banking);
- 50% of the accumulated inflation adjustment of
non-monetary assets (provided that such assets have
not been disposed of);
- general allowances; and
- the difference between the surplus capital account
from donations and the investment devaluation
account.
- market value of subscribed subordinated bonds as long
as said bonds do not exceed 50% of Primary capital,
and comply with additional requirements.
In computing Technical Capital, Secondary Capital may not exceed (but
can be less than) the total amount of Primary Capital.
The following table sets forth certain information regarding the Bank's
capital adequacy as of December 31, 2003:
AS OF DECEMBER 31, 2003
-----------------------
(Ps million, except
percentages)
Subscribed capital ...................................................... Ps 355,119
Capital Advance Payments 10
Legal reserve and other reserves ........................................ 740,354
Unappropriated retained earnings ........................................ 41,559
Net Income 375,648
LESS:
Long - term investments ........................................ (149,231)
Non - monetary inflation adjustment ............................ (196,032)
----------------------
Primary capital (Tier I)................................................. Ps 1,167,427
======================
Reappraisal of assets ................................................... Ps 63,756
Provision loans.......................................................... 85,639
Non-monetary inflation adjustment ....................................... 111,059
----------------------
Computed secondary capital (Tier II)..................................... Ps 260,454
======================
Primary capital (Tier I)................................................. Ps 1,167,427
Secondary capital (up to an amount equal to primary capital) (Tier II)... 260,454
----------------------
Technical Capital ....................................................... Ps 1,427,881
======================
Capital ratios
43
AS OF DECEMBER 31, 2003
-----------------------
(Ps million, except
percentages)
Primary capital to risk-weighted assets (Tier I)......................... 10.69%
Secondary capital to risk-weighted assets (Tier II)...................... 2.39%
---------------------
Technical capital to risk-weighted assets ............................... 13.08%
=====================
As of December 31, 2003, the Bank's Technical Capital ratio was 13.08%,
thereby exceeding the requirements of the Colombian government and the
Superintendency of Banking by 408 basis points. The Bank's capital has
fluctuated over time. There can be no assurance that the Bank will not continue
to experience such fluctuations in the future. The Bank expects, however, to be
able to continue to meet all capital adequacy requirements under Colombian law.
Liquidity risks are currently regulated and market risks are currently
governed by External Circular 100 of 1995, as amended, issued by the
Superintendency of Banking. This circular defines new criteria and procedures
for measuring the Bank's exposure to interest rate risk, foreign exchange risk,
and equity price risk. Under the new regulations, the Bank must send to the
Superintendency of Banking information on the net present value, duration, and
interest rate of its assets, liabilities, and derivative positions. Since
January 2002, Colombian Banks have also been required to calculate, for each
position on the balance sheet, a volatility rate and a parametric VaR (value at
risk), which is calculated based on net present value, modified duration and a
risk factor computed in terms of a basis points change. Each risk factor is
calculated and provided by the Superintendency of Banking.
MINIMUM CAPITAL REQUIREMENTS
The minimum capital requirements for banks on an unconsolidated basis
is now contained in Law 795 of 2003, and as of January 1, 2004 was Ps
51,366,986,553. Failure to meet such requirements can result in the imposition
of a fine by the Superintendency of Banking of up to 3.5% of the difference
between the required minimum capital and the Bank's effective capital. The Bank
has met all such requirements. As of December 31, 2003, the Bank's total capital
consisted of Ps 355,119 million of paid-in capital stock and Ps 740,354 million
of legal and other reserve funds.
FOREIGN CURRENCY POSITION REQUIREMENTS
According to Central Bank regulations, the Bank's Foreign Currency
Position is the difference between the Bank's foreign currency-denominated
rights and obligations (including any off-balance sheet items), made or
contingent, including those that may be sold in Colombian legal currency.
Resolution 4 of 2001 of the Board of Directors of the Central Bank
provides that a bank's Foreign Currency Position cannot, if assets are greater
than liabilities, exceed 20% of the bank's Technical Capital. Currency exchange
intermediaries such as BC are permitted to hold a negative Foreign Currency
Position not exceeding the equivalent of 5% of Technical Capital (with penalties
being payable after the first day). As of March 7, 2004, BC had
dollar-denominated positive net assets position of US$4.9 million, which falls
within the aforementioned regulatory guidelines. For further discussion, see
Note 3 to the Financial Statements.
The Central Bank also established the Foreign Currency Position in Cash
("Posicion Propia de Contado") as the difference between foreign
currency-denominated assets and liabilities. In order to control the Peso
appreciation that occurred during 2003, on January 23, 2004, the Board of
Directors of the Central Bank issued External Resolution No. 1 forbidding
currency exchange intermediaries such as BC to hold negative Foreign Currency
Positions in Cash, and therefore established a minimum of zero
44
for the Foreign Currency Positions applicable as of March 31st, 2004. This
measure has not affected BC significantly.
RESERVE REQUIREMENTS
Commercial banks are required by the Central Bank's Board of Directors
to satisfy reserve requirements with respect to deposits. Such reserves are held
by the Central Bank in the form of cash deposits and their required amounts
vary. According to the Central Bank's Board of Directors' Resolution 19 of 2000,
the reserve requirements for Colombian banks for deposits received on or after
December 31, 2000 are:
RESERVE REQUIREMENT (%)
-----------------------
Private demand deposits....................................... 13
Government demand deposits.................................... 13
Other deposits and liabilities................................ 13
Savings deposits.............................................. 6
Time deposits (1)............................................. 0 - 2.5
(1) Under 540 days, 2.5% and above 540 days, 0%
FOREIGN CURRENCY LOANS
The Board of Directors of the Central Bank requires every Colombian
resident and institution borrowing under foreign currency loans, regardless of
the term or conditions of the loan, to maintain at the Central Bank a
non-interest bearing deposit for a percentage of the respective indebtedness and
during a term specified by the Central Bank's Board of Directors. Resolution 08,
dated May 5, 2000, lowered said deposit to zero.
The Bank is not required to register with the Central Bank loans in
foreign currency, but must submit to the Central Bank a report of all foreign
currency loans made subject to certain exceptions.
BAD LOAN ALLOWANCE
The Superintendency of Banking has issued guidelines on bad loan
allowances for Colombian credit institutions. See Item 4. Information on the
Company -- E. Selected Statistical Information -- Allowance for Loan Losses.
LENDING ACTIVITIES
The government, pursuant to Decrees 2360 and 2653, each of 1993, set
the maximum amounts that each financial institution may lend to a single
borrower (including for this purpose all related fees, expenses and charges).
These maximum amounts may not exceed 10% of a commercial bank's Technical
Capital. The limit is raised to 25% when any amounts lent above 5% of Technical
Capital are secured by guarantees that comply with the financial institutions'
guidelines, in accordance with the requirements set forth in Decrees 2360 and
2653. Also, according to Decree 1886 of 1994, the Bank may not make a loan to
any shareholder that holds directly more than 10% of its capital stock, for one
year after such shareholder reaches the 10% threshold. In no event may a loan to
a shareholder holding directly or indirectly 20% or more of the Bank's capital
stock exceed 20% of the Bank's Technical Capital. In addition, no loan to a
single financial institution may exceed 30% of the Bank's Technical Capital. As
of December 31, 2003, the Bank's lending limit per borrower on an unconsolidated
basis was Ps 115,020 million for unsecured loans and Ps 287,551 million for
secured loans. If a financial
45
institution exceeds these limits, the Superintendency of Banking may impose a
fine up to twice the amount by which any such loan exceeded the limit. At
December 31, 2003, the Bank was in compliance with these limitations.
The Bank is also subject to limits on risk concentration. Pursuant to
Decree 2360, exposure to any individual or entity is limited to 30% of the
Bank's Technical Capital. Risk exposure includes loans, leasing transactions and
equity and debt investments.
The Central Bank also has the authority to establish maximum limits on
the interest rates that commercial banks and other financial institutions may
charge on loans. However, interest rates must also be consistent with market
terms with a maximum limit established by the Superintendency of Banking.
OWNERSHIP RESTRICTIONS
The Bank is organized as a sociedad anonima under Colombian law and is
governed by laws that regulate the activities of private companies, such as the
Colombian Commerce Code. The Commerce Code requires companies such as the Bank
to have at least five shareholders at all times and provides that no single
shareholder may own 95% or more of the Bank's subscribed capital stock. Article
262 of the Colombian Commerce Code prohibits the Bank's subsidiaries from
acquiring capital stock of the Bank.
Pursuant to Decree 663 adopted by the government on 1993, as amended by
Law 795 of 2003, any transaction resulting in an individual or corporation
holding 10% or more of any class of capital stock of any Colombian financial
institution, including in the case of BC, transactions resulting in holding ADRs
representing 10% or more of the Preferred Shares underlying ADRs, must receive
prior authorization from the Superintendency of Banking. In granting its
approval, the Superintendency of Banking will evaluate the proposed transaction
based on the criteria and guidelines specified in Law 510 of 1999, as amended by
Law 795 of 2003. Transactions entered into without the Superintendency of
Banking's prior approval are void and cannot be recorded in the stock registry
of the financial institution. These restrictions apply equally to foreign
investors and Colombian persons.
In addition to the above restriction, pursuant to Resolution 400 of
1995, as amended, issued by the Superintendency of Securities, any transaction
involving the sale of publicly traded stock of any Colombian company, including
in the case of the Bank, any sale of the Preferred Shares, for 66,000 UVRs or
more, must be effected through one of Colombia's stock exchanges.
These limitations may affect the market liquidity of the Preferred
Shares and the ADSs.
DEPOSIT INSURANCE
To protect the customers of commercial banks and certain financial
institutions, Resolution No. 1 of 1988 of the Board of Directors of Fogafin, as
amended, requires mandatory deposit insurance. Under this Resolution No. 1,
banks must pay an annual premium of 0.5% of total funds received on deposit and
checking accounts and certificates of deposit. If a bank is liquidated, the
deposit insurance will cover 75% of all funds deposited by an individual or
corporation with such bank, up to a maximum of Ps 10 million. Thus, the maximum
amount that a customer of a liquidated financial institution is entitled to
recover under deposit insurance is Ps 7.5 million.
INTERVENTION RIGHTS OF THE SUPERINTENDENCY OF BANKING
46
According to laws 510 of 1999 and 795 of 2003, and subject to the prior
consent of the Advisory Board of the Ministry of Finance and the Minister of
Finance's approval, the Superintendency of Banking may seize the operations and
assets of a bank in order to manage it or proceed with its liquidation, if such
bank:
- suspends the payment of its debts;
- does not allow the Superintendency of Banking to
inspect its records;
- repeatedly fails to comply with the instructions of
the Superintendency of Banking;
- repeatedly violates Colombian law or its own by-laws;
- repeatedly manages its operations in an unauthorized
or unsafe manner;
- allows its shareholders' equity to fall below 50% of
its outstanding capital stock;
- provides materially misleading information to the
Superintendency of Banking;
- fails to comply with applicable capital adequacy
requirements;
- fails to comply with the adopted recovery programs;
or
- fails to comply with the program of graduate closing
operations agreed with the Superintendency of
Banking.
The Superintendency of Banking may immediately seize the operations and
assets of a bank if: (a) its Technical Capital falls below 40% of the minimum
capital adequacy requirements, or (b) the term to implement a restructuring
program mandated by the Superintendency of Banking has lapsed. Rather than
seizing the operations and assets of a bank, the Superintendency of Banking may
adopt other preventive measures, such as imposing additional reserve
requirements on the commercial bank, ordering the increase of its capital stock
or the investment of certain or all of its assets, and placing the bank under
special surveillance.
ANTI-MONEY LAUNDERING PROVISIONS
In order to detect and deter money laundering, the Superintendency of
Banking has adopted in its External Circular 025 of 2003 an integral plan to
prevent money laundering. This plan requires training of employees, adoption of
policies and procedures designed to enable the Bank to identify and monitor its
customers and employees, and Central Bank monitoring of the Bank's operations.
It also requires the implementation of mechanisms to report suspicious
activities to the appropriate governmental authorities. In line with this plan,
the Bank has developed a system of policies and procedures -- so-called "know
your customer" policies -- and has established a strict approval process for
deposits. Depositors in time deposits and savings accounts must go through an
identification and screening procedure, and depositors in checking accounts are
subject to the same credit review process as required for potential borrowers.
TROUBLED FINANCIAL INSTITUTIONS
In response to the crisis faced by the Colombian financial system
during the early 1980s, in 1985 the government created the Fondo de Garantias de
Instituciones Financieras ("Fogafin"), a fund meant to assist troubled financial
institutions. Subject to specific limitations, Fogafin is authorized to provide
equity (whether or not reducing the par value of the recipient's shares) and/or
secured credits to troubled financial institutions, and to insure deposits of
commercial banks and certain other financial institutions. Yet, in 1998 and
1999, to address the adverse effects of the economic crisis, Law 550 (Ley de
Reactivacion Economica), Law 546 (Ley de Vivienda), External Circular 039 and
External Circular 044 were further adopted. These regulations sought to aid the
recovery of the Colombian economy, by helping troubled companies and had some
influence on the Bank's credit policies of the Bank for such companies. Notably,
under Law 546 of 1999, savings and loan institutions were required to convert
into
47
commercial and savings banks. Also, under this law, commercial banks cannot have
participation in other commercial banks for more than 5 years. This provision is
applicable to the Bank, who will only be allowed to continue with its
participation in Conavi until December 2004.
B.8. RAW MATERIALS
The Bank is not dependent on sources or availability of raw materials.
C. ORGANIZATIONAL STRUCTURE
The following is a list of BC's significant subsidiaries as of December
31, 2003:
SUBSIDIARIES
JURISDICTION OF
ENTITY INCORPORATION BUSINESS SHAREHOLDING
----------------------------------------- --------------------- ----------------------------- ------------
Almacenes Generales de Deposito Mercantil
S.A.
ALMACENAR Colombia Warehouse and logistics 98.25%
Fiducolombia S.A. Colombia Trust 96.16%
BC (Panama) S.A. Panama Banking 100%
BC (Cayman) Cayman Islands Banking 100%
Leasing Colombia S.A. Colombia Leasing 99.99%
Colcorp S.A. Corporacion Financiera Colombia Finance 100%
Corporacion Financiera Suramericana S.A. Colombia Finance 99.99%
Sufinanciamiento
Comisionista de Colombia S.A. Colombia Securities Brokerage 99.99%
Abocol S.A. Colombia Chemical 92.32%
Valores Simesa S.A. Colombia Various Commercial Investments 71.75%
Inmobiliaria Bancol S.A. Colombia Real State Broker 98.95%
Fundicom S.A. Colombia Metals Engineering 79.86%
Todo UNO Colombia Colombia E-commerce 53.92%
Unicargo de Colombia S.A. Colombia Freight Service 98.35%
Sistema de Inversiones y Negocios S.A. Panama Commercial Entity 100%
Sinesa Holding Company British Virgin Island Commercial Entity 100%
Future Net Inc. Panama E-commerce 60.02%
Compania Metalurgica Colombiana S.A. Colombia Metals Engineering 39.65%
COMECOL (1)
Sociedad Portuaria Mamonal S.A. Colombia Custom Office 92.69%
Abocol Costa Rica S.A. Costa Rica Chemical Products Commercial 92.43%
Fertillanos Ltda. Colombia Chemical Products Commercial 55.39%
(1) Controlled through other subsidiaries (Valores Simesa S.A. and Colcorp
S.A.)
D. PROPERTY, PLANT AND EQUIPMENT
The Bank owned as of December 31, 2003, Ps 871,057 million in
equipment, of which Ps 541,174 million corresponds to goods given in leasing. Ps
194,983 million correspond to land and building where approximately 90% are
administrative real estate and branches, located in 84 municipalities, but
mainly in the cities of Bogota, Cali and Barranquilla. Ps 44,040 million
correspond to computer equipment, of which 45% corresponds to
48
the central computer and servers and the rest are PCs, ATMs, telecommunications
equipment and other equipment.
In addition to its own branches, the Bank occupies 179 rented offices.
The Bank does not have any liens on its property.
For the purpose of centralizing operations, and in order to meet the
Bank's additional physical space requirements in 2004, various offices will be
transferred to a sole rented building, for which renovations are estimated to
cost Ps 6,306 million.
E. SELECTED STATISTICAL INFORMATION
The following information is included for analytical purposes and
should be read in conjunction with "Item 5. Operating and Financial Review and
Prospects."
E.1. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
Average balances have been calculated as follows: For each month, the
actual month-end balances were established. The average balance for each period
is the average of such month-end balances. For purposes of the presentation in
the following tables, non-performing loans have been treated as
non-interest-earning assets. In addition, loan fees are immaterial in amount and
are included in "loans" in the tables below.
REAL AVERAGE INTEREST RATES
The real average interest rates set forth in the tables below have been
calculated by adjusting the nominal average interest rates on peso-denominated
assets and liabilities using the following formula:
1 + N(P)
R(P) = -------- -1
1 + I
WHERE:
R(P) = real average interest rate on peso-denominated assets and
liabilities for the period.
N(P) = nominal average interest rate on peso-denominated assets and
liabilities for the period.
I = inflation rate in Colombia for the period (based on the Colombian
wholesale inflation rate).
Under this adjustment formula, assuming positive nominal average
interest rates, the real average interest rate on a portfolio of
peso-denominated assets or liabilities would be equal to the nominal average
interest rate on that portfolio if the inflation rate were zero. The real
average interest rate can be negative for a portfolio of peso-denominated loans
when the inflation rate for the period is higher than the average nominal rate
of the loan portfolio for the same period. In addition, the real average
interest rate would be negative if the inflation rate were greater than the
average nominal interest rate.
AVERAGE BALANCE SHEET
49
The following tables show for the years ended December 31, 2001,
2002 and 2003, respectively:
- average annual balances calculated using actual
month-end balances for all of the Bank's assets and
liabilities;
- interest income and expense amounts; and
- nominal and real interest rates for the bank's
interest-earning assets and interest-bearing
liabilities.
In the table below, the nominal rate for dollar-denominated items is
also considered to be the real interest rate, given that this activity
originated outside of Colombia and would not be impacted by the inflation and
devaluation levels that would impact domestic activity.
50
AVERAGE BALANCE SHEET AND INCOME FROM INTEREST-EARNING ASSETS FOR THE FISCAL YEARS
ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
2001 2002
---------------------------------------------- -----------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
NOMINAL REAL NOMINAL REAL
AVERAGE INTEREST INTEREST INTEREST INTEREST INTEREST INTEREST
BALANCE EARNED RATE RATE AVERAGE BALANCE EARNED RATE RATE
----------- -------- -------- -------- --------------- -------- -------- --------
(Ps million, except percentages)
ASSETS(1)
INTEREST-EARNING ASSETS(2):
Overnight funds
Peso-denominated.............. Ps 16,060 Ps 13,395 83.4% 70.4% Ps 14,221 Ps 9,730 68.4% 57.4%
Dollar-denominated............ 238,230 8,258 3.5% 3.5% 226,535 2,095 0.9% 0.9%
----------- --------- ----------- ---------
Total....................... 254,290 21,653 8.5% 240,756 11,825 4.9%
Investment securities (5)
Peso-denominated.............. 889,566 12,755 1.4% -5.8% 1,908,293 6,352 0.3% -6.3%
Dollar-denominated............ 1,241,754 35,903 2.9% 2.9% 1,663,565 (6,105) -0.4% -0.4%
----------- --------- ----------- ---------
Total....................... 2,131,320 48,658 2.3% 3,571,858 247 0.0%
Loans(3)
Peso-denominated.............. 4,099,831 747,543 18.2% 9.8% 4,355,031 671,657 15.4% 7.9%
Dollar-denominated 1,024,660 63,903 6.2% 6.2% 1,046,841 54,455 5.2% 5.2%
----------- --------- ----------- ---------
Total....................... 5,124,491 811,446 15.8% 5,401,872 726,112 13.4%
Total interest-earning
assets(4)
Peso-denominated............. 5,005,457 773,693 15.5% 7.3% 6,277,545 687,739 11.0% 3.7%
Dollar-denominated........... 2,504,644 108,064 4.3% 4.3% 2,936,941 50,445 1.7% 1.7%
----------- --------- ----------- ---------
Total...................... 7,510,101 881,757 11.7% 9,214,486 738,184 8.0%
NON INTEREST-EARNING ASSETS:
Cash due from banks and
Central Bank
Peso-denominated.............. 362,048 386,770
Dollar-denominated............ 44,474 28,403
----------- -----------
Total....................... 406,522 415,173
Allowance for loan losses
Peso-denominated.............. (251,987) (250,972)
Dollar-denominated............ (44,873) (42,164)
----------- -----------
Total....................... (296,860) (293,136)
Non-performing loans
Peso-denominated.............. 110,935 130,228
Dollar-denominated............ 26,301 44,536
----------- -----------
Total....................... 137,236 174,764
Customers' acceptances
Peso-denominated.............. 4,575 (3,799)
Dollar-denominated............ 34,480 23,980
----------- -----------
Total....................... 39,055 20,181
AVERAGE BALANCE SHEET AND INCOME FROM INTEREST-EARNING
ASSETS FOR THE FISCAL YEARS ENDED DECEMBER 31,
------------------------------------------------------
2003
------------------------------------------------------
AVERAGE AVERAGE
NOMINAL REAL
AVERAGE INTEREST INTEREST INTEREST
BALANCE EARNED RATE RATE
--------- -------- -------- --------
(Ps million, except percentages)
ASSETS(1)
INTEREST-EARNING ASSETS(2):
Overnight funds
Peso-denominated.............. Ps 2,158 16 0.7% -5.4%
Dollar-denominated............ 403,788 4,747 1.2% 1.2%
----------- ---------
Total....................... 405,946 4,763 1.2%
Investment securities (5)
Peso-denominated.............. 2,328,676 318,404 13.7% 6.7%
Dollar-denominated............ 1,719,568 158,316 9.2% 9.2%
----------- ---------
Total....................... 4,048,244 476,720 11.8%
Loans(3)
Peso-denominated.............. 5,526,391 849,441 15.4% 8.3%
Dollar-denominated 1,485,688 69,331 4.7% 4.7%
----------- ---------
Total....................... 7,012,079 918,772 13.1%
Total interest-earning
assets(4)
Peso-denominated............. 7,857,225 1,167,861 14.9% 7.9%
Dollar-denominated........... 3,609,044 232,394 6.4% 6.4%
----------- ---------
Total...................... 11,466,269 1,400,255 12.2%
NON INTEREST-EARNING ASSETS:
Cash due from banks and
Central Bank
Peso-denominated.............. 463,495
Dollar-denominated............ 161,124
-----------
Total....................... 624,619
Allowance for loan losses
Peso-denominated.............. (293,112)
Dollar-denominated............ (69,455)
-----------
Total....................... (362,567)
Non-performing loans
Peso-denominated.............. 85,318
Dollar-denominated............ 17,063
-----------
Total....................... 102,381
Customers' acceptances
Peso-denominated.............. 153,776
Dollar-denominated............ (127,673)
-----------
Total....................... 26,103
51
AVERAGE BALANCE SHEET AND INCOME FROM INTEREST-EARNING ASSETS FOR THE FISCAL YEARS
ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
2001 2002
---------------------------------------------- -----------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
NOMINAL REAL NOMINAL REAL
AVERAGE INTEREST INTEREST INTEREST INTEREST INTEREST INTEREST
BALANCE EARNED RATE RATE AVERAGE BALANCE EARNED RATE RATE
----------- -------- -------- -------- --------------- -------- -------- --------
(Ps million, except percentages)
Accounts receivable, net
Peso-denominated.............. 165,394 166,091
Dollar-denominated............ 12,003 6,801
------------ -------------
Total....................... 177,397 172,892
Foreclosed assets, net
Peso-denominated.............. 94,636 74,314
Dollar-denominated............ - 1,050
------------ -------------
Total....................... 94,636 75,364
Premises and equipment, net
Peso-denominated.............. 454,825 490,785
Dollar-denominated............ 97,981 152,897
------------ -------------
Total....................... 552,806 643,682
Other assets
Peso-denominated.............. 780,607 671,958
Dollar-denominated............ 63,684 85,997
------------ -------------
Total....................... 844,291 757,955
Total non interest-earning
assets
Peso-denominated.............. 1,721,033 1,665,375
Dollar-denominated............ 234,050 301,500
------------ -------------
Total....................... 1,955,083 1,966,875
Total interest and non
interest-earnings assets
Peso-denominated.............. 6,726,490 773,693 7,942,920 687,739
Dollar-denominated............ 2,738,694 108,064 3,238,441 50,445
------------ ---------- ------------- ----------
TOTAL ASSETS............... Ps 9,465,184 Ps 881,757 Ps 11,181,361 Ps 738,184
============ ========== ============= ==========
AVERAGE BALANCE SHEET AND INCOME FROM INTEREST-EARNING ASSETS FOR THE FISCAL YEARS
ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2003
---------------------------------------------------
AVERAGE AVERAGE
NOMINAL REAL
AVERAGE INTEREST INTEREST INTEREST
BALANCE EARNED RATE RATE
------------- ------------- -------- --------
(Ps million, except percentages)
Accounts receivable, net
Peso-denominated.............. 217,143
Dollar-denominated............ 43,232
-------------
Total....................... 260,375
Foreclosed assets, net
Peso-denominated.............. 38,063
Dollar-denominated............ -
-------------
Total....................... 38,063
Premises and equipment, net
Peso-denominated.............. 627,628
Dollar-denominated............ 119,042
-------------
Total....................... 746,670
Other assets
Peso-denominated.............. 804,439
Dollar-denominated............ 94,429
-------------
Total....................... 898,868
Total non interest-earning
assets
Peso-denominated.............. 2,096,750
Dollar-denominated............ 237,762
-------------
Total....................... 2,334,512
Total interest and non
interest-earnings assets
Peso-denominated.............. 9,953,975 1,167,861
Dollar-denominated............ 3,846,806 232,394
------------- -------------
TOTAL ASSETS............... Ps 13,800,781 Ps 1,400,255
============= =============
---------------
(1) Out of period items and adjustments have been included in the appropriate
line items as of the time they were received.
(2) Throughout this analysis, the nominal interest rate for the
dollar-denominated activity is also considered to be the real interest
rate, given that this activity originated outside of Colombia and would not
be impacted by the inflation and devaluation levels that would impact
domestic activity. Individual item's interest rate subtotals are based on
weighted averages using the average balances of the item.
(3) Includes performing loans only.
(4) Interest income and expense resulting from inflation adjustments are
distributed among the individual asset/liability items for the purpose of
determining the nominal and real interest rates.
(5) Variation in the average nominal interest rate for 2003, reflect new
regulations issued by the Superintendency of Banking and effective as of
September 1, 2002. See note 2 (g) to the financial statements.
52
AVERAGE BALANCE SHEET AND INTEREST PAID ON INTEREST-BEARING LIABILITIES FOR THE FISCAL YEARS
ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
2001 2002
------------------------------------------------ ---------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
NOMINAL REAL NOMINAL REAL
AVERAGE INTEREST INTEREST AVERAGE INTEREST INTEREST INTEREST
BALANCE INTEREST PAID RATE RATE BALANCE PAID RATE RATE
----------- ------------- -------- -------- ----------- ---------- -------- --------
(Ps million, except percentages)
LIABILITIES AND SHARE-HOLDERS'
EQUITY(1)(2)(3)
INTEREST-BEARING LIABILITIES:
Checking deposits
Peso-denominated................. Ps 102,257 Ps 4,171 4.1% -3.3% Ps 90,332 Ps 2,962 3.3% -3.4%
Dollar-denominated............... 506,098 18,156 3.6% 3.6% 576,933 10,013 1.7% 1.7%
----------- ----------- ----------- ----------
Total.......................... 608,355 22,327 3.7% 667,265 12,975 1.9%
Savings deposits
Peso-denominated................. 1,646,305 110,828 6.7% -0.9% 2,077,699 105,442 5.1% -1.8%
Dollar-denominated............... 64,045 2,328 3.6% 3.6% 83,796 1,383 1.7% 1.7%
----------- ----------- ----------- ----------
Total.......................... 1,710,350 113,156 6.6% 2,161,495 106,825 4.9%
Time deposits
Peso-denominated................. 1,802,223 238,241 13.2% 5.2% 2,167,388 211,375 9.8% 2.6%
Dollar-denominated............... 1,165,018 65,771 5.6% 5.6% 1,386,388 48,903 3.5% 3.5%
----------- ----------- ----------- ----------
Total.......................... 2,967,241 304,012 10.2% 3,553,776 260,278 7.3%
Overnight funds
Peso-denominated................. 321,138 27,120 8.4% 0.7% 363,623 22,569 6.2% -0.7%
Dollar-denominated............... - - 81,474 4,076 5.0% 5.0%
----------- ----------- ----------- ----------
Total.......................... 321,138 27,120 8.4% 445,097 26,645 6.0%
Borrowings from domestic
development banks
Peso-denominated................. 259,401 35,643 13.7% 5.6% 436,132 43,722 10.0% 2.8%
Dollar-denominated............... 110,993 5,079 4.6% 4.6% 77,540 5,595 7.2% 7.2%
----------- ----------- ----------- ----------
Total.......................... 370,394 40,722 11.0% 513,672 49,317 9.6%
Interbank borrowings
Peso-denominated................. - - - -
Dollar-denominated............... 472,975 20,160 4.3% 4.3% 505,832 9,404 1.9% 1.9%
----------- ----------- ----------- ----------
Total.......................... 472,975 20,160 4.3% 505,832 9,404 1.9% 1.9%
Long-term debt
Peso-denominated................. 11,991 1,577 13.2% 5.2% 20,776 779 3.7% -3.1%
Dollar-denominated............... - - - -
----------- ----------- ----------- ----------
Total.......................... 11,991 1,577 13.2% 20,776 779 3.7% 3.7%
Fiduciary deposits
Peso-denominated................. - - - -
Dollar-denominated............... - - - -
----------- ----------- ----------- ----------
Total.......................... - - - -
Total interest-bearing
liabilities(4)
Peso-denominated................. 4,143,315 417,580 10.1% 2.3% 5,155,950 386,849 7.5% 0.5%
Dollar-denominated............... 2,319,129 111,494 4.8% 4.8% 2,711,963 79,374 2.9% 2.9%
----------- ----------- ----------- ----------
Total.......................... 6,462,444 529,074 8.2% 7,867,913 466,223 5.9%
NON-INTEREST-BEARING LIABILITIES:
AVERAGE BALANCE SHEET AND INTEREST PAID ON INTEREST-BEARING
LIABILITIES FOR THE FISCAL YEARS ENDED DECEMBER 31,
------------------------------------------------------------
2003
------------------------------------------------------------
AVERAGE AVERAGE
NOMINAL REAL
AVERAGE INTEREST INTEREST
BALANCE INTEREST PAID RATE RATE
----------- ------------- -------- ---------
(Ps million, except percentages)
LIABILITIES AND SHARE-HOLDERS'
EQUITY(1)(2)(3)
INTEREST-BEARING LIABILITIES:
Checking deposits
Peso-denominated................. Ps 154,098 Ps 3,596 2.3% -3.9%
Dollar-denominated............... 851,005 8,026 0.9% 0.9%
---------- -----------
Total.......................... 1,005,103 11,622 1.2%
Savings deposits
Peso-denominated................. 2,452,320 112,875 4.6% -1.8%
Dollar-denominated............... 118,905 1,093 0.9% 0.9%
---------- -----------
Total.......................... 2,571,225 113,968 4.4%
Time deposits
Peso-denominated................. 2,477,658 200,881 8.1% 1.5%
Dollar-denominated............... 1,742,845 49,030 2.8% 2.8%
---------- -----------
Total.......................... 4,220,503 249,911 5.9%
Overnight funds
Peso-denominated................. 691,205 35,247 5.1% -1.3%
Dollar-denominated............... 32,776 3,176 9.7% 9.7%
---------- -----------
Total.......................... 723,981 38,423 5.3%
Borrowings from domestic
development banks
Peso-denominated................. 654,684 57,537 8.8% 2.2%
Dollar-denominated............... 33,538 919 2.7% 2.7%
---------- -----------
Total.......................... 688,222 58,456 8.5%
Interbank borrowings
Peso-denominated................. - -
Dollar-denominated............... 317,258 5,293 1.7% 1.7%
---------- -----------
Total.......................... 317,258 5,293 1.7% 1.7%
Long-term debt
Peso-denominated................. 64,299 2,840 4.4% -1.9%
Dollar-denominated............... - -
---------- -----------
Total.......................... 64,299 2,840 4.4% 4.4%
Fiduciary deposits
Peso-denominated................. - -
Dollar-denominated............... - -
---------- -----------
Total.......................... - -
Total interest-bearing
liabilities(4)
Peso-denominated................. 6,494,264 412,976 6.4% -0.1%
Dollar-denominated............... 3,096,327 67,537 2.2% 2.2%
---------- -----------
Total.......................... 9,590,591 480,513 5.0%
NON-INTEREST-BEARING LIABILITIES:
53
AVERAGE BALANCE SHEET AND INTEREST PAID ON INTEREST-BEARING
LIABILITIES FOR THE FISCAL YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
2001 2002
------------------------------------------------ ---------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
NOMINAL REAL NOMINAL REAL
AVERAGE INTEREST INTEREST AVERAGE INTEREST INTEREST INTERESTT
BALANCE INTEREST PAID RATE RATE BALANCE PAID RATE RATE
----------- ------------- -------- -------- ----------- ---------- -------- ---------
(Ps million, except percentages)
Checking accounts
Peso-denominated................. 1,182,007 1,437,429
Dollar-denominated............... 23 21
------------ -------------
Total.......................... 1,182,030 1,437,450
Other deposits
Peso-denominated................. 130,692 48,331
Dollar-denominated............... 40,278 50,513
------------ -------------
Total.......................... 170,970 98,844
Bank Acceptances Outstanding
Peso-denominated................. 4,607 4,243
Dollar-denominated............... 34,480 23,980
------------ -------------
Total.......................... 39,087 28,223
Fiduciary deposits
Peso-denominated................. 22,860 -
Dollar-denominated............... - -
------------ -------------
Total.......................... 22,860 -
Other liabilities
Peso-denominated................. 484,984 673,000
Dollar-denominated............... 29,019 45,472
------------ -------------
Total.......................... 514,003 718,472
Shareholders' equity
Peso-denominated................. 1,002,941 939,774
Dollar-denominated............... 70,849 90,685
------------ -------------
Total.......................... 1,073,790 1,030,459
Total non-interest bearing
liabilities(4)
Peso-denominated................. 2,828,091 3,102,777
Dollar-denominated............... 174,649 210,671
------------ -------------
Total............................ 3,002,740 3,313,448
Total interest and non-interest
bearing liabilities
Peso-denominated................. 6,971,406 417,580 8,258,727 386,849
Dollar-denominated............... 2,493,778 111,494 2,922,634 79,374
------------ ----------- ------------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY Ps 9,465,184 Ps 529,074 Ps 11,181,361 Ps 466,223
============ =========== ============= ==========
AVERAGE BALANCE SHEET AND INTEREST PAID ON INTEREST-BEARING
LIABILITIES FOR THE FISCAL YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
2003
-----------------------------------------------------------
AVERAGE AVERAGE
NOMINAL REAL
AVERAGE INTEREST INTEREST
BALANCE INTEREST PAID RATE RATE
----------- ------------- -------- ---------
(Ps million, except percentages)
Checking accounts
Peso-denominated................. 1,685,115
Dollar-denominated............... -
-------------
Total.......................... 1,685,115
Other deposits
Peso-denominated................. 64,013
Dollar-denominated............... 63,641
-------------
Total.......................... 127,654
Bank Acceptances Outstanding
Peso-denominated................. 3,477
Dollar-denominated............... 28,973
-------------
Total.......................... 32,450
Fiduciary deposits
Peso-denominated................. -
Dollar-denominated............... -
-----------
Total.......................... -
Other liabilities
Peso-denominated................. 821,364
Dollar-denominated............... 36,127
-------------
Total.......................... 857,491
Shareholders' equity
Peso-denominated................. 1,130,654
Dollar-denominated............... 376,826
-------------
Total.......................... 1,507,480
Total non-interest bearing
liabilities(4)
Peso-denominated................. 3,704,623
Dollar-denominated............... 505,567
-------------
Total............................ 4,210,190
Total interest and
non-interest bearing
liabilities
Peso-denominated................. 10,198,887 412,976
Dollar-denominated............... 3,601,894 67,537
------------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY Ps 13,800,781 Ps 480,513
============= ===========
---------------
(1) Out of period items and adjustments have been included in the appropriate
line items as of the time they were received.
(2) Throughout this analysis, the nominal interest rate for the
dollar-denominated activity is also considered to be the real interest
rate, given that this activity originated outside of Colombia and would not
be impacted by the inflation and devaluation levels that would impact
domestic activity. Individual item's interest rate subtotals are based on
weighted averages using the average balances of the item.
(3) Includes performing loans only.
(4) Interest income and expense resulting from inflation adjustments are
distributed among the individual asset/liability items for the purpose of
determining the nominal and real interest rates.
54
CHANGES IN NET INTEREST INCOME AND EXPENSES--VOLUME AND RATE ANALYSIS
The following table allocates, by currency of denomination, changes in
the Bank's net interest income to changes in average volume, changes in nominal
rates and the net variance caused by changes in both average volume and nominal
rate for the fiscal year ended December 31, 2003 compared to the fiscal year
ended December 31, 2002; and the fiscal year ended December 31, 2002 compared to
the fiscal year ended December 31, 2001. Volume and rate variances have been
calculated based on movements in average balances over the period and changes in
nominal interest rates on average interest-earning assets and average
interest-bearing liabilities. Net changes attributable to changes in both volume
and interest rate have been allocated to the change due to changes in volume.
2001-2002 2002-2003
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN: DUE TO CHANGES IN:
-------------------------------------- -------------------------------------
NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ -------- ---------- --------- ------- -------
(Ps million)
INTEREST-EARNING ASSETS:
Overnight funds
Peso-denominated (1,258) (2,407) (3,665) (89) (9,625) (9,714)
Dollar-denominated....................... (108) (6,055) (6,163) 2,084 568 2,652
------ -------- -------- ------- ------- --------
Total.................................. (1,366) (8,462) (9,828) 1,995 (9,057) (7,062)
Investment securities
Peso-denominated......................... 3,391 (9,794) (6,403) 57,480 254,572 312,052
Dollar-denominated....................... (1,549) (40,459) (42,008) 5,156 159,265 164,421
------ -------- -------- ------- ------- --------
Total.................................. 1,842 (50,253) (48,411) 62,636 413,837 476,473
Loans
Peso-denominated......................... 39,358 (115,244) (75,886) 180,045 (2,261) 177,784
Dollar-denominated....................... 1,154 (10,602) (9,448) 20,479 (5,603) 14,876
------ -------- -------- ------- ------- --------
Total.................................. 40,512 (125,846) (85,334) 200,524 (7,864) 192,660
Total interest-earning assets
Peso-denominated......................... 41,491 (127,445) (85,954) 237,436 242,686 480,122
Dollar-denominated....................... (503) (57,116) (57,619) 27,719 154,230 181,949
------ -------- -------- ------- ------- --------
TOTAL.................................. 40,988 (184,561) (143,573) 265,155 396,916 662,071
====== ======== ======== ======= ======= ========
Peso-denominated.........................
Dollar-denominated.......................
INTEREST-BEARING LIABILITIES:
Checking deposits
Peso-denominated......................... (391) (818) (1,209) 1,488 (854) 634
Dollar-denominated....................... 1,229 (9,372) (8,143) 2,585 (4,572) (1,987)
------ -------- -------- ------- ------- --------
Total.................................. 838 (10,190) (9,352) 4,073 (5,426) (1,353)
Savings deposits
Peso-denominated......................... 21,893 (27,279) (5,386) 17,243 (9,810) 7,433
Dollar-denominated....................... 326 (1,271) (945) 323 (613) (290)
------ -------- -------- ------- ------- --------
Total.................................. 22,219 (28,550) (6,331) 17,566 (10,423) 7,143
Time deposits
Peso-denominated......................... 35,613 (62,479) (26,866) 25,156 (35,650) (10,494)
Dollar-denominated....................... 7,809 (24,677) (16,868) 10,028 (9,901) 127
------ -------- -------- ------- ------- --------
Total.................................. 43,422 (87,156) (43,734) 35,184 (45,551) (10,367)
Overnight funds
Peso-denominated......................... 2,637 (7,188) (4,551) 16,705 (4,027) 12,678
Dollar-denominated....................... 4,076 - 4,076 (4,719) 3,819 (900)
------ -------- -------- ------- ------- --------
Total.................................. 6,713 (7,188) (475) 11,986 (208) 11,778
Borrowings from domestic
development banks
Peso-denominated......................... 17,719 (9,640) 8,079 19,207 (5,392) 13,815
Dollar-denominated....................... (2,414) 2,930 516 (1,206) (3,470) (4,676)
------ -------- -------- ------- ------- --------
Total.................................. 15,305 (6,710) 8,595 18,001 (8,862) 9,139
55
2001-2002 2002-2003
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN: DUE TO CHANGES IN:
-------------------------------------- -------------------------------------
NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ -------- ---------- --------- ------- --------
(Ps million)
Interbank borrowings
Peso-denominated......................... - - - - - -
Dollar-denominated....................... 611 (11,367) (10,756) (3,146) (965) (4,111)
------ -------- -------- ------- ------- --------
Total.................................. 611 (11,367) (10,756) (3,146) (965) (4,111)
Long-term debt
Peso-denominated......................... 329 (1,127) (798) 1,922 139 2,061
Dollar-denominated....................... - - - - - -
------ -------- -------- ------- ------- --------
Total.................................. 329 (1,127) (798) 1,922 139 2,061
Fiduciary deposits
Peso-denominated......................... - - - - - -
Dollar-denominated....................... - - - - - -
------ -------- -------- ------- ------- --------
Total.................................. - - - - - -
Total interest-bearing liabilities
Peso-denominated......................... 77,800 (108,531) (30,731) 81,721 (55,594) 26,127
Dollar-denominated....................... 11,637 (43,757) (32,120) 3,865 (15,702) (11,837)
------ -------- -------- ------- ------- --------
TOTAL.................................. 89,437 (152,288) (62,851) 85,586 (71,296) 14,290
====== ======== ======== ======= ======= ========
Peso-denominated.........................
Dollar-denominated.......................
INTEREST-EARNING ASSETS--NET INTEREST MARGIN AND SPREAD
The following table analyzes the levels of average interest-earning
assets and net interest income of the Bank and illustrates the comparative net
interest margin and interest spread obtained for the fiscal years ended December
31, 2001, 2002 and 2003, respectively.
INTEREST-EARNING ASSETS-YIELD SPREAD FOR THE FISCAL
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2001 2002 2003
--------------- ---------------- -----------------
(in millions of pesos, except percentages)
Total average interest-earning assets
Peso-denominated............................ Ps 5,005,457 Ps 6,277,545 Ps 7,857,225
Dollar-denominated.......................... 2,504,644 2,936,941 3,609,044
--------------- ---------------- -----------------
TOTAL..................................... 7,510,101 9,214,486 11,466,269
Net interest earned(1)
Peso-denominated............................ Ps 356,113 Ps 300,890 Ps 754,885
Dollar-denominated.......................... (3,430) (28,929) 164,857
--------------- ---------------- -----------------
TOTAL..................................... 352,683 271,961 919,742
Average yield on interest-earning assets
Peso-denominated............................ 15.5% 11.0% 14.9%
Dollar-denominated.......................... 4.3% 1.7% 6.4%
--------------- ---------------- -----------------
TOTAL..................................... 11.7% 8.0% 12.2%
Net interest margin(2)
Peso-denominated............................ 7.1% 4.8% 9.6%
Dollar-denominated.......................... (0.1)% (1.0)% 4.6%
--------------- ---------------- -----------------
TOTAL..................................... 4.7% 3.0% 8.0%
Interest spread(3)
Peso-denominated............................ 5.4% 3.5% 8.5%
Dollar-denominated.......................... (0.5)% (1.2)% 4.3%
--------------- ---------------- -----------------
TOTAL..................................... 3.5% 2.1% 7.2%
(1) Net interest earned is interest income less interest paid and includes
interest earned on investments.
(2) Net interest margin is net interest income divided by total average
interest-earning assets.
(3) Interest spread is the difference between the average yield on
interest-earning assets and the average rate paid on interest-bearing
liabilities.
56
E.2. INVESTMENT PORTFOLIO
The Bank acquires and holds investment securities for liquidity and
other strategic purposes, or when it is required by law, such as fixed income
debt and equity securities. Since 1995 banks are allowed to maintain equity
securities of liquid publicly traded Colombian institutions as investment
securities, recording them at cost.
As of September 1, 2002, investments had to be classified as "trading,"
"available for sale" or "held to maturity." Trading investments are those
acquired primarily to obtain profits from fluctuations in short-term prices, and
are recorded at market value. The difference between current and previous market
value is added to or subtracted from the value of the investment and credited or
charged to earnings. "Available for sale" investments are those held for at
least one year (except for Bancolombia Panama's "available for sale"
investments, which have no term restrictions) and they are recorded at market
value with changes to the values of these securities recorded in a separate
account in the equity section. "Held to maturity" investments are those acquired
to be held them until maturity and are valued at amortized cost. As of December
31, 2003, the value of BC's dollar- and peso-denominated portfolio on a
consolidated basis was Ps 4,162,420 million.
Investments are fully reviewed in June and December and partially
reviewed in March and September of each year for impairment by considering the
related solvency risk, market exposure, currency exchange and country risk.
Investment securities with a rating by external agencies recognized by the
Superintendency of Banking cannot be recorded on the balance sheet of the Bank
for an amount higher than certain percentages of the face value (shown in the
table below), including the accrued income or excluding returns received in an
anticipated manner. Depending on the results of the review and on the likelihood
of loss of the investment, allowances are recorded for 20% to 100% of the cost
of the investment, and for 100% of accrued income.
LONG - TERM CLASSIFICATION MAXIMUM FACE VALUE (%)
-------------------------- ----------------------
BB+, BB, BB- Ninety (90)
B+, B, B- Seventy (70)
C Fifty (50)
D, E Zero (0)
Allowances for investment securities for which no computation methods
have been provided by the Superintendency of Banking are calculated based on
other methods. If there are no such methods, the solvency risk levels, as
defined by the Superintendency of Banking, have to be used: "A"- Normal, "B"-
Subnormal, "C"- Deficient, "D"- Doubtful Recovery, and "E"- Unrecoverable. Fixed
rate or variable rate investments classified in categories B, C, D and E cannot
be recorded on the balance sheet of the Bank for an amount higher than 80%, 60%,
40% and 0%, respectively, of the face value, including the accrued income or
excluding returns received in an anticipated manner.
Internal or external debt securities issued or guaranteed by the
Republic of Colombia are not subject to this adjustment, as well as those issued
by the Banco de la Republica and those issued or guaranteed by Fogafin.
As of December 2003, all of the investment debt securities held by BC
were classified as "A".
57
The following table sets forth the Bank's fair value of investments in
government and corporate securities and certain other financial investments as
of the dates indicated:
AS OF DECEMBER 31,
------------------------------------------
2001(1)(2) 2002(1)(2) 2003(1)(2)
------------ ------------ ------------
(in millions of pesos)
DOLLAR-DENOMINATED
Securities issued by the Colombian Government............. Ps 1,261,055 Ps 1,322,471 Ps 1,303,377
Euronotes and Eurobonds................................... 178,604 373,339 297,906
Securities issued by foreign governments (3).............. 2,552 - 87,109
Others.................................................... 98,662 92,169 98,324
------------ ------------ ------------
Subtotal................................................ 1,540,873 1,787,979 1,786,716
------------ ------------ ------------
PESO-DENOMINATED
Securities issued by the Colombian Government............. 740,083 1,692,817 1,887,881
Securities issued by the Central Bank..................... 3,181 11,767 6,815
Securities issued by government entities.................. 212,742 134,519 107,479
Securities issued by other financial entities............. 293,064 261,266 282,187
Others.................................................... 9,844 201,337 91,342
------------ ------------ ------------
Subtotal................................................ 1,258,914 2,301,706 2,375,704
------------ ------------ ------------
TOTAL...................................... Ps 2,799,787 Ps 4,089,685 Ps 4,162,420
============ ============ ============
--------------------
(1) Includes debt securities only. The Bank's total long-term investments,
net in equity securities were Ps 184,755 million, Ps 253,774 million
and Ps 174,304 million for 2001, 2002 and 2003, respectively.
(2) These amounts are net of allowances for decline in value which were Ps
3,168 million for 2001, Ps 10,313 million for 2002 and Ps 9,171 million
for 2003.
(3) As of December 31, 2003, BC holds one security issued by the U.S.
Treasury Department, for Ps 78,544 million and one security issued by
the Republic of Salvador for Ps 8,565 million.
INVESTMENT SECURITIES PORTFOLIO MATURITY
The following table analyzes the remaining maturities and weighted
average nominal yields of the Bank's investment securities as of December 31,
2003.
AS OF DECEMBER 31, 2003
---------------------------------------------------------------------------------
MATURING AFTER FIVE
MATURING IN ONE YEAR OR MATURING AFTER ONE YEAR YEARS THROUGH TEN
LESS THROUGH FIVE YEARS YEARS
-------------------------- ------------------------- --------------------------
BALANCE(1) YIELD %(2) BALANCE(1) YIELD%(2) BALANCE(1) YIELD %(2)
------------ ------------ ------------ ----------- ------------ ------------
(in millions of pesos, except yields)
DOLLAR-DENOMINATED:
Securities issued by the
Colombian government........ Ps 762 4.19% Ps 915,101 8.22% Ps 376,648 11.24%
Euronotes and Eurobonds..... 71,525 8.55% 226,381 10.91% - -
Securities issued by
foreign Governments......... 87,109 6.34% - - - -
Others...................... 2,349 8.86% 88,697 9.40% - -
------------ ------------ ------------ ----------- ------------ ------------
Subtotal................. 161,745 7.35% 1,230,179 8.80% 376,648 11.24%
------------ ------------ ------------ ----------- ------------ ------------
PESO-DENOMINATED
Securities issued by the
Colombian government........ 387,248 11.26% 1,194,393 11.04% 300,598 5.33%
AS OF DECEMBER 31, 2003
-----------------------------------------------------
MATURING AFTER TEN
YEARS TOTAL
-------------------------- -------------------------
BALANCE(1) YIELD%(2) BALANCE(1) YIELD%(2)
------------ ------------ ------------ -----------
(in millions of pesos, except yields)
DOLLAR-DENOMINATED:
Securities issued by the
Colombian government........ Ps 10,866 6.94% Ps1,303,377 9.08%
Euronotes and Eurobonds..... - - 297,906 10.34%
Securities issued by
foreign Governments......... - - 87,109 6.34%
Others...................... 7,278 10.22% 98,324 9.45%
------------ ------------ ------------ -----------
Subtotal................. 18,144 8.25% 1,786,716 9.18%
------------ ------------ ------------ -----------
PESO-DENOMINATED
Securities issued by the
Colombian government........ 5,642 7.49% 1,887,881 10.14%
58
AS OF DECEMBER 31, 2003
---------------------------------------------------------------------------------
MATURING AFTER FIVE
MATURING IN ONE YEAR OR MATURING AFTER ONE YEAR YEARS THROUGH TEN
LESS THROUGH FIVE YEARS YEARS
-------------------------- ------------------------- --------------------------
BALANCE(1) YIELD %(2) BALANCE(1) YIELD%(2) BALANCE(1) YIELD %(2)
------------ ------------ ------------ ----------- ------------ ------------
(in millions of pesos, except yields)
Securities issued by the
Central Bank................ 6,117 0.83% 698 1.84% - -
Securities issued by
government entities......... 55,974 8.57% 48,251 9.87% 3,254 13.04%
Securities issued by
other financial entities.... 120,787 10.13% 138,553 9.91% 22,847 10.91%
Others...................... 9,617 9.94% 62,124 4.31% 17,857 11.49%
------------ ------------ ------------ ----------- ------------ ------------
Subtotal................. 579,743 10.63% 1,444,019 10.59% 344,556 6.09%
------------ ------------ ------------ ----------- ------------ ------------
TOTAL.................... Ps 741,488 Ps 2,674,198 Ps 721,204
============ ============ ============
AS OF DECEMBER 31, 2003
-----------------------------------------------------
MATURING AFTER TEN
YEARS TOTAL
-------------------------- -------------------------
BALANCE(1) YIELD%(2) BALANCE(1) YIELD%(2)
------------ ------------ ------------ -----------
(in millions of pesos, except yields)
Securities issued by the
Central Bank................ - - 6,815 0.93%
Securities issued by
government entities......... - - 107,479 9.29%
Securities issued by
other financial entities.... - - 282,187 10.09%
Others...................... 1,744 7.11% 91,342 6.22%
------------ ------------ ------------ -----------
Subtotal................. 7,386 7.40% 2,375,704 9.94%
------------ ------------ ------------ -----------
TOTAL.................... Ps 25,530 Ps 4,162,420
============ ============
(1) These amounts are net of allowances for decline in value which were Ps
9,171 million in 2003.
(2) Yield was calculated using internal return rate (IRR) as of December 31,
2003.
As of December 31, 2003, the Bank had the following investment that
exceeded 10% of its shareholders' equity:
AMORTIZED
FAIR VALUE COST
------------ ------------
(Ps million)
Securities issued or secured by Colombian government Ps 3,191,258 Ps 2,915,576
E.3. LOAN PORTFOLIO
In March of 2002, the Colombian Superintendency of Banking, through its
External Circular 011, introduced new modifications to Chapter II of the
External Circular 100 of 1995 ("Basic Accounting Circular"), related to credit
risk management. This norm establishes the general principles and criteria that
institutions must adopt in order to maintain adequately evaluated credit risks
associated with the loan portfolio. It also defines credit categories,
determines qualifications that must be granted to such operations according to
their perceived risk, establishes the frequency with which these qualifications
should be reviewed, stipulates the re-qualification mechanisms, provides
instructions on the accounting criteria and provisions to be made and on the
content and frequency of the reports to be submitted to the Superintendency of
Banking, and fixes internal control mechanisms that institutions must adopt to
assure the adequate fulfillment of this regulation.
The current regulations also require that institutions develop a system
for the management of credit risk (SARC, for its initials in Spanish),
establishing strategies, policies, methods, processes and structures for the
evaluation, monitoring, and control of credit risk. See New Provision System (or
Credit Risk Management System - "SARC").
The Bank classifies its loan portfolio into the following categories:
- Corporate loans, which include loans to medium and large corporations;
- Retail loans, which include loans to individuals, such as personal
lines of credit, vehicle loans and credit card loans, small business
loans; and
59
- Mortgage loans, which consist primarily of mortgage loans to BC
employees and a small number of mortgage loans made to customers of the
former Banco de Colombia.
The following table shows the Bank's loan portfolio classified into
corporate, retail and mortgage loans:
AS OF DECEMBER 31,
---------------------------------------------------------------------------
1999 2000 2001 2002 2003
----------- ----------- ----------- ------------- -----------
(Ps million)
CORPORATE
Trade financing .................... Ps 91,987 Ps 92,213 Ps 95,649 Ps 166,620 Ps 149,582
Loans funded by domestic development
banks ............................. 320,250 303,718 292,609 376,378 394,947
Working capital loans .............. 2,735,692 3,053,580 3,040,469 3,650,585 4,687,153
Credit cards ....................... 7,704 4,446 3,892 5,218 8,237
Overdrafts ......................... 63,449 51,132 22,755 48,591 32,371
Other .............................. 716 - 22,886 - -
----------- ----------- ----------- ------------- -----------
Total corporate ................ 3,219,798 3,505,089 3,478,260 4,247,392 5,272,290
----------- ----------- ----------- ------------- -----------
RETAIL (1)
Credit cards ....................... 185,981 199,351 231,965 254,876 335,172
Personal loans ..................... 376,080 354,223 457,677 561,558 814,885
Vehicle loans ...................... 49,916 32,270 15,713 24,476 229,737
Overdrafts ......................... 60,588 58,128 73,372 68,490 81,294
Loans funded by domestic development
banks ............................. 70,065 79,430 138,415 276,157 330,246
Trade financing .................... 24,650 25,403 38,643 28,112 19,644
Working capital loans .............. 803,627 824,899 881,649 698,160 898,239
----------- ----------- ----------- ------------- -----------
Total retail ................... 1,570,907 1,573,704 1,837,434 1,911,829 2,709,217
----------- ----------- ----------- ------------- -----------
MORTGAGE ............................... 35,254 33,278 34,511 38,094 48,161
----------- ----------- ----------- ------------- -----------
TOTAL LOANS .................... 4,825,959 5,112,071 5,350,205 6,197,315 8,029,668
Allowance for loan losses .............. (295,016) (285,565) (271,729) (332,324) (387,263)
----------- ----------- ----------- ------------- -----------
TOTAL LOANS, NET ............... Ps4,530,943 Ps4,826,506 Ps5,078,476 Ps 5,864,991 Ps7,642,405
=========== =========== =========== ============= ===========
--------------
(1) Includes loans to high-income individuals and small companies.
In 2003, the Bank's total loan portfolio increased 29.56% to Ps
8,029,668 million from Ps 6,197,315 million in 2002, due primarily to a recovery
of the Colombian economy and the Bank's growth discussed in Item 5.A.2. The
Bank's total loan portfolio increased 15.83% in 2002 to Ps 6,197,315 million
from Ps 5,350,205 million in 2001 primarily due to a recovery of the customers'
economic situation.
In 2003, total corporate loans increased 24.13% to Ps 5,272,290 million
due primarily to a 28.39% increase in working capital loans. In 2002, total
corporate loans increased 22.11% to Ps 4,247,392 million from Ps 3,478,260
million in 2001, due primarily to a 20.06% increase in working capital loans and
a 74.20% increase in trade financing. As of December 31, 2001, 2002 and 2003,
total corporate loans represented 65%, 69% and 66%, respectively, of the Bank's
total loan portfolio.
Total retail loans increased 41.70% in 2003 to Ps 2,709,217 million,
due primarily to a 45.11% increase in personal loans, a 838.6% increase in
vehicle loans and a 31.50% increase in credit card loans. In 2002, total retail
loans increased 4.05% to Ps 1,911,829 million from Ps 1,837,434 million in 2001,
due primarily to a 22.7% increase in personal loans, a 99.51% increase in loans
funded by domestic development banks and a 9.88% increase in credit card loans.
As of December 31, 2001, 2002 and 2003 retail loans represented 34%, 31% and
34%, respectively, of the Bank's total loan portfolio.
As of December 31, 2003, the aggregate outstanding principal amount of
the Bank's 25 largest borrowing relationships represented approximately 26.33%
of the total loan portfolio, and no
60
single borrowing relationship represented more than 9.60% of the total loan
portfolio. Approximately 49.85% of such loans are denominated in foreign
currencies (U.S. dollars). 100% these loans all are corporate loans and, as of
December 31, 2003, 90.51% of these relationships were classified as "A" credits,
4.41% as "B" and 5.08% as "D."
MATURITY AND INTEREST RATE SENSITIVITY OF LOANS
The following table shows the maturities of the Bank's loan portfolio:
AS OF DECEMBER 31, 2003
----------------------------------------------------------
DUE AFTER ONE
DUE IN ONE YEAR THROUGH DUE AFTER
YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------ -------------- ------------ ------------
(Ps million)
PESO-DENOMINATED LOANS:
CORPORATE
Trade financing................................. Ps 17,600 Ps 7,624 Ps - Ps 25,224
Loans funded by domestic development banks...... 58,996 137,094 42,950 239,040
Working capital loans........................... 1,382,135 1,460,491 377,809 3,220,435
Credit cards.................................... 501 6,146 - 6,647
Overdrafts...................................... 32,371 - - 32,371
Other........................................... - - - -
------------ ------------- ------------ ------------
Total corporate............................. 1,491,603 1,611,355 420,759 3,523,717
------------ ------------- ------------ ------------
RETAIL
Credit cards.................................... 76,175 214,978 - 291,153
Personal loans.................................. 99,393 706,599 5,042 811,034
Vehicle loans................................... 12,632 216,634 471 229,737
Overdrafts...................................... 80,927 - - 80,927
Loans funded by domestic development banks...... 31,994 243,965 53,807 329,766
Trade financing................................. 5,825 - - 5,825
Working capital loans........................... 406,501 445,456 25,031 876,988
------------ ------------- ------------ ------------
Total retail................................ 713,447 1,827,632 84,351 2,625,430
------------ ------------- ------------ ------------
MORTGAGE............................................ 731 2,173 45,257 48,161
------------ ------------- ------------ ------------
TOTAL PESO-DENOMINATED LOANS................ Ps 2,205,781 Ps 3,441,160 Ps 550,367 Ps 6,197,308
============ ============= ============ ============
DOLLAR-DENOMINATED LOANS
CORPORATE
Trade financing................................. Ps 124,358 Ps - Ps - Ps 124,358
Loans funded by domestic development banks...... 21,444 134,463 - 155,907
Working capital loans........................... 355,218 380,740 730,760 1,466,718
Credit cards.................................... 240 1,350 - 1,590
Overdrafts...................................... - - - -
Other........................................... - - - -
------------ ------------- ------------ ------------
Total corporate............................. 501,260 516,553 730,760 1,748,573
------------ ------------- ------------ ------------
RETAIL
Credit cards.................................... 18,137 25,882 - 44,019
Personal loans.................................. 3,456 243 152 3,851
Vehicle loans................................... - - - -
Overdrafts...................................... 367 - - 367
Loans funded by domestic development banks...... 480 - - 480
Trade financing................................. 13,819 - - 13,819
Working capital loans........................... 21,251 - - 21,251
------------ ------------- ------------ ------------
Total retail................................ 57,510 26,125 152 83,787
------------ ------------- ------------ ------------
MORTGAGE............................................ - - - -
------------ ------------- ------------ ------------
TOTAL DOLLAR-DENOMINATED LOANS.............. 558,770 542,678 730,912 1,832,360
------------ ------------- ------------ ------------
TOTAL LOANS................................. Ps 2,764,551 Ps 3,983,838 Ps 1,281,279 Ps 8,029,668
============ ============= ============ ============
As of December 31, 2003, approximately 45.34% of the Bank's loans had a
maturity of one year or less. The Bank's policy is not to automatically roll
over an existing loan without a thorough credit analysis of the borrower.
61
The following table shows the interest rate sensitivity of the Bank's
loan portfolio due after one year as of December 31, 2003:
AS OF DECEMBER 31, 2003
-----------------------
(Ps million)
LOANS DUE AFTER ONE YEAR:
VARIABLE RATE
Peso-denominated.................................. Ps 3,442,146
Dollar-denominated................................ 140,389
-----------------------
Total........................................... 3,582,535
-----------------------
FIXED RATE
Peso-denominated.................................. 549,381
Dollar-denominated................................ 1,133,201
-----------------------
Total........................................... 1,682,582
-----------------------
LOANS DUE IN ONE YEAR OR LESS:
Peso-denominated.................................. 2,205,781
Dollar-denominated................................ 558,770
-----------------------
Total........................................... 2,764,551
-----------------------
TOTAL LOANS Ps 8,029,668
=======================
LOANS BY ECONOMIC ACTIVITY
The following table analyzes the Bank's loan portfolio for the periods
indicated by the principal activity of the borrower using the Primary Standard
Industrial Classification Codes. Where the Bank has not assigned a code to a
borrower, classification of the loan has been made based on the purpose of the
loan as described by the borrower:
AS OF DECEMBER 31, 2003
----------------------------------------------------------------------------------------------------
1999 % 2000 % 2001 % 2002 % 2003 %
------------ ----- ----------- ----- ----------- ----- ----------- ----- ----------- ------
Agricultural.............. Ps 57,675 1.2% Ps 100,346 2.0% Ps 136,201 2.5% Ps 135,554 2.2% Ps 183,293 2.3%
Mining products and oil... 38,997 0.8% 10,199 0.2% 43,881 0.8% 103,624 1.7% 84,414 1.0%
Food, beverage and
tobacco................. 361,164 7.5% 449,171 8.8% 68,651 1.3% 174,818 2.8% 133,859 1.7%
Chemical production....... 106,873 2.2% 264,633 5.2% - 0.0% 11,453 0.1% 174 0.0%
Other industrial and
manufacturing
products................ 582,168 12.1% 816,477 16.0% 1,550,141 29.0% 1,738,250 28.0% 1,929,007 24.0%
Government................ 278,367 5.8% 657,050 12.8% 91,146 1.6% 152,453 2.4% 836,832 10.4%
Construction.............. 106,572 2.2% 160,095 3.1% 181,788 3.4% 163,755 2.6% 180,704 2.3%
Trade and tourism......... 412,231 8.5% 731,099 14.3% 712,333 13.3% 816,090 13.2% 893,729 11.1%
Transportation and
communications.......... 100,894 2.1% 213,519 4.2% 302,100 5.6% 299,184 4.8% 408,285 5.1%
Public services........... 104,931 2.2% 297,329 5.8% 284,031 5.3% 464,054 7.5% 472,451 5.9%
Consumer services......... 532,386 11.0% 303,937 5.9% 1,619,689 30.5% 1,840,735 29.9% 2,380,162 29.6%
Commercial services....... 2,143,601 44.4% 1,108,216 21.7% 360,244 6.7% 297,345 4.8% 526,758 6.6%
------------ ----- ----------- ----- ----------- ----- ----------- ----- ----------- -----
TOTAL LOANS............ Ps4,825,959 100.0% Ps5,112,071 100.0% Ps5,350,205 100.0% PS6,197,315 100.0% Ps8,029,668 100.0%
============ ===== =========== ===== =========== ===== =========== ===== =========== =====
62
POLICIES FOR THE GRANTING AND REVIEW OF CREDITS
The Bank's credit standards and policies aim to achieve a high level of
credit quality in the Bank's loan portfolio, efficiency in the processing of
loans and the specific assignment of responsibilities for credit risk.
To maintain credit quality and manage the risk arising from its lending
activities, the Bank has established general loan policies for evaluation of
credits, lending limits to a single customer or economic group that conform to
those required by law, the level of management authority required to approve a
loan, maximum terms of loans, and collateral required for certain types of loans
and their valuation. In addition, the Bank has established a centralized area
for credit analysis, the disbursement process and the management and custody of
promissory notes and guarantees.
BC's policies require that every credit to be analyzed using the
following factors: the character, reputation and credit history of the borrower,
the type of business the borrower engages in, the borrower's ability to repay
the loan, the coverage and suitability of the proposed collateral for the loan,
information received from the credit risk center, debt service ability and
compliance with the loan terms and the country risk where the debtor is
headquartered in the event of overseas credits. The Bank applies this same
detailed credit analysis to potential depositors.
In addition to an analysis of the borrower, the Bank engages in the
analysis of the different economic sectors to which the Bank makes loans and has
established guidelines for financial analysis of the borrower and for
participation in investment projects in and outside Colombia. The Bank applies
the lending limits established under Colombian law, which require that:
- uncollateralized loanS to a single customer or economic group not to
exceed 10% of the Bank's Technical Capital (the Bank's largest such
loan as of December 31, 2003 is for Ps 67,008 million, which represents
5.82% of the Bank's Technical Capital as of that date and is current
and performing in accordance with its terms);
- collateralized loans to a single customer or economic group not to
exceed 25% of the Bank's Technical Capital (the Bank's largest such
loan as of December 31, 2003 is for Ps 116,461 million, which
represents 10.12% of the Bank's Technical Capital as of that date and
is current and performing in accordance with its terms);
- a loan to a shareholder of the Bank, with a share exceeding 20% of the
Bank's Capital, may not exceed 20% of the Bank's Technical Capital
(there were not registered shareholders owning more than 20% of the
Bank as of December 31, 2003); and
- a loan to a financial institution may not exceed 30% of the Bank's
Technical Capital (the Banks' largest such loan as of December 31, 2003
is for Ps 19,008 million, which represents 1.65% of the Bank's
Technical Capital as of that date and is current and performing in
accordance with its terms).
In general, the term of a loan will depend on the type of guarantee,
the credit history of the borrower and the purpose of the loan, averaging in
length from one to five years.
Loan applications, depending on their amount, are presented for
approval to branch managers, the zone or regional managers, the vice presidents,
the President, the Credit Committee and the Board of Directors of BC. In
general, loan application decisions are made by the Bank's managements in the
corresponding committee. Loan applications up to a maximum of 200 SMLV or
63
approximately Ps 66.4 million (approximately US $23,654) must also be submitted
for approval to the Bank's centralized credit scoring area.
The following table sets forth the size limits for loan application
approval by authorization level as established by the Board of Directors of BC:
MAXIMUM LOAN APPROVAL LIMITS (1)
---------------------------------------------------------------
UNSECURED LOANS (2) SECURED LOANS
------------------------------ ------------------------------
(U.S. dollar) (Ps million) (U.S. dollar) (Ps million)
AUTHORIZATION LEVEL:
Branch Managers...................... 6,442 18.1 12,884 36.2
Zone Managers........................ 65,504 183.9 109,174 306.5
Regional Managers Corporate
Banking........................... 270,000 757.9 450,000 1,263.2
Middle-corporate and Personal
Banking Regional Managers......... 360,000 1,010.6 600,000 1,684.3
Middle-corporate and Personal
Banking Vice Presidents........... 900,000 2,526.5 1,500,000 4,210.8
Corporate Banking, Finance and
International Vice Presidents..... 900,000 2,526.5 1,500,000 4,210.8
President............................ 2,100,000 5,895.1 3,500,000 9,825.2
Credit Committee..................... All loans, other than those All loans, other than those
requiring the approval of the requiring the approval of the
Board of Directors, within Board of Directors, within the
the limits established by law. limits established by law.
(1) Approval limits are measured in dollars or their equivalent in nominal
pesos.
(2) Includes loans with a personal guarantee.
Loans to employees and affiliates of the Bank must be approved by the
Board of Directors, which has the authority to grant loans in any principal
amount subject to the Bank's legal lending limit. Approval at each level also
requires the agreement of each lower level of the approval hierarchy. For
example, a loan approval by regional managers would also require approval from
the branch managers.
The Bank has established policies for the valuation of collateral
received as well as for the determination of the maximum loan amount that can be
granted against the value of the collateral. The Bank undertakes annually a
valuation of collateral held as security for loans. In addition, when a loan
becomes 60 days past due, the loan is given to a specialized division where
various steps are taken to recover the loan. The Asset Recovery Division may,
acting in coordination with the Commercial area, begin a recovery process before
the 60-day past due date.
With respect to monitoring outstanding loans, the Bank, in accordance
with the requirements of the Superintendency of Banking, has implemented,
through the creation of regional committees and a central qualification office,
a review policy providing for a biannual evaluation, during the months of May
and November of all debtors whose indebtedness for the various credit facilities
exceeds 300 SMLV (Ps 99,6 million.). Additionally, all the Bank's Loans are
evaluated monthly based on the days they are past due. When reviewing loans, BC
evaluates and updates their risk classification and makes corresponding
adjustment in the provision, if needed. When monitoring outstanding loans, the
Bank examines current financial statements including, for material loans with a
term greater than one year,
64
current cash flow statements. The Bank is currently centralizing its credit
review process through its information systems, including the necessary
adjustments of credit scoring for vehicle loans, credit cards and personal lines
of credit. In addition, the Bank keeps track of the loans reviewed every month
and carries out a credit audit process that reviews the 200 largest debtors and
randomly reviews a selection of its other debtors.
CLASSIFICATION OF THE LOAN PORTFOLIO
As indicated by External Circular 011 of March 2002, for purposes of
classifying loans, the Bank first determines whether the loan has become due and
then classifies the loan according to the number of days past due. In addition,
whether or nor a loan is past due, the Bank analyzes loans to determine if there
are "potential weaknesses," "deficiencies" or "serious deficiencies" based on
the existence and magnitude of the following factors:
- the expected ability of payment of a debtor and co-debtor, or the
project to be financed, analyzing the income flow and expenses;
- the debtor's solvency, through variables such as the level of
indebtedness and the quality and composition of the debtor's and/or
project's assets, liabilities, equity and contingencies;
- information on the debtor's current and past compliance with
obligations;
- the timely payment of all installments as well as the financial and
credit-based history as shown by risk controls and risk classifiers of
the debtor or any other relevant source;
- the number of times that the loan has been restructured and the nature
of the respective restructuring(s);
- the possible effects of the financial risks that the cash flow of the
debtor and/or the project to be financed may be exposed to; these
include:
- possible market gaps of currencies, maturities and interest
rates in the balance sheet structure and in off-balance sheet
operations, such as financial derivatives;
- for those loans with variable rates or rates indexed to UVR or
another index, projections, and possible scenarios for the
evolution of payments according to estimates of interest
rates, foreign exchange rates, inflation, and other variables
that may directly affect the payment of debt;
- for loans denominated in foreign currencies, the market risk
derived from the volatility of the corresponding exchange
rates and its possible impact on the debtor's ability to pay;
for loans made abroad, an in-house and market analysis of the
risk of the country where the debtor is domiciled to identify
the risks of transfer and exchange of the currencies required
to serve the loan and the legal, operating and strategic risks
of spreading the ability to pay of the debtor or the project
to be financed may be exposed to.
CREDIT CATEGORIES
For the purpose of credit risk evaluation, application of accounting
regulations, and constitution of provisions in accordance with External Circular
011, the Superintendency of Banking requires banking institutions to classify
their credit portfolio into four categories: consumer loans, small
65
business loans, mortgages and commercial loans.
- Consumer loans are loans granted to individuals for the
purpose of financing the acquisition of consumer goods or the
payment of services for non-commercial or non-corporate
objects.
- Small business loans are loans granted to very small
corporations with indebtedness levels with the corresponding
entity not higher than 25 SMLV (Ps 8,3 million) (a very small
corporation is every unit of economic exploitation, whether
individual or corporation, in entrepreneurial, farming and
livestock, industrial, commercial or utilities activities,
rural or urban, with a staff no larger than 10 workers and
with total assets lower than 501 SMLV (Ps 166,3 million).
- Mortgages are loans of any amount granted to individuals to
acquire new or used homes or for the construction of
individual homes.
- Commercial loans are all loans, except mortgage, consumer and
small business loans, as defined above (includes ordinary,
preferential and treasury loans).
As of December 31, 2003, BC's commercial loan portfolio
amounted to Ps 6,624,494 million, a 26.91% increase from December 31, 2002. As
of December 31, 2002, BC's commercial loan portfolio amounted to Ps 5,219,460
million, which was an increase of 19.87% from December 31, 2001.
The following table shows the Bank's loan portfolio
categorized in accordance with the regulations of the Superintendency of Banking
in effect for the relevant periods:
LOAN PORTFOLIO BY TYPE OF LOAN
AS OF DECEMBER 31,
-----------------------------------------------------------------------------
1999(2) 2000(2) 2001 2002(3) 2003
------------- ------------- ------------- ------------- -------------
(Ps million)
Commercial Loans................ Ps 3,962,890 Ps 4,286,220 Ps 4,354,031 Ps 5,219,460 Ps 6,624,494
Consumer Loans.................. 827,816 792,573 961,663 870,898 1,273,159
Small business loans............ - - - 68,863 83,854
Mortgages(1).................... 35,253 33,278 34,511 38,094 48,161
------------- ------------- ------------- ------------- -------------
TOTAL LOANS................... 4,825,959 5,112,071 5,350,205 6,197,315 8,029,668
Allowance for Loan Losses....... 295,016 285,565 271,729 332,324 387,263
------------- ------------- ------------- ------------- -------------
TOTAL LOANS, NET.............. Ps 4,530,943 Ps 4,826,506 Ps 5,078,476 Ps 5,864,991 Ps 7,642,405
============= ============= ============ ============= =============
(1) This category was established by the Superintendency of Banking in
External Circular 050 of 2001.
(2) For 1999 and until 2001, a different regulation was in force (External
Circular 039 of 1999 and External Circular 070 of 2000) regarding the
criteria for the establishment of credit categories.
(3) External Circular 050 of 2001, which was ratified by External Circular
011 of 2002, modified criteria to classify loans in commercial,
consumer. small business and mortgage, establishing that the
classification should be based on the loan destination and not based on
the amount as it was in previous years.
External Circular 011 of 2002 provides the following minimum
risk classifications, according to the past due days of the obligation:
Category A or "Normal Risk": Loans in this category are
appropriately attended (not past due). The debtor's financial statements or its
projected cash flows, as well as all other credit information available to the
Bank, reflect adequate paying capacity. The following loans would fall into This
category:
66
LOAN TYPE NUMBER OF MONTHS PAST DUE
-------------------- -------------------------
Mortgage 0 - 2
Consumer 0 - 1
Small business loans 0 - 1
Commercial 0 - 1
Category B or "Acceptable Risk, Above Normal": Loans in this
category are acceptably attended (not past due) and guaranty protected, but
there are weaknesses which may potentially affect, on a transitory or permanent
basis, the debtor's paying capacity or its projected cash flows, to the extent
that, if not timely corrected, would affect the normal collection of credit or
contracts.
The following types of loans would fall into this category:
LOAN TYPE NUMBER OF MONTHS PAST DUE
-------------------- -------------------------
Mortgage more than 2 and up to 5
Consumer more than 1 and up to 2
Small business loans more than 1 and up to 2
Commercial more than 1 and up to 3
Category C or "Appreciable Risk": Loans in this category
represent insufficiencies in the debtors' paying capacity or in the project's
cash flow, which may compromise the normal collection of the obligations.
The following types of loans would fall into this category:
LOAN TYPE NUMBER OF MONTHS PAST DUE (RANGE)
-------------------- ---------------------------------
Mortgage more than 5 and up to 12
Consumer more than 2 and up to 3
Small business loans more than 2 and up to 3
Commercial more than 3 and up to 6
Category D or "Significant Risk": Loans in this category have
the same deficiencies as loans in category C, but to a larger extent;
consequently, the probability of collection is highly doubtful.
The following types of loans would fall into this category:
LOAN TYPE NUMBER OF MONTHS PAST DUE (RANGE)
-------------------- ---------------------------------
Mortgage more than 12 and up to 18
Consumer more than 3 and up to 6
Small business loans more than 3 and up to 4
Commercial more than 6 and up to 12
67
Category E or "Risk of Non-Recoverability": Loans in this
category are deemed uncollectible.
The following types of loans would fall into this category:
LOAN TYPE NUMBER OF MONTHS PAST DUE
-------------------- ---------------------------------
Mortgage more than 18
Consumer more than 6
Small business loans more than 4
Commercial more than 12
Additionally, if a loan to a borrower is downgraded by the
Bank to a classification of "B," "C," "D" or "E," all of the Bank's loans to
that client are similarly downgraded. The Superintendency of Banking may require
additional allowances under certain circumstances.
The following table presents the Bank's loan portfolio using
the classification system of the Superintendency of Banking in effect at the end
of each period:
AS OF DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1999 % 2000 % 2001 % 2002 % 2003 %
------------ ----- ------------ ----- ------------ ----- ------------ ----- ------------ -----
(Ps million, except percentages)
"A" Normal Ps 3,466,011 71.8% Ps 4,017,027 78.6% Ps 4,228,248 79.0% Ps 5,115,889 82.6% Ps 7,288,273 90.8%
"B" Subnormal 716,707 14.9% 560,961 11.0% 603,068 11.3% 479,429 7.7% 345,297 4.3%
"C" Deficient 210,658 4.4% 209,851 4.1% 103,761 1.9% 142,782 2.3% 109,615 1.4%
"D" Doubtful Recovery 141,539 2.9% 135,536 2.6% 259,811 4.9% 180,630 2.9% 196,075 2.4%
"E" Unrecoverable 291,044 6.0% 188,696 3.7% 155,317 2.9% 278,585 4.5% 90,408 1.1%
------------ ----- ------------ ----- ------------ ----- ------------ ----- ------------ -----
TOTAL Ps 4,825,959 100.0% Ps 5,112,071 100.0% Ps 5,350,205 100.0% Ps 6,197,315 100.0% Ps 8,029,668 100.0%
============ ===== ============ ===== ============ ===== ============ ===== ============ =====
Loans classified as
"C," "D" and "E" as
a percentage of total
loans 13.3% 10.5% 9.7% 9.7% 4.9%
(1) In 2000, the Bank reported its loan portfolio as of December 31, 1999
classified by individual risk according to past due term. In 2001, it
reported its loan portfolio as of December 31, 2001 classified according to
the risk category and reflecting the past due term and debtor's capacity of
payment, debt service, and information from external risk agencies. In this
report, provisions for both years and for 2001, 2002 and 2003 are based on
the latter method.
The Bank continues to accrue interest on a loan until it is
considered non-performing. Once a loan is deemed non-performing, an allowance is
made for 100% of the unpaid interest recorded as income, and, going forward,
instead of recording interest on that loan in the consolidated statement of
operations, such interest is recorded in memorandum accounts. See Note 2 to the
Financial Statements.
In accordance with the regulations of the Superintendency of
Banking, loans are considered non-performing if an installment of principal or
interest is (i) in the case of a commercial loan more than 90 days past due,
(ii) in the case of a consumer loan more than 60 days past due, (iii) in the
case of a small business loan more than 60 days past due or (iv) in the case of
a mortgage loan more than 120 days past due.
Additionally, beginning March 25, 2003, the Bank established
as policy that any loans that
68
are past due more than 30 days will stop accruing interest in the statement of
operations and their entries will be made in memorandum accounts until the
customer recommences payments. It is estimated that, at December 31, 2003,
approximately Ps 280 million of loans are in memorandum accounts because of the
adoption of this policy.
If one installment payment is 31 or more days past the actual
due date, then the entire loan is considered past due for purposes of the
regulations of the Superintendency of Banking.
The following table sets forth the breakdown of the Bank's
loans at least one day past due by type of loan in accordance with the criteria
of the Superintendency of Banking in effect at the end of each period:
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------------------
1999 % 2000 % 2001 % 2002 % 2003 %
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
(Ps million, except percentages)
PERFORMING PAST DUE LOANS:(1)
Consumer loans past due 31 to
60 days....................... Ps 34,755 30.5% Ps 18,108 32.4% Ps 19,543 24.8% Ps 17,537 38.6% Ps 24,899 57.3%
Small business loans past due
from 31 to 60 days(3)........ - 0.0% - 0.0% - 0.0% 777 1.7% 2,054 4.7%
Commercial loans past due 31
to 120/90 days(2)............... 79,011 69.5% 37,576 67.3% 59,066 74.9% 27,149 59.7% 16,518 38.0%
Mortgage loans past due 31 to
90/120 days................... 21 0.0% 171 0.3% 202 0.3% 22 0.0% - 0.0%
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total performing past due
loans........................... 113,787 100.0% 55,855 100.0% 78,811 100.0% 45,485 100.0% 43,471 100.0%
NON-PERFORMING PAST DUE LOANS:
Consumer loans past due 61 to
180 days...................... 21,664 7.1% 9,660 5.4% 9,711 4.0% 8,993 8.2% 14,304 18.8%
Small business loans past due
from 61 to 180 days........... - 0.0% - 0.0% - 0.0% 1,633 1.5% 3,040 4.0%
Consumer loans past due more
than 180 days................. 68,783 22.7% 40,161 22.3% 10,019 4.1% 10,678 9.7% 10,765 14.0%
Commercial loans past due
more than 120/90 days......... 212,259 69.9% 128,740 71.6% 224,024 91.8% 88,217 80.5% 48,069 63.2%
Mortgage loans past due more
than 91 days.................. 767 0.3% 1,190 0.7% 138 0.1% 138 0.1% 4 0.0%
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total non-performing past due
loans......................... 303,473 100.0% 179,751 100.0% 243,892 100.0% 109,659 100.0% 76,182 100.0%
Total past due loans........ Ps 417,260 Ps 235,606 Ps 322,703 Ps 155,144 Ps 119,653
---------- ---------- ---------- ---------- ----------
Total non-performing past due
loans......................... 303,473 179,751 243,892 109,659 76,182
Allowance for loan losses....... (295,016) (285,565) (271,729) (332,324) (387,263)
Foreclosed assets............... 173,897 193,009 180,737 185,261 194,321
Allowance for estimated
losses on foreclosed assets... (42,515) (93,591) (106,081) (107,962) (135,121)
Other accounts receivable
more than 180 days past due... 30,190 22,573 17,875 8,655 25,848
Allowance for accounts
receivable and accrued
interest losses............... (98,319) (50,350) (42,707) (24,891) (26,182)
---------- ---------- ---------- ---------- ----------
Total non-performing assets,
net............................. Ps 71,710 Ps (34,173) Ps 21,987 Ps(161,602) Ps(252,215)
---------- ---------- ---------- ---------- ----------
Loans at least one day past
due as a percentage of
total loans................... 8.6% 4.6% 6.0% 2.5% 1.5%
Allowance for loan losses as
a percentage of loans at
least one day past due........ 70.7% 121.2% 84.2% 214.2% 323.7%
Allowance for loan losses as
a percentage of loans
classified as "C," "D" and
"E"........................... 45.9% 53.5% 52.4% 55.2% 97.8%
Percentage of performing
loans to total loans.......... 93.7% 96.5% 95.5% 98.2% 99.1%
(1) Performing past due loans are loans upon which the Bank
continues to recognize income although interest has not been
received for the periods indicated. Once interest is unpaid on
accrual loans for a longer period than is specified above, the
loan is classified as non-performing. Under Colombian Banking
regulations, a loan is past due when it is at least 31 days
past the actual due date.
(2) In the second quarter of 1999, the Superintendency of Banking changed
the classifications for commercial loans.
(3) During the first quarter of 2002, the Superintendency of Banking changed
the classification of the commercial, consumer and mortgage loan
categories, and introduced the new category of "Small business loans".
69
The following table analyzes the quality of the Bank's loan
portfolio using the classification system of the Superintendency of Banking in
effect at the end of each period:
AS OF DECEMBER 31,
-------------------------------------------------------------------
1999 2000 2001 2002 2003
----------- ----------- ----------- ----------- -----------
(Ps million, except percentages)
Loans secured by real guarantees as a percentage of
total loans........................................ 34.7% 35.4% 44.8% 37.5% 32.9%
Loans classified as "A" as a percentage of total
loans.............................................. 71.8% 78.6% 79.0% 82.6% 90.8%
Loans classified as "B as a percentage of total loans.. 14.9% 11.0% 11.3% 7.7% 4.3%
Loans classified as "C," "D" and "E" as a percentage
of total loans......................................... 13.3% 10.5% 9.7% 9.7% 4.9%
Total allowance for loan losses as a percentage of
non-performing loans............................... 97.2% 158.9% 111.4% 303.1% 508.3%
Total allowance for loan losses as a percentage of
loans classified as "C," "D" and "E"............... 45.9% 53.5% 52.4% 55.2% 97.8%
Non-performing loans as a percentage of total loans.... 6.3% 3.5% 4.6% 1.8% 0.9%
Loans classified as "C," "D" and "E"................... Ps 643,241 Ps 534,083 Ps 518,889 Ps 601,997 Ps 396,098
TOTAL NON-PERFORMING LOANS......................... Ps 303,473 Ps 179,751 Ps 243,892 Ps 109,659 Ps 76,182
The following table shows BC's past due loan portfolio by type
of loan:
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------------------
1999 % 2000 % 2001 % 2002 % 2003 %
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
(Ps million, except percentages)
CORPORATE
Trade financing............ Ps 6,172 1.5% Ps 9,329 4.0% Ps 5,398 1.6% Ps 143 0.0% Ps 2,841 2.3%
Loans funded by domestic
development banks........ 5,931 1.4 10,073 4.3 7,950 2.5 1,360 0.9 1,149 1.0
Working capital loans...... 238,602 57.2 145,506 61.8 210,281 65.2 75,333 48.6 30,706 25.7
Credit cards............... 117 0.0 48 0.0 103 0.0 90 0.1 136 0.1
Overdrafts................. 7,233 1.7 1,408 0.6 1,583 0.5 - 0.0 1,032 0.9
Other...................... 29 0.0 - 0.0 - 0.0 - 0.0 - 0.0
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total corporate.......... 258,084 61.8% 166,364 70.6% 225,315 69.8% 76,926 49.6% 35,864 30.0%
RETAIL (1)
Credit cards............... 17,435 4.2 11,686 5.0 10,606 3.3 14,930 9.6 12,204 10.2
Personal loans............. 36,006 8.6 10,734 4.6 17,442 5.4 25,516 16.4 32,876 27.5
Vehicle loans.............. 3,455 0.8 1,402 0.6 323 0.1 534 0.3 6,453 5.4
Overdrafts................. 8,327 2.0 8,924 3.8 8,491 2.6 - 0.0 7,967 6.6
Loans funded by domestic
development banks.......... 3,695 0.9 - 0.0 6,843 2.1 3,840 2.5 5,299 4.4
Trade financing............ 4,935 1.2 1,320 0.6 1,841 0.6 890 0.6 355 0.3
Working capital loans...... 84,536 20.3 33,815 14.4 50,563 15.7 31,644 20.4 18,084 15.1
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total retail............. 158,389 38.0% 67,881 28.8% 96,109 29.8% 77,354 49.8% 83,238 69.5%
MORTGAGE................... 787 0.2% 1,361 0.6% 1,279 0.4% 864 0.6% 551 0.5%
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
TOTAL PAST DUE LOANS.... Ps 417,260 100.0% Ps 235,606 100.0% Ps 322,703 100.0% Ps 155,144 100.0% Ps 119,653 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
(1) Includes loans to high-income individuals and small companies.
The past-due portfolio decreased by 22.87% between 2002 and
2003, from Ps 155,144 million at December 31, 2002, to Ps 119,653 million at
December 31, 2003, mainly due to a recovery of past-due corporate working
capital loans, which decreased from Ps 75,333 million at December 21, 2002, to
Ps 30,706 million at December 31, 2003. This recovery was primarily the result
of an improvement of our customer's economic situation and the implementation of
a defaulted loans recovery strategy through a specialized department for asset
recovery. These situations explain a decrease of 51.92% between 2001 and 2002.
70
The Bank believes that future increases in average nominal
interest rates may result in additional past-due loans. There can be no
assurance that the increases in past-due performing loans will not continue in
the future. If performing past-due loans are not made current, they will become
categorized as non-performing past-due loans and additional allowances for loan
losses will have to be established.
The following table presents information with respect to the
Bank's loan portfolio at least 31 days past due based on the nature of the
collateral for the loan:
AS OF DECEMBER 31,
--------------------------------------------------------------------------------------------------
1999 % 2000 % 2001 % 2002 % 2003 %
------------ ---- ------------ ---- ------------ ---- ------------ ---- ------------ ----
(Ps million, except percentages)
SECURED
Current........................ Ps 1,502,187 31.1% Ps 1,701,775 33.3% Ps 2,203,986 41.2% Ps 2,261,968 36.5% Ps 2,596,226 32.3%
Past due from 31 to 60 days
(consumer)................. - 0.0 - 0.0 - 0.0 3,686 0.1 5,690 0.1
Past due from 61 to 90 days
(consumer)................. 6,879 0.2 2,903 0.1 4,009 0.1 - 0.0 2,020 0.0
Past due from 31 to 60 (small
business loans)............ - 0.0 - 0.0 - 0.0 246 0.0 466 0.0
Past due from 61 to 90 (small
business loans)............ - 0.0 - 0.0 - 0.0 89 0.0 315 0.1
Past due from 31 to 90/120
days (mortgage)............ 21 0.0 171 0.0 202 0.0 22 0.0 - 0.0
Past due from 91 to 180 days
(consumer) ................ 4,487 0.1 1,572 0.0 1,823 0.0 1,881 0.0 2,995 0.1
Past due from 91 to 180 days
(small business loans)..... - 0.0 - 0.0 - 0.0 415 0.0 476 0.0
Past due from 91 to 180 days
(mortgage) ................ 13 0.0 3 0.0 - 0.0 - 0.0 4 0.0
Past due from 31 to 90 days
(commercial)(2) ........... 54,519 1.1 14,268 0.3 51,414 1.0 9,617 0.2 10,935 0.1
Past due from 181 days to 360
days (consumer)............ 8,331 0.2 2,784 0.1 2,835 0.1 - 0.0 2,589 0.0
Past due from 181 days to 360
days (mortgage)............ 421 0.0 1,083 0.0 138 0.0 138 0.0 - 0.0
Past due from 91 to 180 days
(commercial)(2) ........... 13,921 0.3 29,198 0.6 35,933 0.7 8,736 0.1 5,751 0.1
Past due from 121 to 360 days
(commercial) .............. 40,178 0.8 10,368 0.2 47,628 0.9 10,452 0.2 8,995 0.1
Past due more than 360 days.... 43,744 0.9 43,321 0.8 50,554 0.9 29,501 0.5 17,217 0.2
------------ ---- ------------ ---- ------------ ---- ------------ ---- ------------ ----
TOTAL.......................... Ps 1,674,701 34.7% Ps 1,807,446 35.4% Ps 2,398,522 44.9% Ps 2,326,751 37.6% Ps 2,653,679 33.1%
============ ==== ============ ==== ============ ==== ============ ==== ============ ====
UNSECURED(1)
Current........................ Ps 2,906,512 60.2% Ps 3,174,690 62.1% Ps 2,823,516 52.8% Ps 3,780,203 61.0% Ps 5,313,789 66.2%
Past due from 31 to 60 days
(consumer)................. 27,876 0.6 15,205 0.3 15,534 0.3 13,851 0.2 19,209 0.2
Past due from 31 to 60 days
(small business loans)..... - 0.0 - 0.0 - 0.0 531 0.0 1,588 0.0
Past due from 61 to 90 days
(small business loans)..... - 0.0 - 0.0 - 0.0 308 0.0 793 0.0
Past due from 91 to 180 days
(consumer)................. 17,177 0.4 8,088 0.2 7,888 0.1 7,112 0.1 9,289 0.1
Past due from 91 to 180 days
(small business loans)..... - 0.0 - 0.0 - 0.0 821 0.0 1,456 0.0
Past due from 31 to 90 days
(commercial)(2) ........... 24,492 0.5 23,308 0.4 7,652 0.1 17,532 0.3 5,583 0.1
Past due from 181 days to 360
days (consumer)........... 49,625 1.0 31,649 0.6 7,184 0.1 10,678 0.2 8,176 0.1
Past due from 91 to 180 days
(commercial)(2)............ 13,822 0.3 5,537 0.1 3,493 0.1 9,358 0.2 2,980 0.0
Past due from 121 to 360 days
(commercial) .............. 29,186 0.6 7,001 0.1 34,077 0.6 9,192 0.1 8,889 0.1
Past due more than 360 days.... 82,568 1.7 39,147 0.8 52,339 1.0 20,978 0.3 4,237 0.1
------------ ---- ------------ ---- ------------ ---- ------------ ---- ------------ ----
TOTAL.......................... Ps 3,151,258 65.3% Ps 3,304,625 64.6% Ps 2,951,683 55.1% Ps 3,870,564 62.4% Ps 5,375,989 66.9%
============ ==== ============ ==== ============ ==== ============ ==== ============ ====
TOTAL CURRENT LOANS............ Ps 4,408,699 91.3% Ps 4,876,465 95.4% Ps 5,027,502 94.0% Ps 6,042,171 97.5% Ps 7,910,015 98.5%
Past due from 31 to 60 days
(consumer)................. 34,755 0.8 18,108 0.4 19,543 0.4 17,537 0.3 24,899 0.3
Past due from 61 to 90 days
(consumer)................. - 0.0 - 0.0 - 0.0 - 0.0 2,020 0.0
Past due from 31 to 60 days
(small business loans)..... - 0.0 - 0.0 - 0.0 777 0.0 2,054 0.0
Past due from 61 to 90 days
(small business loans)..... - 0.0 - 0.0 - 0.0 397 0.0 1,108 0.0
Past due from 31 to 90/120
days (mortgage)............ 21 0.0 171 0.0 202 0.0 22 0.0 - 0.0
Past due from 31 to 90 days
(commercial)(2)............ 79,011 1.6 37,576 0.7 59,066 1.1 27,149 0.4 16,518 0.2
Past due from 91 to 180 days
(consumer) ................ 21,664 0.5 9,660 0.2 9,711 0.2 8,993 0.1 12,284 0.2
Past due from 91 to 180 days
(small business loans)..... - 0.0 - 0.0 - 0.0 1,236 0.0 1,932 0.0
Past due from 91/121 to 180
days (mortgage)............ 13 0.0 3 0.0 - 0.0 - 0.0 4 0.0
Past due from 91 to 180 days
(commercial)(2) ........... 27,743 0.6 34,735 0.7 39,426 0.7 18,094 0.3 8,731 0.1
Past due from 121 to 360 days
(commercial) .............. 69,364 1.4 17,369 0.3 81,705 1.5 19,644 0.3 17,884 0.2
Total Past due from 181 days to
360 days (consumer)........ 57,956 1.2 34,433 0.7 10,019 0.2 10,678 0.2 10,765 0.1
71
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------------
1999 % 2000 % 2001 % 2002 %
------------ ----- ------------ ----- ------------ ----- ------------ -----
(Ps million except Percentages)
SECURED
Past due from 181 days to 360 days
(mortgage)...................... 421 0.0 1,083 0.0 138 0.0 138 0.0
Total past due more than 360 days.... 126,312 2.6 82,468 1.6 102,893 1.9 50,479 0.9
------------ ----- ------------ ----- ------------ ----- ------------ -----
TOTAL PAST DUE LOANS............. 417,260 8.7 235,606 4.6 322,703 6.0 155,144 2.5
------------ ----- ------------ ----- ------------ ----- ------------ -----
Total gross loans.................... 4,825,959 100.0 5,112,071 100.0 5,350,205 100.0 6,197,315 100.0
Allowance for loan losses............ (295,016) (6.1) (285,565) (5.6) (271,729) (5.1) (332,324) (5.4)
------------ ----- ------------ ----- ------------ ----- ------------ -----
TOTAL LOANS, NET................. Ps 4,530,943 93.9% Ps 4,826,506 94.4% Ps 5,078,476 94.9% Ps 5,864,991 94.6%
============ ===== ============ ===== ============ ===== ============ =====
AS OF DECEMBER 31,
----------------------
2003 %
------------ ----
(Ps million except Percentages)
SECURED
Past due from 181 days to 360 days
(mortgage)...................... - 0.0
Total past due more than 360 days.... 21,454 0.4
------------ ----
TOTAL PAST DUE LOANS............. 119,653 1.5
------------ ----
Total gross loans.................... 8,029,668 100%
Allowance for loan losses............ (387,263) (4.8%)
------------ ----
TOTAL LOANS, NET................. Ps 7,642,405 95.2%
============ ====
(1) Includes loans with personal guarantees.
(2) In the second quarter of 1999 the Superintendency of Banking changed
the classifications for commercial loans, modifying the ranges to
assign the classification based on the loan maturity as follows:
Category "B," current maturity 30-90 days, previous maturity 30-60
days;
Category "C," current maturity 91-180 days, previous maturity 61-120
days;
Category "D," current maturity 120-360 days, previous maturity
181-360 days;
For categories "A" and "E", ranges did not suffer any modification.
E.4. SUMMARY OF LOAN LOSS EXPERIENCE
ALLOWANCE FOR LOAN LOSSES
The Bank complies with Colombian regulations regarding
allowances for loan losses by setting aside specific allowances on past-due
performing and non-performing loans based on the length of time such loans have
been past due. The Superintendency of Banking, through External Circular 044 of
July 23, 1999, tightened loan allowance rules for Colombian banks. In addition,
banks started to accumulate a general allowance, which should amount to 1% of
the total loans of a bank within three years starting July 31, 1999. The current
regulations contained in External Circular No. 070 dated October 5, 2000
ratified this general 1% provision and eliminated the risk coefficient and the
obligation to make additional provision for this item. The regulations of the
Superintendency of Banking required the Bank to review commercial loans every
six months, and consumer and mortgage loans at least monthly. The new regulation
contained in External Circular 011 of March, 2002, requires that all debtors
whose indebtedness for the different categories of credit exceeds 300 SMLV (Ps
99,6 million for 2003), be evaluated twice a year. Additionally, the regulation
requires that all loans be evaluated every month on their past-due days basis.
The Bank establishes its loan allowances by classifying its
loan portfolio according to the loan classification system determined by the
Superintendency of Banking and by applying to each such classification the
applicable allowance percentage formula, also as specified by the
Superintendency of Banking. The Bank believes that its application of the loan
classification system and allowance formula results in the establishment of
allowances that are reasonable and adequate for the credit risk associated with
BC's loan portfolio. Every six months, the Bank evaluates all debtors whose
indebtedness for the various credit facilities exceeds 300 SMLV (Ps 99,6
million); additionally, these credits, and those which do not meet this
condition, are evaluated monthly based on the days they are past due. In
addition, the Bank's loan policy division performs an ongoing review of the loan
portfolio from time to time to adjust its allowances for loan losses as
necessary.
Guidelines for the establishment of the allowance for loan
losses by Colombian credit institutions, including commercial banks, are set by
the Superintendency of Banking.
The following table shows the allowance for loan losses
required to be taken, expressed as a percentage of the value of the loan to the
extent not covered by collateral (including principal, interest and commissions
and fees) for commercial, small business, consumer and mortgage loans classified
as
72
follows:
"A" "B" "C" "D" "E"
- - - - -
0% 1% 20% 50% 100%
The Bank allocates the allowance for loan losses on the basis
of whether the loans are secured and, among those secured loans, whether such
security is collateralized or personal guaranteed. The largest amount of
allowances is allocated to consumer, commercial and small business loans that
are secured by personal guarantees or unsecured. The allowance for loan losses
is calculated including the value of the underlying security. External Circular
011 of March, 2002, issued by the Superintendency of Banking, establishes that
for allowances on loans, the security that guarantees the loan will only support
the principal of the loan. Consequently, allowances are calculated in accordance
with the loan classification system's percentage, which is applied to the
difference between the amount outstanding and 70% of the value of the security
supporting the loan. In addition, for establishing provisions, the percentages
of the total amount of such guarantee must be taken into consideration, as
follows:
For mortgage-backed guarantees:
TIME ELAPSED BETWEEN THE DATE OF DEFAULT AND THE DATE OF
NON-REALIZATION OF THE GUARANTEE PERCENTAGE
-------------------------------------------------------- ----------
0 To 18 Months 70%
Over 18 Up To 24 Months 50%
Over 24 Up To 30 Months 30%
Over 30 Up To 36 Months 15%
Over 36 Months 0%
For guarantees not backed by mortgages:
TIME ELAPSED BETWEEN THE DATE OF DEFAULT AND THE DATE OF
NON-REALIZATION OF THE GUARANTEE PERCENTAGE
-------------------------------------------------------- ----------
0 to 12 Months 70%
Over 12 Up to 24 Months 50%
Over 24 Months 0%
There are special requirements for the allowance needed for
loan losses in respect of loans of borrowers involved in proceedings with their
creditors. The Bank may make additional allowances not required by the
regulations of the Superintendency of Banking when, in its judgment, an
additional allowance is guaranteed for restructured loans with wide maturities
secured by guaranties that could prove difficult to be sold. Through the office
of the Bank's Vice President for Risk Management, the Bank undertakes a monthly
review of its past due and non-performing loan portfolio.
The following table sets forth the activity in the allowance
for loan losses:
73
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 2000 2001 2002 2003
----------- ----------- ---------- ----------- -----------
(Ps million)
Balance at beginning of period................ Ps 182,292 Ps 295,016 Ps 285,565 Ps 271,729 Ps 332,324
Balance at beginning of period
(Sufinanciamiento).......................... - - - - 11,854
Provisions for loan losses (1)................ 180,711 264,756 86,793 143,361 286,170
Effect of revaluing to constant pesos (3)..... (15,403) (19,008) - - -
Effect of difference in exchange interest
rate (4).................................... - - - 10,366 (284)
Charge-offs................................... (51,113) (148,056) (83,586) (71,592) (112,393)
Recovering from previous fiscal years......... (1,471) (107,143) (17,043) (21,540) (130,408)
----------- ----------- ---------- ----------- -----------
BALANCE AT END OF PERIOD (2).............. Ps 295,016 Ps 285,565 Ps 271,729 Ps 332,324 Ps 387,263
=========== =========== ========== =========== ===========
(1) The provision for past due accrued interest receivable, which is not
included in this item, amounted to Ps 48,507 million, Ps 20,178
million, Ps 4,965, Ps 4,518 and Ps 5,798 million for the years ended
December 31, 1999, 2000, 2001, 2002 and 2003 respectively.
(2) The allowance for past due accrued interest receivable, which is not
included in this item, amounted to Ps 66,939 million, Ps 30,771
million, Ps 27,011 million, Ps 15,074 and Ps 5,170 million for the
years ended December 31, 1999, 2000, 2001, 2002 and 2003 respectively.
(3) Inflation adjustment was eliminated starting on January 1, 2001. See
Note 2(b) to the Financial Statements.
(4) For years 1999, 2000 and 2001, the effect of difference in exchange
interest rate was included as a part of recoveries.
The following table shows the allocation of the Bank's
allowance for loan losses by type of loan using the classification of the
Superintendency of Banking:
AS OF DECEMBER 31,
---------------------------------------------------------------------
1999 2000 2001 2002 2003
----------- ----------- ------------ ---------- ----------
(Ps million)
Commercial Loans.............................. Ps 210,695 Ps 212,428 Ps 178,471 Ps 243,835 Ps 276,285
Consumer Loans................................ 70,296 46,537 46,723 22,668 27,429
Small business loans.......................... - - - 1,260 2,082
Mortgages..................................... 843 1,667 1,116 849 440
General(1).................................... 13,182 24,933 45,419 63,712 81,027
----------- ----------- ------------ ---------- ----------
TOTAL ALLOWANCE FOR LOAN LOSSES........... Ps 295,016 Ps 285,565 Ps 271,729 Ps 332,324 Ps 387,263
=========== =========== ============ ========== ==========
------------------
(1) This is a provision established in 1999 by Circular 044 issued by the
Superintendency of Banking.
The following table shows the allocation of the Bank's
allowance for loan losses by type of loan:
AS OF DECEMBER 31,
--------------------------------------------------------------------------------------------------
1999 % 2000 % 2001 % 2002 % 2003 %
--------- ---- --------- --- ------- --- --------- ---- ------- -------
(Ps million, except percentages)
CORPORATE
Trade financing.......... Ps 1,402 0.5% Ps 1,413 0.5% Ps 491 0.2% Ps 3,073 0.9% Ps 217 0.1%
Loans funded by domestic
development banks..... 5,598 1.9 1,972 0.7 845 0.3 812 0.2 57,745 14.9
Working capital loans.... 143,419 48.6 180,470 63.2 177,135 65.2 212,108 63.8 202,403 52.3
Credit cards............. 57 0.0 46 0.0 - 0.0 107 0.0 34 0.0
Overdrafts............... 2,158 0.7 923 0.3 - 0.0 1,313 0.4 370 0.1
Other.................... - 0.0 - 0.0 - 0.0 - 0.0 - 0.0
--------- ---- --------- ---- --------- ---- --------- ---- --------- ----
Total corporate....... 152,634 51.7 184,824 64.7 178,471 65.7 217,413 65.3 260,769 67.4
RETAIL (1)
Credit cards............. 12,978 4.4 8,039 2.8 5,823 2.1 9,568 2.9 6,452 1.7
Personal loans........... 26,996 9.2 14,316 5.0 5,947 2.2 9,816 3.0 15,687 4.1
Vehicle loans............ 1,832 0.6 741 0.3 99 0.0 77 0.0 8,550 2.2
Overdrafts............... 6,615 2.2 3,332 1.2 2,727 1.0 3,318 1.0 1,908 0.5
Loans funded by domestic
development banks..... 2,468 0.8 847 0.3 851 0.3 1,507 0.5 642 0.2
Trade financing.......... 1,774 0.6 734 0.3 349 0.1 792 0.2 119 0.0
Working capital loans.... 75,694 25.7 46,132 16.1 30,927 11.3 25,272 7.6 11,669 2.9
--------- ---- --------- ---- --------- ---- --------- ---- --------- ----
Total retail.......... 128,357 43.5 74,141 26.0 46,723 17.2 50,350 15.2 45,027 11.6
--------- ---- --------- ---- --------- ---- --------- ---- --------- ----
74
AS OF DECEMBER 31,
---------------------------------------------------------------------------------------------------
1999 % 2000 % 2001 % 2002 % 2003 %
---------- ----- ---------- ----- ---------- ----- ---------- ----- ------- ------
(Ps million, except percentages)
MORTGAGE................. 843 0.3 1,667 0.6 1,116 0.4 849 0.3 440 0.1
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
GENERAL(2)............... 13,182 4.5 24,933 8.7 45,419 16.7 63,712 19.2 81,027 20.9
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
TOTAL ALLOWANCE FOR LOAN
LOSSES Ps 295,016 100.0% Ps 285,565 100.0% Ps 271,729 100.0% Ps 332,324 100.0% Ps 387,263 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
(1) Includes allowances for loans to high-income individuals and s ll
companies.
(2) This is a provision established in 1999 by Circular 044 issued by the
Superintendency of Banking.
As of December 31, 2003, the allowance for loan losses
increased 16.5% to Ps 387,263 million from Ps 332,324 million at December 31,
2002, due primarily to an increase in general allowances and loans funded by
domestic development banks. As of December 31, 2002, the allowance for loan
losses increased 22.29% compared to December 31, 2001 due primarily to an
increase in general allowance.
NEW PROVISION SYSTEM (OR CREDIT RISK MANAGEMENT SYSTEM - "SARC")
Through External Circular 011 of March 05, 2002, which
modifies Chapter II of External Circular 100 of 1995 (Basic and Accounting
Circular), regarding management of credit risk, the Superintendency of Banking
requires entities subject to its supervision to develop a system for the
management credit risk ("Sistema de Administracion de Riesgo Crediticio" -
"SARC"). As a consequence, the Bank must establish strategies, policies,
methodologies, processes and structures to evaluate, rate, monitor, and control
its credit risks.
The Superintendency of Banking has provided general guidelines
and deadlines for the development and implementation of SARC, and the Bank has
complied with those guidelines and deadlines subject to the requirements set
forth in Circular Letter of March 5, 2002, as show in the table below:
PHASE DESCRIPTION MAXIMUM DEADLINE
----- ------------------------------------------------------------------------- ----------------
Preparation and submission of the document supporting the development of
the SARC to the Superintendency of Banking, taking into account risk
management polices, adequate organizational structure, appropriate
methodologies and processes for risk management, suitable infrastructure June 28 of 2002
I and human resources, as well as a general auditing process.
Additionally, significant advances shall be provided regarding
reconstruction of historical information necessary for the implementation
of the SARC by the Bank.
------------------------------------------------------------------------------------------------------
Conclusion of the process of reconstruction of historical information and
II the information and/or computer programs which will assure adequate December 31 of
assessment and management of credit risk. 2002
75
PHASE DESCRIPTION MAXIMUM DEADLINE
----- ------------------------------------------------------------------------- ----------------
During this phase, the entity shall begin estimating expected losses by
applying the methodology defined for such purpose. The foregoing, in
order to calibrate any relevant variables which guarantee the results of December 31 of
the methodology. 2003
III
The Superintendency of Banking extended the SARC phase III due date
through the External Circular 030 of June 2003. The regulator required the
banks to have SARC working as a parallel provision system during 2004, in
order for them to test its correct operation. The SARC provisions will be December 31 of
calculated and applied to the accounting system as of January 1st, 2005. 2004
SARC requires that the entities under the supervision of the
Superintendency of Banking permanently evaluate the credit risk and the paying
capacity of each debtor, and to this end, they must internally define a
methodology which will take into account at least the following:
- Probability of impairment or change in the rating of credit
risk (probability of non-payment or expected delay in payment
rate);
- Estimate or quantification of the expected loss that may be
incurred by the entity, should the foregoing event occur,
during a determined lapse of time (e.g., 12 months). For this
estimate, it is important, among other things, to compute the
value or rate of recovery of the active value, in the event
that the credit would become unrecoverable. The existence and
suitability of the collateral that supports the credits are an
important factor that should be taken into account in the
context.
The allowances for credits must be based on the estimate of
the expected losses, and minimum levels of allowances must be maintained in
accordance with current provision. A general allowance of 1% on the total gross
portfolio is maintained.
For the estimate of expected losses and allowance, the Bank
has to follow guidelines established by the methodological documents published
by the Basel Internal Rating Approach. This model is based on three fundamental
factors which must be estimated to compute the expected loss for each business
line being analyzed:
EXPECTED LOSS = PD X EAD X LGD
Where:
PD: Probability of default
EAD: Exposure at the time of default
LGD: Loss if default occurs
The Bank has adequately fulfilled each one of the phases
established by the Superintendency of Banking and, through December 31, 2003,
has initiated a parallel calculation of the expected losses and provision
according to the internal defined internal method.
76
CHARGE-OFFS
The following table shows the allocation of the Bank's
charge-offs by type of loan as of December 31, 1999, 2000, 2001, 2002 and 2003:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 2000 2001 2002 2003
----------- -------- ------------ ------------ -----------
(Ps million)
Trade financing..................................... Ps - Ps 54 Ps - Ps 24,470 Ps 546
Loans funded by domestic development banks.......... - - - - 1,760
Working capital loans............................... 15,734 111,652 49,460 36,022 72,298
Credit cards........................................ 4,592 20 - 517 10,035
Personal loans...................................... 24,246 16,366 17,338 9,140 19,475
Vehicle loans....................................... 1,089 2,377 506 35 1,419
Overdrafts.......................................... 5,332 13,563 13,902 1,086 6,394
Mortgage & other.................................... 120 4,024 2,380 322 466
----------- ----------- ------------ ------------- -----------
TOTAL CHARGE-OFFS.............................. Ps 51,113 Ps 148,056 Ps 83,586 Ps 71,592 Ps 112,393
=========== =========== ============ ============= ===========
The Bank has a policy of actively pursuing collection of
charged-off balances. In practice, the manager of the branch where the loan was
made and the attorney handling the collection process until a final judgment is
obtained. In addition, non-payment by the debtor is reported to the Banking
Association of Colombia credit risk center where the creditor's name and the
outstanding debt is registered. This credit risk center is consulted by every
Colombian financial institution, and any debtor listed in such registry will not
be extended credit until the defaulted loan has been paid.
Charge-offs are only made after the manager of the branch and
the attorney handling the case have exhausted all means to secure payment of the
judgment against any known assets of the borrower and the charge-off has been
approved by the Board of Directors. The Bank informs to the Superintendency of
Banking, on a quarterly basis, the amount of charge-offs. As of December 31,
2003, the Bank registered Ps 28,687 million in recoveries of charge-off loans in
previous periods.
CROSS - BORDER OUTSTANDING
As of December 31, 2003, total outstanding loans to borrowers
in foreign countries amounted to approximately US$162 million, of which US$93
million was investments and US$68 million was loans granted to banks and
corporate clients. As of December 31, 2003, total amounts outstanding loans to
borrowers in foreign countries represented 3.0% of total assets.
The following table presents information with respect to the
Bank's outstanding loans to borrowers in foreign countries for the year ended on
December 31, 2003:
2003
-----------------------
(U.S. thousand dollars)
Mexico US$ 52,249
Brazil 42,790
United States 29,000
Cayman Islands 11,712
Panama 7,552
Dominican Republic 4,696
Peru 3,403
El Salvador 3,000
Other Countries 7,816
-----------
TOTAL CROSS-BORDER OUTSTANDING US$ 162,218
===========
77
E.5. DEPOSITS
The following table shows the composition of the Bank's
deposits for 2001, 2002 and 2003:
AS OF DECEMBER 31,
------------------------------------------------
2001 2002 2003
------------- ------------ -------------
(Ps million)
NON-INTEREST BEARING DEPOSITS:
Checking accounts............................................. Ps 1,709,575 Ps 1,876,026 Ps 2,193,069
Other deposits................................................ 66,693 94,573 126,718
------------- ------------ -------------
Total..................................................... 1,776,268 1,970,599 2,319,787
------------- ------------ -------------
INTEREST BEARING DEPOSITS:
Checking accounts............................................. 608,087 815,367 1,353,123
Time deposits................................................. 3,426,629 3,603,466 4,237,345
Savings deposits.............................................. 1,769,864 2,398,726 2,321,742
------------- ------------ -------------
Total..................................................... 5,804,580 6,817,559 7,912,210
------------- ------------ -------------
TOTAL DEPOSITS............................................ Ps 7,580,848 Ps 8,788,158 Ps 10,231,997
============= ============ =============
The following table shows the time deposits held by the Bank
at December 31, 2003, by amount and maturity for deposits:
AT DECEMBER 31, 2003
------------------------------------------------
PESOS DOLLARS TOTAL
------------- ------------ -------------
(Ps million)
Up to 3 months (1)............................................ Ps 568,413 Ps 683,773 Ps 1,252,186
From 3 to 6 months (1)........................................ 258,105 311,081 569,186
From 6 to 12 months (1)....................................... 207,193 352,083 559,276
More than 12 months (1)....................................... 473,800 105,999 579,799
Time deposits less than Ps 280,7 million (2).................. 924,734 352,164 1,276,898
------------- ------------ -------------
TOTAL..................................................... Ps 2,432,245 Ps 1,805,100 Ps 4,237,345
============= ============ =============
-------------------
(1) Time deposits higher than Ps 280,7 million (the equivalent of
US$100,000 at the Representative Market Rate as of December 31, 2003).
(2) The equivalent of US$100,000 at the Representative Market Rate as of
December 31, 2003.
For a description of the average amount and the average rate
paid of deposits, see Item 4. E.1.Distribution of assets, liabilities and
stockholders' equity; interest rates and interest differential.
E.6. RETURN ON EQUITY AND ASSETS
The following table presents certain selected financial ratios
of the Bank for the periods indicated:
FOR THE FISCAL YEAR
ENDED DECEMBER 31,
------------------------------------
2001 2002 2003
----- ----- ------
(in percentages)
Net income as a percentage of:
Average total assets...................................... 1.65 1.88 3.40
Average shareholders' equity.............................. 14.58 20.42 31.14
Dividends declared per share as a percentage of
net income per share(1)................................... 31.00 36.18 33.42
Average shareholders' equity as a percentage of
average total assets...................................... 11.34 9.22 10.92
Return on interest-earning assets(2)........................ 11.7 8.0 12.2
(1) Dividends are paid based on unconsolidated earnings. Net income per
share is calculated using the average number of Common Shares
outstanding during the year.
(2) Defined as total interest earned divided by average interest-earning
assets.
78
E.7. INTERBANK BORROWINGS
The following table sets forth the Bank's interbank borrowings by the
Bank for the periods indicated:
AS OF DECEMBER 31,
---------------------------------------------------------------------------
2001 2002 2003
-------------------------- ----------------------- ---------------------
AMOUNT RATE(1) AMOUNT RATE(1) AMOUNT RATE(1)
------------ ------- ----------- ------- ------------ -------
(Ps million, except percentages)
End of period........................ Ps 399,595 2.88% Ps 403,962 2.44% Ps 456,059 1,24%
Weighted average during period....... 472,975 4.30% 505,832 1.86% 317,258 1,67%
Maximum amount of borrowing at any
month-end.......................... (2)474,653 (3)594,810 (4)477,975
Interest paid during the year........ 20,160 9,404 5,293
--------------------
(1) At the end of the year, the Bank typically increases its
dollar-denominated interbank borrowings, which represent the great
majority of interbank borrowings and which have lower interest rates.
(2) March.
(3) September.
(4) November.
ITEM 2. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
During 2003, BC's main drivers of income growth were the expansion of
its loan portfolio, its increasingly profitable investment securities portfolio,
and the 7.2% nominal interest rate spread between its interest-earning assets
and its interest-bearing liabilities.
The Bank's loan portfolio grew 29.6% during 2003, resulting in a 26.5%
increase of interest income from the loan portfolio despite a slight decline in
the average nominal rate of return for the portfolio, from 13.4% to 13.1%. In
addition, the investment securities portfolio grew by 13.3% from 2002 to 2003,
with its overall rate of return increasing by 11.8% on the year.
With regard to expenses, the Central Bank's policy of reducing interest
rates and maintaining monetary stability allowed BC to restrain the growth of
aggregate interest expenses even as the volume of time deposits and savings
accounts rose. The average volume of time deposits increased by 18.8% during
2003, and the average volume of savings deposits rose 19%. Over the same period,
however, the Bank's aggregate interest expense increased only 3.1%, largely due
to a decline in the nominal rate of return for time deposits, from 7.3% to 5.9%,
and for savings deposits, from 4.9% to 4.4%.
By expanding its volume of time deposits and savings accounts, the Bank
accessed funding with which to expand both the loan portfolio and the investment
securities portfolio. The Bank has also taken advantage of the spread between
lower short-term interest rates on time deposits and savings accounts and higher
longer-term interest rates on its interest-earning assets. This funding
structure, which assumes a mismatch between the duration of the Bank's
interest-bearing liabilities and the duration of its interest-bearing assets, is
one of the most significant drivers of the Bank's profitability and, at the same
time, one of the most significant risks borne by the Bank (See Item 3.D.2.ii
"Concentration and Reliance on Short-term Deposits May Increase BC's Funding
Costs" and Item 11, "Quantitative and
79
Qualitative Disclosures About Market Risk"). BC's management believes that its
current strategy, however, is sustainable in the medium term, given the
expectation that the Colombian economy will experience continued growth, and
that the Central Bank will maintain its policies of monetary stability into
2004-05. BC's management also believes it has sufficient access to funding to
cover its short-term liabilities as necessary.
A.1. GENERAL DISCUSION OF THE CHANGES IN RESULTS
RESULTS FROM OPERATIONS
BC's net income for 2003 totaled Ps 469,384 million, an
increase of 123.1% from Ps 210,380 million in 2002. The main factors influencing
this growth are the following:
- Income from investments was a determining factor, with income
from interest totaling Ps 1,400,255 million at December 31,
2003, an increase of 89.7% from 2002.
- As a result of greater market liquidity, interest expense
increased only 3.1% from 2002 to 2003, allowing net interest
income to reach Ps 919,742 million at December 31, 2003. This
represents an increase of 238.2% from 2002, when net interest
income was Ps 271,961 million.
- Operating expenses totaled Ps 869,350 million at December 31,
2003, an increase of 15% from Ps 755,801 million in 2002.
However, if non-recurrent expenses due to the amortization of
goodwill and expenses related to the merger with Banco de
Colombia S.A. are excluded, the increase would have been
12.1%.
BC's net income for 2002 amounted to Ps 210,380 million, a
34.4% increase compared to the net income of Ps 156,533 million in 2001. This
increase was mainly explained by the decreasing growth rate of the Bank's
operating expenses and by the reduction of expenses related to the merger with
Banco de Colombia S.A. Operating expenses increased 10.4% in 2002 compared to
14.2% in 2001, and expenses related to the merger were Ps 33,028 million in
2002, Ps 9,179 million lower than in 2001. Although the net interest income
decreased 22.9% in 2002 compared to 2001, other operating income increased 33.7%
for 2001 to 2002.
YEAR ENDED DECEMBER 31,
------------------------------------------------
2001 2002 2003
------------ ----------- -----------
(Ps million)
NET INCOME:
Net interest income................................ Ps 352,683 Ps 271,961 Ps 919,742
Provision for loan and accrued interest losses..... (73,953) (115,154) (162,058)
Provision for foreclosed assets and other assets... (63,537) (71,212) (68,892)
Other operating income............................. 620,188 828,977 674,647
Non-operating income............................... 51,000 79,787 37,600
Operating expenses................................. (696,963) (755,801) (869,350)
Income before taxes................................ 189,418 238,558 531,689
Minority interest.................................. (1,310) 14,440 330
Income tax......................................... (31,575) (42,618) (62,635)
------------ ----------- -----------
NET INCOME................................... Ps 156,533 Ps 210,380 Ps 469,384
============ =========== ===========
80
INTEREST INCOME
During 2003, interest income rose to Ps 1,400,255 million. The
main drivers of this growth were the loan portfolio and the debt securities
portfolio.
The average loan portfolio grew from Ps 5,401,872 million in
2002 to Ps 7,012,079 million in 2003, an increase of 29.8%, reflecting the
expansion of and increased confidence in the Colombian economy. Although the
average rate of return for the loan portfolio remained relatively stable,
decreasing from 13.4% in 2002 to 13.1% in 2003, interest income from the loan
portfolio increased 26.5% in the same period.
The volume average of investment securities grew 13.3% from
2002 to 2003. However, the rate of return increased 11.8%, rising from Ps 247
million at December 31, 2002, to Ps 476,720 million at December 31, 2003. These
numbers, however, also reflect new regulations issued by the Superintendency of
Banking and effective as of September 1, 2002. See note 2(g) to the Financial
Statements.
Due to the reduction of interest rates and despite a 5.4%
growth in average loans, interest income from loans dropped 10.5% in 2002 as
compared to 2001. Interest income from overnight funds and investment securities
also decreased, although gains from the sale of investment securities, reflected
in our Financial Statements under "other operating income", increased 133.2% in
2002.
INTEREST EXPENSE
Interest expense rose from Ps 466,223 million at December 31,
2002, to Ps 480,513 million at December 31, 2003, an increase of 3.1%. This
increase resulted from a decrease in the nominal rates of return for time
deposits, which fell from 7.3% in 2002 to 5.9% in 2003, and for savings
deposits, which fell from 4.9% in 2002 to 4.4% in 2003. However, the average
volume of time deposits rose 18.8% in 2003, and the volume of savings deposits
rose 19%. These increases reflect efforts made by the commercial areas of BC to
attract additional low-cost deposits, as well as a general decrease in Colombian
market rates due to high liquidity.
BC's interest expenses dropped 11.9% between 2001 and 2002,
from Ps 529,074 million in 2001 to Ps 466,223 million in 2002. This decrease is
explained by a substantial decline in average nominal interest rates for
interest-bearing liabilities from 8.2% in 2001 to 5.9% in 2002 (due to market
rates), with the average volume of interest-bearing liabilities increasing
21.7%.
NET INTEREST INCOME
BC's net interest income at December 31, 2003, totaled Ps
919,742 million, an increase of 238.2% from Ps 271,961 million in 2002. This
increase resulted in part from BC's efforts to improve the funding mix through
an increase in low-cost deposits and an increase in interest-earnings assets.
The nominal rate of return for interest-earning assets rose from 8.0% in 2002 to
12.2% in 2003. The nominal rate of return for interest-bearing liabilities
registered a decrease of 0.9%, registering 5.0% at December 31, 2003, compared
to 5.9% for 2002.
81
AVERAGE NOMINAL INTEREST RATE
1999 - 2003
[LINE GRAPH]
1999 2000 2001 2002 2003
20.2% 14.2% 11.7% 8.0% 12.2%
13.2% 8.6% 8.2% 5.9% 5.0%
BC's net interest income, decreased 22.9% during 2002, from Ps
352,683 million for 2001 to Ps 271,961 million for 2002. This decrease was
mainly the result of an overall reduction of interest rates, which determined a
16.3% decrease of interest income, without a correlative offsetting reduction of
interest expense, which dropped only 11.9%. While the average yield on
interest-earnings assets dropped 370 basis points, from 11.7% in 2001 to 8.0% in
2002, the average cost on interest-bearing liabilities dropped only 200 basis
points, from 7.0% in 2001 to 5.0% in 2002. The combination of these two factors
determined a reduction of the net interest margin from 4.7% for the year 2001 to
3.0% for 2002, which was not offset by the balance's dynamics, despite a 22.7%
increase in total average interest-earning assets.
The following table shows components of the Bank's
consolidated net interest income before provisions for loan and accrued interest
losses:
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2001 2002 2003
----------------- ----------- -------------
(Ps million, except percentages)
INTEREST INCOME:
Loans............................................... Ps 811,446 Ps 726,112 Ps 918,772
Investment securities............................... 48,658 247 476,720
Overnight funds..................................... 21,653 11,825 4,763
----------------- ----------- -------------
TOTAL INTEREST INCOME........................... 881,757 738,184 1,400,255
INTEREST EXPENSE:
Time deposits and checking accounts................. 326,339 273,253 261,533
Savings deposits.................................... 113,156 106,825 113,968
Borrowings from domestic development banks.......... 40,722 49,317 58,456
Interbank borrowings................................ 20,160 9,404 5,293
Amortized premium on investments.................... 27,120 26,645 38,423
Long-term debt...................................... 1,577 779 2,840
----------------- ----------- -------------
TOTAL INTEREST EXPENSE.......................... 529,074 466,223 480,513
NET INTEREST INCOME............................. Ps 352,683 Ps 271,961 Ps 919,742
================= =========== =============
Average nominal interest rates on loans............. 15.8% 13.4% 13.1%
Average nominal interest rates on time deposits..... 10.2% 7.3% 5.9%
Average nominal interest rates on savings deposits.. 6.6% 4.9% 4.4%
82
PROVISIONS FOR LOAN AND ACCRUED INTEREST LOSSES
Provisions for loan portfolio and accrued interest losses in
2003 totaled Ps 162,058 million, a 40.7% increase from Ps 115,154 million in
2002. This increase resulted mostly from the growth in the average volume of the
loan portfolio, from Ps 5,576,636 million in 2002 to Ps 6,856,595 million in
2003, an increase of 23%.
The Bank's provisions for loan and accrued interest losses,
net of recoveries, increased 55.71%, from Ps 73,953 million in 2001 to Ps
115,154 million in 2002. This increase was a result of higher general
provisions.
As of December 31, 2003, 63.7% of the Bank's overdue loans
were non-performing. Allowances for loan and accrued interest losses, as a
percentage of the non-performing loans, were 515.13% in 2003, and 316.80% in
2002 mainly due to an increase in general provisions and improvement in the
financial situations of our clients.
The allowances for loan losses under U.S. GAAP differ from
those under Colombian GAAP. Under Colombian GAAP, an allowance for loan losses
is created for each individual loan based on the risk classification system
established by the Superintendency of Banking. Additionally, the Superintendency
of Banking requires a general allowance of 1% of the total loans. This general
reserve, not tied to any specific loans, is established to absorb losses
inherent in the existing loan portfolio in future periods. Under U.S. GAAP, FASB
Statement No. 114 established an individual test for impaired loans. This is
measured based on the present value of expected future cash flows, market price
or fair value of collateral, if the loan is collateral dependent. As of December
31, 2001, 2002 and 2003, the allowances for loan losses existing under Colombian
GAAP were Ps 271,729 million, Ps 332,324 million and Ps 387,263 million,
respectively, and the allowances that would have been required under U.S. GAAP
were Ps 223,227 million, Ps 339,612 million and Ps 354,322 million,
respectively.
OTHER OPERATING INCOME
BC's other operating income consists largely of fees and
service charges. Fees include credit card merchant fees, credit and debit card
annual fees, checking fees, warehouse and logistic services fees, commissions
and fees from fiduciary activities and letters of credit. Service charges
consist primarily of money transfer fees, remittances, bank acceptances and
automated services. Fees and service charges increased from Ps 292,308 million
at December 31, 2002, to Ps 333,025 million at December 31, 2003, an increase of
15%. This increase resulted in part from the incorporation of new financial
services into the BC portfolio and our customers' increasing use of electronic
channels. At December 31, 2003, 78% of the Bank (unconsolidated) transactions
were effected through distribution channels different from the branches.
Foreign exchange operations (including income from forward
contracts), another component of operating income, also yielded gains in 2003,
rising from Ps 30,759 million at December 31, 2002, to Ps 49,751 million at
December 31, 2003, an increase of 61.7%.
Income from dividends grew from 19,491 in 2002 to Ps 30,734
million in 2003, a 57.7% increase. This dividend income resulted mainly from
BC's investments in Conavi S.A., Corfinsura S.A. and Proteccion S.A.,
non-affiliate companies.
Income from leasing operations increased 50% in 2003, from Ps
39,596 million at December 31, 2002, to Ps 58,774 million at December 31, 2003.
We expect leasing operations to
83
continue to grow due to recent tax reforms (Law 863 of December 29, 2003) that
provide an Incentive for Colombian companies to enter into leasing contracts. BC
affiliates Bancolombia (Panama) S.A. and Leasing Colombia provides lease
financing to commercial customers, while Sufinanciamiento provides lease
financing to consumers.
Commercial subsidiaries also provide revenue from the
production and commercialization of agro-chemical fertilizers, load
transportation, and royalties stemming from mining operations. Revenue from
these operations totaled Ps 76,446 million at December 31, 2003, a 45% increase
from Ps 52,759 million at December 31, 2002. Growth in the Colombian economy,
which was 3.64% for 2003, directly influenced the results of these companies.
The total of other net operating income increased 33.7%, from
Ps 620,188 million in 2001 to Ps 828,977 million in 2002. This growth resulted
primarily from a 133.2% increase in net gains from the sales of investments,
which totaled Ps 212,910 million and became the largest non-operating income
component in the Financial Statements for 2002. Net income from fees and service
charges increased 10.1%, from Ps 265,382 million in the year 2001 to Ps 292,308
million in 2002, and net income from foreign exchange transactions increased by
358.9%, from Ps 20,345 million in 2001 to Ps 93,371 million in 2002. In
contrast, forward contracts decreased from a net income of Ps 52,890 million in
2001 to a net loss of Ps 62,612 million in 2002.
The following table summarizes the components of the Bank's
other operating income for the last three fiscal years:
YEAR ENDED DECEMBER 31,
----------------------------------------
2001 2002 2003
----------- ----------- -----------
(Ps million)
OTHER OPERATING INCOME:
Fees and service charges, net................................ Ps 265,382 Ps 292,308 Ps 333,025
Foreign exchange gain (loss), net............................ 20,345 93,371 39,262
Dividend income (1).......................................... 2,665 19,491 30,734
Forward contracts............................................ 52,890 (62,612) 10,489
Financing leases............................................. 35,410 39,596 58,774
Revenues from commercial subsidiaries........................ 47,619 52,759 76,446
Gains on sales of investments, net........................... 159,883 372,793 75,540
Other........................................................ 35,994 21,271 50,377
----------- ----------- -----------
TOTAL OTHER OPERATING INCOME........................... Ps 620,188 Ps 828,977 Ps 674,647
=========== =========== ===========
------------------
(1) Income from dividends represents only the recognition of income from
unconsolidated subsidiaries under Colombian GAAP.
OTHER OPERATING EXPENSES
BC operating expenses increased nearly 15% in 2003, largely
due to the amortization of goodwill in connection with the acquisition of
Sufinanciamiento S.A. and increased investment in Fiducolombia, as well as
increases in salary and administrative and other expenses.
In 2003, BC and some of its subsidiaries amortized Ps 31,218
million of goodwill related to the acquisition of Sufinanciamiento S.A. BC also
amortized Ps 6,721 million of the goodwill derived from its increased investment
in Fiducolombia S.A.
Salary expenditures rose from Ps 286,307 million at December
31, 2002, to Ps 343,308 million at December 31, 2003. This increase resulted
largely from the complete amortization of the Bank's outstanding pension
liability, increases in salaries and the hiring of 420 contract employees during
2003.
84
BC's operating expenses increased 10.4% in 2002, from Ps
654,756 million in 2001 to Ps 722,773 million in 2002. Operating expenses for
2001 had increased 14.2% from 2000. This reduced increase in total operating
expenses resulted from administrative and other expenses and depreciation, which
together increased 7.5% between 2001 and 2002 as opposed to 17% between 2000 and
2001. The growth of salaries and employee benefits resulted from the hiring of
63 employees and a reduction in labor compensation of Ps 5,439 million in 2002
compared to 2001.
MERGER EXPENSES
BC completed its merger with Banco de Colombia S.A. on April
3, 1998. For fiscal year 2003, merger expenses totaled Ps 22,649 million,
resulting from the amortization of goodwill recorded in connection with that
merger. As of December 31, 2003, outstanding goodwill from the merger totaled Ps
96,254 million, which the Bank intends to amortize at Ps 22,649 million each
year for the next five years.
For fiscal year 2002, merger-related expenses totaled Ps
33,028 million, as a result of Ps 22,649 million for the amortization of
goodwill recorded in connection with the Merger; Ps 5,061 million in
amortization of severance payments for reduction of personnel; and Ps 5,318
million in amortization of general merger expenses.
The following table summarizes the principal components of
BC's operating expenses for the last three fiscal years:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2001 2002 2003
------------ ----------- ----------
(Ps million)
OPERATING EXPENSES:
Salaries and employee benefits.................................... Ps 250,456 Ps 286,307 Ps 343,308
Severance benefits................................................ 35,014 29,575 22,959
Administrative and other expenses................................. 333,321 362,495 403,462
Depreciation...................................................... 35,965 34,444 40,625
Losses on sales of loans, net..................................... - 9,952 -
Merger expenses................................................... 42,207 33,028 22,649
Goodwill amortization............................................. - - 36,347
------------ ----------- ----------
TOTAL OPERATING EXPENSES..................................... Ps 696,963 Ps 755,801 Ps 869,350
============ =========== ==========
NON-OPERATING INCOME (EXPENSES)
Non-operating income includes profits from the sale of
foreclosed assets, real estate, and other assets. For 2003, net non-operating
income totaled Ps 37,600 million, a decrease of 50% from Ps 79,787 million for
2002. This decrease is partially explained because a result of the improvement
in the Colombian economy, which allowed the quality of the Bank's loan portfolio
to improve and therefore it has received less foreclosed assets.
Net non-operating income increased 56.4% between 2001 and 2002
from Ps 51,000 million in 2001 to Ps 79,787 million in 2002. This increase is
due to a 38.5% increase in non-operating income, compared to a 17.5% increase in
non-operating expenses.
The following table summarizes the components of BC's
non-operating income and expenses for the last three fiscal years:
85
YEAR ENDED DECEMBER 31,
---------------------------------------------
2001 2002 2003
------------- ------------ --------------
(Ps million)
NON-OPERATING INCOME (EXPENSES):
Other income........................................... Ps 94,597 Ps 131,026 Ps 83,041
Other expenses......................................... (43,597) (51,239) (45,441)
------------- ------------ --------------
TOTAL NON-OPERATING INCOME (EXPENSES), NET..... Ps 51,000 Ps 79,787 Ps 37,600
============= ============ ==============
INCOME TAX EXPENSES
For 2003, BC's income tax expense totaled Ps 62,635 million,
an increase of 47% over Ps 42,618 million in 2002. This increase results
primarily from BC's higher taxable fiscal income and higher shareholders'
equity, which from the basis for computing Colombia's income tax and presumed
income tax, respectively.
Law 788 of 2002 established a surcharge tax that increased the
income tax rate for corporations from 35% to 38.5%. This surcharge tax, however,
did not apply to those corporations that had been accepted in the stability
regime established by the Colombian government. Bancolombia and Leasing Colombia
are covered by this regime for ten years beginning on January 2001.
Fiducolombia, Colcorp and Sufinanciamiento have requested to be covered by the
regime of tax stability, but a definite decision has not been given yet.
Pursuant the tax stability regime, Bancolombia and Leasing
Colombia agreed to be taxed at a total income tax rate of 37% beginning on
January 1, 2001 (2% higher than the prevailing income tax rate at that time), in
exchange for exemption from increases in the income tax rate and from any other
new taxes until December 31, 2010. As a result, these companies currently
benefit from a 37% income tax rate, rather than the 38.5% rate generally
applicable to other corporations.
BC's income tax expenses in 2002 amounted to Ps 42,618
million, a 35.0% increase compared to Ps 31,575 million for 2001. This Ps 11,043
million increase resulted primarily from BC's higher taxable fiscal income and
higher shareholders' equity, which are the basis for computing Colombia's income
tax and presumed income tax, respectively. It also resulted from a 200 basis
point increase in the income tax of Bancolombia, Leasing Colombia, Fiducolombia
and Colcorp pursuant to a new tax stability regime.
NET INCOME INFORMATION UNDER U.S. GAAP
The Financial Statements included elsewhere in this Annual
Report have been prepared in accordance with Colombian GAAP, which differs in
certain significant respects from U.S. GAAP. The principal differences between
U.S. and Colombian GAAP that affect net income include the methods of accounting
for income taxes, employee benefit plans, loan origination fees and costs,
business combinations and allowances for loan losses. For a summary of the most
significant adjustments required to calculate net income under U.S. GAAP, see
Note 30 to the Financial Statements.
86
A.2. IMPACT OF ECONOMIC, FISCAL AND MONETARY POLICIES OR POLITICAL FACTORS
IN BANCOLOMBIA'S RESULTS
Various macroeconomic factors affect the Bank's operations, including
the growth of the Colombian economy, the dynamic of the lending business, the
Central Bank's monetary policies, the level of domestic prices, the evolution of
the exchange rate, the character of fiscal policy, the behavior of external
markets and competition of other financial institutions.
In 2003 the Colombian economy and its financial system grew
dynamically, consolidating the economic recovery that began in the middle of
2002. In the fourth quarter of 2003, in annual terms, the economy grew 4.34%,
with the financial sector growing at close to 16%.
Economic changes significantly influence the financial sector; high
rates of economic growth produce better results for financial institutions
through such factors as increases in the number of loans and the collection of
commissions and decreases in loans that are past due or in default. In the late
1990s, Colombia's economic crisis had a negative effect on financial
institutions, resulting in higher reported losses. This led to a series of
measures, including capitalizations and reparations, to counteract the crisis.
By 2003, such measures, along with improvements in macroeconomic indicators,
permitted greater stability and consolidation in Colombia's financial sector.
Future prospects for the financial sector as a whole, and for
Bancolombia specifically, will depend on regulatory and legal changes, including
those that result from the globalization of financial services, privatizations,
and continued economic growth, which will depend in part on the conclusion of
government initiatives regarding tax and pension reform as well as other factors
listed in the following chart:
FAVORABLE FACTORS FOR THE COLOMBIAN ECONOMY UNFAVORABLE FACTORS FOR THE COLOMBIAN ECONOMY
- MID-TERM - MID-TERM
-------------------------------------------- ---------------------------------------------
- Policies supporting macroeconomic - Higher unemployment expectations due
stabilization to fiscal adjustments
- Achievements in security, improving - Reduction of proven oil reserves
confidence
- New taxes to cover fiscal debt
- Greater confidence in the economy
- Modification of income, company
- Growth of aggregated demand capital and financial transactions taxes
- Low current levels of financial services
as a percentage of GDP - New structural tax reforms, presented
in February 2004
- Lower interest rates
- Greater use of installed capacity
- Increased exports to the United States
- Foreign demand for coal, gas and
non-traditional products
- Expectations of recovery of sales to
Venezuela
There is no guarantee of sustained economic growth, and new fiscal
restrictions could result in a reduction in demand and slow the rate of economic
growth. Such events could negatively affect BC's results.
MONETARY POLICY MEASURES OF THE CENTRAL BANK
The Central Bank, has aided the country's economic recovery by
successfully restraining
87
interest rates. Nominal interest rates remain close to 7.8%, a rate that does
not cause monetary instability or inflationary pressures. We anticipate that, in
conformity with the Central Bank's monetary strategy, rates will remain stable,
preserving macroeconomic balance. Additionally, stable monetary policies have
permitted BC greater flexibility, with current interest rates producing
sufficient liquidity to reduce the cost of funding resources.
There is no guarantee that the current monetary policy will
continue, and in the event of higher interest rates BC's results could be
affected by the increasing of the cost of funding.
THE LEVEL OF DOMESTIC PRICES
The inflation rate remained low in 2003, closing the year at
6.49%, slightly above the Central Bank's target of 6%. We anticipate inflation
to remain close to this level in 2004. Low interest rates and low inflation
remain important to financial sector's results. Fluctuations in inflation could
affect loan portfolios, given their relationship to interest rates, and thus
affect BC's results.
EVOLUTION OF THE EXCHANGE RATE
The index of the real exchange rate remains above 135%, making
our products for export competitive. Exchange rate volatility could affect BC's
business conducted in U.S. dollars, which accounts for roughly 10% of the Banks
total assets.
Such exchange rate levels also strengthen trade under ATPDEA
(Andean Trade Promotion and Drug Eradication Act), promote the negotiation of
bilateral agreements and support Colombia's participation in AFTA (America's
Free Trade Agreement) in 2006. Nominal currency devaluations in the currencies
of countries that compete with Colombia in international markets threaten
Colombian exports. It is believed that controlling inflation will become
Colombia's greatest competitive strength.
THE CHARACTER OF FISCAL POLICY
One challenge for the Colombian economy in future years will
be financing the public sector budget. The public, non-financial sector deficit
was 3.6% of GDP in 2003, and it is projected, to be 2.8% of GDP in 2004. This
will be accompanied by a high level of debt, both internally and externally. As
of June 2003, the internal and external levels of debt was 25,4% and 25,2% of
GDP, respectively. With regard to internal debt, the Colombian financial system
has invested significantly in government treasury securities, holding 56% of
government treasury securities. The Bank is the largest holder of Colombian
public debt, with a market share of 24%. As a result, exposure to public sector
debt could affect the Colombian financial sector, including Bancolombia.
In order to manage the non-financial sector deficit the
government has put in place structural reforms. The government's prior tax
reform, effective as of January 1, 2004, included an increase in the tax on
financial movements, from 0.3% to 0.4%. This will likely have a negative effect
on the financial sector, increasing reliance on cash rather than credit,
increasing demand on cash resources for financial institutions, reducing the use
of electronic services at the Central Bank, and increasing the cost of deposits.
BC, however, is protected by a tax stability regime explained before that grants
an exemption from this increase in the tax on financial movements. See Item 5
Operating and Financial Review and Prospects - A. Operating Results -
A.1.General Discussion of the Changes in Results - Income Tax Expenses for more
information on the tax stability regime.
It is expected that in 2004, the government will propose a new
package of tax reforms. If these reforms increase taxes, they could affect
demand and limit future growth.
88
EXTERNAL MARKET BEHAVIOR
Foreign trade has provided the Colombian economy with an
opportunity for growth. Free trade agreements including ATPDEA, the Free Trade
Agreement with the United States currently being negotiated, and AFTA, which
enters into force in 2006, all facilitate the export of Colombian goods.
Support for the Colombian economy from multilateral lending
institutions, the IMF, IBRD and countries such as the United States have been
and will continue to be of great importance. Bancolombia may benefit from this
support and from the strength of Colombian exports by offering a range of
products that facilitate the export process.
In 2002, remittances of foreign currency by Colombians outside
the country surpassed income from the export of traditional products such as
coffee, approaching nearly US$2,770 million. In 2003, remittances are estimated
to have reached US$3,145 million. The Bank will be able to maintain and increase
its market participation in remittances, broadening channels for the receipt of
wired funds.
COMPETITION FROM OTHER FINANCIAL INSTITUTIONS
The Colombian financial market is highly competitive. In the
last decade, market deregulation, consumer growth, and the introduction of
international competitors led to a re-shaping of the Colombian banking system.
The Colombian financial system has experienced consolidation, which we believe
will continue in coming years. Consolidation will lead to the creation of larger
institutions, generating economies of scale. Such consolidation could also
affect BC's financial condition.
Although the conversion of savings and loan corporations to
commercial and savings banks has not yet generated strong competition through
deposits in checking accounts, we anticipate such competition will emerge in the
medium-term, potentially reducing BC's net interest margin through a higher cost
of deposits.
An increase in the competition and consolidation of the
industry could adversely affect our operations.
B. LIQUIDITY AND CAPITAL RESOURCES
B.1. LIQUIDITY AND FUNDING
The Central Bank establishes reserve requirements that
determine the minimum amount of liquidity for Colombian banks. In order to meet
its own working capital needs, to honor withdrawals of deposits, to make
payments upon maturity of liabilities, and to extend loans, we maintain a proper
balance between maturity distribution and diversity of funding sources.
Interest rate volatility and political uncertainty in the
Colombian f1inancial system have led investors to prefer short-term investments,
making medium and long-term financing harder to acquire. BC's deposit base is
short-term, but its stable nature has enabled the Bank to offer longer-term
loans with a wider margin. We believe that longer term funding will soon become
more available and will enable financial institutions to minimize liquidity
risks. We believe that our working capital is sufficient for present
requirements.
BC maintained a short-term negative gap during 2003 in terms
of maturities. However, we have various sources of liquidity, including
short-term and marketable investments, domestic interbank
89
credit lines, international commercial bank credit lines, interbank borrowing
and securities repurchase transactions, and access to funds from the Central
Bank, all of which have been used from time to time on a short-term basis.
Checking accounts and time deposits are our most important
sources of funding; other sources include savings deposits, interbank
borrowings, overnight funds, development fund borrowings and outstanding bank
acceptances.
The following chart shows checking and time deposits as a
percentage of BC's overall deposits for the years 2001, 2002 and 2003:
2001 2002 2003
---- ---- ----
Checking deposits 26.8% 25.4% 28.0%
Time Deposits 39.60% 34.0% 33.4%
BC relies primarily on short-term deposits for its funding but
manages its risk and maintains reserves with the intention, although not the
guarantee, that in the case of a sudden shortage of funds in the Colombian
banking system and money markets, BC will be able to maintain its levels of
funding while minimizing funding costs and avoiding liquidation of assets.
As part of the Bank's strategy to acquire longer-term
financing, on February 11, 2004, Bancolombia issued ordinary bonds totaling Ps
400 billion in the Colombian market. The bonds were offered in Colombia and are
registered with the Colombian Stock Exchange. The following table sets forth the
aggregate face value, term and interest rate of each series of bonds:
Series A 18 months: Ps 100 billion at DTF (interest rate) +
1.5%
Series B 24 months: Ps 51,260 million at DTF + 1.7%
Series C CPI (consumer price index) at 36 months: Ps 25
billion at CPI + 3.9%
Series C DTF at 36 months: Ps 75 billion at DTF + 2%
Series D CPI at 60 months: Ps 37,890 million at CPI + 4.7%
Series D DTF at 60 months: Ps 110,850 million at DTF + 2.35%
As a result of this offering, Bancolombia has improved its
liability structure by extending the duration of its liabilities. This provides
the Bank with greater liquidity to fund its long-term loans, reducing reliance
on short-term borrowings and thus reducing risk. The Bank may intend to continue
and increase the use of this type of funding in the future.
Cash flows for the Bank include net cash provided for
operating activities, net cash used in investing activities and net cash
provided by financing activities. The following table shows those flows for the
years ended December 31, 2001, 2002 and 2003:
PS MILLION 2001 2002 2003
--------------------- -------------- ------------ -------------
Operating Activities Ps 371,755 Ps 546,935 Ps 602,124
Investing activities (1,720,964) (2,315,976) (1,986,064)
Financing activities 1,342,436 1,906,651 1,979,312
90
In the event that the Bank has a liquidity shortfall, it might
be required to sell assets at a discount in order to increase liquidity. The
Bank manages this risk by analyzing the maturity of its assets and liabilities.
In addition, Management believes that the relative high volume and quality of
net liquid assets is sufficient to maintain the Bank's liquidity and its ability
to comply with its commitments when due. However, no assurance can be given
that, in the event of a liquidity shortfall, BC would not be required to sell
assets at a discount.
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------
% OF TOTAL % OF TOTAL % OF TOTAL
2001 FUNDING 2002 FUNDING 2003 FUNDING
------------- ---------- ------------- ---------- ------------- ----------
(Ps million, except percentages)
CHECKING DEPOSITS
Peso-denominated........................ Ps 1,805,085 20.9% Ps 2,083,931 19.7% Ps 2,536,169 20.0%
Dollar-denominated...................... 512,577 5.9% 607,462 5.7% 1,010,023 8.0%
------------- ----- ------------- ----- ------------- -----
Total................................. 2,317,662 26.8% 2,691,393 25.4% 3,546,192 28.0%
------------- ----- ------------- ----- ------------- -----
TIME DEPOSITS
Peso-denominated........................ 2,112,815 24.4% 1,959,190 18.5% 2,432,245 19.2%
Dollar-denominated...................... 1,313,814 15.2% 1,644,276 15.5% 1,805,100 14.2%
------------- ----- ------------- ----- ------------- -----
Total................................. 3,426,629 39.6% 3,603,466 34.0% 4,237,345 33.4%
------------- ----- ------------- ----- ------------- -----
SAVINGS DEPOSITS
Peso-denominated........................ 1,700,913 19.7% 2,294,374 21.6% 2,184,902 17.2%
Dollar-denominated...................... 68,951 0.8% 104,352 1.0% 136,840 1.1%
------------- ----- ------------- ----- ------------- -----
Total................................. 1,769,864 20.5% 2,398,726 22.6% 2,321,742 18.3%
------------- ----- ------------- ----- ------------- -----
OTHER DEPOSITS
Peso-denominated........................ 39,664 0.5% 64,581 0.6% 69,403 0.5%
Dollar-denominated...................... 27,029 0.3% 29,992 0.3% 57,315 0.5%
------------- ----- ------------- ----- ------------- -----
Total................................. 66,693 0.8% 94,573 0.9% 126,718 1.0%
------------- ----- ------------- ----- ------------- -----
INTERBANK BORROWINGS
Peso-denominated........................ - 0.0% - 0.0% - 0.0%
Dollar-denominated...................... 399,595 4.6% 403,962 3.8% 456,059 3.6%
------------- ----- ------------- ----- ------------- -----
Total................................. 399,595 4.6% 403,962 3.8% 456,059 3.6%
------------- ----- ------------- ----- ------------- -----
OVERNIGHT FUNDS
Peso-denominated........................ 202,994 2.3% 550,807 5.2% 1,118,139 8.8%
Dollar-denominated...................... - 0.0% 59,351 0.6% - 0.0%
------------- ----- ------------- ----- ------------- -----
TOTAL................................. 202,994 2.3% 610,158 5.8% 1,118,139 8.8%
------------- ----- ------------- ----- ------------- -----
DOMESTIC DEVELOPMENT BANK
BORROWINGS
Peso-denominated........................ 376,450 4.4% 673,654 6.3% 737,417 5.8%
Dollar-denominated...................... 54,609 0.6% 39,399 0.4% 18,119 0.2%
------------- ----- ------------- ----- ------------- -----
Total................................. 431,059 5.0% 713,053 6.7% 755,536 6.0%
------------- ----- ------------- ----- ------------- -----
BANK ACCEPTANCES OUTSTANDING
Peso-denominated........................ 8,185 0.1% 3,456 0.0% 8,304 0.1%
Dollar-denominated...................... 22,881 0.3% 27,594 0.3% 27,529 0.2%
------------- ----- ------------- ----- ------------- -----
Total................................. 31,066 0.4% 31,050 0.3% 35,833 0.3%
------------- ----- ------------- ----- ------------- -----
LONG TERM DEBT
Peso-denominated........................ 8,253 0.1% 62,782 0.6% 71,818 0.6%
Dollar-denominated...................... - 0.0% - 0.0% - 0.0%
------------- ----- ------------- ----- ------------- -----
Total.............................. 8,253 0.1% 62,782 0.6% 71,818 0.6%
------------- ----- ------------- ----- ------------- -----
TOTAL FUNDING
Peso-denominated........................ 6,254,359 72.2% 7,692,775 72.5% 9,158,397 72.2%
Dollar-denominated...................... 2,399,455 27.8% 2,916,388 27.5% 3,510,985 27.8%
------------- ----- ------------- ----- ------------- -----
Total................................. Ps 8,653,814 100.0% Ps 10,609,163 100.0% Ps 12,669,382 100.0%
============= ===== ============= ===== ============= =====
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B.2. FINANCIAL INSTRUMENTS AND TREASURY ACTIVITIES
The Treasury Division, through its currency desks, is able to make all
operations in local or foreign currency legally authorized in Colombia. These
include derivative operations, purchase and sale of fixed income securities, and
securities indexed to a rate or index, operations with agreements of repurchase
or resale, short sales, temporary securities transfers, simultaneous operations,
and operations on the foreign exchange market.
Among the Treasury Division's liquidity controls, is the daily
verification that the difference between the interbank asset funds and the
interbank liability funds does not exceed 7.5% of the sum of deposits, credits
from banks and other financial liabilities, and other obligations and
outstanding investment securities.
According to limits set by the Board of Directors, the sum of
repurchase commitments and interbank borrowings must not exceed 10% of the
Bank's total liabilities.
With regard to investments in local and foreign currency, the Division
must verify the availability of funds for investment as well as each
investment's compatibility with the Bank's liquidity structure before taking any
additional positions.
Investments in local and foreign currencies are kept in electronic
custody by local custody providers (Deposito Centralizado de Valores - Deceval).
Foreign securities are kept in the custody of Clearstream Bank.
The Treasury Division has to comply with investment limits which are
calculated as percentage of technical capital (TC) of the Bank according to the
following classification:
CONCEPT LIMIT %
---------------------------------------------------------------
Negotiable investments, local currency 180%
Available investments for sale, local currency 70%
Investments through due date, local currency 65%
Negotiable investments, foreign currency 50%
Investments available for sale, foreign currency 10%
Investments through due date, foreign currency 25%
The foreign currency portfolio is made up of fixed rate bonds issued by
the Republic of Colombia and denominated in U.S. dollars and in Euros, although
there is no exposure to these currencies as there are forward sale agreements at
terms of 180 and 360 days. Generally, the maximum maturity term of the
securities is 10 years, although there is a duration close to 2 years.
The local currency portfolio is divided into public debt, primarily
local treasury securities issued at a fixed rate or at a floating rate indexed
to inflation (TES UVR), and private debt, as all issues made by the financial
and public sectors are classified. Private debt securities are issued at a fixed
rate or at a floating rate indexed to DTF or CPI.
92
In the foreign subsidiaries, a fixed income investment portfolio is
held in dollars and comprises fixed rate investments and floating rate
investments, such as those indexed to the Libor rate. With regard to the
management of issuers, the foreign subsidiaries manage Latin American issuers
for which an individual credit study has been made according to the methodology
defined in the Bank's Treasury Division manuals. As at Bancolombia, portfolio
maturity must not be greater than 10 years, always maintaining a maximum
duration of three years.
The Bank's investment portfolio includes a credit derivatives portfolio
of structured notes, that the Bank acquired to take advantage of market
opportunities when a default swap has traded above its credit reference bonds.
The Bank has also been offering structured notes in order to provide protection
for those investors who are exposed to Colombian sovereign debt. As a result,
BC's exposure to Colombia's sovereign debt has increased.
Additionally, the Bank trades foreign exchange forward agreements with
two main purposes:
- To protect against foreign exchange rate volatility in its foreign
exchange position (cash and investment portfolio).
- As a speculative position through which, by selling and buying forward
agreements, the Bank takes advantage of market opportunities.
For each foreign exchange forward operation, the Bank has set volume
caps per operation for each trader, as well as credit caps for issuers and
limits for counterparties.
B.3. COMMITMENT FOR CAPITAL EXPENDITURES
See Item 4. Business Overview - Capital Expenditures and Divestitures.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
BC is not dependent on research and development of patents or licenses.
D. TREND INFORMATION
During 2004, the Colombian economy continues to show the strong
dynamism that it displayed during the previous year. Economic indicators suggest
a stable macroeconomic environment: inflation remains at low levels, interest
rates are stable and the unemployment rate is decreasing. Confidence in
Colombia's economic recovery, the Colombian President's high popularity and
incentives for local and foreign investment have also stimulated the economic
growth.
Foreign trade may also provide important opportunities to strengthen
the economic growth. Agreements like ATPDEA, the Free Trade Agreement which the
United States, which is under negotiation, and the AFTA, which enters in force
in 2006, could all aid economic growth. In addition, Colombian industries may be
working near their installed capacity's limit, which may increase demand for
loans.
In the latest tax reform, the government approved the devolution of two
percentage points of the Value Added Tax if the buyer pays with either debit or
credit cards. This measure may incentivize the
93
use of such cards, generating higher fees for banks, including BC.
Colombia's most significant economic challenges are financing the
public sector and managing its debt. In consequence, the government may seek to
implement structural reforms such as tax and pension reforms.
BC reported unconsolidated net income of Ps 72,502 million for the two
months ended February 29, 2004, which is 109% higher than Ps 34,673 million, for
the same period in 2003. These results are the outcome of higher net interest
income, lower net provisions and higher dividends paid to the Bank by some of
its subsidiaries. Total assets amounted to Ps 11.5 trillion in February 2004, as
compared to Ps 9.6 trillion in February 2003, which constitutes a 19.0%
increase. Total assets increased as a result of a larger loan portfolio.
The acquisition of Sufinanciamiento may allow BC to increase its
consumer loans, especially vehicle loans, which usually have a higher yield.
The level of fiscal losses to be amortized and the excess of presumed
income that BC carried during the last two fiscal years will not exist during
2004. As a result, BC believes that its income tax will be based on taxable
income generating an increase in income tax expenses during 2004 as compared to
2003.
E. OFF-BALANCE SHEET ARRANGEMENTS
The following are the off-balance sheet arrangements in which BC is
involved: standby letters of credit, bank guarantees and Credit Default Swaps
(CDS).
In order to meet the needs of its customers, BC issues financial
standby letters of credit and bank guarantees. At December 31, 2002 and 2003,
outstanding letters of credits and bank guarantees issued by BC totaled Ps
429,361 million and Ps 692,795 million, respectively.
Financial standby letters of credit include guarantees of payment of
credit facilities, promissory notes and trade acceptances.
Bank guarantees are performance guarantees that are issued to guarantee
a customer's tender bid on a construction or systems installation project or to
guarantee completion of such projects in accordance with contract terms. They
are also issued to support a customer's obligation to supply specified products,
commodities, or maintenance or guaranty services to a third party.
Credit Default Swaps (CDS) are contracts whereby one party transfers to
the other for a period of time the credit risk associated with an issuing entity
in exchange for a periodic premium. These investments made can be as follows:
- Credit-Linked Note: Issued by an International Bank vehicle which
implicitly has the risk of a CDS.
- Credit-Linked Deposit: Deposit constituted as guarantee for the
constitution of a CDS.
The table below summarizes at December 31, 2002 and 2003 all of BC's
guarantees where the Bank is the guarantor. The maximum potential amount of
future payments represents the notional amounts that could be lost under the
guarantees if there were a total default by the guaranteed parties, without
consideration of possible recoveries under recourse provisions or from
collateral held or pledged. Such amounts bear no relationship to the anticipated
losses on these guarantees and greatly exceed anticipated losses.
94
MAXIMUM POTENTIAL AMOUNT
EXPIRE WITHIN ONE YEAR EXPIRE AFTER ONE YEAR TOTAL AMOUNT OUTSTANDING OF FUTURE PAYMENTS
------------------------ ---------------------- ------------------------ ------------------------
2002 2003 2002 2003 2002 2003 2002 2003
---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Financial standby
letter of credit Ps 343,689 Ps 384,995 Ps 8,741 Ps 842 Ps 352,430 Ps 385,837 Ps 352,430 Ps 385,837
Bank guarantees 56,691 212,557 20,240 94,401 76,931 306,958 76,931 306,958
Credit default
swaps - 21,054 - 126,324 - 147,378 - 147,378
---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
TOTAL Ps 400,380 Ps 618,606 Ps 28,981 Ps 221,567 Ps 429,361 Ps 840,173 Ps 429,361 Ps 840,173
========== ========== ========= ========== ========== ========== ========== ==========
As of December 31, 2003, the bank held Ps 3,191 billion of securities
issued by the Republic of Colombia government that exceeded 10% of the Bank's
shareholders' equity.
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table shows BC's known contractual obligations as of
December 31, 2003:
LESS THAN 1 1-3 3-5 AFTER 5
CONTRACTUAL OBLIGATIONS TOTAL YEAR YEARS YEARS YEARS
------------ ------------ ---------- ---------- ---------
(Ps millions)
Long-term debt obligations (1) Ps 99,450 Ps 20,350 Ps 37,177 Ps 38,986 Ps 2,937
Time deposits 4,237,345 3,289,755 578,315 327,999 41,276
Commitments to originate loans 13,262 13,262 - - -
Commitments of repurchase of investments 1,088,139 1,088,139 - - -
Capital (finance) lease obligations 122 40 82 - -
Employee benefit plans (2) 78,578 10,538 22,846 25,428 19,766
------------ ------------ ---------- ---------- ---------
TOTAL Ps 5,516,896 Ps 4,422,084 Ps 638,420 Ps 392,413 Ps 63,979
============ ============ ========== ========== =========
(1) Includes principal and interest and does not reflect the Ps 400 billion of
bonds issued on February 11, 2004. See Item 5 Operating and Financial
Review and Prospects B. Liquidity and Capital Resources B.1. Liquidity and
Funding.
(2) In 2003, the Bank amortized the total actuarial calculation.
G. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following are considered critical accounting policies, given their
significant impact on the financial condition and operating performance of BC.
This information must be analyzed taking into account Note 2 of the Consolidated
Financial Statements.
EVALUATION OF LOAN PORTFOLIO RISK AND DETERMINATION OF ALLOWANCES FOR
LOANS LOSSES: BC currently evaluates loan portfolio risk according to the rules
issued by the Superintendency of Banking, which establishes qualitative and
quantitative standards for to assigning a risk category to individual assets.
The qualitative analysis include the evaluation of "potential weaknesses,"
"deficiencies" or "serious deficiencies" based on the existence and magnitude of
the specific factors, according to the management judgment. For the quantitative
evaluation, the Bank first determines whether the loan has
95
become due and then classifies the loan according to the number of days past
due.
The Superintendency of Banking requires minimum allowances levels for
each category of credit risk and each type of loan in the Bank's portfolio. In
addition, the Superintendency of Banking requires BC to maintain general
allowance equal to 1% of the gross loan portfolio.
Under U.S. GAAP, allowance for loan losses represents management's
estimate of probable losses inherent in the portfolio.
In the corporate portfolio, larger-balance, non-homogeneous exposures
representing significant individual credit exposures are evaluated based upon
the borrower's overall financial condition, resources, and payment record; the
prospects for support from any financially responsible guarantors; and, if
appropriate, the realizable value of any collateral. Reserves are established
for these loans based upon an estimate of probable losses for individual
larger-balance, non-homogeneous loans deemed impaired. This estimate considers
all available evidence including, as appropriate, the present value of the
expected future cash flows discounted at the loan's contractual effective rate,
the secondary market value of the loan and the fair value of collateral.
Management judgment is required in deriving the expected future cash flows to be
use in the determination of reserves. The allowance for loan losses attributed
to the remaining portfolio is established via a process that estimates the
probable loss inherent in the portfolio based upon various statistical analyses.
Each portfolio of smaller-balance, homogeneous loans, including
consumer revolving credit, credit cards, and most other consumer loans, is
collectively evaluated for impairment. The allowance for credit losses
attributed to these loans is established via a process that estimates the
probable losses inherent in the portfolio, based on migration analysis, in which
historical delinquency and credit loss experience is applied to the current
aging of the portfolio, together with analyses that reflect current trends and
conditions. The Bank also considers other overall portfolio indicators.
ALLOWANCE FOR FORECLOSED ASSETS: BC establishes allowances for
foreclosed assets according to instructions from the Superintendency of Banking,
which require that the Bank take into account how long such assets have been on
the Bank's balance sheet.
Under U.S. GAAP, in order to assess for impairment its foreclosed
assets BC applies the methodology described by the SFAS 144 and SFAS 15 with
respect to the method to evaluate the recoverability of the assets and to the
measurement of the impairment loss.
The measurement of a new cost basis for the long-lived asset, implies
an analysis of the likelihood of realization. This process involves assumptions
used by the management to determine the fair value of the foreclosed asset.
AMORTIZATION OF GOODWILL: The Superintendency of Banking requires that
goodwill derived from mergers and acquisitions be entered as an asset on the
Bank's balance sheet, and permits that goodwill to be amortized at a term no
greater than 10 years. BC chose to amortize 100% of the goodwill generated by
the acquisition of Sufinanciamiento S.A. in its statement of results for 2003.
GOODWILL IMPAIRMENT: Under U.S. GAAP from January 1, 2002, the Bank no
longer amortizes goodwill, but it is subject to annual impairment test. The
first step of the goodwill impairment test, used to identify potential
impairment, compares the fair value of a reporting unit with its carrying
amount, including goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired.
96
However, if the carrying amount of a reporting unit exceeds its fair
value, it is necessary to compare the implied fair value of reporting unit
goodwill with the carrying amount of that goodwill.
Management judgment will be required in deriving the fair value of a
reporting unit.
For 2003, the Bank has performed the required impairment test at each
reporting unit's goodwill and concluded that there was no impairment of
goodwill.
H. RECENT U.S. GAAP PRONOUNCEMENTS
In December 2003, the FASB issued a revision to Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51"
("FIN 46R" or the "Interpretation"). FIN 46R clarifies the application of ARB
No. 51, "Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support. FIN 46R requires the
consolidation of these entities, known as Variable Interest Entities ("VIEs"),
by the primary beneficiary of the entity. The primary beneficiary is the entity,
if any, that will absorb a majority of the entity's expected losses, receive a
majority of the entity's expected residual returns, or both.
Among other changes, the revisions of FIN 46R (a) clarified some
requirements of the original FIN 46, which had been issued in January 2003, (b)
eased some implementation problems, and (c) added new scope exceptions. FIN 46R
deferred the effective date of the Interpretation for public companies, to the
end of the first reporting period ending after March 15, 2004, except that all
public companies must at a minimum apply the provisions of the Interpretation to
entities that were previously considered "special-purpose entities" under the
FASB literature prior to the issuance of FIN 46R by the end of the first
reporting period ending after December 15, 2003. BC does not anticipate that the
adoption of FIN 46 will have a material impact on its financial position, cash
flows and results of operations.
In December 2003, the FASB revised Statement 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits -- an amendment of
FASB Statements No. 87, 88, and 106". This Statement revises employers'
disclosures about pension plans and other postretirement benefit plans. It does
not change the measurement or recognition of those plans required by FASB
Statements No. 87, Employers' Accounting for Pensions, No. 88, Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits, and No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. This Statement retains the disclosure requirements
contained in FASB Statement No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits, which it replaces. It requires additional
disclosures to those in the original Statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. BC evaluated the recent guidelines of Statement
132 and applied them in its annual report.
The requirement to disclose the estimated future benefit payments for
each of the next five years and in the aggregate for the five years thereafter,
is effective for the year ending December 31, 2004.
In December 2003, the AICPA issued Statement of Position 03-3 ("SOP
03-3"), Accounting for Certain Loans or Debt Securities Acquired in a Transfer.
SOP 03-3 provides guidance on the accounting for differences between contractual
and expected cash flows from the purchaser's initial
97
investment in loans or debt securities acquired in a transfer, if those
differences are attributable, at least in part, to credit quality. Among other
things, SOP 03-3: (1) prohibits the recognition of the excess of contractual
cash flows over expected cash flows as an adjustment of yield, loss accrual or
valuation allowance at the time of purchase; (2) requires that subsequent
increases in expected cash flows be recognized prospectively through an
adjustment of yield; and (3) requires that subsequent decreases in expected cash
flows be recognized as an impairment. In addition, SOP 03-3 prohibits the
creation or carrying over of a valuation allowance in the initial accounting of
all loans within its scope that are acquired in a transfer. SOP 03-3 becomes
effective for loans or debt securities acquired in fiscal years beginning after
December 15, 2004.
I. RELATED PARTY TRANSACTIONS
See Item 7. Major Shareholders and Related Party Transactions B.
Related Party Transactions.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
On December 31, 2003, the following persons acted as current directors,
alternate directors and senior management of BC:
DIRECTORS
Nicanor Restrepo Santamaria has been President of Suramericana de
Inversiones S.A. since 1984. Mr. Restrepo Santamaria served previously in the
public sector as Governor of the Department of Antioquia from 1983 to 1984 and
as High Commisioner for the Peace from 1984 to 1985. During 1999 he participated
as representative of the Colombian Government in the peace talks. In the private
sector he was President of Corporacion Financiera Nacional from 1982 to 1983,
and Vice President of Finance of Compania Suramericana de Seguros y Filiales
from 1979 to 1982. From 1968 through 1982 he held management in several
financial and industrial companies.
Mr. Restrepo Santamaria is the president of the Board of Directors of
Compania Nacional de Chocolates S.A., Smurfit Carton de Colombia S.A., Compania
de Cemento Argos S.A. and is a member of the Board of Directors of La Positiva
Seguros y Reaseguros (Peru) and Interoceanica de Seguros (Panama). He is
currently a member of the advisory counsel of the Deutsche Bank Latin America
Advisory Board (United States of America) and of the Banco Latino Americano de
Exportaciones - BLADEX (Panama).
Carlos Enrique Piedrahita Arocha, President of Compania Nacional de
Chocolates since 1999, was president of Corfinsura from 1993 to 2000, President
of Banco Corfinsura Internacional Inc. (Puerto Rico) from 1998 to 2000, Compania
Suramericana de Seguros S.A. from 1989 to 1993, Vice President of personal
banking of the Banco Industrial Colombiano and General Manager of Suleasing S.A.
from 1981 to 1984.
Mr. Piedrahita Arocha is also member of the Board of Directors of
Suramericana de Inversiones S.A., Industrias Alimenticias Noel S.A., Compania de
Cemento Argos S.A. and Corfinsura S.A. He is also a member of the Board of
Directors of the following civic associations: Hospital San Vicente de Paul,
Corporacion de Investigaciones Biologicas CIB and Proantioquia.
98
Juan Manuel Ruiseco Vieira is an independent advisor and was President
of Compania de Cemento Argos S.A. since November 1999 to November 2003.
Previously he was President of Cementos del Caribe S.A. since 1971.
Mr. Ruiseco Vieira is also member of the Board of Directors of Cementos
del Caribe S.A., Carbones del Caribe S.A. and Suramericana de Inversiones S.A.
Jose Alberto Velez Cadavid assumed the Presidency Compania de Cemento
Argos S.A. since November 2003. Since 1984, he held several managerial positions
at Suramericana de Seguros S.A., including Vice President of Marketing and
Sales, Vice President of Investments, Vice President of Enterprise Development
and President of Inversura S.A. and of Suramericana de Seguros S.A.
Mr. Velez Cadavid is also member of the Board of Directors of
Corfinsura S.A., Almacenes Exito S.A., Cementos del Caribe S.A. and Fabrica de
Calcetines Crystal S.A.
Ricardo Sierra Moreno is the President of Productora Distrihogar S.A.
since 1989. Before he had held positions as Regional Manager of Corporacion
Financiera Suramericana S.A. Corfinsura from 1979 to 1982 and Chief Financial
Officer of Suramericana de Seguros S.A. from 1982 to 1989.
Mr. Sierra Moreno is also member of the Board of Directors of
Corporacion Financiera Nacional y Suramericana S.A. Corfinsura, Industrias
Alimenticias NOEL S.A., Productora y Comercializadora de Alimentos S.A. (Helados
Mimo's) and Sociedad Medica Antioquena.
ALTERNATE DIRECTORS
Luis Mariano Sanin Echeverri is the President of Fabricato Tejicodor
S.A. since the year 2000. Previously he was President of Tejidos El Condor S.A.
from 1996 to 2000, General Manager of Cryogas S.A. from 1984 to 1996, Technical
Vice President of Corporacion Financiera Nacional from 1977 to 1984, Manager of
Exportations and Planning of Pantex and Fabricato from 1973 to 1977. He also
held positions at the National Industrials Association (ANDI) from 1968 to 1969
and from 1971 to 1973.
Mr. Sanin Echeverri is member to the Board of Directors of Compania
Colombiana de Tabaco S.A., Colombiana de Inversiones S.A, Industrias Estra S.A.,
Diagonal, Ascoltex, Inexmoda, Promotora de Hoteles S.A. and Fabrisedas.
Hector Arango Gaviria has worked for 31 years for the Compania Nacional
de Chocolates S.A. assuming positions such as Director of the Commercial
Department and Financial and Administrative Vice President. He currently acts as
Executive Vice President of the same company. Previously he had served at Scott
de Colombia S.A. and Hospital Pablo Tobon Uribe.
Mr. Arango Gaviria is also currently President of the Board of
Directors of Textiles Fabricato - Tejicondor S.A., Almacenar S.A., Haceb S.A.,
Inversiones La Merced S.A., Poblado Country Club S.A. and alternate member of
the Boards of Directors of Compania de Cemento Argos S.A. He is also member of
the Board of Directors of the following civic associations: Corporacion Pueblo
de los Ninos, Fundacion Francisco y Clara de Asis, Corporacion San Pablo,
Fundacion Ximena Rico Llano, Consiliario de la Universidad Catolica de Oriente
and Corporacion Country Club Ejecutivos.
German Botero Arango is the General Manager of Cementos El Cairo S.A.
since 1986. Previously he was the Director of the Colombian Institute of Cement
Producers.
Mr. Botero Arango is member of the Board of Directors of Cementos
del Valle S.A., Omya
99
de Colombia S.A., Cementos Paz del Rio S.A., Suramericana de Inversiones S.A.,
National Industrials Association ("ANDI") and Colombo American Chamber of
Commerce.
Federico Echavarria Restrepo is the General Manager of Merilectrica y
Cia. SCA since 1997. Previously he had been Vice President of Investment Banking
of Corfinsura S.A. from 1994 to 1997, Associate for Investment Banking Latin
America for Merryl Lynch & Co., Inc. form 1993 to 1994 and had held several
management positions at Suramericana de Seguros.
Mr. Echavarria Restrepo is currently a member of the Board of Directors
of Enka de Colombia S.A., Confecciones Colombia S.A. and Acolgen (Association of
Power Generators).
SENIOR MANAGEMENT
Jorge Londono Saldarriaga is the President of BC since 1996, and was
previously a member of its Board of Directors for three years. Before he had
been President of Suvalor S.A. Comisionista de Bolsa and Vice President of
Investing of Suramericana de Seguros.
Leonardo Hincapie Naranjo is the Vice President of Risk Management
since 1996, and has held different managerial positions at BC since 1971 such as
Planning Assistant, Manager of Antioquia Region, Internal Inspector, and Vice
President of Finance.
Santiago Perez Moreno is the Vice President of Personal and Medium and
Small Business Banking since 1998, and has held different managerial positions
at BC since 1981 such as Personal Banking Manager for Bogota Region,
International Commerce Manager for Bogota Region, and assistant at the Vice
Presidency of International Commerce.
Jaime Alberto Velasquez Botero is the Vice President of Finance since
1997. From 1988 through 1997 he held several managerial positions in the
Economic Department and Investor Relations Department. Before he had worked at
C.I. Banacol.
Leonardo Uribe Correa is the Legal Vice President and Secretary General
of BC since 1984. Before he held positions at Colcarburo S.A., Empresas Publicas
de Medellin, Universidad Pontificia Bolivariana and Personeria de Medellin.
Gabriel Jaime Agudelo Tobon is the actual Vice President of Services
and Technology, and has held several positions at BC since 1973.
Gonzalo Toro Bridge is the Vice President of Corporate Banking since
2003. Since 1988 he assumed positions as Assistant of the Vice Presidency of
Corporate and International Banking and from 1994 to 2003 as Vice President of
Corporate and International Banking.
Federico Ochoa Barrera is the Executive and Services Vice President of
BC since 1998. Before the merger, he held several positions at Banco de
Colombia, including National Branches Vice President, Administrative Vice
President, Executive and Commercial Vice President and Executive President.
Hernan Dario Ramirez Giraldo is the Vice President of Internal Audit,
has worked at BC for 18 years, holding positions such as General Accountant,
Operations Manager of FiduBIC and Internal Auditor.
Luis Fernando Montoya Cusso is the Vice President of Operations since
1998. Since 1973 he has occupied several positions at BC, including messenger,
computers assistant, Manager of Northern, Bogota and Cucuta Regions, and
Operations Manager.
100
Jairo Burgos de la Espriella is the Vice President of Human Resources
since 1998. Since 1990 he held several positions in the Human Resources
Department.
There are no family relationships between the directors and senior
management of BC listed above.
No arrangements or understandings have been made by major shareholders,
customers, suppliers or others pursuant to which any of the above directors or
members of senior management were selected.
B. COMPENSATION
BC compensates each of its directors Ps 500,000 per meeting. The
directors receive no other compensation or benefit. Consistent with Colombian
law, we do not disclose to our shareholders, or otherwise make public,
information regarding the compensation of our individual officers. The aggregate
amount of remuneration paid by BC and consolidated subsidiaries to all
directors, alternate directors and senior management during the fiscal year
ended December 31, 2003 was Ps 17,174 million.
BC has established an incentive compensation plan that awards bonuses
bi-annually to its vice presidents, department directors and certain managers.
In determining the amount of any bonuses, the Bank takes into consideration the
overall return on equity of BC and its executives achievement of individual
goals. Depending on the amount awarded, the bonuses are payable in cash or as a
combination of cash, a right to receive in three years an amount in cash
determined with reference to the value of BC Common or Preferred Shares and an
entitlement to a share in a pool of unvested bonuses. The pool of unvested
bonuses is an account of preliminary bonuses, payable once it is established
that the results that are the basis of such bonuses have been sustained over
time and were not the result of a particular, extraordinary transaction that
does not reflect better performance, according to guidelines designed by the
Bank.
As far as compensation, the Bank paid a total of Ps 315,172 million for
the concept of salaries of personnel employed directly by the Bank and upper
management of its affiliates. The sum of Ps 9,392 million that was paid for the
incentive compensation plan is included in that amount.
C. BOARD PRACTICES
The following are the current terms of office and the period during
which the current and alternate directors have served BC, as of December 31,
2003:
FIRST ELECTED TO THE
NAME BOARD TERM EXPIRES
-------------------------------- -------------------- ------------
Nicanor Restrepo Santamaria 1984 2004
Carlos Enrique Piedrahita Arocha 1994 2004
Juan Manuel Ruiseco Vieira 2000 2004
Jose Alberto Velez Cadavid 1996 2004
Ricardo Sierra Moreno 1996 2004
Luis Mariano Sanin 2002 2004
Hector Arango Gaviria 1988 2004
German Botero Arango 2002 2004
Federico Echavarria Restrepo 2002 2004
101
On February 26, 2004, the General Shareholders' Meeting elected a new
Board of Directors replacing some of the previous directors. The election of the
new members does not mean that different companies are represented in BC's Board
of Directors, the change is a result of new managers in some of BC's major
shareholders. The new directors will assume their positions as soon as they are
presented and accepted by the Superintendency of Banking according to applicable
regulations.
The following are the current terms of office and the period during
which the members of senior management have served BC. There are no defined
expiration terms.
NAME PERIOD SERVED
------------------------------ -------------
PRESIDENT
Jorge Londono Saldarriaga Since 1996
VICE PRESIDENTS
Leonardo Hincapie Naranjo Since 1971
Santiago Perez Moreno Since 1981
Jaime Alberto Velasquez Botero Since 1988
Leonardo Uribe Correa Since 1984
Gabriel Jaime Agudelo Tobon Since 1973
Gonzalo Toro Bridge Since 1988
Federico Ochoa Barrera Since 1984
Hernan Dario Ramirez Giraldo Since 1985
Luis Fernando Montoya Cusso Since 1973
Jairo Burgos de la Espriella Since 1990
=======================================================
Neither BC nor its subsidiaries have any service contracts with BC's
directors providing for benefits upon termination of employment.
BC, in accordance with requirements of External Circular 007 of 2001
issued by the Superintendency of Banking, has an audit committee whose main
purpose is to support the Board of Directors in supervising the effectiveness of
the Bank's internal controls. The committee consists of three directors who are
elected by the Board of Directors for a period of two years, one of whom must be
a financial expert. The current members are Hector Arango Gaviria, Jose Alberto
Velez Cadavid, and Ricardo Sierra Moreno. The audit committee may also designate
independent advisors to support its activity.
As established by the Superintendency of Banking, the audit committee
has a charter that establishes its composition, organization, objectives,
duties, responsibilities and extension of its activities. The audit committee
must meet at least quarterly and must present a report of its activities at the
General Shareholders' Meeting.
BC currently complies with applicable requirements of the Sarbanes
Oxley Act of 2002 for foreign issuers with respect to the composition and
functions of its audit committee, and the rules thereunder by the Securities and
Exchange Commission. As soon as they are applicable to foreign issuers, BC will
comply with additional requirements required the mentioned issue.
The Board of Directors of BC has established a remuneration committee
whose members are Ricardo Sierra Moreno and Carlos Enrique Piedrahita. The main
function of this committee is to determine policies for hiring, compensations
and developing of the Bank's executive officers. The committee will also
supervise de goals established in the compensation programs and recommend the
102
adoption of new remuneration programs for BC's executive officers.
D. EMPLOYEES
The following table sets forth the number of employees of BC for the
last three fiscal years:
TOTAL NUMBER OF EMPLOYEES EMPLOYED BY BC NUMBER OF EMPLOYEES EMPLOYED BY
AS OF DECEMBER 31 AND ITS CONSOLIDATED SUBSIDIARIES BC DIRECTLY
----------------- ---------------------------------------- -------------------------------
2001 7,518 6,258
2002 7,581 6,364
2003 8,001 6,473
On December 31, 2003, Bancolombia and its consolidated subsidiaries had
8,001 employees of which 6,473 were employed directly by the Bank. Of the 6,473
employees directly contracted by the Bank, 4,638 belong to operations personnel
and 1,835 are management employees. Of the 6,473 employees, approximately 27.8%
are located in the Bogota Region, 10.3% in the South Region, 13.0% in the
Antioquia Region, 20.8% in the Medellin headquarters, 12.1% in the Central
Region and 16.0% in the North Region. During 2003, the Bank contracted an
average of 116 employees per month through temporary personnel service
companies.
Of the employees, approximately 27.5% belong to a labor union called
Sintrabancol and 13.8% are members of an industry union called Uneb. A
collective bargaining agreement with both unions has been in effect since
November 1, 2003 and is set to expire on October 31, 2005. The Bank is satisfied
with the existing collective bargaining agreement, both for the labor costs and
its implications, as well as for the relationship it has helped to develop with
the labor unions and BC employees.
E. SHARE OWNERSHIP
Luis Santiago Perez Moreno is the only executive officer of BC who
owned any Preferred Shares in BC as of December 31, 2003. His shareholding did
not exceed one percent of BC's outstanding Preferred Shares. The following
directors and managers owned Common Shares in BC as of December 31, 2003:
Nicanor Restrepo Santamaria, Ricardo Sierra Moreno, Hector Arango Gaviria,
German Botero Arango, Jorge Londono Saldarriaga, Luis Santiago Perez Moreno and
Gonzalo Toro Bridge. None of their shareholdings, individually or in the
aggregate, exceeded one percent of BC's outstanding Common Shares. As of
December 31, 2003, BC had no outstanding options to acquire any of its
outstanding Common Shares or Preferred Shares.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth, solely for purposes of United States
securities laws, certain information regarding the beneficial ownership of BC's
capital stock by each person known to BC to own beneficially more than 5% of
each class of BC's outstanding capital stock as of December 31, 2003. A
beneficial owner includes anyone who has the power to receive the economic
benefit of ownership of the securities.
103
% OWNERSHIP OF % OWNERSHIP OF
COMMON PREFERRED COMMON PREFERRED
NAME SHARES SHARES SHARES(1) SHARES(1)
----------------------------------------------- ---------- ----------- -------------- --------------
Fideicomiso Cititrust-Suramericana-IFC 69,070,000 - 17.3% -
Portafolio de Inversiones Suramericana S.A. (2) 51,305,519 - 12.9% -
Suramericana de Inversiones S.A. 26,970,424 - 6.8% -
Cementos del Valle S.A. 29,658,125 4,120,038 7.4% 2.3%
Compania de Cemento Argos S.A 24,375,687 3,386,177 6.1% 1.9%
Emmery Equity Corporation 24,387,619 - 6.1% -
Lorange Industrial Corporation 20,612,331 - 5.2% -
Fondo de Pensiones Obligatorias Proteccion 5,559,375 28,242,573 1.4% 15.8%
BIC ADR Program Sufibic - 113,484,588 - 63.6%
(1) Common Shares have one vote per share; Preferred Shares have limited voting
rights under certain circumstances specified in the By-laws of BC filed as
Exhibit 1 to this Annual Report.
(2) Represents ownership by Suramericana de Inversiones S.A. directly and
through its subsidiary Suramericana de Construcciones S.A. and Inversura
S.A.
As of December 31, 2003, a total of 398,259,608 Common Shares and
178,435,787 Preferred Shares were registered in the Bank's shareholder registry
in the name of 14,742 shareholders. As of December 31, 2003, a total of
113,484,588 Preferred Shares, representing 63.6% of outstanding Preferred
Shares, were directly held by one record holder in the United States. No Common
Shares were held directly by record holders in the United States.
There has not been any significant change in the percentage ownership
held by any major shareholders during the past three years.
Major shareholders of the Bank do not have different voting rights.
They all vote according to their participation in the Bank's outstanding shares.
There are no arrangements known to the company whose operation may at a
subsequent date result in a change in control of the company.
To the extent known to the Bank, and in accordance with Colombian law,
BC is not directly or indirectly owned or controlled by any other entity or
person.
B. RELATED PARTY TRANSACTIONS
From time to time, BC lends to affiliates and other related parties and
engages in other transactions with such parties. Such loans have been made in
the ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and have not involved more than the normal risk
of collectibility or present other unfavorable features.
None of the related party transactions are considered material to the
company or to the related party and there are no transactions that are unusual
in their nature or conditions.
104
BC had a total amount of Ps 23,307 million of loans outstanding to
related parties (for purposes of United States securities laws). This amount
includes the largest amount outstanding as of March 15, 2004, which is a working
capital loan to Multienlace S.A. outstanding for Ps 9,991 million and accrued
interest for Ps 151 million. The average rate for this loan is 12.3%.
During 2003, significant balances and transactions with related parties
were as follows:
2003
ENTERPRISES THAT DIRECTLY OR
INDIRECTLY THROUGH ONE OR MORE
INTERMEDIARIES, CONTROL
OR ARE CONTROLLED BY, OR ARE UNDER
COMMON CONTROL WITH, THE
COMPANY AND ASSOCIATES (1) KEY MANAGEMENT PERSONNEL
---------------------------------- ------------------------
(PS MILLION)
BALANCE SHEET
Investment securities Ps 2,355 Ps -
Loans 11,061 12,246
Accounts receivable 3,085 150
---------- ---------
TOTAL Ps 16,501 Ps 12,396
========== =========
Deposits Ps 120,358 Ps 1,441
Overnight funds 84 -
Account Payable 141 8
---------- ---------
TOTAL Ps 120,583 Ps 1,449
========== =========
TRANSACTIONS
INCOME
Dividends received Ps 25,777 Ps -
Interest 2,371 1,205
Other 269 24
---------- ---------
TOTAL Ps 28,417 Ps 1,229
========== =========
EXPENSES
Interest Ps 18,214 Ps 61
Other 2,261 69
---------- ---------
TOTAL Ps 20,475 Ps 130
========== =========
(1) For 2003, includes, in addition to the members of the Board of Directors,
the President and the Vice-Presidents, as well as other employees who have legal
representation of the Bank.
C. INTEREST OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION.
A. CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION
A.1. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to pages F- 1 through F - 100.
105
A.2. LEGAL PROCEEDINGS
The Bank is involved in normal collection proceedings, restructuring
proceedings with respect to certain borrowers and other legal procedures in the
ordinary course of business. For the purpose of its audited financial
statements, the Bank has various contingent liabilities, including contingent
liabilities relating to ordinary litigation outstanding at December 31, 2003
amounting to Ps 529,661 million. As of December 31, 2003, Ps 21,500 million of
these liabilities are covered in a guarantee contract entered into by Fogafin
and private investors when Banco de Colombia was sold to investors. This
guarantee contract remains in force in connection with litigation that was
commenced before the privatization of Banco de Colombia. In the opinion of
management, after consultation with its external Colombian legal counsel, the
outcome of these contingent liabilities relating to ordinary litigation is not
expected to have a material adverse effect on BC's financial condition or
results of operations and the possibility of loss by BC as a result of such
litigation is not likely to exceed the recorded allowance at December 31, 2003.
OTHER LEGAL PROCEEDINGS
The legal claims in which the Bank has been linked as defendant are
duly provisioned in the cases it is required, according to Colombian
regulations, as it is showed in the financial statement's notes. No event has
occurred in said legal proceedings that may impair the regular course of
business of the Bank nor its results could be significantly affected.
An arbitration process was initiated by the Bank as plaintiff for the
resolution of claims related to hidden contingencies and liabilities from the
former owners of Banco de Colombia under the auspices of the Bogota Chamber of
Commerce. BC's claim under this suit amounts to approximately Ps 47,000 million,
not including interest updates.
Within the criminal investigation initiated by the sellers of Banco de
Colombia against some of the managers of the Bank, the District Attorney decreed
by means of providence of December 26, 2003, to close the investigation due to
the non-typification of any of the accused crimes, decision upon which the
counterpart appealed, proceeding that is pending resolution.
The complaints that had been presented before the Superintendency of
Banking in relation to the acquisition of Banco de Colombia and merger process
with BIC, that were pending, have been definitively resolved in the Bank's
favor.
In the different Arbitration Tribunal promoted by Luis Alberto Duran
Valencia and other minority shareholders of the former Banco de Colombia, by
means of a class action, the respective arbitration award was produced on
January 30, 2004. The Tribunal considered that the announced capitalization by
the BIC to the Superintendency of Banking on September 19, 1997 for an amount of
US$150 million, as one of the sources for the financing of the acquisition of
51% of the shares of Banco de Colombia, constituted a binding commitment that
should have been duly fulfilled by BIC. Notwithstanding, the capitalization
failure is easily explained in the fact that BIC issued shares and offered its
shareholders on January 5, 1998, at a price of Ps 3,800 per share, for a total
of Ps 190,760 million, that at the exchange rate of the moment were equal to the
announced US$150 million, with a term for placement of 45 days, and without
dividends during the first year. During the 45 days term, the price of the
shares that were registered in the exchange decreased, being less expensive to
purchase shares in the secondary markets and with dividend earning, than
purchasing issued shares with no dividend. For the foregoing reason, the
minority shareholders of BIC did not subscribe the part that corresponded to
them for Ps 72,123 million, with the result being the allocation shares of the
major
106
shareholders, who contributed Ps 118,636 million in total.
The fact of not totally completing the capitalization announced caused,
in the view of the Tribunal, a liability for the Bank which generated damages to
the shareholders of the former Banco de Colombia who entered the merged
institution proportionately to their participation in said institution, which
was estimated in Ps 14,646 million, which updated, sum up to Ps 22,208 million,
for a net value to pay, after deductions ordered by the same Tribunal, of Ps
19,213 million.
In the other charges, for an amount close to Ps 500,000 million, the
Tribunal resolved in favor of the Bank, exonerating it.
From the arbitral award one of the arbitrators, Mr. Rafael H. Gamboa,
separated himself by "saving his vote," considering that BIC's conduct during
the process of the merger adjusted itself to the legal norms in force and to the
acts of the regulatory authorities, conclusion also reached by the Banking
Superintendency when the point was considered.
The Bank has filed an extraordinary proceeding of annulment of the
above mentioned arbitration award before the Superior Tribunal of Bogota, for
the purpose of its review, to verify if arbitrators decision was taken according
to current Colombian procedure regulations.
A.3. DIVIDEND POLICY
The declaration, amount and payment of dividends is based on BC's
unconsolidated earnings. Dividends must be approved at the ordinary annual
shareholders' meeting upon the recommendation of the Board of Directors and the
President of BC. Under the Colombian Commerce Code, after payment of income
taxes and appropriation of legal and other reserves, and after setting off
losses from prior fiscal years, BC must distribute to its shareholders at least
50% of its annual net income, or 70% of its annual net income if the total
amount of reserves exceeds its outstanding capital. Such dividend distribution
must be made to all shareholders, in cash or as may be determined by the
shareholders, and within a year from the date of the ordinary annual
shareholders' meeting in which the dividend was declared. Pursuant to Colombia's
Law 222 of 1995, the minimum dividend per share requirement of 50% or 70%, as
the case may be, may be waived by an affirmative vote of the holders of 78% of
the Common Shares present at the shareholders' meeting.
Under Colombian law, the annual net profits of BC must be applied as
follows:
- first, an amount equal to 10% of BC's net profits to a legal
reserve until such reserve is equal to at least 50% of the Bank's
paid-in capital;
- second, to the payment of the minimum dividend on the Preferred
Shares (for more information, see Item 10. Additional
Information); and
- third, as may be determined in the ordinary annual shareholders'
meeting by the vote of the holders of a majority of the Common
Shares entitled to vote, upon the recommendation of the Board of
Directors, and may, subject to further reserves required by BC's
by-laws, be distributed as a dividend.
The following table sets forth the annual cash dividends paid on each
Common Share and, where applicable, each Preferred Share during the periods
indicated.
107
DIVIDENDS DECLARED WITH RESPECT TO NET CASH DIVIDENDS CASH DIVIDENDS
INCOME EARNED IN: PER SHARE(1)(2) PER SHARE(1)(3)
--------------------------------------- --------------- ---------------
(PS) (U.S. DOLLARS)
1999................................... -- --
2000................................... 36 0.016
2001................................... 84 0.036
2002................................... 132 0.045
2003................................... 272 0.101
--------------
(1) Includes Common Shares and Preferred Shares.
(2) Cash dividends for 2000, 2001 and 2002 were paid in quarterly installments
and cash dividends for 2003 will be paid in quarterly installments.
(3) Amounts have been translated from pesos at the Representative Market Rate
in effect at the end of the month in which the dividends were declared
(February or March, as applicable).
B. SIGNIFICANT CHANGES
There has not been any significant change since the date of the annual
financial statements included in this document.
ITEM 9. THE OFFER AND LISTING.
A. OFFER AND LISTING DETAILS
BC is a New York Stock Exchange, Inc. ("NYSE") listed company, where
its ADSs are listed under the symbol "CIB". The table below sets forth, for the
periods indicated, the reported high and low share prices and share trading
volume for the Preferred Shares on the Medellin Stock Exchange until July 3,
2001 and, from that day on, on the Colombian Stock Exchange, expressed in
nominal pesos. The table also sets forth the reported high and low sale prices,
and the trading volume of the ADSs on the NYSE for the periods indicated.
MEDELLIN/COLOMBIA STOCK
EXCHANGE NEW YORK STOCK EXCHANGE
----------------------- ------------------------------------
PS PER PREFERRED SHARE US$ PER ADS
----------------------- --------------- TRADING VOLUME
HIGH LOW HIGH LOW (NUMBER OF ADSS)
---- ----- ---- ---- ----------------
YEAR ENDING
December 31, 1999 2,372 1,820 7.4 3.0 7,883,000
December 29, 2000 1,550 1,550 4.9 1.8 5,304,200
December 31, 2001(1) 1,300 1,177 3.2 1.0 4,702,300
December 31, 2002 1,800 1,025 2.88 1.35 8,195,800
December 31, 2003 3,800 1,750 5.35 2.32 9,789,400
(1) Until July 3, 2001.
Source: NYSENet (Composite Index), Medellin Stock Exchange and Colombia Stock
Exchange.
COLOMBIA STOCK EXCHANGE NEW YORK STOCK EXCHANGE
-------------------------------------- ----------------------------------
PS PER PREFERRED
SHARES TRADING VOLUME US$ PER ADS
------------------ (NUMBER OF --------------- TRADING VOLUME
HIGH LOW SHARES) HIGH LOW (NUMBER OF ADSS)
----- ----- -------------- ---- ---- ----------------
(in nominal pesos)
2002
First quarter 1,200 1,025 725,997 2.45 1.55 1,201,600
Second quarter 1,600 1,061 720,874 2.88 1.65 1,983,400
108
COLOMBIA STOCK EXCHANGE NEW YORK STOCK EXCHANGE
-------------------------------------- ----------------------------------
PS PER PREFERRED
SHARES TRADING VOLUME US$ PER ADS
------------------ (NUMBER OF --------------- TRADING VOLUME
HIGH LOW SHARES) HIGH LOW (NUMBER OF ADSS)
----- ----- -------------- ---- ---- ----------------
(in nominal pesos)
Third quarter 1,589 1,360 1,870,660 2.5 1.35 2,162,800
Fourth quarter 1,800 1,233 8,847,306 2.34 1.37 2,848,000
2003
First quarter 2,100 1,750 5,558,711 2.99 2.32 1,314,400
Second quarter 3,610 2,030 5,141,347 5.15 2.7 1,724,300
Third quarter 3,800 3,400 11,882,892 5.35 4.35 3,067,000
Fourth quarter 3,760 3,449 31,504,803 5.35 4.7 3,683,700
Sources: Colombia Stock Exchange, NYSENet (Composite Index).
COLOMBIA STOCK EXCHANGE
----------------------- NEW YORK STOCK EXCHANGE
PS PER PREFERRED SHARE US$ PER ADS
----------------------- -------------- TRADING VOLUME
HIGH LOW HIGH LOW (NUMBER OF ADSS)
----- ----- ---- ---- ----------------
MONTH
September 2003 3,601 3,400 5.24 4.70 1,324,200
October 2003 3,640 3,489 5.26 4.73 975,400
November 2003 3,600 3,449 5.04 4.70 829,100
December 2003 3,760 3,450 5.35 4.81 1,879,200
January 2004 4,540 3,760 6.66 5.25 3,890,100
February 2004 5,150 4,225 7.31 5.8 5,708,000
Source: NYSENet (Composite Index) and Colombia Stock Exchange.
ADRs evidencing ADSs are issuable by The Bank of New York, as
Depositary, pursuant to the Deposit Agreement, dated as of July 25, 1995,
entered into by BC, the Depositary, the owners of ADRs from time to time and the
owners and beneficial owners from time to time of ADRs, pursuant to which the
ADSs are issued. Copies of the Deposit Agreement are available for inspection at
the Corporate Trust Office of the Depositary, currently located at 101 Barclay
Street, New York, New York 10286, and at the office of Fiducolombia S.A., as
agent of the Depositary, currently located at Carrera 43A, No. 11A-44, Medellin,
Colombia. The Depositary's principal executive office is located at One Wall
Street, New York, New York 10286.
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
BC's ADSs, each of which represents the right to receive four Preferred
Shares deposited in Colombia with the Custodian under the Deposit Agreement,
have been listed on the NYSE since July 1995. The Preferred Shares have been
listed on the Colombian Stock Exchange since July 1995. Through the ADSs, the
NYSE is the principal U.S. trading market for the Preferred Shares. On September
30, 1998, BC filed a registration statement with the Commission to register the
Preferred Shares issued in connection with the merger between BIC and Banco de
Colombia in the form of ADRs, for resale by the holders into the U.S. public
market from time to time. BC filed a registration statement with the Commission
to register the Preferred Shares issued in the Capitalization Program. The SEC
declared this
109
registration statement effective on October 12, 2000.
On December 31, 2003, there were 398,259,608 Common Shares outstanding,
none of which were held of record by holders in the United States, and
178,435,787 Preferred Shares outstanding, of which 113,484,588 were directly
held by record holders in the United States (represented by 28,371,147 ADSs).
Because certain of the Preferred Shares and ADSs are held by nominees, the
number of record holders may not be representative of the number of beneficial
owners.
The Colombian Stock Exchange is the principal non-U.S. trading market
for the Preferred Shares. As of December 31, 2003, the market capitalization for
BC's Preferred Shares on the Colombian Stock Exchange was Ps 670,919 million.
There are no official market makers or independent specialists in the Colombian
Stock Exchange to assure market liquidity and, therefore, orders to buy or sell
in excess of corresponding orders to sell or buy will not be executed. The
Colombian Stock Exchange is relatively volatile compared to major world markets.
The aggregate equity market capitalization of the Colombian Stock Exchange as of
December 31, 2003, was approximately Ps 39,634,308 million, with 106 companies
listed as of that date. A substantial portion of the trading on the Colombian
Stock Exchanges consists of trading in debt securities.
D. SELLING SHAREHOLERS
Not applicable.
E. DILUSION
Not applicable.
F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Reference is made to the information contained under the headings
"Description of Share Capital" and "Description of American Depositary Receipts"
in BC's Registration Statement on Form F-3, which was filed with the Commission
on September 29, 2000 (File No. 333-12658) and declared effective on October 12,
2000. All such information is incorporated by reference into this Annual Report.
C. MATERIAL CONTRACTS
On February 18, 2003, BC purchased from Suramericana de Inversiones
17,333,504 shares of Fiducolombia S.A. (9.60% of the outstanding shares) for a
total price of Ps 11,908,032,000. After this
110
purchase agreement was executed, BC had 82.76% of the outstanding shares of
Fiducolombia.
On December 29, 2003, BC and some of its subsidiaries acquired 99.99%
of the Compania Suramericana de Financiamiento Comercial S.A. Sufinanciamiento
from Portafolio de Inversiones Suramericana S.A., Compania Suramericana de
Inversiones S.A., Compania Suramericana de Construcciones S.A., Corporacion
Financiera Nacional y Suramericana S.A. Corfinsura, and Fundacion Suramericana.
The purchase price paid by BC and some of its subsidiaries was Ps 75,016
million. With the acquisition of Sufinanciamiento, BC intends to complement its
portfolio of products by developing commercial financing activities, mostly in
vehicle financing.
D. EXCHANGE CONTROLS
The Central Bank consistently has made foreign currency available to
Colombian private sector entities to meet their foreign currency obligations.
Nevertheless, in the event of renewed shortages of foreign currency, there can
be no assurance that foreign currency would continue to be available to private
sector companies or that foreign currency needed by BC to service foreign
currency obligations could be purchased in the open market without substantial
additional cost.
The International Investment Statute of Colombia contained in Law 9 of
1991, Decree 2080 of 2000 and Decree 1844 de 2003, as amended (the "Foreign
Investment Law"), regulates the manner in which foreign investors can
participate in the Colombian securities markets and undertake other types of
investment, prescribes registration with the Central Bank of certain foreign
exchange transactions and specifies procedures pursuant to which certain types
of foreign investments are to be authorized and administered.
Each individual investor who deposits Preferred Shares into the ADS
deposit facility for the purpose of acquiring ADSs (other than in connection
with or reacquisition of the ADSs pursuant to the ADS offerings) will be
required, as a condition to acceptance by Fiducolombia, as custodian of such
deposit, to provide or cause to be provided certain information to Fiducolombia,
to enable it to comply with the registration requirements under the foreign
investment regulations relating to foreign exchange. A holder of ADSs who
withdraws Preferred Shares from the ADS deposit facility under certain
circumstances may be required to comply directly with certain registration and
other requirements under the foreign investment regulations. Under such
regulations, the failure of a non-resident investor to report or register
foreign exchange transactions relating to investments in Colombia with the
Central Bank on a timely basis may prevent the investor from obtaining
remittance rights, constitute an exchange control infraction and result in a
fine.
Under Colombian law and the by-laws of BC, foreign investors receive
the same treatment as Colombian citizens with respect to the ownership and the
voting of ADSs and Preferred Shares. For a detailed discussion of ownership
restrictions see Item 4. Information on the Company -- B. Business Overview --
Supervision and Regulation -- Ownership Restrictions.
E. TAXATION
Pursuant to Resolution 56 of 1992, issued by CONPES (Consejo Nacional
de Politica Economica y Social) the Deposit Agreement constitutes a Fondo
Institucional de Capital Extranjero (a "Foreign Institutional Capital Investment
Fund"). Under Law 223 of 1995, dividends paid to foreign institutional capital
investment funds are not subject to Colombian income, withholding, remittance or
other taxes, provided that such dividends are paid in respect of previously
taxed earnings of the Company. Therefore, provided that distributions are made
by BC to the holders of ADRs through the
111
Depositary, all distributions by BC made on account of Preferred Shares to
holders of ADRs evidencing ADSs who are not resident in Colombia, as defined
below, will be exempt from Colombian income, withholding and remittance taxes,
except in the case of distributions paid out of non-taxed earnings of BC (which
would bear a 35% Colombian tax that BC would be required to withhold and pay
over to the Colombian tax authorities).
Dividends paid to a holder of Preferred Shares (as distinguished from
the ADSs representing such Preferred Shares) who is not a resident of Colombia,
as defined below, and who holds the Preferred Shares in his own name, rather
than through another institutional or individual fund, will be subject to
Colombian income taxes at a especial flat rate of 7% for 1996 and thereafter,
which tax must be withheld by the payor. However, if such dividends do not
correspond to BC profits that have been taxed at the corporate level, the
applicable rate is 35%, (and will be the new basis for the especial flat rate of
7%). BC would in all such cases withhold and pay to the Colombian tax
authorities, within the legally prescribed period, the appropriate percentage of
the amount of such dividends, and would have no liability or obligation to any
holder of Preferred Shares with respect to any amount properly so withheld and
paid over.
In the event that a holder of ADRs who is not resident in Colombia
chooses to surrender its ADSs and withdraw the underlying Preferred Shares,
dividends to such non-resident holder would be subject to withholding tax at the
rates set forth in the preceding paragraph, unless such non-resident holder
takes the necessary actions under Colombian law to hold such Preferred Shares
through either an "institutional fund" or an "individual fund" under foreign
investment regulations, in which case dividends payable with respect to the
Preferred Shares would receive the same preferential treatment as a holder of
ADRs.
For purposes of Colombian taxation, an individual is a resident of
Colombia if he or she is physically present within Colombia for more than six
months during the calendar year or the six months are completed within that
taxable period. For purposes of Colombian taxation, a legal entity is a resident
of Colombia if it is organized under the laws of Colombia.
SALES AND OTHER DISPOSITIONS
Gain or loss realized by a non-resident of Colombia from the sale or
other disposition of ADSs, including by way of redemption or liquidation, will
not be subject to Colombian taxation, regardless of the place at which such sale
or disposition occurs. Gain or loss realized by a non-resident of Colombia from
the sale or other disposition of Preferred Shares including by way of redemption
or liquidation (as distinguished from sales or other dispositions of ADSs
representing such Preferred Shares) will not be subject to Colombian taxation
provided the sale or other disposition is effected on or through the facilities
of a recognized stock exchange, doesn't represent 10% or more of the outstanding
shares of the company and belong to a same beneficiary. Deposits and withdrawals
of Preferred Shares in exchange for ADSs will not be subject to Colombian
taxation.
In all cases in which the gain or loss realized upon a sale or other
disposition of Preferred Shares is subject to Colombian taxation, such taxation
will correspond to a 14% income tax applied over the gain and a 1% remittance
tax applied over the difference once the 14% is subtracted. Such gain or loss
will be measured by the difference, if any, between the amount realized upon the
sale or disposition and the cost of acquisition plus inflation adjustments
through percentage increases of the Consumer Price Index for employees of the
Preferred Shares or ADSs, as the case may be, sold or disposed of by the holder.
The Tax Basis of Preferred Shares withdrawn by a holder in exchange for ADSs
immediately after such withdrawal shall equal the holder's Tax Basis in the ADSs
exchanged for such Preferred Shares immediately before such withdrawal. The Tax
Basis of ADSs received by a holder in exchange for a deposit of Preferred Shares
immediately after such deposit shall equal the holder's Tax Basis in the
112
Preferred Shares deposited in exchange for such ADSs immediately before such
deposit. The Tax Basis of additional Preferred Shares or ADSs distributed to a
holder of Preferred Shares or ADSs on account thereof, whether by stock
dividend, revaluation of the assets of the Company or otherwise, shall equal the
value of such additional Preferred Shares or ADSs at the time of such dividend
or revaluation.
OTHER TAX CONSIDERATIONS
As of the date of this report, there is no income tax treaty and
no inheritance or gift tax treaty in effect between Colombia and the United
States. Transfers of ADSs to non-residents of Colombia by gift or inheritance
are not subject to Colombian gift or inheritance taxes. Transfers of Preferred
Shares (as distinguished from the ADSs representing such Preferred Shares) will
be subject to Colombian gift or inheritance tax at a flat rate of 35% of the
unrealized appreciation, if any, in the value of the Preferred Shares
transferred. There are no Colombian stamp, issue, registration, transfer or
similar taxes or duties payable by holders of Preferred Shares or ADSs.
For a more detailed description of the tax consequences relating
to U.S. holders, see the information contained under the heading "Taxation" in
BC's Registration Statement on Form F-3, which was filed with the Commission on
September 29, 2000 (File No. 333-12658) and declared effective on October 12,
2000. All such information is incorporated by reference into this Annual Report.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS.
Not applicable.
H. DOCUMENTS ON DISPLAY
BC files periodic reports and other information with the
Commission. You may read and copy any document that BC files at the Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Some of
our SEC filings are also available to the public from the SEC's website at
http://www.sec.gov.
I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTRODUCTION
The following section describes the market risks that BC is
exposed to and the tools and methodology used to measure these risks as of
December 31, 2003.
BC's Board of Directors and the senior management has formalized
its policies, strategies and rules of action of the areas involved in the
treasury management process in the "Treasury Management Manual". This manual
defines the roles and responsibilities of each area and their
113
interrelation to ensure an adequate separation of functions and functional
independence between the front, middle and back office. Moreover, the manual
contains the process and technical support, the internal auditing procedure and
the policies, the procedures and methodologies, and the description of the
levels of responsibilities of the areas involved in the treasury management
process.
The main objective of risk management is to plan, coordinate,
monitor, report and propose policies for market and liquidity risks for the
Bank. This leads the organization to efficient asset and liabilities
administration.
The Bank's Market Risks Management Office is responsible for
identifying, measuring, monitoring and managing the Bank's exposure to market
and liquidity risks with the purpose of enabling management to maximize the
Bank's earnings and add value to its shareholders. Additionally, this Management
Office is in charge of treasury risks, mainly by monitoring the policies,
strategies, limits, allotments and procedures authorized by the Board of
Directors and to report these to the Board and the Bank's senior management.
The measurement of market risk, the performance, the results of
the Bank's investment portfolio and the compliance with policies are reported in
a daily basis to the Bank's senior management, specifically to the members of
the Assets and Liabilities Management Committee ("CAP"), to the Risks Committee
and also to the Board of Directors in every meeting.
The Bank's assets comprise trading and non-trading instruments.
Trading instruments are those that constitute the treasury book, primarily fixed
income securities. The Bank book comprises the Treasury book and the rest of the
Bank's assets and liabilities, primarily loans, time deposits, current accounts
and savings accounts. These accounts are not included in the Treasury book
because they are not considered trading instruments.
The Bank's limits trading of derivative instruments. Forward
foreign currency operations are used to cover our risk in positions in foreign
currencies. For unconventional trading instruments, the Bank has designed a
process of approval by different areas. This guaranties that every area involved
is prepared to enter a new product into their procedures. Also the Board of
Directors has to approve any new unconventional trading instruments.
Currently, the Bank measures the market risk of each position of
the balance sheet, bank book and treasury book, by computing the corresponding
value at risk ("VaR") in accordance with Chapter XXI of the Basic Accounting
Circular (Circular 100 of 1995) issued by the Superintendency of Banking. A risk
factor is any market variable capable of influencing the corresponding
position's market value when it fluctuates. The VaR calculation represents the
probable loss value based on fluctuations of such risk factors. The aggregate
VaR is considered in the Bank's solvency calculation, in accordance with Decree
1720 of 2001.
The relevant risk factors for which VaR is computed are:
- interest rate risk for local currency, foreign
currency and UVR;
- foreign exchange rate risk, and
- stock price risk.
Following is a brief explanation of the VaR model used by BC and
its subsidiaries to calculate the market risk based on interest rate risk,
foreign exchange rate risk and stock price risk. In addition, there is a
presentation of the market risks reports and analysis of the BC and its
subsidiaries.
114
VaR MODEL
INTEREST RATE RISK
BC calculates the interest rate risk for local currency, foreign
currency and UVR in accordance with Chapter XXI of the Basic Accounting
Circular. The interest rate risk is the probability of loss in the value of a
position of the balance due to fluctuations in the market interest rates or
market curves. As indicated, the methodology used in this Annual Report to
measure such risk consists of computing VaR, which in the case of interest rate
fluctuations begins by determining the net present value ("NPV") of the relevant
balance position. Such NPV is then multiplied by the Modified Duration of the
position and by the interest rate's estimated fluctuation ("(delta)i") with a
99% confidence level, which is established by the Superintendency of Banking
according to the market's historic performance.
VaR = MODIFIED DURATION * NPV * (delta)I
NPV: Sum of the discounted values of a position's cash flows
(positive and negative), computed on the basis of the
yield and maturity (including expected or contractually
convened depreciation).
DURATION: Weighted average of the expected times to each cash flow
under an instrument or position. The weight applied to each
expected time is the present value of the corresponding cash
flow divided by the total cash flow under the instrument or
position.
Y: The instrument or position's yield.
MODIFIED DURATION: = Duration / (1+Y). Corresponds to the percentage variation
of the market value of an investment or a position of the
balance before a 1% increase of the interest rate (Y).
Consequently, modified duration measures the sensitivity of
the value of a position to interest rate changes.
(delta)I: Maximum probable variation of the interest rate for the
instrument or position of the balance.
FOREIGN EXCHANGE RISK
The Foreign Exchange Risk is the probability of loss due to
fluctuations in the exchange rates of the currencies in which the Bank maintains
positions. As indicated, the methodology used in this Annual Report to measure
such risk consists on computing VaR, which in the case of exchange rate
fluctuations is derived from multiplying the net position ("NP") held in each of
the foreign currencies by the estimated variation of the foreign exchange rate
for such currency ("(delta)e") with a 99% confidence level, as the same may be
derived from statistical analysis, established by the Superintendency of Banking
according to the market's historic performance. The NP is the difference,
expressed in pesos, between all the active and passive positions denominated or
indexed in each currency. The active or
115
passive positions include commitments to buy and sell in foreign currency
(forwards over foreign currencies) and the delta of the options, as the case may
be.
VaR = PN * (delta)E
STOCK PRICE RISK
The stock price risk is the probability of loss due to
fluctuations in the price of stocks in which the Bank maintains a position
("PosA"). As indicated, the methodology used in this Annual Report to measure
such risk consists on computing VaR, which in the case of fluctuations in the
price of publicly traded stocks is derived from multiplying the PosA by the
maximum probable variation in the price of such positions ("(delta)p"). In the
case of non-publicly traded stocks, the resulting VaR is further augmented by
20%. The (DELTA)p is determined by reference to the volatility of the price
index of the Colombian Stock Exchange, as estimated by the Superintendency of
Banking.
For publicly traded stocks:
VaR = POSA* (delta) P
For non-publicly traded stocks:
VaR = POSA* 1.2 * (delta) P
TOTAL MARKET RISK VALUE
Theoretically, a portfolio is built by instruments, which by being
mutually related, make the portfolio's aggregate risk lower than the sum of each
instrument's individual risk. This is known as correlation, which helps to
diversify the risk of a portfolio. Once the correlation is determined between
each risk factor and a correlations matrix is built, the overall market risk
faced by the Bank can be calculated.
After individually calculating the VaR of a position in the
balance sheet in respect of interest rate, exchange rate and stock price risk
factors, and taking into account the correlations between such various risk
factors, a total VaR, which includes interest rate, exchange rate and stock
price risk factors, is computed for each position. Then, taking into account the
correlation among the VaR of different assets, a total VaR for all assets is
computed. The same procedure is followed to compute the total VaR for all
liabilities. Finally, taking into account the correlation between the VaR for
assets and the VaR for liabilities, an overall VaR for market risk is calculated
(the "Total Market Risk Value"). Such market risk VaR is included in the
solvency calculation in accordance with Decree 1720 of 2001.
VaR (TOTAL) = Sqr [Sigma limit (n) (i=1) (VaR (i)) (2) rho (2) (i) +
Sigma limit (n) (i=1) Sigma limit (n) (j=1), (j not = i)
VaR (i) VaR (j) rho (ij)]
116
The Superintendency of Banking requires Bancolombia, Leasing
Colombia, Colcorp and Sufinanciamiento to calculate the interest rate VaR of
local currency and foreign currency positions in the banking book which contains
all the balance sheet and treasury book which refers to the securities contained
in the organization's portfolio separately for the positions' remaining
maturities in the following categories:
- 1 month or less,
- more than 1 month but not more than 2 months,
- more than 3 months but not more than 6 months,
- more than 6 months but not more than 12 months,
- more than 12 months, but not more than 24 months, and
- more than 24 months.
To simplify the presentation of this information, the table below
provides the sum of the interest rate VaR of local and foreign currency
positions of Bancolombia, Leasing Colombia, Colcorp and Sufinanciamiento.
ASSUMPTIONS AND LIMITATIONS OF VaR MODELS
Although VaR models represent a recognized tool for risk
management, they have inherent limitations, including reliance on historical
data that may not be indicative of future market conditions or trading patterns.
Accordingly, you should not view VaR models as a predictor of future results. We
may incur losses that could be materially in excess of the amounts indicated by
the models on a particular trading day or over a period of time, and there have
been instances when results have fallen outside the values generated by our VaR
models. A VaR model does not estimate the greatest possible loss. The results of
these models and analysis thereof are subject to the judgment of our risk
management personnel.
BC and its affiliate's VaR model assume that variations in the
market risk factors have a normal distribution. In addition, the model assumes
that the correlations and variations in market rates or prices included in the
historical data are independent and identically distributed random variables,
and provide a good estimate of the correlation and the rate or price variations
in the future.
According to the Superintendency of Banking regulation, the Bank's
current accounts and savings account's net present values have to be distributed
in the time horizon brackets, after matching assets and liabilities positions.
The duration of the current accounts and savings accounts classified in the
first bracket is equal to five (5) days and the duration of the values
classified in each time horizon bracket is equal to the weighted average
duration of the assets for each of them. As a result, the duration of the
current accounts and savings accounts on the Bank's information is equal to the
weighted average durations of these accounts for each time bracket.
BANCOLOMBIA
The table below provides information about BC's VaR calculations
for all Balance Sheet items that are in pesos. It shows the following
information for each group of assets and liabilities described in the title of
the group:
117
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN LOCAL CURRENCY
(PS MILLION)
VALUE AT RISK FOR PESO ( LOCAL CURRENCY )
--------------------------------------------------------------------------------------------------------------------
NPV DUR Y (delta)I VaR
--------------------------------------------------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------------------------------------------------
Overnight Funds 4,011 0.53 8.97% 135 2
--------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government-TES IPC Rate 2,036 13.02 10.95% 150 33
--------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government-TES Fixed Rate 93,841 20.52 11.17% 150 2,368
--------------------------------------------------------------------------------------------------------------------
Other Trading Securities Issued By The Colombian Government 29,801 9.61 9.12% 30 71
--------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By Financial Institutions 175,000 2.40 9.61% 30 104
--------------------------------------------------------------------------------------------------------------------
Other Marketable Trading Securities 3,650 3.02 11.84% 30 3
--------------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian Government-TES
Fixed Rate 328,094 5.61 13.95% 250 3,754
--------------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian Government--Other
Than TES- 1,387 0.03 7.85% 126 0
--------------------------------------------------------------------------------------------------------------------
Other Held To Maturity Securities 3,789 45.83 4.57% 126 181
--------------------------------------------------------------------------------------------------------------------
Available For Sale Securities Issued By The Colombian Government - TES
Fixed Rate 10,616 25.26 11.57% 250 547
--------------------------------------------------------------------------------------------------------------------
Commercial Loans - Fixed Rate 615,264 3.65 15.11% 126 2,320
--------------------------------------------------------------------------------------------------------------------
Commercial Loans - Variable Rate 4,405,297 3.30 15.37% 126 14,985
--------------------------------------------------------------------------------------------------------------------
Mortgage Loans In Pesos 945 18.10 15.11% 126 18
--------------------------------------------------------------------------------------------------------------------
Consumer Loans - Fixed Rate 469,029 7.06 23.15% 222 5,981
--------------------------------------------------------------------------------------------------------------------
Consumer Loans - Variable Rate 683,966 2.77 15.71% 30 467
--------------------------------------------------------------------------------------------------------------------
Small Loans - Fixed Rate 27,648 10.96 15.11% 222 548
--------------------------------------------------------------------------------------------------------------------
Small Loans - Variable Rate 68,737 2.51 15.70% 30 42
--------------------------------------------------------------------------------------------------------------------
Other Assets 56,998 29.45 15.11% 126 1,732
--------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By The Colombian Government-
TES IPC Rate 3,784 14.66 12.88% 150 68
--------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By The Colombian Government-
TES Fixed Rate 376,108 22.58 11.46% 150 10,446
--------------------------------------------------------------------------------------------------------------------
Rights Buyback Other Trading Securities Issued By The Colombian
Government (TES Not Included) 15,451 8.32 11.43% 30 32
--------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By Financial Institutions 133,110 1.85 9.77% 30 61
--------------------------------------------------------------------------------------------------------------------
Rights Buyback Other Marketable Trading Securities 12,789 2.24 11.37% 30 7
--------------------------------------------------------------------------------------------------------------------
Rights Buyback Available For Sale Issued By The Colombian Government-
TES Fixed Rate 567,777 24.65 11.57% 250 28,566
--------------------------------------------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------------------------------------------
Non-Interest Bearing Checking Accounts 2,186,433 22.51 0.00% 126 51,390
--------------------------------------------------------------------------------------------------------------------
Interest Bearing Checking Accounts 356,388 3.90 2.41% 126 1,447
--------------------------------------------------------------------------------------------------------------------
Time Deposits 1,896,069 2.08 8.48% 126 4,096
--------------------------------------------------------------------------------------------------------------------
Savings Deposits 24,331 0.38 8.48% 126 9
--------------------------------------------------------------------------------------------------------------------
Saving Deposits 2,167,489 0.89 4.49% 126 1,823
--------------------------------------------------------------------------------------------------------------------
Overnight Funds 30,014 0.07 7.55% 135 2
--------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 1,016,574 0.28 6.28% 250 585
--------------------------------------------------------------------------------------------------------------------
Bank Acceptances Outsanding 8,304 1.34 0.00% 126 12
--------------------------------------------------------------------------------------------------------------------
Interbank Borrowings 584,695 2.49 4.54% 126 1,517
--------------------------------------------------------------------------------------------------------------------
SECURITY DERIVATIVES
--------------------------------------------------------------------------------------------------------------------
Forward Contracts Rights Issued By The Colombian Government- TES IPC 34,784 21.16 13.82% 150 904
Rate
--------------------------------------------------------------------------------------------------------------------
Forward Contracts Rights Issued By The Colombian Government- TES Fixed
Rate 114,112 24.67 11.60% 150 3,462
--------------------------------------------------------------------------------------------------------------------
Forward Contracts Rights Issued By The Colombian Government- Other Than
TES- 235 23.83 7.04% 30 1
--------------------------------------------------------------------------------------------------------------------
Forward Contracts Rights Issued By Financial Institutions 21,508 2.28 9.26% 30 12
--------------------------------------------------------------------------------------------------------------------
Other Forward Contracts Rights 2,845 7.83 11.63% 30 6
--------------------------------------------------------------------------------------------------------------------
Forward Contracts Commitments To Discount (158,719) 0.64 3.77% 30 (25)
--------------------------------------------------------------------------------------------------------------------
Forward Contracts Rights To Discount 78,900 1.00 3.67% 30 20
--------------------------------------------------------------------------------------------------------------------
FOREIGN EXCHANGE FORWARDS
--------------------------------------------------------------------------------------------------------------------
Foreign Exchange Contracts Rights In Local Currency 1,083,436 6.31 10.00% 30 1,693
--------------------------------------------------------------------------------------------------------------------
Foreign Exchange Contracts Commitments In Local Currency (548,567) 6.00 10.00% 30 (816)
--------------------------------------------------------------------------------------------------------------------
118
BC's interest rate risk factors in local currency are basically,
the DTF, the repo rate, interbanking rate, consumer credit rate, and Colombian
Treasury bonds rate (TES). The DTF and the TES are the most volatile and largest
value at risk outcomes. In the table above the securities that are affected by
the DTF's risk factor are all the securities issue by financial institutiONS
and the other securities. Although the largest asset are the loans, there
average duration is 3.59 months compared to the duration of TES of which is
19.25 average months and the duration of the current account and savings
accounts which provides the principal effect on the DTF risk factor outcome, is
11.16 months.
Ps million
RISK FACTOR VaR
--------------------------------------------
DTF (39,380)
Repurchase Agreements' Rate (585)
Interbank Rate -
Consumer Loan Rate 6,530
TES Rates 50,148
============================================
The average VaR for the TES factor in 2003 was Ps 60.630 million
with a standard deviation of Ps 11,714 million. The DTF factor includes asset
such as commercial credit and other investments different from TES. Also the DTF
factor includes all liabilities in local currency except repos and interbanking
operations and derivatives different from TES and forwards of foreign currency.
As a result, the average VaR for the DTF factor for 2003 is Ps -49,778 million
with a standard deviation of Ps 19,527 million of local currency. This values
can me negative when the assets that are being affected by certain risk factor
is smaller than the liabilities affected by the same risk factor. The VaR of
this risk factor is lower than the average because this volatility of them is
lower than the first semester of 2003. As mentioned before this volatilities are
the ones published by the Superintendency of Banking.
The table below provides information about BC's VaR calculations
for all Balance Sheet items that are in a currency other than the peso or UVR.
It shows the following information for each group of assets and liabilities
described in the title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN FOREIGN CURRENCY
(U.S. DOLLARS)
119
US DOLARS
----------------------------------------------------------------------------------------------------------------------------
NPV DUR Y (delta)I VaR
----------------------------------------------------------------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------------------------------------------------------------
Overnight Funds 6,370 0.07 0.11% 12 0
----------------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Goverment-Tes Index Trm 815 24.37 3.20% 12 2
----------------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Goverment-Tes Yankees 2,661 39.97 4.74% 12 11
----------------------------------------------------------------------------------------------------------------------------
Other Trading Securities Issued By The Colombian Goverment (Other Than
Tes) 123,037 20.78 5.88% 12 254
----------------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By Financial Institutions 7 27.48 4.74% 12 0
----------------------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian Goverment - (Other
Than Tes) 70,474 20.60 9.90% 41.18 493
----------------------------------------------------------------------------------------------------------------------------
Other Available For Sale Issued By The Colombian Goverment (Tes Not
Included) 14,238 38.95 7.14% 41.18 189
----------------------------------------------------------------------------------------------------------------------------
Commercial Loans-Fixed Rate 2,262 4.61 3.44% 41.18 4
----------------------------------------------------------------------------------------------------------------------------
Commercial Loans-Variable Rate 107,753 1.14 3.44% 41.18 42
----------------------------------------------------------------------------------------------------------------------------
Consumer Loans -Fixed Rate 9,922 3.09 15.39% 41.18 10
----------------------------------------------------------------------------------------------------------------------------
Consumer Loans -Variable Rate 681 1.24 3.44% 6.86 0
----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
----------------------------------------------------------------------------------------------------------------------------
Interest Bearing Checking Accounts 12 8.33 3.51% 12 0
----------------------------------------------------------------------------------------------------------------------------
Savins Deposits 33 10.94 3.98% 12 0
----------------------------------------------------------------------------------------------------------------------------
Other 4,772 0.03 3.00% 12 0
----------------------------------------------------------------------------------------------------------------------------
Interbank Borrowings 165,280 3.37 1.48% 41.18 191
----------------------------------------------------------------------------------------------------------------------------
FOREIGN EXCHANGE FORWARDS
----------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Contracts Rights In Foreign Currency 589,536 2.82 2.01% 12 166
----------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Contracts Commitments In Foreign Currency -724,880 3.86 2.04% 12 -279
----------------------------------------------------------------------------------------------------------------------------
The risk factors of the interest rate risk in foreign currency are
the Libor and the Money Market rates. These rates are not very volatile. The
average VaR for the Libor factor in 2003 was Ps 1,524 million with a standard
deviation of Ps 605 million. The Libor rate risk factor affects assets such as
commercial and consumer loans and long-term investment. On the other hand the
average VaR for the Money Market factor for 2003 is Ps 412 million with a
standard deviation of Ps 152 million. The Money Market factor affects Colombian
short-term Treasury bonds, liabilities and foreign exchange forwards.
Ps million
--------------------------------------
RISK FACTOR VaR
--------------------------------------
--------------------------------------
Libor 1,521
Money Market USD 427
======================================
The table below provides information about BC's VaR calculations
for all Balance Sheet items that are in UVR. It shows the following information
for each group of assets and liabilities described in the title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN UVR
120
UVR
----------------------------------------------------------------------------------------------------------------------
S NPV DUR Y (delta)I VaR
----------------------------------------------------------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government -TES
Fixed Rate 154,780,606 32.27 4.86% 12.4 513,860
----------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By Financial Institutions 236,186,808 14.20 9.53% 12.4 343,756
----------------------------------------------------------------------------------------------------------------------
Other Marketable Trading Securities 109,184,310 31.20 3.88% 12.4 350,707
----------------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian 1,154,910,599 99.55 0.00% 12.4 11,874,100
Government - Other Than TES-
----------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By The Colombian
Government- TES Fixed Rate 503,773,012 4.87 2.38% 12.4 252,702
----------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By Financial
Institutions 70,477,172 8.37 17.29% 12.4 60,133
----------------------------------------------------------------------------------------------------------------------
Other Rights Buyback Trading Securities 243,379,407 28.01 3.52% 12.4 701,913
----------------------------------------------------------------------------------------------------------------------
SECURITY DERIVATIVES
----------------------------------------------------------------------------------------------------------------------
Forward Contracts Rights To Discount 484,141,198 0.00 0.00% 12.4 0
----------------------------------------------------------------------------------------------------------------------
The risk factor for all the positions in UVR is the Real Rate risk
factor. The average VaR for the Real Rate factor in 2003 was Ps 1,744 million
with a standard deviation of Ps 779 million.
Ps million
--------------------------------------
RISK FACTOR VaR
--------------------------------------
--------------------------------------
Real Rate 1,943
======================================
The table below provides information about BC's VaR calculations
for changes in the price of a currency other than the peso. It shows the
following information for each specific currency:
NET POSITION: Net position for that currency presented in
the original currency
PRICE: Price of the currency on the day of
calculation
PESOS VALUE: Net position of that currency presented in
pesos
(delta)i: Maximum variation of the price of the currency
VaR: Value at risk for the group for changes in
the price of the currency
FOREIGN EXCHANGE RISK AND PRICE RISK
---------------------------------------------------------------------
FOREIGN CURRENCY NET POSITION PRICE PESOS VALUE (delta)I VaR
-------------------------------------------------------------------------------------------------------------------------------
U.S dollars (86,110) 2,778 (239,233) 2.63% (6,292)
-------------------------------------------------------------------------------------------------------------------------------
Japanese Yen 1,281 26 33 5.18% 2
-------------------------------------------------------------------------------------------------------------------------------
British Pound 150 4,943 742 2.63% 20
-------------------------------------------------------------------------------------------------------------------------------
Venezuelan Bolivar 8,261 2 14 2.63% -
-------------------------------------------------------------------------------------------------------------------------------
Canadian Dollars 179 2,139 382 2.63% 10
-------------------------------------------------------------------------------------------------------------------------------
Swiss Franc 34 2,231 75 2.63% 2
-------------------------------------------------------------------------------------------------------------------------------
Euro 202 3,482 702 5.45% 38
-------------------------------------------------------------------------------------------------------------------------------
Swedish Krona 17 383 6 2.63% -
-------------------------------------------------------------------------------------------------------------------------------
Danish Krone 60 468 28 2.63% 1
-------------------------------------------------------------------------------------------------------------------------------
VALUE AT RISK (237,251) (6,219)
-------------------------------------------------------------------------------------------------------------------------------
UVR 2,956,833,112 137,84 407,583 3.90% 15,896
-------------------------------------------------------------------------------------------------------------------------------
STOCK
-------------------------------------------------------------------------------------------------------------------------------
Trading Investments - Tradable - 6.00% -
-------------------------------------------------------------------------------------------------------------------------------
Trading Investments - Nontradable - Not Registered In
Exchange - 9.00% -
-------------------------------------------------------------------------------------------------------------------------------
Permanent Investments - Available For Sale - Tradable 541,421 6.00% 32,485
-------------------------------------------------------------------------------------------------------------------------------
Permanent Investments - Available For Sale - Nontradable
- Not Registered In Exchange 19,198 9.00% 2,073
-------------------------------------------------------------------------------------------------------------------------------
Investments Held To Maturity - Equity Securities - 9.00% -
-------------------------------------------------------------------------------------------------------------------------------
Investments In Investment Funds - 6.00% -
-------------------------------------------------------------------------------------------------------------------------------
VALUE AT RISK 44,235
-------------------------------------------------------------------------------------------------------------------------------
121
The risk factors regarding foreign exchange risk are the TRM (the
dollar representative market rate), the EURO and the YEN. The net position could
be negative if we have an amount in short position larger that the amount in the
long position. The UVR risk factor is considered to be similar to foreign
exchange, which means that a UVR position has two kinds of market risk, interest
rate risk and price risk. Finally, the last risk factor is the IGBC (Colombian
Stock Exchange General Rate) which is the one that applies for all stock. The
TRM includes the American Dollar, the British Pound, the Venezuelan Bolivar, the
Canadian Dollar, the Swiss Franc, the Swedish Krona and the Danish Krone. The
more volatile VaR outcomes are the UVR and TRM risk factors followed by the
IGBC. The average VaR for the UVR factor in 2003 was Ps 11,807 million with a
standard deviation of Ps 3,531 million. The average VaR for the TRM factor in
2003 is Ps-10,889 million with a standard deviation of Ps 4,562 million. The
average VaR for the IGBC factor in 2003 is Ps 35,754 million with a standard
deviation of Ps 2,684 million.
Ps million
--------------------------------------
RISK FACTOR VaR
--------------------------------------
--------------------------------------
UVR 15,896
TRM (6,259)
EURO 38
YEN 2
IBC 34,558
======================================
After using the VaR(TOTAL) formula, according to "Total Market
Risk Value" section, the Aggregate Market Value at Risk of the Bank in December
31, 2003 was equal to Ps 39,635 million of local currency. The Bank follows the
Superintendency of Banking regulations, until December 31, 2003 the Bank must
include in the solvency rate formula 80% of the Aggregate Market Value at Risk,
Ps 31,708 million of local currency.
SOLVENCY RATE FORMULA:
Capital/Risk_Weighted_Assets+(Var*(100/9))] > or = 9%
122
The Bank's average Total Market Risk Value for 2003 was Ps 46,897
million with a standard deviation of Ps 8,661 million. The maximum value during
2003 was Ps 58,822 million in March 2003, and the minimum value during 2003 was
Ps 37,286 million in November 2003. Most of the decline in the Total Market Risk
Value during 2003 can be explained by a reduction in the volatility of the local
currency risk factor. In addition, since the most influential factor of the
outcome of the Total Market Risk Value is the match between the TES risk factor
and the DTF risk factor during 2003, was that the duration of the TES has had a
reduction and causing a reduction on the duration of the current account,
resulting in a lower Aggregate VaR. This happens because as was mentioned before
the duration of the current accounts and savings accounts classified in the
first bracket is equal to five (5) days and the duration of the values
classified in each time horizon bracket is equal to the weighted average
duration of the assets for each of them.
COLCORP
The table below provides information about Colcorp's VaR
calculations for all Balance Sheet items that are in pesos. It shows the
following information for each group of assets and liabilities described in the
title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN LOCAL CURRENCY
(PS MILLION)
VALUE AT RISK FOR PS (LOCAL CURRENCY)
S NPV DUR Y (delta)I VaR
------------------------------------------------------------------------------------------------------------------------
ASSETS
------------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government -TES IPC Rate 950 17.31 12.76% 150 20
------------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government -(TES Not 48 3.00 11.48% 30 0
Included)
------------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By Financial Institutions 12,151 2.64 10.27% 30 8
------------------------------------------------------------------------------------------------------------------------
Other Marketable Trading Securities 16,218 12.55 14.48% 30 50
------------------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian Government -
TES Fixed Rate 2,175 0.27 10.05% 250 1
------------------------------------------------------------------------------------------------------------------------
Available For Sale Issued By The Colombian Government- (TES Not
Included) 1,649 2.31 5.41% 126 4
------------------------------------------------------------------------------------------------------------------------
Other Held To Maturity Securities 1,603 3.56 6.34% 126 6
------------------------------------------------------------------------------------------------------------------------
Commercial Loans- Variable Rate 10,830 4.24 12.17% 126 47
------------------------------------------------------------------------------------------------------------------------
Mortgage Loans In Pesos 626 38.97 13.71% 126 25
------------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By The Colombian
Government- TES IPC Rate 285 1.83 8.25% 150 1
------------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By The Colombian
Government- TES Fixed Rate 3,386 13.28 10.57% 150 55
------------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By Financial Institutions 833 5.08 10.29% 30 1
------------------------------------------------------------------------------------------------------------------------
Rights Buyback Held To Maturity Securities Issued By The Colombian
Government - (Other Than TES) 1,384 0.91 5.08% 126 1
------------------------------------------------------------------------------------------------------------------------
LIABILITIES
------------------------------------------------------------------------------------------------------------------------
Time Deposits 51,335 1.65 10.59% 126 88
------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 5,103 0.77 7.98% 250 8
------------------------------------------------------------------------------------------------------------------------
Interbank Borrowings 10,920 4.66 8.59% 126 53
------------------------------------------------------------------------------------------------------------------------
SECURITY DERIVATIVES
------------------------------------------------------------------------------------------------------------------------
Other Forward Contracts Rights 8,673 11.31 0.00% 30 24
------------------------------------------------------------------------------------------------------------------------
Forward Contracts Commitments To Discount (7,229) 0.07 0.00% 30 0
------------------------------------------------------------------------------------------------------------------------
Forward Contracts Rigths To Discount 906 0.07 12.34% 30 0
------------------------------------------------------------------------------------------------------------------------
FOREIGN EXCHANGE FORWARDS
------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Contracts Rights In Local Currency 5,556 0.30 8.00% 30 0
------------------------------------------------------------------------------------------------------------------------
123
The table below provides information about Colcorp's VaR
calculations for all Balance Sheet items that are in a currency other than pesos
or UVR. It shows the following information for each group of assets and
liabilities described in the title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN FOREIGN CURRENCY
(U.S. DOLLARS)
U.S. DOLLARS
----------------------------------------------------------------------------------------
ASSETS S NPV DUR Y (delta)I VaR
----------------------------------------------------------------------------------------
Trading Securities Issued By Financial 1,109 27.47 4.74% 12 3
Institutions
---------------------------------------------------------------------------------------
FOREIGN EXCHANGE FORWARDS
---------------------------------------------------------------------------------------
Foreign Exchange Contracts Commitments In
Foreign Currency 2,000 0.30 5.00% 12 -
---------------------------------------------------------------------------------------
The table below provides information about Colcorp's VaR
calculations for all Balance Sheet items that are in UVR. It shows the following
information for each group of assets and liabilities described in the title of
the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN UVR
UVR
-----------------------------------------------------------------------------------------------------------------
ASSETS S NPV DUR Y (delta)I VaR
-----------------------------------------------------------------------------------------------------------------
Trading Securities Issued By Financial Institutions 7,494,984 22.12 5.22% 12.4 17,053
-----------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian Government
- (Not Included TES) 14,148,200 102.36 0.00% 12.4 149,569
-----------------------------------------------------------------------------------------------------------------
The table below provides information about Colcorp's VaR
calculations for changes in the price of a currency other than peso. It shows
the following information for each group which represent an specific currency:
124
NET POSITION: Net position for that currency presented in
the original currency
PRICE: Price of the currency on the day of
calculation
PESOS VALUE: Net position of that currency presented in
pesos
(delta)i: Maximum variation of the price of the currency
VaR: Value at risk for the group for changes in the
price of the currency
FOREIGN EXCHANGE RISK AND PRICE RISK
-----------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY NET POSITION PRICE PESOS VALUE (delta)I VaR
-----------------------------------------------------------------------------------------------------------------------------------
U.S dollars 2,619 2,778,21 7,276 2.63% 191
-----------------------------------------------------------------------------------------------------------------------------------
VALUE AT RISK 7,276 191
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
UVR 21,643,184 137,84 2,983 3.90% 116
-----------------------------------------------------------------------------------------------------------------------------------
STOCK
-----------------------------------------------------------------------------------------------------------------------------------
Permanent Investments - Available For Sale - Tradable 55,549 6.00% 3,333
-----------------------------------------------------------------------------------------------------------------------------------
Permanent Investments - Available For Sale - Nontradable - Not 126,522 9.00% 13,664
Registered In Exchange
-----------------------------------------------------------------------------------------------------------------------------------
Investments In Investment Funds 10 6.00% 1
-----------------------------------------------------------------------------------------------------------------------------------
0
-----------------------------------------------------------------------------------------------------------------------------------
VALUE AT RISK 17,306
-----------------------------------------------------------------------------------------------------------------------------------
Ps million
--------------------------------------
RISK FACTOR VaR
--------------------------------------
--------------------------------------
DTF 27
Repo Rate (8)
Real Rate 23
Money Market USD 8
TES Rate 77
UVR 116
TRM 191
IBC 16,998
======================================
Colcorp's main assets are investments and stocks, and were the
most relevant factor affecting the IGBC risk factor and the TES risk factor
during 2003. Its liabilities are basically Certificates of Deposit, Interbanking
operations and repurchase agreements.
The average VaR for the IGBC during 2003 was Ps 19,168 million
with a standard deviation of Ps 2,046 million, and the average VaR for TES
during 2003 was Ps 544 million with a standard deviation of Ps 338 million. As
of December 31, 2003, Colcorp's Total Market Risk Value was Ps 16,893 million.
Its average Total Market Risk Value during 2003 was Ps 18,271 million, with a
maximum value during 2003 of Ps 20,776 million and a minimum value during 2003
of Ps 16,319 million. The main reason for the decline of Colcorp's Total Market
Risk Value during 2003 was the reduced volatility of the local currency risk
factor.
LEASING COLOMBIA
The table below provides information about Leasing Colombia's VaR
calculations for all Balance Sheet items that are in pesos. It shows the
following information for each group of assets and
125
liabilities described in the title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN LOCAL CURRENCY
(PS MILLION)
VALUE AT RISK FOR PESO ( LOCAL CURRENCY )
---------------------------------------------------------------------------------------------------------------
S NPV DUR Y (delta)I VaR
---------------------------------------------------------------------------------------------------------------
ASSETS
---------------------------------------------------------------------------------------------------------------
Overnight Funds 1,500 0.07 7.57% 135 0
---------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government -TES 4,288 15.01 10.64% 150 79
Fixed Rate
---------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government
-Other Than TES- 827 10.68 11.37% 30 2
---------------------------------------------------------------------------------------------------------------
Trading Securities Issued By Financial Institutions 1,814 1.10 9.22% 30 0
---------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian
Government - Other Than TES- 215 8.16 7.66% 126 2
---------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By Financial Institutions 4,159 0.99 4.98% 126 4
---------------------------------------------------------------------------------------------------------------
Commercial Loans- Fixed Rate 337 15.55 14.94% 126 5
---------------------------------------------------------------------------------------------------------------
Commercial Loans- Variable Rate 10,151 3.49 14.94% 126 37
---------------------------------------------------------------------------------------------------------------
Consumer Loans - Fixed Rate 2,869 16.26 14.94% 222 84
---------------------------------------------------------------------------------------------------------------
Consumer Loans - Variable Rate 24,049 2.78 14.94% 30 16
---------------------------------------------------------------------------------------------------------------
Small Loans - Fixed Rate 24 13.72 14.94% 222 1
---------------------------------------------------------------------------------------------------------------
Small Loans - Variable Rate 293 3.55 14.94% 30 0
---------------------------------------------------------------------------------------------------------------
Contingencies 514,981 6.10 14.94% 126 3,241
---------------------------------------------------------------------------------------------------------------
LIABILITIES
---------------------------------------------------------------------------------------------------------------
Time Deposits 297,248 3.07 9.28% 126 946
---------------------------------------------------------------------------------------------------------------
Repurchase Agreements 2,858 0.77 7.98% 250 4
---------------------------------------------------------------------------------------------------------------
Interbank Borrowings 137,477 9.64 9.31% 126 1,374
---------------------------------------------------------------------------------------------------------------
Long-Term Debt 36,994 3.46 9.28% 126 133
---------------------------------------------------------------------------------------------------------------
SECURITY DERIVATIVES
---------------------------------------------------------------------------------------------------------------
Forward Contracts Rights Issued By The Colombian
Government- TES Fixed Rate 2,257 13.28 10.57% 150 37
---------------------------------------------------------------------------------------------------------------
Forward Contracts Commitments To Discount (2,264) 1.13 5.31% 30 (1)
---------------------------------------------------------------------------------------------------------------
The table below provides information about Leasing Colombia's VaR
calculations for all Balance Sheet that are in a currency other than pesos or
UVR. It shows the following information for each group of assets and liabilities
described in the title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN FOREIGN CURRENCY
126
(U.S. DOLLARS)
U.S. DOLLARS
--------------------------------------------------------------------------------------------------------------
LIABILITIES S NPV DUR Y (delta)I VaR
--------------------------------------------------------------------------------------------------------------
Interbank Borrowings 265 0.56 2.14% 41.18 -
-------------------------------------------------------------------------------------------------------------
The table below provides information about Leasing Colombia's VaR
calculations for all Balance Sheet items that are in UVR. It shows the following
information for each group of assets and liabilities described in the title of
the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN UVR
UVR
--------------------------------------------------------------------------------------------------------------------
ASSETS S NPV DUR Y (delta)I VaR
--------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By Financial Institutions 17,385,763 54.60 12.53% 12.4 97,068
--------------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian Government 34,164,000 101.79 0.00% 12.4 359,148
- Other Than TES-
--------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By The Colombian 21,101,800 4.87 2.38% 12.4 10,585
Government- TES Fixed Rate
--------------------------------------------------------------------------------------------------------------------
The table below provides information about Leasing Colombia's VaR
calculations for changes in the price of a currency other than pesos. It shows
the following information for each group which represent a specific currency:
NET POSITION: Net position for that currency presented in
the original currency
PRICE: Price of the currency on the day of
calculation
PESOS VALUE: Net position of that currency presented in
pesos
(delta)i: Maximum variation of the price of the currency
VaR: Value at risk for the group for changes in the
price of the currency
FOREIGN EXCHANGE RISK AND PRICE RISK
----------------------------------------------------------------------------------------------------
FOREIGN CURRENCY NET POSITION PRICE PESOS VALUE (delta)I VaR
---------------------------------------------------------------------------------------------------------------
U.S. dollars (265) 2,778,21 (736) 2.63% (19)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
VALUE AT RISK (736) (19)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
UVR 72,651,563 137,84 10,015 3.90% 391
---------------------------------------------------------------------------------------------------------------
STOCK
---------------------------------------------------------------------------------------------------------------
Investments In Investment Funds 1,191,127 6.00% 86
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
VALUE AT RISK 457
---------------------------------------------------------------------------------------------------------------
127
Ps million
----------------------------------------
RISK FACTOR VaR
----------------------------------------
----------------------------------------
DTF 855
Repo Rate (4)
Real Rate 64
Consumer Loans Rate 85
TES Rate 116
UVR 391
TRM (19)
IBC 86
========================================
Leasing Colombia's main assets are the leasing operations that are
shown in the contingency entry, where the risk factor is the DTF. Its
liabilities are basically Certificates of Deposit and loans form banks where the
DTF is also the main risk factor.
The average VaR for the DTF during 2003 was Ps 912 million with a
standard deviation of Ps 862 million. As of December 31, 2003, Total Market Risk
Value was Ps 1,342 million. The average Total Market Risk Value during 2003 was
Ps 1,403 million, with a maximum value during 2003 of Ps 1,831 million and a
minimum value of Ps 870 million. The main reason for the decline of Leasing
Colombia's Total Market Risk Value during 2003 was the reduced volatility of the
local currency risk factor.
SUFINANCIAMIENTO
The table below provides information about Sufinanciamiento's VaR
calculations for all Balance Sheet items that are in pesos. It shows the
following information for each group of assets and liabilities described in the
title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN LOCAL CURRENCY
(PS MILLION)
VALUE AT RISK FOR PESO ( LOCAL CURRENCY )
---------------------------------------------------------------------------------------------------------
S NPV DUR Y (delta)I VaR
---------------------------------------------------------------------------------------------------------
ASSETS
Overnight Funds 501 0.33 7.92% 135 0
---------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government 332 22.75 8.21% 30 2
-Other Than TES-
---------------------------------------------------------------------------------------------------------
Other Marketable Trading Securities 3,135 22.29 8.97% 30 17
---------------------------------------------------------------------------------------------------------
Commercial Loans- Fixed Rate 4,194 3.35 25.62% 126 14
---------------------------------------------------------------------------------------------------------
Commercial Loans- Variable Rate 128,178 0.52 29.73% 126 68
---------------------------------------------------------------------------------------------------------
Consumer Loans - Fixed Rate 12,640 3.28 26.18% 222 74
---------------------------------------------------------------------------------------------------------
Consumer Loans - Variable Rate 153,786 0.51 29.72% 30 19
---------------------------------------------------------------------------------------------------------
Other Assets 1,335 0.54 29.72% 126 1
---------------------------------------------------------------------------------------------------------
LIABILITIES
---------------------------------------------------------------------------------------------------------
Time Deposits 235,543 2.92 10.07% 126 713
---------------------------------------------------------------------------------------------------------
Interbank Borrowings 19,739 0.74 7.94% 126 15
---------------------------------------------------------------------------------------------------------
128
The table below provides information about Sufinanciamiento's VaR
calculations for changes in the price of a currency other than pesos. It shows
the following information for each group which represent an specific currency:
NET POSITION: Net position for the currency presented in
the original currency
PRICE: Price of the currency on the day of
calculation
PESOS VALUE: Net position of the currency presented in
pesos
(delta)i: Maximum variation of the price of the currency
VaR: Value at risk for the group for changes in the
price of the currency
FOREIGN EXCHANGE RISK AND PRICE RISK
------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY NET POSITION PRICE PESOS VALUE (delta)I VaR
------------------------------------------------------------------------------------------------------------------
STOCK
------------------------------------------------------------------------------------------------------------------
Permanent Investments - Available For Sale - Tradable 9,849 6.00% 591
------------------------------------------------------------------------------------------------------------------
Ps million
----------------------------------------
RISK FACTOR VaR
----------------------------------------
---------------------------------------
DTF (606)
Consumer Loans Rate 74
IBC -
=======================================
Sufinanciamiento's main assets are loans, were the risk factor is
the DTF. Its liabilities are basically Certificates of Deposit and loans form
banks where the DTF is also the main risk factor.
The average VaR for the DTF during 2003 was Ps -627 million with a
standard deviation of Ps 183 million. As of December 31, 2003 Total Market Risk
Value was Ps 536 million. The average Total Market Risk Value of
Sufinanciamiento during 2003 was Ps 571 million, a maximum value of Ps 869
million and a minimum value of Ps 359 million. The main reason for the decline
of Sufinanciamiento's Total Market Risk Value during 2003 was the reduced
volatility of the local currency risk factor.
FIDUCOLOMBIA
The table below provides information about Fiducolombia's VaR
calculations for all Balance Sheet items that are in pesos. It shows the
following information for each group of assets and liabilities described in the
title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
129
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN LOCAL CURRENCY
(PS MILLION)
VALUE AT RISK FOR PESO ( LOCAL CURRENCY )
--------------------------------------------------------------------------------------------------------------
ASSETS S NPV DUR Y (delta)I VaR
--------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government -TES 7,351 5.19 10.37% 150 47
Fixed Rate
--------------------------------------------------------------------------------------------------------------
Other Trading Securities Issued By The Colombian Government 2,051 9.51 10.08% 30 5
( Other Than TES )
--------------------------------------------------------------------------------------------------------------
Trading Securities Issued By Financial Institutions 15,752 2.16 9.73% 30 8
--------------------------------------------------------------------------------------------------------------
Other Marketable Trading Securities 6,557 5.46 10.89% 30 9
--------------------------------------------------------------------------------------------------------------
Held To Maturity Securities Issued By The Colombian
Government - TES Fixed Rate 9,331 10.74 12.69% 250 204
--------------------------------------------------------------------------------------------------------------
Available For Sale Securities Issued By The Colombian
Government - TES Fixed Rate 4,092 30.03 12.59% 250 251
--------------------------------------------------------------------------------------------------------------
Available For Sale Issued By The Colombian Government- TES
Fixed Rate
--------------------------------------------------------------------------------------------------------------
The table below provides information about Fiducolombia's VaR
calculations for all Balance Sheet items that are in a currency other than pesos
or UVR. It shows the following information for each group of assets and
liabilities described in the title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN FOREIGN CURRENCY
(U.S. DOLLARS)
U.S. DOLLARS
---------------------------------------------------------------------------------------------------
ASSETS S NPV DUR Y (delta)I VaR
---------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government 133 10.60 2.13% 12 -
-TES Index TRM
--------------------------------------------------------------------------------------------------
The table below provides information about Fiducolombia's VaR
calculations for all Balance Sheet items that are in UVR. It shows the following
information for each group of assets and liabilities described in the title of
the group:
130
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate
INTEREST RATE RISK IN UVR
UVR
--------------------------------------------------------------------------------------------------------
ASSETS S NPV DUR Y (delta)I VaR
--------------------------------------------------------------------------------------------------------
Other Marketable Trading Securities 43,9091.49 27.87 3.57% 12.4 126,026
--------------------------------------------------------------------------------------------------------
The table below provides information about Fiducolombia's VaR
calculations for changes in the price of a currency other than pesos. It shows
the following information for each group which represent an specific currency:
NET POSITION: Net position for the currency presented in
the original currency
PRICE: Price of the currency on the day of
calculation
PESOS VALUE: Net Position of that currency presented in
Pesos
(delta)i: Maximum variation of the price of the currency
VaR: Value at risk for the group for changes in the
price of the currency
FOREIGN EXCHANGE RISK AND PRICE RISK
--------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY NET POSITION PRICE PESOS VALUE (delta)I VaR
--------------------------------------------------------------------------------------------------------------------------
U.S dollars 133 2,778,21 368 2.63% 10
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
VALUE AT RISK 368 10
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
UVR 43,909,149 137,84 6,053 3.90% 236
--------------------------------------------------------------------------------------------------------------------------
STOCK
--------------------------------------------------------------------------------------------------------------------------
Permanent Investments - Available For Sale - Nontradable -
Not Registered In Exchange 1,052 9.00% 114
--------------------------------------------------------------------------------------------------------------------------
Investments In Investment Funds 108 6.00% 8
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
VALUE AT RISK 367
--------------------------------------------------------------------------------------------------------------------------
Ps million
-----------------------------------------
RISK FACTOR VaR
-----------------------------------------
-----------------------------------------
DTF 22
Real Rate 17
TES Rate 502
UVR 236
TRM 10
IBC 121
=========================================
131
Fiducolombia's Total Market Risk Value relates to its investments.
The most significant risk factor is the TES. The average VaR for the TES during
2003 was Ps 436 million with a standard deviation of Ps 134 million. As of
December 31, 2003, the Total Market Risk Value was Ps 606 million. The average
Total Market Risk Value of Fiducolombia during 2003 was Ps 509 million, with a
maximum value of Ps 658 million and a minimum value of Ps 338 million. The main
reason for the decline of Fiducolombia's Total Market Risk Value during 2003 was
the reduced volatility of the local currency risk factor.
COMICOL
The table below provides information about Comicol's VaR
calculations for all Balance Sheet items that are in pesos. It shows the
following information for each group of assets and liabilities described in the
title of the group:
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate.
INTEREST RATE RISK IN LOCAL CURRENCY
(PS MILLION)
VALUE AT RISK FOR PESO (LOCAL CURRENCY)
-------------------------------------------------------------------------------------------------------------------------------
NPV DUR Y (delta)I VaR
-------------------------------------------------------------------------------------------------------------------------------
ASSETS
Trading Securities Issued By The Colombian Government -TES Dtf Rate 2,814.23 1.96 9.61% 150 6.79
-------------------------------------------------------------------------------------------------------------------------------
Other Trading Securities 2,667.10 7.17 9.05% 30 4.74
-------------------------------------------------------------------------------------------------------------------------------
Available For Sale Issued By The Colombian Government- (TES Not
Included) 53.55 27.30 7.94% 126 1.52
-------------------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By The Colombian Government-
TES IPC Rate 25,638.16 31.24 12.21% 150 984.91
-------------------------------------------------------------------------------------------------------------------------------
Rights Buyback Other Trading Securities Issued By The Colombian
Government ( TES Not Included ) 240.17 50.34 15.21% 30 2.98
-------------------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By Financial Institutions 502.05 2.84 9.89% 30 0.35
-------------------------------------------------------------------------------------------------------------------------------
Rights Buyback Other Marketable Trading Securities 2,246.31 7.13 9.22% 30 3.97
-------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 65,069 0.12 2.03% 250 17
-------------------------------------------------------------------------------------------------------------------------------
The table below provides information about Comicol's VaR
calculations for all Balance Sheet items that are in UVR. It shows the following
information for each group of assets and liabilities described in the title of
the group:
132
NPV: Sum of the net present value for the group
DUR: Weighted average duration for the group
Y: Weighted average yield for the group
(delta)i: Maximum variation of the interest rate
VaR: Value at risk for the group for changes in the
interest rate.
INTEREST RATE RISK IN UVR
UVR
--------------------------------------------------------------------------------------------------------------------
ASSETS NPV DUR Y (delta)I VaR
--------------------------------------------------------------------------------------------------------------------
Trading Securities Issued By The Colombian Government-TES 8,738,991 30.89 3.76% 12.4 27,797
Fixed Rate
--------------------------------------------------------------------------------------------------------------------
Rights Buyback Trading Securities Issued By The Colombian 265,961,500 36.10 5.60% 12.4 987,161
Government-TES Fixed Rate
--------------------------------------------------------------------------------------------------------------------
The table below provides information about Comicol's VaR
calculations for changes in the price of a currency other than pesos. It shows
the following information for each group which represent an specific currency:
NET POSITION: Net position for that currency presented in the
original currency
PRICE: Price of the currency on the day of calculation
PESOS VALUE: Net position of that currency presented in
pesos
(delta)i: Maximum variation of the price of the currency
VaR: Value at risk for the group for changes in the
price of the currency
FOREIGN EXCHANGE RISK AND PRICE RISK
---------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY NET POSITION PRICE PESOS VALUE (delta)I VaR
---------------------------------------------------------------------------------------------------------
UVR 255,811,275 137.84 35,262 3.90% 1,375
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Stock
---------------------------------------------------------------------------------------------------------
Trading Investments - Tradable 500 6.00% 30
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Value at risk 1,405
---------------------------------------------------------------------------------------------------------
Ps million
----------------------------------------
RISK FACTOR VaR
----------------------------------------
----------------------------------------
DTF 14
Repo Rate (17)
Real Rate 140
TES Rate 992
UVR 1.375
IBC 30
========================================
133
Comicol's Total Market Risk Value is determined by the Company's
investment. The most significant risk factor during 2003 was the TES. The
average VaR for the TES during 2003 was Ps 1,222 million with a standard
deviation of Ps 682 million. As of December 31, 2003, the Total Market Risk
Value was Ps 2,156 million. The average Total Market Risk Value of Comicol
during 2003 was Ps 1,571 million. The main reason for the decline of Comicol's
Total Market Risk Value during 2003 was the reduced volatility of the local
currency risk factor.
BANCOLOMBIA (PANAMA) AND BANCOLOMBIA CAYMAN
-----------------------------------------------
RISK FACTORS VaR
-----------------------------------------------
Republic of Colombia 2008 2,662
-----------------------------------------------
Republic of Colombia 2004 5
-----------------------------------------------
Republic of Colombia 2009 4,258
-----------------------------------------------
Republic of Colombia 2011 70
-----------------------------------------------
Republic of Colombia 2006 393
-----------------------------------------------
Republic of Colombia 2012 271
-----------------------------------------------
Republic of Colombia 2010 47
-----------------------------------------------
Republic of Colombia 2016 189
-----------------------------------------------
Libor 3 months 4
-----------------------------------------------
Republic of Colombia 2005 7
-----------------------------------------------
C-Bond 72
-----------------------------------------------
Corporate 2006 (Enersis S.A) 233
-----------------------------------------------
Corporate 2004 (Ecopetrol) 0
-----------------------------------------------
INMEX 208
-----------------------------------------------
Corporate 2006 (FEN) 317
-----------------------------------------------
Republic of Panama 2026 31
-----------------------------------------------
Structured notes 1,064
-----------------------------------------------
Libor 1 month 2
-----------------------------------------------
Corporate 2004 (ABN Amro) 1
-----------------------------------------------
Corporate 2004 (Itau) 202
-----------------------------------------------
Corporate 2004 (Unibanco) 14
-----------------------------------------------
Corporate 2004 (Bradesco) 6,867
-----------------------------------------------
Libor 12 months 375,258
-----------------------------------------------
Libor 6 months 179,370
===============================================
Bancolombia Panama and Cayman apply the same VaR methodology to
measure the market risk. The only difference is that the Bank calculates the
volatility of the risk factors using the JP Morgan risk metrics methodology. As
we mentioned before in Bancolombia we use the volatilities published by The
Superintendency of Banking. Bancolombia Panama and Cayman measure the market
value at risk since August, 2003.
134
Bancolombia Panama and Cayman's market risks are mainly related to
their portfolio of investments, which are concentrated on securities issued by
the Republic of Colombia. As of December 31, 2003, the Total Market Risk Value
was US$9,125,739. The average Total Market Risk Value during this short period
of time was US$10,267,616 with a maximum value of US$12,108,114 and a minimum
value of US$8,759,259. The increment of the market VaR of November was
determined principally by the volatility of the Colombian securities due to the
uncertainty of the Referendum result and impact on the Colombian economy.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There has not been a material default in the payment of principal,
interest, a sinking or purchase fund installment in BC operation.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
An evaluation has been carried out, under the supervision and with
the participation of BC's management, including President Jorge Londono
Saldarriaga and Finance Vice-President Jaime Alberto Velasquez Botero, of the
effectiveness of the design and operation of our "disclosure controls and
procedures" as defined in Exchange Act Rules 13a-14(c) and 15d-14(c). Our
disclosure controls and procedures are designed to ensure that the financial and
non-financial information required to be disclosed in reports that we file or
submit under the Exchange Act, is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. Based upon that
evaluation, our management, including the President Jorge Londono Saldarriaga
and Finance Vice-President Jaime Alberto Velasquez Botero, concluded that our
disclosure controls and procedures are effective.
There have been no changes in BC's internal control during the
period covered by the Annual Report that has materially affected, or is
reasonably likely to materially affect, BC's internal control over financial
reporting.
ITEM 16. RESERVED
ITEM.16.A AUDIT COMMITTEE FINANCIAL EXPERT
Jose Alberto Velez Cadavid serves as the board of directors audit
committee financial expert, complying with the requirements of Sarbanes Oxley
Act regarding audit committee financial experts.
135
ITEM.16.B CODE OF ETHICS
BC has adopted a Code of Ethics, approved on December 18, 2003 by
its Board of Directors according to Colombian law and BC's by-laws, which
applies to all its directors, officers and employees. The text of such Code of
Ethics is available ON WWW.BANCOLOMBIA.COM. We are not incorporating by
reference the website or any material it contains into this filing.
ITEM.16.C PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed under the caption audit fees for
professional services rendered to BC for the audit of its financial statements
and for services that are normally provided in connection with statutory or
regulatory filings or engagements, totaled Ps 908 million at December 31, 2002
and Ps 1,509 million at December 31, 2003.
There were no fees corresponding to audit related fees, tax fees
or other fees billed to BC in the last two years.
The Bank's audit committee charter includes the following
pre-approval policies and procedures, which are included in the audit
committee's charters:
The audit committee will approve each year the work plan of the
external auditors, which will include all services that according to the
applicable law may be rendered by the external auditors.
For those events in which additional services are required to be
provided by the external auditors, such services must be previously approved by
the audit committee. Whenever this approval cannot be given at a meeting held by
the audit committee, the approval will be obtained through the Vice Presidency
of Internal Audit, who will be responsible of reaching each of the audit
committee members. The approval will be obtained with the favorable vote of the
majority of its members.
Every request of approval of additional services must be
adequately sustained, including complete and effective information regarding the
characteristics of the service that will be provided by the external auditors.
In all cases, the budget of the external auditors must be approved by the
General Shareholders Meeting.
FINANCIAL STATEMENTS.
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to pages F - 1 through F - 100.
136
ITEM 19. EXHIBITS
The following exhibits are filed as part of this annual report.
1. Corporate by-laws (estatutos sociales) of the registrant,
as amended through February 26, 2004, together with an
English translation.
2. Consent of Deloitte & Touche Ltda.
3. Consent of KPMG Ltda.
4.1. Stock Subscription Agreement, dated as of March 28, 2000,
by and among Bancolombia S.A., Capital International
Global Emerging Markets Private Equity Fund, L.P., and
certain other investors listed on Schedule A thereto.
4.2. Shareholders Agreement, dated as of March 28, 2000, by
and among Bancolombia S.A., Capital International Global
Emerging Markets Private Equity Fund, L.P., and certain
other investors listed on Schedule A thereto.
4.3. Registration Rights Agreement, dated as of March 28,
2000, by and among Bancolombia S.A., Capital
International Global Emerging Markets Private Equity
Fund, L.P., and certain other investors listed on
Schedule A thereto.
Exhibits 4.1., 4.2. and 4.3. have been filed with the Commission
together with BC's Annual Report on Form 20-F for the fiscal year 1999 and are
incorporated by reference into this Annual Report.
137
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf.
Dated: March 26, 2004
BANCOLOMBIA S.A.
By: /s/ JAIME ALBERTO VELASQUEZ B.
-----------------------------------
Name: Jaime Alberto Velasquez B.
Title: Vice President, Finance
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-2
INDEPENDENT AUDITORS' REPORT F-3
CONSOLIDATED BALANCE SHEETS
Year Ended December 31, 2002 and 2003 F-4
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 2001, 2002 and 2003 F-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended December 31, 2001, 2002 and 2003 F-8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2001, 2002 and 2003 F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-11
[DELOITTE LOGO] Deloitte & Touche Ltda.
Edificio Corfivalle
Calle 16 Sur N degrees 43A - 49
Piso 9 y 10
A.A. 404
Nit. 860.005.813-4
INDEPENDENT AUDITORS' REPORT Medellin
Colombia
To the Board of Directors and Tel. +57(4) 3138899
Shareholders of Bancolombia S.A.: Fax: +57(4) 3133225
www.deloitte.com
We have audited the accompanying consolidated balance sheet of Bancolombia
S.A. and subsidiaries ("the Bank") as of December 31, 2003 and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the year ended December 31, 2003 set out in pages F-4 to
F-100. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, referred to above,
present fairly, in all material respects, the financial position of the
Bank as of December 31, 2003, and the results of their operations and their
cash flows for the year ended December 31, 2003, in conformity with
accounting principles generally accepted in Colombia for financial
institutions.
Accounting principles generally accepted in Colombia for financial
institutions vary in certain respects from accounting principles generally
accepted in the United States of America. The application of the latter
would have affected the determination of net income for the year ended
December 31, 2003 and the determination of shareholders' equity as of
December 31, 2003, to the extent summarized in note 30 to the consolidated
financial statements.
Our audits also comprehended the translation of Colombian pesos amounts
into U.S. dollar amounts and, in our opinion, such translation has been
made in conformity with the basis stated in note 2(ab). Such U.S. dollar
amounts are presented solely for the convenience of readers outside
Colombia.
/s/ DELOITTE & TOUCHE LTDA
Medellin, Colombia,
March 15, 2004.
Audit,Tax.Consulting.Financial Advisory. Una firma miembro de
Deloitte Touche Tohmatsu
[KPMG Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Bancolombia S.A.:
We have audited the accompanying consolidated balance sheets of Bancolombia
S.A., and subsidiaries as of December 31, 2002, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 2002. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bancolombia S.A. and
subsidiaries as of December 31, 2002, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
2002, in conformity with accounting principles generally accepted in Colombia
for financial institutions.
As discussed in Note 2g to the financial statements, the Colombia
Superintendency of Banking issued External Circular 033, which changes the
method for classification and valuation of investment securities, effective
September 2, 2002.
Accounting practices prescribed by the Colombia Superintendency of Banking, as
described in Note 2 to the consolidated financial statements, vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of accounting principles generally accepted
in the United States of America would have affected consolidated results of
operations and consolidated stockholders' equity for each of the years in the
two-year period ended December 31, 2002, to the extent summarized in Note 30 to
the consolidated financial statements.
/s/ KPMG Ltda
Medellin, Colombia
January 21, 2003, except note 30,
which is as of March 12, 2003.
BANCOLOMBIA S.A. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2003
(Stated in millions of pesos and thousands of U.S. dollars)
ASSETS 2002 2003 2003 (1)
------------ ------------ --------------
U.S. DOLLAR
Cash and cash equivalents:
Cash and due from banks (Note 4) Ps 643,405 Ps 848,052 US$ 302,099
Overnight funds 207,684 598,409 213,169
------------ ------------ --------------
TOTAL CASH AND CASH EQUIVALENTS 851,089 1,446,461 515,268
------------ ------------ --------------
Investment securities (Note 5):
Trading securities 1,688,404 1,656,084 589,942
Available for sale, net 2,047,073 1,962,066 698,941
Held to maturity, net 607,981 718,574 255,975
------------ ------------ --------------
TOTAL INVESTMENT SECURITIES 4,343,458 4,336,724 1,544,858
------------ ------------ --------------
Loans (Note 6 and 27):
Commercial 5,219,460 6,624,494 2,359,823
Consumer 870,898 1,273,159 453,533
Small business loans 68,863 83,854 29,871
Mortgage 38,094 48,161 17,156
------------ ------------ --------------
6,197,315 8,029,668 2,860,383
Less allowance for loan losses (Note 7) (332,324) (387,263) (137,953)
------------ ------------ --------------
LOANS, NET 5,864,991 7,642,405 2,722,430
------------ ------------ --------------
Accrued interest receivable on loans:
Accrued interest receivable on loans 98,533 108,379 38,608
Less allowance for accrued interest losses (Note 7) (15,074) (5,170) (1,842)
------------ ------------ --------------
INTEREST ACCRUED, NET 83,459 103,209 36,766
------------ ------------ --------------
Customers' acceptances and derivatives (Note 8) (15,662) 1,539 548
Accounts receivable, net (Note 9 and 27) 181,663 167,423 59,641
Premises and equipment, net (Note 10) 317,724 337,964 120,392
Leases, net (Note 10) 341,791 533,093 189,902
Prepaid expenses, deferred charges and
other assets (Note 11) 293,959 294,698 104,978
Foreclosed assets, net (Note 12) 77,299 59,200 21,089
Reappraisal of assets (Note 13) 259,811 253,413 90,273
------------ ------------ --------------
Ps12,599,582 Ps15,176,129 US$ 5,406,145
============ ============ ==============
Memorandum accounts (Note 22) Ps46,798,693 Ps59,814,787 US$ 21.307.633
============ ============ ==============
F-4
BANCOLOMBIA S.A. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2003
(Stated in millions of pesos and thousands of U.S. dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2003 2003 (1)
------------ ------------ --------------
U.S. DOLLAR
Deposits (Note 27)
Non-interest bearing:
Checking accounts Ps 1,876,026 Ps 2,193,069 US$ 781,230
Other 94,573 126,718 45,140
Interest bearing:
Checking accounts 815,367 1,353,123 482,019
Time deposits 3,603,466 4,237,345 1,509,456
Savings deposits 2,398,726 2,321,742 827,067
------------ ------------ --------------
TOTAL DEPOSITS 8,788,158 10,231,997 3,644,912
------------ ------------ --------------
Overnight funds 610,158 1,118,139 398,311
Bank acceptances outstanding 31,050 35,833 12,765
Interbank borrowings (Note 14) 403,962 456,059 162,460
Borrowings from domestic development banks (Note 15) 713,053 755,536 269,142
Accounts payable 355,772 451,501 160,837
Accrued interest payable 73,487 93,818 33,421
Other liabilities (Note 16) 170,572 174,317 62,098
Long-term debt (Note 17) 62,782 71,818 25,583
Accrued expenses (Note 18) 55,104 56,173 20,010
Minority interest in consolidated subsidiaries 51,136 41,559 14,804
------------ ------------ --------------
TOTAL LIABILITIES 11,315,234 13,486,750 4,804,343
------------ ------------ --------------
Stockholders' equity (Notes 19 and 21):
Subscribed and paid in capital:
Nonvoting preference shares 101,579 101,579 36,185
Common shares 253,540 253,540 90,318
Retained earnings:
Appropriated (Note 20) 566,187 740,354 263,734
Unappropriated 210,380 469,384 167,207
Reappraisal of assets, net (Note 13) 37,368 30,086 10,717
Gross unrealized gain or loss on investments 115,294 94,436 33,641
------------ ------------ --------------
STOCKHOLDERS' EQUITY 1,284,348 1,689,379 601,802
------------ ------------ --------------
Commitments and contingencies (Note 23)
------------ ------------ --------------
Ps12,599,582 Ps15,176,129 US$ 5,406,145
============ ============ ==============
Memorandum accounts (Note 22) Ps46,798,693 Ps59,814,787 US$ 21,307,633
============ ============ ==============
See accompanying notes to consolidated financial statements.
(1) See Note 2 (ab)
F-5
BANCOLOMBIA S.A. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2001, 2002, 2003
(Stated in millions of pesos and thousands of U.S. dollars, except per
share data)
2001 2002 2003 2003 (1)
------------ ------------ ------------- -----------
U.S. DOLLAR
Interest income:
Loans in local currency Ps 747,543 Ps 671,657 Ps 849,441 US$ 302,594
Loans in foreign currency 63,903 54,455 69,331 24,698
------------ ------------ ------------- -----------
TOTAL INTEREST ON LOANS 811,446 726,112 918,772 327,292
------------ ------------ ------------- -----------
Investment securities 48,658 247 476,720 169,820
Overnight funds and other 21,653 11,825 4,763 1,696
------------ ------------ ------------- -----------
TOTAL INTEREST INCOME 881,757 738,184 1,400,255 498,808
------------ ------------ ------------- -----------
Interest expense:
Checking accounts 22,327 12,975 11,622 4,140
Time deposits 304,012 260,278 249,911 89,025
Savings deposits 113,156 106,825 113,968 40,599
------------ ------------ ------------- -----------
TOTAL INTEREST ON DEPOSITS 439,495 380,078 375,501 133,764
------------ ------------ ------------- -----------
Interbank borrowings 20,160 9,404 5,293 1,886
Borrowings from domestic development banks 40,722 49,317 58,456 20,824
Overnight funds 27,120 26,645 38,423 13,687
Long-term debt 1,577 779 2,840 1,011
------------ ------------ ------------- -----------
TOTAL INTEREST EXPENSE 529,074 466,223 480,513 171,172
------------ ------------ ------------- -----------
NET INTEREST INCOME 352,683 271,961 919,742 327,636
------------ ------------ ------------- -----------
Provision for loans and accrued interest losses,
net of recoveries (Note 7) 73,953 115,154 162,058 57,729
Provision for foreclosed assets and other assets 63,537 71,212 68,892 24,541
------------ ------------ ------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOANS,
AND ACCRUED INTEREST, FORECLOSED ASSETS
AND OTHER ASSETS, LOSSES 215,193 85,595 688,792 245,366
------------ ------------ ------------- -----------
Other operating income:
Fees and service charges, net (Note 24) 265,382 292,308 333,025 118,632
Foreign exchange gains, net 20,345 93,371 39,262 13,986
Dividend income (Note 5) 2,665 19,491 30,734 10,948
Forward contracts 52,890 (62,612) 10,489 3,736
Financing leases 35,410 39,596 58,774 20,937
Gains on sales of investments, net 159,883 372,793 75,540 26,909
Revenues from commercial subsidiaries 47,619 52,759 76,446 27,232
Other 35,994 21,271 50,377 17,947
------------ ------------ ------------- -----------
TOTAL OTHER OPERATING INCOME Ps 620,188 Ps 828,977 Ps 674,647 US$ 240.327
------------ ------------ ------------- -----------
F-6
BANCOLOMBIA S.A. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2001, 2002, 2003
(Stated in millions of pesos and thousands of U.S. dollars, except per
share data)
2001 2002 2003 2003 (1)
------------ ------------ ------------- -----------
U.S. DOLLAR
Operating expenses:
Salaries and employee benefits Ps 250,456 Ps 286,307 Ps 343,308 US$ 122,296
Severance benefits 35,014 29,575 22,959 8,179
Administrative and other expenses (Note 25) 333,321 362,495 403,462 143,723
Depreciation (Note 10) 35,965 34,444 40,625 14,472
Losses on sales of loans, net - 9,952 - -
Merger expenses 42,207 33,028 22,649 8,068
Goodwill amortization - - 36,347 12,948
------------ ------------ ------------- -----------
TOTAL OPERATING EXPENSES 696,963 755,801 869,350 309,686
------------ ------------ ------------- -----------
Non-operating income (expense):
Other income 94,597 131,026 83,041 29,581
Other expense (43,597) (51,239) (45,441) (16,187)
------------ ------------ ------------- -----------
TOTAL NON-OPERATING INCOME 51,000 79,787 37,600 13,394
------------ ------------ ------------- -----------
Income before minority interest and
provision for income taxes 189,418 238,558 531,689 189,401
------------ ------------ ------------- -----------
Minority interest (1,310) 14,440 330 118
Provision for income taxes (Note 18) 31,575 42,618 62,635 22,312
------------ ------------ ------------- -----------
NET INCOME Ps 156,533 Ps 210,380 Ps 469,384 US$ 167,207
============ ============ ============= ===========
EARNINGS PER SHARE Ps 271 Ps 365 Ps 814 US$ 0.29
============ ============ ============= ===========
See accompanying notes to consolidated financial statements.
(1) See Note 2 (ab)
F-7
BANCOLOMBIA S.A. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 2001, 2002 and 2003
(Stated in millions of pesos and thousands of U.S. dollars, except share data)
Non Voting Preferred Shares Voting Common Shares Retained earnings
--------------------------- ------------------------ ------------------------
Appro- Unappro-
Number Value Number Value priated priated
----------- ------------- ----------- ---------- ---------- -----------
Balance at December 31, 2000 178,435,787 101,579 398,259,608 253,540 Ps 577,397 (113,990)
Net Income - - - - - 156,533
Transfer to appropriated retained earnings - - - - (113,990) 113,990
Valuation of investment - - - - - -
Dividends Declared - - - - (20,760) -
Other - - - - (3,929) -
----------- ------------- ----------- ---------- ---------- -----------
Balance at December 32, 2001 178,435,787 101,579 398,259,608 253,540 438,718 156,533
Net Income - - - - 210,380
Transfer to appropriated retained earnings - - - - 156,533 (156,533)
Valuation of investment - - - - - -
Dividends Declared - - - - (48,442) -
Other - - - - 19,378 -
----------- ------------- ----------- ---------- ---------- -----------
Balance at December 31, 2002 178,435,787 Ps 101,579 398,259,608 Ps 253,540 Ps 566,187 Ps 210,380
Net Income - - - - - 469,384
Transfer to appropriated retained earnings - - - - 210,380 (210,380)
Valuation of investment - - - - - -
Dividends Declared - - - - (76,124) -
Other - - - - 39,911 -
----------- ------------- ----------- ---------- ---------- -----------
Balance at December 31, 2003 178,435,787 Ps 101,579 398,259,608 Ps 253,540 Ps 740,354 Ps 469,384
=========== ============= =========== ========== ========== ===========
Balance at December 31, 2003 (Unautlited)(1) 178,435,787 US$ 36,185 398,259,608 US$ 90,318 US$263,734 US$ 167,207
=========== ============= =========== ========== ========== ===========
Surplus
------------------------------ -------------
Gross unrealized Total
Reappraisal gain or loss stockholders'
of assets on investments equity
----------- ---------------- -------------
Balance at December 31, 2000 Ps 47,357 - 865,883
Net Income - - 156,533
Transfer to appropriated retained earnings - - -
Valuation of investment (27,276) - (27,276)
Dividends Declared - - (20,760)
Other - - (3,929)
----------- ---------------- -------------
Balance at December 32, 2001 20,081 - 970,451
Net Income - - 210,380
Transfer to appropriated retained earnings - - -
Valuation of investment 17,287 115,294 132,581
Dividends Declared - - (48,442)
Other - - 19,378
----------- ---------------- -------------
Balance at December 31, 2002 Ps 37,368 Ps 115,294 1,284,348
Net Income - - 469,384
Transfer to appropriated retained earnings - - -
Valuation of investment (7,282) (20,858) (28,140)
Dividends Declared - - (76,124)
Other - - 39,911
----------- ---------------- -------------
Balance at December 31, 2003 Ps 30,086 Ps 94,436 Ps 1,689,379
=========== ================ =============
Balance at December 31, 2003 (Unautlited)(1) US$ 10,717 US$ 33,641 US$ 601,802
=========== ================ =============
See accompanying notes to consolidated financial statements.
(1) See Note 2 (ab)
F-8
BANCOLOMBIA S.A. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2002, 2003
(Stated in millions of pesos and thousands of U.S. dollars)
2001 2002 2003 2003 (1)
---------- --------- ----------- ----------
U.S. DOLLAR
Cash flows from operating activities:
Net income Ps 156,533 Ps210,380 Ps 469,384 US$167,207
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation 35,965 34,444 40,625 14,472
Amortization 67,177 57,943 86,010 30,639
Minority interest 18,027 (8,043) (9,577) (3,411)
Provision for loans, accrued interest and
accounts receivable losses 95,497 153,004 305,673 108,889
Provision for foreclosed assets 21,321 17,236 32,458 11,562
Provision for losses on investment
securities and equity investments 11,446 47,722 29,381 10,466
Provision for premises and equipment 24,924 3,548 5,665 2,018
Provision for other assets 5,732 2,552 723 258
Reversal of provision for investments (3,076) (10,022) (8,400) (2,992)
Reversal of provision for loans and
accounts receivable (21,544) (37,850) (143,615) (51,160)
Reversal of provision for foreclosed assets (8,248) (15,333) (5,493) (1,957)
Reversal of provision for other assets (534) (1,534) (41) (15)
Reversal of provision for premises and equipment (9,606) (7,905) (3,016) (1,074)
Loss (gain) on sales of premises
and equipment (2,236) 369 393 140
Loss (gain) on sales on investments securities 76 161 (5,878) (2,094)
Realized and unrealized loss (gain) on
derivative financial instruments (52,890) 1,299 5,409 1,927
Loss (gain) on sales on foreclosed assets 3,106 7,121 2,867 1,021
Valuation (gain) loss on investment securities (59,055) 37,736 (246,871) (87,942)
Foreclosed assets donation 4,280 8,840 1,029 367
Increase in accounts receivable (638) (75,496) (11,724) (4,176)
Increase in other assets (110,197) 56,571 (63,752) (22,710)
Increase in accounts payable 131,824 76,639 116,060 41,344
Increase in other liabilities 5,040 34,950 3,745 1,334
Other 58,831 (47,397) 1,069 381
---------- --------- ----------- ----------
Net cash provided by operating activities Ps 371,755 Ps546,935 Ps 602,124 Ps 214,494
========== ========= =========== ==========
(Continued)
F-9
BANCOLOMBIA S.A. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2002, 2003
(Stated in millions of pesos and thousands of U.S. dollars)
2001 2002 2003 2003 (1)
------------ ------------ ------------ -----------
U.S. DOLLAR
Cash flows from investing activities:
Increase in loans Ps (334,665) Ps (947,739) Ps(1,941,055) US$(691,456)
(Increase) decrease in customers' acceptances 38,567 54,254 (17,827) (6,350)
Proceeds from sales of premises and equipment 6,782 15,048 35,737 12,730
Proceeds from sales of foreclosed assets 19,740 24,743 10,384 3,699
Purchases of premises and equipment (92,771) (143,073) (290,947) (103,643)
(Purchases) sales of investment securities (1,419,345) (1,319,241) 96,942 34,533
Proceeds from sales of long term investments 60,728 32 120,702 42,997
------------ ------------ ------------ -----------
Net cash used in investing activities (1,720,964) (2,315,976) (1,986,064) (707,490)
------------ ------------ ------------ -----------
Cash flows from financing activities:
Dividends paid (20,760) (48,442) (76,124) (27,117)
Increase in deposits 1,464,826 1,207,310 1,443,839 514,334
Increase in long-term debt (15,412) 54,258 9,036 3,219
Increase in overnight funds (8,770) 407,164 507,981 180,956
Increase in interbank borrowings and
borrowings from domestic development banks (77,448) 286,361 94,580 33,692
------------ ------------ ------------ -----------
Net cash provided by financing activities 1,342,436 1,906,651 1,979,312 705,084
------------ ------------ ------------ -----------
(Decrease) increase in cash and cash equivalents (6.773) 137.610 595,372 212,087
Cash and cash equivalents at beginning of year 720,252 713,479 851,089 303,181
------------ ------------ ------------ -----------
Cash and cash equivalents at end of year Ps 713,479 Ps 851,089 Ps 1,446,461 US$ 515,268
============ ============ ============ ===========
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest Ps 517,123 Ps 472,795 Ps 459,893 US$ 163,826
============ ============ ============ ===========
Income taxes Ps 1,130 Ps 6,892 Ps 5,988 US$ 2,133
============ ============ ============ ===========
See accompanying notes to consolidated financial statements.
(1) See Note 2 (ab)
F-10
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(1) ORGANIZATION AND BACKGROUND
Bancolombia S.A., ("the Bank") previously known as "Banco Industrial
Colombiano S.A." is a private commercial bank incorporated under Colombian
law on January 24, 1945. On April 3, 1998, Banco Industrial Colombiano S.A.
merged with Banco de Colombia S.A., with the surviving entity being renamed
Bancolombia S.A. The registered office of the Bank is in Medellin.
The Bank has 6.473 employees and operates through 354 branches.
The attached financial statements consolidate the assets, liabilities,
earnings, contingent accounts and memorandum accounts of the Bank and
subsidiaries in which it holds, directly or indirectly, 50% or more of the
outstanding voting shares. Compania Suramericana de Financiamiento
Comercial "SUFINANCIAMIENTO" is consolidated by Bancolombia from the
beginning of the fiscal year. The consolidated subsidiaries are:
INDIRECT INDIRECT
PARTICIPATION PARTICIPATION
PERCENTAGE PERCENTAGE DATE OF
ENTITY LOCATION BUSINESS 2002 2003 CREATION
------ -------- -------- ---- ---- --------
Almacenes Generales de Deposito
Mercantil S.A. Almacenar Colombia Warehousing and logistics 98.25 98.25 February 1953
Fiducolombia S.A. Colombia Trust 85.93 96.16 January 1992
Bancolombia Panama S.A. Panama Banking 100 100 February 1973
Bancolombia Cayman Cayman Islands Banking 100 100 August 1987
Leasing Colombia S.A. Colombia Leasing 99.98 99.99 December 1978
Compania Suramericana de
Financiamiento Comercial S.A.
SUFINANCIAMIENTO Colombia Financial services - 99.99 November 1971
Colcorp S.A. Corporacion
Financiera Colombia Finance 100 100 July 1994
Comisionista de Colombia S.A. Colombia Securities Brokerage 99.99 99.99 December 1991
Abocol S.A. Colombia Chemical 92.14 92.32 March 1960
Valores Simesa S.A. Colombia Various Comercial
Investments 71.69 71.75 December 2000
Inmobiliaria Bancol S.A. Colombia Real estate broker 98.95 98.95 June 1995
Fundicom S.A. Colombia Metals engineering 79.86 79.86 May 2000
Todo UNO Colombia S.A. Colombia E-commerce 53.92 53.92 June 2001
Unicargo de Colombia S.A. Colombia Freight service 98.35 98.35 August 1994
Sistema de Inversiones y Negocios S.A. Panama Comercial entity 100 100 September 1975
Sinesa Holding Company British Virgin Islands Comercial entity 100 100 June 1988
Future Net Inc. Panama E-commerce 60.02 60.02 November 2000
Compania Metalurgica
Colombiana S.A. COMECOL(1) Colombia Metals engineering 39.62 39.65 December 1996
Sociedad Portuaria Mamonal S.A. Colombia Customs office 92.52 92.69 August 1991
Abocol Costa Rica S.A. Costa Rica Chemical products
commercial 92.25 92.43 December 2001
Fertillanos Ltda. Colombia Chemical products
commercial 55.28 55.39 October 2001
(1) Controlled through other subsidiaries (Valores Simesa S.A. and Colcorp
S.A.)
F-11
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
On December 29, 2003, in accordance with the authorization given by
the Superintendency of Banking, the Bank acquired 94.89% of the capital of
the Compania Suramericana de Financiamiento Comercial SUFINANCIAMIENTO S.A.
The remaining 5.10% of the participation was acquired by other
subsidiaries.
The acquisition price was Ps 75,016 and the capital amount registered
at November 30, 2003, for acquired stock was Ps 43,798. As such, the
acquisition for control of SUFINANCIAMIENTO S.A. generated a goodwill for
the difference, Ps 31,218.
Chapter XVII of External Circular 100 of 1995 issued by the
Superintendency of Banking establishes that the goodwill will amortize in
proportional monthly installments affecting the statement of operations
during the time in which it is reasonably expected that future benefits
will be obtained and that, in any case, such term may not exceed ten (10)
years. Notwithstanding, in consideration that results allow, management
amortized one hundred percent of the value of this goodwill in the
statement of operations of 2003, in this way avoiding affecting future
results. This fact was made known in a timely manner to the Superintendency
of Banking.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF CONSOLIDATED
FINANCIAL STATEMENT PRESENTATION
(a) CONSOLIDATION AND PRESENTATION
Accounting practices and the preparation of financial statements of
the Bank and its Subsidiaries follow the special regulations of the
Superintendency of Banking, or, in the absence of such regulations, the
accounting principles generally accepted in Colombia.
For consolidation purposes, financial statements of foreign
subsidiaries were adjusted as required by Colombian regulations with regard
to investments, loans and leased assets. The Bank also unified accounting
policies related to inflation adjustments with the Colombian
Superintendency of Banking.
The Bank consolidates companies in which it holds, directly or
indirectly, 50% or more of outstanding voting shares. The Bank's subsidiary
Bancolombia Panama S.A. sub-consolidates Bancolombia Cayman, Sistema de
Inversiones y Negocios S.A., Sinesa Holding Company and Future Net Inc. The
Bank's subsidiary Almacenar S.A. subconsolidates Unicargo de Colombia S.A.
The subsidiary Colcorp S.A. subconsolidates Inmobiliaria Bancol S.A.,
Abocol S.A., Valores Simesa S.A. (a company resulting from a spin-off by
Simesa S.A. at December 31, 2000), Fundicom S.A. and Todo Uno Colombia.
The consolidated financial statements are prepared for presentation to
the stockholders, but are not taken as a basis for the distribution of
dividends or appropriation of profits.
Intercompany operations and balances are eliminated upon
consolidation.
Under Colombian GAAP when new financial statement classifications are
adopted, prior year
F-12
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
financial statements are not restated to reflect the new classifications.
(b) INFLATION ACCOUNTING
From January 1, 1992 to December 31, 2000, the consolidated financial
statements were adjusted for inflation based on the variation in the CPI
(Consumer Price Index) for middle-income earners. The adjustment was
applied monthly to non-monetary assets, equity (except for the reappraisal
of assets and exchange adjustment), contingent accounts and memorandum
accounts. No adjustment was made to income, costs or expenses, and the
financial statements for the preceding period did not have to be
re-expressed.
(c) CONVERSION OF FOREIGN CURRENCY TRANSACTIONS AND BALANCES
As an authorized exchange dealer, the Bank and its Colombian
subsidiaries are authorized by the Superintendency of Banking to make
direct currency purchases and sales on the market.
Operations in currencies other than dollars are translated into
dollars and re-expressed in Colombian pesos at the average Market Reference
Rate (TRM) published by the Superintendency of banking. The rates were Ps
2,306.90 on December 31, 2001; Ps 2,814.89 on December 31, 2002 and Ps
2,807.20 on December 31, 2003.
The foreign currency assets and liabilities of subsidiaries included
in the consolidation were converted to Colombian pesos using the TRM at the
closing date. Equity accounts were converted using historic exchange rates
and earnings statement accounts at Ps 2,299.89, Ps 2,504.68 and Ps 2,877.54
per U.S. dollar, respectively. These were the average TRMs between January
1 and December 31, 2001, January 1 and December 31, 2002 and January 1 and
December 31, 2003 respectively.
(d) CASH AND CASH EQUIVALENTS
The statement of cash flows was prepared using the indirect method.
Overnight funds sold with reselling agreements are considered to be cash
equivalents for the purposes of this statement.
(e) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. The most significant estimates are:
allowance for loans, accrued interest losses; allowance for foreclosed
assets and valuation of investments and derivatives. Actual results could
differ from those estimates.
F-13
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(f) OVERNIGHT FUNDS SOLD AND RESELLING AGREEMENTS
This account records the funds placed by the Bank in another financial
institution with investment collateral, using surplus liquidity, with or
without a commitment to resell, at terms of up to 30 days. The account also
contains overnight deposits with banks abroad using Bank funds deposited
outside Colombia.
Operations not repaid within 30 days are reclassified as investments
or loans, as the case may be.
The difference between present value (cash received) and future value
(resale price) is income booked to financial yields.
(g) INVESTMENTS
This account includes investments acquired by the Bank and its
subsidiaries to maintain secondary liquidity, to acquire direct or indirect
control of any company, to satisfy requirements of law or regulation, or
simply to eliminate or significantly reduce market risks to which assets,
liabilities or other balance sheet items are exposed.
1. CLASSIFICATION
The investments are classified as "trading investments", "investments
available for sale" and "investments held to maturity". The first two of
these groups may include investments in debt or equity securities. The
later shall only include investments in debt securities.
Debt securities are those which make the holder the creditor of the
issuer, whereas equity investments are those which make the holder a
part-owner of the issuer.
TRADING SECURITIES
Trading investments are those acquired for the main purpose of
obtaining profits from fluctuations in short-term prices.
HELD TO MATURITY
Investments "held to maturity" are debt securities acquired with the
stated purpose and legal, contractual, financial and operational capacity
to hold them until maturity or redemption. They may not be used for
liquidity operations unless permitted by the Superintendency of Banking.
AVAILABLE FOR SALE
These are the investments which do not fall into either of the other
two classifications, for which the investor has the stated intention and
legal, contractual, financial, and operational capacity to hold them for at
least one year from the date of this classification.
F-14
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
This classification covers equity investments with low exchange
turnover or which are unquoted; and those held as parent or controlling
stockholder of the issuer. There is no one-year minimum holding period
required for the purposes of sale. The subsidiary Bancolombia Panama S.A.
classifies the investments it maintains for the purpose of exercising
control, as permanent, in accordance with order 7 of 2000 of the
Superintendency of Banks of Panama.
2. VALUATION
The purpose of valuation is to record the appropriate amount for a
given investment.
2.1 DEBT SECURITIES
Debt securities are valued daily and the result recorded daily.
Investments in "available for sale" securities and "trading" debt
securities
Debt securities available for sale and trading are valued according to
the regulation established by the Item 1 of the External Circular 100, 1995
issued by Superintendency of Banking.
Bank holds structures notes that are treated as available for sale
securities and trading securities.
Investment in debt securities held to maturity
Debt securities held to maturity are valued at amortized cost.
2.2 EQUITY SECURITIES
Equity investments are valued monthly and the results of the valuation
are recorded monthly. They are valued on the level of exchange turnover at
the time of valuation, as follows:
- High-turnover: on the basis of the daily weighted average
trading price published by the exchange.
- Medium-turnover: based on the average price published by the
exchange, being the weighted average trading price on the
last five days on which securities are traded.
- Low turnover and unquoted and investments that BC has
ability to exercise significant influence over operating and
financial policies of the investee even though the it holds
50% or less of the voting stock: increases or decreases are
made in accordance with the percentages held by the
investor, on the basis of variations in equity value in the
most recent audited financial statements, which may not be
more than six months old at the time of valuation, or more
recent statements if available.
F-15
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
3. RECORDING
3.1 TRADING INVESTMENTS
The difference between current and previous market value adjusts the
value of the investment and credited or charged to earnings.
3.2 INVESTMENTS HELD TO MATURITY
These investments are recorded at amortized cost and interest accruals
are recorded in earnings.
3.3 INVESTMENTS AVAILABLE FOR SALE
3.3.1 DEBT SECURITIES
These investment are recorded at market value with changes to the
values of these securities are recorded in a separate account in the equity
section.
- The difference between present value on valuation date and
the previous present value increases the value of the
investment and is credited to earnings. The present value is
arrived at by applying an exponential calculation based on
an internal rate of return established at the time of
purchase.
- The market value of UVR-indexed (Unidades de valor real
("UVR") is an inflation-adjusted monetary index generally
used for pricing home-mortgage loans) debt security with a
fixed-rate (for example, a Colombian Government Treasury
paper - "Treasury Paper") is ultimately based on the UVR
internal rate of return (IRUVR) and the Treasury rate for
CETES (Estimated Yield Curve on TES).
3.3.2 EQUITY INVESTMENTS
The changes found in these securities have accounting entries made
according to the investment grade, as follows:
3.3.2.1 INVESTMENT IN SECURITIES WITH LOW TURNOVER OR UNQUOTED OR THAT BC
HAS ABILITY TO EXERCISE SIGNIFICANT INFLUENCE OVER OPERATING AND
FINANCIAL POLICIES OF THE INVESTEE EVEN THOUGH IT HOLDS 50% OR LESS
OF THE VOTING STOCK
If the market or current investment value based on the investor's
shares on the equity of the investee is greater than the value at which the
investment is registered, the difference will affect, in the first place,
the provision or devaluation until it runs out, and the excess is
registered as a surplus for valuation in stockholders' equity.
If the market value or the current investment value based on the
investor's shares on the equity
F-16
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
of the investee is less than the value at which the investment is
registered, the difference will affect, in the first place, the surplus for
valuation of the corresponding investment until it runs out, and the excess
is registered as devaluation of said investment within capital.
3.3.2.2 HIGH OR MEDIUM - TURNOVER
The update of the market value of these securities have an accounting
entry made as an accumulated unrealized gain or loss, within the equity
accounts, with credit or debit to investment.
3.4 DIVIDENDS ON EQUITY SECURITIES
Dividends, including those coming from the capitalization of the
re-valuation of capital account, and amortization of the premium and
discount arising at acquisition, for all investments in equity securities
shall be included in earnings, except for investment in securities that BC
has ability to exercise significant influence. Dividends received from
those investments should reduce the carrying amount of the investment.
4. PROVISIONS OR LOSSES DUE TO CREDIT RISK CLASSIFICATION
The price of the public debt securities which are trading and
available for sale that do not have market values according to the
explained methodology, those classified Held to Maturity, as well as the
price for those equity securities with low or minimum - turnover or
unquoted, must be adjusted on each valuation date, based on the credit risk
classification.
Internal or external debt securities issued or guaranteed by the
Republic of Colombia are not subject to this adjustment, as well as those
issued by the Central Bank and those issued or guaranteed by FOGAFIN.
4.1 SECURITIES THAT ARE ISSUED FROM ABROAD OR HAVE FOREIGN GRADES
The issuers and issues of debt securities that have one or various
grades issued by a grade classification firm recognized by the Colombian
Securities Commission, will not be able to be registered for an amount
greater than the following percentages of their nominal net value of
amortizations:
LONG TERM MAX. AMOUNT SHORT TERM MAX. AMOUNT
GRADE % GRADE %
============================================================
BB+, BB, BB- Ninety (90) 3 Ninety (90)
------------------------------------------------------------
B+, B, B- Seventy (70) 4 Fifty (50)
------------------------------------------------------------
CCC Fifty (50) 5 y 6 Zero (0)
----------------------------------==========================
DD, EE Zero (0)
============================================================
F-17
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
4.2 SECURITIES FROM ISSUES OR ISSUERS WITHOUT ANY EXTERNAL GRADE AND
EQUITY SECURITIES
These securities are rated and classified according to the methodology
defined by the Bank and its subsidiaries as follows:
MAX. REGISTERED
AMOUNT
CATEGORY %(1) INVESTMENT CHARACTERISTICS
====================================================================================================================================
B Acceptable risk, greater than normal Eighty (80) Present factors of uncertainty that could affect the capacity to
continue adequately fulfilling debt services and weaknesses that could
affect their financial situation.
------------------------------------------------------------------------------------------------------------------------------------
C Appreciable risk Sixty (60) Present medium-high probabilities of unfulfillment of timely payments of
capital and interests in their financial situation that compromise the
recovery of the investment.
------------------------------------------------------------------------------------------------------------------------------------
D Significant risk Forty (40) Present unfulfillment of agreed terms of the security and accented
deficiencies in their financial situation, the probability of recovering
the investment is highly doubtful.
-------------------------------------------------------------------------------------- ---------------------------------------------
E Unrecoverability Zero (0) Recovery highly improbable.
====================================================================================== =============================================
(1) On the net nominal amount of the amortizations made up to the date of the
valuation for securities of debt or the cost of acquisition for
participating securities.
(h) LOANS AND LEASING CONTRACTS
These accounts record loans and leasing contracts made by the Bank and
its subsidiaries in the various modalities permitted by local rules and
regulations. They are funded by own capital, public deposits and other
internal and external sources.
Loans are recorded at face value, except for factoring operations
which are recorded at cost, and foreign currency operations, which are
translated into pesos at each month end exchange rate.
Credit appraisals for each type of loan will in the future be
undertaken using a new method devised by the Bank and its subsidiaries,
currently in development and due to be completed in 2004. The method takes
account of the probabilities of deterioration of loans and estimates of
expected losses.
Until the new method is approved by the Superintendency of Banking and
introduced, the Bank and its subsidiaries will continue to apply the
Superintendency of Banking existing regulations.
1. CLASSIFICATION
Beginning on January 1, 2002 the Bank classified its loans as follows:
F-18
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
HOME MORTGAGE LOANS
These are loans made to individuals for the purchase of new or used
housing, or the building of a home, all in accordance with Law 546/1999.
This type of loan is not of material importance, and is not a market target
for the Bank or any of it's subsidiaries. Its characteristics are therefore
not described here. Total loans of this type accounted for 0.60% of the
Bank's gross loans.
CONSUMER LOANS
"Consumer Loans" are loans granted to individuals to finance the
purchase of consumer goods or payment of non-commercial or business
services regardless of amount.
SMALL BUSINESS LOANS
Loans to small corporations ("micro-businesses") for a maximum total
exposure of 25 National Minimum Monthly Salaries (NMMS).
A "microbusiness" is a personal or corporate rural or urban business
in farming, industry, commerce or services with not more than 10 employees
and assets not exceeding 501 NMMS.
The Subsidiary Bancolombia Panama S.A. does not grant this modality of
loan.
COMMERCIAL LOANS
A "Commercial Loan" is a loan other than a loan for housing, consumer
loans and small business loans.
Loan-related commissions and other receivables are classified within
the accounts for the type of loan to which they are related.
2. FREQUENCY OF EVALUATION
The Bank and its subsidiaries make continuous evaluations of lending
risk, modifying loan classifications when necessary.
The Bank and its Subsidiaries evaluate in the months of May and
November all loans that are past due after having been restructured, those
that at the time of the evaluation exceed three-hundred (300) minimum
monthly salaries, as well as those from debtors whose debt from the
different loan modalities exceeds three-hundred (300) minimum legal current
monthly salaries.
3. EVALUATION CRITERIA
The Bank and its subsidiaries evaluate commercial loans using the
following criteria required by the Superintendency of Banking:
Ability to pay of the debtor/co-debtors/guarantors or any other person
directly or indirectly unconditionally liable for the debt, and project
cash-flow, if any. The following is the minimum
F-19
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
required to be known about the debtor: income and outgoing flows,
economic solvency, number of times loans have been restructured,
possible financial risks to the cash flow, legal, operational and
strategic risks; and the possibility of contagion.
Commercial, consumer, small business loans and home mortgage
loans are classified on the basis of the following characteristics :
Characteristics
CLASSIFICATION 1 2 3 4 5 6
-------------------------------------------------------------------------
A - Normal Risk Y Y Y N N N
B - Acceptable, Above Normal Y N Y Y N N
C - Appreciable Risk N N N Y N N
D - Significant Risk N N N Y Y N
E - Risk of Unrecoverability N N N Y Y Y
=========================================================================
Characteristics :
Y - Applies
N - Does not apply
Characteristics :
1. Appropriate structure and attention to
credit
2. Financial information and project funds
flows indicate sufficient capacity to pay
and information provides for analysis is
sufficient
3. Compliance with debt-servicing
4. Loans overdue by aging
5. Highly doubtful recovery
6. Unrecoverable
4. CLASSIFICATION
The Bank and its subsidiaries classify loans on the basis of
the above criteria into the following categories:
CATEGORY COMMERCIAL CONSUMER
--------------------------------------------------------------------------------------------------------------------
"A" Normal Risk current - and up to 1 month past due current and up to 1 month past due
"B" Acceptable Risk, Above Normal 1-3 months past due 1-2 months past due
"C" Appreciable Risk 3-6 months past due 2-3 months past due
"D" Significant Risk 6-12 months past due 3-6 months past due
"E" Risk of Unrecoverability Over 12 months past due Over 6 months past due
====================================================================================================================
F - 20
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
CATEGORY SMALL BUSINESS LOANS HOME MORTGAGE
---------------------------------------------------------------------------------------------------------------------
"A" Normal Risk current - and up to 1 month past due current - and up to 2 months past due
"B" Acceptable Risk, Above Normal 1-2 months past due 2-5 months past due
"C" Appreciable Risk 2-3 months past due 5-12 months past due
"D" Significant Risk 3-4 months past due 12-18 months past due
"E" Risk of Unrecoverability Over 4 months past due Over 18 months past due
======================================================================================================================
Compliance includes capital, interest, exchange adjustments
and any other related sum due.
RULES OF ALIGNMENT
A classification of B, C, D or E for any debt would
automatically classify all of that debtor's accounts to the same
category, unless it could be shown to the Superintendency that there
were sound reasons for a lower risk classification.
"Financially related parties" within the meaning of Articles
260-262 of the Colombian Commercial Code, will receive the same
classification as the parent entity unless the lender can show to the
Superintendency of Banking that there are good reasons for maintaining
it/them in a lower risk category.
The Bank and its subsidiaries align their classifications with
other financial institutions when at least two of them have classified
the debtor into a higher risk category, where the debt represents at
least 20% of the debtor's total indebtedness according to the most
recent information available from credit bureaus. In this event, there
may not be more than one level of difference in risk classification.
The Superintendency may order reclassifications to higher risk
categories and reclassification to lower risks may only be
Superintendency of Banking effected with the permission of the
Superintendency of Banking. It may also order reclassifications of
loans by economic sector, geographical zone or for one debtor or a
group of debtors, whose borrowings should be accumulated in accordance
with the rules for individual debt limits.
5. SUSPENSION OF ACCRUALS
The Superintendency of Banking established that interest,
lease payments and other items of income cease to be accrued in the
earnings statement and begin to be recorded in memorandum accounts
until effective payment is collected, after a loan is in arrears for
more than a certain time:
TYPE OF LOAN ARREARS IN EXCESS OF:
-----------------------------------------------------
Home mortgage 4 months
Consumer 2 months
Small loans 2 months
Commercial 3 months
===============================================
F - 21
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
The Bank, considering that the credit risk is not associated
to a particular loan but to a customer in general, applies suspension
of accrual of interest or income due to other concepts when a loan
classified as commercial, consumer or small loans is classified as "C"
or in a category of greater risk. As such, they only affect the
statement of operations until they are effectively collected. Until
this occurs, the corresponding entry is made in memorandum accounts.
Additionally, beginning March 25, 2003, the Bank established
as policy that loans of any modality that are past due more than thirty
days will stop accruing interest in the statement of operations and
their entries will be made in memorandum accounts until such time that
the customer does not proceed to cancel. It is estimated that at
December 31, 2003, approximately Ps 280 are found entered in memorandum
accounts because of the adoption of this policy.
The subsidiaries defined as credit establishments continue
applying instructions made by the Superintendency of Banking.
Those credits that become past due and that at some point have
stopped accruing interest, exchange rate corrections or adjustments,
income from other concepts, will stop accruing said income from their
collection. The corresponding entry will be made to memorandum
accounts.
6. PROVISIONS
The Bank makes provisions against earnings for each period as
follows:
General Provision:
There is a general provision for a minimum of 1% of gross
loans. This proportion may be higher if the general meeting of
shareholders so instructs. The provision is being made in monthly
installments that began on July 31, 1999, and was completed on July 31,
2002.
Individual Provisions :
In addition to the general provision, minimum individual
provisions on the basis of unsecured balances outstanding are made,
pending introduction of a new method that reflects the risk of possible
losses on default:
COMMERCIAL CONSUMER SMALL LOANS MORTGAGE
-----------------------------------------------------------------------------------------------------------------------
Interest/ Interest/ Interest/ Interest/
Capital Other Capital Other Capital Other Capital Other
-----------------------------------------------------------------------------------------------------------------------
B- Acceptable Risk, Above Normal 1 1 1 1 1 1 1 1
C- Appreciable Risk 20 100 20 100 20 100 10 100
D- Significant Risk 50 100 50 100 50 100 20 100
E- Risk of Unrecoverability 100 100 100 100 100 100 30 100
====================================================================================================================
F - 22
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
7. THE EFFECT OF SECURITY ON PROVISIONS
For individual provisions, admissible security is valued at no
more than 70% of their value. The length of arrears elapsed before
provisions are made - depends on whether or note the security is a
mortgage or not and the percentage of security value applied:
TIME ELAPSED FROM DEFAULT
----------------------------------------------------------------------------------------
% COVER OF SECURITY APPROPRIATE MORTGAGE SECURITY/ESCROW NON-MORTGAGE SECURITY
----------------------------------------------------------------------------------------
70 0-18 months 0 -12 months
50 18-24 months 12-24 months
30 24-30 months -
15 30-36 months -
0 Over 36 months Over 24 months
====================================================================================
Security is appropriate when formalized and if it has a
professionally-established and objective value to provide effective
legal backing to repayment of the loan guaranteed, giving the lender or
creditor preferential or prior rights to obtain payment, and which is
reasonably marketable.
The Bank and its subsidiaries do not base their decision to
lend on the amount or type of security offered, since they understand
that the source of repayment of loans or financing is provided by cash
flows of the borrower, whether individual or corporate. In the case of
new projects, or for medium and long-term loans, prudence requires the
offer of alternative sources of repayment. To the extent that the Bank
and its subsidiaries are entering the market for SMEs (Small Business
Enterprises), it has been their policy to seek cover under the
guarantee funds Fondo Nacional de Garantias (FNG) and Fondo
Agropecuario de Garantias (FAG).
8. LOANS TO REGIONAL AUTHORITIES
The evaluation of loans to regional authorities includes the
criteria applicable to ordinary borrowers as well as the conditions of
Law 358/97 and 617/2000.
9. RESTRUCTURED LOANS
A "restructured loan" is one for which a legal agreement
exists with the intention or effect to modify the terms of the credit,
for the debtor's benefit and at the debtor's request. This includes
informal or non-moratorium agreements, Law 550/99 agreements, and
special restructurings of Superintendency of Banking Circular 39/99.
For restructured loans under Law 550/99 and, as of October
2000, other modes of restructuring which include the capitalization of
interest recorded in memorandum accounts or balances written off,
including capital, interest and other items or interest generated in
the future; amounts capitalized are recorded as deferred income and
they are amortized in proportion to amounts actually collected.
F - 23
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
10. ACCOUNTS WRITTEN OFF
The Bank writes off debtors classified as "unrecoverable",
following the criteria given below, at the latest at the close of the
half-year in which that classification was made:
- Provision of 100% of all amounts due
(capital, interest and other items)
- 180 days for consumer and small loans
- 360 days for commercial loans
- 540 days for home mortgage loans.
All write-offs must be approved by the Board of Directors.
Even if a loan is written off, management remains responsible for its
decisions in that regard, and neither the Bank or its subsidiaries are
relieved of their obligations to pursue recovery as appropriate.
Write-offs in Bancolombia Panama S.A.
In the case of the Panamanian affiliate, account is taken of
the Panamanian banking authority's Order 6-2000 of June 28, 2000, which
states as follows (Point C):
"The Bank will write off all loans classified as unrecoverable
at the latest by the end of the fiscal period in which they
were so classified."
(I) ACCEPTANCES AND DERIVATIVES
ACCEPTANCES
The Bank and Bancolombia Panama issue local currency
acceptances for up to 180 days for import and export operations or
local purchases. They are treated as loans and may not total more than
the Bank's paid in capital and legal reserve. The asset and liability
are initially recorded at the same time. If unpaid at maturity, the
asset is reclassified to a loan account and the liability to
"Acceptances past due", and from maturity, these acceptances are
subject to reserve requirements for demand liabilities for payment
within 30 days.
The term granted by the beneficiary abroad to the client in
Colombia to pay for the goods is governed by International Chamber of
Commerce rules and may exceed 180 days under internationally-accepted
deferred credit for up to a year. The books may therefore contain
foreign currency acceptances for more than 180 days.
DERIVATIVES
The Bank records the amount of agreements between two or more
parties to purchase or sell assets at a future date in order to provide
or obtain hedging, in terms defined by the appropriate authorities.
Therefore, reciprocal and unconditional rights and obligations arise.
Operations are formalized by contract or letter of commitment. The Bank
is involved in term contracts (forwards),
F - 24
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
hedging options and futures.
Currency derivatives are designed to cover exchange risks on
structural or traded open positions by setting up a reciprocal
operation or synthetic cover for up to the maximum exposures allowed by
the regulators.
The difference between rights and obligations is recorded as
income or expense, as the case may be.
FORWARDS
A forward is any agreement or contract that meets the needs of
two parties acting outside the market to accept or deliver a specific
quantity of a product or underlying asset with defined specifications.
FUTURES
This is a standard contract for future delivery specifying due
date, quantities, amounts, qualities etc., the valuation being made in
accordance with the practice in the market when the business is closed.
Futures may be liquidated in cash or by a reciprocal operation
prior to due date or by physical delivery of a product.
SWAPS OR FINANCIAL EXCHANGE CONTRACTS
A Swap or financial exchange contract is a contract between
two parties which agree to exchange flows of money within the time of
the obligations, which is financially similar to a series of Forward
contracts which objective is to reduce the costs and risks due to
variations in exchange rates or in interest rates.
OPTIONS
The holder of an option has the right (but not the obligation)
to purchase or sell a specific quantity of an asset at a given price on
a given date or during a defined time. The Bank uses accepted
techniques for valuing these operations, taking account of the market
risks, operational risks and legal risks.
Derivatives are valued daily and results of the valuation are
recorded daily.
(j) FORECLOSED ASSETS
The Bank records the adjusted value of foreclosed assets
received in payment of unpaid loans in this account. Real estate
received in payment is recorded on the basis of a technical market
valuation. Movable assets, shares and similar capital interests are
recorded at market value.
F - 25
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
The following criteria apply to the recording of foreclosed
assets:
- The initial value recorded is that specified
in the court award or as agreed with
debtors.
- If the property received in payment is in an
un-sellable condition, its book value is
increased by expenses incurred in putting it
into a sellable condition.
- If the proceeds of sale leave a balance over
and above the value agreed with the debtor,
that difference is recorded as an account
payable. If the proceeds of sale are
insufficient to cover the total debt, the
difference is recorded as a reserve.
Securities received in payment are valued in accordance with
the principles of section (g) for Investments, and provisions are
recorded for periods referred to below .
LEGAL TERM FOR THE SALE OF FORECLOSED ASSETS
The institutions must make sale of goods that have been
transferred in payment of debts previously contracted in the course of
business or that have been adjusted at public auction, sue to mortgages
made in their name, within two years following the date of the
acquisition, except when the Superintendency of Banking, upon the Board
of Directors' request, has widened the term to execute sale. But said
term must not exceed, in any case, two years.
PROVISION FOR FORECLOSED ASSETS
With the Issue of External Circular 034 of October, 2003 of
the Superintendency of Banking, the member banks must design and adopt
their own internal models for the calculation of provisions of
foreclosed assets by means of which the expected loss for all types of
assets is estimated. Until such model is presented or the
Superintendency of Banking objects to the model, provisions will be
constituted tending to the following parameters:
Real estate
A provision equal to 30% of the value of the asset at the time
of receipt must be constituted in proportional monthly installments.
This provision will increase an additional 30% in proportional monthly
installments within the second year of receipt of the asset. Once the
legal term for sale has expired without authorization to extend, the
provision must be 80% of the value upon receipt. In case the term
extension is granted, the remaining 20% of the provision may be
constituted with said term.
Moveable assets
A provision equal to 35% of the value of the good at the time
of acquisition must be constituted in proportional monthly installments
within the following year of receipt. Said provision must be increased
and additional 35% the following year. Once the legal term for sale has
expired without authorization to extend, the provision must be of 100%
of the book value of the asset prior to
F - 26
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
provisions. In the case the term extension is granted, the remaining
30% may be constituted within the term of the same.
Until October 25, 2003 individual provisions were made to all
kinds of foreclosed assets as of the time they are received:
DESCRIPTION % OF MARKET VALUE TERM TO MAKE PROVISION
----------------------------------------------------------------------------------
Real property 40 June 30, 2002
Housing 30 June 30, 2002
Moveable assets (1) 100 24 months after receipt
===================================================================================
(1) If market value is lower than the unreserved balance the difference
is charged to earnings.
Before external Circular 034 of October, 2003 of the
Superintendency of Banking was in force, the Bank registered valuations
caused by the excess of the commercial evaluation over the book value
of the foreclosed assets, if and when they exceeded the minimum amount
of provisions.
The Bank follows the practice established by the
Superintendency of Banking for estimating the maximum expected loss on
sale of foreclosed assets.
For some assets, the Bank has constituted provisions above
those required by the Superintendency of Banking, according to the sale
probability of the assets.
(k) LOAN FEES
Loan origination and commitment fees, as well as direct loan
origination and commitment costs, are recorded in the consolidated
statement of operations as collected or incurred.
(l) PREMISES AND EQUIPMENT
This account records tangible assets acquired, constructed or
in the process of importation or construction and permanently used in
the course of the Bank's business whose useful life exceeds one year.
Property and equipment is recorded at the cost of acquisition,
including direct and indirect costs and expenses incurred up to the
time that the asset is in a usable condition.
Additions, improvements and non-routine repairs that
significantly prolong the useful life of an asset are capitalized.
Payments for routine maintenance and repairs are charged to expense in
the period in which they are incurred.
Depreciation is calculated on a straight-line basis over the
estimated useful life of the asset (and of units produced for the
fertilizer plant and turbo-generator of the subsidiary Abocol S.A.).
The annual rates used are:
F - 27
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Buildings 5%
Equipment, furniture and fittings 10%
Computer equipment 20%
Vehicles 20%
===========================================================
At the close individual net book values of real property (cost
less accumulated depreciation) is compared with market values taken
from independent professional valuations. If the market value is
higher, a revaluation is recorded; otherwise, the difference is charged
to expenses for the period. Valuations must be made at least every
three years.
For 2002 and 2003 the Bank had insurance cover for fidelity,
financial risks and civil liability cover for risks inherent to its
business. Other policies protect assets against fire, earthquake,
explosion, civil disturbance, riot, terrorism, damage to computers and
vehicles.
Maintenance policy:
Corrective maintenance provides for the immediate replacement
of parts that may affect safety or proper operation. Preventive
maintenance makes regular checks of architectural and electrical items.
Each branch is visited at least twice a year, always during the night
or on a Saturday or public holiday. There is also productive
maintenance that takes proposed work in an order of priorities, and is
designed to ensure that the premises are in optimum condition of
electrical operation, suited to present and future needs, within a
framework of electrical and telecommunications standards. Maintenance
expenses are not classified as improvements, and are therefore charged
to earnings for the period.
(m) BRANCHES AND AGENCIES
This account records the operations between the branches and
the agencies.
Balances are reconciled monthly and pending items are adjusted
within 30 days. On the closing date of the financial statements, the
Bank reclassifies net balances representing branch and agency
transactions, which are then reclassified to asset or liability
accounts and the respective income or expense is recorded.
(n) PREPAID EXPENSES AND DEFERRED CHARGES
Prepaid expenses are payments made in the normal course of
business, the benefits of which are recovered over more than one period
and are recoverable assuming continuous delivery of services. Deferred
charges are costs and expenses which benefit future periods and cannot
be recovered.
F - 28
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Amortization is calculated from the date which they contribute
to the generation of income, considering the following factors:
Prepaid Expenses
Interest is amortized monthly during the period prepaid;
insurance, over the life of the policy; rent, over the period prepaid;
equipment maintenance, over the life of the contract; and other prepaid
expenses over the period in which services are received or costs and
expenses are incurred.
Deferred Charges
- Remodeling charges are amortized over a
maximum of two years.
- Software is amortized over a maximum of
three years.
- Goodwill is amortized over ten years.
Goodwill arises from the amount paid in the
1998 merger over and above the equity value,
plus or less certain expenses incurred in
the process.
- On December 29, 2003, the Bank, duly
authorized by the Superintendency of
Banking, acquired 94.89% of the stock of the
Compania Suramericana de Financiamiento
Comercial S.A. SUFINANCIAMIENTO. In this
operation a goodwill was generated, which
was totally amortized in the month of
December 2003.
- Stationery is amortized as and when
consumed.
- Bonuses under the voluntary retirement
scheme are amortized as permitted by the
Superintendency of Banking.
- Improvements to rented property are
amortized over the shorter of (a) the
remaining life of the lease and (b) the
probable useful life of the improvements.
- Institutional advertising is amortized over
the accounting period. Advertising for
product launches or changes of brand or name
or product may be amortized over up to three
years. Other occasional advertising,
regardless of amount, may not be deferred.
- Taxes are amortized over the fiscal prepaid
period.
- Contributions and affiliations are amortized
over the period prepaid.
- Studies, consultancies, fees and retirement
plans related to the 1998 merger are
amortized over three years.
- Other items are amortized over the period in
which it is estimated that the expense will
be recovered or expected benefits will be
realized.
F - 29
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
During 2003, the Bank did not constitute deferred charges for
the concept of studies and projects, remodeling and improvements in
rental properties. The subsidiary Bancolombia Panama S.A. did not
constitute deferred charges for the prior concepts.
(o) LEASED ASSETS
The affiliates Leasing Colombia S.A., Sufinanciamiento S.A.
and Bancolombia Panama S.A. record the value of assets delivered under
financial leases.
Since January 1, 1996 BC records the leasing agreements as
monetary assets for an amount equal to the net present value of
lease-payments due and the purchase option calculated at the start of
the contract and at the rate agreed in the contract.
Contracts entered into up to December 31, 1995 were recorded
at acquisition or construction cost including capitalizable
improvements and expenses which increased the value of the property and
were adjusted for inflation until December 2000.
The companies depreciate all their leased assets acquired
prior to December 31, 1995 over the life of the contract, as required
by Superintendency of Banking Circulars 097/94, 080/94 and 026/95.
The depreciation for leasing contracts in force at that time
was the result of subtracting the net book balance from the present
value of the routine and special lease payments receivable in the
future plus the purchase option.
Contracts made after December 31, 1995 record lease payments
in two parts. The portion corresponding to capital repayments is
recorded as an amortization of the asset, and the rest is treated as
financial income, credited to the income statement.
(p) REAPPRAISALS
This account records reappraisals of permanent investments in
non-marketable variable-income securities, property and equipment,
foreclosed assets and works of art and culture.
Starting from October of 2003 with the coming in force of
external circular 034, the Superintendency of Banking indicates the
non-registering of reappraisals for the concept of foreclosed assets,
and a maximum term is established for the reversing of those existing,
until December of 2003.
Valuations are subject to the accounting policy for each type
of asset.
(q) OVERNIGHT FUNDS PURCHASED AND REPURCHASE AGREEMENTS
This account records funds obtained by the Bank from other
financial institutions to satisfy
F - 30
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
transient liquidity needs. These transactions have a maximum term of 30
calendar days and purchases not repaid within that term are
reclassified as bank loans and other financial obligations.
The difference between present value (cash received) and
future value (repurchase price) is a financial expense.
All overnight agreements are taken at terms less than 30 days,
except those made with the Banco de la Republica for liquidity at year
end. Likewise, restrictions on the liabilities do not exist.
(r) DEFERRED INCOME
This account records deferred income and income received in
advance in the course of business. Amounts recorded in this account are
amortized over the period to which they relate or the services are
rendered.
The capitalization of yields on restructured loans that have
been recorded in memorandum accounts or as written - off loan balances
is included here as indicated in the notes on lending policy.
(s) PENSIONS
The Bank and its subsidiary Almacenar S.A. apply the
provisions of Decree 1517/98, which requires a distribution of charges
to amortize the actuarial calculation by 2010. The distribution is
calculated by taking the percentage amortized up to December 1997 and
annually adding the minimum percentage points needed to complete
amortization by 2010. In 2003, the Bank amortized the total actuarial
calculation.
(t) ACCRUALS AND PROVISIONS
The Bank records provisions to cover estimated liabilities,
where:
- The Bank has acquired a right, and therefore
an obligation
- Payment may be demanded or is probable, and
- The provision is justifiable, quantifiable
and verifiable.
This account also records estimates for taxes.
(u) RECOGNITION OF FINANCIAL YIELDS
The income due to financial revenues and other concepts are
recognized at the moment in which the accounting entry is made, except
for those under suspension of entry of interest of credit loan
portfolio.
F - 31
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(v) CONTINGENT ACCOUNTS
These accounts record operations in which the Bank acquires
rights or assumes obligations conditioned by possible future events of
varying degrees of probability. Likewise, interest recorded in this
account when loans are placed on non-performing status.
(w) MEMORANDUM ACCOUNTS
These accounts record third party operations whose nature does
not affect the financial situation of the Bank. They also include tax
memorandum accounts, which record the figures used in preparing tax
returns and memorandum accounts used for internal control or management
information.
(x) NET INCOME PER SHARE
Net income per share is determined on the basis of the
weighted average number of shares outstanding during the period. For
the periods ended December 31, 2001, 2002 and 2003 the average was
576,695,395.
(y) ASSET AND LIABILITY MANAGEMENT
The Bank evaluates asset and liability management and
off-balance-sheet positions, estimating and controlling the level of
exposure to the major market risks, in order to provide protection
against losses due to possible variations in asset or liability values.
(z) CAPITAL ADEQUACY
Finance Ministry Decree 1720/2001 required Technical Capital
to be not less than 9% of total risk-weighted assets and contingencies.
Calculations are made each month on the unconsolidated balance sheet
and in June and December on the consolidated accounts which include the
Bank's financial subsidiaries in Colombia and abroad.
(aa) LEGAL RESERVE
According at legal dispositions, the credit institutions must
constitute a legal reserve that will amount to at least fifty percent
(50%) of the subscribed capital, formed with ten percent (10%) of the
liquid profit of each exercise.
The decrease of the legal reserve will be acceptable only to
offset the accumulated losses that exceed the amount of profit obtained
in the corresponding exercise and of the not-distributed from prior
exercises or when the amount freed is destined to capitalize the entity
by means of the distribution of stock dividends.
F - 32
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(ab) CONVENIENCE TRANSLATION TO U.S. DOLLARS
The Bank maintains its accounting records and prepares its
financial statements in Colombian pesos. The U.S. dollar amounts
presented in the financial statements and accompanying notes have been
translated from peso figures solely for the convenience of the reader
at the exchange rate of Ps 2,807.20 per US$1, which is approximately
the exchange rate, in effect at December 31, 2003. This translation may
not be construed to represent that the Colombian peso represents or has
been or could be converted into U.S. dollars at that or any other rate.
(ac) INCOME TAX
The income tax is determined as follows: From the ordinary and
extraordinary income realized in the period, that being susceptible of
produce net increase of shareholder's equity in the moment they
incurred and, that have not been excepted, are reduced returns,
reductions and discounts to obtain net income. When it be the case,
from the net income are reduced the realized costs that have a direct
relation with income to obtain income before taxes. From the income
before taxes are reduced the deductions realized to obtain the taxable
income for the ordinary system.
For purposes of income tax, it is presumed that the taxable
income is not lower than the 6% of shareholder's equity at the last day
of the immediately previous taxable period. The excess between taxable
income determined under the ordinary system and the presumed income
becomes in taxable income to which is applied the statutory tax rate.
When income tax is paid under presumed income, the difference
between this and the calculated under ordinary system can be deduce in
the follows five years.
Deferred income taxes are generally recognized for timing
differences for commercial and manufacturing subsidiaries. For
financial companies, the Superintendency of Banking has restricted
inclusion of timing differences related to fiscal losses to amortize
and the excess of presumed income over ordinary income as deferred tax
asset.
(3) TRANSACTIONS IN FOREIGN CURRENCY
The Superintendency of Banking sets limits on the amount of
foreign-currency assets and liabilities. The Bank was in compliance
with the subject rules as December 31, 2002 and 2003.
Substantially all foreign currency holdings are in U.S.
dollars. The consolidated foreign currency assets and liabilities of
the Bank at December 31, 2002 and 2003 were as follows:
F - 33
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002 2003
---- ----
ASSETS:
Cash and due from banks US$ 32,123 US$ 63,117
Overnight funds 54,064 210,093
Investment securities 665,291 637,960
Loans 461,742 627,104
Customers' acceptances and derivatives 9,808 (192,300)
Accounts receivable 16,562 8,647
Premises and equipment, net 37,439 44,424
Other assets 1,703 3,046
-------------- --------------
Total foreign currency assets US$ 1,278,732 US$ 1,402,091
-------------- --------------
LIABILITIES:
Deposits 847,665 1,071,986
Bank acceptances outstanding 9,803 9,807
Borrowings from domestic development banks 13,997 6,455
Interbank borrowings 133,509 162,460
Other liabilities 45,828 11,660
-------------- --------------
Total foreign currency liabilities 1,050,802 1,262,368
-------------- --------------
NET FOREIGN CURRENCY ASSET POSITION US$ 227,930 US$ 139,723
============== ==============
The Bank's unconsolidated net foreign currency asset position
amounted to US$ 132,995 and US$ 201,620 at December 31, 2002 and 2003,
respectively.
The Bank has the required net foreign currency position within
the legal terms.
(4) CASH AND DUE FROM BANKS
The balances of cash and due from banks at December 31, 2002
and 2003 consisted of the following:
2002 2003
---- ----
COLOMBIAN PESO DENOMINATED:
Cash Ps 368,734 Ps 436,146
Due from the Colombian Central Bank 137,644 202,275
Due from domestic banks 9,976 6,014
Remittances of domestic negotiated checks in transit 36,653 26,704
Provision (26) (268)
----------- -----------
TOTAL LOCAL CURRENCY 552,981 670,871
----------- -----------
F - 34
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002 2003
---- ----
FOREIGN CURRENCY:
Cash 17,154 34,951
Due from the Colombian Central Bank 9,734 9,560
Due from foreign banks 58,454 128,313
Remittances of foreign negotiated checks in transit 5,082 4,752
Provision - (395)
----------- -----------
TOTAL FOREIGN CURRENCY 90,424 177,181
=========== ===========
TOTAL CASH AND DUE FROM BANKS Ps 643,405 Ps 848,052
=========== ===========
Restricted cash and deposits at the Central Bank amounted to
Ps 492,445 and Ps 628,071 at December 31, 2002 and 2003, respectively.
The restriction, which is prescribed by the Central Bank, is based on a
percentage of deposits maintained at the Bank by its customers.
(5) INVESTMENT SECURITIES
Investment securities at December 31, 2002 and 2003 consisted
of the following:
2002 2003
---- ----
TRADING SECURITIES
COLOMBIAN PESO DENOMINATED:
Colombian government Ps 887,804 Ps 819,670
Colombian Central Bank 515 657
Government entities 36,457 22,196
Financial institutions 508,678 417,868
Corporate bonds - 17,229
Other marketable equity securities 42,419 20,776
------------ ------------
Total local currency denominated 1,475,873 1,298,396
------------ ------------
FOREIGN CURRENCY DENOMINATED:
Colombian government 109,833 325,255
Euronotes and Eurobonds 27 -
Government entities 97,107 29,293
Other marketable equity securities 5,564 3,140
------------ ------------
Total foreign currency denominated 212,531 357,688
------------ ------------
TOTAL TRADING SECURITIES Ps 1,688,404 Ps 1,656,084
============ ============
The foreign currency denominated securities issued or secured
by the Colombian government are bonds denominated in U.S. dollars,
purchased at par value, with annual average interest rates of 8.73% and
9.08 % for 2002 and 2003, respectively.
F - 35
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
The Bank had pledged investments securities of Ps 934,024 and
Ps 1,309,332 as collateral to secure lines of credit at international
banks, domestic development banks and other financial institutions as
of December 31, 2002 and 2003, respectively.
The Bank sold Ps 58,673,102 and Ps 66,720,388 of investment
securities during the years ended December 31, 2002 and 2003,
respectively.
2002 2003
---- ----
AVAILABLE FOR SALE - DEBT SECURITIES
COLOMBIAN PESO DENOMINATED:
Colombian government Ps 425,812 Ps 582,737
Financial institutions 22,270 -
------------- -------------
Total local currency denominated 448,082 582,737
------------- -------------
FOREIGN CURRENCY DENOMINATED:
Colombian government 1,017,651 866,072
Financial institutions 229,462 166,406
Other marketable equity securities 190,943 188,643
------------- -------------
Total foreign currency denominated 1,438,056 1,221,121
------------- -------------
TOTAL AVAILABLE FOR SALE - DEBT SECURITIES Ps 1,886,138 Ps 1,803,858
============= =============
PARTICIPATION
PERCENTAGE AT
DECEMBER 31, 2003 2002 2003
----------------- ---- ----
AVAILABLE FOR SALE - EQUITY SECURITIES
Corporacion Nacional de Ahorro y Vivienda S.A. Conavi 28.52% Ps 88,681 Ps 88,681
Todo Uno Services 37.00% 53,367 57,518
Corporacion Financiera Suramericana S.A. Corfinsura 4.62% 14,567 22,123
Urbanizacion Chico Oriental No. 2 Ltda. (1) 24.37% 7,848 7,848
Carreteras Nacionales del Meta S.A. 8.44% 7,408 6,418
Sociedad Administradora de Fondos de Pensiones y de
Cesantias Proteccion S.A. 7.42% 7,014 7,014
Sociedad de Servicios Tecnicos y
Administrativos Multienlace S.A. 48.60% 6,957 6,957
Fideicomiso Devinorte 10.31% 5,277 5,277
Industrias Forum S.A. - 4,480 -
Concesiones CCFC S.A. 25.50% 4,358 4,358
Venrepa C.A. 99.62% 3,177 3,169
F - 36
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
PARTICIPATION
PERCENTAGE AT
DECEMBER 31, 2003 2002 2003
----------------- ---- ----
Transmetato ESP S.A. (2) - 2,673 -
Banco Latinoamericano de exportaciones BLADEX S.A. 0.20% 2,391 2,387
Deposito Centralizado de Valores de Colombia Deceval S.A. 6.97% 979 1,276
Compania de Inversiones Bogota S.A. 13.00% 653 653
3001 S.A. 6.56% 457 699
Urbanizacion Sierras del Chico Ltda. (1) 0.55% 203 203
Concesiones Urbanas S.A. 33.32% - 783
Other 11,024 13,140
------------- -----------
TOTAL AVAILABLE FOR SALE - EQUITY SECURITIES 221,514 228,504
Allowance for other-than-temporary impairment in value (60,579) (70,296)
------------- -----------
TOTAL AVAILABLE FOR SALE - EQUITY SECURITIES, NET Ps 160,935 Ps 158,208
============= ===========
(1) Allowance was increased in compliance with instructions of Superintendency
of Banking.
(2) During 2003 the subsidiary Colcorp S.A. sold 100,742,666 shares of
Transmetano S.A. ESP with a cost of Ps 2,673. Almacenar S.A. charged - off its
investment in CTI Cargo S.A., this company is currently in liquidation.
Dividends received from equity investments amounted to Ps
2,665, and Ps 19,491 and Ps 30,734 for the years ended December 31,
2001, 2002 and 2003, respectively.
Most of the equity investments were classified as Category
"A". The following investments are classified in categories other than
"A":
2002 2003
---- ----
VALUATION VALUATION
CATEGORY ALLOWANCE CATEGORY ALLOWANCE
-------- --------- -------- ---------
Todo Uno Service D Ps 42,286 D Ps 53,932
Urbanizacion Chico Oriental No. 2 Ltda. E 7,848 E 7,848
Urbanizacion Sierras del Chico Ltda. E 203 E 203
Industria Colombo Andina Inca S.A. E 300 E 300
Industrias Forum S.A. E 4,480 - -
Venrepa C.A. D 1,906 E 3,169
Compania de Inversiones Bogota S.A. E 653 E 653
3001 S.A. - E 699
Sociedad Portuaria San Andres - E 3
Sociedad Promotora Siderurgica Colombiana E.U. - E 365
Prina S.A. - E 275
Tesicol - E 4
=======================================================================================================
F - 37
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002 2003
---- ----
HELD TO MATURITY SECURITIES
COLOMBIAN PESO DENOMINATED:
Colombian government 596,438 701,941
Government entities 6,232 3,764
Financial institutions 5,311 7,045
Other 1,987 9,543
TOTAL HELD TO MATURITY SECURITIES 609,968 722,293
------- -------
Allowance for other-than-temporary impairment in value (1,987) (3,719)
------- -------
TOTAL HELD TO MATURITY SECURITIES, NET 607,981 718,574
======= =======
(6) LOANS
The following represents the classification of the total loan
portfolio as of December 31, 2002 and 2003 in accordance with the
provisions of the Superintendency of Banking:
DECEMBER 31, 2002
CLASSIFICATION MORTGAGE COMMERCIAL CONSUMER SMALL LOAN TOTAL
-------------- -------- ---------- -------- ---------- -----
"A" Normal Risk Ps 37,210 Ps 4,209,753 Ps 803,705 Ps 65,221 Ps 5,115,889
"B" Acceptable Risk 21 454,955 23,138 1,315 479,429
"C" Appreciable Risk 118 131,588 10,539 537 142,782
"D" Significant Risk 20 167,916 12,290 404 180,630
"E" Unrecoverable 725 255,248 21,226 1,386 278,585
---------- ------------- ----------- ---------- -------------
TOTAL LOANS Ps 38,094 Ps 5,219,460 Ps 870,898 Ps 68,863 Ps 6,197,315
========== ============= =========== ========== =============
DECEMBER 31, 2003
CLASSIFICATION MORTGAGE COMMERCIAL CONSUMER SMALL LOAN TOTAL
-------------- -------- ---------- -------- ---------- -----
"A" Normal Risk Ps 47,676 Ps 5,968,085 Ps 1,195,833 Ps 76,679 Ps 7,288,273
"B" Acceptable Risk 4 309,324 32,805 3,164 345,297
"C" Appreciable Risk - 96,431 11,816 1,368 109,615
"D" Significant Risk 18 180,263 15,048 746 196,075
"E" Unrecoverable 463 70,391 17,657 1,897 90,408
---------- ------------- ------------- ---------- -------------
TOTAL LOANS Ps 48,161 Ps 6,624,494 Ps 1,273,159 Ps 83,854 Ps 8,029,668
========== ============= ============= ========== =============
Promisory Notes by means of which loans amounting to Ps
652,535 and Ps 1,426,973 at December 31, 2002 and 2003, respectively
have been documented, were duly endorsed to domestic
F - 38
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
development banks, as required for laws regulations such type of loans.
The following represents a summary of restructured loans as of
December 31, 2002 and 2003:
2002 2003
---- ----
Ordinary restructurings Ps 602,977 Ps 482,967
Extraordinary restructurings 48,435 38,928
Under law 550 71,291 71,503
Under law 617 123,477 108,395
Creditor agreement proceedings 13,653 11,364
Performance Agreement - 49,564
Interest and other receivable items 26,315 12,874
--------------- --------------
886,148 775,595
Allowances for loan losses (206,263) (192,539)
--------------- --------------
NET OF RESTRUCTURED LOANS Ps 679,885 Ps 583,056
=============== ==============
(7) ALLOWANCE FOR LOANS AND ACCRUED INTEREST LOSSES
An analysis of the activity in the allowance for loan losses
during the years ended December 31, 2001, 2002 and 2003 is as follows:
2001 2002 2003
---- ---- ----
Balance at beginning of year Ps 285,565 Ps 271,729 Ps 332,324
Balance at beginning of year (Sufinanciamiento) - - 11,854
Provision 86,793 143,361 286,170
Charge-offs (83,586) (71,592) (112,393)
Effect of difference in exchange rate (1) - 10,366 (284)
Reversal of provisions and recoveries (17,043) (21,540) (130,408)
----------- ----------- -----------
Balance at end of year Ps 271,729 Ps 332,324 Ps 387,263
=========== =========== ===========
Ratio of charge-offs to average outstanding loans 1.69% 1.31% 1.61%
=========== =========== ===========
(1) For year 2001, the effect of difference in exchange rate was
included as a part of recoveries.
The activity in the allowance for accrued interest losses
during the year ended December 31, 2001, 2002 and 2003 is as follows:
F - 39
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2001 2002 2003
---- ---- ----
Balance at beginning of year Ps 30,771 Ps 27,011 Ps 15,074
Balance at beginning of year (Sufinanciamiento) - - 769
Provision 4,965 4,518 5,316
Charge-offs (4,255) (5,293) (4,089)
Reversal of provisions and recoveries (4,470) (11,834) (11,897)
Effect of difference in exchange rate (1) - 672 (3)
---------- ---------- ----------
Balance at end of year Ps 27,011 Ps 15,074 Ps 5,170
========== ========== ==========
(1) For year 2001, the effect of difference in exchange rate was
included as a part of recoveries.
(8) CUSTOMER ACCEPTANCES AND DERIVATIVES
The Bank's rights and commitments from derivatives operations
as of December 31, 2002 and 2003 were as the follows:
2002 2003
---- ----
CUSTOMER ACCEPTANCES
Current Ps 29,102 Ps 35,806
Overdue 1,570 -
------------- -----------
Total 30,672 35,806
DERIVATIVES
(Fair value of derivatives instruments)
FORWARD CONTRACTS
Foreign exchange rights contracts to buy 609,466 747,839
Foreign exchange rights contracts to sell 1,223,531 1,744,465
Financial instruments rights to buy (local currency) 107,299 165,262
Financial instruments rights to sell (local currency) 95,561 146,542
------------- -----------
Total rights 2,035,857 2,804,108
Foreign exchange commitments contracts to buy (567,369) (750,146)
Foreign exchange commitments contracts to sell (1,310,014) (1,773,315)
Financial instruments commitments to buy (local currency) (106,022) (168,213)
Financial instruments commitments to sell (local currency) (98,786) (146,431)
------------- -----------
Total obligations (2,082,191) (2,838,105)
------------- -----------
TOTAL FORWARD CONTRACTS (46,334) (33,997)
------------- -----------
FUTURES CONTRACTS
Foreign exchange rights contracts to buy Ps 38,635 Ps 7,720
Foreign exchange rights contracts to sell 5,724 64,116
Financial instruments rights to buy (local currency) - 258
------------- -----------
Total rights 44,359 72,094
Foreign exchange commitments contracts to buy (38,635) (7,690)
F - 40
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002 2003
----------- -----------
Foreign exchange commitments contracts to sell (5,724) (64,425)
Financial instruments commitments to buy (local currency) - (258)
----------- -----------
Total obligations (44,359) (72,373)
TOTAL FUTURE CONTRACTS - (279)
SWAPS
Interest rate rights contracts - 120
Interest rate commitments contracts - (111)
----------- -----------
TOTAL SWAPS - 9
----------- -----------
TOTAL CUSTOMER ACCEPTANCES AND DERIVATIVES Ps (15,662) Ps 1,539
=========== ===========
The Bank currently has an investment portfolio in local and
foreign currencies that allows it to offer foreign exchange and
interest rate coverage to its clients. By using derivatives the Bank
hedges exchange risk and protects its foreign-currency investment
portfolio. These derivatives help protect the Bank against
exchange-rate fluctuation and increases the predictability of the
Bank's yield on foreign-currency investments.
The Bank derivatives' policy is to maintain active and passive
positions with clients with the intent to reduce interest rate and
exchange rate risk as much as possible. Within the amount of credit
granted to the Bank's clients there is a portion for the management of
derivatives. For this reason, the Bank never carries out any operation
of this type unless the client has the capacity to obtain a credit from
the Bank.
Under the rules of the Superintendency of Banking, BC's
derivatives portfolio is marked to market daily. Unrealized gains and
losses are expressed in the statement of operations.
During 2003, for forward contracts, the average cost of rights
and commitments relating to the purchase of financial instruments is
11.47% with a maturity of 7 days and the average yield from rights and
commitments relating to the sale of financial instruments is 7.55% with
a maturity of 2 days.
During 2003, the average yield from rights and commitments
relating to the sale of foreign currency is 9.27% annually with a
maturity of 101 days. The average yield from rights and commitments
relating to the purchase of foreign currency is 8.97% annually with a
maturity of 41 days.
The interest rates and the maturities indicated for forward
contracts are the same for futures contracts.
The average fair value of the hedging portfolio during the
year 2003 was US$154,730 equivalent to Ps 445,242 and the average yield
was 9.27%.
F - 41
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(9) ACCOUNTS RECEIVABLE
As of December 31, 2002 and 2003, accounts receivable
consisted of the following:
2002 2003
------------ ------------
Credit card operations Ps 61,773 Ps 55,623
Due from other banks 753 283
Accrued interest on investment securities 81 101
Advances to contractors and employees 14,980 10,951
Remittances in transit 828 910
Commissions 5,587 6,986
Warehousing services 7,200 7,358
Dividends 347 443
Leasing 34,384 9,758
Services and properties sells 24,255 29,823
Employee advances 276 318
Claims to insurance companies 349 293
Credit card compensation 29,075 20,291
Other receivables 11,592 45,296
------------ ------------
TOTAL ACCOUNTS RECEIVABLE 191,480 188,434
------------ ------------
Allowance for accounts receivable losses (9,817) (21,011)
------------ ------------
ACCOUNTS RECEIVABLE Ps 181,663 Ps 167,423
============ ============
The activity in the allowance for accounts receivable during
the years ended December 31, 2001, 2002 and 2003 is as follows:
2001 2002 2003
----------- ----------- -----------
Balance at beginning of year Ps 19,580 Ps 15,696 Ps 9,817
Balance at beginning of year (Sufinanciamiento) - - 631
Provision for uncollectible amounts 3,739 5,125 14,198
Charge-offs (7,592) (6,524) (2,913)
Recoveries (31) (4,476) (1,321)
Allowance used - (424) (19)
Effect of difference in exchange rate (1) - 420 618
----------- ----------- -----------
Balance at end of year Ps 15,696 Ps 9,817 Ps 21,011
=========== =========== ===========
(1) For year 2001, the effect of difference in exchange rate was
included as a part of recoveries.
(10) PREMISES AND EQUIPMENT AND LEASE
At December 31, 2002 and 2003 premises and equipment consisted
of the following:
F - 42
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002 2003
----------- -------------
PREMISES AND EQUIPMENT
Land Ps 53,930 Ps 53,491
Buildings 222,444 221,302
Warehouses 20,081 27,369
Furniture, equipment and fixtures 103,215 114,074
Computer equipment 150,851 178,026
Vehicles 3,897 4,790
Construction in progress 10,376 4,696
Machinery and equipment 101,361 103,071
Equipment in - transit 11,456 35,864
Rural premises 1,091 1,091
----------- -------------
Total 678,702 743,774
Less accumulated depreciation (331,694) (377,186)
Allowance (29,284) (28,624)
----------- -------------
PREMISES AND EQUIPMENT, NET Ps 317,724 Ps 337,964
=========== =============
2002 2003
------------ ------------
LEASES
Machinery and equipment Ps 236,346 Ps 328,820
Vehicles 51,138 118,204
Furniture, equipment and fixtures 3,054 2,305
Ships, trains and livestock 1,864 24,012
Computer equipment 18,660 24,673
Real goods 44,239 52,707
------------ ------------
TOTAL 355,301 550,721
Less accumulated depreciation (7,475) (9,547)
Allowance (6,035) (8,081)
------------ ------------
LEASE, NET Ps 341,791 Ps 533,093
============ ============
Depreciation expense for the years ended December 31, 2001,
2002 and 2003, amounted to Ps 35,965, Ps 34,444 and Ps 40,625
respectively.
(11) PREPAID EXPENSES, DEFERRED CHARGES AND OTHER ASSETS
At December 31, 2002 and 2003, prepaid expenses, deferred
charges and other assets consisted of the following:
F - 43
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002 2003
------------ -------------
PREPAID EXPENSES:
Insurance premiums Ps 5,540 Ps 5,620
Interest 360 72
Other 745 1,054
------------ -------------
TOTAL PREPAID EXPENSES 6,645 6,746
------------ -------------
DEFERRED CHARGES:
Goodwill Ps 118,903 Ps 99,910
Studies and projects 10,250 4,333
Computer programs 8,508 8,513
Remodeling 5,033 593
Organization and pre-operating expenses 1,876 218
Leasehold improvements 1,553 212
Deferred taxes non-banking entities 562 318
Stationery and supplies 481 563
Taxes 182 -
Contributions - 34
Other 23,314 6,302
------------ -------------
TOTAL DEFERRED CHARGES Ps 170,662 Ps 120,996
============ =============
2002 2003
------------ ------------
OTHER ASSETS:
Value added tax deductible and withholding taxes Ps 51,173 Ps 57,786
Investment in Trust 51,072 54,458
Deposits 7,946 12,066
Assets to place in leasing contracts 520 33,224
Other 5,941 9,422
------------ ------------
TOTAL OTHER ASSETS 116,652 166,956
------------ ------------
TOTAL Ps 293,959 Ps 294,698
============ ============
The activity of the goodwill account during the years ended
December 31, 2001, 2002 and 2003 is as follows:
2001 2002 2003
------------ ----------- -------------
Balance at beginning of year Ps 164,201 Ps 141,552 Ps 118,903
Balance at beginning of year (Sufinanciamiento) - - 4,433
Constitution - - 36,347
Amortization (22,649) (22,649) (59,773)
------------ ----------- -------------
Balance at end of year Ps 141,552 Ps 118,903 Ps 99,910
============ =========== =============
F - 44
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(12) FORECLOSED ASSETS
At December 31, 2002 and 2003, foreclosed assets consisted of
the following:
2002 2003
------------ -----------
Equity securities Ps 37,530 Ps 48,248
Real estate 114,306 112,381
Other assets 33,425 33,692
------------ -----------
185,261 194,321
Allowance (107,962) (135,121)
------------ -----------
TOTAL FORECLOSED ASSETS, NET Ps 77,299 Ps 59,200
============ ===========
The following is a summary of equity securities classified as
foreclosed assets:
2002 2003
------------ -----------
Urbanizacion Sierras del Chico Ltda Ps 11,567 Ps 11,567
Chico Oriental Numero 2 Ltda 14,053 14,053
Pizano S.A. 3,663 3,663
Convertible Securities Pizano S.A. 3,221 3,221
Patrimonio Lineas Agromar 1,571 1,399
Fideicomiso Emcocables 2 Santa Ana - 2,991
Fideicomiso Pagos Procam - 7,044
Other 3,455 4,310
------------ -----------
TOTAL Ps 37,530 Ps 48,248
============ ===========
The activity of the valuation allowance foreclosed assets
during the years ended December 31, 2001, 2002 and 2003 is as follows:
2001 2002 2003
----------- ----------- ------------
Balance at beginning of year Ps 93,591 Ps 106,081 Ps 107,962
Balance at beginning of year (Sufinanciamiento) - - 222
Provision 21,321 17,236 32,458
Charge-offs (583) - -
Reversals of previously recorded provisions (8,248) (15,355) (5,521)
----------- ----------- ------------
Balance at the end of year Ps 106,081 Ps 107,962 Ps 135,121
=========== =========== ============
F - 45
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(13) REAPPRAISAL OF ASSETS
The following is a detail at December 31, 2003:
2002 2003
------------ -------------
Asset revaluations Ps 259,811 Ps 253,413
Less: proportional equity revaluations (195,554) (198,072)
Less: minority interests (26,889) (25,255)
------------ -------------
TOTAL EQUITY REVALUATIONS Ps 37,368 Ps 30,086
============ =============
The proportional equity revaluations refer to the acquisition
of investments in Colcorp S.A., Almacenar S.A., Comisionista de
Colombia S.A., Leasing Colombia S.A., Fiducolombia S.A. and affiliates
calculated on acquisition date. Consolidation rules require this value
to be unchanged while the investment is held or no new acquisitions are
made.
(14) INTERBANK BORROWINGS
Interbank borrowings, primarily denominated in U.S. dollars,
at December 31, 2002 and 2003 are summarized as follows:
2002 2003
------------- -------------
FOREIGN BANKS
Short-term Ps 365,316 Ps 249,874
Long-term 38,646 206,185
------------- -------------
TOTAL Ps 403,962 Ps 456,059
============= =============
Short-term interbank borrowings, obtained from other banks for
liquidity purposes, are unsecured and generally have maturities ranging
from 90 to 180 days.
Interest rates on U.S. dollar denominated short-term
borrowings from foreign banks averaged 2.44% and 1.24% in 2002 and
2003, respectively.
For the long term, interbank borrowings the rate average was
6.27% and 5.84% in 2002 and 2003 respectively. Maturities at December
31, 2003 were as follows:
2003
------------
2005 Ps 32,632
2006 173,553
------------
Ps 206,185
============
F - 46
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(15) BORROWINGS FROM DOMESTIC DEVELOPMENT BANKS
The Colombian government has established programs to promote
the development of specific sectors of the economy. These sectors
include foreign trade, agriculture, tourism and many other industries.
These programs are under the administration of the Central Bank and
various government entities.
Under such programs, the Bank receives a loan request from an
applicant operating in a designated economic sector. The Bank then
performs a full credit analysis of the applicant based upon its normal
credit criteria. If such criteria are met, the Bank applies to the
appropriate government agency for funding. The government agency
reviews the loan application to determine its compliance with policy
objectives and may also perform an independent credit analysis of the
applicant. Upon approval, the agency disburses funds to the Bank. The
Bank, in turn, disburses the loan to its customer and assumes all
credit risk.
These loans generally bear interest from three to six
percentage points above the average rates paid by domestic banks on
short-term time deposits. Loan maturities vary depending on the program
(ranging from one to ten years). The Bank funds approximately 0% to 15%
of the total loan balance, with the remainder being provided by the
respective government agencies. Loans to customers are in the same
currency and maturities as the borrowings from the agencies.
As of December 31, 2002 and 2003, borrowings from domestic
development banks received from certain Colombian government agencies
consisted of the following:
2002 2003
----------- -----------
Fondo para el Financiamiento del Sector Agropecuario Ps 121,878 Ps 180,648
Banco de Comercio Exterior de Colombia ("Bancoldex")(1) 340,684 426,068
Findeter 43,672 89,148
Colombian Central Bank 132,165 53
Other 74,654 59,619
----------- -----------
TOTAL Ps 713,053 Ps 755,536
=========== ===========
(1) For 2002, include loans transferred from IFI to Bancoldex.
Interest rates on borrowings from domestic development banks
averaged 7.98% and 8.26% in 2002 and 2003, respectively, in local
currency and 3.44% and 5.29% in 2002 and 2003, respectively, in foreign
currency. Maturities at December 31, 2003 were as follows:
2004 Ps 155,042
2005 121,962
2006 140,097
2007 95,021
2008 129,748
2009 and thereafter 113,666
------------
TOTAL Ps 755,536
============
F - 47
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(16) OTHER LIABILITIES
As of December 31, 2002 and 2003, other liabilities consisted
of the following:
2002 2003
------------ ------------
Unearned income Ps 8,975 Ps 11,030
Accrued severance Law 50, net of advances 4,148 4,510
Accrued severance pre-Law 50, net of advances to employees
of Ps 11,502 and Ps 10,438 in 2002 and 2003, respectively 11,346 11,675
Accrued payroll and other severance benefits 14,740 18,610
Accrued pension obligations net of deferred cost 68,322 78,578
Negative goodwill 3,788 2,313
Deferred interest on restructured loans 49,664 32,452
Other 9,589 15,149
------------ ------------
TOTAL Ps 170,572 Ps 174,317
============ ============
Unearned income consists of prepayments of interest by
customers. Terms for the prepayment of interest are established when
the loan is originated. Unearned income is generally amortized on a
straight-line basis over the term for which interest has been prepaid.
Colombian labor legislation entitles each employee hired
before January 1, 1991 to severance pay in an amount equal to such
employee's last monthly salary multiplied by the number of years in
service. The Bank increases the accrued liability for such severance
benefits whenever an employee's salary is increased. To allow greater
flexibility in labor contracts, the Colombian government enacted Law 50
in 1990, which, among other things, permits companies to negotiate a
waiver of the retroactivity component of severance pay with their
employees. In August 1994, the Bank and its executive employees agreed
on a plan, which waived the retroactivity component of severance pay.
In accordance with the Colombian Labor Code, employers must
pay retirement pensions to employees who fulfill certain requirements
as to age and time of service. However, the Social Security Institute
and another private funds has assumed a large portion of this
obligation.
Pension obligation
The following is an analysis of the Bank's pension obligations
for the years ended December 31, 2001, 2002 and 2003:
F - 48
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
PROJECTED
PENSION DEFERRED
LIABILITY COST NET
----------- ----------- ---------
BALANCE AT DECEMBER 31, 2000 Ps 70,676 Ps (11,661) Ps 59,015
=========== =========== =========
Adjustment per actuarial valuation 10,357 (10,357) -
Benefits paid (8,050) - (8,050)
Pension expense - 11,263 11,263
----------- ----------- ---------
BALANCE AT DECEMBER 31, 2001 Ps 72,983 Ps (10,755) Ps 62,228
=========== =========== =========
Adjustment per actuarial valuation 13,973 (13,973) -
Benefits paid (8,393) - (8,393)
Pension expense - 14,487 14,487
----------- ----------- ---------
BALANCE AT DECEMBER 31, 2002 Ps 78,563 Ps (10,241) Ps 68,322
=========== =========== =========
Adjustment per actuarial valuation 10,120 (10,120) -
Benefits paid (9,245) - (9,245)
Pension expense - 19,501 19,501
----------- ----------- ---------
BALANCE AT DECEMBER 31, 2003 Ps 79,438 Ps (860) Ps 78,578
=========== =========== =========
The present value of the obligation for pensions as of
December 31, 2001, 2002, and 2003 was determined on the basis of
actuarial calculations in conformity with legal regulations. The
significant assumptions utilized in the actuarial calculations for the
years ended December 31, 2001, 2002 and 2003 were as follows:
2001 2002 2003
----- ----- -----
Discount rate 27.30% 24.82% 23.03%
Future pension increases 19.06% 17.14% 15.33%
===== ===== =====
(17) LONG TERM-DEBT
The scheduled maturities of long term-debt at December 31,
2003 are as follows:
2004 Ps 12,042
2005 6,324
2006 17,500
2007 23,500
2008 10,500
2009 and thereafter 1,952
-------------
Ps 71,818
=============
F - 49
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Long term debt consists of bonds issued by Leasing Colombia
S.A. in 1999 and 2002 bearing interest at an average rate of 9.62%,
bonds issued by Abocol S.A. in 2002 bearing interest at an average rate
of CPI + 8% and bonds issued by Fundicom S.A. in 2003 bearing interest
an average rate of CPI.
(18) ACCRUED EXPENSES
As of December 31, 2002 and 2003, accrued expenses consisted
of the following:
2002 2003
------------ -----------
Interest payable Ps 318 Ps 218
Income tax payable 6,333 6,064
Fines and sanctions (1) 20,492 30,200
Labor obligations 1,186 7,446
Other 26,775 12,245
------------ -----------
TOTAL Ps 55,104 Ps 56,173
============ ===========
(1) See note 23(d) as it refers to Bancolombia
The statutory income tax rate for 2000 and 2001 was 35%. For
2002 and 2003, the statutory income tax was 37% for Bancolombia,
Leasing Colombia, Colcorp and Fiducolombia according to an agreement of
tax stability and 35% and 38.5% for the other subsidiaries,
respectively.
The Bank's tax liability is calculated based on the greater of
(i) net taxable income and (ii) presumed income, which, in 2002 and
2003 is 6% of stockholders' equity.
The following is a reconciliation of taxable income before
income taxes for the years ended December 31, 2001, 2002 and 2003:
2001 2002 2003
------------ ------------- -------------
Income before income taxes Ps 188,108 Ps 252,998 Ps 532,019
Adjustments for consolidation purposes, net (29,546) (7,114) (26,722)
Difference between net operating loss
carry-forwards and presumed income 56,569 54,015 16,404
Non-deductible provisions, costs and expenses 120,115 99,806 107,926
Nontaxable or exempt income (218,406) (251,005) (420,253)
Difference between monetary correction for
tax purposes and for financial reporting purposes (26,546) (27,989) (40,040)
------------ ------------- -------------
Taxable income Ps 90,294 Ps 120,711 Ps 169,334
Statutory tax rate (1) 35% 36.89% 36.84%
------------ ------------- -------------
Estimated current income tax Ps 31,603 Ps 44,533 Ps 62,391
Deferred income tax expense (benefit) (28) (1,915) 244
------------ ------------- -------------
TOTAL Ps 31,575 Ps 42,618 Ps 62,635
============ ============= =============
(1) The statutory income tax rate for 2002 and 2003 was 37% for Bancolombia,
Leasing Colombia, Colcorp and Fiducolombia, according to the agreement of
tax stability and 35% and 38.5% for the other subsidiaries, respectively.
F - 50
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Income taxes for the years ended December 31, 2002 and 2003
are subject to review by the tax authorities. The Bank management and
its legal advisors believe that no significant liabilities in addition
to those recorded will arise from such a review. The Bank and its
subsidiaries do not have any pending claims from the tax authorities.
The following represents a summary of the utilizable date for
the fiscal losses to amortize and excess of presumed income over
ordinary income:
FISCAL LOSSES TO EXCESS OF PRESUMED INCOME OVER
AMORTIZE ORDINARY INCOME
---------------- ------------------------------
2004 Ps 1,475 Ps 62,392
2005 7,686 10,832
2006 2,995 -
2007 2,698 4,677
2008 493 2,591
---------------- ------------------------------
Ps 15,347 Ps 80,492
================ ==============================
(19) SUBSCRIBED AND PAID-IN CAPITAL
Subscribed and paid-in capital consisted of the following:
2001 2002 2003
----------- ----------- -----------
AUTHORIZED SHARES 670,000,000 670,000,000 670,000,000
=========== =========== ===========
ISSUED AND OUTSTANDING:
Common shares with a nominal value of 500 pesos 398,259,608 398,259,608 398,259,608
Preference shares with a nominal value of 500 pesos 178,435,787 178,435,787 178,435,787
=========== =========== ===========
The holders of American Depositary Shares ("ADSs") and
non-voting preference shares have a right to receive annually, when and
if declared by the Bank, from funds legally available, a minimum
dividend in Colombian pesos of 1% of the issued price of the preference
shares. Such dividends may not be less than those declared for common
shares, and have preference over any other dividends for common shares.
1. In addition, the non-voting preference shares are entitled to the
following:
a) Dividends once declared and once reserves are approved at
the annual general shareholders' meetings.
b) Recovery of their initial investment preference over common
shareholders, in case of dissolution of the Bank, after the
payment of liabilities to third parties, including
F - 51
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
mandatorily convertible debentures, if any.
c) A preemptive right in the event of new issues of preference
shares. In the event that only common shares are issued,
preference shareholders have no preemptive rights to such
shares.
d) To demand meetings of preference shareholders, at the
request of not less than 20% of preference shares
outstanding, in order to deliberate on matters of common
interest.
e) To appoint, at meetings of preference shareholders and in
conformity with the law, a representative to assist them in
their rights before the Bank.
2. The non-voting preference shares do not confer on their holders
the right of participating in shareholders' meetings or of voting
therein, except in the following cases:
a) Whenever there is a proposed modification to impair the
rights provided in the bylaws for preference shares.
b) Whenever the anticipated dissolution of the Bank, or its
merger, its transformation or the change in its business
objectives is to be voted upon.
c) Whenever the preference dividends have not been paid in full
during two consecutive periods, and while this situation
continues, within the terms of the law.
d) Whenever the shareholders in the annual general meeting
declare the payment of a stock dividend. In this event, the
decision must be approved by the majority provided by the
Colombian Commercial Code, which will include a favorable
vote of 80% of the preference shares.
e) Whenever the Superintendency of Banking requires it, on the
grounds that management has concealed income by any means,
and has thereby reduced net income available for
distributions as dividends.
f) Whenever the registration of preference shares in stock
exchanges or in the National Securities Registry is
suspended or cancelled and as long as such situation exits.
In accordance with Colombian law, the deposit of shares abroad
constitutes a foreign investment institutional fund, and the dividends
paid to such funds are not subject to taxes in Colombia. Accordingly,
the dividends paid abroad by the Bank to holders of ADSs are tax-free
in Colombia, except in cases in which the Bank distributes income in
excess of that on which it has paid income taxes; in such cases, the
ADS holders would have to pay income tax at the rate of 35% on the
excess portion of dividends received.
The Bank's weighted average number of common and preference
shares outstanding used in the computation of earnings per share was
576,695,395 in 2001, 2002 and 2003.
F - 52
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(20) APPROPRIATED RETAINED EARNINGS
Pursuant to Colombian law, 10% of the net income of the Bank
company and its Colombian subsidiaries in each year must be
appropriated with a credit to a "legal reserve fund" until its balance
is equivalent to at least 50% of the subscribed capital. This legal
reserve may not be reduced to less than the indicated percentage,
except to cover losses in excess of undistributed earnings.
The component "other" in consolidated statements of
stockholders' equity correspond to the subsidiaries' retained earnings
that do not eliminate in the consolidation process.
Appropriated retained earnings consist of the following:
2001 2002 2003
--------------- --------------- ---------------
Legal reserve Ps 291,133 Ps 386,009 Ps 497,075
Additional paid - in capital 107,359 107,359 107,359
Other reserves 40,226 72,819 135,920
--------------- --------------- ---------------
TOTAL Ps 438,718 Ps 566,187 Ps 740,354
=============== =============== ===============
In addition, paid-in capital of Ps 107,359 at December 31,
2001, 2002 and 2003 was recorded as part of the legal reserve, as
required by the Superintendency of Banking.
(21) DIVIDENDS DECLARED
The Bank's shareholders declared common stock dividends with
respect to the preceding year's earnings of the Bank (the parent
company) during 2002, 2003 and 2004 as indicated below:
2002 2003 2004
-------------------------- ------------------------- ----------------------------
Preceding year's unconsolidated earnings Ps 90,123 Ps 150,923 Ps 309,772
Dividends in cash 84 pesos per share payable 132 pesos per share 272 pesos per share payable
in four quarterly payable in four quarterly in four quarterly
installments of 21 pesos installments of 33 pesos installments of 68 pesos per
per share from April 2002 per share from April 2003 share from April 2004 on
on 398,259,608 and on 398,259,608 and 398,259,608 and 178,435,787
178,435,787 common and 178,435,787 common and common and preferences
preference shares, preferences shares, shares, respectively.
respectively. respectively.
Total dividends declared Ps 48,442 Ps 76,124 Ps 156,861
Dividends payable at December 31 Ps 15,322 Ps 22,776
F - 53
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(22) MEMORANDUM ACCOUNTS
At December 31, 2002 and 2003, memorandum accounts consisted of the
following:
2002 2003
-------------- --------------
TRUST:
Investment trusts Ps 6,987,025 Ps 9,566,526
COMMITMENTS:
Unused credit card limits 1,050,837 1,387,674
Civil litigation against the Bank 952,769 1,000,681
Issued and confirmed letters of credit 352,430 385,837
Uncommitted lines of credit 216,881 318,423
Bank guarantees 76,931 306,958
Approved credits not disbursed 10,296 13,262
Other 45,104 471
-------------- --------------
TOTAL Ps 9,692,273 Ps 12,979,832
============== ==============
OTHER MEMORANDUM ACCOUNTS:
2002 2003
-------------- ---------------
MEMORANDUM ACCOUNTS RECEIVABLE:
Tax value of assets Ps 8,789,766 Ps 10,764,706
Assets and securities given in custody 360,093 2,639,400
Assets and securities given as a collateral 1,080,965 1,508,112
Negotiable investments in debt titles 1,263,206 807,824
Written-off assets 680,651 668,999
Quotas of leasing for receive 440,770 668,172
Investments held to maturity 430,147 704,188
Adjustments for inflation of assets 204,114 222,117
Accounts to receive yields negotiable investments in debts
titles 139,919 133,629
Investments available for sale in debt titles 52,229 1,043,085
Remittances sent for collection 33,600 30,132
Other memorandum account receivable 1,252,073 1,696,849
-------------- --------------
TOTAL Ps 14,727,533 Ps 20,887,213
MEMORANDUM ACCOUNTS PAYABLE:
Assets and securities received as collateral Ps 7,984,314 Ps 7,650,641
Qualification commercial loans 5,350,927 6,721,739
Assets and securities received in custody 1,812,359 2,046,084
Tax value of shareholders' equity 1,605,488 1,742,916
Qualification consumer loans 931,584 1,273,292
Adjustment for inflation of Equity 499,481 492,729
Qualification consumer loans 69,860 84,979
Merchandise in owned warehouses 46,081 59,490
Merchandise in third-party warehouses 36,507 101,589
Other memorandum account payable 4,042,286 5,774,283
-------------- --------------
TOTAL 22,378,887 25,947,742
-------------- --------------
TOTAL MEMORANDUM ACCOUNTS Ps 46,798,693 Ps 59,814,787
============== ==============
F - 54
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
(23) COMMITMENTS AND CONTINGENCIES
THE PARENT COMPANY (THE BANK))
a) CONTINGENCIES COVERED BY FOGAFIN:
During the privatization process of Banco de Colombia (absorbed by
the Bank in 1998), which was completed on January 31, 1994, the Colombian
Guarantee Fund for Financial Institutions ("Fogafin" for its Spanish
initials) made a commitment to assume the cost of contingent liabilities
resulting from events that occurred before the date when the stock was
sold, that should be claimed within the five (5) subsequent years,
meaning that Fogafin will cover only for five years. Fogafin's guarantee
covers eighty percent (80%) of the first Ps 10,000, discounting
allowances, and thereafter, one hundred percent (100%), all annually
adjusted according to the consumer price index.
As established in the guarantee contract, Banco de Colombia
committed to transfer to the Fogafin all the rights that it then had in
Sierras del Chico Ltda. and Chico Oriental Numero Dos Ltda. for an amount
no lesser than the book value as of December 31, 1993, including
inflation adjustments and excluding any valuations. A judicial process
was initiated questioning the validity and binding effect of the
commitment to transfer these rights to Fogafin, but no final ruling has
been made.
At December 31, 2002 and 2003, the civil contingencies covered by
the guarantee amounted to approximately Ps 20,897 and Ps 21,500,
respectively, with allowances at the same dates amounting to Ps 1,288 and
Ps 1,588. Labor contingencies amount to Ps 475 and Ps 486 and have
allowances of Ps 238 and Ps 244, respectively.
b) LEGAL PROCESSES
At December 31, 2002 and 2003, other than the litigation discussed
under (a) above, there were labor-related claims against the Bank
amounting to approximately Ps 8,803 and Ps 9,118, respectively (the final
result of such litigation is not predictable due to the controvertible
nature of the obligations). The allowances for contingencies on those
dates amounted to Ps 4,208 and Ps 4,372, respectively.
At December 31, 2002 and 2003, there were ordinary civil lawsuits,
group actions, and civil actions within criminal and executive processes
against the Bank with total claims of approximately Ps 87,405 for 2002
and Ps 85,670 for 2003, and with allowances on the same dates of Ps 1,904
and Ps 2,998, respectively.
Allowances are recorded when processes are ruled in the first
instance against the Bank or based on the opinion of the attorneys
handling the litigations.
The Superintendency of Banking has imposed fines on the Bank
amounting to Ps 302, which have been totally allowanced, even though the
Bank considers it has filed valid arguments against the Superintendency's
decisions.
F - 55
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
c) CONTINGENCY RELATED TO PURCHASE OF 51% OF BANCO DE COLOMBIA
S.A.'S STOCK
Contingency guarantee, former Banco de Colombia
The selling shareholders of the majority interest of former Banco de
Colombia constituted a guarantee trust in favor of the Bank with
Fiduanglo (currently, Lloyds Trust) as trustee, on Bancolombia stock in
order to respond for the contingencies and hidden liabilities of the sold
Bank. The guarantee covers claims between US$ 7,500 and US$ 30,000
equivalent to Ps 21,054 and Ps 84,216 respectively.
An arbitration proceeding is currently occurring at the Arbitration
Center of the Bogota Chamber of Commerce. The Bank initiated arbitration
to determine the validity of claims filed against the trust and to make
effective the guarantee. The claims amount to approximately Ps 46,947,
not including updates.
The Gilinski Case
The Gilinski family has presented itself in the criminal
investigation that is underway at the Colombian Office of the Attorney
General as a civil party, with individual and collective interest,
soliciting the bindingof the Bank as a third party with civil liability.
Through a decision dated December 26, 2003, the Attorney General decreed
the preclusion (or termination) of the process, decision that was
appealed by the counterpart.
The Bank considers the risk of loss in these proceedings to be low,
since the acquisition and merger process was adjusted to the law and
business ethics.
Additionally, the Bank filed a suit before the
contentious-administrative jurisdiction seeking to rescind the Ps 44
penalty that the Superintendency of Banking imposed for an inter-bank
loan that the former Banco de Colombia granted to Banco Industrial
Colombiano when both institutions were involved in merger activities. The
remaining claims of the Gilinski family were disregarded by the
Superintendency of Banking.
Process of Luis Alberto Duran
The class action lawsuit filed by Luis Alberto Duran Valencia
against the Bank and some of its stockholders is underway (See Note 29).
Additionally, Maximiliano Echeverri M. filed a popular action
against the Bank and the Superintendencies of Banking and Securities. The
risk of loss in these proceedings is considered remote since the
acquisition and merger process was adjusted to the law and business
ethics.
d) DIAN PROCESSES
F - 56
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Based on Article 98 of Law 788 of 2002, the Bank reconciled with the
National Tax and Customs Office ("DIAN" for its initials in Spanish) on
the outstanding 1996 income taxes for Ps 10,592. As a result of this
conciliation the Bank paid Ps 2,539. Nevertheless, this reconciliation
will not be fully valid until approved by the Full Court of the Honorable
Council of State, for which the Bank has maintained allowances of Ps
8,053 for this purpose.
Likewise, based on Article 99 of the same law, the Bank agreed with
the DIAN to pay Ps 2,361 for outstanding amounts related to the 1999 tax
on financial transactions which amounted to $11,847. This agreement will
be in full force and effect when the DIAN issues notice of the
administrative action at which it will determine compliance with the
requirements to terminate the proceedings by mutual consent. Until that
time, the Bank will maintain the Ps 9,486 allowance.
Currently, for 1999 income tax, the Bank is being discussed with
DIAN over Ps 4,263 or Ps 5,292, including inaccuracy penalties and
interest on arrears. The allowance constituted amounts to Ps 1,406.
The DIAN and the District Tax Direction of Bogota have imposed fines
on the Bank amounting Ps 2,641 relating to collection of taxes. The Bank
has filed the pertinent remedies and lawsuits and has made allowances
amounting to Ps 1,623 for these fines.
FIDUCOLOMBIA:
Executive processes have been filed against the Bank's Trust
subsidiary (Fiducolombia), which in the opinion of management and
attorneys handling the litigations are not likely to result in an
unfavorable ruling or to affect the Trust Company.
Carlos Paz Mendez Process
As of December 31, 2003, proceedings are underway against Banco de
Colombia (currently, Bancolombia) and the Trust Company at Civil Court 12
of the Bogota. The plaintiff is Mr. Carlos Paz Mendez, and the
proceedings commenced on July 16, 1993. On November 5, 1998, the tribunal
issued a ruling favorable to Fiducolombia and ordered the defendant to
pay costs. The defendant's appealing was accepted on December 14, 1998.
On appeal, Bancolombia's and Fiducolombia's lawyer requested an audience
under Article 360 of the Civil Procedural Code, and that audience was
held on May 9, 2001. By means of Decision dated March 25, 2003,
proceeding for annulment was admitted and it was summonedfor a term for
thirty (30) days.
This process is expressly covered by the contract of liability
contingencies subscribed with Fogafin, contained in Public Deed No. 0182
of January 18, 1994 of Notary Two of Bogota D.C., according to protocol
relationship in the aforementioned public document named Annex No. 1. The
Trust Company's management and attorneys consider that the likelihood of
obtaining a favorable ruling is high. By virtue of the above,
Fiducolombia has not made any allowances for this concept.
Silvana Trust
F - 57
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Seven proceedings are underway in the civil courts of the Bogota
Circuit and on an Arbitration Court which ruled in favor of the trust
company. All of the proceedings arise from Fiducolombia S.A.'s role as
trustee in the guarantee mercantile trust agreement entered into on
December 1, 1993, with Gallego Inmobiliaria S. A. and the appraisal
VECTOR (appraisal company) made of the property. Two of the
aforementioned proceedings terminated because of expiration. However, on
December 11, 2003, an ordinary proceeding for a greater amount was filed
again against the trust company on this case.
As indicated by the Trust Company's attorneys, management considers
that there is no liability before the facts established in the processes.
The plaintiffs claim amounts to approximately Ps 718.
Grancolombiano Group
The "Grupo Grancolombiano" Trust that was managed by Banco de
Colombia S.A. and liquidated on June 29, 1990, is subject to
contingencies, among them, labor contingencies. For that purpose, a sum
of money has been reserved through the "Contingency Fund" Trust managed
by Fiducolombia. These sums were contributed by former trustors of the
"Grupo Grancolombiano" trust with the purpose of covering such
contingencies. As recommended by the lawyer, and in compliance with the
purpose established in the Minutes of Liquidation of the "Grupo
Grancolombiano", 24 of the 29 proceedings filed were reconciled before a
Judge. Five more reconciliations occurred outside court with charge to
the funds of the Contingency Fund of Grupo Grancolombiano. In the
proceedings of Jorge Euclides Garcia Prado, on December 4, 2003, the
fourth proceeding audience took place to be followed next by a decision.
The proceedings of Jose del Carmen Racero Toribio, Pedro Antonio Alvarez
Serpa and David Salcedo Mejia were not reconciled because the employment
relationship ended when the building in which they worked was the
property of the Compania Nacional de Chocolates S. A. The plaintiff
integrated the litis consorcio with this company. In one case, the Court
of Law in a first instance ruling limited the payment of a retirement
pension, with the possibility of repeating against Nacional de Chocolates
S.A. In two cases, it declared that the exception of petition before time
was proven. In the remaining case, the court absolved the Bank of any
liability. Appeals are pending before the Superior Court of Antioquia.
The Trust Company's management and legal advisors consider do not
believe that these cases will result in any additional liabilities. IF
any liability does result, it will affect the trust's reserve fund but
not Fiducolombia itself.
Comerintegral Ltda. Process
Fiducolombia S.A. has entered arbitration with Comerintegral Ltda.
to resolve a dispute related to the termination of the mercantile trust
agreement entered into on August 26, 1994, between Suramericana S.A.
Sufiducia (currently, Fiducolombia), and the trust beneficiaries.
Comerintegral Ltda. seeks, in accordance with Article 1260 of the Code of
Commerce, the termination of the trust and restitution of the moneys
deposited in the trust's ordinary common fund in proportion to its
participation in the trust. Fiducolombia S.A. was notified of the claim
on March 2, 2001, and has
F - 58
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
filed a cross-demand.
On December 12, 2001, the two guardians that the Center for
Arbitration and Reconciliation of the Bogota Chamber of Commerce
designated to represent the plaintiffs accepted the designation. On
January 31, 2002, the Fiducolombia's defense made a pronouncement on the
proposed objections and requested evidence. A settlement hearing was
scheduled for February 28, 2002.. On May 30, 2002, the hearing for the
installation of the Arbitration Court was held. On November 26, 2002, the
hearing for allegations was held and it was programmed for January 29,
2003 the hearing when the arbitral award will be given. Fiducolombia is
waiting for the acceptance Mr. German Tabares' designation as substitute
arbitrator as replacement of Mr. Carlos Lleras de la Fuente. Once the
latter occurs, the court should accept the lawsuit for purposes that
Fiducolombia gives its opinion thereon.
The Bank does not need to make allowances for payment of any
arbitral award, as the money sought is is already held in trust by
Fiducolombia S.A.
Invico Ltda. Processes
Invico Ltda. has a suit pending against Bancolombia S. A. and
Fiducolombia S.A. in Civil Court 6 of Bogota. The plaintiff seeks a
ruling declaring that Bancolombia and Fiducolombia S.A. must exercise the
alternate right contained in Article 1948 of the Civil Code, in reference
to the land lot denominated "Granjita", pursuant to the trust mandate
contracted Claims amount to Ps 4,000. Proceedings began on November 9,
2001, and on January 17, 2002, the court issued a ruling dismissing the
claim and ordering the plaintiff to pay costs. By means of writ dated
July 16, 2002, a settlement hearing was ordered for November 5, 2002 The
diligence of reconciliation was declared a failure. However, it is still
premature to give any concepts regarding said proceeding.
Invico has also pursued "Accountability" proceedings against
Bancolombia and Fiducolombia S.A. in Civil Court 9 of BogotaIn these
proceedings Invico seeks aacountability to hold Bancolombia and
Fiducolombia S.A. accountable for their time as trustees of its property,
as a result of the appointment and choice that the former and its
creditors made . The amount sought is Ps 3,000. Settlement hearings on
December 4, 2001, failed. The case went to trial on November 27, 2001,
beginning with the collection of evidence. on November 19, 2002, the
court ruled in favor of Bancolombia and Fiducolombia, S.A. The plaintiff
appealed the ruling, but we believe the court's ruling will withstand
Invico's challenge.
LEASING COLOMBIA S.A.:
As of December 31, 2003, there are litigations against the Leasing
subsidiary and, according to attorneys' opinion they do not show risk of
loss that could affect future Company results.
SUFINANCIAMIENTO
F - 59
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Sufinanciamiento, now part of the Bank as a subsidiary, has
proceedings pending against it for an estimated Ps 5,434. Management
believes these proceedings to pose a low risk of loss and consequently
has not made allowances for payment of an adverse judgment.
ALMACENAR S.A.
As of December 31, 2002 and 2003, labor and civil proceedings
against Almacenar, the warehouse and logistics subsidiary, were underway.
Due to the nature of the obligations, they are difficult to quantify.
As of December 31, 2002 and 2003, there are allowances amounting to
Ps 296 to cover any contingencies resulting from these proceedings.
TODO 1
As of December 31, 2003, no judicial processes were underway against
Todo1. The Bank is currently discussing with DIAN payment of the Value
Added Tax ("IVA") omitted in the invoices made to TODO1 Serv. Inc. for
technology services. Todo1 maintains that these revenues do not accrue
IVA and, accordingly has not invoiced IVA. The sum demanded by DIAN
amounts to Ps 205, which may be reduced to Ps 82 if an agreement is
reached as contemplated in the tax procedure. To date, there is a Ps 82
allowance to cover this risk.
(24) FEES AND SERVICE CHARGES
For the years ended December 31, 2001, 2002 and 2003 fees and
service charges consisted of the following:
2001 2002 2003
----------- ----------- ----------
Service charges Ps 132,410 Ps 145,561 Ps 180,888
Credit card fees 39,960 48,992 59,041
Credit and debit card annual fees 39,662 44,117 57,199
Checking fees 37,674 40,972 45,252
Warehouse and logistic services, net 32,973 38,873 42,705
Fiduciary activities 27,101 22,215 25,647
Commissions on letters of credit 2,346 2,929 4,249
Commissions expense (46,744) (51,351) (81,956)
----------- ----------- ----------
TOTAL Ps 265,382 Ps 292,308 Ps 333,025
=========== =========== ==========
(25) ADMINISTRATIVE AND OTHER EXPENSES
F - 60
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Administrative and other expenses for the years ended December 31,
2001, 2002 and 2003 consisted of the following:
2001 2002 2003
---------- ---------- -----------
Public services Ps 20,025 Ps 21,089 Ps 27,882
Advertising 13,361 12,522 17,328
Industry and trade, property, vehicle and other taxes 35,372 50,935 44,774
Communication, postage and freight 29,586 34,312 37,003
Insurance 39,750 41,478 47,040
Security services 16,705 18,161 17,167
Stationery and supplies 13,924 14,750 17,458
Amortization of deferred charges 44,529 35,295 27,014
Rental expenses 21,781 14,668 14,167
Maintenance and repairs 21,126 21,854 38,049
Contributions and membership dues 7,693 9,270 10,287
Temporary services 5,839 5,331 7,579
Travel expenses 6,190 8,361 9,942
Professional fees 28,410 14,533 17,614
Donations 4,363 9,455 1,708
Call center services 9,934 13,552 7,094
Information processes outsourcing 4,631 7,760 10,722
Other 10,102 29,169 50,634
---------- ---------- ----------
TOTAL Ps 333,321 Ps 362,495 Ps 403,462
========== ========== ==========
(26) RELATED PARTY TRANSACTIONS
Significant balances and transactions with related parties were as
follows:
2001
SHAREHOLDERS WITH
PARTICIPATING STOCK
SHAREHOLDERS WITH LOWER THAN 10% OF
PARTICIPATING THE BANK'S CAPITAL
STOCK EQUAL TO OR NON- BANK'S OFFICERS AND WITH OPERATIONS
HIGHER THAN 10% CONSOLIDATED AND BOARD OF HIGHER THAN 5%
OF BANK'S CAPITAL INVESTMENTS DIRECTORS TECHNICAL EQUITY
----------------- ------------ --------------- -------------------
BALANCE SHEET
Loans 51,300 749 1,083 43,500
Accounts receivable 1,262 26 37 3,314
--------- ---------- -------- ---------
TOTAL Ps 52,562 Ps 775 Ps 1,120 Ps 46,814
========= ========== ======== =========
--------- ---------- -------- ---------
Deposits Ps 486 Ps 40,403 Ps 226 Ps 499
========= ========== ======== =========
TRANSACTIONS
INCOME
Dividends received - 1,775 - -
F - 61
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2001
SHAREHOLDERS WITH
PARTICIPATING STOCK
SHAREHOLDERS WITH LOWER THAN 10% OF
PARTICIPATING THE BANK'S CAPITAL
STOCK EQUAL TO OR NON- BANK'S OFFICERS AND WITH OPERATIONS
HIGHER THAN 10% CONSOLIDATED AND BOARD OF HIGHER THAN 5%
OF BANK'S CAPITAL INVESTMENTS DIRECTORS TECHNICAL EQUITY
----------------- ------------ --------------- -------------------
Interest 4,895 1,978 167 7,410
Other - 54 - -
--------- ---------- -------- ---------
TOTAL Ps 4,895 Ps 3,807 Ps 167 Ps 7,410
========= ========== ======== =========
EXPENSES
Interest - 190 - 1
Other - - 49 -
--------- ---------- -------- ---------
TOTAL Ps - Ps 190 Ps 49 Ps 1
========= ========== ======== =========
2002
SHAREHOLDERS WITH
PARTICIPATING STOCK
SHAREHOLDERS WITH LOWER THAN 10% OF
PARTICIPATING THE BANK'S CAPITAL
STOCK EQUAL TO OR NON- BANK'S OFFICERS AND WITH OPERATIONS
HIGHER THAN 10% OF CONSOLIDATED AND BOARD OF HIGHER THAN 5%
BANK'S CAPITAL INVESTMENTS DIRECTORS TECHNICAL EQUITY
------------------ ------------ --------------- -------------------
BALANCE SHEET
Loans 28,300 7,584 1,744 -
Accounts receivable 653 218 15 -
---------- ---------- --------- -----
TOTAL Ps 28,953 Ps 7,802 Ps 1,759 Ps -
========== ========== ========= =====
Deposits 575 16,201 213 -
Accounts payable - 7 1 -
---------- ---------- --------- -----
TOTAL Ps 575 Ps 16,208 Ps 214 Ps -
========== ========== ========= =====
TRANSACTIONS
INCOME
Dividends received - 11,279 - -
Interest 5,838 1,077 179 -
Other 2 300 148 -
---------- ---------- --------- -----
TOTAL Ps 5,840 Ps 12,656 Ps 327 Ps -
========== ========== ========= =====
EXPENSES
Interest 28 140 - -
Other - 9,160 132 -
---------- ---------- --------- -----
TOTAL Ps 28 Ps 9,300 Ps 132 Ps -
========== ========== ========= =====
F - 62
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2003
SHAREHOLDERS WITH
PARTICIPATING STOCK
SHAREHOLDERS WITH LOWER THAN 10% OF
PARTICIPATING STOCK THE BANK'S CAPITAL
EQUAL TO OR HIGHER NON- BANK'S OFFICERS AND WITH OPERATIONS
THAN 10% OF CONSOLIDATED AND BOARD OF HIGHER THAN 5%
BANK'S CAPITAL INVESTMENTS DIRECTORS (1) TECHNICAL EQUITY
------------------- ------------ --------------- -------------------
BALANCE SHEET
Investment securities - 2,355 - -
Loans - 11,061 12,246 -
Accounts receivable - 3,085 150 -
------- ---------- ---------- ----------
TOTAL Ps - Ps 16,501 Ps 12,396 Ps -
======= ========== ========== ==========
Deposits 4 36,561 1,441 83,793
Overnight funds - 84 - -
Accounts payable - 141 8 -
------- ---------- ---------- ----------
TOTAL Ps 4 Ps 36,786 Ps 1,449 Ps 83,793
======= ========== ========== ==========
TRANSACTIONS
INCOME
Dividends received - 25,777 - -
Interest - 2,297 1,205 74
Other - 269 24 -
------- ---------- ---------- ----------
TOTAL Ps - Ps 28,343 Ps 1,229 Ps 74
======= ========== ========== ==========
EXPENSES
Interest 1 12,330 61 5,883
Other - 2,261 69 -
------- ---------- ---------- ----------
TOTAL Ps 1 Ps 14,591 Ps 130 Ps 5,883
======= ========== ========== ==========
(1) For 2003, includes, in addition to the Members of the Board of
Directors, the President and the Vice-Presidents, as well as other
employees who have legal representation of the Bank.
(27) PURCHASE OF ASSETS AND LIABILITIES
As a growth strategy, the Bank purchased net assets for the years
ended at December 31, 2002 and 2003 of the following entities:
F - 63
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002
BANCO BANCO DE BANCOLOMBIA
TYPE OF ASSET SANTANDER IFI CORFINSURA CREDITO CORFINORTE PANAMA CORFICAFE TOTAL
------------- --------- ---- ---------- -------- ---------- ----------- --------- -----
Loans in local currency
Working capital loans 5,195 425 3,332 43,598 221 - 123 52,894
Credit cards 2,235 - - - - - - 2,235
Overdrafts 99 - - - - - - 99
Small business loans - 602 - - - - - 602
Loans tunded by
domestics developed
banks - 1,382 - - - - - 1,382
----- ----- ----- ------ --- ------ --- ------
Total 7,529 2,409 3,332 43,598 221 - 123 57,212
Loans in foreign
currency
US$ - 3,562 - - - 8,631 262 12,456
Ps - 8,089 - - - 24,276 607 32,972
===== ===== ===== ====== === ====== === ======
The price of loans purchased from Instituto de Fomento Industrial
IFI, Corporacion Financiera Nacional y Suramericana (Corfinsura), Banco
Santander, Corficafe and Banco de Credito was set at 96.07%, 101.5%, 98%,
85% and 100% of face value, respectively. There are not reselling
agreement or conditions that allow additional benefits to any of the
parties.
The operation with IFI and Corficafe included the assumption of
liabilities for Ps1,376 and US$263 equivalent to Ps 607 respectively,
corresponding to loans funded by other institutions.
Loans purchased from Bancolombia Panama S.A. were valued at 50% of
face value. The purpose of the operation was to restructure peso debt as
established in the restructuring agreement. There was no consolidated
profit or loss on this operation.
2003
During 2003, the Bank purchased from the Instituto de Fomento
Industrial (IFI) a loan portfolio in foreign currency for US$1,794,
equivalent to Ps 5,169 on the date of purchase. The purchase percentage
was 95%, of the principal amount due which was made with own resources.
SALE OF ASSETS AND LIABILITIES
During 2002, the Bank sold restructured loans to the Financial
Corporation Colcorp S.A. for an amount of Ps 3,529 at 1% of the value of
the same. In this operation, no profits or loss are generated in the
Consolidated Financial Statements.
During 2003, the Bank sold loans in national currency with its own
resources to the Banco de Credito for an amount of Ps 43,776, with a
sales percentage of 100% of the principal amount due.
F - 64
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
During 2002 and 2003, the Bank made sales of deteriorated,
written-off agricultural loans for an amount of Ps 818 and Ps 1,079,
respectively, according to the covenant celebrated with the Fund for the
Financing of the Agricultural Sector, "FINAGRO" on October, 2001, as
manager of the resources of the National Program for the reactivation of
Agriculture within the legal frame established in the decree 967 of 2000
of the Ministry of Agriculture and Rural Development.
(28) RECLASSIFICATIONS
For better understanding of presentation of the financial statements
of the Bank's Annual Report on Form 20-F, certain balance sheet and
statement of operations accounts were reclassified from the financial
statements as presented to stockholders.
(29) SUBSEQUENT EVENTS
In the Arbitration Tribunal summoned by Luis Alberto Duran Valencia
regarding the group acting against BANCOLOMBIA and some of its major
shareholders, proffered on January 30, 2004 the arbitration finding,
refusing the majority of the suit claims and exonerating the Bank's
shareholders. Notwithstanding, the tribunal considered that damages to
the minority shareholders of the former BIC were derived from the fact
that the total amount offered by BIC in the stock issue held in 1998 (of
the US$150,000 offered, US$91,000 were issued) was unpaid. The tribunal
established a compensation in favor of these minority shareholders
(approximately 7,000) in the amount of Ps 19,214.
On February 17, 2004, Bancolombia interposed an extraordinary
annulment claim before the Superior Tribunal of Bogota against the
mentioned arbitration finding, as to what regards the compensation
decreed in favor, exclusively of said shareholders. The mentioned claim
was presented alleging the causes for annulment stated in numerals 6 and
8 of article 163 of decree 1818 of 1998.
The Bank supported by article 99 of Law 788 of 2002, resorted to the
termination of the pending process concerning the tax to financial
transactions by means of the mutual agreement with the "Direccion de
Impuestos y Aduanas Nacionales" (The Colombian National Department of
Taxes and Customs). In February, 2004, the DIAN notified the
administrative act wherein the filing of the brief is ordered and, as
such, the provision for Ps 9,486 is not required.
(30) DIFFERENCES BETWEEN COLOMBIAN ACCOUNTING PRINCIPLES FOR BANKS AND U.S.
GAAP
The Bank's financial statements are prepared in accordance with
generally accepted accounting principles and practices prescribed by the
Superintendency of Banking and other legal provisions (Colombian GAAP).
Because these principles and regulations differ in certain significant
respects from accounting principles generally accepted in the United
States of America ("U.S. GAAP"), this note presents a reconciliation of
net income and stockholders' equity to U.S. GAAP.
F - 65
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
a) RECONCILIATION OF NET INCOME:
The following summarizes the principal differences between
accounting practices under Colombian and U.S. GAAP and their effects on
net income for the years ended December 31, 2001, 2002 and 2003:
2001 2002 2003
----------- ----------- ------------
CONSOLIDATED NET INCOME UNDER COLOMBIAN GAAP Ps 156,533 Ps 210,380 Ps 469,384
a) Deferred income taxes 62,252 47,014 (140,555)
b) Employee benefit plans (9,846) (2,502) 1,757
c) Inflation adjustment (187) - -
d) Revaluation of assets - - -
e) Allowance for loan losses 14,120 (66,100) 55,908
f) Loan origination fees and costs 11,312 12,960 11,719
g) Interest recognition on non-accrual loans - 98 729
h) Deferred charges (8,224) 9,125 31,787
i) Investment securities (5) 1,189 -
j) Investments in unaffiliated companies (193) (589) (591)
k) Investments in affiliates 7,650 (19,916) 10,168
l) Lessee accounting 81 (81) -
m) Business combinations
i) Adjustment goodwill (2,451) (6,889) (10,314)
ii) Adjustment amortization 581 26,997 41,452
n) Foreign currency translation adjustment - (4,534) 2,975
o) Other (5,575) - -
----------- ----------- ------------
CONSOLIDATED NET INCOME (LOSS) UNDER U.S. GAAP Ps 226,048 Ps 207,152 Ps 474,419
=========== =========== ============
b) RECONCILIATION OF STOCKHOLDERS' EQUITY:
The following summarizes the principal differences between
accounting practices under Colombian GAAP and U.S. GAAP and their effects
on stockholders' equity for the years ended December 31, 2001, 2002 and
2003:
2001 2002 2003
------------- ------------- -------------
CONSOLIDATED STOCKHOLDERS' EQUITY UNDER COLOMBIAN GAAP Ps 970,451 Ps 1,284,348 Ps 1,689,379
a) Deferred income taxes 82,138 86,100 (45,234)
b) Employee benefit plans (24,168) (25,548) (27,855)
c) Inflation adjustment 43,216 43,216 43,216
d) Revaluation of assets (20,081) (37,368) (30,086)
e) Allowance for loan losses 112,554 46,454 102,362
f) Loan origination fees and costs 18,677 31,637 43,356
g) Interest recognition on non-accrual loans - 98 827
F - 66
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2001 2002 2003
------------- ------------- -------------
h) Deferred charges (51,609) (42,484) (10,697)
i) Investment securities (1,189) - (89)
j) Investments in unaffiliated companies (6,236) (6,825) (7,416)
k) Investments in affiliates 42,126 31,680 41,848
l) Lessee accounting 81 - -
m) Business combinations
i) Adjustment goodwill (14,340) (21,229) (31,543)
ii) Adjustment amortization (3,631) 23,366 64,818
------------- ------------- -------------
177,538 129,097 143,507
------------- ------------- -------------
CONSOLIDATED STOCKHOLDERS' EQUITY UNDER U.S. GAAP Ps 1,147,989 Ps 1,413,445 Ps 1,832,886
============= ============= =============
c) ANALYSIS OF CHANGES IN STOCKHOLDERS' EQUITY:
The following summarizes the changes in stockholders' equity under
U.S. GAAP for the years ended December 31, 2001, 2002 and 2003:
2001 2002 2003
------------- ------------- --------------
Balance at beginning of year Ps 951,191 Ps 1,147,989 Ps 1,413,445
Shares issued - - -
Net income 226,048 207,152 474,419
Dividends declared (20,760) (48,442) (76,124)
Other comprehensive income (loss) (4,561) 87,368 (18,765)
Other (1) (3,929) 19,378 39,911
------------- ------------- --------------
Balance at end of year Ps 1,147,989 Ps 1,413,445 Ps 1,832,886
============= ============= ==============
(1) Correspond to the subsidiaries' retained earnings that do not eliminate in
the consolidation process.
d) STATEMENT OF COMPREHENSIVE INCOME (LOSS):
2001 2002 2003
------------ ------------ ----------
Net Income Ps 226,048 Ps 207,152 Ps 474,419
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments - 4,534 (2,975)
Components of other comprehensive from
equity method investees (9,470) 9,470 -
Unrealized gain or (loss) on securities available for sale (770) 72,635 (13,196)
Additional minimum pension liability
offset to shareholder's equity 5,679 729 (2,594)
------------ ------------ ----------
F - 67
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2001 2002 2003
------------ ------------ ----------
Other comprehensive income (loss) (4,561) 87,368 (18,765)
------------ ------------ ----------
Comprehensive income Ps 221,487 Ps 294,520 Ps 455,654
============ ============ ==========
OTHER COMPREHENSIVE INCOME (LOSS)
2001
BEFORE-TAX (TAX EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
----------- ------------- ----------
Components of other comprehensive from
equity method investees Ps (14,570) Ps 5,100 Ps (9,470)
Unrealized gain or (loss) on securities
available for sale (1,185) 415 (770)
Additional minimum pension liability 8,737 (3,058) 5,679
---------- ---------- ----------
Other comprehensive income (loss) Ps (7,018) Ps 2,457 Ps (4,561)
========== ========== ==========
2002
BEFORE-TAX (TAX EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
----------- ------------- ----------
Components of other comprehensive from
equity method investees Ps 14,570 Ps (5,100) Ps 9,470
Unrealized gain or (loss) on securities
available for sale 115,294 (42,659) 72,635
Additional minimum pension liability 1,122 (393) 729
Foreign currency translation adjustment 4,534 - 4,534
----------- ---------- ----------
Other comprehensive income (loss) Ps 135,520 Ps (48,152) Ps 87,368
=========== ========== ==========
2003
BEFORE-TAX (TAX EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
----------- ------------- ----------
Components of other comprehensive from
equity method investees Ps - Ps - Ps -
Unrealized gain or (loss) on securities
available for sale (20,947) 7,751 (13,196)
F - 68
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
BEFORE-TAX (TAX EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
----------- ------------- ----------
Additional minimum pension liability (4,064) 1,470 (2,594)
Foreign currency translation adjustment (2,975) - (2,975)
---------- --------- ----------
Other comprehensive income (loss) Ps (27,986) Ps 9,221 Ps (18,765)
========== ========= ==========
ACCUMULATED OTHER COMPREHENSIVE INCOME
COMPONENTS OF
UNREALIZED OTHER
ADDITIONAL FOREIGN GAINS COMPREHENSIVE ACCUMULATED
MINIMUM CURRENCY (LOSSES) INCOME FROM OTHER
PENSION TRANSLATION ON EQUITY METHOD COMPREHENSIVE
LIABILITY ADJUSTMENT SECURITIES INVESTEES INCOME
---------- ----------- ---------- ------------- ------------
Beginning balance 2001 Ps (8,168) Ps - Ps - Ps - Ps (8,168)
Current-period change 5,679 - (770) (9,470) (4,561)
--------- ---------- --------- ----------- ------------
Ending balance 2001 (2,489) - (770) (9,470) (12,729)
========= ========== ========= =========== ============
Beginning balance 2002 (2,489) - (770) (9,470) (12,729)
Current-period change 729 4,534 72,635 9,470 87,368
--------- ---------- --------- ----------- ------------
Ending balance 2002 (1,760) 4,534 71,865 - 74,639
========= ========== ========= =========== ============
Beginning balance 2003 (1,760) 4,534 71,865 - 74,639
Current-period change (2,594) (2,975) (13,196) - (18,765)
--------- ---------- --------- ----------- ------------
Ending balance 2003 Ps (4,354) Ps 1,559 Ps 58,669 Ps - Ps 55,874
========= ========== ========= =========== ============
SUMMARY OF SIGNIFICANT DIFFERENCES AND REQUIRED U.S. GAAP DISCLOSURES
a) DEFERRED INCOME TAXES:
Under Colombian GAAP, deferred income taxes are generally recognized
for timing differences in a manner similar to SFAS No. 109 for commercial
and manufacturing subsidiaries. For financial companies, the
Superintendency of Banking has restricted inclusion of timing differences
related to fiscal losses to amortize and the excess of presumed income
over ordinary income as deferred tax asset.
Under U.S. GAAP, deferred tax assets or liabilities must be recorded
for all temporary differences between the financial and tax bases of
assets and liabilities. A valuation allowance is provided for deferred
tax assets to the extent that it is more likely than not that they will
not be realized.
Income tax expense under U.S. GAAP is comprised of the following
components for the years ended at December 31, 2001, 2002 and 2003:
F - 69
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2001 2002 2003
---------- ----------- ----------
Current income tax expense Ps 31,603 Ps 44,533 Ps 62,391
Deferred income tax (benefit) expense (62,280) (48,930) 140,799
---------- ---------- ----------
TOTAL Ps (30,677) Ps (4,397) Ps 203,190
========== ========== ==========
Temporary differences between the amounts reported in the financial
statements and the tax bases for assets and liabilities result in
deferred taxes. Deferred tax assets and liabilities at December 31, 2002
and 2003 were as follows:
2002 2003
----------- -----------
DEFERRED TAX ASSETS AND LIABILITIES
DEFERRED TAX ASSETS:
Accrual of employee benefits Ps 9,391 Ps 10,265
Pre-operating expenses 15,584 3,985
Allowance for loan losses 225 924
Fixed assets 22,023 -
Net operating loss carry forwards 92,337 7,425
Excess of presumed income over taxable income 36,242 29,917
Other 76,893 65,772
---------- -----------
Total gross deferred tax assets 252,695 118,288
Less valuation allowance (61,256) (7,331)
---------- -----------
NET DEFERRED TAX ASSET Ps 191,439 Ps 110,957
---------- -----------
DEFERRED TAX LIABILITIES:
Unrealized gain on investment securities Ps 42,659 34,908
Inflation adjustment 15,990 15,990
Allowance for loan losses 539 10,299
Other 45,589 94,676
---------- -----------
TOTAL DEFERRED LIABILITIES 104,777 155,873
---------- -----------
NET DEFERRED ASSET (LIABILITY) Ps 86,662 Ps (44,916)
========== ===========
The valuation allowance for deferred tax assets as of December 31,
2003 and 2002 was Ps 7,331 and Ps 61,256, respectively. The net change in
the total valuation allowance for the years ended December 31, 2003 and
2002 was a decrease of Ps 53,925 and Ps 75,364, respectively. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies
in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more
likely than not the company will realize the benefits of these
F - 70
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
deductible differences, net of the existing valuation allowances at
December 31, 2003. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carry forward period are reduced.
The 37% income tax nominal rate differs from (44.9)%, (6.2)% and
(202)% effective rate for years 2001, 2002 and 2003, due to the
following:
2001 2002 2003
---------- ---------- ----------
Income before tax U.S. GAAP Ps 195,371 Ps 202,755 Ps 271,229
---------- ---------- ----------
37% tax 68,380 70,964 100,355
Nondeductible items / provisions 32,001 29,443 76,728
Nontaxable income (46,829) (27,003) 38,166
Increase/(decrease) valuation allowance (76,429) (82,694) (19,267)
Decrease tax readjustments to fixed assets 3,795 19,993 22,023
Deductible item (9,291) (9,796) (14,815)
Tax discounts for donation (2,304) (5,304) -
---------- ---------- ----------
Income tax Ps (30,677) Ps (4,397) Ps 203,190
========== ========== ==========
As of December 31, 2003, The Bank had the intention of capitalize
the results from its off-shore subsidiaries. According with this
practice, the results of operations for the years ended December 31,
2001, 2002 and 2003 of Bancolombia Panama and subsidiaries were
capitalized.
b) EMPLOYEE BENEFIT PLANS:
U.S. GAAP requires the recognition of pension cost based on
actuarial computations under a prescribed methodology which differs from
that used under Colombian GAAP. For purposes of the U.S. GAAP
reconciliation, the transition obligation calculated at the date we
adopted SFAS 87 is being amortized from January 1, 1989, for a period of
18 years for the pension plan and 27 years for the severance plan.
Pension Plan
In 1967, the Social Security Institute assumed the pension
obligation for the majority of the Bank's employees; however, employees
who had more than ten years of service prior to that date, continue to
participate in the Bank's noncontributory defined benefit pension plan.
Under this plan, benefits are based on length of service and level of
compensation. As of December 31, 2003, there were 1,067 participants
covered by the Plan.
F - 71
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
While Colombian GAAP requires calculation of the estimated
liability using actuarial methodology given by the law, the actuarial
assumptions, based on nominal discount, salary and pension increase
rates, and the method of computing the net periodic pension costs
differ from those required by U.S. GAAP.
Severance obligation
Under Colombian labor regulations, employees are entitled to
receive one month's salary for each year of service. This benefit
accumulates and is paid to the employees upon their termination or
retirement from the Bank; however, employees may request advances
against this benefit at any time. In 1990, the Colombian government
revised its labor regulations to permit companies, subject to the
approval of the employees, to pay the severance obligation to their
employees on a current basis. Law 50, 1990, also enabled each worker
freely to choose the pension fund that will manage the amount of
his/her severance paid accrued during the year. This amount must be
transferred by headquarters to the pension funds no later than the
following period. In order to entice the employees to change to this
new method of receiving the severance benefit on a current basis, in
1999 and 2000, the Bank negotiated settlements with executive
employees. These settlements consisted of the current value of their
accumulated benefit plus a one-time bonus payment. The Bank elected to
expense this settlement of Ps 297 and Ps 124 in its entirety during
1999 and 2000, respectively. The modification of this severance benefit
represents a plan curtailment under U.S. GAAP.
Under U.S. GAAP, a curtailment is an event that significantly
reduces the expected years of future service of present employees or
eliminates for a significant number of employees the accrual of defined
benefits for some or all of their future services. Consequently, this
modification reduces, rather than increase, the projected benefit
obligation. Such a reduction is used to reduce any existing
unrecognized prior service cost, and the excess, if any, is amortized
on the same basis as the cost of benefit increases.
As of December 31, 2003 there were 2,040 participants
remaining in the original severance plan.
DISCLOSURE AND CALCULATION OF DIFFERENCES UNDER U.S. GAAP
The combined costs for the above mentioned benefit plans,
determined using U.S. GAAP, for the years ended December 31, 2001, 2002
and 2003 are summarized below:
2001 2002 2003
---------- ---------- ----------
CHANGE IN BENEFIT OBLIGATION
Unfunded benefit obligation at beginning of year Ps 113,243 Ps 107,061 Ps 107,257
Service cost 1,911 1,663 1,557
Interest cost 28,444 26,482 25,616
F - 72
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2001 2002 2003
---------- ---------- ----------
Actuarial gain (loss) (18,191) (7,088) (1,025)
Benefits paid (18,346) (20,861) (19,690)
Unfunded benefit obligation at end of year Ps 107,061 Ps 107,257 Ps 113,715
========== ========== ==========
Funded status (107,061) (107,257) (113,715)
Unrecognized net transition loss 8,638 7,588 6,541
Unrecognized net actuarial loss (gain) 3,252 (3,841) (4,872)
Unrecognized prior service cost 1,146 1,002 860
---------- ---------- ----------
Accrued benefit cost under U.S.GAAP (94,025) (102,508) (111,186)
========== ========== ==========
Accrued benefit cost under Colombian GAAP (73,687) (79,668) (90,103)
---------- ---------- ----------
Difference to be recognized under U.S. GAAP (20,338) (22,840) (21,083)
---------- ---------- ----------
Additional minimum pension liability
offset to Stockholders' equity (3,830) (2,708) (6,772)
---------- ---------- ----------
TOTAL DIFFERENCE TO BE RECOGNIZED UNDER
U.S. GAAP STOCKHOLDERS' EQUITY Ps (24,168) Ps (25,548) Ps (27,855)
========== ========== ==========
The actuarial assumptions adopted have been applied net of the
effects of price inflation. The resulting significant assumptions used
in determining the actuarial present value of pension obligation and
the projected pension obligation for the plan years were as follows:
2001 2002 2003
---- ---- ----
Discount rate 8% 8% 8%
Rate of compensation increases 2% 2% 2%
Rate of pension increases 0% 0% 0%
== == ==
2001 2002 2003
-------- -------- --------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost Ps 1,911 Ps 1,663 Ps 1,557
Interest cost 28,444 26,482 25,616
Amortization of prior service 143 143 143
Amortization of unrecognized net transition obligation 1,048 1,048 1,047
Amortization of actuarial unrecognized net gain (loss) 360 7 5
-------- -------- --------
Net periodic pension cost under U.S.GAAP 31,906 29,343 28,368
Net periodic pension cost under Colombian GAAP 22,060 26,841 30,125
-------- -------- --------
Difference to be recognized under U.S. GAAP Ps(9,846) Ps(2,502) Ps 1,757
======== ======== ========
Cash Flows - Contributions
F - 73
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
BC expects to contribute Ps 10,953 to its pension plan and Ps
18,149 to its severance obligation in 2004.
c) INFLATION ADJUSTMENT
Since January 1, 1992, and up to December 31, 2000, the
consolidated financial statements were adjusted for inflation based on
the variation in the CPI for middle income-earners. The adjustment was
applied monthly to non-monetary assets, equity (except for the
revaluation surplus and exchange adjustment) contingent accounts and
memorandum accounts. No adjustment was made to income, costs and
expenses, and the financial statements for the preceding period did not
have to be re-expressed.
Financial statements are adjusted for inflation under U.S.
GAAP when an entity operates in a hyperinflationary environment. The
U.S. GAAP adjustment represents the cumulative inflation adjustment on
the Bank's non-monetary assets for inflation occurring prior to January
1, 2001, less depreciation expense.
The components of the adjustments to net income are as
follows:
2001 2002 2003
---- ---- ----
Additional inflation adjustment on non-monetary
assets and stockholders' equity -- -- --
Additional depreciation of inflation adjustments
related to non-monetary assets (187) -- --
---- ---- ----
Increase (decrease) in net income (187) -- --
==== ==== ====
The components of the adjustments to stockholders' equity are
as follows:
2001 2002 2003
-------- -------- --------
EFFECTS OF INDEXATION ON NON-MONETARY ASSETS
Premises and equipment Ps42,705 Ps42,705 Ps42,705
Equity investments 511 511 511
-------- -------- --------
Ps43,216 Ps43,216 Ps43,216
======== ======== ========
d) REVALUATION OF ASSETS
In accordance with Colombian GAAP, reappraisals of a portion
of the Bank's premises and equipment, equity investments and other
non-monetary assets are made periodically and recorded in
F - 74
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
offsetting accounts which are shown under the asset caption "Asset
reappraisals" and the stockholders' equity caption "Surplus from
reappraisals of assets". The last valuation was in December 2001. Under
U.S. GAAP, reappraisals of assets are not permitted.
e) ALLOWANCE FOR LOAN LOSSES
The methodology for evaluating loans under Colombian GAAP, as
discussed in Note 2h, is based on their inherent risk characteristics
and serves as a basis for recording loss allowances based on loss
percentage estimates, established by the Superintendency of Banking.
Under both Colombian and U.S. GAAP, the loan loss allowance is
determined and monitored on an ongoing basis, and is established
through periodic provisions charged to operations.
Under U.S. GAAP, allowance for loan losses represents
management's estimate of probable losses inherent in the portfolio.
Attribution of the allowance is made for analytical purposes only, and
the entire allowance is available to absorb probable loan losses
inherent in the portfolio including unfunded commitments. Additions to
the allowance are made by means of the provision for loan losses. Loan
losses are deducted from the allowance, and subsequent recoveries are
added. Securities received in exchange for loan claims in debt
restructurings are initially recorded at fair value, with any gain or
loss reflected as a recovery or charge-off to the allowance, and are
subsequently accounted for as securities available-for-sale.
In the corporate portfolio, larger-balance, non-homogeneous
exposures representing significant individual credit exposures are
evaluated based upon the borrower's overall financial condition,
resources, and payment record; the prospects for support from any
financially responsible guarantors; and, if appropriate, the realizable
value of any collateral. Reserves are established for these loans based
upon an estimate of probable losses for individual larger-balance,
non-homogeneous loans deemed impaired. This estimate considers all
available evidence including, as appropriate, the present value of the
expected future cash flows discounted at the loan's contractual
effective rate, the secondary market value of the loan and the fair
value of collateral. The allowance for loan losses attributed to the
remaining portfolio is established via a process that estimates the
probable loss inherent in the portfolio based upon various statistical
analyses. These analyses consider historical and projected default
rates and loss severities; internal risk rating, industry, and other
environmental factors. The Bank also considers overall portfolio
indicators including trends in internally risk-rated exposures,
classified exposures, cash-basis loans, historical and forecasted
write-offs, and a review of industry, and portfolio concentrations,
including current developments within those segments. In addition, the
Bank considers the current business strategy and credit process,
including credit limit setting and compliance, credit approvals, loan
underwriting criteria, and loan workout procedures.
F - 75
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Each portfolio of smaller-balance, homogeneous loans,
including consumer revolving credit, credit cards, and most other
consumer loans, is collectively evaluated for impairment. The allowance
for credit losses attributed to these loans is established via a
process that estimates the probable losses inherent in the portfolio,
based upon various statistical analyses. These include migration
analysis, in which historical delinquency and credit loss experience is
applied to the current aging of the portfolio, together with analyses
that reflect current trends and conditions. The Bank also considers
overall portfolio indicators including historical credit losses,
delinquent, non-performing and classified loans, and trends in volumes
and terms of loans; an evaluation of overall credit quality and the
credit process, including lending policies and procedures; and
economic, geographical, product and other environmental factors.
In general, commercial loans, which are 91 or more days past
due, consumer and small business loans, which are 61 or more days past
due, together with certain other loans identified by management, are
deemed to be impaired.
The following summarizes the allowance for loan losses under
Colombian and U.S. GAAP at December 31, 2001, 2002 and 2003:
2001 2002 2003
---------- ---------- ----------
ALLOWANCE FOR LOSSES UNDER COLOMBIAN GAAP
Allowance for loan losses Ps 271,729 Ps 332,324 Ps 387,263
Allowance for other receivable 28,463 18,073 5,597
Allowance for lease rentals and related receivable 6,746 8,832 13,575
Allowance for foreclosed assets 106,081 107,962 135,121
---------- ---------- ----------
Ps 413,019 Ps 467,191 Ps 541,556
========== ========== ==========
ALLOWANCE FOR LOSSES UNDER U.S. GAAP
Allowance for loan losses and other receivables 223,227 339,612 354,322
Allowance for lease rentals and related receivable 7,792 8,890 8,746
Allowance for foreclosed assets 69,446 72,235 76,126
---------- ---------- ----------
300,465 420,737 439,194
---------- ---------- ----------
DIFFERENCE TO BE RECOGNIZED AS AN ADJUSTMENT TO
COLOMBIAN GAAP STOCKHOLDERS' EQUITY Ps(112,554) Ps (46,454) Ps(102,362)
========== ========== ==========
An analysis of the activity in the allowance for loan losses
under U.S. GAAP during the year ended December 31, 2003 is as follows:
2003
----------
Provision at the beginning of the period 339,612
Currency Translation and other adjustments (284)
Acquisitions of Business (Sufinanciamiento) 11,854
Charge-offs (112,393)
F - 76
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Recoveries (130,408)
Charged to profit and loss account 245,941
----------
Provision at the end of the period 354,322
==========
Gross Loans 8,029,668
Closing customers provisions as a % of gross loans 4.41%
Customers charges against profits as % of gross loans 3.06%
At December 31, 2001, 2002, and 2003, the carrying value of
loans considered to be impaired, under SFAS No. 114 (not including
restructured loans) was approximately Ps 196,983, Ps 136,718 and Ps
329,864, respectively, and the related allowance for loan losses on
those impaired loans totaled Ps 134,679, Ps 121,253 and Ps 153,089,
respectively.
For the years ended December 31, 2001, 2002 and 2003, the Bank
recognized interest income of approximately Ps 5,741, Ps 5,594 and Ps
5,586 respectively, on such impaired loans.
The total amount of loans evaluated under a methodology
different than SFAS 114 methodology was Ps 7,385,297.
Foreclosed assets
Under Colombian GAAP, BC must design and adopt their own
internal models for the calculation of provisions of foreclosed assets
by means of which the expected loss for all types of assets is
estimated. For real estate, the provision is equal to 30% of the value
of the asset at the time of receipt must be constituted in proportional
monthly installments. This provision will increase an additional 30% in
proportional monthly installments within the second year of receipt of
the asset. Once the legal term for sale has expired without
authorization to extend, the provision must be 80% of the value upon
receipt. In case the term extension is granted, the remaining 20% of
the provision may be constituted with said term.
For Moveable assets, the provision is equal to 35% of the
value of the good at the time of acquisition must be constituted in
proportional monthly installments within the following year of receipt.
Said provision must be increased and additional 35% the following year.
Once the legal term for sale has expired without authorization to
extend, the provision must be of 100% of the book value of the asset
prior to provisions. In the case the term extension is granted, the
remaining 30% may be constituted within the term of the same.
Under U.S. GAAP, in order to assess for impairment its
foreclosed assets BC applies the methodology described by the SFAS 144
and SFAS 15 with respect to the method to evaluate the recoverability
of the assets and to the measurement of the impairment loss.
Accordingly, after a troubled debt restructuring, BC accounts for
assets received in satisfaction of a receivable the same as if the
assets had been acquired for cash. The application of Statement 15
results in the measurement of a new cost basis for the long-lived asset
received in full satisfaction of a receivable. A loss is recognized for
any initial or subsequent write-down to fair value less cost to sell. A
gain is
F - 77
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
recognized for any subsequent increase in fair value less cost to sell,
but not in excess of the cumulative loss previously recognized for a
write-down to fair value less cost to sell.
f) LOAN ORIGINATION FEES AND COSTS
Under Colombian GAAP the Bank recognizes commissions
(origination fees) on loans, lines of credit and letters of credit when
collected and records related direct costs when incurred. For U.S. GAAP
under SFAS No.91, "Accounting for Non-refundable Fees and Costs
Associated with Origination or Acquiring Loans and Initial Direct Costs
of Leases", loan origination fees and certain direct loan origination
cost are deferred and recognized over the life of the related loans as
an adjustment of yield.
g) INTEREST RECOGNITION - NON-ACCRUAL LOANS
Since March 5, 2002, for Colombian GAAP purposes, interest
income is not accrued on (i) commercial loans that are more than 90
days past due (ii) consumer and small business loans that are more than
60 days or (iii) mortgage loans that are more than 120 days past due.
Once a loan is non-performing, an allowance is established for 100% of
the accrued interest receivable and the Bank ceases to recognize
interest income on that loan. The Bank recognizes interest income on a
cash basis for non-accrual loans.
Additionally, beginning March 25, 2003, all loans that are
past due more than thirty days will stop accruing interest in the
statement of operations and their entries will be made in memorandum
accounts until such time that the customer does not proceed to cancel.
It is estimated that at December 31, 2003, approximately Ps 280 are
found entered in memorandum accounts because of the adoption of this
policy.
For U.S. GAAP purposes, all accrued interest is reversed
against interest income once a loan becomes more than 90 days past due.
U.S. GAAP also requires that, if the collectibility of the principal of
a non-accrual loan is in doubt, cash payments should be applied to
reduce the principal to the extent necessary to remove such doubt.
As a result, for U.S. GAAP purposes, interest income on
past-due consumer and small business loans between 61 and 90 days for
the years 2001 and 2002, was included as accrued interest. Interest
income from past-due mortgage loans between 91 and 120 days was
reversed for the years 2001 and 2002.
For the year 2003, interest income on past due commercial,
consumer and small business loans between 31 and 90 days, was accounted
as accrued interest.
h) DEFERRED CHARGES
The Bank and its subsidiaries have deferred certain
pre-operating expenses and other deferred charges, which are expensed
as incurred under U.S. GAAP.
F - 78
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
i) INVESTMENT SECURITIES
Up to August 2002, under Colombian GAAP, securities were
classified as "trading", "non-trading held to maturity", "permanent"
and "hedges", the two first were divided debt and equity securities.
In September 2002, the Superintendency of Banking issued
External Circular 033, which changed the classification of investment
securities as "trading", "held to maturity", and "available for sale".
According to this norm, an investment will be classified as "trading"
when the Bank acquires it for the purpose of selling it in the near
term, as "held to maturity" when the bank has the intention and ability
to hold it to maturity, and as "available for sale" when the investment
is not classified as trading or held to maturity.
CHANGE IN ACCOUNTING METHOD FOR INVESTMENT SECURITIES
As required by External Circular 033 of 2002, effective
September 2, 2002, the Bank changed its method of classification and
valuation for investment securities. The effect of the change under
Colombian GAAP was a decrease to net income of Ps 20,393. This effect
was the result of a change in the methodology used to determine the
fair value for investment securities. Due to the effective date of
adoption, required it is not practical to determine the cumulative
effect of this change in accounting method as of January 1, 2002, or
prior period pro forma effects.
The effect of the change on net income under Colombian GAAP
for the year ended December 31, 2002, is as follows:
2002 PER SHARE AMOUNTS
------- -----------------
Consolidated net income under Colombian GAAP, before
change in accounting method for investment securities 230,773 Ps 400.16
Effect of change in valuation method for investment
securities at September 2, 2002, net of tax (20,393) (35.36)
Consolidated net income under
Colombian GAAP as reported 210,380 Ps 364.80
======= =========
Under U.S. GAAP, investment securities that have readily
determinable market values, are accounted for as follows:
- Debt and equity securities that are bought and held
principally for the purpose of selling them in the short term
are classified as "trading" securities and are reported at
fair value, with unrealized gains and losses included in
earnings.
F - 79
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
- Debt securities that the Bank has the positive intent and
ability to hold to maturity are classified as "held to
maturity" securities and are reported at amortized cost.
- Debt and equity securities not classified as either "held to
maturity" or "trading" securities are classified as "available
for sale" securities and reported at fair value, with
unrealized gains and losses excluded from earnings and
reported net of taxes, as a separate component of
stockholders' equity. Any loss in value of an investment
considered other than temporary is recognized in earnings.
As of December 31, 2002 and 2003, the Bank's portfolio was
classified as "trading", "held to maturity" and "available for sale".
The carrying amounts, gross unrealized gains and losses and
approximate fair value of debt securities classified as
held-to-maturity and available for sale under U.S. GAAP are shown
below:
GROSS GROSS
UNREALIZED UNREALIZED COST
FAIR VALUE GAINS LOSSES BASIS
----------- ---------- ---------- ------------
AVAILABLE FOR SALE
DECEMBER 31, 2002
Securities issued or secured by Colombian government Ps 1,443,463 Ps 107,632 Ps 292 Ps 1,336,123
Securities issued or secured by Government entities 71,619 1,784 837 70,672
Securities issued or secured by Financial entities 35,470 2,285 -- 33,185
Eurobonds and Euronotes 299,662 7,430 264 292,496
Other investments 35,924 -- 11 35,935
------------ ---------- ---------- ------------
Ps 1,886,138 Ps 119,131 Ps 1,404 Ps 1,768,411
============ ========== ========== ============
GROSS GROSS
UNREALIZED UNREALIZED COST
FAIR VALUE GAINS LOSSES BASIS
------------ ---------- ---------- ------------
AVAILABLE FOR SALE
DECEMBER 31, 2003
Securities issued or secured by Colombian government Ps 1,361,700 Ps 75,869 Ps 454 Ps 1,286,285
Securities issued or secured by Government entities 87,808 8,865 1 78,944
Securities issued or secured by Financial entities 93,052 646 417 92,823
Eurobonds and Euronotes 174,189 5,218 313 169,284
Other investments 87,109 10 -- 87,099
------------ ---------- ---------- ------------
Ps 1,803,858 Ps 90,608 Ps 1,185 Ps 1,714,435
============ ========== ========== ============
F - 80
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
GROSS GROSS
UNREALIZED UNREALIZED COST
FAIR VALUE GAINS LOSSES BASIS
---------- ---------- ---------- ----------
HELD TO MATURITY
DECEMBER 31, 2002
Securities issued or secured by Colombian government Ps 600,414 Ps 4,069 Ps 93 Ps 596,438
Eurobonds and Euronotes 5,001 -- 2,297 7,298
Other investments 4,245 -- -- 4,245
---------- ---------- ---------- ----------
Ps 609,660 Ps 4,069 Ps 2,390 Ps 607,981
========== ========== ========== ==========
GROSS GROSS
UNREALIZED UNREALIZED COST
FAIR VALUE GAINS LOSSES BASIS
---------- ---------- ---------- ----------
HELD TO MATURITY
DECEMBER 31, 2003
Securities issued or secured by Colombian government Ps 650,561 Ps 22,788 Ps 74,785 Ps 702,558
Other investments 15,931 -- 85 16,016
---------- ---------- ---------- ----------
Ps 666,492 Ps 22,788 Ps 74,870 Ps 718,574
========== ========== ========== ==========
The scheduled maturities of debt securities at December 31,
2003 were as follows:
HELD TO MATURITY AVAILABLE FOR SALE
--------------------------- ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------ ------------ ------------ ------------
Due in one year or less Ps 283,654 Ps 287,499 Ps 159,300 Ps 159,980
Due from one year to five years 256,372 274,307 1,135,868 1,210,663
Due from five year to ten years 169,577 95,715 408,550 422,349
Due more ten years 8,971 8,971 10,717 10,866
------------ ------------ ------------ ------------
TOTAL Ps 718,574 Ps 666,492 Ps 1,714,435 Ps 1,803,858
============ ============ ============ ============
Investments classified as "Held to maturity" for purposes of
U.S. GAAP are securities issued or secured by Colombian government,
which the bank has the intention and ability to hold to maturity.
The cost of available for sale securities was determined based
on its carrying amount plus gross unrealized losses minus gross
unrealized gains. The cost of securities classified as Held to maturity
is equal to the carrying amount under Colombian GAAP, as these
investments are not accounted for at fair value.
The Bank is not required under Colombian GAAP to disclose the
proceeds from the sale of investment securities nor gains or losses
resulting from such sales. As a result, it is not feasible to obtain
that information in a reasonable manner for disclosure under U.S. GAAP.
UNREALIZED LOSSES DISCLOSURE
F - 81
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Investments that have been in continuous unrealized loss position
for less than 12 months are:
GROSS
UNREALIZED COST
FAIR VALUE LOSSES BASIS
---------- ---------- -----------
AVAILABLE FOR SALE
DECEMBER 31, 2003
Securities issued or secured by Colombian government Ps 140,658 Ps 454 Ps 141,112
Securities issued or secured by financial entities 42,591 413 43,004
Eurobonds and Euronotes 51,627 313 51,940
---------- --------- -----------
Ps 234,876 Ps 1,180 Ps 236,056
========== ========= ===========
GROSS GROSS
UNREALIZED CARRYING
FAIR VALUE LOSSES AMOUNT
---------- ---------- -----------
HELD TO MATURITY
DECEMBER 31, 2003
Securities issued or secured by Colombian government Ps 24,482 Ps 25,691 Ps 50,173
Securities issued or secured by financial entities 6,960 85 7,045
---------- --------- -----------
TOTAL Ps 31,442 Ps 25,776 Ps 57,218
========== ========= ===========
Investments that have been in continuous unrealized loss
position for 12 months or longer are:
GROSS
UNREALIZED COST
FAIR VALUE LOSSES BASIS
---------- ---------- -----------
IMPAIRMENT AVAILABLE FOR SALE
DECEMBER 31, 2003
Securities issued or secured by government entities Ps 594 Ps 1 Ps 595
Securities issued or secured by financial entities 5,800 4 5,804
---------- --------- -----------
TOTAL Ps 6,394 Ps 5 Ps 6,399
========== ========= ===========
F - 82
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
GROSS GROSS
UNREALIZED CARRYING
FAIR VALUE LOSSES AMOUNT
---------- ---------- -----------
IMPAIRMENT HELD TO MATURITY
DECEMBER 31, 2003
Securities issued or secured by Colombian government Ps 67,225 Ps 49,094 Ps 116,319
---------- --------- -----------
TOTAL Ps 67,225 Ps 49,094 Ps 116,319
========== ========= ===========
As of December 31, 2003, most of the investment securities
available for sale that presented gross unrealized losses were issued
by national government, governmental entities, financial entities and
euronotes.
As of December 31, 2003, 220 titles presented gross unrealized
losses.
No other-than-temporary impairment has been recognized for the
investment in debt securities held to maturity because the Bank has the
ability and the positive intent to hold these securities until the
amortized cost is recovered and there does not appear to be any credit
deterioration and recovery seems probable. The gross unrealized losses
of held to maturity investments correspond to mandatory investments.
The amount of unrealized holding gain or loss on trading
securities included in earnings during 2002 and 2003 was Ps 12,705 and
Ps 246,871 respectively.
The company conducts regular reviews to assess whether
other than temporary impairment exists. A number of factors are
considered in performing an impairment analysis of securities.
Those factors include:
(a) The length of time and the extent to which the market
value has been less than cost;
(b) The financial condition and near-term prospects of
the issuer, including any specific events which may
influence the operations of the issuer (such as
changes in technology that may impair the earnings
potential of the investment, or the discontinuance of
a segment of a business that may affect the future
earnings potential); or
(c) The intent and ability of the Bank to retain its
investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in
market value.
The Bank also takes into account the changes in economic
conditions global, regional, or related to specific issuers or
industries that could adversely affect these values.
Under Colombian GAAP, structured notes are recorded as
investment securities. For purposes of U.S.GAAP the Bank reversed
unrealized gain and loss of these investment.
j) INVESTMENT IN UNAFFILIATED COMPANIES. HIGH AND MEDIAN QUOTATION
INVESTMENTS SECURITIES CLASSIFIED AS "AVAILABLE FOR SALE " UNDER
COLOMBIAN GAAP.
For purposes of Colombian GAAP, an investment in High and
Median quotation equity securities of an investee is recorded using the
average price published by the exchange. The result of the valuation is
recorded as unrealized gain or loss in shareholders' equity. The
investee also records common stock dividends as income.
F - 83
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Under U.S. GAAP, an investment in non-marketable equity
securities of an investee is also recorded at cost if the investor
cannot exercise significant influence. However, dividends paid in the
form of additional shares of common stock are not recorded as income.
Instead, the costs of the shares previously held are allocated
equitably to the total shares held after receipt of the stock dividend.
When any shares are later disposed of, a gain or loss is determined on
the basis of the adjusted cost per share.
k) INVESTMENTS IN AFFILIATES. INVESTMENTS IN LOW, MINIMUM EXCHANGE OR
UNQUOTED EQUITY SECURITIES CLASSIFIED AS "AVAILABLE FOR SALE" FOR
PURPOSES OF COLOMBIAN GAAP.
For purposes of Colombian GAAP, an investment in
non-marketable equity securities of an investee is recorded using the
"intrinsic value" method. Under the intrinsic value method, the Bank
records equity increases in stockholders' equity of the investee as a
component of other comprehensive income and decreases in stockholders'
equity of the investee with a charge to the Consolidated Statement of
Operations. Also under equity method, cash dividends and common stock
dividends reduced the equity amount.
Under U.S. GAAP, an investment in non-marketable equity
securities is recorded using the equity method when the investor can
exercise significant influence or the cost method when significant
influence cannot be exercised.
l) LESSEE ACCOUNTING
The Bank's subsidiaries, Bancolombia de Panama S.A.,
Sufinanciamiento S.A. and Leasing Colombia S.A., lease certain assets
to third parties under non-cancelable lease arrangements. These lease
arrangements involve machinery and equipment, computer equipment,
automobile and furniture and fixtures (with terms between three and
five years).
Under Colombian GAAP, assets leased to third parties with
purchase options are recorded as premises and equipment at cost.
Contracts made up to December 31, 1995 were recorded at acquisition or
construction cost (including capitalizable improvements and expenses
which increases the value of the property) and were adjusted for
inflation up to December 31, 2000.
Under U.S. GAAP, a net investment in direct financing leases
would be established in an account representing the present value of
the minimum lease payments plus the unguaranteed residual value
accruing to the benefit of the lessor.
Disclosure lessor accounting.
The following lists the components of the net investment in
direct financing leases as of December 31, 2002 and 2003:
F - 84
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002 2003
---------- ----------
Total minimum lease payments to be received Ps 469,895 Ps 665,087
Estimated residual values of leased property 32,987 41,606
Less: Unearned income (102,721) (172,245)
---------- ----------
Net investment in direct financing leases Ps 400,161 Ps 534,448
========== ==========
The following schedule shows the future minimum lease payments
to be received on direct financing leases for each of the next five
years and thereafter.
Year ending December 31:
2004 Ps 203,168
2005 168,685
2006 120,770
2007 72,077
2008 54,770
Later years, through 2009 45,617
----------
TOTAL MINIMUM FUTURE
LEASE PAYMENTS TO BE RECEIVED Ps 665,087
==========
m) BUSINESS COMBINATIONS
Purchase method of accounting
The purchase method of accounting under U.S. GAAP requires
that (i) the purchase price be allocated to the identifiable acquired
assets and liabilities on the basis of fair market value, (ii) the
statement of operations of the acquiring company for the period in
which a business combination occurs include the income of the acquired
company after the date of acquisition, and (iii) the costs directly
related to the purchase of a business combination be included as a cost
of the acquisition and, therefore, recorded as a component of goodwill.
The purchase method of accounting under Colombian GAAP
requires that (i) the purchase price be allocated to the acquired
assets and liabilities on the basis of their book value, (ii) the
statement of income of the acquiring company for the period in which a
business combination occurs include the income of the acquired company
as if the acquisition had occurred on the first day of the reporting
period and (iii) the costs directly related to the purchase business
combination not be considered as a cost of the acquisition, but
deferred and amortized over a reasonable period as determined by
management.
In addition, certain other merger related charges are
permitted to be deferred and amortized under Colombian GAAP over 36
months, while under U.S. GAAP they are generally expensed as incurred.
The reappraisal was allocated to the acquired assets to adjust
them to their fair market value. For this reason, this reappraisal was
included in the determination of depreciation as of the merger. Under
Colombian GAAP, the reappraisal of assets is not subject to
depreciation.
F - 85
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
On December 29, 2003, Bancolombia and its subsidiaries
acquired 99.99% of the outstanding common shares of Sufinanciamiento
S.A. Under U.S. GAAP the results of Sufinanciamiento's operations have
been included in the consolidated financial statements since that date.
Sufinanciamiento is a commercial financing company, specializing in
automobile loans.
The acquisition of Sufinanciamiento will allow BC and its
subsidiaries to complement its portfolio of products improving
commercial financing activities, more specifically automobile
financing. The aggregate purchase price was Ps 75,016 paid it in cash.
The value of the 1,415 million common shares acquired was determined
based on the discounted cash flows, prepared based on the historical
financial statements from January 1999 to June 2003. Sufinanciamiento's
cash flows were estimated by the Bank based on the current economic
environment in Colombia and the nature of the business of the acquired
entity.
The following table summarizes the estimated fair values of
the assets acquired and liabilities assumed at the date of acquisition.
FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES
ASSUMED UNDER U.S. GAAP
---------------------------------------------
TOTAL PURCHASE PRICE, NET OF CASH ACQUIRED Ps 63,622
----------
Assets acquired 304,256
Premises and equipment, net 7,358
Liabilities assumed 269,268
----------
NET ASSETS ACQUIRED Ps 42,346
==========
EXCESS OF COST OVER THE FAIR VALUE OF
ACQUIRED NET ASSETS 21,276
INTANGIBLE ASSET 1,562
----------
GOODWILL Ps 19,714
==========
The excess of purchase price amounted to Ps 21,276 and Ps
1,562 was assigned to a contract with Almacenes Exito (intangible
assets) while the remaining Ps 19,714 was assigned to goodwill.
In 2003 Sufinanciamiento S.A. signed an agreement with
Almacenes Exito, a major retailer in Colombia, whereby the former will
be the only financing provider to the latter's clients. Given the
significance of this agreement to Sufinanciamiento's operations and the
future benefits it will bring to the Bank's strategic and financial
positions, this contractual relationship has been identified as an
intangible asset and fair valued by Bancolombia.
F - 86
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
The following unaudited pro forma information for 2002 and
2003 reflects the consolidated results of operations as if the
acquisition had occurred at the beginning of each year presented and
includes the amortization of intangibles, as appropriate. The unaudited
pro forma financial information presented is not necessarily indicative
of the results of operations that might have occurred had the
transaction been completed at the beginning of the year specified, and
does not purport to represent what the consolidated results might be
for any future period.
2002
-------
U.S. GAAP Net income 224,272
Revenues 787,051
Earnings per share 504.32
=======
2003
---------
U.S. GAAP Net income 481,736
Revenues 1,465,973
Earnings per share 1,088.44
=========
Under Colombian GAAP, BC consolidated Sufinanciamiento's
earnings since January 1, 2003, as if the acquisition had occurred at
the beginning of the year. Accordingly, virtually all of the amounts
for pre-acquisition periods in the primary financial statements are
different from the amounts that would be presented under U.S. GAAP. In
effect, the financial statements presented as the primary financial
statements are of a different reporting entity than would be required
under U.S. GAAP.
BC understands that, in these circumstances, reconciliation of
net income and stockholders' equity alone will not produce information
content substantially similar to U.S. GAAP with respect to the
pre-acquisition periods. However, given the insignificance of
Sufinanciamiento's operations, BC decided not to present a columnar
reconciliation removing the acquired business. BC also believes that
the differences are not so pervasive that a U.S. GAAP condensed income
as cash flow statements are necessary.
BC is still in the process of finalizing the allocation of the
purchase price and determination of the liabilities that existed at the
date of acquisition under U.S. GAAP. BC expects to complete these
analyses in 2004.
Goodwill
Under U.S. GAAP from January 1, 2002, the Bank no longer
amortizes goodwill, but it is subject to annual impairment test. The
Bank believes it does not have intangible assets with indefinite lives.
F - 87
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Prior to December 31, 2001, BC recognized an excess of fair
value of acquired net assets over cost (commonly referred to as
negative goodwill) on certain business combinations. Under Colombian
GAAP, negative goodwill is recorded as a liability and it is amortized
over a period of five years.
Under U.S. GAAP, as explained previously, BC adopted SFAS No.
141 on January 1, 2002. Upon adoption of SFAS No. 141, any unamortized
negative goodwill related to an excess over cost arising from business
combinations for which the acquisition date was before July 1, 2001 was
written off and recognized as the effect of a change in accounting
principle.
The Bank has performed the required impairment test at each
reporting unit's goodwill and concluded that there was no impairment of
goodwill. Accordingly, the Bank reversed the amortization of goodwill
from Colombian GAAP for the year ended 2003. See note 31 (r), for pro
forma disclosures related to the adoption of SFAS No.142 on net income
(loss) and earnings (loss) per share.
n) FOREIGN CURRENCY TRANSLATION ADJUSTMENT
For Colombian GAAP, the translation adjustments resulting in
the conversion of foreign currency statements was included in the
determination of net income.
Under U.S. GAAP, according to SFAS No. 52, the translation
adjustments shall be reported as a component of stockholders' equity,
in other comprehensive income.
o) OTHER
In 2000, the Company accrued Ps 5,575 related to a penalty for
early termination of a contract although management did not formally
decide to terminate the subject contract until 2001.
Under U.S. GAAP, the accrual of such amount in 2000 would not
be appropriate. Accordingly, this amount has been reversed for U.S.
GAAP purposes in 2000 and recorded as an expense for U.S. GAAP purposes
in 2001.
P) GUARANTEES
In order to meet the needs of its customers, BC issues
financial standby letters of credit and bank guarantees. At December
31, 2002 and 2003, outstanding letters of credits and bank guarantees
issued by BC totaled Ps 429,361 and Ps 692,795.
The table below summarizes, at December 31, 2002 and 2003, all
of BC's guarantees where the Bank is the guarantor. The maximum
potential amount of future payments represents the notional amounts
that could be lost under the guarantees if there were a total default
by the guaranteed
F - 88
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
parties, without consideration of possible recoveries under recourse
provisions or from collateral held or pledged. Such amounts bear no
relationship to the anticipated losses on these guarantees and greatly
exceed anticipated losses.
MAXIMUM POTENTIAL
AMOUNT OF FUTURE
EXPIRE WITHIN ONE YEAR EXPIRE AFTER ONE YEAR TOTAL AMOUNT OUTSTANDING PAYMENTS
----------------------- ---------------------- ------------------------ -----------------------
2002 2003 2002 2003 2002 2003 2002 2003
---------- ---------- --------- ---------- ---------- ----------- ---------- ----------
Financial standby
letters of credit Ps 343,689 Ps 384,995 Ps 8,741 Ps 842 Ps 352,430 Ps 385,837 Ps 352,430 Ps 385,837
Bank guarantees 56,691 212,557 20,240 94,401 76,931 306,958 76,931 306,958
Credit default swaps - 21,054 - 126,324 - 147,378 - 147,378
---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
TOTAL Ps 400,380 Ps 618,606 Ps 28,981 Ps 221,567 Ps 429,361 Ps 840,173 Ps 429,361 Ps 840,173
========== ========== ========= ========== ========== ========== ========== ==========
Financial standby letters of credit include guarantees of
payment of credit facilities, promissory notes and trade acceptances.
Bank guarantees are performance guarantees that are issued to
guarantee a customer's tender bid on a construction or systems
installation project or to guarantee completion of such projects in
accordance with contract terms. They are also issued to support a
customer's obligation to supply specified products, commodities, or
maintenance or warranty services to a third party.
Credit Default Swaps (CDS) are contracts whereby one party
transfers to the other for a period of time the credit risk associated
with an issuing entity in exchange for a periodic premium.
The investments made on CDS can be as follows:
- Credit Link Note: Issued by an international bank
vehicle which implicitly has the risk of a CDS.
- Credit Link Deposit: Deposit constituted as guarantee
for the constitution of a CDS.
q) FINANCIAL INSTRUMENTS
As required by U.S. GAAP, the estimated fair value of the
Bank's financial instruments, their carrying values and the major
assumptions and methodologies used to estimate fair values at December
31, 2002 and 2003 are presented hereunder. The fair value of a
financial instrument is defined as the amount at which the instruments
could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.
For those financial instruments with no quoted market prices
available, fair values have been
F - 89
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
estimated using present value or other valuation techniques. These
techniques are inherently subjective and are significantly affected by
the assumptions used, including the discount rates, estimates of future
cash flows and prepayment assumptions.
In addition, the fair values presented below do not attempt to
estimate the value of the Bank's fee generating businesses and
anticipated future business activities, that is, they do not represent
the Bank's value as a going concern.
DECEMBER 31, 2002 DECEMBER 31, 2003
-------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------- -------------
FINANCIAL ASSETS
Cash and cash equivalents Ps 851,089 Ps 851,089 Ps 1,446,461 Ps 1,446,461
Investment securities 4,227,410 4,343,458 4,247,301 4,284,642
Loan, net 5,864,991 5,875,776 7,642,405 7,675,346
Foreign exchange and forward contracts - gain (loss) (46,334) (46,334) (33,997) (33,997)
Accrued interest receivable on loans 83,459 83,459 103,209 103,209
Customers' acceptances 30,672 30,672 1,539 1,539
FINANCIAL LIABILITIES:
Deposits Ps 8,788,158 Ps 8,788,158 Ps 10,231,997 Ps 10,231,997
Overnight funds 610,158 610,158 1,118,139 1,118,139
Bank acceptances outstanding 31,050 31,050 35,833 35,833
Interbank borrowings 403,962 403,962 456,059 456,059
Borrowings from domestic development banks 713,053 713,053 755,536 755,536
Long term debt 62,782 62,782 71,818 76,933
The following notes summarize the methods and assumptions used
in estimating the fair values of financial instruments:
Short-term financial instruments
Short-term financial instruments are valued at their carrying
amounts included in the consolidated balance sheet, which are
reasonable estimates of fair value due to the relatively short period
to maturity of the instruments. This approach was used for cash and
cash equivalents, customers' acceptances, accrued interest receivable
accounts receivable, accounts payable, accrued interest payable and
bank acceptances outstanding.
Investment securities
The fair value of these financial instruments which include
time deposits in financial entities are calculated by the Colombian
Stock Exchange, except for financial instruments classified "held to
maturity", for which the fair value was determined using discounted
cash flows with actual market rates for similar assets.
Loans
F - 90
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Estimated fair values have been determined for loan portfolios
with similar financial characteristics. Loans were segregated by type
such as commercial, consumer and small loans, and each category was
further segmented based on maturity fixed and variable rates and
accrual and non-accrual status. The fair values of fixed-rate loans
were estimated by discounting scheduled cash flows using prevailing
market rates for these loans at the end of 2002 and 2003, respectively.
For variable-rate loans, their carrying amounts were considered to be
equivalent to their fair values. In addition, for non-accrual loans,
the estimated fair values were based on the discounted value of
estimated cash flows using higher discount rates appropriate to the
higher risk involved.
Derivatives
BC's derivatives are recorded at fair value on daily basis in
conformity with the rules prescribed by the Superintendency of Banking,
according with the class of instrument, as follows:
Foreign exchange forward contracts:
The purchase or sale value of the exchange rate is estimated
to obtain the net value in foreign currency at valuation day and
calculate the net gain or loss.
Financial Instruments forward contracts:
The fair value without yields is estimated to value the agreed
amount to present value and calculate the net gain or loss.
Balance sheet classification:
Under Colombian GAAP, BC's derivative instruments are grouped
and presented net as either an asset or a liability.
U.S. GAAP restricts the ability to offset to where the right
of set off exists between two parties (that is, where a debtor-creditor
relationship exists).
Typically, under U.S. GAAP a financial assets and liabilities
can be offset and the net amount reported in the balance sheet when (a)
each of two parties owes the other determinable amounts, (b) the
reporting party has the right to set off the amount owed with the
amount owed by the other party, (c) the reporting party intends to set
off and (d) the right of setoff is enforceable at law.
Consequently, the relevant assets and liabilities would be
increased by Ps 94,033 as at December 31, 2003 in a U.S. GAAP balance
sheet, with no effect on net income or shareholders' equity.
Futures Contracts
The fair value of future contracts and other derivatives
traded in stock markets are calculated by the respective stock market
where BC has conducted its operation.
Deposits
F - 91
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
The fair value of deposits with no defined maturity, such as
non-interest bearing deposits and saving accounts, is taken to be the
amount payable on demand at the reporting date. Fixed-maturity deposits
have also been valued at their carrying amounts given the short-term
maturity of such deposits.
Interbank borrowings and borrowings from domestic development banks
Short-term interbank borrowings and borrowings from domestic
development banks have been valued at their carrying amounts because of
their relatively short-term nature. Long-term and domestic development
banks borrowings have also been valued at their carrying amount because
they bear interest at variable rates.
Long term debt
Long term debt are bonds emitted by Leasing Colombia S.A.,
Abocol S.A. and Fundicom S.A.
The fair value of bonds is the calculated by the Colombian
Stock Exchange, except Fundicom bonds, for which the estimated fair
value was determined using quoted market prices of financial
instruments with similar characteristics.
r) PAID-IN-CAPITAL
In accordance with Colombian GAAP, paid-in capital in excess
of par value of shares issued is credited to a legal reserve. Under
U.S. GAAP, capital in excess of par value is credited to paid-in
capital.
s) UNEARNED INTEREST INCOME
Under Colombian GAAP, unearned interest income is recorded as
a liability in the balance sheet. For U.S. GAAP purposes, only the net
amounts (loan amount less unearned interest) would be classified as a
loan. Under Colombian GAAP, unearned interest is amortized on a
straight-line basis whereas U.S. GAAP requires the use of the effective
interest method. However, the difference does not have a material
impact on the Bank's financial statements.
t) EARNINGS PER SHARE
Under Colombian GAAP, earnings per share is computed by
dividing net income by the weighted average number of both common and
preference shares outstanding for each period presented.
U.S. GAAP requires dual presentation of basic and diluted EPS
for entities with complex capital structures, as a well as a
reconciliation of the basic EPS computation to the diluted EPS
computation. Basic EPS is calculated by dividing net income available
to common stockholders by
F - 92
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
the weighted average number of common shares outstanding. Diluted EPS
assumes the issuance of common shares for all dilutive potential common
shares outstanding during the reporting period. For the years ended
December 31, 2001, 2002 and 2003, the Bank had a simple capital
structure. Therefore, there was no difference between Basic or Diluted
EPS for these years.
The following summarizes information related to the
computation of basic earning per share for the years ended December 31,
2001, 2002 and 2003 (millions of pesos, except per share data):
2001 2002 2003
---------- ---------- -----------
U.S. GAAP net income Ps 226,048 Ps 207,152 Ps 474,419
Less preferred share dividends 14,989 23,554 48,535
---------- ---------- -----------
Income attributable to common stockholders 211,059 183,598 425,884
========== ========== ===========
Weighted average number of common shares
outstanding used in basic EPS calculation (in millions) 398 398 398
---------- ---------- -----------
Basic and Diluted earnings per share Ps 530.30 Ps 461.30 Ps 1,070.06
========== ========== ===========
Pro-forma net income and basic and diluted earnings per share
for the years ended December 31, 2001, 2002 and 2003, adjusted to
exclude amortization expense (net of tax) related to goodwill is as
follows:
2001 2002 2003
---------- ---------- -----------
Income attributable to common stockholders Ps 211,059 Ps 183,598 Ps 425,884
Goodwill amortization 14,722 - -
---------- ---------- -----------
Adjusted income attributable
to common stockholders 225,781 183,598 425,884
========== ========== ===========
BASIC EARNING PER SHARE:
Reported basic earnings per share 530.30 461.30 1,070.06
Goodwill amortization 36.99 - -
---------- ---------- -----------
Adjusted basic and Diluted earnings per share Ps 567.29 Ps 461.30 Ps 1,070.06
========== ========== ===========
u) MERGER EXPENSES
The indirect costs of the merger of Ps 22,649 recorded as
"Merger expenses" in the consolidated statement of income under
Colombian GAAP would be recorded, for U.S. GAAP purposes, in the
respective line items to which the costs related.
v) CASH FLOW
During 2003, restricted cash amounted to Ps 628,071. Under
Colombian GAAP, this amount is classified as cash and cash equivalent,
while, for U.S. GAAP purposes, restricted cash does not represent part
of cash and cash equivalents for cash flow statement presentation
because it cannot be withdrawn without prior notice or penalty.
F - 93
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
Also, during 2003 Ps 23,146 related to restructured loans were
transferred to foreclosed assets amounted to Ps 23,146. Such transfers
affect BC's balance sheet but do not result in cash receipts or cash
payments in the period.
w) SEGMENTS DISCLOSURE
The following presents information about reported operating
segment profit or loss, and segment assets:
F - 94
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2001
Governmental
Small And Offshore
Retail Commercial Business Institutional Corporate Commercial
Banking Banking Banking Banking Headquarters Banking
------- ------- ------- ------- ------------ -------
Revenues from external
customers Ps 149,834 Ps 25,125 Ps 12,042 Ps 10,831 Ps (7,463) Ps 9,234
Revenues from transactions
with other operating segments
of the same enterprise 30,138 3,193 3,260 (1,603) (37,727) 7,170
Interest income 321,459 210,010 112,038 94,154 189,858 132,437
Interest expense 162,625 14,195 9,903 53,949 194,883 86,357
Net interest revenue 158,834 195,815 102,135 40,205 (5,025) 46,080
Depreciation and amortization
expense - - - - 27,567 699
Provision for loans losses 31,142 2,890 (2,630) 4,070 53,984 16,790
Administrative and other
expense 305,183 25,790 20,334 20,591 70,814 4,319
Net monetary inflation
adjustment - - - - - -
Income tax expense or benefit - - - - 33,302 -
Other income or expense, net 24,295 1,456 1,275 82 18,664 6,950
Merger expenses - - - - 42,206 -
Segment profit before
distribution of income
(expense) for treasury funds 26,776 196,909 101,008 24,854 (259,424) 47,626
Distribution of income
(expense) for treasury funds (1) 139,212 (131,173) (58,151) 22,779 27,333 -
Segment profit Ps 165,988 Ps 65,736 Ps 42,857 Ps 47,633 Ps (232,091) Ps 47,626
=========== =========== ========== ============ ============ ===========
Segments assets Ps1,960,065 Ps1,652,670 Ps 843,872 Ps 748,559 Ps 2,832,592 Ps2,159,016
=========== =========== ========== ============ ============ ===========
All other
Trust Leasing Manufacturing Segments Total
----- ------- ------------- -------- -----
Revenues from external
customers Ps 24,309 Ps 26,687 Ps 40,059 Ps 66,167 Ps 356,825
Revenues from transactions
with other operating segments
of the same enterprise 888 508 1,535 4,903 12,265
Interest income 6,158 12,385 1,230 25,859 1,105,588
Interest expense - 28,328 11,622 25,128 586,990
Net interest revenue 6,158 (15,943) (10,392) 731 518,598
Depreciation and amortization
expense 1,299 907 1,519 9,755 41,746
Provision for loans losses 946 4,608 876 5,826 118,502
Administrative and other
expense 14,369 5,630 28,026 46,228 541,284
Net monetary inflation
adjustment - - 2,761 (208) 2,553
Income tax expense or benefit 4,047 304 1,203 6,679 45,535
Other income or expense, net (378) 2,953 1,537 6,652 63,486
Merger expenses - - - - 42,206
Segment profit before
distribution of income
(expense) for treasury funds 10,316 2,756 3,876 9,757 164,454
Distribution of income
(expense) for treasury funds (1) - - - - -
Segment profit Ps 10,316 Ps 2,756 Ps 3,876 Ps 9,757 Ps 164,454
========= ========== ========== ========== =============
Segments assets Ps 64,020 Ps 201,312 Ps 226,300 Ps 517,967 Ps 11,206,373
========= ========== ========== ========== =============
(1) Those costs are calculated based on the funds that segments use or provide
and do not have an impact in the final result
F - 95
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2002
Governmental
Small And Offshore
Retail Commercial Business Institutional Corporate Commercial
Banking Banking Banking Banking Headquarters Banking
------- ------- ------- ------- ------------ -------
Revenues from external
customers Ps 176,296 Ps 30,930 Ps 18,975 Ps 7,764 Ps (19,835) Ps 6,628
Revenues from transactions
with other operating segments
of the same enterprise 22,961 14,308 9,034 21,433 (69,367) (31,185)
Interest income 338,468 150,885 118,925 71,606 255,965 93,871
Interest expense 135,141 14,687 12,420 55,261 172,153 70,217
Net interest revenue 203, 327 136,198 106,505 16,345 83,812 23,654
Depreciation and amortization
expense - - - - 27,788 846
Provision for loans losses 17,269 5,851 3,187 231 39,303 64,951
Administrative and other
expense 254,704 34,542 29,203 30,170 124,174 3,885
Income tax expense or benefit - - - - 25,364 -
Other income or expense, net 1,922 (144) 51 (1,122) 16,344 86,293
Merger expenses - - - - 33,028 -
Segment profit before
distribution of income
(expense) for treasury funds 132,533 140,899 102,175 14,019 (238,703) 15,708
Distribution of income
(expense) for treasury
funds (1) 116,985 (85,774) (55,594) 41,547 (17,164) -
=========== =========== =========== ========== ============ ===========
Segment profit Ps 249,518 Ps 55,125 Ps 46,581 Ps 55,566 Ps (255,867) Ps 15,708
=========== =========== =========== ========== ============ ===========
Segments assets Ps2,334,832 Ps1,606,634 Ps1,137,409 Ps 717,142 Ps 3,796,115 Ps2,985,578
=========== =========== =========== ========== ============ ===========
All other
Trust Leasing Manufacturing Segments Total
----- ------- ------------- -------- -----
Revenues from external
customers Ps 34,327 Ps 32,884 Ps (14,820) Ps 48,564 Ps 321,713
Revenues from transactions
with other operating segments
of the same enterprise 1,532 (244) 9,275 2,074 (20,179)
Interest income 6,338 3,848 1,914 24,099 1,065,919
Interest expense 2,047 20,943 5,036 22,631 510,536
Net interest revenue 4,291 (17,095) (3,122) 1,468 555,383
Depreciation and amortization
expense 1,078 809 1,023 5,247 36,791
Provision for loans losses 647 3,446 329 6,415 141,629
Administrative and other
expense 21,594 7,177 21,686 54,215 581,350
Income tax expense or benefit 5,648 1,214 1,938 8,453 42,617
Other income or expense, net 1,180 1,435 21,127 41,613 168,699
Merger expenses - - - - 33,028
Segment profit before
distribution of income
(expense) for treasury funds 12,363 4,334 (12,516) 19,389 190,201
Distribution of income
(expense) for treasury
funds (1) - - - - -
========= ========== ========== ========== ============
Segment profit Ps 12,363 Ps 4,334 Ps (12,516) Ps 19,389 Ps 190,201
========= ========== ========== ========== ============
Segments assets Ps 74,151 Ps 308,046 Ps 225,413 Ps 530,270 Ps13,715,590
========= ========== ========== ========== ============
(1) Those costs are calculated based on the funds that segments use or provide
and do not have an impact in the final result
F - 96
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
2003
Governmental
Small And Offshore
Retail Commercial Business Institutional Corporate Commercial
Banking Banking Banking Banking Headquarters Banking
------- ------- ------- ------- ------------ -------
Revenues from external
customers Ps 212,472 Ps 32,502 Ps 34,906 Ps 19,007 Ps (30,675) Ps 7,742
Revenues from transactions
with other operating
segments of the same
enterprise 34,422 22,731 19,795 24,530 (83,150) (7,276)
Interest income 453,975 179,113 132,127 56,075 386,052 150,602
Interest expense 147,647 17,395 18,361 59,119 139,860 63,874
Net interest revenue 306,328 161,718 113,766 (3,044) 246,192 86,728
Depreciation and
amortization expense - - - - 33,544 882
Provision for loans losses 62,068 12,781 365 1,133 59,152 50,360
Administrative and other
expense 336,412 40,112 38,541 24,275 168,793 7,122
Income tax expense or
benefit - - - - 35,498 -
Other income or expense, net 3,354 (462) (449) 153 29,576 89,901
Segment profit before
distribution of income
(expense) for treasury funds 158,096 163,596 129,112 15,238 (135,044) 118,731
Distribution of income
(expense) for treasury
funds (1) 96,777 (75,379) (49,667) 50,866 (22,597) -
=========== =========== =========== =========== ============ ===========
Segment profit Ps 254,873 Ps 88,217 Ps 79,445 Ps 66,104 Ps (157,641) Ps 118,731
=========== =========== =========== =========== ============ ===========
Segments assets Ps3,127,442 Ps1,838,100 Ps1,449,736 Ps 665,609 Ps 4,230,798 Ps3,748,134
=========== =========== =========== =========== ============ ===========
All other
Trust Leasing Manufacturing Segments Total
----- ------- ------------- -------- -----
Revenues from external
customers Ps 38,424 Ps 47,186 Ps 31,400 Ps 97,157 Ps 490,121
Revenues from transactions
with other operating
segments of the same
enterprise 773 (314) 16,555 2,138 30,204
Interest income 5,366 8,174 (6) 23,951 1,395,429
Interest expense 109 50,274 9,008 15,007 520,654
Net interest revenue 5,257 (42,100) (9,014) 8,944 874,775
Depreciation and
amortization expense 1,032 3,377 2,747 4,262 45,844
Provision for loans losses 2,239 3,564 237 7,918 199,817
Administrative and other
expense 23,368 12,739 26,035 59,006 736,403
Income tax expense or
benefit 6,430 4,240 1,528 14,938 62,634
Other income or expense, net 1,308 11,773 (783) 14,815 149,186
Segment profit before
distribution of income
(expense) for treasury funds 12,693 (7,375) 7,611 36,930 499,588
Distribution of income
(expense) for treasury
funds (1) - - - - -
========= ========== ========== ========== =============
Segment profit Ps 12,693 Ps (7,375) Ps 7,611 Ps 36,930 Ps 499,588
========= ========== ========== ========== =============
Segments assets Ps 73,395 Ps 554,073 Ps 221,222 Ps 596,422 Ps 16,504,931
========= ========== ========== ========== =============
(1) Those costs are calculated based on the funds that segments use or provide
and do not have an impact in the final result
F - 97
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
The following is a reconciliation of reportable segments
revenues, profit or loss and assets, to the Banks' consolidated totals:
2001 2002 2003
---- ---- ----
REVENUES
Total revenues for reportable segments Ps 1,377,748 Ps 1,292,716 Ps 1,792,508
Other revenues 136,462 254,266 312,598
Total 1,514,210 1,546,982 2,105,106
------------- ------------- -------------
Elimination of intersegment revenues (12,265) 20,179 (30,204)
------------- ------------- -------------
TOTAL REVENUES FOR REPORTABLE SEGMENTS Ps 1,501,945 Ps 1,567,161 Ps 2,074,902
============= ============= =============
PROFIT OR LOSS
Total profit or loss for reportable segments Ps 154,697 Ps 170,812 Ps 462,658
Other profit or loss 9,756 19,389 36,930
------------- ------------- -------------
Total 164,453 190,201 499,588
------------- ------------- -------------
Elimination of intersegment profits (7,920) 20,179 (30,204)
------------- ------------- -------------
NET INCOME (LOSS) Ps 156,533 Ps 210,380 Ps 469,384
============= ============= =============
ASSETS
Total assets for reportable segments Ps 10,688,406 Ps 13,185,320 Ps 15,908,509
Other assets 517,967 530,270 596,422
------------- ------------- -------------
Total 11,206,373 13,715,590 16,504,931
------------- ------------- -------------
Elimination of intersegment assets (931,914) (1,116,008) (1,328,802)
------------- ------------- -------------
CONSOLIDATED TOTAL Ps 10,274,459 Ps 12,599,582 Ps 15,176,129
============= ============= =============
The following summarizes the Bank's revenues and long-lived
assets attributable to Colombia and other foreign countries:
2002 2003
--------------------------- --------------------------
LONG LONG
GEOGRAPHIC INFORMATION REVENUES LIVED - ASSETS REVENUES LIVED - ASSETS
--------- -------------- --------- --------------
Republic of Colombia 1,477,668 582,318 1,954,038 754,204
Republic of Panama and Cayman Islands 69,314 93,915 151,068 117,863
--------- ------- --------- -------
Total 1,546,982 676,233 2,105,106 872,067
Eliminations 20,179 (2,333) (30,204) (1,958)
--------- ------- --------- -------
TOTAL, NET 1,567,161 673,900 2,074,902 870,109
========= ======= ========= =======
F - 98
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
The segments reported embrace the following activities:
RETAIL BANKING: The Retail Banking segment of the Bank
provides a wide range of financial products and services to individuals
and small-and-middle-sized companies. This segment of the Bank is
important for the Bank's funding and its generation of revenue.
COMMERCIAL BANKING: The Commercial Banking Segment provides
commercial banking services to all sectors of the economy and is
organized by the size of customers assuring an adequate pricing
according to their risk level.
SMALL BUSINESS BANKING: The Small and Medium-Sized Companies
Segment includes individuals with an independent economic activity and
companies with revenue greater than Ps 250 and up to Ps 11,200 (or Ps
17,100 for individuals and companies domiciled in the city of Bogota).
GOVERNMENTAL AND INSTITUTIONAL BANKING: Provides services to
institutional customers subject to the supervision of the
Superintendency of Banking, the Superintendency of Securities, the
Superintendency of Health, or the Superintendency of Family Subsidy;
and electricity and public utility companies. The governmental
customers includes public sector entities, such us municipalities, the
central administration, territorial and decentralized entities.
OFFSHORE COMMERCIAL BANKING: BC Panama and BC Cayman, BC's
international subsidiaries located in Panama and the Cayman Islands,
respectively, provide a complete line of banking services mainly to
Colombian customers, including loans to private sector companies, trade
financing, lease financing, financing for industrial projects and a
complete portfolio of cash management products such as checking
accounts, international collections and payments and PC Banking.
Through these subsidiaries, BC also offers to its high net worth and
private banking customers investment opportunities in U.S. Dollars, in
savings and checking accounts, CD-time deposits and investment funds.
TRUST: The Bank offers, through its subsidiary Fiducolombia
S.A., a family of six mutual funds and one voluntary retirement fund,
all of which are designed to provide customers with the opportunity to
diversify their investments. As of December 31, 2003, it had Ps
1,386,307 in total assets under management, increasing 26.0% from Ps
1,100,175 in 2002. Additionally, Fiducolombia offers a broad range of
products and services by type of trust, among which the following stand
out: Public trust, management and payment trust, individual investment
trust, real estate trust and guarantee trust.
LEASING: Leasing Colombia S.A. and Sufinanciamiento S.A., as
BC subsidiaries specialized in leasing activities, offers Financial and
Operational Leasing. The main activities that require lease financing
are infrastructure, import of goods, temporary import in Colombian
pesos, international leasing, real Estate, vehicles for executives,
leasing for suppliers, and cattle raising.
MANUFACTURING: The manufacturing segment of the Bank provides
a wide range of products to individuals and companies such us: metal
parts in gray and ductile iron, both wrought and finished, such as
brake systems for passenger automobiles and trucks, accessories for
aqueducts and
F - 99
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
agriculture machinery. Another line of production include compound
fertilizers, ammonia, ammonium nitrate and nitric acid.
ALL OTHER SEGMENTS: Provide the following products and
services:
- Warehouse and logistics services through Almacenar S.A. a
subsidiary of BC.
- Colcorp S.A. is a subsidiary of BC that specializes in
providing investment banking services to a variety of the
Bank's customers, and
- Comicol S.A. Comisionista de Bolsa, a subsidiary of BC, offers
brokerage services to the Bank's customers as well as its own
customers.
RECENT U.S. GAAP PRONOUNCEMENTS
In December 2003, the FASB issued a revision to Interpretation
No. 46, "Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51" ("FIN 46R" or the "Interpretation"). FIN 46R clarifies
the application of ARB No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support. FIN 46R requires the
consolidation of these entities, known as Variable Interest Entities
("VIEs"), by the primary beneficiary of the entity. The primary
beneficiary is the entity, if any, that will absorb a majority of the
entity's expected losses, receive a majority of the entity's expected
residual returns, or both.
Among other changes, the revisions of FIN 46R (a) clarified
some requirements of the original FIN 46, which had been issued in
January 2003, (b) eased some implementation problems, and (c) added new
scope exceptions. FIN 46R deferred the effective date of the
Interpretation for public companies, to the end of the first reporting
period ending after March 15, 2004, except that all public companies
must at a minimum apply the provisions of the Interpretation to
entities that were previously considered "special-purpose entities"
under the FASB literature prior to the issuance of FIN 46R by the end
of the first reporting period ending after December 15, 2003. BC does
not anticipate that the adoption of FIN 46 will have a material impact
on its financial position, cash flows and results of operations.
In December 2003, the FASB revised Statement 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits--an
amendment of FASB Statements No. 87, 88, and 106". This Statement
revises employers' disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans required by FASB Statements No. 87,
Employers' Accounting for Pensions, No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. This Statement retains the
disclosure requirements contained in FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which it
replaces. It requires additional disclosures to those in the original
Statement 132 about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other
defined benefit postretirement plans. The required
F - 100
BANCOLOMBIA S. A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Stated in millions of pesos and thousands of U.S. dollars)
information should be provided separately for pension plans and for
other postretirement benefit plans. BC evaluated the recent guidelines
of Statement 132 and applied them in its annual report.
The requirement to disclose the estimated future benefit
payments for each of the next five years and in the aggregate for the
five years thereafter, is effective for the year ending December 31,
2004.
In December 2003, the AICPA issued Statement of Position 03-3
("SOP 03-3"), Accounting for Certain Loans or Debt Securities Acquired
in a Transfer. SOP 03-3 provides guidance on the accounting for
differences between contractual and expected cash flows from the
purchaser's initial investment in loans or debt securities acquired in
a transfer, if those differences are attributable, at least in part, to
credit quality. Among other things, SOP 03-3: (1) prohibits the
recognition of the excess of contractual cash flows over expected cash
flows as an adjustment of yield, loss accrual or valuation allowance at
the time of purchase; (2) requires that subsequent increases in
expected cash flows be recognized prospectively through an adjustment
of yield; and (3) requires that subsequent decreases in expected cash
flows be recognized as an impairment. In addition, SOP 03-3 prohibits
the creation or carrying over of a valuation allowance in the initial
accounting of all loans within its scope that are acquired in a
transfer. SOP 03-3 becomes effective for loans or debt securities
acquired in fiscal years beginning after December 15, 2004.
F - 101