Fitch Affirms Bancolombia at 'BBB'; Outlook Stable

  Fitch Affirms Bancolombia at 'BBB'; Outlook Stable

Business Wire

NEW YORK -- February 26, 2013

Following the announcement of an agreement to acquire HSBC's banking and
insurance operations in Panama, Fitch Ratings has today affirmed Bancolombia's
Viability Rating (VR) at 'bbb' and its Issuer Default Rating (IDR) at 'BBB'.
The Rating Outlook is Stable. Fitch has also affirmed the national ratings of
Bancolombia's subsidiaries. A complete list of rating actions is provided at
the end of this release.

On Feb. 19, Bancolombia announced that it would acquire 100% of the common
shares and 90.1% of the preferred shares of HSBC's banking and insurance
operations in Panama for $2.1 billion. The total assets to be acquired (after
getting a controlling stake) amount to about $7.6 billion, and the transaction
will be carried directly by Bancolombia using cash in hand and other internal
resources. The transaction is subject to regulatory and other approvals and is
expected to be completed on the third quarter of 2013.

KEY RATING DRIVERS:

Fitch affirmed Bancolombia's IDRs and VR following the acquisition
announcement in consideration of the strategic importance of this acquisition,
which will cement the bank's regional franchise. According to Fitch's initial
projections, the impact on Bancolombia's financial standing (mainly its Fitch
Core Capital -FCC) would be material, but the bank is expected to replenish
its FCC within 2-2.5 years. Bancolombia's earnings generation and overall
profitability jointly with its adequate asset quality and ample loan loss
coverage metrics underpins the capacity of the bank to compensate the initial
impact on its capitalization. Also, the acquired entity shows a solid market
share on its home market (Panama) and a good financial profile reflected on
its current VR of 'bbb' explained by good capital, profitability and asset
quality metrics; while its funding base is ample and well diversified.

Bancolombia's VR is underpinned by its sound franchise, strong balance sheet,
consistent performance, robust asset quality and reserves, ample deposit base
and access to funding, and positive economic environment and prospects.
Fitch's view of Bancolombia's creditworthiness is tempered by its heightened
competitive environment and the execution risk that any merger or acquisition
entails.

In addition, the bank's expansion within Colombia and abroad would deepen its
revenue diversification and underpin its revenues while a positive economic
background fosters healthy growth. Bancolombia would maintain a strong balance
sheet and performance while solvency metrics would gradually revert to the
average of similarly rated peers.

Bancolombia's Support Rating and Support Rating floor reflect its systemic
importance. Support from Colombia's central bank would, in Fitch's opinion, be
forthcoming, if needed. Colombia's ability to provide such support is
considered moderate and reflected in its sovereign rating ('BBB-' with a
Stable Outlook).

According to Fitch's ratings criteria, Bancolombia Panama is a 'core'
subsidiary of Bancolombia, and hence its IDRs are equalized with those of its
parent. The expected expansion of Bancolombias activities in Panama through
the acquisition of HSBC Panama will enhance even more the 'core'
characteristics of the Panamanian operations of Bancolombia in Panama and
Central America.

RATING SENSITIVITIES

Bancolombia's VR may be negatively affected if the bank fails to replenish its
FCC according to the expected projections provided above in this RAC (expected
FCC Ratio of around 10% by year 2015), an unexpected deterioration of its
impaired loans ratio above 4% or a reduction of its ample loan loss coverage;
also, failure to report overall profitability levels in line of its recent
average (ROAA around 1.7%) may hinder its ability to replenish its capital
base and hence may trigger a negative rating action.

In the medium term, it is not likely that Bancolombia's IDRs and viability
ratings would be upgraded unless the bank is able to sustain its performance
while maintaining its sound balance sheet and faster than expected recovery of
its FCC ratio above the median of similarly rated banks.

Even when integration risk of the acquired entities exists, as in any other
M&A transaction, a solid history of successful integration of acquired
entities in Colombia and abroad and the good financial profile of the acquired
entity suggests that these risks are manageable for Bancolombia.
Alternatively, a failure to duly integrate the acquired business may trigger a
negative rating action on Bancolombia's VR and IDR's.

The national ratings of Bancolombia's subsidiaries in Colombia and Puerto Rico
reflect the support it would receive from its parent given its importance to
Bancolombia's business and universal banking strategy.

THE TRANSACTION

The acquisition is the consolidation of Bancolombia's international growth
strategy. After this operation and the acquisition of a 40% stake in Grupo
Agromercantil in Guatemala announced recently, Bancolombia will have a strong
footprint in the three leading markets of Central America and it is in line
with the company's policy of acquiring banks with significant market share,
consistent performance, and adequate management.

Given the size of the transaction for Bancolombia the financial impact for the
bank is considered reasonable. Future integration risk is mitigated by
Bancolombia's extensive and successful experience in M&A, including the
acquisition of Banco Agricola (El Salvador) in 2007.

The bank had been preparing for this acquisition since mid-2011 by raising
long term funding (senior and subordinated bonds) as well as equity in local
and international markets. In addition, the bank retains about to thirds of
its net income every year.

According to Fitch's initial calculations, should the transaction be closed
during 3Q13, Bancolombia's Fitch core capital ratio would decline by about 400
to 450bp from its peak at 3Q12 but would return to the 9%-10% of RWA range in
the 18-24 month period after the acquisition. This would be a tad below the
average rating of similarly rated peers, but Bancolombia's capital should be
viewed in the light of its sound earnings generation, robust asset quality and
ample reserve coverage. Profitability would barely be affected.

HSBC Panama is the third largest bank in Panama in terms of assets, with a
market share of 8.42% as of September 2012 (excluding the Central American and
Colombian operations). The bank serves consumer (PFS), middle market (CMB),
and corporate (CIBM) customers through a network of 46 branches and 263 ATMs
in Panama.

In Fitch's opinion, the acquisition will consolidate Bancolombia's competitive
position in the region and has the potential to substantially contribute to
its growth and performance in the coming years.

Fitch has affirmed the following ratings:

Bancolombia S.A.

--Long-term foreign currency Issuer Default Rating (IDR) at 'BBB'; Outlook
Stable;

--Short-term foreign currency IDR at 'F2';

--Long-term local currency IDR at 'BBB'; Outlook Stable;

--Short-term local currency IDR at 'F2';

--Viability rating at 'bbb';

--Support rating at '3';

--Support rating floor at 'BB+';

--Senior unsecured debt at 'BBB'.

--Subordinated debt at 'BBB-';

--National long-term rating at 'AAA(col)'; Outlook Stable

--National short-term rating at 'F1+(col)';

--Multiples y sucesivas emisiones de bonos ordinarios de Bancolombia con cupo
global por $1.5 billones National rating at 'AAA(col)';

--Bonos subordinados de Bancolombia con cupo global por $1.0 billones National
rating at 'AA+(col)';

--Programa de Emision y Colocacion de Multiples y sucesivas emisiones de bonos
ordinarios de Bancolombia con cupo global por $2 billones National rating at
'AAA(col)';

--Programa de Emision y Colocacion de Multiples y sucesivas emisiones de bonos
ordinarios de Bancolombia con cupo global por $3 billones National rating at
'AAA(col)'.

Banca de Inversion Bancolombia S.A. Corporacion Financiera

--National long-term rating at 'AAA(col)'; Outlook Stable;

--National short-term rating at 'F1+(col)'.

Bancolombia Puerto Rico Internacional Inc.

--National long-term rating at 'AAA(col)'; Outlook Stable;

--National short-term rating at 'F1+(col)'.

Factoring Bancolombia CFC

--National long-term rating at 'AAA(col)'; Outlook Stable

--National short-term rating at 'F1+(col)';

Leasing Bancolombia S.A. CFC

--National long-term rating at 'AAA(col)'; Outlook Stable;

--National short-term rating at 'F1+(col)';

--Multiples y Sucesivas Emisiones de Bonos Ordinarios de Leasing Bancolombia
hasta por $1.5 billones de pesos National rating at 'AAA(col)';

--Programa de Emision y Colocacion de multiples y sucesivas emisiones con
cargo a un cupo global de 2 billones (ampliado hasta 4.5 billones) National
rating at 'AAA(col)'.

Valores Bancolombia S.A.

--National long-term rating at 'AAA(col)'; Outlook Stable;

--National short-term rating at 'F1+(col)';

Compania de Financiamiento Tuya S.A.

--National long-term rating at 'AAA(col)'; Outlook Stable;

--National short-term rating at 'F1+(col)';

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'National Ratings Criteria' (Jan. 19, 2011);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).

Applicable Criteria and Related Research

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

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Contact:

Fitch Ratings
Primary Analyst (Bancolombia)
Diego Alcazar, +1-212-908-0396
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst (Bancolombia) and Primary Analyst (Banca de Inversion
Bancolombia, Bancolombia Puerto Rico, Factoring Bancolombia, Leasing
Bancolombia, Valores Bancolombia, Tuya)
Andres Marquez, + 57 1 326-9999
Director
or
Secondary Analyst (Factoring Bancolombia, Leasing Bancolombia, Tuya)
Sergio Pena, + 57 1 326-9999
Assistant Director
or
Secondary Analyst (Banca de Inversion Bancolombia, Bancolombia Puerto Rico y
Valores Bancolombia)
Eva Benavides, + 57 1 326-9999
Analyst
or
Committee Chairperson
Alejandro Garcia, + 52 81 8399 9146
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com
 
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