AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report ___________
For the transition period from _____ to ____
Commission file number:
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Tel. +
(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each Class | Trading Symbol (s) | Name of each exchange on which registered |
* Bancolombia’s preferred shares are not listed for trading directly, but only in connection with its American Depositary Shares, which are evidenced by American Depositary Receipts, each representing four 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 | |
Preferred Shares | 452,122,416 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
☒ | Accelerated filer ☐ | Non-accelerated filer ☐ |
Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☐
TABLE OF CONTENTS
5 | ||||
7 | ||||
8 | ||||
9 | ||||
9 | ||||
9 | ||||
9 | ||||
9 | ||||
9 | ||||
9 | ||||
9 | ||||
26 | ||||
26 | ||||
29 | ||||
29 | ||||
33 | ||||
33 | ||||
33 | ||||
33 | ||||
35 | ||||
36 | ||||
43 | ||||
63 | ||||
B.10 | 63 | |||
73 | ||||
75 | ||||
76 | ||||
76 | ||||
81 | ||||
81 | ||||
83 | ||||
83 | ||||
F. | 84 | |||
84 | ||||
84 | ||||
GENERAL DISCUSSION OF THE CHANGES IN RESULTS FOR 2023 VERSUS 2022 | 86 | |||
103 | ||||
103 | ||||
108 | ||||
109 | ||||
109 | ||||
110 | ||||
111 | ||||
114 | ||||
114 | ||||
117 | ||||
118 | ||||
121 | ||||
122 | ||||
123 | ||||
123 | ||||
124 | ||||
124 | ||||
124 | ||||
CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION | 124 | |||
124 | ||||
124 | ||||
124 | ||||
125 | ||||
125 | ||||
125 | ||||
126 | ||||
126 | ||||
126 | ||||
126 | ||||
127 | ||||
127 | ||||
127 | ||||
127 | ||||
133 | ||||
133 | ||||
134 | ||||
139 | ||||
139 | ||||
139 | ||||
139 | ||||
139 | ||||
145 | ||||
146 | ||||
146 | ||||
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 146 | |||
149 | ||||
150 | ||||
150 | ||||
151 | ||||
151 | ||||
151 | ||||
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 152 | |||
152 | ||||
152 | ||||
153 | ||||
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 153 | |||
153 | ||||
153 | ||||
156 | ||||
156 | ||||
156 | ||||
156 | ||||
CERTAIN DEFINED TERMS
Unless otherwise specified or if the context so requires, in this annual report:
“ADRs” refers to the Bank’s American Depositary Receipts.
“ADSs” refers to the Bank’s American Depositary Shares (one ADS represents four preferred shares).
“Annual Report” refers to this annual report on Form 20-F.
“ATM” refers to automated teller machine.
“BAM” refers to Banco Agromercantil de Guatemala S.A., a banking institution organized under the laws of the Republic of Guatemala, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.
“Banagrícola” refers to Banagrícola S.A., a company organized under the laws of the Republic of Panama and the parent company of Banco Agricola S.A, and its consolidated subsidiaries, unless the context otherwise requires.
“Banca de Inversión” refers to Banca de Inversión Bancolombia S.A. Corporación Financiera, a subsidiary of Bancolombia S.A. organized under the laws of the Republic of Colombia that specializes in providing investment banking services.
“Banco Agrícola” refers to Banco Agrícola S.A., a banking institution organized under the laws of the Republic of El Salvador, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.
“Bancolombia”, the “Bank”, “us”, “we” or “our” refers to Bancolombia S.A., a banking institution organized under the laws of the Republic of Colombia, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.
“Bancolombia Panama” refers to Bancolombia Panamá S.A., a subsidiary of Bancolombia S.A. organized under the laws of the Republic of Panama that provides banking services to non-Panamanian customers.
“Bancolombia Puerto Rico” refers to Bancolombia Puerto Rico Internacional Inc., an international banking subsidiary of Bancolombia S.A. organized under the laws of the Commonwealth of Puerto Rico, that provides banking services to customers that do not reside in Puerto Rico.
“Banistmo” refers to Banistmo S.A., a banking institution organized under the laws of the Republic of Panama, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.
“Central Bank” refers to the Central Bank of Colombia (“Banco de la República”).
“Consolidated Financial Statements” refers to the audited consolidated statements of financial position of the Bank as of December 31, 2023 and 2022, and the audited consolidated statements of income, comprehensive income, changes in equity and cash flows for the years ended December 31, 2023, 2022 and 2021, and related notes included in this Annual Report.
“DTF” refers to the “Depósitos a Término Fijo” rate, the weighted average interest rate paid by finance corporations, commercial banks and financing companies in Colombia for time deposits with maturities of 90 days.
“ESG” refers to Environmental, Social and Governance criteria that are embedded in the company´s corporate strategy.
“Fiduciaria Bancolombia” refers to Fiduciaria Bancolombia S.A. Sociedad Fiduciaria, a subsidiary of Bancolombia organized under the laws of Colombia, which provides trust and fund management services.
5
“Grupo Agromercantil” refers to Grupo Agromercantil Holding S.A., a company organized under the laws of the Republic of Panama and the parent company of BAM, and its consolidated subsidiaries, unless the context otherwise requires.
“IFRS” refers to the International Financial Reporting Standards as issued by the International Accounting Standards Board.
“International Bank” refers to the Bank’s affiliates located outside Colombian territory that provide banking services, such as Bancolombia Panama S.A., Bancolombia Puerto Rico International Inc., Banistmo S.A., Banco Agromercantil de Guatemala S.A., and Banco Agrícola S.A.
“IRS” refers to the U.S. Internal Revenue Service.
“NYSE” refers to the New York Stock Exchange.
“OCI” refers to Other Comprehensive Income.
“peso”, “pesos” or “COP” refer to the lawful currency of Colombia.
“preferred shares” and “common shares” refer to our issued outstanding and fully paid-in preferred and common shares, designated as “acciones con dividendo preferencial sin derecho a voto” and “acciones ordinarias”, respectively.
“Renting Colombia” refers to Renting Colombia S.A.S., a subsidiary of Bancolombia S.A. organized under the laws of Colombia, which provides operating lease and fleet management services for individuals and companies.
“Representative Market Rate” refers to “Tasa Representativa del Mercado”, the U.S. dollar representative market rate, certified by the SFC. The Representative Market Rate is an economic indicator of the daily exchange rate of the U.S. dollar on the Colombian spot market. It corresponds to the arithmetical weighted average of the rates for the purchase and sale of U.S. dollars by certain financial institutions (including Bancolombia) authorized to engage in foreign exchange transactions in Colombia.
“SEC” refers to the U.S. Securities and Exchange Commission.
“SMEs” refers to Small and Medium Enterprises.
“SMMLV” refers to “Salario Mínimo Mensual Legal Vigente”, the effective legal minimum monthly salary in Colombia. In 2023, the effective legal minimum monthly salary in Colombia was COP $1.160.000.
“Subsidiaries” refers to entities controlled by Bancolombia S.A. The Bank controls an investee when the Bank is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through the Bank’s power.
“Superintendency of Finance” or “SFC” refers to the Colombian Superintendency of Finance (“Superintendencia Financiera de Colombia”), a technical entity under the Ministry of Finance and Public Credit (“Ministerio de Hacienda y Crédito Público”) with functions of inspection, supervision and control over the entities involved in financial activities, capital markets, insurance and any other services related to the management, use or investment of resources collected from the public.
“Superintendency of Industry and Commerce” or “SIC” refers to the Colombian Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio de Colombia), a technical entity under the Ministry of Commerce, Industry and Tourism (Ministerio de Comercio Industria y Turismo) with functions of supervision and regulation of the competition in several industries, including financial institutions.
“U.S.” or “United States” refers to the United States of America.
6
“U.S. dollar”, “USD”, and “US$” refers to the lawful currency of the United States.
“UVR” refers to “Unidades de Valor Real”, a Colombian inflation-adjusted monetary index calculated by the board of directors of the Central Bank and generally used for pricing home-mortgage loans.
“Valores Bancolombia” refers to Valores Bancolombia S.A. Comisionista de Bolsa, a subsidiary of Bancolombia S.A. organized under the laws of the Republic of Colombia, and the parent company of Bancolombia Capital Holdings USA LLC, and its consolidated subsidiaries, providing brokerage and asset management services.
Our fiscal year ends on December 31, and references in this annual report to any specific fiscal year are to the 12-month period ended December 31 of such year.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains statements which may constitute forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are not based on historical facts but instead represent only the Bank’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside the Bank’s control. The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “predict”, “target”, “forecast”, “guideline”, “should”, “project” and similar words and expressions are intended to identify forward-looking statements. It is possible that the Bank’s actual results may differ, possibly materially, from the anticipated results indicated in or implied by these forward-looking statements.
Information regarding important factors that could cause actual results to differ, perhaps materially, from those in the Bank’s forward-looking statements appear in a number of places in this Annual Report, including in Item 3. “Key Information – D. Risk Factors” and Item 5. “Operating and Financial Review and Prospects”. These factors include, but are not limited to: (i) changes in general economic, business, political, social, fiscal or other conditions in Colombia, or in any of the other countries where the Bank operates; taking into account (A) economic challenges persisting due to high levels of inflation globally driven in part by supply chain disruptions and geopolitical tensions such as the continuing armed conflict in Ukraine and conflict in the Middle East, which pose potential impacts such as higher prices for energy raw materials and agricultural items, among others; and (B) an ambitious legal reform agenda that the government of Colombia is implementing; (ii) changes in capital markets or in markets in general that may affect policies, overall liquidity or attitudes towards lending; (iii) unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms; (iv) prolonged inflation, changes in foreign exchange rates, interest rates and unemployment rates; (v) sovereign risks; (vi) liquidity risks; (vii) increases in delinquencies by the Bank’s borrowers; (viii) lack of acceptance of new products or services by the Bank’s targeted customers; (ix) competition in the banking, financial services, credit card services, insurance, asset management or remittances businesses or other industries in which the Bank operates; (x) adverse determination of legal or regulatory disputes or proceedings and the consequences thereof; (xi) changes in official policies, regulations and the Colombian government’s banking policy as well as changes in laws, regulations or policies in other jurisdictions in which the Bank does business; (xii) factors specific to the Bank, including changes to the estimates and assumptions underlying our financial statements; our success in identifying risks (such as the incidence of loan delinquencies) and managing risks; our inability to achieve our financial and capital targets, which may result in failure to achieve any of the expected benefits of our strategies; a reduction in our credit ratings, which would decrease our funding availability; failure to achieve regulatory stress testing; and changes to the reliability and security of our data management, data privacy, information and technology infrastructure, including cyber-attack threats which may impact our ability to serve clients; and (xiii) failure to attract, hire or retain key talent.
Forward-looking statements speak only as of the date they are made and are subject to change, and, except as required by law, 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 arising after the date of this Annual Report.
7
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION
Accounting Principles
The audited consolidated statements of financial position of the Bank as of December 31, 2023 and 2022, and the audited consolidated statements of income, comprehensive income, changes in equity and cash flows for the years ended December 31, 2023, 2022 and 2021, and related notes (the “Consolidated Financial Statements”) included in this Annual Report were prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and the related interpretations issued by the IFRS Interpretations Committee (“IFRS IC”). All data included in this report has been prepared in accordance with IFRS as issued by the IASB, except for the data included in Item 4. B.7 Competition, which has been prepared in accordance with the local generally accepted accounting practices of each subsidiary.
The Consolidated Financial Statements include entities which the Bank controls, directly or indirectly. See Item 4. “Information on the Company – C. Organizational Structure” for an organizational chart that summarizes the organizational structure of the Bank and certain subsidiaries involved in financial or capital market activities.
Currencies
The Consolidated Financial Statements are presented in Colombian pesos, which is the functional currency for the Bank and the presentation currency for the Consolidated Financial Statements. The Consolidated Financial Statements and amounts as of December 31, 2023 and 2022, and for the three fiscal years ended December 31, 2023, 2022, and 2021, contained in this Annual Report are expressed in millions or billions of pesos (when indicated), except earnings per share, diluted earnings per share and the exchange rate, which are stated in units of Colombian pesos, while other currencies (dollars, euro, pounds, etc.) are stated in thousands.
This Annual Report translates certain peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, the exchange rate used in this Annual Report is indicated in Note 2.D Material Accounting Policies, section 1. Functional currency, transactions and balances in foreign currency.
Rounding Comparability of Data
Certain monetary amounts, percentages and other figures included in this Annual Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
The Bank maintains an internet site at http://www.grupobancolombia.com/. In addition, certain of the Bank’s subsidiaries referred to in this Annual Report maintain separate internet sites. For example, Banco Agrícola, Banistmo and Banco Agromercantil de Guatemala maintain internet sites at http://www.bancoagricola.com/, http://www.banistmo.com/, and https://www.bam.com.gt/ respectively. Information included on or accessible through Bancolombia’s internet site or the internet site of any of the subsidiaries of the Bank is not incorporated into this Annual Report or the filing. All references in this Annual Report to these and other internet sites are inactive textual references to these URLs, or “uniform resource locators”, and are for your informational reference only.
8
PART I
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. [Reserved]
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
Investors should consider the following risks and uncertainties, and the other factors presented in this Annual Report. In addition, the information 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 incorporated by reference in this Annual Report, in any of the Bank’s 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. If any of the following risks occur, the Bank’s business, results of operations and financial condition, its ability to raise capital and its ability to access funding could be materially and adversely affected, in addition to the possible reputational impact of the Bank. These risk factors should not be considered a complete list of potential risks that may affect Bank. Please note that the headings reflected below are provided solely for convenience of the reader and do not indicate that a given risk applies only to the heading under which it is located.
Summary of Risk Factors
Summary of risks relating to Colombia and other countries where the Bank operates.
| • | Changes in economic and political conditions in the countries where the Bank operates may adversely affect the Bank’s financial condition and results of operations. |
| • | The economies of the countries where the Bank operates are vulnerable to external effects as result of economic difficulties experienced by major regional trading partners or by general contagion effects resulting from economic or geopolitical shocks, which could have a material adverse effect on economic growth in these countries and their ability to service their public debt. |
| • | Colombia and El Salvador have experienced several periods of violence and instability that could affect the economy and the Bank. |
| • | Any additional taxes resulting from changes to tax regulations or the interpretation thereof in countries where the Bank operates, could adversely affect the Bank’s consolidated results. |
| • | Allegations of corruption against the government, politicians, and the private sector in the countries where we operate could create economic and political uncertainty and could expose us to additional credit risk. |
Summary of risks relating to the Bank’s business and the banking industry.
9
| • | The Bank is subject to credit risk and estimating exposure to credit risk involves subjective and complex judgments. |
| • | The Bank is subject to risks from concentration in its loan portfolio. Problems with one or more of its largest borrowers may adversely affect its financial condition and results of operations. |
| • | The value of the collateral securing the outstanding principal and interest balance of the Bank’s loans may not be sufficient to cover such outstanding principal and interest. In addition, the Bank may be unable to realize the full value of the collateral or guarantees securing the outstanding principal and interest balance of its loans. |
| • | Downgrades in the credit ratings of the Bank and its subsidiaries would increase their cost of borrowing funds and make their ability to raise new funds, attract deposits or renew maturing debt more difficult. |
| • | The Bank’s results of operations are sensitive to fluctuations in interest rates. |
| • | The Bank is subject to market risk and its income from its proprietary trading activities is highly volatile. |
| • | The Bank has significant exposure to sovereign risk, and especially Colombian, United States and Salvadoran, Panama and Guatemala sovereign risk, and the Bank’s results could be adversely affected by decreases in the value of its sovereign debt instruments. |
| • | The Bank is subject to credit risk with respect to its non-traditional banking businesses including investing in securities and entering into derivatives transactions. The Bank is subject to market, liquidity, operational and counterparty credit risks associated with its derivative transactions. |
| • | The Bank’s results could adversely be affected by high levels of inflation. |
| • | The Bank is subject to a wide range of cybersecurity incidents. |
| • | The Bank’s financial results may be negatively affected by changes to assumptions supporting the value of our goodwill. |
| • | Risks relating to the use of quantitative models and information may adversely impact the Bank’s business strategies and results. |
| • | The Bank is exposed to ESG risks that could affect the Bank’s financial condition and results of operations. |
| • | The Bank is subject to operational risks and losses. |
| • | Digital misinformation could adversely affect the Bank’s reputation as well as its operational and financial results. |
| • | The Bank’s policies and procedures may not be able to detect money laundering, terrorism financing, corruption or other illegal or improper activities fully or on a timely basis. |
| • | The Bank is subject to regulatory inspections, examinations, inquiries or audits in Colombia and in other countries where it operates, and any sanctions, fines and other penalties resulting from such inspections, examinations, inquiries or audits could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation. |
| • | The Bank and most of its Subsidiaries are subject to the U.S. Foreign Account Tax Compliance Act of 2010 and the OECD’s Automatic Exchange of Information - Common Reporting Standard (CRS). |
| • | The tax haven regulation in the countries where the Bank operates could adversely affect its business and financial results. |
| • | Changes in banking regulations in Colombia and in other jurisdictions where the Bank operates could adversely affect the Bank’s consolidated results. |
| • | The Bank’s financial results may be negatively affected by changes to accounting standards. |
| • | The Bank faces risks relating to regulatory compliance in general, and in particular with respect to laws relating to anti-competitive practices, consumer protection and protection of personal data. |
| • | Future restrictions on interest rates or banking fees could negatively affect the Bank’s profitability. |
| • | The Bank’s businesses rely heavily on data collection, processing and storage systems, the failure of which could materially and adversely affect the effectiveness of its risk management, reputation and internal control system as well as its financial condition and results of operations. |
| • | The Bank may be exposed to increased costs and liabilities in the event of the failure of its service providers to perform their obligations under key services contracts. |
| • | The Bank’s ability to attract and retain specialized talent could impact some business objectives. |
| • | Acquisitions and strategic alliances may not perform in accordance with expectations or may disrupt the Bank’s operations and adversely affect its profitability. |
| • | The Bank is subject to increasing competition which may adversely affect the results of its operations. |
Summary of risks relating to the Banks’s preferred shares and the ADSs.
10
| • | Preemptive rights may not be available to holders of American Depositary Receipts (“ADRs”) evidencing ADSs. |
| • | Exchange rate fluctuations may adversely affect the Colombian economy, the market price of the Bank’s ADSs, and the dividends payable to holders of the Bank’s ADSs. |
| • | The Bank’s preferred shares have limited voting rights. |
| • | Holders of the Bank’s ADRs may encounter difficulties in the exercise of dividend and voting rights. |
| • | Relative illiquidity of the Colombian securities markets may impair the ability of an ADR holder to sell preferred shares. |
| • | Changes in Colombia’s tax regime may affect ADRs tax treatment. |
Risk Factors Relating to Colombia and Other Countries Where the Bank Operates
Changes in economic and political conditions in the countries where the Bank operates may adversely affect the Bank’s financial condition and results of operations.
The Bank’s financial condition, results of operations and asset quality depend on the macroeconomic and political conditions prevailing in Colombia, Panama, El Salvador, Guatemala, and the other jurisdictions where the Bank operates. Accordingly, a slowdown in the economic growth rate, periods of negative growth, increases in inflation, changes in economic policy, or future judicial interpretations of policies involving exchange controls and other matters such as currency depreciation, interest rates, taxation, banking laws and regulations, and other political or economic developments in such jurisdictions may affect the overall business environment and may, in turn, negatively affect the Bank’s financial condition and results of operations.
In particular, the governments of Colombia, Panama, El Salvador, and Guatemala have historically exercised substantial influence on their economies, and in the future, they may implement decisions that could impact the business and results of companies in such countries (including the Bank), market conditions, and prices and rates of return on securities of local issuers (including the Bank’s securities). Potential changes in laws, public policies and regulations may cause instability in Colombia, Panama, El Salvador and Guatemala, and their respective markets.
The evolution of government policies and polarization could adversely affect the financial and commercial condition of the Bank and the market value of its securities. Furthermore, it is foreseeable that in the coming years this risk will become more significant, due to the global trend of 'pendulum movement' within the political spectrum in the elections of political leaders in different countries, increasing global tensions, international conflicts, polarization, distrust in governments and growing social discontent, which could increase social protests. This combination of elements could trigger a medium-term environment in which instability and political risks may be greater than those that have predominated in recent years.
In Colombia, our expectation is that GDP growth will slow down as the government attempts to reduce inflation to target levels through the current high interest rate policy of the Central Bank. 2024 is expected to be one of the slowest years of GDP growth in the current economic cycle for Colombia after an already weak 2023 (0.6% of annual GDP growth, a figure lower than what is typically considered as representing potential growth capacity). The slowdown in economic growth has resulted and may in the future result in weakening of the labor market and decrease in domestic demand, factors that have impacted and may continue to stress the ability of our customers to meet their financial obligations. Meanwhile, in 2024, the ongoing discussions around the comprehensive reform agenda that the government is implementing (pensions, labor, healthcare, and public services) has and may continue to create uncertainty (including with respect to fiscal sustainability and capital markets) and affect investment and consumer confidence.
On January 2024, Standard & Poor’s revised Colombia's sovereign credit rating outlook from stable to negative, due to concerns about low levels of public and private investment that could affect the medium-term growth capacity of Colombia’s GDP. In the next 24 months, there could be another downgrade in Colombia’s sovereign rating if the government does not implement initiatives to boost productive investment or control public finances. While the recent changes in market interest rates that the Government pays on its debt is already higher than what would be reasonable given its current sovereign rating, indicating that the market has incorporated the possibility of a new credit rating downgrade, the primary medium-term impact could be a steeper yield curve for sovereign debt. This, in turn, would affect
11
long-term interest rates for households and businesses and represent an additional constraint on the investment capacity in the country.
Despite some evidence in 2023 of Colombian institutional strength, which allowed for a partial recovery of investor confidence, a weakened government following the 2023 local elections could continue to cause political, economic, and institutional uncertainty in 2024, which could adversely affect our operations.
El Salvador continues to face medium-term challenges with its public finances. The fiscal outlook for the country is uncertain, and although short-term liquidity risks have been addressed with measures adopted by the government in 2023, fiscal pressures may still have negative impacts on public finances. These uncertainties are having negative effects on the country's access to capital markets for financial resources, making it dependent on capital flows from multilateral entities or other countries. Uncertainty also exists with respect to the possibility of the country reaching an agreement with the International Monetary Fund (IMF) because of El Salvador maintaining Bitcoin as legal tender, which has led to the deterioration of the relationship between the government and the IMF.
On the other hand, Guatemala faces significant short-term risk arising from the political environment following the 2023 elections. The president-elect's party is undergoing questioning as to the validity of its constitution as a political party, which could lead to the invalidation of the election results and social mobilizations by the government’s supporters. This constitutes a significant risk for the country, as it represents a shift from the traditional political and economic stability that has characterized Guatemala and may disrupt its economy. Additionally, the country continues to face a structural risk due to its high dependence on remittances, primarily from the United States. A weakening of the U.S. labor market could profoundly affect Guatemala's economic growth capacity.
In Panama, challenges arising from the potential impacts of the tensions between China and the United States and the conflicts between Russia and Ukraine and in the Middle East may result in adverse impacts in the medium-term global trade and the flow of trade routes through the Panama Canal, which results in a significant risk to the country’s economy. In the short-term, there is uncertainty arising from the dispute between Panama and the operator of Cobre Panama, which could lead to an extended halt of operations. This could have significant implications for the country's trade balance, current accounts, labor market, public finances, and short-term growth rate. In addition, the El Niño climate phenomenon could limit Panama Canal operations during the first half of 2024 if water levels continue to be affected by a period of drought, which could lead to continued restrictions on ships that can access the canal and lower the number of vessels allowed to transit per day. As a result of such phenomenon, the country’s income derived from the operation of the Panama Canal would be adversely impacted. In 2024 there will be general elections in Panama and the new government may carry out changes to the country's economic policy approach, which may result in uncertainties which could adversely affect our operations.
Recent polls do not reflect a clear favority candidate, resulting in a high level of uncertainty in this electoral process compared to what is typical for these processes. However, the economic proposals of most of the candidates can be categorized as convential or moderate, so the probability of a profound change in the country's economic policy direction resulting from these elections is low.
The economies of the countries where the Bank operates are vulnerable to external effects as result of economic difficulties experienced by major regional trading partners or by general contagion effects resulting from economic or geopolitical shocks, which could have a material adverse effect on economic growth in these countries and their ability to service their public debt.
A significant decline in economic growth or a sustained economic downturn of any of Colombia, Panama, El Salvador or Guatemala’s major trading partners or countries with close economic ties (i.e., the European Union, the United States, China and other Latin American countries for Colombia; and the United States and European Union for Panama, Guatemala and El Salvador) could have a material adverse impact on Colombia, Panama, El Salvador and Guatemala’s foreign trade, remittances inflows and foreign direct investment, resulting in lower economic growth.
12
Deterioration in the economic and political situation in neighboring countries could adversely affect the economy and cause instability in Colombia, Panama, El Salvador and Guatemala by disrupting their diplomatic or commercial relationships with neighboring countries. Any future tensions may cause political and economic uncertainty, instability, market volatility, low confidence levels and higher risk aversion by investors and market participants that may negatively affect economic activity in any of those jurisdictions.
Events occurring in a market where we do not operate may cause international investors to have an increased risk perception of an entire region or class of investment, which could in turn negatively affect market prices and liquidity of securities issued or owned by the Bank.
Recent global geopolitical fragmentation poses a greater risk for the countries where the Bank has a presence. This has resulted and may continue to result in a decrease of capital flows towards countries with emerging economies and exert pressure in such countries, leading to a higher level of volatility than what would be considered normal in commodity price behavior, especially for commodities like oil. This situation may impact inflation trends, particularly in El Salvador, Panama, and Guatemala. Conflicts in Ukraine and the Middle East can result in additional uncertainty and volatility in international markets, which could negatively affect the Bank’s financial condition and results of operations.
Meanwhile, the global context of economic deceleration and persistently high interest rates, despite expectations of a decrease in 2024, creates an environment where financial stress and the high reactivity of capital flows to emerging economies can keep financial stress elevated. As a result of this, it is reasonable to expect that debt service payments in government spending budgets will continue to be high from an historical perspective. This combination of low economic growth and, although decreasing, still high interest rates (with greater relevance in Colombia and El Salvador) represents a short-term risk inherent in the economic cycle these countries are experiencing. It requires responsible macroeconomic management by authorities. In respect of this, the primary challenge for Colombia and El Salvador relates to public finances and how adverse risks in this area may play out in 2024 and the subsequent years, due to significant risks to achieving the tax revenues necessary to reliably finance spending goals.
Colombia and El Salvador have experienced several periods of violence and instability that could affect the economy and the Bank.
Colombia has experienced periods of criminal violence over the past five decades, primarily due to the activities of guerilla groups and drug cartels. Colombia is currently implementing the peace treaty signed with the Revolutionary Armed Forces of Colombia (“Fuerzas Armadas Revolucionarias de Colombia” or “FARC”). There are presently a number of other illegal armed groups in Colombia, such as the National Liberation Army (“Ejército de Liberación Nacional” or “ELN”), among others. Furthermore, the Colombian government has started peace negotiations with several rebel groups throughout the country, yet negotiations are at a very early stage. Notwithstanding the implementation of these peace treaties and dialogues, the successful integration of illegal armed groups into Colombian society may not be achieved. An escalation of violence or drug-related crime may have a negative impact on the Colombian economy and on the Bank as a result of the downgrade of sovereign ratings increasing the funding costs, discouraging foreign investment, and leading to an economic slowdown.
Additionally, in El Salvador, the increase in violence led the legislative assembly, to adopt certain exceptional measures on March 27, 2022, conferring some powers to the Executive Power and suspending four constitutional guarantees. The suspension of constitutional guarantees has been extended 22 times, with the most recent suspension occurring from March 12, 2024 to April 10, 2024.
Any additional taxes resulting from changes to tax regulations or the interpretation thereof in countries where the Bank operates, could adversely affect the Bank’s consolidated results.
Uncertainty related to tax legislation represents a constant risk for the Group. Changes in legislation, regulation, and developments resulting from judicial judgments, could affect the Group’s tax burdens by increasing tax rates and fees, creating new taxes, limiting deductions and exemptions, and eliminating incentives and non-taxed income.
13
The Bank does not adopt aggressive positions on tax law interpretation; however, the national or local tax authorities may not apply the tax law in the same way that we expected. Different interpretations of tax regulations could result in future tax audits, litigation, and associated costs, which could negatively affect our results.
Allegations of corruption against the government, politicians, and the private sector in the countries where we operate could create economic and political uncertainty and could expose us to additional credit risk.
Allegations of corruption against the government, politicians, and the private sector in the countries where we operate could create economic and political uncertainty. For example, findings or convictions of illicit conduct committed by such entities, including government personnel, or alleged wrongdoings, could have adverse effects on the political and economic stability of the countries where the Bank operates. These adverse political and economic effects may negatively impact our business, by depressing business volumes, reducing our ability to recover amounts we have lent to persons or projects involved in illicit or allegedly illicit conduct.
Risk Factors relating to the Bank’s Business and the Banking Industry
The Bank is subject to credit risk and estimating exposure to credit risk involves subjective and complex judgments.
A number of our products expose the Bank to credit risk. These products include loans, financial leases, guarantees, financial derivatives and lending commitments.
The Bank estimates and establishes reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions about the ability of our borrowers to repay their loans. This process is also subject to human error as the Bank’s employees may not always be able to assign an accurate credit risk rating to a client, which may result in the Bank’s exposure to a higher credit risk than one indicated by the Bank’s risk rating system. The Bank may not be able to timely detect these risks before they materialize, or due to limited resources or available infrastructure, the Bank’s employees may not be able to effectively implement its credit risk management system, which may increase the Bank’s exposure to credit risk. Moreover, the Bank’s failure to continuously refine its credit risk management system may result in a higher risk exposure for the Bank, which could materially and adversely affect its results of operations and financial position.
Overall, if the Bank is unable to effectively control the level of non-performing or poor credit quality loans in the future, or if its loan loss reserves are insufficient to cover future loan losses, the Bank’s financial condition and results of operations may be materially and adversely affected.
The amount of the Bank’s non-performing loans may increase in the future as a result of factors beyond the Bank’s control, such as changes in the income levels of the Bank’s borrowers, increases in the inflation rate or an increase in interest rates, the impact of macroeconomic trends and political events affecting Colombia and other jurisdictions in which the Bank operates or has exposure (especially Panama, El Salvador and Guatemala) or events affecting specific industries. Any of these developments could have a negative effect on the quality of the Bank’s loan portfolio, requiring the Bank to increase provisions for loan losses resulting in reduced profits or in losses.
The Bank is subject to risks from concentration in its loan portfolio. Problems with one or more of its largest borrowers may adversely affect its financial condition and results of operations.
As of December 31, 2023, the aggregate outstanding principal amount of the Bank’s 20 largest economic groups, on a consolidated basis, represented 110.9% of the Bank’s Tier 1 and 13.4% of the Bank’s loan portfolio. No single group exposure represented more than 1.5% of the loan book. Problems with one or more of the Bank’s largest economic groups could materially and adversely affect its results of operations and financial position.
The value of the collateral securing the outstanding principal and interest balance of the Bank’s loans may not be sufficient to cover such outstanding principal and interest. In addition, the Bank may be unable to realize the full value of the collateral or guarantees securing the outstanding principal and interest balance of its loans.
14
The Bank’s loan collateral primarily includes real estate, owned assets used for financial leasing transactions and other assets that are located primarily in Colombia, El Salvador, Panama and Guatemala, the value of which may significantly fluctuate or decline due to factors beyond the Bank’s control. Such factors include market factors, environmental risks, macroeconomic factors and political events affecting the local economy. In addition, the Bank may face difficulties in enforcing its rights as a secured creditor. Timing delays, procedural problems enforcing collateral and local protectionism may make foreclosures on collateral and enforcement of judgments difficult. Any decline in the value of the collateral securing the Bank’s loans may result in a reduction in the recovery from collateral realization and may have an adverse impact on the Bank’s results of operations and financial condition.
Downgrades in the credit ratings of the Bank and its subsidiaries would increase their cost of borrowing funds and make their ability to raise new funds, attract deposits or renew maturing debt more difficult.
The credit ratings of Bancolombia and its subsidiaries are an important component of the liquidity profile of the Bank and each of its subsidiaries. The Bank’s ability to successfully compete depends on various factors, including the financial stability of each of its entities, as reflected by their credit ratings. A downgrade in the credit ratings of the Bank or its subsidiaries would increase the cost of raising funds from other banks, or in capital markets. Furthermore, purchases of Bancolombia’s securities by institutional investors could be reduced if these securities experiment a decline in their credit ratings. The ability of the Bank or its subsidiaries to renew maturing debt could become restricted and the terms for such renewal could become more expensive if their credit ratings were to decline. The Bank’s, lenders and counterparties in derivative transactions are also sensitive to the risk of a credit rating downgrade. A downgrade in the credit rating of the Bank or its subsidiaries may adversely affect perception of their financial stability and their ability to raise deposits, which could make each entity less successful when competing for deposits and loans in the marketplace.
In January 2024, Standard & Poor’s revised Colombia’s sovereign credit rating outlook from stable to negative, due to concerns about low levels of public and private investment that could affect the medium-term growth capacity of Colombia’s GDP. The agency affirmed its 'BB+' long-term foreign currency and 'BBB-' long-term local currency sovereign credit ratings in Colombia. This revision was followed by a revision by Standard & Poor’s of its outlook from stable to negative for three Colombian commercial banks and subsidiaries and for two government-owned banks (including Bancolombia and its Panama-based subsidiaries, Banistmo S.A. and Bancolombia Panama S.A.). Due to the direct and indirect impacts that sovereign stress can have on banks’ business operations and creditworthiness, the agency typically do not rate Colombian financial institutions higher than the foreign currency sovereign ratings.
The Bank’s results of operations are sensitive to fluctuations in interest rates.
The Bank holds a substantial portfolio including loans, deposits, securities, bonds, long-term debt and short-term borrowings and derivatives as swaps that have both fixed and floating interest rates. Therefore, changes in interest rates could adversely affect our net interest margins as well as the value of the debt instruments. Increases in interest rates may reduce the market value of the Bank’s debt instruments, leading to smaller gains or larger losses on these investments (a 100 bps increase in interest rate could reduce the market value of the debt instruments in approximately 1.3%). Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. On the other hand, cuts in interest rates may cause margin compression and lower net interest income as the Bank usually holds more assets than liabilities at variable rates. Decreasing interest rates also may trigger loan prepayments which could negatively affect the Bank’s net interest income. Generally, in a declining interest rate environment, prepayment activity increases, reducing the weighted average maturity of the Bank’s interest earning assets and adversely affecting its operating results.
Prepayment risk also has a significant adverse impact on the Bank’s earnings from its credit card and collateralized mortgage obligations, since prepayments could shorten the weighted average life of these portfolios, which may result in a mismatch in funding or in reinvestment of the prepayment proceeds at lower yields. In addition, these risks could significantly impact the Bank’s portfolio as well as portfolios managed by the Bank and owned by third parties. To the extent we experience withdrawals of third-party assets, our asset management revenues and related income could be adversely affected.
15
Given the expectations of interest rate decreases in 2024, we would expect a reduction of net interest margin and a new valuation of the Bank’s debt instrument portfolio.
The Bank is subject to market risk and its income from its proprietary trading activities is highly volatile.
The Bank is directly and indirectly affected by changes in market conditions. Market risk, or the risk of losses in positions arising from movements in market prices, is inherent in the products and instruments associated with our operations, including securities, bonds, proprietary trading in assets and liabilities and derivatives, among others. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, and changes in the implied volatility of interest rates and foreign currency exchange rates, among others.
The Bank derives a portion of its profits from its proprietary trading activities. Income from this activity is highly volatile and depends on numerous factors beyond the Bank’s control, such as the general market environment, overall market trading activity, interest rate levels, fluctuations in exchange rates, oil prices and general market volatility. A significant decline in the Bank’s trading income, or the incurrence of a trading loss, could adversely affect the Bank’s results of operations and financial position.
The Bank has significant exposure to sovereign risk, and especially Colombian, United States and Salvadoran, Panama and Guatemala sovereign risk, and the Bank’s results could be adversely affected by decreases in the value of its sovereign debt instruments.
The Bank’s debt portfolio is primarily composed of sovereign debt securities. Therefore, the Bank’s results are exposed to credit, market, and liquidity risk associated with sovereign debt, in particular risk associated with securities issued or guaranteed by the Colombian Government. As of December 31, 2023, the Bank’s total debt instruments represented 7.32% of its total assets, and 29.97% of these securities were issued or guaranteed by the Colombian Government, and 8.90% were issued or guaranteed by the El Salvador Government. A significant decline in the value of the securities issued or guaranteed by the Colombian Government could adversely affect the Bank’s debt portfolio and consequently the Bank’s results of operations and financial position.
In addition, during the last year, the sovereign risk associated with the securities issued or guaranteed by the Panama, Guatemala and United States Governments have increased. Its 5-year credit default swap, credit derivative contracts that enable investors to swap credit risk on a company, a country or another entity, showed an increase during 2023 due to political uncertainty in Panama and Guatemala, and the concern about United States government finances and its debt burden. The securities issued or guaranteed by the governments of Panama, Guatemala and United States represented 5.38%, 4.12% and 14.18% of the Bank’s total debt instruments, as of December 31, 2023, and a significant decline in the value of these securities could affect the Bank’s debt instruments portfolio.
The Bank is subject to credit risk with respect to its non-traditional banking businesses including investing in securities and entering into derivatives transactions. The Bank is subject to market, liquidity, operational and counterparty credit risks associated with its derivative transactions.
Non- traditional sources of credit risk can arise from, among other things: investing in securities, entering into derivative contracts under which counterparties have obligations to make payments to the Bank, executing securities, or currency trades from the Bank’s proprietary trading desk that fail to settle at the required time due to non-delivery by the counterparty or system failures by clearing agents, exchanges, clearing houses or other financial intermediaries. A significant increase in exposure to any of these non-traditional risks, or a significant decline in the credit quality or the insolvency of any of the counterparties, could materially and adversely affect the Bank’s results of operations and financial position.
The Bank enters into derivative transactions for hedging purposes on its own account and for its customers. The Bank is subject to market, liquidity (due to the difficulty in closing out a trade prior to maturity if bid-ask spreads are too large, representing a significant cost) and operational risk associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or
16
default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder). In addition, the market practice and documentation for derivative transactions is less developed in the jurisdictions where the Bank operates as compared to other more economically developed countries, and the court systems in such jurisdictions have limited experience in dealing with issues related to derivative transactions. As a result, there are increased operating and structural risks associated with derivatives transactions in these jurisdictions.
In addition, the execution and performance of derivatives transactions depend on the Bank’s ability to develop adequate control and administrative systems, and to hire and retain qualified personnel. Moreover, the Bank’s ability to adequately monitor, analyze and report these derivative transactions depends, to a great extent, on its information technology systems. These factors may further increase the risks associated with these transactions and could materially and adversely affect the Bank’s results of operations and financial position.
The Bank’s results could adversely be affected by high levels of inflation.
High levels of inflation increase the interest rates, generating effects such as increases in the cost of funding, increases in credit risk, a slowdown in the placement of loans and, the potential reduction of net interest income. Additionally, high levels of inflation reduce the market value of the Bank’s debt instruments, while increasing the market risk. Another impact of inflation is its effect on the real interest rate. When the inflation rate is higher than the nominal interest rate, negative real interest rates discourage savings, and increase uncertainty and risk in the loan market and the stock market.
Recently, the inflationary challenge that started in 2022 has largely been addressed in El Salvador, Guatemala, and Panama, such that it is not a significant source of concern in any of these countries today. CPI Inflation went from 7.3% in the end of 2022 to 1.2% in the end of 2023 in El Salvador, from 9.2% to 4.2% in Guatemala, and from 2.6% to 2.1% in Panama. However, the situation in Colombia is somewhat different. The annual inflation measured by the Consumer Price Index started to decline in Colombia beginning in the second quarter of 2023, which resulted in the annual CPI decreasing from 13.1% at the end of 2022 to 9.3% at the end of 2023; however, this is still significantly above the Central Bank's medium-term target of 3%.
In Colombia, there are persistent upside risks that suggest the process of reducing inflation will be lengthy, and it is highly possible that even by the end of 2024, target levels may not be achieved. Risks in this regard stem from the impact of the El Niño climate phenomenon on food prices and electricity tariffs, a significant increase in the minimum wage (12% in nominal terms, against a 9.3% year-end annual inflation), as well as the government-mandated increases in the price of diesel and toll rates on the country's main national roads. All of this indicates that, despite the Central Bank initiating a reduction in interest rates since December 2023, the normalization process for inflation and interest rates will be lengthy. It is reasonable to expect that the demand for credit portfolios will remain modest, and the reduction in interest rates could start negatively impacting the net interest margin of credit institutions. Therefore, 2024 may pose a more challenging year than previous years for the operation of financial intermediation due to an inflationary challenge that will continue to be more formidable compared to other major economies in Latin America, the United States, and the European Union.
The Bank is subject to a wide range of cybersecurity incidents.
Amid the dynamic landscape of the digital era, we recognize the growing importance of addressing cyber risks in bank operations. In addition, the United States Securities and Exchange Commission (SEC) has introduced in July 2023 new regulations requiring additional disclosures related to cybersecurity processes, risks, and incidents. Complying with these directives is crucial for our organization to ensure transparency and adhere to regulatory standards.
As the Bank continues to develop its technology and business models to offer new and better financial solutions for its customers, such as the banking-as-a-service business model or digital wallets, the Bank faces increasing significant challenges and risks in terms of information security, including those resulting from the use of Application Programming Interfaces (APIs) in our systems. In 2023 there was a significant increase in phishing attacks on our clients (compared to 2022) in which the Bank identified and dismantled approximately 45 thousand fraudulent sites. Similarly, incorporating artificial intelligence (AI) into control tools enhances our capabilities, but this technology and others such as generative AI also introduce risks of disruption, technological failures, manipulation, modification or destruction of digital assets and reputation. Today, attacks are increasingly sophisticated and supported by AI itself.
17
Another factor that increases our exposure to cybersecurity risks is our joint work with third party service providers, whether through the use of their software or in the development of products and services. Working with third party service providers allows us to obtain the benefit of capabilities and efficiencies that are relevant to our business strategy. However, this results in risks related to ensuring the confidentiality, integrity and availability of our information assets and exposes us to malware attacks and ransomware, among others, that could impact the Bank through shared files or connections with these service providers and that could cause interruptions in our operations, loss of critical information, loss of clients, cost overruns and economic losses associated with the occurrence of cybersecurity incidents.
The exposure of services on the Internet combined with the exploitation of software vulnerabilities is another of the cybersecurity risks that we face. Cybercriminals constantly seek to exploit system vulnerabilities. These vulnerabilities arise due to the dynamic changes and rapid obsolescence faced by technology and represent a challenge for both software service providers and their customers, as service providers must quickly put in place solutions for these vulnerabilities and customers, in turn, have to apply these solutions as swiftly as possible.
To face the new demands of our competitive landscape, we have adopted certain workplace strategies that result in additional challenges for cybersecurity risk management. As an example, we have employees who work virtually in remote and hybrid models, these models bring challenges such as remote software updating, as well as control backdoors that can lead to data leaks. This leaves employees exposed to email phishing, social engineering, and the use of vulnerable applications.
To date, there have not been any material cybersecurity incidents. However, our strategy, results of operations and financial condition could be materially affected by cybersecurity risks and any future material incidents. A failure to adhere to the Bank’s cybersecurity policies, procedures or controls, employee misconduct, or human, governance or technological error could also endanger the Bank’s ability to protect itself against cyber-attacks.
For further information see “Item 16 k. Cybersecurity”.
The Bank’s financial results may be negatively affected by changes to assumptions supporting the value of our goodwill.
The Bank tests for impairment, at least annually, the goodwill that has been recognized with respect to the financial positions of its operating segments. The impairment test for assets recognized as of December 31, 2023, indicated that the Bank’s goodwill balances are not impaired. The impairment test requires that management make assumptions regarding estimated earnings, discount rates, and long-term growth rates that impact the recoverable amount of the goodwill associated with each operating segment, as well as estimates of the carrying amounts of the operating segments to which the goodwill relates. Additionally, the impairment test requires that management analyzes the macroeconomic and political environment of the geographies in which each cash-generating unit (“CGUs”) is located. If actual results in future periods deviate from the earnings and other assumptions on which the impairment testing is based, the value of the goodwill in any one or more of the Bank’s businesses may become impaired in the future, resulting in expense charges.
For further information, see Note 2.E to the Consolidated Financial Statements, Material accounting policies, Use of estimates and judgments.
Risks relating to the use of quantitative models and information may adversely impact the Bank’s business strategies and results.
Analytical models are tools used by the Bank to support financial and non-financial risk management and other processes in an objective, automated and efficient way. The Bank uses internal models to quantify and manage credit risk, market risk, operational risk, liquidity risk, among other internal processes. However, these models can also result in costs and heightened risks.
18
Most risks associated with the use of models typically arise from three main sources: deficiencies in data availability and quality, methodological errors in model design and inappropriate use of the model, which may consist of using the model outside of its intended use, errors during implementation, or failure to update or recalibrate the model as needed.
Models can fail or not accurately reflect reality. This leads to what is known as model risk, which refers to the possibility of negative outcomes, including financial losses, arising from decision making processes based on inaccurate, misused, or unreliable analytical models. Such outcomes could result in financial losses or reputational damage. Moreover, decisions supported on flawed models can adversely affect several aspects of our business operations, including business strategies deployment, position valuation, stress testing, risk detection and evaluation, assessment of capital adequacy, customer asset management, the release of public information, and compliance with financial or regulatory standards.
The Bank is exposed to ESG risks that could affect the Bank’s financial condition and results of operations.
With respect to social, environmental and sustainability (ESG) trends, the financial sector faces a significant challenge in its role as a catalyst in the fight against climate change, with the sector playing a crucial role in the transition to a low-carbon economy and adaptation to climate threats, including providing financing to projects and companies aligned with the Sustainable Development Goals. The focus on ESG also highlights the importance of good governance practices related to the evaluation and supervision of non-financial and emerging risks, and the importance of social considerations to the growth of organizations.
The Bank may not be able to appropriately address ESG concerns that may arise, including as a result of its business activities and failure to meet regulatory (such as the External Circulars 031 of 2021 from Superintendecia Financiera de Colombia – SFC) or stakeholder expectations on environmental impact, including climate change. The implementation of climate risk management systems represents a challenge, since it is necessary to alter traditional risk processes for the implementation of methodologies, policies and procedures that adequately manage these particular risks.
In relation to clients’ physical risks related to climate change, the potential impact on the Group is observable through the Bank’s expected credit loss (ECL) and probability of default (PD) models involving clients that have been prioritized by the Bank for analysis. The output of these models is driven by the potential operational losses that climate change may have on the productive activities of our clients and on their ability to satisfy their payment obligations to us. Additionally, when considering economic sectors with an intensive carbon footprint, transition risks can result in risks to the Bank (as they may increase spending by clients in these sectors) which could increase the probability of default on financial obligations.
Serious climate events can affect business continuity, infrastructure, processes and headcount at branches and offices. As a consequence, the Group is faced with the management and administration of physical risks (both in respect of its own facilities and operations and those of its clients) and transition risks, which could negatively impact the value of the assets delivered to the Bank in payment and of its own fixed assets such as buildings, branches and ATMs, as well as the assets and operations of its clients.
Physical risks of climate change for our customers are exacerbated by their dependence on natural resources for their operations and activities, loss of biodiversity, impacts on critical ecosystems and deforestation. Our customers could also be affected by climate-related legislation and policy developments, and business trends and changes in consumer behavior related to climate change and technology (such as the process of transitioning to a lower-carbon economy). Physical and transition risks may result in capital losses either due to market changes or non-compliance with new climate-related regulations or interpretations of existing laws requiring enhanced disclosure obligations, affecting our customers' financial conditions, results of operations and cash flows and, consequently, their ability to make required payments.
Our challenges to strengthening our ability to adapt to, and resiliency against, the risks of climate change include the need for the emergence of new businesses focused on resilient infrastructure, early warning systems and strategies to face climate change; identifying and accessing the funds and resources to support the transition to a low-carbon economy; and strengthening of corporate governance and risk processes that guide progress and strategies with respect to these matters, usually tied to compliance with ESG Key Performance indicators (KPIs). Failure to comply with these KPIs may result in
19
negative consequences for the Bank, such as reputational damage and loss of trust by clients, potential regulatory sanctions by government authorities that seek the integration of ESG indicators in financial supervision, the risk of financial losses and the deterioration of the value of assets due to environmental liabilities. Inadequate management of the tracking and monitoring of ESG indicators may result in risks for the Bank, both in the short and long-term and loss in market share.
The Bank is subject to operational risks and losses.
The Bank is exposed to operational risk. These include the risks of fraud by employees or third parties, human errors, inadequate process definition, or technological failures that affect the availability of services or result in the improper processing, authorization, and recording of transactions and operations.
The financial sector is particularly vulnerable to the risk of fraud due to the increasing digitization of its processes and services, including the implementation of customer experiences that allow customers to carry out transactions at any time and from anywhere, among other factors. This vulnerability makes it necessary not only to strengthen the technological infrastructure and cybersecurity of banks but also to enhance the financial education of their customers. It is essential to continually reinforce concepts related to the security and privacy of passwords and transactions.
Given that the Bank has an extensive network of suppliers essential for the provision of its services, failures and weaknesses in these suppliers or their inability to manage any of their risks appropriately could impact the operation of the Bank. These supplier issues could result in increased costs, compromise confidential information, and result in a decline in the quality or continuity of product and service offerings.
The Bank, in its process of evolution, aims to have a better value proposition through digital channels, the design of new business models supported, for example, by Banking as a Service, and the adoption of new technologies and systems that enable its transformation process. However, these new technologies and business models can bring about new risks or amplify existing ones.
Digital misinformation could adversely affect the Bank’s reputation as well as its operational and financial results.
The increase in digital interconnectedness has increased the spread and distribution of digital content across social media networks. References to the Bank decreased by over 15% in 2023 compared to 2022; this was the first year, since the pandemic, that this figure decreased. Nonetheless, the Bank still has a strong digital presence, with a reach of 28.71 million digital users, an increase of 179% compared to 2019, and accordingly the risk of misinformation remains high. The Bank has been mentioned in media such as press articles, photos, audio, and videos. Some of these references to the Bank were used with the intent to, among other purposes, commit fraud. As a result, managing the risk of digital misinformation remains a challenge for the Bank.
Digital misinformation can be characterized by inaccurate, exaggerated, or untrue information which increases negative sentiment towards the brands in question and, including those of the Bank, if used to defame the Bank’s reputation and negatively affect the trust of customers and other interest groups. Such developments could lead to reduced business and market share for the Bank, which would negatively affect the operational, economic, and reputational performance of the Bank.
The Bank’s policies and procedures may not be able to detect money laundering, terrorism financing, corruption or other illegal or improper activities fully or on a timely basis.
The Bank is required to comply with applicable anti-money laundering, anti-terrorism and anti-corruption laws and regulations. These laws and regulations require the Bank, among other things, to adopt and enforce “know your customer” policies and procedures and report suspicious and large transactions to the applicable authorities; such regulations are contained in the “SARLAFT Manual” (AML Manual) that is reviewed and updated annually or earlier if there are any relevant changes in the applicable regulation. While the Bank has adopted policies and procedures, based on risk approach, (including ultimate beneficial owners identification) aimed at preventing and detecting the use of its banking network for money laundering and terrorism financing activities and by terrorists and terrorist-related organizations and individuals
20
generally, as the methods used by criminals evolve and become increasingly sophisticated, such policies and procedures may not completely eliminate the risk that the Bank may be used by other parties to engage in money laundering, terrorism financing, corruption or other illegal or improper activities.
The Bank is subject to laws and regulations that prohibit corrupt payments to public officials and other forms of corruption, including the U.S. Foreign Corrupt Practices Act and Colombian regulations on transnational bribery, domestic bribery and others forms of corruption. The Bank has anti-corruption policies and procedures, aimed at preventing, detecting and responding to acts of corruption potentially committed by our directors, employees, suppliers and other relevant constituencies. These include its anti-corruption policy, which is reviewed biannually and updated as needed, training based on behavioral science, reporting channels such as the Ethics Line, monitoring, internal investigations, sanctions and the whistleblower protection policy. While this system is designed to prevent and detect corrupt behavior, it does not eliminate the risk that the Bank´s directors, employees, suppliers and other relevant counterparts may engage in corrupt practices. If the Bank fails to fully comply with applicable laws and regulations, it may face fines, penalties or other liabilities including restrictions on its ability to conduct business. In addition, the Bank’s business and reputation could suffer if it is not able to prevent and detect money laundering, terrorism financing, corruption, or other illegal practices.
The Bank is subject to regulatory inspections, examinations, inquiries or audits in Colombia and in other countries where it operates, and any sanctions, fines and other penalties resulting from such inspections, examinations, inquiries or audits could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation.
The Bank is subject to comprehensive regulation and supervision by the financial authorities of Colombia, Panama, El Salvador, Guatemala, and the other jurisdictions where the Bank operates. These financial authorities have broad powers to adopt regulations and impose other requirements affecting or restricting virtually all aspects of the Bank’s capitalization, organization and operations, including the imposition of anti-money laundering measures and the authority to regulate the terms and conditions on which the Bank can extend credit. In the event of non-compliance with applicable regulations, the Bank could be subject to fines, sanctions or the revocation of licenses or permits to operate its business. In Colombia, for instance, if the Bank encounters significant financial problems or becomes insolvent or in danger of becoming insolvent, banking authorities would have the power to take over the Bank’s management and operations. Any sanctions, fines or other penalties resulting from non-compliance with regulations in Colombia, El Salvador, Guatemala, Panama and other jurisdictions in which the Bank operates could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation.
The Bank and most of its Subsidiaries are subject to the U.S. Foreign Account Tax Compliance Act of 2010 and the OECD’s Automatic Exchange of Information - Common Reporting Standard (CRS).
Bancolombia and most of its subsidiaries are considered foreign financial institutions (“FFIs”) under the Foreign Account Tax Compliance Act of 2010 (“FATCA”) (see “Item 4. Information on the Company – B. Business Overview – B.8. Supervision and Regulation – International regulations applicable to Bancolombia and its subsidiaries”). Additionally, Bancolombia and some of its subsidiaries are subject to reporting obligations derived from the Common Reporting Standard (“CRS”) Multilateral Competent Authority Agreement (“MCAA”) developed by the OECD.
In light of this and Colombian law, we have taken measures and implemented policies and procedures aimed to comply with FATCA and CRS.
However, if Bancolombia or its Subsidiaries fail to comply with the requirements thereunder, certain payments to Bancolombia, or its Subsidiaries may be subject to withholding under FATCA or other penalties that tax authorities may impose according to their domestic regulations. Such withholding or penalties could adversely affect our results of operations and financial condition. In addition, compliance with the provisions of the intergovernmental agreements (“IGA”), FFI agreements entered into with the IRS, the CRS-MCAA, domestic laws or any other regulations enforced in the relevant jurisdictions, may increase our compliance costs.
21
The tax haven regulation in the countries where the Bank operates could adversely affect its business and financial results.
As a result of the tax haven regulation adopted in Colombia and El Salvador, the Bank’s clients who are residents in the territories designated as such would be subject to (i) higher withholding tax rates on interest and dividends, mainly derived from investments in the securities market, (ii) non-deductibility of payments made to such residents or entities located in tax havens unless the required tax amount has been withheld, (iii) requests by the tax authorities for the disclosure of additional information for transactions with related companies and (iv) increased probability of tax audits, any of which could have a negative impact on Bancolombia’s business and financial results.
Changes in banking regulations in Colombia and in other jurisdictions where the Bank operates could adversely affect the Bank’s consolidated results.
Banking laws and regulations, or their official interpretation, in Colombia and in other jurisdictions in which the Bank operates have a material effect on the Bank’s business and operations. Banking laws and regulations may change frequently, and changes may be adopted, enforced or interpreted in a manner that may have an adverse effect on the Bank’s business.
In August 2022, Colombia shifted to a new government with a political agenda that could affect the financial sector and have impacts on capital-intensive industries. Additionally, the increasing tendency to improve financial consumer protection standards among legislators, regulators and higher courts, could result in additional operational costs and a reduction in the Bank’s income.
Although at the Congressional level, flagship projects (health reform, pension reform and labor reform) continue through legislative procedure, the risks to the financial sector could derive from provisions adopted by other authorities, such as potential intervention on interest rate limits (as indicated in item 4.B.8.1) or fees. This may limit the ability of the Bank and other lenders to manage credit risks.
The SFC has submitted for public comment new rules regarding the implementation of the internal capital and liquidity adequacy assessment process rules and stress testing procedures. The Bank could face potential financial impacts in case the rules of the SFC are more server than the Basel Committee on Banking Supervision Standards, which could result in higher capital adequacy and liquidity requirements at a system level.
The Bank’s financial results may be negatively affected by changes to accounting standards.
The consolidated financial statements of the Bank are prepared in accordance with IFRS, issued by the IASB, as well as the interpretations issued by the International Financial Reporting Interpretations Committee (hereinafter refer to as IFRS-IC). Changes to IFRS or its interpretations may cause future reported results and financial position to differ from current expectations. Such changes may also impact the Bank’s regulatory capital and financial ratios. Management monitors potential accounting changes and, when possible, determines their potential impact, disclosing significant future changes in the Bank’s consolidated financial statements that are expected as a result of those changes. For further information about developments in financial accounting and reporting standards, see Note 2.F to the Consolidated Financial Statements, Material accounting policies, Recently issued accounting pronouncements.
The Bank faces risks relating to regulatory compliance in general, and in particular with respect to laws relating to anti-competitive practices, consumer protection and protection of personal data.
The Bank must comply with laws and regulations related to, among other things, anti-competitive practices, merger control unfair, competition provisions, personal data protection and consumer protection. While responsibility for compliance is covered by different divisions of the Bank that work as an integrated compliance framework, the Bank has also been implementing a special unit for overseeing and ensuring regulatory compliance in general, which is constantly evolving. To ensure compliance for personal data law, the Bank has developed a comprehensive data protection program.
22
The risk of non-compliance with these laws and regulations may result in significant sanctions.
The Bank may not be able to prevent all risks associated with regulatory compliance or detect all instances of non-compliance with the regulations described above. Any failure by the Bank to detect and prevent those practices in a timely manner could damage the Bank’s reputation and cause it to incur substantial fines and penalties which could adversely affect the Bank’s results of operations and financial position.
Future restrictions on interest rates or banking fees could negatively affect the Bank’s profitability.
In prior years, the regulators of the jurisdictions in which the Bank operates have considered various legislative and/or regulatory initiatives regarding interest rates and banking fees. Although most of such initiatives have not been adopted in the past, there may be renewed attempts to impose restrictions on interest rates or banking fees in the future. If we are prohibited or otherwise limited (including by limits with respect to pricing) from continuing to charge our clients for certain products or services, including specified types of transactions, or from imposing charges for products or services that might be introduced in the future, our results of operations and financial condition could be adversely affected.
The Bank’s businesses rely heavily on data collection, processing and storage systems, the failure of which could materially and adversely affect the effectiveness of its risk management, reputation and internal control system as well as its financial condition and results of operations.
All of the Bank’s principal businesses are highly dependent on the ability to timely collect and process a large amount of financial and other information at its various digital and physical channels across numerous markets, at a time when transaction processes have become increasingly complex with increasing volume. The proper functioning of financial control, accounting or other data collection and processing systems is critical to the Bank’s businesses and to its ability to compete effectively.
A partial or complete failure of any of these primary systems could materially and adversely affect the Bank’s decision-making process, its risk management and internal control systems, the quality of its service, and the Bank’s ability to respond on a timely basis to changing market conditions. If the Bank cannot maintain effective data collection, processing, storage and management systems, its business operations, financial condition, reputation, and results of operations could be materially and adversely affected.
The Bank is also dependent on information systems to operate its website, process transactions, respond to customer inquiries on a timely basis and maintain cost-efficient operations. The Bank may experience operational problems with its information systems as a result of system failures, viruses, computer hackers or other causes. Any material disruption or slowdown of its systems could cause information, including data related to customer requests and other client information, to be lost, compromised, or to be delivered to the Bank’s clients with delays or errors, which could reduce demand for the Bank’s services and products, resulting in additional costs for the Bank and potentially fines and penalties by regulators which could materially and adversely affect the Bank’s results of operations and financial position. To guarantee service continuity, the Bank plans and implements exercises related to business continuity and disaster recovery as well as cybersecurity risks and vulnerabilities´ management, according to internal and external control areas requirements. There can be no assurance that these measures will successfully eliminate or substantially mitigate the risk associated with failure of our data collection, processing, and storage systems.
The Bank may be exposed to increased costs and liabilities in the event of the failure of its service providers to perform their obligations under key services contracts.
The Bank enters into contracts with third parties who provide certain key services that are essential to its business. These services include core banking services, online banking platforms, data processing and payment services, clearing and settlement services, software for processing credit and debit card services and technological infrastructure, among others. The Bank faces the risk of operational disruption, failure or capacity constraints due to its dependency on such third-party vendors for certain components of its systems. While the Bank conducts due diligence prior to engaging with third party service providers and performs ongoing monitoring during the relationship with these (such as evaluations on business
23
continuity plans, levels of cybersecurity and data protection measures), it does not control their operations. If any of the Bank´s key service providers fail to fulfill any of their contractual obligations or causes disruptions in services, (including, failure to handle current or higher volumes, or poor performance of services and failure to comply with applicable laws and regulations), the Bank’s ability to conduct its businesses could be adversely affected and could also negatively impact its results of operations and financial position. In addition, the Bank may be required to incur significant additional costs to find replacement providers. Furthermore, the unavailability of the services provided by some technology and other vendors could result in the interruption of services at certain channels through which our clients execute transactions until a replacement provider is engaged, which could result in lost revenue, additional costs and, potentially, adverse regulatory consequences and reputational harm.
The Bank’s ability to attract and retain specialized talent could impact some business objectives.
The current economic outlook requires our workforce to exhibit new skills and attributes such as creativity, innovation and flexibility, which are necessary to adapt the Bank's operations to constant technological advances and update business models and strategies to develop new products and services.
The quality and competitiveness of the Bank’s employees are essential to its long-term performance and stability and the success of its strategic objectives. As a result, the inability to attract or retain highly skilled professionals or key employees would result in a decrease in operational efficiency and the inability to adapt quickly to market changes and could negatively affect our financial condition and results of operations.
Financial institutions, including the Bank, continue to face challenges identifying specialized workers to fill positions that require specific and highly developed knowledge, as well as retain existing talent in this regard.
Acquisitions and strategic alliances may not perform in accordance with expectations or may disrupt the Bank’s operations and adversely affect its profitability.
An element of the Bank’s business strategy is to identify and pursue growth-enhancing strategic opportunities. The Bank may base assessments of potential acquisitions and alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect, and any future acquisitions, investments and alliances may not produce the anticipated synergies or perform in accordance with the Bank’s expectations which could adversely affect its operations and profitability. In particular, the Bank holds a minority financial investment, through a private equity fund, in an infrastructure project located in Colombia. In previous years, the main shareholder of the project and the concession company faced negative press related to irregular practices. If any of these situations result in sanctions or convictions then the company in which the Bank indirectly holds a minority stake, which is the holder of a toll road concession, may suffer a reputational harm, which in turn may have an adverse impact on its results of operations and financial condition and the return on the Bank’s investment.
The Bank is subject to increasing competition which may adversely affect the results of its operations.
The Bank operates in a highly competitive environment and management expects increasing competition in the jurisdictions where the Bank operates.
Intensified merger activity in the financial services industry has produced larger, better capitalized and more geographically diverse firms that are capable of offering a wider array of financial products and services at more competitive prices. Also, the expansion of financial technologies companies (known as “FinTech”), unregulated financial intermediaries (known as “shadow banking”), may increase competitive risks for the Bank.
The Bank’s ability to maintain its competitive position depends mainly on (i) its ability to fulfill new customers’ needs through the development of new products and services, (ii) the ability to offer adequate services and strengthen its customer base through cross-selling (iii) the capacity to continue with the digital and technological transformation to support growth and (iv) the ability to attract and retain human talent. For that reason, the Bank’s business will be adversely affected if the Bank is not able to maintain efficient service strategies.
24
Finally, the Bank’s efforts to offer new services and products might not succeed if product or market opportunities develop more slowly than expected or if the profitability of opportunities is undermined by competitive pressures.
Risks Relating to the Preferred Shares and the ADSs.
Preemptive rights may not be available to holders of American Depositary Receipts (“ADRs”) evidencing ADSs.
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 ownership of the aggregate capital stock of the Bank. 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 Mellon, which acts as depositary (the “Depositary”) for the Bank’s ADR facility, unless a registration statement under the Securities Act is effective with respect to such rights and class of shares or an exemption from the registration requirement thereunder is available. The Bank is obligated to file a registration statement or find a corresponding exemption only if it determines to extend the rights to holders of the ADRs. Although it is not obligated to do so, the Bank 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 before it makes a decision as to whether to file a registration statement. Accordingly, the Bank may in some cases decide not to file a registration statement.
Under the deposit agreement between the Bank and the Depositary, only the Depositary is entitled to exercise preemptive rights, and the Depositary has no obligation to make available preemptive rights to holders of ADRs. If the Bank offers or causes to be offered to the holders of any deposited securities, including preferred shares of the Bank, any rights to subscribe for additional preferred shares of the Bank or any rights of any other nature, the Depositary has discretion as to the procedure to be followed in making such rights available to any holders of ADRs or in disposing of such rights on behalf of any holders of ADRs and making the net proceeds available to such holders of ADRs. If by the terms of such rights offering or for any other reason, the Depositary does not either make such rights available to any holders of ADRs or dispose of such rights and make the net proceeds available to such holders of ADRs, then the Depositary will allow the rights to lapse. Whenever the rights are sold or lapse, the equity interests of the holders of ADRs will be proportionately diluted.
Exchange rate fluctuations may adversely affect the Colombian economy, the market price of the Bank’s ADSs, and the dividends payable to holders of the Bank’s ADSs.
Colombia has adopted a floating exchange rate system. The Central Bank maintains the power to intervene in the exchange market in order to consolidate or dispose of international reserves, and to control any volatility in the exchange rate. From time to time, and in particular during the past two years, there have been significant fluctuations in the exchange rate between the Colombian peso and the U.S. dollar. Unforeseen events in the international markets, fluctuations in interest rates, volatility of the oil price in the international markets, or changes in capital flows, may cause exchange rate instability that could generate sharp movements in the value of the peso. Because a portion of our assets and liabilities are denominated in, or indexed to, foreign currencies, especially the U.S. dollar, sharp movements in exchange rates may negatively impact our results. In addition, exchange rate fluctuations may adversely impact the value of dividends paid to holders of our ADSs as well as the market price and liquidity of ADSs.
The Bank’s preferred shares have limited voting rights.
The Bank’s corporate affairs are governed by its by-laws and Colombian law. Under the Bank’s by-laws and Colombian law, the Bank’s preferred stockholders may have fewer rights than stockholders of a corporation incorporated in a U.S. jurisdiction. Under the Bank’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 in limited circumstances as described in “Item 10. Additional Information – B. Memorandum and Articles of Association – Voting Rights – Preferred Shares”. Holders of the Bank’s preferred shares, including holders of ADRs, are not entitled to vote for the election of directors or to influence the Bank’s management policies.
25
Holders of the Bank’s ADRs may encounter difficulties in the exercise of dividend and voting rights.
Holders of the Bank’s ADRs may encounter difficulties in the exercise of some of their rights with respect to the shares underlying ADRs. If the Bank makes a distribution to holders of underlying shares in the form of securities, the Depositary is allowed, in its discretion, to sell those securities on behalf of ADR holders and instead distribute the net proceeds to the ADR holders. Also, even in those limited instances in which the preferred shares represented by the ADRs have the power to vote, under some circumstances, ADR holders may not be able to vote by giving instructions to the depositary. This may occur if ADR holders do not receive from the Depositary a notice of meeting sufficiently prior to the instruction date to ensure that the Depositary will vote the preferred shares represented by the ADRs in accordance with instructions received from such holders. There are no circumstances in which holders of ADRs may vote in a way other than by providing instructions to the Depositary.
Relative illiquidity of the Colombian securities markets may impair the ability of an ADR holder to sell preferred shares.
The Bank’s common and preferred shares are listed on the Colombian Securities Exchange, which is relatively small and illiquid compared to securities exchanges in major financial centers. In addition, a small number of issuers represent a disproportionately large percentage of market capitalization and trading volume on the Colombian Securities Exchange. A liquid trading market for the Bank’s securities might not develop on the Colombian Securities Exchange. A limited trading market could impair the ability of an ADR holder to sell preferred shares (obtained upon withdrawal of such shares from the ADR facility) on the Colombian Securities Exchange in the amount and at the price and time such holder desires and could increase the volatility of the price of the ADRs.
Changes in Colombia’s tax regime may affect ADRs tax treatment.
ADRs do not have the same tax treatment as other equity investments in Colombia. ADRs represent Bancolombia’s preferred shares and are held through a fund of foreign capital in Colombia which is subject to a specific tax regulatory regime. Accordingly, the applicable law in Colombia to equity investments, in particular, those relating to dividends and profits from sale, do not apply to ADRs, including the Bank’s ADRs.
Notwithstanding the above, the tax regime applicable to ADRs may change, considering that the Colombian tax regime has undergone several changes in recent years.
For more information, see “Item 10. Additional Information. – E. Taxation – Colombia Taxation”.
ITEM 4 INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Bancolombia S.A is one of the largest Colombian financial institutions, with presence in other countries such as Panama, El Salvador, Puerto Rico, Guatemala, and the United States, providing a wide range of financial products and services to a diversified individual, corporate, and government customer base throughout Colombia, Latin America and the Caribbean region.
Bancolombia is a stock company (“sociedad anónima”) domiciled in Medellin, Colombia and operates under Colombian laws and regulations. Bancolombia was incorporated in Colombia in 1945, and is incorporated until December 8, 2144. In May 2007, Bancolombia Panama acquired Banagrícola. In October 2013, Bancolombia acquired Banistmo, and Bancolombia Panama acquired a 40% interest in Grupo Agromercantil. On December 30, 2015, Bancolombia Panama acquired an additional 20% interest in Grupo Agromercantil, and acquired the remaining 40% interest on September 29, 2020.
26
Since 1995, Bancolombia has maintained a listing on the NYSE, where its ADSs are traded under the symbol “CIB”, and on the Colombian Securities Exchange, where its preferred shares are traded under the symbol “PFBCOLOM”. Since 1981 Bancolombia’s common shares have been traded on the Colombian Securities Exchange under the symbol “BCOLOMBIA”. See “Item 9. The Offer and Listing”.
The address and telephone numbers of the Bank’s headquarters are as follows: Carrera 48 # 26-85, Medellín, Colombia; telephone + (57)601 488-5950.
The Bank’s website is: https://www.grupobancolombia.com.
The Bank’s agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711. The SEC maintains a website at http:// www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
RECENT DEVELOPMENTS
Tender Offer to purchase up to U.S.$370,000,000 of outstanding 3.000% senior notes due 2025.
On July 12, 2023, the Bank announced the commencement of a tender offer to purchase for cash up to U.S.$370,000,000 of its outstanding 3.000% Senior Notes due 2025 upon the terms and subject to the conditions set forth in an offer to purchase.
On July 26, 2023, the early tender results were announced, along with the Bank’s decision to increase the maximum tender amount from U.S.$370,000,000 to U.S.$467,966,000. The Bank subsequently repurchased and submitted for cancellation U.S.$467,966,000 of the notes.
Liquidity Program
On December 14, 2023, the Bank announced that the Colombian stock exchange (BVC) authorized a liquidity program in Colombia for its ordinary and preferred shares, under a contract between the Bank and Credicorp Capital Colombia executed on December 1, 2023, with an initial term of one year from its execution.
This program seeks to increase the number of transactions involving the Bank’s shares through purchase and sale orders entered by Credicorp Capital Colombia in the stock market, enabling price formation.
These mechanisms contribute to promoting liquidity and mitigating volatility in stock trading and facilitating market entry and exit for investors.
PUBLIC TAKEOVER OFFERS
In 2023, and as of the date of this Annual Report, there have been no public takeover offers by third parties with respect to the Bank’s shares or by the Bank with respect to other companies’ shares.
CAPITAL ACQUISITIONS AND DIVESTITURES
During 2023, total capital expenditures amounted to COP 699.9 billion. Such investments were mainly focused on digital transformation and technology assets (COP 520.2 billion) driven by investments in distribution channels and fixed assets (COP 179.7 billion).
Although we had anticipated a decrease in fixed asset investments for 2024 considering the remote work trend, the Bank expects to invest approximately COP 772.9 billion (10.4% increase from 2023) mainly on channels and digital offers, data analytics and equipment to support processing in non-productive environments and the evolution of the Enterprise Resource Planning (ERP), in addition to maintaining significant investments related to strategic projects such as its technological and digital transformation, cybersecurity and migration to cloud among others.
27
We also expect that in the medium-term capital expenditures associated with cybersecurity, migration to cloud, and digital offer continue being a priority for Bancolombia, mainly to maintain the strategy of operational excellence and customer experience.
The following table summarizes the Bank’s principal capital acquisitions and divestitures of interests in other companies, for the years ending December 31, 2023, 2022 and 2021:
For the year ended December 31, | ||||||||||
Capital acquisitions(1) | Type of investment | 2023 | 2022 | 2021 | Total | |||||
In millions of COP | ||||||||||
Purchases of investments | ||||||||||
P.A. Nomad Central | Subsidiary | 106,020 | - | - | 106,020 | |||||
P.A. Calle 84(2) | Subsidiary | 104,617 | - | - | 104,617 | |||||
Holding Bursátil Regional S.A.(3) | Financial instrument | 78,139 | - | - | 78,139 | |||||
P.A. Galería la 33 | Subsidiary | 30,139 | - | - | 30,139 | |||||
Pexton Holdings Limited | Financial instrument | 3,681 | - | - | 3,681 | |||||
P.A. Wenia | Subsidiary | 2,210 | - | - | 2,210 | |||||
FCP Fondo Inmobiliario Colombia | Subsidiary | - | 816,081 | - | 816,081 | |||||
Nequi S.A. | Subsidiary | - | 150,000 | - | 150,000 | |||||
P.A. Flor Morado Plaza | Subsidiary | - | 140,000 | - | 140,000 | |||||
Fideicomiso Lote B6 Ciudad del Río | Subsidiary | - | 43,659 | - | 43,659 | |||||
P.A. Florencia Ferrara | Subsidiary | - | 6,933 | - | 6,933 | |||||
P.A. La Felicidad | Associate | - | - | 2,414 | 2,414 | |||||
P.A. Madrid II | Associate | - | - | 1,954 | 1,954 | |||||
Expenditures | ||||||||||
Sistema de Inversiones y Negocios S.A. | Subsidiary | 75,505 | 27,109 | - | 102,614 | |||||
Wenia Ltd. | Subsidiary | 61,566 | 9,620 | - | 71,186 | |||||
Compañía de Financiamiento Tuya S.A. | Joint venture | 62,500 | 55,000 | 24,500 | 142,000 | |||||
Wompi S.A.S (before Vlipco S.A.S.) | Subsidiary | 41,000 | 20,706 | 9,974 | 71,680 | |||||
P.A. Nomad Salitre | Subsidiary | 27,930 | 21,560 | - | 49,490 | |||||
P.A. El Bosque | Associate | 16,665 | 40,231 | - | 56,896 | |||||
Ecosistemas Digitales S.A.S. | Joint venture | 8,642 | 5,149 | 1,565 | 15,356 | |||||
P.A. Mercurio | Subsidiary | 7,833 | 249,492 | - | 257,325 | |||||
Bancolombia Capital Holdings USA LLC | Subsidiary | 8,488 | 7,916 | 5,705 | 22,109 | |||||
P.A. El Otoño | Associate | 8,055 | 23,926 | - | 31,981 | |||||
P.A. Distrito Vera | Associate | 6,227 | - | - | 6,227 | |||||
P.A. FAI Calle 77 | Subsidiary | 3,469 | 62,041 | - | 65,510 | |||||
P.A. Muverang | Joint venture | 3,305 | 1,750 | 2,220 | 7,275 | |||||
P.A. Viva Malls | Associate | 3,192 | - | - | 3,192 | |||||
P.A. Laurel | Joint venture | 3,156 | 22,927 | - | 26,083 | |||||
Servicios de Identidad Digital S.A.S. | Associate | 2,433 | 7,267 | 4,539 | 14,239 | |||||
P.A. Blup | Joint venture | 2,353 | - | - | 2,353 | |||||
P.A. Mirador de la Ciénaga | Associate | 155 | 1,965 | 1,329 | 3,449 | |||||
Agricapital S.A.S. | Associate | 97 | 322 | 1,254 | 1,673 | |||||
Protección S.A. | Associate | - | 61,728 | - | 61,728 | |||||
VILIV S.A.S. (In liquidation) | Joint venture | - | 1,498 | 4,050 | 5,548 | |||||
Others | 3,199 | 62,207 | 27,901 | 93,307 | ||||||
Total acquisitions | 670,576 | 1,839,087 | 87,405 | 2,597,068 | ||||||
(1) The amounts in this table correspond to the consideration paid as a result of the acquisition of each investment.
(2) The amount includes the capital acquisitions in P.A. Calle 84 (2) and P.A. Calle 84 (3).
(3) In November 2023, the integration of the stock exchanges of Colombia, Chile, and Peru was perfected, resulting in the creation of the Regional Stock Holding. As a result of this integration, 5,992,160 shares of the Bolsa de Valores de Colombia S.A. were delisted for COP 56,146, and 3,606,223 shares were recognized in the Regional Stock Holding for COP 78,139, this transaction generated an income in results of COP 21,993, see Note 25.5. Dividends and net income on equity investments. The Bank retains 134 shares that were not included in this transaction, valued at COP 2.
28
As of December 31, | ||||||||||
Capital divestitures(1) | Type of investment | 2023 | 2022 | 2021 | Total | |||||
In millions of COP | ||||||||||
Sales of investments | ||||||||||
Bolsa de Valores de Colombia | Financial instrument | 56,146 | - | - | 56,146 | |||||
Fideicomiso Lote B6 Ciudad del Río | Subsidiary | 34,031 | - | - | 34,031 | |||||
Residual Rights | Financial instrument | 8,958 | 16,056 | 122,988 | 148,002 | |||||
Diversitures | ||||||||||
P.A. La Felicidad | Associate | 3,636 | - | - | 3,636 | |||||
P.A. Boreal | Associate | 864 | 452 | 3,300 | 4,616 | |||||
Proteccion S.A.(2) | Associate | - | 161,529 | - | 161,529 | |||||
P.A. Viva Malls | Associate | - | 14,361 | 13,279 | 27,640 | |||||
Valores Simesa S.A. | Subsidiary | - | - | 1,130 | 1,130 | |||||
International Ejecutiva de Aviación S.A.S. | Associate | - | - | 1,148 | 1,148 | |||||
P.A. Distrito Vera | Associate | - | - | 749 | 749 | |||||
Others | 724 | 13,269 | 48,241 | 62,234 | ||||||
Total divestitures | 104,359 | 205,667 | 190,835 | 500,861 | ||||||
(1) The amounts in this table correspond to the consideration received as a result of the sale of each investment.
(2) On December 5, 2022, the spin-off of Protección S.A. was registered and the company Asulado Seguros de Vida S.A. was formed, with respect to which the Bank sold its interests to SURA Asset Management S.A., to comply with the authorized investment regime.
B. BUSINESS OVERVIEW
B.1 GENERAL
COMPANY DESCRIPTION
Bancolombia is a full-service financial institution that offers a wide range of banking products and services to a diversified individual and corporate customer base of nearly 30 million customers. Bancolombia delivers its products and services through its regional network comprising Colombia’s largest non-Government owned banking network, El Salvador’s leading financial conglomerate, Guatemala’s fourth-largest bank, Panama’s second-largest bank and off-shore banking subsidiaries in Panama and Puerto Rico, in each case measured by amount of net loans.
MAIN LINES OF BUSINESS
The Bank manages its business through nine main operating segments: Banking Colombia, Banking Panama, Banking El Salvador, Banking Guatemala, Trust, Investment Banking, Brokerage, International Banking, and All other. For a description and discussion of these segments, please see “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Results by Segment”.
PRODUCTS AND SERVICES
Bancolombia and its subsidiaries offer the following products and services, however not all are offered in each country where the Bank operates.
Savings and Investment: The Bank offers its customers checking accounts, savings accounts, fixed term deposits and a diverse variety of investment products that fit the specific transactional needs of each client and their income bracket.
A la Mano: This is a mobile phone-based savings account specially designed to serve low-income clients and those with no prior experience with banking products.
Financing: The Bank offers its customers a wide range of credit alternatives which include trade financing, loans funded by domestic development banks, working capital loans, mortgage, credit cards, personal loans, vehicle loans, payroll loans and overdrafts, among others.
29
Factoring: Bancolombia offers its clients solutions for handling their working capital and maximizing their assets turnover through comprehensive solutions to manage their accounts receivable financing.
Financial and Operating Leases: The Bank offers financial and operating leases specifically designed for acquiring fixed assets.
Capital Markets: The Bank assists its clients in mitigating market risk through hedging instruments such as, futures, forwards, options and swaps.
Trading: The bank offers an APP and an-internet-based trading platform, available for retail and institutional clients, which allows them to buy/sell securities in the Colombian Securities Exchange.
The Bank also performs inter-bank lending, repurchase agreements (repos), foreign exchange transactions, as well as sovereign and corporate securities sales and trading. Bancolombia is an active player in the “market-makers” scheme for trading Colombian sovereign debt (TES bonds).
The Bank offers its clients direct access to local and international capital markets through a full range of brokerage and investment advisory services that cover equities and fixed income securities, proprietary trading and third-party asset management products, such as mutual funds, private equity funds, and privately managed investment accounts for institutional, corporate and private bank clients.
Cash Management: The Bank provides support to its clients through efficient cash management, offering a portfolio of standard products that allows clients to make payments and collections through different channels. The Bank’s payables and receivables services provide solutions to process and reconcile transactions accurately, efficiently, and in a timely manner. We also offer a comprehensive reporting solution, providing the data that is required by customers’ internal processes. In addition, the Bank designs and creates custom-made products in order to address the Bank’s clients’ specific payment and collection needs. These include a variety of real time web services, straight through processing (STP) and messaging through Swift Net solutions.
Foreign Currency and Trade Finance: The Bank offers its clients specialized solutions to satisfy their investment, financing and payment needs with regard to foreign currency transactions. The Bank also provides trade finance solutions with products such as Letters of Credit, Standby Letters of Credit and Bills Collection.
Bancassurance and Insurance: Bancolombia distributes diverse insurance products (Life, health, agriculture, pets, debtors, and homeowner's insurance) written by Seguros Generales Suramericana S.A and Seguros de Vida Suramericana S.A, two of the main insurance companies in Colombia. In addition, the Bank offers unemployment and theft insurance written by Cardif Colombia Seguros Generales S.A.
Investment Banking: The Bank, through its subsidiary Banca de Inversión, offers a wide variety of value-added services, including structuring of leverage finance (project finance, acquisitions, and large corporate loans), loan syndication, debt and equity capital markets, principal investments (in alternative assets), M&A, hedging strategy advisory, restructurings, across all economic sectors, with coverage in Colombia and Central America.
Trust and Fiduciary Services: The Bank, through its subsidiary Fiduciaria Bancolombia offers a broad and diversified portfolio of services for companies and individuals, meeting their needs with tailored services. These services include managing escrow accounts, multiple investment funds, and real estate funds.
Ecosystems: Instead of focusing exclusively on banking services, the Bank seeks to offer a wide range of financial and non-financial solutions, which impact close to nine million clients. Therefore, Ecosystems are comprehensive solutions leveraged by technology, designed to achieve the evolution of our value proposition. In the long run, Ecosystems will eventually gather and articulate every other customer-centric Bank´s solutions. Moreover, the Bank obtains a competitive advantage by being involved in and supporting all aspects of its clients’ lives, using data transactions to understand the customer’s life stages and the business processes of the companies.
30
Nequi (Digital): Nequi is a digital platform that has a strong focus on financial inclusion, user-friendly services and intensive use of technology. Nequi is a 100% digital platform that operates independently from the Bank´s brand and aims to address real financial needs of today's clients with a wide range of possibilities enabled by technology. Nequi is completely paperless; users interact with the platform exclusively by mobile phone, with no contact with the Bank’s branch network. Nequi offers saving accounts, a digital debit card, PayPal integration, nano-loans and third-party non-financial services, like utilities, entertainment and transportation among others, to over 18.5 million users in Colombia and over 154 thousand in Panama.
Nequi's business will be separated from the Bank in order to unlock its business value and to enhance the development of the new company. The separation is expected to take place in the first half of 2024, subject to determination of the actual timeframe with the Colombian Superintendency of Finance (the “Superintendency of Finance”) , and is intended to be achieved through the establishment of a financing company (“Compañía de Financiamiento”). This process consists of the following two stages: (i) formation of this financing company, consisting of the incorporation (upon registration of the public deed of incorporation, which has been completed) and operational authorization procedure before the SFC; and (ii) once the operational authorization is obtained, the assignment of assets and contracts corresponding to Nequi’s business from the Bank to the newly incorporated financing company. Although Nequi provides financial services, other strategies are being developed in integrated experiences through alliances with third parties.
Sustainable finance: Special credit lines designed to support our customers involved in making a positive impact on the environment and society. This includes, a sustainable credit line, for projects that promote the use of clean technologies, renewable energies, energy efficiency, clean fuels, and reduction of waste and emissions. This also includes Sustainable/ESG credit lines for certified sustainable businesses, a gender-focused sustainable credit line, and a retail banking sustainable credit line. Some of these credit lines are available in Colombian pesos and U.S. dollars, enabling our clients to support sustainable businesses in international supply chains.
NEW PRODUCTS OR SERVICES
The Bank continues its efforts to diversify and innovate in its product portfolio. Below is a brief description of the new products and services introduced in 2023:
Clubs: In 2023, we introduced the ‘Clubs App’ and ‘Education App’ to our clients in the clubs and education sectors, aiming to assist them in managing their services, payments and collections, thereby enhancing the experience provided to members, parents and students. We employ a technology for service and data management, allowing us to connect to the information systems of the clubs and education centers to enhance communication with end users. Within this application, we have implemented a payments module, allowing users to make payments and deposits for services used and expenses incurred by them through the Wompi payment gateway. Currently, two companies have integrated the 'Education App' into their operations, and four have integrated the ‘Clubs App’.
Credit Card 100% Digital: In December 2023, we introduced the “MasterCard Única Virtual” a fully digital credit card operating under the MasterCard franchise. This card is available solely to the Bank’s customers whose credit limits range from COP 500,000 to COP 10,000,000, accessible through our App. The card is issued via customer self- management on the App and it can be activated instantly, empowering customers to engage in seamless transactions both in physical and digital retail environments. For in-store transactions, the card requires tokenization through the Bank’s supported digital wallets. Meanwhile, utilizing this card for online purchases mirrors the user experience of other credit cards within the Bank’s portfolio.
Integrating credit: In order to contribute to the development of the country's productive landscape across all stages of the agricultural value chain, we launched a new credit line in 2023. This option allows large and medium-sized companies to access special financing rates for settling accounts payable to their suppliers, provided that these suppliers are small and medium-sized producers in the agricultural sector.
Assistance for Bancolombia “A la mano” Accounts: In 2023, we introduced the new product “Asistencia A la mano”, which is offered via telephone. This is directed towards individuals who are low-income clients with no prior experience with banking products, specifically those who have low deposit amounts in our mobile phone-based savings
31
account 'Bancolombia A la mano.' With this product, our goal is to ensure well-being for customers, their families and their pets. More than 23,000 assistance policies were acquired by our customers in 2023.
Cancer Insurance: In October 2023, we launched a fully digital insurance providing coverage for individuals in the case of a cancer diagnosis, accidental death or death caused by cancer. This insurance can be acquired by the Bank’s customers aged 18 to 70, with the monthly cost starting at COP 6,000 and with coverage ranging from COP 10 million to COP 100 million. Additionally, this insurance offers free virtual services with focus on nutrition, health and education.
Protected-Family Plan: In June 2023, we introduced a digital insurance designed for clients who want to extend the advantages of insurance coverage to their families. This plan comes at a cost of COP 30,299 per month, providing coverage in the event of accidental death and benefits that can be shared with up to six family members. These benefits encompass home medical assistance, ambulance services in case of emergencies, telemedicine, access to a network of specialized doctors at preferential rates, funeral expenses in the event of death, and discounts with partner businesses.
Buy now, pay later (BNPL): Launched in March 2023, this product is the Bancolombia response to the BNPL global trend. We offer loans with no monthly interest, to pay purchases in 4 equal monthly installments. Since March 2023, we have had this product available for an average of three million customers each month, making amounts available between USD 25 and USD 750 for them to use when making purchases. When using the product, customers pay a fee upfront for the loan origination and then pay the complete amount of their purchase in four equal installments with automatic monthly debits, free of interest. Merchants receive the purchase payment instantly from the bank, and pay variable fees based on the size of the purchase made by the user. This strategy aims to boost financial inclusion, allowing access to credit for underserved segments, focusing on smaller credit amounts (60-70% under 100 USD) that can go up based on payment history.
New Dollar Liquidity Income Fund: The objective of the Collective Investment Fund is to provide investors with a low- duration fixed income investment instrument with exposure to the behavior of the U.S. Dollar, in a short-term investment horizon.
New Closed Fixed Income Fund V: The objective of the New Closed Fixed Income Fund V is to provide a 1-year term fund with an investment strategy that seeks to obtain rates similar to or higher than other investment alternatives in the local fixed income market. This is achieved through investment in a combination of AAA-rated fixed income securities and interest rate hedges (SWAP).
Nequi: Top-ups and bill payments: In 2023 Nequi continued to grow the top-ups and bill payment offers to customers. In 2024, Nequi launched four new options: Tigo, Wom, Marketing Personal and Punto Red (an aggregator with ten main bill payments in Bogotá, Cali and Norte de Santander).
Nequi also began marketing different lines of insurance offered by insurers such as Seguros Mundial, Suramericana and Cardif through the app and launched three new insurances: segurísimo: personal accidents insurance, civil liability insurances, travel insurance.
In 2023, Nequi launched a contactless functionality to the Nequi debit card that enables customers to make physical payments using their cellphones trough the Nequi app, Google Pay and Garmin Pay.
Sustainable finance: Special credit lines designed to support our customers involved in making a positive impact on the environment and society. This includes a sustainable credit line, for projects that promote the use of clean technologies, renewable energies, energy efficiency, clean fuels, and reduction of waste and emissions. This also includes Sustainable/ESG credit lines for certified sustainable businesses, a gender-focused sustainable credit line, and a retail banking sustainable credit line. Some of these credit lines are available in Colombian pesos and U.S. dollars, enabling our clients to support sustainable businesses in international supply chains.
32
B.2 OPERATIONS
See Note 3 to the Consolidated Financial Statements included in this Annual Report for a description of the principal markets in which the Bank competes, including a breakdown of total interest and valuation income by category of activity and geographic market for each of the last three fiscal years.
B.3 SEASONALITY OF DEPOSITS
Historically, the Bank has experienced some seasonality in its demand deposits, with lower average balances during the first months of the year and higher average balances at the end of the year. This behavior is explained primarily by the increased liquidity provided by the Central Bank and the Colombian National Treasury at year end, as economic activity tends to be higher during this period resulting in a greater number of transactions.
During 2023, inflation remained above the target range, encouraging the Central Bank to maintain high interest rates, resulting in lower demand for liquidity, loans and increasing investments in term deposits. On the other hand, although demand deposits decreased during the year, the last quarter showed significant growth in savings and checking accounts.
However, we do not consider the seasonality of demand deposits to have a significant impact on our business, since the excess/shortage of liquidity has been managed through the treasury portfolio.
B.4 RAW MATERIALS
The Bank is not dependent on sources or availability of raw materials.
B.5 DISTRIBUTION NETWORK
Bancolombia provides its products and services through a traditional branch network, sales, and customer representatives as well as through mobile branches (or “Puntos de Atención Móviles”), an ATM network, online and computer banking, telephone banking, mobile phone banking services, and points of sale (or “Puntos de Atención Cercano”), among others. Transactions performed through electronic channels represented more than 95.22% of all transactions in 2023, compared to 95.59% of all transactions in 2022. In addition, as of December 31, 2023, Bancolombia had a sales force of approximately 14,400 employees.
The following are the distribution channels offered by Bancolombia as of December 31, 2023
Branch Network
As of December 31, 2023, , Bancolombia’s consolidated branch network consisted of 969 offices, including 578 Bancolombia S.A. offices, 63 Renting Colombia offices, 91 Banco Agricola offices, 39 Banistmo offices, 155 BAM offices and 43 offices from other subsidiaries.
33
Number | Number | Number | ||||
of | of | of | ||||
Company* | branches | branches | branches | |||
2023 | 2022 | 2021 | ||||
Bancolombia S.A.(Colombia) | 578 | 583 | 620 | |||
BAM (Guatemala) | 155 | 157 | 156 | |||
Renting Colombia | 63 | 65 | 46 | |||
Banco Agrícola | 91 | 90 | 93 | |||
Banistmo | 39 | 39 | 39 | |||
Valores Bancolombia | 19 | 19 | 17 | |||
Fiduciaria Bancolombia | 8 | 7 | 7 | |||
Financomer | 3 | 4 | 4 | |||
SUFI | 2 | 2 | 2 | |||
Inversiones CFNS S.A.S. | 2 | 2 | 2 | |||
Banca de Inversión | 2 | 2 | 2 | |||
Bancolombia Panamá | 1 | 1 | 1 | |||
Bancolombia S.A Panamá Branch | 1 | 1 | 1 | |||
Valores Banistmo | 1 | 1 | 1 | |||
Bancolombia Puerto Rico International Inc. | 1 | 1 | 1 | |||
Arrendadora Financiera S.A. | 1 | 1 | 1 | |||
Valores Banagricola, S.A. de C.V. | 1 | 1 | 1 | |||
Bancolombia Capital Holding LLC (Miami) | 1 | 1 | — | |||
Transportempo S.A.S | — | 1 | 1 | |||
Total | 969 | 978 | 995 |
* | For some subsidiaries, the main office is considered a branch. |
Banking Correspondents
A banking correspondent is a platform which allows non-financial institutions, such as retail stores open to the public, to provide financial services and transactions in locations where banks and financial institutions have limited or no presence. As of December 31, 2023, Bancolombia has a total of 35,431 banking correspondents, including 28,468 in Colombia, 626 in Panama, 5,386 in Guatemala and 951 in El Salvador.
Puntos de Atención Móviles “PAM”
PAMs consist of commercial advisors who visit small towns periodically to offer Bancolombia’s products and services. As of December 31, 2023, there were a total of 523 PAMs (494 in Colombia, 11 in Guatemala and 18 in El Salvador). Panama does not report PAMs
34
Kiosks
Kiosks are located inside the Bank’s branches, malls, and other public places and are used to provide the Bank’s clients with the possibility of conducting a variety of self-service transactions. As of December 31, 2023, there were a total of 498 kiosks, 210 in El Salvador and 288 in Colombia.
Automated Teller Machines “ATMs”
Bancolombia has a total of 6.080 ATMs, including 5,170 in Colombia, 572 in El Salvador and 338 in Panama. BAM sold its ATM network (155 ATMs) to the company 5B in November 2023 and has outsourced the ATM service to that company.
Online/Computer Banking
We offer multiple online and computer-based banking alternatives designed to fit the specific needs of our different client segments. Through a variety of platforms (computer and Internet-based solutions) our clients can review their account balances and monitor transactions in their deposit accounts, loans, and credit cards, make virtual term investments, access funds from pre-approved loans, make payroll and supplier payments, make purchases and bill payments, negotiate stocks, learn about products and services and complete other transactions in real time.
Telephone Banking
We provide customized and convenient advisory services to customers of all segments through automatic interactive voice response (IVR) operations and a 24/7 contact center.
Mobile Banking Service
Our clients can conduct a variety of transactions using their cell phones, including fund transfers between Bancolombia accounts, account balance inquiries, QR code payments and payment of bills and invoices.
Business Connections Banking Service
The Bancolombia Business Connections service is a differentiating feature of our entire range of solutions, consisting of a direct connection between bank servers and the client through which transactions and documents exchange are carried out; the aim of which is to supplement the interaction with both our cash management and factoring products. Furthermore, it offers a secure, efficient, and impeccable option for clients to handle their funds and particularly their cash management needs in general.
B.6 PATENTS, LICENSES AND CONTRACTS
The Bank is not dependent on patents or licenses, nor is it substantially dependent on any industrial, commercial or financial contracts (including contracts with customers or suppliers). However, the Bank has entered into contracts with third parties who provide certain key services that are important to the Bank’s business. These services include core banking services, online banking platforms, data processing and payment services, clearing and settlement services, software for processing credit and debit card services, and technological infrastructure, including cloud services where the Bank’s data will be stored, among others.
35
B.7 COMPETITION
Colombian Financial System Description
Overview
During the last years, the Colombian banking system has been experiencing an expansion period marked by a series of mergers and acquisitions that have taken place within the sector. In 2013, Bancolombia continued its internationalization process with the acquisition of the banking and insurance operations of HSBC in Panama for USD 2,234 million. In addition, Bancolombia Panama acquired 40% common shares of Grupo Agromercantil for USD 217 million. During the same year, Grupo Aval acquired 100% of the Guatemalan Reformador Financial Group (the transaction was valued at USD 411 million) and acquired BBVA Panama for USD 490 million. Furthermore, in 2013, several competitors started operations in Colombia: Itau BBA entered the market with an investment bank, as did BNP Paribas; Credicorp acquired Correval (a local brokerage firm); Brazilian broker-dealer BTG Pactual acquired Bolsa y Renta; Banco Santander re-entered the Colombian market with a bank; and the Chilean company Larrain Vial started operations with a brokerage firm.
In 2014, the entry of new entities continued as the financing company Hipotecaria, specialized in mortgage loans, began operations in March 2014; also, in June, Corpbanca completed the acquisition of Helm Bank, maintaining Corpbanca’s brand. During the same year, the bank GNB Sudameris acquired 99.9% of HSBC Colombia’s capital operating as GNB Colombia and expanding operations to Paraguay, Peru, and Uruguay. In 2015, the Chilean group CorpBanca merged with Brazil’s Itaú, and Bancolombia sold 50% of Tuya SA shares to Grupo Exito. During the same year, Bancolombia also increased its stake in Grupo Agromercantil to 60% and subsequently acquired its full ownership in 2020.
Several banks underwent transformations, such as Serfinanza, which transitioned from a commercial financing company to the 26th bank in the financial system in February 2015. Additionally, in 2020 four financing companies went through changes in their shareholdering structures: in January, Credifinanciera acquired Procredit Bank rebranding it Banco Credifinanciera; in April, Coltefinanciera acquired the rights and obligations of Multibank which ceased to act as a bank; Leasing Bancoldex merged with Arco Bancoldex in August; and Pagos Internacional was acquired by Banco W in November. In 2021 Lulo Bank became the first digital bank, and in December of that year BTG Pactual transitioned from an insurance brokerage to the 28th bank in the financial system. Furthermore, in 2022 Banco Unión, previously called “Giros y Finanzas”, shifted from a commercial financing company to operate as the 29th Bank in the financial system.
As of December 31, 2023, according to the SFC, the main participants in the Colombian financial system were 29 commercial banks (18 domestic private banks, 10 foreign banks, and 1 domestic state-owned bank), 5 financial corporations and 17 financing companies. In addition, trust companies, cooperatives, insurance companies, insurance brokerage and securities intermediaries, special state-owned institutions, and severance payments and pension funds also participate in the Colombian financial system.
Market and Credit Institutions’ Evolution in 2023
In 2015, Colombian financial institutions began reporting their consolidated financial results under IFRS framework. However, in the case of credit institutions (including banks, financial corporations, financing companies and 38 financial cooperatives), the SFC has allowed the presentation of stand-alone financial statements under Colombian Banking GAAP basis, following Decree 1851 of August 2013, which regulates the Law 1314 of 2009 concerning the technical regulatory framework for the institutions that report their financial results. Accordingly, the following information includes figures under Colombian Banking GAAP regulation, as reported by Colombian credit institutions.
Loan growth at Colombian credit institutions was 1.9% in 2023, compared to 16.9% in 2022. Commercial loans grew by 2.3% in 2023, compared to 16.7% in the previous year. Consumer loans decreased 2.4% in 2023, compared to the 18.3% growth in 2022. Mortgage loans increased 8.3% in 2023, compared to 14.6% growth in 2022, and small business loans grew 11.3% in 2023 compared to 14.6% in 2022.
36
The credit institutions level of past-due loans as a percentage of the total loan portfolio, increased from 3.67% at December 31, 2022 to 5.0% at December 31, 2023. In addition, the coverage ratio, measured as the ratio of allowances for loan losses (principal) to PDLs (overdue 30 days), ended 2023 at 123.31%, compared to 159.94% at the end of 2022.
At December 31, 2023, the loan portfolio represented 62.44% of assets, less than the previous year proportion which was 63.97%. Investments and derivatives transactions, as a percentage of total assets increased from 21.15% at the end of 2022 to 21.45% at the end of 2023. Deposits increased as a percentage of total liabilities from 70.61% in 2022 to 72.90% in 2023.
Credit institutions recorded COP 1.012 trillion in total assets at December 31,2023, representing a 4.0% increase compared to the previous year. Based on total assets held by Colombian credit institutions, banks had a market share of 94.82% followed by financial corporations with 3.04%, financing companies with 1.66%, and financial cooperatives with 0.49%.
The capital adequacy ratio (Tier 1 + Tier 2) for credit institutions was 18.05% at December 31, 2023 (including banks, financial corporations, financing companies and financial cooperatives), which is above the minimum legal requirement of 9% pursuant to Decree 1477 of 2018.
Bancolombia and its Competitors
The following table shows a comparison between the key profitability, capital adequacy and loan portfolio quality indicators for Bancolombia and its main competitors unconsolidated, based on IFRS information as applicable under Colombian regulations and published by the SFC.
Past-due loans/ | Allowance s/ | ||||||||||||||||||||
ROE(1) | ROA(2) | Total loans | Past-due loans | Capital Adequacy | |||||||||||||||||
Dec-23 | Dec-22 | Dec-23 | Dec-22 | Dec-23 | Dec-22 | Dec-23 | Dec-22 | Dec-23 | Dec-22 | ||||||||||||
Bancolombia | 16.1 | % | 17.9 | % | 2.3 | % | 2.8 | % | 4.6 | % | 3.2 | % | 150.8 | % | 192.1 | % | 18.1 | % | 18.3 | % | |
Banco de Bogotá | 6.8 | % | 15.0 | % | 0.9 | % | 2.0 | % | 4.4 | % | 3.7 | % | 124.7 | % | 168.0 | % | 18.6 | % | 17.0 | % | |
Davivienda | 0.8 | % | 7.9 | % | 0.1 | % | 0.8 | % | 6.9 | % | 4.8 | % | 97.1 | % | 128.9 | % | 16.7 | % | 19.9 | % | |
BBVA | 3.2 | % | 15.1 | % | 0.2 | % | 0.9 | % | 3.8 | % | 2.7 | % | 131.1 | % | 187.9 | % | 12.4 | % | 13.3 | % | |
Banco de Occidente | 8.3 | % | 10.6 | % | 0.6 | % | 0.9 | % | 4.0 | % | 3.0 | % | 127.8 | % | 167.9 | % | 11.7 | % | 12.4 | % | |
Itaú Corpbanca | 0.9 | % | 1.8 | % | 0.1 | % | 0.2 | % | 4.3 | % | 3.7 | % | 134.4 | % | 154.6 | % | 14.7 | % | 15.8 | % | |
Scotiabank Colpatria | (10.1) | % | 5.3 | % | (0.7) | % | 0.4 | % | 5.2 | % | 3.7 | % | 110.4 | % | 124.9 | % | 11.8 | % | 11.5 | % | |
Source: SFC.
| (1) | ROE is return on average stockholders’ equity. |
| (2) | ROA is return on average assets |
The following tables illustrate Bancolombia and its main competitors market share on an unconsolidated basis with respect to various key products, based on figures published by the SFC for the years 2023 and 2022:
Total Net Loans
Market Share
Total Net Loans – Market Share (%) | 2023 | 2022 | |||
Bancolombia | 26.8 | % | 26.8 | % | |
Davivienda | 15.6 | % | 16.7 | % | |
Banco de Bogotá | 12.4 | % | 11.4 | % | |
BBVA | 11.4 | % | 10.9 | % | |
Banco de Occidente | 7.0 | % | 6.5 | % | |
Scotiabank Colpatria | 4.7 | % | 5.3 | % | |
Itaú Corpbanca | 2.9 | % | 3.2 | % | |
Others | 19.2 | % | 19.2 | % |
Source: Ratios are calculated by Bancolombia based on figures published by the SFC.
37
Checking Accounts
Market Share
Checking Accounts – Market Share (%) | 2023 | 2022 | |||
Bancolombia | 26.9 | % | 27.8 | % | |
Banco de Bogotá | 18.3 | % | 19.3 | % | |
Davivienda | 11.1 | % | 11.9 | % | |
BBVA | 10.5 | % | 11.2 | % | |
Banco de Occidente | 8.7 | % | 8.2 | % | |
Itaú Corpbanca | 2.7 | % | 2.6 | % | |
Scotiabank Colpatria | 2.6 | % | 2.5 | % | |
Others | 19.2 | % | 16.5 | % |
Source: Ratios are calculated by Bancolombia based on figures published by the SFC.
Time Deposits
Market Share
Time Deposits – Market Share (%) | 2023 | 2022 | |||
Bancolombia | 22.5 | % | 21.5 | % | |
Davivienda | 16.9 | % | 15.4 | % | |
BBVA | 13.4 | % | 13.8 | % | |
Banco de Bogotá | 12.5 | % | 11.8 | % | |
Banco de Occidente | 5.4 | % | 6.6 | % | |
Scotiabank Colpatria | 5.5 | % | 5.2 | % | |
Itaú Corpbanca | 3.4 | % | 3.6 | % | |
Others | 20.4 | % | 22.2 | % |
Source: Ratios are calculated by Bancolombia based on figures published by the SFC.
Saving Accounts
Market Share
Saving Accounts – Market Share (%) | 2023 | 2022 | |||
Bancolombia | 29.7 | % | 29.1 | % | |
Davivienda | 13.6 | % | 15.3 | % | |
BBVA | 11.2 | % | 10.1 | % | |
Banco de Bogotá | 10.0 | % | 10.0 | % | |
Banco de Occidente | 8.5 | % | 7.2 | % | |
Scotiabank Colpatria | 4.0 | % | 5.6 | % | |
Itaú Corpbanca | 2.1 | % | 2.1 | % | |
Others | 20.9 | % | 20.6 | % |
Source: Ratios are calculated by Bancolombia based on figures published by the SFC.
Banco Agrícola and its Competitors
During 2023, Banco Agrícola continued to lead the Salvadoran financial system and ranked first in terms of total assets, loans, total deposits, stockholders’ equity and profits. The information presented in the following tables relate Banco Agrícola and its competitors on a stand-alone basis and was prepared based on publicly available information of Superintendencia del Sistema Financiero (SSF) prepared in accordance with El Salvador accounting standards.
Until 2022, the data used was sourced from Asociación Bancaria Salvadoreña (ABANSA). However, starting in 2023, in order to fully reflect the Salvadoran financial system and to show more precise information, the source used was changed to Superintendencia del Sistema Financiero (SSF) for all periods covered.
38
The following table illustrates the market share for the main institutions of the Salvadoran financial system as of December 31, 2023:
| Assets | Stockholders` Equity | Loans | Deposits | Profits | ||||||
Banco Agrícola | 24.2 | % | 25.6 | % | 24.8 | % | 24.4 | % | 38.5 | % | |
Cuscatlán | 17.1 | % | 17.5 | % | 17.9 | % | 17.1 | % | 16.1 | % | |
Davivienda | 13.2 | % | 14.1 | % | 14.4 | % | 13.6 | % | 10.5 | % | |
BAC | 14.2 | % | 13.5 | % | 15.3 | % | 14.6 | % | 13.0 | % | |
Hipotecario | 9.7 | % | 7.5 | % | 6.5 | % | 9.9 | % | 6.7 | % | |
Promérica | 5.9 | % | 5.0 | % | 6.1 | % | 6.1 | % | 2.6 | % | |
Others | 15.7 | % | 16.8 | % | 15.0 | % | 14.3 | % | 12.6 | % |
Source: SSF (Superintendencia del Sistema Financiero)
The following tables illustrate the market share of Banco Agrícola and its main competitors, based on figures published by Superintendencia del Sistema Financiero (SSF), as of December 31, 2023 and 2022:
Total Loans
Market Share
Total Loans - Market Share (%) | 2023 | 2022 | |||
Banco Agrícola | 24.8 | % | 25.2 | % | |
Cuscatlán | 17.9 | % | 18.1 | % | |
Davivienda | 14.4 | % | 14.8 | % | |
BAC | 15.3 | % | 14.7 | % | |
Hipotecario | 6.5 | % | 7.1 | % | |
Promérica | 6.1 | % | 5.9 | % | |
Others(1) | 15.0 | % | 14.2 | % |
(1) During 2022, Banco Azul absorbed Banco G&T Continental operations in El Salvador.
Checking Accounts
Market Share
Checking Accounts - Market Share (%) | 2023 | 2022 | |||
Banco Agrícola | 19.7 | % | 19.5 | % | |
Cuscatlán | 17.1 | % | 18.5 | % | |
Davivienda | 11.9 | % | 11.7 | % | |
BAC | 22.1 | % | 23.5 | % | |
Hipotecario | 7.1 | % | 6.9 | % | |
Promérica | 6.9 | % | 7.3 | % | |
Others(1) | 15.2 | % | 12.6 | % |
(1) During 2022, Banco Azul absorbed Banco G&T Continental operations in El Salvador.
Time Deposits
Market Share
Time Deposits - Market Share (%) | 2023 | 2022 | |||
Banco Agrícola | 14.2 | % | 15.8 | % | |
Cuscatlán | 14.9 | % | 16.3 | % | |
Davivienda | 14.9 | % | 15.4 | % | |
BAC | 13.4 | % | 13.3 | % | |
Hipotecario | 16.2 | % | 13.6 | % | |
Promérica | 7.1 | % | 6.9 | % | |
Others(1) | 19.3 | % | 18.7 | % |
(1) During 2022, Banco Azul absorbed Banco G&T Continental operations in El Salvador.
39
Saving Accounts
Market Share
Saving Accounts- Market Share (%) | 2023 | 2022 | |||
Banco Agrícola | 38.7 | % | 39.5 | % | |
Cuscatlán | 19.5 | % | 19.6 | % | |
Davivienda | 13.6 | % | 13.0 | % | |
BAC | 10.0 | % | 10.3 | % | |
Hipotecario | 5.5 | % | 5.6 | % | |
Promérica | 4.4 | % | 4.5 | % | |
Others(1) | 8.3 | % | 7.5 | % |
(1) During 2022, Banco Azul absorbed Banco G&T Continental operations in El Salvador.
Banistmo and its Competitors
Banistmo, a leading company in Panama, is the second largest bank in the country with 9.3% market share by loans. The following table illustrates the market share for the main institutions of the Panamanian financial system as of December 31, 2023.
MARKET SHARE | |||||||||||
| Assets | Equity | Loans | Deposits | Profits | ||||||
Banistmo | 8.2 | % | 8.3 | % | 9.3 | % | 10.3 | % | 4.7 | % | |
Banco General | 13.4 | % | 11.9 | % | 13.4 | % | 19.8 | % | 26.1 | % | |
Global Bank | 6.5 | % | 3.9 | % | 7.5 | % | 7.3 | % | 1.3 | % | |
Banesco | 3.8 | % | 2.8 | % | 4.4 | % | 5.7 | % | 1.7 | % | |
BAC | 8.6 | % | 24.2 | % | 6.0 | % | 8.7 | % | 27.1 | % | |
Others | 59.5 | % | 48.9 | % | 59.4 | % | 48.2 | % | 39.1 | % | |
Source: Banistmo based on data by SBP (Superintendency of Banks of Panama)
The following tables illustrate the market share of Banistmo and its main competitors, based on figures published by the Superintendency of Banks of Panama as of December 31, 2023 and December 31, 2022:
Total Loans
Market Share
Total Loans - Market Share (%) | 2023 | 2022 | |||
Banistmo | 9.3 | % | 10.0 | % | |
Banco General | 13.4 | % | 13.9 | % | |
Global Bank | 7.5 | % | 8.1 | % | |
Banesco | 4.4 | % | 4.4 | % | |
BAC | 6.0 | % | 5.9 | % | |
Others | 59.4 | % | 57.8 | % |
Source: Banistmo based on data by SBP (Superintendency of Banks of Panama)
40
Saving Accounts
Market Share
Saving Account - Market Share (%) | 2023 | 2022 | |||
Banistmo | 11.2 | % | 12.1 | % | |
Banco General | 30.9 | % | 30.0 | % | |
Global Bank | 7.2 | % | 7.5 | % | |
Banesco | 7.0 | % | 7.1 | % | |
BAC | 4.3 | % | 3.9 | % | |
Others | 39.4 | % | 39.4 | % |
Source: Banistmo based on data by SBP (Superintendency of Banks of Panama)
Checking Accounts
Market Share
Checking Accounts - Market Share (%) | 2023 | 2022 | |||
Banistmo | 9.9 | % | 11.3 | % | |
Banco General | 24.0 | % | 24.4 | % | |
Global Bank* | 4.3 | % | 4.2 | % | |
Banesco | 8.7 | % | 7.6 | % | |
BAC | 10.9 | % | 10.2 | % | |
Others | 42.2 | % | 42.4 | % |
Source: Banistmo based on data by SBP (Superintendency of Banks of Panama)
Time Deposits
Market Share
Time Deposits - Market Share (%) | 2023 | 2022 | |||
Banistmo | 10.0 | % | 10.4 | % | |
Banco General | 14.2 | % | 15.0 | % | |
Global Bank* | 8.3 | % | 8.6 | % | |
Banesco | 4.3 | % | 4.2 | % | |
BAC | 9.9 | % | 10.3 | % | |
Others | 53.3 | % | 51.6 | % |
Source: Banistmo based on data by SBP (Superintendency of Banks of Panama)
BAM and its Competitors
BAM is the fifth largest bank in the banking system in Guatemala measured by total assets, deposits, and stockholders’ equity, and the fourth in terms of net loans.
As of December 31, 2023, the “Superintendencia de Bancos de Guatemala” or “SIB” has under its supervision and inspection, 18 banking entities.
In the beginning of 2023, Nexa, S.A. became part of the Guatemala banking system, being the first fully digital bank to compete with existing large banking entities.
The information presented in the following tables was prepared in accordance with Guatemalan banking regulations, as reported to the SIB.
41
The following table illustrates the market share for the main institutions of the Banking system at the year ended on December 31, 2023:
MARKET SHARE | |||||||||||
Assets | Stockholders’ Equity | Net Loans | Deposits | Profits | |||||||
Banco Industrial | 29.2 | % | 23.6 | % | 29.1 | % | 27.6 | % | 28.4 | % | |
Banrural | 20.7 | % | 23.1 | % | 15.5 | % | 22.2 | % | 28.2 | % | |
Banco G&T Continental | 12.3 | % | 11.7 | % | 11.0 | % | 12.5 | % | 11.1 | % | |
BAC-Reformador | 8.6 | % | 7.6 | % | 10.5 | % | 8.8 | % | 4.8 | % | |
Banco Agromercantíl | 8.2 | % | 7.2 | % | 10.5 | % | 7.9 | % | 2.8 | % | |
Bantrab | 7.8 | % | 11.5 | % | 8.5 | % | 8.0 | % | 9.4 | % | |
Banco Promerica | 5.2 | % | 5.5 | % | 6.8 | % | 4.9 | % | 6.5 | % | |
Others* | 8.0 | % | 9.7 | % | 8.1 | % | 8.1 | % | 8.8 | % | |
* Others . Includes the following banks: Internacional, Crédito Hipotecario Nacional, Ficohsa, Azteca, Inmobiliario, De Antigua, Vivibanco, Citibank, N.A. de Guatemala, Inv, Credicorp and Nexa.
Source: Superintendencia de Bancos de Guatemala (SIB).
The following tables illustrate the market share of BAM on a stand-alone basis and its main competitors, based on figures published by the SIB, under Guatemalan banking regulations as of December 31, 2023, and 2022:
Net Loans
Market Share
Net Loans - Market Share (%) | 2023 | 2022 | |||
Banco Industrial | 29.1 | % | 28.9 | % | |
Banrural | 15.5 | % | 15.6 | % | |
Banco G&T Continental | 11.0 | % | 11.2 | % | |
Banco Agromercantíl | 10.5 | % | 11.9 | % | |
BAC-Reformador | 10.5 | % | 11.0 | % | |
Bantrab | 8.5 | % | 8.0 | % | |
Banco Promerica | 6.8 | % | 6.2 | % | |
Others* | 8.1 | % | 7.2 | % |
* Others. . Includes the following banks: Internacional, Crédito Hipotecario Nacional, Ficohsa, Azteca, Inmobiliario, De Antigua, Vivibanco, Citibank, N.A. de Guatemala, Inv, Credicorp and Nexa.
Source: Superintendencia de Bancos de Guatemala (SIB).
Checking Accounts
Market Share
Checking Accounts - Market Share (%) | 2023 | 2022 | |||
Banco Industrial | 33.7 | % | 33.2 | % | |
Banrural | 23.2 | % | 23.5 | % | |
Banco G&T Continental | 12.7 | % | 13.1 | % | |
BAC-Reformador | 11.6 | % | 12.2 | % | |
Banco Agromercantil | 6.2 | % | 6.3 | % | |
Banco Promerica | 3.1 | % | 2.9 | % | |
Bantrab | 2.1 | % | 1.9 | % | |
Others* | 7.5 | % | 6.9 | % |
* Others. . Includes the following banks: Internacional, Crédito Hipotecario Nacional, Ficohsa, Azteca, Inmobiliario, De Antigua, Vivibanco, Citibank, N.A. de Guatemala, Inv, Credicorp and Nexa.
Source: Superintendencia de Bancos de Guatemala (SIB).
42
Time Deposits
Market Share
Time Deposits - Market Share (%) | 2023 | 2022 | |||
Banco Industrial | 23.6 | % | 25.6 | % | |
Banrural | 16.6 | % | 16.5 | % | |
Bantrab | 14.8 | % | 13.5 | % | |
Banco Agromercantil | 9.5 | % | 10.3 | % | |
Banco G&T Continental | 8.6 | % | 8.8 | % | |
BAC-Reformador | 8.4 | % | 8.5 | % | |
Banco Promerica | 8.4 | % | 7.9 | % | |
Others* | 10.1 | % | 8.9 | % |
* Others. . Includes the following banks: Internacional, Crédito Hipotecario Nacional, Ficohsa, Azteca, Inmobiliario, De Antigua, Vivibanco, Citibank, N.A. de Guatemala, Inv, Credicorp and Nexa.
Source: Superintendencia de Bancos de Guatemala (SIB).
Saving Accounts
Market Share
Saving Accounts - Market Share (%) | 2023 | 2022 | |||
Banrural | 28.9 | % | 29.0 | % | |
Banco Industrial | 25.3 | % | 23.7 | % | |
Banco G&T Continental | 17.9 | % | 19.9 | % | |
Banco Agromercantil | 8.0 | % | 8.5 | % | |
Bantrab | 6.3 | % | 6.2 | % | |
BAC-Reformador | 5.7 | % | 5.4 | % | |
Banco Promerica | 2.0 | % | 1.9 | % | |
Others* | 5.9 | % | 5.3 | % |
* Others. . Includes the following banks: Internacional, Crédito Hipotecario Nacional, Ficohsa, Azteca, Inmobiliario, De Antigua, Vivibanco, Citibank, N.A. de Guatemala, Inv, Credicorp and Nexa.
Source: Superintendencia de Bancos de Guatemala (SIB).
B.8 SUPERVISION AND REGULATION
Colombian Banking Regulators
The Colombian Constitution grants power to the Congress of Colombia to prescribe the general legal framework of the financial system and within such framework the Government issues regulations. Multiple agencies are vested with the authority to regulate the financial system, including the board of directors of the Central Bank, the Ministry of Finance and Public Credit (the “Ministry of Finance”), the Superintendency of Finance (“SFC”), the Superintendency of Industry and Commerce (“SIC”) and the Self-Regulatory Organization (“Autoregulador del Mercado de Valores” or “AMV”). The following is a description of their functions:
The Central Bank exercises the customary functions of a central bank, including price stabilization, monetary policy, regulation of currency circulation, regulation of credit, exchange rate monitoring and management of international reserves. Its board of directors is the regulatory authority for monetary, currency exchange and credit policies, and is responsible for the direction of the Central Bank’s duties. The Central Bank also acts as lender of last resort to financial institutions.
The Ministry of Finance has the function, among others, of regulating, through the Unit of Financial Regulation, all aspects of financial and insurance activities. It is responsible for regulations relating to capital adequacy, legal lending limits,
43
authorized operations, disclosure of information and accounting of financial institutions on a high level, which matters are then regulated in detail by the SFC.
The SFC is the authority responsible for licensing, supervising and regulating financial institutions. The SFC has broad discretionary powers to supervise financial institutions, including the authority to impose fines on financial institutions and their directors and officers for violations of applicable regulations. The SFC is also responsible for monitoring, supervising and regulating the market for publicly traded securities in Colombia.
The AMV is the self-regulatory organization of Colombia. The AMV may issue mandatory instructions to its members and supervise its members’ compliance and impose sanctions for violations. All capital market intermediaries, including the Bank, must become members of the AMV and are subject to its instructions.
The SIC is the authority responsible anti-trust and data protection matters and has jurisdiction over the Bank.
Regulatory Framework for Colombian Banking Institutions
The basic regulatory framework of the Colombian financial sector is described below.
Decree 663 of 1993, as amended, defines the structure of the Colombian financial system and establishes the permitted forms of business entities and their authorized activities. Furthermore, Decree 663 of 1993 sets forth (i) licensing requirements, (ii) the procedure applicable for mergers and acquisitions, spin-offs, and other corporate reorganizations of the aforementioned entities, (iii) specific regulations that apply to the issuance and sale of shares and other securities by such entities, and (iv) certain rules regarding the activities of officers and directors of such institutions, among others.
Decree 2555 of 2010 compiles regulations that were previously issued in separate decrees, including regulations regarding banking, insurance and securities market activities, capital adequacy requirements, financial institutions’ corporate governance and principles relating to the determination, dissemination and publication of rates and prices of products and financial services, and lending activities.
External Circulars 029 of 2014 and 100 of 1995 compile the rules and regulations issued by the SFC that apply to financial institutions and other entities under its supervision.
Financial institutions are subject to further rules if they engage in additional activities. Law 964 of 2005 (securities market law) regulates securities activities, which may be performed by banks, and securities offerings. External Resolution 1 of 2018 (foreign exchange regulations), and External Resolution 4 of 2006 issued by the board of directors of the Central Bank, defines the different activities that banks, including the Bank, may perform as foreign exchange market intermediaries, including lending in foreign currencies and investing in foreign securities.
Violations of any of the above statutes and their relevant regulations are subject to administrative sanctions and, in some cases, criminal sanctions.
Financial Conglomerates
Law 1870 of 2017 (“Law 1870”) implemented the legal framework for the regulation and supervision of financial conglomerates in areas such as regulatory capital, related party transactions, corporate governance principles, conflicts of interest and risk management, among others. According to Law 1870, a financial holding company may acquire that status by either (i) having significant influence over a financial institution or (ii) controlling a financial institution. A financial holding company (1) has significant influence over a financial institution when it directly or indirectly, holds more than fifty percent (50%) of the voting capital of the financial institution, excluding from the calculation voting capital held by entities that under their regulations are not allowed to control a financial institution (such as pension funds), and (2) controls a financial institution, when it has (i) more than 50% of the voting capital of the financial institution, (ii) the majority of the votes in the Board of Directors of the financial institution or the right to elect a majority of its members or (iii) a dominant influence over the decisions made by the financial institution as a result of an agreement with the financial institution or its shareholders as established in articles 260 and 261 of the Colombian Code of Commerce.
44
The Government has issued several decrees pursuant to its authority under Law 1870, including Decree 774 of 2018, which regulates capital adequacy requirements for financial conglomerates, and Decree 1486 of 2018, which regulates the criteria to determine related parties, risk concentration limits and conflicts of interest. These regulations provide that when financial institutions fulfill capital adequacy requirements and solvency ratios on a standalone basis, authorities may not impose solvency ratios on the financial conglomerate as a whole.
The law also reinforced the mechanism for the resolution of credit institutions - deposit-taking institutions under Colombian Law - by establishing the concept of the bridge bank, an entity used to facilitate the purchase of assets and transfer of liabilities from failing institutions.
Pursuant to the financial conglomerates regime, Grupo de Inversiones Suramericana S.A. has significant influence and, therefore, is the financial holding company of Bancolombia only for the purposes of the financial conglomerates framework. These regulations require Grupo de Inversiones Suramericana S.A. to: (i) continue strengthening the Bank’s Corporate Governance System as a Financial Conglomerate; (ii) review the risk management and capital adequacy models; and (iii) strengthen the internal control and information reporting systems of the companies that make up the conglomerate under this framework. The SFC has authority to implement applicable regulations and, accordingly, from time-to-time issues administrative resolutions and circulars.
Key interest rates
Article 884 of the Colombian Commercial Code provides for a limit on the amount of interest that may be charged in commercial transactions. The limit is 1.5 times the current banking interest rate (“interés bancario corriente” or “IBC”), certified and calculated by the SFC as the weighted average rate of interest ordinarily charged by banks for loans made during a specified period. The certification process is carried out for the following credit portfolios: consumer & ordinary; low amount loans; and microcredit (which is divided into five different loan modalities).
In 2023, two regulatory changes resulted in the lowering of the interest rate limit for specific credit portfolios: (i) Decree 455 of 2023 divided the microcredit into five categories depending on amount and geographical characterization (rural-urban); and (ii) the SFC modified the calculation methodology to be based on weighted average instead of simple average.
As of December 31, 2023, the current banking interest rate certified by the SFC for the different credit portfolios are: (i) 25.04% for consumer & ordinary loans, (ii) 38.76% for low amount loans, and (iii) 32.00% in average for the remaining five microcredit categories rates.
Capital adequacy requirements – Basel III
Capital adequacy requirements for Colombian financial institutions (as set forth in Decree 2555 of 2010, as amended) are based on most of the Basel III standards. This regulation provides for a gradual implementation plan beginning in 2021 and ending in 2024 for requirements regarding solvency ratios and capital buffers. The SFC issued External Circular 020 of 2019 which sets requirements in relation to capital adequacy requirements for credit institutions and information reporting to the SFC. Some of the highlights of this regulation are as follows:
The technical capital (“Technical Capital”) is calculated as the sum of Common Equity Tier One Capital (the “patrimonio básico ordinario”), the Additional Tier One Capital (“patrimonio básico adicional”) and the Tier Two Capital (“patrimonio adicional”).
Revised criteria for debt and equity instruments to be considered Common Equity Tier One Capital, Additional Tier One Capital, and Tier Two Capital were established. Additionally, the SFC must review whether a given instrument adequately complies with the applicable criteria in order for an instrument to be considered Tier One Capital or Tier Two Capital, upon request of the issuer. Debt and equity instruments that have not been classified by the SFC as Tier One Capital or Tier Two Capital shall not be considered Tier One Capital or Tier two Capital for purposes of capital adequacy requirements.
The Capital Adequacy Ratio is set at a minimum of 9% of the financial institution’s total risk-weighted assets; however,
45
each entity must comply with: (i) a minimum basic solvency ratio of 4.5% (which is defined as the ordinary basic capital after deductions divided by the financial institution’s total risk-weighted assets and off-balance sheet items); (ii) a minimum additional basic solvency ratio (which is defined as the sum of Common Equity Tier One Capital after deductions and Additional Tier One Capital, divided by the financial institution’s total risk-weighted assets and off-balance sheet items) of 4.875% which began on January 1, 2021, increasing gradually up to 6% as of January 1, 2024; (iii) a capital conservation buffer (which is defined as the Common Equity Tier One Capital after deductions divided by the financial institution’s total risk-weighted assets and off-balance sheet items) of 0.375% which began on January 1, 2021, increasing gradually up to 1.5% as of January 1, 2024; (iv) a systemically important institution buffer (which is defined as the Common Equity Tier One after deductions divided by the financial institution’s total risk-weighted assets and off-balance sheet items) of 0.25% which began on January 1, 2021, increasing gradually up to 1% as of January 1, 2024 (Bancolombia was recognized by the SFC as a domestic systemically important institution in Colombia); and (v) a combined buffer equivalent to the sum of the aforementioned buffers as of January 1, 2024. These ratios apply to credit institutions individually and on a consolidated basis.
Credit establishments must comply with a minimum leverage ratio of 3%, which is defined as the sum of the Common Equity Tier One Capital after deductions and the Additional Tier One Capital, divided by the leverage value. The leverage value is the sum of all net assets, the net exposures in all repo, simultaneous transactions and temporary transfer of securities, the credit exposures in all derivative instruments, and the exposure value of all contingencies.
Credit establishments must comply with minimum capital requirements for operational risk. This new capital requirement will be determined by the product of the Business Indicator (“indicador de negocio”), the Operational Risk Coefficient (“coeficiente de riesgo operacional”) and the Internal Loss Multiplier (“indicador de pérdida interna”). The Operational Risk Coefficient will be 12% of the Business Indicator, but if the Business Indicator exceeds COP 3 billion, the coefficient will be 15% for the excess amount. Each entity was required to comply with the requirement as of January 1, 2021.
For more information, see “Item 5. Operating and Financial Review and Prospects - B1 Liquidity and Funding. Capital Adequacy.”
The minimum capital requirement for banks on an unconsolidated basis is established in Article 80 of Decree 633 of 1993. The minimum capital requirement for banks, including Bancolombia, for 2024 is COP 133,321 million. Failure to meet such requirement can result in the taking of possession (“toma de posesión”) of the Bank by the SFC (see Item 4. “Information on the Company – B. Business Overview – B.8 –Supervision and Regulation – Bankruptcy Considerations”).
Mandatory Investments
Central Bank regulations require financial institutions, including the Bank, to hold minimum mandatory investments in debt instruments issued by Fondo para el Financiamiento del Sector Agropecuario (“Finagro”), a Colombian public financial institution that finances production and rural activities to support the agricultural sector. The amount of these mandatory investments is calculated by applying a fixed percentage (ranging from 4.3% to 5.8%, depending on the type of liability) to the quarterly average of the end of day balances of certain liabilities, primarily, deposits and short-term debt. The investment balance is computed at the end of each quarter. Any required adjustment (due to a change in the quarterly average between periods) results in the purchase of additional securities or may result in redemption by Finagro at of securities in excess of the requirement. The purchase of additional securities takes place during the month following the date as of which the computation was performed.
Foreign Currency Position Requirements
According to External Resolution 1 of 2018 issued by the board of directors of the Central Bank as amended or supplemented (“Resolution 1 of 2018”), a financial institution’s foreign currency position is the difference between such institution’s foreign currency-denominated assets and liabilities (including any off-balance sheet items). In the case of foreign exchange market intermediaries that consolidate financial statements and have controlled foreign investments, such as the Bank, the value of controlled foreign investments, and (ii) the value of derivatives and other liabilities designated by the intermediary as hedging instruments for the controlled foreign investments are excluded from its foreign currency position.
46
Also, Resolution 1 of 2018 provides foreign currency position limits, so that their positions may not exceed certain percentages of their technical capital in specific periods; and requires banks to calculate a gross position of leverage (“posición bruta de apalancamiento”) as it relates to its foreign currency position.
Reserve Requirements
Credit institutions are required to satisfy reserve requirements with respect to deposits and other cash demands which are held by the Central Bank in the form of cash deposits. The reserve requirements for Colombian banks are measured bi-weekly and the amount depends on the class of deposits.
According to External Resolution No. 20 of 2020 of Banco de la República, which amends External Resolution No. 5 of 2008 issued by the Colombian Central Bank, credit institutions must maintain reserves of (i) 8.00% over private demand deposits, government demand deposits, other deposits and liabilities; (ii) 3.50% over term deposits with maturities fewer than 540 days and (iii) 0% over term deposits with maturities equal to or more than 540 days.
Non-Performing Loan Allowance
The SFC maintains rules on non-performing loan allowances for financial institutions; the allowance level of these loans is determined by the profile and risk conditions of the clients and according to the specific conditions of the loan. These rules apply to Bancolombia’s financial statements on a stand-alone basis for Colombian regulatory purposes. Non-performing loan allowances in the Consolidated Financial Statements are calculated according to IFRS.
Large Exposures and Concentration Limits
Decree 2555 of 2010, as amended, sets forth the legal lending limits, which provide for the maximum amounts that a 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 bank’s technical capital. However, the limit is raised to 25% when amounts lent above 5% of technical capital are secured by guarantees that comply with the financial guidelines provided in Decree 2555 of 2010, as amended.
Also, 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, with the exception of loans funded by Colombian development banks which are not subject to such limit.
Decree 2555 of 2010 also sets a maximum limit of 30% of the Bank’s technical capital for single-party risk, the calculation of which includes loans, leasing operations and equity and debt investments.
The government, through Decree 1533 of 2022 and the SFC’s External Circular 003 of 2024, adopted the Basel Committee’s international standard on Large Exposures (LEX), which from August 2025 will modify the current rules of legal lending limits. The set of new regulations establishes: (i) a 25% exposure limit of Tier 1 Capital with respect to the same counterparty or group of connected counterparties; (ii) the definition of a Large Exposure as an exposure that represents more than 10% of the Tier 1 Capital; (iii) metrics that align the measurement of exposures with metrics on the risk-weighted assets in terms of capital adequacy; and (iv) the criteria for the identification of connected counterparties, including control relationship, financial conglomerates, and economic interdependence.
Ownership and Management Restrictions
The Bank is organized as a stock company (“sociedad anónima”). Its corporate existence is subject to the rules applicable to commercial companies, principally the Colombian Commercial Code which requires stock companies (such as the Bank) to have a minimum of 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 stock of the Bank.
Pursuant to Decree 663 of 1993, as amended, any transaction resulting in an individual or entity holding 10% or more of
47
the outstanding shares of any Colombian financial institution, including, in the case of the Bank, transactions resulting in holding ADRs representing 10% or more of the subscribed capital stock of the Bank, is subject to the prior authorization of the SFC. For that purpose, the SFC must evaluate the proposed transaction based on the criteria and guidelines specified in Decree 663 of 1993. Transactions entered into without the prior approval of the SFC are null and void and cannot be recorded in the Bank’s stock ledger. These restrictions apply equally to Colombian and foreign investors.
Bankruptcy Considerations
Colombian banks and other financial institutions are subject to special rules regarding insolvency, restructuring and liquidation. Pursuant to Colombian banking law, the SFC has the power to intervene in the operations of a bank in order to prevent it from, or to control and reduce the effects of, a bank failure. The SFC also conducts periodic visits to financial institutions and may impose capital or solvency obligations on financial institutions without taking control of such financial institutions
The SFC may intervene in a bank’s business: (i) prior to the liquidation of the bank, in order to prevent the bank from entering into a state where the SFC would need to take possession by taking one of the following recovery measures (“institutos de salvamento”): (a) submitting the bank to a special supervision regime; (b) issuing a mandatory order to recapitalize the bank; (c) placing the bank under the management of another authorized financial institution, acting as trustee; (d) ordering the transfer of all or part of the assets, liabilities and contracts of the bank to another financial institution; (e) ordering the bank to merge with one or more financial institutions that consent to the merger; (f) ordering the adoption of a recovery plan by the bank pursuant to guidelines approved by the government; (g) ordering the exclusion of certain assets and liabilities by requiring the transfer of such assets and liabilities to another institution designated by the SFC; or (h) ordering the progressive unwinding (“desmonte progresivo”) of the operations of the bank; or (ii) at any time, by taking possession of the bank to either administer the bank or order its liquidation, depending on how critical the situation is found to be by the SFC.
The financial conglomerates act also reinforced the mechanism for the resolution of credit institutions - deposit-taking institutions under Colombian Law - by establishing the concept of the bridge bank, an entity used to facilitate the purchase of assets and transfer of liabilities from failing institutions.
Taking possession is mandatory in the following events: (i) if the financial institution’s technical capital falls below 40% of the legal minimum; or (ii) upon the expiration of the term of any then-current recovery plans or the non-fulfillment of the goals set forth in such plans.
Additionally, and subject to the approval of the Ministry of Finance, the SFC may, at its discretion, initiate intervention procedures against a bank under the following circumstances: (i) suspension of payments; (ii) failure to pay deposits; (iii) refusal to submit its files, accounts and supporting documentation for inspection by the SFC; (iv) refusal to be interrogated under oath regarding its business; (v) repeated failure to comply with orders and instructions from the SFC; (vi) repeated violations of applicable laws and regulations or of the bank’s by-laws; (vii) unauthorized or fraudulent management of the bank’s business; (viii) reduction of the bank’s net worth below 50% of its subscribed capital; (ix) existence of serious inconsistencies in the information provided to the SFC that, at its discretion, impedes the SFC to accurately understand the situation of the bank; (x) failure to comply with the minimum capital requirements; (xi) failure to comply with the recovery plans that were adopted by the bank; (xii) failure to comply with the order of exclusion of certain assets and liabilities to another institution designated by the SFC; and (xiii) failure to comply with the order of progressive unwinding of the operations of the bank.
Upon the taking of possession of a bank, the SFC may (but is not required to) order the bank to suspend payments to its creditors. The SFC has the power to determine that such suspension will affect all of the obligations of the bank, or only certain types of obligations or even obligations up to or in excess of a specified amount.
As a result of a taking of possession, the SFC must appoint as special agent the person or entity designated by Fogafin to administer the affairs of the bank while such process lasts and until it is decided whether to liquidate the bank.
If the underlying problems that gave rise to the taking of possession of the bank are not resolved within a term not to
48
exceed two years, the SFC must order the liquidation of the bank.
During a taking of possession (which period ends when the liquidation process begins), Colombian banking laws prevent any creditor of the bank from: (i) initiating any procedure for the collection of any amount owed by the bank; (ii) enforcing any judicial decision rendered against the bank to secure payment of any of its obligations; (iii) constituting a lien or attachment over any of the assets of the bank to secure payment of any of its obligations; or (iv) making any payment, advance or compensation or assuming any obligation on behalf of the bank, with the funds or assets that may belong to it and are held by third parties, except for payments that are made by way of set-off between regulated entities of the Colombian financial and insurance systems.
In the event that the bank is liquidated, the SFC must, among other measures, provide that all term obligations owed by the bank are due and payable as of the date when the order to liquidate becomes effective.
In the event of liquidation, bank deposits and certain other types of saving instruments are excluded from the process and paid prior to any other liabilities. The remaining claims are recognized in accordance with applicable law and the following rank: (i) claims related to court expenses incurred in the interest of all creditors, wages and other obligations related with employment contracts and tax authorities’ credits regarding national and local taxes; (ii) claims secured by liens; (iii) claims secured by real estate collateral, such as mortgages; (iv) other claims of the tax authorities that are not included in the first class of claims and claims of suppliers of raw materials and inputs to the debtor; and (v) finally, all other claims without any priority or privilege, provided, however, that among credits of the fifth class, subordinated debt will be ranked junior to the external liabilities (“pasivos externos”) and senior only to capital stock. Each category of creditors will collect in the order indicated above, whereby distributions in one category will be subject to the full satisfaction of claims in the prior category.
Deposit Insurance—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.
To protect the customers of commercial banks and certain financial institutions, Resolution 1 of 2012 of the board of directors of Fogafin, as amended, requires mandatory deposit insurance. Banks must pay an annual premium of 0.30% of total funds received on saving accounts, checking accounts, certificates of deposit and other deposits, which is paid in four quarterly installments. If a bank is liquidated, the deposit insurance will cover the funds deposited by an individual or corporation with such bank up to a maximum of COP 50,000,000 regardless of the number of accounts held.
Risk Management Systems
Commercial banks must have risk administration systems to meet the SFC minimum standards for compliance and to avoid and mitigate the following risks: (i) credit; (ii) liquidity; (iii) market; (iv) operational; (v) money laundering and terrorism; (vi) counterparty; (vii) interest rate risk in the banking book; and (viii) country risk.
Through External Circular 018 of 2021, the SFC issued the regulatory framework for the Comprehensive Risk Management System (“Sistema Integral de Administración de Riesgos”, or “SIAR”), which is effective since June 1, 2023, except for certain provisions related to risk data aggregation and reporting, which became effective since December 31, 2023. These provisions require financial entities to have a global vision of the risks to which they are exposed, since it integrates the management of credit, market, operational, liquidity, counterparty, guarantee, insurance and country risks.
Commercial banks generally have several risk measurement methods, including the risk weighted assets measurement which is calculated according to weight percentages assigned to different types of assets. There are some exceptions in which the weight percentage is higher and is calculated based on the associated risk perception of the evaluated asset. Provisions, which are calculated on a monthly basis, are another risk measurement method. The above only applies to stand-alone financial statements.
49
With respect to market risks, commercial banks must follow the provisions of the External Circular 100 of 1995 issued by the SFC (“Basic Accounting Circular”), which defines criteria and procedures for measuring a bank’s exposure to interest rate, foreign exchange, and market risks. Under such regulations, banks must submit to the SFC information on the net present value, duration, and interest rate of its assets, liabilities, and derivative positions. Colombian banks are required to calculate, for each position on the statement of financial position, a volatility rate and a parametric value at risk (“VaR”), 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 SFC.
With respect to liquidity risk, financial entities must meet a liquidity coverage test that ensures their ability to hold liquid assets sufficient to cover potential net cash outflows for a period of 30 days. Net cash outflows for this purpose are contractual maturities of assets (interbank borrowings, financial assets investments, loans and advances to customers, derivative financial instruments) minus contractual maturities of liabilities (demand deposits, time deposits, interbank deposits borrowings from other financial institutions, debt instruments, derivative financial instruments) occurring within a period of 30 days. For purposes of this calculation, liabilities do not include projections of future transactions. The maturity of the loan portfolio is affected by the historical default indicator and the maturity of deposits is modeled according to the regulation.
Financial entities are also required to meet the Net Stable Funding Ratio (“Coeficiente de Fondeo Estable Neto” or “NSFR”) requirements. The NSFR requires credit institutions, such as the Bank, to maintain a stable funding profile in relation to the composition of their assets. The NSFR is a ratio that seeks to limit excessive dependency on unreliable financing sources for strategic assets which are often illiquid. The NSFR is defined as the amount of Available Stable Funding, which includes equity and liabilities that will remain with the credit institution for more than one year. This ratio should be equal to at least 100% on an ongoing basis (Fondeo Estable Disponible or “FED”) of the amount of Required Stable Funding (“Fondeo Estable Requerido”). The ratio started to be reported on March 31, 2020. Nonetheless, the External Circular 013 of 2023 maintained until August 31, 2025 the 25% weighting for the FED in demand and term deposits (less than six months) of financial entities and open collective investment funds, noting that this does not affect the schedule of convergence and compliance with the regulatory minimum of the NSFR in the terms established in External Circular 019 of 2019.
With respect to operational risk, commercial banks must assess, according to principles provided by the Basic Accounting Circular, each of their business lines (such as corporate finance, purchases and sales of securities, commercial banking, asset management, etc.) in order to record the risk events that may occur and result in fraud, technology problems, legal and reputational problems and problems associated with labor relations at the applicable bank.
Following international best practices to better manage adverse movements in interest rates, External Circular 025 of 2022 recently incorporated (within the SIAR), includes requirements related to interest rate risk in the banking book (IRRBB). To adequately manage the present or future risk on capital and earnings, the aforementioned External Circular considers the Economic Value of Equity (EV) affected by possible changes in the value of assets/liabilities and the Net Interest Margin (NIM), affected by possible changes in income/expenses. Regarding country risk, the Bank must implement a model that accounts for the potential losses it could incur with respect to financial operations abroad, including equity investments, due to a deterioration in the economic and/or socio-political conditions of the receiver country.
Internal Control System Framework
The SFC updated its Internal Control System Framework by issuing External Circular 008 of 2023 with the goal of converging towards best international practices and promoting the development of robust corporate governance structures, collecting the recommendations included in the Internal Control—Integrated Framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the Three Lines Model of the Chartered Institute of Internal Auditors (IIA) and the guidelines defined by the Basel Committee on Banking Supervision (BCBS) on corporate governance. These new rules come into effect on May 16, 2024.
Cybersecurity Rules
External Circular 007 of 2018 issued by the SFC, modified by External Circular 033 of 2020, contains the cybersecurity
50
risk framework for financial institutions. These rules were adopted to enhance cyber risk management and promote the adoption of best practices. The frameworks (i) provides financial entities with a set of minimum requirements with respect to information security and cybersecurity management, (ii) defines a single taxonomy to standardize the reporting of metrics and incidents related to information security and cybersecurity and (iii) adopts the Traffic Light Protocol (TLP).
Anti-Money Laundering Provisions
The regulatory framework to prevent and control money laundering is contained in, among others, Decree 663 of 1993; the External Circular 029 of 2014 issued by the SFC modified by External Circular 011 of 2022 ; and the Colombian Criminal Code, as amended.
Colombian laws adopt the latest guidelines related to anti-money laundering and other terrorist activities established by the Financial Action Task Force on Money Laundering (“FATF”). Colombia, as a member of the GAFI-SUD (a FATF-style regional body), follows the FATF’s recommendations. In 2022, the SFC introduced new requirements for financial entities and their risk management systems for Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) – in Colombia referred to as the “Sistema de Administración del Riesgo de Lavado de Activos y de la Financiación del Terrorismo” (“SARLAFT”). The new SARLAFT requirements include due diligence on ultimate beneficial owners and politically exposed persons; countermeasures to circumstances that involve high-risk countries; information requirements in international and domestic transactions; supervision in correspondent activities; enhancement of technology tools and digital use of potential customer's identity, among others.
Financial institutions must cooperate with the appropriate authorities to prevent and control money laundering and terrorism financing. Finally, the Colombian Criminal Code introduced criminal rules and regulations to prevent, control, detect, eliminate and adjudicate all matters related to financing terrorism and money laundering, including the omission of reports on cash transactions, mobilization or storage of cash, and the lack of controls.
Consumer Protection
Law 1328 of 2009 establishes a set of rights and responsibilities for customers of the financial system and a set of obligations for financial institutions in order to minimize disputes. This law also gives foreign banks more flexibility to operate in Colombia through “branches”. Following its adoption, credit institutions are allowed to operate leasing businesses and banks were allowed to extend loans to third parties so that borrowers could acquire control of other companies.
Pursuant to External Circular 023 of 2021 issued by the SFC, Smartsupervision technology was implemented to provide a mechanism for the detailed monitoring of petitions, complaints or claims (“Peticiones, Quejas & Reclamos” or “PQR”). This mechanism, provided by the SFC, allows financial consumers to submit petitions, complaints or claims and for them to be answered in due time and in the appropriate manner.
Payments System
In 2023, Colombia decided to promote an Immediate Payments System (“SPI” in Spanish) framework consistent with international practices in this area, such as those of Brazil with Pix and the United States with its recent FedNow system. Resolution 6 of 2023 and Circular DSP-465 issued by the Central Bank sets out the legal framework establishing a new payment ecosystem, that will be managed by the Central Bank and will allow the interoperability of technologies, systems and entities in an interbank instant payments infrastructure, making use of secure communication protocols and advanced encryption standards. According to the announced schedule, which contemplates five implementation phases, the project will be completed in the first quarter of 2025.
Regulatory Framework for Subsidiaries that are Non-Participants in the Financial Sector
Bancolombia’s Colombian subsidiaries that do not provide financial services are governed by the laws and regulations embodied in the Colombian Civil Code and the Colombian Commercial Code as well as any regulations issued by the SIC and the Superintendency of Corporations or any other type of special regulations that may be applicable to the commercial
51
and industrial activities carried out by such subsidiaries.
International regulations applicable to Bancolombia and its subsidiaries
FATCA
FATCA, a U.S. federal tax law enacted in 2010, imposes a 30% withholding tax on “withholdable payments” made to non-U.S. financial institutions that do not participate in the FATCA program or that fail (or, in some cases, that have affiliates in which they hold an interest of more than 50% and which are also non-U.S. financial institutions that fail) to provide certain information regarding their U.S. accountholders and/or certain U.S. investors (such U.S. accountholders and U.S. investors, “U.S. accountholders”) to the IRS.
Among the countries where Bancolombia operates, Colombia and Panama have signed an IGA Model 1. In addition, certain subsidiaries of Bancolombia located in other countries have transmitted directly to the IRS the information required pursuant to FATCA, since those other countries have not entered into an IGA.
CRS
The CRS, approved by the OECD Council in 2014, is applicable to signatory countries of the Multilateral Competent Authority Agreement (“MCAA”) and requires signatory countries to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. The CRS defines (i) which financial institutions are required to report; (ii) the types of accounts covered; and (iii) the due diligence procedures that financial institutions must follow to identify the reporting information.
Among the countries where Bancolombia operates, Colombia and Panamá, have entered into the MCAA.
Compliance with the terms of the international conventions signed for the exchange of information under CRS, the laws or any other regulations enforced in the relevant jurisdictions may increase Bancolombia´s compliance costs.
Financial Regulation in Panama
The banking business in Panama is regulated by Law Decree 9 of 1998 (as amended to date, including by means of Law Decree 2 of 2008, the "Banking Law"). Pursuant to the Banking Law, the Superintendency of Banks of the Republic of Panama (the “Superintendency of Banks of Panama”), as banking supervisor, has the power to issue accords and resolutions to regulate the banking system. These regulations focus mainly on matters such as bank licensing, corporate governance, banking supervision (consolidated and individual or sub consolidated), capital requirements, capital adequacy, liquidity requirements, risk management (credit, market, liquidity, country, asset and liability, operational, information technology, electronic banking), external audit, on-site inspections, reporting, compliance, changes of control, mergers and acquisitions, confidentiality, money laundering, voluntary liquidation, administrative and operational control, reorganization, bankruptcy, sanctions, client protection and dispute resolution.
To implement Basel III capital standards, the Superintendency of Banks of Panama issued Accord 1-2015 establishing capital adequacy standards. This accord establishes new requirements for the composition of a banking entity's capital base, as well as for capital adequacy ratios, including the core Tier 1 capital ratio and the Tier 1 capital ratio, all in line with Basel III standards. This accord became effective in June 2016 and, as of January 1, 2019, the new rules were fully implemented.
In addition, in October 2023, the Superintendency of Banks of Panama issued Accord 5-2023, which establishes rules on the capital conservation buffer to ensure that banks accumulate reserves that can be used in the event of incurring losses. According to this new Accord, banks must establish a capital conservation buffer of 2.5% of risk-weighted assets (credit, market and operational), comprised of ordinary primary capital and in addition to all minimum regulatory capital requirements. This accord will become effective as of July 1, 2024, and banks will have until July 2026 to comply with it.
52
In terms of liquidity, banks with a general license are required to maintain 30% of their global deposits in liquid assets (which include short-term loans to other banks and other liquid assets) of the type prescribed by the Superintendency of Banks of Panama. Additionally, banks with a general license are required to maintain assets in Panama of not less than 60% of their local deposits or any other percentage set by the Superintendency of Banks of Panama. Under the Banking Law, central bank deposits and other similar deposits of international reserves of sovereign states enjoy immunity from seizure or attachment proceedings. In 2018, the Superintendency of Banks of Panama, moving forward with the implementation of Basel III liquidity standards, issued a Liquidity Coverage Ratio (“LCR”) Accord that requires general license banks to maintain high-quality liquid assets in relation to their short-term net cash outflows. Daily compliance with the LCR (high-quality liquid assets as a percentage of net cash outflows) was implemented progressively, starting in December 2018 with a compliance rate of 25%, reaching a compliance rate of 100% in December 2022.
The Superintendency of Banks of Panama has also issued regulations consistent with Basel III standards regarding capital requirements for market risk in the trading book, regulations to improve country risk management and operational risk management, as well as governance and controls relating to investment in securities.
Panamanian regulations also require all financial institutions to maintain a legal reserve for certain obligations. The Superintendency of Banks of Panama may require additional marginal reserves. The exact level and method of calculation of these reserve requirements is established by the Superintendency of Banks of Panama.
Regarding credit risk, in March 2016, the Superintendency of Banks of Panama issued Agreement 3-2016, which establishes rules for the determination of risk-weighted assets applicable to on- and off-balance sheet credit exposures, which are more risk-sensitive in line with Basel II and Basel III standards. This Accord introduced the treatment of counterparty exposures in derivative transactions, as well as credit risk mitigation techniques, such as the treatment of financial guarantees.
In Panama, banks are prohibited from granting, directly or indirectly, to any natural or legal person, including any entity that is part of a bank's economic group, any loan or line of credit, guarantee or any other obligation (other than credit facilities fully secured by deposits in the bank) in favor of such person that exceeds at any time, individually or jointly, 25% of the bank's total regulatory capital. Related party obligations (as such term is defined in the applicable regulations) exceeding (i) 5% of its total capital, in the case of unsecured transactions, and (ii) 10% of its total capital, in the case of secured transactions (other than loans secured by deposits with the bank) are prohibited.
Banks, banking group companies and non-bank and non-financial affiliates are subject to inspection by the Superintendency of Banks of Panama, which must take place at least once every two years. The Superintendency of Banks of Panama is empowered to request from any bank or company belonging to the economic group of which a bank in Panama is a member, the documents and reports corresponding to its operations and activities.
The Superintendency of Banks of Panama is empowered to assume administrative and operational control of a bank, including the possession of its assets and the exercise of its administration, to defend the best interest of the bank's depositors and creditors, under any of the following grounds: (i) at the request of the bank; (ii) if the bank is unable to continue its operations without endangering the interests of depositors; (iii) as a consequence of the evaluation of an advisor's report; (iv) failure to comply with measures ordered by the Superintendency of Banks of Panama; (v) if the bank conducts its operations in an illegal, negligent or fraudulent manner; (vi) if the bank has suspended payment of its obligations; and (vii) if the Superintendency of Banks of Panama determines that the capital adequacy, solvency or liquidity of the bank has deteriorated in such a manner as to require the intervention of the Superintendency of Banks of Panama. Upon expiration of the administrative control period, the Superintendent will decide whether to proceed with the reorganization of the bank, the compulsory liquidation of the bank or the return of administrative and operational control to the directors or legal representatives of the bank.
The Superintendency of Banks of Panama is also in charge of the supervision and oversight of the trust business, regulated by (i) Law 1 of 1984 which establishes aspects such as minimum requirements for trust contracts, characteristics of trusts, rights and responsibilities of settlors, trustee and beneficiaries and (ii) Law 21 of 2017 which strengthens the supervisory and regulatory capacities of the Superintendency of Banks of Panama with respect to the trust business and imposes rules with respect to trust licensing, accounting, corporate governance and reporting.
53
Other regulations in Panama
Securities market activities in Panama are subject to the supervision, control, and oversight of the Superintendency of the Securities Market of the Republic of Panama (the “Superintendency of the Securities Market of Panama”). These activities are mainly regulated by Law Decree 1 of 1999 (as amended to date, the "Securities Law"), which establishes the regulatory framework for the Panamanian securities market. Among the most important aspects of the Securities Law are: (i) the establishment of a system of coordination and cooperation among financial supervisors, which allows for a broader supervision of financial conglomerates; (ii) the creation of the Superintendency of the Securities Market of Panama, as a supervisory entity replacing the former National Securities Commission; (iii) the authorization to the Superintendency of the Securities Market of Panama to carry out consolidated supervision, as the national supervisor of intermediaries with agencies abroad, and to enter into cooperation agreements with foreign supervisors to facilitate consolidated supervision; (iv) the regulation of foreign currency exchange as a securities activity; (v) the introduction of provisions regarding the clearing and settlement of securities and financial instruments; and (vi) the creation of new participants to promote over-the-counter transactions.
The main aspects of the securities business covered by the Securities Law and the accords and resolutions issued by the Superintendency of the Securities Market are (i) licensing requirements for securities brokers, investment advisors, fund managers and self-regulatory organizations, (ii) registration requirements for risk rating agencies, providers of securities prices, securities, public offerings, funds and providers of securities market administrative services, (iii) authorization to solicit proxy votes in respect of registered securities, (iv) public offering notification requirements for the acquisition of registered shares, (v) options, futures and derivatives contracts, (vi) custody, clearing and settlement of securities, (vii) penalty and sanction procedures, (viii) voluntary liquidation, reorganization and bankruptcy of broker-dealers, self-regulatory organizations, funds and fund administrators, (ix) reporting by registered issuers of securities, broker-dealers, investment advisers, funds, fund administrators, self-regulatory organizations and other registered entities, (x) on-site inspection of broker-dealers, investment advisers, self-regulatory organizations, funds, fund administrators, securities market administrative service providers, securities pricing providers and rating agencies, (xi) capital requirements, liquidity requirements, risk assessment, confidentiality, conflict of interest, suitability, compliance and asset laundering of securities brokers and (xii) communication of material events by registered securities issuers.
Panama has also enacted a series of laws to prevent, detect and sanction money laundering activities such as: (i) Executive Decree 947 of 2014 reorganizing the Financial Analysis Unit for the Prevention of Money Laundering, Terrorism Financing, and Financing of the Proliferation of Weapons of Mass Destruction (the "UAF"), (ii) Law 23 of 2015 adopting measures to prevent money laundering, terrorism financing, and financing of the proliferation of weapons of mass destruction, and (iii) Executive Decree 35 of September 6, 2022 which regulates Law 23 of 2015 and establishes the measures that banks and other regulated entities must adopt for the prevention, identification and reporting to the UAF of suspicious transactions.
Law 23 of 2015 and Accord 7-2015 issued by the Superintendency of Banks of Panama establish that the following, among others, are considered financial regulated entities for purposes of money laundering, financing of terrorism or any other illicit activity: (i) banks; (ii) banking groups; (iii) trust companies; (iv) finance companies; (v) leasing companies; (vi) factoring companies; (vii) credit, debit or prepaid card processing entities; (viii) entities issuing means of payment and electronic money; (ix) money remittance companies and exchange houses; (ix) companies providing any other service related to trust companies. These entities must take the necessary measures to prevent their operations and/or transactions from being used for money laundering, financing of terrorism or any other illicit activity, including tax evasion.
Following the recommendations of the Financial Action Task Force (“FATF”), Panama enacted Law 70 of 2019, which amended the Criminal Code imposing the penalty of imprisonment for persons who engage in tax fraud, and Law 254 of 2021, which includes provisions on tax transparency, prevention of money laundering, and accounting records, due diligence, and beneficial owners.
Panama has also made progress in adopting international standards on transparency and cooperation in tax matters. In October 2016, Panama approved the agreement with the U.S. government to improve international tax compliance and to implement FACTA; in February 2017, it approved the Convention on Mutual Administrative Assistance in Tax Matters; and in October 2020 it approved the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base
54
Erosion and Profit Shifting. All the above has enabled the exchange of information on tax matters between Panamanian tax authorities and a broader set of countries to implement these commitments. In May 2017, the obligations and responsibilities of banking institutions with respect to due diligence procedures to identify reportable accounts were set forth in regulations, as well as the responsibilities with respect to the control measures and information requirements necessary to comply with international agreements.
Cybersecurity Regulation
Panama has several laws that regulate incidents related to technological means.
The Criminal Code establishes penalties of two to four years of imprisonment to anyone who unduly enters or uses a database, network, or computer system, as well as to anyone who unduly seizes, copies, uses or modifies the data in transit or contained in a database or computer system, or interferes, intercepts, hinders or prevents its transmission. It also establishes penalties of four to six years of imprisonment for anyone who alters, modifies, or manipulates programs, databases, networks, or computer systems to the detriment of a third party. This penalty is five to eight years of imprisonment if the act is committed by the person in charge or responsible for the database, networks, or computer system or by the person authorized to access them, or when the act was committed by the person using privileged information.
Law 81 of 2019 and Executive Decree No. 285 of 2021 establish the principles, rights, obligations, and procedures that regulate the protection of personal data. Law 81 of 2019 requires the persons responsible for the processing of personal data contained in databases to establish protocols, processes and procedures for management and secure transfer, protecting the rights of data owners over their data.
In 2013, Panama approved the Budapest Convention on cybercrime, by which Panama committed, among other things, to adopt legislative measures related to computer crimes and crimes against confidentiality, integrity and availability of data and computer systems. Additionally, through Resolution No. 17 of September 10th, 2021, the National Council for Government Innovation approved the National Cybersecurity Strategy for the period 2021-2024.
Law 51 of 2008 and Executive Decree 24 of 2019 define and regulate electronic documents and signatures and the provision of technological storage services of documents and certification of electronic signatures and adopts other provisions for the development of electronic commerce.
The Superintendency of Banks through Accord 8-2010 established provisions for the integral comprehensive management of risks to banks, including information technology risk and through Accord 3-2012 developed the measures that banks must adopt in relation to information technology risk, which include, among others, establishing policies, strategic plans and procedures, as well as the allocation of necessary resources for information technology management and having an information technology committee which will oversee the management of the bank's information technology. Additionally, Accord 6-2011 establishes the guidelines for electronic banking and related risk management. Finally, Accord No. 006-2016 establishes guidelines for risk management regarding money laundering, terrorism financing and financing of the proliferation of weapons of mass destruction, which may arise with respect to new products and new technologies
Financial Regulation in El Salvador
Decree 592 of 2011, entitled “Supervision and Regulation of the Financial System” (“Ley de Supervisión y Regulación del Sistema Financiero”) was enacted to strengthen the State’s organization, adapting all supervision and regulatory institutions to the economic reality of the financial system. Decree 592 states that the Superintendency of the Financial System of El Salvador and the Central Reserve Bank of El Salvador are mandated to supervise all members of the financial system and to approve the necessary regulation for the adequate application of Decree 592.
The main objectives of Decree 592 are to maintain stability in the Salvadorian financial system, to guarantee efficiency, transparency, security and solidity within the system, and to bring all its members in compliance with this law, and other applicable laws and regulations, all in accordance with best international practices.
55
The Superintendency of the Financial System of El Salvador is responsible for the supervision of the individual and consolidated activities of all the members in the Salvadorian financial system, as well as the people, operations and entities described in the law.
Decree 592 establishes all the powers and duties of the Superintendency of the Financial System of El Salvador, some of which are: (i) to fulfill and enforce the regulations applicable to the entities subject to its supervision and issue all the necessary instructions for compliance of the laws applicable to the system; (ii) to authorize the establishment, function, operation, intervention, suspension, modification, revocation of authorizations and closure of all members of the system, in accordance with regulations. In the event of closure, the Superintendency of the Financial System of El Salvador will coordinate with the entities involved the actions established by the law; (iii) risk prevention through the monitoring and management of the members within the system with a view toward the prudential management of liquidity and capital adequacy; (iv) facilitation of an efficient, transparent and organized financial system; (v) to require that all supervised entities and institutions be managed in accordance with the best international practices of risk management and corporate governance; and (vi) all other legal requirements.
In 2015, the Salvadorian congress amended Decree 592 to include within the scope of the supervision of the Superintendency of the Financial System of El Salvador all legal entities dedicated to the money transfer business. In 2016 another amendment to Decree 592 was enacted to define the requirements that must be met by valuation experts when elaborating valuation reports in connection with guarantees of loans granted by financial entities.
Banking Law of El Salvador
In 1999, Salvadorian congress enacted Decree 697, which regulates the financial intermediation activities and other operations performed by banks. Banks are required to establish the regulatory reserve requirements set by the Superintendency of the Financial System of El Salvador in accordance with the deposits and liabilities of each bank. According to the Central Reserve Bank of El Salvador regulations, the reserve requirements for Salvadorian banks as of December 31, 2023 are:
| Ordinary Reserve Requirements | |
% | ||
Checking accounts | 16% | |
Saving accounts | 14.5% | |
Time deposits | 11.5% | |
Borrowings from foreign banks | 3% | |
Long-term debt(1) | 5%- 15% |
(1)15% for long-term debt with maturity above one year and 15% for long-term debt with maturity less than one year. Investment Certificates with maturity equal or more than 5 years with mortgage guarantee, are not obliged to have reserves.
* Transitional regime. Beginning from September 2023 to March 2024, and changing progressively.
Monetary Integration Law of El Salvador
The Monetary Integration Law adopted the U.S. dollar as the legal currency, establishing a fixed exchange rate of 8.75 colones per USD 1.00. The colón continues to have unrestricted legal circulation, but the Central Reserve Bank of El Salvador has been replacing it with the U.S. dollar each time colón bills and coins are used in commercial transactions.
Since the implementation of the Monetary Integration Law, all financial operations, such as bank deposits, loans, pensions, securities offerings and any other activities performed through the financial system, as well as the accounting records, must be expressed in U.S. dollars. The operations or transactions of the financial system made or agreed in colones before the effective date of the Monetary Integration Law are expressed in U.S. dollars at the exchange rate established in such law.
56
Investment Funds Law of El Salvador
The investment funds law seeks to encourage economic activity by providing small investors with access to capital markets, diversification of their investments and channeling of their savings into productive sectors, in order to generate higher economic growth. This Law sets forth the regulatory framework for the supervision of investment funds, their share of participation and companies that administer such funds and their operations; as well as other participants to which it refers. Additionally, it regulates the marketing of participation shares in foreign investment funds.
This Law also provides for the creation of investment fund managers who are responsible for performing all actions, contracts, and operations necessary for the administration and operation of investment funds.
In 2016, the Central Reserve Bank of El Salvador enacted Technical Standards (“Normas Técnicas”) to apply this Law including those related to permitted transactions by the investment funds, and those related to the disclosure of information, among other things.
Financial Inclusion Law of El Salvador
This law was enacted by the Salvadorian Congress in September 2015 and aims to promote financial inclusion and competition in the Salvadorian financial system, as well as to reduce costs for users and customers. These goals are achieved by authorizing the issuance and circulation of electronic money and the use of the “Simplified Account”, an account that does not require customers to have a tax ID and allows limited balances and transactions.
This law encourages and promotes citizens to have access to formal financial services and to use retail payment instruments to achieve their insertion into productive activities, contributing to the improvement of their quality of life and well-being, and therefore the law facilitates the development of financial products that are designed having in mind the income levels and volume of transactions of the low-income population.
On June 14, 2022, amendments to the Financial Inclusion Law were approved. These amendments modify the requirements of the Simplified Account, creating; (a) Simplified Account with up to 3 minimum wages, and (b) Simplified Account with 3 to 6 basic monthly wages. Accounts can be opened with no minimum amount and by anyone from the age of 16. The Central Reserve Bank of El Salvador enacted certain Technical Standards to apply the amendments to the Financial Inclusion Law, including limits applying to transactions and balances, as well as other regulations.
In El Salvador, the labor law establishes minimum wages. The value of each wage is decided and reviewed at least every two years by the National Minimum Wage Council. Currently, the basic commerce and services sector monthly wages is US$365 per month.
On October 10, 2022, the amendments to the technical standards to carry out operations and provide services through physical, digital and mobile banking correspondents, and administrators of banking correspondents (NASF-11) entered into force. These amendments have enabled banking services, to be offered in locations where banks and financial institutions have limited or no presence, through the use of technology.
Consumer Protection Law of El Salvador
This law has been in force in El Salvador since September 2005. Its purpose is to protect consumers rights in order to ensure balance, certainty and legal security in their relationships with commercial establishments, including financial institutions, retailers and suppliers. The law also, created the institutional framework to enable enforcement of the law and safeguard consumer’s rights.
The law applies to commercial activities generally, e-commerce included, but also has specific regulations that apply to financial services providers, especially regarding obligations and prohibitions, as well as setting limits for the amounts of bank fees and surcharges, and contract requirements.
57
The Central Reserve Bank of El Salvador has enacted certain technical standards in order to apply this law.
Bitcoin Law of El Salvador
On June 8, 2021, the Congress of El Salvador enacted Legislative Decree 57 with the purpose of regulating Bitcoin as legal tender in any type of transaction carried out in El Salvador (“Bitcoin Law”). The Bitcoin Law has been in force since September 7, 2021.
Pursuant to the Bitcoin Law, the Central Reserve Bank of El Salvador, with the Registry of Suppliers of Bitcoin Services, must register any supplier of bitcoin services (such as custody services, exchange services, payment processors or wallets services), prior to starting operations in El Salvador. In order to obtain that registration, the supplier must comply with all mandatory requirements, including a Bitcoin Service Provider’s business qualification, financial condition, legal and regulatory compliance, risk management and controls, money laundering risk prevention systems, terrorist financing, information security and operational resistance.
Other regulations related to the implementation of Bitcoin as legal tender that have been issued are the NRP-29 Technical Standards to facilitate the participation of financial entities in the Bitcoin ecosystem, and the guidelines for the authorization of the operation of the technological platforms for Bitcoin and Dollar services. The Central Reserve Bank of El Salvador approved both of these regulations on September 7, 2021.
The institutions subject to such technical standards are banks, cooperative banks, savings and credit entities, and electronic money suppliers. The purpose of NRP-29 is to regulate the services provided by these institutions to their clients, regardless of whether such services are offered directly or through a supplier of bitcoin services. The purpose of the guidelines is to establish the applicable provisions for the authorization of the Bitcoin and Dollar services, that the regulated subjects wish to provide to their clients.
Cybersecurity in El Salvador
The Technical Standards for Information Security Management (NRP-23) have been in force since July 1, 2020. The purpose of this standard is to establish the minimum criteria for information security management and cybersecurity according to the nature, size, and risk profile of entities, as well as the volume of their operations and international best practices.
On March 8, 2022, Technical Regulations on Cybersecurity Measures in Digital Channels entered into force (NRP-32. The main purpose of these regulations is to regulate cybersecurity measures of financial entities, including the information, financial products and services that financial entities provide to their clients through digital channels and how data is collected, processed, transmitted and stored.
On May 2022, a Cybersecurity Policy was issued by the Government, which includes the review of the current legal framework, the creation of a specialized legal commission to verify tools related to computer crimes, and the creation of networks for the exchange of information on computer crimes between actors in the judicial system, at local and international levels.
Enforcement Matters in El Salvador
On June 7, 2022, the new standard of the Financial Investigation Unit (“FIU”) of the Attorney General of the Republic, for the Prevention, Detection and Control of Money Laundering and Assets, Funding of Terrorism and Funding of the Proliferation of Weapons of Mass Destruction became effective. This standard brought about substantial changes to the processes for receiving and monitoring cash transactions in branches, particularly in terms of the level of detail required in relation to the identity of the people carrying out the operations, as well as in the issuance of reports and monitoring of international transactions. On September 27, 2023, new changes to these standards came into effect. One key change is that the highest governing body of the relevant institution will limit compliance reporting to only the internal and external
58
auditor. Entities supervised by the Superintendency of the Financial System need to present to its Board of Directors a compliance report by its auditor. The reforms also place special emphasis on the importance of verifying customer identity before establishing business relationships. More rigorous measures were established for client profiling in situations involving high-risk individuals or Politically Exposed Persons (“PEP”).
The Technical Standards for Money and Asset Laundering Risk Management, Funding of Terrorism and Funding of the Proliferation of Weapons of Mass Destruction (NRP-36) were issued by the Salvadorian Central Bank issued on September 23, 2022 and entered into force on October 10, 2022. The main objective of this standard is to ensure consistency between the regulatory obligations contained in the standard and the provisions of the new FIU Instructions. The standard provides guidelines for managing the threat of money and asset laundering, the financing of terrorism and the financing of weapons of mass destruction. It also provides instructions on how to detect unusual operations and how to report operations related to these risks.
Reforms to the “Law Against Money Laundering and Other Assets” are currently in process. These reforms will allow regulated entities to apply “simplified, standard or intensified” measures to identify clients and the origin of their funds, and establish the National System for the Prevention, Control and Punishment of Money Laundering, Financing of Terrorism and the Proliferation of Weapons of Mass Destruction. These changes are part of the efforts regarding the Fourth Round of Mutual Evaluations carried out by the Financial Action Task Force of Latin America (GAFILAT).
Pension System in El Salvador
On December 20, 2022, the Congress approved three new laws; the Integrated Pension System Law, the Special Law for the creation of the Pension Institute, and the Special Act for the issuance of certificates of pension obligations and the dissolution of the pension obligation trust.
The Special Law for the creation of the Pension Institute creates a Salvadoran Institute of Pensions as an autonomous institution and which will become the official entity for supervision and control of the Pension System.
Financial Recovery Regulations in El Salvador
On May 3 2022, the Technical Standards for the preparation of financial recovery plans entered into force. The purpose of the standard is to require financial entities to prepare financial recovery plan and define its minimum content, the recovery plan should contain: responsible for its preparation, financial stress scenarios, quantitative indicators, prompt implementation processes, communication plan with authorities and the public, identification of critical functions, relevance of the plan from risk management. The Technical Standards set out the manner in which financial institutions must prepare, apply for approval, and implement their recovery plans, as well as the scenarios that may affect their financial, economic and legal situation.
Digital Assets Issuance Law of El Salvador
Congress issued the Digital Assets Issuance Law, effective since February 2, 2023. Its objective is to generate a regulatory framework that enables and ensures the transfer of digital assets in public offering issues. This law enables an alternative market to the traditional stock market.
E-government and Modernization in El Salvador
There are several efforts by the government aimed at modernizing the state, including the approval in September 2023 of the General Law of Digital Modernization of the State, which involves a strategic partnership with Google LLC, as well as the establish of provisions necessary for the implementation, development, digital transformation and modernization of the Salvadoran State. These efforts also include initiatives to create a new country image, attract tourism and investment and generate state efficiency.
59
Electoral System Changes, Municipal Recomposition and Congress Deputies Decrease in El Salvador
Deep reforms were issued to the electoral system on July 2023, which added a recomposition of municipalities (from 262 to 44) and districts, and a decrease in the number of Congress Deputies from 84 to 60.
Financial Regulation in Guatemala
Decree No. 16-2002, Guatemalan Central Bank Law (“Ley Orgánica del Banco de Guatemala”), sets forth the scope of the activities of Banco de Guatemala in its capacity as Central Bank of the country. The Decree establishes Banco de Guatemala’s fundamental purpose, which involves contributing to the creation and maintenance of the most favorable conditions for the development of the national economy. This includes facilitating the monetary, foreign exchange and credit conditions that promote stability in general prices.
Pursuant to Decree No. 16-2002, Banco de Guatemala´s main objectives are: (i) being the sole issuer of the national currency, (ii) ensuring the effective functioning of the national payments system, (iii) ensuring an adequate liquidity level in the banking system, (iv) receive in deposit the bank reserves and legal deposits referred to in the law, and (v) managing international reserves.
Decree No. 16-2002 also regulates the activities of the Monetary Board as governing body of the Banco de Guatemala financial system. Pursuant to Decree No. 16-2002, the Monetary Board has roles with respect to the Guatemalan financial system, including to: (i) determine and assess the monetary, currency exchange and credit policies of the country; (ii) ensure liquidity and solvency of the national banking system; (iii) regulate aspects related to bank reserves and legal deposits; (iv) regulate the Banking Clearing House Chamber; (v) authorize the investment policy of international monetary reserves; and (vi) establish the minimum reserves required in order to strengthen the Banco de Guatemala´s net worth; (vii) issue regulations regarding the financial system and financial activities, and; (viii) review provisions or standards submitted for consideration by the Superintendency of Banks of Guatemala or by Banco de Guatemala for approval, among others.
The Superintendency of Banks of Guatemala is created and regulated by Decree No. 18-2002 Bank Supervision Law (“Ley de Supervisión Financiera”). The Decree establishes the scope of the Superintendency´s of Banks of Guatemala regulatory and supervisory activities within the financial system. Thus, the Superintendency of Banks of Guatemala is in charge of the supervision of entities such as the Banco de Guatemala, banks, financial corporations, credit institutions, bond entities, insurance entities, warehouse deposit companies, currency exchange offices, financial groups and holding companies of financial groups, and other entities.
Decree No. 19-2002, the Banks and Financial Groups’ Law (“Ley de Bancos y Grupos Financieros”) regulates the creation, organization, merger, activities, operations, functioning, suspension of operations and winding-up of banks and financial institutions, as well as the establishment and closure of branches and representative offices of foreign banks in Guatemala.
This Decree also states that the members of the Board of Directors and General Managers of the banks and financial institutions will be civilly, administratively and criminally liable for the performance of their duties and will therefore be unlimitedly liable with their personal assets with respect to fines, damages and other monetary sanctions, Directors and General Managers are subject to potentially unlimited personal liability.
Decree No. 19-2002 allows financial institutions to form financial groups or conglomerates under the common control of a holding entity or to designate one of the group's financial entities as their holding company. To form such conglomerates of financial groups, it is necessary for the financial group to have a bank. Identification as a financial group does not imply that the financial group becomes a separate legal entity. Rather, the purpose of such identification is to enable the Superintendency of Banks of Guatemala to carry out its supervisory tasks on a consolidated basis.
Other regulations in Guatemala
60
Decree No. 94-2000, the Law on Free Trading in Foreign Currency (Ley de Libre Negociación de Divisas), permits and regulates the use, transfer and payment in foreign currency, as well as the use of accounts and deposits in foreign currency within the Guatemalan financial system. Corporations and other entities wishing to offer securities denominated in foreign currency must obtain prior authorization from the Monetary Board.
Decree No. 67-2001, the Law against the Laundering of Money or Other Assets (Ley Contra el Lavado de Dinero u Otros Activos), and Governmental Agreement No. 118-2002, Regulations to the Law against the Laundering of Money or Other Assets (Reglamento de la Ley Contra el Lavado de Dinero u Otros Activos), were promulgated for the purpose of preventing, controlling, monitoring and punishing the laundering of money or other assets derived from the commission of any crime, as well as: These regulations created the Financial Intelligence Unit within the Superintendency of Banks of Guatemala under the name of Special Verification Inspectorate (IVE), which is responsible for ensuring the purpose and compliance with this law.
Resolution JM-180-2002, which is the Regulation of operations that can be carried out among the companies of the Financial Group (Reglamento de operaciones que pueden efectuar entre sí las empresas del Grupo Financiero), regulates the financial operations and / or provision of services that may be carried out among the companies of the financial group, in accordance with the provisions of the Banks and Financial Groups’ Law.
Resolution JM-117-2009, which is the Regulation for the Management of Liquidity Risk (Reglamento para la Administración del Riesgo de Liquidez), has the purpose of establishing the minimum aspects that must be observed by banks, financial companies and offshore entities, for the management of liquidity risk, for liquidity risk management strategy that incorporates the credit profile of the institution, with prudential policies and processes that identify, quantify, monitor and control this risk and be able to manage liquidity on a day-to-day basis, as well as contingency plans to deal with liquidity problems.
Resolution JM-104-2021, which is the Regulation for the Management of Technological Risk (Reglamento para la Administración de Riesgo Tecnológico), aims to establish the minimum guidelines that banks and other financial entities must comply with to manage technological risk. The relevant aspects brought by the new regulation include: i) regulating the obligations that financial institutions have when contracting services that process and/or store information with third parties, ii) ordering matters related to the alternate computer center, establishing that it must be in a geographical location different from the main computer center, iii) establishing the requirements to obtain authorization to process and/or store information outside the national territory, among which is to obtain the legal opinion of a lawyer of the jurisdiction where the information will be processed and/or stored, and iv) indicating the minimum aspects that must contain the backups of the information of the IT infrastructure, Information system and database.
Decree 8-2022, the Insolvency Law (Ley de Insolvencia), creates a legal framework that allows individuals and legal entities who have not been able to pay their debts to reorganize financially, administratively and operationally, without losing their assets and renegotiate their debts, in order to generate income that allows them to pay said debts. One of the important modifications with this rule is that it centralizes the payment of all civil, commercial, tax and labor debts, which the debtor has with or without guarantee through the bankruptcy judicial process.
Decree 27-2022, Law of Preferential Interest to Facilitate Access to Social Housing (Ley de Interés Preferencial para Facilitar el Acceso a la Vivienda Social), regulates a mechanism where the State partially subsidizes the interest rate that customers must pay for mortgage loans on the purchase of a first home in decent conditions, promoting access to housing to the population with limited resources. It is important to note that banks and entities authorized to grant credits, will collect the subsidy, applying the corresponding discount in their monthly income tax return or payment of other taxes caused, therefore the State will not make any disbursement for the subsidy to financial institutions, transferring the burden to the banks for the collection of the same.
Resolution JM-47-2022, contains the Regulations for Credit Risk Management (Reglamento para la Administración de Riesgo de Crédito), which regulates the certain activities of banks, offshore entities and companies of a financial group that grant financing, such as the minimum information of applicants and debtors, and the valuation of credit assets. Among its main objectives is to issue regulation for the following aspects: (i) management of specific and dynamic reserves or provisions; (ii) [requiring] measurement with the expected loss given default ("PDI") model; and (iii) establishment of a
61
new segmentation of credit assets such as consumer loans, home mortgage loans, productive loans and commercial loans. As of January 1, 2024, financial institutions will have to implement the requirements of this Resolution.
Resolution JM-67-2023 introduces important Amendments to the Regulation for Credit Risk Management, JM-47-2022 (Modificaciones al Reglamento para la Administración de Riesgo de Crédito, JM-47-2022) with the purpose of facilitating the implementation of the Manual for Credit Risk Management and helping to maintain the stability of the supervised banking system. Among the main provisions are the following: (i) modification of the procedure to gradually withdraw generic reserves or provisions from computable equity, (ii) calculation of Expected Losses and Dynamic Reserves or Provisions, (iii) general aspects of valuation and (iv) application of Internal Methodologies for the calculation of Expected Losses.
Resolution JM-76-2023 contains Amendments of the Accounting Instructions Manual for Entities Subject to Surveillance and Inspection of the Superintendency of Banks (Modificación del Manual de Instrucciones Contables para Entidades Sujetas a la Vigilancia e Inspección de la Superintendencia de Bancos), which seeks to standardize the accounting treatment for the use of the accounts "RESERVES FOR EVENTUALITIES" and "OTHER RESERVES"; given that it was determined that different creiteria were applied to the use of equity accounts.
Resolution JM-86-2023 contains a new Collective Insurance Regulation (Reglamento del Seguro Colectivo), aimed at modernizing the general legal framework for the management of collective insurance, focusing on optimizing performance and highlighting the duties of insurers in customer service and communication with policyholders, improving transparency and protection for policyholders. Some important aspects of the Collective Insurance Regulation include changes in placement and coverage guidelines, rules with respect to the use of electronic means for the contracting of insurance, among others.
Agreement No. 40-2023 which amends Agreement Number 6-2014 "Instructions for the Disclosure of Information by Banks, Financial Companies, Microfinance Entities, General Deposit Warehouses and Controlling Companies or Responsible Companies of a Financial Group" (Modificaciones el Acuerdo Número 6-2014 "Instrucciones para la Divulgación de Información por parte de los Bancos, las Sociedades Financieras, las Entidades de Microfinanzas, los Almacenes Generales de Depósito y las Empresas Controladoras o Empresas Responsables de un Grupo Financiero) aims to develop a mechanism that establishes the minimum information that institutions must disclose and to ensure that there is sufficient, accurate and timely information for users and the public, which represents an important step in financial regulation and transparency through the modernizination of information transfer processes.
Agreement Number 41-2023 of the Superintendent of Banks of Guatemala, which amends Agreement Number 7-2014 "Instructions for the Disclosure of Information by Insurance and Reinsurance Companies" (Modificaciones al Acuerdo Número 7-2014 "Instrucciones para la Divulgación de Información por parte de las Aseguradoras y Reaseguradoras) The main aim of the Superintendency of Banks of Guatemala aims to improve the transparency and accessibility to certain financial information. Changes include updating disclosure guidelines and timeliness and accuracy requirements.
Cybersecurity in Guatemala
Resolution JM-104-2021 which is the Regulation for the Management of Technological Risk (Reglamento para la Administración de Riesgo Tecnológico), includes a chapter on cybersecurity. It details cybersecurity management, emphasizing the functions of identification, protection, detection, response and recovery. Institutions are required to consider and evaluate vulnerabilities, cyber threats, and cyber-attacks. Moreover, it mandates the development of protection policies to ensure the confidentiality, integrity, and availability of assets in cyberspace. It also addresses aspects of detection, response, and recovery from cyber incidents, as well as the organization of response teams and the inclusion of cybersecurity clauses in contracts with suppliers. The exchange of information between institutions is encouraged to strengthen cybersecurity management.
The Penal Code of Guatemala, Decree No. 17-73 (Código Penal de Guatemala), addresses cybercrimes. It includes provisions regarding the destruction, alteration and reproduction of computer records, as well as the creation of databases that impact individuals’ privacy. Additionally, it penalizes the manipulation of information for commercial or fiscal
62
purposes, unauthorized use of computer records, and the distribution of destructive programs. These provisions aim to regulate and penalize actions that threaten the security and integrity of information in the digital sphere in Guatemala.
The Law for the Recognition of Electronic Communications and Signatures, Decree No. 47-2008 (Ley para el Reconocimiento de las Comunicaciones y Firmas Electrónicas), establishes the foundation for security in digital transactions and the validity of electronic communications. The Law on Access to Public Information, Decree No. 57-2008, ensures transparency and the right of access to information in public records, implying the protection of data and digital systems. Meanwhile, the Law on Simplification of Requirements and Administrative Procedures, Decree No. 5-2021, promotes efficiency and digitalization of processes, encouraging the adoption of cybersecurity measures in all governmental interactions and with citizens. Together, these laws reinforce the legal infrastructure for cybersecurity in Guatemala, promoting modernization and transparency in governmental management, and enhancing cybersecurity.
B.9 CYBERSECURITY FRAMEWORK
See Item 16 k. “Cybersecurity”
B.10 ESG
General approach to ESG
Since 2014, we have sought to deepen the integration of sustainability criteria in our product offering, our recommendations to the market and our investment strategy. This commitment is aligned with a global agenda, which is to comply with the United Nations Sustainable Development Goals (SDGs), designed to achieve more prosperous societies and protect the planet.
In the Group, we believe in responsible and sustainable investment, and we are aware that ESG criteria are essential to the conduct of our business. We seek to incorporate these criteria as a fundamental and integral element in all our investment processes. Leading indexes worldwide constantly monitor the performance of companies in environmental, social, economic, and corporate governance terms. Bancolombia is included in many of these indexes, encouraging the implementation of ESG practices.
We understand ESG as the environmental, social and governance issues that are relevant for the Group to endure over time, balancing the risks, opportunities and efficiencies that arise from this concept. With respect to environmental aspects, this covers our climate change strategy, decarbonization strategy and eco-efficiency strategy. With respect to social aspects, this covers issues related to financial inclusion, gender, human rights and talent and culture strategies. With respect to economic and governance aspects, this covers Board of Directors governance, the fiscal strategy, the codes of ethics and conduct and the sustainable business strategy.
Regarding regulation of ESG matters, in Colombia, the Government issued Decree 151 of 2021, which reformed the information disclosure regime by securities issuers, such as the Bank, providing a two-year transition period for its implementation. The Bank has identified the required disclosure under the TCFD and SASB (“Sustainability Accounting Standards Board”) and is establishing a disclosure framework to comply with the new regulations. We released the first report in March 2024 for Colombia Circular 031, which includes TCFD and SASB. Last, on March 6, 2024, the SEC adopted its climate-related disclosure rules that will required foreign private issuers, such as the Bank, to expand its climate-related disclosure in the future.
Environmental Dimension
We seek to identify the direct and indirect impacts of our activities and encourage the prevention, mitigation, and correction of them.
The strategy of our environmental management model is directly related to our business strategy. We have set up environmental policies, which include environmental and social risk analysis, environmental management, controversial issues in financing and investment, responsible investment, climate change and sustainable procurement.
63
As a field in constant evolution, climate occupies a top position in our broader environmental agenda, and we recognize that managing climate-related risks and opportunities is vital to the long-term sustainability of the Bank. For this reason, Bancolombia became one of the founding banks of the Net Zero Banking Alliance (NZBA). This is an industry-led Alliance, hosted by the United Nations Environment Program Finance Initiative (UNEP FI) and co-launched by the Financial Services Taskforce (FSTF). Under this alliance (NZBA), Bancolombia committed to; (1) transition all operational and attributable GHG emissions from our lending and investment portfolios to align with pathways to net-zero by mid-century, or sooner, including CO2 emissions reaching net-zero at the latest by 2050, consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100; (2) use decarbonization scenarios from credible and well-recognized sources; and (3) prioritize our efforts where we have, or can have, the most significant impact, i.e. the most GHG-intensive and GHG-emitting sectors within our portfolios, which are key to the transition to a net-zero carbon economy.
Bancolombia has identified physical and transition risks in some critical sectors in its loan portfolio and investments that can generate potential losses for the Bank. For more information on these risks, please refer to Item 3.D. Risk Factors – “The Bank is exposed to ESG risks that could affect the Bank’s financial condition and results of operations”. On February 2021, Bancolombia launched its Climate Change Policy to support our clients in the transitioning to a low carbon economy. This policy includes the following sectors: coal mining, coal-fired power generation, oil production, livestock, cement manufacturing, iron and steel manufacturing, air transport, shipping, and vehicle manufacturing. We have stated our commitment to provide no new financing to companies engaged in coal mining or coal-fired power generation and to progressively reduce our exposure to these sectors through 2030. In 2023, we included unconventional sources of oil and gas (shale oil and gas, ultra-deepwater, Arctic oil, Amazon Basin oil, oil sands and liquefied natural gas) in the list of controversial activities to which we will not provide financing or invest in.
We measure and manage our scope 1, 2 and 3 emissions.
For our Scope 1 and Scope 2 emissions, we have defined a target of reducing our emissions by 95% for 2030 against a baseline for 2019. 2023 saw a reduction of 38% of Scope 1 and 2 emissions against 2022.
For Scope 3 categories 1 and 6 (purchased goods and services, business travel), the defined reduction target is 50% for 2030 with a baseline for 2019. 2023 emissions increased 3% in against 2022 as a result of the resumption of business travel.
A target for Oil & Gas has been defined using the Temperature Rating methodology developed by SBTi because no Sectoral Decarbonization Approaches (SDA) has been published for this sector.
Targets for the Cement and Power (including electricity derived from coal) have been defined using the Sectoral Decarbonization Approaches (SDA) published by SBTi.
The remaining sectors have been analyzed using a Temperature Rating approach, but we expect to update them as new SDA guidance and tools are released. This distribution may evolve as higher quality of data is incorporated into the analysis, e.g. emissions directly reported by clients, improved emission factors, among others.
We are implementing a strategy of engagement with our main clients from the critical sectors (i.e. those that have the highest financed emissions) to define science based targets, pathways for mitigating emissions, and commit to sectoral decarbonization approaches aligned with 1.5°C scenarios. During 2023 we engaged 25 corporate clients from the O&G, cement, power, agriculture, manufacturing, retail and food sectors, which together comprise around 25% of the financed emissions from our commercial loans portfolio, to better understand and support their climate strategies.
From the investment perspective through the asset management business, Bancolombia has joined the Net Zero Asset Managers initiative by committing to align investment portfolios with carbon-neutral scenarios by 2050 and we have implemented actions to achieve our goals. We measure the CO2e emissions financed by our investment portfolio, and we defined our science-based targets, submitted for validation by Science-Based Target Initiative (SBTi). The emissions are coming mainly from investments in Private Debt, followed by ETFs and Mutual Funds.
64
Our risk management system uses a risk map, in which we consolidate relevant information and knowledge from various experts that supplements the management of traditional financial risks with information on emerging risks such as climate change. We carry out this process annually, with the purpose of keeping the risk assessment updated and being able to adjust our strategy with respect to the most significant risks identified. As part of this process, climate change has been highlighted as a key risk since 2021 and integrated for analysis with other traditional financial risks. This approach allows us to strengthen our climate change responses and prepares us for opportunities in a changing business environment.
Bancolombia also defined a goal of financing the transition to a low carbon economy for an amount of COP 40 trillion by 2030. We are working to engage clients and ensure an adequate transformation of their practices towards a low-carbon economy.
In 2023 we applied a methodological process to measure the impacts of physical and transition risks, of certain of our clients, through the identification and prioritization of economic sectors that generate high levels of greenhouse gases. This process was carried out for the oil & gas, cement, and iron and steel economic sectors which are considered as highly intensive sectors in the generation of greenhouse gas emissions and managed through the ESG Risk Corporate Policy. This policy determines the support mechanisms for clients that are greenhouse gas emissions intensive and drives them towards a low-carbon economy which, in turn, facilitates the decarbonization of our portfolio. Likewise, in the prioritization process carried out in Bancolombia's credit portfolio in 2022, these sectors were also identified by their vulnerability to climate events and regulatory, technological and market changes.
In terms of physical risk, Bancolombia has developed assessments to quantify physical risks related to our clients and our own operation. These assessments consider the effect of physical risks on real estate guarantees, effects on loans guaranteed by trust vehicles and impacts on clients or industries affected by extreme climate events.
The identification and prioritization processes began in Bancolombia and then expanded to the other subsidiaries of the Group in 2024, following the recommendations of UNEP-FI. This process covers various analyzes, such as dependence on natural resources, energy sources, operational assets, productive activities, as well as socio-environmental impact, among others.
We also assess transition risks that could arise, for example, from climate-related legislation and policy developments, and business trends and changes in consumer behavior related to climate change and technology (such as the process of transitioning to a lower-carbon economy). New climate-related regulations or interpretations of existing laws may result in enhanced disclosure obligations, which could negatively affect our clients and materially increase the regulatory burden and cost of compliance. In assessing the impact of transition risks on our clients, we consider aspects such as the cost of direct and indirect emissions, investments in capital expenditures (capex) and income.
To direct our efforts to the economic sectors that are most impacted by climate change, we have built a methodology that helps us prioritize certain physical and transition risks and the impact of such risks in our customers’ financial statements (for purposes of assessing credit risk). This methodology is based on the guidelines provided by UNEP-FI, allowing us to evaluate both risks in an consolidated way in line with the best international practices.
For physical risks, climate threats are analyzed using the representative concentration pathways proposed by the Intergovernmental Panel on Climate Change (IPCC) where scenarios are used to project different climate threats and evaluate the loss of value of operating assets and/or production losses due to the materialization of any of these threats.
The infrastructure of our buildings and transactional channels (branches, ATMs and correspondents) has been analyzed to assess their physical threats, which assessment covers the stages of identification, measurement and management of physical risks. In addition, insurance coverage for these risks has been analyzed and operational risks and business continuity processes have been put in place to define controls and strategies. By understanding the joint vulnerability of our facilities to these climate threats, we strengthen our ability to implement mitigation and adaptation strategies that preserve Bancolombia’s operational continuity. The result of this assessment highlights the most critical locations.
Disclosure of climate change risks is extremely important in our effort to be transparent with our stakeholders. For this reason, Bancolombia adopted the Task Force on Climate-related Financial Disclosures (TCFD) commitments in 2019 to
65
meet the call for financial institutions to build a more resilient financial system through the implementation and dissemination of climate change management issues. We also disclose our climate performance through the CDP (Climate Disclosure Program) platform.
Reputational risk may result from changes in customers’ perceptions or increasing attention and scrutiny from investors and regulators on the Bank’s contribution to the transition to a low carbon economy. The Bank has established a corporate policy for its loan portfolio related to sectors with a high impact on climate, such as coal extraction and coal power generation. The policy includes qualitative risk identification and risk mitigation measures. Some of the mitigation measures include:
| ● | Permanent social networks and mass media monitoring to identify alerts that may damage the trust of any of the Bank’s stakeholders. |
| ● | A narrative which focuses on the Bank’s purpose and its ESG strategy, used to guide commercial teams in its relationship with different stakeholders and the advice they provide to affected clients through the transition process for the next 10 years. |
| ● | Conversations with opinion leaders, editors, and journalists from the mass media, so that they understand the positive impacts on the environment and economy that will be obtained from the Bank’s transition strategy. |
| ● | A methodology to identify and measure the ESG risks to which the organization is exposed, and which takes into account that ESG risk management requires a wide degree of implementation within the entity as most of the risks are transversal, with presence in all areas of the organization. |
Ecoefficiency: With our operational ecoefficiency program, we seek to reduce the direct impact to the environment associated with the consumption of natural resources required for our operations through the implementation of strategies to reduce our water, energy, paper, and business travel consumption and to reduce waste generation.
During 2023, we strengthened the circular economy strategy and achieved the following results:
| 1. | Elimination of plastic cups in buildings and replacement with compostable cups in the areas where they are required and in the branches, with a campaign of culture and awareness of responsible consumption among employees. |
| 2. | Partnership with the Ellen MacArthur Foundation, which allows us to mobilize and promote the transition to the circular economy in Colombia and the countries where we have a presence. We are the first company in Latin America to become a partner of the Foundation, which also has a presence in North America, Europe and Asia. |
We have set long-term goals to align our actions and performance with global standards such as the SDGs (Sustainable Development Goals). We have defined climate change-related targets for scopes 1 and 2, i.e. for our direct operations. We are committed to reducing our emissions by 73% by 2024 compared to our 2019 emissions. This goal was established in accordance with the SBTi (Science Base Target Initiative) methodologies.
Social Dimension
We promote financial inclusion, gender equality, and investment in initiatives that reduce social gaps and improve the communities' wellness in the countries where we operate.
Since 2013, by declaring our Human Rights Policy, we made public our commitment to "respect, promote and remediate human rights" in compliance with the Universal Declaration on Human Rights, the ILO standards, and the laws of the countries where we operate. The Risk Committee supervises compliance, and all employees receive training regarding the policy.
66
In our pursuit of excellence, we have established a nurturing work environment that actively contributes to our employees and their family’s well-being and their personal development. Our goal is to be the preferred place where talent not only chooses to grow but also thrives. Collectively, we aspire to fulfill our overarching mission: advancing sustainable development for the benefit of all.
We actively measure emotional variables that allow us to monitor the success of those strategies and adjust actions according to the results based on the Employee's Voices and their daily experiences. In 2023, with a scale of 1 to 10, we obtained an engagement result of 9.24, (which includes Satisfaction of 9.25, and Recommendation of 9.46), corresponding to an employee net promoted score (ENPS) of 84.8.
Wellness, Harmony, and Employee Experience in a Hybrid World of Work:
To enhance the experience of our employees, we actively listen to their opinions through tools like ¿Y tú qué dices? (And what do you say?). This allows us to identify areas where we excel positively and those where we can improve our work environment. Additionally, we conduct a demographic analysis of our workforce using data voluntarily provided by our employees.
Our strategy contributes to the wellbeing of employees, suppliers, and customers. We have established safe workplaces, benefits, wellness programs for our employees and promotional and empowering initiatives to enhance individual, familiar, and communitarian healthy behaviors.
It includes the following initiatives:
| - | We aim to create an environment where every employee feels heard, respected, and valued, where outstanding performance and well-being go hand in hand. We understand well-being as an individual decision with a collective impact transcending the company's boundaries. |
| - | Through the Management Report, The Top Management follows up on Safety and Health at Work and assesses the behavior and results of the comprehensive management system. The internal audit department also monitors compliance, ensuring respect for human rights and increasing the organization's sustainability. |
| - | As of December 31, 2023, 11,204 employees are part of flexible work arrangements in an organizational context where flexibility (80.4% of administrative employees), trust, and well-being are our principles for attracting and developing the talent our organization needs to achieve its purpose. |
The Bank delivers different tools that increase the awareness of self-care and favor a balance between the employees' work and personal spaces. Such as:
| - | Periodic occupational evaluations and executive medical checks. |
| - | Accommodations to employees with particular health conditions. |
| - | Programs that promote mental and cardiovascular health and activities that prevent stress and mitigate the effects of psychosocial factors. |
| - | Epidemiological surveillance systems monitor the main risks that impact health. |
| - | Investigation of incidents and implementation of remediation actions, evacuation drills, and emergency prevention plans. |
| - | Training of the employees and promotion on issues of emergency care and generating awareness about health and Safety at work |
| - | Promotion of financial welfare through education and personalized advice based on monitoring and analyzing |
67
| employees' economic indicators. |
| - | Sport, recreational, cultural, and vocational activities for employees and their families. |
| - | Guidance to older adults (Senior Talent) in early retirement and retirement plans. |
| - | Positioning of the welfare strategy (talks and training) with a gender approach. |
Diversity, Equity, Inclusion, and Human Rights:
For over 6 years, we have been implementing a strategy to establish a corporate policy ensuring equal opportunities for all individuals, regardless of gender, sexual orientation, abilities, or cultural identity.
We also have empowerment programs for women to help their growth within the organization so that they can identify and express “What They Want to Be” personally and professionally. The participation of women in senior management is 40% in 2023.
Several educational initiatives support gender equality and seek to enforce values of zero tolerance of any form of discrimination, gender-based violence, and work and sexual harassment.
We have the “Sistema Contigo” (WithYou System), which integrates different mechanisms for our interest groups to report any violation of Human Rights, discriminatory behavior, and other improper actions or conflicts of interest. Based on the findings, action plans are implemented. Through the Support Line, which is part of this system, in 2023, we provided psychological first aid to more than 1,156 employees.
We have also implemented programs related to care economics and responsible co-parenting. We launched the Creando Vínculos (Creating Bonds) initiative to encourage and support equal participation of both parents in caregiving tasks. Through this program, 76 employees were able to benefit from extended leave and the option to work from home to spend more time with their newborns.
Talent Attraction and Engagement:
We have processes designed to attract Talent with the skills, abilities, and attitudes required to achieve our Purpose. One of our goals is to ensure the professional development of our employees through an equitable vacancy procedure. In Colombia, 52.5% of our vacancies are filled through internal selection processes.
Our recruitment indicator average at the corporate level shows a natural process of talent renewal and allows us to attract new employees with innovative knowledge and new proposals. The Bank’s total and voluntary turnover rates for 2023 were 8.83% and 4.41%, respectively, representing a better performance than 2022, when they were 11.5% and 5.7%, respectively. Various events and initiatives were carried out to strengthen our brand and position ourselves as one of the Best Companies to work for in the countries where we operate. These initiatives were also focused on retaining employees with Key knowledge and, in turn, attracting new professionals in strategic areas, such as technology, cybersecurity, design, analytics, and artificial intelligence.
B Movement, our Culture Strategy:
2023 marks the third year since implementing our current culture strategy, which defines the traits and behaviors that “identify us and the way we act”, as well as the actions that are not tolerated within the organization. These values shape how we relate and make decisions at Bancolombia, emphasizing the importance of building close relationships based on trust, diversity, inclusion, equity, and collaboration, driving our consistent and transparent actions.
68
Employee development:
For us, knowledge is an asset that arises from experience, collective construction, experimentation, improvement, and interaction with others. For this reason, managing it is our priority to enhance team performance and thus avoid increasing our turnover rate.
Throughout 2023, we have made a substantial investment in developing our employees through various programs tailored to the strategic needs of the business and best practices. The aim is to contribute to the evolution of our employees, assisting them in reaching their best potential.
We define different mechanisms that seek the democratization of knowledge, facilitating the evolution of profiles and their enrichment through a structured, intentional, and comprehensive offer of content (Learning Schools, training maps, digital strategies, and scholarships) so employees manage to develop their learning behaviors according to the skills needed for today and the future.
In 2023, we invested more than 1,451,375 hours in training our employees, which resulted in an estimated value of more than USD 5,907,712.84, which included the following initiatives:
| ● | We invested around USD 305,560 in developing our Talent Pool. With this, we aim to anticipate future needs and challenges by comprehensively preparing the talents who will take on leadership roles within the organization. |
| ● | In Colombia, we have six Learning Schools oriented towards reskilling and upskilling, where more than 9,000 employees were trained. In the reskilling schools, 60% of the participants moved forward within their career paths, and 49 employees chose to continue their training in one of the three Learning Specialized Paths in Data Science, Cybersecurity, or Software Development. In other geographies, eight Learning Schools allowed us to train more than 2,200 employees. |
| ● | 88.1% of our leaders acquired new knowledge and strengthened their skills in our Leadership Institute Certification. |
Key material factors in the social dimension related to our clients and the community include:
| ● | Through our financial inclusion initiatives, we provide free financial services for people to access savings and credit in order to become financially empowered and improve their quality of life. |
| ● | Our inclusion platforms such as, Bancolombia A la mano, have brought us closer to people of different ages, socioeconomic levels and geographic regions, as deposits are managed at no cost and 100% digitally. In 2023, App Bancolombia A la Mano had more than 6.35 million users, 41.197 clients accessed credit for the first time and more than COP 74 billion in resources mobilized. |
| ● | In Bancolombia we believe that development is only sustainable if it is also inclusive and generates well-being for all people, without distinction. Therefore, during 2023 we consolidated a diversity, equity and inclusion (DEI) strategy in which we have been working on for more than 5 years with the aim of contributing to a world with fewer labels, in which each person can freely identify and promote their life project, without limits imposed by stereotypes. |
This strategy that we created in 2022 led by a DEI team mobilizes all the necessary resources and capacities inside and outside the organization. Some of our achievements in 2023 are:
| ● | We received the Aequales certification, a recognition that only few other Colombian companies have received, which highlights the DEI Community that was created with our suppliers and allies to exchange knowledge and good practices on DEI topics. More than 300 business leaders in the country connected in 3 Community events, |
69
| which we held during this year to talk about women in STEM roles (science, technology, engineering and mathematics), best DEI corporate practices and diversity’s business case. |
| ● | Additionally, in 2023 we created a prize to recognize a Bancolombia’s supplier that stands out for its diverse talent and culture. |
| ● | With the aim of strengthening an inclusive supply chain, we joined Sourcing2Equal, an initiative lead by the International Finance Corporation (IFC) that seeks to generate connections between small and medium-sized companies led by women and large companies in Colombia. |
| ● | We mobilized more than COP 3.5 billion in credit for women, their projects and business. |
| ● | More than 3,200 women benefited from Elévate, our financial training platform for entrepreneurs and microentrepreneurs, and more than 340 were part of Emprender Mujer, a training program in business, impact and leadership. During 2023 we were also part of the Germina Project, together with Comfama, USAID, Agricapital, ImpactHub and MET Community, to provide loans to more than 400 rural entrepreneurs and microentrepreneurs in Antioquia. |
We continue to form alliances with national and international entities to further advance our strategy. The key to achieving these results has been having committed leadership. In 2023 our CEO, Juan Carlos Mora Uribe, received from the She Is Foundation special recognition as business leader allied with gender equality and the empowerment of women.
Through the Bancolombia Foundation in 2023, we advanced in our objectives of being a laboratory of social innovation and a platform for impact connections between the capabilities of the Bancolombia Group, the ecosystem, and our local and international allies, to develop an impact management that contributes to the transformation of the Colombian countryside.
Education for productive insertion
In 2023, through our partnership with universities and our scholarship programs, we supported young people living in rural areas and facilitated their access to post-secondary education, providing them with mentoring and complementary training in financial education and employability, so that they can strengthen their skills in a comprehensive manner.
Financial Education
Financial Education has been one of the fundamental pillars of Fundación Bancolombia's Education strategy since the start of the Cuentas sin Cuento program in 2018. By 2023, the program was consolidated in the rural sector of Colombia.
Corporate Volunteering
The impact talent program is a strategy to strengthen capacities in rural areas by leveraging the talent of the Group.
Business Strengthening and Territorial Preparation
We strengthen businesses that contribute to the sustainability, well-being and competitiveness of the rural areas of Colombia by connecting with allies for a territorial impact in Colombia.
Impact investment
The focus of our impact investment management is environmental and social aspects in rural areas, which is carried out through different instruments such as capital investments and monitoring of resolution of business challenges. We currently have an impact investment fund that has investments in businesses with impact in rural areas for different sectors (fintech, rural tourism, agribusiness, technology, renewable energies, among others).
70
Governance and Economic Dimension
Our corporate strategy of principles and policies enables us to integrate ESG criteria into our business model and act sustainably. This strategy is established by the Board of Directors, serving as the body responsible for defining the strategy and long-term objectives of the company. Either directly or through its Committees, the Board oversees compliance with our sustainability strategy, supervision of the measures undertaken to mitigate climate change risk, adoption of principles for responsible investment and education of employees to make them aware of these principles and implementation of policies designed to ensure compliance with applicable law in the countries where we operate.
Within the ESG governance model, issues such as goals, strategy and sustainability actions were escalated to the Audit Committee, Risk Committee and Corporate Governance Committee.
Additionally, the senior management committee serves as the Bank’s sustainability committee (the “Sustainability Committee”). The Sustainability Committee analyzes the business opportunities, risks and challenges related to sustainability and discusses the progress of our ESG agenda, in alignment with the Task Force on Climate-Related Financial Disclosure.
The Bank has a sustainability division that coordinates and drives the ESG agenda following our corporate strategy and policies. This division is led by a senior manager who sits on the Sustainability Committee.
Regarding the diversity of the Board of Directors, Bancolombia seeks to promote a mix of experience, knowledge, and innovative and challenging visions, in accordance with the economic, social, and business environment. Bancolombia aims for diversity in the composition of its Board of Directors, particularly in gender and nationality. Currently, women represent 29% of our Board of Directors (2 out of 7 board members) and 29% are non-Colombian directors (2 out of 7 members). The directors’ profiles can be consulted in Item 6.A. – “Directors and Senior Management”.
For the appointment of members to the Board of Directors, Bancolombia has determined that candidates must have a profile that includes not only a business management background, but also a commitment to the development of a sustainable business, which is an aspect shareholders should consider before making an appointment. Accordingly, it is important for the Board to have a member that has sufficient knowledge and expertise in ESG matters. In the case of Bancolombia, Arturo Condo Tamayo, has been the Board member leading the Sustainability and Cybersecurity issues since 2016.
The corporate strategy of the Group aims to prepare us to handle challenges of and ensure that the objectives we have are successful in countries where we have a presence. This strategy includes: (i) maintaining our financial strength by growing responsibly, (ii) achieving the loyalty and preference of our customers, (iii) developing a culture and talent for competitiveness and (iv) achieving the well-being for everyone.
In line with corporate governance principles, Bancolombia has a Code of Ethics and Conduct that reflects our organizational culture based on ethical principles. This Code sets forth six cultural traits that employees must comply with and put into practice whenever we engage with one another and with stakeholders. As part of our strategy to raise awareness about this Code, there is the mandatory training plan for Bancolombia’s employees that includes an annual assessment of our Code of Ethics and Conduct guidelines. In addition, as part of the strategy, we are raising awareness among our commercial and administrative teams so that they increasingly incorporate the guidelines of our Code of Ethics and Conduct. Throughout the year, we also disseminate different pieces of communication discussing the specific guidelines of our Code of Ethics and Conduct.
In addition to the Good Governance Code and the Code of Ethics and Conduct, we have established the following policies to promote ethical behavior; Anti-Fraud Policy on Asset Misappropriation, Anti-Fraud Policy on Financial Reporting, Anti-Fraud Policy on Anti-Corruption, Policy of Zero Tolerance to Fraud and Policy on Contributions to Democracy and Political Activity. We also have the Integrity and Compliance Manual, which contains the framework for the Anti-Fraud Program. These documents are available to the whole organization, and some of them are published on our corporate web site for our stakeholders and the general public at:
71
https://www.grupobancolombia.com/corporate/corporate-governance/code-ethics
As a mechanism to support the promotion of our culture, we have different reporting channels for our employees and different stakeholders, including shareholders, customers, suppliers, allies and competitors, among others, to report any fact or suspected violation of the Code of Ethics and Conduct or related policies. We also have a phone line called the “Ethics Line” (Línea Ética), which guarantees the confidentiality of employees and other stakeholders to report, anonymously if the wish to, potential fraud, ethics violations and related issues. In addition we have a Whistleblower Protection policy.
We also have a point of contact through which we provide ongoing support and advice to all employees on ethical dilemmas that may arise in their work, as well as on the interpretation of our Code of Ethics and Conduct.
We aim to generate greater ethical reasoning through the construction and dissemination of decision trees to assist ethical dilemmas, experiential learning for the contextualization of employees with risk scenarios aimed at their day-to-day work, and ongoing consulting support and training to commercial and administrative teams.
In addition, we have a Corporate Ethics Committee which aims to provide guidelines on ethics, conduct and integrity. The Committee also sets forth the necessary mechanisms to implement decisions under the highest internal standards of ethical conduct. The Corporate Ethics Committee is supported by local ethics committees, in each of the countries where we operate.
We also know that declaring ourselves a customer-centric organization comes with considerable challenges. We incorporate into the customer experience quality measurement an understanding of our customers' willingness to recommend us to others, using the net promoter score (NPS) methodology as the main indicator in the group of metrics that allow us to evaluate the organization's overall performance in this regard. The use of this indicator allows us to understand not only the satisfaction of our customers, but also their loyalty to the brand. This metric is measured on a standard scale of 0 to 10, where customers who rate 0-6 are classified as Detractors, those who rate 7-8 are classified as Neutral and those who rate 9-10 are Promoters. Our NPS was 73.72 and 72.94 for the years 2023 and 2022 respectively.
Concerning the economic dimension, we are integrating ESG aspects into our business strategy, including Retail Banking, Wealth Management, Corporate Banking, Asset Management and Project Finance. We know that ESG has an important role in addressing sustainability challenges by facilitating the transition to a low-carbon economy and stimulating sustainable development. To that end, we have set a goal to finance COP 500 trillion before 2030 through credit and other financial services. This goal to incorporate ESG variables extends to all our business segments and includes processes of due diligence, engagement, knowledge of clients and finance through innovative products for sustainable solutions.
Some of the ESG aspects we have included in our business strategy include:
| ● | We developed the Sustainability credit line, which is a special financing line designed to support our customers in the development of projects that promote clean technologies, gender equality, renewable energies, efficient use of energy, clean fuels, and reduction of waste, emissions, and discharges, among other ESG-related uses of funds. |
| ● | We also have been implementing a sustainable funding strategy. To date, we have issued six green or ESG-themed bonds for gross proceeds of USD 716 million that we have used to finance initiatives related to, among others, clean energy, sustainable construction, and cleaner production. |
Regarding our approach to risks, we have adopted the Equator Principles and the Performance Standards of the World Bank and the International Finance Corporation - IFC, as standards for the identification, evaluation and management of environmental and social risks and impacts implicit in the operations and projects we finance.
Finally, during this year, the Group made progress in ESG risk management by creating a corporate policy that standardizes the management of these risks in all the geographies where we have a presence. This policy aims to establish the guidelines and criteria for the identification, evaluation and management of environmental, social and governance risks associated with our operations and activities. This circular was structured under three fundamental chapters:
72
| 1. | Environmental and Social Risks Assessment: Establishes the sectors and economic activities subject to evaluation and the amounts for the application of the process. It also includes the evaluation of guarantees and assets received in payment. This chapter determines the minimum viability conditions for the execution of the process, which are specified through the local circulars of each bank in the Group. |
| 2. | Controversial Issues in Business: Establishes the activities and projects in which the Group declares its non-participation. During this year, the following activities were additionally excluded: oil and gas extraction using non-conventional methods, such as fracking, liquefied natural gas, deep-water resources, tar sands, oil in the Arctic and in the Amazon. |
| 3. | Industries sensitive to Climate Change: This chapter establishes the financing conditions for clients in sectors intensive in GHG emissions and the commercial support models for clients located in sectors in climate transition. During 2023, evaluations of these industries were extended to investment areas. |
With the update of this circular, the scope of the roles and responsibilities of the commercial, sustainability and risks areas was reinforced. Additionally, work is being done on the implementation of indicators that facilitate the monitoring of compliance. Likewise, the automation of the Environmental and Social Risk Assessment process was completed, which allowed an increase in the coverage of these evaluations in the credit study.
C. ORGANIZATIONAL STRUCTURE
The following chart summarizes the organizational structure of Bancolombia and certain subsidiaries, mostly involved in financial or capital market activities:
This chart does not reflect any intermediate holding companies or special purpose vehicles the equity interests in which are owned by one or more of the entities included in the table.
The following is a list of subsidiaries of Bancolombia as of December 31, 2023:
SUBSIDIARIES
Jurisdiction | % of Shares Held Directly | ||||||
Entity | of Incorporation | Business | and Indirectly 2023 | ||||
Fiduciaria Bancolombia S.A. Sociedad Fiduciaria | Colombia | Trust | 98.81 | % |
73
Banca de Inversión Bancolombia S.A. Corporación Financiera | Colombia | Investment banking | 100.00 | % | |||
Valores Bancolombia S.A. Comisionista de Bolsa | Colombia | Securities brokerage | 100.00 | % | |||
WOMPI S.A.S. | Colombia | Technology services provider | 100.00 | % | |||
Renting Colombia S.A.S. | Colombia | Operating leasing | 100.00 | % | |||
Transportempo S.A.S. “En Liquidación” | Colombia | Transportation | 100.00 | % | |||
Inversiones CFNS S.A.S. | Colombia | Investments | 99.94 | % | |||
Negocios Digitales Colombia S.A.S. | Colombia | Payment solutions | 100.00 | % | |||
Fondo de Capital Privado Fondo Inmobiliario Colombia | Colombia | Real estate investment fund | 80.47 | % | |||
P.A. Inmuebles CEM | Colombia | Mercantil trust | 80.47 | % | |||
P.A. Calle 92 FIC-11 | Colombia | Mercantil trust | 52.31 | % | |||
P.A. FIC Edificio Corfinsura | Colombia | Mercantil trust | 80.47 | % | |||
P.A. FIC-A5 | Colombia | Mercantil trust | 80.47 | % | |||
P.A. FIC Inmuebles | Colombia | Mercantil trust | 80.47 | % | |||
P.A. FIC Clínica de Prado | Colombia | Mercantil trust | 62.00 | % | |||
P. A. FIC A6 | Colombia | Mercantil trust | 80.47 | % | |||
P.A. Central Point | Colombia | Mercantil trust | 60.35 | % | |||
Fideicomiso Irrevocable de Garantía, Fuente de Pago y Administración Inmobiliaria Polaris | Colombia | Mercantil trust | 80.47 | % | |||
P.A. Fideicomiso Twins Bay | Colombia | Mercantil trust | 80.47 | % | |||
Fideicomiso Lote Av San Martín | Colombia | Mercantil trust | 80.47 | % | |||
P.A. Fideicomiso Lote 30 | Colombia | Mercantil trust | 80.47 | % | |||
Fideicomiso Fondo Inmobiliario Bancolombia | Colombia | Mercantil trust | 80.47 | % | |||
P.A. Florencia Ferrara | Colombia | Mercantil trust | 44.26 | % | |||
P.A. Flor Morado Plaza | Colombia | Mercantil trust | 80.47 | % | |||
P.A. Galería la 33(1) | Colombia | Mercantil trust | 80.47 | % | |||
Valores Simesa S.A. | Colombia | Investments | 64.93 | % | |||
Fideicomiso Lote Distrito Vera B1B2 | Colombia | Mercantil trust | 64.61 | % | |||
Fideicomiso Lote Distrito Vera B3B4 | Colombia | Mercantil trust | 64.61 | % | |||
P.A. FAI CALLE 77 | Colombia | Real estate investment fund | 98.00 | % | |||
NOMAD SALITRE | Colombia | Real estate investment fund | 98.00 | % | |||
P.A. NOMAD CENTRAL-2(2) | Colombia | Real estate investment fund | 98.00 | % | |||
P.A. CALLE 84 (2)(2) | Colombia | Real estate investment fund | 98.00 | % | |||
P.A. CALLE 84 (3)(2) | Colombia | Real estate investment fund | 98.00 | % | |||
P.A. - FAI MERCURIO | Colombia | Real estate investment fund | 100.00 | % | |||
Wenia S.A.S | Colombia | Technology services | 100.00 | % | |||
P.A. Wenia(3) | Colombia | Mercantil trust | 100.00 | % | |||
Nequi S.A. Compañía de Financiamiento(4) | Colombia | Financial services | 100.00 | % | |||
Bancolombia Panamá S.A. | Panama | Banking | 100.00 | % | |||
Sistemas de Inversiones y Negocios S.A. Sinesa | Panama | Investments | 100.00 | % | |||
Banagrícola S.A. | Panama | Investments | 99.17 | % | |||
Banistmo S.A. | Panama | Banking | 100.00 | % | |||
Banistmo Investment Corporation S.A. | Panama | Trust | 100.00 | % | |||
Leasing Banistmo S.A. | Panama | Leasing | 100.00 | % | |||
Valores Banistmo S.A. | Panama | Securities brokerage | 100.00 | % | |||
Banistmo Panamá Fondo de Inversión S.A.(5) | Panama | Holding | 100.00 | % | |||
Banistmo Capital Markets Group Inc.(5) | Panama | Purchase and sale of securities | 100.00 | % | |||
Anavi Investment Corporation S.A.(5) | Panama | Real estate | 100.00 | % | |||
Desarrollo de Oriente S.A.(5) | Panama | Real estate | 100.00 | % | |||
Steens Enterprises S.A.(5) | Panama | Portfolio holder | 100.00 | % | |||
Ordway Holdings S.A.(5) | Panama | Real estate broker | 100.00 | % | |||
Grupo Agromercantil Holding S.A. | Panama | Holding | 100.00 | % | |||
Banco Agromercantil de Guatemala S.A. | Guatemala | Banking | 99.68 | % | |||
Seguros Agromercantil de Guatemala S.A. | Guatemala | Insurance agency | 79.92 | % | |||
Financiera Agromercantil S.A. | Guatemala | Financial services | 100.00 | % | |||
Agrovalores S.A. | Guatemala | Securities brokerage | 100.00 | % | |||
Arrendadora Agromercantil S.A. | Guatemala | Operating Leasing | 100.00 | % | |||
Asistencia y Ajustes S.A. | Guatemala | Roadside and medical assistance services | 100.00 | % | |||
Serproba S.A. | Guatemala | Maintenance and remodeling services | 100.00 | % | |||
Servicios de Formalización S.A. | Guatemala | Loans formalization | 100.00 | % | |||
Conserjeria, Mantenimiento y Mensajería S.A. “En Liquidación” | Guatemala | Maintenance services | 100.00 | % | |||
Mercom Bank Ltd.(6) | Barbados | Banking | 99.68 | % |
Jurisdiction | % of Shares Held Directly | |||||||||||
Entity | of Incorporation | Business | and Indirectly 2023 | |||||||||
74
New Alma Enterprises Ltd. | Bahamas | Investments | 99.68 | % | ||||||||
Bancolombia Puerto Rico Internacional Inc. | Puerto Rico | Banking | 100.00 | % | ||||||||
Bancolombia Cayman S.A.(7) | Cayman Islands | Banking | 100.00 | % | ||||||||
Banco Agrícola S.A. | El Salvador | Banking | 97.36 | % | ||||||||
Arrendadora Financiera S.A. Arfinsa | El Salvador | Leasing | 97.37 | % | ||||||||
Credibac S.A. de C.V. | El Salvador | Credit card services | 97.36 | % | ||||||||
Valores Banagrícola S.A. de C.V. | El Salvador | Securities brokerage | 98.89 | % | ||||||||
Inversiones Financieras Banco Agrícola S.A. IFBA | El Salvador | Investments | 98.89 | % | ||||||||
Gestora de Fondos de Inversión Banagricola S.A. | El Salvador | Administers investment funds | 98.89 | % | ||||||||
Bagrícola Costa Rica S.A. | Costa Rica | Outsourcing | 99.17 | % | ||||||||
Bancolombia Capital Holdings USA LLC | United States | Holding | 100.00 | % | ||||||||
Bancolombia Capital Adviser LLC | United States | Investment advisor | 100.00 | % | ||||||||
Bancolombia Capital LLC | United States | Securities brokerage | 100.00 | % | ||||||||
Wenia Ltd. | Bermuda | Technology services | 100.00 | % | ||||||||
(1) Company consolidated by Fondo de Capital Privado Fondo Inmobiliario Colombia since March 2023.
(2) During 2023, the parent company was established as trustor of P.A Nomad Central-2, P.A Calle 84 (2) and P.A Calle 84 (3), through a management mercantil trust agreement.
(3) On May 17, 2023, Wenia S.A.S was established as trustor of the fiduciary rights of P.A Wenia. For further information, see Consolidated Financial Statement, Note 1. Reporting entity.
(4) For further information, Consolidated Financial Statement, see Note 1. Reporting entity.
(5) Investments in non-operational stage.
(6) Since 2021, the company began an organized and gradual process to transfer assets and liabilities to Banco Agromercantil de Guatemala, S.A. or other companies of the Bancolombia Group. For further information, see Consolidated Financial Statement, Note 1. Reporting entity.
(7) Since 2020, the Board of Directors of Bancolombia Panamá (parent company of Bancolombia Cayman), authorized the decision to wind-down the business and operations of its subsidiary in Cayman. For further information, see Consolidated Financial Statement, Note 1. Reporting entity.
D. PREMISES AND EQUIPMENT
As of December 2023, the Bank's premises and equipment include the main office located on Los Industriales Avenue in Medellin, as well as other owned and leased facilities primarily located in Colombia, with an approximate total area of 431,622 square meters.
In 2023, the Bank carried out improvements, openings, and renovations of some properties where branches, ATMs, and administrative offices operate. These improvements involved the execution of adaptation and maintenance activities. The financing for these works was from the Bank´s funds, totaling approximately COP 141,652 million.
During the fourth quarter of 2023, the Bank initiated the relocation process of some branches in the southern region of Colombia, with the aim of consolidating administrative operations and bringing specialized teams closer to areas with higher customer concentration. The Bank expects to complete this process in the second quarter 2024. This project and other interventions will have an approximate investment of COP 187,217 million.
The Bank’s total premises and equipment for own use had a net book value as at December 31, 2023 of COP 2,525,254 million and the book value of right of use assets related to branches and rented offices amounts to COP 1,596,136 million.
The following table provides information on the Bank’s main owned and leased facilities where administrative activities, banking business activities, and data processing center operations take place:
75
Building / Facility | Location | Area (square meters) | ||
Dirección General (Torre Norte, Torre Sur and Torre Oriente and Ciudad del Río) | Medellín, Colombia | 117,118 | ||
Torre Atrio | Bogotá, Colombia | 21,084 | ||
Niquía | Bello, Colombia | 4,070 | ||
Edificio 9211 | Bogotá, Colombia | 9,578 | ||
Torre Barranquilla | Barranquilla, Colombia | 8,801 | ||
Twins Bay 1 | Cartagena, Colombia | 2,866 | ||
Sucursal 8111 | Bogotá, Colombia | 679 | ||
Sucursal Centro Comercial Santa Fe | Bogotá, Colombia | 425 |
| (1) | The area reduction in the Dirección General building is due to the modification of the lease agreement signed for the Ciudad del Río Headquarters, because of the transfer of the contract regarding certain areas of the building. |
During 2023, the Bank formalized the modification of lease agreements for the following facilities, resulting in an approximate reduction in the right of use asset by COP 11,581 million:
| ● | Space optimization was carried out in the buildings known as the Gerencia de Zona – Armenia, and Gerencia de Zona - Santa Marta, leading to a decreased occupancy in these administrative headquarters. Consequently, the lease agreements were modified to restore some areas of these buildings, resulting in an approximate reduction in the right of use asset by COP 7,429 million. |
| ● | In the ordinary course of business, several lease contracts for properties used in branch operations were terminated, including three properties located in the cities of Bogotá and Medellín. This decision resulted in a reduction in the right of use asset by approximately COP 4,152 million. |
For further information regarding to Branch Network, see Item 4. Information on the Company, B5. Distribution Network. Accounting recognition for premises and equipment are described in Note 2 “Significant Accounting Policies” and Note 10 “Premises and Equipment, Net” to the Consolidated Financial Statements.
E. SELECTED STATISTICAL INFORMATION
The following information should be read together with the Consolidated Financial Statements as well as Item 5, “Operating and Financial Review and Prospects”. This information has been prepared based on the Bank’s financial records, which are prepared in accordance with IFRS as issued by the IASB and the related interpretations issued by the IFRIC. The consolidated selected statistical information refer to the Bank, including all subsidiaries which Bancolombia controls.
E.1 DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
Average balances for each of the years ended December 31, 2023, 2022 and 2021 have been calculated as the arithmetic average of the last 13 monthly IFRS balances. In addition, the interest rate subtotals are based on the weighted average of domestic and foreign assets and liabilities.
76
Average statement of financial position
The following tables show for the years ended December 31, 2023, 2022 and 2021, respectively: (i) average balances for all of the Bank’s assets and liabilities; (ii) interest earned and interest paid amounts; and (iii) average nominal interest rates/yield for the Bank’s interest-earning assets and interest-bearing liabilities:
Average statement of financial position and Income from Interest-Earning Assets for the Fiscal Year Ended December 31,(1) | |||||||||||||||||||
2023 | 2022 | 2021 | |||||||||||||||||
Interest | Interest | Interest | |||||||||||||||||
Average | income | Average | Average | income | Average | Average | income | Average | |||||||||||
Balance | earned | Yield / Rate | Balance | earned | Yield / Rate | Balance | earned | Yield / Rate | |||||||||||
In millions of COP, except percentages | |||||||||||||||||||
ASSETS | |||||||||||||||||||
Interest-earning assets | |||||||||||||||||||
Interbank borrowings | |||||||||||||||||||
Domestic activities | 91,258 | 10,028 | 11.0 | % | 56,945 | 5,063 | 8.9 | % | 41,128 | 775 | 1.9 | % | |||||||
Foreign activities | 2,981,291 | 187,279 | 6.3 | % | 2,367,478 | 56,899 | 2.4 | % | 1,960,204 | 8,638 | 0.4 | % | |||||||
Total | 3,072,549 | 197,307 | 6.4 | % | 2,424,423 | 61,962 | 2.6 | % | 2,001,332 | 9,413 | 0.5 | % | |||||||
Reverse repurchase agreements and other similar secured loans | |||||||||||||||||||
Domestic activities | 2,676,670 | 292,971 | 10.9 | % | 1,086,449 | 77,664 | 7.1 | % | 906,060 | 11,806 | 1.3 | % | |||||||
Foreign activities | 73,920 | 11,777 | 15.9 | % | 122,943 | 8,044 | 6.5 | % | 163,902 | 847 | 0.5 | % | |||||||
Total | 2,750,590 | 304,748 | 11.1 | % | 1,209,392 | 85,708 | 7.1 | % | 1,069,962 | 12,653 | 1.2 | % | |||||||
Debt instruments(2) | |||||||||||||||||||
Domestic activities | 10,599,721 | 1,376,246 | 13.0 | % | 11,990,844 | 512,492 | 4.3 | % | 15,303,069 | 191,274 | 1.2 | % | |||||||
Foreign activities | 16,826,459 | 281,213 | 1.7 | % | 14,742,929 | 1,274,596 | 8.6 | % | 12,561,251 | 586,338 | 4.7 | % | |||||||
Total | 27,426,180 | 1,657,459 | 6.0 | % | 26,733,773 | 1,787,088 | 6.7 | % | 27,864,320 | 777,612 | 2.8 | % | |||||||
Loans and advances to customers, net | |||||||||||||||||||
Domestic activities | 172,515,187 | 27,947,473 | 16.2 | % | 155,827,942 | 18,914,965 | 12.1 | % | 134,727,992 | 10,899,991 | 8.1 | % | |||||||
Foreign activities | 89,986,484 | 7,293,314 | 8.1 | % | 87,318,297 | 5,868,528 | 6.7 | % | 69,727,945 | 4,444,299 | 6.4 | % | |||||||
Total | 262,501,671 | 35,240,787 | 13.4 | % | 243,146,239 | 24,783,493 | 10.2 | % | 204,455,937 | 15,344,290 | 7.5 | % | |||||||
Total interest-earning assets | |||||||||||||||||||
Domestic activities | 185,882,836 | 29,626,718 | 15.9 | % | 168,962,180 | 19,510,184 | 11.5 | % | 150,978,249 | 11,103,846 | 7.4 | % | |||||||
Foreign activities | 109,868,154 | 7,773,583 | 7.1 | % | 104,551,647 | 7,208,067 | 6.9 | % | 84,413,302 | 5,040,122 | 6.0 | % | |||||||
Total | 295,750,990 | 37,400,301 | 12.6 | % | 273,513,827 | 26,718,251 | 9.8 | % | 235,391,551 | 16,143,968 | 6.9 | % | |||||||
Total non-interest-earning assets | |||||||||||||||||||
Domestic activities | 23,428,476 | — | — | 19,302,722 | — | — | 13,046,079 | — | — | ||||||||||
Foreign activities(3) | 24,158,685 | — | — | 22,495,964 | — | — | 18,513,442 | — | — | ||||||||||
Total | 47,587,161 | — | — | 41,798,686 | — | — | 31,559,521 | — | — | ||||||||||
Total interest and non-interest earnings assets | |||||||||||||||||||
Domestic activities | 209,311,312 | 29,626,718 | 14.2 | % | 188,264,902 | 19,510,184 | 10.4 | % | 164,024,328 | 11,103,846 | 6.8 | % | |||||||
Foreign activities(3) | 134,026,839 | 7,773,583 | 5.8 | % | 127,047,611 | 7,208,067 | 5.7 | % | 102,926,744 | 5,040,122 | 4.9 | % | |||||||
Total | 343,338,151 | 37,400,301 | 10.9 | % | 315,312,513 | 26,718,251 | 8.5 | % | 266,951,072 | 16,143,968 | 6.0 | % | |||||||
| (1) | The Bank average total assets and total liabilities and stockholder's equity were calculated considering the last 13 monthly IFRS balances. |
| (2) | Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material. |
| (3) | The percentage of total average assets attributable to foreign activities was 39.0%, 40.3% and 38.6%, respectively, for the fiscal years ended December 31, 2023, 2022 and 2021. |
77
Average statement of financial position and Interest Paid on Interest-Bearing Liabilities for the Fiscal Year Ended December 31,(1) | |||||||||||||||||||
2023 | 2022 | 2021 | |||||||||||||||||
Average | Average | Average | |||||||||||||||||
Average | Interest | Yield / | Average | Interest | Yield / | Average | Interest | Yield / | |||||||||||
Balance | paid | Rate(2) | Balance | paid | Rate(2) | Balance | paid | Rate | |||||||||||
In millions of COP, except percentages | |||||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||
Checking accounts | |||||||||||||||||||
Domestic activities | 22,001,228 | 22,131 | 0.1 | % | 25,899,835 | 25,944 | 0.1 | % | 22,210,635 | 22,633 | 0.1 | % | |||||||
Foreign activities | 18,432,636 | 68,657 | 0.4 | % | 18,344,263 | 49,633 | 0.3 | % | 15,831,093 | 46,972 | 0.3 | % | |||||||
Total | 40,433,864 | 90,788 | 0.2 | % | 44,244,098 | 75,577 | 0.2 | % | 38,041,728 | 69,605 | 0.2 | % | |||||||
Saving accounts | |||||||||||||||||||
Domestic activities | 79,151,508 | 3,463,957 | 4.4 | % | 80,939,114 | 1,936,283 | 2.4 | % | 70,964,990 | 504,372 | 0.7 | % | |||||||
Foreign activities | 29,694,615 | 395,108 | 1.3 | % | 29,911,479 | 346,288 | 1.2 | % | 21,454,174 | 254,651 | 1.2 | % | |||||||
Total | 108,846,123 | 3,859,065 | 3.5 | % | 110,850,593 | 2,282,571 | 2.1 | % | 92,419,164 | 759,023 | 0.8 | % | |||||||
Time deposits | |||||||||||||||||||
Domestic activities | 54,810,787 | 7,586,429 | 13.8 | % | 30,895,060 | 2,615,941 | 8.5 | % | 24,842,955 | 978,605 | 3.9 | % | |||||||
Foreign activities | 42,637,064 | 1,787,234 | 4.2 | % | 38,508,868 | 1,167,591 | 3.0 | % | 34,005,160 | 1,007,272 | 3.0 | % | |||||||
Total | 97,447,851 | 9,373,663 | 9.6 | % | 69,403,928 | 3,783,532 | 5.5 | % | 58,848,115 | 1,985,877 | 3.4 | % | |||||||
Repurchase agreements and other similar secured borrowing | |||||||||||||||||||
Domestic activities | 968,917 | 160,766 | 16.6 | % | 1,617,857 | 165,440 | 10.2 | % | 4,244,146 | 68,654 | 1.6 | % | |||||||
Foreign activities | 54,757 | 6,968 | 12.7 | % | 87,737 | 4,678 | 5.3 | % | 79,882 | 554 | 0.7 | % | |||||||
Total | 1,023,674 | 167,734 | 16.4 | % | 1,705,594 | 170,118 | 10.0 | % | 4,324,028 | 69,208 | 1.6 | % | |||||||
Borrowings from other financial institutions(2) | |||||||||||||||||||
Domestic activities | 5,645,529 | 798,977 | 14.2 | % | 4,691,668 | 390,970 | 8.3 | % | 5,149,325 | 176,000 | 3.4 | % | |||||||
Foreign activities | 11,769,294 | 860,019 | 7.3 | % | 8,874,224 | 372,747 | 4.2 | % | 3,714,001 | 117,949 | 3.2 | % | |||||||
Total | 17,414,823 | 1,658,996 | 9.5 | % | 13,565,892 | 763,717 | 5.6 | % | 8,863,326 | 293,949 | 3.3 | % | |||||||
Interbank deposits(2)(3) | |||||||||||||||||||
Domestic activities | 71,595 | 11,260 | 15.7 | % | 78,105 | 5,288 | 6.8 | % | 131,560 | 3,567 | 2.7 | % | |||||||
Foreign activities | 723,898 | 19,280 | 2.7 | % | 706,734 | 6,087 | 0.9 | % | 746,331 | 303 | 0.0 | % | |||||||
Total | 795,493 | 30,540 | 3.8 | % | 784,839 | 11,375 | 1.4 | % | 877,891 | 3,870 | 0.4 | % | |||||||
Debt instruments in issue | |||||||||||||||||||
Domestic activities | 4,602,387 | 895,296 | 19.5 | % | 4,237,757 | 740,063 | 17.5 | % | 4,024,157 | 465,139 | 11.6 | % | |||||||
Foreign activities | 12,856,710 | 531,319 | 4.1 | % | 16,259,152 | 588,448 | 3.6 | % | 16,044,417 | 588,302 | 3.7 | % | |||||||
Total | 17,459,097 | 1,426,615 | 8.2 | % | 20,496,909 | 1,328,511 | 6.5 | % | 20,068,574 | 1,053,441 | 5.2 | % | |||||||
Lease liability | |||||||||||||||||||
Domestic activities | 987,982 | 71,808 | 7.3 | % | 967,289 | 64,611 | 6.7 | % | 1,036,849 | 70,570 | 6.8 | % | |||||||
Foreign activities | 802,540 | 42,007 | 5.2 | % | 843,771 | 46,738 | 5.5 | % | 776,239 | 40,986 | 5.3 | % | |||||||
Total | 1,790,522 | 113,815 | 6.4 | % | 1,811,060 | 111,349 | 6.1 | % | 1,813,088 | 111,556 | 6.2 | % | |||||||
Total interest-bearing liabilities | |||||||||||||||||||
Domestic activities | 168,239,933 | 13,010,624 | 7.7 | % | 149,326,685 | 5,944,540 | 4.0 | % | 132,604,617 | 2,289,540 | 1.7 | % | |||||||
Foreign activities | 116,971,514 | 3,710,592 | 3.2 | % | 113,536,228 | 2,582,210 | 2.3 | % | 92,651,297 | 2,056,989 | 2.2 | % | |||||||
Total | 285,211,447 | 16,721,216 | 5.9 | % | 262,862,913 | 8,526,750 | 3.2 | % | 225,255,914 | 4,346,529 | 1.9 | % | |||||||
Total non-interest bearing liabilities | |||||||||||||||||||
Domestic activities | 15,982,833 | — | — | 13,675,803 | — | — | 8,618,738 | — | — | ||||||||||
Foreign activities | 3,298,036 | — | — | 3,087,785 | — | — | 2,349,931 | — | — | ||||||||||
Total | 19,280,869 | — | — | 16,763,588 | — | — | 10,968,669 | — | — | ||||||||||
Stockholders' equity | |||||||||||||||||||
Domestic activities | 29,371,732 | — | — | 26,739,788 | — | — | 22,769,574 | — | — | ||||||||||
Foreign activities | 9,474,103 | — | — | 8,946,224 | — | — | 7,956,915 | — | — | ||||||||||
Total | 38,845,835 | — | — | 35,686,012 | — | — | 30,726,489 | — | — | ||||||||||
Total interest and non-interest bearing liabilities and stockholders’ equity(4) | |||||||||||||||||||
Domestic activities | 213,594,498 | 13,010,624 | 6.1 | % | 189,742,276 | 5,944,540 | 3.1 | % | 163,992,929 | 2,289,540 | 1.4 | % | |||||||
Foreign activities(4) | 129,743,653 | 3,710,592 | 2.9 | % | 125,570,237 | 2,582,210 | 2.1 | % | 102,958,143 | 2,056,989 | 2.0 | % | |||||||
Total | 343,338,151 | 16,721,216 | 4.9 | % | 315,312,513 | 8,526,750 | 2.7 | % | 266,951,072 | 4,346,529 | 1.6 | % | |||||||
| (1) | The Bank average of total assets and total liabilities and stockholder's equity were calculated considering the last 13 monthly IFRS balances. |
| (2) | Includes both short-term and long-term borrowings. |
| (3) | Includes borrowings from banks located outside Colombia. |
| (4) | The percentage of foreign activities over total average liabilities attributable was 39.5%, 41.7% and 40.2%, respectively, for the fiscal years ended December 31, 2023, 2022 and 2021. |
78
CHANGES IN NET INTEREST INCOME AND EXPENSES—VOLUME AND RATE ANALYSIS
The following table allocates, for domestic and foreign activities, 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 year ended December 31, 2023 compared to the year ended December 31, 2022; and the year ended December 31, 2022, compared to the year ended December 31, 2021. 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.
December 31, 2023-December 31, 2022 | December 31, 2022-December 31, 2021 | |||||||||||
Increase (Decrease) due to changes in: | Increase (Decrease) due to changes in: | |||||||||||
Volume | Rate | Net Change | Volume | Rate | Net Change | |||||||
In millions of COP | ||||||||||||
Interest-earning assets | ||||||||||||
Interbank borrowings | ||||||||||||
Domestic activities | 3,568 | 1,397 | 4,965 | 402 | 3,886 | 4,288 | ||||||
Foreign activities | 18,047 | 112,333 | 130,380 | 2,150 | 46,111 | 48,261 | ||||||
Total | 21,615 | 113,730 | 135,345 | 2,552 | 49,997 | 52,549 | ||||||
Reverse repurchase agreements and other similar secured loans | ||||||||||||
Domestic activities | 157,978 | 57,329 | 215,307 | 2,799 | 63,059 | 65,858 | ||||||
Foreign activities | (1,436) | 5,169 | 3,733 | (158) | 7,355 | 7,197 | ||||||
Total | 156,542 | 62,498 | 219,040 | 2,641 | 70,414 | 73,055 | ||||||
Debt instruments(1) | ||||||||||||
Domestic activities | (52,143) | 915,897 | 863,754 | (31,559) | 352,777 | 321,218 | ||||||
Foreign activities | 210,995 | (1,204,378) | (993,383) | 116,530 | 571,728 | 688,258 | ||||||
Total | 158,852 | (288,481) | (129,629) | 84,971 | 924,505 | 1,009,476 | ||||||
Loans and advances to customers, net | ||||||||||||
Domestic activities | 2,189,882 | 6,842,626 | 9,032,508 | 1,910,678 | 6,104,296 | 8,014,974 | ||||||
Foreign activities | 184,097 | 1,240,689 | 1,424,786 | 1,171,381 | 252,848 | 1,424,229 | ||||||
Total | 2,373,979 | 8,083,315 | 10,457,294 | 3,082,059 | 6,357,144 | 9,439,203 | ||||||
Total interest-earning assets | ||||||||||||
Domestic activities | 2,299,285 | 7,817,249 | 10,116,534 | 1,882,320 | 6,524,018 | 8,406,338 | ||||||
Foreign activities | 411,703 | 153,813 | 565,516 | 1,289,903 | 878,042 | 2,167,945 | ||||||
Total | 2,710,988 | 7,971,062 | 10,682,050 | 3,172,223 | 7,402,060 | 10,574,283 | ||||||
Interest-bearing liabilities: | ||||||||||||
Checking accounts | ||||||||||||
Domestic activities | (3,922) | 109 | (3,813) | 3,688 | (377) | 3,311 | ||||||
Foreign activities | 240 | 18,784 | 19,024 | 5,980 | (3,319) | 2,661 | ||||||
Total | (3,682) | 18,893 | 15,211 | 9,668 | (3,696) | 5,972 | ||||||
Saving accounts | ||||||||||||
Domestic activities | (41,794) | 1,569,468 | 1,527,674 | 80,294 | 1,351,617 | 1,431,911 | ||||||
Foreign activities | (2,493) | 51,313 | 48,820 | 97,746 | (6,109) | 91,637 | ||||||
Total | (44,287) | 1,620,781 | 1,576,494 | 178,040 | 1,345,508 | 1,523,548 | ||||||
Time deposits | ||||||||||||
Domestic activities | 2,731,191 | 2,239,297 | 4,970,488 | 286,324 | 1,351,012 | 1,637,336 | ||||||
Foreign activities | 135,648 | 483,995 | 619,643 | 136,077 | 24,242 | 160,319 | ||||||
Total | 2,866,839 | 2,723,292 | 5,590,131 | 422,401 | 1,375,254 | 1,797,655 | ||||||
Repurchase agreements and other similar secured borrowing | ||||||||||||
Domestic activities | 8,465 | (13,139) | (4,674) | (12,735) | 109,521 | 96,786 | ||||||
Foreign activities | (852) | 3,142 | 2,290 | 60 | 4,064 | 4,124 | ||||||
Total | 7,613 | (9,997) | (2,384) | (12,675) | 113,585 | 100,910 | ||||||
Borrowings from other financial institutions | ||||||||||||
Domestic activities | 92,004 | 316,003 | 408,007 | (14,161) | 229,131 | 214,970 | ||||||
Foreign activities | 149,132 | 338,140 | 487,272 | 206,784 | 48,014 | 254,798 | ||||||
Total | 241,136 | 654,143 | 895,279 | 192,623 | 277,145 | 469,768 | ||||||
Interbank deposits | ||||||||||||
Domestic activities | (401) | 6,373 | 5,972 | (641) | 2,362 | 1,721 | ||||||
Foreign activities | 152 | 13,041 | 13,193 | (15) | 5,799 | 5,784 | ||||||
Total | (249) | 19,414 | 19,165 | (656) | 8,161 | 7,505 | ||||||
79
December 31, 2023 - December 31, 2022 | December 31, 2022 - December 31, 2021 | |||||||||||
Increase (Decrease) due to changes in: | Increase (Decrease) due to changes in: | |||||||||||
Volume | Rate | Net Change | Volume | Rate | Net Change | |||||||
In millions of COP | ||||||||||||
Debt instruments in issue | ||||||||||||
Domestic-activities | 66,798 | 88,435 | 155,233 | 25,876 | 249,048 | 274,924 | ||||||
Foreign-activities | (177,384) | 120,255 | (57,129) | 4,636 | (4,490) | 146 | ||||||
Total | (110,586) | 208,690 | 98,104 | 30,512 | 244,558 | 275,070 | ||||||
Lease liability | ||||||||||||
Domestic-activities | 1,407 | 5,790 | 7,197 | (4,665) | (1,294) | (5,959) | ||||||
Foreign-activities | (2,225) | (2,506) | (4,731) | 3,678 | 2,074 | 5,752 | ||||||
Total | (818) | 3,284 | 2,466 | (987) | 780 | (207) | ||||||
Total interest-bearing liabilities | ||||||||||||
Domestic-activities | 2,853,748 | 4,212,336 | 7,066,084 | 363,980 | 3,291,020 | 3,655,000 | ||||||
Foreign-activities | 102,218 | 1,026,164 | 1,128,382 | 454,946 | 70,275 | 525,221 | ||||||
Total | 2,955,966 | 5,238,500 | 8,194,466 | 818,926 | 3,361,295 | 4,180,221 | ||||||
| (1) | Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material. |
INTEREST-EARNING ASSETS — NET INTEREST MARGIN AND SPREAD
The following table presents 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, 2023, 2022 and 2021, respectively.
Interest Earning Assets Yield For the Fiscal | |||||||
Year Ended December 31, | |||||||
2023 | 2022 | 2021 | |||||
In millions of COP, except percentages | |||||||
Total average interest-earning assets | |||||||
Domestic activities | 185,882,836 | 168,962,180 | 150,978,249 | ||||
Foreign activities | 109,868,154 | 104,551,647 | 84,413,302 | ||||
Total | 295,750,990 | 273,513,827 | 235,391,551 | ||||
Net interest income(1) | |||||||
Domestic activities | 16,616,094 | 13,565,644 | 8,814,306 | ||||
Foreign activities | 4,062,991 | 4,625,857 | 2,983,133 | ||||
Total | 20,679,085 | 18,191,501 | 11,797,439 | ||||
Average yield on interest-earning assets | |||||||
Domestic activities | 15.94 | % | 11.55 | % | 7.35 | % | |
Foreign activities | 7.08 | % | 6.89 | % | 5.97 | % | |
Total | 12.65 | % | 9.77 | % | 6.86 | % | |
Net interest margin(2) | |||||||
Domestic activities | 8.94 | % | 8.03 | % | 5.84 | % | |
Foreign activities | 3.70 | % | 4.42 | % | 3.53 | % | |
Total | 6.99 | % | 6.65 | % | 5.01 | % | |
Interest spread(3) | |||||||
Domestic activities | 8.21 | % | 7.57 | % | 5.63 | % | |
Foreign activities | 3.90 | % | 4.62 | % | 3.75 | % | |
Total | 6.78 | % | 6.52 | % | 4.93 | % | |
| (1) | Net interest income is interest income on loans less interest expense 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 accrued on interest-bearing liabilities. |
80
E.2 INVESTMENT PORTFOLIO
DEBT INSTRUMENTS PORTFOLIO MATURITY
The following table summarizes the maturities and weighted average nominal yields of the Bank’s debt instruments at amortized cost and debt instruments at fair value through other comprehensive income as of December 31, 2023:
Maturity less | Maturity between | Maturity between | Maturity More | |||||||
than 1 year | 1 and 5 Years | 5 and 10 Years | Than 10 Years | Total yield | ||||||
Yield %(1) | Yield %(1) | Yield %(1) | Yield %(1) | Yield %(1) | ||||||
Securities issued or secured by: Foreign currency.-denominated(2): | ||||||||||
Colombian Government | 5.00 | % | 6.25 | % | 5.27 | % | - | 5.63 | % | |
Corporate bonds | 5.43 | % | 4.50 | % | 5.32 | % | 7.03 | % | 5.30 | % |
Foreign Governments | 4.63 | % | 3.86 | % | 4.10 | % | - | 4.28 | % | |
Other financial entities | 3.65 | % | 3.24 | % | 4.02 | % | - | 3.07 | % | |
Subtotal yield | 4.61 | % | 3.97 | % | 5.18 | % | 7.03 | % | 4.60 | % |
Securities issued or secured by: Peso-denominated(2) | ||||||||||
Corporate bonds | - | - | - | 18.79 | % | 18.79 | % | |||
Colombian Government | 11.42 | % | - | - | - | 11.42 | % | |||
Other financial entities | - | - | 9.06 | % | - | 9.06 | % | |||
Other Government entities | 9.01 | % | - | 9.13 | % | - | 9.02 | % | ||
Subtotal yield | 10.13 | % | - | 9.07 | % | 18.79 | % | 10.79 | % | |
Total yield | 8.67 | % | 3.97 | % | 5.72 | % | 14.75 | % | 7.76 | % |
(1) | Yield was calculated using the internal rate of return (IRR) as of December 31, 2023. |
(2) | Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such calculation would not be material. |
E.3 LOAN PORTFOLIO
Maturity of Loans
The following table shows the maturities of the Bank’s loan portfolio as of December 31, 2023:
In one year or less | After one year through five years | After five years through 15 years | After 15 years | Total | ||||||
In millions of COP | ||||||||||
Commercial | ||||||||||
Corporate | 22,360,108 | 27,329,312 | 19,970,727 | 183,507 | 69,843,654 | |||||
SME | 4,486,326 | 7,497,307 | 2,200,274 | 16,650 | 14,200,557 | |||||
Others | 13,754,911 | 23,001,682 | 13,765,868 | 120,724 | 50,643,185 | |||||
Total commercial | 40,601,345 | 57,828,301 | 35,936,869 | 320,881 | 134,687,396 | |||||
Consumer | ||||||||||
Credit card | 417,390 | 1,755,518 | 9,034,823 | - | 11,207,731 | |||||
Vehicle | 55,295 | 2,982,439 | 2,371,163 | 329 | 5,409,226 | |||||
Payroll loans | 57,211 | 1,872,546 | 7,061,605 | 470,527 | 9,461,889 | |||||
Others | 759,254 | 19,938,540 | 7,618,946 | 196,183 | 28,512,923 | |||||
Total consumer | 1,289,150 | 26,549,043 | 26,086,537 | 667,039 | 54,591,769 | |||||
Mortgage | ||||||||||
VIS | 23,303 | 264,232 | 2,157,322 | 10,552,767 | 12,997,624 | |||||
Non-VIS | 51,886 | 741,599 | 7,444,461 | 15,014,838 | 23,252,784 | |||||
Total mortgage | 75,189 | 1,005,831 | 9,601,783 | 25,567,605 | 36,250,408 | |||||
Financial Leases | 1,639,218 | 9,165,622 | 12,939,908 | 3,532,309 | 27,277,057 | |||||
Small Business Loan | 208,429 | 737,255 | 194,581 | 4,752 | 1,145,017 | |||||
Total loans | 43,813,331 | 95,286,052 | 84,759,678 | 30,092,586 | 253,951,647 | |||||
81
In general, the initial term of a loan will depend on the type of guarantee or collateral, the credit history of the borrower and the purpose of the loan. As of December 31, 2023, 54.77% of the Bank’s loan portfolio had a maturity of five years or less.
Loans interest rate allocation
The following table shows the interest rate allocation of the Bank’s loan portfolio due after one year and within one year or less:
| As of December 31, 2023 | |
| In millions of COP | |
Loans with term of 1 year or more: | ||
Variable Rate | ||
Domestic-denominated | 93,617,235 | |
Commercial | 63,889,664 | |
Consumer | 10,433,872 | |
Small business loan | 34,523 | |
Financial Leases | 19,259,176 | |
Mortgage | - | |
Foreign-denominated | 20,275,705 | |
Commercial | 11,373,966 | |
Consumer | 6,572,992 | |
Small business loan | 296,547 | |
Financial Leases | 13,043 | |
Mortgage | 2,019,157 | |
Total | 113,892,940 | |
Fixed Rate | ||
Domestic-denominated | 62,043,409 | |
Commercial | 8,236,075 | |
Consumer | 27,649,896 | |
Small business loan | 463,291 | |
Financial Leases | 5,748,587 | |
Mortgage | 19,945,560 | |
Foreign-denominated | 34,201,967 | |
Commercial | 10,586,346 | |
Consumer | 8,645,859 | |
Small business loan | 142,227 | |
Financial Leases | 617,033 | |
Mortgage | 14,210,502 | |
Total | 96,245,376 | |
Loans with term of less than 1 year: | ||
Domestic-denominated | 29,690,882 | |
Commercial | 27,466,463 | |
Consumer | 523,139 | |
Small business loan | 53,380 | |
Financial Leases | 1,605,562 | |
Mortgage | 42,338 | |
Foreign-denominated | 14,122,449 | |
Commercial | 13,134,882 | |
Consumer | 766,011 | |
Small business loan | 155,049 | |
Financial Leases | 33,656 | |
Mortgage | 32,851 | |
Total | 43,813,331 | |
Total loans | 253,951,647 |
82
Allowance for credit losses to total loans
The following table shows the allowance for credit losses to total loans for the years ended December 31, 2023 and 2022:
Year ended December 31, | |||||
2023 | 2022 | ||||
Allowance for credit losses to total loans. | 6.39 | % | 5.73 | % | |
The ratio of allowance for credit losses to total loans increased to 6.39 % in 2023 from 5.73% in 2022. This increase is due to: (i) an increase of 4.80% in the allowance for loan losses as a result of increased default in the loan portfolio and a less favorable economic outlook; and (ii) a decrease in the loan portfolio mainly due to the restatement of the Dollar loans into Colombian pesos due to a lower exchange rate at December 31, 2023 compared with December 31, 2022 and a slow disbursement dynamic of the consumer portfolio compared to the previous year. For further information about the change of the allowance for credit losses from 2023 to 2022, see Note 6 to the Consolidated Financial Statements, “Loans and Advances to Costumers, Net” in “Allowance for loans losses” and “Impact of movements in the value of the portfolio and loss allowance by Stage” section and Note “Risk Management” in “Credit Risk” section.
E.4 SUMMARY OF LOAN LOSS EXPERIENCE
Ratio of charge-offs to average outstanding loans
The ratio of charge-offs to average outstanding loans for the years ended December 31, 2023 and 2022 was as follows:
| Year ended December 31, | ||||
2023 | 2022 | ||||
Ratio of charge-offs to average outstanding loans | 2.56 | % | 2.54 | % | |
Commercial | 0.69 | % | 1.35 | % | |
Consumer | 9.15 | % | 7.03 | % | |
Mortgage | 0.35 | % | 1.04 | % | |
Financial Leases | 1.01 | % | 0.66 | % | |
Small Business Loan | 6.61 | % | 8.38 | % | |
The increase in the charge-offs ratio is mainly due to higher default in the personal portfolio loans, which default is associated with certain macroeconomic factors such as high levels of inflation, interest rates and economic slowdown.
E.5 DEPOSITS
Uninsured deposits
An uninsured deposit is any deposit that does not have a mechanism to protect and secure the depositor’s resources (either natural or legal person) in the event of insolvency or settlement of any financial institution.
The amount of uninsured deposits for 2023 and 2022 is COP 164,601,948 and COP 194,759,108, respectively.
83
The following table shows the time deposits held by the Bank as of December 31, 2023 and 2022, unsecured:
At December 31, 2023 | ||||||
Unsecured | ||||||
Peso - | Foreign Exchange- | |||||
Denominated | Denominated | Total | ||||
In millions of COP | ||||||
Up to 3 months | 14,028,847 | 5,592,275 | 19,621,122 | |||
From 3 to 6 months | 5,856,589 | 4,632,261 | 10,488,850 | |||
From 6 to 12 months | 7,986,745 | 8,756,038 | 16,742,783 | |||
More than 12 months | 18,798,384 | 3,279,197 | 22,077,581 | |||
Total Time deposits | 46,670,565 | 22,259,771 | 68,930,336 | |||
At December 31, 2022 | ||||||
Unsecured | ||||||
Peso - | Foreign Exchange- | |||||
Denominated | Denominated | Total | ||||
In millions of COP | ||||||
Up to 3 months | 8,784,520 | 13,967,894 | 22,752,414 | |||
From 3 to 6 months | 3,958,243 | 6,384,422 | 10,342,665 | |||
From 6 to 12 months | 6,592,737 | 11,629,665 | 18,222,402 | |||
More than 12 months | 15,163,613 | 11,292,926 | 26,456,539 | |||
Total Time deposits | 34,499,113 | 43,274,907 | 77,774,020 | |||
F. UNRESOLVED STAFF COMMENTS
None.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with the Bank’s Consolidated Financial Statements included in this Annual Report.
The following discussion includes information regarding future financial performance and plans, targets, aspirations, expectations, and objectives of management, which constitute forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. It is possible that the Bank’s actual results may differ materially from the results discussed in the forward-looking statements because of several risks and uncertainties. Please see “Cautionary Note Regarding Forward-Looking Statements”.
In addition, please refer to the discussion in Item 3. “Key Information – D. Risk Factors” for a description of risks and uncertainties affecting the Bank’s business and financial results and to Item 4 B. “Business Overview, B.9 – Cybersecurity Framework”, for a description of the Bank’s cybersecurity framework.
A. OPERATING RESULTS
IMPACT OF ECONOMIC AND MONETARY POLICIES ON BANCOLOMBIA’S RESULTS
Bancolombia’s operating results are affected by macroeconomic factors, mainly in Colombia but also in the other countries where the Bank operates. The most important variables include GDP growth, interest rates, inflation, and exchange rates, mostly the USD/COP. The following discussion summarizes the trends of these measures in Colombia in 2023.
84
Economic Activity
Colombia's real GDP growth in 2023 was 0.6%. So, 2023 was a period of notable weakening of the Colombian economy's dynamics, following a period of high GDP (7.3% in 2022). This sharp decline in GDP growth has been part of a cycle in which the Central Bank significantly raised the policy interest rate to address inflationary pressures. Consequently, the high interest rates began to strain household and business budgets, reducing both consumption and investment capacity, while public investment budget execution also remained low.
The behavior of key GDP components in 2023 compared to 2022, in constant-prices figures, was as follows: fixed investment declined 8.9%, total consumption grew 1.1%, imports declined 14.7%, and exports increased 3.1%.
The sectors that showed the most dynamic growth in 2023 were the financial and insurance activities (showing an annual growth of 7.9%), the artistic, entertainment and recreation activities and other service activities (7.0%), and the public administration, defense, health, and education macro-sector (3.9%).
Interest Rates
As of December 31, 2023, the Colombian Central Bank’s benchmark interest rate stood at 13%, after a 125 percentage point increase over the first half of the year and a 25 percentage point cut in December 2023.
Despite the initial cut in interest rates, the monetary policy is currently highly contractionary. The Central Bank has a significant margin to continue the interest rate cuts without abandoning the contractionary stance of the policy, which will allow inflation to continue to get closer to the target.
Inflation
2023 year-end inflation stood at 9.28%, lower than the 13.12% recorded in 2022. The sectors driving inflation in 2023 were transport (15.42% increase), restaurants and hotels services (13.22% increase), and alcoholic beverages and tobacco (11.95% increase). On the contrary, the prices of information and communication services (0.12% increase), food and non-alcoholic beverages (5.00% increase), and clothing and footwear (5.23% increase) increased the least.
In the second half of 2023, annual inflation maintained a consistent but slow downward trend, a behavior expected to persist during 2024, reaffirming the possibility of the policy interest rates continuing to decline, albeit at a slow pace.
Exchange Rate
The Colombian peso appreciated 20.54% against the USD during 2023, with the USD/COP closing at COP3,822.05, compared to a depreciation of 20.82% in 2022, when the USD/COP closed at COP4,810.20. Thus, 2023 was a year of recovery for the COP after the setbacks experienced in 2022. Various signals of institutional strength, coupled with favorable economic outcomes such as a reduction in the current account deficit and the beginning of the inflation normalization process, are the main factors behind the strengthening of the currency.
Outlook
Prospects for the Colombian economy, the financial sector in general, and for Bancolombia in particular, are expected to depend on these factors:
85
Favorable factors for the Colombian economy – medium-term | Unfavorable factors for the Colombian economy – medium term |
Rapid economic recovery from the recession caused by the pandemic. It is expected that the country is going to continue with fiscal and monetary policies within a stable political environment. Colombia’s stable democracy, division of power, and checks and balances sustain policy predictability and economic pragmatism. A sharp fall in the current account deficit in 2023 to 3%-4% of GDP from 6.3% in 2022 will contain Colombia’s near-term external vulnerabilities. The Central Bank continues to adhere to its long-standing policy of targeting inflation and letting the currency float freely. A solid cushion of foreign reserves will mitigate external vulnerabilities stemming from high current account deficit compared to other emerging economies, although this deficit is smaller than in previous years. | Private investment remains subdued, constraining Colombia's long-term economic prospects. Persistently weak investor confidence could affect private investment and may pose risks to the expectation that GDP growth will return to its trend rate of just above 3% in the next couple of years. Potentially low medium-term growth could contribute to fiscal slippage or higher external vulnerabilities. Colombia is exposed to the adverse effects of climate change, especially flooding: more than 80% of its population and economic activity is concentrated in about 20% of its land and is vulnerable to natural disasters. Public finances could suffer from potential shortfalls in revenues from lower commodity prices. Colombia is exposed to significant volatility in terms of trade due to its dependence on hydrocarbons. Low trade openness and a commodity-dependent export base implies a high vulnerability to commodity price shocks. Higher social spending will cause the fiscal deficit to widen in 2024. The risk of civil unrest will be high throughout the 2024 - 28 forecast period, reflecting deep divisions within Colombian society, as well as fragmentation in Congress that will prevent rapid progress toward tackling issues such as poverty and low-quality education. |
GENERAL DISCUSSION OF THE CHANGES IN RESULTS FOR 2023 VERSUS 2022
The following discussion does not address the changes in results for 2022 versus 2021; the discussion of these changes may be found in the Bank’s Annual Report on Form 20-F for the year ended December 31, 2022, filed with the SEC.
Summary
During the past year, Bancolombia maintained its strong competitive position and broad range of financial services amid a challenging economic environment in the different geographies where the group operates. 2023 was a year of global economic slowdown, high levels of inflation, weak domestic demand, and credit contraction. High-interest rates notably impacted clients' borrowing capacity within the financial system, deteriorating asset quality ratios and discouraging new originations across all segments.
Moreover, following a sharp depreciation in 2022, the Colombian Peso had a strong rebound in 2023, closing at COP 3,822.05 per USD, a 20.54% appreciation.
Net income attributable to equity holders of Bancolombia totaled COP 6,117 billion (COP 6.420 per share, both common and preferred shares, and USD 6.72 per ADR) in 2023, which represents a decrease of 9.83% as compared to the COP 6,783 billion of net income attributable to equity holders of Bancolombia for the fiscal year 2022.
Bancolombia’ s average return on stockholders’ equity for 2023 was 16.14%, down from 19.80% in 2022.
The net interest and valuation income margin increased in 2023 and stood at 6.99% for the year, up from 6.80% in 2022.
86
Credit impairment charges, totaled COP 7,462 billion for 2023, up 96.79% from COP 3,792 billion in 2022. Due to less favorable credit conditions for clients, such growth on an annual basis is largely explained by the performance of the retail portfolio in Colombia which had a significant increase in 2022. Thus, the banking industry at a broader level experienced a considerable decline in credit quality, to a greater extent, during the first half of 2023. During the second half of 2023, provision expenses for the group decreased as new originations denoted a better payment behavior.
Loans and advances to customers and financial institutions decreased by 5.92% during the year. This result is strongly correlated with the sharp appreciation of the Colombian peso against the U.S. dollar and the restatement of foreign subsidiaries balances. When excluding the exchange rate effect, growth would have been 1.51% annually.
Furthermore, lower credit demand related to high interest rates, as well as the tightening of the Bank´s origination policies, led to decreasing disbursements during the year. Unlike previous years when the consumer portfolio had sustained a growing trend, by 2023 its balance contracted due to changes in risk appetite for this segment during this credit cycle. Home lending grew in all geographies, while commercial loans gained share within the portfolio mix due to the higher balance in Colombia. The total loan book in COP grew 4.21% and the portfolio in USD decreased 22.95% during the year (-3.03% when calculated in USD).
Allowance for loans and lease losses represented 6.02% of total loans and 120.04% of 30-day past-due loans (excluding accrued interest) at the end of 2023 compared with 5.47% of total loans and 168.73% of 30-day past-due loans (excluding accrued interest) at the end of 2022. The Bank expects that these allowances will provide adequate coverage for expected credit losses.
Capital adequacy was 13.40% (Tier 1 ratio of 11.42%), higher than the 12.79% (Tier 1 ratio of 10.37%) reported at the end of 2022, largely explained by the low growth of the loan portfolio and the appreciation of the COP versus the USD, thus reducing the balance of risk weighted assets and a lower deduction of goodwill.
Deposits by customers decreased 1.22% during 2023, while the ratio of net loans to deposits was 95.9% at the end of 2023, down from 101.4% at the end of 2022, given that loans contracted at a higher rate than deposits.
Net interest margin and valuation income on financial instruments before impairment on loans and financial leases and off-balance sheet credit instruments.
Interest income, which is the sum of interest on loans, financial leases, overnight funds and interest and valuation income from investment securities was COP 37,046 billion, up 38.25% from 26,796 billion in 2022, driven mainly by changes in price as per the higher market rates at which the loan book reprices rather than by changes in volume. This is because the largest share of the loan portfolio is at variable rate and therefore assets tend to reprice fast upon interest rate hikes.
However, the lower pace of growth of interest income compared to the previous year is due to the 5.92% loan book contraction, which in turn has a threefold explanation: first, a weaker credit demand in all segments provided the high interest rates; second, lower risk appetite given the increase on loan delinquencies, and third, the sharp COP appreciation during the period that reduced the volume of loans and the interest income contribution of the USD portfolio on the consolidated book.
As a matter of fact, consumer loans, which provide the higher risk adjusted returns, posted the largest drop with an 8.38% year over year contraction as per the Bank´s lower risk appetite, dragging overall income generation.
As a result, the weighted average nominal interest rate on loans and financial leases was 13.4% up from 10.2%, in 2022.
In turn, interest expense was COP 16,668 billion, up 97.43% year over year, mainly driven by the growth in time deposits that outpaced the growth of all other sources of deposits as depositors sought higher yields. This caused the interest rate paid on interest-bearing liabilities to increase to 5.9% up from 3.2%, recorded in 2022.
87
Interest on debt instruments using the effective interest method totaled COP 1,029 billion in 2023, up 74.83% from 2022, mainly due to higher market rates. Conversely, total valuation on financial instruments was COP 579 billion, a drop of 57.53% compared to 2022, attributable to the higher market rates at which the portfolio was discounted.
Net interest income and valuation for 2023 was COP 20,378 billion, a 11.02% increase from COP 18,354 billion in 2022. This represents a net interest and valuation income margin from continuing operations of 6.99%, increasing almost 20 basis points from 6.80% recorded in 2022. Despite the contraction in the loan book and the increase in interest expense on deposits as per higher market rates, income generation grew, albeit at a slower pace compared to 2022, mainly due to changes in prices in loans and financial leases, overnight funds and interest from investment securities held in the portfolio.
88
Fees and Commissions
The following table lists the principal categories of revenue-producing fees and commissions for the years ended on December 31, 2023 and December 31, 2022 along with year-to-year variations; for further information about composition of Bank’ segments see Note 3 Operating segments:
Fees and commissions income, gross
As of December 31, 2023
Banking | Banking | Banking El | Banking | Investment | International | All Other | Total | |||||||||||||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | Banking | Brokerage | Banking | Segments | ||||||||||||||||||||||
Revenue of contracts with customers for fees and Commissions | In millions of COP | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Credit and debit card fees and commercial establishments | 2,467,174 | 272,380 | 233,049 | 95,833 | - | - | - | 1,992 | - | 3,070,428 | ||||||||||||||||||||
Bancassurance | 924,280 | 72,705 | 77 | - | 104 | 29 | 126 | - | - | 997,321 | ||||||||||||||||||||
Banking services | 593,729 | 110,271 | 157386 | 68857 | - | - | - | 37746 | 23574 | 991,563 | ||||||||||||||||||||
Payment and collections | 950,167 | 15,236 | - | - | - | - | - | - | - | 965,403 | ||||||||||||||||||||
Fiduciary Activities and Securities | - | 20,233 | 6,399 | 851 | 361,632 | - | 74,377 | 54 | - | 463,546 | ||||||||||||||||||||
Acceptances, Guarantees and Standby Letters of Credit | 72335 | 25159 | 5,211 | 3173 | - | - | - | 1803 | - | 107,681 | ||||||||||||||||||||
Investment banking | - | 980 | 1,225 | - | - | 55888 | 10728 | - | - | 68,821 | ||||||||||||||||||||
Brokerage | - | 15,568 | - | - | - | - | 11,140 | - | - | 26,708 | ||||||||||||||||||||
Others | 244,414 | 398 | 76,221 | 54,486 | 229 | - | 7,614 | 5,633 | 412 | 389,407 | ||||||||||||||||||||
Total revenue of contracts with customers | 5,252,099 | 532,930 | 479,568 | 223,200 | 361,965 | 55,917 | 103,985 | 47,228 | 23,986 | 7,080,878 | ||||||||||||||||||||
89
As of December 31, 2022
Banking | Banking | Banking El | Banking | Investment | International | All Other | Total | |||||||||||||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | Banking | Brokerage | Banking | Segments | ||||||||||||||||||||||
Revenue of contracts with customers for fees and Commissions | In millions of COP | |||||||||||||||||||||||||||||
Credit and debit card fees and commercial establishments | 2,248,727 | 232,637 | 216,977 | 79,551 | - | - | - | 1,868 | - | 2,779,760 | ||||||||||||||||||||
Bancassurance | 814,653 | 57,858 | 97 | - | 29 | 8 | 32 | - | - | 872,677 | ||||||||||||||||||||
Banking services | 481,103 | 91,938 | 142,047 | 78,264 | - | - | - | 31,277 | 12,732 | 837,361 | ||||||||||||||||||||
Payment and collections | 851,983 | 13,975 | - | - | - | - | - | - | - | 865,958 | ||||||||||||||||||||
Fiduciary Activities and Securities | - | 18,975 | 6,522 | 803 | 318,840 | - | 78,509 | 53 | - | 423,702 | ||||||||||||||||||||
Acceptances, Guarantees and Standby Letters of Credit | 58,293 | 18,382 | 10,081 | 3,774 | - | - | - | 828 | - | 91,358 | ||||||||||||||||||||
Investment banking | - | 550 | 1,482 | - | - | 86,224 | 15,667 | - | - | 103,923 | ||||||||||||||||||||
Brokerage | - | 11,888 | - | - | - | - | 15,960 | - | - | 27,848 | ||||||||||||||||||||
Others | 229,804 | 380 | 66,971 | 56,162 | - | - | 1,198 | 7,995 | 5,429 | 367,939 | ||||||||||||||||||||
Total revenue of contracts with customers | 4,684,563 | 446,583 | 444,177 | 218,554 | 318,869 | 86,232 | 111,366 | 42,021 | 18,161 | 6,370,526 | ||||||||||||||||||||
90
Growth | |||||
2023 | - | 2022 | |||
COP | % | ||||
Revenue for fees and commissions of contracts with customers | |||||
Credit and debit card fees and commercial estabilshments | 290,668 | 10.46 | % | ||
Bancassurance | 124,644 | 14.28 | % | ||
Banking services | 154,202 | 18.42 | % | ||
Payment and collections | 99,445 | 11.48 | % | ||
Fiduciary Activities and Securities | 39,844 | 9.40 | % | ||
Acceptances, Guarantees and Standby Letters of Credit | 16,323 | 17.87 | % | ||
Investment banking | (35,102) | (33.78) | % | ||
Brokerage | (1,140) | (4.09) | % | ||
Others | 21,468 | 5.83 | % | ||
Total revenue of contracts with customers | 710,352 | 11.15 | % | ||
Fees and commissions expenses
The following table presents the increase in fees and commissions expenses:
Year | Growth | ||||||||
2023 | 2022 | 2023-2022 | |||||||
In millions of COP | |||||||||
Banking services | 1,483,701 | 1,242,590 | 241,111 | 19.40 | % | ||||
Sales, collections and other services(1) | 851,784 | 708,803 | 142,981 | 20.17 | % | ||||
Correspondent banking | 504,227 | 406,567 | 97,660 | 24.02 | % | ||||
Payments and collections | 41,904 | 34,720 | 7,184 | 20.69 | % | ||||
Others | 215,664 | 197,486 | 18,178 | 9.20 | % | ||||
Total fees and commissions expenses | 3,097,280 | 2,590,166 | 507,114 | 19.58 | % | ||||
Fees and commission income, net
Year | Growth | ||||||||
2023 | 2022 | 2023-2022 | |||||||
In millions of COP | |||||||||
Fees and commission income | 7,080,878 | 6,370,526 | 710,352 | 11.15 | % | ||||
Fees and commission expenses | (3,097,280) | (2,590,166) | (507,114) | 19.58 | % | ||||
Total fees and commissions income, net | 3,983,598 | 3,780,360 | 203,238 | 5.38 | % | ||||
For the year 2023, gross revenues for fees and commissions totaled COP 7,081 billion, up 11.15% compared to COP 6,371 billion in 2022. The main source of fee income during the year was credit and debit cards, which resulted from acquiring (credit and debit card) businesses, and revenues from merchant discount rates from different card issuers. Income for this division grew 10.46% year over year as a result of an increasing volume of transactions and interbank exchange fees generated by a higher amount of national and international purchases, both through POS and electronic payments.
Banking services had a significant contribution to the increase in commissions largely due to the operation of Bancolombia S.A., associated, among other factors, with higher revenues from digital banking.
Bancassurance added to the good performance during the last year with dynamic activities in insurance policy renewals, in addition to higher income from the distribution of new voluntary and mandatory insurances. Finally, payments fees also represented an annual increase primarily as a result of higher demand for services such as invoice collection from individual clients.
Fee expenses totaled COP 3,097 billion in 2023, up 19.58% compared to COP 2,590 billion in 2022. Such increase is mainly due to higher costs of data processing for banking services and, higher royalties on credit and debit card affiliated
91
networks due to increasing transactional volumes. Furthermore, sales outsourcing services and third-party collections also drove fee expenses growth. Finally, banking agents also contributed to higher expenses as a result of the increased number of transactions processed and new merchants enrolled.
Other Operating Income
In 2023, total other operating income was COP 3,980 billion, 93.80% higher than the COP 2,053 billion in 2022. The increase, was due to currency hedging balances which resulted in a positive net effect in a period of high volatility, in respect of foreign exchange.
Revenues from operating leases totaled COP 1,771 billion in 2023, an increase of 29.97% compared to 2022. The better performance was driven by incremental demand in customer financial lease agreements at Bancolombia S.A. and customer rental contracts of vehicles at Renting Colombia and higher income in property rentals.
Operating expenses
The following table summarizes the principal components of the Bank’s operating expenses for the last two fiscal years:
For the years ended December 31, | Growth | ||||||||
2023 | 2022 | 2023-2022 | |||||||
In millions of COP | |||||||||
Operating expenses | |||||||||
Salaries and employee benefits | 5,350,234 | 4,417,656 | 932,578 | 21.11 | % | ||||
Other administrative and general expenses | 5,033,944 | 4,559,900 | 474,044 | 10.40 | % | ||||
Taxes other than income tax | 1,433,148 | 929,512 | 503,636 | 54.18 | % | ||||
Impairment, depreciation and amortization | 1,124,859 | 980,575 | 144,284 | 14.71 | % | ||||
Total operating expenses | 12,942,185 | 10,887,643 | 2,054,542 | 18.87 | % | ||||
The following table summarizes the principal components of the Bank’s operating expenses for the fiscal years ended:
For the years ended December 31, | Growth | ||||||||
2022 | 2021 | 2022-2021 | |||||||
In millions of COP | |||||||||
Operating expenses | |||||||||
Salaries and employee benefits | 4,417,656 | 3,782,596 | 635,060 | 16.79 | % | ||||
Other administrative and general expenses | 4,559,900 | 3,740,506 | 819,394 | 21.91 | % | ||||
Taxes other than income tax | 929,512 | 719,593 | 209,919 | 29.17 | % | ||||
Impairment, depreciation and amortization | 980,575 | 920,558 | 60,017 | 6.52 | % | ||||
Total operating expenses | 10,887,643 | 9,163,253 | 1,724,390 | 18.82 | % | ||||
In 2023, operating expenses totaled COP 12,942 billion, up 18.87% as compared to COP 10,888 billion in 2022.
Salaries and employee benefits (excluding bonuses) totaled COP 4,410 billion in 2023, up 22.70% as compared to 2022. The result is largely due to annual salary increases, as well as updates on actuarial valuations on certain employees’ benefits resulting in higher expenses for the period. On the other hand, bonuses increased by 14.18% annually under the performance-based model that rewards employee contributions towards company profitability.
Other administrative and general expenses totaled COP 5,034 billion in 2023, up 10.40% as compared to 2022. This is mostly due to: (i) an increase in the vehicle rental division that caused higher expenses associated with asset impairment and maintenance and (ii) continued expansion of digital transformation projects. Taxes other than income tax had a significant increase after changes in the fiscal reform approved in 2022.
Impairments, depreciation, and amortization totaled COP 1,125 billion in 2023, up 14.71% as compared to 2022. This increase is primarily due to the increase in higher operating leases and consequently higher asset depreciation.
92
As a result of the changes in expenses and revenues, the cost to income ratio of Bancolombia for 2023 was 45.33%, up from 44.58% in 2022.
Provision Charges and Credit Quality
For the year 2023, total credit impairment charges, net totaled COP 7,462 billion (or 2.8% of average loans), which represents an increase of 96.79% as compared to COP 3,792 billion (or 1.6% of average loans) in 2022.
Macroeconomic factors such as high inflation, high interest rates and the economic slowdown influenced the deterioration of the portfolio in the different geographies where the bank operates. The significant increase in the cost of credit for 2023 was mostly explained by loans running past due in consumer and, to a large extent in personal loans in particular.
Net loan charge-offs totaled COP 6,720 billion in 2023 up 9.01% from the 6,165 billion in 2022.
The incremental volume of charge-offs was explained by a higher amount of loans reaching delinquency ratios for whose recovery probabilities were very low. In 2023, important improvements were made in the collection processes and restructuring alternatives that have prevented further deterioration on overdue payment obligations from clients with high deterioration rates. Net charge-offs have two important features: first, they reduce the balance of the loan portfolio, and second, they help reduce the amount of past due loans.
Past-due loans amounted to COP 13,700 billion as of December 31, 2023, up 43.04% as compared to COP 9,578 billion as of December 31, 2022.
The past-due loan ratio (loans overdue more than 30 days divided by total loans) was 5.39% as of December 31, 2023, up from 3.55% as of December 31, 2022. Despite the implementation of effective measures to recover overdue loans and the increasing volume of charge-offs carried out during the year, the increase in the delinquency ratios reflects the high deterioration experienced during 2023, mainly in Colombia, associated with the factors described above.
Income Tax Expenses
Income tax expense for the fiscal year 2023 totaled COP 1,933 billion, 29.68% lower than COP 2,748 billion in 2022. The effective tax rate in 2023 was 23.72%.
The explanation for this lower effective tax rate is twofold; first, it is related to tax benefits in Colombia, related to the mortgage portfolio for social housing and investments in productive fixed assets, and second, the higher contribution of foreign subsidiaries with lower statutory tax rates to the consolidated results also added to a resulting lower tax. Furthermore, the tax benefits of foreign operations are associated with exempt income from returns on securities issued by the Governments of Guatemala, El Salvador and Panama.
For further details please see Note 12 of Consolidated Financial Statements.
RESULTS BY SEGMENT
The Bank manages its business through 9 main operating segments: Banking Colombia, Banking El Salvador, Banking Panama, Banking Guatemala, Trust, Investment Banking, Brokerage, International Banking and All Other.
The segment information in this Annual Report reflects the reporting structure in place at the reporting date in accordance with the segment information in Note 3. Operating Segments to the Consolidated Financial Statements.
93
Banking Colombia:
Year ended December 31, | |||||||||||
Change | Change | ||||||||||
2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | |||||||
In millions of COP | |||||||||||
Total interest and valuation on financial instruments | 29,230,060 | 20,727,335 | 11,498,013 | 41.02 | % | 80.27 | % | ||||
Interest income on loans and financial leases | 28,366,678 | 19,263,960 | 11,118,035 | 47.25 | % | 73.27 | % | ||||
Total debt investments | 937,090 | 1,361,299 | 399,517 | (31.16) | % | 240.74 | % | ||||
Derivatives, net | (167,887) | 108,255 | 17,263 | (255.08) | % | 527.09 | % | ||||
Total liquidity operations, net | 94,179 | (6,179) | (36,802) | (1,624.18) | % | (83.21) | % | ||||
Interest expenses | (13,464,980) | (6,333,834) | (2,666,843) | 112.59 | % | 137.50 | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 15,765,080 | 14,393,501 | 8,831,170 | 9.53 | % | 62.99 | % | ||||
Total credit impairment charges, net | (6,480,377) | (2,971,599) | (2,122,515) | 118.08 | % | 40.00 | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 9,284,703 | 11,421,902 | 6,708,655 | (18.71) | % | 70.26 | % | ||||
(Expenses) Revenues from transactions by the operating segments of the Bank | (187,467) | (32,163) | 18,458 | 482.87 | % | (274.25) | % | ||||
Fees and commissions income | 5,252,099 | 4,684,563 | 3,841,472 | 12.12 | % | 21.95 | % | ||||
Fees and commissions expenses | (2,522,927) | (2,099,585) | (1,524,691) | 20.16 | % | 37.71 | % | ||||
Total fees and commissions, net | 2,729,172 | 2,584,978 | 2,316,781 | 5.58 | % | 11.58 | % | ||||
Other operating income (expenses)(1) | 1,575,845 | (72,994) | 653,968 | (2,258.87) | % | (111.16) | % | ||||
Dividends and net income on equity investments | 17,613 | (8,058) | 93,769 | (318.58) | % | (108.59) | % | ||||
Total operating income, net | 13,419,866 | 13,893,665 | 9,791,631 | (3.41) | % | 41.89 | % | ||||
Operating expenses(2) | (8,022,042) | (6,600,686) | (5,550,033) | 21.53 | % | 18.93 | % | ||||
Impairment, depreciation and amortization | (744,346) | (613,807) | (529,662) | 21.27 | % | 15.89 | % | ||||
Total operating expenses | (8,766,388) | (7,214,493) | (6,079,695) | 21.51 | % | 18.67 | % | ||||
Profit before income tax | 4,653,478 | 6,679,172 | 3,711,936 | (30.33) | % | 79.94 | % | ||||
Segment assets | 254,367,378 | 247,113,605 | 209,948,788 | 2.94 | % | 17.70 | % | ||||
Segment liabilities | 216,200,157 | 207,293,246 | 177,198,960 | 4.30 | % | 16.98 | % | ||||
| (1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
Analysis of 2023 versus 2022
In 2023, profit before taxes for Banking Colombia decreased by 30.33% to COP 4,653 billion from COP 6,679 billion in 2022, due to the reasons described below.
Total interest and valuation increased by 41.02% to COP 29,230 billion, mainly due to interest income growth on loans and financial leases operations of 47.25% resulting from growth in the loan portfolio which grew at 2.09% and the Central Bank´s reference rate hikes during the year that impacted margins because of the asset-sensitive nature of the Bank’s balance sheet. This increase was mainly reflected in interest income from commercial, consumer and mortgage loans.
Total interest expenses increased by 112.59% to COP 13,465 billion from COP 6,334 billion, due to an increase in time deposits in line with the Central Bank´s reference rate hike in 2022. Net interest margin and valuation of financial instruments reflected an increase of 9.53% to COP 15,765 billion.
Total credit impairment charges, net increased by 118.08% to COP 6,480 billion from COP 2,972 billion. This increase was mainly due to credit deterioration in the consumer portfolio, and a less favorable economic outlook, including lower economic growth and higher interest rates throughout the year.
Total fees and commission net, increased by 5.58% to COP 2,729 billion, mainly driven by better performance in bank acceptances and guarantees which increased by 24.09%, banking services by 23.41%, Bancassurance by 13.46%, credit and debit cards by 9.71%, and payments-collections by 11.52% (digital channels). Such increases were partially offset by fees and commission expenses that increased by 20.16% when compared to the previous year.
94
Other operating income increased to COP 1,576 billion, mostly due to net foreign exchange and higher income generated by exchange rate derivatives due to higher volatility levels on the FX market in line with the uncertainty related to political risk and macroeconomic variables worldwide.
Dividends and net profits from capital investments increased to COP 18 billion from a loss of COP (8) billion in 2022, mainly due to bargain purchase gains in autonomous trusts, offset by lower income from dividends and from the equity method of associated companies and joint ventures, as a result of macroeconomic conditions that generated lower profits.
Total operating expenses increased by 21.51% to COP 8,766 billion from COP 7,214 billion, largely due to an increase in administrative and general expenses, in particular non-income taxes, as well as an increase in salaries and employee benefits.
Assets attributable to Banking Colombia grew by 2,94% during the year, mainly due to an increase in Cash and balances at the central bank and by loan book growth, and in particular due to commercial and mortgage portfolio performance.
Finally, liabilities attributable to Banking Colombia grew by 4,30% during 2023, driven by an increase in deposits, particularly time deposits.
Banking El Salvador:
Year ended December 31, | |||||||||||
Change | Change | ||||||||||
2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | |||||||
In millions of COP | |||||||||||
Total interest and valuation on financial instruments | 1,773,140 | 1,527,860 | 1,193,824 | 16.05 | % | 27.98 | % | ||||
Interest income on loans and financial leases | 1,524,765 | 1,293,556 | 1,072,718 | 17.87 | % | 20.59 | % | ||||
Total debt investments | 236,350 | 170,423 | 105,035 | 38.68 | % | 62.25 | % | ||||
Derivatives, net | 11,187 | 63,494 | 15,345 | (82.38) | % | 313.78 | % | ||||
Total liquidity operations, net | 838 | 387 | 726 | 116.54 | % | (46.69) | % | ||||
Interest expenses | (464,851) | (297,839) | (240,144) | 56.07 | % | 24.03 | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 1,308,289 | 1,230,021 | 953,680 | 6.36 | % | 28.98 | % | ||||
Total credit impairment charges, net | (154,938) | (102,710) | 4,271 | 50.85 | % | (2,504.82) | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 1,153,351 | 1,127,311 | 957,951 | 2.31 | % | 17.68 | % | ||||
(Expenses) Revenues from transactions by the operating segments of the Bank | (17,844) | (7,371) | 7 | 142.08 | % | (105,400.00) | % | ||||
Fees and commissions income | 479,568 | 444,177 | 359,724 | 7.97 | % | 23.48 | % | ||||
Fees and commissions expenses | (188,972) | (170,563) | (116,600) | 10.79 | % | 46.28 | % | ||||
Total fees and commissions, net | 290,596 | 273,614 | 243,124 | 6.21 | % | 12.54 | % | ||||
Other operating income(1) | 51,656 | 19,685 | 9,712 | 162.41 | % | 102.69 | % | ||||
Dividends and net income on equity investments | 10,982 | 5,340 | 2,760 | 105.66 | % | 93.48 | % | ||||
Total operating income, net | 1,488,741 | 1,418,579 | 1,213,554 | 4.95 | % | 16.89 | % | ||||
Operating expenses(2) | (668,105) | (639,748) | (549,782) | 4.43 | % | 16.36 | % | ||||
Impairment, depreciation and amortization | (131,921) | (106,601) | (81,201) | 23.75 | % | 31.28 | % | ||||
Total operating expenses | (800,026) | (746,349) | (630,983) | 7.19 | % | 18.28 | % | ||||
Profit before income tax | 688,715 | 672,230 | 582,571 | 2.45 | % | 15.39 | % | ||||
Segment assets | 21,608,586 | 26,696,524 | 20,980,061 | (19.06) | % | 27.25 | % | ||||
Segment liabilities | 19,220,367 | 23,738,984 | 18,416,563 | (19.03) | % | 28.90 | % | ||||
(1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
(2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
Analysis of 2023 versus 2022
In 2023, profit before taxes for Banking El Salvador increased by 2.45% to COP 689 billion due to the reasons described below.
95
The financial statements expressed in Colombian pesos are affected by the appreciation of the COP against the USD, which reached 20.54% during the last year.
Total interest and valuation expressed in COP increased by 16.05% to COP 1,773 billion (14.13% when expressed in USD) mainly due to higher interest income from the commercial portfolio. Likewise, interest expenses grew mainly due to loans with financial institutions and time deposits.
Moreover, the loan book in COP decreased by 18.97% because of the effect of revaluation of the peso against the dollar and increased 1.98% in USD mainly driven by the consumer portfolio which grew 6.20% when expressed in USD. On the other hand, deposits grew by 1.75% mainly driven by time deposits and saving accounts. Furthermore, the Bank increased investment in bonds to strengthen the liability structure.
Total credit impairment charges, net increased by 50.85% to COP 155 billion from COP 103 billion in 2022, primarily due to growth in the consumer portfolio.
Total fees and commissions, net increased by 6.21% to COP 291 billion despite fees and commission expenses growing by 10.79% due to higher transactional fees charged in banking services.
Total operating expenses increased by 7.19% to COP 800 billion, primarily caused by increases in salaries and employee benefits.
Assets attributable to Banking El Salvador decreased by 19.06% during the year, mainly driven by the appreciation of the FX that impacted loans expressed in USD dollars.
Banking Panama:
Year ended December 31, | |||||||||||
Change | Change | ||||||||||
2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | |||||||
In millions of COP | |||||||||||
Total interest and valuation on financial instruments | 2,826,559 | 2,364,820 | 1,963,509 | 19.53 | % | 20.44 | % | ||||
Interest income on loans and financial leases | 2,415,234 | 2,154,151 | 1,791,476 | 12.12 | % | 20.24 | % | ||||
Total debt investments | 301,167 | 161,974 | 156,377 | 85.94 | % | 3.58 | % | ||||
Derivatives, net | 817 | (1,026) | 1,860 | (179.63) | % | (155.16) | % | ||||
Total liquidity operations, net | 109,341 | 49,721 | 13,796 | 119.91 | % | 260.40 | % | ||||
Interest expenses | (1,238,112) | (910,937) | (796,396) | 35.92 | % | 14.38 | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 1,588,447 | 1,453,883 | 1,167,113 | 9.26 | % | 24.57 | % | ||||
Total credit impairment charges, net | (270,501) | (545,012) | (323,216) | (50.37) | % | 68.62 | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 1,317,946 | 908,871 | 843,897 | 45.01 | % | 7.70 | % | ||||
Expenses from transactions by the operating segments of the Bank | (34,105) | (25,022) | (10,089) | 36.30 | % | 148.01 | % | ||||
Fees and commissions income | 532,930 | 446,583 | 351,603 | 19.34 | % | 27.01 | % | ||||
Fees and commissions expenses | (258,897) | (210,004) | (151,906) | 23.28 | % | 38.25 | % | ||||
Total fees and commissions, net | 274,033 | 236,579 | 199,697 | 15.83 | % | 18.47 | % | ||||
Other operating income(1) | 36,939 | 51,494 | 19,101 | (28.27) | % | 169.59 | % | ||||
Dividends and net income on equity investments | 13,498 | 9,655 | 4,387 | 39.80 | % | 120.08 | % | ||||
Total operating income, net | 1,608,311 | 1,181,577 | 1,056,993 | 36.12 | % | 11.79 | % | ||||
Operating expenses(2) | (909,843) | (797,091) | (700,226) | 14.15 | % | 13.83 | % | ||||
Impairment, depreciation and amortization | (107,716) | (110,293) | (104,493) | (2.34) | % | 5.55 | % | ||||
Total operating expenses | (1,017,559) | (907,384) | (804,719) | 12.14 | % | 12.76 | % | ||||
Profit before income tax | 590,752 | 274,193 | 252,274 | 115.45 | % | 8.69 | % | ||||
Segment assets | 40,740,495 | 52,445,934 | 40,561,211 | (22.32) | % | 29.30 | % | ||||
Segment liabilities | 36,315,750 | 47,081,613 | 36,231,139 | (22.87) | % | 29.95 | % | ||||
| (1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
96
Analysis of 2023 versus 2022
In 2023, profit before taxes for Banking Panama increased by 115.45% to COP 591 billion from COP 274 billion in 2022 due to the reasons described below.
The financial statements expressed in Colombian pesos are affected by the appreciation of the COP against the USD, which reached 20.54% during the last year.
Total interest and valuations increased by 19.53% to 2,827 billion in COP terms, however, when measured in USD they increased by 17.62% mainly due to the growth of interest income generated from commercial and mortgage loans, and due to the valuations of investments in debt securities. The loan book decreased by 2.02% in USD mainly driven by the reduction in the commercial portfolio balance.
Total credit impairment charges, net decreased by 50.37% to COP 270 billion compared to COP 545 billion in 2022. This variation is due to lower provision charges and higher recoveries of charged-off loans.
Total fees and commission, net increased by 15.83% to COP 274 billion, mainly driven by higher income generated by merchant acquiring services, ATM fees and Bancassurance in spite of an increase in banking services expenses.
Total operating expenses increased by 12.14% due to increases in salaries, bonuses, and administrative expenses.
Assets attributable to Banking Panama decreased by 22.32% during the year, mainly driven by the appreciation of the FX that impacted loans expressed in USD.
Banking Guatemala:
Year ended December 31, | |||||||||||
Change | Change | ||||||||||
2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | |||||||
In millions of COP | |||||||||||
Total interest and valuation on financial instruments | 1,795,543 | 1,537,801 | 1,178,615 | 16.76 | % | 30.48 | % | ||||
Interest income on loans and financial leases | 1,726,821 | 1,509,143 | 1,109,804 | 14.42 | % | 35.98 | % | ||||
Total debt investments | 60,534 | 27,089 | 67,772 | 123.46 | % | (60.03) | % | ||||
Total liquidity operations, net | 8,188 | 1,569 | 1,039 | 421.86 | % | 51.01 | % | ||||
Interest expenses | (731,886) | (528,459) | (397,138) | 38.49 | % | 33.07 | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 1,063,657 | 1,009,342 | 781,477 | 5.38 | % | 29.16 | % | ||||
Total credit impairment charges, net | (499,368) | (168,834) | 35,841 | 195.77 | % | (571.06) | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 564,289 | 840,508 | 817,318 | (32.86) | % | 2.84 | % | ||||
Expenses from transactions by the operating segments of the Bank | (76,054) | (45,526) | (26,324) | 67.06 | % | 72.94 | % | ||||
Fees and commissions income | 223,200 | 218,554 | 159,908 | 2.13 | % | 36.67 | % | ||||
Fees and commissions expenses | (89,405) | (91,424) | (50,144) | (2.21) | % | 82.32 | % | ||||
Total fees and commissions, net | 133,795 | 127,130 | 109,764 | 5.24 | % | 15.82 | % | ||||
Other operating income(1) | 130,757 | 129,403 | 82,855 | 1.05 | % | 56.18 | % | ||||
Dividends and net income on equity investments | 1,827 | 828 | 658 | 120.65 | % | 25.84 | % | ||||
Total operating income, net | 754,614 | 1,052,343 | 984,271 | (28.29) | % | 6.92 | % | ||||
Operating expenses(2) | (620,928) | (577,497) | (464,199) | 7.52 | % | 24.41 | % | ||||
Impairment, depreciation and amortization | (55,243) | (54,999) | (102,991) | 0.44 | % | (46.60) | % | ||||
Total operating expenses | (676,171) | (632,496) | (567,190) | 6.91 | % | 11.51 | % | ||||
Profit before income tax | 78,443 | 419,847 | 417,081 | (81.32) | % | 0.66 | % | ||||
Segment assets | 21,377,205 | 26,143,629 | 19,510,688 | (18.23) | % | 34.00 | % | ||||
Segment liabilities | 19,469,075 | 23,635,998 | 17,763,659 | (17.63) | % | 33.06 | % | ||||
| (1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
97
Analysis of 2023 versus 2022
In 2023, profit before taxes for Banking Guatemala decreased by 81.32% to a profit of COP 78 billion from a profit of COP 420 billion in 2022 due to the reasons described below.
The financial statements expressed in Colombian pesos are affected by the appreciation of the COP against the USD, which reached 20.54% during the last year.
Total interest and valuation increased in COP terms by 16.76% to COP 1,795 billion, and increased by 14.66% when measured in USD, due to a better performance of the loan portfolio mainly driven by the consumer portfolio. The loan portfolio expressed in USD grew by 2.29%, mainly due to a 7.77% increase in the consumer portfolio and 14.57% in the mortgage portfolio.
Total credit impairment charges, net increased by 195.77% to COP 499 billion from COP 169 billion in 2022, due to higher provision charges in the consumer portfolio and lower provision reversals compared to 2022.
Total fees and commission, net increased by 5.24% to COP 134 billion mainly due to fee income growth from electronic services and ATMs and was also positively impacted by the reduction in commission expenses for sales and services.
Total operating expenses increased by 6.91% to COP 676 billion, mainly due to increases in salaries and administrative expenses for maintenance.
Assets attributable to Banking Guatemala expressed in COP decreased by 18.23%, whereas it grew 2.91% expressed in USD during the year mainly driven by the appreciation of the exchange rate that impacted loans expressed in US dollars.
Trust:
Year ended December 31, | |||||||||||
Change | Change | ||||||||||
2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | |||||||
In millions of COP | |||||||||||
Total interest and valuation on financial instruments | 47 | 72 | 46 | (34.72) | % | 56.52 | % | ||||
Interest income on loans and financial leases | 47 | 72 | 46 | (34.72) | % | 56.52 | % | ||||
Interest expenses | (179) | (150) | (167) | 19.33 | % | (10.18) | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | (132) | (78) | (121) | 69.23 | % | (35.54) | % | ||||
Total credit impairment charges, net | (2,893) | (796) | (4,595) | 263.44 | % | (82.68) | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | (3,025) | (874) | (4,716) | 246.11 | % | (81.47) | % | ||||
Expenses from transactions by the operating segments of the Bank | (16,518) | (12,658) | (26,584) | 30.49 | % | (52.38) | % | ||||
Fees and commissions income | 361,965 | 318,869 | 347,878 | 13.52 | % | (8.34) | % | ||||
Fees and commissions expenses | (4,244) | (3,668) | (3,881) | 15.70 | % | (5.49) | % | ||||
Total fees and commissions, net | 357,721 | 315,201 | 343,997 | 13.49 | % | (8.37) | % | ||||
Other operating income(1) | 14,107 | 14,897 | 12,702 | (5.30) | % | 17.28 | % | ||||
Dividends and net income on equity investments | 33,275 | 2,164 | 28,201 | 1,437.66 | % | (92.33) | % | ||||
Total operating income, net | 385,560 | 318,730 | 353,600 | 20.97 | % | (9.86) | % | ||||
Operating expenses(2) | (177,626) | (153,377) | (129,923) | 15.81 | % | 18.05 | % | ||||
Impairment, depreciation and amortization | (2,218) | (1,630) | (1,548) | 36.07 | % | 5.30 | % | ||||
Total operating expenses | (179,844) | (155,007) | (131,471) | 16.02 | % | 17.90 | % | ||||
Profit before income tax | 205,716 | 163,723 | 222,129 | 25.65 | % | (26.29) | % | ||||
Segment assets | 658,547 | 603,486 | 638,280 | 9.12 | % | (5.45) | % | ||||
Segment liabilities | 138,171 | 126,307 | 108,254 | 9.39 | % | 16.68 | % | ||||
| (1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
98
Analysis of 2023 versus 2022
In 2023, profit before taxes for the trust segment increased by 25.65% to COP 206 billion from COP 164 billion in 2022, due to the reasons described below.
Total fees and commission, net increased by 13.49% to COP 358 billion, mainly driven by an increase in fee income from collective investment funds. The operating income, net increased 20.97% to COP 386 billion when compared to 2022.
Total operating expenses increased by 16.02% to COP 180 billion, primarily due to an increase in salaries and employee benefits by 27.9% to COP 29 billion.
Assets attributable to the Trust segment increased by 9.12% during 2023 to COP 659 billion, due to investments in associates and the purchase of investment certificates. Liabilities increased by 9.39% to COP 138 billion, due to an increase in liabilities for employee benefits and taxes.
Investment Banking:
| Year ended December 31, | ||||||||||
Change | Change | ||||||||||
| 2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | ||||||
| In millions of COP | ||||||||||
Total interest and valuation on financial instruments | 6 | 4 | — | 50.00 | % | 100.00 | % | ||||
Total debt investments | 6 | 4 | — | 50.00 | % | 100.00 | % | ||||
Interest expenses | (1) | (4) | (7) | (75.00) | % | (42.86) | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 5 | — | (7) | 100.00 | % | (100.00) | % | ||||
Total credit impairment charges, net | (380) | (924) | (55) | (58.87) | % | 1,580.00 | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | (375) | (924) | (62) | (59.42) | % | 1,390.32 | % | ||||
Revenues from transactions by the operating segments of the Bank | 13,949 | 3,404 | 3,576 | 309.78 | % | (4.81) | % | ||||
Fees and commissions income | 55,917 | 86,232 | 79,531 | (35.16) | % | 8.43 | % | ||||
Fees and commissions expenses | (238) | (269) | (49) | (11.52) | % | 448.98 | % | ||||
Total fees and commissions, net | 55,679 | 85,963 | 79,482 | (35.23) | % | 8.15 | % | ||||
Other operating (expenses) income(1) | (1,011) | 671 | 879 | (250.67) | % | (23.66) | % | ||||
Dividends and net income on equity investments | (98,512) | 8,760 | (232) | (1,224.57) | % | (3,875.86) | % | ||||
Total operating income, net | (30,270) | 97,874 | 83,643 | (130.93) | % | 17.01 | % | ||||
Operating expenses(2) | (49,759) | (47,997) | (34,905) | 3.67 | % | 37.51 | % | ||||
Impairment, depreciation and amortization | (208) | (232) | (206) | (10.34) | % | 12.62 | % | ||||
Total operating expenses | (49,967) | (48,229) | (35,111) | 3.60 | % | 37.36 | % | ||||
Profit before income tax | (80,237) | 49,645 | 48,532 | (261.62) | % | 2.29 | % | ||||
Segment assets | 1,719,824 | 2,116,143 | 2,039,204 | (18.73) | % | 3.77 | % | ||||
Segment liabilities | 51,841 | 80,162 | 55,743 | (35.33) | % | 43.81 | % | ||||
| (1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
Analysis of 2023 versus 2022
In 2023, profit before taxes for the Investment Banking segment decreased 261.62% to COP (80) billion from COP 49.6 billion in 2022, due to the reasons described below.
Total fees and commissions, net decreased 35.23% to COP 56 billion due to lower fees in structured financing, financial advisory services, and structured securities.
Dividends received and share of profits from equity method investees reported a decrease to COP (99) billion from COP 9 billion in 2022, due to a reduced net income in capital investments. Total operating income, net decreased by 130.93% to COP (30) billion from COP 98 billion in 2022.
99
Total operating expenses increased by 3.60% to COP 50 billion, largely due to an increase in administrative expenses which has not been offset by the slight decrease in salaries and employee benefits.
The assets attributable to Investment Banking decreased by 18.73% to COP 1,720 billion, primarily due to the reduction in associated investments and joint ventures.
The liabilities attributable to the Investment Banking segment decreased by 35.33% during 2023 to COP 52 billion, due to a decrease in employee benefit and tax liabilities.
Brokerage:
| Year ended December 31, | ||||||||||
Change | Change | ||||||||||
| 2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | ||||||
| In millions of COP | ||||||||||
Total interest and valuation on financial instruments | 45,875 | 12,996 | 12,277 | 252.99 | % | 5.86 | % | ||||
Interest income on loans and financial leases | 5,076 | 511 | 28 | 893.35 | % | 1,725.00 | % | ||||
Total debt investments | 36,538 | 20,024 | 12,540 | 82.47 | % | 59.68 | % | ||||
Derivatives, net | (1,747) | 658 | (832) | (365.50) | % | (179.09) | % | ||||
Total liquidity operations, net | 6,008 | (8,197) | 541 | (173.30) | % | (1,615.16) | % | ||||
Interest expenses | (222) | (104) | (73) | 113.46 | % | 42.47 | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 45,653 | 12,892 | 12,204 | 254.12 | % | 5.64 | % | ||||
Total credit impairment charges, net | 106 | 3,133 | (116) | (96.62) | % | (2,800.86) | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 45,759 | 16,025 | 12,088 | 185.55 | % | 32.57 | % | ||||
Revenues from transactions by the operating segments of the Bank | 68,617 | 53,229 | 59,995 | 28.91 | % | (11.28) | % | ||||
Fees and commissions income | 103,985 | 111,366 | 117,282 | (6.63) | % | (5.04) | % | ||||
Fees and commissions expenses | (8,645) | (6,160) | (4,135) | 40.34 | % | 48.97 | % | ||||
Total fees and commissions, net | 95,340 | 105,206 | 113,147 | (9.38) | % | (7.02) | % | ||||
Other operating income (expenses)(1) | 4,737 | 13,575 | (6,075) | (65.10) | % | (323.46) | % | ||||
Dividends and net income on equity investments | 6,416 | (4,314) | 2,177 | (248.73) | % | (298.16) | % | ||||
Total operating income, net | 220,869 | 183,721 | 181,332 | 20.22 | % | 1.32 | % | ||||
Operating expenses(2) | (186,212) | (153,317) | (119,265) | 21.46 | % | 28.55 | % | ||||
Impairment, depreciation and amortization | (2,950) | (1,754) | (1,896) | 68.19 | % | (7.49) | % | ||||
Total operating expenses | (189,162) | (155,071) | (121,161) | 21.98 | % | 27.99 | % | ||||
Profit before income tax | 31,707 | 28,650 | 60,171 | 10.67 | % | (52.39) | % | ||||
Segment assets | 351,694 | 326,047 | 371,278 | 7.87 | % | (12.18) | % | ||||
Segment liabilities | 121,423 | 106,115 | 125,176 | 14.43 | % | (15.23) | % | ||||
| (1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
Analysis of 2023 versus 2022
In 2023, profit before taxes for the brokerage segment increase 10.67% to COP 32 billion from COP 29 billion in 2022, due to the reasons described below.
Total interest and valuation increased by 252.99% to COP 46 billion, mainly due to an increase of 82.47% in debt investments.
Total fees and commissions, net decreased 9.38% to COP 95 billion, mainly due to a decrease of COP 5 billion in brokerage commission income from smaller market operations and COP 4 billion in investment fund fees due to lower managed volumes in securities and private equity funds. Total operating income, net grew by 20.22% compared to 2022.
Total operating expenses increased by 21.98% to COP 189 billion from COP 155 billion in 2022, mainly driven due to an increase of 19.36% in employees´ salaries and benefits.
100
Assets attributable to the brokerage segment increased 7.87%, mainly due to an increase in the capital investment portfolio. Liabilities attributable to the brokerage segment increased by 14.43% during 2023 to COP 121 billion, driven by an increase in liabilities from money market operations.
International Banking:
| Year ended December 31, | ||||||||||
Change | Change | ||||||||||
| 2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | ||||||
| In millions of COP | ||||||||||
Total interest and valuation on financial instruments | 1,112,171 | 512,417 | 251,135 | 117.04 | % | 104.04 | % | ||||
Interest income on loans and financial leases | 940,091 | 446,028 | 215,529 | 110.77 | % | 106.95 | % | ||||
Total debt investments | 85,091 | 48,722 | 35,739 | 74.65 | % | 36.33 | % | ||||
Derivatives, net | (188) | — | 1 | 100.00 | % | (100.00) | % | ||||
Total liquidity operations, net | 87,177 | 17,667 | (134) | 393.45 | % | (13,284.33) | % | ||||
Interest expenses | (596,039) | (271,280) | (198,012) | 119.71 | % | 37.00 | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 516,132 | 241,137 | 53,123 | 114.04 | % | 353.92 | % | ||||
Total credit impairment charges, net | 4,164 | 25,029 | 14,995 | (83.36) | % | 66.92 | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 520,296 | 266,166 | 68,118 | 95.48 | % | 290.74 | % | ||||
Revenues from transactions by the operating segments of the Bank | 415,508 | 212,049 | 81,997 | 95.95 | % | 158.61 | % | ||||
Fees and commissions income | 47,228 | 42,021 | 33,309 | 12.39 | % | 26.16 | % | ||||
Fees and commissions expenses | (11,042) | (8,025) | (6,556) | 37.60 | % | 22.41 | % | ||||
Total fees and commissions, net | 36,186 | 33,996 | 26,753 | 6.44 | % | 27.07 | % | ||||
Other operating income(1) | 16,794 | 9,954 | 11,109 | 68.72 | % | (10.40) | % | ||||
Dividends and net income on equity investments | 37 | 35 | 20 | 5.71 | % | 75.00 | % | ||||
Total operating income, net | 988,821 | 522,200 | 187,997 | 89.36 | % | 177.77 | % | ||||
Operating expenses(2) | (89,219) | (79,814) | (61,191) | 11.78 | % | 30.43 | % | ||||
Impairment, depreciation and amortization | (4,259) | (2,626) | (1,993) | 62.19 | % | 31.76 | % | ||||
Total operating expenses | (93,478) | (82,440) | (63,184) | 13.39 | % | 30.48 | % | ||||
Profit before income tax | 895,343 | 439,760 | 124,813 | 103.60 | % | 252.34 | % | ||||
Segment assets | 30,199,897 | 35,131,458 | 24,074,957 | (14.04) | % | 45.93 | % | ||||
Segment liabilities | 20,734,521 | 23,216,118 | 15,568,638 | (10.69) | % | 49.12 | % | ||||
| (1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
Analysis of 2023 versus 2022
In 2023, profit before taxes for the International Banking segment increased 103.60% to COP 895 billion from COP 440 billion in 2022 due to the reasons described below.
The financial statements expressed in Colombian pesos are affected by the depreciation of the COP against the USD, which reached 20.5% during the last year. Nevertheless, total interest and valuation increased in terms of COP by 117.04%, reaching COP 1,112 billion from COP 512 billion in 2022. This was mainly attributable to the rise in interest income from corporate client loans, interbank funds, and investments in debt securities.
The total charge for credit impairment recovery, net, decreased by 83.36% to COP (4) billion from COP (25) billion in 2022, primarily due to a lower volume of provision reversals resulting from a reduced loan portfolio balance and lower asset quality.
Total fees and commissions, net increased by 6.44%, to COP 36 billion, mainly due to a higher volume of transactions as a result of the increase in the number of clients in recent years. Commissions expenses increased due to a rise in professional correspondent fees with other entities within the group.
Total operating expenses increased by 13.39% to COP 93 billion, due to investments in digital transformation and automation of operational capabilities.
101
The assets attributable to the International Banking segment decreased by 14.04%, to COP 30.200 billion, primarily due to the appreciation of the exchange rate, which impacted loans expressed in US dollars.
All Other:
| Year ended December 31, | ||||||||||
Change | Change | ||||||||||
| 2023 | 2022 | 2021 | 2023-2022 | 2022-2021 | ||||||
| In millions of COP | ||||||||||
Total interest and valuation on financial instruments | 262,758 | 113,642 | 37,898 | 131.22 | % | 199.86 | % | ||||
Interest income on loans and financial leases | 262,075 | 116,072 | 36,226 | 125.79 | % | 220.41 | % | ||||
Total debt investments | 683 | (2,447) | 632 | (127.91) | % | (487.18) | % | ||||
Total liquidity operations, net | — | 17 | 1,040 | (100.00) | % | (98.37) | % | ||||
Interest expenses | (172,025) | (99,863) | (52,776) | 72.26 | % | 89.22 | % | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 90,733 | 13,779 | (14,878) | 558.49 | % | (192.61) | % | ||||
Total credit impairment charges, net | (57,399) | (29,984) | (17,836) | 91.43 | % | 68.11 | % | ||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | 33,334 | (16,205) | (32,714) | (305.70) | % | (50.46) | % | ||||
Expenses from transactions by the operating segments of the Bank | (166,086) | (145,942) | (101,036) | 13.80 | % | 44.45 | % | ||||
Fees and commissions income | 23,986 | 18,161 | 3,097 | 32.07 | % | 486.41 | % | ||||
Fees and commissions expenses | (12,910) | (468) | (2,721) | 2,658.55 | % | (82.80) | % | ||||
Total fees and commissions, net | 11,076 | 17,693 | 376 | (37.40) | % | 4,605.59 | % | ||||
Other operating income(1) | 2,149,826 | 1,886,750 | 1,238,893 | 13.94 | % | 52.29 | % | ||||
Dividends and net income on equity investments | 225,049 | 221,444 | 196,604 | 1.63 | % | 12.63 | % | ||||
Total operating income, net | 2,253,199 | 1,963,740 | 1,302,123 | 14.74 | % | 50.81 | % | ||||
Operating expenses(2) | (1,093,592) | (857,541) | (633,171) | 27.53 | % | 35.44 | % | ||||
Impairment, depreciation and amortization | (75,998) | (88,633) | (95,773) | (14.26) | % | (7.46) | % | ||||
Total operating expenses | (1,169,590) | (946,174) | (728,944) | 23.61 | % | 29.80 | % | ||||
Profit before income tax | 1,083,609 | 1,017,566 | 573,179 | 6.49 | % | 77.53 | % | ||||
Segment assets | 10,224,734 | 9,222,529 | 7,117,110 | 10.87 | % | 29.58 | % | ||||
Segment liabilities | 4,874,547 | 4,320,836 | 3,037,853 | 12.81 | % | 42.23 | % | ||||
| (1) | Includes derivatives, net foreign exchange, operating leases and gains on sale of assets. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
Analysis of 2023 versus 2022
In 2023, profit before taxes for All Other increased by 6.49% to COP 1,084 billion in 2023, due to the reasons described below.
The total interest from the loan book and financial leasing operations increases by 125.79%, associated with the rise in the lease payments.
Other operating income increased by 13.94% to COP 2,150 billion associated with the increase in the fee for renting Colombia operating leases.
Dividends and net income on equity investments increased by 1.63% to COP 225 billion in 2023 due to better performance of the real estate asset portfolio.
Operating expenses, increased by 23.61%, primarily driven by administrative and general expenses, including maintenance, losses from claims and depreciation, among others.
Assets of the other segments increase by 10.87%, reaching 10.2 billion.
102
B. LIQUIDITY AND CAPITAL RESOURCES
B.1 LIQUIDITY AND FUNDING
Liquid Assets
One of the main guidelines of the Bank is to maintain a solid liquidity position, therefore, the ALCO Committee, has established a minimum level of liquid assets, based on the funding needs of each subsidiary, to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring big losses or risking damage to the Bank’s reputation.
As mentioned above, the Bank seeks the optimum level of liquid assets to assure not only the proper operation under normal conditions but also to operate under stress market scenarios. During 2023, the Bank maintained a solid liquidity position, with high liquidity levels during the second half of the year.
The following table shows the composition of the liquid assets in the last two years:
Liquid Assets (1) | December 31, 2023 | December 31, 2022 | ||
High quality Liquid Assets * | ||||
Cash | 25,273,317 | 26,299,990 | ||
High quality liquid securities | 19,951,771 | 17,739,501 | ||
Other Liquid Assets | ||||
Other securities ** | 5,455,735 | 4,019,688 | ||
Total Liquid Assets | 50,680,823 | 48,059,179 |
| (1) | Cash and those liquid assets received by the Central Bank for its expansion and contraction monetary operations. Liquid assets are adjusted by a haircut. The following are considered as liquid assets: cash, repos held for trading and investments held for trading in listed shares in Colombia’s stock exchange, in investment funds units or in other trading debt instruments. |
*High-quality liquid assets: cash and shares that are eligible to be reportable or repo operations, in addition to those liquid assets that the Central Bank receives for its monetary expansion and contraction operations described in paragraph 3.1.1 of the Foreign Regulatory Circular DODM-142 of the Bank of the Republic.
**Other Securities: Securities issued by financial and corporate entities.
As of December 31, 2023, liquid assets showed a growth of COP 2,621 billion, mainly due to the increase in high-quality liquid securities. This change is a consequence of higher deposits and excess of liquidity, which has been managed through the treasury portfolio with purchases of liquid securities.
The Bank measures liquid assets on a daily basis and compares this result to an objective target set by the Risk Committee. Under this rule, daily liquid assets must be equal to or higher than such target. In the event the limit is not reached, there is a five-day period to increase liquidity levels.
Cash is important to guarantee branch and ATM operations. The Bank’s expansion across the Colombian territory requires considerable levels of cash; however, cash levels are daily monitored in order to minimize opportunity costs. Additionally, cash is considered in the mandatory bank reserve established by the Central Bank.
Securities that comprise liquid assets are reviewed by the ALCO considering the Bank’s liquidity objective. Even though available for sale and held to maturity debt securities cannot be sold, they can be pledged as collateral in repurchase agreements. Some of them are mandatory investments that can be posted to the Central Bank as collateral.
SFC requires financial entities to have liquid assets greater than the contractual liquidity cumulative one-month gap. This contractual gap reflects the maturity of the current positions of assets and liabilities and does not reflect projections of
103
future operations. The maturity of the loan portfolio for this purpose is affected by the historical default indicator and the maturity of deposits is modeled according to the regulation.
The Bank’s management believes that the current level of liquidity is adequate and will seek to maintain its solid deposit base and the access to alternative sources of funding such as borrowings from domestic and international development and commercial banks, repurchase agreements, bond issuances, overnight funds and Central Bank funds, considering market conditions, interest rates and the desired maturity profile of liabilities.
Funding Structure
As of December 31, 2023, the Bank’s liabilities reached COP 303,879 billion, a 2.86% decrease compared to December 31, 2022. Liabilities denominated in COP increased by 10.46%, and liabilities denominated in U.S. dollars decreased by 20.64%. These changes are principally the result of the increase in COP denominated time deposits, offset by a decline in COP denominated checking and saving accounts, USD denominated borrowings from other financial institutions and USD debt securities in issue. However, although USD denominated liabilities decreased by 20.64%, this change was mainly affected by the appreciation of the USD/COP exchange rate (20.54% in 2023).
As of December 31, | ||||
2023 | 2022 | |||
In millions of COP | ||||
Total funding | ||||
Peso-denominated | 197,575,174 | 178,861,272 | ||
Dollar-denominated. | 106,303,906 | 133,955,910 | ||
Total Liabilities | 303,879,080 | 312,817,182 | ||
In 2023, the Bank’s deposits reached COP 247,941 billion at year-end, a decrease of COP 3,051 billion, or 1.22% compared to 2022. COP denominated deposits increased by 9.18%, explained mainly by the rise in time deposits, while USD denominated deposits decreased by 17.25% as a result of the reduction in saving accounts and the effect of the exchange rate variations. The ratio of deposits to total assets was 72.3%, increasing by 116 basis points compared to 2022.
As of December 31, | ||||
| 2023 | 2022 | ||
In millions of COP | ||||
Total Deposits | 247,941,180 | 250,992,323 | ||
The following table sets forth checking accounts, savings accounts and time deposits as a percentage of the Bank’s total liabilities for the years 2023 and 2022:
| 2023 | 2022 | |||
Checking accounts | 11.6 | % | 12.9 | % | |
Time deposits | 32.5 | % | 27.9 | % | |
Saving accounts | 35.8 | % | 37.8 | % | |
Other deposits | 1.7 | % | 1.5 | % | |
Percentage of Total Liabilities | 81.6 | % | 80.1 | % |
The Bank’s principal sources of funding are deposits, which are mainly composed of checking accounts, time deposits and savings accounts. During 2023, time deposits played an important role in the financing structure of the balance sheet. High level inflation led the Central Bank to maintain a contractionary monetary policy, resulting in lower demand for liquidity, loans, and encouraging investors to reallocate their portfolios towards securities with higher yields. As a result, cost of funds was negatively affected due to high interest rates. Furthermore, the increase in time deposits was offset by the decrease in demand deposits.
Deposits as a percentage of the Bank’s total liabilities in 2023 were 81.6%, increasing from 80.1% of total liabilities at year-end 2022.
104
The ratio of net loans to deposits (including borrowings from commercial banks) was 90.19% at the end of 2023, decreasing from 94.00% as compared to 2022. This change is primarily explained by the decrease in net loans and advances to customers, that fell from COP 254,444 billion in 2022 to COP 237,728 billion in 2023, which was lower compared with the variation in deposits (the decrease was COP 7,095 billion reaching an amount of COP 263,589 billion in 2023).
As of December 31, | |||||
2023 | 2022 | ||||
Net Loans to Deposits | 90.19 | % | 94.00 | % | |
The Bank also funds its operations with borrowings from financial institutions. Nevertheless, the main source of financing during 2023 was time deposits, as interest rates tended to remain high and demand for liquidity was lower. Additionally, Bancolombia’s time deposits and borrowings from financial institutions are linked to different market rates/indexes like the IBR, (a short-term benchmark interest rate of Colombian money market liquidity that reflects the price at which banks are willing to lend or borrow funds from financial market), DTF, IPC1, LIBOR and SOFR.
In addition, compliance with the Net Stable Funding Ratio in 2023, the increase in inflation, high interest rates and local and international political uncertainty generated additional pressure on the cost of financing operations in the short and long term.
Debt instruments in issue
In 2023, Bancolombia issued USD 50 million aggregate of notes, while Bancolombia Panamá, Bancolombia Puerto Rico and Banistmo issued notes in amounts of USD 41.9 million, USD 69.6 million and USD 122.2 million, respectively. Nevertheless, a USD 468 million senior bond prepayment was executed during 2023, and so the carrying amount of debt securities in issue decreased by COP 4,912 billion.
As of December 31, 2023, the total outstanding aggregate principal amount of bonds issued by the Bank was COP 14,663 billion.
The following table shows the Bank´s debt securities in issue maturity profile:
2029 and | ||||||||||||||
2024 | 2025 | 2026 | 2027 | 2028 | thereafter | Total | ||||||||
In millions of COP | ||||||||||||||
Debt securities in issue | 3,368,076 | 2,424,364 | 675,502 | 5,019,584 | 0 | 3,176,050 | 14,663,576 | |||||||
________________________________________
1 The IPC refers to the Consumer Price Index certified by the Colombian statistical bureau (“DANE”)
105
The following table sets forth the components of the Bank’s liabilities for the years 2023 and 2022:
As of December, | |||||||||
| % of total | % of total | |||||||
2023 | funding | 2022 | funding | ||||||
In millions of COP, except percentages | |||||||||
Checking accounts | |||||||||
Peso-denominated | 19,712,279 | 6.5 | % | 21,583,536 | 6.9 | % | |||
Dollar-denominated | 15,280,787 | 5.1 | % | 19,225,320 | 6.0 | % | |||
Total | 34,993,066 | 11.6 | % | 40,808,856 | 12.9 | % | |||
Time deposits | |||||||||
Peso-denominated | 59,146,972 | 19.5 | % | 42,493,753 | 13.6 | % | |||
Dollar-denominated | 39,539,544 | 13.0 | % | 44,644,314 | 14.3 | % | |||
Total | 98,686,516 | 32.5 | % | 87,138,067 | 27.9 | % | |||
Savings accounts | |||||||||
Peso-denominated | 83,053,422 | 27.3 | % | 84,542,389 | 27.0 | % | |||
Dollar-denominated | 25,917,912 | 8.5 | % | 33,901,211 | 10.8 | % | |||
Total | 108,971,334 | 35.8 | % | 118,443,600 | 37.8 | % | |||
Other deposits | |||||||||
Peso-denominated | 4,336,318 | 1.4 | % | 3,645,007 | 1.2 | % | |||
Dollar-denominated | 953,946 | 0.3 | % | 956,793 | 0.3 | % | |||
Total | 5,290,264 | 1.7 | % | 4,601,800 | 1.5 | % | |||
Interbank Deposits | |||||||||
Peso-denominated | — | — | % | — | — | % | |||
Dollar-denominated | 606,141 | 0.2 | % | 902,132 | 0.3 | % | |||
Total | 606,141 | 0.2 | % | 902,132 | 0.3 | % | |||
Derivate financial instrument-Liabilities | |||||||||
Peso-denominated | 6,635,034 | 2.2 | % | 4,696,545 | 1.5 | % | |||
Dollar-denominated | 75,330 | 0.0 | % | 40,909 | 0.0 | % | |||
Total | 6,710,364 | 2.2 | % | 4,737,454 | 1.5 | % | |||
Borrowings from other financial institutions (1) | |||||||||
Peso-denominated | 6,488,331 | 2.1 | % | 4,877,928 | 1.6 | % | |||
Dollar-denominated | 9,160,275 | 3.0 | % | 14,814,710 | 4.7 | % | |||
Total | 15,648,606 | 5.1 | % | 19,692,638 | 6.3 | % | |||
Debt securities in issue | |||||||||
Peso-denominated | 4,097,729 | 1.3 | % | 4,708,588 | 1.5 | % | |||
Dollar-denominated | 10,565,847 | 3.5 | % | 14,867,400 | 4.8 | % | |||
Total | 14,663,576 | 4.8 | % | 19,575,988 | 6.3 | % | |||
Repurchase agreements and other similar secured borrowing | |||||||||
Peso-denominated | 308,711 | 0.1 | % | 167,774 | 0.1 | % | |||
Dollar-denominated | 161,584 | 0.1 | % | 21,278 | 0.0 | % | |||
Total | 470,295 | 0.2 | % | 189,052 | 0.1 | % | |||
Leases | |||||||||
Peso-denominated | 1,107,405 | 0.4 | % | 967,902 | 0.3 | % | |||
Dollar-denominated | 666,205 | 0.2 | % | 932,366 | 0.3 | % | |||
Total | 1,773,610 | 0.6 | % | 1,900,268 | 0.6 | % | |||
Other liabilities | |||||||||
Peso-denominated | 12,688,973 | 4.2 | % | 11,177,850 | 3.6 | % | |||
Dollar-denominated | 3,376,335 | 1.1 | % | 3,649,477 | 1.2 | % | |||
Total | 16,065,308 | 5.3 | % | 14,827,327 | 4.8 | % | |||
Total funding | |||||||||
Peso-denominated | 197,575,174 | 65.0 | % | 178,861,272 | 57.3 | % | |||
Dollar-denominated | 106,303,906 | 35.0 | % | 133,955,910 | 42.7 | % | |||
Total Liabilities | 303,879,080 | 100.0 | % | 312,817,182 | 100.0 | % | |||
(1) | Includes borrowings from commercial banks and other non-financial entities. |
106
Consolidated Statement of Cash Flows
The following table shows net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities, for the years ended December 31, 2023, 2022 and 2021:
2023 | 2022 | 2021 | ||||
In millions of COP | ||||||
Operating activities | 19,153,084 | 6,339,438 | 6,095,305 | |||
Investing activities | (159,689) | (4,654,502) | (650,486) | |||
Financing activities | (5,430,672) | 853,436 | (6,809,972) | |||
Increase (decrease) in cash and cash equivalents | 13,562,723 | 2,538,372 | (1,365,153) | |||
Operating Activities
In 2023, operating activities resulted in positive net cash as a result of the increase of COP 17,025 billion in deposits by customers, compared with an increase of COP 23,214 billion in 2022, and COP 34,702 billion of interest received, up from COP 23,603 billion in 2022. The increase in loans and advances to customers and financial institutions was COP 10,554 billion, compared with COP 37,593 billion and COP 24,057 billion in 2022 and 2021 respectively. Interest paid generated a use of cash of COP 15,978 billion in 2023, COP 7,508 billion in 2022 and COP 4,410 billion in 2021. The net change in value of investment securities recognized at fair value through profit and losses was negative by COP 1,988 billion in 2023, compared with 2022 where the net change in value was positive by COP 6,321 billion.
Investing Activities
In 2023, the Bank purchased debt securities at amortized cost of COP 3,629 billion, COP 4,915 billion in 2022 and COP 3,722 billion in 2021. The proceeds from maturities of debt securities at amortized cost provided COP 4,738 billion in 2023, COP 4,260 in 2022 and COP 2,984 billion in 2021.
Investing activities related to debt instruments at fair value through OCI provided net cash of COP 1,415 billion during 2023 and COP 235 billion during 2022. Investing activities related to equity securities and interests in associates and joint ventures used net cash of COP 106 billion during 2023, while in 2022 it used COP 56 billion; and investing activities related to purchases and sales of premises and equipment and investment properties used net cash of COP 2,226 billion, compared with COP 3,117 billion used during 2022, and COP 1,632 billion in 2021.
Financing Activities
Proceeds from borrowings from other financial institutions provided COP 9,855 billion in 2023, COP 14,374 billion in 2022 and COP 4,182 billion in 2021. The placement of debt securities in issue provided COP 1,781 billion in 2023, COP 2,138 in 2022 and COP 1,387 in 2021. The repayment of borrowings used COP 9,921 billion in 2023, compared with COP 5,874 used in 2022 and COP 8,447 used in 2021; and the payments of debt securities in issue used COP 3,928 billion during 2023, COP 6,699 billion during 2022 and COP 1,871 billion during 2021. Cash was also used to pay dividends to stockholders in the amount of COP 3,298 billion, while in 2022 and 2021 this amount was COP 2,310 billion and COP 467 billion, respectively.
The decrease in repurchase agreements and other similar secured borrowing provided cash of COP 304 billion, compared with the COP 579 billion used in 2022 and the COP 1,457 billion in 2021.
Capital Adequacy
The Bank and its subsidiaries comply with the capital adequacy requirements in their respective countries of operation.
Stockholders’ equity attributable to the owners of Bancolombia amounted to COP 38,090 billion on December 31, 2023, down 2.56% from COP 39,089 billion on December 31, 2022. This decrease is mainly explained by the appreciation of the COP versus the USD and the lower net income generation during the year.
107
The Bank’s capital adequacy ratio on a consolidated basis was 13.40% as of December 31, 2023, up from 12.79% in 2022.
The Bank’s capital adequacy ratio exceeded the requirements of the Colombian government and the SFC by 440 basis points above the minimum 9% required by the Colombian regulator. The basic capital ratio (Tier 1) was 11.42% and the tangible capital ratio, which is equal to the ratio of the difference between equity and goodwill and intangible assets to tangible assets, was 8.66% at the end of 2023. For a full description of the Bank’s capital adequacy requirements, please see Item 4. “Information on the Company – B. Business Overview – B.8 –Supervision and Regulation”.
The following table sets forth certain information regarding the Bank’s consolidated capital adequacy as of December 31, 2023, and 2022:
| As of December 31, 2023 | As of December 31, 2022 | |||
In millions of COP, except percentages | |||||
Primary capital | 39,704,541 | 40,652,350 | |||
Subscribed capital | 480,914 | 480,914 | |||
Additional paid-in capital | 5,441,658 | 5,441,658 | |||
Financial statements translation adjustment | |||||
Legal reserve | 14,541,561 | 14,534,766 | |||
Occasional reserves | 7,250,712 | 3,162,401 | |||
Non-controlling interest | 960,217 | 908,648 | |||
Other comprehensive income (loss) | 4,065,182 | 7,749,234 | |||
Net income | 6,116,936 | 6,783,490 | |||
Retained earnings | 847,362 | 1,591,239 | |||
Less: | (8,919,345) | (11,001,874) | |||
Long-term investments | |||||
Prior-year losses | (79,587) | (79,577) | |||
Intangibles assets | (7,818,125) | (9,836,661) | |||
Revaluation property, plant and equipment | (350,061) | (351,871) | |||
Other intangibles | (671,572) | (602,531) | |||
Deferred net income tax | — | (131,233) | |||
Primary capital (Tier I) | 30,785,197 | 29,650,476 | |||
Non-controlling interest | |||||
Hybrid bonds | 4,283,448 | 6,109,531 | |||
Subordinated bonds | 678,797 | 794,881 | |||
Other comprehensive income related to investments at fair value | |||||
General provisions | 375,902 | 12,759 | |||
Computed secondary capital (Tier II) | 5,338,147 | 6,917,171 | |||
Less: | (10,687) | (16,136) | |||
Technical Capital (1) | 36,112,657 | 36,551,511 | |||
Capital Ratios | |||||
Primary capital to risk-weighted assets (Tier I) | 11.42% | % | 10.37 | % | |
Secondary capital to risk-weighted assets (Tier II) | 1.98% | % | 2.41 | % | |
Risk-weighted assets including market risk and operational risk | 269,591,211 | 285,878,639 | |||
Technical capital to risk-weighted assets (2) | 13.40% | % | 12.79 | % | |
(1) | Technical capital is the sum of basic and additional capital. |
(2) | Capital adequacy is technical capital divided by risk weighted assets. |
B.2 FINANCIAL INSTRUMENTS AND TREASURY ACTIVITIES
The Bank’s treasury division is responsible for the sales and trading activities in Bancolombia, Banistmo, Banco Agrícola, Bancolombia Panamá, Bancolombia Puerto Rico, and BAM. It is accountable for the execution of all transactions in domestic and foreign currencies legally authorized in Colombia and in all the countries where the Bank has presence. These include derivatives transactions, fixed income and indexed securities trading, repurchase or resale transactions, short sales, temporary securities transfers, as well as FX trading.
108
The Bank monitors treasury division activities through policies regarding the management of liquidity, market, legal, credit and operational risks. Such policies are monitored by the Vice-President of Risk Management. With the aim to control market and liquidity risks, the Bank sets limits intended to keep its exposure levels and losses within certain ranges determined by the Bank’s Board of Directors. The Bank’s investment policies do not include restrictions regarding the maturity of the securities held in the portfolio, except for those related to the liquidity portfolio and over the counter (“OTC”) derivatives transactions held by Bancolombia and Banistmo.
Before taking any additional position, the Bank’s treasury division also verifies, with respect to investments in domestic and in foreign currencies, the availability of funds for investment and each investment’s suitability with the Bank’s liquidity structure.
As mentioned in Item 11. “Quantitative and Qualitative Disclosure about Market Risk”, the market risk stated in the treasury book is measured with value at risk (VaR) metrics, and the position limits are based on the results of these methodologies. The Bank has defined VaR limits that follow a hierarchical structure, which avoids the concentration of market risk in certain groups of assets and also takes advantage of portfolio diversification. In addition to VaR limits, the Bank uses stop loss signals, except for GFA, to inform senior management when accumulated losses are close to certain pre-defined thresholds in the trading book. Moreover, for the options portfolio in Bancolombia, the Bank has set limits based on the sensitivity of the portfolio to the underlying volatility, underlying currency and interest rates.
As part of its operations, the Bank holds cash and cash equivalents primarily in Colombian pesos, U.S. dollars and Guatemalan quetzals. These positions, as well as any other currency position, are determined by the treasury division in connection with the Bank’s currency risk assessment and management. Specifically, the Bank’s exposure to FX risk primarily arises from changes in the USD/COP exchange rate. The exposure to currency risk is managed by the Bank’s Treasury Division. The Bank estimates VaR metrics to limit the exposure to foreign currency risk of its balance sheet in Bancolombia, Valores Bancolombia, Banco Agrícola, Banistmo and BAM. These limits are supervised daily by the Bank’s Market Risk Management Office. The Bank’s Treasury Division manages a derivative portfolio in Bancolombia and Banistmo, which includes forward in FX with the purpose, among others, of hedging its overall currency exposure.
The Colombian Chief Treasury Officer (“CTO”), centralizes all the reports from the Treasury Directors in the subsidiaries in all geographies, in which they are responsible for FX, investment and risk taking.
There are several communications channels between the Treasury divisions and the CTO, which are: Investment Committee; the participants in this meeting, which is held monthly, are: CTO, Proprietary Trading Director, Market Risk Director, Treasury Directors from each Bank, and the Head of each desk in Colombia (Fixed Income, FX and Derivatives). This committee reviews the investment strategy portfolios, profit and loss figures, VaR levels, Benchmark portfolios, based on the framework and risk appetite, defined by the Board of Directors.
Performance is measured against the “Benchmark” approved for each treasury, which includes a target position for each asset and limits for every product and market, in which the treasury operation can invest. There is a continuous follow up of the portfolios in the investment committee, which runs monthly.
B.3 COMMITMENT FOR CAPITAL EXPENDITURES
See Item 4. “Information on the Company - A. History and Development of the Company – Capital Acquisitions and Divestitures”.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Bancolombia, through the Innovation Corporate VP, leads the investments in new business, the internal experimentation methodologies, and run pilots and POC (Proof of concepts) of new technologies that can enable new opportunities in our industry.
The creations derived from this core innovation activities are protected by a rigorous management of trademarks, copyright regulations, and industrial secret custody. To date, there are no outstanding patents or processes to obtain one. To date, there are no licensing agreements of our solutions or digital creations.
109
The Bank, through its Research, Development and Innovation Unit, is certified as a Highly Innovative Company by the Ministry of Science, Technology and Innovation of Colombia.
D. TREND INFORMATION
As a result of the restrictive financial conditions, 2023 was a year of deceleration for the economies in which Bancolombia operates. Revenues on a consolidated basis have been impacted during the last year mainly due to the deterioration of the credit cycle. Net interest and valuation income in 2023 decreased 11.31%. Even though net interest margin grew on the back of higher average interest rates, worsening conditions on asset quality implied higher provisioning expenses and were the primary factor to explain a lower net income to shareholders. The evolution of the loan portfolio and the recovery on the credit cycle will be key drivers of the Bank’s performance going forward. The following is a brief discussion of recent trends in the company and the economy.
Loan Volume Performance
Gross loans and financial leases (i.e., before allowance for loans and financial lease losses) topped COP 253,952 billion decreasing 5.92% year over year. Appreciation of the Colombian Peso against the US dollar was 20.54%, explaining the contraction in the balance considering that 30.54% of total loans are denominated in foreign currency. When excluding the FX effect, the balance would have increased 0.99%.
Compared to 2022, all the geographies (in which Bancolombia is present) posted a very low annual increase in its portfolio or even a contraction in the case of Banistmo, following a lower risk appetite by the Bank and a weakening demand from clients. When converted to local currency, consumer loans shrank 8.38%, commercial loans 5.63%, mortgages 3.00% and microlending 13.80%.
Loans in Bancolombia S.A. expanded only 1.11% during 2023, contracting in real terms. The slowdown when compared to 2022 is a result of a tighter origination policy in view of increasing concerns on asset quality and the deterioration of clients’ payment capacity. The retail loan book presented the sharpest variation decreasing 4.76%, consistent with a shift in preapproved loan disbursement policies. The Colombian economy experienced a significant deceleration during the year, as high inflation rates -caused by the resurgence of repressed consumption during the pandemic-, were followed by contractionary monetary and fiscal policies.
Loans in Banco Agricola grew 1.98% in dollar terms during 2023. Consumer and commercial loans had a similar performance growing at a slower pace when compared to the previous year, although keeping its market share in the country. The economy in El Salvador has moderated its pace of growth during the last year despite its resilience to the current context of global deceleration. It is expected that in coming months growth will further slow down due to the still high inflation, decreasing volume of remittances, and the lower expansion of trading partners.
Banistmo’s loan book was down 2.02% in an annual basis when measured in dollars. Panama was the most impacted nation by the pandemic in Central America, and the recovery is still visible with high growth rates during the last 3 years. In 2023, retail and construction activities were key drivers for the economy. The credit portfolio performance in Banistmo has been impacted by the increasingly competitive environment of the banking industry with narrowing yields. The Bank has prioritized the improvement of its margins, identifying the best risk profile segments. Commercial loans expansion should reactivate in 2024 as companies anticipate interest rate reductions to engage in higher levels of debt.
Banco Agromercantil was up 2.29% in its credit portfolio with mixed dynamics segment by segment. As in 2022, the consumer and mortgages presented the highest growth while commercial decreased. The Bank has continued a strategy to reorder its portfolio mix in which retail has gained share within the total balance. The economy in Guatemala posted a dynamic activity in the first half of 2023, remittances have been an important driver of household spending. In the second half of the year, there has been a slowdown to a large extent due to the political uncertainty and recent social unrest.
Foreign-denominated loans decreased 3.03% during 2023. The loan portfolio in the international banking operation of Bancolombia Panama, Puerto Rico, the USD denominated loans in Colombia, and the operation of Banistmo essentially provided the contraction of the dollar denominated portfolio on a consolidated basis. A better context in the global
110
economy, lower interest rates and a stronger internal demand should boost credit growth at a faster pace in 2024 at a general level both in local and foreign currency for the Bank.
Net Interest Margin and Valuation
Most of the Bank’s loan book has a variable rate and the re-pricing pace of our assets tends to be faster than that of the Bank’s liabilities.
The annualized net interest margin in a consolidated basis was 6.99% for 2023, increasing when compared to the ratio of 6.80% reported in 2022.
Interest income went up due to a better performance of the lending business. Like a year before, the financial margin with clients climbed progressively as reference rates continued its upward trend and remained high during the year, as the Colombian Central Bank implemented its contractionary monetary policy since 2021 that concluded by the end of 2023. Bancolombia has experienced a steady expansion in interest income during this cycle despite the slow dynamic of loan originations in the last twelve months. Even though the Bank has redistributed its credit portfolio share in the last few years with a greater weight of consumer within the total balance that has contributed a higher margin, in 2023 this segment contracted as a conservative approach, reducing its risk appetite in the midst of a deterioration credit cycle.
As with reference rates hikes, the interest rate paid on interest-bearing liabilities grew for the year ended December 31, 2023. It is worth noting that the magnitude of growth on interest expenses was much lower than the increase of reference rates due to the low sensitivity of a large portion of the Banks’ liabilities.
A continuous shift in the funding mix remained during the last year, as in 2022, as customers have demanded greater yields in an environment of high interest rates. Time deposits accounted for 32.5% of total liabilities in 2023, up from a share of 27.9% the year before. Following a better liquidity position and a still low loan growth in 2024, a stabilization in high interest-bearing deposit taking is expected. Customer deposits account for 81.6% of the Bank's liabilities, offering a cost-competitive and stable source of funding.
Cost of credit
For the year 2023, the cost of credit was 2.84% of average loans, increasing when compared to the 1.56% posted in 2022. This increase was largely explained by the deterioration of the credit cycle, driving the formation of new past-due loans in all segments, however, to a larger extent in the consumer portfolio. The operation in Colombia represented the highest provisioning expenses on a consolidated basis. 2024 should be a transition year towards better asset quality metrics as financial conditions are expected to improve with a positive impact on cost of risk for the Bank. Bancolombia maintains a strong balance sheet supported by an adequate level of loan loss reserves, reporting a coverage ratio to PDLs (overdue 30 days) of 120.0% as of December 2023.
E. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Consolidated Financial Statements requires the Bank's management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
The material accounting policies, including the policies which include critical accounting estimates and judgements, are described in Note 2.E. to the Consolidated Financial Statements, Material accounting policies, Use of estimates and judgments.
The accounting policies listed below involve a high degree of uncertainty and could have a material impact on the Consolidated Financial Statements:
| ● | Credit risk impairment: The most significant judgements relate to the selection and calibration of the probability of default, loss given default and exposure at default models, as well as the selection of model inputs and |
111
| economic forecasts and the likelihood of these economic scenarios. For the collective estimate of expected credit losses, assumptions and judgements include the definition of a significant increase in credit risk, the definition of default, forecasts collateral values, loan maturities and macroeconomic forecasts of variables such as unemployment, GDP and interest rates. In addition, individual expected credit loss models take into account assumptions about how a customer’s financial performance and future cash flows may be affected, the customer’s expected future operational and business activity, the ability to generate sufficient cash to pay debt obligations, trends and regulatory changes in the industry in which the customer operates, changes in the value of collateral, the weighting of scenarios used and other internal and external factors. There is a high degree of uncertainty involved in making estimates using assumptions that are highly subjective and sensitive to risk factors. As of December 31, 2023, December 31, 2022 and December 31, 2021, a total of COP 7,461,479, COP 3,721,353 and COP 2,521,178, respectively, of credit impairment charges on loans, advances and financial leases, net were recorded on the Consolidated Statement of Income. The significant difference between the credit impairment charges on loans, advances and financial leases as of December 31, 2023 and December 31, 2022 is due to the impacts of a less favorable economic outlook with lower economic growth and high inflation and interest rate trends. For further information about the change of the allowance for credit losses from 2023 to 2022, see Note 6 to the Consolidated Financial Statements, “Loans and Advances to Costumers, Net”, “Impact of movements in the value of the portfolio and loss allowance by Stage” section and Note Risk Management in “Credit Risk” section. |
Additionally, as of December 31, 2023, there has been an improvement in the methodology used to calculate credit risk impairment, as described below:
| - | A methodology change was made in the selection of the recovery of customers in default, which better reflects the client's payment behavior. |
| - | New rating models were developed to improve the risk classification of customers in the individual (in Colombia and Panama) and corporate (in Colombia) portfolios. |
| - | Improvements have been made to the threshold model to identify a significant increase in risk from the point of origin, which allows for greater accuracy in classifying customers into stage 2 (financial instruments that have experienced a significant increase in credit risk since their initial recognition, but do not have objective evidence of impairment) with a high probability of default. |
| - | An additional allowance adjustment (overlay) has been created for portfolios with recent delinquencies above the historical average. |
The effect of the above is the creation of an allowance of COP 11,071 as of December 31, 2023. For further information, see Note 2.E.1 to the Consolidated Financial Statements.
| ● | Impairment testing of cash generating units (“CGU”), including goodwill: The identification of cash-generating units, the allocation of goodwill based on expectations as to which of the Bank’s business segments will benefit from the business acquisition, the estimation of the future cash flows of the CGUs and the rates used to discount these cash flows are subject to a high degree of uncertainty. As of December 31, 2023 and December 31,2022, a total of COP 7,818,125 and COP 9,836,661, respectively, of goodwill were recorded on the Consolidated Statement of Financial Position. See Note 2.E.2 to the Consolidated Financial Statements. |
| ● | Recognition of digital assets: Determining the appropriate accounting treatment for the Bank’s digital asset holdings and for the custody of digital assets held by customers involves significant judgement, as there is currently no specific definitive guidance in IFRS or alternative accounting frameworks to account for these transactions. See Note 2.E.3 to the Consolidated Financial Statements. |
| ● | Deferred tax and uncertainty over income tax treatments: Due to the changing conditions of the political, social and economic environment, the constant changes in tax legislation and the constant changes in tax principles and interpretations by tax authorities, the determination of the tax bases of deferred tax items involves difficult |
112
| judgements related to recoverability, which is based on expected future profitability, offsets or tax deductions. As of December 31, 2023 and December 31, 2022, COP 685,612 and COP 764,594, respectively, of deferred tax assets were recorded on the Consolidated Statement of Financial Position. See Note 2.E.4 and 10 to the Consolidated Financial Statements. |
| ● | Provisions and contingent liabilities: Significant judgement is required in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows, including the assumption of the discount rate where the timing of the outflow is greater than 12 months. As of December 31, 2023 and December 31, 2022, COP 401,111 and COP 417,242, respectively, of provisions were recorded on the Consolidated Statement of Financial Position. See Note 2.E.5 to the Consolidated Financial Statements. |
| ● | Fair value of assets and liabilities: A variety of valuation techniques are used to determine the fair value of assets and liabilities, some of which involve significant unobservable inputs and are subject to significant uncertainty based on assumptions that would be used in the market to determine the price for assets or liabilities. As of December 31, 2023 and December 31, 2022, a total of COP 31,459,076 and COP 30,091,231, respectively, of assets and COP 6,710,364 and COP 4,737,454, respectively, were recorded in respect of liabilities that have been measured at fair value on a recurring basis in the Consolidated Statement of Financial Position. See Note 2.E.6 to the Consolidated Financial Statements. |
| ● | Measurement of employee benefits: The measurement of post-employment and long-term employee benefit obligations involves a number of inputs and is dependent on a number of assumptions about future events, such as discount rate, inflation rate, pension payments and deferred pensions, compensation and mortality. As of December 31, 2023 and December 31, 2022, COP 882,954 and COP 765,371, respectively, of liabilities relating to post-employment benefit and long-term benefit plans were recorded on the Consolidated Statement of Financial Position. See Note 2.E.7 to the Consolidated Financial Statements. |
| ● | Transaction price determination: The Bank has fixed and variable prices considering the characteristics of each service, future events, discounts, returns and other variables that may influence the selling price. See Note 2.E.8 to the Consolidated Financial Statements. |
| ● | Leases: The measurement of the right-of-use asset and of the lease liabilities requires a series of judgments, among which are the determination of the term of the lease and the rate used in discounting the cash flows. As of December 31, 2023 and December 31, 2022, a total of COP 1,634,045 and COP 1,827,108, respectively, of right-of-use assets and COP 1,773,610 and COP 1,900,268, respectively, of lease liabilities were recorded on the Consolidated Statement of Financial Position. See Note 2.E.9 to the Consolidated Financial Statements. |
Given the inherent uncertainties of the items above, the estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under current circumstances. Actual results may differ from these estimates if assumptions and conditions change.
As of December 31, 2023, there were no changes in the significant estimates and judgments made by management in applying the Bank's accounting policies as compared to those applied in the Consolidated Financial Statements for the year ended as of December 31, 2022 and December 31, 2021, except for the methodology used to calculate the allowance for credit losses and the recognition of digital assets discussed above.
113
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The following persons acted as directors and senior managers of the Bank:
Directors
| ● | Gonzalo Alberto Pérez Rojas was born in 1958. Mr. Pérez holds a law degree from Universidad de Medellín and a post-graduate degree in insurance from Swiss Re - Zurich and a CEO Management Program certificate from the Kellogg School of Management. Mr. Pérez was appointed as CEO of Grupo de Inversiones Suramericana on April 1, 2020. He previously served as CEO of Suramericana S.A, Insurance and Social Security Company where he also worked as Vice-president of Insurance and Capitalization, Vice-president of Corporate Business, Manager for Corporate Business and Human Resources Manager. Currently, he serves as a member of the board of directors of the subsidiaries of Suramericana (Seguros SURA) in Latin America and Sura Foundation. Mr. Pérez was a Member of the Board during the period of 1990 to 1994 and has served again since 2004. |
| ● | Juan David Escobar Franco was born in 1969. Mr. Escobar is a Systems Engineer from Universidad EAFIT and has a post-graduate degree in Electronic Business from Tecnológico de Monterrey and an MBA from the same institution. He holds a master in Actuarial Science from Georgia State, and has studied High Management Studies at the Kellogg School of Management, and Digital Transformation at University of Virginia, among other courses associated to project management and direction. Mr. Escobar is the CEO of Seguros Sura Colombia, where he had previously served as Insurance Vice-president, Actuarial Manager and Director of the Automobile Department. Mr. Escobar has been a non-independent member of the Bank’s Board of Directors since his appointment in 2020. He has been a member of different boards of directors in the corporate and social sectors. |
| ● | Luis Fernando Restrepo Echavarría was born in 1958. He has a bachelor’s degree in Industrial Management from Georgia Institute of Technology and an MBA degree from the University of Chicago. He has been affiliated with The Marmon Group of Chicago and was part of the Leadership Rotational Program in Chicago at The Rego Company (Planning Production and Industrial Engineering), Hammond Organ Company (Financial and Cost Accounting) and Marmom Keystones (sales). Mr. Restrepo currently serves as CEO of Crystal S.A.S., a company dedicated to the production and commercialization in Latin America of brands such as Gef, Punto Blanco, Baby Fresh and Galax. He is currently a member of the Board of Directors of: Constructora Conconcreto S.A, Etiflex S.A (Litography) and Espumas Plásticas S.A.S - Comodisimos and he previously served on the Board of Directors of Asociación Nacional de Empresarios de Colombia - ANDI. He is also a member of the Advisory Board of the President of Georgia Tech in the U.S.A. Mr. Restrepo has been an independent member of the Bank’s Board of Directors since his appointment in 2016. He has been the Chairman of the Board since April 26, 2022. |
| ● | Andrés Felipe Mejía Cardona was born in 1962. Mr. Mejía is an Economist from Michigan University and has an MBA from Eafit, Studies in Strategic Planning from Universitat de Barcelona, Senior Management from Universidad de los Andes and was part of the Program EXPRO of International Business at CBI Rotterdam, Holland. Mr. Mejía has extensive professional experience in foreign trade and international markets. He is CEO of MU Mecanicos Unidos S.A.S., a company dedicated to metal casting and manufacturer of the Victoria brand. He has been member of the Board of Directors of Edatel, ISA, Isagen, Fabricato, Internexa, XM and Protección S.A. Mr. Mejia has been an independent member of the Bank’s Board of Directors since his appointment in 2016. |
| ● | Sylvia Escovar Gómez was born in 1961. Mrs. Escovar is an economist from Universidad de los Andes. She has worked as chief economist of the World Bank´s resident mission in Colombia and was head of the External Credit Division of the National Planning Department (“Departamento Nacional de Planeación” or “DNP”). She served as Head of the Economic Research Service of Banco de la República, Head of the National Public Policy Evaluation System of the DNP and General Director of FES Leadership Foundation. She was Undersecretary of Education and Undersecretary of Finance in Bogotá D.C. and had previously served as Financial Vice President of Fiducolombia. For the last 18 years she has been affiliated with Organización Terpel S.A., where she has held different positions such as Commercial Vice-President, National Fuels Manager, and Financial and Administrative Manager. She served as Chief Executive Officer from 2012 until December 2020. Since January |
114
| 2021, she has been a strategic advisor to the Board of Directors of Terpel S.A. and a member of the boards of directors of the subsidiaries of this organization. She is Director of EPS Sanitas and ETB S.A. In March 2020, she was appointed as an independent member of the Bank´s Board of Directors. |
| ● | Arturo Condo Tamayo was born in 1967. Arturo holds a Doctorate in business strategy and competitiveness from Harvard Business School. He is President of Universidad EARTH, a Costa Rican institution that educates leaders on sustainability in rural areas and in the past has been President of INCAE Business School and Director of the Latin American Center for Competitiveness and Sustainable Development (LACCSD). He has been a professor in strategy, competitiveness and sustainable development. Currently he is a consultant in strategic planning and competitive, corporate and internationalization strategies for Latin American and Asian companies and organizations. He has also been an advisor to multilateral organizations like the IDB and the World Bank. In 2014, he launched Keyword Centroamérica, a strategic information company he chairs. He is a founding member of Central American Private Sector Initiative (CAPSI), a group of regional leaders focused on improving the Central Americans quality of life through regional actions and of the Global Shapers Community in San Jose, Costa Rica, which is part of the World Economic Forum. He has been recognized by the World Economic Forum (WEF) as a Young Global Leader (YGL). He is a founding board member of the Global Business Oath Project, a project that seeks to change the ethical behavior of business leaders. Arturo Condo was also one of the founders and promoters of the Fintech Association of Central America and the Caribbean in 2016 and a board member of the fintech Impesa (2015- 2017). He is a Board Member of Voces Vitales Costa Rica- NGO, Earth Ventures and The Common Project. Mr. Condo has been an independent member of the Bank’s Board of Directors since his appointment in 2016. |
| ● | Silvina Vatnick was born in 1959. PhD candidate in macroeconomics and international finance from Columbia University, New York. Economist from the University of Buenos Aires and holds a master’s degree in economics from UCEMA. Her professional development has been focused on macroeconomic issues, financial and regulatory stability, corporate governance, access to finance, sustainability, and entrepreneurship. She possesses solid technical expertise, and a close understanding of the economy in Latin America, particularly in countries like Colombia and Guatemala. Silvina also has extensive experience in the management of institutional affairs. She is cofounder and director of Global Outcomes LLC, a strategic advisory firm for companies, governments, and public and private institutions interested in Latin America and the world. She is currently Senior Advisor to the US Treasury Department’s Office of Technical Assistance on financial and regulatory stability issues. She´s also a member of the Corporate Governance Task Force at the OECD. In March 2021, she was appointed as an independent member of the Bank’s Board of Directors. In May 2021, she was identified by the Board as the audit committee financial expert. |
For additional information regarding the Board of Directors and its functions, see Item 10 “Additional Information – B. Memorandum and Articles of Association – Board of Directors”.
Senior Management
| ● | Juan Carlos Mora Uribe was born in 1965. He has been CEO of Bancolombia since May 2016. Prior to his appointment as CEO of Bancolombia, he was the Bank´s Corporate Innovation and Digital Transformation Vice President since 2015. He holds a B.A degree from Universidad Eafit and an M.B.A degree from Babson College. Mr. Mora has experience in diverse areas of corporate finance and investment banking. Mr. Mora performed the role of Vice President of Risk in 2005 and was then appointed as Chief Corporate Services Officer until 2015. Currently, he chairs the Comité Universidad Empresa Estado – CUEE board along with the president of la Universidad de Antioquia. |
| ● | Mauricio Rosillo Rojas was born in 1969. He has been the Business Vice President of Bancolombia since December 2023. Mr. Rosillo holds a law degree from Pontificia Universidad Javeriana, and obtained a degree in financial legislation from Universidad de Los Andes, a master’s degree in commercial and economic law from the University of Georgia, and additional training in European Community law from the Free University of Brussels. Mr. Rosillo has held several positions in the public and private sectors, including General Secretary of Federación Colombiana de Compañías de Leasing (Fedeleasing), Interim Colombian Superintendency of |
115
| Cooperatives (“Superintendente de Economia Solidaria (encargado)”), Director of Financial Regulation of the Colombian Ministry of Finance, Supervisor of the Securities Market of the Colombian Securities Exchange and President of the Colombian Self-Regulatory Organization (Autoregulador del Mercado de Valores - AMV). He was the Chief Legal Officer of Bancolombia from December 2008 until September 2019, when he was appointed as Corporate Vice President, a position that he held until 2023 before his appointment as Vice President of Business of Bancolombia. The Business Vice-presidency is responsible for leading the individual banking, small and medium enterprises and corporate business segments, as well as consolidating other support areas such as marketing, products, customer service and analytics, among others. |
| ● | Julián Mora Gómez was born in 1976. He has been the Corporate Vice President since December 2023. He holds a law degree from Universidad Pontificia Bolivariana in Medellin, and obtained a degree in insurance from the same university, and an MBA from the EADA Business School. Mr. Mora has worked in various roles in Bancolombia for more than 20 years, as a lawyer and commercial and regional manager of Fiduciaria Bancolombia, director of industry and trade of Banca de Inversión Bancolombia, CEO of Fiduciaria Bancolombia, and as Chief Compliance Officer for Grupo Bancolombia, Valores Bancolombia, Fiduciaria Bancolombia and Banca de Inversión Bancolombia from January 2022 until his appointment in 2023 as Corporate Vice President. He has also performed as Professor in Pontificia Universidad Javeriana in Bogotá. The Corporate Vice Presidency oversees the Financial and Treasury Vice Presidency, Human Resources Vice Presidency, Compliance Vice Presidency and Reputation and Communications Vice Presidency. |
| ● | Jaime Alberto Villegas Gutierrez was born in 1965. He has been the Vice President of Corporate Services since November 2016. He holds an industrial engineering degree from Universidad de los Andes and a graduate degree in finance from the same University. He has worked in the financial, operations and technology department of financial institutions such as Standard Chartered Bank, in Colombia, Peru, United Arab Emirates and Singapore. The Corporate Services Vice Presidency is responsible for supplying corporate, administrative, technological, operational, and project support services required by the business units to fulfill the promises made to customers, ensuring the normal development of activities of Grupo Bancolombia in Colombia and abroad. |
| ● | Rodrigo Prieto Uribe was born in 1973. He has been the Corporate Risks Vice President since March 2011. He is a civil engineer and has a master’s degree in economics from Universidad de los Andes and a master’s degree in finance from Instituto Tecnológico y de Estudios Superiores de Monterrey. Mr. Prieto has worked at Bancolombia holding several positions at different departments in Risk, Investment Banking, Financial Planning, Strategic Planning, and Corporate Project Management. He has also been a professor at several universities including Universidad EAFIT, Escuela de Ingeniería de Antioquia and Universidad de los Andes. The Corporate Risks Vice Presidency is responsible for the design of Bancolombia's risk management strategy, and the leadership of its execution and the determination of the risk appetite. |
| ● | José Mauricio Rodriguez was born in 1972. He has been the Vice President of Internal Audit since August 2020. He has more than 20 years of experience in auditing, and has been working for Grupo Bancolombia since 1994 where he has held different positions in the Group, including Vice President of Internal Audit at Banco Agrícola, Bancolombia´s subsidiary at El Salvador. José Mauricio is a Certified Public Accountant from Universidad de Medellín and an IT Technician from Politecnico Colombiano. He also holds an Executive MBA from Centro Universitario Villanueva and an undergraduate degree in Finance from Universidad de Medellín. Mr. Rodríguez is also certified in risk (CRMA) by IIA – The Institute of Internal Auditors- and is licensed to perform quality assessments (QA). |
| ● | Cipriano López Gonzalez was born in 1974. He has been the Innovation Vice President since 2019. He is a mechanical engineer from Bolivariana Pontifical University, holds an MBA degree from the Bordeaux School of Business in France, and has participated in complementary executive programs in the universities of Harvard, Stanford and Wharton Business School. He has previously worked for SAB-Miller Group as Negotiating Director, DANONE Group in France as the officer in charge of the cereal products category for Europe, and with L’Oreal in France and Spain. From 2010 to 2018 he was CEO of Haceb Industries, where he led the process of innovation and digital transformation, developing new businesses, alliances and a customer-centered culture. |
116
| ● | Jose Humberto Acosta was born in 1962. He has been the Financial Vice President since June 2012 and Bancolombia´s Chief Financial Officer since January 2020. He is a Business Administrator from Universidad Externado de Colombia with an MBA from Universidad de la Sabana. He served as manager of International Division, manager of Organization and Methods Division, general coordinator of Merger, among other positions in Corfinsura S.A. |
| ● | Claudia Echavarria Uribe was born in 1979. She has been Bancolombia´s Chief Legal Officer and General Counsel since December 2019. She is a lawyer from Universidad Pontificia Bolivariana, has a Master of Law degree from Columbia University Law School and is a member of the New York Bar. Most recently she was the Corporate Vice-president and the General Counsel of Almacenes Exito and previously she held different positions at the legal department of Bancolombia and in Banca de Inversion Bancolombia between 2004 and 2015. |
María Cristina Arrastia Uribe, who held the position of Business Vice President until November 30, 2023, tendered her resignation upon reaching retirement age, which was accepted by the Board of Directors.
There are no family relationships between the directors and senior management of Bancolombia 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.
The Good Governance Code of Bancolombia sets a mandatory retirement age of 65 years for senior management.
B. COMPENSATION OF DIRECTORS AND OFFICERS
In 2023, the Bank paid each Board Director who resides in Colombia a fee of COP 12.17 million per month for membership on the Board, and another fee of COP 12.17 million for participating in Support Committees.
In 2023, the Bank paid each Board Director who does not reside in Colombia a fee of USD 3.195 per month for membership on the Board, and another fee of USD 3.195 for participating in Support Committees. In addition, they receive an allowance of USD 266 per day when they must travel.
In accordance with the current policy, 70% of Board of Directors fees are paid in cash each month and the remaining 30% is paid through a contribution in an investment fund that invests in Bancolombia shares. Directors only have the right to withdraw money from the fund after two years following the respective contributions.
The directors received no other compensation or benefits, and there is no stock option plan for them.
The Board maintains a committee named the Designation, Compensation and Development Committee, consisting of three Board members, with the goal of defining and supervising compensation and organizational development from a strategic perspective. The main purpose of this Committee is to support the Board of Directors in appointment, hiring, and compensation policies for senior management officers and for Grupo Bancolombia’s compensation model.
The Board of Directors approves any salary increases for the Chief Executive Officer and the salary policies for the remaining employees.
Consistent with Colombian law, the Bank does not publish information regarding the compensation of the Bank’s individual officers. The aggregate amount of remuneration paid by the Bank to senior management during the fiscal year ended December 31, 2023 is disclosed in Note 28. Related party transactions of consolidated financial statements.
The Bank has established an incentive compensation plan that awards bonuses annually or semi-annually to its employees. In determining the amount of any bonuses, the Bank takes into consideration the overall return on equity of the Bank and its executives’ achievement of established goals. Bonuses are paid in cash and through an investment fund that invests in Bancolombia shares. Employees only have the right to withdraw money from the fund after three years following the respective contributions.
117
C. BOARD PRACTICES
The following table reflects the composition of the Board of Directors as of March 26, 2024
Name | Elected to the Board | Term Expires | ||
Gonzalo Alberto Pérez Rojas | 2004 | 2025 | ||
Juan David Escobar Franco | 2020 | 2025 | ||
Luis Fernando Restrepo Echavarría | 2016 | 2025 | ||
Andrés Felipe Mejía Cardona | 2016 | 2025 | ||
Sylvia Escovar Gómez | 2020 | 2025 | ||
Arturo Condo Tamayo | 2016 | 2025 | ||
Silvina Vatnick | 2021 | 2025 |
Messrs. Luis Fernando Restrepo Echavarría, Andres Felipe Mejía Cardona, Sylvia Escovar Gomez, Arturo Condo Tamayo and Silvina Vatnick are independent directors in accordance with the Bank’s by-laws, Colombian laws and NYSE standards. Consequently, the majority of the Board of Directors is composed of independent directors. Neither the Bank nor its Subsidiaries have any type of agreement with the Bank’s directors providing for benefits upon termination of their term.
The following are the current terms of office and the period during which the members of senior management have acted as such in Bancolombia. There are no defined expiration terms. The members of senior management can be removed by a decision of the Board of Directors.
Name | Period Served | |
President | ||
Juan Carlos Mora Uribe | Since 2016 | |
Vice Presidents | ||
Mauricio Rosillo Rojas | Since 2008 | |
Julián Mora Gómez | Since 2023 | |
Jaime Alberto Villegas Gutierrez | Since 2016 | |
Rodrigo Prieto Uribe | Since 2011 | |
Jose Mauricio Rodriguez Rios | Since 2020 | |
Cipriano Lopez Gonzalez | Since 2019 | |
Claudia Echavarría Uribe | Since 2019 | |
Jose Humberto Acosta | Since 2020 |
For further information about the Bank’s corporate governance practices please see Item 16. “Reserved – B. Corporate Governance and Code of Ethics.”
Audit Committee
The Bank’s Board of Directors, in compliance with Colombian banking regulations, maintains an Audit Committee that is currently comprised of three members. The current members of the Audit Committee are Messrs. Arturo Condo Tamayo, Andrés Felipe Mejia Cardona and Silvina Vatnick. The Board of Directors elected them as members of the Audit Committee on April 25 of 2023. Each of them serves as an independent member of the Board of Directors.
Pursuant to the applicable U.S. regulations for foreign private issuers, Mrs. Silvina Vatnick has served as the financial expert of the Audit Committee since May 2021, in replacement of Syvlia Escovar Gomez. In addition, the Committee has an independent advisor and expert in financial reporting and auditing matters who provides advice to the Committee on such matters. Arturo Condo Tamayo serves as a cybersecurity expert.
For a broader description of the experience and qualifications of Messrs. Condo Tamayo, Mejia Cardona, and Vatnick, see Item 6. “Directors, Senior Management and Employees—A. Directors and Senior Management”.
118
This Committee has a charter approved by the Board of Directors that establishes its composition, organization, objectives, duties, responsibilities and extension of its activities. The main purpose of this Committee is to support the Board of Directors by overseeing the effectiveness of the Bank’s internal controls implemented by senior management. Other specific responsibilities of the Committee include: (i) overseeing the integrity of the financial statements, financial reporting process and systems of internal accounting and financial controls; (ii) proposing external auditor candidates to the Board of Directors and the Shareholder´s General Meeting and evaluating their qualifications and independence; (iii) reviewing with management and the external auditors the annual and interim financial statements and reporting the results to the Board of Directors; (iv) approving the annual internal audit plan and its modifications; (v) approving the annual budget, overseeing the activities and evaluating the performance of the Internal Auditor, who reports directly to the audit committee; (vi) receiving and reviewing reports issued by internal and external auditors; (vii) evaluating the design and implementation of programs and controls aimed to prevent, detect and adequately manage risks related to internal fraud and misconduct; (viii) being informed about relevant frauds and misconduct cases related to the Bank´s employees; (ix) taking measures in cases of fraud that could affect the quality of the financial information; (x) reviewing non recurrent operations with related parties, according to what is stated in the Good Governance Code; (xi) evaluating and advising the potential conflicts of interests of directors and members of senior management, and; (x) evaluating initiatives aimed at preventing cybersecurity risks, monitoring cybersecurity management, being informed about cybersecurity incidents, and reviewing the Information Security and Cybersecurity Policies before submission to the Board for approval on an annual basis.
Further, the Internal Auditor of Bancolombia and the Compliance Officer report to the Audit Committee. Likewise, Bancolombia has an Ethics Committee that reports to the Audit Committee and is in charge of defining general policy issues and giving guidelines on ethics, conduct and integrity, as well as defining corporate positions in the face of difficult ethical dilemmas. From time to time, the Audit Committee may carry out diagnostic studies of the ethical culture in the Bank.
The Audit Committee meets and reports to the Board of Directors at least monthly and must present an annual report of its activities at the General Shareholders’ Meeting. The Committee met 15 times during 2023.
The shareholders establish the remuneration of the members of the Audit Committee in their general meeting.
Designation, Compensation and Development Committee
This committee is composed of three (3) members of the Board of Directors which are elected by the Board itself. The Manager of Human Resources of the Bank acts as secretary of this committee.
The Designation, Compensation and Development committee recommends to the Board of Directors the policies and provisions for the hiring, remuneration, compensation, and development of management and key personnel of the Bank. Likewise, it continuously surveys the goals of the different compensation programs regarding the performance of the officers, and it assesses the efficacy of such programs.
The duties of the designation, compensation and development committee are: (i) determining the administration policies of human resources, establishing the selection, evaluation, compensation, and development processes for top management, determining their goals; (ii) establishing the objective criteria under which the Bank hires its principal officers; (iii) proposing objective criteria under which the Bank hires senior management and designs succession plans; (iv) determining the criteria for the performance evaluation of senior management; and (v) issuing recommendations for the Board of Directors concerning appointments and compensation of the president and senior management according to the standards defined at the General Shareholders’ Meeting.
The members of the designation, compensation and development committee are Gonzalo Perez Rojas, Luis Fernando Restrepo Echavarria and Sylvia Escovar Gómez. The committee met 7 times during 2023.
The shareholders establish the remuneration of the members of the Committee in their general meeting.
Good Governance Committee
119
The Good Governance Committee is composed of three (3) members of the Board of Directors, of which at least two must be independent directors. Bancolombia’s CEO attends this committee on a permanent basis.
The Good Governance Committee has a charter approved by the Board of Directors that govern aspects such as composition and invitees to meetings, roles and responsibilities of the Committee and its internal rules.
The main purpose of this Committee is to assist Bancolombia’s Board of Directors in overseeing compliance with Corporate Governance measures, reviewing any potential changes to such measures, being informed about results of evaluation process of the Board of Directors, overseeing the definition of profiles of the members of the Board of Directors and the search process of candidates to be elected as members of the Board of Directors and evaluating periodically the functioning methodology and the agenda of the Board of Directors.
This Committee also supports the Board of Directors in cases related to the implementation of succession policies of the Board of Directors and its remuneration.
The members of the Good Governance Committee are Arturo Condo Tamayo, Sylvia Escovar Gómez and Luis Fernando Restrepo Echavarria. The committee met 4 times during 2023.
The shareholders establish the remuneration of the members of the Committee in their general meeting.
Risk Committee
Bancolombia’s Risk Committee consists of three (3) members of the Board of Directors, of which at least two must be independent directors.
The main purpose of this Committee is to serve as a support for approval, follow-up, and control of policies, guidelines, and strategies for risk management. In addition, this Committee supports the Bank’s Board of Directors in aspects such as knowledge and understanding of the risks assumed by the Bank and the monitoring of its risk appetite, including its subsidiaries, and the funds required to administer such risks.
Among other responsibilities, the Risk Committee is in charge of presenting for approval before the Board of Directors the methodology, procedures and tools for preventing, detecting and mitigating cybersecurity risks and the management policies manual; keeping the Board of Directors informed of the cybersecurity risk management effectiveness; and assessing the causes of cybersecurity breaches and the mitigation measures adopted on an ongoing basis.
The committee receives management reports on cybersecurity risk exposure, substantial changes to exposure, tolerance level, compliance and mitigation initiatives undertaken by management.
Risks related to sustainability - e.g., climate risks - are overseen by the Committee which supports the Board of Directors in the discussion, management and oversight of these risks and follows up on compliance with ESG commitments.
The Risk Committee has a charter approved by the Board of Directors which establishes its composition, organization, objectives, duties, responsibilities and extension of its activities. The members of the Risk Committee are Andrés Felipe Mejía Cardona, Juan David Escobar Franco and Silvina Vatnick. The Risk Committee meets monthly and met a total of 13 times during 2023.
The shareholders establish the remuneration of the members of the Committee in their general meeting.
120
D. EMPLOYEES
The following table sets forth the number of employees of the Bank for the last three fiscal years:
Total number of of Bancolombia's employees | |||
As of December 31, | (Bancolombia and its consolidated subsidiaries) | ||
2023 | 34.756 | ||
2022 | 33.140 | ||
2021 | 31.245 |
The following table sets forth the number of employees of the Bank for 2023:
Bancolombia and its consolidated subsidiaries | |||
Company | Number of employees | ||
Bancolombia S.A, Valores Bancolombia, Fiduciaria Bancolombia and Banca de Inversión (Colombia) | 23.693 | ||
Banco Agrícola (El Salvador) | 2.953 | ||
Banistmo (Panamá) | 2.432 | ||
Bancolombia Panamá and Puerto Rico | 161 | ||
BAM (Guatemala) | 3.706 | ||
Subtotal | 32.945 | ||
Others consolidated subsidiaries | 1.811 | ||
Total Bancolombia and its consolidated subsidiaries | 34.756 | ||
As of December 31, 2023, Bancolombia and its consolidated subsidiaries had 34,756 employees; approximately 73.4% are located in Colombia, 8.5% in El Salvador, 10.7% in Guatemala, and 7.5% in Panamá, Puerto Rico and United States, and 49.5% are operational personnel and 50.5% are professional or managerial employees.
Bancolombia and its consolidated subsidiaries with active trade unions are mainly in Colombia. Approximately 30.0% of employees are part of an enterprise trade union called Sintrabancol, 13.0% are members of a sector trade union called UNEB, 3.7% belong to another sector trade union called Sintraenfi, and approximately 2.0% belong to other unions. The companies with active union membership are Bancolombia S.A., Fiduciaria Bancolombia, Valores Bancolombia, Banca de Inversión Bancolombia and Transportempo S.A.S en Liquidación.
In line with our Social Dialogue Model, Bancolombia entered into a Collective Bargaining Agreement with Uneb and Sintrabancol in October 2023, which became effective on November 1, 2023, and is set to expire on October 31, 2026. This agreement applies to approximately 12,000 of the Bank’s employees regardless of whether they are members of a union or not and it extends to operating personnel hired by the subsidiaries Banca de Inversión Bancolombia, Valores Bancolombia and Fiduciaria Bancolombia. The ACEB and ANESFICOFP unions also submitted a list of petitions to Bancolombia on October 11, and October 12, 2023, respectively, but did not reach an agreement in the stage of direct settlement. However, the terms of the agreement reached with UNEB and Sintrabancol also apply to the members of the ACEB, ANESFICOFP and other unions. With the execution of such agreement, the Bank, UNEB, and Sintrabancol continue to work on the consolidation of our Social Dialogue Model based on mutual trust and respect. The most important economic aspects of the agreement are:
1.A wage-increase of 14.5% during the first year, an increase for the second year equal to the variation in the Colombian consumer price index (“IPC”), as certified by the Colombian Statistical Bureau (“DANE”) for the period between November 2023 and October 2024, plus 2.3 basis points and an increase for the third year equal to the variation in the IPC, as certified by DANE for the period between November 2024 and October 2025, plus 2.5 basis points.
2.Improved benefits, such as:
121
| a. | An increase in the Second Credits Fund by a percentage equal to the wage increase for each conventional year. |
| b. | A 12.5% increase in health insurance coverage. |
| c. | Transportation and food assistance, and an increase in tuition assistance and tuition loans. |
| 3. | With respect to working conditions, several key provisions, such as: |
| a. | Working time reduction from 43 to 42 hours per week as of January 1, 2025 (less than the current Colombian regulation of 47 hours per week). |
| b. | Ratification of “the right to disconnect” during rest periods, recognizing the importance of maintaining a healthy balance between work and personal time. |
| c. | Formal commitment to co-parenting and equal participation of both parents in care responsibilities. |
| d. | Renewal of our zero-tolerance policy toward any conduct that violates dignity. |
During 2023, the Bank employed an average of 175 employees per month through temporary personnel service companies.
Bancolombia and its consolidated subsidiaries offer benefits to its employees and their families. These benefits in 2023 included loans, saving programs, insurance, psychological support, and financial advice, among many more activities for personal development, with an investment of more than USD 346 million, covering nearly 100% of the workforce.
E. SHARE OWNERSHIP
The following directors and members of senior management owned common shares in Bancolombia as of December 31, 2023: Gonzalo Alberto Pérez Rojas and Juan David Escobar Franco (directors).
None of the directors and members of senior management owned preferred shares in Bancolombia as of December 31, 2023.
None of the directors and members of senior management’s shareholdings, individually or in the aggregate, exceed 1% of Bancolombia’s outstanding common shares, preferred shares or a combination of both classes of shares.
As of December 31, 2023, there are no stock options to acquire any of Bancolombia’s outstanding common shares or preferred shares or share-based payment to any employee.
F. DISCLOSURE OF A REGISTRAN’S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION
Pursuant to Section 303A.14 of the NYSE Listed Company Manual (Erroneously Awarded Compensation), each listed issuer that does not qualify for an exemption set forth in such rule was required to adopt a recovery policy by December 1, 2023. Complying with such Rule, the Board of Directors of Bancolombia approved the implementation of a Recovery Policy (or “Clawback Policy”) on November 20, 2023.
Bancolombia was not required to prepare an accounting restatement that required recovery of erroneously awarded compensation pursuant to its compensation recovery policy, neither was an outstanding balance as of the end of year 2023 of erroneously awarded compensation to be recovered from the application of the policy to a prior restatement.
122
ITEM 7 MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR STOCKHOLDERS
In accordance with the Bank’s by-laws, there are two classes of stock authorized and outstanding: common shares and preferred shares. Each common share entitles its holder to one vote at meetings of the Bank’s stockholders, and there are no differences in the voting rights conferred by any of the common shares. Under the Bank’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 in limited circumstances as described in “Item 10. Additional Information – B. Memorandum and Articles of Association – Description of Share Rights, Preferences and Restrictions – Voting Rights – Preferred Shares”.
The following table sets forth, solely for purposes of United States securities laws, certain information regarding the beneficial ownership of Bancolombia’s capital stock by each person known to Bancolombia to own beneficially more than 5% of each class of Bancolombia’s outstanding capital stock as of December 31, 2023. A beneficial owner includes anyone who has the power to receive the economic benefit of ownership of the securities.
% Ownership of | % Ownership of | ||||||||||
Common | Preferred | % Ownership of | |||||||||
Name | Common Shares | Preferred Shares | Shares(1) | Shares(1) | Total Shares (1) | ||||||
Grupo de Inversiones Suramericana S.A (2) | 235,012,336 | — | 46.11 | % | — | % | 24.43 | % | |||
ADR Program | — | 130,450,680 | — | % | 28.85 | % | 13.56 | % | |||
Fondo de Pensiones Obligatorias Porvenir Moderado | 42,240,383 | 10,528,085 | 8.29 | % | 2.33 | % | 5.49 | % | |||
Fondo Bursátil ISHARES MSCI COLCAP | 18,529,886 | 32,849,566 | 3.64 | % | 7.27 | % | 5.34 | % | |||
Fondo de Pensiones Obligatorias Protección Moderado | 27,948,698 | 21,302,932 | 5.48 | % | 4.71 | % | 5.12 | % |
| (1) | Common shares have one vote per share; preferred shares have limited voting rights under certain circumstances specified in the by-laws of Bancolombia filed as Exhibit 1 to this Annual Report |
| (2) | Represents ownership of Grupo de Inversiones Suramericana S.A. directly and through its subsidiaries: Grupo de Inversiones Suramericana Panamá |
S.A., Inversiones y Construcciones Estrategicas S.A., CIA. Suramericana de Seguros de Vida S.A., Cia. Suramericana de Seguros S.A., Suratep.
As of December 31, 2023, a total of 509,704,584 common shares and 452,122,416 preferred shares were registered in the Bank’s stockholder registry in the name of 39,540 stockholders. A total of 130,450,680 representing 28.85% of preferred shares were part of the ADR Program and were held by 31 record holders registered in The Bank of New York Mellon’s registered stockholder list. Given that some 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.
During the past year, the Bank’s ADR program increased as a percentage of the ownership of the Bank, from 13.16% as of December 31, 2022, to 13.56% by the end of December 2023. Fondo de Pensiones Obligatorias Porvenir Moderado, a Colombian private pension fund manager, decreased its percentage of ownership to 5.49% as of December 31, 2023, compared to 6.17% as of December 31, 2022. Fondo de Pensiones Obligatorias Protección Moderado, a Colombian private pension fund manager, decreased its percentage of ownership to 5.12% as of December 31, 2023, compared to 6.27% as of December 31, 2022.
There are no other significant changes in the percentage of ownership held by major shareholders during the past three years.
There are no arrangements known to the Bank, which 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, Bancolombia is not directly or indirectly owned or controlled by any other entity or person.
123
B. RELATED PARTY TRANSACTIONS
The Bank’s Good Governance Code provides that in no event may any transaction regarding Bank’s shares that is carried out by any officer, director or manager be executed for speculative purposes, which would be presumed if the following three conditions were met: (a) if suspiciously short lapses of time exist between the purchase and the sale of shares; (b) if situations arise proving to be exceptionally favorable for the Bank; and (c) if significant profits are obtained from this transaction.
All transactions that the Bank enters into with its directors, officers and senior executives are subject to the limitations and conditions set forth by the applicable law governing the prevention, handling and resolution of conflicts of interest.
Over time, the Bank has granted loans and engaged in other transactions with related parties. Such loans were made in the ordinary course of business, on substantially the same terms, including interest rates and required collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability, and do not present any additional unfavorable terms for the Company.
Bancolombia, on a non-consolidated basis, had a total amount of COP 1,995,732 million in loans outstanding to related parties as of february 29, 2024. The principal amounts outstanding as of february 29, 2024 included in this amount are:
Amount | Accrued | Average | |||||
Entity | outstanding | Interest | Interest rate | ||||
In millions of COP, except percentages | |||||||
Subsidiaries Grupo Sura | 1,854,665 | 30,219 | 15.36 | % | |||
For additional information regarding the Bank’s related party transactions, please see Note 28. Related party transactions to the Consolidated Financial Statements.
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-198.
A.2 LEGAL PROCEEDINGS
The Bank is involved in normal collection proceedings and restructuring proceedings with respect to certain borrowers as well as other legal proceedings. For further information regarding legal proceedings, see Note 21.2 - “Provisions and Contingent Liabilities” to the Consolidated Financial Statements.
A.3 DIVIDEND POLICY
The declaration, amount and payment of dividends are based on Bancolombia’s unconsolidated earnings. Dividends must be approved at the ordinary annual shareholders’ meeting upon the recommendation of the Board of Directors. Under the Colombian Commercial Code, after payment of income taxes and appropriation of legal and other reserves, and after setting off losses from prior fiscal years, Bancolombia must distribute to its stockholders 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 stockholders, in cash or in issued stock of Bancolombia, as may be determined by the stockholders, and within a year from the date of the ordinary annual stockholders’ meeting in which the dividend was
124
declared. According to Colombian law, the minimum dividend per share may be waived by an affirmative vote of the holders of 78% of the voting shares present at the stockholders’ meeting.
The annual net profits of Bancolombia must be applied as follows: (i) first, an amount equal to 10% of Bancolombia’s net profits to a legal reserve until such reserve is equal to at least 50% of the Bank’s paid-in capital; (ii) second, to the payment of the minimum dividend on the preferred shares (for more information, see Item 10. "Additional Information – B. Memorandum and Articles of Association”); and (iii) third, as may be determined in the ordinary annual stockholders’ meeting by the vote of the holders of a majority of the shares entitled to vote.
The proposal for the distribution of profits of the Board of Directors will seek to prioritize the return of capital to shareholders and, as such, an amount of profits necessary to maintain the optimum level of Tier 1 capital will be reserved and the remainder will be distributed to the shareholders.
The following table sets forth the annual cash dividends paid on each common share and each preferred share during the periods indicated:
Dividends declared with respect to net | Cash dividends | Cash dividends | ||
income earned in: | per share(1)(2) | per share(1)(3) | ||
(COP) | (U.S.dollars) | |||
2023 | 3,536 | 0.899 | ||
2022 | 3,536 | 0.735 | ||
2021 | 3,120 | 0.831 | ||
2020 | 260 | 0.071 | ||
2019 | 1,638 | 0.404 |
(1) Includes common shares and preferred shares.
(2 )Cash dividends for 2023, 2022, 2021, 2020 and 2019 were 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 (March). In 2023, the amount were converted from pesos at the representative market rate at the end of February.
B. SIGNIFICANT CHANGES
There have not been any significant changes since the date of the annual Consolidated Financial Statements included in this document.
ITEM 9 THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
Bancolombia’s ADRs, each representing four preferred shares, have been listed on the New York Stock Exchange (“NYSE”) since 1995, where they are traded under the symbol “CIB”. Bancolombia’s preferred shares are also listed on the Colombian Securities Exchange.
ADRs evidencing ADSs are issuable by The Bank of New York Mellon (the “Depositary”), as Depositary, pursuant to the Deposit Agreement, dated as of July 25, 1995, entered into by Bancolombia, 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 (as amended, the “Deposit Agreement”). The Deposit Agreement was amended and restated on January 14, 2008. 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 Fiduciaria Bancolombia, as agent of the Depositary, currently located at Carrera 48, No. 26 - 85, Medellin, Colombia or Carrera 11 No. 91-42, Bogotá, Colombia. The Depositary’s principal executive office is located at One Wall Street, New York, New York 10286.
On September 30, 1998, Bancolombia filed a registration statement on Form F-3 with the SEC to register ADSs evidenced by ADRs, each representing four preferred shares, issued in connection with the merger between BIC and Banco de Colombia for resale by the holders into the U.S. public market from time to time. On January 24, 2005, the Board
125
determined to deregister the unsold ADSs registered under the registration statement on Form F-3. On March 14, 2005, Bancolombia filed an amendment to the registration statement deregistering the remaining unsold ADSs. On August 8, 2005, Bancolombia filed, through the Depositary, a registration statement on Form F-6 registering 50,000,000 ADSs evidenced by ADRs in connection with the Conavi/Corfinsura merger.
On May 14, 2007, Bancolombia filed an automatic shelf registration statement on Form F-3 with the SEC to register an indeterminate amount of debt instruments, preferred shares and rights to subscribe for preferred shares in connection with the subsequent offerings which took place in the second and third quarter of 2007. On January 14, 2008, by filing the Form F-6 with the SEC, Bancolombia increased the amount of its ADR program up to 400,000,000 American Depositary Shares and registered some amendments to the Depositary Agreement of ADSs between Bancolombia and The Bank of New York Mellon. On July 13, 2010, Bancolombia filed an automatic shelf registration statement on Form F-3 with the SEC to register an indeterminate amount of debt instruments, preferred shares, American Depositary Shares representing preferred shares and rights to subscribe for preferred shares in connection with the subsequent offering of subordinated debt instruments which took place on July 19, 2010. On February 6, 2012, Bancolombia priced a public offer of 63,999,997 preferred shares without voting rights, which represented an aggregate amount of approximately COP 1,680 billion. On March 3, 2014, Bancolombia priced a public offer of 110,000,000 preferred shares without voting rights, which represented an aggregate amount of approximately COP 2,656 billion.
On April 25, 2019, Bancolombia filed an automatic shelf registration statement on Form F-3 with the SEC to register an indeterminate amount of debt instruments, preferred shares and rights to subscribe for preferred shares. On April 27, 2022, Bancolombia filed an automatic shelf registration statement on Form F-3 with the SEC to register an indeterminate amount of debt instruments, preferred shares and rights to subscribe for preferred shares.
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
The Colombian Securities Exchange is the principal non-U.S. trading market for the preferred shares and the sole market for the common shares. As of December 31, 2023, the market capitalization for Bancolombia’s preferred shares based on the closing price in the Colombian Securities Exchange was COP 13,528 billion (Bancolombia’s total market capitalization, which includes the common and preferred shares, was COP 30,450 billion or USD 7.97 billion as of the same date).
There are no official market makers or independent specialists on the Colombian Securities Exchange to ensure market liquidity and, therefore, orders to buy or sell in excess of corresponding orders to sell or buy will not be executed. The aggregate equity market capitalization of the Colombian Securities Exchange, as of December 31, 2023, was COP 307,443 billion (USD 80,439 billion), with 76 companies listed as of that date.
On December 14th, 2023, Bancolombia announced that the Colombian Securities Exchange (BVC) authorized a liquidity program in Colombia for its ordinary and preferred shares, under a contract with Credicorp Capital Colombia executed on December 1st, 2023, with an initial term of one year from its execution. This program seeks to increase the number of transactions involving Bancolombia’s shares through purchase and sale orders entered by Credicorp Capital Colombia in the stock market, enabling price formation. These mechanisms contribute to promoting liquidity and mitigating volatility in stock trading, facilitating market entry and exit mechanisms for investors.
D. SELLING STOCKHOLDERS
Not applicable.
E. DILUTION
Not applicable.
126
F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10 ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Set forth below is certain information concerning the Bank’s capital stock and a brief summary of certain significant provisions of the Bank’s bylaws and Colombian corporate law. This description does not purport to be complete and is qualified by reference to the Bank’s bylaws (an English translation of which is attached as Exhibit 1 to this Annual Report) and to Colombian corporate law.
Bancolombia’s Corporate Purpose
Pursuant to Article 4 of its bylaws, Bancolombia’s corporate purpose consists of all kinds of banking operations, business, acts and services. Subject to applicable law, Bancolombia may carry out all the activities and investments authorized to banks. Bancolombia is also authorized to participate in the capital stock of other companies, subject to any restrictions imposed by applicable law.
Board of Directors
As of the date of filing of this Annual Report, Bancolombia’s board of directors is composed of seven directors, elected for a two-year term, with no alternate directors. For additional information regarding Bancolombia’s current directors please see Item 6.A, “Directors and Senior Management”.
After being designated, all of the members of the Board of Directors need an authorization from the Superintendency of Finance. The Superintendency of Finance assesses whether the director has an adequate profile for the position according to the requirements under Colombian Law.
According to Decree 3923 of 2006, the election of independent directors must be in a separate ballot from the ballot to elect the rest of directors, unless the reaching of the minimum number of independent directors required by law or by the by-laws is assured, or when there is only one list that includes the minimum number of required independent directors. According to Law 964 of 2005, 25% of the members of the board of directors shall be independent. An “independent director” is a director who is NOT: (i) an employee or director of the issuer or any of its parent or subsidiary companies, including all those persons acting in said capacity during the year immediately preceding that in which they were appointed, except in the case of an independent member of the board of directors being re-elected; (ii) shareholders, who either directly or by virtue of an agreement direct, guide or control the majority of the entity’s voting rights or who determine the majority composition of the administration, the board of directors or other corporate bodies of this same entity; (iii) a partner or employee of any association or firm that provides advisory or consultancy services to the issuer or to companies who belong to the same economic group to which the issuer in question belongs, in the event that income obtained from such services represent for said association or firm twenty percent (20%) or more of its total operating income; (iv) an employee or director of a foundation, association or institution that receives significant donations from the issuer. The term “significant donations” is quantified as being twenty percent (20%) or more of the total amount of donations received by the respective institution; (v) an administrator of any entity on whose board of directors a legal representative of the issuer participates; and (vi) any person who receives from the issuer any kind of remuneration different from fees as a member of the board of directors, of the audit committee or any other committee set up by the board of directors.
The Good Governance Code, aiming to strengthen the independence of the board, establishes the following criteria to qualify a director as non-independent:
127
Elections are made under a proportional representation voting system. Under that system: (i) each holder of common shares is entitled at the annual general shareholders’ meeting to nominate for election one or more directors; (ii) each nomination of one or more directors constitutes a group for the purposes of the election; (iii) each group of nominees must be listed in the order of preference for nominees in that group to be elected; (iv) once all groups have been nominated, holders of common shares may cast one vote for each common share held in favor of a particular group of nominees. Votes may not be cast for particular nominees in a group; they may be cast only for the entire group; (v) the total number of votes casted in the election is divided by the number of directors to be elected. The resulting quotient is the quota of votes necessary to elect particular directors. For each time that the number of votes cast for a group of nominees is divisible by the quota of votes, one nominee from that group is elected, in the order of the list of that group; and (vi) when no group has enough remaining votes to satisfy the quota of votes necessary to elect a director, any remaining board seat or seats are filled by electing the highest remaining nominee from the group with the highest number of remaining votes cast until all available seats have been filled.
128
The directors of Bancolombia must abstain from participating, directly or through an intermediary, on their own behalf or on behalf of a third party, in activities that may compete against the Bank or in conflict-of-interest transactions that may generate a conflict of interest situation, unless the general shareholders meeting expressly authorizes such transactions.
For such purposes, the directors shall provide the shareholders’ meeting with all the relevant information necessary for the shareholders to reach a decision. If the director is a shareholder, his or her vote shall be excluded from the respective decision process. In any case, the general shareholders meeting could only grant its authorization if the act does not adversely affect Bancolombia’s interests. In the general annual shareholders meeting the shareholders are responsible for determining, the compensation of the members of the board of directors.
Pursuant to the by-laws of Bancolombia, the board of directors has the power to authorize the execution of any agreement, within the corporate purpose of Bancolombia, and to adopt the necessary measures in order for the Bank to accomplish its purpose, except for agreements that, by law, can only be authorized at the Shareholders’ Meeting. Furthermore, the board of directors must authorize certain transactions such as the issuance of Bank’s bonds or common shares up to the total amount of authorized capital stock.
With respect to the appointment of directors of the other companies of the Group, on March 17, 2023, the Good Governance Code was amended in order to clarify that Bancolombia´s President, with the support of the Corporate Vice Presidents, will be responsible for appointing the nominees as members of the Board of Directors of the companies that are part of the Group, without requiring the previous approval of the Board of Directors of Bancolombia.
Description of Share Rights, Preferences and Restrictions
Bancolombia’s bylaws provide for an authorized capital stock of COP 700 billion divided into 1,400,000,000 shares of a par value of COP 500 each, which must belong to one of the following classes: (i) common shares, (ii) privileged shares; and (iii) shares with preferred dividend and no voting rights (“preferred shares”). Pursuant to Article 8 of the bylaws, all shares issued shall have the same nominal value.
As of December 31, 2023, Bancolombia had 509,704,584 common shares and 452,122,416 preferred shares outstanding and a shareholders’ equity of COP 38.09 trillion divided into 961,827,000 shares.
Voting Rights Common Shares
The holders of common shares are entitled to vote on the basis of one vote per share on any matter subject to approval at a general shareholders’ meeting. These general meetings may be ordinary meetings or extraordinary meetings.
Ordinary general shareholder’s meetings occur at least once a year but no later than three months after the end of the prior fiscal year, for the following purposes: (i) to consider the approval of Bancolombia’s annual report, including the financial statements for the preceding fiscal year; (ii) to review the annual report prepared by the external auditor; (iii) to determine the compensation for the members of the board of directors, and the external auditor (the external auditor compensation is determined every two years) (iv) to elect, every two years, the members of the board of directors, the external auditor and the Financial Consumer Representative (“defensor del consumidor financiero”). The Financial Consumer Representative´s primary duty is to solve the individual complaints submitted by clients and users and serve as their spokesman; and (v) to determine the dividend policy and the allocation of profits, if any, of the preceding fiscal year, as well as any retained earnings from previous fiscal years.
Extraordinary general shareholders’ meetings may take place when duly called for a specified purpose or purposes, or, without prior notice, when holders representing all outstanding shares entitled to vote on the issues presented are present at the meeting.
Quorum for both ordinary and extraordinary general shareholders’ meetings to be convened at first call requires the presence of two or more shareholders representing at least half plus one of the outstanding shares entitled to vote at the relevant meeting. If a quorum is not present, a subsequent meeting is called at which the presence of one or more holders of shares entitled to vote at the relevant meeting constitutes a quorum, regardless of the number of shares represented.
129
General shareholders’ meetings may be called by the board of directors, the CEO or the external auditor of Bancolombia.
In addition, according to Bancolombia´s Good Governance Code, two or more shareholders representing at least 10% of the outstanding shares have the right to request that a general meeting be convened. Notice of ordinary meetings and extraordinary meetings convened to approve fiscal year-end financial statements, the reduction of the outstanding capital, the merger, spin-off or sale of more than 25% of the assets, liabilities and contracts, and the election of Board Members, must be published in one newspaper of wide circulation at Bancolombia’s principal place of business at least 15 business days prior to such meeting. Notice of other extraordinary meetings, must be published in one newspaper of wide circulation at Bancolombia’s principal place of business at least 5 calendar days prior to such meeting listing the matters to be addressed at such meeting.
Except when Colombian law or Bancolombia’s bylaws require a special majority, action may be taken at a general shareholder’s meeting by the vote of two or more shareholders representing a majority of common shares present. Pursuant to Colombian law and/or Bancolombia’s bylaws, special majorities are required to adopt the following corporate actions:
(i) a favorable vote of at least 70% of the shares represented at a general shareholders’ meeting is required to approve the issuance of shares without preemptive rights available for shareholders; (ii) a favorable vote of at least 78% of the holders of represented common shares to decide not to distribute as dividend at least 50% of the annual net profits of any given fiscal year; (iii) a favorable vote of at least 80% of the holders of represented common shares and 80% of the holders of outstanding preferred shares to approve the payment of the dividend in shares; and (iv) a favorable vote of at least 70% of the holders of common shares and of outstanding preferred shares to effect a decision to impair the conditions or rights established for such preferred shares, or a decision to convert those preferred shares into common shares.
If the Superintendency of Finance determines that any amendment to the bylaws fails to comply with Colombian law, it may demand that the relevant provisions be modified accordingly. Under these circumstances, Bancolombia will be obligated to comply in a timely manner.
Preferred Shares
The holders of preferred shares are not entitled to receive notice of, attend to or vote at any general shareholders’ meeting except as described below.
The holders of preferred shares will be entitled to vote on the basis of one vote per share at any shareholders’ meeting, whenever a shareholder’s vote is required on the following matters, in addition to those indicated above: (i) when voting the anticipated dissolution, merger or transformation of the corporation or change of its corporate purpose. (ii) when the preferred dividend has not been fully paid during two consecutive annual terms. In this event, holders of such shares shall retain their voting rights until the corresponding dividends have been fully paid to them. (iii) if at the end of a fiscal period, the Bank’s profits are not enough to pay the minimum dividend and the Superintendency of Finance, by its own decision or upon petition of holders of at least ten percent (10%) of preferred shares, determines that benefits were concealed or shareholders were misled with regard to benefits received from the Bank by the Bank’s directors or officers decreasing the profits to be distributed, the Superintendency of Finance may resolve that holders of preferred shares should participate with speaking and voting rights at the general shareholders’ meeting, in the terms established by law. (iv) when the registration of shares at the Colombian Securities Exchange or at the Superintendency of Finance, is suspended or canceled. In this event, voting rights shall be maintained until the irregularities that resulted in such cancellation or suspension are resolved. (v) when voting amendments that could impair the preferred shares’ rights, or the conversion of the preferred shares to common shares, a favorable vote of a minimum of seventy percent (70%) of the subscribe capital stock, including the favorable vote of a minimum of seventy percent (70%) of the preferred shares, is required.
Bancolombia must cause a notice of any meeting at which holders of preferred shares are entitled to vote to be mailed to each record holder of preferred shares. Each notice must include a statement stating: (i) the date of the meeting; (ii) a description of any resolution to be proposed for adoption at the meeting on which the holders of preferred shares are entitled to vote; and (iii) instructions for the delivery of proxies.
130
Dividends Common Shares
Once the unconsolidated Financial Statements are approved by the general shareholders meeting, the appropriation for the payment of taxes of the corresponding taxable year has been made, and the transfers to the reserves have been performed, then they can determine the allocation of distributable profits, if any, of the preceding year.
Under the Colombian Commercial Code, a company must distribute at least 50% of its annual net profits to all shareholders, payable in cash, or as determined by the shareholders, within a period of one year following the date on which the shareholders determine the dividends. If the total amount segregated in all reserves of a company exceeds its outstanding capital, this percentage is increased to 70%. The minimum common stock dividend requirement of 50% or 70%, as the case may be, may be waived by a favorable vote of the holders of 78% of a company’s common stock present at the meeting.
Under Colombian law and Bancolombia’s bylaws annual net profits are to be applied as follows: (i) first, an amount equivalent to 10% of net profits is segregated to build a legal reserve until that reserve is equal to at least 50% of Bancolombia’s paid-in capital; (ii) second, payment of the minimum dividend on the preferred shares; and (iii) third, allocation of the net profits is determined by the holders of a majority of the common shares entitled to vote on the recommendation of the board of directors and the President and may, subject to further reserves required by the by-laws, be distributed as dividends. Under the Bank’s bylaws, the dividends payable to the holders of common shares cannot exceed the dividends payable to holders of the preferred shares. Bancolombia’s bylaws requires the Bank to maintain a reserve fund equal to 50% of paid-in capital. All common shares that are fully paid in and outstanding at the time a dividend or other distribution is declared are entitled to share equally in that dividend or other distribution. Common shares that are only partially-paid participate in a dividend or distribution in the same proportion as the shares that have been fully paid in at the time of the dividend or distribution.
The general shareholders’ meeting may allocate a portion of the profits to welfare, education or civic services, or to support economic organizations of the Bank’s employees.
Preferred Shares
Holders of preferred shares are entitled to receive dividends based on the net profits of the preceding fiscal year, after deducting losses affecting the capital and once the amount that shall be legally set apart for the legal reserve has been deducted, but before creating or accruing for any other reserve, of a non-cumulative minimum preferred dividend equal to one percent (1%) yearly of the subscription price of the preferred share, provided this dividend is higher than the dividend assigned to common shares. If this is not the case, the dividend shall be increased to an amount that is equal to the per share dividend on the common shares. The dividend received by holders of common shares may not be higher than the dividend assigned to preferred shares.
Payment of the preferred dividend shall be made at the time and in the manner established in the general shareholders’ meeting and with the priority indicated by Colombian law.
In the event that the holders of preferred shares have not received the minimum dividend for a period in excess of two consecutive fiscal years, they will acquire certain voting rights. See Item 10. “Aditional Information – B. Memorandum and Articles of Association – Description of Share Rights, Preferences and Restrictions – Voting Rights – Preferred Shares”.
General Considerations Relating to Dividends
In the general shareholders’ meeting, shareholders will determine the effective date, the system and the place for payment of dividends, including payment in installments.
Dividends declared on the common shares and the preferred shares will be payable to the record holders of those shares, as they are recorded on Bancolombia’s stock registry, on the appropriate record dates as determined in the general shareholders’ meeting.
131
Any dividend in shares payable by Bancolombia will be paid in common shares to the holders of common shares and in preferred shares to the holders of preferred shares. Nonetheless, Shareholders at the general shareholders’ meeting may authorize the payment in common shares to all shareholders.
Any dividend in shares requires the approval of 80% or more of the shares present at a shareholders’ meeting, which will include 80% or more of the outstanding preferred shares. In the event that such voting majority is not obtained, shareholders may individually elect to receive a stock dividend or a cash dividend.
Liquidation Rights
Bancolombia will be dissolved if certain events take place, including the following: (i) its term of existence, as stated in the by-laws, expires without being extended by the shareholders prior to its expiration date; (ii) when, according to the financial statements, there is no realistic alternative to liquidating the entity or ceasing operations, (iii) by decision at the general shareholders’ meeting; and (iv) in certain other events expressly provided by law and in the by-laws.
Upon dissolution, a liquidator must be appointed by the general shareholders’ meeting to wind up its affairs. In addition, the Superintendency of Finance has the power to take over the operations and assets of a bank and proceed to its liquidation under certain circumstances and in the manner prescribed in the “Estatuto Orgánico del Sistema Financiero”, Decree 663 of 1993. For more information see Item 4. “Information on the Company – B. Business Overview – B.8. Supervision and Regulation – Bankruptcy Considerations”.
Preemptive Rights and Other Anti-Dilution Provisions
Under the Bank’s bylaws, the holders of common shares determine in their meeting the amount of authorized capital stock, and the board of directors has the power to (a) order the issuance and regulate the terms of subscription of common shares up to the total amount of authorized capital stock and (b) regulate the issuance of shares with rights to a preferential dividend but without the right to vote, when expressly delegated at the general shareholders’ meeting. The issuance of preferred shares must always be first approved at the general shareholders’ meeting, which shall determine the nature and extent of any privileges, according to the bylaws and Colombian law.
The Bank’s bylaws 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 the right to purchase a number of shares of such class sufficient to maintain their existing percentage ownership of the aggregate capital stock of the Bank. These rights are called preemptive rights. See Item 3. “Key Information – D. Risk Factors – Preemptive rights may not be available to holders of American Depositary Receipts (“ADRs”) evidencing ADSs”.
Shareholders at a general meeting of shareholders may suspend preemptive rights with respect to a particular capital increase by a favorable vote of at least 70% of the shares represented at the meeting. Preemptive rights must be exercised within the period stated in the share placement terms of the increase, which cannot be shorter than 15 business days following the publication of the notice of the public offer of that capital increase. From the date of the notice of the share placement terms, preemptive rights may be transferred separately from the corresponding shares.
The Superintendency of Finance will authorize decreases in the outstanding capital stock decided by the holders of common shares only if: (i) Bancolombia has no liabilities; (ii) Bancolombia’s creditors consent in writing; or (iii) the outstanding capital stock remaining after the reduction represents at least twice the amount of Bancolombia’s liabilities.
Limits on Purchases and Sales of Capital Stock by Related Parties
Pursuant to the Colombian Commerce Code, the members of the Bank’s board of directors and certain of the Bank’s principal executive officers may not, directly or indirectly, buy or sell shares of the Bank’s capital stock while they hold their positions, except when dealing with nonspeculative operations and in that case they need to obtain the prior authorization of the board of directors passed with the vote of two-thirds of its members (excluding, in the case of transactions by a director, such director’s vote) or when deemed relevant by the Board of Directors of the Bank with the authorization of the Shareholders Meeting the affirmative vote of the ordinary majority foreseen in the bylaws, excluding
132
the vote of the petitioner.
No Redemption
Colombian law prohibits Bancolombia from repurchasing shares of its capital stock, including the preferred shares.
Limitations on the Rights to Hold Securities
There are no limitations in the Bank’s by-laws or Colombian law on the rights of Colombian residents or foreign investors to own the shares of the Bank, or on the right to hold or exercise voting rights with respect to those shares.
Restrictions on Change of Control Mergers, Acquisitions or Corporate Restructuring of the Company
Under Colombian law and the Bank’s bylaws, the general shareholders’ meeting has full and exclusive authority to approve any corporate restructuring including, mergers, acquisitions or spin-offs upon authorization by the Colombian Superintendency of Finance.
Ownership Threshold Requiring Public Disclosure
We must disclose to the Superintendency of Finance at the end of each fiscal quarter the names of the shareholders of the Bank, indicating at least, the twenty-five shareholders with the highest number of shares.
Colombian securities regulations set forth the obligation to disclose any material event or relevant fact. Any transfer of shares equal to or greater than 5% of the Bank’s capital stock or any person acquiring a percentage of shares that would make him the beneficial owner of 5% or more of the Bank’s capital stock, is a material event, and therefore, must be disclosed to the Superintendency of Finance.
Changes in the Capital of the Company
There are no conditions in the Bank’s by-laws governing changes in the Bank’s capital stock that are more stringent than those required under Colombian law.
C. MATERIAL CONTRACTS
Bancolombia has not entered into any contract, other than those entered in the ordinary course of business or that are not considered to be material, to which it or any of its subsidiaries is a party, for the two years immediately preceding the date of this Annual Report.
D. EXCHANGE CONTROLS
The Colombian Foreign Exchange Regime allows Colombian residents to acquire in the exchange market the currencies required to carry out their operations. For such purpose, the Colombian Foreign Exchange establishes certain procedures that must be followed in order to carry out foreign exchange operations, which are known as “channeling of currencies”, through the exchange market. This channeling must be carried out through an Intermediary of the Exchange Market (such as commercial Banks in Colombia), or through compensation accounts (bank accounts abroad opened by Colombian Residents registered before the Central Bank). Therefore, there are no limitations regarding the import or export of capital, including the availability of cash and cash equivalents for use by the Group. Nevertheless, these operations must be carried out following the applicable procedures.
The Foreign Exchange Statute, Law 9 of 1991, outlines the Colombian foreign exchange regime which relates to matters such as imports and exports of goods, foreign indebtedness, and guarantees in foreign currencies, among others. Additionally, Decree 1068 of 2015 and Decree 119 of 2017, as amended, sets forth an International Investments Regime which provides for rules applicable to foreign residents who invest in the Colombian securities markets and undertake other types of investments, prescribes registration before the Central Bank of certain foreign exchange transactions, and
133
specifies procedures pursuant to which certain types of foreign investments are to be authorized and administered. Both, the Foreign Exchange Statute and the International Investments Regime are regulated by External Resolution No. 1 of 2018 and External Regulating Circular DCIP-83, both as amended, of the Board of Directors of the Central Bank.
Under Colombian law and the Bank’s bylaws, foreign investors receive the same treatment as Colombian citizens with respect to ownership and the voting rights of ADSs and preferred shares, as well as the remittance abroad of dividends, or any other type of proceedings derived from any type of securities investments duly registered before the Colombian Central Bank. For a detailed discussion of ownership restrictions see Item 4. “Information on the Company - B. Business Overview – B.8. Supervision and Regulation – Ownership and Management Restrictions”.
E. TAXATION
Colombian Taxation
ADRs do not have the same tax treatment as other equity investments in Colombia.
Although ADRs represent Bancolombia’s preferred shares, they are held through a foreign capital fund in Colombia, subject to a specific tax regulatory regime. Accordingly, the applicable law in Colombia to equity investments, particularly those relating to dividends and profits from sales, are not applicable to ADRs, including the Bank’s ADRs.
Under Section 18-1 of the Colombian Tax Code, modified by Law 2010 of 2019, dividends were subject to a dividend tax, as follows:
Foreign Portfolio investment
To determine the income tax concerning the profits earned from the foreign portfolio investments, regardless of the method or vehicle used to invest by the investor, the following rules shall apply:
| i. | Dividends subject to CIT at the corporate level are taxed at 10%. |
| ii. | Dividends that did not pay CIT at the corporate level are subject to the equalization tax at 25% upon distribution, plus a 20% dividend tax on top of it. |
| iii. | The tax is to by collected via withholding tax on the accrual or cash basis. |
Tax residence for Individuals
For Colombian tax purposes, an individual is considered a tax resident if the individual meets any of the following requirements:
| - | He or she remains in Colombia (continuously or not) for an aggregate period of 183 calendar days or more, including entry and departure days from the country, within a period of 365 consecutive calendar days. If that requirement is met by considering the days spent in Colombia over two successive fiscal years, the individual would be viewed as a tax resident as of the second fiscal year |
| - | Individuals who work for the Colombian Foreign Services in other countries under the Vienna Conventions on Diplomatic and Consular Relations and their income and capital gains are exempt from taxation in the country they serve. |
If the individual is a Colombian citizen and falls within any of the following scenarios:
| a) | The spouse or dependents are tax residents in Colombia |
| b) | 50% or more of their income is a Colombian-sourced income. |
134
| c) | 50% or more of their assets are managed in Colombia. |
| d) | 50% or more of their assets are physically located in Colombia. |
| e) | If the Colombian Tax Office (DIAN) requests evidence of the fiscal residency status in another country and the individual does not provide it. |
| f) | The individual has a fiscal residence in a non-cooperative jurisdiction, a place of null or minimum taxation, or a preferential tax regime jurisdiction (Tax havens). |
Colombian citizens are not considered tax residents for any of the scenarios above if:
| a) | 50% or more of their annual income has been sourced where they are domiciled; or |
| b) | 50% or more of their assets are located in the jurisdiction where they are domiciled. |
Entities
Corporate residence is determined by the place of incorporation of any given company. Companies incorporated in Colombia under Colombian Laws qualify as National Companies and are taxed on their worldwide income. For Colombian tax purposes, a non-resident entity that is effectively managed in Colombia would be considered as a Colombian entity (effective place of management).
Preferred shares
Preferred shares will have the same treatment as financial liabilities for the issuer's tax purposes. The treatment will be the same as financial assets for the holder. This treatment will not apply to listed shares that do not comply with the rest of the requirements established by Section 33-3 of the Colombian Tax Code.
Other Tax Considerations
As of the date of this report, there is not a Double Taxation Treaty between Colombia and the United States.
United States Federal Income Taxation Considerations
This section describes the material United States federal income tax consequences generally applicable to a U.S. holder (as defined below) of owning preferred shares or ADSs. It applies to you only if you hold your preferred shares or ADSs as capital assets for United States federal income tax purposes. This discussion addresses only United States federal income taxation and does not discuss all of the tax consequences that may be relevant to you in light of your individual circumstances, including foreign, state or local tax consequences, estate and gift tax consequences, and tax consequences arising under the Medicare contribution tax on net investment income or the alternative minimum tax. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
| ● | A dealer in securities, |
| ● | A bank, |
| ● | A trader in securities that elects to use a mark-to-market method of accounting for securities holdings, |
| ● | A tax-exempt organization, |
| ● | A life insurance company, |
| ● | A person that actually or constructively owns 10.00% or more of the combined voting power of the Bank’s voting stock or of the total value of the Bank’s stock, |
| ● | A person that holds preferred shares or ADSs as part of a straddle or a hedging or conversion transaction for United States federal income tax purposes, |
135
| ● | A person that purchases or sells preferred shares or ADSs as part of a wash sale for United States federal income tax purposes, or |
| ● | A person whose functional currency is not the U.S. dollar. |
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions. These laws are subject to change, possibly on a retroactive basis. There is currently no comprehensive income tax treaty between the United States and Colombia. In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.
If an entity or arrangement that is treated as a partnership for United States federal income tax purposes holds the preferred shares or ADSs, the United States federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the preferred shares or ADSs should consult its tax advisor with regard to the United States federal income tax treatment of an investment in the preferred shares or ADSs.
You are a U.S. holder if you are a beneficial owner of preferred shares or ADSs and you are:
| ● | A citizen or resident of the United States, |
| ● | A domestic corporation (or an entity treated as a domestic corporation), |
| ● | An estate whose income is subject to United States federal income tax regardless of its source, or |
| ● | a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust. |
In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the preferred shares represented by those ADRs. Exchanges of preferred shares for ADRs, and ADRs for preferred shares generally will not be subject to United States federal income tax.
The tax treatment of your preferred shares or ADSs will depend in part on whether or not we are classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes. Except as discussed below under “PFIC Rules”, this discussion assumes that we are not classified as a PFIC for United States federal income tax purposes.
You should consult your own tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of preferred shares or ADSs in your particular circumstances.
Taxation of Distributions
Under the United States federal income tax laws, the gross amount of any dividend we pay out of the Bank’s current or accumulated earnings and profits (as determined for United States federal income tax purposes), other than certain pro-rata distribution of the Bank’s preferred shares, including the amount of any Colombian tax withheld, will be treated as a dividend that is subject to United States federal income taxation. If you are a non-corporate U.S. holder, dividends paid to you that constitute qualified dividend income will be taxable to you at preferential rates applicable to long-term capital gains provided that you hold the preferred shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date (or, if the dividend is attributable to a period or periods aggregating over 366 days, provided that you hold the preferred shares or ADSs for more than 90 days during the 181-day period beginning 90 days before the ex-dividend date) and meet other holding period requirements. Dividends we pay with respect to the ADSs generally will be qualified dividend income provided that, in the year that you receive the dividend, the ADSs are readily tradable on an established securities market in the United States. The Bank believes that its ADSs, which are listed on the NYSE, are readily tradable on an established securities market in the United States; however, there can be no assurance
136
that the Bank’s ADSs will continue to be readily tradable on an established securities market. Because the preferred shares are not listed on any United States securities market, it is unclear whether dividends we pay with respect to the preferred shares will also be qualified dividend income. If dividends we pay with respect to the Bank’s preferred shares are not qualified dividend income, then the U.S. dollar amount of such dividends received by a U.S. holder (including dividends received by a non-corporate U.S. holder) will be subject to taxation at ordinary income tax rates.
You must include any Colombian tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of preferred shares, or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income will be the U.S. dollar value of the Colombian Peso payments made, determined at the spot Colombian Peso / U.S. dollar rate on the date the dividend is distributed, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is distributed to the date you (or the Depositary on your behalf) convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the preferred shares or ADSs and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, you should expect to generally treat distributions with respect to preferred shares or ADSs as dividends.
Subject to certain limitations, the Colombian tax withheld and paid over to Colombia will be creditable or deductible against your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to preferential rates. To the extent a refund of the tax withheld is available to you under Colombian law, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. The rules governing foreign tax credits are complex, and U.S. holders should consult their tax advisors regarding the creditability of foreign taxes in their particular circumstances.
For foreign tax credit purposes, dividends will generally be income from sources outside the United States and will generally be “passive” income for purposes of computing the foreign tax credit allowable to you.
The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
Taxation of Capital Gains
If you sell or otherwise dispose of your preferred shares or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your preferred shares or ADSs. Capital gain of a non-corporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The deductibility of capital losses is subject to limitations. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.
PFIC Rules
We believe that we are not currently classified as a PFIC for United States federal income tax purposes, and we do not expect to become a PFIC in the foreseeable future. However, this conclusion is a factual determination that is made annually and thus may be subject to change. In addition, our current position that we do not expect to be a PFIC is based on our position that we qualify for a special rule that treats income recognized by a bank in the active conduct of a banking business as active income for PFIC purposes (the “active bank exception”). It is possible, however, that we may not satisfy the requirements of the active bank exception in the current or a future taxable year, or that the U.S. Internal Revenue Service may issue guidance in the future under which we would not satisfy the requirements of the active bank exception. In such a case, our interest income would be treated as passive income for PFIC purposes and we would therefore be
137
treated as a PFIC. Accordingly, it is possible that we could become a PFIC in the current taxable year or in a future taxable year.
In general, we will be a PFIC in a taxable year if:
| ● | at least 75% of our gross income for the taxable year is passive income or |
| ● | at least 50% of the value, determined on the basis of a quarterly average, of our assets in such taxable year is attributable to assets that produce or are held for the production of passive income. |
“Passive income” generally includes dividends, interest, gains from the sale or exchange of investment property rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business) and certain other specified categories of income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation's income.
If we are treated as a PFIC, you will generally be subject to special rules with respect to:
| ● | any gain you realize on the sale or other disposition of your preferred shares or ADSs and |
| ● | any excess distribution that we make to you (generally, any distributions to you during a single taxable year, other than the taxable year in which your holding period in the preferred shares or ADSs begins, that are greater than 125% of the average annual distributions received by you in respect of the preferred shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the preferred shares or ADSs that preceded the taxable year in which you receive the distribution). |
Under these rules:
| ● | the gain or excess distribution will be allocated ratably over your holding period for the preferred shares or ADSs, |
| ● | the amount allocated to the taxable year in which you realized the gain or excess distribution or to prior years before the first year in which we were a PFIC with respect to you will be taxed as ordinary income, |
| ● | the amount allocated to each other prior year will be taxed at the highest tax rate in effect for that year, and |
| ● | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year. |
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.
Unless you make certain elections, your preferred shares or ADSs will generally be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your preferred shares or ADSs, even if we are not currently a PFIC.
In addition, notwithstanding any election you make with regard to the preferred shares or ADSs, dividends that you receive from us will not constitute qualified dividend income to you if we are a PFIC (or are treated as a PFIC with respect to you) either in the taxable year of the distribution or the preceding taxable year. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the preferential rates applicable to qualified dividend income. Instead, you must include the gross amount of any such dividend paid by us out of our accumulated earnings and profits (as determined for United States federal income tax purposes) in your gross income, and it will be subject to tax at rates applicable to ordinary income.
If you own preferred shares or ADSs during any year that we are a PFIC with respect to you, you may be required to file IRS Form 8621.
138
Information with Respect to Foreign Financial Assets
Owners of “specified foreign financial assets” with an aggregate value in excess of USD 50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” may include financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-United States persons (including the preferred shares and ADSs), (ii) financial instruments and contracts that have non-United States issuers or counterparties, and (iii) interests in foreign entities. You are urged to consult your tax advisors regarding the application of this reporting requirement to your ownership of the preferred shares or ADSs.
FATCA Withholding
Under FATCA, a 30% withholding tax will be imposed on certain payments to certain non-U.S. financial institutions that fail to comply with information reporting requirements or certification requirements in respect of their direct and indirect United States shareholders and/or United States accountholders. To avoid becoming subject to the 30% withholding tax on payments to them, we and other non-U.S. financial institutions may be required to report information to the IRS regarding the holders of preferred shares or ADSs and to withhold on a portion of payments under the preferred shares or ADSs to certain holders that fail to comply with the relevant information reporting requirements (or hold preferred shares or ADSs directly or indirectly through certain non-compliant intermediaries). However, under proposed Treasury regulations, such withholding will not apply to payments made before the date that is two years after the date on which final regulations defining the term “foreign passthru payment” are enacted. The rules for the implementation of this legislation have not yet been fully finalized, so it is impossible to determine at this time what impact, if any, this legislation will have on holders of the preferred shares and ADSs.
FATCA is particularly complex and its application is uncertain at this time. The above description is based in part on regulations, the intergovernmental agreement between the United States and Colombia and official guidance, which are subject to change, and the provisions described above may be implemented in a materially different form. Holders of preferred shares or ADSs should consult their own tax advisors regarding how these rules may apply to their investment in the preferred shares or ADSs.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
Bancolombia files reports and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may view the Bank’s SEC filings on 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 to which Bancolombia is exposed and the tools and methodology used to measure these risks as of December 31, 2023. Bancolombia faces market risk as a consequence of its lending, trading and
139
investments businesses. Market risk represents the potential loss due to adverse changes in market prices of financial instruments as a result of movements in interest rates, foreign exchange rates, equity prices and other risk factors, such as sovereign risk.
Bancolombia’s risk management strategy, called the Integrated Risk Management Strategy, is based on principles set by international bodies and by Colombian regulations, and is guided by Bancolombia’s corporate strategy. The main objective of the Integrated Risk Management Strategy is to identify measure, coordinate, monitor, report and propose policies for market and liquidity risks of the Bank, which in turn serve to facilitate the efficient administration of Bancolombia’s assets and liabilities. Bancolombia’s board of directors and senior management have formalized the policies, procedures, strategies and rules of action for market risk administration in its “Market Risk Manual”. This manual defines the roles and responsibilities within each subdivision of the Bank and their interaction to ensure adequate market risk administration.
The Bank’s Market Risks Management Office is responsible for: (a) identifying, measuring, monitoring, analyzing and controlling the market risk inherent in the Bank’s businesses, (b) analyzing the Bank’s exposure under stress scenarios and confirming compliance with Bancolombia’s risk management policies, (c) analyzing the methodologies design by the official price vendor for valuation of the market value securities and financial instruments, (d) reporting to senior management and the board of directors any violation of Bancolombia’s risk management policies, (e) reporting to the senior management on a daily basis the levels of market risk associated with the trading instruments recorded in its treasury book (the “Treasury Book”), and (f) proposing policies to the board of directors and to senior management that ensure the maintenance of predetermined risk levels. The Bank has also implemented an approval process for new products across each of its subdivisions. This process is designed to ensure that every subdivision is prepared to incorporate the new product into their procedures, that every risk is considered before the product is incorporated and that approval is obtained from the board of directors before the new product can be sold.
The Bank’s assets include both trading and non-trading instruments. Trading instruments are recorded in the Treasury Book and include fixed income securities, foreign exchange (FX) and bond futures, and over-the-counter plain vanilla and exotic derivatives. Trading in derivatives includes forward contracts on foreign currency operations, forward contracts on fixed income securities, plain vanilla options on foreign currency, Asian options on U.S. dollar/COP, cross currency swaps and interest rate swaps. Non-trading instruments are recorded in the Bank’s banking book (the “Banking Book”), which includes primarily loans, time deposits, checking accounts and savings accounts.
The Bank uses a value at risk (“VaR”) calculation to limit its exposure to the market risk of its Treasury Book. The board of directors is responsible for establishing the maximum VaR based on its assessment of the appropriate level of risk for Bancolombia. The Propietary Trading Risks Committee is responsible for establishing the maximum VaR by type of investment. These limits are supervised daily by the Market Risk Management Office.
The Bank is exposed to foreign currency exchange rate risk as a result of mismatches between assets and liabilities and off-balance sheet items denominated in different currencies, either as a result of trading or in the normal course of business. Our principal foreign currency exposure is the U.S. dollar, which is managed by Treasury Division and monitored by measuring positions, VaR and daily results.
For managing the interest rate risk from banking activities, the Bank analyzes the interest rate mismatches between its interest earning assets and its interest-bearing liabilities, and the impact of interest rate shocks on the change of economic value of equity and net interest income. In addition, the foreign currency exchange rate exposures arising from the Banking Book are provided to the Treasury Division where these positions are aggregated and managed.
Trading Instruments Market Risk Measurement
The Bank currently measures the Treasury Book exposure to market risk (including over-the-counter derivatives positions) as well as the currency risk exposure of the Banking Book, which is provided to the Treasury Division, using a VaR methodology established in accordance with “Chapter XXXI of the Basic Accounting Circular”, issued by the SFC.
The VaR methodology established by “Chapter XXXI of the Basic Accounting Circular” is based on the model recommended by the Amendment to the Capital Accord to Incorporate Market Risks of Basel Committee of 2005, which
140
focuses on the Treasury Book and excludes investments measured under amortized cost which are not being given as collateral and any other investment that comprises the Banking Book, such as non-trading positions excluding the currency risk position stemming from investment in affiliated but not consolidated entities denominated in foreign currencies. In addition, the methodology aggregates all risks by the use of correlations, through an allocation system based on defined zones and bands, affected by given sensitivity factors.
The total market risk for the Bank is calculated by the arithmetical aggregation of the VaR calculated for each subsidiary. The aggregated VaR is reflected in the Bank’s Capital Adequacy (Solvency) ratio, in accordance with Decree 2555 of 2010.
For purposes of VaR calculations, a risk exposure category is any market variable that is able to cause potential changes in the portfolio value. Taking into account a given risk exposure, the VaR model assesses the maximum loss not exceeded at a specified confidence level over a given period of time. The fluctuations in the portfolio’s VaR depend on volatility, modified duration and positions changes relating to the different instruments that are subject to market risk.
The relevant risk exposure categories for which VaR is computed by Bancolombia according to the “Chapter XXXI, appendix VI of the Basic Accounting Circular” are: (i) interest rate risks relating to local currency, foreign currency and UVR; (ii) currency risk; (iii) stock price risk; (iv) fund risk and (v) credit default swaps.
Interest Rate Risk (Treasury Book)
The interest rate risk is the probability of decrease in the market value of the position due to fluctuations in market interest rates. Bancolombia calculates the interest rate risk for positions in local currency, foreign currency and UVR separately, in accordance with Chapter XXXI of the Basic Accounting Circular issued by the Superintendency of Finance. The calculation of the interest rate risk begins with determining the net position in each instrument and estimating its sensitivity, which is calculated by multiplying its net present value (“NPV”) by its “modified duration” and by the interest rate’s estimated fluctuation (as defined by the Superintendency of Finance). The interest rate’s fluctuations are established by the Financial Superintendence of Colombia according to historical market performance, as shown in the following table:
Figure 1. Interest Risk – Sensitivity by Bands and Zones
Modified Duration | Interest rate fluctuations (basis points) | |||||||||||
Zone | Band | Low | High | Pesos | UVR | USD | ||||||
Zone 1 | 1 | 0 | 0.08 | 274 | 274 | 100 | ||||||
2 | 0.08 | 0.25 | 268 | 274 | 100 | |||||||
3 | 0.25 | 0.5 | 259 | 274 | 100 | |||||||
4 | 0.5 | 1 | 233 | 274 | 100 | |||||||
Zone 2 | 5 | 1 | 1.9 | 222 | 250 | 90 | ||||||
6 | 1.9 | 2.8 | 222 | 250 | 80 | |||||||
7 | 2.8 | 3.6 | 211 | 220 | 75 | |||||||
Zone 3 | 8 | 3.6 | 4.3 | 211 | 220 | 75 | ||||||
9 | 4.3 | 5.7 | 172 | 200 | 70 | |||||||
10 | 5.7 | 7.3 | 162 | 170 | 65 | |||||||
11 | 7.3 | 9.3 | 162 | 170 | 60 | |||||||
12 | 9.3 | 10.6 | 162 | 170 | 60 | |||||||
13 | 10.6 | 12 | 162 | 170 | 60 | |||||||
14 | 12 | 20 | 162 | 170 | 60 | |||||||
15 | 20 | - | 162 | 170 | 60 | |||||||
Once the sensitivity factor is calculated for each position, the modified duration is then used to classify each position within its corresponding band. A net sensitivity is then calculated for each band, by determining the difference between the sum of all long-positions and the sum of all short-positions. Then a net position is calculated for each zone (which consists of a series of bands) determined by the Superintendency of Finance. The final step is to make adjustments within each band, across bands and within each zone, which results in a final number that is the interest rate risk VaR by currency. Each adjustment is performed following the guidelines established by the Superintendency of Finance.
141
The Bank’s exposure to interest risk primarily arises from investments in Colombian government’s treasury bonds (TES) and other securities issued by the Colombian government.
The interest rate risk VaR increased from COP 340 billion on December 31, 2022, to COP 405 billion on December 31, 2023, due to an increase in the position in Colombian government’s treasury bonds (TES). During the year 2023, the average interest rate risk VaR was COP 418 billion, the maximum COP 542 billion and the minimum COP 384 billion.
Currency (Treasury and Banking Book), Equity (Treasury Book) and Fund Risk (Treasury Book)
The VaR model uses a sensitivity factor to calculate the probability of loss due to fluctuations in the price of stocks, funds and currencies in which the Bank maintains a position. As previously indicated, the methodology used in this Annual Report to measure such risk consists of computing VaR, which is derived by multiplying the position by the maximum probable variation in the price of such positions (“p”). The p is determined by the Superintendency of Finance, as shown in the following table:
Figure 2. Sensitivity Factor for Currency Risks, Equity Risks and Fund Risks
Currency | Sensitivity Factor | ||
USD | 12.49 | % | |
Euro | 11.00 | % | |
Other currencies | 13.02 | % | |
Equity and Fund Risk | 14.70 | % | |
The currency risk VaR increased from COP 78 billion as of December 31, 2022 to COP 333 billion as of December 31, 2023 due to the increase in the position in United States Dollars in Bancolombia’ s portfolio. Between December 31, 2022 and December 31, 2023, the average currency risk VaR was COP 186 billion, the maximum COP 374 billion and the minimum COP 51 billion. Current currency risk primary arises from the USD exposure of Bancolombia in foreign exchange derivatives.
The equity risk VaR increased from COP 85 billion as of December 31, 2022 to COP 342 billion as of December 31, 2023 driven primarily by the market risk factor reassign of the fund Colombia Inmobiliario investments. Between December 31, 2022 and December 31, 2023, the average equity VaR was COP 332 billion, the maximum COP 348 billion and the minimum COP 312 billion.
The fund risk, which arises from investment in mutual funds, decreased from COP 388 billion as of December 31, 2022 to COP 16 billion as of December 31, 2023 driven primarily by the market risk factor reassign of the fund Colombia Inmobiliario investments. Between December 31, 2022 and December 31, 2023, the average fund risk VaR was COP 23 billion, the maximum COP 28 billion and the minimum COP 16 billion.
Total Market Risk VaR
The total market risk VaR is calculated as the algebraic sum of the interest rate risk, the currency risk, the stock price risk, fund risk and the credit default swaps risk which are calculated as the algebraic sum of Bancolombia and each of its subsidiaries’ exposure to these risks. Currently, Bancolombia does not present exposure to credit default swaps risk.
The total market risk VaR, increased 22.9%, going from COP 892 billion in December 31, 2022 to COP 1,096 billion as of December 31, 2023, and due mainly to increase in the currency and equity risks mentioned above.
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, VaR models should not be viewed as predictive of future results. The Bank may incur in losses that could be materially in excess of the
142
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 the Bank’s VaR models. A VaR model does not calculate the greatest possible loss. The results of these models and analysis thereof are subject to the reasonable judgment of the Bank’s risk management personnel.
The chart below provides information about Bancolombia’s consolidated VaR for trading instruments at the end of December 2022 and December 2023.
| As of December 31, | |||
| 2023 | 2022 | ||
| In millions of COP | |||
Interest Rate Risk VaR | 405,467 | 340,107 | ||
Currency Risk VaR | 332,662 | 78,165 | ||
Equity Risk VaR | 342,024 | 85,345 | ||
Fund Risk VaR | 15,847 | 387,952 | ||
Total VaR | 1,096,000 | 891,569 | ||
Between December 31, 2022 and December 31, 2023, the average Total VaR was COP 960 billion, the maximum value COP 1,205 billion, and the minimum value COP 815 billion.
Non-Trading Instruments Market Risk Measurement
The Banking Book’s relevant risk exposure is interest rate risk, which is the probability of unexpected changes in net interest income as a result of a change in market interest rates. Changes in interest rates affect Bancolombia’s earnings as a result of timing differences on the repricing of the assets and liabilities. The Bank manages the interest rate risk arising from banking activities in non-trading instruments by analyzing the interest rate mismatches between its interest earning assets and its interest-bearing liabilities. The foreign currency exchange rate exposures arising from the Banking Book are provided to the Treasury Division where these positions are aggregated and managed.
Interest Risk Exposure (Banking Book)
The Bank has performed a sensitivity analysis of market risk sensitive instruments estimating the impact on the net interest income of each position in the Banking Book, using a repricing model and assuming positive parallel shifts of 100 basis points (bps).
The table 1 provides information about Bancolombia’s interest rate sensitivity for the statement of financial position items comprising the Banking Book:
Table 1. Sensitivity to Interest Rate Risk of the Banking Book
The chart below provides information about Bancolombia’s interest rate risk sensitivity in local currency (COP) at December 31, 2023 and December 31, 2022:
Interest Rate Risk | ||||
| As of December 31, | |||
| 2023 | 2022 | ||
| In millions of COP | |||
Assets sensitivity 100 bps | 1,152,782 | 1,060,949 | ||
Liabilities sensitivity 100 bps | 595,749 | 545,911 | ||
Net interest income sensitivity 100 bps | 557,033 | 515,038 | ||
The chart below provides information about Bancolombia’s interest rate risk sensitivity in local currency (COP) at December 31, 2023 and December 31, 2022:
143
Interest Rate Risk | ||||
As of December 31, | ||||
2023 | 2022 | |||
In thousands of USD | ||||
Assets sensitivity 100 bps | 75,052 | 84,883 | ||
Liabilities sensitivity 100 bps | 74,800 | 71,737 | ||
Net interest income sensitivity 100 bps | 252 | 13,146 | ||
A positive net sensitivity denotes a higher sensitivity of assets than of liabilities and implies that a rise in interest rates will positively affect the Bank´s net interest income. A negative sensitivity denotes a higher sensitivity of liabilities than of assets and implies that a rise in interest rates will negatively affect the Bank´s net interest income. In the event of a decrease in interest rates, the impacts on net interest income would be opposite to those described above.
Total Exposure
Net interest income sensitivity in local currency for the banking book instruments, entered for other than trading purposes with positive parallel shifts of 100 basis points was COP 557,033. The variation in the sensitivity of the net interest margin between December 2022 and December 2023 is a result of the increase in the floating loans partially offset by the increase in the fixed rate time deposits.
On the other hand, the sensitivity to the net interest margin in foreign currency, assuming parallel shifts of 100 basis points, presented a decrease between December 2023 and December 31, 2022, as a result of the reduction in fixed rate loans and the increase in fixed rate time deposits.
Assumptions and Limitations
Net interest income sensitivity analysis is based on the repricing model and is based on the following key assumptions: (a) does not consider prepayments, new operations, defaults, etc., (b) the fixed rate instruments sensitivity, includes the amounts with maturity lower than one year and assumes these will be disbursed at market interest rates and (c) changes in interest rate occur immediately and parallel in the yield curves from assets and liabilities for different maturities.
Structural Equity Risk Exposure (Banking Book)
Bancolombia’s investment banking affiliate, in its role of financial corporation, has, directly and through its affiliated companies, structural equity investments. These positions are maintained mostly in Industrial and financial sectors. The market value of those investments decreased by 27.4% during the year, from COP 57 billion as of December 31, 2022 to COP 41 billion as of December 31, 2023, mainly as a result of the reduction in the market value of the investments in Enka Shares.
The structural equity positions are exposed to market risk. Sensitivity calculations are made for those positions:
| As of December 31, | ||||
| 2023 | 2022 | |||
| In millions of COP | ||||
Market Value | 41,096 | 56,607 | |||
Delta | 14.70 | % | 14.70 | % | |
Sensitivity | 6,041 | 8,321 | |||
A negative impact of 14.7%, applied to the market value, produces a decrease of COP 6 billion in the structural equity investments market value, from COP 41 billion to COP 35 billion.
144
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIE
D. AMERICAN DEPOSITARY SHARES
D.3. FEES AND CHARGES APPLICABLE TO HOLDERS OF AMERICAN DEPOSITARY RECEIPTS
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
The following are the fees charged by the depositary:
Persons depositing or withdrawing shares must pay: | For: |
USD 5.00 per 100 ADSs (or portion of 100 ADSs) | • Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property. • Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates. |
Registration or transfer fees | • Transfer and registration of shares on the Bank’s share register to or from the name of the depositary or its agent when you deposit or withdraw shares. |
Expenses of the depositary | • Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement). • Converting foreign currency to U.S. dollars. |
Taxes and other Governmental charges the depositary or the custodian has to pay on any ADSs or share underlying a ADSs, for example, stock transfer taxes, stamp duty or withholding taxes. | • As necessary. |
Any charges incurred by the depositary or its agents for servicing the deposited securities. | • As necessary. |
D.4.i. FEES INCURRED IN PAST ANNUAL PERIOD
For the period between January 1, 2023, and December 31, 2023, the depositary will reimburse Bancolombia in the first semester of 2024 for an amount of approximately USD 150,000 for expenses related to the administration and maintenance of the ADR facility, investor relations activities, annual listing fees and any other ADR program-related expenses incurred by Bancolombia directly associated with the Bank’s preferred share ADR program. In addition, Fiduciaria Bancolombia, a subsidiary of the Bank, received COP 224 million from The Bank of New York Mellon during the same period in connection with its role as local custodian of the depositary bank.
D.4.ii. FEES TO BE PAID IN THE FUTURE
The Bank of New York Mellon, as depositary, has agreed to reimburse the Bank for expenses incurred that are related to establishment and maintenance expenses of the ADS program. The depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. It has also agreed to reimburse the Company annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the depositary has agreed to provide additional payments to the Company based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the depositary will reimburse the
145
Company, but the amount of reimbursement available to the Company is not necessarily tied to the amount of fees the depositary collects from investors.
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
PART II
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There has not been any default, arrearage or delinquency neither in the payment of principal, interest, a sinking or purchase fund installment, nor in any payment relating to indebtedness or dividends by the Bank or any of its subsidiaries.
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
At the General Shareholders’ Meeting held on March 15, 2024, an amendment to the bylaws was approved, which included, among others:
| ● | Changes to Article 34 (Dispute resolution mechanisms) the arbitration clause was updated to modify the Arbitration and Conciliation Center from the Chamber of Commerce of Bogotá to the Arbitration and Conciliation Center Chamber of Commerce of Medellín, considering that the Bank´s main headquarters are in Medellín. Also, the clause was updated to include within the application of the clause, the holders of political or economic rights of the shares issued by the Bank. |
The new article is as follows:
“Article 34. Dispute resolution mechanisms: Any differences of opinion that may arise between shareholders related to the company’s overall performance, its operations, projects and businesses, shall be discussed and resolved by the General Shareholders' Meeting, subject to the law and these bylaws.
An attempt will be made to resolve individual disputes that may arise between shareholders and the Bank or its directors, or between shareholders, by means of a direct agreement, which shall have a term of thirty (30) business days from the date on which either party enjoins the other in writing, either via e-mail or any other written means.
Any differences that arise between the shareholders and the Bank or between the shareholders and the Bank´s directors, or between the shareholders themselves due to their status as such, during the course of the company’s existence, upon the Bank's dissolution, and during its winding up, which have not been resolved by direct agreement within thirty (30) business days, shall be submitted to the binding decision of an Arbitration Tribunal which will sit at the Arbitration and Conciliation Center of the Chamber of Commerce of Medellin, subject to the following rules:
(i) The tribunal shall be composed of three (3) arbitrators appointed by the parties by mutual agreement within ten (10) business days of a request submitted by either party to the other. If there is no agreement, the Arbitration and Conciliation Center of the Chamber of Commerce of Medellin will appoint them from a slate of ten names the parties submit together within ten business days of the expiration of the aforementioned period, or failing that, will make the appointment subject to the rules of the Chamber of Commerce. For the purposes of this clause, a party will be understood as a person or group of persons that maintain the same claim.
(ii) The rules of the Arbitration and Settlement Center of the Chamber of Commerce of Medellin will apply.
146
(iii) The tribunal will decide according to the law.
PARAGRAPH. This clause also applies to any difference between the shareholders, the Bank or its directors with any person who, by reason of any act or contract enforceable against it, is the holder of any political or economic right deriving from shares issued by the Bank, which arises by reason of the exercise of such rights.”
| ● | Changes to Article 39 (Summons) for shareholders to have more time to analyze the proposals for the election of directors, the term of the summon to the Meeting for the election of the Board of Directors is extended, in line with the times set forth in article 47 of the bylaws. |
The new article is as follows:
“Article 39. Summons. Summons for both ordinary and extraordinary sessions of the General Shareholders’ Meeting shall be issued by means of a notice published in at least one widely circulating newspaper in the Bank’s principal place of business.
For meetings at which year-end balance sheets, increases in authorized capital, reductions in subscribed capital, spin-offs, mergers, or the assignment of assets, liabilities and contracts representing more than twenty-five percent (25%) of their total value are to be examined, or where members are to be elected to the Board of Directors, the summons shall be issued at least fifteen (15) business days prior to the date set for the meeting; in all other cases, five (5) calendar days’ notice will suffice. When calculating these deadlines, neither the day on which the summons is issued nor the day of the meeting will be counted.
The agenda shall be included in the summons.
PARAGRAPH: For meetings at which year-end balance sheets, increases in authorized capital, reductions in subscribed capital, spin-offs, mergers, or the assignment of assets, liabilities and contracts representing more than twenty-five percent (25%) of their total value are to be examined, or where members are to be elected to the Board of Directors, these points will be included in the agenda and in the summons.
For these proposals, the Directors will prepare a report on the reasons for the proposal, which will be made available to shareholders at least fifteen (15) business days before the date set for the meeting.
In the event of spin-offs, mergers and transformations, the notice shall expressly indicate that shareholders may exercise their right of withdrawal.”
| ● | Changes to Article 41 (Extraordinary sessions) is a regulatory update aligned with the provisions of Article 6 of Law 2069 of 2020, which provides that with the request of a plural number of shareholders representing no less than ten percent (10%) of the subscribed shares, a extraordinary meeting can be summoned. |
The new article is as follows:
“Article 41. Extraordinary sessions. Extraordinary meetings shall be held when required by the Bank’s unforeseen or urgent needs, and will be summoned by the Board of Directors, the CEO or the Auditor, either on their own initiative or when applicable regulations do not provide differently regarding the legitimation to request a summon, at the request of a plural number of shareholders representing no less than ten percent (10%) of the subscribed shares.
At the sessions called under this article the Shareholders’ Meeting may not deal with matters other than those indicated on the agenda included with the summons, except by a decision made by the number of shareholders required by law and once the agenda has been exhausted.
The shareholders’ request must be made in writing and clearly indicate the purpose of the summons.
147
PARAGRAPH: The Financial Superintendent may order that the Shareholders’ Meeting be summoned to extraordinary sessions or may summon it directly, in the cases provided for by law.”
| ● | Changes to Article 47 (Elections and voting) have multiple purposes: (i) to clarify the voting rules for exclusionary proposals in order to ensure maximum transparency in the voting exercise; (ii) to include the criteria of independence and disqualifications within the criteria for election of the Board of Directors; (iii) To regulate the terms of the presentation and evaluation of candidates and slates, ensuring sufficient time for all national and international shareholders to examine the information and thus define the direction of their vote; (iv) To clarify the wording. |
The new article is as follows:
“Article 47. Elections and voting. Elections and voting by the General Shareholder’s Meeting will observe the following rules:
1. Votes may be written and private, or oral and public, but not secret.
2. The Assembly may not make appointments by acclamation.
3. If substitute proposals are submitted regarding the items on the agenda, the original proposal of the managers or shareholders presented first in time will be voted on first and then the substitute proposals, in the order in which they were made. When one proposal receives enough votes for its approval, the remaining proposals shall not be put to the vote.
4. Election of the Statutory Auditor and its alternate will require an absolute majority of all shares represented and may be performed simultaneously with the appointment of members of the Board of Directors.
5. When electing members of the Board of Directors, the Shareholders’ Meeting must consider the criteria for selection, independence and disqualifications and incompatibilities provided for by law, these Bylaws, and those contained in the Bank’s Code of Good Governance, which will be shared regarding each candidate prior to voting. The election of a Board member that does not meet selection or independence criteria or is subject to disqualification or incompatibility will surpass the limits of the social contract.
Elections of independent directors shall be held by a separate vote from that of the other Board Members, unless it is ensured that the minimum number of independent members required by law or bylaws will be achieved, or, where only one slate is submitted, that slate includes the minimum number of independent members required by laws of bylaws.
Likewise, when setting the compensation for the directors, the Meeting shall consider the number and capacities of its members, their responsibilities and the time required, in such a way that such compensation adequately provides for the contribution the Bank expects from its directors.
6. To guarantee the right of all shareholders to examine the proposals of the candidates to the Board of Directors received by management in advance of the General Meeting and to comply with the prior review by the Good Governance Committee, shareholders interested in submitting slates for the election of members of the Board of Directors, in compliance with the principles of corporate governance, must submit: (i) candidates to the Board of Directors within five (5) business days of the summons to the session of the General Shareholders' Meeting. The proposal must include a communication signed by the candidates indicating that they meet the criteria of independence and that they are not subject to any disqualifications or incompatibilities; and (ii) slates made up of candidates previously submitted under the former item, at least five (5) business days prior to the date of the General Shareholders' Meeting. Slates that do not comply with the above requirements and terms will not be put to a vote. Candidates and slates must be submitted in writing, through the offices of the CEO or Secretary General or through the Investor Relations Office. The Good Governance Committee shall evaluate the suitability, disqualifications, incompatibilities, and compliance with independence requirements for the candidates submitted by shareholders and publish the results of its evaluation at least six (6) business days prior to the date of the Shareholders' Meeting.
148
7. The electoral quotient system will be applied for the election of members of the Board of Directors or any collegiate committee. This shall be determined by dividing the total number of votes validly cast by the number of persons to be elected. The count will begin with the slate that received the largest number of votes and in descending order. From each slate, as many names as the quotient in the number of votes cast by it will be declared elected, and if there are any places that remain to be filled, these will correspond to the highest residuals, counting them in the same descending order. Blank ballots will only be counted to determine the electoral quotient. If, at the time of the count, a person on one slate has already been elected because he or she appears on a previous slate, the person that comes next in the order of placement shall be chosen.
8. In the event of a tie in the residuals, in elections performed as provided for in the above rule, the position will be decided by drawing lots.
9. When the name of a candidate is repeated one or more times on the same slate, it will be understood that its name only appears on the first line of the slate they were included on. The other lines where they appear shall be understood to be occupied by the candidate immediately following them on the same slate.
10. If any slate contains a greater number of names than it should contain, the first names in the placement and up to the proper number shall be counted. If the number of names is less, the existing number of names will be counted.
11. When the Shareholders’ Meeting declares that the members of the Board of Directors have been legally elected, it shall number them in their order of appointment and election on the single slate or the several slates that, according to the number of votes received, have managed to have their candidates elected. It will thus decide, according to the order of the count, the first, second, third, fourth, fifth, sixth and seventh directors.
12. Members of the Board of Directors may not be replaced in by-elections, without proceeding to a new election of the entire Board, using the electoral quotient system, unless vacancies are filled unanimously.
13. Shares that the company owns in any capacity may not vote.
lITEM 15 CONTROLS AND PROCEDURES
The Bank carried out an evaluation under the supervision and with the participation of the Bank´s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Bank´s disclosure controls and procedures. As a result, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports the Bank files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and regulations of the SEC and to provide reasonable assurance that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding disclosure.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Bank’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS.
The Bank's internal control over financial reporting includes those policies and procedures that:
149
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Bank; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Bank are being made only in accordance with authorizations of the Bank's management and directors; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Bank's assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting as of December 31, 2023, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework version). On this assessment, management concluded that the Bank's internal control over financial reporting was effective as of December 31, 2023.
The effectiveness of the Bank's internal control over financial reporting as of December 31, 2023, has been audited by PwC Contadores y Auditores S.A.S. located in Colombia with PCAOB ID
In addition, there were no changes in Bank´s internal control over financial reporting occurred during the period covered by this annual report that has materially affected or is reasonable likely to materially affect the bank´s internal control over financial reporting.
ITEM 16 RESERVED
A. AUDIT COMMITTEE FINANCIAL EXPERT
The board of directors of Bancolombia appointed Silvina Vatnick as the audit committee financial expert in accordance with SEC rules and regulations.
The Bank’s audit committee financial expert, along with the other members of the Bank’s Audit Committee, is considered to be independent according to applicable NYSE criteria.
Mrs. Vatnick has served as the Bank’s audit committee financial expert since May 2021, in replacement of Mrs. Sylvia Escovar. There is no business relationship between her and the Bank, except for standard personal banking services. Further, there is no fee arrangement between Mrs. Vatnick and the Bank, except in connection with her capacity as a member of the Bank’s board of directors and as a member of the Audit and the Risk Committee. Mrs. Vatnick is considered an independent director under Colombian law and the Bank’s Good Governance Code, as well as under NYSE’s director independence standards. The Audit Committee and the financial expert also have an independent advisor, who provides advice on financial reporting and auditing matters. For more information regarding the Bank’s audit committee, see Item 6. “Directors, Senior Management and Employees— C. Board Practices—Audit Committee”.
150
B. CORPORATE GOVERNANCE AND CODE OF ETHICS
Bancolombia has adopted a Code of Ethics and a Good Governance Code, both of which apply to all employees, including the Bank’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as well as to the directors of the Bank.
English translations of the Code of Ethics and the Good Governance Code are posted at Bancolombia’s website at www.grupobancolombia.com. The Spanish versions of these codes will prevail for all legal purposes.
The last update of the Good Governance Code was in March 2023.
The Code of Ethics was updated on February 20, 2024, with the approval of the Board of Directors. The main updates made are the following:
| ● | Inclusion of an ethical framework for analytic systems and Artificial Intelligence, based on OCDE recommendations. |
| ● | Improvement of language related to diversity, equity and inclusion parameters. |
| ● | Inclusion of new standards to manage non-financial products and services. |
| ● | Behavior standards for digital environments and workspaces. |
| ● | Update of certain defined terms regarding the management of personal data and information. |
The Bank also has a phone line called the “ethics line” (“línea ética”) which is available for anonymous reporting of any evidence of improper conduct.
Under the NYSE’s Corporate Governance Standards, Bancolombia, as a listed foreign private issuer, must disclose any significant ways in which its corporate governance practices differ from those followed by U.S. companies under NYSE listing standards, as follows: Independence of Directors, Non-Executive Director Meetings, Committees of the Board of Directors and Stockholders’ Approval of Dividends. For more detail, see Item 16. “G Corporate Governance”.
C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed under the caption audit fees for professional services rendered to the Bank for the audit of its financial statements and for services that are normally provided to the Bank, in connection with statutory or regulatory filings or engagements totaled COP 20,251 million and COP 19,274 million in audits carried out by audited by PwC Contadores y Auditores S.A.S. and by the member firms of the PwC network located in Panamá, El Salvador, Guatemala and Puerto Rico, which are the auditors of the Bank for the years 2023 and 2022, respectively.
Additionally, the amount of fees not billed as of December 31, 2023 and 2022 for the audit by PwC Contadores y Auditores S.A.S. is approximately COP 6,000 million and COP 4,034 million, respectively.
Tax Fees
For the years ended December 31, 2023 and 2022, Bancolombia did not contract professional services related to tax compliance, tax advice or tax planning rendered by PwC Contadores y Auditores S.A.S.
All Other Fees
In 2023 and 2022, Bancolombia paid no other fees to PwC Contadores y Auditores S.A.S.
151
Pre-Approval Policy and Procedure
The Bank’s audit committee charter and the Bank’s good Governance Code require that all additional services to be provided by the external auditors must be previously approved by the Audit Committee.
During 2023, there were no services approved by the Audit Committee pursuant to paragraph (c) (7) (i) (C) of Rule 2-01 of Regulation S-X.
D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
There have not been any purchases by Bancolombia or any affiliated purchaser (as defined in 17CFR240.10b-18(a) (3)) of shares or any other units of any class of equity securities issued by Bancolombia during 2023.
Colombian law prohibits the repurchase of shares issued by banks. Therefore, Bancolombia may not repurchase its own issued securities.
F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
G. CORPORATE GOVERNANCE
Bancolombia, as a listed company that qualifies as a foreign private issuer under the NYSE listing standards in accordance with the NYSE corporate governance rules, is permitted to follow home-country practice in some circumstances in lieu of the provisions of the corporate governance rules contained in Section 303A of the NYSE Listed Company Manual that are applicable to U.S. companies. The Bank follows corporate governance practices applicable to Colombian companies and those described in the Bank’s Good Governance Code, which in turn follows Colombian corporate governance rules. An English translation of the Good Governance Code is available at Bancolombia’s website at www.grupobancolombia.com. The Spanish prevails for all legal purposes.
In Colombia, a series of laws and regulations set forth corporate governance requirements. External Circular 029 of 2014, issued by the SFC, contains the corporate governance standards to be followed by companies issuing securities.
Additionally, Law 964 of 2005 established mandatory corporate governance requirements for all issuers whose securities are publicly traded in the Colombian market, and Decree 2555 of 2010, the External Circulars 031 of 2021 and 012 of 2022 regulate the information disclosure requirements, including relevant and periodical information for the Colombian securities issuers. Bancolombia’s corporate governance standards comply with these legal requirements and Bancolombia has implemented additional corporate governance measures pursuant to regional recommendations including the OECD White Paper on Corporate Governance for Latin America and the Andean Development Corporation’s (CAF) Good Governance Code.
The following is a summary of the significant differences between the corporate governance practices followed by Bancolombia and those applicable to domestic issuers under the NYSE listing standards.
| ● | Independence of Directors. Under NYSE corporate governance rules, a majority of a U.S. company’s board of directors must be composed of independent directors. Regarding Colombian legislation, Law 964 of 2005 requires that at least 25% of the members of the Bank’s board of directors are independent directors, and Decree 3923 of 2006 regulates their election. Additionally, Colombian law requires that all directors exercise independent judgment under all circumstances. Bancolombia’s Good Governance Code includes a provision stating that directors shall exercise independent judgment and requires that at least 5 of the 7 directors must be independent. |
152
| The Good Governance Code also includes additional independence standards that must be met by 5 of 7 directors. As of December 31, 2023, the Bank’s board of directors included a majority of independent members (5 members of 7). For the independence test applicable to directors of Bancolombia, see Item 10. “Additional Information. – B. Memorandum and Articles of Association – Board of Directors”. |
| ● | Non-Executive Director Meetings. Pursuant to the NYSE listing standards, non-executive directors of U.S. listed companies must meet on a regular basis without management present. There is no prohibition under Colombian regulations for officers to be members of the board of directors; however, it is customary for Colombian companies to maintain separation between the directors and management. Bancolombia’s board of directors does not include any management members; however, the CEO attends the monthly meetings of the Bank’s board of directors, and members of senior management may attend the meetings of the board of directors and committees to guarantee an adequate flow of information between employees, management and directors; in both cases, the CEO and members of senior management are not allowed to vote. In accordance with Law 964 of 2005 and the Bank’s by-laws, no executive officer can be elected as chairman of the Bank’s board of directors. |
| ● | Committees of the Board of Directors. Under NYSE listing standards, all U.S. companies listed on the NYSE must have an audit committee, a compensation committee, and a nominating/corporate governance committee and all members of such committees must be independent. In each case, the independence of directors must be established pursuant to highly detailed rules enacted by the NYSE and, in the case of the audit committee, the NYSE and the SEC. The Bank’s board of directors has a Designation, Compensation and Development Committee, a Corporate Governance Committee, a Risk Committee and an Audit Committee, each of which is composed exclusively of directors (Audit Committee and Corporate Governance Committee are composed exclusively of independent directors, whereas the other committees have both independent and non-independent directors). For a description of the Designation, Compensation and Development Committee, Corporate Governance Committee, Audit Committee and Risk Committee, see Item 6. “Directors, Senior Management and Employees – C. Board Practices”. |
| ● | Stockholders’ Approval of Dividends. While NYSE corporate governance standards do not require listed companies to have stockholders approve or declare dividends, in accordance with the Colombian Code of Commerce, all dividends must be approved by Bancolombia’s stockholders. |
H. MINE SAFETY DISCLOSURES
Not applicable.
I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
J. INSIDER TRADING POLICIES
Not applicable.
K. CYBERSECURITY
The growing threat of cybersecurity incidents remains a concern for the Bank, as well as for the global financial system and for other industries. As cyber-attacks continue to evolve and become more complex, failure to protect our operations may result in the loss of sensitive data, disruption for our customers and our business, or financial loss. We continue to monitor ongoing geopolitical events and changes to the cyber threat landscape and take proactive measures, making significant investments, with the objective of reducing any impact to our customers and to our organization.
153
Processes for assessing, identifying, and managing material risks from cybersecurity threats
The Bank has a robust set of cybersecurity policies, procedures and key controls designed with the objective of ensuring the organization is well managed, with effective controls over cybersecurity threats. This includes defined cybersecurity responsibilities for employees and third party service providers, as well as procedures for preventing, detecting and mitigating incidents.
The Bank has established an Information Security Management System (ISMS) to prevent, detect and mitigate cybersecurity threats. The ISMS is composed of policies, standards and controls, baselines, manuals, methodologies, and governance frameworks such as: ISO/IEC 27001, CSF NIST, COBIT 2019 and a maturity model (based on CMMI, ITIL and ISO/IEC 15504 criteria) which is annually updated and available to employees on the Bank’s intranet. In addition, the Bank also relies on other technical frameworks such as CIS for infrastructure issues and OWASp for secure development, APIS security and others.
The information security and cybersecurity policies aim to set forth guidelines that employees and third party service providers must follow in order to mitigate the risks to which information, people, processes, technology and physical infrastructure are exposed, which could result in losses to the Bank through internal or external attacks, affecting information assets or other essential components of the Bank’s operations.
The Bank has a process to identify, evaluate and manage the material risks of cybersecurity threats. Cybersecurity threats are considered within the overall risk management cycle. Once a cybersecurity incident occurs, escalation procedures are put in place to allow for tactical and strategic decisions to be made.
The Bank invested more than US$50 million in cybersecurity related activities including the enhancement of cybersecurity processes, controls, insurance coverage and human resources capabilities in 2023.
In order to attempt to reduce our exposure to attacks, the frequency of vulnerability scans in the Bank’s technological infrastructure was increased from three to four scans per year. The Bank also worked on the creation of new baselines for the configuration of operating systems and databases, as well as the protection of exposed Internet sites with application firewalls.
In addition, we engage consultants who carry out cybersecurity assessments taking into account international standards. We also entered into a Security Operation Center agreement, which incorporated advanced monitoring and threat intelligence technology to improve the detection and reaction capabilities of the Bank.
The Bank has also continued its efforts to identify and assess cybersecurity threats associated with its use of third party service providers by: (i) identifying and classifying of the information that the Bank shares with its most critical third party service providers, (ii) conducting a security evaluation of third party service providers, (iii) security scorecards of their public websites, certifications that endorse their respective management, and (iv) requesting reports from external auditors on the operational effectiveness of the controls of key third party service providers. In 2023, there was a 195% increase in the number of third party service providers that were evaluated for cybersecurity risk as compared to 2022.
In 2023, a series of awareness and training activities were carried out for all our employees and a large number of third party service providers, including seven cybersecurity exercises covering items such as phishing, ransomware and business email compromise with 100% employee coverage. Additionally, a mandatory annual cybersecurity and information security virtual courses was taken by the employees and a virtual training site was created on the intranet for all employees. This site is called ¨Campus de Ciberseguridad¨ (Cybersecurity Campus) and has three learning paths with different levels of content.
To date, no risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect the Group, including its business strategy, results of operations, or financial condition. However, the Bank also recognizes the reality of the ever-evolving cyber risk landscape faced by industries and businesses across the world. Depending on their source and nature, cyber incidents could in the future materially affect the Group and its business strategy, results of operations or financial condition.
154
Board of Directors’ oversight of cybersecurity risks
The Board of Directors, directly or through its committees, establishes and oversees the strategy of management of cybersecurity risks.
The Board of Directors receives semi-annual reports from the Chief Information Security Officer (CISO) regarding the cybersecurity environment, including the results of the cybersecurity risk management process; evaluations made of the confidentiality, integrity and availability of information; identification of cyber threats; results of the evaluation of the effectiveness of cybersecurity programs, evolution of the maturity model, cybersecurity in third parties, cybersecurity awareness, proposals for improvement and summary of incidents that have affected the Bank.
Additionally, the Board of Directors engaged an external advisor that is an expert in technology and cybersecurity and has more than 30 years of experience in the payment industry. The advisor attends, when invited, meetings of the Board of Directors and of relevant committees and provides his independent advice and recommendations.
The Board has two committees that are involved in overseeing cybersecurity risk:
-The Audit Committee is comprised of three independent Board members, one of whom is the President of the committee and the cyber expert of the Board. The committee evaluates the initiatives aimed at preventing cybersecurity risks, monitors cybersecurity management, is informed about cybersecurity incidents and reviews the Information Security and Cybersecurity Policies before submission to the Board for approval on an annual basis. The external cybersecurity and information technology advisor is an invitee of the Committee when cybersecurity matters are on the agenda for discussion.
- The Risk Committee is comprised of three members of the Board and oversees the methodology, procedures and tools for preventing, detecting and mitigating cybersecurity risks. The committee receives management reports on cybersecurity risk exposure, substantial changes to exposure, tolerance level, compliance and mitigation initiatives undertaken by management. The Bank President and Risk Vice-President are permanent invitees.
Management’s role and expertise in assessing and managing cybersecurity risks
Management is responsible for identifying, considering and assessing cybersecurity risks on an ongoing basis, establishing processes to ensure that such potential cybersecurity risk exposures are monitored, putting in place appropriate mitigation measures and maintaining cybersecurity programs.
The CISO, who reports to the Vice-President of Customer and Employee Services and dedicated personnel on his team are certified and experienced information systems security professionals and information security managers.
The Bank’s President and the Corporate Vice-Presidents receive monthly reports on cybersecurity threats with information such as metrics on monthly expected loss compliance, fraud management, availability of cybersecurity components, relevant topics like new initiatives, controls, integrations and alerts.
Two management committees are involved in managing cybersecurity risks.
The Corporate Cybersecurity Committee approves and promotes cybersecurity and information security policies, strategies and projects, monitors compliance with the strategic plan and prioritizes initiatives and budget use, and monitors significant changes in cyber risks, disseminates and supports the security of information within the organization. The committee meets every three months, and its members are the Bank´s Vice-Presidents of Customer and Employee Services, of Human Resources, and of Risk; and the Vice-Presidents of Services of Bancolombia, Banistmo, Banco Agrícola, Banco Agromercantil and Nequi. The meeting is conducted by the CISO, as a permanent invitee and although the Committee’s responsibilities are similar to those of the Cybersecurity and Information Security Committee, the decisions taken at this level have a regional scope with an impact on the other companies in the Group, with specific initiatives for each bank.
155
The Cybersecurity and Information Security Committee: Approves and promotes policies, standards, strategies, and crucial projects, in addition to making decisions on associated controls, and periodically evaluates strategic and tactical compliance plans, reviewing, approving and prioritizing initiatives or decisions. The committee meets on a monthly basis, and its members are Bancolombia Vice-President of Corporate Services, Vice-President of Customer and Employee Services, Vice-President of Risk and Vice-President of Human Resources, Technology services and Product environment. The CISO is a permanent guest of the Committee, who has over 25 years of experience in Technology and Cybersecurity.
PART III
ITEM 17 FINANCIAL STATEMENTS
See Item 18.
ITEM 18 FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-198.
ITEM 19 EXHIBITS
The following exhibits are filed as part of this Annual Report.
English translation of the corporate by-laws of the registrant, as amended on March 15, 2024. | |
2.2 | Instruments defining the rights of the holders of long-term debt issued by Bancolombia S.A. and its subsidiaries. |
| The Bank agrees to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of the Bank’s long-term debt and of the Bank’s subsidiaries’ long-term debt. |
Description of securities registered under section 12 of the u.s. securities exchange act of 1934 | |
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated March 26, 2024. | |
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated March 26, 2024. | |
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated March 26, 2024. | |
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated March 26, 2024. | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Inline XBRL Cover Page Interactive Data File |
(1)Incorporated by reference to the Registration Statement on Form F-6, filed by Bancolombia on January 14, 2008.
156
SIGNATURE
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.
BANCOLOMBIA S.A. |
/s/ JOSE HUMBERTO ACOSTA MARTIN |
Name: Jose Humberto Acosta Martin |
Title: Chief Financial Officer |
Date: March 26, 2024 |
157
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Bancolombia S. A.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statement of financial position of Bancolombia S.A. and its subsidiaries (the “Bank”) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Bank's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Bank's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Bank’s consolidated financial statements and on the Bank's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing
PwC Contadores y Auditores S.A.S., Calle 7 Sur No. 42-70, Torre 2, Piso 11, Edificio Forum, Medellín, Colombia. |
Tel: (60-4) 6040606, www.pwc.com/co |
© 2023 PricewaterhouseCoopers. PwC se refiere a las Firmas colombianas que hacen parte de la red global de PricewaterhouseCoopers International Limited, cada una de las cuales es una entidad legal separada e independiente. Todos los derechos reservados. |
F-2
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Report of Independent Registered Public Accounting Firm
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for loans, advances and lease losses
As described in Notes 2 (section D.4.1.2.1 and E.1), 6 and 30 to the consolidated financial statements, management assesses the adequacy of the allowance for loan losses based on evaluations of the loan portfolio utilizing objective and subjective criteria. As of December 31, 2023, the allowance for loan losses was COP$16,223,103 million on total loans of COP$253,951,647 million. As disclosed by management, expected credit losses are calculated using both individual and collective models and methodologies. These are based on significant assumptions and judgements that consider
historical credit data, the current situation of the borrower and reasonable and proper forecasts of future economic conditions. Collective models include parameters such as the probability of default at 12 months, probability of default throughout the lifetime of the obligation (when the loan is classified as stage 2), loss given default, and exposure at default. These models also incorporate a prospective approach that includes assumptions of future macroeconomic
PwC Contadores y Auditores S.A.S., Calle 7 Sur No. 42-70, Torre 2, Piso 11, Edificio Forum, Medellín, Colombia. |
Tel: (60-4) 6040606, www.pwc.com/co |
© 2023 PricewaterhouseCoopers. PwC se refiere a las Firmas colombianas que hacen parte de la red global de PricewaterhouseCoopers International Limited, cada una de las cuales es una entidad legal separada e independiente. Todos los derechos reservados. |
F-3
conditions in plausible future scenarios. In addition, for loans individually assessed in stage 3, the Bank will evaluate significant defaulted loans. This evaluation will consider the debt profile of each debtor, the fair value of guarantees
granted, information on credit behavior and the expected future cash flows from the client.
Report of Independent Registered Public Accounting Firm
The principal considerations for our determination that performing procedures relating to the Bank’s allowance for loans, advances and lease losses is a critical audit matter are, (i) the significant judgment used by management in determining the expected credit losses, in particular the assumptions used in determining: probability of default at 12 months, probability of default throughout the lifetime of the obligation, loss given default, exposure at default with the inclusion of the forward-looking basis that includes assumptions of future macroeconomic conditions in plausible future scenarios. In addition, for loans individually assessed in Stage 3 analysis of the debt profile of each debtor, information on the credit behavior, the future cash flows expected from the client and the fair value of guarantees granted, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained relating to these significant assumptions, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming the overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Bank’s allowance for loans, advances and leasing losses estimation process, which included controls over the data, models and assumptions used in the estimation process. These procedures also included, among others: testing management’s process for estimating the allowance for loan, advances and lease losses by (i) evaluating the appropriateness of the models utilized for the estimation of the expected loss parameters and the reasonableness of the significant assumptions, such as default at 12 months and lifetime, loss given default and exposure at default with the inclusion of the forward-looking basis that include assumptions of future macroeconomic conditions in plausible future scenarios, and evaluating the adjustments, (ii) testing the completeness and accuracy of the data used in the estimate and the mathematical accuracy of the impairment calculation for the credit portfolios; and (iii) evaluating individual credit files to determine the reasonableness of management’s estimation of the future cash flows expected from the client and the fair value of guarantees granted, estimated by management in the impairment for the credit portfolios. The procedures included the use of professionals with specialized skill and knowledge to assist in evaluating the appropriateness of the models utilized by management, methodologies and the reasonableness of the assumptions used in the credit loss estimates.
Goodwill Impairment Assessment
As described in Notes 2 (section D.13) and 9.2 to the consolidated financial statements, the Bank’s consolidated goodwill balance was COP$7.818.125 million as of December 31, 2023. The Bank evaluates at the end of each period whether there is any indication that on a stand-alone basis non-financial assets and cash-generating units are impaired. If
some indication of impairment does exist, the Bank estimates the recoverable amount of the assets and the loss by impairment, the impairment loss is recognized for the amount by which the carrying amount of the cash generating unit exceeds its recoverable amount. Regardless of whether impairment indicators exist, impairment of goodwill is assessed annually, or more frequently if events or changes in circumstances indicate that it may be impaired. The recoverable amount of non-financial assets or cash-generating units is the higher of its fair value less costs of disposal and its value in use, where fair value is determined by Management by reference to market value, if available, by pricing models, or with the assistance of a valuation specialist. While value in use requires Management to make significant assumptions and use estimates to forecast cash flow for periods that are beyond the normal requirements of management reporting; and assess the appropriate discount rate and growth rate.
PwC Contadores y Auditores S.A.S., Calle 7 Sur No. 42-70, Torre 2, Piso 11, Edificio Forum, Medellín, Colombia. |
Tel: (60-4) 6040606, www.pwc.com/co |
© 2023 PricewaterhouseCoopers. PwC se refiere a las Firmas colombianas que hacen parte de la red global de PricewaterhouseCoopers International Limited, cada una de las cuales es una entidad legal separada e independiente. Todos los derechos reservados. |
F-4
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of all reporting units is a critical audit matter are the significant judgment by management when developing the recoverable amount measurement of the cash generating units. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s cash flow projections and significant assumptions, related to discount rate and growth rate, and other assumptions commonly used to determine the recoverable value of the goodwill. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming the overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Bank’s cash generating units. These procedures also included, among others, testing management’s process for developing the recoverable amount estimate; evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy and relevance of underlying data used in the model; and evaluating the assumptions used by management were reasonable considering: (i) the current and past performance of the cash generating unit, (ii) the consistency with external market and industry data, (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit and other assumptions used to determine the recoverable value of the goodwill. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Bank’s discounted cash flow model and the reasonableness of certain significant assumptions, relating to the discount rate and growth rate.
/s/
March 26, 2024
We have served as the Company’s auditor since 2020.
PwC Contadores y Auditores S.A.S., Calle 7 Sur No. 42-70, Torre 2, Piso 11, Edificio Forum, Medellín, Colombia. |
Tel: (60-4) 6040606, www.pwc.com/co |
© 2023 PricewaterhouseCoopers. PwC se refiere a las Firmas colombianas que hacen parte de la red global de PricewaterhouseCoopers International Limited, cada una de las cuales es una entidad legal separada e independiente. Todos los derechos reservados. |
F-5
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
BANCOLOMBIA S.A. AND ITS SUBSIDIARIES
As of December 31, 2023 and 2022
(Stated in millions of Colombian pesos)
| Note | December 31, 2023 | December 31, 2022 | |||
ASSETS | ||||||
Cash and cash equivalents | 4 | | | |||
Financial assets investments | 5.1 | | | |||
Derivative financial instruments | 5.2 | | | |||
Financial assets investments and derivative financial instruments | | | ||||
Loans and advances to customers | | | ||||
Allowance for loans, advances and lease losses | ( | ( | ||||
Loans and advances to customers, net | 6 | | | |||
Assets held for sale and inventories, net | 13 | | | |||
Investment in associates and joint ventures | 8 | | | |||
Investment properties | 11 | | | |||
Premises and equipment, net | 10 | | | |||
Right-of-use assets, lease | 7.2 | | | |||
Goodwill and intangible assets, net | 9 | | | |||
Deferred tax, net | 12.5 | | | |||
Other assets, net | 14 | | | |||
TOTAL ASSETS | | | ||||
LIABILITIES AND EQUITY | ||||||
LIABILITIES | ||||||
Deposits by customers | 15 | | | |||
Interbank deposits and repurchase agreements and other similar secured borrowing | 16 | | | |||
Derivative financial instruments | 5.2 | | | |||
Borrowings from other financial institutions | 17 | | | |||
Debt instruments in issue | 18 | | | |||
Lease liabilities | 7.2 | | | |||
Preferred shares | | | ||||
Current tax | | | ||||
Deferred tax, net | 12.5 | | | |||
Employee benefit plans | 19 | | | |||
Other liabilities | 20 | | | |||
TOTAL LIABILITIES | | | ||||
EQUITY | ||||||
Share capital | 22 | | | |||
Additional paid-in-capital | | | ||||
Appropriated reserves | 23 | | | |||
Retained earnings | | | ||||
Net income attributable to equity holders of the Parent Company | | | ||||
Accumulated other comprehensive income, net of tax | | | ||||
SHAREHOLDERS’ EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT COMPANY | | | ||||
Non-controlling interest | | | ||||
TOTAL EQUITY | | | ||||
TOTAL LIABILITIES AND EQUITY | | |
The accompanying notes form an integral part of these Consolidated Financial Statements.
F-6
CONSOLIDATED STATEMENT OF INCOME
BANCOLOMBIA S.A. AND ITS SUBSIDIARIES
For the years ended December 31, 2023, 2022 and 2021
(Stated in millions of Colombian pesos, except EPS stated in units of pesos)
| Note | 2023 | 2022 | 2021 | ||||
Interest on loans and financial leases | ||||||||
Commercial | | | | |||||
Consumer | | | | |||||
Small business loans | | | | |||||
Mortgage | | | | |||||
Financial leases | | | | |||||
Total interest income on loans and financial leases | | | | |||||
Interest on debt instruments using the effective interest method | 25.1 | | | | ||||
Total Interest on financial instruments using the effective interest method | | | | |||||
Interest income on overnight and market funds | | | | |||||
Interest and valuation on financial instruments | 25.1 | | | | ||||
Total interest and valuation on financial instruments | | | | |||||
Interest expenses | 25.2 | ( | ( | ( | ||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | | | | |||||
Credit impairment charges on loans, advances and financial leases, net | 6 | ( | ( | ( | ||||
Credit (impairment) recovery for other financial instruments | 5.1 - 21.1 | ( | ( | | ||||
Total credit impairment charges, net | ( | ( | ( | |||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases and off balance sheet credit instruments and other financial instruments | | | | |||||
Fees and commissions income | 25.3 | | | | ||||
Fees and commissions expenses | 25.3 | ( | ( | ( | ||||
Total fees and commissions, net | | | | |||||
Other operating income | 25.4 | | | | ||||
Dividends and net income on equity investments | 25.5 | | | | ||||
Total operating income, net | | | | |||||
Operating expenses | ||||||||
Salaries and employee benefits | 26.1 | ( | ( | ( | ||||
Other administrative and general expenses | 26.2 | ( | ( | ( | ||||
Taxes other than income tax | 26.2 | ( | ( | ( | ||||
Impairment, depreciation and amortization | 26.3 | ( | ( | ( | ||||
Total operating expenses | ( | ( | ( | |||||
Profit before income tax | | | | |||||
Income tax | 12.3 | ( | ( | ( | ||||
Net income | | | | |||||
Net income attributable to equity holders of the Parent Company | | | | |||||
Non-controlling interest | | | | |||||
Basic and diluted earnings per share to common shareholders, stated in units of pesos | 27 | | | |
The accompanying notes form an integral part of these Consolidated Financial Statements.
F-7
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
BANCOLOMBIA S.A. AND ITS SUBSIDIARIES
For the years ended December 31, 2023, 2022 and 2021
(Stated in millions of Colombian pesos)
| 2023 | 2022 | 2021 | |||||
Net income | | | | |||||
Other comprehensive income/(loss) that will not be reclassified to net income | ||||||||
Remeasurement income related to defined benefit liability | ( | | | |||||
Income tax | 12.4 | | ( | ( | ||||
Net of tax amount | ( | | | |||||
Investments in equity instruments measured at fair value through other comprehensive income (FVTOCI) | ||||||||
Unrealized gain | | | | |||||
Income tax | 12.4 | ( | ( | | ||||
Net of tax amount | | | | |||||
Gains on asset revaluation | ||||||||
Income tax | 12.4 | - | ( | ( | ||||
Net of tax amount | - | ( | ( | |||||
Total other comprehensive income that will not be reclassified to net income, net of tax | ( | | | |||||
Other comprehensive income/(loss) that may be reclassified to net income | ||||||||
Investments in debt instruments measured at fair value through other comprehensive income (FVTOCI) | ||||||||
(Loss)/Gain on investments recycled to profit or loss upon disposal | ( | | | |||||
Unrealized gain/(loss) | | ( | ( | |||||
Unrealized (loss)/gain for fair value hedging | - | ( | | |||||
Changes in loss allowance for credit losses | | ( | ( | |||||
Income tax | ( | | | |||||
Net of tax amount | | ( | ( | |||||
Foreign currency translation adjustments: | ||||||||
Exchange differences arising on translating the foreign operations | ( | | | |||||
Gain / (Loss) on net investment hedge in foreign operations | | ( | ( | |||||
Income tax | 12.4 | ( | | | ||||
Net of tax amount(1) | ( | | | |||||
Unrealized (loss)/gain on investments in associates and joint ventures using equity method | ( | ( | | |||||
Income tax | 12.4 | | ( | ( | ||||
Net of tax amount | ( | ( | | |||||
Total other comprehensive income that may be reclassified to net income, net of tax | ( | | | |||||
Other comprehensive income, attributable to the owners of the Parent Company, net of tax | ( | | | |||||
Other comprehensive income, attributable to the Non-controlling interest | ( | | | |||||
Total comprehensive income attributable to: | | | | |||||
Equity holders of the Parent Company | | | | |||||
Non-controlling interest | | | |
| (1) | In 2023, there was a |
The accompanying notes form an integral part of these Consolidated Financial Statements.
F-8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
BANCOLOMBIA S.A. AND ITS SUBSIDIARIES
For the years ended December 31, 2023, 2022 and 2021
(Stated in millions of Colombian pesos, except per share amounts stated in units of pesos)
Attributable to owners of Parent Company | ||||||||||||||||||||||||||||
Accumulated other comprehensive income | ||||||||||||||||||||||||||||
Debt | Attributable | |||||||||||||||||||||||||||
Share | Additional | Appropiated | Equity | instruments | to owners | Non- | ||||||||||||||||||||||
Capital | Paid in | Reserves | Translation | Securities | at fair value | Revaluation | Employee | Retained | Net | of Parent | Controlling | Total | ||||||||||||||||
(Note 22) | capital | (Note 23) | adjustment | through OCI | through OCI | of assets | Associates | Benefits | earnings | Income | Company | interest | equity | |||||||||||||||
Balance as of January 1, 2023 | | | | | | ( | | | ( | | | | | | ||||||||||||||
Transfer to profit from previous years | - | - | - | - | - | - | - | - | - | | ( | - | - | - | ||||||||||||||
Dividend payment corresponding to | - | - | - | - | - | - | - | - | - | ( | - | ( | - | ( | ||||||||||||||
Other reserves | - | - | | - | - | - | - | - | - | ( | - | ( | - | ( | ||||||||||||||
Realization of retained earnings(1) | - | - | - | - | | - | - | - | - | ( | - | - | - | - | ||||||||||||||
Others | - | - | - | - | - | - | - | - | - | ( | - | ( | - | ( | ||||||||||||||
Non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | - | ( | ( | ||||||||||||||
Net Income | - | - | - | - | - | - | - | - | - | - | | | | | ||||||||||||||
Other comprehensive income | - | - | - | ( | | | - | ( | ( | - | - | ( | ( | ( | ||||||||||||||
Balance as of December 31, 2023 | | | | | | ( | | | ( | | | | | | ||||||||||||||
| (1) |
The accompanying notes form an integral part of these Consolidated Financial Statements.
F-9
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
BANCOLOMBIA S.A. AND ITS SUBSIDIARIES
For the years ended December 31, 2023, 2022 and 2021
(Stated in millions of Colombian pesos, except per share amounts stated in units of pesos)
Attributable to owners of Parent Company | ||||||||||||||||||||||||||||
Accumulated other comprehensive income | ||||||||||||||||||||||||||||
Debt | Attributable | |||||||||||||||||||||||||||
Share | Additional | Appropiated | Equity | instruments | to owners | Non- | ||||||||||||||||||||||
Capital | Paid in | Reserves | Translation | Securities | at fair value | Revaluation | Employee | Retained | Net | of Parent | Controlling | Total | ||||||||||||||||
(Note 22) | capital | (Note 23) | adjustment | through OCI | through OCI | of assets | Associates | Benefits | earnings | Income | Company | interest | equity | |||||||||||||||
Balance as of January 1, 2022 | | | | | | | | | ( | | | | | | ||||||||||||||
Transfer to profit from previous years | - | - | - | - | - | - | - | - | - | | ( | - | - | - | ||||||||||||||
Dividend payment corresponding to | - | - | - | - | - | - | - | - | - | ( | - | ( | - | ( | ||||||||||||||
Other reserves | - | - | | - | - | - | - | - | - | ( | - | ( | - | ( | ||||||||||||||
Realization of retained earnings(1)(2) | - | - | - | - | ( | - | - | | | | - | - | - | - | ||||||||||||||
Others | - | - | - | - | - | - | - | - | - | | - | | - | | ||||||||||||||
Acquisition Non-controlling interest (3) | - | - | - | - | - | - | - | - | - | | - | | ( | ( | ||||||||||||||
Non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | ( | ( | |||||||||||||||
Net Income | - | - | - | - | - | - | - | - | - | - | | | | | ||||||||||||||
Other comprehensive income | - | - | - | | | ( | ( | ( | | - | - | | | | ||||||||||||||
Balance as of December 31, 2022 | | | | | | ( | | | ( | | | | | | ||||||||||||||
(1)
(2)
(3)
The accompanying notes form an integral part of these Consolidated Financial Statements.
F-10
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
BANCOLOMBIA S.A. AND ITS SUBSIDIARIES
For the years ended December 31, 2023, 2022 and 2021
(Stated in millions of Colombian pesos, except per share amounts stated in units of pesos)
Attributable to owners of Parent Company | ||||||||||||||||||||||||||||
Accumulated other comprehensive income | ||||||||||||||||||||||||||||
Debt | Attributable | |||||||||||||||||||||||||||
Share | Additional | Appropiated | Equity | instruments | to owners | Non- | ||||||||||||||||||||||
Capital | Paid in | Reserves | Translation | Securities | at fair value | Revaluation | Employee | Retained | Net | of Parent | Controlling | Total | ||||||||||||||||
(Note 22) | capital | (Note 23) | adjustment | through OCI | through OCI | of assets | Associates | Benefits | earnings | Income | Company | interest | equity | |||||||||||||||
Balance as of January 1, 2021 | | | | | | | | | ( | | | | | | ||||||||||||||
Transfer to profit from previous years | - | - | - | - | - | - | - | - | - | | ( | - | - | - | ||||||||||||||
Dividend payment corresponding to | - | - | - | - | - | - | - | - | - | ( | - | ( | - | ( | ||||||||||||||
Other reserves | - | - | | - | - | - | - | - | - | ( | - | ( | - | ( | ||||||||||||||
Realization of retained earnings(1) | - | - | - | - | ( | - | - | - | - | | - | - | - | - | ||||||||||||||
Others | - | - | - | - | - | - | - | - | - | ( | - | ( | - | ( | ||||||||||||||
Non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | - | ( | ( | ||||||||||||||
Net Income | - | - | - | - | - | - | - | - | - | - | | | | | ||||||||||||||
Other comprehensive income | - | - | - | | | ( | ( | | | - | - | | | | ||||||||||||||
Balance as of December 31, 2021 | | | | | | | | | ( | | | | | | ||||||||||||||
| (1) | Mainly corresponds to partial payments of asset-backed securities investments. |
The accompanying notes form an integral part of these Consolidated Financial Statements.
F-11
CONSOLIDATED STATEMENT OF CASH FLOW
BANCOLOMBIA S.A. AND ITS SUBSIDIARIES
For the years ended December 31, 2023, 2022 and 2021
(Stated in millions of Colombian pesos)
NOTE | 2023 | 2022 | 2021 | |||||
Net income | | | | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 26.3 | | | | ||||
Other assets impairment | 26.3 | | | | ||||
Impairment of investments in associates and joint ventures | 8 - 25.5 | | | | ||||
Equity method | 8 - 25.5 | ( | ( | ( | ||||
Credit impairment charges on loans and advances and financial leases | 6 | | | | ||||
Credit impairment (recovery) charges on off balance sheet credit and other financial instruments(1) | 5.1 - 21.1 | | | ( | ||||
Gain on sales of assets held for sale and inventories | 25.4 | ( | ( | ( | ||||
Valuation gain on investment securities | ( | ( | ( | |||||
Loss upon disposal of investment in subsidiary, associates and joint ventures(2) | 25.5 | - | | - | ||||
Valuation gain on derivative financial instruments | ( | ( | ( | |||||
Income tax | 12.3 | | | | ||||
Bonuses and short-term benefits | | | | |||||
Dividends | 25.5 | ( | ( | ( | ||||
Investment property valuation | 25.4 | ( | ( | ( | ||||
Effect of exchange rate changes(3) | ( | ( | | |||||
Other non-cash items | | | ( | |||||
Net interest | ( | ( | ( | |||||
Change in operating assets and liabilities: | ||||||||
Decrease in derivative financial instruments | | | | |||||
(Increase) Decrease in accounts receivable | ( | | ( | |||||
Increase in loans and advances to customers | ( | ( | ( | |||||
Increase in other assets | ( | ( | ( | |||||
Increase in accounts payable | | | | |||||
(Increase) Decrease in other liabilities | | ( | ( | |||||
Increase in deposits by customers | | | | |||||
(Decrease) Increase in estimated liabilities and provisions | ( | ( | | |||||
Net changes in investment securities recognized at fair value through profit or loss | ( | | | |||||
Proceeds from sales of assets held for sale and inventories | | | | |||||
Recovery of charged-off loans | 6 | | | | ||||
Income tax paid | ( | ( | ( | |||||
Dividend received | | | | |||||
Interest received | | | | |||||
Interest paid | ( | ( | ( | |||||
Net cash provided by operating activities | | | | |||||
Cash flows from investment activities: | ||||||||
Purchases of debt instruments at amortized cost | ( | ( | ( | |||||
Proceeds from maturities of debt instruments at amortized cost | | | | |||||
Purchases of debt instruments at fair value through OCI | ( | ( | ( | |||||
Proceeds from debt instruments at fair value through OCI | | | | |||||
Purchases of equity instruments at fair value through OCI and interests in associates and joint ventures | ( | ( | ( | |||||
Proceeds from equity instruments at fair value through OCI and interests in associates and joint ventures | | | | |||||
Consideration paid to non-controlling interests(4) | - | ( | - | |||||
Purchases of premises and equipment and investment properties | ( | ( | ( | |||||
Acquisition of subsidiaries | - | | ( | |||||
Proceeds from sales of premises and equipment and investment properties | | | | |||||
Purchase of other long-term assets | ( | ( | ( | |||||
Net cash used in investing activities | ( | ( | ( | |||||
Cash flows from financing activities: | ||||||||
Increase (Decrease) in repurchase agreements and other similar secured borrowing | | ( | ( | |||||
Proceeds from borrowings from other financial institutions | | | | |||||
Repayment of borrowings from other financial institutions | ( | ( | ( | |||||
Payment of lease liability | ( | ( | ( | |||||
Placement of debt instruments in issue(5) | | | | |||||
Payment of debt instruments in issue | ( | ( | ( | |||||
Dividends paid | ( | ( | ( | |||||
Transactions with non-controlling interests | ( | ( | - | |||||
Net cash (used) provided in financing activities(6) | ( | | ( | |||||
Effect of exchange rate changes on cash and cash equivalents(3) | ( | | | |||||
Increase (Decrease) in cash and cash equivalents | | | ( | |||||
Cash and cash equivalents at beginning of year | 4 | | | | ||||
Cash and cash equivalents at end of year | 4 | | | |
F-12
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
During the years ended December 31, 2023, 2022 and 2021, the Bank entered into non-cash operating and investing activities related to restructured loans and returned properties that were transferred to assets held for sale and inventories amounting to COP
The accompanying notes form an integral part of these Consolidated Financial Statements.
NOTE 1. REPORTING ENTITY
Bancolombia S.A., hereinafter the Parent Company, is a credit establishment, listed on the Colombia Stock Exchange (BVC) as well as on the New York Stock Exchange (NYSE), since 1981 and 1995, respectively. The Parent Company's main location is in Medellin (Colombia), main address Carrera 48 # 26-85, Avenida Los Industriales, and was originally constituted under the name Banco Industrial Colombiano (BIC) according to public deed number 388, date January 24, 1945, from the First Notary's Office of Medellin, authorized by the Superintendence of Finance of Colombia (“SFC”). On April 3, 1998, by means of public deed No. 633, BIC merged with Bank of Colombia S.A., and the resulting organization of that merger was named Bancolombia S.A.
The Parent Company bylaws are found in the public deed numer 1441, dated May 6, 2022, at the 20th Notary´s Office of Medellín.
Bancolombia S.A.’s business purpose is to carry out all operations, transactions, acts and services inherent to the banking business. The Parent Company may, by itself or through its subsidiaries, own interests in other corporations, wherever authorized by law, according to all terms and requirements, limits or conditions established therein.
The duration of the Parent Company contemplated in the bylaws is until December 8, 2044, but it can be dissolved or renewed before the conclusion of that period. The operating license was authorized definitively by the SFC according to Resolution number 3140 on September 24, 1993.
The Parent Company and its subsidiaries include the following operating segments: United States, Banking Colombia, Banking Panama, Banking El Salvador, Banking Guatemala, Trust, Investment banking, Brokerage, International Banking and Others. The activities carried out by each operating segment of the Bank are described in Note 3 Operating segments.
The Parent Company, through its subsidiaries, has banking operations and an international presence in United States, Puerto Rico, Panama, Guatemala, and El Salvador. On May 25, 2022 and April 15, 2022, respectively, the regulatory authorizations and licenses were obtained for the operation as a broker-dealer and as an investment adviser (registered investment adviser) in the United States, through its subsidiaries Bancolombia Capital Holdings USA LLC, Bancolombia Capital LLC, and Bancolombia Capital Advisers LLC, which were incorporated in September 2021.
On June 4, 2021, the Parent signed an agreement for the assignment of the fiduciary rights of the PA FAI Calle 77 trust, subject to condition. Fulfilled the condition on March 1, 2022, the Parent Company was established as trustor of PA FAI Calle 77, owner of a property used for housing rental. The amount paid by the Parent Company was COP
The operations in Barbados through Mercom Bank Ltd. are in the process of being gradually wound down. The winding down of the operations will continue as the compromises related to assets and liabilities come to term, the assets, liabilities and contracts were transferred to other companies which are also part of the Bank. The company Transportempo S.A.S. is winding down since May 2023.
F-13
On December 14, 2021, the Parent Company´s Board of Directors authorized the legal separation of the Nequi business, the digital platform of the Bank. The Financial Superintendence of Colombia (Superintendencia Financiera de Colombia) through Resolution 0843 of July 6, 2022, later modified by the Resolution 0955 of July 27, 2022, authorized the establishment of Nequi S.A. Compañía de Financiamiento. The legal separation resulted in the creation and commercial registration of a new corporation through which Nequi will operate as a
On July 22, 2022, through the subsidiary, Sistemas de Inversiones y Negocios S.A. SINESA, the company Wenia LTD, a digital corporate vehicle whose purpose is the provision of technology services, was incorporated in Bermuda. By private document of October 18, 2022, Wenia LTD as the sole shareholder, registered on November 22, 2022, in the Chamber of Commerce of Colombia, the company of a commercial nature called Wenia S.A.S., whose purpose is, among others, the creation and implementation of operating systems and software applications
During the third quarter of 2022, the Bank increased its participation in the FCP Fondo Inmobiliario Colombia, which facilitates speed in decision-making in matters of governance and strategy. To date, the participation in the private equity fund amounts to
The effect on shareholders' equity (amounts in millions of COP) is as follows:
Consideration paid to non-controlling interests | | ||
Carrying amount of non-controlling interests acquired | | ||
Excess of consideration paid recognized in the transactions with non-controlling interests reserve within equity | |
Additionally, the operations in Cayman Islands through Bancolombia Cayman were in the process of dismantling, for which, on November 22, 2023, the Cayman Islands Monetary Authority approved the surrender the banking license pursuant to Section 20(1)(a) of the Banks and Trust Companies Law (2021 Revision) (the "BTCA"), therefore, the banking license has been cancelled as of such date. The company is in liquidation.
As of December 31, 2023, the Bank has
For more information on the Bank’s subsidiaries, see Note 2.C.1. Subsidiaries.
NOTE 2. MATERIAL ACCOUNTING POLICIES
| A. | Basis for preparation of the consolidated financial statements |
The consolidated financial statements of the Bank are prepared in accordance with the International Financial Reporting Standards (hereinafter, “IFRS”) issued by the International Accounting Standards Board (hereinafter, “IASB”), as well as the interpretations issued by the International Financial Reporting Interpretations Committee (hereinafter, “IFRS-IC”).
The preparation of consolidated financial statements in conformity with IFRS requires the use of accounting estimates which, by definition, will seldom equal the actual results. Therefore, the estimates and assumptions are constantly reviewed. Any revision is recognized in the same period if it affects the reviewed period; or in the reviewed period and future periods if it affects all the current and future periods.
F-14
| 1. | Preparation of the consolidated financial statements under going concern basis |
Management has assessed the Bank’s ability to continue as a going concern and confirms that the Bank has adequate liquidity and solvency to continue operating the business for the foreseeable future, which is at least, but is not limited to, 12 months from the end of the reporting period. Based on the Bank's liquidity position at the date of authorization of the consolidated financial statements, Management maintains a reasonable expectation that it has adequate liquidity and solvency to continue in operation for at least the next 12 months and that the going concern basis of accounting remains appropriate.
The consolidated financial statements were prepared on a going concern basis and do not include any adjustments to the reported carrying amounts and classification of assets, liabilities and expenses that might otherwise be required if the going concern basis were not correct.
Assets and liabilities are measured at cost or amortized cost, except for some financial assets and liabilities and investment properties that are measured at fair value. Financial assets and liabilities measured at fair value comprise those classified as assets and liabilities at fair value through profit or loss, debt instruments and equity securities measured at fair value through other comprehensive income (“OCI”) and derivative instruments. Likewise, the carrying value of assets and liabilities recognized as a fair value hedge are adjusted for changes in fair value attributable to the hedged risk. Almost all investments in associates and joint ventures are measured using the equity method.
The consolidated financial statements are stated in Colombian pesos (“COP”) and figures are stated in millions or billions (when indicated), except earnings per share, diluted earnings per share and the exchange rate, which are stated in units of Colombian pesos, while other currencies (dollars, euro, pounds, etc.) are stated in thousands.
The Parent Company’s financial statements, which have been prepared in accordance with “Normas de Contabilidad e Información Financiera” (“NCIF”) applicable to separate financial statements, are those that serve as the basis for the distribution of dividends and other appropriations by the shareholders.
The separate financial statements are those presented by the Parent Company in which the entity recognizes and measures the impairment of credit risk through allowances for loans losses, the classification and measurement of certain financial instruments (such as debt securities and equity instruments) and the recognition of provisions for foreclosed assets, in accordance with the accounting required by the SFC, which differ in certain accounting principles from IFRS that are used in the consolidated financial statements.
2.Revised presentation of Statement of Cash Flow
In preparing the consolidated statement of cash flow as of December 31, 2023, the Company identified an error in the classification of the amount relating to the exchange difference of operating activities in the consolidated statement of cash flow for the years ended December 31, 2022 and 2021, that was included in the line “Effect of exchange rate changes on cash and cash equivalents”. The Company has made adjustments to the prior periods amounts presented in these financial statements accordingly. The Management evaluated the error in the classification and determined that the related impacts were not material.
The revisions to the consolidated statement of cash flow as of December 31, 2022 and 2021, are summarized in the following table:
December 31, 2022 | Adjustments | December 31, 2022 | ||||
(As previously reported) | (As revised) | |||||
In millions of COP | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Effect of exchange rate changes | | ( | ( | |||
Net cash provided by operating activities | | ( | | |||
Effect of exchange rate changes on cash and cash equivalents | | | | |||
Increase (Decrease) in cash and cash equivalents | | ( | | |||
F-15
Cash and cash equivalents at beginning of year | | - | | |||
Cash and cash equivalents at end of year | | - | |
December 31, 2021 | Adjustments | December 31, 2021 | ||||
(As previously reported) | (As revised) | |||||
In millions of COP | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Effect of exchange rate changes | | | ||||
Net cash provided by operating activities | | | | |||
Effect of exchange rate changes on cash and cash equivalents | | ( | | |||
Increase (Decrease) in cash and cash equivalents | ( | | ( | |||
Cash and cash equivalents at beginning of year | | - | | |||
Cash and cash equivalents at end of year | | - | | |||
| B. | Presentation of the consolidated financial statements |
The Bank presents the consolidated statement of financial position ordered by liquidity and the consolidated statement of income is prepared based on the nature of expenses. Revenues and expenses are not offset unless such treatment is permitted or required by an accounting standard or interpretation and described in the Bank's policies.
The consolidated statement of comprehensive income presents net income and items of OCI classified by nature and grouped into those that will not be reclassified subsequently to profit or loss and those that will be reclassified when specific conditions are met. The Bank discloses the amount of income tax relating to each item of OCI.
The consolidated statement of cash flows was prepared using the indirect method, whereby net income is adjusted for the effects of transactions of a non-cash nature, changes during the period in operating assets and liabilities, and items of income or expense associated with investing or financing cash flows.
| C. | Consolidation |
| 1. | Subsidiaries |
The consolidated financial statements include the financial statements of Bancolombia S.A. and its subsidiaries as of December 31, 2023 and 2022. The Parent Company consolidates the financial results of the entities over which it exerts control.
The Parent Company has the following subsidiaries making up the Bank´s organizational structure, which is currently registered as a corporate group:
PROPORTION OF | PROPORTION OF | PROPORTION OF | |||||||||
JURISDICTION | OWNERSHIP | OWNERSHIP | OWNERSHIP | ||||||||
ENTITY | OF | BUSINESS | INTEREST AND | INTEREST AND | INTEREST AND | ||||||
INCORPORATION | VOTING POWER | VOTING POWER | VOTING POWER | ||||||||
HELD BY THE | HELD BY THE | HELD BY THE | |||||||||
BANK 2023 | BANK 2022 | BANK 2021 | |||||||||
Fiduciaria Bancolombia S.A. Sociedad Fiduciaria |
| | % | | % | | % | ||||
Banca de Inversión Bancolombia S.A. Corporación Financiera | | % | | % | | % | |||||
Valores Bancolombia S.A. Comisionista de Bolsa | | % | | % | | % | |||||
WOMPI S.A.S. (before “VLIPCO S.A.S.”)(1) | | % | | % | | % | |||||
Renting Colombia S.A.S. | | % | | % | | % | |||||
Transportempo S.A.S. “En Liquidación” | | % | | % | | % | |||||
Inversiones CFNS S.A.S. | | % | | % | | % | |||||
Negocios Digitales Colombia S.A.S. (before “Pasarela Colombia S.A.S.”) | | % | | % | | % | |||||
Fondo de Capital Privado Fondo Inmobiliario Colombia(2) | | % | | % | | % | |||||
P.A. Inmuebles CEM(2) | | % | | % | | % | |||||
P.A. Calle 92 FIC-11(2) | | % | | % | | % | |||||
P.A. FIC Edificio Corfinsura(2) | | % | | % | | % | |||||
P.A. FIC-A5(2) | | % | | % | | % | |||||
P.A. FIC Inmuebles(2) | | % | | % | | % | |||||
P.A. FIC Clínica de Prado(2) | | % | | % | | % | |||||
P.A. FIC A6(2) | | % | | % | | % | |||||
P.A. Central Point(2) | | % | | % | | % |
F-16
Fideicomiso Irrevocable de Garantía, Fuente de Pago y Administración Inmobiliaria Polaris(2) | | % | | % | | % | |||||
P.A. Fideicomiso Twins Bay(2) | | % | | % | | % | |||||
Fideicomiso Lote Av San Martín(2) | | % | | % | | % | |||||
P.A. Fideicomiso Lote 30(2) | | % | | % | | % | |||||
Fideicomiso Fondo Inmobiliario Bancolombia(2) | | % | | % | | % | |||||
P.A. Florencia Ferrara(2)(3) | | % | | % | - | ||||||
P.A. Flor Morado Plaza(3) | | % | | % | - | ||||||
P.A. Galería la 33(4) | | % | - | - | |||||||
Valores Simesa S.A.(5) | | % | | % | | % | |||||
Fideicomiso Lote Distrito Vera B1B2(5) | | % | | % | | % | |||||
Fideicomiso Lote Distrito Vera B3B4(5) | | % | | % | | % | |||||
Fideicomiso Lote B6 Ciudad del Rio(6) | - | | % | - | |||||||
P.A. FAI CALLE 77(7) | | % | | % | - | ||||||
P.A. NOMAD SALITRE(8) | | % | | % | - | ||||||
P.A. NOMAD CENTRAL-2(9) | | % | - | - | |||||||
P.A. CALLE 84 (2)(9) | | % | - | - | |||||||
P.A. CALLE 84 (3)(9) | | % | - | - | |||||||
P.A. MERCURIO(10) | | % | | % | - | ||||||
Wenia S.A.S.(11) | | % | | % | - | ||||||
P.A. Wenia(11) | | % | - | - | |||||||
Nequi S.A. Compañía de Financiamiento(12) | | % | | % | - | ||||||
Bancolombia Panamá S.A. | | % | | % | | % | |||||
Sistemas de Inversiones y Negocios S.A. Sinesa | | % | | % | | % | |||||
Banagrícola S.A. | | % | | % | | % | |||||
Banistmo S.A. | | % | | % | | % | |||||
Banistmo Investment Corporation S.A. | | % | | % | | % | |||||
Leasing Banistmo S.A. | | % | | % | | % | |||||
Valores Banistmo S.A. | | % | | % | | % | |||||
Banistmo Panamá Fondo de Inversión S.A.(13) | | % | | % | | % | |||||
Suvalor Renta Fija Internacional Corto Plazo S.A.(14) | - | - | | % | |||||||
Fondo Renta Sostenible Global S.A.(14) | - | - | | % | |||||||
Banistmo Capital Markets Group Inc.(13) | | % | | % | | % | |||||
Anavi Investment Corporation S.A.(13) | | % | | % | | % | |||||
Desarrollo de Oriente S.A.(13) | | % | | % | | % | |||||
Steens Enterprises S.A.(13) | | % | | % | | % | |||||
Ordway Holdings S.A.(13) | | % | | % | | % | |||||
Grupo Agromercantil Holding S.A. | | % | | % | | % | |||||
Banco Agromercantil de Guatemala S.A. | | % | | % | | % | |||||
Seguros Agromercantil de Guatemala S.A. | | % | | % | | % | |||||
Financiera Agromercantil S.A. | | % | | % | | % | |||||
Agrovalores S.A. | | % | | % | | % | |||||
Arrendadora Agromercantil S.A. | | % | | % | | % | |||||
Agencia de Seguros y Fianzas Agromercantil S.A.(15) | - | | % | | % | ||||||
Asistencia y Ajustes S.A. | | % | | % | | % | |||||
Serproba S.A. | | % | | % | | % | |||||
Servicios de Formalización S.A. | | % | | % | | % | |||||
Conserjeria, Mantenimiento y Mensajería S.A. “En Liquidación” | | % | | % | | % | |||||
Mercom Bank Ltd.(16) | | % | | % | | % | |||||
New Alma Enterprises Ltd. | | % | | % | | % | |||||
Bancolombia Puerto Rico Internacional Inc. | | % | | % | | % | |||||
Bancolombia Cayman S.A.(17) | | % | | % | | % | |||||
Banco Agrícola S.A. | | % | | % | | % | |||||
Arrendadora Financiera S.A. Arfinsa | | % | | % | | % | |||||
Credibac S.A. de C.V. | | % | | % | | % | |||||
Valores Banagrícola S.A. de C.V. | | % | | % | | % | |||||
Inversiones Financieras Banco Agrícola S.A. IFBA | | % | | % | | % | |||||
Gestora de Fondos de Inversión Banagrícola S.A. | | % | | % | | % | |||||
Bagrícola Costa Rica S.A. | | % | | % | | % | |||||
Bancolombia Capital Holdings USA LLC(18) | | % | | % | | % | |||||
Bancolombia Capital Adviser LLC(18) | | % | | % | | % | |||||
Bancolombia Capital LLC(18) | | % | | % | | % | |||||
Wenia Ltd.(11) | | % | | % | - |
| (1) | During 2022 and 2023, the Bank, through its subsidiary Banca de Inversión S.A., purchased remaining shares from minority investors. |
| (2) | During 2022, the Bank increased its participation in FCP Fondo Inmobiliario Colombia, to strengthen governance and strategy decisions. For further information, see Note 1. Reporting entity. |
| (3) | Companies consolidated by Fondo de Capital Privado FCP Fondo Inmobiliario Colombia since April 2022 and December 2022. |
| (4) | Company consolidated by Fondo de Capital Privado FCP Fondo Inmobiliario Colombia since March 2023. |
| (5) | The decrease in the shareholding is due to the repurchase of outstanding stock carried out by Valores Simesa S.A. during 2023 and 2022. |
F-17
| (6) | During 2023, the trust rights were transferred by Valores Simesa S.A. |
| (7) | On March 1, 2022, the Parent Company was established as trustor of P.A. FAI Calle 77, owner of a property that will be used for rental housing. For further information, see Note 1. Reporting entity and Note 9.3. Business combination. |
| (8) | On April 4, 2022, the Parent Company was appointed as trustor of |
| (9) | During February and April 2023, the Parent Company was established as trustor of P.A. Nomad Central-2, P.A. Calle 84 (2) and P.A. Calle 84 (3), through a management mercantil trust agreement. |
| (10) | On July 8, 2022, Bancolombia S.A. acquired control of Fidecomiso P.A. Mercurio, through a management mercantil trust agreement. |
| (11) | On July 22, 2022, the Bank, through the subsidiary Sistemas de Inversiones y Negocios S.A. Sinesa, established the company Wenia Ltd. in Bermuda, a digital corporate vehicle whose purpose is to provide technology services. On November 22, 2022, Wenia Ltd. established the company called Wenia S.A.S., whose purpose is the creation and implementation of operating systems and software applications. On May 17, 2023, Wenia S.A.S. was established as trustor of the trust rights of P.A. Wenia. For further information, see Note 1. Reporting entity. |
| (12) | On December 14, 2021, the Board of Directors of the Parent Company authorized the legal separation of the business of Nequi, a Bank’s digital platform that offers financial services. The Superintendencia Financiera de Colombia, with Resolution 0843 of July 6, 2022, as amended by Resolution 0955 of July 27, 2022, authorized the incorporation of Nequi S.A. Compañía de Financiamiento. The legal separation resulted in the creation and commercial registration of a new corporation supervised by the Superintendencia Financiera de Colombia through which Nequi will operate as a |
| (13) | Investments in non-operational stage. |
| (14) | Companies not consolidated by Banistmo S.A. as of November 2022, due to non-compliance with consolidation requirements established in IFRS 10. |
| (15) | Company liquidated as of June 2023. |
| (16) | On September 30, 2021, Mercom Bank Ltd. shareholders authorized the beginning of an organized and gradual process to transfer of the assets and liabilities of Mercom Bank Ltd., to Banco Agromercantil de Guatemala S.A. or other companies of the Bancolombia Group. For further information, see Note 1. Reporting entity. |
| (17) | On October 5, 2020, the Board of Directors of Bancolombia Panamá (parent company of Bancolombia Cayman), authorized the decision to wind-down the business and operations of its subsidiary in Cayman. For further information, see Note 1. Reporting entity. |
| (18) | Companies created by Valores Bancolombia S.A. Comisionista de Bolsa in October 2021. For further information, see Note 1. Reporting entity. |
When necessary, adjustments are made to the accounting principles in the financial statements of subsidiaries to bring their accounting policies into line with the Bank’s accounting policies, in order to prepare consolidated financial statements using uniform accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Bank are eliminated in full on consolidation.
Non-controlling interests in controlled entities are presented in profit or loss and equity separately from the Parent Company’s shareholders equity and profit or loss. When the Bank loses control over a subsidiary, any residual interest remaining on the Bank’s balances is measured at fair value; gains or losses arising from this measurement are recognized in net income.
The loan and financial leases originated by Banistmo and Bancolombia Panama are subject to prudential regulation in Panama by the Superintendencia de Bancos de Panamá (“SBP”) requiring the maintenance of minimum reserves as a countercyclical capital buffer. For the years ended as of December 31, 2023 and 2022, the reserves recognized amounted to COP
F-18
| 2. | Transactions between entities under common control |
Combinations of entities under common control refer to those transactions in which all the combining entities are under the control of the Bank both before and after the combination, and that control is not transitory.
The assets and liabilities recognized as a result of transactions between entities under common control are recognized at the carrying value of the acquirer’s financial statements. The Bank presents the net assets received prospectively from the date of the transfer.
| 3. | Fund’s administration |
The Bank manages assets held in mutual funds and other forms of investment. Assets managed by the Bank’s subsidiaries and owned by third parties are not included in the consolidated financial statements unless control exists as structured entities.
The Bank consolidates the following funds:
% of ownership | % of ownership | % of ownership | Assets managed | |||||||||
Name | Country | interest held by | interest held by | interest held by | December 31, | December 31, | ||||||
the Bank, 2023 | the Bank, 2022 | the Bank, 2021 | 2023 | 2022 | ||||||||
Fondo de Capital Privado Fondo Inmobiliario Colombia(1) | | % | | % | | % | | | ||||
Fideicomiso Lote Distrito Vera B1B2(2) | | % | | % | | % | | | ||||
Fideicomiso Lote Distrito Vera B3B4(2) | | % | | % | | % | | | ||||
Fideicomiso Lote B6 Ciudad del Rio(3) | - | | % | - | - | | ||||||
Banistmo Panamá Fondo de Inversión S.A.(4) | | % | | % | | % | | | ||||
| (1) | It includes the amounts of certain equity instruments that are controlled through the subsidiary Fondo de Capital Privado Fondo Inmobiliario Colombia, they meet the definition of control in accordance with IFRS 10. For further information, see Note 2.C. Consolidation. Also, during 2022, the Bank increased its participation in FCP Fondo Inmobiliario Colombia, which facilitates speed in decision-making in matters of government and strategy. For further information, see Note 1. Reporting entity. |
| (2) | The decrease in equity interest is due to the repurchase by the subsidiary Valores Simesa S.A. (parent company of Lote Distrito Vera B1B2, Lote Distrito Vera B3B4 and Lote B6 Ciudad del Rio), during 2023 and 2022. For further information, see Note 2.C. Consolidation. |
| (3) | During 2023, the trust rights were transferred by Valores Simesa S.A. |
| (4) | Investment in non-operational stage. For further information, see Note 2.C. Consolidation. |
For all these funds, the Bank participated in the design of the structured entity, makes operating and financial decisions on behalf of the funds, and is exposed to variable returns such as dividends or returns paid in quarterly installments.
Commissions earned by the management of funds that are not consolidated are included in the consolidated statement of income as “Fees and commissions income”.
| 4. | Non-controlling interest |
Non-controlling interests in the net assets of consolidated subsidiaries are presented separately within the Bank’s equity. Similarly, net income and other comprehensive income are also attributed to non-controlling interest and equity holders of the Parent Company. In a business combination, the amount of non-controlling interest may be initially measured either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s identifiable net assets. The option for recognition is made on an investment-by-investment basis.
Any purchase or sale of shares in subsidiaries that does not imply a loss or gain of control is directly recognized in equity.
F-19
4.1. Significant non-controlling interest
FCP Fondo Inmobiliario Colombia
During the third quarter of 2022, the Bank increased its participation in the FCP Fondo Inmobiliario Colombia by
During 2023, returns were not delivered to the non-controlling interest. During 2022, returns were delivered to the non-controlling interest in quarterly installments due to the nature of its business, which mainly comprises a long- term investment in real estate which is considered a low-risk portfolio. The return delivered amounted to COP
The following table summarizes the net income and cash flows as of December 31, 2021 related to the FCP Fondo Inmobiliario Colombia:
Year-Ended 2021 | ||||||
In millions of COP | ||||||
Condensed statement of income | ||||||
Income | ||||||
Valuation of investment properties | | |||||
Valuation of trust rights | - | |||||
Rents | | |||||
Profits of equity method investees | | |||||
Other income | | |||||
Total Income | | |||||
Expenses | ||||||
Interest on loans | ( | |||||
Other administrative and general expenses | ( | |||||
Total Expenses | ( | |||||
Net Income | | |||||
Condensed cash flow (1) | ||||||
Net cash used in operating activities | ( | |||||
Net cash provided by financing activities | | |||||
Cash and cash equivalents at beginning of year | | |||||
Cash and cash equivalents at end of year | | |||||
| (1) | Statement of cash flow corresponds to the FCP Fondo Inmobiliario Colombia without equity securities consolidated cash flow. |
The information above represents the amounts before inter-company eliminations.
As of December 31, 2023, 2022 and 2021, the accumulated non-controlling interest of the FCP Fondo Inmobiliario Colombia amounted to COP
| D. | Material Accounting Policies |
The material accounting policies used by the Bank in the preparation of its consolidated financial statements are detailed below:
F-20
| 1. | Functional currency, transactions and balances in foreign currency |
The functional and presentation currency of the Bank´s consolidated financial statements is the Colombian peso. Therefore, all balances and transactions denominated in currencies other than the Colombian peso are considered as foreign currency, which are translated into the functional currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of the transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at period end are generally recognized in net income. They are deferred in equity (other comprehensive income) if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.
Non-monetary items that are measured at cost are held at the exchange rate at the transaction date, while those which are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. When a gain or loss on a non-monetary item is recognized in the consolidated statement of comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in net income, any exchange component of that gain or loss shall be recognized in net income.
The Bank translated the results and financial position of foreign subsidiaries a functional currency as follows:
| ● | Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that consolidated statement of financial position; |
| ● | Income and expenses for each statement of income and statement of comprehensive income is translated at average exchange rates for the period; and |
| ● | All resulting of such translations are recognized in other comprehensive income in the caption “Translation adjustment”. |
When a foreign operation is sold, the associated exchange differences are reclassified to net income, as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing exchange rate.
The table below sets forth the exchange rate used by the Bank and its subsidiaries to convert consolidated statement of financial position accounts and transactions in U.S. dollar into Colombian pesos:
December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||
Year-end exchange rate | | | | |||
Average rate for the period ended at | | | |
| 2. | Cash and cash equivalents |
The Bank considers cash and cash equivalents to include cash and balances at banks and the Central Bank, interbank assets and reverse repurchase agreements and other similar secured lending that have original maturities up to 90 days, as shown in Note 4. Cash and cash equivalents.
| 3. | Business combinations and goodwill |
Business combinations are those transactions where an acquirer obtains control of a business (e.g., an acquisition or merger).
Business combinations are accounted for using the acquisition method as follows: a) identifiable acquired assets, liabilities and contingent liabilities assumed in the acquisition are recognized at fair value at the date of acquisition; b) acquisition costs are recognized in the consolidated statement of income as expenses in the periods in which the costs are incurred and
F-21
the services are received; and c) goodwill is recognized as an asset in the consolidated statement of financial position or a gain from a bargain purchase.
The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree, and the equity interests issued by the Bank (if any).
Goodwill is measured as the excess of the sum of the consideration transferred, the value of any non-controlled interest and, when applicable, the fair value of any previous equity interest in the acquired entity, over the net fair value of the acquired assets, liabilities or contingent liabilities assumed at the date of acquisition.
For each business combination, at the date of acquisition, the Bank measures the non-controlling interest by the proportional share of the identifiable assets acquired, as well as liabilities and contingent liabilities assumed by the acquired company, or by their fair value.
Any contingent consideration in a business combination is classified as a liability or as equity and is recognized at fair value at the date of acquisition, the liability is remeasured at subsequent reporting dates in accordance with IAS 37 Provisions, contingent liabilities and contingent assets, and the consideration classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity.
The goodwill acquired in a business combination is allocated, at the date of acquisition, to the Bank's cash-generating units (or group of cash generating units) which are expected to benefit from the combination, regardless of whether other assets or liabilities of the acquiree are assigned to those units or group of units.
For business combinations achieved in stages, any previous equity interest held by the Bank in the acquiree is remeasured at its fair value at the date of acquisition and any resulting gain (or loss) is reported in the consolidated statement of income or other comprehensive income, as appropriate. Amounts related to such investments previously recognized in other comprehensive income that must be recycled through net income are reclassified to the consolidated statement of income, as if such investment had been sold. When the associate had other comprehensive income, which was not reclassified to profit or loss, the amounts were reclassified within equity to “Retained earnings” once the investment was sold.
On March 1, 2022, the Bank completed the acquisition of the PA FAI Calle 77 Trust, which constituted a business combination. For further details of this transaction, see Note 9.3. Business combination.
| 4. | Financial instruments |
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
| 4.1. | Financial assets |
Financial assets are recognized in the consolidated statement of financial position when the Bank becomes party to the contractual provisions of the instrument. This includes regular way purchases and sales, which are those purchases and sales of financial assets that require the delivery of assets within the time frame established by regulation or convention in the marketplace. The Bank uses settlement date accounting for regular way contracts when recording financial asset transactions.
At initial recognition, the Bank measures financial assets at fair value plus, in the case of a financial asset that is not measured at fair value through profit or loss, the transaction costs directly attributable to the acquisition of the financial assets. Transaction costs of financial assets subsequently measured at fair value with changes in profit or loss are recognized as expenses in the income statement. After initial recognition, for financial assets measured at amortized cost and investments in debt securities subsequently measured at fair value with changes in other comprehensive income, an allowance for expected credit losses (“ECL”) is recognized.
F-22
The Bank classifies its financial assets considering the business model and the characteristics of contractual cash flows (cash flows that consist solely of payments of principal and interest on the principal amount outstanding at specified dates – “SPPI”) in accordance with the following categories of subsequent measurement:
| ● | Amortized cost, measured at cost using the effective interest rate method, excluding future credit losses, and considering transaction costs and premiums granted, less commissions and discounts received that are included in the calculation of the effective interest rate. |
| ● | Fair value through other comprehensive income (“FVOCI”), measured using fair value, variations in the fair value of the investment are recognized in other comprehensive income, except for impairment losses or recoveries, interest income, and gains or losses on foreign exchange, which are recognized in the income statement. |
| ● | Fair value through profit or loss (“FVTPL”), measured using fair value, variations in the fair value are recognized in the income statement. |
The classification based on the business model reflects how the Bank manages financial assets and how it determines whether cash flows from the asset will come from obtaining contractual cash flows, selling the instrument, or both. If the objective is to obtain contractual cash flows, the assets are subsequently measured at amortized cost; if the objective is to obtain contractual cash flows and selling financial assets, the assets are subsequently measured at FVOCI. A financial asset shall be measured at FVTPL unless it is measured at amortized cost or at FVTORI.
The Bank measures equity instruments at FVTPL. Likewise, the Bank has made an irrevocable choice to present subsequent changes in the fair value of some equity instrument investments that are not held for trading in other comprehensive income; dividends from such investments are recognized in the income statement when the right to receive payment is established.
Accumulated gains or losses in other comprehensive income at the time of derecognition of a financial asset are reclassified from equity to the income statement, except for investments in equity instruments for which the Bank has made the irrevocable choice to present subsequent changes in fair value in other comprehensive income; for these, reclassification is made to the "retained earnings" line.
Expected credit losses are calculated using both individual and collective models and methodologies. These are based on significant assumptions and judgements that consider historical credit data, the current situation of the borrower and reasonable and proper forecasts of future economic conditions. Collective models include parameters such as the probability of default at 12 months, probability of default throughout the lifetime of the obligation (when the loan is classified as stage 2), loss given default, and exposure at default. These models also incorporate a prospective approach that includes assumptions of future macroeconomic conditions in plausible future scenarios. In addition, for loans individually assessed in stage 3, the Bank will evaluate significant defaulted loans. This evaluation will consider the debt profile of each debtor, the fair value of guarantees granted, information on credit behavior and the expected future cash flows from the client.
At the end of each period, the Bank assesses the impairment model based on the expected loss of a financial asset or a group of them, measured at amortized cost. The impairment loss will be measured from “day 1” after its initial recognition. The model is structured in three stages in which the financial asset can be categorized, from its initial recognition. This categorization considers the degree of credit risk, and the circumstances that produce a significant increase in it, as described below:
F-23
| ● | Stage 1: Financial instruments that have not experienced a significant increase in credit risk since their initial recognition, or that have low credit risk at the reporting date. |
| ● | Stage 2: Financial instruments that have experienced a significant increase in credit risk since their initial recognition (unless they have low credit risk at the reporting date), but do not have objective evidence of impairment. |
| ● | Stage 3: Financial assets that have objective evidence of impairment (“OEI”) at the reporting date. |
For each of the stages, an expected credit loss (“ECL”) is calculated. This calculation takes into account both current and future conditions, the behavior of the portfolio and various associated macroeconomic conditions.
| ● | For stage 1, a 12-month ECL is calculated. This represents the expected credit losses that could occur from default events within 12 months after the reporting date. |
| ● | For stage 2 and 3, a Lifetime ECL is calculated. This represents the expected credit losses that could occur from all possible default events over the expected life of the financial instrument. |
Significant increase in risk
To determine whether an asset has experienced a significant increase in risk since its initial recognition, and is therefore classified as Stage 2, the Bank performs an assessment of both quantitative and qualitative factors and reviews. For each portfolio, the Bank reviews the rebuttable presumption of more than 30 days overdue in payment. The Bank determines whether the credit risk of financial instruments has increased significantly since their initial recognition as follows:
Quantitative criteria
| ● | Clients who are 90 or more days past due. |
| ● | Lifetime PD assessment: The Bank has determined that the most suitable quantitative way to establish the significant increase in credit risk is by comparing the residual lifetime PD at the initial recognition and the current lifetime PD. To measure this difference, two thresholds are defined: |
| ◾ | Absolute threshold: This is the absolute difference between the current lifetime PD and the residual lifetime PD at initial recognition. A positive absolute variation beyond this threshold indicates an increase in the instrument’s risk. |
| ◾ | Relative threshold: This is a percentage variation between the value of the current lifetime PD and the residual lifetime PD at initial recognition. A positive percentage variation beyond this threshold indicates an increase in the instrument’s risk. |
If the PD comparison surpasses one threshold but not the other, it is not considered a significant increase in the instrument’s risk.
If the instrument does not exceed the threshold, other qualitative criteria are assessed. These can identify a significant increase in credit risk even when the obligation is nearing expiration. The criteria are as follows:
Qualitative criteria
| ● | Assets restructured due to risk, where the client is experiencing financial difficulties, are classified in stage 2, until the instrument is canceled, cured, or transferred to stage 3 because it meets the definition of default. |
| ● | Customers who are no longer in default (stage 3) remain in stage 2 for a period of 12 months. |
| ● | Clients on the watch list with a medium risk level. |
| ● | The Bank also reviews every six months to see if there are collective criteria for the migration of a group of clients to stage 2. For example, if a significant change has occurred from the commencement of a specific product or geographic region, or the occurrence of industry events, regulatory changes, market changes or any other significant event impacting the generation of future cash flow of the customer's operation. |
F-24
Refutable presumption of more than 30 days of default
The Bank has reviewed for each portfolio the presumption of a significant increase in 30 days past due and finds historical evidence that there is a relationship between this presumption and default.
Definition of default
To determine whether an asset is in default, and thus classified as stage 3, the Bank conducts an assessment of both quantitative and qualitative factors. It also reviews the rebuttable presumption of more than 90 days overdue in payment for each portfolio.
The Bank applies the following criteria to ascertain if there is a breach:
Quantitative criteria
| ● | Clients with an active portfolio and who have at least one instrument written off in the modality. |
| ● | Clients who are 90 or more days past due. |
Qualitative criteria
| ● | Clients in special states of restructuring, business reorganization or insolvency agreements. |
| ● | Clients on the watchlist a high-risk level. |
| ● | The Bank also aligns all products of the same client to stage 3 when at least one of its obligations is in default. |
Refutable presumption of default beyond 90 days
The Bank has conducted a review of the default presumption after 90 days past due for each portfolio. Historical evidence indicates a high probability of loss at 90 days. However, this presumption has been refuted for Banistmo’s mortgage portfolio. The rationale for this refutation is the historical evidence that demonstrates the default typically occurs at 120 days.
Collective methodology for measuring expected credit losses
The collective quantification of expected credit losses is conducted based on the stage classification, the homogeneous groups defined within each portfolio type and the client’s risk level.
Homogeneous groups are segmented by client type; for individuals, they are grouped by product, and for companies, they are grouped by industry segments defined by the client’s sales level.
Likewise, the risk level is assigned by customer type. For individuals, the risk is assessed using a behavioral scoring model for consumer products and a separate scoring model for housing products. The purpose of these models is to rank customers according to risk, allowing for more effective monitoring. The rating is based on historical behavior, transactional information, and customer product information. The consumer portfolio rating system is evaluated using various advanced statistical methodologies. These models allow the inclusion of a greater number of variables related to the customer, providing a more precise rating that aligns with the risk level.
For companies, risk levels are assessed using an internal rating model that incorporates both qualitative and quantitative variables as financial indicators. Clients are ranked on a scale from 1 to 19. This process also takes into account regional qualification programs, local market factors, and the client’s market knowledge.
In Colombia, for SME and Corporate portfolio, the risk level is estimated based on models that allow assigning an internal rating to a client considering their economic sector and in accordance with multiple variables. These include: financial information, transactional data, sectoral data, qualitative variables, and behavior. These models aim to achieve greater assertiveness in classifying the risk level of the Bank’s clients, greater discrimination and precision, the use of non-
F-25
traditional information, and interpretability, with the goal of achieving a deep understanding of the client. These methodologies play a fundamental role in the evaluation and monitoring of credit risk.
To estimate the expected credit losses (“ECL”) under the collective methodology, the following formula is used:
ECL = Probability of Default * Loss Given Default * Exposure at Default
The factors are estimated using statistical models developed from internal historical information of the entity and then adjusted with forward-looking information as described below:
| o | PD 12 months: The estimated probability of occurrence of a default in the next 12 months of the instrument’s life as of the date of analysis. The Bank defines the use of PD 12 months for current portfolio that does not present a significant increase in credit risk or any impairment evidence (portfolio classified in stage 1). To estimate the probability of default for 12 months, the Bank uses traditional techniques such as logistic regression, modeling the behavior of the portfolio by level of risk for each of the segments. |
| o | Lifetime PD: The estimated probability of occurrence of a default over the remaining life of an instrument, being dependent on the conditions of the product and the level of risk. The Bank defines the use of lifetime PD for portfolio with a significant increase in credit risk (portfolio classified in stage 2). The Bank estimates this factor using survival models which propose a statistical analysis to quantify the survival rate of a portfolio for a given period. One of the advantages of the methodology is the inclusion of prepaid models. |
| o | PD stage 3: The customers evaluated by the collective methodology in stage 3 have an associated probability of default of 100.00%. |
For revolving products and those with available borrowing that is likely to be used in its entirety, the Exposure at Default (“EAD”) estimate considers the use of the CCF (credit conversion factor), in order to find a relationship corresponding to the used and unused component of the instrument. To estimate the expected credit losses (“ECL”), a component of probability of becoming loan is included.
To estimate the lifetime expected credit loss, the exposed balance is projected annually, considering the discount of contractual payments agreed with the client for each year. Cash flows are discounted at the effective interest rate or an approximation of it.
F-26
Forward-looking information incorporated in the ECL models
To incorporate the prospective information to the factors defined for the estimation of the expected loss, the Bank uses methodologies that correlate the historical behavior of the portfolio with certain economic variables. The Bank uses projections based on three macro scenarios (base, pessimistic and optimistic); each scenario has a plausible probability of occurrence to evaluate the best estimate of the expected loss under possible future economic conditions.
To make the projections, the Corporate Economic Research team has defined a process for the generation of estimates under two perspectives: thematic and analytical.
As a result, projections are obtained for the economic variables of interest, which are formulated monthly in a time horizon that includes the current year and five subsequent years. After five years, given the technical difficulties and the high uncertainty, the projection of the economic variables for the total remaining useful life of each instrument corresponds to the value of the last projection.
The Bank considers that a five year projection horizon continues to be reasonable and that maintaining the fifth-year estimate for subsequent periods is a good approximation. This is based on the natural behavior of any statistical or econometric exercise of variable projection, in which the series tend towards a reversion to the mean or, in this case, to the long-term trend or equilibrium level. Then, in subsequent periods they remain there once the macroeconomic projections reach that steady state and only the materialization of a shock (unpredictable, so it is not possible to project when it will happen) would cause a deviation.
It is reasonable to think that in a period of 5 years, the macroeconomic variables projection would already be at a level very close to their equilibrium, since historically the maximum periods of consecutive deviation above or below the long-term trend (more or less 0.25 standard deviations of the variable) of the economic cycle (from the series of annual economic growth in the period 1972-2023) has been precisely a period of 5 years.
Economic scenario weightings
To incorporate not only a perspective, but also to recognize the uncertainty surrounding the short and medium-term economic context that the country will experience, the projection work incorporates three scenarios: base, optimistic and pessimistic.
It is intended that each perspective contain reasonable expectations and that each has a relevant level of probability associated with it.
Optimistic | Base | Pessimistic | ||||||||||
Country | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||
Colombia | | % | | % | | % | | % | | % | | % |
Panama | | % | | % | | % | | % | | % | | % |
El Salvador | | % | | % | | % | | % | | % | | % |
Guatemala | | % | | % | | % | | % | | % | | % |
F-27
The following is a comparison of the main macroeconomic variable projected in each country, "GDP growth", used to estimate ECL as of December 31, 2023 and 2022:
As of December 31, 2023 | ||||||||||||
Colombia | Panama | |||||||||||
Cutoff | Optimistic | Base | Pessimistic | Optimistic | Base | Pessimistic | ||||||
2023 | % | % | % | % | % | % | ||||||
2024 | % | % | ( | % | % | % | % | |||||
2025 | % | % | % | % | % | % | ||||||
As of December 31, 2023 | ||||||||||||
Guatemala | El Salvador | |||||||||||
Cutoff | Optimistic | Base | Pessimistic | Optimistic | Base | Pessimistic | ||||||
2023 | % | % | % | % | % | % | ||||||
2024 | % | % | % | % | % | | % | |||||
2025 | % | % | % | % | % | | % | |||||
As of December 31, 2022 | ||||||||||||
Colombia | Panama | |||||||||||
Cutoff | Optimistic | Base | Pessimistic | Optimistic | Base | Pessimistic | ||||||
2022 | | % | | % | | % | | % | | % | | % |
2023 | | % | | % | ( | % | | % | | % | | % |
2024 | | % | | % | | % | | % | | % | | % |
As of December 31, 2022 | ||||||||||||
Guatemala | El Salvador | |||||||||||
Cutoff | Optimistic | Base | Pessimistic | Optimistic | Base | Pessimistic | ||||||
2022 | % | % | % | % | % | % | ||||||
2023 | % | % | % | % | % | ( | % | |||||
2024 | % | % | % | % | % | ( | % | |||||
Special methodologies applied in stage 3
Collateral methodology
For defaulted loans (stage 3), when it is determined that the fundamental source of collection is a mortgage guarantee or a leased asset, the amount of the loss is estimated as the balance owed minus the weighted net present value of the market value of the collateral, estimated through appraisals with an age no longer than one year, minus the costs of obtaining, maintaining and selling the collateral, and affected by several macroeconomic scenarios with an expected probability of occurrence that result in a weighted expected loss.
Individual methodology
The Bank will individually evaluate defaulted loans (stage 3) greater than COP
Customers classified as individual methodology will be evaluated at least twice a year and, additionally, each time a relevant event occurs that reflects in significant changes in their level of risk and that leads to a change in the scenarios previously analyzed. The relevant events can be:
| ● | Significant changes in the value of the guarantee, |
| ● | Expected or adverse changes in the business, |
| ● | Potentially shocking regulatory changes for the business, |
F-28
| ● | Changes they make in their commercial and operational dynamics, and |
| ● | Significant amount of payments made by the client. |
To establish the future cash flows expected from the client, two approaches are presented, which may be via cash flow generation or via execution of some type of guarantee or liquidation of assets, that is, “Going Concern” or “Gone Concern” approach.
Approach via cash flow: This refers to an analysis under the premise of "Going concern", that is, it is assumed that the payment of the obligation will be made through the client's cash flow. The expected NPV calculation with a cash flow approach includes:
| ● | Financial projections of the client. |
| ● | Debt simulator. |
| ● | Expected NPV calculation. |
Approach via guarantee recovery: This refers to the "Gone concern", that is, it is assumed that the payment of the obligation will be given through the execution of guarantees, liquidation of assets, the execution of personal guarantees and adjudication of assets through judicial processes. The calculation of the NPV with guarantee approach includes:
| ● | Analysis of the guarantee. |
| ● | Future value of the guarantee. |
| ● | NPV calculation. |
| ● | Recovery times. |
Future cash flows are estimated based on two scenarios (base and alternative) that can be affected by the aforementioned variables.
4.1.2.2. Impairment of investments measured at fair value with changes in other comprehensive income
At the end of each period, the Bank evaluates the impairment model based on the expected loss of a financial asset or a group of assets that are measured at fair value with changes in other comprehensive income, where the impairment loss will be measured from "day 1" after its initial recognition.
Investments are classified in stages according to the risk level (rating), as follows:
Stage 1:
| ● | Investments rated at investment grade. |
| ● | Investments rated at speculation grade, if: |
| o | The current external rating is maintained or improved against the rating granted on the date of purchase. |
| o | If there is a rating deterioration, the deterioration is lower than the number of notches that signify a significant increase in risk. |
Stage 2:
| ● | Investments that pass from an investment grade rating to speculation level. |
| ● | If there is a rating deterioration, the deterioration is a number of notches that signify a significant increase in risk. |
Stage 3:
| ● | Investments that are classified as default. |
F-29
Significant increase in risk
Investments classified in stage 2 include those instruments that meet the corporate definition of a significant increase in risk.
To establish whether a security has a significant increase in risk since the initial recognition, an assessment of the deterioration of the rating in the current date is made against the rating granted at the time of purchase; according to the origin classification there may be an increase with 1, 2 or 3 notches, as shown in the following table:
SIGNIFICANT INCREASE | ||
EXTERNAL RATING ORIGIN | IN RISK | |
Ba1/BB+ | ||
Ba2/BB | ||
Ba3/BB- | ||
B1/B+ | ||
B2/B | ||
B3/B- | ||
Caa/CCC |
Measurement of expected losses:
Impairment: [Amortized Cost or Market Position (Exposure)] * PD (Probability of default) * LGD (Loss given default)
| ● | All instruments classified in stage 1 will be assigned a default probability for 12 months. |
| ● | All instruments classified in stage 2 will be assigned a probability of default for the life of the instrument. |
| ● | All instruments classified in stage 3 will be assigned a default probability of 100.00%. |
To estimate the impairment of the instruments if the issue has an external rating, provision is made with the PD (Probability of default) of the external rating agency; if it does not have an external rating, it is determined from the internal rating model and the default probability of the portfolio.
In all cases, the LGD (Loss Given Default) is the parameter calculated by the external rating agency for the investment portfolio at the closure of December 2023 it corresponds to
| 4.1.3. | Derecognition of financial assets |
| 4.1.3.1. | Derecognition of financial assets not resulting from modifications |
Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred, and the Bank has transferred substantially all the risks and rewards of ownership, or when the Bank neither transfers nor retains substantially all of the risks and rewards of ownership but it does not retain control of the financial asset.
When the Bank retains the contractual rights to receive cash flows from the financial asset, but assumes a contractual obligation to pay those cash flows to other entities, it shall treat the transaction as a transfer that results in derecognition if:
| ● | It has no obligation to pay any amounts to the other entities unless it collects equivalent amounts from the assets; |
| ● | It is prohibited from selling or pledging the assets; and |
| ● | It has an obligation to remit without material delay any cash flows it receives from the assets. |
F-30
| 4.1.3.2. | Modifications |
In modifications for commercial or market reasons, an assessment is made as to whether the modification is substantial; that is, whether the changes in the terms of the contract differ substantially from the original contract, based on the analysis of qualitative variables (inclusion of returns based on profit sharing, guarantees, other collateral, or credit enhancements that significantly affect the credit risk profile associated with the loan, changes in currency and/or obligor) and, in some cases, a quantitative assessment. When the modifications result in derecognition, the renegotiated contract is a new loan, subject to the classification and measurement requirements established by IFRS 9.
Similarly, the costs and commissions associated with the financial asset are derecognized. Modifications that do not result in derecognition are understood as non-substantial modifications, the carrying amount will be recalculated as the present value of the modified contractual cash flows discounted at the original interest rate, recognizing the effect of the modification in the margin net interest in the statement consolidated of income. Likewise, costs and commissions are adjusted and amortized over the remaining life of the modified asset.
Contractual modifications of financial assets may be carried out due to restructurings and/or renegotiations for credit risk due to the borrower's financial difficulties are evaluated as a non-substantial modification and therefore does not lead to derecognition. When a financial asset is restructured, the difference between the original contractual cash flow and the new cash flow of the restructured asset discounted at the original effective interest rate is recognized as a gain or loss in the statement consolidated of income as “Interest income on loan and financial leases”, the costs and fees are deferred and will be amortized by the remaining life of the modified asset.
| 4.1.3.3. | Written-Off loan portfolio |
Loans are written off when the Bank concludes there is no realistic expectation of recovery of the loans and receivables balances from a client or third party, i.e., there is no possibility of recovery due to the debtor's lack of ability or willingness to pay or in the absence of open guarantees granted by the debtor. In general, this characteristic will be fulfilled when the following delinquency conditions are present:
Length of delinquency (days) | |||||
Type | Collateral | Grupo Agromercantil Holding S.A. | Banistmo S.A. | Banco Agrícola S.A. | Bancolombia S.A. |
Without collateral | |||||
Commercial | With collateral | N/A(1) | |||
Without collateral | |||||
Consumer | With collateral | for vehicles collateral | for mortgage collateral | for mortgage collateral | |
Without collateral | |||||
Small Business Loan | With collateral | N/A(1) | for mortgage collateral | ||
Mortgage | With collateral | N/A(1) | |||
(1) Not dependent on the length of delinquency but on the reasons underlying a loan's non-recoverability.
Among the reasons underlying a loan's non-recoverability are the estimated recovery time of the obligation, the probable recovery percentage given the existence or lack of collateral and the inability to locate the client. When default conditions are present, it is initially necessary to evaluate whether the collateral that supports the loan generates a reasonable expectation of recovery; if so, the necessary steps are taken to realize on the collateral prior to writing-off the loan. In cases where the collateral net fair value indicates that there are no reasonable expectations of recovery, loans are written-off in the consolidated financial statements.
F-31
| 4.2. | Financial liabilities |
At initial recognition, the Bank measures its financial liabilities at fair value. The transaction costs that are directly attributable to the financial liability are deducted from its fair value if the instruments are subsequently recognized at amortized cost or will be recognized in the consolidated statement of income if the liabilities are measured at fair value.
| 4.2.1. | Classification and Measurement of Financial Liabilities |
Financial liabilities are classified and subsequently measured as follows:
| ● | Amortized cost, measured at cost using the effective interest rate method. |
| ● | Fair value through profit or loss (“FVTPL”), measured using fair value, with variations in value recognized in the income statement. |
| ● | Irrevocably designated at fair value through profit or loss, measured using fair value, with variations in value recognized in the income statement. The effect of changes in own credit risk is presented in other comprehensive income. |
| 4.2.2. | Derecognition of Financial Liabilities |
The Bank derecognizes a financial liability from the consolidated statement of financial position when it is extinguished; that is, when the contractual obligation has been paid or settled or has expired.
Debt Exchange
The Bank assesses whether instruments subject to debt exchange are substantially different from each other, considering qualitative aspects such as currencies, maturities, interest rates, subordination terms, regulatory framework, among others, and quantitative aspects, in which the present value of discounted cash flows under the conditions of the new instruments (including any net commission paid minus any commission received) using the original effective interest rate to calculate the discount differs by at least
When it is concluded that the instruments subject to debt exchange are not substantially different (based on the analysis of qualitative variables such as currency or issuance market changes, and in some cases a quantitative evaluation), the transaction is recognized as a modification of debt, and in this case, the amortized cost of the modified liability is adjusted to the present value of estimated contractual cash flows discounted at the original effective interest rate of the financial instrument, and the gain or loss is recognized immediately in the income statement. Incremental costs and commissions adjust the carrying amount of the liability and are amortized over the remaining life of the modified liability, following its subsequent measurement at amortized cost. In debt exchanges that are considered substantially different, derecognition is recognized in the income statement, and a new financial liability is recognized.
| 4.3. | Day one profit adjustment |
In situations where the fair value of a financial asset acquired or financial liability assumed at initial recognition differs from the transaction price, the Bank shall recognize a gain or loss directly in the consolidated statement of income if the fair value is supported by Level 1 inputs or is based on a valuation technique that uses only observable market data. In all other circumstances, the Bank defers the Day one gain or loss and recognizes it in the consolidated statement of income over the course of the transaction period.
| 4.4. | Compound instruments |
The Bank recognizes compound financial instruments that contain both liability and equity components separately. Therefore, for initial measurement, the liability component is the fair value of a similar liability which doesn´t have an equity component (determined by discounting future cash flows using the market rate at the date of the issuance). The difference between the fair value of the liability component and the fair value of the compound financial instrument,
F-32
considered as a whole, is the residual value assigned to the equity component. After initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition. The liability component corresponds to the preferred dividend related to
| 4.5. | Financial guarantee contracts and loan commitments |
The Bank issues financial guarantees and loan commitments. Loan commitments are those agreements under which the Bank has an irrevocable obligation to grant the loan. The financial guarantee contracts issued by the Bank are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due to accordance with the original or modified terms of a debt instrument.
Both financial guarantee contracts and loan commitments are initially recognized as liabilities at fair value, which is normally the fee received, adjusted for the directly attributable transaction costs incurred. Subsequently, liabilities are measured at the higher of the provision amount measured according to IFRS 9, and the amount initially recognized, less the accumulated amortization recognized according to IFRS 15 Revenue from contracts with customers.
Income derived from guarantees is recognized as “commission income” in the consolidated statement of income over the term of the contract, in accordance with the method and frequency of commission’s payments.
| 4.6. | Derivatives financial instruments |
A financial derivative is an instrument whose value changes in response to changes in a variable or index, such as an interest rate, exchange rate, the price of a financial instrument, a credit rating or a credit index. This instrument requires no initial payment or is lower in comparison to other financial instruments with a similar response to changes in market conditions and is generally settled at a future date.
The Bank recognizes its derivative financial instruments at fair value, based on the prices and valuation methodologies provided by the official pricing service provider (Precia); this includes counterparty credit-risk adjustments applied to derivatives when the Bank's position is a derivative asset, and the Bank's credit risk when the position is a liability on a derivative. For further information, see Note 30. Fair value of assets and liabilities, section d. Credit valuation adjustment.
Derivatives are recognized and measured at fair value through profit or loss unless such derivatives are designated as cash flow hedges or hedges of a net investment in a foreign operation. In those cases, the effective portion of changes in the fair value of the derivatives are recognized in other comprehensive income. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Gains and losses arising from changes in the fair value of derivatives, which are not in hedging relationships, are recognized in the consolidated statement of income under the "valuation on financial instruments" item, and gains and losses from the valuation of foreign exchange derivatives are included in the "Other Operating Income" item.
| 4.7. | Hedge accounting |
The Bank designates and documents hedge accounting at inception in accordance with the requirements of IFRS 9 Financial Instruments. When the hedging relationship is considered to be highly effective, the changes in value of the hedging derivative are accounted for according to their classification, as fair value hedges, cash flow hedges and hedges of net investment in foreign operations, as set out in the paragraph below.
The Bank assesses at the inception of the hedge and on a monthly basis during the life of the instrument, whether the hedge used in the transaction is expected to be aligned with the hedge effectiveness requirement (prospective effectiveness):
| ● | Economic relationship between the hedging instrument and the hedged item. |
| ● | The effect of credit risk does not predominate over the value of the economic relationship. |
| ● | Designated hedge ratio is consistent with risk management strategy. |
F-33
The Bank discontinues the hedge accounting when the hedging relationship no longer meets the criteria provided for hedge effectiveness or when the hedging instrument expires or is sold, terminated or exercised. Consequently, the item no longer complies with the hedge accounting conditions or the hedging relationship no longer complies with the risk management objective.
Before the establishment of hedge accounting, the Bank documents the relationship between hedged items and hedging instruments, as well as its risk management objectives and hedging strategies, which are approved by the Risk Management Committee as the body designated by the Board of Directors.
Hedge relationships are classified and accounted for in the following ways:
Fair value hedges
Fair value hedges are designated to protect against the exposure to changes in the fair value of recognized assets or liabilities or unrecognized firm commitments.
Changes in the fair value of derivatives that are designated and qualify as hedging instruments in fair value hedges are recognized in the consolidated statement of income as interest and valuation on financial instruments. The change in fair value of the hedged item attributable to the hedged risk is included as part of the carrying value of the hedged item, and it is also recognized in the aforementioned item of the consolidated statement of income.
For fair value hedges that are related to items accounted for at amortized cost, the adjustments to the carrying value are amortized through the consolidated statement of income during the remaining term until their expiry. The amortization of the effective interest rate shall begin as long as there is an adjustment to the carrying value of the hedged item and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognized, the non-amortized fair value is recognized immediately in the consolidated statement of income.
For the items hedged at amortized cost, the difference between the carrying value of the item hedged at the termination of the hedge and the nominal value are amortized using the effective rate method during the time beyond the original terms of the hedge.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with corresponding gain or loss recognized in net income.
Cash flow hedges
Cash flows hedges are used mainly to manage the exposure to variability related to the cash flow attributable to a specific risk associated with an asset or liability recognized on the consolidated statement of financial position or to a highly probable forecast transaction.
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in other comprehensive income. The ineffective portion of the gain or loss on the hedging instrument is recognized in the consolidated statement of income.
If the hedging instrument expires or is sold, terminated or exercised, without replacement or rollover into another hedging instrument, or if the hedging designation no longer meets the criteria provided for the hedge effectiveness requirements after any subsequent rebalancing adjustment, any accumulated gain or loss previously recognized in OCI remains in OCI, until the planned operation or the firm commitment affects the result.
F-34
When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in net income.
Hedges of a net investment in a foreign operation
In accordance with IFRS 9 and IFRIC 16 Hedges of a net investment in a foreign operation, the Bank has decided to apply the hedge accounting of the foreign currency risk arising from currency translation of consolidated financial statements and goodwill of its net investment in Banistmo, designating as a hedging instrument of certain debt securities issued by the Parent Company and financial liabilities. The hedge accounting requires that the Bank accounts for the gain or loss derived from the foreign exchange differences related to the debt securities that are determined to be an effective hedge is recognized in other comprehensive income, as is the currency translation adjustment of the Banistmo operation into the presentation currency as required by IAS 21 Effects of changes in foreign exchange rates as detailed in 1. Functional currency, transactions and balances in foreign currency.
| 5. | Investments in associates and joint arrangements |
| 5.1. | Investments in associates and joint ventures |
An associate is an entity over which the Bank has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control to make those policies decisions.
A joint venture is an entity that the Bank controls jointly with other participants, where the parties maintain a contractual agreement that establishes joint control over the relevant activities of the entity (which only exists when decisions about those activities require unanimous consent of the parties sharing control) and the parties have rights to the net assets of the joint arrangement.
The Bank's investments in associates and joint ventures are initially recorded at cost and their results, assets and liabilities are subsequently included in the consolidated financial statements using the equity method, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current assets held for sale and discontinued operations.
When an investment in an associate or joint venture is held by, or is held indirectly through, an entity that is a venture capital organization, or a mutual fund, unit trust or similar entities, and such investment is measured at fair value through profit or loss in that entity, the Bank may elect to measure investments in those associates and joint ventures at fair value through profit or loss in the consolidated financial statements. This election is applied on an investment-by-investment basis.
At the acquisition date, the excess of the acquisition cost of the associate or joint venture shares exceeding the Bank´s share of the net fair value of identifiable assets and liabilities of the investee is recognized as goodwill and is included in the carrying amount of the investment and it is not amortized. Any excess of the Bank’s share of the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment is included as income in the determination of the Bank’s share of the associate or joint venture’s profit or loss in the period in which the investment is acquired. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of assets. Impairment losses are recognized in accordance with the policy for impairment of assets, cash-generating units and goodwill (see section 12. Impairment of assets, cash-generating units and goodwill, of this note).
If the Bank's share of losses of an associate or joint venture exceeds the Bank's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Bank's net investment in the associate or joint venture), the Bank discontinues recognition its share of further losses. Additional, losses are recognized only to the extent that the Bank has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.
When the equity method is applicable, adjustments are considered in order to adopt uniform accounting policies of the associate or joint venture with the Bank. The portion that corresponds to the Bank for changes in the investee´s other
F-35
comprehensive income items is recognized in the consolidated statement of comprehensive income as “Unrealized gain/loss on investments in associates and joint ventures using equity method” and gains or losses of the associate or joint venture are recognized in the consolidated statement of income as “Dividends and net income on equity investments”, in accordance with the Bank's participation. Gains and losses resulting from transactions between the Bank and its associate or joint venture are recognized in the Bank´s consolidated financial statements only to the extent of the unrelated investor´s interest in the associate or joint venture. The equity method is applied from the acquisition date until the significant influence or joint control over the entity is lost. When the significant influence on the associate or the joint venture is lost, the Bank measures and recognizes any residual investment that remains at its fair value. The difference between the associate or joint venture carrying value (taking into account the relevant items of other comprehensive income), the fair value of the retained residual investment and any proceeds from disposing of a partial interest in the associate or joint venture, is recognized in the consolidated statement of income. The currency translation adjustments recognized in equity are reclassified to net income at the moment of disposal.
The unrealized gain or loss of an associate or joint venture is presented in the consolidated statement of comprehensive income, net of tax. Changes in the investment´s participation that arise from changes in other comprehensive income of an associate or joint venture are recognized directly in the investor’s statement of comprehensive income.
The dividends received from the associate or joint venture reduce the investment carrying value.
For further information, please see Note 8. Investments in associates and joint ventures.
| 5.2. | Joint operations |
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
The Bank recognizes and measures assets, liabilities, revenues, and expenses in relation to its interest in joint operations in accordance with the applicable IFRS for the particular assets, liabilities, revenues and expenses.
When the Bank acquires an interest in a joint operation in which the activity constitutes a business, as defined in IFRS 3, or when an existing business is contributed to the joint operation on its formation by one of the parties that participate in the joint operation, the Bank will apply all of the principles of IFRS 3. In this case, the Bank recognizes goodwill in the event that consideration transferred exceeds the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed.
When the Bank transacts with a joint operation in which the Parent Company or its subsidiaries is a joint operator (such as a sale or contribution of assets), the Bank is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognized in the Bank’s consolidated financial statements only to the extent of other parties’ interests in the joint operation.
| 6. | Leases |
| 6.1. | The Bank as lessee |
The Bank assesses whether a contract is or contains a lease at the inception of the contract and recognizes a right-of-use asset representing its right to use the leased asset and a lease liability representing its obligation to make lease payments. The Bank elected to apply the recognition exemptions for short-term leases (leases of 12 months or less and without a purchase option) and leases where the underlying asset is of low value. Lease payments related to these exemptions will be recognized as an expense in profit or loss on a straight-line basis over the term of the lease.
Both the right-of-use asset and the lease liability are measured at the present value of the lease payments that have not been paid at that date. Lease payments are discounted using the lessee’s incremental borrowing rate. In addition, the right-of-use asset includes: 1) the amount of the initial measurement of the lease liability, 2) lease payments or costs incurred by the lessee made before or after the commencement date, less lease incentives received, and 3) an estimate of the costs
F-36
to be incurred to dismantle the underlying asset, restore the site on which it is located or restore the underlying asset to the condition required by the lease.
Subsequently, the Bank measures the right-of-use asset at cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the lease liability. The Bank measures the lease liability by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made, and remeasuring the carrying amount to reflect any new expectation or lease modifications. Each lease payment has been allocated between the liability and interest expenses. The accrued interest on the lease liability for each period over the lease term will be the amount that produces a constant periodic rate of interest (incremental borrowing rate) on the remaining balance of the liability.
| 6.2. | The Bank as lessor |
The lease agreements entered into by the Bank are classified at the initial recognition as financial or operating leases.
A lease is classified as a finance lease when substantially all the risks and rewards incidental to ownership of the asset are transferred to the lessee and are recognized at a value equal to the net investment in the lease, corresponding to the sum of the minimum lease payments receivable and any unguaranteed residual value, discounted at the interest rate implicit in the lease. Otherwise, it is classified as an operating lease, recognizing and measuring the assets under the principles of property and equipment or investment property, in which case income and depreciation of property and equipment are recognized on a straight-line basis over the life of the asset. Contingent lease payments are recognized as revenue in the period in which they are received.
If during the lease term, the lessor and the lessee decide to modify the initial conditions, and the agreed changes result in a different classification, then the modified agreement will be considered a new lease with new clauses that will lead to the classification of a financial or operating lease, as appropriate.
The Bank uses the following indicia of transfer of risk and rewards incidental to ownership to the asset; if one of them is met, lease is classified as a finance lease:
| ● | The agreement indicates that the lessee has the option to purchase the asset at a price that is expected to be equal to or less than 10% of the fair value of the asset, upon termination of the lease. |
| ● | The term of the lease covers most of the economic life of the asset, even when the lease does not transfer the ownership of the underlying asset to the lessee at the end of the lease term, i.e., when the minimum lease term represents 75% or more of the economic life of the leased asset. |
| ● | At the inception of the lease, the present value of the minimum lease payments amounts to at least 90% of the fair value of the leased asset. |
| ● | The leased assets are of such a specialized nature that only the lessee has the possibility of using them without making significant modifications. |
| 7. | Premises and equipment and depreciation |
Premises and equipment include tangible items that are held for use, for rental to others, or for administrative purposes and are expected to be used for more than one period.
Items of premises and equipment are expressed at cost less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method, in order to derecognize the depreciable amount of premises and equipment over the estimated useful lives of the assets. The depreciable amount is the cost of an asset less its residual value. The estimated useful lives for each asset group are:
F-37
Asset group | Useful life range | |
Buildings | ||
Furniture and fixtures | ||
Computer equipment | ||
Equipment and machinery | ||
Vehicles |
The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. When there is a significant change, the depreciation and the charge to the consolidated statement of income are adjusted based on the new estimation.
The Bank assesses at the end of each year whether there is any indication of external or internal reduction in the asset’s recoverable value. If there is any indication of impairment, the Bank estimates the recoverable amount of the assets and then recognizes the impairment loss in the consolidated statement of income. For further information, see section 12. Impairment of non-financial assets, cash-generating units and goodwill in this note.
Maintenance expenses of the premises and equipment are recognized as an expense in the period in which they are incurred and are registered in the consolidated statement of income as “Other administrative and general expenses”.
Gains and losses in sales of premises and equipment are registered in the consolidated statement of income as “Other operating income”.
| 8. | Investment properties |
The investment properties are measured initially at cost, including the transaction costs. The carrying value includes the cost of replacement or substitution of a part of an investment property at the time the cost is incurred, if the cost meets the recognition criteria; and it excludes the daily maintenance costs of the investment property which are included in the consolidated statement of income as “Other administrative and general expenses”.
After the initial recognition, the investment properties are measured at fair value which reflects the market conditions at the consolidated statement of financial position date and are valued by Management with the support of external experts using valuation techniques based on comparable prices, direct capitalization, discounted cash flows and replacement cost. The gains and losses that arise from changes in the fair values of investment properties are included in the consolidated statement of income as “Other operating income”.
Transfers of an asset to or from the investment properties are only made when there is a change in its use. For a transfer from an investment property to premises and equipment, the cost taken into account for its subsequent accounting is the fair value at the time of the change in use. If a premise and equipment becomes an investment property, it will be accounted for at its fair value.
| 9. | Intangible assets |
Intangible assets are identifiable, non-monetary assets without physical appearance, separately acquired or internally generated by the Bank that are measured initially at cost and subsequently at cost less any accumulated amortization and any accumulated impairment loss. Intangible assets acquired in business combinations are recognized at fair value at the date of acquisition.
Intangible assets with finite useful lives (ranging from to
F-38
The Bank’s intangible assets comprise mainly intangibles of finite useful life, such as licenses, software and computer applications, customer relationships and trademarks (See Note 9. Goodwill and intangible assets, net). Intangibles of indefinite useful life include Goodwill.
When intangible assets with finite useful life are written-off, the expected future economic benefits period is reduced to increase the amount of amortization, resulting in the derecognition of the intangible asset in a shorter period than initially estimated.
Intangible assets with indefinite useful lives are not subject to amortization but are periodically tested to identify any impairment, either individually or at the cash-generating unit level. The assessment of the indefinite life is reviewed annually to determine if it continues being supportable. In the event that the assessment was not valid, the change from indefinite useful life to finite useful life is recognized prospectively. Intangible assets with an indefinite useful life correspond to goodwill.
| 9.1. | Internally generated intangible assets |
The costs of internally generated intangible assets are recognized as intangible assets if they have been incurred in the development stage and meet the recognition criteria; if so, such assets are presented in the consolidated statement of financial position at cost less accumulated amortization and accumulated impairment losses (see section 12. Impairment of non-financial assets, cash-generating units and goodwill in this note). Other expenditures are recorded as expenses in the consolidated statement of income.
Amortization of the asset begins when development is complete and the asset is available for use. Intangible assets are amortized using the straight-line method over their estimated useful lives and assessed at the end of the period for impairment.
| 10. | Inventories |
Inventories of assets or returned property are those assets arising from an early termination of a finance or operating lease or those on which the lease has been terminated, and they are expected to be sold in the normal course of business, which are controlled by the Bank and are expected to obtain future economic benefit.
The inventory of returned property is recognized as an asset from the date on which the Bank assumes the risks and benefits thereof. Assets arising from operating leases are initially measured at cost, which is the carrying amount less accumulated depreciation and impairment, if any. Assets returned property financial leasing operations are recognized at the lower of their book value plus sanitation costs and its net realizable value. When the book value is greater than the net realizable value, an adjustment is recognized under the caption "Provision for impairment of loan portfolio and financial leasing operations, net" in the consolidated income statement.
Inventories are measured at the lower of cost and net realizable value. Net realizable value ("NRV") is the estimated selling price in the normal course of business, less the estimated costs necessary to make the sale. The cost of inventories is assigned by using specific identification of their individual costs.
The Bank revises the NRV of its inventories at least annually, or when market conditions so require; the adjustment of the decrease in value is recognized directly in income. Adjustments to the NRV are recognized under the caption "Amortization, depreciation and impairment" in the consolidated statement of income, up to the value initially recognized.
| 10.1 | . Digital assets |
The Bank chooses as an accounting policy to recognize digital assets held to be sold in the normal course of its operations as inventories. Digital assets are measured at fair value less costs of sale. If there is no active market, the fair value of the digital asset will be zero given the low probability of its realization.
Changes in fair value are recognized in the consolidated statement of income for the period in which such changes occur.
F-39
The exchange differences of the digital asset in foreign currency are recognized within the valuation process inherent to the fair value model.
| 11. | Digital assets and liabilities held in custody for customers |
The Bank safeguards crypto assets for customers in digital wallets and cryptographic keys are required to access digital assets on the Bank's platform. The Bank safeguards these assets and/or keys and is required to protect them from loss, theft, or other misuse.
The Bank recognizes customer's digital assets initially and subsequently at fair value. At the same time, the Bank recognizes the obligation to safeguard the customer's digital asset as a liability. The liability should be measured at the same amount as the corresponding asset at fair value.
Any loss, theft or other misuse that impacts the measurement of customer cryptoassets is recognized in profit or loss in the period in which it occurs.
| 12. | Assets held for sale and discontinued operations |
The Bank classifies non-current assets or disposal groups held for sale if their carrying value will be recovered through a sale transaction, rather than through continuing use. These assets are measured at the lower of their carrying value and their fair value less costs to sell and they are not depreciated nor amortized from the date of their classification. Additionally, if any indications of impairment exist, impairment losses are recognized for the difference between the carrying and the fair value less costs to sell as “Impairment, depreciation and amortization” in the consolidated statement of income. Gains and losses in the sale of assets held for sale are recognized in the consolidated statement of income as “Other operating income” or “Other administrative and general expenses”.
The held for sale condition is met if the assets or groups of assets are available, in their current condition, for immediate sale or the sale transaction is highly probable and is expected to be completed within the year following the date of classification. In the Bank, the assets held under this classification correspond to foreclosed assets. If the sale of the asset does not take place within the planned period, the assets are reclassified to "Other assets, net" in the consolidated statement of financial position.
A discontinued operation is a component of an entity that has been disposed of, or is classified as held for sale, and represents a separate major line of business or a geographical area of operations, is part of a single coordinated and individual plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of a discontinued operation are presented separately from those of continuing operations in the consolidated statement of income on a comparative basis.
| 13. | Impairment of non-financial assets and cash-generating units and goodwill |
The Bank evaluates at the end of each period whether there is any indication that on a stand-alone basis non-financial assets and cash-generating units are impaired. If some indication of impairment does exist, the Bank estimates the recoverable amount of the assets and the loss by impairment, the impairment loss is recognized for the amount by which the carrying amount of the cash generating unit exceeds its recoverable amount. Regardless of whether impairment indicators exist, impairment of goodwill is assessed annually, or more frequently if events or changes in circumstances indicate that it may be impaired.
The recoverable amount of non-financial assets or cash-generating units is the higher of its fair value less costs of disposal and its value in use, where fair value is determined by Management by reference to market value, if available, by pricing models, or with the assistance of a valuation specialist. While value in use requires Management to make significant assumptions and use estimates to forecast cash flow for periods that are beyond the normal requirements of management reporting; and assess the appropriate discount rate and growth rate.
F-40
If an asset does not generate cash flows that are independent from the rest of the assets or group of assets, the recoverable amount is determined by the cash-generating unit to which the asset belongs.
The amount of impairment losses recognized in net income during the period are included in the consolidated statement of income as “Impairment, depreciation and amortization”. Except for impairment loss recognized for goodwill, impairment losses are subject to reversal, the increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
| 14. | Other assets |
The Bank presents as other assets, among other things, (a) the expenses paid in advance incurred in the development of its business, in order to receive future services, which are amortized during the period in which services are received or the costs or expenses are recorded and (b) foreclosed assets that do not comply with the requirements to be recognized as assets held for sale and where there are no plans to use them in the supply of services or for administrative purposes.
Foreclosed assets are initially recognized at the lower of net amount of the charged-off financial assets to which the foreclosed assets relate and net realizable value of the foreclosed asset (the net realizable value will be the estimated selling price of the asset or its awarding value, less the estimated costs necessary to carry out its sale), pending obtaining a plan for its commercialization. If net amount of the charged-off financial assets is greater than net realizable value of the foreclosed asset, an adjustment for impairment of credit risk of the financial asset is recorded in the results for the period.
There is evidence of impairment when these group of assets remain in the consolidated statement of financial position for a period of time exceeding one year from the reception date, without buyer having been found, despite the Bank’s ongoing efforts to sell them (even adjusting the selling price).
Foreclosed assets are subsequently assessed to determine whether an impairment lost must be recognized. In the case of events that arise that are beyond the control of the Bank and that make remote the realization of these assets, they are identified as "non-tradable”, and a complete impairment is carried out.
| 15. | Derecognition of non-financial assets |
The Bank's non-financial assets are derecognized either on disposal or when they are permanently withdrawn from use and no future economic benefits are expected. The difference between the value obtained on disposal and the carrying amount is recognized in the consolidated statement of income.
| 16. | Employee benefits |
| 16.1. | Short term benefits |
The Bank grants to its employees short-term benefits such as bonuses based on added value to clients and the Bank’s results, salaries, accrued performance costs and social security that are expected to be wholly settled within 12 months. Expenses related to these benefits are recognized over the period in which the employees provide the services to which the payments relate. For further information, see Note 19. Employee benefit plans.
| 16.2. | Other long-term employee benefits |
The Bank grants to its employees seniority bonuses as long-term employee benefits whose payment is not expected within the 12 months following the end of the annual period in which the employees have rendered their services. The cost of long-term employee benefits is allocated across the period from the time the employee was hired by the Bank and the expected date of obtaining the benefit. These benefits are projected up to the date of payment and are discounted through the projected unit credit method.
F-41
| 16.3. | Pensions and other post-employment benefits |
The Bank makes monthly contributions to pension funds, due to legal requirements and it has no legal obligation to pay further contributions.
The Bank recognizes contributions in the consolidated statement of income once the contribution is accrued. Any contributions unpaid at the consolidated statement of financial position date are included as a liability.
These are post-employment benefit plans in which the Bank has the legal or constructive obligation to take responsibility for the payments of benefits that have been agreed, for example, severance obligation, retirement pension premium plan and senior management pension plan premium and pension plan. The Bank makes an actuarial valuation based on the projected unit credit method and a risk-free rate which reflects current market assessments of the time value of money in each country (interest rate of treasury bonds [“TES”], representative of the nation's public debt), related to the characteristics and the benefit flows weighted average, to discount such obligation.
| 17. | Provisions, contingent liabilities and contingent assets |
Provisions
Provisions are recognized when the Bank has a present obligation (legal or constructive) as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the obligation's value can be made.
The corresponding expense for any provision is presented in the consolidated statement of income, net of all expected reimbursement. The increase in the provision due to the time value of money is recognized as a financial expense.
The amounts recognized in the consolidated statement of financial position, correspond mainly to:
| I. | Judicial proceedings |
Judicial provisions refer to pending legal proceedings on employment matters, ordinary lawsuits, class actions suit, civil actions within criminal prosecutions and executive proceedings against the Bank.
| II. | Onerous contracts |
For the Bank, an onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceeds the economic benefits expected to be received under it.
| III. | Loan commitments |
In order to meet the needs of its customers, the Bank issues loan commitments, letters of credit and bank guarantees. Loan commitments are those approved irrevocable loans, in which, despite having acquired a commitment to grant them, due to the contract or agreement or for any other reason they are still pending disbursement.
| IV. | Financial guarantees |
The Bank issues bank guarantees on behalf of its customers. A bank guarantee represents an irrevocable commitment pursuant to which the Bank will cover, up to the maximum amount guaranteed, a breach of the client's contractual obligations to third parties for a certain period of time. These are commitments issued by the Bank to guarantee the performance of a customer to a third party and are mainly issued to guarantee agreements established between parties from
F-42
the energy sector, hydrocarbons sector, private sector and public procurement contracts. The Bank expects most of those guarantees provided to expire before they are used.
The events or circumstances that would require the Bank to perform under a guarantee are determined by the type of guarantee, as outlined below:
Guarantees for the energy sector
The Bank is responsible before the guarantee’s beneficiary in the following situations:
| ● | Lack of energy supply due to low availability from the generating company (the guaranteed entity). |
| ● | Non-compliance with the contract signed by the guaranteed entity. |
| ● | Non-compliance with the payment for energy supply. |
| ● | Non-compliance with the construction and operating of power plants. |
| ● | Non-compliance with the construction and operating of transmission lines. |
Guarantees for the hydrocarbons sector
The Bank is responsible before the guarantee’s beneficiary in the following situations:
| ● | Non-compliance with the contractual obligations in the Minimum Exploration Program. |
| ● | Non-compliance with the contractual obligations in the Additional Exploratory Program. |
| ● | Non-compliance with the contractual obligations in the Post Exploratory Program. |
| ● | Non-compliance with the Technical Evaluation obligations. |
Guarantees for public procurement
The Bank must pay a state entity up to the amount guaranteed for the breach by the contractor of the contractual or legal obligations agreed.
Commitment issued by the Bank to guarantee the performance of a customer from the private sector
The Bank must pay the third party if there is any breach of what has been agreed upon or due to the economic insolvency of the client.
Contingent liabilities
Possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Bank, or present obligations that arise from past events but are not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligations or the amount of the obligations cannot be measured with sufficient reliability, are not recognized in the consolidated statement of financial position, but instead are disclosed as contingent liabilities, unless the possibility of an outflow of resources embodying economic benefits is remote, in which case no disclosure is required.
Contingent assets
Possible assets that arise from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Bank, are not recognized in the consolidated statement of financial position; instead, these are disclosed as contingent assets where an inflow of economic benefits is probable. When the realization of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.
F-43
| 18. | Revenue recognition |
The Bank recognizes revenue from ordinary activities, which represent the transfer of goods or services committed with customers in exchange for an amount that reflects the consideration to which the entity expects to be entitled. For performance obligations where none of the conditions for revenue recognition over time are met, the Bank satisfies the performance obligation at a point in time, at which the customer obtains control of the promised services.
Revenue is measured based on the consideration specified in the contract with the customer, and excludes amounts received on behalf of third parties when the Bank is an agent. The Bank recognizes revenue when it transfers control over a good or service to a customer. Revenue is presented net of reimbursements and discounts and after eliminating inter-group sales. The Bank evaluates its revenue categories based on specific criteria to determine whether it acts as principal or agent. Revenue is recognized to the extent that it is probable that economic benefits will flow to the Bank and it is possible to reliably measure the related revenues and costs.
When the Bank fulfills a performance obligation through the delivery of promised goods or services to customer, it creates a contractual asset for the consideration amount obtained with the performance. The Bank recognizes the contractual assets as current assets, as they are expected to be realized within the normal operating cycle.
The costs of contracts eligible for capitalization as incremental costs when obtaining a contract are recognized as a contractual asset. Contractual costs are capitalized when incurred if the Bank expects to recover those costs. Contractual costs constitute non-current assets to the extent that the Bank expects to receive the economic benefits of those assets in a period greater than twelve months. The contractual costs are amortized systematically and consistently with the transfer of the services to the customer once the corresponding revenue has been recognized. The capitalized contractual costs are impaired if the customer withdraws or if the carrying amount of the asset exceeds the projection of the discounted cash flows that are related to the contract.
Interest income comprises income of financial assets at amortized cost or at fair value through other comprehensive income. Interest income is recognized using the effective interest rate method, the computation takes into account all the contractual conditions of the financial instrument (for example, prepayment options) and includes incremental fees and commissions (for example, certain loan commitment fees) or expenses that are directly attributed to the instrument and are an integral part of the effective interest rate, without taking account future credit losses.
Valuation income relates to debt securities at fair value, where gains and losses arising from changes in fair value are included in the consolidated statement of income as “Interest and valuation on financial instruments”.
Fees and services commissions are recognized as the right to consideration is obtained through the exchange of goods or services that the entity has transferred to a customer. Therefore, the Bank recognizes some fees as revenue over time, such as income from commissions and asset management, custody and other administration and advisory commissions. While other fees are recognized as revenue at a point in time of completion of the underlying transaction, like commissions arising from the negotiation or participation in the negotiation of a transaction for a third party, such as the acquisition of shares or other securities or the purchase or sale of businesses. In addition, the Bank maintains a credit card loyalty program to provide incentives to its customers. The program allows customers to purchase goods and services, based on the exchange of awards points, which are awarded based on purchases using the Bank's credit cards and the fulfillment of certain conditions established in such program. The redemption of points for prizes is carried out by a third party. Therefore, the expenses of the Bank's commitments with its clients arising from this program are recognized as a lower value of the fees and commission income, considering the total number of points that can be redeemed over the accumulated prizes and the probability of redemptions.
Dividend revenue of investments that are not associates or joint ventures are recognized when the right to payment of the Bank is established, which is generally when the shareholders declare the dividend. These are included in the consolidated statement of income as “Dividends and net income on equity investments”.
F-44
| 19. | Income tax |
Income tax includes current tax and deferred tax. The current tax is the income tax payable with respect to the profit for the fiscal year, which arises in profit or other comprehensive income. A provision is made for current tax considering the tax bases and tax rates enacted in each of the jurisdictions where the Bank is located, at the date of preparation of the consolidated financial statements.
The Bank recognizes, when appropriate, deferred tax assets and liabilities by estimating the future tax effects attributable to differences between book values of assets, liabilities and their tax bases. Deferred tax assets and liabilities are measured based on the tax rate that, in accordance with the valid tax laws in each country where the Bank has operations, must be applied in the year in which the deferred tax assets and liabilities are expected to be realized or settled. The future effects of changes in tax laws or tax rates are recognized in the deferred taxes as from the date of publication of the law providing for such changes.
Tax bases for deferred tax must be calculated by factoring in the definition of IAS 12 Income tax and the value of the assets and liabilities that will be realized or settled in the future according to the valid tax laws of each of the countries where the Bank has operations.
Deferred tax liabilities due to deductible temporary differences associated with investments in subsidiary and associated entities or shares in joint ventures, are recognized, except when the Bank is able to control the period in which the deductible temporary difference is reverted, and it is likely that the temporary difference will not be reverted in the foreseeable future.
Deferred tax assets, identified with temporary differences, are only recognized if it is considered likely that the Bank will have sufficient taxable income in the future that allows it to be recovered based on the stand-alone entity expected cash flow forecast for the next three years.
Tax credit from fiscal losses and surplus amounts from the presumptive income on the net income are recognized as a deferred asset, provided that it is likely that the Bank will generate future net income to allow their offset.
The deferred tax is recorded as debit or credit according to the result of each of the companies that form the Bank, and for the purpose of disclosure on the consolidated statement of financial position it is disclosed as net.
The deferred income tax expense is recognized in the consolidated statement of income under the heading “Income tax”, except when referring to amounts directly recognized in OCI (Other Comprehensive Income).
Regulatory changes in tax laws and in tax rates are recognized in the consolidated statement of income under the heading “Income Tax” in the period when such rule becomes enforceable. Interest and fines are recognized in the consolidated statement of income under the other administrative and general expenses or in the caption "Income tax" of the consolidated income statement, when applicable.
The Bank periodically assesses the tax positions adopted in tax returns, and, according to the results of the tax audits conducted by the tax authorities, determines possible tax outcomes provided it has a present obligation and it is more likely than not that the Bank will have to dispose of the economic resources to cancel the obligation, and the Bank can make an accurate estimate of the amount of the obligation.
For further information about deferred tax considerations derived from the last Colombian tax reform (Law 2277 of 2022), see Note 12. Income tax.
Transfer pricing policy
The Bank has as a general policy that each of its companies be responsible for their income, costs and expenses independently. The policy takes into account the regulation for the Parent Company provided for in the Organic Statute of
F-45
the Financial System (article 119, numeral 4) which in relation to the autonomy of the subsidiaries states that: The activity of the subsidiaries of entities subject to the control and supervision of the SFC must be carried out in conditions of independence and administrative autonomy, so that they have sufficient decision-making capacity to carry out the operations that constitute their object.
The Bank recognizes arm’s length operations with foreign economic links. These operations are documented and reported to the tax Administration according to the last evaluation date corresponding to the previous year.
E. Use of estimates and judgments
The preparation of consolidated financial statements requires Bank's Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgments or changes in assumptions are disclosed in the notes to the consolidated financial statements. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under current circumstances. Actual results may differ from these estimates if assumptions and conditions change.
The significant accounting estimates that the Bank uses in preparing its consolidated financial statements are detailed below:
| 1. | Credit risk impairment |
As disclosed by Management and described in section D. Material Accounting Policies, paragraph 4.1.2. Impairment of financial assets at amortized cost or at fair value through other comprehensive income ‘FVTOCI’, expected credit losses are calculated using individual and collective models and methodologies based on assumptions and judgement considering historical credit data, current borrower situation and reasonable and supportable forecasts of future economic conditions. Collective models include parameters of probability of default at 12 months, probability of default throughout the lifetime of the obligation, loss given default, and exposure at default with the inclusion of the prospective approach that include assumptions of future macroeconomic conditions in plausible future scenarios. In addition, for loans individually assessed in stage 3, the Bank will evaluate defaulted significant loans, analyzing the debt profile of each debtor, the fair value of guarantees granted, information on credit behavior and the future cash flows expected from the client.
The estimation of impairment charges is a critical accounting policy because of the significance of this line item, the sensitivity of the charges to changes in assumptions about future events (behavior of the expected macroeconomic variables), weighting of macroeconomic scenarios and other somewhat subjective judgments that are incorporated in the individual credit loss models.
Some relevant assumptions must be made to operate the mathematical models behind the expected credit loss assessment. Assumptions are constructed from historical data to consider whether a customer has a significant increase in risk or is in default; these are reviewed by expert panels. Other assumptions such as future economic conditions, the simulation of reasonable future economic scenarios and the likelihood of those scenarios have a high impact on lifetime default probability models. These scenarios are determined and leveraged by the Direction of Economic Research.
The main factors considered in collective estimations of credit losses are the definition of significant increase in credit risk, definition of default, collateral values, loan maturity and macroeconomic forecast of variables such as unemployment, GDP, interest rates, among others. It is also important to consider any other variable that could influence a client´s willingness to pay.
F-46
In addition, individual credit loss models consider assumptions on how the financial performance and future cash flow of a client could be affected, the client’s expected future operational and commercial activity, the capacity to generate sufficient cash to pay debt obligations and trends and regulatory changes in the economic sector in which the client operates, changes in the collateral value, weighting of the scenarios used, as well as other internal or external factors. For further information, see Note 6. Loans and advances to customers, net and Risk management.
Given the inherent uncertainties and the high level of subjectivity involved in the assessment of three following factors, it is possible that the outcomes in the next financial year could differ from the expectations on which Management’s estimates are based:
| ● | Exposure at default: The exposed balance of assets to the current capital balance, interest, and receivable accounts. In the case of products whose nature is revolving and that have an available borrowing that is susceptible to be used in its entirety according to loan contracts subscribed with clients, this parameter includes an estimation of the use of those products after the client’s default. |
| ● | Probability of default (“PD”): This is the probability that the debtor fails to fulfill their obligations of capital and/or interest payment over a period of 12 months. This is linked to the rating/scoring of each debtor/operation. |
| ● | Loss given default (“LGD”): This is defined as the economic impairment that the entity would incur in the event of any instance of default. This depends mainly upon the characteristics of the debtor and upon the valuation of guarantees or collateral associated with the operation. |
Impairment loss models and methodologies, and the related assumptions, are assessed by the Bank’s Chief Risk Officer (“CRO”) on a regular basis, using robust validation procedures in order to assure a reasonable coverage of effective losses. This process enables Management to periodically determine whether assumptions and models used to measure credit risk impairment should be adjusted to achieve more precise estimations. Internal controls, data governance standards and approval processes, have been implemented by the Bank to make estimations more accurate. As of December 31, 2023, there has been an improvement in the methodology used to calculate impairment, as shown below:
| ● | LGD: A methodological change has been made to the selection of the defaulting client's recovery, which more closely reflects the client's payment behavior. |
| ● | New rating models have been developed to improve the risk classification of customers in the individual (in Colombia and Panama) and corporate (in Colombia) portfolios. |
| ● | Enhancements have been made to the threshold model to identify a significant increase in risk from the point of origin, which allows for greater accuracy in classifying customers into stage 2 with a high probability of default. |
| ● | The probability of default (“PD”) models currently incorporate data through February 2020 (pre-pandemic). When performing analyses to incorporate new information, difficulties are encountered in modeling and obtaining good precision and discrimination metrics due to the irregular behavior of the variables included in the estimates. These variables include macroeconomic factors such as the country’s low economic growth, high interest rates, and high unemployment, in addition to the behavior of default rates. These rates represent recoveries that are not real but have been given by the provision of financial relief and then a high level of default as a result of the economic situation that has had a negative impact on the credit portfolio. Therefore, the Bank’s Management has decided not to incorporate recent data into the PD models. However, an overlay has been created for those portfolios that have recent payment delinquencies above the historical average. |
The net effect of the above is the constitution of provisions of COP
| 2. | Impairment testing of cash generating units (“CGU”), including goodwill |
The Bank tests goodwill recognized upon business combinations for impairment at least annually. The impairment test for goodwill involves estimates and significant judgments, including the identification of cash generating units and the allocation of goodwill based on the expectations of which operating segments of the Bank will benefit from the acquisition. The fair value of the acquired companies is sensitive to changes in the valuation models’ assumptions. Adverse changes in any of the factors underlying these assumptions could lead the Bank to record a goodwill impairment charge. Management believes that the assumptions and estimates used are reasonable and supportable in the existing market environment and commensurate with the risk profile of the assets valued. See Note 9. Goodwill and intangible assets, net,
F-47
for further information related to carrying amount, valuation methodologies, key assumptions, sensitivities and the allocation of goodwill.
| 3. | Recognition of digital assets |
Currently, there is no specific definitive guidance in IFRS or alternative accounting frameworks to account for the recognition of digital assets held by the Bank, as well as the custody of digital assets held for customers, so management has exercised significant judgment in determining the appropriate accounting treatment.
The Bank has considered that it acts in the quality of a commodity trader, as defined in IAS 2, Inventories, by characterizing certain of its holdings as inventories, or more specifically, digital assets. The business model for digital assets will be to sell them in the near future and generate a profit from fluctuations in price or dealer margin. So, inventories held by commodity broker-dealers are measured at fair value less costs to sale. When such inventories are measured on that basis, changes in value are recognized in profit or loss in the period.
With respect to the custody of digital assets held by customers, the Bank recognizes a liability for the obligation to safeguard user's assets and recognizes an associated asset for the cryptographic assets safeguarded. Both the liability and the asset must be measured initially and subsequently at the fair value of the crypto assets being safeguarded.
In the event that the IASB issues final guidance, the Bank may be required to modify its accounting policies, which could have a significant effect on the Bank's consolidated financial statements.
| 4. | Deferred tax |
Deferred tax assets and liabilities are recorded on deductible or levied temporary differences originating between tax and accounting bases, taking into account the tax rules applicable in each country where the Bank has operations. Due to the changing conditions of the political, social and economic environment, the constant amendments to tax legislation and the permanent changes in the tax principles and changes in interpretations by tax authorities determining the tax bases for the deferred tax items involves difficult judgments including estimates of future gains, offsets or tax deductions. Accordingly, the determination of the deferred tax is considered a critical accounting policy.
For more information relating to the nature of deferred tax assets and liabilities recognized by the Bank, please see Note 12. Income tax.
| 5. | Provisions and contingent liabilities |
The Bank is subject to contingent liabilities, including those arising from judicial, regulatory and arbitration proceedings, tax and other claims arising from the conduct of the Bank’s business activities. These contingencies are evaluated based on Management’s best estimates and provisions are established for legal and other claims by assessing the likelihood of the loss actually occurring as probable, possible or remote. Contingences are provisioned and recorded when all the information available indicates that it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation before the consolidated statement of financial position date and the amounts may be reasonably estimated. The Bank engages internal and external experts in assessing probability and in estimating timing, nature and amount of outflows that may result from past events.
Provisions are determined by Management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period, which estimate is discounted using a risk-free rate which reflects current market assessments of the time value of money in each country, which for Colombia is the interest rate on treasury bonds “TES”.
Throughout the life of a contingency, the Bank may learn of additional information that can affect assessments regarding probability or the estimates of amounts involved; changes in these assessments can lead to changes in recorded provisions.
The Bank considers the estimates used to determine the provisions for contingent liabilities critical estimates because the probability of their occurrence and the amounts that the Bank may be required to pay are based on the Bank’s judgment
F-48
and those of its internal and external experts, which will not necessarily coincide with the future outcome of the proceedings. For further information regarding legal proceedings and contingencies and their carrying amounts, see Note 21. Provisions and contingent liabilities.
| 6. | Fair value of assets and liabilities |
The fair value of the Bank's assets and liabilities is determined at the date of the consolidated statement of financial position. The Bank's fair value measurement process considers the characteristics of the asset or liability in the same way that market participants would take them into account when pricing the asset or liability at the measurement date; the estimate takes into account inputs from valuation techniques used to measure fair value.
To increase consistency and comparability in fair value measurements and related disclosures, the Bank specifies different levels of inputs that may be used to measure the fair value of financial instruments, as follows:
Level 1: Assets and liabilities are classified as Level 1 if there are observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis. Instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions.
Level 2: Assets and liabilities are classified as Level 2 if in the absence of a market price for a specific financial instrument, its fair value is estimated using models whose input data are observable for recent transactions of identical or similar instruments.
Level 3: Assets and liabilities are classified as level 3 if unobservable input data were used in the measurement of fair value that are supported by little or no market activity and that are significant to the fair value of these assets or liabilities. The fair value of Level 3 financial assets and liabilities is determined using pricing models, discounted cash flow methodologies or similar techniques.
Transfers into or out of Level 3 are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. All transfers between the aforementioned levels are assumed to occur at the end of the reporting period.
The measurement of the fair value of financial instruments generally involves a higher degree of complexity and requires the application of judgments especially when the models use unobservable inputs (level 3) based on the assumptions that would be used in the market to determine the price for assets or liabilities. Determination of these assumptions includes consideration of market conditions and liquidity levels. Changes in the market conditions, such as reduced liquidity in the capital markets or changes in secondary market activities, may reduce the availability and reliability of quoted prices or observable data used to determine fair value.
When developing fair value measurements, the Bank maximizes the use of observable inputs and minimizes the use of unobservable inputs in measuring fair value. Additionally, the Bank uses third-party pricing services to obtain fair values, which are used to either record the price of an instrument or to corroborate internally developed prices. Third-party price validation procedures are performed over the reasonableness of the fair value measurements. For further details regarding carrying amount and sensitivity disclosures, please see Note 30. Fair value of assets and liabilities.
| 7. | Measurement of employee benefits |
The measurement of post-employment benefit obligations and long-term employee benefits takes into account a range of inputs and it is dependent upon a series of assumptions of future events. The projected unit credit method is used to determine the present value of the obligation for the defined benefits and its associated cost. Future measurements of obligations may differ to those presented in the consolidated financial statements, among others, due to changes in economic and demographic assumptions and significant events. The actuarial valuation methodology of the post-employment and long-term benefit plans include typified discount rates by each benefit plan, with the objective of
F-49
presenting more relevant information on the value of these plans in the consolidated financial statements. For further information, see Note 19. Employee benefit plans.
| 8. | Transaction price determination |
With respect to contracts with the Bank’s customers, for the determination of the transaction price, the Bank allocates to each one of the performance obligations under the contract the price which represents the value expected to be received in respect of each such performance obligation based on its relative stand-alone selling price. Such price is determined based on the cost of each service, related tax and associated risks to the operation and inherent to the transaction, plus the margin expected to be received for the services, considering in each case the market price for the service, the conditions agreed with the customer and the customer’s segment. The Bank has fixed and variable prices considering the characteristics of each service, future events, discounts, returns and other variables that may influence the selling price. No significant financing components are factored in the determination of the selling price. For further information, see Note 25. Operating income.
| 9. | Leases |
The measurement of the right-of-use asset and of the lease liabilities requires a series of judgments, among which are the determination of the term of the lease and the rate used in discounting the cash flows. The term of the lease is defined according to the historical information of the contracts and the period over which an asset is expected to be economically usable, which involves a high degree of uncertainty due to the use of relevant information about past events. In the Bank’s case, the weighted average lessee’s incremental borrowing rate was used to discount the cash flows associated with the leasing contracts. The Bank performs analysis taking into account the currency, lease term, economic environment and class of underlying assets, as to determine the weighted average lessee’s incremental borrowing rate. For further information, see Note 7. Leases.
| 10. | Uncertainty over income tax treatments |
In the process of determining the current and deferred tax for periods subject to review by the tax authority, the applicable rules have been applied and interpretations have been made to take positions, on which different interpretations could arise from those made by the entity. Due to the complexity of the tax system, the continuous modifications of the fiscal rules, the accounting changes with implications in the tax bases and in general the legal instability of the country, at any time the tax authority could have different criteria from the Bank. Therefore, a dispute or inspection by the tax authority on a specific tax treatment may affect the deferred or current tax asset or liability bank´s accounting, in accordance with the requirements of IAS 12.
Management and its advisors believe that their decisions concerning the estimates and judgments made in each fiscal period are in accordance with those required by the current tax regulations, and therefore have not considered it necessary to recognize any additional provisions to those indicated in Note 12. Income tax.
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Definition of Accounting Estimates: In February 2021, the Board issued Definition of Accounting Estimates, which amended IAS 8. The amendments introduced the definition of accounting estimates in paragraph 5 and included other amendments to IAS 8 to help entities distinguish changes in accounting estimates from changes in accounting policies.
The amendment to IAS 8 is effective for annual periods beginning on or after January 1, 2023, and early application is permitted.
F-50
The Bank early applied this amendment as of January 1, 2022, with no impact on the Bank's consolidated financial statements and disclosures, due to the new definition of accounting estimates being in accordance with that which the Bank currently applies and discloses.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements. Disclosure of Accounting Policies: In February 2021 the Board amended IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, to replace the term "significant" with "material", to require an entity to disclose its material accounting policy information rather than its significant accounting policies. Therefore, accounting policy information may be considered material when that information is considered together with other information in a complete set of financial statements. In the Board’s view, accounting policy information is expected to be material if its disclosure was needed for primary users to understand information provided about material transactions, other events or conditions in the financial statements. These amendments are effective for annual periods beginning on or after January 1, 2023, and early application is permitted.
The Bank applied this amendment for the annual consolidated financial statements and disclosures beginning on or after January 1, 2023. For further information, see section D. Material Accounting Policies in this note.
Amendments to IAS 12 Income Taxes. Deferred Tax related to Assets and Liabilities arising from a Single Transaction: In May 2021, the Board issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction. The amendments narrowed the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 (recognition exemption) so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences.
This amendment is effective for annual periods beginning on or after January 1, 2023, and early application is permitted.
This amendment was assessed by Management without evidencing an impact on the Bank's consolidated financial statements and disclosures because no exemptions are currently applied for the recognition of deferred taxes arising from a single transaction.
Amendments to IAS 12 Income Taxes - International Tax Reform—Pillar Two Model Rules: In May 2023, the IASB amended IAS 12 Income Taxes to give companies temporary relief from accounting for deferred taxes arising from the Organisation for Economic Co-operation and Development’s (“OECD”) international tax reform.
The OECD published the Pillar Two model rules in December 2021 to ensure that large multinational companies would be subject to a minimum 15.00% tax rate. More than 135 countries and jurisdictions representing more than 90.00% of global GDP have agreed to the Pillar Two model rules.
The amendments introduce:
| - | A temporary exception—to the accounting for deferred taxes arising from jurisdictions implementing the global tax rules. This will help to ensure consistency in the financial statements while easing into the implementation of the rules; and |
| - | Targeted disclosure requirements—to help investors better understand a company’s exposure to income taxes arising from the reform, particularly before legislation implementing the rules is in effect. |
Companies can benefit from the temporary exception immediately but are required to provide the disclosures for annual reporting periods beginning on or after January 1, 2023.
This amendment has been assessed by Management with no evidence of an impact on the Bank's consolidated financial statements and disclosures, due the OECD’s Pillar Two model rules has not yet been implemented in Colombia and in the countries in which the Bank has a presence.
New Standard IFRS 17 Insurance Contracts and amendments to IFRS 17: IFRS 17, issued in May 2017 to replace IFRS 4 Insurance Contracts, applies to insurance contracts, including reinsurance contracts, issued by an entity with
F-51
specified exceptions; reinsurance contracts held by an entity; and investment contracts with discretionary participation features issued by an entity that issues insurance contracts.
The new rules will affect the financial statements and key performance indicators of all entities that issue insurance contracts or investment contracts with discretionary participation features.
Targeted amendments made in July 2020 aimed to ease the implementation of the standard by reducing implementation costs and making it easier for entities to explain the results from applying IFRS 17 to investors and others. The amendments also deferred the application date of IFRS 17 to 1 January 2023.
Further amendments made in December 2021 added a transition option that permits an entity to apply an optional classification overlay in the comparative period(s) presented on initial application of IFRS 17. The classification overlay applies to all financial assets, including those held in respect of activities not connected to contracts within the scope of IFRS 17. It allows those assets to be classified in the comparative period(s) in a way that aligns with how the entity expects those assets to be classified on initial application of IFRS 9. The classification can be applied on an instrument-by-instrument basis.
This standard is effective for annual periods beginning on or after January 1, 2023, and early application is permitted for entities that apply IFRS 9 Financial Instruments before the date of initial application of IFRS 17.
The Bank applied this amendment for the annual consolidated financial statements and disclosures beginning on or after January 1, 2023. For further information, see Note 32. Impacts on application of new standards.
Amendments to IAS 1 Presentation of Financial Statements: On January 23, 2020, the IASB issued amendments to IAS 1 to clarify the requirements for classifying liabilities as current or non-current. More specifically:
- The amendments specify that the conditions which exist at the end of the reporting period of an obligation are those which will be used to determine if a right to defer settlement of a liability exists.
- Management expectations about events after the balance sheet date, for example on whether a covenant will be breached, or whether early settlement will take place, are not relevant.
- The amendments clarify the situations that are considered settlement of a liability.
Additionally, on October 30, 2022, the IASB issued an amendment to IAS 1 to improve the disclosures an entity provides when its right to defer settlement of a liability for at least twelve months is subject to compliance with covenants, and how this impacts the classification of that liability as current or non-current.
The amendments to IAS 1 are required to be applied for annual periods beginning on or after January 1, 2024. The amendments must be applied retrospectively, in accordance with IAS 8. Early application is permitted.
Management concluded that this amendment has no impact on the preparation of the consolidated financial statements, because the Bank presents the consolidated statement of financial position ordered by liquidity, according to the business nature.
Amendments to IFRS 16 Leases- Lease liability in a sale and leaseback: In September 2022, the Board amended IFRS 16 to add subsequent measurement requirements for sale and leaseback transactions that meet the requirements of IFRS 15 to be accounted as a sale. The amendments require a seller-lessee to subsequently measure lease liabilities arising from a subsequent lease such that it does not recognize any amount of gain or loss that relates to the right-of-use that it retains.
This amendment is effective for annual periods beginning on or after January 1, 2024, and early application is permitted.
This amendment has been assessed by Management with no evidence of an impact on the Bank's consolidated financial statements and disclosures, due the new requirements are in line with what the Bank has applied and disclosed.
F-52
NOTE 3. OPERATING SEGMENTS
Operating segments are defined as components of an entity about which separate financial information is available and that is evaluated regularly by the chief operating decision maker (CODM) in deciding how to allocate resources and assessing performance; the CODM is comprised of the Bank’s President (CEO) and Financial Vicepresident (CFO). The segment information has been prepared following the Bank’s accounting policies and has been presented consistently with the internal reports provided to the CODM.
The CODM uses a variety of information and key financial data on a segment basis to assess the performance and make decisions regarding the investment and allocation of resources, such as:
| ● | Net interest margin (Net margin on financial instruments divided by average interest-earning assets). |
| ● | Return on average total assets (Net income divided by average total assets). |
| ● | Return on average stockholders’ equity. |
| ● | Efficiency ratio (Operating expenses as a percentage of interest, fees, services and other operating income). |
| ● | Asset quality and loan coverage ratios. |
The Bank has the following segments: Banking Colombia, Banking Panama, Banking El Salvador, Banking Guatemala, Trust, Investment Banking, Brokerage, International Banking and All other segments. The factors used to identify the Bank’s reportable segments are the nature of the products and services provided by the subsidiaries and the geographical locations where the subsidiaries are domiciled, in line with the CODM’s operating decisions related to the results of each segment.
The Bank’s operating segments are comprised as follows:
•Banking Colombia
This segment provides retail and corporate banking products and services to individuals, companies and national and local governments in Colombia. The Bank’s strategy in Colombia is to grow with these clients based on value added and long-term relationships. In order to offer specialized services to individuals toguarantee quality service and promote business growth and country development.
In order to offer specialized services to individuals, small and medium-sized enterprises (SMEs) and large companies, the individual sales force classifies its target customers as: Personal, Plus and Corporate. The Bank´s corporate and government sales force targets and specializes in companies with more than COP
On December 14 of 2021, the Parent Company´s Board of Directors authorized the legal separation of the Nequi business, the digital platform of the Bank. The Financial Superintendence of Colombia (Superintendencia Financiera de Colombia) through Resolution 0843 of July 6, 2022, later modified by the Resolution 0955 of July 27, 2022, authorized the establishment of Nequi S.A. Compañía de Financiamiento. The legal separation resulted in the creation and commercial registration of a new corporation through which Nequi will operate as a
This segment is responsible for managing the Bank operations with its own portfolio, liquidity and distribution of treasury products and services to its customers in Colombia.
F-53
•Banking Panama
This segment provides retail and commercial banking products and services to individuals and companies in Panama and includes all the operations of Banistmo S.A. and its subsidiaries, which are managed and monitored by the CODM on a consolidated basis. Banking Panama also includes operations of the following operational stage subsidiaries: Banistmo Investment Corporation S.A., Leasing Banistmo S.A. y Valores Banistmo S.A.; and of the following non-operational subsidiaries: Banistmo Panamá Fondo de Inversión S.A., Banistmo Capital Markets Group Inc., Anavi Investment Corporation S.A., Desarrollo de Oriente S.A., Steens Enterprises S.A. and Ordway Holdings S.A.
This segment is also responsible for the management of Banistmo’s proprietary trading activities, liquidity and distribution of treasury products and services to its client base in Panama.
•Banking El Salvador
This segment provides retail and commercial banking products and services to individuals, companies and national and local governments in El Salvador through Banco Agrícola S.A. Banking El Salvador also includes operations of the following subsidiaries: Banagrícola S.A, Inversiones Financieras Banco Agrícola S.A. IFBA, Bagrícola Costa Rica S.A., Gestora de Fondos de Inversión Banagricola, S.A, Valores Banagrícola S.A. de C.V., Credibac S.A. de C.V. and Arrendadora Financiera S.A. Arfinsa.
This segment is also responsible for the management of Banco Agrícola’s proprietary trading activities, liquidity and distribution of treasury products and services to its client base in El Salvador.
•Banking Guatemala
This segment provides retail and commercial banking and insurance products and services to individuals, companies and national and local governments in Guatemala through Banco Agromercantil de Guatemala S.A., Banking Guatemala also includes operations of the following subsidiaries: Seguros Agromercantil S.A., Financiera Agromercantil S.A., Agrovalores S.A., Arrendadora Agromercantil S.A., Asistencia y Ajustes S.A., Serproba S.A., Servicios de Formalización S.A., Conserjería, Mantenimiento y Mensajería S.A.(company in liquidation), New Alma Enterprises LTD. On June 29, 2023, Agencia de Seguros y Fianzas Agromercantil S.A.S. was wound up. The Mercom Bank Ltd is in the process of gradually winding down its operations. For further information, see Note 1. Reporting Entity.
This segment is also responsible for the management of Banco Agromercantil’s proprietary trading activities, liquidity and distribution of treasury products and services to its client base in Guatemala.
•Trust
This segment provides trust and asset management services to clients in Colombia through Fiduciaria Bancolombia S.A. Sociedad Fiduciaria.
The main products offered by this segment include money market accounts, mutual and pension funds, private equity funds, payment trust, custody services and corporate trust.
•Investment banking
This segment provides corporate and project financial advisory services, underwriting, capital markets services and private equity management through Banca de Inversión Bancolombia S.A. Corporación Financiera. Its customers include private and publicly-held corporations as well as government institutions.
F-54
•Brokerage
This segment provides brokerage, investment advisory and private banking services to individuals and institutions through Valores Bancolombia S.A. Comisionista de Bolsa. It sells and distributes equities, futures, foreign currencies, fixed income securities, mutual funds and structured products.
This segments also includes the operations of Bancolombia Capital Holdings USA LLC, Bancolombia Capital LLC and Bancolombia Capital Advisers LLC, to provide broker-dealer and investment advisor services in the United States. For further information, see Note 1. Reporting entity.
•International Banking
This segment provides a complete line of international banking services to Colombian and foreign customers through Bancolombia Panamá S.A., Bancolombia Cayman S.A. (company in liquidation), and Bancolombia Puerto Rico International, Inc. It offers loans to private sector companies, trade financing, leases financing and financing for industrial projects, as well as a complete portfolio of cash management products, such as checking accounts, international collections and payments. Through these subsidiaries, the Bank also offers investment opportunities in U.S. dollars, savings and checking accounts, time deposits, and investment funds to its high net worth clients and private banking customers.
The Board of Directors of Bancolombia Panamá (Parent Company of Bancolombia Cayman), decided to wind down the business and operations of its subsidiary in Cayman. For further information, see Note 1. Reporting entity.
•All other segments
This segment provides financial and operating lease activities, including leasing services to clients in Colombia. Bancolombia offers these services mainly through the following Subsidiaries: Renting Colombia S.A.S. and Transportempo S.A.S. (company in liquidation). Additionally, through the FCP Fondo Inmobiliario Colombia, the Bank provides real estate service.
This segment also includes results from the operations of investment vehicles of the Bank: Valores Simesa S.A., Negocios Digitales Colombia S.A.S., Inversiones CFNS S.A.S., Sistema de Inversiones y Negocios S.A. Sinesa and the technology services company Wompi S.A.S.
From 2022, this segment includes the operations developed by the trusts P.A. FAI CALLE 77, P.A. Nomad Salitre and P.A. Mercurio, from 2023 it includes P.A. Nomad Central, P.A. Calle 84 (2) and P.A. Calle 84 (3).
In addition, includes Wenia LTD, a company formed by the subsidiary, Sistemas de Inversiones y Negocios S.A. SINESA, in Bermuda. The company is a corporate vehicle for the creation and implementation of operating systems and software applications. Additionally, it includes Wenia S.A.S. which since December 2023 began to consolidate the Wenia P.A. For further information, see Note 1. Reporting Entity.
In accordance with IFRS 8, the figures reported in "all other segments" combine the information on operating segments that did not meet the quantitative thresholds defined by this same standard, i.e., the absolute individual amount of their reported results is, in absolute terms, less than 10 percent of the combined results of all segments and their assets represent less than 10 percent of the combined assets of all operating segments of the Bank.
Financial performance by operating segment:
The CODM reviews the performance of the Bank using the following financial information by operating segment:
F-55
For the year ended December 31, 2023 | ||||||||||||||||||||
Banking | Banking | Banking El | Banking | Investment | International | All other | Total | |||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | banking | Brokerage | Banking | segments | segments | |||||||||||
In millions of COP | ||||||||||||||||||||
Total interest and valuation on financial instruments | | | | | | | | | | | ||||||||||
Interest income on loans and financial leases | | | | | | - | | | | | ||||||||||
Total debt investments | | | | | - | | | | | | ||||||||||
Derivatives | ( | | | - | - | - | ( | ( | - | ( | ||||||||||
Total liquidity operations | | | | | - | - | | | - | | ||||||||||
Interest expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | | | | | ( | | | | | | ||||||||||
Total credit impairment charges, net | ( | ( | ( | ( | ( | ( | | | ( | ( | ||||||||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | | | | | ( | ( | | | | | ||||||||||
(Expenses) Revenues from transactions the operating segments of the Bank | ( | ( | ( | ( | ( | | | | ( | - | ||||||||||
Fees and commissions income(1) | | | | | | | | | | | ||||||||||
Fees and commissions expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Total fees and commissions, net | | | | | | | | | | | ||||||||||
Other operating income (Expenses) | | | | | | ( | | | | | ||||||||||
Dividends and net income on equity investments | | | | | | ( | | | | | ||||||||||
Total operating income, net | | | | | | ( | | | | | ||||||||||
Operating expenses(2) | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Impairment, depreciation and amortization | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Total operating expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Profit before income tax | | | | | | ( | | | | | ||||||||||
| (1) | For further information about income from contracts with customers, see Note 25.3 Fees and commissions. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
For the year ended December 31, 2022 | ||||||||||||||||||||
Banking | Banking | Banking El | Banking | Investment | International | All other | Total | |||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | banking | Brokerage | Banking | segments | segments | |||||||||||
In millions of COP | ||||||||||||||||||||
Total interest and valuation on financial instruments | | | | | | | | | | | ||||||||||
Interest income on loans and financial leases | | | | | | - | | | | | ||||||||||
Total debt investments | | | | | - | | | | ( | | ||||||||||
Derivatives | | ( | | - | - | - | | - | - | | ||||||||||
Total liquidity operations | ( | | | | - | - | ( | | | | ||||||||||
Interest expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | | | | | ( | - | | | | | ||||||||||
Total credit impairment charges, net | ( | ( | ( | ( | ( | ( | | | ( | ( | ||||||||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | | | | | ( | ( | | | ( | | ||||||||||
Revenues (Expenses) from transactions the operating segments of the Bank | ( | ( | ( | ( | ( | | | | ( | - | ||||||||||
Fees and commissions income(1) | | | | | | | | | | | ||||||||||
Fees and commissions expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Total fees and commissions, net | | | | | | | | | | | ||||||||||
Other operating income (Expenses) | ( | | | | | | | | | | ||||||||||
Dividends and net income on equity investments | ( | | | | | | ( | | | | ||||||||||
Total operating income, net | | | | | | | | | | | ||||||||||
Operating expenses(2) | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Impairment, depreciation and amortization | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Total operating expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||
Profit before income tax | | | | | | | | | | | ||||||||||
| (1) | For further information about income from contracts with customers, see Note 25.3 Fees and commissions. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
F-56
For the year ended December 31, 2021 | ||||||||||||||||||||||||
Banking | Banking | Banking El | Banking | Investment | International | All other | Total before | Adjustments for | Total after | |||||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | Banking | Brokerage | Banking | segments | eliminations | consolidation | eliminations | |||||||||||||
In millions of COP | ||||||||||||||||||||||||
Total interest and valuation on financial instruments | | | | | | - | | | | | | | ||||||||||||
Interest income on loans and financial leases | | | | | | - | | | | | | | ||||||||||||
Total debt investments | | | | | - | - | | | | | - | | ||||||||||||
Derivatives | | | | - | - | - | ( | | - | | - | | ||||||||||||
Total liquidity operations | ( | | | | - | - | | ( | | ( | - | ( | ||||||||||||
Interest expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | - | ( | ||||||||||||
Net interest margin and valuation on financial instruments before impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | | | | | ( | ( | | | ( | | | | ||||||||||||
Total credit impairment charges, net | ( | ( | | | ( | ( | ( | | ( | ( | ( | ( | ||||||||||||
Net interest margin and valuation on financial instruments after impairment on loans and financial leases, off balance sheet credit instruments and other financial instruments | | | | | ( | ( | | | ( | | ( | | ||||||||||||
Revenues (Expenses) from transactions the operating segments of the Bank | | ( | | ( | ( | | | | ( | - | - | - | ||||||||||||
Fees and commission income(1) | | | | | | | | | | | - | | ||||||||||||
Fees and commission expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | - | ( | ||||||||||||
Total fees and commission income, net | | | | | | | | | | | - | | ||||||||||||
Other operating income (Expenses) | | | | | | | ( | | | | ( | | ||||||||||||
Dividends and net income on equity investments | | | | | | ( | | | | | - | | ||||||||||||
Total operating income, net | | | | | | | | | | | ( | | ||||||||||||
Operating expenses(2) | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | - | ( | ||||||||||||
Impairment, depreciation and amortization | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||
Total operating expenses | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||
Profit (Loss) before income tax | | | | | | | | | | | ( | | ||||||||||||
| (1) | For further information about income from contracts with customers, see Note 25.3 Fees and commissions. |
| (2) | Includes salaries and employee benefits, other administration and general expenses and taxes other than income tax. |
The following table presents financial information of the total assets and liabilities by operating segment:
As of December 31, 2023 | ||||||||||||||||||||||||
In millions of COP | ||||||||||||||||||||||||
Adjustments | ||||||||||||||||||||||||
Banking | Banking | Banking El | Banking | Investment | International | Allother | Total before | for | Total after | |||||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | banking | Brokerage | Banking | segments | eliminations | consolidation | eliminations | |||||||||||||
Total assets | | | | | | | | | | | ( | | ||||||||||||
Total liabilities | | | | | | | | | | | ( | | ||||||||||||
As of December 31, 2022 | ||||||||||||||||||||||||
In millions of COP | ||||||||||||||||||||||||
Adjustments | ||||||||||||||||||||||||
Banking | Banking | Banking El | Banking | Investment | International | Allother | Total before | for | Total after | |||||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | banking | Brokerage | Banking | segments | eliminations | consolidation | eliminations | |||||||||||||
Total assets | | | | | | | | | | | ( | | ||||||||||||
Total liabilities | | | | | | | | | | | ( | | ||||||||||||
The following table presents financial information of the investments in associates and joint ventures by operating segment:
As of December 31, 2023(1) | ||||||||||||
Banking | Banking El | Investment | All other | |||||||||
Colombia | Salvador | Trust | banking | segments | Total | |||||||
In millions of COP | ||||||||||||
Investments in associates and joint ventures | | | | | | | ||||||
Equity method | ( | | | | | | ||||||
| (1) | As of December 31, 2023, Banking Panama, Banking Guatemala, Brokerage and International Banking did not have investments in associates and joint ventures. |
F-57
As of December 31, 2022(1) | ||||||||||||
Banking | Banking El | Investment | All other | |||||||||
Colombia | Salvador | Trust | banking | segments | Total | |||||||
In millions of COP | ||||||||||||
Investments in associates and joint ventures | | | | | | | ||||||
Equity method | | | | | | | ||||||
| (1) | As of December 31, 2022, Banking Panama, Banking Guatemala, Brokerage and International Banking did not have investments in associates and joint ventures. |
For additional information related to investment in associates and joint ventures, see Note 8 Investments in associates and joint ventures.
Information about products and services
The Bank does not report revenues from external customers for each product and service or each group of similar products and services, because the information is not available and the cost to develop it is excessive.
Geographic information
The following summarizes the Bank’s total interest and valuation and long-lived assets attributable to Colombia and other foreign countries based on the country where the Interest and valuation was originated:
2023 | 2022 | 2021 | ||||||||||
Geographic information | Interest and | Long-lived | Interest and | Long-lived | Interest and | Long-lived | ||||||
valuation(1) | assets(2) | valuation(1) | assets(2) | valuation(1) | assets(2) | |||||||
In millions of COP | ||||||||||||
Colombia | | | | | | | ||||||
Panama | | | | | | | ||||||
El Salvador | | | | | | | ||||||
Guatemala | | | | | | | ||||||
United States of America | | | - | | - | - | ||||||
Bermuda | | | | - | - | - | ||||||
Puerto Rico | | | | | | | ||||||
Total | | | | | | | ||||||
Eliminations and adjustment | ( | | ( | | ( | | ||||||
Total, net | | | | | | | ||||||
| (1) | Includes interest and valuation on financial instruments. |
| (2) | Includes assets held for sale, premises and equipment, net, investment property, right-of-use assets, goodwill and intangible assets, net. |
NOTE 4. CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flow and the consolidated statement of financial position, the following assets are considered as cash and cash equivalents:
F-58
December 31, 2023 | December 31, 2022 | |||
In millions of COP | ||||
Cash and balances at central bank | ||||
Cash | | | ||
Due from central banks(1) | | | ||
Due from other private financial entities | | | ||
Checks on hold | | | ||
Remittances of domestic negotiated checks in transit | | | ||
Total cash and due from banks | | | ||
Money market transactions | ||||
Interbank borrowings | | | ||
Reverse repurchase agreements and other similar secured loans | | | ||
Total money market transactions | | | ||
Total cash and cash equivalents | | | ||
| (1) | According to External Resolution No. 20 of 2020 of Banco de la República, which amends External Resolution No. 5 of 2008 issued by the Colombian Central Bank, the Parent Company must maintain, the equivalent of |
As of December 31, 2023 and 2022, there is restricted cash amounting to COP
NOTE 5. FINANCIAL ASSETS INVESTMENTS AND DERIVATIVES
5.1 Financial assets investments
The Bank’s securities portfolios at fair value through profit or loss, other comprehensive income and at amortized cost are listed below, as of December 31, 2023 and 2022:
F-59
As of December 31, 2023
Measurement methodology | ||||||||
Financial assets investments | Fair value through | Fair value through other | Amortized | Total carrying | ||||
profit or loss | comprehensive income, net | cost, net | value, net | |||||
In millions of COP | ||||||||
Securities issued by foreign governments | | | | | ||||
Securities issued by the Colombian Government | | | | | ||||
Corporate bonds | | | | | ||||
Securities issued by government entities | | - | | | ||||
Securities issued by other financial institutions(1)(2) | | | | | ||||
Total debt instruments | | | | | ||||
Total equity securities | | | | |||||
Total other instruments financial(3) | | | ||||||
Total financial assets investments | | |||||||
| (1) | Includes mortgage-backed securities (TIPS) measured at fair value through profit or loss amounting to COP |
| (2) | At December 31, the Bank has recognized in the Consolidated Statement of Comprehensive Income COP |
| (3) | Corresponds to convertible notes or agreements for the future purchase of shares, Simple Agreement for Future Equity “SAFE”, by Inversiones CFNS S.A.S., Sistema de Inversiones y Negocios, S.A. and Banagrícola S.A |
As of December 31, 2022
Measurement methodology | ||||||||
Financial assets investments | Fair value through | Fair value through other | Amortized | Total carrying | ||||
profit or loss | comprehensive income, net | cost, net | value, net | |||||
In millions of COP | ||||||||
Securities issued by foreign governments | | | | | ||||
Securities issued by the Colombian Government | | | | | ||||
Corporate bonds | | | | | ||||
Securities issued by government entities | | - | | | ||||
Securities issued by other financial institutions(1)(2) | | | | | ||||
Total debt instruments | | | | | ||||
Total equity securities | | | | |||||
Total other instruments financial(3) | | | ||||||
Total financial assets investments | | |||||||
| (1) | Includes mortgage-backed securities (TIPS) measured at fair value through profit or loss amounting to COP |
| (2) | At December 31, 2022, the Bank has recognized in the Consolidated Statement of Comprehensive Income COP ( |
| (3) | Corresponds to convertible notes or agreements for the future purchase of shares, Simple Agreement for Future Equity “SAFE”, by Inversiones CFNS S.A.S. and Sistema de Inversiones y Negocios, S.A. In 2022 were revealed as debt instruments and equity securities. |
F-60
The following tables set forth the debt instruments portfolio by maturity:
As of December 31, 2023
Less than 1 | Between 1 and 3 | Between 3 and 5 | Greater than 5 | |||||||
year | years | years | years | Total | ||||||
In millions of COP | ||||||||||
Securities at fair value through profit or loss | ||||||||||
Securities issued by foreign governments | | | | | | |||||
Securities issued by the Colombian Government | | | | | | |||||
Securities issued by other financial institutions | | | | | | |||||
Corporate bonds | | | | | | |||||
Securities issued by government entities | | | | - | | |||||
Subtotal | | | | | | |||||
Fair value through other comprehensive income | ||||||||||
Securities issued by the Colombian Government | | | - | - | | |||||
Securities issued by foreign governments | | | | | | |||||
Corporate bonds | | - | | | | |||||
Securities issued by other financial institutions | | | - | | | |||||
Subtotal | | | | | | |||||
Securities at amortized cost | ||||||||||
Securities issued by government entities | | - | - | | | |||||
Corporate bonds | | | | | | |||||
Securities issued by other financial institutions | | | | | | |||||
Securities issued by foreign governments | | | | | | |||||
Securities issued by the Colombian Government | | - | | | | |||||
Subtotal | | | | | | |||||
Total debt instruments | | | | | | |||||
As of December 31, 2022
Less than 1 | Between 1 and 3 | Between 3 and 5 | Greater than 5 | |||||||
| year | years | years | years | Total | |||||
In millions of COP | ||||||||||
Securities at fair value through profit or loss | ||||||||||
Securities issued by foreign governments | | | | | | |||||
Securities issued by the Colombian Government | | | | | | |||||
Securities issued by other financial institutions | | | | | | |||||
Corporate bonds | | | | | | |||||
Securities issued by government entities | | | | | | |||||
Subtotal | | | | | | |||||
Fair value through other comprehensive income | ||||||||||
Securities issued by foreign governments | | | | | | |||||
Securities issued by the Colombian Government | | - | - | - | | |||||
Securities issued by other financial institutions | | | - | | | |||||
Corporate bonds | - | - | - | | | |||||
Subtotal | | | | | | |||||
Securities at amortized cost | ||||||||||
Corporate bonds | | | | | | |||||
Securities issued by government entities | | - | - | | | |||||
Securities issued by foreign governments | | | | | | |||||
Securities issued by other financial institutions | | | | | | |||||
Securities issued by the Colombian Government | - | | | | | |||||
Subtotal | | | | | | |||||
Total debt instruments | | | | | | |||||
For further information related to disclosures of the fair value of securities, please see Note 30 Fair value of assets and liabilities.
The Bank has recognized in the consolidated statement of comprehensive income COP
F-61
Equity securities that are measured at fair value through OCI are considered strategic for the Bank and, thus, there is no intention to sell them in the foreseeable future and that is the main reason for using this presentation alternative.
The following table details the equity instruments designated at fair value through OCI analyzed by listing status:
Carrying amount | ||||
Equity securities | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Securities at fair value through OCI: | ||||
Equity securities listed in Colombia(1) | | | ||
Equity securities listed in foreign countries(1) | | | ||
Equity securities unlisted: | ||||
Telered S.A. | | | ||
Asociación Gremial de Instituciones Financieras Credibanco S.A. | | | ||
Transacciones y Transferencias, S. A. | | | ||
Compañía de Procesamiento de Medios de Pago Guatemala (Bahamas), S. A. | | | ||
Cámara de Riesgo Central de Contraparte de Colombia S.A. | | | ||
Derecho Fiduciario Inmobiliaria Cadenalco | | | ||
Others | | | ||
Total equity securities at fair value through OCI | | | ||
| (1) | In November 2023, the integration of the stock exchanges of Colombia, Chile, and Peru was perfected, resulting in the creation of the Regional Stock Holding. As a result of this integration, |
During 2023, 2022 and 2021,
Equity investments do not have a specific maturity date; therefore, they are not included in the maturity detail.
The detail of the securities pledged as collateral as of December 31, 2023 and 2022 is as follows:
As of December 31, 2023
Pledged financial assets | Term | Security pledged | Carrying amount | |||
In millions of COP | ||||||
Investments pledged as collateral in money market | ||||||
Securities issued by foreign governments | Up to 3 months | Time deposits | | |||
Securities issued by foreign governments | Between 3 and 6 months | Time deposits | | |||
Securities issued by other financial institutions | Up to 3 months | Time deposits | | |||
Securities issued by other financial institutions | Between 6 and 12 months | Time deposits | | |||
Securities issued by other financial institutions | Greater than 12 months | Time deposits | | |||
Securities issued by other financial institutions | Greater than 12 months | Bonds | | |||
Corporate bonds | Up to 3 months | Bonds | | |||
Subtotal investments pledged as collateral in money market | | |||||
Investments pledged as collateral in derivative operations | ||||||
Securities issued by the Colombian Government | Up to 3 months | TES - Treasury instruments | | |||
Securities issued by the Colombian Government | Between 6 and 12 months | TES - Treasury instruments | | |||
Securities issued by the Colombian Government | Greater than 12 months | TES - Treasury instruments | | |||
Securities issued by foreign governments | Between 3 and 6 months | Foreign issueds | | |||
Subtotal investments pledged as collateral in derivative operations | | |||||
Total securities pledged as collateral | | |||||
F-62
As of December 31, 2022
Pledged financial assets | Term | Security pledged | Carrying amount | |||
In millions of COP | ||||||
Investments pledged as collateral in money market | ||||||
Corporate bonds | Between 3 and 6 months | Bonds | | |||
Securities issued by other financial institutions | Greater than 12 months | Bonds | | |||
Securities issued by other financial institutions | Greater than 12 months | Time deposits | | |||
Securities issued by the Colombian Government | Up to 3 months | TES - Treasury instruments | | |||
Securities issued by the Colombian Government | Greater than 12 months | TES - Treasury instruments | | |||
Securities issued by foreign governments | Greater than 12 months | Bonds | | |||
Subtotal investments pledged as collateral in money market | | |||||
Investments pledged as collateral in derivative operations | ||||||
Securities issued by the Colombian Government | Up to 3 months | TES - Treasury instruments | | |||
Securities issued by the Colombian Government | Between 3 and 6 months | TES - Treasury instruments | | |||
Securities issued by the Colombian Government | Greater than 12 months | TES - Treasury instruments | | |||
Subtotal investments pledged as collateral in derivative operations | | |||||
Total securities pledged as collateral | | |||||
The following table shows the breakdown of the changes in the gross carrying amount of the debt securities at fair value through other comprehensive income and amortized cost, in order to explain their significance to the changes in the loss allowance for the same portfolio as discussed above:
As of December 31, 2023
Debt instruments portfolio measure at fair value through OCI and amortized cost | Stage 1 | Stage 2 | Stage 3 | Total | ||||
In millions of COP | ||||||||
Gross carrying amount as at 1 January 2023 | | | | | ||||
Transfer from stage 1 to stage 3(1) | ( | - | | - | ||||
Transfer from stage 2 to stage 1(1) | | ( | - | - | ||||
Sales and maturities | ( | - | - | ( | ||||
Purchases | | - | - | | ||||
Valuation and payments | | ( | - | | ||||
Foreign Exchange | ( | ( | - | ( | ||||
Gross carrying amount as at 31 December 2023 | | | | | ||||
(1)Stage transfer in corporate bonds by Banistmo S.A. y Filiales.
As of December 31, 2022
Debt instruments portfolio measure at fair value through OCI and amortized cost | Stage 1 | Stage 2 | Total | |||
In millions of COP | ||||||
Gross carrying amount as at 1 January 2022 | | | | |||
Transfer from stage 1 to stage 2(1) | ( | | - | |||
Transfer from stage 2 to stage 1(2) | | ( | - | |||
Change in measure(3) | ( | - | ( | |||
Sales and maturities | ( | ( | ( | |||
Purchases | | | | |||
Valuation and payments | ( | | ( | |||
Foreign Exchange | | | | |||
Gross carrying amount as at 31 December 2022 | | | | |||
| (1) | Stage transfer in corporate bonds by Banistmo S.A. y Filiales and Banagrícola S.A. y Filiales. |
| (2) | Stage transfer in securities issued by the Guatemalan government and corporate bonds by Bancolombia Panamá S.A. and Bancolombia Puerto Rico Internacional, Inc. |
| (3) | Mercom Bank Ltd., a Grupo Agromercantil Holding S.A. subsidiary, is in the process of being gradually wound down; the measurement of the portfolio of securities issued by the government of Guatemala was changed from amortized cost to fair value through profit or loss. |
F-63
The following shows provisions detail for the debt instruments portfolio using the expected credit losses model:
As of December 31, 2023
Concept | Stage 1 | Stage 2 | Stage 3 | Total | ||||
In millions of COP | ||||||||
Securities at amortized cost | | | | | ||||
Carrying amount | | | | | ||||
Loss allowance | ( | ( | ( | ( | ||||
Securities at fair value through other comprehensive income(1) | | - | - | | ||||
Total debt instruments portfolio measure at fair value through OCI and amortized cost | | | | | ||||
| (1) | Loss allowance of investments at fair value through OCI corresponds to COP ( |
As of December 31, 2022
Concept | Stage 1 | Stage 2 | Total | |||
In millions of COP | ||||||
Securities at amortized cost | | | | |||
Carrying amount | | | | |||
Loss allowance | ( | ( | ( | |||
Securities at fair value through other comprehensive income(1) | | - | | |||
Total debt instruments portfolio measure at fair value through OCI and amortized cost | | | | |||
| (1) | Loss allowance of investments at fair value through OCI corresponds to COP ( |
The following table sets forth the changes in the allowance for debt instruments measured at amortized cost and fair value through other comprehensive income:
As of December 31, 2023
Concept | Stage 1 | Stage 2 | Stage 3 | Total | ||||
In millions of COP | ||||||||
Loss allowance of January 1, 2023 | | | - | | ||||
Transfer from stage 1 to stage 3(1) | ( | - | | |||||
Transfer from stage 2 to stage 1(1) | | ( | - | |||||
Sales and maturities | ( | - | - | ( | ||||
New debt instruments purchased(2) | | - | - | | ||||
Net provisions recognised during the period(3) | | ( | - | | ||||
Foreign Exchange(4) | ( | ( | - | ( | ||||
Loss allowance of December 31, 2023 | | | | | ||||
(1)Stage transfer in corporate bonds by Banistmo S.A. y Filiales.
(2)Impairment is mainly in securities issued by government entities and corporate bonds by Bancolombia S.A. and Banistmo S.A. y Filiales.
(3)The increase in stage 1 is mostly due to a higher value of impairment loss in corporate bonds by Banistmo S.A. y Filiales and provision recovery in stage 2 is mostly in securities issued by foreign governments by Banagrícola S.A. y Filiales.
(4)The decrease is due to the variation in the market representative rate during the year 2023.
F-64
As of December 31, 2022
Concept | Stage 1 | Stage 2 | Total | |||
In millions of COP | ||||||
Loss allowance of January 1, 2022 | | | | |||
Transfer from stage 1 to stage 2(1) | ( | | - | |||
Transfer from stage 2 to stage 1(2) | | ( | - | |||
Change in measure(3) | ( | - | ( | |||
Sales and maturities | ( | ( | ( | |||
New debt instruments purchased(4) | | | | |||
Net provisions recognised during the period | | ( | ( | |||
Foreign Exchange | | | | |||
Loss allowance of December 31, 2022 | | | | |||
(1)Stage transfer in corporate bonds by Banistmo S.A. y Filiales and Banagrícola S.A. y Filiales.
(2)Stage transfer in securities issued by the Guatemalan government and corporate bonds by Bancolombia Panamá S.A. and Bancolombia Puerto Rico Internacional, Inc.
(3)Mercom Bank Ltd., a Grupo Agromercantil Holding S.A. subsidiary, is in the process of being gradually wound down; the measurement of the portfolio of securities issued by the government of Guatemala was changed from amortized cost to fair value through profit or loss.
(4)Impairment is mainly in securities issued by the government of Salvador and corporate bonds.
As of December 31, 2021
Concept | Stage 1 | Stage 2 | Total | |||
In millions of COP | ||||||
Loss allowance of January 1, 2021 | | | | |||
Transfer from stage 1 to stage 2(1) | ( | | - | |||
Sales and maturities | ( | - | ( | |||
New debt instruments purchased | | - | | |||
Net provisions recognised during the period | ( | ( | ( | |||
Foreign Exchange | | | | |||
Loss allowance of December 31, 2021 | | | | |||
| (1) | Stage transfer in corporate bonds by Banistmo S.A. y Filiales and Bancolombia Panamá S.A. |
5.2 Derivative financial instruments
The Bank derivative activities do not give rise to significant open positions in portfolios of derivatives. The Bank enters into derivative transactions to facilitate customer business, for hedging purposes and arbitrage activities, such as forwards, options or swaps where the underlying are exchange rates, interest rates and securities.
A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. Financial futures and forward settlement contracts are agreements to buy or sell a quantity of a financial instrument (including another derivative financial instrument), index, currency or commodity at a predetermined rate or price during a period or at a date in the future. Futures and option contracts are standardized agreements for future delivery, traded on exchanges that typically act as a platform.
For further information related to the objectives, policies and processes for managing the Bank’s risk, please see Risk Management.
F-65
The following table sets forth the carrying values of the Bank’s derivatives by type of risk as of December 31, 2023 and 2022:
Derivatives | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Forwards | ||||
Assets | ||||
Foreign exchange contracts | | | ||
Equity contracts | | | ||
Subtotal assets | | | ||
Liabilities | ||||
Foreign exchange contracts | | | ||
Equity contracts | | | ||
Subtotal liabilities | | | ||
Total forwards | ( | ( | ||
Swaps | ||||
Assets | ||||
Foreign exchange contracts | | | ||
Interest rate contracts | | | ||
Subtotal assets | | | ||
Liabilities | ||||
Foreign exchange contracts | | | ||
Interest rate contracts | | | ||
Subtotal liabilities | | | ||
Total swaps | ( | | ||
Options | ||||
Assets | ||||
Foreign exchange contracts | | | ||
Subtotal assets | | | ||
Liabilities | ||||
Foreign exchange contracts | | | ||
Subtotal liabilities | | | ||
Total options | ( | | ||
Derivative assets | | | ||
Derivative liabilities | | | ||
The following table sets forth the remaining contractual life of the derivatives portfolio:
As of December 31, 2023
| Forwards | Swaps | Options | Total | ||||
In millions of COP | ||||||||
Assets | | | | | ||||
Less than 1 year | | | | | ||||
Between 1 and 3 years | | | | | ||||
Greater than 3 years | | | - | | ||||
Liabilities | | | | | ||||
Less than 1 year | | | | | ||||
Between 1 and 3 years | | | | | ||||
Greater than 3 years | - | | - | | ||||
F-66
As of December 31, 2022
| Forwards | Swaps | Options | Total | ||||
In millions of COP | ||||||||
Assets | | | | | ||||
Less than 1 year | | | | | ||||
Between 1 and 3 years | | | | | ||||
Greater than 3 years | - | | - | | ||||
Liabilities | | | | | ||||
Less than 1 year | | | | | ||||
Between 1 and 3 years | | | | | ||||
Greater than 3 years | - | | - | | ||||
Collateral for derivatives
The table below presents the collateral amounts posted under derivatives contracts as of December 31, 2023 and 2022:
December 31, 2023 | December 31, 2022 | |||
In millions of COP | ||||
Collateral granted | | | ||
Collateral received | | | ||
Day one gains or (losses)
If an asset has been acquired or a liability has been assumed in a market transaction, it could be assumed that the transaction price is the fair value of the asset or liability. However, the fair value of the financial asset or liability at the time of initial recognition may be different from the transaction price, because the fair value includes variables in its valuation technique that include market information, such as interest rate yield curves, currencies rates, indicators, default factors among others. When the values are not equal, the asset or liability must be measured at fair value and the difference between the transaction price and the fair value must be recognized as follows:
| ● | If fair value is evidenced by Level 1 inputs or is based on a valuation technique that uses only observable market data, the Group must recognize the difference as a gain or loss on initial recognition directly in the income statement. |
| ● | In all other circumstances, the entire day 1 gain or loss is deferred and is recognized in the income statement over the life of the transaction. |
The table below presents the unrecognised gains or (losses) for derivatives trading at the initial moment, due to use of valuation techniques for which not all inputs were observable market data:
As of December 31, 2023
Forward | Swaps | Options | Total | |||||
In millions of COP | ||||||||
Balance at January 1, 2023 | | | | | ||||
New trades | | ( | | | ||||
Amortization | ( | | ( | ( | ||||
Sale or transfer | ( | ( | ( | ( | ||||
Balance at December 31, 2023 | | ( | | | ||||
F-67
As of December 31, 2022
Forward | Swaps | Opciones | Total | |||||
In millions of COP | ||||||||
Balance at January 1, 2022 | | | | | ||||
New trades | | | | | ||||
Amortization | ( | ( | ( | ( | ||||
Sale or transfer | ( | ( | ( | ( | ||||
Balance at December 31, 2022 | | | | | ||||
Hedges of a net asset in a foreign operation
The Bank has designated debt instruments in issue and financing with correspondent banks for USD
The following is the detail of the hedging instruments of the net foreign investment:
As of December 31, 2023
Debt securities issued designated as a hedging instrument | ||||||||
In thousands of USD | ||||||||
Designated capital as | ||||||||
Opening date | Expiration date | Rate | Principal balance | a hedged instrument | ||||
18/10/2017 | 18/10/2027 | % | | | ||||
18/12/2019 | 18/12/2029 | % | | | ||||
18/12/2019 | 18/12/2029 | % | | | ||||
18/12/2019 | 18/12/2029 | % | | | ||||
29/01/2020 | 29/01/2025 | % | | | ||||
Total debt securities issued | | | ||||||
Financing with Correspondent Banks designated as a hedging instrument | ||||||||
31/03/2022 | 17/03/2025 | % | | | ||||
7/09/2022 | 5/09/2025 | % | | | ||||
Total financing with Correspondent Banks | | | ||||||
Total | | | ||||||
As of December 31, 2022
Debt securities issued designated as a hedging instrument | ||||||||
In thousands of USD | ||||||||
Designated capital as | ||||||||
Opening date | Expiration date | Rate | Principal balance | a hedged instrument | ||||
18/10/2017 | 18/10/2027 | % | | | ||||
18/12/2019 | 18/12/2029 | % | | | ||||
18/12/2019 | 18/12/2029 | % | | | ||||
18/12/2019 | 18/12/2029 | % | | | ||||
29/01/2020 | 29/01/2025 | % | | | ||||
29/01/2020 | 29/01/2025 | % | | | ||||
Total debt securities issued | | | ||||||
Financing with Correspondent Banks designated as a hedging instrument | ||||||||
F-68
31/03/2022 | 17/03/2025 | % | | | ||||
7/09/2022 | 5/09/2025 | % | | | ||||
Total financing with Correspondent Banks | | | ||||||
Total | | | ||||||
Measurement of effectiveness and ineffectiveness
A hedge is considered effective if, at the beginning of the period and subsequent periods, changes in fair value or cash flows attributable to the hedge risk during the period for which the hedge has been designated.
The Bank has documented the effectiveness tests of the hedge.The hedge is considered effective, since the critical terms and risks of the obligations that serve as a hedging instrument are identical to those of the primary hedged position. Hedged effectiveness is measured on a before income tax.
Gains or losses on the conversion of Banistmo’s financial statements are recognized in Consolidated Statements of Comprehensive Income. Consequently, the exchange difference related to the conversion of debt securities issued and financing with Correspondent banks is recognized directly in OCI, as a result of the revaluation of the peso against the dollar, the adjustment recognized in Consolidated Statements of Comprehensive Income amounted to COP
For further information see note 17. Borrowings from other financial institusions, note 18. Debt instruments in issue and Consolidated Statement of Comprehensive Income.
Offsetting of derivatives
The Bank enters into International Swaps and Derivatives Association (ISDA) master netting agreements or similar agreements with substantially all of the Bank’s derivative counterparties. Where legally enforceable, and depending on the Bank’s intention, these master netting agreements give the Bank, in the event of default by the counterparty, the right to liquidate securities and cash equivalents held as collateral and to offset receivables and payables with the same counterparty.
F-69
The table below presents derivative instruments subject to enforceable master netting agreements and other similar agreements but not offset in the statement of financial position as of December 31, 2023 and 2022 by derivative and by risk:
As of December 31, 2023
Derivatives Assets | Derivatives Liabilities | |||
In millions of COP | ||||
Over-the-counter | ||||
Foreign exchange contracts | ||||
Forwards | | | ||
Swaps | | | ||
Options | | | ||
Interest rate contracts | ||||
Swaps | | | ||
Equity contracts | ||||
Forwards | | | ||
Gross derivative assets/liabilities | | | ||
Offseting of derivates | - | - | ||
Derivative financial instruments in statement of financial position | | | ||
Master netting agreements | ( | ( | ||
Collateral received/paid | ( | ( | ||
Total derivative financial instruments assetss/ liabilities before collateral and Master netting agreements |
| |||
As of December 31, 2022
Derivatives Assets | Derivatives Liabilities | |||
In millions of COP | ||||
Over-the-counter | ||||
Foreign exchange contracts | ||||
Forwards | | | ||
Swaps | | | ||
Options | | | ||
Interest rate contracts | ||||
Swaps | | | ||
Equity contracts | ||||
Forwards | | | ||
Gross derivative assets/liabilities | | | ||
Offseting of derivates | ||||
Derivative financial instruments in statement of financial position | | | ||
Master netting agreements | ( | ( | ||
Collateral received/paid | ( | ( | ||
Total derivative financial instruments assetss/ liabilities before collateral and Master netting agreements |
| |||
For further information about offsetting of other financial assets and liabilities see Note 16. Interbank deposits and repurchase agreements and other similar secured borrowing.
F-70
NOTE 6. LOANS AND ADVANCES TO CUSTOMERS, NET
Loans and financial leasing operating portfolio
The following is the composition of the loans and financial leasing operations portfolio, net as of December 31, 2023 and 2022:
Composition | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Commercial | | | ||
Consumer | | | ||
Mortgage | | | ||
Financial Leases(1) | | | ||
Small Business Loans | | | ||
Total gross loans and advances to customers(2) | | | ||
Total allowance | ( | ( | ||
Total Net loans and advances to customers | | | ||
| (1) | See note 7.1 Lessor. |
| (2) | The operations in Colombia and Banistmo in Panama contributed to the portfolio contraction. In addition, in 2023 the Colombian peso revalued |
Allowance for loans losses
The following table sets forth the changes in the allowance for loans and advances and lease losses as of December 31, 2023, 2022 and 2021:
As of December 31, 2023
Small | ||||||||||||
Concept | Commercial | Consumer | Mortgage | Financial | business | Total | ||||||
Leases | loans | |||||||||||
In millions of COP | ||||||||||||
Balance at beginning of period January 1, 2023 | | | | | | | ||||||
Loan sales(1) | ( | - | - | - | - | ( | ||||||
Recovery of charged - off loans | | | | | | | ||||||
Credit impairment charges on loans, advances and financial leases, net | | | | | | | ||||||
Adjusted stage 3(2) | | | | | | | ||||||
Charges-off | ( | ( | ( | ( | ( | ( | ||||||
Translation adjustment | ( | ( | ( | ( | ( | ( | ||||||
Balance at December 31, 2023 | | | | | | | ||||||
| (1) | Corresponds to the release of loan allowances related to portfolio sales. |
| (2) | Recognized as a reduction to Interest Income on loans and financial leases in Consolidated Statement of Income, in accordance with IFRS 9. |
The charges-off still subject to enforcement activity.
F-71
As of December 31, 2022
Small | ||||||||||||
Concept | Commercial | Consumer | Mortgage | Financial | business | Total | ||||||
Leases | loans | |||||||||||
In millions of COP | ||||||||||||
Balance at beginning of period January 1, 2022 | | | | | | | ||||||
Loan sales(1) | ( | - | - | - | - | ( | ||||||
Recovery of charged - off loans | | | | | | | ||||||
Credit impairment charges on loans, advances and financial leases, net | | | | ( | | | ||||||
Adjusted stage 3(2) | | | | | | | ||||||
Charges-off | ( | ( | ( | ( | ( | ( | ||||||
Translation adjustment | | | | | | | ||||||
Balance at December 31, 2022 | | | | | | | ||||||
| (1) | Corresponds to the release of loan allowances related to portfolio sales. |
| (2) | Recognized as a reduction to Interest Income on loans and financial leases in Consolidated Statement of Income, in accordance with IFRS 9. |
The charges-off still subject to enforcement activity.
As of December 31, 2021
Small | ||||||||||||
Concept | Commercial | Consumer | Mortgage | Financial | business | Total | ||||||
Leases | loans | |||||||||||
In millions of COP | ||||||||||||
Balance at beginning of period January 1, 2021 | | | | | | | ||||||
Loan sales(1) | ( | - | - | - | - | ( | ||||||
Recovery of charged - off loans | | | | | | | ||||||
Credit impairment charges on loans, advances and financial leases, net | | | | ( | | | ||||||
Adjusted stage 3(2) | | | | | | | ||||||
Charges-off | ( | ( | ( | ( | ( | ( | ||||||
Translation adjustment | | | | | | | ||||||
Balance at December 31, 2021 | | | | | | | ||||||
| (1) | Corresponds to the release of loan allowances related to portfolio sales. |
| (2) | Recognized as a reduction to Interest Income on loans and financial leases in Consolidated Statement of Income, in accordance with IFRS 9. |
The charges-off still subject to enforcement activity.
The following table presents information about the nature and effects of changes in the contractual cash flows of the loan portfolio that did not result in derecognition and the effect of these changes on the measurement of expected credit losses.
Changes in the contractual cash flows of the loan portfolio that did not result in derecognition | ||||
In millions of COP | ||||
2023 | 2022 | |||
Loan portfolio modified during the period | ||||
Amortized cost before modification | | |||
Net gain or loss on changes | ( | ( | ||
F-72
Loan portfolio modified since initial recognition | ||||
Gross carrying value of the previously modified loan portfolio for which the allowance for losses has been changed from the asset's life to the expected credit losses for 12 months. | | |
Impact of movements in the value of the portfolio and loss allowance by Stage
Variation December 2023 vs December 2022
Stage 1 (12-month expected credit losses)
Stage 1 exposure decreased by COP
Stage 2 (Lifetime expected credit losses)
The exposure in Stage 2 decreased by COP
Stage 3 (Lifetime expected credit losses)
The exposure in Stage 3 increased by COP
The following explains the significant changes in the loans and the allowance for loan losses by category during the periods ended on December 31, 2023 and 2022 as a result of applying the expected credit loss model according to IFRS 9:
As of December 31, 2023
Commercial
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2023 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | ( | ( | ( | | | ( | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | ( | ( | ( | ( | ||||||||
Remeasurement from remaining in the stage | ( | | ( | | ( | ( | ( | | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | ( | - | | - | ( | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | | - | | - | | - | | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
F-73
Foreign Exchange and other movements | ( | | ( | | ( | | ( | | ||||||||
Balance at December 31, 2023 | | ( | | ( | | ( | | ( |
| (1) | Includes financial assets purchased, originated and restructured. |
Consumer
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2023 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | ( | ( | | | | ( | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | | ( | | ( | ||||||||
Remeasurement from remaining in the stage | ( | ( | ( | ( | | ( | ( | ( | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | ( | - | | - | ( | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | ( | - | | - | | - | ( | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | ( | | ( | | ( | | ( | | ||||||||
Balance at December 31, 2023 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
Financial Leases
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2023 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | ( | ( | ( | | | ( | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | | ( | ( | ( | ||||||||
Remeasurement from remaining in the stage | ( | | ( | | ( | ( | ( | ( | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | ( | - | | - | | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | ( | - | ( | - | | - | | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | ( | | ( | | ( | | ( | | ||||||||
Balance at December 31, 2023 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
F-74
Mortgage
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2023 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | ( | ( | | | | | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | | ( | | ( | ||||||||
Remeasurement from remaining in the stage | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | ( | - | - | - | ( | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | | - | | - | | - | | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | ( | | ( | | ( | | ( | | ||||||||
Balance at December 31, 2023 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
Small business loans
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2023 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | ( | | | ( | | ( | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | ( | ( | ( | ( | ||||||||
Remeasurement from remaining in the stage | ( | | ( | ( | ( | ( | ( | ( | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | ( | - | | - | ( | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | ( | - | | - | | - | ( | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | ( | | ( | | ( | | ( | | ||||||||
Balance at December 31, 2023 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
Variation December 2022 vs December 2021
Stage 1 (12-month expected credit losses)
The exposure value in stage 1 increased by COP
F-75
Stage 2 (Lifetime expected credit losses)
The exposure value in stage 2 decreased by COP
Stage 3 (Lifetime expected credit losses)
The exposure at default in stage 3 decreased by COP
As of December 31, 2022
Commercial
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2022 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | ( | ( | | ( | | | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | ( | ( | ( | ( | ||||||||
Remeasurement from remaining in the stage | ( | | ( | | | ( | ( | ( | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | | - | ( | - | | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | | - | | - | | - | | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | | ( | | ( | | ( | | ( | ||||||||
Balance at December 31, 2022 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
F-76
Consumer
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2022 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | ( | ( | | | | | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | | ( | | ( | ||||||||
Remeasurement from remaining in the stage | ( | ( | ( | ( | ( | | ( | ( | ||||||||
Remeasurement due to changes in economics factors | - | | - | | - | ( | - | | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | | - | ( | - | | - | ( | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | | ( | | ( | | ( | | ( | ||||||||
Balance at December 31, 2022 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
Financial leases
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2022 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | | ( | ( | | | | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | | ( | ( | ( | ||||||||
Remeasurement from remaining in the stage | ( | | ( | | ( | | ( | | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | | - | ( | - | ( | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | | - | ( | - | ( | - | ( | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | | ( | | ( | | ( | | ( | ||||||||
Balance at December 31, 2022 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
F-77
Mortgage
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2022 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | | ( | ( | | | | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | | ( | | ( | ||||||||
Remeasurement from remaining in the stage | ( | ( | | ( | ( | ( | ( | ( | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | | - | | - | | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | ( | - | ( | - | ( | - | ( | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | | ( | | ( | | ( | | ( | ||||||||
Balance at December 31, 2022 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
Small business loans
Stage1 | Stage2 | Stage3 | Total | |||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
carrying | Allowance | carrying | Allowance | carrying | Allowance | carrying | Allowance | |||||||||
In millions of COP | ||||||||||||||||
Balance at January 1, 2022 |
| | ( | | ( | | ( | | ( | |||||||
Transfers of financial instruments: | ( | ( | | | | ( | - | - | ||||||||
Transfers from stage 1 to stage 2 | ( | | | ( | - | - | - | - | ||||||||
Transfers from stage 1 to stage 3 | ( | | - | - | | ( | - | - | ||||||||
Transfers from stage 2 to stage 1 | | ( | ( | | - | - | - | - | ||||||||
Transfers from stage 2 to stage 3 | - | - | ( | | | ( | - | - | ||||||||
Transfers from stage 3 to stage 1 | | ( | - | - | ( | | - | - | ||||||||
Transfers from stage 3 to stage 2 | - | - | | ( | ( | | - | - | ||||||||
Remeasurement arising from transfer of stage | ( | | ( | ( | ( | ( | ( | ( | ||||||||
Remeasurement from remaining in the stage | ( | ( | ( | | ( | | ( | | ||||||||
Remeasurement due to changes in economics factors | - | ( | - | | - | ( | - | | ||||||||
Remeasurement due to changes in model inputs | - | - | - | - | - | - | - | - | ||||||||
Remeasurement due to methodological changes | - | | - | ( | - | ( | - | ( | ||||||||
New financial assets purchased/originated(1) | | ( | | ( | | ( | | ( | ||||||||
Financial assets that have been derecognized | ( | | ( | | ( | | ( | | ||||||||
Charges-off | ( | | ( | | ( | | ( | | ||||||||
Foreign Exchange and other movements | | ( | | ( | | ( | | ( | ||||||||
Balance at December 31, 2022 | | ( | | ( | | ( | | ( | ||||||||
| (1) | Includes financial assets purchased, originated and restructured. |
F-78
NOTE 7. LEASES
7.1. Lessor
Finance leases
The Bank has entered into lease agreements as the lessor. These lease arrangements involve machinery and equipment, computer equipment, vehicles and furniture and fixtures, and their terms range between one and
As of December 31, 2023
Period | Gross investment in finance | Present value of minimum | ||
In millions of COP | ||||
Less than 1 year | | |||
Between 1 and 5 years | | | ||
Greater than 5 years | | | ||
Total gross investment in finance lease receivable/ present value of minimum payments | | | ||
Less: Future financial income(1) | ( | - | ||
Present value of payments receivable(2) | | | ||
Minimum non-collectable payments impairment | ( | ( | ||
Total | | | ||
As of December 31, 2022
Period | Gross investment in finance | Present value of minimum | ||
In millions of COP | ||||
Less than 1 year | | | ||
Between 1 and 5 years | | | ||
Greater than 5 years | | | ||
Total gross investment in finance lease receivable/ present value of minimum payments | | | ||
Less: Future financial income(1) | ( | - | ||
Present value of payments receivable(2) | | | ||
Minimum non-collectable payments impairment | ( | ( | ||
Total | | | ||
F-79
Unsecured residual value(*)
The following table sets the unsecured residual values by type of asset as of December 31, 2023 and 2022:
Type of asset | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Technological equipment | | | ||
Vehicles | | | ||
Machinery and equipment | | | ||
Furniture and fixtures | | | ||
Other assets | | | ||
Total | | | ||
(*) The unsecured residual value is the part of the residual value of the leased asset, whose realization is not secured or is secured by a third party related to the lessor.
Amounts recognized as income for extensions
At the end of the reporting period, the following entries are recognized as income corresponding to contract extensions or automatic time extension of financial leasing contracts:
Type of asset | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Technological equipment | | | ||
Buildings | | | ||
Machinery and equipment | | | ||
Vehicles | | | ||
Furniture and fixtures | - | | ||
Total | | | ||
As of December 31, 2023, 2022 and 2021, financial leases income amounted to COP
Operating leases
Certain of the Bank’s subsidiaries lease assets to third parties under non-cancellable operating lease arrangements. Assets provided through operating leases are recorded as premises and equipment. The terms established for these agreements range from one to
The following table presents the information of minimum payments by lease to be received:
| December 31, 2023 | December 31, 2022 | |||
In millions of COP | |||||
Less than 1 year | | | |||
Between 1 and 5 years | | | |||
Greater than 5 years | | | |||
Total(1) | | | |||
(1) During 2023, Renting S.A.S. have subleased their vehicles under financial leases, therefore operational placements through own resources and the number of operational vehicles have decreased.
As of December 31, 2023 and 2022, the operating lease income amounted to COP
F-80
Risk management associated with leases
The Bank, acting as a lessor of operating leases, has a comprehensive asset management model for those assets classified as property, plant and equipment. This model includes an impairment test that evaluates indicators that impact the assets, which is carried out annually. The test evaluates both external indicators (economic, environmental, and legal), and internal ones (insurance, maintenance and used market sales). Likewise, the calculation of residuals was updated to reflect the effect of the new macroeconomic conditions. Moreover, the Bank performs a detailed review process at the time of return of the asset by the lessees in order to guarantee their operating conditions. Additionally, the Bank employs experts apart from the sales team, who constantly monitor the conditions of the second-hand market, and carry out back-testing in order to determine the consistency of the residual value model, and periodically review the results together with key managers. All the above is complemented by agreements with suppliers, which allow the exchange of information, knowledge and, in some cases, the structuring of residual risk mitigation mechanisms.
In order to manage the risks associated with the assets, the Bank also employs an insurance department, and engages an international broker and insurance companies. They all serve as support to design and define the strategies for the different types of protection that cover the lessor's risks, assets and customers.
Additionally, in Renting Colombia's vehicle rental business, assets are managed with the goal of preserving commercial value through necessary maintenance, which avoids deterioration beyond that generated by regular use. Service indicators with suppliers are periodically reviewed in order to ensure their quality and compliance with the expected levels. Safe mobility strategies are also defined based on the permanent analysis of the road safety indicators. These strategies aim at ensuring the status and useful life of the asset.
7.2. Lessee
The Bank has entered into lease agreements as a lessee. These arrangements involve offices, branches and administrative offices as well as certain Computer equipment. As of December 31, 2023 and 2022, the rollforward of right-of-use assets was as follows:
F-81
As of December 31, 2023
Roll - forward | ||||||||||||||||
Right-of-use assets | Balance at | Acquisitions | Additions | Expenses | Disposals | Revaluation(2) | Effect of changes | Balance at | ||||||||
In millions of COP | ||||||||||||||||
Buildings | ||||||||||||||||
Cost | | | | - | ( | | ( | | ||||||||
Accumulated depreciation | ( | - | - | ( | | - | | ( | ||||||||
Furniture and fixtures | ||||||||||||||||
Cost | | | - | - | ( | - | ( | | ||||||||
Accumulated depreciation | ( | - | - | ( | | - | | ( | ||||||||
Computer equipment | ||||||||||||||||
Cost | | | - | - | ( | ( | ( | | ||||||||
Accumulated depreciation | ( | - | - | ( | | - | | ( | ||||||||
Vehicles | ||||||||||||||||
Cost | | | - | - | ( | | ( | | ||||||||
Accumulated depreciation | ( | - | - | ( | | - | | ( | ||||||||
Total right-of-use assets – cost | | | | - | ( | | ( | | ||||||||
Total right-of-use assets - accumulated depreciation | ( | - | - | ( | | - | | ( | ||||||||
Total right-of-use assets, net | | | | ( | ( | | ( | | ||||||||
| (1) | See Note 26.3 Impairment, depreciation and amortization. |
| (2) | The variation corresponds mainly to changes in the estimated term of buildings lease liabilities. |
F-82
As of December 31, 2022
Roll - forward | ||||||||||||||||
Right-of-use assets | Balance at | Acquisitions | Additions | Expenses | Disposals | Revaluation | Effect of changes | Balance at | ||||||||
In millions of COP | ||||||||||||||||
Buildings | ||||||||||||||||
Cost | | | | - | ( | | | | ||||||||
Accumulated depreciation | ( | - | - | ( | | - | ( | ( | ||||||||
Furniture and fixtures | ||||||||||||||||
Cost | | - | - | - | - | | | | ||||||||
Accumulated depreciation | ( | - | - | ( | - | - | ( | ( | ||||||||
Computer equipment | ||||||||||||||||
Cost | | | - | - | ( | ( | | | ||||||||
Accumulated depreciation | ( | - | - | ( | | - | ( | ( | ||||||||
Vehicles | ||||||||||||||||
Cost | | | - | - | ( | | | | ||||||||
Accumulated depreciation | ( | - | - | ( | | - | ( | ( | ||||||||
Total right-of-use assets – cost | | | | - | ( | | | | ||||||||
Total right-of-use assets - accumulated depreciation | ( | - | - | ( | | - | ( | ( | ||||||||
Total right-of-use assets, net | | | | ( | ( | | | | ||||||||
| (1) | See Note 26.3 Impairment, depreciation and amortization. |
The following table sets forth the changes in lease liabilities as of December 31, 2023 and 2022:
As of December 31, 2023
Concept | Total | |
In millions of COP | ||
Balance at January 01, 2023 | | |
(+) New contracts | | |
(+/-) Reassessment of the lease liability(1) | | |
(-) Payments | ( | |
(+) Accrued Interest(2) | | |
(+/-) Effect of changes in foreign exchange rate(3) | ( | |
Balance at December 31, 2023 | | |
| (1) | The variation corresponds mainly to changes in the estimated term of buildings lease liabilities. |
F-83
| (2) | The difference of COP |
| (3) | The variation is due to the decrease in the market representative rate from COP |
As of December 31, 2022
Concept | Total | |
In millions of COP | ||
Balance at January 01, 2022 | | |
(+) New contracts | | |
(+/-) Reassessment of the lease liability | | |
(-) Payments | ( | |
(+) Accrued Interest(1) | | |
(+/-) Effect of changes in foreign exchange rate | | |
Balance at December 31, 2022 | | |
| (1) | The difference of COP |
The following table shows maturity analysis of lease liabilities as of December 31, 2023 and 2022:
As of December 31, 2023
Type of assets | Maturity less than 1 year | Maturity between 1 and 3 years | Maturity between 3 and 5 years | Maturity more than 5 years | Total lease liabilities | |||||
In millions of COP | ||||||||||
Buildings | | | | | | |||||
Vehicles | | | - | - | | |||||
Computer equipment | | | | | | |||||
Total lease liabilities | | | | | | |||||
As of December 31, 2022
Type of assets | Maturity less than 1 year | Maturity between 1 and 3 years | Maturity between 3 and 5 years | Maturity more than 5 years | Total lease liabilities | |||||
In millions of COP | ||||||||||
Buildings | | | | | | |||||
Vehicles | | | | - | | |||||
Computer equipment | | | | | | |||||
Total lease liabilities | | | | | | |||||
The following table shows the weighted average rates and average useful life of right-of-use assets as of December 31, 2023 and 2022:
F-84
As of December 31, 2023
Right-of-use assets | Weighted average life | Weighted average | Weighted average discount | ||||
Buildings | % | ||||||
Computer equipment | % | ||||||
Vehicles | % |
As of December 31, 2022
Right-of-use assets | Weighted average life | Weighted average | Weighted average discount | ||||
Buildings | % | ||||||
Computer equipment | % | ||||||
Vehicles | % |
The following table shows the detail of leases in the Consolidated Statement of Income as of December 31, 2023 and 2022:
As of December 31, 2023
Right-of-use assets | Financial interest(1) | Expenses | Effect of changes in foreign exchange rate | Short-term leases | Leases for which the underlying asset is of low value | Variable payments | |||||||
In millions of COP | |||||||||||||
Buildings | | | | | | | |||||||
Vehicles | | | - | | - | - | |||||||
Computer equipment | | | - | - | | - | |||||||
Furniture and fixtures | | | - | | | - | |||||||
Total | | | | | | | |||||||
| (1) | Includes the expense generated by the difference between the carrying amount of the asset for the right to use and the liability for leasing at the time of the early termination of lease contracts by COP |
| (2) | See Note 26.3 Impairment, depreciation and amortization. |
As of December 31, 2022
Right-of-use assets | Financial interest(1) | Expenses | Effect of changes in foreign exchange rate | Short-term leases | Leases for which the underlying asset is of low value | Variable payments | |||||||
In millions of COP | |||||||||||||
Buildings | | | | | | | |||||||
Vehicles | | | - | | | - | |||||||
Computer equipment | | | - | - | | - | |||||||
Furniture and fixtures | | | - | | | - | |||||||
Total | | | | | | | |||||||
| (1) | Includes the expense generated by the difference between the carrying amount of the asset for the right to use and the liability for leasing at the time of the early termination of lease contracts by COP |
| (2) | See Note 26.3 Impairment, depreciation and amortization. |
F-85
The following table contains the minimum payments lease liabilities as of December 31, 2023 and 2022:
As of December 31, 2023
Type of assets | Maturity less than 1 year | Maturity between 1 and 3 years | Maturity between 3 and 5 years | Maturity more than 5 years | Total minimum payments lease liabilities | |||||
In millions of COP | ||||||||||
Buildings | | | | | | |||||
Vehicles | | | - | - | | |||||
Computer equipment | | | | | | |||||
Total minimum payments lease liabilities | | | | | | |||||
As of December 31, 2022
Type of assets | Maturity less than 1 year | Maturity between 1 and 3 years | Maturity between 3 and 5 years | Maturity more than 5 years | Total minimum payments lease liabilities | |||||
In millions of COP | ||||||||||
Buildings | | | | | | |||||
Vehicles | | | | | | |||||
Computer equipment | | | | | | |||||
Total minimum payments lease liabilities | | | | | | |||||
NOTE 8. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
The following table presents information regarding the Bank’s investments in associates and joint ventures:
Composition | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Investments in associates(1) | | | ||
Investments in joint ventures(2) | | | ||
Total associates and joint ventures | | | ||
| (1) | As of December 31, 2023 and 2022, the amount includes investments in associates at fair value for COP |
| (2) | All investments in joint ventures are accounted for using the equity method. |
The following are the investments in associates that the Bank holds as of December 31, 2023 and 2022:
December 31, 2023 | December 31, 2022 | ||||||||||||
Company name | Main activity | Country | % of Ownership | Carrying | % of Ownership | Carrying | |||||||
interest | amount | interest | amount | ||||||||||
In millions of COP | |||||||||||||
P.A Viva Malls | | % | | | % | | |||||||
Protección S.A. | | % | | * | | % | | ||||||
F-86
P.A El Bosque | | % | | * | | % | | * | |||||
Titularizadora Colombiana S.A. Hitos. | | % | | * | | % | | * | |||||
Redeban Multicolor S.A. | | % | | * | | % | | * | |||||
P.A El Otoño | | % | | * | | % | | * | |||||
ACH Colombia S.A. | | % | | * | | % | | * | |||||
Gestoría Externa de Portafolios S.A. | | % | | * | - | - | |||||||
Servicio Salvadoreño de Protección, S. A. de C.V. | | % | | * | | % | | * | |||||
Servicios Financieros, S.A. de C.V. | | % | | * | | % | | * | |||||
P.A Madrid II | | % | | * | | % | | * | |||||
P.A Distrito Vera | | % | | | % | | * | ||||||
P.A Boreal | | % | | * | | % | | ||||||
P.A La Felicidad | | % | | * | | % | | * | |||||
Internacional Ejecutiva de Aviación S.A.S. | | % | | * | | % | | ||||||
Reintegra S.A.S. | | % | | * | | % | | * | |||||
P.A Mirador de la Ciénaga. | | % | | * | | % | | * | |||||
ACH de El Salvador, S. A. de C.V. | | % | | * | | % | | * | |||||
Agricapital S.A.S.(1) | | % | | * | | % | | * | |||||
Servicios de Identidad Digital S.A.S. | | % | | | % | | |||||||
Total, investments in associates | | | |||||||||||
| (1) | In 2023, the ownership interest is increased due to capitalization through Bancolombia S.A. |
(*) For the purposes of applying the equity method of accounting, financial statements as of November 30, 2023 and 2022 have been used. However, the Bank does not consider that any adjustments have to be made since no significant transactions took place between that date and December 31, 2023 and 2022.
The following table sets forth the changes in the carrying amount of associates of the Bank as of December 31, 2023 and 2022:
December 31, 2023 | December 31, 2022 | |||||||||||||||
In millions of COP | ||||||||||||||||
P.A Viva Malls | Protección S.A. | Others | Total | P.A Viva Malls | Protección S.A. | Others | Total | |||||||||
Balance at January 1, | | | | | | | | | ||||||||
Equity method - Gain(1) | | | | | | | | | ||||||||
OCI (Equity method) | - | ( | ( | ( | - | | | | ||||||||
OCI (Translation adjustment) | - | - | ( | ( | - | - | | | ||||||||
Purchase / capitalizations | | - | | | - | | | | ||||||||
Sells or refund of contributions(2) | - | - | ( | ( | ( | ( | ( | ( | ||||||||
Impairment loss(3) | - | - | ( | ( | - | - | ( | ( | ||||||||
Dividends | - | - | ( | ( | - | - | ( | ( | ||||||||
Others | - | - | | | - | - | | | ||||||||
Balance at December 31, | | | | | | | | | ||||||||
| (1) | For further information see Note 25.5. Dividends and net income on equity investments. |
| (2) | In December 2022, was registered the spin-off of Protección S.A. and the creation of the company Asulado Seguros de Vida S.A., of which the Bank sold its participation to SURA Asset Management S.A., in order to comply with the authorized investment regime. For further information, see Note 25.5. Dividends and net income on equity investments. |
| (3) | For 2023 and 2022, the Bank management performed a valuation, to establish the recoverable amount based in value in use of Reintegra S.A.S., which amounted to COP |
F-87
The following is additional information regarding the Bank’s most significant associates as of December 31, 2023 and 2022:
As of December 31, 2023
Income from | ||||||||||
Assets | Liabilities | OCI | ordinary activities | Profits | ||||||
Company name | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||
In millions of COP | ||||||||||
P.A Viva Malls | | | - | | | |||||
Protección S.A. | | | | | | |||||
As of December 31, 2022
Income from | ||||||||||
Assets | Liabilities | OCI | ordinary activities | Profits | ||||||
Company name | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||
In millions of COP | ||||||||||
P.A Viva Malls | | | - | | | |||||
Protección S.A. | | | | | | |||||
The dividends received from the associate at fair value P.A Viva Malls for the year ended December 31, 2023 and 2022 are COP
The following are the joint ventures that the Bank holds as of December 31, 2023 and 2022:
December 31, 2023 | December 31, 2022 | ||||||||||||
Company name | Main activity | Country | % of Ownership | Carrying | % of Ownership | Carrying | |||||||
interest | amount | interest | amount | ||||||||||
In millions of COP | |||||||||||||
Compañía de Financiamiento TUYA S.A.(1) | | % | | | % | | |||||||
P.A Laurel | | % | | * | | % | | ||||||
Puntos Colombia S.A.S. | | % | | * | | % | | ||||||
Fondo de Capital Privado Ruta del Sol compartimento A | | % | | * | | % | | ||||||
Ecosistemas Digitales de Negocio S.A.S. | | % | | * | | % | | ||||||
P.A Muverang | | % | | | % | | |||||||
P.A Blup | | % | | | % | | * | ||||||
P.A. Finsocial | | % | | * | - | - | |||||||
P.A Reintegra(2) | | % | - | * | | % | - | * | |||||
Avicapital(3) | | % | - | - | - | ||||||||
Total investments in joint venture | | | |||||||||||
| (1) | See table the changes in the carrying amount of joint ventures of the Bank as of December 31, 2023 and 2022 |
| (2) | In 2023 and 2022, the carrying amount at the end of the year is |
| (3) | The value of the investment in the company is COP |
(*) For the purposes of applying the equity method of accounting, financial statements as of November 30, 2023 and 2022 have been used. However, the Bank does not consider that any adjustments have to be made since no significant transactions took place between these dates and December 31, 2023 and 2022.
The following table sets forth the changes in the carrying amount of joint ventures of the Bank as of December 31, 2023 and 2022:
F-88
December 31, 2023 | December 31, 2022 | |||||||||||
In millions of COP | ||||||||||||
Compañía de | Compañía de | |||||||||||
financiamiento | Others | Total | financiamiento | Others | Total | |||||||
TUYA S.A. | TUYA S.A. | |||||||||||
Balance at January 1, | | | | | | | ||||||
Equity method - (Loss) / Gain(1) | ( | ( | ( | ( | ( | ( | ||||||
Purchase / capitalizations | | | | | | | ||||||
Sells or refund of contributions | - | ( | ( | - | ( | ( | ||||||
(Impairment loss) / Recovery(2) | ( | | ( | - | ( | ( | ||||||
Others | - | - | - | - | | | ||||||
Balance at December 31, | | | | | | | ||||||
| (1) | For further information see Note 25.5. Dividends and net income on equity investments. |
| (2) | During the year 2023, the impairment loss relates mainly to the fact that the Bank's management requested a valuation of joint venture Tuya S.A. to establish the recoverable amount based in value in use of the previously mentioned joint ventures, which amounted to COP |
The following is additional information regarding the Bank’s most significant joint ventures as of December 31, 2023 and 2022:
As of December 31, 2023
Income from | |||||||||
Assets | Liabilities | ordinary activities | Loss | ||||||
Company name | (unaudited) | (1) | (unaudited) | (unaudited) | (unaudited) | (2) | |||
In millons of COP | |||||||||
Compañía de financiamiento TUYA S.A. | | | | | |||||
| (1) | Includes cash and cash equivalents for COP |
| (2) | Includes interest and valuation income for COP |
As of December 31, 2022
Income from | |||||||||
Assets | Liabilities | ordinary activities | Loss | ||||||
Company name | (unaudited) | (1) | (unaudited) | (unaudited) | (unaudited) | (2) | |||
In millons of COP | |||||||||
Compañía de financiamiento TUYA S.A. | | | | | |||||
| (1) | Includes cash and cash equivalents for COP |
| (2) | Includes interest and valuation income for COP |
The accumulated other comprehensive income before tax of investments in associates and joint ventures as of December 31, 2023 and 2022, corresponds to COP
As of December 31, 2023 and 2022, there are no restrictions on the ability of the associates and joint ventures to transfer funds to the Bank in the form of cash dividends. In the same way, there are
F-89
NOTE 9. GOODWILL AND INTANGIBLE ASSETS, NET
Intangibles assets and goodwill net are as follows:
December 31, 2023 | December 31, 2022 | |||
In millions of COP | ||||
Goodwill | | | ||
Intangible assets | | | ||
Total intangible assets and goodwill, net | | | ||
9.1. Intangible assets
The following table sets forth the Bank’s intangible assets as of December 31, 2023 and 2022, including the reconciliation of initial and final balances of the cost and accrued amortization:
As of December 31, 2023
Licenses, software | ||||||||
Cost | Trademarks | and computer | Client | Total | ||||
applications | relationships | |||||||
In millions of COP | ||||||||
Balance at January 1, 2023 | | | | | ||||
Acquisitions | - | | - | | ||||
Write off | - | ( | - | ( | ||||
Foreign currency translation adjustment | ( | ( | ( | ( | ||||
Balance at December 31, 2023 | | | | | ||||
Licenses, software | ||||||||
Amortization | Trademarks | and computer | Client | Total | ||||
applications | relationships | |||||||
In millions of COP | ||||||||
Balance at January 1, 2023 | | | | | ||||
Write off | - | ( | - | ( | ||||
Amortization expense(1) | - | | | | ||||
Foreign currency translation adjustment | ( | ( | ( | ( | ||||
Balance at December 31, 2023 | | | | | ||||
Intangible assets at December 31, 2023, net | - | | | | ||||
| (1) | See Note 26.3. Impairment, depreciation and amortization. |
As of December 31, 2022
Licenses, software | ||||||||
Cost | Trademarks | and computer | Client | Total | ||||
applications | relationships | |||||||
In millions of COP | ||||||||
Balance at January 1, 2022 | | | | | ||||
Acquisitions | - | | - | | ||||
Write off | - | ( | - | ( | ||||
Transfers from premises and equipment | - | | - | | ||||
Foreign currency translation adjustment | | | | | ||||
Balance at December 31, 2022 | | | | | ||||
F-90
Licenses, software | ||||||||
Amortization | Trademarks | and computer | Client | Total | ||||
applications | relationships | |||||||
In millions of COP | ||||||||
Balance at January 1, 2022 | | | | | ||||
Write off | - | ( | - | ( | ||||
Amortization expense(1) | | | | | ||||
Transfers from premises and equipment | - | | - | | ||||
Foreign currency translation adjustment | | | | | ||||
Balance at December 31, 2022 | | | | | ||||
Intangible assets at December 31, 2022, net | | | | | ||||
| (1) | See Note 26.3. Impairment, depreciation and amortization. |
As of December 31, 2023 and 2022, the assessment made by the Bank indicates there is no evidence of impairment of intangible assets.
As of December 31, 2023 and 2022, the Bank does not have intangible assets with restricted ownership, intangible assets pledged as collateral or contractual agreements for the acquisition of this class of assets.
Research and development costs
During the period ended at December 31, 2023, 2022 and 2021, the Bank incurred in research and development expenditures on non-capitalized intangible assets for COP
Intangibles which did not meet the criteria to be recognized as assets
During the period ended December 31, 2023, 2022 and 2021, the Bank recognized in the Consolidated Statement of Income the amount of COP
9.2 Goodwill
The following table sets forth an analysis of the activity in the goodwill account:
December 31, 2023 | December 31, 2022 | |||
In millions of COP | ||||
Balance at beginning of the year, net | | | ||
Effect of change in foreign exchange rate(1) | ( | | ||
Balance at end of the year, net | | | ||
| (1) | The market representative rate at the end of December 31, 2023 is COP |
The Bank tests goodwill recognized as a result of business combinations for impairment at least annually using a process that begins with an estimation of the recoverable amount of a group of cash-generation units equal to the operating segment. Recoverable amount is determined by management by reference to market value, if available, by pricing models, or with the assistance of a valuation specialist. Determination of recoverable amount requires management to make assumptions and use estimates to forecast cash flow for periods that are beyond the normal requirements of management reporting; the
F-91
assessment of the appropriate discount rate; estimation of the recoverable amount of cash-generation units; and the valuation of the separable assets of each business whose goodwill is being reviewed.
The key assumptions used by management in determining the recoverable amount as of December 31, 2023 and 2022 are:
As of December 31, 2023
Discount Rate | (1) | Growth rate | (2) | Goodwill | ||||||
Operating segment | Valuation Methodology | Key Assumptions | (real) | (real) | 2023 | |||||
In millions of COP | ||||||||||
Banking Panama | Discounted Cash flow | 5 years plan | % | % | | |||||
Banking | % | |||||||||
El Salvador | Discounted Cash flow | 5 years plan | %(3) | % | | |||||
Banking Guatemala | Discounted Cash flow | 5 years plan | % | % | | |||||
Multiples EV/ Revenue | Does not | Does not | ||||||||
Others Segments | Comparable multiples | and EV/EBITDA | apply | apply | | |||||
Total | | |||||||||
| (1) | The discount rate is the return that would be expected for an investment that generates cash flows similar to those that are expected to be obtained from the use of the CGU. CAPM methodology was used as a basis to determine this rate. |
| (2) | This rate is equivalent to the nominal or real growth of the economy in Guatemala, Panama and El Salvador, which is considered an important driver for the growth of the banking industry. |
| (3) | Corresponds to the discount rate used for the short and long term, respectively. |
As of December 31, 2022
Discount Rate | (1) | Growth rate | (2) | Goodwill | ||||||
Operating segment | Valuation Methodology | Key Assumptions | (real) | (real) | 2022 | |||||
In millions of COP | ||||||||||
Banking Panama | Discounted Cash flow | 5 years plan | % | % | | |||||
Banking | % | |||||||||
El Salvador | Discounted Cash flow | 5 years plan | %(3) | % | | |||||
Banking Guatemala | Discounted Cash flow | 5 years plan | % | % | | |||||
Multiples EV/ Revenue | Does not | Does not | ||||||||
Others Segments | Comparable multiples | and EV/EBITDA | apply | apply | | |||||
Total | | |||||||||
| (1) | The discount rate is the return that would be expected for an investment that generates cash flows similar to those that are expected to be obtained from the use of the CGU. CAPM methodology was used as a basis to determine this rate. |
| (2) | This rate is equivalent to the nominal or real growth of the economy in Guatemala, Panama and El Salvador, which is considered an important driver for the growth of the banking industry. |
| (3) | Corresponds to the discount rate used for the short and long term, respectively. |
In 2023 and 2022, the Bank tested the aforementioned goodwill for impairment purposes at the following operating segment levels: Banking Panama, Banking El Salvador and Banking Guatemala. Each operating segment represents a group of cash generating units. Evaluating the goodwill impairment at an operating segment level ensures the alignment with the approach used by the CODM to make decisions about resources to be allocated to the segments and assess its performance. After the valuation, it was determined that there is no impairment loss for any of the cash-generating units mentioned above during 2023 and 2022.
Sensitivity analysis:
In order to assess the impact of changes in certain significant inputs such as the discount rate and the growth rate in the operating segments’ recoverable amount, the Bank undertook a sensitivity analysis of these inputs through alternative scenarios.
F-92
The tables below present the estimated recoverable amount of each operating segment obtained as a result of sensitivity analysis for the discount rate and growth rate in basis points (bips):
As of December 31, 2023
Banking Panama
+50 bips | Discount rate | -50 bips | ||||
Growth rate | ||||||
| | | ||||
-50 bips | Growth rate | +50 bips | ||||
Discount rate | ||||||
| | | ||||
Banking El Salvador
+100 bips | Discount rate | -100 bips | ||||
Growth rate | ||||||
| | | ||||
-50 bips | Growth rate | +50 bips | ||||
Discount rate | ||||||
| | | ||||
Banking Guatemala
+50 bips | Discount rate | -50 bips | ||||
Growth rate | ||||||
| | | ||||
-50 bips | Growth rate | +50 bips | ||||
Discount rate | ||||||
| | | ||||
As of December 31, 2022
Banking Panama
+50 bips | Discount rate | -50 bips | ||||
Growth rate | ||||||
| | | ||||
-50 bips | Growth rate | +50 bips | ||||
Discount rate | ||||||
| | | ||||
F-93
Banking El Salvador
+100 bips | Discount rate | -100 bips | ||||
Growth rate | ||||||
| | | ||||
-50 bips | Growth rate | +50 bips | ||||
Discount rate | ||||||
| | | ||||
Banking Guatemala
+50 bips | Discount rate | -50 bips | ||||
Growth rate | ||||||
| | | ||||
-50 bips | Growth rate | +50 bips | ||||
Discount rate | ||||||
| | | ||||
The Bank considers goodwill as an asset with indefinite useful life.
9.3 Business combination
For 2023 there were no business combinations, for 2022 and 2021 the business combinations effected by the Bank are below:
P.A. FAI CALLE 77
On June 4, 2021, Bancolombia S.A. entered into an agreement with CCLA Colombia S.A.S. for the conditional assignment of the fiduciary rights of the Trust named P.A. FAI Calle 77, which owns the Nomad 77 Building located in the city of Bogotá (Colombia), which is the first project built for Multifamily rental housing in Colombia. Bancolombia S.A. concluded that it has control over the P.A. FAI Calle 77 given that it has exposures, or rights, to variable returns from its involvement in the investee and also has the ability to use its power to affect returns from the rental housing activity, through its participation in executive committees, and has the capacity to direct the activity that most significantly affects returns of all business – namely, approval rights over the disposal of the real estate projects.
The transaction was completed on March 1, 2022, upon Bancolombia S.A. obtaining the registration that qualifies it as a lessor of real estate for urban housing from the “Secretaría de Habitat” of Bogota. This registration was the condition to which the transfer of the fiduciary rights were subject. The Bank also obtained control of the P.A. FAI Calle 77 Trust on March 1, 2022, and has an equity interest of
The consideration paid by Bancolombia S.A. was COP
The acquisition of the P.A. FAI Calle 77 Trust was accounted for in accordance with the acquisition method of IFRS 3. The purchase price was assigned to the assets and liabilities acquired, based on their estimated fair values at the acquisition date.
The Bank opted to measure the non-controlling interest in the acquiree of
F-94
The estimate of the fair value of the assets acquired and liabilities assumed was based on information available as of March 1, 2022. The Bank believes that this information provides a reasonable basis for determining fair values:
In millions of COP | ||
Purchase Price Allocation | ||
Pruchase price on June 9, 2021 | | |
Non-controlling interest at fair value | | |
TOTAL | | |
Fair value of net assets acquired | ||
ASSETS | ||
Cash and cash equivalents | | |
Accounts receivable | | |
Premises and equipment, net | | |
Investments property | | |
Other assets | | |
Total Assets | | |
LIABILITIES | ||
Accounts payable | | |
Deferred tax | | |
Other liabilities | | |
Total Liabilities | | |
Fair value of net assets acquired | | |
Gain from a bargain purchase | |
The acquisition of P.A. FAI Calle 77 Trust resulted in the recognition of a gain from a bargain purchase of COP
Acquisition-related cost
In connection with the acquisition, the Bank incurred costs which are recorded in the "Other administrative and general expenses" line item of the Consolidated Statement of Income.
WOMPI S.A.S. (before “Vlipco S.A.S.”)
On November 10, 2021, Bancolombia S.A. entered into a stock purchase agreement, pursuant to which Bancolombia S.A. agreed to purchase an additional
At the acquisition date, the Bank owned
The transaction was completed on November 30, 2021, upon receipt of required regulatory approvals from the Superintendencia of Industry and Commerce, and as a result Bancolombia S.A. obtained control of Wompi S.A.S. The consideration paid by Bancolombia S.A. was COP
The acquisition of Wompi S.A.S. in stages was accounted for under the acquisition method, in accordance with IFRS 3. Accordingly, the Bank has remeasured its previously held equity interest in Wompi S.A.S. at its acquisition-date fair value and recognized the resulting gain or loss and equity method adjustment.
F-95
The purchase price was preliminarily allocated to the acquired assets and liabilities based on their estimated fair values at the acquisition date, as summarized in the following table. The goodwill of COP
The Bank has elected to measure the non-controlling interests of
For this acquisition, the estimated fair value of assets acquired and liabilities assumed are based on the information available at November 30, 2021. The Bank believes that this information provides a reasonable basis for determining fair values.
In millions of COP | ||
Wompi S.A.S Purchase Price Allocation | ||
Pruchase price on November 30, 2021 | | |
Fair value of previously held invesment | | |
Non-controlling interest at fair value | | |
TOTAL | | |
Book value of net assets acquired | ||
ASSETS | ||
Cash and cash equivalents | | |
Accounts receivable | | |
Taxes receivable | | |
Premises and equipment, net | | |
Other assets | | |
Total Assets | | |
LIABILITIES | ||
Short-term borrowings | | |
Accounts payable | | |
Taxes liabilities | | |
Employee benefit plans | | |
Total Liabilities | | |
Net assets at book value | | |
Wompi S.A.S intangibles assets recognized at the acquisition date: | ||
Software(1) | | |
Deferred tax | ( | |
Fair value of net assets acquired | | |
Goodwill |
| (1) | The fair value of the intangible assets includes a software development that supports the operation of the Wompi S.A.S. payment gateway, with a fair value of COP |
Acquisition-related cost
In connection with the acquisition of Wompi S.A.S., the Bank incurred costs which are recorded in the ‘Other administrative and general expenses’ line item of the Consolidated Statement of Income. The transaction costs were immaterial.
F-96
Previously held interest
Prior to control being obtained, the Bank accounted for its investment in Wompi S.A.S. using the equity method, due to the fact that the Bank had joint control of Wompi S.A.S. and, accordingly, it was classified as a joint venture. The previous shareholding was
Date and nature of investment | Share in equity | ||
Investment recorded as an joint venture(1) | | % | |
November 2021 – acquisition of | | % | |
Total at December 31, 2021 | | % |
| (1) | Investment made since July 2019, the participation percentage was |
At the date of obtaining control (the acquisition date), the Bank remeasured the previously held equity interest to fair value and recognized revenue amounting to COP
NOTE 10. PREMISES AND EQUIPMENT, NET
As of December 31, 2023 and 2022, the premises and equipment, net consisted of the following:
As of December 31, 2023
Premises and equipment for own use
Roll - forward | ||||||||||||||
Balance at | Effect of | Balance at | ||||||||||||
Premises and equipment for own use | January 1, | Expenses | Assets | changes in | December 31, | |||||||||
2023 | Additions | depreciation and | Disposals | classified as held | foreign | 2023 | ||||||||
impairment(1) | for sale and | exchange | ||||||||||||
other assets | rate | |||||||||||||
In millions of COP | ||||||||||||||
Land | ||||||||||||||
Cost | | | - | ( | ( | ( | | |||||||
Construction in progress | ||||||||||||||
Cost | | | - | - | - | ( | | |||||||
Buildings | ||||||||||||||
Cost | | | - | ( | | ( | | |||||||
Accumulated depreciation | ( | - | ( | | ( | | ( | |||||||
Accumulated impairment | - | - | ( | | - | - | - | |||||||
Furniture and fixtures | ||||||||||||||
Cost | | | - | ( | ( | ( | | |||||||
Accumulated depreciation | ( | - | ( | | - | | ( | |||||||
Accumulated impairment | - | - | ( | | - | - | - | |||||||
Computer equipment | ||||||||||||||
Cost | | | - | ( | | ( | | |||||||
Accumulated depreciation | ( | - | ( | | ( | | ( | |||||||
Accumulated impairment | - | - | ( | | - | - | ||||||||
Vehicles | ||||||||||||||
Cost | | | - | ( | | ( | | |||||||
Accumulated depreciation | ( | - | ( | | ( | | ( | |||||||
Leasehold improvements | ||||||||||||||
Cost | | | - | - | ( | ( | | |||||||
Accumulated depreciation | ( | - | ( | - | - | | ( | |||||||
Total premises and equipment for own use - cost | | | - | ( | ( | ( | | |||||||
Total premises and equipment - accumulated depreciation | ( | - | ( | | ( | | ( | |||||||
Total premises and equipment - accumulated impairment | - | - | ( | | - | - | - | |||||||
Total premises and equipment for own use, net | | | ( | ( | ( | ( | | |||||||
(1) See Note 26.3. Impairment, depreciation and amortization.
F-97
Premises and equipment in operating leases
Roll - forward | ||||||||||||||
Balance at | Effect of | Balance at | ||||||||||||
Premises and equipment in operating leases | January 1, | Expenses | Assets | changes in | December 31, | |||||||||
2023 | Additions | depreciation and | Disposals | classified as held | foreign | 2023 | ||||||||
impairment(1) | for sale and | exchange | ||||||||||||
other assets | rate | |||||||||||||
In millions of COP | ||||||||||||||
Furniture and fixtures | ||||||||||||||
Cost | | - | - | - | - | - | | |||||||
Accumulated depreciation | ( | - | ( | - | - | - | ( | |||||||
Computer equipment | ||||||||||||||
Cost | | | - | ( | | - | | |||||||
Accumulated depreciation | ( | - | ( | | | - | ( | |||||||
Vehicles | ||||||||||||||
Cost | | | - | ( | ( | - | | |||||||
Accumulated depreciation | ( | - | ( | | | - | ( | |||||||
Accumulated impairment | - | - | ( | | - | - | - | |||||||
Total premises and equipment in operating leases - cost | | | - | ( | ( | - | | |||||||
Total premises and equipment - accumulated depreciation | ( | - | ( | | | - | ( | |||||||
Total premises and equipment - accumulated impairment | - | - | ( | | - | - | - | |||||||
Total premises and equipment in operating leases, net | | | ( | ( | ( | - | | |||||||
(1) See Note 26.3. Impairment, depreciation and amortization.
Premises and equipment total
Roll - forward | ||||||||||||||
Balance at | Effect of | Balance at | ||||||||||||
Premises and equipment total | January 1, | Expenses | Assets | changes in | December 31, | |||||||||
2023 | Additions | depreciation and | Disposals | classified as held | foreign | 2023 | ||||||||
impairment(1) | for sale and | exchange | ||||||||||||
other assets | rate | |||||||||||||
In millions of COP | ||||||||||||||
Total premises and equipment - cost | | | - | ( | ( | ( | | |||||||
Total premises and equipment - accumulated depreciation | ( | - | ( | | | | ( | |||||||
Total premises and equipment - accumulated impairment | - | - | ( | | - | - | - | |||||||
Total premises and equipment, net | | | ( | ( | ( | ( | | |||||||
(1) See Note 26.3. Impairment, depreciation and amortization.
As of December 31, 2022
Premises and equipment for own use
Roll - forward | ||||||||||||||
Balance at | Effect of | Balance at | ||||||||||||
Premises and equipment for own use | January 1, | Expenses | Assets | changes in | December 31, | |||||||||
2022 | Additions | depreciation and | Disposals | classified as held | foreign | 2022 | ||||||||
impairment(1) | for sale and | exchange | ||||||||||||
other assets | rate | |||||||||||||
In millions of COP | ||||||||||||||
Land | ||||||||||||||
Cost | | | - | ( | ( | | | |||||||
Construction in progress | ||||||||||||||
Cost | | | - | ( | - | | | |||||||
Accumulated impairment | - | - | ( | | - | - | - | |||||||
Buildings | ||||||||||||||
Cost | | | - | ( | ( | | | |||||||
Accumulated depreciation | ( | - | ( | | | ( | ( | |||||||
Furniture and fixtures | ||||||||||||||
Cost | | | - | ( | - | | | |||||||
Accumulated depreciation | ( | - | ( | | - | ( | ( | |||||||
Computer equipment | ||||||||||||||
Cost | | | - | ( | - | | | |||||||
Accumulated depreciation | ( | - | ( | | - | ( | ( | |||||||
Vehicles | ||||||||||||||
Cost | | | - | ( | ( | | | |||||||
Accumulated depreciation | ( | - | ( | | | ( | ( | |||||||
Leasehold improvements | ||||||||||||||
Cost | | | - | ( | ( | | | |||||||
Accumulated depreciation | ( | - | ( | | - | ( | ( | |||||||
Total premises and equipment for own use - cost | | | - | ( | ( | | | |||||||
Total premises and equipment - accumulated depreciation | ( | - | ( | | | ( | ( | |||||||
F-98
Total premises and equipment - accumulated impairment | - | - | ( | | - | - | - | |||||||
Total premises and equipment for own use, net | | | ( | ( | ( | | |
(1) See Note 26.3. Impairment, depreciation and amortization.
Premises and equipment in operating leases
Roll - forward | ||||||||||||||
Balance at | Effect of | Balance at | ||||||||||||
Premises and equipment in operating leases | January 1, | Expenses | Assets | changes in | December 31, | |||||||||
2022 | Additions | depreciation and | Disposals | classified as held | foreign | 2022 | ||||||||
impairment(1) | for sale and | exchange | ||||||||||||
other assets | rate | |||||||||||||
In millions of COP | ||||||||||||||
Furniture and fixtures | ||||||||||||||
Cost | | - | - | - | - | - | | |||||||
Accumulated depreciation | ( | - | ( | - | - | - | ( | |||||||
Computer equipment | ||||||||||||||
Cost | | | - | ( | ( | - | | |||||||
Accumulated depreciation | ( | - | ( | | | - | ( | |||||||
Vehicles | ||||||||||||||
Cost | | | - | ( | ( | - | | |||||||
Accumulated depreciation | ( | - | ( | | | - | ( | |||||||
Total premises and equipment in operating leases - cost | | | - | ( | ( | - | | |||||||
Total premises and equipment - accumulated depreciation | ( | - | ( | | | - | ( | |||||||
Total premises and equipment in operating leases, net | | | ( | ( | ( | - | | |||||||
| (1) | See Note 26.3. Impairment, depreciation and amortization. |
Premises and equipment total
Roll - forward | ||||||||||||||
Balance at | Effect of | Balance at | ||||||||||||
Premises and equipment total | January 1, | Expenses | Assets | changes in | December 31, | |||||||||
2022 | Additions | depreciation and | Disposals | classified as held | foreign | 2022 | ||||||||
impairment(1) | for sale and | exchange | ||||||||||||
other assets | rate | |||||||||||||
In millions of COP | ||||||||||||||
Total premises and equipment - cost | | | - | ( | ( | | | |||||||
Total premises and equipment - accumulated depreciation | ( | - | ( | | | ( | ( | |||||||
Total premises and equipment - accumulated impairment | - | - | ( | | - | - | - | |||||||
Total premises and equipment, net | | | ( | ( | ( | | | |||||||
| (1) | See Note 26.3. Impairment, depreciation and amortization. |
As of December 31, 2023 and 2022, there were contractual commitments for the purchase of premises and equipment of COP
As of December 31, 2023 and 2022, the amount of fully depreciated premises and equipment that is still in use is COP
F-99
NOTE 11. INVESTMENT PROPERTIES
The table below sets forth the reconciliation between the initial balance account and the balance at the end of the period, at fair value:
December 31, 2023 | December 31, 2022 | |||
In millions of COP | ||||
Balance at the beginning of the year | | | ||
Acquisitions | | | ||
Subsequent expenditure recognised as an asset | | | ||
Sales/Write-offs | ( | ( | ||
Acquisitions through business combination(1) | - | | ||
Amount reclassified from premises and equipment(2) | | - | ||
Gains on valuation(3) | | | ||
Balance at the end of the period(4) | | | ||
| (1) | In 2022 corresponds to PA FAI Calle 77. See Note 9.3. Business combination. |
| (2) | In 2023, the amount relates properties from FCP Fondo Inmobiliario Colombia that were reclassified from premises and equipment to investment property, because they are held for obtaining profits and capital appreciation. |
| (3) | The difference with the line Investment property valuation included in Other operating income corresponds to gains recognized in acquisitions. See Note 25.4. Other operating income - Investment property valuation and Others. |
| (4) | Between December 31, 2023 and 2022, there were |
The valuation adjustments recorded by the Bank related to its investment properties are detailed below:
As of December 31, 2023
| Balance at the |
|
|
| Amount |
| Adjusted fair | |||
Type of asset | beginning of the | Appraisals | Net increase(1)(2) | reclassified from | value at the end | |||||
year | premises and equipment(3) | of the year | ||||||||
In millions of COP | ||||||||||
Buildings | | | | | | |||||
Lands | | | | - | | |||||
Total | | | | | | |||||
| (1) | The increase in buildings corresponds mainly in Bancolombia for the purchase for COP |
| (2) | The increase in lands corresponds mainly to the entry of NOMAD CENTRAL, P.A CALLE 84 (2) and P.A CALLE 84 (3) for COP |
| (3) | The amount reclassified from premises and equipment corresponds properties from FCP Fondo Inmobiliario Colombia that were transfers to investment property, because they are held for obtaining profits and capital appreciation. |
As of December 31, 2022
| Balance at the |
|
|
| Acquisitions |
| Adjusted fair |
| |||
Type of asset | beginning of the | Appraisals | Net increase | from business | value at the end | ||||||
year | (decrease) (1)(2) | combination(3) | of the year | ||||||||
In millions of COP | |||||||||||
Buildings | | | | | | ||||||
Lands | | ( | ( | - | | ||||||
Total | | | | | | ||||||
| (1) | The net increase in buildings corresponds mainly to increases in P.A. MERCURIO for COP |
F-100
| (2) | The decrease in lands corresponds mainly to the sale of land by Valores Simesa S.A. |
| (3) | For more information on acquisitions from business combinations, See Note 9.3. Business. |
Amounts recognized in the statement of income for the period.
The table sets forth the main income recorded by the Bank related to its investment properties:
December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||
In millions of COP | ||||||
Income from rentals | | | | |||
Operating expenses due to: | ||||||
Investment properties that generated income through rentals | | | | |||
Investment properties that did not generate income through rentals | | | | |||
Currently, there are no restrictions on the use or income derived from the buildings or lands that the Bank has as investment property.
The fair value of the Bank’s investment properties for the year ending at December 31, 2023 and 2022, has been recorded according to the assessment made by independent external consulting companies that have the appropriate capacity and experience in performing those assessments. The appraisers are either approved by the Property Market Auctions of Colombia or foreign appraisers, who are required to provide a second signature by a Colombia appraiser accredited by the Property Market Auctions.
Fair value appraisals are carried out in accordance with IFRS 13. The reports made by the external consulting company contain the description of the valuation methodologies used, and key assumptions such as: discount rates, calculation of applied expenses and income approach, among others. The fair value of the investment properties is based on the comparative market approach, which reflects the prices of recent transactions with similar characteristics. Upon determining the fair value of these investment properties, the greater and best use of these investment properties is their present use. For further information about measurement techniques and inputs used by consulting companies, see Note 30 Fair Value of assets and liabilities.
As of December 31, 2023 and 2022, the Bank does not have investment properties held under financial leases.
NOTE 12. INCOME TAX
The income tax is recognized in each of the countries where the Bank has operations, in accordance with the tax regulations in force in each of the jurisdictions.
12.1 Components recognized in the income statement:
December 31, | December 31, | December 31, | ||||
2023 | 2022 | 2021 | ||||
In millions of Colombian pesos | ||||||
Current tax(1) | ||||||
Fiscal term | ( | ( | ( | |||
Prior fiscal terms | | | | |||
Total current tax | ( | ( | ( | |||
Deferred tax | ||||||
Fiscal term | ( | ( | ( | |||
Adjustments for consolidation purposes | | ( | | |||
Total deferred tax | ( | ( | ( | |||
Total income tax(2) | ( | ( | ( | |||
| (1) | The nominal income tax rate used in Colombia for the years 2023 and 2022 is |
F-101
| (2) | See table 12.3 Reconciliation of the effective tax rate. |
12.2 Legal regulatory changes
Principal changes introduced by the tax reform of 2022:
The Colombian Congress enacted Law 2277 of 2022 on 13th of December 2022, which became effective January 1, 2023. The most significant measures this norm are outlined below:
The Corporate Income Tax rate (CIT) continues at
Certain non-taxable incomes, special deductions, exempt incomes, and tax credits will be limited to
For the fiscal year 2023 onwards, Industry and Trade Tax (ITT) will not be creditable against the Corporate Income Tax. Therefore, ITT only will be eligible as a deduction.
A minimum effective tax rate of
Profits derived from the sale of shares listed on the Colombian Stock Exchange will be treated as non-taxable income if: i) a single shareholder owns them, and ii) they are not more than
The distribution of profits in shares will be taxable for CIT matters.
Payments falling into the following categories i) social club memberships, ii) personal payments to shareholders and their relatives, and iii) labor expenses of home support personnel, among others, will not be deductible for CIT purposes.
Donations to research, technological developments, and innovation will not be deductible.
Dividend tax rate increases as follows:
Dividend tax | Rate | ||
Foreign entities | From | ||
Colombian corporations | From to |
Capital gains tax increases from
A temporary reduction in penalties and interest of
The tax determination will be made through electronic invoicing when the taxpayer has not filed their income tax returns.
Penalty for not sending information to the Tax Office is reduced to 7500 tax units (UVT).
In-kind payments made by an entity to third parties for the acquisition of goods or provision of services will be deemed as taxable income for the entity’s employees, their spouses, their relatives, and any other person with the title of the beneficiary of the payment.
Other Countries:
The income tax rate in the other countries where the Group has a presence amounts to
F-102
12.3 Reconciliation of the effective tax rate
The reconciliation between total income tax expenses calculated at the current nominal tax rate and the tax expense recognized in the income statement for the periods ended December 31, 2023, 2022 and 2021 is detailed below:
December 31, | December 31, | December 31, | ||||
Reconciliation of the tax rate | 2023 | 2022 | 2021 | |||
In millions of Colombian pesos | ||||||
Accounting profit | | | | |||
Applicable tax with nominal rate(1) | ( | ( | ( | |||
Non-deductible expenses to determine taxable profit (loss) | ( | ( | ( | |||
Accounting and non-tax expense (income) to determine taxable profit (loss) | | | | |||
Differences in accounting bases(2) | ( | ( | ( | |||
Fiscal and non-accounting expense (income) to determine taxable profit (loss) | ( | ( | ( | |||
Ordinary activities income exempt from taxation | | | | |||
Ordinary activities income not constituting income or occasional tax gain | | | | |||
Tax deductions | | | | |||
Goodwill Depreciation | | | | |||
Tax depreciation surplus | | | | |||
Untaxed recoveries | ( | ( | ( | |||
Tax rate effect in other countries | ( | ( | ( | |||
Prior fiscal terms | | | | |||
Other effects of the tax rate by reconciliation between accounting profit and tax expense (income) | | ( | ( | |||
Total income tax | ( | ( | ( | |||
| (1) | The nominal income tax rate used in Colombia for the years 2023 and 2022 is |
| (2) | Difference between the technical accounting frameworks in force in Colombia and the full International Financial Reporting Standards (IFRS). |
12.4 Components recognized in Other Comprehensive Income (OCI)
See Consolidated Statement of Comprehensive Income
December 31, 2023 | ||||||
In millions of Colombian pesos | ||||||
Amounts before taxes | Deferred tax | Net taxes | ||||
Remeasurement income related to defined benefit liability | ( | | ( | |||
Unrealized gain Investments in equity instruments measured at fair value through other comprehensive income (FVTOCI) | | ( | | |||
Unrealized loss Investments in debt instruments measured at fair value through other comprehensive income (FVTOCI) | | ( | | |||
Loss on net investment hedge in foreign operations | | ( | | |||
Exchange differences arising on translating the foreign operations. | ( | - | ( | |||
Unrealized loss on investments in associates and joint ventures using equity method | ( | | ( | |||
Net | ( | ( | ( | |||
F-103
See Consolidated Statement of Comprehensive Income
December 31, 2022 | ||||||
In millions of Colombian pesos | ||||||
Amounts before taxes | Deferred tax | Net taxes | ||||
Remeasurement income related to defined benefit liability | | ( | | |||
Unrealized loss Investments in equity instruments measured at fair value through other comprehensive income (FVTOCI) | | ( | | |||
Gains due to asset revaluation | - | ( | ( | |||
Unrealized gain Investments in debt instruments measured at fair value through other comprehensive income (FVTOCI) | ( | | ( | |||
Loss on net investment hedge in foreign operations | ( | | ( | |||
Exchange differences arising on translating the foreign operations. | | - | | |||
Unrealized gains on investments in associates and joint ventures using equity method | ( | ( | ( | |||
Net | | | | |||
See Consolidated Statement of Comprehensive Income
December 31, 2021 | ||||||
In millions of Colombian pesos | ||||||
Amounts before taxes | Deferred tax | Net taxes | ||||
Remeasurement expense related to defined benefit liability | | ( | | |||
Unrealized gain Investments in equity instruments measured at fair value through other comprehensive income (FVTOCI)(1) | | | | |||
Gains due to asset revaluation | - | ( | ( | |||
Unrealized gain Investments in debt instruments measured at fair value through other comprehensive income (FVTOCI) | ( | | ( | |||
Loss on net investment hedge in foreign operations | ( | | ( | |||
Exchange differences arising on translating the foreign operations. | | - | | |||
Unrealized gains on investments in associates and joint ventures using equity method | | ( | | |||
Net | | | | |||
| (1) | Includes income tax to partial payments of asset-backed securities transferred to retained earnings and reclassification of income tax on investments in associates that were transferred from retained earnings to OCI. |
12.5 Deferred tax
In accordance with its financial projections, the companies from the Bank’s expects in the future to generate enough liquid income to offset the items recorded as deductible deferred tax. These estimates start from the financial projections that were prepared considering information from the Bank’s economic research records, the expected economic environment for the next five years. The main indicators on which the models are based are GDP growth, loans growth and interest rates. In addition to these elements, the long-term Group's strategy is taken into account.
The deferred tax asset and liability for each of the concepts that generated taxable or deductible temporary differences for the period ending December 31, 2023 are detailed below:
F-104
Effect on | Adjustments for | |||||||||||||||
December 31, | Income | Effect on | Effect on | Tax Made(2) | Foreign | consolidation | December 31, | |||||||||
2022 | Statement | OCI | Equity(1) | Exchange | purposes | 2023 | ||||||||||
In millions of Colombian pesos | ||||||||||||||||
Asset Deferred Tax: | ||||||||||||||||
Property and equipment | | ( | - | - | - | ( | ( | | ||||||||
Employee Benefits | | | | - | - | ( | - | | ||||||||
Deterioration assessment | | | - | - | - | ( | ( | | ||||||||
Investments evaluation | | ( | ( | - | - | ( | - | | ||||||||
Derivatives Valuation | | | - | - | - | - | | | ||||||||
Tax credits settlement | | | - | - | - | - | - | | ||||||||
Financial Obligations | | ( | - | - | - | - | - | - | ||||||||
Insurance operations | - | ( | - | | - | - | - | | ||||||||
Net investment coverage in operations abroad | | ( | ( | - | ( | - | - | | ||||||||
Other deductions | | ( | - | - | - | ( | - | | ||||||||
implementation adjustment | | | - | - | - | ( | - | | ||||||||
Total Asset Deferred Tax (3) | | ( | ( | | ( | ( | ( | | ||||||||
Liability Deferred Tax: | ||||||||||||||||
Property and equipment | ( | | - | - | - | | | ( | ||||||||
Deterioration assessment | ( | | - | - | - | | ( | ( | ||||||||
Participatory titles evaluation | ( | ( | ( | - | - | ( | | ( | ||||||||
Derivatives evaluation | ( | | - | - | - | | ( | ( | ||||||||
Lease restatement | ( | | - | - | - | - | - | ( | ||||||||
Investments in associates. Adjustment for equity method | ( | | | - | - | ( | - | ( | ||||||||
Financial Obligations | ( | ( | - | - | - | | - | ( | ||||||||
Goodwill | ( | | - | - | - | | - | ( | ||||||||
Insurance operations | - | | - | ( | - | - | - | ( | ||||||||
Properties received in payment | ( | | - | - | - | | - | ( | ||||||||
Other deductions | ( | | - | - | - | | - | ( | ||||||||
implementation adjustment | ( | - | - | - | - | - | - | ( | ||||||||
Total Liability Deferred Tax (3) | ( | | ( | ( | - | | | ( | ||||||||
Net Deferred Tax | | ( | ( | ( | ( | ( | | ( | ||||||||
| (1) | Application of IFRS 17 Insurance Contracts in Guatemala. |
| (2) | Current tax that arose from the exchange difference due to the liquidation of the bonds that was associated as a hedging instrument. |
| (3) | The values revealed in the Consolidated Statement of Financial Position correspond to the sum of the net deferred tax per company. |
12.6 Amount of temporary differences in subsidiaries, branches, associates over which deferred tax was not recognized is
In accordance with IAS 12, no deferred tax credit was recorded, because management can control the future moment in which such differences are reversed and this is not expected to occur in the foreseeable future.
December 31, 2023 | December 31, 2022 | |||
In millions of Colombian pesos | ||||
Temporary differences | ||||
Local Subsidiaries | ( | ( | ||
Foreign Subsidiaries | ( | ( | ||
F-105
12.7 Tax credits
For the 2023 period, a deferred tax asset was recognized since the Group companies will have future taxable profits in which they can charge this temporary difference.
The following is the detail of the fiscal losses and presumptive income excesses over net income in the Group's entities, which have not been used, as of December 31, 2023.
Deferred tax | ||||
Company | Base | recognized asset | ||
In millions of Colombian pesos | ||||
Renting Colombia S.A.S. | | | ||
Nequi S.A., Compañía de Financiamiento | | | ||
Total | | | ||
12.8 Dividends
12.8.1 Dividend Payment
If the parent company or any of its subsidiaries were to distribute dividends, they would be subject to the tax regulations of each of the countries in which they are decreed and distributed. In the case of Colombian companies, dividends will be subject to the application of Articles 48 and 49 of the Tax Statute and consequently will be subject to withholding at source at the established rates, in accordance with the tax characteristics of each shareholder.
12.8.2 Dividends received from Subsidiary Companies
Considering the historical tax status of the dividends received by the Bank from its affiliates and national subsidiaries, it is expected that in the future dividends will be received on the basis of non-income tax. They will not be subject to withholding tax, taking into account that the Bank, its affiliates and national subsidiaries belong to the same business group.
12.9 Tax contingent liabilities and assets
In the determination of the effective current and deferred taxes subject to review by the tax authority, the relevant regulations have been applied in accordance with the interpretations made by the Group Bancolombia.
In Colombia due to the complexity of the tax system, ongoing amendments to the tax regulations, accounting changes with implications on tax bases and in general the legal instability of the country, the tax authority may at any time have different criteria than that of the Bank. Consequently, a dispute or inspection by the tax authority on a tax treatment may affect the Bank accounting of assets or liabilities for deferred or current taxes, in accordance with the requirements of IAS 12. However, based on the criteria established in the interpretation of IFRIC 23, the Bank did not recognize uncertain tax positions in its financial statements.
F-106
NOTE 13. ASSETS HELD FOR SALE AND INVENTORIES, NET
The breakdown of inventories and assets held for sale, net of the Bank is as follows:
Assets held for sale and inventories | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Inventories, net | | | ||
Assets held for sale, net | | | ||
Total assets held for sale and inventories, net | | | ||
13.1. Inventories
Due to the nature of the financial services provided by some subsidiaries of the Bank, assets provided through operating or financial leases to third parties that do not exercise the purchase option or that do not have a purchase option, are recorded as inventories once the agreement expires, considering that in the course of the ordinary activities performed by such subsidiaries, those assets are routinely sold.
The Bank’s inventories at December 31, 2023 and 2022, are summarized as follows:
Inventories | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Lands and buildings | | | ||
Vehicles(1) | | | ||
Machinery and others | | | ||
Total inventory cost | | | ||
Impairment | ( | ( | ||
Total inventories, net | | | ||
(1) The increase is mainly due to the restitution of assets.
Impairment is recognized based on market price fluctuation due to the fact that the fair value is determined by the offering price less cost to sell.
There are
13.2. Assets held for sale
The assets recognized by the Bank as assets held for sale correspond to machinery, equipment, motor vehicles and technology, among others that have been received as foreclosed assets.
These assets are subject to a current plan for their sale, which contains the details of the selling price allocation and the advertising and marketing plan. Furthermore, the plan specifies the conditions to proceed with the selling process.
F-107
The total balance of assets held for sale, by operating segment, are detailed below:
As of December 31, 2023
Banking | Banking | Banking | Banking | |||||||
Assets held for sale | Colombia | Panama | El Salvador | Guatemala | Total | |||||
In millions of COP | ||||||||||
Machinery and equipment | | | - | - | | |||||
Cost | | | - | - | | |||||
Impairment | ( | ( | - | - | ( | |||||
Real estate for residential purposes | | | | | | |||||
Cost | | | | | | |||||
Impairment | - | ( | ( | ( | ( | |||||
Real estate different from residential properties | | | - | - | | |||||
Cost | | | - | - | | |||||
Impairment | ( | ( | - | - | ( | |||||
Total assets held for sale - cost | | | | | | |||||
Total assets held for sale - impairment | ( | ( | ( | ( | ( | |||||
Total assets held for sale(1) | | | | | | |||||
| (1) | For 2023 there are |
As of December 31, 2022
Banking | Banking | Banking | Banking | |||||||
Assets held for sale | Colombia | Panama | El Salvador | Guatemala | Total | |||||
In millions of COP | ||||||||||
Machinery and equipment | | | - | - | | |||||
Cost | | | - | - | | |||||
Impairment | ( | ( | - | - | ( | |||||
Real estate for residential purposes | | | | | | |||||
Cost | | | | | | |||||
Impairment | ( | ( | ( | ( | ( | |||||
Real estate different from residential properties | | | - | - | | |||||
Cost | | | - | - | | |||||
Impairment | ( | - | - | - | ( | |||||
Total assets held for sale - cost | | | | | | |||||
Total assets held for sale - impairment | ( | ( | ( | ( | ( | |||||
Total assets held for sale(1) | | | | | | |||||
| (1) | For 2022 there are |
Impairment losses are recognized for the difference between the carrying and recoverable amount of the asset.
F-108
NOTE 14. OTHER ASSETS, NET
As of December 31, 2023 and 2022 the Bank’s other assets, net consist of:
Other Assets, net | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Tax advance(1) | ||||
Other receivables(2) | ||||
Assets pledged as collateral (cash)(3) | ||||
Marketable and non-marketable for sale assets(4) | ||||
Prepaid expenses | ||||
Receivables related to abandoned accounts(5) | ||||
Accounts receivable from contracts with customers(6) | ||||
Receivable Sales of goods and service | ||||
Commission for letters of credit | ||||
Operating leases | ||||
Balance in credit card clearing house | ||||
Debtors | ||||
Others | ||||
Total other assets | | | ||
Allowance others | ( | ( | ||
Total other assets, net | | | ||
| (1) | Mainly due to increase balance in favor of income tax advance. |
| (2) | Other accounts receivable are mainly associated with outstanding items with networks, accounts receivable from derivatives and cash transactions, among others. |
| (3) | Variation generated by growth in current operations with international counterparts. |
| (4) | Decrease generated mainly in foreign subsidiaries due to the variation of the market representative rate, for December 2022 was COP |
| (5) | Corresponds to the application of Law 1777 of February 1, 2016, where established that entities holding balances in savings or checking accounts that are considered abandoned, must transfer these resources to the special fund created and administered by ICETEX for the granting of study credits and credits to promote the quality of Higher Education Institutions. |
| (6) | Corresponds to accounts receivable from commissions, see Note 25.3.1. Income from commissions and other services, in the detail of accounts receivable and liabilities from contracts. |
NOTE 15. DEPOSITS BY CUSTOMERS
The detail of the deposits as of December 31, 2023 and 2022 is as follows:
Deposits | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Saving accounts(1)(2) | | |||
Time deposits(2) | | |||
Checking accounts(2) | | |||
Other deposits(1) | | |||
Total deposits by customers | |
(1) As of December 31, 2023 and 2022 includes Nequi Deposits by COP
(2) The variation in time deposits is mainly due to the increase in interest rates, which has led to a greater preference for fixed income instruments and a decrease in savings and checking accounts.
F-109
The following table details the time deposits issued by the Bank:
As of December 31, 2023
Time deposits | Effective interest rate | December 31, 2023 | ||||||
Modality | Minimum | Maximum | Carrying Value | Fair value(1) | ||||
In millions of COP | ||||||||
Less than 6 months | % | | % | | ||||
Between 6 months and 12 months | % | | % | | ||||
Between 12 months and 18 months | % | | % | | ||||
Greater than 18 months | % | | % | | ||||
Total time deposits | | | ||||||
(1) See Note 30. Fair value of assets and liabilities.
As of December 31, 2022
Time deposits | Effective interest rate | December 31, 2022 | ||||||
Modality | Minimum | Maximum | Carrying Value | Fair value(1) | ||||
In millions of COP | ||||||||
Less than 6 months | % | % | | | ||||
Between 6 months and 12 months | % | % | | | ||||
Between 12 months and 18 months | % | % | | | ||||
Greater than 18 months | % | % | | | ||||
Total time deposits | | | ||||||
(1) See Note 30. Fair value of assets and liabilities.
The detail of time deposits issued by the Bank by maturity is as follows:
As of December 31, 2023
December 31, 2023 | ||||
Period | Carrying value | Fair value(1) | ||
In millions of COP | ||||
Less than 1 year | | | ||
Between 1 and 3 years | | | ||
Between 3 and 5 years | | | ||
Greater than 5 years | | | ||
Total | | | ||
(1) See Note 30. Fair value of assets and liabilities.
As of December 31, 2022
December 31, 2022 | ||||
Period | Carrying value | Fair value(1) | ||
In millions of COP | ||||
Less than 1 year | | | ||
Between 1 and 3 years | | | ||
Between 3 and 5 years | | | ||
Greater than 5 years | | | ||
Total | | | ||
(1) See Note 30. Fair value of assets and liabilities.
F-110
NOTE 16. INTERBANK DEPOSITS AND REPURCHASE AGREEMENTS AND OTHER SIMILAR SECURED BORROWING
The following table sets forth information regarding the money market operations recognized as liabilities in Consolidated Statement of Financial Position:
Interbank and repurchase agreements and other similar secured borrowing | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Interbank Deposits | ||||
Interbank liabilities | | | ||
Total interbank | | | ||
Repurchase agreements and other similar secured borrowing | ||||
Short selling operations | | | ||
Temporary transfer of securities | | | ||
Repurchase agreements | | - | ||
Total Repurchase agreements and other similar secured borrowing(1) | | | ||
Total money market transactions | | | ||
| (1) | Total repo liabilities have maturities of less than |
Offsetting of Repurchase and Resale Agreements
For the Bank and its Colombian subsidiaries, substantially all repurchase and resale activities are transacted under legally enforceable repurchase agreements that give the Bank, in the event of default by the counterparty, the right to liquidate securities held with the same counterparty.
The Bank does not offset repurchase and resale transactions with the same counterparty in the consolidated statement of financial position.
The table below presents repurchases and resale transactions included in the consolidated statement of financial position at December 31, 2023 and 2022:
As of December 31, 2023
Net balance | ||||||||||
Assets / | Amounts offset in | presented in the | Financial | Assets / | ||||||
liabilities gross | the statement of | statement of financial | instruments as | liabilities | ||||||
financial position | position | collaterals | net | |||||||
In millions of COP | ||||||||||
Securities purchased under resale agreements(1) | | - | | ( | - | |||||
Securities sold under repurchase agreements | ( | - | ( | | - | |||||
Total repurchase and resale agreements | | - | | ( | - | |||||
| (1) | The amount includes those presented as cash and cash equivalents for COP |
F-111
As of December 31, 2022
| Net balance | |||||||||
Assets / | Amounts offset in | presented in the | Financial | Assets / | ||||||
liabilities gross | the statement of | statement of financial | instruments as | liabilities | ||||||
financial position | position | collaterals | net | |||||||
In millions of COP | ||||||||||
Securities purchased under resale agreements(1) | | - | | ( | - | |||||
Securities sold under repurchase agreements | ( | - | ( | | - | |||||
Total repurchase and resale agreements | | - | | ( | - | |||||
| (1) | The amount includes those presented as cash and cash equivalents for COP |
For further information about offsetting of other financial assets and liabilities see Note 5 Financial assets investments and derivatives.
NOTE 17. BORROWINGS FROM OTHER FINANCIAL INSTITUTIONS
As of December 31, 2023 and 2022, the composition of the borrowings from other financial institutions measured at amortized cost is the following:
Borrowings from other financial institutions | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Obligations granted by foreign banks(1) | | | ||
Obligations granted by domestic banks(2) | | | ||
Total borrowings from other financial institutions | | | ||
(1) The variation is mainly due to the cancellation of obligations and the decrease of the market representative rate at the end of December 31, 2023 it was COP
(2)The increase is due to higher loan openings by Bancolombia S.A mainly in rediscount lines with Finagro, Bancoldex and Findeter.
Obligations granted by foreign banks
As of December 31, 2023
Financial entity | Rate Minimum | Rate Maximum | December 31, 2023 | |||
In millions of COP | ||||||
Financing with Correspondent Banks and Multilateral Entities(1) | | % | | % | | |
Banco Interamericano de Desarrollo (BID) | | % | | % | | |
Banco Latinoamericano de Comercio Exterior (Bladex) | | % | | % | | |
Total | | |||||
(1)At Bancolombia S.A. USD
As of December 31, 2022
Financial entity | Rate Minimum | Rate Maximum | December 31, 2022 | |||
In millions of COP | ||||||
Financing with Correspondent Banks and Multilateral Entities | | % | | % | | |
Banco Interamericano de Desarrollo (BID) | | % | | % | | |
Banco Latinoamericano de Comercio Exterior (Bladex) | | % | | % | | |
Total | | |||||
F-112
The maturities of the financial obligations with foreign entities as of December 31, 2023 and 2022 are the following:
Foreign | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Amount expected to be settled: | ||||
No more than twelve months after the reporting period | | | ||
More than twelve months after the reporting period | | | ||
Total | | | ||
Obligations granted by domestic banks
As of December 31, 2023
Rate | Rate | |||||
Financial entity | Minimum | Maximum | December 31, 2023 | |||
In millions of COP | ||||||
Financiera de desarrollo territorial (Findeter) | % | % | | |||
Fondo para el financiamiento del sector agropecuario (Finagro) | % | % | | |||
Banco de comercio exterior de Colombia (Bancoldex) | % | % | | |||
Other private financial entities | % | % | | |||
Total | | |||||
As of December 31, 2022
Rate | Rate | |||||
Financial entity | Minimum | Maximum | December 31, 2022 | |||
In millions of COP | ||||||
Financiera de desarrollo territorial (Findeter) | | % | | % | | |
Fondo para el financiamiento del sector agropecuario (Finagro) | | % | | % | | |
Banco de comercio exterior de Colombia (Bancoldex) | | % | | % | | |
Other private financial entities | | % | | % | | |
Total | | |||||
The maturities of financial obligations with domestic banks as of December 31, 2023 and 2022, are as follows:
Domestic | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Amount expected to be settled: | ||||
No more than twelve months after the reporting period | | | ||
More than twelve months after the reporting period | | | ||
Total | | | ||
F-113
As of December 31, 2023 and 2022, there were some financial covenants, mainly regarding capital adequacy ratios, past due loans and allowances, linked to some of the aforementioned outstanding credit facilities. None of these covenants had been breached nor were the related obligations past due.
NOTE 18. DEBT INSTRUMENTS IN ISSUE
Duly authorized by the authority in each country bonds have been issued as follows:
As of December 31, 2023
Issuer | Currency | Face value(1) | Balance COP | Rate Range | ||||||
Bancolombia S.A. | Local | COP | ||||||||
Bancolombia S.A.(2)(3) | Foreign | USD | ||||||||
Banistmo S.A.(4) | Foreign | USD | ||||||||
Banco Agrícola S.A.(5) | Foreign | USD | ||||||||
Bancolombia Puerto Rico Internacional Inc. | Foreign | USD | ||||||||
Bancolombia Panamá S.A. | Foreign | USD | ||||||||
Grupo Agromercantil Holding S.A. | Foreign | USD | ||||||||
Total debt instruments in issue | | |||||||||
(1) Face value is in US dollar for foreign currency bonds.
(2)The variation is due to repurchase in Bancolombia S.A. of USD
(3)USD
(4) See Note 18.2. Issue of Banistmo S.A. ordinary bonds.
(5) See Note 18.3. Issue of Banco Agrícola S.A. ordinary bonds.
As of December 31, 2022
Issuer | Currency | Face value(1) | Balance COP | Rate Range | ||||||
Bancolombia S.A. | Local | COP | | | ||||||
Bancolombia S.A.(2)(3) | Foreign | USD | | | ||||||
Banistmo S.A.(4) | Foreign | USD | | | ||||||
Banco Agrícola S.A.(5) | Foreign | USD | | | ||||||
Bancolombia Puerto Rico Internacional Inc. | Foreign | USD | | | ||||||
Bancolombia Panamá S.A. | Foreign | USD | | | ||||||
Grupo Agromercantil Holding S.A. | Foreign | USD | | | ||||||
Total debt instruments in issue | | |||||||||
(1)Face value is in US dollar for foreign currency bonds.
(2)USD
(3) See Note 18.1. Issue of Bancolombia S.A. sustainable ordinary bonds.
(4) See Note 18.2. Issue of Banistmo S.A. ordinary bonds.
(5) See Note 18.3. Issue of Banco Agrícola S.A. ordinary bonds.
F-114
The following table shows the detail of the bonds classified by currency, term and type of issue:
As of December 31, 2023
Less than | Between | Between | ||||||||
Issuer | 1 year | 1 and 3 years | 3 and 5 years | Greater than 5 years | Total amortized cost | |||||
In millions of COP | ||||||||||
Local currency | ||||||||||
Subordinated bonds(1) | - | - | - | | | |||||
Ordinary bonds | - | - | | | | |||||
Foreign currency | ||||||||||
Subordinated bonds(1) | - | - | - | | | |||||
Ordinary bonds | | | | | | |||||
Total | | | | | | |||||
| (1) | In the event of default of the Bank, the subordinated bonds, will be subordinated to the claims of depositors and all other creditors of the issuer, other than creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities. |
As of December 31, 2022
Issuer | Less than | Between | Between | |||||||
1 year | 1 to 3 years | 3 to 5 years | Greater than 5 years | Total amortized cost | ||||||
In millions of COP | ||||||||||
Local currency | ||||||||||
Subordinated bonds(1) | - | - | - | | | |||||
Ordinary bonds | - | - | | | | |||||
Foreign currency | ||||||||||
Subordinated bonds(1) | - | - | - | | | |||||
Ordinary bonds | | | | | | |||||
Total | | | | | | |||||
(1)In the event of default of the Bank, the subordinated bonds, will be subordinated to the claims of depositors and all other creditors of the issuer, other than creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities.
18.1. Issue of Bancolombia S.A. sustainable ordinary bonds.
On October 25, 2022 Bancolombia S.A. issued the first bond linked to sustainability for COP
18.2. Issue of Banistmo S.A. ordinary bonds.
Banistmo S.A., a subsidiary of the Bank issued in 2023 bonds under the Revolving Bond Program, totaling USD
18.3. Issue of Banco Agrícola S.A. ordinary bonds.
Banco Agrícola a subsidiary of the Bank issued ordinary bonds in 2023 for USD
F-115
For information related to the disclosures of fair value of the debt securities in issue, see Note 30. Fair value of assets and liabilities.
The following is a schedule of the debt instruments in issue by maturity:
Issuer | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Amount expected to be settled: | ||||
No more than twelve months after the reporting period | | |||
More than twelve months after the reporting period | | |||
Total | | | ||
As of December 31, 2023 and 2022, there were no financial covenants linked to the aforementioned securities in issue, except for some financial covenants related to the Banistmo S.A. social gender private placement bond. None of these covenants had been breached nor were the related obligations past due.
NOTE 19. EMPLOYEE BENEFIT PLANS
The following table shows liabilities relating to post-employment benefit and long-term benefit plans:
December 31, | December 31, | |||
Employee benefit plans | 2023 | 2022 | ||
In millions of COP | ||||
19.1 Defined benefit pension plan | | | ||
19.2 Severance obligation | | | ||
19.3 Retirement Pension Premium Plan and Executive Pension Plan Premium | | | ||
19.4 Other long term benefits | | | ||
Total Post-employment and long-term benefit plans | | | ||
Fair value Plan assets | | | ||
Total Unfunded Post-employment and long-term benefit plans | | | ||
These benefits include all types of payments that the Bank provides to its employees. The recognition of liabilities related to post-employment and long-term employee benefit plans is based on actuarial computations which involve judgments and assumptions made by management (with the assistance of external actuaries) related to the future macroeconomic and employee demographic factors, among others, which will not necessarily coincide with the future outcome of such factors.
Post-employment benefits
19.1 Defined benefit pension plan
Colombia
Under Colombian law, employee pension obligations are managed as a defined contribution plan since 1990. The Bank’s legal retirement benefit obligation as of December 31, 2023 and 2022 relates to retired employees who rendered services to the Bank before the current regulations took effect. Under this unfunded plan, benefits are based on length of service and level of compensation. As of December 2023,
For purposes of the projected assessment of the pension plan obligation, in the absence of an extensive market for high-quality corporate debt, the sovereign bond curve of the Colombian government is used, with maturity similar to the residual
F-116
life of the obligation of the projected benefit. The net cost of pensions is accounted for in the Consolidated Statement of Income as “salaries and employee benefits”, and includes the interest costs and cost of current service.
Defined benefit pension plan | 2023 | 2022 | ||
In millions of COP | ||||
Present value of the obligation as of January 1 | | | ||
Interest cost | | | ||
Benefits paid | ( | ( | ||
Net actuarial loss / (gain) due to changes in assumptions | | ( | ||
Net actuarial loss / (gain) due to plan experience | | ( | ||
Defined obligation, unfunded as of December 31 | | | ||
Panama
The Chase Manhattan Bank Corporation, N.A. (formerly “HSBC Bank Panama”, later merged with Banistmo S.A. in 2000) offered a defined benefit pension plan based on the average salaries paid during the
As of December 31, 2023, and 2022, there were
Defined benefit pension plan | 2023 | 2022 | ||
In millions of COP | ||||
Present value of the obligation as of January 1 | | | ||
Interest cost | | | ||
Benefits paid from plan assets | ( | ( | ||
Net actuarial gain due to changes in assumptions | ( | ( | ||
Net actuarial gain due to plan experience | ( | ( | ||
Foreign currency translation effect | ( | | ||
Defined obligation, funded as of December 31 | | | ||
The Bank, through its subsidiary Banistmo, has established a plan with assets to secure benefits promised by Banistmo to the employees entitled to participate in the Pension Plan for former Chase employees under the terms described above and to comply with Panama labor code, which specifies the terms of securing the payments to be made in the event of an employee’s termination (voluntary or involuntary) or upon retirement (termination indemnity plan).
Banistmo’s pension and post-retirement plan assets consider investments in fixed-term deposits and cash and due from banks, in order to reduce the investment risk. The plan assets are managed by a trustee (third party). Likewise, the assets allocation is periodically reviewed by Banistmo and, when necessary, adjusted according to the investment strategy. The plan's investment assets are measured at fair value using significant, unobservable market data and, therefore, are classified as Level 3.
The expected return on assets assumption represents the long term rate of return based on analysis of historical returns, historical asset class volatilities and the fund’s past experience.
The following table details the change in plan assets:
Banistmo’s Plan assets | 2023 | 2022 | ||
In millions of COP | ||||
Fair value of assets as of January 1 | | | ||
Interest income on plan assets | | | ||
F-117
Benefits paid | ( | ( | ||
Foreign currency translation effect | ( | | ||
Fair value assets as of December 31 | | |
Guatemala
Banco Agromercantil Guatemala S.A. has established a retirement pension plan for its employees. Under this plan, the employees are entitled to receive a lifetime payment of
Defined benefit pension plan | 2023 | 2022 | ||
In millions of COP | ||||
Present value of the obligation as of January 1 | | | ||
Current cost of service | | | ||
Interest cost | | | ||
Past service cost(1) | ( | - | ||
Benefits paid | ( | ( | ||
Net actuarial loss / (gain) due to changes in assumptions(2) | | ( | ||
Net actuarial loss / (gain) due to plan experience | | ( | ||
Foreign currency translation effect | ( | | ||
Defined obligation, unfunded as of December 31 | | | ||
(1)Corresponds to the change in the computable age of the benefit, modified in the year 2023.
(2)The loss for the year 2023 was mainly due to the decrease in the discount rate from
19.2 Severance obligation
Colombia
Under Colombian labor regulations, employees hired before 1990 are entitled to receive severance in an amount equal to 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, calculated based on the employees’ last salary base; however, employees may request advances against this benefit at any time. In 1990, the Colombian government revised its labor regulations for new employees to permit companies, subject to the approval of the employees, to transfer this severance obligation annually to private pension funds (this scheme of employee benefits is known as the current severance obligation).
As of December 2023 and 2022,
The balances recognized in the Consolidated Statement of Financial Position are listed below:
Severance obligation | 2023 | 2022 | ||
In millions of COP | ||||
Present value of the obligation as of January 1 | | | ||
Current cost of service | | | ||
Interest cost | | | ||
Benefits paid | ( | ( | ||
Net actuarial loss due to changes in assumptions | | | ||
Net actuarial loss / (gain) due to plan experience | | ( | ||
Defined obligation, unfunded as of December 31 | | | ||
F-118
19.3 Retirement Pension Premium Plan and Executive Pension Plan Premium
Colombia
Under Colombian labor regulations, employers and employees are entitled to negotiate private agreements. The Bank’s employees and its subsidiaries Valores Bancolombia S.A. Comisionista de Bolsa, Banca de Inversión Bancolombia S.A. Corporación Financiera and Fiduciaria Bancolombia S.A. Sociedad Fiduciaria participate in a defined benefit plan according to which they are entitled to receive, on the date of their retirement, a single payment.
Until 2022 and as a key talent retention strategy, the Parent Company offered certain senior management executives a plan under the defined benefit modality, according to which the people covered by this plan were entitled to receive a single payment based on the years of service provided to the organization and thus contribute to closing the pension gap. In December 2022 this benefit ended and as a consequence:
| (i) | The obligations for the Parent company derived from the defined benefit plan ceased, as well as the rights for those who were part of it. |
| (ii) | The resources of the asset plan that supported the defined benefit plan were transferred to the accounts of the beneficiaries in the private pension fund, subject to permanence until the termination of the employment relationship (See line "consolidation of contributions" in the movement of the present value of the obligation, disclosed below in this same section); |
| (iii) | The pension gap closing program for executives is unified under the defined contribution modality. |
El Salvador
By means of Decree 592 of 2013, under Salvadorian labor regulations, employees are entitled to receive 15 days of salary for each year of service. This benefit is payable upon retirement, resignation, unjustified dismissal, death and disability. As of December 31, 2023, and 2022, there were
Until 2022 and as a key talent retention strategy, Banagrícola S.A. offered certain senior management executives a plan under the defined benefit modality, according to which the people covered by this plan were entitled to receive a single payment based on the years of service provided to the organization and thus contribute to closing the pension gap. In December 2022 this benefit ended and as a consequence:
| (i) | The obligations of the entity derived from the defined benefit plan ceased, as well as the rights for those who were part of it (See line "consolidation of contributions" in the movement of the present value of the obligation, disclosed below in this same section). |
| (ii) | The value caused by this benefit will be transferred to a fiduciary or similar vehicle, under which the executive pension plan will be administered on behalf of the beneficiaries, subject to permanence until the termination of the employment relationship. |
Guatemala
Banco Agromercantil Guatemala S.A. has established a defined benefit plan for its employees. Under this plan, the employees are entitled to receive a one-off payment based on the number of years of service to the organization in the event of waiver before retirement. As of December 31, 2023, and 2022, there were
F-119
Panama
Banistmo S.A established a retirement benefit plan for its senior management executives. Under this plan, the executives are entitled to receive a one-off payment on their retirement date, death or disability based on the number of years of service to the organization.
Until 2022 and as a key talent retention strategy, Banistmo S.A. offered certain senior management executives a plan under the defined benefit modality, according to which the people covered by this plan were entitled to receive a single payment based on the years of service provided to the organization and thus contribute to closing the pension gap. In December 2022 this benefit ended and as a consequence:
| (i) | The obligations of the entity derived from the defined benefit plan ceased, as well as the rights for those who were part of it (See line "consolidation of contributions" in the movement of the present value of the obligation, disclosed below in this same section). |
| (ii) | The value caused by this benefit will be transferred to a fiduciary or similar vehicle, under which the executive pension plan will be administered on behalf of the beneficiaries, subject to permanence until the termination of the employment relationship. |
The annual change of the present value of the obligations of defined benefit plans is as follows:
Retirement Pension Premium Plan | 2023 | 2022 | ||
In millions of COP | ||||
Present value of the obligation as of January 1 | | | ||
Current service cost | | | ||
Interest cost | | | ||
Benefits paid | ( | ( | ||
Consolidation of contributions | - | ( | ||
Net actuarial gain due to changes in assumptions(1) | ( | ( | ||
Net actuarial loss due to plan experience | | | ||
Foreign currency translation effect(2) | ( | | ||
Defined obligation, unfunded as of December 31 | | | ||
(1)In the case of the plan in Guatemala, in 2022 the discount rate increased from
(2)Corresponds to Banagrícola S.A. y Filiales and Banco Agromercantil de Guatemala S.A. given higher devaluation between COP to USD currencies.
Asset plan
To support the Executive Pension Plan Premium, Bancolombia S.A. had established an asset plan managed by a Private Pension Fund. The plan's investment assets are measured at fair value using significant, unobservable market data and, therefore, are classified as Level 3. In 2022, this benefit was terminated and, as a consequence, the passive obligation of the Executive Pension Plan Premium ceased at the end of the year. The resources of the asset plan that backed this benefit were transferred to the accounts of the beneficiaries in the private pension fund, subject to the permanence of the employment relationship.
The plan assets’ fair value as of December 31, 2022 is as follow:
Bancolombia’s Plan assets | 2022 | |
In millions of COP | ||
Fair value of assets as of January 1 | | |
F-120
Employee contributions | | |
Interest income on plan assets | | |
Return on plan assets greater/(less) than discount rate | ( | |
Benefits paid | ( | |
Fair value assets at the end of the year |
19.4 Other long term benefits
In addition to legal benefits and the aforementioned post-employment benefits, the Bank grants to its employees other benefits based on the employees’ seniority. For the periods ended December 31, 2023 and December 31, 2022, the reconciliation of the other long term benefits is set below:
Other long term benefits | 2023 | 2022 | ||
In millions of COP | ||||
Present value of the obligation as of January 1 | | | ||
Current service cost | | | ||
Interest cost | | | ||
Benefits paid | ( | ( | ||
Net actuarial loss / (gain) due to changes in assumptions(1) | | ( | ||
Net actuarial loss due to plan experience | | | ||
Foreign currency translation effect | ( | | ||
Defined obligation, unfunded as of December 31 | | | ||
(1)In the case of Bancolombia S.A., in 2023 the discount rate decreased from
Defined contribution plans
The expense recognized in the line “Salaries and employee benefits” of the Consolidated Statement of Income for defined contribution plans, for current severance regimen and pension benefits, is as follows:
Defined contribution plans | 2023 | 2022 | ||
In millions of COP | ||||
Pension | | | ||
Current severance regimen | | | ||
Total | | | ||
The economic assumptions used in the determination of the present value of the defined benefit plans, in nominal terms, are as follows:
Colombia
Main projected assumptions | December 31, 2023 | December 31, 2022 | |||
Discount rate | | % | | % | |
Rate of wage increase | | % | | % | |
Projected inflation | | % | | % | |
Rate of pension increase | | % | | % |
Bancolombia Panamá
Main projected assumptions | December 31, 2023 | December 31, 2022 | |||
Discount rate | | % | | % | |
Rate of wage increase | | % | | % | |
Projected inflation | | % | | % |
F-121
Banistmo
Main projected assumptions | December 31, 2023 | December 31, 2022 | |||
Discount rate | | % | | % | |
Expected long-term rate of return on plan assets | | % | | % |
El Salvador
Main projected assumptions | December 31, 2023 | December 31, 2022 | |||
Discount rate | | % | | % | |
Rate of wage increase | | % | | % | |
Projected inflation | | % | | % |
Guatemala
Main projected assumptions | December 31, 2023 | December 31, 2022 | |||
Discount rate | | % | | % | |
Rate of wage increase | | % | | % | |
Projected inflation | | % | | % |
In 2023, assumptions regarding future longevity have been based on mortality tables, which reflect average ages of mortality from
The nature of the risks related to the obligations aforementioned are summarized below:
Investment risk | The present value of the obligation for the defined benefits plan is calculated using a discount rate determined with reference to high quality sovereign yields of each country. Currently, the plan includes investment in financial instruments that are not vulnerable to market risks |
Interest rate risks | A reduction of the bond interest rates will increase the obligation of the plan |
Longevity risk | The present value of the obligation of the defined benefit plan is calculated with reference to the highest estimate of the mortality of participants during their time of employment. An increase in the life expectancy of the participants will increase the plan obligation |
Salary risk | The present value of the obligation of the benefit plan is calculated with reference to the future salaries of the participants. As such, an increase in the participants’ wages will increase the obligation of the plan |
F-122
Estimated payment of future benefits
The payments of benefits, which reflect future service rendered, are considered to be paid as follows:
Years | Pension Benefits | Other benefits | ||
In millions of COP | ||||
2024 | | | ||
2025 | | | ||
2026 | | | ||
2027 | | | ||
2028 | | | ||
2029 a 2033 | | | ||
Sensitivity analysis
In presenting the sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method used to calculate the defined benefit obligation (DBO) recognized in the Statement of Financial Position. Obligations and expenses will change in the future as a result of future changes in the methods of projection and assumption, participant information, plan provisions and regulations, or as resulting from future gains and losses.
There were no changes in the methods and assumptions used in preparing the sensitivity analyses from prior years.
Colombia
Defined benefit pension plan
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Salary increases | | % | | |||
Salary decreases | | % | ( | |||
Mortality Table | RV-08 ("Rentistas Validos") | | ||||
Retirement Pension Premium Plan
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Salary increases | | % | | |||
Salary decreases | | % | ( | |||
Severance obligation
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Salary increases | | % | | |||
Salary decreases | | % | ( | |||
F-123
Panama
Defined benefit pension plan
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Mortality Table | RP-2000 | | ||||
Guatemala
Defined Benefit Pension Plan
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Salary increases | | % | | |||
Salary decreases | | % | ( | |||
Mortality Table | RP-2000 | | ||||
Retirement Pension Premium Plan
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Salary increases | | % | | |||
Salary decreases | | % | ( | |||
El Salvador
Retirement Pension Premium Plan
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Salary increases | | % | | |||
Salary decreases | | % | ( | |||
Other long term benefits
Colombia
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Salary increases | | % | | |||
Salary decreases | | % | ( | |||
F-124
Guatemala
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Salary increases | | % | | |||
Salary decreases | | % | ( | |||
El Salvador
Assumption | Value | (Increase/Decrease) | Effect on DBO | |||
In millions of COP | ||||||
Discount rate | | % | ( | |||
Discount rate | | % | | |||
Bonuses and short-term benefits
Short-term employment benefit plans recognized in the Consolidated Statement of Financial Position in the line “other liabilities” consist of the following:
December 31, | December 31, | |||
Other employment benefit plans | 2023 | 2022 | ||
In millions of COP | ||||
Current severance obligation | | | ||
Bonuses and short-term benefits(1) | | | ||
Other employment benefit plans | | | ||
| (1) | The increases between December 31, 2023 and 2022, corresponds to the bonuses related to employees’ variable compensation. See Note 20 Other Liabilities. |
NOTE 20. OTHER LIABILITIES
Other liabilities consist of the following:
Other liabilities | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Payables | | | ||
Suppliers(1) | | | ||
Advances to obligations | | | ||
Dividends(2) | | | ||
Collection services | | | ||
Deposits delivered as security(3) | | | ||
Bonuses and short-term benefits(4) | | | ||
Security contributions | | | ||
Provisions(5) | | | ||
Salaries and other labor obligations(6) | | | ||
Deferred interests | | | ||
Advances in leasing operations and loans | | | ||
Liabilities from contracts with customers(7) | | | ||
Other | | | ||
Total | | | ||
| (1) | The decrease corresponds mainly to cancellations of supplier invoices for purchases and imports of leasing assets. |
| (2) | This relates to the last installment pending payment January 2, 2024. See Consolidated Statement of Changes in Equity, distribution of dividends. |
F-125
| (3) | The variation is generated by the valuation of current operations with international counterparties. For more information See Note 5.2. Derivative financial instruments. |
| (4) | For further information, see Note 19. Employee benefit plans (Bonuses and short-term benefits). |
| (5) | See Note 21. Provisions and contingent liabilities. |
| (6) | For more information related to other employee benefits, see Note 19. Employee benefits. |
| (7) | See Note 25.3. Fees and commissions. |
NOTE 21. PROVISIONS AND CONTINGENT LIABILITIES
21.1. Provisions
The following tables show the detail of the provisions at December 31, 2023 and 2022:
As of December 31, 2023
| Judicial | Administrative | Financial | Loan | Onerous | |||||||
proceedings | proceedings(1) | guarantees(2) | commitments | contracts(3) | Total | |||||||
In millions of COP | ||||||||||||
Balance at January 1, 2023 | | | | | | | ||||||
Net provisions recognized during the period | | | ( | | | | ||||||
Provisions used during the period | ( | ( | - | - | - | ( | ||||||
Translation adjustment | ( | - | ( | ( | - | ( | ||||||
Effect of discounted cash flows | ( | - | - | - | - | ( | ||||||
Final balance at December 31, 2023 | | | | | | | ||||||
| (1) | Mainly includes environmental remediation of the Santa Elena property, see Note 21.2. Contingent Liabilities; Judicial Proceesing current and proceedings in administrative litigation regarding the discussion of the difference in income tax criteria according to the applicable tax law for COP |
| (2) | The balance corresponds mainly to financial guarantees in Bancolombia S.A. and its decrease is due to the cancellation of operations |
| (3) | Onerous contracts corresponds to Renting Colombia S.A.S. |
As of December 31, 2022
| Judicial | Administrative | Financial | Loan | Onerous | |||||||
proceedings | proceedings(1) | guarantees(2) | commitments | contracts(3) | Total | |||||||
In millions of COP | ||||||||||||
Balance at January 1, 2022 | | | | | | | ||||||
Net provisions recognized during the period | | | ( | | | | ||||||
Provisions used during the period | ( | ( | - | - | - | ( | ||||||
Translation adjustment | ( | - | | | - | | ||||||
Effect of discounted cash flows | | - | - | - | - | | ||||||
Final balance at December 31, 2022 | | | | | | | ||||||
| (1) | Mainly includes environmental remediation of the Santa Elena property, see Note 21.2. Contingent Liabilities; and proceedings in administrative litigation regarding the discussion of the difference in income tax criteria according to the applicable tax law for COP |
| (2) | The balance corresponds mainly to financial guarantees in Bancolombia S.A. |
| (3) | Onerous contracts corresponds to Renting Colombia S.A.S. |
F-126
The following table shows the changes in the provision for financial guarantees and loan commitments during period at December 31, 2023 and 2022 with the expected credit loss model:
| Stage 1 | Stage 2 | Stage 3 | TOTAL | ||||
Balance at January 1, 2023 | | | | | ||||
Transfers | | ( | ( | - | ||||
Transfer to stage 1 | | ( | ( | - | ||||
Transfer to stage 2 | | | ( | - | ||||
Transfer to stage 3 | ( | ( | | - | ||||
Provisions recognized during the period | | | | | ||||
Provisions reversed during the period | ( | ( | ( | ( | ||||
Translation adjustment | ( | ( | ( | ( | ||||
Balance at December 31, 2023 | | | | |
Stage1 | Stage2 | Stage3 | TOTAL | |||||
Balance at January 1, 2022 | | | | | ||||
Transfers | | | ( | - | ||||
Transfer to stage 1 | | ( | ( | - | ||||
Transfer to stage 2 | | | ( | - | ||||
Transfer to stage 3 | ( | ( | | - | ||||
Provisions recognized during the period | | | | | ||||
Provisions reversed during the period | ( | ( | | ( | ||||
Translation adjustment | | | | | ||||
Balance at December 31, 2022 | | | | |
Judicial proceedings
Judicial provisions refer to pending legal proceedings on employment matters, ordinary lawsuits, class actions suits, civil actions within criminal prosecutions and executive proceedings against the Bank. In the opinion of management, after receiving pertinent legal advice, the payments estimated to be made in connection with these proceedings will not generate significant losses in addition to the provisions recognized as of December 31, 2023 and 2022. In addition, the Bank does not expect to obtain any reimbursement from judicial proceedings raised against it and, therefore, has not recognized any assets for that purpose, see Note 21.2 Contingent liabilities.
Onerous contracts
For the Bank, an onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
Financial guarantees
As of December 31, 2023
Maturity | Financial Guarantees | |
In millions of COP | ||
Guarantees under 1 month | | |
Guarantees greater than 1 month and up to 3 months | | |
Guarantees greater than 3 months and up to 1 years | | |
Guarantees greater than 1 year and up to 3 years(1) | | |
Guarantees greater than 3 years and up to 5 years | | |
Guarantees greater than 5 years | | |
Total | | |
| (1) | The decrease with respect to the previous year is mainly due to the cancellation of operations with the following economic sectors: energy, private, among others. |
F-127
As of December 31, 2022
Maturity | Financial Guarantees | |
In millions of COP | ||
Guarantees under 1 month | | |
Guarantees greater than 1 month and up to 3 months | | |
Guarantees greater than 3 months and up to 1 years | | |
Guarantees greater than 1 year and up to 3 years | | |
Guarantees greater than 3 years and up to 5 years | | |
Guarantees greater than 5 years | | |
Total | | |
The total amount outstanding is the maximum potential payments which represent a “worse-case scenario”, and does not reflect expected results.
Loan commitments
As of December 31, 2023
Maturity | Loan commitments | |
In millions of COP | ||
Commitments under 1 month | | |
Commitments greater than 1 month and up to 3 months | | |
Commitments greater than 3 months and up to 1 years | | |
Commitments greater than 1 year and up to 3 years | | |
Commitments greater than 3 years and up to 5 years | | |
Commitments greater than 5 years | | |
Total | | |
As of December 31, 2022
Maturity | Loan commitments | |
In millions of COP | ||
Commitments under 1 month | | |
Commitments greater than 1 month and up to 3 months | | |
Commitments greater than 3 months and up to 1 years | | |
Commitments greater than 1 year and up to 3 years | | |
Commitments greater than 3 years and up to 5 years | | |
Commitments greater than 5 years | | |
Total | | |
21.2. Contingent liabilities
Contingencies due to judicial or administrative proceedings/litigations in which Bancolombia and the entities with which financial statements are consolidated as of December 31, 2023, and that represent a contingency superior to USD
Some of the proceedings in which the claims are inferior and that were revelated in prior periods will be kept to provide information about its evolution.
F-128
BANCOLOMBIA S.A.
Neos Group S.A.S. (in reorganization) and Inversiones Davanic S.A.S.
On November 3, 2022, Bancolombia was informed of a lawsuit in which the plaintiff contends that a loan agreement is in place between the parties, rather than a lease. The plaintiffs also requested that the purchase and sale agreement be rescinded on the basis that the price of the property was lower than its fair price.
The plaintiffs seek COP
Constitutional Public Interest Action - Carlos Julio Aguilar and other
In this proceeding, a constitutional public interest action was filed, in which the plaintiffs allege that due to the restructuring of Departamento del Valle´s financial obligations and its Performance Plan, the collective rights of the public administration and the public funds of the Departamento del Valle were breached. According to the Bank's defense arguments, the agreement was made in accordance with the law.
As of December 31, 2023, the procedure is pending a first instance judgment. The contingency is deemed to be possible. Bancolombia has not recorded a provision for this matter.
Contraloría Departamental de Cundinamarca v. GEHS, Bancolombia and other natural persons
The development of the Water Treatment Plant PTAR Chía I Delicias Sur from Municipio de Chía, Colombia, was outlined in a lease agreement signed on September 28, 2015. The price agreed was COP
As of December 31, 2018, Bancolombia had anticipated certain payments to the Supplier of the Project. The Municipio de Chía´s Mayor Office, has claimed that irregularities have been found during the execution of the Project. Because of these allegations, the Contraloría de Cundinamarca began a proceeding of Fiscal Responsibility against GEHS Global Environment and Health Solutions de Colombia (Supplier), Guillermo Varela Romero, Rafael Antonio Ballesteros Gómez, Luís Alejandro Prieto González (Municipio de Chía´s former Mayor and employees of the municipal administration), and Bancolombia S.A., on the basis of the alleged loss.
Bancolombia has alleged in its defense, among other arguments, that the Bank fully complied with its contractual obligations and that it is not responsible for the loss of the Municipality's resources.
On November 3, 2023, the Contraloría de Cundinamarca at first instance held responsible five individuals, including Bancolombia, for an amount of COP
As of December 31, 2023, taking into account these recent developments and further analysis, Bancolombia considers the contingency as possible, therefore has established a provision of COP
Remediation Plan for Santa Elena´s property
In 1987, Bancolombia (formerly Bank of Colombia) received a property located in Municipio de Cartagena, Colombia from the National Federation of Algodoneros. After the settlement was signed, soil contamination from pesticides and herbicides was found on the property. Bancolombia initiated a civil responsibility judicial procedure against the Federation
F-129
alleging environmental contamination. On November 13, 2015, the final judgment was issued, and it was decided that the National Federation of Algodoneros was liable for environmental damages and that Bancolombia was not.
Despite not being liable for environmental damages, Bancolombia is subject to decontamination requirements with respect to the property. Bancolombia has carried out over the years various activities aimed at containing the environmental impact, as well as the social management of the communities neighboring the lot. These activities include, among others, the confinement of contaminating material, installation of monitoring wells, and execution of plans to reduce contamination levels.
Currently, these plans have the approval of the Autoridad Nacional de Licencias Ambientales de Colombia (ANLA) and their execution is divided into 3 stages: Stage 1, Stage 2 and Stage 3. Bancolombia appealed the administrative act issued by the ANLA on the basis of technical issues for the execution of Stage 3, and it is pending resolution.
As of December 31, 2023, Bancolombia is progressing in the activities outlined in the plans to reduce contamination levels approved by ANLA, which include the monitoring of soils and waters in the area (Stage 1), monitoring of floors and walls in the warehouses (Stage 2), social management plan with the communities in the influence area of the remediation plan, emergency plan, hazardous waste management plan and biotic environment protection plan.
It is expected to complete the execution of the plans within
Fredy Alberto Lara Borja
On December 13, 2023, Bancolombia was notified of a lawsuit filed by a former employee of the liquidated company Aluminio Reynolds Santo Domingo S.A, seeking the absolute nullity of the purchase agreement between Leasing Bancolombia and Bancolombia S.A. for two properties signed in 2011. Leasing Bancolombia acquired those properties through a purchase agreement with the company Armarcas E.U, which had received them as a payment from Sociedad Aluminio Reynolds Santo Domingo S.A. The plaintiff requested that the properties be returned to Aluminios Reynolds Santo Domingo´s estate so they can be used as payment of the labor liabilities of the company. The value of the claim is COP
Bancolombia filed an appeal against the court´s order admitting the lawsuit arguing, among other reasons, non-compliance of legal requirements and lack of jurisdiction. As of December 31, 2023, it is pending resolution. The contingency is deemed to be remote. Bancolombia has not recorded a provision for this matter.
FIDUCIARIA BANCOLOMBIA
Quinta Sur S.A.S.
In March 2022, Fiduciaria Bancolombia was notified of a lawsuit filed by Quinta Sur S.A.S. (in liquidation). According to the lawsuit, Quinta Sur seeks to be indemnified for damages as a result of the failure to transfer the resources to the plaintiff for the beginning of a housing construction project, under the terms agreed in the trust agreement.
Fiduciaria Bancolombia alleges that it has complied with the law and the contract, arguing that the property on which the housing project was to be constructed did not fulfill the contractual requirements. The plaintiff seeks COP
On August 24, 2023, a favorable judgment was issued for Fiduciaria Bancolombia. As of December 31, 2023, the proceeding is pending the resolution of the appeal filed by the plaintiff. The contingency is deemed to be possible. Fiduciaria Bancolombia has not recorded provision for this matter.
F-130
BANISTMO
Constructora Tymsa S.A.
In October 2021, Banistmo and Banistmo Investment were notified of a lawsuit in which the plaintiff alleged fraudulent acts involving the sale of the plaintiff´s property. Constructora Tymsa alleges that the signatures and fingerprints in the public instrument of purchase, sale and in the mortgage in favor of Banistmo are false.
The plaintiff seeks USD
Five Star Production Inc., Global Men Health Foundation, Ingrid Perscky and Others
In April 2022, Banistmo was notified of a lawsuit filed by Five Star Production Inc., Global Men Health Foundation, Ingrid Perscky and others for USD
The lawsuit was filed on the basis of a dispute between Ingrid Perscky and Jose Barbero (who used to be husband and wife) for the distribution of their assets. In 2017, Ms. Perscky, who had an authorized signature, ordered the cancelation of a fixed term deposit from Five Star and instructed that those funds be transferred to 3 accounts that belonged to persons related to her (for example, her children). Mr. Barbero contacted Banistmo and tried to reverse the instructions, however as it was not possible, Mr. Barbero filed criminal complaints against Ms. Perscky.
Banistmo has complied with banking law and has handled the information´s confidentiality according to the law and the contract. The plaintiffs seek compensation for material and moral damages, alleging that Banistmo breached confidentiality and banking secret in detriment of the plaintiffs.
As of December 31, 2023, the evidentiary stage is pending. The contingency is deemed to be remote. Banistmo has not recorded a provision for this matter.
Deniss Rafael Pérez Perozo, Carlos Pérez Leal and others
Promotora Terramar (client of Banistmo, formerly HSBC Panamá) was paid USD
The Credit Card Securities and Fraud Prevention department of the HSBC bank detected an irregular activity by Promotora Terramar on June 3, 2008, when a monitoring alert was activated due to the high number of cards with the same BIN and bank. Therefore, pursuant to the Business Establishments Affiliate Agreement, HSBC held funds from Promotora Terramar´s accounts. Nevertheless, after further investigations the money was refunded.
On October 2013, the plaintiffs filed a claim for compensation of the material and moral damages caused, which according to their valuation, amounts to USD
As of December 31, 2023, commencement of the evidentiary stage is pending. The contingency is deemed to be remote. Banistmo has not recorded a provision for this matter.
DD&C, Carlos Pérez Leal and Others
In October 2022, Banistmo received a communication announcing the filing of a legal action in the Tribunal of First Instance of Kaloum in the Republic of Guinea. This action was initiated by Inversiones DD&C, Carlos Perez Leal and other natural persons against the Central Bank of the Republic of Guinea (“BCRG”) and
F-131
for a total USD
The parties who initiated the action are seeking USD
On May 22, 2023, a favorable first instance judgment was issued for Banistmo. The plaintiff filed an appeal against the decision. As of December 31, 2023, the proceeding is pending the scheduling of a date to conclude the appeal hearing.
The contingency is deemed to be remote. Banistmo has not recorded a provision for this matter.
BANCO AGRÍCOLA
Dirección General de Impuestos Internos of El Salvador
The authority on taxes of El Salvador (DGII), in accordance with the resolution of October 2018, determined that Banco Agrícola failed to pay and declare income taxes related to fiscal year 2014 for a total of USD
In 2021, the appeal presented by Banco Agrícola was decided. The Tribunal de Apelaciones de los Impuestos Internos y Aduanas (TAII) modified the Resolution issued by DGII, adjusted the rental tax to USD
Banco Agrícola filed a lawsuit before the Contentious Administrative Tribunal seeking to overrule DGII´s and TAII´s previous decisions in relation to the tax’s payment. As of December 31, 2023, the initial hearing date is pending.
The contingency is deemed to be remote. Banco Agrícola has not recorded a provision for this matter.
ARRENDADORA FINANCIERA S.A.
Cordal filed a lawsuit against Arrendadora Financiera, seeking compensation for USD
As of December 31, 2023, the proceeding is at the evidentiary stage. The contingency is deemed to be remote. Arrendadora Financiera has not recorded a provision for this matter. A former employee of the plaintiff was convicted of aggravated theft in connection with the facts of this lawsuit.
BANCO AGROMERCANTIL
Bapa Holdings Corp.
On September 20, 2022, a lawsuit against Banco Agromercantil was filed by Bapa Holdings Corp. The plaintiff alleges it invested USD
On October 24, 2022, BAM responded to the claim and filed exceptions alleging that it has no commercial relationship with Bapa, and the statute of limitations deadline expired. As of December 31, 2023, the court is pending a ruling on the exceptions to the lawsuit.
The contingency is deemed to be remote. Banco Agromercantil has not recorded a provision for this matter.
F-132
Superintendencia de Administración Tributaria (SAT)
The Superintendencia de Administración Tributaria (SAT) de Guatemala ordered a tax adjustment in the fiscal year 2014 of Banco Agromercantil´s rental tax declaration, duly paid by BAM, for a value of USD
As a result of the agreement with SAT, BAM made a payment of USD
NOTE 22. SHARE CAPITAL
The subscribed and paid-in capital is the following:
Share capital | December 31, 2023 | December 31, 2022 | ||
Authorized shares | | | ||
Subscribed and paid-in shares: | ||||
Ordinary shares with a nominal value of COP | | | ||
Preferred shares with dividend without voting rights with nominal value of COP | | | ||
Total subscribed and paid-in shares | | | ||
Subscribed and paid capital (nominal value, in millions of COP) | | |
Dividends declared
The declaration, amount and payment of dividends are based on Bancolombia S.A.’s unconsolidated net income. Dividends must be approved at the ordinary general shareholders' meeting upon the recommendation of the Board of Directors. Under the Colombian Commercial Code, after payment of income taxes and appropriation of legal and other reserves, and after setting off losses from prior fiscal years, Bancolombia must distribute to its stockholders at least
The payment of dividends must be made in cash during the year following the applicable date for the annual general ordinary stockholders' meeting. If the payment is made in the Bank’s own equity securities instead of cash, that must be approved by
The annual net profits of Bancolombia must be applied as follows: (i) first, an amount equal to
F-133
of the minimum dividend on the preferred shares; and (iii) third, as may be determined in the ordinary annual general ordinary stockholders' meeting by the vote of the holders of a majority of the shares entitled to vote.
Dividends declared with respect to | Cash dividends per share | |
net income earned in: | (Stated in COP) | |
2023 | | |
2022 | | |
2021 | | |
2020 | | |
2019 | |
Common shares
The holders of common shares are entitled to vote on any matter subject to approval at an annual general ordinary stockholders' meeting. Within 15 calendar days prior to such meeting, such holders are entitled to inspect the books and records of the Company.
Also, the holders of common shares will receive a proportion of the profits subject to the provisions of law, statutes and established at general shareholders’ meeting. The dividend received by holders of common shares may not be higher than the dividend assigned to preferred shares.
Preferred shares
Holders of preferred shares are entitled to receive dividends based on the net profits of the preceding fiscal year, after deducting losses affecting the capital and once the amount that shall be legally set apart for the legal reserve has been deducted, but before creating or accruing for any other reserve, of a non-cumulative minimum preferred dividend equal to one percent (
Payment of the preferred dividend shall be made at the time and in the manner established in the general shareholders’ meeting and with the priority indicated by Colombian law.
Any dividend in shares requires the approval of
Reserved Shares
Stocks that are available between maximum authorized shares and paid-in shares. The Bank has not reserved shares.
NOTE 23. APPROPRIATED RESERVES
As of December 31, 2023 and 2022, the appropriated retained earnings consist of the following:
Concept | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Appropriation of net income(1)(2) | | |||
Others(3) | | |||
Total Appropiated reserves | | | ||
| (1) | The legal reserve fulfills two objetives: to increase and maintain the company's capital and to absorb economic losses. Based on the aforementioned, this amount shall not be distributed in dividends to the stockholders. |
F-134
| (2) | As of December 31, 2023 and December 31, 2022 includes reclassification of unclaimed dividends under Article 85 of the Bancolombia S.A Bylaws for COP |
| (3) | At Bancolombia S.A, the creation of an occasional reserve for equity strengthening and future growth continues, which was approved at the General Shareholders Meeting. |
NOTE 24. UNCONSOLIDATED STRUCTURED ENTITIES
Nature and risks associated with the Bank’s interests in unconsolidated structured entities
The term "unconsolidated structured entities" refers to all structured entities that are not controlled by the Bank. The Bank manages transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.
The table below shows the total assets of unconsolidated structured entities in which the Bank had an interest at the reporting date and its maximum exposure to loss in relation to those interests.
As of December 31, 2023
Securitizations | The Bank’s managed funds | Total | ||||
In millions of COP | ||||||
Total assets of the entities | | | | |||
The Bank’s interest-assets | ||||||
Investments at fair value through profit or loss | | - | | |||
Investments at fair value through other comprehensive income | | - | | |||
Loans and advances to customers | - | | | |||
Total assets in relation to the Bank’s interests in the unconsolidated structured entities | | | | |||
The Bank’s maximum exposure | | | | |||
Fees income | | | | |||
As of December 31, 2022
Securitizations | The Bank’s managed funds | Total | ||||
In millions of COP | ||||||
Total assets of the entities | | | | |||
The Bank’s interest-assets | ||||||
Investments at fair value through profit or loss | | - | | |||
Investments at fair value through other comprehensive income | | - | | |||
Loans and advances to customers | - | | | |||
Total assets in relation to the Bank’s interests in the unconsolidated structured entities | | | | |||
The Bank’s maximum exposure | | | | |||
Fees income | | | | |||
Securitizations
The Bank invests in asset-backed securities issued by securitization entities for which underlying assets are mortgages originated by financial institutions. The Bank does not have a significant exposure to sub-prime securities. The asset-backed securities are denominated in local market TIPS and accounted for as investment at fair value through profit or loss and residual rights accounted for as investment at fair value through other comprehensive income. These asset-backed
F-135
securities have different maturities and are generally classified by credit ratings. The Bank does not expect significant changes in those ratings. Also, the Bank retains beneficial interests in the form of servicing fees on the securitized mortgages.
The Bank’s managed funds
The Bank’s managed funds are derived from the following type of business lines: related trusts, mutual funds sold to individuals, corporate trusts, escrow accounts, private equity funds, and delegated tailor-made mandates from third parties. Generally, the revenues correspond to the fees received from the management of resources that are invested in several instruments and management of properties and premises related to real estate projects in progress.
Likewise, the Bank receives fees for management assets pledged as collateral for clients’ commitments and obligations, and fees from management of resources of government agencies and entities.
On the other hand, there is not an additional exposure to loss, such as funding commitments with regards to the Bank’s involvement with those entities.
NOTE 25. OPERATING INCOME
25.1. Interest and valuation on financial instruments
The following table sets forth the detail of interest and valuation on financial asset instruments for the years ended December 31, 2023, 2022 and 2021:
2023 | 2022 | 2021 | ||||
In millions of COP | ||||||
Interest on debt instruments using the effective interest method(1) | | | | |||
Interest and valuation on financial instruments | ||||||
Debt investments(2) | | | | |||
Repos | | ( | ( | |||
Spot transactions | ( | | | |||
Derivatives | ( | | | |||
Total valuation on financial instruments | | | | |||
Total Interest and valuation on financial instruments | | | | |||
(1)The increase is mainly presented in Bancolombia S.A., due to higher profits in the valuation of TDA (Títulos de Desarrollo Agropecuario).
(2) In 2023 the decrease is mainly presented in Bancolombia S.A., due to a lower volume and lower valuation in the portfolio of securities issued by foreign governments (United States Treasury Bonds), which are directly related to the variations in the exchange rate, offset by an increase in the valuation of fixed rate TES.
25.2. Interest expenses
The following table sets forth the detail of interest on financial liability instruments for the years ended December 31, 2023, 2022 and 2021:
| 2023 | 2022 | 2021 | |||
In millions of COP | ||||||
Deposits(1) | | | | |||
Borrowing costs(1) | | | | |||
Debt instruments in issue | | | | |||
Lease liabilities(2) | | | | |||
Preferred shares | | | | |||
Overnight funds | | | | |||
Other interest (expense) | | | | |||
F-136
Total interest expenses | | | |
(1)The intervention rate issued by the Banco de la República de Colombia for the period of 2023 started at
(2) See Note 7.2. Lessee.
Net interest income is defined as interest on loan portfolio and financial leasing operations, interest on debt instruments measured by the effective interest method and interest expense amounts to COP
25.3. Fees and commissions
The Bank has elected to present the income from contracts with customers as an element in a line named “Fees and commissions income” in the consolidated statement of income separated from the other income sources.
The information contained in this section about the fees and commission’s income presents information on the nature, amount, timing and uncertainty of the income from ordinary activities which arise from a contract with a customer under the regulatory framework of IFRS 15 Revenue from Ordinary activities from Contracts with Customers.
In the following table, the description of the main activities through which the Bank generates revenue from contracts with customers is presented:
Fees and Commissions | Description |
Banking services | Banking Services are related to commissions from the use of digital physical channels or once the customer makes a transaction. The performance obligation is fulfilled once the payment is delivered to its beneficiary and the proof of receipt of the payment is sent, in that moment, the collection of the commission charged to the customer is generated, which is a fixed amount. The commitment is satisfied during the entire validity of the contract with the customer. The Bank acts as principal. |
Credit and debit card fees | In debit card product contracts, it is identified that the price assigned to the services promised by the Bank to the customers is fixed. Given that no financing component exists, it is established on the basis of the national and international interbank rate. Additionally, the product charges to the customers commissions for handling fees, at a determined time and with a fixed rate. For Credit Cards, the commissions are the handling fees and depend on the card franchise. The commitment is satisfied in so far that the customer has capacity available on the card. Other revenue received by the (issuer) credit card product, is advance commission; this revenue is the charge generated each time the customer makes a national or international advance, at owned or non-owned ATMs, or through a physical branch. The exchange bank fee is a revenue for the Issuing Bank of the credit card for the services provided to the business for the transaction effected at the point of sale. The commission is accrued and collected immediately at the establishment and has a fixed amount. In the credit cards product there is a customer loyalty program, in which points are awarded for each transaction made by the customer in a retail establishment. The program is administrated by a third party who assumes the inventory and claims risks, for which it acts as agent. The Bank, recognized it as a lower value of the revenue from the exchange bank fee. The rights and obligations of each party in respect of the goods and services for transfer are clearly identified, the payment terms are explicit, and it is probable, that is, it takes into consideration the capacity of the customer and the intention of having to pay the consideration at termination to those entitled to change the transferred goods or services. The revenue is recognized at a point in time: the Bank satisfies the performance obligation when the “control” of the goods or services was transferred to the customers. |
F-137
Deposits | Deposits are related to the services generated from the offices network of the Bank once a customer makes a transaction. The Bank generally commits to maintain active channels for the products that the customer has with the Bank, with the purpose of making payments and transfers, sending statements and making transactions in general. The commissions are deducted from the deposit account, and they are incurred at a point in time. The Bank acts as principal. |
Electronic services and ATMs | Revenue received from electronic services and ATMs arises through the provision of services so that the customers may make required transactions, and which are enabled by the Bank. These include online and real-time payments by the customers of the Bank holding a checking or savings accounts, with a debit or credit card for the products and services that the customer offers. Each transaction has a single price, for a single service. The provision of collection services or other different services provided by the Bank, through electronic equipment, generates consideration chargeable to the customer established contractually by the Bank as a fee. The Bank acts as principal and the revenue is recognized at a point in time. |
Brokerage | Brokerage is a group of services for the negotiation and administration of operations for purchasing fixed revenue securities, equities and operations with derivatives in its own name, but on the account of others. The performance obligations are fulfilled at a point in time when the commission agent in making its best effort can execute the business entrusted by the customer in the best conditions. The performance obligations are considered satisfied once the service stipulated in the contract is fulfilled, as consideration fixed, or variable payments are agreed, depending on the service. The Bank acts generally as principle and in some special cases as agent. |
Remittance | Revenue for remittance is received as consideration for the commitment established by the Bank to pay remittances sent by the remitting companies to the beneficiaries of the same. The commitment is satisfied at a point in time to the extent that the remittance is paid to the beneficiary. The price is fixed, but may vary in accordance to the transferred amount, due to the operation being dependent on the volume of operations generated and the transaction type. There is no component of financing, nor the right to receive consideration dependent on the occurrence or not of a future event. |
Acceptances, Guarantees and Standby Letters of Credit | Banking Service from acceptances, guarantees and standby letters of credit which are not part of the portfolio of the Bank. There exist different performance obligations; the satisfaction of performance obligations occurs when the service is given to the customer. The consideration in these types of contracts may include fixed amounts, variable amounts, or both, and the Bank acts as principal. The revenue is recognized at a point in time. |
Trust | Revenue related to Trust are received from the administration of the customer resources in the business of investment trusts, property trusts, management trusts, guarantee trusts, for the resources of the general social security system, Collective portfolios and Private Equity Funds (PEF). The commitments are established in contracts independently and in an explicit manner, and the services provided by the Bank are not inter-related between the contracts. The performance obligation corresponds to performing the best management in terms of the services to be provided in relation to trust characteristics, thus fixed and variable prices are established depending on the complexity of the business, similarly, revenues are recognized throughout or at a determined time. In all the established businesses it acts as principal. |
Placement of Securities | Valores Bancolombia makes available its commercial strength for the deposit, reinvestment of resources through financial instruments to the issuing company. It receives a payment for deposits made. The commitment of the contract is satisfied to the extent that the resources requested by the issuer are obtained through the distribution desks of Valores Bancolombia. The collection is made monthly. It is established that Valores Bancolombia may undertake collection of these commissions at the end of the month through a collection account charged to the issuer, acting as principal. |
F-138
Bancassurance | The bank receives a commission for collecting insurance premiums at a given time and for allowing the use of its network to sell insurance from different insurance companies over time. The Bank in these bancassurance contracts acts as agent (intermediary between the customer and the insurance company), since it is the insurance company which assumes the risks, and which handles the complaints and claims of the customers inherent in each insurance. Therefore, the insurance company acts as principal before the customer. The prices agreed in bancassurance are defined as a percentage on the value of the policy premiums. The payment shall be tied to the premiums collected, sold or taken for the case of employees’ insurance. The aforementioned then means that the price is variable, since, the revenue will depend on the quantity of policies or calculations made by the insurance companies. |
Collections | The Bank acting as principal, commits to collect outstanding invoices receivable by the collecting customers through the different channels offered by the bank, send the information of the collections made and credit the money to the savings or checking account defined by the collecting customer. The commitment is satisfied at a point in time to the extent that the money is collected by the different channels, the information of the said collections is delivered appropriately, and the resources are credited in real-time to the account agreed with the customer. For the service, the Bank receives a fixed payment, which is received for each transaction once the contract is in effect. |
Services | These are the maintenance services performed on the fleet owned by the customers, these services are performed on demand, and the value of the service cost is invoiced plus an intermediation margin. The collection is made by the amount of expense invoiced by the provider plus an intermediation percentage, which ranges between The contract is written, is based on a framework contract which is held between the customers which contains the general terms of negotiation and the payment terms are generally 30 days after generating the invoice. The revenue is recognized when the service is provided. There is no financing nor sanctions for early cancellations. To view the details of the balance, refer to line ‘Logistics services’ in Note 25.4 Other operational Income. |
Gains on sale of assets | These are the revenue from the sale of assets, where the sale value is higher than the book value recorded in the accounts, the difference representing the gains. The recognition of the revenue is at a point in time once the sale is realized. The Bank acts as principal in this type of transaction and the transaction price is determined by the market value of the asset being sold. To view the details of the balance, refer to line ‘Gain on sale of assets’ in Note 25.4 Other operational Income. |
F-139
Investment Banking | Investment Banking offers to customer’s financial advisory services in the structuring of businesses in accordance with the needs of each one of them. The advisory services consist in realizing a financial structuring of a credit or bond in which the Investment Bank offers the elements so that the company decides the best option for structuring the instrument. In the financial advisory contract, a best efforts clause is included. The promises given to the customers are established in the contracts independently and explicitly. The services provided by the Invesment Bank are not interrelated between the contracts, correspond to the independent advice agreed and do not include additional services in the commission agreed with the customer. The advisory services offered in each one of the contracts are identifiable separately from the other performance commitments that the Investment Bank may have with the customers. The Investment Bank does not have a standard contract for the provision of advisory services, given than each contract is tailored to the customer’s needs. The transaction price is defined at the start of the contract and is assigned to each service provided independently. The price contains a fixed and a variable portion which is provided in the contracts. The variation depends on the placement amount for the case of a financial structuring contract and coordination of the issuance and conditions of the same. In these operations Banca de Inversion Bancolombia provides advice to the customers and the price shall depend at times on the success and amount of the operation. In the contracts subject to evaluation there are no incremental costs associated with the satisfaction of the commitments of the Bank with the customers provided for. In the contracts signed with the customers, a penalty clause is established in case of a customer withdrawing from continuing with the provision of the services established in the commercial offer. The penalty shall be recognized in the financial statements once the Investment Bank is notified on the withdrawal under the concept of charges for early termination of the contract. |
The Bank presents the information on revenue from contracts with customers in accordance with its operating segments defined earlier in Note 3. Operating Segments for each of the principal services offered.
The following table shows the balances categorized by nature and by segment of revenue from ordinary activities from contracts with customers, for further information about composition of Bank’ segments see Note 3. Operating segments:
As of December 31, 2023
| ||||||||||||||||||||||||||||||
Banking | Banking | Banking El | Banking | Investment | International | All Other | Total | |||||||||||||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | Banking | Brokerage | Banking | Segments | ||||||||||||||||||||||
Revenue from contracts with customers | In millions of COP | |||||||||||||||||||||||||||||
Fees and Commissions income |
| |||||||||||||||||||||||||||||
Credit and debit card fees and commercial estabilshments | | | | | - | - | - | | - | | ||||||||||||||||||||
Bancassurance | | | | - | | | | - | - | | ||||||||||||||||||||
Banking services | | | | | - | - | - | | | | ||||||||||||||||||||
Payment and collections | | | - | - | - | - | - | - | - | | ||||||||||||||||||||
Fiduciary Activities and Securities | - | | | | | - | | | - | | ||||||||||||||||||||
Acceptances, Guarantees and Standby Letters of Credit | | | | | - | - | - | | - | | ||||||||||||||||||||
Investment banking | - | | | - | - | | | - | - | | ||||||||||||||||||||
Brokerage | - | | - | - | - | - | | - | - | | ||||||||||||||||||||
Others | | | | | | - | | | | | ||||||||||||||||||||
Total revenue of contracts with customers | | | | | | | | | | | ||||||||||||||||||||
As of December 31, 2022
| ||||||||||||||||||||||||||||||
Banking | Banking | Banking El | Banking | Investment | International | All Other | Total | |||||||||||||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | Banking | Brokerage | Banking | Segments | ||||||||||||||||||||||
Revenue from contracts with customers | In millions of COP | |||||||||||||||||||||||||||||
Fees and Commissions income |
| |||||||||||||||||||||||||||||
Credit and debit card fees and commercial estabilshments | | | | | - | - | - | | - | | ||||||||||||||||||||
Bancassurance | | | | - | | | | - | - | | ||||||||||||||||||||
Banking services | | | | | - | - | - | | | | ||||||||||||||||||||
F-140
Payment and collections | | | - | - | - | - | - | - | - | | ||||||||||||||||||||
Fiduciary Activities and Securities | - | | | | | - | | | - | | ||||||||||||||||||||
Acceptances, Guarantees and Standby Letters of Credit | | | | | - | - | - | | - | | ||||||||||||||||||||
Investment banking | - | | | - | - | | | - | - | | ||||||||||||||||||||
Brokerage | - | | - | - | - | - | | - | - | | ||||||||||||||||||||
Others | | | | | - | - | | | | | ||||||||||||||||||||
Total revenue of contracts with customers | | | | | | | | | | |
As of December 31, 2021
| ||||||||||||||||||||||||||||||
Banking | Banking | Banking El | Banking | Investment | International | All Other | Total | |||||||||||||||||||||||
Colombia | Panama | Salvador | Guatemala | Trust | Banking | Brokerage | Banking | Segments | ||||||||||||||||||||||
Revenue from contracts with customers | In millions of COP | |||||||||||||||||||||||||||||
Fees and Commissions income | ||||||||||||||||||||||||||||||
Credit and debit card fees and commercial estabilshments | | | | | - | - | - | | - | | ||||||||||||||||||||
Bancassurance | | | | - | | | | - | - | | ||||||||||||||||||||
Banking services | | | | | - | - | - | | - | | ||||||||||||||||||||
Payment and collections | | | - | - | - | - | - | - | - | | ||||||||||||||||||||
Fiduciary Activities and Securities | - | | | | | - | | | - | | ||||||||||||||||||||
Acceptances, Guarantees and Standby Letters of Credit | | | | | - | - | - | | - | | ||||||||||||||||||||
Investment banking | - | | | - | - | | | - | - | | ||||||||||||||||||||
Brokerage | - | | - | - | - | - | | - | - | | ||||||||||||||||||||
Others | | - | | | - | - | | | | | ||||||||||||||||||||
Total revenue of contracts with customers | | | | | | | | | | | ||||||||||||||||||||
For the determination of the transaction price, the Bank assigns to each one of the services the amount which represents the value expected to be received as consideration for each independent commitment, which is based on the relative price of independent sale. The price that the Bank determines for each performance obligation is done by defining the cost of each service, related tax and associated risks to the operation and inherent to the transaction plus the margin expected to be received in each one of the services, taking as references the market prices and conditions, as well as the segmentation of the customer.
In the transactions evaluated in the contracts, changes in the price of the transaction are not identified.
Contract assets with customers
The Bank receives payments from customers based on the provision of the service, in accordance to that established in the contracts. When the Bank incurs costs for providing the service prior to the invoicing, and if these are directly related with a contract, they improve the resources of the entity and are expected to recuperate, these costs correspond to a contract asset. Currently, the Group does not have assets related to contracts with customers.
As a practical expedient, the Bank recognizes the incremental costs of obtaining a contract as an expense when the amortization period of the asset is one year or less.
Contract liabilities with customers
The contract liabilities constitute the obligation of the Bank to transfer the services to a customer, for which the Group has received a payment on the part of the final customer or if the amount is due before the execution of the contract. They also include deferred income related to services that shall be delivered or provided in the future, which will be invoiced to the customer in advance, but which are still not due.
F-141
The following table shows the detail of accounts receivable, and contract liabilities balances as at December 31, 2023, 2022 and 2021:
| 2023 | 2022 | 2021 | |||
| In millions of COP | |||||
Accounts receivable from contracts with customers(1) | | | | |||
Liabilities from contracts with customers(2)(3)(4) | | | | |||
(1) Allowances for receivables from customers are COP
(2) Contract liabilities are mainly related to commissions received from customers when the Bank issues financial guarantees. They are recognized as income during the term of the contract, according to the form and frequency of payment of the commissions. The weighted-average expected period for income recognition as of December 31, 2023 was
(3) During the years 2023 and 2022, income was recognized for COP
(4) See Note 20. Other liabilities.
The contract liabilities increased COP
Fees and Commissions Expenses
Fees and Commissions Expenses | 2023 | 2022 | 2021 | |||
| In millions of COP | |||||
Banking services | | | | |||
Sales, collections and other services | | | | |||
Correspondent banking | | | | |||
Payments and collections | | | | |||
Others | | | | |||
Total expenses for commissions | | | | |||
25.4. Other operating income
The following table sets forth the detail of other operating income net for the years ended December 31, 2023, 2022 and 2021:
Other operating income | 2023 | 2022 | 2021 | |||
In millions of COP | ||||||
Leases and related services(1) | ||||||
Net foreign exchange and Derivatives Foreign exchange contracts(2) | ( | |||||
Investment property valuation(3) | ||||||
Gains on sale of assets | ||||||
Logistics services | ||||||
Insurance(4) | ||||||
Other reversals | ||||||
Penalties for failure to contracts | ||||||
Others | ||||||
Total Other operating income | | | | |||
(1)Corresponds to operating leases for COP
(2) Corresponds to the management of assets and liabilities in foreign currencies and the volatility of the U.S. dollar.
(3) In 2022 increased in properties and variation in fair value due to improved market conditions at the reporting date.
F-142
(4)Corresponds to income from insurance operations of Seguros Agromercantil S.A., subsidiary domiciled in Guatemala. In 2023, it includes the effect of the adoption of IFRS 17 Insurance Contract. See Note 32. Impacts on the application of new standards.
25.5. Dividends and net income on equity investments
The following table sets forth the detail of dividends received, and share of profits of equity method investees for the years ended December 31, 2023, 2022 and 2021:
Dividends and net income on equity investments | 2023 | 2022 | 2021 | |||
| In millions of COP | |||||
Dividends(1) | | | | |||
Equity method(2) | | | | |||
Equity investments and other financial instruments(3) | | ( | | |||
(Losses) Gains on sale of investments in associates(4) | - | ( | | |||
Impairment of investments in associates and joint ventures(5) | ( | ( | ( | |||
Others(6) | | | | |||
Total dividends received, and share of profits of equity method investees | | | | |||
| (1) | As of December 31, 2023, 2022 and 2021, includes dividends received from equity investments at fair value through profit or loss for COP |
| (2) | Corresponds to income from equity method of investments in associates as of December 31, 2023, 2022 and 2021 for COP |
| (3) | For 2023, the increase is explained by the effect of the exchange of shares from Bolsa de Valores de Colombia for shares of the Holding Bursátil Regional in Chile. The Holding Bursátil Regional was constituted as of the integration of the Colombia, Perú and Chile Stock Exchanges in November 2023. For more information see Note 5.1. Financial assets investments. |
| (4) | In December 2022, was registered the spin-off of Protección S.A. and the creation of the company Asulado Seguros de Vida S.A., of which the Bank sold its participation to SURA Asset Management S.A., to comply with the authorized investment regime, and a loss of COP ( |
| (5) | Corresponds to the impairment of associates and joint ventures, for 2023 in Compañía de Financiamiento TUYA S.A. recognized in the Investment Banking segment for COP |
| (6) | For 2023, corresponds to gains recognized in acquisitions of P.A. Calle 84 (2) and P.A. Calle 84 (3) for COP |
F-143
NOTE 26. OPERATING EXPENSES
26.1. Salaries and employee benefit
The detail for salaries and employee benefits for the years ended December 31, 2023, 2022 and 2021 is as follows:
Salaries and employee benefit | 2023 | 2022 | 2021 | |||
In millions of COP | ||||||
Salaries(1) | | | | |||
Bonuses(2) | | | | |||
Private premium(3) | | | | |||
Social security contributions | | | | |||
Indemnization payment | | | | |||
Other benefits(4) | | | | |||
Total Salaries and employee benefit | | | |
| (1) | This is mainly explained by salary increases indexed to inflation. |
| (2) | Corresponds mainly to bonuses for employees in accordance with the variable compensation model of the Bank. |
| (3) | The increase corresponds to a higher provision due to a decrease in the nominal rate and the inflation rate. |
| (4) | Includes vacations, severance and interest on severance, pension and employee benefits, mainly policy benefits, training and recreation. |
26.2. Other administrative and general expenses
The detail for administrative and general expenses for the years ended December 31, 2023, 2022 and 2021 is as follows:
Other administrative and general expenses | 2023 | 2022 | 2021 | |||
| In millions of COP | |||||
Fees(1) | | | | |||
Maintenance and repairs(2) | | | | |||
Insurance(3) | | | | |||
Data processing(4) | | | | |||
Frauds and claims(5) | | | | |||
Transport | | | | |||
Advertising | | | | |||
Cleaning and security services | | | | |||
Public services | | | | |||
Contributions and affiliations | | | | |||
Communications | | | | |||
Properties improvements and installation | | | | |||
Useful and stationery | | | | |||
Disputes, fines and sanctions(6) | | | | |||
Real estate management | | | | |||
Travel expenses | | | | |||
Publications and subscriptions | | | | |||
Storage services | | | | |||
Legal expenses | | | | |||
Others | | | | |||
Total other administrative and general expenses(7) | | | | |||
Taxes other than income tax(8) | | | |
| (1) | Increase generated mainly by digital transformation fees. |
| (2) | Increase is caused mainly by vehicle maintenance for COP |
| (3) | The increase is mainly generated by Fogafin deposit insurance due to an increase in the volume of time deposits. |
F-144
| (4) | In 2023, the increase generated mainly by license maintenance services, electronic data processing and technology services. |
| (5) | The increase is generated mainly in virtual transactions and cards frauds. |
| (6) | The amount for the year 2022 includes the following events: Banagrícola and subsidiaries by USD |
| (7) | As of December 31, 2021, the Consolidated Statement of Income disclosed the line "Other expenses" for COP |
| (8) | The increase mainly generates in industry and commerce taxes, value added tax (IVA) and Tax on Financial Movements (GMF). |
26.3. Impairment, depreciation and amortization
The detail for Impairment, depreciation and amortization for the years ended December 31, 2023, 2022 and 2021 is as follows:
Impairment, depreciation and amortization | 2023 | 2022 | 2021 | |||
| In millions of COP | |||||
Depreciation of premises and equipment(1) | | | | |||
Depreciation of right-of-use assets(2) | | | | |||
Amortization of intangible assets(3) | | | | |||
Impairment of other assets, net(4)(5) | | | | |||
Total impairment, depreciation and amortization | | | |
(1)See Note 10 Premises and equipment, net.
(2)See Note 7.2 Lessee.
(3)See Note 9 Goodwill and intangibles assets, net.
(4) Includes value for impairment of property and equipment for COP
(5)The detail of the impairment of other assets net by operating segments for the years ended December 31, 2023, 2022 and 2021 is presented in the table below:
Impairment (recovery) of other assets, net | 2023 | 2022 | 2021 | |||
In millions of COP | ||||||
Banking Colombia | | | | |||
Banking Panama | | | | |||
Banking Guatemala | | | | |||
All other segments | | | | |||
International Banking | | | - | |||
Banking El Salvador(1) | ( | ( | | |||
Total(2) | | | |
(1)Corresponds mainly to the Net realizable value (NRV) and higher sales generated in 2022 compared to 2021.
(2)The variation in 2023 with respect to 2022 is mainly to the Net realizable value (NRV).
During 2023, 2022 and 2021, no significant cybersecurity breaches materialized, according to the data security policies established by Management.
NOTE 27. EARNING PER SHARE (‘EPS’)
Basic EPS is calculated by reducing the income from continuing operations by the amount of dividends declared in the current period for each class of stock and by the contractual amount of dividends that must be paid for the current period, considering the allocation of remaining earnings to common stock and participating securities to the extent that each
F-145
security may share in earnings as if all of the earnings for the period had been distributed. EPS is determined by dividing the total earnings allocated to each security by 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. The Bank had
The following table summarizes information related to the computation of basic EPS for the years ended December 31, 2023, 2022 and 2021 (in millions of pesos, except per share data):
| 2023 | 2022 | 2021 | |||
Income from continuing operations before attribution of non-controlling interests | | | | |||
Less: Non-controlling interests from continuing operations | | | | |||
Net income from controlling interest | | | | |||
Less: Preferred dividends declared | | | | |||
Less: Allocation of undistributed earnings to preferred stockholders | | | | |||
Net income allocated to common shareholders for basic and diluted EPS | | | | |||
Weighted average number of common shares outstanding used in basic EPS calculation (In millions) | | | | |||
Basic and diluted earnings per share to common shareholders | | | | |||
Basic and diluted earnings per share from continuing operations | | | |
NOTE 28. RELATED PARTY TRANSACTIONS
IAS 24 Related Party Disclosures requires that an entity discloses:
| (a) | Transactions with its related parties; and |
| (b) | Relationships between a parent and its subsidiaries irrespective of whether there have been transactions between them. |
Under IAS 24, an entity must disclose transactions with its related parties, outstanding balances, including commitments, recognized in the consolidated and separate financial statements of a parent or investors with joint control or significant influence over, an investee presented in accordance with IFRS 10 Consolidated Financial Statements.
Under this standard parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions, or one other party controls both. This definition applies to the Bank in the cases below:
| ● | Stockholders with ownership interest equal or higher than 20% of the Bank’s capital: |
| - | Grupo de Inversiones Suramericana S.A. |
| - | Fondo Bancolombia ADR Program. |
| ● | Members of Board of Directors and Senior Management, understood as the President and corporate Vice-presidents, as well as their close relatives (spouse and children) and the companies in which they have a participation of 10% or more of the Bank's capital. |
| ● | Associates and joint ventures for which Bancolombia S.A. or any of the subsidiaries of the Group provide commercial banking services and deposits. For these purposes, all companies in which Grupo Bancolombia has joint control or significant influence have been included. For more information see note 8. Investments in associates and joint control. |
Bancolombia S.A. or some of the subsidiaries of the Grupo Bancolombia provide banking and financial services to its related parties in order to satisfy their liquidity needs, and except for the intercompany merger agreement described below, these transactions are conducted on similar terms to third-party transactions and are not individually material. In the case of treasury operations, Bancolombia operates between its own position and its related parties through transactional channels or systems established for this purpose and under the conditions established by current regulations.
F-146
Between the Parent Company and its related parties, during the periods ending at December 31, 2023, 2022 and 2021, there were no:
| - | Loans that for its contractual terms do not represent a lending transaction. |
| - | Loans with interest rates different to those that are ordinarily paid or charged to third parties in similar conditions of term, risk, etc. |
| - | Operations whose characteristics differ from those carried out with third parties |
| - | Guarantees, pledges or commitments given or received in respect of the aforementioned transactions. |
As of December 31, 2023
Stockholders with an | |||||||
interest equal or | Directors and | Associates and | |||||
higher than 20% of | senior | joint ventures | |||||
the Bank's capital(1) | management | ||||||
In millions of COP | |||||||
Assets | |||||||
Financial assets investments | | - | | ||||
Derivative financial instruments | | - | | ||||
Loans and advances to customers | | | | ||||
Allowance for loans, advances and lease losses | ( | ( | ( | ||||
Investment in associates and joint ventures | - | - | | ||||
Other assets | | | | ||||
Total assets | | | | ||||
Liabilities | |||||||
Deposits by customers | | | | ||||
Derivative financial instruments | | | | ||||
Other liabilities | | | | ||||
Total liabilities | | | | ||||
Income | |||||||
Interest on loans and financial leases | | | | ||||
Valuation on financial instruments | | - | | ||||
Fees and commissions income | | | | ||||
Dividends and net income on equity investments(2) | | - | | ||||
Derivatives Foreign exchange contracts | | ( | | ||||
Other operating income | | | | ||||
Net income | | | | ||||
Expenses | |||||||
Interest expenses | | | | ||||
Credit impairment charges, net | ( | | ( | ||||
Fees and commissions expenses | | - | | ||||
Employee benefits(3) | | | - | ||||
Other administrative and general expenses | | | | ||||
Total expenses | | | | ||||
| (1) | Includes Grupo Sura conglomerate. |
| (2) | Includes impairment of associates and joint ventures mainly in TUYA S.A. for COP |
| (3) | In case of stockholders with an interest equal or higher than 20% of the Bank’s capital, includes the benefit provided to employees for insurance policies and for directors and senior management corresponds to the benefit of special credit rates for employees. |
F-147
As of December 31, 2022
Stockholders with an | |||||||
interest equal or | Directors and | Associates and | |||||
higher than 20% of | senior | joint ventures | |||||
the Bank's capital(1) | management | ||||||
In millions of COP | |||||||
Assets | |||||||
Financial assets investments | | - | | ||||
Derivative financial instruments | | | | ||||
Loans and advances to customers | | | | ||||
Allowance for loans, advances and lease losses | ( | ( | ( | ||||
Investment in associates and joint ventures | - | - | | ||||
Other assets(2) | | | | ||||
Total assets | | | | ||||
Liabilities | |||||||
Deposits by customers | | | | ||||
Derivative financial instruments | | - | | ||||
Other liabilities(2) | | | | ||||
Total liabilities | | | | ||||
Income | |||||||
Interest on loans and financial leases | | | | ||||
Valuation on financial instruments | - | - | | ||||
Fees and commissions income | | | | ||||
Dividends and net income on equity investments | | - | | ||||
Net foreign exchange and Derivatives Foreign exchange contracts | ( | | ( | ||||
Other operating income | | | | ||||
Net income | | | | ||||
Expenses | |||||||
Interest expenses | | | | ||||
Credit impairment charges, net | | | ( | ||||
Fees and commissions expenses | | - | | ||||
Employee benefits(3) | | | - | ||||
Other administrative and general expenses | | | | ||||
Total expenses | | | | ||||
| (1) | Includes Grupo Sura conglomerate. |
| (2) | The values disclosed for Other assets and Other liabilities corresponding to Stockholders with an interest equal or higher than 20% as of December 31, 2022 were restated from COP |
| (3) | In case of stockholders with an interest equal or higher than 20% of the Bank’s capital, includes the benefit provided to employees for insurance policies and for directors and senior management corresponds to the benefit of special credit rates for employees. |
F-148
As of December 31, 2021
Stockholders with an | |||||||
interest equal or | Directors and | Associates and | |||||
higher than 20% of | senior | joint ventures | |||||
the Bank’s capital(1) | management | ||||||
In millions of COP | |||||||
Assets | |||||||
Financial assets investments | | - | | ||||
Derivative financial instruments | - | | - | ||||
Loans and advances to customers | | | | ||||
Allowance for loans, advances and lease losses | ( | ( | ( | ||||
Investment in associates and joint ventures | - | - | | ||||
Other assets | | | | ||||
Total assets | | | | ||||
Liabilities | |||||||
Deposits by customers | | | | ||||
Derivative financial instruments | - | | | ||||
Other liabilities | | | | ||||
Total liabilities | | | | ||||
Income | |||||||
Interest on loans and financial leases | | | | ||||
Valuation on financial instruments | - | - | | ||||
Fees and commissions income | | | | ||||
Dividends and net income on equity investments | | - | | ||||
Net foreign exchange and Derivatives Foreign exchange contracts | ( | | ( | ||||
Other operating income | | - | | ||||
Net income | | | | ||||
Expenses | |||||||
Interest expenses | | | | ||||
Credit impairment charges, net | | | | ||||
Fees and commissions expenses | | - | | ||||
Employee benefits(2) | | | - | ||||
Other administrative and general expenses | | | | ||||
Total expenses | | | | ||||
| (1) | Includes Grupo Sura conglomerate. |
| (2) | In case of stockholders with an interest equal or higher than 20% of the Bank’s capital, includes the benefit provided to employees for insurance policies and for directors and senior management corresponds to the benefit of special credit rates for employees. |
During the years ending December 31, 2023, 2022 and 2021, the Bank paid fees to the directors of COP
The payments to senior management in the same periods were COP
The Parent Company, which is also the ultimate parent company, is Bancolombia S.A. Transactions between companies included in consolidation, described in the significant accounting policies, see Note 2.C.1 Subsidiaries, meet the definition of related party transactions and were eliminated from the consolidated financial statements.
F-149
NOTE 29. LIABILITIES FROM FINANCING ACTIVITIES
The following table presents the reconciliation of the balances of liabilities from financing activities as of December 31, 2023 and 2022:
Non-cash changes | ||||||||||||
Balance as of | Foreign | |||||||||||
January 1, 2023 | Cash flows | currency | Interests | Other | Balance as of | |||||||
translation | accrued | movements | December 31, 2023 | |||||||||
adjustment | ||||||||||||
In millions of COP | ||||||||||||
Liabilities from financing activities | ||||||||||||
Repurchase agreements and other similar secured borrowing | | | ( | - | - | | ||||||
Borrowings from other financial institutions(1) | | ( | ( | | | | ||||||
Debt instruments in issue(1) | | ( | ( | | - | | ||||||
Preferred shares(2) | | ( | - | | - | | ||||||
Total liabilities from financing activities | | ( | ( | | | | ||||||
| (1) | The cash flows disclosed in this table related with Borrowings from other financial institutions and Debt securities in issue include the interests paid during the year amounting to COP |
| (2) | The cash flow amounting to COP |
Non-cash changes | ||||||||||||
Balance as of | Foreign | |||||||||||
January 1, 2022 | Cash flows | currency | Interests | Other | Balance as of | |||||||
translation | accrued | movements | December 31, 2022 | |||||||||
adjustment | ||||||||||||
In millions of COP | ||||||||||||
Liabilities from financing activities | ||||||||||||
Repurchase agreements and other similar secured borrowing | | ( | | - | - | | ||||||
Borrowings from other financial institutions(1) | | | | | | | ||||||
Debt instruments in issue(1) | | ( | | | - | | ||||||
Preferred shares(2) | | ( | - | - | | |||||||
Total liabilities from financing activities | | | | | | | ||||||
| (1) | The cash flows disclosed in this table related with Borrowings from other financial institutions and Debt securities in issue include the interests paid during the year amounting to COP |
| (2) | The cash flow amounting to COP |
F-150
NOTE 30. FAIR VALUE OF ASSETS AND LIABILITIES
The following table presents the carrying amount and the fair value of the assets and liabilities as of December 31, 2023 and 2022:
December 31, 2023 | December 31, 2022 | |||||||
Carrying | Fair | Carrying | Fair | |||||
amount | Value | amount | Value | |||||
In millions of COP | ||||||||
Assets | ||||||||
Debt instruments at fair value through profit or loss | | | | | ||||
Debt instruments at fair value through OCI | | | | | ||||
Debt instruments at amortized cost | | | | | ||||
Derivative financial instruments | | | | | ||||
Equity securities at fair value | | | | | ||||
Other financial instruments(1) | | | | | ||||
Loans and advances to customers at amortized cost, net | | | | | ||||
Investment property | | | | | ||||
Investments in associates(2) | | | | | ||||
Total | | | | | ||||
Liabilities | ||||||||
Deposits by customers | | | | | ||||
Interbank deposits | | | | | ||||
Repurchase agreements and other similar secured borrowing | | | | | ||||
Derivative financial instruments | | | | | ||||
Borrowings from other financial institutions | | | | | ||||
Preferred shares | | | | | ||||
Debt instruments in issue | | | | | ||||
Total | | | | | ||||
| (1) | For futher information see Note 5.1. Financial assets investments. |
| (2) | It corresponds to investments in associates P.A Viva Malls and Distrito Vera. See Note 8 Investments in associates and joint ventures. |
Fair value hierarchy
IFRS 13 establishes a fair value hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable, that reflects the significance of inputs adopted in the measurement process. In accordance with IFRS the financial instruments are classified as follows:
Level 1: Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market is a market in which transactions for the asset or liability being measured take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Level 2 generally includes: (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain retained residual interests in securitizations, asset-backed securities (ABS) and highly structured or long-term derivative contracts where independent pricing information was not able to be obtained for a significant portion of the underlying assets.
F-151
Valuation process for fair value measurements
The valuation to fair value prices is performed using prices, methodologies and inputs provided by the official pricing services provider (Precia) to the Bank.
All methodologies and procedures developed by the pricing services provider are supervised by the Financial Superintendence of Colombia, which has not objected to them.
On a daily basis, the back-office Service Valuation Officer (SVO) verifies the valuation of investments, and the Credit and Financial Risk Manager area reports the results of the portfolio’s valuation.
Fair value measurement
Assets and liabilities
a. Debt instruments
The Bank assigns prices to those debt investments, using the prices provided by the official pricing services provider (Precia) and assigns the appropriate level according to the procedure described above. For securities not traded or over-the-counter such as certain bonds issued by other financial institutions, the Bank generally determines fair value utilizing internal valuation and standard techniques. These techniques include determination of expected future cash flows which are discounted using curves of the applicable currencies and the Colombian consumer price index (interest rate in this case), modified by the credit risk and liquidity risk. The interest rate is generally computed using observable market data and reference yield curves derived from quoted interest in appropriate time bandings, which match the timings of the cash flows and maturities of the instruments.
b. Equity securities and other financial instruments
The Bank performs the market price valuation of its investments in variable income using the prices provided by the official pricing services provider (Precia) and classifies those investments according to the procedure described above (Hierarchy of fair value section). Likewise, the fair value of unlisted equity securities and other financial instruments is based on an assessment of each individual investment using methodologies that include publicly-traded comparables derived by multiplying a key performance metric (e.g., earnings before interest, taxes, depreciation and amortization) of the portfolio company by the relevant valuation multiple observed for comparable companies, acquisition comparables, and if necessary considered, are subject to appropriate discounts for lack of liquidity or marketability. Interests in investment funds, trusts and collective portfolios are valued using the investment unit value determined by the fund management company. For investment funds where the underlying assets are investment properties, the investment unit value depends on the investment properties value, determined as described below in “i. Investment property”.
c. Derivative financial instruments
The Bank holds positions in standardized derivatives, such as futures over local stocks, and over the market representative rate. These instruments are evaluated according to the information provided by Precia, which perfectly matches the information provided by the Central Counterparty Clearing House – CCP.
Additionally, the Bank holds positions in Over The Counter (OTC) derivatives, which in the absence of prices, are valued using the inputs and methodologies provided by the pricing services provider, which have the no objection of the SFC.
The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, foreign exchange rates, the spot price of the underlying volatility, credit curves and correlation of such inputs.
F-152
d. Credit valuation adjustment
The Bank measures the effects of the credit risk of its counterparties and its own creditworthiness in determining fair value of the swap, option and forward derivatives.
Counterparty credit-risk adjustments are applied to derivatives when the Bank’s position is a derivative asset and the Bank’s credit risk is incorporated when the position is a derivative liability. The Bank attempts to mitigate credit risk to third parties which are international banks by entering into master netting agreements. The agreements allow to offset or bring net amounts that are liabilities, derivates from transactions carried out by the different agreements. Master netting agreements take different forms and may allow payments to be made under a variety of other master agreements or other negotiation agreements between the same parties; some may have a monthly basis and others only apply at the time the agreements are terminated.
When assessing the impact of credit exposure, only the net counterparty exposure is considered at risk, due to the offsetting of certain same-counterparty positions and the application of cash and other collateral.
The Bank generally calculates the asset’s credit risk adjustment for derivatives transacted with international financial institutions by incorporating indicative credit related pricing that is generally observable in the market (Credit Default Swaps, “CDS”). The credit-risk adjustment for derivatives transacted with non-public counterparties is calculated by incorporating unobservable credit data derived from internal credit qualifications to the financial institutions and corporate companies located in Colombia. The Bank also considers its own creditworthiness when determining the fair value of an instrument, including OTC derivative instruments if the Bank believes market participants would take that into account when transacting the respective instrument. The approach to measuring the impact of the Bank’s credit risk on an instrument transacted with international financial institutions is done using the asset swap curve calculated for subordinated bonds issued by the Bank in foreign currency. For derivatives transacted with local financial institutions, the Bank calculates the credit risk adjustment by incorporating credit risk data provided by rating agencies and released in the Colombian financial market.
e. Impaired loans measured at fair value
The Bank measured certain impaired loans based on the fair value of the associated collateral less costs to sell. The fair values were determined as follows using external and internal valuation techniques or third party experts, depending on the type of underlying asset.
For vehicles under leasing arrangements, the Bank uses an internal valuation model based on price curves for each type of vehicle. Such curves show the expected price of the vehicle at different points in time based on the initial price and projection of economic variables such as inflation, devaluation and customs. The prices modelled in the curves are compared every six months with market information for the same or similar vehicles and in the case of significant deviation; the curve is adjusted to reflect the market conditions.
Other vehicles are measured using matrix pricing from a third party. This matrix is used by most of the market participants and is updated monthly. The matrix is developed from values provided by several price providers for identical or similar vehicles and considers brand, characteristics of the vehicles, and manufacturing date among other variables to determine the prices.
For real estate assets, a third-party qualified appraiser is used. The methodologies vary depending on the date of the last appraisal available for the property (the appraisal is estimated based on either of three approaches: cost, sales comparison and income approach, and is required every three years). When the property has been valued in the last 12 months and the market conditions have not shown significant changes, the most recent valuation is considered the fair value of the property.
For all other cases (for example, appraisals older than 12 months) the value of the property is updated by adjusting the value in the last appraisal for weighted factors such as location, type and characteristics of the property, size, structural conditions and the expected sales prices, among others. The factors are determined based on current market information
F-153
gathered from several external real estate specialists.For all other cases (for example, appraisals older than 12 months) the value of the property is updated by adjusting the value in the last appraisal for weighted factors such as location, type and characteristics of the property, size, structural conditions and the expected sales prices, among others. The factors are determined based on current market information gathered from several external real estate specialists.
f. Assets held for sale measured at fair value less cost of sale
The Bank measures certain impaired foreclosed assets and premises and equipment held for sale based on fair value less costs to sell. The fair values were determined using external and internal valuation techniques, depending on the type of underlying asset. Those assets are comprised mainly of real estate properties for which the appraisal is conducted by experts considering factors such as the location, type and characteristics of the property, size, physical conditions and expected selling costs, among others. Likewise, in some cases the fair value is estimated considering comparable prices or promises of sale and offering prices from auctions process.
g. Mortgage-backed securities (“TIPS”) and Asset-Backed securities
The Bank invests in asset-backed securities for which underlying assets are mortgages and earnings under contracts issued by financial institutions and corporations, respectively. The Bank does not have a significant exposure to sub-prime securities. The asset-backed securities are denominated in local market TIPS and are classified as fair value through profit or loss. These asset-backed securities have different maturities and are generally classified by credit ratings.
TIPS are part of the Bank portfolio and its fair value is measured with published price by the official pricing services provider. These securities are leveled by margin and are assigned level 2 or 3 based on the Precia information.
Residual TIPS have their fair value measured using the discounted flow method, taking into account the amortization tables of the Titularizadora Colombiana, the betas in COP and UVR of Precia (used to construct the curves) and the margins; when they are residual TIPS of subordinated issues, a liquidity premium is applied. These securities are assigned level 3.
h. Investments in associates measured at fair value
The Bank recognizes its investments in P.A Viva Malls and P.A Distrito Vera as an associate at fair value. The estimated amount is provided by the fund manager as the variation of the units according to the units owned by the FCP Fondo Inmobiliario Colombia. The associate’s assets are comprised of investment properties which are measured using the following techniques: comparable prices, discounted cash flows, replacement cost and direct capitalization. For further information about techniques methodologies and inputs used by the external party see “Quantitative Information about Level 3 Fair Value Measurements”.
i. Investment property
The Bank’s investment property is valued by external experts, who use valuation techniques based on comparable prices, direct capitalization, discounted cash flows and replacement costs.
Assets and liabilities measured at fair value on a recurring basis
The following table presents for each of the fair-value hierarchy levels the Bank’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2023 and 2022:
F-154
Financial Assets | ||||||||||||||||
December 31, 2023 | December 31, 2022 | |||||||||||||||
Type of instrument | Fair value hierarchy | Total fair | Fair value hierarchy | Total fair | ||||||||||||
Level 1 | Level 2 | Level 3 | value | Level 1 | Level 2 | Level 3 | value | |||||||||
In millions of COP | ||||||||||||||||
Investment securities | ||||||||||||||||
Debt instruments at fair value through profit or loss | ||||||||||||||||
Securities issued by the Colombian Government | | | - | | | | - | | ||||||||
Securities issued or secured by government entities | - | | - | | | | - | | ||||||||
Securities issued by other financial institutions | | | | | | | | | ||||||||
Securities issued by foreign governments | | | - | | | | - | | ||||||||
Corporate bonds | | | | | | | - | | ||||||||
Total debt instruments at fair value through profit or loss | | | | | | | | | ||||||||
Debt instruments at fair value through OCI | ||||||||||||||||
Securities issued by the Colombian Government | | - | | | - | | - | | ||||||||
Securities issued by other financial institutions | | | - | | | | - | | ||||||||
Securities issued by foreign governments | | | - | | | | - | | ||||||||
Corporate bonds | | | - | | - | | - | | ||||||||
Total debt instruments at fair value through OCI | | | | | | | - | | ||||||||
Total debt instruments | | | | | | | | | ||||||||
Equity securities | ||||||||||||||||
Equity securities | | | | | | | | | ||||||||
Total equity securities | | | | | | | | | ||||||||
Other financial assets | ||||||||||||||||
Other financial assets | - | - | | | - | - | | | ||||||||
Total other financial assets | - | - | | | - | - | | | ||||||||
Derivative financial instruments | ||||||||||||||||
Forwards | ||||||||||||||||
Foreign exchange contracts | - | | | | - | | | | ||||||||
Equity contracts | - | | | | - | | | | ||||||||
Total forwards | - | | | | - | | | | ||||||||
Swaps | ||||||||||||||||
Foreign exchange contracts | - | | | | - | | | | ||||||||
Interest rate contracts | | | | | | | | | ||||||||
Total swaps | | | | | | | | | ||||||||
Options | ||||||||||||||||
Foreign exchange contracts | | | | | - | | | | ||||||||
Total options | | | | | - | | | | ||||||||
Total derivative financial instruments | | | | | | | | | ||||||||
Investment properties | ||||||||||||||||
Lands | - | - | | | - | - | | | ||||||||
Buildings | - | - | | | - | - | | | ||||||||
Total investment properties | - | - | | | - | - | | | ||||||||
Investment in associates at fair value | ||||||||||||||||
Investment in associates at fair value | - | - | | | - | - | | | ||||||||
Total investment in associates at fair value | - | - | | | - | - | | | ||||||||
Total | | | | | | | | | ||||||||
F-155
Financial liabilities | ||||||||||||||||
December 31, 2023 | December 31, 2022 | |||||||||||||||
Type of instrument | Fair value hierarchy | Total fair | Fair value hierarchy | Total fair | ||||||||||||
Level 1 | Level 2 | Level 3 | value | Level 1 | Level 2 | Level 3 | value | |||||||||
In millions of COP | ||||||||||||||||
Derivative financial instruments | ||||||||||||||||
Forwards | ||||||||||||||||
Foreign exchange contracts | - | | | | - | | | | ||||||||
Equity contracts | - | | | | - | | - | | ||||||||
Total forwards | - | | | | - | | | | ||||||||
Swaps | ||||||||||||||||
Foreign exchange contracts | - | | | | - | | | | ||||||||
Interest rate contracts | | | | | | | | | ||||||||
Total swaps | | | | | | | | | ||||||||
Options | ||||||||||||||||
Foreign exchange contracts | | | - | | - | | - | | ||||||||
Total options | | | - | | - | | - | | ||||||||
Total derivative financial instruments | | | | | | | | | ||||||||
Total | | | | | | | | | ||||||||
Fair value of assets and liabilities that are not measured at fair value in the Statement of Financial Position
The following table presents for each of the fair-value hierarchy levels the Bank’s assets and liabilities that are not measured at fair value in the Statement of Financial Position, but for which the fair value is disclosed at December 31, 2023 and December 31, 2022:
Assets | ||||||||||||||||
December 31, 2023 | December 31, 2022 | |||||||||||||||
Type of instrument | Fair value hierarchy | Total fair | Fair value hierarchy | Total fair | ||||||||||||
Level 1 | Level 2 | Level 3 | value | Level 1 | Level 2 | Level 3 | value | |||||||||
In millions of COP | ||||||||||||||||
Debt instruments | ||||||||||||||||
Securities issued by the Colombian Government | | - | - | | | - | - | | ||||||||
Securities issued or secured by government entities | - | | | | - | | - | | ||||||||
Securities issued by other financial institutions | | | | | | | - | | ||||||||
Securities issued by foreign governments | | | - | | | | - | | ||||||||
Corporate bonds | | | | | | | | | ||||||||
Total – Debt instruments | | | | | | | | | ||||||||
Loans and advances to customers, net | - | - | | | - | - | | | ||||||||
Total | | | | | | | | | ||||||||
Liabilities | ||||||||||||||||
December 31, 2023 | December 31, 2022 | |||||||||||||||
Type of instruments | Fair value hierarchy | Total fair | Fair value hierarchy | Total fair | ||||||||||||
Level 1 | Level 2 | Level 3 | value | Level 1 | Level 2 | Level 3 | value | |||||||||
In millions of COP | ||||||||||||||||
Deposits by customers | - | | | | - | | | | ||||||||
Interbank deposits | - | - | | | - | - | | | ||||||||
Repurchase agreements and other similar secured borrowing | - | - | | | - | - | | | ||||||||
Borrowings from other financial institutions | - | - | | | - | - | | | ||||||||
Debt instruments in issue(1) | | | | | | | | | ||||||||
Preferred shares | - | - | | | - | - | | | ||||||||
Total | | | | | | | | | ||||||||
(1) The decrease in level 2 for the year 2023 corresponds to maturity of securities.
IFRS requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the statement of financial position, for which it is practicable to estimate fair value. Certain categories of assets and liabilities, however, are not eligible for fair value accounting. The financial instruments below are not measured at fair value on a recurring and nonrecurring basis:
F-156
Short-term financial instruments
Short-term financial instruments are valued at their carrying amounts included in the consolidated statement of financial position, 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, accrued interest receivable, customers’ acceptances, accounts receivable, accounts payable, accrued interest payable and bank acceptances outstanding.
Deposits from customers
The fair value of time deposits was estimated based on the discounted value of cash flows using the appropriate discount rate for the applicable maturity. Fair value of deposits with no contractual maturities represents the amount payable on demand as of the statement of financial position date.
Interbank deposits and repurchase agreements and other similar secured borrowings
Short-term interbank borrowings and repurchase agreements have been valued at their carrying amounts because of their relatively short-term nature. Long-term and domestic development bank borrowings have also been valued at their carrying amount because they bear interest at variable rates.
Borrowings from other financial institutions
The fair value of borrowings from other financial institutions were determined using discounted cash flow models. The cash flows projection of capital and interest was made according to the contractual terms, considering capital amortization and interest bearing. Subsequently, the cash flows were discounted using reference curves formed by the weighted average of the Bank’s deposit rates.
Debt instruments in issue
The fair value of debt instruments in issue, comprised of bonds issued by Bancolombia S.A. and its subsidiaries, was estimated substantially based on quoted market prices. The fair value of certain bonds which do not have a public trading market, were determined based on the discounted value of cash flows using the rates currently offered for bonds of similar remaining maturities and the Bank’s creditworthiness.
Preferred shares
In the valuation of the liability component of preferred shares related to the minimum dividend of 1% of the subscription price, the Bank uses the Gordon Model to price the obligation, taking into account its own credit risk, which is measured using the market spread based on observable inputs such as quoted prices of sovereign debt. The Gordon Model is commonly used to determine the intrinsic value of a stock based on a future series of dividends that are estimated by the Bank and growth at a constant rate considering the Bank’s own perspectives of the payout ratio.
Loans and advances to customers
Estimating the fair value of loans and advances to customers is considered an area of considerable uncertainty as there is no observable market. The loan portfolio is stratified into tranches and loans segments suchs as commercial, consumer, small business loans, mortgage and leasing. The fair value of loans and advances to customers and financial institutions is determined using a discounted cash flow methodology, considering each credit’s principal and interest projected cash flows to the prepayment date. The projected cash flows are discounted using reference curves according to the type of loan and its maturity date.
Items measured at fair value on a non-recurring basis
The Bank measures assets held for sale based on fair value less costs to sell. This category includes certain foreclosed assets and investments in associates held for sale. The fair values were determined using external and internal valuation
F-157
techniques or third party experts, depending on the type of underlying asset. The following breakdown sets forth the fair value hierarchy of those assets classified by type:
December 31, 2023 | December 31, 2022 | |||||||||||||||
Fair-value hierarchy | Total fair | Fair-value hierarchy | Total fair | |||||||||||||
Level 1 | Level 2 | Level 3 | value | Level 1 | Level 2 | Level 3 | value | |||||||||
In millions of COP | ||||||||||||||||
Machinery and equipment | - | - | | | - | - | | | ||||||||
Real estate for residential purposes | - | - | | | - | - | | | ||||||||
Real estate different from residential properties | - | - | | | - | - | | | ||||||||
Total | - | - | | | - | - | | | ||||||||
F-158
Changes in level 3 fair-value category
The table below presents reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs during 2023 and 2022:
As of December 31, 2023
Balance, | Included | Transfers | Transfers | Balance, | ||||||||||||||||
January 1, | in | OCI | Purchases | Settlement | Reclassifications | (1) | Prepaids | in to | out of | December 31, | ||||||||||
| 2023 | earnings | level 3 | level 3 | 2023 | |||||||||||||||
In millions of COP | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Debt instruments at fair value though profit or loss | ||||||||||||||||||||
Securities issued by the Colombian Government | - | ( | - | | - | - | - | - | - | - | ||||||||||
Securities issued or secured by other financial entities | | | - | | ( | - | ( | | - | | ||||||||||
Corporate bonds | - | - | - | - | - | - | - | | - | | ||||||||||
Total | | | - | | ( | - | ( | | - | | ||||||||||
Debt instruments at fair value through OCI | ||||||||||||||||||||
Securities issued by the Colombian Government | - | - | | | - | - | - | - | - | | ||||||||||
Total | - | - | | | - | - | - | - | - | | ||||||||||
Derivative financial instruments | ||||||||||||||||||||
Foreign exchange contracts | | ( | - | | ( | ( | - | | ( | | ||||||||||
Interest rate contracts | | ( | - | | ( | ( | - | | ( | | ||||||||||
Equity contracts | | - | - | | ( | - | - | - | - | | ||||||||||
Total | | ( | - | | ( | ( | - | | ( | | ||||||||||
Equity securities | ||||||||||||||||||||
Equity securities | | ( | ( | | ( | - | - | - | - | | ||||||||||
Total | | ( | ( | | ( | - | - | - | - | | ||||||||||
Other financial instruments | ||||||||||||||||||||
Other financial instruments | | ( | - | | - | - | - | - | - | | ||||||||||
Total | | ( | - | | - | - | - | - | - | | ||||||||||
Investment in associates | ||||||||||||||||||||
PA Viva Malls | | | - | | - | - | - | - | - | | ||||||||||
PA Distrito Vera | | | - | | - | - | - | - | - | | ||||||||||
Total | | | - | | - | - | - | - | - | | ||||||||||
Total Assets | | | | | ( | ( | ( | | ( | | ||||||||||
Liabilities | ||||||||||||||||||||
Derivative financial instruments | ||||||||||||||||||||
Foreign exchange contracts | | | - | | ( | ( | - | | ( | | ||||||||||
Interest rate contracts | | ( | - | | ( | ( | - | | ( | | ||||||||||
Equity contracts | - | - | - | | - | - | - | - | - | | ||||||||||
Total | | | - | | ( | ( | - | | ( | | ||||||||||
Total liabilities | | | - | | ( | ( | - | | ( | | ||||||||||
| (1) | From derivative assets to derivative liabilities classified in level 3 and vice versa. |
F-159
As of December 31, 2022
Balance, | Included | Transfers | Transfers | Balance, | ||||||||||||||||
January 1, | in | OCI | Purchases | Settlement | Reclassifications | (1) | Prepaids | in to | out of | December 31, | ||||||||||
2022 | earnings | level 3 | level 3 | 2022 | ||||||||||||||||
In millions of COP | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Debt instruments at fair value though profit or loss | ||||||||||||||||||||
Securities issued or secured by other financial entities | | | - | | ( | - | ( | | ( | | ||||||||||
Total | | | - | | ( | - | ( | | ( | | ||||||||||
Derivative financial instruments | ||||||||||||||||||||
Foreign exchange contracts | | | - | | ( | ( | - | | ( | | ||||||||||
Interest rate contracts | | | - | | ( | ( | - | | ( | | ||||||||||
Equity contracts | | - | - | | ( | - | - | - | - | | ||||||||||
Total | | | - | | ( | ( | - | | ( | | ||||||||||
Equity securities | ||||||||||||||||||||
Equity securities(2) | | ( | | | ( | - | - | | ( | | ||||||||||
Total | | ( | | | ( | - | - | | ( | | ||||||||||
Other financial instruments | ||||||||||||||||||||
Other financial instruments | ( | - | | - | - | - | - | - | | |||||||||||
Total | ( | - | | - | - | - | - | - | | |||||||||||
Investment in associates | ||||||||||||||||||||
PA Viva Malls | | | - | - | ( | - | - | - | - | | ||||||||||
PA Distrito Vera | | ( | - | - | - | - | - | - | - | | ||||||||||
Total | | | - | - | ( | - | - | - | - | | ||||||||||
Total Assets | | | | | ( | ( | ( | | ( | | ||||||||||
Liabilities | ||||||||||||||||||||
Derivative financial instruments | ||||||||||||||||||||
Foreign exchange contracts | | | - | | ( | ( | - | - | ( | | ||||||||||
Interest rate contracts | | | - | | ( | ( | - | | ( | | ||||||||||
Total | | | - | | ( | ( | - | | ( | | ||||||||||
Total liabilities | | | - | | ( | ( | - | | ( | | ||||||||||
| (1) | From derivative assets to derivative liabilities classified in level 3 and vice versa. |
| (2) | Mainly in Banistmo S.A. of the Telered S.A. instrument, which also includes conversion adjustments. |
Level 3 fair value rollforward
The following were the significant level 3 transfers at December 31, 2023 and 2022:
As of December 31, 2023 and 2022, net transfers in Bancolombia S.A. for COP
As of December 31, 2023 and 2022, unrealized gains and losses on debt instruments were COP
Transfers between level 1 and level 2 of the fair value hierarchy
The table below presents the transfers for all assets and liabilities measured at fair value on a recurring basis between level 1 and level 2 as of December 31, 2023 and 2022:
F-160
December 31, 2023 | December 31, 2022 | |||||||
Transfers level 1 | Transfers level | Transfers level | Transfers level | |||||
to level 2 | 2 to level 1 | 1 to level 2 | 2 to level 1 | |||||
In millions of COP | ||||||||
Debt instruments at fair value though profit or loss | ||||||||
Securities issued or secured by foreign government | | - | - | | ||||
Securities issued or secured by government entities | | - | - | | ||||
Corporate bonds | - | | | - | ||||
Securities issued by the Colombian Government | - | - | - | | ||||
Securities issued or secured by other financial entities | | - | - | - | ||||
Total | | | | | ||||
Debt instruments at fair value through OCI | ||||||||
Securities issued or secured by foreign government | | - | - | | ||||
Securities issued or secured by other financial entities | | - | - | - | ||||
Corporate bonds | - | | | - | ||||
Total | | | | | ||||
Equity securities | ||||||||
Equity securities | | | - | | ||||
Total | | | - | | ||||
As of December 31, 2023 and 2022, the Bank transferred securities from level 1 to level 2, because such securities had lower liquidity and lower trading in an active market.
As of December 31, 2022, the transfer of COP
All transfers are assumed to occur at the end of the reporting period.
Quantitative information about level 3 fair value measurements
The fair value of financial instruments is, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable market transactions in the same instrument and are not based on observable market data. Changing one or more of the inputs to the valuation models to reasonably possible alternative assumptions would change the fair values and therefore a valuation adjustment would be recognized in profit or loss. Favorable and unfavorable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable input as described in the table below.
The following table sets forth information about significant unobservable inputs related to the Bank’s material categories of level 3 financial assets and liabilities and the sensitivity of these fair values to reasonably possible alternative assumptions.
F-161
As of December 31, 2023
Sensitivity | Sensitivity | |||||||||||||
Valuation | Significant | Range of | Weighted | 100 | 100 | |||||||||
Financial instrument | Fair Value | technique | unobservable input | inputs | average | basis point | basis point | |||||||
increase | decrease | |||||||||||||
In millions of COP | ||||||||||||||
Debt instruments | ||||||||||||||
Securities issued by other financial institutions | ||||||||||||||
Yield | % | % | | | ||||||||||
TIPS | | Discounted cash flow | Prepayment Speed | n/a | n/a | | n/a | |||||||
Prepayment Speed | n/a | n/a | | n/a | ||||||||||
Time deposits | | Discounted cash flow | Yield / Interest rate | % | | % | | | ||||||
Total securities issued by other financial institutions | | |||||||||||||
Securities issued by the Colombian Government | ||||||||||||||
Bonds by government entities | | Discounted cash flow | Yield | | | |||||||||
Corporate bonds | ||||||||||||||
Corporate bonds | | Discounted cash flow | Yield | | | |||||||||
Total debt instruments | | |||||||||||||
Equity securities | ||||||||||||||
Equity securities | | Price-based | Price | n/a | n/a | n/a | n/a | |||||||
Other financial instruments | ||||||||||||||
Other financial instruments | | Internal valuation methodology | Internal valuation methodology | n/a | n/a | n/a | n/a | |||||||
Derivative financial instruments | ||||||||||||||
Forward | | Discounted cash flow | Credit spread / Yield | % | % | | ||||||||
Swaps | | Discounted cash flow | Credit spread | % | % | | ||||||||
Options | | Discounted cash flow | Credit spread | % | % | | ||||||||
Total derivative financial instruments | | |||||||||||||
Investment in associates | ||||||||||||||
P.A Viva Malls | | Price-based | Price | n/a | n/a | n/a | n/a | |||||||
P.A Distrito Vera | | Price-based | Price | n/a | n/a | n/a | n/a | |||||||
Total investment in associates | | |||||||||||||
As of December 31, 2022
Sensitivity | Sensitivity | |||||||||||||
Valuation | Significant | Range of | Weighted | 100 | 100 | |||||||||
Financial instrument | Fair Value | technique | unobservable input | inputs | average | basis point | basis point | |||||||
increase | decrease | |||||||||||||
In millions of COP | ||||||||||||||
Debt instruments | ||||||||||||||
Securities issued by other financial institutions | ||||||||||||||
TIPS | | Discounted cash flow | Yield | % | | % | | | ||||||
Prepayment Speed | n/a | n/a | | n/a | ||||||||||
Time deposits | | Discounted cash flow | Interest rate | % | | % | | | ||||||
Total debt instruments | | |||||||||||||
Equity securities | ||||||||||||||
Equity securities | | Price-based | Price | n/a | n/a | n/a | n/a | |||||||
Other financial instruments | ||||||||||||||
Other financial instruments | | Internal valuation methodology | Internal valuation methodology | n/a | n/a | n/a | n/a | |||||||
Derivative financial instruments | ||||||||||||||
Forward | | Discounted cash flow | Credit spread / Yield | % | % | | ||||||||
Swaps | | Discounted cash flow | Credit spread / Yield | % | % | | ||||||||
Options | | Discounted cash flow | Credit spread | % | | % | | |||||||
Total derivative financial instruments | | |||||||||||||
Investment in associates | ||||||||||||||
P.A Viva Malls | | Price-based | Price | n/a | n/a | n/a | n/a | |||||||
P.A Distrito Vera | | Price-based | Price | n/a | n/a | n/a | n/a | |||||||
Total investment in associates | | |||||||||||||
F-162
The following table sets forth information about valuation techniques used in the measurement of the fair value investment properties of the Bank, the significant unobservable inputs and the respective sensivity:
Methodology | Valuation technique | Significant unobservable input | Description of sensitivity |
Sales Comparison Approach - SCA The fair value assessment is based on the examination of prices at which similar properties in the same area recently sold. Since no two properties are identical the measurement valuation must take into account adjustments for the differences between the sold properties and those held by the Bank to earn rentals or for capital appreciation. | Comparable prices | The weighted average rates used in the capitalization methodology for revenues in the last quarter for 2023 are: • Direct capitalization: initial rate • Discounted cash flow: discount rate: The same weighted rates for the last quarter of 2022 were: • Direct capitalization: initial rate • Discounted cash flow: discount rate: The ratio between monthly gross income and real estate value directly administered by the FIC (rental rate) considering the differences in placements and individual factors between properties and in a weighted way in the last quarter of 2023 are | An increase (light, normal, considerable, significant) in the capitalization rate used would generate a decrease (significant, considerable, normal, light) in the fair value of the asset, and vice versa. An increase (light, normal, considerable, significant) in the leases used in the valuation would generate a (significant, light, considerable) increase in the fair value of the asset, and vice versa. |
Income Approach Used to estimate the fair value of the property by taking future net cash flows and discounting them at the capitalization rate. | Direct capitalization Discounted cash flows | ||
Cost approach Used to estimate the fair value of the property considering the cost to replace or build a property at the same or equal conditions of the asset to be measured, deducting the accumulated depreciation charge and adding-up the amount of the land. | Replacement cost |
There has been no change to the valuation technique during the year 2023 for each asset.
NOTE 31. SUBSEQUENT EVENTS
Approval of Consolidated Financial Statements
The consolidated financial statements were approved by the Board of Directors on XXX X, 2024.
NOTE 32. IMPACTS ON APPLICATION OF NEW STANDARDS
| a. | Accounting pronouncements applicable in 2023 |
IFRS 17, issued in May 2017 to replace IFRS 4 Insurance Contracts, applies to insurance contracts, including reinsurance contracts, issued by an entity with specified exceptions; reinsurance contracts held by an entity; and investment contracts with discretionary participation features issued by an entity that issues insurance contracts. An insurance contract is defined as “a contract under which one party (the issuer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder” (IFRS 17).
The standard requires that estimates be remeasured in each reporting period. In the statement of financial position, contracts are measured using the following core components:
| • | Discounted probability-weighted cash flows, |
| • | An explicit risk adjustment, and |
| • | A Contractual Service Margin (“CSM”) representing the unearned profit of the contract which is recognised as revenue over the coverage period. |
F-163
IFRS 17 requires an entity to recognise profit from a group of insurance contracts over the period the entity provides services, and as the entity is released from risk. If a group of contracts is or becomes loss-making, the entity is required to recognise the loss immediately.
The portfolio of insurance contracts are detailed below:
Direct Insurance | General Insurance |
Life Insurance | |
Accident and Health | |
Reinsurance | General Insurance |
Life Insurance | |
Accident and Health |
For the measurement of direct insurance and reinsurance portfolios, the Bank adopted the Premium Allocation Approach (“PAA”). Additionally, it considered:
a) Opting to defer cash flows for the acquisition of insurance for direct insurance and reinsurance portfolios. This process involves allocating to groups of related insurance contracts, which are amortized over the coverage period of the respective group.
b) Determining that the Bank’s direct insurance and reinsurance portfolios do not need to adjust the carrying amount of the Liability for Remaining Coverage (“LRC”) to reflect the time value of money and the financial effect, as premiums were measured under the PAA approach.
c) In cases where it is expected that direct insurance and reinsurance portfolios will pay claims over a period exceeding 12 months, the Bank will adjust the carrying amount of the Liability for Incurred Claims (“LIC”) to reflect the time value of money. Otherwise, no adjustment to the carrying amount is required.
d) Recognize in the income statement the financial income and expenses arising from direct insurance and reinsurance contracts, as well as the effect on the liability for incurred claims due to changes in discount rates.
On January 1, 2023, the Bank adopted IFRS 17. This involved the identification, recognition, and measurement of each group of insurance contracts and cash flows for the acquisition of insurance, and derecognized amounts that would not exist if this standard had always been applied. The resulting net difference was recognized in equity.
The effects on the consolidated statement of financial position as of January 1, 2023, are presented below:
Concept | December 31, 2022 | Adoption adjustment | January 1, 2023 | |||
In millions of COP | ||||||
Insurance contracts asset(1) | ||||||
Insurance contracts liability(2) | ||||||
Retained earnings | ||||||
| (1) | Included in the "Other assets, net" item in the consolidated statement of financial position. |
| (2) | Included in the "Other liabilities" item in the consolidated statement of financial position. |
RISK MANAGEMENT
The Bank’s comprehensive risk management is developed in compliance with current regulations and internal standards as defined by the Board of Directors, in relation to market, credit/ counterparty, liquidity and interest rate of the banking book, operational , business continuity, technological and cybersecurity risk, country risk, Risk Appetite Framework (MAR) and stress tests applicable. In accordance with the requirements of the External Circular (EC) 018 as of September 2021 about the “Comprehensive Risk Management System (SIAR)”, we work continues to comply with the instructions
F-164
contained in numeral 10 of Part II of Chapter XXXI related to the aggregation of data on risks and reporting, which will become effective no later than December 31, 2023.
Morover, the Bank sent the “Implementation Plan” for the management of interest rate risk of the banking book (RTILB), considering the testing period and the enliquidity risktry into force of the applicable instructions.
To strengthen comprehensive risk management, the Bank has a Three Lines Model, with a cohesive and coordinated approach, in which its independence is guaranteed. Within the Corporate Governance Framework, the roles of the responsible areas in each line are defined, according to the level of responsibility in Bancolombia, in order to guarantee effective and efficient coordination among them for risk management (in its different stages) and internal control.
First line: owns the processes, products, services, channels, whose activities manage the risks that may contribute or impede the achievement of the Bank’s objectives. The first line owns the risk and defines the design and execution of the organization's controls to respond to those risks.
The 1st line is made up of 1A and 1B, highlighting the following characteristics:
| ● | Identification, evaluation, control and mitigation of risks. |
| ● | Definition of standards / Implementation of policies, standards and procedures. |
| ● | Execution of control and risk management procedures and activities as part of your daily activity. |
Second line: defines the risk and internal control framework, as well as the policies and guidelines for the 1st line to manage risks. It is a global advisory, support and control function that monitors that risks are identified, controlled and managed within appropriate limits.
The 2nd line is made up of 2A and 2B, highlighting the following characteristics and differences:
| ● | Provision of a risk and internal control framework. |
| ● | Escalation of new risks. |
| ● | Advice and support. |
Third line: made up of Internal Audit. It is an independent and objective assurance and advisory function on the internal control system and risk management, highlighting the following characteristics:
| ● | Independent review. |
| ● | Assurance on the Internal Control System. |
F-165
| ● | Evaluation and improvement in the effectiveness of management in risk control. |
Credit risk
Credit risk is the risk of an economic loss to the Bank due to a non-fulfillment of financial obligations by a customer or counterparty and arises principally from the decline on borrower´s creditworthiness or changes in the business climate. Credit risk is the single largest risk for the Bank's business; the Bank manages its exposure to credit risk.
The information below contains the maximum exposure to credit risk for the periods ending December 31, 2023 and December 31, 2022:
December 31, 2023
Maximum exposure to credit risk - Financial instruments subject to impairment | ||||||||
In millions of COP | ||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||
Loans and Advances | | | | | ||||
Commercial | ||||||||
Consumer | ||||||||
Mortgage | ||||||||
Small Business Loans | ||||||||
Financial Leases | ||||||||
Off-Balance Sheet Exposures | | | | | ||||
Financial Guarantees | | |||||||
Loan Commitments | | |||||||
Loss Allowance | ( | ( | ( | ( | ||||
Total | | | | | ||||
December 31, 2022
Maximum exposure to credit risk - Financial instruments subject to impairment | ||||||||
In millions of COP | ||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||
Loans and Advances | | | | | ||||
Commercial | | |||||||
Consumer | | |||||||
Mortgage | | |||||||
Small Business Loans | | |||||||
Financial Leases | | |||||||
Off-Balance Sheet Exposures | | | | | ||||
Financial Guarantees | | |||||||
Loan Commitments * | | |||||||
Loss Allowance | ( | ( | ( | ( | ||||
Total | | | | | ||||
*The informational disclosed value of loan commitments has been updated.
Other Financial Instruments
Maximum Exposure to Credit Risk - Other Financial Instruments | ||||||||||||
Maximum Exposure | Collateral * | Net Exposure | ||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||
Maximum Exposure to Credit Risk | ||||||||||||
Debt instruments | ( | ( | ||||||||||
F-166
Derivatives ** | ( | ( | ||||||||||
Equity | - | - | ||||||||||
Other financial instruments | - | - | ||||||||||
Total | | | ( | ( | | |
Maximum exposure to credit risk of the loans and advances refers to the carrying amount at the end of the period. It does not take into account any collateral received or any other credit risk mitigants.
Maximum exposure to credit risk of financial guarantees and loan commitments corresponds to the total amount guaranteed at the end of the period. It does not take into account any collateral received or any other credit risk mitigants.
Maximum exposure to derivatives refers to the fair value at the end of the period, without considering any guarantee received or any other credit risk mitigants.
Maximum exposure to credit risk of debt instruments and equity securities refers to the carrying amount at the end of the period without considering any guarantee received.
Country Risk
In addition, for the Bank's financial companies, which are subject to the application of the Comprehensive Risk Management System (SIAR), the framework for the management of country risk is included, which refers to the possibility of an entity incurring losses as a result of financial operations abroad due to adverse economic and/or political conditions in the country receiving those operations, either because of restrictions on the transfer of foreign exchange or because of factors not attributable to the commercial and financial condition of the country receiving those operations. This definition includes, but is not limited to, sovereign risk (SR) and transfer risk (TR) associated with such factors.
The framework has guidelines, processes and methodologies that evaluate periodically the country risk to which it is exposed in its Equity Investments, such as equity investments, those that are executed in jurisdictions different from Colombia that could have a high economic materiality, individually or aggregated by country, and whose purpose is to remain in the country.
Country risk management includes different stages to identificate, measure, control and monitor the risk to which the entity is being exposed. For this management, the business plan, type of operations, their materiality, current and future vocation, as well as the characteristics of the country in which the investment is made. Additionally, it is supported by methodologies and processes used in the management of country risk, developed by the Vice President of Risk and approved by the Board of Directors.
The definition of investment appetite takes into account the assessment of country risk as defined in the SIAR and must ensure compliance with solvency and liquidity indicators, seeking to be consistent with the strength and financial health of the entity.
At the end of 2023, there were no alerts on any investments, nor were any adjustments made for deterioration in investments that could affect or deteriorate the Bank's financial strength.
a. Credit Risk Management - Loans and Advances
Management of credit risk is carried out through all the credit life cycle. These estages are defined in the following way:
| ● | Origination: Knowing the borrower, payment capacity analysis, payment behavior and credit approval and structure. |
| ● | Monitoring: Knowing the borrower’s situation during the life of the credit. |
| ● | Recovery: Collection management during the different stages of the same credit. |
F-167
In order to support the credit origination processes, the Bank develops models, methodologies and analytic techniques based on statistical information or criteria from experts, which differentiate the risk levels of potential borrowers in order to support the decision-making process.
In 2023, the dynamics of the Bank’s portfolio were affected by the global economic slowdown and high inflation rates in all the regions where the Bank is present.This, in addition to the uncertainty in the political and social environment and the appreciation of the peso against the dollar, which mainly affected Colombia, had a significant impact on the performance of the portfolio, leaving significant impairments as a result, in particular in the individual portfolios of natural persons., both consumer and mortgage. This led to early interventions in the origination, monitoring and collection policies of portfolios with greater deterioration, with the aim of improving the risk profile of new business, resulting in a reduction in payouts. about that, proactive credit risk management was maintained through the monitoring and follow-up of customers and portfolios, the evaluation of the conditions and specific requirements of each one, as well as the development of methods, tools and models to optimize collection..
Monitoring and reviewing the credit portfolio continues to be a key factor in identifying and applying strategies at different stages of the credit cycle, which has generated the development of new processes and models with traditional, alternative and sectorial information, allowing the management of customers in a timely manner, through local and transversal tools in the countries where the Bank is present, behavioral models and early warning systems, which allow the identification of possible deviations in the projection of portfolio composition.
Risk management during the credit life cycle is developed through the fulfillment of the policies, procedures and methodologies stipulated in the “Comprehensive Risk Management System (SIAR)”, )”, which include the general criteria for evaluating, measuring, assuming, monitoring, controlling and hedging credit risk. In addition, Management has developed process and methodology manuals that specify the policies and procedures for the different products and segments served by the organization in accordance with the strategy approved by the Board of Directors for monitoring and controlling such risk.
The Credit Risk Administration System also contains general criteria to evaluate, classify, measure and mitigate credit risk. In addition, the credit risk department has developed methodologies and manuals that specify the policies and procedures for different products and segments managed by the Bank.
To maintain credit quality and manage the risk arising from its lending activities, the Bank has established general loan policies, including the following:
| ● | Credit exposure limits: Contains guidelines with regards to the establishment of credit exposure limits. This is set as a result of legal requirements and according to the Bank’s internal guidelines. |
| ● | Origination policies: These policies aim to acquire ample and sufficient knowledge of the characteristics of potential borrowers and to select them properly. The risk level of the individual and legal entities is determined using rating and scoring models which define cut-off points that are applied in the process of issuing credit. These models use information such as the credit history of the borrower, sociodemographic particularities, the type of business the borrower engages in, the borrower’s ability to repay the loan, and information received from the credit risk bureaus. In addition, sectorial and macroeconomic behavior is taken into account. Loan applications, depending on their amount and risk level, are presented for approval at the level of management authority required. |
| ● | Collaterals policies: For the purpose of mitigating risk associated with non-fulfillment of obligations agreed upon by the borrower, 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. |
| ● | Allowance policies: The objective of this policy is to fulfill legal requirements and the Bank’s business policies. In addition, this policy is meant to provide the guidelines to analyze the client’s status and take the necessary actions in order to mitigate credit risk to which the Bank is exposed. For further information, please see Note 2. |
F-168
| ● | Monitoring policies: Contains various monitoring procedures, portfolio reports and policies for the purpose of overseeing, in an adequate and timely manner, the evolution of credit risk. These procedures include a continuous process of classification and reassessment of credit operations and they maintain consistency with the policies implemented for granting loans. |
| ● | Portfolio recovery policies: Through these policies, the Bank aims to establish those mechanisms that allow it to anticipate the action to be taken in the event of possible delays and minimize the impact resulting from non-fulfillment of payment or delays by the borrower. Additionally, the aspects established in this policy delimit what the Bank has defined as collection management and that make it possible to obtain information to improve the origination policies and the allowances for loans and advances and lease losses models. The established actions are combined with strategies to adjust to the economy, market and costumer conditions, allowing the Bank to offer alternatives tailored to each case, such as payment deals, foreclosed assets, cession agreements, modifications, restructuring, and so on. |
The Risk Corporate Vice Presidency is in charge of defining and documenting the specific characteristics of the models, methodologies and analytics techniques, as well as the parameters, variables and the cut-off points that are applied in the process of issuing credit, according to market and product conditions, as well as the appetite framework approved by the board of directors. Those models, methodologies and analytic techniques can incorporate different kinds of variables such as social demographic, qualitative issues, internal and external behavior, product parameters, etc. In addition, as defined for regulatory basis, Risk Corporate Vice Presidency performs back testing to these models and methodologies in order to evaluate their effectiveness, reporting their results to the board of directors.
The Risk Corporate Vice Presidency establishes through internal guidelines the scoring or cut-off points required in the different process of issuing credit. In the same way, this Vice Presidency can adjust parameters to give a different score considering relevant qualitative and quantitative information, such as customer´s sector, financial indicators, historical payment behavior, etc. Moreover, on a monthly basis, large part of the portfolio is rated considering the established internal models for the purpose of evaluating the credit risk of each borrower and constitutes the required allowance for loans and advances and lease losses.
In addition to the evaluation and qualification of the portfolio, the monthly allowance for loans and advances and lease losses serves to measure the present condition of the portfolio and the methodologies used for its calculation serve as a tool to evaluate risk, be it in a collective or individual manner. Collective evaluation of the portfolio applies the following parameters for measuring risk: probability of default (PD), loss given default (LGD) and exposure at default (EAD). For further details please see Note 2 Significant Accounting Policies, section 7.4.5 Impairment of financial assets at amortized cost.
An individual’s risk evaluation is made in respect of consumers classified in stage 3 with significant exposure and corporate clients classified in stage 2 who were previously in stage 3. The analysis is based on the projection of the individual client cash flow, parameters such as recovery rates estimated by models that include financial, behavioral information, collaterals and qualitative variables, which serve as elements to measure risk and define allowances for loans, advances and lease losses for each borrower.
Periodically backtesting must be performed on the allowances for loans and advances and lease losses models for the purpose of maintaining suitable hedge levels in accordance with the Bank’s risk appetite.
The Bank is continuously monitoring the concentration of risk groups, as well as carrying out a daily control of the exposure to different economic groups, evaluating the legal limits of indebtedness in order to fulfill the norms established about the concentration limits.
The Bank performs international references determined by the rankings of external risks that allow the analysis of concentration levels in different geographic areas. On the other hand, at the legal level, the Bank is governed by the
F-169
concepts and methodologies established by the external norms regarding the construction, administration and control of the concentration of economic groups.
The following classifications are established for the analysis of concentration:
| ● | By country: Based on the country where the loans were originated. |
| ● | By sector: According to the sectorial sub-segmentation defined by the Bank based mainly on the code CIIU1. |
| ● | By categories: According to the portfolio category of each agreement (commercial, financial leases, consumer loans, small business loans and mortgages). |
| ● | By economic group: According to the characteristics of economic groups as established by regulations. |
| ● | By maturity: According to the remaining term to loan maturity. |
| ● | By past due days: This concentration evaluates loans that are more than one month overdue. |
1 CIIU: International Standard Industrial Classification of All Economic Activities.
b. Credit Quality Analysis - Loans and Financial Leases
Rating System for Credit Risk Management
The principal aim of this rating system is to determine the risk profile of the borrower, which is obtained through a rating.
The rating for corporate loans is assigned principally based on the analysis of the interrelation of both qualitative and quantitative elements that can affect the fulfillment of the financial commitments acquired by a borrower. Information from financial statements, profit and loss statements, historical payment behavior both with the Bank and with other entities, and qualitative information on variables that are not explicit in the financial statements are taken into account, as well as client transactional information such as alternative variables. The rating model is applied at the origination of the loan and is updated by a central qualification office to undertake a periodical evaluation of the loan portfolio.
In the case of a retail customer, granting and behavior scoring models are used in order to identify the level of risk associated with the borrower. These models include information such as personal details, financial information and transactional, historical behavior, the total number of credit products and external information from credit bureaus.
Description of Loans and Financial Leases
In order to evaluate and manage credit risk, the credits and financial leasing operations have been classified as:
· Commercial and Financial Leases:
Loans granted to individuals or companies in order to carry out organized economic activities and are not classified as small business loans.
The borrowers in this portfolio are mainly made up of companies, segmented in homogenous groups that are constituted according to size, annual sales or main activity. The following variables are part of this classification:
F-170
Segment | Incomes/Sales |
Corporate | Companies with consolidated annual sales by economic group >= COP |
Business | Companies with consolidated annual sales by economic group > = COP |
Commercial | For BAM, companies with annual sales >= USD |
Business Construction | Constructors who dedicate themselves professionally to the construction of buildings to be sold or rented as their main activity, with consolidated annual sales by economic group >= COP |
Corporate Construction | Constructors who dedicate themselves to the construction of buildings to be sold or rented as their main activity, with consolidated annual sales by economic group > COP |
SME Construction | Constructors who dedicate themselves professionally to the construction of buildings to be sold or rented as their main activity with consolidated annual sales by economic group >= COP |
Institutional Financing | Financial sector institutions. |
Government | Municipalities, districts, departments with their respective decentralized organizations and entities at the national level with incomes >= COP |
SME | Annual sales < COP |
· Consumer:
Loans and advances, regardless of amount, granted to individuals for the purchase of consumer goods or to pay for non-commercial or business services. These loans are classified as follows:
Classification | |
Vehicles | Credits granted for the acquisition of vehicles and motorcycles. The vehicle financed is used as collateral for the loan. |
Credit cards | Revolving credit limits for the acquisition of consumer goods, utilized by means of a plastic card, a virtual card or a token in digital wallets. |
Payroll loans | It is a credit line attached to an authorized individual payroll and pension amount. |
Other loans | Loans granted for the acquisition of consumer goods other than vehicles and Payroll loans Credit cards are not included in this segment. |
The counterparties in this portfolio are mainly individuals, segmented in homogenous groups, which are formed according to their size, which is calculated by their monthly income.
· Mortgage:
These are loans, regardless of amount, granted to individuals for the purchase of a new or used house, commercial real estate or construction of a home. These loans include loans denominated in local units or local currency that are guaranteed by a senior mortgage on the property and that are financed with a total repayment term of
The counterparties in the mortgage portfolio are mainly made up of individuals segmented in homogenous groups, which are formed according to their size, which is calculated by their monthly income.
F-171
· Small Business Loans:
These are issued for the purpose of encouraging the activities of small business and are subject to the following requirements in Colombia: (i) their indebtedness with all entities cannot exceed 120 minimum wages (excluding mortgage obligations for housing financing); (ii) the client's total assets, excluding mortgage assets, are less than 500 minimum wages.
The borrowers in this portfolio are mainly individuals, segmented in homogenous groups, which are formed according to their commercial size, which is calculated by their monthly income.
Analysis of the behavior and impairment of the loan portfolio and financial lease operations
As of December 31, 2023, the Bank’s total loan portfolio, valued in Colombian pesos, registered an decrease of
| ● | Commercial loans and financial leases amounted to COP |
| ● | Consumer loans amounted to COP |
| ● | Mortgage loans totaled to COP |
| ● | Small Business loans ended at COP |
In order to monitor credit risk associated with clients, the Bank has established regular meetings conducted by the AEC Committee to identify events that can lead to a reduction in borrowers’ ability to pay. Generally, clients with good credit behavior could be included in the watch list in case of detecting any event that can lead to future financial difficulties to repay their loans; for instance, internal factors such as the economic activity and sector, financial weakness, impacts of macroeconomic conditions, changes in corporate governance and other situations that could affect clients’ business. The amount and allowance of clients included in the described watch list, as of December 31, 2023 and December 2022 is shown below:
December 2023:
Watch List december 31, 2023 | ||||||
In millions of COP | ||||||
Risk Level | Amount | % | Allowance | |||
Level 1 – Low Risk | | | % | | ||
Level 2 – Medium Risk | | | % | | ||
Level 3 – High Risk | | % | | |||
Level 4 – High Risk | | % | | |||
Total | | | % | | ||
F-172
December 2022:
Watch List december 31, 2022 | ||||||
In millions of COP | ||||||
Risk Level | Amount | % | Allowance | |||
Level 1 – Low Risk | | | % | | ||
Level 2 – Medium Risk | | | % | | ||
Level 3 – High Risk | | % | | |||
Level 4 – High Risk | | % | | |||
Total | | | % | | ||
Loans and Financial Leases Collateral
The Bank obtains collateral for loans and leases in order to mitigate credit risk by foreclosing the collateral when the borrower cannot fully repay the loan or lease. Collateral is considered in the determination of the allowance for loans and advances and lease losses when it complies with the following conditions:
| ● | Its fair value was established according to technical and objective criteria. |
| ● | The Bank is granted a preference to obtain the payment of the obligation, becoming an effective legal mechanism over it. |
| ● | Its performance is reasonably possible. |
The Bank has defined the criteria for collateral enforceability, which are established according to the classification of the loan portfolio. In addition, the Bank has set guidelines to value collateral and the frequency of such valuations, as well as those guidelines related to the legalization, registry and maintenance of the collateral. Likewise, the Bank has defined the criteria for insurability, custody and the necessary procedures for their cancellation.
The update of the fair value of mortgages and vehicles collaterals for the loan portfolio is made at least once a year. The methodology used to estimate the fair value of the properties is applied by external and independent entities. Updating the fair value of the vehicles is done through guides and valid values commonly used as reference to set the value of a vehicle. The fair value of real state and vehicles are classified in levels 2 and 3 depending on the observability and significance of the inputs used in the valuation techniques according to the hierarchy established by IFRS 13.
To determine the suitability of appraiser’s selection, there are internal guidelines to be fulfilled related to independence, professional certification, reputation and experience. In a similar way, to validate the appraisal´s suitability, the bank has defined guidelines based on current regulations which are related to methodologies, report quality and commercial value.
F-173
During the reporting period, the Bank’s collateral policies have not changed significantly in relation to the way collateral is held and its overall quality.
The following table shows loans and financial leases, classified in commercial, consumer, mortgage, financial leases and small business loans, and disaggregated by type of collateral:
December 31, 2023 | ||||||||||||
Amount Covered by Collateral | ||||||||||||
In Millions of COP | ||||||||||||
Financial | Small | |||||||||||
Nature of the Collateral | Commercial | Consumer | Mortgage | Leasing | Business | Total | ||||||
Real Estate and Residential | | | | | | | ||||||
Goods Given in Real Estate Leasing | - | - | | | - | | ||||||
Goods Given in Leasing Other Than Real Estate | - | | - | | - | | ||||||
Stand by Letters of Credit | | - | - | - | - | | ||||||
Security Deposits | | | - | - | | | ||||||
Guarantee Fund | | | - | | | | ||||||
Sovereign of the Nation | - | - | - | - | - | - | ||||||
Collection Rights | | | - | - | | | ||||||
Other Collateral (Pledges) | | | | - | | | ||||||
Without Guarantee (Uncovered Balance) | | | | | | | ||||||
Total loans and financial leases | | | | | | | ||||||
December 31, 2022 | ||||||||||||
Amount Covered by Collateral | ||||||||||||
In Millions of COP | ||||||||||||
Financial | Small | |||||||||||
Nature of the Collateral | Commercial | Consumer | Mortgage | Leasing | Business | Total | ||||||
Real Estate and Residential | | | | | | | ||||||
Goods Given in Real Estate Leasing | - | - | | | - | | ||||||
Goods Given in Leasing Other Than Real Estate | - | | - | | - | | ||||||
Stand by Letters of Credit | | - | - | - | | | ||||||
Security Deposits | | | - | - | | | ||||||
Guarantee Fund | | | - | | | | ||||||
Sovereign of the Nation | - | - | - | - | - | - | ||||||
Collection Rights | | | - | - | | | ||||||
Other Collateral (Pledges) | | | | - | | | ||||||
Without Guarantee (Uncovered Balance) | | | | | | | ||||||
Total loans and financial leases | | | | | | | ||||||
The Bank closely monitors financial assets that are classified in Stage 3, to the point that a specific methodology for calculating expected credit losses is applied using a sophisticated approach named “ECL model under collateral Methodology”, which considers components like the forecasts of future collateral valuations, including expected sale discounts; time to realization of collateral, cure rates, external costs of realization of collateral, among others; as a consequence of the higher likelihood that the bank will take possession of these collaterals in order to mitigate potential credit losses.
F-174
The Financial assets that are classified in Stage 3 and are evaluated under this methodology are shown below:
December 31, 2023 | ||||||||
In Millions of COP | ||||||||
Classification | Amount | Allowance | Total | Fair Value of Collateral | ||||
Commercial | ||||||||
Consumer | ||||||||
Mortgage | ||||||||
Small Business Loans | ||||||||
Financial Leases | ||||||||
Total credit assets | | | | | ||||
December 31, 2022 | ||||||||
In Millions of COP | ||||||||
Classification | Amount | Allowance | Total | Fair Value of Collateral | ||||
Commercial | | |||||||
Consumer | ||||||||
Mortgage | | |||||||
Small Business Loans | ||||||||
Financial Leases | | | | | ||||
Total credit assets | | | | | ||||
A portion of the Bank’s financial assets originated by the mortgage and commercial business has sufficiently low ‘loan to value’ (LTV) ratios, which results in no loss allowance being recognized in accordance with The Bank’s expected credit loss model. The carrying amount of such financial assets is COP
Foreclosed assets and other credit mitigants
Assets received in lieu of payment (foreclosed assets) are recognized on the statement of financial position when current possession of the asset takes place.
Foreclosed assets such as immovable and movable property, equity securities and other financial assets, are received based on a commercial valuation, and their net realizable value is given by a specialized team.
During the years ended December 31, 2023 and 2022, the Bank entered into non-cash operating and investing activities related to restructured loans and returned properties that were transferred to assets held for sale and inventories amounting to COP
The Bank classifies foreclosed assets after acknowledgment of the exchange operation according to the intention of use, as follows:
| ● | Non-current assets held for sale. |
| ● | Other marketable assets. |
| ● | Other non-marketable assets. |
| ● | Inventories. |
Collateral classified as non-current assets held for sale are those expected to be sold in the following 12 months. When there are market restrictions that do not allow their realization in less than 12 months and this period is extended, retroactive depreciation must be charged to results and the asset value will be reduced by the depreciation value.
Foreclosed assets classified as non-current assets held for sale are those expected to be sold in the following 12 months. The non-current assets held for sale that cease to comply with the guidelines of immediately sell, must be classified as “Other marketable assets” and if it’s necessary, their book value would be adjusted.
F-175
c. Risk Concentration – Loans and Advances
The analysis of credit risk concentration is done by monitoring the portfolio by groups such as: loan categories, maturity, past due days, economic sector, country and economic group, as shown here:
● Loans concentration by category
The composition of the credit portfolio in commercial, consumer, mortgage, financial leases and small business loans categories for the periods ending on December 31, 2023 and December 31, 2022, it is as follows:
Composition | December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Commercial | | | ||
Corporate | ||||
SME | ||||
Others | ||||
Consumer | | | ||
Credit card | ||||
Vehicle | ||||
Payroll loans | ||||
Others | ||||
Mortgage | | | ||
VIS2 | ||||
Non- VIS | ||||
Financial Leases | ||||
Small Business Loans | ||||
Loans and advances to customers and financial institutions | | | ||
Allowance for loans and advances and lease losses | ( | ( | ||
Total net loan and financial leases | | | ||
· Concentration of loan by maturity
The following table shows the ranges of maturity for the credit loans and financial leases, according for the remaining term for the completion of the contract of loans and financial leases at the end of December 2023 and December 2022:
December 31, 2023 | ||||||||||
Between 1 and 5 | Between 5 and 15 | Greater Than 15 | ||||||||
Maturity | Less Than 1 Year | Years | Years | Years | Total | |||||
In millions of COP | ||||||||||
Commercial | | | | | | |||||
Corporate | | | ||||||||
SME | | | ||||||||
Others | | | ||||||||
Consumer | | | | | | |||||
Credit card | | - | ||||||||
Vehicle | | | ||||||||
Order of payment | | | ||||||||
Others | | | ||||||||
Mortgage | | | | | | |||||
VIS | | | ||||||||
Non-VIS | | | ||||||||
Financial Leases | | | ||||||||
Small business loans | | | ||||||||
Total gross loans and financial leases | | | | | | |||||
F-176
December 31, 2022 | ||||||||||
Between 1 and 5 | Between 5 and 15 | Greater Than 15 | ||||||||
Maturity | Less Than 1 Year | Years | Years | Years | Total | |||||
In millions of COP | ||||||||||
Commercial | | | | | | |||||
Corporate | | |||||||||
SME | | |||||||||
Others | | |||||||||
Consumer | | | | | | |||||
Credit card | - | | ||||||||
Vehicle | | |||||||||
Order of payment | | |||||||||
Others | | |||||||||
Mortgage | | | | | | |||||
VIS | | |||||||||
Non-VIS | | |||||||||
Financial Leases | | |||||||||
Small business loans | | |||||||||
Total gross loans and financial leases | | | | | | |||||
2 VIS: Social Interest Homes, corresponds to mortgage loans granted by the financial institutions of amounts less than 135 minimum wages.
· Concentration by past due days
The following table shows the loans and financial leases according to past due days for the periods ending on December 31, 2023 and December 31, 2022. Loans or financial leases are considered past due if it is more than one month overdue (i.e. 31 days):
December 31, 2023 | ||||||||||||
Past-due | ||||||||||||
More Than 360 | ||||||||||||
Period | 0 - 30 Days | 31 - 90 Days | 91 - 120 Days | 121 - 360 Days | Days | Total | ||||||
In millions of COP | ||||||||||||
Commercial | | |||||||||||
Consumer | | |||||||||||
Mortgage | | |||||||||||
Financial Leases | | |||||||||||
Small Business Loans | | |||||||||||
Total | | | | | | | ||||||
December 31, 2022 | ||||||||||||
Past-due | ||||||||||||
More Than 360 | ||||||||||||
Period | 0 - 30 Days | 31 - 90 Days | 91 - 120 Days | 121 - 360 Days | Days | Total | ||||||
In millions of COP | ||||||||||||
Commercial | | |||||||||||
Consumer | | |||||||||||
Mortgage | | |||||||||||
Financial Leases | | |||||||||||
Small Business Loans | | |||||||||||
Total | | | | | | | ||||||
F-177
· Concentration of loans by economic sector
The following table contains the detail of the portfolio of loans and financial leases by main economic activity of the borrower for the periods ending on December 31, 2023 and December 31, 2022:
December 31, 2023 | ||||||
Economic sector | Loans and advances | |||||
Local | Foreign | Total | ||||
In millions of COP | ||||||
Agriculture | | |||||
Petroleum and Mining Products | | |||||
Food, Beverages and Tobacco | | |||||
Chemical Production | | |||||
Government | | |||||
Construction | | |||||
Commerce and Tourism | | |||||
Transport and Communications | | |||||
Public Services | | |||||
Consumer Services | | |||||
Commercial Services | | |||||
Other Industries and Manufactured Products | | |||||
Total | | | | |||
December 31, 2022 | ||||||
Economic sector | Loans and advances | |||||
Local | Foreign | Total | ||||
In millions of COP | ||||||
Agriculture | | |||||
Petroleum and Mining Products | | |||||
Food, Beverages and Tobacco | | |||||
Chemical Production | | |||||
Government | | |||||
Construction | | |||||
Commerce and Tourism | | |||||
Transport and Communications | | |||||
Public Services | | |||||
Consumer Services | | |||||
Commercial Services | | |||||
Other Industries and Manufactured Products | | |||||
Total | | | | |||
F-178
· Credit concentration by country
The following information shows the concentration of the loans and financial leases by country in which the Bank are located as of December 31, 2023 and December 31, 2022:
December 31, 2023 | |||||||||
Allowance for loans and | |||||||||
Country | Loans and advances | % Participation | advances and lease losses | % Participation | |||||
Colombia | | % | ( | | % | ||||
Panama | | % | ( | | % | ||||
El Salvador | | % | ( | | % | ||||
Guatemala | | % | ( | | % | ||||
Puerto Rico | | % | ( | | % | ||||
Other Countries | - | | % | - | | % | |||
Total | | | % | ( | | % | |||
December 31, 2022 | |||||||||
Allowance for loans and | |||||||||
Country | Loans and advances | % Participation | advances and lease losses | % Participation | |||||
Colombia | | % | ( | | % | ||||
Panama | | % | ( | | % | ||||
El Salvador | | % | ( | | % | ||||
Guatemala | | % | ( | | % | ||||
Puerto Rico | | % | ( | | % | ||||
Other Countries | - | | % | - | | % | |||
Total | | | % | ( | | % | |||
· Credit concentration by economic group
As of December 31, 2023 and 2022, concentration of the 20 largest economic groups amounted to COP
d. Credit quality – Loans and Advances
The following information about credit quality of the borrower for the periods ending December 31, 2023 and December 31, 2022:
December 31 2023 | ||||||||
Classification | Stage 1 | Stage 2 | Stage 3 | Total | ||||
In millions of COP | ||||||||
Commercial | | |||||||
Consumer | | |||||||
Mortgage | | |||||||
Small Business Loans | | |||||||
Financial Leases | | |||||||
Loans and Advances | | | | | ||||
F-179
December 31 2022 | ||||||||
Classification | Stage 1 | Stage 2 | Stage 3 | Total | ||||
In millions of COP | ||||||||
Commercial | | |||||||
Consumer | | |||||||
Mortgage | | |||||||
Small Business Loans | | |||||||
Financial Leases | | |||||||
Loans and Advances | | | | | ||||
In order to determine the expected credit loss, the Bank considers the economic conditions and performance of the borrower’s industry, the analysis of payments behavior, events that could negatively affect the borrower’s ability to pay, among others factors.
The expected credit loss is determined either by a collective or individual evaluation according to the amount and characteristics of the loan. For further details please see Note 2 Significant Accounting Policies, section 7.4.5 Impairment of financial assets at amortized cost or at fair value through other comprehensive income “FVOCI”.
Impairment loan portfolio analyzed by individual evaluation at COP 5.7 billion, which represented
The table below shows Stage 3 loans and advances according to their type of evaluation for the periods ending December 31, 2023 and December 31, 2022:
December 31 2023 | ||||||||
Impairment | Individual Evaluation | Collective Evaluation | ||||||
Carrying Amount | ECL | Carrying Amount | ECL | |||||
In millions of COP | ||||||||
Commercial | ||||||||
Consumer | - | - | ||||||
Mortgage | - | - | ||||||
Financial Leases | ||||||||
Small Business Loan | - | - | ||||||
Total | | | | | ||||
December 31 2022 | ||||||||
Impairment | Individual Evaluation | Collective Evaluation | ||||||
Carrying Amount | ECL | Carrying Amount | ECL | |||||
In millions of COP | ||||||||
Commercial | | | ||||||
Consumer | - | - | ||||||
Mortgage | - | - | ||||||
Financial Leases | | | | |||||
Small Business Loan | - | - | ||||||
Total | | | | | ||||
Sensitivity analysis
The variables with the greatest influence for each country on the expected credit loss (ECL) assessment for the loan portfolio and financial leasing are:
F-180
Colombia:
•GDP growth: due to the impact on the performance of companies and the valuation of collaterals;
•Interest rates: because of its direct impact on the obligations’ repayment.
Panama:
•GDP growth: due to the impact on the performance of companies and the valuation of collaterals;
•Consumer price index: due to its significant impact on the clients’ repayment capacity.
El Salvador:
•GDP growth: due to the impact on the performance of companies and the valuation of collaterals;
•Consumer price index: due to its significant impact on the clients’ repayment capacity.
Guatemala:
•GDP growth: due to the impact on the performance of companies and the valuation of collaterals;
•Interest rates: because of its direct impact on the obligations’ repayment.
The change in the expected credit losses (ECL) at 31 of December 2023, as a result of a possible positive or negative 1% (100 basis points) change in those variables were assessed based on the assumptions used to calculate the ECL for each of the scenarios: base, optimistic and pessimistic, as following:
Fiscal Budget Balance – Current account deficit – Inflation – Interest Rate | ||||||||
In Millions of COP | ||||||||
[+1%] | Unchanged | [-1%] | ||||||
[+1%] | - | - | ||||||
GDP Growth | Unchanged | - | - | |||||
[-1%] | - | |||||||
The Bank has estimated the impact on the expected credit loss (ECL) assuming the forward-looking scenarios (e.g. optimistic and pessimistic) were weighted 100% instead of applying scenario probability weights across the two scenarios. The table below shows the impact on the expected credit loss (ECL) for each methodology:
2023 | 2022 | ||||||||
As of 31 December | Optimistic | Pessimistic | Optimistic | Pessimistic | |||||
In millions of COP | |||||||||
Collective methodology | ( | ( | |||||||
Collateral methodology | ( | ( | |||||||
Individual methodology* | ( | ( | |||||||
Total | ( | | ( | | |||||
F-181
*For individual methodology, the applied scenarios are the base in the optimistic scenario and the alternative in the pessimistic scenario with a weighting of 100% each.
e. Credit Risk Management – Other Financial Instruments:
Each one of the positions that make up the portfolio complies with the policies and limits that seek to diminish credit risk exposure. Those policies are, among others:
| ● | Term Limits: The Credit Committee evaluates and reviews the result of the authorized model for the different counterparties according to quantitative and qualitative variables, allowing it to establish the maximum term to which the Bank wishes to have exposure.. |
| ● | Credit Limits: Approved limits under the model and with authorization from the Credit Committee, as well as the exposure, are monitored in line or batch, in such a way as to mitigate the occurrence of excesses and, in the event that there is a need for them, applies to the current attribution system.. |
| ● | Counterparty Limits: These limits, derived from the credit limits or from allocation models and are verified by the Front Office prior to the close of operations. |
| ● | Master Agreement: These bilateral agreements describe the handling of operations between the counterparties in accordance with good international practices and that limit the legal and financial risk under the occurrence of events of default (failure to pay or delivery). Mitigation mechanisms, procedures to be carried out in the case of these events of default, special conditions by type of operation and that are applied to OTC derivatives, Repos and other securities financing transactions, are all agreed upon. |
| ● | Margin Agreements: For OTC derivatives operations and other securities financing transactions, agreements that regulate the administration of guarantees, haircuts, adjustment periods, minimum transfer amounts, etc., and that limit risk for a period of time (one day, one week, etc.), are established for counterparties involved in the operation. |
| ● | Counterparty Alerts: There are financial, qualitative and market indicators that allow the Bank to establish damages to the credit quality of an issuer or counterparty. |
f. Credit Quality Analysis - investment financial instruments:
In order to evaluate the credit quality of a counterparty or issuer (to determine a risk level or profile), the Bank relies on two rating systems: an external one and an internal one, both of which allow to identify a degree of risk differentiated by segment and country and to apply the policies that have been established for issuers or counterparties with different levels of risk, in order to limit the impact on liquidity and/or the income statement of the Bank.
External credit rating system is divided by the type of rating applied to each instrument or issuer; in this way the geographic location, the term and the type of instrument allow the assignment of a rating according to the methodology that each examining agency uses.
Internal credit rating system: the “ratings or risk profiles” scale is created with a range of levels that go from low risk to high risk (this can be reported in numerical or alphanumerical scales), where the rating model is sustained by the implementation and analysis of qualitative and quantitative variables at sector level, which according to the relative analysis of each variable, determine credit quality; in this way the internal credit rating system aims to establish adequate margin in decision-making regarding the management of financial instruments.
F-182
Credit Quality Analysis of the Bank
Debt instruments | Equity | Other financial instruments(1) | Derivatives(2) | |||||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||
Maximum Exposure to Credit Risk | ||||||||||||||||
Low Risk | ||||||||||||||||
Medium Risk | - | - | ||||||||||||||
High Risk | - | |||||||||||||||
Without Rating | - | - | - | |||||||||||||
Total | | | | | - | | - | | | | ||||||
| (1) | Corresponds to SAFE "Simple Agreement for Future Equity", in Inversiones CFNS S.A.S., Sistema de Inversiones y Negocios, S.A. and Banagrícola S.A (For 2023). For the year 2022 were revealed as debt securities and equity. |
| (2) | For derivatives transactions counterparty risk is disclosed as long as the valuation is positive. |
In accordance with the criteria and considerations specified in the internal rating allocation and external credit rating systems methodologies, the following schemes of relation can be established, according to credit quality given to each one of the qualification scales:
Low Risk: All investment grade positions (from AAA to BBB-), as well as those issuers that according to the information available (financial statements, relevant information, external ratings, CDS, among others) reflect adequate credit quality.
Medium Risk: All speculative grade positions (from BB+ to BB-), as well as those issuers that according to the available information (Financial statements, relevant information, external qualifications, CDS, among others) reflect weaknesses that could affect their financial situation in the medium term.
High Risk: All positions of speculative grade (from B+ to D), as well as those issuers that according to the information available (Financial statements, relevant information, external qualifications, CDS, among others) reflect a high probability of default of financial obligations or that already have failed to fulfill them.
· Financial credit quality of other financial instruments that are not in default nor impaired in value
Debt instruments:
Equity: The positions do not represent significant risks.
Derivatives:
· Maximum exposure level to the credit risk given:
Maximum Exposure | Collateral* | Net Exposure | ||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||
Maximum Exposure to Credit Risk | ||||||||||||
Debt instruments | ( | ( | ||||||||||
Derivatives ** | ( | ( | ||||||||||
Equity | - | - | ||||||||||
Other financial instruments | - | - | ||||||||||
Total | | | ( | ( | | | ||||||
| ● | Analysis of the maturity of other financial instruments past due but not impaired |
| - | Debt instruments: Portfolio does not present past due nor impaired assets. |
| - | Equity: Portfolio does not present impaired assets. |
| - | Derivatives: The past due assets are not material. |
F-183
| ● | The information corresponding to the individual evaluation of impairment at the end of the period for other financial instruments, is detailed as follows: |
Debt instruments
Exposure | Impairment | Final Exposure | ||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||
Maximum Exposure to Credit Risk | ||||||||||||
Fair Value | ||||||||||||
Amortized Cost | ||||||||||||
Total | | | | | | | ||||||
Equity
Exposure | Impairment | Final Exposure | ||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||
Maximum Exposure to Credit Risk | ||||||||||||
Fair Value through profit or loss | - | - | ||||||||||
Fair Value through OCI | - | - | ||||||||||
Total | | | - | - | | | ||||||
Collateral- investment financial instruments:
Level of collateral: respect to the type of asset or operation, a collateral level is determined according to the policies defined for each product and the market where the operation is carried out.
Assets held as collateral in organized markets: the only assets that can be received as collateral are those defined by the central counterparties, the stock market where the operation is negotiated, those assets that are settled separately in different contracts or documents, which can be managed by each organization and must comply with the investment policies defined by the Bank, taking into account the credit limit for each type of asset or operation received or delivered, which collateral received are the best credit quality and liquidity.
Assets received as bilateral collateral between counterparties: the collateral accepted in international OTC derivative operations is agreed on bilaterally in the Credit Support Annex (CSA)1 and with fulfillment in cash in dollars and managed by Citibank N.A.. This company acts on behalf of Bancolombia for making international margin calls and providing a better management of the collateral.
Collateral adjustments for margin agreements: the adjustments will be determined by the criteria applied by both the external and internal regulations in effect, and at the same time, mitigation standards are maintained so that the operation fulfills the liquidity and solidity criteria for settlement. Among the main characteristics by product or market, we have:
| - | With respect to the derivative operations, these are carried out daily, with threshold levels of zero for the majority of counterparties, which reduces the exposure to a term that does not exceed 10 days, according to Basel. |
| - | For buy-sell backs, repos and other securities financing transactions, daily monitoring is done in order to establish the need to adjust the collateral in such a way that these are applied in as little time as possible, according to the contracts or market conditions. |
1 A Credit Support Annex (CSA) provides credit protection by setting forth the rules governing the mutual posting of collateral. CSAs are used in documenting collateral arrangements between two parties that trade privately negotiated (over-the-counter) derivative securities. The trade is documented under a standard contract called a master agreement, developed by the International Swaps and Derivatives Association (ISDA).
F-184
| - | For all international counterparties, margin agreements that limit exposure to the maximum and with a daily adjustment period are celebrated. These margin agreements are celebrated under ISDA(International Swaps and Derivatives Association)2 and GMRA (Global Master Repurchase Agreement)3 both for OTC derivatives and securities financing transactions. |
| - | For every local counterparty, the local framework agreement is signed (agreement developed by the industry) and the mitigating actions to apply in each operation are agreed upon, whether for margin agreements, re-couponing, early termination, among others. |
| - | For repos, buy-sell backs and other securities financing transactions, these are agreed upon by organized markets that in general implicate complying with haircut or additional collateral rules. |
| - | The central counterparty carries out daily control and monitoring processes in order to comply with the rules imposed by these organizations in such a way that we are always making daily adjustments at the demanded collateral level. |
Collateral* | Main type of collateral | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Maximum Exposure to Credit Risk | ||||||||
Debt Securities | ( | ( | ||||||
Derivatives | ( | ( | ||||||
Equity | - | - | ||||||
Total | ( | ( | ||||||
* Collateral Held (-) and Collateral Pledged (+).
g. Credit risk concentration - other financial instruments:
According to the regulations, the Bank must control on a daily basis the risk of positions of the Bank’s companies where the same issuer or counterparty stands, below the legal limits.
By the same way, the positions of the Bank are verified in respect of the authorized risk levels in each country in order to guarantee the alerts and positions limits, that are considered outside of the Bank risk appetite.
Privately negotiated (over-the-counter) derivative securities. The trade is documented under a standard contract called a master agreement, developed by the International Swaps and Derivatives Association (ISDA).
2 ISDA: Organization of participants in the OTC derivatives markets. Its main objective is to establish a reference framework through standard contracts for OTC derivatives trading.
3 GMRA: It is a model legal agreement designed for parties transacting repos and is published by the International Capital Market Association (ICMA).
F-185
Debt instruments | Equity | Other financial instruments(1) | Derivatives(2) | ||||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||
Maximum Exposure to Credit Risk | |||||||||||||||
Sector Concentration | |||||||||||||||
Corporate | |||||||||||||||
Financial | - | ||||||||||||||
Government | - | - | - | - | - | - | |||||||||
Funds ETF | - | - | |||||||||||||
Total | | | | | | | | | |||||||
Concentration by Region | |||||||||||||||
North America | - | - | |||||||||||||
Latin America | |||||||||||||||
Europe | - | - | - | - | |||||||||||
Others (Includes Funds and ETF) | - | - | - | ||||||||||||
Total | | | | | | | | | |||||||
(1) | Corresponds to SAFE "Simple Agreement for Future Equity", in Inversiones CFNS S.A.S., Sistema de Inversiones y Negocios, S.A. and Banagrícola S.A (For 2023). For the year 2022 were revealed as debt securities and equity. |
(2) For derivatives transactions counterparty risk is disclosed as long as the valuation is positive.
Risk exposure by credit rating
| Other financial instruments | |||
| 2023 | 2022 | ||
Maximum Exposure to Credit Risk | ||||
Sovereign Risk | ||||
AAA | ||||
AA+ | ||||
AA | ||||
AA- | ||||
A+ | ||||
A | ||||
A- | ||||
BBB+ | ||||
BBB | ||||
BBB- | ||||
Other | ||||
Not rated | ||||
Total | | | ||
Note: * Internal homologation
At the end of the year, the Bank’s positions are not in excess of the concentration limit, according to the applicable laws.
Relevant facts
In 2023 inflation rate decreased to
F-186
In the International fixed income international market, there was a change in the monetary expansion posture with an increase in the interest rate by the Federal Reserve from
The Colombian stock market closed December 2023 with an annual devaluation of (-
The international market closed by December with annual appreciation in the S&P 500 of (+
Negotiation of the different derivative products as of 2023 increased vs 2022 due to increase in the negotiation of interest rate futures (+
Concerning of a possible economic recession due to current global inflationary landscape, along with the rise in interest rates and geopolitical tensions, it is possible that records in these macroeconomic variables will be reached, influencing further devaluation of securities in the short and medium term; however, the central banks' measures are expected to contain these macroeconomic effects that continue to negatively impact the markets.
Market risk
Market risk refers to the risk of losses in the Bank’s treasury book due to changes in equity prices, interest rates, foreign-exchange rates and other indicators whose values are set in a public market. It also refers to the probability of unexpected changes in net interest income and equity economic value of equity as a result of a change in market interest rates.
Market risk stems from the following activities at the Bank:
| a) | Trading: includes purchase - sale and positioning mainly in fixed income securities, equities, currencies and derivatives, as well as the financial services provided to customers, such as brokerage. Trading instruments are recorded in the treasury book and are managed by the Treasury Division which is also responsible for the aggregated management of exchange rate exposures arising from the banking book and treasury book. |
Market risk can also arise from the crypto market fluctuations that affect our crypto assets portafolio held in reserve to facilitate our clients activitivies of Wenia, our digital asset company in Bermudas, which is the only company in Grupo Bancolombia authorized to take this kind of assets, according to our internal policies.
b) Balance sheet management: refers to the assets and liabilities management, due to mismatches in maturities and repricing of them. The Assets Liability Management Division is responsible for the balance sheet management, preserving the stability of the financial margin and the economic value of equity, maintaining adequate levels of liquidity and solvency. Non-trading instruments are recorded in the Bank’s banking book (the “Banking Book”), which includes primarily loans, time deposits, checking accounts and savings accounts.
In the Bank, the market risks are identified, measured, monitored, controlled and reported in order to support the decision-making process for their mitigation, and to create greater shareholder value added.
The guidelines, policies and methodologies for market risks management are approved by the Board of Directors, thus guaranteeing the congruence and consistency in the risk appetite among subsidiaries. Each country has a local Market and
F-187
Liquidity Risk Management Office that applies at an individual level the principles of the Bank´s Market Risks Management Strategy. The Board of Directors and senior management have formalized the policies, procedures, strategies and rules of action for market risk administration in its “Market Risk Manual”. This manual defines the roles and responsibilities within each subdivision of the Bank and their interaction to ensure adequate market risk administration.
The Bank´s Market and Liquidity Risks Management Office, responsible for monitoring and permanently controlling compliance with the limits established, is set up with clear independence from the trading and businesses units, ensuring enforcement authority. This independent control function is complemented by regular reviews conducted by the Internal Audit.
The Bank’s Market and Liquidity Risks Management Office is responsible for: (a) identifying, measuring, monitoring, and controlling the market risk inherent in the Bank’s businesses: (b) the Bank’s exposure under stress scenarios and confirming compliance with the Bank’s risk management policies: (c) designing the methodologies for valuation of the market value of certain securities and financial instruments: (d) reporting to senior management and the Board of Directors any violation of the Bank’s risk management policies: (e) reporting to the senior management on a daily basis the levels of market risk associated with the trading instruments recorded in its treasury book, and (f) proposing policies to the Board of Directors and to senior management that ensure the maintenance of predetermined risk levels. The Bank has also implemented an approval process for new products across each of its subdivisions. This process is designed to ensure that each subdivision is prepared to incorporate the new product into its procedures, that every risk is considered before the product is incorporated and that approval is obtained from the Board of Directors before the new product can be sold.
Market risks arising from trading instruments are measured at the Bank using two different Value at Risk (VaR) methodologies: the standard methodology required by the SFC, and the internal methodology of historical simulation. The standard methodology is established by “Chapter XXXI of the Basic Accounting Circular”, based on the model recommended by the Amendment to the Capital Accord to Incorporate Market Risks of Basel Committee, and is reflected in the Bank’s Capital Adequacy (Solvency) ratio. The internal methodology of weighted historical simulation uses a confidence level of 99%, a holding period of 10 days, and a time frame of one year or at least 250 days from the reference date of the VaR calculation is used, for digital assets the internal methodology uses a holding period of 3 days and a time frame of 4 years, using a multivariate GARCH family model. The standard methodology is used to report the market risk exposure to the Financial Superintendency and is also used to measure the capital requirements for the Bank, therefore the analysis below is based on information obtained from this model.
The Bank’s VaR limits structure for trading activities, is sufficiently granular to conduct an effective control of the various types of market risk factors on which an exposure is held. It ensures that the market risk is not concentrated in certain asset classes and maximizes the portfolio diversification effect. These limits are defined by companies, products or by risk takers. The majority of the limits are based on the maximum VaR values to which a certain portfolio can be exposed, nevertheless, loss triggers, stop loss and sensitivity warning levels are also set, especially in the derivatives portfolios. The limits are approved by the Board of Directors, and set based on factors such as tolerance for losses, capital resources and market´s complexity and volatility. They are monitored daily, and their excesses or violations are reported to the Board of Directors and the Risk Committee.
In order to capture the tail risks, the Expected Shortfall is estimated, with a confidence interval of 97.5%, which corresponds to the expected value of the losses that are greater than or equal to the VaR.Additional measurements such as stress tests are performed, to identify extreme unusual situations that could cause severe losses. Stress simulations include historical events and hypothetical scenarios. Back testing or model validation techniques through comparison of predicted and actual loss level are applied on a regular basis to analyze and contrast the accuracy of the VaR calculation methodology in order to confirm its reliability, and make adjustments to the models if necessary.
Within the control and monitoring processes of market risks, reports are elaborated on a daily and monthly basis. They include an analysis of the most relevant risk measures and allow for monitoring the exposure levels to market risks and to the legal and internal limits established for each one of the levels of the Bank. These reports are taken as an input for the decision-making process in the different Committees and management of the Bank.
F-188
For management and control of the market risks of activities other than trading, the Bank uses a comprehensive approach, with a short-term vision, measuring the sensitivity of the net interest margin over a one-year horizon, and a long-term vision, estimating the impact on the economic value of equity through different scenarios. Additionally, triggers are defined for monitoring and controling exposure to the interest rate risk of the banking book positions, which are periodically reported to Senior Management..
The market risk management of the positions in the banking book is carried out in a decentralized and independent manner in each of the banking entities of the Bank, by the Asset and Liability Management areas, in the Finance Department.
Market Risk Management
The following section describes the market risks to which the Bank is exposed and the tools and methodologies used to measure these risks as of December 31, 2023. The Bank faces market risk as a consequence of its lending, trading and investments businesses.
The Bank uses VaR calculation to limit its exposure to the market risk of its Treasury Book. The Board of Directors is responsible for establishing the maximum VaR based on its assessment of the appropriate level of risk for Bancolombia. The Risks Committee is responsible for establishing the maximum VaR for each company and the Propietary Trading Risks Committee is responsible for establishing the maximum VaR by type of investment. These limits are supervised on a daily basis by the Market Risk Management Office.
For managing the interest rate risk from banking activities, the Bank analyzes the interest rate mismatches between its interest earning assets and its interest bearing liabilities and estimates the impact on the net interest income and the economic value of equity. In addition, the foreign currency exchange rate exposures arising from the banking book are provided to the Treasury Division where these positions are aggregated and managed.
a. Measurement of market risk of trading instruments
The Bank currently measures the treasury book exposure to market risk (including OTC derivatives positions) as well as the currency risk exposure of the banking book, which is provided to the Treasury Division, using a VaR methodology established in accordance with “Chapter XXXI of the Basic Accounting Circular”, issued by the SFC.
The VaR methodology established by “Chapter XXXI of the Basic Accounting Circular” is based on the model recommended by the Amendment to the Capital Accord to Incorporate Market Risks of Basel Committee, which focuses on the treasury book and excludes investments classified as amortized cost which are not being given as collateral and any other investment that comprises the banking book, such as non-trading positions excluding the currency the risk position stemming from investment in affiliated but not consolidated entities denominated in foreign currencies. In addition, the methodology aggregates all risks by the use of correlations, through an allocation system based on defined zones and bands, affected by given sensitivity factors.
The total market risk for the Bank is calculated by the arithmetical aggregation of the VaR calculated for each subsidiary. The aggregated VaR is reflected in the Bank’s Capital Adequacy (Solvency) ratio, in accordance with Decree 2555 de 2010.
For purposes of VaR calculations, a risk exposure category is any market variable that is able to influence potential changes in the portfolio value. Taking into account a given risk exposure, the VaR model assesses the maximum loss not exceeded, over a given period of time. The fluctuations in the portfolio’s VaR depend on volatility, modified duration and positions changes relating to the different instruments that are subject to market risk.
The relevant risk exposure categories for which VaR is computed by the Bank according to “Chapter XXXI, Appendix VI of the Basic Accounting Circular” are: (i) interest rate risks relating to local currency, foreign currency and UVR; (ii) currency risk; (iii) stock price risk; (iv) fund risk. and (v) credit default swaps risk.
F-189
· Interest Rate Risk (Treasury Book)
The interest rate risk is the probability of decrease in the market value of the position due to fluctuations in market interest rates. The Bank calculates the interest rate risk for positions in local currency, foreign currency and UVR separately; in accordance with Chapter XXXI of the Basic Accounting Circular issued by the SFC.
In the first instance, the interest rate risk exposure is determined by the sensitivity calculation for the net position of each instrument. This sensitivity is calculated as the net present value (NPV) of each instrument, its corresponding modified duration and the estimated variation of interest rates. The possible variations in the interest rates are established by the SFC according to the historical behavior of these variables in the markets, and they are a function of the duration and currency, as seen in the following table:
Modified Duration | Changes in Interest Rates (bps) | |||||||||||
Zone | Band | Lower Limit | Upper Limit | Legal Currency | UVR | Foreign Currency | ||||||
1 | | | ||||||||||
Zone 1 | 2 | | | |||||||||
3 | | | ||||||||||
4 | | | ||||||||||
5 | | | ||||||||||
Zone 2 | 6 | | | |||||||||
7 | | | ||||||||||
8 | | | ||||||||||
9 | | | ||||||||||
10 | | | ||||||||||
Zone 3 | 11 | | | |||||||||
12 | | | ||||||||||
13 | | | ||||||||||
14 | | | ||||||||||
15 | | |||||||||||
Once the sensitivity factor is calculated for each position, the modified duration is then used to classify each position within its corresponding band. A net sensitivity is then calculated for each band, by determining the difference between the sum of all long-positions and the sum of all short-positions. Then a net position is calculated for each zone (which consists of a series of bands) determined by the SFC. The final step is to make adjustments within each band, across bands and within each zone, which results in a final number that is the interest rate risk VaR by currency. Each adjustment is performed following the guidelines established by the SFC.
The Bank’s exposure to interest risk primarily arises from investments in Colombian government’s treasury bonds (TES).
· Currency (Treasury and Banking Book), Equity (Treasury Book) and Fund (Treasury Book) Risk
The VaR model uses a sensitivity factor to calculate the probability of loss due to fluctuations in the price of stocks, funds and currencies in which the Bank maintains a position. As previously indicated, the methodology used in these financial statements to measure such risk consists of computing VaR, which is derived by multiplying the position by the maximum probable variation in the price of such positions (“∆p”). The (“∆p”) is determined by the SFC, as shown in the following table:
Currency | Sensitivity Factor | ||
United States Dollar | % | ||
Euro | % | ||
Other currencies | % | ||
Equity and Fund Risk | % |
F-190
The SFC according to historical market performance establishes the interest rate’s fluctuations and the sensitivity factors for currency, equity and fund risk used in the model.
· Total Market Risk VaR
The total market risk VaR is calculated as the algebraic sum of the interest rate risk, the currency risk, the stock price risk, fund risk and the credit default swaps risk which are calculated as the algebraic sum of the Parent Company and each of its subsidiaries’ exposure to these risks. Currently, the Bank not present exposure to credit default swaps risk.
The total market risk VaR had a
The following table presents the total change in market risk and other risk factors.
December 2023 | ||||||||
In millions of COP | ||||||||
Factor | December 31 | Average | Maximum | Minimum | ||||
Interest Rate Risk VaR | ||||||||
Foreign Exchange Rate Risk VaR | ||||||||
Equity Risk VaR | ||||||||
Fund Risk VaR | ||||||||
Total Value at Risk | | | ||||||
December 2022 | ||||||||
In millions of COP | ||||||||
Factor | December 31 | Average | Maximum | Minimum | ||||
Interest Rate Risk VaR | ||||||||
Foreign Exchange Rate Risk VaR | ||||||||
Equity Risk VaR | ||||||||
Fund Risk VaR | ||||||||
Total Value at Risk | | | ||||||
· 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, VaR models should not be viewed as predictive of future results. The Bank 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 the Bank’s VaR models. A VaR model does not calculate the greatest possible loss. The results of these models and analysis thereof are subject to the reasonable judgment of the Bank’s risk management personnel.
· The Bank’s results could adversely affected with high inflation rate
High level of inflation increases interest rates and reduces the market value of the Bank´s debt instruments and increases the market risk in general. Inflation also impacts the real interest rate. When the inflation rate is higher than the nominal interest rate, negative real interest rates discourage saving and the greater variability increases uncertainty and risk, not only in the loan market but also in the stock market.
F-191
b. Non-trading instruments market risk measurement
The banking book’s relevant risk exposure is interest rate risk, which is the probability of unexpected changes in net interest income or in the economic value of equity as a result of a change in market interest rates. Changes in interest rates affect the Bank’s earnings because of timing differences on the repricing of the assets and liabilities. The Bank manages the interest rate risk arising from banking activities in non-trading instruments by analyzing the interest rate mismatches between its interest earning assets and its interest bearing liabilities, and estimates the impact on the net interest income and the economic value of equity. The foreign currency exchange rate exposures arising from the banking book are provided to the Treasury Division where these positions are aggregated and managed.
· Interest Risk Exposure (Banking Book)
The Bank has performed a sensitivity analysis of market risk sensitive instruments estimating the impact on the net interest income of each position in the Banking Book, using a repricing model and assuming positive parallel shifts of 100 basis points (bps).
The table 1 provides information about Bancolombia’s interest rate sensitivity for the statement of financial position items comprising the Banking Book.
Table 1. Sensitivity to Interest Rate Risk of the Banking Book
The chart below provides information about Bancolombia’s interest rate risk sensitivity in local currency (COP) at December 31, 2023 and December 31, 2022:
| December 31, 2023 | December 31, 2022 | ||
In millions of COP | ||||
Assets sensitivity 100 bps | ||||
Liabilities sensitivity 100 bps | ||||
Net interest income sensitivity 100 bps | | | ||
The chart below provides information about Bancolombia’s interest rate risk sensitivity in foreign currency (US dollars) at December 31, 2023 and December 31, 2022:
December 31, 2023 | December 31, 2022 | |||
In millions of USD | ||||
Assets sensitivity 100 bps | ||||
Liabilities sensitivity 100 bps | ||||
Net interest income sensitivity 100 bps | | | ||
A positive net sensitivity denotes a higher sensitivity of assets than of liabilities and implies that a rise in interest rates will positively affect the Bank´s net interest income. A negative sensitivity denotes a higher sensitivity of liabilities than of assets and implies that a rise in interest rates will negatively affect the Bank´s net interest income. In the event of a decrease in interest rates, the impacts on net interest income would be opposite to those described above.
Total Exposure:
The net interest income sensitivity in local currency for the banking book instruments, entered for other than trading purposes with positive parallel shifts of 100 basis points was COP
F-192
On the other hand, the sensitivity to the net interest margin in foreign currency, assuming the same parallel shift of 100 basis points, presented a decrease between December 2023 and December 31, 2022, due to the reduction in fixed rate loans and and the increase in fixed rate time deposits.
•Assumptions and Limitations
Net interest income sensitivity analysis is based on the repricing model and considers the following key assumptions: (a) does not consider prepayments, new operations, defaults, etc., (b); the fixed rate instruments sensitivity, includes the amounts with maturity lower than one year and assumes these will be disbursed at market interest rates and (c) changes in interest rate occur immediately and parallel in the yield curves from assets and liabilities for different maturities.
• Structural equity risk exposure (Banking Book)
Bancolombia’s investment banking affiliate, in its role of financial corporation, holds, directly and through its affiliated companies, structural equity investments. These positions are maintained mostly in the industrial and financial sectors. The market value of those investments decreased by
The structural equity positions are exposed to market risk. Sensitivity calculations are made for those positions:
December 31, 2023 | December 31, 2022 | ||||
Fair Value | |||||
Delta | | % | | % | |
Sensitivity | | |
A negative impact of
Liquidity risk
Liquidity risk is defined as the inability of a financial firm to meet its debt obligations without incurring unacceptably large losses. Thus, funding liquidity risk is the risk that a firm will not be able to meet its current and future cash flow and collateral needs, both expected and unexpected, without materially affecting its daily operations or overall financial condition. The Bank is sensitive to funding liquidity risk since debt maturity transformation is one of its key business areas.
At the Bank, liquidity prevails over any objective of growth or revenue. Managing liquidity has always been a fundamental pillar of its business strategy, together with capital, in supporting its statement of financial position.
The Bank’s liquidity management model promotes the autonomy of subsidiaries, which must be self-sufficient in their structural funding. Each subsidiary is responsible for meeting the liquidity needs of its current and future activity, within a framework of management coordination at the Bank level. The metrics used to control liquidity risk are developed based on common and homogeneous concepts, but analysis and adaptation are made by each subsidiary.
In line with best governance practices, the Bank has established a clear division of function between executing liquidity management, responsibility of the Asset and Liability Division, and their monitoring and control, responsibility of the Market and Liquidity Risks Management Office.
The different authorities of senior management define the policies and guidelines for managing liquidity risk. These authorities are the Board of Directors, the Risk Committee, and senior management of the Parent Company, which set the risk appetite and define the financial strategy. The ALCO committees (Asset and liability committee) define the objective positioning of liquidity and the strategies that ensure the funding needs derived from businesses. The ALM division (Asset
F-193
and liability management) and the Market and Liquidity Risks Management Office support the mentioned committees, which elaborate analysis and management proposals, and control compliance with the limits established.
Liquidity Risks Management Office is responsible for proposing the minimum amount of the liquidity reserve, the policies of the liquidity portfolio, defining premises and metrics in order to model the behaviour of the cash flows, proposing and monitoring liquidity limits in line with the Bank's risk appetite, simulating stress scenarios, evaluating and reporting the risks inherent to new products and operations; and submitting the reports required by the internal authorities for decision-making, as well as by regulators. All of the above activities are verified and evaluated by the Internal Audit.
The measures to control liquidity risk include maintaining a portfolio of highly liquid assets, and the definition of triggers and liquidity limits, which enable evaluating the level of exposure of each one of the entities in a proactive way.
The methodologies used to control liquidity risk include the liquidity gaps and stress scenarios. The liquidity gaps measure the mismatches of assets, liabilities and off-balance sheet position´s cash flows, separately for local currency and foreign currency. Regulatory metrics are also applied, in which the contractual maturities are used; and internal models in which the cash flows are adjusted by different ratios, to reflect a more accurate behaviour.
Periodically, a validation of the policies, limits, processes, methodologies and tools to evaluate liquidity risk exposure is performed, in order to establish its pertinence and functionality, and to carry out the necessary adjustments. The Market and Liquidity Risks Management Office elaborate reports daily, weekly and monthly basis in order to monitor the exposure levels and the limits and triggers set up, and to support the decision-making process.
Each subsidiary has its own liquidity contingency plan, which is tested annually. These contingency plans procure the optimization of different funding sources, including obtaining additional funding from the Parent Company.
Liquidity risk management
The Bank’s Board of Directors sets the strategy for managing liquidity risk and delegates responsibility for oversight of the implementation of this policy to ALCO committee that approves the Bank’s liquidity policies and procedures. The Treasury Division manages the Bank’s liquidity position on a day-to-day basis and reviews daily reports covering the liquidity position. A summary report, including any exceptions and remedial action taken, is submitted regularly to Risk Committee and ALCO committees.
a. Liquidity risk exposure:
In order to estimate liquidity risk, the Bank measures a liquidity coverage ratio to ensure holding liquid assets sufficient to cover potential net cash outflows over 30 days. This indicator allows the Bank to meet liquidity coverage for the next month. The liquidity coverage ratio is presented as follows:
Liquidity Coverage Ratio | December 31, 2023 | December 31, 2022 | |||
Net cash outflows into 30 days | | | |||
Liquid Assets | | | |||
Liquidity coverage ratio ** | | % | | % |
* The minimum level required of the liquidity coverage ratio by the legal norm is 100%.
b. Liquid Assets
One of the main guidelines of the Bank is to maintain a solid liquidity position, therefore, the ALCO Committee, has established a minimum level of liquid assets, based on the funding needs of each subsidiary, to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.
F-194
The following table shows the liquid assets held by Bank:
Liquid Assets(1) | December 31, 2023 | December 31, 2022 | ||
High quality liquid assets* | ||||
Cash | | | ||
High quality liquid securities | ||||
Other Liquid Assets | ||||
Other securities** | ||||
Total Liquid Assets | | |
| (1) | Cash and those liquid assets received by the Central Bank for its operations expansion and monetary contraction are the assets with highest liquidity. Liquid assets are adjusted by a haircut. The following are considered as liquid assets: cash, repos held for trading and investments held for trading in listed shares in Colombia’s stock exchange, in investment funds units or in other trading debt instruments. |
* High-quality liquid assets: cash and shares that are eligible to be reportable or repo operations, in addition to those liquid assets that the Central Bank receives for its monetary expansion and contraction operations described in paragraph 3.1.1 of the Foreign Regulatory Circular DODM-142 of the Bank of the Republic.
** Other Securities: Securities issued by financial and corporate entities.
c. Contractual maturities of financial assets
The tables below set out the remaining contractual maturities of principal and interest balances of the Bank’s financial assets:
Contractual maturities of financial assets December 31, 2023
Financial Assets | 0 – 30 days | 31 days – 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 years | |||||
Cash and balances with central bank | ||||||||||
Interbank borrowings - Repurchase agreements | ||||||||||
Financial assets investments | ||||||||||
Loans and advances to customers | ||||||||||
Derivative financial instruments | ||||||||||
Total financial assets | | | | | |
Contractual maturities of financial assets December 31, 2022
Financial Assets | 0 – 30 days | 31 days – 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 years | |||||
Cash and balances with central bank | - | - | - | - | ||||||
Interbank borrowings - Repurchase agreements | - | - | - | |||||||
Financial assets investments | ||||||||||
Loans and advances to customers | ||||||||||
Derivative financial instruments | ||||||||||
Total financial assets | | | | | |
F-195
d. Contractual maturities of financial liabilities
The tables below set out the remaining contractual maturities of principal and interest balances of the Bank’s financial liabilities:
Contractual maturities of financial liabilities December 31, 2023:
Financial Liabilities | 0 – 30 days | 31 days – 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 years | |||||
Demand deposit from customers | | |||||||||
Time deposits from customers | | | | | | |||||
Interbank deposits-Repurchase agreements | | | | |||||||
Borrowings from other financial institutions | | | | | | |||||
Debt securities in issue | | | | | | |||||
Preferred Shares | | | | | ||||||
Derivative financial instruments | | | | | | |||||
Total financial liabilities | | | | | |
Contractual maturities of financial liabilities December 31, 2022:
Financial Liabilities | 0 – 30 days | 31 days – 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 years | |||||
Demand deposit from customers | | - | - | - | - | |||||
Time deposits from customers | | | | | | |||||
Interbank deposits-Repurchase agreements | | | - | - | - | |||||
Borrowings from other financial institutions | | | | | | |||||
Debt securities in issue | | | | | | |||||
Preferred Shares | | | | | | |||||
Derivative financial instruments | | | | | | |||||
Total financial liabilities | | | | | |
The expected cash flows for some financial assets and liabilities may vary significantly from their contractual maturity. The main differences are the following:
| ● | The demand deposits historically have maintained a tendency to remain stable. |
| ● | The mortgages loans, in spite of having contractual maturity between |
e. Financial guarantees
The tables below set out the remaining contractual maturities of the Bank’s financial guarantees
December 31, 2023 | 0 – 30 days | 31 days – 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 years | |||||
In millions of COP | ||||||||||
Financial guarantees | | | | | | |||||
December 31, 2022 | 0 – 30 days | 31 days – 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 years | |||||
In millions of COP | ||||||||||
Financial guarantees | | | | | | |||||
Interest Rate Benchmark Reform
As part of the LIBOR benchmark reform that is being implemented since 2017 by the Financial Conduct Authority of the UK, in March of the present year, it was announced that the publication of LIBOR on a representative basis will cease for
F-196
the one-week and two-month USD LIBOR settings immediately after December 31, 2021, and the remaining USD LIBOR settings immediately after June 30, 2023.
The Bank has taken the necessary measures to identify and implement the action plans required to address de discontinuation process of the LIBOR rate. The replacement of th LIBOR rate in USD with the SOFR rate was approved by the Asset and Liability Management (ALM) Committee and the Risk Committee of the Board of Directors. The development of products indexed to the new reference rate (SOFR) has commenced.
The following tables provide a breakdown by currency and nature of financial instruments exposed to the LIBOR rate for the periods ending in December 2022 and December 2023:
December 31, 2022 | |||
In millions of COP | |||
USD LIBOR1 | |||
Assets | |||
Loans | | ||
Bonds | | ||
Derivatives | ( | ||
Total Assets | | ||
Liabilities | |||
Loans | | ||
Term deposits | | ||
Total Liabilities | | ||
1Cessation date: USD LIBOR 06/30/23. Portfolio balances and market value of derivative transactions outstanding at December 30, 2021.
December 31, 2023 | |||
In millions of COP | |||
USD LIBOR1 | |||
Assets | |||
Loans | |||
Bonds | |||
Derivatives | |||
Total Assets | | ||
Liabilities | |||
Loans | | ||
Term deposits | | ||
Total Liabilities | | ||
1Cessation date: USD LIBOR 06/30/23. Portfolio balances and market value of derivative transactions outstanding at December 31, 2023.
Risk
Any failure by market participants, such as the Bank, and regulators to successfully introduce benchmark rates to replace LIBOR and implement effective transitional arrangements to address the discontinuation of LIBOR could result in disruption of the financial and capital markets. In addition, the transition process to an alternative reference rate could impact the Bank’s business, financial condition or result of operations, as a result of:
•An adverse impact in pricing, liquidity, value, return and trading for a broad array of financial products, loans and derivatives that are included in the Bank’s financial assets and liabilities.
•Extensive changes to internal processes and documentation that contain references to LIBOR or use formulas that depend on LIBOR.
F-197
•The transition and development of appropriate systems and models to effectively transition the Bank’s risk management processes from LIBOR -based products to those based on one or more alternative reference rates in a timely manner; and
•An increase in prepayments of LIBOR -linked loans by the Bank’s clients.
From January 2022, products indexed to the SOFR rate began to be offered, additionally it was defined not to carry new operations indexed to the LIBOR rate. In turn, as an organization, we will continue to focus during 2024 on the transition process of operations that are indexed to LIBOR.
Capital management
The Capital Management function oversees Shareholders’ equity and Bancolombia’s capital structure, aiming for value generation through businesses related to financial activities and investments.
The goal is to have the enough capital to cover unexpected losses, and develope the business plan. To do so, the Capital and Corporate Investments area oversees Bancolombia’s capital ratios and uses several mechanisms to optimize such ratios according to forecasted business conditions.
The monitoring of corporate investments and shareholders’ equity, as well as different components of assets and associated risks, is executed for internal and external purposes. The results are presented to the Board of Directors and some support committees to make sure that all risks are properly managed and within risks appetite, guidelines, and regulation.
Bancolombia’s management has the goal of maintaining the balance between an adequate capital allocation and value generation for shareholders. This way, business opportunities can be financed with internal funding or capital markets resources.
Bancolombia’s lending and deposit-taking activities are supervisor by the Superintendencia Financiera de Colombia, and that implies complying with Decree 1477 of 2018.
This decree standardized the definitions of regulatory capital according to Basel III standards. It also updated the risk adjusted capital consumption of assets and added capital buffers. New capital measures will be implemented from the current 4.5% basic solvency level and the 9% total solvency level.
Additionally, Bancolombia conducts stress test to estimate how the bank’s balance sheet, results and ratios during adverse scenarios. None of the stress test runs implies reaching solvency ratios below regulatory levels and therefore, we consider that capital levels are optimal at the end of 2023.
Between 2021 and 2024, after the complete implementation of the new capital standards, a minimum basic capital of 6% and a total capital ratio of 11.5% will be required, according to the following formulas::
The following table indicates Bancolombia’ s capital ratios for 2023 according to the new regulation implemented in Colombia:
F-198
Technical Capital | Asof | ||||
December 31, 2023 | December 31, 2022 | ||||
In millions of COP | |||||
Primary capital | | | |||
Share Capital | | | |||
Additional paid-in capital | | | |||
Preferred shares | | | |||
Legal reserve | | | |||
Occasional reserves | | | |||
Non-controlling interest | | | |||
Other comprehensive income | | | |||
Net income attributable to equity holders of the Parent Company | | | |||
Retained earnings | | | |||
Less: | ( | ( | |||
Prior-year losses | ( | ( | |||
Intangibles assets | ( | ( | |||
Revaluation property, plant and equipment | ( | ( | |||
Other intangibles | ( | ( | |||
Deferred net income tax | - | ( | |||
Primary capital (Tier I) | |||||
Hybrid bonds | |||||
Subordinated bonds | |||||
General provisions | |||||
Computed secondary capital (Tier II) | |||||
Less: | ( | ( | |||
Technical capital | |||||
Capital Ratios | |||||
Primary capital to risk-weighted assets (Tier I) | | % | | % | |
Secondary capital to risk-weighted assets (Tier II) | | % | | % | |
Risk-weighted assets including market risk and operational risk | | ||||
Technical capital to risk-weighted assets | | % | | % | |
Calculations based on the new definitions of Decree 1477 of 2018.
F-199