Fitch Upgrades Bancolombia Panama to 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today upgraded Bancolombia Panama 's Issuer Default Ratings (IDRs) to 'BBB' from 'BBB-'; the Rating Outlook was revised to Stable from Positive. A complete list of the ratings is included at the end of this press release.

The IDRs of Bancolombia Panama (BP) were upgraded in line with those of its parent Bancolombia S.A. Given the strategic importance of BP and its deep integration with its parent, as well as its role as a holding company for most of Bancolombia's assets abroad, support from Bancolombia should be, in Fitch's opinion, forthcoming if needed.

Bancolombia Panama's Viability rating was also upgraded, as the bank successfully restored its capital base to levels that compare better with its peers with similar ratings thanks to sustained growth, profitability and capital retention. BP maintained an adequate performance, outstanding efficiency and improved diversification on both sides of the balance sheet.

BP's IDRs could be upgraded further if Bancolombia's IDR is upgraded; the IDRs would move in line with Bancolombia's rating.

The Viability rating could be pressured if BP's asset quality deteriorates, resulting in higher loan loss provision needs, and eroding the loan loss reserve and capital cushion.

On the other hand, the Viability rating could improve if BP is able to maintain its performance while continuing to improve its capital and reserve cushion and better diversify its balance sheet.

Tight cost control and economies of scale resulted in a lean operation in Panama and El Salvador. BP's efficiency ratios have improved after deteriorating following the acquisition of Banco Agricola (BA) and are gradually returning to historical levels. These ratios compare well to its local and regional peers.

BA is a well-positioned bank that runs an efficient and profitable universal banking business in El Salvador. By acquiring BA, BP gained in geographical diversification. In addition, it grew its business lines, revenue sources, product offering and funding base.

Benefiting from a positive operating environment in its core market and a dominant franchise in El Salvador, BP was able to maintain a sound performance that is likely to continue improving as macroeconomic conditions stabilize in the Central American region and synergies with BA start to bear fruit.

The spike in past due loans (PDLs) observed in 2009-2010 has stabilized and reversed the trend into 2011 as El Salvador's economy stabilized and the bank's sound risk management policies helped contain asset deterioration. Given the expected growth and economic prospects, the trend is likely to continue into 2012.

BP's funding is better diversified after BA's acquisition and shows great stability. The bank maintains sound levels of liquidity between its cash, deposits in banks, and investment portfolio.

BP maintains adequate loan loss reserves that cover PDLs at 146% at March 2012. Along with BP's sustained profitability, reserves constitute an additional cushion against unexpected losses.

BP's tangible equity to tangible assets ratio was depressed after the acquisition of BA due to the significant goodwill that the transaction generated. Sustained profitability (i.e. capital generation) and sound growth in its core market have contributed to restore capital and dilute the weight of goodwill. Capital has grown at a rate of 100-150 basis points per year since 2008. This clearly positive trend is likely to continue amid better economic prospects.

Fitch has taken the following rating actions on Bancolombia Panama:

--Long-term foreign currency IDR upgraded to 'BBB' from 'BBB-'; Outlook revised to Stable from Positive;

--Short-term foreign currency IDR upgraded to 'F2' from 'F3';

--Viability Rating upgraded to 'bb' from 'bb-';

--Support Rating affirmed at '2'.

Fitch also took the following rating actions on Bancolombia Panama's issues:

--Long-Term deposits upgraded to 'BBB' from 'BBB-';

--Short-Term deposits upgraded to 'F2' from 'F3'.

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

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria', Aug. 16, 2011;

--'Rating Bank Regulatory Capital and Similar Securities', Dec. 15, 2011.

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

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