Bolsa y Renta sees Bancolombia going back to 20% ROEs in 2011, 2012

Wednesday, January 26, 2011

Colombia's largest bank, Bancolombia (NYSE: CIB), will likely return to posting 20%-plus ROEs this year and in 2012 thanks to faster lending and stronger margins due to higher interest rates, brokerage Bolsa y Renta analyst David Peláez told BNamericas.

Last year, the bank saw its profitability weaken due to margin compression and lower interest revenues, despite lower provisions, he said.

Bancolombia reported consolidated third quarter net income of 375bn pesos (US$202mn), up 17% on 3Q09, with lending growing to 42.9tn pesos as of September 30, up 7.8% compared with the same time in 2009. Peláez is expecting the bank to end 2010 with an 18.3% ROE.

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Peláez is forecasting Bancolombia to increase lending by 12% this year, a more conservative figure than other analysts' 20% projections, with the mortgage lending segment leading the way thanks to the bank's strong positioning in that market.

"We also see margins stabilizing in 2011 as the country's central bank is expected to begin hiking interest rates at some point this year, which coupled with stronger lending will boost interest revenues by 18.5% in 2011," he said.

Peláez said Bancolombia's asset quality should not suffer any significant deterioration this year. All things considered, profits should grow 19% in 2011 and 20% in 2012, he said.

All these factors led Bolsa y Renta to upgrade its recommendation on Bancolombia to buy from hold.