TBY talks to Carlos Raúl Yepes Jiménez, President of Bancolombia, on the economic outlook for Colombia, promoting a sustainable business climate, and operations abroad.

What is your economic outlook for Colombia in the medium term?

Predicting economic performance in a changing world is a difficult task. Today, we find it hard to believe that the crises of the last two, five, or even 10 years occurred at all; the countries where we have a presence enjoyed sustainable growth. It has been a decade of learning for us, showing that discipline can achieve long-term results. Institutions and regulations have become stronger, with very active internationalization processes under way in the case of Colombia. As well, international corporate capacity has expanded and there is a great potential for economic development. We feel optimistic despite the difficulty in anticipating results in a global economy; however, the world economy will perform better in 2014. Projections made by the IMF in October 2013 point to global growth this year, with the main thrust coming from industrialized countries. Although emerging economies will grow at a faster pace, the former ones will monopolize most of the recovery. The growth rate will increase from 1.2% in 2013 to 2% in 2014. Acceleration is also expected in the US economy in 2014. In 2014, developing countries will continue to grow at a higher rate than the global average rate, as the expected growth will increase from 4.5% this year to 5.1 % next year. However, their performance will be less dynamic than in past years. In Latin America, except for Brazil and Colombia, central banks have decided to cut their intervention in monetary policies to boost economic development. The macroeconomic environment for Colombia now looks more favorable. Labor market indicators, including unemployment and job creation, imports of capital goods, retail, vehicle sales, petroleum production, and construction licensing , among other things, reflect that household consumption, construction, commerce, and credit in 4Q2013 recorded higher levels and are more positive. Inflation is low at the global level, as well as in Colombia. However, I think inflation will pick up in 2014 because, in 2013, it was at 1.94%, the lowest level since 1955. In the US and eurozone, inflationary pressures are also low. In 2014, consumer prices will experience an upward trend in Colombia, ending the year at 3%. This is supported not only by the real recovery, but also by the greater likelihood of an occurrence of the El Niño phenomenon in 2014, the high indexation of the economy, and the increase in the minimum wage this year.

What have been the bank's key achievements over the past two years since you were named “Businessman of the Year" by the La República business journal?

I started working for Bancolombia in April 1994 and, despite a period of time at another company, I maintained my links as a board member. I was appointed President of Bancolombia in November 2010, officially assuming the position in February 2011. What I was most negatively struck by regarding the banking sector overall was its predominantly complacent arrogance, distance, and lack of respect for the customer, which I was determined to challenge. I, therefore, worked on a strategy geared toward making the bank much more humane and closer to people. This model has become popular worldwide, and many experts are pushing for more human-friendly tools in the financial markets. That strategy led us to issue a public statement declaring that Bancolombia aims to become a financial institution in continuous development based on profitability, viability, sustainability, and with a strong focus on people. We needed to adopt a common language across the organization that, once vocalized, will change the reality. It comes as no surprise that Bancolombia is today the first choice as an employer; we enjoy a reputation for transparency and quality service. These recognitions have come thanks to our commitment to the strategy I just described, and we understand that Bancolombia not only has a financial role to play in the country, but also a social one. This is an important role that I, and the other 46,000 employees of Bancolombia, believe in. At the same time, I have always aimed at making our organization as open as possible; I like to engage with every person involved in Bancolombia's operations, and for that reason I know every detail related to the company. I work around four basic pillars to develop the institution, namely strategy, structure, culture, and technology. We have a long-term vision and, for us, profitability has a strong qualitative component.

“We work every day to develop products and services that facilitate access to the financial system."

How has your vision guided Bancolombia during these two years? What successes are you most proud of?

We work every day to develop products and services that facilitate access to the financial system. We want to develop flexible solutions that save time through events that impact positively on the quality of life of people and realize our humane banking philosophy across the 10 countries where we are present: Colombia, Panama, El Salvador, Costa Rica, Guatemala, Puerto Rico, Honduras, Nicaragua, Peru, and the Cayman Islands. The steady growth of our organization leads us to think about how to be more innovative every day and create great experiences in different ways for our clients, because we are convinced that if they feel close to us, we will be part of their success. To achieve this, the contribution of our more than 46,000 employees is essential; therefore, we want our employees to be happy so they become multipliers of our transformation and action. The humanization of financial business is a big challenge that we must all continue to work on; we must be willing to continue in the search for alternatives for each of our clients so that we can promote different sectors of the population and contribute, from our role as bankers, to reducing social inequality and creating sustainable development. During these years of transformation, we have focused on working with partners, promoting a balance between work and personal life. We want to have happy employees, as we are sure that this will generate customer satisfaction. Some highlights of the transformation include reducing 753 “paperwork steps" to make things more efficient and easier for our customers our employees, while we also continue to favor financial inclusion through “Ahorra la Mano," banking correspondents, our app, which has over 1.1 million downloads, and Bancolombia's online presence, at just a click away. We also implement the telework methodology; we have 368 mobile teleworkers and 193 additional ones. The Bancolombia “For All" program aims to make labor integration a reality for persons with special needs. Today, we have about 20 employees with disabilities. We also sponsor 116 apprentices with cognitive, physical, hearing, and visual impairment.

Bancolombia currently has a presence in 10 countries. What kinds of synergies have resulted from the company's many acquisitions?

Over the past three years, Bancolombia has implemented a growth strategy with a strong focus on foreign markets. Arriving in new countries poses several challenges, and we always aim for those markets that enjoy legal stability with potential new companies that will create further added value for our shareholders. This strategy led the company to become a leading player in the banking sector in other countries through the acquisition of several banks abroad. At the same time, we face challenges such as creating the right synergies to exchange good business practices, to understand the national culture, and to create job opportunities within the local market, while also integrating local staff within the group's regional strategy. Overall, we are a global company with a presence in 10 countries, serving 9 million clients and with 46,000 employees, and we are a leading player in terms of know-how and innovation, creating synergies to learn from each other in the many markets we are involved in. For example, we exported the idea of the banking correspondent to El Salvador, and in less than one year we already have 60 banking correspondents in the country.

What synergies and benefits for stakeholders do you expect from the Banistmo acquisition, and what is your expansion strategy for the future?

With the acquisition of Banistmo, shareholders will benefit from adding to the group another link that will provide strength and support to the entire organization. Banistmo is a traditional franchise operating since 1973. Moreover, it is the country's second largest bank—it has a 14.4% share in the loans portfolio—and has interests in all product lines and services. It is a leader in all segments and has a fund of US dollar deposits. Also, it has high-growth potential that lies in a market with strong consolidation opportunities. Similarly, the Panamanian market provides a highly conducive context for the consolidation of Banistmo's activity, since it is an economy with thriving growth projections. Our strategy this year will be to focus on consolidating the recent acquisitions we made, and not only Banistmo, but 40% of Guatemala's Group Agromercantil, too. Note that the organization's assets increased 33.6% after these acquisitions, an increase of Ps32.9 billion. Our goal is to bring a humane banking culture to all the countries where we operate and achieve the highest recommendation from our clients.

What has allowed you to become a leader in El Salvador, and what are the peculiarities of this interesting market?

Bancolombia has a presence in El Salvador through its subsidiary Banco Agrícola, which ranks first in the El Salvadoran market in deposits and net loans, consolidating us as a major market participant and referent. Similarly, our wide range of channels make us a leading competitor. El Salvador has a suitable environment to become a potential market for the banking business; it is the fourth largest economy in Central America with an estimated population of 6.2 million. The economy has a strong focus on manufacturing and services, and in recent years the signing of free trade agreements (FTAs) has increased its international integration. El Salvador enjoys a strategic location for trade between Central America and the US. As part of the process of productive transformation, the country adopted the US dollar as its official currency in 2011. Therefore, the level of inflation and interest rates are the lowest in Latin America. In recent years, the banking system has been characterized by stable and efficient development with a high share of foreign capital. Remittances from emigrants, mainly from the US, are an important source of income for households and account for 16.4% of GDP. For example, in 2012, a total of $3.9 billion entered the country, which represents annual growth of 7.2%.

How has Bancolombia's services portfolio evolved since you became president, and how are you adapting to the growth of the region through new products and services?

Our portfolio of products and services continues to evolve to offer customers an increasingly timely and simple service. We have successfully added new products to our portfolio, such as Ahorro a la Mano, an easy-to-open electronic account and a key tool to increase financial inclusion; social leasing, whereby tenants pay monthly rent fees, saving on their first down payment for the properties we provide mortgages for; finance leasing for the banking reference indicator (BRI); digital leasing contracts; and others. Similarly, we have ventured into the creation of new payment and service points such as e-trading, Bancolombia's app, virtual credit cards, the Young Card, for internet sales, a PayPass card, which enables low-value purchases without swiping the card or typing in keywords, a Bancolombia card for public transport, a new free miles site that works as a platform to redeem miles from our online site, an Esso Mobil Bancolombia credit card, Bancolombia at a click away, and which facilitates the request of documents, products, and services, while we have also developed partnerships with companies such as Argos and Group Éxito to enhance our banking correspondents channel.

How would you assess the importance for Bancolombia of belonging to the elite Emerging Markets Network (EMNet) club of companies?

Bancolombia is the first Colombian company to be part of EMNet, which brings together representatives of companies and experts from the Organization for Economic Cooperation and Development (OECD) and offers the opportunity to promote the exchange of knowledge on topics of interest to generate effective and innovative solutions for customers. Being a member of a forum where we can exchange ideas with world-leading entities allows us to boost our purpose to innovate more and more on the experience of our customers through new ideas and solutions that contribute to the sustainable development of the communities in which we operate. For us, it represents the opportunity to interact with people from different regions of the world to find new options and business relationships that benefit our clients and investors. Being part of EMNet affords us access to a large number of contacts in government and interest groups. These meetings focus on growth in emerging markets, which now account for 40% of the world's GDP and, in about 20 years, this figure will reach 60%.

What requirements has Bancolombia had to satisfy to be recognized in this index and what is your vision regarding sustainability?

Last year was a good year for our purpose of continuing to generate initiatives that promote sustainable growth in the communities where we operate. Thanks to this, for the second year in a row, we were part of the Sustainability Index and Dow Jones Sustainability Yearbook 2014, which was unveiled by the company Robeco SAM at the World Forum in Davos in January 2014. Each year, this firm, specializing in sustainable investments, invites the 2,500 largest companies in the world according to the Dow Jones Global Total Stock Market Index to participate in the evaluation. The publication includes only 15% of all providers in each of the 58 sectors of the economy, making it a benchmark for international businessmen and investors. Of the 114 banks evaluated in the world, only 31 were included in this directory; Bancolombia, with 83 points, is one of them. This success encourages us to continue creating spaces that promote the development of society. For example, initiatives such as BanCO2, or Sustainable Branch, underline our corporate purpose. Also, we have been increasingly consolidating the analysis of environmental and social risk to the projects we finance and we have joined such international protocols as Basel III, Global Compact, Millennium Development Goals, Principles of Ecuador, the UN's Principles of Sustainable Investment, and the Dow Jones Sustainability Index with the purpose of being a reliable business partner for our customers.

What are the characteristics that allow Bancolombia shares to represent an interesting investment for foreign portfolios based on the management, revenues, and profit?

Bancolombia is the leader in its target market—it has a 22% share of the market in Colombia based on assets and 30% in El Salvador as of June 2013—and is an active competitor and increasingly influential player in South and Central America. As an organization with an increasingly comprehensive portfolio, we serve all segments because we have a strong competitive position and a very stable and diversified revenue base. In El Salvador, Banco Agrícola has established a leading position because we have a strong franchise, good asset quality, adequate reserves, strong capital, and very good performance. In addition to its contribution to Bancolombia's base line, the company plays an important role in our growth. Bancolombia has a very well-balanced business; with a loan portfolio diversified by geography, industry, product, and debtor. We are confident of our growth in the short and medium term because we are the leaders of a growing market. Banking penetration is increasing, we are diversifying our markets, our goal is cost effective, efficient, and sustainable growth, and we have stricter capital requirements that make us fully compliant with all new financial regulations. We also have countercyclical provisions that enable us to anticipate and shield the institution before potential events; our profitable growth will be leveraged in a diversified portfolio—commercial 19%, individual 25%, mortgage 31%, leasing 16%—and, with assets and a portfolio totaling Ps131 trillion ($61 billion) and Ps90 trillion ($45 billion), respectively, we have the leading banking platform in Colombia and we are leaders in market share. We are the leader in share of total assets in Central America, and this year we will focus on consolidating our investments abroad. Our conservative risk profile brings us sustainable growth in that respect. Finally, our portfolio is properly anchored. Our group is supported primarily by our deposits.

Which challenges is the banking sector facing in Colombia?

The great challenge of the banking sector in Colombia is financial inclusion. Although we have come a long way, our country is still at the lower level of development compared to other similar economies, and that creates challenges for us to bring more and more people into the financial system. Colombia has high standards in mobile telephony, internet coverage, and the use of alternative channels, and we have eased paperwork processes to facilitate such integration. The good work done up until now only encourages us even more for the future. However, we need to work hand in hand with the government, the real sector, and the community to address issues such as illegal or informal substitutes and improve asset laundering policies and regulatory processes. We must improve financial education and work on the virtualization of money, self-management, and the automation of customers' experiences so they become increasingly positive and thus help us close the gap between the banking sector and society.

What was the strategy behind the purchase of Uff Movil?

As part of our commitment to innovation, we decided to purchase Uff Movil to better understand the world of telecommunications, especially when it comes to our professional activity and strategies related to mobile banking. We foresaw that the banking system was moving toward a more digital, virtual, and mobile service-based structure. The acquisition of Uff Movil is part of our commitment to be one step ahead in terms of innovation within the sector. I would also like to add that we purchased Banco Agromercantil de Guatemala, Banistmo in Panama, and launched several new products to prove our commitment to be a leading institution in terms of innovation. In this context, I would like to highlight that last year we completed 1.8 billion transactions, 90% of which were performed electronically. We have already registered over 1 million transactions through our mobile application, and we are the only company within the financial industry with a presence in each of the 22 regions of Colombia.

What is Bancolombia's commitment to reintegration and the peace process?

At the moment, the country is undergoing a complex and difficult process promoted by the government, in which we will all have to make certain sacrifices. We are 100% committed to the peace process. For example, we support the National Agency for Reintegration, as well as a public movement called Reintegration Colombia, which was set up by the magazine Semana.

© The Business Year - May 2014