First take:  Positive

Bancolombia’s results for 1Q13 were higher than expected. Net interest income was COP1.4 trillion (24% YoY and 13.2% QoQ) due to lower provisions (COP302,8 billion vs. (E) COP317 billion) and a better than expected behavior of the net interest margin:

•  The decrease of 30 bps QoQ in the loans’ interest margin (6.6%) was off-set by higher debt investment’s margin (8% vs. expected 5%). In addition, the average cost of deposits was lower (- 13 bps QoQ) and closed at 3.2% vs. our expected 3.26%. Therefore, the mix between higher interest margin and lower cost of deposits enabled NIM to rise up to 6.8%, above our projections of 6.3% and 4Q12’s 6.33%.

Both net income and EPS rose 10.6% YoY and 5.3% QoQ and can be explained by an improvement in the efficiency ratio.

•  Bancolombia showed very positive results in its efficiency margin, lowering it from 55.22% in 4Q12 to 53.49% in 1Q13. The reduction was above our expectations of 54.61% and boosted the bank’s net income.

Perspectives and drivers

•  After analyzing Bancolombia’s results for 1Q13 we maintain our Overweight recommendation and it continues to be among our Top Picks (since april 12, 2013). We expect the bank to gain from the system’s loan growth, for which we maintain our positive stance. However, we consider the bank has a challenge to defend the NIM from going below 6% and maintain the ROE above 16%, within the next two quarters.

•  NIM should continue to contract during 2Q13 to 6.3%(E) given our forecast signaling the end of the expansive cycle at Banco de la Republica in Colombia, and its stabilizing impact on the investment securities’ margin and negative effect on loans’ interest margin.

•  We believe EPS for the next quarter will greatly depend on its ability to support efficiency ratios at levels between 50% and 52%. We remain positive about the bank’s results throughout 2013 and believe Bancolombia is going to gain from the expansive macroeconomic cycle, that is projected to begin towards the 2H13.

•  Regarding the possibility of a future public offering, we do not expect the bank to carry it out in 2013. However, if loan growth accelerates after the bank’s merger with HSBC Panama, we could consider the possibility of an issuance to maintain solvency ratios above the regulatory 9%.

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