The rating action included an upgrade for one fund and the affirmation of ratings for six others. The ratings assigned by Fitch do not constitute an opinion on the probability of the application of extraordinary liquidity management measures or the funds’ redemption risk.

Key Rating Factors

The foundation for the affirmation and revision of the ratings rests on the current profile of the FIC’s asset portfolios, investment strategies, and management policies.

Credit Quality Assessment

The credit quality ratings are derived from the weighted average credit quality of each FIC’s portfolio, with specific focus on the quality and diversification of instruments and counterparties, as well as the established investment limits. All FICs maintained a Weighted Average Credit Quality Factor (WACF) consistent with the ‘AAAf(col)’ national rating, the highest designation on the scale.

The upgrade of the FIC Renta Fija Plus credit quality rating to ‘AAAf(col)’ was attributed to the sustained stability in the investment portfolio’s credit profile. This stability led to a consistent reduction in the fund’s WACF, bringing it within the required range for the ‘AAAf(col)’ rating.

Market Risk Sensitivity

The market risk sensitivity ratings are based on the average duration of the funds, calculated by the Weighted Average Rating Factor (WARF), and the fund’s sensitivity to spread risk (MRF).

Sensitivity to Future Rating Actions

Downgrade Factors

A downgrade in the FIC’s credit quality ratings could occur if the portfolio undergoes significant changes in composition or if investment strategies are modified to increase the WACF, reflecting a lower credit quality. This applies to all FICs with the exception of those rated at Df(col), which is the minimum national scale rating.

Similarly, a downgrade in market risk sensitivity could result from significant changes in portfolio composition, duration, or spread risk, or if modifications to investment strategies increase the MRF and reflect greater sensitivity to market risk. The potential for the use of financial leverage is also a factor considered in the sensitivity assessment.

Upgrade Factors

The credit quality ratings for all FICs and the market risk sensitivity ratings for FIC Fiducuenta, FIC Fiduexcedentes, and FIC Renta Liquidez are the highest on the national scale. Therefore, a further positive rating action is not possible for these specific funds.

The market risk sensitivity rating for FIC Fidurenta and Plan Semilla could be reviewed for an upgrade if their MRF remains consistently below the thresholds established by Fitch for their current ratings.

Bancolombia S.A. Subsidiaries

Bancolombia S.A. (NYSE: CIB, BVC: CIBEST) is the parent company of a financial group with operations across Latin America. The group, now formally operating under the holding structure Grupo Cibest S.A., manages a broad range of businesses.

Key subsidiaries within the corporate structure include:

• Banistmo (Panama)
• Banco Agrícola S.A. (El Salvador)
• Grupo Agromercantil Holding (GAH), which includes Banco Agromercantil de Guatemala (BAM)
• Valores Bancolombia S.A. Comisionista de Bolsa (Securities Brokerage)
• Banca de Inversión Bancolombia S.A. Corporación Financiera (Investment Banking)
• Compañía de Financiamiento Tuya S.A. (Financial Services, Retail Credit)

The full reports can be viewed here and here, however here is synopsis of the main points to digest:

Growth: Amidst an environment where we see both analysts and overseas agents increasing their growth recommendations for both 2021 & 2022. A month ago the average 2021 estimate stood at 7.2%, which has now risen to 7.8%, with a top end of 8.2%. It is worth noting that this week one local research house (Valores Bancolombia) issued a ‘top end’ of 9.6% which raised a few eyebrows. That said, the data continues to point towards a very healthy rebound.

Inflation: A mixed bag here. We already stand at 4.4% and analysts are expecting a further increase to 4.46% next time around and to 4.74% by year end, up from 4.2%. However, the expectation is that during 2022 this will decline once again to 3.56%, back within the government’s long term 2-4% target.

Interest Rates: The 18 months or so at 1.75% appear to be coming to end and according to 88.9% of analysts that will be at the next meeting when rates will rise to 2%. Furthermore 52.8% are looking for a year end rate of 2.5% and 30.6% are anticipating 2.25%. By the end of 2022 the consensus number is 3.5%.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

Peso: As ever a tough read; the main reason being the ongoing struggle between better oil prices which should cause valuation and outflows related to the loss of investment grade and forthcoming elections. The current estimate for YE21 is 3745 (from the current 8300) with a further move to 3640 by YE22. The anticipation is that both oil prices and production will be higher in 2022 and once the elections are out of the way there will be room for revaluation.

Investment Drivers: At this current juncture investment managers are relatively agnostic in terms of influences. Monetary Policy (25%), Fiscal Policy (19.4%) & Economic Growth (19.4%) are seen as the main drivers. External events (11.1%) are not seen as a key driver.

COLCAP: Whilst there has been tempering of how far the COLCAP will rise over the next three months, 91% believe it will rise versus 83.8% in August. In terms of sectors Finance (71.4%) & Holding Co. (71.4%) are the top picks with a bounce back in oil to 57.1% from 36.4% last month. If we bore down to top stocks the current choices are Ecopetrol (42.9%), PFBColo (33.3%) & Grupo Argos (33%).

Stock Market Confidence Index: As we see above there is a high level of confidence in the COLCAP – in September 96.97% were optimistic versus 94.57% a month ago and 7.2% higher than 12 months ago. There were also increases in both the Crash Confidence (71.43%) & Valuation Confidence (94.44%) indices. There was a drop in the Buy on Dips index to 53.85% which is slightly disconnected from the other readings around the COLCAP.

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops

The New York-based agency did, however, note that the capital adequacy metrics of Colombia’s biggest bank “remain relatively low” and that its ratings are constrained by “the operating environment of the jurisdictions in which Bancolombia’s businesses are performed.”

Specifically, Fitch Ratings affirmed Bancolombia’s viability rating at bbb and issuer default ratings at BBB.

The agency has based its view on Bancolombia’s improved operating efficiency and “solid performance in 2016,” which included higher interest income on earning assets, increased net fees, and an operating-profit-to-risk-weighed-assets ratio of 2.38%.

The firm’s Fitch Core Capital ratio rose as well, coming in at 9.62% of risk weighed assets in the first quarter this year compared to 8.32% in 2015. “Considering Bancolombia’s sound internal capital generation and Fitch’s expectations for continued moderate growth, the agency believes that the bank will sustain the positive trend in capital ratios,” stated the agency.

On the downside, Bancolombia has a low capitalization respective to other bbb-rated emerging market commercial banks and its past due loans increased to 2.38% in the first quarter compared to 2.01% a year earlier. This has been “caused primarily by slower loan growth, a moderate deterioration in some of the largest exposures in the commercial segment, and the seasoning of consumer loans,” stated Fitch Ratings.

In full, Fitch Ratings has set the following ratings for Bancolombia and subsidiaries:

Bancolombia

• Long-Term Foreign Currency IDR at BBB; outlook revised to stable from negative
• Short-Term Foreign Currency IDR at F2
• Long-Term Local Currency IDR at BBB; outlook revised to stable from negative
• Short-Term Local Currency IDR at F2
• Viability Rating at bbb
• Support Rating at 2
• Support Rating Floor at BBB-
• Senior unsecured debt at BBB
• Subordinated debt at BBB-
• National Long-Term Rating at AAA(col); outlook stable
• National Short-Term Rating at F1+
• Senior unsecured debt national rating at AAA(col)
• Subordinated debt national rating affirmed at AA+(col)

Bancolombia Panama

• Long-Term IDR at BBB; outlook revised to stable from negative
• Short-Term IDR at F2
• Support Rating at 2
• Long-Term Deposits at BBB
• Short-Term Deposits at F2

Bancolombia Puerto Rico

• Long-Term IDR at BBB; outlook revised to stable from negative
• Short-Term IDR at F2
• Support Rating at 2

Banistmo

• Long-Term IDR at BBB; outlook revised to stable from negative
• Short-Term IDR at F2
• National Long-Term Rating at AAA(pan); outlook revised to stable from negative
• National Short-Term Rating at F1+(pan)
• Support Rating affirmed at 2

Compania de Financiamiento Tuya

• National Long-Term Rating at AAA(col); outlook stable
• National Short-Term rating at F1+

Fiduciaria Bancolombia

• National Long-Term Rating at AAA(col); outlook stable
• National Short-Term rating at F1+

Valores Bancolombia

• National Long-Term Rating at AAA(col); outlook stable
• National Short-Term rating at F1+