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Edited Transcript of BOGOTA.BG earnings conference call or presentation 29-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Banco de Bogota SA Earnings Call

May 31, 2017 (Thomson StreetEvents) -- Edited Transcript of Banco de Bogota SA earnings conference call or presentation Wednesday, March 29, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alejandro Figueroa Jaramillo

Banco de Bogotá S.A. - CEO

* Julio Rojas Sarmiento

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Conference Call Participants

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* Luis Aníbal Valdés Echazu

Barclays PLC, Research Division - Emerging Markets Corporate Analyst

* María Francisca Barriga

Corredores Davivienda S.A., Research Division - Financial Sector Analyst

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Presentation

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Operator [1]

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Welcome to the Fourth Quarter 2016 Banco de Bogotá S.A. Earnings Conference Call. My name is Hilda, and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

We now ask that you take time to read the disclaimer included on Page 2. Banco de Bogotá is an issuer of securities in Colombia. As a financial institution, the bank, as well as its financial subsidiaries, is subject to inspection and surveillance from the Superintendency of Finance of Colombia.

As an issuer of securities in Colombia, Banco de Bogotá is required to comply with periodic reporting requirements and corporate governance practices. In 2009, the Colombian Congress enacted Law 1314, establishing the implementation of IFRS in Colombia. As a result, since January 1, 2015, financial entities and Colombian issuers of publicly traded securities, such as Banco de Bogotá, must prepare financial statements under IFRS, with some exceptions established by applicable regulation.

IFRS, as applicable under Colombian regulations, differs in certain aspects from IFRS as currently issued by the IASB. Our reports for the 2015 quarter were presented in accordance with IFRS, applicable in Colombia, Col IFRS. This report was prepared with unaudited consolidated financial information, which is in accordance with IFRS as currently issued by the IASB.

At June 30, 2016, Banco de Bogotá deconsolidated Corficolombiana, ceded control of Corficolombiana to Grupo Aval. The bank now holds its 38.3% stake of Corficolombiana as an equity investment. As a result, third quarter 2016 and fourth quarter 2016 do not consolidate Corficolombiana.

Additionally, Banco de Bogotá, as approved by its Board of Directors, signed a shareholders' agreement between Corficolombiana, Banco de Bogotá, Banco de Occidente and Banco Popular, which resulted in Corficolombiana becoming the direct controller of Casa de Bolsa S.A. The bank now holds its 22.8% state of Casa de Bolsa as an equity investment.

Moreover, unless otherwise noted on comparative purposes, figures for fourth quarter 2015 have been adjusted excluding Corficolombiana and Casa de Bolsa. The Colombian peso/dollar end-of-period annual reevaluation as of December 31, 2016, was 4.7%. The Colombian peso/U. S. dollar quarterly devaluation was 4.2%. In this report, calculations growth, excluding the exchange rate movement of the Colombian peso, use the exchange rate as of December 29, 2016, COP 3,000.71.

This report may include forward-looking statements and actual results may vary from those shared and stated herein as a consequence of changes in general, economic and business conditions, changes in interest and currency rates and other risk factors. Recipients of this document are responsible for the assessment and the use of the information provided herein. Banco de Bogotá will not have any obligation to update the information herein and shall not be responsible for any additional -- any decision taken by investors in connection with this document.

The content of this document is not intended to provide full disclosure on Banco de Bogotá or its subsidiaries. In this document, we refer to trillions as millions of millions and to billions as thousands of millions. Details of the calculations of non-GAAP measures, such as return on assets and return to equity, among others, are explained when required in this report.

Joining us today from Banco de Bogotá is Mr. Alejandro Figueroa, CEO; Mr. Julio Rojas, Chief Strategy and Digital Officer; and Mrs. María Luisa Rojas, CFO.

I will now turn the call over to Mr. Figueroa. Mr. Figueroa, you may begin.

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Alejandro Figueroa Jaramillo, Banco de Bogotá S.A. - CEO [2]

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Thank you, Hilda. Good morning, ladies and gentlemen, and thank you for joining our earnings call. We are pleased to announce that our attributable net income for the year is COP 2.2 trillion onetime gain associated with the deconsolidation of Corficolombiana, was COP 2.1 trillion.

In spite of a more turbulent economic and political environment, in 2016, this represented an 8.4% annual increase over 2015. Excluding the wealth tax, our consolidated return on average assets for 2016 was 1.8%, and our return on average equity was 15.4%. Our return on average assets guidance is to remain at roughly similar levels, while our return on average equity guidance for 2016 is around 14%.

The lower return on average equity is simply as a result of the COP 2.2 trillion gain, which was fully capitalized then averaged in our equity account throughout the entire year in 2017, as opposed to only as of June 30, 2016.

Our net interest income for 2016 was COP 6.3 trillion, having grown 16.3% versus 2015. As a result, over the course of the year, we saw our NIM expand 27 basis points. The average yield in our loans improved 130 basis points, partially offset by an increase of 90 basis points in our average cost of funding.

On a quarterly basis, comparing fourth quarter '16 to fourth quarter '15, our NIM rose 50 basis points, commensurate with increase in the Colombian Central Bank rate over this period. Although the Central Bank has already started using the interest rate, and should continue to do so over the course of the year, the average rate we are currently expecting for 2016 should be roughly similar to the average rate for 2015. As a result, our NIM for 2017 should be similar to that of 2016. Nevertheless, when analyzing on a quarterly basis versus fourth quarter '16, you should expect to see our NIM start to gradually come down.

Our fee income in 2016 was COP 3.9 trillion, a 15.8% increase year-on-year, driven primarily by the growth in credit cards and banking services fees. This resulted in our fee income ratio remain basically steady around 34.5% from 2015 to 2016. Guidance is to maintain a similar fee income ratio for 2017.

Banco de Bogotá's consolidated efficient ratio in 2016, excluding onetime expense items booked back in the second semester of 2016, was 48.8%, slightly better than our 4.92% (sic) [49.2%] in 2015 and better than our previous guidance of around 50%. We are expecting a roughly 50% efficiency ratio for 2017.

Turning to the balance sheet. In the fourth quarter, our total asset reached COP 141 trillion. Excluding the impact of foreign exchange, our total gross loan portfolio grew 8.2% over the past 12 months as a result of the peso appreciation. However, the consolidated balance sheet only reflected 5.9%.

We continue to see our consumer and mortgage portfolio growing generously, each increasing 11% and 11.7% over the course of the year, when excluding the impact of foreign exchange. The commercial portfolio, normalizing for foreign exchange, grew at a more moderated 6.4% during the year.

Our total deposits grew by 5.5% in the last 12 months to COP 94 trillion. In absence of the movement of the Colombian peso/U. S. rate for the period, depositors would have grown 7.7% annually and 6.0% fourth quarter '16 versus third quarter '16. As a result, our deposit to net loan ratio was 0.99 for the ending 2016, which illustrates our robust funding model of utilizing deposits to fund our loan book. Our expectation is to be able to grow the loan portfolio around 8% to 10% and to maintain a roughly similar loan-to-deposit ratio for 2017.

Moving to credit. Our 90 days past due loan ratio came in at 1.7%. Our net cost of risk, excluding extraordinaries associated with Pacific Rubiales and Electricaribe for 2016, was 1.7%, which was 20 basis points higher than the 1.5% from 2015. Without excluding these extraordinaries, our net cost of risk was 1.9%. We expect the cost of risk, excluding extraordinaries, of around 2% for the year.

With regards to capital, Banco de Bogotá's consolidated ratio stands at a gross 9% for Tier 1 and capital -- for Tier 1 capital and 13.9% for total solvency. These ratios are significantly above regulatory minimums and continue to allow the bank to fund growth opportunities over the next 12 to 18 months.

This year, we are moving our shareholder meeting to an annual calendar in March as opposed to biannual in March and September. As a result, we will be capitalizing returning earnings in Tier 1 only once a year. In the meantime, as per Colombian regulation, we will accumulate a percentage of our return in earnings in Tier 2. Taking this into account, our guidance for our Tier 1 ratio for December 2017 is to be at around 8% to 9%, which should increase once we officially capitalize earnings for 2017 in our March 2018 shareholder meeting.

Now I will hand over the presentation to Mr. Julio Rojas Sarmiento, Banco de Bogotá's Chief Strategy and Digital Officer

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Julio Rojas Sarmiento, [3]

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Thank you, Alejandro. Moving to Page 4, I will turn to a discussion of the Colombian macroeconomic environment. GDP growth for 2016 came in at 2.0%, slowing from 3.1% in 2015. On a quarterly basis, growth in Q4 was 1.6%, up from 1.2% in Q3.

2016 was a turbulent year that was affected by several factors that either directly or indirectly impacted the country's performance. Among them: One, the repercussions of the severe decline in oil prices, which dropped from an average price per barrel of $93 in 2014 to $43 in 2016. Two, the severe drought that resulted from El Niño and spiked food prices. Three, the trucker strike that took place in Q3 and severely disrupted the supply chain. Four, the prolonged political and social debate around the peace process and the plebiscite, which chilled investment and consumer sentiment. Five, finally the uncertainty resulting from the tax reform debate and the risk that there would be a downgrade from rating agencies if it failed to pass.

The positive news is that as we kick of 2017, all 5 of these shocks have either been resolved or have significantly subsided. While there are certainly other new headwinds that we're keeping an eye on, we expect GDP growth to modestly recover this year to 2.5%. This improved performance is expected to derive from lower Central Bank interest rates, the beginning of construction of the first wave of 4G projects, a more stable price of oil around $50 per barrel, less pronounced FX movements and a marginally better growth environment globally.

Analyzing 2016 results on a sector by sector basis. It's clear that oil and mining continued to be a drag, decreasing by 6.5% versus the previous year. This was primarily driven by a fall in oil production, which was a result of the lower prevailing prices of oil. On the other hand, there were several other sectors that performed relatively well, particularly financial services, construction and industry, which grew 5.0%, 4.1% and 3.0%, respectively.

Unemployment closed 2016 at 8.7%, roughly at the same level it's been for the last couple of years. January and February usually show higher unemployment figures due to seasonal fluctuations. Compared to last year, it's up 50 basis points to 10.5%.

Turning to Slide 5. You can see that inflation has declined to 5.2% at February 2017, a significant decrease after peaking at 9.0% in July. The convergence of headline inflation with core inflation illustrates that a major driver of the increase in the former was an upward spiral in food prices, which has since come down with the dissipation of El Niño and the trucker strike. A fairly stable COP/USD rate has also moderated the impact of pass-through inflation.

In line with the decreasing inflation and the economic slowdown, the Central Bank has embarked on an easing cycle and has reduced its interest rate 75 basis points since its high of 7.75%. The most recent decrease came last week on Friday. Our expectation is that the Central Bank still has further room to cut this year, reaching around 6.25% by year-end.

As the Central Bank hiked rates in 2016, and inflationary pressure subsided, market-based inflation expectations declined as well. There was a rise in inflation expectations toward the end of last year as the tax reform was debated and the VAT was increased from 16% to 19%. But once it was confirmed, basic family foodstuff and goods were excluded from this change, medium-term figures have returned to being within the 2% to 4% inflation target range. Our expectation is that inflation for 2017 will come in at around 4.4%, an important reduction from 6.8% in 2015 and 5.8% in 2016.

Slide 6 illustrates how Colombia's balance of payments has continued to improve as the economy adjusts its net trade position. The country's current account deficit adjustment continues as the economy incorporates the terms of trade shock from lower oil prices.

For 2016, the deficit amounted to negative 4.4% of GDP, significantly less than the negative 6.4% of GDP for 2015. The result for 2016 was much better than the initial projected level by the Central Bank, which was around negative 6%, illustrating the balance of payment adjustment is proceeding well. The trade balance correction was important driver of this improvement. As the deficit decreased from negative 6.1% of GDP at year-end 2015 to negative 2.1% of GDP at December 2016. The cap was closed due to the decrease in imports of certain goods and services as well as stronger exports.

The current account deficit was financed by an inflow of foreign investment. Foreign direct investment moved away from oil and towards other sectors, as seen with the acquisition of ISAGEN, for example. Foreign portfolio investment continued, especially towards the public fixed income market. For 2017, as long as oil prices and FX levels remain relatively stable, we'd expect the current account deficit to converge on negative 4%.

Moving to international reserves, you can see that they basically stabilized since 2014 at roughly $47 billion. At the current exchange rate, that equates to approximately 17% of GDP. International reserves cover around 12 months of imports, above the long-term average of 8 months and on a comfortable level to protect the country against a sudden stop of capital flows.

On Slide 7, we move to Central America and its key macroeconomic indicators. According to International Monetary Fund estimates, GDP growth in Central America is expected to increase from 4.0% in 2016 to 4.2% in 2017. All countries are expected to grow at 3.7% or above, except for El Salvador, which should be closer to 2.4%. Low, steady oil prices should continue to benefit the region as a net importer of oil. Inflation has stabilized at around 2% in the region. And as such, you've seen monetary policy relatively steady since the beginning of last year, after an easing cycle in 2015.

Finally, on the bottom right, we've included a graph on the trade balance that Central American countries run with the United States. As you can see, unlike Mexico, the Central American countries where BAC operates are all either net importers or basically breakeven. Moreover, among the products that these countries do export, over 60% of them correspond to basic goods like textile and foodstuffs that are very difficult to substitute.

We think that this helps to somewhat mitigate the potential risk that may emerge from the protectionist policies that have been discussed by the Trump administration. Furthermore, given the several high-profile defeats the Trump administration has recent experienced, including the overturn of the travel ban and the failure to secure sufficient votes to revoke Obamacare, it's unclear how easy it will be for his administration to implement its agenda.

Now that we've reviewed our main economic highlights, I'll turn to Slide 8 for a discussion of Banco de Bogotá's fourth quarter business performance. Before jumping into the figures, it's worth reiterating that the deconsolidation of Corficolombiana took place on June 30, 2016. As such, figures for Q3 and Q4 2016 no longer incorporate Corficolombiana on a consolidated basis. For comparative purposes, unless otherwise noted, we've included pro forma figures for Q4 2015 with this deconsolidation included.

Total assets grew 3.2% during the last 12 months and 4.9% on a quarterly basis. Removing foreign exchange movements, assets would have grown 5.5% and 3.0%, respectively. Our consolidated balance sheet structure remains significantly similar to that in place at fourth quarter 2015, with loans comprising 68.7% of the overall asset mix. Colombian assets accounted for 54.1% of our overall assets, which has also remained structurally the same over the past year. The slight variations are due in part to FX rate movements.

On the next slide, we present the evolution of our consolidated loan portfolio. Gross loans increased by 5.9% over the past 12 months and 5.5% over the last quarter. If we neutralize the impact of FX fluctuations, gross loans grew 8.2% year-on-year and 3.6% between the third and fourth quarter of 2016.

Breaking down performance between Colombia and Central America, independent of FX, their respective loan books grew 7.1% and 9.5% over 12 months. In line with both the market and our strategy, our mortgage and consumer books continue to be our fastest growing portfolios. Over the past 12 months, they each grew 11% and 11.7%, respectively, when normalizing for FX movements.

In our mortgage book, in particular, it's important to highlight the differences between region. On an annual basis, in Colombia, our mortgage book grew 24.7%, whereas in Central America, excluding FX, it grew 8.6%. Our outsized growth in Colombia is a result of our much smaller base, with mortgages at Q4 '16 only representing 4.6% of our total book versus 3.9% at Q4 '15. We think this still represents a significant opportunity for healthy growth going forward.

In Central America, on the other hand, growth was more in line with the average, as BAC's mortgage book represented 21% of its overall mix. Commercial loans, our largest lending portfolio, increased 6.4% versus 2015, when excluding the impact of FX. On a quarterly basis, it grew 3.4%.

Similar to our performance, the commercial portfolio grew more slowly than other loan types in the market overall. For next year, we're expecting loan growth of around 8% to 10%. We once again expect to see the mortgage and consumer books as important drivers. Moreover, in commercial lending, the main sectors in which we expect to grow are construction, both from 4G concessions and private housing expansion; manufacturing; services; and food and beverage.

Slide 10 illustrates our consolidated loan portfolio quality. We continue to show robust credit quality in spite of the macro backdrop, which we believe demonstrates our conservative credit and risk management practices.

However, as you can see, the broader slowdown has started to slightly impact some of our ratios over the past year. Our 30- and 90-day past due loans, as a percentage of total loans, remain the same from Q3 to Q4 '16 at 2.7% and 1.7%. In comparison to last year, each ratio increased 30 and 20 basis points, respectively.

Moving to the right, cost of risk were 2016 was 2.1% growth and 1.9% after recoveries. Excluding the extraordinary items of Pacific Rubiales and Electricaribe, these ratios were 1.8% and 1.7%. In comparison to 2015, both gross and net cost of risk increased 20 basis points when excluding extraordinaries. Annualized net cost of risk for the quarter, excluding Electricaribe, was 1.7%, which was lower than Q3 '16 but 30 basis points higher than Q4 '15.

On the bottom left, you can see our charge-offs to average 90-day PDLs. In 2016, this ratio was 1.05x. But excluding Pacific Rubiales, it was 0.95x. It's worth reiterating that Pacific Rubiales has been 100% charged off, and the total charge-off recorded in 2016 was around $50 million. Finally, on the bottom right, you can see our coverage ratios. Our reserves are 2.4% of our total loans and cover our 90-day PDLs 1.4x and our 30-day PDLs 0.9x.

For 2017, we're expecting a net cost of risk, excluding extraordinaries, around 2%. But it's worth highlighting 2 credits we're keeping a close eye on. First, Electricaribe, where our total exposure is COP 364 billion or roughly USD 120 million. As of December 2016, we had provisioned close to 10% of this loan. The government has announced the restructuring of Electricaribe, but it is still evaluating alternatives. And at this point, it remains unclear how exactly the process will unfold. However, since Electricaribe is the primary provider of electricity to the coastal region, serving approximately 2.5 million clients, the government has maintained the entity as an ongoing concern. While it's possible that we may see a resolution to this issue over the next coming months, it's also possible it may drag out longer and require additional provisions.

Second, Ruta del Sol, where our total exposure is COP 731 billion or roughly $240 million. As you know, the government's National Infrastructure Agency and the Ruta del Sol concessionary have signed an agreement in place that stipulates the concessionary's lenders should make a full recovery of their outstanding balance. Notably, these 2 parties signed an addendum just a few days ago, formally beginning the orderly liquidation of the concessionary and the payment of roughly 60% of the total debt owed to the banking sector in the matter of days or weeks. The rest of the outstanding principal should be paid over time.

And finally, while these are relevant figures, it's very important to keep in perspective their dimensions for the bank. The sum of our total exposure from these 2 loans amounts to only about 1% of our total consolidated loan book.

Moving to Slide 11, we present our loan portfolio quality ratios broken down between our operation in Colombia and Central America. In Colombia, our 90-days past due loans ratio grew from 1.9% to 2.2%. Our cost of risk, excluding extraordinaries from Pacific Rubiales and Electricaribe, remained the same at 1.5%. And with charge-offs as a percent of average loans, excluding the Pacific charge-offs, our ratio was 1.5%, which is above 2015 by 40 basis points. Among the reasons for this increase were slightly more charge-offs in the consumer portfolio as well as a write-off of a couple other much smaller commercial clients related to, among others, the oil and gas sector.

In Central America, you can see an increase in our 90-day delinquency ratio. Our cost of risk in the region grew from 1.5% in 2015 to 1.9% in 2016. An important portion of that increase can be attributed to the situation we've mentioned on our last several conference calls regarding the regulatory change in Guatemalan collections, which was subsequently overturned and the impact it had on our credit card portfolio. Our charge-off to average loan ratio remained constant at 1.2% in Central America.

On Slide 12, you can find further detail on the quality of each of our loan portfolios on a 30- and 90-day PDL basis. Our commercial loan 30-day PDL ratio increased 20 basis points versus last year and 30 basis points when measured as 90-day PDLs. Versus the previous quarter, our 30-day PDL ratio has a slight decrease. Compared to 2015, our PDL ratio for our consumer portfolio increased 30 basis points for 30-day and 10 basis points from 90-day PDLs, while remaining relatively stable versus last quarter. That said, we have started to see a bit more deterioration in this portfolio in the recent months. Mortgage portfolio PDLs remained stable on a 90-day basis versus 2015 and Q3 '16. Finally, microcredit, which only composes 0.4% of our total loan book, at Q4 2016, shared an uptick in both metrics.

Slide 13 shows the bank's consolidated funding structure. Total funding, which includes deposits and financial obligations, increased 3.1% over the last 12 months and 5.0% during the last 3 quarters. In absence of the effect of the peso/dollar exchange rate, annual and quarterly growth would have been 5.3% and 3.1%, respectively.

From a composition standpoint, our mix remained relatively stable from fourth quarter 2015 to fourth quarter 2016. As expected, funding from bonds increased from 4.3% to 6.9%, in line with our $1.1 billion subordinated bond issuances in May and October 2016, while funding from banks and overnight borrowings presented a slight decrease.

Zooming in on deposits, total deposits increased 5.5% during the last 12 months and 7.9% during the last quarter. Without the FX impact, annual growth was 7.7% and quarterly growth was 6.0%. Checking accounts represented 29% of total deposits, with savings coming in at 30% and time deposits accounting for 41%.

Finally, at the bottom of the page, you will find our deposit to net loan ratio, which was 0.99x at fourth quarter 2016. This position is among the highest in the market and is reflective of our core strategy that loans should be funded with deposits. Going forward, under current regulation, our strategy is to maintain a roughly similar deposits to net loan ratio.

Flipping to Slide 14, we've laid out our equity and capital adequacy levels. Total equity, defined as attributable equity plus minority interest, was COP 17.2 trillion for the fourth quarter of 2016. This implies a 6.1% and 4.2% increase over the last 12 months and quarter, respectively.

Our tangible common equity to tangible assets ratio increased 60 basis points to 8.3% for fourth quarter 2016 as compared to the previous year, which reflects the bank's profitability and the capitalization of an important percentage of net income as well as more moderate asset growth throughout the year.

At the bottom of the page, you can see our solvency ratios as reported according to the Colombian Superintendency of Finance's regulation. To be clear, for this ratio we have not pro forma-ed our 2015 number for the deconsolidation of Corficolombiana.

At year-end 2016, we reported robust ratios of 9.0% of Tier 1 and 13.9% for total solvency. The decrease in Tier 1 from 9.4% at Q4 '15 to 9.0% at Q4 '16 was primarily a result of the deconsolidation of Corficolombiana. Previously, when Corficolombiana was consolidated, it contributed around COP 1.1 trillion of minority interest. Moreover, it did not deduct COP 3.3 trillion for being an unconsolidated investment in the financial services sector.

This negative impact was partially offset by fully capitalizing the COP 2.2 trillion gain resulting from the required fair value at the deconsolidation, as well as the decrease in risk-weighted assets. A rough pro forma of our 4Q '15 figure, with Corficolombiana deconsolidated, would have shown a Tier 1 of around 8.1%.

This clearly illustrates that over the course of 2016, we organically built our Tier 1 capital ratio around 90 basis points. We expect to build capital over the course of 2017 as well. As mentioned by Mr. Figueroa previously, this will be reflected in our Tier 1 ratio post our Annual Shareholder Meeting in March 2018.

The decrease in our Tier 1 ratio from 9.5% at Q3 '16 to 9.0% at Q4 '16 was driven primarily by 2 factors: one, an acceleration of growth particularly in the loan book, which increased RWA; and two, seasonality and the fact that no earnings are capitalized in December. Finally, and most importantly, not only are both of our capital ratios well above the Colombian regulatory minimums, but we believe they position us well to support our expected growth over the next 12 to 18 months.

Turning from the balance sheet to our income statement. On Page 15, you can see the evolution of our net interest income and net interest margins. Net interest income for 2016 was COP 6.3 trillion, representing an annual increase of 16.3%. In line with this growth, our net interest margin expanded from 5.6% in 2015 to 5.9% in 2016. Q4 '16 NIM was 6.1% versus 5.6% in Q4 '15, illustrating the fact that the increase in our NIM accelerated throughout the year. As an asset-sensitive bank, this was commensurate with the rise in Central Bank rates.

Our yield on loans for 2016 increased by 130 basis points over 2015, rising from 9.7% to 11.0%. Q4 2016 yield on loans showed a 160 basis point increase compared to Q4 '15, rising from 9.8% to 11.4%. Annual yield on fixed income investments also increased, albeit more gradually, rising 20 basis points from 4.5% in 2015 to 4.7% in 2016.

For Q4 '16, our investment yield was 4.9%, which was 70 basis points higher that it was in Q4 '15. Partially counteracting the higher yield on our assets was an increase in our funding cost, which rose 90 basis points to 4.3% for full year 2016. Q4 '16 funding costs was 100 basis points higher than Q4 '15. However, comparing Q4 '16 versus Q3 '16, you can observe a 10 basis point decrease in funding costs, which was beneficial for our results given our yield on loans increased over this same time period.

From a regional perspective, the increase in our NIM was driven primarily by Colombia, as our Central American NIM expressed in dollars remained roughly constant. Even though we're projecting a declining interest rate environment in Colombia this year, as of now, we're seeing an average Central Bank rate for 2017 that should be relatively similar to the average for 2016. As a result, we would expect our NIM for 2017 to remain in a relatively similar range as our 2016 NIM, although it will depend upon the speed and sharpness with which the Central Bank eases. That said, on a quarterly basis, when compared to Q4 '16, you should start to see a slight decline. Our internal calculations show a sensitivity of roughly 10 basis points for every 100 basis points move in the Central Bank rate.

Moving to Slide 16, you'll find the evolution of our fees and other income. Fee income continues to be an important source of revenue for the bank, as demonstrated by our 34.5% fee income ratio. The fact that this ratio remains relatively steady between 2015 and 2016, when our net interest income grew so materially, illustrates a robust fee income annual growth rate of 15.8%.

As of Q4 2016, banking fees represented 74.5% of total fees, up from 73.6% at Q4 2015. This was primarily driven by an increase in credit card, bank assurance and banking fees, as well as the retail portfolio continuing to grow. Our fee income ratio for 2017 should be roughly similar to the results for 2016.

At the bottom of the page, you can see the details of our other operating income, which amounted to COP 3.4 trillion in 2016. Excluding the COP 2.2 trillion gain derived from Corficolombiana's deconsolidation, our other operating income totaled COP 1.2 trillion, which was a 16% increase versus 2015. There are couple of other items worth highlighting that explain this change. In derivative and foreign exchange, part of the increase was due to FX movements in Central America as well as a reduced cost of our hedging derivatives in 2016. The increase in other income can be explained in part by the COP 0.1 trillion gain associated with fair valuing our 16.4% stake in Credibanco.

Finally the decrease in our equity method income from COP 0.2 trillion to COP 0.1 trillion includes the impact of the impairment loss of COP 99 billion taken by Episol, a wholly own subsidiary of Corficolombiana related to its investment in Concesionaria Ruta del Sol. Banco de Bogotá's income statement showed a charge of COP 32 billion as per its 38.3% equity stake in Corficolombiana, with the remaining COP 7 billion charge flowing through our OCI account.

On Slide 17, you can see our expense ratios, both the percent of total income and average assets. Our efficiency ratio, excluding onetime items from BAC that were booked in the second semester, was 48.8% for 2016, better than our 49.2% ratio for 2015. The onetime items from BAC that we're removing totaled roughly $40 million and included, among others, costs associated with the sell of the Mexican loan portfolio, the acceleration of the amortization of a few items as per accounting standards and personnel liquidation expenses.

As a percent of average assets, our expense ratio deteriorated slightly by 15 basis points to 3.82% for 2016. Part of the increase in our total personnel and administrative expenses was driven by a mandatory increase in salaries as per our collective bargaining agreement in Colombia, which stipulate salary hikes by inflation plus a slight spread. Given inflation spiked in mid-2016 at the time of the benchmark, the total increase was around 10%. This rise was implemented in the fourth quarter of 2016. As a result of the decrease in inflation over the past several months, however, this corresponding increase for 2017 should be lower.

Our administrative expenses saw an increase due to the fact that a portion of our IT contracts are in dollars, and the peso depreciation has increased their weight over time. There were also higher administrative expenses from BAC from certain investments in technology.

In terms of cost controls, one initiative that's worth briefly mentioning is our pushing into digital. While we're still in the very early innings, to the extent that we only kicked it off this month and it has had no impact on our expense figures to date, one of the main tenets of this transformation is to streamline operations and improve our efficiency. There are several fronts that we're working on to achieve that end, but they include, among others, the migration of transactions and services towards lower-cost automated channels. This is a process that takes time and won't happen overnight, but we're fully convinced that it will yield material results for the bank over the medium term and will ensure competitiveness over the long term. For 2017, we're currently expecting our efficiency ratio to come in at around 50%.

Moving to the last slide, you can see our net income and profitability ratios. Attributable net income for 2016, excluding the onetime COP 2.2 trillion gain associated with fair value in Corficolombiana when it was deconsolidated, was COP 2.1 trillion. This represented an 8.4% increase over 2015. Excluding the wealth tax and the Corficolombiana related gain, return on average assets and return on average equity for 2016 were 1.8% and 15.4%, respectively.

As you can see, our ROAA remained constant versus 2015 at 1.8%, but our ROAE decreased from 17.2%. This was due to fully capitalizing the COP 2.2 trillion Corficolombiana-related gain, as it materially increased our equity account without contributing any recurring net income.

For the fourth quarter of 2016, attributable net income was COP 548 billion, which represented a 3.5% decrease versus fourth quarter of 2015. This marginal decline was partially due to the onetime expense resulting from the impairment loss recorded at Episol, as well as the previously mentioned onetime expenses recorded at BAC. Our projection for 2017 is to maintain a roughly similar ROAA.

As for ROAE, we're expecting a figure around 14%. The lower return on equity for next year is simply a result of the June 2016 capitalization of the COP 2.2 trillion being averaged in our equity account throughout the entire year in 2017, as opposed to only for half of the year as it was 2016.

Finally, before moving to the Q&A portion of the call, I'll recap our guidance for 2017. We expect our loan growth to be in the 8% to 10% area for 2017. From a funding perspective, we continue to believe that maintaining a closely-matched deposits to net loans ratio is an important tenet of our strategy. We expect our net interest margin for 2017 to come in around the 5.75% to 6% area, but it will depend on the speed with which the Central Bank lowers its interest rate. Our cost of risk, excluding extraordinaries, should be around 2% for 2017.

We continue to see our fee business as a strong source of revenue generation going forward, especially as we continue to grow our retail book and we expect to roughly maintain our fee income ratio. Regarding efficiency, for 2017, we expect a figure of around 50%. We expect our effective tax rate for 2017 to be around 33%. However, as a result of the fiscal reform that was approved at the end of last year, this should start to come down starting next year, reaching around 30% by 2019. Finally, our guidance around 2017 return on assets and return on equity is around 1.8% and 14%, respectively.

Thank you, and we're now open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from María Barriga from Davivienda Corredores.

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María Francisca Barriga, Corredores Davivienda S.A., Research Division - Financial Sector Analyst [2]

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I had a question regarding provisions. Would we be expecting additional provisions from Electricaribe in the first quarter? And the other one regarding provisions is that, if you had any provisions regarding Bogotá's massive transportation system, and which was this amount?

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Julio Rojas Sarmiento, [3]

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Sure. Well, let's start with the first question on Electricaribe. There has been a slight increase for the provision expense for Electricaribe over the first quarter. It should roughly be probably be another $5 million, which is what you've seen. We currently have Electricaribe rated as double CC, which is the standard that -- in our discussions with the Superintendency, seems to be appropriate as it's in a restructuring process but is being continued as an ongoing concern. So that's where we are with Electricaribe. In terms of the mass transportation system, the -- that's actually a sector where we have, I think, relatively lower exposure versus others. Our total exposure to that sector entirely is less than $100 million. And of that, there are only really 1 or 2 providers that we're more concerned about. But to give you an idea, roughly our provisions for that are around $10 million to $12 million. It may increase slightly, but we're not seeing that as a large of a risk as some of the others that we've mentioned.

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Operator [4]

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(Operator Instructions) We have a question from Aníbal Valdés from Barclays.

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Luis Aníbal Valdés Echazu, Barclays PLC, Research Division - Emerging Markets Corporate Analyst [5]

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I have a quick question on capital of Tier 1. That 9.0%, that already includes the capitalization of the results of 2016?

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Julio Rojas Sarmiento, [6]

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No. So it works -- the way that it's been working this year, the answer is partially. So the way that we've been doing our shareholder meetings until now, which are March and September. So the September 2016 shareholder meeting capitalized the results from the first half of 2016. The second half of 2016, that capitalization occurs in our March meeting. And just to be clear on that, to reiterate the point that we made on the call, we're actually, this year, we're now moving from instead of a biannual calendar to just once a year. So our March 2017 meeting, which we'll be holding in the next few days, the next meeting after that will be March 2018. So the March 2018 meeting would be where you would see the capitalization of the entire 2017 earnings.

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Operator [7]

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Thank you. With this, we have no further questions. I would like to turn the call over to Mr. Figueroa for closing remarks.

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Alejandro Figueroa Jaramillo, Banco de Bogotá S.A. - CEO [8]

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Thank you to all of you for attending the -- thank you very much for all of you for attending this meeting, and we expect that you will also attend our next meeting for the first quarter of 2017.

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Operator [9]

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Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.