Fitch Assigns Initial 'BBB-' IDR to Bancolombia Panama SA; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned Bancolombia (Panama) SA (BP) the following initial ratings:

--Foreign currency long-term Issuer Default Rating (IDR) 'BBB-';

--Foreign currency short-term IDR 'F3';

--Individual rating 'D';

--Support rating '2';

--Long-term CDs (Certificados Negociables) 'BBB-';

--Short-term CDs 'F3'.

The Rating Outlook is Stable.

Bancolombia Panama's (BP's) IDRs reflect the support it would receive from its parent (Bancolombia, rated 'BBB-' by Fitch) should it be required. The individual rating reflects its sound performance, adequate loan loss reserves, high efficiency, and sufficient liquidity; they also consider the bank's decline in asset quality and relatively low - albeit improving - capital base.

In Fitch's opinion, considering BP's integration with its parent and importance in its business strategy, support from Bancolombia should be forthcoming if needed. Bancolombia's ability to support BP is reflected in its IDR.

BP's IDRs could be upgraded if Bancolombia's IDR is upgraded; the IDRs would move in line with Bancolombia's rating. The individual rating could be pressured if BP's performance declines, asset quality deteriorates, reserve coverage weakens, or capital ratios deteriorate.

BP maintained its sound performance - in spite of weak loan growth - thanks to its resilient margins, improving operating costs and lower pressure from loan loss provisions. Operating costs remained under control and credit cost declined after the high levels of 2008-2009. Overall efficiency and profitability improved with ROAA reaching 1.8% and ROAE attaining 21.2% at June 2010. Given the lean operation in Panama (oriented to the top tier Colombian market), BP's profitability ratios on an unconsolidated basis attained even more flattering levels. Deposits resumed growth and remain the main source of funding while asset quality declined but seems to reach some stability with adequate reserves. Capital is encumbered by significant goodwill and other intangibles but has improved steadily thanks to consistently good returns and will likely continue the good trend, albeit at a slow pace.

Future revenue growth should come from faster loan growth mostly from Colombia, where economic prospects are better; BA operates within a more challenging environment that limits growth and pressures asset quality. Margins should remain relatively stable given the improving credit demand in Colombia and BA's sound competitive position. On the other hand, non-interest revenues could improve as the bank exploits cross-selling opportunities. Operating costs are expected to remain under control but improvements should be slower going forward; credit cost is expected to remain stable or even decline, but it remains highly dependent on the stability of El Salvador's economy. Overall profitability should improve but remain below its historical highs with ROAA around 2% and ROAE above 20%; still very good levels that should contribute to gradually restore capital.

BP is 100% owned by Bancolombia and is a key subsidiary that offers offshore financial services to its largest customers and acts as holding company for Bancolombia's largest investment abroad, Banco Agricola (BA). Bancolombia is in turn controlled by a conglomerate of companies active in several industries; Bancolombia's main shareholders are Grupo Suramericana and Inversiones Argos.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010)

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

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Contacts

Fitch Ratings
Primary Analyst:
Diego Alcazar, +1-212-908-0396
Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Fernando Suarez, +57-1-326-9999
Associate Director
or
Committee Chairperson:
Peter Shaw, +52-81-8399-9146
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com
Additional information is available at 'www.fitchratings.com'.

Contacts

Fitch Ratings
Primary Analyst:
Diego Alcazar, +1-212-908-0396
Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Fernando Suarez, +57-1-326-9999
Associate Director
or
Committee Chairperson:
Peter Shaw, +52-81-8399-9146
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com
Additional information is available at 'www.fitchratings.com'.