Prospectus Supplement
Table of Contents

Filed Pursuant to Rule 424(b)(5)
File Number 333-168077

 

PROSPECTUS SUPPLEMENT      
(To Prospectus dated July 13, 2010)      

This Prospectus Supplement amends and restates the Prospectus Supplement filed on February 2, 2012 to revise "Preliminary Prospectus Supplement" on the cover page to "Prospectus Supplement".

 

LOGO

Bancolombia S.A.

4,447,002 American Depositary Shares Representing 17,788,008 Preferred Shares

 

 

We are offering 4,447,002 American depositary shares (“ADS”), each representing four of our preferred shares. The ADSs are being offered in the United States and elsewhere outside of Colombia by the underwriters named in this prospectus supplement.

The ADSs trade on the New York Stock Exchange (“NYSE”) under the symbol “CIB”. The preferred shares trade on the Bolsa de Valores de Colombia (the “Colombian Stock Exchange”) under the symbol “PFBCOLOM.” On January 31, 2012, the last reported sale price of the ADSs on the NYSE was US$62.01 per ADS and the last reported sale price of the preferred shares on the Colombian Stock Exchange was Ps 27,960 per preferred share.

Investment in the ADSs involves risks. See “Risk Factors” beginning on page S-12 of this prospectus supplement to read about certain risk factors you should consider before investing in the ADSs.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement and accompanying prospectus. Any representation to the contrary is a criminal offense.

The ADSs may not be offered or sold, directly or indirectly, in Colombia or to any resident of Colombia, except as permitted by applicable Colombian law.

THE REVIEW OF THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS CONSIDERED ESSENTIAL IN ORDER TO ALLOW AN ADEQUATE EVALUATION OF THE INVESTMENT BY POTENTIAL INVESTORS. THE PREFERRED SHARES HAVE BEEN REGISTERED IN THE REGISTRO NACIONAL DE VALORES Y EMISORES (THE COLOMBIAN NATIONAL REGISTRY OF SECURITIES AND ISSUERS). NEITHER THE REGISTRATION NOR THE APPROVAL OF THE PUBLIC OFFER ISSUED BY THE SUPERINTENDENCIA FINANCIERA DE COLOMBIA (THE COLOMBIAN SUPERINTENDENCY OF FINANCE) SHOULD BE UNDERSTOOD AS A RATING OR ASSUMPTION OF LIABILITY BY THE COLOMBIAN SUPERINTENDENCY OF FINANCE WITH RESPECT TO THE ISSUER, PRICE, QUALITY OR TRADEABILITY OF THE SECURITIES OR OF THE ISSUANCE, OR OF OUR SOLVENCY. THE REGISTRATION OF THE PREFERRED SHARES ON THE COLOMBIAN STOCK EXCHANGE SHOULD NOT BE UNDERSTOOD AS A RATING OR ASSUMPTION OF LIABILITY BY THE COLOMBIAN STOCK EXCHANGE WITH RESPECT TO THE ISSUER, PRICE, QUALITY OR TRADEABILITY OF THE SECURITIES OR OF THE ISSUANCE, OR OF OUR SOLVENCY.

 

     Per ADS      Total  

Public offering price

   $ 60.00000       $ 266,820,120   

Underwriting discount(1)

   $ 1.52922       $ 6,800,444   

Proceeds to us (before expenses)

   $ 58.47078       $ 260,019,676   

 

(1)

In addition, upon completion of this offering, we will pay a special structuring fee of US$1,099,150 to the underwriters and have agreed to reimburse the underwriters for their reasonable fees and expenses in connection with the offering. See “Underwriting.”

The underwriters may also purchase up to an additional 667,049 ADSs from us at the public offering price, less the underwriting discounts and commissions payable by us within 30 days of the date of this prospectus supplement. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be US$7,620,931 and the total proceeds, before expenses, to us will be US$299,222,152.

We expect to deliver the ADSs on or as soon as practicable after February 6, 2012.

 

 

 

UBS Investment Bank   BofA Merrill Lynch      J.P. Morgan

Global Coordinator and Joint Bookrunner

  Joint Bookrunner      Joint Bookrunner

 

 

The date of this prospectus supplement is January 31, 2012.


Table of Contents

Table of Contents

PROSPECTUS SUPPLEMENT

 

    Page  

About This Prospectus Supplement

    i   

Available Information

    ii   

Incorporation of Certain Information by Reference

    iii   

Exchange Rates

    iv   

Forward-Looking Statements

    v   

Enforcement of Civil Liabilities Against Foreign Persons

    vi   

Summary

    S-1   

The Offering

    S-6   

Summary Financial Data

    S-8   

Risk Factors

    S-12   

Use of Proceeds

    S-23   

Ratios of Earnings to Fixed Charges and Preferred Share Dividends

    S-24   

Capitalization

    S-25   

Price Range of the ADSs and Preferred Shares

    S-26   

Dividend Policy

    S-28   

Selected Statistical Information

    S-30   

Colombian Banking Regulations

    S-36   

Certain Foreign Investment Considerations

    S-46   

Tax Considerations

    S-48   

Underwriting

    S-56   

Expenses

    S-66   

Validity of the Securities

    S-67   

Experts

    S-68   

Unaudited Condensed Consolidated Interim Financial Statements

    S-69   
PROSPECTUS  
    Page  

About this Prospectus

    1   

Available Information

    1   

Incorporation of Certain Information by Reference

    2   

Forward-Looking Statements

    3   

Bancolombia

    4   

Use of Proceeds

    5   

Ratio of Earnings to Fixed Charges and Preferred Share Dividends

    6   

Capitalization

    7   

Selected Financial Data

    8   

Selected Statistical Information

    10   

The Securities

    14   

Legal Ownership

    14   

Description of Debt Securities

    17   


Table of Contents

Description of the Preferred Shares

    18   

Description of the American Depositary Receipts

    23   

Description of the Rights to Subscribe Preferred Shares

    32   

Plan of Distribution

    32   

Validity of the Securities

    34   

Experts

    34   

Enforcement of Civil Liabilities Against Foreign Persons

    34   


Table of Contents

ABOUT THIS PROSPECTUS SUPPLEMENT

This document is divided in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering. The second part is the accompanying prospectus, which describes more general information, some of which may not apply to this offering.

You should rely only on the information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus and in any free writing prospectus filed with the U.S. Securities and Exchange Commission (the “SEC”). This prospectus supplement contains the terms of this offering. This prospectus supplement, or the information incorporated by reference in the accompanying prospectus, may add, update or change information in the accompanying prospectus. If information in this prospectus supplement, or the information incorporated by reference in the accompanying prospectus, is inconsistent with the accompanying prospectus, this prospectus supplement, or the information incorporated by reference in the accompanying prospectus, will apply and will supersede that information in the accompanying prospectus.

In this prospectus supplement and the accompanying prospectus, unless the context otherwise requires, references to “Bancolombia,” the “Bank,” “we,” “us” or “our” mean Bancolombia S.A. and its consolidated subsidiaries taken as a whole. In addition, all references in this prospectus supplement and the accompanying prospectus to “pesos”, “Ps” and “COP” are to the currency of Colombia and references to “U.S. dollars” and “US$” are to the currency of the United States of America. Also, as used herein, the term “billion” means one thousand million, or 1,000,000,000, and the term “trillion” means one million million, or, 1,000,000,000,000.

No dealer, salesperson or other individual has been authorized to give any information or to make any representations other than those contained or incorporated by reference in this prospectus supplement or the accompanying prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by Bancolombia, the underwriters or any other person. Neither the delivery of this prospectus supplement and the accompanying prospectus nor any sale made hereunder or thereunder shall under any circumstances create an implication that there has been no change in the affairs of Bancolombia since the date hereof or thereof or that the information contained herein or therein is correct as of any time subsequent to its date. Our business, financial condition, results of operation and/or prospects may have changed since those dates.

Bancolombia accepts responsibility for the information contained in this prospectus supplement and the accompanying prospectus. The distribution of this prospectus supplement and the accompanying prospectus and the offer or sale of the ADSs in some jurisdictions may be restricted by law. Persons into whose possession this prospectus supplement and the accompanying prospectus come are required by us and the underwriters to inform themselves about and to observe any applicable restrictions. This prospectus supplement and the accompanying prospectus do not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation.

 

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AVAILABLE INFORMATION

This prospectus supplement and the accompanying prospectus are part of a registration statement on Form F-3 filed by us with the SEC under the U.S. Securities Act of 1933, as amended (the “Securities Act”). We are also subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), applicable to a foreign private issuer and, accordingly, file or furnish reports, including annual reports on Form 20-F, reports on Form 6-K, and other information with the SEC. You may read and copy any documents filed by us at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the SEC are also available to the public through the SEC’s Internet site at http://www.sec.gov and through the NYSE located at 20 Broad Street, New York, New York 10005.

 

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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The SEC’s rules allow us to “incorporate by reference” information into this prospectus supplement. This means that we can disclose important information to you by referring you to another document that has also been filed with the SEC. Any information referred to in this way is considered part of this prospectus supplement from the date we file the document incorporated by reference with the SEC. Any reports filed by us with the SEC after the date of this prospectus supplement and before the date that the offering of the securities by means of this prospectus supplement is completed or terminated will be incorporated by reference into this prospectus supplement and will automatically update and, where applicable, supersede any information contained in this prospectus supplement or incorporated by reference in this prospectus supplement (other than, in each case, documents or information deemed to have been furnished and not filed in accordance with SEC rules).

We incorporate by reference into this prospectus supplement the following documents or information filed by us with the SEC:

 

  (1) our Annual Report on Form 20-F for the fiscal year ended December 31, 2010, filed on April 28, 2011 (the “Annual Report”); and

 

  (2) our reports on Form 6-K, dated and filed on May 3, 2011, November 3, 2011 (3Q11 Earnings Results Press Release), December 27, 2011 (Unaudited Condensed Consolidated Financial Statements with related Notes for the period ended June 30, 2011) and January 13, 2012 (Amendment to 6-K filed on December 27, 2011).

The preceding list supersedes and replaces the documents listed in the accompanying prospectus under the heading “Incorporation of Certain Information by Reference.”

We will provide without charge to each person, including any beneficial owner, to whom this prospectus supplement is delivered, upon his or her written or oral request, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus supplement.

You may request a copy of these filings by writing or telephoning us at our principal executive offices at the following address:

Bancolombia S.A.

Carrera 48 # 26-85, Avenida Los Industriales

Medellín, Colombia

Attention: General Secretary

Telephone Number: (574) 404-1837

 

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EXCHANGE RATES

This prospectus supplement converts certain peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. The Federal Reserve Bank of New York does not report a rate for pesos. Unless otherwise indicated, such peso amounts have been converted at the rate of COP 1,913.98 per US$1.00, which corresponds to the tasa representativa del mercado (“representative market rate”) calculated on December 31, 2010. The representative market rate is computed and certified by the Superintendencia Financiera de Colombia, the Colombian Superintendency of Finance (the “SFC”), on a daily basis and represents the weighted average of the buy/sell foreign exchange rates negotiated on the previous day by certain financial institutions authorized to engage in foreign exchange transactions (including us). The SFC also calculates and certifies the average representative market rate for each month for purposes of preparing financial statements, and converting amounts in foreign currency to pesos. You should not construe these convenience conversions as a representation that the peso amounts correspond to, or have been or could be converted into, U.S. dollars at the representative market rate or any other rate.

On September 30, 2011, the representative market rate was COP 1,929.01 per US$1.00, as published on October 1, 2011. On January 31, 2012, the representative market rate was COP 1,805.98 per US$1.00, as published on February 1, 2012.

The following table sets forth the low and high peso per U.S. dollar exchange rates and the peso/U.S. dollar representative market rate on the last day of the month, for each of the last six months:

Recent exchange rates of U.S. Dollars per Peso

 

Month

   Low      High      Period End  

January 2012

     1,801.88         1,942.70         1,805.98   

December 2011

     1,920.16         1,949.56         1,942.70   

November 2011

     1,871.49         1,967.18         1,948.51   

October 2011

     1,862.84         1,972.76         1,871.49   

September 2011

     1,778.51         1,929.01         1,929.01   

August 2011

     1,765.53         1,811.68         1,780.26   

 

Source: SFC

The following table sets forth the peso/U.S. dollar representative market rate on the last day of the year and the average peso/U.S. dollar representative market rate (calculated by using the average of the representative market rates on the last day of each month during the year) for each of the five most recent financial years.

Peso/U.S.$1.00 representative market rate

 

Year

   Period End      Average  

2011

     1,942.70         1,852.83   

2010

     1,913.98         1,901.67   

2009

     2,044.23         2,179.64   

2008

     2,243.59         1,993.80   

2007

     2,014.76         2,069.21   

 

Source: SFC

 

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FORWARD-LOOKING STATEMENTS

This prospectus supplement contains statements which may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not based on historical facts, but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Words such as “anticipate,” “believe,” “estimate,” “approximate,” “expect,” “may,” “intend,” “plan,” “predict,” “target,” “forecast,” “guideline,” “should,” “project” and similar words and expressions are intended to identify forward-looking statements. It is possible that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements.

Information regarding important factors that could cause our actual results to differ, perhaps materially, from those in our forward-looking statements appear in a number of places in this prospectus supplement and the documents incorporated in this prospectus supplement by reference and include, but are not limited to:

 

   

changes in general economic, business, political, social, fiscal or other conditions in Colombia, or in any of the other countries where we operate;

 

   

changes in capital markets or in markets in general that may affect policies or attitudes towards lending;

 

   

unanticipated increases in our financing and other costs, or our inability to obtain additional debt or equity financing on attractive terms;

 

   

inflation, changes in foreign exchange rates and/or interest rates;

 

   

sovereign risks;

 

   

liquidity risks;

 

   

increases in defaults by our borrowers and other loan delinquencies;

 

   

lack of acceptance of new products or services by our targeted customers;

 

   

competition in the banking, financial services, credit card services, insurance, asset management, remittances, business and other industries in which we operate;

 

   

adverse determination of legal or regulatory disputes or proceedings;

 

   

changes in official regulations and the Colombian government’s banking policy as well as other changes in laws, regulations or policies in the jurisdictions in which we do business;

 

   

regulatory issues relating to acquisitions;

 

   

changes in business strategy; and

 

   

other factors identified or discussed under “Risk Factors” in this prospectus supplement and elsewhere in the Annual Report, which is incorporated in this prospectus supplement by reference.

Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or revise any forward-looking statements after the date on which they are made in light of new information, future events and other factors.

 

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ENFORCEMENT OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS

We are a Colombian company, a majority of our directors and management and certain of the experts named in this prospectus supplement are residents of Colombia, and a substantial portion of their respective assets are located in Colombia.

We have been advised by Brigard & Urrutia S.A., that the Colombian Supreme Court determines whether to enforce a U.S. judgment predicated on the U.S. securities laws through a procedural system known under Colombian law as exequatur. The Colombian Supreme Court will enforce a foreign judgment, without reconsideration of the merits, only if the judgment satisfies the requirements of Articles 693 and 694 of Colombia’s Código de Procedimiento Civil (Code of Civil Procedure), which provide that the foreign judgment will only be enforced if:

 

   

a treaty exists between Colombia and the country where the judgment was granted or there is reciprocity in the recognition of foreign judgments between the courts of the relevant jurisdiction and the courts of Colombia;

 

   

the foreign judgment does not relate to “in rem rights” vested in assets that were located in Colombia at the time the suit was filed and does not contravene or conflict with Colombian laws relating to public order other than those governing judicial procedures;

 

   

the foreign judgment, in accordance with the laws of the country where it was rendered, is final and is not subject to appeal and a duly certified and authenticated copy of the judgment has been presented to a competent court in Colombia;

 

   

the foreign judgment does not refer to any matter upon which Colombian courts have exclusive jurisdiction;

 

   

no proceeding is pending in Colombia with respect to the same cause of action, and no final judgment has been awarded in any proceeding in Colombia on the same subject matter and between the same parties; and

 

   

in the proceeding commenced in the foreign court that issued the judgment, the defendant was served in accordance with the law of such jurisdiction and in a manner reasonably designated to give the defendant an opportunity to defend against the action.

The Colombian Supreme Court has generally accepted that reciprocity exists when it has been proven that either a U.S. court has enforced a Colombian judgment or that a U.S. court would enforce a foreign judgment, including a judgment issued by a Colombian court. In accordance with previous rulings of the Colombian Supreme Court, reciprocity may also be granted by a treaty or by law. Such enforceability decisions are considered by Colombian Supreme Court on a case-by-case basis.

The United States and Colombia do not have a bilateral treaty providing for automatic reciprocal recognition and enforcement of judgments in civil and commercial matters. However, Colombia is party to international treaties such as the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), the 1975 Inter-American Convention on International Commercial Arbitration, and the 1965 Washington Convention for the Settlement of Disputes between States and Nationals of Other States.

In the case of foreign arbitral awards that under Colombian law meet the requirements necessary to be considered as rendered in an “international” arbitration proceeding, the Colombian Supreme Court in a ruling dated July 27, 2011, stated that the only applicable requirements for the enforcement of such arbitral awards in Colombia are those set forth in the New York Convention.

In accordance with the Colombian Supreme Court’s ruling, the enforcement order (exequatur) should be decided without reconsideration of the merits of the foreign award unless such award would result in the violation of international public policy. Furthermore, in accordance with the New York Convention and the

 

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Colombian Supreme Court’s ruling, recognition and enforcement of the award may only be denied if the party against which the award is being enforced proves the existence of an event listed in the New York Convention as a cause for denying recognition of a foreign award. If the Colombian Supreme Court grants the enforcement order (exequatur), the procedure for enforcement will be decided by the Colombian courts in accordance with the Code of Civil Procedure by means of collection proceedings.

 

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SUMMARY

This summary highlights selected information from, or incorporated by reference in, this prospectus supplement or the accompanying prospectus, but does not contain all the information that may be important to you. You should read carefully this entire prospectus supplement, the accompanying prospectus and those documents incorporated by reference into this document, including the “Risk Factors” and the financial statements and the related notes thereto, before making an investment decision.

Company Overview

We are Colombia’s leading financial institution, providing a wide range of financial products and services to a diversified individual and corporate customer base throughout Colombia as well as in other jurisdictions such as Panama, El Salvador, Puerto Rico, the Cayman Islands, Peru, Brazil and the United States.

We have grown substantially in recent years, through organic growth as well as through acquisitions. Since 2007, our assets, net loans, deposits and equity have grown at compound annual growth rates of 12.3%, 11.6%, 9.6% and 13.9%, respectively. As of September 30, 2011, we had, on a consolidated basis:

 

   

COP 80,622 billion in total assets;

 

   

COP 54,745 billion in total net loans and financial leases;

 

   

COP 48,472 billion in total deposits; and

 

   

COP 8,466 billion in stockholders’ equity.

Our consolidated net income for the year ended December 31, 2010 and for the nine months ended September 30, 2011 was COP 1,436 billion and COP 1,160 billion, respectively, representing an average return on equity of 19.7% and 19.2%, respectively, and an average return on assets of 2.3% and 2.1%, respectively.

We are a stock company (sociedad anónima), domiciled in Medellín, Colombia and operate under Colombian laws and regulations, mainly the Colombian Code of Commerce, Decree 663 of 1993 (the “Financial Statute”) and Decree 2555 of 2010. We were incorporated in Colombia in 1945, under the name Banco Industrial Colombiano S.A. or “BIC”. In 1998, we merged with Banco de Colombia S.A., and changed our legal name to Bancolombia S.A. On July 30, 2005, Conavi and Corfinsura merged with and into Bancolombia, with Bancolombia as the surviving entity. Through this merger, Bancolombia gained important competitive advantages, as Conavi and Corfinsura were two of the top financial institutions in the Colombian market at the time. Conavi, a mortgage bank in Colombia and one of the strongest in retail operations, significantly increased the Bank’s participation and know-how in these specific markets. On the other hand, Corfinsura, then the largest financial corporation in Colombia and highly regarded for its expertise in handling large and mid-sized corporate credit loans and financial services, its investment bank and its modern and diversified treasury department, materially strengthened our full service franchise.

In May 2007, Bancolombia Panamá acquired Banagrícola, which controls several subsidiaries, including Banco Agrícola in El Salvador, and is dedicated to banking, commercial and consumer activities, insurance and brokerage. Through this first international acquisition, we gained a leadership position in the Salvadorian financial market.

Since 1995, we have maintained a listing on the NYSE, where our ADSs are traded under the symbol “CIB”, and on the Colombian Stock Exchange, where our preferred shares are traded under the symbol “PFBCOLOM”. Since 1981 our common shares have been traded on Colombian exchanges under the symbol “BCOLOMBIA”.

 

 

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Strategy

Our goal is to maintain our position as a leading provider of financial services in Colombia and El Salvador while increasing our profitability. The key elements of our strategy are:

Maintaining our Leading Position in the Colombian and El Salvadorian Financial Services Market

We continue to capitalize on our strong brand name recognition and leading market position in Colombia in order to grow our business. We believe that the Colombian financial services market offers new and attractive growth potential. In particular, banking penetration in Colombia, as measured by loans to gross domestic product, is lower than in many of the countries in the region. We believe that this low penetration in combination with strong expected growth in the Colombian economy will support growth in the banking market, particularly in retail and mortgage loans. We intend to maintain our relationships with our corporate clients, while focusing additional resources on “under-served” segments, which include retail and small businesses, by tailoring innovative banking products targeted at these clients.

Actively Pursuing Cross-Selling Opportunities

We intend to increase our market share and profitability by cross-selling our products and services. We believe that our existing customer base represents a significant opportunity to sell additional banking products and services. We believe that there are particularly attractive opportunities with our corporate banking clients. Within the corporate banking segment, we intend to focus on lower risk, higher margin products and services, such as international trade finance, leasing and factoring.

Focus on Improving Operating Efficiency

We are committed to improving our operating efficiency and profitability. By focusing on investments and development of a technological platform and on the use of electronic distribution channels, we aim to increase our customers’ use of electronic transactions, thereby addressing our customers’ evolving needs and potentially increasing the transactions conducted by our customers. We also continue to implement technological solutions aimed at identifying means of improving our pricing processes and assessing the profitability of our business segments. Through these initiatives, we will continue to strive to improve our efficiency ratio.

Increasing our Profitability by more Effectively Deploying our Assets

We continue to seek the most attractive opportunities to improve our profitability. Our acquisition of Banagrícola, S.A. illustrates our decision to strategically use our capital to increase our profitability. We will continue to opportunistically seek other investment opportunities that we believe will enhance our profitability and support our growth strategy.

Recent Developments

On November 3, 2011, we announced our results for the three months ended September 30, 2011. Our consolidated net income for the nine months ended September 30, 2011 totaled COP 1,160 billion, representing a 15.2% increase as compared to COP 1,007 billion for the nine months ended September 30, 2010.

Net interest income for the nine months ended September 30, 2011 totaled COP 2,883 billion, representing a 14% increase as compared to COP 2,528 billion for the nine months ended September 30, 2010. The increase in net interest income is due to the growth of the Bank’s loan portfolio.

 

 

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For the nine months ended September 30, 2011, provisions for loan and interest losses, net of recoveries, amounted to COP 270 billion, representing a decrease of 42.1% as compared to COP 467 billion for the nine months ended September 30. This decrease in provisions for loan and interest losses was due mainly to a steady improvement in our loan portfolio quality during the nine months ended September 30, 2011.

Net fees and income from services totaled COP 1,202 billion for the nine months ended September 30, 2011, representing a 3.5% increase as compared to COP 1,161 billion for the nine months ended September 30, 2010.

Operating expenses totaled COP 2,651 billion for the nine months ended September 30, 2011, representing an increase of 19% as compared to the nine months ended September 30, 2010, when operating expenses amounted to COP 2,229 billion.

As of September 30, 2011, fees from credit and debit cards represented 33% of total fees.

As of September 30, 2011, our net loans and financial leases totaled COP 54,745 billion, representing an increase of 27.6% as compared to COP 42,892 billion for the nine months ended September 30, 2010. As of September 30, 2011, our ratio of past due loans to total loans was 2.51%, a decrease as compared to a ratio of 3.35% as of September 30, 2010.

Investments in debt securities as of September 30, 2011 totaled COP 10,166 billion, representing an increase of 15.7% as compared to COP 8,785 billion as of September 30, 2010.

Change in the Organizational Structure

On October 20, 2011, the Bank redesigned its organizational structure. The corporate functions will be divided into seven staff vice-presidencies and the commercial functions will be divided into five business units: Retail and SME Banking, Corporate and Government Banking, Consumer Credit, Capital Markets, and International.

Management Appointments

On December 19, 2011, the bank made the following appointments:

 

   

Sergio Restrepo Isaza was appointed Vice President of Capital Markets, a role he has been performing along with the role of Vice President of Corporate Development. Mr. Restrepo was President of Corfinsura and held various managerial positions in the same corporation such as Vice President of Investment Banking from 1996 to 2004, International and Investments Vice President from 1993 to 1996 and Assistant President, Regional Manager, International Sub-Manager and Projects Director. Mr. Restrepo holds a degree in Business Administration from EAFIT and a Master of Science in Management from Stanford University.

 

   

Mr. Jaime Velásquez Botero was appointed interim Vice President of Corporate Development. Mr. Velásquez is currently serving as Chief Financial Officer since 1997 and served in several management positions in the Economic Department and Investor Relations Department from 1989 to 1997. Mr. Velasquez holds a degree in Economics from the Universidad de Antioquia in Medellín.

 

   

Mr. Jose Humberto Acosta Martin was appointed interim Chief Financial Officer. Mr. Acosta is currently serving as Director of International Banking since 2005, previously served as International Division Manager of Corfinsura, and held various managerial positions in the same corporation such as Methods and Organization Division Manager and General Manager of Mergers, among others. Mr. Acosta holds a Business Administration degree from the Universidad Externado de Colombia and an MBA of the Universidad de la Sabana.

 

 

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Collective Bargaining Agreement

On October 13, 2011 the Bank entered into a new collective bargaining agreement with Uneb and Sintrabancol which will have a term of three years from November 1, 2011 to October 31, 2014. The agreement covers more than 11,000 employees. Among the more significant agreed-to economic terms was a salary increase of 7% for the first year, a salary increase for the second year equal to the variation in the Colombian consumer price index (“IPC”), as certified by the Colombian statistical bureau (“DANE”), for the period from November 2011 to October 2012, plus 1.5 percentage points, and a salary increase for the third year equal to the variation of IPC for the period from November 2012 to October 2013, plus 1.8 percentage points. The salary increase for the second and third years will be calculated using the highest value of IPC for the twelve-month periods beginning in October and November of each successive year. The parties also agreed to an increase in funds allocated to education and housing loans.

Divestitures

On February 5, 2011, Banagrícola S.A. and Inversiones Financieras Banco Agrícola S.A., subsidiaries of Bancolombia S.A., and Suramericana S.A., signed an agreement pursuant to which Banagrícola S.A. and Inversiones Financieras Banco Agrícola S.A. agreed to sell to Suramericana 97.03% of its shares of capital stock of Asesuisa, an insurance company in the Republic of El Salvador. The transaction is subject to customary closing conditions, including regulatory approvals in Colombia and El Salvador. Closing is expected to occur in the first half of 2012. Banagrícola S.A. and Inversiones Financieras Banco Agrícola S.A. will receive a total of US$98 million in consideration for the shares.

On January 28, 2011, Banagrícola S.A. and Inversiones Financieras Banco Agrícola S.A., subsidiaries of Bancolombia S.A., and Protección S.A. Sociedad Administradora de Fondos de Pensiones y Cesantias (“Protección S.A.”), signed an agreement pursuant to which Banagrícola S.A. and Inversiones Financieras Banco Agrícola S.A. agreed to sell 99.99% of their shares of capital stock in AFP Crecer, a pension fund administrator in the Republic of El Salvador, to Protección S.A. The transaction closed on November 18, 2011. Banagrícola S.A. and Inversiones Financieras Banco Agrícola S.A. received a total of US$103 million in consideration for the shares.

Bond Offerings

On May 24, 2011, the Bank priced US$1 billion in aggregate principal amount of its Senior Notes due 2021. The Senior Notes have a 10-year maturity and a coupon of 5.95%, payable semi-annually on June 3 and December 3 of each year, beginning on December 3, 2011. The transaction closed on June 3, 2011.

As part of the Bank’s global ordinary notes program to issue up to an aggregate principal amount of two trillion Colombian pesos in ordinary notes, on July 26, 2011, the Bank issued 800,000 ordinary notes (Bonos Ordinarios) in the local market with an aggregate principal amount of eight hundred billion Colombian pesos (COP) (approximately US$453.6 million) and on November 2, 2011 the Bank issued 600,000 ordinary notes in the local market with an aggregate principal amount of six hundred billion Colombian pesos (approximately US$313.8 million). As of December 31, 2011, the Bank has issued 1,400,000,000,000 ordinary notes in the local market totaling 2,000,000,000,000 Colombian pesos (approximately US$1.04 billion) as part of the program.

Exchange Offer

On November 3, 2011 the Bank closed its offer to exchange all of its outstanding unregistered 5.95% Senior Notes due 2021 (the “Old 2021 Notes”) and 4.25% Senior Notes due 2016 (the “Old 2016 Notes”, and together with the Old 2021 Notes, the “Old Notes”) for new 5.95% Senior Notes due 2021 (the “New 2021 Notes”) and

 

 

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new 4.25% Senior Notes due 2016 (the “New 2016 Notes”, and together with the New 2021 Notes, the “New Notes”), respectively. Holders of the Old 2021 Notes tendered $995,643,000 aggregate principal amount of the Old 2021 Notes, representing approximately 99.56% of the aggregate principal amount outstanding, and holders of the Old 2016 Notes tendered $501,650,000 aggregate principal amount of the Old 2016 Notes, representing approximately 96.47% of the aggregate principal amount outstanding. All of the Old Notes validly tendered and not validly withdrawn were accepted for exchange pursuant to the terms of the exchange offer. A total of $4,357,000 aggregate principal amount of the Old 2021 Notes and $18,350,000 aggregate principal amount of the Old 2016 Notes remain outstanding.

Co-investment with Grupo de Inversiones Suramericana of Certain ING Assets

 

The Bank has expressed interest in participating, as co-investor of certain ING assets in Latin America acquired by Grupo de Inversiones Suramericana. This transaction presents a business opportunity that is aligned with the Bank’s strategy in strengthening its presence in the financial sector, including the pension business. The total amount of the investment, if completed and following the receipt of necessary approvals, is estimated to be US$150 million.

 

 

Our headquarters are located at Carrera 48 # 26-85, Avenida Los Industriales, Medellín, Colombia, and our telephone number is + (574) 404-1837. Our web address is www.grupobancolombia.com; however, the information found on our website is not considered part of this prospectus supplement.

 

 

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THE OFFERING

The following summary is not intended to be complete. For a more detailed description of the ADSs and preferred shares, see “Description of American Depositary Receipts” and “Description of the Preferred Shares” in the accompanying prospectus.

 

Offering

We are offering 4,447,002 ADSs through the underwriters.

 

Offering Price

US$60.00

 

Option to Purchase Additional ADSs

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to 667,049 additional ADSs.

 

ADSs

Each ADS represents four preferred shares held by The Bank of New York Mellon, as depositary. The ADSs will initially be evidenced by American depositary receipts (“ADRs”).

 

ADSs Outstanding After the Offering

Based on the number of ADSs outstanding on January 31, 2012, 43,889,066 ADSs will be outstanding upon completion of the offering. This information assumes no exercise of the option to purchase additional ADSs by the underwriters.

 

Preferred Shares Outstanding After the Offering

339,454,220 preferred shares (including shares in the form of ADSs) will be outstanding upon completion of the offering and the local rights offering. This information assumes no exercise of the option to purchase additional ADSs by the underwriters.

 

Listings and Trading Markets

The ADSs are listed for trading on the NYSE.

 

Dividend Policy

The declaration, amount and payment of dividends is based on our unconsolidated earnings and must be approved at the ordinary annual shareholders’ meeting upon the recommendation of the board of directors and the president of the Bank. For additional information regarding our dividend policy see “Dividend Policy” in this prospectus supplement and “Description of American Depositary Receipts—Dividends, Other Distributions and Rights” in the accompanying prospectus.

 

Voting Rights

Holders of preferred shares, and consequently holders of ADSs, are generally not entitled to receive notice of, attend or vote at any general meeting of holders of common shares except under certain circumstances where they have very limited voting rights. See “Description of the Preferred Shares—Voting Rights” and “Description of American Depositary Receipts—Voting of Deposited Securities” in the accompanying prospectus.

 

Lock-up agreements

We, and certain of our executive officers and directors and our principal shareholders, Suramericana de Inversiones S.A. and Inversiones Argos S.A., have entered into lock-up agreements with

 

 

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the underwriters. Under these agreements, we and each of these persons may not, without the prior written approval of the representatives, subject to limited exceptions, offer, sell, contract to sell or otherwise dispose of or hedge our common or preferred shares or securities convertible into or exercisable or exchangeable for our common or preferred shares. These restrictions will be in effect for a period of 90 days after the date of this prospectus supplement. At any time and without public notice, the representatives may in their sole discretion release all or some of the securities from these lock-up agreements.

 

Depositary

The Bank of New York Mellon.

 

Use of Proceeds

We will receive net proceeds from the sale of the new ADSs of approximately US$256,955,510, or approximately US$296,157,986, if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions, the special structuring fee and estimated offering expenses. We intend to use the aggregate net proceeds for general corporate purposes.

 

Certain Fees and Expenses

The depositary will charge any party depositing or withdrawing preferred shares or any party surrendering ADSs or to whom ADSs are issued certain fees, expenses and charges, such as expenses incurred by the depositary in the conversion of foreign currency pursuant to the deposit agreement, and a fee of $5.00 or less per each 100 ADSs (or portion thereof) issued or surrendered. See “Description of American Depositary Receipts—Charges of Depositary” in the accompanying prospectus.

 

Risk Factors

An investment in the ADSs involves significant risks that a prospective investor should consider carefully. See “Risk Factors” beginning on page S-12.

 

 

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SUMMARY FINANCIAL DATA

The following table presents our selected consolidated financial information and other data as of and for each of the periods indicated. The financial data as of and for the fiscal years ended December 31, 2010, 2009 and 2008 have been derived from the Bank’s audited consolidated financial statements included in the Annual Report. The financial data as of and for the nine-month periods ended September 30, 2011 and 2010 have been derived from the Bank’s unaudited interim financial statements. The unaudited financial information as of and for the nine-month periods ended September 30, 2011 and 2010 includes all adjustments, consisting of only normal recurring adjustments, which in the opinion of management are necessary for the fair presentation of such information. Interim results are not necessarily indicative of the results to be expected for the entire fiscal year.

The Bank’s consolidated financial statements for each period were prepared in accordance with Colombian GAAP, which differs in certain important respects from U.S. GAAP. See Item 3. “Key Information—A. Selected Financial Data—Differences between Colombian and U.S. GAAP Results” and Note 31 to the Bank’s consolidated financial statements as of December 31, 2010 in the Annual Report, which is incorporated by reference herein. The selected consolidated financial data should be read in conjunction with Item 5. “Operating and Financial Review and Prospects” in the Annual Report, which is incorporated by reference herein, and our consolidated financial statements, including the related notes thereto, included in the Annual Report.

 

 

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(In Millions of COP and Thousands
of US$)(1)

  For the Year Ended     For the Nine-Month Periods Ended  
  December 31,
2008
    December 31,
2009
    December 31,
2010
    December 31,
2010
    September 30,
2010
    September 30,
2011
    September 30,
2011
 

CONSOLIDATED STATEMENT OF OPERATIONS:

             

Net interest income

    COP 3,560,402        COP 3,802,282        COP 3,377,104      US$ 1,764,441        COP 2,528,279        COP 2,883,291      US$ 1,494,700   

Net interest income after provisions

    2,427,235        2,648,908        2,829,389        1,478,276        2,061,356        2,612,994        1,354,578   

Net operating income(2)

    1,751,322        1,640,712        1,858,835        971,189        1,325,034        1,476,636        765,489   

Income before income taxes

    1,764,699        1,718,863        1,944,911        1,016,161        1,391,099        1,497,215        776,157   

Net income

    COP 1,290,643        COP 1,256,850        COP 1,436,494      US$ 750,528        COP 1,007,367        COP 1,160,052      US$ 601,372   

OTHER DATA(3)

             

Profitability ratios:

             

Net interest margin(4)

    7.64     7.22     6.36     6.36     6.45     6.27     6.27

Return on average total assets(5)

    2.34        2.01        2.27        2.27        2.15        2.11        2.11   

Return on average shareholders’ equity(6)

    23.68        19.59        19.71        19.71        18.87        19.20        19.20   

Efficiency ratio:

             

Operating expenses as a percentage of interest, fees, services and other operating income

    47.79     50.89     56.28     56.28     55.91     60.61     60.61

Capital ratios:

             

Period-end shareholders’ equity as a percentage of period-end total assets

    9.90        11.37        11.67        11.67        11.67        10.50        10.50   

Period-end technical capital as a percentage of period-end risk-weighted assets(7)

    11.24        13.23        14.67        14.67        15.17        12.97        12.97   

Credit quality data:

             

Non-performing loans as a percentage of total loans(8)

    2.35     2.44     1.91     1.91     2.27     1.69     1.69

“C,” “D” and “E” loans as a percentage of total loans(9)

    4.40        5.11        4.32        4.32        4.62        3.92        3.92   

Allowance for loan and accrued interest losses as a percentage of nonperforming loans

    224.53        241.08        274.36        274.36        244.49        278.14        278.14   

Allowance for loan and accrued interest losses as a percentage of “C,” “D” and “E” loans(9)

    120.21        115.25        121.45        121.45        120.14        119.71        119.71   

Allowance for loan and accrued interest losses as a percentage of total loans

    5.29        5.89        5.24        5.24        5.55        4.69        4.69   

Operating Data:

             

Number of branches(10)

    717        713        736        736        736        770        770   

 

 

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    As of the Year Ended     As of the Nine Month Periods Ended  

(In Millions of COP and
Thousands of US$)(1)

  December 31,
2008
    December 31,
2009
    December 31,
2010
    December 31,
2010
    September 30,
2010
    September 30,
2011
    September 30,
2011
 

CONSOLIDATED BALANCE SHEET DATA

             

Loans and financial leases, net(11)

    COP 42,508,210        COP 39,610,307        COP 46,091,877      US$ 24,081,692        COP 42,891,624        COP 54,745,266      US$ 28,379,980   

Investment securities, net(12)

    7,278,276        8,914,913        8,675,762        4,532,838        9,152,209        11,012,486        5,708,880   

Other assets

    11,996,593        13,339,145        13,327,517        6,963,248        12,625,936        14,864,457        7,705,744   

Total Assets

    61,783,079        61,864,365        68,095,156        35,577,778        64,669,769        80,622,209        41,794,604   

LIABILITIES AND SHAREHOLDERS’ EQUITY

             

Deposits

    COP 40,384,400        COP 42,149,330        COP 43,538,967      US$ 22,747,870        COP 42,288,485        COP 48,472,078      US$ 25,127,956   

Non-interest bearing

    5,723,460        6,307,780        7,632,216        3,987,616        5,873,306        7,290,767        3,779,538   

Interest bearing

    34,660,940        35,841,550        35,906,751        18,760,254        36,415,179        41,181,311        21,348,418   

Other liabilities

    15,281,834        12,682,206        16,609,049        8,677,754        14,832,175        23,684,139        12,277,872   

Total liabilities

    55,666,234        54,831,536        60,148,016        31,425,624        57,120,660        72,156,217        37,405,828   

Shareholders’ equity

    6,116,845        7,032,829        7,947,140        4,152,154        7,549,109        8,465,992        4,388,776   

Total liabilities and shareholders’ equity

    61,783,079        61,864,365        68,095,156        35,577,778        64,669,769        80,622,209        41,794,604   

 

(1) Amounts stated in U.S. dollars have been converted at the rate of COP 1,913.98 per US$1.00, which is the representative market rate calculated on December 31, 2010, the last business day of the year, or at the rate of COP 1,929.01 per US$1.00, which is the representative market rate calculated on September 30, 2011, the last business day of the quarter, as applicable, both as reported by the SFC. Such conversions should not be construed as representations that the peso amounts represent, or have been or could be converted into, United States dollars at the representative market rate or any other rate.
(2) In 2008, the SFC issued External Circulars 025, 030, 044 and 063 (the “2008 External Circulars”) establishing new guidelines to be followed by entities under its supervision for the valuation of derivatives and structured products. In accordance with the 2008 External Circulars, the Bank modified the methodology by which it values its portfolio of derivative and structured products. As a result, in 2009 the Bank recorded a loss due to reduction in the carrying value of derivatives in the amount of COP 122,765 million.
(3)

Ratios were calculated on the basis of monthly averages.

(4) Net interest income divided by average interest-earning assets.
(5) Net income divided by average total assets.
(6) Net income divided by average shareholders’ equity.
(7)

For an explanation of risk-weighted assets and Technical Capital, see Item 4. “Information on the Company — B. Business Overview — B.5. Supervision and Regulation-Capital Adequacy Requirements” in the Annual Report, which is incorporated by reference herein.

(8) Non-performing loans are micro-credit loans that are past due 30 days or more, mortgage and consumer loans that are past due 60 days or more and commercial loans that are past due 90 days or more. (Each category includes financial leases).
(9) See Item 4. “Information on the Company — E. Selected Statistical Information — E.3. Loan Portfolio-Risk Categories” in the Annual Report, which is incorporated by reference herein, for a description of “C”, “D” and “E” Loans.
(10) Number of branches does not include branches of the Bank’s subsidiaries.
(11) Includes financial leases for COP 5,507 billion, COP 5,470 billion, COP 5,834 billion, COP 5,502 billion and COP 6,756 billion as of December 31, 2008, 2009 and 2010, September 30, 2010 and September 30, 2011, respectively.
(12) In 2009, the SFC issued External Circular 047. This new regulation provided that, in cases where the Bank has a positive residual interest, the Bank, as beneficiary of the interest, may record it as an investment security recognized in income, subject to the conditions defined for this purpose in the rules and regulations of External Circular 047. The recorded value must be updated on the closing date of the fiscal period in question. As a result, the Bank recognized retained interest as held to maturity in the amount of COP 57,358 million, COP 77,057 million and COP 90,328 million as of December 31, 2009, December 31, 2010, and September, 2011, respectively. The impact on results as of September 30, 2011 was COP 13,271 million.

 

 

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Summary Financial Information (U.S. GAAP)

 

    For the Year Ended     For the six months periods ended  

(In Millions of COP and
Thousands of US$)(1)

  December 31,
2008
    December 31,
2009
    December 31,
2010
    December 31,
2010(1)
    June 30,
2010
    June 30,
2010(1)
    June 30,
2011
    June 30,
2011(1)
 

CONSOLIDATED INCOME STATEMENT DATA

               

Net income attributable to the Controlling Interest

    COP 849,920        COP 1,172,524        COP 1,544,761      US$ 807,094        COP 677,930      US$ 354,353        COP 209,215      US$ 118,046   

CONSOLIDATED BALANCE
SHEET DATA

               

Controlling interest stockholders’ equity under U.S. GAAP

    COP 6,422,815        COP 7,095,266        COP 8,069,346      US$ 4,216,003        COP 7,191,072      US$ 3,758,760        COP 7,628,242      US$ 4,304,100   

 

(1) Amounts stated in U.S. dollars have been converted at the rate of COP 1,913.98 per US$1.00, which is the representative market rate calculated on December 31, 2010, the last business day of the year, at the rate of COP1,913.15 per US$1.00, which is the representative market rate calculated on June 30, 2010, the last business day of the quarter or at the rate of COP 1,772.32 per US$1.00, which is the representative market rate calculated on June 30, 2011 as applicable, both as reported by the SFC. Such conversions should not be construed as representations that the pesos amounts represent, or have been or could be converted into, United States dollars at the representative market rate or any other rate.

 

 

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RISK FACTORS

Investing in our preferred shares and ADSs involves risks. Before you invest in the ADSs, you should consider carefully the information set forth in this section and all the other information provided to you or incorporated by reference in this prospectus supplement as the same may be updated from time to time by our future filings under the Exchange Act. In addition, new risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance or business operations.

RISKS RELATING TO COLOMBIA AND OTHER COUNTRIES WHERE THE BANK OPERATES

Changes in economic and political conditions in Colombia and El Salvador or in the other countries where the Bank operates may adversely affect the Bank’s financial condition and results of operations.

The Bank’s financial condition, results of operations and asset quality are significantly dependent on the macroeconomic, social and political conditions prevailing in Colombia, El Salvador and the other jurisdictions in which the Bank operates. Accordingly, decreases in the growth rate, periods of negative growth, increases in inflation, changes in policy, or future judicial interpretations of policies involving exchange controls and other matters such as (but not limited to) currency depreciation, inflation, interest rates, taxation, banking laws and regulations and other political or economic developments in or affecting Colombia, El Salvador or the other jurisdictions where the Bank operates may affect the overall business environment and may in turn impact our financial condition and results of operations.

In particular, the governments of Colombia and El Salvador have historically exercised substantial influence on each other’s economies, and their policies are likely to continue to have an important effect on Colombian and Salvadorian entities (including the Bank), market conditions, prices and rates of return on securities of local issuers (including the Bank’s securities). The uncertainties characteristic of a change in government, including potential changes in laws, public policies and regulations, could cause instability and volatility in Colombia and its markets.

Future developments in the government policies of Colombia and El Salvador could impair the Bank’s business or financial condition or the market value of its securities, including the preferred shares and ADSs.

The economies of the countries where the Bank operates are vulnerable to external effects that could be caused by significant economic difficulties experienced by their major regional trading partners or by more general “contagion” effects, which could have a material adverse effect on such countries’ economic growth and their ability to service their public debt.

A significant decline in the economic growth or a sustained economic downturn of any of Colombia or El Salvador’s major trading partners (i.e., the United States, China, Venezuela and Ecuador for Colombia and the United States for El Salvador) could have a material adverse impact on Colombia’s and El Salvador’s balance of trade and remittances inflows, resulting in lower economic growth.

Deterioration in the economic and political situation of neighboring countries could affect national stability or the Colombian economy by disrupting Colombia’s diplomatic or commercial relationships with these countries. Political tensions between Colombia and Venezuela in recent years have produced lower trade levels that have adversely impacted economic activity. Although relations with Venezuela have improved significantly since President Juan Manuel Santos Calderon took office in August 2010, the possibility of any further resurgence in tensions between the two countries may cause political and economic uncertainty, instability, market volatility, lower confidence levels and higher risk aversion by investors and market participants that may negatively affect economic activity in Colombia and El Salvador.

 

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A contagion effect, in which an entire region or class of investments is disfavored by international investors, could negatively affect Colombia and El Salvador or other economies where the Bank operates (i.e., Panama, Cayman Islands, Peru and Puerto Rico), as well as the market prices and liquidity of securities issued or owned by the Bank.

Any additional taxes resulting from changes to tax regulations or the interpretation thereof in Colombia, El Salvador or other countries where the Bank operates could adversely affect the Bank’s consolidated results.

Uncertainty relating to tax legislation poses a constant risk to the Bank. Changes in legislation, regulation and jurisprudence can affect tax burdens by increasing tax rates and fees, creating new taxes, limiting stated expenses and deductions, and eliminating incentives and non-taxed income. Notably, the Colombian and Salvadorian governments have significant fiscal deficits that may result in future tax increases. Additional tax regulations could be implemented that could require the Bank to make additional tax payments, negatively affecting its results of operations and cash flow. In addition, national or local taxing authorities may not interpret tax regulations in the same way that the Bank does. Differing interpretations could result in future tax litigation and associated costs.

Further, the Colombian Government has announced that it is working on a draft bill of law to reform the Colombian tax code, which would be submitted to the Colombian Congress for its approval some time during 2012. As of January 10, 2012, a draft of the tax bill has not been disclosed to the public. Therefore, it is difficult to predict if changes would substantially affect results of operation and financial conditions.

Colombia has experienced several periods of violence and instability, and such instability could affect the economy and the Bank.

Colombia has experienced several periods of criminal violence over the past four decades, primarily due to the activities of guerilla groups and drug cartels. In response, the Colombian government has implemented various security measures and has strengthened its military and police forces by creating specialized units. Despite these efforts, drug-related crime and guerilla activity continue to exist in Colombia. These activities, their possible escalation and the violence associated with them may have a negative impact on the Colombian economy or on the Bank in the future. The Bank’s business or financial condition and the market value of the Bank’s securities and any dividends distributed by it could be affected adversely by rapidly changing economic and social conditions in Colombia, and by the Colombian government’s response to such conditions.

RISKS RELATING TO THE BANK’S BUSINESS AND THE BANKING INDUSTRY

Instability of banking laws and regulations in Colombia and in other jurisdictions where the Bank operates could adversely affect the Bank’s consolidated results.

Changes in banking laws and regulations, or the manner in which they are interpreted or enforced, in Colombia and in other jurisdictions where the Bank operates, may have a material effect on our business and operations. Moreover, banking and financial services laws and regulations are subject to continuing review and changes, and any such changes in the future may have an adverse impact on the Bank’s financial position and operations, including making and collecting loans and other extensions of credit.

Although the Bank complies with capital requirements, there can be no assurance that future regulations will not change or require the Bank or the Bank’s subsidiaries to seek additional capital. Moreover, the various regulators in the world have not reached consensus as to the appropriate level of capitalization for financial services institutions. Regulators in the jurisdictions where the Bank operates may change the current regulatory capital requirements to which the Bank is subject and thereby necessitate equity increases that could dilute existing stockholders, lead to required asset sales or adversely impact the return on stockholder’s equity and/or the market price of the Bank’s common and preferred shares.

 

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Banking regulations, accounting standards and corporate disclosure applicable to the Bank and its subsidiaries differ from those in the United States and other countries.

While many of the policies underlying Colombian banking regulations are similar to those underlying regulations applicable to banks in other countries, including those in the United States, Colombian regulations can differ in a number of material respects. For example, capital adequacy requirements for banks under Colombian regulations differ from those under U.S. regulations and may differ from those in effect in other countries. The Bank prepares its annual audited financial statements in accordance with Colombian GAAP, which differs in significant respects from U.S. GAAP and International Financial Reporting Standards. Thus, Colombian financial statements and reported earnings may differ from those of companies in other countries in these and other respects. Some of the differences affecting earnings and stockholders’ equity include, but are not limited to, the accounting treatment for restructuring, loan origination fees and costs, deferred income taxes and the accounting treatment for business combinations. Moreover, under Colombian GAAP, allowances for non-performing loans are computed by establishing each non-performing loan’s individual inherent risk using criteria established by the SFC that differ from those used under U.S. GAAP.

The Colombian government is currently undertaking a review of regulations relating to accounting, audit, and information disclosure with the intention of seeking convergence with international standards. Nevertheless, current regulations continue to differ in certain material respects from those in other countries. In addition, there may be less publicly available information about the Bank than is regularly published by or about U.S. issuers or issuers in other countries.

The Bank is subject to regulatory inspections, examinations, inquiries or audits in Colombia and in other countries where it operates, and any sanctions, fines and other penalties resulting from such inspections and audits could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation.

The Bank is subject to comprehensive regulation and supervision by the banking authorities of Colombia, El Salvador and the other jurisdictions in which the Bank operates. These regulatory authorities have broad powers to adopt regulations and other requirements affecting or restricting virtually all aspects of the Bank’s capitalization, organization and operations, including the imposition of anti-money laundering measures and the authority to regulate the terms and conditions of credit that can be extended by financial institutions. In the event of non-compliance with applicable regulations, the Bank could be subject to fines, sanctions or the revocation of licenses or permits necessary to operate its business. In Colombia, for instance, in the event the Bank encounters significant financial problems or becomes insolvent or is in danger of becoming insolvent, banking authorities have the power to take over the Bank’s management and operations. Any sanctions, fines and other penalties resulting from non-compliance with regulations in Colombia and in the other jurisdictions where the Bank operates could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation.

An increase in constitutional collective actions (acciones populares), class actions (acciones de grupo) and other similar legal actions involving claims for significant monetary awards against financial institutions may affect the Bank’s business and results of operations.

Under the Colombian Constitution, individuals may initiate constitutional collective or class actions to protect their collective or class rights, respectively. Colombian financial institutions, including the Bank, have experienced a substantial increase in the aggregate number of these actions. The great majority of such actions have been related to fees, financial services and interest rates, and the outcome of such actions is uncertain. Pursuant to law 1425 of 2010, monetary awards for plaintiffs in constitutional actions or class actions were eliminated as of January 1, 2011. Nevertheless, individuals continue to have the right to initiate constitutional or class actions against the Bank.

 

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Future restrictions on interest rates or banking fees could negatively affect the Bank’s profitability.

In the future, regulations in the jurisdictions where the Bank operates could impose limitations regarding interest rates or fees charged by the Bank. Any such limitations could materially and adversely affect the Bank’s results of operations and financial position. In the past, there have been disputes in Colombia among merchants, payment services and banks regarding interchange fees.

Although such disputes have been resolved, the Superintendency of Commerce and Industry may initiate new investigations relating to the interchange fees. This possibility may lead to additional decreases, which in turn could impact the Bank’s financial results.

Furthermore, pursuant to article 62 of law 1430 of 2010, Congress granted the government power and authority to establish and define criteria and formulas applicable to the calculation of banking fees and charges and the authority to define maximum limits to banking fees and charges. On December 20, 2011 the Government used the authority granted by law 1430 of 2010 and established in Decree 4809 of 2011 caps to fees banks can charge on withdrawals done from ATMs outside their own networks. Further limits or regulations regarding banking fees, and uncertainties with respect thereto could have a negative effect on our results of operations and financial condition.

The Bank is subject to credit risk, and estimating exposure to credit risk involves subjective and complex judgments.

A number of our products expose the Bank to credit risk, including loans, financial leases, lending commitments and derivatives.

The Bank estimates and establishes reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans. This process is also subject to human error as the Bank’s employees may not always be able to assign an accurate credit rating to a client, which may result in the Bank’s exposure to higher credit risks than indicated by the Bank’s risk rating system. The Bank may not be able to timely detect these risks before they occur, or due to limited resources or available tools, the Bank’s employees may not be able to effectively implement its credit risk management system, which may increase its exposure to credit risk. Moreover, the Bank’s failure to continuously refine its credit risk management system may result in a higher risk exposure for the Bank, which could materially and adversely affect its results of operations and financial position.

Overall, if the Bank is unable to effectively control the level of non-performing or poor credit-quality loans in the future, or if its loan loss reserves are insufficient to cover future loan losses, the Bank’s financial condition and results of operations may be materially and adversely affected.

In addition, the amount of the Bank’s non-performing loans, including loan portfolios that the Bank may acquire through auctions or otherwise, may increase in the future as a result of factors beyond the Bank’s control, such as changes in the income levels of the Bank’s borrowers, increases in the inflation rate or an increase in interest rates, the impact of macroeconomic trends and political events affecting Colombia or other jurisdictions where the Bank operates, or events affecting specific industries. Any of these developments could have a negative effect on the quality of the Bank’s loan portfolio, causing the Bank to increase provisions for loan losses and resulting in reduced profits or in losses.

The Bank is subject to credit risks with respect to its non-traditional banking businesses, including investing in securities and entering into derivatives transactions.

Non-traditional sources of credit risk can arise from, among other things: investing in securities of third parties, entering into derivative contracts under which counterparties have obligations to make payments to the Bank, and executing securities, futures, currency or commodity trades from the Bank’s proprietary trading desk

 

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that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries. Any significant increases in exposure to any of these non-traditional risks, or a significant decline in credit risk or bankruptcy of any of the counterparties, could materially and adversely affect the Bank’s results of operations and financial position.

The Bank is exposed to risks associated with the mortgage loan market.

Bancolombia is a leader in the Colombian mortgage loan market. Colombia’s mortgage loan market is highly regulated and has been affected by various macroeconomic factors. Although during the past years interest rates have decreased, periods of sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased defaults in outstanding loans and deterioration in the quality of assets.

The Bank is subject to concentration default risks in its loan portfolio. Problems with one or more of its largest borrowers may adversely affect its financial condition and results of operations.

As of September 30, 2011, the aggregate outstanding principal amount of the Bank’s 25 largest borrowing relationships, on a consolidated basis, represented approximately 13.57% of the loan portfolio, and no single relationship represented more than 1.28% of the portfolio. Also, 100% of those loans were corporate loans and 100% of these relationships were classified “A”. However, problems with one or more of the Bank’s largest borrowers could materially and adversely affect its results of operations and financial position. For more information, see Item 4. “Information on the Company — E. Selected Statistical Information — E.3. Loan Portfolio — Borrowing Relationships” in the Annual Report.

The value of the collateral or guarantees securing the outstanding principal and interest balance of the Bank’s loans may not be sufficient to cover such outstanding principal and interest. In addition, the Bank may be unable to realize the full value of the collateral or guarantees securing the outstanding principal and interest balance of its loans.

The Bank’s loan collateral includes primarily real estate, assets pledged in financial leasing transactions and other assets that are located primarily in Colombia and El Salvador, the value of which may significantly fluctuate or decline due to factors beyond the Bank’s control. Such factors include macroeconomic factors and political events affecting the local economy. Any decline in the value of the collateral securing the Bank’s loans may result in a reduction in the recovery from collateral realization and may have an adverse impact on the Bank’s results of operations and financial condition. In addition, the Bank may face difficulties in enforcing its rights as a secured creditor. In particular, timing delays and procedural problems in enforcing against collateral and local protectionism may make foreclosures on collateral and enforcement of judgments difficult, and may result in losses that could materially and adversely affect the Bank’s results of operations and financial position.

The Bank is subject to market risk.

We are directly and indirectly affected by changes in market conditions. Market risk, or the risk that values of assets and liabilities or revenues will be adversely affected by variation in market conditions, is inherent in the products and instruments associated with our operations, including loans, deposits, securities, bonds, long-term debt, short-term borrowings, proprietary trading in assets and liabilities and derivatives. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, changes in the implied volatility of interest rates and foreign exchange rates, among others.

The Bank is subject to fluctuations in interest rates, which may materially and adversely affect its results of operations and financial condition.

The Bank holds a substantial portfolio of loans and debt securities that have both fixed and floating interest rates. Therefore, changes in interest rates could adversely affect our net interest margins as well as the prices of these securities. Increases in interest rates may reduce gains or the market value of the Bank’s debt securities.

 

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Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. On the other hand, decreases in interest rates may cause margin compression and lower net interest income as the Bank usually maintains more assets than liabilities at variable rates. Decreasing interest rates also may trigger loan prepayments, which could negatively affect the Bank’s net interest income. Generally, in a declining interest rate environment, prepayment activity increases, which reduces the weighted average maturity of the Bank’s interest-earning assets and adversely affects its operating results. Prepayment risk also has a significant adverse impact on the Bank’s earnings from credit card and collateralized mortgage obligations, since prepayments could shorten the weighted average life of these portfolios, in turn resulting in a mismatch in funding or in reinvestment at lower yields. In addition, as the Bank implements strategies to reduce future interest rate exposure, it may incur costs related to fluctuations in interest rates which, in turn, may impact its results.

The Bank’s income from its proprietary trading activities is highly volatile.

The Bank’s trading income is highly volatile. The Bank derives a portion of its profits from its proprietary trading activities and any significant reduction in its trading income could adversely affect the Bank’s results of operations and financial position. The Bank’s trading income is dependent on numerous factors beyond its control, such as the general market environment, overall market trading activity, interest rate levels, fluctuations in exchange rates and general market volatility. A significant decline in the Bank’s trading income, or the incurrence of a trading loss, could adversely affect the Bank’s results of operations and financial position.

The Bank has significant exposure to sovereign risk, and especially Colombian risk, and the Bank’s results could be adversely affected by decreases in the value of its sovereign debt securities.

The Bank’s debt securities portfolio is primarily composed of sovereign debt securities, including securities issued or guaranteed by the Colombian government. Therefore, the Bank’s results are exposed to credit, market and liquidity risk associated with sovereign debt. As of September 30, 2011, the Bank’s total debt securities represented 12.6% of its total assets, and 37.61% of these securities were issued or backed by the Colombian government. A significant decline in the value of the securities issued or guaranteed by the Colombian government could adversely affect the Bank’s debt securities portfolio and, consequently, the Bank’s results of operations and financial position.

The Bank is subject to market, operational and structural risks associated with its derivative transactions.

The Bank enters into derivative transactions for hedging purposes and on behalf of its customers. The Bank is subject to market and operational risks associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder). In addition, the market practice and documentation for derivative transactions is less developed in the jurisdictions where the Bank operates as compared to other more developed countries, and the court systems in such jurisdictions have limited experience in dealing with issues related to derivative transactions. As a result, there is increased operating and structural risk associated with derivatives transactions in these jurisdictions.

In addition, the execution and performance of derivatives transactions depend on the Bank’s ability to develop adequate control and administrative systems and to hire and retain qualified personnel. Moreover, the Bank’s ability to adequately monitor, analyze and report these derivative transactions depends, to a great extent, on its information technology systems. These factors may further increase the risks associated with these transactions and could materially and adversely affect the Bank’s results of operations and financial position.

 

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The Bank is subject to operational risks.

The Bank’s businesses are dependent on the ability to process a large number of transactions efficiently and accurately. Operational risks and losses can result from fraud, employee errors and failure to properly document transactions or to obtain proper internal authorization, failure to comply with regulatory requirements, breaches of conduct of business rules, equipment failures, natural disasters or the failure of external systems. The Bank’s currently adopted procedures may not be effective in controlling each of the operational risks faced by the Bank.

The Bank’s businesses rely heavily on data collection, processing and storage systems, the failure of which could materially and adversely affect the effectiveness of its risk management, reputation and internal control system as well as its financial condition and results of operations.

All of the Bank’s principal businesses are highly dependent on the ability to timely collect and process a large amount of financial and other information at its various branches across numerous markets, at a time when transaction processes have become increasingly complex with increasing volume. The proper functioning of financial control, accounting or other data collection and processing systems is critical to the Bank’s businesses and to its ability to compete effectively. A partial or complete failure of any of these primary systems could materially and adversely affect the Bank’s decision-making process, its risk management and internal control systems, and the quality of its service, as well as the Bank’s ability to respond on a timely basis to changing market conditions. If the Bank cannot maintain an effective data collection and management system, its business operations, financial condition, reputation and results of operations could be materially and adversely affected. The Bank is also dependent on information systems to operate its website, process transactions, respond to customer inquiries on a timely basis and maintain cost-efficient operations. The Bank may experience operational problems with its information systems as a result of system failures, viruses, computer hackers or other causes. Any material disruption or slowdown of its systems could cause information, including data related to customer requests, to be lost or to be delivered to the Bank’s clients with delays or errors, which could reduce demand for the Bank’s services and products and could materially and adversely affect the Bank’s results of operations and financial position.

Any failure to effectively improve or upgrade the Bank’s information technology infrastructure and management information systems in a timely manner could adversely affect its competitiveness, financial condition and results of operations.

The Bank’s ability to remain competitive will depend, in part, on its ability to upgrade the Bank’s information technology infrastructure on a timely and cost-effective basis. The information available to and received by the Bank’s management through its existing information systems may not be timely and sufficient to manage risks or to plan for and respond to changes in market conditions and other developments in its operations. The Bank is currently undertaking a project to update its information technology platform that will result in significant changes in the following areas: treasury, credit cards, consumer management, products and distribution channels, financial management and accounting and human resources. Any failure to effectively improve or upgrade the Bank’s information technology infrastructure and information management systems in a timely manner could materially and adversely affect the Bank’s competitiveness, financial condition and results of operations.

The occurrence of natural disasters in the regions where the Bank operates could impair its ability to conduct business effectively, and could impact the Bank’s results of operations.

The Bank is exposed to the risk of natural disasters, such as earthquakes, floods, volcanic eruptions, tornadoes, tropical storms, wind and hurricanes in the regions where it operates. In the event of a natural disaster, unanticipated problems with the Bank’s disaster recovery systems could have a material adverse effect on the Bank’s ability to conduct business in the affected region, particularly if those problems affect its computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. In addition, if a significant

 

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number of the Bank’s local employees and managers were unavailable in the event of a disaster, its ability to effectively conduct business could be severely compromised. A natural disaster or multiple catastrophic events could have a material adverse effect on the Bank’s business and results of operations in the affected region.

Acquisitions and strategic partnerships may not perform in accordance with expectations or may disrupt the Bank’s operations and adversely affect its profitability.

An element of the Bank’s business strategy is to identify and pursue growth-enhancing strategic opportunities. The Bank may base assessments of potential acquisitions and partnerships on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions, investments and alliances may not produce anticipated synergies or perform in accordance with the Bank’s expectations and could adversely affect its operations and profitability.

The Bank’s concentration in and reliance on short-term deposits may increase its funding costs.

The Bank’s principal source of funds is short-term deposits, which together with certain long-term certificates of deposit represented a share of 67.2% of total liabilities as of September 30, 2011 compared to 72.4% and 76.9% at the end of 2010 and 2009, respectively. Because the Bank relies primarily on short-term deposits for its funding, in the event of a sudden or unexpected shortage of funds in the banking systems and money markets where the Bank operates, the Bank may not be able to maintain its current level of funding without incurring higher costs or selling assets at prices below their prevailing market value.

The Bank’s policies and procedures may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which could expose the Bank to fines and other liabilities.

The Bank is required to comply with applicable anti-money laundering, anti-terrorism laws and other regulations. These laws and regulations require the Bank, among other things, to adopt and enforce “know your customer” policies and procedures and to report suspicious and large transactions to the applicable regulatory authorities. While the Bank has adopted policies and procedures aimed at detecting and preventing the use of its banking network for money laundering activities and by terrorists and terrorist-related organizations and individuals generally, such policies and procedures have in some cases only been adopted recently and may not completely eliminate instances where it may be used by other parties to engage in money laundering and other illegal or improper activities. To the extent the Bank may fail to fully comply with applicable laws and regulations, the relevant government agencies to which it reports have the power and authority to impose fines and other penalties on the Bank. In addition, the Bank’s business and reputation could suffer if customers use the Bank for money laundering or illegal or improper purposes.

The Bank is subject to increasing competition which may adversely affect its results of operations.

The Bank operates in a highly competitive environment and increased competitive conditions are to be expected in the jurisdictions where the Bank operates. Intensified merger activity in the financial services industry produces larger, better capitalized and more geographically diverse firms that are capable of offering a wider array of financial products and services at more competitive prices. The Bank’s ability to maintain its competitive position depends mainly on its ability to fulfill new customers’ needs through the development of new products and services and the Bank’s ability to offer adequate services and strengthen its customer base through cross-selling. The Bank’s business will be adversely affected if the Bank is not able to maintain efficient service strategies. In addition, the Bank’s efforts to offer new services and products may not succeed if product or market opportunities develop more slowly than expected or if the profitability of opportunities is undermined by competitive pressures.

 

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Downgrades in our credit ratings would increase our cost of borrowing funds and make our ability to raise new funds, attract deposits or renew maturing debt more difficult.

Our credit ratings are an important component of our liquidity profile. A downgrade in our credit ratings would increase our cost of raising funds in the capital markets or of borrowing funds. Certain Colombian institutional investors are only permitted to purchase debt securities that are rated “AAA” by Colombian credit rating agencies, due to regulatory or internal policies. Purchase of our securities by these investors could be prohibited if we suffer a decline in our local credit rating. Our ability to renew maturing debt could be restricted and more expensive if our credit rating were to decline. Our lenders and counterparties in derivative transactions are sensitive to the risk of a credit rating downgrade. A downgrade in our credit rating may adversely affect perception of our financial stability and our ability to raise deposits, which could make us less successful when competing for deposits and loans in the market place. Our ability to successfully compete depends on various factors, including our financial stability as reflected by our credit ratings.

A new insolvency law in Colombia may limit our monetary collection and right enforcement ability.

Law 1380 of 2010, which provided insolvency protection for individuals and merchants, was declared unconstitutional on September 19, 2011 by the Colombian Constitutional Court because of procedural errors in the legislation process. A new law on the same terms as Law 1380 of 2010 was presented on September 20, 2011 to fill the void left after the constitutional court’s decision. If the new law is passed, increased debtor protections could make it more difficult for us to enforce debt and other monetary obligations, which could have an adverse impact on our results of operations and financial condition.

The Central Bank may impose requirements on our (and other Colombian residents’) ability to obtain loans in foreign currency.

The Banco de la República (the “Central Bank”) may impose certain mandatory deposit requirements in connection with foreign currency-denominated loans obtained by Colombian residents, including the Bank. Although no mandatory deposit requirement is currently in effect, a mandatory deposit requirement was set at 40% in 2008 after the Colombian peso appreciated against foreign currencies. Although we cannot predict or control future actions by the Central Bank in respect of such deposit requirements, which may involve the establishment of a different mandatory deposit percentage. The use of such measures by the Central Bank may be a disincentive for the Bank and our clients to obtain loans denominated in a foreign currency.

RISKS RELATING TO THE PREFERRED SHARES AND THE AMERICAN DEPOSITARY SHARES (“ADSs”)

Preemptive rights may not be available to holders of ADSs.

The Bank’s by-laws and Colombian law require that, whenever the Bank issues new shares of any outstanding class, it must offer the holders of each class of shares (including holders of ADSs) the right to purchase a number of shares of such class sufficient to maintain their existing percentage ownership of the aggregate capital stock of the Bank. These rights are called preemptive rights. United States holders of ADSs may not be able to exercise their preemptive rights through The Bank of New York Mellon, which acts as depositary (the “Depositary”) for the Bank’s ADR facility, unless a registration statement under the Securities Act is effective with respect to such rights and class of shares or an exemption from the registration requirement thereunder is available. Although the Bank is not obligated to, it intends to consider at the time of any rights offering the costs and potential liabilities associated with any such registration statement, the benefits to the Bank from enabling the holders of the ADSs to exercise those rights and any other factors deemed appropriate at the time, and will then make a decision as to whether to file a registration statement. Accordingly, the Bank might decide not to file a registration statement in some cases.

To the extent holders of ADSs are unable to exercise these rights because a registration statement has not been filed and no exemption from the registration requirement under the Securities Act is available, the Depositary may attempt to sell the holders’ preemptive rights and distribute the net proceeds from that sale, if

 

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any, to such holders. The Depositary, after consulting with the Bank, will have discretion as to the procedure for making preemptive rights available to the holders of ADSs, disposing of such rights and making any proceeds available to such holders. If by the terms of any rights offering or for any other reason the Depositary is unable or chooses not to make those rights available to any holder of ADSs, and if it is unable or for any reason chooses not to sell those rights, the Depositary may allow the rights to lapse. Whenever the rights are sold or lapse, the equity interests of the holders of ADSs will be proportionately diluted.

The Bank’s preferred shares have limited voting rights.

The Bank’s corporate affairs are governed by its by-laws and Colombian law. Under the by-laws and Colombian law, the Bank’s preferred stockholders may have fewer rights than stockholders of a corporation incorporated in a U.S. jurisdiction. Holders of the Bank’s preferred shares and ADSs representing those shares are not entitled to vote for the election of directors or to influence the Bank’s management policies. Under the Bank’s by-laws and Colombian corporate law, holders of preferred shares (and consequently, holders of ADSs) have no voting rights in respect of preferred shares, other than the right to one vote per preferred share, in the following events:

 

   

in the event that changes in the Bank’s by-laws may impair the conditions or rights assigned to such shares and when the conversion of such shares into common shares is to be approved;

 

   

when voting on the anticipated dissolution, merger or transformation of the corporation or change of its corporate purpose;

 

   

when the preferred dividend has not been fully paid during two consecutive annual terms. In this event, holders of such shares shall retain their voting rights until the corresponding accrued dividends have been fully paid to them;

 

   

when the general shareholders’ meeting orders the payment of dividends with issued shares of the Bank;

 

   

if at the end of a fiscal period, the Bank’s profits are not enough to pay the minimum dividend and the Superintendency of Finance, by its own decision or upon petition of holders of at least ten percent (10%) of preferred shares, determines that benefits were concealed or shareholders were misled with regard to benefits received from the Bank by the Bank’s directors or officers, decreasing the profits to be distributed, the Superintendency of Finance may resolve that holders of preferred shares should participate with speaking and voting rights at the general shareholders’ meeting, in the terms established by law; and

 

   

when the registry of shares at the Colombian Stock Exchange or at the RNVE is suspended or canceled. In this event, voting rights shall be maintained until the irregularities that resulted in such cancellation or suspension are resolved.

Holders of the Bank’s ADSs may encounter difficulties in the exercise of dividend and voting rights.

Holders of the Bank’s ADSs may encounter difficulties in the exercise of some of their rights with respect to the shares underlying ADSs. If the Bank makes a distribution to holders of underlying shares in the form of securities, the Depositary is allowed, in its discretion, to sell those securities on behalf of ADS holders and instead distribute the net proceeds to the ADS holders. Also, under some circumstances, ADS holders may not be able to vote by giving instructions to the Depositary in those limited instances in which the preferred shares represented by the ADSs have the power to vote.

Relative illiquidity of the Colombian securities markets may impair the ability of an ADR holder to sell preferred shares.

The Bank’s common and preferred shares are listed on the Colombian Stock Exchange, which is relatively small and illiquid compared to stock exchanges in major financial centers. In addition, a small number of issuers represent a disproportionately large percentage of market capitalization and trading volume on the Colombian

 

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Stock Exchange. A liquid trading market for the Bank’s securities might not develop on the Colombian Stock Exchange. A limited trading market could impair the ability of an ADS holder to sell preferred shares (obtained upon withdrawal of such shares from the ADR facility) on the Colombian Stock Exchange in the amount and at the price and time such holder desires, and could increase the volatility of the price of the ADSs.

American Depositary Shares do not have the same tax benefits as other equity investments in Colombia.

Although ADSs represent Bancolombia’s preferred shares, they are held through a custodian in Colombia that is subject to a specific tax regulatory regime. For Colombian tax purposes, the sale of ADSs by foreign companies, Colombian individuals who are not residents in Colombia, or foreign non-resident individuals who have not started their fifth year of continuous residence in Colombia does not generate Colombian source income and is not subject to income tax in Colombia. Accordingly, the tax benefits applicable in Colombia to equity investments, in particular, those relating to dividends and profits from sale, are not applicable to ADSs. For more information see “Tax Considerations”, below.

 

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USE OF PROCEEDS

We will receive net proceeds from the sale of the new ADSs in this offering, of approximately US$256,955,510 million, or approximately US$296,157,986 if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions, the special structuring fee and estimated offering expenses. We intend to use the aggregate net proceeds for general corporate purposes.

 

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RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

Our ratios of earnings to fixed charges and preferred share dividends and other appropriations for the five years ended December 31, 2010, the six months ended June 30, 2010 and June 30, 2011, and the nine months ended September 30, 2010 and September 30, 2011, using financial information calculated in accordance with Colombian GAAP and adjusted to reflect U.S. GAAP, were:

 

     Year Ended December 31,      June 30,      September 30,  
   2006      2007      2008      2009      2010      2010      2011      2010      2011  

Ratios in accordance with Colombian GAAP(1)

                          

Excluding interest on deposits

     2.35         2.55         2.55         2.67         3.52         4.56         3.88         4.67         3.67   

Including interest on deposits

     1.60         1.60         1.55         1.56         2.01         2.13         2.14         2.19         2.06   

Ratios in accordance with U.S. GAAP(1)

                          

Excluding interest on deposits

     2.88         2.81         1.85         2.27         2.61         3.02         1.90         N/A         N/A   

Including interest on deposits

     1.82         1.68         1.31         1.45         1.80         1.89         1.44         N/A         N/A   

 

(1) For purposes of computing the consolidated ratio of earnings to fixed charges, earnings consist of income before minority interest and income taxes. Fixed charges consist of total interest expense.

 

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CAPITALIZATION

The following table sets forth our consolidated Technical Capital (as defined in “Colombian Banking Regulations—Capital Adequacy Requirements”) and long-term senior indebtedness as of September 30, 2011, and as adjusted to give effect to the receipt of US$893,744,430 in gross proceeds from the sale of preferred shares, including preferred shares in the form of ADSs pursuant to this offering and the preemptive rights offering in Colombia, calculated as described in footnote (2) below, offered herein as if such issuances had occurred on September 30, 2011.

 

     As of September 30, 2011(1)  
(In Millions of COP and Thousands of US$,
Except Percentages)
   Actual     As Adjusted for This Offering(2)  

Long-term senior indebtedness

     COP 2,584,657      US$ 1,339,888        COP 2,584,657      US$ 1,339,888   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subscribed capital

     393,914        204,205        425,914        220,794   

Legal reserve and other reserves

     6,270,114        3,250,431        7,962,156        4,127,586   

Unappropriated retained earnings

     64,743        33,563        64,743        33,563   

Net Income

     294,189        152,508        294,189        152,508   

Less:

        

Long-term investments

     (149,543     (77,523     (149,543     (77,523

Non-monetary inflation adjustment

     (55,703     (28,876     (55,703     (28,876
  

 

 

   

 

 

   

 

 

   

 

 

 

Primary capital (Tier I)

     6,817,714        3,534,308        8,541,756        4,428,052   
  

 

 

   

 

 

   

 

 

   

 

 

 

Provisions for loans

     47,876        24,819        47,876        24,819   

Subordinated bonds

     2,426,419        1,257,857        2,426,419        1,257,857   

Others

     210,442        109,093        210,442        109,093   
  

 

 

   

 

 

   

 

 

   

 

 

 

Computed secondary capital (Tier II)

     2,684,737        1,391,769        2,684,737        1,391,769   
  

 

 

   

 

 

   

 

 

   

 

 

 

Technical capital

     9,502,451        4,926,077        11,226,493        5,891,821   
  

 

 

   

 

 

   

 

 

   

 

 

 

Risk-weighted assets, including market risk

     73,237,366        37,966,297        73,237,366        37,966,297   
  

 

 

   

 

 

   

 

 

   

 

 

 

Technical capital to risk-weighted assets(3)(4)

     12.97     12.97     15.33     15.33

 

(1) Amounts stated in U.S. dollars have been converted, solely for the convenience of the reader, at the rate of COP 1,929.01 per US$1.00, which is the representative market rate calculated on September 30, 2011, the last business day of the quarter, as reported by the SFC. Such conversions should not be construed as representations that the peso amounts represent, or have been or could be converted into, United States dollars at that or any other rate.
(2) This column gives effect to the subscription of an aggregate amount of 63,999,997 of the Bank’s preferred shares consisting of (i) 43,543,793 preferred shares pursuant to our preemptive rights offering in Colombia and (ii) 5,114,051 ADSs in this offering. For purposes of this adjustment, we assume that the gross proceeds from this offering, before deduction of the underwriting discounts and commissions, the special structuring fee and estimated offering expenses payable by us, will be US$893,744,430, if the underwriters exercise their option to purchase additional ADSs in full. Further, for purposes of this adjustment, we converted the COP 1,132,139 million in gross proceeds from the preemptive rights offering in Colombia at the exchange rate mentioned in footnote(1) above.
(3) Capital adequacy requirements for Colombian financial institutions (as set forth in Decree 2555 of 2010, as amended) are based on the standards of the Basel Committee and differ from banking regulations in the United States. See “Risk Factors” and “Colombian Banking Regulations” for further information.
(4) Colombian regulations require that a credit institution’s Technical Capital be at least 9% of that institution’s total risk-weighted assets.

 

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Table of Contents

PRICE RANGE OF THE ADSs AND PREFERRED SHARES

In the United States, our preferred shares trade in the form of ADSs. Each ADS represents four preferred shares. The ADSs commenced trading on the NYSE in July 1995. As of January 31, 2012, the ADSs represented approximately 57% of our preferred shares and 20% of our current outstanding shares. Our preferred shares began trading on the Colombian Stock Exchange in 1995.

The tables below set forth, for the periods indicated, the reported high and low closing sale prices and share trading volume for the ADSs on the NYSE and for the preferred shares on the Colombian Stock Exchange, for the periods indicated.

 

     Colombian Stock Exchange      New York Stock Exchange  
   Ps Per Preferred Share      US$ per ADS      Trading Volume
(Number of ADSs)
 
   High      Low      High      Low     

Year Ending

              

December 31, 2011

     31,100         25,160         69.87         53.56         83,520,522   

December 31, 2010

     31,820         20,400         69.44         40.10         92,823,574   

December 31, 2009

     24,200         10,440         48.00         15.90         110,933,010   

December 31, 2008

     18,960         9,300         44.00         15.00         135,165,148   

December 31, 2007

     19,360         13,200         39.00         24.00         132,406,300   

 

Source: NYSENet (Composite Index) and Colombian Stock Exchange.

 

     Colombia Stock Exchange      New York Stock Exchange  
   Ps Per Preferred
Shares
     Trading Volume
(Number of
Shares)
     US$ per ADS      Trading Volume
(Number of ADSs)
 
   High      Low         High      Low     
     (in nominal pesos)                       

2011

                 

First quarter

     29,600         25,700         40,901,113         63.53         53.56         26,407,950   

Second quarter

     29,980         27,780         25,006,440         67.01         61.83         17,070,939   

Third quarter

     29,880         26,000         30,674,067         67.35         55.70         21,196,499   

Fourth quarter

     29,800         26,520         27,263,359         64.35         54.66         18,824,920   

2010

                 

First quarter

     23,540         20,400         30,022,171         48.30         40.10         20,026,846   

Second quarter

     24,300         21,680         24,614,457         51.96         42.53         19,949,298   

Third quarter

     30,280         23,740         31,640,593         67.56         49.85         30,367,572   

Fourth quarter

     31,820         28,400         25,356,000         69.44         59.31         22,479,858   

2009

                 

First quarter

     13,160         10,440         64,657,870         24.33         15.90         33,167,974   

Second quarter

     16,500         12,160         64,560,996         32.19         18.96         31,275,488   

Third quarter

     20,700         14,980         55,568,395         43.29         28.23         23,001,042   

Fourth quarter

     24,200         19,240         38,539,785         48.00         38.17         23,488,506   

 

Source: NYSENet (Composite Index) and Colombian Stock Exchange.

 

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Table of Contents
     Colombia Stock Exchange      New York Stock Exchange  
   Ps Per Preferred Share      US$ per ADS      Trading Volume
(Number of ADSs)
 
   High      Low      High      Low     

Month

              

January 2012

     28,800         26,100         62.18         56.87         9,801,008   

December 2011

     28,800         26,100         62.18         56.87         9,801,008   

November 2011

     29,480         26,520         62.80         54.14         5,465,253   

October 2011

     30,000         26,500         64.50         53.64         7,297,520   

September 2011

     29,880         26,500         66.91         55.50         8,562,785   

August 2011

     29,580         26,000         67.27         56.45         7,149,338   

 

Source: NYSENet (Composite Index) and Colombian Stock Exchange.

 

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DIVIDEND POLICY

The declaration, amount and payment of dividends by Bancolombia is based on the Bank’s unconsolidated earnings. Once the shareholders present at the relevant general shareholders’ meeting have approved the financial statements, then they can determine the allocation of distributable profits, if any, of the preceding year. This is done by a resolution adopted by the vote of the holders of a majority of the common shares at the annual general shareholders’ meeting pursuant to the recommendation of the board of directors and the president of the Bank.

Under the Colombian Commerce Code, after payment of income taxes and appropriation of legal and other reserves, and after setting off losses from prior fiscal years, the Bank must distribute to its shareholders at least 50% of its annual net income, or 70% of its annual net income if the total amount of reserves exceeds 100% of its outstanding capital. Such dividend distribution must be made to all shareholders, in cash or in issued stock of Bancolombia, as may be determined by the shareholders, and paid within a year from the date of the ordinary annual shareholders’ meeting in which the dividend was declared.

Pursuant to Colombia’s Law 222 of 1995, the minimum dividend per share requirement of 50% or 70% of net income, as the case may be, may be waived by an affirmative vote of the holders of 78% of the shares present at the shareholders’ meeting.

Under Colombian law and the Bank’s by-laws, the annual net profits of the Bank must be applied as follows:

 

   

first, an amount equal to 10% of the Bank’s net profits to a legal reserve until such reserve is equal to at least 50% of the Bank’s subscribed capital;

 

   

second, to the payment of the minimum dividend on the preferred shares; and

 

   

third, allocation of the balance of the net proceeds as may be determined in the ordinary annual shareholders’ meeting by the vote of the holders of a majority of the common shares entitled to vote, upon the recommendation of the board of directors and the president, and may, subject to further reserves required by the Bank’s by-laws, be distributed as a dividend.

In accordance with the Bank’s by-laws, the general shareholders’ meeting may also allocate a portion of the profits to welfare, education or civic services, or to support economic organizations of the Bank’s employees.

The following table sets forth the annual cash dividends paid on each common share and each preferred share during the periods indicated:

 

Dividends declared with respect to net income earned in:

   Cash dividends per
share(1)(2)
     Cash dividends per
share(1)(3)
 
     (Ps)      (U.S. dollars)  

2010

     669         0.357   

2009

     637         0.331   

2008

     624         0.245   

2007

     568         0.310   

2006

     532         0.243   

 

(1) Includes common shares and preferred shares.
(2) Cash dividends for 2010, 2009, 2008, 2007 and 2006 were paid in quarterly installments.
(3) Amounts have been translated from pesos at the representative market rate in effect at the end of the month in which the dividends were declared (February or March, as applicable).

 

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Table of Contents

Common Shares

Under Colombian law, the dividends payable to the holders of common shares cannot exceed the dividends payable to holders of preferred shares. All common shares that are fully paid-in and outstanding at the time a dividend or other distribution is declared are entitled to share equally in that dividend or other distribution. Common shares that are only partially paid-in participate in a dividend or distribution in the same proportion as such common shares have been paid-in at the time of the dividend or distribution.

Preferred Shares

Holders of preferred shares are entitled to receive dividends based on the profits of the preceding fiscal year, after deducting losses affecting the capital and once the amount that shall be legally set apart for the legal reserve has been deducted, but before creating or accruing for any other reserve, of a minimum preferred dividend equal to one percent (1%) yearly of the subscription price of the preferred share, provided this dividend is higher than the dividend assigned to common shares,;if this is not the case, the dividend shall be increased to an amount that is equal to the per share dividend on the common shares.

Payment of the preferred dividend shall be made at the time and in the manner established by the general shareholders’ meeting and in the priority indicated by Colombian law.

In the event that the holders of preferred shares have not received the minimum dividend for a period in excess of two consecutive fiscal years, they will acquire voting rights until the corresponding accrued dividends have been fully paid to them. See “Description of the Preferred Shares—Voting Rights” in the accompanying prospectus.

General Aspects Involving Dividends

The dividend periods may be different from the periods covered by the general balance sheet. The general shareholders’ meeting will determine such dividend periods, the effective date, the system and the place for payment of dividends.

Dividends declared on the common shares and the preferred shares will be payable to the record holders of those shares, as they appear on the Bank’s stock registry, on the appropriate record dates as determined by the general shareholders’ meeting.

Any stock dividend payable by the Bank will be paid in common shares to the holders of common shares and in preferred shares to the holders of preferred shares. Nonetheless, a general shareholders’ meeting may authorize the payment in common shares to all shareholders. Any stock dividend payable in common shares requires the approval of 80% or more of the shares present at a shareholders’ meeting, which will include 80% or more of the outstanding preferred shares. In the event that none of the holders of preferred shares is present at such meeting, a stock dividend may only be paid to the holders of common shares that approve such a payment.

For information regarding dividend distribution to holders of ADSs, see “Description of American Depositary Receipts—Dividends, Other Distributions and Rights” in the accompanying prospectus.

 

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Table of Contents

SELECTED STATISTICAL INFORMATION

The following information is included for analytical purposes and should be read in conjunction with the Bank’s consolidated financial statements as well as Item 5. “Operating and Financial Review and Prospects” in the Annual Report. This information has been prepared based on the Bank’s financial records, which are prepared in accordance with Colombian GAAP and do not reflect adjustments necessary to state the information in accordance with U.S. GAAP. See Note 31 to the Bank’s consolidated financial statements as of December 31, 2010 included in the Annual Report for a summary of the significant differences between Colombian GAAP and U.S. GAAP.

Average balance sheet

The following tables show for the years ended December 31, 2010, 2009 and 2008 and the nine-month periods ended September 30, 2010 and 2011, respectively: (i) average balances for all of the Bank’s assets and liabilities; (ii) interest earned and interest paid amounts; and (iii) average nominal interest rates/yield for the Bank’s interest-earning assets and interest-bearing liabilities.

 

(COP Million, Except Percentages)   Average Balance Sheet and Income From Interest-Earning Assets
for the Fiscal Years Ended December 31,
 
  2010     2009     2008  
 

Average

Balance

   

Interest

Earned

   

Average

Nominal

Interest

Rate

   

Average

Balance

   

Interest

Earned

   

Average

Nominal

Interest

Rate

   

Average

Balance

   

Interest

Earned

   

Average

Nominal

Interest

Rate

 

ASSETS

                 

Interest-earning assets

                 

Overnight funds

                 

Peso-denominated

    907,453        32,472        3.6     823,303        60,561        7.4     428,144        67,339        15.7

U.S. Dollar-denominated

    478,224        9,526        2.0     1,155,871        15,612        1.4     649,167        38,869        6.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,385,677        41,998        3.0     1,979,174        76,173        3.8     1,077,311        106,208        9.9

Investment securities

                 

Peso-denominated

    6,381,602        430,911        6.8     5,461,175        647,324        11.9     4,387,502        406,802        9.3

U.S. Dollar-denominated

    2,159,867        11,502        0.5     2,210,185        81,234        3.7     1,705,124        24,787        1.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    8,541,469        442,413        5.2     7,671,360        728,558        9.5     6,092,626        431,589        7.1

Loans and Financial Leases(1)

                 

Peso-denominated

    32,808,038        3,763,049        11.5     31,577,872        4,713,033        14.9     28,491,159        4,923,704        17.3

U.S. Dollar-denominated

    10,361,466        701,225        6.8     11,457,889        909,934        7.9     10,922,602        852,242        7.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    43,169,504        4,464,274        10.3     43,035,761        5,622,967        13.1     39,413,761        5,775,946        14.7

Total interest-earning assets

                 

Peso-denominated

    40,097,093        4,226,432        10.5     37,862,350        5,420,918        14.3     33,306,805        5,397,845        16.2

U.S. Dollar-denominated

    12,999,557        722,253        5.6     14,823,945        1,006,780        6.8     13,276,893        915,898        6.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    53,096,650        4,948,685        9.3     52,686,295        6,427,698        12.2     46,583,698        6,313,743        13.6

Total non-interest-earning assets

                 

Peso-denominated

    6,957,834            7,440,325            6,277,291       

U.S. Dollar-denominated

    3,300,597            2,502,976            2,260,525       
 

 

 

       

 

 

       

 

 

     

Total

    10,258,431            9,943,301            8,537,816       

Total interest and non-interest-earning assets

                 

Peso-denominated

    47,054,927        4,226,432          45,302,675        5,420,918          39,584,096        5,397,845     

U.S. Dollar-denominated

    16,300,154        722,253          17,326,921        1,006,780          15,537,418        915,898     
 

 

 

       

 

 

       

 

 

     

Total Assets (COP)

    63,355,081        4,948,685          62,629,596        6,427,698          55,121,514        6,313,743     

 

(1) Includes performing loans only.

 

S-30


Table of Contents

 

(COP Million, Except Percentages)   Average Balance Sheet and Income from Interest-Earning Assets
for the Nine-Month Periods Ended September 30,
 
  2011     2010  
  Average
Balance
    Interest
Earned
    Average
Nominal
Interest
Rate
    Average
Balance
    Interest
Earned
    Average
Nominal
Interest
Rate
 

ASSETS

           

Interest-earning assets:

           

Overnight funds

           

Peso-denominated

    247,762        7,502        4.0     1,058,805        28,538        3.6

U.S. Dollar-denominated

    391,534        4,743        1.6     516,212        6,766        1.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    639,296        12,245        2.6     1,575,017        35,304        3.0

Investment securities

           

Peso-denominated

    7,290,704        518,676        9.5     6,315,390        335,526        7.1

U.S. Dollar-denominated

    2,072,044        (13,395     (0.9 %)      2,220,123        10,107        0.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    9,362,748        505,281        7.2     8,535,513        345,633        5.4

Loans and Financial Leases(1)

           

Peso-denominated

    37,839,045        3,199,608        11.3     32,153,311        2,806,918        11.6

U.S. Dollar-denominated

    13,482,953        581,311        5.7     9,960,586        519,784        7.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    51,321,998        3,780,919        9.8     42,113,897        3,326,702        10.5

Total interest-earning assets

           

Peso-denominated

    45,377,511        3,725,786        10.9     39,527,506        3,170,982        10.7

U.S. Dollar-denominated

    15,946,531        572,659        4.8     12,696,921        536,657        5.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    61,324,042        4,298,445        9.3     52,224,427        3,707,639        9.5

Total non-interest-earning assets

           

Peso-denominated

    11,015,277            7,237,391       

U.S. Dollar-denominated

    882,317            2,879,502       
 

 

 

       

 

 

     

Total

    11,897,594            10,116,893       

Total interest and non-interest-earning assets

           

Peso-denominated

    56,392,788        3,725,786          46,764,897        3,170,982     

U.S. Dollar-denominated

    16,828,848        572,659          15,576,423        536,657     
 

 

 

   

 

 

     

 

 

   

 

 

   

Total Assets (COP)

    73,221,636        4,298,445          62,341,320        3,707,639     
 

 

 

   

 

 

     

 

 

   

 

 

   

 

(1) Includes performing loans only.

 

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Table of Contents

 

(COP Million, Except Percentages)

  Average Balance Sheet and Interest Paid on Interest-Bearing Liabilities
for the Fiscal Years Ended December 31,
 
  2010     2009     2008  
  Average
Balance
    Interest
Paid
    Yield/
Rate(1)
    Average
Balance
    Interest
Paid
    Yield/
Rate(1)
    Average
Balance
    Interest
Paid
    Yield/
Rate(1)
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Interest-bearing liabilities:

                 

Checking deposits

                 

Peso-denominated

    852,041        24,357        2.9     625,108        19,729        3.2     468,000        16,012        3.4

U.S. Dollar-denominated

    1,679,362        14,501        0.9     1,729,212        23,482        1.4     1,733,507        23,245        1.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    2,531,403        38,858        1.5     2,354,320        43,211        1.8     2,201,507        39,257        1.8

Savings deposits

                 

Peso-denominated

    14,046,068        307,106        2.2     11,919,042        431,126        3.6     10,952,894        555,628        5.1

U.S. Dollar-denominated

    2,122,407        14,556        0.7     2,154,381        19,739        0.9     1,880,546        34,090        1.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    16,168,475        321,662        2.0     14,073,423        450,865        3.2     12,833,440        589,718        4.6

Time deposits

                 

Peso-denominated

    11,117,836        537,145        4.8     13,080,400        1,099,678        8.4     10,276,935        1,015,373        9.9

U.S. Dollar-denominated

    5,835,906        156,601        2.7     7,402,123        276,889        3.7     5,989,037        241,369        4.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    16,953,742        693,746        4.1     20,482,523        1,376,567        6.7     16,265,972        1,256,742        7.7

Overnight funds

                 

Peso-denominated

    1,457,443        38,867        2.7     1,213,463        74,492        6.1     1,301,213        123,638        9.5

U.S. Dollar-denominated

    119,075        1,584        1.3     493,706        19,607        4.0     1,013,888        42,491        4.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,576,518        40,451        2.6     1,707,169        94,099        5.5     2,315,101        166,129        7.2

Borrowings from development and other domestic banks(2)

                 

Peso-denominated

    2,521,533        133,673        5.3     2,889,261        244,644        8.5     3,036,553        332,747        11.0

U.S. Dollar-denominated

    127,093        5,359        4.2     437,439        8,198        1.9     600,817        12,153        2.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    2,648,626        139,032        5.2     3,326,700        252,842        7.6     3,637,370        344,900        9.5

Interbank borrowings(2)(3)

                 

Peso-denominated

    —          —          —          —          —          —           

U.S. Dollar-denominated

    1,449,197        19,537        1.3     1,270,413        47,650        3.8     1,578,252        74,792        4.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,449,197        19,537        1.3     1,270,413        47,650        3.8     1,578,252        74,792        4.7

Long-term debt

                 

Peso-denominated

    2,759,345        209,542        7.6     2,413,103        256,721        10.6     1,640,560        191,533        11.7

U.S. Dollar-denominated

    1,952,604        108,753        5.6     1,636,497        103,461        6.3     1,493,208        90,270        6.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    4,711,949        318,295        6.8     4,049,600        360,182        8.9     3,133,768        281,803        9.0

Total interest-bearing liabilities

                 

Peso-denominated

    32,754,266        1,250,690        3.8     32,140,377        2,126,390        6.6     27,676,155        2,234,931        8.1

U.S. Dollar-denominated

    13,285,644        320,891        2.4     15,123,771        499,026        3.3     14,289,255        518,410        3.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    46,039,910        1,571,581        3.4     47,264,148        2,625,416        5.6     41,965,410        2,753,341        6.6

Total interest and non-interest-bearing liabilities and stockholders’ equity

                 

Peso-denominated

    47,981,394        1,250,690          45,380,776        2,126,390          39,524,490        2,234,931     

U.S. Dollar-denominated

    15,373,687        320,891          17,248,820        499,026          15,597,024        518,410     
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total Liabilities and Stockholders’ Equity (COP)

    63,355,081        1,571,581          62,629,596        2,625,416          55,121,514        2,753,341     

 

(1) See “Item 4. Information on the Company — E. Selected Statistical Information — E.1 Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential” in the Annual Report.
(2) Includes both short-term and long-term borrowings.
(3) Includes borrowings from banks located outside Colombia.

 

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Table of Contents

 

(COP Million, Except Percentages)

  Average Balance Sheet and Interest Paid on Interest-Bearing  Liabilities
for the Nine-Month Periods Ended September 30,
 
  2011    

 

    2010  
  Average
Balance
    Interest
Paid
    Yield /
Rate(1)
    Average
Balance
    Interest
Paid
    Yield /
Rate(1)
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

           

Interest-bearing liabilities:

           

Checking deposits

           

Peso-denominated

    1,105,027        19,731        2.4     802,471        16,470        2.7

U.S. Dollar-denominated

    1,658,671        8,947        0.7     1,678,195        11,059        0.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    2,763,698        28,678        1.4     2,480,666        27,529        1.5

Savings deposits

           

Peso-denominated

    17,191,404        321,001        2.5     13,665,190        225,130        2.2

U.S. Dollar-denominated

    2,360,308        10,264        0.6     2,091,969        11,016        0.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    19,551,712        331,265        2.3     15,757,159        236,146        2.0

Time deposits

           

Peso-denominated

    10,783,724        385,154        4.8     11,396,961        417,257        4.9

U.S. Dollar-denominated

    5,746,897        106,030        2.5     5,882,343        116,569        2.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    16,530,621        491,184        4.0     17,279,304        533,826        4.1

Overnight funds

           

Peso-denominated

    1,963,903        55,728        3.8     1,369,645        25,881        2.5

U.S. Dollar-denominated

    167,196        1,850        1.5     73,704        869        1.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    2,131,099        57,578        3.6     1,443,349        26,750        2.5

Borrowings from development and other domestic banks(2)

           

Peso-denominated

    2,646,218        107,694        5.4     2,549,831        103,059        5.4

U.S. Dollar-denominated

    58,855        6,526        14.8     139,149        4,383        4.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    2,705,073        114,220        5.6     2,688,980        107,442        5.3

Interbank borrowings(2)(3)

           

Peso-denominated

    —          —            —          —       

U.S. Dollar-denominated

    2,701,411        23,940        1.2     1,234,641        13,614        1.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    2,701,411        23,940        1.2     1,234,641        13,614        1.5

Long-term debt

           

Peso-denominated

    3,570,805        201,198        7.5     2,705,683        158,810        7.8

U.S. Dollar-denominated

    3,846,325        167,091        5.8     1,771,326        75,243        5.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    7,417,130        368,289        6.6     4,477,009        234,053        7.0

Total interest-bearing liabilities

           

Peso-denominated

    37,261,081        1,090,506        3.9     32,489,781        946,607        3.9

U.S. Dollar-denominated

    16,539,663        324,648        2.6     12,871,327        232,753        2.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    53,800,744        1,415,154        3.5     45,361,108        1,179,360        3.5

Total interest and non-interest bearing liabilities and stockholders ‘equity

           

Peso-denominated

    56,374,716        1,090,506          47,424,380        946,607     

U.S. Dollar-denominated

    16,846,920        324,648          14,916,940        232,753     
 

 

 

   

 

 

     

 

 

   

 

 

   

Total Liabilities and Stockholders’ Equity (COP)

    73,221,636        1,415,154          62,341,320        1,179,360     
 

 

 

   

 

 

     

 

 

   

 

 

   

 

(1) See “Item 4. Information on the Company – E. Selected Statistical Information – E.1 Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential” in the Annual Report.
(2) Includes both short-term and long-term borrowings.
(3) Includes borrowings from banks located outside Colombia.

Changes in net interest income and expenses — volume and rate analysis

The following table allocates, by currency of denomination, changes in the Bank’s net interest income to changes in average volume, changes in nominal rates and the net variance caused by changes in both average volume and nominal rate for the fiscal year ended December 31, 2010 compared to the fiscal year ended December 31, 2009; the fiscal year ended December 31,

 

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Table of Contents

2009 compared to the fiscal year ended December 31, 2008, and for the nine-month period ended September 30, 2011 compared to the nine-month period ended September 30, 2010. Volume and rate variances have been calculated based on movements in average balances over the period and changes in nominal interest rates on average interest-earning assets and average interest-bearing liabilities. Net changes attributable to changes in both volume and interest rate have been allocated to the change due to changes in volume.

 

    2009-2010 Increase
(Decrease)
due to Changes in:
    2008-2009 Increase
(Decrease)
due to Changes in:
    Nine-Month Periods
Ended September 30,
2011 - September 30, 2010
Increase (Decrease) Due
to Changes in:
 

(COP million)

  Volume     Rate     Net
Change
    Volume     Rate     Net
Change
    Volume     Rate     Net
Change
 

Interest-earning assets:

                 

Overnight funds

                 

Peso-denominated

    3,011        (31,100     (28,089     29,067        (35,845     (6,778     (32,743     4,695        (28,048

U.S. Dollar-denominated

    (13,498     7,412        (6,086     6,844        (30,101     (23,257     (2,014     (684     (2,698
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    (10,487     (23,688     (34,175     35,911        (65,946     (30,035     (34,757     4,011        (30,746

Investment securities

                 

Peso-denominated

    62,151        (278,564     (216,413     127,265        113,257        240,522        92,515        151,685        244,200   

U.S. Dollar-denominated

    (268     (69,464     (69,732     18,563        37,884        56,447        1,276        (32,612     (31,336
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    61,883        (348,028     (286,145     145,828        151,141        296,969        93,791        119,073        212,864   

Loans and financial leases

                 

Peso-denominated

    141,099        (1,091,083     (949,984     460,695        (671,366     (210,671     641,035        (117,449     523,586   

U.S. Dollar-denominated

    (74,202     (134,507     (208,709     42,510        15,182        57,692        202,487        (120,451     82,036   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    66,897        (1,225,590     (1,158,693     503,205        (656,184     (152,979     843,522        (237,900     605,622   

Total interest-earning assets

                 

Peso-denominated

    206,261        (1,400,747     (1,194,486     617,027        (593,954     23,073        700,807        38,931        739,738   

U.S. Dollar-denominated

    (87,968     (196,559     (284,527     67,917        22,965        90,882        201,749        (153,747     48,002   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    118,293        (1,597,306     (1,479,013     684,944        (570,989     113,955        902,556        (114,816     787,740   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest-bearing liabilities:

                 

Checking deposits

                 

Peso-denominated

    6,487        (1,859     4,628        4,958        (1,241     3,717        7,203        (2,855     4,348   

U.S. Dollar-denominated

    (430     (8,551     (8,981     (58     295        237        (140     (2,676     (2,816
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    6,057        (10,410     (4,353     4,900        (946     3,954        7,063        (5,531     1,532   

Savings deposits

                 

Peso-denominated

    46,506        (170,526     (124,020     34,947        (159,449     (124,502     87,789        40,039        127,828   

U.S. Dollar-denominated

    (219     (4,964     (5,183     2,509        (16,860     (14,351     1,556        (2,559     (1,003
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    46,287        (175,490     (129,203     37,456        (176,309     (138,853     89,345        37,480        126,825   

Time deposits

                 

Peso-denominated

    (94,819     (467,714     (562,533     235,689        (151,384     84,305        (29,203     (13,601     (42,804

U.S. Dollar-denominated

    (42,028     (78,260     (120,288     52,859        (17,339     35,520        (3,332     (10,720     (14,052
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    (136,847     (545,974     (682,821     288,548        (168,723     119,825        (32,535     (24,321     (56,856

Overnight funds

                 

Peso-denominated

    6,506        (42,131     (35,625     (5,387     (43,759     (49,146     22,484        17,312        39,796   

U.S. Dollar-denominated

    (4,984     (13,039     (18,023     (20,658     (2,226     (22,884     1,379        (71     1,308   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,522        (55,170     (53,648     (26,045     (45,985     (72,030     23,863        17,241        41,104   

Borrowings from development and other domestic banks

                 

Peso-denominated

    (19,494     (91,477     (110,971     (12,472     (75,631     (88,103     5,230        950        6,180   

U.S. Dollar-denominated

    (13,086     10,247        (2,839     (3,062     (893     (3,955     (11,871     14,728        2,857   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    (32,580     (81,230     (113,810     (15,534     (76,524     (92,058     (6,641     15,678        9,037   

Interbank borrowings

                 

Peso-denominated

    —          —          —          —          —          —          —         

U.S. Dollar-denominated

    2,410        (30,523     (28,113     (11,546     (15,596     (27,142     17,331        (3,563     13,768   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    2,410        (30,523     (28,113     (11,546     (15,596     (27,142     17,331        (3,563     13,768   

Long-term debt

                 

Peso-denominated

    26,293        (73,472     (47,179     82,188        (17,000     65,187        64,994        (8,477     56,517   

U.S. Dollar-denominated

    17,606        (12,314     5,292        9,059        4,132        13,191        120,189        2,275        122,464   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    43,899        (85,786     (41,887     91,247        (12,868     78,378        185,183        (6,202     178,981   

Total interest-bearing liabilities

                 

Peso-denominated

    (28,521     (847,179     (875,700     339,923        (448,464     (108,542     158,497        33,368        191,865   

U.S. Dollar-denominated

    (40,731     (137,404     (178,135     29,103        (48,487     (19,384     125,112        (2,586     122,526   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total (COP)

    (69,252     (984,583     (1,053,835     369,026        (496,951     (127,926     283,609        30,782        314,391   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Interest-earning assets — net interest margin and spread

The following table presents the levels of average interest-earning assets and net interest income of the Bank and illustrates the comparative net interest margin and interest spread obtained for the fiscal years ended December 31, 2010, 2009 and 2008 and the nine-month periods ended September 30, 2010 and 2011, respectively.

 

(COP Million, Except Percentages)

   Interest-Earning Assets-Yield for the Fiscal
Year Ended December 31,
    Interest-Earning Assets-Yield
For the Nine-Month Periods
ended September 30,
 
   2010     2009     2008     2011     2010  

Total average interest-earning assets

          

Peso-denominated

     40,097,093        37,862,350        33,306,805        45,377,511        39,527,506   

U.S. Dollar-denominated

     12,999,557        14,823,945        13,276,893        15,946,531        12,696,921   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     53,096,650        52,686,295        46,583,698        61,324,042        52,224,427   

Net interest earned(1)

          

Peso-denominated

     2,975,742        3,294,528        3,162,914        2,635,280        2,224,375   

U.S. Dollar-denominated

     401,362        507,754        397,488        248,011        303,904   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     3,377,104        3,802,282        3,560,402        2,883,291        2,528,279   

Average yield on interest-earning assets

          

Peso-denominated

     10.5     14.3     16.2     10.9     10.7

U.S. Dollar-denominated

     5.6     6.8     6.9     4.8     5.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     9.3     12.2     13.6     9.3     9.5

Net interest margin(2)

          

Peso-denominated

     7.4     8.7     9.5     5.8     5.6

U.S. Dollar-denominated

     3.1     3.4     3.0     1.6     2.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     6.4     7.2     7.6     4.7     4.8

Interest spread(3)

          

Peso-denominated

     6.7     7.7     8.1     7.0     6.8

U.S. Dollar-denominated

     3.1     3.5     3.3     2.2     3.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     5.9     6.6     7.0     5.8     6.0

 

(1) Net interest earned is interest income less interest paid and includes interest earned on investments.
(2) Net interest margin is net interest income divided by total average interest-earning assets.
(3) Interest spread is the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.

 

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COLOMBIAN BANKING REGULATIONS

Colombian Banking Regulators

Pursuant to Colombia’s Constitution, the Colombian national legislature has the power to prescribe the general legal framework within which the government may regulate the financial system. The agencies vested with the authority to regulate the financial system are the Board of Directors of the Central Bank, the Ministry of Finance, the SFC, the Superintendency of Industry and Commerce (the “SIC”) and the Self-Regulatory Organization (Autoregulador del Mercado de Valores) (the “SRO”).

Central Bank

The Central Bank exercises the customary functions of a central bank, including price stabilization, monetary policy, regulation of currency circulation, regulation of credit, exchange rate monitoring and management of international reserves. Its board of directors is the regulatory authority for monetary, currency exchange and credit policies, and is responsible for the direction of the Central Bank’s duties. The Central Bank also acts as lender of last resort to financial institutions.

Ministry of Finance and Public Credit

One of the functions of the Ministry of Finance is to regulate all aspects of finance and insurance activities.

As part of its duties, the Ministry of Finance issues decrees relating to financial matters that may affect banking operations in Colombia. In particular, the Ministry of Finance is responsible for regulations relating to capital adequacy, risk limitations, authorized operations, disclosure of information and accounting of financial institutions.

Superintendency of Finance

The SFC is the authority responsible for supervising and regulating financial institutions, including commercial banks such as the Bank, finance corporations, finance companies, financial services companies and insurance companies. The SFC has broad discretionary powers to supervise financial institutions, including the authority to impose fines on financial institutions and their directors and officers for violations of applicable regulations. The SFC can also conduct on-site inspections of Colombian financial institutions.

The SFC is also responsible for monitoring and regulating the market for publicly traded securities in Colombia and for monitoring and supervising securities market participants, including the Colombian Stock Exchange, brokers, dealers, mutual funds and issuers.

Financial institutions must obtain the prior authorization of the SFC before commencing operations.

Violations of the financial system rules and regulations are subject to administrative and, in some cases, criminal sanctions.

Other Colombian Regulators

Self Regulatory Organization

The SRO (Autorregulador del Mercado de Valores – AMV) is a private entity responsible for the regulation of entities participating in the Colombian capital markets. The SRO may issue mandatory instructions to its members and supervise its members’ compliance and impose sanctions for violations.

All capital market intermediaries, including the Bank, must become members of the SRO and are subject to its regulations.

 

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Table of Contents

Superintendency of Industry and Commerce

The SIC is the authority responsible for supervising and regulating competition in several industrial sectors, including financial institutions. The SIC is authorized to initiate administrative proceedings and impose sanctions on banks, including the Bank, whenever the financial entity behaves in a manner considered to be anti-competitive.

Regulatory framework for Colombian Banking Institutions

The basic regulatory framework of the Colombian financial sector is set forth in Decree 663 of 1993, modified among others, by Law 510 of 1999, Law 546 of 1999, Law 795 of 2003, Law 964 of 2005 and Law 1328 of 2009 as well as in External Resolution 8 of 2000 (exchange control regulation statute) and Resolution 4 (as hereinafter defined) issued by the board of directors of the Central Bank. Decree 663 of 1993 defines the structure of the Colombian financial system and defines several forms of business entities, including: (i) credit institutions (establecimientos de crédito) (which are further categorized into banks, finance corporations (corporaciones financieras), financing companies (compañias de financiamiento comercial) and finance cooperatives (cooperativas financieras)); (ii) financial services entities (sociedades de servicios financieros); (iii) capitalization corporations (sociedades de capitalización); (iv) insurance companies (entidades aseguradoras); and (v) insurance intermediaries (intermediarios de seguros). Furthermore, Decree 663 of 1993 provides that no financial, banking or credit institution may operate in Colombia without the prior approval of the SFC. Additionally, Decree 2555 of 2010 compiled regulations that were dispersed in separate decrees, including regulations regarding capital adequacy and lending activities.

The main role of banks, finance corporations and financing companies is to receive deposits. Banks place funds back into circulation by means of loans or any active credit operations; finance corporations place funds into circulation by means of active credit operations or investments, with the purpose of promoting the creation or