colombia itau corpbanca colombia s.a. · itau colombia’s ratings also consider its tight capital...
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Banks
www.fitchratings.com March 29, 2019
Colombia
Itau Corpbanca Colombia S.A. Full Rating Report
Key Rating Drivers
VR Drives IDRs: Itau Corpbanca Colombia S.A.’s (Itau Colombia) Viability Rating (VR) is
highly influenced by its company profile and resilient asset quality.
Itau Colombia’s ratings also consider its tight capital levels, weak profitability and sound risk
management, as well as its strong liquidity management in line with the Colombian banking
market and Basel III internal considerations.
Itau Group Regional Expansion: Itau Colombia was created in 2012 as part of the regional
expansion strategy of its parent, Itau Corpbanca (formerly Corpbanca). This strategy was
complemented by Banco Itau Corpbanca’s integration with its ultimate parent in Brazil.
The Colombian franchise has already benefited from Itau Group’s strong risk management
culture and adoption of the Itau brand. It should see additional benefits once the business
model in Colombia is completed.
Resilient Asset Quality: The Colombian market experienced lingering systemic asset
deterioration during 2018, but Itau Colombia’s asset quality leveled off ahead of its local peers
and is showing signs of improvement. Impairment fluctuates between 2.9% and 3.1% during
the year, in contrast with the Colombian banking system, which reached 3.7% at
September 2018. The economic slowdown had an impact on the bank’s portfolio quality, but
troubled legacy corporate loans continue to weigh on asset quality.
Adjusted Capital Ratios: Fitch Ratings perceives the bank’s capital as relatively tight,
although there is some comfort when considering Itau Colombia’s ample loan loss reserves,
good asset quality and sound risk management. Its current capitalization metrics are lower than
those of similarly rated peers (universal commercial banks in a ‘bbb’ operating environment);
Fitch considers this one of the constraints on the bank’s VR.
Weak Profitability: Itau Colombia’s profitability has been low as it adapts to the new business
model and a low economic cycle. Pressures on loan impairment charges, technological
integration, brand launch and strategic adjustments constrained operational revenues
generated during the past three years. Fitch expects Itau Colombia’s profitability to gradually
improve in the coming years, while the bank further supports the parent’s revenue and
geographic diversification strategy.
Sound Liquidity Levels: The bank maintains good liquidity levels, which provide some relief
from managing the concentrated liability structure. The moderate franchise gives a limited
competitive advantage and generally influences funding costs. However, the deposit structure
is working toward a composition of stable resources, in line with the more conservative liquidity
policies and liquidity coverage ratios; this includes mid- to long-term time deposits, domestic
and overseas bond issuances and increased retail funding.
Rating Sensitivities
Limited Upside Potential: There is limited upside potential in Itau Colombia’s ratings over the
short to medium term given its medium size and low profitability.
Decline in Asset Quality: Negative rating action could arise from a material deterioration in
asset quality that further erodes the bank’s Fitch core capital (FCC) ratio below 9% or
profitability or loan reserve coverage of impaired loans below 100%.
Ratings
Itau Corpbanca Colombia S.A.
Long-Term Foreign Currency IDR BBB–
Short-Term Foreign Currency IDR F3
Long-Term Local Currency IDR BBB–
Short-Term Local Currency IDR F3
Viability Rating bbb–
Support Rating 3
Support Rating Floor BB+
Sovereign Risk
Foreign Currency Long-Term IDR BBB
Local Currency Long-Term IDR BBB
Outlooks
Foreign Currency Long-Term IDR Stable
Local Currency Long-Term IDR Stable
Sovereign Foreign Currency Long-Term IDR Stable
Sovereign Local Currency Long-Term IDR Stable
Financial Data
Itau Corpbanca Colombia S.A.
(COP Bil.) 9/30/17 12/31/17
Total Assets (USD Mil.) 10,185.3 10,467.9
Total Assets 30,449.8 31,106.8
Total Equity 3,557.4 3,575.2
Operating Profit (1.7) 99.8
Published Net Income (29.2) 22.1
Comprehensive Income (22.3) (63.6)
Operating Profit/ Weighted Risks (%) (0.01) 0.39
Impaired Loans/ Gross Loans (%) 3.09 2.93
Fitch Core Capital/ Weighted Risks (%) 9.64 9.52
Tier 1 Ratio (%) 9.23 9.10
Loans/ Customer Deposits (%) 118.42 115.33
Related Research
Fitch Ratings 2019 Outlook: Latin American Banks (December 2018)
Analysts Robert Stoll +1 212 908-9155 [email protected]
Sergio Pena +571 484-6770 [email protected]
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Operating Environment
Lingering Asset Quality Problems
The Colombian banking sector outlook has been revised to stable from negative since Fitch
expects banks’ financial metrics to stabilize or improve slightly during 2019, aided by a slow
recovery in loan growth and positive developments in recent asset quality problems.
The implementation of new capital regulations will also likely boost loss-absorption capacity.
Nevertheless, Fitch notes that Colombian banks still show slower than expected recovery in asset
quality ratios, a higher burden of credit costs on profitability and weaker capital ratios than those
of relatively similar regional peers.
Fitch expects Colombia’s gradual economic recovery to support loan growth, asset quality
improvement and better profitability. Fitch believes the deterioration of asset quality metrics
most likely peaked in 2Q18–3Q18 and expects a mild improvement over the next 18 months.
Asset quality deterioration also affected reserve coverage ratios, although these continue to be
in line with the bank’s ratings and are expected to recover somewhat in 2019.
Despite improving macroeconomic conditions in Colombia, new headwinds regarding
international markets, underpinned by monetary policy normalization and ongoing political
uncertainty, as well as oil price volatility and the pass-through to the exchange rate, represent
downside risks to the bank’s financial performance.
Company Profile
Itau’s Group Regional Expansion
Itau Colombia was created in 2012 as part of the regional expansion strategy of its parent, Itau
Corpbanca. At the moment, Itau Colombia is also being integrated with its ultimate parent, the
Itau Group. The integration with the Itau Group has benefited the Colombian franchise as it has
integrated the parent company’s strong risk management culture and adopted its brand.
The move is expected to confer additional benefits on the Colombian subsidiary as it completes
its adoption of the Itau Group’s business model over the next two years.
Itau Colombia is the seventh largest bank in Colombia, and its operation covers corporate,
commercial, consumer and mortgage loans. This bank is very conservative in terms of risk
appetite and it does not have pricing power. Under a universal banking strategy and the
acquisition of two commercial banks, Itau Colombia has a market share of 4.7% (September
2018), the sixth largest economic group and the third largest international franchise. It currently
has 162 offices in 30 cities nationwide, 173 ATMs, 456,000 customers, 3,511 employees and four
subsidiaries that fulfil the banking strategy. Itau Colombia’s business model comprises all
business segments, with revenues coming largely from intermediation, trading and recurrent
banking services.
Management and Strategy
Adopting Itau’s Business Model
The management team has a high degree of depth and experience and counts on the support
of the parent, to align its strategy with Group. There is direct line of report with its respective
areas in Chile. The bank’s operations enjoy the supervision and support of managers from the
different areas of the parent organization, to whom they report directly. The Colombian
operations are part of Itau’s presence in Latin America and the parent has been proactive in
securing the hiring and retention of top managers to implement its business model and
ensuring the following of conservative credit policies with a mix of people from Colombia, Brazil
and Chile.
Related Criteria
Bank Rating Criteria (October 2018)
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Itau Colombia’s board of directors is composed of nine members, including five independents.
Their backgrounds are varied, but they have significant business experience. The board
actively participates in different committees, as well as approves and oversees corporate
integrity. They are also responsible for strategy, performance and internal controls. During the
past two years, management has worked to establish the corporate governance standards for
Itau in Colombia and Chile. In Fitch’s opinion, Itau Colombia’s corporate governance is well in
line with the region’s best practices, has adequate corporate governance codes for its
operations and fulfils all of the matrix requirements in Brazil and Chile. For this reason the
influence is neutral to ratings.
Implementing Itau’s Business Model
Itau Colombia is running its strategy for the next couple of years, to adopt Itau’s business model
throughout its organization, with a rollout to its customers during 2018–2019. The process will
imply unifying core banking operations and a gradual launch of the Itau brand to the market.
The second stage includes the design of a worth-value strategy to offer to the market starting with
the wholesale portfolio and following with the retail portfolio in 2019 as well as develop its digital
strategies for its target market. Fitch considers the regional presence and consolidate business
model of the parent as the main strength to consolidate Itau’s footprint in the country and
permeate its corporate culture, identity and risk appetite within the Colombian operation.
The bank’s corporate strategy is based on a clear segmentation of its target markets and
fosters its regional platform. On the corporate side the objective is offer the array of products
and services to meet customer needs focus in five premises: sales model, competitive products,
efficiency, risk control and synergies with the bank subsidiaries. Itau Colombia segments its
target market into corporates, financial institutions, government entities, Latam companies with
interests in the Colombian market and specialized sectors such as infrastructure and energy. In
addition, the bank attends midsized companies and the real estate sector. During 2019 the
entity will focus its effort in the strategic plan execution, tickets according target markets, deep
and strength it customer relationships, increase the profitability for specialized products, cash
management and the launch of the second stage for big companies.
In retail lending, 2019 will be a year of implementing the new business strategy supported in six
objectives: differentiated worth-value strategy, new array of more profitable products,
adjustments in credits and collections, digital strategy to improve clients’ experience,
strengthening the customer experience between digital and physical channels, and synergies
with the wholesale bank. The retail portfolio is in a review process to close the gap with its
competitors in terms of cost of funding, client allocation by profitability and differentiating the
value offered to each segment, including efforts in credit cards, fees scheme, revolving lines,
debit cards and an integral offer of savings and investment products and services.
Itau Colombia has been receiving a lot of support from the main parent in Brazil.
Technological combination of platforms is complete and ahead of schedule as well as the Itau’s
brand launched in all the offices. The bank continues with the Itau’s strategy within Colombian
market. Digital strategy, retail banking reorientation, focus on quality of service and the phase two
of its matrix corporate culture were part of the fulfilment of is strategic objectives during 2018.
Although Itau Colombia’s strategy was affected by weaker economic cycles in Colombia,
competitors’ acquisitions and focus on more profitable products that impacted the market share,
the bank was able to fulfil its objectives even with a more cautious approach via its focus on its
core business.
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Risk Appetite
Conservative Underwriting Standards Aligned with the Parent
The bank is mostly oriented to the corporate segment and plans to continue its gradual
penetration of retail banking. Itau’s underwriting standards are conservative as illustrated by its
good loan quality ratios, and follow a parent of defined exposure limits, collateral requirements
and internal risk ratings. The bank’s risk management structure is fully integrated with that of its
parent, and it applies all of Itau’s global risk management policies in Chile and Brazil. The risk
appetite of the entity follows a global statement, core and specific risk metrics and
capital consumption.
Credit risk policies are set by the board of directors of Chile and Colombia, which also are in
charge of defining credit portfolio limits, approving related party transactions and following
monthly results. The main financial risk of the bank is credit risk. This is given the importance of
its credit portfolio, representing 66% of its assets at December 2018. Itau Colombia has
established risk management practices following not only local regulatory standards but also
fully integrated with those of its parent.
The bank’s risk management structure is under the responsibility of the risk vice-presidency. This
unit is responsible to design and implement policies and controls that are approved by the board
and discussed in the respective committees. Meanwhile the credit department, which reports
directly to the CEO is in charge or the origination process and business strategy.
The securities investment segment’s main objective is to preserve liquidity, managing structural
mismatches and generate financial results through trading and sell of products and services. Itau
Colombia’s liquidity and market risk appetite are set by the board following its parent guidance.
Adequate Risk Controls
The credit risk to which the bank is exposed is mitigated by adequate diversification by economic
sector and a moderate concentration in the largest debtors. The combination of a low risk appetite,
improved risk management processes and a more stringent collection process should continue to
sustain the loan portfolio’s good performance. However, moderate loan concentration could lead
to more volatile levels of impaired loans under less favorable economic conditions compared with
the top players that have more diversified portfolios by debtor.
Corporate credit analysis includes industry studies to identify significant risks in its target
markets, limits by sector, segmentation by type of banking, quantitative and qualitative analysis
and specific origination models. The approvals are made by consensus and attribution levels.
Meanwhile, retail banking is supported by internal risk models and decision rules, including
analysis of customer profiles, pre-approvals models, internal behavior, target market, payment
ability and consulting credit bureaus. It also includes vintage analysis, customer and product
segmentation and a detailed delinquencies follow-up for each stage of non-performing loans.
Monitor process follows a periodic assessment of payment, a watch and a follow up system.
The collection process has internal and external resources to control the portfolio’s asset
deterioration and minimize losses, which is clearly documented in credit portfolio management
policies. The watch list, rate loans in five categories which include reason to be classified in
each category and follow up actions to assess different recovery plans. Additionally, there are
improvements in the use of guaranties and great agility in the recovery process.
Loan impairment charges follow reference models of the Superintendencia Financiera de
Colombia in conjunction with its parent’s models.
Operational risk exposure is monitored continuously and follows local regulator rules as well as
SOX controls. The operational risk model is based on three lines of defense that flow through
the entire organization and follow business continuity planning: 1) business and support areas;
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2) internal control areas, compliance and operational risk unit; and 3) audit. Additionally the
bank counts with robust contingency plans to allow the bank and its subsidiaries operate under
stress conditions.
Risk Appetite Adjustments to Grow into the Culture and Strategy
of the Parent
Itau Colombia has been working extensively to fit into the culture and strategy of the parent to
grow both its wholesale and retail presence in Colombia. The bank has reviewed most of its
credit portfolios and where needed made conservative provisions in 2016 and 2017.
The economic slowdown continued defining a cautious risk appetite (2018: GDP growth 2.7%)
for Itau, who decided not participate in projects that could allocate more capital as well as
looking for tickets aligned with its business strategy. This factors and markets movements in
retail segment explain the decrease in assets and deposits impacting Itau’s market share.
Limited Market Risk
The bank follows policies and procedures of its parent organization to handle market risk.
Risk exposures are related with interest rates, currency, derivatives and market positions in local
index (DTF, IPC, UVR and IBR). Additionally, most of the bank’s counterparties are highly rated
international banks. Policies and limits have been modified according to Basel III guidelines under
stress scenarios, different levels of limits and new financial risk models. All of these changes are
set by the asset and liabilities committee and approved by the board. The financial risk unit
monitors compliance with these policies and limits.
For the structural interest rate risk exposure, the bank performs sensitivity analysis of interest-
bearing assets and liabilities with financial cost to evaluate the impact of interest rate changes
in the net interest margin and capital. Itau calculates the regulatory and its internal VaR model
under stress scenarios that helps to sizing all balance sheet risk positions. Additional tools
include back-testing models, stress situations, sensitivity analysis, generate alerts and defined
operation limits that help to monitor risk exposures at different levels.
Financial Profile
Asset Quality
Resilient Asset Quality
The Colombian market experienced lingering systemic asset deterioration during 2018, but Itau
Colombia’s asset quality leveled off ahead of its local peers and is showing signs of
improvement. Impairment fluctuates between 2.9% and 3.1% during the year, in contrast with
the Colombian banking system, which reached 3.7% at September 2018. The focus on
implement Itau’s strategy for its commercial and retail loan portfolio narrow asset growth;
however the legacy of corporate loans in difficulties continues explaining part of asset
deterioration. Broken down by segment, corporate portfolio deteriorates 30 basis points (bps) in
contrast with the 100-bp asset deterioration of the system; retail portfolio improves its asset
Asset Quality (%) 9/30/18 2017 2016 2015
Growth of Gross Loans (0.97) (3.10) (2.30) 11.00
Impaired Loans/Gross Loans 3.09 2.93 2.10 1.40
Reserves for Impaired Loans/Impaired Loans 171.10 187.00 253.50 310.45
Impaired Loans less Reserves for Impaired Loans/Fitch Core Capital (10.05) (24.40) (30.64) (28.01)
Loan Impairment Charges/Average Gross Loans 2.75 2.00 2.79 2.42
Source: Itau Colombia.
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quality in 110 bps and the systems improved in 60 bps, meanwhile mortgage deterioration of
80 bps was above the 20 bps of the system.
The diversification by economic sector is wide and the proportion of foreign currency loans is low.
Concentration by industry does not exceed 10% of loan portfolio. Obligor concentrations
decrease to moderate levels (top 20 equaling 13% of gross loans as of December 2018 versus
14% as of December 2017), and none of them have concentrations above 10% of regulatory
capital. One of the top 20 customers, from the infrastructure sector and a concentration of less
than 1% of total asset and 4.2% of capital, continues under surveillance because of its
deterioration. The level of provisions for the top 20 past due loans range between 35% and 100%
and are continuously monitored.
Chargeoffs increased to 2.5%, restructured loans decreased to 3% of loan portfolio from 3.8%
in 2017 and reserve coverage remains high (170%) due to matrix requirements and its
conservative profile. In Fitch’s view, reserve levels give an adequate cushion to protect loan
portfolio deterioration. Maturity structure of the portfolio is concentrated in the medium and
long term.
Other Earning Assets
Securities investment portfolio represents 18% of total assets. The portfolio’s main objective is
to preserve liquidity as well as manage structural mismatches and generate financial results.
Approximately 85% of the investment portfolio is in securities from the government (mainly
Colombian government), and the rest is a diversified mix of securities from local
financial institutions.
Earnings and Profitability
Challenge in Profitability
Itau Colombia’s profitability has been low as it adapts to the new business model and a low
economic cycle. Pressures on loan impairment charges, technological integration, brand
launch and strategic adjustments constrained operational revenues generated during the last
three years. Fitch expects Itau’s profitability to gradually improve in the coming years, while the
bank further supports the parent’s revenue and geographic diversification strategy.
Revenues are supported by the limited growth of balance-sheet, changes in the deposit
structure, asset quality performance and influenced by the bank’s market position. Deploy of
the commercial strategy and advances in consumer portfolio toward more profitable and
competitive products redirect the volume of operating income while a stable intervention rate
allowed adjust the funding strategy to more diversify funding sources and longer term liabilities.
Both effects in the asset and liability side contribute with the spreads and the increase in the
net interest margin up to 3.65% from 3.31% in 2017.
Treasury operations and fees constitute important and recurrent operating revenue contributions
that allow offset the low interest margins, however FX losses during the last part of 2018 reduce
Profitability Metrics (%) 9/30/18 2017 2016 2015
Net Interest Income/Average Earning Assets 3.65 3.31 2.79 3.71
Non-interest Expense/Gross Revenues 64.38 61.67 55.43 49.45
Loans and Securities Impairment Charges/Pre-impairment Operating Profit 100.39 85.01 95.63 65.02
Operating Profit/Average Total Assets (0.01) 0.31 0.10 1.00
Operating Profit/Risk-weighted Assets (0.01) 0.40 0.13 1.14
Operating Profit/Average Equity (0.06) 2.70 0.92 8.87
Source: Itau Colombia.
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the profit generation. In Fitch’s view, profitability will remain as a challenge over the rating horizon,
though opportunities for improvement in the medium term are good as the bank achieves synergy
gains, controls loan deterioration and enhances its earnings diversification. Operating profit to risk
weighted assets remains weak at negative 0.2% as of September 2018. This was well below
regional peers at 1.75% for the same period and below the average of the past two years of
0.26%.
Operating Expenses and Loan Loss Provisions
The entity continued its efforts to control operating costs, personnel expenses related with
organizational changes, and complete the core banking implementations. Efficiency levels are
expected to remain around 60% for 2019 and converge to banking system average of 48% in
the medium term. Loan impairment charges (LIC) were explained by the systemic asset
deterioration which impact the bank during 2018, the legacy of the corporate names, added to
its parent more conservative standards that pressure the pre-impairment operating profits.
Itau expects the efforts of the complete revision of the loan portfolio as well as better results in
the collection process and better vintages oriented by the new business strategy contributes
with a decrease in the weight of the provisions on the operational profitability.
Capitalization and Leverage
Tight Capital
The bank’s capital is deemed sufficient considering its ample loan loss reserves, sound asset
quality and risk management. However, its current capitalization metrics compare unfavorably
with similarly rated international peers (universal commercial banks in a ‘bbb’ operating
environment), and Fitch considers this one of the constraints on the bank’s VR. The bank’s
FCC ratio was 9.64% at September 2018, underpinned by asset value decrease and net
income losses.
The bank’s outstanding subordinated debt is eligible from a regulatory capital perspective, but
these bonds are not considered equity under Fitch’s criteria, but rather as liabilities.
New capital rules under Basel III standards will begin in Colombia during the second quarter of
2019 with a 4.5 years schedule of full implementation. Under the new standards, Itau Colombia’s
capital ratios will benefit for changes in the risk weighted assets and Fitch do not anticipate
significant pressures for the new capital requirements during the implementation period or
additional capital needs under a scenario of conservative risk management and gradual business
growth. Although it’s not considered in the rating assessment by Fitch, the entity benefits from
being part of a larger group and ordinary support if required should be feasible.
Funding and Liquidity
Capitalization (%) 9/30/18 2017 2016 2015
Fitch Core Capital/Weighted Risk 9.64 9.52 9.55 9.00
Tangible Common Equity/Tangible Assets 7.80 7.64 7.45 7.43
Core Tier 1 Regulatory Capital Ratio 9.23 9.10 9.38 9.00
Regulatory Capital Ratio 13.62 12.31 12.71 12.18
Source: Itau Colombia.
Funding (%) 9/30/18 2017 2016 2015
Loans/Customer Deposits 118.42 115.33 104.87 95.86
Customer Deposits/Total Funding (Excluding Derivatives) 71.73 72.24 76.26 83.83
Source: Itau Colombia.
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Strong Liquidity Management
The integration process with Itau includes Basel III guidelines. As Itau Colombia’s policies are
highly integrated with its parent in Chile, it strengthened its liquidity position and improved its
funding structure to help reduce the structural asset and liabilities mismatch. In Fitch’s opinion,
the bank maintains good liquidity levels that allow managing the concentrated liability structure
with some comfort, and these sound liquidity management standards are a positive rating
factor. Additionally, it is working to reduce dependence on major depositors, increase lower
cost funds and capture institutional resources to generate income for financial services. It also
has contingency plans, if necessary, for bank and systemic crises as well as scenario cases
and alerts to identify liquidity risk.
Itau Colombia enjoys a broad and growing customer base that funds 72% of the bank’s
operations. The deposit base has also been highly stable in recent years. The moderate franchise
gives a limited competitive advantage and generally influences the funding cost. The deposit
structure established in 2016 aims for a composition change toward stable resources in line with
the new liquidity policies and liquidity coverage ratios, this includes mid to long term time deposits,
continuous bonds issuance, locally and abroad, and increase in retail funding.
Additional funding sources include senior and subordinated bond issuances in the local market,
credit lines in foreign currencies and rediscount lines with local development banks and
multilaterals. Deposit concentration in the top 20 largest depositors decrease up to 14% at
YE18 from 28% in 2017 as part of the process of reduce concentration on institutional investors
and financial institutions.
Support
Moderate Systemic Importance
The bank’s Support Rating (SR) of ‘3’ and Support Rating Floor (SRF) of ‘BB+’ are driven by its
moderate systemic importance and share of retail deposits, although this is still modest
compared to domestic systemically important banks. Fitch believes there is a modest
probability of receiving sovereign support if the bank were to need it, which underpins its SR
and SRF. SRFs indicate the minimum level to which the entity’s Long-Term IDRs could fall as
long as Fitch does not change its view on potential sovereign support.
Additionally, although Fitch considers that the subsidiary’s credit profile is mostly independent
from that of its parent, the VR may be pressured in the scenario of further downgrades of the
ultimate parent, Itau Unibanco Holding (IDR of ‘BB’/Stable) because under Fitch’s criteria, the
intrinsic credit profile of a subsidiary bank cannot be completely delinked from that of
its parent.
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Banco Itau CorpBanca Colombia SA — Income Statement
Nine Months Third-Quarter 9/30/18
a 2017
a 2016
a 2015
a
(Years Ended Dec. 31) (USD Mil.) (COP Bil.) (COP Bil.) (COP Bil.) (COP Bil.)
Interest Income on Loans 549.0 1,641.4 2,423.0 2,442.7 2,062.1
Other Interest Income 5.9 17.5 49.0 60.9 43.3
Dividend Income 1.9 5.8 5.2 4.2 5.0
Gross Interest and Dividend Income 556.8 1,664.7 2,477.2 2,507.8 2,110.4
Interest Expense on Customer Deposits 208.3 622.8 1,128.7 1,306.3 809.6
Other Interest Expense 94.6 282.9 394.1 362.2 267.6
Total Interest Expense 303.0 905.7 1,522.8 1,668.5 1,077.2
Net Interest Income 253.9 759.0 954.4 839.3 1,033.2
Net Fees and Commissions 35.6 106.5 176.1 179.4 181.4
Net Gains (Losses) on Trading and Derivatives 7.9 23.5 6.3 150.7 319.2
Net Gains (Losses) on Assets and Liabilities at FV 68.6 205.0 431.7 552.6 72.2
Net Gains (Losses) on Other Securities 5.1 15.3 13.1 18.6 10.3
Net Insurance Income N.A. N.A. N.A. N.A. N.A.
Other Operating Income 40.6 121.4 152.9 24.8 199.9
Total Non-Interest Operating Income 157.8 471.7 780.1 926.1 783.0
Total Operating Income 411.7 1,230.7 1,734.5 1,765.4 1,816.2
Personnel Expenses 99.1 296.4 400.4 345.9 337.7
Other Operating Expenses 165.9 495.9 670.8 583.5 560.5
Total Non-Interest Expenses 265.0 792.3 1,071.2 929.4 898.2
Equity-accounted Profit/(Loss) — Operating N.A. N.A. N.A. N.A. N.A.
Pre-Impairment Operating Profit 146.6 438.4 663.3 836.0 918.0
Loan Impairment Charge 149.8 447.7 448.2 638.3 530.6
Securities and Other Credit Impairment Charges (2.5) (7.6) 117.8 163.3 66.3
Operating Profit (0.6) (1.7) 97.3 34.4 321.1
Equity-accounted Profit/(Loss) — Non-operating N.A. N.A. N.A. N.A. N.A.
Goodwill Impairment N.A. N.A. N.A. N.A. N.A.
Non-recurring Income N.A. N.A. N.A. 0.0 3.4
Non-recurring Expense 9.0 26.8 0.0 0.0 0.6
Change in Fair Value of Own Debt N.A. N.A. N.A. N.A. N.A.
Other Non-operating Income and Expenses N.A. N.A. N.A. N.A. N.A.
Pre-tax Profit (9.5) (28.5) 97.3 34.4 323.9
Tax Expense 0.2 0.7 75.2 62.2 95.1
Profit/Loss from Discontinued Operations N.A. N.A. N.A. N.A. N.A.
Net Income (9.8) (29.2) 22.1 (27.8) 228.8
Change in Value of AFS Investments N.A. N.A. N.A. N.A. N.A.
Revaluation of Fixed Assets N.A. N.A. N.A. N.A. N.A.
Currency Translation Differences 0.3 0.8 0.0 3.2 60.5
Remaining OCI Gains/(Losses) 2.0 6.1 (85.7) (41.3) 117.5
Fitch Comprehensive Income (7.5) (22.3) (63.6) (65.9) 406.8
Memo: Profit Allocation to Non-controlling Interests 0.0 0.1 0.3 (0.4) 0.4
Memo: Net Income after Allocation to Non-controlling Interests (9.8) (29.3) 21.8 (27.4) 228.4
Memo: Common Dividends Relating to the Period N.A. N.A. N.A. N.A. N.A.
Memo: Preferred Dividends and Interest on Hybrid Capital Accounted for as Equity Related to the Period
N.A. N.A. N.A. N.A. N.A.
aExchange rate: Third Quarter 2018 – USD1 = COP2,989.58; 2017 – USD1 = COP2,971.63; 2016 – USD1 = COP3,000.71; 2015 – USD1 = COP3,149.47;
N.A. – Not available. Source: Banco Itau CorpBanca Colombia SA.
Banks
Itau Corpbanca Colombia S.A. 10
March 29, 2019
Banco Itau CorpBanca Colombia SA — Balance Sheet
Nine Months Third-Quarter 9/30/18
a 2017
a 2016
a 2015
a
(Years Ended Dec. 31) (USD Mil.) (COP Bil.) (COP Bil.) (COP Bil.) (COP Bil.)
Assets
Loans
Residential Mortgage Loans 910.7 2,722.6 2,511.0 2,364.8 2,214.7
Other Mortgage Loans N.A. N.A. N.A. N.A. N.A.
Other Consumer/Retail Loans 1,450.4 4,336.2 4,709.6 5,054.0 5,047.1
Corporate and Commercial Loans 4,849.0 14,496.6 14,546.4 15,046.3 15,722.4
Other Loans N.A. N.A. N.A. N.A. N.A.
Less: Loan Loss Allowances 381.3 1,139.9 1,194.2 1,193.4 1,000.9
Net Loans 6,828.9 20,415.5 20,572.8 21,271.7 21,983.3
Gross Loans 7,210.2 21,555.4 21,767.0 22,465.1 22,984.2
Memo: Impaired Loans Included Above 304.8 666.1 638.7 470.8 322.4
Memo: Specific Loan Loss Allowances N.A. N.A. N.A. N.A. N.A.
Other Earning Assets
Loans and Advances to Banks 158.5 473.7 862.4 1,529.9 886.8
Reverse Repos and Securities Borrowing 78.9 235.9 174.6 875.2 347.5
Derivatives 120.1 359.0 441.1 415.2 724.2
Trading Securities and at FV through Income 65.1 194.6 5,387.1 4,460.3 1,037.8
Securities at FV through OCI/Available for Sale 1,615.9 4,830.8 25.7 96.3 4,090.3
Securities at Amortized Cost/Held to Maturity 104.1 311.2 400.8 484.5 494.2
Other Securities N.A. N.A. N.A. N.A. 121.9
Total Securities 1,785.1 5,336.6 5,813.6 5,041.1 5,744.2
Memo: Government Securities included Above 1,518.7 4,540.3 4,905.9 3,536.6 3,645.3
Memo: Total Securities Pledged N.A. N.A. N.A. N.A. N.A.
Equity Investments in Associates N.A. N.A. N.A. N.A. N.A.
Investments in Property N.A. N.A. N.A. N.A. N.A.
Insurance Assets N.A. N.A. N.A. N.A. N.A.
Other Earning Assets 84.9 253.8 125.7 69.8 25.8
Total Earning Assets 9,056.3 27,074.5 27,990.2 29,202.9 29,711.8
Non-Earning Assets
Cash and Due from Banks 394.8 1,180.2 946.3 1,645.9 1,653.3
Memo: Mandatory Reserves Included Above N.A. N.A. N.A. N.A. N.A.
Foreclosed Assets N.A. N.A. N.A. N.A. N.A.
Fixed Assets 50.5 151.1 332.2 319.2 464.8
Goodwill 242.3 724.4 724.4 724.4 724.4
Other Intangibles 186.2 556.7 574.2 570.7 604.9
Current Tax Assets 73.0 218.2 171.4 102.5 244.9
Deferred Tax Assets 110.0 328.8 120.4 155.6 260.3
Discontinued Operations N.A. N.A. N.A. N.A. N.A.
Other Assets 72.2 215.9 247.7 241.7 258.9
Total Assets 10,185.3 30,449.8 31,106.8 32,962.9 33,923.3
aExchange rate: Third Quarter 2018 – USD1 = COP2,989.58; 2017 – USD1 = COP2,971.63; 2016 – USD1 = COP3,000.71; 2015 – USD1 = COP3,149.47;
N.A. – Not available. Continued on next page. Source: Banco Itau CorpBanca Colombia SA.
7,349.0 20,430.4 20,512.2 19,155.9 17,118.8 12,547.6
Banks
Itau Corpbanca Colombia S.A. 11
March 29, 2019
Banco Itau CorpBanca Colombia SA — Balance Sheet (Continued)
Nine Months Third-Quarter 9/30/18
a 2017
a 2016
a 2015
a
(Years Ended Dec. 31) (USD Mil.) (COP Bil.) (COP Bil.) (COP Bil.) (COP Bil.)
Liabilities and Equity
Interest-Bearing Liabilities
Total Customer Deposits 6,088.4 18,201.9 18,873.8 21,422.4 23,976.7
Deposits from Banks 17.2 51.3 60.7 45.7 0.0
Repos and Securities Lending 650.5 1,944.6 1,992.2 2,197.5 1,109.3
Commercial Paper and Short-term Borrowings 626.6 1,873.4 1,935.7 1,330.4 1,618.9
Customer Deposits and Short-term Funding 7,382.7 22,071.2 22,862.4 24,996.0 26,704.9
Senior Unsecured Debt 817.5 1,394.8 1,363.3 1,567.3 431.5
Subordinated Borrowing 287.8 860.4 872.7 1,022.3 1,080.0
Covered Bonds N.A. N.A. N.A. N.A. N.A.
Other Long-term Funding N.A. 1,049.2 1,028.5 506.1 385.9
Total Long-term Funding 1,105.3 3,304.4 3,264.5 3,095.7 1,897.4
Memo: o/w Matures in Less Than One Year N.A. N.A. N.A. N.A. N.A.
Trading Liabilities N.A. N.A. N.A. N.A. N.A.
Total Funding 8,488.0 25,375.6 26,126.9 28,091.7 28,602.3
Derivatives 84.1 251.4 281.8 229.4 432.4
Total Funding and Derivatives 8,572.1 25,627.0 26,408.7 28,321.1 29,034.7
Non-Interest Bearing Liabilities
Fair Value Portion of Debt N.A. N.A. N.A. N.A. N.A.
Credit Impairment Reserves N.A. N.A. N.A. N.A. N.A.
Reserves for Pensions and Other 116.0 346.7 307.8 238.5 259.8
Current Tax Liabilities N.A. N.A. N.A. 0.0 0.0
Deferred Tax Liabilities 163.5 488.7 329.9 347.2 455.1
Other Deferred Liabilities N.A. N.A. N.A. N.A. N.A.
Discontinued Operations N.A. N.A. N.A. N.A. N.A.
Insurance Liabilities N.A. N.A. N.A. N.A. N.A.
Other Liabilities 143.8 430.0 485.2 402.8 421.8
Total Liabilities 8,995.4 26,892.4 27,531.6 29,309.6 30,171.4
Hybrid Capital
Preferred Shares and Hybrid Capital Accounted for as Debt N.A. N.A. N.A. N.A. N.A.
Preferred Shares and Hybrid Capital Accounted for as Equity N.A. N.A. N.A. N.A. N.A.
Equity
Common Equity 1,189.9 3,557.3 3,574.9 3,652.9 3,751.5
Non-controlling Interest 0.0 0.1 0.3 0.4 0.4
Securities Revaluation Reserves N.A. N.A. N.A. N.A. N.A.
Foreign Exchange Revaluation Reserves N.A. N.A. N.A. N.A. N.A.
Fixed Asset Revaluations and Other Accumulated OCI N.A. N.A. N.A. N.A. N.A.
Total Equity 1,189.9 3,557.4 3,575.2 3,653.3 3,751.9
Memo: Equity plus Preferred Shares and Hybrid Capital Accounted for as Equity 1,189.9 3,557.4 3,575.2 3,653.3 3,751.9
Total Liabilities and Equity 10,185.3 30,449.8 31,106.8 32,962.9 33,923.3
Memo: Fitch Core Capital 761.4 2,276.3 2,276.6 2,358.2 2,422.6
aExchange rate: Third Quarter 2018 – USD1 = COP2,989.58; 2017 – USD1 = COP2,971.63; 2016 – USD1 = COP3,000.71; 2015 – USD1 = COP3,149.47;
N.A. – Not available. Source: Banco Itau CorpBanca Colombia SA.
Banks
Itau Corpbanca Colombia S.A. 12
March 29, 2019
Banco Itau CorpBanca Colombia SA — Summary Analytics
(%, Years Ended Dec. 31)
Nine Months First-Quarter
9/30/18 2017 2016 2015
Interest Ratios
Interest Income/Average Earning Assets 8.01 8.58 8.38 7.58
Interest Income on Loans/Average Gross Loans 10.08 10.83 10.66 9.40
Interest Expense on Customer Deposits/Average Customer Deposits 4.52 5.57 5.72 3.74
Interest Expense/Average Interest-bearing Liabilities 4.60 5.58 5.77 3.99
Net Interest Income/Average Earning Assets 3.65 3.31 2.80 3.71
Net Interest Income Less Loan Impairment Charges/Average Earning Assets 1.50 1.75 0.67 1.81
Net Interest Income Less Preferred Stock Dividend/Average Earning Assets 3.65 3.31 2.80 3.71
Other Operating Profitability Ratios
Operating Profit/Risk Weighted Assets (0.01) 0.39 0.13 1.14
Non-Interest Expense/Gross Revenues 64.38 61.76 52.65 49.45
Loans and Securities Impairment Charges/Pre-impairment Operating Profit 100.39 85.33 95.89 65.02
Operating Profit/Average Total Assets (0.01) 0.30 0.10 1.00
Non-Interest Income/Gross Revenues 38.33 44.98 52.46 43.11
Non-Interest Expense/Average Total Assets 3.41 3.33 2.73 2.81
Pre-impairment Operating Profit/Average Equity 16.43 18.39 22.29 25.36
Pre-impairment Operating Profit/Average Total Assets 1.89 2.06 2.46 2.87
Operating Profit/Average Equity (0.06) 2.70 0.92 8.87
Other Profitability Ratios
Net Income/Average Total Equity (1.09) 0.61 (0.74) 6.32
Net Income/Average Total Assets (0.13) 0.07 (0.08) 0.71
Fitch Comprehensive Income/Average Total Equity (0.84) (1.76) (1.76) 11.24
Fitch Comprehensive Income/Average Total Assets (0.10) (0.20) (0.19) 1.27
Taxes/Pre-tax Profit (2.46) 77.29 180.81 29.36
Net Income/Risk Weighted Assets (0.16) 0.09 (0.11) 0.81
Capitalization
FCC/FCC-Adjusted Risk Weighted Assets 9.64 9.52 9.55 9.00
Tangible Common Equity/Tangible Assets 7.80 7.64 7.45 7.43
Equity/Total Assets 11.68 11.49 11.08 11.06
Basel Leverage Ratio N.A. N.A. N.A. N.A.
Common Equity Tier 1 Capital Ratio 9.23 9.10 9.38 N.A.
Fully Loaded Common Equity Tier 1 Capital Ratio N.A. N.A. N.A. N.A.
Tier 1 Capital Ratio 13.62 12.31 12.71 8.08
Total Capital Ratio 13.62 12.31 12.71 12.18
Impaired Loans less Loan Loss Allowances/Fitch Core Capital (10.05) (24.40) (30.64) (28.01)
Impaired Loans less Loan Loss Allowances/Equity (6.43) (15.54) (19.78) (18.08)
Cash Dividends Paid and Declared/Net Income N.A. N.A. N.A. N.A.
Risk Weighted Assets/Total Assets 81.75 81.08 78.82 83.28
Risk Weighted Assets — Standardized/Risk Weighted Assets N.A. N.A. N.A. N.A.
Risk Weighted Assets — Advanced Method/Risk Weighted Assets N.A. N.A. N.A. N.A.
Loan Quality
Impaired Loans/Gross Loans 3.09 2.93 2.10 1.40
Growth of Gross Loans (0.97) (3.11) (2.26) 11.03
Loan Loss Allowances/Impaired Loans 171.13 186.97 253.48 310.45
Loan Impairment Charges/Average Gross Loans 2.75 2.00 2.79 2.42
Growth of Total Assets (2.11) (5.63) (2.83) 11.33
Loan Loss Allowances/Gross Loans 5.29 5.49 5.31 4.35
Net Charge-offs/Average Gross Loans 2.76 1.80 1.73 (1.88)
Impaired Loans + Foreclosed Assets/Gross Loans + Foreclosed Assets 4.23 2.93 2.10 1.40
Funding and Liquidity
Loans/Customer Deposits 118.42 115.33 104.87 95.86
Liquidity Coverage Ratio 107.00 139.80 115.57 N.A.
Customer Deposits/Total Funding (including Preferred Shares and Hybrids) 71.73 72.24 76.26 83.83
Interbank Assets/Interbank Liabilities 923.39 1,420.76 3,347.70 N.A.
Net Stable Funding Ratio 90.40 90.40 91.64 N.A.
Growth of Total Customer Deposits (3.56) (11.90) (10.65) 20.15
N.A. – Not available. Source: Banco Itau CorpBanca Colombia SA.
Banks
Itau Corpbanca Colombia S.A. 13
March 29, 2019
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