Fitch Affirms Bancolombia Panama's IDR at 'BBB-'; Outlook Positive

Fitch Ratings has affirmed Bancolombia Panama's (BP) Issuer Default Ratings with a Stable Rating Outlook. A complete list of ratings is included at the end of this press release.

BP is highly integrated with its parent and a key part of its business strategy in Colombia and Central America. Support from Bancolombia should be forthcoming if needed and its ability to support BP is reflected in its ratings; Bancolombia's IDR is rated 'BBB-' with a Positive Outlook by Fitch.

BP's IDRs could be upgraded if Bancolombia's IDR is upgraded; the IDRs would move in line with Bancolombia's rating. The Viability rating could be pressured if BP's asset quality deteriorates, resulting in higher loan loss provision needs and eroding the loan loss reserve and capital cushion. On the other hand, the Viability rating could improve if BP is able to maintain its performance while improving its capital and reserve cushion.

Tight cost control and economies of scale resulted in a lean operation in Panama and El Salvador. BP's efficiency ratios have improved after deteriorating following the acquisition of Banco Agricola (BA) and are gradually returning to historical levels. These ratios compare well to the company's local and regional peers.

BA is a well-positioned bank that runs an efficient and profitable universal banking business in El Salvador. By acquiring BA, BP gained in geographical diversification. In addition, it increased its business lines, revenue sources, product offering and funding base.

Benefiting from a positive operating environment in its core market of Colombia and a dominant franchise in El Salvador, BP was able to maintain a sound performance that is likely to continue improving as macroeconomic conditions stabilize in the Central American region and synergies with BA start to bear fruit.

The spike in PDLs observed in 2009-2010 has stabilized and reversed the trend into 2011 as El Salvador's economy stabilized and the bank's sound risk management policies helped contain asset deterioration. Given the expected growth and economic prospects, this trend is likely to continue into 2013.

BP's funding is better diversified after BA's acquisition and shows great stability. The bank maintains sound levels of liquidity between its cash, deposits in banks and investment portfolio.

BP maintains adequate loan loss reserves that cover PDLs at 140% at June 2011. Along with BP's sustained profitability, reserves constitute an additional cushion against unexpected losses.

BP's tangible equity-to-tangible assets ratio was depressed after the acquisition of BA due to the significant goodwill that the transaction generated. Sustained profitability (i.e. capital generation) and sound growth in its core market have contributed to restore capital and dilute the weight of goodwill. Capital has grown at a rate of 100-150 basis points per year since 2008. This clearly positive trend is likely to continue amid better economic prospects.

Bancolombia Panama SA (BP) was established in 1973 and is the largest bank with an international banking license in Panama. It is a wholly owned subsidiary of Bancolombia (Colombia's largest bank) and acts as a holding company for Bancolombia's core investments abroad.

Fitch affirms the following ratings on Bancolombia Panama S.A.:

--Long-term IDR at 'BBB-'; Outlook Positive;

--Short-term IDR at 'F3';

--Viability Rating at 'bb-';

--Support Rating at '2';

--Long Term Deposits at 'BBB-'

--Short Term Deposits at 'F3'

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);

--'2012 Outlook: Andean Banks' (Dec. 20, 2011).

--'2012 Outlook: Central America and Dominican Republic Banks' (Dec. 19, 2011).

Applicable Criteria and Related Research:

2012 Outlook: Central America and the Dominican Republic

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=661043

2012 Outlook: Andean Banks

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659971

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

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