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Rating Action:

Moody's rates Ba3(hyb) Bancolombia's proposed Tier 2 subordinated notes

26 Nov 2019

New York, November 26, 2019 -- Moody's Investors Service ("Moody's") has today assigned a Ba3(hyb) rating to the proposed USD-denominated contractual non-viability Tier 2 subordinated notes to be issued by Bancolombia S.A. (Bancolombia). The notes will be due in 2029.

The capital securities are Basel III-compliant, and their terms and conditions have been defined so as to qualify the notes for treatment as Tier 2 capital pursuant to Colombian regulation.

RATINGS RATIONALE

The Ba3(hyb) rating assigned to the new Tier 2 subordinated notes is positioned two notches below the ba1 adjusted baseline credit assessment (adjusted BCA) of Bancolombia in line with Moody's standard notching guidance for contractual non-viability subordinated debt with a full or partial principal write-down triggered at or close to the point of non-viability.

The rating reflects the risk of a full or partial write-down of principal in the event that (1) the bank's regulatory Basic Solvency ratio (equivalent to the CET1 ratio) falls below 4.5% (which Moody's considers to be below the point of non-viability) on either an individual (i.e. treating the bank's Central American subsidiaries as investments) or fully consolidated basis; or (2) the regulators determines that the Basic Solvency ratio needs to be restored to 6.0%. The notes will only be written down in an amount sufficient to restore the Basic Solvency ratio to 6% under either circumstance. In practice however, they will automatically be fully written down if the basic solvency ratio falls below 4.5% as the par amount of the notes equals just about 1% of current risk-weighted assets.

The notes will rank (i) junior to all present and future senior indebtedness of the issuer, (ii) junior to all other present or future "preferred" subordinated indebtedness, (iii) pari passu with all other present or future unsecured Tier II subordinated indebtedness and (iv) senior to securities junior to the notes as well as to all classes of capital stock of the issuers.

While Moody's assesses the probability that Bancolombia will receive support from the Colombian government (Baa2 stable) in a stress situation as very high given the bank's large market share of domestic deposits, this support only applies to the bank's deposit and senior debt ratings. Moody's does not expect that Tier II securities - which are designed to absorb losses - will benefit from government support.

Bancolombia's ba1 baseline credit assessment (BCA) reflects the bank's good earnings generation capacity, its improving consumer asset quality despite still high corporate loan delinquencies, and Bancolombia's broad and stable core funding access, which partially offsets the bank's moderate reliance on market funding. Bancolombia's profitability has benefited from lower credit costs and a shift in loan portfolio mix towards consumer lending, as the Colombian economy recovers.

Moody's believes Bancolombia's exposure to environmental risks is low, consistent with its general assessment for the global banking sector. Bancolombia's exposure to social risks is moderate, consistent with Moody's general assessment for the global banking sector. As well, governance risks are largely internal rather than externally driven. Moody's does not have any particular concerns with Bancolombia's governance.

WHAT COULD MOVE THE RATINGS -- UP/DOWN

The ratings of the Tier 2 notes are notched from Bancolombia's adjusted BCA. As such, the ratings of the securities will move in tandem with Bancolombia's adjusted BCA. Bancolombia's supported ratings are positioned at the same level of sovereign bond rating and could face upward pressure if Colombia's government bond rating is upgraded in conjunction with continued improvement in the issuers' credit fundamentals and/or Colombia's macroeconomic environment. However, if Colombia's government bond rating faces downward pressures, Bancolombia's ratings could be negatively pressured as well. The ratings could also face downward pressure if the issuers' intrinsic credit fundamentals deteriorate unexpectedly.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Banks Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Bancolombia S.A. is headquartered in a Medellín-based full-service bank. Bancolombia had consolidated assets in the amount of COP236,855 billion ($68.1 billion) and shareholders' equity of COP26,990 billion ($7.7 billion) as of 30 September 2019.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Diego Kashiwakura, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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