Financial Sector - Proexport

September 2009 Financial Profile

Colombia’s Financial Market

Private Equity in Colombia

Value Proposition for Colombia´s Financial Market

Frequently asked questions & answers

Incentives & Services to investors

Financial Sector Market Value Source: Finance Superintendence US$ Million July 2008 Assets: 236.219,7 Total Equity: 104.872,4 Profits: 2.824,07

Financial Sector A growing market in terms of assets CAGR:15,8%

Total Assets through July 2008 were at US$236 billion

Annual growth rate (July 08/ July 07): 13.3%

Lending entities represented 45% of total assets, followed by trusts with 26% and

pension funds with 15%

2008 Data through July Source: Finance Superintendence Calculated using average yearly exchange rates

Financial Sector Steady interest rate levels since 2000 Source: Central Bank

Financial Sector 55% penetration rate, a great opportunity for new players Penetration rate calculated for population over 18 years Source: Asobancaria Penetration Rate GDP per capita: US$ 4,611 People over 18 years old: 28 Million

Number of ATM´s per 100.000 people 2007 Data Source: FELABAN – Economist Intelligence Unit Financial Sector Number of ATM´s in Colombia increased by 32% since 2004

Financial Sector As a percent of GDP, private sector credit has increased by 50% since 2004 Private sector Credit % GDP *Total loans to the corporate and household sector 2007 Data Source: FELABAN – Economist Intelligence Unit

Note: Figures for July each year. Source: Finance Superintendence Financial Sector ROA & ROE since 200 have been on the rise

Financial Sector Loan quality & coverage relation improving Note: Figures through July 2008. Includes leasing, credit establishments and cooperatives. Source : Finance Superintendence

Between 2000 and 2008 the loan quality improved from 13.1% to 4.1%

At the same time the coverage rate rose from 38% to 114%

Financial Sector * Foreign Banks International banks account for 29.2% of the market share in Colombia Bank Name Assets (COP $ Millions) July 2008 Assets Assets (US$ Millions) July 2008 Market Share Bancolombia 34,273,256 18,571 20.3% Bogota 23,417,426 12,689 13.9% Davivienda 20,031,690 10,854 11.9% BBVA* 18,345,159 9,941 10.9% Occidente 11,219,404 6,079 6.6% Agrario 10,617,011 5,753 6.3% Popular 8,648,844 4,686 5.1% Caja Social BCSC 6,521,655 3,534 3.9% Colpatria-GE* 6,345,278 3,438 3.8% Citibank* 6,065,997 3,287 3.6% Sudameris* 5,413,363 2,933 3.2% Credito* 5,407,862 2,930 3.2% Santander* 5,293,908 2,869 3.1% AV Villas 4,859,071 2,633 2.9% HSBC* 1,895,771 1,027 1.1% ABN AMRO Bank* 588,969 319 0.3% Procredit 60,540 33 0.0% Total 169,005,205 91,577 100.0%

Source: Central Bank, “Reporte de Estabilidad Financiera” Pension Funds Total Pension Funds portfolio value has grown over 50% since 2002

Total portfolio value in Jun 08, was approximately US$ 28 billion

Source: Central Bank “Reporte de Estabilidad Financiera” Pension Funds Pension fund profitability in average 3.5% Above the minimum required

Pension Funds More diversification of pension fund assets

Currently, Pension fund´s assets are dividied as follows:

40% Local public debt

20% financial institutions

17% foreign assets

21% Real Sector

2$ other

Reforms in the regulatory system aim to make diversification

easier.

Pension funds are now allowed to invest some of their capital in

foreign assets and private equity funds.

Insurance Companies Low insurance penetration makes Colombia an attractive market

The low penetration of insurance policies provides a great opportunity for newcomers to conquer the unattained market share

Source: FASECOLDA

Insurance Companies A growing Market: Insurance Profits on the rise Source: Finance Superintendence 2005 profits were extraordinary due to the sale of Reaseguradoras de Colombia in which all of its investment portfolio was liquidated at great profits US$ Million

Fourth capital market in South America

Due to the market´s youth, the government and private companies are making an effort to promote the use of equity, and other capital tools like derivatives.

Market cap (2007) Source: Valores Bancolombia & BVC Capital Markets US$ million

Capital Markets Colombia´s stock index CWGR is 52% over the last 7 years Source: Grupo Aval CWGR= Compunded weekly growth rate

Attractive Regulatory Framework

No restrictions to invest in the financial sector in Colombia .

Governed by a single entity:

Finance Superintendence ( Law 964 of 2005)

Minimum requirements: These have to be met by all supervised entities for risk control for money laundering and financing of terrorist activities. (SARLAFT)

Creation of Private Equity fund regulation: Decree 2175 (Carteras Colectivas) in 2007. These will basically be any collection of funds or other assets of two or more people that will be invested collectively and will give collective economic results

Regulation allowing Private Equity funds to invest in unlisted companies or in mixed portfolios . This was allowed when Resolution 470 of June 2005 entered into effect in 2006. One fund was established in 2006 under the framework, administered by the Finance Superintendence, another was close to becoming registered at end-2006 and another five were seeking registration.

Diversification of Pension Fund investments: Pension funds may invest up to 5% of their portfolios in private equity funds, 40% in variable income assets, 40% in foreign titles, stocks or other participations , and 5% in foreign private equity funds.

Recent Investment Cases

Continental (Chile) (2008):

Opened a subsidiary

Investment: US$3.85 M

GE Money (United States) (2007):

Strategic alliance with Colombian Bank Colpatria

Investment: US$228 M

Cardif (France) ( 2007):

Invested in a subsidiary

Investment: US$ 4.4 M

HSBC (England) (2006):

Began activities in Colombia by opening

a subsidiary

Investment: US$1.170 M

QBE Group (Australia) (2005):

Purchase 97 per cent of the share Central de Seguros

Investment: US$ 21 M

Royal Bank of Scotland (2007)

Purcahses ABN operation in Colombia

Investment: US$ 100 MM for all transactions in LA

Financial Sector consolidation cases

GNB SUDAREMIS (Italy) (2001):

Increased capital in the Colombian subsidiary

Investment: US$ 3.91 MM

BBVA Group (Spain) (2000):

Acquired Pension Fund Colpatria

Purchase 92% of the share of Ganadero Bank

Acquired Granahorrar Bank

Investment:US$ 512.3 MM

ING (USA) (2007):

Acquired Santander´s Pension funds in LA

Investment: US$ 1.3 billion

Davivienda (2006 -2007):

Acquired 97.8% of the share of Superior Bank

Purchased 99 per cent of the share of Bancafe

Fiduciaria Bogotá S.A (2007):

Acquire 99% of the share of Fiducomercio S.A.

Banco de Bogotà (2006):

Purchases 94.9% of the share Megabanco S.A

Citi Bank (2006):

Purchases 20% of Colfondos

Suramericana (2006):

Purchases Agricula de Seguros

US$175 MM

Suramericana

Private Equity EMPEA finds LATAM an attractive destination for Private Equity

78% growth in capital raised in 2007 : Statistics from 2007 done by EMPEA (Emerging markets private equity association), show that PE funds that invest in emerging markets received US$59 billion in new capital in 2007

US$ 25 billion raised between January and April of 2008.

New opportunities : Emerging markets represent new opportunities with higher returns for these funds.

65% of surveyed funds plan commitments to invest in Latin America

Source: EMPEA

Private Equity PE funds investment strategy shifting to LATAM Source: EMPEA

Private Equity LATAM, second highest expected return Source: EMPEA

Private Equity Colombia, 3rd most attractive country in LATAM

Countries in LATAM where funds intend to invest

in the next 2 years

Source: 2008 Annual Latin America Private Equity Survey by KPMG, February 2008 42% 34% 12% 5% 5% 2%

Private Equity Already 7 funds investing more than US$100 million each *Foreign Funds Name City Sectors of investment Estimated Size of fund (US millions) Inverlink Bogota Real Estate, infrastructure $500 Colpatria-GEM* Bogota Retail services(logistics, financial), energy $200 Estrategias Corporativas Bogota Real Estate $160 Aureos Capital* Bogota Invests in small to medium size companies $140 Tribeca Partners Bogota Health services, communications & technology, fashion $115 Altra Investments Bogota Cold chain, cosmetics, BPO, biofuels, hotels $100 Top Sales Capital Bogota Invests in small to medium size companies $100 LAEFM Colombia* Bogota Hidrocarbons, Forest $62 Andes Capital Bogota Agribusiness, hotels, industrial parks, technology, software, health, energy $50 SEAF Colombia* Bogota Helath, services $17 Brookfield* Bogota Infrastructure, energy NA Corficolombiana Bogota Real Estate NA Bancolombia Medellin Services, retail, energy, real estate NA Correval Bogota Real Estate, infrastructure & financial NA

Private Equity Success Stories

Tribeca acquired Onda De Mar (high end bathing suit company) in early 2006, its growth for that year was 35% over 2005.

Estrategias Corporativas closed its first REIT already, and is raising money for a second one.

LAEFM;Colombian Hydrocarbons Fund (US$ 62 million) Invests in exploration and production of minor fields in Colombia. The fund started operations in 2005 and already has two oil discoveries. Its main investors are local pension funds, ECOPETROL and local oil companies.

Colombia´s strong economic performance, improving regulatory framework and the development of the private equity industry make the country an attractive destination for investors wanting to invest in the financial sector in LATAM Financial Sector Value Proposition Human Resources One of the most qualified labor pools in LATAM: more than 21.000 business related university graduates per year Regulatory Framework No restrictions to invest in the sector and new regulations allowing pension funds to invest in private equity funds will help develop the industry in the country Emerging market GDP growth of 7.7%, an increase in assets of 15.8% coupled with a banking penetration level of 55% give newcomers great opportunities to conquer the remaining share of these industries Private Equity Colombia offers a diversified list of sectors in which these funds can invest their capital, public and private entities are helping educate companies on the benefits on financing with Private Equity

Frequently asked questions & answers What are the minimum capital requirements to set up a financial entity in Colombia? Financial Establishments Minimum Capital COP$ for 2008 Minimum Capital in US$ for 2008 (Exchange rate COP$ 2000 per Dollar) Banking Establishments 62.748.000.000 31.374.000 Financial Corporations 22.820.000.000 11.410.000 Commercial Financial Companies 16.165.000.000 8.082.500 Fiduciary Companies 4.760.000.000 2.380.000 Pension Funds Administration Societies 9.510.000.000 4.755.000 Severance Payment Funds Administration Societies 4.760.000.000 2.380.000 Pension and Severance Payment Funds Administration Societies 14.265.000.000 7.132.500 Other Financial Establishments 3.807.000.000 1.903.500 Exchange Offices 5.708.000.000 2.854.000

Frequently asked questions & answers What are the minimum capital requirements to set up an insurance company or like entity in Colombia? Insurance Minimum Capital COP$ for 2008 Minimum Capital in US$ for 2008 (Exchange rate COP$ 2000 per Dollar) Insurance Company 7.157.000.000 3.578.500 Re-insurance Companies 28.619.000.000 14.309.500 Capitalization 3.807.000.000 1.903.500 Credits to Export Companies 6.378.000.000 3.189.000

Is there a maximum legal percent of foreign ownershio for a bank in colombia?

There are no restrictions on foreign ownership for financial entities

What has been Colombia´s GDP per capita?

Source: EIU

Investments over USD 1,900.000

Investor must pay a premium to the Government equivalent to 1% of the investment made.

* These contracts exclude rules regarding the social security system, the obligation to report and pay taxes levied by the government under a state of emergency, indirect taxes (i.e., the VAT or the tax on banking transactions), prudential regulations of the financial system and the utility rate system. Period Admission Technical report Evaluation and approval of the application Final evaluation Objective Guaranteeing the legislation and administrative interpretation considered as a determining factor for the investment project. Conditions From 3 to 20 years maximum. Investors can subscribe Legal Stability Contracts with the Colombian Government Business Environment: Attractive investment incentives

Deductions include among others the following:

40% of the amount invested in productive real assets acquired.

100% of the amount paid for Industry & Commerce, sign and billboard, and property taxes during the corresponding taxable year, as long as they are directly related to the taxpayer’s economic activity.

25% of the tax paid on financial transactions may be deducted, regardless of their relationship to the taxpayer’s economic activity.

125% of investment made within taxable period incase of investment is made in scientific projects, technology, innovation and professional training.

Deductible expenses in corporate taxes

Working capital.

Investment in fixed or deferred assets

Substitution of debts (except liabilities with partners)

Total or partial purchase of companies related to the foreign trade sector.

Including creation of new companies, acquisition of shares or equity quotas.

Amount : Up to 100% of the investment, always provided if the amount requested does not exceed the total amount of exports and / or projected imports or invoicing during the credit term.