AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 2008

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 20-F

 

(Mark One)

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

BANCOLOMBIA S.A.

(Exact name of Registrant as specified in its charter)

N/A
(Translation of Registrant’s name into English)

Republic of Colombia
(Jurisdiction of incorporation or organization)

Calle 50 No. 51-66
Medellin, Colombia
(Address of principal executive offices)

Juan Esteban Toro Valencia, Investor Relations Manager
Calle 50 No. 51 – 66, Medellín, Colombia
Tel. +574 510 8866, Fax. + 574 510 8871, e-mail: juatoro@bancolombia.com
(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

Title of each Class		Name of each exchange on which registered
American Depositary Shares		New York Stock Exchange
Preferred Shares		New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act.
Not applicable
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Not applicable
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Common Shares			509,704,584
Preferred Shares			278,122,419

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ      No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934

Yes o      No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP		International Financial Reporting Standards as issued by the International Accounting Standards Board		Other þ

If “Other” has been checked in response to the previous question indicate by check mark which financial statemen item the registrant has elected to follow

Item 17 o      Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o      No þ

 

 

TABLE OF CONTENTS

CERTAIN DEFINED TERMS			i
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION		iii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			v
PART I			1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE			1
ITEM 3. KEY INFORMATION			1
A. SELECTED FINANCIAL DATA			1
B. CAPITALIZATION AND INDEBTEDNESS			6
C. REASONS FOR THE OFFER AND USE OF PROCEEDS			6
D. RISK FACTORS			6
ITEM 4. INFORMATION ON THE COMPANY			22
A. HISTORY AND DEVELOPMENT OF THE COMPANY			22
B. BUSINESS OVERVIEW			25
C. ORGANIZATIONAL STRUCTURE			63
D. PROPERTY, PLANT AND EQUIPMENT			69
E. SELECTED STATISTICAL INFORMATION			69
ITEM 4A. UNRESOLVED STAFF COMMENTS			106
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS			107
A. OPERATING RESULTS			107
B. LIQUIDITY AND CAPITAL RESOURCES			116
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.			119
D. TREND INFORMATION			119
E. OFF-BALANCE SHEET ARRANGEMENTS			120
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS			120
G. CRITICAL ACCOUNTING POLICIES AND ESTIMATES			121
H. RECENT U.S. GAAP PRONOUNCEMENTS			122
I. RELATED PARTY TRANSACTIONS			125
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			125
A. DIRECTORS AND SENIOR MANAGEMENT			125
B. COMPENSATION OF DIRECTORS AND OFFICERS			129
C. BOARD PRACTICES			129
D. EMPLOYEES			132
E. SHARE OWNERSHIP			132
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			133
A. MAJOR SHAREHOLDERS			133
B. RELATED PARTY TRANSACTIONS			134
C. INTEREST OF EXPERTS AND COUNSEL			136
ITEM 8. FINANCIAL INFORMATION			137
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION			137
B. SIGNIFICANT CHANGES			141

ITEM 9. THE OFFER AND LISTING			142
A. OFFER AND LISTING DETAILS			142
B. PLAN OF DISTRIBUTION			143
C. MARKETS			143
D. SELLING SHAREHOLDERS			143
E. DILUTION			143
F. EXPENSES OF THE ISSUE			143
ITEM 10. ADDITIONAL INFORMATION			144
A. SHARE CAPITAL			144
B. MEMORANDUM AND ARTICLES OF ASSOCIATION			144
C. MATERIAL CONTRACTS			151
D. EXCHANGE CONTROLS			151
E. TAXATION			152
F. DIVIDENDS AND PAYING AGENTS			156
G. STATEMENT BY EXPERTS			156
H. DOCUMENTS ON DISPLAY			156
I. SUBSIDIARY INFORMATION			156
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			157
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			163
PART II			164
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			164
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			164
ITEM 15. CONTROLS AND PROCEDURES			164
ITEM 16. RESERVED			165
ITEM.16.A AUDIT COMMITTEE FINANCIAL EXPERT			165
ITEM.16.B CORPORATE GOVERNANCE AND CODE OF ETHICS			165
ITEM.16.C PRINCIPAL ACCOUNTANT FEES AND SERVICES			167
ITEM.16.D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			167
ITEM.16.E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			167
PART III			168
ITEM 17. FINANCIAL STATEMENTS			168
ITEM 18. FINANCIAL STATEMENTS			168
ITEM 19. EXHIBITS			168
Exhibit 7.
Exhibit 8.1
Exhibit 11
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2
Exhibit 15(a)

CERTAIN DEFINED TERMS

Unless otherwise specified or if the context so requires, in this annual report:

References to the “Annual Report” refer to this annual report on Form 20-F.

References to “Bancolombia”, “BC”, the “Bank”, “us” or “we” refer to Bancolombia S.A., a banking institution organized under the laws of the Republic of Colombia, which may also act under the name of Banco de Colombia S.A., including its Subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

References to “Banagrícola” refer to a company incorporated in Panamá and authorized to operate as a bank holding company under the laws of the Republic of El Salvador, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

References to “Banco Agrícola” refer to Banco Agrícola S.A., a banking institution organized under the laws of the Republic of El Salvador, including its subsidiaries on a consolidated basis, unless otherwise indicated or the context otherwise requires.

References to “Conavi” refer to Conavi Banco Comercial y de Ahorros S.A. as it existed immediately before the Conavi/Corfinsura merger (as defined below).

References to “Corfinsura” refer to Corporacion Financiera Nacional y Suramericana S.A., as it existed immediately before the Conavi/Corfinsura merger, taking into account the effects of its spin-off of a portion of its investment portfolio effective July 29, 2005.

References to the “Conavi/Corfinsura merger” refer to the merger of Conavi and Corfinsura with and into Bancolombia S.A., with Bancolombia S.A. as the surviving entity, which took effect on July 30, 2005 pursuant to a Merger Agreement dated February 28, 2005.

References to “peso”, “pesos” or “Ps” refer to the lawful currency of Colombia.

References to “SMMLV” refer to Salario Mínimo Mensual Legal Vigente, the effective legal minimum monthly salary in Colombia.

References to “Subsidiaries” refer to subsidiaries of Bancolombia S.A. in which Bancolombia S.A. holds, directly or indirectly, 50% or more of the outstanding voting shares.

 i 

References to Representative Market Rate refer to Tasa Representativa del Mercado, the U.S. dollar representative market rate, certified by the Superintendency of Finance. The Representative Market Rate is an economic indicator of the daily exchange rate on the Colombian market spot of currencies. It corresponds to the arithmetical weighted average of the rates of purchase and sale of currencies of interbank transactions of the authorized intermediaries.

The term “billion” means one thousand million (1,000,000,000).

The term “trillion” means one million million (1,000,000,000,000).

References to “billing” or “billings” refer to credit card balances.

References to “Central Bank” refer to the Central Bank of Colombia.

References to “Colombia” refer to the Republic of Colombia.

References to “SFC” or “Superintendency of Finance” refer to the Colombian Superintendency of Finance (Superintendencia Financiera de Colombia).

References to “U.S.” or “United States” refer to the United States of America.

References to “U.S. dollar”, “U.S. dollars”, and “US$” refer to the lawful currency of the United States.

References to “UVR” refer to Unidades de Valor Real, a Colombian inflation-adjusted monetary index calculated by the board of directors of the Central Bank and generally used for pricing home-mortgage loans.

 ii 

PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION

Accounting Principles

The accounting practices and the preparation of the Bank’s consolidated financial statements follow the special regulations of the Superintendencia Financiera de Colombia (the “Superintendency of Finance”), or, in the absence of such regulations, generally accepted accounting principles in Colombia (“Colombian GAAP”). Together, these requirements differ in certain significant respects from generally accepted accounting principles in the United States (“U.S. GAAP”). Note 31 to the Bank’s audited consolidated financial statements included in this Annual Report provides a description of the principal differences between Colombian GAAP and U.S. GAAP as they relate to the Bank’s audited consolidated financial statements and provides a reconciliation of net income and shareholders’ equity for the years and dates indicated herein. References to Colombian GAAP in this Annual Report are to Colombian GAAP as supplemented by the applicable rules of the Superintendency of Finance.

For consolidation purposes under Colombian GAAP, financial statements of the Bank and its Subsidiaries must be prepared under uniform accounting policies. In order to comply with this requirement, financial statements of foreign Subsidiaries were adjusted as required by Colombian regulations with regard to investments, loans and leased assets.

For 2007, the Bank’s consolidated financial statements include companies in which it holds, directly or indirectly, 50% or more of outstanding voting shares. The consolidated financial statements of the Bank’s subsidiary Bancolombia Panamá S.A. (“Bancolombia Panamá”) includes the following companies: Bancolombia Cayman S.A., Sistema de Inversiones y Negocios S.A., Sinesa Holding Company Limited, Future Net S.A., Suleasing International, USA, Inc., Suleasing Internacional do Brasil Locaçao de Bens S.A. and Banagrícola S.A. (which in turn consolidates Banco Agrícola Panamá S.A, Inversiones Financieras Banco Agrícola S.A., Banco Agrícola S.A., Arrendadora Financiera S.A., Credibac S.A. de C.V., Bursabac S.A. de C.V., AFP Crecer S.A., Aseguradora Suiza Salvadoreña S.A. and Asesuisa Vida S.A.). The consolidated financial statements of the Bank’s subsidiary Banca Inversión Bancolombia S.A. Corporacion Financiera (“Banca Inversión Bancolombia”), includes the following companies: Inmobiliaria Bancol S.A., Valores Simesa S.A., Inversiones Valsimesa S.A., Fundicom S.A., Inversiones CFNS Ltda. and Todo Uno Colombia S.A. The consolidated financial statements of the Bank’s subsidiary Leasing Bancolombia S.A. Compañía de Financiamiento Comercial (“Leasing Bancolombia”), include the following companies: Renting Colombia S.A. (which in turn consolidates Renting Perú S.A.C. and Tempo Rent a Car S.A.). The consolidated financial statements of the Bank’s subsidiary Valores Bancolombia S.A. Comisionista de Bolsa (“Valores Bancolombia”) includes Suvalor Panamá S.A.

Currencies

The Bank maintains accounting records in Colombian pesos. The audited consolidated financial statements of Bancolombia (including its Subsidiaries) for the years ended December 31, 2005, 2006 and 2007 (collectively, including the notes thereto, the “Financial Statements”) contained in this Annual Report are expressed in pesos.

This Annual Report translates certain peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, such peso amounts have been translated at the rate of Ps 2,014.76 per US$ 1.00, which corresponds to the Representative Market Rate calculated on December 31, 2007 the last business day of the year. The Representative Market Rate is computed and certified by the Superintendency of Finance, the Colombian banking regulator, 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 BC). The Superintendency of Finance 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 Colombian pesos. Such conversion should not be construed as a representation that the peso amounts correspond to, or have been or could be converted into, U.S. dollars at that rate or any other rate. On May 31, 2008, the Representative Market Rate was Ps 1,744.01 per US$ 1.00.

 iii 

Rounding Comparability of Data

Certain monetary amounts, percentages and other figures included in this Annual Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

Information included on or accessible through BC’s internet site is not part of this Annual Report

This Annual Report refers to certain websites as sources for certain information contained herein. Information contained in or otherwise accessible through these websites is not a part of this Annual Report. All references in this Annual Report to these and other internet sites are inactive textual references to these URLs, or “uniform resource locators”, and are for your informational reference only.

The Bank maintains an internet site at www.grupobancolombia.com. In addition, certain of the Bank’s subsidiaries referred to in this Annual Report maintain separate internet sites. For example, Banco Agrícola maintains an internet site at www.bancoagricola.com.

 iv 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

Information regarding important factors that could cause actual results to differ, perhaps materially, from those in the Bank’s forward-looking statements appear in a number of places in this Annual Report, principally in “Item 3. Key Information – D. Risk Factors” and “Item 5. Operating and Financial Review and Prospects”, and include, but are not limited to:

•

changes in general economic, business, political, social, fiscal or other conditions in Colombia or changes in general economic or business conditions in Latin America;

•

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

•

unanticipated increases in financing and other costs or the 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 the Bank’s borrowers and other loan delinquencies;

•

lack of acceptance of new products or services by the Bank’s targeted customers;

•

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

•

adverse determination of legal or regulatory disputes or proceedings;

•

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

•

regulatory issues relating to acquisitions; and

•

changes in business strategy.

 v 

Forward-looking statements speak only as of the date they are made and are subject to change, and the Bank does not intend, and does not assume any obligation, to update these forward-looking statements in light of new information or future events arising after the date of this Annual Report.

Neither the Bank’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures, with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the prospective financial information.

 vi 

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

The selected consolidated financial data as of December 31, 2006 and 2007, and for each of the three fiscal years in the period ended December 31, 2007 set forth below has been derived from the Bank’s audited consolidated financial statements included in this Annual Report. The selected consolidated financial data as of December 31, 2003, 2004 and 2005, and for each of the two fiscal years in the period ended December 31, 2004 set forth below have been derived from the Bank’s audited consolidated financial statements for the respective periods, which are not included herein.

The Bank’s consolidated financial statements for each period were prepared in accordance with Colombian GAAP.

The selected consolidated financial data should be read in conjunction with the Bank’s consolidated financial statements, related notes thereto, and the report of the Bank’s independent registered public accounting firm.

		As of and for the year ended December 31,
		2003				2004				2005(9)				2006				2007(10)				2007(1)
		(In millions of Ps and thousands of US$(1), except per share and per American Depositary Share (“ADS”) amounts)
CONSOLIDATED STATEMENT OF OPERATIONS:
Colombian GAAP:
Interest income		Ps	1,537,818			Ps	1,803,108			Ps	3,200,084			Ps	3,013,732			Ps	4,810,408			US$	2,387,584
Interest expense			(480,513	)			(585,743	)			(1,150,274	)			(1,246,229	)			(2,002,090	)			(993,711	)
Net interest income			1,057,305				1,217,365				2,049,810				1,767,503				2,808,318				1.393,873
Provisions for loans and accrued interest losses, net of recoveries(2)			(130,356	)			(61,423	)			(123,575	)			(195,361	)			(617,868	)			(306,671	)
Provision for foreclosed assets and other assets, net of recoveries(3)			(51,943	)			(5,201	)			(7,465	)			45,179				20,833				10,340
Net interest income after provisions			875,006				1,150,741				1,918,770				1,617,321				2,211,283				1,097,542
Fees and income from services and other operating income, net(4)			515,325				574,453				962,277				1,139,094				1,477,234				733,206
Operating expenses			(850,768	)			(912,421	)			(1,654,805	)			(1,871,000	)			(2,271,712	)			(1,127,535	)
Net operating income			539,563				812,773				1,226,242				885,415				1,416,805				703,213
Total non-operating income (expense), excluding minority interest			(7,874	)			7,140				4,650				45,346				45,247				22,457
Minority interest (loss)			330				(2,425	)			(6,496	)			(6,352	)			(13,246	)			(6,574	)
Income before income taxes			532,019				817,488				1,224,396				924,409				1,448,806				719,096
Income taxes			(62,635	)			(238,810	)			(277,515	)			(174,880	)			(361,883	)			(179,616	)
Net income		Ps	469,384			Ps	578,678			Ps	946,881			Ps	749,529			Ps	1,086,923			US$	539,480
Weighted average of Preferred and Common Shares outstanding(5)			576,695,395				576,695,395				652,882,756				727,827,005				758,313,771
Basic and Diluted net operating income per share(5)		Ps	857			Ps	1,297			Ps	1,878			Ps	1,217				1,868			US$	0.93
Basic and Diluted net operating income per ADS(11)			3,427				5,189				7,513				4,866				7,473				3.71
Basic and Diluted net income per share(5)			814				1,003				1,450				1,030				1,433				0.71
Basic and Diluted net income per ADS(11)			3,256				4,012				5,800				4,119				5,733				2.85
Cash dividends declared per share(6)			272				376				508				532				568				0.28
Cash dividends declared per share(6) (stated in US Dollars)			0.10				0.16				0.22				0.24				0.28
Cash dividends declared per ADS(11)			1,088				1,504				2,032				2,128				2,272
Cash dividends declared per ADS (stated in US Dollars)			0.39				0.63				0.88				0.95				1.13
U.S. GAAP:(7)
Net income		Ps	474,419			Ps	642,126			Ps	891,121			Ps	941,183			Ps	1,015,644			US$	504,102
Basic and Diluted net income per common share(8)			1,070				1,445				1,715				1,619				1,683				0.84
Basic and Diluted net income per ADS(8) (11)			4,280				5,780				6,860				6,476				6,732				3.34

		As of and for the year ended December 31,
		2003				2004				2005(5)				2006				2007(6)				2007(1)
		(In millions of Ps and thousands of US$(1), except per share and per American Depositary Share (“ADS”) amounts)
CONSOLIDATED BALANCE SHEET
Colombian GAAP:
Assets:
Cash and due from banks		Ps	848,052			Ps	768,514			Ps	1,241,435			Ps	1,548,752			Ps	3,618,619			US$	1,796,055
Overnight funds			598,409				480,846				488,587				457,614				1,609,768				798,987
Investment securities, net			4,336,724				5,250,211				8,459,703				5,677,761				5,774,251				2,865,975
Loans and financial leases, net			7,642,405				9,600,861				17,920,370				23,811,391				36,245,473				17,989,971
Accrued interest receivable on loans, net			103,209				121,276				198,266				255,290				398,560				197,820
Customers’ acceptances and derivatives			1,539				43,894				133,420				166,395				196,001				97,283
Accounts receivable, net			163,310				173,875				590,313				562,598				716,106				355,430
Premises and equipment, net			337,964				346,243				623,729				712,722				855,818				424,774
Operating leases, net(4)			537,207				8,311				143,974				167,307				488,333				242,378
Foreclosed assets, net			27,676				12,206				31,360				18,611				32,294				16,029
Prepaid expenses and deferred charges			27,831				15,950				26,898				46,462				137,901				68,445
Goodwill			99,910				73,607				50,959				40,164				977,095				484,968
Other assets			198,480				315,394				563,588				675,265				580,642				288,194
Reappraisal of assets			253,413				267,941				330,915				348,364				520,788				258,486
Total assets		Ps	15,176,129			Ps	17,479,129			Ps	30,803,517			Ps	34,488,696			Ps	52,151,649			US$	25,884,795
Liabilities and shareholders’ equity:
Deposits		Ps	10,231,997			Ps	11,862,116			Ps	18,384,982			Ps	23,216,467			Ps	34,374,150			US$	17,061,164
Borrowings (7)			1,211,595				1,104,201				3,927,551				3,516,426				4,851,246				2,407,853
Other liabilities			2,043,158				2,422,089				5,113,694				4,109,191				7,726,983				3,835,187
Shareholders’ equity			1,689,379				2,090,723				3,377,290				3,646,612				5,199,270				2,580,591
Total liabilities and shareholders’ equity		Ps	15,176,129			Ps	17,479,129			Ps	30,803,517			Ps	34,488,696			Ps	52,151,649			US$	25,884,795
U.S. GAAP(2):
Shareholders’ equity		Ps	1,832,886			Ps	2,267,286			Ps	4,125,996			Ps	4,549,018			Ps	5,937,554			US$	2,947,028
Shareholders’ equity per share(3) (8)			3,178				3,932				6,320				6,250				7,830				3.89
Shareholders’ equity per ADS(3) (8)			12,712				15,728				25,280				25,001				31,320				15.55

Please see Item 8. Financial Information — A. Consolidated Financial Statements and Other Financial Information — A.3. Dividend Policy, for information about the dividends declared per share in both pesos and U.S. dollars during the fiscal years ended in December 31, 2003, 2004, 2005, 2006 and 2007.

Differences Between Colombian and U.S. GAAP Results

The Bank’s consolidated financial statements have been prepared in accordance with Colombian GAAP, which are the accounting principles and policies that are summarized in Note 2 to the Bank’s Financial Statements included in this Annual Report. These accounting principles and policies differ in some respects from U.S. GAAP. A reconciliation of net income and shareholders’ equity under U.S. GAAP is included in Note 31 to the Financial Statements included in this Annual Report.

Consolidated net income under U.S. GAAP for the year ended December 31, 2007 was Ps 1,015,644 million (compared with Ps 941,183 million for fiscal year 2006 and Ps 891,121 million for fiscal year 2005). The significant adjustments between Colombian and U.S. GAAP results are described in Note 31 – “Differences Between Colombian Accounting Principles for Banks and U.S. GAAP” – to the Financial Statements included in this Annual Report.

		As of and for the year ended December 31,
		2003				2004				2005(11)				2006				2007(12)
		(Percentages, except for operating data)
SELECTED RATIOS: (1)
Colombian GAAP:
Profitability ratios:
Net interest margin(2)			9.22				8.75				8.12				6.19				7.60
Return on average total assets(3)			3.40				3.62				3.30				2.31				2.52
Return on average shareholders’ equity(4)			31.14				32.14				31.49				22.10				26.13
Efficiency Ratio:
Operating expenses as a percentage of interest, fees, services and other operating income			54.10				50.92				54.94				64.37				53.01
Capital ratios:
Period-end shareholders’ equity as a percentage of period-end total assets			11.13				11.96				10.96				10.57				9.97
Period-end regulatory capital as a percentage of period-end risk- weighted assets(5)			13.08				13.44				10.93				11.05				12.67
Credit quality data:
Non-performing loans as a percentage of total loans(6) (10)			0.95				0.88				1.48				1.36				1.77
“C”, “D” and “E” loans as a percentage of total loans(9) (10)			4.93				3.86				3.38				2.54				3.10
Allowance for loan and accrued interest losses as a percentage of non-performing loans (10)			515.13				496.30				259.02				252.87				223.67
Allowance for loan and accrued interest losses as a percentage of “C”, “D” and “E” loans(9) (10)			99.07				113.47				113.59				135.06				127.38
Allowance for loan and accrued interest losses as a percentage of total loans (10)			4.89				4.37				3.84				3.43				3.95
OPERATING DATA:
Number of branches(7)			354				377				678				701				888
Number of employees(8)			8,001				8,609				14,562				16,222				24,836

Exchange Rates

On May 31, 2008, the Representative Market Rate was Ps 1,744.01 per US$ 1.00. The Federal Reserve Bank of New York does not report a rate for pesos; the Superintendency of Finance calculates the Representative Market Rate based on the weighted averages of the buy/sell foreign exchange rates quoted daily by certain financial institutions, including BC, for the purchase and sale of U.S. dollars.

The following table sets forth the high and low Representative Market Rate for the last seven months:

Recent exchange rates of U.S. Dollars per Peso:

Month		Low				High
December 2007			1,987.81				2,057.40
January 2008			1,939.60				2,014.76
February 2008			1,843.59				1,939.77
March 2008			1,810.68				1,902.17
April 2008			1,765.30				1,834.96
May 2008			1,744.01				1,793.13
June 2008 (through June 27)			1,652.41				1,832.81

The following table sets forth the average peso/ U.S. dollar Representative Market Rate for each of the five most recent financial years, calculated by using the average of the exchange rates on the last day of each month during the period.

Peso/US$ 1.00
Representative Market Rate
Period		Average
2003			2,875.05
2004			2,614.79
2005			2,320,77
2006			2,359.13
2007			2,069.21

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS

Investors should consider the following risks and uncertainties and the other information presented in this Annual Report. In addition, the factors referred to below, as well as all other information presented in this Annual Report, should be considered by investors when reviewing any forward-looking statements contained in this Annual Report, in any document incorporated by reference in this Annual Report, in any of the Bank’s future public filings or press releases, or in any future oral statements made by the Bank or any of its officers or other persons acting on its behalf. If any of the following risks occur, the Bank’s business, results of operations and financial condition could be materially and adversely affected.

The quality of the Bank’s loan portfolio and of other assets may decline.

Unforeseen changes in the income levels of the Bank’s borrowers, increases in the inflation rate or an increase in interest rates 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. In particular, the Bank might not be able to maintain its current level of asset quality and credit risk in the future. Furthermore, if the Bank increases the proportion of consumer, mortgage and small business credits in its loan portfolio, it may experience detrimental changes in its credit risk levels.

The Bank’s loan and investment portfolios are subject to risk of prepayment, which could negatively affect its net interest income because the Bank would not be able to receive the interest income from the prepayment date to the maturity date.

The Bank’s loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. Generally, in a declining interest rate environment, prepayment activity increases which reduces the weighted average lives of the Bank’s earning assets and adversely affects its operating results. The Bank would also be required to amortize net premiums into income over a shorter period of time, thereby reducing the corresponding asset yield and net interest income. Prepayment risk also has a significant adverse impact on credit card and collateralized mortgage obligations, since prepayments could shorten the weighted average life of these portfolios, which may result in a mismatch in funding or reinvestment at lower yields.

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.

The aggregate outstanding principal amount of the Bank’s 25 largest borrowing relationships, represented approximately 9.8% of its total consolidated loan portfolio as of December 31, 2007. Problems with one or more of the Bank’s largest borrowers could materially and adversely affect its results of operations and financial position.

The Bank’s reliance in its investment portfolio on debt securities issued by the Colombian Government leaves it vulnerable to fluctuations in public debt valuations.

During 2007, the Bank continued reallocating its assets by reducing the relative size of its debt securities portfolio, increasing in turn its loan portfolio. However, the Bank’s investment portfolio still contains a significant amount of public debt securities issued or backed by the Colombian government and, therefore, the Bank continues to be exposed to the possibility of non-payment by Colombia and could suffer future losses if the value of Colombian public debt securities on the secondary market decreases. As of December 31, 2007, the Bank’s total debt securities represented 10.7% of its total assets, likewise 42% of these securities were issued or backed by the Colombian government.

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

As a result of its merger with Conavi in 2005, the Bank acquired Conavi’s mortgage loan portfolio and became a significant player in Colombia’s mortgage loan market. With the launching in 2006 of the Casa Propia para Todos homeowner plan and according to the Superintendency of Finance the Bank became one of the leaders of such market and increased its mortgage loan market share (including securitized loans) from 23.9% as of December 31, 2006 to 29.4% as of December 31, 2007.

Colombia’s mortgage loan market is highly regulated and has historically been affected by various macroeconomic factors. Risks associated with this market to which the Bank is exposed include the risk of increases in interest rates that may reduce the volume of mortgage loans that the Bank originates. 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.

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.

The Bank might not be able to effectively control and reduce the level of the impaired loans in its total loan portfolio. In particular, the amount of the Bank’s reported non-performing loans may increase in the future as a result of growth in its total loan portfolio, including as a result of loan portfolios that the Bank may acquire through auctions or otherwise, or factors beyond the Bank’s control, such as the impact of macroeconomic trends and political events affecting Colombia or events affecting specific industries. In addition, the Bank’s current loan loss reserves may not be adequate to cover an increase in the amount of non-performing loans or any future deterioration in the overall credit quality of its total loan portfolio. As a result, if the quality of its total loan portfolio deteriorates the Bank may be required to increase its loan loss reserves, which may adversely affect its financial condition and results of operations. Moreover, there is no precise method for predicting loan and credit losses, and loan loss reserves might not be sufficient to cover actual losses. If the Bank is unable to control or reduce the level of its non-performing or poor credit quality loans, its financial condition and results of operations could be materially and adversely affected.

If the Bank is unable to realize the collateral or guarantees securing its loans to cover the outstanding principal and interest balance of its loans, its financial condition and results of operations may be adversely affected.

As of December 31, 2007, 46.4% of the Bank’s loans and financial leases were secured by collateral or guarantees. The Bank’s loan collateral primarily includes real estate, assets given in financial leasing and other assets that are located in Colombia and El Salvador, the value of which may significantly fluctuate or decline due to factors beyond the Bank’s control, including macroeconomic factors and political events affecting the economy. An economic slowdown may lead to a downturn in the Colombian or Salvadorian real estate market, which may in turn result in declines in the value of the collateral, consisting primarily of real estate, securing many of the Bank’s loans to levels below the outstanding principal balance of such loans. 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 an adverse impact in 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 provided, and local protectionism, may make foreclosures on collateral and enforcement of judgments in its favor difficult, and hence may result in losses, which could materially and adversely affect its results of operations and financial position.

The failure to successfully implement and continue to upgrade the Bank’s credit risk management system could materially and adversely affect its business operations and prospects.

A principal risk inherent in the Bank’s business is credit risk. The Bank may not be able to upgrade, on a timely basis, its credit risk management system. For example, an important part of its credit risk management system is to employ an internal credit rating system to assess the particular risk profile of a client. As this process involves detailed analyses of the client’s credit risk, taking into account both quantitative and qualitative factors, it is subject to human error. In exercising their judgment, the Bank’s employees may not always be able to assign an accurate credit rating to a client or credit risk, 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 tools available to it, the Bank’s employees may not be able to effectively implement its credit risk management system, which may increase its exposure to credit risk. As a result, the Bank’s failure to implement effectively, consistently follow or 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.

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

The Bank’s principal sources of funds are short-term deposits, checking accounts and savings accounts, which together represented a share of 66.4%, 72.8% and 73.07% of total funds at the end of 2005, 2006 and 2007, 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 Bancolombia operates, the Bank might not be able to maintain its current level of funding without incurring higher costs or selling certain assets at prices below their prevailing market value.

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

The Bank is a Colombian financial institution, and most of the Bank’s operations, property and customers are located in Colombia. In addition, the Bank is active in other jurisdictions in Latin America including El Salvador, Panama, Cayman Islands and Puerto Rico through a network of branches and subsidiaries, and accordingly its business is subject to a variety of economic, political, market and credit risks in these jurisdictions. As a result, the quality of its assets, financial condition and results of operations depend primarily on macroeconomic and political conditions prevailing in Colombia and the other jurisdictions in which the Bank operates. Colombia and the other jurisdictions in which the Bank operates are subject to political, economic and other uncertainties, including renegotiation, or nullification of existing contracts, currency exchange restrictions and international monetary fluctuations. Furthermore, changes in monetary, exchange and trade policies could affect the overall business environment in Colombia and the other jurisdictions in which the Bank operates, which would impact the Bank’s financial condition and results of operations. For example, in Colombia, the Central Bank could raise interest rates, which could negatively affect the Bank’s assets and restrict their growth. Increases in exchange rates could negatively affect borrowers’ foreign currency position, while setbacks in trade relations with Venezuela and Ecuador, as well as any difficulties with the approval of the Free Trade Agreement with the United States, could affect the financial position of the Bank’s larger customers. Any of these events could have a negative impact on the Bank’s financial condition.

Furthermore, decreases in the growth rate in the economies where the Bank operates, particularly in Colombia and El Salvador, periods of negative growth or increases in inflation or interest rates could result in lower demand for the Bank’s services and products, lower real pricing of its services and products, or cause it to shift to lower margin services and products. Because a large percentage of the Bank’s costs and expenses are fixed, it may not be able to reduce costs and expenses upon the occurrence of any of these events and its profit margins and results of operations could suffer as a result.

Government policies in the jurisdictions where the Bank operates could significantly affect the local economy and, as a result, the Bank’s business and financial condition.

The Bank’s business and financial condition could be adversely affected by changes in policy, or future judicial interpretations of such policies, involving exchange controls and other matters such as currency devaluation, inflation, interest rates, taxation, banking laws and regulations and other political or economic developments in or affecting Colombia and in the other jurisdictions where the Bank operates. In particular, the Colombian government (excluding departmental and municipal governments, the “Government”) has historically exercised substantial influence over the Colombian economy, and its policies are likely to continue to have an important effect on Colombian entities (including the Bank), market conditions, prices and rates of return on securities of local issuers (including the Bank’s securities). Future developments in government policies could impair the Bank’s business or financial condition or the market value of its securities.

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 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, or the market value of the Bank’s securities and any dividends distributed by it, could be adversely affected by rapidly changing economic and social conditions in Colombia and by the Government’s response to such conditions. Moreover, additional 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.

The economies of the countries where the Bank operates remain vulnerable to external shocks 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 their economic growth and their ability to service their public debt.

Emerging-market investment generally poses a greater degree of risk than investment in more mature market economies because the economies in the developing world are more susceptible to destabilization resulting from domestic and international developments.

In the case of Colombia, a significant decline in the economic growth of any of its major trading partners, such as the United States and Venezuela, could have a material adverse impact on Colombia’s balance of trade and adversely affect Colombia’s economic growth. The United States is Colombia’s largest export market. A decline in U.S. demand for imports could have a material adverse effect on Colombian exports and Colombia’s economic growth, which would, in turn, have detrimental results on the business activities of the Bank. In addition, because international investors’ reactions to the events occurring in one emerging market country sometimes appear to demonstrate a “contagion” effect, in which an entire region or class of investment is disfavored by international investors, Colombia could be adversely affected by negative economic or financial developments in other emerging market countries. In the past, Colombia has been adversely affected by such contagion effects on a number of occasions, including following the 1997 Asian financial crisis, the 1998 Russian financial crisis, the 1999 devaluation of the Brazilian real and the 2001 Argentine financial crisis. Such a contagion effect could be expected to lower market prices of Bancolombia’s securities and threaten its liquidity, cause higher ratios of past due loans in Bancolombia’s loan portfolios, lead to significant weaknesses in Bancolombia’s investment portfolio and diminish Colombia’s ability to make payments on its public debt, which represents a significant portion of Bancolombia’s investment portfolio. The economies of other countries where the Bank operates (e.g. Panama, El Salvador, Cayman Islands) face similar challenges.

In addition, a sustained downturn in the U.S. economy could negatively impact the Bank’s international remittance business, which serves a customer base of Salvadorians and Colombians living in the United States.

Any additional taxes resulting from changes to Colombian tax regulations or the interpretation thereof in Colombia could adversely affect the Bank’s consolidated results.

Uncertainty relating to tax legislation poses a constant risk to Colombian entities, like the Bank, and Colombian national authorities have levied new taxes in recent years. 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.

Additional tax regulations could be implemented that could require the Bank to make additional tax payments, negatively affecting its financial condition, results of operation and cash flow. In addition, either 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.

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 in their official interpretation, may have a material effect on the Bank’s business and operations. Since banking laws and regulations change frequently, their interpretation and, in particular, the manner in which these laws and regulations are applied to financial institutions like the Bank are continuously evolving. In addition, banking laws or regulations may change in other jurisdictions where the Bank has subsidiaries, such as Panama, El Salvador, Puerto Rico and the Cayman Islands. Laws or regulations could be adopted, enforced or interpreted in a manner that has an adverse effect on the Bank’s business.

Any of these factors, and the legal instability resulting from the decisions made by Colombian courts that in some cases could be influenced politically or economically, could materially and adversely affect the Bank’s results.

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 from those other regulations. For example, capital adequacy requirements for banks under Colombian regulations differ from those under U.S. regulations and may differ from many other countries.

The Bank prepares its annual audited financial statements in accordance with Colombian GAAP, which differs in significant respect to U.S. GAAP and International Financial Reporting Standards (“IFRS”). Thus, Colombian financial statements and reported earnings may differ from those of companies in other countries in these and other respects. Some of the main significant differences affecting earnings and shareholders’ equity include the accounting treatment for restructuring, loan origination fees and costs, deferred income taxes and the accounting treatment for business combination accounting.

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 Superintendency of Finance that differs from that used under U.S. GAAP (See Item 4. Information on the Company – E. Selected Statistical Information – E.4. Summary of Loan Loss Experience – Allowance for Loan Losses).

Although the Government has undertaken a review of present regulations relating to accounting, audit, and information disclosure, with the intention of conforming them to international standards and proposing pertinent modifications to the Colombian congress, current regulations continue to differ in certain respects from those in other countries. Accordingly, there may be less publicly available information about the Bank than is regularly published by or about U.S. issuers or an issuer in another country.

In addition, banking regulations, accounting standards and corporate disclosure in other jurisdictions in which the Bank operates, such as Panama, El Salvador, Puerto Rico and the Cayman Islands, may also differ from those of the United States.

Increased competition and consolidation in the Colombian financial industry could adversely affect the Bank’s market share.

The Colombian financial system is highly competitive. Since the 1990s, when the Colombian financial market was deregulated and international capital flows resumed, there has been an ongoing process of financial system consolidation. The Bank expects this consolidation to lead to the creation of large local institutions and the possibility of foreign entities banks entering the market, presenting the risk that the Bank could lose a portion of its share in the industry affecting the Bank’s results of operations.

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 its 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 its current customers with 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.

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 Colombian banking authorities. These regulatory authorities have broad powers to adopt regulations and other requirements affecting or restricting virtually all aspects of its 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 applied by Colombian banks. In the event of non-compliance with applicable regulation, the Bank could be subject to fines, sanctions or the revocation of licenses or permits to operate its business. In the event the Bank encounters significant financial problems or becomes insolvent or in danger of becoming insolvent, Colombian banking authorities would have the power to take over the Bank’s management and operations.

Moreover, Colombian 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 operations, including making and collecting loans and other extensions of credit, which in turn could materially and adversely affect the Bank’s results of operations and financial position.

The Bank is also subject to laws and regulations in other jurisdictions where it operates. Any sanctions, fines and other penalties resulting from non-compliance with such regulations could materially and adversely affect the Bank’s business, financial condition, results of operations and reputation.

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 or additional informational requirements regarding interest rates or fees. A portion of the Bank’s revenues and operating cash flow is generated by its credit services and any such limitations or additional informational requirements could materially and adversely affect the Bank’s results of operations and financial position.

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 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 across numerous and diverse markets and products at its various branches, 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 its decision making process, its risk management and internal control systems 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 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.

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 recently adopted 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.

There are restrictions on foreign investment in Colombia.

Colombia’s International Investment Statute, which has been modified from time to time through related decrees and regulations, regulates the manner in which non-Colombian-resident entities and individuals can invest in Colombia and participate in the Colombian securities markets. Among other requirements, the statute mandates registration of certain foreign exchange transactions with the Central Bank and specifies procedures to authorize and administer certain types of foreign investments.

Investors who wish to participate in the Bank’s American Depositary Receipt (“ADR”) facility and hold American Depositary Shares (“ADSs”) of the Bank will be required to submit to the custodian of the ADR facility certain information and comply with certain registration procedures required under the foreign investment regulations in connection with foreign exchange controls restricting the conversion of pesos into U.S. dollars. Holders of ADRs who wish to withdraw the underlying preferred shares will also have to comply with certain registration and reporting procedures, among other requirements. Under these foreign investment regulations, the failure of a non-resident investor to report or register with the Central Bank foreign exchange transactions relating to investments in Colombia on a timely basis may prevent the investor from obtaining remittance rights, constitute an exchange control infraction and result in a fine. The Colombian Government, Colombian congress or the Central Bank might not reduce restrictions on foreign investments, and any of them could implement more restrictive rules in the future.

Colombia currently has a free float exchange rate system; however, other restrictive rules for the exchange rate system could be implemented in the future. In the event that a more restrictive exchange rate system is implemented, financial institutions, including the Bank, may be unable to transfer U.S. dollars abroad to pay their financial obligations.

The Bank’s financial results are constantly exposed to market risk. The Bank is subject to fluctuations in interest rates and other market risks, which may materially and adversely affect its financial condition and results of operations.

Market risk refers to the probability of variations in the Bank’s net interest income or in the market value of its assets and liabilities due to interest rate volatility. Changes in interest rates affect the following areas, among others, of the Bank’s business:

•

net interest income;

•

the volume of loans originated;

•

the market value of the Bank’s securities holdings;

•

asset quality; and

•

gains from sales of loans and securities.

Changes in short-term interest rates may affect the Bank’s net interest income, which comprises the majority of the Bank’s revenue.

Increases in interest rates may reduce the volume of loans the Bank originates. 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.

Increases in interest rates may reduce the value of the Bank’s financial assets. The Bank holds a substantial portfolio of loans and debt securities that have both fixed and floating interest rates. In addition, the Bank may incur costs (which, in turn, will impact its results) as it implements strategies to reduce future interest rate exposure.

Increases in interest rates may reduce gains or require the Bank to record losses on sales of its loans or securities.

The Bank is subject to operational risks

The Bank’s businesses are dependant on the ability to process a large number of transactions efficiently and accurately. Operational risks and losses can result from fraud, employee errors, 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 is subject to credit risks with respect to its non-traditional banking businesses such as investing in securities and entering into types of derivatives transactions.

A portion of the Bank’s businesses are not in the traditional banking businesses of lending and deposit-taking and therefore expose it to credit risk.

Non-traditional sources of credit risk can, for example, arise from:

•

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 its proprietary trading desk, 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, a significant decline in credit risk or bankruptcy of any of the counterparties to any of these non-traditional risks could materially and adversely affect the Bank’s results of operations and financial position.

The Bank is subject to trading risks with respect to its trading activities.

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 substantial amount of its trading income has been derived from alternative investment strategies such as same-day foreign exchange trades and adjustable-rate bond instruments. A significant decline in the Bank’s trading income, or incurring a trading loss, could adversely affect its results of operations and financial position.

The Bank is subject to market and operational risks associated with its derivative transactions, as well as structuring risks and the risk that its documentation will not incorporate accurately the terms and conditions of its derivatives transactions.

The Bank enters into derivative transactions primarily for hedging purposes and, to a lesser extent, 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 well developed in the jurisdictions where the Bank operates as compared to other more developed countries, and the court systems in the countries where the Bank operates have limited experience in dealing with issues related to derivative transactions. Given that the derivatives market and related documentation are not yet well developed in the countries where the Bank operates, there are structuring risks and the risk that the Bank’s documentation will not incorporate accurately the terms and conditions of derivatives transactions. In addition, the execution and performance of these types of transactions depend on the Bank’s ability to develop adequate control and administration 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.

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

An element of the Bank’s business strategy is to identify and pursue growth-enhancing strategic opportunities. As part of that strategy, the Bank acquired interests in various institutions during recent years. For example, in 2007, the Bank acquired 98.9% of all the issued and outstanding shares of Banagrícola. For more information on these acquisitions and mergers, see Item 4.A. Information on the Company – History and Development of the Company – Public takeover offers and Item 4.A. Information on the Company – History and Development of the Company – Recent Developments. The Bank will continue to actively consider other strategic acquisitions and partnerships from time to time. The Bank must necessarily base any assessment of potential acquisitions and partnerships on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. The acquisition of Banagrícola, future acquisitions, significant 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. In addition, new demands on the Bank’s existing organization and personnel resulting from the integration of new acquisitions could disrupt the Bank’s operations and adversely affect its operations and profitability.

Any failure to effectively improve, integrate 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 Bank must continually make significant investments and improvements in its information technology infrastructure in order to remain competitive. In particular, as the Bank continues to open new branches, it needs to improve its information technology infrastructure, including maintaining and upgrading its software and hardware systems and its bank-office operations. With the acquisition of new companies, such as Banagrícola, the Bank needs to integrate the systems in order to provide timely and consolidated information. 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. In addition, the Bank may experience difficulties in upgrading, developing and expanding its information technology systems quickly enough to accommodate its growing customer base. Bancolombia is currently undertaking a project to renovate its IT platform Any failure to effectively improve, integrate or upgrade the Bank’s information technology infrastructure and management information systems, including its IT platform renovation in a timely manner could materially and adversely affect its competitiveness, financial condition and results of operations.

The Bank is exposed to new or increased risks as it expands the range of its products and services.

As the Bank expands the range of its products and services, some of which are at an early stage of development in the markets where the Bank operates, the Bank will be exposed to new and increasingly complex risks. The Bank’s employees and its risk management systems may not be adequate to handle such risks. As a result, the Bank is subject to substantial market, credit and other risks in relation to the expanding scope of its products, services and trading activities, which could cause the Bank to incur substantial losses.

Reductions in the Bank’s credit ratings would increase its cost of borrowing funds and make its ability to raise new funds, attract deposits or renew maturing debt more difficult.

The Bank’s credit ratings are an important component of its liquidity profile. Among other factors, its credit ratings are based on the financial strength, credit quality and concentrations in its total loan portfolio, the level and volatility of its earnings, its capital adequacy, the quality of management, the liquidity of its balance sheet, the availability of a significant base of core retail and commercial deposits, and its ability to access a broad array of wholesale funding sources. Adverse changes in the Bank’s credit ratings would increase its cost of raising funds in the capital markets or of borrowing funds. The Bank’s ability to renew maturing debt may be more difficult and expensive. In addition, its lenders and counterparties in derivative transactions are sensitive to the risk of a rating downgrade.

The Bank’s ability to compete successfully in the marketplace for deposits depends on various factors, including its financial stability as reflected by the Bank’s credit ratings. A downgrade in its credit ratings may adversely affect perception of the Bank’s financial stability and the Bank’s ability to raise deposits.

The Bank obtains both consolidated credit ratings and individual credit ratings by local rating institutions. A reduction in the credit rating of one of the Bank’s subsidiaries could also affect the financial results of that subsidiary and as a result, have a direct impact on Bancolombia’s consolidated results.

The Bank may have difficulties competing in the credit card industry, and its success may depend significantly on its ability to grow organically or to strengthen alliances with its strategic partners.

The credit card business is subject to a number of risks and uncertainties, including the composition and risk profile of credit card customers. The success of the Bank’s credit card business will also depend, in part, on the success of the Bank’s product development, product rollout efforts and marketing initiatives, including the marketing of credit card products to existing retail and mortgage loan customers, and the Bank’s ability to continue to successfully target creditworthy customers.

As part of its credit card business, the Bank faces risks relating to the price of merchant fees. There has been an ongoing dispute in Colombia, between retailers and banks, regarding merchant fees. For example, the Superintendency of Commerce and Industry has issued resolutions related to Credibanco and Redeban, the entities that manage the credit card system in Colombia, in order to prevent an agreement on the prices of the merchant fees. As a result, the clearance fees among the banks and the fees collected from the customers have decreased. These types of disputes could result in a decrease in income from credit card merchant fees or could also lead to changes in commercial strategies that could impact the Bank’s financial results.

ADRs do not have the same tax benefits as other equity investments in Colombia.

Although ADRs represent Bancolombia’s preferred shares, they are held through a fund of foreign capital in Colombia which is subject to a specific tax regulation regime. Accordingly, the tax benefits applicable in Colombia to equity investments, in particular, those relating to dividends and profits from sale, are not applicable to ADRs, including the Bank’s ADRs. For more information see Item 10. Additional Information.-E. Taxation-Colombian Taxation.

Preemptive rights may not be available to holders of ADRs.

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 ADRs) 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 ADRs may not be able to exercise their preemptive rights through The Bank of New York, 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 stocks 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 ADRs 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 ADRs 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 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 ADRs, 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 ADRs, 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 ADRs will be proportionately diluted.

Performance of the exchange rate may affect the value of the dividends payable to holders of ADRs.

Pursuant to the Colombian Constitution and Law 31 of 1992, the Central Bank maintains the power to intervene on the exchange market in order to consolidate or dispose of international reserves, as well as to control any volatility in the exchange rate, acting through a variety of mechanisms, including discretionary ones.

The appreciation of the peso against the U.S. dollar was 4.42% in 2005, 1.99% in 2006 and 10.01% in 2007. Revaluation of the peso has a positive impact on the U.S. dollar value of dividends paid to holders of the Bank’s ADRs. Unforeseen events in the international markets, fluctuations in interest rates or changes in capital flows, could depress the value of the U.S. dollar thereby decreasing the value of the dividends paid to holders of the Bank’s ADRs.

Required Government approvals relating to ownership of the Bank’s preferred shares and ADRs may affect the market liquidity of the preferred shares and ADRs.

Pursuant to Colombian banking regulations, any transaction resulting in an individual or a corporation holding 10% or more of the capital stock of any Colombian financial institution, including, in the case of the Bank, transactions in ADRs representing 10% or more of the Bank’s outstanding stock, requires prior authorization from the Superintendency of Finance. Transactions entered into without the prior approval of the Superintendency of Finance are null and void, and cannot be recorded in the relevant institution’s stock ledger.

In addition to the above restrictions, pursuant to Colombian securities regulations, any transaction involving the sale of publicly-traded stock of any Colombian company, including any sale of preferred shares (but not a sale of ADRs) or common shares, for the equivalent of 66,000 UVRs or more, must be effected through the Colombian Stock Exchange.

The Bank’s preferred shares have limited voting rights.

The Bank’s corporate affairs are governed by its by-laws and Colombian law. Under Colombian law, the Bank’s preferred shareholders may have fewer rights than shareholders of a corporation incorporated in a U.S. jurisdiction. Holders of the Bank’s ADRs and preferred 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 ADRs) have no voting rights in respect of preferred shares, other than in limited circumstances as described in Item 10.B Memorandum and Articles of Association – Description of Share Rights, Preferences and Restrictions – Voting Rights – Preferred Shares.

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

Holders of the Bank’s ADRs may encounter difficulties in the exercise of some of their rights with respect to the shares underlying ADRs. 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 ADR holders and instead distribute the net proceeds to the ADR holders. Also, under some circumstances, ADR holders may not be able to vote by giving instructions to the depositary.

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 in the Bolsa de Valores de Colombia (the “Colombian Stock Exchange”) which is relatively small and illiquid compared to stock exchanges in major financial centers. In addition, very few issuers represent a disproportionately large percentage of market capitalization and trading volume on the Colombian 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 ADR 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 ADRs.

The Bank’s increasing focus on individuals and small and medium-sized businesses could lead to higher levels of non-performing loans and subsequent charge-offs.

As part of the Bank’s business strategy, it seeks to increase lending and other services to individuals and to small and medium-sized companies. Low to medium income individuals and small and medium-sized companies are, however, more likely to be adversely affected by downturns in the Colombian economy that are large corporations and high-income individuals. Consequently, in the future the Bank may experience higher levels of non-performing loans, which could result in higher provisions for loan losses. The levels of non-performing loans and subsequent charge-offs could be higher in the future.

As of December 31, 2006 and 2007, the Bank’s Retail and Small-and Medium-Sized Enterprises (SMEs) banking division represented 28% and 32%, respectively, of BC’s total loan portfolio.

As a result of an increase in interest rates for loans to individuals in the Colombian market during the second half of 2007, the number of past due loans of this type has increased generally in the Colombian financial system and in Bancolombia’s portfolio.

The percentage of loans graded other than “A” for this type of credit as of December 31, 2006 and 2007 was 7.24 and 8.14% respectively.

The increase of constitutional actions (acciones populares), class actions (acciones de grupo) and other legal actions involving claims for significant monetary awards against financial institutions may affect the Bank’s businesses.

Under the Colombian Constitution, individuals may initiate civil or class actions to protect their collective or class rights, respectively. The great majority of such actions are related to fees, financial services and interest rates, and their outcome is uncertain. In recent years, Colombian financial institutions, including the Bank, have experienced a substantial increase in the aggregate number of these actions. Although during 2007 the aggregate number of such actions brought against the Bank remained stable as compared to 2006, the number of such actions might not remain stable in the future. The number of these actions may continue to increase in the future and could significantly affect the Bank’s businesses.

The Bank and members of its senior management are defendants in several legal proceedings.

The Bank is a party to lawsuits arising in the ordinary course of business that can be expensive and lengthy. In addition, the Bank and its management, including the Bank’s current President and Vice-President, are currently involved in several legal proceedings relating to the acquisition of its predecessor entity. An unfavorable resolution to any of the lawsuits or investigations could negatively affect the Bank’s reputation and the price of its outstanding securities. See Item 8. Financial Information—Consolidated Statements and Other Financial Information—Consolidated Financial Statements—Legal Proceedings in this Annual Report.

Minimum profitability coverage requirements imposed by law could negatively affect the profitability of the pension fund business in El Salvador.

According to the Pension Saving System Law of El Salvador (“SAP”), assets under management by pension funds, like AFP Crecer S.A., must have a minimum return based on a pre-determined formula.

Additionally, according to articles 84 and 85 of the SAP, each pension fund must either have a reserve known as Aporte Especial de Garantía “Special Guarantee Contribution” equal to 0.25% of the assets under management or post a bond intended to guarantee the minimum profitability of the pension funds being managed as required by SAP.

If the pension fund’s return is lower than the minimum required profitability under SAP, and neither the Special Guarantee Contribution nor the bond are sufficient to cover the difference, the remaining amount must be covered by AFP Crecer S.A.

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, volcanic eruptions, tornadoes, tropical storms, wind and hurricanes in the regions where it operates, particularly El Salvador. In the event of a natural disaster, unanticipated problems with the Bank’s disaster recovery systems could have a material adverse impact 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 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 in the affected region and could result in substantial volatility in the Bank’s results of operations for any fiscal quarter or year.

The Bank’s insurance business in El Salvador may be materially adversely affected by the occurrence of catastrophic events.

Portions of the Bank’s insurance business in El Salvador may cover losses from unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, fires, industrial explosions, freezes, riots, floods and other man-made or natural disasters, including acts of terrorism. The incidence and severity of these types of catastrophes in any given period are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposures in the area affected by the event and the severity of the event. Claims resulting from natural or man-made catastrophic events could materially reduce the profitability of the Bank’s insurance business, and could cause substantial volatility in the Bank’s results operations for any fiscal year.

The Bank generally seeks to reduce its potential losses from these events through the purchase of reinsurance, selective underwriting practices and by monitoring risk accumulation. However, such efforts to reduce exposure may not be successful and claims relating to catastrophes may result in unusually high levels of losses and could have a material adverse effect on the financial position or results of operations of the Bank’s insurance business in El Salvador.

An insufficient level of reserves could materially and adversely affect the financial position of the Bank’s insurance business in El Salvador.

In accordance with industry practice and accounting and regulatory requirements, the Bank’s insurance business in El Salvador establishes reserves for losses related to its insurance business. Due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of liabilities for future policy benefits and claims, the Bank cannot determine precisely the amounts that it will ultimately pay to settle its liabilities. Technical, mathematical and loss reserves are calculated based on models designed using various factors including previous results under a controlled set of facts. Reserves are subject to change due to a number of variables that affect the ultimate cost of claims, such as changes in the legal environment, results of litigation, changes in medical costs, costs of repairs and other factors such as inflation and exchange rates. Established loss reserves estimates are periodically adjusted in the ordinary course of settlement, using the most current information available to management, and any adjustments resulting from changes in reserve estimates are reflected in current results of operations. However, because the establishment of reserves for losses and loss adjustment expenses is an inherently uncertain process, losses could materially exceed the established reserves and have a material adverse effect on the results of operations of the Bank’s insurance business in El Salvador.

Reinsurance may not be available, affordable or adequate to project the Bank’s insurance business in El Salvador against losses.

As part of its overall risk management strategy, the Bank’s insurance business in El Salvador purchases reinsurance for certain risks underwritten by it. The availability and cost of reinsurance protection is subject to market conditions and may vary significantly. The exposure of the Salvadorian property and casualty market and the low volume of policies sold tend to discourage the availability of reinsurance companies willing to share a proportional basis of the risks involved in the property and casualty insurance business. Accordingly, the Bank’s insurance business may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which could adversely affect its ability to write future business or result in the assumption of more risk with respect to those policies it issues. Furthermore, if the risk selection policy in the Bank’s insurance business proves inadequate, the lines of business that are characterized by a high claim frequency such as auto, cargo and theft insurance, could increase the Bank’s direct capital exposure. Any decrease in the amount of reinsurance available to the Bank’s insurance business lines will increase its risk of loss and any increase in the cost of reinsurance will, absent a decrease in the amount of reinsurance, reduce the earnings of the Bank’s insurance business in El Salvador.

If the counterparties to the Bank’s reinsurance arrangements default or fail to perform, the Bank’s insurance business in El Salvador may be exposed to risk of loss, which could materially and adversely affect its results of operations and financial condition.

In general, reinsurance does not relieve the direct liability of the Bank to its policyholders if the reinsurer cannot meet its obligations. Accordingly, the Bank bears credit risk with respect to its reinsurers, including the risk that reinsurers will fail to pay the reinsurance recoverables owed to it or that they will fail to pay these recoverables on a timely basis. In particular, in El Salvador, the solvency of reinsurance companies is critical due to the low number of policies sold compared to the high level of exposure. A reinsurer’s insolvency, inability or unwillingness to make payments under the terms of reinsurance agreements with the Bank could have a material adverse effect on the results of operations and financial condition of the Bank’s insurance business in El Salvador.

There is insufficient statistical data in El Salvador to accurately forecast the level of premiums required to adequately cover risks underwritten by the Bank’s insurance business in El Salvador.

Due to the nature of the insurance business, premium rates must be established from forecasts of the ultimate costs expected to arise from risks underwritten during the policy period and may not prove to be adequate. If premiums rates established are not sufficient, our underwriting profitability of the Bank’s insurance business may be adversely impacted. The earnings of the Bank’s insurance business significantly depend upon the extent to which its actual claims experience is consistent with the assumptions used in setting prices for its products and establishing liabilities for future policy benefits and claims. Due to a lack of historical claims experience in the Salvadorian insurance market, the Bank defines its premium rates based on historical claims experience and actuarial data derived from other jurisdictions. The lack of statistical and actuarial data specific to the Salvadorian market increases the risk that actual claims experience will differ from the assumptions used to set premiums, and accordingly the premium rates charged could be insufficient to cover the ultimate costs of risks underwritten by the Bank’s insurance business.

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

The Bank was incorporated in Colombia in 1945, under the name Banco Industrial Colombiano S.A. or “BIC”. In 1998, the Bank merged with Banco de Colombia S.A, and changed its legal name to Bancolombia S.A. On July 30, 2005, Conavi and Corfinsura merged with and into Bancolombia, with Bancolombia as the surviving entity. The merger was effective upon the filing of the public deed in the public commercial record of the Chamber of Commerce of Medellin, which took place on August 1, 2005.

Bancolombia was originally established for a fifty-year term, starting on December 9, 1944. In 1994, this term was extended for fifty more years, until December 8, 2044. The Bank is domiciled in Medellín, Colombia and operates under Colombian laws and regulations, mainly the Colombian Code of Commerce and Decree 663 of 1993, as a sociedad comercial por acciones, de la especie anónima.

Since 1995, Bancolombia has maintained a listing on the NYSE, where its ADSs are traded under the symbol “CIB”, and on the Colombian Stock Exchange, where its preferred shares are traded under the symbol “PFBCOLOM”. Since 1981 its common shares have been traded on Colombian Exchanges under the symbol “BCOLOMBIA”. Bancolombia is currently the only Colombian company listed in the NYSE. See Item 9. The Offer and Listing.

According to the Superintendency of Finance, Bancolombia is one of Colombia’s leading financial institutions, 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, the United States and Spain. Bancolombia has grown substantially over the years both through organic growth and acquisitions. As of December 31, 2007, Bancolombia had, on a consolidated basis:

•

Ps 52,152 billion in total assets;

•

Ps 36,245 billion in total net loans and financial leases;

•

Ps 34,374 billion in total deposits; and

•

Ps 5,199 billion in shareholders’ equity.

Bancolombia’s consolidated net income for the period ended December 31, 2007 was Ps 1,086,923 million, representing an average return on equity of 26.13% and an average return on assets of 2.52%.

The address and telephone number of the Bank’s principal place of business are as follows: Calle 50 No. 51-66, Medellín, Colombia; telephone + (574) 510-8866. Our agent for service of process in the United States is Puglisi & Associates, presently located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

RECENT DEVELOPMENTS

During 2007, Bancolombia issued subordinated and global ordinary notes. In May 2007, the Bank offered US$ 400 million in aggregate principal amount of U.S. dollar denominated subordinated notes due in 2017. The notes have a coupon of 6.875%, payable semi-annually on May 25 and November 25 of each year, beginning on November 25, 2007. In September 2007, the Bank issued an aggregate principal amount of Ps 400 billion ordinary notes in a public offering in Colombia. This issuance was the first of several successive issuances of global ordinary notes which are limited to a total aggregate principal amount of Ps 1.5 trillion.

On December 18, 2007, pursuant to an agreement with Bienes y Servicios S.A (BYSSA), Bancolombia Panamá acquired on the Panama Stock Exchange from BYSSA and one of its subsidiaries, 9.59% of Banagrícola’s shares, for an aggregate purchase price of US$ 87.7 million (US$ 48.45024 per share). At the date of this Annual Report, Bancolombia Panamá owns 98.900429% of Banagrícola. Under this transaction, BYSSA must also transfer 100% the shares of Banagrícola de El Salvador, Inc. (“BESI”) for US$ 6 million. BESI is a California corporation that is licensed to engage in the money transmittal business in California, Maryland, Nevada, New Jersey, Texas, Virginia and the District of Columbia. This transaction will be consummated upon receipt of all necessary regulatory approvals, some of which are still pending.

In July 2007, Bancolombia issued a total of 59,999,998 preferred shares, sold for an aggregate amount of approximately Ps 927,612 million (US$ 480 million). Of the total 60 million preferred shares that were offered in Colombia, 21,307,238 preferred shares were subscribed by shareholders or assignees, at a price of Ps 15,205 per share, for an aggregate amount of Ps 323.9 billion. The Bank offered the remaining shares in the United States, at US$ 33.25 per American Depositary Share, receiving net proceeds of approximately US$ 314.4 million.

On December 21, 2007, American Express Limited (“American Express”) and Bancolombia renewed an agreement that allows Bancolombia to be the only bank in Colombia to hold a license to operate as issuer and acquirer of American Express credit cards in the country, for a term of ten (10) years, commencing on January 1, 2008.

During 2007, the Bank initiated a technology program in order to transform and upgrade the applications and the infrastructure that supports its banking business. The five phases of the program are expected to be fully implemented within a period of 3 to 4 years.

On January 14, 2008, the Bank increased the size of the ADR program by 400,000,000 American Depositary Shares and amended the Deposit Agreement between Bancolombia. The Bank of New York and the owners and beneficial owners of the ADS.

On February 4, 2008, the Board of Directors of Bancolombia created a new position for managing the Bank’s treasury products and the investment portfolio, named Vice President of Treasury.

On June 6, 2008, Bancolombia announced the execution of an agreement whereby it sold 100% of its direct and indirect interest in Multienlace S.A to Stratton Spain S.L., equating to approximately 98% of Multienlace S.A. The purchase price was Ps 105,882.6 million and the sale remains subject to customary closing conditions.

PUBLIC TAKEOVER OFFERS

During 2007, and as of the date of this Annual Report, there have been no public takeover offers by third parties in respect to the Bank’s shares.

On April 9, 2007, after obtaining all the required authorizations, Bancolombia Panamá initiated a simultaneous public tender offer in El Salvador and Panama, for the acquisition of not less than 53.089144% and up to of 100% of the common shares of Banagrícola. The purchase price was US$ 47.044792 per share amounting to a total of US$ 791,182,046.41. Banagrícola has several subsidiaries, including Banco Agrícola S.A. in El Salvador and Banco Agrícola Panamá S.A. in Panama, dedicated to banking, commercial and consumer activities, insurance, pension funds and brokerage. On May 16, 2007, the settlement date, Banagrícola was controlled by Bancolombia through its subsidiary Bancolombia Panamá. As of December 31, 2007, Bancolombia, through its wholly owned subsidiary Bancolombia Panama owned 98.900429% of the outstanding equity securities of Banagrícola.

CAPITAL EXPENDITURES AND DIVESTITURES

During the past three years, BC has made significant capital expenditures aimed at increasing the Bank’s productivity, accessibility and cost efficiency. These expenditures include the improvements made to the Bank’s internet and technology systems and those related to new ATMs and branches.

During 2005, total capital expenditures of the Bank, on an unconsolidated basis, amounted to approximately Ps 51.15 billion. The investments were made mainly in hardware (Ps 34.74 billion), software (Ps 671 million), and furniture and equipment (Ps 12.3 billion).

During 2006, total capital expenditures of the Bank, on an unconsolidated basis, amounted to approximately Ps 104.57 billion. Such investments were made mainly in hardware (Ps 55.40 billion), software (Ps 1.05 billion), and furniture and equipment (Ps 18.31 billion).

During 2007, total capital expenditures of the Bank, on an unconsolidated basis, amounted to approximately Ps 192.9 billion. Such investments were made mainly in buildings under construction (Ps 111.5 billion), purchase of lands and buildings (Ps 21.3 billion), technology and data processing equipment (Ps 37.5 billion) and furniture and equipment (Ps 21.5 billion).

In 2007, the Bank initiated the renovation of its IT Platform which is expected to be completed over a four year period. The Bank is expecting to invest US$ 107.6 million (including fees), equivalent to Ps 187.7 billion , in the renovation of its IT platform, of which Ps 11.6 billion were already invested during 2007.

In addition, in 2007 the Bank started to build its new administrative headquarters in Medellin. With the new headquarters, the Bank will centralize its Medellin operations in a single location. Currently, these operations are dispersed in more than 16 different buildings, some of which are in the process of being sold or rented. The Bank expects to invest Ps 363.9 billion of which Ps 105.4 billion were already paid in 2007 and are part of the Ps 111.5 billion of the current constructions invested on 2007. It is estimated that the construction of the Bank’s main headquarters will be finished in the fourth quarter of 2008.

In 2007, Bancolombia funded its capital expenditures with its own resources and plans to continue to fund those currently in progress in the same way. No assurance can be given, however, that all of such capital expenditures will be made and, if made, that such expenditures will be in the amounts currently expected.

The following table summarizes the Bank’s consolidated capital expenditures and divestitures of interest in other companies for the years 2005, 2006 and 2007, as of December 31:

Capital Expenditures (Ps million)		2005				2006				2007				Total
Banagrícola S.A.			—				—				1,776,310				1,776,310
Inversiones Financieras Banco Agrícola, S.A.			—				—				608,365				608,365
Banco Agrícola S.A.			—				—				94,384				94,384
Compañía de Financiamiento Comercial Sufinanciamiento S.A.			—				8				79,981				79,989
Renting Colombia S.A.			15,831				—				67,043				82,874
Asesuisa Vida, S.A.			—				—				11,947				11,947
Suleasing Internacional			5,711				8,685				6,446				20,842
Sutecnología S.A.			113				1,192				3,067				4,372
Suramericana de Inversiones S.A.			58,525				—				1,311				59,836
Leasing Bancolombia S.A.			74,609				30,999				1,157				106,765
Fiduciaria Bancolombia S.A.			5,317				—				31				5,348
Factoring Bancolombia S.A.			—				44,238				10				44,248
Bancolombia Puerto Rico Internacional, Inc.			23,613				—				—				23,613
Multienlace S.A.			6,318				—				—				6,318
Protección S.A.			12,464				—				—				12,464
Redeban Multicolor S.A.			2,198				—				—				2,198
3001 S.A.			19,382				14,551				—				33,933
Valores Bancolombia S.A.			33,135				—				—				33,135
Titularizadora Colombiana S.A.			11,161				—				—				11,161
Inversiones CFNS Ltda.			7,700				—				—				7,700
Patrimonio Autonomo Autoamérica (Securitization)			3,460				—				—				3,460
Others			1,819				7,469				3,860				13,147
Total Expenditures			281,356				107,142				2,653,912				3,042,409

Divestitures (Ps million)		2005				2006				2007				Total
Almacenar S.A. (2)			—				—				14,262				14,262
IVL S.A. (2)			—				—				9,542				9,542
Sociedad Portuaria Regional de Buenaventura S.A. (2)			—				—				4,917				4,917
Terminal Marítimo Muelles El Bosque S.A. (2)			—				—				3,320				3,320
Bolsa de Valores de Colombia S.A. (2)			—				—				2,261				2,261
Abocol S.A. (2)			27,863				—				—				27,863
Carreteras Nacionales del Meta S.A. (2)			106				5,509				—				5,615
Fideicomiso Devinorte S.A. (2)			—				5,277				—				5,277
Venrepa C.A.(1)			—				2,535				—				2,535
3001 S.A. (3)			—				34,873				—				34,873
Suramericana de Inversiones S.A. (2)			—				67,004				—				67,004
Lab Investment & Logistics S.A. (2)			—				17,704				—				17,704
Others (1) (2)			2,103				314				2,093				4,510
Total Divestitures			30,072				133,216				36,395				199,683

B. BUSINESS OVERVIEW

B.1. GENERAL

Bancolombia is a full service financial institution that offers a wide range of banking products and services to customers in three main units: large corporate customers, small and medium-sized enterprises (“SME”) and construction customers. The Bank’s products and services include deposits, personal and corporate loans, mortgage loans, credit and debit cards, electronic banking, cash management, investment banking, trust funds and custodial services, dollar-denominated products, foreign and trade brokerage services, among others. In addition, BC’s customers have access to a large network of branches and ATMs in Colombia, as well as in other countries where the Bank operates. According to financial sector information published by the Superintendency of Finance, as of December 31, 2007, BC on an unconsolidated basis had the largest service network of any private financial institution in Colombia, with 719 branch offices and 1,660 ATMs operating in 401 cities and towns. See “Item 5. Operating and Financial Review and Prospects” for a detailed discussion on the results of the Bank’s operations.

The following table sets forth the Bank’s (unconsolidated) market share of the Colombian banking market according to information compiled by the Superintendency of Finance for the years 2005, 2006 and 2007:

Bancolombia’s
(unconsolidated) market share		As of December 2005(1)				As of December 2006				As of December 2007
Total net loans			20.8	%			20.9	%			21.5	%
Total checking accounts			19.5	%			20.9	%			21.6	%
Total savings accounts			18.5	%			18.4	%			19.4	%
Total time deposits			18.0	%			15.5	%			14.1	%

Source: Superintendency of Finance. Average for the twelve-month period of each year.

B.2. OPERATIONS

For this Annual Report, the Bank performed a review of its business segments and has changed the presentation of segment information. The major changes correspond to the aggregation of construction banking, corporate headquarters, brokerage and manufacturing segments into a category called “All other Segments”. The information to 2006 and 2005 has been restated to reflect these changes.

The following tables set forth BC’s revenues operating segment for each of the last three fiscal years:

Year Ended December 31, 2005 (restated)

		(Ps million)
														Governmental
										Small				and								Offshore
		Retail				Commercial				Business				Institutional								Commercial								All other
		Banking				Banking				Banking				Banking				Treasury				Banking				Leasing				Segments				Total
Revenues from external customers		Ps	474,916			Ps	32,652			Ps	50,724			Ps	15,092			Ps	—			Ps	12,618			Ps	308,027			Ps	233,075			Ps	1,127,104
Revenues and expenses from transactions with other operating segments of the Bank			76,998				145,022				161,358				27,850				—				10,604				6,654				(391,454	)			37,032
Interest income			1,059,092				379,434				375,839				82,570				828,418				178,409				67,845				131,903				3,103,510
Provision for loans losses		Ps	77,229			Ps	3,497			Ps	13,338			Ps	1,913			Ps	27,560			Ps	28,538			Ps	19,459			Ps	20,588			Ps	192,122

Year Ended December 31, 2006 (restated)

		(Ps million)
														Governmental
										Small				and								Offshore
		Retail				Commercial				Business				Institutional								Commercial								All other
		Banking				Banking				Banking				Banking				Treasury				Banking				Leasing				Segments				Total
Revenues from external customers		Ps	428,531			Ps	134,992			Ps	117,282			Ps	36,377			Ps	—			Ps	130			Ps	38,515			Ps	222,699			Ps	978,526
Revenues and expenses from transactions with other operating segments of the Bank			69,727				297,645				92,006				54,498				—				12,493				12,691				(379,957	)			159,103
Interest income			820,398				756,876				387,043				172,830				400,053				495,222				437,977				147,004				3,617,403
Provision for loans losses		Ps	86,327			Ps	(7,179	)		Ps	37,829			Ps	(37,106	)		Ps	(30,134	)		Ps	13,316			Ps	51,741			Ps	87,978			Ps	202,772

Year Ended December 31, 2007

		(Ps million)
										Small				Governmental								Offshore
		Retail				Commercial				Business				and Institutional								Commercial								All other
		Banking				Banking				Banking				Banking				Treasury				Banking				Leasing				Segments				Total
Revenues from external customers		Ps	628,460			Ps	135,214			Ps	173,465			Ps	44,277			Ps	(2,302	)		Ps	11,858			Ps	84,086			Ps	261,691			Ps	1,336,749
Revenues and expenses from transactions with other operating segments of the Bank			(10,844	)			25,309				—				—				10,655				148,783				1,345				317,738				492,986
Interest income			1,412,878				1,200,566				606,788				235,607				578,651				299,067				624,606				303,279				5,261,442
Provision for loans losses		Ps	267,022			Ps	164,440			Ps	154,554			Ps	23,326			Ps	(14,634	)		Ps	19,271			Ps	108,538			Ps	26,111			Ps	748,628

The following table sets forth BC’s geographic revenues and long-term assets distribution as of December 31, 2005, 2006 and 2007:

		As of December 31,
		2005								2006								2007
		(Ps million)
						Long								Long								Long
						Term -								Term -								Term -
		Revenues				Assets(3)				Revenues				Asset(3)				Revenues				Assets(3)
Geographic Information
Colombia		Ps	3,990,600			Ps	734,419			Ps	3,801,365			Ps	878,917			Ps	5,507,174			Ps	1,202,108
Panama and Cayman Islands			202,018				29,810				512,629				12,285				515,749				10,242
Puerto Rico			42,897				131				37,171				141				51,765				164
Perú (2)			—				—				—				—				357				6,706
El Salvador																			774,026				143,658
USA (1)			11,965				326				31,630				928				48,010				115
Total			4,247,480				764,686				4,382,795				892,271				6,897,081				1,362,993
Eliminations of intersegment operations			(37,032	)			7,144				(159,103	)			(13	)			(492,986	)			11
Total, net		Ps	4,210,448			Ps	771,830			Ps	4,223,692			Ps	892,258			Ps	6,404,095			Ps	1,363,004