Fitch Downgrades Bancolombia's Individual & Local Currency IDRs.

NEW YORK -- Fitch Ratings has downgraded and removed from Rating Watch Negative Bancolombia's long-term and short-term local currency Issuer Default Ratings (IDRs) and Individual rating as follows:

--Individual rating to 'C/D' from 'C';

--Local currency long-term IDR to 'BB+' from 'BBB-';

--Local currency short-term rating to 'B' from 'F3';

In addition, Fitch affirms the following ratings:

--Foreign currency long-term IDR at 'BB+';

--Foreign currency short-term rating at 'B';

--Support rating at '3'.

The Rating Outlook is Stable.

The rating downgrade reflects the strain on Bancolombia's financial strength from the acquisition of Banco Agricola (El Salvador) and the financing of this acquisition. Banco Agricola's takeover will be partially financed by US$300 million subordinated debt and will create about US$370 million of goodwill in Bancolombia's consolidated books. Local regulatory definitions allow the plain subordinated debt to count as Tier II capital and do not require the deduction of the substantial goodwill from regulatory capital, as is common under most regulatory regimes. Fitch's globally consistent definition of capital deducts goodwill from stated equity and views the subordinated debt being issued by Bancolombia as part of its financing package as containing no equity content, as it does not allow deferral of interest (see Fitch's publication 'Equity credit for hybrids and other securities' available at www.fitchratings.com). Under this view, the acquisition will put significant strain on the bank's capitalization, and Bancolombia will need to sustain strong performance over the medium term to return to pre-acquisition levels of capitalization, which had been achieved by a largely unencumbered Tier I capital base and were already lower than those of many regional peers in the 'C' individual rating category.

Bancolombia is Colombia's largest bank with around 20% of the system's loans and deposits at March 2007. It has assets of about US$14.8 billion and equity of about US$1.5 billion. It is the result of several mergers including the one between Bancolombia, Corfinsura and Conavi in 2005. Bancolombia will complete the acquisition of Banco Agricola in May 2007. The bank is controlled by a conglomerate of companies informally known as Grupo Empresarial Antioqueno and is widely active in corporate, SME and retail markets.

Banco Agricola is El Salvador's largest bank with a market share of about 28% of the local market. It has assets of roughly US$3.7 billion and equity of US$478 million. It has adequate asset quality, and operates just above the local regulatory minimum for capital; it is currently rated 'BB+' by Fitch.

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