Q2 2021 Bancolombia SA Earnings Call
Hum.
Hum.
Mhm.
Yeah.
Good morning, ladies and gentlemen, and welcome to Bancolombia second quarter 2021 earnings Conference call. My name is Ariel and I'll be your operator for today's call. At this time all participants are in a listen only mode. Following the prepared remarks, there will be a question and answer session. During the question and answer session. If you.
Have a question. Please press Star then one on your Touchtone phone. Please note that this conference is being recorded. Please note that this conference call will include forward looking statements, including statements related to our future performance capital position credit related expenses and credit losses, all forward looking statements whether made.
In this conference call and future filings and press releases or verbally address matters that involve risk and uncertainty.
Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions changes in currency exchange rates and interest rates introduction of competing products by other companies lack of acceptance of new products or services by our targeted clients changes in business.
MS strategy and various other factors that we describe in our reports filed with the SEC.
With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Modi, Pseudocoel, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief risk Officer.
Mr. Carlos <unk> Investor Relations Director and Mr. Juan Pablo Espinosa, Chief Economist I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Juan Carlos you may begin.
Good morning.
Home to our conference call for the second quarter.
Slide 21.
Hope all of you on your part maybe.
Safe and healthy.
Despite a challenging context during the quarter due to <unk>.
National strikes.
Third wave of <unk> in Colombia.
<unk> continued to perform well.
The Colombian economic activity has benefited from both externally and internally.
<unk>.
Do you expect the grouping of the global economy has consolidated ancillary external.
Demand on supporting the increase in commodity prices.
Locally both monetary and fiscal policies.
In expansion territory.
Do you continue.
Adopted to operate in these of useful context of the pandemic.
Finally.
In recent weeks the progress goodbye accumulation run costs materially.
Before that.
Details of the results I want to highlight some key topics.
The loan book grew more than 30% compared with the previous quarter.
Deposits grew almost 3% during the quarter.
We continue lowering Dupont being cost.
Correct with your tier one of their full Basel III was 11, 5% on the net income was one point.
To premium.
Provision charges for the quarter was 626 billion that's down.
1% when compared with the first quarter of 'twenty 'twenty one.
Mainly driven by better economic forecast.
On the fine tuning of our risk model as we gather more and better information on the situation of our clients with reliefs.
Our client base continues to grow in.
In the last five years.
<unk> grown over 10% per year.
During the first semester of this year, we added more than two 5 million new clients.
After seven months of <unk>.
Successful operations, our Havent seen on mobility marketplaces are already position as one of the most relevant in the country with more than $2.5 million visits.
18 loans totaled 46 billion pesos.
At this point I want to turn the presentation to Juan Pablo Espinosa, who will further elaborate on the performance of the Colombian economy.
Juan Pablo.
Thank you Juan Carlos now I will ask you to go to slide number three in the presentation.
After starting this year at a solid pace during the second quarter of 'twenty 'twenty, one economic activity in Colombia continues to perform well despite the disruptions caused by the national strike that took place in may.
We expect that this positive trend will consolidate during the second half of the year. Therefore, we forecast that GDP growth of 8% in 2021.
This is due to both external and local factors.
I will tell wiens include higher terms of trade and a stronger demand for Columbia and experts internally monetary and fiscal policy Irene Expansionary territory and will remain there for a while.
But more importantly, economic cadence have adapted to operate amid the usual circumstances of the pandemic. Moreover in recent weeks the progress of the vaccination Glenn has accelerated which reduces the likelihood of the strict lockdowns in the coming months.
The growth that we're experiencing is being supported by a rebound in consumption, which will close this year above pre covid levels. We also anticipate that double did that bans in capital formation.
Meanwhile, we foresee that the largest sectorial contributors to growth in 2021 will be a retail construction and manufacturing.
These sharp recovery, we anticipate that from 'twenty to 'twenty two onwards, our economy will advance at a moderate pace of around 3% per year.
This will reflect this stabilization of global growth and commodity prices as well as a gradual reduction of economic stimulus and the effects of the pandemic on potential growth.
Regarding narva unemployment, we predict a yearly average of 16, 4% in 2021 and 14, 2% in 2022 as the pace of job creation lacks the expected increase in labor participation.
Leading the unemployment to remain higher than pre covid levels.
Meanwhile, we predict that inflation will close 2021 up three 6% and then will moderate to three 3% by December 2022.
Furthermore, we expect that the central Bank will start as move hiking cycle next September.
<unk> retail until in two rate hikes of 25 basis points in the second half of the year in terms of the FX rate, we expect that from its current knows the Colombian peso, we'll gain some ground and will go back to the range between 36.
<unk> hundred 3700 by the end of the year.
Finally, we expect that their revised fiscal reform that the government submitted to Congress last month will be approved during the semester, even though these reform you send massive salaries back into physical conciliation process. After the pandemic in order to reduce public debt with.
Think that fourth or increases in tax collection will be required in the coming years.
Now, let me turn the presentation back to one categories.
Thank you Juan Pablo.
Moving to slide four I want to continue this presentation by explaining our business strategy.
Our business continue moving forward, we're supporting our clients in the different segments, where we operate.
Under a lower mobility solution. During this first semester of the year, we have already disbursed 2.7 trillion pesos.
Most of the same amount of these boats during the full year 'twenty 'twenty when you triple it.
Two nine trillion.
Oreo State solution is also performing much better than last year, reaching four two trillion pesos disposed during the first six months of the year versus 6.3.
Trillium during 'twenty.
Although it has been a challenging year flow assurance due to the slow growth of the loan book on the increase in the claims ratio I want to highlight a new channel with insurance saves our ATM network we.
We have no more than 1000, Atms enable to sell issues, reaching almost 250.
Some clients.
In investment solutions, we have a balance in our digital offer.
Our Ito I think both of them has increased 385 per cent the trading volume seems 2019.
We have 49% of market share in online trading in Colombia.
We have implemented in this book it virtual investment advice will invest a beautiful much funds too.
The goal of reaching 35000 clients on.
One trillion pesos on their management for 'twenty 'twenty three.
Moving to slide five.
To elaborate the evolution of our payment services.
One of the bank's strengths is the level of who says French sections.
As you can observe on the slide.
Credit and debit card transaction volume is almost reaching pre covid levels why are you getting at least half already exceed pre covid videos.
Despite our standard credit costs have decreased in line with the market and do crazy great to you all soon.
Stunted debit cards have increased in recent quarters with very positive results in purchase volume.
Adoptions.
Thanks.
Others did a release of debit card use for E commerce.
I want to highlight that Bancolombia continues to have a higher market share in credit card volume of transactions done outstanding Cogs.
Which translate into higher generation of fees and reflects the quality of our clients.
Moving to slide six I'm going to elaborate in our digital platforms.
The total volume of transactions with Bancolombia S QR codes.
1.5 premium passes through.
Through more than 840000 businesses distributed throughout the country Harbin hundred percent covered much of Colombian municipalities.
During the quarter Mickey.
In Colombia in our model continues to grow and maintain a strong positive trend.
In both.
So you've reached 12.5 million planets up 33% when compared with 2020 closing figures.
EBIT levels continue growing on the churn rate is low.
It's down 4% for both GAAP Forbes.
Posix, including the two telephones rich 1.2 trillion.
Yes.
Moving to slide seven you can see some reservoir on figures of Mickey and Bancolombia a la Mano.
These two platforms complement each other by targeting diverse niche markets, making targets.
People are bancolombia, a la mano.
<unk> income indeed.
Both platforms are showing very positive trends.
Volume of stone selections continue growing at a steady pace on fee income continues to grow quarter by quarter.
Nicky cards are growing fast.
More than double the number reported 12 months ago on.
First opportunity lows as both Biola Monro grew six 6% when compared with the first quarter.
I want to highlight the high level of NPS.
82% for Nike and 69 for Alabama.
Low customer acquisition cost for both platforms around <unk> dollar spend.
Slide eight we present, our ESG framework.
We have these boards.
About 12 trillion pesos in sustainable agriculture on gender lines.
On the liability side, we have issue.
The bonds from Colombia, Panama operations, and we have negotiated a special credit lines with sustainable use of funds for Guatemala.
Sure.
The asset management front, we plan to close the year with almost two trillion pesos on the ESG criteria.
We'll continue growing onto reaching 9% of assets for 'twenty 'twenty four.
Finally, I want to highlight.
This year, we'll have these books more than one trillion peso seem sustainable loans link with climate change gender cyber security on water consumption.
No I want to talk in the presentation.
So of course the policy.
Thank you Juan Carlos.
Now turning to slide nine I want to walk you through the evolution of the relief program.
Craig beliefs continue decreasing.
<unk>, 7% of the consolidated loan book.
It's important to know that they need that these patients.
Oh, it's jumping up solutions, except for the beliefs, we still passing pennies.
In Colombia, four 4% of their loans on their path program, that's actually extended by the revenue though until August.
Considering the geographies, where the bank operates our focuses Panama.
That's our belief is decreasing wasn't he.
We've got one more search extended until September.
Implies that this uncertainty regarding the loan book is going to continue.
But even though we kept 26% of the total loan book under we need coming down from 35% in the previous quarter.
By these high percentage of the needs, but he's not concerned I think credit card launch, which is evidenced in the 50% increase in allowances. This in June of 2020 on June of 'twenty, if anyone reaching a level of 228%.
And at 19% the breakdown operations during the quarter.
But at least in charges in the second quarter was 626 billion pesos as we did in previous quarters, we want to split the breakdown.
This quarter has the lowest provision charges since the pandemic began.
<unk> the <unk>, we observed in the first quarter of the year.
The main drivers behind these results are.
A better forecast of micro vials second.
Tourism in the models and methodologies under Leach rebuilt lesions third.
This portfolio of accreditation in Colombia.
Moving to slide 11, which gives you on snapshot operations and asset quality.
Cost of funds for the quarter was one 2% on for the last 12 months was two 8%.
Allowances for loan losses, with the same 8% of total loans.
90 day past due loan ratio squeezed during the quarter when compared with the previous one.
Charge offs during the quarter are explained mainly by weaker claims.
Cause easily beats continue facing down we expect these markets to reach the hazard maintenance during the second half of this year.
The coverage ratio increased to 210, 7% at schuh started decreasing as present beliefs and.
On slide 12, we present, the consolidated on the Standalone capital adequacy.
Consolidated total solvency ratio stands at a level of 15%.
CET, one and a level of 11, 5% under pullback between call it the second quarter.
These ratios are well above the minimum regulatory requirements not only email consolidated basis, but also.
Alone operations.
When you consider that the labor that took it down.
Optimal ligands within the current balance sheet risk and asset growth expectations.
On slide 13, let's assume the liquidity position of the bank.
In a consolidated basis, we continue operated.
We've seen levels of liquidity.
So we've used the balance of time deposits and Treasury report.
Pumping banks and these have been compensated with that increasing savings and checking accounts.
This has allowed us to keep reducing the funding cost.
Of the loan book is growing at a better pace, we expect that the balance in time deposits rise.
On slide 15, we sustained a snapshot.
<unk> Standalone operations.
In general terms, they came through our <unk> yogurt and separated by Bancolombia, what's the length of stay.
Stable margins moderated growth of the loan book.
City population with efficiency and SME position in terms of capital and liquidity.
Over the last few years between the meaning of the Standalone operations as possible.
The Central American operations with this 179% of the total assets, but 30, 33% of the cost of net income.
Now I want to give you a quick overview of each of the central American countries, where we accrued.
Let me start with banquet revenue in Guatemala.
This quarter the first.
Okay disbursement in the recent program was positive.
Reflecting the strong economic recovery of the country.
Together with the reduction of the funding costs have.
Monthly monitoring.
Both the competitive landscape.
The forecast of the macro variables has improved.
Combined with the fact that the MLR was one of the least impacted conflict in the region during the pandemic.
A positive impact introducing attractive profit.
Banco Agricola and Caterpillar has managed to capitalize on our leading position in the system.
Recovery loan growth moderating excess liquidity and that revenue so increasing NII.
And how close to increase the transaction volume.
It didn't increase the fee income exceeding the level seen in St. Pete.
I want to refer to the center of their involvement in announcements regarding the loud that enables bitcoin as a lead that continuity.
The first point, we want to clarify is that the accounting treatment will be kept in donuts and the government will create a trust to guarantee onto microphone newsstand conductivity when bitcoin.
Yes.
For the corporate offices, yet counting all the needs. The funding 70 patients to comply with the provisions of the law, which is nice safety payments from our guidance.
Obligations to become which we did.
Will immediately convert to dollars. So we don't have any exposure to bitcoin.
It is important to mention that the opening of paying accounts or deposits in bitcoin has noted in neighborhoods.
In addition, we are waiting for the details of implementation of the loan issued by the regulators.
Finally, Bonnie.
We did have high levels of uncertainty due to the extension of the relief program comes in September on the high percentage of the loan book that is still under the lease.
The training the growth of the loan portfolio in the retail segment has been very positive so far in 2021 exceeding the performance of the financial system gaining market share.
Even though the corporate segment is decreasing in absence of infrastructure projects in Panama.
He was most Paul is less than the one I think spears.
Also gaining market share in the second.
On slide 15, we see the evolution of commodities and net interest income.
Net interest margin remains stable in the 5% area.
Okay.
We are expecting to be high.
Hypes of 25 basis points and sinister, but this will be reflected in margins.
<unk> in 2022.
Net interest income shows a better performance as we continue reducing funding cost.
I want to find out that one of the positive bumps during the quarter on the NII was the good performance of the interest earning assets.
With a lower dose to make them more efficient use of liquidity.
The net investment income.
Good performance of the June year to date results of the sales and trading team.
Slide 16 shows the evolution of expenses and efficiency.
We continue our focus in cost control.
Operating expenses of the first semester shows a positive performance when compared with the French sinister over the past year growing 2%.
The other hand, the expenses of the second quarter up until the one increase when compared with the same quarter of last year, mainly due to the provisions.
The employees' compensation plan.
Which as you may recall westbound sale during the second quarter of last year.
We expect expenses to grow other inflation. This year as we continue expanding digital transformation to keep the bank competitive and to support our more than 20 million clients and of course, our employees compensation plan as we expect better results for E. G.
With 917 shows the evolution of foods.
<unk> continues to be one of the most we see lines of the P&L overcoming challenging events as we mentioned in our strategy and the peak of inflation of the pandemic.
The high correlation between the equal related transaction levels continues which is protecting the volume of fees from debit and credit card transactions.
Finally, slide number 18 shows the predictability metrics.
Net income for the quarter was one two trillion pesos up 113% when compared with the first quarter of 2021.
This is mainly explained by lower financial charges, a stable net interest income he wrote uncontrolled operation.
Basis.
Does he sold saw the fusin instead of the deal were better than expected, reflecting that date is trying to use by the bank to phase the Penguin and the way he supported screens is paying off.
Now I want to turn the presentation to Juan Carlos for the closing remarks.
Despite.
Very challenging situation there.
Of.
In the past it's positive for breath.
The bank, we saw growth better than we expected at the beginning of the year.
The reality exceeded the forecast.
The environment of uncertainty persist due to the end of two leased in Colombia and Panama.
The evolution of the pandemic and the political situation.
I want to close the call.
Within Europe and update of our guidance for the year end figures.
As you know the via wall by setting the volatility on consults with probably some tax.
After what we observed in the first quarter of the year.
We have updated our cost of risk guidance, and we expect that to close.
In the two 3% area.
We are expecting the loan book to grow between seven and 9%.
Around 7%.
Net interest margins should maintain in the 5% area and finally, they are already aligned with the cost of risk should end the year with.
Between eight and 10%.
After elaborating on these two topics we want to open the line for questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press <unk>.
The pound sign or the hash key.
You are using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone.
Andrea Soto is online with a question. Please go ahead.
Andreas Your line is live.
Thank you good morning, everybody. Thanks for the presentation and congratulations on the results.
My question is regarding expenses.
Look at your numbers and I compare.
The expense.
In the second quarter of this year with a euro pre pandemic levels at ICR, a 5% increase in this two year period.
And when I look at the drivers for these I see that.
Even though you're a branch network.
Has been reduced by 7% I guess, you'll see that your head count has remained virtually unchanged over these periods, even as you have a significantly increase your digital penetration.
Can you please share with us what are your targets in terms of efficiency you look at it into a more of a medium term perspective, and if that efficiency kind of become a driver for our improved profitability over the medium term.
Thank you Andre for your question.
As you mentioned that the right way to analyze expenses is taking a longer period, because because 2010.
You see here, we've got a lot of.
Of issues around <unk>.
Thanks, Dave.
Parking or for bonuses and so.
As you annualize that to you.
It's a good way to see it you are right. We are we have with us.
The number of branches and we will continue optimizing.
The branch network.
As we look forward.
Because we think that.
That's important in terms of efficiency.
What we are doing is that we are investing heavily on on digital and also we are acquiring the clients have as we mentioned.
In a very fast pace so.
We keep investing.
On digital on providing new services and on servicing those those are clients.
Clients that are coming that in daily life.
Yeah.
More than $3 million.
Dan.
In terms of guidance this year, we are expecting.
Due to comparison level with this year to grow above inflation.
On a GAAP.
That change is going to be.
I feel relevant.
Yes, we.
Having a target to have.
To be on that on the 50% range of efficiency that goodwill.
Could it all happen probably in the income.
In 2012 Q1 Q2.
Adjustments that we will have during this year, but our real.
Focusing on being below target.
Targets are.
46% in the three years ahead I don't know if you want to complement me with something.
Thank you Carlos.
Yes in terms of maybe some specific items that we grow each year and a very important way, which is the compensation plan.
Remember that last year, we didn't move that number because of the results and this year because of the performance of the bank you're going to see an increasing in this compensation plan. This is one of the most relevant.
That's D P H the level of expenses inflation more than inflation as Juan Carlos mentioned.
Yeah.
Thank you Juan Carlos.
Thank you. Thank you.
Okay.
Our next question comes from Mr. Kevin Alonso of Bank of America. Please go ahead.
Hi, good morning, Carlos and mentor and good morning to all of your team and thanks for the opportunity.
My first question is on your new car deliveries guidance you were saying.
Two three.
Hi, rich.
Would that be for the full year.
He's got his right should we expect the cost of risk to be around two 6% on average during the second half of the year.
And then my second question is on your effective tax rate.
Thank you were expecting.
27% is that sort of full year or for the second half of the year.
And my last question is on how should we think about the year.
Our newest evolution in the second half of the year. So.
We should expect better revenue generation, but I don't know maybe higher provision charges.
Tax rate.
I'm just wondering how are you seeing.
In the second half do you think it could be lower.
Lower when compared to the first half.
And you will not have the benefit of the lower provisions in the second quarter.
Thank you.
Thank you everyone for your questions.
Regarding the cost of risk as I mentioned.
During the introduction to this call.
The main driver of our results.
We update updated our guidance to two two.
For the full year.
Cost of risk around two 3% that could have.
Upside and downside risks.
The upside risk comps as we mentioned from.
While the band of the reliefs in Panama and Colombia.
Particularly revenue in Panama, we will knowhow.
The loan book income to perform after the end of the moratorium. There. So there are uncertainty there in Colombia still we have some relief and we are expecting.
<unk> half.
Yeah.
So, let's see how the second semester is going to perform.
Oh yeah.
D.
What could.
Hopping to dose both that figure the $2 three a cost of risk for the full year to be to be better.
Bob.
Our loan book on the reliefs performed better.
But I'm also the macro the macro environment in the in the retail and countries. So we still have a level of uncertainty.
Yeah.
You mentioned that we need to have a.
With regard to level.
Level of course, the cost upgrades that's right so.
Third our uncertainty further upside upside based on that certain advertisers I want to remind you that the long term cost of leased.
For Bancolombia its around one 9%. So we are going towards our long term cost to it.
And particularly we are we are optimistic about.
The loan book is going to perform.
We expect or better.
So that's regarding your first question.
Great.
Tax rate that.
That's the question.
As you know there is a tax reform.
Going through Congress at this moment in Colombia.
<unk>.
We have presented we are in the statutory tax rate for Cologuard, 45% on <unk>.
Our next great for financial institutions of 3%, but that's the total.
38% statutory rate for financial institutions that will take effect.
For the <unk> 'twenty 'twenty two.
Results. So that's one of the taxes that we would pay.
Although the tentacle results, but there are some effects on 'twenty.
One and it depends on how the reform primarily.
And in Congress.
But that.
But again, 7% could increase.
This year.
So because of deferred taxes.
Pending on on what is the final static everywhere right. So about a little uncertainty regarding.
Effective tax rate for Bancolombia during 2000, 10-Q, one that could increase.
We expect.
Two.
And at the center.
I would be at all on how the tax reform.
And really win.
In Congress for the next year.
And it depends on the final statutory great for financial institution, but.
It will increase also broadly to be around 30% to 31% in future in future.
Yes.
And your third question regarding.
Irwin.
We can see.
It helps the economic dynamic in all countries, particularly Colombia.
It is performing well we are seeing.
And demand for credit for cooperates consumer loans also our own demand.
And on the lower nonperforming loans are performing as we mentioned already in line or better.
And then our predictions so we are positive on the second.
The Orleans on we think that we can end the year with their results.
In line or better than we were.
And expecting them to and with the guidance that we're giving you.
Yeah.
That's very helpful. Thank you very much Carlos just a follow up in this last point, so you're thinking that the second half of this year will be higher than the first half.
That included a release of well you have more provisions in the second quarter.
Even including that you can speak to how you're sick.
Second half earnings.
Okay.
Our next stop.
It is all related with your first question about it.
Cost of risk.
You mentioned and we agree with that number that you mentioned the six essential.
The commercial performance of the bank fee income.
Interest our net interest income the demand the loan book is a growing are performing well.
So it's all related with cost of risk with two 6% because they have any results of the bank will not be better for the second semester would it be.
We think that by not a higher guidance the first semester.
Just to complement that Nashville.
Driver of profitability in the second half is a combination of better than on portfolio loan growth.
Sustained doesn't mean, we are expected to maintain getting them at the same level and the third element is.
Income growth so.
You don't expect the same amount of provisions that you are seeing in the first half of this year.
Juan Carlos mentioned deliveries will be higher because of Chinese law, because some deterioration because of the volume so dayton level of net income for the second half of this year will be lower guidance. What you are seeing here in the first half of the year.
Okay.
Thank you very much where income was for Schlumberger.
Thank you.
Our next question comes from Yuri Fernandes of Jpmorgan. Please go ahead.
Hi, all thank you and congrats on the results I have a follow up on asset quality I understood like cost of risk will likely be higher in the second half Panama and relieves.
Also charge offs.
It may appear a little bit more but what about 2022.
Two points three cost of risk for the full year is not much different than the I would say historical 182%.
You had on a pre pandemic levels. So my question I know, maybe it's too early but should we see 2022 already as a normal year for you guys going to be truly like this would be more like a 2021 media.
As a musician here. So what is the message like you have a lot of provisions that have high coverage high allowances for loans. So.
That's okay, youre going to consume the covid.
One.
But what about starting 'twenty two what should we expect here for for your asset quality.
I have a second question regarding your compensation plan I understood. This is the main difference on expenses the bonus the bonus program.
And I guess, we should compare versus 2019, but the results when you won.
It will be below 19 rights potentially the guidance, we provided the 8% to 10% that they are below 2019. So my question is regarding the bonus grouping should expect a lower number S. We are seeing now versus 19 like still 20% below an entity should.
Should we see in the second half an acceleration in their bonus program. Thank you.
Thank you Judy.
I want to compliment the unfilled.
Our next door and regarding your question and I'm going to focus first on 2021.
We did.
Both an adjustment on the models on the macro input on that.
Benefit provision charges, you mean D SEC.
Second quarter.
That happened doing.
That quarter that is not going to happen again, unless there is a big change on a macro or macro forecast.
What we don't think is going to happen. So second semester will be more provisions would be.
It's tied to deep with four months of D. A.
Loan books.
And we have.
As we mentioned already.
At the end of June we've seen in Panama.
Colombia on.
The loan book starts to normalize.
And guidance that we the main driver of provision charges during the second semester.
Regarding 2022.
We expect that the trend to continue through a normalized cost of risk you have already mentioned.
It's around one 9% between 189.
9%, so we expect.
2020 to be around 2% cost of risk.
As you mentioned also are going to consume some of the provisions that we already.
On our books.
Yeah.
So that will.
We need to but cost of risk around alone.
2% for 2022 regarding your second question on <unk>.
Got it.
Second question to consumers.
Thank you.
Judy.
Regarding the compensation plan Youre right.
Wastewater case every single quarter, we recalculate the bonus plan based on that on that new Fork.
So this quarter, we have seen a better performance of the bank. So expect for the next coming two quarters higher provisions for compensation plan, because again, we have recalculated based on the on the forecasting so.
It is not going to beat the same amount of money of our provisions that we are having that would be higher because of the performance of that.
Okay, Thanks, guys and congrats on the results.
Thank you David.
Our next question comes from Thiago Batista of UBS. Please go ahead.
Yeah.
Guys. Thanks for the opportunity and congrats for the stronger earnings.
I have two questions. The first one maybe just a little bit early to ask about when to ensure but Oh mentioned what is the level of loan growth that we can expect for next year and also profitability.
It is possible to be in the low double digit level next year and.
And my second question is about capital position.
The bank posted a dispute probably the highest level of cat for the last few years.
So my question is about the bank's internal targets. So what's the level that you believe.
The sort of internal targets and if you see any area. That's not you shouldn't it wouldn't make sense for bancolombia in Colombia or abroad, or if and when he is not on the radar right now so oh.
To see M&A as an opportunity when I compare with a capsule.
And so this is my second question.
Thank you Diego and want to stop for you or your last point.
Yeah.
Acquisitions as we see it is it's now more regarding moving on certain niche or acquiring third funding capability.
More bond.
It's a big acquisitions on new market of course, we are all in lease.
Looking into a lot of opportunities, but at this point, we are focused on the geographies in which we operate.
Making those operations as profitable profitable as possible.
Guarding our positions on <unk>.
<unk> activity is going to be more.
What do we see an opportunity around synthetic for investing in some type of technology for capabilities as I mentioned that could complement what we're doing on.
Pacing, our or improving our digital capabilities and how we can reach better the market marketing, which we operate both are going to be.
The focus.
I'm just going to comment on profit.
The the level of capital of course or optical adequacy.
Related with how the lung.
Our growth is going to be of course.
We expect.
2022 tools perform better.
The economies are going to go with a more normalized way of behaving.
At this point, we feel very comfortable with the level of capital that we have.
We will generate capital.
And again on the level of growth.
The loan book.
Also I want to emphasize that we have a very stable.
Long term policy of.
Dividend payout that we do.
We stay there.
But to give you more details on those topics I mentioned.
Take care, one Seattle out loan growth each year again without the area.
Set into 9% based on the assumption that GDP growth.
Here with me.
Cool, mostly in the second half of this year.
Net here because of the ETP growth, our chief economist He mentioned during the speech we'd be at around two 7% area. We are expecting a loan growth at around 10% to 12% for 2022, so far this year.
79% for next year tend to cycle, because the economy, we will we will be flattish the level of GDP growth.
Regarding capital our foundation, we feel comfortable on our internal guidance is to maintain a tier one ratio at around 11% area. Obviously all of these will be a function of the GDP growth a function of the loan growth and a function of the cost of risk.
Yes.
Yes.
Very clear thanks for the answers.
Thank you thank you Kevin.
Our next question comes from Jason <unk> of Scotiabank. Please go ahead.
Hello.
Thank you my question is is a.
A bigger picture term up the guidance and especially the outlook for return on equity.
That now given the strong first half youre.
Youre looking for eight to 10.
<unk> up from five to six previously.
And I I remember pre Covid I guess after the fourth quarter of last year.
That management was discussing longer longer term Roe.
I guess for 2023 with the specific number of 12% to 14%.
How is the bank thinking about longer term Roe.
I mean, we've seen obviously and even though rates are going up theyre still at very low levels and you were just mentioning that we need to see details on on taxes, but it feels like.
Banks, who will pay more taxes going forward do you still believe that this 12% to 14% for the longer term I don't know if this moves out to 'twenty three 'twenty four or if you can provide some color.
And my second question is on the impressive digital numbers that you're showing especially in terms of growth.
Clients.
That bancolombia, a la Mano and Nikki a.
I am trying to understand and you do give us.
Some details on the fee income.
Is that a gross fee income you're giving us for these two entities.
I guess it would be around 47 billion the combination Colombian pesos.
And you know relative can we compare that to the net fee income or that's a gross number so it would be even a smaller percentage than and maybe some color on how you think this could start these businesses could start to impact the bottom line at the overall group. Thank you.
Thank you Jason.
<unk>.
Regarding your first point about Italy.
Italy.
Key is coupons.
You mentioned that we did.
At the end of last year.
Our guidance, let's along between 12 and 14%.
We.
We still believe that bus.
Target.
For 2023.
We have challenges for Hugh mentioned boxes are going to be higher.
Yeah.
That's going to happen.
I don't know yet how.
As I mentioned, the LOE is going to be a boss purchases happening are going to be higher for that.
Although it's <unk>.
Level of capital, we will need to perform for all of you on the level of capital body tire for that's challenging also.
But we are very confident about what we are doing on on on many D. G followed with the formation of the bank. The deficiencies that we are getting the number of clients.
That are coming to.
To the bank are very important AUM, that's creating a base also.
Our digital strategy and our own ecosystems that we mentioned.
We are very confident that that's going to add additional.
Income.
As to the bank. So we are you know we are we are confident that we can reach that level that we mentioned before.
There are challenges, we know Bob we think with what that weekend that we've done.
We can perform.
As we mentioned before on that.
Connect with your second question around revenue.
Did you follow on.
Particularly what is happening around.
The loss from the digital platforms that we have up in Colombia.
We have two platforms, one AC type bounded bancolombia a la mano.
Which is targeting low income individuals.
It's performing very well and growing and so.
New.
Brian Butler.
But also what Brexit transactions that they are doing with the platform.
And we are starting to move on credit.
The numbers to start to.
So quickly.
Good results.
Yes.
And Nike is the platform targeting more young.
Individuals.
So far been very well we are.
Adam and significant number of new customers.
Months.
Doing more consumption at the levels of activity.
So in line with that.
<unk>.
They are growing in the numbers.
Finishing with a very impressive but still it does those two platforms are.
They are developing and are growing.
We are investing in them because they will have a positive impact.
Total results of the bank.
It's going to take some time.
B b more relevant on the numbers of the bank.
I.
<unk>.
It took us probably a couple of more of a year.
But for those numbers to be.
Significant.
On the numbers of Bancolombia ethical lots of what we are doing is investing.
And we are ready now to move.
More aggressively into loans with those two platforms, which at the end is where.
The numbers or the income.
A significant income is going to come on adding other services also is going to be important. So we're very confident in Mumbai.
Performing very well FIFA.
It's a growing but still we need to move.
And to keep investing in this platform.
To monetize that.
I think number of clients that we already have but it will take us some time to.
The impact significantly the numbers also on Colombia as a whole.
Thank you very much.
Appreciate that congratulations on the good quarter.
Thank you.
Our next question comes from Alonso Garcia of Credit Suisse. Please go ahead.
Hi, Good morning, everyone and thank you for taking my question. My question is on the margin side I mean, despite having a much more normalized contribution from our securities portfolio.
Overall, NIM was quite resilient at 5% given improvements in Costa farms acceleration in loan growth. So my question is.
What should we expect going forward I mean looking through.
'twenty two what should we expect in terms of margin as you expect loan growth to continue to be a very healthy also interest rates going up starting busier.
So if you could give us some color on your expectations for margin next year and also in that sense you could provide your sensitivity.
Your NIM to higher interest rates in Colombia. Thank you.
Thank you Alonso.
Yeah.
As you mentioned.
Making it our margins around 5% and we expect that margin to remain above level. We think that we are at the bottom of the commodity.
One follow us mention units.
With him back.
Columbia Central Bank Oncological Luca.
It probably will increase.
The reference rate at the end of the year starting.
Half of.
Or if interest rates increase.
It will benefit our margin as we as you know we are.
Asset sensitive so those increase will improve.
Our our modeling we already incorporated all the.
Net income.
Interest rates are.
Yeah, two deep margin. So it's already incorporate this in Europe.
For the fresh preparation.
On the margins so.
For the future, we would expect probably a better performance of the margin due to tax rates.
I'm sorry to interest rates.
Increases.
Youll give us onshore.
<unk> of our sensitivity.
Yes, one I know, it's all what I'm, saying.
Based on the structure of funding on an instructor of loan portfolio that we have at least 400 basis point that changed the interest rate.
Our NIM will compress our expanding nine eight to nine basis points.
Very clear thank you.
Okay.
Thank you Alan.
Okay.
This concludes the question and answer session I would like to hand, the call back over to Mr. Marr for any closing remarks.
And I want to thank you all of you for participating in this conference call.
Yeah.
We have a very good first semester, we expect the declines to keep performing well.
We already close to the main points telephone to guide our response for continued from Q1 that as I mentioned.
So far are performing better than we expected I mean, we think it will continue that way.
And for the years to come we also expect demand to keep.
To reach that level.
Already mentioned so.
Again, thank you for that.
Dissipating on the color on we expect to see you on the conference call for the third quarter results. Thank you very much on public with them.
This concludes today's conference call.
You for participating you may now disconnect.
[noise].