Q1 2022 Bancolombia SA Earnings Call
Good morning, ladies and gentlemen, and welcome to Bancolombia S first quarter 2022 earnings conference call.
My name is Chad and I will 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 touch tone phone. Please note that this conference is being recorded.
Also 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 in future filings.
And press releases or verbally address matters that involve risks 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.
Production of competing products by other companies.
Lack of acceptance of new products or services by our targeted clients.
Changes in business strategy and for US the other factors that we describe in our reports filed with the S. E C.
With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Modi show resilience, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer.
Mr Rodrigo Prieto, Chief risk officer.
Mr. Carl Lewis <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, and welcome to our conference call for the first quarter 2022.
Thanks for joining our call.
The first quarter, we saw were positive and maintained the momentum shown in the second half of 2021.
This performance is supported by improving NII strong loan growth fee income and low will be shown charges.
Despite uncertainty about the presidential elections in Colombia, and the Roche Ross Yeah Crane conflict.
Its impact.
Disruption of the global supply chain, the Colombian economy began the year as one of the best but farm economy in the region.
Mainly driven by the exposure to commodity prices and the domestic demand.
The monetary adjustments continue to be guided by the need to offset the ratios on inflation.
And by food prices.
We expect the repo rate close at eight.
25.
Or send by year end.
And while inflation.
He is currently a bolt.
80%.
We expect to gradually declining in the second half of this year.
276%.
Let me.
Give you an overview of the bank's results of the first quarter of 2022.
The loan book grew 1% compared with the previous quarter.
Net fees declined 3% over the quarter due to seasonal factors, but.
<unk> grew 15% in the last 12 months.
Core equity tier one close at 10.6% below last quarter due to the different if dividend payment our books Noah shareholders meeting.
Net income for the quarter was 1.7 trillion pesos.
Provision charges for the quarter were 267 billion pesos.
So in a cost of risk of <unk>, 5%.
Explained by better macroeconomic forecast and the better performance of our customers.
Our client base continues to grow in reaching this quarter more than 25, maybe.
We have been adding clients at a good pace over the last two years.
In fact, the pace of growth of purchases by new card holders for.
It is four times larger than those of all at once.
It represents 15% of total purchases by individuals in both physical and online stores.
This growth is reflected in the volume of transactions, we are processing and in fee income.
Finally, I want to give an update regarding Nick.
We have reached 11 5 million clients. The lumber continues growing at a solid pace, maintaining high NPS and activity indicators.
The separation process continues to advance.
Hopefully it was already filed with the regulators deal. So you say you shouldn't to establish and operate the new company.
Do you expect to obtain the operating license in the second half of this year.
At this point I want to turn the presentation to publish spinosa, who will further elaborate on the performance of the Colombian economy.
Juan Pablo.
Thank you Juan Carlos now please go to slide number three in the presentation.
Can you just start to 2020 to economic activity in Colombia remained strong thanks to a combination of a resilient private demand and that tailwind coming from higher commodity prices, particularly oil and coal.
Based on our real time data, we calculate that between January and April the economy grew eight 3% year on year, which is well above consensus Hastings. Despite these positive short term performance, we still believe that as we move through the second half of the year activity.
Gradually moderate these will be the result of less supportive market conditions as well as our renewal policy stimulus. This stabilization of household.
Indeed, and high political uncertainty as a result, we are currently forecasting that in 2022, GDP will expend four 7%, which is lower than the five 1% average market estimates.
Negative note Indias economic balances the increase in inflation, which more from five 6% at the end of 2022 to nine 3% year on year last month.
The highest printing more than two decades and it reflects the continued pressure in <unk> costs, which is translating with great intensity to put prices it.
It is also the result of an acceleration in core inflation due to be recovering in the aggregate demand, yes, no increase of the minimum wage and the operation of indexation mechanisms.
Based on latest developments, we just revised our CPA forecast for the remainder of the year for December 2022, we adjusted our expected installation Brent from six eight.
8% to seven 6%.
Our response to this challenging scenario, we anticipate that the central bank.
For the third and its process of policy normalization.
We are known for seeing that the corn hiking cycle will lead to a term in other ways.
Great between $8 25, and eight 5%. This means that by the end of the year. The monetary policy stance will be in a mild contraction territory.
After these economic overview, let me turn the presentation back to <unk>.
One.
Thank you Juan Pablo.
Moving to slide four.
I want to continue this presentation by explaining the loans and deposits.
But in four months.
'twenty two.
<unk> to start that with strong overall results for Bancolombia.
This is supported in the continuous growth of the loan portfolio.
Loan book grew 1% during the first quarter.
But keep in mind that the Colombian peso reevaluated.
Five point, 65% during the quarter.
Excluding the FX impact growth was 3%.
Colombia, and Guatemala, what are the operations that market these grow.
Although the three main segments, where we operate performed well.
The retail portfolio is the one that grows the most in relative terms in all geographies.
Deposits remained relatively stable due to the excess liquidity with.
Which the market close 2021.
However, we expect the time deposits to increase during the year to support the growth we are expecting.
On slide five I want to make assume in the commercial loans.
Colombia.
The commercial portfolio is our biggest segment.
Presenting 65% of the Colombian loan book.
Since the second half of 'twenty 'twenty. One this segment started showing a positive.
For four months and this was confirmed during the first quarter of this year growing two 4% compared with the previous quarter and 13% in the last 12 months.
We have an asset sensitive.
Condition and this is the segment that contributes contributes the most to interest income.
97% of the loans are floating.
The pace of the repricing of these loans has been very important for the banks results.
I want to highlight that the.
NPS of this segment was 2.8% one of the lowest in the loan book.
Moving to slide six.
I'm going to elaborate on the evolution of digital sales and distribution channels.
The way, we interact with our clients has changed.
Digital sales continue representing almost half of total phase 1.1 million merchants have already adopted QR payments and digital channels represent 85% of total transaction.
We'll keep reassessing the high volume of transactions for.
42% of total Colombian market Internet monetary transaction on 67 of model y once.
Beef has permitted us month thing the fee income and improve our credit <unk>.
Model.
On slide seven we present our payment ecosystem.
As I mentioned before Bancolombia has more than 25 million clients.
Our main goal with the payment ecosystem is that our clients can pay and receive payments with as many alternatives as possible both in the online and physical channels.
Therefore.
We have developed an ecosystem, where our clients find traditional options such as payment gateways created embedded cars, but also contact less payments digital wallets QR codes among others.
In Colombia, we are national leaders in credit and debit cards amount of transactions and QR codes, and India quieting business with a 33% market share.
Moving to slide eight I'm going to elaborate about Mickey.
Nicky continues showing positive trends.
We had one 5 million clients this quarter, reaching 11 5 million.
Out of which 33% UC Berlin Berlin stuck generate income.
We are focusing on our path to profitability, increasing deposits transactions revenue and fee per user and growing at a solid pace the loan book.
The last two quarters Nicky's loan book has increased the average balance from $1 7 billion versus the 127 billion.
On slide nine.
We present, our ESG update.
We remain focused on reaching our 2030 goal of 500 trillion pesos disbursed on their ESG criteria.
For 2022, we have a 41 trillion goal.
This quarter, we launched an investment platform that will develop solar energy generation and energy efficiency projects. The goal in the next five years is to reach an installed capacity of 160 megawatts.
We also obtained a long tie to sustainability objectives $450 million granted by Bank of America. We are committed to do smaller more than $2 billion in our sustainable line by 2024.
Almost multiplying by three the current balance and reducing the emissions of 12900 tons of Cotwo.
Finally, I want to share Duck N S C I upgraded our rating to double E D.
This means we are in the leader category of the global banking system now.
Now I want to turn the presentation to wholesale cluster.
To give you additional details on our performance during the first quarter.
Yeah.
Okay.
Thank you Juan Carlos.
Now turning to slide 10, we keep you on your snapshot of provisions and asset quality.
Great Rajiv I'd almost done with only 1% of the consolidated loan book on Devry.
During 2022, it will be key to follow the evolution of configuration.
Truck loans on catch ups.
<unk> for the first quarter were 267 billion pesos.
Mainly driven by charges associated with the retail segment.
As a result of these freak auction in the train of provision charges due to a better performance of our clients I'm calc there.
This allowance is now 4% six 3% of total loans coming from eight 1% 12 months ago.
Cost of risk for the quarter was 0.5% below our expectations explained by three factors better macroeconomic forecast better performance of our customers and explorations related to significant impaired clients.
Although we continue with high levels of uncertainty by both locally and internationally factors, we want to update the guidance of cost of risk. We gave last quarter of one 8% from 2022 now to one 5% with an upside risk.
We continue with a high 90 days coverage of.
222% and healthy asset quality metrics we.
We don't expect material changes during the year as we haven't seen a good performance of recent vintages.
On slide 11, we present, the consolidated and stand alone capital adequacy.
Okay.
Consolidated total solvency ratio stands at a level of 13, 5%, while <unk> T. One I didn't even up 10, 6% and their full Basel III for the first quarter.
The reduction in the solvency ratio level compared to the previous quarter is due to the impact of discounted against 471% of profit that we can create in our general Assembly last March. However, we have accumulated almost one seven trillion pesos of new capital.
Because of their strong results of the first quarter.
We expect to close the deal with the average level of 11, 5% of core equity tier one we think irradiation of profit in there.
The upcoming quarters.
Moving to slide 12, we present, the liquidity position of the bank.
In a consolidated basis, we continue operating with sufficient levels of liquidity.
In an annual basis deposits are growing at a pace of 13% in line with the underlying growth of the loan book of 12, 9%.
In the slide you can appreciate that the cost of deposits in direct decrease and we expect that it will continue to decrease due to our strategy in Central America operations of increasing the violence in saving and checking accounts wake implementation of difficult projects.
Quiet in the cost of deposits in pesos is increasing given the rate hikes of the central Bank.
Okay total funding structure, 84% correspond to customer deposits, maintaining the loan to deposit ratio at a level of 99%.
On slide 13, we present, an overview of Colombia and Central America.
You can get around the times the positive trends in the balance sheet and the income statement are common in all geographies.
I want to highlight some key aspects from the Standalone operations.
In Panama during 2022 the key variable to follow will be the cost of risk.
After the end of the relief program six months ago. The performance of the clients of <unk>, who are coming out that relieves is better than expected.
During the first quarter the retail clients continue to growing in mortgages had a positive dynamic.
From the liability side the growth in saving accounts, it's outstanding.
In fact already facing a challenging fiscal and political situation that Banco Agricola maintained its good operational metrics. We had a good performance of the loan book driven by retail and commercial clients.
And in Guatemala, We continue having a positive perspective with the economy activity of the country that is reflected in the growth of the loan book the income and low provision charges.
Finally in Colombia, we must highlight a very good growth in the loan book in line with economic cycle, a very good performance of fee income because of the high transaction volumes in our high growth of interest income due to the expansion of margins.
On slide 14, we see the evolution of margins our net interest income.
After the low provision charges.
Margin expansion is the second most relevant and viable in the positive results of the bank.
Net interest margin reached 6% level with an expansion of 70 basis points when compared with the previous quarter.
This is the result of the inflation and the interest rate increasing.
Fast pace.
The increase of NII is mainly driven by these three drivers.
Repricing of existing loans, mainly driven by the commercial segment.
The growth of the loan book during the quarter with higher rates.
And the funding cost is increasing at a slower pace thanks to the funding structure.
As Juan Pablo mentioned, the reference rate will continue increasing and these will continue to impact margins positively.
Therefore, we expect to close the year with a NIM of around six 5%.
Slide 15 shows the evolution of expenses and efficiency.
Yes.
Operating expenses increased 22, 4% in annual basis, the main drivers of desalination, where first.
17% of increase in administrative expenses due to the growth of expenses associated with the good performance of the rental business.
Integrated or speed up execution of transformation underutilization projects of this quarter compared with the first quarter of last year.
Second salaries and employee benefits increased 21% due to the salary annual adjustment and by our strategy of attracting and retaining talent discounting with ancient focuses on their technology area, where they grow up the plan is done by hiring professionals, who.
We're part of third party providers developing in house talent.
And third an increase in employee bonuses compared to those of the first quarter of last year.
Because you may recall that the first quarter of 2021, where we're not contemplating such a relevant economic recovery process. Therefore, they're gonna see provision was adjusted in the middle of 2021.
Despite the growth in expenses. This quarter. This was as expected we are needing our forecast by 99% are we maintaining the 11% growth guidance for expenses this year.
Is that 16 shows the evolution of peace.
Yeah.
Net fees declined 3% over the quarter due to seasonal factors material, 15% in the last 12 months.
The strong performance of piece is three of them by first fees from David credit cards, and merchants continues to have the strongest performance associated with the volume of transactions and a greater number of clients.
Second fees associated with the loan book growth as in the case of Bancassurance.
Other fees associated with the capital market business I think the pace of investment banking.
It's like 17 shows the profitability metrics.
Net income for the quarter was $1 seven trillion pesos more than doubling the first quarter of 2021.
This strong result is mainly explained by the combination of the following factors.
Positive loan book growth margin expansion.
Expansion high volume of transactions generating better fee income.
Better risk performance expenses growing according to the budget.
And our solid capital structure growing according to the results of the bank.
Now I want to turn the presentation to contango for the closing remarks.
Ronnie.
Thank you I was in there.
Even though the levels of uncertainty that we are facing not only in Colombia.
With elections, but with the global geopolitical conflict, we are positive with this year results.
I want to close the call updating our 2022 guidance.
The loan book.
We'll grow between nine and 11%.
The cost to income ratio will be around 46%.
Fees should grow.
10%.
And finally, we there are we at the end of the year in the 17.
St.
Yeah.
After elaborating on these key topics I 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.
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Our Nashville Gotta be Alonso from Bank of America is online with a question. Please go ahead.
Hi, Good morning, Juan Pablo I'll come back on good morning team congratulations.
Quarterly result.
I have a quick question from my side on the herd wanting hunger political landscape.
Brooklyn in Philadelphia Park, Brooklyn place make or nine we had room.
Seem to Brooklyn, Carpenter Heartbeat, Gerken Gregoire, our Rangana range.
Something about them for Parker.
Uh huh.
Right or what are some of them proposal.
I've done my quick question is on loan growth as well.
Considering going hungry are what will be the level required revoke and high inflation.
Darker kroger demand for longer and what are your crude would be mercury broker butter, although there could be more retiring.
And then finally, our last question.
Uh huh.
Her group a firm for the year, how how do you see in the long term Roe bancolombia.
Thank you.
Thank you Ernesto.
Right.
Let me let me start from your first question about the political landscape.
Yeah, we are.
Close to half in Colombia, the first the first round.
Wound.
And you asked about E D.
Proposals around the financial sector from Mr.
Mr petrol.
Yeah.
It's difficult to tell because he and his brother.
When you read there are not many eh.
Things that you could do what he will do around financial sector.
At least not radical proposals.
It has been talking about about Q1.
He wants to have an honest stronger.
Government banks, a dark wood.
Lend.
Two segments that are not subject to.
A credit from.
From the commercial banks.
So I.
I think it could that could be one off of PS.
Yeah.
Actions is to have a stronger.
Sure.
Government public.
Banks are.
Yeah.
Correct it to certain certain segments.
Yeah.
Other than that.
Some comments about.
The costs around financial services are no no more no more than that so.
I think we need to wait and see how things will develop.
And anyway, I think any effect will be.
After 2022.
You mentioned loan growth.
Asset quality.
Yeah.
I think the loan growth at this point it is very healthy.
We are growing close to 15% in in any of our.
And all of it of the lines of credit or all of the segments that we that we serve.
Yeah.
Retail is strongest one that could be affected a little bit, but we maintain all our.
Sure.
The guidance that.
The.
Loan growth for the year will be between nine and 11%.
Let me remind you that we think that this inflation will will go down on by the end of the year.
We'll be around 7.6%.
Yeah.
Segments affected by by inflation.
Yeah.
Probably mortgages.
There's a portion of <unk>.
Of the mortgages that are.
Yeah.
Back to the two inflation so.
<unk> could have some effect.
On on the loan growth for this segment.
By the way has been growing.
In a very positive way for the last.
Four years, even during the pandemic that was this segment.
It grew.
More.
And regarding your third question.
We maintain our view that.
The long term ROA for Bancolombia.
It's around 15% between 15 and 17.
17%, so that's <unk>.
Our our view for the long term for four for the bank.
Perfect. Thank you very much.
Excellent color.
Okay.
You are very welcome good myself.
Okay.
The next question comes from Jason Marlin with Scotiabank. Please go ahead.
Hi, My question given you've addressed some.
Some of the other issues is on the expense side.
With total operating expenses up over a little over 22% personnel almost up almost 30% you you gave some explanations there are about attracting and maintaining.
Employees high quality employees, and especially on the it side in hiring from third party.
Vendors.
Give us a sense of how and you talked about the guidance for the year, but if you can just talk about how we should think about that I mean could we see more of that it.
It seems like the ability to retain and attract talent.
Is indeed.
Getting more difficult. So is this something that a trend that we should expect going forward.
Thank you.
Yeah. Thank you Hey, Jason Let me give you a.
So some details on ipass.
Your question to close inverter for additional information.
Yeah.
As you mentioned expenses are growing around 22%.
And let me say that that is in line with our.
Forecast. So we are not a way of the numbers that we were expecting for the first quarter.
It's good to have.
Having in mind that we.
We are comparing.
Yeah, I'm I'm, referring to 2021 in which the first quarter.
Why not.
Normal so the base, but we are using to compare.
Expenses.
It is it has some effect so that's the one part that's from just from from the numbers.
Regarding what you mentioned that retaining talent that's a challenge.
Four for every company not a <unk>.
Nowadays.
Yeah.
We have in place a program to retain on to attract the talent.
But we don't foresee that that's going to.
D V. Eight are the numbers that we are expecting for the end of the year School we maintain.
Our view that the expenses at the end of the year.
We'll grow around.
10%.
So with that I will ask hosting back to it.
It could get up additional additional detail Ken.
Juan Carlos Good morning, Jason that's very clear and it's a cyclical.
Situation comparing with the first Q of last year.
Yes, we don't we don't have any particular surprise regarding expenses because it is under control. We we are opted.
Optimistic about to get that level of 10% to 11% on the most relevant.
We are we've got a number of some with the net income that we are forecasting we aren't going to get a level of efficiency and between 46% to 47% at the end.
And each year.
Okay.
Thank you very much.
Thank you Jason.
Yeah.
The next question comes from on novel Tussaud with UBS. Please go ahead.
Yeah.
Hi, good morning, everybody and thank you for the opportunity to ask questions.
I have basically two topics.
Mainly for me for us to understand.
Target for the ROE of 17 for the year, but basically talking about the asset quality of the United trends I just wanted to understand from the first I'll talk about the asset quality.
The Greens.
In the 90 day NPL ratio in the quarter.
And the newsroom costs, usually are the new pdl's above one trillion, which is similar to the first SKU of the last year.
Hum.
These trends are fine, they're well below average cost a freeze.
I just wanted to understand for the next quarter or the next three quarters the dynamics for the NPL ratio.
Along with the cost of risk trends.
Their insureds.
And the second topic that I wanted to understand.
Especially I'm talking about the next quarter.
Bob.
Trends.
Because I wanted to understand if you could give us some more color on what caused that was strong.
<unk> expense in the quarter.
And one of the issues Oh all of the following quarters.
I would appreciate it thank you very much.
Thank you.
And let me let me take.
Thank you your first question on and I pass your second one regarding the NIM to.
Two hosting Burton M.
Let me say that.
You read.
'twenty 2020 'twenty, one we have an abnormal.
Sure regarding provisions on regarding the cost of risk.
What I mean with this is that during.
That period, we accumulated provisions.
It seems the uncertainty.
<unk> was very high.
Now that we are seeing how.
E.
The economies developing on how it is.
Different.
Sure.
But the different loans high performing we have now with clear picture of what is going on that to say that we are.
Going back to what we consider is a normal.
The risk situation, but we accumulated provisions. So we now are in the phase in which we.
021, when normalized state.
And but.
Going forward, which is which is your.
June .
We have provisions that are covering the risk that we have in our in our balance sheet.
And if.
That also covers write offs.
And what we expect in the future is a more normalize.
Behavior or performance of Npls.
That should be.
It should generate a cost of risk more.
Close to one five.
145% could be a little bit lower during this year, but going forward 'twenty two 'twenty three.
We will think.
I think what we would've.
Would it be going to 11 to a level of around 1.5 close to freeze and a more normalized situation. After what we saw.
So during 2020.
2021 2021.
Yeah.
So that's what we expect right now.
Yeah.
These let me pass your second question to wholesale.
Good morning, Lovell, yes expansion of game. It makes a strong correlation between the central bank interest rates on the concession opinion in our case remember that we came from 3% in the same barrel.
I think from the Central bank to 6% at the end of each quarter. So that is that as meaning that that would be a huge impact of NII.
He is going to happen assuming platform powder mentioned at the beginning of the presentation that interest rates will go up hero 825, assuming that that high.
Of course in the next coming three months, we are expecting in the second quarter and maybe in July and makes our expansion of mean weight.
We don't expect that the trend will be the same for the second half of the deal we are going to expect I stat mutation of the name.
Chuck onshore.
Our expectations of mean, we'd be detached and level of six 5% area at the end of this year.
Challenge would be between would be 2023 and that situation, we're going to see how they think.
Inflation and interest rates behave.
But Meanwhile, we are we are talking about that very important expansion up in the first half.
Of this year.
Okay. So thank you Jose I believe the topic related to the NII, which is very very clear I just wanted to make a more full of world on the asset quality the size, so you're telling the coastal freescale are expected to grab it.
Increase throughout the next quarter.
And about the NPL ratio trend for these because I wanted to understand at what levels are for the NPL coverage ratio.
We should work for this year and if you give some more color about these match with tea as well for the next year.
It would be very helpful. Thank you.
Yes.
And you can see what's happened the source to ace.
There were three one offs that impact the level of cost of risk to.
To your 0.5, obviously is not there.
The standard of care back why do you you are going to see in the next coming three quarters youre going to see a real deterioration and increasing in the level of past due loans. So that's the reason why <unk> management that again of the year, we are going to be the area of one two to one point in time.
M P F.
You are seeing right now.
If I may say, the optimal level of past due loans, if you compare it to print Kobe.
And third what is happening right now with the strong coverage down we're having 30 and 90 days. It is because sometimes that there is no argue we are having some provisions and if the economy is performing well in the next coming quarters, maybe it doesn't.
Coverage at the end of the figure would be up for 30 days at around 130% are for 90 days, we're going to be up to 880% area.
Maybe just at a level that those levels, that's pushing declination R. R.
<unk>.
Level that we had before COVID-19. So we reach a level of 100 on 100.
80, or 70 80.
Saturday.
The loan basis and.
Now we are returning to 130 35 level we'd cheese.
Our long term model. So what we are doing is returning to a coverage level that we consider.
Is is the.
The long term coverage ratio.
Okay.
Okay Jose.
Thank you very much for the so called reserve helpful.
Oh, thank you.
The next question comes from Alonso Garcia with Credit Suisse. Please go ahead.
Hello, Good morning, everyone.
My first question is a follow up on cost of risk.
For next year and I think you mentioned, 1.5% could you. Please confirm that and also comment on what level of cost of risk do you see as sustainable.
And going forward.
My second question is on taxes what levels.
You are assuming for these you are next year and if there is any.
Proposal.
So potential candidates that indicates a meaningful change to your effective tax rate in Colombia and in a couple of years. Thank you.
Thank you Alonso.
As we mentioned.
Yeah.
The cost of risk.
But we are.
Right now we consider it would not be the normalized cost of coastal free skus.
It's too low.
As I explained before is because.
All the provisions that we did during.
During during Covid.
So.
I I confirmed that the cost of risk for Bancolombia.
In the coming.
Others.
Meaning the end of 2020 tool on 'twenty to 'twenty three.
Should be around one 5%.
Yeah.
There is there are there is inflation that is going to have some effect on the cost of risk.
So we consider that that level of coastal freeze and we are adding additionally, we are adding.
More retail loans through our book so that could have an effect on the midterm one day.
On T V.
Cost of risk.
And regarding your question. The second question was around about the taxes, we are estimating an effective tax rate for 2020 tool for them well.
34%.
Remember that we have on our.
In addition, our tox.
I mean, we should not.
That's one.
For financial institutions that we are taking into consideration. So the mix that we have right now it's 34.
Yeah.
Moving forward, it's difficult to tell if we will have an additional taxes or not.
Yeah.
As I mentioned, we already have an extra tax that no other industries.
Often colombia, so I Don.
Foresee that.
An additional tax.
Food effect the.
Effect that you see in the future, but we don't we really don't know I don't know if what's embedded for one wants to add something.
The only one reason why that station today 31, and we are closing with a 34% nationwide east because net income mainly comes from Colombia, which we have the highest level of statutory tax.
Well listen thank you very much.
Thank you Elena.
Okay.
The next question comes from Andres Soto with Santander. Please go ahead.
I'm wondering if I got muscles from Bristol. Thank you for the presentation and congratulations on the results.
My first question is regarding margins.
Margins are I was positively surprised by the the expansion that we saw this year on your margin on loans.
And I'm wondering if.
You kind of update us on what is the sensitivity of your margins to interest rates is there anything that has changed in the bank is structured that the agencies are allowing for faster a repricing or faster expansion in margins or are there are any one off elements that.
We should consider when when we were looking for in the original target.
Thank you.
Andreas.
As you mentioned the margin.
Expanded.
Yeah.
And in a considered way in the first quarter.
Reaching reaching a level of.
But we.
We were expecting.
More for the middle end of the year.
That's because of D. A.
Interest rate increases that the bank.
Uncorrelated Oerlikon.
Yeah. That's made during the end of last year and the beginning of this year that is impacting the interest rates are.
And our ability to maintain the funding cost.
The low so about studies.
Having an impact on the NIM on a very positive impact that we expect that that margin to maintain those levels or even increase more during the during this year.
Well she Umberto could give you additional information regarding the margins on this.
Juan Carlos Hi, Andrea Yes, we got a bit anemic as Juan mentioned it.
C C D V D. In our case has changed a lot in the last two years basically because of the way we are trending right now.
Savings accounts and chicken accounts find out the week right I think the latest high so we are able to maintain on the appetite for Colombia. For example, 95% of the loan portfolio commercial loan portfolio still with you, but on the liability side less than 50%. So the sensitivity right now.
On page 240 basis points for every country that intent that the central bank changed interest rate.
Perfect. Thank you both my my second question is regarding the long term guidance.
Like I looked up range from each.
You're calling for a in between.
Dean and a 17%.
I'm curious what has changed.
In your view versus the one that gave US just six months ago I remember I asked the same question during your Investor day, and you'll say, 14% nowadays is significantly higher crews.
What has changed is the interest rate environment. It is.
More optimistic view on your structural costs or risk or it is anything related to a indication he started with oprah giving your term.
Congrats to all of you all.
What we are seeing is Ah.
Our.
Our mix.
Of loans is it's given us on that I mean that is better than the one what we were considering in the past.
Oh.
Also.
There is a very positive trend on the acquisition of Nu.
Of new clients.
We were we highlighted that the number of clients that we have now is it's important so that allow us to be positive on fees.
All saw on on the expansion of the volume of loans that we have so if you if you'll see the there is a.
A mix of factors.
That allow us to be more optimistic on our R. O E. So.
It's <unk>.
I mean, it's better.
Fifth a fee income.
Also the cost of risk.
We.
David It is still one five but we will consider a higher number than in the past.
So as I mentioned, it's a mix of different factors.
Well she Umberto.
Without additional information Andrew.
And there is another factor that's.
The definition of the optimal capital of the Bank remember then.
A quarter ago, we were talking about at the optimal level of tier one ratio would be just having fun.
5% on average so that definition maintains the optimal level of capital. So that would be also a consequence of increasing didn't have enough return on equity.
That's very clear. Thank thank you both for your responses and congratulations again.
Thank you Andres.
Okay.
The next question comes from Seattle in the dark hard with Goldman Sachs. Please go ahead.
Hi, good morning, Carlos with home, but thanks for the call thinking my question.
Sorry, another follow up on under your margin a little bit on the ROE as well.
You mentioned six 5% by year end, but just to understand that six 5% is for the full year, which.
If I'm correct on that that would imply that you should be above the six 5% in the coming quarters or did I Miss that or is it 625% would be a highest level on a quarterly basis just to understand that and then I guess following up on that inter.
Interest rates stay at this level I don't know when do you expect rates to come down to if you expect that to happen already in 'twenty, three or maybe at 24.
Well that margin remain elevated maybe throw out next year, which is also why you know that ROE guidance can be iron and maybe you could probably stay above a 15% ROE even in 2023 of course, depending on what rates do so.
Or in other words, when the rates come down and when does that impact the margin.
If you can give any color on that thank you.
Okay. Thank you Tito.
Yeah.
Let me give you some information on I pass the question to consume barefoot.
What we expect is that the grades are going to peak.
This year.
And will start going down due in 'twenty two 'twenty three.
So the margin expansion is going to be doing 2022, and part of 'twenty two 'twenty three.
Yeah.
I could say that the normalization of the margin.
Cure.
23, so we will have an expansion.
Reaching 6.5 and on.
I don't know what's embedded within our agent that are regarding to your question is that is another choice at the end of the year or whatever.
What is the number.
And.
That's why we are.
Yeah.
Okay.
It was saying that or our guidance regarding the roe's that would be more around 15, one 5% to 17% because they wouldn't be some normalization of the margin.
Which is going to spot, but lay it out later.
Because I'm 23 will compress.
After we reached the peak.
The rates are and then start to go down.
Juan Pablo our Chief economist is considering or <unk> are considering that the the rates which are.
Peak of eight in a quarter.
And then will start going down to 775 in 2023, and then they will will further and bleeding 'twenty 'twenty four will further eh Goldman goes down.
Hosting but could you can you get more information.
Around Martin Thank you Juan Hi, Tito yes.
It takes time for IP for the whole year Tito.
Again, we are expecting.
I don't know, how many high expected to increase to 225% more ore from the central banks. So the expansion will be back on average would be 6.5.
That I think 2023, we are expecting that the interest rates from the central bank coming from $8 five $8 25 to seven point 75 based on consumption of inflation. So that means that you are going to see.
Maybe the same level.
Naeem.
Slight compression of the NIM, but it all depends of the structural funding and we will have at that time remember that in the last three years, we have been dealing with interest rates coming down and we defend the margin because the structure of funding. So again, we are expecting to reduce a little beat the market next year.
Central Bank interest rates coming down at least 50 basis points.
Okay.
Thank you Juan Carlos.
So you have to make sure I'm clear on that sort of a six five is the average for the year. So that would mean a crazy if you could probably surpass that.
And then and there.
Yeah.
And then okay perfect and then just for next year that that reduction also.
You'll start to come down next year, but average rate would actually be higher in 'twenty three given where you started in 'twenty. Two so maybe very modest reduction in 'twenty three the real reduction happened very mindful anymore, but if I read that correctly.
That's correct it though.
Okay, great. Thank you very much.
Thank you thank you Peter.
The next question comes from Yuri Fernandes with JP Morgan. Please go ahead.
Thank you and again congrats on the good results I have a question regarding El Salvador like even like the the level, we are seeing a pretty sobering, they're all just getting back to your operations do you see any kind of impairment on your low quality coal operations.
To anticipate anything on that front.
One and also fill open titos and previous questions regarding rates and margins.
At what level if rates could we start to see a headwind for us with quality right. Because we know like the the effect on growth acceleration volumes, but I guess, the rate's going to above eight or aren't you concerned that we could start seeing a worsening asset quality for corporates like is this part of your $1 five.
Cost of risk guidance, how that can affect your expected loss models. So just just checking like it to be around me here like inflation globally remained more resilient than the rates keep moving up to 90 10 HUD is yes. It's quality here what is the level that becomes a headwind not a tailwind. Thank you.
Thank you Judy.
Regarding your first question.
And in Salvador, we are seen a situation in which the Banco agricola.
Our Banca there, it's it's having a very good results.
In the loan book is growing N P is a low.
Cost of risk is very it's in a level that we feel very comfortable.
So on that on one side.
The bank is performing very well and very good consults.
We are.
Adding new digital products G D demands for those products.
He's very active there.
So we have one operation that is running on the other side we see.
See our fiscal situation of the country that it's Oh, yes.
And I think that is a situation that we need to take into into account and you mentioned the sovereigns.
Yeah. We you know are in our forecast we are considering.
The amendment or some part of.
That oh suffering suddenly half.
He started at all.
Just I want to mention that would look like we halfies eh.
Short term.
The logo.
It set this on in letters and lettuce.
When we went on air.
We don't have a position on euro bonds for the order or instruments.
So yes, we are considering.
The risk and we are introducing that.
That consideration into D D.
To ensure our hour numbers.
Yeah asset quality.
Yes, we when we talk about the cost of risk of 1.5, while we are taking into consideration that there would be some.
Deterioration due to the increase in interest rates and inflation.
So in our numbers, what we introduced was unaffected.
Due to where as I mentioned higher interest rates on the effect of that.
That could have on our numbers, but let me say what what we see is in effect from 'twenty to 'twenty three not a material effect.
In 2022.
Yeah.
So we are considering that that affecting our numbers Judy I don't know if switching but we'd like to add something else.
Yes, Juan Carlos.
We will touch the highest level the second quarter and that's the reason why Judy we update our forecasting of loan growth for the second half of the year, we're not expecting we are expecting a cool down okay.
The level of consumer loans for the second half of each year.
And why we have been growing at a pace of 12%, but we are expecting to grow for the whole year.
9% to 11%.
No perfect go home Carlos wasn't embedded in it and congrats again.
Thank you Julie Thank you.
Okay.
Sorry, we are running out of time does this concludes the question and answer session I would now like to turn the conference the conference back over to Mr. Juan Carlos Mora for any closing remarks.
We like to thank you all of you for attending.
This call.
We are.
Very happy with the results that we are getting so far and what we foresee for the rest of the year, it's a positive.
The positive results.
As we mentioned.
Naeem will.
We'll continue.
Being in a very good level for us and also what we are achieving on new customers.
On the dynamic of the bank, we feel very comfortable that we can offer very strong 2022.
Hope to see you or hear from you on our key.
Call in which we will report the results for our second quarter of 'twenty 'twenty. Two thank you very much on off a very good day.
Yeah.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Yeah.
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Yeah.
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