Q4 2021 Grupo Aval Acciones y Valores SA Earnings Call
Welcome to Grupo <unk> fourth quarter 2021, consolidate our results conference call. My name is Hilda and I will be your operator for today's call.
Group on extra and as you will notice S. Yeah, Groupon is an issuer of securities in Colombia and in the United States.
As such it is subject to compliance with securities regulation in Colombia, and applicable U S Securities Regulation group.
Grupo and its also subject to the inspection and supervision of the superintendency of finance as holding company, although you have a financial conglomerate.
Our consolidated financial information included in this document is presented in accordance with IRS as currently issued by the I E. S. P.
Details of the calculations of non-GAAP measures, such as Ebola and dry among others are explained when required in this report.
This report includes forward looking statements in some cases you can identify these forward looking statements by words, such as Mi will shoot expects plans anticipates believes estimates predicts potential or continue or.
Or the negative of these and other comparable works at.
Actual results and events may differ materially from those anticipated herein as a consequence of changes in general economic and business conditions.
Changes in interest and currency rates and other risks described from time to time in our filings with the Huskies for National do I notice you Miss audits and the S E C.
Recipients of this document are responsible for the assessment and use of the information provided herein.
Matters described in this presentation and her knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review update or correct. The information provided in this report, including any forward looking statements and do not intend to provide any update for such material development prior to our <unk>.
<unk> earnings report.
The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description.
When applicable in this document will refer to billions as thousands of millions.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
I will now turn the call over to Mr. Luis Carlos augment that with the Chief Executive Officer, Mr. Carlos had went through with the Atlas you may begin.
Good morning, and thank you all for joining our fourth quarter 2021 conference call.
Pleasure to share with you our strong financial results for the year 2021.
I am proud to report.
21 in the backdrop of our countries is very strong economic recovery.
We had good oboe all achieved the highest net income in the company's history.
It has been two years since the lockdowns caused by the pandemic began soon.
Since we believe we successfully manage the crisis appropriately addressing risk management and commercial issues.
Supporting our customers and caring for our employees. We further believe that our handling of the crisis, coupled with our diversification strategy resulted in the manageable volatility in our results, especially when compared to our peers.
During 2022 things have progressive really gone back to normal Amanda.
Among the most important changes to our customary way of working we have migrated to a hybrid work scheme essential slash remote which will remain our standard going forward.
We're now much more mindful of the benefits of such working standard, which we believe when applied wisely, we sold both in employee satisfaction and operating efficiencies.
2022 will also result in no material change to our ownership structure as we execute the spin off of seven 5% the back holding international core BHI, the holding company, which owns our central American banking group.
More on that later in the call.
Before we jump into the detail of our financial results I will refer to the economic performances of the countries in which we operate.
We'll provide a brief update of the status of our clients' pandemic driven long beliefs of our digital initiatives.
Our ESG efforts and as I've said before I will also update you on our progress regarding the spinoff.
Around the World 2021 was a year of economic transition with countries experiencing a rebound in their business activity domestic consumption and a marked acceleration in their inflation indicators.
According to the IMF global GDP in 2021 would've grown five 9% in 2021 after the three 1% contraction evidenced in 2020.
For 2020 to be IMF forecasts, a GDP growth of four 4%. Despite the Ukraine, Russia conflict that has already adversely affected growth prospects in Europe and the developed countries.
Specifically during 2021, the Colombian economy recovered and surpassed in most instances instances the production levels lost during the sanitary crisis with one notable exception unemployment.
Actually I think most economies around the world. The recovery has not been devoid of inflationary pressures in fact, Colombia's economy grew 10, 6% the highest rating Columbia's history.
During the last quarter GDP expanded at four 3% above the market consensus of two 6%. This.
This result is mainly explained by a rebound in private consumption that grew 14, 6% versus 2020 and eight 9% versus 2019.
The recovery in domestic demand reflects the use of excess savings by households, a significant increase in remittances from abroad.
<unk> stimulus put in place during the pandemic and a partial recovery in the labor market.
From the supply side growth in the last quarter was driven by commercial activities in manufacturing that grew four 6% and 2%, respectively and represent 33% of GDP construction.
Construction and government services, representing 19, 7% of GDP grew four 3% and 1% respectively.
Regarding COVID-19 vaccinations at year end, 2021, 55, 7% of Columbia's population had a complete vaccination schedule.
Entrail America, approximately 50% of the population as a complete vaccination schedule Costa Rica leads with 75% in Guatemala lax at 32%.
This has allowed Colombia and Central America to reestablish pre pandemic production at a relatively good pace.
However, 2022 is not free up other challenges as you know this is an election year in Colombia, and the Contractionary monetary policy currently in effect will no doubt affect the growth momentum.
It remains to be seen how profound the impact of these challenges are.
Despite these challenges 2022 also brings the opportunity to further normalized cost of risk to strongly grow their loan portfolios and in theory to expand interest margins at least initially in our majority commercial loan portfolio banks.
In addition, the unexpectedly higher oil prices boost export revenues and provide some relief to Colombia's twin deficits.
All in all we currently expect 2020 to Colombia's GDP growth to be in the four to four 5% range.
This is in the lower side of market consensus and lowered in the government forecast up 5% the.
The exchange rate registered material volatility during 2021, ranging between 3421 basis per dollar and 4024 basis per dollar closing at 3981 peso per dollar and average devaluation of $15, 98%, mainly as a result of that.
Global strengthening of the U S dollar due to the expectation of an early reduction of monetary stimulus by the federal reserve and the increase in the local country risk premium due to the partial loss of investment grade.
However, during the last few days the peso has strengthened below 3800 basis per dollar in response to the surge in oil prices due to the unexpected to be expected shortage of supply in the upcoming months.
I must note that the Ukraine, Russia conflict in place an increase in the value of cereal and fertilizer imports, which will no doubt pass a toll on the Colombian trade balance.
We currently expect some volatility of the exchange rate around 3800, 50 vessels per dollar level during the remainder of the year.
Inflation closed the year at $5, 62% up from 161% in 2020 on a 12 month basis at the end of February inflation reached a 66 year high of eight 1% mainly.
Mainly driven by supply factors affecting particularly the agricultural sector. In fact food prices increased a record high of 23, 3% in annual terms as.
As monetary policies starts to anchor inflation expectations, we expect 12 month inflation to slowly come down to five 5% by the end of the year above the central bank's target of between two and 4%.
We will remain observant however of additional inflationary pressures derived from the Ukraine, Russia conflict and its effects on commodity prices in the international markets.
After keeping the repo rate stable during the first nine months of the year the central back once it became evident that inflation was accelerating increased the innovation rate of 125 basis points between September and December 2021 from $1, 75% to 3%.
Repo rate is currently at 4% after a 100 basis points hike during the last meeting in January .
Inflationary pressures lingered throughout 2022 and accelerated cycle of increases in the repo rate is foreseeable in fact, we now anticipate that the repo rate could reach 6% by the first half of 2022 and 7% by the end of the year.
Although the labor market has lagged. Its also continued to improve after an average national unemployment rate of 13, 7% at the end of 2021 down from 16, 1% in 2020, it still did not reach the pre pandemic level up to 10, 5% achieved in 2019.
As our recovery process continues we expect a further decline in the unemployment rate to an average of 12% in 2022.
The current account deficit widened to five 7% of GDP in 2021, mainly driven by a greater imbalance into trade balance that reached a deficit of $20 $25 billion in 2021 two.
Due to a much faster growth in imports, reflecting stronger domestic demand and a more modest growth in exports.
Widening of the current account was financed 53% by foreign direct investment and by portfolio inflows as the appetite by foreigners for domestic public bonds in the local market resumed during the second half of last year.
Going forward external accounts should improve mainly because of oil prices and better crude and coal production levels.
However, rising prices of imported goods affected by the Ukraine, Russia conflict could dampen this improvement.
Despite the expected surge in oil and coal exports. The current account deficit is expected to hover around four 8% in 2022.
On the fiscal front fiscal deficit for 2021 was seven 1% of GDP lower than the $8 six expected by the government.
This was the result of higher economic growth better tax collection, and lower execution of the government spending budget.
Even though the government managed to push through a tax reform amid a complex political environment.
Columbus credit rating was downgraded by the rating agencies, which had an adverse effect on the country's risk premium and on the ratings and yields have Colombian issuers for.
For 2022, the government expects a further decline of the physical deficit to six 2% based on the ongoing economic recovery and additional revenues from the oil sector.
We'll move on to Central America through 2021, the region benefited mainly from the economic recovery of the United States and the positive implications in trade and remittances.
Our result, after a contraction of seven 7% in 2020, the IMF projects real GDP growth of six 8% for the region in 2021 with the highest growth in Panama, 12% and El Salvador, 9%, followed by Guatemala, five 5% Nicaragua five person.
<unk>, Honduras, four 9% in Costa Rica, three 9%.
For 2022 GDP growth for the region is expected to be four 2% slightly above the annual average of 4% registered between 2010 and 2019.
The Central American countries are predominantly oil importers decreasing oil prices and the disruption in global supply chains have pressured inflation and will most likely continue to pressure inflation in the region.
During 2021, Nicaragua, Honduras, and El Salvador were the most affected with inflation of seven 2% five 3% and six 1% respectively.
So we can put our motto registered inflation's up three 3% and three 1%, respectively, while Panama registered two 6% inflation.
As of December we had 21 six trillion pesos inactive reliefs or under structure agreements, representing approximately 95% of our total consolidated loan portfolio in.
In Colombia active reliefs amounted to seven four trillion pesos or five three of the Columbia loan portfolio and he Central America relieves amounted to $14 three trillion vessels, representing 16, 1% of the region's portfolio.
On a markdown it for approximately 49% of the region's active reliefs.
If all loans that have concluded the relief periods. Those current currently past due 90 days or more represent approximately 1% of our total consolidated loan portfolio. While those currently past due 30 days or more represent one 6% of our total consolidated.
The loan portfolio.
If we move on to digital.
Some numbers that back up the execution of our strategy during 2021.
In Colombia active digital clients totaled $3 8 million approximately 44% more than 12 months ago.
Our banks sold one and a half a million digital products during 2021, an increase of 59% versus 2020.
60% of old sales of retail products for which a digitalized solution has been developed were conducted digitally.
Our recently improved mobile banking apps reached 1 million downloads in both Android and iOS.
Transactions conducted through a large close bateman gateway.
<unk> Bay Center increased 122% versus 2020.
<unk> using advanced analytics developed based on our unified database platform Augusta have been able to increase effective disbursement by 40%.
<unk>, our programmatic AD platform has allowed us to reduce by 41% our cost per thousand impressions.
In Central America digital clients increased 20% during the year, reaching almost 2 million clients at year end.
Digital sales increased 41% versus 22 2020 through 37 digital products.
DFM, a personal finance management, a personal finding solutions app that helps our customers understand their finances and make better decisions was successfully launched.
Cash or transactional app, despite being relatively recent was one of the most downloaded apps in the region.
Let's move on to ESG.
The past decade, USG has become an integral part of our strategy.
Outside of our subsidiaries, we are firmly committed to becoming better at it every year that passes by continually raising our standards of environmental protection by striving to improve our interactions with all of our stakeholders.
And by pushing for strong corporate governance.
There are a few of our ESG milestones during 2021.
On corporate governance, and risk management, after having implemented ESR rate environmental and social risk analysis systems on bank level with that back and multi bank, we begin to rollout to our other Colombian banks.
And the economic performance front Copa Colombia, I know you showed a 500 billion peso social bond.
In addition, our banks launched green products and sustainable development credit lines among the most important.
ONEOK card in Banco de Bogota, UNICEF Guardian banquet, Occidental's sustainable housing and electric vehicle lines and others.
Regarding corporate deficiencies, we adhere to the United Nations Global compact reaffirming our commitment to the sustainable development goals to wake robot machines, we carry on recycling initiatives recycling approximately half a million plastic bottles.
On talent management, we developed our corporate diversity and inclusion policy bank level without occident. The popular <unk> received the great place to work certifications, we migrated to a hybrid essential slash remote work scheme that will be our standard going forward <unk>.
Meaning an exclusively remote work scheme for some physicians.
Finally regarding the social and environmental initiatives.
Political with bank of Colombia, and that became part of the Dow Jones sustainability Index Banca living with is among the top eight most sustainable banks, we implemented through our subsidiaries environmental initiatives, including our reforestation of the Amazon and the use of renewable energies in some of our branches and headquarters.
Finally, our subsidiaries jointly with our controlling shareholder.
<unk> funded the construction of a $500 million state of the art cancer treatment and research center in Columbia.
Which is currently being staffed and equipped and is scheduled to open its doors doors to patients in the second quarter of this year.
As you recall during September of 2021 bank level with I informed the market of its intention to spin up to its shareholders, including Groupon, 75% of the shares. The bank currently owns of back holding International Corporation BHI, the holding company that ultimately answer one.
100% of the chairs of our Central American banking group back credit market.
Concurrently group.
<unk> informed the market of its intention to spin off to its shareholders. The shirts of BHI received as a result of the mentioned bunk level with us.
There are several reasons behind these transactions on.
On the one hand.
As a consequence of Bax excellent financial performance since we acquired it in 2010.
Accentuated in multi years by the Colombian peso natural devaluation against the U S dollar.
<unk> is currently almost the same size as the toner Banco de Bogota.
In this regard we do not consider it convenient at bank level with the owned and other bank of equal size.
Additionally, the transaction will strengthen our Hudson bank level with our strategic focus on Columbia, because as a result of the spinoff and the deconsolidation of this investment in our numbers, we will simplify our corporate structure eliminate multi jurisdictional complexities and increase our agility and flexibility to respond.
Two the dynamics of the local markets in which we operate.
We also expect to gain flexibility and the administration of regulatory capital as we continue to move towards full Basel III principles.
This in turn should allow us to improve our strategic position to capture future growth.
Lastly, we hope, although obviously cannot guarantee to unlock some value for our shareholders shareholders.
That follows our shares knows.
The multiples at which our shares trade with respect to the company's earnings are comparatively depressed and have been so for a while when compared to those of our peers. In fact, an independent valuation determined that a large share value. After the spinoff would have a price similar to the price at which it trades today.
Under that scenario.
Price multiples to earnings would be fairly comparable to those of our peers.
<unk> shares will trade in the Colombian stock exchange, along with the shares of bank level with Andrew Butler.
I will also traded a Panamanian stock exchange. Therefore, we expect that the stock will be marketable and liquid.
As of yesterday. This transaction has received all the required regulatory approvals and therefore, we will now proceed with the execution stage.
Our intention is to close the spinoffs and delivered a BHI shares to the eligible shareholders by the end of March.
That is the case, our financial statements at the end of this quarter will cease to consolidate BHI into any income derived from the 25% investment at bank level without retaining BHI will be accounted for via the equity method.
Finally, we also expect to book extraordinary net income from the realization of certain OTI accounts at Banco de Bogota, that's a byproduct of deconsolidation.
We will have a better idea of that extraordinary net income among.
But they amounted the date of the spin off.
As Johan will explain to spin up should the spin up should boost bankable with those regulatory capital by approximately 130 basis points.
However to further boost this ratio to absorb other changes to regulatory capital derived from the progressive adoption of Basel III principles bankable with US board will propose to its shareholders to not declared a cash dividend in the upcoming shareholders meeting.
Followed suit as it is the company's unwritten custom to declare dividends in the same amount as it receives from its subsidiaries.
Regarding our financial results Diego will refer next in detail to our financial performance during 2021.
However, I would highlight the following.
Our banking subsidiaries successfully rode the wave of the country's economic rebounds that improved the credit profile of our customers presented growth opportunities lowered the cost of risk and increase recoveries of written off loans.
As a result, we achieved net income of $3 3 billion versus 44% higher than in 2020, and 9% higher than in 2019.
This March 2021, as the year with the highest net income in our history.
Return on average equity was 15, 3% and return on average assets was 165%.
At year end versus 2020 consolidated assets grew by 13, 6% consolidated gross loans grew by 13, 2% 30, and 90 day Pdl's indicators improved by 86% and 66 basis basis points, respectively versus 2020.
2020 cost of cost of risk improved by 100 basis to 110 basis points.
Net income for the year increased by approximately 10% our cost to assets improved by 10 basis points and our funding and liquidity positions remained strong.
I. Thank you for your attention and now I'll pass on the presentation to Diego, who will explain in detail our business results and provide guidance for 2022, I will add that the guidance that <unk> provided for 2022 will be deployed that will not include the extraordinary net income that result, as a consequence.
<unk> of the spinoff.
I. Thank you for your attention once again and Diego Please continue.
Thank you Luiz Carlos I will now move to our consolidated results of Grupo <unk> under Ifr us.
Starting on page 11 assets grew 13, 6% during 2021 and four 3% during the quarter.
Excluding the FX movements of our Central American Operation total assets grew seven 6% during the year and two 7% during the quarter.
Assets grew nine 3% from where you are in Colombia, and 14, 8% in dollar terms in Central America.
16% depreciation over the last 12 months resulted in a 21, 8% annual growth in Colombian pesos of Central America.
Quarterly growth was two 1% in Colombia, and three 5% in dollar terms in Central America.
9% depreciation during the quarter resulted in an eight 3% growth of Central America in Colombian pesos, the weight of Central America, which 37% of our book with BHI an.
H accounting for 32% and 5% respectively.
Moving to page 12 loans.
Loans grew 13, 2% over the year and four 3% during the quarter.
Colombia gross loan portfolio grew six 6% over the year and two 2% during the quarter quarterly performance in Colombia reflected a strong dynamic in retail lending and steel soft one in commercial lending similar to the trends of the banking system.
Demand for consumer loans in Colombia continued to be strong, resulting in a three 2% growth during the quarter and 11, 5% for the full year 12 month growth remains driven by payroll loans with a 15, 7% increase while our quarterly growth included a strong performance.
<unk> products during the year.
Automobile loans grew nine 8% personal loans, six 1% and credit cards to 2%.
Payroll lending and auto financing our main consumers acute products with two 3% and five 2% respectively. During the quarter. These products account for 61% and 7% of our Colombian consumer portfolio.
Both personal loans and credit cards, which account for 20% and 12% of our Colombian consumer portfolio grew at four 3% during the quarter.
And so they're secured retail products mortgages remain dynamic expanding four 7% over the quarter.
10% year on year.
Other hand, corporate lending growth in Colombia continues to be weak commercial loan portfolio, excluding repos grew one 3% over the quarter.
Annual growth to two 9% in <unk>.
<unk> to market trends our growth is affected by a disciplined pricing approach that focuses on profitable growth.
Moving forward business confidence in Colombia, and the positive trends in economic activity to support the strong commercial loan growth rate. In addition, we expect that retail lending momentum will persist as employment continues its recovery and household demand consolidates, allowing banks to extend further into higher risk products.
We have a positive view on 2022 growth despite temporary headwinds in concrete is being the first half of this year derived from the election cycle and yesterday uncertainty associated with the global geopolitical events.
Moving to Central America, our gross loans portfolio increased eight 3% in dollar terms year on year and three 2% over the quarter.
Quarterly performance in Central America, and so recovery.
Nick activity that resulted in three 9% and three 7%.
<unk> in consumer and commercial loans, respectively mortgages increased by one 1% over the quarter.
On pages 13, and 14, we present several loan portfolio quality ratios.
Cost of risk as we turn toward recurring pre pandemic levels.
<unk>, we see that earlier than expected due to a favorable evolution of the behavior of customers returning to regular payment schedules NFS and strong rebound of the economy.
This improvement reflects in a better composition of our loan portfolio metric by knows classified by states.
We leave programs were successful in allowing us to manage the COVID-19 shock with lower impact on our consumer and thus impairment losses than what was expected at the beginning of the pandemic.
That's up December eight.
8% of our gross total gross loans remained under payment holidays, and eight 7% under structural payment programs together accounting for nine 5% of our loan portfolio.
In Colombia, five 3% of our loans have some type of relief only 0.04% of our Colombian gross loans are still under payment holidays.
It relieves our structural payment programs under the part the government sponsored borrowers support program.
In Central America, 16, 1% of our loans, you'll have some type of relief.
This is broken down to 14, 1% of gross loans under structural payment programs and 2% under payment holidays.
<unk> consolidated that remain are concentrated in Panama.
Accounts for 80, 588% of those.
Standing balance of payment holidays in the region contracted 41% over the quarter down to $443 million.
End of period for 3% of our total loans that in the past had benefited either from payment 40 days or restructured and that we've turned to active payment schedules were past due more than 90 days.
This past two loans continue representing 1% of our total.
Gross loans.
And these numbers are six 9% and one 6% for loans past due more than 30 days.
In Colombia, six 7% of loans previously released we seemed active payment in shares.
We're 90 days past due representing 1% of gross loans.
30 days Pdl's. These numbers were nine 3% and one 4%.
In Central America to 7% of loans previously believed that had returned to active payment and schedules were 90 days past due representing 9% of gross loans for 30 days Pdl's. These numbers were five 3% and one 8% respectively.
So significant development.
Zinc recovery after the pandemic PDL formation has returned to pre pandemic levels as reported in our last call third quarter PDL formation benefited.
From over 580 billion pesos of yes, yes.
Doctor group loans returning to current.
Regarding delinquencies metrics for 30 days and 90 days PDL continued improving through the quarter.
Allowance coverage of 30, Aps and 19, Aps also improved over the quarter.
The quality of our loan portfolio improved relative to a quarter and a year ago 30 day.
Two four or 4% or 36 basis points improvement over three months and 86 basis points improvement over 12 months 90, Aapl's fell to two 9% acquainted basis points improvement over three months and 66 basis points improvement over 12 months.
Even though not yet to pre pandemic levels.
The breakdown of our loan portfolio by stages continues to improve with stage, one loans, gaining 91 basis points into mix compensated by 72 access points and 19 basis points decrease in stage two and stage three loans. This improvement was mainly driven by our consumer loan portfolio in both geographies, which recorded.
138 basis points, increasing share of stage, one loans to 83%.
102 basis points decrease in stage two to 12, 8%.
The higher than normal level of stage, two loans will linger for several quarters, but it is expected to move to improve as previously released customers maintain a healthy payment behavior. Throughout this year are fully paid their outstanding balances. We expect this behavior to metro lines and support our positive view on the evolution.
Cost of risk during 2022.
2021 cost of risk net of recoveries was one 9% in line with our previous guidance as a result incorporates between eight basis points, increasing in cost of risk of our total portfolio over the quarter, we had 64 basis points increase in commercial and 15 basis points improvement in retail.
Quarterly cost of risk increased 45 basis points in Colombia by commercial loans and remained flat in Central America.
Finally, the ratio of charge offs to average 19, Aps was 7% times for 2021% for the quarter.
On page 15, we present funding and deposit evolution.
Funding growth during the quarter reflects our still highly liquid environment as a result, our deposits to net loans ratio remained high at 106%, while our cash deposits ended the quarter at 15, 6%.
Our funding structure remained relatively stable with deposits accounting for most of our funding at 76%.
Deposits increased 10, 7% year on year and four 1% during the quarter.
<unk> grew one 5% during the quarter, while Central America grew three 2% in dollar terms over the 12 month period, Colombia grew two 6% in Central America, 7% in dollar terms.
On page 16, we present the evolution of our total capitalization, our attributable shareholders equity and the capital adequacy ratio of our banks.
Both our total equity attributable equity grew 11, 4% over the year, mainly driven by our earnings total equity increased two 8% during the quarter, while attributable equity increased 3%.
As of fourth quarter 2021, our banks show appropriate to one and total solvency ratios.
Moving forward, we estimate that the spinoff described by Luis Carlos will have a positive impact of close to 130 basis points in Banco what das capitalization ratios.
Two forces will improve the capitalization of bank Levy will look up.
First the Reconsolidation.
$20 billion or 46% of bank, when we looked as risk weighted assets.
Now what that will seize to deduct $1 $6 billion in goodwill and intangibles from its core equity tier one and.
On the other hand, some negative elements results from the spin at first $2 6 billion or 36% of.
Equity will be spun off.
The bank will deduct half a billion dollars from its core equity tier one associated with its remaining 25% minority interest in PHA and third bank below what that will no longer benefit from the pipeline. Good $20 million 81 issued by bank International back into National Bank in 2012.
Uh huh.
However, despite this positive effect, we expect Banco <unk> first quarter 2022 capitalization ratios to be similar to those reported for year end 2021.
The depreciation of fixed income markets has led to unrealized losses through our OCI, reducing core equity tier one in addition, yes.
Of Basil III, including changes in operational risk during this quarter is expected to increase risk weighted assets.
To further strengthen banquet, what us and Grupo <unk> capital basis their board of directors recommend to our respective shareholders meetings to be held in the upcoming weeks that neither Banco de Bogota more.
Distribute cash dividends related to 2021 net income.
These recommendations seek tool.
One hand, Brian banquet with Das capital base to capture growth potential putting their upcoming years and as far as far as Grupo Bal is concerned the recommendation to <unk> largely in line with our custom to not distribute dividends unless it's baked dividends by its affiliates.
In recent years I ran in Banco <unk>.
We have distributed an average close to 50% of their admiral netting.
On page 17, we present, our yield on loans cost of funds.
Breads and NIM.
2021 interest rate behavior was driven by a falling average reference rates.
Growth focus on lower risk lower return products and segments during most of the year and by the increase in price competition and bills.
Annual average central bank rate in Colombia contracted 95 basis points to 192% in 2021, while the average three months LIBOR contracted 49 basis points to 16%. These changes negatively impacted yields in both regions during the year.
In this environment 2021 yield on loans fell 98 basis points to 837%.
The spread between average yield on gross loans and the average cost of funds contracted 28 basis points to 598%. Despite a 71 basis points reduction in cost of funds down to 239%.
Despite an increase in rates during the quarter the average yield on loans of 846% and the average cost of funds of 251% for fourth quarter, Steelwork 20 basis points and five basis points lower than a year earlier.
As a result of these spreads are.
Our annual net interest margin contracted 36 basis points to four 8% driven by a $17 17 basis points decrease in net interest margin on loans to five 8% and 64 basis points decrease in net interest margin on investments two 9%.
Quarterly NIM fell 12 basis points quarter on quarter, driven by a 37 basis points when fraction of NIM on investments and up seven basis points.
Unknowns.
Women loans remained stable in Colombia during 2021 at five 6% and fell 53 basis points to six 1% in Central America. The variation in Central America resulted from a slight contraction in DHA and the effect of the full year versus seven months in 2020.
Of a mid teen <unk> tighter net interest margins given that it operates in Panama.
We expect that the rising interest rate cycle can provide an upside where higher NIM on loans with an initial temporary downward pressure given the accelerated pace at which it is happening and in repricing timing differences between assets and liabilities.
Price competition, given the positive macro outlook could also.
Delayed such improvement.
Net interest margin and investments will be under pressure in this environment and could be affected by global monetary policies and geopolitical events.
On page 18, we present net fees and other income.
Rusty income for the year reflects a pickup in banking services and debit and credit card fees as lockdowns preceded and transactional activity recovered to pre pandemic levels.
2021, consolidated gross fees increased 10, 6%, resulting from any 0.7% growth in Colombia, and a 10, 9% growth in dollar terms in Central America.
Gross fees increased four 4% quarter on quarter in Colombia, and 13, 1% in dollar terms in Central America.
Coverage of consumer activity added to the high seasonal behavior of fourth quarter, yielding these strong results.
Income.
The nonfinancial sector was strong during 2021, our infrastructure sector is the largest contributor to our nonfinancial income grew 15, 7% in 2021.
Energy and gas companies decrease their contribution for nonfinancial sector by six 9% given a high comparison base in 2020 from Chromie gasses companies in Peru.
Finally, although historically a low contributor to our nonfinancial sector. Our hospitality business has a positive result during the second half of the year as well.
And see rates rose. Despite this improvement its annual result was 14 14 billion pesos loss.
Finally on the bottom of the page other income was lower than a year earlier. Other income included optimization strategies executed during the fourth quarter of 2020.
And income from non consolidated investments increased due to a recovery in equity method from <unk> associates, and a 45 billion pesos extraordinary dividend from Grupo <unk> well with that.
In the third quarter of 2021.
On page 19, we present some efficiency ratios.
All our business units continue implementing cost contention initiatives during 2021 cost to assets for 2021 was three 3% down from three 4% in 2020.
Cost to income was 47, 6% up from 46% a year early earlier and stable relative to 2019.
Cost to income was affected by a 36 basis points contraction in NIM and a 10, 5% decrease in our income from operations given the high comparison base in 2020.
Other expenses increased 7% year on year with Colombia growing five 6% in line with inflation and Central America at six 9% in dollar terms.
<unk> was impacted by five additional months of consolidation of MF team without the effect of <unk>. Other expenses would have increased 6% forever, one and four 8% in dollar terms in Central America.
Personnel expenses with two 6% in 2021 with Colombia growing three 9% in Central America, 1% in dollar terms.
General and administrative expenses increased 10, 1% in 2021.
General and administrative expenses increased four 7% in Colombia, and 15, 6%.
In dollar terms in Central America the.
The increase in Central America is tied to expenses associated with the recovery in fee income and to increased marketing expenses.
Depreciation and amortization were one 5% year on year, depreciation and amortization increased 2% in Colombia and 1% in dollar terms in Central America.
Finally on page 12, we present, our net income and profitability ratios.
Attributable net income for 2021 was three.
<unk> 298 billion pesos or 148 peso per share 44% higher than the result for 2020.
Attributable net income for the quarter was 777 billion pesos or $34 nine pesos per share.
Our return on average assets and return on average equity for the year were one 6% and 15, 2% respectively. These ratios were one 4% and 13, 7% for fourth quarter.
Before moving to questions and answers I will now summarize our general guidance for 2022.
Given that we expect to complete this peanuts, a 75% of the PHA. Shortly as he is to consolidate BHI starting this call our guidance will refer to our continued operations.
We expect loan growth from our continued operations to be in the 14% area with commercial loans growing in the 12% area in retail loans in the 16% Terry.
We expect our cost of risk net of recoveries to be in the one 6% barrier, we expect full year NIM to be in the four 3% to four 5% range with Newmont notes between five four and five 6% benefiting from a slight positive effect from the rising interest rate scenario.
We expect cost to assets to be close to the two 6% area or a 20 basis points improvement versus the comparable metric in 2021.
We expect our fee income ratio to be in the 15% to 17% range, we expect our nonfinancial sector to contract for 85% relative to 2020 ones. Finally, we expect our.
Our return on average equity of our continued operations to be in the 15% area.
Regarding BHI debt will no longer be consolidated by a while after the spinoff we provide the following guidance in dollar terms, we expect loan growth to be in the 7% area with commercial loans growing in the 10% area in retail in the 6% area.
We expect cost of risk net of recoveries to be in the one 9% <unk>, we expect full year NIM to be in the five 8% to 6% range with NIM on loans between <unk>, 7% and six 9%.
We expect cost to assets.
We'll be in the four 3% therapy, we expect fee income ratio to be in the 30% to 32% rate. Finally, we expect the return on average equity.
Try to be in the 13% area.
With this we are now available to address your questions.
Thank you.
We will now begin the question and answer session.
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We have a question from <unk> from Scotia Bank. Please go ahead.
Okay.
Hi, Good morning, Thank you for taking my question.
My question is related to the potential capital rise.
In a previous call you had mentioned.
Dan.
It was an option to raise capital or bank global with that so I know you.
You mentioned that there is going to be a dividend payment would that'd be enough or is the capital rates stayed on the still.
It's still an option. Thank you.
Thank you one for your question.
Well, yeah as you as you mentioned yourself a.
The proxy for raising capital, it's obviously not distributed in dividends and Thats what were doing.
What we've noticed so far is as we mentioned in the call is that the spin up by itself will race bank global with those capital ratios by about 130 basis points.
And obviously there'll be a.
Further positive by now distributed in dividends with all that in mind.
There really should not be a need.
For any capital raises but that does not mean that.
If we see the bank grew.
Growing the way, we expect to do.
We might later on.
And in the year consider an additional capitalization, but for now as I said.
With.
The actions that we've taken.
There is absolutely no need for capital at the bank were at Grupo <unk>.
Okay.
Yes.
Okay.
Thank you. The next question comes from Yuri Fernandes from Jpmorgan.
Thank you Luis Carlos Diego I had my first question regarding the relief on your asset quality and asset quality was good to highlight on the consolidated entity.
Big movements, we saw.
This has been long in the 90 days so asset quality was good in the quarter, but when you were explaining their relief during the presentation.
Got that nine 5% of your total loss the IC.
Still on the release.
As in the previous quarter. This number was $9 eight so when you put when you plot that these on yard nominal balance.
We see there we need to book, mostly stable quarter over quarter. So my question is is this real the case like the amortization, it's kind of decelerating on the release I don't know if thats true and maybe you can just driven by by Central America, but there wasn't a check information and also.
Quality, we need I got here what percent of your total loss.
Are all released they are a pass through.
This is about maybe 10% on the on the total loans under beneath the right. If you take 1% of their total loss there because we are getting about 10%.
90 days NPL ratio for the relief and we see lots of these for the 30 days.
Is something around like 15, 16% so.
All in all I just wanted to check that will lead to an electric you can provide more color explain little bit better what is happening with the amortization of the asset quality I guess that that would be interesting and if I may a second question regarding growth.
Yet here on your guidance for Colombia.
14% loan growth like this for me seems to be ahead of the market and you mentioned many times on your presentation a compression on spread some more competition. So my question is are you.
Bob maybe I bought banks getting more aggressive regaining market share and maybe this is a reason for <unk> or do you see this competition speech more other players and not all banks and I'm just trying to understand what is your strategy for price. We are such a core spreads on rates and if you are planning to kind of regain market share until we get them.
Sure you will be more aggressive on price. Thank you.
Well.
Very good questions you have.
Down three different questions. The first one regarding the mechanics of the relief and how the numbers should evolve.
The reason why you should expect to continue seeing the number for relief.
Do we relatively stable, though falling in time is that anything that was believed regardless that it is paying or not.
We have mark Sun, particularly for the part of the portfolio that was under the past the government sponsored borrower support program. We continue to market in this category so to try to bring numbers down.
Out of that $9 five around 8% of our gross loans is what remains under payment holidays and that includes mainly what comes from Panama in Central America in the case of Colombia. The number is 0.04, so you're talking a very very slim number so in that sense you could say.
That leaves our over except for the Panamanian ones that are falling very fast around half of those reliefs.
Went away during the quarter, but part of those goes to something structural and that's what we continue reporting on continued traction.
As a matter of fact part of what we did at the end of the year was we increased we included some overlays on part of these loans that had been.
At some point in time and that yet needed to prove that they would return to normal so.
Trying to give you an idea of what we're expecting to the future we should see that number.
Trailing down however, until these loans go back to fully normal fully normal means over a year of experiencing.
The proper payment performance or being paid out will you start to see those numbers falling so that that is something that should be happening later on during the year and it was not your question, but to give you. Some additional color. That's the reason why our guidance on cost of risk for the full year.
Is lower than what we already gave for for the last part of last year and it does that we expect to see a positive evolution as those loans actually demonstrate that they are back to normal. So that was question number one regarding what we expect from relief and to try to match that to the rest of the <unk>.
Then regarding loan growth.
We've picked up the number on loan growth, bringing into consideration two things. The first one is we've seen inflation picking up so part of what brings this number.
Higher is also our view on a higher inflation that we as Carlos mentioned before.
No.
Real terms this is not as large as a change to what we our view was previously then the second piece is you're absolutely on the spot we have an aspiration and that ties to the bancorp.
Or the BHI spinoff to see recovery in market share that our banks gave away and that's built into our numbers and built into our strategy.
What what are we thinking regarding that it's a combination of two things one what the bank has to do internally and it ties into a stronger commercial activity and other changes in the way they approach the market and then part of what has slowed us down in the.
Let's say the latter part of last year. It was aggressive pricing in the market that in our pricing models was not profitable growth to say it in other words those were businesses that in our numbers might be losing money in the long term however, with the behavior that we're seeing.
From the economy this year and the dynamics in the market, we expect to see pricing to return to more reasonable levels. So it's a combination of things that we're doing internally with how we see the market.
Evolving then spread spread wise.
Perhaps the toughest question.
All because we're seeing the central bank raising rates very fast.
Under a normal scenario, where this would be.
A progressive process, where.
Rates were going on up slowly we would have a chance to catch up between assets and liabilities and get.
Our benefit our NIM in the short term.
We expect to see in the longer term than it is to see our spreads on loans to expand due to a higher interest rate environment. However, the speed does determine what happens in the short term the repricing.
<unk> says between assets and liabilities might put some pressure initially.
And finally.
We mentioned competition around a stronger Colombian economy.
Pricing also includes.
Cost of risk, it's implicit in how we price our loans through a better view on air and provisions also built into our NIM.
NIM, perhaps the way we look at these numbers as NIM after cost of risk is a good way to think about how those numbers will be evolving and in that sense. The combination of those two should have a positive.
In fact.
Regardless, the sort of growth that we pointed to.
Thank you.
Our next question comes from Nicolas Riva from Bank of America. Please go ahead.
Thanks, very much Rick Carlson, John for taking my questions I have three questions. The first one on the 2022 bond you're gone.
How do you plan to finance, the 1 billion, but our maturity in September .
Second question on on the spin off. So then you said you see no need to raise capital at this moment, the bank level with or above level, you're not going to pay a dividend at this point.
When you talked about the guidance for the capital ratio you said.
130 basis points.
Positive impact on bank level with that because of the spin off does this include all of the impact really from the spinoff. So the reconsolidation of the risk weighted assets.
You will not have to.
All of that.
Already factored into that assumption.
Projection and then third question on the election. So this year Columbia Hospice, you don't you have elections, and we know that it will follow up items.
Paul.
If you can talk about what specifically that <unk> tried to do regarding the banking sector.
My concern basically it would be higher taxes on we know that the banks are already buying patterns are kind of on the corporates and also touches on won't detract from shareholders' equity that I know that Columbia has implemented in the past, but also if you can discuss your thoughts regarding the risk of Nationalising pension funds, which I'm sure would have an impact on perennial and what's the likelihood that he.
Be able to do such a thing thanks.
<unk>, Okay, let me start with the first one which is a 2022 bond Nicholas.
We have the funds in place basically to pay that bond already remember that our strategy. When we have taken taken that internationally has always been to take the money that we received from the issuance of the bonds and we.
We invest those in turn into our own.
Into our own subsidiaries those that either do not have access to the international markets or they do but they would have to borrow at a higher cost than our Val itself. So what we do is that we lend that money to those of our affiliates that are in those positions and we matched the maturities.
Of the loans that we make to them to them.
Maturities.
Our own bonds in this case.
We have the money for the 2022 bonds are either in short term.
Deposits that we have already liquidated the bonds.
I'm sorry, the loans that we made to our subs and have received the money and put put them into into liquidity and then we have some but the other part of the money is still out with our affiliates and they will repaid to us before the maturity in September of 2022 bond.
That's why.
September two in 2022 bond as we announced when we were marketing.
The 2030 bond.
2022 bond will be paid.
Okay.
So.
Regarding your question on does this include all the effects. The answer is yes. It does.
<unk>.
I'm going to try to give you another logic on why the numbers are favorable. The reason why they are is when you think of the spinoff you're spinning up a 100% of the risk weighted assets.
We're spinning off.
75% of total equity however, youre also spinning off.
The goodwill that is a substantial portion of what is being spun off so when you think of how much of the equity is being spun off I mentioned $2 6 billion, that's 36%, but out of those $2 6 billion $1 $6 billion is intangible therefore, what youre actually.
It's bidding up is 1 billion.
Intangible equity from Banco de Bogota that is around 14% of Banca <unk>.
Equity or regulatory equity after you deduct this intangible so so in fact, we're taking away 46% of risk weighted assets, but you are taking away 14%.
Tangible equity so that's the main driver there is the other element that I mentioned.
Particularly the 25%.
The investment gets deducted as a minority.
Investment in.
Financial company.
Then there is something that is replaceable later run that does have an impact on it does the 81 that we.
You should add back International Bank.
Get social spun off therefore, banquo Dow will not benefit from that so that's the reason why we end up with numbers that are positive.
It is mainly that a big portion of what we're spending up is intangible equity.
With the risk weighted assets. So so back to your question does this include all the effects.
Yes, it does.
Okay. Okay.
Your third question regarding Mr petrol yes.
Yes, as you mentioned he is ahead in the polls.
But this past Sunday was a very very interesting exercise if you think about it.
On the one hand.
Petro obtainable 5 million boats.
His own.
Sure.
Primary if you will.
Okay.
But the interesting thing to contrast with that.
Is that his party.
Only got two and a half million votes for Congress.
So there is a difference a substantial difference in the votes that he got himself with regards to the or in comparison to the votes. He got poor he is.
For each one party.
<unk>.
That leads us to.
Understanding that the composition of Congress.
It is going to be.
As always very very important and his ability to pass laws as always and as it worked anywhere else regarding the.
Points that you mentioned higher taxes taxes on wealth taxes on the banking system.
And the.
And we will talk in a second about his mentioning.
Nationalisation RFC causes the Democratic station of pension funds.
So.
Yes. He is still ahead.
And.
We have to see.
Whether the 5 million bonds that he got.
One will repeat and the first round of the presidential elections, they might but secondly, remember that we expect between 20 and 21 million votes were precedent in a presidential election. So there is still a large.
Territory to be covered.
And we have to see where the other 16 million boats go.
Even if he got all the votes.
He is.
Coalition got in the in the primaries last weekend.
There are still about 10 million votes that we would have to see where they go and the presidential elections now even if he wins.
Congress has already been voted on and its already been composed.
Even though his party got the majority not.
Got more.
Seed selected then the other party.
If you didn't get the majority of Congress, not even close and not even if.
If you add up those other parties that you think would probably be.
<unk> coalition with them when they vote in Congress.
So we're still a ways off.
Meg.
Okay.
Suffering if you will the consequences of what of what he said regarding higher taxes taxes on wealth and taxes to the financial system.
We will see we will see what Congress bolt on that too. So we're still a ways from that you also mentioned that the Democratic decision on the nationalization of the pension funds and obviously as you said it was that happened that would have a very large impact on Porto need input the John and all the other pension funds in the country.
<unk>.
But there was a national outcry I don't know if you follow the news in the last couple of days, but since he came out and the debate and talked about that in for the first time. He was very straightforward with his intentions.
There has been really a national outcry from.
Affiliated people to the pension funds coming out and saying Hey, no. What you said is wrong those pension funds. He basically said in the debate of the pension funds to belong to the owners of the pension fund administrators and.
No that is absolute.
Not true absolutely not true so so again.
Yes, it did uncomfortable, yes, absolutely I mean theres no doubt about it do I think that that's a done deal no I don't think by a stretch of imagination. It's a done deal I think there's still a lot more.
That has to happen before those election can those campaign quote unquote promises become reality.
Thank you.
Our next question comes from South of Shanghai Jaeger from Ashmore. Please go ahead.
Hi, Good morning, Thank you for the presentation.
Several questions the first one.
Just a follow up on capital and the positive effect that you mentioned on the 130 basis points on Bogota I'm wondering if you could clarify the OCI effect that Diego mentioned in the presentation because it seemed that day.
OCI unrealized losses may mitigate the positive effects from the 130 basis points. So that certification will be will be nice for the first question. The second question is.
Also a follow up on the comments that Mr. Ricardo mentioned on on capital increase you mentioned that you probably.
We'll need a capital raise but it could come later on in this year were wondering.
If excess cash could be inefficient capital location at bank level with that and we're wondering if you're thinking about M&A activity in Colombia.
To foster growth at Banca <unk>.
And the third question will be on risk appetite on consumer loans, you provide a guidance of 16% for retail and we're seeing higher growth.
On unsecured lending can you talk about that.
And what could be the strategy on a sustainable basis. Thank you very much.
Yes.
Going through your three questions. The first one regarding the negatives that are offsetting the positive benefit from the spinoff.
You mentioned one of those and Youre absolutely right. The OTI is something that is moving and we expect to continue to see moving over the remainder of the year as the global interest rate environment picks up and that affects banks either through OCI in a case, where we're concentrated in fair value to OCI or FX spanx.
Directly to P&L.
If you have those as fair value through P&L, so either way it ends up getting capital from banks and Thats, a global trend that we see happening and it also affects our however, there is a second piece of.
Of what I mentioned that perhaps I need to highlight more and that is part of the transition tool.
Basil III includes changes in operational risk.
Starting this year.
A trigger and this is one of the last previous on the and this presentation.
That will be generating this sort of effects and it says.
Not to get technical there is some.
Coefficients that are determining what is the translation from operational risk into risk weighted assets, it's pretty substantial what we expect to see in the in the Colombian market and Thats why the order of magnitude.
The combination of these two effects adds to around 130 basis points or 100 basis points or something like.
In that area so.
Youre right on the OCI not only for <unk>, but for all the banks in Colombia and around the world, but what is particular at Columbia and all the Colombian banks is this.
The next step in.
Operational risk <unk>.
Regarding the capital increase that you mentioned like any bank level with as you say well first.
The numbers have proven that that there is no. There is no capitalization needed just because of the spinoff as DSO was just saying.
But then again I did mentioned that if we needed to we would consider a capitalization and the remaining part of the year.
Obviously as you also mentioned, we we wouldn't capitalized just to sit on cash.
That would be as you said the most inefficient use for capital.
Would consider it for growth and obviously, we would consider it will consider capitalization for M&A.
At this point.
Don't have anything particular in mind.
But we do have growth in mind in the mindset of.
The group right now is.
Around growth around profitable growth, but around growth and so if that was the case.
And this is all our banks.
We are always.
We're always very very observant of what happens with growth growth requires capital then we think that's a very efficient capital need.
So yes, that's why I said that for now and just because of the spinoff no capital will be needed, but we would not stop considering our capitalization.
We just don't know what amount yet.
And finally, you had a question on risk appetite and it was as I understand it right are you have you raised your risk appetite and the answer is yes, we have and yes, we have because we've seen an improvement in performance that we were waiting for to open up.
To some areas that we had.
Diverted from during the pandemic to try to be quantitative here.
Things that we have already seen is loan formation past due loan formation is back to pre pandemic levels and if you look at that.
Broken down by kind of.
Of loans.
By segment, we are starting to see exactly the same behavior not only in the aggregate, but also segment by segment and then if you think around stages.
At this point the stage two is still more than what it used to be pre pandemic. We are around 11%, 12% of our loans are in stage two the pre pandemic levels or more.
The 5% area. However, when you built in all the overlays and those loans that are categorized as stage two because they were relieved at some point, but are behaving we see factual evidence that numbers are going back to to normal to pre pandemic levels.
And that allows us to go back to some of those products that are particularly risky in the environment that we live to over the past couple of years. That's the reason why when you look at our third or fourth quarter numbers youll start to see much higher contribution.
Credit cards personal loans and those sort of loans that we had de emphasized in the past the same applies to sectors of the commercial loans. There are sectors that were much riskier before that as the market evolves.
Appeared to be much better and finally, the other number to look at or that we look at is unemployment unemployment is improving at a rate of around 200 basis points per annum, we see that continuing into this year and that brings numbers back to the kind of.
The environment in which we feel comfortable to be.
Let's say not more aggressive but back to our normal appetite, we had gone into a risk averse mode over the past couple of years and we're back to something that is.
I don't have all standard.
Thank you. Our next question comes from Danielle <unk> from Credit Corp capital.
Hi, good morning, and thank you for the presentation I have just a couple of questions. The first one is a follow on on the capital ratios I will just to understand.
130 basis points of improvement.
The capital ratios that will be reflected in the second one.
We think the latest fever.
For quarter.
One of my global Lasalle.
It's two things.
And then 0.2%.
100% improvement we can reach a figure of 11 following slides I will let just to confirm these fever and also us what will be your turn I'll say it one.
Guidance or targets.
All right. So one thing in common.
So we standards considering the peers.
<unk> said one ratios around.
12%.
And my second question is regarding the spinoffs of box.
Considering that you already requested the suspension of the trading of stocks available to tie into next week.
I guess, if we need to.
We'll have more more information regarding the exact number of shares.
Backhaul being international will have on ultimate change terms between.
Those are those investments that we will have the chance of social governance.
We carry a lot of Thats, what you have and if you said overtime due to finance yourself vessels are international.
My two questions. Thank you so much.
Okay.
Starting with your question on capital.
Ratio.
As I mentioned in absence of.
Of what is going on in the market.
And the OCI.
Operational risk that we discussed before.
What we would be seeing something in the order of 130 overall improvement.
Perhaps in a similar ratio of 120 to 130 could be happening in core equity tier one however, the things that I mentioned before do affect the ratio.
The OCI effect directly core equity tier one as it is.
Yes.
A lower number on.
Equity therefore, it's a lower number of core equity tier one and then the ratio wise the increase in risk weighted assets also puts pressure on that number.
What we expect to team is.
And some slight improvement when you compared to December steel and improvement or something of the same order of magnitude.
From a combination of the positive effects from the spinoff and the negatives that I mentioned before.
The number that you will see falling is the H one bucket because we're immediately after the spin out that number.
<unk>.
And when you think of totals.
Vinci the total solvency in their numbers should look similar to the number that we are reporting on this call.
You also mentioned a comparison to peers, that's actually a moving target at this point.
We.
Set it banquet without we're not distributing dividends, but for example, our closest peer is trading around 70% of equity. So that's going to be somehow a lever on how the comparison looks like so we have to see how the rest of the numbers move on to try to give you further.
And then kind of what our longer term view on core equity tier one looks like.
Then moving to your second question I think it's already a public with what we've done yesterday, but the logic that we followed here is when.
When we.
This has been public for some time, but when we spun off when we're going to spin off the spinoff.
BHI from <unk>. The company that received those shares will issue each shareholder of Banco de Bogota share for each share that they have at Banco de Bogota, then you repeat the same logic at the level where.
We're the shareholders are all will get a share in each one of the recipients.
In the recipient company is they have a model. However, you are absolutely right the numbers of shares.
And of banks, Toyota and BHI are different so in the process of the merger we have to normalize that and the plan that we have is to normalize at around the number of shares all while building up in proportion to that to come up with the number of shares.
<unk>.
Of VA type so if you're a shareholder of about currently what you should expect to see is to receive our share of the new company after.
Spinoffs in the merger happens when you normalize the numbers and you take the largest common denominator to do that.
<unk> is going to be like about 42 billion shares.
Okay.
Thank you. Our next question comes from <unk> <unk> from <unk>.
Hi, everyone and thank you for having our questions I have three question. The first one is just like if you can repeat the number that you said of the possible number of tours that.
China will have the second one.
And this is connected to the third one is the impact that we saw in during the quarter in efficiency and in the provision expenses.
Of course, there were on it and.
In effect a negative effect in the efficiency ratio. So I will I would like to know if there is there will be a another operation during <unk> radio and the provision expenses just to understand why the provision expenses like changed a little bit dynamic that we.
We're seeing during the previous quarters, there was a decrease in provision expense during the FERC acquired there was an increase.
Okay.
Okay.
Regarding.
The efficiency ratio.
We had.
Two questions Sufficiency, and then cost of risk cost of risk as I mentioned during the presentation. We had some additional overlays basically trying to leave the pandemic behind where we reviewed again all our portfolio all of the sectors and had some overlays.
That implied slightly higher provisions within actually the guidance that we had gone done given out throughout the year.
The way those overlays to.
To make sure that I'm not being too technical here is the models automatically we're trying to return loans from stage two into stage one.
Given the improvement in performance and what we do at that point, because we force in certain segments.
Or certain.
Customers based on on a regulated logic.
Do you say.
That we need to apply there.
We forced them to stay in stage two therefore, those that were due perhaps to mechanically.
Provision expense did not do it.
What we did was basically go through sectors and customers. It's a review that we've been running on quarterly basis, and we've tried to have a more stringent one at year end two as I said to try to leave the pandemic behind then efficiency wise. There is a couple extra ordinary items in expenses that affected.
<unk> cost during the fourth quarter.
In addition, there is a seasonal effects that if you go back into our numbers you will find systematically where fourth quarter is higher than first quarter not only in expenses, but also income fee income and other sorts of activity because fourth quarter is always a much stronger quarter that happens in Cologne.
And much more visible when you look at Central America.
The impacts that we had in Colombia were mainly two the first one was we made some provisions that go through expenses provisions related to customers from the mandatory pension funds trying to move into the public pension system.
Outside of regulatory terms that those are legal processes.
And what we've observed historically is they.
Get systematically one by the customers. Therefore, we provision in advance for those legal proceedings that added to around $120 billion in expenses and then.
The other thing that we did in Colombia.
Was <unk>.
Given that we're closer to the end of the.
The Pacific for a project.
We reassess some of the expenses and included some provisions.
To cover.
Our cost overruns that we signed a project and that added somewhere between 60 and 80 billion pesos. Those two were events.
In Colombia that add to our seasonally high performance that you can go back in time.
Check.
And to answer your question.
Beat the number that I told Danielle before the number of shares of BHI is going to be somewhere around 42000 million shares.
Thank you. Our next question comes from Nicholas Pardon Me.
<unk> from Jefferies. Please go ahead.
Hi, Thanks for the call Congrats on the results I had the same question about the 'twenty twos bond. So thanks for that answer.
Just one follow up there would be if you can comment on any near term funding needs.
In the international market or how you are looking at.
Your your bond curve.
And any color you can share with us about buckled up all the time would be great.
And then regarding the rating agencies.
Do we see that you are below the Colombia sovereign from Moody's, but flat rating.
From Fitch. So if you can give us an update there on your conversations with the rating agencies.
And linkages to the Colombia sovereign.
Especially considering now that the exposure elsewhere outside of Colombia changes a little bit as a result of the spinoff. Thanks so much.
Alright nickel is on the on your first question on the 2022 bonds.
Thank you. So you have that question, but.
It's been answered and and the answer is yes. As you said it stays the same we are going to pay that one.
We don't have any right now.
Any plans to go out.
At least this year.
To look forward for new funds in the international markets in terms of a run in terms of Banco de Bogota.
I think that the answer is the same day they would not have to go out in the markets. This year.
And regarding the rating agencies Diego can update you on what conversations we've had with them but.
Yes.
As a customer.
I think Moody's is one of them is that they always a sign.
One rating one notch below bank level with that as a habit is accustomed we've always fought against that but that's what they do but.
But I don't know deal with what comes out Im actually sorry, not to be able to give you any additional color.
The connection between the sovereign and.
And our rating beyond.
What they've done historically and it is.
The rating of the country. It does the terminal put a ceiling on the rating that we get in the banks.
And perhaps.
We might see a positive year because in the past we were getting.
Double punishment, we were seeing based on the Colombian rating, but then if something happened with the ratings in Central America, We got negative effects as we've seen in the past and as some of the rating actions have been taken.
Over the past years.
We did have an effect of the downgrade of Columbia, but most effects were coming actually from Central America from what is happening in each one of the countries and we are hopeful that with this separation.
We get affected only by the Colombian side.
Given the much smaller way that the central American business, we'll get for us so sorry, not to be able to give you something more more aim.
Right on that front, but that's the best that we have.
Thank you we have a question from Jose <unk> from Citigroup. Please go ahead.
Thank you hi, everyone. Good morning, Justin.
Two questions one related to the guidance. If you could please repeat a couple of items that I couldn't really hear with regard to the new or range that you're expecting.
For awhile.
And the fee income on a non financial sector seniors. Please.
And the second question is really just a follow up.
With regards to what it was.
Yes.
Talk about related to provisions just wondering.
<unk>.
Coverage level are you would you be comfortable with.
<unk> two.
Considering the sectors or are the drivers of loan growth could we expect something to current levels of coverage.
Well.
I'm going to try not to go again over the whole guidance for <unk>.
Benefit of the rest of the participants in the call. However, I am going to go back to what I said a NIM.
And NIM, we expect to see.
Something in the four three to $4 five range with loans in the five four to five six range implicit in those numbers is something neutral perhaps.
For investments.
You were also asking on cost of risk.
What.
We expect to see in cost of risk has to be in the one six.
Area.
Quarter wasn't a one 9% area and that ties to our view of improvement or good performance of those loans.
That had reliefs and have been performing.
Early.
Regarding coverage coverage is something that moves depending on different conditions.
At this point.
Part of what we still might have to do into the following.
Quarters is as the loans from the pandemic relief.
Either improve or goes out where we should be writing off some of those and that will move our coverage ratio. However to give you an idea our coverage ratio has been pretty stable.
Let's say somewhere around the one one and a half to one seven area.
The 90 day, Pls and Thats, a reasonable range to look into.
Thank you and we have no further questions at this time I will turn the call over to Mr. Segmental with DFS for his final remarks.
Thank you very much and help and thank you to everybody who's on the call and who is being on the call.
We will.
Continued to try to deliver for you guys and after the spinoff.
We will see what.
Guidance, we can continue giving you on.
BHI, we'll have to see what guidance we can give.
But we will definitely continue giving new guidance on a continued operations. So with that I leave you. Thank you again and as always our phones are open and if you need to to ask any additional questions.
That we can share with you will be more than happy to do so.
We will see you in a quarter I guess, thank you very much again.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.
Okay.
Okay.
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