Q2 2022 Bancolombia SA Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to ban Colombia's second 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 their prepared remarks, there will be a question and answer session.
During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
Note that this conference is being recorded.
Please note that this conference call will include forward looking statements, including statements related to our future performance capital position credit related expenses and credit losses. All forward looking statements whether made in this conference call and future filings and press releases or verbally address matters that are 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 introduction of competing products by other companies.
Lack of acceptance of new products or services by our targeted clients.
Changes in business strategy and various other factors that we describe in our reports filed with the S E C well.
With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Mauricio <unk>, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief risk Officer, and Mr. Juan Pablo Espinosa Chief economist.
I will now turn the conference over to Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Juan Carlos you May begin your call.
The conference is now being recorded.
Hello, and good morning, My name is Chad I'll be assisting as the operator for today's event I understand that I have.
Interruption in Colombia is that correct.
Please just one member all we start our event. Thank you very much.
[music].
Good morning, everyone welcome to our second quarter 2022 conference call.
I am pleased to report a strong second quarter for Bancolombia.
We delivered a profit of 1.8 trillion pesos on an arrow E or 23%.
Through Q2.
E strategic emphasis on strengthening customer relationships is paying off.
Our commercial and retail banking businesses, which seem to solid evolution over the last quarter.
Corporate and consumer confidence.
E elements to a significant economic growth in Colombia.
Loan book grew up all.
But the patients expanding originations across all segments.
As he felt it in Bolton revenue grow.
Good macroeconomic environment in the different geographies, where we operate has driven a higher volume of transactions contributing towards stronger client engagement.
Higher fee generation.
The economy in Colombia during the year has experienced a very positive performance high commodity prices group. The terms of trade. It continues to pick up of domestic demand and he talked about recovery of employment rates are supporting a strong economic dynamic.
What was the second half of 2020, we'd.
We see several challenges right.
Columbia class expands and accelerated.
Now you monetize policy that has started.
The end of September of last year, when the Central Bank raised gradually its reference rate from 170 plus percent.
Duane in June of this year at a level of seven.
5%.
And it stands currently at 9%.
As a result of these economic growth should slow down in the upcoming quarters.
Deceleration, becoming more evident in the next year.
Great demand this is expected.
Decelerate in the second half and continued strength in 'twenty two 'twenty three.
This impact.
Sure Okay.
In all lending Brooks.
After exceptionally strong growth levels.
The economy.
Asset quality has remained healthy.
However, we are aware that economic policy tightening trends might potentially cost credit deterioration going forward.
Let me touch briefly on the highlights for the quarter.
We increased loans and deposits are at very good pace.
We have seen not only a high rate of new.
Customer loan originations, but also improving utilization from existing clients.
Okay.
Net interest income has benefited from a dynamic commercial activity.
The main drivers of profitability has been the continued expansion of mortgage alongside the good performance on loan volumes.
On the credit loss of sight better than expected economic trends have allowed us to release a portion of the E. We say if we built during the pandemic.
Also we are pleased to announce that Mickey.
Authorized but the final superintendency to be incorporated as a financial company.
This constitutes a required step to obtain the operating land license that will enable mickey to function as a separate entity.
Nicky will continue to be 100% part of Bancolombia.
This new stage doesn't represent any change to nicky's customers in terms of services.
Teachers.
<unk>.
At this point I want to Thailand, the presentation to Juan Pablo Espinosa.
Further elaborate on the performance of the Colombian economy.
Pablo.
Thank you Juan Carlos now please go to slide number three in the presentation.
Let me start by saying that between April and June economic activity in Colombia.
Dynamic performance seen at the start of the year internal demand was again the main driver well due to a further expansion of that consumption in public spending.
Addition, higher trends, so great and currency depreciation allows experts to grow without a rapid pace. Our GDP growth estimates for the first half of 2022, you saw around Panda and 5% year on year, reaching seven outstanding we sold by global standards. However.
We are reiterating our calls that the Colombian economy entering into our pace of growth moderation.
Leading indicators for the third quarter suggests that activity is already losing momentum for instance, our now casting motto.
The GDP expansion up four 6% year on year end on July down from the 12.4% estimate for the second quarter.
Accordingly, our latest growth estimate for the second semester of 2022 is four 1%.
This trend will consolidate date during 2023, when we foresee that the economy will grow below potential either rate or two 3%. This will be the result of lower global growth. The removal of policy stimulus. This stabilization of household consumption.
And your certainty is stemming from the measures that they know quell burmans might adopt.
No there <unk>.
One development piece that inflation has accelerated during the past months, so that it reached 10.2% year on year in July this year.
Is that how you screen seems Colombia adopted inflation target needed scheme at the start of the century.
Even though food.
Is it in the components of the CPA with the largest price increases or inflation is there.
I really am tenancy, but this shows that the current inflationary phenomena is not only due to supply shops, but also to a certain demand pressures and to the operation of indexation mechanism. We believe that these forces will know dissipate soon and we anticipate that.
Annual inflation will fluctuate between nine and 10% for data remainder of the year. Furthermore, risks are biased to the upside in case, the new administration decides to revise subsidies to gasoline prices.
I just had a response to this challenging scenario, we expect that the central bank will adopt a more contractionary monetary policy stance.
The weird rollout for one on broadband.
Basis points hikes by expression I've seen recently, we've seen that there is still some room to go in order to contain inflation expectations.
Accordingly, we believe that the terminal level of intervention rate cycle could be between nine and a half and 10%.
After a deep economic overview, let me turn the presentation back to one one.
One.
Thank you Juan Pablo.
Moving to slide number four.
I want to continue this presentation by explaining the loans and deposits with Forbes.
The main driver for growth during the second quarter was commercial loans growing.
Over 10%.
Where we highlight the operation in Colombia that we've seen a good dynamic on originations.
Retail loans continued their strong momentum with a growth of more than 23% year on year.
Our strategy to expand the approved lines with great.
Eight of the Liberty a higher rate.
Team sanctioned by our customers why we said have been there has to be.
The World Richie.
Lending.
Grew 16% showing a very positive evolution.
In our liability structure, we continue to see strong activity in deposit taking.
We still see an important contribution from savings and checking accounts to support our funding needs.
Although growing at a slower pace than time deposits that we activated significantly and recovered its pre pandemic share within the deposit mix growing 12%.
<unk> intends to promote medium to long term deposits grow seeking to have a stable source of liquidity.
Moving to slide five I'd like to continue the specific paint you by providing some details on our funding strategy with multilateral banks.
We're proactively financing that awash in liquidity needs for the medium and long Guan with monster.
<unk> banks.
On Colombia has been granted lines of credit for over $900 million.
Right.
Sustainability goals by the international Finance corporations, IFC and bite the inter American development Bank.
IDB.
As Youll see on slide six we remain committed to our plan to these sports.
On the Trillium basis on the ESG criteria by 'twenty.
By the end of second quarter.
Have originated 80 trillion Colombian pesos, although our goal of 100 trillion pesos for this year.
These loans have been directed mainly to climate finance sustainable credit lines and Joe gender equality.
Yes, he continues to be one of our focus areas.
During this year when Colombia obtained the first place for Americas ranking for its pushing up flying environmental social and corporate governance criteria maintenance business decision.
On Colombia is recognized as a responsible company and the bank.
With the best corporate governance.
In the country.
Moving to slide seven.
We see an important improvement on the dynamics of the credit and debit card business.
The volume of transactions has increased quarter over quarter and the bank has gained market share in Colombia, not only in terms of body, but also in the number of cards outstanding.
On top of that.
Good evolution of.
Adoption by merchants.
Consumers represents an opportunity for expansion in fee generation.
The devaluation of the peso during the second quarter had a negative impact on the net results. Considering there are some of the expense of these products in U S dollars.
Digital sales continue to have strong performance consolidated <unk> share within the distribution channels.
We continue improving the efficiency in the way, we interact with our customers.
Digital show some important work in the total share.
Construction on our mobile App has grown 70% year on year, whereas without transactions in branches have increased at a lower rate, indicating a positive trend.
While we keep up soybean customers through our multichannel strategy.
Banking agents Consumptions increased 23% yearly thanks.
Thanks to a faster adoption by our clients on a.
Geographical expansion that allow us to reach more customers.
Moving to slide nine let me summarize our progress.
Mickey.
We are very happy with the trend we have seen.
We close the quarter.
13 million users.
One five trillion pesos in deposits and post deep levels of MTS us well as low churn rates.
The loan portfolio continues to grow but more important than that the number of customers using grid lines has multiplied in the last year, reaching 111000.
We see an important evolution in terms of customer experience the activity ratio is higher and we perceive a good client engagement.
Surf are gradually consuming more services in.
The marketplace, which increasingly contribute to Qi Jenny.
Generation.
No I want to turn the presentation to pushing vertical of course.
Awesome.
Thank you congratulations.
Now turning to slide 10, we provide a snapshot of provisions and asset quality.
Asset quality continues to improve with delinquency ratios at lower levels, and new originations, reflecting the healthy balance sheet.
Cost of risk for the quarter, if that's to indicated a closer correlation with credit deterioration kind of in that.
One 1% that shows a gradual increase when compared to previous quarters. However, it continues to be below our normalized cost.
The main factors driving this ratio.
First natural deterioration amounting to 981 Colombian pesos.
The associated to the consumer portfolio following a fast growth in this segment during the last 12 months.
Provision releases associated to the preview covering customers performing better and third a better macroeconomic outlook.
The net bizarrely, she can't rate and 15 billion Colombian pesos.
When discounting the caveat should release is completing the quarter destination for cost a week with resulting one 6%.
Or 981 Colombian billion pesos provision charges.
I want to know is it.
Hershey touch up loans ended the quarter at a level of 578%, which is the lowest level seen in two years.
We maintain a strong coverage of 150% on our 30 day past due loans and 212% on 90 day past due loans to pay the next quarter and possible variations.
Second we will see provisions goes by credit deterioration and no longer high changes explained by risk model adjustments or macroeconomic variables, we estimate that the cost of risk at the Endo Big you could be at around one 3%.
On slide 11, we present the breakdown of provisions during the quarter.
During the quarter, we have already updated the forecast of GDP increase opted for geography, where we have the pressures.
Does that imply a recalculation in our provisioning models regarding macroeconomic projection.
It could have been in Colombia, he had more pronounced shaped our estimation moving from four 7% to seven 2% for 2022.
For the second half of the year, we can see deterioration in retail loans following interest rate hikes.
I just like to ask we precede the consolidated and stand alone capital at a question.
Consolidated total solvency ratio stands at a little bit of pinpoint 9% Y C. P. One at a level of 10, 3% under Basel III for the second quarter of <unk>.
This reduction in solvency ratios is explained by an accelerated activity.
As you know unfortunately.
The impact of depreciation.
For the second half a big year loan growth will be lower and the bandwidth continued to approve and significant earnings that will contribute it to maintain a core equity tier one at around 11%.
Slide number 15 shows the asset sensitivity to interest rates.
The bank has benefited from the net from the interest rate environment experienced in recent quarters, we can see a clear correlation on the reference rate at the banks margin expanding after the fourth quarter of 2021.
Achieved in the share of deposits in banks to fixed rate. During the last three years has allowed us to offset the higher expansion of interest expenses in decent rate hike cycle.
On the great portfolio, we can see the largest share of floating rates in commercial loans, when compared to retail loans, allowing us to expand interest incomes in the first half of 2022.
On slide 14, we present, the liquidity position of the bank.
The posted.
70% high here balancing as solid growth in the loan book through recent quarters.
Deposits grew across all products, showing a fast increase in time deposits.
By more than seven trillion Colombian pesos in the last quarter.
Whereas saving in checking accounts grew at a slower pace. We expect these trends to continue for the rest of the year.
The rate hike cycle in Colombia has extended during the last quarter.
As a bank to each resident base from 3% at the beginning of the year to seven 5% at the end of June These weight created pressure on interest expenses, both time deposits.
The bank has been preparing expanded sheet to further support additional needs for road by increasing trade lines term was director of financial institutions and debt instruments.
This resource is allowing us to have a more stable source of funding.
On slide 15, we see the evolution of markets, our net interest income.
Margin expansion continues to be an important driver of core earnings during the quarter.
Net interest margin dose at a six 7% level expanding quality by 70 basis points. Following the reference rate increases by the Central Bank in Colombia.
Net interest income increased by 52% over the last eight months, mainly due to three elements.
First the repricing or not hits that explain most of the increase.
Second and a lower expense growth in the loan book.
After a solid performance and investment activities.
High margin obtained during the quarter. He said we showed that the interest rate cycle that has benefit in the <unk> portfolio.
We expect the reference rate to be hanging in the second half of the year, Although quarterly markets will not grow at the same pace. Thanks to an increase in interest expenses at the repricing of deposits is that the faster upset growth in interest income during the remaining quarters.
We are confident with the good dynamics in lending, although we expect that in the third and fourth quarter Crane demand is low down in line with economic development, particularly in Colombia.
You can never showed cash how do we expect to close the year with a NIM of around six 5%.
What is that 16, we present, an overview of Colombia and Central America.
Our outlook for the full year continues to be optimistic across the different geographies, where we operate.
The trade shows a gradual normalization of the credit cycle and sustained growth in the loan book and the deposit base.
An improvement in efficiency ratios and higher margins.
As of June the loan book in Panama, Salvador, and Guatemala accounts for 27% of our portfolio.
When looking each operation, we see mix dynamics.
But even though reported during the second quarter lower provision expenses due to overlay, bringing you see some particular situations relating to corporate loans.
As the nations have improved especially in the commercial portfolio.
In particular on the other hand, we show provision charges related to submarine bonds trading downgrades that have impacted its bottom line.
In its operational dynamics the bank shows a solid performance.
And finally in Bancolombia American team, we start to see cost of risk returning gradually to normal levels. Despite good asset quality metrics. It's granted portfolio has expanded steadily with significant improvements in winco.
Slide 17 shows the evolution of expenses and efficiency.
Operating expenses increased 21, 4% and 900 basis in line with the train.
In the first quarter, we continued to see three main factors explaining the road.
First most of these variation comes from the performance related to compensation expenses, considering bonus bonus provisions adjustments much nowhere a junior ago.
Labor expenses reflect that not really create any young house tani strategy to regain employees, who were previously serving on the outsourcing schemes.
Finally administrative expenses were up 14% and associate it to a very active performance of the operating division I technology related cost of the bank.
All of the digital transformation.
The bank has been able to keep the budget execution at a level of 19, 90%. So far we expect expenses to grow at around 12% by the end of each year.
We see good trends in efficiency ratio close in about 44% level in the quarter as a result of the revenue growth outpacing expenses road on yearly basis.
It's like 18 shows the evolution of peace.
In the first half of the year mentoring have increased 12% when compared to the same period of 2021.
I'd like to highlight the main companies that have contributed to such well.
He's from David Carlson retail activity maintained their strong performance caused by an increased 990 in transactions carryout from the traditional merchant business and E Commerce.
Second payments and collections per cent of positive performance due to a growing number of customers never hedging and our wide distribution network.
And third bank assurance shows a strong recovery year over year due to our dynamic activity in loan originations.
For the full year, we estimate the fee growth will be at a level of 10 to 12 per se.
Slide 18 shows the profitability metrics.
Net income for the quarter was one eight trillion pesos and delivered a return on equity of 23%.
These results represent an important growth as of June when compared to the same period last year.
Despite challenges in the economy, we think we'll train start what our revenue expectations for 2022 driving growth in higher profitability based on the following elements.
Dynamic activity in the lending business, the fact expansions on margins.
Asset quality remains healthy piece.
<unk> continued to deliver a strong performance.
Operating expenses grow consistently to the budget and finally, our solid capital structure and sound activity to operate the business.
Now I want to turn the presentation to Juan Carlos for the closing remarks.
Got it.
Thank you.
Let me now.
Take you on what we expect for the bank going forward.
Okay.
We continue to be confident on the group results for the rest of 2022.
Considering our macro economic stimulations in terms of GDP.
Late June unemployment rates, our guidance for 2022.
<unk> loan growth between 12.
14%.
The net interest margin of around six 5%.
The cost of risk of one 3%.
And in.
In the 20% area.
For the next year, however, we foresee a significant lower economic growth.
In this scenario, we are aware of the impacts 40, great basins.
At Columbia, we saw.
Pick a moderation in loan demand after a very dynamic activity during 2022.
The higher base effect in the loan portfolio.
<unk> also be reflected in growth rates at single digits for 2020.
It doesn't point to in the monetary policy for the next year will further impact NII by a contraction on lending margins.
Well it took risk will likely moves higher following a normalization in the credit.
Michael.
Expenses could be increasing below 10% in line with inflation rates are just at the lower levels.
Altogether.
<unk> dot.
It means for 2023 could be lower when compared to this year.
It is also important to highlight the current political situation.
The new government in Columbia has taken office in recent days.
On <unk> there are many challenges ahead that needs to be addressed by the new regiment.
And the social expected the content the months Greater Air Force took place on salt issues.
Such us.
Economic inequalities and sustainable development.
National agreement will be fundamental for policy changes coal coalition that by the government will be of great relevance to achieve the execution of these initiatives.
The agenda to be slow.
<unk> equity by the Congress includes proposals in several fronts, such as energy transition pathway on fiscal policy as well as reforms.
In health and pension systems, just to mention a few.
We are in the early stage to foresee evolution of National development plan.
In the upcoming months, we will have a more comprehensive all outlook about the potential impact on the opportunities for the country.
At Columbia, we are aware of the impact of our actions for the countries and for the communities where we operate.
Yeah.
The promotion of sustainable economic development in our daily activities.
For this purpose, we have contributed to spun financial inclusion so but more people and companies can access opportunities generated by financial services.
We continue to be focused on achieving our goals and in Bangalore mentor, social economic and corporate governance.
As one of our top.
Yes.
After elaborating on these topics we want to open the line for questions.
Thank you Sir we will now begin the question and answer session.
If you have a question. Please press Star then one on your Touchtone phone.
If you wish to be removed from the queue. Please press Star then two.
If youre using a speakerphone you may need to pick up your handset first before pressing the numbers. Once again, if you have a question. Please press Star then one.
And the first question will come from Jason Mullen from Scotiabank. Please go ahead.
Hello, everyone. Congratulations on the strong results, specifically, our O E well above the 20%.
One question I had is on the outlook for Central America. I mean, you mentioned I mean, we do have lots of uncertainty on what's going to take place.
In Colombia, given the new political environment, and our administration and if you maybe I think that it's uncertain, but it didn't sound like the tax proposal.
Anything different for the financial sector.
Can you give us our thoughts there, but also the outlook for Central America, We did see positive contributions but as.
As you showed in the presentation El Salvador.
In Guatemala.
Lower earnings are negatively impacted by provisions.
Perhaps you could give us a sense of the outlook there as well going into next year. So one taxes into Central America. Thank you.
Thank you Jason Jason.
Let me, let me address both.
That you touch.
Axis.
In Colombia are you are you are right.
That's with farm was eh.
Presented by Dr. Goldberg.
The Congress.
Yeah Monday.
And we are still.
I don't know I've seen the effects, but.
In the case of the financial sector.
Yeah on the provision that they have.
We farm Husky's.
The.
Yeah.
David.
Hey, wait that we already have a yeah. It's maintained so when you go and see it.
So far or material impact on all the financial institutions.
We will need to wait how the discussions.
There are going to develop on Congress, but so far what the government presented.
It is not anything deeper than that but we already talked in terms of taxes.
Regarding your second question Yeah.
In Central America with time.
I want to separate the the the answer in two parts.
First.
The performance of the banks on how.
We are developing our activities.
What tomorrow in Salvador and Panama.
We're very happy with the development.
On the banks.
Yeah.
It <unk> quite that ecolab is performing very well the loan book is growing.
D.
The quality asset.
Quality of loans are under control so the banking, it's running well.
We are aware that there are some some or central uncertainties surrounding fiscal stability.
Oh, Okay, Salvador, and I think the copper many soft dressing addressing that issue.
Yeah.
We are confident that the government is going to handle it.
Do you think fiscal situation, which matures may choice that they are they are taking but.
Regarding the our operation is running well it's growing.
So C H.
<unk>.
It's Ed.
Quite recently, so under control and so on.
We are also adding new.
And Bravo.
B chores digital transformation of the bank is going very well. So we are we are happy with what.
So it's that we are getting there.
Guatemala as you remember we took full control of the operation.
It almost three years ago.
And at the Bronx, not eights, it's improving it's for four months, they screen pretty well the economy in Guatemala. It's sold so it was probably the less affected economy by the pandemic.
So now it's all it's growing.
Great demand is there so the bank is performing performing well.
And also we are improving our operation there.
And then we are taking all the measures that we need to take in order to improve its operations to grow. So all in all we are we are happy with our operations in Central America, I know God, we have challenges around.
A particular challenges in each country.
Related to.
Politico.
The issues or.
Economic issues, but we are not like have you been bullish I think anybody a world.
Yeah.
A minor way the operations that are broken in Ireland are running well.
And thank you. The next question is from Yuri Fernandes from Jpmorgan. Please go ahead.
Good morning, and thank you all for example, asking the questions and congrats on the strong quarter I have two questions.
What is the outlook for asset quality for exposed in a 23.
The cost of funds because they are below the normal level. So what is the normal level for cost of risk is this the one 8% you used to mention the Purcell like just try to understand it because my concern for 2023 is that youre seeing GDP decelerating high inflation higher rates and.
You were growing consumer loans quickly. So my concern is that maybe we can see cost of risk returning or even higher than historical maybe the one eight used to mentioned that best. So that's the first question belts and look for asset quality and I have a second question regarding the <unk>.
You are having very very solid our only lever. So congrats on that but my question is what is the sustainable level do you think this 20 plus percent sustainable or given cost of risk may move up means are getting close to a peak like how to think about the cost of sorry.
Sorry your Roe.
And also in line with the cost of capital what is the cost of capital you are seeing Colombia, and how do you think those two variables for the bank, but again congrats good second thing for you. Thank you.
Thank you Judy.
We've been.
First off for me just gotten an outlook for 2023.
We have we are aware that we are.
Copper at this point, he thought up normal cost of risk.
And.
We are deeply long term cost of risk of Bancolombia should be around one seven number one important thing and we are foreseeing.
Foreseen that we are going to yeah.
That level during 2023.
You mentioned that we are growing five stone on the consumable side.
No.
That's correct, but I think we are originating in a way that is not going to significantly impact. The costa. Please a bulk dose levels. I mean, we are moving the cost of risk for the quarter for this quarter that we are reporting was 1.1.
And if we normalize that cost.
Some were extraordinary issues it could be around 151.
Six so returning to one eight.
He is it's Uh huh.
But we expect we don't expect deterioration.
And as I mentioned, we are originating.
With a lot of new information, we are reaching customers though.
Before so we have as I mentioned, we are confident that when we come to me I thought I thought the lateral at 418%.
Let's stop risks too in 'twenty.
Great.
Regarding your second question on ROE.
Yeah.
Our OE for 'twenty 'twenty, three we will be again.
Those are two hour.
Long term.
Which we decline to be around 16% to 18%.
Yeah.
I, particularly don't think that we are going to reach at 20%.
Yeah, It will be.
More around 16% to 18%.
You mentioned cost of capital the cost of capital.
Yeah.
I think Chris it, particularly in Colombia and in other countries.
We operate so what we are.
Soon is that we will.
We would be performing.
Yeah.
Two points above our cost of capital so.
We think that with the margins.
Margins that we are getting you to that.
So there is an interest rates at that will allow us to grow net interest income.
So very healthy weight.
Yeah, and Doug will allow us in 'twenty two 'twenty three not just cover the cost of risk, but also to deliver what we can see there.
Although equally.
No Super clear, thank you very much.
They are very welcome.
And thank you and in the interest of time, if you can please limit yourself to one question. If you have additional questions you may reenter the question queue.
And the next question is from Ernesto Gagliano from Bank of America. Please go ahead.
Hi, good money in Hong Kong.
I'll come back on and good morning, everybody, congratulations finger chrome QUADRA or cranky, who your question Krishna.
I have a couple of questions from my side.
Our first question is on the regulation or Barook allows Merck we have teamed up birkedal rely a development bank to have a more active role in Colombia I know her are we working on clearing the kirker, but wanted to have a higher democratic recruit from north like none for her.
Hum just wanted to Cougar her harker, good and also I would concur.
Roku, helping to increase.
At the same time for her and her group of corrosion or aren't reducing costs.
I'm broke on my second question is on competition, we are clean dark for your radar her clipper New bank in Colombia. Her how do you see this type of contribution Oh, what do your crew will be bancolombia for Mercury her banker.
Local competition quicker.
Thank you Ernest.
Regarding the.
Regulation.
I think we already know.
That's very heavily at stages of the government.
So.
We need to separate what is or.
Or what are some pain promises or.
Ideas on what actually D.
Government is going to be.
But let me let me share with you my thoughts around.
Why do your shopping I think developing banks they have the cockpit.
It's a very important role.
And my view is that they will complement what commercial banks.
Are doing or what we are doing.
And let me elaborate a little bit on this.
I truly believe what is happening in Colombia around digital wallets and access to financial services. He said, he said where pollution.
Instead of evolutions in the sense that.
Now.
All of the Columbia.
And I mean, all of those things.
It has access to financial services.
The way.
We have a very very low costs on most of the times free.
So basic financial San Francis and notably in the case of Colombia, we have.
13 million yeah.
<unk> sales.
That's already.
Mickey on $6 2 million and then the other part of it for them like we have with G. Bancolombia a la mano so.
Close to 19 million in Colombia.
I know you had seen.
Financial services grew up on Colombia.
And what I said, it's just the revolution is because.
The usage of <unk>.
There is a lot of forms are really transforming the way those Colombian manage their money.
They are using these cloud iPhone to pay.
They are using it.
Based platforms.
Independent workers.
Many informal workers are using this verifone, who received the payments of the work but also.
We are starting to give them give them credit because we are having an informational how they manage their money and how long do they flows.
Of money.
Yeah.
We are starting.
Lending them so.
Yeah, what you meant as shown.
D D. The bulk thinking banks.
And I think they have the wrong. They complement like we are doing but what is happening in Colombia, it's really amazing in terms of access to financial services through these produce a lot of firms.
Yeah.
I don't think that is insufficient.
Is sufficient to try to replace what commercial banks are doing well so.
I think the government will move on complementing it to.
Two dogs or you're seeing which is difficult for commercial banks to half our business case. So the government complement what we are doing.
Yeah.
Second question since that was called competition competition in Colombia.
Thanks.
Just with the new players, but also among the traditional players.
There are many operators.
On digital forums that the.
The people.
People could choose on you mentioned, no bonks newborn care and <unk>.
Her to Colombia.
Last year they are.
And I think I think our competition.
Competition is healthy.
It's going to benefit consumers, but in the peso, particularly new banks that they are operating in Colombia credit cards. We still are we are we are growing at a very fast pace or plagued with pace.
Credit card, it's not just in terms of outstanding number of car T spot.
Also D D.
Utilization of the cards, so our business is going well.
They are no bank announced.
Yeah.
All of weeks ago that they will.
It become Oh.
Commercial financial of the.
Company, which is which is good because they will be under the supervision of their financial shippers, the superintendency, which means that we will have the same.
Goals for all of Us So I think from potential new spicy, making us better to cloud we are in Bancolombia, all very well equipped to compete with all these new eh.
Companies that are entering the market.
Great.
Thank you and the next question will come from Carlos Gomez from HSBC. Please go ahead.
Yes.
Hi, Good morning, and also congratulations on a very good result.
Go back to Jason's question, I'm, asking for a bit more specific on the tax rate could you tell us given the current exchange rates and we know that this is pretty dependent on that would you expect the tax rate to be this year and next year for the consolidated company.
Secondly, it doesn't it's not about the you mentioned that you have.
Provision for somebody bumps and we know that they're using.
I'm, saying it would be difficult to school.
The situation and they cannot.
Can you give us an idea of where you have to mark the bonds and.
In total, though and how low can they go before you might be to think about capitalizing your banking and some of them. Okay.
Thank you Carlos for your question, let me address your first one and I'm going to pass the second one regarding the bonds.
And then sell below two two question there too.
Yeah.
What.
So with farmers with the tax reform.
It's bringing a it's not a it's not a change for us.
What is it what are you, saying there is that we're already half.
The tax rates for financial institution in Colombia, it's.
Now, 38%, that's what we are paying now.
What the form of saying that.
There are 30.
38 should remain.
Remain.
At West temporarily knowledge, it said not but that's the change it's not going to go.
Go to E rate.
Great.
In all industries.
Uh huh.
We will maintain the.
<unk> 38 per cent or three points above the the rate for the for the other industries. So no big changes what.
What we have debate it wouldn't meet it if the reforming shopper opening their weight of ellipse presented we need tool of.
Record.
I'll defer.
Stop is going to be.
One time effect during 'twenty to 'twenty two.
But going forward, we will maintain our eh.
Our effective tax rate of around 32% to 33% watch that and that's that's what we have now.
Let me, let me pass your second question to pushing back.
Thank you Juan Carlos regarding the sovereign bonds.
We in Banco Agricola, we have around 8% of our total assets in local bonds.
Those folks are sure iron in between one to two years and is not more than eight 5% of the total assets the situation with the bumps on international market, regardless, how about are you seeing the euro bonds that they will pursue the next January and the price as you mentioned is very high right now it's about.
30%, but he's not correlated with the bonus that we are having in our books because again. This is a very local with a very low level of secondary market.
But at the end of the day also we right now we.
We are increasing our level of provisions because of these local sovereign bumps on it is right now at around 5% to 6% of the total exposure so.
We are expecting that it's going to happen with the eurobonds for next year. The government said in several times that they are going to pay that but again, we are having provision for our local exposure and this is local exposure. We don't have any particular position in eurozone countries.
Okay, and I guess, you said because the person with the licensing. These short term local paper did you say that one of my five 2%.
158%.
8% of the total assets and short term means one to two years.
Okay. So that's good and that that issue is done this way.
Exactly use donors.
Mhm.
Okay. That's great. Thank you so much.
Thank you.
The next question is from a lawful.
Our Suzhou from UBS. Please go ahead.
Okay.
Good morning, Hello, Martin Shaw, so basketball.
Thank you for taking my questions I have two are more in the first orders related to the tax because.
I just wanted to hear from you what could we expect for the comps during the second half considering the fact that the child increase in expenses at the bank reported during this quarter and also the ongoing fashion offering functionally.
And also if you could ask what are the expectations for the Opex for the next year.
Will be great and I know that you just mentioned during the presentation could you just repeat.
And then my second question is a follow up on competition.
Question.
Related to net.
Because the operations are continuing to gain traction.
The increase in number of user time deposits.
But do you have targets for the number of users for the next few years.
Insureds unlock presentation that in this quarter matching record of more than 13 million users, but how many of them are actually active users I mean, how many clients are a multi user. Thank you.
Thank you level yeah I. Thank you for your question. So I will I will take your second question regarding competition on making.
I will I will pass your first question regarding Opex.
Our expectations on expenses and taxes for 2020.
322, Hudson, but let me address first your question regarding <unk>.
And the next.
Hey, Ashwin.
We mentioned we have now.
<unk>.
3 million.
Registered users.
And Nick.
Of those 70% seven zero what.
What we consider occupancy users what we mean for active users are dosed.
<unk> dot.
Make at least one monetary transaction.
Yeah.
So.
It's really let's see what is happening around activity.
And Nicky.
People are using T D lager for them.
And what we have seen it.
Growing at a pace of between.
300 <unk>.
<unk> two 400000, new users in mind.
But we expect that the.
Phase.
Ooh slow down Oh.
What we are seeing is that all in we would take.
Yes or.
Well, we're at 15 million.
Users.
And then what we are seeing is that with that level of engagement right.
70, <unk>, so I didn't see what percent.
Active users.
We foresee that the offerings.
For when.
We can start to increase.
Yeah.
Introducing.
New products like insurance or investment.
Investments on different level.
Got it.
That base and more sophisticated and we can start a.
Charging so that will move.
Mickey and David on the path of profitability.
With that let me pass he will.
Your question regarding Opex.
423 to push them back.
Thank you Juan although as we mentioned the level of expenses. This year, we will we will reach a level of 12% at the end of the year. The reason why it is 'twenty two this this quarter compared with the previous year is because last year was abnormally low and we mentioned that there.
<unk>, it's basically they bonus plan regarding 2023, we are expecting on expenses growth.
Above inflation around 100 to 200 basis points, which means expenses growth of next year would be or the 9% area assuming any inflation.
One 7% at the end of 2023, so that's our goal in the two years, 12%. This year is positive because you have to consider that inflation we.
It would be in the range of 9% to 10%.
Regarding your second question the taxes for next year as one nation or taxation for this year, we're expecting a level of 34% area. We are expecting to maintain the same level of taxes remember John we our prayers unit combination of 75%, Colombia, which is a taxation 38.
But the rest is the taxation is below 25%. That's the reason why on a no.
The tax rate for next year would be 33, 34% area.
Thank you very much Josh.
Okay, you're very welcome.
Thank you.
The next question will be from Tito Bartow from Goldman Sachs. Please go ahead.
Hi, good morning Collyn.
Call and taking my question. My question is on your <unk>.
Good trends there continues to increase.
And you mentioned interest rates May go up so a little bit more from here.
Yes.
And thinking about also.
Can go next year, they start to come down.
Hi.
<unk> is the current gen. How sensitive will it be to rates, if and when they come down like how quickly would that come down and in the quarter also you had very high securities.
Margin should that normalize at 1% level and what does that mean for the total and so.
If you can just help us think about the evolution of margins from here for the second half of the year, but also into next year.
And once rates come down thank you.
Thank you Peter.
Your question.
Let me let me give.
To give you some general comments on not unlike past pushing back to the details.
Yeah.
As you know interest rates are going up about 30 plus space.
On top of it.
The.
Central Bank.
Increases while plastic based on all of them.
On girlfriend rates saw where our margin is expanding.
And we as we mentioned we expect.
This year to continue or to reach a margin.
Around six 5%.
Next year.
We expect it.
Interest rates two to continue.
Okay.
A level that will allow us to have a healthy margin.
Then when the Monotype all you see start to change direction.
It will it would be some margin.
Margin contraction.
So with that those general comments then.
Pass it.
Simple question Brito for more color on that.
Great got it.
Thank you Juan Tito.
The answer is very clear with what we expected margins stay high level. We are touching this quarter, maybe a little bit more of the third quarter, but again, maybe the margins will stabilize at least for the first half of 2023. So we are expecting 2023 to maintain that.
Because of our loan portfolio because of a restructure of the loan in between consumer and commercial.
Regarding your second question Tito.
This is particularly for this quarter and EMEA region is part of our security portfolio each.
His daughters, and the big demonstration of the huge impact of the evaluation of this quarter was 10% that explains why denise above 4%, but in our forecast for the rest of the year for 2023, we always expect a piece a NIM of the Tracy.
Or the securities portfolio in between one to one five is not going to change.
Yeah.
Great. Thanks, Juan Carlos will come back so maybe just a quick follow up just so I'm clear so that that securities.
You should normalize already in Q1 to one 5% does that mean.
To get to that total NIM of six five for the year the lending margin remain around the 7% level at least if rates remain high and that only started to come down when rates come down.
Yes.
That is correct for the second half of the year the loan portfolio, we continue to expand a little bit more because remember that the interest rate hike from the center about two weeks ago. So the repricing of the assets will continue at least for the third quarter.
Okay. So so in lending them can even go up a little bit as rates go up absolutely.
Absolutely.
That's correct great.
Alright, thanks, so much okay. Thank you Peter.
And thank you ladies and gentlemen.
We have no further questions at this time and this concludes today's event. We thank you for participating and you may now disconnect take care.
Yeah.
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