Q3 2022 Bancolombia SA Earnings Call
Good morning, ladies and gentlemen, and welcome to Bank Columbia Third quarter 2022 earnings Conference call. My name is Ariel and I will be your operator for today's call. At this time all participants are in a listen only mode.
Following the prepared remarks, there will be a question and answer session.
During the question and answer session. If you have a question. Please press Star then one on your Touchtone phone. Please note that this conference is being recorded.
Please note that this conference call will include forward looking statements, including statements related to our future performance capital position credit related expenses and credit losses. All forward looking statements whether made in this conference call in future filings in press releases or verbally addresses matters that involve risks and uncertainty.
Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions changes in currency exchange rates and interest rates introduction of competing products by other companies lack of acceptance of new products or services by our targeted clients changes and busy.
This strategy and various other factors that we describe in our reports filed with the SEC.
With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Modi show, Tokyo, Chief Corporate Officer, Mr. Jose Humberto.
So of course, that's chief Financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, Mrs. Catalina Escobar Investor Relations Director and Mr. Juan Pablo Espinosa, Chief Economist I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Juan Carlos you may begin.
Good morning, everybody.
I'll come to Bancolombia us third quarter conference call.
In this quarter.
One six trillion Colombian pesos of net income.
We're having a responsible growth across all segments.
<unk> revenue are producing positive operating leverage.
Yes, its quality metrics up the bank remains strong.
The countries in which we operate with St.
Four months, especially Colombia, which may grow a great well.
7% in 2022 that's going to reduce it to.
The rapid expansion of the bonds portfolio.
Yeah.
In recent months, however, we have seen a change in the trend.
Particularly retail.
Good bye and plunged inflationary pressures.
A high interest rate environment that is impacting the customers' payment cut back.
I see.
Liquidity continues to be one of our focus areas, coupled with our capital structure and Greece Munch.
We hold a solid funding base, that's well, it's comfortably our needs to operate the business.
Increase the collection of deposits in.
The last year and also we have rather than the access to meet our long term financing from multilateral.
I should've banks.
Complement funding structure.
It is worth mentioning that this week.
And the approval process by Congress of the tax reform does win allows the government to collect an additional 20 Chilean pesos to face.
Social expenditure program in 2023.
Usually fall outside the direct effect on financial institutions in Falcon, a surcharge that increase in statutory tax rate from 35% to 40% from 2000 2030.
From 2023 at the Pentagon.
In General give me form is focused on a greater contribution from high income tax paid as well as corporate some financial and energy sectors.
Energy companies with incremental tax.
Associated with both oil and energy prices.
An important sub didn't follow the government agenda will be the minimum wage increase that will be key for 'twenty.
Okay inflation developing.
Currently it is being discussed by stakeholders and it's based on the predictive consumer price index, CPI Roe above 12% for the enemy.
For the rest of the topics and the political agenda, we have not seen for wipro as well, we will be looking for for the new announcements through the end of the year.
At this point I want to start with a presentation to our listing rules.
We will further elaborate on the performance of the Colombian economy when Pablo.
Thank you Juan Carlos No. Please go to slide number three in the presentation.
Let me start by saying that the Colombian economy has continued to perform better than initially expected.
I'm, just really strong performance in the third in the third quarter of the year, we anticipate their GDP growth.
8% in 2022 higher than our previous estimate then at both the consensus forecast.
This is due to the strength and breadth that consumption and increase in terms of trade. Thanks to oil and coal prices. In contrast for 2023, we foresee a sharp moderation of growth for rate, though that if Europe , 9% in the centralized scenario.
Well Gabe demand cools off in a contest so higher interest rates will deceleration and continued uncertainty we anticipate that next year. The best performing sectors will be public administration agriculture financial services at EQT on the contrary retailer.
Are you factoring in mining and construction are expected to contract.
The main risks for economic activity next year, our first.
Thinking on financial conditions.
With interest rates and markets second a pronounced deterioration of household sport chasing power, that's already sort of persistent inflation Stuart a deterioration of LIBOR markets caused by economic deceleration higher salaries and fourth the spillover effect.
So for me to a moderation of the global economy.
On the front of interest rates and prices, we anticipate that the reference rate will peak at the first quarter of 2023 to a level between 12 and 13%.
This is consistent with M inflation close at that 12, 5% in 2022 and remaining well above the central banks Cogs that range.
<unk> 23, and even in 2024 hour point forecast for December 2023, 7%. The main reason behind this prospect is that core inflation will remain under pressure because of the peso depreciation.
Sure enough indication mechanisms and salaries revisions.
Under these circumstances, we do not see a space for a quick change in the monetary policy cycle actually you anticipate my repo rate cuts by the second half of 2023 to 11.
Present in December next year.
This means that monetary policy will remain the contractionary mode during the foreseeable future we.
Regarding the exchange rate in our basic scenario, we forecast them, Alberta USB cooperative.
449, 15 for 2023.
Up from 40 to 50 in 2022.
It means that these factors support in Colombian peso weakness.
Financial conditions higher than peers current account deficit and uncertainty regarding you gave us from agenda will remain relevant.
Depreciation would stimulate some traditional experts at the coast opex certain significant pressure on trade of inflation.
And Andy on the fiscal side, we expect expect central government deficit reduced from five 6% of GDP in 2022 to four 8% of GDP in 2022.
Figure is consistent with the fiscal rule and incorporates VIP charter revenues from the tax reform. Moreover, EPS assumed that the additional tax collection coming from this reform will be split between social programs that service in fiscal consolidation, we anticipate that the net impact.
Of the reform on overall economic activity will be magic.
After this economic overview, let me turn the presentation Dr. Juan Carlos.
Thank you Juan Pablo.
Moving to slide number four I wanted 2% the loans and deposits with phones.
In the last two quarters growth in the loan portfolio has been mainly driven by commercial loans, which entails lower risk and provides better coverage structure.
In retail the most dynamic segment has been personal loans.
We are experiencing a slower growth explained by high inflation and high interest rates.
This change in trend is reflected more sharply in pellets, such us Crazy Cogs.
In terms of our liability structure.
Given the environmental racing rates after the first quarter time deposits have grown at a faster pace than demand deposits, thus supporting our increasing funding needs.
Our system mid term funding from international banks.
Also key during the quarter to complement our overall funding structure.
For the fourth quarter.
Jewelry and throughout a good part of the first half of next year time deposits would be available to maintain a stable funding structure and comply with the liquidity requirements.
A couple of weeks.
A couple of weeks ago recoveries out of sustainable bond issuance for 640 billion pesos throughout International development Bank. This is a mechanism used for the first time my at Columbia.
Thanks.
On the slide five.
We see the growth breakdown.
When we analyze the evolution of the loan portfolio and deposit base. It is important to note that depreciation of the peso had a significant impact not only in an annual basis, but also in the quarter.
Local currency depreciated almost 11% from the end of June to the end of September .
So after excluding the FX effect, yet for a loan and deposit growth was 3%.
Yeah over here.
Some of the Colombian peso was 20%.
So no real expansion in loans and deposits was 16%.
Slide six I want to provide some details on our pre approved origination strategy.
The credit portfolio growth when excluding inflation has been around 15% year over year.
Such performance.
A process that we began five years ago.
Based on the analysis of the cash flow and expenses of our clients.
We have been able to calculate the payment capacity and also pre approved lines of credit with significant outcomes for the bank.
Neighborhoods.
We have been able to implement this strategy broad base across all segments in the case of retail out of our customer base. One 5 million have received an automatic customized offer in 2022.
This process has led to a positive origination approach reflected in the 30 day past due loan ratio of four 7%.
Lower when compared with five 6% of the whole consumer portfolio.
On the SME and corporate clients. We have also developed the capacity to pre approve.
Loans based not only on the financial statements, but also on the actual cash flows, allowing us to be more accurate on our offers.
This explains why we are having a better risk profile.
The pre pandemic figure bearing in mind that in 2023, we could experience a higher deterioration caused by inflationary pressures higher interest rates and lower economic growth.
Hello.
Slide seven and eight we present the transactional performance of the bank as one of the key developments to highlight in the last few years.
Powered by the investments we made in technology.
Sanction of the distribution network and the implementation of digital solutions.
We continue experiencing an accelerated shift to digital channels, coupled with an important demand for services in physical channels, increasing our footprint in banking agents.
Partially absorb the increased volume of transaction.
Well, we'd like to share some of the figures that show our competitive advantage in the use of the different channels offer by the bank.
Third share of more than 70% in the Columbia Mo.
While transaction market confirms our strong presence on the clients' everyday activities.
Second an upward trend in digital engagement has led 76% of our customers to adopt it.
At least one digital channel to execute those transactions.
Fifth banking I didn't account for 67 open in person monetary transaction, Columbia, and Brian just represents 32% of the taller in person monetize.
These these things.
Sense of the size of our customer base and the impact in the economy and the economy as well as our.
Widespread presence across regions.
Moving to slide nine you can see an update on the.
<unk> transformation of the bank.
First we have made an important progress in.
The journey to cloud.
Owing us to speed up our time to market, having more secure applications accelerating innovation and reducing costs we.
We have now 63% of the technological components of the bank already in the cloud.
Second Bancolombia has.
Nine 618 personnel turnover compared to the industry average of 20%.
Today, 51% of I T E House, and 49% is outsourced.
We have implemented the API strategy aimed to enable new business models, such as banking as a service and up in finance.
Acting new ecosystems.
We will be in the customer experience.
On slide 10 with me.
We sent our ESG.
Date.
We remain focused on reaching our 2030 goal of 503 million pesos. These bolt on then ESG criteria.
We are getting closer to the goal of financing hungry around <unk> three trillion in 2022, reaching as of September already 19, one Colombian trillion basis.
This quarter, we were able to issue the first small industrial America tied to sustainable indicators for an amount of 640 billion pesos.
And we received a credit line from Citibank $400 million tied to sustainable goals.
After this general are based on the current situation of Bancolombia now I want to turn the presentation over to host and very close to home will give additional details of our performance during the third quarter of 2021 'twenty 'twenty what's embedded.
Thank you Juan Carlos now turning to slide 11, we provide a snapshot of provisions and asset quality.
Our commitment to responsible growth remains under control.
Npls are still reflecting healthy balance sheets, both 30, and 90 days as a result of the positive client's performance and a cellphone Curtis explained based on the execution of our structure process of preapproved loans.
Provision for credit losses were one two trillion Colombian pesos or 1.9% cost of week for the quarter and Singapore, 9% for the last 12 months.
It is important to mention and one off effect related to a real estate deal. The E client a bunch more that represented an important provision expenses for the quarter.
The coverage for these clients is close to 60% and the bank has a real estate guarantees in place to secure the rest of the application.
When discounting these one offs in the quarter destination for cost of risk.
41, 5% or in that country, and two Colombian billing them.
Pesos in provision charges.
We must remark detect office increase in this quarter.
The hand of the creative reliefs granted during the pandemic that task deteriorated gradually and coast I both mentioned Bonnie.
We should converge to a normalized level of provisions in the upcoming quarters by credit deterioration under the current economic cycle.
We estimate that the cost of risk for 2022 could be at around 1.6%.
On slide 12, we present the breakdown of provisions during the quarter.
A moderate sequential increase in provision expenses experienced since the second quarter is primarily driven by the consumer portfolio expansion in the last year.
Additionally, a lower level of provisions releases associated to a macroeconomic variables and overlays of credit under financial relief.
Our allowances as a percentage of loans continues to be a strong to face eventual deterioration. The COVID-19. That's on 30 day past due loans is 154%.
For the upcoming quarters, we expect to see an increasing credit deterioration and provision expenses for the most part in retail due to the challenging macroeconomic and vitamin of inflation and high interest rates.
On slide 15, we present, the consolidated and stand alone capital adequacy.
Consolidated total solvency ratios stance and a level of 12, 5% Y T. T. One I don't even know if 10% on your food basket three for the third quarter.
The reduction in the solvency ratio is explained in the first place like the depreciation of the local currency when converting the assets to I E. How are you guys doing it right.
The other hand, the organic growth.
Of the loan portfolio in Colombia during the last 12 months contributed to higher risk weighted assets I was telling me that all four capital ratios.
Four years in our estimation for core equity tier 110 preceding area considering for the fourth quarter. They create demand the forecasted earnings and the ethics right.
Yeah Slide number 14 shows the asset sensitivity to interest rates.
The monetary policy has continued EPS contraction of recycled in Colombia throughout the third quarter Genuity and extend an expansion on margins.
On the deposit side is very relevant to highlight the 62% weight on fixed rates in a environment of volatility helping to protect the margin of the bank in a rate hike cycle.
On the asset side, the combination of two elements.
Greg will you nations at higher rates in all loan categories on on the commercial portfolio, a large share index to floating rates quickly runs into repricing.
On slide 15, we present, the liquidity position of the bank.
The impact of the rate hike cycle in Colombia is evident in the funding cost the.
The Central Bank took each resident rates from 3% generally to 10% at the end of September triggering a sustained deposits repricing throughout 2022.
We have been seen an important growth of 25% in both consumer and wholesale deposits. During the last 12 months the paas banners to expansion in the loan book at the same pace.
Here I would not I wouldnt highlight the composition of our funding structure as a competitive advantage as 56, two Shane he represented by demand deposits, we make which make our overhead cost very competitive.
Out of these share 44% now represented by saving accounts at a very low interest.
These volumes are possible, thanks to our leadership position in the system from a transaction point of view.
Time deposits have increased more rapidly in the last quarter to help us compensate for longer term needs.
Finally, we have graduated increase our near term funding, we close from international banks and multilateral institutions contributing to the consolidation of a more stable funding structure.
Only 16, we see the evolution of margins net interest income.
Rising interest rates have led to a sustained high your net interest margin after the second half of 2021.
Net interest margin closed at that 7.2% level expanding quantity by 50 basis points following do heikki rate cycle in Colombia.
Net interest income increased by 72% over the last 12 months, mainly due to the repricing in our seats and then like you already explained a larger and larger credit portfolio.
Yeah.
And the pace of investment the analyzed many that as Martin had an outstanding result closing at a 6.6 brucine in the third Q.
Extending our positive trend during 2022.
These expansion is largely explained by the devaluation of debt securities following interest rate hikes and exchange rate fluctuations in the transfer of these portfolios.
We expect the reference rate in Colombia to close at a level of 11 four points to 75% by year end.
Margins will not grow at the same pace going forward, what she's we now face a high increase in interest expenses as the repricing of deposits will offset growth in interest income faster.
Given the result as of September we expect to close the year with a NIM at around six 8%.
When is that Covid theme, we present, an overview of Colombia and Central America.
In general terms the training the lending business throughout the different geographies operators like Bancolombia was similar.
Continued growth in the loan book and increasing interest income and our solid position in terms of capital and liquidity.
In terms of asset quality, we see good trains Sip somebody's note that had some particular provision expenses impacting the bottom line.
Banquet he could hang your telephone shows good loan and deposit dynamics growing each at the faster based on the market in an annual basis, highlighting a positive performance of the commercial segment.
From the deposit side the bank has experience in both on road and saving accounts to balance short term loan growth at a very low cost.
In the same way, but he's not per cent for loan book growing at a level of 7% in an annual basis, driven by commercial outpacing the market average.
Asset quality was impacted by a corporate case as well as some deterioration in retail demanding higher provisions expenses.
Finally bomb in Guatemala has shown a resilient loan originations through our did you with increasing margins we are expecting to close the deal with a growth of around 9% in U S dollars, where consumer portfolio will continue to lead the pace.
We are managing liquidity in a in any.
Safety way, increasing our credit lines with corresponding banks to balance our funding needs.
In slide 18 shows the evolution of expenses and efficiency.
Operating expenses increased 14% in an annual basis.
Recently, the fastest pace of the local currency depreciation has implied a recalculation of our opex growth expectations, considering an important portion of our cost index to U S dollar, especially associated to technology companies. In addition, there are two main factors explaining that.
Both experienced during the year.
First inflation rates in 2022 have pushed forward increases in expenses to operate the business.
And second the performance related compensation expenses provisions are higher than a year of growing earnings.
We see good trends in the efficiency ratio. So we anticipate closing on a ratio of 44% to 45% for the full year as a result of revenues outpacing expenses growth on a yearly basis.
Yeah.
Slide 19 shows the evolution of fees.
As of September of 'twenty, two net fees have increased 11% when compared to the same period of 2021.
I would like to explain the main reasons that have contributed to such growth.
First six from banking services debit credit cards, and retail activity sustain a positive trend during the year.
Hi, good volume of transactions and our strong client engagement show up dynamic activity in the quarter.
Unshaken Bank assurance has improved realizations remained at high levels in 2022 and insurance claim half decrease contributing to the net result.
We maintain our growth guidance for the full year at a 10% area.
Slide 20 shows the profitability metrics.
Meaningful for the quarter was 1.6 trillion pesos and delivering a return on equity of 19%.
And 20% for the last 12 months.
That's right I spoke to a temporary 31, 4%.
Our guidance for 2022 food you will be 31% area.
Yeah.
We remain confident in our revenue expectations for 2022, as we experienced a conciliation of positive trends in the third quarter driving growth on higher earnings when compared to last year.
Now I want to turn the presentation to concurrently for the closing remarks.
Carlos.
Thank you <unk>.
The results of this quarter has been a combined effect of the good operational performance of the bank.
A positive development of the economies, where we operate.
For 'twenty 'twenty, three we see important challenges considering the significant.
Celebration and GDP growth.
It implies many challenges for us in the credit demand.
A likelihood the option on margins for the second half of next year.
Potential pick up in the provision expenses.
According to our estimate school, which one 8% of cost of credit.
And the same way, we are expecting a slower growth.
<unk> link to a less dynamic economic activity and tax expenses will be higher following the approval of tax reform in Colombia.
Finally.
Our guidance for expenses closing 23 slightly above inflation lessens.
We will continue focus our efforts on developing this technological modernization of the bank and complete the digital transformation path.
Our business.
Now I will open the line for questions.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
If you are using a speakerphone, please pick up the handset before pressing any cheap.
To withdraw your question. Please press Star then two.
Once again, if you have a question. Please press Star then one now.
Our first question comes from Jason Molina of Scotiabank. Please go ahead.
Hello, everyone. Good morning.
Thank you for the presentation and the opportunity to ask the question Mike.
My question is really if you can recap again.
I definitely got a bunch of the numbers and the expectation.
For 2023, I guess would be.
Economic growth slowdown in economic growth expected for next year. If you can just recap how youre thinking of loan and deposit growth in that in that construct I guess.
<unk> effects.
Ex FX impact.
In particular interest I, just wanted to understand better.
The tax reform impact you mentioned.
Yeah.
I guess the marginal tax rate will increase to 30 from 35% to 40% how is the additional surcharge working.
Thanks.
Going forward.
On the outlook.
Thank you.
Thank you.
Jason.
2023.
It will have a deeper in for four months.
The performance of the economy is going to be quite different.
Particularly in Colombia, what we are seeing is that the GDP.
GDP growth.
It should be around 1% could be a little bit less than that so it's a big change from the economic activity that we are having this year one.
And which we expect the GDP and been growing around seven eight.
8% so.
That it creates.
Different conditions, so in that context.
Perfect that.
The loan portfolio.
So much less.
And we'll be around 5% growth on alone loan portfolio.
If it's important to have in mind that we have been growing growing in a very good place. During this year. So that loan origination that we already have on our books would produce results. During this next year and the interest rates on the margin.
It has been.
<unk> has been expanding so we will benefit from that.
Yeah.
Stocks that we already have in our books.
We will not grow much.
And next year, but we will benefit as I said from the from the stocks that we already have we did with a very healthy with a very healthy margin, we expect the growth because the world.
So he agrees or to normalize better and we expect to be around 1.8.
Which is in line with the long term cost to cost of risk.
Okay of the bank.
Other than that yeah, yeah.
It is a it's a year with less grown in which will not.
Push hard on growth on the loan portfolio, but we will benefit from a good margin on the cost of risk. We think is going to be under control.
Guarding the tax reform.
As you mentioned there is a surcharge for financial institutions, not just four months.
5% does it goes until 2027 at the beginning it was presented US indefinitely and now it's it ends in 2027, which is which is good.
On.
Benefit.
Our tax structure on an and deferral of taxes.
What how it works is that it.
The statutory rate.
It will be applied for or in Colombia would be 40% for Q. Okay.
On the income tax.
Yeah.
And then you come on.
And the income.
And we are calculating that that is going to have an effect on our expected consolidated tax rate of.
2% increase moving from very big three that we expect to earn this year as an effective tax rate for 2022 moving to <unk>.
<unk> 35 in 'twenty.
'twenty three.
That will go on until until 'twenty, seven as I said, Hey, Jason.
Thank you for the color very helpful.
Thank you guys.
Our next question comes from Andres Soto Santander. Please go ahead.
Good morning, and thank you on catalogs will somebody for the presentation. My question is when I look at the outlook that you described Peru, Columbia and cause all of a sudden 'twenty three.
Seeing that there are a lot of reasons to imagine that a long term yields are going to be lower than their critical yoghurt. There are 13% and when they look at the number that you expect for next year. It doesn't seem that oh, he's going to be much higher than that level. So my question really is what.
Scott can you talk to a believer Ah Ah are always Phoenix faithful yield Cos opex would be locked out for football, sometimes when you're doing but more towards the long term once.
Interest rate on your margins normalize.
Thank you Andres.
2023.
And I think 'twenty three we will benefit from.
Oh a margin.
Yeah.
Interest margin that is going to benefit our <unk>.
Solids.
And as I mentioned, the stocking the loan book.
It's is going to be higher so we will have an income coming from from interest interest rates.
It will it will benefit the results of the bank yeah.
And those are.
Income are going to grow.
Probably more or in the same line of expenses. So we will balance sheet benefit from the cost of risk is going to do will be normalized so what we expect is.
To.
B.
A ball than the cost of equity during 2020 pretty on.
Or going forward. The next years, we think that that trend is going to consolidate.
Our our efficiency will probably improve and on the other income or fee income. For example is going to have a significant impact and positive impact on <unk>.
Yeah.
The results coming from the banks outside Colombia.
And in the years to come are going to also to to help it seems we will consolidate our strategy on those countries. So we clearly expect to be above the cost of of.
For equity.
In the years to come.
It's important to highlight of course scope effect with you at this moment is pretty I E. L D.
Due to the macro environment on the political situation in general higher interest rates when that normalize.
We will also probably normalized.
B made its interest margin.
And that will allow us to deliver.
Not really.
On the call.
The <unk> countries.
Okay got it.
Thank you.
Our next question comes from and they still got Milano of Bank of America. Please go ahead.
Hi, Good morning, Oh, God of war or convert or good morning to everyone on a cranky for your conclusion.
My first question is on the regulatory framework.
Ah I remember doing brokers campaign, we heard some proposal about the Democratic recruitment grew up by nine for certain her on a more active role from crude go Bang.
I'm wondering if there's something you know under a clinical trial or what are you doing.
A comforting Newport Cold calls.
That could be related to the bankruptcy broker.
And then my second question and hunger recruitment for <unk>.
Could grow next year computer introduced Brooklyn, a broker.
And longer clinker.
And thank you Ernest.
Regarding your your first question on the regulatory.
Environment the regulatory framework.
And regarding the plans for <unk>.
The federal government on the banking sector.
Yeah.
There is no much.
Additional information at this point.
As you as you know there could be.
30 months after the inauguration.
Uh huh.
What the minister of finance.
I said is that they are.
Yeah.
Organizing what they call the holding of the public bonds.
In a way that the they gave the direction of the different banks to D D.
Different minions.
Ministers.
And I, what I expect is that the.
Those bonds are going to play.
A role that he's going to complement the commercial Brexit months, meaning that they will probably focus more on financial inclusion there is.
You mentioned that they want to.
Yeah.
Do more or getting more access to credit to.
People in the rural areas of Colombia.
On that.
I think that will focus on that.
At this point, what I see more about that.
Public banking.
Our government banking is going to complement what we do on the private sector.
Good good to remember that we.
And I'm talking to the whole banking sector in Colombia has had very good coverage, we have been doing a very good job on giving access to financial services to many colombians the banking.
Banking penetration now in Colombia.
Rose to 91% coming from 78.
Financial services are now available for any Columbia and in a very easy way.
I mean in Oh.
The way that.
Actually.
That's basically a financial close credit is you saw there.
So there are and there are more room to.
The government banks and banks to play a role so at this point, that's what I, what I see and I don't see at this point, yes additional regulation for.
Commercial banks.
E in that regard.
Yeah.
And related to fees your second question.
We have been working on this strategy seems.
Broadly three or four years ago to diversify our sources of fees.
Yes.
Right.
In Colombia and in the other geographies and I think now we have.
The modify Soc.
Oh geez.
Very good.
Barry.
Brody.
Client base, particularly in Colombia.
Now more than 22 million customers in Colombia.
That allow us to half.
Two which then we with additional therapies Saturdays it so we will.
S C.
The peace growing right.
Around inflation or inflation on a continuum.
And part of our U I don't want even better because you want to complement something about about the question about fees.
No that is very clear and you have to take into consideration our.
Our weight in terms of transaction. So that's supporting that that pace is that the fees could be apple valley to be dosing patients so well.
We are going to reach potentially a little bit north of 2014 income ratio in the next coming years.
Perfect. Thank you very much Rob uncover from a person back up just.
Just a last question on named for one cause upward Cogs guidance for next year.
Her rethink.
We are grateful for their full year.
And our expansion into the first half on a comforting named pressuring the Brooklyn Hot and we talk with them.
Michael did I understand it correctly.
You you are correct, though that.
We will see is going to happen, we will we will have broadly.
Some additional expansion during the day.
First semester of the year and then.
Some contraction.
What we are expecting.
Is that the NIM should be around six 5%.
For the 2023.
Perfect. Thank you very much.
Thank you.
Okay.
Oh.
Our next question comes from Tito in America of Goldman Sachs. Please go ahead.
Hi, good morning, Thanks for the call and taking my question a couple of questions.
First how do you think just because of asset quality I mean, it's been holding up fairly well, but slowing economy high inflation rate.
Any concerns any particular segments, where you may be seeing issues already.
How do you think about the evolution of that.
And second question in terms of capital return given IRR.
Or what how are you thinking about dividend payout from here. Thank you.
Thank you Tito.
Yeah.
Regarding your first question on the segment that we will see probably will be impacted for.
For and economics.
Conditions that would it be is different from from here on and you mentioned them very well high high inflation and high interest rates and low growth.
We expect the segment that is going to be impacted the most is the retail.
Alright.
Yeah.
Humor grade, particularly a.
Credit cards will have an impact.
Got it.
What we see is we can we can manage D.
It is.
Increase.
In the cost of risk that we are that we are seeing in that segment.
We have been very careful on the origination side.
Let me remind you that we are.
Our strategy.
Or developing a striking.
Approved lines of credit. So we are proactive and we monitor the Permian completely the conditions the economic condition of all of those.
Those clients so we can react.
The week and on and on and be proactive.
One when we see that the the risk is increasing so definitely will be an increase in risk, particularly in those segments. So it meets the needs of small and this could be impacted also.
Mainly because the cost of oil.
Interest will be it will be higher.
Boardman is frozen.
We'll take them, but yeah.
Overall.
That will.
I mean.
<unk> mean that the cost of risk for the full year on a consolidated basis would be around one eight.
Pretty much in line with our long term expectation about cost of risk.
And regarding a couple of them.
We we had.
We can grow in a very healthy pace.
Yeah.
25% and our loan book, so that is consuming capital and we are.
Very well aware of that remember that last year.
Yeah.
We declare that hour.
The dividend at all if you would be that we will calculate a tier one gold.
Yeah.
Level and with that level, we will deduct.
Deduct the deviate here and payout and so we will apply that that policy.
Yeah.
With a target of 11.
The percent or around 11% tier one target.
And that is what we are going to propose.
Our board of directors and to the to the shareholders' meeting that we have a target of tier one in and then.
With that we calculate the dividends.
But we are that we will declare so name.
And with that I will pass to Hudson to complement the my my my answer on about there. They are all either U W. S.
That is very clear I just wanted to compliment.
Okay.
These are the main drivers for a healthy return on equity for the next coming views. The first one is.
The fee income growth and a very healthy pace as we mentioned in the previous question. The second one is you can see a weak consumer films bigger right now we have at around 24% of all of them to the consumers and providing us a very good NII and NIM and third as we mentioned in this team our.
Funding structure, primarily comes from our clients, which bore.
Yes sure.
To your point is that.
It takes them Carlos Humberto, that's very clear just one quick follow up just on the capital returns given with the stock trading below book value would you consider any buybacks at these levels.
We are not allowed to do buybacks from Colombia.
Oh, Okay, yeah. Thanks.
Thank you.
Our next question comes from Carlos Gomez of HSBC. Please go ahead.
Hello, Good morning, So two questions from me. The first one was first to Bonnie smoke.
Do you have this pretty large.
Hum case, and also a real estate developer could you give a bit more detail in Pennsylvania.
Nice.
What's the coverage you seem to have repeated you said, 60% now where do you want to go what are your expectations for recovery and when did you see that the situation will be resolved. Our understanding is that the debt does that he's currently is current it is pain and when do you seem to have two of them.
So obviously the clarity nonperforming and when do you see them their institution can be resolved one way or another.
And second a follow up on the capital issue and I mean.
Just to be more clear you mentioned that your target is 11% tier one are you on our 10th.
Is that the peso depreciate.
Depreciate, even more from where we are today.
Is there room for a dividend in calendar 2023, or you might have to reserve to create it's a push out of all the capital. Thank.
Thank you.
Thank you Carlos Let me let me take your first question on I suppose Humberto.
The recycling after I took some initial comments and within.
Regarding button, it's more on the corporate.
The decline that you mentioned.
We.
We serve.
Around $50 million for that client the total outstanding of that client, it's $250 million. So now with these additional.
Provision.
Let the coverage level now.
56%.
Yeah.
It's good to have in mind that we have the ASIC.
And yes it is.
The it.
It's the value of the asset.
Yeah.
Its seats the outstanding out of the debt.
D a.
At this moment that client.
So now in the.
Prosocial.
We are working with that client restructuring you did.
That so they are not paying at this moment.
Because we are in that process. That's why we reserved an additional an additional amount but that level of coverage.
56%.
With the assets that we have.
Yeah.
Yeah.
We just we feel comfortable.
Come from Pebble Dod the level of coverage.
Between the provisions that we have already on our books.
And they know the value of the asset.
We feel comfortable.
That.
That gave us comfort on how holiday the situation is advanced and we sort of at this moment, we will continue.
They've all been on the on the <unk>.
Situation for us is with the decline.
That will take some time, but we expect to have the situation.
Pierre.
Probably by the end of the year. So at that point, we will we will know exactly it.
What is the evolution.
Well, how the evolution of this claim will be.
Yeah.
Regarding your question if there is room for dividend.
With the target of 11%.
Yes, they are.
Remember that we target.
11%.
The tier one four at the end of the year.
Loan loan growth during the year would be much much less than this year. So we will not.
Consume capital from that side, and we accumulate capital.
Yeah.
So that will allow us to have a very good balance between.
Our.
Dividend policy.
Yeah on the level of capital.
In which we feel comfortable with cheese or.
Our target, which is down 11, 11% I don't know if let's say if you want to complement.
The second point that a heartless niche.
Yes, one there are two reasons the first one when the 10% was loan growth as Brian mentioned, we don't think that the fourth quarter. We are going to have the same training in the loan growth that explains why we believe that the unit the year 11 to one increase and the second reason to fix the amendment.
Then cumulated last 12 months to September FX devaluation was 20%, we don't foresee change Nevertheless evaluation for the fourth quarter. So because of these two reasons.
That scene.
<unk>, the 11% tier one ratio at the end of the two years.
So like anything you will exceed 11% at the end of 2022.
Yes.
Four.
For 'twenty, three and we were happy her room for CBD.
For 2022.
Each quarter of 2022.
Yeah.
Just to clarify again.
Yeah.
No go ahead go ahead.
Okay.
Okay, Okay no place so it actually.
So yes, we are going to reach a bolt.
We're going to reach at around the level of 11% of beginning of each year.
So we will have no space.
For <unk> and two Capex dividend payout. So we have no right now we don't know exactly the number but we are going to make the calculations regarding the amount of capital that we knew that that would be 11%.
You guys do your taxes.
They consume more capital last quarter for the fourth quarter will be less that the consumer Capex I think it seems the first three quarters.
Okay to summarize so you seem to be at or could be close to 11% by the end of 2% to two and then it will be above 10% by the end of 2009.
23.
No. Let me clarify let me clarify that okay. We are at this moment, we are at 11 O O.
At a level of 10% of tier one capital we accumulate some capital during the fourth quarter.
2022, because the loan growth is going to be less during that quarter. So we accumulate some capital there, but it's not going to reach 11%. Then we have we will calculate D target of tier, one which will be 11% and then with that week.
We will proposed the dividend.
To the shareholder meeting.
One of the meeting and that will allow us to have.
Our dividend policy and to have dividends next year based on the results of 2022 and reached the level of 11% seems the loan growth during 2023 is going to be.
As I've mentioned before around 5%. So it is going to be a growth.
We will not consume capital and we will accumulate capital during 'twenty 'twenty three is that clear cutoff.
That's clear. Thank you very much I mean, if I felt would go back to the corporate default in.
Panama is this it.
Company specific issue or should be worried about the other developers in Panama.
No. It's a it's a company specific issue, it's a client that.
Yeah.
If it has been with us.
For some time now so it's very specific is it is it is related with that particular client is not something to worry about about the Panama in general got it.
That's great. Thank you very much for your answers.
Thank you.
Once again, if you have a question. Please press Star then one.
Our next question comes from Julien <unk> of Divina. Please go ahead.
I know your model.
My question.
We're ready to go.
One of them are talking about.
Yeah.
Our own inventory.
<unk>.
Good question.
That's before.
We have indeed changed out there that we've got a refund.
They're pretty rationale.
The Colombian company.
Brown at Nike.
And if there was any impact from the operation in Panama and.
I'll do that.
And regarding the tax requirement in Colombia.
Yeah.
If you have any expectations.
Margin and how much you will we have to pay.
And due to increase in the.
Doctor in taxes in Colombia.
Thank you.
Thank you Phil Yeah, Let me, let me see if I get your questions.
Because they say quality of the sound wasn't it wasn't very good. So you ask why do you is going to be the impact of the tax reform from the.
Income that we get from the operations outside Colombia on it we don't see any any any particular impact the impact is going to be as we mentioned in the surcharge of 5%.
Yeah.
On income tax.
In Colombia, So that's why we have seen we have on our statutory.
Right.
40% for zero.
Yeah.
Beginning in 2023, our effective effect.
That's right, it's going to be around 35, because we are on a consolidated basis. We have today are the operations there.
Okay.
And geographies.
I don't know Jose if you will have additional comments regarding to Johns question.
Okay and return on equity for 2020 to AWS.
Polyone.
Potentially you are going to reach about David Macdonald with Tfl wrong 19, pristine means that we will be at both cost effectively and consequently, you said around 15% of potential cost of equity with increased mixed views at University.
Above cost of equity in 2023.
Okay.
And when do you expect Asia Conjunctions inquiry.
Sure.
As we mentioned before the NIM, we expect NIM to to expand a little bit more during the the beginning of the year for the first quarter broadly all into the first semester and then easy will contract.
We expect the end.
2023, we can even with around six.
5%.
Yeah.
Okay. Thank you very much.
Thank you.
Our next question comes from Yuri Fernandes of Jpmorgan. Please go ahead.
Hey, guys, sorry can you hear me.
Hey, Judy go ahead.
Hi, Hi, guys. Congrats on the results I had one question regarding the you know like the capital structure dividends I guess their tier one is it's likely you know.
Lower now than you have been very compounding. This but my question is can you keep that level of payout.
Refresh us here regarding the minimal a tier one for the bank how you see dividends 6023. Thank you.
Thank you Julie.
As we mentioned before we have our dividend policy based on our core.
Tier one target.
That target is around 11% so that will allow us to propose a dividend.
Yeah.
Well it would be.
Well I mean, we don't know the amount yet but.
It's going to be a dividend that will be I think at first we will meet that but the criteria of game or.
The 11% and will allow us to do half of it.
The capital structure.
We are looking for and also have a payout that is the that is good for the market I don't know Jose if you want to complement these designs.
Yes.
Yes, we're going to try again.
In March we are going to see big ticket.
The dividend payout.
The first thing that we can lease to congregate.
Optimal level of tier one during the 2022 assuming the beef is kind of weird hobby based on that we believe that in March we have space.
So dividend assuming that 11% on average up to one thing we want to maintain during 2023.
So recap at the end of 2022 potentially the tier one would be at around 10% here as we mentioned on discrete.
During the 'twenty 'twenty three the generation of capital we are going to reach at the end of 2023.
7%, assuming a dividend policy our dividend payout a reactor announced for March I don't know if that is true.
No that's super clear guys. Thank you very much.
Thank you Judy.
Thank you.
Okay.
Our next question comes from Alonso Garcia of Credit Suisse. Please go ahead.
Hi, Good morning, everyone. Thank you for taking my question, it's actually just a follow up on a previous question.
Did you mention a <unk> 433 around 19%.
Is that.
That is the case what are you expecting for these new report due in 'twenty two.
Sure.
Yeah. Thank you Alonso pushing back to could you take that question. Please.
Yes, we are expecting at the end of this year return on equity of 20%.
As you say it in the next year.
Okay. Thank you very much.
Thank you Linda.
Thank you.
This concludes the question and answer session I would like to turn the call back over to Juan Carlos Mora for any closing remarks.
Thank you everybody for participating in Bancolombia S third quarter.
Results Conference call.
Yeah.
We are expecting to end.
And this year 2022 with results in line with what we had seen so far.
The 'twenty two 'twenty three will be a year with different challenges with an economic environment different than the one we had a hot during 2022, but we are bancolombia feel but we are very well prepared.
True.
To manage what is coming in in 2023 D. The structure of the bonds. The track of the digital transformation. What we are doing on our strategy the customer base that we have I think a.
Allow us to manage a year in which we as I said, we will have different challenges, but we feel prepared to manage thing. So again. Thank you very much for participating in today's call on we expect to see you know what the next conference call in which we will send the food.
Rather we saw for the year 2022 thank.
Thank you very much on how to grow a good day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Hum.
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Yeah.
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