Q4 2022 Grupo Aval Acciones y Valores SA Earnings Call
Speaker 1: building music
Speaker 2: Welcome to Grupo Eval's fourth quarter 2022 Consolidated Results Conference call. My name is Brent and I will be your operator for today's call.
Speaker 2: Grupo Eval Aquíones y Velares ESEA. Grupo Eval is an issuer of securities in Colombia and in the United States SEC. As such it is subject to compliance with security regulations in Colombia and applicable US securities regulations.
Speaker 2: Grupo Eval is also subject to the inspection and supervision of the Superintendent of Finance as a holding company of the Eval Financial Conglomerate.
Speaker 2: The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of calculations of non-IFRS measures such as ROAA,
Speaker 2: and ROAE among others are explained when required in this report. Banco de Bogota executed a spin-off of a 75% equity stake in BAC Holding International Corp, BHI, to its shareholders and Grupo of Al.
Speaker 2: subsequently spun off its equity interest to its shareholders on March 29th, 2022.
Speaker 2: Prior to the spin-off, Banco de Bogota was the direct and only parent of BHI. Furthermore, on December 19, 2022, Banco de Bogota sold 20.89% of the outstanding investment of BHI through a tender offer.
Speaker 2: As of December 31st, 2022, Banco de Bogota held a 4.11 percent.
Speaker 2: of BHI.
Speaker 2: This investment is reflected as an investment at fair value through other comprehensive income.
Speaker 2: As a result, for comparability purposes, we have prepared and present supplemental un-audited pro forma financial information for the 12 months ended December 31, 2021 that assumes the spin-off was completed on January 1, 2021.
Speaker 2: as a result of the sale of 20.89% of BHI. In this presentation, we have reclassified the BHI's equity measures method to discontinued operation for the second and third quarter of 2022.
Speaker 2: The supplemental, unaudited pro forma financial information does not purport to be indicative of our results of operations or financial position had the relevant transactions occurred on the date assumed and does not project our results of operations or financial position for any future period or date.
Speaker 2: The Proforma Financial Information is unaudited, and the completion of the external audit for the year ended December 31st, 2022, may result in adjustments to the unaudited Proforma Financial Information presented herein. Any such adjustments may be material.
Speaker 2: For further information, please see the supplemental, unaudited pro forma financial information in our fourth quarter of 2022 earnings release.
Speaker 2: For further information, please see the supplemental, unaudited pro forma financial information in our fourth quarter of 2022 earnings release. This report includes forward-looking statements.
Speaker 2: In some cases, you can identify these forward-looking statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential, or continue.
Speaker 2: or the negative of these and other comparable words.
Speaker 2: Actual results and events may differ materially from those anticipated herein as a consequence of changes in general, economic and business conditions, changes in interest and currency rates and other risks described from time to time in our filings with the Registro Nacional de Villarreal EEA.
Speaker 2: MSORF and the SEC.
Speaker 2: Recipients of these documents are responsible for the assessment and use of the information provided herein.
Speaker 2: Matters described in this presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review, update or correct the information provided in this report, including any forward-looking statement.
Speaker 2: and do not intend to provide any update for such material developments prior to our next earnings report. The content of this document and the figures included herein...
Speaker 2: are intended to provide a summary of the subjects discussed rather than a comprehensive description.
Speaker 2: When applicable, in this document we refer to billions.
Speaker 2: as thousands of millions.
Speaker 2: At this time, all participants are in a
Speaker 2: Later, we will conduct a question and answer session.
Speaker 2: I will now turn the call over to Mr. Luis Carlos Sarrianto Gutierrez chief executive officer. Sir, you may begin.
Speaker 3: Good morning and thank you all for joining our fourth quarter 2022 conference call.
Speaker 3: Last quarter was an eventful one.
Speaker 3: The Columbus economy lost its momentum.
Speaker 3: Inflation continued unabated, Christmas holiday consumer demand disappointed, cost of funds skyrocketed, and banks that concentrate on consumer lending couldn't reprise their loan portfolios quickly enough to compensate for the increased cost of deposits.
Speaker 3: Notably, Bank of Bogotá accepted a tender offer to sell 21% of its remaining 25% participation in backholding International Core, BHI, the holding company of the Central American Banking Group, BAC Cred-O-Matic.
Speaker 3: Let's dive right into it. As you may recall, in March 2022, Banco de Bogota completed the spin-off of 75% of BHI in favor of its shareholders and consequently retained a 25% stake in this holding company.
Speaker 3: Concurrently, Ava spun off the BHI shares that it received from Banco de Bogota in favor of its shareholders.
Speaker 3: thus reducing our exposure to Central America to approximately 8.5% of our total assets.
Speaker 3: In December 2022, Banco de Bogotá accepted a tender offer for common shares of BHI at virtually the same price per share used as basis for the March spin-up presented by a company controlled by Grupa Val's principle. The price was acceptable to the bank considering higher discount markets.
Speaker 3: was driven by the same considerations that had led the bank to spin off EHI in the first place.
Speaker 3: This transaction increased Bank of the Bogota solvency ratio and improved its net stable funding ratio, NSFR, or CIFEN in Spanish.
Speaker 3: allowing for long growth with reduced pressure and cost of funds.
Speaker 3: The transaction was well timed considering, as mentioned before, the accelerated adoption process of Sephania in Colombia, which resulted in a steep increase in the cost of funds as most Colombian banks competed almost exclusively offering ever increasing rates for longer term deposits.
Speaker 3: It previously disclosed a lot of first quarter 22 results, included extraordinary net income of 724 billion pesos.
Speaker 3: As a result, a Banco de Bogota spin-up of 75% of BHI.
Speaker 3: The fourth quarter 2022 sale of an additional 21% of BHI resulted in an extraordinary loss in a lesbian ale of $678 billion.
Speaker 3: Net, both transactions resulted in a one-time gain of 46 billion during 2022.
Speaker 3: Moving on to the macro environment, during 2021 and 2022, the global economy consolidated a post-pandemic recovery driven by commercial activity and domestic consumption.
Speaker 3: stronger demand combined with weaker supply. As the supply chain was disrupted by the zero COVID-Chinese policy.
Speaker 3: led to higher inflation.
Speaker 3: In turn, central banks moved to contractionary monetary policies.
Speaker 3: As the supply chain has started to normalize, supply of gas and fertilizers, among others, affected greatly by the military conflict in Ukraine, have attempted against the normalization of inflation.
Speaker 3: In fact, according to the IMF's latest projections, global growth will slow from 3.4% in 2022 to 2.9% in 2023.
Speaker 3: Colombia experienced an outstanding recovery during 2021, which carried on to the first three quarters of 2022.
Speaker 3: However, the country's dependence on imports, complications to transport agricultural products.
Speaker 3: a steep rising food prices and the challenging political environment drove very high inflation, which in turn triggered monetary policy and the steepest increase in interest rates in this century.
Speaker 3: Strong growth during the first three quarters of 2022 boosted Colombia's GDP to grow 7.5% during the year, one of the highest growths among all the emerging countries.
Speaker 3: Growth was driven by the strength of private consumption that grew 9.5% and by robust investment dynamics that grew 19.5%.
Speaker 3: Net exports had a negative impact on overall growth due to a 23.9% expansion of imports that exceeded a 14.9% increase in exports over the year.
Speaker 3: On the supply side, growth in 2022 was driven by the recreation and entertainment sector that experienced a 37.9% annual growth, followed by communications growing at 14.2%, commercial activities growing at 10.7%, and commercial activities growing at 24.7%.
Speaker 3: manufacturing that grew 9.8%.
Speaker 3: Meanwhile, the agriculture sector contracted 1.9% over the year due to higher input costs and bad weather. The WHO sent out earphones with large Benq Statistical Center Archery they believe
Speaker 3: Given the recent economic slowdown, the central bank has revised down its 2023 growth estimate.
Speaker 3: from 0.5% to 0.2% below the 1.3% market consensus.
Speaker 3: Furthermore, the IMF now expects GDP growth in Colombia to be 1.1% in 2023, lower than its previous 2.3% growth rate projection.
Speaker 3: Economic activity is likely to be dragged on by higher interest rates, persistent inflation, a softer labor market, and uncertainty associated with a large pipeline of reforms including labor, healthcare, and the pension system. Accordingly, we now anticipate GDP growth at 1%.
Speaker 3: for 2023.
Speaker 3: As mentioned before, pressures continued to build up in 2022, with food prices increasing more than 25% during the second half of the year.
Speaker 3: Accordingly, 12-month inflation reached 13.1% in December 2022, the highest since 1999.
Speaker 3: In January 2023, inflation continued to accelerate, reaching a 12 month inflation of 13.3%, with food prices accounting for 35% of the overall price increase.
Speaker 3: Going forward, lower global prices of fertilizers and better weather conditions should help to alleviate price pressures on the agribusiness sector with inflation slowly easing during the next few months.
Speaker 3: While market consensus forecasts a 12-month inflation of 7.8% by the end of 2023, we expect it could reach 9%.
Speaker 3: In this context, the central bank's contractionary monetary policy has dictated continued hikes of its repo rate up to its current 12.75% after a 75 basis points hike during its January meeting accumulating an 1100 basis points hike.
Speaker 3: since September 2021.
Speaker 3: Considering the persistence of inflation,
Speaker 3: We don't really rule out the possibility of one or two additional hikes.
Speaker 3: bringing the rate to 13.25% during the following months.
Speaker 3: shifting to lower rates during the second half of the year, which could lead to a year-end rate of close to 10.5%.
Speaker 3: The labor market continued to improve during 2022, but lately this improvement has started to slow down.
Speaker 3: In any case, the average 2022 unemployment rate fell to 11.2% improving from 13.8% in 2021.
Speaker 3: In December , the national unemployment rate reached 11.3% versus 12.1% in December 2021.
Speaker 3: However, we do anticipate a softening of the labor market during 2023, given a softening in the creation of new jobs at the end of 2022, the slowdown in economic activity, the 16% increase in the minimum wage, and the rise in the labor market in the last 2023.
Speaker 3: and anti-technical labor reform in the current contractionary monetary environment.
Speaker 3: We expect average annual unemployment to deteriorate to 12% in 2023. Regarding the exchange rate, during the last few days, the peso has been volatile in the $4,750 to $4,950 pesos per dollar range.
Speaker 3: As a result of market jitters regarding higher interest rates in the U.S.,
Speaker 3: and their effect on the Colombian economy given its dependence on external financing. Additional volatility of the Colombian peso has been driven by uncertainty regarding the mentioned reforms which appear to be oriented towards reducing the role of the private sector in certain industries such as health, pensions and utilities.
Speaker 3: This adds to previous rhetoric regarding reducing or stopping altogether oil and gas exploration as part of an energy model transition towards cleaner alternative sources. These reforms could reduce domestic savings and impact the country's external financing position, making it more vulnerable to external shocks.
Speaker 3: Market consensus suggests that the country could end the year with a current account deficit of around 4.5% of GDP, which is likely to prevent the peso appreciating to its pre-pandemic levels.
Speaker 3: Finally, on the fiscal front, at the end of 2022, the fiscal deficit was 5.5% of GDP, an improvement versus the 7.1% recorded in 2021, reflecting the strong rebound of the economy and the positive effect of higher oil prices on tax collection.
Speaker 3: Net public debt to GDP fell to 59.6% in 2022, down from 16.8% in 2021, due to a higher GDP growth in nominal terms despite the weakening of the peso during last year.
Speaker 3: On the digital transformation front, during 2022, in accordance with our strategy, the vast majority of our traditional legacy products are now offered by our banks digitally. A material number of our internal operations have been digitalized.
Speaker 3: We are working to expand our ecosystems and in the second semester we launched a drive to enroll new clients in our digital wallet, DALY.
Speaker 3: Our banks sold 2.2 million digital products and increased a 43.7% versus 2021.
Speaker 3: Digital transactions represented almost 70% of total transactions and increased by 43% over a year.
Speaker 3: In the same period, transactions conducted in our branches decreased approximately 13%.
Speaker 3: Digital customers have a wealth of banks approximately 5 million in Dali or digital wallet clients are running close to a million.
Speaker 3: At this rate, we should end the year with approximately 3.5 to 4 million customers in Dalai.
Speaker 3: Dali has also begun to participate in the dispersion of subsidies which has been a decisive boost for the growth of other digital wallets in the market.
Speaker 3: Finally, it has also successfully closed several Banking as a Service agreements, including agreements with LifeMiles, WALO, and Plural.
Speaker 3: Finally, our data analytics continue to evolve and our cost of acquisition of new digital clients continue to drop as we improve our spending effectiveness supported by our database platforms Augusta and Matilda developed by Avall Digital Labs.
Speaker 3: During 2022, we continued strengthening our ESG efforts and improving our sustainability model.
Speaker 3: These are a few of our ESD milestones during the year.
Speaker 3: We reaffirmed our adhesion to the United Nations Global Pact.
Speaker 3: and along with other banks, joined the
Speaker 3: Group of balance subsidiaries received the friendly business recertification and Banco de Bogota, Banco Popular, Banco de Occidente, Corfi Colombian and Pobrene, have been recognized by Great Place to Work as some of the best employers in the country.
Speaker 3: The holding company measured its carbon footprint for the first time during 2022, analyzing the years 2019, 2020, and 2021 for scopes 1, 2, and 3.
Speaker 3: In 2021, we saw a reduction of 56% in our footprint when compared to 2019. Vancouver with that designed its climate strategy aligned with net zero and published the first report following TCFD recommendations.
Speaker 3: Furthermore, Banco de Bogota is the first carbon neutral bank in Colombia.
Speaker 3: In 2022, the ESRA's diagnostic stage began in Banco de Occidente, Banco Popular, and Banco Abeviges. The ESRA's diagnostic stage began in Banco Abeviges, Banco Abeviges, Banco Abeviges,
Speaker 3: We expect to conclude the answers implementation process in 2023.
Speaker 3: Banco de Bogotaín Corficolumbiana were included in the Dow Jones Sustainability Index Yearbook.
Speaker 3: Finally, in 2022, the CETIC, the Cancer Treatment and Research Center, began operations and attended approximately 2,500 patients. Regarding our financial results, Diego will refer next in detail to our financial performance during 2022.
Speaker 3: However, I would like to highlight the following. First, as addressed before, net income during the last quarter of the year included a 0.68 trillion pesos, one-time negative effect caused by Banco de Bogota's decision to sell 20.89% of the stake it held in BHI.
Speaker 3: in response to a tender offer. This negative non-recurrent loss was enough to offset the quarter's net income from recurrent operations of 0.31 trillion pesos. The 0.68 trillion peso non-recurring charge partially offset Keeping housing source
Speaker 3: the .72 trillion pesos non-recurring gain booked in the first quarter of 2022 after Banco de Bogota's spun off 75% of BHI.
Speaker 3: During 2022, the net effect in Avaz PNL of BHI's transactions amounted to a $0.05 trillion positive non-recurring gain.
Speaker 3: Total attributable net income for the year amounted to 2.5 trillion. However, absent of income from discontinued operations almost entirely related to BHI of ALS 2022 attributable net income and a recurrent basis reached 1.9 trillion.
Speaker 3: This result, however, is clearly divided in two.
Speaker 3: The positive macro environment during the first half of 2022, which led to net attributable income from continuing operations of $1.2 trillion, in the acute economic downturn during the second half of the year, which led to net attributable net income from continuing operations of $0.7 trillion.
Speaker 3: During the first half, our banking subsidiaries benefited from a rebound in loan growth.
Speaker 3: a favorable evolution, a passive quality, and higher recoveries are written out loans. However, this environment changed materially during the second half of 2022, given the massive increase in the central bank and the pension rate, and the unprecedented speed at which monetary policy has been transmitted to the cost of funds of banks due to the accelerated implementation in Colombia of CFN.
Speaker 3: rate increases, compressed margins in banks in general.
Speaker 3: And more dramatically in banks with predominantly fixed rate consumer loan portfolios.
Speaker 3: On the other hand, higher interest rates favor NIM in our corporate banks, which have mostly variable interest rate commercial loan portfolios.
Speaker 3: This pressure should start to ease in 2023 as the FEN requirements have been met.
Speaker 3: Inflation subsides and the center bank starts to lower rates while fixed rate low and low portfolios start to mature and reprise.
Speaker 3: Obviously, the rising rates also affected the yield curve, which in turn negatively affected fixed income securities portfolios, including the proprietary fixed income securities portfolio of our pension and severance fund manager, Porvenir. Porvenir was also affected by a steep increase in life and disability insurance premiums.
Speaker 3: not been made public. During 2022, 4.8 contributed to 4.7% of our total net income.
Speaker 3: All in all, in line with our previous guidance, in 2022, a lot of produced, trivable net income of approximately 105 pesos per shirt, return on average assets of 1.6% and return on average equity of 14%.
Speaker 3: Lone growth exceeded our expectations at 18% and low quality including cost of risk continued to improve.
Speaker 3: Growth for 2023 will probably be close to zero in real terms, which is equivalent to nominal growth of approximately 10%.
Speaker 3: However, cost of funding should rebound lower and NIMS should expand.
Speaker 3: The big question mark revolves around employment and the effect that this index could have over the quality of consumer loan portfolios.
Speaker 3: We will, however, continue to navigate through this challenging environment.
Speaker 3: revise and participate to the extent of our abilities in the final wardings of the proposed reforms.
Speaker 3: Deploy capital, device optimum funding strategies and as always maintain cost control and loan price in discipline.
Speaker 3: I thank you for your attention in now passing the presentation to Diego who will explain in detail our business results and provide guidance for 2023. Thank you Luis Carlos. I will now move to the consolidated results of Group Power Alanderaya Perez.
Speaker 3: for your attention in our path on the presentation to Diego, who will explain in detail our business results and provide guidance for 2023. Thank you Luis Carlos. I will now move to the consolidated results of Group Avala under IFRS. Starting on page 8.
Speaker 3: Assets grew 16.2% during 2022 and 3.4% during the quarter.
Speaker 3: Over the year, net loans and leases in crystal share of our mix with a trade-up in the share of fixed income investments and cash and equivalents.
Speaker 3: Moving to page 9, loans grew 18.1% over the year and 4.1% during the quarter with similar performances in commercial and retail loans.
Speaker 3: Anon loan growth rates accelerated to 18.3% in commercial loans and to 17% in consumer loans.
Speaker 3: Top-month growth in consumer lending was brilliant by personal loans, with a 33.7% increase, followed by our mobile loans and credit cards that grew 18.9 and 17.8% respectively.
Speaker 3: Federal loans grew 11.2% over the year. Growth of the quarter was 4.5% for commercial loans and 3.1% for consumer loans. So still high, the software performance was proven by the impact of higher interest rates and loan demand and a deterioration in consumer confidence.
Speaker 3: Personal loans and credit cards which account for 23% and 12% of our consumer portfolios grew 8.2% and 5.7% respectively during the water.
Speaker 3: Several loans and auto financing are main consumers' secured products, group 0.2% and 5.7% respectively. These products account for 56% and 9% of our consumer portfolio.
Speaker 3: mortgages grew 21.8% year-end and 5.4% over the quarter. Loan growth has begun to decelerate in riskier products and segments.
Speaker 3: We anticipate slower growth of our loan portfolio during 2023 in line with the software economic outlook both locally and globally.
Speaker 3: On pages 10 and 11, we present several loan portfolio quality ratios. The quality of our loan portfolios improved through the year both measured by stages and by TDALs. This resulted in a lower cost of risk over the year. Stage 1 loans now represent 87.2% of our gross loans.
Speaker 3: improving from 81.7 foot months earlier and 86.3% three months earlier.
Speaker 3: Regarding delinquencies, 90-day and 30-day PDLs improved 38 basis points and 30 basis points year-on-year. Over the quarter, there was a slight deterioration in both metrics due to the slower growth rate of our loan portfolio, a lower level of chart-offs, and a higher 90-day PDL formation.
Speaker 3: Cost of risk net of recovery for the year was 1.5% down from 1.8% in 2021 and posted a 10 basis points increase over the quarter to 1.46%.
Speaker 3: Finally, the ratio of charge-offs to average 1980 ALs was 0.56 times for the quarter and 0.57 times for 2022.
Speaker 3: On page 12, we present funding and deposit evolution. Funding increased 3.6% during the quarter supporting loan growth. As a result, our deposits to net loans ratio remain high at 97%.
Speaker 3: The sheriff deposits in our funding mix remain relatively stable at 71% while balance loss pays to balance another funding
Speaker 3: Deposit screw scent in percent year and year and 4.1% in the quarter. Timing deposits gain share in our mix, anticipating the high requirements for the next stable funding ratio NSFR. Apeical at the end of this month.
Speaker 3: On page 13, we present the evolution of our total capitalization, our attributable share of the equity and the capital adequacy ratio of our tax.
Speaker 3: Our total equity decreased 21.9% over the year due to the spin-off of 75% equity stake in DHI on March 2022. Part of this transaction, our assets and equity decreased by 9.7 trillion pesos. The impact of this transaction on a three- year due to our equity was 6.6 trillion.
Speaker 3: one and total solvency ratios similar to those reported for September 2022. Just strengthen Vanquil-Avoa-Tas and RuPaul's capital bases their respective shareholders meetings approved the distribution of stock dividends. Shareholders are required by not to accept stock dividends or else are paid in cash. Our state cash students of 0.1 trillion pesos.
Speaker 3: in March of 2022. Bancoi Ovouta does not fully incorporate the benefit of exiting its investment if VHI, given the reduction of its 4.1 minority stake in the company that poses a burden of 30 to 40 basis points to its primary capital duration.
Speaker 3: But for the occurent, it increased the secondary capital to a $100 million increase in coordinated loans. On page 14, we present our yielded loans, cost of funds, spread and new.
Speaker 3: Interest rate behavior for 2022 was proven by the contractionary monetary policy implemented by the central bank. The year-end benchmark rate in Columbia increased 900 basis points during 2022 to 12%, while the average rate increased 528 basis points to 7.2%.
Speaker 3: at an instantion introduced by the migration of Colombia to base of free.
Speaker 3: The pressure on demand for time deposits increased the spread between those and the Colombian sovereign debt up to approximately 450 basis points above historical levels. We expect a substantial part of this phenomenon to be temporary. In fact, over the last few weeks, this spread has come down to 250 basis points above historical levels.
Speaker 3: The magnitude and the speed of the increasing funding rate.
Speaker 3: Compresident of retail loans. He's with you to the fact that some of the higher credit quality retail loans, such as the afternoon loans bear fierce rate.
Speaker 3: We expect this compression to recede during the second half of 2023, as funding prices are expected to fall driven by the reduction in the central bank intervention rate, loan portfolios continue re-pricing up, and as the banking system fully adjusts to a tighter NSFR regulation.
Speaker 3: In the meantime, we expect the pressure for higher funding costs and NIMS of our fixed-rate retail portfolio to persist over the next few quarters.
Speaker 3: The compression of margins happen mostly during the second half of the year as two thirds of the central bank rate increase occurred during that period.
Speaker 3: During the fourth quarter, the NIM and loans contracted 40 basis points to 4.15 percent and the spread between average yields and gross loans and average cost of funds contracted 39 basis points to 4.7 percent. The cost of funds of our non-financial activity is included in an overall net interest margin reporting our numbers.
Speaker 3: In this context, net interest margin unlones of our banking segments contracted 41 basis points during the year to 5.29% in 2022. However, the higher funding cost of our non-financial activity resulted in an overall name unlones of 3.68% that contracted 67 basis points during the year.
Speaker 3: Bear in mind that the increase in interest expenses associated with the funding of our non-financial activity was offset by a stronger performance of the non-financial sector presented on the following page that benefits from inflation. Tailwinds on our commercial lending activity that reprices promptly from a hawkish monetary policy.
Speaker 3: led to 125 basis points increase to 4.55% in 2022's NIM and commercial loans of our banking settlements. In contrast, headwinds on our retail loans that have a longer reprising period led to a 228 basis points contraction to 6.2%
Speaker 3: In our 2022 name and written loans of our commercial ranking segments.
Speaker 3: NIMA investments for 2022 decreased 49 basis points to minus 0.1 percent, reflecting the increase in cost of funds and the challenging performance of global capital markets throughout the year.
Speaker 3: NIMA of Uninvestments includes the performance of March to March kit investments held by for the need under mandatory stabilization reserves, which posted negative returns during 2022. NIMA investments of our banking segments decrease 22 basis points to 0.46%. On page 15 we present NetFees and other income.
Speaker 3: 6.9% year-on-year and increased 0.4% quarter-on-quarter.
Speaker 3: Net fee income incorporates a substantial improvement in the banking and trust fees and a sharp decrease in the pension and severance fees.
Speaker 3: Close banking fees for the year increased 17.1% reflecting the recovery of bank insurance, merchant acquiring, debit and credit parties in line with strong loan growth and a dynamic domestic demand.
Speaker 3: Anon net tension and severing keys decreased 37% magnitude to a higher insurance premiums associated with increased mortality rates during the pandemic and to a lesser extent to lower performance based keys in line with tactical market conditions.
Speaker 3: Income out the non-financial sector was strong through in 2022. Our infrastructure sector, that is the largest contributor to our non-financial income group, 54.1%, as financial assets from our concession agreement benefit from hiring stations and the depreciation of a Colombian person.
Speaker 3: Fourth quarter performance was negatively impacted by cost overruns in some of our road concessions. Energy and gas companies increased their contribution to our yearly non-financial sector by 4.6% driven by higher gas transportation volumes.
Speaker 3: improvements in industrial consumption and aided by the appreciation of the Colombian pest. In the fourth quarter, income was affected by tariff adjustments on gas transportation, lowering income from construction activity in Peru, and lower volume given by a software industrial demand and shadow maintenance.
Speaker 3: Although low contributors for non-financial sector or hospitality and agricultural businesses had record high contribution to the non-financial sector in 2022, hospitality business performance improved as room and food prices benefited from inflation and as of frequency ratios fully recovered to pre-pandemic levels.
Speaker 3: Finally, on the bottom of the page, other income during 2022 was lower than a year earlier, mainly because of low results in derivatives and foreign exchange gains and in net gains on sale of investments and OCI realization. Regarding derivatives and FX gains, exiting its business in DHI changed Pangpo-Ogota's structural balance sheet from a long USD position to a short USD position.
Speaker 3: Given the prevailing interest rate differentials between the Colombian peso and the US dollar, this change implies a net cost of managing this exposure through derivatives.
Speaker 3: Regarding net gains and CLL investments in OCI realization, some of our subsidiaries realized losses on per-value OCI-15-com instruments, particularly through the fourth quarter. As a positive for other operating income, through the fourth quarter, we continued our PPN optimization as in prior years.
Speaker 3: resulting in other income from operations up in 5-percent faith.
Speaker 3: On page 16, we present some efficiency ratios. Our business units continue implementing cost-contention initiatives during 2022. Total law picks grew 9.1% during the year, well below, in session of 13.1%.
Speaker 3: Personal expenses grew 7.6% in the year, while depreciation and amortization increased 6.4%.
Speaker 3: General and administrative expenses increased 15.4% in 2022, of which 6% of points are explained by a 28% increase in operating taxes.
Speaker 3: In Colombia, the industry and commerce tax is based on gross income. As such, the base for taxes increased significantly during this rising interest rate cycle. In addition, this tax is determined at a local regional level, given that the tariff structures were modified during 2022, allowing for each local government to set rates.
Speaker 3: Some cities increased their tariffs substantially with excesses in some cases where 2022 rates were five times those applicable during 2021.
Speaker 3: Quarterly OPEX grew 7% year on year, of which 4 percentage points are driven by taxes. Water and water growth was additionally affected by seasonal defects.
Speaker 3: Cost 2 assets for 2022 was 2.7% down from 2.8% in 2021. Cost 3 income was 45.8% up from 42.8% a year earlier. The deterioration in cost 3 income was mainly driven by the contraction in NIM and the decreased increased intention fund piece.
Speaker 3: Finally, on page 17, we present our net income and profitability ratios. Attribute our net income for 2022 was 2,483,000,000 pesos or 107,000 pesos per share, 27.5% lower than the result for 2021.
Speaker 3: Attribute the whole net income for continued operations was 1,890,000,000 pesos, 24.7% lower than in 2021, while attribute the whole net income from this continued operations was 594,000,000 pesos. During the quarter, the net income from continued operations
Speaker 3: at the AWD level, which 310 billion pesos, while the losses from discontinued operations at the AWD level were 641 billion pesos.
Speaker 3: As a result, our attributable net income for the quarter was a negative 330 billion pesos.
Speaker 3: Discontinued operations for the quarter results from income from the equity methods of PHI of 37 billion during October and November and a one-time loss of 618 billion pesos associated with the sale of 20.9% of PHI.
Speaker 3: The total one-time effects rate 2022, affecting the investment in VHI, were 46 billion pesos at the Aval level, when considering the 724 billion one-time effects from spin-off recorded in 1st quarter.
Speaker 3: Given that we recognize 548 billion pesos of PHI's net income at the above level in addition to the 46 billion pesos, one-time-effects of existing PHI, the actual net income from this continued operation comes to 594 billion for the year.
Speaker 3: Finally, our return on average assets and our return on average equity for the year were 1.6% and 14% respectively. These ratios were negative 0.6% and negative 8% for the quarter.
Speaker 3: Before moving into questions and answers, I will now summarize our general guidance for 2023. We expect long growth to be in the 9%-11% range with commercial loans growing in the 9%-10% range and retail loans in the 11-12% range.
Speaker 3: We expect our cost of risk net-up recoveries to be in the 1.5 to 1.6% range. We expect a full year limit to be in the 3.75% area with NIMA loans in the 4.5% area.
Speaker 3: We expect cost assets to read in the $2.5 to $2.6% range. We expect our income ratio to read the $20% area.
Speaker 3: We expect a non-financial sector to be 70% of that for 2022. Finally, we expect a return on average equity to be in the 11-12% range.
Speaker 2: We are now available to address your questions. We will now begin the question and answer session. If you have a question, please press star then one on your touchstone phone. If you wish to be removed from the queue, please press star one again. If you are using a speaker phone, you may need to press star one again.
Speaker 2: the handset first before pressing the numbers. Once again if you have a question please press star then one on your touchtone phone. Your first question is from Yuri Fernandez with JP Morgan. Your line is open.
Speaker 4: Hi guys, thank you. Hi Diego. If I may, just on the... Hello? Can you hear me? Yeah.
Speaker 4: We had a technical problem here, so we had two lines after the thing time. Okay, perfect. Guys, sorry, there was an Align calling me here. I wasn't sure. So just a BHI, if you can provide the rational for the sale, I guess there were some related parts of transaction. So just why you decided to tainter, such as sell is now like the rational behind this tainter.
Speaker 4: And on margins, I would like to understand the impact of lower rates. In the past, we had a view that higher rates would be good for, for of all, but funding was a surprise, right? It was a negative surprise and maybe rates will start to come down later these years, right? Maybe the third queue or fourth queue.
Speaker 4: So my question is, should we start to see margins improving when rates come down? What is the effect of lower rates for a vote? Thank you.
Speaker 4: I'm sorry I have to ask, but the thing is that we got terrible communication today and the call has fallen through about three or four times.
Speaker 4: So the Prime Minister, correct, if you wanted to know the rationale behind the sales being tied with that report, so can you? That's it. Like why that actually still is now, maybe not still using the future. Like what is the rational for a vote to still be now?
Speaker 4: Okay, well as we've said before, when you look back at BHI or BACSC, when we purchased it...
Speaker 5: back 13 years ago 2010.
Speaker 5: 13 years ago, 2010.
Speaker 5: The size of that bank was about 1.3 of bankers above that. And as time passed, and obviously, as you know, those financial statements are converted into dollars when they get consolidated under IFRS.
Speaker 5: and then the bank kept its investments as a dollar denominator asset, converted to pesos. And so via the increase in the size of the bank, the natural organic increase in the size of the bank in Central America, which is the bank has really done very well in that respect. And then additionally, with especially lately the devaluation of the
Speaker 5: a bank that owns another bank, it's same size.
Speaker 5: Secondly, what that was making cumbersome and complicated.
Speaker 5: Capital allocation, decisions, dividend decisions, and others.
Speaker 5: So that was the rationale that we finally said this and it really doesn't make a lot of sense to keep back under the bank of the bullet.
Speaker 5: So that was the reason that Banco de Boa would have spun it up. Then once it, and obviously this was done concurrently, but once the bank was spun up from Banco de Boa with that, again, it didn't make a tremendous amount of sense to have it as an abal asset anymore.
Speaker 5: because we wanted to unlock some value. We, our estimate showed.
Speaker 5: that by keeping back sort of buried under the whole group of our structure it wasn't reflected its real value.
Speaker 5: So that was the reason that we decided that we would spin it up a lot and virtually go back to having under the same majority shareholder an international group and a domestic group.
Speaker 5: And so that's what made us to then have group one, which we will keep as a domestic group and then international investments that our shoulders were invited to participate in. And since there's been a...
Speaker 5: a couple of them there are offers and people have, some people have sold and some haven't, but for now that's the structure, the remaining structure as I said, it's two groups and international group and a domestic group.
Speaker 5: Let me take the one on rates. And perhaps something I should have emphasized more when I went through the presentation was, what we're seeing at this point is a combination of two different forces. Number one, what the monetary policy from the central bank looks like that has raised...
Speaker 3: However, what has compressed our margins most during the last quarter of last year and into this year has been the adoption of the next table funding ratio in Colombia that strongly supported the time deposit mark. To give you
Speaker 3: A very brief idea of the magnitude of these impacts. The spread between time deposits and the zero-cuping shoveling curve has been around 50 to 100 basis points, depending on the tourism. What we saw during the last quarter of 2022 was this spread had gone up to 450 to 550 basis points. Late January , it was around 500 basis points.
Speaker 3: and has dropped acute distance and is currently at around 200 to 300 basis points. So this means within what has happened in February , we've had a receding in that spread.
Speaker 3: 200 to 300 spaces points and different points of the curve. So what that did was unexpectedly, it generated a much higher cost of funds.
Speaker 3: due to the fact that the banks were raising mainly time deposits to prepare to comply with the next stable funding ratio requirements that we have later this month. So what we're seeing is something that should adjust much faster, and it says what is happening is the distortion of the market.
Speaker 3: that seems to be going back to historical levels. And then on top of that, the third of the central bank. I was very very excited explanation just to say that what we expect to see is an adjustment over the next few quarters.
Speaker 3: Initially, from the impact of these tiny projects that we have to overpay the market to basically adjust to the net stable funding ratio, the CFN, and then we will be writing the rest of the curve that should do two different things. One for our retail, a portfolio, it should improve.
Speaker 3: we will also see an improvement in the margins for the commercial banks. All in all, we expect to see improvement in means later this year. It will not happen immediately because it affected mainly time deposits. So you need to renew many of these time deposits to be able to capture the price. This will add up to two different things. On top of that, it is...
Speaker 3: fixed loans repricing in time, particularly the consumer lending side, plus the overall adjustments of the economy with lower inflation. I apologize for the very long experience, but I think your question is one of the four questions of what is happening in the banking sector nowadays.
Speaker 3: No, no, it's super clear. It helps a lot. So then it was a competition for funding for just for this new regulation more than the central bank pressure per se, right? So once this competition and think they comply with the new liquidity requirements, things will play much better for the funding side. This is what I understood, right? So this is, yes, perhaps you're about to write them. Yeah, and perhaps to add to that, but we've seen is a very quick adjustment to that being that it's already March.
Speaker 2: and the address requirements are due end of March. So what we feel is most of the banks have already done what they need to do. Perfect. Thank you very much. Again, if you would like to ask a question, press star followed by the number one on your telephone keypad.
Speaker 2: We have no further questions. Sorry. Your next question is again from Yuri Fernandez with JP Morgan. Your line is open.
Speaker 4: Thank you Luis Carlos and they would just a final follow up on David and say out the E.R. Arleguides and your longer of guidance they are somewhat similar right both you know like the long the long book growing like high single digits. Arle is 11 to 12.
Speaker 4: So my question is what is your view for dividend payouts this year because given our we are with the If likely under pressure, maybe your potential for dividend payouts may be you know impaired by By that right like maybe you know if you don't want to give a lot of leverage
Speaker 3: your payouts should be lower. So again, how do you think about payout these years? Thank you and that's my final question. Okay. I think there is twofold. You have some of our banks that exactly as you do, Stripe, need to be much more careful with payouts, particularly the banks.
Speaker 5: Are you still there, Judy? Yeah, I'm here. I can only see you. Okay. Okay. I thought we had lost connection once again. The retail banks need to be much more careful on their dividend payouts. However, the more corporate banks have much more room.
Speaker 3: for dividends. So we are actually in the process I can't be precise here because we are starting to give out information to a market at this point and how dividends will come out. However, we see that very broad distinction between a couple of our banks and the other two banks.
Speaker 3: basically based on how they are performing as of today and the forward idea that we have on how they will be performing.
Speaker 5: But for next week, we'll go ahead. Sorry to expand them. So as Diego was saying, the two consumer oriented banks, VHS and Populat, we're really taking a hard look at the convenience of their...
Speaker 5: Declaring and paying dividends. On the contrary, the two mostly commercial banks, but with that I know, we've had dividend policies over the years that say between 40 and 50 percent and I don't think this year will be a big exception and and then we have a policy in a land that we usually pay out.
Speaker 2: cash dividends out for the same amount that we've seen cash dividends from the bank scene a lot. So maybe that will help. Your next question is from Juan Recalde with Scotia Bank. Your line is open. I would like to thank you for taking my question.
Speaker 6: I have two questions. The first one is ability to read items and what is the effective tax rate that is Incorporated into your 2023 items
Speaker 6: And the second question is related to the sustainable ROE. What is your expectation for the sustainable ROE for the group of all?
Speaker 3: Thank you. Were last in Arouille, was your second question? Yes, the second one is in terms of sustain, or Arouille, or long term, or expectation. Long term, Arouille, expectation. Yes, short term, Arouille, should be 10%, plus 9%, or I'm sorry, 11 to 12%.
Speaker 3: Long-term expectations, we expect to be going back to 15% earlier once we see these adjustments in the interest margin that we described previously.
Speaker 3: What we're looking into for a taxes is something in the order of mass equal to 36% in our consolidated figures.
Speaker 6: Oh, that's perfect. And do you think that in the medium to long term, the effective taxable remain close to that 36% or do you expect increasing that?
Speaker 3: Well, we expect numbers in these order of magnitude into the future as long as there's no adjustments in tax reforms. Very much that in addition to the general taxes, we have a very heavy burden on local taxes that we mentioned before. Overall. All right.
Speaker 2: Our tax rate has increased in a very substantial manner when you add off the operational taxes and also the net income tax. That's very, that's very, very, very, very, thank you for the comments. There are no further questions at this time. I will now turn the call back over to the Chief Executive Officer, Mr. Luis Carlos Sarmiento Gutierrez. Thank you.
Speaker 5: Thank you, Brent. Thank you. Thank you all for your...
Speaker 5: It's tough to decipher. We have to see the wording of all the new reforms that are being talked about. The health reform is concerning. It won't affect us as much, but we will definitely be more affected by the other reforms, labor and pension than others.
Speaker 5: So the
Speaker 5: So, the. The.
Speaker 5: We'll keep working on especially our car potentiations, low pricing responsibility, and we'll keep looking for pipeline to invest.
Speaker 5: here and other places in the region for Corse y Colombia as infrastructure projects here dwindle down.
Speaker 5: And obviously, in every call, we'll keep you abreast of what we're doing. And I think with that, I'll let you go, and I thank you again all for being on the call.
Speaker 2: Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.