Bancolombia S.A. Q1 2023 Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to Bancolombia as first quarter 2022 earnings conference call. My name is Usher and I'll be your operator for today's call. At this time all participants are in listen only mode. Following the prepared remarks there'll be an.
But unity to ask questions during.
During the question and answer session. If you have a question. Please press Star then one on you touched on phone. Please note that this conference is being recorded.
Note that this conference call will include forward looking statements, including statements related to our future performance capital position credit related expenses and credit losses. All forward looking statements whether made in this conference call and future filings and press releases or verbally address matters that involve risks.
And I'm sorry to entities. 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.
Other companies like Opex acceptance of new products or services by our targeted clients changes in business strategy and various other factors that'd be describe any other in our reports filed with the SEC.
With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Murray theoretically, let's see Neal.
Chief Corporate officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, and MS. Laura Clubby Hill, Chief Economic I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Juan Carlos you may begin.
Yeah.
Good morning on won't come through on Colombia first quarter 2023 we saw its conference call.
The results for the quarter show an overall good performance.
Net income was 1.7 trillion pesos driven by the bank's capacity to generate strong income on the loan and securities portfolios that pets higher operating cost on the back of beacon inflation by interest rates.
On credit deterioration.
We will further elaborate.
Oh see strong GDP growth in 2020 to the punch.
Case in which we operate are now facing an economic slowdown.
Particularly Colombia, it's facing a deceleration in private consumption.
Pressure to an already challenging macro back drop scenario with falling but still high efficacy.
The Central Bank in Colombia increased the reference rate up to their team on a quarter four cents.
Forward to control it peaking inflation right.
13, 3% as of March.
Keeping these macroeconomic scenario on the close and quite an adjustment in Greece appetite in some portfolios. The loan book grows more I know you did.
And their quota.
Boasting a 1% drop on gross loans.
On top of this the peso appreciated three 4% during the period.
Reducing the contribution of U S dollar denominated loans.
Therefore, the loan book moderate growth based on a yearly basis to 20%.
Deposits were flat quarter over quarter, an increase of 22% year over year in line with the loan book for four months.
NIM was seven 2% with a slight 10% basis points dropped quarter over quarter.
But expanding hunker down 20 basis points year over year.
As a result of our asset sensitive condition on which we will further elaborate.
Net provisions for credit losses for the quarter were two trillion pesos equivalent to a cost of risk of three 1% for the quarter.
This represents an increase of 17, 5% quarter over quarter, driven mainly by consumer segment deterioration as well.
Well, it's disposable income face a spreadsheet on the back of high interest rates and persistent inflation.
I suspect that nonperforming loans reflect the rollover of deterioration, we got to pull in 7% 90 days NPL ratio.
However loan losses Cobra remains a strong one.
There are 19% below 90 days past Q.
While Buffalo pretty core equity tier one ratio stood at nine 8% and total capital ratio of 12% well above the minimum regulatory capital.
Opex decreased four 6% quarter over quarter, and bill 26% year over year, they've been mainly by increases in wages and FX depreciation.
Efficiency ratio for the quarter was 41%.
All in all though higher income generation do you mean out of their own unsecured portfolio contributed to upset the broad expanse increase posting on our own E of 17, 7% for the quarter.
However.
As discussed in our previous call.
Less favorable global macro conditions are motivated Columbia space of growth after the strong rebound in the last two you are up there the pandemic.
This coupled with intensified political uncertainty lead us to believe.
The economy will grow CEO .
6% during the year.
It is still soon let's say, it's all their economic and social impacts arising from the government's ambitious with Forbes.
Particularly those related to fiscal imbalances neighbor cost private consumption as well as the new cabinets policy decision, making.
We are following the situation closely as we continue committed to base our decisions on their a combine short term long term muscle content on the strengths of Colombia's financial discipline, and a robust regulatory framework.
For further detail on the macro outlook I will turn the presentation too loud.
He was appointed Us bank.
Bancolombia Chief economist after the resignation of components peanuts flour.
Florida.
Colombia experienced an impressive economic rebound following the significant impact of the COVID-19 pandemic for the period, comprising 2021 2022 the Colombian economy expanded at an average quarterly growth rate above 8% real true, but mainly by consumer demand dynamics services sector.
And so having activity manufacturing.
However, during the first months of 2023 economic activity has slowed significantly in response to higher inflation and rising interest rates accordingly.
According to market forecast GDP is expected to grow below 1% with our forecast that Europe was 6% for the end of year 'twenty.
'twenty 'twenty for a moderate rebound is expected.
From a lower growth rate.
Our estimates that at 1.6% real GDP growth.
Inflation has been a persistent theme in the Colombian economic outlook for the past few years much aligned with mobile baidu pricing inflation.
Inflation in Colombia.
Two 3% year over year during March and fell to 12, 8%. During this past April in what is thought to be the beginning of a much anticipated downward trend.
On the positive side food prices increased at a much slower rate, enabling a drop from 30 year peak of 27.8% it's way too.
A lower level of 18, 5%. This past month of April on the downside. There is an elevated risk of climate related pressure seafood prices for the second half the year. In addition to sticky prices coming from regulated goods and gas.
Consequently inflation is expected to fall to 9% this year and four 8% in 'twenty 'twenty four moving gradually oh, Sir but still far away from the central Bank target range up to support person.
Even though inflation in Colombia remains a concern.
Citing core inflation may serve as a potential backstop the hall for their interest rate hike.
The central bank's reference rates at the beginning of May what could be its final rate increase of 25 basis points. We think 13, 25%. That's accumulating eight 1100 50 basis point increase.
Late 2021 when rates started to increase.
Increasing interest rates have begun to pressure household and the financial sectors loan portfolio has deteriorated accordingly, especially in the consumer segment.
Considering the economic slowdown we anticipate the central bank will begin its cycle of interest rate cuts in the second semester of the year.
On the festival side higher than expected oil revenue and additional tax collection from 'twenty to 'twenty two budget reform will help the central bank deficit to fall from the 7% to 8% level a bit COVID-19 year to around four 4% of GDP in 2023, thus, enabling the government to me.
Disposal target and at the same time increased social spending.
Overall, the economic outlook for Colombia remains cautiously stable with moderating inflation and expected interest rate stability and economic slowdown consumer confidence has dwindled to an all time low amidst economic challenges political and social unrest.
The left wing government.
Federal has proposed significant changes to the status quo economic model through an amp.
Vicious agenda, including pet health pension and labor market reform more recently a wide cabinet overhaul included the exit of finance Minister of Campbell.
This has set a new political scene in an attempt to advance in the approval of the reform agenda.
Incoming minutes started well need a closer Bizer Petro has announced continuity the former minister accomplice agenda, a prudent macroeconomic policy and fiscal sustainability. We will continue to closely monitor economic indicators changing market conditions and the political environment now.
Now please let me turn back the presentation to Pablo who will present bancolombia poorly performing.
Thank you Laura.
Moving to slide number four I want to call your attention on a set of distinctive capability not which salt from.
On our capacity to generate transactional volume, which in turn are based on our strong client growth on our digital evolution.
Two relevant avenues for growth of which we shared relevant metrics in our previous call.
And dish opportunity.
Refer to the merits of this capacity and.
Three full contribution on first.
Posted on fee income generation.
Exactly.
<expletive> structure, our NIM performance I'm, sorry, cash flow data that fits our risk models.
In the following slides.
Will further elaborate on each of these elements that allow us to adjust to economic cycles with settlement income generation and balance sheet protection to the neighbor short and long term profitability.
Slide number five you can see the strong growth correlation in terms of number of clients transactional volume and size of our deposits.
However, the car.
Sachin I believe.
Oh facing view others.
This is not a coincidence I see that in the last year, we have been investing in developing a broad robust I mean interoperable.
Ecosystem.
I mentioned that engages more clients increases overall transactional volume and fees and does attract more deposits.
In the last years he set forth has been mainly focused on our digital platforms and products.
She thought us December 2022.
On Colombia.
First around 74% of the markets mobile digital transactions and around 45% of the online banking transactions.
As an example, Nicky today has more.
And one point.
4 million active users per day.
Hello, and close to 10.2 million I E.
Users per month.
Moving to slide number six the most interesting edge of our digital strategy with the evolution of products and channels is that we have been able to attract for unbanked and underbanked individuals.
For low value transfer and cash out solutions.
Yes.
Our results.
Diversified low amount low cost and sticky deposits that come in mainly.
So savings accounts.
Steven.
A portion of these deposits have shift.
Our time deposits in the last quarters seeking for higher rates savings accounts remain highly rated by relevant due to its scale, representing a 52% stake in the overall funding mix and thus Saturday as a one of the key elements for Dennys net.
My name is true savings accounts are stable cash management related deposits tied to fixed rates.
In Colombia.
Four years ago, they accounted for 25% of the total funding mix and they have been growing steadily reaching today a 52%.
Thus in the upper left graph you can see the cost advantage that savings accounts represent to us today due to its significant contribution in terms of volume of low cost relative to the total funding mix.
No.
Our balance sheet perspective, these funding structure the yodlee.
Trusts with that of the loans us approximately two thirds are tied to floating rates.
The bank, who we appreciate a large portion of the portfolio upon interest rates variations.
In other words as we have discussed previously we have an asset sensitive condition that coupled with a stable low cost funding base explains the bank's capability to capture a higher margin even as interest is.
Spencers goes up a show in the bottom left and right graphs.
So for us the contribution over higher transactional volume that drags along low cost sticky deposits has been and will be key to the liberator named performance and long term profitability.
Moving to slide seven.
I want to elaborate on the last of the three elements of our competitive advantage based on transactional volume, which is the access to information that we use to feed our risk models.
As we have all been digital products channels and transactions and generate more deposits.
We also capture.
Byproduct, which is beta on cash flows and thus a good sized clients payment capacity.
He has been the key element behind our cluster my segment growth strategy started back in 2014.
The data allows us to anticipate and adjust our appetite on different credit cycles.
In other words to expand or to contract origination another measure of based on the payment capacity truck.
That's why since mid 2022 we anticipated we'd set a clear admeasure space on the cash flows and disposable income assessment of our trials some of which.
<unk> bin.
One a decrease in risk appetite to individuals without credit Easter.
History.
That kind of girl adjustment on risk appetite to low income individuals unfair for the stretching disposable income estimates.
The result, you can see in the charts that adorable.
Reapproved disbursements have dropped plus frankly since mid 2022.
We will continue to adjust our policies on collection decisions based on these insights.
In slide number eight I want to comment on our ESG strategy.
From a business perspective, I'm glad to say that we continue making progress in our loan origination targets as we disbursed six five trillion pesos aligned with our business targets for the quota.
<unk>, an aggregate of 190 trillion peso since 2020.
That is 21% of the 20th vertical.
From a strategic perspective, I want to share with you. The framework, we decide as a roadmap to leverage our purpose of promoting sustainable development, who achieves everyone's well being in addition to the organizations unwell ESG performance measures.
We have identified three main goals for which we are generating actions.
Climate change biodiversity and circular economy.
Based on this framework during the first quarter, we continued working in our alignment on.
Other than stool Netsuite real banking alliance, let's see your banking managers initiative.
Units responsible banking principles, the pregnant finance leadership initiative and defense.
We also partnered with and then Macarthur Foundation.
In our secret our economy strategy.
Finally, we are aligning who task force on nature related financial disclosure and we have reported our progress and C. D E Forest and have signed the financial sector deforestation action, where we worked with a reduced need for stage two.
From our investments.
On lending portfolios by 2025 in the following sectors.
Oil.
Soybean hurdle for beef and leather pulp and paper and Robert.
We are very satisfied with the progress made on every one of these initiatives, which serves as a testimony of our commitment to our ESG strategy.
Tomorrow, a fact, our ESG performance as their monthly SaaS and clients with highest scores on the Dow Jones sustainability index.
Harper and disclosure project and M. S. C. I just to name a few.
After these general business update I want to turn now the presentation to Hudson Beth Acosta, who will further elaborate on our first quarter results what's in there too.
Thank you Juan Carlos.
Moving to slide number nine you can see the evolution of loans and deposits for segment during the period.
The consolidated loan book dropped almost 1% quarter over quarter consistent with the drop in all segments.
Mainly in commercial which went down 1.2% affected by lease originations in Colombia, and some prepayments embodies.
Once you live alone so fulfill sharepoint, 8%, reflecting the consequences of the economic cycle and risk appetite adjustments. These skus are there.
The result for this quarter was also affected by a 3.4% peso appreciation.
NATO if they pay the loan book was flat quarter over quarter.
However, on a year over year basis, the aggregate loan book still expanded at 20% as was the case for all segments, except for consumer that expanded is lighted below a level of 19%.
Compared to the last quarter due to the expansion of 22%. This pace of growth reflects some moderation due to the lower demand and less risk appetite.
I wonder what their hand total deposits performance during the quarter was aligned to that of loans that east.
They were flat in the quarter. However, time deposits grew almost 12% gaining share on the total deposit mix.
<unk> dropped six 2%.
This is due to the higher interest rates and vitamin and those we expect Florida shifting towards time deposits in the following quarters.
Moving to slide 10, we present, a brief snapshot of the syndrome Recalibration performance as.
As of March of 2023, my needs more Banco Agricola and bomb represented 29% of the total loan portfolio in line with the past quarter.
It's titled metrics are affected by effects on each period.
Gareth James most banks have increased their share at a consolidated level and show similar trends as the Columbia in the last quarters in terms of loans and deposits growth fee income generation.
The performance and efficiency gains a.
A good example of these positive evolution as bomb, which has been growing this business and the higher risk adjusted returns in consumer segment on the back of Guatemala, better economic performance.
We continue working on tapping growth opportunities and implementing cost control initiatives to boost profitability in all geographies.
Now <unk>.
Moving to slide 11, I will elaborate on liquidity.
The total funding mix change again during the quarter, our savings and checking accounts kept deal being the time deposits that grew 12% consistent with the PREPA and sellers either interest bearing deposits.
As a result, I'm supposed to reach a 34% of the total deposit mix, whereas savings to 38% and checking accounts 13%.
Overall, the positive steals a percent on 85% share of the total funding needs in line with the last quarter.
As a result of the larger portion of time deposits the cost of funding real but the pipeline when 7% remains.
Significantly below the 13% prevailing redfin has made during the quarter.
He certainly reflects our cost advantage based on the strength and saving accounts. So even when interest rates recent significantly since the third quarter of things in one hour.
Our overall cost of funding has increased substantially less.
Going forward, we do not foresee funding pressures and we are running conference operator in our short and long term regulatory liquidity ratios as affected on the liquidity coverage ratio and net stable funding ratio on the bottom left the graph.
And finally I want to take this opportunity to comment on our investment portfolio structure and its composition.
As of March our investment representing roughly 9% of our total assets and had obligations of around 14 months, reflecting our nature of our commercial bank whereby our securities portfolio is composed of mandatory investments and a high quality asset for liquidity manage.
Between purposes there.
Therefore.
21% of our debt securities issued by the Colombian government, 49% of flooring Golar remains of which U S. Treasury bills represent around 80% of the total portfolio.
We from an accounting perspective, 46% of the portfolio.
Registered as a tradable securities changed through P&L and the remaining 54% is made up of mandatory investments and corporate bonds out of which 27% are you break Easter is available.
Abatable for sale.
<unk> two through other comprehensive income and 26%.
Held to maturity.
In slide number 12, we provide that snapshot of fees.
In the first quarter net income decreased almost 2% compared to the fourth quarter explained mainly by lower credit and debit card usage and bancassurance sales due to the seasonal effects.
Sequentially <unk> expenses also decreased 12% in the period.
Gross fee income ratio increased to almost 20%.
Year over year, net income increased 9% of which Columbia provided the largest contribution driven by higher volume of transactions coupled with growth in clients.
Going forward, we expect net income to grow at around 9% in 2023.
Moving into slide 13, I will walk you through NII and NIM performance.
Despite the slight reduction in the loan book during the quarter interest income grew 10% and 90% year over year, whereas interest expenses grew 26% during the quarter and an impressive 224% year over year driven by the significant increase in interest rates as best they can.
Fractionary monetary policy.
However, asbury eat asset sensitive condition, and I see grill, CEO , playing 1% quarter over quarter, and almost 45% year over year.
Mean slightly dropped to seven 2% down 10 basis points quarter over quarter, but expanded the hunter and plenty beeps Dear to you explained mainly by the bank's capacity to capture more interest income as rates rise.
Going forward, we have been preparing our balance sheet the games, but in.
Interest rates as an example, 60% of our time deposits mature.
Next 12 months, what provide us some margin protection.
Well, we need to slide number 14, we present evolution of provisions and asset quality.
As discussed before the combination of high inflation and interest rates cause harm household disposable income and payment capacity.
Mainly in lower income population.
Men know Boston higher N P. S going forward higher unemployment can also add to the deterioration.
Hence net provision for credit losses for the quarter were two trillion pesos equivalent to a cost of risk of three 1%.
This represents an increase of 17, 5% quarter over quarter, mainly driven by the increase of 470 billion pesos in consumer segment for which we will provide more details on the next slide.
There were also provision charges for specific commercial loans, mainly for two known sector related science in Colombia.
Increasing provisions in hunt around 23 billion pesos compared to fourth quarter.
Well, they've done that corporates and Smes are performing well.
All in all yoga.
Somebody robot monies will reduce its provision expense in 52% as it had anticipated charge in the past last quarter.
The 90 days past due.
Loan ratio for the quarter was two 7% up from 2.2% in the fourth quarter.
They can either pass you rollover, some consumer and specific real estate corporate by anybody's Moe that became due in January reaching.
Breaching the 90 day past dues.
Bear in mind that as per last quarter provision plus the collateral in place these loans, 100% covered.
Moreover, our allowances are something that personal touch up loans remains a strong and represents 219% coverage or not 90 day past due loans.
Moving to slide number 15, I would like to share some further detail on credit quality for Colombia, where the loan deterioration for husky.
First it's important to mention that today, 87% of our total loan book is currently in stage one.
That is 1.3 person touch point higher than one year ago.
The 13% remaining balance is composed of the stage, two and three loans, which represent the current and potential M. P O.
All of which have had coverage of almost 40%.
Deterioration during the quarter has occurred mainly in consumer segment, which holds up 15% balance in your stage two and three.
Our 90 day past due loans ratio of around 4% and consequently, a cost of risk of 13%, notably had an outlier compared to compression in markets that are performing well.
And we've been consumer segment personal loans showed the highest deterioration amongst all of their products with a four 7% 90 day past due loans ratio and 15% cost of wheat.
As opposite to be breakout, representing a 90 day NPL ratio of 3.1% below the overall segments metric.
All in all we can see that the recent deterioration as part of the preapproved loans. The strategy implemented several years ago to penetrate consumer segment for which we feel comfortable considering our balance sheet coverage and our credit policy.
Moving to slide number 16, we present operating expenses and efficiency ratio.
Operating expenses grew 26% year over year.
In addition to inflation and FX. The main contributors to these grew ware.
First higher taxes related to transactions and the policy I suppose lastly.
Last year two separate farm.
<unk> I hope I T expenses is function of a higher burden ottens sections anther hydro question on expenses, which were impacted by the AMA wage increase.
Net Opex AIDS the annual growth would have been around 20%.
The cost to income ratio was 41% as far as result of the E com performance and the cost control initiatives in which we continue making progress.
A good example is our Germany, our journey to cloud wait.
We are shifting from fixed to variable cost.
In the long term, we expect a more sustainable ratio of 45% on the back of normalized income generation.
On slide 17, you can see our profitability metrics.
Net income for the quarter was one seven trillion pesos.
Four 5% compared with last quarter on the back of a strong income generation and cost dilution.
Tony when he was 17, 7%, which if adjusted for goodwill we sold seen a return on tangible equity of 23.3%.
The effective tax rate for the quarter was 25% and we forecast a tax rate of 32% for the U S. This last year fiscal reform.
And finally on slide 18, we present on snapshot of the bank's capital.
Sure closer to shake tea grew 22% year over year. Meanwhile, assets grew 20%.
Reflecting the bank's capacity to generate capital to foster growth wise for sure be a sound balance sheet.
Moreover, buses three total capital adequacy ratio stood at 12, 1% on a consolidated basis for the quarter with a C. P. One of nine 8%.
The year over year, there was a CET one generation of 262 basis points and a total of 351 basis points reduction mainly associated with our strong organic growth and significant basically appreciation that increase the value basis of dollar denominated loans and the goodwill.
During the remainder of the deal.
Income generation will offset the $2 four trillion pesos dividend payout and so our CET one target remains in 11% area before the year end.
Now I will hand over the presentation back to Juan Carlos for some final remarks.
One.
Thank you what's embedded.
As we discussed in our past call 2023 is proving to be a complex year with an evident economic slowdown.
<unk> fundamental imbalances and political uncertainty.
However, we are confident that our balance sheet strength and a well articulated set of competitive advantages.
US too hung though these complexities on there so on our long term strategy.
We will remain very close to our clients, providing proactive solutions to alleviate their cash flows and upset for their loan deterioration.
Given the current context for a year and we forecast our loan growth.
For around 5%.
Cost of risk between top 2.2 on two four.
NIM of around six 5%.
Core equity tier one of 11%.
18%.
In the midterm, we expect NIM of around five 5% and AOI.
ROE of 15%.
With this we conclude our first quarter results conference call. We now invite you to.
Ask any questions you may have.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
If you wish to be removed from the queue. Please press the pound sign are the hash key.
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Once again, if you have a question. Please press Star then one on your Touchtone phone.
The first question comes from Ernesto Gallardo with Bank of America. Please go ahead.
I'm sorry.
The first question comes from Yuri Fernandes with JP Morgan.
Please go ahead.
Hi, guys. Thank you for the person asking question I had a question regarding your guidance I guess you moved it up I think it was around 16 17, and if I if I heard <unk>.
Lee I think you are calling for 18%, but do you increase your cost of risk guidance right. So my question is what do you hope you keep roe's are those good levels basically expansion top line or other income other income was very strong this quarter.
Let me also comment how sustainable will be.
Line three this year shouldn't be could you see other income running at those levels should it feels a little bit of momentum what should we see for you to deliver 18% alright. Thank you very much.
Yeah.
Thank you Judy.
Yeah, you you you heard correctly, we get.
Guidance for that for the year of our O E H between 17, and 18% which is a.
Similar with the auto E Doggy Hot during the first quarter and let me elaborate a little bit on how we see visibility of the quarter. Because your question allow me to do.
It's a big Big picture of the different variables that we will do but we wouldn't see it.
Yeah.
We in our past conference calls with the one for the for the last quarter of last year we.
Yeah.
Gave you a guidance of the cost of risk of around $1 92.
Definitely the cost of risk for this you guys wouldn't be higher and we are expecting the cost of risk between two point toolkit for.
For Cushing.
The declaration that we are seeing is higher than the one we expected because the economy is not performing.
As we expected on us with.
There's going to be a slower eh.
Growth during the year industry. Okay. So how are we going to get D. E 17, 18%.
Because we will continue having a very strong.
The income.
And that's because of the volume that we acquire the long.
The portfolio.
It's growing.
20% year on or although you are on the margin will continue to be high yeah right right.
Yes higher than the.
<unk> and <unk>.
Margin for the bank on the long term so on that and I made a mistake because at the end of my opening remarks, I mentioned six 7% of Oh for NIM.
The NIM is going to be by the end of the year.
Two 7% it could be even higher.
We have seen though it's a reduction already in the cost of funds, even though we are moving to.
Time deposits.
But yeah.
The cost of those deposits is reducing because theres more liquidity in the Colombian market and we are seeing a strong.
Four months of the income or into a simple. So if you combine on we are also going to work on on expenses. So if we combine.
All of those variables that I, just mentioned, even with a cost of risk.
In the range that I mentioned.
We will we will be able to reach the 17% to 18% coastal freeze Judy.
Oh, sorry.
Okay.
I'm all.
17 minority personnel, so why why Hudson.
No no I said, it's stickier, so basically fucked line kind of offsetting this this cost of risk because that's the summary.
If I may just on the cost of risk the two points to two two points for cost of risk guidance, you had the 2% cost of funds could this quarter right. So you should what like is it just a simple average.
It should be the midpoint, so 2.3 right at the midpoint from the two countries to before.
Should see the consequences in the coming quarters running around two 1% right. So we reached the midpoint of our guidance. My question is is that what you have you might like aren't going to see like in the second Q and all of their high level of cost of risk, let's say I don't know, 3% two and a half whatever and then by the second half these moves below 2%.
Like what is the curve of this cost of risk for you to each of the two quite true to the 2.4, because we think life a big improvement versus the first skewing the come in the coming quarters.
I'm, just a little bit.
For that I think.
You're completely right.
The first quarter.
Sure.
We saw a very a high cost of risk what we expect is that the cost of risk will be lower in the coming quarters.
Why is that because we changed our cost appetite.
By the second half of last year.
What we have now it's the vintages that were originated on a wait and see.
But with a different risk appetite what is coming.
Vintages originated with a different risk appetite.
With that they put in.
Policy risk so what do you expect that the coastal piece will be going.
Down.
But we will see as you mentioned the lower cost of risk during the second half half of the year to arbitrage that two to 2.4 coastal piece for the whole year.
Perfect. Thank you very much.
Thank you Judy.
The next question comes from Ernesto <unk> with Bank of America. Please go ahead.
Thank you hi, good morning, Carlos and pushing.
And good morning, everyone.
Thanks for the opportunity.
Good questions.
My first question would be on potential regulation.
He was he wanted to see if you would have heard something in terms of potential caps on fees.
Any other type of regulation.
It would be against the banking sector.
The other hand.
I would like to hear your opinion on it.
We should increase the minimum salary fully workers.
Just wanted to you've got to be a threat.
For the balance of the country.
And then my second question is on Opex growth.
We saw an important job.
Salary increases.
Higher technology costs.
Higher expenses associated to the depreciation of the Colombian peso.
So I remember the guidance in Opex growth was around 13% for the year.
But after this impact how should we think about the opex growth for this and next year. Thank you.
Thank you Ernesto.
Let me, let me give you a general comment.
In particular the answer to your first question on the general comments on the second one on onset and I am going to pass your second question to load up.
On your third question to pushing back towards the one related to the Opex.
Pension regulation yeah.
We as.
As you know and we mentioned on our opening remarks.
The minister of finance.
Yeah.
In the change of the.
Cabinet that is a new minister of finance and the initial.
The public.
Announcement of the Minister has been very positive in terms of that he would will comply with the fiscal rule Dodd He eh.
It doesn't CNA intervention on the on the interest rates that the interest rates should be.
Determined by market conditions, so in Israel.
The public announcements.
It has been in line with what.
Do you expect these to be to.
When you are in the same line at least Oh Campbell was was following so in that regard, we don't foresee any any changes or any intervention either on interest rates or on fees and thats. According to.
The announcements that he.
<unk> has made.
So in those in those firms, we don't we don't see any any any trends any threats.
So far I have missed.
Regarding your second question I will pass that to La Luz they'd Christmas on a public.
He said once wages Laura go ahead. Please.
Hi, Yes regarding the recently approved increase to public workers.
If we look at it it's really.
Even though it's.
It's pretty high compared to other years in real terms, it was actually a bit lower than the past year, when president do get with approving those.
Increases so in real terms, it's not as high as the other opportunities are but of course, we do have 13% inflation.
So that that that shouldn't be a particular stress to the public the central government deficit.
That is in line, let's say with a regular yearly increases.
The the fiscal deficit, we're projecting for this year is still around five 3% I'm, sorry, four 4% of our fiscal deficit in terms of GDP and it should be going we gradually down thanks to sort of oil revenues and new tax collection as we can.
Mentioned, and we continue to monitor, especially how oil prices will be reflected in the central government government budget, which is being discussed according to declarations from a minister in Bolivia.
Yeah.
Thank you Laura on wholesale could you address the third question regarding Opex.
Yes.
Yes, the first quarter you see on an annual basis that that got the opex grow off 26%, but you have to consider several elements. The first one is FX. So with a new number would be 20%. If you deduct the FX situation devaluation of 15% during the year and there are another element to that.
Range that 20%, which is C. Sam.
Because remember they make the weights increased 16% in Colombia at the second element. He said I D. We are increasing our ITT cause our sexuality and there are another element, which is the taxation because of the tax reform and also we have been affected because of that regarding 2024, we have.
Two key drivers of <unk>.
Opex for next year, the first one will be inflation.
I mentioned at the beginning we are expecting an inflation targeting at around 5% area at the end of 2024.
Potentially a fix we will have a less volatility, but you don't know exactly but leesville activity. Assuming these two key drivers we are expecting to maintain an opex growth next year.
10% to 15% why because we are still investing in technology, and we are still having related close to transactional increased in preparation.
Most importantly earnings release, our guidance for efficiency is to maintain a level of 45% area in the next coming years, that's the best way to maintain the return on equity down one lesion at the beginning of the presentation.
Thank you very much Juan Carlos.
Just a couple of follow ups so.
To your new expectations on cost of risk in Opex, which both are.
Going higher.
Should we expect about earnings this year would.
Would it be reasonable to be flat.
And then the other one is on your medium term Roe.
10% versus 18% today.
Just wanted to understand what will be the line that would be declining in the next years moving from 18% to 15%.
And there's still a couple of comments regarding those two topics.
Yeah.
You're doing the numbers and I am sure you will.
Then.
We are confident that we can reach the 17 or 18% Roe.
And doing the math that will give you the how the net income will compare mm.
The first one is the net income of Oh.
<unk> 23 on and it's not.
A big piece of it could you see it.
Pretty much pretty much eh.
Plot. So there is no no no.
And can you remind me of your second point that I forgot I'm sorry.
Yes, just Michigan thing.
<unk> is on your medium term Roe.
Oh, okay. Okay.
So there you have 18 than you were expecting them to give them time to be 15, I understand that one of the only means less potentially need normalization, but I don't know.
There could be another line that could be declining in the next years and that's why you weren't moving from 18 to 15.
What we have now a nice takes up an abnormal.
I mean, yeah.
Which is which.
Is above average so that's that's sort of causing that we will upset the higher cost of risk.
We'll have this year.
But the the NIM.
It is going to be abnormally high.
Hmm.
NIM should return.
To a range between 55557.
And even though I know, it's also a cost of risk that we are.
Yeah, I think in the law or in the near term, there's going to be between probably between $1 eight at one point in that and so we those variables with a lower name.
Because of lower interest rates.
Cost of risk to normalize in the mid term are trends that will give.
Give us a result of our ROE.
Oh, 15%.
We'll continue working on efficiency trying to improve that number Bob with the numbers that we have now.
That's what we expect.
Perfect Super helpful. Thank you very much.
Thank you Michael.
The next question comes from Carlos Gomez with HSBC. Please go ahead.
Please go ahead.
The next question comes from Julien a Z with WMD corridor. This please go ahead.
Hi, everyone and thank you for my question.
Like towards Q2 questions. The first one is related with the Central American operation.
Of course, we saw good performance in Gabon, ammonia and when somebody integration. The Orleans inquiries related to fourth quarter of 2022 really won't let me welcome our operation head maybe crews on them and they didn't go and I would like to understand why would that you can give us more color about the operation of Ho Hum.
Loan growth and because of our used in those regions and also I would like to understand.
The performance of the other income steadily so.
Huge increase in those lines.
Another quarter and I would like to understand why we're better.
We'll see the performance or the behavior you won't go next quarters. Thank you.
Thank you Julian let me take your first question regarding Central American operations on I will pass your second question too.
Hosting both for comments and a.
Assuming shawn.
Our central American operations.
Very good performance really good first quarter.
Contributed.
More to the net income off of on a consolidated basis.
Panama them performed well.
We anticipated some of the provisions last year and also G loan book is growing it's growing well the same thinking.
So in general those economies are performing well.
Well in general terms.
Including including Guatemala that you mentioned, particularly why Bob.
Hot it.
Not as good quarter as of the last quarter or so.
Last year.
The answer is we do very aggressively in and watch them all out on the.
When consumer.
Right.
Because the combination of the mix of the balance sheet of what them allow us.
Barry.
Say, we towards commercial loans, so we wanted to watch more.
The consumer loans.
On the those loans.
Since we grew aggressively last year.
Bringing some additional coastal please.
Bob.
We're all we are very happy with the performance of.
On QUADRA my complete view to the combination by higher income.
Cost of risk or the return on all of them.
Yeah.
And then just at a time.
You're talking sort of justify the risk.
Higher so on the performance of the economy of Guatemala will be equal to this year. So what we expect for the next of the year is to continue the same trend Dodd D. Central American operations are going to contribute.
Yeah, a little bit more of what we had during the past few years from the overall, which volatile for Bancolombia unconsolidated basis.
Switching back to could you address the second question of who your analyst.
Yes, well again.
Other income has two main elements and that explains why the number is so positive the first one.
It is a reflection of our securities portfolio, we are having.
Most of any CCAR shovel or clients on reorder parties, because half of our liquidity. So as a counterpart, we have had the realities and the performance of the derivatives has been very very positive. This is the first reason why other income moves in a direction that your U S and the second element he sounds to be sold.
The operating leasing so we have been growing at a very good pace and our rank in business. So that explains the Oh theyre positive number of other income.
Okay and yourself.
A follow up.
Are you expecting decent performance for Bloom Covid you.
We're expecting another later in <unk>.
Performance to.
Through the next quarters.
You know we entered that the risk of related we pay level of coal.
So just to keep any D are we in our forecast we are forecasting a NIM of the securities portfolio, 1%. This quarter was $2 four and that is basically because of the volatility. So we are just expecting a flat performance of 1% of all.
Nemo that securities portfolio, there will be a consequence of the volatility of the effects and the volatility of interest rates.
Thank you.
Mhm.
Thank you William.
Okay.
Okay.
The next question comes from Carlos Gomez with HSBC. Please go ahead, yes Hello.
Hello can you hear me.
Yes, yes, a couple of slides.
Apologies for before so I. Thank you for taking my question I have two brief ones. The first one is on capital you mentioned that Youre, telling people you don't forget it's 11% I mean, you are pretty funny with maybe that's basically my point that we're not considering.
Where exactly you spent the capital to be a year, where do you expect it to be next year and what is your target countries. You are still going for the 11.5% you mentioned in the past you'd take on if you could give us an update on the purchase to get two monetization of Nick Thank you.
Thank you Carlos let me comment on your two questions.
Ask what's embedded.
Any additional comments on the on the capital on the capital front.
Yeah.
As we mentioned our core equity tier one ended the quarter on 9.8% that's the lower point of the year due to the dividends that we declared in the class a shareholders meeting.
So what we expect for for the next.
For the end of the year is.
The core equity tier one to be in our target of 11%, which we can see the comfortable and that's because the loan book growth is going to be lower as we.
They mentioned it because it's going to be.
015 percent, but we they are not all the numbers that we've got discussion discussing in this call. The net income is growing too.
The odd to be to the equity.
Number that would allow us to be around 11.
11, 11%.
The separation of the of making.
We are in the process of.
Separating Nicky.
A smooth plus you know we already have the authorization of the pregnant superintendency to separate what we are doing is we are working on the operational.
The readiness of Nicky to be a separate entity.
Yeah.
And that's going well and that could take.
A little bit more than we expected and then when we are ready.
The operations already to be separately separate entity, we will ask for the final approval of the superintendency, what we expect is going to be.
By the second half of the year could be a little bit.
The debate done that after that make you will operate as a separate entity.
And then we will we will see any any opportunity.
We had multiple conditions.
But let me let me add that Nikki is performing very well Nicky it's continue growing it has almost $16 million.
Customers of which close to 11% are what we consider active customers, meaning that they do at least one monotype infection.
Yeah.
Good morning.
Additionally, they also D D.
One day.
Yeah.
Customers that interact with Nike or close to one 5 million so.
The clients are.
Using Nikki and that's probably where our path to monetization. It's okay. It's the what.
What we expect so we continue growing we are adding a different services and products in which we are charging fees or the number of clients that are using the platform and are generating fees, increasing so it's it's on the on the path that we.
Doug we are.
We were expecting in general.
Yeah close enough to I don't know if you have any comments regarding the first.
Question on the type of work.
Question regarding capital.
Thank you Juan Carlos Yes, kind of a sense you mentioned, our cash target of two one at the end of the year is 11% probably because of the cost of risk of the deviation could be around 10.8 or $10 nine but our view for medium term in terms of capital.
That would be influenced basically because of loan growth and in our forecast as loud I mentioned at the beginning of the presentation that the expectation of GDP growth next year also will be below 2% at around one six so we are not expecting that loan growth will be a key driver of consuming capital.
And the second element is it fixed wholesale is contributing to consume our solvency ratio, but we haven't neither expecting a big devaluation next year. So because of that we are still thinking that our guidance would be to maintain a capital ratio of 11% at the end of the year and potentially pinpoint five K C.
6% on average.
This is for 2023 and 2024.
So did you would you would go to 11.
Again as discussed some of the times that you may have been living in a half us alone can get target. That's not that we had you expected within the next two years.
Correct you are correct.
Thank you very much.
Thank you Kurt.
The next question comes from Tito the BARDA with Goldman Sachs. Please go ahead.
Hi, Good morning, Thank you for the call and taking my questions. A couple of follow ups I guess.
First on the asset quality and just to understand how you get comfort that the cost of risk will come down in the second half of the year I mean it was.
A big increase in Npls this quarter inflation is still high and our economy.
Really fine has slowed down quite a bit so yeah. It was just how how do you get comfort that things will begin to improve I guess from an asset quality perspective in the second half of the year.
Kicked to bring down the cost of risk and then second question just to understand on the margin.
Pollution, and how quickly it should come down I mean, I guess first remind us the sensitivity of the margin to reduction in rates and how you expect I guess interest rates to evolve from here given we still have relatively high inflation I mean, I see your forecast here.
We expect right around 7% level by the end of next year.
So.
Is that it.
How likely is that given the level of inflation today and does that mean that your margin should fall significantly next year to get to that five and a half or how soon do you get to that five 5% margin given your expectations for rates. Thank you.
Thank you Tito.
First our asset quality and then.
Evolution on the on my left which embraces he has any additional comments.
Asset quality.
Why why we are comfortable Dodge.
The cost of risk will evolve.
Was it didn't it.
Okay.
Yeah.
Definitely what we saw in.
In our view was at peak during the first.
Quarter.
The asset quality will continue to evolve and as I've mentioned before we change our risk appetite.
Got it.
In the second half of last year.
On what we are doing is we are anticipating to the deterioration of the.
The assets. We are also working very closely with the water. We are trying to one on restructuring.
The loans that need to be restructured so.
All we have in place.
Yeah.
Yeah.
Actions that will allow us to handle the current situation and it's pretty much focused now on consumer loans.
Commercial loans are performing well.
So we are confident that we are.
And remember the odd.
<unk> got the provisions that we are recording the.
Yeah.
Looking forward or are you anticipating D deterioration of that book. So that's why we are confident that we can reach at the end of the year our.
Of course, it'll freeze between two.
<unk>, 2.4%, resulting in a margin evolution.
Yeah.
Margin at this moment, it's 7.6% as I've mentioned is it's.
Above normal.
And your question is very important and it's going to be an important variable on the on the on the results of the Q3 results.
Of course.
How fast or the speed in which D margin contracts is going to be key.
As we mentioned, we believe that inflation will start to.
Yeah.
Oh, Hey.
And.
On top of that interest rates will start to fall.
Yeah.
And the question also.
What we expect nowadays the reference rate the repo rates in Colombia, It's a 13 in the quarter.
Yeah.
The expectation is that they start to go down like second half.
I mean, they can be broadly.
Between 12 and 12.
5%, Doug will allow.
Allow us to maintain it.
And margin above normal during this year, unless I mentioned could be around 70 with group could be even higher.
And we'll start to go into the midterm.
The target, which is between 555 point.
A $5 seven which will happen more towards the.
The end of 2024, or even 2025, Oh that will allow us to have some influence on the margin.
On the income side to performance they are worried that we were.
But tonight on no question, but do you have any additional comments on.
People's question.
Yeah, it's one on the medium term.
You know the.
The key difference right now is how were struck it upfront and you know that 85% of our funding comes from the deposit base from our clients.
On the long term as Juan mentioned five five is achievable and it basically because we have really now 70% of our loans higher floating and today almost 50% of our deposit base over Shaw. Our floating you have to consider is done today, 60% of our time deposits.
Less than a year. So next year as Juan mentioned interest rates coming down. So we would be able to reprice also the liability at the same pace that day with pricing on the loan portfolio. So that's the reason why we are confident to sustain that 7% NIM this year and to maintaining a long term view there.
Five five because the way we structure, our funding, which is because of the granularity because of the client. So we are able to maintain that 85% of capacity coming from clients.
Okay. Thanks, one God love them.
That's helpful. So then is it fair then to think that that 15% long tomorrow. We target is probably after 2024 right I mean, if you know.
Rates are still kind of coming down next year.
The margin shouldn't necessarily fall immediately to that five 5% and you have to if you're right on the asset quality and cost of risk coming down a bit.
That could also help so does it mean that you have to be at a 15% Roe in.
In 24, maybe there's still a little bit of upside for next year.
Yeah, that's fair enough.
Do I think I think it's that Joseph.
Mitch.
Okay, great. Thank so Hong Kong.
Thank you Peter.
Once again, if you have a question. Please press Star then one.
The next question comes from Andres Soto with Santander. Please go ahead.
Good morning to all of them, saying. Thank you for your presentation. My question is.
Regarding.
The asset quality evolution, and I'm asking about the very short term.
Based on the fact that.
Just in February you were guiding for our course offerings of one 8% and now you have back also frees up 3% on a needs based on on the consumer to be duration.
I suspect that most of the duration actually towards the end of the quarter I would like to confirm that that was the case on based on these on the recent trends you have seen if we can expect some some are much more deterioration in the second quarter.
What will be the peak when move on when we will see the peak of water quality for Bancolombia.
Yeah. Thank you Andres.
Yeah deterioration was.
Higher than we expected.
As we mentioned on.
An hour an hour.
Conference call for the last quarter of last year.
We're expecting a deterioration, but not as fast.
Sure.
Yeah.
Yes.
A two point deterioration increased the in February and March.
Yeah.
What when you expected is that the second quarter will help us to Ah Ah cost of risk.
Could be higher but.
Then due to.
How we are dealing with the clients.
Clients that have some difficulties in terms of cash flow on Youtube.
I mentioned, the deep river well.
Hey.
Risk appetite that we implemented.
And the second comps with last year that will start to come down to end the year in the range that we've already made should be fooling coupon 2.2, and 4% so.
This quarter.
It's Dave.
In the second quarter of this year is going to be key to really assess.
I'll say, it's what how the evolution of coastal piece would be.
But we are confident.
What we have seen so far.
It will be in line of what we are expecting members.
Thank you Juan Carlos I mean, any expectation of one level of asset quality will be gone one.
Yeah, we expect that these first two quarters of the year will be the peak.
Yeah.
We'll see how the second quarter, we perform bar. After these two quarters, we would expect the close so risk to go down.
Thank you My second question is related to expenses in a previous answer you mentioned you expect expenses to still grow out. So you can become a significantly above inflation next year and you guys. You know that there are some from some pressures.
From several fronts.
My question is what can you do on your own too.
Prove efficiencies that any opportunity to shutdown branches in a context of which you are not expecting to see much loan growth over the next few quarters.
Yeah Andreas.
What we can manage I mean, we have pressure from inflation, we have pressure from from the evolution of the first philosophy as we already mentioned.
And they're in the front of branches, we don't see much opportunity.
Due to the amount of customers on the growth in the number of the customer base, we are having.
Customer going through two branches. So on the mid term, we don't see the space to really talks to do.
A reduction but it's significant.
On branches, so ah cost cutting for on that front.
Doesn't seem like it.
It's possible.
What we are implementing its we are broadly.
Analyzing the expenses that we have one on the front of the technology.
Technology.
Delta from Asia.
If we can delay some of them without affecting the the the the income of the bank.
And also on the on the head count Frank we are not expecting to have a reduction on the head count but are not grow more grow on per pound. So those would be the probably the main drivers tool to manage our expenses.
In the coming year.
I'm actually thinking more couples.
Thank you this.
Yes.
Again, if you have a question. Please press Star then one.
We have no further questions at this time I would like to hand, the call over to Mr. Juan Carlos Mora for closing remarks. Please go ahead.
Thank you everybody for participating in the presentation of the well from Colombia as a result.
For the first quarter of 2023.
As we mentioned instance, a challenging year in terms of economic.
12 months of Colombia, mainly.
The other countries in which we operate.
Look good in central for four months, so asset quality will be the focus of all of our.
Actions and we know that the results of the bank will be will depend very much on on on that front, yeah, we won't see the evolution and we hope to.
Yeah.
See you on our conference call for the second quarter 2023.
To your point, yeah, very much everybody and have a good day.
This concludes today's conference call. Thank you for participating you may disconnect.
Okay.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Yes.
Yeah.
Yeah.
Hum.
Yeah.