Q2 2023 Grupo Aval Acciones y Valores SA Earnings Call
Speaker 1: Welcome to Group HOVL's second quarter 2023 consolidated results conference call. My name is Regina and I will be your operator for today's call. Group HOVL is an issuer of securities in Colombia and in the United States SEC.
Speaker 1: As such, it is subject to compliance with securities regulation in Columbia and applicable U.S. securities regulation. RUPO-Eval is also subject to the inspection and supervision of the Superintendent of Finance as holding company of the Avow Financial Conglomerate.
Speaker 1: The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of the calculations of non-IFRS measures such as ROAA and ROAE, among others, are explained when required in this report. Bank of
Speaker 1: Banco de Bogota held 4.11% of BHI. This investment is reflected as an investment at fair value through other comprehensive income. Following the sell, the equity method recognized under the share of profit of equity accounted investees, net of tax equity method between April and November was reclassified to discontinued operations.
Speaker 1: For comparability purposes of this presentation, we have reclassified BHI's equity method for the second and third quarter of 2022 to net income from discontinued operations. Bank of the Bogota's remaining 4.11% interest in BHI was disposed of in March 2023. This report includes forward-looking statements. 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, or the negative of these and other comparable words. 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 reheat.
Speaker 1: We expressly display many obligation to review, update, or correct the information provided in this report, including any forward-looking statements, and do not intend to provide any update for such material developments prior to our next earnings report. The content of this document and the figures included herein are intended to provide a summary of the subject discussed
Speaker 1: rather than a comprehensive description. When applicable in this document, we refer to billions as thousands of millions. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Mr. Luis Carlos Saramán the Gutierrez, Chief Executive Officer. Mr. Luis Carlos Saramán the Gutierrez, you may begin.
Speaker 2: Good morning, and thank you all for joining our second quarter, 2023 conference call. On today's call, I will limit my intervention to three main points.
Speaker 2: And outlook of the economy, a summary of recent legal resolutions including group of all end conflict Colombian.
Speaker 2: and a brief review of our performance during this quarter.
Speaker 2: I will try to be as comprehensive as possible regarding legal issues. And I ask for your understanding as I am sure you know that we are constrained by our resolution agreements to take questions in that reference.
Speaker 2: As we had been anticipating the economy took a dive during the second quarter, GDP growth was only 0.3% when compared to the same quarter last year and contracted 1% at a quarterly basis as consumer demand dropped.
Speaker 2: Conversely, public spending increased significantly, particularly in social services, which helped to mitigate the slowdown.
Speaker 2: More importantly, the nation's budget execution was staggeringly low.
Speaker 2: Consequently, liquidity to the 2.45 trillion pesos approximately remains frozen in the center bag, thus causing a liquidity crunch in the financial system.
Speaker 2: Logically, this crunch resulted in a new surge of cost of funds, especially when comparing average funding rates versus sovereign debt yields.
Speaker 2: He sharp contrasts the global economy has continued to exceed expectations.
Speaker 2: Despite tight global monetary policy, economies around the world are trending upward.
Speaker 2: Additionally, a soft landing of the US economy appears now to be the light-years scenario as market participants have revised downward the probability of a recession occurring in the coming months.
Speaker 2: Meanwhile, in Colombia, high interest rates and persistent inflation have affected downwards domestic demand affecting particularly the purchase of durable goods such as vehicles.
Speaker 2: In fact, the most dynamic sector during the quarter was government services that grew 4.4% and that represented 15.9% of GDP.
Speaker 2: The least dynamic sectors in the second quarter were commerce and manufacturing, which accounted for 17.5% and 11.6% of GDP and contracted 3.7% and 3.1% respectively.
Speaker 2: Growth capital formation decreased 22.2% for the same period driven by weak investment in machinery and equipment.
Speaker 2: Based on the aforementioned, we anticipated GDP growth in 2023 will be in the 1.5% area.
Speaker 2: As we had anticipated, annual inflation continues to decline. In July , inflation for the last 12 months decreased to 11.78% down from 12.13% in June . Notably, food prices, which were a significant driver of consumer price increases into...
Speaker 2: 22% in July .
Speaker 2: However, transportation has continued to exert upward pressure on the overall price index, resulting in a monthly reading of 1.07% in July .
Speaker 2: Going forward, market expectations, and our own view indicate that annual inflation will continue to decrease over the next few months, reaching around 9% by year end.
Speaker 2: Notably, this number will oscillate, depending on the government's commitment to increase the price of gasoline and maybe also of diesel.
Speaker 2: does decreasing very popular subsidies, which currently produce a deficit of two and a half trillion pesos per month in an effort to reduce its gigantic debt with a coup d'etreau.
Speaker 2: Notwithstanding the inflation trend, in its meeting of the end of July , the Central Bank maintained the repurrate at 13.25% in a unanimous decision.
Speaker 2: Analysts and interest rates swap markets, now point to the beginning of an easy cycle in September or October .
Speaker 2: In line with market consensus, we anticipate that the interest rate cuts will start during the fourth quarter, eventually reaching a range of 11.5 to 12% by year end. June labor market data published by Dani reported that employees increased to 23.1 million in June .
Speaker 2: which implies one million more jobs than a year earlier.
Speaker 2: The stronger than expected job creation pushed the unemployment rate down to 9.3%, which is 2% more than the rate reported one year ago, particularly strong in public administration, defense, professional activities, transportation and entertainment.
These sectors combined accounted for 76% of the positions added. Going forward, as business activity decelerates, we expect weaker job numbers. As a result, we expect average annual unemployment in 2023 at 11.2%
Similar to 2022. Regarding the exchange rate on a year-to-date basis, the Colombian peso is the most revalued in the region with a 20% appreciation.
A key driving force behind this trend appears to be a sentiment that the government will be unable to get its reform agenda approved through Congress in its current form.
This sentiment prompted a reassessment of risk related to colonial assets.
During the first half of the year, a correction of the value of the Colombian peso and a rally in the test market.
With material volatility, the peso has recently hovered around $4,000 pesos per dollar. We believe that at current exchange rate levels, there is less room for a relevant correction of the Colombian peso.
Once this process is over, we foresee the person to reestablish a deep appreciation path.
Although the appreciation of the peso will reduce pressures on government overall financing needs, Colombia's external financing needs longer than expected high interest rates in developed economies.
In decreasing oil experts and persistent inflation will result in a relatively high current account deficit of around 4% of GDP by the end of this year.
Finally, on the fiscal front, the deficit of the central government for 2023 was revised to 4.3% of GDP up from the previous estimate of 3.8%.
Let's move on to legal matters related to Ruta and Sol.
These are the most relevant and in our opinion very positive developments.
Let's start with a class action suit.
As you may recall, in January 2017, the Procuradoría General de la Nación filed a class action suit against Concessionaria Ruta del Sol CRDS.
It's shareholders, including episode and others for the violation of certain collective rights.
No other group of our companies were mentioned in that lawsuit.
The Tribunal Administrative of Kundinamarca or TAG, a lower judicial instance, produced a first ruling in December 2018, in which it found CRDS, its shareholders, including episode, and other individuals and entities not related to a wall or its affiliates.
jointly and individually liable in order that the defendants pay damages to the nation for the violation of collective interests.
in the amount of approximately 716 billion pesos.
In addition, the TAC ruled the debarment of the defendants from contracting with the Colombian government for a term of 10 years.
Episod, as well as other defendants, appealed the decision to the Consejo de Estalo, the highest court in the country that reviews these administrative decisions.
On July 27, 2023
The Consejo de Estado issued a final, non-appelable ruling revoking several of the tax rulings, such as the order to pay any amount of damages, the Department of Episol and others from contracting with the government, and the joint and several liability nature of the ruling.
It also revoked several injunctions or interim measures and confirmed that certain collective rights were affected.
As a result, EPISO will not have to pay any damages pursuant to this action and may continue to contract with the government.
So we want to investigate this by United States authorities.
On August 10, 2023, Grupo Aal and its subsidiary, Corfika Lombiana, announced the end after five years of the investigations of the US government through the US Department of Justice, DOJ, and the US Securities and Exchange Commission SEC.
Regarding group of island, Corp. Colombiana related to Ruta del Sol 2. These resolutions are to resolve that previously and abundantly disclosed investigations by the DOJ and the SEC related to the construction of the Ruta del Sol sector 2 by a joint venture in which Corp. Colombiana, the Ruiz subsidiary episode.
held a minority interest. And the resolutions are based on information gathered by US authorities, including testimonial evidence from third parties related to actions taken by a former Corp. Colombian executive in connection with an other breached led bribery scheme related to Ruta-Assault II.
Importantly, as a result of the investigations, the DOJ and SEC resolutions do not contain any allegation of corrupt knowledge or intent against any officer, director or shareholder of Groupalon, nor...
any officer, director or shareholder of Corfika Lombiana, other than the former CFC executive.
Additionally, the DOJ did not bring any enforcement action against Group Oval in connection with the RDS2 project.
Corficolombiana did enter into a resolution with the DOJ and group of all and Corficolombiana entered into civil administrative resolutions with the SEC.
The resolutions with the SEC established an amount of $40.2 million to be paid to the SEC, and the resolution with the DOJ established an amount after credits to be paid to the DOJ of $20.3 million.
for a total amount of $60.5 million, which will be paid by Corfika Lombiana and was provisioned on its June 30, 2023 financial statements.
Because of its ownership stake in Corfika, the amount to be paid has an approximate impact of $24 million and Group Awards due to 30, 2020, three attributable net income.
In entering into these resolutions, Corpika, Lombiana and Grupoval recognized and accepted the responsibility under U.S. law.
for the actions of the former Corfika Lombiana Executive.
From my point of view, equally noteworthy is the fact that the DOJ and SEC recognized Corp. Colombianas and group of all extensive cooperation with the investigations.
And that in the many years since the events occurred, Corfica Lombiana in Grupoval have enhanced their compliance programs and internal controls.
Again, the resolutions with the DOG and SEC conclude those US agencies investigations into group of all in Port Recurumbiana related to Ruta and so on too.
Additionally, Corficalumiana and Rupoval consider these painful chapter closed.
As I explained in the beginning, other than the facts that I just mentioned, I will not address any questions regarding this matter.
Before passing on this call to Diego, I will briefly address of our financial results in the second quarter.
I guess I will divide our performance into positives and negatives. Let's start with the negatives.
First, the cost of funds continues to be a challenge for the industry and our banks are not the exception, especially those with majority fixed rate consumer loan portfolios.
because of the obligation to comply with NSFR requirements.
Between the third quarter of last year and the first quarter of 2023, the banking system loaded their balance sheets with time deposits at exorbitant costs, when compared to the yields of government issued fixed rate debentures.
Consequently, the relevant portion of the system's time deposits are said to mature between June and October 2023.
A matte dash has already begun to replace those with new time deposits.
As a result, since mid-June, the banking system has experienced a steep increase in spreads between cost of funds and sovereign debt yields, even beyond those seen during the first quarter.
This need for funding could not come at a worse moment. Very low public budget execution results in funds that do not circulate in the economy, but rather stay deposited in the central bank.
As of last week, these deposits amounted to approximately 45 trillion pesos.
Even though the central bank makes available a portion of these funds through repo operations, they are short term in nature and do not contribute to the liquidity coverage ratios.
Second, our bank's cost of risk increased to 2.16% in the second quarter, as certain low portfolios started to struggle because of the economy's degradation.
Third, as a result of the resolutions with the DOJ and SEC, our infrastructure sector results include an extraordinary 253 billion pesos negative impacts, the equivalent of $60.5 million.
Which upon consolidation translates into a one-time negative impact of 102.5 billion pesos, the equivalent of 24 million dollars in Aval's net attributable net income.
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In addition, the contribution of our infrastructure non-financial sector investments was lower than in the past, explained by projects starting to move from that construction to the operation phase.
There are, however, some positives. First, growth of our lompad folios during the quarter, excluding the steep evaluation of the peso, rose to 1.2%, which compares favorably to GDP growth.
Second, although credit quality deterioration continued during the quarter, particularly in consumer loan portfolios, in the last two months PDL formation has started to stabilize in unsecured consumer loans.
Our portfolios are further benefited by our loan mix.
We foresee the peak in cost of risk in the third quarter. Third, if our views are correct, the cost of funds will begin to subside after the third quarter. Once the government starts to execute budgets and the central bank starts cutting rates.
Fourth, during the quarter we saw positive performance of NIMM unloans from our banking operations as it reverted to the level of last year's last quarter.
Furthermore, for the first time in ten quarters, we saw a slight increase in NIM on retail loans as old portfolios come due and new ones are booked at current higher rates. We foresee that our total banking NIM will increase during the last quarter of this year.
Fifth, our banks continue to deploy CUST control initiatives that enable the OPPIX to remain materially flat, quarter, or quarter.
And finally, our pension fund administrator had a strong quarter as commissions and contributions evolved favorably and stabilization reserves posted returns in excess of 10%.
Going forward, Borvenir could benefit from improving asset valuations in a falling interest rate environment.
I thank you for your attention. And now I'll pass on the presentation to Diego, who will explain in detail our business results and provide gay guidance for the remainder of 2023.
Thank you, Luis Carlos.
Begin on page 6.
Assets decreased 0.3% during the quarter, and grew 7.9% over the year. Moving the quarter, our mix slightly increased in net loans and increased in fixed income investments. Moving to page seven, we present the evolution of our loans.
Rose loans contracted 0.1% in the quarter and grew 10.7% year-on-year.
Pesson-enominated loans increased 1.2% through the quarter and 12.1% over the year.
The 10.1% quarterly appreciation of the Colombian peso led to an 8.5% decrease in the balance of our dollar denominated loans, which grew 1.8% in dollar terms.
So, a month depreciation of the Colombian peso was 0.6% and had no material effect on dollar-denominated loans growth in peso terms.
quarterly growth was led by a recovery in demand for commercial loans. On the other hand, high interest rates, slow economic activity, and a lower macro outlook drove us after performance of retail loans.
Commercial loan growth reached 0.2% over the quarter and 10.8% over 12 months.
Consumer loans contracted 0.3% over the quarter, and grew 10.2% year-on-year.
Federal loans continue to be our main consumer lending product accounting 454.7% of the toll.
Followed by personal loans and credit cards that account for 23.8% and 12.3% of our consumer portfolio respect.
Our loans represent 8.8% of our consumer book.
Pairer loans sell 1.6% over the quarter and grew to 2.5% over 12 months.
Personal loans increased 2.2% quarter on quarter and 27.8% year on year. Credit cards grew 3% quarter on quarter and auto loans contracted 2.6%.
Other loans have been affected by a decrease in car sales. U.N. year credit card and auto loans have increased 18% and 10.5% respectively.
Finally, mortgages contracted 1.5% of the quarter and increased 11.8% year-on-year.
We expect loan growth to remain soft across products and segments in line with the central bank's policy and softer local and local economic outlook.
And pages 8 and 9 represent several loan portfolio quality ratios.
The quality of our loan portfolios measured by stages improved as stage 2 loans rolled to stage 3 and were ultimately charged up.
although still high PL formation and a 30-day horizon decelerated during the quarter.
Regarding delinquencies, 38 PDL increased to 5.1%, a 23 basis points deterioration over three months and 71 basis points over 12 months.
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were 3.6%, a 12 basis points deterioration over three months, and a 24 basis points deterioration over 12 months.
PDL formation reflects an improvement in the 30-day horizon and the roll forward to 90 days of a portion of loans that became delinquent last quarter.
Regarding 38 PEL formation, the improvement was driven by a decrease in commercial PELs and a slight increase in consumer PELs.
Cost of risk net of recoveries was 2.2% up from 1.7% a quarter earlier and 1.4% in second quarter 2022.
This was mainly driven by personal loans and credit cards.
Our loan mix, or weighted in payroll lending and underweighted in personal loans and credit cards, has been protected during this credit cycle. However, even though milder than our peers, we expect pressures and cost of risk to continue into third quarter. Dante Bon right you it right beach-has
consumer PDLs roll forward and require further increment charges. Finally the ratio of charge-offs to average 98 PDLs was 0.78 times. On page 10
Funding contracted 0.5% during the quarter and grew 8.1% over the year.
PESO-enominated funding increased 0.4% during the quarter and 8.7%
Over the quarter, the balance of our dollar denominated funding decreased 0.3% in dollar terms and 10.3% in peso terms. Deposits account for 33% of our funding, increasing 1.1% quarter on quarter.
and 12.6% year on year. Time deposits continue to be the largest component of our funding.
Pressure on cost of funds eased during the quarter following the steep effort to adjust for a more demanding net stable funding ratio by the end of March.
This allowed spreads for new time deposits relative to a sovereign debt to return close to historical levels. During the second quarter, our banks were able to reduce part of the expensive saving accounts that now have no contribution to net stable funding ratio.
However, pressure has built up again over the past few months as liquid in the system tightened due to lower government budgeted execution and concentration of time deposits that were issued last year to adjust to a new net stable funding ratio coming due. To cope with the pressure derived from the new net stable funding ratio requirements.
While positioning for the expected interest rate reduction, our banks have increased the average maturity of time deposits focusing on floating rates.
At end of June , 33% of our time deposits were due in less than one year and 35% had floating rates. Our deposit to net loans ratio increased to 101%.
On page 11, we present the evolution of our total and the capital equity ratio of our banks.
Both our total equity and attribute all equity grew 1.8% over the quarter.
with favorable valuations of fixed income investments held at fair value through OCI contributing to the growth during the quarter.
All of our banks have an adequate tier one capital. The total solvency ratio of our banks, except Banco Popular, were slightly higher than three months earlier. Banco Popular, the most affected by new contractions, has seen pressure on its separate and consolidated total solvency ratio due to net losses accumulated over recent quarters.
On page 12, we present our Yield Unloans, Cost of Funds, Spreads, and NIM for our Banking Operation and for Group
Columbia Central Bank increased its reference rate by 25 basis points to 13.25% in April , marking the end of the current cycle according to market consensus.
As mentioned on our last call, an exceptional pressure on demand for time deposits to comply with more demanding net stable funding ratio requirements built up throughout the banking system up to March 2023. This pressure raised the spread between the time deposits and the Colombian sovereign debt reaching close to 450 basis points above historical levels.
Once banks complied with the new net stable racial requirements, this level receded to 60 basis points by the beginning of April .
These allow the Neman loans for banking operation to improve in second quarter.
the first time in more than a year. In addition, the cost increases of the central bank intervention rate allowed the reprising of loans to reduce the gap with the reprising of IBR-based funding. As a result, our loans increased by $2.5 billion in 2017.
64 basis points were in the quarter, while our cost of funds increased 16 basis points. NIMA and commercial loans of our banking segment increased 60 basis points over the quarter. Our NIMA and retail loans of our banking segment expanded 21 basis points, their first increase in more than ten quarters.
However, the liquidity in the system tightened again renewing pressure on cost of funds and spreads of time deposits to sovereign debt.
This spread had reached 370 races points by the end of June and a 520 races points as of last week.
We expect this distortion to reduce third quarter results.
We expect that the relief in cost of funds could come by mid-October as the concentration of time deposit maturities is over, the government budget execution increases allowing these funds to flow into the economy and the central bank intervention rate starts to fall.
This quarter's NIM of the banking operation remained flat as NIM on investments of our banking segment contracted to 0.8% following a milder downward movement in the yield curve relative to a quarter earlier.
Moving to page 13, we present net fees and other income.
Grossly income increased 2.2% quarter on
Net fee income increased 4.9% quarter on quarter and 26.8% year on year.
Pension fees increased over the quarter due to higher mandatory pension fund management fees, driven by wage increases and a resilient labor market.
Trust fees decrease over the quarter explained by lower performance-based fees.
Income from the non-financial sector.
Specifically, infrastructure was negatively impacted by the $60.6 million or 253 billion Colombian peso negative impact of the resolution agreements with the DOJ and the SEC.
Given its characteristic, this was considered a subsequent event that was accounted for as part of our second quarter results.
In addition, results for infrastructure fell due to first, a lower interest income and financial assets due to a lower inflation. Second, the negative impact of FX appreciation and concession arrangement assets.
with dollar exposure which was hedged with a positive effect in other income from FX and derivatives and third a slower construction progress in Cogliorente due to unfavorable weather conditions. The bottom of the page quarter and quarter variation of other operating income is mainly explained by a higher income from derivatives and FX gains.
related with our non-financial sector, hedging the negative impact of FX appreciation on our concession arrangement assets.
In addition, the first quarter incorporates the positive seasonal effect of dividends received by our subsidiaries.
On page 14, we present some efficiency ratios on comparable basis.
Cost-to-assets of 2.8% remain flat quarter-on-quarter, incorporating the results of our group-wide cost containment efforts.
Cost to income increased to 53.7% over the quarter. Close to half of the quarterly increase is explained by the impact of the resolutions with the US agencies.
quarterly expenses increased 0.6% quarter and quarter and 19.1% year on year.
Administrative expenses grew 0.1% quarter on quarter and 24.5% year on year.
Administrative expenses growth has been pressured by a 55% year-on-year increase in operating taxes particularly the industry and commerce tax.
and by increases in the deposit insurance cost associated with deposit growth. These explain 12.4 percentage points and 2.6 percentage points of the administrative expense year-on-year growth.
In addition, further pressure on administrative expenses growth came from the 16% minimum wage increase of $13.1, 2022 inflation and the impact on our U.S. denominated expenses of 12.9% year on year average depreciation.
the Colombian peso for the quarter. Personnel expenses increased 16.2% year-on-year in line with the 16% increase in minimum wage in Colombia. Over the quarter personnel expenses grew 1.1%. Finally
On page 15, we present our net income and profitability ratios as reported. Attributable net income for the quarter was 166 billion pesos or 7 pesos per share. The negative effect on our attributable net income of the resolutions with the U.S. agencies has a measured net income to the Social Work and Developmentech palette. For more information on financial DPR or an annual fund to warm up the economy, subscribe to our channel and
was 102.5 billion Colombian pesos or 4.3 pesos per share.
Our return on average assets and return on average equity for the quarter were 0.6% and 4.1% respectively.
This incorporates the negative effect of the resolutions of the U.S. agencies of 0.3 percentage points on our return on average assets and of 2.5 percentage points on our return on average equity.
I will now summarize our general guidance for 2023.
We expect loan growth to be in the 4 to 5 percent range with commercial loans growing in the 5 to 6 percent range and retail loans growing in the 3 to 4 percent range.
We expect our cost of risk net of
We expect full year NIM of our banking operation to be in the 4.3% area with NIM unknowns in the 5% area. We expect full year consolidated NIM to be in the 3.5% area with consolidated NIM unknowns in the 4% area. This incorporate the interest expenses of our non-financial activity.
We expect our cost to be in the 2.8% area.
We expect our income from the non-financial sector to be 60% of that for 2022.
We expect our fee income ratio to be in the 20 to 25% range, with a 19% for our banking segment.
Finally, we expect our fully year reported return on average equity to be in the 6 to 6.5% range or 6.5 to 7% excluding the negative effect of the resolution agreements with the U.S. agencies. For more information, visit www.usda.gov.
We are now open for questions and answers. Thank you. We will now begin the question and answer session. If you have a question please press star then 1 on your touch tone phone. If you wish to be removed from the queue please press star 1 again. If you are using a speakerphone you may need to pick up the handset first before pressing the number.
as Reva would think of America. Please go ahead.
Thanks, Carlos and David for taking my questions. My first question is on the investigation related to Ruta del Sol. What are the messages from an least likelyiblest
So, of course, you did reach the settlement with the US authorities, with the SEC, the Department of Justice to pay in total $60 million. That investigation appears to be closed. Now separately, there were comments this week from President Petron saying that he does want the Colombian authorities to assess the
any fines that potentially should be paid to the Colombian authorities as well related to this case. My question there is how should we assess the likelihood of having to pay any fines related to this case in Colombia and also potential size of these fines.
Then my second question on a different topic, and this is not new, but this loan that you have provided to your controlling shareholder for $300 million, I was looking at the standalone balance sheet of the whole new company, and I see loans to related parties for about $500 million.
which is a bit more than 10% of the equity standalone of the holding company. So my question there is, if there's a policy really in terms of providing loans to related parties and the driver for my question really is...
There's been some considerations raised by investors, especially by credit investors related to this loan, to this fuel-controlling shareholder, or to the investment vehicle owned by a fuel-controlling shareholder. So if you have any comments on this, that would be helpful. Thanks.
Hi, Nicolas. Yeah, thank you. I'll take your first question regarding, as you said, the matters in the United States have been settled.
And in Colombia that has happened as well. We went to an arbitrage tribunal and it had its own decision and all that was pending was the Consejo de Estado appeal and with that the...
In Colombia that has happened as well. We went to an arbitrage tribunal and it had its own decision and all that was pending was the Consejo Estado appeal and with that the bulk of
of anything pending in Colombia will be and has been resolved. So if you ask me what we expect, we expect nothing more. And regarding you? Yes, if I can just follow up on that, can you remind us if you had been Isabel?
and or Corfi Columbiana had paid then any fines related to this investigation in Colombia in the past? On the side? Yes, yes as we announced some meetings ago we paid a superintendence of industry and commerce. Not Abar, Abar was not brought up on any charges but Corfi called was
and the Coronavirus paid to the superintendency of industry and commerce about 84 billion pesos.
And then the Arbitrageous Tribunal in its ruling quantified the amount that had to be paid back to
and then the arbitrage tribunal in its ruling quantified the amount that had to be paid back to the concessionaria.
of about, I can't say the numbers exactly because I do not remember them, but it was maybe about 2 trillion pesos.
but then it quantified
damages and all that was left was about 200 billion pesos and those 200 billion pesos are being used to liquidate the company. So that's been settled as well. So yeah, to answer your question, and if you read the Consejo Estado's ruling, you will see that even the Consejo Estado is not being used to liquidate the company.
contract is the arbitrage tribunal. So that's been settled as well.
And regarding your second question on loans to related parties, there's a few things to mention. Number one, to do that the company went through not only its internal control process but also through controls by regulation.
In addition, those bonds were placed at a rate that was above what the capacity of generating revenue for the company was at that point, and it was strongly supported by guarantees. Thanks very much, Dio. Again, to ask a question, press star, then the number 1 on your telephone.
I guess you already announced the dividend this year, I think April , so the next quarter is already no. But given you are having these six, six and a half hourly guidance, my question is regarding 2023, so 2024 payouts, right? What should we expect? Because in the previous years you have been paying 40, 45% of previous years payout. But given the hourly will be lower and given you have, you know.
debt at the family, the holding. I'm not sure if you need to have like a higher payout to continue to serve, you know, these debts in a moment that are lower, right, because of all the issues in old Colombian rates and asset quality. So my question is, what should you expect on the dividend front and thinking also about capital? Thank you. Thanks.
Two things, number one, we can speculate about that because it's a shareholder decision. However, what we have done in the past has been based on cashing to a wall, based on a cashing equivalent to cash out, based on how much dividends our banks can pay. Obviously, as you mentioned, we have to take into consideration the capacity of each one of the banks to pay dividends.
growth expectations and also their expected solvency moving forward. So I know I haven't been specific on what you were asking, but those have been the guidelines we've used in the past to make sure that the company is balanced and cash in, cash out. Diego, can you tell us something similar to what you did last year?
Each decision is taken on an annual basis based on the juncture. The reason why that happened in the past had to do with the BHI spinoff, so it had special considerations. The policy be considered in NSp MONTENAI His Holiness
If I may ask a second one on operating trends here on asset quality. You have a guidance on cost of risk, the 2% you just mentioned. What is the curve for that? Should we expect the 32 to be better on asset quality than this quarter? My concern here is that inflation is still very high in Colombia.
So, my concern is that maybe cost of risk is just higher, right? The economy is going down, although growing a little bit. So, what is our level of confidence that cost of risk could be, you know, 2% and not higher in the coming quarters? Thank you. Let me walk you through the logic of our guidance.
Basically, the way we think about it is we look into a PDL formation and a 30-day horizon. We know that there is a percentage of that that needs to roll into 90-day PDL formation, and that's precisely the point where we get the highest cost of risk. There's a few things that even though it's early to...
a change in the trend of PDL formation, particularly of personal installment loans and credit cards that have been accountable for most of the cost of risk. That looking at our own numbers, so just by...
Due to math, if you see PDL formation falling in that horizon, you should expect three months out to see 90 day PDL formation also coming down, therefore, cost of risk coming down.
On the other hand, there is a series of macro factors that can give us some positive view. And it is number one, we see unemployment holding much better than what we expected initially on the positive note. We also see that the end of the cycle might be soon because we...
And then a government execution of budget should help GDP perform better. You might, I can't give you numbers, but qualitatively during this first half, a government execution of budget has been a lag, but there's a decisive action from the president that points into government execution.
cycle and as interest rates are able to come down due to monetary policy and also the distortions I mentioned when we went through the presentation, that should give some support to an improvement in cost of risk. Very long explanation but just to let you know how we think about it.
No, that's clear and that's helpful. Thank you. Diego once again to ask a question, press star, then the number one on your telephone keypad.
Your next question is a follow-up from the line of Yuri Fernandez with JP Morgan. Please go ahead.
Hey Diego, it's me again. Just on this topic on margins and lower rates, can you just refresh the sensitivity for lower rates for Groupavao? Like how much do the deepscuds help you on margins?
That has become a real problem in Colombia because we've seen that cost of funds detached in a very relevant manner with central bank rate since we had changes in the net stable funding ratio. The sort of distortion that we saw...
First quarter was up to 400 basis points, and last week we were at around 500 basis points. We do expect that this portion to fade away around October , and that has become actually a stronger driving force than what the central bank rate looks like.
So we do expect that marginal cost falling. You have to bear in mind that time deposits are close to 48% of our deposits. So it's very relevant what happens there. But that should be helping our margins in a very substantial way.
So, summarizing, we look forward to an adjustment back to a less distorted price of time deposits due to an improvement in the overall interest rate environment. And on the other hand, we also expect on top of that, interest rate cuts by the end of this year. 5
There are no further questions at this time. Mr. Luis Carlos Armeza-Boutiérrez, I turn the call back over to you.
Thank you so much Regina and thank you all for joining our call today. We expect to see better financial times coming in the last quarter and hopefully we'll return to the numbers that we're accustomed to see. Thank you so much and hope to see you again next time. Thank you ladies and gentlemen. This concludes