Q3 2023 Bancolombia SA Earnings Call
Good morning, ladies and gentlemen, and welcome to Bancolombia third quarter 'twenty 'twenty earnings Conference call.
My name is Ryan and I will be your operator for today's call.
At this time all participants are in a listen only mode.
Following the prepared remarks, there will be a question and answer session.
During the question and answer session. If you have a question. Please press Star then one on you touched on phone.
Please note that this conference is being recorded.
Please note that this conference call will include forward looking statements, including statements related to our future performance capital position credit related expenses and credit losses.
All forward looking statements made in this conference call and future filings and press releases or verbally.
Address matters that involve risk and uncertainty.
Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements.
Including changes in general economic and business conditions changes in currency exchange rates and interest rates.
Production of competing products by other companies lack of acceptance of new products or services by our pockets of clients changes in business strategy and we just have the factors that we describe in our reports filed with the S. E C.
With us today is Mr. Juan Carlos Mora, Chief Executive Officer.
Mr Jose Humberto Acosta, Chief Financial Officer.
Mr Rodrigo Prieto, Chief risk officer.
Let's just cancel you know Joe Bonn Investor Relations.
And capital markets director.
Unless it's Laura.
Cloud Miele chief.
E Commerce.
I will now turn the call over to Mr. You wanted Carlos Mora, Chief Executive Officer.
Please go ahead Sir.
Good morning, and welcome to Bancolombia S third quarter conference call results.
Please go to slide two.
The results for the third quarter reflect the progressive slowdown in the economies in which the Bancolombia operates.
Particularly in Colombia.
Where the prevailing high interest rates and inflation kept credit originated shouldn't week compressed net interest income impaired loans and maintain operating cost elevated.
However.
The good performance of the investment portfolio.
The 23% drop quarter over quarter or net provision charges helped offset the lower net interest income on loans and higher cost.
So the team in a net income of 1.5 trillion pesos.
We will end two up two 1% growth quarter over quarter.
The loan book on truck.
Near 1% on a quarterly.
Basis, as a result of lower demand and a lower credit appetite as well as more prepayments.
The cost of risk for the period reduce to 2.5% of <unk>.
60 basis points drop driven in part by the lower pace of past due loans formation on consumer loans US we will further elaborate.
Yeah.
NIM increased to 6.8% even as interest expense kept growing on these.
Coupled with lower provision charges.
Diluted the higher operating expenses that drove the efficiency ratio to 47, 6%.
All in all our O E increased to 16%.
And bus is three core equity tier one ratio increased to 10, 9% well.
Well above the minimum regulatory levels, reflecting the capacity to generate organic capital.
These results reflect the strength of the bank in terms of its balance sheet structure.
Access to low cost funding and risk management.
That allows it to better navigate the current economic and credit cycle uncapped chore payer wins.
Moreover.
The latest regional elections in Colombia showed that democracy is effective and allows for us to express their preferences and agendas.
As a result, a group of leaders focused on addressing the main locally interest problems of nits will be leading the principal cities and regions.
Issues, such as security mobility infrastructure and unemployment are odd.
Top of the agenda for these new administrations.
As we are a key players.
Hey, you're in most regions of Colombia.
These government changes always bring new opportunities for local collaborations through strategic projects that promote growth and well being for the population of each region.
Infrastructure health care housing Intrapreneur sheep, and financial inclusion are areas, where we should be able to provide value.
I will also want to share how proud we are us for the ninth year in a row when Columbia was recognized by medical as the company with the best reputation in Colombia.
This is a comprehensive assessment from different stakeholders, when economic environmental and social on ethics issues among others.
They're these highlights I turn the presentation to load a clubby Hill, our chief economist for further detail on the macroeconomic outlook.
Powder.
Thank you Sarah now so please go to slide three.
The Colombian economy has been undergoing a significant slowdown throughout the year, expanding just 0.3% year over year during the second quarter of 23, three and make weakening activity in retail manufacturing extraction Christy.
Persistent deflation and tighter financial conditions have continued pressure in consumer demand investment and export.
We confirm our GDP growth forecast of one 2% for 2023 and four 9% for 'twenty 'twenty four.
Inflation has continued its downward trend, but remains in the double digit 11% as of September pressured by high oil prices and other regulated good.
Furthermore, core inflation has subsided at a far slower pace. Following just 100 basis points to market peak, reaching 945%.
As a result, we have revised upward our end of your forecast for inflation from 9% to 946% and shrink by three 3% just likely 90% breakpoint in 'twenty, three and 'twenty 'twenty four.
Additional pressure inflation will be closely monitored.
The drought season, resulting from Aneel is expected to intensify in the following months and well into the first quarter of 'twenty 'twenty, four potentially increasing prices of food and attitude.
Second the government have continued hiking gas prices and has announced will continue thereafter with diesel.
In an effort to kind of physical spending related to the steel price stability.
And finally minimum wage negotiations for 'twenty 'twenty four will begin in the following week and will very likely result in a double digit increase thus, placing further pressure.
And expectations for 2024.
Given this macro scenario.
To maintain stable its policy rate at 13, 25% during October board meeting completing seven consecutive months of interest rate.
Uh huh.
Furthermore, last month policy decision was divided between five members choosing can be paid in two in favor of cutting rates by 25 basis points showing signs that monetary policy stance may begin its cutting cycle before year end or early 2024.
Separately, our policy outlook has been revised upward and considered gradually cut of that.
Interest rate up to 400 basis points during 2024.
The government has committed to compliance of this disposal, it's been possible for 2020 three into following year, Nonetheless, higher social spending and resources committed to implementing the reform agenda is approved.
Sources of fiscal uncertainty in the medium term.
We maintain our view that 'twenty 'twenty four will be a year of gradual recovery, especially during the second half of the year. What are you seeing inflation and interest rate cut will pick up the pace Nonetheless.
Nonetheless higher for longer interest rate, both in international and local C well prove challenging for consumer demand investment prospects and the overall performance of the financial sector. Now. Please let me turn the presentation back to from catalyst will present Bancolombia quarterly performance.
Thank you Laura.
Now please go to slide four.
Before we move into explaining the results for the third quarter.
Want to refer to what are our floor value driving pillars.
This spill us contain the main sources of our current and future capabilities and competitive advantages and thus the foundation for Preston results on the roadmap for profitable growth in the future.
The first pillar relates to our client centric approach on there, which we deliver customized integrated solutions for their everyday needs on their ecosystem Mora orchestrating experiences in our own channels and allowing third parties to develop there.
Your own under our banking as a service model.
One of our best testimonies of our capabilities in this space is the successful development of the QR code.
Liberec, when our API resources, we have enabled merchants to integrate payments acceptance Marty just within their sales digital experience.
Soon after its launch the QR code has experienced exponential adoption, becoming the largest acceptance payment that went in Colombia with more than 1.8 million merchants in more than 1100 municipalities and used by three Boeing too.
2 million people.
The power of these payment to realize on its capacity to capture flows retained deposits or did you need fees.
Other data to feed our analytic models, Florida Encasing our deposit.
Structure.
Okay.
On slide five our second value driving pillar that focus on evolving our digital capabilities on an interoperable multi channel platform.
In this opportunity.
I want to comment on our digital wallet Bancolombia a la Mano.
In its 10th year of operations as a proof of our consistent progress on proven delivery on the utilization.
Bancolombia, a la mano costs allow us to complement our offer to the low income adult population segment, who lack access to financial products permitting us to capture low cost deposits.
Payrolls Monty.
Money transfer Ramirez licenses and fee income on the sale of bancassurance, resulting in a growing segment.
As of today, he has $6 4 million clients that haul more than 700 billion pesos in deposits on whose volume and value of transactions increases year over year.
The next two years, we plan to reach 8 million clients tapping the under banked population market, Florida, increasing their monthly activity.
Slide six on they don't want a fair value driving pillar that consist of a structural capabilities that provide us with certain market advantages I want to refer to you significant progress made on our collections model, which is one off.
Our top priorities within our risk management framework, given the current credit cycle and its underlying challenges.
Leverage channel platforms and data analytics tools. We are currently working on there are three fall approach consisting of first enabling new digital channels to increase coverage and creating awareness.
Lower cost.
Second destructing insights to better understand and blaming propensity, allowing us to anticipate too long deterioration onset incorporating behavioral language to use frictions and thus increasing the acceptance of redfin 19 options, we are confident that.
These complementary strategies will provide us flexibility to keep up with our collections, but four months.
Slide seven our four value driving pillar is the cultural efficiency of productivity, we have created to ensure the continuous improvement of our processes on an optimal use of resources.
Two of the main initiatives. We are currently working on our first your need to cloud to reduce fixed cost and provide more flexibility.
As of September 68% of our applications have successfully migrated or have been developed in the cloud.
Ladies grounds for cost efficiency.
And second journey to open seeking to me great license I T components onto open source to capture savings and our chief governance.
To conclude.
We strongly believe that.
Well articulated the management of all of these value driving pivot us explained to a large extend our market leadership.
<unk> of our operation and the scalability of our business model.
Thus, we are committed on further developing and encasing those capabilities to extend our competitive advantages and deliver sustainable value on their short medium and long term.
Now I want to turn the presentation to wholesale Umberto Acosta, who will further elaborate on our first quarter 'twenty to 'twenty three results will show better.
Thank you Juan Carlos.
Please go to slide eight for a snapshot of all of our Central American operation.
During the quarter. These banks faced we care alone and income growth coupled with higher cost of risk on the personnel costs that lower the profitability and contribution to the consolidated results.
Moreover, bancolombia country accrued two one offs that lower interest income and increased provisions on consumer loans boost dragging the net income to a loss.
Notwithstanding diebold the aggregate it mean of the three banks have been growing steadily on a daily basis boost increasing its contribution to the consolidated net income relative to Colombia for the last nine months of 2023 versus the same period in 2022 has shown.
On the upper right hand side graph.
It is also worth mentioning that despite higher loan deterioration only three banks wrong with a comfortable level of 90 day past due loans coverage, providing balance sheet protection.
We remain positive on the political and economic outlook in Sao Paulo, but more conscious about Guatemala, given the most recent political and social unrest.
Please go to slide number nine.
The consolidated loan book contracted 1.2% during the quarter and almost 1% year over year as high interest rates half loaded crazy demand encourage short dated loans and prepayments in the commercial portfolio and risk appetite adjustments on consumer segment.
Somebody have a fact in the last year most of the share of the consumer loans have a mortgage.
Commercial loans down to 21, 8% of the total portfolio.
Moreover, our paper, saying peso appreciation in the quarter with us the contribution of the loans denominated in U S dollars.
Net of FX, the loan portfolio will increase by 2% quarter over quarter.
However from a client perspective, we continue acquiring customers on almost all segments main grounds for loan growth on the future.
Please go to slide number 10.
Despite the slight drop out the loan book deposits grow cedar, 0.2% quarter over quarter, and two 8% year over Q driven by a more conservative approach.
Liquidity.
As a result, our net stable funding ratio was running at a comfortable level of 117% or sub September.
The road was named by time deposits that increased two 3% in the quarter and 31% yield or do you still attractive that the prevailing interest rates do reflecting a slower pace of growth.
Firstly savings contracted one 6% quarter over quarter, and 11% year over year.
Moreover, I suppose of our liability management strategy seeking to optimize our funding structure in July with lounge, a cash tender offer for the 25 senior bonds by week $468 million were purchased.
Reducing the outstanding bonds balance by 10% quarter over quarter, and 12% on a daily basis.
On the other hand trade working capital loans and dollars have reduced 7% quarter over quarter and 14% year over here on the back of lower demand.
All in all the cost of funds increased two five points.
In person.
Well below the central bank rate.
Bolstering our competitive advantage in attracting low cost deposits.
Our asset sensitive balance sheet disruptor, we'd have to increase to 68% the share of fixed rate time deposits not too. Many of them are here to provide some margin protection when interest rates start coming down in the foreseeable future.
Please go to slide 11.
Interest income slightly increased <unk>, 2% quarter over quarter as interest at valuation on the investment portfolio grew 934% offsetting the 2.8% drop on the interest income on loans and financing leases on the same period.
On a yearly basis interest income grew 24% due to the repricing dynamic I spent a lot of our asset sensitive condition and because new loans that these floors at higher interest rates.
Consistent with the growth in time deposits.
So interest expense into two 7% in the quarter and almost 80% year over year I think continues to capture the rise in interest rates.
Ruth NII fell one 7% quarter over quarter and two 7% on every other basis, reflecting the lower income generation capacity I've known volumes has contracted.
Consequently, unnamed breakdown shows the lending fell 34 basis points quarter over quarter, and seven 6%, whereas being dividend return.
I'll, let them close to 1% contributing to an increase of total Nemo seeks point person.
Given the higher weapons wasteful aim after the updated forecast, we reaffirm our view on a sustained name off at around 7% for the coming quarter.
Please go to slide 12.
Net income dropped 4% quarter over quarter, unless almost flat year over year, our fee expenses growth outpaced income growth driven by higher third party provided coast and processing charges consistently fee income ratio fell to 18, 4% for the quarter.
And collection related fees grew the most on downhole and yearly basis provided the growth of clients and the positive evolution of our digital shopping oriented strategy.
Income related to the new.
Leasing operations keeps a growing trend posting a four 6% increase during the quarter and 27% over June contributing.
Contributing to almost 48% of all of those income performance that you are hanging around 53% year over year. Despite.
Despite contracting a 70% during the quarter.
Please go to slide 13.
Net provision expenses, both grade and also for the quarter was one 6 billion pesos.
22% decrease quarter over quarter and equivalent net cost of risk of two 5%, implying a 60 basis point drop from the previous quarter.
The drivers behind this reduction when people first at 240 billion pesos reduced due to the sale of a massive transportation system related corporate loans in Colombia.
Second on the Honda and 41% decrease quarter over quarter on the consumer segment in Colombia, we've been steady performance on.
Third lower provisions related to micro inputs.
All the above helped to compensate the one off the recent chart that Banco Agricola had to add in the quarter related with the change in credit card system.
Moreover, well most of them knows it's showing another a good performance so far some cases for which its preparations have been accrued.
On the flip side, the 90 day past due loan ratio for the quarter increased to three 2% from 2% in the last quarter due to more passive such as consumer loans running into past due in a couple of the specific commercial loans.
These copel, we've got both nation provision release resulted in a drop of 90 day past due loans coverage ratio of 288% of a steam provided a strong coverage through the balance sheet.
Consistent with the lower past due loan formation consumer segment in Colombia.
Nice increase on the shelf known soon in stage, one that reached 87, 3% of those states to remain welcome pain, how that level of six 7%. The combined coverage for stage, one and stage two loans remains at a level of 41 person.
Moving to slide 14, I will further discuss some credit quality in Colombia.
And some of the loans that represent 52% of consumer loans accounted for most of the deterioration during the period, increasing 90 day past utilization the system keeps person and therefore, the share of loans in stage, two and 3% to 21%.
However, given the lower pace of.
Past due loan formation is to support the cost of risk decreased to 55%.
Moreover, Crazy times.
Loans and payroll loans perform a life personal loans pushing the 90 day past due loan ratio up what's the cycle one person we can.
With 78% share of loans in stage, two and three.
Ah boasting a lower cost of risk of 12.9%.
We help reduce the burden on pre approved loans operating D was in almost 45% year over year under 7% quarter over quarter there.
Therefore, the evolution of past due loan formation and consumer loans in Colombia continues showing at the same between.
It's running below the average of the first half of this year, although admittedly at a slower pace than expected.
Although far from ideal.
We've been nowhere 90 day past due loan ratio for the Colombian financial system as well.
July 2017, driven by our superior Crazy assessments, David things created models and collection process.
With more accurate insights that I know well.
To better mitigate determination.
Please go to slide 15.
The cost to income ratio for the quarter was 47% as operating expenses need to close to two 2% quarter over quarter and almost 20% do you what would you do.
The main drivers for this growth continues being the hydro transaction some deposits related batches introducing last year. He said before that's had a 72% year over year and 15% quarter over quarter increase.
Personnel related expenses decreased 1.4% quarter over quarter, driven by lower severance payments bankers brokers to 20%.
Off the annual wage increase.
And last initiative related expenses grew 5% quarter over quarter and 30% in the deliberations.
Either expenses devoted to business transformation.
No perfect.
Texas and natural valuations on certain St. Louis benefits Opex on our growth would have been 13, 4%, they're saying in line with inflation.
We continue to committee on cost controlling initiatives include sufficiency, and boost productivity, which coupled with that sound mean should maintain an efficiency ratio of around 46% corridor.
Please go to slide 16.
For the quarter was 1.5 trillion pesos equivalent to a two 1% growth quarter over quarter driven by lower provisions.
In terms of return on equity for the period increased to 16, 1%, which if adjusted for good results.
Resulting in a return on tangible equity of 28%, reflecting the profitability of the operation isolated of Houghton related costs.
On a yearly basis, however, meaningful fell eight 4% on the back of the loan book contraction.
Minder net income generation hydro provision expenses, another iqos as the scariest Anthony.
And finally on slide 17, I will present, the evolution of capital generation.
Shareholders equity grew to 8% on a quarterly and yearly basis, well above assets that remain flat over the same periods, reflecting the bank's capital generation capacity to sustain a sound balance sheet.
Boston <unk> total capital adequacy ratio stood at 12, 8% increase from 29 basis points over the quarter, we that CET one ratio of 10 point instead interesting a 42 basis points growth driven by a combination of lower risk weighted assets. It takes appreciation.
And a combination of net income didn't get you.
Now I will hand over the presentation back to one tablet for some final remarks.
One Congress.
Thank you question Barton.
Please go to slide 18 for some remarks regarding our sustainability strategy.
Moving ahead with our strategy.
The first quarter, we have disbursed almost 28 trillion pesos during the year on an aggregate of hundreds of them 31 trillion pesos since 'twenty 'twenty four small scale agribusiness green buildings and gender related loans amongst others.
Moreover, as the power of our sustainability framework, we made progress on the following three initiatives.
First.
From an environmental perspective, we included Blue taxonomy seeking to promote.
Time ecosystem conservation and protection.
Second we continue making progress on our financial wellbeing strategy by which we provide our clients with financial education regarding savings and investment.
Financial planning and retirement amongst others for better decision, making.
And third as part of our social initiatives, we launched our human rights due diligence protocol on the Rockies framework and to identify control and monitor the risk of our stake holders and mitigate them accordingly.
Okay.
Finally on slide 19.
I will share our guidance for the year and 2023.
Based on the information we have today and the updated macro inputs forecast, we maintained the guidance for NIM on around 7% as the average rate of the Central Bank will remain high during the year.
The efficiency ratio on around 46% and for core equity tier one on around 11%.
On the other hand, we now expect loan growth of around three 4% in peso denominated loans on one point.
0.2% in dollar denominated loans.
However, given the slower downward trend in inflation and interest rates, we now expect more deterioration on higher expenses for the last quarter that three months ago.
Pushing our cost of risk guidance to 2.722, 0.9% and consequently, adjusting guidance on ROE to 15% area.
With this we conclude our remarks for the third quarter results.
Now we can take any questions you may have thank you.
Thank you.
Ladies and gentlemen, even now be conducting a question and answer session.
If you would like to ask a question. Please press star and one on the telephone keypad.
Oh confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Yeah.
Our first question is from Chris <unk> with Goldman Sachs. Please go ahead.
Hi, Good morning, everyone and thank you for taking my question.
My first question is regarding the profitability outlook from here I, just revised guidance for 2023 for our we downwards to around 15% just wondering for next year, what it what are you thinking for profitability given the revised economic outlook, a more challenging macro scenario.
Talk a little bit about that that'd be great and the second question would be.
On provisions and cost of risk if you could talk a little bit more about the provision release that happened this quarter, if youre expecting any additional releases coming from that specific loan and if he could also discuss a little bit are your expectations for provisions and cost of risk.
For next year that would also be great. Thank you very much.
And thank you for your questions.
Regarding regarding profitability.
The key factor.
As you know for or the profitability upon Colombia. This.
This year and next year will be the cost of risk.
The third quarter, we had a cost of risk of 2.5.
But we have that caught up with it as the influence of a one off.
Yeah.
We saw a.
Commercial credit.
Alone sorry in and that's why we are reversing some some provisions regarding your question. That's it that's now going in.
Particular regarding that loan that is not going to happen we.
Yeah.
We are very active on on managing the our portfolio of loans.
And we actively look.
Two.
Yeah.
Cell or or or manage those loans, but those.
Every.
Case is different so for now on what we.
Or are expecting is that the cost of risk for the end of the.
The year will be.
Around two 5% and for the whole year would be in.
Between two Boeing seven and nine.
That drive it and they are are we down to.
The 15% area.
Got it in 'twenty 'twenty four we expect the trend to continue.
Even though we expect that the cost of risk should be lower.
The one that we are going to do in 2023.
But loan growth is not going to be very healthy during 2024. So.
'twenty 'twenty four will be a challenging year regarding loan growth.
But we think that we can maintain or we can manage the cost of risk in a level that is lower than the one that we have at the end of 'twenty 'twenty 'twenty four.
23, I'm sorry.
So yeah with.
With all of that yeah.
We expect as I said its challenging year.
The 10 to 24, but.
With a.
The profitability.
I will cover our cost of course.
Equity I don't know Jose if you want to add something to that.
This center.
That's fair.
Okay. That's it yes.
Just a quick follow up if I may just around just to make sure that I understand so for.
The fourth quarter of the coming quarter, you mentioned youre expecting cost of risk roughly stable at 2.5 is that correct and then finishing the whole year at around 2.729.
That's correct, yes, okay.
Even though our this quarter you had the one off are you still expect to deliver a stable cost of risk and in the last quarter.
Yeah, that's correct.
That's because the.
The main deterioration, it's coming from consumer loans and we are now.
The vintages now when we have our or were originated with a different risk profile.
That that risk profile change a D.
End of 2022, so the maturity of those loans.
We are seeing is that those loans are behaving.
Better than those that were all originated.
Before that at the beginning of 2022 on 2021. So that's why why are you expecting that the deterioration of the consumer loan loans.
We'll now will drive or not it's not going to drive a higher cost of risk at the end of 'twenty 'twenty four.
Battery regarding your question if we have more cases like these one off it wasn't very opportunistic sale. That's how long does the west fully provisioning, but we don't expect any order releases during at least the next quarter of this year.
Perfect perfect that's very clear thank you.
Thank you.
Thank you. Our next question is from the line of Japan thing with HSBC. Please go ahead.
Oh hi.
Thank you for taking my question. So my question is on the call.
So here you can see.
The reason is because.
So I just wanted to understand it.
And Oh yeah.
And should we fixed.
Yeah.
You mean at the bottom.
In the next few quarters.
Yeah.
Thank you for your question that I had some issues with the line so I'm I'm going to try to.
To answer your question regarding.
Regarding consumer loans I mentioned that that was the main source of deterioration during the quarter.
The third quarter and has been the main source of deterioration during during the full year yeah. So.
Your question is when I was expecting the peak.
Yeah.
Consumer loan deterioration I think we are we are pretty much at the peak and what we expect is that next quarter.
Fourth quarter of this year.
Uh huh.
Oh deterioration a ball our our long term AR.
Yeah.
Duration for consumer loan, but will be.
Lower than the one we had during the third quarter.
So that will.
Drive toward coastal.
Risk, Florida.
Fourth quarter.
Yeah, well if around 2.5%, so and mainly the main.
The main driver.
Cost of risk is.
The consumer loan deterioration.
I don't know if I answered your question.
Okay. Thank you.
Right.
Second question on the.
I mean, Oh has it looks like you had in the nine months and again the bulk of it has to be.
Hum.
What could we export this year.
And for the next year.
Okay regarding regarding Opex.
We.
For next year, we are expecting that opex.
Shoot.
Grow around 10%.
Yeah.
Inflation in Colombia.
Should be around.
I don't know, but probably 8% or a little bit less than that probably more towards 7%, but we have pressure on what is going to be the wages.
Increase in Colombia, and the minimum wage increase in Colombia.
And we expect that to be around 10% broadly or maybe even higher than that so we will have some pressure from the close of.
From probably the labor cost and and regarding.
The general expenses.
We expect those to grow less.
So yeah.
That's our our guidance for 'twenty to 'twenty four I don't know, let's say you will have to come in yes. Regarding 2023, we are expecting on the annual Goodyear and expenses growth of around 22% and remember that the main impact of dish deviation of expenses. It is because of two reasons. The first one is taxation related to business.
That was increased more than 60% annual basis and the second one element. He said ethics variation that the west at around 9%. If you deduct. These two elements ethics and taxation related to business. The expenses growth for this year, it's going to be the area of 13 proceed in line with inflation.
One nation well at the beginning of the presentation.
Thank you.
Thank you.
Thank you.
Our next question is from the line of Julien No, but Duffy we hadn't. Please go ahead.
Hi, everyone and thank you for my question.
I would like to ask you a few questions. The first one is how are you feeling about the deterioration of asset quality indicators.
Also in the dairy days and 90 days, because if we see their muscles deterioration has increased but the cost of risk or the provisions have decreased.
Second question is regarding the taxation of the effective tax rate, we have seen during the last quarters that the effective tax rate is not as how your oh there.
Your peers, so we would like to understand what our D. What are the reason of that and why the effective rate of bancolombia used below.
Yeah its peers.
Thank you so much.
Thank you Colin.
Yeah.
As we mentioned already.
The third quarter was affected by a one off deal.
That explains.
Why the cost of risk was slower.
And but we see deterioration as we already mentioned on the consumer loans and that's why the 30 day and 90 day past due loans increased during during the quarter.
As we mentioned we expect.
That to be the peak for this year in that area.
The behavior of the.
Consumer loans during the fourth quarter should be.
Better than the one that we had during the.
The third quarter.
Regarding taxes, our effective tax rate is.
Lower or is slow.
Cause.
Some special waste special situations.
The surf.
Of our net income during this year.
It's the.
The distribution of that source of net income during these theories it's more from our.
Operations outside Colombia done half and those operations have a low where yeah. That's.
That's right. So the contribution of the Central American operations is bigger during this year that's why.
The mix.
Between the lower tax rates outside Colombia on the tax rate to be in Colombia.
Jim.
Got it.
Resulting in a lower effective.
Tax rates on consolidated basis. The other reason is that the.
Yeah.
The leasing business in Colombia.
A special tax treatment in the case of Colombia, so that benefit our.
Because we are having a good performance in that line also.
It also affects the the effective tax rate, even though the tax rate the effective tax rates.
During this year is around 23, 24% we expect.
By the end of the year Duane is that the effective tax rate around 26% on for next year, we expect our effective tax rate to be 28%.
Okay, just a follow up on the asset quality I would like to know your position of O D. The commercial loans. If there is any sector that you are worried about or any which sector that bancolombia has there is any like worries about these six or anything specific like construction and energy.
Or something like that.
D D.
Loans regarding commercial or commercial loans.
I have been performing well and the sectors.
That's been affected are mainly around construction.
Housing construction.
That is already incorporated in our in our provisions.
So we don't see a particular sector, but yeah I said.
Or are we the deterioration that worries us.
Yeah.
So it's more regarding broadly.
Yeah.
Construction next year.
And agriculture, or worries us a little bit because of climate and because of the and.
And the menu that could affect the performance of the opioid cultural fit.
I think those are the main concerns that we have for yeah, I so as of today.
Okay. Thank you very much.
Thank you.
Yeah.
Thank you.
Ladies and gentlemen, if you wish to ask a question Please press star and one.
Yeah.
Once again.
If you wish to ask a question please press star and one.
Our next question is from the line of Andrea Soto, but sometime though please go ahead.
Hey, good morning to all and thank you for the presentation I'm I'm I have a couple of questions. The first one is regarding our liquidity conditions in the Colombian financial system.
D C. Our wausau stuff do they on their execution of their government and we see that the budget for next year implies a significant expansion are you confident confident that these will translate to an improvement in our liquidity.
Conditions on based on that what is your expectations for margins seen for both sound on 24, but that would be my first question. My second question is regarding the the Nike monetization process can you. Please walk us through are how do you see these these processes going on.
What is the source of monetization is transactional income it is floating and it is new loans and weight. When are you expecting nicky to be accretive to bancolombia results.
Thank you Andre for your.
Your questions. Let me let me answer your first your second question and I'll pass your first one too soon but.
Yeah.
Nicky continues its.
Evolution.
No we are focusing on separating Nicky from Bancolombia.
That's where I work.
Where we are.
Yeah.
What we are doing now we expect that process to wind.
Broadly the middle of next year, so make it will be a separate entity wholly owned by by Bancolombia.
Yeah, we continue growing.
The number of users.
It's now close to.
18 million, one 8 million.
And the number of active users monthly active.
Users is close to $30 million. So the usage of Mickey It's it's very very very high and that's a source of.
A lot of information.
But also regarding your question of monetization.
Given us the ground to move 2122 profitability.
You ask me what is our source of monetization and its going to come from from different sources loans will be one and we are already moving on that direction.
J D.
T fees and transactions are also a source of of monetization.
Insurance is also besides for good source of monetization, but that process will take time so.
Summarizing we are focusing on on on separating and Nicky.
Then from there we will Oh, well, we'll continue.
Our our journey to profitability that we will expect to consolidate during 2025.
Andreas on your first question I'm going to ask Oh.
Yeah, what's embedded to address progress.
Maybe before we go there just a follow up I saw it when you were speaking about the spin off that implies that Nicky will operate under a separate banking license.
Yes, that's correct Andreas making already applied for a separate banking license on that thought process already conclude with the superintendent jumping on Sierra unless awarded so we are in the process of completely all the requirements.
Great.
Separate financial entity with.
A separate license banking license Andreas.
Okay Andrei.
Okay and regarding your first question, we don't we don't see any particular concern regarding banking industry with liquidity remembering the first cube they were up potentially some pressure in our read through the financial institutions to comply with the net stable funding ratio today, we are having a very very good.
Gunther as our industry, particularly in Bancolombia, a remember that we have a very strong funding composition basically because of our new at the level of transactional. It. So just to give you an idea of the kind of stuff on the east side around 60% of our funding so for the annual bid.
Yeah, we don't see any particular concern.
Regarding your second question margins for 2024, there would be some pressure on margins next year, particularly in Bancolombia because of loan growth next year would be the main driver will be commercial with tighter names. So we are expecting at the end of the year.
B a compression of the NIM in between 20 to 50 basis points.
Perfect. Thank you I was in Mexico, and now that you were speaking about that because their general conditions of the financial system, obviously bancolombia stands out because they they access the founding in there.
The balance sheet, but are you concerned in any way with what is going on with the economy and financial system can we see some some banks belly up under these conditions that are not apparently to improve in the short term.
Non res what do we see more.
Sure Tim noted structural situation.
Liquidity was an issue.
You mentioned doing during the year, so from EM bonds.
They should go to the market that are on Oh for resources and they they had to pay.
And interest rate.
That's affected the margins.
We don't see a structural situation that crude.
Yeah.
To be Oh that could generate some some issues in the financial sector a sector, we see more.
Yeah.
I think that that the level of capital holiday, but aren't performing in general in the financial system is it's it's a good so we don't see any any any issues from from there.
Best way to to clarify that point on D. C. If you double check that net stable funding ratio of the system. All of US we are complain a bowl behind one 5% are all all of the banks. So we don't have any particular concern.
Perfect. Thank you so much.
And Ken's.
Yeah.
Thank you.
As there are no further questions I would now hand, the conference over to Juan Carlos Mora CEO for closing comments.
Yeah.
Thank you all for participating in the third quarter conference call, we expect the year to win in the same trend.
We are.
See now.
And we will present the results.
For the full year in February.
Where we will present the results of Bancolombia D. I thought as we mentioned during this call the.
We are watching very carefully it's the <unk>.
Yeah.
The behavior of our clients.
Clients, particularly on consumer loans.
And also that's what we we washing during 'twenty 'twenty four so and those.
Those are that's the main thing that is going to be the main driver of the of our results and Dave in the coming quarters. So you'll see a few being that in our next conference call. Our name I wish you a very good day. Thank you very much.
Thank you.
The conference of Bancolombia has now concluded. Thank you for your participation you may now disconnect your lines.
Okay.
Okay.
Yeah.
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