Q4 2023 Bancolombia SA Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to BancoColombia's fourth quarter 2023 earnings conference call. My name is Robert, and I'll be your operator for today's call. At this time, all participants are on a listen only. Following the prepared remarks, there will be a question and answer session. During the question and answer session, if you have a question, please hit star 1 on your telephone keyboard.

Good morning, ladies and gentlemen, and welcome to Banco Columbia is fourth quarter 2023 earnings Conference call. My name is Robert and I'll be your operator for today's call.

At this time all participants are in a listen only mode.

Following the prepared remarks, there'll be a question and answer session during.

During the question and answer session. If you have a question. Please hit star one on your telephone keypad. Please note that this conference is being recorded.

Operator: Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses, and credit losses. All forward-looking statements, whether made in this conference call, in future filings, in press releases, or verbally, 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 current exchange rates, and interest rates. The introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy, and various other factors that we describe in our reports filed with the SBA.

Please note that this conference call will include forward looking statements, including statements related to our future performance.

Capital position credit related expenses and credit losses.

All forward looking statements whether made in this conference call and future filings and press releases or verbally address matters that involve risks and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements including changes in general.

And business conditions changes in currency exchange rates and interest rates introduction of competing products by other companies lack of acceptance of new products or services by our targeted clients.

Changes in business strategy and various other factors that we describe in our reports filed with the SEC.

Operator: With us today is Mr. Juan Carlos Mara, Chief Executive Officer, Mr. Julian Mara, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prito, Chief Risk Officer, Mrs. Catalina Tobin, Director of Investor Relations and Capital Markets, and Mrs. Laura Clefile, Chief Economist. I'd now like to turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.

With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Julien Mara Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief risk Officer.

Mrs Catalina Tobin Investor Relations and capital markets.

Director and Mrs Lora, because I feel chief economic.

I'd now like to turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Juan Carlos you may begin.

Carlos Gomez: Good morning and welcome to Bancolombia's Four Quarter Results Conference Call. Please go to slide two. As anticipated, 2023 has proven to be a year of significant challenges for the Colombian financial system. The prevailing high interest rates and inflation have had a discouraging effect on credit growth, resulting in reduced net interest income generation. Furthermore, these factors have adversely impacted loan quality and led to an overall increase in operating costs. In light of the prevailing macroeconomic environment, Bancolombia's net income for the quarter reached 1.4 trillion pesos, indicating a 2% reduction compared to the preceding quarter. For the entire year, the net income amounted to 6.1 trillion pesos, representing an approximate 10% annual decline.

Good morning, and welcome to Bancolombia S fourth quarter results conference call.

Please go to slide two.

As anticipated 2023.

To be a year of significant challenges for the Colombian financial system.

The prevailing high interest rates and inflation.

Discouraging effect on credit growth, resulting in reduced net interest income generation.

Furthermore, these factors huh.

Absolutely impacted loan quality and led to an overall increase in operating costs.

In light of the prevailing microeconomic environment, but in Colombia net income for the quarter reached one point for trillium basis, indicating a 2% reduction compared to the preceding quarter.

For the entire year, the net income amounted to 611 trillion pesos, representing an approximate 10% decline.

Good luck.

Carlos Gomez: Primary drivers contributing to this decline are, firstly, a 1.5 quarterly and 6% annual contraction in the loan book portfolio due to reduced credit demand and diminished risk tolerance, resulting in slower growth of Inter's income. Secondly, a net provision charge that increased by 7% quarterly and 97% annually, consistent with the current credit cycle. Thirdly, higher operating expenses, which, despite stringent cost control measures, remained under pressure due to increased taxes and labor costs.

The primary drivers contributing to this decline.

Firstly, a 1.5 quad Clooney and six sports, saying unwell contraction in the loan book portfolio due to reduced credit demand.

Diminish risks tolerance, resulting in slower growth of interest income.

Secondly, it knits provision charge that increased by 7% quarterly and 97% annually.

Consistent with the current credit cycle.

Sadly higher operating expenses, which despite stringent cost control measures remains under pressure due to increased taxes and labor costs.

Carlos Gomez: In addition, it is crucial to highlight the substantial 20.5% annual and 5.7% quarterly appreciation of the pesos, leading to a decrease in the volume of loans and the interest income contribution of the dollar portfolio in the consolidated financial statements. The Long Portfolio Experience continues with pricing at elevated interest rates. The cost of risk was recorded at 2.7% for the quarter and 2.8% for the entire year.

In addition, it is crucial to highlight this thing shows 20.5%.

5.7% quarterly appreciation of the peso.

Leading to a decrease in the volume of loans and the interest income contribution of that portfolio in the consolidated financial statements.

As the loan portfolio experienced continued repricing.

Interest rates.

The cost of risk, what we called out.

2.7% for the quarter and two 8% for the entire year.

Carlos Gomez: This reflects the anticipated slowdown in past due loan formation compared to the first half of the year, which was a result of the comprehensive measures taken. The deficiency ratio ended the quarter at 49% and 45% for the entire year, indicating that the growth in operating expenses surpassed the growth in income, as previously discussed. The aforementioned factors exerted downward pressure on the return on equity, resulting in a 15.2% ROE for the quarter and 16.1% for the entire year.

This reflects the anticipated slowdown in the past due loan formation compared to the first half of the year, which was a result of the comprehensive measures taken.

The efficiency ratio ended the quarter at 49% and 45% for the entire year.

Indicating that the growth in operating expenses surpassed the growth in income a speech Julie discussed.

The aforementioned factors extended downward pressure on the return on equity, resulting in a 15.2% not only for the quota is 16, 1% for the entire year.

Carlos Gomez: Donald's Sovereignty Ratio experienced a notable increase of 57 basis points during the quarter, ending in a year-end interior of 13.4%. This positive development was primarily attributed to a significant expansion of 105 basis points in Core Equity Tier 1. Bancolombia's robust organic capital origination capability, coupled with a reduction in the risk-weighted assets, were the driving forces behind this achievement. A positive indicator and a testament to the bank's inherent capabilities, the generation of sound net interest margin has proven sufficient to absorb increased provision for expenses and costs while maintaining meeting return on equity. The AGB, the Aggregator of Central American Banks, and offshore operations made a larger contribution to the overall

Total solvency ratio experienced a notable increase of 57 basis points during the quarter ending in the year end figure of 13, 4%.

This positive development was primarily attributed to a significant expansion of Hunter and five basis points all in core equity tier one.

Bancolombia has robust organic capital generation capabilities, coupled with a reduction in the risk weighted assets what are the driving forces behind these achievements.

That's a positive indicator and it fits coming off the banks inherent capabilities. The generation of sound net interest margin has proven sufficient to absorb increased furby shouldn't expenses and costs, while maintaining mid teens return on equity.

Yeah.

So I'm trying to maybe come banks and offshore operations made a large contribution to the overall group results. Despite the prevailing economic and political environment in each country.

Carlos Gomez: Despite the prevailing economic and political environment in each country, we maintain our conviction that the recent downward inflationary trends in Colombia will enable the central bank to pursue a sustained interest rate production strategy, which, in turn, is suspected to stimulate credit demand and improve asset quality in the long term. We anticipate opportunities for credit growth primarily in housing, renewable energy, and the agribusiness sector as the government advances public spending. For a more in-depth analysis of the macro outlook, I will pass over the presentation to our Chief Economist, Laura Clavijo. Laura

We maintain our conviction that the recent.

Inflationary trends in Colombia will enable the central bank to pursue a sustained interest rates production strategy.

This in turn is expected to stimulate greater demand and improved asset quality in the long term.

We anticipate opportunities for credit growth Bregma, leading housing renewable energy and agri business sector, the government advances public spending.

Yeah.

For a more in depth analysis of the macro outlook.

The presentation to our chief economist that would've allowed you now.

Florida.

Laura Clavijo: Thank you, Juan Carlos. Now, please go to slide three. The global economic backdrop of tight financial conditions, declining consumer demand, and lower commodity prices, combined with local challenges due to high inflation, low investment, and receding consumer sentiment, paved the path for a significant economic slowdown in Colombia. Overall, 2023 proved to be a very challenging year for the Colombian economy and resulted in GDP growth of just 0.6% year over year, the lowest level in over three decades, excluding the COVID years, and Despite the lackluster results, the final quarter of 2023 signaled a slight expansion of 0.3%, rebounding from a 0.6% contraction during the third quarter, mainly driven by 6% growth in agriculture and 5% expansion in public administration. Construction, manufacturing, and retail sales continued to underperform. The biggest culprit for economic stagnation lies with public and private investment, which fell close to 25% during 2023. Total investment as a percentage of GDP has consistently declined since the pandemic, from levels of 20.2% to just 17% last year.

Thank you Juan Carlos now please go to slide three.

The global economic backdrop of tight financial condition declining consumer and lower commodity prices combined with local challenges teacher inflation low investment and with todays consumer.

Over the past two or three economic slow down in Colombia.

For all 2023 supposed to be a very challenging year for the Colombian economy and.

We built it and GDP growth of just 0.6% year over year, the lowest level in over three decades, excluding the COVID-19 years, and well below market expectations and our own forecast of one point to your question.

Despite the lackluster adopt the final quarter of 23 three.

Slight expansion in Europe, with 3% rebounding from a 0.6% contraction during the third quarter.

Mainly driven by 6% growth in agriculture, and 5% expansion of public administration.

Construction manufacturing and retail sales continued to underperform.

The biggest culprit economic stagnation lives with public and private investment, which fell close to 25% during 2023.

Total investment as a percentage of GDP has consistently declined.

The levels up 22% to 17% last year, the scenario weights heavily on our GDP outlook for 'twenty, 'twenty, four which stands at 90%.

Laura Clavijo: This scenario weighs heavily on our GDP outlook for 2024, which stands at 0.9% annual growth. On the more positive side, inflation has continued its downward trend, closing the year at 9.3% and falling further towards the 8.3% mark in early 2024. Receiving food prices helps explain much of the expense, but core inflation has come down consistently towards 7.9%. The drought season coming from El Nino has pressured energy prices to some extent, but it has proven to be much milder than initially expected.

On the mortality side.

Inflation has continued its downward trend closing the year at nine 3% and falling further towards the eight 3% Mark in early 2024.

It is to try to help explain much of it.

Core inflation has come down consistently towards the seven 9%.

The drought season coming from Aneel has pressured energy prices to some extent, but has proven to be much milder than initially expected we maintained our five 9% year and inflation forecast.

Laura Clavijo: We maintain our 5.9% year-end inflation forecast, considering some upward pressure from potential diesel price hikes and the effect of stubborn prices in services, such as housing. Given this macro scenario of falling inflation amidst the economic slowdown, the central bank began cutting interest rates in late 2023 and early 2024, accumulating a 50 basis point reduction thus far. Currently, the intervention rate stands at 12.75%, and we expect it may come down towards the 9% level at year-end. We maintain our view that 2024 will be a year of gradual recovery, especially during the second half of the year, when interest rate cuts will begin to pick up speed. Now, please turn the presentation back to Juan Carlos, who will present Bancolombia's quarterly performance. Thank you, Laura.

So there is some upward pressure from potential beef, a price hike and the effect of southern prices and services.

Housing.

Given this macro scenario of falling inflation amidst economic slow down the central Bank began cutting interest rates in late 2023 in early 2024, accumulating a 50 basis point reduction thus far permanently intervention rate stands at 12 point, 75% and we expect it may come down towards the <unk>.

9% level at year end.

We maintain our view that 'twenty 'twenty four will be a year of gradual recovery, especially during the second half of the year when interest rate cuts will begin to pick up speed now.

Now please let me turn the presentation back to Juan Carlos will prevent Bancolombia quarterly performing.

Thank you Laura.

Before discussing the quarter's results I.

I would like to provide an overview of.

The advancements made in several initiatives that are aligned with our four value driving deals.

Carlos Gomez: Before discussing the quarters, I would like to provide an overview of the advancements made in several initiatives that are aligned with our four value-driving pillars. These pillars significantly contribute to our market leadership, operational soundness, and the scalability of our business model. Please go to slide four, under our first pillar, which embraces our client-centric approach. We would like to share the developments we have made as a part of our capabilities as a service model. This model is based on the open banking regulations approved in Colombia, making it the third country in Latin America to achieve this significant milestone, following Brazil and Chile. The regulation establishes the foundation for financial and non-financial entities to disclose, coordinate, and utilize data.

These pillars significantly contribute to our market leadership operational soundness, and the scalability of our business model.

Please go to slide four.

Under our first pillar, which embraces all our client centric approach.

We would like to share the developments, we have made as a part of our capabilities as a service model.

This model is based on the open banking regulations approved in Colombia.

Making it the third country in Latin America to achieve this significant milestone following Brazil and Chile.

Deregulation that establishes the foundation for financial or nonfinancial entities to disclose coordinate and utilize data.

Carlos Gomez: It complements the central bank's immediate payments system framework introduced in October and anticipated to be fully operational by 2020. While there are some potential risks to our strong position in the transactional space, we anticipate numerous opportunities and avenues for growth. Our multi-channel platform is well-established.

It's complements the central banks immediate payments system framework introduced in October and anticipate it to be fully operational by 2025.

While there are some potential risks to our strong position in the transactional space, we anticipate numerous opportunities and avenues for growth.

Our multichannel platform is well established we have made significant progress in developing our ecosystem and we have already made a range of apa's available.

Carlos Gomez: We have made significant progress in developing our ecosystem model, and we have already made a range of APIs available. The two primary sources of growth originate firstly from the Immediate Payment System Framework, which will streamline all types of payments processing through a low-value payment system managed by the central bank with real-time clearing, thereby reducing operational costs and improving user experience. Secondly, it will enable us to further integrate our financial capabilities into new marketplaces, promoting financial inclusion and enhancing the value proposition for our clients. Notably, we pioneered the launch of a new feature on our app for account aggregation, allowing our clients to manage all their financial data in a centralized location and interact seamlessly through a single app.

The two primary sources of growth originates firstly from the immediate payment.

She's been framework, which will streamline all types of payments processing through the low value payments system managed by the Central Bank with real time clearing Dr by reducing operational costs and improving user experience.

Secondly, it will enable us to further integrate our financial capabilities into new marketplaces promoting financial inclusion.

So the value proposition for our clients.

Notably we pioneered the launch of a new feature on our App for account aggregation, allowing our clients to manage all their financial data in a centralized location and interact seamlessly through a single app.

Carlos Gomez: Furthermore, we are delighted with the positive development and performance of our banking as a platform and as a service model, as it has enabled us to innovate and explore novel business models. As of the end of 2023, we have processed close to 50 million transactions, resulting in deposits and fees of 7.7 billion pesos. Notably, these models have demonstrated remarkable growth with compelling compounded annual growth rates of 16% and 14%, respectively, over the past five quarters. This indicates the substantial potential for further expansion under our ecosystem approach.

Furthermore, we are delighted with the positive development and performance of our banking as a platform.

Saturday's motives.

They have enabled us to innovate and explore novel business model.

As of the end of 2023 we had processed close to 50 million transactions, resulting in deposit fees of $7 7 billion pesos.

Notably these models have demonstrated remarkable growth with compelling compounded annual growth rates of 16% and 14% respectively.

Over the past five quarters.

This indicates the substantial potential for further expansion on our ecosystem.

Approach.

Carlos Gomez: Slide five, under our second value-driving pillar that focuses on our digital capabilities and multi-channel platform, I would like to elaborate on what we believe is the most compelling evidence of the robust competitive advantage we have built in this area. For over a decade, we have strategically invested in the development of a comprehensive, resilient, multi-channel, and interoperable platform, recognizing the critical role of each channel in our business strategy. As illustrated in the accompanying graph, the platform has emerged as a powerful instrument for acquiring new customers, particularly those who are unbanked or underbanked and seek affordable money transfers and cash withdrawal solutions. Consequently, we have achieved exponential growth in transactional volume, increased fee revenue, and significantly enhanced our ability to attract and retain depositors. In response, there has been a substantial rise in highly diversified, low-value, and low-cost sticky deposits. These deposits have primarily come in through savings accounts and, more recently, through digital time deposits.

On slide five on they don't want a second value driving pillar that focuses on our digital capabilities and move to Charlie lots of fun I would like to elaborate on what we believe is the most compelling evidence of the robust competitive advantage. We have built in this area.

Well, we're in a decade, we have strategically invested in the development will have comprehensive resilient multichannel and interoperable platform.

We recognize the critical role of each channel you know our business strategy.

As illustrated in the accompanying graph plots of farm Huska marriage, as a powerful instrument for acquiring new customers, particularly those who are unbanked or underbanked and seek affordable money transfer on cash withdraw all solutions.

Consequently, we have achieved exponential growth in transactional volume increased fee revenue on significantly and taste, our ability to attract and retain deposits.

In response has been a substantial raise and highly diversified low value and low cost sticky deposits.

These deposits have primarily come in through.

Through savings accounts on more recent feed through digital time deposits.

Carlos Gomez: Notably, digital time deposits have experienced a remarkable compounded annual growth rate of 125% over the past five years, aligning with our digital transformation. Certainly, this well-structured strategy serves as a reliable foundation for maintaining a competitive founding cause, thereby enhancing NIMH performance and overall profitability. I would like to highlight the credit risk model we have developed for corporates, mid-sized companies, and most FMEs. I consider this model as a key differentiator in assessing credit risk, which significantly contributes to the superior performance of our commercial loan portfolio compared to that of major Colombian banks. This is evident in the latest report released by the Colombian financial superintendents, which measures performance based on the 90-day past-due loan ratio. Our model employs an end-to-end credit cycle approach supported by a comprehensive suite of tools for assessment, rating, follow-up, and collection, underpinned by extensive research and well-articulated sectorial risk assessments. Our model provides an in-depth understanding of each industry and its cycle.

Notably digital time deposits have experienced a remarkable compounded annual growth rate of contract and 25% over the past five years.

Lining with our digital transformation.

Certainly these well structured struggled just saves us a reliable foundation for maintaining a competitive founding cost, thereby enhancing mean performance and overall profitability.

On slide six under our better value driving a lot of structural capabilities that provides distinct market advantage I would like to highlight the credit risk model. We have developed for corporates midsized companies had modest it's a niche.

We consider this model is a key differentiator in assessing credit risk.

Which significantly contributes to its superior performance of our commercial loan portfolio compared to that well familiar Colombian banks.

Evident in the latest report released by the Colombian financial Superintendents, which measures for four months based on a one day 90 day past due loan ratio.

Our motive employees and end to end credit cycle approach supported by a comprehensive suite of tools for an assessment for I can follow up on collection.

Underpinned by extensive research on well articulated sectorial risk assessments, our model provides an in depth understanding of each industry and its cycles.

Carlos Gomez: This enables us to effectively diversify our portfolio, identify early warning signals, anticipate potential challenges, and support our customers with tailored solutions. The most notable and valuable feature is the advanced analytical model, which draws upon the client's transactional and cash flows insights captured on our multi-channel platform. This provides a unique risk perspective freeing us from the sole reliance on financial statements.

This enables us to effectively diversified our portfolio do you think the five early warning signals anticipate potential challenges and support our customers with tailored solutions.

Most notable unparalleled feature you've got advanced analytical models. It draws upon the clients transactional and cash flows insights captured on our multichannel platform.

The device a unique risk perspective, freeing us from the sole reliance on financial statements.

Carlos Gomez: By leveraging our unparalleled insights, we have meticulously crafted a robust risk assessment framework. This framework has been instrumental in evaluating over 600,000 SMEs and 15,000 corporate clients in Colombia. Currently, we manage approximately 120 trillion pesos in commercial loans under this model. Notably, our portfolio has consistently outperformed industry peers. Lastly, on slide seven, regarding our fourth value-driving pillar, which is the culture of efficiency and productivity, we would like to present the evolution of our digitalization strategy. In addition to the benefits of attracting more clients and transactional flows discussed earlier, it has also provided substantial efficiency gains and flexibility, enabling us to allocate resources more effectively. Over the past decade, there has been a significant shift in the way monetary and non-monetary transactions are processed This strategic shift involved the closure or transformation of branches into sales points with the aim of routing transactions through less expensive channels.

By leveraging our unparalleled insights we have meticulously crafted a robust reached a settlement framework.

This framework has been instrumental in evaluating other 600 panel Sun is a nice 15000 corporate clients in Colombia.

Currently we manage approximately 120 trillion peso seen commercial loans under these motor.

Notably our portfolio has consistently outperformed industry peers.

Lastly on slide seven regarding our fourth value driving pillar, which is the culture of efficiency umbrella TBD, we would like to present the evolution of our digitalization strategy.

As shown through the benefits of attracting more clients and transactional flows discuss every year. He has also provided substantial efficiency gains some flexibility, enabling us to allocate resources more effectively.

Over the past decade, there has been a significant shift in the way monetary and nonmonetary transactions are processed.

The early 'twenty tense nearly 30% of these transactions were conducted through physical China's such us branches.

However by the end of 2023 this figure had plummeted to just eight 3% with branches accounting for a mere 0.3% of all transactions.

This strategic shift has involved the closure or transformation of branches into sales points within of routing transactions through less expensive channels.

Consequently, we have successfully reduced our overall fixed cost by replacing physical China's primarily branches with digital channels, having barbels close based Chinese such as banking agents.

Jose Humberto Acosta: Consequently, we have successfully reduced our overall fixed costs by replacing physical channels, primarily branches, with digital channels and variable cost-based channels such as banking agents. This strategic move has enabled us to expand our reach and enhance user experience while maintaining operational efficiency. Furthermore, we are pleased to report continued advancements in the scalability of our business model, which will enable us to capture additional gains in efficiency and productivity. Now, I would like to invite José Humberto Acosta to provide further elaboration on our fourth quarter 2023 results. Thank you, Juan Carlos.

This strategic move has enabled us to expand our reach and encase user experience, while maintaining operational if you sheets.

Furthermore, we are pleased to report continued advancements in the scalability of our business model, which will enable us to capture additional gains in efficiency and productivity.

Now I would like to invite pushing better track closer to provide further elaboration on all of our fourth quarter 2023 results pushing Burton.

Thank you Juan Carlos.

Please go to slide eight to the skews results of our Central American operation.

Despite the lower share of the Central American loan book on a consolidated basis explained to a large extent by the peso appreciation.

Jose Humberto Acosta: Please go to slide 8 to discuss the results of our Central American operation. Despite the lower share of the Central American loan book on a consolidated basis, explained to a large extent by the peso appreciation, almost all banks increased their contribution to net income.

Almost all banks increased its contribution to net income.

However, when broken down by each bank the performance in the quarter.

Bonnie will sustain its mean, despite alone contraction and that group yellow provision charge, but deliberate a lowered return on equity quarter over quarter on the back of higher cost.

Jose Humberto Acosta: However, when broken down by each bank, their performance in the quarter is near. Barismo maintained its name despite a long contraction, an accurate lower provision charge, but delivered a lower return on equity, quarter over quarter, on the back of higher costs. Likewise, Banco Agrcola also posted lower interest income due to higher income expenses and below average provision charges as the loan portfolio performed better than expected, contributing to a higher return on equity versus the previous quarter that reached 24.1%. On the other hand, Banco Agro Mercantil had low loan book growth after a large commercial loan prepayment and subdued growth in consumers that impacted interest income.

Likewise, Banco Agricola also posted lower interest income due to a higher income expenses and below average provision charges at the loan portfolio performed better than expected contributing to a higher return on equity versus the previous quarter that week 24 point.

1%.

On the other hand bank lock in and make an E.

No loan book Road after a large commercial loan prepayment and subdued growth in consumer that impact interest income.

Alicia charges increased on the back of old vintages consumer loans, and a corporate no dragging net income to a loss.

It is also worth mentioning that despite higher loan determination all three banks wrong with comfortable level of 90 day past due loans coverage, providing balance sheet protection.

We remain positive on it sounds like almost micro pay farmers, but not cautious about Guatemala, given the most recent political and social unrest and with Panama due to the more challenging piece kind of aspect.

Jose Humberto Acosta: Provision charges increased on the back of all vintages, consumer loans, and a corporate loan, dragging net income to a loss. It is also worth mentioning that despite higher loan deterioration, all three banks run with a comfortable level of 90-day partial loan coverage, providing balance sheet protection. We remain positive about El Salvador's micro-performance but more cautious about Guatemala, given the most recent political and social unrest, and with Panama, due to the more challenging fiscal outlook as reflected in lower tax collection. Please go to flight 9. Consistent with the trend seen in the previous quarter, the consolidated loan book contracted 1.5% quarter over quarter and almost 6% year over year. Not surprisingly, this reduction reaffirms the impact of the persisting high interest rates as this has discouraged credit demand and has provided incentives for prepayments and shorter-dated loans that limit loan book growth.

That's quite a section.

Please go to slide nine.

Consistent with the trend.

In the previous quarter, the consolidated loan book contracted one 5% quarter over quarter, and almost 6% year over to you now.

Not surprisingly this reduction reaffirms the impact of the persistent high anticipates a piece has discourage credit demand.

Incentives for prepayments on shorter dated loans that means the loan book growth.

But I think more at 20.5% peso.

Peso appreciation with us the contribution of the loans denominated in failures.

No I don't think it fix the loan portfolio would have increased one 5% or 1980 basis.

From a segment perspective consumer portfolio keep driving the largest contraction with a two 6% reduction quarter over quarter and eight 4% year over year as expected.

Please go to slide 10.

Total deposits increased one 5% quarter over quarter explain most by a seasonal effect I think openly related amputation Columbia dam to increase its deposits.

Jose Humberto Acosta: Furthermore, a 20.5% year-over-year peso appreciation reduced the contribution of the loan denominated in US dollars; net of effects, the loan portfolio would have increased 1.5% on a yearly basis. From a segment perspective, Consumer Portfolio Kit is driving the largest contraction with a 2.6% reduction quarter-over-quarter and 8.4% year-over-year. As expected, please go to slide 10. Total deposits increased 1.5% quarter-over-quarter, explained most by a seasonal effect as government-related entities in Colombia tend to increase their deposits on year-end. However, year-over-year deposits dropped 1.2%, consistent with the weaker credit demand.

Inc.

You are thinking your deposits dropped 1.2% consistent with a weaker credit demand.

Nevertheless, it wasn't there was to change in the funding mix dynamics during the quarter.

As time deposits dropped 3%, whereas satan's current accounts and other deposits increase.

Do you think to you however time deposits increased its share in the total funding mix to 35% up from 30% after the strong growth in the first half of this year.

Consistently on a daily basis, the Asia growth time deposits dropped to 13, 3% named Brownsberg lower interest expenses.

Jose Humberto Acosta: Nevertheless, there was an interesting change in the funding mix dynamic during the quarter, as time deposits dropped 3%, whereas savings, current accounts, and other deposits increased. Year-over-year, however, time deposits increased their share in the total funding mix to 35%, up from 30% after the strong growth in the first half of the year. Consistently, on a daily basis, the pace of growth of time deposits dropped to 13.3%, laying the ground for lower interest expenses ahead. Consequently, the cost of funding fell slightly to 5.8%, an early signal of interest expense reduction as rates subsided, a situation for which we continue adjusting our liability structure to provide margin protection. As a matter of fact, as of year end, the share of fixed rate time deposits maturing in less than a year was 70%, up from 68% as of September. Please go to slide 11.

Consequently, the cost of funding fell slightly to five 8% and anthem Cigna interest expenses reduction I said rates subsides.

Patients for which we continue adjusting our liability structure to provide margin protection.

Somebody even thought I said to you and the share of fixed rate time deposits maturing in less than a year was 70% up from 68% as of September.

Please go to slide 11.

Total interest income on valuation of financial instruments increased 4% quarter over quarter supported by first half.

67% growth understand valuations from financial instruments after higher valuation on any large securities portfolio health during the period, coupled with a false weights and cycling.

By a 1% growth on interest income on loans and financing leases.

Mainly attributable to the loan portfolio repricing dynamic.

Jose Humberto Acosta: Total Interest Income and Valuation of Financial Instruments increased 4% quarter over quarter, supported by FERS. A 67% growth in interest and valuations on financial instruments as a result of higher valuations on a large securities portfolio held during the period coupled with a fall in rates and second, a 1% growth in interest income on loans and financial leases, mainly attributable to the loan portfolio repricing dynamics. On a yearly basis, total interest income and valuation of financial instruments increased 38%, albeit at a slower pace than the previous year, and driven probably by a 42% growth of interest on loans and financial lists. On the other hand, interest expenses were flat, quarter over quarter, as interest on deposits remained unchanged and coupled with a slight reduction in interest on bonds and interbank borrows.

On the Yankee basis total interest income on valuation of financial instruments increased 38%, albeit at slower pace than the previous year.

Intriguing maybe by a 42% growth on interest on loans and finance leases.

On the other hand interest expenses were flat quarter over quarter as interest on the policy remains unchanged and coupled with a slight reduction on interest on bonds Huntington Bank borrowing.

On an annual basis. However, interest expenses grew 97% driven mainly by a hindrance and 2% increase on interest expense on deposits. After the largest stake of time deposits and higher interest rates.

Nevertheless, the pace of online growth is subsidised, consisting with the drop off deposits.

Despite the loan book contraction NII grew 8% whatever was quoted and 11% year over year due to an increase in interest income why its interest expense remains flat and is mainly attributable to.

Jose Humberto Acosta: On an annual basis, however, interest expenses grew 97%, driven mainly by a 117% increase in interest expense on deposits after the larger stake of time deposits and higher interest. Nevertheless, the pace of annual growth is subsidizing consistent with the annual drop in cost. Despite the loan book contraction, NII grew 8% quarter over quarter and 11% year over year due to an increase in interest income while interest expense remained flat and is mainly attributable to the Colombian operation as 67% of the loan portfolio is floating in contrast to 34% of the post. Luce, the name in Colombia, was prioritizing subsidizing inflation and the short-term reference interest rate as shown on the bottom-hand side graph. Consistently with the above, NIM expanded 47 basis points quarter over quarter to 7.28%, driven by the remarkable 354 basis points expansion in the investment NIM after the securities portfolio's strong performance disputes evolved, coupled with the 11 basis points growth in the lending NIM, whose mean for the full year was 7% at 20 basis points expansion year-over-year on the back of a strong 8% annual mean in Colombia, reaffirming the Net income increased 7% quarter over quarter, mainly attributable to a higher volume of transactions associated with year-end seasonality.

So the Colombian operation.

67% of the loan portfolio is floating in contrast to a 34% of deposits.

Bruce the knee in Columbia West precedent for subsea thing information and short term Griffins interest rate has shown on the bottom hand side graph.

Consistently we've got wrong.

<unk> expanded 47 basis points quarter over quarter to a certain point, 28% driven by the remarkable 354 basis points expansion in the investment mean aspect of securities portfolio strong performance. The Skus the globe, coupled with that 11 basis points growth on the lending NIM.

Boost NIM for the full year was 7% at 20 basis points expansion year over year on the back of a strong 8% online in Colombia, reaffirming the competitive funding and its asset sensitive condition.

Please go to slide 12.

Net income increased 7% quarter over quarter, mainly attributable to a higher volume of transactions associated to Ikea and seasonality.

Damian and connections banking service and bank assurance, we do.

Do the most on the personal touch basis on a quantity on a yearly basis.

However.

Or do you if you close to 5%.

We have no expectations of fee expenses.

Basic fee income growth, coupled with a higher third party provided coast I'm processing charges.

Income ratio for the full do you have reached almost 19%.

Please go to slide 13.

As shown in the upper left hand side chart, the slowdown the boom bust your loan.

Formation continued during the quarter.

Jose Humberto Acosta: Payment and Collections, Banking Services, and Bank Assurance related fees grew the most on a percentage basis on a quarterly and yearly basis. However, year over year, if you're close to 5%... admittedly below expectations as fee expenses grow outpace the fee income growth coupled with a higher third-party provided cost and processing charge. The income ratio for the full year reached almost 19%. Please go to slide 13.

Consistent with the trend seen since the second quarter F. 2023 although admittedly at a slower pace than expected.

These coupled with an uplift in charge offs quarter over quarter proof, our airports and commitment to preserve our healthy balance sheet.

Despite these positive I made this theme of mine new past due loan evolution asset quality metrics exceeded our quantity of nonworking deterioration at the 90 day past due loan ratio reached three 3%.

Implying a han van <unk> gear that you named.

Explain by the loan portfolio contraction during the last 12 months rather than by escalation in the phase of past due loans.

Jose Humberto Acosta: As shown in the upper left-hand side chart, the slowdown in the volume of party-loan formation continued during the quarter, consistent with the trend seen since the second quarter of 2023, although admittedly at a slower pace than expected. These, coupled with an uplift in revenue of quarter over quarter, prove our efforts and commitment to preserve a healthy balance sheet. Despite this positive albate steel mine, new past year loan evolution, asset quality metrics exceeded quarterly and annual deteriorations at the 90-day past year loan ratio, which 3.3%, implying 110 dips year-over-year increments, explained by the loan portfolio contraction during the last 12 months rather than by an escalation in the pace of past due loans. On the other hand, given the higher charge-offs in the quarter and the fact that some loans for which provisions had already been charged became due during that period, the 90-day past-due loans coverage ratio fell to 184 percent, although still providing strong coverage to the balance sheet.

I know what their hand, given the higher catch ups in the quarter and the fact that some loans of which positions had already been charged became due during the.

The 90 day past due loans ratio fell to 184%, although still probing strong coverage to the balance sheet.

Moreover, net provision expenses for credit losses for the quarter was one seven trillion pesos.

7% increase quarter over quarter and equivalent to a cost of risk of two 7% for the period.

When breaking down the provision of cash throughout the quarter into its companies you have your software needs.

First on the SME segment, the Whatsapp 20 to Colombia.

This decrease quarter over quarter, driven by releases related to loans prepayments.

Take one.

On the consumer segment provision expenses was almost flat quarter over quarter as Bachelor information is being contained as we will further elaborate.

Third on the large exposure segment then wassa.

Colombian pesos, the Honda and 68 billion pesos Church explained by additional provisions on a handful of loans related to construction and retail sectors.

And fourth indication of midsize companies corporates, and Wassa 93 billion Colombian pesos release provide stable prepayments and setting them with guidance.

Jose Humberto Acosta: Moreover, net provision expenses for credit losses for the quarter were 1.7 trillion pesos, a 7% increase quarterly and equivalent to a cost of risk of 2.7% for the period. When breaking down the provision charge for the quarry into its components, the results were mixed. First, on the SME segment, there was a 22 Colombian billion pesos decreased quarter over quarter driven by releases related to loans repayment. Fake home?

Thank you Ned policing charge increased 97% attributable mainly to the degradation in the consumer segment in Colombia.

As we will further elaborate and to a lesser extent on this thing in a certain corporate loans consistent with the current economic upgrade cycle.

From unexpected loss perspective speech, one remain flat do you have anything.

U S irrigation is being contained warehouses to decrease in stage three increase aspect nonperforming loans rollover.

Jose Humberto Acosta: On the consumer segment, provision expenses were almost flat quarter over quarter as part of your loan formation is being contained, as we will further elaborate. Third, on the large exposure segment, there was a Colombian pesos 168 billion pesos charge explained by additional provisions on a handful of loans related to construction and retail. And fourth, in the case of mid-sized companies and corporations, there was a 93 billion Colombian pesos released to provide severe prepayment and settlement with clients. Year over year, net tourism charge increased 97%, attributable mainly to deterioration in the consumer segment in Colombia, as we will further elaborate, and to a lesser extent, on infamy and certain corporate loans resulting from the current economic uncredit.

However, the combined corporate that's 40 stage two on three loans increased 17 basis points to almost 40%.

Going forward, we remain confident that the peso past due loan formation would keep it slows down trend due to all nations, taking and at a lower rates at least some financials on better cash flows.

However, we remain cautious and expect.

Tiger delinquencies and loose ends on the back of the weaker economic performance.

When we turn to slide number 14, our fourth or fifth crews on credit quality in Colombia.

In line with the past quarters, especially in loans that hold a 52% share of consumer loans accounted for most of the deterioration during the period incur.

Increasing 90 day past due loan ratio to 7.4%, reaching a costa we sold 16.7% we'd have 20% of loans into stage two and three.

On the flip side credit cards auto loans and payroll loans, all performed better reducing the cost of risk and their share of loans from the stage, two and three Sydney better asset quality conditions.

Jose Humberto Acosta: From an expected loss perspective, Stage 1 remained flat year over year as deterioration is being contained, whereas Stage 2 decreased and Stage 3 increased after non-performing loans were rolled over. However, the combined coverage for Stage 2 and 3 loans increased 17 basis points to almost 40%. Going forward, we remain confident that the pace of past year-long formation will keep its slowdown trend due to all the measures taken and as lower rates release some pressure on debt-to-cash flows. However, we remain cautious and expect higher delinquencies and misdemeanors on the back of the weaker economic performance.

Moreover, when it comes to evolution of past due loan formation as shown on the upper right hand side graph. Despite the low new past due loans Nathan Dakota, the ratio debt, okay degradation increased due to a high level of charge offs.

Notwithstanding the BOE past due loan formation and the second topic did you certainly Rome.

Below the average of the two Scott.

And most importantly, moving parts just in Colombia continue their phone will boost we foresee an improvement in all metrics going forward.

And somebody who thought after falling for three consecutive quarters, the volume of new consumer loans slightly increased during the fourth quarter at an average on Daniela origination standards and the portfolio better performance.

Jose Humberto Acosta: Moving to slide number 14, our further distribution credit quality in Colombia. In line with the past quarters, personal loans, which hold a 52% share of consumer loans, accounted for most of the deterioration during the period, increasing its 90-day passive loan ratio to 7.4%, reaching a cost of risk of 16.7%, with 20% of loans in Stage 2 and 3. On the flip side, credit cards, auto loans, and payroll loans all perform better, reducing their cost of risk and their share of loans in Stage 2 and 3, signaling better asset quality conditions ahead. Moreover, when it comes to the evolution of past-tube lung formation, as shown on the upper right-hand side graph, despite the low new past-tube lung level in the quarter, the ratio of deterioration increased due to a high level of charge loss.

I speak sector wide metrics, we continue performing with the lowest 90 day past due loan ratio for the Columbian Finance is Houston as in October of 2023, driven by L. R.

Superior risk framework and capabilities that allow us to better asses crazy behavior and mitigate vacated age.

Please go to slide number 15.

The cost to income ratio for the period was 48, 6% as operating expenses grew six 6% quarter over quarter attributable to investments and general expenses.

On the other hand personnel related expenses were flat quarter over quarter.

On a daily basis operating expenses grew almost 19% driven by the high annual wage increase.

This DOCSIS introduced to the tax reform 2022 and 90 related.

Devoted mainly to the journey to the cloud and business transformation.

However, it's worth mentioning that the bank.

So opex will be.

During the second half of the G keeping that installment of cost control measures.

Moreover.

If we were to get that taxes at flaring valuations for certain employee benefits and ethics aviation's D&O growth of operating expenses would have been 14%.

Jose Humberto Acosta: Now it's standing above party-run formation in the second half of the year, certainly running below the average of the first half. And most importantly, new businesses in Colombia continue performing well, and thus, we foresee an improvement in our metrics going forward. As a matter of fact, after falling for three consecutive quarters, the volume of new consumer loans slightly increased during the four-quarter leverage on the new origination standards and the portfolio better performed, sector-wide metrics, we continue performing with the lowest 90-day past-year loan ratio for the Colombian financial system as of October 2023, driven by our superior risk framework and capabilities that allow us to better assess credit behavior and mitigate deterioration. Please go to slide number On the other hand, personal related expenses were flat quarter over quarter.

And then we can finish it.

The efficiency ratio for the full year was 45, 3% a slight increase compared to 22 do you think the Alberta hydro post on taxes and vitamins.

Please go to slide 16.

Net income for the quarter was one point for treating a basis equivalent to a 3% drop quarter over quarter and $6 one trillion pesos for the full year.

Went into a 10% drop year over year, driven by lower income generation aspect of loan book contraction and the FX appreciation in tandem with hydro <unk> and operating expenses.

John return on equity of the season.

Two 2% in the quarter and 16.1% in the full year, which at <unk>.

Just it could result in a return on tangible equity of 21% that shows the profitability of the operation actually rate of goodwill related cost.

And finally on slide 17, we present the evolution of capital generation.

Shareholders equity grew one 5% quarter over in quality and contract at two 6% year over year in tandem with assets.

Electing the bank's capital generation capacity after steps that sounds balance sheet structure.

Basel III capital adequacy ratio reached 13, 4%, increasing 57 basis points over the quarter and six basis points, David over to you on the back of a strong tier one expansion with the hunter around five basis points do you ever give increased attaining lithophone focusing towards year end.

Jose Humberto Acosta: On a yearly basis, operating expenses grew almost 19% driven by the high annual wage increase. All the taxes introduced to the patch reform of 2022 are invested mainly in IT-related investments, devoted mainly to the journey to the cloud and business transformation. However, it is worth mentioning that the pace of OPEC's growth receded during the second half of the year, given the reinforcement of cost control measures. Moreover, if we were to deduct taxes, actuarial valuations on certain employees' benefits, and FX variations, the annual growth of food-producing expenses would have been 14% in tandem with inflation. The efficiency ratio for the full year was 45.3%, a slight increase compared to 2022 given the overall higher cost and taxes invited. Please go to slide 16.

These positive expansion is the result of net income generation.

The only risk weighted assets and FX appreciation during the year.

With this I will hand over the presentation back to one catalyst for some final remarks.

One.

Thank you.

Please proceed to slide 18 for some remarks concerning our sustainability strategy.

As of the conclusion of the year 2023 we have successfully exceeded the.

140 trillion pesos milestone in the sort of disbursements on they're all our business with Corpus strategy, which was initiated in 2020.

Notably approximately 38 trillion pesos worth of new loans were granted during the preceding years.

Jose Humberto Acosta: The net income for the quarter was $1.4 trillion pesos, equivalent to a 3% drop quarter over quarter, and $6.1 trillion pesos for the full year, equivalent to a 10% drop year over year, driven by lower income generation as a result of the loan book contraction and the FX appreciation, in tandem with higher credit and operating. In turn, return on equity reached 15.2% in the quarter and 16.1% in the full year, which adjusted for And finally, on slide 17, I will present the evolution of capital generation. Shareholders' equity grew 1.5% quarter over quarter and contracted 2.6% year over year in tandem with assets, reflecting the bank's capital generation capacity that preserves a sound balance sheet structure. Basel III's total capital adequacy ratio reached 13.4%, increasing 57 basis points over the quarter and six basis points year-over-year on the back of a strong Q1 expansion, with 105 basis points year-over-year increase, attaining 11.4% per year.

These loans have been instrumental in providing financial support for various initiatives, including small scale agribusiness ventures Green building projects and gender related endeavors among others.

With regard to environmental matters. We are pleased to inform you that we successfully completed our first set of disclosure information that Providence with Sotheby's stunned us for the commercial mortgage investment banking and asset management unit last year.

Yeah.

Additionally for the third consecutive year, we have released our D. C. F. Do you report as mandated by local regulations, thereby enhancing their understanding of our commitments and accomplishments.

In terms of economics, the Dow Jones sustainability index recently evaluated us one more.

And we received a score of 78 out of 100 points. This accomplishment is a testament of the strength influence and nothing is off our ESG framework.

Finally on the social front 12 of the financial education programs, we decided to provide financial well being to our customers such as certified by the superintendency under it's stunned us making us the leader in these important areas in Colombia.

Carlos Gomez: This positive expansion is the result of many congenerations, lower risk-related assets, and effects appreciation during the year. With this, I will hand over the presentation back to Juan Carlos for some final remarks.

Lastly, on slide 19, I will share our guidance for the end of 2024 based on the current data and our macroeconomic forecast.

Carlos Gomez: Thank you, Costumbert. Please proceed to slide 18 for some remarks concerning our sustainability strategy. As of the conclusion of the year 2023, we have successfully exceeded the 140 trillion pesos milestone in the total disbursements under our business with purpose strategy, which was initiated in 2020. Notably, approximately 38 trillion pesos worth of new loans were granted during the preceding year. These loans have been instrumental in providing financial support for various initiatives, including small-scale agribusiness ventures, green building projects, and gender-related endeavors, among others.

By the end of 'twenty 'twenty, four we anticipate loan growth of approximately 30% in peso denominated loans and five 1% in dollar denominated loans.

We project, our net interest margin of around six 8% based on the expected lower average reference rates set by the Central Bank.

The cost of risk is anticipated to decline to two 6%.

Given by lower interest rates and inflation.

The efficiency ratio is expected to be approximately 49% influenced by reduced interest income on ongoing investments in business transformation.

Carlos Gomez: With regard to environmental matters, we are pleased to inform you that we successfully completed our first set of disclosure information in accordance with SASB standards for the Commercial Mortgage Investment Banking and Asset Management Unit. Additionally, for the third consecutive year, we have released our TCFD report as mandated by local regulations, thereby enhancing the understanding of our commitments and accomplishments. In terms of economics, the Dow Jones Global Sustainability Index recently evaluated us once more, and we received a score of 78 out of 100 points.

Consequently, we forecast a return on equity in the range of 14% and common equity tier one ratio of around 11%.

In closing I would like to inform you that we recently announced the proposed dividend, which will be discussed at the annual shareholders meeting on March 15.

The dividend will be 62%.

Carlos Gomez: This accomplishment is a testament to the strength, influence, and openness of our ESG framework. Finally, on the social front, 12 of the financial education programs we designed to provide financial well-being to our customers were certified by the superintendency under its standards, making us leaders in this important area in Colombia. Lastly, on slide 19, I will share our guidance for the end of 2024 based on the current data and our macroeconomic forecast. By the end of 2024, we anticipate loan growth of approximately 3% in Peso Denominated Loans and 5.1% in Dollar Denominated Loans. We project a net interest margin of around 6.8% based on the expected lower average reference rate, say, by the central bank. The cost of risk is anticipated to decline to 2.6%, driven by lower interest rates and inflation.

Equivalent to three or four trillion basis.

Would be paid in four core for the statement of 3535 pesos per share throughout the year.

With that we conclude our remarks.

On the fourth quarter 2023 result.

We are now ready to address any questions you may have.

Thank you.

We'll now begin the question and answer session. If you have a question. Please press star one on your Touchtone phone, if you wish to being removed from the queue. Please press star two.

If youre using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone.

One moment, while we poll for questions.

Our first question comes from Tito <unk> with Goldman Sachs. Please proceed with your question.

Hi, good morning, and thank you for the call and taking my question.

My question on the efficiency guidance that you gave I understand you know, there's some pressure on margins from lower rates.

Carlos Gomez: The efficiency ratio is expected to be approximately 49%, influenced by reduced interest income and ongoing investments in business transformation. Consequently, we forecast a return on equity in the range of 14% and a common equity tier one ratio of around 11%. In closing, I would like to inform you that we recently announced the proposed dividend, which will be discussed at the annual shareholders' meeting on March 15. The dividend paid out will be 62%, equivalent to 3.4 trillion pesos, and will be paid in four corporate installments of 3,535 pesos per share throughout the year.

But what kind of expectations you have there for expense growth and fee income growth.

And how how long do you think you're continuing to invest sort of from a digital perspective, when could you see some benefits.

From that and where should we think of the efficiency ratio sort of longer term as things normalize a bit. Thank you.

Thank you Peter.

Our guidance.

Regarding the efficiency for 2024, it's 49% and let me explain why we ended 2023 are in their own 45% figure on efficiency.

What happened.

We think will happen during 2024 is that.

Operator: With that, we conclude our remarks on the fourth quarter 2023 results. We are now ready to address any questions you may have. Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. If you wish to be removed from the queue, please press star 2. If you're using a speakerphone, you may need to pick up the handset first before pressing the button.

We will have some decrease on that one on margins.

Volume.

Even though we expect some loan growth.

Expect to be that loan growth of around 8%, but the combination of.

Not a big growth on volume.

A slight pressure on margins with effect being on on the expenses side, we expect the.

Total expenses to grow at around 9%.

Operator: Once again, if you have a question, please press star, then one on your touchtone. One moment while we poll for questions. Our first question comes from Tito Labarta with Goldman Sachs. Please proceed with your question. Hi, good morning.

That is.

If you do the math that implies that the result is that 49% efficiency ratio that that I'm mentioning it.

We saw it from the income side and also we are moving to to control expenses and to be close to inflation.

Carlos Gomez: Thank you for the call and for taking my question. My question on the efficiency guidance that you gave, I understand, you know, there's some pressure on margins from Thank you Tito. Our guidance regarding efficiency for 2024 is 49%, and let me explain why. We ended 2023 with around a 45% figure on efficiency.

Inflation.

The growth rate of expenses closer to inflation.

Regarding fees.

We expect fees to grow at around 10%.

Based on our the.

The services that we are providing back I'm sure in say a cards and under different service Saturday says that we are providing.

And that's for 2024.

Regarding the the years yeah.

Carlos Gomez: What happened, and what we think will happen during 2024 is that we will have some decrease in margins and volume, even though we expect some long-term growth, and we expect it to be that long growth of around 8%, but the combination of. Andres Soto, Alonso Garcia, Bancolombia, it's like pressure margins will affect the income, and on the expenses side, we expect the general expenses to grow by around nine percent. That, if you do the math, that implies, or that the result is that 49% efficiency ratio that I'm mentioning. So it's from the income side, and also, we are moving to control expenses and to be close to inflation, Regarding fees, we expect fees to grow at around 10% based on the services that we are providing, bank insurance, cards, and the different services that we are providing. And that's for 2024.

Okay.

2025, and 20 <unk>.

To fix.

Yeah.

We think that our efficiency should more.

Could be around that figure of 50, moving probably between 48 and 52%.

Okay. Thanks, how Hong Carlos that's helpful. So do you think by 2025 and 26 the expense growth will be closer to inflation or when do you expect.

The expense growth to be closer to inflation.

Yeah, Yeah, we will.

Move closer to the inflation, but I want to address one part of your first question I mean, when are we going to stop investing.

<unk> seen on digital and I and I think it all with the dynamics of the sector competition and new technologies is very very difficult on the banking sector to stop investing in technology, we we will be moving towards or would be a.

On cloud.

Carlos Gomez: Regarding the years 2025 and 2026, we think that efficiency should move, should be around that figure of 50, moving probably between 48 and 52 percent. Okay, thanks Juan Carlos, that's helpful. So do you think by 2025 and 26 the expense growth will be closer to inflation, or when do you expect the expense growth to be closer to inflation? Yeah, we will... move closer to inflation.

Broadly the pool in 2026 and that will help vary a lot on expenses.

We can be more more agile, but expenses on technology, we will it will be important in the coming years.

Great.

That's helpful. Juan Carlos sorry, if I can just one follow up I guess from that perspective, how do you feel like you sort of the competition from Fintech side of their competitors, becoming more digital.

Do you see that as a significant threat do you think you're well positioned.

Carlos Gomez: But I want to address one part of your first question, and that's when are we going to stop investing in digital? And I think, Tito, with the dynamics of the sector, competition, new technologies, it's very, very difficult for the banking sector to stop investing in technology. We will be moving towards or will be fully on the cloud probably in 2026, and that will help very a lot on expenses, and we can be more agile. But spending on technology will be important in the coming years, Tito. Great

For that and I mean, do you see long term benefits from that from better efficiency.

Yeah, if the competition is increasing.

They are new players.

In the market and that's good because that falls has to be also also better we keep growing in number of customers and number of transactions on our relevance in the Colombian market.

And so we compete with we are with it.

Theaters.

Carlos Gomez: That's helpful, Carlos. Sorry, if I can, just one follow-up, I guess, from that perspective. Sure. Go ahead.

Things like us, but also newcomers eh.

You know no bond kind of announced that they now have the authorization of the.

Carlos Gomez: How do you see the competition from, you know, fintechs, other competitors becoming more digital? Do you see that as a significant threat? Do you think you're well-positioned for that, and, I mean, do you see long-term benefits from that, from, you know, better efficiency? Yeah, the competition is increasing. There are new players in the market, and that's good, because that forces us to be even better. We keep growing in the number of customers, in the number of transactions, and in our relevance in the Colombian market. So we compete with peers, banks like us, but also newcomers. As you know, Nubank announced that it now has the authorization of the finance superintendency to be a bank, or a financial commercial entity, as we call it in Colombia. So they will now offer savings accounts and that they will definitely be a player. But we think we are very well positioned with the number of clients that we have, the scale, and, mainly, our main advantage is our network of channels and how they are integrated, and the coverage that we have around the country.

I know superintendency to be a a bank right.

Commercial financial commercial entity as we call it in Colombia, So they will know we love her and savings.

Savings accounts and that they would be definitely a player, but we think the.

We are very well positioned there the number of clients that we have the scale and mainly our our main advantage is oh, what our network of channels on how they are integrated and the coverage that we have.

Yeah.

Yeah around the country.

It is yeah.

It's worth to remember that feeling in Colombia and in many other Latin American countries Gosh is important sure so how cash in and cash out from there and on the digital environment is it's very important that is as important as the digital environment and do have and we have both we have the the the channel.

On the digital environment so competition.

The old way you have to take into account what they do and they are good definitely but I think at the end we will benefit all the market.

I saw some players in this environment.

Okay. That's great. Thank you Juan Carlos.

Thank you.

Our next question is from Yuri Fernandes with JP Morgan. Please proceed with your question.

Carlos Gomez: It's worth to remember that, in Colombia and in many other Latin American countries, cash is still important. So how you cash in and cash out on the digital environment is very important. It's as important as the digital environment that you have. And we have both. We have the channels and the digital environment. So competition, of course, always you have to take into account what they do, and they are good, definitely.

Hey, guys. Thank you I had two quick ones one is regarding your tax rate.

No it really depends on ex Colombia operations and also your securities in the concert usually you'll have some Texas instruments, but 2035 has been a bit on the low end I would say so just our guidance on an effective tax rate how much do you believe the tax rate should evolve.

'twenty four 'twenty five.

You'll see that 25% effective tax rate level is sustainable or if this should be higher that's the first one a second one regarding to your we saw an environment. This quarter I think this was a headwind for your results about 100 basis. So just checking if you can explain a little bit.

Carlos Gomez: But I think in the end, we will benefit everyone in the market and as players in this environment. Okay, that's great. Thank you, Juan Carlos. Thank you. Our next question is from Yuri Fernandes with J.P. Morgan. Please proceed with your question. Hey, guys. Thank you. I have two quick ones.

And if we should see these you know whatnot yearly bases or are no. It's it's more no recovery and that would be my my second one and the third one if I may regarding pizza, if you will.

Jose Humberto Acosta: One is regarding your tax rate. I know it really depends on the ex-Colombia operations and also your security in the country. Usually, you have some taxes and instruments, but 2025 has been a bit on the low end, I would say. So just a guidance on the effective tax rate, how much you believe the tax rate should evolve in 2024 and 2025. If you see the 25% effective tax rate level as sustainable or if this should be higher, that's the first one.

I have an estimate on the potential outflow impact from the removal from feature that would be my my final one thank you very much.

Yeah. Thank you Julie.

I am going to address your.

That's a good question and I'm going to ask.

Cost to bear to help me with your third one regarding the FTSE.

ER situation.

Tax rate.

Uh huh.

I want to be clear regarding the tax rate, we have a statutory tax rates in Colombia and also in the different countries.

Jose Humberto Acosta: A second one regarding Tuya, we saw an impairment this quarter. I think this was a headwind for your results, about 100 billion pesos. So just checking if you can explain a little bit what happened, if we should see this on a yearly basis or not, it's more non-recurring. That would be my second one.

But when we combine.

The tax rates that they start to tell you on the effective tax rates in the different geographies in Colombia.

And our situation or where physical situation in Colombia regarding taxes.

That 25% effective tax rate.

Jose Humberto Acosta: And a third one, if I may, regarding FITS. If you have an estimate on the potential outflow impact from the removal of FITS, that would be my final one. Thank you very much. Thank you, Yuri. I am going to address your first question, and I'm going to ask Osimberto to help me with your third one regarding the fruit seed situation and the tax-free status. I... I...

That we had in 2023, we think that is sustainable around 26% effective tax rate for the coming two or three or three D or so regarding your question and I don't want our guys on these our effective tax rate for the coming years.

Jose Humberto Acosta: I want to be clear regarding the tax rate. We have a statutory tax rate in Colombia and also in different countries. But when we combine the tax rates, the statutory and the effective tax rates in the different geographies and in Colombia, and our fiscal situation in Colombia regarding taxes, that 25% effective tax rate that we had in 2023, we think that is sustainable around 26% effective tax rate for the coming two and three or three years. So, regarding your question, and our guidance is that our effective tax rate for the coming years should be around 26% with the current rules that we have. Yuri

Should be around 26%.

With the current.

The voting rules that we have.

Judy so yeah. It is because we have the I.

I thought you mentioned that corporate structure that allow us to be efficient we got it didn't work out in Texas and they come in 33 years.

Your second question.

Julia.

Well, Yeah, you saw our financial commercial institution, they take deposits or mainly the way. They fund is true and time deposits.

And during 2023, there were periods in which the liquidity in the Colombian market was well I said difficult state and in that situation is small it is institutions.

Jose Humberto Acosta: It is because we have, as I mentioned, a corporate structure that allows us to be efficient regarding taxes in the coming three years. Your second question. Tuya.

It had to go to a market and they had to pay a higher interest rates for their funds and not just to do it.

Jose Humberto Acosta: Tuya is a financial commercial institution. They take deposits, or mainly the way they fund is through time deposits. And during 2023, there were periods when the liquidity in the Colombian market was difficult, and it was tight. And in that situation, small institutions had to go to the market, and they had to pay high interest rates for their funds, not just Tuya, but many others. And on the other hand, the income was affected because the maximum rate that institutions could charge in Colombia went down because of this tendency to change the way, the formula to calculate it. The one of the maximum rates closer to 45%, that's the cap rate that we had in 2022 at some point, and it came down to 35%, even 33%. So that squeezed the margins.

Many others and on the other side the income was affected because the maximum rate that institutions could charge in Colombia went down because of.

There's things in D C change the way they the formula to calculate it they come they what are they maximum closer to 45% and that's the cap rate that we had in 2022, a tool and at some point and came down to 35%.

And it's even 33% so that squeezed the margins if you have the liquidity issue on and you'll have to pay.

More for funds on the income was.

Going down because of what happened with the maximum great.

Yeah. So the margin was slower and on top of that there were more risk. So at the end and what's happened is a smaller margin to cover higher risk that that's playing and that happened to other institutions that order entities financial entities that.

Jose Humberto Acosta: If you have the liquidity issue and that you have to pay more for funds, and the income is going down because of what happened with the maximum rate, so the margin is lower, and on top of that, there are more risks. So in the end, what happened is a smaller margin took over a higher risk, and that happened to other institutions, other entities, financial entities, that are focused on cards, mainly credit cards.

Where our focus on on.

Cards, mainly on credit cards.

So it's not something that happened just two two down it was a general issue in the market.

We are taking the measures to eh.

Jose Humberto Acosta: So it's not something that happened just to Tuya; it was a general issue in the market. We are taking measures to reverse that situation, moving to different products, and taking less risk. Our risk appetite now is lower, so we expect that the situation, even though we could still have some pressures in 2024, 2025 will be different, and Tuya will be profitable again. Yuri, and I'm going to pass your third question to Jose Humberto. Good morning.

The reverse that situation moving to defend the ropes taking less risk.

Our risk appetite now is slower so we expect that that situation, even though we could have some.

There's still some pressures in 2024.

The 2025 will be will it be different until you will be profitable again.

Judy and I'm going to pass your third question Bert.

Do you think what's happening, yes, the consequences of being removed from the index at it we had three different moments yesterday Monday, and Tuesday, as you've probably checked the the price of the ordinary shares drop at around 5%.

Jose Humberto Acosta: Yes, the consequences of being removed from the index would have three different moments. Yesterday, Monday, and Tuesday, as you probably checked, the price of the ordinary shares dropped by around 5%. We believe that in the coming two weeks, there will be an stabilization of the price of the share. But then on March 15, the date on which the new calculation will take effect, we are going to see another drop in the price of the ordinary share. The second element that I have to highlight is the level of floating of the ordinary shares is very low, at around 10% of the ordinary shares. So the numbers will change during this floating.

We believe that the next coming two weeks that would be honest haven't initiation of the price of the share, but then on March 15, and they they the date in which the new calculation we've take effect.

We are going to see another dropping the price of the ordinary shares the second element that I have to highlight is the level of floating audio delivery sure. She is very low at around 10% of the ordinary shares. So the numbers will changing in these floating the third element is remember that the ADR plant they prefer.

Jose Humberto Acosta: The third element is, remember that the ATR plus the preferred shares, those are the shares with a high level of liquidity, and we don't foresee any particular concern regarding those shares. Summarizing, the sell-off, based on some calculations that we received from some analysts, that would be a potential sell-off of around $70 million in the next few days. No, that's super clear, Rosanberto. Super clear. And regarding Tuya, I totally get it.

Shares those are they the shares with a high level of liquidity and we don't foresee any particular concern regarding those chairs summarizing the sell off based on some calculations that we received from some analysts that would be a potential seller.

$77 million in the next coming days.

No that's super clear Hogan Bertha Super clear and regarding 20, I was hoping to get it my point is that it's not clear you. Our results. It would be you know you've been.

Jose Humberto Acosta: My point is that if not for Tuya, your results would be, you know, even better this quarter. So I get it's a tough situation in Colombia, but trying to see the glass half full, you know, maybe the underlying results of the bank per se were better. But thank you for the clarification, everyone. Thank you and good luck in 2024.

Even better this quarter, so I get it's a tough situation in Colombia about three.

You see the glass half full you know maybe the underlying results of the bank per se or we're better but thank you party clarification, everyone. Thank you and good luck in 2024.

Thank you very much to the jewelry for your comment.

Yeah.

Our next question comes from Andres Soto with Santander Bank Mexico. Please proceed with your question.

Good morning to all and thank you for the presentation of the opportunity to ask questions. My first question is related to your outlook for NIM, but not not in 2024, but rather whilst interest rates.

Carlos Gomez: Our next question comes from Andres Soto with Santa Ana Bank in Mexico. Please proceed with your question. Good morning to all, and thank you for the presentation and the opportunity to ask questions. My first question is related to your outlook for NIM, but not in 2024 but rather once interest rates are normalized in Colombia. What is the level for normalized interest rates?

Normalized in Colombia, what is the level four normalizing interest rates that will be the first question and based on that what are you going to spec expectation of for me.

My question basically is in the past bancolombia used to operate at the Nemo, 5.5% something like that so you ought to still 130 basis points above that level into those unemployed for.

Carlos Gomez: That will be the first question. And based on that, what is your expectation for NIM? My question basically is, basically, in the past, Bancolombia used to operate at a NIM of 5.5%, something like that. So you are still 130 basis points above that level in 2024. I'm curious about the ROE guidance of 14% and what the outlook will be once interest rates fully normalize. Thank you, Andres. NIM, as you mentioned, improved because of what happened with the interest rates in the markets where we operate but also because we changed the mix in our balance sheet between commercial and consumer loans. So there are two effects.

I'm curious about the ROA guidance of 14 per saying, though on what would be the outlook once interest rates fully normalized.

Thank you Andreas.

[laughter].

NIM.

As you mentioned.

The improved.

Because the.

What happened with the interest rates in the markets, where we operate but also.

Because we change the mix in our balance sheet between commercial and consumer loans. So there are two effects.

D.

When the normalization of the of the interest rates with it.

We will have pressure on on the on the name of course, what we expect and you mentioned 2024, what we expect for 'twenty 'twenty four is that the NIM to be around six point.

Eight and that the normalization process should.

Carlos Gomez: The, when the normalization of the interest rate happens, we will have pressure on the NIM, of course. What we expect, and you mentioned 2024, what we expect for 2024 is that the NIM to be around 6.8, and that normalization process should keep happening, and we expect, with that margin, to be around 6.3, 6.5 moving in the coming years. And that's explained mainly by the mix that we have in our balance sheet. We have more SMEs and medium enterprises, and Wikipedia could charge higher interest rates to those entities. But we also have a bigger mix of consumer loans.

Keep happening yeah.

And we expect that margin.

To be around six Boeing 365.

Moving on in the coming years and that is explained mainly for for the mix that we have in our in our balance sheet.

We have more.

The news on AR and AR.

Median enterprises.

We can.

Could charge higher interest rates to those.

Entities, but also we have a bigger mix of consumer loans. So that's why we expect.

Carlos Gomez: So that's why we expect our name should not be, it won't be what it was, around 6.8, 5.9, sorry, that we had in the past. And with that, I could have affirmed that our ROE in the midterm should be around 14%. I don't know if José Humberto wants to complement me on something in this answer. Yes, Juan Carlos, thank you.

That our NIM should be it not its not going to what was our NIM at around 6.85, 0.8, sorry that we had.

In the past right with that I will I put up a friend that yeah.

Where are we.

In the in the midterm.

Should be around 14% I didn't really pushing back to wants to complement me with something in the defense, Yes, Juan Carlos Thank you.

Jose Humberto Acosta: On the funding side, Andres, we have a structural change, which is that CASA represents 50% of the funding, and the correlation with the interest rate is lower than the correlation that we have with the time deposits. So for the next cycle, as Juan mentioned, when the interest rate will come down, we have, if I may say, natural protection because of the CASA funding. And remember that most of our time deposits are short term, more than 60%. So that is why our guidance or our forecast for NIM is to remain at the level that Juan mentioned, which is around 6.5%. Carlos and Humberto, and based on this, can you please provide a sensitivity in terms of points versus the policy rate?

The funding side and there is a we have any structural change with Tcs you, you'll see that Casa represents 50% of the funding and the correlation with the interest rate piece. It's no wonder that the correlation that we have we did with time deposits. So for the next cycle. That's why I mentioned that the interest rates will come down.

We have had if I may shake natural protection because of the cost of funding and remember that most of our time deposits had a short term more than 60%. So that's even so Y O Y our guidance or our forecasting for <unk> to remain at that level than what I mentioned, which is around $6 five.

You know what kind of a house and battle on them based on these can you provide.

Provide a sensitivity.

In terms of points versus their policy rate.

Jose Humberto Acosta: Yes, we have been managing our sensitivity because our floating is around on the asset side and the loan side is 60-70% of the portfolio, but on the other side, the floating on the liability side is around 40% plus savings accounts, which account also for a floating as well. So the number is 30 basis points for every 100 in the change of the interest rate of the central bank, Andres. Thank you.

Yes, we have been managing our sensitivity because our.

Our floating he sat around on the asset side the loan side. This 60, 70% of the portfolio, but on.

On the other side they floating.

On the liability sides had around 40% plus savings accounts times, which accounts are the sorts of floating as well. So the numbers 30 basis points for every hundred and change of our interest rate of the central Bank.

Okay. So thank you.

Second question is related to cost of risk I was checking my notes from the previous call in.

Carlos Gomez: My second question is related to the cost of risk. I was checking my notes from the previous call. On the previous call, you mentioned your expectation for 2024 was for the cost of risk to be between 2.3 to 2.5. So, around 2.4, let's say.

In the previous call you mentioned your expectation for 2024 was four coastal rates to be between $2 three to a two point.

Five so wrong.

Okay and now you are saying two six so I would like to understand what happened what changed over the past few months for you to have a more cautious view on cost of risk.

Carlos Gomez: And now you are saying 2.6. So I would like to understand what happened, what changed over the past few months for you to have a more cautious view on cost. Yes, Andres, we... We change or increase a little bit our view on the cost of risk because we have the results of the. The GDP growth of 2023, that was disappointing. It was 0.6%, while the market was expecting something around 1.2. There were even some analysts expecting 1.5.

Ah, Yes, Andreas way.

We change or increase a little bit our view on close to freeze because we had the results of the.

The GDP growth of 2023 that was disappointed it was six 0.6% the market well I suspect that there's something around 1.2, there were even some analysis expecting 1.5, the most basically missed analyst we're expecting one.

And on the figure in the bin Cedar 0.6%.

And you saw that made us more cautious regarding 'twenty 'twenty four.

Carlos Gomez: The most pessimist analysts were expecting 1, and the figure ended being 0.6%. So that made us more cautious regarding 2024. But even though we feel that in terms of how are we handling, how are we originating consumer loans, how are we doing? or working with our... on the commercial side of the portfolio, we still think that we will have an improvement on the cost of risk, but we are more cautious, and we will be updating this figure as the year moves on, and I think we will have a clear view around mid-year of how things are evolving. I think the first quarter will be key to determine or to see the evolution of the Colombian economy.

Yeah.

But even though we we feel that in terms of how are we handling however, we originating consumer loans. However, we.

Duane.

Or or working with our.

On the commercial side of the of the portfolio.

It still with things that we will have an improvement on the cost of risk, but we are more cautious and we will be updating these figure Oh, yes.

As the year moves on.

And I think we will have a clear view.

Around me to meet the year of how things are are evolving.

First quarter will be key.

Two to determine or to see D. The evolution of the Colombian economy, we expect the government to.

Carlos Gomez: We expect the government to start implementing some contra-cyclical measures regarding housing and infrastructure, which we think will have a positive effect. Even though our view for the year, as you know, is that the GDP growth for 2024 should be around 0.9%, which is low for Colombia, better than in 2023, but that's why, Andres, we are cautious regarding the cost of risk. José Humberto wants to add something here. Thank you, Juan

Yeah.

Two.

Start implementing some contra cyclical measures regarding has seen him in.

Infrastructure. So that we think will have a positive effect.

Even though our view for the year as you know is that the GDP growth for 2024 should be around 0.9%, which is low for Colombia better than 2023 but that's why we are cautious about regarding.

Regarding the cost of risk.

Well, if you want to complement something.

Carlos Gomez: The other element is the change in our view of inflation and interest rates. Three months ago, six months ago, we believed that the interest rate and inflation would drop beginning February and March, but you see that we are an outlier in terms of inflation and interest rates. So that's the other reason why we believe in the first half of the year, we also have an increase in cost. That's very clear.

Thank you Juan Carlos the other element is.

The change in our view of inflation and interest rates at the three months ago six months ago, We believe that the interest rate and inflation will drop beginning February and March pattern, you, you'll see that we are an outlier in terms of inflation interest rates. So that's the other reason why we believe the first half of the year we have.

Also on increasing the cost of risk.

That does.

Carlos Gomez: You guys mentioned at the beginning of the presentation that one of the areas where you need to do monitoring is the SME segment, right? So far, most of the deterioration in your long book has come from the consumer. Now you're looking into the SME.

You guys mentioned at the beginning of the presentation that one of the areas, where you need to do monitoring is the SME segment right that so far most of the deterioration in your loan book has come from the consumer and how you were looking into the SME, you'll get out of your corporate book is any any any sector in the economy that you think may be may be suffering with.

Carlos Gomez: Looking at your corporate book, is there any sector in the economy that you think may be suffering in this environment in 2024 with high interest rates and high inflation? Andres, we are monitoring very closely, as you mentioned, but we haven't seen so far a deterioration outside our forecast, and Factors, in particular, construction, particularly housing construction, is something that we are monitoring and working with our clients in restructuring some of their loans. So particularly construction, housing construction, and another sector that, even though our exposure is very, very low, or is low, it's the health sector.

This environment in 2024 week are high right.

Isolation.

Hey, Andres.

We are of course, we are monitoring very closely S. M user as you mentioned.

But we haven't seen so far oh deterioration outside our forecast.

Yeah.

Sectors in particular.

Construction, particularly housing construction is something that we are monitoring and working with all our.

We know our clients see in restructuring some of some of their loans.

So, particularly eh.

Yeah.

Construction housing construction and another sector that even the lowest position is very very low what is low.

It's they have has sector sector concern us and we think that there will be there could be some deterioration in health on the health sector or the participants in the health sector.

Carlos Gomez: The health sector concerns us, and we think that there could be some deterioration in health, in the health sector, or among the participants in the health sector, Andres. Understandable. Thank you very much, Juan Carlos and Alfonso Barajas. No, thank you.

Yes.

Understood. Thank you very much Juan Carlos almost from birth.

Oh, thank you.

Yeah.

Our next question is from Carlos Gomez with HSBC. Please proceed with your question.

Carlos Gomez: Thank you. Thank you. Our next question is from Carlos Gomez with HSBC. Please proceed with your question. Thank you for taking my question. It is about your foreign subsidies. What we see is that you have reported a very high number in El Salvador, but we understand it has to do with reversals of provisions in Namibia. I am going back to expenses. You mentioned earlier that without taxes it would be 40%, but inflation, I believe, is 9%, so that is still significantly above inflation. Could you explain that a bit further?

Right.

Thank you for taking my question.

It is about your foreign subsidies and what you see is that you have reported a very high number something like we had this time he has to do with them.

Reversals of provisions.

Yes.

Okay.

Could you tell us what do you expect your normal profitability to be in each of the markets in which you have put anything what.

Hunting panel.

I'll go back to expenses I mean, you mentioned that we felt.

Taxes will be 40%, but inflation I believe.

Nine so that thesis to 60%.

Yeah.

So could you could you explain a little bit sorry. Thank you.

Jose Humberto Acosta: Thank you. Carlos, we had some difficulties with the line. I just want to be sure that we understood your question. Your first question is regarding the profitability of our operations in Central America, is that correct? And the second one is regarding expenses and the explanation that we gave around the operating expenses growing 9% and that compares with the 40% tax rate last year. No, no, no.

Carlos we we had some difficulties with the line I'm just going to I just want to be sure that we understood. Your question. Your first question regarding the profitability of our operations in Central America is that correct.

That's correct.

Allergists with Gander.

And the second one is regarding expenses and D. D explanation, we gave around the expenses the operating expenses growing 9% and that compares with the debt.

That's 40% that's great life, you'll now know you mentioned you mentioned that we tell with extraordinary items drove growth.

Operator: You mentioned that without extraordinary items, your growth was about 14% last year, but inflation was lower than that, so we want you to continue to have high expense growth. Understandable. Thank you, Carlos.

It was about 14% last year, but again inflation was lower than that so we want that he will.

We'll continue to have high expense growth.

Understood. Thank you.

Jose Humberto Acosta: Carlos, yes, regarding Salvador. Historically, Salvador has been one of our operations with the lowest cost of risk. In this case, what happened is we changed and updated the models with new data, and that's the reason why the level of provisioning is coming down, and this is one of our most profitable operations with more than 20% return on equity and a very stable cost of risk. If you double check the last three years, we have been in the area of 1% operating expenses. What happened this year, the 9% that we are forecasting, remember that at the beginning of the year, we were experiencing high inflation that came from 2023, so most of the prices are adjusted because of the CPI, and the other element is that the minimum wage in Colombia was 12%, so both elements imply that we began with a high level of expenses, but 9% is a number that is doable for the year, and we believe that at the end On the foreign subsidiaries, I wondered what your normal ROE would be for each of them. And in the case of El Salvador, I mean, it was over 20% because of this reversal.

I've, Kansas, Yes regarding total historically, you talked about as well it is wonderful operation with the lowest cost of risk in these case, what's happening as we change and update the models with new data and that's the reason why the level of provisioning is coming down and this is one of our more.

Less profitable operation with more than 20% return on equity and a very stable cost of risk. If you are to protect the last three years, we have been on the area of one person.

Regarding.

Our operating expenses what happened this year, the 9% that we are forecasting remember that beginning of the year, we have been with the high inflation that came from 2023. So most of the prices are adjusted because of CPI and the other element is the minimum wage in Colombia was 12 per.

So both elements implies that we began with a high level of expense at about 9% in.

It's a number doable for the year and we believe that at the end of the genus one mentioned at the beginning we are going to reach an efficiency level below 50% that would be at around 49%, but the main reason why 9% is because of the CPI of 2023 and basically this is the main reason.

On the foreign subsidiaries I Wonder what would your normal I really would be for each of them and of course, all myself with or maybe it was over 20% because of these refreshes do you expect more than 20%.

Jose Humberto Acosta: Do you expect more than 20%? Carlos, we are expecting to maintain that level, assuming this coastal risk that I mentioned before, assuming that we will be able to sustain the NIM of around 6.5 to 7 percent, and the efficiency there is also below 50 percent. So we are forecasting for Salvador that level at around 20 percent of the area, at least for the next two years. They have a very positive structure of funding as well as Bancolombia based on CASA deposits.

Carlos we are expecting to maintain that level, assuming the east coast to reach that I mentioned before asking me that we will be able to sustain the NIM at around six 5% to 7% and the operation. There deficiency also is below 50%. So we are forecasting first time buyer.

At that.

At that level at around 20% area at least for the next told US. They have a very positive has dropped out of Funkiness whaler bancolombia based on on Casa deposits and indication, but we are expecting to maintain a level of around 10% and next coming at least for 2024 and increased to 12.

Jose Humberto Acosta: In the case of Banismo, we are expecting to maintain a level of around 10 percent in the coming years, at least for 2024, and increase to 12 percent next year. In the case of Guatemala, Banco Agro Mercantil in Guatemala, you see that the numbers this year are very low because of the high level of provisions, but we expect to sustain a return on equity between 10 to 12 percent in 2024 and 2024. Thank you so much.

Person next year in the case of Guatemala Bank quite a bit of American feeding Guatemala, you'll see that the numbers. This year are very low because of high level of provisions, but we expect to sustain a.

Our return on equity in between 10 to 12 person 'twenty four and 'twenty five.

Yeah.

Thank you so much very clear.

Thank you Carlos.

Carlos Gomez: Very clear. Thank you, Carlos. Our next question comes from Alonso Arambrudo with BTG. Please proceed with your questions.

Our next question comes from.

So brutal with BTG. Please proceed with your question.

Yes, hi, good morning. Thank you for the call I wanted to ask about Nikki can you give us an update on when the spinoff he's he's going to happen and just some color about the path to profitability a legislation drivers of Nicky how.

Carlos Gomez: Thank you for the call. I wanted to ask about Neki. Can you give us an update on when the spinoff is going to happen and just some color about the path to profitability and the monetization drivers of Neki? How do you see the platform evolving over the next few quarters? Thank you, and many more.

How do you see the platform evolving over the next few quarters. Thank you.

Yeah.

Thank you.

Carlos Gomez: Thank you. Thank you. Thank you. We're finished.

We are.

And that.

2023 with.

Carlos Gomez: 2023 with more than 18 million customers and users on our platform, of which around 13% are active users. So definitely, we have the network effect happening in Neki, and transactions are going on there, and... We expect that the growth will continue and probably we will reach around 21 million customers. If we put it in perspective, Colombia has around 50 million inhabitants, so it's a very significant number. And that allows us to, with that, a network effect and a platform effect also move forward on our profitability strategy that will be based on offering those customers different services, including insurance, some investment opportunities, but mainly, mainly credit loans. We have to be careful, and we need to be aware of where we are on the economic cycle. We think that this is not a year in which we will

More than 18 million.

Customers users and our platform of which were around 13 per cent out of active users.

So definitely we have the network effect happening.

Nikki on transactions that are going on there.

Yeah.

We.

Expect that the growth will continue on broadly we will reach around 21 million customers, which if we put in perspective from Columbia House.

Around 50 million inhabitants. So it's it's it's very significant.

The number.

Yeah.

Yeah, and that allow us to with that network.

The network effect of platform effect also move forward on our profitability strategy that will be based on offering those customers different services, including <unk>.

The insurance some investment opportunities.

But mainly mainly a credit loans.

We have to be careful and we.

We need to be aware of the where are we on the on the economic cycle. We think that this is not a year in which we.

Carlos Gomez: We can push very hard on offering credit on a platform like Neki. This is to say that we have the elements, we have the clients, we have the products, we will continue evolving the products, but our path to profitability will depend on where we are on the economic cycle and how much we can push credit. With this, and with our current situation and our expectations of how the economy is going to behave in the coming two years, we expect that we could be profitable in 2026. That's how we see the evolution of our path to profitability. Regarding the spin-off, we are... ready to spin off NECI. Now what is happening in the coming weeks is that the superintendency should evaluate our readiness.

We can push very hard on on offering created in a platform like like Nikki.

This is to say that we have the elements we have the clients we have the products we will continue evolving.

On the product.

But our path to profitability will be depend on.

Where are we on the economic cycle on how much we can push credit with these with our currency.

Current situation and our expectations on how the economy is going to behave in the coming two years, we expect that we would be roughly double in 2026.

Yeah, that's regarding how we see the evolution of all our path to profitability regarding the spin off we are.

We're ready to spinoff Mickey now what it is.

Opening in the coming weeks is that the superintendency.

It should evaluate our readiness.

Carlos Gomez: They will give us some recommendations, and after we implement them, we will spin off NECI. That will come and depends on the recommendations that we will receive from the supervisor. We will be ready to spin off NECI in the coming months, maybe two months, but it depends, as I said, on what they see and how they, or the results of the assessment for which we are ready. And as a matter of fact, we'll start that assessment; the superintendency will start that assessment next week. Great, thank you very much.

They will give us some recommendations and after we implement them we will we will.

It's been off for me that will come and depends on their recommendations that we will that we will receive from the.

The supervisor.

We would be ready to to spinoff Nicky in the coming months, maybe two months, but it depends on as I said on what they see on holiday.

Or are the results of the assessment done in which we are we are ready and as a matter of fact, we'll start that assessment at this point and he said when he started that assessment mix next day a week.

Great. Thank you very much.

Carlos Gomez: Thank you. Our next question comes from Julian Osic with Divenda Carreras. Please proceed with your question. Hi everyone, and thank you for having my question. My first question is regarding ordinary shares. I know you already mentioned something about that, but I didn't understand it.

Thank you.

Our next question comes from Julien or sick with the vendor Colorado. Please proceed with your question.

Hi, everyone and thank you for my question. My first question is regarding the ordinary shares I know you already mentioned something about that but I didn't get it right and my question is related the plans that the company has really.

Carlos Gomez: But my question is related to the plans that the company has related to the liquidity of the share due to the recent elimination of the share from the FTSE index. And in my calculation, I saw that Bancolombia's ordinary share is not meeting the liquidity requirements that the MSSA LATAM is required for some shares to maintain in the index. And my second question is something related to something you already mentioned about the spin-off of NECI. Are you expecting some inflows in terms of cash to Bancolombia, and if there are some inflows, what will be the use of that cash? And just to catch up in terms of cost of risk, I heard that you are expecting some deterioration in the housing and construction sectors. I don't know if you have a worse scenario in terms of cost of risk if you see a really big deterioration in those sectors. Thank you. Thank you, Julián. Please let me... I have some...

The liquidity of the shares due to the recently and elimination of this share from their FTSE index on and Mike in my calculation I So data.

Bancolombia out I mean are you sure he's not meeting them the liquidity requirements that there and then as I say a lot of time is required for some chairs to maintaining their index.

And my second question is something related to something that you already mentioned about this being a a niki are you expecting some even close in terms of cash stood bancolombia on if there is some inflows were are and what will be the uses of that cash I'm just too.

And to catch up in terms of cost of risk I already I heard that you are expecting some deterioration, but the housing and construction sectors.

I don't know if you have like a down scenario in terms of cost of rates. If you. So a really big deterioration in those sectors. Thank you.

Thank you.

<unk>.

I have some or all of it.

Carlos Gomez: On your first question, I will... I will answer your second question regarding the spinoff of NECI and a comment on the cost of freeze. And I am going to start with your second question, then your third.

Comments on the on your first question I will.

I will answer your second question regarding the spinoff of Nicky on the comment on your on the cost of the cost of risk.

And I am going to start with your second question and your third I would do the comment on the on the.

Carlos Gomez: I will make the comment on the FTSE index and MSCI, and then I will ask José Bartó to add some more. Regarding the spin-off, it's not going to generate any cash for Bancolombia. What we are doing is a spin-off in which we move assets and liabilities to a different entity, which is NECI in this case. So NECI will be a fully-owned entity, Bancolombia's fully-owned entity, and we just spin-off assets and liabilities, and NECI will operate as a separate entity, a legal entity, but 100% owned by Bancolombia.

Let's see index and the MSCI and then I will ask if we went back to to complement me.

Regarding the spin off is not is not going to generate any cash for us.

For Bancolombia, what we are doing this on the spin off in which we are.

<unk> move.

I said, some liability to a different entity, which is snake yet. This in this case, so Mickey will be a fully owned entity.

Bancolombia a fully owned entity.

And we've just it's been off assets and liabilities and Nicky will operate as a separate entity.

The legal entity, but 100% owned by by Bancolombia.

Carlos Gomez: So what happened on a consolidated basis is that NEC is going to consolidate on the numbers that we present for Grupo Bancolombia. Regarding the cost of risk... 2024 is a year that has complexities in how you read it, but we are, with the 2.6, we are more on the conservative side. It could have some upside potential if we manage, as we are, the risk that we are taking so far or our risk appetite. So to be concrete, The 2.6 is our expectation. It's more on the conservative side, and it depends on how the year evolves, as I mentioned.

So what happened on the on the consolidated basis is that Nick is going to consolidate on the numbers that we present, a full group on Colombia.

And if we got into a cost of risk.

'twenty 'twenty four is a year that.

It's it has complexities in how you read it but we are with the 2.6, we are more on the on the conservative side.

It could be some upside potentially if we manage.

We are how are we managing.

So far the the risk that we that we are oh rollout risk appetite so to be concrete.

Two six is our expectation it's more on the conservative side on it depends on holiday the Euro Bob as I mentioned.

Carlos Gomez: But it could have some potential for upside if the year evolves better than expected. And moving to your first question, I want to highlight that. What happened is... It's more because of the size and the liquidity of the Colombian market. It's not something that is particularly relevant or related to Bancolombia.

Yeah, but it could cause some potential for upside.

Upside.

If you are a evokes a better than expected.

I'm moving to your first question.

Want to highlight that.

What happened is is more because of the size and the liquidity of the Colombian market is not something that is particular to deal.

Eh regarding or related to two through Bancolombia at the end when Colombia is the most liquid share in the Colombian market.

Carlos Gomez: In the end, Bancolombia is the most liquid share in the Colombian market. But it's a very, very small market. And that's why.

But it's a very very small market.

And that's why.

Okay.

Carlos Gomez: When the different index companies, like Pruzzi, evaluate liquidity, the market is very low. But Bancolombia is the most liquid and a very liquid market, to make that comment. And Jose, could you compliment me on that?

When the different index companies like Pepsi evaluates liquidity the market is very very little about Bancolombia has the most liquid and not very liquid and very liquid market they'll just say I want to make that comment and holistically. Your complementary on that yes. Thank you Juan Carlos.

Jose Humberto Acosta: Yes. Thank you, Juan Carlos. Julian, on practical terms...

On a practical terms.

They they change a FTSE means a sell off of $70 million in the next coming weeks on ordinary shares probably the consequences would be the price will come down.

Jose Humberto Acosta: The change in FTSE means a sell-off of 70 million dollars in the next coming weeks on ordinary shares. Probably, the consequence will be that the price will come down. And again, as Juan mentioned, we have the preferred at eight years with a high, high level of liquidity. The second element is...

As Ron mentioned, we have the preferred at eight eight years with a high high level of liquidity.

The second element is.

Jose Humberto Acosta: There is a very important element here right now for all the players that we are listed on the local stock market, which is to have a market maker. This is relevant in our case. We hired a market maker two months ago, and the consequences were very clear in terms of both ordinary and preferred. In terms of the ordinary, the bid-offer spread reduced more than 50%, and in terms of the preferred, more than 45%.

There is a very important element here right now for the all players that we at least in the local stock market, which is used to have found a market make it. This is relevant in our case, we hiring and market makers two months ago and the consequences was very clear in both in ordinary and prefer in terms of the Athena I E.

The bid offer spreads reduces more than 50% and even prefer more than 45% and this is very important because at the end of the day. So it's a way of Democratic station. Okay. After shares own individuals. So we are using platforms as a threep for example, trying to offer them.

Jose Humberto Acosta: And this is very important because, at the end of the day, it's a way of democratizing the shares of individuals. So we are using platforms like TripAdvisor, for example, trying to offer them the opportunity to have the possibility to buy. So the market maker today is relevant because of that because it helps individuals to have an opportunity to buy our shares, no matter if it is ordinary or preferred. Thank you, Julián.

The opportunity to to have to ask them.

Possibility to buy so the market maker to date is relevant because of that because helps individuals will have an opportunity to buy our shares no matter if it is ordinary or prefer.

Yeah.

Okay. Thank.

Thank you.

Carlos Gomez: We have reached the end of the question and answer session. I would now like to turn the call back over to Mr. Juan Carlos Moro for closing. Thank you all for your interest in these conference call results. Next, this first quarter of 2024, I think it will be key to understand what will and how the year will evolve. So when we report the results of the first quarter, we will see how things are going. And I also want to mention again that we will have our annual shareholders meeting, the general shareholders meeting. 15th, which is where we will present our, or the Board of Directors' proposal, proposed dividend. So, we are very thankful for your interest, and we expect to have you on our conference call for the first quarter of 2020. Thank you very much, and have a good day. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

We have reached the end of the question and answer session I would now like to turn the call back over to Mr. Juan Carlos Mora for closing comments.

Thank you all for your interest on these conference.

Conference call results.

Yeah.

Next this first quarter of 'twenty 'twenty four I think it will be key to understand.

What would how would it evolve the year.

So again when we report the results of the first quarter, we will see how how things are or aren't calling.

And I also want.

I want to mention again that we will have our shelf shareholders' meeting general shareholders meeting.

The 15th.

Which is where.

Where we wouldn't be saying, our Oh D. A.

Board of directors proposal.

Proposed D. V. Then so we are very thankful to all you.

For your interest and we expect you to have you in our conference call for the first quarter of 'twenty 'twenty four. Thank you very much on have a good day.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

Yeah.