Q1 2024 Grupo Aval Acciones y Valores SA Earnings Call
Operator: Welcome to Grupo Aval's first quarter 2024 Consolidated Results conference call. My name is Regina, and I will be your operator for today's call.
Welcome to Grupo <unk> first quarter 'twenty 'twenty four consolidated results conference call. My name is Regina and I will be your operator for today's call.
Operator: Grupo Aval Acciones y Valores S.A. Grupo Aval is an issuer of securities in Colombia and in the United States SEC. As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulation. Grupo Aval is also subject to the inspection and supervision of the Superintendency of Finance as the holding company of the Aval Financial Conglomerate.
Speaker Change: Brewpub I'll ask you honest, even though like I say I agree with Paul is an issue where of securities in Colombia and in the United States S. E T. As such it is subject to compliance with securities regulation in Colombia, and applicable U S Securities regulation.
Speaker Change: Of all is also subject to the inspection and supervision of the superintendency of finance as holding company, a b of all financial conglomerate.
Operator: The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Unconsolidated financial information of our subsidiaries and the Colombian banking system is presented in accordance with Colombian IFRS as reported by the Superintendency of Finance. Details of the calculations of non-IFRS measures, such as ROAA and ROAE, among others, are explained when required in this report. This report includes forward-looking statements. In some cases, you can identify these forward-looking statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential, or continue, or the negative of these and other comparable words.
Speaker Change: Consolidated financial information included in this document is presented in accordance with I F. R. S. As currently issued by the I guess be unconsolidated financial information of our subsidiaries and the Colombian banking system are presented in accordance with the Colombian I F. R. S. As reported the superintendency of finance details of the calculations.
Speaker Change: Non I F. R. S measures such as R. O a a and R. O a E. Among others are explained when required in this report.
Speaker Change: This report includes forward looking statements in some cases you can identify these forward looking statements by words, such as May will should expects plans anticipates believes estimates predicts potential or continue or the negative of these other comparable words.
Operator: Actual results and events may differ materially from those anticipated herein as a consequence of changes in general economic and business conditions, changes in interest and currency rates, and other risks described from time to time in our filings with the Registro Nacional de Valores y Amsores and the SEC. Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review, update, or correct the information provided in this report, including any forward-looking statements. The content of this document and the figures included herein are intended to provide a summary of the subjects discussed, rather than a comprehensive description. Where applicable, in this document, we refer to billions as thousands of millions.
Speaker Change: Actual results and events may differ materially from those anticipated herein as a consequence of changes in general economic and business conditions changes in interest and currency rates and other risks described from time to time in our filings with Heathrow Nastier Nowaday Valores E M source and the SEC Recipients of this document are responsible for the assessment and use.
Speaker Change: The information provided herein matters described in this presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review update or correct. Any information provided in this report, including any forward looking statements and do not intend to provide any update for such material developments prior to.
Speaker Change: Our next earnings report.
Speaker Change: The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description.
Speaker Change: When applicable in this document we refer to billions as thousands of millions.
Operator: At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Ms. Maria Lorena Gutierrez-Boltero, Chief Executive Officer. Ms. Maria Lorena Gutierrez-Boltero, you may begin.
Speaker Change: At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. I will now turn the call over to MS. Maria Lorena go see Erith book Federal Chief Executive Officer, Ms. Maria Laura Antical tiers will Carol you may begin.
Luis Sarmiento Gutierrez: Good morning to you all. I'm delighted to be hosting this first quarter 2024 conference call. Before we begin, let me introduce myself.
Speaker Change: Good morning to you all I'm delighted to be hosting its first word.
Speaker Change: For conference calls.
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Luis Sarmiento Gutierrez: My name is Manuel Lorena Gutierrez. I joined Aval in 2018 having the privilege of being in Colombia, with this extraordinary team. In addition to financial results, I am proud to have managed to position Corpi as one of the Colombian leading companies in terms of sustainability. Last year we generated 883 billion pesos in net earnings as part of the over 13, and I have trillions of pesos in value generated for our statehouse and am passionate about contributing to Colombia's growth.
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Luis Sarmiento Gutierrez: Before coming to Aval, I served several leadership roles in the Colombian government between 2010 and 2016, and previously, I was Dean of the Business School of Administration. I want to take this opportunity to acknowledge Mr. Carlos Sarmiento Gutierrez and Mr. Carlos Sarmiento Mulo for their outstanding leadership during the years they served as CEO and Chairman of Grupo Aval and want to congratulate Mr. Sarmiento Gutierrez on his new role as Chairman of Grupo Aval. It is an honor to succeed him as CEO and to work beside him.
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Luis Sarmiento Gutierrez: I expect to consolidate Grupo Aval's position as the leading financial conglomerate in the Colombian market, recognized for its sound profitability, sustainability, innovation, and its contribution to key economic sectors, maximizing value for our investors and other stakeholders. Before Diego goes over our numbers for the quarter, I will summarize my view of Colombia's macro scenario, discuss some key events on the ESG front, and finish with some highlights of our financial performance and our overall view for 2024. The global economy has performed better than expected. Here is a presentation of scenarios where developed countries have dissipated and now seem unlikely.
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Speaker Change: Thanks for listening in.
Speaker Change: Eurasia I conclude with some key economic sectors.
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Speaker Change: Before vehicle go toward our number what's required I wish him where is my view of Columbia Tomorrow.
Speaker Change: Referred some key brands all years keep from on premise with some highlights of our frame hunger for an.
Speaker Change: And our overall news for granite.
Speaker Change: The global economy.
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Speaker Change: Have you got in those three months.
Luis Sarmiento Gutierrez: Receiving economic data in the United States sustained a soft landing scenario, consisting of a higher prolonged interest rate disparity. U.S. inflation accelerated to three and a half in March, still far from the short-term target of 2%. The Federal Reserve plans on lowering rates later in the year with a maximum of 225 basic point caps this year, down from the six caps previously anticipated by the end of 2020. Commodity prices are projected to stay high due to ongoing geopolitical tensions and supply chain disruptions benefiting commodity exporting nations in Latin America, Colombia included.
Speaker Change: We're seizing the crinone in the United States, who are paying a soft landing some very consistent with that.
Speaker Change: Higher for longer.
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Speaker Change: U S inflation.
Speaker Change: At March.
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Speaker Change: He was fired from the short term target of 2%.
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Speaker Change: Yes, Sir.
Speaker Change: Third plan on lower rates.
Speaker Change: And here, we've done much more toward 25 basis point cuts this year down from the six cuts.
Speaker Change: Great. Thanks to both of you.
Speaker Change: Great.
Speaker Change: Commodity prices are now.
Speaker Change: Hi.
Speaker Change: Due to ongoing geopolitical change in such a place.
Speaker Change: Robertson.
Speaker Change: Pretty commodity exporting nation work Columbia.
Luis Sarmiento Gutierrez: On the domestic front, we maintain Colombian growth projections of 0.75% to 1.25%. The Economic Activity Index increased by 2.5 year-on-year in February 2024, surpassing the consensus forecast. Fear views suggest that the Colombian economy dipped at the end of 2023 and has since started to rebound, fueled by the momentum in the agriculture and mining sectors and public administration. Nevertheless, a primary challenge persists in maintaining the trajectory of recovering the secondary sector to ensure positive annual growth in the market.
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Speaker Change: Zero point, 75% to 1.15%.
Speaker Change: The economic activity index increase of the year.
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Speaker Change: So definitely the Colombian economy.
Speaker Change: 2023.
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Speaker Change: Keep in mind things that private story of recovery in the secondary sector.
Speaker Change: Okay.
Speaker Change: Growth in the month.
Luis Sarmiento Gutierrez: Inflation has decelerated from 9.3% in December 2023 to 7.16% in April, and it is expected to continue declining to the 5.75% area by the end of 2024. However, this disincentivizing process may face headwinds in the second quarter due to transitory effects like adenomia on prices of perishable foods.
Speaker Change: Inflation have you seen there.
Speaker Change: But right now it's closer to 3% December.
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Speaker Change: 7.16%.
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Speaker Change: Like as Nino O'brien perishables.
Jay: Yeah.
Luis Sarmiento Gutierrez: However, a significant portion of the expected disinflation, particularly in service and regulated sectors, has already taken place, and co-inflation is anticipated to continue trending downward in the coming months. Moving to monetary policy, the Central Bank Board has cut its policy break from 13% to 11.75%, with decreases of 25 basic points in January and 50 basic points in the subsequent two weeks. The Central Bank might have been too cautious in the magnitude of its rate cut, considering the absurd and unexpected inflation, imposing a tolerant economic speech. The real interest rates have remained contractual so far this year, standing at 7% at the end of April when considering a 4.7% year ahead expected increase.
Jay: However.
Jay: Unfortunately, the extent of this inflation, particularly sir.
Jay: This sector.
Jay: That's a range that can place unfolding completion is anticipated to continue trending downward.
Jay: The coming months.
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Speaker Change: 75%.
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Speaker Change: My hub being too cautious in the magnitude of rate.
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Mike: We remain on track to deliver.
Mike: Each year is sandy.
Mike: Okay.
Mike: When considering.
Speaker Change: Or one 7% in Europe.
Luis Sarmiento Gutierrez: We follow the market to look for a more decisive interest rate reaction phase in line with the positive evolution of the market. We estimate a year-end rate of 8.5% by the end of 2020. There has been a substantial weakening since 2022 of gross fixed capital investment in infrastructure, Building Construction, and Mining, sectors that have a considerable contribution on the supply side of GDP.
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Speaker Change: We also have been working to roll for more of those types of things towards Brexit reaction pace in line with the positive evolution of Newbridge.
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Speaker Change: Building construction and mining.
Speaker Change: Actors that haven't come to a confusion on this is slide five GDP.
Luis Sarmiento Gutierrez: We expect that this press conference will continue to underpin established economic performance in 2024. The recovery of GDP growth in Colombia that followed the COVID-19 pandemic was driven by household consumption. Even though still strong, household consumption, the key driver of GDP dynamics over the last two years, has moderated significantly and is forecast to experience modest growth into 2024.
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Speaker Change: Economic performance in 2024.
Speaker Change: The recovery of GDP growth in Colombia, the formula.
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Luis Sarmiento Gutierrez: Looking beyond 2024, there are concerns that if the current low fixed investment rate persists, Colombia's potential growth will decline to a range between 2.2% and 2.5%, down from 3% and 3.5% before the pandemic. Total investment, which includes inventories, is close to $25 in 2023. Reaching the investment level of 2022 will require substantial growth in gross fixed capital, in the media, and determined public action intended to stimulate investment in critical sectors such as infrastructure and energy. In this context, we highlight the government's role as the orchestrator of Colombian-Spanish crack delays. As such, efficient public spending will be crucial in boosting its multiplier and the contour cycle quality. However, public investment reached an underwhelming 14% of GDP, the lowest in at least eight years.
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Speaker Change: In this context, we highlight the government's role they work.
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Luis Sarmiento Gutierrez: In addition, Los Cruz Domestic Saves. He induces a substantial pick-up in investment and GDP growth over the following years. The post-COVID-19 construction rebounded in Colombia, and that contributed to the inflationary crisis by connecting to and increasing the financial burden of households, both through their indebtedness and high-interest rates. The Postponed Consumption of Durable Goods and Services was encompassed by a mark, It's called Learning Employment Features.
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Speaker Change: Total.
Speaker Change: The post COVID-19 consumption, we Bonnie.
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Speaker Change: When you connect it through an increase in the financial burden.
Speaker Change: Households.
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Luis Sarmiento Gutierrez: Well below pre-pandemic level, living households were positioned, Consistent with the contraction of retail lending in the Colombian banking system observed since the end of 2022, the financial burden on households reported by the Superintendent of Finance has already receded to pre-pandemic level. This behavior favors an improvement in the delinquency of our consumer loan portfolio. However, the sharp economic slowdown since the last quarter of 2022 and a weaker labor market since mid-2023 have contributed to increasing delinquency across the board. We expect the yearly average national unemployment rate to be 11% in 2024, up from 10% last year.
Speaker Change: Well below grid pandemic levels, even households passed reaching frequency.
Speaker Change: Consistent with the construction of two literally in the Colombian bankruptcies, they're all served to 2022 the financial burden.
Speaker Change: Households reported quite a bit.
Speaker Change: So bring president and CEO.
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Speaker Change: They need to.
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A few of our consumer loan portfolio.
Speaker Change: However, the sharp economic slowdown.
Speaker Change: Great.
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Speaker Change: Gordon.
Speaker Change: Our consumer is it too early.
Chris: Chris I'm doing well.
Chris: Okay.
Gordon: We expect the yard.
Speaker Change: Unemployment rate to be 11 for 2024.
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Luis Sarmiento Gutierrez: 42% in 2020, in the fiscal program without additional spending costs. It is projected that Colombian central government debt, We're right for 5.6% of you, exceeding the 5.3% allowed by the fiscal program. This shortfall is a tribute to lower economic growth, impacting tax revenue, and adjustments in unexpected revenues due to enhanced tax administration and litigation efficiency. To meet the fiscal rules, an additional cut in primary spending of $14.2 trillion will be necessary. We are watchful on the recent discussion regarding eventual changes to the fiscal rules given similarly regarding future fiscal decisions, with an eventual implication or interest rate level, invest confidence, and contribute speed. The Reduction in Currency Demand due to a weak domestic market has led to a substantial appreciation of the exchange rate, with the dollar falling below $3,750 in early April, its lowest levels in June 2020.
2% to 23.
Speaker Change: In the Costar without at least where spending cuts.
Speaker Change: It is predicted that Colombia and central government there.
Speaker Change: Right.
Speaker Change: Okay.
Speaker Change: GDP.
Speaker Change: C 5.3.
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Speaker Change: Yes.
Speaker Change: This shortfall you said Q2 lower economic growth in vaccines.
Speaker Change: And as governments even expected.
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Speaker Change: In addition, a cutting primary spending.
Speaker Change: 14, two trillion will be necessary.
Speaker Change: We are watchful on the reasons, it's coastal regardless if input changes to the CCAR works you know any seasonality regarding future.
Speaker Change: We've done in the bank levy implication or into regular investor call.
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Speaker Change: Yes.
Speaker Change: The reduction in current existing mind, you withdraw with domestic limit.
Speaker Change: Samsung appreciation of the exchange rate with the dollar falling below 3700 <unk> no.
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Speaker Change: Its lowest level since June 2022.
Luis Sarmiento Gutierrez: Nonetheless, the Colombian peso has been fully adjusted in the recent declines in macroeconomic fundamentals. We associate these with fiscal accounts, long-term growth projections, oil production, and our interest rate gap compared to the United States, could potentially trigger a depreciation of the U.S. dollar-Colombian peso exchange rate to levels above the 4,000 pesos in the latter half of the year. On the social front, we launched the Misión La Guajira project in December 2023. This is a joint effort between ourselves, the government, and the community. They are intending to bring potable water, food security, and energy to over 80 communities in this extremely poor region in the country.
Speaker Change: Nonetheless, the Colombian peso has moved forward.
Speaker Change: Decline in microeconomic from them as.
Speaker Change: We're scheduled CA.
<unk> long term growth projections already.
Speaker Change: And a narrower interest rate compared to the United States.
Speaker Change: Could potentially trigger the appreciation of the U S dollar Colombia changed wait two level above the 4000 presses in the latter half of the year.
Speaker Change: On the social front, we launched than we see on La Guajira. Currently in December 2023. This is a joint effort between ourselves the ballroom and then the community.
Speaker Change: In terms of Green Bookable with the food security and energy.
Speaker Change: Over 80 communities in Phoenix extremely poor.
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Luis Sarmiento Gutierrez: We expect this to be the initial phase of a project that we aspire will have a broader, long-lasting impact in the future. This project will impart Five of the Sustainable Development Goals include no poverty, good health and well-being, clean water and sanitation, affordable and clean energy, and reducing wealth. Regarding our talent among several Aval subsidiaries that were certified by Great Lakes Works, I am proud to highlight that Tanco Ciente was recognized as the best place to work for women in 2023 in companies with over 1,500 employees.
Speaker Change: We expect this to be an initial phase of a project.
Speaker Change: We have a broader long lasting vaccines.
Speaker Change: This project will talk.
Speaker Change: While our focus sustainable development goals include no poverty wheelchairs.
Speaker Change: Two more sensation affordable and clean energy and reviews as well.
Speaker Change: Regarding our tally amongst.
Speaker Change: Amongst several of our subsidiaries.
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Speaker Change: I am proud to highlight that bankruptcy is doing.
Speaker Change: Right.
Speaker Change: The best place to work for we made in 2023 in companies with over 1000.
Speaker Change: Lee.
Luis Sarmiento Gutierrez: On the governance front, changes were implemented throughout the group's board of directors intended to refresh them and to adhere to international standards. We increased the proportion of independent members and the number of women in our board. The general shareholder meeting approved the board to be reduced from 14 members, 7 principals, and 7 attorneys, to organize principles and increase the ratio of independent board members to two-thirds.
Speaker Change: On the Gordie Howe, Brian changes were implemented throughout the group's board since intended to further extend and.
Speaker Change: You're doing through margin is Congress.
Speaker Change: We increased the proportion of our independent members and the number of women in our books.
Speaker Change: Ah Grupo de Generes shareholder meeting.
Speaker Change: Through the pore can be reduced from 14 members their principal on server.
Speaker Change: Nate.
Speaker Change: Nice print.
Speaker Change: And increased the ratio of independent board members.
Speaker Change: To put it.
Luis Sarmiento Gutierrez: On the environmental front, Banco de Bogotá and Costa Colombiana are carbon neutral, and we will continue working to achieve this status in the remaining direct subsidiaries between 2024 and 2025. In addition, our most relevant financial subsidiaries are currently working on building their respective climate change risk matrices in accordance with the TCFD principles. Regarding our financial results, Diego will refer next in state to our financial performance during the first quarter of 2024. However, I will highlight the following. This course, La Plata Performa, was driven by a pickup truck in Costa Rica.
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Speaker Change: We'll continue working toward two data centers.
Speaker Change: We remain in direct subsidiaries.
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Speaker Change: We expected climate change.
Speaker Change: Matrix is in accordance with the P. P F.
Speaker Change: Regarding our financial results. We report next week take floor financial performer, including the first quarter 2024.
Speaker Change: However, I would highlight the following.
Speaker Change: We of course lackluster performance was driven by a pickup in Corpus Christi.
Speaker Change: Yeah.
Luis Sarmiento Gutierrez: Other key business metrics, such as growth, net interest margin, and cost-to-asset efficiency, but largely in line with our expectations and last quarter's guide. Despite the challenging environment for our banking activities, I strictly created origination policies, and those placed in 2021, we increased our market share in all main lending categories. During this quarter, we gained 32 basis points in total loans, 39 basis points in commercial loans, 42 basis points in consumer loans, and 17 basis points in mobile.
Speaker Change: Other key business metrics has to grow net interest margin and cost efficiency.
Speaker Change: Largely in line with ours dictation and last quarter got it.
Speaker Change: Despite this challenging environment for our bank.
Speaker Change: Great.
Speaker Change: <unk> policies.
Speaker Change: Both two.
Speaker Change: 2021.
Speaker Change: We increased our market share in all main lending category during this.
Speaker Change: This quarter, we gained 32 basis points total loans 39 basis points equal micro loans going to raise is going to put in consumer loans and 17 basis points.
Luis Sarmiento Gutierrez: We gained 32 basis points in total loans, 39 basis points in commercial loans, and 42 basis points in consumer loans in the first quarter of the year, 10 times out of a total of 28 posted mail losses. When excluding equity methods, dividends, and non-recurring income from organizations, this number increases to 13 banks on a constant basis, although still depressed. We have begun to see a recovery in the net interest margin on loans and expect this to continue as the central bank maintains its pre-cut cycle through the year.
Speaker Change: We again call it two basis points in total loans 39 basis points infomercial and loss of 42 basis points and consumer loans.
Speaker Change: In the first quarter a biggie.
Speaker Change: But out of a total of 28 posts in the loss.
Speaker Change: When excluding equity method billions of no recurring income pro reorganizations. This number increases to 13, but on a consolidated basis.
Speaker Change: Craig we.
Speaker Change: We have begun to see a recovery of the netting gross margin or loans.
Speaker Change: Great deals to continue other symptoms by one thing.
Greg: Greg Hi.
Greg: For the year.
Luis Sarmiento Gutierrez: The slower than anticipated decrease in the benchmark rate has been said to record faster than what we had initially anticipated. In addition, price competition has increased in the corporate segment in an environment of lower than expected growth in banking. The cause of risk in the system remains high despite having shown signs of destabilization in new visits.
Speaker Change: There is lower.
The decrease in the benchmark rate has been.
Eric: Thanks, Eric.
While we have.
Eric: Anticipated.
Speaker Change #100: In addition price competition has been raised in the corporate segment name work environment of lower than expected growth.
Speaker Change #100: The banking system.
Speaker Change #101: We've seen the system remains high.
Speaker Change #101: How do we show signs over 70 physicians in new builds.
Speaker Change #101: Yes.
Luis Sarmiento Gutierrez: Notwithstanding a high ratio of charges from some of our competitors, delinquency metrics remain well above historical levels. Our low-risk consumer loan mix differentiates us from our main competitors with a high ratio of payroll lending and a lower share of unsecured consumer lending and has favored us in this. Finally, we expect that the risk management actions taken through our risk-free practices, The review of our bank's strategies and cost-controlling initiatives are deployed throughout our bank.
Speaker Change #101: No.
Speaker Change #102: And being a high ratio of charge off from so.
Speaker Change #102: Our compare yours delinquency metrics remain well above historical levels, our lower risk consumer loan mix certain shade.
Speaker Change #103: From our main competitors, we are high ratio they were legacy and a lower share for unsecured consumer lending.
Speaker Change #102: Great.
Speaker Change #102: In this credit cycle.
Speaker Change #104: I'll speak to the rest of the world.
Speaker Change #104: Finally, we expect the risk management actions taken through all these crazy cycles.
Speaker Change #104: The review of our bank.
Speaker Change #105: Paul Careening should be deployed to well our bags, where it was.
Luis Sarmiento Gutierrez: We reflect on our results in the latter part of the year. The speed of improvement will be determined by the decisiveness of the central bank to reduce rates and the actions taken by the government to stimulate the recovery of economic, have won from higher costs of goods and a steady gross net interest margin will continue to undermine our performance during the following quarter. I thank you for your attention, and now I pause. Presentation to Diego, who will explain in detail our bill's results and provide guidance for 2024. Thank you.
Speaker Change #105: Right now what we saw in the lower part of the year.
Speaker Change #105: This cost improvement.
Speaker Change #106: Turning well.
Besides the net of the Central Bank.
Speaker Change #107: Great and the actions taken by the government will stimulate recovery of economics.
Speaker Change #108: Cause away from.
Speaker Change #108: From highest cost of risk.
Speaker Change #108: <unk> group.
Speaker Change #108: Net interest margin will continue to undermine our performer, who really follow employers.
Speaker Change #109: I. Thank you for your attention and now.
Speaker Change #110: And patients with general who will explain our results and provide guidance for 2020.
Diego: Thank you, Maria Lorena. Before moving into our results, I would like to take a moment to highlight some aspects that characterize our banking operation, that differentiate us from others in the Colombian banking system, and explain our performance throughout the post-pandemic cycle. On pages 9 and 10, you can find several charts regarding the quality and growth rate of our loan portfolio. For comparability purposes, these figures are unconsolidated under Colombian IFRS, as published by the Spring Tendency of Finance.
Speaker Change #111: Thank you Marty and Loren before moving to our results I would like to take a moment to highlight some aspects that characterize our banking operation that differentiate us from others in the Colombian banking system and explain our performance throughout the pandemic sites.
Speaker Change #112: Pages nine and 10, we can find several charts regarding the quality and growth rate of our loan portfolio.
Speaker Change #112: Comparable really two reasons is to use our consolidated under Colombian I FRS as published by this breakdown this year right.
Diego: As mentioned in the past, Aval's portfolio composition is geared towards low-risk consumer lending, and in line with our underwriting standards, we will act at a more cautious pace during the boom that followed the post-pandemic rebound. Consistent with this risk profile, our banks have experienced a milder impact of the credit cycle, and despite tightening underdog writing policies, we have been in a better position to grow in this challenging environment As a result, our banks in Colombia have gained market share in all major loan categories over the 12-month period ending in February, while experiencing a better evolution of the credit quality of the consumer portfolio and career model. I will now move to the consolidated results of Grupo Aval and its IFRS.
Speaker Change #112: As mentioned in the past our portfolio composition and skewed towards lower risk consumer lending products.
And in line with our underwriting standards.
Speaker Change #112: A more cautious pace screening the boom that followed the post pandemic environment.
Speaker Change #112: Consistent with this risk profile, our banks have experienced a milder impact of the credit cycle and despite tightening under Doug writing policies.
Speaker Change #113: <unk> been in a better position to grow cases challenging environment as a.
Speaker Change #113: Our banks in Colombia have gained market share in all major loan categories.
Speaker Change #113: Months period ending on February.
Speaker Change #113: While experiencing a better evolution of the credit quality of the consumer portfolio.
Speaker Change #113: I will now move to the consolidated results of Grupo <unk> under Ifr US starting on page 11 asset grew two 7% over the year and one 9% over the quarter to 307 per unit.
Diego: Starting on page 11, assets grew 2.7% over the year and 1.9% over the quarter to 307 trillion pesos. However, the year marked a 17.3% year-on-year appreciation of the Colombian peso that had a negative effect on year-end growth metrics, particularly on net loans and leases. Over the quarter, the peso depreciated by 0.5% and had no material impact on growth metrics. Our dollar-denominated loans account for 16.6% of our total portfolio. These are contributed mainly by MFH in Panama, by the U.S. agencies of Banco de Bogotá, our trade finance activities, and offshore subsidiaries of Banco de Bogotá and Banco del Occidente.
Speaker Change #113: The earmarked a 17, 2% year on year appreciation of the Colombian peso that had a negative effect on the year.
Speaker Change #113: And growth metrics, particularly of net loans and <unk>.
Speaker Change #113: For the quarter, the peso appreciated, 5% and had no material impact.
Speaker Change #113: <unk> growth metrics.
Speaker Change #114: One dollar denominated loans account for 66% of our total portfolio.
Speaker Change #115: These contributed mainly by MSH in Panama by the U S agencies, apart globalstar or create tightens up Tvs and offshore subsidiaries of Melco will talk in bankruptcy.
Diego: The bottom of the page shows loans growing 2.2% over the year and 1.5% in the quarter. Peso Nominated Loans increased 5.1% and 1.3% respectively, while U.S. Dollar Nominated Loans grew 8.6% and 2% in dollar terms respectively. We continue to outgrow our peers across all known categories, despite having tightened our origination policy several times over the cycle.
Speaker Change #115: The bottom of the page gross loans grew two 2% over the year and one 5% in the quarter.
Speaker Change #115: Peso denominated loans increased five 1% and one 3% respectively. While U S. Dollar denominated loans grew eight 6% and 2% in dollar terms respectively.
Speaker Change #115: We continued to outgrow our peers across all loan categories. Despite having tighten origination policy several times over the site.
Diego: This yielded, at the end of February, year-on-year market share gains of 89 basis points in total loans, 138 basis points in commercial loans, 110 basis points in consumer loans, and 28 basis points. Commercial loans grew 3.1% year-on-year and 2.3% over the quarter. Peso-denominated commercial loans grew 7.1% and 2% year-on-year and quarter-on-quarter, while U.S. Consumer loans contracted 0.2% year-on-year and grew 0.1% over the quarter.
Speaker Change #115: These yogurt at the end of February year on your market share gains of nine basis points, you can hold loans 138 basis points and conversion loans are just 10 basis points in consumer and 48 basis points in mortgages.
Speaker Change #115: Loans grew three 1% year on year, and two 2% over the quarter.
Speaker Change #115: So nominated commercial loans from seven, 1% and 2% year on year and quarter water, while U S. Dollar denominated commercial loans grew 10, 5% and two five in dollar terms perspective.
Speaker Change #115: Consumer loans contracted 2% year on year.
Speaker Change #115: <unk>, 1% over the quarter.
Diego: Special Denominated Consumer Loans grew 0.6% year-on-year and remained flat quarter-on-quarter while U.S. Dollar Denominated Consumer Loans grew 6.4% and 1.7% in dollar terms, respectively. The sluggish dynamics of consumer loans have been driven by a high-interest-rate environment and tighter underwriting policies in line with slow economic activity and softer macro-output. Consumer loan growth was low across all main products.
Speaker Change #115: Peso denominated consumer loans grew 6% year on year and remained flat quarter on quarter, while U S. Dollar denominated consumer loans grew six 4% down one 7% in dollar terms perspective.
Speaker Change #116: The sluggish dynamics are consumer loans have been driven by high interest rate environment and tighter underwriting policies in line with the slow economic activity and softer macro outlook.
Speaker Change #116: Consumer loan growth was slow across all main products.
Diego: Federal loans, which account for 55% of our consumer loans, contracted 1.7% year-on-year and grew 0.6% on the quarter. Demand for this product has gained traction as the reduction in funding rates allows for lower interest rates and new disbursements. Personal loans, which account for 24% of our consumer book, grew 1.7% year-on-year and contracted 0.1% per quarter. Credit cards, which account for 12%, grew 4% year-on-year and contracted 1.6% quarter-on-quarter. Automobile loans, which account for 9% of our consumer loans, decreased 1.5% year-on-year and grew 0.4% quarter-on-quarter.
Speaker Change #117: I will note that account for 55% of our consumer loans contracted one 7% year on year and grew 6% over the quarter.
Speaker Change #117: Demand for these products have gained traction as a reduction in per mill rates allows for lower interest rates on these questions.
Speaker Change #117: Personal loans that accounts for 24% of our consumer book grew one 7% over the year and constructed 21% for the quarter credit cards that accounts for 12% grew 4% year on year and contracted one 6% quarter on quarter.
Speaker Change #117: Automobile loans that account for 9% of our consumer loans decreased one 5% year on year and go.
Speaker Change #117: 4%.
Speaker Change #118: On block five.
Diego: Finally, mortgages grew 4.6% year-on-year and 2% over the quarter. Special Denominated Loans grew 11.1% and 2.4% respectively, while Dollar Denominated Mortgage Loans, booked by MFH, grew 2.5% and decreased 0.8%, respectively, in dollar terms. We expect 2024 loan growth to continue achieving the banking system of remaining soft across products and sectors. Dynamics in the system will fall largely in line with sluggish domestic demand and investment dynamics.
Speaker Change #118: Finally mortgages grew four 6% year on year and 2% over the quarter.
Speaker Change #118: Thanks eliminated loans grew 11, 1% and 4% respectively, while dollar denominated mortgage loans look like.
Speaker Change #118: With the one 5% and <unk>, 8%, respectively, while returns.
Speaker Change #118: Our 2020 for loan growth to continue exceeding the banking system operate remained soft across products and diner.
Speaker Change #118: Dynamics in the system largely in line with sluggish domestic demand and investment dynamics loan growth rates in our system are expected to pick up later during the year and into play.
Diego: Loan growth rates in the system are expected to pick up later during the year and into 2025, driven by the normalization of the monetary policy and its positive effects on GDP growth. On page 12, we present Funding and Deposit Evolution. Total funding increased 2.8% year-on-year and 3.1% during the quarter. Peso-denominated funding grew 11.5% year-on-year and 3.6% during the quarter.
Speaker Change #119: Driven by the normalization of monetary policy and its positive effects on GDP growth.
Speaker Change #119: On page 12, we present funding and deposit evolution.
Total funding increased two 8% year on year and three 1% during the quarter.
Speaker Change #119: So eliminated funding grew 11, 5% year on year and three 6% during the quarter.
Diego: U.S.-denominated funding decreased 1.4% in dollar terms year-on-year and increased 1% during the quarter. Deposits account for 74.1% of our funding, growing 4% quarter on quarter and 6.1% year on year. Peso-nominated deposits increased 8.9% year on year and 3.9% quarter on quarter. U.S. denominated deposits increased 11.7% and 4.1%, respectively, over 12 months. Time deposits, which remain the most sought-after type of funding, continue driving overall deposit performance and gain shared in our mix.
Speaker Change #119: Emanated funding decreased one 4% in dollar terms year on year and increased 1% during the quarter.
Speaker Change #119: Deposits accounted for 74, 1% of our funding growing 4% quarter over quarter, and six 1% year on year.
We also eliminated deposits increased eight 9% year on year and 9% quarter on quarter.
Speaker Change #119: U S denominated deposits increased 11, 7% and $4, 1% in dollar terms with respect to keep over 12 months and three months.
Speaker Change #119: Time deposits that remain for the most sought after type of funding continued driving overall deposit performance and gain share in our mix time deposits grew seven 1% year on year and five 3% in the quarter.
Diego: Time deposits grew 7.1% year-on-year and 5.3% in the quarter, and the deposits to net loans ratio is good at 106%. On page 13, we present the evolution of our total capitalization, our accountable shareholders' equity, and the capital equity ratios of our bank. Our total equity decreased 1.4% of the quarter and increased 2.8% year-on-year. Our attributable equity decreased 2% of the quarter and increased 1.7% year-on-year. Dividends of 570 billion pesos were declared to our shareholders during the quarter.
Speaker Change #119: Our deposits to net loans ratio stood at 106%.
Speaker Change #119: On page 13, representing evolution of our total capitalization, our attributable shareholders equity and the capital adequacy ratios of our banks, our total equity decreased one 4% over the quarter and increased two 8% year on year.
Speaker Change #119: Attributable equity decreased 2% over the quarter and increased one 7% year on year.
Dividends of 570 billion peso will be clear to our shareholders June quarter.
Speaker Change #120: Addition, minorities at our subsidiaries received dividends of 623 billion.
Diego: In addition, minorities at our subsidiaries receive dividends of $623 billion. Lower core equity tier 1 ratios in Banco de Bogotá and Banco del Occidente correspond to the events declared during the quarter. Lower tier 2 ratios in these banks reflect the decrease in capital contribution up to modulated debt in accordance with the regulatory amortization schedule. As a recent event, NACLEX is reflected in these figures, and on May 7, Banco de Occidente issued its inaugural $125 million Tier 2 notes with a maturity of 10.25 years non-CoV, which we estimate could add approximately 150 ACES points to total solvency. Banco Popular and Consolidated Rations were 12.7% for total solvency and 11% for core equity tier 1.
Speaker Change #121: Our core equity tier one ratios in Banco <unk> correspond to events declared during the quarter lower tier two ratios in these banks reflect the decrease in capital contribution absolute motivated that in accordance with the regulatory amortization cheddars.
Speaker Change #121: As a recent event not yet reflected in the figures on May seven bank.
Speaker Change #121: The issue that <unk> $125 million.
Speaker Change #122: Two nodes.
Speaker Change #122: With a maturity of 10 in the quarter used non call five which we estimate would add approximately 160 basis points to total solvents.
Speaker Change #122: Banco popular and consolidated ratios were.
Speaker Change #123: For solvency and 11% for core equity tier one.
Diego: On page 14, we present our Yield Unknowns, Cost of Funds, Spreads, and Nibs. The consolidated name and loans expanded 16 basis points quarter and quarter to 4.3%. NIM and commercial loans predominantly floating over IVR decreased 14 basis points to 3.9, while NIM and retail loans predominantly priced at fixed rates expanded 58 basis points to 4.9%. Despite the above mentioned positive results, the amount of known stolen infill increased by 49 basis points to 3.4%, quarter on quarter, due to a sharp contraction in our name and investments to minus 0.2%.
Speaker Change #124: On page 14, we present, our yield on loans cost of funds spreads and NIM.
Speaker Change #124: Our consolidated NIM on loans expanded 16 basis points quarter on quarter to four 3%.
Speaker Change #124: The main commercial loans predominantly floated over IPR decreased 14 basis points to three nine while NIM and retail loans predominantly priced at fixed rates extend debt 58 basis points to four 9%.
Speaker Change #124: Despite the above mentioned positive results in the amount of notes totaling himself.
Speaker Change #124: Nine basis points to three 4% quarter on quarter due to our sharp contraction in our NIM on investments.
Speaker Change #125: Minus 2%.
Diego: Focusing on our banking segment, Niman loans in our banking segment improved 8 basis points quarter on quarter to 5.1%, still substantially lower than historical levels. This incorporates a Niman commercial loan that increased 16 basis points to 4.7% and a Niman retail loan that expanded 41 basis points to 5.6%. The total name of our banking segment contracted 21 basis points to 4.2% due to the same dynamics that affected our consolidated. The increase in our NIEM uninvestments is explained by two drivers.
Speaker Change #125: Focusing on our banking segment NIM on loans of our banking segment improved eight basis points quarter over quarter to five 1% still substantially lower than historical levels. This incorporates <unk> commercial loans.
Speaker Change #126: 16 basis points to four 7% and the Newman retail loans have expanded 41 basis points to five 6%.
Speaker Change #126: I wouldn't name of our banking segment contracted 21 basis points to four 2% due to the same dynamics that affected our consolidated.
Speaker Change #126: The increase of our NIM on investments <unk> by two <unk> first as our.
Diego: First, a softer quarter-on-quarter, yet still double-digit NIEM uninvestments from our pension and severance fund management segment. And second, a negative result in our banking and merchant banking segments that was mitigated by strong results in FX and derivatives under our income in connection with our hedging strategy.
Speaker Change #126: Quarter over quarter, yet still double digit NIM on investments from our pension and severance funds management segment and second a negative result in our.
Speaker Change #126: Banking and merchant banking segments that mitigated by strong results in FX and derivatives under other income in connection with hedging strategies.
Diego: Interest rating dynamics of our loans and funding are driven by the movements in the average benchmark rate in Colombia. On a consolidated basis, the average yield on loans for the quarter decreased 54 basis points to 13.7% over three months, while the average central bank rate decreased 42 basis points to 12.8% in first quarter 2020, and the average three-month IVR decreased 64 basis points to 12.3%. Commercial portfolios reduced their yield by 84 basis points to 13.3% over the quarter.
Speaker Change #126: Interest rates and dynamics of our loans and funding are driven by the movement in the average benchmark rates in Colombia.
Speaker Change #126: On a consolidated basis, the average yield on loans for the quarter decreased 54 basis points to 13, 7% over three months, while the average central bank rate decreased 42 basis points to 12, 8% from first quarter 2004.
Speaker Change #127: <unk> averaged three months ABR decreased 64 basis points to 12, 3%.
Speaker Change #127: Commercial portfolios reduced their yields by 84 basis points to 13, 3% over the quarter in.
Diego: In addition to lower IVR, a preference for low-risk sectors implied lower spreads on new loans. The average yield on consumer loans decreased 22 basis points over the quarter due to a sharp decrease in Colombia's lending rate cap after changes in calculation methodologies implemented by the regulators. This change will reduce the rates of some unsecured consumer lending products, mainly credit cards. He was partially upset by a continued repricing of loans with longer maturities, such as payroll.
Speaker Change #127: In addition to lower IPR, a preference for lower risk sectors as implied lower spreads on new loans.
Speaker Change #127: The average yield on consumer loans decreased 22 basis points over the quarter due to a sharp decrease in Colombia lending rate after changes in calculation methodologies implemented by the regulator.
Speaker Change #127: This change reduced the rates at some unsecured.
Speaker Change #127: Consumer lending products made with credit cards.
Speaker Change #127: It was partially offset by a continued repricing of loans with longer maturities such as payroll.
Diego: On the cost of funding side, our banks recorded a 68 basis points quarterly on quarter decrease in the cost of funds. Average rates on time deposits and savings accounts fell 53 basis points and 88 basis points, respectively. As we have mentioned in previous calls, last year, time deposits were issued at abnormally high spreads to a sovereign, triggered by changes in the Netscale Funding Regulation.
Speaker Change #127: And the cost of funding side, our banks reported a 68 basis points quarter on quarter decrease in cost of funds average rates on time deposits and saving accounts fell 53 basis points and 88 basis points quarter New respect.
Speaker Change #127: As we have mentioned in previous calls last year.
Speaker Change #127: That's where you should add abnormally high spreads to a sovereign triggered by changes in the net stable funding regulations.
Diego: A portion of those will mature over the following months, contributing to a downward trend in the cost of funds. And pages 15 through 17 present several loan portfolio quality ratios. On page 15, 90 APDLs were 4.15% at 17 basis points deterioration relative to the last quarter and 70 basis points deterioration over 12 months. 30-day PDLs increased to 5.85% after 9 basis points change over 3 months and then 99 basis points deterioration over 12 months. Roll rates between 30 days and 90 APLs remain contained as a result of the collection strategies developed by our backers.
Speaker Change #127: Portion of those will mature over the following months contributing to a downward trend in cost of funds.
Speaker Change #127: On pages 15 through 17.
Speaker Change #128: Several loan portfolio quality ratios on page 15, 90, Aps were 415% 17 basis points deterioration relative to last quarter, and 70 basis points deterioration over 12 months.
<unk> increased to $5, 85% or 39 basis points change over three months and 99 basis points deterioration over 12 months.
Speaker Change #129: Rates between 30 days and 90 Apl's remain contained as a result of the collection strategies developed by other banks.
Diego: 90-day PEL formation increased 5% quarter-on-quarter after an 18% increase in 30-day PEL formation quarter-early. Commercial 30-day PLs were 5.1%, and 33 basis points increased over three months. 90 APDLs were 4.28 percent, an eight basis points deterioration over the quarter. We recorded a 53 basis points increase in consumers, 30 APDLs to 6.81 percent, while 90 APDLs increased 35 basis points to 3.91 percent. Mortgages, 30-day PDLs, and 90-day PDLs increased 33 basis points and 8 basis points, respectively. On the 120-day metrics, PDLs were 3.5% or 11 basis points higher during the quarter. Finally, the ratio of charge-offs to average 90-day PDLs was 0.62 times.
Speaker Change #129: Aapl's formation increased 5% quarter on quarter after an 18% increase 30, the APL formation a quarter earlier.
Speaker Change #129: Commercial 30 day Ips were five 1% and 33 basis points increase over three months 90, Apd elsewhere for 48%.
Speaker Change #129: Eight basis points deterioration over the quarter, we recorded a 53 basis points increase in consumers.
Speaker Change #129: Two 681% or 90, Aapl's decreased 35 basis points to 391%.
Speaker Change #129: Mortgages 30, Aapl's 98 deals increased 33 basis points and eight basis points, respectively, and 120, <unk> metrics DDS were three 5% or 11 basis points higher during the quarter.
Speaker Change #130: The ratio of charge offs to average 90, Aps was <unk> 62 times.
Diego: On page 16, the share of our loan portfolio classified as stage 1 fell slightly over the quarter, mostly driven by a mild deterioration in retail loans. Regarding coverage, the allowance for stage 2 and stage 3 as a percentage of loans classified as stage 2 and stage 3 was materially stable during the quarter for total loans. The coverage for commercial loans continued increasing during the quarter. The allowance ratio for consumer loans and mortgages slightly increased over the quarter, reflecting an improvement in the mix of probabilities of default inside stage 2 loans. On page 17, as we anticipated in our last earnings call, the cost of risk remained high during the quarter, driven by a high cost of risk for consumers.
Speaker Change #131: On page 16, the share of our loan portfolio classified as stage one portfolio sale.
Speaker Change #132: Sales slightly over the quarter, mostly driven by miles deterioration in retail loans regarding encourage the allowance for stage two stage three as a percentage of loans classified as stage two and stage three was materially stable during the quarter for loans the coverage for commercial loans continued increasing during the quarter the allowance.
Speaker Change #132: Asia for consumer loans, and mortgages slightly increased over the quarter, reflecting an improvement in the mix of priority default inside the stage two loans.
Speaker Change #132: On page 17, as we anticipated in our last earnings call. The cost of risk remained high during the quarter driven by a high cost of risk for consumer loans cost of risk net for consumer loans improved four basis points to seven 5%. Despite a slight contraction in average balances the cost of risk of <unk>.
Diego: Cost of risk net for consumer loans improved four basis points to seven and a half percent despite a slight contraction in average balance. The cost of risk for credit cards and personal loans improved quarter-on-quarter, falling 63 basis points to 15.2% and 237 basis points to 15.4%, respectively. The increasing cost of risk on commercial loans is mainly explained by strong end-of-period loan growth in the quarter.
Speaker Change #132: I'd cards, and personal loans improved quarter on quarter, following 63 basis points to 15, 2% and 237 basis points to 15, 4% respectively.
Speaker Change #132: The increase in cost of risk on commercial loans is mainly explained by a strong end of period loan growth in the quarter.
Diego: On page 18, we present Net Fees and Other. Rusty Income grew 5.6% quarter on quarter and 3.9% year on year. Net fee income increased to 16.3% and 5.9%, respectively. Net pension and severance fees grew quarter-on-quarter and year-on-year, although this was prevented by performance-based fees that incorporate a strong capital market performance at the end of 2021. As guided, income from the non-financial sector was around 70% of that recorded in Q1 2023, a sample of concessions that transitioned from the construction phase to the operations phase.
On page 18, we present net fees and other Inc.
Speaker Change #132: Rusty income grew by 6% quarter over quarter, and 9% year on year.
Speaker Change #132: Net fee income increased 62% and five 9% respectively.
Speaker Change #132: Net pension and severance fees grew quarter on quarter and year on year, driven by performance based fees that incorporates our strong capital market performance at the end of 2023.
As guided income from the nonfinancial sector was around 70% of that reported in first quarter of <unk> 43, a sample growth transitions transition from construction to the operation space.
Diego: In contrast, the energy and gas sector outperformed during the quarter due to the favorable effect of the Nino phenomenon and chromic gases due to higher natural gas consumption. Finally, on the next page, the quarterly increase in other operating income is mainly explained by higher derivatives and FX gains that, as mentioned before, partially compensate for lower results in money investment. In addition, even seasonality further adds to the improvement relative to the fourth quarter of 2020.
Speaker Change #133: In contrast, the energy and gas sector outperformed during the quarter due to a favorable effect of immuno, Panama and Colombia gases businesses.
Speaker Change #133: Due to the higher natural gas consumption finally on the bottom of the page the quarterly increase in other operating income is mainly explained by higher derivatives and FX gains as mentioned before partially compensate lower results and the main investments. In addition, given seasonality further adds to improvement relative to <unk>.
Speaker Change #133: First quarter of 2020.
Diego: On page 19, we present some efficiency ratios. As a result of our cost control initiatives, total dollar expenses increased 0.8% year on year and fell 3.8% quarter on quarter. General and administrative expenses grew 0.2% year-on-year and contracted 7.9% quarter-on-quarter. General and administrative expenses are determined by operating taxes and deposit insurance, which now account for 41% of these expenses. These line items grew 8.1% and 9%, respectively, year-on-year. However, other general and administrative expenses decreased 4.8% year-on-year.
On page 19, we present some efficiency ratios as.
Speaker Change #133: As a result of our cost control initiatives total other expenses increased 8% year on year and fell three 8% quarter over quarter.
Speaker Change #134: General and administrative expenses grew 2% year on year and contracted seven 9% quarter on quarter Jenny.
General and administrative expenses are determined by operating taxes and deposit insurance have now account for 41% of this expense.
Speaker Change #135: Your line items grew eight 1% and 9% respectively year on year.
Speaker Change #135: General and administrative expenses decreased four 8% year on year.
Diego: Cost-to-assets for the quarter was 2.76%, improving 15 basis points quarter-on-quarter and 4 basis points year-on-year. Our quarterly cost-to-income improved to 50.4% of the quarter and deteriorated year-on-year mainly due to a lower NIM on investments and income from the non-financial sector. Finally, on page 20, we present our net income and profitability ratios. The true total net income for the quarter was $114 billion, or $4.8 per share. Return on average assets and return on average equity for the quarter were 0.6% and 2.7%, respectively. Before we move into questions and answers, I will now summarize our general guidance for 2024.
Speaker Change #135: Cost to assets for the quarter was $2, 76% in tubing is 10 basis points quarter on quarter and four basis points year on year.
Speaker Change #135: Our quarterly cost to income improved to 54% over the quarter and deteriorated year on year, mainly due to a lower NIM on investments and income from the nonfinancial sector.
Speaker Change #135: Finally on page 20, we present, our net income and profitability ratios attributable net income for the quarter was 114 billion pesos of $4 eight pesos per share. We started on average assets and return on average equity for the quarter were 6% up two 7% respectively.
Speaker Change #135: Before we move into questions and answers I will now summarize our general guidance for 2024.
Diego: We expect loan growth between 7.5% and 8%, with commercial loans growing between 9% and 9.5%, and retail loans growing between 5% and 6%. NIM should be in the 4% area with minimum loans in the 4 and 3 quarters area. NIMUP, our banking segment in the 4 and 3 quarters area with minimum loans between 5.25% and 5.5%, and cost of risk, net of recoveries, in the 2.3% area. Cost to assets in the 2.7% area, and income from the non-financial sector is 70% of that for 2023. At an income ratio between 20% and 25%. Finally, we expect our 2024 return on average equity to be in the 6.5% area. We're now available to address your questions.
Speaker Change #135: We expect loan growth between seven five and 8% with commercial loans growing between nine and nine 5% and retail loans growing between five and 6% NIM in the 4% area with NIM on loans in the fourth quarter as Arie <unk>.
Speaker Change #135: Our banking segment in the four and three quarters area with newmont loans between five and a quarter and five five.
Speaker Change #135: Cost of risk net of recoveries and the two 2% dairy cost to assets in the two 7%.
Speaker Change #135: Income from the non financial sector of 70% of that for 2023.
Speaker Change #136: The income ratio between 20 and 25% finally, we expect our 2020 for return on average equity to be ended at six 5%.
Speaker Change #137: We're in our lowest address your questions.
Operator: We will now begin the question and answer session. If you have a question, please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press star 1 again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then 1 on your touchtone phone. Our first question comes from the line of Nicholas Riva with Bank of America. Please go ahead. Thanks very much.
Speaker Change #138: We will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press star. One again, if you are using a speakerphone you may need to pick up the handset first before pressing the numbers.
Speaker Change #138: Once again, if you have a question. Please press Star then one on your Touchtone phone. Our first question comes from the line of Nicolas Riva with Bank of America. Please go ahead.
Nicolas Riva: Thanks very much, Diego and Maria Lorena, for taking my questions. I have a few questions.
Nicolas Riva: Thanks very much.
Nicolas Riva: For taking my question.
Nicolas Riva: So the first one is on provisions for loan losses, which were up 72% year-on-year and 10% quarter-on-quarter, cost of risk at 2.9% in the quarter. If you can, you know, discuss any thoughts in terms of the outlook for provisions for loan losses for the rest of the year, that's my first question.
Nicolas Riva: So the first one on provisions for loan losses, which were up 72% year on year.
Speaker Change #140: And 10% quarter on quarter cost of risk of two 9% in the quarter. If you can.
Speaker Change #141: Discuss any thoughts in terms of the outlook for provisions for loan losses.
Speaker Change #141: For the rest of for the rest of the year.
Speaker Change #142: First question and then I have a few questions on your Standalone balance sheet for the holding company.
Nicolas Riva: And then I have a few questions on your standalone balance sheet for the holding company. Diego, you mentioned the Tier 2 raise from Banco Occidente after the end of the quarter, $175 million. I want to confirm that the transaction is not going to have any impact on the standalone balance sheet of the holding company. I assume that Grupo Aval, in this case, did not buy any of the Tier 2 bonds, but if you can confirm that, that would be great.
Sean: Sean the territories from bankruptcy and sort of the end of the quarter to $175 million I want to confirm that transaction is not going to have any impact on the standalone balance sheet of the holding company I assume the Grupo <unk> in this case people not to buy any of the tier two issue, but if you can confirm that and also.
Nicolas Riva: And also, if you can tell us the amount of the 81 issue from BAC Central America that is owned by Aval and that is included in the double leverage that the holding company reports of 123% at the end of the quarter. And finally, Diego, you gave us guidance for 2024 on a consolidated basis. Can you share your projection for double leverage for the holding company by the end of the year? Thanks.
Speaker Change #144: As you can tell us what's the amount of the 81 issue from Buck Central America that is shown by our model on that.
Speaker Change #144: This included in the double leverage.
Speaker Change #144: At the holding company reports of 123% at the end of the quarter and finally.
Speaker Change #145: You gave us guidance for 2024 on a consolidated basis can you share your projection for double leverage for the holding company by the end of the year.
Speaker Change #144: <unk>.
Speaker Change #144: Okay.
Diego: Okay, Nicolás, let me take each one of those. Regarding provision expenses and cost of risk, you might have noticed that we have raised our expectation of cost of risk for the year. Basically, what we are reflecting here is that the credit cycle has been longer than we expected. If you look at what has happened, you will find that there's been improvement, as we had been guided into before, but we haven't yet seen a turning point, particularly for consumer loans.
Speaker Change #146: Okay, Let me, let me take one of those.
Speaker Change #147: Okay regarding <unk>.
Speaker Change #148: Provision expenses cost of risk you might have noticed that you raised our expectation cost of risk for the year.
Speaker Change #148: It's actually what we're reflecting here is the credit cycle has been longer than what we expected. If you look at what has happened to you.
Speaker Change #148: You will find that there has been improvement as we had.
Speaker Change #149: Guided into before but we havent, yet seen a turning point, particularly for consumer loans.
Diego: From the macro side, there are a number of positives. For example, we see the numbers reported by the superintendency of finance of household leverage improving. So that correlates to the contraction in consumer and retail loans that we've seen before. But we still have some uncertainty about what is going to happen with unemployment. So perhaps the main change in the guidance for this call is a higher cost of risk with an expectation to trend to better numbers as the economy recovers.
Speaker Change #149: From the macro side there is a number of positives going on we see the numbers reported by the superintendency of findings of household leverage improving so that correlates to the contraction in consumer and retail loans that we've seen before but we still have some caution on what is going.
Speaker Change #150: Happen with unemployment.
Speaker Change #150: That's perhaps the main change in the guidance for this call is a higher cost of risk with an expectation to trend to better numbers as the economy recovers.
Diego: Even though it's data-dependent, we see positives going on on the inflation front, we see positives on the central bank front, and also from the GDP growth perspective. So even though cautious, we see an improvement in that area, and that would help us to trend back to a sub-2% cost of risk that we are more familiar with. Regarding our standalone balance sheet, yes, Aval didn't buy bonds from Banco de Occidente. It was a particularly small issue, and we wanted this to be the inaugural bond issue for Banco de Occidente.
Speaker Change #150: Even though it's data dependent.
Patrick: Patrick it's going on on the inflation front, we see positives under Central Bank front and also from the growth the GDP growth perspective so.
Speaker Change #152: Even though cautious we see an improvement in that area and that would help us to trend back to a sub 2% cost of risk that we are more familiar with.
Speaker Change #153: Regarding the Standalone balance sheet, yes.
Speaker Change #153: Dear and buy bonds.
Speaker Change #153: Bonds from Banco <unk>.
Speaker Change #154: Particularly small issue and we wanted this to be.
Speaker Change #155: Inaugural bond for <unk> Bancorp.
Diego: It was not a benchmark-sized transaction because of the needs of the bank, but still, they were able to set up the market. Regarding the 81, we will be looking at the call of the bond during the next year. At this point, I would say the probability of that call is relevant given the trend of rates going on, and we have to wait a few months to see that happen, but it is a possible scenario that it will be called.
Speaker Change #156: It was not.
Speaker Change #156: Benchmark.
Speaker Change #156: Type transaction because of the need for the bank.
Speaker Change #156: They were able to improve the capital markets regarding the 81.
Speaker Change #157: We are we.
Speaker Change #157: We will be looking at the call of the bank.
Speaker Change #157: <unk> during next year.
Speaker Change #157: At this point I would say.
Speaker Change #157: The priority of that call is relevant given the trend of rates going on.
Speaker Change #157: And we have to wait a few months to see that happening, but it is.
Speaker Change #157: It is a possible scenario it will be called.
Diego: And then you have, there are a few other questions.
Speaker Change #157: And then you had.
Speaker Change #158: A few other questions.
Diego: And in that case, Diego, so again, assuming it's gold, what would be the amount of the 81 issue from the other side? Okay.
Okay.
Speaker Change #159: So again assume any score what would be the info right now whats the amount of the HD one from April.
Diego: It's very, it's a, yeah, no, yeah, your question on double leverage is a very relevant event. What we are working on is trending down that to 120%. That is basically a ratio that rating agencies have pointed to, and the 81 represents close to 11 percentage points of double leverage. So if the bond is called and we do nothing else, we would be around 110 or under that number. Okay, thanks very much.
Speaker Change #159: Barry.
Barry: Yes. Your question on double leverage is a very relevant event. What we are working on is trending down back to 120% that is basically a ratio that the rating agencies have pointed to and the 81 represents.
Barry: To 11 percentage points.
Barry: Our leverage so in the bond it's called <unk>.
Barry: Nothing else we would be.
Barry: In around 110 or under that number.
Barry: Okay. Thanks, very much Phil.
Operator: Again, press star 1 for any questions, and your next question will come from the line of Julian Osique with WD&F Gordorath. Please go ahead.
Again press Star one for any questions and your next question will come from the line of Julian Oc with Dolby D&S corridor. Please go ahead.
Julian Felipe Ausique Chacon: Hi everyone, and thank you for having my questions. I have several questions. The first one is if you can maybe repeat the guidance because I couldn't understand the line when you were giving the guidance.
Julian Felipe Ausique Chacon: Hi, everyone and thank you for hearing my questions I have several questions. Victor I was wondering if you can maybe repeat the guidance because I couldnt get to.
Julian Felipe Ausique Chacon: And the line when you were giving the guidance.
Julian Felipe Ausique Chacon: And my other two questions are regarding, the first one is regarding the corporate deterioration segment. Like, how are you looking at the deterioration for this year in terms of the corporate sector? Because here in Correos, we are seeing some deterioration in the corporate sector. So what are your expectations and, if you have any, any sensitivities and sensibilities about the MPLs both in 30 and 90 days for this segment? And my second question is regarding the minimum investment. I was looking at the P&L.
Julian Felipe Ausique Chacon: Two questions are regarding the first one is regarding the corporate.
Julian Felipe Ausique Chacon: Generation segment like how are you looking the deterioration on sort of the year in terms of the corporates because hearing in current and we are seeing some deterioration in that.
Speaker Change #162: In the corporate sector. So what are your expectation.
Speaker Change #163: Have some like <unk>.
Speaker Change #164: <unk> is about.
Speaker Change #165: The npls.
Speaker Change #165: Both internally on 90 days.
Speaker Change #166: New segment and my second question is regarding the Nemo investment I was looking like.
Speaker Change #165: <unk>.
Speaker Change #165: <unk>.
Julian Felipe Ausique Chacon: And I saw that during the quarter, you had an increase in interest and investments in debt securities of 11%. So I could understand why the NIM on investments had a negative performance during the quarter and also understand why the NIM on loans had some increase because when I saw the P&L, I saw an iteration on the income of the loan portfolio of 4%, and also, I saw a decrease in the cost of funds. So I would like to understand a little bit more about the NIM on investment and the NIM on loans.
Speaker Change #167: And I saw that during the quarter you have an increase on in terms of investments in debt securities of 11%. So I can understand why your NIM on investments had a negative performance during the quarter and also to understand why they're in NIM on.
Speaker Change #167: Loans have some decrease.
Speaker Change #167: Some increase.
Speaker Change #167: Because when I saw P&L so deep.
Speaker Change #167: The duration on the commercial loan portfolio of 4% on also.
Speaker Change #168: I saw a decrease in the cost of funds side, we would like to understand a little bit more about any morning amendment in dengue months of loans. Thank you.
Julian Felipe Ausique Chacon: I'm not sure I understood all your questions, but could you repeat what part of the guidance you missed?
Speaker Change #169: I'm not sure I understood fully your question could you repeat what part of the guidance unique.
Julian Felipe Ausique Chacon: Like if you can give the loan for a quarter of an hour a week, that's the first Okay, okay. So, the cost of risk...
Speaker Change #170: And like if you can give the loan NIM.
Speaker Change #171: Not really.
Speaker Change #172: That's the first one.
Diego: Okay, okay, so a cost of risk of 2.3% and ROE in the 6.5% area might have some upward bias, but at this point, we're cautious on the cost of risk side. Regarding commercial loans, the segments in which Aval is concentrated are much more larger commercial companies and corporates.
Speaker Change #172: Okay, Okay, so cost of risk of two points.
Speaker Change #173: <unk>, 3% and ROA in the six 5% carrier might have some upward bias, but at this point, we're cautious on the cost of risk.
Speaker Change #173: And regarding commercial loans.
Speaker Change #174: The segment in which our least concentrated are much more of the larger.
Speaker Change #174: In commercial.
Speaker Change #175: <unk> and corporate therefore, we have seen some slight deterioration, but it twice miles at this point.
Diego: Therefore, we've seen some slight deterioration, but it's quite mild at this point. If you look at that through stages, on the stage front, you even see some bias to an improvement there. So we are watchful of the deterioration in commercial lending, but it hasn't really shown up in numbers yet, and it is related to the kind of customers that we have. There might be more concern if you go to smaller commercial loans and SME loans, but in our case, we're more at the point of making sure that everything stays under control.
Speaker Change #175: If you look at that too.
Speaker Change #175: Stages.
Brian Changes: On the stages, Brian you, even some bias to any improvement there so.
Brian Changes: We are watchful of.
Speaker Change #177: The duration on commercial but it hasnt really shown up in numbers, yet penny related to the kind of customers that we have.
Speaker Change #177: There might be more concerning to go to smaller.
Speaker Change #177: Commercial loans.
Speaker Change #177: <unk> alone, but in our case.
Speaker Change #177: We're more at the point of making sure that everything keeps under control you might imagine that.
Diego: You might imagine that we've been looking into segments that are more sensitive than others, and perhaps at this point, something to mention is that we're very well diversified across sectors and inside sectors across customers, so we're not expecting any big surprises. On the Neiman Investments front, yes, it was perhaps one of the things that affected our overall name. We saw improvement in Neiman loans; however, a lower Neiman investment did affect us. Part of that, as I mentioned during the call, is offset with derivatives in the other income line.
Speaker Change #178: And looking into segments that are more sensitive than others.
Speaker Change #177: <unk>.
Perhaps at this point something.
Speaker Change #179: Dimension is we're very well diversified across sectors and in tight sectors across customers or we're not expecting any large or price.
Speaker Change #179: And the new money investments front.
Speaker Change #180: Yes, it was perhaps one of the things that affected our overall NIM, we saw improvement in NIM on loans. However.
Speaker Change #180: Lower NIM on investments.
Speaker Change #180: Part of that as I mentioned through the call is offset with the.
Speaker Change #180: Derivatives in the other income line, having said so at the end of March was not that positive for the market we've seen a better.
Diego: Having said that, the end of March was not that positive for the market. We saw a better evolution during the second quarter on returns on fixed income investments. Therefore, we are expecting to see a better result over the year than what we saw for the quarter.
Speaker Change #180: Evolution during the second quarter on returns on fixed income investments.
Speaker Change #180: Therefore, we are expecting to see.
Speaker Change #181: Better result over the year than what we saw for the quarter.
Operator: There are no further questions at this time. Ms. Maria Lorena Gutierrez Botero, I turn the call back over to you.
There are no further questions at this time, Ms Martie, <unk> I turn the call back over to you.
Speaker Change #182: Okay. Thank you to legal.
Speaker Change #181: <unk>.
Speaker Change #181: Paul.
Speaker Change #183: Good day.
Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Luis Sarmiento Gutierrez: Okay, thank you to you all and see you soon in the next poll. Good day. Thank you, ladies and gentlemen. This concludes today's...
Speaker Change #184: Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Speaker Change #184: [music].
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Speaker Change #184: Yeah.
Speaker Change #184: Okay.
Speaker Change #184: [music].
Speaker Change #184: Okay.
Speaker Change #184: [music].
Okay.
Speaker Change #184: Okay.
Speaker Change #184: Yeah.