Q3 2024 Bancolombia SA Earnings Call
Good morning, ladies and gentlemen, and welcome to Banco Columbia third quarter of 2024 earnings Conference call. My name is Matt and I'll be your operator for today's call at.
At this time all participants are in a listen only mode.
I wanted to read prepared remarks, there will be a question and answer session.
The question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
Please note that this conference is being recorded.
Also please note that this conference call will include forward looking statements, including statements related to our future performance capital position credit related expenses and critical office.
All forward looking statements whether made in this conference call or future filings and press releases or verbally address matters that involve risk and uncertainty.
Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including the changes in general economic 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.
<unk> and various other factors that we described in our reports filed with the SEC.
Speaker Change: With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Greenfield, but Carol Wolfe, Chief Chief strategy, and financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, Mrs. Catalina telephone Investor Relations and capital markets Director and this is Laurie cobalt chief Communist matter.
Speaker Change: If you turn a coffee over to Mr. Mr. Juan Carlos Mora, Chief Executive Officer. Thank you you may begin.
Speaker Change: Good morning, and welcome to the Bancolombia as third quarter results Conference call.
Speaker Change: Please turn to slide two.
Speaker Change: As we advance through the year, we are observing increasingly positive indicators with the economic landscape on great cycle.
Speaker Change: Inflation rates hospice instantly decline, namely the Columbia Central Bank to reduce interest rates. This environment supports little Crazy to go Asian encourages domestic spending.
Spike and modest expansion on all of our credit portfolio and a decline in interest income the third quarter reported a consecutive improvement.
Speaker Change: By a net income of 1.5 trillion pesos.
Speaker Change: This represents a 4.3% growth quarter over quarter, and a 1% increase year over year, resulting in a 15% return on equity.
Speaker Change: This performance is attributed to the good performance of our investment portfolio.
Speaker Change: You, probably shouldn't charges and operating expenses that have grown well below the inflation rate as we will further elaborate.
Speaker Change: I will also like to underscore that despite increased competition for deposits in Columbia Bank.
Bancolombia has maintained its robust capacity to attract resources from retail commercial and institutional clients.
Speaker Change: During the quarter total deposit growth surpasses loan growth, ensuring our low funding cost on mitigating decompression of interest margins.
Speaker Change: The original front on the color period, we announced our decision to a bowl of our corporate structure by establishing a new holding company group beside this which will serve as the parent entity for all of them in Colombia as lines of business, while preserving all fits within the current group perimeter.
Speaker Change: The primary rationale for this decision is that Bancolombia currently function seamless gutting asleep at the bank and holding company, resulting in financial inefficiencies regulatory complexity and operational constraints due to the rigorous regulatory framework governing banking in this book.
Speaker Change: Post corporate evolution aims to address these challenges by providing us with greater flexibility for corporate development and enabling more efficient capital allocation.
Speaker Change: Additionally, it will isolate goodwill from the Colombian regulated entities capital and reduce its sensitivity to foreign exchange volatility also allowing us to implement share repurchase programs I say novel method.
Speaker Change: Of distributing value to our shareholders.
Speaker Change: We anticipate concluding this transaction by mid-2025. We will provide timely updates as we progress through the key milestones.
also.
Speaker Change: Following the successful issuance of new subordinating notes due 2034, which contributed 115 basis points to our Tier 2 capital as of the third quarter, on October 24th,
Speaker Change: We announced our decision to redeem the subordinated notes due 2029, effective on the call date of December 18th.
Speaker Change: Furthermore, we have decided to redeem the remaining CEU notes due 2025 as a prudent measure to eliminate refinancing risk early next year.
Speaker Change: Lastly, we are pleased to announce that Bancolombia has been recognized for the tenth consecutive year by Merckl as the company with the best reputation in the country for its contribution to economic, environmental, ethical, and social matters, among other aspects.
For more information visit www.FEMA.gov
Speaker Change: I will now hand over the presentation to Laura Clavijo, our Chief Economist, who will provide a more in-depth analysis of the macroeconomic environment. Laura?
Thank you for watching!
Thank you, Juan Carlos.
Speaker Change: If you could please turn to slide three. The economic outlook for Colombia remains cautiously optimistic, with improving financial conditions beginning to channel through to some sectors and spurring demand. Consequently, we have revised upward our end-of-year growth forecast to 1.8% from a previous 1.3% and to 2.6% for 2025. However, economic growth remains uneven across sectors and below long-run potential of 3%, according to our medium-term outlook.
Speaker Change: Even though we are currently at an early stage in the economic recovery, there are timid signs of an uptick in internal demand, as financial strains on households and businesses begin to ease.
Thank you.
Speaker Change: Colombia, although a little behind on the curve, has also managed to cool inflation from its peak of 13 percent in March 2023 to 5.8 percent during September this year, moving closer to our end-of-year forecast of 5.7 percent.
Speaker Change: These past few months have been especially consistent for the disinflation process of core inflation metrics. However, the well-known effect of indexation on inflation is still tangible and will remain at the center of the minimum wage discussion for 2025 to take place before year end.
Speaker Change: As a result, the central bank continued cutting its policy rate at the ongoing pace of 50 basis points, closing the third quarter at a repo rate of 10.25%.
Speaker Change: even the receding inflation a closing output gap and the beginning of the easing cycle by the Federal Reserve might have given way to a scenario of accelerated interest rate cuts
Speaker Change: Fiscal pressures and uncertainty moving forward has motivated a cautionary approach from the central bank.
Speaker Change: Finally, pressures on the fiscal front have escalated recently as tax revenues have consistently underperformed, interest payments have amounted, and social expenditure goals are pursued.
Speaker Change: The presentation of fiscal measures in Congress, including a failed 2025 budget, now to be passed by decree, a tax reform, and a decentralization bill have put the fiscal discussion at the forefront once again. Now let me turn back to Juan Carlos.
Thank you, Laura.
Please proceed to slide four.
Speaker Change: I would now like to provide an overview of Neki evolution and I want to start by highlighting that Neki is more than just a digital wallet.
Speaker Change: It is our digital new bank and it has leveraged technology and data to provide financial and non-financial services through different partnerships, transforming the way Colombians manage and interact with money.
Speaker Change: With his intuitive and user-friendly value proposition, Neki facilitates digital payments and transfers.
Speaker Change: cross-border incoming payments, remittances collections, bill payments and mobile top-ups in a straightforward and secure manner such that we are proud to see NECI's presence throughout the country, visible in many corner stores and small businesses.
Moreover...
Speaker Change: Its digital footprint is complemented by physical access points, including 5,100 Mancolombia ATMs and over 28,000 banking agents, which significantly enhance user engagement and transaction volume.
as a result.
Speaker Change: 72% are active users measured in a 30-day period and 68% of them are using products that generate income and, most important, with low levels of churn rates.
Speaker Change: transactions a month per active user. This significant growth in transactions has fueled deposit growth that ended with a balance of 3.2 trillion pesos representing a 45% year-over-year increase.
Please proceed to slide 5.
Speaker Change: The loan portfolio continues to grow at a solid pace and has more than doubled its balance.
Speaker Change: reaching 406 billion pesos, representing a 62% quarter-over-quarter and 187% year-over-year increase.
Speaker Change: The significant volume of transactional information from customers and their behavior with app usage and activity provides a great opportunity to leverage loan originations and as a powerful source towards NECI's path to profitability.
Speaker Change: We have also grown our income significantly, with a 45% year-over-year growth, driving an increase in ARPAT.
Speaker Change: as a result of portfolio growth and the adoption of valuable services by NECI users, resulting in fees growing by 76% year over year.
Speaker Change: We strongly believe that MECI possesses the scalability necessary to continue developing a competitive advantage of low-cost financial services as it continues evolving its digital engagement.
Speaker Change: Consumer retention and credit offering thus allowing it to dilute acquisition, funding, and risk costs unlike other competitors.
Speaker Change: All in all, NECI plays a vital role in Bancolombia's ecosystem, supporting strategic alliances and interoperability initiatives.
Speaker Change: positioning itself for continued growth and paving the way to profitability. I will now hand over the presentation to Mauricio Botero, who will provide further insights into the third quarter 2024 results. Mauricio?
Thank you, Juan Carlos. Please go to slide 6.
Mauricio Botero: Our regional operations in Central America continue to provide diversifications in terms of credit risk and currency exposure.
Mauricio Botero: It is noteworthy that Banco Agromercantil demonstrated positive loan origination dynamics, achieving a 3.6% expansion in its loan portfolio.
Mauricio Botero: Conversely, Banismo and Banco Agrícola experienced a contraction in their credit portfolios, primarily due to a decreased demand for commercial loans.
Mauricio Botero: Also, Banco Agrícola achieved higher net income and return on equity, supported by an increase in interest income and a decrease in provisioning charges, whereas BAM and BANISMO reported a reduction in net income over the quarter. Let's now proceed to slide 7.
Mauricio Botero: In the sluggish economic cycle observed during the first three quarters of the year, we have experienced a modest yet consistent increase in our trade portfolio.
Mauricio Botero: When adjusted for foreign exchange, growth for the quarter was 0.3%.
Mauricio Botero: align with nominal growth due to a more stable FX rate during the period and 3.5% over the year as FX appreciated by nearly 10% over the past 12 months.
Commercial loans presented modest growth of 0.5% over the quarter.
Mauricio Botero: While we continue to offer special credit lines to stimulate demand, the pace of growth remains subdued due to the still weak macro backdrop and expectation of further interest rate cuts.
Mauricio Botero: However, on an annual basis, the commercial portfolio recorded a 5.8% growth.
Mauricio Botero: Conversely, the consumer segment continues to contract, decreasing by 0.4% during the quarter and 2.3% over the year, explained by our Steel Stringent Origination Standards.
Mauricio Botero: primarily driven by operations in Colombia. The rate reduction program we launched in July has resulted in a significant uptick in credit disbursements which coupled with social housing subsidies provided by the government has further stimulated demand.
please go to slide 8.
Mauricio Botero: During the quarter, deposits grew by 0.7% and by 6.4% during the year, outpacing the performance of loan origination and underscoring the bank's robust ability to attract and retain low-cost deposits.
Mauricio Botero: Site deposits exhibited mixed performance during the quarter, with savings accounts growing by 0.5%, while checking accounts decreased by 1.8%, primarily due to lower balances across all Central American operations.
Mauricio Botero: Conversely, time deposits increased by 1.6% during the quarter and 6.8% over the year, partially offsetting the reduced net balance inside deposits.
Mauricio Botero: This growth is largely attributed to operations in Colombia and relies heavily on retail customers.
Mauricio Botero: particularly short-term online time deposits, which have increased their share within the total balance.
Mauricio Botero: Our diverse range of funding sources and advanced technological capabilities enable us to offer products specifically tailored to meet the distinct needs of our clients.
Mauricio Botero: Overall, savings accounts remain our primary funding source, comprising 38% of our funding mix and largely explain our stable and low-cost funding structure.
Mauricio Botero: From a funding cost perspective, the total cost of deposits fell by 19 basis points during the quarter, led by a 35 basis point reduction in time deposits and a 17 basis point reduction in savings accounts, in line with reference rate cuts.
Mauricio Botero: Our effective diversification and flexibility in our funding structure allow us to shift between sources based on interest rate cycles and client demand.
please proceed to slide 9.
Mauricio Botero: Total interest income from loans and financial leases decreased by 3.5% during the quarter and 6.9% during the year.
Mauricio Botero: This decline is primarily attributed to a relatively stable loan portfolio with lower yields as the loan book was repriced at reduced rates.
Mauricio Botero: However, interest expenses continue to decline, in line with our strategic initiatives aimed at achieving rapid cost reduction, complemented by the prepayment of loans with correspondent banks.
Mauricio Botero: These measures effectively offset the increase in interest expenses associated with bonds.
Mauricio Botero: It is important to highlight the significant performance of interest and valuation income from financial instruments during the third quarter.
Mauricio Botero: which posted an impressive increase of 41% over the quarter and 81%
Mauricio Botero: over the year. Additionally, our derivatives portfolio and repurchase agreements contributed positively to these results.
Mauricio Botero: All in all, net interest income decreased slightly during the quarter as the contraction in interest expenses didn't fully offset the reduction in loan yields.
Mauricio Botero: The net interest margin for the quarter was 6.8%, reflecting a 22-basis point compression driven by a 53-basis point reduction in the lending margin, despite improved investment performance.
Niin Koun Taddshiin.
Mauricio Botero: For example, in insurance with repricing of time deposits, a 67% off total balance is set to mature within the next 12 months.
Please proceed to slide 10.
Mauricio Botero: Seeing how to mix performance on the quarterly analysis when looking at each component.
Banking Services, Debit and Credit Cards, Payments and Collections.
Mauricio Botero: grew in the quarter and sustained an increasing trend during the year. This growth was fueled by an increase in transaction volumes, a strong client engagement, and expanded utilization of our distribution network.
Mauricio Botero: Additionally, asset management contributed to fee income from fiduciary services fueled by an increase of assets under management from individual clients.
Mauricio Botero: Conversely, bank assurance decreased in the quarter due to a one-off income accrual recorded in the previous quarter, which affected total fee income this quarter.
Meanwhile...
Mauricio Botero: Fee expenses decreased by 4.6% during the quarter, attributed to unanticipated expense accrual in the previous quarter.
Mauricio Botero: However, on a year-over-year basis, fee expenses have increased by 12% outpacing the growth in fee income.
Mauricio Botero: As a result, net fee income decreased slightly during the quarter, leading to a fee income ratio of 19%, as other sources of operating income grew more during the quarter.
please go to slide 11.
Mauricio Botero: For the second consecutive quarter, there was a decline in past due loan formation.
Mauricio Botero: with a notable decrease in consumer loan deterioration as we had anticipated.
Mauricio Botero: Delinquency ratios are beginning to reflect improved asset quality with loans 30 days past due decreasing to 5.1% while maintaining a coverage ratio of 112%.
Mauricio Botero: to sustain a healthy balance sheet with a robust coverage ratio of 165 percent.
Mauricio Botero: Moreover, net provision expense for the quarter amounted to 1.6 trillion pesos.
Mauricio Botero: marking a 2% decrease quarter over quarter in a 1.3% decline year over year attributed to improved loan performance.
Mauricio Botero: Notably, there was a reduction of $265 billion in consumer loan provision charges and $142 billion in SME provisions.
Mauricio Botero: which were the primary drivers for a lower cost of risk.
Mauricio Botero: Furthermore, there was a provisional release of 218 billion pesos, mainly explained by model parameter updates, which reflected better credit behavior from customers.
Conversely, commercial loans and some non-sector-related large exposure
Mauricio Botero: demanded higher provisions in the third quarter. Overall, the quarterly analyzed cost of risk improved to 2.4 percent, reflecting the enhanced performance of new vintages in an improved collection process.
Mauricio Botero: From an expected loss perspective, stage 3 increased due to the actual deterioration of specific corporate clients as previously mentioned.
Mauricio Botero: while stage two experienced an incremental volume in response to a preventive assessment of certain customer segments.
Mauricio Botero: However, we will continue to closely monitor potential loan deterioration among SMEs associated with specific economic sectors.
please go to a slide 12.
Mauricio Botero: Focusing on our Colombian operations, we have observed a continued downward trend in loan deterioration, as measured by the past new loan delta.
which has improved from 7.8% to 6.7% during the quarter.
Mauricio Botero: This reduction in delinquency formation underscores the effectiveness of our collection strategies and the adjustment of our credit risk appetite for this segment.
Mauricio Botero: Progress is evident across all products within the consumer segment. Personal loans, auto loans, and credit cards have demonstrated lower pay-due ratios on a quarterly basis.
Well, further deterioration has been successfully contained in payroll loans.
Mauricio Botero: Overall, the consumer segment has seen a reduction in its 90 days past-due loan ratio from 5.4% to 4.9%, alongside a significant improvement in the cost of risk.
which decreased from 8.7% last quarter to 7.2%.
Mauricio Botero: As we anticipate improved macroeconomic conditions moving forward, we expect to reactivate credit originations at a faster pace in the upcoming quarters.
Mauricio Botero: adhering to our right risk adjusted parameters while ensuring asset quality remains under control.
Please proceed to slide number 13.
Mauricio Botero: Operating expenses increased 1.4% over the quarter and 3.2% over the year, remaining well below Colombia's inflation rate for the past 12 months.
Mauricio Botero: This outcome clearly reflects the success of our ongoing expense reduction program.
Mauricio Botero: Regarding personal expenses, there was a 4.7% quarterly increase and a 5.8% annual increase, both significantly below the annual wage growth in Colombia.
Mauricio Botero: Additionally, administrative expenses contracted by 0.8% during the quarter primarily due to lower VAT provisions related to reduced general and fees expenses.
Mauricio Botero: while expanding only 1.4% over the year thanks to AREF's effective cost control measures.
Mauricio Botero: As a result, the cost-to-income ratio improved during the quarter, decreasing from 49% to 48%, thereby demonstrating the efficiency gains achieved through these initiatives.
Please proceed to slide 14.
Thank you.
Mauricio Botero: Net income for the quarter reached 1.5 trillion Colombian pesos, representing a 4% increase from the previous quarter.
Mauricio Botero: Despite the ongoing reduction in net interest income from our lending business due to the prevailing interest rate cycle, the quarter's improved results were driven by a lower cost of risk.
Mauricio Botero: a stronger investment performance and a base effect from the second quarter related to a one-time impairment charge associated with a joint venture.
The return on equity for the quarter was 15%.
Mauricio Botero: which, if adjusted for goodwill, translates to a return on tangible equity of 20%, underscoring the operation's robust profitability.
Mauricio Botero: Furthermore, an attractive and consistent dividend payout to shareholders enhances the total value returned on the investment.
Now, please proceed to slide 15.
Mauricio Botero: Shareholders' equity rose by 4.3% quarter over quarter and 9% over the year, primarily driven by net income generation coupled with the effects of FX depreciation.
consistently
Mauricio Botero: Core Equity Tier 1 ratio ended at 11.58%, a 60 basis point increase over the quarter, proving our sound organic capital generation capacity.
Mauricio Botero: On the other hand, total capital adequacy ratio increased 175 basis points quarter over quarter.
Mauricio Botero: up to 14.4% because of the 800 million subordinated bonds issued in late June, contributing 115 basis points of Tier 2 capital.
Speaker Change: With this, I will now hand the presentation back to Juan Carlos for the final remarks. Juan Carlos.
For more information visit www.FEMA.gov
Thank you, Mauricio.
Please proceed to slide 16.
Regarding our sustainability strategy,
Speaker Change: We have successfully originated over 32 trillion Colombian pesos in 2024.
Speaker Change: contributed to a cumulative total of 173 trillion pesos since 2020.
Speaker Change: On the other hand, we continue advancing in our emerging rural system which aims to promote inclusion and financial education across various municipalities in the southern region of the country.
positively impacting over 8,000 individuals to date.
Please go to slide 17.
Lastly,
Speaker Change: I will share our year-end 2024 and a preliminary 2025 guidance.
Speaker Change: Based on the current data and our updated macroeconomic forecasts, we expect to close 2024 with a loan growth of 6.5%.
Speaker Change: broken down in a 2.8% growth on peso denominated loans and 6.8% in dollar denominated loans.
Speaker Change: NIM around 6.8%, Cost of Risk around 2.2%, and Efficiency Ratio in the 50% area, ROE around 15%, and Core Equity Tier 1 Ratio around 11.7%.
For more information visit www.FEMA.gov
Speaker Change: Furthermore, on a very preliminary stage, for 2025, we expect a long growth of.
Speaker Change: 7.2% in pesos and 1.3% in dollar denominated loans. NIM, around 6% but in the end of the year. Cost of risk of around 2%. Efficiency close to 51% and ROE between 13 and 14%.
Speaker Change: With this, we conclude our third quarter results remarks. Now we will take any questions you may have.
Thank you.
Thank you for watching!
Speaker Change: Great, thank you. At this time we will be conducting a question and answer session. If you have a question, please press star then 1 on your touchtone phone.
Speaker Change: If you wish to be removed from the queue, please press star, the pound sign, or the hash key.
Speaker Change: If you are using a speakerphone, you may need to pick up your headset first before pressing the numbers.
Speaker Change: Once again, if you have a question, please press star 1 to join the queue. If you'd like to remove yourself from the queue, it is star 2.
Please wait while we poll for questions.
For more information visit www.FEMA.gov
Speaker Change: Our first question here is from Ernesto Caballando from Bank of America. Please go ahead.
Speaker Change: Thank you. Hi, good morning Juan Carlos, Mauricio, and good morning to all your team. Thanks for the opportunity to ask questions.
Speaker Change: I have three topics from my side. The first one, my first question will be,
Speaker Change: on your investment securities on the NII. We noticed they were abnormally high during this quarter, so we just wanted to understand what was behind that gain.
Speaker Change: I'm looking to your guidance. We are looking to mean pressure of around 80 basis points. So just wanted to double check if...
Speaker Change: Probably, you are expecting these security gains not to be recurring and that's why you're assuming new pressure for the next year.
Speaker Change: My second question is on your net income growth expectations for next year.
Speaker Change: Assuming that you are expecting an ROE of around 14%, so what should it imply in terms of earnings growth or contraction?
Speaker Change: next year. And what do you think will be the key metrics to understand this deceleration of the ROE? Would that be just the mean or what else are you seeing?
Speaker Change: And my last question is on your new corporate structure, so looking to the subsidiaries, Panama is showing kind of weak results, Guatemala's numbers are gradually improving.
and El Salvador is posting strong results.
So, considering this new structure...
Speaker Change: That probably could allow you to have more flexibility on your decisions. Would it make sense to sell or give...
Speaker Change: Maybe, I don't know, Panama to a third party to unlock value for Bancolombia's ROE. Just wanted to hear your thoughts. This could be a possibility considering this new holding structure. Thank you.
For more information visit www.FEMA.gov
Speaker Change: Thank you Ernesto. Let me let me start for with your second question and I develop also the third and I am going to pass your first question to Mauricio that one regarding the investment security name and if it's a one-time name or is going to be recurrent.
Speaker Change: As we mentioned, we are expecting an ROE of around 14% for 2025.
Speaker Change: And that ROE is very well related with, of course, the cost of risk.
but...
Speaker Change: NIM is going to play a big role on the results of 2025.
And as you mentioned, we are...
respecting the name to compress.
Due to...
Speaker Change: The decline in interest rates is also going to play a key role. So what we are expecting is that the Central Bank in Colombia
is
The
Speaker Change: of the monetary policy is going to be key for us all.
to your question.
Key for 2025 results, NIM and cost of risk.
Speaker Change: Also, we have to work on expenses, but we think that is something that we can manage. The other are more market conditions. Additionally, how the volume...
behaves.
Speaker Change: Meaning how the long growth is going to be is also important. So with all of that, our expectations of around 14% consider a long growth of 7% and a mean going down to 6.
to six percent. So those are our key.
Speaker Change: And regarding your third question, yes, the new corporate structure is going to give us flexibility and is going to give us options to develop different strategies, but now we
finishing all the steps.
Speaker Change: needed to have the corporate structure. After that, we will consider the alternative that we may have. So now our focus is to have the structure that again gives us flexibility and then we will develop further the strategies.
Speaker Change: regarding improving our our financial results. And regarding your first comment I am going to pass to Mauricio to comment on that Ernesto.
Hi Ernesto
Mauricio Botero: As you very well mentioned, we have significant interest income from investments in the quarter. And I would like to divide the answer in two parts. One is in terms of volume.
Mauricio Botero: The investment portfolio grew 17% quarter over quarter and 32% year over year. That's abnormally high. We should not expect to see an investment portfolio
Mauricio Botero: One, for one hand, because of the investment we did to prepare for the call.
of the 29 that we announced to the market.
and on the other hand...
Mauricio Botero: It is because if we see an increase in demand of credit that we are expecting.
you should see how we divest
Mauricio Botero: some of that debt portfolio investment and move it into credit, which of course has better margins. So that's in terms of volume. In terms of margin, which was your specific question,
Mauricio Botero: That was, in fact, abnormally high, at 4.6%. You shouldn't expect...
Mauricio Botero: that margin to be sustainable, the long-term sustainable margin for the debt investment portfolio.
should be somewhere between 2.5 and 3%.
Speaker Change: But considering your guidance in an ROE of 14, how should we think about the earnings? Relatively flat, more contraction, how are you seeing them?
And Ernesto...
with the numbers that we are given as a guidance.
Speaker Change: The net income should be a little bit lower or flat. And the upside will come from better than expected loan growth and, as I mentioned, the speed on NIM reductions.
Speaker Change: To your specific question, we are expecting a little bit lower net income or flat, no more than that.
Okay, now perfect. Thank you very much, Juan Carlos.
Thank you, Ernesto.
Thank you.
Speaker Change: Our next question is from Uri Fernandez from J.P. Morgan. Please go ahead.
Uri Fernandez: Thank you guys and good morning. I would like to explore a little bit more the margins from the guidance. I understood a 6% mean consolidated for 2025. It's now running at 6.8 and I totally get that it makes sense.
Uri Fernandez: for some compression given lower rates in Colombia. But I would like to understand if this is the average mean for the year or if this is the year-end mean. So, you know, this continues to slow down, like 6.8, going to 6.6, 6.4, and then ending the year at 6.
Uri Fernandez: or if this is the average for the year, and then I can ask a second question. Thank you.
Speaker Change: Thank you Uribe. Let me let me pass your question to Mauricio.
Mauricio Botero: Hi Uri, that's the figure we're having for the whole year. Now, it's important to take into account
that the
Thanks very much.
Mauricio Botero: with the expectations that are in the market as of today, but if the speed of decline is slower than expected, the impact in the net interest margin would be lower.
Speaker Change: No, not super clear. And to compensate that, how should we think about cost of risk moving down? I see that this quarter you had a specific case in Panama. I think this should help and your cost of risk should move lower. But what is the pace of the decrease in cost of risk to compensate lower margins?
Gustav Riesg
Speaker Change: should continue improving and 2025 will have a cost of risk around 2%. And we are coming from, remember 2.6, even higher, then 2.4 and for the quarter, it's 2.2. So for next year, it's...
with the studies.
Speaker Change: But the amount of our loan book, it is important, and we have seen some...
Speaker Change: acceleration on the demand by the end of the year so that will create a base that is going to help us somehow for the 2025 theory.
Speaker Change: No, no, super clear. So the message is the following, like means will go down this 80 beats, whatever, and then you have cost of risk decreasing some six, so you have a compression risk adjusted margin, but you have higher volumes, and part of it is to compensate with efficiency, right? That is part of our message in the presentation.
Thank you very much, guys, and congrats.
Thank you.
Speaker Change: Our next question is from Andre Soto from Santander, Mexico. Please go ahead.
Speaker Change: Good morning to all. Thank you for the presentation. I have a question regarding NECI. Actually, I want to congratulate you guys, not only in the results, but the increased visibility.
Speaker Change: that you are providing with these new numbers that you are sharing. I'd like to understand what is the role that NECI, well, the first question will be, when you look at the NECI, go ahead.
Speaker Change: Now, the income and financial income are split 50-50 in terms of the revenue contribution. How do you see that split evolving? Do you expect any acceleration in lending? When I look at the numbers, you know, Nike already represents
2% of your deposits in Colombia, but...
Speaker Change: a sense of that in terms of loans. So you see some room for accelerating there and disconnecting with the idea that you are more optimistic about volumes in 2025. Is it next year driver for that or the main driver is going to be commercial loans or traditional consumer loans?
Thank you, Andres.
mm-hmm
Speaker Change: As you see and you mentioned, the deposits on NECI are around $3 billion, $3.2 billion, and our loan booking in NECI is now $400.
Speaker Change: So, there is a room to increase our loan book and the resources that are not on the loan book are, at this time, getting interest rates at the market rate.
There is a space.
Speaker Change: A big space to improvement on the interest income on NECI, but we need to go on a pace that allows us to increase the volume, but also take into account...
Ruiz.
But there is a big upside there.
Speaker Change: between what is the loan interest rates and what is the market rate for...
Thank you.
Speaker Change: Again, taking into account risk. And to your comment, in general...
We expect consumer loans to behave better during 2025.
Speaker Change: And NECI is going to be part of that, but not just NECI, but also Bancolombia will expect to improve.
Speaker Change: the growth on consumer loans and that's also going to be positive on our loan mix.
Since 2024, we are seeing a decrease on consumer loan.
Speaker Change: in consumer loans and commercial loans are growing. So, that's also affecting the NIM. If we change that dynamic and consumer loans start growing better, and that's our expectation, that could also have some positive impact on NIM.
Mauricio Botero: And let me pass, Mauricio, for additional comments on this topic and rest.
Mauricio Botero: Hi Andres. Yeah, as you can see, NEC is dynamic. It's been very, very positive.
Mauricio Botero: And what we expect for year-end next year, it's a growth of deposits of somewhere between 15 and 17 percent.
Mauricio Botero: But loans are expected to grow, and I'm talking specifically about NECI, loans are expected to grow 100%.
Mauricio Botero: So, we expect to have a loan book in NECI at year-end in 2025 of $1.2 billion.
Speaker Change: Thank you, thank you guys. Do you have any medium-term expectation of how much could MECI represent of your total loan book or represent of your consolidated revenue?
Thank you.
Speaker Change: I guess, Andres, more than having an expectation specifically for NECI's figures...
Speaker Change: which, of course, are positive and growing, as we mentioned, is the way NECI might evolve and combine that growth with coordination of a corporate strategy with Bank Colombia. So the way we look at it is...
Speaker Change: We look and analyze NECI's figures in a stand-alone basis, but after all, what we are aiming at is
a growth of the General Pai of Grupo Ancolombia.
Speaker Change: And let me complement that, Andres. NECI gives us flexibility and allows us to go to the market with much more flexibility and better margins.
But still, the consumer...
Speaker Change: The bulk in Bancolombia is much bigger than the consumer loan in Nequi.
Speaker Change: Not that big, but give us a lot of flexibility, allow us to go to a market with much more flexibility and tools to compete in a market that is every day more competitive.
yeah
That's clear. Thank you and congratulations again on the results.
Thank you, Andres.
Andres Soto, Beatriz
Speaker Change: Our next question is from Eric Ito from Bradesco BBI. Please go ahead.
Speaker Change: Hi guys, good morning. Good morning Juan Carlos, Mauricio. Thanks for the opportunity of asking questions. I have two questions here from my side. The first one would be a follow-up on your new corporate structure. I just want to get more color on the rationale here. You mentioned there are some opportunities under the new structure. Just want to see if there is any specific strategy that you guys are looking for at the moment, any specific initiative. I think Mauricio already mentioned the allowance of potential
Speaker Change: But I just want to get a bit more color, what could be the synergies that we could expect capture here for maybe 2025 or 2026.
Speaker Change: And then my second question is specific on the efficiency ratio for 2025, your preliminary guidance, which is around 51%. Just want to get a bit of color from you, what you guys are expecting for operating expenses, growth, and fee income for 2025. Thank you.
Thank you, Eric.
Speaker Change: Regarding your first question about our new proposed corporate structure, let me first start saying that we are in the process of getting the approval from supervisors in the different jurisdictions, also from our shareholders.
Speaker Change: We will have in place our corporate structure for the second semester. You will see the full impact of our new corporate structure in 2026.
So 2025 is a transition year.
Speaker Change: And regarding advantages, you mentioned stock repurchases, that's going to give us a lot of...
Speaker Change: of much more flexibility in terms of how we can manage that return to investors.
Speaker Change: But also, it allows us to manage much more efficiency capital and also give us flexibility on that regard. And effects also, we can manage much, much better the effects.
Much efficiency, use of capital.
Thank you.
Speaker Change: And then, from there, we will see what else we can do in A.A.
Speaker Change: looking to improve the return of Grupo Cibis in this case. And regarding your second question about efficiency, let me pass your question to Mauricio.
Thank you.
Hi.
Speaker Change: What we're expecting in the efficiency ratio for next year is...
Speaker Change: So the deterioration of the ratio would come from the decrease in income.
Speaker Change: to grow expenses at a rate lower than inflation, which is something that we are achieving this year, and we expect that to...
Speaker Change: to be the case next year also. Now, you also asked about fees. We're expecting net fee income to grow at around eight percent.
Speaker Change: next year, and that's partially going to offset the knee compression that we mentioned before.
Speaker Change: Very clear. Just a quick follow-up, if I may, on the first question. You mentioned the full impact of the new corporate structure will be in 2026. Is there any preliminary calculations that you guys did or is it too soon to ask about it? Thank you.
thank you so much.
Speaker Change: Let me go over the timeline so that we can get the...
The complete picture
Speaker Change: We are expecting approvals from both regulators and shareholders to come in the first quarter and the execution of the approvals to take place in the second quarter of next year. What you should expect...
for the second half of the year is basically...
Speaker Change: significant differences in the income statement and in 2025, because of what I just explained, it's important to bear in mind that the company that will be paying dividends, it's Grupo One Colombia.
Speaker Change: and the company that will pay dividends in 2026 will be Grupo Civis. So, just to bear in mind when the changes will come.
Thank you.
Perfect. Very clear. Thank you, guys.
Thank you, Eric.
Speaker Change: Our next question is from Peter Lombardo from Goldman Sachs. Please go ahead.
Speaker Change: Hello, this is Lindsay Shima on for Tito Lovato. Thank you for tuning in.
Speaker Change: Thank you so much for taking my question today. You mentioned consumer loans driving 2025 loan growth, so we were just wondering how reliant is your guidance on improving the economy, and if you could provide some additional color on loan growth in the other segments. And then, on that note, is there room for commercial loan growth to pick up if consumer loan growth is weaker than expected? Thank you.
Thank you.
Thank you.
2024 was was low or is going
Speaker Change: It's low at this moment, and we expect a little acceleration by the last quarter. So long growth is going to be this year.
Speaker Change: on average around 6.5%. What we expect for long growth for 2025.
Speaker Change: It's a little acceleration, and it's going to be around 7.2%. Let me just add that we are expecting in Colombia a GDP growth.
and in 2024, growth...
Speaker Change: should be around 1.8%. So there is an acceleration, an expected acceleration on economic growth for Colombia. And on top of that, we expect the demand for credit to grow. And regarding the mix...
Speaker Change: In 2024, long growth on consumer bulk actually was a decrease on long bulk.
Speaker Change: even more than 10 percent. So in 2025 we expect a more an acceleration on commercial I'm sorry on consumer loans
So, we expect the mix to be...
Speaker Change: and Consumer, and that also is going to help our NIM due to the mix. I don't know, Mauro, if you want to complement something there.
Speaker Change: On the breakdown of the expected growth, it would be reasonable to expect commercial loans to grow at 5.8%.
Speaker Change: consumer loans to grow a somewhere between 11 and 12 percent and we're basically going to have an inflection point in the fourth quarter of this year.
Speaker Change: So the base is low, positive for growth, and mortgage loans should grow between 7 and 8% to maintain the positive dynamic it's been having this year.
[inaudible]
Speaker Change: Our next question here is from Olavo Arturuso from UBS. Please go ahead.
Olavo Arturuso: Yes, good morning everybody. Thank you for taking my question. I have two and the first one is just to confirm that the guidance for the next year of 14% does not incorporate the corporate structure because I think
Olavo Arturuso: The bank is waiting for the total approvals, so just to confirm if the guidance does not incorporate the corporate structure. And the follow-up question related to this is that if not, what would be the ROE for the next year aiming the new corporate structure of the bank?
Olavo Arturuso: And my second question, just like switching topics to NACI again, I would like to know...
Olavo Arturuso: In terms of breakeven, if you guys could provide us an update in terms of...
Olavo Arturuso: If it would be like the next year or 2026, when do you guys expect for NetKey to reach the break-even? Thank you, guys.
Thank you, Olavo. Let me confirm that...
Speaker Change: The guidance that we are giving for 2025 does not include
Speaker Change: the new corporate structure. So all the guidance is under the current
Speaker Change: we will see it on 2026. So just to confirm that.
Speaker Change: The guidance that we are given is under our current corporate structure, including the 14, around 14% ROE expectations for 2025.
Speaker Change: Regarding NECI, as you see in the information that we are providing, NECI
Speaker Change: has a very good trend, but still we need a way to go. So our expectations are that the...
Necky
could be profitable in 2026.
Speaker Change: Improvements will continue during 2025, and the company, or NECI, is developing its strategy that is complementing income from different sources. The loan book is going to grow, as Mauricio mentioned.
Speaker Change: The expectations are continuous improvement, but we will expect to be profitable by 2026. Mauricio, can you complement something about these two questions of Olavo?
Speaker Change: the optimization of the capital structure that we're going to be able to have. So, regarding the ROE, I think it's going to be interesting to look at
Speaker Change: every single bank's ROE after the structure takes place. And, after all, looking at the holding and the group's ROE. So it's going to be...
Speaker Change: A breakdown that is going to be interesting to get the details after we get it done.
Okay.
That's great. Thank you very much, guys.
Thank you, Laura.
Speaker Change: This concludes the question and answer session. I'd like to turn the floor back to management for any closing comments.
Speaker Change: Thank you very much, everybody, for participating on the third quarter results.
Speaker Change: We expect the year 2024 to continue on a good pace and we will see what happens. So we expect to see you on our conference call for the end of the year results next year. Thank you everybody and have a good day.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.