Q4 2024 Grupo Aval Acciones y Valores SA Earnings Call
Welcome to CUPOL-AVAL's 4th Quarter 2024 Consolidated Results Conference Call. My name is Kelvin and I will be your operator for today's call.
As a disclaimer, Grupo Aval Acciones y Valores S.A. is an issuer of securities in Colombia and in the United States.
As such, it is subject to compliance with securities regulations in Colombia and applicable U.S. securities regulations.
Group Aval is also subject to the inspection and supervision of the Superintendency of Finance as holding company of the Aval Financial Conglomerate.
The consolidated financial information included in this document is presented in accordance with the IFRS as currently issued by the IASB.
Unconsolidated financial information about our subsidiaries and the Colombian banking system are presented in accordance with the Colombian IFRS as reported in 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.
These reports include forward-looking statements. In some cases, you can identify the forward-looking statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential, or continue, or negative of these and other comparable words.
Actual results and events may differ materially from those anticipated herein and consequence of the changes in general economic, 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 Emisores and the SEC.
Recipients of these documents 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.
As we express this claim, any obligation to review, update, or correct the information provided in this report, including any forward-looking statements, and do not intend to provide any updates for such material developments prior to our next earnings report.
The financial statement of Grupo Avalaciones y Valores S.A. in accordance with Colombian regulations must be filed within the market and with the superintendency of finance with the opinion of an external auditor. At this time of solicitation, this process is still ongoing.
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.
Unapplicable, in this document we refer to billions as thousands of millions.
At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session.
With us today are Ms. Maria Lorena Gutierrez Botero, Chief Executive Officer, Mr. Diego Solano, Chief Financial Officer,
Speaker Change: Mrs. Paula Duran, Corporate VP of Sustainability and Strategic Projects and Mr. Camilo Perez, Banco de Bogotá's Chief Economist, and I will now turn the call over to Ms. Maria Lorena Gutierrez Botero, Chief Executive Officer. Please go ahead.
Unknown Executive, Maria Botero, Luis Gutirrez
Speaker Change: Thank you. Good morning, everyone, and thank you for joining us for our Corporate 2024 Conference Call. I am here with Diego Solano, our CFO, Camilo Perez, Chief Economist of Banco de Bogotá, and Paula Duran, Corporate VP of Sustainability and Strategic Projects.
I would like to start by highlighting these first results.
Speaker Change: First, positive trends continue to consolidate, leading to the results shown in some key business metrics. Our risk-adjusted name on loans for the quarter was the highest in the last seven quarters.
Speaker Change: The quarter's return on average equity was somewhat below our initial expectations. This was mainly due to a weaker-than-expected NEEMON investment resulting from the performance of local and international capital markets.
We continue to gain market share in deposits and credits.
Speaker Change: Moreveni had a weaker net income due to negative returns in line with weaker capital markets. However, I want to mention that Moreveni had the best year of results in 2024.
Speaker Change: Partly recovered from previous quarter and have a positive contribution to net income.
Speaker Change: Moving to strategic topics to 2024, 2020-24, sorry, was a year with multiple challenges, learning experience, and most importantly, great achievements for group of us.
Speaker Change: We experienced an intense transformation driven by a demanding social and political context and an increasingly competitive financial landscape.
Speaker Change: These coupled with changes in management, and the pace at which innovation and disruption are taking place, add further complexity to our results.
Speaker Change: Despite these challenges, we remain determined in our commitment to progress, adaptation, and delivering value to our stakeholders.
Speaker Change: Our results improved compared to 2023. Our net income was more than 1 trillion Colombian pesos, a 38% growth compared to the previous year.
Speaker Change: We gained market share in deposits and loans, reaching a 25.3% share in loans and consolidated our position in the Colombian financial system.
We strengthen our corporate governance, enable better decision making.
Speaker Change: This includes a new composition of all Board of Directors, as well as introducing new leadership across management teams, presidents and vice presidents, and other entities.
Speaker Change: Additionally, we remain committed to the highest standards in government governance policies, ensuring transparency, accountability, and long-term value creation.
Speaker Change: We're strengthening our management model by taking advantage of synergies and efficiencies and changes in our organizational structure and coordination mechanism.
Speaker Change: We designed ATH as AVC, Aval Valor Compartido, and a structured coordination model using committees.
Speaker Change: and teams to define guidelines, make decisions, share best practices, reach agreements, and above all, generate shared values.
Speaker Change: With the acquisition by the holding of Aval Fiduciaria, Aval Casa de Bolsa from Corfi Colombiana and the creation of Aval Banca Inversión, we intend to strengthen
Speaker Change: our non-banking financial services and take a better advantage of the scale of Avast.
Speaker Change: We have prepared ourselves by taking short-term actions and have a strategic vision.
Speaker Change: that will enable us to achieve leadership in the markets and segments we have defined as a strategy. Looking ahead to 2025, our strategy focuses on the following corporate priorities.
First, customer experience. We are confident of our value proposition.
Speaker Change: We have the people, the channels, and the technology to deliver a unique and differential customer experience.
Speaker Change: We will further enhance our client-centered culture, improve customer satisfaction, and our ability to anticipate customer needs and expectations.
Speaker Change: We believe the enhancements of the current experience will result in a stronger position in retail deposits and cash management relations.
Speaker Change: In addition, we will revise our bank's traditional low usage of 81 and tier 2 instruments to align better the group's capital structure with our strategy. We will also seek high growth in the online business.
Speaker Change: To this end, we are strengthening our services offering a no-banking fee generation by improving our asset management and advisory services.
Third.
Synergies and Efficiencies.
Speaker Change: We will continue to simplify our processes, capturing value in the development of operational and administrative efficiencies, developing transversal initiatives, and enhancing the best practices of our entities.
Speaker Change: Guaranteeing technological stability and security and promoting digital transformation to improve our business and product and service offerings.
Speaker Change: We will continue to promote digitalization, inclusion, and interoperability of services.
Speaker Change: with initiatives such as TACAVAL and our active participation in the Banco de la República's Breve Instant Payment System that we launched earlier this year.
Speaker Change: Corporate culture. We will strengthen our corporate culture, aligning our talent with our strategy and purpose, aligning incentives with our strategic priorities, developing and improving our goal-setting and performance review processes, and improving mobility of talent across our subsidiaries.
Speaker Change: And finally, sustainability. Our ESG agenda will continue to be a core principle in the way we conduct our businesses.
Speaker Change: Environmental Projects. I would like to mention that we expect to finish Misión La Guajira in 2025, so we will focus on finishing our commitment with Misión La Guajira.
Speaker Change: Now, I will invite Paola to go over our ELG achievements to relieve this curve.
Paola: Thank you, Maria Norena, and good morning to you all. Throughout the year, we have reported progress in terms of our ESD impact. Today, I would just like to highlight the main achievements that secured 2024 as a remarkable year in terms of our commitment to sustainability.
Paola: In the same evaluation, our entities, Banco de Bogotá and Corte Colombiana, obtained 78 and 80 points respectively.
Paola: Paco Aguatá ranked in the top 15% and was included in the S&P Sustainability Yearbook. Corfi Colombiano had an outstanding result, positioning itself as the leading company in its industry in Colombia and as one of the top three in the world. Corfi was also included in the S&P Sustainability Yearbook in the top 10%.
Paola: In terms of social impact, we have consolidated our position as one of the largest employers in Colombia, generating over 70,000 jobs among Grupo AL and its subsidiaries.
Paola: Women hold more than 52% of these positions, which demonstrates our strong commitment to inclusion and diversity. We actively promote equal opportunities and foster a workplace where everyone can grow, contribute, and drive the organization's sustainable success.
Paola: In 2024, we dedicated important resources amounting to over $70 billion pesos to social programs tailored to communities in need.
Speaker Change: An example of this kind of project is Mission La Guajira, which was just mentioned by Maria Lorena, where we ended this year improving the quality of life of more than 21,000 people, 80 communities, with solutions in potable water, sustainable energy, and food security.
Paola: The sustainability of these solutions was also enhanced with programs for income generation in crafts, financial education, and recycling.
Paola: During the year we also undertook additional social programs that benefited more than 15,000 people through financial education, student scholarships, entrepreneurship, productive communities, and initiatives with the protection and care of the environment among others.
Paola: Our approach to sustainable finance enabled us to close the year with a sustainable loan portfolio of 23 trillion Colombian pesos. This includes 5.8 trillion in financing for sustainable construction, mobility, agriculture, and the circular economy, as well as 17.3 trillion in social loans focused on affordable housing and support for SMEs.
Paola: In terms of environmental impact and climate change risk management most of our subsidiaries have aligned their strategies with the recommendations of the Task Force on Climate Related Financial Disclosures, DTLD.
Paola: In 2025, we will design and implement Grupo Avast decarbonization roadmap in line with the Paris Agreement and Colombia's environmental goals.
Paola: Global Housing conducts greenhouse gas inventory assessments following the GHG protocol methodology for scopes 1, 2, and 3.
Paola: Direct and indirect emissions for Scope 1 and 2 are measured from our offices in Bogota, totaling 4.3 tons of CO2 for Scope 1 and 36 tons of CO2 for Scope 2. We offset our carbon footprint through certified carbon credits.
Paola: This year, we also enhanced our scope 3 measurements by incorporating additional categories. As a result, our scope 3 emissions amounted to 559 tons of CO2.
Paola: Additionally, looking ahead, we will include Category 15, Investments, Assignments, Demissions, once the Carbon Footprint Assessment of our entities is completed.
Paola: In 2024, we also contributed to the preservation and regeneration of the ecosystem through the planting of 1,000,000 trees and the protection of more than 2,000 species of Phagonus lorencolumbus.
Paola: In terms of governance, we consolidated our model by establishing the ESG, IT, and compensation committees within the Board of Directors, ensuring enhanced oversight, monitoring, and decision-making aligned with best practice.
Paola: At the executive level, we created the Vice Presidency of Sustainability and Strategic Projects for Grupo Aval, responsible for designing, leading, and coordinating the sustainability strategies for Grupo Aval.
Paola: We also created the Sustainability Committee of Group Online, where all of the sustainability leaders of our entities define standards, common goals, share best practices, and design transversal projects.
Paola: Furthermore, we strengthen our governance structure by creating, updating, and reviewing essential corporate policies as well as sustainable finance declarations. We affirm our commitment to integrating ESG Preperia into investment decisions and the management of our investments.
Paola: Finally, as we look ahead to 2025, we reaffirm our resident commitment to sustainability as a cornerstone of our business.
Paola: Beyond policies, initiatives, and results, our ESG efforts reflect a deeper purpose to create lasting value for our stakeholders, empower communities, and protect the planet for future generations.
Paola: We believe that the true strength of a financial conglomerate is not only measured in numbers but in its ability to drive profits, create opportunities, and transform lives.
Paola: Thank you, Paola. Now on the macro side, let me mention some relevant issues during this quarter. Inflation continued to trend down and ended in December 5.
to a 5.2 percent.
We expect GDP growth to return to levels exceeding 2.7%.
Paola: Unemployment figures will remain under control if we support internal demand dynamics.
Paola: Changes in fiscal and public policy. With the country's fiscal accounts under pressure, we believe the financial plan and fiscal rules for 2025 will be challenging.
Low Government Budget Execution.
Although investment has recovered slightly, it remains below historical levels.
Paola: On the political front, we remain optimistic about the country's institutions.
Paola: We strongly believe that we, the business community, must focus on planning and executing our long-term strategy.
Paola: Entering the pre-electoral year might generate short-term uncertainty, but we urge society to remain focused and direct our attention towards our priorities.
Paola: Danilo will forward comment on this and we share our view on the economic amendment.
Thank you, Madam Elena. Good morning to all attendees.
Paola: Last year, global economy grew 1.7%, continuing the recovery process up to the pandemic and improving when compared with growth, 0.7% in 2023.
Paola: The better performance was mainly due to a recovery in household consumption and a dynamic export sector.
Paola: Household consumption grew more than 1% and partially offset the low dynamics of investment and public spending, thus becoming the basis of the economic recovery.
Paola: More favorable financial conditions, thanks to lower inflation and interest rates, a receiving labor market, improving confidence, and a strong increase in remittances explains the above.
Paola: The export sector growth was explained by higher sales of coffee, coal, bananas, flour, gold, chemicals and paper, as well as services, especially tourism.
Paola: The recovery will extend in 2025, to such an extent that economic growth will be around 2.7%, still below pre-pandemic levels because of low investment and a challenging fiscal situation.
Paola: Meanwhile, the disinflationary process deepened in 2024 to close the year with an annual change of 5.2%. Despite the new decline, Banco de la República completed four years with inflation above its target range.
Paola: The moderation in inflation was due to a favorable performance of goods and regulated items.
Paola: The lack of effect of the appreciation of the Colombian peso against the dollar between July 2023 and August 2024 allowed goods inflation to end a year below 1%.
Paola: In regulated prices, the stability of gasoline helped, allowing for a moderation in the aggregate from 17% to 7%, which would continue in 2025. The risk would be on the side of energy rates.
Paola: On the contrary, services contained a fall in inflation, to the extent that indexation was high in rents, and in the rest of services, the high minimum wage adjustment waited.
For 2025, we forecast inflation of 4.1%.
Paola: Explained by a high indexation in rents, but with a lower reference, inflationary pressures derived again from the increase in the minimum wage, potential depreciation of the peso, and possible increases in energy and diesel rates.
Speaker Change: With the economic scenario described above, Panco La Republica reduces interest rate to 9.50% in 2024, above what was expected by analysts.
Speaker Change: In general, the Central Bank has acted cautiously in all meetings of the year, with rate cuts, reductions of 50 basis points in six sessions, and 25 basis points in the remaining two.
Speaker Change: Given the slow fall in inflation, more adverse global financial conditions, and the challenging fiscal situation.
Speaker Change: In fact, these three elements would continue in 2025 amid a volatile global situation due to the beginning of Donald Trump's term as President of the United States, local inflation that could end the year once again above the target range, and public finances affected by an underfunded budget.
Speaker Change: In fact, in January, the Central Bank left the rates stable, reinstating its cautious approach.
Speaker Change: It is difficult to forecast a scenario where expected end-of-year interest rates are around 7.75%.
Speaker Change: Regarding the exchange rate, 2024 was a year of strength for the dollar in global markets, following the upward adjustment in expectations for inflation and the prior reserve rate, following Mr. Trump's victory.
Speaker Change: Likewise, the greater perception of risk in Latin America, especially in Brazil, Mexico, and Colombia, generated volatility in second half of the year.
Speaker Change: Thus, while the U.S. dollar appreciated 7% against G7 currencies, it gained 19% against currencies in the region.
Speaker Change: The Colombian Peso was the third weakest Latin American currency as the exchange rate went from 3,874 pesos per dollar to 4,405 pesos per dollar between 2023 and 2024.
Speaker Change: In addition to the external factors, the challenging fiscal situation also had an impact, with the country's premium measured by the five-year CDS going from 157 basis points to 212 basis points in the same period.
Speaker Change: Specifically, we expect the current account deficit to go from minus 2% of GDP in 2024 to minus 2.6% of GDP in 2025 due to a more significant recovery of imports than exports, both of goods and services, and a lower dynamic in the inflow of remittances due to the immigration policies of the United States.
Speaker Change: Finally, the situation of public finances experienced in 2024 would be repeated in 2025. In particular, revenues would surprise the government to the downside, resulting in cash flow problems and making spending cuts necessary to comply with the fiscal rule. Going forward, we think that the debate would shift towards a fiscal sustainability.
Speaker Change: Although fiscal uncertainty is high, rating agencies such as Pitch and Standard & Poor's have kept their ratings unchanged, although the latter extended its negative outlook, while Moody's could lean towards a downgrade.
Maria Lorena: That sums up our economic view. Thank you. Back to you, Maria Lorena.
Thank you, Camilo.
Maria Lorena: Our financial system remains solid while facing the challenges from the current context, as Camilo mentioned.
In 2024, 10 banks out of
A total of 29 have been involved.
Maria Lorena: The consumer credit cycle continues its recovery trend. However, margins are still under pressure due to the shy action from the central bank and regulatory pressures such as changes in interest rate caps.
Maria Lorena: 253 trillion Colombian Pesos are comparing rates to clients in six prioritized sectors.
Maria Lorena: As of January, banks have already disbursed 61 trillion Colombian Pesos as part of this program.
Maria Lorena: Over the year, we increased our market share in gross loans and deposits.
Maria Lorena: As a result, net income to our shareholders was $281 million Colombian Pesos, and return average equity was $3.5 billion.
Maria Lorena: For the year, net income was north of $1 trillion and return on average equity was 6%.
Maria Lorena: Now I would like to pass the call to Diego, who will give details of our results. Diego?
Diego Solano: Thank you, Maria Lorena. I will start on pages 9 and 10 with a few charts regarding the growth rate and quality of our non-portfolio relative to the rest of the Colombian banking system.
Diego Solano: For comparability reasons, these are unconsolidated figures under Colombian IFRS as published by the Supreme Tendency of Finance. As you might have seen in the past, our banks continue to exhibit better loan portfolio quality and performance than the system in all main categories.
Diego Solano: On page 9, during 2024, we continue to outgrow our competitors in all loan categories.
Diego Solano: This yielded, as of November, 12-month market share gains of 75 basis points in total loans, 52 basis points in commercial, 150 in consumer, and 152 points in mortgages.
Diego Solano: For the 12 months ended last November, commercial loans and mortgages for the system decreased 0.7% and increased 2.4% in real terms.
Diego Solano: All consumer loans contracted 8.7% in real terms. Over the quarter, loan dynamics for the system picked up as rates continued falling and credit quality improving, even though a modest 0.1% nominal.
Diego Solano: On page 10, quality of consumer loans continued improving in the Colombian banking system. Meanwhile, commercial loans and mortgages slightly deteriorated.
Diego Solano: I will now move to the consolidated results of Group 4.1 under IFRS.
Diego Solano: Starting on page 11, assets grew 8.9% in 2024 and 2.3% in the quarter to $328 trillion. Gross loans are main assets.
Diego Solano: which close to 200 trillion pesos growing 2.5% in the quarter and 7.3% year-on-year. Commercial loans and mortgages continue thriving our annual growth, while consumer loans begun to recover delivering a second consecutive quarter of growth.
Commercial loans expanded 7.8% year-on-year and 2.3% of the quarter.
Consumer loans grew 3.3% year-on-year and 1.4% quarter-on-quarter.
Diego Solano: Payroll loans grew 4.8% year-on-year and 1.1% during the quarter. Out-of-loans grew 9.4% and 4%. Personal loans grew 1.5% and 1.1%. Credit cards contracted 4.3% year-on-year and grew 0.6% quarter-on-quarter. Finally, mortgages grew 19.2% and 6.9%.
Diego Solano: We anticipate loan growth rates to continue recovering during 2025 due to a normalization of monetary policy, stronger GDP growth, and improvements in consumer loan quality.
Diego Solano: On page 12, we present funding and deposit evolution. Total funding increased 10.6% in 2024 and 2.5% during the quarter. Deposits grew 10.4% in 2024 and 2.5% quarter-on-quarter, accounting for 73.4% of our funding. Our deposits to net loans closed at 106%.
Diego Solano: On page 13, we present the evolution of our total capitalization, our attributable shareholders equity, and the capital adequacy ratio of our banks. Our total equity grew 5.2% in 2024 and 1.1% over the quarter, while attributable equity increased 4% and 0.4% respectively.
Diego Solano: On page 14, we present our yield unknowns, cost of funds, spreads, and needs.
Diego Solano: Our quarterly mean performance was driven by poor performance of our Neiman investment that resulted from a shift in expectations on the speed at which the rates and inflation would trend back to normalized levels.
Diego Solano: This resulted in one of the weakest quarterly NIM investments over the past couple of years. However, it was partially upset by favorable results of hedging strategies recognized under derivatives, trading income, and foreign currency under other INC.
Diego Solano: Lending rates continue to be pressed by high competition in high credit quality customers and products as a result of a modest volume growth in the system.
Diego Solano: For other pressing rates, the Superintendency of Finance introduced changes to the formula used to set interest rate caps, tasa de escura, lowering the rate of some consumer loan categories.
Diego Solano: This environment resulted in a 29 basis points expansion to 4.3 of our consolidated NEEMAN loans during 2024 and our NEEMAN investments are close to zero for the year, resulting in a 3.4% total consolidated NEEM. Our NEEMAN retail loans expanded 100 basis points to 5.2% while NEEMAN commercial loans contracted 22 basis points to 3.6%.
Diego Solano: As mentioned in the past, our consolidated NIMA loans and total NIMA are affected by our merchant banking segment, which mainly uses funding to generate non-financial income rather than interest income.
Diego Solano: For our banking segment, cleanup of the effect of the non-financial segment, annual Neiman loans expanded 12 basis points to 5%, the Neiman investments fell 50 basis points to 2.4%, and the total Neiman remained materially flat at 4.2%.
Diego Solano: During the quarter our consolidated mean decreased 105 basis points quarter on quarter to 2.8 percent, driven by negative new money investments of minus 2.6 percent. As mentioned before, this was partially offset by February results of pledging strategies recognized on the Royal Ring.
Diego Solano: Our consolidated quarterly name unknowns was 19 basis points higher quarter-on-quarter at 4.4 percent.
Diego Solano: Regarding our banking segment, quarterly new money loans increased six basis points quarter-on-quarter to five percent, still well below historic levels.
Diego Solano: This incorporates a Neiman Retail Loans that expanded 30 basis points to 6.3% and Neiman Commercial Loans that fell 12 basis points to 4%. The total Neiman for our banking segment fell 93 basis points quarter on quarter to 3.7%.
Diego Solano: We expect an improvement in revenue driven by lower average cost of funds during 2025. The starting point of the central bank intervention rate for 2025, up 9.5%, is already 2.4% of funds, below the 11.9% average for 2024.
Diego Solano: In addition, the Central Bank is expected to continue lowering its rate throughout the year as mentioned by Camille.
Diego Solano: Pages 15 through 17 represent several non-portfolio quality ratios. Starting on page 15, 30 APDLs improve 46 basis points quarter-on-quarter to 5.3% and 90 APDLs 29 basis points to 4%.
Diego Solano: The tighter origination policies that were put in place in 2023 led to an improvement in quality, especially across the consumer portfolio. This quarter, it saw the largest PDL formation in seven quarters on a 30-day basis and in five quarters on a 90-day basis.
Diego Solano: The evolution of asset quality continues pointing to the end of the consumer loan credit cycle with TDL ratios and TDL formation peaks during first quarter 2024.
Diego Solano: Generally, PDL formation for the quarter was the lowest since the last quarter of 2021. Finally, the ratio of charge-offs to average 90-day PDLs was 0.8 times for the quarter and 0.69 times for the year.
and TechSoup's Quality of a Loan portfolio.
Diego Solano: improved year-on-year measure by stages across all categories. Stage 1 loans reached 88.5% of gross loans, the highest level since third quarter of 2023. The share of our portfolio classified as stage 1 portfolio showed an improvement of 61 basis points over the quarter, driven by the better performance in all three main loan categories.
Diego Solano: Coverage measures as allowance for stages 2 and 3, as a percentage of stages 2 and 3, slightly felter in the quarter to 35.4% with coverage for consumer and commercial loans at 42% and 34.4% respectively.
Diego Solano: As anticipated, the cost-of-risk net-of-recovery continued to show improvement during the quarter, falling 11 basis points to 1.8%. Cost-of-risk net for commercial loans improved 52 basis points, resulting in a rate of 0.4% for the quarter, while cost-of-risk net-of-consumer loans for the quarter was 4.8%.
Diego Solano: We expect that our product meets heavier and lower risk products and treatments.
Diego Solano: will continue to support an improvement in cost of risk during 2025.
Diego Solano: We expect that the cost of risk evolution for consumer loans will maintain its positive trends in credit cards and unsecured loans, and the cost of risk on commercial loans will be similar to that for 2024.
On page 18, we present NetEase and other implements.
Speaker Change: I'm Wolf Gross and Net Fee Income grew 6% and 6.9% respectively. Gross and Net Fee Income for the quarter increased 11.5% and 18.5% year-on-year and 3.8% and 3.1% respectively quarter-on-quarter.
Speaker Change: Annual net pension and severance fees grew 23% mainly due to high performance based fees and for a higher collection on mandatory contributions related to the increase in minimum wage at the beginning of the year.
Annual Gross Banking Fees Group 1.4%.
Speaker Change: Inc. incorporates stronger commissions on banking services, growing at 3.9% offset by a 2.1% annual decrease in credit card and debit card fees explained by lower transactional volumes and a system-wide decrease in active outstanding credit cards.
Speaker Change: Income from non-financial sectors decreased 23% in 2024 as anticipated in our previous calls. Our infrastructure sector contributed 34% less than in 2023, driven by some concessions transitioning from the construction to the operation phases.
Speaker Change: Energy and gas companies increased their contribution 7.1% related to a 16% increase in gas distribution volumes in promegas and a stronger gasification volumes at SPEC.
Speaker Change: Hospitality business had a record high performance as women with revenues benefited from stronger occupancy ratios.
Thanks.
Speaker Change: Finally, on the bottom of the page, other income in 2024 was higher than a year earlier. Profit taking and fixed income investments valued at fair value through OCI implied a 41 billion pesos increase in net gains on sale and investments and OCI realizations.
Speaker Change: Strong results for derivatives during the quarter correspond to heading strategies of trading investments that mitigated the negative new money investments as described earlier on this call.
Speaker Change: personnel depreciation and amortization and general and admin expenses year-on-year 5.1, 6.3 and 2.4 percent respectively.
Speaker Change: Currently, taxes and deposit insurance account for 37% of total GNA expenses in 2024.
Speaker Change: Cost-to-assets for 2024 was 2.7%, improving from 2.8% in 2023. Cost-to-income was 54.2%, up from 52.1% during 2023.
Speaker Change: Total expenses increased 15.2% quarter on quarter, driven by operative taxes, marketing expenses, and other seasonal expenses.
Speaker Change: Finally, on page 20, we present our net income and profit stability ratios.
Speaker Change: A true net income for the quarter was 281 million pesos or 11.8 pesos per share. A return on average assets and return on average equity for the quarter were 0.7% and 6.5% respectively.
Speaker Change: Our accumulated net income for 2024 was $1,015,000,000 or $42.8 per share, increasing 37.4% relative to 2023.
Speaker Change: Before passing it back to Maria Lorena, I will now summarize our general guidance for 2025.
Maria Lorena: We expect loan growth in the 10% area with commercial loans growing in the 9% and retail loans growing in the 11% areas. NIMU in the 4.15% area with NIMAN loans in the 4.6% area.
Maria Lorena: Lim of our banking segment in the 4.9% area with Lim Andones in the 5.4% area.
Maria Lorena: Cost of risk, net of recoveries in the 2% area, cost to assets in the 2 and 3 quarters area, income from the non-financial sector of 80% of that for 2024, fee income ratio in the 20% area, and finally we expect 2025 return on average equity to be in the 11% area.
Speaker Change: Okay, thank you, Diego. Before moving into questions and answers, I would like to share some final thoughts with Colombia and Grupo AL in the current year.
Speaker Change: Economic conditions will remain challenging both locally and globally. However, our recovery trend will continue. In 2025, we expect GDP growth to return to levels exceeding 2.7%.
Speaker Change: We are viewing a less likely return of inflation within the central bank target range, which implies a higher or longer interest rate environment.
Speaker Change: We remain constructive on investment prospects, as well as businesses and customer confidence, which will support the dynamics in 2025.
Speaker Change: In this context, we expect to reach double-digit profitability and benefit from a strong growth in real terms of the banking segment, as Diego mentioned.
Speaker Change: Our increasing poverty compared to last year will continue to be driven by an improvement of risk-adjusted minimum loans, lower cost of funding of our non-financial business, commercial operational effectiveness, and higher non-banking and banking net.
The income mainly relates to better origination and transactional activity.
So we are now open for questions.
Speaker Change: We will now begin the question and answer session. If you have a question, please press the start button and the number one on your touchtone phone.
Speaker Change: If you wish to be removed from the queue, please press the pound sign or hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing any keys. Once again, if you have a question, please press the star button followed by the number one on your touchtone phone. One moment please for your first question.
Speaker Change: Your first question comes from the line of Brian Flores of Citi. Please go ahead.
Brian Flores: Hi Tim, thank you very much for the opportunity to ask questions. I have two. The first one is asking your help to think about growth.
Speaker Change: Unknown Speaker And until when can you outgrow the market, right? Because maybe this is particular to you. Maybe conditions are improving for everyone. So just think about your outgrowing the system. And also you mentioned a very interesting comment.
Diego Saravia, Unknown Executive, Maria Botero, Luis Gutirrez
Speaker Change: and if this could limit, you know, your growth prospects. And then just finally on growth, if this higher growth, as we saw in the consumer segment is bringing probably higher provisions, if this could also push cost of risk a bit higher for the segment.
I'll ask my second question later. Thank you.
Okay.
Speaker Change: Great questions. Regarding your first question, I will bring you back. You have it handed to page number nine on the document, where you can see how ABAD behaves, not only for the past three years that are presented here, but how it has performed historically.
Speaker Change: The setup pages 9 and 10 basically show you that Aval
Speaker Change: It has a much more predictable growth pattern and credit quality cycle.
Speaker Change: than the rest of the system. You can see how during those years of exuberant growth that you saw in Colombia around 21 and 22 where there was huge growth.
Speaker Change: in unsecured consumer lending, credit cards, and so on. Grupo Val did not grow as fast.
Speaker Change: And as those banks that are basically in the, going through the hangover after you have had that sort of growth are having to adjust down because of higher or more problems on those products on the credit front, we're able to outgrow them.
Speaker Change: So throughout the cycle, we basically are able to grow smoother, however consistent in time.
Speaker Change: Second, and ties with your third question, is the kind of market share growth that we're having is sustainable growth. It's not a one-time high magnitude event, but more the kind of growth that you see month after month.
gaining share in each one of the products.
Speaker Change: So, that's to explain why we've been able to grow faster.
Speaker Change: a growth stretch. Then more a quantitative answer to what's going to happen moving forward. Most of Maria Lorena's presentation was regarding what we're doing strategically to try to align the sales forces to what our main objectives are.
Speaker Change: and that will continue to help us to outgrow the system.
Speaker Change: In addition, there's the macro wave that we are actually riding. You can see that our expectation on GDP is further growth. Our expectation upgrades even though...
Speaker Change: We are not happy with the speed at which it is happening. We do see that going on.
Speaker Change: Another point mentioned previously on the call that I would like to emphasize is we're already around 240 basis points below what the average central bank rate was last year. So the starting point for this year is already much better from the cost of funds perspective.
Speaker Change: Moving to your question on Banco de Occidente, it is hybrid basis points over two years and it's an increase of 30, 30, 20, and 20 basis points happening every six months or each six months period.
Speaker Change: Perfect, super clear and then just wanted my second question to confirm some notions you you mentioned the guidance right I think you revised the name overall name from
I just wanted to check.
Speaker Change: Diego Saravia, Unknown Executive, Maria Botero, Luis Gutirrez, Unknown Executive, Maria Botero,
Speaker Change: Then the other thing that is happening, even though numbers are not as large, is we are improving our efficiency expectation, driven by the kind of initiatives we're running with our Valor Compartido, so we're bringing our cost-to-assets to 2.75 percent, a slight increase.
And the negative side.
Speaker Change: On the negative side, the NIM was affected by a change in their view on how the central bank will behave.
Speaker Change: However, we've been moving our balance sheets in such a way that we are somehow immunized to some of those changes. Therefore, that kind of changes in expectations, even though they do affect the way we are seeing our NIMA loans.
Speaker Change: hasn't had a massive change compared to what was baked into our previous
Speaker Change: So, in summary, the same guidance on return on equity with a slightly lower NIM.
Super clear. Thank you.
Speaker Change: Your next question comes from the line of Nicolas Riva of Bank of America. Please go ahead.
Speaker Change: that means an increase of 100 basis points in the minimum capital requirement and you said it's going to be phased in over four years. My question is
Nicolas Riva: When I look at the capital ratios of Banco Occidente today, right, in slide 13 in the earnings call, the 12.8% total capital...
Nicolas Riva: Yeah, bottom line, not really. What we're seeing is we have room, not only for Banco del Occidente, but as a whole in the group, to better use the basal three options that we have with Tier 2 and 81 capitalization.
Nicolas Riva: In addition, what we've seen is during this transition period, the bank will be able to generate enough internal capital plus the kind of approach it's following and its balance sheet to be able to cope with this change.
Nicolas Riva: Having said so, it has both a negative and a positive side. The negative side, obviously, is higher requirement. The positive side is we are standing with Banco del Occidente in a better position to get sovereign support.
It's a two-year transition period.
Thanks very much, Diego.
Speaker Change: Your next question comes from the line of Carlos Gomez of HSBC. Please go ahead.
Carlos Gomez: Thank you for taking my question. It's actually a repetition of the theme of capital. Can you remind us what the capital requirement is right now for each of your four banks?
Speaker Change: and if it is also in transition or changing to a different level in the coming years. So that will be number one. Number two, can you give any comments about what you expect for
Speaker Change: Dividend. And number three, a request, could you please publish the guidance? Because again, it's very fast in the call, and we are not able to catch it. Can it be part of the presentation? Thank you so much.
Okay.
Speaker Change: On your last one, we take note of that and we'll take that into consideration. Regarding a capitalization, the requirement moves up from total solvency of ten and a half to eleven and a half percent.
Speaker Change: Those are the 100 basis points. And starting in November, every six months, there is an increase. So the first increase would move from 10.5 to 10.8, the next one to 11.1 and so on.
Speaker Change: Unknown Executive, Maria Botero, Luis Gutirrez, Unknown Executive, Maria Botero, Luis Gutirrez,
Speaker Change: So, that's a two-year process? Yes, sir. It's a two-year process. November 2027.
now.
Speaker Change: Here, 30-30-20-20 basis points. The first happening six months after November last year. The second one, November 2025, and it goes on until November 2026.
Okay.
And then, annoyingly, Givens question, the.
Speaker Change: Just to remind you, the logic that we follow is how I pay dividends based on cash dividends received. And our banks tend to pay around 50% of what their net income from the previous period was.
Speaker Change: Obviously, for those that were profitable during that period. And then Corte Colombiana has a project in which it invests so it frequently goes below what the 50% standard looks for the rest of the group.
Speaker Change: All right, and can you remind us what the current capital requirements are for the other banks in the group?
Speaker Change: The only systemic bank that we had was Banco de Otaque, that had an 11.5%. Now Banco Occidental will join them within two years at that level. The rest of the banks have a 10.5% requirement.
Speaker Change: Your next question comes from the line of Daniel Mora of Credit Corp Capital. Please go ahead.
Daniel Mora: Hi, good morning and thank you for the presentation. I have just one question. I would like to understand what will be the profitability path during the year, considering the ROE guidance for TGRE is around 11%. I mean, should we spread a single-digit ROE in the first half of the year and then able to drive figures even above 11% by the third or quarter of the year? Thank you so much.
Yeah, it's a
Daniel Mora: Perhaps I'm answering the obvious, but given that what the drivers will be or the main driver will be an improvement in our NIM that will be a process that will happen over time.
Daniel Mora: And yes, the last quarter is expected to be above the year average, so we will be progressing in that direction.
Daniel Mora: Without getting into specifics, if you look at what happened throughout 2024 is except for the last quarter where we had an impact.
Daniel Mora: on our investment portfolio and that has seasonally high expenses. We were making progress and I would put my eye on a risk-adjusted NIMP.
Unknown Executive, Maria Botero, Luis Gutirrez
Speaker Change: Your next question comes from the line of Julián Asito at Vivienda Corredores. Please go ahead.
Speaker Change: Hi everyone and thank you for having my question. My third question is regarding the NAIDS stable funding ratio.
Speaker Change: As I am making my understanding, in August there is a requirement for all banks to
Diego Saravia, Unknown Executive, Maria Botero, Luis Gutirrez
Due to the requirements to fulfill the
and the other question is regarding photography in English.
Speaker Change: If you have any estimation regarding the legal reserve that can maybe release due to the pension reform that has been approved. So, if there is a problem, you will be able to release some legal reserve. I mean, while we're getting funding, we'll follow up on the problem as well. Thank you.
Speaker Change: Regarding your question, this is just to make sure I understood it right, you're referring to the SFN, the Stable Funding Ratio Requirement.
Speaker Change: What our banks have been doing over time is they've been preparing for the upticks in requirements that we've had. Therefore, the banks have already built in part of the additional cost. And then our guidance already built in.
Speaker Change: moving progressively, not only on the self-defense side, but also on the interest rate risk requirements that we are managing in the Colombian system.
It is not available at this time.
Speaker Change: Unknown Executive, Maria Botero, Luis Gutirrez, Unknown Executive, Maria Botero, Luis Gutirrez,
Speaker Change: prepared for various scenarios regarding releasing the legal reserve and dividends. We haven't got into that until we see the regulation.
Okay, thank you.
Okay.
All right.
Are you stuck?
Speaker Change: Apologies for the delay. And with that, ladies and gentlemen, that concludes today's conference. Thank you for participating. You may now disconnect your lines.