Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BanColombia SA (CIB, Financial) demonstrated strong operational performance with a 3% loan growth and maintained a stable net interest margin at 7.1%.
- The Colombian economy expanded at a better-than-expected pace, leading to an upward revision of growth forecasts for 2024 and 2025.
- The bank's capital ratios remain strong, with a target solvency ratio of 12.6% and a core equity Tier 1 ratio of 10.9%.
- BanColombia SA (CIB) successfully executed a liability management transaction and a new Tier 2 issuance in international markets, optimizing its capital and funding structure.
- The bank's digital asset company, Puenia, positions it at the forefront of financial innovation, providing a platform for learning and iteration.
Negative Points
- Net income saw a 13.5% decline from the previous quarter, and return on equity fell to 15.6%, primarily due to an increase in provision charges by 23%.
- The bank faced a one-time impairment charge associated with a joint venture, impacting overall profitability.
- Despite the overall positive economic outlook, key economic drivers such as investment levels, household demand, and credit conditions are still lagging.
- The fiscal outlook for Colombia presents challenges, with increasing debt levels and a fiscal deficit forecasted at 5.6% of GDP in 2024.
- The bank's cost of risk remains above historical levels, and there is ongoing deterioration in the SME and construction sectors.
Q & A Highlights
Q: Hi, good morning, Juan Carlos. Welcome, Mauricio and good morning to all of your team. Thanks for the opportunity. My first question will be on your name expectations. So you're expecting an interest rate of around 8.75% in '24 and 6% in the next year. So where should we see the means normalizing in the next coming years?
A: Okay. Thank you, Ernesto. Let me address your questions. Your first, I will have a comment on the tax -- effective tax tax rate. And on that, I will ask Mauricio to give you more more color. And then I'm going also to answer your question or your question or your comments about about Nequi. So let's start with the with the [Pyme]. We know that in Colombia, we have had a monetary policy that is at this moment, fight inflation and inflation has been kind of persistent to go down. So at the end, our Pyme will depend on how the monetary policy will behave. And we are expecting, of course, the lower expectations on two additional reviews of the interest rate from the Colombian Central Bank and due to the inflation news that were released yesterday, probably we will see probably dated rate will go down around 125 basis points to 150 basis points. So with that, we expect our margin to be around 6.8% by the end of this year. And that will depend mainly on the speed of the transmission of the monetary policy and if the Central Bank is going to decrease the rate 25 basis points or 50 basis points in each of its meetings this year. So for next year, we expect the inflation to keep going down. And still we don't see that the grade the inflation sorry, will be in the bank [Republica] target. So the monetary policy will continue trying to control inflation. So with that, we expect that our needs for 2025, we'll be around 6.5%. So that will decrease our net interest income, but also that will be related to the cost of risk if you see the results.
Q: My question is on your provisioning on new provisions increased in the quarter, although asset quality look better, the tone on the call in general sounds a bit more optimistic and you did lower the guidance a little bit on the cost of risk. Just to think about and want to understand the increase in the quarter a little bit more specifically, given the somewhat better trend overall that you're seeing and thinking maybe a little bit more longer term, you're still well above your historical cost of risk. Do you think you can get back to those levels where you expect a better GDP growth next year. How do you think your cost of risk and can continue to evolve into 2025? Thank you.
A: Thank you, Tito. If you compare second quarter with the first quarter, you will see some additional cost of risk but we -- overall, and that's because the first quarter of the year was abnormally low. What we see is the trend of better asset quality on their behavior in the second quarter was better than in the first quarter. Now that's why we our guidance is for cost of risk for the end of the year, it's between 2.2% and 2.4% Band previous guidance was 2.5%. So what we are seeing is a better behavior on the consumer loans. Some deterioration on SMEs. But all in all, we expect on improvement on cost of risk for the next half of the year. And regarding your question about 2025, we expect a better performance in terms of GDP overall. On top of that, we all suspect a better cost of risk and a more normalized as we mentioned in the past, our normalized cost of risk was around 2025 to be between 2 and 2.2, which is stores at a normalized cost of risk.
Q: I have a question regarding your guidance and your ROE. You're increasing this a little bit. But when you look to the metrics and then we move to the first half like you had ROE -- the first quarter, these are we was higher than they were in maybe some one-time events on impairments. My question is, can we see higher ROE or is this a one-off tax rate normalization, a headwind or margin pressure? And just trying to understand it were not to be too conservative on the ROE here and what can -- maybe make the are we to be we see your guidance is it's taxes, expenses includes the margin normalization? Just trying to get some color on this. Thank you.
A: Thank you, Yuri. First semester was -- it was a good semester and it actually was better than we were expecting. Regarding the second semester on what we expect by by year end, and if we will be able to deliver a higher ROE, that basically will depend on antitrust quite our views on two main variables, the speed of interest rate changes or it, as I mentioned, if the Central Bank we'll produce 25 basis points or 50 basis points and the effect on our Pyme. So that 6.8% Pyme suppose -- a more aggressive reduction on interest rates. So there could be an upside possibility. And the other main variable is cost of risk and we are seeing the cost of risk improving. So to your question, our past guidance of ROE was around 14%. Now we are saying 14%, 15%. Is there an upside possibility regarding, I mean, it will depend on how at the end interest rates will behave and the economy -- Colombian economy will perform. We -- pardon couple of past months, a good, a surprise, positive surprise regarding economic activity in Colombia. If that continues, I think we could deliver a little bit higher ROE yearly.
Q: Hi. Congratulations on the quarter. I wanted to ask on two things. One is maybe seizing the opportunity of follow up on Yuri's question, you have a very strong franchise in terms of credit control. You have a 30% market share in terms of value of transactions on us. As Yuri was mentioning, you have a new entrant that is accelerating in this segment up, as you mentioned in the call, appears to be in a very risky segment at this point in time, right. So how is your strategy in terms of preparing to defend this market share? Or would you be willing to open space in terms of market share, given the current market conditions, I think maybe yours, but this question is more focused on the asset side more than on the funding side that you covered with Yuri's answer.
A: Yeah, thank you, Brian. I will take your first question, and then I will ask Mauricio to address your second question. It's definitely the competitive landscape is changing in Colombia as I mentioned. There are new players. It's a sign to enter an unbiased market, which is understandable. What I see is that if you do the math, 30% interest rates on savings accounts with a maximum rate around 29%, we dont' have much room there to take a risk. So what they -- what
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
