Bancolombia [CIB] Conference call transcript for 2022 q1
2022-05-12 14:06:08
Fiscal: 2022 q1
Operator: Good morning, ladies and gentlemen, and welcome to Bancolombia's First-Quarter 2022 Earnings Conference Call. My name is Scha(ph), and I will be your Operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. 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 credit losses. All forward-looking statements, whether made in this conference call in future filings, in press releases, or verbally, address matters that involve risks and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency, exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our target clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Mauricio Rosillo, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, Mr. Carlos Raad, Investor Relations Director, and Mr. Juan Pablo Espinosa, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.
Juan Carlos Mora: Good morning and welcome to our conference call for the first quarter, 2022. Thanks for joining our call. The first quarter results were both positive and maintained the momentum shown in the second half of 2021. This performance is supported by improving NII, strong loan growth, fee income, and low provision charges. Despite uncertainty over the presidential elections in Colombia and the Russia-Ukraine conflict and the -- and its impact in disruption of the global supply chain, the Colombian economy began the year as one of the best performing economies in the region, mainly driven by the exposure to commodity prices and the domestic demand. The monetary adjustments continue to be guided by the need to offset the pressures on inflation driven by food prices. We expect the rate to close at 8.25% by year end and while inflation is currently above 9%, and we expect to gradually decline in the second half of this year near to 7.6%. Let me give you another view of the bank's results of the first quarter of 2022. The loan book grew 1% compared with the previous quarter. Net fees declined 3% over the quarter due to seasonal factors but grew 15% in the last 12 months. Core equity, Q1, closed at 10.6% below last quarter due to the dividend payment approved in our shareholder's meeting. Net income for the quarter was COP1.7 trillion. Provision charges for the quarter were COP267 billion, resulting in a cost of risk of 0.5%, explained by better macro-economic forecast and a better performance of our customers. Our client base continues growing reaching, this quarter, more than 25 million. We have been adding clients at a good pace over the last two years. In fact, the pace of growth of purchases by new guard holders in our fold is four times larger than those of all ones and already represents 15% of total purchases by individuals in both physical and online stores. This growth is reflected in the volume of transactions we are processing and in fee income. Finally, I want to give an update regarding Nequi. We have reached 11.5 million clients. The loan book continues growing at a solid base, maintaining high NPS and activity indicators. The separation process continues to advance. We have already filed with the regulators the authorization to establish an operating new company. We expect to obtain the operating license in the second half of this year. At this point, I want to turn the presentation to Juan Pablo Espinosa, who will further elaborate on the performance of the Colombian economy. Juan Pablo.
Juan Pablo Espinosa: Thank you, Juan Carlos. Now, please go to Slide Number 3 in the presentation. During the start of 2022, economic activity in Colombia remains strong, thanks to a combination of our resilient private demand and the tailwinds coming from higher commodity prices, particularly oil and coal. Based on our real-time data, we calculate that between January and April, the economy grows 8.3% year-on-year, which is well above consensus safety. Despite this positive shorter performance, we still believe that as we move through the second half of the year, activity will gradually moderate. This will be the result of less supportive global conditions, as well as the removal of policies stimulus, the stabilization of household spending and high political uncertainty. As a result, we are currently forecasting that in 2022, GDP will expand 4.7%, which is lower than the 5.1% average market estimate. The negative note in this economic balance is the increasing inflation, which move from 5.6% at the end of 2022 to 9.3% year-on-year last month. This is the highest print in more than two decades. And it reflects the continued pressure in producer costs, which is translating with great intensity to put prices. It is also the result of an acceleration in core inflation due to the recovery in the aggregate demand, the annual increase of the minimum wage, and the operation of indexation mechanisms. Based on latest developments, we just revised our CPF forecast for the remainder of the year. For December 2022, we adjusted our expected inflation rate from 6.8% to 7.6%. As a response to this, challenging this scenario, we anticipate that the Central Bank will in its process of . We are now foreseeing that the corn hiking cycle will lead to a terminal rate between 8.25% and 8.5%. This means that by the end of the year, the monetary policy stamps will be in a mild contractionary territory. After this economic couple of view, let me turn the presentation back to Juan Carlos. Juan?
Juan Carlos Mora: Thank you, Juan Pablo. Moving to Slide 4, I want to continue this presentation by explaining the loans and deposit performance. 2022 started with strong overall results for Bancolombia. This is supported in the continuous growth of the loan portfolio. Loan book grew 1% during the first quarter. But keep in mind that the Colombian peso re-evaluated 5.65% during the quarter. Excluding the FX, impact growth was 3%. Colombia and Guatemala were the operations that marked this growth. Although the three main segments where we operate perform well, the retail portfolio is the one that grows the most in relative terms in all the geographies. Deposits remained relatively stable due to the excess liquidity with which the market closed 2021. However, we expect the time deposits to increase during the year to support the growth we are expecting. On Slide 5, I want to make in the commercial loans of Colombia. The commercial portfolio is our biggest segment representing 65% of the Colombian loan book. Since the second half of 2021, this segment started showing a positive performance. And these was confirmed during the first quarter of this year, growing 2.4% compared with the previous quarter, and 13% in the last 12 months. We have an asset sensitive condition, and this is the segment that contributes the most to interest income since 97% of the loans are flowing. The pace of the repricing of these loans has been very important for the bank's results. I want to highlight that the NPLs of this segment was 2.8% one of the lowest in the loan book. Moving to Slide 6, I am going to elaborate on paying evolution of digital sales and distribution channels. The way we interact with our clients has changed. Digital sales continue representing almost half of total sales, 1.1 million merchants have already adopted QR payments and digital channels represent 85% of total transaction. We keep processing a high volume of transactions, 42% of total Colombian market internally monetize transaction and 67 of mobile once. These has permitted us maintain the fee income and improve our credit modest. On Slide 7, we present our payment ecosystem. As I mentioned before, Bancolombia has more than 25 million clients. Our main goal with the payment ecosystem is that our clients can pay and receive payments with as many alternatives as possible, both in the online and physical channels. Therefore, we have developed an ecosystem where our clients find traditional options, such as payment gateways, credit and debit cards. But also, contactless payments, digital wallets, QR codes, among others. In Colombia, we are national leaders in credit and debit cards, amount of transactions. In QR codes and in the acquiring business with a 33% market share. Moving to Slide 8, I am going to elaborate about Nequi. Nequi continued showing positive trends. We had 1.5 million clients this quarter, reaching 11.5 million, out of which 33% are using products that generate income. We are focusing on our path to profitability, increasing deposits, transactions, revenue and fee per user, and growing at a solid pace in the loan book. In the last two quarters, Nequi 's loan book has increased the average balance from COP1.7 billion to COP127 billion. On Slide 9, we present our ESG update. We remain focused on reaching our 2030 goal of COP500 trillion disbursed on their ESG criteria. For 2022, we have a COP41 trillion goal. This quarter, we launched an investment platform that will develop solar energy generation and energy efficiency projects. The goal in the next five years is to reach an installed capacity of 160 megawatts. We also obtained the long tied to sustainability objectives, COP450 million granted by Bank of America. We're committed to disburse more than COP2 billion in our sustainable line by 2024, almost multiplying by three the current balance and reducing the emissions of 12,900 tons of CO2. Finally, I want to share that MSCI upgraded our rating to double A. This means we are in the leader category of the global banking system. Now, I want to turn the presentation to Jose Acosta to give you additional details on our performance during the first quarter. Jose Humberto?
Jose Humberto Acosta Martin: Thank you, Juan Carlos. Now, turning to Slide 10, we keep you on a snapshot of provisions and asset quality. are almost done, with only 1% of the consolidated loan book under relief. During 2022, it will be key to follow the revolution of deterioration, restructure of loans on tech jobs. The issue taxes of the first quarter, were COP267 billion mainly driven by charges associated with the retail segment. As a result of these reduction in the train of provision charges due to updated performance of our clients and help being purchased. Allowances now represents 6.3% of total loans coming from 8.11% 12 months ago. Cost of risk for the quarter was 0.5%, below our expectations explained by three factors. Direct macroeconomic forecast, better performance of our customers, and these provisions related to significant impaired clients. Although we continue with high levels of certainty by both locally and international factors. We want to update the guidance of cost of risk we gave last quarter of 1.8% from 2022 now to 1.5% with an upside risk. We continue with a high 90 days coverage level of 222% with healthy asset quality metrics. We don't expect material changes during the year as we're seeing a good performance of recent vintages. On Slide 11 we present the consolidated and stand-alone capital adequacy. Consolidated total services ratio stands at a level of 13.5%, while CET1 at a level of 10.6% under full Basel III for the first quarter. The reduction in the service ratios level compared to the previous quarter is due to the impact of discount dividends for 71% of profits that we declared in our General Assembly last March. However, we have accumulated almost COP1.73 trillion of new capital because of their strong results of the first quarter. We expect to close the year with the average level of 11.5% of core equity Tier 1, with the generation of profits in the upcoming quarters. Moving to Slide 12, we present the liquidity position of the bank. In our consolidated basis, we continue operating with sufficient levels of liquidity. In an annual basis, the profits are growing at a pace of 13% in line with the analyzed growth of the loan book of 12.9%. In the slide, you can appreciate that the cost of deposits in dollar decrease and we expect that it will continue to decrease due to our strategy in Central America operations of increasing the balance in saving and checking accounts with implementation of digital products, while in the cost of deposits in pesos is increasing given the rate hikes of the Central Bank. Of the total founding structure 84% correspond to customer deposits, maintaining the loan to deposit ratio at a level of 99%. will present another view of Colombia and Central America. In general terms, the positive trends in the balance sheet and the income statement are common in all geographies. I want to highlight some key aspects from the stand-alone operations. In Panama during 2022, the key variable to follow will be the cost of risk. After the end of the relief program six months ago, the performance of the clients of Banistmo who are coming out the release is better than expected. In the first quarter, the retail clients continue growing and mortgages had a positive dynamic. From the liability side, the growth in savings accounts is outstanding. already facing a challenging fiscal and political situation, but Banco AgrÃcola maintained its good operational metrics, with a good performance of the loan book driven by retail and commercial clients. And in Guatemala, we continued having a positive perspective with the economic activity of the country that are reflected in the growth of the loan book, the income, and low provision charges. Finally, in Colombia, we must highlight a very good growth in the loan book in line with their economic cycle. A very good performance of the income because of the high transaction volumes and a high-growth of income due to the expansion of margins. On Slide 14, we see the evolution of margins and net interest income. After the low provision charges, the margin expansion is the second most relevant variable in the positive results of the bank. Net interest margin reached 6% level with an expansion of 70 basis points when compared with the previous quarter. This is the result of the inflation at the interest rate increasing at a fast pace. The increase of the NII is mainly driven by these three drivers. The repricing of existing loans, mainly driven by the commercial segment, the growth, the loan book during the quarter with higher rates. And the funding costs is increasing at a slower pace thanks to the funding structure. As for automation, the reference rate will continue increasing. And these will continue to impact margins positively. Therefore, we expect to close the year with a NIM of at around 6.5%. It's like shows the evolution of expenses and efficiency. Operating expenses increased 22.4% in annual basis. The main drivers of these duration were, first, 17% of increase in administrative expenses, due to the growth of expenses associated with the good performance of their renting business and upgraded speed of execution of transformation and the utilization projects of these quarter, compared with the first quarter of last year. Second, salaries and employee's benefits increased 21% due to the salary annual adjustment, and by a strategy of attracting and repaying tallying. These tallying retention focuses on the technology area where the growth of the plan is done by hiring professionals who were part of third-party providers developing in-house tenant. On third, an increase in employee bonuses compared to those of the first quarter of last year because you may recall that the first quarter of 2021, we were not contemplated such a relevant economic recovery process. Therefore, the bonuses provision was adjusted in the middle of 2021. Despite the growth in expenses of this quarter, these was as expected. We are needing our forecast by 99%. We're maintaining up 11% growth guidance for the expenses this year. In Slide 16, shows the evolution of fees. Net fees declined 3% over the quarter, due to seasonal factors, but grew 15% in the last 12 months. The strong performance of this is driven by first, fees from credit cards and merchants continue to have the strongest performance associated with the volume of transactions and a greater number of clients. Second, fees associated with the low book growth as in the case of bank assures. And third fees associated with the capital market business as is the case of investment banking. Slide 17 shows the profitability metrics. Net income for the quarter was COP1.7 trillion more than double the first quarter of 2021. This strong result is mainly explained by the combination of the following factors: positive loan book growth, margin expansion, high volume of transactions generating fee income, better risk performance, expenses growing according to the budget, and a solid capital structure growing according to the results of the bank. Now, I want to turn the presentation to Juan Carlos for the closing remarks. Juan?
Juan Carlos Mora: Thank you, Jose Humberto. Even though the levels of uncertainty that we are facing, not only in Colombia, with the elections, but with the global geopolitical conflict, we are positive with this year results. I want to close the call updating our 2022 guidance. The loan book will grow between 9% and 11%. The cost-to-income ratio will be around 46%. Fees should grow 10%, and finally, with the ROE at the end of the year in the 17% period. After elaborating on these key topics, I want to open the line for questions.
Operator: Thank you. We will now begin the question-and-answer session. Ernesto Gabilondo from Bank of America is online with a question. Please go ahead.
Ernesto Gabilondo: Hi. Good morning, Juan Carlos and Jose Humberto, and good morning to all your team. Congratulations in your strong quarterly results. I have three questions from my side. The first one is on the political landscape and that presidential elections are taking place on May 29th. We have seen that recently Petro has been talking to the press. I'm just wondering if he has been saying something about the financial sector in Colombia. Can you elaborate on what are some of his proposals? And then my second question is on loan growth and asset quality. Considering your history, what will be the level in which high interest rate and high inflation start to affect the demand for loan growth? And what you think would be the most affected products and those that could be more resilient? And then finally, the last question is on the ROE. You mentioned you're expecting 17% for the year. How do you see the long-term ROE of Bancolombia? Is it -- will continue to be 17%? Thank you.
Juan Carlos Mora: Thank you, Ernesto. Let me start from your first question about the political landscape. We are close to having Colombia the first round. And you ask about the -- what are the proposals around the financial sector from the to petrol. It's difficult to tell because in this program, when you read, there are not many things that you could tell what he will do around financial sectors, and at least not radical proposals. We have been talking about that he wants to half on a stronger government banks that will lend to segments that are not subject to credit from the commercial banks. So I think that could be one of his actions is to have a stronger cover in public banks directed to certain segments. Other than that, some comments about the costs around financial services are no more than that. So I think we need to wait and see how things will develop. Anyway, I think any effect will be after 2022. You mentioned loan growth and asset quality. I think the loan growth, at this point, is very healthy. We are growing close to 15% in any of -- in -- on all of the lines of credit or all of the segments that we serve. Retail is strongest one that could be affected a little bit, but we maintain our guidance that the loan growth for the year will be between 9% and 11%. Let me remind you that we think that inflation will go down. And by the end of the year, we'll be around 7.6%. Segments affected by inflation, probably mortgages, there is a portion of the mortgages that are a act to the inflation. So that could have some effect on the loan growth of the segment. That by the way, has been growing in a very positive way for the last four years, even during the pandemic, that was the segment that grew more. And regarding your third question, ROE, we maintain our view that the long-term ROE for Bancolombia, it's around 15% between 15% and 17%. So that's our view for the long term for the bank.
Ernesto Gabilondo: Thank you very much Juan Carlos.
Juan Carlos Mora: Very welcome Ernesto.
Operator: The next question comes from Jason Mollin with Scotiabank. Please go ahead.
Jason Mollin: Hi, my question. Given you've addressed some of the other issues is on the expense side, with total operating expenses up over a little over 22% personnel, almost up almost 30%. You gave some explanations there about attracting and maintaining employees, high-quality employees, and especially on the IT side and hiring from third-party vendors. Can you give us a sense of how -- and you talked about the guidance for the year, but if you can just talk about how we should think about that? I mean, could we see more of that? It seems like the ability to retain and attract talent is indeed getting more difficult. So is this something that -- a trend that we should expect going forward? Thank you.
Juan Carlos Mora: Thank you, Jason. Let me give you some details, and I pass your question to Jose Humberto for additional information. As you mentioned, expenses are growing around 22%. And let me say that is in line with our forecast. So we are not away of the numbers that we were expecting for the first quarter. It's good to have in mind that we are comparing the year and I'm referring to 2021 in which the first quarter was not normal, so the base that we are using to compare expenses, it has some effect. So that's the one part that's from just from the numbers regarding what you mentioned that retaining talent, if that's a challenge, I think for every company, nowadays, we have in place a program to retain and to attract talent. But we don't foresee that that's going to deviate the numbers that we are expecting for the end of the year. So we maintain our view that the expenses at the end of the year will grow around 10%. So with that, I will ask Jose Humberto if he could get additional details.
Jose Humberto Acosta Martin: Thank you, Juan Carlos. Good morning, Jason. That's very clear. It's a cyclical situation comparing with the first queue up last year. Yes, we don't have any particular surprise regarding expenses because it is under control. We are optimistic about to get a level of 10% to 11% on the most relevant. We are -- we've done numbers and we've income that we are forecasting. We are going to get at a level of efficiency between 46% to 47% at the end of this year.
Jason Mollin: Thank you very much. Very helpful.
Juan Carlos Mora: Thank you, Jason.
Operator: The next question comes from Olavo Arthuzo with UBS. Please go ahead.
Olavo Arthuzo: Hi. Good morning, everybody. And thank you for the opportunity to make some questions. I have basically two topics mainly for me, for us to understand this target for the ROE of 17% for the year. But basically, talking about the asset quality and NII trends. I just wanted to understand from the first topic about asset quality. The increase in the 90-day NPL range in the quarter and even considering the new PDLs above 1 trillion, which is similar to the first Q of the last year. And if we put this trend aside, the well below average cost of risk. I just wanted to understand for the next quarters -- the next three quarters, the dynamics for the NPL ratio, along with the cost of risk trends inherent to it. And the second topic that I wanted to understand, especially I'm talking about the next quarter, it's about the NII trends. Because I wanted to understand if you could give us some more color what caused the strong NII expansion in the quarter. And what is the expectations along the following quarters? I would appreciate. Thank you very much.
Juan Carlos Mora: Thank you, Olavo. Let me take your first question, and I'll pass your second one regarding the NIM to Jose Humberto. Let me say that during 2020 and 2021, we have an abnormal situation regarding provisions and regarding the cost of risk. What I mean with this is that during that period, we have accumulated provisions since the uncertainty was very high. Now, that we are seeing how the economy is developing and how different -- the different loans are performing, we have now a clear picture of what is going on. That to say that we are going back to what we consider is a normal risk situation. But we accumulated provisions, so we now are in the phase in which we to a normalized state. And -- but going forward, which is your question, we have provisions that are covering the risks that we have in our balance sheet and is that also covers write-offs. And what we expect in the future is a more normalize behavior of performance of mPOS that should generate the cost of risk more close to 1.5% could be a little bit lower during this year, but going forward, 2023, we will think -- I think we will be going to a level of around 1.5 cost of risk. And on more normalized situation after what we saw during 2020 and 2021. So that's what we expect right now. With this let me pass your second question to Jose Humberto.
Jose Humberto Acosta Martin: Good morning, Olavo. Yes. Expansion of the NIM. There is a strong correlation between the Central Bank interest rates and expansion of the NIM in our case. Remember, that we came from 3% in December of -- interest rate from the Central Bank to 6% at the end of these quarter. So that is meaning that, there will be a huge impact of NII. What is going to happen, assuming what Juan Pablo mentioned at the beginning of the presentation, that interest rates will go up till 8.25. Assuming that that hike will occur in the next coming three months, we are expecting in the second quarter and maybe in July, an extra expansion of NIM. We don't expect that the trend will be the same for the second half of the deal. We are going to expect stabilization of the NIM. Short answer. Our expectations of NIM will be to touch the level of 6.5% area at the end of this year. The challenge will be 2023. And that situation, we're going to see how inflation and interest rates behave. But meanwhile we are talking about the very important expansion of NIM, that approves half of this year.
Olavo Arthuzo: Okay. Thank you, Jose. I believe the talk related to the NII is very, very clear. I just wanted to make a small follow-up on the asset quality size. You are telling that the costs of risk are expected to gradually increase throughout the next quarter. And about the NPL ratio trends for these because I wanted to understand at what levels for the NPL coverage ratio we should work for this year. And if you'd give some more color about these metric as well for the next few, it will be very helpful. Thank you.
Jose Humberto Acosta Martin: Yes. I think what happened de-source Q is there were three one-offs that impact the level of cost of risk. 0.5 obviously is not the standard of the bank. While you are going to see in the next coming three quarters, we are going to see a real deterioration and increasing in the level of passing loans. So that's the reason why Juan is mentioning that at the end of the year we are going to be on the area of 1.2 to 1.5. Regarding MPLs, you are seeing right now, if I may say the optimal level of party loans if you compare to pre -COVID. And third, what is happening right now with the strong coverage that we're having integrity in 90 days it is because some clients that there is no past due, we are having some provisions. And if the economies performing well in the next coming quarters may be the level of coverage at the end of the deal will be of for 30 days at around a 130% and for 90 days were going to be up the 180% area.
Juan Carlos Mora: Let me just add Olavo that those levels that Jose Humberto mentioned are the levels that we had before COVID. So we reached a level of a 100 and -- 180 or 170 to 180 on the 30-day as loan basis. And now we are returning to 130s, 135 level, which is our long-term level. So what we are doing is returning to a coverage level that we consider is the long-term coverage ratio.
Olavo Arthuzo: Thank you, Jose Juan. Thank you very much for this. It will be very helpful.
Jose Humberto Acosta Martin: Well, thank you.
Operator: The next question comes from Alonso Garcia with Credit Suisse. Please, go ahead.
Alonso Garcia: Hello. Good morning, everyone. My first question is a follow-up on cost of risk. For next year, I think you mentioned 1.5%. Could you please confirm that, and also comment on what level of cost of risk do you see is sustainable for the bank going forward? And my second question is on taxes with laterals. You are assuming for this year and next year, and if there is any proposal or any potential percentage of candidates that indicates a meaningful change to your effective tax rate in Colombia and in the coming years. Thank you.
Juan Carlos Mora: Thank you, Alonso. As we mentioned, the cost of risk that we are having right now, we consider it not the normalize cost of risk. It's too low and as I explained before is because all the provisions that we did during COVID. So I confirmed that the cost of risk for Bancolombia in the coming quarters meaning the end of 2022 and 2023 should be around 1.5%. There is inflation that is going to have some effect on the cost of risk. So we consider that level of cost of risk, and we are adding, additionally, we are adding more retail loans to our book. So that could have an effect on the midterm on the cost of risk. And regarding your question, the second question about taxes, we are estimating an effective tax rate for 2022 of around 34%. Remember that we have an additional tax, an additional tax for financial institutions that we are taking into consideration. So the mix that we have right now, it's 34. Moving forward it's difficult to tell if we will have additional taxes or not. As I mentioned, we already have an extra tax that no other industries have in Colombia. So l don't foresee that an additional tax could affect, tax in the future, but we don't really don't know. I don't know if Humberto wants to add something.
Jose Humberto Acosta Martin: The only one reason why taxation today's 31 and we are closing with the 34th mentioned is because net income mainly comes from Colombia, which we have the highest level of statutory tax.
Alonso Garcia: Humberto, thank you very much.
Juan Carlos Mora: Thank you, Alonso.
Operator: The next question comes from Andres Soto with Santander. Please go ahead.
Andres Soto: Good morning, Juan Carlos, Jose Humberto. Thank you for the presentation, and congratulations on the results. My first question is regarding margins. I was positively surprised by the expansion that we saw this year on your margin on loans. And I'm wondering if you can update us on what is the sensitivity of your margins to interest rates. Is there anything that has changed in the bank of structure that is allowing for faster re-pricing or faster expansion in margins, or are there any one-off elements that we should now consider when we -- you -- we look in the results ahead?
Juan Carlos Mora: Thank you, Andres. As you mentioned, the margin expanded in a considerate way in the first quarter, reaching a level that we were expecting more for the middle end of the year. That's because of the interest rate increases that Banco Agricola has made during the end of last year and the beginning of this year that is impacting the interest rates. And our ability to maintain the funding cost low. That it is having an impact on the NIM, a very positive impact that we expect that margin to maintain those levels or even increase more during this year. Jose Humberto could give you additional information regarding that margin, Andres.
Jose Humberto Acosta Martin: Thank you, Juan Carlos. Hi, Andres. Regarding NIM, as Juan mentioned, sensitivity in our case has changed a lot in the last two years, basically because of the way we're trying right now. Savings accounts from chicken accounts right now, the relative weight is high. So we are able to maintain on the asset side for the Colombia, for example, 95% of the loan portfolio -- commercial loan portfolio is floating. But on the liability side, less than 50%. So they sensitivity right now will be at around 30 to 40 basis points for every country that in the -- that the Central Bank change interest rate.
Andres Soto: Thank you both. My second question is regarding the long-term ROE guidance that Juan Carlos just mentioned is you're calling for in between 15% and 17%. I'm curious what has changed in your view versus the one that you gave us just six months ago. I remember I asked the same question during your Investor Day and you said 14%. Now this is significantly higher. I'm curious if what has changed is the interest rate environment, it is more optimistic view on your structural cost of risk, or it is anything related to an efficiency target or over the mid-term?
Juan Carlos Mora: Andres, all of the above. What we are seeing is our mix of loans, it's -- given us a NIM that is better than the one we were considering in the past. Also based on a great positive trend on the acquisition of new clients. We were -- we highlighted the number of clients that we have now. It's important so that allow us to be positive on fees. Also, on the expansion of the volume of loans that we have. So if you -- if you'll see there is, a mix of factors that allow us to be more optimistic on our ROE. So it's NIM. It's better fees of the income. Also, the cost of risk, we updated. It's still. It's 1.5, but we reconsider higher number in the past. So as I mentioned, this is a mix of different factors. Jose Humberto, will add additional information on ROE.
Jose Humberto Acosta Martin: Andres, there is another factor that's the definition of the optimal capital of the bank. Remember that a quarter ago, we were talking about that the optimal level of Tier 1 ratio would be 11.5% on average. So that definition maintains the optimal level of capital. So that would be also a consequence of increasing the level of return equity.
Andres Soto: That's very clear. Thank you all for your responses, and congratulations again.
Juan Carlos Mora: Thank you, Andres.
Operator: The next question comes from Tito Labarta with Goldman Sachs. Please go ahead.
Tito Labarta : Hi. Good morning, Juan Carlos, Jose Humberto. Thanks for the call -- taking my question. So another follow-up on your margin and a little bit on the ROE as well, but you mentioned 6.5% by year-end, but just to understand, that 6.5% is for the full year, which if I'm correct on that, that would imply that you should be above the 6.5% in the coming quarters, or did I miss -- or is it 6.5% would be a highest level on a quarterly basis, just to understand that. And then, I guess, following up on that, interest rates stay at this level. I don't know when you expect rates to come down if you expect that to happen already, in '23 or maybe '24. Will that margin remain elevated maybe throughout next year, which is also wide? You know ROE guidance can be higher and maybe you could probably stay above a 15% ROE even in 2023, of course, depending on what rates do. And so -- or in other words, when do rates come down, and when does that impact the margin, if you can give any color on that? Thank you.
Juan Carlos Mora: Thank you, Tito. Let me give you some information then l pass the question to Jose Humberto. What we expect is that the rates are going to peak this year and will start going down during 2023. So the margin expansion is going to be during 2022 and part of 2023. I could say that in normalization of the margin, we look to in '23. So we will have an expansion reaching 6.5 and Jose Humberto will elaborate on that. Regarding your question is there is another, actually it's end of the year or what is the number. And that's why we are focusing or saying that or our guidance regarding ROE s that will be more around 15% to 17% because there will be some normalization of the margin which is going to expand, but later 2023 will compress after we reached the peak of the rates and then start to go down. Juan Pablo, our Chief Economist, is considering anti steenis -- are considering that the rates will reach a peak of eight and a quarter and then we'll start going down to 7 -- 75 in 2023. And then they will go further in 2024 will further go down. Jose Humberto could you give more information around margins?
Jose Humberto Acosta Martin: Thank you, Juan. Hi, Tito, yes. The 6.5 is for the whole year, Tito. Again, we are expecting, I don't know how many hikes, but to increase to 2.25% more from the Central Bank. So expansion will be -- on average, will be 6.5. Regarding 2023, we are expecting that the interest rates from the Central Bank coming from 8.5 -- 8.25 to 7.75 based on the assumption of inflation. So that means that you are going to see maybe the same level of NIM, a slight compression of the NIM, but all depends of the structure of fundings that we will have on that time. Remember that in the last three years we have been dealing with interest rates coming down. We the faced the margin because the structure of funding. So again, we are expecting to reduce a little bit the margin next year, because Central Bank interest rate will be coming down at least 50 basis points.
Tito Labarta : Alright, thank you, Juan Carlos, Jose Humberto. Just to make sure am clear on that, the 6.5 is the average for the year. So that would be on a quarterly basis. You could probably surpass that.
Jose Humberto Acosta Martin: It is.
Tito Labarta : And then okay. Perfect. And then just for next year, that reduction also, you will start to come down next year. But average rates would actually be higher in '23 given where you started in '22. So maybe it's very modest reduction in '23, the real reduction happens really more in '24. If I read that correct.
Jose Humberto Acosta Martin: That's correct, Tito.
Tito Labarta : Okay. Thank you. Thank you very much.
Jose Humberto Acosta Martin: Thank you.
Juan Carlos Mora: Thank you, Tito.
Operator: The next question comes from Yuri Fernandes with JPMorgan. Please, go ahead.
Yuri Fernandes: Thank you all. And again, congrats on the good results. I have a question regarding also over there. Given the level we are seeing for the there, how this can affect your operations? Do you see any kind of impairment on your operations? Do you anticipate anything on that front? That's one. And also, a follow-up on Tito 's previous questions regarding rates and margins, at what level for rates could we start to see a headwind for asset quality, right? Because we know the impact on growth acceleration volumes. But I guess rates going to above eight, aren't concerned that we can start seeing a worsening asset quality for corporates? Like this part of your 1.5 cost of risk and guidance, how that can affect your expected loss models? So just checking. It will be around here. Inflation globally remains more resilient, and rates keeping moving up to 9 and 10. How do you see asset quality here? What is the level that becomes the headwind and not a tailwind? Thank you.
Juan Carlos Mora: Thank you, Yuri. And regarding your first question, in Salvador, we are seeing a situation in which Banco AgrÃcola, our bank there, is having very good results. The loan book is growing, NPLs are low, cost of risk is very -- it's in a level that we feel very comfortable. So on that -- on one side, the bank is performing very well and very good results. We are adding new digital products. The demand for those products is very active. So we have one operation that is running. On the other side, we see a fiscal situation of the country that it's -- and I think that -- It's a situation that we need to take into account. And you mentioned to sovereigns. We in our forecast, we are considering some part of the sovereign that we have in Salvador. Just I want to mention that what we have is short-term local petition and letters. We don't have position on Euro bonds, or all other instruments. Yes, we are considering the risk and we are introducing that consideration into our numbers. Asset quality, yes. When we talk about the cost of risk of 1.5, while we are taking into consideration that there will be some deterioration due to the increase interest rates and inflation. So in our numbers, what we introduced was an effect due to, as I mentioned, higher interest rates and the effect that could have on our numbers. But let me say what we see is an effect on 2023, not a material effect in 2022. So we are considering that affecting in our numbers, Yuri. I don't know if Jose Humberto would like to add something else.
Jose Humberto Acosta Martin: Thanks, Juan Carlos. We'll touch the high levels the second quarter and that's the reason why, Yuri, we are update our forecasting of loan growth for the second half of the year. We are expecting a cool down of the level of consumer loans for the second half of the year. That's the reason why we have been growing at a pace of 12%, but we are expecting to grow for the whole year 9% to 11%.
Yuri Fernandes: Perfect, Juan Carlos and Humberto. Thanks and congrats again.
Juan Carlos Mora: Thank you, Yuri.
Jose Humberto Acosta Martin: Thank you.
Operator: Sorry. We're running out of time. This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Juan Carlos Mora for any closing remarks.
Juan Carlos Mora: We would like to thank you all of you for attending this call. We are very happy with the results that we are getting so far. And what we foresee for the rest of the year is positive results. As we mentioned, NIM will continue being in a very good level for us. And also what we are achieving on new customers. On the dynamic of the bank, we feel very comfortable that we can have a very strong 2022. We hope to see you or hear from you on our call in which we will report the results for our second quarter of 2022. Thank you very much. And have a very good day.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
