Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Loan portfolio expanded by 3% during the quarter, driven by commercial and mortgage sectors.
- Net interest margin (NIM) increased by 20 basis points to 5.91%.
- Cost of risk decreased by 91 basis points to 4.6%.
- Capital structure remains strong with CET1 at 10.12%, above the 7% minimum requirement.
- Efficiency strategy yielded positive results, reducing operating expenses despite high inflation.
Negative Points
- Annual inflation rate stagnated at 7.17%, impacting financial performance.
- Colombian peso depreciated by 8% quarterly, influenced by dollar appreciation.
- Consumer portfolio showed a marginal decline due to higher interest rates.
- Commercial and mortgage portfolios continue to face upward pressure on asset quality.
- Net result for the quarter was a loss of COP74 billion, reflecting challenging conditions.
Q & A Highlights
Q: How do you see the competitive environment for deposits in Colombia, and how confident are you that funding costs will improve as the Central Bank cuts rates?
A: Javier Jose Suarez Esparragoza, CEO: We are seeing new competitors with high-yield accounts, but we have a comprehensive portfolio of solutions for our customers. While new entrants may slow the pace of funding cost reduction, we are confident in our digital capabilities and competitive rates. The market will eventually reach equilibrium, and we are prepared to maintain our leading position.
Q: Can you remind us of the sensitivity of your NIM to lower interest rates?
A: Javier Jose Suarez Esparragoza, CEO: A 100 basis point decrease in the reference rate translates into a 7 to 10 basis points expansion of our net interest margin.
Q: Do you expect the loan mix rebalancing to continue, and have you rethought your strategy regarding loan book composition?
A: Javier Jose Suarez Esparragoza, CEO: We expect the consumer loan book to start growing again in a few quarters. For the short term, the mix will shift towards commercial and mortgage loans, but we anticipate stabilization and eventual growth in the consumer segment.
Q: Have you rethought your strategy regarding fixed-rate mortgages given the impact of rising interest rates?
A: Javier Jose Suarez Esparragoza, CEO: The market is still focused on fixed rates, but we are hedging these positions through treasury strategies. We are better positioned now to manage interest rate risks.
Q: Why not provide guidance specifically for the second half of the year, given the significant improvement implied in your full-year guidance?
A: Javier Jose Suarez Esparragoza, CEO: We are expecting profits for the second half, which should cover the losses from the first half. Our internal models show a steady improvement, particularly in the consumer book, which supports our confidence in the guidance provided.
Q: Could you provide preliminary guidance for net profits for the third quarter?
A: Javier Jose Suarez Esparragoza, CEO: While we are not giving specific quarterly guidance, we are in line with our full-year ROE range of 1% to 4%. The third quarter is behaving as expected, indicating positive results.
Q: Can we expect a new capital increase in the short term given the current CET1 ratio?
A: Javier Jose Suarez Esparragoza, CEO: We believe we have enough capital to sustain our growth strategy. We expect profits to improve our capital position and anticipate a 40 basis point increase in CET1 due to regulatory changes in operating risk capital allowances.
Q: What are your thoughts on the potential implementation of mandatory investments in Colombia?
A: Javier Jose Suarez Esparragoza, CEO: We are in discussions with the government to deploy credit to targeted sectors. Mandatory investments would take a long time to implement, and we believe our dialogue with the government will yield a more efficient solution.
Q: Why did your NIM expectations decrease recently, and will coverage decrease by the end of the year?
A: Javier Jose Suarez Esparragoza, CEO: The decrease in NIM expectations is due to a shift in our loan portfolio mix and the accelerated decrease in the cap rate. We expect coverage to remain stable between 90% and 100%, with consumer coverage gradually increasing.
Q: Are you taking any specific strategies to hedge interest rate risk?
A: Javier Jose Suarez Esparragoza, CEO: Yes, we are incorporating strategies to hedge interest rate risk, which is reflected in our NIM including FX and derivatives.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
