Grupo Cibest SA (CIB) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Bancolombia Second-Quarter 2011 Earnings Conference Call. My name is Alicia, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions).

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, addresses matters that involve risks and uncertainties.

Consequently, these 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 targeted clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC.

With us today is Mr. Sergio Restrepo, Executive Vice President of Corporate Development; Mr. Jaime Velasquez, Chief Financial Officer, Mr. Juan Carlos Mora, Vice President of Technology and Innova and Mr. Rodrigo Prieto, Chief Risk Officer.

I would now like to turn the presentation over to Mr. Sergio Restrepo. Please proceed, sir.

Thank you and good morning to everybody. Thanks again for being here with our quarterly results conference call. As usual we would like to begin with a brief discussion regarding the macroeconomic environment. And I will ask Juan Carlos Mora to present to you these ideas.

Good morning to everybody. As usual we have our slide presentation available in our Investor Relation website. For those who are following me, I would like to call your attention on the Slide number two.

Inflation in Colombia ended June at 3.23% for the last 12 months. In the recent months there has been some pressures on this front, mainly from the damages caused by heavy rains to crops and infrastructure across the country.

During 2011, the Central Bank has raised the repo rate 150 basis points to 12.5% in response to these inflation sparks, which report this decision as we believe it will keep inflation under control. With respect to the repo rate to end 2011 at 12.75% and inflation to finish the year within the range of 2% to 4% established by the Central Bank.

Regarding GDP growth, the 5.1% achieved in first quarter 2011 was much better than what we all were expecting and is a clear sign that economy gained momentum. And Samsung also remains healthy and indicators like 11.1% on employment rate, which is low for Colombian [circumstances]. And the creation of near 600,000 new jobs show that the economy is likely to remain in good shape in the foreseeable future.

All these trends led us to believe that Colombia's GDP growth will be 12.8% in 2011. After discussed review of the economic environment for Colombia, let me turn the presentation back to Sergio who will discuss the bank's results.

Thank you, Juan. On today's conference call I would like to highlight five topics. First of all, the net income of COP386 billion for the quarter is 32% higher than what we had last year. Secondly, net loans grew 5.1% during the quarter and 22.4% over the year.

The net interest income increased 10% in the quarter and 17% compared to second quarter last year. Loan portfolio continues showing a good quality, the five year loans percentage was -- total loans were 2.6%. And finally, profitability for the quarter was 19.6%.

With this highlight I would like to go into depth presentation. In slide number three, we have loan volumes -- we had total assets COP75 trillion with a growth, as I said around 20% year-over-year and 6% over the quarter.

In terms of the loan portfolio, peso denominated loans grew 6.4% over the quarter, 18% year-over-year. Regarding the US dollar denominated portfolio grew 6.1% over the quarter, 42% over the year, almost 43% over the year. In nominal numbers, the growth was $440 million for the quarter and $2.3 billion year-over-year.

There was a point here on the dollar denominated debt, I mean the depreciation of the dollar, which was 5% over the quarter and 7% over the year. Means that there is a -- when you compare the total growth of the loan portfolio there is a clear downward because of the peso appreciation or the dollar depreciation.

Under [MD&A] you have, I mean the long document, you have on the IR web page, page number 5, you can see the -- how we break down the loan portfolio. And the retail and SMEs grew 8%, basically consumer loans and working capital, driven basically by a more dynamic economic environment.

Corporates grew 2%, basically working capital, capital expenditures, mortgages at COP4.1 billion, if you include securitized mortgages, it is [4%] over the quarter and 13% over the year.

Our leases grew 4% during the quarter, in line with the economy growth. In the future, what we see is that commercial loans will remain dynamic due to higher level of economic activity. Consumer loans, we believe that -- our optimism, the GDP per capita and the employment as Juan Carlos mentioned, as a good signal for these segments.

And finally mortgages, we believe that it's significantly under penetrated, and it is in line with the consumer confidence.

We move into slide number 4, where we see the provision charges. For the quarter we have COP104 billion which is significantly lower what we had a year ago, I mean 44%.

The new past due loans and then the level of deterioration of the loan portfolio has been really significantly decreasing over the year. We had COP62 billion. That level will run at a rate of cost of credit of around 0.7% or between 0.7% and 1% over the year, which is significantly -- again, significantly lower than what we had a couple of years ago, when we were above 2%.

Charge-offs for the quarter were COP166 billion, that really emphasized our discipline of keeping our books as clean as possible and the net past due loans -- the number that we will see later on is COP1.3 trillion. The recoveries of the charge-off loans and foreclosed assets remained in a good trend, and better economic conditions are having positive impact on the bank's loan performance as we already mentioned.

Slide number 5, we have the asset quality. First of all, I mean, I would like to recall this COP1.4 trillion past due loans; when you compare that to total loans you end up with this 2.6%, which is one of the lower numbers that we have had in the recent times compared to 3.6% a year ago.

Allowances to total loans, as you can see there is 4.8%, and the coverage, I mean, allowances to past due loans is almost two times, I mean it's 187%. We use to cross check with the C, D & E loans, and we maintain that coverage, I mean, 116%. So, we are really confident that the numbers that we are having as a coverage are really conservative and we are close to keep on with the growth that we are seeing ahead.

Regarding the breakdown in the different segments, we have seen substantial improvement in all of them. Always there is a question about the mortgages and certainly, it's basically because as we securitize the new mortgages we tend to keep in our books those that are not performing, and secondly we tend not to write off the mortgages, so at the end we kind of carry with these past dues. But, we are confident that that will improve over time, but this is not something that really -- do not really worry us.

Regarding page number 6 or slide number 6, the net interest income was COP984 billion for the quarter. It is 10% higher than the last quarter and 17% higher than last year.

The deposit cost, the funding cost is -- again, is one of our strengths. It grew from 2.2% to 2.46%, certainly with the increase of Central Bank interest rates from 3% to 4.5% as Juan stated. We are going to see an increase on this one. Good point here is that we are almost 200 basis points below the Central Bank interest rates, right now, but I mean, these numbers will grow.

We have been able to maintain this number low, basically because of the mix and if you can see there, I mean, demand deposits meaning saving accounts and checking accounts moved from 58% a year ago to 63% today.

But again, with the pressures and the signaling from Central Bank, we probably are going to see again the [CDs] growing on a more steep growth in the cost of funds.

Again, this is something that we value as part of our franchise. I mean, it is one of the advantages that Bancolombia have today in our environment.

Total deposits account for COP46.2 trillion, which is 69% of the total liabilities.

The slide number 7, where we can see the mean performance over the last two, three years. We can see that returning moved from 5.9% to 6.2%. Basically was helped by the securities portfolio return, mainly because of the new rating agencies of Colombia's investment group. Right now, we have three of them with the investment grade and that really boosts the price of the Colombian [peso].

On the loan side, we moved from 6.4% to 6.3%. Certainly, we maintained this compression and part of it was only because recently we have been issuing bonds in the market. Our deposit side hasn't been able to cope with the growth of the loan portfolio. Not exactly because we wanted but is the trade-off between cost and speed of our growing deposit base.

But we believe that with the increase on the, again on the interest rates from Central Bank, we are asset sensitive, we believe that that will increase, I mean, the mean will increase.

We do not proceed to increase within this year; we are expecting this more for the year 2012.

The slide number 8, regarding fees and services, the number was COP407 billion, 3% over the quarter, 6% over the year. Credit and debit card fees, annual fees is the third of the total fees. It's a healthy business; I mean we haven't been pushing too hard on that, that the nominal fees for that remains stable over the year.

We don't see significant trends there but certainly we are not exempt of that, and then it is a trend, is a global trend to regulate that. So, we prefer to be cautious on moving these kind of fees.

Regarding fiduciary and asset management, there is the 5% over the quarter, 12% over the year basically because of the size of the portfolios under management, and the other one was the fees from banking services which includes investment banking fees and it was 19% higher.

Something to mention here is that, we do not have here the pension fund management fees as we are in a contract to sell the pension fund in El Salvador. Those numbers last year were COP20 billion for the quarter and COP43 billion for the semester.

And definitely if you, I mean, if you do the comparison, fees should be much higher than that. But as again -- as those are, that [instruction] is already under way, we decided to have it as a discontinued operation.

Regarding the OpEx, page number nine, we have COP889 billion in total OpEx. It's 5% higher for the quarter, 20% higher for the year. Basically, personnel expenses grew 2% over the quarter and 9% over the year.

And basically, the largest personnel expenses are mostly explained by charges in order to accumulate provisions to pay for salaries and benefits. Those are actuarial calculations according to international accounting standards.

Regarding the other ones then, administrative and other expenses which were COP450 billion, 6% higher in the quarter, 26% higher year-over-year. We have three different [OpEx]; one of them will be tax on financial transactions and with tax, the accounts on that specific OpEx is COP21 billion. I would like to expand a little bit on the world tax further on.

Rent and technology leasing were up COP29 billion, and the IT renovation project, I mean, the Innova project that -- with the completion of some of the modules, we start amortizing already capitalized expenses and that has started impacting the income statement. For the quarter, the charges related to the project totaled COP54 billion.

But in general these three items behaved as we were expecting. Efficiency ratio of the bank is 60% for the quarter, still high for our goal, but again we consider that we have done this full year's budget on the significant expenses that we are having with the IT company won't allow us to go down in that side, but certainly once we cross that we are close to -- really, to lower the number significantly.

Slide number 10, about the balance sheet, the loan to deposit ratio grew to 104%. Again, the point here is basically that the liability side grew based on bonds. Over the last year we issued more than, well exactly was $2.140 billion and COP1.1 trillion. Those were bonds in the market, so that's basically a reason of the -- this ratio being a little bit higher than 100%.

Shareholder's equity grew 13% over the year, on top of COP8 trillion, and capital adequacy ratio ended the quarter at 13.7%, with almost 10% tier 1 and 3.7% tier 2.

We consider that the bank is well capitalized. We don't see any need of capital in the short term, but it doesn't mean that we won't talk to market because it depends on the dynamics of the economy and certainly the economy is behaving at a good speed. Therefore, we will keep a close eye on that and as soon as we consider it suitable, we will call up again the markets.

Slide number 11, regarding the return on equity and return on assets, basically, we are back again on trend. And 19.6% is basically what we have set as a long-term trend. And we believe that we have the means to keep with that number.

There is nothing that really -- we believe that will protrude or make difficult to achieve that number by year-end. Even in spite of the new taxes that we are getting, and also since you remember, I mean, the wealth tax, just mentioned that, the cost for the bank, for the Group as a whole will be almost COP500 billion, means kind of a 125 per year.

The thing is you will not see it through the P&L; you are going to see that basically on the revaluation on the equity on the balance sheet. So, even though you have to pay it, it is a clear up. You have to pay in cash, but we are going to see more on the equity side then through the P&L.

Finally, to conclude, I would like to mention that we have -- we clearly have solid liquidity position (inaudible). Our moderate funding cost is one of our clear advantages, and the diversity and the strength of our franchisee, another good advantage, and our solid capital base, certainly place us in an excellent competitive position, take advantage of the growth opportunities that we are seeing in the market.

Basically, what we have to explain today. We are more than happy to take questions and comments that you like to have, thank you.

We are now open for questions.

(Operator Instructions) Your first question comes from the line of Tito Labarta from Deutsche Bank. Please proceed.

Hi, good morning, Sergio and everyone and thanks for the call. I have couple of questions; I think first on the net interest margin, you mentioned you may not see any benefits on your loan margin for the rest of the year, maybe not until next year.

So, I just wanted to get a sense of kind of the sensitivity in terms of the net interest margin for the rest of this year. Does that mean you expect the margin to remain relatively stable compared to this quarter, and why is it taking -- given that your loans are mostly variable rate loans, why is it taking some time to really see the benefits of the higher rates on your loan portfolio?

That is the first question, and then the second question, on the asset quality side, given we just saw nice improvement in the quarter, do you think this can continue or at what point do you start to see a turnaround there and maybe start to see some deterioration in asset quality, and then what would that mean for provisions and kind of recurring level of provisions or even what you expect to see your coverage ratio at going forward? Thank you.

Thank you, Tito. Good morning, regarding the mean, as (inaudible) certain, we are asset sensitive, and with increase on the Central Bank rate, we certainly should increase our mean. The point here is that as we mentioned, as we have been trying to hold the cost of deposits low, we have been issuing bonds in the market.

As you know, the price of bond and medium term and long term bond is much higher than CD or short term deposits. Therefore, we won't be able to grow them in at the same pace that the Central Bank is growing the price. We act around the numbers; we believe that probably we should be able -- (inaudible) we should be able to grow around 8 to 10 basis points by year end, but as always we prefer to be conservative, and again the idea is, we rather you have this 6% on new members and they have positive [surpluses] by year end.

But we believe that for 2012, we certainly will be able to grow a few basis points on the mean. Again 6% is the kind of number that we are going to run with more upsides than downsides.

And regarding the act quality, probably have to say that as per your trend will be the one that we have seen. Their cost of credit as far as the net earning is 0.7%. We assume about something between that number and 1% would be reasonable. What to expect in the future, certainly with increasing rates that's signaling and whenever you have increasing rates, down the road is a deterioration on the loan portfolio.

We know that by our minimum credit, I'm sure our risk, vice president is really aware of that, going to tighten in the (inaudible) and understanding that effectively we have to [crop] the growth right now, that we have to be cautious down the road.

So, in the short term, medium term we think that we have very deep amount and we are really well positioned.

Okay, great. Just to maybe got a little on the asset quality side, so you are saying that kind of effect may be to remain stable at these levels, and then -- but when do you think they could start to see some deterioration? Is it by the end of the year, maybe sometime next year, just want to get a sense of the timing and what you are seeing in terms of the asset quality and when it could start to deteriorate?

It's difficult to say again. With -- Juan was saying that we had -- during the last year we had almost 600,000 new jobs, which is good, I mean, it is one of the [year] indicators to tell you the credit quality in the future. At the same time you are having the Central Bank interest rates. If the Central Bank maintains the interest rate at 5% essentially that we won't have any significant deterioration over the years.

If there is a moderate change on economic environment probably -- probably that will change, but again that is (inaudible), you can do your forecast with the numbers that we have today.

All right. Thank you very much.

Okay.

[Jose Barea] from BAM.

Good morning gentlemen, and thank you for the opportunity. Just following-up on asset quality. Just want to get a sense, if you expect recoveries to continue to remain at the level that we've seen over the past two quarters, they have been at really good levels, and just want to understand if that's something that we should continue to see?

And then, my second question is with regard to loan growth, what you are expecting for the year, given what you've seen already for the first-half? And then, also, what is your funding strategy going forward? Are you expecting, I mean, because we have seen deposits like you mentioned in the presentation growing at a much lower pace than loans. And do you think that this is something that we will continue to see and you'll be looking to fund yourself more with the bond market or are you trying to increase your capturing of deposits as well?

Thank you, Jose. First question, the recoveries. I tend to believe that certainly a trend will be there. Again, I will recall the topic about the employment and the decrease in unemployment is one of the most important things basically for consumption is regarding to corporate side and to consumer confidence and to consumer loans. So recoveries will be in a healthy trend.

Loan growth, we're expecting something like 20% and that really we're running a little bit higher than the number today. We cannot know the signaling; Central Bank is increasing interest rates because they are seeing that the loan portfolio is growing really fast than what we've done -- that we have today. And with respect to the -- in line or really to read carefully what the Central Bank is.

And the third question about the bond market. No, probably, our long-term strategy certainly is tied today to the deposits, but when you see what happened with the US dollars demand, the government had these withholding tax for (inaudible) of 16%. Therefore immediately there was a switch on demand from international banks to local banks, and we grew $0.3 billion just in a year.

The only way we can really cope with that pace was basically issuing bonds. And in the long term certainly ways to use from our franchise of (technical difficulty) ratings and checking accounts.

Okay. Thank you. So in this environment of tightening rate, maybe sounds like, maybe the competition for deposits is also higher, you would expect the funding cost to continue to increase, right?

Yes, and I will also add on a tight environment it is exactly when you really value your franchise, and it's when you're really will front the franchise on the number of clients and the number of branches that you have. I mean, it's one of things that we are proud of.

Okay. Thank you very much.

Welcome.

[Juan Bonder from South End Capital].

Good morning, everybody. I just have one question. This is regard of the recent announcements that the CEO, Mr. Carlos Raul Yepes did to the local press in regard of the -- he put more strict conditions in -- to provide credit to the market. I want to know what are the consequences or -- first, sorry, what are the procedures you would put in that regard.

And second, what are the consequences of that kind of issues in terms of growth and profitability of the bank? Thank you very much.

Thank you Juan. As Sergio mentioned, the portfolio loan is growing fast and the signals from the Central Bank are telling us that there are some concerns about that growth. So, what we are doing is being cautious as Sergio mentioned.

We expect the loan portfolio to grow near 20% this year. This is a little bit lower than the rate that we are having now. So the consequences that you are asking is that overall you are going to grow for the whole year less than the figures that we are having now that is especially a bit higher. So we are going to slow down a little bit the growth of the loan portfolio. How are we going to do that? We are going to be a little bit more careful about our retail business that's going to -- we are going to tight a little bit our scoring in order to be more careful on the retail side of the business. So consumer credit probably isn't going to grow as fast as it is growing now. But it is not going to be a big impact, still growing 20% for the year is pretty high.

So, it's not going to be a big impact, but we think that we -- at this point, we need to be a little bit cautious about a -- about this. It's not something that is a big red flag, but something that we need to be careful to maintain the [effort] of our loan portfolio.

Okay. Thank you very much.

Victor Galliano, HSBC.

Hi. Good morning. Yes, couple of follow-up questions as my questions have already been answered. But, on the margin issue going forward and certainly looking at the next two courses. So when you talk about a NIM of as a base of 6%, are we talking about the overall NIM or are we talking about the NIM for loans exclusively, and what do you expect in terms of investment margin. I mean, this presumably will now revert to the mean. So you will see much more of a kind of return based on about 2.5% to 3%, maybe 3.5%. Can you just give us a bit more clarity on that?

Victor, thank you for the question. You're absolutely right on your approach on this one. The idea of 6% is the overall NIM, the one that we have right now in 6.2%, but certainly, I mean, you're right in the security portfolio with a NIM of 5.1% is once -- once in a while, not to say once in a lifetime but once in a while.

But typically the mean will be 2%, 2.5%, which is I mean the nominal return for the securities. If you add this 2%, 2.5% certainly and with the loan portfolio NIM of 6.3% you end up with around 6%, but -- and that's basically the idea that we mentioned on 6% for the run rate over the year.

Okay. So you don't see any more funding pressure coming through on the loan NIM in other words. Or do you see some change in better mix offsetting any increase in funding pressure?

No, we think that we already absorbed most of the compression of the NIM-based -- of the decrease on the interest rates. And as I said probably we, because of the bond issue and being able to grow as fast as the demand was demanding, we've only increased a little bit of cost of funds momentarily, I would say in the short-term, but in the medium-term and long-term, we will put again emphasis on the deposit side and therefore with 200 basis points lower than Central Bank interest rates, we would be able to maintain this minimal or even as I said, increase about 8 to 10 basis points by year-end, but again we prefer to communicate that once we're through that.

Okay, sure. Thank you.

Okay Victor, thanks.

Federico Rey, Raymond James. Please proceed.

Hi. Good morning, everybody. Thank you for taking the question. My question is regarding loan growth. I would like to understand, what's the loan growth year-on-year as of June this year, considering your Colombian operations and the growth of the operations outside Colombia?

Then I would like to -- if you can give us some color about the performance of the Banagricola? And also, if you have already recorded in your results, the results coming from the sale of the Crecer pension fund? Thank you.

Thank you, Federico. That's a good question, I think it is in the [MD&A] with more clear (inaudible) on that. But basically Colombia is growing at a rate of roughly 27%. I mean, El Salvador is flat, I mean, is not growing -- even US dollars is basically flat. And when you are comparing to pesos, you end up having a decrease on El Salvador operations. And that's basically the reasons that we -- when you compare probably with Colombian banks, we probably look on a consolidated basis, probably we'll look a little bit in a lowest even then, but locally we are growing at, as I said around 27, gaining a few basis points in market share.

And regarding the sale of Crecer and Asesuisa, we're expecting to close the transactions before year-end and those few authorizations from Colombian, Salvadorian and Panamanian authorities, but the idea is a portion of it will go to reduce the goodwill, and a portion of it will go to net profits. And I would prefer not to mention exactly numbers yet before discussing this one with others, specifically with the idea of discontinued operations and some of it under US GAAP, and the other one is the -- as I said, the reduction on the goodwill.

But as a -- in a nutshell, the idea is that we show -- we want to sell that for roughly EUR200 million and the cost on [the books] is around EUR100 million. So the other EUR100 million will be allocated probably enough to the P&Ls directly, but if we do it through the goodwill reduction, that will be certainly a benefit for the years to come.

Okay. Thank you. Regarding the loan growth guidance that you provided of around 20%, this is for Bancolombia on a consolidated basis, right?

Yes.

Okay, thank you.

(Operator instructions) Felipe Toro, Interbolsa.

Yes. Hello, everyone. Almost all my questions have been already asked, so I'm just going to follow-up on the operating expenses. I would like to have some guidance towards the end of the year, in the personnel expenses on IT-related projects. I forgot to congratulate you for the good results, it seems like the bank is in a great position for growth in terms of net interest margin and return on equity, you're in the place that you wanted to be so far. So, I just wanted to follow up on the operating expenses question so. Thank you. Hello?

Yes, thank you for your words on that and I mean we are persuaded. Regarding your point on the expenses, certainly the growth of 20% on OpEx is high year-over-year. We expect not to have that trend next year, but as I mentioned, this year we have some significant influx on -- that was -- first of all there was that wealth act, the other one was the expert financial actions, and on top of that probably we are on one of the highest years in terms of OpEx for the Innova project. That's probably (technical difficulty) similar, but the trend of growth shouldn't be as high as that.

Okay. Thank you. And following up on another issue, the allowance over PDL, the coverage of the loans, it seems pretty high when you speak about 180 bps, but when you look at the C, D and E loans, there's a 115 figure that seems lower, can you provide a little bit guidance on that matter too, please.

Absolutely. And again it is a good point. The idea is that we have these individual provisions and for each and every one new loan we have to have a provision. Even though if the loans are A, I mean truly performing we have to have a provision, which is kind of a contra-cyclical provision, and basically that's the reason. When you -- if you don't, kind of, I mean, theoretical exercise when you have zero or 10 to zero positive loans again the provision, the ratio will go to infinite because we have to have a provision even though we don't have dues.

And that's the reason why we have this crosschecked with the CD&E to be kind of aware of how much is for real, if you want to call it CD&E is kind of a loan portfolio that has some troubles and some risks. And the other ones are just, what I said counter-cyclical or general, this is not general, I mean individual provision that has to be to everyone. So, that's the reason, and that's the, how to model ruled by the superintendency runs.

Okay. Thank you very much, and congratulation again, and bye.

Okay. Thank you.

Luis Guzman, Santander.

Hello. Good morning. I would like to ask a question regarding the growth in the US dollar portfolio, especially from company loans. This withholding tax regulation, is this temporary or it's here to stay?

This -- the withholding tax, well, I have no idea. I'd say it would be there for a long time, I mean, your point of [how it is] measured by the Central Bank issues generic to try to contend a little bit their external indebtedness. As you know, the reason -- the other reason certainly is that the synthetic loans, and you get US dollars [up above] comparing to pesos, you immediately buy -- uphold the futures of that and then you have a positive carry on this one.

So there is different reasons why this specific corporate, US corporate loans are growing that fast, I tend to believe that either Central Bank or the Company with banks have to moderate that growth; otherwise, Central Bank will interfere again. The idea of a withholding tax was basically they want to control withholding revenues locally and or they issued this tax, they said that they'd prefer to have a close eye on local banks because they cannot control international banks, so that's the reason of this 16% withholding. For how long it would last, I've no idea.

Okay, that's fair. Regarding cost, following on the question that's been answered already, do we expect -- you mentioned that 5% of -- or 20% year-over-year was high, but for the next quarters we would, at least in a quarter-over-quarter basis we would expect to see close to 3% or 4%? Would that be normal for the administrative line?

I would say that once we overcome this, I think about taxes you will be able to grow more, as we said, more in line with something like 10% per year, but certainly this year it won't be the case, I mean, and not the next two quarters, probably the first quarter next year, when we already have fully absorbed the taxes and their comparison first quarter '12, first quarter '11 would be a fair comparison because both of them will have the taxes, both of them will have fairly both taxes, I mean, the transaction -- financial transaction taxes and the wealth tax but -- but not before that end.

And again, after that probably yes, we have to be aware of the IT platform, but as I said probably we are in the highest years in terms of the P&L this year. Therefore, again the number will be normalized next year.

Okay, thank you. Thank you very much.

Thanks a lot.

[Alonso Amabura] from BPG. Please proceed.

Hi, good morning and thank you, thank you for the call. I wanted to touch a little bit on the fee income. There is a couple of large categories here, and one of them which is commissions from banking appears to be doing really well, but not so much on the credit card and debit card fee. So I was wondering if you can give us a little color us on the dynamics of those categories in particular.

Good morning, Alonso. Thank you for your question though. You're right about the credit and debit cards. Probably, you'd remember the last quarter we mentioned that we raised some of the costs on the credit and debit card.

As I said, there is a lot of -- globally, for fees on the banking sector and specifically we've seen what's going on in US with the debit cards and credit cards. So we have tried to be conservative on that not to increase the nominal fees that we charge monthly. We certainly have to waive some charges we're having there. So at the end, year-over-year is 6%, this is low, if you want to call it numbers, but I think it has the -- if you see the numbers of the growth in the credit card business that we have in the MD&A, where we're really growing in a very healthy way. So the idea is to protect the business even though we have to give something in order to do that.

Okay, great. So you think growth between 5% and 10% would be something that we could see in that category going forward?

I think so. I mean, if you do something, I mean if you deduct last year pension fund, fees and you compare last year without the pension fund compared to this year, the growth on the fee side would be something like 10%. So for the future, I mean, if you do a projection between 5% to 10% I think it'd be fair.

Great, thank you.

Okay. You're welcome.

Your next question comes from the line of [Alfonso Ergara from Partisone].

Thank you, and hello everybody. I just want to congrats for the results, and just to point out two questions. First, regarding to the target of the solvency index of the bank, and the second one, the efficiency index. Thank you very much.

The solvency ratio as we said is basically we're running something like 13%, the weighted growth of the loan portfolio is at 20%, higher in Colombia. And with a return on equity of almost 20 and a payout ratio in the dividends being almost a third or 40% of that, that means that we are going to use capital in order to build. So that the solvency ratio will go beyond over the year.

If there is a high growth on the loan portfolio, certainly we will have to see if we can top the markets. If on the contrary, our Central Bank message about decreasing the loan growth is as strong as making the loan growth grow less than 14%, 13%, we won't need more capital. But certainly our goal is to grow over that and being able to tap the market and invite investors again.

In terms of efficiency, certainly we have to recover the numbers that we have. It won't be before 2 to 3 years, but it could be, I mean, much lower than what we have today, but not in the near term, not in -- I would say probably not in the next two -- next two years. We probably want to move more -- probably we will move more from what we have today which is 65% to 55% over the next two years, but there on, again once we've finished this IT platform, and we already move all the expenditures to the P&L we will be able to have a much more efficient -- a much -- a much better efficiency ratio there.

Okay, thank you very much.

Thank you, Alfonso. Well, and I think if there is no more questions in the line, we appreciate you being with us today and we are open to any questions further on on the Investor Relations either by the phone or on the website. Thank you again.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.