Grupo Cibest SA (CIB) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Bancolombia's third-quarter 2011 earnings conference call. My name is Judsonia, and I'll 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, address 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. Carlos Raul Yepes, Chief Executive Officer; Mr. Sergio Restrepo, Executive Vice President of Corporate Development; Mr. Jaime Velasquez, Chief Financial Officer, and Mr. Juan Carlos Mora, Vice President of Services.

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

Good morning and welcome to our third-quarter 2011 conference call results call. As usual we like to begin with a brief discussion regarding the macro economic environment. At this time I would like to ask Sergio Restrepo to present our thoughts on this matter.

Okay, thank you, Carlos. As usual we have the slide presentation in our Investors Relation website, and let me start with slide number 2 where we have a graph on inflation. Inflation for the last 12 months ended as of September 3.73%, and we're expecting numbers for October to date later within the day, but with no surprises.

During 2011 the Central Bank has raised the repo rate 150 basis points to 4.5% in response to certain inflation sparks as almost everywhere global wide. We support this decision as we believe it will keep inflation under control with no need of market prudential measures in the near future. We expect the repo rate to end 2011 up 4.75% and inflation to finish the year within the mentioned range of 2% to 4%.

Regarding our GDP growth, we consider that the 5.2% achieved in second quarter '11 was much better than what we were expecting and it's a clear sign that economy is gaining momentum. Consumption remains healthy and indicators like 9.6% unemployment low for the Colombian historical standards shows that the economy is likely to remain in good shape in the foreseeable future.

During the last 12 months the Colombian economy created nearly 700,000 new jobs. All these trends lead us to believe that the Colombian GDP growth will grow 5.5% in 2011 and 4.9% in 2012.

Regarding the external front, we believe that the sovereign debt crisis in Europe could impact Colombia in the way of a slowdown in volume and prices of exports, especially commodities. And Columbia does not have bonds issued by European nations, and it is hard to estimate a negative impact. But we believe that if any, it would be reflected in a lower demand in credit.

Mitigation to deal with external factor will be the new free trade agreement that Colombia signed with the US, and that was approved by the US Congress two weeks ago. We see these as a positive guider for our business. And after we speak with you on economics, let me turn the presentation back to Mr. Carlos Raul who will discuss the bank's results. Thanks.

Thank you, Sergio. First, I would like to comment about the new corporate structure that Bancolombia launched on October 20, 2011. We organized our total in seven [star] vice-presidencies and five business units; Company and government vice-president, retail and SME, consumer, capital markets and international vice-president. With this new structure, we plan to adapt ourselves to get rapid growth of our business and to the environment that we operate in.

Secondly, we are proud to announce the upgrade by Fitch rating of Banco Agricola's each year default rating to BBB minus from BB plus and locally in El Salvador to AAA from AA plus. This is a great news for us in (inaudible) that our strategy in El Salvador is profitable and safe.

Third, local elections in Colombia which took place last weekend were positive and democratic. Regarding Bancolombia's results for the third-quarter 2011, we generated earnings of COP424 billion, an increase of 10% compared with the second-quarter 2011 and an increase of 13% compared with the third-quarter 2010. These results reflect a lower level of provisions, a good performance of interest and non-interest income and a growth on operating expenditures in line with our expectations.

Also it's important to note that during the third quarter, Bancolombia did not receive revenues from the pension plan administration business because we entered into an agreement to sell AFP Crecer, the pension fund manager in El Salvador. Those revenues were COP29 billion in third-quarter 2010. Also during this quarter, administrative expenses reflected charges that we did not have before, namely COP18 billion due to tax on financial operation and wealth tax.

The effective tax rate was 70% for the third-quarter '11 and 23% for the first nine months of the year. This lower rate accrued because our recent subsidiary has been able to take advantage of deductions related to investment and acquisition of fixed assets, and we experience a [30%] recovery of provision for foreclosed assets of about COP35 billion.

Finally, it's important to address the growth of our loan portfolio, the improving quality of our assets and the moderate growth of fund that resulted from our funding strategy.

Now, please let me to see slide number 3. Bancolombia's growth loans increased 7.8% during the quarter and reached COP57.4 trillion. Of the total portfolio, 27% were US dollar loans, that is $8 billion. These dollar-denominated loans grew COP331 million or 4.3% compared to the second-quarter 2011 and COP2.2 billion or 38% compared to third-quarter '10.

Expressed in Colombian pesos, the growth appeared as 13% for the quarter and 48% for the last 12 months. The [9%] appreciation of the US dollar versus the peso during the quarter affected the conversion of currencies. The remaining 73% of gross loans denominated in Colombian pesos totaled COP42 trillion at the end of third-quarter '11, increasing 6% with respect to two-quarter '11 and 20% with respect of third-quarter '10.

When analyzing the total loans by the category that Bancolombia uses, it's clear that retail and SME loans played a key role in the growth of the total portfolio as they increased 7% with respect to second quarter '11. This growth is explained by the greater demand of consumer loans in Colombia and working capital for SMEs driven by a more dynamic economic environment.

For more details about the loan portfolio evolution please see the table on page 5 of the third quarter press release available at the Bancolombia's Investor Relations website.

Corporate loans increased 8% in the same period due to greater demand of working capital and capital expenditures by turns. But again, exchange rate fluctuations officially affected its conversion from US dollars to Colombian pesos.

Mortgages reached COP4.5 billion and continued being a very dynamic line in our loan book. If we take into account securitized mortgages, we see a growth of 6% quarter over quarter and 17% year over year for this segment. In the near future, we expect commercial loans to remain dynamic due to the higher level of economic activity. In terms of consumer loans, there is a clear appetite derived from the optimism with respect to the economic performance. Mortgages are still significantly under-penetrated in Colombia and we foresee a good growth in that line as well.

On asset quality, we have the information in this slide number 4. We can see that provision charges, loan deterioration and allowances for loan losses remain in a good trend during the third quarter of the year. During this quarter, net provision charges totaled COP87 billion. Net provision charges are 0.7% of average gross loans for 2011.

The level of deterioration during the quarter was COP184 billion. Also this is greater than in the recent quarter. It's in line with the fast growth in consumer loans. Additionally, recoveries of charge-off loans are foreclosed assets remain in the same good trend of the past quarter. This is positive, since it reflects that the better economic conditions are actually having a positive impact on the bank's loan performance.

On slide number 5 we see the past due loans, those overdue more than 30 days with a trend of 2.5% of the total loans, a ratio that is lower than both the 2.6% we had in the second quarter of 2011 and the 3.4% we had at the end of third-quarter '10.

Bancolombia allowances for loan losses represented 4.6% of gross loans as of December 2011, slightly lower than the 4.8% at the end of June. These allowances represented 184% of past due loans. It's important to mention the fact that 40% of the COP2.6 billion of allowances that Bancolombia has are related to loans rated A. In other words, those are counter-cyclical provisions that explain their relatively high coverage ratio of 184%.

On the other hand, the allowance for loan losses as a percentage of C, D and E loans was 118%. If we consider past due loans to be those overdue more than 90 days in every category, except for mortgages where we use our 120-day standard, our delinquency ratio would be 1.5%, and our allowances would cover past due loans 3.1 times.

Now, on slide number 6. Net interest income. Net interest income in the third-quarter '11 amounted to COP1 trillion. It was 2% greater than that of second-quarter '11, and 15% greater than the figure presented in third-quarter '10. The low interest rate in Colombia has put pressure on the net interest income, but has been partially offset by Bancolombia's lower funding cost. This cost is the result of our efforts to reprice the liabilities and of the change in deposit mix.

The weighted average cost of deposits was 2.73% in third-quarter '11, higher than 2.46% of the second quarter, and than the 2.32% at the end of third-quarter '10. This increase in cost of deposit reflects the increases in the Central Bank's grade.

The decline in the proportion of time deposits out of total deposits has been in line with the funding strategy implemented by the bank. As a result, the funding [remixing] paid off in checking and savings accounts went from representing 60% at the end of third-quarter '10 to representing 63% at the end of third-quarter '11. The bank's large distribution network and strong franchise have made this strategy possible.

Deposits reached COP48.5 trillion, 67% of liabilities at the end of three-quarter '11, and increased 5%.

Now slide 7 shows the evolution of margins in the last quarters. The annualized net interest margin was 6% in third-quarter '11, lower than the annualized margin of 6.2% in second-quarter '11. This decrease is mainly explained by the lower margin of the investment portfolio, which presented an appreciation of second-quarter '11 that did not happen again in third-quarter '11. As we've mentioned before, Bancolombia's funding strategy is focused in keeping lower funding costs in order to defend the margin.

Slide number 8. During third-quarter '11, net fees and income from services totaled COP409 billion, flat compared to those presented in the previous quarter, and 5% greater than those presented in third-quarter '10.

Credit and debit card fees for third-quarter '11 increased 1% versus the previous quarter, and 5% versus the third-quarter '10. These represent one-third of total fees. Fees from fiduciary and asset management activities decreased 2% during the quarter but increased 15% during the last 12 months due to a growth of the value of portfolios under management. Brokerage fees presented a 21% increase versus the previous quarter and 25% up during the last 12 months.

Fees from banking services and other services, which includes investment banking fees, were 34% greater than the fees generated in the second quarter of 2010. Pension from fees were not accounted due to the previously mentioned contract to sell AFP Crecer, the pension fund manager in El Salvador.

Slide number 9. During third-quarter '11, operating expenses totaled COP919 billion. This figure represents an increase of 3% as compared to second-quarter '11, and 22% as compared to third-quarter '10.

Personnel expenses, which includes salaries and benefits to employees, bonus payments and compensations, totaled COP357 billion in third-quarter '11, increased 1% as compared to second-quarter '11, and 15% compared to those of third-quarter '10.

Administrative and other expenses were COP484 billion. This represents an increase of 8% in third-quarter '11 as compared to second-quarter '11 and 32% as compared to third-quarter '10. This is mainly explained by three factors. First, the tax on financial operations that Bancolombia has to pay on some transactions that used to be exempt until the end 2010 and the wealth tax. For the quarter, the charges for these two taxes reflected in the income statement were COP18 billion.

Second, expenditures in rent and technology leasing for the quarter the cost of these lines was COP30 billion. And third, expenses related to the IT renovation project. We did completion of some modules of our new IT platform we have started amortizing capitalized expenses and that has impacted in the income statement.

As a result of the evolution of administrative expenses and revenues the efficiency ratio of the bank ended third-quarter '11 at 61%.

Slide number 10. Our ratio of net loans to deposits including borrowings from domestic development banks was 106% at the end of the quarter. Higher demand of trading responded with deposits as well as bonds that Bancolombia was able to place in local and international markets. With regard to shareholders' equity, it ended third-quarter '11 at COP8.5 trillion, increasing 6% compared to the previous quarter and 12% compared to the same period of the last year. Bancolombia's capital adequacy ratio ended the quarter at 12.99%, which is well above the 9% (inaudible) in Columbia.

ROE and ROA. The annualized return on equity was 20.6% for the third quarter of the year and 19.2% for the first nine months of 2011. On the other hand, ROA for the same period was 2.2%.

Finally, I would like to highlight Bancolombia's asset (inaudible) and payment of bonds for COP600 billion in local market, which took place last Wednesday, November 2nd. With this new issuance Bancolombia has outstanding bonds for COP2.5 billion in international markets and COP5.4 trillion in local market. The maturities of these bonds range between 2 and 10 years.

To conclude then our solid liquidity position, our moderate funding cost, the diversity and the strength of our franchises and our solid capital base placed us in an excellent competitive position to take advantage of the growth opportunities that we are seeing in the market.

At this moment we will be happy to take your questions and comments that you may want to present to us. Thank you.

(Operator Instructions). Tito Labarta, Deutsche Bank.

A couple of questions. Just first, I want to get a sense on asset quality and provisions. Your provisions have been relatively low this year given pretty strong asset quality and a high coverage ratio. But given the strong growth we've been seeing, just want to get a sense of when you think asset quality could start to turn around and maybe see some deterioration and what that's going to mean for your provision charges and your coverage ratio? That's the first question.

And then the second question. Given the strong growth we're seeing, your capital ratio has fallen a bit since last year. So just want to get a sense of given the growth rates that you're seeing, when do you think you may need to increase your capital? And that's it for now. Thanks.

Well, first of all about the provisions, you're right in the sense that with the growth specifically on the retail side, certainly there will be some deterioration in the years to come. This is part -- that's part of the cycle and we understand that, we consider that. And -- but one thing that we won't lose is the level of provisions that we already achieved.

If you remember during the last five years, we have been piling up provisions and finally we ended up to a level where we feel comfortable. And as Carlos Raul mentioned in the conference, out of these 186%, 40% belongs to loans rated A, mean that its counter-cyclical position, and the other 60% is part of the real regeneration. So the (inaudible) is, yes, that could increase.

You know that today the cost of credit is around 0.7%. We saw three years ago something like 2.8%. In the long term -- I think the long-term average could be something between 1.5% to 1.7%. So once we start seeing this cycle going down probably when we just start seeing unemployment going up which is right now going down or we've start seeing some increases in the Central Bank interest rates, probably that would be the case. But for -- from now on, we feel really comfortable with what we have in terms of provisions.

And regarding the capital ratio, you're right. I mean, you remember that we weren't expecting the growth that we're seeing today. We learned from the beginning of the year the Central Bank was about to increase the rates. Therefore our lecture to that was that the loan portfolio won't grow as fast as indicated this year. We're expecting a lower growth rate from next year (inaudible) 15% or in a very optimistic case probably 20%. And at that level would return equity of 20%, the payout ratio 30% to 35% we will be able to maintain the number.

Needless to say that if things go much higher, certainly probably there will be a need of capital. But so far we consider the number that we have today is enough. I don't know if you want to expand on the financial?

No, that was very helpful. Thank you, Sergio.

Okay, thanks.

Victor Schabbel, Credit Suisse.

I have a question regarding the evolution of margins in the quarter. When we saw there was a 20 basis points decline quarter over quarter. And you can see that in your slide number 7. I want to understand a little bit what the impacts on the margin was related to the impacts depreciation in the quarter. You mentioned in the press release that the depreciation lead to an increase in the cost of funding, particularly the newly-issued dollar denominated bonds.

And can you quantify that impact and does that explain to a large extent the reduction in margins? And going forward do you think that you can -- your margin can go back to the like 6.2% level as it was in the second quarter?

And the other question, a follow-up on that one, is how are you managing your dollar exposure? Does that mean that you have liability in dollars or you're basically hedged? So if you can explore a little bit of that I would appreciate it. Thank you.

Regarding the margins in the graph that you mentioned, the slide number 7, you're probably going to see that the line, the top line, which is the NIM for the loan portfolio. And that specifically we don't see any significant change. Basically, it remain flat at 6.2%.

What -- the negative impacts that maybe decreased from this 6.2% to 6% was basically the change in the securities portfolio as Carlos Raul mentioned in the conference. Secondly, this (inaudible) is asset sensitive. Therefore we're decreasing the interest rates, we were about to expect an increase on the NIM. The liquidity locally has been an issue that having allowed us really to grab the benefits from the increase of the Central Bank yet.

Needless to say that we think that that will be the case next year. But with the increase from what we said from 3% the beginning of the year to 4.75% which was a number that -- which is a number that we expect in the year end, probably, the number won't be significantly higher. And what we have foreseen from next year would be something more between 6% to 6.2%.

The only reason that we haven't been able to crop that increase is basically when we look at the growth during the year has been much more dynamic on those dollar-denominated loans than peso loans. And as you know, dollar loans tend to have a much lower NIM. Therefore the mixture of these two things are basically the reasons for that.

And if I may add, the fourth reason probably is that due to the high growth in the loan portfolio, our strategy has been something that based on bond issues in medium to long term, those bond issues used to have a higher cost than the traditional deposits.

Our strategy here has been, as I said, trying to maintain the core deposits at a low level and sustain a little bit more on those specific issues which are bonds. If the trend continues for the next year, probably we'll move more to CDs and core deposits, but so far that's been the case recently.

Regarding the dollar exposure by regulation, Colombian banks could not be either long or short more than 1%, 2% of the total assets, which is based on that compared to the equity so you cannot be long more than 10%, 10% to 15% of the total equity and you cannot be short more than 5% of your equity. That was on the long term or medium term that we basically hedge, probably you could be either long or short on all days or overnight, but not in a structural way.

Thank you. And so does that mean that in your NIM there was really no impact arising from the FX depreciation. Is that what you are saying? I mean there are other factors other than the FX depreciation?

Basically, the FX depreciation you are going to see them on the asset side and on the liability side, but nothing else.

I see.

If there is a --

That's very clear. Just one additional question, if you don't mind. I mean, your effective tax rate was much lower in the quarter. I was wondering if you could give us some light in why, was that lower and what sort of sustainable level we should see going forward. Thank you.

You are right about the tax rate. Certainly we had -- we managed to get some benefits from our leasing company, there is a clear tax benefit if you invest in the -- in assets, and the leasing company has that specific benefit. So based on that we managed to decrease the amounts for the quarter.

I don't -- it won't be against the same that we saw in the quarter for the total year. It would be more the cumulative tax rate will be the number more than the quarter tax rate.

Thank you. I appreciate it.

Wesley Okada, Goldman Sachs.

My question is related to recoveries, as we observed significant increase in the quarter. So I just want to understand the nature of this increase and what would be the recurring level of recoveries going forward? Thank you.

Recoveries for the quarter were really high compared to the standard level. We had recovered some assets that we had in the past and then there is the (inaudible) a former provision that we had and we managed to have that in the quarter. But the trend, again the trend won't be as dynamic as that. That number, that specific number for the thing I mentioned was COP35,000 million, I mean COP35 billion. Usually, you don't have that amount of recoveries. The point is at the cycle of economy we are seeing today is -- the economy is in uphill in terms of creating new jobs and interest rates are flat and there is more stability. So what you tend to see is lower level of provisions and higher level of recoveries. But in the long term, the number is again is much lower than that.

Okay, thank you very much.

Thiago Batista, Itau BBA.

Actually, this is Regina Sanchez from Itau. My question is regarding the prudential measures that last month Superintendent [Sincera] announced the implementation that increased the loan loss reserves for unsecured loans. Could you comment about the impact of those measures by Colombia? I mean if we are expecting to see higher provisions regarding that in the fourth quarter? Thank you.

Would you mind rephrasing the question as I didn't get it correctly I think?

Yes, the Superintendent Sincera on the month of October, they announced a prudential measure regarding increase in loan loss reserves for unsecured loans. They increased the factor, the weighting factor for loss given default from 65% to 75%, and for loans with delay of payment above 90 days to 100%. I know Bancolombia already adopt a more conservative approach. And then I would like to know if there would be an impact from those measures in Bancolombia?

Yes, okay, thanks. Yes, the number we are expecting is around -- between COP24 billion and COP25 billion, which is really small compared to the level of provisions that we usually on a monthly basis we have. So it is not really that significant although I mean it's a big number. But it's not significant compared to the level of provisions.

Okay, thank you. And this should impact the fourth quarter, correct?

No. Do you have any additional question?

No, no thank you. I appreciate it.

Felipe Toro, Interbolsa.

First of all, I want to congratulate you for the good results. I want to follow up on a question. For how long do you think you will get the effect on growth in the US denominated portfolio specifically from loans originated with Colombian companies as we see that El Salvador is growing at a really stable rate of 1.2%? Can you give us some guidance on that issue, please?

We believe that the dynamics in that specific segment we had kind of start losing ground or losing speed. If you look at the third quarter growth on your dollar denominated, it grew just 4.3%. Needless to say that year over year it was almost 40%. So we tend to believe that there is kind of a -- although the dynamics remains healthy, we don't see the same dynamics. You probably remember the part of the reason we grew really fast last year and the beginning of this one was this withholding tax the government set at 16% on external investments. So if there is no -- I mean, if there are no changes, we tend to believe that we'll win -- that we'll grow in line with pesos. But to be honest, it's not that clear because of the movements on the dollar or on the peso. But for the long term and for the next year we basically believe there it will be in line with the Colombian --

Okay, thank you. An additional question if you don't mind. Regarding the bond issuance you referred of COP600 billion, what is the use of these funds? And additionally following on the cost of deposits as we go bonds and turn deposits going up increasing faster than previous quarters what is the guidance on that, and how could it impact NIM? Thank you.

No, as you can see the growth of the loan portfolio is quite dynamic. And then if you look quarter after quarter, we grew more than COP2 billion, to be more precise COP2.3 billion per quarter. And COP600 billion is kind of a one-month growth. So (inaudible) and as I told you, we basically are not to put pressure on the CDs or the saving accounts and to have a more balanced growth on that side. So we grow on bonds and at the same time we grow on the CDs but not putting too much pressure on the core deposits.

Okay, thank you. And the final question if you don't mind. And regarding the capital liquidity ratio we see a Tier 1 of 9.3%m which is above international standards. Do you see an increase from the superintendents in the minimum requirement going forward?

Okay. Well, the number that we have is not below international standards and it is still higher than --

Sorry, I said above, 9.35% is above what recently they did -- they announced in Europe for example. So it is above and -- way above actually. So I'm just trying to understand if you see that a local regulation is going up, the minimum requirement?

Okay. No, we haven't seen any signals from the regulator to increase the capital requirements, not yet. If you look at the Tier 1 plus Tier 2, we are above 12%. But, no, I mean we are comfortable with numbers as we discussed before. The things keep on growing at the rate that we have seen this year. Probably we will want to have more capital. But we have to be cautious. We have to be cautious in that in the way of how much capital we put in our books as that will have a (inaudible) upon the ratio on equity. We have to be a kind of (inaudible) permanently and understanding the trends.

With the possibility of the Central Bank increasing interest rates, as we said, up to 4.25% means that probably the Central Bank wants to do -- cool a little bit the growth of the loan portfolio. Therefore, we want to see in a more detail and on a monthly basis the evolution of that. But with the level that we have today, we feel comfortable. And in top of that, if you look at the international capital there is this buffer for counter-cyclical times, and we as Colombians we have already that on the provision side. On the provision side, as I told you, there is a 186 at 30 days and is almost three times or more than three times when you do the math of 90 days.

Okay, thank you.

Jose Barea, Bank of America.

My questions have been answered. Thank you.

Federico Rey, Raymond James.

I have a couple of questions regarding loan growth. The first one is, I would like to know if you expect some sort of reduction or the elimination of the withheld tax that have been benefiting the increase in the (inaudible) portfolio and if this will have an impact or not in the increase in this portfolio?

The second question is, I would like to understand what is the level of growth in your Colombian operations and in the operations outside Colombia considering that the overall portfolio has grown 8% quarter on quarter in the third quarter?

And the final question is related to your expectation of GDP. If I'm not wrong you mentioned something close to 4.9% for next year. And I would like to understand what should be a reasonable level of growth in the loan portfolio following the strong loan growth that we have seen this year? Thank you.

Thank you, Federico. First of all, the withholding tax for external indebtedness we don't see any changes yet. I think that we feel that the government is quite confident with the measures -- yes, the measurement. So we don't expect any change in that. If that were the case I mean if they decide to lift that withholding probably we're going to see a change on the dollar portfolio probably moving from Colombian or local operation banks to international banks. I don't know at what speed but it could be the case as it was when they put the withholding. But so far again, we don't see the possibility of the government lifting that withholding tax.

Secondly, the Colombian operations, we believe -- and I will put this question with the last question about the GDP growth of 4.9%, which is the one that we're expecting. We -- usually we tend to believe that the economy, when the economy moves above 3%, it could grow between two to three times GDP. So if you do the math, 4.9% three times, we're talking about 15% plus inflation. So probably we want to move between 15% to 20% next year. Again, this is on the status quo and not significant changes on the Central Bank or international markets.

And finally Central American operations, they have been more dynamic. El Salvador is not -- basically is not growing. The economy in El Salvador has been very dry related to the US economy. Therefore the remittances, the exports and the negative impact on the energy, name it oil and name it coal, and every kind of energy has a negative -- had a negative impact in El Salvador. Therefore, we don't see in the near future a significant growth there.

On the contrary, countries like Guatemala, Panama and Costa Rica are growing in a more dynamic way. But certainly, Colombia is much more dynamic than the operation in Central America.

Thank you very much.

Jorge Chirino, Morgan Stanley.

Just to clarify one of your answers regarding the tax rate. I didn't hear your answer completely. So how should we think about the tax rate going forward? Should it go back to the level of the first and second quarter or remain at what it is right now? Thanks.

We are expecting for year-end something between 25% to 26%. What I said is that during the quarter, it was very aggressive on the side of the leasing companies and the other tax benefits that we had on the mortgage backed securities that we have. They are our own mortgages origination. We move onto securitization and we have that benefits. But as a number for the whole year, we are expecting again 25% to 26%.

Okay, thank you very much, Sergio.

[Juan Bonder], South End Capital.

I just want to have more color on the provisions going forward. The question basically is when do you expect to start increasing provisions considering the credit cycle and the monitory policy changes going forward? The other question I want to know is when do you expect NIM to improve? And finally, is -- what is your target on efficiency? How do you think it's going to be efficiency on 2012? Thank you very much.

Okay, let me start with the provisions. As we already mentioned I mean and Carlos Raul mentioned and in one of those answers I said that with the consumer portfolio loan growing fast, certainly there will be some provisions. There is basically the counter-cyclical provision. Every time we grant a new loan on the consumer side, we have to have provisions in that, those are the counter-cyclical. So if we maintain the dynamic on that, you can see the dynamic on provisions.

Provisions you see on the books is basically net provisions. The news is that the recoveries from the past dues are behaving -- again very, very dynamic also. So it doesn't mean that we have the level of provision, no we maintain the level of provisions very strict. But if we move to the net, again, I think for this year and if really they focused about a 4.9 growth for the next year is a reality. We don't see a significant increase on provisions within this year or the next one, and when I said significant means probably that the cost of credit will move from 0.7% to 1.2%, 1.5% next year, but nothing much higher than that.

Regarding efficiency, for the next year we are aiming to write-ups of 57%. The point here is that, as we have mentioned several times, is that this year and next year we are going to see the biggest impacts on the IT platform as we are ready to put in production the new software. All the depreciation will start from now on, all the depreciation and amortization will start from now on, and it would take -- probably, it will last for the next four to five years. So 57% will be kind of the target for the next year. And probably I missed -- you had three questions, probably I missed the one in the middle. Could you repeat it please? Juan, are you there?

Yes, yes, no -- everything all right. I just want to have more -- I still have a doubt in regard of provisions. I mean I understood that the contact will make it growth but what is -- if you can give me about, what is more or less your estimation in provisions growth. Can we expect a significant spike in provisions for the next year or you believe it's going to be smooth?

No, I think that it would be -- it is going to be smooth, and as I said again, the long-term cost of credit, meaning the announced provisions that we sent to a P&L in the long term, meaning 10 years terms, it's something between 1.5 to 1.7.

Moving from the level that we have today, 0.7, you could think of drawing a line from today to 2013 and arriving at that number in '13, meaning that probably next year will be something like 1, 1.2. I mean, it's just -- again it's just trying to be in line with the movement of the economy, but it's something that we would do month after month based on the facts, and on the real behavior. But as a matter of making a projection, I will argue that probably that's a good proxy.

Okay, there will be one more question. How do you expect the amortization of the equity tax to affect the results in the income statement going forward? More or less what is your approach in terms of Colombian pesos?

Okay, that number that that we have in the asset side is the deferred taxes. I think it's almost COP400 billion. Out of that it would be spread over this year and the next three years, and it would cost around COP100 billion per year. But you are going to see just around COP200,000 on the P&L and the other one will go directly to the equity side without any negative impact on the P&L.

Okay, thank you very much.

Chris Delgado, JPMorgan.

I just have one quick question. Your loan deposit ratio has been higher than it's been historically, I was just wondering if you could provide some color on how you kind of see that evolving and whether or not you might adjust like your deposit pricing to achieve a specific level? Thanks.

Yes, you are absolutely right and this is something that we have been discussing with investors quarter after quarter; 106% is a number that probably is high if it were the long-term number. Our idea is to be below 100%. But again, based on the dynamic growth that we have had and specifically on the dollar side, we have found that a portion of this growth based on bonds; as bonds (inaudible) deposits, that's the way or that's the reason why they have grown from 96% to 106%, that's the number that we have right now.

On the medium to long term, we basically will put our franchise to work and we will start growing more -- I mean deposits, the core deposits we will start growing more in line with the loan portfolio. But the point and the message here is that we have different ammunition to cope with the demand and when we do all the GAAP analysis and in our out committee we decide that going with bonds medium to long term was the good idea for this year. Probably won't be the case next year; probably next year what we're going to do is to replenish that -- the core deposits with the retail deposits and go back again to something below a 100%.

Great, thanks.

I will now turn the call over to Mr. Carlos Raul Yepes for closing remarks.

Thank you very much for attending this conference call and we're looking forward to see you in the next conference call at the end of December 31, 2011. Thank you very much for your attendance.

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