Grupo Cibest SA (CIB) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Bancolombia's third-quarter 2013 earnings conference call. My name is Lorraine and I will be your coordinator for today. (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 the conference call, in future filings, in press release or verbally, address matters that involve risk and uncertainties.

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

With us today are Mr. Juan Carlos Mora, Vice President of Corporate Services; Mr. Sergio Restrepo, Vice President of Capital Markets; Mr. Jose Humberto Acosta, Vice President of Finance; and Mr. Rodrigo Prieto, Vice President of Risk.

I would now like to turn the presentation over to Mr. Mora, Vice President of Corporate Services of Bancolombia. Please proceed, sir.

Good morning, and welcome to our third-quarter 2013 results conference call. We want to thank you for your attendance this morning. You can follow our slide presentation available at our Investor Relations website.

Let's start with a brief description on the main topics that occurred during the quarter.

First, I want to highlight the closing of the acquisition of the 40% stake in BAM from Guatemala and the closing of the acquisition of HSBC Panama. After several months working closely with the regulators of various jurisdictions, we got the required approvals to close these transactions.

Banistmo is the name that we chose for our recently acquired Panama operation. It is a name that brings together all our Panamanian clients and represents the challenge that we face ahead to consolidate our operations in Panama and keep growing for our clients in Central America.

Banistmo will add around $8b in assets to Bancolombia's balance sheet and represents $833m in equity on a standalone basis. As we announced last week, the price paid was $2.2b, which represents a multiple of 2.7 times book value.

Banistmo is a bank with a normalized net income of around $130m in 2013, which implies an ROE of around 17%. On the other hand, BAM is a bank with over $2b in assets and an equity over $160m. The net income for BAM for 2013 should be around $40m.

The price paid for the 40% stake in BAM was $270m. Nevertheless, since we do not have control of this bank, it will not be consolidated but treated as an equity investment.

After the consolidation of Banistmo in the fourth quarter, Bancolombia will have around $70b in assets, 9m clients, 2m of them in Central America, more than 1300 branches and 4,400 ATMs. As mentioned before, Banistmo will add around $130m to $140m to Bancolombia's bottom line.

Second, I would like to mention the better than expected capital position of Bancolombia at the end of the quarter. Remember that in August, a new capital regulation was implemented in Colombia. This regulation aims to put the standards of capital according with Basel III guidelines.

This new regulation basically eliminated some intangibles from the Tier 1 and Tier 2 calculations. As a result, we were expecting a reduction in the Tier 1 ratio of around 250 basis points, but we managed to get a reduction of just 160 basis points.

The main measures were to move reserves from voluntary to mandatory and move earnings from some subsidiaries to the parent company level. As a result, our Tier 1 ratio ended September at 10.1% and the total base ratio was 15.3%.

We also want to share with you the fact that last Friday, Moody's reaffirmed Bancolombia's long- and short-term ratings; joins Standard and Poor's and Fitch ratings announcements in September. We receive these ratings as a vote of confidence in the bank's strategy of growth coupled with a strong balance sheet.

Our main goal is to keep a strong balance sheet that allows us to develop our growth strategy. As a matter of fact, the organic growth achieved in the quarter was very dynamic. Our loan portfolio grew 3.3% during the quarter and 21% during the last 12 months, moving our market share to 25% in Colombia, up from 21% we had back in 2010.

Despite this growth, the quality of loan portfolio improved during the quarter. The 30 day past due loans to total loans ratio continued dropping and ended in 2.7%. As a result of this improvement, the provision charges declined significantly and still our coverage ratio went up.

We managed to go back to black ink in our investment portfolio in the middle of an environment of global uncertainty. As you recall, our strategy was to review the sensitivity of the interest rates of the investment portfolio. These decisions helped to increase our net income as compared to the second quarter, and although we still have some pressures, we are very confident that the returns should be better in the coming quarter.

Having said this, we would like to continue with a brief discussion about the economic environment. Let me turn the presentation to Rodrigo Prieto, who will share our views on this matter. After that, Sergio Restrepo will elaborate on the bank's results. Rodrigo.

Thank you, Juan. Now I will ask you to go to slide number 3 in the presentation. Let's talk about inflation.

Inflation for the 12 months ended in September 2013 was 1.84%, at the low end of the Central Bank range of 2% to 4%. The Colombian Central Bank's repo rate is currently 3.25%. After a period of rate cuts that started in July 2012, the Central Bank decided to stop in its last meeting in April, and since then, it has kept the rate unchanged.

This low rate environment has caused that the main benchmark rate that we use to price our variable rate loans, that is called DTF, declined during the last 12 months. This effect put pressure on NIMs, which was partially offset by our funding strategy focused on reducing the cost of deposits.

Regarding GDP in Colombia, the Central Bank is expecting a 4% expansion. The second half of this year should be more dynamic as the level of spending of the Colombian government picks up and the households demand more goods as well.

There is a positive trend that we have experienced in Colombia, and it is the stable level of indebtedness of households over the last three years and the improvement of the credit quality across the financial system. That trend reduces the risks of high loan deterioration and provision charges. Consumption remains healthy and employment dropped to 9% as of August.

All these trends lead us to believe that Colombia's GDP will grow around 4% in 2013. Just to recap, the economy remains strong. The quality of consumer loans has been improving over the last quarters and the financial system remains strong.

After this good review of the economic environment, let me turn the presentation to Sergio Restrepo, who will discuss the bank's results.

Thank you, Rodrigo and thank you, Juan. And welcome, everyone, to this, our third quarter results of Bancolombia.

So, let me drive you through slide number 4, please, where we have our total assets and loan volumes. Total assets grew 4% in the quarter and 22% over the year, and we didn't have a significant change in the structure. 66% of the total assets remain as net loans.

Regarding the loan growth, I would like to highlight that we grew 3.3% over the quarter, 21% over the year.

In terms of US dollars, the growth was 12%. In pesos, it was almost 22%.

The most dynamic lines were commercial, 5.1% over the quarter, 23.6% over the year and mortgages, 5.8% on the quarter and 32% over the year.

The composition of US dollars compared to pesos is 22.5% US dollar denominated loans and 27.5% Colombian pesos loans. As you know, most of the -- well, a big portion of these loans -- US dollar loans are based in Central America, and specifically in Banco Agricola.

Respecting loan growth, a plus 15% by year-end. As you probably remember, the fourth quarter last year was very high in terms of growth. It grew 8% at that particular moment. Therefore, the year-to-date growth right now is almost 12%, plus another 3% to 4% growth in the -- which has been the trend over the year. That will put us in a growth year-over-year by year-end in something between 15% to 16%.

If we move to slide number 5, the asset quality, the net provision charges were COP289b. This is 21% lower than the second quarter and 8% higher than a year ago. Out of this number, as you probably remember from the last presentation, 50% belongs to deterioration and the other 50% belongs to loan growth.

As we already mentioned, the 22% growth in terms of loans have a significant toll in terms of provision charges.

The new past-due loans are in line with the past forecast where we saw an improvement in quality, COP202b. Charge-offs, claimed 100% provision loans, and the final past-dues came up to COP2.1 trillion.

Provision charges as a percentage of total loans is 1.5% for the quarter. Year to date is around 1.7%, and we expect to end the year with a number roughly 1.6% in total cost of credit for the year.

Slide number 6, asset quality. 2.7% past-due loans to total loans and 175% coverage. Again, not a significant change in any of the different segments.

As you can see, 30 days in commercial is 1.6%, which is about the average over the last year. Consumer is 4.8%. It is lower than we have had in the last year. Mortgage is 6.1%. It's the lowest in the last 12 months. And financial leases, 2.3%. Again, 2.7% is total past-due loans.

We maintain that we always mention that the coverage is one of the strengths of Bancolombia and the number, as we already mentioned, is 175% for 30 days and almost three times for 90 days.

Slide number 7, net interest income. It is 18% compared to last quarter and 1% lower compared to a year ago. Net investment income was COP12b losses compared to COP167b during the last quarter. As Juan Carlos mentioned, we are almost in black ink right now.

If we compare net loans income, just the loans not the securities where we had this significant change in prices, net loans income was 2.5% up for the quarter and 9.6% year over year. This is the dark bar, the big, dark bar in the upper left-hand side of the graph.

Funding cost is another strength of the bank. You can see that in the lower left-hand side. The cost of deposits is 18 basis points down. Total funding costs when we include long-term debt, which are basically bonds that we have in the market both in pesos and in US dollars, is 24 basis points for the quarter, and year over year, the relation is 78 basis points and 91 basis points, respectively.

Core deposits remain with a solid 74% of total funding; 12% checking accounts, 31% savings and 31% time deposits.

Moving to slide number 8, where we have margins, certainly we have a couple of things to highlight here.

First of all, as we've mentioned in the past slide, we still have 40 basis points negative NIM. I say NIM because it is positive in the income but the NIM, when you plug in the cost of funds, is still negative for the investments.

At the same time, we have a decline on the loan portfolio NIM from 6.4% to 6.2%. This is partially because of competition and partially because we've been gaining market share in the past and there's enough liquidity in the market.

We're doing since, I would say, a couple of months ago, we're starting to gain back NIM, and both in the commercial and the retail side. Both of them are increasing prices. And they have the goal to increase the NIM as part of their targets for year end.

In slide number 9, we have -- where we have the non-interest income, and basically fees and income from services, they are 7% down over the quarter and 3% year over year. The main reason here was basically the reduction on assets under management. Therefore, the fees that we charge for that particular business and brokerage fees, all of the activity on these two areas went down with the abrupt change on the prices of securities, both internally and outside Colombia.

We have -- right now, we have recovered most of assets and funds are performing positively compared with the watermark that we had by the beginning of the year. Probably, the highest point was by the end of April. So we are expecting to end this year with numbers, again, at the same level we had in the maximum level that we had.

In slide number 10, where we have operating expenses and efficiency, we have an OpEx of 2% over the quarter and 9% year over year. If we split these two expenses, basically, salary and personnel expenses are minus 7% over the quarter and minus 2% year over year.

And, in the other administrative expenses, those include depreciation tied to operational leases. This is important. You probably will see in the numbers that we have the income as other operational income, all the rent on the operational leases.

But at the same time, we have on operational expenses we have to plug in all the depreciation tied to these particular assets, and that's probably the account that grew the most over the quarter.

The efficiency ratio which you can see is high. It's almost 61%. It's way beyond our goal, which should be something more towards 50%.

When you compare OpEx to total assets, right now it's 4.2%. It's probably the lowest over the recent years. So the goal right now is to increase income. Therefore, we could end up with a much better operating expenses over operating income. As I said, the total expenses compared to total assets are behaving in the right direction.

Slide number 11, regarding the balance sheet and deposits and liquidity. Loan to deposit ratio is stable at 98%.

We do not see pressure for funds. We don't expect changes, as we expect growth to remain at a reasonable 3% to 4% during the fourth quarter. Therefore, we do not see any change by year end on this specific ratio.

Capital and Tier 1. Tier 1 is 10.1%. It is higher than expected. Their results were achieved through reduction in contingency lines, reserves, allocations and semi-annual shareholders' meeting in subsidiaries.

You probably remember that we were expecting by the third quarter 2013 to be roughly 9%. Therefore, we have right now something like 100 basis points higher in terms of Tier 1.

As we mentioned in the first quarter this year, the Banistmo acquisition will take probably another 300 basis points, so, after that acquisition probably the number would be more towards 7%. That's a good point and that's a good -- I would say, it is a good management on the capital numbers and doing some, as I said, some changes on contingencies, reserves and shareholders' meetings.

Finally, on slide number 12, regarding return on equity and return on assets, those are specifically the reflection of the view of what we saw over the quarter. Return on equity is just 11% for the quarter and return on assets 1.2%. Basically, this is totally tied to the net profit.

We certainly are aiming to go back again to the long-term numbers of 16% approx. and 2% return on assets. Probably, we will start seeing that in the last quarter or even -- and for the next -- from next year, once we have already the numbers of BAM and Banistmo in our books.

Final remarks. I would like to mention again, even though the results in the quarter were lower than our initial estimates, we managed to grow our books to offset the significant compression on the NIM. This is -- again, this is good. We believe that the growth that we made over the last 18 months has given us some basis points in market share, and we can keep on profiting from that growth.

The reduction in fees is directly related to the sudden change in the price in securities and a significant trend that we saw from funds to CDs and savings. But, the tide is coming back and we expect to close the year, as I said, higher than the fourth quarter 2012 in assets under management. Therefore, fees should come back again specifically on that particular business.

The loan losses and the coverage is in line with our estimates, and we continue improving and defending that part on our books.

So this is basically the numbers that we are presenting today. So I would like to invite you to open the floor for questions that we'll be more than happy to answer. Thank you.

(Operator Instructions). Thiago Batista, Itau BBA.

Yes. Hi, guys. Thanks for the opportunity. My question is regarding the core equity Tier 1 after the acquisition of HSBC Panama or Banistmo. According to my calculation, the common equity Tier 1 after taking into consideration this acquisition would be around 6% to 7%. What's the level of -- the capitalization level that you consider a comfortable level for the bank, looking for a positive -- really, the positive loan growth next year?

Thiago, thank you for your question. Your numbers are right. As I mentioned, we are expecting right now that the number after acquisition would be like 7% in Tier 1.

When you do the math in terms of Tier 1 plus Tier 2 and what the numbers are in terms of local regulation, the numbers remain -- are still high. Right now, we're running something like 15% for Colombian regulations. So, the point here is that if we were about to be measured with local regulations, 15% is more than enough. The minimum local requirement is 9%.

We understand that we are playing right now with Basel III international rules, so, probably, the numbers are a little bit lower than our peers, but there's still room enough to run the bank with no problem at all. And as we mentioned before, once we cross the year and once we have the shareholders' meeting, all the ongoing net profits could be added to the capital. Therefore, the ratio probably will go up again.

Marcelo Telles, Credit Suisse.

Hi. Good morning, gentlemen. Thanks for the opportunity. My question is regarding the margin outlook. I know you mentioned already in your remarks, but we're seeing -- if you look just at the credit portion, you grew your loan portfolio more than 20% year over year but the growth in NII, at least for credit was low, almost half than that. Do you think that we are going to -- we are reaching a point where probably your NII from credit operations will be able to grow more in tandem with loan growth, or do you think they're still a little bit far off in your scenario? Thank you.

Thank you, Marcelo. I will start answering the question about the growth. In our view, typically we will grow right now in tandem with the banking sector locally. I think the biggest efforts were done, as I said, last quarter last year when we grew 8%, and probably we slowed down the growth by the beginning of this year. Therefore, what we are seeing right now is basically the result of what we did over these quarters where we grew fast.

Right now, as you said, and we mentioned that on the remarks, this is something that the corporate division has as a goal. They're aiming to grow the NIM between 20 basis points to 40 basis points for them. A portion of it will be towards reduction of cost of funds. A portion of it will be towards an increase in price of funding.

The important thing here is that if you see the split on the loans, there's a big portion of it which is working capital. Usually, working capital tends to be less than 12 months, so I think that we will be able to manage that increase in the NIM over the next, I would say, two quarters probably. Up to where? Well right now we are running at 6.2% the NIM for the loan portfolio. We will aim for something more towards, again to 6.4% or 6.5% during the next year.

That's very helpful. Thank you.

You're very welcome.

Jose Barria, Bank of America.

Good morning, gentlemen. Thank you for taking my question. I just wanted to know whether there is anything you could share with us in terms of your expectations for earnings contribution from the recent acquisitions that you've done. I know that you're expecting, or you just recently completed the acquisition of Banistmo. But we'd really like to know a little bit more about what your thoughts are for 2014 and what sort of contribution that could bring to Bancolombia's results. Thank you.

Thank you Jose and it's a good question. Let me make it a little bit longer than what would be the direct answer. One point is that, I would say that since the beginning of the year we had the cash for those two acquisitions. The total turnaround was $2.5b. And in order to protect the cash and in order not to expose that to any volatility in the market, we had, over the year, a negative carry for that amount of money.

As you probably know, we issued the bonds and then we invest that on treasuries and treasuries were -- the return on treasury was almost zero.

The Banistmo operation had net results last year of almost $130m. As you know, these two acquisitions -- the Banistmo acquisition is based on the purchase. Therefore, none of the net profits before October 28 belongs to Bancolombia, just whatever is after October 29. To be more precise, the beginning of November will be on Bancolombia books.

In terms of BAM, BAM was a bank that made $35m, $36m last year. This year they're in a good trend, so, probably they will add some more via dividends depending on how much dividends we paid on BAM. But, again, most of the real contribution and the consolidated contribution will come from Banistmo. As I said, $130m last year, probably we are going to see some costs on the transition but this is the kind of numbers that we will aim for the medium term to long-term, with a growth that will be aligned with the growth on the economy and the growth on the books.

Okay, great. Thank you very much. And if I can just have a follow-up question on a question that was asked earlier on NIM. I've been reading a lot about the government's desire to see lower lending rates from banks. I just want to get your thoughts on if you have perceived this as a pressure on your side as well and what the expectations are.

Truly, Jose, we know that those are probably promises just before elections, but I think that the prices that the financial sector is charging right now are probably the lowest that we've ever seen over the last two or three decades in the country. We can see mortgages -- with the help of the government we can see mortgages at rates of 7% which we never saw that numbers. We see payroll loans at even lower than 1% per month. So I think it goes more to a political enhancement more than anything else. We don't see any real risk on that specific point right now.

Perfect. Thank you very much.

You're very welcome.

Juan Dominguez, Credicorp Capital.

Good morning. Thanks for hosting this conference. Most of my questions have been already answered. I have just one remaining. I wonder if you can give us some guidance of those efficiency pressures coming from the transaction in the short-term, especially in terms of IT investments, rebranding and maybe some streamlining of the operation? I don't know if you're expecting to streamline, for instance, the back office operations.

Thank you Juan. As Sergio mentioned, we have plans in the case of Banistmo of some investments that we need to undertake to complete the operational separation from HSBC. Those investments are already budget on the Banistmo numbers and, as Sergio mentioned, could affect the earnings for the next year. These investments are going to be made in the course of the next probably, or in the next 24 to 30 months. So, they are going to be not just during 2014.

On the other side, we keep investing on IT in Colombia in order to be more efficient and we already are planning some of the applications that we are going to implement. In HSBC, are going to be corporate applications that mean efficiencies for the Group. In the applications that I mentioned that we are going to implement will mean that we will capture efficiencies in the mid-term.

On the short-term there are going to be investments to put in place those applications and then we will capture those efficiencies, particularly the treasury applications, some trading, some credit card applications are going to be corporate and will allow us to capture efficiencies in the mid-term.

Thank you very much. Just another one. Looking towards the fourth quarter, can you give us guidance of the extraordinary provisions that could be caused due to the amalgamation of both credit systems in Panama and in Colombia?

We are trying to calculate what it means in the consolidated financial statement. But, what we have seen about the credit portfolio, we don't see significant changes compared to the things that HSBC had. There are some methods that our superintendency has and we have to apply for the consolidated financial statements. But, we don't see risks that we would have taken if we were the owners of HSBC before. So we don't see problems in the loan portfolio, so we don't expect significant changes in reserves or provisions.

Thank you very much.

Javier Angulo, Citibank.

Thank you. Good morning. Thanks for the presentation. My question is more regarding the transitional integration of the operations of Central America. If you foresee any major discrepancies with the way the bank is run in Colombia versus in Central America and so forth?

Thank you, Javier, for your question. We don't see any issues related to the operations in Central America. As you probably know, we have a TSA with HSBC that guarantees that the bank is going, particularly Banistmo, will be running smoothly in this transition and we don't see any issues related operations in Central America.

As I mentioned before, we already have a plan for implementing applications and to end the TSA after the period that we agreed with HSBC. But, we don't foresee any issues related to the operation of Banistmo in Panama.

Thank you. And a follow-up question to that just regarding the investment portfolio performance. Do you think by next quarter the negative NIM that we've been looking at in the past two quarters will be resolved? And what's the main driver of that resolution or expected performance for the investment portfolio?

Yes Javier, just to give you an idea, the DV1, the volatility of a 1 basis point change in the prices, we had it before in something almost $700,000 to $800,000 for DV1. Right now, that number is a fraction of it. Right now, the number should be something like COP200m which is $100,000 under DV1. That means that whatever happens over the days, and you probably know yesterday and the day before there were significant changes in prices, the impact is not significant.

On the other side, we have a short position on some of the papers. Therefore, our goal is to have a positive outcome of this one for the third quarter. So, it won't be high. You cannot expect something as we saw before, 4% or something higher than that. But, in our view, it should be at a certain point positive.

Thank you.

You're welcome.

Jose Restrepo, Serfinco.

Good morning gentlemen. I have a question regarding the position of HSBC in Panama. In the transaction you acquire an insurance company. If I'm not wrong, it's the fourth largest insurance company in the country. Do you have any plans to sell that to GrupoSura or any of Sura's affiliates as you did with Asesuisa and [Crisel] in El Salvador?

Morning, Jose. At the moment, no. The insurance business is very, very embedded in the financial or in the banking business. What we intend to do is grow the bancassurance business, but nothing in the short-term.

We have to really focus our attention in one property what we bought and -- but who knows? I mean it took us four years to sell the operation in El Salvador. We will see if it makes sense or not to sell it in the future once we have in our hands and with reasonable returns.

Okay. Thank you.

Jorge Chirino, Morgan Stanley.

Hi, good morning. You guided for a cost of credit of 1.6% for 2013 and you even mentioned that you expect significant changes with the consolidation of HSBC Panama. I would like to know what's the outlook for the cost of credit in 2014. Is this level, 1.6%, sustainable or probably we can see a reduction in the cost of credit next year? Thank you.

Jorge, morning. I think that the outlook for next year will be, again, between 1.5% and 1.7%.

One thing is that with a more modest, or more conservative growth, what we are seeing right now and you saw in the numbers is that the deterioration of the loan portfolio has become significantly lower. This is part of our -- one of our tasks to increase the return on equity and to increase the total returns, is to make sure that we reduce that number.

Using -- if it weren't for probably the Banistmo acquisition, probably we will be aiming something more towards 1.5%. But, in order to normalize whatever numbers are, as Rodrigo mentioned before, Banistmo is fully compliant with Panamanian regulation. Probably Colombia regulation is a little bit tighten, more demanding in terms of provisions than the Panamanian, so probably we will start doing some adjustments over time.

We did that in the [tabloid]. It took us a few years to do it. All of those extra provisions are beyond the local regulators. Therefore, they don't have any kind of benefits in terms of taxes. But, at the same time, they do not push us to do it in the short-term. So say that you probably will be okay if you, again, run between 1.5% and 1.7%. So I think it's sustainable and with what we have seen in the economy, I think it will be a reasonable number.

Okay. Thank you very much.

Chris Delgado.

Hi everybody. This is Saul Martinez from JP Morgan. Most of my questions have been answered so just a couple of follow-up questions on some of the comments you've made on net interest income and net interest margins.

First, I think an earlier question you suggested that your net interest margin from lending activity was abnormally low and that it could increase 20 to 40 basis points in the coming quarter to 6.4%, 6.5%. Can you just help me explain that, or help me understand that? Sorry, I didn't get quite what's driving that increase over the next couple of quarters.

And, secondly, I think in response to an earlier question on your NIM from securities you thought it would become positive in the coming quarters but not obviously, for various reasons, not to the same extent because of repositioning and a lessening duration risk and whatnot, not as high as it has been. But this quarter you did I think COP95b. What does it mean in terms of net interest income absolute nominal terms? What kind of net interest income from securities activities should we think of as a more normalized level with your new stance on risk for securities?

Morning, Saul and thank you for the question on the early report yesterday night.

Regarding the NIM, the 20 to 40 basis points, it's something that we have been discussing with the corporate guys. I mean the people from the part of the books that have 60%, 65% of the loan portfolio. And, when we start seeing that we were going down in terms of the NIM, basically, the point here was a trade-off between growth and margins. In absolute numbers we managed to grow. As you remember, we grew like 9.6% year-over-year in terms of net interest income, but we were in a goal of gaining some market share.

Right now, a portion, like I would say 10%, 15% of the loan portfolio was granted at, I would say, almost marginal rates, a very low rate. So, that particular short-term lending that we used to grow on certain corporate clients, big tickets, those loans, most of them were for less than a year. And, that specific segment of the Company, as I said, the corporate side, they -- what they want to do is give and take it out. Once you take the market share, then you can start losing a little bit of it but gaining again in terms of prices.

So the point with them is a point of what they intend to do is to increase the prices, specifically not in the core part of the lending business, but it's specifically in the short-term treasury loans, short-term loans, increase the prices. If that means giving up a portion of the growth that we had, it doesn't really matter. We won't give up all of the 200 plus basis points that we gained in market share. But we are convinced that we will be able to gain a part of this NIM again.

The other efforts that we're doing on the NIM is basically, as you saw in the cost of funds, given the Central Bank rate has been flat almost over the year, we reduced the cost of funding between 70 to 90 basis points over the year and between 15 to 20 basis points over the quarter. Although the trend has a bottom and we consider that we will be able to keep on reducing some basis points on that.

The good news is that when you read what the analysts say about Central Bank rates, they're expecting that by mid-year next year the bank will start increasing some part of the rates. Therefore, at that particular moment, we will be able to capture most of the growth on the rate as we would be able to capture savings on the cost of funding.

Regarding the securities, based on the average cost of funds that we have right now and based on the returns on the equities that we have now, and based on the fact that we see an increase in the interest rates global-wide, we do not expect anything different from 0% to 1% of NIM for the securities over, I would say, over the next year or two probably up to the moment where rates stabilize again. So, the NIMs, again, the NIMs for securities, for your numbers, I think that if we just draw a line at 1% it would be reasonable.

Okay. In terms of in absolute nominal terms in NIM, what would that correspond to, broadly, in terms of absolute interest income from securities? Are we talking about 100b to 150b for the time being as a quarterly rate?

Yes. As you highlight, we had 93b for the quarter and it was below our expectation and what we mentioned before is between 120b and 150b.

And what is that trend? So you think your NIM, once it stabilizes, obviously there are a lot of moving parts with Panama, is closer to high 5% to 6%, is that a reasonable sort of thought?

I would say yes, Saul. I think it's fair to mention that number as the average NIM for the bank.

Okay, got it. Thank you very much.

You've very welcome. Thank you.

Thank you, and we have no further question at this time.

Okay. We really appreciate your interest in the bank. As you probably know, we now open our Investor Relations office just to drop an email or give us a call if you still have any further questions.

But, again, our numbers we really still highlight the coverage. The credit quality remains healthy and certainly, the bank, as a whole, is based for better results over the next quarters in the future.

We hope to see you, well the next time will be on the shareholders meeting next year, so that will be in February/March. March is the right date. March next year. So thank you very much and have a good day.

Thank you, and thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.