Grupo Cibest SA (CIB) 2018 Q3 法說會逐字稿

Good morning, everybody, and welcome to the conference call for the third quarter. Before presenting information about the bank, let me do a quick reference of our view of the current macro situation.

In Colombia, we have seen a more dynamic economic growth during the quarter. Through this year, GDP has expanded at a higher rate with respect to those seen in 2017, thanks to a recovery in general demand and a 2-digit growth in exports.

For third quarter '18, our growth estimate is 2.5% and for the whole '18, it's 2.6%. There is a scope for further acceleration in 2019, which will be driven by investment leading to a growth of 3.2%.

Over the past few months, inflation has remained within the central bank's target range. As a result, interest rates have been stable as well. We forecast 2 hikes towards the second half of '19, when the economy will be growing closer to its potential. We have seen progress in the government's effort to address the fiscal deficit.

Last week, the administration submitted to the Congress a law proposal to modify the tax code. According to our estimate, this initiative will allow the central government to meet next year's deficit goal. It will also introduce measures that will reduce the tax burden for private companies. The initiative also contemplates adjustments to the VAT, which will exert a temporary pressure on inflation and a sharpened deceleration of private consumption.

Despite these effects, this proposal is a necessary step in the process of fiscal consolidation to which Colombian authorities are fully committed.

Finally, in the external front, we have seen a positive evolution in the trade balance. The current account deficit will remain close to 3.4% of GDP and current oil prices are supportive of this trend. Despite recent volatility in financial markets, our analysis show that the Colombian economy [can address the] further tightening of global financial condition. Having said this, I want to share with you the plans that we have implemented to execute our strategy and improve profitability.

We have defined the following pillars: grow faster in consumer loans and new product sales; increase consumer base to generate new revenues and improve profitability, reduce the cost of the bank, especially those related to transactions, on-boarding and operations; adopt digitalization as a lever to integrate all the strategies and the 3 pillars that I just mentioned.

Let me elaborate about these elements. Regarding growth in consumer loans, we want to be more convenient and focus our initiatives around clients, transactions and products. This will permit to increase the profitability of the bank by growing faster in retail and selling more products to existing customers. Digitalization plays a key role in this initiative as the adoption by customers is gaining more relevance.

Currently, 50% out of the 10 million customers in Colombia have digital presence. 12% of new sales of retail products are conducted via digital channels. Currently, we are opening a savings account in 7 minutes. Before, it took us 35 minutes. Also, 14% of new personal loans are originated by digital channels. 75% of the total monetary transactions that Bancolombia performs are done through digital channels.

We are creating new revenue streams, delivering products faster to the clients and reducing operational expenses. Regarding the growth of the consumer base, we want to offer a complete financial solution through high service standards. This includes offering digital experiences to customers without paperwork and very low marginal cost for us. Today, more than 3 million individuals use Bancolombia's mobile platform and conduct about 200,000 transactions per day. Also, more than [14,000] SMEs perform daily transactions with the SMEs app.

There are 2 key components connected with this goal. First, to make the onboarding process faster and easier. Today, we have more than 9 million personal clients in Colombia and the number is growing 10% per year. Also, we have more than 1.5 million SMEs and the number grows 15% per year. We want to bring as many clients to the bank as possible in a profitable way.

Our digital platforms, Nequi and Ahorro a la Mano, have now more than 1.5 million clients. These channels grow rapidly in number of users, more than 50,000 per month, and are a great way to bring unbanked individuals to Bancolombia with very low on-boarding cost. Second, to use data and analytics to make -- predict payment capacity of clients, potential trouble loans, allocate resources to better risk-adjusted clients. This has permitted to grow from 1.7 million preapproved loans in 2015 to 2.5 million today, which represents new loans of COP 1.9 trillion. Regarding cost control initiatives, we want to implement processes and leading technologies to provide a comprehensive platform to our clients with [lower] margin cost. The main elements to do so are a robust process optimization strategy. Today, we have more than 300 processes intervene, ranging from collections to reporting and underwriting. Similarly, at the desktop level, the use of automation has permitted to reduce the execution time of some client-facing processes by 60%. These robots have liberated 300,000 man-hours per year and have tangible benefits like reducing -- reductions in cost by $70 million per year and improving the collection process, which has prevented the deterioration of COP 180 billion in loans.

The second element is to focus on more efficient channels like mobile, Internet and banking agents. The number of monthly monetary transactions in Bancolombia grew 12% over last year. Nevertheless, transactions in branches declined 12%, while transactions through mobile grew 31% and through banking agents grew 40% in the same period.

I want to make a special reference to the network of banking agents, which permits to offer clients an easier way to do transactions and alleviate pressure from the network of branches. This is the fastest-growing channel in terms of transactions and permits to turn fixed cost into variable cost. Today, we have more than 11,000 agents that conduct 18% of the total monetary transactions of the bank. This is more than 500,000 per day. This is a great achievement that give us a unique competitive advantage in Colombia, where the population is spread and still use a lot of paper of cash. No other bank in Colombia has a network of this size and currently, we are placing this initiative in our operations in Central America. A tangible benefit of the cost control initiatives is the evolution of expenses in the last year, decreasing 1.3% for the first 9 months.

We expect, to the end of '18, we have an OpEx growth of 4% and sustained pace in '19, helping the cost-to-income to converge to our target of 45% to 46%.

In summary, we continue developing our strategy around digitalization to change the loan mix and grow faster our consumer base, enhancing the funding strength and reducing expenses. Our goal is to improve margins, efficiency and to achieve the target profitability of 16%.

With these elements in mind, I want to ask Jose Humberto to give you an overview of the main topics that are driving our business today. Jose.

Thank you, Juan Carlos. After hearing this presentation about the strategy, I want to present the results of the bank.

The net income of the third quarter was COP 543 billion. We assess the overall performance of the quarter as positive. We were able to maintain the NIM and keep expenses under control. The most relevant event during the quarter was the anticipated review of the allowances related to 3 large corporate clients and as a result, the coverage increased in a significant way. Having said this, let me elaborate briefly about the 3 main topics that drove the results of the bank during the quarter. First, the loan growth; second, the evolution of NIM; and third, the provision level and the coverage.

Moving to Slide 8, regarding the loan growth. The portfolio presents a similar trend to the one observed during the first half of this year, that is, a slow pace of expansion due to a weak demand from the corporate sector. We continue our strategy to grow faster in consumer loans, still targeting low-risk clients with better risk-adjusted returns. As a result, consumer loans represent, today, 18% share of the overall consolidated portfolio. What is important here is the fact that the consumer loans present a good quality evolution and there is no deviation from the initial forecast.

On a consolidated basis, demand has grown 11.5% in consumer loans over the last year and 1.8% in commercial loans. The pace of growth is different among the different countries and it is correlated to the economic cycle. For example, Colombia's operations have grown faster in consumer loans at a level of 16.2% year-on-year. Banco Agricola in El Salvador follows with 4.1%.

Regarding commercial loans, Banco Agricola represents the fastest growth with 7.4% year-on-year. In October, in Colombia, we saw a positive evolution of loan growth in both business lines, commercial and consumer. For the year of 2018, we estimate the total loan growth of around 5% and in 2019, the growth should accelerate to reach a level of 8% to 10%.

In Slide 9, regarding interest revenue and NIM. We have seen the top line of the bank evolving in line with volumes rather than margins. Low volumes growth is mainly the result of lack of investments from corporates and SMEs. This means that maintaining the NIM is a key and has been a key focus of our strategy in 2018.

During the third quarter, we saw stability in margins and we concentrate efforts in maintaining the cost of funding in low records. In order to do so, we focus on growing fast in savings and checking accounts and reducing the duration of the time deposits and lower the cost. The NIMs per geography are the following: in Colombia, 6.23%; in Banistmo in Panama, 3.92%; in Banco Agricola in El Salvador, 6.83%; and in BAM in Guatemala, 5.43%.

The NIM expansion in Banistmo and Banco Agricola is influenced by the interest rate hike in the U.S. and the fact that these banks operate in dollar-ized economies. Also, the change in mix and the greater proportion of consumer loans has permitted to contain higher asset yields and contribute to the NIM stability. The current liquidity conditions in the market has permitted to increase our funding base from checking and savings accounts. We believe that we are reaching an end in the repricing of the balance sheet and therefore, we don't expect big movements in NIMs in the coming couple of quarters.

For the year of 2018, we estimated a NIM at around 5.7% to 5.8%. Third, provisions and coverage on Slide 11 -- 10.

This is a key topic during this year. As you know, certain corporate defaults drove up the cost of risk during the last year. The assessment that we did about Electricaribe [Rupta and Solar], the mass transportation system in Bogota, led us to do provisions that impacted the bottom line. The rationale of these decisions is to reach the coverage target of these clients and open the way for 2019, when we expect to have a lower cost of risk. In Electricaribe, we went from 62% of coverage in June to 84% in September. In total, Soho went from 19% coverage in June to 26% in September. And in Consorcio Express, the mass transportation system, the most relevant company, we went from 36% coverage in June to 54% in September. Out of the COP 1 trillion in provision charges during the quarter, COP 312 billion were attributable to these 3 cases. In other words, out of the 2.5% cost of risk of the quarter, 80 basis points were due to them.

On a cumulative basis, out of the 2.4% cost of risk, 50 basis points are explained by these corporate cases. For these, we have charged COP 540 billion in provisions during the whole year. As a result of the provisioning level, we increased the coverage ratio for 30-days-past-due loans to 112% and 90-days-past-due loans to 161%.

From a return on equity standpoint, if we normalize the provision charges, we find that the return would have been close to 13%. A direct outcome of this acceleration in provisions is the fact that we will exit the 2019 without the impact of these clients and net income will normalize. That implies that Bancolombia will be posting double-digit growth in net income next year.

Regarding the general trends of portfolio, the pace of deterioration has declined and we have evidence to believe that we are in the turning point of the credit cycle. NPL formation for the quarter was COP 847 billion, 13% lower than the previous quarter and 12% lower than the 3Q of 2017.

SME deterioration has decelerated in recent months because of normalization of conditions for our clients. Similarly, consumer loans have performed within the risk standards and we have not experienced any deviation from our forecast in these business lines.

As a result, the NPL ratios start to present improvements and coverage ratio also increased. We expect to finish 2018 with a reported total cost of risk of 2.4% and a normalized cost of risk of 1.9%, that is taking out of the top 3 corporate cases.

The relevant forecasts for 2019 are: first, loan growth around 8% to 10%; NIMs at around 5.6% to 5.8%; fee growth, 2019 will be around 8%; expenses will grow in between 3% to 4%; cost of risk, we're expecting 2%; and efficiency ratio at around 48% to 48.5%.

In summary, 4 items are key to understand the financial performance of Bancolombia. First, evolution of volumes of loans and changing mix, which we have been seeing moderate in 2018 but expect to accelerate in 2019. Second, the evolution of NIMs, which are stable due to control of funding cost and a greater proportion of consumer loans. Third, normalization of the credit cycle and lower NPL formation, which opens the way for a better profitability in 2019. And finally, the very successful cost control strategy that also prepares the bank for the reduction in the cost-to-income in 2019 and eventually, double-digit growth in net income. After elaborating of these key topics, we want to open the line for questions. Thank you.

(Operator Instructions) And our first question comes from Jason Mollin from Scotiabank.

My question is on this strategic objective of focusing on the consumer. And now, with consumer loans at 18% of total and the importance, I think, to maintain the NIM both by changing the mix in the loans and keeping funding costs down, can you talk about how you see that mix in the consumer and retail funding going forward? And as part of that, I get this is part of the objective of getting your long-term ROE to, I guess, you just said 16%. So if you normalize the quarter for these provisions that you talked about, you would be at 12% to 13%. How quickly can you get to the 16%, and incorporating this change in the consumer outlook, and mix outlook?

Yes, as you said, we are growing faster in consumer and we are gaining market share. That process began 2 years ago, when we decided to understand much better our current customer base, and we have been growing at that pace that you mentioned. For the next coming years, we are expecting again to gain more market share based on the same strategy. We are expecting, for example, to give you an idea, on a consolidated basis, to increase our loan portfolio in consumer at around 12%. That assures to maintain that NIM. What we expect in the next coming 2 to 3 years, to maintain that composition of the assets in between 16% to 19% in total assets in consumer. But obviously, all of that depends on the economic cycle in the different geographies. The key pillar of consumer loan growth is Colombia, but also, we are doing a very good job in El Salvador, for example, that we are growing at a very good pace. And maybe in the next coming 2 years, you'll see an increase in the loan book in consumer in our operation in Banistmo. That's the strategy for the medium-term view. How we are going to get the 15% that you mentioned? Because of combination of 3 factors. The first one is loan growth. We expect the next coming 2, 3 years to grow at double-digit. The second is to sustain the NIM or to maintain the same level. The third is to maintain the cost of risk in between 2% next year and 18% -- and 1.8% in 2020. So if you combine those elements, you will find that we will be able to reach the 14% to 15% return on equity. Also the fact that the expenses from this is growing at a pace of inflation plus a handle -- 100 basis points, that also assure that level of return on equity.

And, Jason, let me complement the answer that Jose Humberto just gave. And that's from the loan book perspective. But if we see it from the funding cost, also, the strategy -- and have in mind that Bancolombia has a big popularity and we have our strength on our branch network and on our presence in the country. So growing our base of retail customers on the liability side allow us to manage the cost of funding in a way that we can also look for the NIM that we are targeting. So the combination of growing our business on the loan side and also our ability to reach a big number of retail customers allow us to manage the cost and also defend the NIM, which at the end is in line with our target ROE of 16%.

Our next question on the line comes from Carlos Macedo from Goldman Sachs.

So first question, thank you for giving some outlook for 2019. Talk about a 2% cost of risk, you're at 2.5% now, 1.7%, if you exclude the 3 big cases you have. How do you get there? Is that a process where all of a sudden, those 3 cases are just going to stop demanding provisions and you're down to 1.7% and ROE jumps to 14%, but after that, or is it going to be more of a gradual process as you move along? Second question. If you -- you talked a lot about the digital platform. Thank you for giving us details. It's apparently a very deep transformation. And a lot about the expenses. What about the fee side? Have you seen any spark there? Obviously, a lot of transactions coming in, but anything that you can talk about, how you expect that to help your efficiency ratio improve, given that growth has been pretty weak, around 4% year-on-year?

Regarding your first question, how we are going to get the 1.8% at the end of 2 years, cost of risk of 2% next year. Basically, because as we mentioned in the presentation, the vintages are behaving much better in SMEs and consumer loans. So we are forecasting in the next coming quarters that probably the level of provisioning there will drop a little bit. And also, if we have to increase our provisions in the 3 cases or any other corporate cases, we will have enough room to increase that provisioning because that will be offsetting because of the lowest level -- or lower level of provisioning in consumer and SMEs also. And also you have to consider the fact that we are expecting to grow 8% to 10% loans. That means that the number will be dilute. That's the reason why we're convinced that we will get the level of 2% cost of risk at the end of next year. And the 1.8%, let me tell you in this way, it is a normalized cost of risk of the bank, assuming that, again, our consumer loans will be 18% of the total assets and maintain the risk, the same mix. Regarding your second question, why the fee growth this year is weak or below expectations. It is basically because the level of transactionality during the first half of the year was very low. But again, if the economy reacts, as Juan mentioned at the beginning of the presentation, we believe that, that will be reachable and that would be feasible, the fee income growth of around 8% next year. If you double check the numbers in our different geographies, you will see a much better performance in some of our operations outside of fee growth. The combination of those operations will help us to maintain the 8% fee growth for 2019.

Let me add a comment on the digital platforms. We are really happy with the developing of these platforms. The acceptance of our customers is very good. And we keep growing on that platforms and that allow us to reach a number of customers in a very efficient way. And also, it is going to help us in fee generation in the future. So the development of the digital platform, and since we're adding new functionalities and new features to this platform, we are very positive that this is going to really leverage the growth of the banking in the future.

Our next question on the line comes from Thiago Batista from Itau BBA.

I have 2 questions. The first one about the IFRS 9. Can you comment about the refining that the bank did in the IFRS 9 in this quarter? And what caused this and the main impact? And this was somehow related to the special case that you mentioned during the presentation -- the Electricaribe presentation, et cetera. And the second one, about the loan growth. You had mentioned loan growth of 8%, 9% next year. Which lines do you believe will lead this expansion?

Regarding your first question, yes, we have been modeling the IFRS 9 and we have been fine-tuning processing this first 9 months. So as a total, we increased the provisions from the [COP 600 billion] that we contemplated at the beginning of this year to almost COP 1 billion on this third quarter. And again, this is a fine-tuning process with the auditors, how we did the methodology. So we don't expect to increase that number. And remember that those provisions, the COP 1 billion that I mentioned, it is against the equity, it is not affecting the P&L. Regarding your second question, next year, we expect the key driver or the main driver of the loan growth will be, again, consumer and the consumer will be at around 13% to 14%, but it's important to highlight that the commercial loans are expected to grow in between 9% to 10%. That will be -- if you combine those numbers, the loan growth will be, again, 8% to 10% next year.

And our next question on the line comes from Andres Soto from Santander.

My question is related to the cost of risk this quarter. Thank you so much for the breaking up the number between the recurrent cost of risk and the extraordinary cases. I understand that among the extraordinary cases, you are only including Consorcio Express, but if I'm not wrong, you are also exposed to [Maximo Capital] and other mass transit companies outside Bogotá. I would like to understand what is your provision level for these other cases. And how you feel -- how confident you feel about your coverage at this point in the cycle? And marginally speaking, when I look at the so-called recurring cost of risk of 1.7%, it sounds to me -- it was surprisingly low to me. So I would like to understand what can go wrong going forward regarding your structural portfolio? What if we can see surprises that could deviate from the guidance that you have given both for 1.9% for 2018 and 2% for 2019?

Yes, Andres, we are showing the most relevant transaction, which is Consorcio Express. You are right, it is 54%, but the other exposures that we have in different companies, their level of provisioning is above that. There is another exposure that we have almost 80% of provisioning. So we are showing you the most relevant transaction or the amount of provisions and the most important case of massive transportation system. The message here is, we increase in all the 5 other companies the level of provisioning, but we are not showing a breakdown here. And again, our view is, if we have to increase the provisioning in those corporate cases, we will have enough room next year because of the combination of loan growth and because probably we have to reduce provisions in SMEs and consumer loans. The reason why 1.7% looks low this quarter is basically because, again, the behavior of consumer and SMEs reflect that, a slower pace of growth in provisions. So that's a combination, but definitely, at the end of the year, a normalized cost of risk will be 1.9% to 2%.

That's an important point. And you touched the cost of risk on a midterm for Bancolombia should be around 1.7%, 1.8%. In the past and in the positive economic cycle, the cost of risk, if you take a series -- a long-term series of around 7 to 10 years, you can see that the cost of risk for Bancolombia has been around 1.5% to 1.6% in that long series. We are forecasting or we are seeing a little bit higher long-term cost of risk because of we're adding more consumer loans to our books. So we are confident that the cost of risk of around 1.7%, 1.8% for midterm for Bancolombia is -- it's the right number. Have in mind that, now, we are in a cycle -- an economic cycle that has been tough and we're seeing much better conditions in the coming years that will lead us to reach that cost of risk of around 1.7%, 1.8%.

Our next question online comes from Jorg Friedemann from Citibank.

I have 2 questions. The first one related to net interest margins. I appreciate the fact that you have been very good in managing both credit and funding mix, but I was noting in the press release that the net interest income for Bancolombia in Colombia continues to come down, and particularly in this quarter, net interest income was also supported by the good contribution in the other subsidiaries in Panama, El Salvador and Guatemala. So my first question is how much comfortable you -- or how comfortable are you with the net interest margin resilience going forward, and particularly related to this contribution in the other subsidiaries, if they are already close to the most that they can contribute? This is the first question. And the second question is related exactly to these subsidiaries. I note that Banistmo is showing good results, but not growing that much. And the other 2 subsidiaries are observing a significant decline or in provisions or in other revenue lines. So if you could just provide a bit more color about the positives and the challenges for the subsidiaries and how much they could contribute for the results next year and in a more normalized basis, I would appreciate.

Regarding your first point, you have to consider that the interest rate of the central bank drops 100 basis points in the same period that you mentioned, and this is very important because, remember, that 70% of our loan portfolio in Colombia is asset sensitive, it's floating. So that explains why the compression were a little bit, but for the long run, we're in a very good position.

You're asking if we feel comfortable. Remember that we are expecting that if inflation sparks in the second or third quarter of next year, probably interest rates will go up again, 50 to 75 basis points. That implies that next year, we have a negative, some positives regarding NIM. The first half of the year, the challenge will be to maintain, but the second half of the year, probably it will help us to increase a little bit the NIM in the operation in Colombia. Regarding the international operation, just an example. In Banco Agrícola, we expand the NIM because we took advantage of the hike of interest rate in the U.S., and we are maintaining the NIM in the operation in Panama and in Guatemala. So if you combine those elements, we feel comfortable saying that the NIM will be within 5.6% to 5.8% the whole year, the next year.

Regarding your second question, subsidiaries, I have to say Banco Agrícola combines all the positives of the group, which means a very healthy loan growth, more than 5%, which means a very under-control efficiency level that will be at around 50%, fee income growth also is at a level of more than 6% to 8%. The cost of risk there is very low, 1.2%. So if you combine those factors, this is by far the most problem-less and relevant operation. What happened in Panama is the economic cycle. At the beginning of the year, we felt that GDP will grow 4% to 5%, and today, the country probably will grow at the mid-range of 3% to 4% and also, obviously, that impacted the operation in Banistmo. I don't know, Juan, if you want to add something?

Yes. We are very happy with the developments in Panama. Banistmo, it's really on a trend that we see very positive. As Jose Humberto mentioned, the economic growth in Panama has been lower than we expected and I think that everybody expected, but the development of the bank is very positive. We have challenges in Panama around improving our technology there, and we have a project and program to improve that technology and that will allow us to serve better that market and also to improve our efficiency in Panama. So we are happy with the developments in Panama. Regarding the El Salvador and Guatemala. El Salvador, for us, the Banco Agrícola is performing very well. The key measures of the bank are positive. Even though the economy is not growing very fast or is not growing at a good pace, we are growing. And we foresee that the economy of El Salvador is going to perform better in the coming years. So we will -- I think we are ready to take advantage of those opportunities. We keep working on efficiency in El Salvador and there is room to improve our efficiency there. We are also pursuing our digital strategy and we are leading that strategy in the Salvadorian market and we think that we can take advantage of that position.

Regarding Guatemala, there, we keep improving our presence in the market. As you know, our market position there is different than the other markets. We are fourth in the market. So we are pursuing a strategy to gain additional volumes. The market -- the consumer loan book is growing fast at around 30%, 3-0, which is very good and shows that what we are doing there, it's showing positive results. We need to keep working on modernizing the bank in structure and also with some investments in technology. Guatemala is facing an election process in the next year. That could have some effects on the performance of the economy and of the bank, but overall, I see that the Central American operations are on a good way, developing well and are adding positive results to Bancolombia.

Our next question on the line comes from Carlos Gomez from HSBC New York.

I have 2 brief questions. First one is, can you give us an update on the implementation of Basel III and if you have an estimate about the impact that it will have on your capital ratios, positive or negative? And the second one is, if you can give us some guidance for your expected tax rate for the coming 2 years, now that you have a bit more clarity about the tax policies of the incoming administration?

Thank you, Carlos. Yes, regarding Basel III, remember, the Basel III's focus on 2 factors, changing the risk-weighted assets and then, put in place some buffers. The first one, the density of the bank, assuming Basel III as of June, the density will come down from 76% to 65% of density. That will -- obviously helps. And the implementing of buffers, at the end of the day, the Tier 1 capital will come from 10% on -- it is currently 10.2%, to almost 11.8%. So the key message here is Basel III will help to the bank in terms of the capital structure and will improve at least around 150 to 180 basis points. Regarding your second question, the tax guidance. For this year, we are expecting a tax at around 31% at the end of this year. And next year, because of the statutory tax in Colombia will drop from 37% to 33%, the tax for next year would be between 29% to 30%. Remember that our operations, the breakdown of tax, the statutory tax in Colombia, 37%, next year 33%. In El Salvador, Guatemala and Panama for local operations it is 25% and our offshore operation is 0%, and the offshore operation accounts at around 7% of the total book of the group.

Our next question on the line comes from Sebastián Gallego from CrediCorp Capital.

I have 2 follow-up questions. The first one, on the cases, I know you mentioned the coverage that you have conducted in the 3 cases, but can you give us a guidance what to expect for 2019 in terms of the additional coverage you expect in these 3 cases? And the second question is regarding OpEx once again, and particularly branches. You reached almost 1,000 branches at the end of third quarter. And I just want to know if you have a particular target for branches going forward, particularly in Guatemala, where you had a plan or you commented the previous call that you had a plan to reduce branches.

Regarding your first question about how we feel -- the coverage that we reached on these cases that we mentioned, we feel comfortable that at this level of coverage, we are not expecting surprises. So we could need additional coverage, but that coverage would be marginal and will not have material effect on provisions. So with that level of coverage, again, we feel comfortable. Regarding branches, we have been optimizing our branch network, particularly in Colombia and, as we mentioned, in Guatemala. In Colombia, I think we reach a level at this point, we feel comfortable, and any changes in number of branches in Colombia will be marginal. In the case of BAM in Guatemala, we will keep reducing the number of branches and we are expecting to close around 27 branches this year. That will help a lot on the efficiency ratio of BAM going forward.

And our last question comes from Yuri Fernandes from JP Morgan.

I have just a question on funding. You have been dynamic shift towards checking and savings account lately. This quarter was slightly lower on savings but it's still -- this has been the trend in the previous quarters. My question is going on -- like, you are talking about growing loan book back to double digits. And when you look to loan-to-deposit ratio, it is running high to historical levels at 126%. So how do you see funding on that? Like do you plan to continue growing on savings, checking or time deposits accelerating next year to help on your loan growth?

So regarding your question, funding, if you break down the operation, the loan-to-deposit ratio in Colombia is below 100%. Our strong customer base, as we mentioned, our way to touch the clients with different channels, has shown us that we would maintain the same loan-to-deposit ratio. I mean, that we would align the loan growth with the deposit customer base growth as well in Colombia. What happened in the other geographies is, we -- at the beginning of the process, we used the capital markets to support the funding in those operations. You know that we have loans in the 3 geographies in Guatemala, El Salvador and Panama, as a first stage. Today, because we have replicated the same experience in Colombia with the deposit base, with the technology, with the channels, we are expecting to, again, align the loan growth in those geographies with the liability side as well. So we don't foresee any specific concern about loan-to-deposit ratio, and the way we are funding is basically with a strong customer base.

And thank you, ladies and gentlemen. I will now turn the call over to Mr. Mora, Chief Executive Officer of Bancolombia, for final remarks.

Thank you, everybody, for your interest in Bancolombia and for attending this conference call. We remain positive for the next year. The signs that we are seeing for this last quarter are positive from the front of loan growth, and we expect that 2019 will consolidate a good year on the economic side that would allow us to take opportunity of all the strategies that we are pursuing. Again, thank you so much for your interest and see you in the next conference call, in which we will present the results for 2018. Have a good day.

This concludes today's conference. Thank you for participating. You may now disconnect.