Bancolombia SA (CIB) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Bancolombia's First Quarter 2021 Earnings Conference Call.

My name is Claudia, and I will be your operator for today's call.

(Operator Instructions) Please note that this conference is being recorded.

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 risk and uncertainty.

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 describe in our reports filed with the SEC.

With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Mauricio Rosillo, Chief Corporate Officer; Mr. Jose Humberto Acosta, Chief Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mr. Carlos Raad, Investor Relations Director; and Mr. Juan Pablo Espinosa, Chief Economist.

I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer.

Mr. Juan Carlos, you may begin.

Good morning, and welcome to our conference call for the first quarter 2021.

I hope all of you and your families are safe and healthy.

After a slow start of the year due to the second wave of the pandemic in Colombia, economic activity rebound in February and March.

Data shows that economic activity is almost reaching pre-pandemic levels.

Unfortunately, we continue on the high levels of uncertainty.

Currently, Colombia is going through a fair wave of the pandemic, so the major cities in the country are dealing with a new round of restrictions.

The pace of the economic recovery depends on the COVID-19 infection rate, the speed of the vaccination plan and the discussion of the fiscal reform.

Before getting to the details of the results, I want to highlight some key topics.

The loan book grew 3% compared with the previous quarter.

Deposits grew 2% during the quarter, and we continue lowering the funding cost.

Core equity Tier 1 under full Basel III was 11.2% and the net income was COP 543 billion.

Provision charges for the quarter were COP 1.3 trillion, mainly driven by COVID-19 impact in our clients.

This provisioning level takes the bank to a coverage ratio of 222%, and allowances for loan losses represents 8.1% of total loans.

Our business areas, supported by more than 20 million clients, continue to evolve.

The marketplaces of our ecosystem strategy, with only a few months in the market have become relevant for our customers.

The mobility marketplace has had 1.5 million online visits and the housing marketplace 1.7 million.

These interactions led us to preapprove and disburse credits for COP 20 billion.

At this point, I want to turn the presentation to Juan Pablo Espinosa, who will further elaborate on the performance of the Colombian economy.

Juan Pablo?

During the first quarter of 2021, the Colombian economy displayed 2 contrasting trends.

In January, the adoption of sanitary restrictions due to the second wave of the pandemic led to a downturn in economic activity and employment.

Nevertheless, once these measures were lifted in early February, the economy recovered fast, thus erasing most of the initial negative response.

As a result, we estimate that GDP in terms of year-on-year variation in the first quarter was around minus 0.4%, which is higher than our initial forecast of minus 3%.

This revision as well as the base effect on the expansionary stance of both monetary and fiscal policies will translate into a full year 2021 growth expectation of 5.5%.

It is worth mentioning that this forecast incorporates the recent acceleration of COVID-19 cases and fatalities and a low probability of reaching herd immunity this year.

In terms of prices, the last 12-month inflation print was 1.5%, almost half of the central bank's target.

However, there is evidence of some upward pressures emerging from CPI components, such as food, housing costs and regulated items.

This confirms our perspective that inflation will accelerate in the next months as we close 2021 around 2.5%.

Against this backdrop, we predict that the central bank will start a hiking cycle in the second half of the year, although at a more moderate pace than the current market's expectation.

We anticipate that reference rate will be at 2% at the end of this year and 3.25% by December 2022.

At the same time, the sovereign yield curve has steepened due to movements in U.S. treasury market as well as idiosyncratic factors.

We expect this pressure as well as peso weakness to continue in the short term given the discussion about the reform to public finances.

Finally, as we mentioned in our previous conference call, the approval of the fiscal reform will be key to rating agency decisions about Colombia this year.

Recently, the government submitted to Congress a proposal, which intended not only to talk about some of the fiscal challenges that arose from the pandemic, but also to strengthen the subsidies that the most vulnerable households receive.

Although this first draft was just withdrawn by the government, it is reasonable to expect that a watered down version of the reform will be ultimately approved, which would, in turn, reduce the odds of a sovereign downgrade.

Now I want to turn the presentation back to Juan Carlos.

Juan?

Thank you, Juan Pablo.

Moving to Slide 4. I want to continue this presentation by explaining our business evolution.

The bank keeps moving forward.

As an example of this is the change we recently launched of our corporate image.

The evolution of our image is a symbol of the commitment to deliver our best efforts to more than 20 million clients.

This evolution is a declaration of principles to reflect the purpose of Bancolombia in each action.

It was not a simple change of image.

This change implies new ways of working, new ways of relating to our customers and new way of doing business.

In this slide, you can observe how our main segments continue growing despite the situation.

Based in new risk criteria, picking the best credit profiles, we have preapproved COP 57 trillion for almost 2 million retail clients.

During this quarter, we were the bank with the highest amount disbursed in loans for low-income housing with government subsidies, and we were the first bank with 100% housing transfer deed.

One out of every 2 SMEs in the country is our client.

We want to provide financial and nonfinancial services that ensure that the economic reactivation occurs in all sectors in an accelerated and sustainable way.

We have preapproved COP 13.5 trillion for 400,000 SMEs to accompany their recovery.

In the corporate business, we are structuring credit lines tied to sustainable performance.

Recently, we announced the first loan granted to Grupo Argos for COP 392 billion, which may obtain a reduction in rate by reporting its annual progress based on a fulfillment of previously defined goals in terms of gender equality and climate change.

Moving to Slide 5. I'm going to elaborate in our digital platforms evolution.

During the quarter, Nequi and Bancolombia a la Mano continued to grow and maintained the positive trend experienced during the last year.

Between both, they reached 11 million clients, almost 3x the amount reported at the beginning of 2020.

But in addition to the number of clients, we want to highlight the high level of activity and the increase in transactions and deposits.

The activity indicator for Nequi is 59% and 40% for Bancolombia a la Mano.

With Bancolombia's QR code, more than COP 1 trillion have already been digitalized in more than 700,000 merchants, and deposits between the 2 platforms reached almost COP 1 trillion.

We are adding clients at a fast pace.

They are using our platforms and not only for transactional purposes, but also for savings.

All these elements are giving us accurate information that will permit us to know them better and introduce them to the credit business.

Moving to Slide 6. You can see some relevant figures of Nequi and Bancolombia a la Mano.

These 2 platforms complement each other by targeting diverse niche markets.

Nequi target young; and Bancolombia a la Mano, the base of the population.

While Nequi is stronger in payments and recharges, Bancolombia a la Mano is stronger in payrolls and subsidies.

Both are showing a positive trend in their fee income and in the number of processed transactions.

Nequi cards are growing fast.

We have tripled the number reported 12 months ago.

For Bancolombia a la Mano, we estimate that for every peso we invest in a platform would have a social impact of COP 8.

On Slide 7, we present our ESG framework.

For 2021, we plan to allocate COP 30 trillion through financial services to strengthen the country's economy, the construction of sustainable cities and financial inclusion.

And for 2030, we have the goal to increase this amount to COP 500 trillion.

We also plan to avoid 9.3 million tons of carbon dioxide and run our direct operations with 100% renewable energy.

Finally, I want to highlight that this year, we have disbursed COP 2.2 trillion in special credit lines for women and COP 1.9 trillion in special lines for the agriculture sector.

Now I want to turn the presentation to Jose Humberto Acosta.

Jose?

Thank you, Juan Carlos.

Now turning to Slide 7. I want to walk you through the evolution of the relief program.

Credit reliefs continued to decrease during the first quarter of this year, reaching 10% of the consolidated loan book.

It is important to highlight that this 10% includes structural solutions that we are giving to our clients in Colombia, Panama and El Salvador.

In Colombia, 5.6% of total loans are still under relief, almost all of these reliefs are under past program.

Considering the geographies where the bank operates, our focus is Panama.

The relief program will apply at least until June.

In Banistmo, we kept 35% of the total loan book under relief.

You can notice a better trend when compared with the last year figures.

Because despite the reliefs were extended, these are nonmandatory as they were last year.

Besides that, clients need to prove that they were affected by the pandemic in order to apply for relief.

In Slide 8, we present the breakdown of provisions during the quarter.

Provision charges for the first quarter were COP 1.3 trillion.

As we did in previous quarters, I will explain the breakdown.

Provisions associated to the update of macro scenarios and COVID-19 account for 66% of the quarter charges.

We want to highlight that in this quarter, there is an important difference with the previous ones.

As the expectations for macro variables are better for this year, the main drivers of these provisions are the structural solutions in Colombia and El Salvador, reliefs in Panama and the deterioration of the loan book quality related to the impact of COVID-19.

Recently, better risk-rated clients have started to request more reliefs, which implies higher provision expenses.

Moving to Slide 9, we give you a snapshot of the composition by stages and the coverage.

During the quarter, there was an important increase in Stage 2, while Stage 3 remain relatively stable.

The increase in Stage 2 was explained by a change in the profile of clients applying to relief some structural solutions.

As the pandemic has continued, better-rated clients have asked for support and were moved to Stage 2.

At the right side of the slide, you can observe the total balance in Stage 2 and 3 and the percentage covered by the allowances.

This shows that depending on how the pandemic and the economic recovery evolves, there is still space for provision charges in upcoming quarters.

In Slide 10, we present provision charges and allowances.

Cost of risk for the quarter was 2.6% and for the last 12 months was 3.7%.

Cost of risk without COVID-19 effect was 0.9% for the quarter and 1.7% for the last 12 months.

As a result of our provisioning models, the level of allowances have remained high as the proportion of total loan portfolio.

This is a sign of the strength of our balance sheet, protecting it in an environment that is still uncertain.

For the first quarter of 2021, allowances for loan losses represented 8.1% of total loans coming from 5.7% 1 year ago.

Although the performance of provision charges for the quarter showed the lowest level since the pandemic began, it is still too early to confirm that, that will -- the trend continue throughout the year.

The areas of uncertainty are still high.

The recovery will depend on the evolution of the COVID-19 and the vaccination plan.

And the real impact in our clients is not visible while they are under reliefs.

We are expecting to continue with the cost of risk within the 3% area.

Slide 11 shows the past due loan formation coverage.

New past due loans during the quarter decreased because of higher charge-offs.

The increase in charge-offs is explained by the retail clients that became 90 days past due in the second half of last year and during this quarter were written off and also were impacted by a corporate client.

This increase in charge-offs impacted nonperforming loans describing the reduction when compared with the previous quarter.

Nonperforming loans will continue rising in line with the end of the credit reliefs.

We expect these metrics to reach the highest during the second half of 2021.

The consumer segment represents the highest deterioration.

Remember that when a client request a relief, an increase in the provision takes place but the client is still performing.

That's why we expect nonperforming loans to increase as reliefs end, but not necessarily the same effect for provision charges as we have already improved in the expenses.

The coverage ratio increased to 222% but should start decreasing as credit reliefs end.

Moving to Slide 12.

We want to present you the assets and loans breakdown.

The year started with a slow dynamics in the loan book.

It grew 3% when compared with the fourth quarter of 2020, mainly explained by the depreciation of Colombian pesos versus U.S. dollars.

We are expecting the loan book to grow faster in the second half of the year.

You can see in the bottom left of the slide that the main driver of the loan book behavior over the last year is the FX volatility.

I want to highlight that the loans represent 77% of total assets.

And that is, in this quarter, the duration of the loan portfolio has increased.

This is a good sign that reflects that despite the slow pace of growth, our clients are starting to have a better perspective of the near future.

On Slide 13, we present the consolidated and stand-alone capital adequacy.

Consolidated total solvency ratio stands at 14.8% while CET1 at 11.2% level under full Basel III for the first quarter, well above the minimum regulatory requirements.

These levels place the bank in the high range of our solvency target.

As you can observe, the stand-alone operation also present levels above the minimum requirements of each geography.

On Slide 14, we present the liquidity position of the bank.

In a consolidated basis, we are expecting liquidity levels to maintain at least for the first half of this year and a stable interest rate at least until the third quarter of this year.

We continue reducing the funding cost, basically because clients have shifted their balance in time deposits to savings accounts due to the lower rates.

On Slide 15, we present a snapshot of our stand-alone operations.

In general terms, the trend throughout the different geographies operated by Bancolombia was similar, margins under pressure, fees recovering as economies started to reactivate, slight growth of the loan book, positive evolution of efficiency and a solid position in terms of capital and liquidity.

I want to give you a quick overview of each of the Central American countries which we operate.

Let's start with BAM in Guatemala.

This quarter, the pace of the disbursement in corporate segment was positive.

The forecast of macro variables has improved.

And this, combined with the fact that Guatemala was of the least impacted countries in the region during the pandemic, has a positive impact in the provision charges for this year.

Banco Agricola in El Salvador, it's one of our most profitable operations.

It had a good performance over the first quarter with positive operational metrics.

We are expecting a better performance of margins as we continue reducing the funding cost and control levels of cost of risk due to a better performance of our clients.

Finally, Banistmo.

Panama is one of the most impacted countries in the region by the pandemic, although we still have 35% of the loan under relief, the recovery is material when compared with the fourth quarter of 2020.

Since February, the business performance has been showing a better trend.

It is important to highlight the Banistmo deposits and loan book are growing more than the system, gaining market share.

On Slide 16, we see the evolution of margins and net interest income.

After closing 2020 under pressure, net interest margin returned to the 5% area that we are -- where we are expecting.

As we mentioned, margins will continue under pressure this year because of the low interest rates, the impacts of the relief programs and increase of buckets with clients with the end of credit reliefs.

Net interest income shows a better performance as we continue reducing funding costs and increasing the deviation of the loan portfolio.

Slide 17 shows the evolution of expenses and efficiency.

We continue with our focus in cost control.

During the first quarter of the year, the bank showed a contraction in operating expenses of 8% when compared with the first quarter of 2020.

Personnel expenses were down 11% and administrative expenses down 5% when compared with the same quarter of last year.

Even though these are positive results, we expect a real growth of expense for this year.

The 2 main drivers of this growth will be investments in digital transformation to keep the bank competitive and to support our 20 million clients.

And also in 2021, we are expecting to have better results, which will mean the return of our employees' compensation plan.

Slide 17 shows the evolution of fees.

Net fees continued to be one of the most resilient lines of the P&L.

In the first half of the quarter, fees were impacted by the lockdown measures but quickly recovered once the restriction is finished.

The high correlation between the fee income and the transaction levels continues, which is reflecting the volume of fees from debit and credit transactions.

We expect fees to grow at around 5% for this year.

Finally, Slide #18 shows the profitability metrics.

Net income for the quarter was COP 543 billion, up 60% when compared with the first quarter of 2020.

This is mainly explained by lower provision charges and lower operational expenses.

As we have mentioned over the conference, uncertainty is still high.

And it is too early to affirm that this trend is going to be maintained in the upcoming quarters.

Now I want to turn the presentation to Juan Carlos for closing remarks.

Juan?

Thank you, Jose Humberto.

As we mentioned last quarter, for us, 2021 is a year of transition in which we are not going to return to pre-pandemic levels in our main indicators.

But despite the big challenges we are facing, results are going to be better than last year.

Bancolombia is moving forward.

We have a stronger balance sheet, a better cost structure, a more diversified portfolio of products and services, leveraged by our robust digital strategy with a positive evolution of digital platforms.

These, combined with more than 20 million clients and new business strategies, will help us to recover from the impacts of the pandemic.

Before ending this call, I want to give a quick update of what we are expecting for year-end figures.

We are expecting the loan book to grow between 6% to 8%, net interest margin should close in the year in the 5% area, fees growing 5% and cost of risk in the 3% area.

After elaborating on these key topics, I want to open the line for questions.

(Operator Instructions) Our first question is from Brian Flores with Citibank.

Two quick questions.

The first one is we're accompanying the deficiency of the fiscal consolidation in the country amidst this third wave of COVID in Colombia.

In this sense, how comfortable are you with regard to the regulatory income taxes for the banking system?

Are there any talks at the moment to extend the surcharge of income taxes for longer?

And my second question is, you delivered high ROE of 8% in this quarter.

This also came with a cost of risk of 2.6% compared to what you just recently noted for the year of about 3%, where we have costs which declined 8% year-on-year versus your guidance of growing a bit higher than inflation for the year.

So would it be reasonable in this context to say that most of likely upcoming quarters of '21 will bring ROE lower when compared to the first quarter?

Thank you, Brian, for your questions.

Regarding your first point, there have been some conversations around regulations, additional regulation for the banking system.

The Congress is looking at some measures or discussing some additional measures.

I asked -- it's happening I think in almost everywhere.

We are confident that the regulation in Colombia is strong, that we have a very good supervisory body and that the performance of the banking system is key for the economic recovery of the country.

So we are positive that the discussions are going to led to half -- even better financial system.

Regarding taxes, there are some conversations around a surcharge for banks.

Let me remind you that we already have a surcharge of 3% on our income tax rate.

It's already in place.

So we will need to know how it's going to evolve the discussions around the fiscal reform that is going to be presented to the Congress after the withdrawal of the original proposal presented for the government -- or by the government, sorry.

Regarding your second question, we had a good quarter.

ROE was, as you mentioned, close to 8% or 8%.

We want to be cautious around how the next of -- the year is going to develop.

So we need to wait.

We had a good cost of credit during the quarter, as you mentioned, 2.6%.

We are expecting between 2.8% and 3% for the whole year.

As we expect that some clients evolve, they will have -- we don't know how the performance is going to be, so we prefer to be cautious.

So the year, as I mentioned, is going to be a better year than 2020.

But first quarter was a good quarter.

We will wait and see how things evolve, and we will continue evaluating the situation.

But I think the whole year is not going to perform as well as the first quarter.

Our next question is from Ernesto Gabilondo with Bank of America.

My first question is on net interest income.

We noticed this quarter was favored because of lower funding costs, but also by the interest on investment securities due to the performance of the derivatives loan book.

So how recurring could be this performance of the derivatives portfolio?

And how should we think about NII growth this year when compared to loan growth?

Thank you, Ernesto.

Let me give you some comments, and I'll pass the question to Jose Humberto to elaborate.

As we mentioned, the NIM was around 5%.

As you mentioned, also was the performance of the securities income was good.

We still think that the NIM will be around -- or between 4.8% and 5% during the year -- or at the end of the year.

So we have been working on the funding costs, and that allow us to manage margin.

So we still think that the NIM is going to be around 5%.

But let me pass your question to Jose Humberto to elaborate on it.

Thank you, Juan Carlos.

Thank you, Ernesto, yes.

Regarding NII, as Juan mentioned, the loan book will grow 6% to 8%.

We are expecting that the NII will grow around 4% to 5% for the whole year.

And there is a specific reason why.

It is because we are going to see an increase in the loan book maybe in the second half of this year, and that's the reason why the NII growth is slower than the loan book growth.

Regarding your question with investment securities derivatives, yes, the first quarter, it is a remarkable performance.

And this is basically because of the volatility, the derivative book performance is quite well.

But we don't think that, that will be sustainable.

We are -- as Juan mentioned at the beginning, we are cautious about the forecasting of this performance of the securities portfolio.

In our forecast, we always try to identify a structural NIM for the securities portfolio at around 1%.

This first quarter was 1.7%, again because of the volatility.

So we don't expect much more for the next coming quarters.

And also remember that our loan book accounts almost 80% of our total assets, meanwhile the securities portfolio accounts only 10%.

Perfect.

Very helpful.

Just allow me to make another couple of questions.

The second one is a follow-up on cost of risk.

As you mentioned, first quarter came below your guidance, but you're reiterating your cost of risk of 3% for the year.

So can you elaborate if this is explained also by the potential tax reform that could tackle high-income individuals and corporates?

And as you mentioned, this will be also explained by some of the relief programs that will show higher NPLs in the next quarters?

And then my last question is on Nequi.

We have seen in your presentation that Nequi has reached close to 6 million users, from which 59% are active users.

So this has been a very positive evolution.

So when do you think we can start to see financial statements related to Nequi in your press release?

And when do you expect to do a spinoff of Nequi?

Thank you, Jason.

Let me elaborate on your 2 points.

As regards to tax reform, I think we need to wait and see.

As I mentioned, the government went through their proposal of fiscal reform that they presented to the Congress.

So at this moment, there are conversations around a new tax reform.

And my view is this tax reform is going to be a transition reform.

It's going to be probably a bridge to help support the fiscal situation of the country during these next 2 years.

And then we will start talking about a more structural reform.

Due to the current situation, I think it's -- what should happen and I see the government going on that direction, as you probably know, there is a new Minister of Finance.

And he's talking about that, and he's talking with the political forces with the different parties to have the consensus moving forward on that direction.

So I am optimistic that this consensus will allow to have fiscal position for the country that will help to maintain the social programs that the government has in place and also will help to bridge this situation until I think a couple of years ahead.

Regarding Nequi, we are very happy with the performance of Nequi.

As you mentioned, we are close to having 6 million clients.

They are active.

They are using the platform.

We are introducing loans.

We now have close to 600,000 cards -- VISA cards.

Activity is very well -- very good.

So we will start giving more information about the performance of Nequi.

During -- or in the following -- in our following reports to tell you how are we evolving.

Regarding a spinoff, Nequi was set as a separate unit in Bancolombia.

It's part of Bancolombia, was set originally as a separate unit.

It has separate technology.

It's operating on cloud or on a different platform from Bancolombia.

So that possibility is there, and we will go in that direction when it's the right time to do it.

Our next question is from Jason Mollin with Scotiabank.

I have 2 questions.

My first is on the evolution of loan loss provisions.

We saw the material declines boost the bottom line.

Can you help us understand, and looking at the income statement and the balance sheet, if we saw a reversal of some provisions in the quarter or consuming some provisions?

And what could drive that, that helped create the lower level of provisioning and cost of risk in the quarter?

And my second question is on the movements in shareholders' equity.

We're faced with this whenever we have the volatility in the FX.

And in the first 3 months of 2021, we saw a depreciation of the currency of 7%.

And you have your investments in Central America in dollars.

So if you can help us quantify the impact on the consolidated level of the movement in FX on shareholders' equity, that would be helpful.

Thank you, Jason, for your questions.

Let me pass them to Jose Humberto.

Jose?

Thank you, Juan Carlos.

Yes.

Jason, just to characterize the provisions, the drivers from the provisions are basically 3 main drivers: the macroeconomic numbers, the COVID-19 and the deterioration of the loan portfolio.

As you probably saw in the first quarter, the main driver why the provisions in the Central America operation came down was basically because of the macro environment.

That's the main force why we suggest that the provision is coming down.

But the other 2 drivers, which means the COVID-19, that still we are having loans under relief; and the second one, the deterioration of the loan portfolio, these 2 drivers will push maybe the provisions again to maintain a certain level.

That's the reason why we believe that for the next coming 3 quarters, you are going to see an increase in the level of provisioning because of COVID that we are still having 15% of our loan portfolio under relief and because the deterioration of the loan portfolio.

You are seeing a deterioration rolling in 30 days, also in 90 days.

So what's going to happen in the next coming 3 quarters is not only in Colombia.

Also in our operation in Panama, you are going to see a deterioration in this line.

Regarding your second question, I have to highlight the fact that the structure of the asset side of the bank is 35% in U.S. dollar.

And the structure that we have on the equity side, we have around 35% of our equity is in U.S. dollar.

This 35% of equity, it is allocated in the 3 operations that we have in Guatemala, Panama.

And it's about -- plus the operation that we have offshore in Panama.

So once there is an FX volatility, even devaluation or appreciation, you -- both sides of the equation moves at the same time, the asset side and the equity side.

So we are able to maintain the same level of solvency ratio and the same level of Tier 1 ratio because of that.

This is a natural protection that we are having on the equity side.

Let me ask a follow-up on that.

But you have your assets in Central America in dollars and then you have your liabilities in dollars.

And then the net of your assets and liabilities is your equity.

So isn't the -- unless you're hedging, the equity investment in dollars in Central America, isn't that exposed to movements in the currency?

And then as a follow -- the provisions in Central America moving on the, I guess, on the macro outlook, did that -- I mean and I guess they're better than they were, the expectations?

Is that what you're suggesting?

And were you able to actually -- would you characterize it as reversing provisions in Central America that you had already made based on tougher expectations for the outlook?

Jason, regarding your second question, that was because what happened in the first quarter.

But again, not only in Colombia, also in the international operation, you are going to see a deterioration of the loan portfolio.

So we are going to see an increase in the level of provisioning in the international operation.

The only one factor that affects was in the first quarter, and that was because of the macro.

Right now, we are not going to be affected anymore because of the macro, but we are going to be affected because of COVID-19 that generate provisions and because also the deterioration of the loan portfolio in all of our 4 geographies.

And regarding your first question, yes, we increased our level of equity because of FX.

If there is a devaluation, our equity increase and at the same level of the asset increase.

Maybe the thing that I suggest maybe we have to call with you, just to clarify the movements that there is on the equity accounts internally just to make clear how it moves depends on the FX variations, Jason.

Our next question is from Sebastian Gallego with CrediCorp Capital.

I have 2 questions today.

The first one on Panama.

If you could go a little bit deeper on the evolution of the economy, even now during the second quarter.

And how do you expect the customer payment behavior to evolve?

We understand that there is still a moratorium law in place, but how are you perceiving customer payment behavior during the second quarter would be helpful alongside with some comments on the macro side.

And the second question is probably a follow-up on ROE.

You have mentioned some guidance, but you seem to be reluctant to mention ROE guidance.

Last quarter, you mentioned a 4% to 5% ROE expectation for 2021.

Could you provide some range?

And how do you see ROE evolving over the next years given current conditions?

Thank you, Sebastian.

Let me elaborate a little bit on the credit situation in Panama, and then I will ask Juan Pablo Espinosa to give you some color about Panama.

And I will also answer your question about ROE.

In Panama, as you mentioned, still there is a moratorium that goes until June.

So we will need to wait until June.

And after that, we will know how it's going to be the -- how the customers for the clients are going to behave in terms of payments.

What we have seen so far is a better performance of what we were expecting.

The -- many clients are paying.

They are still under the moratorium, but they are paying their obligation.

So we are seeing a better performance of what we were expecting, but we need to be cautious because, still, there are a lot of clients under the moratorium.

So we are cautious, and we will need to wait until the second semester to see how is going to be the performance.

But so far, the behavior is better, as we were expecting.

Also, the demand for loans is behaving better than we were expecting.

So first quarter, even though we are curious about the evolution for the rest of the year, especially the second half of the year, the performance so far is better than expected.

Regarding ROE, before I pass to Juan Pablo, for some comments on the macro aspect of Panama, yes, we still think that our ROE for the whole year is going to be around 5% to 6%.

We had a better performance during the first quarter, but we prefer to be cautious.

As you all know, the cost of risk is going to be key.

The first quarter has a very good behavior, much better than we were expected.

But we need to wait and see how the pandemic is going to evolve and how the economic activity is also evolving.

So we want -- we prefer to be cautious and can maintain our expectations of ROE around 6%.

Juan Pablo, I don't know if you have any additional comments on the macro situation of Panama.

Yes.

Juan, Carlos, I would say that, in general, activity indicators this year point to a better performance after the sharp contraction that we saw last year.

And actually, that has translated into an expectation of a recovery of GDP this year, almost in the 2-digit area.

For example, our latest forecast by the IMF is 12% for the year; from the World Bank, 9.9%.

The latest official estimate is 9%.

So all these figures point to a recovery that will not put the country this year, again, in pre-COVID levels but will surely be a better outcome and the start of a recovery process that we would expect to gain traction as the year passes.

One additional thing I would like to comment is that in Panama as well in Colombia, both the evolution of the pandemic and vaccination plans is going to be key for the outlook this year.

And what I would like to highlight is that Panama is doing better than Colombia in terms of vaccination at this moment.

Around almost 12% of total population in Panama has got at least 1 dose of COVID-19 vaccines, which is double of Colombia's figure.

So with the vaccination plans both well, we would be optimistic, especially for the second half of the year in terms of Panama's activity gaining more traction.

Our next question is from Alonso Garcia with Credit Suisse.

My question is actually a follow-up on Nequi and Bancolombia a la Mano.

I don't know if you could please comment on how you see the competitive landscape in terms of fintechs and the banking in Colombia, who are you competing mainly with.

How is the market behaving in terms of competition in that segment?

That was my question.

Thank you, Alonso.

Different from other markets in Colombia, the banks, we started to develop a platform for financial inclusion years ago.

In our case, we started in 2015 as well as other banks.

So we started to develop these platforms, and now I think those platforms are the leaders of the market.

Fintechs are coming, of course, as in other markets, but the leading platforms are run by banks -- we and other banks, which is very peculiar of the Colombian market.

And on the shoulders of these platforms, bancarization is improving very well.

People now is having access to financial services on a very convenient way with possibilities of doing digital banking everywhere in the country.

So I think competition is going to increase.

The Colombian market has, as you know, a cap on interest rates, which is a different landscape than other markets in Latin America, like Brazil or Mexico, in which new commerce could charge very, very high interest rates.

In our case, we are operating in this market for a long time.

We know how to operate with cap rates.

Also, we are allowing our new clients to access not just digital platform, but the network of the traditional channels of the bank, just to mention ATM.

So that leverage our ability to compete.

Of course, as I mentioned, competition is going to increase, but I think we are very well positioned to continue increasing our presence in the market.

Our clients are using our services, and we are adding new features to the platforms.

Payments are going very well.

People are using the platform to pay and to transfer money.

They are using the cards.

So we are very positive that the trend that we are seeing will continue, Alonso.

Our next question is from Carlos Gomez with HSBC.

I wanted to ask you specifically about Guatemala.

Maybe you commented on this earlier in the call, there was almost no provisions there.

So I wanted to know exactly why that was the case?

Second, in general, about Central America.

I mean with the changes that we see from the pandemic and your experience over the years, I mean you operate in 3 different markets.

Do you feel the need to expand or contract in any of these markets?

Do you see opportunities with the pandemic for you perhaps to take over weaker institutions?

Is that something that we could expect?

And finally, have you considered the issuance of AT1 paper like (inaudible) suggested?

Thank you, Carlos.

Let me take your second question about Central America, and I will pass the others to Jose Humberto.

We see opportunities in Central America.

We see markets that are developing, and we see an opportunity to develop some of the tools and platforms that we are implementing in Colombia in those markets.

As it was mentioned, Guatemala was -- or has been one of the countries that's less impacted by the pandemic.

Economic activity is recovering fast.

And we are introducing new ways of serving our clients in that market that we are optimistic that will allow us to gain market share.

In El Salvador, we have a very good performance there.

The bank is performing well.

It's strong.

The behavior of the economic -- the economy, I'm sorry, is in reasonable conditions.

So we see opportunities there, but more on bringing to those markets the new platforms, the digital channels, digital sales to reach much more customers.

There is a big, big room for bancarization in Guatemala and El Salvador, and we see an opportunity there, and we will take that opportunity.

On Panama, it's a different situation.

We will see more opportunities in Panama once the economic -- the economy of the world recovers and international trade improves, so Panama will play a key role there.

And Jose, could you take the other 2 questions, please?

Yes, Juan.

And thank you, Carlos.

Regarding your first question, Guatemala, the Guatemala operation is a combination of positive factors.

First, we are seeing a positive loan growth, both in corporate and retail.

We are seeing also a very good performance in terms of efficiency in terms of expenses.

And we are seeing a very good outlook of the country.

And that is the main reason why the provisioning level came down because of the updating of the macroeconomic outlook.

Of course, for the next coming quarters, we are going to see how the performance of the loan book behave.

Today, we don't have any particular -- we have 0% under release in Guatemala.

So we are going to see maybe an increase in provisioning, but basically because of the deterioration of the loan portfolio.

And regarding your last question, the AT1.

AT1 is possibility for banks to increase the Tier 1 ratio, and that was a very opportunistic transaction.

And I would say that this is a -- that was a very good opportunity to take advantage of the market.

So should I understand that, that is something that you might consider?

Excuse me, Carlos?

Yes.

Should I understand that AT1 is the type of instrument that could be interesting for you?

You know what, what happen right now with the equity that we are having at the solvency ratio, you see the BIS, we are above the 14% and Tier 1 ratio above 11%.

The main driver would be -- of the treated event would be the loan growth.

We are expecting the loan growth, again, 6 to 8, and a possibility to AT1.

But again, there will be a possibility for all banking industry to go to the market.

In our case, the level of capital that we are having today, we are -- we feel comfortable with that.

But here would be a little bit more color on the bonus program, right?

Because in previous years, sometimes this line can be pretty volatile.

So like first, what is the expectations for G&A?

And second, how do you see the bonus line behaving the year?

Thank you, [Judy].

Let me pass first to Juan Pablo Espinosa to give us some of his views on the FX rate.

And then José Humberto right on the effect of the bank, but he already mentioned that, and your question regarding bonds.

So Juan Pablo?

Yes.

Juan Carlos, what I would say regarding the FX rate is that, on the past few weeks, we have the same pressure coming from on the discussions surrounding the fiscal reform in Colombia in recent practice but also because there was -- there has been change in global financial conditions for emerging markets.

So in that sense, the movement of the Colombian peso is consistent in terms of trend with what we've seen in other currencies and regions.

We expect that there will be some correction for the remainder of the year because, in our opinion, current levels are contained and an overreaction to recent events.

We would expect that the reform goes through the Congress and is at the end approved.

There will be some relief in the next few months.

So we expect that our expectation for the year of being around in the 3,600 to 3,700 area is feasible for Colombia.

And of course, if conditions worsened in the country, maybe we could go to another type of scenario.

But our baseline is that that's going to be the case.

Thank you, Juan Pablo.

Just to give you a general view on expenses that you mentioned.

The first quarter -- that the behavior of expenses was very good.

I would want you to take into account that the first quarter of 2020 was a normal quarter.

So the performance of the expenses, the base that we are using to compare, it's normal.

So we could expect that during the next of the year, expenses will grow since the base that we are going to use is going to be lower since we didn't have variable conversations during the 3 quarters that follow the first 1 of 2020.

So our expectations around expenses are that they are going to grow because of that comparison base, but also because we will continue on our transformation program, evolving our platforms.

So we are expecting that expenses will grow in the next quarters.

Jose Humberto, do you want to elaborate a little bit on that and also on the bond question that [Judy] asked?

Thank you, Juan Carlos.

No, the question, I think it's very clear the explanation about the forecasting and the outlook for the expenses for the whole year.

Regarding your question, [Judy], the bonus program, what happened is last year, in the first quarter, we were considering a bonus plan, assuming that the year will behave very well.

As the pandemic happened in March and April, the rest of the 3 quarters, we're not considering on that time the bonus plan.

Meanwhile, this year, in this first quarter, we are considering a bonus plan but is a different size than we expected a year ago.

That explains why the labor cost drops.

Because the first quarter of last year, the bonus plan were on a normal basis.

And the bonus plan this quarter is an abnormal basis, which means try to recover a certain level of net income.

That explains why.

And our outlook for the next 3 quarters regarding bonus plan is to maintain the same trend that you are seeing in the first quarter.

Obviously, all depends on the results and the net income of the bank.

That is the main explanation why we see a change in the bonus plan comparison 2020 against 2021.

Our next question is from Julian Ausique with Davivienda Corredores.

I would like to ask 2 questions.

The first one is regarding the expectation that you have about -- the loan portfolio.

You said that you expect further in the close of the year growth between 6% and 8%.

But if we saw -- these figures in the first quarter, you saw an increase of 0.3% in developing -- in Colombia and in the foreign operations.

I would like to know how -- what is the base of the expectation of the loans.

Another question is regarding the provision.

You already mentioned that you expected that provision to grow a little bit.

But I would like to know if this growth will be -- you're expected that it will be during the second half of the year or it starts in the next quarter?

Thank you, Julian.

Let me pass your questions to Jose Humberto.

Thank you, Juan Carlos.

Yes, Julian, the loan growth is divided in 3 different buckets.

The first one is commercial.

We expect a loan growth, again aligned with the growth of the economy.

That will be around 5% to 6%.

In consumer, we are expecting at around 6%.

And in mortgage, we are seeing a positive trend during the last 3 quarters, so we are expecting a loan growth of around 8% to 10% in the mortgage business.

But all this growth we are foreseeing that will happen in the second half of the year.

As you probably mentioned, in the first quarter, you are not seeing any particular change.

But in the last weeks, we are seeing a particular change in trend.

So probably that will happen third and fourth quarter, the loan growth.

Regarding your question about provisions, that will be -- I don't know if that will begin next quarter.

And next quarter, why?

Because you are going to see somewhat of your relief program ending.

And what happened when the relief program ends, you are going to see some deterioration.

That explains why our view about provisioning is that in the second and third quarter, you are going to see higher provisions that you saw here in the first quarter.

And the main explanation is deterioration of the loan portfolio because of the reliefs and deterioration of the loan portfolio because of the economic situation that we are having this year.

If I may, I would like to know -- to ask -- to the first question.

You expect like a more devaluation of the Colombian peso because, I don't know, like -- I know that the numbers that you gave are the growth it will depend in the loans portfolio, in general, that you expected something like different between geographies like Colombia and Central America and depends on the cost?

Right.

When we talk about 6% to 8%, it's assuming interest rate at the end of the year at around 3,600.

But obviously, FX variations will change.

And going back to your question, we are seeing, in all the 4 books, Bancolombia in Colombia, Guatemala, El Salvador, Panama, all of the 4 books are growing, and the expectation is that will happen in the second half of the year.

Maybe in Guatemala, we are seeing an economic activity right now and increasing in the loan book.

That will be the only one operation in which we are seeing an important economic activity reflected in the loan book.

There are no further questions registered at this time.

Thank you, everybody, for attending this conference call.

We appreciate very much your time.

We had a very -- a good first quarter.

We have a strong balance sheet.

We are prepared to face what is coming for the next of the year.

We want to be cautious and wait how things are developing, but the bank is well prepared.

We are well prepared for what is coming.

We are optimistic that the situation could improve in the future, but we need to wait the next quarter, the second quarter to see how the pandemic is going to evolve and if the economic recovery is going on -- or is going strong.

So we will see you, I hope, in the presentation of our results for the second quarter of the year.

Thank you.

This concludes today's conference call.

You may disconnect your lines.

Thank you for participating, and have a pleasant day.