Grupo Cibest S.A. Q3 FY2024 Earnings Call

Good morning, ladies and gentlemen, and welcome to Bancolombia's Third Quarter 2024 Earnings Conference Call. My name is Nat, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. Please note that this conference is being recorded. Also, 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 or future filings, in press releases or verbally address matters that involve risks 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 describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Mauricio Botero Wolff, Chief Strategy and Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mrs. Catalina Tobon, Investor Relations and Capital Markets Director; and Mrs. Laura Clavijo, Chief Economist. I would now like to turn the conference over to Mr. Juan Carlos Mora, Chief Executive Officer. Thank you. You may begin.

Good morning, and welcome to Bancolombia's third quarter results conference call. Please turn to Slide 2. As we advanced through the year, we are observing increasingly positive indicators with the economic landscape and credit cycle. Inflation rates have persistently declined, enabling the Colombian Central Bank to reduce interest rates. This environment supports lower credit deterioration and encourages domestic spending. Despite a modest expansion of our credit portfolio and a decline in interest income, the third quarter reported a consecutive improvement marked by a net income of COP1.5 trillion. This represents a 4.3% growth quarter-over-quarter and a 1% increase year-over-year, resulting in a 15% return on equity. This performance is attributed to the good performance of our investment portfolio, reduced provision charges, and operating expenses that have grown well below the inflation rate as we will further elaborate. I would also like to underscore that despite increased competition for deposits in Colombia, Bancolombia has maintained its robust capacity to attract resources from retail, commercial, and institutional clients. During the quarter, total deposits growth surpassed loan growth, ensuring our low funding costs and mitigating the decompression of interest margins. Additionally, on October 30th, we announced our decision to evolve our corporate structure by establishing a new holding company, Grupo Cibest, which will serve as the parent entity for all Bancolombia's lines of business while preserving all assets within the current group perimeter. The primary rationale for this decision is that Bancolombia currently functions as both a bank and a holding company, resulting in financial inefficiencies, regulatory complexities, and operational constraints due to the rigorous regulatory framework governing banking entities. This proposed corporate evolution aims to address these challenges by providing us with greater flexibility for corporate development and enabling more efficient capital allocation. Additionally, it will isolate goodwill from the Colombian regulated entities' capital and reduce its sensitivity to foreign exchange volatility, allowing us to implement share purchase programs as a novel method of distributing value to our shareholders. Subject to obtaining the necessary regulatory and shareholder approvals, we anticipate concluding this transaction by mid-2025. We will provide timely updates as we progress through the key milestones. Furthermore, following the successful issuance of new subordinated notes due 2034, which contributed 115 basis points to our Tier II capital as of the third quarter, on October 24th, we announced our decision to redeem the subordinated notes due 2029, effective on the call date of December 18th. Lastly, we are pleased to announce that Bancolombia has been recognized for the 10th consecutive year by MERCO as the company with the best reputation in the country for its contributions to economic, environmental, ethical, and social matters among other aspects. I will now hand over the presentation to Laura Clavijo, our Chief Economist, who will provide a more in-depth analysis of the macroeconomic environment. Laura?

Thank you, Juan Carlos. If you could please turn to Slide 3. The economic outlook for Colombia remains cautiously optimistic, with improving financial conditions beginning to channel through to some sectors and spurring demand. Consequently, we have revised upward our end-of-year growth forecast to 1.8% from a previous 1.3%, and to 2.6% for 2025. However, economic growth remains uneven across sectors and below the long-run potential of 3% according to our medium-term outlook. Currently, economic growth is being mostly led by exceptional output from the agriculture sector, which is expected to grow 7% this year, and a sustained expansion from public administration expanding at an annual rate of close to 5%. Moving forward, amidst the scenario of mounting fiscal challenges, this public sector growth driver should begin to lose relevance, whereas private sector growth should begin to pick up. Even though we are currently at an early stage in the economic recovery, there are timid signs of an uptick in internal demand as financial strains on households and businesses begin to ease. Many Central Banks in the Latin American region acted early in raising interest rates, successfully controlling inflation, and easing their monetary stance well before many developed economies. Colombia, although somewhat behind on the curve, has also managed to cool inflation from its peak of 13% in March 2023 to 5.8% during September this year, moving closer to our end-of-year forecast of 5.7%. These past few months have been especially consistent for the disinflation process of core inflation metrics. However, the well-known effective indexation on inflation is still tangible and will remain at the center of the minimum wage discussion for 2025 to take place before year-end. As a result, the Central Bank has continued cutting its policy rate at the ongoing pace of 50 basis points, closing the third quarter at a repo rate of 10.25%. Despite receding inflation and a closing output gap, the beginning of the easing cycle by the Federal Reserve might have led to a scenario of accelerated interest rate cuts; nevertheless, fiscal pressures and uncertainty moving forward has motivated a cautious approach from the Central Bank. Lastly, pressures on the fiscal front have escalated recently as tax revenues have consistently underperformed, interest payments have increased, and social expenditure goals are being pursued. The presentation of fiscal measures in Congress, including a failed 2025 budget that will now be passed by decree, a tax reform, and a decentralization bill have put the fiscal discussion at the forefront once again. Now let me turn back to Juan Carlos.

Thank you, Laura. Please proceed to Slide 4. I would now like to provide an overview of Nequi's evolution. I want to start by highlighting that Nequi is more than just a digital wallet. It is our digital neobank and has leveraged technology and data to provide financial and non-financial services through different partnerships, transforming the way Colombians manage and interact with money. With its intuitive and user-friendly value proposition, Nequi facilitates digital payments and transfers, cross-border incoming payments, remittance collections, bill payments, and mobile top-ups in a straightforward and secure manner, resulting in its presence throughout the country, visible in many corner stores and small businesses. Moreover, its digital footprint is complemented by physical access points, including 5,100 Colombia’s ATMs and over 28,000 banking agents, which significantly enhance user engagement and transaction volume. As a result, Nequi has reached more than 20 million clients, out of which 72% are active users measured in a 30-day period, and 68% of them are using products that generate income, accompanied by low levels of churn rates. As of September, Nequi has reached close to 1.3 billion transactions, reflecting 17% quarter-over-quarter and 65% year-over-year growth, with an average of 27 transactions a month per active user. This significant growth in transactions has fueled deposit growth, which ended with a balance of COP3.2 trillion, representing a 45% year-over-year increase. Please proceed to Slide 5. The loan portfolio continues to grow at a solid pace and has more than doubled its balance, reaching COP406 billion, representing a 62% quarter-over-quarter and 187% year-over-year increase. The significant volume of transactional information from customers and their behavior with app usage and activity provides a great opportunity to leverage loan originations and serves as a powerful source towards Nequi's path to profitability. We have also grown our income significantly with a 45% year-over-year growth, driving an increase in ARPAC as a result of portfolio growth and the adoption of valuable services by Nequi users, resulting in fees growing by 76% year-over-year. We firmly believe that Nequi possesses the scalability necessary to continue developing a competitive advantage in low-cost financial services as it continues evolving its digital engagement, consumer retention, and credit offering, thus allowing it to dilute acquisition, funding, and risk costs compared to other competitors. Overall, Nequi plays a vital role in Bancolombia's ecosystem, supporting strategic alliances and interoperability initiatives, positioning itself for continued growth and paving the way to profitability. I'll now hand over the presentation to Mauricio Botero, who will provide further insights into the third quarter 2024 results. Mauricio?

Thank you, Juan Carlos. Please go to Slide 6. Our regional operations in Central America continue to provide diversification in terms of credit risk and currency exposure. It is noteworthy that Banco Agromercantil demonstrated positive loan origination dynamics, achieving a 3.6% expansion in its loan portfolio. Conversely, Banistmo and Banco Agricola experienced a contraction in their credit portfolios, primarily due to decreased demand for commercial loans. Also, Banco Agricola achieved higher net income and return on equity supported by an increase in interest income and a decrease in provisioning charges, whereas BAM and Banistmo reported a reduction in net income over the quarter. Let's now proceed to Slide 7. In this sluggish economic cycle observed during the first three quarters of the year, we have experienced a modest yet consistent increase in our trade portfolio, reversing the declining trend of 2023. Our consolidated loan book expanded by 0.5% during the quarter and 4.6% over the year, when adjusted for foreign exchange growth for the quarter was 0.3%, aligned with nominal growth due to a more stable FX rate during the period, and 3.5% over the year as FX appreciated by nearly 10% over the past 12 months. Commercial loans presented modest growth of 0.5% over the quarter while we continue to offer special trade lines to stimulate demand; the pace of growth remains subdued due to the still weak macro backdrop and expectation of further interest rate cuts. However, on an annual basis, the commercial portfolio recorded a 5.8% growth. Conversely, the consumer segment continues to contract, decreasing by 0.4% during the quarter and 2.3% over the year explained by our tighter origination standards. Breaking down by category, mortgage loans have continued to lead growth with a 2.1% increase during the quarter and a 9.3% rise over the year, primarily driven by operations in Colombia. The rate reduction program we launched in July has resulted in a significant uptick in credit disbursements, which, coupled with social housing subsidies provided by the government, has further stimulated demand. Please go to Slide 8. During the quarter, deposits grew by 0.7% and by 6.4% during the year, outpacing the performance of loan origination and underscoring the bank's robust ability to attract and retain low-cost deposits. Time deposits exhibited mixed performance during the quarter with savings accounts growing by 0.5% while checking accounts decreased by 1.8%, primarily due to lower balances across all Central American operations. Conversely, time deposits increased by 1.6% during the quarter and 6.8% over the year, partially offsetting the reduced net balance inside deposits. This growth is largely attributed to operations in Colombia and relies heavily on retail customers, particularly short-term online time deposits, which have increased their share within the total balance. Our diverse range of funding sources and advanced technological capabilities enable us to offer products specifically tailored to meet the distinct needs of our clients. Overall, savings accounts remain our primary funding source, comprising 38% of our funding mix and largely explaining our stable and low-cost funding structure. From a funding cost perspective, the total cost of deposits fell by 19 basis points during the quarter, led by a 35 basis point reduction in time deposits and a 17 basis point reduction in savings accounts in line with reference rate cuts. Our effective diversification and flexibility in our funding structure allow us to shift between sources based on interest rate cycles and client demand. Please proceed to Slide 9. Total interest income from loans and financial leases decreased by 3.5% during the quarter and 6.9% during the year. This decline is primarily attributed to a relatively stable loan portfolio with lower yields as the loan book was repriced at reduced rates. However, interest expenses continue to decline in line with our strategic initiatives aimed at achieving rapid cost reduction complemented by the prepayment of loans with correspondent banks. These measures effectively offset the increase in interest expenses associated with bonds. It is important to highlight the significant performance of interest and valuation income from financial instruments during the third quarter, which posted an impressive increase of 41% over the quarter and 81% over the year. Additionally, our derivatives portfolio and repurchase agreements contributed positively to these results. Overall, net interest income decreased slightly during the quarter as the contraction in interest expenses didn't fully offset the reduction in loan yields. The net interest margin for the quarter was 6.8%, reflecting a 22 basis point compression driven by a 53 basis point reduction in the lending margin despite improved investment performance. We will continue to manage the sensitivity and maturity profile of our assets and liabilities to mitigate NIM contraction. For example, in insurance, swift repricing of time deposits as 67% of the total balance is set to mature within the next 12 months. Please proceed to Slide 10. Fee income had a mixed performance on the quarterly analysis when looking at each component. Banking services, debit and credit cards, payments, and collections grew during the quarter and sustained an increasing trend over the year. This growth was fueled by increasing transaction volumes, strong client engagement, and expanded utilization of our distribution network. Additionally, asset management contributed to fee income from fiduciary services fueled by an increase in assets under management from individual clients. Conversely, Bancassurance decreased during the quarter due to a one-off income accrual recorded in the previous quarter, which affected total fee income this quarter. Meanwhile, fee expenses decreased by 4.6% during the quarter attributed to an anticipated expense accrual in the previous quarter. However, on a year-over-year basis, fee expenses have increased by 12%, outpacing the growth in fee income. As a result, net fee income decreased slightly during the quarter, leading to a fee income ratio of 19%, as other sources of operating income grew more during the quarter. Please go to Slide 11. For the second consecutive quarter, there was a decline in past due loan formation with a notable decrease in consumer loan deterioration as we have anticipated. Delinquency ratios are beginning to reflect improved asset quality with loans 30 days past due decreasing to 5.1% while maintaining a coverage ratio of 112%. Loans 90 days past due have stabilized at 3.4% quarterly supported by an increased volume of charge-offs to sustain a healthy balance sheet with a robust coverage ratio of 165%. Moreover, net provision expense for the quarter amounted to COP1.6 trillion, marking a 2% decrease quarter-over-quarter and a 1.3% decline year-over-year attributed to improved loan performance. Notably, there was a reduction of COP265 billion in consumer loan provision charges and COP142 billion in SME provisions, which were the primary drivers for a lower cost of risk. Furthermore, there was a provision release of COP218 billion mainly explained by model parameter updates, which reflected better credit behavior from customers. Conversely, commercial loans and some non-sector related large exposure demand higher provisions in the third quarter. Overall, the quarterly analyzed cost of risk improved to 2.4%, reflecting the enhanced performance of new vintages and an improved collection process. From an expected loss perspective, the stage three increased due to the actual deterioration of specific corporate clients as previously mentioned, while stage two experienced an incremental volume in response to a preventive assessment of certain customer segments. We remain confident in the continued positive evolution of asset quality as lower interest rates will contribute to alleviating pressure on our clients' payment capacities. However, we will continue to closely monitor potential loan deterioration among SMEs associated with specific economic sectors. Please proceed to Slide 12. Focusing on our Colombian operations, we have observed a continued downward trend in loan deterioration as measured by the past due loan delta, which has improved from 7.8% to 6.7% during the quarter. This reduction in delinquency formation underscores the effectiveness of our collection strategies and the adjustment of our credit risk appetite for this segment. Progress is evident across all products within the consumer segment. Personal loans, auto loans, and credit cards have demonstrated lower value ratios on a quarterly basis, while further deterioration has been successfully contained in payroll loans. Overall, the consumer segment has seen a reduction in its 90-day past due loan ratio from 5.4% to 4.9%, alongside a significant improvement in the cost of risk, which decreased from 8.7% last quarter to 7.2%. As we anticipate improved macroeconomic conditions moving forward, we expect to reactivate credit originations at a faster pace in the upcoming quarters, adhering to our risk-adjusted parameters while ensuring asset quality remains under control. Please proceed to Slide number 13. Operating expenses increased 1.4% over the quarter and 3.2% over the year, remaining well below Colombia's inflation rate for the past 12 months. This outcome clearly reflects the success of our ongoing expense reduction program. Regarding personal expenses, there was a 4.7% quarterly increase and a 5.8% annual increase, both significantly below the annual wage growth in Colombia. Additionally, administrative expenses contracted by 0.8% during the quarter, primarily due to lower VAT provisions related to reduced general and fees expenses, while expanding only 1.4% over the year thanks to our effective cost control measures. As a result, the cost-to-income ratio improved during the quarter, decreasing from 49% to 48%, thereby demonstrating efficiency gains achieved through these initiatives. Please proceed to Slide 14. Net income for the quarter reached COP1.5 trillion, representing a 4% increase from the previous quarter. Despite the ongoing reduction in net interest income from our lending business due to the prevailing interest rate cycle, the improved results for the quarter were driven by a lower cost of risk, stronger investment performance, and a base effect from the second quarter related to a one-time impairment charge associated with a joint venture. The return on equity for the quarter was 15%, which, if adjusted for goodwill, translates to a return on tangible equity of 20%, underscoring the operations' profitability. Furthermore, an attractive and consistent dividend payout to shareholders enhances the total value return on the investment. Now, please proceed to Slide 15. Shareholders' equity rose by 4.3% quarter-over-quarter and 9% over the year, primarily driven by net income generation, coupled with the effects of FX depreciation. Consistently, the core equity Tier I ratio ended at 11.58%, a 60 basis point increase over the quarter, proving our sound organic capital generation capacity. On the other hand, the total capital and equity ratio increased 175 basis points quarter-over-quarter up to 14.4% because of the 800 million subordinated bonds issued in late June, contributing 115 basis points of Tier II capital. With this, I will now hand the presentation back to Juan Carlos for the final remarks. Juan Carlos?

Thank you, Mauricio. Please proceed to Slide 16. Regarding our sustainability strategy, we have successfully originated over COP32 trillion in 2024, contributing to our cumulative total of COP173 trillion since 2020. On the other hand, we continued advancing in our emerging rural system, which aims to promote inclusion and financial education across various municipalities in the southern region of the country, positively impacting over 8,000 individuals to date. Please go to Slide 17. Lastly, I will share our year-end 2024 and preliminary 2025 guidance. Based on the current data and our updated macroeconomic forecasts, we expect to close 2024 with loan growth of 6.5%, broken down into a 2.8% growth in peso-denominated loans and 6.8% in dollar-denominated loans. NIM around 6.8%, cost of risk around 2.2%, and an efficiency ratio in the 50% area. ROE around 15% and core equity Tier I ratio around 11.7%. Furthermore, in a very preliminary stage for 2025, we expect a loan growth of 7.2% in pesos and 1.3% in dollar-denominated loans. NIM around 6%, but at the end of the year, cost of risk of around 2%, efficiency close to 51%, and ROE between 13% and 14%. With this, we conclude our third quarter results remarks. Now we'll take any questions you may have. Thank you.

Great. Thank you. At this time, we'll be conducting a question-and-answer session. Our first question here is from Ernesto Gabilondo from Bank of America. Please go ahead.

Thank you. Hi, good morning, Juan Carlos, Mauricio, and good morning to all your team. Thanks for the opportunity to ask questions. I have three topics from my side. The first one, my first question will be on your investment securities on the NII. We noticed they were abnormally high during this quarter, so we just wanted to understand what was behind that gain. And looking at your guidance, we are looking at NIM pressure of around 80 basis points. So just wanted to double-check if probably you are expecting these security gains not to be recurring, and that's why you're assuming NIM pressure for next year. My second question is on your net income growth expectations for next year, assuming that you're expecting an ROE of around 14%. So what should imply in terms of earnings growth or contraction next year? And what do you think will be the key metrics to understand this deceleration of the ROE? Would that be just the NIM? Or what else are you seeing? And my last question is on your new corporate structure. So looking at the subsidiaries, Panama is showing kind of weak results. Guatemala's numbers are gradually improving, and El Salvador is posting strong results. So considering this new structure that probably could allow you to have more flexibility in your decisions, would it make sense to sell or give maybe, I don't know, Panama to a third party to unlock value for Bancolombia's ROE? I just wanted to hear your thoughts if this could be a possibility considering this new holding structure? Thank you.

Thank you, Ernesto. Let me start with your second question and I develop also the third. I will pass your first question to Mauricio, that one regarding the investment security NII and if it's one-time NII or going to be recurring. As we mentioned, we are expecting an ROE of around 14% for 2025. And that ROE is very well related to the cost of risk that we expect to be around 2% for 2025. But NIM is going to play a big role in the results of 2025. As you mentioned, we are expecting the NIM to compress due to market rates going down during the year. The speed of that or a decline in interest rates will play a key role. We expect that the Central Bank in Colombia is going to aim to have inflation under control and within the range that they determine to be the target between 2% and 4%. The behavior of inflation will be critical for the speed of the monetary policy. So to your question, what's key for 2025 results is NIM, and cost of risk. Additionally, we have to work on expenses. We think that is something that we can manage as the other factors are more market conditions. Moreover, how the volume behaves, meaning how loan growth is going to be, is also important. With all of that, our expectations of around 14% consider loan growth of 7% and NIM going down to 6% are crucial. Regarding your third question, yes, the new corporate structure will provide flexibility and options to develop different strategies. However, we are focused on finishing all the steps necessary to implement the corporate structure. After that, we will consider alternatives available. Now our focus is to finalize the structure that again provides flexibility and then we will develop further strategies regarding improving our financial results. Regarding your first comment, I'm going to pass it to Mauricio to comment on that, Ernesto.

Hi, Ernesto. As you mentioned, we had significant interest income from investments in the quarter. I would like to divide the answer into two parts. First, in terms of volume, the investment portfolio grew 17% quarter-over-quarter and 32% year-over-year, which is abnormally high. We should not expect to see an investment portfolio that high again. This is supposed to decrease because we invested to prepare for the call of the 29s that we announced to the market. On the other hand, if we see increased demand for credit as we expect, you should see how we divest some of that debt portfolio investment and move it into credit that, of course, has better margins. That's in terms of volume. In terms of margin, which was your specific question, it was 4.6%, which is unsustainably high. Long-term sustainable margin for the debt investment portfolio should be somewhere between 2.5% and 3%. A margin of 4.6% is, for us, too high and it responds to the market interest rates rally in the quarter.

Perfect. Now, super helpful, Juan Carlos and Mauricio. Just to follow up on your net income growth expectations for next year. You were saying the two key variables will be NIM and cost of risk. But considering your guidance of an ROE of 14%, how should we view the earnings relatively flat or small contraction? How are you seeing them?

Yes, Ernesto. With the numbers provided as guidance, net income should be a little bit lower or flat. The upside will come from better-than-expected loan growth. As I mentioned, the speed of NIM reductions. But to your specific question, we expect lower net income or flat, but no more than that.

Okay. Perfect. Thank you very much, Juan Carlos.

Thank you, Ernesto.

Our next question is from Yuri Fernandes from JPMorgan. Please go ahead.

Thank you, guys, and good morning. I would like to score a little bit more on the margins from the guidance. I understood a 6% NIM consolidated for 2025. It's now running at 6.8%. I totally get that it makes sense for some compression given lower rates in Colombia. But I would like to understand if this is the average NIM for the year or if this is the year-end NIM. So this continues to slow down from 6.8% to 6.6%, 6.4%, and then ending the year at 6%. Or is this the average for the year? And then I can ask a second question. Thank you.

Thank you, Yuri. Let me pass your question to Mauricio.

Hi, Yuri. That's the figure we're having for the whole year. Now, it is important to take into account that the Central Bank's interest rate policy is moving slower than expected. That's basically where the upside could come from. We’re running simulations with expectations that are in the market as of today. But if the speed of decline is slower than expected, the impact on the net interest margin would be lower.

No, no, super clear. And to compensate that, how should we think about cost of risk moving down? I see that this quarter, you had a specific case in Panama. I think this should help, and your cost of risk should move lower. But what is the pace of the decrease in cost of risk to compensate for lower margins?

Yes, Yuri. What we expect is that cost of risk should continue improving. For 2025, we will have a cost of risk around 2%. We are coming from 2.6%, even higher than 2.4%. This quarter it is 2.2%. So for next year, we expect a cost of risk of around 2%, which compensates for some of the decrease on NIM. It's also important to consider volume, as I already mentioned. It is different if interest rates go down and margin decreases as well. But the volume of our loan book is significant. We have seen some acceleration in demand toward the end of the year. This will create a base that is going to help us for 2025.

No, no this quickly. So the message, the following: NIM will go down these 80 bps, whatever. And then you have cost of risk decreasing by some 6%. So you have a compression risk-adjusted margin. But you have higher volumes. And part of this is part of your message in the presentation?

Yes, correct.

No. Perfect. Thank you very much, guys, and congrats.

Thank you, Yuri.

Our next question is from Andres Soto from Santander Mexico. Please go ahead.

Good morning to all. Thank you for the presentation. I have a question regarding Nequi. Actually, I want to congratulate you guys, not only on the results but also on the increased visibility that you're providing with these new numbers that you are sharing. I would like to understand what is the role that Nequi plays. My first question will be when you look at Nequi going ahead; now fee income and financial income are split 50/50 in terms of revenue contribution. How do you see that split evolving? Do you expect any acceleration in lending? When I look at the numbers, Nequi already represents 2% of your deposits in Colombia, but a tenth of that in terms of loans. So do you see some room for accelerating there and disconnecting with the idea that you are more optimistic about volumes in 2025? Is Nequi a driver for that or is the main driver going to be commercial loans or traditional consumer loans?

Thank you, Andres. As you see, and you mentioned, the deposits on Nequi are around COP3 billion, COP3.2 billion. Our loan book in Nequi is now 400. So there is room to increase our loan book. The resources not on the loan book are, at this time, generating interest at market rates. So there is significant upside in income and interest income on Nequi. However, we need to go at a pace that allows us to increase the volume while also considering risk. Since the interest rate changes significantly between loan interest rates and what is the market rate in interbank deposits, there is great potential, and we expect to keep growing our loan book. Again, taking into account risk. To your general inquiry, we expect consumer loans to perform better in 2025, and Nequi will be part of that. Not just Nequi; we also expect Bancolombia to improve consumer loan growth. This will positively impact our loan mix. Since 2024, we have seen a decline in consumer loans while commercial loans are growing. This shift in dynamics would positively affect our NIM. Let me pass it to Mauricio for additional comments.

Hi, Andres. Nequi’s dynamic is indeed very positive. We expect disbursements to maintain that dynamic. The space for growth in loans is substantial. The loan-to-deposit ratio as of today is close to 13%. For year-end next year, we expect deposits to grow somewhere between 15% and 17%. Loans are expected to grow at about 100%. So we anticipate a loan book in Nequi at the end of 2025 of COP1.2 billion.

Thank you, guys. Do you have any medium-term expectation of how much could Nequi represent of your total loan book or 12% of your consolidated revenue?

I guess, Andres, more than having an expectation specifically for Nequi’s figures, which are positive and growing as we mentioned, we look at Nequi’s figures in a standalone basis; however, after all, our aim is to grow the total pie at Grupo Bancolombia.

To complement that, Andres, Nequi gives us flexibility and allows us to approach the market with much better margins. However, the consumer book in Bancolombia is significantly larger than the consumer loan within Nequi. To give you a figure, consumer loans in Bancolombia are around COP50 billion, while our expectations for Nequi to go to COP1 billion. So it's still not that big, but it gives us a lot of flexibility to compete in an increasingly competitive market.

That's clear. Thank you, Juan, and congratulations again on the results.

Thank you, Andres.

Our next question is from Eric Ito from Bradesco BBI. Please go ahead.

Hi, guys. Good morning. Carlos, Mauricio, thanks for the opportunity to ask questions. I have two questions here. The first one would be a follow-up on your new corporate structure. I just want to get more insight into the rationale here. You mentioned there are some opportunities under the new structure. I want to see if there is any specific strategy that you are looking for at the moment. Any specific initiative? I think Mauricio already mentioned the potential for share repurchases, but I want to understand a bit more about the synergies we could expect to capture here for maybe 2025 or 2026. And then my second question is specific to the efficiency ratio for 2025, your preliminary guidance, which is around 51%. I would appreciate a bit more color on what you are expecting for operating expenses growth and fee income for 2025? Thank you.

Thank you, Eric. Regarding your first question about our new proposed corporate structure, let me first say that we are in the process of obtaining approvals from supervisors in different jurisdictions, as well as from our shareholders. This is expected to happen, probably by the first half of the year. Therefore, we will have our corporate structure in place for the second semester. The full impact of the new corporate structure will be evident in 2026. Advantages include stock repurchases that will provide us with much more flexibility in managing returns to investors. Moreover, it allows us to manage capital more efficiently and handle FX effects on capital as well as goodwill more effectively. This corporate structure enables more efficient use of capital and greater corporate flexibility, but our primary focus now is on achieving those short-term advantages. We will later consider additional strategies to enhance the returns of Grupo Cibest. Regarding your question about efficiency, I will pass it to Mauricio.

Hi. What we expect in the efficiency ratio for next year is something closer to 50% or 51%. This deterioration of the ratio would stem from the decrease in income due to NIM compression that we mentioned. Expense growth is anticipated to be around 4% to 4.5%. We expect to grow expenses at a rate lower than inflation, which is something we are achieving this year. We also expect net fee income to grow at around 8% next year, which will partially offset the mentioned NIM compression.

Very clear. Just a quick follow-up, if I may on the first question. You mentioned the full impact of the new corporate structure in 2026. Is there any preliminary calculation that you guys did? Or is it uncertain to ask about it? Thank you.

Let me clarify the timeline so we can get the complete picture. We expect approvals from both regulators and shareholders to come in the first quarter, and the execution of those approvals to take place in the second quarter of next year. In the second half of the year, you can expect capital structure optimization through the buyback program. However, you should not see significant differences in the income statement. In 2025, since I just explained, it’s important to bear in mind that the company paying dividends will be Grupo Bancolombia, while the company paying dividends in 2026 will be Grupo Cibest. It’s essential to keep this timeline in mind.

Perfect. Very clear. Thank you, guys.

Thank you, Eric.

Our next question is from Tito Labarta from Goldman Sachs. Please go ahead.

Hello. Thank you. My question today is about loans driving growth in 2025. I'm curious about how much your guidance depends on improvements in the economy and if you could provide more details on loan growth in other segments. Also, is there potential for commercial loan growth to increase if consumer loan growth is weaker than anticipated?

Thank you. I want to clarify that loan growth for 2024 was low or is low at this moment. We expect some acceleration by the last quarter. Loan growth this year is on average around 6.5%. For 2025, we're anticipating a slight acceleration, aiming for around 7.2%. We expect the Colombian GDP growth for 2025 to be around 2.6%, while in 2024, it should be around 1.8%. So there is an expected acceleration in economic growth for Colombia. Based on that, we expect the demand for credit to grow. In 2024, loan growth in consumer books showed a decline while commercial loans experienced growth, particularly in mortgages which are growing robustly at over 10%. In 2025, we anticipate a more balanced acceleration across both commercial and consumer loans, and this will help our NIM due to the mix. I don't know if Mauricio wants to elaborate on this.

Yes. For the expected growth breakdown, it would be reasonable to expect commercial loans to grow at 5.8%, consumer loans to grow somewhere between 11% and 12%. We anticipate an inflection point in the fourth quarter of this year. Thus, the basis is low, providing a positive outlook for growth. Mortgage loans should grow between 7% and 8% to maintain the positive dynamic seen this year.

Our next question here is from Olavo Arthuzo from UBS. Please go ahead.

Yes. Good morning, everybody. Thank you for taking my question. I have two. First, to confirm that the guidance for the next year of 14% does not incorporate the corporate structure. I think the bank is waiting for the total approvals. So just to confirm, if the guidance does not incorporate the corporate structure. My second question, switching topics to Nequi again, I would like to know in terms of breakeven. If you could provide us with an update on if it is expected next year or 2026. When do you expect Nequi to reach breakeven? Thank you, guys.

Thank you, Olavo. Let me confirm that the guidance we are providing for 2025 does not include the new corporate structure, thus all guidance is under the current corporate structure. Although we expect the corporate structure to be in place by mid-2025, the effects will be seen in 2026. Regarding Nequi, Nequi has a very positive trend, but there is still a way to go. We expect Nequi to become profitable in 2026. Improvements will continue during 2025, and Nequi is developing its strategy that is complementing income from different sources. The loan book is expected to grow as Mauricio mentioned, but profitability is not anticipated until 2026. Mauricio, could you please complement these two questions for Olavo?

Yes, Olavo. You might see an improvement in ROE after we execute the new corporate structure. However, it will all depend primarily on the buyback program and the optimization of the capital structure that we’ll have. Therefore, regarding ROE, it's going to be interesting to look at every single bank's ROE after the structure takes place and to examine the holding and the group’s ROE afterward for more details after we get it done.

Okay. That's great. Thank you very much, guys.

Thank you, Olavo.

This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Thank you very much, everybody, for participating in the third quarter results. We expect to close the year 2024 on a good pace and we will see what happens. We look forward to seeing you on our conference call for the end of the year results next year. Thank you. Everybody have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.