Grupo Cibest S.A. Q2 FY2025 Earnings Call

Good morning, ladies and gentlemen, and welcome to Grupo Cibest Bancolombia Second Quarter 2025 Earnings Conference Call. My name is Christine, and I will be your operator for today's call. Please note this conference is being recorded. This conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses, and credit losses. All forward-looking statements, whether made in this conference call, in future filings, in press releases, or verbally, address matters that involve risks and uncertainties. Consequently, 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, the 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 will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.

Good morning. Welcome to Grupo Cibest Second Quarter Results Conference Call. Please go to Slide 3. I am pleased to share our first results as Grupo Cibest, our new holding company. Our formation involved legal transactions, asset transfers, and mergers that led Bancolombia to transfer Banistmo, Banco Agricola, BAM, Nequi, Renting, Wenia, Wompi, and other investments to Grupo Cibest. This transformation did not impact our operations, asset portfolio, debt structure, or revenue generation capacity. Therefore, the consolidated financial results reported under Grupo Cibest correspond to those that Grupo Bancolombia will have achieved if the corporate changes implemented on May 16 had not occurred. Our main goal is to optimize capital allocation, increase corporate flexibility, and boost value creation and distribution, such as through our ongoing share repurchase program launched on July 17 with the goal to buy up to COP 1.3 trillion in a combination of common preferred and ADRs until June 24, 2026. As of July 31, 5.2% of the total shares had been repurchased. Now please proceed to Slide 4. With the creation of Grupo Cibest, we consolidate our position as a solid regional financial group with a strong footprint. We offer an integrated client-focused value proposition by delivering customized financial solutions to a wide range of clients in our operating countries. Our approach adapts to local market trends while drawing on regional strengths, promoting diversification and supporting sustainable long-term growth. Additionally, the corporate structure supports efficient capital allocation for both organic and inorganic growth as well as various organizational developments with the aim of creating value for stakeholders. In addition, our ability to expand complementary businesses supported by customer insights and data access contributes to our value proposition and competitive advantages. Now please proceed to Slide 5. We offer a wide range of financial services covering banking intermediation, transactional and banking services, asset management, treasury, and capital markets, amongst others, throughout Colombia and Central America. As of the second quarter of 2025, we serve over 33 million clients. Colombia remains our core market in which Bancolombia leads the financial sector with over 18 million clients and a market share of 28% in loans and 26% in deposits. At a consolidated level, Bancolombia integrates fiduciary, brokerage, investment banking, real estate fund, and offshore banking services. Our Central American operations offer valuable diversification. Banco Agricola leads in El Salvador. Banistmo is second in Panama and BAM ranks fourth in Guatemala, each with growth potential in their markets. In addition to our traditional banking services, we are continuously enhancing our digital and transactional ecosystem. Nequi, our digital bank, now serves more than 25 million clients with an activity ratio approaching 80%. Wompi, our payments platform, facilitates both pay-ins and payouts for small- and medium-sized enterprises. Furthermore, Wenia is strengthening our presence in the digital asset sector through initiatives such as COPW, a stable coin backed by the Colombian peso. Now please proceed to Slide 6. From a capital allocation standpoint, Grupo Cibest's principal entities are its four banks. Bancolombia, stand-alone accounts for 48% of the holdings equity and 66% of the total assets as of June, while Banistmo, BAM and Banco Agricola comprise the remaining portions. Moreover, returns over capital are mixed. Bancolombia stand-alone recorded a 26% pro forma ROE in the second quarter calculated over the average equity of the first and second quarters, assuming the transaction had been executed by year-end 2024, which implies a lower amount as per the capital deconsolidation that took place. What this metric clearly reflects is the merits of the corporate evolution demonstrating more efficient capital allocation on the main operational entity, thereby driving value creation for shareholders. On the other hand, Banco Agricola continues to deliver high returns that significantly exceed its relative size, outperforming both Banistmo and BAM. Now please proceed to Slide 7. In the second quarter of 2025, we achieved robust financial performance, aligned with our long-term corporate strategy and supported by our operational strengths. Return on equity increased to 17.5%, primarily due to strong net income resulting from an improved net interest margin and reduced provision expenses. Notably, the net interest margin rebounded to 6.6%, driven by growth in both loans and investments, which will be discussed in further detail. Cost of risk of 1.6% and declining nonperforming loans ratios highlight the ongoing enhancement of our asset quality. It is also noteworthy that deposits continue to exceed loan growth on both quarterly and annual bases, maintaining a notably low cost despite increased competition. The double leverage ratio for Grupo Cibest is at 105%, indicating solid creditworthiness and providing capacity for further expansion. Furthermore, Nequi reported loans totaling COP 1.1 trillion, reflecting a substantial 4.7-fold increase over the previous year. This growth has also driven further cost efficiency, which will be discussed in more detail later. I now hand over to Laura Clavijo, Chief Economist, for a summary of the macroeconomic landscape.

Thank you, Juan Carlos. If you could please turn to Slide 9. The Colombian economy continued to gain momentum during the second quarter, driven by strong domestic demand, household consumption, and a modest recovery in investment. The ISE, a monthly indicator of economic activity, expanded at an annual rate of 2.7% in May. Meanwhile, our now accurate Bancolombia based on transactional data suggests the economy grew by 2.9% during the first half of 2025. As a result, we maintain our GDP growth forecast of 2.6% for this year and 3% for 2026. Key macro indicators, including inflation, unemployment, and consumer confidence have continued to stabilize and have thus far mitigated the impact of a volatile global environment and broad-based risk aversion. Nonetheless, both monetary and fiscal policy face significant challenges ahead. The Central Bank has adopted a cautious stance throughout much of 2025. Despite inflation falling to 4.8% year-over-year in June, the monetary authority has kept the policy rate unchanged at 9.25%. These decisions reflect the need to anchor inflation expectations, anticipate potential price pressure from a higher-than-expected minimum wage in 2026, and prevent second round effects. We expect inflation to end the year above 5% with interest rates maintaining a predominantly restricted posture. On the fiscal front, Colombia faces mounting challenges in both the short and medium term. In recent years, the fiscal deficit has deteriorated, widening from 4.2% of GDP in 2023 to 6.7% in 2024, and is projected to exceed 7% in 2025. Overly optimistic revenue projections, high-interest payments, rigid budget structures, and reluctance to implement necessary spending cuts led to the activation of the escape clause of the fiscal rule for the 2025-2028 period. Furthermore, the generous 2026 budget proposal underscores ongoing concerns about fiscal sustainability. As a consequence, credit rating agencies, Moody's and S&P recently downgraded Colombia's sovereign rating, a move that had largely been priced into sovereign assets, which have weakened in line with increased risk premium. Nevertheless, Colombia continues to enjoy a strong reputation in financial markets with a solid track record of debt repayment and credibility that compares favorably to other countries in the region. Please turn to Slide 10. Turning to Central America. Most countries are closely monitoring slower-than-expected U.S. growth, new tariff announcements, and potential policy shifts that could affect remittance flows. El Salvador is expected to grow by approximately 2.2%, supported by low inflation and robust investment in infrastructure and tourism. Country risk has improved significantly in recent years and a newly signed IMF agreement has placed fiscal consolidation at the forefront of policy. Guatemala, known for its macroeconomic stability, is projected to grow 3.6% this year, driven by strong domestic demand that could help cushion a potential slowdown in exports. Finally, Panama is gradually recovering from the 2024 copper plant shutdown and disruptions to its canal operations. Growth is expected to reach 3.7% in 2025, underpinned by increased infrastructure investment and solid tourism activity. I will now hand over the presentation to Mauricio Botero, who will provide further insights into the 2025 second quarter results.

Thank you, Laura. Please go to Slide #12. As of the end of June, the loan portfolio represented 75% of our total assets. It was almost flat during the quarter, partially explained by a peso appreciation of 2.9%. However, these results represent a 4.4% growth over the year. The commercial loan portfolio remained almost flat over the quarter as demand remains weak. On the flip side, consumer loans regained momentum, primarily driven by our operation in Colombia, tied to Nequi's exponential loan growth and a continued positive trend in credit card and payrolls. Mortgages remain the fastest-growing segment on a quarterly and annual basis, fueled by the rate cut program launched a year ago. Please go to Slide #13. As of the end of June, our loan portfolio in Central American banks represents 25% of our total loan book in pesos, providing valuable diversification across markets and currency exposure. This, combined with the commercial loan book from our offshore operations in Panama and Puerto Rico brings the overall loan book in U.S. dollars to 31% when converted into pesos. When analyzing by operations, Bancolombia and Banco Agricola continue to lead loan growth, whereas BAM and Banistmo experienced slower activity in different segments. Please go to Slide #14. Deposits grew 2.4% in the quarter, accumulating a 9.6% expansion during the year, outpacing loan growth. Such growth is especially positive in savings accounts, which was 4% over the quarter and 16% over the year, driven by Bancolombia and Banco Agricola, where our reach and client engagement are particularly strong. Time deposits were almost flat during the quarter, but grew 4% over the year and checking accounts kept on growing steadily. This ability to attract and retain a stable low-cost deposits remains a key competitive advantage even as new competitors emerge. Furthermore, it provides ample room for loan origination going forward. Please go to Slide 15. It's encouraging to see the evolution of the funding mix with savings accounts representing now 42%, which has a very positive effect overall cost. Most of those accounts are very transactional, which provide a stable and low cost of funding. Interestingly as well is the fact that within time deposits, online time deposits continue outpacing institutional time deposits, contributing not only to a more stable but also cost-efficient funding base as this allow a faster repricing. Thus, the cost of deposits remained very competitive at 4.2%, recording a slight increase over the quarter, but remains well below Colombia's industry average and Central Bank's reference rate. Also of note, the cost of other liabilities fell due to the maturity of loans with banks and long-term debt. Please go to Slide 16. Net interest income increased by 2.5% during the quarter, driven by growth in loans and investments. In the case of loans, despite mild overall growth, the expansion of the consumer segment offset the impact of lower interest rates, resulting in a 1.8% increase in interest income from loans. On the other hand, given the ample liquidity kept during the quarter, we held an enlarged investment portfolio that generated incremental yields, recording a 12.2% interest and valuation income growth in the quarter. This positive performance on interest income, coupled with a very competitive funding cost explains the rebound in NIM, up to 6.6%, reflecting our effective assets and liability management. When broken down by entity, Banco Agricola and Banistmo posted higher NIMs driven by robust loan growth in the case of Banco Agricola and higher reference rates in the case of Banistmo. In contrast, NIM at BAM remained flat as loan expansion was concentrated in the commercial segment, which carries lower yields. Please proceed to Slide 17. Revenues from fees increased over the quarter and over the year. The positive performance in the quarter is mainly explained by an increase in transactional values, particularly in credit and debit cards and higher revenues generated through wealth management services, brokerage, trust, and investment banking. Also of note, bancassurance resumed its growth in the period. And despite the year-over-year deceleration, we're confident that as we increase consumer loan originations, this income source will increase accordingly. Fee-related expenses increased as well during the quarter, driven by higher royalties on credit and debit cards, on third-party collection costs, and on banking agent transactions. Please go to Slide 18. Moreover, I want to comment about the significant progress we're making in developing and scaling other complementary businesses within the group, which play a critical role in strengthening our competitive advantages in terms of low cost of funding, access to transactional data, and fee income generation. For example, Wompi has built a robust scalable payment gateway for small and mid-sized merchants that has achieved sustained growth in active users and transactional volumes through payments, disbursements, and an array of other value-added services. In the case of Wenia, we have seen promising client engagement and a growing volume of digital asset operations in its earliest stage. As more users join the ecosystem and scale their transactional activity, we anticipate sustained revenue growth in the medium and long term, driven by increasing fee generation. And finally, Nequi has proven its ability to attract and retain users by scaling up the digital neobank platform, as we will discuss later. Please go to Slide 19. In line with the positive momentum observed in the last 18 months, asset quality showed further improvement in the second quarter as all geographies exhibited good performance in general, with the exception of the retail portfolio in BAM. Consistently, the 30-day NPL ratio declined while the 90-day remained flat, both displaying comfortable coverage levels. Notably, consumer loans continue recovering, which is particularly relevant as we plan to continue growing in this segment, especially in Colombia. The sustained improvement in credit performance is particularly evident when analyzing the loan book by stages. Over the past year, the share of loans classified in Stage 1 has consistently increased indicating a healthier portfolio. Consistently, the shares of loans in Stages 2 and 3 have steadily declined, mainly associated with retail segments in Colombia and in Panama, where we have made significant progress in the recovery of nonperforming loans. Please go to Slide 20. Moreover, net provision expenses came in at COP 1.1 trillion, recording a 32% annual drop. This was explained by a better-than-expected performance across all segments, along with a specific provision release that offset an increase driven by revisions to macroeconomic forecasts and updates to model parameters. Thus, the quarterly annualized cost of risk was 1.6%, flat to the previous quarter. When broken down by entities, the trend of cost of risk is mixed, reflecting diverse macroeconomic and portfolio dynamics. In Colombia, the bank continues to benefit from predictive tools, resulting in healthier vintages. In the case of Banistmo, the better performance observed during the quarter on consumer and mortgage resulted in lower provisions on retail. However, compared to the first quarter, provision expenses increased due to higher expected credit losses for specific corporate clients and a base effect stemming from a parameter update implemented in Q1. On the flip side, Banco Agricola and BAM increased provision charges in the quarter, driven by an increase in consumer loan origination seeking to boost risk-adjusted returns. All in all, the consistent better performance exhibited during the last year is a clear example of our disciplined approach to risk management, leveraged by robust underwriting models and predictive analytics, which support smarter, faster decision-making throughout the credit cycle. Please go to Slide 21. Operating expenses grew 5.7% during the quarter, mainly driven by administrative expenses such as financial transaction taxes related to the payment of ordinary and extraordinary dividends, legal fees tied to the incorporation of Grupo Cibest and technology-related costs supporting transactional channels, amongst others. Thus, the efficiency ratio increased to 51%. On a yearly basis, expenses are growing 11.8%, primarily explained by an increase in other taxes and a base effect on bonus plan provision aligned with stronger projected year-end results. Net of FX effects, annual operating expense growth would have been 10.1%. And as the year progresses, we anticipate that the annual growth figure will moderate, influenced by seasonal patterns and base effects. It is worth mentioning the efficiency gains across our Central American operations, where we expect to sustain a gradual improvement in our cost-to-income ratio as we remain committed to operational excellence and regional scalability. Please proceed to Slide 22. Net income increased by 3% quarter-over-quarter, driven by the rebound in NIM, consistent growth in other income sources and lower provision expenses, bringing the year-over-year growth to a strong 24%. Consistently, ROE jumped to 17.5% and ROTE to 21%, reflecting the strong operational performance. Bancolombia remained the primary contributor with close to 78% of total net income outpacing its share of assets and capital, respectively. Now please proceed to Slide 23. Shareholders' equity for Grupo Cibest increased 1.6% quarter-over-quarter, mainly driven by net income generation despite the payment of extraordinary dividends. Tier 1 ratio for Bancolombia stand-alone as of June closed at 11%, which, if compared with the previous quarter on a pro forma basis, grew 43 basis points over the quarter and 75 basis points over the year, reflecting organic capital generation. Consistently, Bancolombia's total solvency reached 13.5%, growing 22 basis points during the quarter and 92 basis points during the year on a pro forma basis. Now please proceed to Slide 24. Nequi continues making good progress towards reaching breakeven. Performance over the last year has been remarkable. Deposits have grown over 77%, reaching nearly 6 trillion. Loans have grown nearly 5x. Its activity ratio is now close to 80%, and its total income has increased 90%, contributing to significant cost dilution and robust ARPAC growth. We're very optimistic about Nequi's business model, its scalability, and long-term value generation potential. With this, I will now hand the presentation to Juan Carlos.

Thank you, Mauricio. Please proceed to Slide 25. Year-to-date, Grupo Cibest originated COP 35 trillion as part of its business with purpose strategy, achieving a total of COP 324 trillion. The organization's objective for 2030 is to disburse COP 716 trillion throughout initiatives aimed at supporting sustainable communities, advancing financial inclusion, and enhancing the country's productive capacities. Regarding Bancolombia, additional accomplishments in this period include the validation of its emission reduction targets by the science-based targets initiative, SBTI, as well as achieving the top ranking as the best company to work for according to Merck. Please refer to Slide 27. Finally, I would like to present our revised guidance for 2025. According to recent market dynamics and updated macroeconomic forecasts for the year-end, loan growth has been adjusted to approximately 5.4% and net interest margin to about 6.3%, reflecting changes in net income and loan volume. The cost of risk is now projected to range from 1.6% to 1.8% due to ongoing improvements in asset quality. Consequently, return on equity has been revised to approximately 16%. Please proceed to Slide 28. The transition to Grupo Cibest represents a significant advancement in our strategy to enhance shareholder value. Nequi is steadily progressing toward its goal of achieving breakeven by the first quarter of 2026, demonstrating disciplined growth and operational efficiency. The improvement in our asset quality supports expansion into higher-yielding consumer loan segments, thereby strengthening our profitability prospects. With a solid balance sheet and stable liquidity, we are well-positioned to capitalize on growth opportunities and adaptively manage the complexities of the current macroeconomic landscape. This concludes our presentation of the second quarter results. At this time, we welcome any questions you may have.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Ernesto Gabilondo with Bank of America.

Congrats on the results and the revised guidance. My first question is if you can provide any update on the political landscape ahead of the presidential elections? And what do you think are the key dates that we should be monitoring? And the second question will be on your NIM expectations. Just wondering where do you see NIMs normalizing after more stable interest rates over the next years. We have been seeing resilience rates this year. So how do you see NIMs evolving next year? Should we expect more pressure? And on the other hand, what would be the strategy to protect NIMs? I don't know if it is a better loan mix. When I look at consumer loans, they represent 20% of total loans. I noted that in the last year, they represented around 22% of total loans. So I don't know if that could be one of the solutions to protect NIM in the next years. And then I have a question on cost of risk. It performed much better than expected. As you mentioned, it could be around 1.6%, 1.8% this year. So what do you see the sustainable level for the cost of risk over the next years, especially if you start to resume consumer loan growth if you have better economic prospects.

Thank you, Ernesto. Thank you for your questions. Let me address some of them, and I'm going to ask Mauricio to help me with some of the answers. I'm also going to ask Laura to provide additional color on the macro situation because it's clearly related to what is going to happen with our NIMs in the coming year. Let's start with your first question, the political landscape in Colombia, it's riddled with a lot of issues. I mean, there is a lot of polarization in the country. We just yesterday started the last year of the current government, meaning that we already have 3 years of this government. So all the electoral noise started very early in Colombia and it will continue to be an issue in the coming months. Still, it's a little bit early to try to understand how the environment is going to be and who is going to take the lead on this electoral process. I think by October, there are some primaries in some political parties that will start adding some clarity on who are going to run. By the end of, and by the beginning of next year, we will have clarity on who is going to run. Remember that we have Congressional elections in March. And that's a key point because there are going to be primaries at that moment that will select candidates to run for presidency and the first round of presidential elections will be in May. So there are a lot of issues, a lot of noise around the political situation, opposition and government, and candidates speaking, but still too much noise and not a lot of clarity on the political landscape. We will see more clarity by the end of the year, beginning of next year. Regarding NIM, it is clearly correlated with how the Central Bank in Colombia is going to move its interest rates. In the last meeting, the Central Bank left the rates unchanged at 9.25%. The market was expecting a reduction of 0.25 points. So that means that they are seeing risk on inflation. For us, what is going to happen is that we will continue defending our margin. As I mentioned, it's very related to market rates. But our expectations are that since inflation remains a risk and it's not yet in the target of the Central Bank, this will probably delay the reduction of interest rates next year, and we will have a better margin than expected in the coming year. But by the end of the year, probably we will reach around 6% NIM. At this point, I will ask Laura to give us some more color about how we see inflation and how it's going to be the posture of the Central Bank in relation to inflation trends.

Thank you, Juan Carlos. To complement a bit, we are seeing good dynamics in terms of economic activity. Our now accurate Bancolombia with information towards July is showing a 3-month moving average of 3.2% growth. This is kind of a precursor to what we might expect for GDP growth moving forward. We are seeing robust activity, mainly driven by consumer, the commerce sector, and we still see the agricultural sector quite strong as well as services coming from the entertainment business. This in line with the inflation expectation is something that also the Central Bank noted as possible pressures going forward because internal demand is, in fact, expanding at a higher rate as expected. So perhaps the space that the Central Bank had previously in terms of economic output to lower rates is not so clear now moving forward. And perhaps the balance is moving more towards risk as were mentioned, fiscal pressure moving forward in 2026 and onwards as the debilitating situation in the fiscal deficit. We also see an international setting of a Fed that will also have some doubts regarding when to lower rates given inflation pressures. In general, that's why we still maintain our 5.1% inflation forecast for this year and 3.9% next year. We will be revising these issues as soon as we come around September. But we also anticipate a minimum wage that will be pegged for 2026 that is announced, which may come at a high rate as in previous years. So in sum, these pressures on inflation lead us to believe that the Central Bank will continue with a more cautionary approach, even though inflation will continue its descent, and rates will come to a trend of cuts, but at a lower pace.

Thank you, Laura. With this, Ernesto, we will continue seeing some pressure on NIM, but probably with a delay in time, and that will help our results. As you mentioned, that's going to be the case. We will continue adding more consumer loans that will also help in maintaining our margin, adding some pressure on provisions since the origination of consumer loans will add some provisions. With all of these elements, we think that we can manage that reduction that is going to happen sometime, and we will adapt very well to that trend. Regarding the cost of risk, as you mentioned, our guidance is between 1.6% and 1.8% for this year. We think that due to the last results and what Laura mentioned about the economic performance of the Colombian economy, we see positive trends. So we are optimistic that we can continue managing the cost of risk and we could be more around 1.6% by the end of the year. Our sustainable level is more around 1.8%, 1.9%. So this year, due to what I mentioned, and with that economic activity level, could be more around 1.6%. I don't know, Mauricio, if you want to add something about NIM or cost of risk?

No, Juan. That's very clear. Thanks.

Our next question comes from the line of Yuri Fernandes with JPMorgan.

Congratulations on a successful quarter. The funding situation on the margin side appears strong. I have a clarification regarding the ROE for the Bancolombia unit. On Slide 35, I see a 16.5% ROE for Bancolombia stand-alone, but your press release indicates a 25% ROE for the same. I'm trying to understand this discrepancy, especially given the group's complexities and the intangibles reclassification. What ROE are you currently seeing for the Colombia unit? Additionally, I have a follow-up question regarding Nequi. You mentioned it in the presentation, and I find the ARPAC versus cost to service comparison valuable. Could you share your thoughts on breakeven? The message has consistently pointed towards 2026, but I understand the cost to serve doesn't include CAC and other expenses. What is your outlook for Nequi in the upcoming years? Is there a possibility we might see breakeven earlier, perhaps in 2025?

Thank you, Yuri. I will address your question about Nequi first, and then Mauricio will discuss the ROE. We are quite pleased with the progress at Nequi. User activity is strong, with a notable increase in active users and deposits, and the integration of Bancolombia a la Mano has been very effective. Overall, trends are looking positive. We are particularly encouraged by the performance of the loan book, which continues to grow. Currently, we have reached COP 1.2 billion in loans by the end of the semester, and we are adding more loans effectively, which is crucial. We plan to maintain this upward trend. Additionally, other services are performing well and generating fees. We believe that Nequi is nearing breakeven, which could occur this year, and we are optimistic that given current trends, we may achieve this by the end of the year. As I mentioned, activity is robust, and we will keep adding services for our customers. Nequi now serves over 21 million clients in Colombia, and we are beginning to expand our client base in El Salvador and Guatemala. The trends are very encouraging, and we believe we can reach breakeven in the second semester or at the latest in the first quarter of next year, Yuri. Mauricio will now address your question regarding ROE.

Before I go to your question about ROE, I would just like to comment on the measure we have for Nequi. As you know, most of the fintechs in the market are measured by ARPAC minus CPS. But when we think about breakeven, we like to think about net income breakeven, and that includes operational expenses and cost of risk. So our measure is more stringent, and that's why we don't believe we have reached breakeven yet, but we're very close. Now in terms of ROE, the ROE that you see in the mid-20s, it's a pro forma ROE for the Colombian operation. If you calculate the ROE with the average of the last 12 months of equity, you're going to see that the equity of Bancolombia was significantly higher for Cibest. That's why you see the 16.5%. But the pro forma ROE is the one you should be looking at. Any calculation that you do on the ROE of the Colombian operation is going to be above 20%. But bear in mind, we're going to work with pro formas until we build the 12-month history.

Our next question comes from the line of Lindsey Shema with Goldman Sachs.

Congrats on the updated guidance. I was just wondering, in particular, with the faster loan growth guidance, it sounds like it's mostly on stronger consumer, but could you break it down particularly by segment? And you mentioned you also were seeing some weaker commercial. So maybe you could elaborate on that as well. And then my second question is the updated ROE guidance is around that kind of sustainable 16% ROE you've mentioned in the past, but it sounds like there should be some cost of risk pressure and some NIM pressure going forward. So I just wanted to hear the pathway to kind of maintain that 16% going forward.

Lindsey, let me break down the guidance for the loan book. So we're thinking about 5.4% overall, and the breakdown is commercial loans growing at 4.2%, consumer loans growing at 7%, and mortgage loans growing at 7.5%. Now regarding your second question, it's about the sustainability of the ROE, right? So the way we're thinking about ROE going forward is by managing both operationally across the banks. As you can tell, we're delivering better results, not only in Colombia but also in Panama and in El Salvador. We're having a particular retail segment asset quality situation in BAM, but that's going to look better next year. So operationally, looking better in terms of the capital structure, the way we're thinking about buybacks and the way we're considering the double leverage ratio and the different capital ratios, that allows us to think about sustainable ROEs of 16% going forward.

Our next question comes from the line of Andres Soto with Santander.

My question is regarding your comments on Nequi. I would like to understand a little bit about the economics of lending in Nequi. What is the type of cost of risk that you are getting there? What margins are you seeing? What is the average loan? How scalable is that business considering the restrictions for interest rates in Colombia? What is the potential market within your large customer base? How many of those really can get a loan considering the cap that you have on the loan yield?

Thank you, Andres. Let me give you some additional information about the loan book in Nequi. As I mentioned, the level or the volume of the loan book at the end of the semester is COP 1.2 billion. The average loan is around COP 2.5 million, so meaning that we have around 600,000 clients now with loans. The interest rate is very close to the highest rate that we can charge, around 25%. Remember that the cost of funds of Nequi is very low. So we have a financial margin that is good in terms of that allows us to absorb risk. Regarding risk, the level of past due loans on a 30-day basis is around 5%. The cost of risk of those loans is around 9%, 10%. But with all that economics, those loans are profitable. I want to emphasize something about your question. It's the potential. As I mentioned, we now have around 600,000 clients with loans, but we have a total number of users of 25 million, 20 million of which are active. So we continue evaluating the creditworthiness of these clients and the potential, and we will continue adding loans, taking care of risk because that's key for us. We have the potential, we have the customer base, and they are now recurrent users of Nequi, but we need to continue building on how the risk is performing. So far, we are doing very well in that regard. It's within the parameters that we estimated. We will continue adding loans on that book. So the perspectives are, in our view, very positive, Andres.

And you mentioned the average loan. What is the duration of that loan on average? And as you scale up the business, are you expecting to extend duration? Or is it going to be the same type of product that you are offering now just being offered to a broader base of customers?

The average ticket in Nequi is around $500 and the duration is up to 5 years, but the average is 28 months.

We will continue with that product. I mean we are not expecting to move. As Mauricio mentioned, it's 28 months with an average of COP 0.5 million to COP 0.2 million. So around 20 to 25 months will be the average duration of the loans.

That's very helpful. And just one final question. How many new disbursements do you guys conduct this quarter or however you measure that?

We are averaging around COP 150,000 and that's around COP 50 million, about COP 40 million a month with an average of 500. So until in the first semester, that adds around COP 300 million to the loan book. The dynamic is very positive, and every month, we are adding around something like 50,000 new customers to that book.

Our next question comes from the line of Brian Flores with Citi.

I want to ask you on your efforts in cost of funding, particularly in Colombia. We see very stable as a percentage of the reference rate, right, around 50%. So I just wanted to ask you if you think this is sustainable? And if you could elaborate a bit on the efforts you're doing, how sustainable they are to see this, I would say, very controlled cost of funding in Colombia. And then I have a question, maybe it's a follow-up on capital distributions. You mentioned about the buybacks. Would you be accelerating this mechanism at the current levels given the price action? I think that would be great to understand.

Brian, regarding cost of funds, we're focusing more than in a rate per se, we're focusing more on the value proposition we have for our customers. Making that value proposition interesting enough to keep the loyalty of our customers, while maintaining transactionality as the focus of our strategy, allowing us to maintain very stable, low cost of funding. That's the way you see savings accounts growing significantly, even though the cost of funds for those savings accounts is 2.3%. Now we're growing savings accounts. We're growing checking accounts. In time deposits, we're not only growing but we're also changing the mix, evolving from institutional investors' time deposits to retail digital investors' time deposits, allowing us to have lower rates and enabling us to reprice those time deposits more quickly. So overall, a very positive trend on funding costs, which allows us to manage the margin compression that we mentioned before. Now going back to your second question regarding capital distribution and buybacks.

Capital distribution and buybacks.

The way to consider capital distribution is through the Solvency I ratios of the various operating banks. Previously, we viewed an 11% solvency capital, or Tier 1 capital for Bancolombia, as the benchmark for dividend distribution, and this will remain the same moving forward. The buybacks will enable us to sustain those distribution levels due to the double leverage ratio we have in place. The current double leverage ratio of 105 indicates an underleveraged capital structure. Therefore, with the dividends flowing from operational entities and the liquidity entering the holding company, we will have sufficient capacity to continue both buybacks and dividend distributions that can increase in real terms.

Perfect. Super clear. If I may, just a very quick follow-up on Lucy's question. You mentioned structural cost of risk around 1.8%, 1.9%. Is this already including the acceleration in Nequi?

Yes, Brian, yes. That considers the dynamics in consumer loans, including Nequi.

Our next question comes from the line of Carlos Gomez-Lopez with HSBC.

First, I want to congratulate you on celebrating your 30th anniversary on the New York Stock Exchange, wishing you many more successful years ahead. At this moment, you are undergoing changes in your structure. Your main shareholder, SURA, is also undergoing structural changes. Do you anticipate any impact from their restructuring that might affect your company or the relationship between the two companies in the near to mid-term future?

Carlos, as you mentioned, we are very happy with the evolution that we are having, particularly the creation of Grupo Cibest, for us it was a great success and is showing positive results. That is going to give us additional possibilities in terms of corporate development. It's a clearer structure in which all our stakeholders could evaluate our performance, the performance of the bank. We will continue adding new businesses that complement our financial services offerings in the different geographies. So the structure allows us flexibility and future developments, while it’s also very clear to our stakeholders. Regarding future developments in terms of shareholders, that depends on them. Particularly, we have a structure in which we have pension funds. We have our ATR program. We have our shareholders in Colombia and SURA, which is our main shareholder, now it's concentrated on financial services and their main investment is in Bancolombia. This is structured. It's a listed company with all the benefits of a public company that reports to the public markets and has a very solid base of shareholders. So we are very happy with the structure that we built and with the flexibility that adds in our corporate development. We are the main investment of SURA that now is a financial service. I think that will consolidate that relationship.

Okay. Now one thing that we noticed is that both companies have important international operations, but there's limited overlaps, right? They are in Chile, they're in Peru, and they're in Mexico. You are in Central America. Do you see that changing in either direction in the future?

As I mentioned, our new corporate structure gives us a lot of flexibility and adds possibilities. We will explore any option that is good for the evolution of Grupo Cibest that will add value to our stakeholders. With this new structure, we will continue exploring new avenues of growth, and we will explore them and take them if they make sense for our shareholders.

We have reached the end of the question-and-answer session. I'd now like to turn the floor back to Mr. Juan Carlos Mora for closing comments.

Thank you for joining our second quarter results conference call. We look forward to welcoming you on our third quarter call. Have a good day, everybody.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.