Earnings Call: Q2 2021

Aug 17, 2021

Welcome to the Second Quarter twenty twenty one Consolidated Results Conference Call. My name is Hilda, and I will be your operator during this conference call. At this moment, all participants are in a listen only mode. At the end of the presentation, we will conduct a question and answer session. Please note that this conference is being recorded. We now ask that you take the time to read the disclaimer included on Page two. When applicable, in this webcast, we refer to trillions as millions of millions and to billions as thousands of millions. Thank you for your attention. Mr. Alejandro Figueroa, CEO of Banco de Bogota, will be the host and speaker today. Mr. Figueroa, you may begin your conference. Good morning, ladies and gentlemen, and welcome to Banco de Bogota's Q2 twenty twenty one earnings call. Thank you all for joining us today. We hope that you and your families have continued to stay safe. Second quarter performance led to remarkable results, paving the path to recovery and normalization of our operation, proving much more bankable cost resilience. Power and economic activity, both in Colombia and Central America for most of the quarter, helped to weather business dynamics and the recovery of our trade portfolio despite the challenging context posed by new contagion rates and social unrest demonstrations in Colombia. Our pivoted net income for Q2 twenty twenty one was MXN 8 and 53,400,000,000.0, increasing 21.6% quarterly and more than double our results in Q2 twenty twenty. Profitability for the quarter returned to 1.8% return on average assets and 15% return on average equity surpassing our long term profitability expectations. These results were supported by an increase in our net interest income, solid fee income contribution, continued normalization in our provision expenses and sustaining controlling operating expenses. Regarding key performance ratio, I would like to highlight net interest margin increased 36 basis points in the quarter to 4.9% as a result of a stable lending NIM and positive market dynamics that supported investment yield valuation. Fee income continues to stand above Ps. 1,200,000,000,000.0, leading to a 31.8% ratio for Q2 twenty twenty one. Efficiency ratio came in at 49.8%, and on an improvement of more than 300 basis points, demonstrating our commitment to continually enhance efficiency. Cost to asset ratio was stable at 3.4%. Regarding our balance sheet, gross loan totaled 145,000,000,000,000 as of 06/30/2021, growing 2.9% annually and 2.3 quarterly. Isolated foreign exchange impact low was 31.2%, respectively. Deposit reached 158,900,000,000,000.0, representing a 7.1% annual increase, excluding foreign exchange, driven by market liquidity preference for demand deposits. As a result, our deposit to net loan ratio remains at 1.15 times. In terms of credit quality, our ninety days past due loan ratio slightly increased 80 basis points to 6.3%, which is below our initial expectation after the presentation of Federation Relief Program. Net cost of risk decreased 24 basis points in the quarter to 2.2%, during the operational reserve we lap throughout 2020 has been more than sufficient to endure loan deterioration while supporting cost of risk convergence to historical levels. On capital adequacy, total share bond ratio was 10.2 for the quarter, leading to a total services ratio of 12.5%, maintaining comfortable profits above regulatory minimums and supporting our healthy capital position. It is worth mentioning that with the recently announced for Benitez consolidation, our solvency ratio will continue to strengthen in the following quarters. Finally, our guidance for 2021 is for loan growth, expect around 8% to 10%. Our net interest margin target is around 5%. Percent. Cost of risk will be between 2.252.5%. Our fee income ratios will be close to 35%. Our efficiency ratio should be around 50%. And in terms of profitability, our return on assets and our return on equity should come in around 1.312% respectively. Before I continue with our result presentation, I would like to take a moment to thank Mr. Julio Jorge Hermanos for his many contributions along his five year tenure at Banco do Alta. He played a pivotal role in our advantages of transformation and in designing and executing our overall business strategy, targeted at maintaining profitable and sustainable growth. Mr. Rojas will be stepping down from his Executive Vice President position at the end of this morning. The Board of Directors and myself personally in all gratitude wish him the best of his future endeavors. More recently serving as international and treasury vice president. She also previously served as Vice President of Banco de Vorta Trust Company in New York and President of the Fairbank of the Americas. To Hermann, I extend my sincere congratulations. Now I will turn the presentation over to German to comment on the addition for the new shareholders' agreement and to provide an update on our digital strategy. Thank you, Alejandro, and good morning to everyone who has joined our call today. I would like to start by providing an update of the company's recently signed shareholders' agreement, which provides that Banco de Bogota its direct control to Grupo Aval and will no longer consolidate its operation on its financial estate. The rationale behind the agreement was to reinforce Grupo Aval's nature as a financial conglomerate while allowing Banco de Bogota to focus on its banking operations as well as better reflecting the performance of its core business in the consolidated financial statements. Moreover, for the new fees, the consolidation allows Banco de Bogota to optimize its capital structure as I will explain in a few moments. It is important to highlight that, first, for the new ownership structure will no change as a result of these new agreements and second, Banco de Bogota's bottom line will continue to benefit from the business diversification provided by Fort Beny as its resilient results will be accounted through equity method. Now let me address the main financial impact derived from these corporate transactions. As an unconsolidated subsidiary starting on Q3 twenty twenty one, our investment in Ordinis will be reflected as an investment in associates and joint ventures, while our investments and trading assets will register a reduction related to the deconsolidation of Porvenir's portfolio and asset validation reserves, along with a small variation on other accounts. Consequently, Porvenir's liabilities will also be deconsolidated and the non controlling interest account in our equity will no longer reflect the stake of Orbanese that we do not own. As mentioned before, Orbanese results will no longer be included on an account level basis and this bottom line will be recognized via equity method in its proportion according to Banco de Bogota's forty six point nine percent ownership. Simultaneously, the operation will present a profit of 1,300,000,000,000.0 that will enhance our equity and will lead to higher CET1 levels. Our solvency ratios will improve from the transaction at one. It will add CET1 capital, two, we will have lower goodwill deductions and three, reduced RWA. These factors will offset an increase in the deduction of unconsolidated investments leading to an estimated 96 basis point increase in our CET1 level to 9.9% and a total solvency ratio of 13.6%. Finally, I would like to add that this operation will also improve our capital metrics for most rating agencies, orders, solidifying our credit work. On Slide five, we present our digital strategy results for this quarter. One of the pillars of our digital strategy is its permanent evolution as the nature of digitalization is ever changing. Our strategy spans over different dimensions, client facing operations, core digital transformation and data analytics. In all of these, we hold key differentiating factors that support our consistent digital growth. From a client standpoint, our focus has been on continuously fine tuning our digital portfolio so that changing preferences of our customers which is not only shifted during 2020. We had a strong digital infrastructure and faced increasingly digitalized operations, but we did not stop there as we continue to improve and provide the best customer experience possible. Just to mention a few examples, During Q2 twenty twenty one, we upgraded digital components on our digital payroll loans, mortgage payments, micro credit products as well as enhanced our banking platform for enterprise customers. Our digital portfolio is 100% cloud based, easing continued enhancement of existing products and services while promoting testing and development of new ideas. Also, we strive to integrate our new product ideas with our ESG framework. Last May, we launched our Amazonia debit card supporting the for expansion efforts led by NGO saving the Amazon. This card allows our customers to donate 1% of their purchases to support this purpose, complementing our previously launched initiative of financing the planting of one tree for each digital term deposit offering in Colombia. For Aries, two trees planted with customer donations from the Amazonian debit card Banco de Bogota commits to finance the planting of an additional one. As I mentioned, digital transformation of our core operations has always been a priority. In fact, it is a cornerstone of our strategy. Cloud migration of our processes started a few years back leading to 100% cloud integration of our data platforms positively impacting process efficiency, market penetration and rapid reaction. Regarding and last I mentioned data analytics, digitalized operations provide a wealth of information points regarding customer interactions with our channel which informs zero strategy, focused towards the products and services more relevant to our clients, increased digital adoption and profitable local relationships are only made possible by a thorough understanding of their needs which we support through our data analytics tool. In terms of results of our strategy, digital sales growth in Q2 twenty twenty one came in at 57.1% annual growth rate since 2019. That demand for digital solutions have steadily increased positioning our digital channels as the leading sales point. During the first half of twenty twenty one, we sold 881,000 digital units, 2.4 times our twenty nineteen first semester sales leading to a 70% digital sales share of Colombia and close to 30% in Central America. With our traditional banking, our digital growth is based on a disciplined value creation focus where every segment is analyzed in their capacity to generate profitable business when comparing customer life time value with acquisition cost. Thus ensuring that our digital strategy is profitable, scalable and sustainable. Our active digital clients at a consolidated level presented annual growth rate of 31% in Q2 twenty twenty one to a total of over $2,700,000 who performed over $526,000,000 digital transactions during the quarter, representing 86.3% share of total transactions. As digitalized operations become the new normal, we continue to streamline our physical footprint. By the June 2021, our store front count was seven fifty seven, down 21% from 2019 in order to support the self funding nature of our digital strategy by capturing digitalization cost benefit in our resource allocation. Progress on our digital transformation process has been instrumental in the execution of our corporate strategy. With our customers at the center, we continue to improve our NPS score reflecting increased satisfaction satisfaction and evolving on our bank's perception. Also digital results have consistently contributed to our sustainable growth mainly increasing our customer and mortgage solutions. Such expansion is supported by improved risk management through inclusion of more and better data as well as it has to import our cost control efforts. In turn, we remain focused on positively impacting the communities where we operate through our innovative solutions developed to answer to customers' needs. Now I will turn the presentation over to our Head of Corporate Development, FCA and IR, Diego Rosas, who will provide a macroeconomic overview as well as a review of our financial results in further detail. Thank you, Hermann, and good morning, everyone. I would like to start by providing a macro overview in Colombia presented on Slide six. The Colombian economy faced multiple shocks during the second quarter. The third wave of the pandemic started in April and lasted for about three months, while social distancing measures were only implemented during April, thus minimizing economic impact. In May, economic activity was heavily affected by roadblockades during the national strike. With this scenario, the economy slowed down significantly, but continued to show positive variations due to statistical base effects. Moreover, real time indicators show that the greatest impact occurred in the first two weeks of May and the economy quickly showed signs of recovery reversing the shock in June and July. For the second quarter, our economic research team projects an economic growth of 18.5% annually. For 2021, our economists reaffirmed their growth forecast of 7%, but recognize favorable dynamics of the economy, which translate in an upward bias in the projection that could take activity to pre pandemic levels at the end of the year. The rebounding economy has surprised rating agencies and multilateral entities, which improved their 2021 growth forecast. However, the recovery of the economy has only partially benefited the labor market, which registered 20,500,000 employees in May recovering 70% of the jobs lost due to the pandemic. The seasonally adjusted unemployment rate in June was 15.1, still above the level registered in the same month of 2019. Although the economy could return to pre pandemic levels in 2021, the labor market will take longer at the current rate of improvement. Inflation began an upward trend in the second quarter, closing four percent in July after reaching the minimum for the year in March of 1.5%. Monthly results repeatedly surprised, causing an upward revision in market expectation and analyst consensus. The statistical base effect impacted prices, but roadblockades also had an important effect more than doubling annual food inflation to 9.8%. The core measure, excluding food, remained below 3% closing the quarter at 2.9%. Our economic research team expects inflation of 4% at the end of twenty twenty one. The Central Bank has continued with interest rate stability policy at 1.75. However, accelerating inflation and the recovery of the economy has adjusted consensus on market expectations with rate increases projected before year end. Our economic research team forecast three twenty five basis point increases during the remainder of the year starting in September and closing 2021 at 2.5%. The recovery in coal and oil production has impacted the behavior of exports. Imports have benefited from investment goods causing a recurrent deterioration in the trade balance, which registered a twelve month deficit of more than $11,000,000,000 in May. The deterioration will continue in June with a trade deficit of almost $13,000,000,000 the largest in five years. The pandemic caused an increase in public spending and a weakening in fiscal accounts prompting the government to present a second alternative for a tax reform in July after its failed attempt in April. The Ministry of Finance presented a new reform with wider endorsement from businesses and political parties, which seeks to increase tax revenues by COP 15,000,000,000,000. The new tax reform focuses on corporate tax increases, austerity and the fight against tax evasion. Part of the resources will be directed to social programs that were created in the pandemic, such as subsidies for the vulnerable population and payroll subsidies for companies. The project also presented improvements to the fiscal rule, establishing a ceiling for public debt of 71% of GDP and a long term target of 55 of GDP. The new tax reform has greater political support and is expected to be approved in Congress between August and September. In July, Fitch ratings downgraded Colombian's rating from BBB- to BBB plus adjusting the outlook from negative to stable. The decision was expected after a standard and pools move in May. Now two agencies have removed the investment grade from Colombia. Meanwhile, Moody's has mentioned that its decision on the sovereign rating will be made after the tax reform and budget for the 2022 term are approved. Local and external factors impacted the exchange rate in the second quarter, taking it to the highest level of the year. The extension of the roadblocks, social protest and the downgrade of the sovereign rating generated an uptrend in the exchange rate to levels between 3,900 and 4 thousand. In addition, the expectation of an early normalization of monetary policy in The United States and the new variants of the coronavirus in the world negatively impacted risk assets, including emerging market currencies. The vaccination process in Colombia started slowly as in other emerging markets, but accelerated in the second quarter. Additionally, private companies began the immunization process for the employees with 2,100,000 doses. At the end of last week, the country has applied over 31,000,000 vaccines, which represent sixty percent of one shot doses in relation to the size of the population, while thirteen point five million people have completed their vaccination scheme, which means more than a fifth of the population, positioning the country as one of the most dynamic in Latin America. Moving to Page seven, we present the economic outlook in Central America. The IMF forecast that the Central American economy will grow 5.7% this year and 3.8% in 2022. The global recovery, the vaccination rollout in the region and the easing of the confinement measures support the improved outlook after the pandemic shock. The region benefits from the strong U. S. Recovery, the region's main trade and investment partner as well as its main source of remittances. Activity performed February at the beginning of the year. In April of twenty twenty, Central America activity shrunk minus 12% and latest figures showed growth of 15% at a diverging pace among countries due to their own particularities. Last year, Panama, El Salvador and Honduras registered the largest activity contraction in the region due to their dependence on international trade. However, this now supports their strong recovery. Meanwhile, remittances quickly recover and in fact, today their amount exceeds pre pandemic levels in all countries. Most Central American countries have demonstrated economic reactivation. El Salvador revealed in April annual growth of 22%. And in May, Panama, Costa Rica, Guatemala, Honduras and Nicaragua show an annual activity surge of 19%, seven point nine %, eleven point eight %, nine point six % and five point four %, respectively. Growth drivers include remittances increase and dynamic government spending, which has generated reactivation in key sectors such as construction, manufacturing and exports. Furthermore, advances in vaccination programs that have allowed mobility normalization have also favored reactivation and consumption. Since 2020, when monetary policy was sharply relaxed in response to the global health emergency, all central banks in the region have maintained their expensive stance. This remains despite the fact that there are already several emerging economies that have begun to moderate their ultra dovish stance. In light with the global perspective of a reversal of low inflation from the previous year, an inflationary rebound is registered in Central America that could pressure central banks to anticipate the normalization of their monetary policy. For the time being, Costa Rica, Guatemala and Honduras, which are the countries where the interest rate is the main instrument of monetary policy, has kept their interest rates stable with possible increases throughout the remainder of the year in line with action from other central banks in the region. Rating agencies outlooks continue to reflect the impacts of the pandemic in the region given persistent fiscal pressures and doubts on the ability to meet recovery forecast for 2021. Sustained recovery of fiscal metrics, public debt and fiscal deficit will support outlook stabilization in the midterm. In particular, Costa Rica's risk premium has moderated since the agreement with the IMF. The National Assembly has already approved the IMF loan, which in turn represent fiscal consolidation progress. Disbursement depend on the materialization of the macroeconomic plan and fiscal evolution depends on Congress approval of a set of bills, including the reform of public employment. In El Salvador, authorities are holding conversation with the IMF to obtain financing for an additional $1,300,000,000 which will surely be subject to a fiscal and macroeconomic adjustment plan. Discussions include issues about financial stability and the implementation of the cryptocurrency's law. In conclusion, reactivation seem to be the common factor across the region, which we expect will contribute to strengthen the recuperation path of our operation in Colombia and Central America. Before moving into our results presentation, please keep in mind the following. First, as PortVanier's deconsolidation took place in July, our quarter two twenty twenty one results still include PortVanier's operation and our guidance estimation reflect the operating balance sheet structure at the end of the quarter And second, Multifinancial Group's contribution to our consolidated figures is no longer isolated for comparison purposes as the acquisition happened more than a year ago. Now on Slide eight, we present our balance sheet evolution during quarter two twenty twenty one. Total assets amounted to 2 and 21,400,000,000,000.0, increasing 1.6% in annual terms and 1.7% on a quarterly basis. Isolating the FX effect, growth was 1.70.6%, respectively. Regarding asset structure, our loan portfolio leads with 63.1% of total assets followed by other assets with 20.3% and fixed income and equity investment with 12.74%, respectively. Consolidated gross loan portfolio grew 2.9% annually and 2.2% quarterly to a total of 145,900,000,000,000.0. Without the effect of FX, increase were 31.2%. The structure of the gross loan portfolio in terms of economic sector has not changed significantly, maintaining In terms of loan mix, the commercial portfolio represents 57.4% of our consolidated loans as consumer and mortgage segments has slightly increased to 27.814.5% respectively. Quarterly growth in the commercial portfolio was 1.3% or 0.5% excluding FX, reflecting increased market competition for high quality borrowers. The retail portfolio presented healthy increases in line with our strategy of gaining market share in these segments. Consumer and mortgage loans grew 3.63.5% respectively during the quarter. Isolating the effect of foreign exchange growth came in two point four percent and two percent respectively. For 2021, we are returning to target loan growth between 810% reflecting gradual recovery in consumer expectations, increased financing needs from our commercial customers and positive mortgage market dynamics. On Slide nine, we present our consolidated loan portfolio quality metrics. On the top left, our thirty and ninety days PDL ratio for quarter two twenty twenty one came in at 4.83.3%, respectively, increasing seven and eight basis points in the quarter. Stability in our ratios signaled positive payment performance as economies continue to recover and clients have been able to resume payments. Net cost of risk for quarter two twenty twenty one was 2.2%, decreasing 24 basis points quarterly, equivalent to a net provision expense of 7 and 72,300,000,000.0, reflecting its convergence towards historical levels. Pressures on provision expense have seated as a result of our prudential and proactive reserve build up in 2020 and controlled deterioration on the loan portfolio. Results for the quarter support our 2021 guidance for cost of risk within a range of 2.252.5% with an optimistic bias towards the lower limit. We feel confident that our provisioning efforts in 2020 combined with economic reactivation will lead to normalized cost of risk levels. Now moving to the bottom left in quarter two, twenty twenty one charge offs were 0.64x our average ninety days PDLs, lower than our pre pandemic historical average of 0.85x. The lower charge off activities explained mainly by our Colombian operation as we continue to allocate previously constituted provisions to problem loans in our retail portfolio in order to charge off low recovery exposures in the future. Lastly, on the bottom right, we present our allowances coverage metrics, which remain robust at approximately 1.1x for thirty days PDLs and 1.6x for ninety days. In quarter two twenty twenty one, we maintain our allowance coverage at 5.2% of total gross loans. A significant part of this coverage was supported by our qualitative provisioning expense in 2020 derived from COVID-nineteen impacts on our loan portfolio. Continuing on Slide 10, we present regional performance of our loan quality ratios. In Colombia, Thirty Days PDL ratio increased 30 basis points in the quarter, mainly from our commercial portfolio, while the ninety days ratio increased 41 basis points in quarter two twenty twenty one due to our unsecured consumer exposures. As explained before, loan quality deterioration is also explained by a reduction in our charge off levels to 0.47x over nonperforming loans in the quarter, which is below our 0.6x historical average. We continue to update our recovery expectations on these deteriorated exposures in order to charge off loans with low recovery estimations. It is also important to note that our Avianca exposure continues to impact our quality ratios. At the end of quarter two twenty twenty one, total claims were 6 and 42,400,000,000.0, of which 73.8% is secured by ticket sales receivables in Central America, 17 Point 2 Percent is backed by the headquarters building in Bogota and is currently performing and the remaining 9% is unsecured on which we maintain adequate provisioning. Avianca's reorganization proceedings continue to move forward in U. S. Courts and we expect them to address creditors' claims in the upcoming resolution proposal. We feel optimistic about the final agreement, which will eventually positively impact our quality ratios. Regarding net cost of risk, we observed a 48 basis points reduction in the quarter to 2.5%. This is the result contractions, I mentioned before, as well as a score improvement in some corporate clients. In terms of coverage, our allowances to growth loans ratio increased to 7.5, while we maintain a 1.1 times and 1.4 times coverage over thirty days and ninety days PDLs, respectively. Moving to Central America, 30 Day and ninety day delinquency ratios quarterly decreased six and fourteen basis points respectively, largely due to economic reactivation supporting loan normalization in the region, mainly in Guatemala and Honduras. Cost of risk remained stable at 1.9%, reflecting controlled PDL formation in most countries and reserve built up in Panama in line with expected loan performance after the expiration of remaining forbearances. Charge off levels remain stable at 1.1 times for quarter two twenty twenty one and represent 1.8% of average loans in the region. Regarding coverage metrics, thirty days PDL coverage remains at 1.1 times, while ninety days has increased to approximately 2.1 times. Allowances to gross loans coverage is 3.3% for quarter two twenty twenty one. Moving to Slide 11, we show our consolidated loan portfolio quality by segments. Commercial portfolio presents stability on its thirty days PDLs at 4% for quarter two twenty twenty one and a slight quarterly increase of five basis points on its ninety days ratio, mainly from Colombia's portfolio. Consumer portfolio delinquency ratios quarterly increased 15 basis points for thirty days PDLs and 24 basis points for ninety days PDLs as a result of lower charge off levels coupled with increased delinquency in unsecured exposures both in Colombia and Central America. Mortgage loans, thirty days PDL present a two basis points increase in the quarter, while ninety days PDL shows an 11 basis point reduction to 2.6. On Slide 12, we present an update on loan relief programs. At the end of quarter two twenty twenty one, active forbearances were 4.3% of our consolidated loan portfolio, roughly half the level observed in quarter four twenty twenty. Active grace periods are explained by Panama, where the local regulator has extended its relief program on three occasions, now ending in September 2021. It is important to highlight that each extension has increased application requirements and evidence of income reduction for applicants, thus allowing financial institutions greater autonomy to decide on When analyzing Panama's loan portfolio, 20.7% of the loan balance continue with an active grace periods in line with market levels and down from thirty two percent three months ago. After forbearances expire in most of our operating countries, we implemented a second generation relief program, which constitutes a renegotiation of credit terms adjusted to the updated payment capacity of borrowers. On a consolidated level, 10.6 of our loans have been renegotiated. Since August 2020 in Colombia, we started implementing the Programada Companha Miento del Dores PAT whereby 7.9% of the Colombian portfolio has adjusted its loan terms. Regarding Central America, we have implemented initiative leading to 12.8% of the loans in the region having been renegotiated, mainly in Costa Rica and Honduras. In Panama, we have started to offer this alternative to most impacted debtors coming off grace periods. As a reminder, the majority of second generation reliefs do not constitute the forbearance, hence payment performance is adequately reflected on our quality metrics. At the bottom of the slide, you can observe that on a consolidated basis, our current loans have increased to 90.9% in quarter two twenty twenty one from 88.5% last quarter and from 87.1 registered in quarter four, twenty twenty, reflecting payment trends continue to perform better than initially expected. Moving on to Slide 13, we present our funding evolution in quarter two twenty twenty one. The bank's total funding has remained stable amounting to 191,400,000,000,000.0. Annual and quarterly growth rates were both 1.3% when excluding FX growth was 1.40.3% respectively. Our funding structure breakdown is led by 83.1% from deposits, followed by 8.8% from banks and others and 7% from long term bonds. We have also observed a reduction in interbank borrowings to 1.1% in line with higher liquidity levels in the market. Deposits grew 7% year over year and 2.6% quarter over quarter to January. Isolating the FX effect growth was 7.11.5%, respectively. Time deposits contribute with 39.6%, presenting a small reduction, which has been transferred to saving accounts, which now have a 31.1% share on our deposit structure, while checking accounts and other deposits represent 29.10.3%, respectively. The deposits to net loans ratio remains at 1.15x as the increase in deposits has been matched with similar growth in the net loan portfolio. Turning to Slide 14, we present our equity and solvency levels. Total equity for quarter two twenty twenty one was 23,500,000,000,000.0, increasing 4.2% quarterly and 4.7% annually when excluding FX impact. Growth is explained by 8 and 63,400,000,000.0 in attributable net income for the quarter and a $294,000,000,000 increase in OCI. Consequently, our tangible common equity increased to COP 14,400,000,000,000.0, representing a 7.7% quarterly growth, leading to tangible assets. Moving to our capital ratios. We continue to present a solid positioning by maintaining our buffers above regulatory minimums, 400 basis points for CET1 requirement and close to three fifty basis points for total solvency. Total Tier one capital and total solvency ratios decreased 21 basis points and 33 basis points in the quarter respectively, due to: first, peso devaluation had an impact on higher goodwill deductions and higher risk weighted assets from our U. S. Denominated assets and secondly, lower contribution from accounts related with the OCI as we revised the interpretation of the application of Basel III with the Colombian regulator. The above impact were partially mitigated by a quarterly attributable net income of 8 and 63,400,000,000.0. As mentioned earlier, Portvenir's transaction improves Banco de Bogota's capital use. On the bottom chart, we included a pro form a estimation of the impact on our quarter two twenty twenty one solvency ratios. Total Tier one and total solvency will increase to 11.213.6%, respectively, because of first, one point three trillion profit from the transaction second, goodwill from Portvenir's acquisitions for $436,000,000,000 are no longer deducted from our CET1 third, lower risk weighted assets in COP 6,000,000,000,000, mainly from reduction in market risk weighted assets and fourth, aforementioned positive factors more than compensate a higher deduction for unconsolidated equity investment of COP 800,000,000,000. Turning to Slide 15, we present our net interest margin ratios. Net interest income in quarter two twenty twenty one was COP 2,100,000,000,000.0, growing 3.9% on a quarterly basis or 1.7% when excluding FX impact. Main drivers of growth were increased interest income in line with loan portfolio growth combined with interest expense reduction. Consolidated NIM for the quarter was 4.9% with a 36 basis points quarterly increase explained by a stability in lending NIM at 5.6% and a rebound in investment NIM. Specifically, investment margin had a 186 basis points quarterly increase signaling recovery on Banco de Bogota's and Portvenir's fixed income portfolios after a highly volatile quarter one twenty twenty one. Lending NIM remained stable at 5.6%. Yield on loans presented a slight nine basis points contraction as a result of two factors. First, increased market competition for loan repurchases at lower rates and second, our focus on growing in secured lending. We will continue defending our loan portfolio profitability despite increased competition. Average cost of funds for the quarter remained at 2.5% as we mitigated the impact of a low rate environment through a proactive management of our funding sources. In terms of guidance, we maintain our 2021 NIM figure around 5% as a result of increased lending activity for the remainder of the year. Now let's move on to Slide 16, where we present details on our fee and other income. Gross fee income for the quarter remained above COP 1,200,000,000,000.0, contracting 3.6% quarter over quarter and leading to a fee income ratio of 31.8% as a result of: first, quarter '1 '20 '20 '1 was seasonally benefited by Porvenir severance business and second, larger net interest income coupled with improved net gains on investment and foreign exchange position increased the denominator side of the ratio. Regarding other operating income, we observed a 13.7% quarterly growth, mainly explained by an increase in investment gains, which came in at billion for quarter two twenty twenty one compared to a 69,300,000,000.0 loss for quarter one twenty twenty one. This was partially compensated by lower gains from sales of investments. Equity method was 187,300,000,000.0 for quarter two twenty twenty one, presenting a small reduction due to lower dividend income from our other associates. We continue to expect a fee income ratio close to 35% for 2021. On Slide 17, we continue with our efficiency metrics. Total operating expenses increased 3.7% quarterly, 1.2% excluding FX as a result of increased administrative expenses, mainly due to larger marketing, technological and other personal expense. Our efficiency ratio was 49.8% for quarter two twenty twenty one, slightly increasing 43 basis points in the quarter, while we continue to see stability on our cost to asset ratio at 3.4%. In spite of the small increase, we continue to abide by our target of efficiency close to 50% in the remainder of the year. Lastly, on Slide 18, we present our profitability returns for the quarter. Attributable net income was COP 8 and 63,400,000,000.0 in quarter two twenty twenty one, representing a 21.6% quarterly increase as a result of a 4% increase in net interest income and 9.8% reduction in net provision expense and from investment gains on our securities portfolio. Continuing to signal rebound on our operations, our bottom line led to a remarkable quarterly pickup on our return on assets to 1.8%, while return on equity came in at 16%, surpassing our long term goals. I want to highlight that Banco de Bogota's year to date ROAE was around 15%. These results are a tangible proof of our successful approach to overcoming the challenges imposed by the pandemic and reassurance us that our strategy is well cemented and aligned with the core attributes of our business. For the second half of twenty twenty one, we remain committed to providing the best financial solutions for our customers in a profitable, efficient and risk effective manner contributing to our business organic growth. In terms of guidance for 2021, we expect an ROAA of 1.3% and an ROAAE of 12%. Before starting our Q and A session, our guidance for 2021 without including the impact of Porvenir transaction is loan growth between 810% consolidated NIM around 5% cost of risk between 2.252.5% skewed towards the lower end of the range the income ratio close to 35%, efficiency ratio to be around 50%. And regarding profitability, our ROAA and our ROAE should come in at around 1.312%, respectively. Considering that Porvenir deconsolidation present a significant change in our balance sheet structure and P and L figures, the following ratios from our aforementioned 2021 guidance are subject to change. The income ratio will be impacted given that fee income generated by and severance business will no longer be consolidated starting on quarter three, twenty twenty one. Porvenir's result will be recognized through equity method in our P and L. In a similar way, efficiency ratio is expected to improve around 2% to three percentile points as Port veneer's OpEx will no longer be included on account level basis. Provided that the transaction generates a profit of COP 1,300,000,000,000.0, our 2021 ROAA and our ROAE are expected to increase to 1.818% respectively, also reflecting the transaction impact on our total assets and equity. And now we are open to questions. Thank you. We will now begin the question and answer session. Some of the answers may be provided in Spanish and will be immediately translated to English. We have a question from Sebastian Gallego from Credicorp Capital. Please go ahead. Hi, good morning. Thank you for the presentation and congratulations on the results. I have three questions today. Can you comment on the expectations for charge offs, particularly in Colombia in the second half of the year? And maybe if you can elaborate a bit more on the rationale to stay a bit lower than the historical levels, particularly during the second quarter? Second question is regarding cost of risk. You didn't change your guidance on cost of risk compared to the previous call. And I'm just wondering what is the rationale for that? We have seen better economic numbers. We have seen better customer payment behavior. So I'm just wondering why do you stand by with a conservative guidance on cost of risk? And maybe one final question on the guidance, just to clarify the 12% versus the 18% ROE is just the extraordinary gain from the mark to market of the deconsolidation of Porvenir? Or if you can elaborate a little bit more on that will be useful as well. Thank you. Good morning, Sebastian. Thank you very much for your questions. And starting with the first one about the charge offs and why they are below our historical levels is that we were expecting how the Colombian portfolio behaves after the relief measure expired at the end of last year and how this economy will evolve during this year. And we will continue to build up those provisioning. So we are expecting that in a quarterly basis, we're going to be back in this second half to the historical levels of charge offs in Colombia. And with that, reaching our historical levels in charge for the second half of the year. Regarding your second question about the cost of risk guidance and why we are maintaining our range. We are maintaining our range because we still have some expectations or we want to see what happened in Panama after the relief measures expire at the September. However, as I mentioned before during the call, we are expecting that our cost of risk will be skewed to the lower level of our guidance. So it will be something around 2.2%, two point three % for the whole year. You mentioned, things continue to be improving not only here in Colombia but in Central America as well. And things are behaving better than initially expected. And you're right regarding your ROAE question. The 12 does not include the nonrecurring profit of COP 1,300,000,000,000.0 from the markup of Port Denier related to the consolidation that was signed during July of this year. Thank you. Our next question comes from Nicolas Ziva from Bank of America. Please go ahead. Thanks for taking my questions. I have two questions. The first one related to this transaction with Porvenir and Grupo Aval. My question is, is Grupo Aval going to pay Banco do Aguatad to acquire control of Porvenir? And if so, how much? And then my second question on Julio Roca Sarmiento leaving the company. I was reading now the press release from July announcing this. And I wanted to ask you, is he taking another position at Grupo Aval? And so, if you can discuss at all what kind of position? Nicolas, thank you very much for your questions. And regarding your first question, no, Grupo Aval is not going to pay Banco Bogota. As you may know, Grupo Aval before the transaction has already have indirect control over Porvenir as they control the whole shareholders of Porvenir. They have a direct position of 20% of ownership over Porvenir. And through Banco Oxiteno, Fiduciary Oxiteno, Banco Oguatan Fiduciary Oguata, they control the whole 100% of Port Venere. So they are not paying that for any premium for that control because they already have that control over Port Venere. And as Hermann mentioned before, there is not going to be any changes on the ownership structure. So we are not selling our ownership over Porvenir. So there is not going to be any money related transaction in this operation. And regarding your second question about Julio Rojas, he will remain associated to Grupo Aval and Banco de Bogota, although serving at different capacity than his previous executive vice VP position. And he will be working on some projects at Organizacion Luis Carlos Armiantongulu level. So he will remain in the group, in a manner of speaking, and he will be directly involved with Banco de Bogota and Grupo Aval in other capacity. At this moment, we show no other questions. I would like to hand the call over to Mr. Figueroa for closing remarks. Thank you very much to all of you for attending this meeting. And we are open to any other questions that you may have in the future. Thank you very much for attending our meeting. Thank you. This concludes today's conference. Thank you very much for your assistance. You may now disconnect.