Earnings Call: Q1 2021

May 24, 2021

Welcome to the 1Q twenty twenty one Consolidated Results Conference Call. My name is Karen. 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 will now ask that you take your 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. Thank you, Karim. Good morning, ladies and gentlemen, and welcome to Banco de Bogota's Q1 twenty twenty one earnings call. Thank you all for joining us today. We hope that you and your families have continued to stay safe. Our primary commitment has always been and continues to lead our clients, our employees and our broader communities. We have played an active role in fostering development in the the jurisdiction where we operate, as evidenced by our more than one hundred and fifty years in business and as such, I would like to begin by commenting on economic growth in Colombia in the first quarter of twenty twenty one, which drove a much weaker surprise by returning to positive growth of 1.1% after three contractionary quarters. In particular, the savings that contributed to this result were oil services, mainly industrial production and business activities and financial services. This, our course, allowed us to review our projected growth for the year upward from 4.7% to 7%, assuming the recovery continues. Now I would like to share the highlights of our quarterly results. Banco do Huerta attributable to net income for Q1 twenty twenty one amounted to MXN 709,900,000,000.0, increasing 31.3% from Q4 twenty twenty. As a result, our profitability levels were earned to 1.4% return on average assets and a 15.5% returns on average equity. A combination of five less to these results, including a steady net interest and fee income as well as the reduction in provisions and operating expenses. Compared on an annual basis, which is against pre COVID Q1 twenty twenty, net income was only lowered by approximately 4% reflecting almost a full reversal to previous returns. Moving to our key performance ratios. Net interest margin came in at 4.6% for the quarter, mainly impacted by lower yields on our internal portfolio and lower Central Bank interest rates. Fee income came in just below $1,300,000,000,000 for the quarter, 500 in recovery towards the pandemic led and leading to a fee income ratio of 54% to 2%. And thirdly, continued expenses controlled controlled led to a 6.1% annual reduction in operating expenses when excluding foreign exchange on Uzi Financial Group impact. This resulted in a 49.3% efficiency ratio, which is more than 200 basis points better than Q1 twenty twenty. Moving to the balance sheet. Gross loans amounted to 142,700,000,000,000.0, representing an annual increase of 5.8% or 1.4% when excluding the Financial Group and foreign exchange rate. Deposits presented a 7.9% yearly growth or 5.2 excluding foreign exchange management with the Financial Group. Our deposit to net loan ratio for the quarter was 1.15 times, reflecting our current liquidity position. Regarding credit quality, our ninety days pass to loan ratio increased 38 basis points annually, which was expected for variances expired gradually throughout the full year. We closed Q1 twenty twenty one with a 2.4% net cost of risk, sharply contracted from the 3.9% level registered last quarter. Our current approach to provisioning late to high level of expenses throughout 2020, closing last year, we had reserves that should permit our cash of risk in 2021 to convert to a historical level assuming no further deterioration of our operational environment. Finally, on capital adequacy, Q1 twenty twenty one marked the transition to reported solvency ratio on the Basel III standard. 40 Quarterly increase in line with the top end of our previous share estimated range. Total profit was 12.8%, reflecting our growth capital position. In terms of our guidance for 2021, for lower growth, we expect around 8%. Our net interest margin target is around 5%. Cost of risk should start normalizing towards levels between 2.252.5%. Our free import ratio should be closer to 55%. 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 1.211% respectively. Now I would like to hand over the presentation to our Executive Vice President, Mr. Julio Jorge Garmiento, who will provide an overview of our results. Thank you, Alejandro, and good morning to everyone who joined our call today. I'd like to take a few minutes over two key dimensions, digital and ESG. As we have previously shared, one of our business pillars is the continued transition and digitization of our operations. On the next slide, we'll provide some quantitative metrics, but here I'd like to mention a few key initiatives at a higher level. In particular, we focused on improving user experience of our clients in order to increase digital adoption and facilitate twenty four seven access to our financial products and services. In q one twenty twenty one, we launched our new mobile banking app in Colombia, which was entirely developed in house. Not only is this a more efficient solution from a cost perspective, but more importantly, it permits significantly quicker time to market and differentiated product offerings. New features include enhanced security, a more user friendly interface with over 80 transaction possibilities, the integration of products held by our customers and other group of all banks, and access to our digital attention channels. In Central America, we have implemented a new virtual banking interface for both our retail and corporate segments, which was redesigned to improve self-service and access to digital products in addition to continued enhancement of our mobile banking platform. We also take pride in offering one of the most comprehensive digital portfolios through which we are constantly adding new products. In 2020 alone, we launched seven new products, and we are currently piloting several ideas, such as a savings account targeted to the base of the pyramid and SME oriented savings and credit products. Additionally, we are prioritizing the development of digital ecosystems, both in Colombia and Central America with the lease and mobility platform that integrates dealership offers, financing alternatives from our banks and insurance coverage. Fact has also already implemented a real estate platform, and we are in the process of developing something similar in Colombia through Google Bola's digital app. Moreover, in Central America, our ecommerce platforms have supported merchant and customer penetration through initiatives such as Mi Promo and Compratis, while in Colombia, we are increasing our presence in virtual marketplaces. Lastly, we've continued to make progress in the digitalization of our back office operations, allowing us to streamline expenses and reallocate capital. For example, by rolling out our digital client folder initiative, we were able to shift almost 10% of the in branch workforce from internal operations towards once client facing responsibilities. We feel fortunate that the aforementioned efforts have been recognized by international publications, with Global Finance naming us the best digital consumer bank in 2020 and World Finance naming Baccardomatic the best consumer digital bank in the countries where it operates. Another important focus I'd like to highlight is our ESG strategy, which has a few prongs. First, through our sustainable development credit lines, we have financing endeavors that positively impact our environment and society. We have originated more than Ps. 81,500,000,000.0 in Colombia and Ps. $780,000,000 in Central America through these lines as we continue to see sustainable financing as a growth opportunity. We are also committed to making our own operations greener, aiming to achieve carbon neutrality by the implementation of several programs. To give you just a few examples, in Colombia and Central America, we have installed more than six fifty solar panels across different headquarters. We have also joined the Saving the Ants organization in their reforestation efforts by financing the planting of one tree for each digital term deposit open in Colombia. Third, our social outreach programs are incredibly important to us. In Colombia, we far exceed the expectations of our co branded UNICEF debit card supporting Colombian children's welfare. To date, we've issued over a 55,000 cards. In Central America, through Back's Yo Mei Lino initiative, we have donated over 4,000,000 to 280 plus NGOs supporting social programs throughout the region. A fourth component of our strategy is focused on financial education. In Colombia, in addition to providing education tools, we recently launched our Mejores and Pesos Columbiana program with the Competitive Connect Center of New York City, Haryana, in which we seek to advise and support SMEs in their growth plans. In Central America, over 22,000 SMEs have participated in our entrepreneurial educational sessions, and we continue to offer virtual programs aimed at increasing financial inclusion. Finally, both Banco de Rolta and Bec Cardamatic have adhered to several international ESG frameworks, which is the UN Global Contact in order to support the movement toward gaining global sustainable development goals. BAC is a safe inventory of the United Nations Environment Finance Initiative, while Banco de Bogota has adhered to the equator principles and is included in S and P Global sustainability yearbook for 2021. Turning to Slide five, you can see some of the key results around our digital efforts. Since conceptualization of our strategy approximately five years ago, we opted for making the bank's digitalization a core competency as opposed to outsourcing it or creating separate entities. Incorporating digital capabilities into our organization presented its challenges initially. The success successful results we've achieved over the past year as well as the increasing importance of digital on a day to day basis have proven that our initial thesis was correct. This wasn't a nice to have. This was a must have. During 2020, our digital solutions, both from a sales and customer support standpoint, were our most important distribution channels. In q one twenty twenty one, we sold 452,000 units digitally, representing a 64.3 CAGR when compared to Q1 twenty nineteen. You can see that in Colombia, our digital sales share is over 70%, well above the 50% market average, a result that we attribute to the comprehensive portfolio and the implementation of a leading point of sale financing platform across several merchants. In Central America, our digital sales share reflects a tailored strategy to the particularities of each of the six countries where we operate. While the figure is much lower than where we are in Colombia, we nonetheless are leaving the digital banking transformation of the region. Regarding digital users, we have reached a milestone by achieving more than 2,600,000 active users between Bank of the Bogota and Bank at the end of Q1 twenty twenty one, increasing 78% since Q1 twenty nineteen. This is a result of our continued efforts to improve our mobile and virtual banking platforms, which in turn help us reach higher levels of digital adoption. On the bottom left, you can see that our digital platforms continue to be our customers' preferred channel in which to perform transactions, with a 26.4% CAGR and noted five zero two million digital transactions performed during Q1 twenty twenty one. In fact, 86% of our total transactions are now digital. Regarding our omnichannel strategy, we have continued implementing digital formats in our branches, reaching 46 digital branches by March 2021. Transformation of our storefront adds to the satisfaction of our customers, evidenced by the increase in our net promoter score, which correlates to brand loyalty. This has been complemented with an optimization of our branch network, where we have closed 162 full service locations over the last two years, ensuring sustained efficiency in our operations as our digital investments are self funded by a cost effective reallocation of resources. Now I will turn the presentation over to our Head of Corporate Development, FP and A and IR. Mr. Diego Rosas, will provide a macroeconomic overview as well as review our financial results in further detail. Thank you, Julio, and good morning, everyone. I would like to start by providing a macro overview on Colombia presented on Slide six. Colombia faced the second peak of the pandemic at the beginning of the year, affecting the recovery of the economy, although with a milder impact than in the previous peak phase in quarter three twenty twenty. The reopening of the economy during February and March was enough to register annual growth of 1.1% in the first quarter. The monthly activity data shows that the biggest shock occurred in January with growth picking up to 12% in March. For quarter two twenty twenty one, the high frequency indicators started showing an impact from the third wave of the pandemic, which peaked in April and led local authorities to take new social distancing measures. However, beginning in April, the statistical base effect will be observed, which will should lead the economy to positive annual variations for the remainder of the year. For the month of May, real time data point towards lower activity due to road blockings around the country. The final impact will depend on the extent of this. Nevertheless, the good results from activity in the first quarter led to our economic research team to review their 2020 growth forecast from 4.7% to 7%. Based on the fact that in March, both the primary and tertiary sectors in monthly terms reached pre pandemic production levels, an event that was not expected to happen as soon as it did. Furthermore, upward revisions in growth expectations have been plenty so far this year with entities such as the Central Bank, the International Monetary Fund and rating agencies, all of whom are more optimistic with the recovery of the Colombian economy in 2021. The second peak of infections in January also affected the labor market, causing the recovery of the jobs lost from the pandemic. Nonetheless, the gradual reopening of the economy in February and March led to a recovery of 80% of the jobs lost during the pandemic with the number of employed Colombians again exceeding 21,000,000 people. The seasonally adjusted unemployment rate was 13.9% in March, still higher than before the pandemic. Inflation continued to decline in the first quarter, closing at 1.5 annually, although the monthly results have surprised analysts and the Central Bank, causing an upward revision in year end expectations. In recent months, food and utilities have explained the positive surprises in consumer prices. For April, inflation picked it up to 2%, reaching the lower end of the Central Bank target. Our economic research team forecast inflation of 3.2% for 2021. The persistent weakness in activity and the relatively good behavior of inflation have led the Central Bank to keep the interest rate at 1.75%. Our economic research team and most analysts expect stability to remain in 2021 and only until the first half of twenty twenty two will the first increases occur. The pandemic caused a deterioration in the physical accounts with a deficit of almost minus 8% of GDP last year and possibly higher in 2021, while public debt will be around 65% of GDP for the central government. To face the complex fiscal situation, the government presented a tax reform to congress that did not garner political and social support. This precipitated the resignation of the minister of finance, mister Alberto Caracilla, being replaced by mister Jose Manuel Restrepo, who previously served as minister of commerce, industry, and tourism. The new minister will seek consensus to build a tax reform that will raise 14,000,000,000,000 pesos. To increase tax collection, the new minister has mentioned surges on income tax rates for individuals and companies, taxes on dividends and extension of the wealth tax. The new tax reform should be accompanied by the renewal of the fiscal rule seeking to maintain the sustainability of public accounts. In the short term, some uncertainty perceived around the discussion of these proposals, but Colombia has always been characterized by its commitment to fulfill its obligation and by its compromise to achieve measures to improve its fiscal status. Standard and Poor's lowered Colombian sovereign rating from BBB minus to BB plus and changed the outlook from negative to stable after ten years of having investment grade with this agency. The political or social context added to concerns about the fiscal situation. The other rating agencies must also be apprehensive about this situation, Fitch could make an announcement in the short term downgrading the rating and technically leading the country to lose investment grade. The risk is lowered with Moody's given that it breaks the country too much about investment grade. Regarding the impact on the country's financing, the modest reaction of interest rate markets and the exchange rate confirmed that the downgrade scenario has already been discounted, also limiting the impact on the economy. Volatility continued in the foreign exchange market. In the first part of the year, the exchange rate trade below 3,500 per dollar, but the change in expectation from our earlier than expected normalization of US monetary policy caused a devaluation, bringing the exchange rate above 3,700 pesos. Finally, exports and imports have registered a similar behavior in the past months, keeping the trade imbalance above $10,000,000,000 The weakness of coal and oil production has limited the recovery of exports, while imports remain constrained by weak economic activity, although they have been recovering. Moving to Slide seven, we present the macroevolution in Central America. The most recent estimate from the International Monetary Fund for the Central America region is that activity shrunk minus 7.6% in 2020. This reflects the impact of harder confinement measures in Panama to contain the pandemic and external demand weakness. However, the region benefited from the reduction in the old bills from the previous year with a favorable impact on its external accounts. It is worth mentioning that Panama, El Salvador, and Honduras presented the largest activity contraction in the region due to their high exposure to international trade. However, the Central American economy started to recover in the second half of twenty twenty. This process paused at the end of the year due to the partial renewal of containment measures, but at the January 2021, the process resumed. In light with the moderation of confinement, but also with the reactivation of global activity, the Central American economy regained its footage. Besides the vigorous of remittance inflows, has mainly favored Honduras, El Salvador, Guatemala, Nicaragua has also helped the recovery. After the challenging economic context of 2020, the IMF forecast the region will grow 5.7% in 2021. This outlook is more favorable than the one estimated in October when the forecast was 3.5%. An improvement in economic confidence related to the local vaccination process is expected as some countries pull ahead from the average of emerging economies. Besides, the countries affected by storm Ita and Yota has planned infrastructure reconstruction works, which will add to the economic growth. From the external perspective, the solid U. S. Recovery, the region's main trading partner, will be a favorable tailwind through trade and remittances. As the global vaccination process advances, a consolidation of the best external conditions for the region is expected. I would like to highlight the expectation of Panama's economic recovery, which is expected to have the best growth in the region this year coming in at 12%. International trade should considerably favor Panama not only because of its external openness, but also because of the canal's activity. In addition, while the spread of the virus last year pushed Panama to establish strict containment measures, this year now it seems more favorable as its vaccination progress exceeds that of other emerging countries relative to the size of its population. Moving to monetary policy, all central banks in the region kept their expensive monetary policies, the result of a significant reaction to the health emergency. In light with the global perspective of our reversal in these factors that kept inflation low during last year, an inflationary rebound in Central America that could lead central banks to anticipate the normalization of their monetary policy in the medium term. After the pandemic hit, the fiscal outlook for most of the countries in the region deteriorated. Rating agencies changed the sovereign debt outlook to negative in most countries. However, great attention is in Panama, Costa Rica, and El Salvador. Although all rating agencies downgrade in Panama showing debt, there is no perceived risk of investment grade loss as economic recovery supported on global trade pickup, reinforcing Canal's activity, economic reopening and vaccination process offsetting further downgrade risk. Additionally, Panama has been able to access financing both from the IMF and the markets, the latest being a $2,700,000,000 loan from the IMF precautionary and liquidity line disbursed in January. For its part, Costa Rica was also downgraded and maintained a negative outlook. Additional rating costs are not being probable as the IMF approved a $1,750,000,000 loan to support the country's macroeconomic stabilization. Thus, an improvement or degradation in the rating depends largely on the approval of the program outlined between the economic authorities and the IMF in the National Assembly. Similarly, Salvadorian authorities are in talks with the IMF to obtain financing for $1,300,000,000 which will surely be conditioned to our macroeconomic stabilization plan, hence mitigating credit risks. Regarding Guatemala, Honduras and Nicaragua, stability in most of the ratings and access to financing lines of the IMF and other multilaterals as well as market resources reduce rating downgrade risk. Having reviewed the main economic highlights on Slide eight, we move to the detail of our results for the first quarter of twenty twenty one. Regarding the evolutions of our balance sheet, total assets reached $218,000,000,000,000, growing 5% on a yearly basis and 4.5% quarterly. Excluding FX impact, assets increased 10.20.7%, respectively. In terms of composition, our assets breakdown is laid by the loan portfolio, representing 62.8 of total assets, while other assets, fixed income investment and equity investments represent 20.1%, thirteen point two % and three point nine %, respectively. The consolidated gross loan portfolio amounted to 142,700,000,000,000.0, increasing 5.8 annually and 5% on a quarterly basis. Excluding Multi Financial's portfolio and FX, gross loan increased 1.4% yearly and 1.3% in quarter one. Our highly diversified portfolio across economic sectors continues to benefit our quarterly results supported by the growth of our commercial, consumer and mortgage portfolios. First, our commercial loan book representing 58% of the gross loan portfolio grew 1.5% during the quarter when excluding NFC and FX impacts. In light with economic recovery dynamics, we are observing a slight increase in corporate credit appetite, which led to a 1.61.4% quarterly growth in Colombia and Central America, respectively. Consumer loans quarterly increased 0.6% when isolating MFE and FX fluctuations, compromising 27% of our total loan portfolio. Conservative lending and lower demand both in Colombia and Central America have led to a more nuanced growth in this segment. On the mortgage side, we continue to observe momentum with that 1.9% quarterly growth after NFE and FX reaching a 14% share of our loan mix. Our preference for secured lending and positive reception of our digital mortgage products have supported growth. As previously shared, for 2021, we expect loan growth to be around 8%. Turning to Slide nine, we present our consolidated loan portfolio quality. Starting with PDLs, on the top left, we see a stable thirty day PDR ratio at 4.7% and a slight quarterly improvement in a ninety day PDLs, which reached 3.2% as of March 2021. This behavior is mainly explained by a generalized economic reactivation supporting adequate payment performance and the implementation of renegotiations for most affected borrowers. Consolidated net cost of risk shown on the top right decreased to 2.4%, which represents a quarterly improvement of 146 basis points driven by lower provision expense. As we have previously shared, our conservative and preemptive approach to reserve build up led to a significant provision increase throughout 2020 in order to adequately cover expected deterioration in 2021. Net provisions totaled $834,000,000,000, a decrease of more than MXN 500,000,000,000 versus quarter four twenty twenty, in line with our guidance of a cost of risk between 2.252.5% for 2021. On the bottom left, we observed that our charge off ratio increased to 0.88x, mainly coming from an increase in the Colombian operation. These charge offs obey the expected portfolio performance on a portion of the loans that migrated into default after relief measures expire. From a coverage ratio perspective, in quarter one twenty twenty one, coverage remained in line with previous quarter levels with allowances that cover more than 1.6 times our ninety days PDLs and 1.1x our thirty days past due loans. Our allowance to gross loans ratio stands at 5.2%. On Slide 10, we present the geographical breakdown in our quality ratios. In Colombia, at the March, our thirty day and ninety day PDL ratios grew 20 basis points and five basis points compared to the previous quarter, mainly explained by the expected rearmigration after grace periods expire, mostly on unsecured consumer loans. As we mentioned in previous calls, Avianca represents our most significant exposure with a 6 and 36,400,000.0 principal, of which 73.1% is backed by credit card receivables, 17.9% has a real estate guarantee on the company's headquarters in Bogota, and 8.9% is unsecured. At the end of quarter one twenty twenty one, we had reached a 44.5% provision level of the consolidated loan balance. As Avianca continues its reorganization proceedings, we have actively engaged in conversation and are optimistic that we are close on coming to a conclusion that it is beneficial for both parties. Net cost of risk decreased 197 basis points in the quarter to 3%, giving a 39.5% contraction in provision expenses versus quarter four twenty twenty, as we previously explained. We maintain a coverage level above 1.1 times for thirty days PDLs and close to 1.5 times for ninety days PDLs. Moving to our Central American operation. Regarding loan quality in the region, we see a stable thirty ninety day CDL ratios as portfolio performance has benefited from a pickup in economic activity. Moving to net cost of risk. There was a significant improvement to 1.9% from 2.9% on the previous quarter as provision expense levels begin to converge to pre pandemic figures. These levels are supported by economic reactivation, validating our macro forecast used in our expected loss model and controlled PDL formations. Charge off ratios remain in line with historical levels as active forbearances, excluding Panama, are minimum and most impacted loans rolled out into default. Coverage levels in Central America are 1.1x for thirty days PDLs and 1.9x for ninety days past due loans. On Slide 11, we present a breakdown by segments of our consolidated loan portfolio quality in terms of thirty and ninety days PDLs. In the commercial loan portfolio, our delinquency ratios decreased 70 basis points and 28 basis points in the quarter, respectively. This was partly due to the charge offs performed during the quarter, which were itemized across exposure as there was no relevant single name concentration. The deterioration in PDL ratios for consumer loans is mainly explained by Colombia and secured products such as personal loans, credit cards, and revolving lines coming off of relief measures. Finally, both thirty and ninety day PDLs on the mortgage portfolio remained relatively stable compared to previous quarter at 4.52.7%, respectively. On Slide 12, we provide an update on our loan relief program. By the end of quarter one twenty twenty one, '6 point '8 percent of our consolidated loan book is still benefiting from a grace period, down from 8.2% at the end of twenty twenty. Most of these active reliefs belong to our Panamanian portfolio, both from BAC and MFC as moratorium is in place until June 2021. Panama explains 11.3 percentage points of the 12.6% share of loans with an active first generation relief in Central America. Regarding second generation reliefs, where we provide structural solutions through our renegotiation of credit conditions, we have a quarterly increase from 7.1% to 8.4% at the end of quarter one twenty twenty one on a consolidated basis. In Colombia, these second generation measures are granted under the program. 7.3% of our local loan book has renegotiated its credit conditions up from 6% last quarter. It is important to note that application to the past program can be requested until 06/30/2021 as mandated by the local regulator. In Central America, we have implemented similar initiatives with 9.3% of our portfolio having been renegotiated, increasing from an 8.2% level registered at quarter four twenty twenty. Honduras and Costa Rica contribute with over 70% of the renegotiations. Finally, I would like to highlight the positive payment performance that we have observed on our loan portfolio. 88.5% is performing by the end of quarter one, increasing from 87.1% at the end of twenty twenty. Slide 13 presents a breakdown of our funding structure. Total funding amounted to 188,900,000,000,000.0 in March 2021, which represented an increase of 5.1% versus quarter four twenty twenty. When excluding the impact of FX and MFC, quarterly growth was 1.5%. As of March 2021, funding was mainly compromised of deposits, which represents 82% of total funding, followed by banks and others with 8.5% decreasing over the last quarter as a result of a continued optimization of funding sources. Moving to long term bonds. We note an increase due to the ordinary bond issuance in February 2021 that amounted to 600,000,000. This issuance is the second of our bond issuance program in Colombia. As a result, bonds at the end of the quarter accounted for 7%. Lastly, interbank borrowings added to the remaining 2.5% to our total funding. As presented on the top right, deposits totaled 155,000,000,000,000, increasing 7.9% year over year and 5.2% excluding the FX and MFG effects. Deposit composition remained similar to quarter four twenty twenty. Our deposit to net loans ratio remained stable at 1.5 let me rephrase that, 1.15x in the quarter. Let's continue with Slide 14, where we present our equity and solvency levels. Total equity was 22,300,000,000,000.0 at 03/31/2021, representing an annual growth of 2.31% quarterly reduction. Positive accretion to our equity during the quarter includes a reserves increase as approved by the General Shareholders' Meeting held on March 25 and a 41.3% increase in other comprehensive income to 1,370,000,000,000.00. Expected seasonality on the net income account negatively impacted the equity as it includes only the results from the first quarter instead of the full year accumulated earnings as it was indicated in quarter four twenty twenty, leading to the aforementioned 1% quarterly decline. Regarding consolidated solvency ratios, our total Tier one was 10.4%, which includes a CET1 of 9.1% and an AT1 of 1.2% under Basel III standards, very much in line with our previous projection and well above the minimum regulatory requirements. Tier two stands at 2.5%, reflecting the annual reduction in capital grade of our subordinated issuances, leading total solvency ratio to 12.8%. Under Basel III, our total Tier one capital increased mainly due to three elements. First, the reduction in credit risk weighted assets density second, the recognition of current period retained earnings and additional reserves at CET1 Capital and third, a more efficient treatment of our nonconsolidated significant investments. Partially offsetting that increase was, first, the goodwill associated with the acquisition of Banco de la Matica and Mega Banco are no longer grandfathered as per previous regulation and in turn have been deducted in full from our CET1 calculation. Secondly, over the next three years, our CET1 will gradually recognize our OCI foreign currency translation adjustments. This is related to the hedging strategy of our Central America operation, which in large part was mandated by Colombian regulation. We expect that the bank's organic generation of capital and balance sheet optimization will replace this over time with a current view of being around 9% on higher CET1 in the medium term. Moving to Slide 15, we show the evolution of net interest income. Net interest income for quarter one twenty twenty one was COP 2,000,000,000,000, showing annual and quarterly growth of 0.50.7%, respectively, when excluding the effect of currency fluctuations. Total NIM for the quarter was 4.6%, contracting 18 basis points when excluding MFE versus quarter one twenty twenty, driven by a lower lending NIM, particularly in Central America. Quarterly movements on total NIM are due to a lower investment margins, primarily in Colombia as a result of more muted rate movements and lower gain generated from the fixed income portfolio. This impacted both Banco de Bogota and Porvenir. For 2021, NIM is expected to be around 5% as we expect stability of benchmark interest rates for the remainder of the year. On Slide 16, we provide detail on fees and other income. Gross fee income in quarter one twenty twenty one remained at similar levels to those of last quarter and one year ago at COP 1 point 3 trillion. This is the second consecutive quarter that we have seen consolidated fee income at pre pandemic levels, reflecting the strength of banking and pension fees, which have taken a toll especially in second quarter of twenty twenty. Consequently, our fee income ratio rebound to 34.2%. Our fee income contribution comes mainly from banking and from pension fees at 69.625%, respectively. The labor show a 4.6 increase explained by seasonality in Porvenir mainly from the severance business. On the other hand, credit card fees were impacted negatively as there was still some decline in usage present. In terms of guidance, we foresee a fee income ratio around 35% supported transactionality, reflecting increased economic activity. At the bottom of the slide, you will find the details of our total other operating income, which show a 30.2% annual increase explained by the following: Equity method, which is mainly driven by Corficolombiana's result, increased 15.6% annually as progress on infrastructure projects and dynamics on the energy business recover throughout 2020. Moreover, quarterly results were also supported by higher dividend income from Empreza Energia de Bogota. Other income closed at 191,100,000,000.0, increasing 79.4% on a yearly basis, driven from net gains of investment sales in Costa Rica, Panama and Guatemala. On a quarterly basis, we observed a 46% reduction in our net derivative and foreign exchange gains as in quarter four twenty twenty. We repatriated dividends from our foreign subsidiaries increasing our foreign exchange gains. Now let's continue with our efficiency metrics presented on Slide 17. Our efficiency ratio closed at 49.3% in the first quarter of twenty twenty one, reflecting an improvement of two sixteen basis points over the same period in 2020. Excluding MFC, efficiency will have been 49%. It is important to underscore our cost control efforts demonstrated by a 6.1% annual decrease in operating expenses, excluding MFE and FX impacts. As we have mentioned before, improvement in our operations efficiency is a strategic pillar with administrative expense reduction, especially through optimization of the branch network and continued emphasis on digitalization, driving efficiency levels below our guided 50%. This is an even more important level to generate returns in this type of environment, where revenue is facing headwinds from lower Central Bank rates and still reduced consumer activity. In quarterly terms, deterioration of the efficiency ratio is primarily explained by the denominator side of the equation. Our cost to asset ratio also reflects the results in efficiency with a 40 basis point decrease in annual terms to 3.4%. As we continue to strictly control our expenses, our target efficiency ratio is around 53% for 2021. Turning to the last slide, we present our net income and profitability ratios. During the quarter, attributable net income totaled 709,900,000,000.0, decreasing only 3.9% annually versus quarter one twenty twenty, which in Latin America was predominantly pre COVID period. In particular, stability on net interest income and net fee income combined with a decreased provision expense and savings in general and administrative costs explained the 31.3% quarterly increase of our bottom line. Our positive net income results led to a strong profitability. During the quarter, return on assets reached 1.4% and will maintain a solid two digit return on equity of 13.5%. For 2021, our ROAA and our ROAE should come in at around 1.211%, respectively. Before starting our Q and A session, our guidance for 2021 is loan growth around 8% consolidated NIM around 5%, cost of risk between 2.252.5%, fee income ratio close to 35%, efficiency ratio to be around 50%. And regarding profitability, our ROAA and our ROAE should come in at around 1.211% respectively. And now we are open to questions. Thank you. We will now begin the question and answer session. And we do have our first question from Daniel Mora from Credit Corp. Hi, good morning and thank you for the presentation. I have today several questions. The first one is regarding capital ratios. Do you feel comfortable with the current level of the CET1 ratio under Basel III standards considering that main peers in Colombia reported this indicator about 11%? Or are you planning any strategy to improve the CET1 ratio? The second question is regarding provision expenses. We observed a strong quarterly reduction in the cost of risk. Can we expect a similar trend around these levels in the coming quarters? Or there could be any pressures considering the current social unrest in Colombia? And the third and last question is the profitability guidance was around 11% for 2021. But this number seems low considering the 13.5% reach in the first quarter. What will be the drivers for this reduction during the coming quarters? Thank you so much. Great. Thank you, Anyen, for your questions, and maybe I'll take them in order. So your first question was around capital and whether we feel comfortable with the approximately 9% know, just about 9% core equity tier one. And the answer to that is that we do. We feel that, for a couple of reasons. I think, one, when you look at our organic capital generation as we have a higher ROE than Pearson have over the recent period, that provides us with an ability to organically generate capital, more quickly. I think secondly, you know, it is a reflection of that the way that we want to manage capital is we want to be comfortably above regulatory minimum. But on the flip side, we don't want to be overly capitalized. And I think maybe perhaps it also reflects kind of our outlook that we feel that the credit situation and this is going maybe into the second question, we don't expect significant deterioration around credit, like perhaps others doing. I don't know the answer to that, but we feel that the loan book is it's fairly well contained. All of that obviously depends upon how the situation, particularly in Colombia, continues to unfold. In Central America, we haven't seen anything similar, but it will depend on how the situation in Colombia continues to unfold. So it's a situation on cost of risk. As you saw for this past quarter, our cost of risk net of recoveries was 2.4%. We're guiding in the 2.25% to 2.5% range. We feel like we have a reserve established last year, which was part of the jump in the Q4 numbers in particular. And for now, as long as the situation in Colombia and the economic reactivation continues, our expectation is that it will after the current tensions die down, that should provide our ability to generate a cost of risk that's roughly in that range. To your third question around profitability guidance, you're right that our ROE for the quarter is above the ROE that we're sort of guiding towards on a full year basis. There's an element of seasonality, a bit around fees. There's a bit of seasonality question around operating expenses. And just as we put it all together, think that 11% is probably a conservative number to guide to. You know, generally, we've sort of beaten that in the past, but I think 11% is a reasonable number to guide to given sort of what we're seeing for the rest of the year, which to be in double digits again this year is positive from our perspective. Perfect. And it looks like we have no further questions at this time. Now I'll return the call over to Mr. Frigeroa for closing remarks. Thank you very much for all of you for attending the meeting and we hope that you and your family stay well. Thank you very much again. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.