Good morning, ladies and gentlemen, and welcome to Bancolombia's fourth quarter 2021 earnings conference call. My name is Maria, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. During the question and answer session, if you have a question, please press star then one on your phone. Please note that this conference is being recorded. Please note that this conference call will include the forward-looking statements, including statements related to our future performance, capital position, credit-related expenses and credit losses. All forward-looking statements, whether made in this conference call, in future filings, in press releases or verbally address matters that involve risk and uncertainty.
Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency, exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our target clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Mauricio Rosillo, Chief Corporate Officer, Mr. José Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, Mr. Carlos Baena, Investor Relations Director, and Mr. Juan Pablo Espinosa, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.
Good morning and welcome to our conference call for the fourth quarter of 2021. I would like to begin this call with a brief overview of the performance of the Colombian economy. Colombia is coming out of the COVID-19 pandemic as one of the best performing economies in the region, with an annual GDP growth of 10.6%, mainly driven by the exposure to commodity prices and by the strong pace of recovery of domestic demand. The positive performance of the second half of the year set up the economy for a good 2022. We expect growth to be around 5% above the average of the region. The main risks to our view are the uncertainty surrounding the electoral cycle and inflation higher than the range of the central bank. Let me give you an overview of the results of 2021.
The loan book grew 15% over the year and net fees grew 13%. Core Equity Tier 1 closed at 11.9%, and the net income for 2021 was COP 4.1 trillion. Provision charges for the year were COP 2.4 trillion, resulting in a historical low cost of risk of 1.2%, explained by better macroeconomic forecasts, improvements in the expected loss models, and the economic recovery in the countries where we operate. Our ecosystem strategy closed 2021 as one of the most relevant marketplaces in Colombia, with 11.5 million visits, COP 87 billion in disbursements, and with a coverage of our QR code in 100% of the municipalities of Colombia with 1 million engaged merchants.
This strategy not only has great potential in terms of flows and disbursements through the digital channels, but it has also allow us to deepen the relationship with our clients, generating more data. Before getting into the details of the results, I want to highlight two relevant topics. On December 2021, we announced the legal separation of Nequi from Bancolombia. The structure approved by the board of directors is intended to create the necessary vehicles for Nequi to have greater flexibility, seeking to capture the value of financial and non-financial businesses at a regional level. This will be implemented during 2022, and this new entity will be 100% owned by Bancolombia. Also, yesterday we announced the dividend proposal to be discussed in the annual shareholders meeting next March. This proposal comes with a structural change in the dividend policy.
Since we have defined an optimal level of Core Equity Tier 1 to support the growth we expect. We believe the bank has the capacity to generate capital on a sustained basis in the upcoming years. At this point, I want to turn the presentation to Juan Pablo Espinosa, who will further elaborate on the performance of the Colombian economy. Juan Pablo?
Thank you, Juan Carlos. Now please go to slide number three in the presentation. During 2021, the Colombian economy surpassed expectations and grew 10.6%, one of the highest rates in Latin America. Around half of this figure is explained by the low base of 2020, when GDP contracted at a revised rate of 7%. The remaining portion represents a genuine process of recovery, which has been led by private consumption. This component of aggregate demand has responded to several factors, including the spending of excess savings accumulated at the start of the pandemic, as well as ample access to credit and higher mobility within the country. Moreover, exports accelerating during the second half of 2021, thanks to higher commodity prices and an increase in oil and mining production.
On the contrary, investment, especially in machinery and equipment, fell behind the rest of demand components. Our leading indicators suggest that at the start of 2022, the pace of economic activity, despite some stabilization, has kept momentum. As we move through the year, we expect that economic activity will gradually moderate as global conditions become less supportive, policy stimulus is removed, and household consumption stabilizes. Incorporating all these factors, we are currently estimating that in 2022, GDP will grow around 5%. Another significant recent development is the increase in inflation, which moved from 1.6% at the end of 2020 to 5.6% by December 2021. This trend has consolidated recently because of both external and local forces.
We expect year-on-year prints to peak in the short term around 8% and then to accelerate and close the year around 6%. In this context, we anticipate that the central bank will advance further in its process of policy normalization. We have adjusted upwards not only the number of rate hikes, but also the terminal level of repo rate in this cycle to 6.5%. After this economic overview, let me turn the presentations back to Juan Carlos Mora. Juan?
Thank you, Juan Pablo. Moving to slide four, I want to continue this presentation with a summary of how we faced the pandemic. During this challenging time, our main goal was to support our different stakeholders. For those clients that needed support with their obligations, we applied the debtor support program. As not all clients recover at the same rate, at Bancolombia, we continue to offer alternatives for debtors even after the program has ended. We reduced payment terms to 30 days or less for our suppliers, giving priority to those that, due to their size and possibility of financial leverage, needed more liquidity. Through our channels, we continue helping the government in the delivery of subsidies for vulnerable households in all corners of the country, as well as companies whose operations were affected by the pandemic.
We support the vaccination plan, accompanying the government with resources for the purchase of vaccines, donating 22,000 doses. We have also implemented a hybrid work model to keep supporting our employees. On slide five we present our ESG framework. Our ESG strategy focuses on three main topics: strengthening the productive network, promoting sustainable cities and communities, and fostering financial inclusion. In each of these aspects, we observed considerable progress comparing 2020 and 2021. In 2021, we mobilized almost COP 37 trillion towards our ESG strategy, exceeding our COP 30 trillion goal. This amount represents more than 20% of Bancolombia's disbursements.
We have a commitment to promote sectors that drives the transition to a low carbon economy, where we disbursed in 2021 close to COP 4.6 trillion in activities such as sustainable construction, electric and hybrid mobility, renewable energies, circular economy, sustainable agriculture, among others. Moving to slide six, I want to continue this presentation by explaining the loans and deposits performance. The recovery of the economy has resulted in significant progress in our business. We have experienced an important growth in the number of clients, reaching more than 25 million, improved our offer of products and services, and strengthened our digital strategy. All this is clearly reflected in the performance of the loans and deposits. The loan book continue showing a steady growth across the three main segments. This trend confirms that the bank overcame the economic shock of the pandemic without relevant implication of its financial stability.
The retail and mortgage segments showed a positive trend throughout the year, whereas the commercial segment started to improve since the second half. In this last segment, we are seeing a good opportunity of growth in SMEs. During the first three quarters of the year, we increased the balance in saving and checking accounts, and this was compensated with a decrease in time deposits. However, as the central bank started the rate hiking cycle and the loan book grew at a better pace, in the last quarter, the balance in time deposits increased to support this growth. Moving to slide seven, I'm going to elaborate in the evolution of digital sales. During the year, digital sales represented 43% of total sales. Digital sales have maintained a steady evolution despite the reactivation of traditional channels. During 2021, the customers accelerated the adoption of digital channels.
In slide eight, I'm going to elaborate in the evolution of our payments services. One of the main strengths of the bank is the level of processed transactions. As you can observe on this slide, credit and debit cards transactions volume returned to pre-COVID levels, while the net fees have already exceed pre-COVID figures. I would like to highlight that in both debit and credit cards, our share of transaction is far higher than our share of outstanding cards, showing the power of our channels. A fact worth noting is the composition of debit card fees. Fees generated by merchants transactions has remarkably increased during the last few years. Indeed, the acquiring business has expanded its share within the total revenue, leveraged on the growth of POS adoption as well as electronic payments evolution.
As a result, monthly maintenance fees for individual accounts have a lower participation, showing progression towards diversifying sources of income. Moving to slide nine, I am going to elaborate about Nequi. Nequi continues showing positive trends. We closed 2021 with 10 million clients, COP 1.3 trillion in deposits, high levels of NPS, and low acquisition cost. During December, Nequi reached 1 million daily active users, of which almost 30% use the marketplace. Nequi cards are growing fast. We have more than doubled the number reported 12 months ago. Bear in mind that we are not only issuing more plastics, the number of transactions and the volume of payments are increasing at a very solid pace. As a result of the information that we have gathered from our clients, during the last quarter of the year, Nequi's loan book started showing a very positive trend.
Moving from an average balance of COP 1.3 billion in the third quarter to COP 39 billion in the fourth quarter. Now, I want to turn the presentation to José Humberto Acosta to give you additional details on our performance during 2021. José Humberto?
Thank you, Juan Carlos. Now turning to slide 10, I want to walk you through the evolution of the relief program. Credit reliefs are almost done, with only 1.9% of the consolidated loan book under relief. During 2022, it will be key to follow the evolution of the duration, restructured loans, and charge-offs. The trend in the geographies where the bank operates were similar. Less provisions and better loan quality indicators when compared with 2020. In slide 11, we present the breakdown of provisions during the quarter. Provision charges for the year were COP 2.4 trillion, mainly explained by the provision reversal due to a better macroeconomic forecast and less provisions related to COVID-19. In the slide, you can observe in different points of time the forecast of GDP we had for 2021 in each of the four countries where we have presence.
For example, we started 2021 with an estimate of 5.7% GDP growth in Colombia and finished the year with one of 10.2%. Moving to slide 12, we give you a snapshot of provisions and asset quality. Cost of risk for the year was 1.2%, lower than the normalized cost of risk this bank should have under normal circumstances. As we explained in the previous slides, the main drivers were economic recovery, less provisions related to significant impaired clients, and improvements in the expected close models. During this year, charge-offs have increased 86% when compared with 2020, driven by the retail segment. This has two important impacts. First, it reduces the balance of the loan portfolio, and second, it helps reduce the past due loans.
I want to highlight the 90 days coverage level of 231% with which we closed 2021. This responds partially to the fact that after the end of the reliefs, the amount of restructured loans increased. Even though these loans are provisioned, they are performing or in grace periods. This shows a solid enough coverage to face 2022. On slide 13, we present the liquidity position of the bank. On a consolidated basis, we continue operating with sufficient levels of liquidity. At the end of 2021, savings and checking accounts represent 61% of funding structure. This growth is mainly explained by the growth in the number of customers thanks to the bank's digital strategy. This increase has been compensated with a decrease in term deposits and credits with other financial institutions.
As we have mentioned during the call, the economic activity and the loan book are showing better trends quarter by quarter. For this reason, the balance in time deposits, saving and checking accounts will increase at a similar pace during 2022 to support this growth. On slide 14, we present an overview of Colombia and Central America. Central America is gaining relevance in the group as we have been able to improve the standalone operations despite the challenges. At the end of 2021, as a region, the loan book reached $15 billion and 2.6 million clients. 2021 results were better than expected, and the trend throughout the different geographies was similar. Reactivation of the loan portfolio, increase in saving and checking accounts, stable margins, strong capital position, increase of expenses, and decrease in provision charges.
We are replicating the experience we had in Colombia in Central America. From the digital strategy, we see the opportunity to grow in deposits, clients, and fees. I want to highlight some key aspects from the standalone operations. After the end of the relief program in Panama, the performance of clients of Banistmo who are coming out of the reliefs is better than expected. During the year, the retail clients reactivated, mortgage had a positive dynamic, and the corporate disbursements showed a positive trend. El Salvador is facing a challenging fiscal situation, but Banco Agrícola keeps maintaining its good operational metrics with a return on equity of 19% for 2021. In Guatemala, we have positive perspective with the economic activity of the country that is reflected in the growth of the loan book. That's why we are being more aggressive in the retail segment.
On slide 15, we see the evolution of margins and net interest income. Net interest margin closed 2021 at 5.1% with an expansion of 20 basis points despite the low interest rates explained by three main drivers. First, more efficient funding structure leveraged in CASA deposits. Second, a good performance over the year of the regional mortgage segments. Third, the beginning back in September of the rate hikes by the Colombian Central Bank. Net interest income grew 8.9% over the year because of the 26% reduction in interest expenses. For 2022, even though we foresee an increase in the funding cost, we expect a good performance of the NII due to the loan book growth and increase in the interest generated by the loan book.
For the NIM, we are expecting an expansion of at least 100 basis points due to the rate hikes. We expect the reference rate to close 2022 in 6.5%. Remember that we have an asset sensitive condition where approximately 70% of our assets are floating, while only 34% of our liabilities. Slide 16 shows the evolution of expenses and efficiency. Operating expenses increased 14.6% during 2021. In this slide, you can observe that general expenses and salaries of employees are under control. The main driver of this variation were, first, the variable compensation of employees. Remember, we canceled during 2020 and because of the good results of 2021, this annual return. This item explains almost 50% of the 14% increase. Second, rental expenses due to the assets depreciation.
Despite being registered as an operating expense for accounting reasons, this element is directly associated to the operating leasing, which stands out as one of the business lines with the highest growth within the balance sheet and explains 2.4% out of 14% increase of expenses for the bank. Third, investments related to digital transformation that shows an expansion of 38% during the year. These efforts are reflecting the higher amount of transactions and the new clients engaged that have permitted us to grow in loans and fee generation. This component explains 1.5% of the bank's total 14% expenses growth. With that in mind, these three items together illustrated 11.4% out of the total 14.6% increase in expenses. The slide 17 shows the evolution of fees.
Net fees continue to be one of the most resilient lines on the P&L, growing 13% over the year. Payments and collections, as well as banking services, have added to their strong performance. Although fees from debit, credit cards, and commercial establishments is the line with the largest contribution, thanks to the increase in the volume of transactions and the use of digital channels. For 2022, we expect net fees to grow between 10% and 11%. The slide number 18 shows the profitability metrics. During all the quarters of this year, we delivered positive results, maintaining the pace of investments in digital transformation. Net income for the year was COP 4.1 trillion, and return on equity stood at a level of 14%.
Even though the decrease in provision charges were the main driver of this result, I want to highlight the good performance of the other lines of the P&L. Stable margins, thanks to the efforts made on the funding cost and the steady growth of NII and the fast recovery of fee income. For 2022, we expect with the implementation of last year's tax reform in Colombia, an effective tax rate in the 35% area. On slide 19, we present the consolidated and standalone capital adequacy. Consolidated total solvency ratio stands at a level of 13.5%, while CET1 at a level of 11.9% under full Basel III for the year. These ratios are well above the minimum regulatory requirements, not only in a consolidated basis but in the standalone operations.
As Juan mentioned in his opening remarks, yesterday we announced our dividend proposal from 2021. We want to be clear that we have been preparing for this proposal in previous years, but because of the pandemic, we had to postpone it. Equity is the line of the balance sheet that has grown the most in recent years. The implementation of Basel III was positive for the capital ratios, and we are expecting a moderated organic growth of the balance sheet in the next three years. This is a structural change in our dividend policy, and the bank has the capacity to generate capital in a sustained basis in the upcoming years.
The new dividend policy defines as an optimal Core Equity Tier 1 range from 11%-12% to operate the bank in the next few years based on the current macroeconomic conditions and in our profitability and the growth expectations. Therefore, in the next years, the dividend payment will be based on this range. Now, I want to turn the presentation to Juan Carlos for the closing remarks. Juan Carlos?
Thank you, José Humberto. After one of the most challenging situations the world has faced in the recent history, 2021 was a transition year. We're very proud of the results we just presented, and we are quite aware of the challenges ahead. We are ready to support our more than 25 million clients and all our stakeholders in the period emerging after the pandemic with a strong balance sheet, liquidity, products and services. I want to close this call giving our 2022 guidance. We are going to return to our normal cost of risk levels of around 1.8%. We are expecting the loan book to grow between 7% and 9%. The cost-to-income ratio between 47% and 49%. Finally, with the ROE at the end of the year between 14% and 15%, which we believe is our medium-term profitability level.
After elaborating on these key topics, I want to open the line for questions.
Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touchtone phone. If you wish to remove from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset before pressing the numbers. Once again, if you have a question, please press star then one on your phone. The first question is from Ernesto Gabilondo of Bank of America. Please go ahead.
Hi, good morning, Juan Carlos, José Humberto, Carlos, and good morning to all your team. Congratulations on your results. I have three questions from my side. The first one is on the Gilinski Group. Just wondering if you can help us to understand how many board seats has the Gilinski Group obtained so far, and when do you expect to have the full picture of the board's composition at SURA? And also related to this topic, would you be evaluating a potential merger with Suramericana? And then my second question is on Nequi. As you have said in your presentation and before, Bancolombia has separated Nequi from the traditional operations. So is this the objective to start providing some key performance indicators, and I don't know, a specific P&L for Nequi? Is that correct?
When do you expect to start providing those metrics? How you see today as the most profitable product in Nequi? Also would be interesting to know if Nequi is already profitable or when you expect it to be so. My last question is on your ROE expectations. I know that you're guiding between 14%-15%. However, when putting all together your guidance on the new dividend payout ratio, it seems this year's ROE is more around the 15%. Just wanna double check if this is something reasonable to expect. Thank you.
Thank you, Ernesto. Let me address your thorough questions. The first one related to the tender offer for Grupo SURA. As you know, there was a first tender offer in which the Gilinski Group now has a participation over 25% in Grupo SURA. That's the fact. Now there is another tender offer in progress, but we don't know the result yet. The tender offer will be closed, will end on February 28, and at that point we will know how what is going to be the participation of the group in Grupo SURA. So far what we know is that they already have a participation.
The shareholders' meeting of Grupo SURA is scheduled to be at the end of March, and at that moment we will know how many seats they are going to have on the Grupo SURA board. That's the information that we have already, and we need to wait and see how things develop in the future. Related to your second part of the question, a merger. In the tender offer documents, the Gilinski Group expressed that they had the intention to present as a possibility to Grupo SURA to consider a possible or potential merger between the Grupo SURA Bancolombia conglomerate and Gilinski Group conglomerate. Now, that's the only information that we have. We again need to wait and see how that develop.
The only information that we have is the one that I mentioned that is on the documents of the tender offer. The second question regarding Nequi, as we announced at the end of last year, we are in the process of separating Nequi. That will take, we think the whole year, so we are separating Nequi as an independent entity, and we are in the process of creating the legal entities and asking for the regulatory or going to the Superintendencia Financiera to ask for approval of Nequi as a separate entity. During this year, we will continue reporting Nequi performance, and we will increase our disclosure in.
Since we are moving to have to be a separate entity. Once it's a separate entity, we will fully report the performance and the metrics of Nequi. We are very happy with the performance as we mentioned. Ultimately, as we mentioned, we ended last year with more than 10 million clients. The pace of new customers is very high. Also we are increasing the number of loans and it's also increasing at a very good pace. We are also very happy. That's our path to profitability.
Nequi is not profitable yet, but it has all the potential to be very profitable since we already have that number of clients in which we can start cross-selling them and adding additional products, including credit. We think it has a very high potential. We'll be disclosing, as I said, more information, but that will probably be once Nequi is a separate entity. Regarding ROE, as you mentioned, our guidance for the ROE of 2022 is between 14% and 15%. We think that it's a target that we can meet. You said your models are more around 15%. You could be right. There are some uncertainties around the ROE.
What is going to be the key element I think during this year is interest rates in Colombia and how are we going to transmit the interest rate hikes to the market. It could depend. We are pretty certain that we can achieve the 14%, but we think that is a high upside that we can reach 15%. That's why our guidance is between 14% and 15%, Ernesto.
Super helpful, Juan Carlos. Thank you very much.
You're very welcome, Ernesto.
The next question is from Jason Mollin of Scotiabank. Please go ahead.
Hello, everyone. Thanks for the opportunity to ask questions. I have some follow-up questions related to what you've been talking about. First, I believe at the beginning of the presentation, you mentioned one risk, one potential risk to the outlook is on the political side. If you can give us perhaps some of the positive risks and negative risks that you see could come about in Colombia? My second question is a follow-up on what you talked about the structural change in the dividend policy. If you can explain the main rationale for these structural changes? You did just comment that you had been considering this kind of change in the past, but COVID got in the way. If you can talk about maybe that process of making this change?
I think it's very constructive personally. Lastly, on the ROE guidance, I believe you said ROE at the end of the year 14%-15%. Does that mean like just in the fourth quarter you're gonna be getting to that? This is a gradual process to get there? Or it, you know, is this just the number that you expect in the fourth quarter rather than for the whole year? Maybe, if you can provide another line item on the tax front since that can be a large factor in hitting the bottom line. You can give us your views on taxes. Thank you.
Thank you, Jason. Let me start with your first point about risks and the political aspects of the risk. As you all know, Colombia is facing during this first semester an election process. A new Congress will be elected 13th of March, and there will be presidential elections in May and June. There are uncertainties related to any political process, I think, in any country. At this point, what we know is that on the presidential one, there are many candidates. And we still don't know how that is going to develop. We will have information after March 13, in which I think we will know what candidates are going to run for presidency for sure.
At that moment, we will have a more clear picture of the situation. But let me add that Colombia has a very strong tradition of strong institutions and democracy, we think is an asset of any country. There are uncertainties, of course. We don't think they are going to affect materially the results of the economy and of the bank during 2022, the results on the positive or negative side could have some effect, I think more for 2023 than for 2022. Your second question regarding our change on dividend policy. As you may remember, we announced last November a change on our dividend policy. The board of directors discussed the matter.
What we have now as a dividend policy is that the payout ratio will be related with our Core Tier 1 levels. So what we are setting is that the optimal level of Core Tier 1, that at this point we set between 11%-12%. With the net income that we generate during the year, we set the target and the portion of the net income that is not adding or is above that level of Core Tier 1 will be our dividend for that year. That's a structural change. You mentioned that we were seeing this before the pandemic.
As you also may remember, we had an extraordinary dividend during 2019 that was the road to that structural change on our dividend policy. What you could expect in the future is that we set the target of Core Tier 1, then we have the net income, and also what we expect as the loan book growth, that is going to be another aspect that we need to incorporate into this equation to define the dividends for the next year.
With that exercise, how we are going to present to the shareholders meeting next March, a dividend of COP 3 billion, and we expect in the future, what we expect is in the future, keep applying this formula that I mentioned. ROE, I think, what we see is a 14%-15% ROE for the full year 2022. It's not just the last quarter. As you saw, we achieved a 14% ROE for the full 2021. What we expect for 2022 is again, an ROE for the full year between 14% and 15%, Jason.
Thanks.
Taxes. The next one is taxes. I'm sorry. As you know, there was a tax reform in Colombia that increased the statutory rates for banks to 38%. That rate will apply for our revenues of 2022. With all the deduction and the different aspects of the fiscal laws in Colombia, we expect our rate to be between 35%-36%. It's good to notice that we incorporate that rate on our guidance. That 14%-15% takes into consideration that tax rate, Jason.
Thank you very much.
You are very welcome.
The next question is from Yuri Fernandes of JPMorgan. Please go ahead.
Thank you, everybody, and congrats on the quarter. I had a follow-up on margins. I guess you mentioned 100 basis points potential expansion on NIMs. I guess it's on the annual NIMs. The 5.1% year-end, right, going to 6%, that is above the 2018-19 levels. I would like to understand where this 100 basis points margin expansion is coming from. I remember in previous calls you mentioning your asset sensitivity to rates was around 8-9 basis points every 100 basis points. My first question is, are you seeing a higher sensitivity now on better funding or something like that? My first question is, how much of this 100 basis points increase on margins is coming potentially from improved rates?
I have a second one regarding costs, right? You put in one of the slides some data showing the increase of your digital channels for sales, for transactions, and we see branches and other physical channels not recovering as much from 2020, that I think was a very easy comps. My question is, why not a more aggressive cost optimization plan for Bancolombia, right? We saw branches being closed in the past, but I don't remember seeing a very major drop in the number of employees.
Why not, given, like, your digital channels are growing, you are investing in digital, why not a more aggressive, I don't know, G&A structure for the company, driving this cost-to-income, not from 47%-49%, but even going to the low 40s, in the coming years? Thank you very much.
Thank you, Yuri. Let me address your questions. I will start with the margin. As you know, it's happening all over, central banks are increasing the rates. That's the case in Colombia, and we are expecting rates to increase to fight inflation. That's going to be one of the aspects that is going to improve our margin. We are coming from very low interest rates, and that increase in interest rates in the market are going to expand our margin. It's good to notice also that the composition of consumer loans on our total loan books is now 22%.
We think that allows us to transfer faster the increases in interest rates, but also we have higher margins on that credit. That's why I am going to pass that question to José Humberto to give you more color on that. What we believe is increasing interest rates and our loan book compositions are going to help us on the margin, and that's why we are expecting an increase of 100 basis points on the margin. Let me address also your second question, and then I pass to José Humberto to complement my answer. Yes, we are improving our digital channel presence.
We are very happy with how that is developing, how our clients are adopting the new channels, new products. This is a path that we cannot stop. It's not that we are at the end of this journey. We need to keep investing, and we are going to incorporate those, what we are gaining on incorporating new digital channels, our digital transformation, that will be incorporated in the next years. It's going to be incorporated, I am sure. It's not going to be during 2022 yet, because we need to keep investing in that transformation. We stop that, the ability to compete of the bank is going to be affected.
Our view is we need to maintain an equilibrium between the short term and the short-term results and the long-term results of the bank and that digital transformation. We started that journey some years ago, but still we need to continue in that journey for maybe two, three or more years. The other thing that I think is going to affect is new technologies, new behaviors of the consumers, new competitors are going to be there, and we will need to keep investing. It's not something that you create a plan and you end that plan and that's all done. You need to keep working. For me, the key point is that we, at the end, are returning the profitability that the investors are requiring.
I think that 14%-15% that we are announcing for 2022, and that is in line with our midterm guidance, it's the key point at this point, Yuri. Let me now pass the line to José Humberto to give you more information on margins.
Thank you, Juan Carlos. Good morning, Yuri. I think the best way to explain what is happening with the NIM expansion in the bank is through three different parts. The first one, as explained Juan, the composition of the loan portfolio. Right now, the consumer weight is 22%. We have to highlight what is going on in the commercial loan portfolio with SMEs. We are improving, and we are increasing our loan portfolio in that SMEs section with it helping us on the asset side. The second part is the way we are getting funding. Now we have a different way to fund the business because remember that checking accounts and savings accounts, it is around 70% of the total funding that we are having from our customers.
This is very low interest rates, and we have only 35% of this liability in terms of floating. Meanwhile, on the asset side, we have 70% of our loan portfolio is floating, so the repricing will be faster because again, the structure of funding is different. The third way, the reason why the NIM expansion will happen this year is because you can see interest rates coming from 3% at the beginning of this year, and that will end to 6.5%, almost double. That explains the different speed or pace of repricing of the assets.
No, that's super clear, José Humberto. Thank you. Thank you very much, Juan Carlos, for the explanation as well. Congrats again for the quarter.
Thank you, Yuri.
Thank you, Yuri.
The next question is from Andres Soto of Santander. Please go ahead.
Good morning, Juan Carlos, José Humberto. Thank you for the presentation and congratulations on the results. My question is related to your digital strategy. In this year 2021, you show significant progress in terms of the rollout of several services, including Nequi cards and QR payments for Bancolombia. I would like to dig a little bit deeper on the QR side. Which clients are you targeting in this approach? How many clients you already have? I believe you mentioned 1 million. I would like to confirm that.
More generally speaking, my question is, how you guys plan to manage this transition in which as you showed in this presentation, Bancolombia has a significant share in debit and credit card transactions, and now you are rolling out which are a very important source of Bancolombia's profitability in terms of fees. These alternatives, I assume, are exempt of fees. I would like to understand how you guys are managing this transition from highly profitable products that are probably expiring while you are rolling out these new round of products that at the beginning probably are going to cost a little bit in terms of profitability.
Thank you, Andres. That's a very interesting question. Let me describe a little bit how the Colombian market is on payments. The acceptance of credit cards and debit cards is limited. Just to give you a figure, there are around 500,000 POSs in Colombia. The potential is very high. Our strategy is to cover those businesses, mainly small and medium businesses that do not accept cards today through the QR strategy, QR code strategy. What we are targeting is that small and medium enterprises that do not accept digital payments or cards today. What we are covering is one part of the market that is not addressed today.
You are right, we have 1.2 million QR codes in the market now. What we are doing is that we are enabling those small businesses to accept digital payments, and they do not accept it in the future, in the past, I'm sorry. At the end what we are doing is expanding the market. That's not hurting our business, the card business. It's adding efficiency to the payment, the network and to the acquiring or to the acquisition business. But we also know that the debit and credit card business is going to evolve. What we are doing is preparing for that evolution, complementing and addressing a part of the market that was not served. We are very happy with that strategy.
Let me add that those payments are giving us very good information that we feed on our models to also address those customers with other products and digital cross-selling. As I mentioned, we are very happy with the volume that we have, and we keep evolving and seeing the numbers and the figures are going to continue growing. That is also allowing our digital platforms to become a payment method. Nequi and Bancolombia A la Mano and also the Bancolombia app are now payment tools that the usage of our platforms are increasing. It's a very virtuous circle that is helping us a lot in our strategy, Andrés.
That's very clear. Thank you, Juan Carlos. Do you have any estimate of the potential size of this market of QR payments considering the SMEs that are not taking credit with the credit cards at this point?
The whole market, the addressable market could be around 4.5 million. We think that we can address half of that market in our strategy also. It's a big market and as I mentioned, it's very. Those small businesses to move into digital and accepting payments on physical stores, but also on e-commerce, I think are great potential, and that's where our strategy is heading, Andres.
Absolutely. Thank you for the answer, and congratulations again.
Thank you, Andres.
The next question is from Tito Labarta of Goldman Sachs. Please go ahead.
Hi, good morning, everyone. Thank you for taking my question. My question is on your cost of risk guidance. You mentioned that you expect it to normalize back just to 1.8% for this year. But just curious, do you expect to get there immediately in Q1 and stay at those levels for the full year? Will it be more of a gradual increase to get back to those levels? And, you know, what kind of underlying asset quality assumption do you have for the? I mean, asset quality is holding up fairly well. Do you expect to see some deterioration from here? Any color in terms of where NPLs can be by year-end, as well? Thank you.
Thank you, Tito. What we expect is that during 2022, as we mentioned, there will be a normalization of the cost of risk of around 1.8%. It's going to be gradual. They were affected by what happened in 2021, in 2020 and 2021. We saw a big swing between those two years. Now what we are moving is gradually returning to 1.8%, which was, as you mentioned, our long-term guidance for cost of risk. We expect that during this first semester cost will normalize, and then we will end the year with that cost around 1.8%, Tito.
Let me pass to José Humberto if he has any additional information to complement in the answer.
Thank you, Juan. Just in terms of NPLs, we are foreseeing a kind of stabilization of that level, and probably in the second half of the year, you are going to see the normalized cost of risk and normalized NPL levels, Tito.
Okay. Thank you. Just any color in terms of the different segments and how the NPL can evolve within consumers, and commercial and SMEs?
I think commercial was one of the main segments that shows a gradual improving in terms of NPLs. In the last round will be the consumer loans, and we are foreseeing a normalization again, beginning the second half of the year.
Okay, great. Thanks, José Humberto Acosta Martin.
Mm-hmm.
Thank you. Thank you, Tito.
The next question is from Carlos Gomez-Lopez of HSBC. Please go ahead.
Hello, good morning, and congratulations on the results. A couple of questions. The first one refers to your expense level. It was higher this year, we understand, because you were able to normalize the bonus payments to your employees. Is that correct? Is this the level of expense that we should expect on a normal basis, or would you say it was higher or lower than average? The second refers to your structure. We have seen some of your peers in Colombia segregating the Central American assets to facilitate the capital management. In your case, would you consider at some point a separate listing for what you do not have in Colombia to make it easier to adjust the capital structure?
Finally, would you under any circumstances get involved in the offerings? I mean, could you possibly justify perhaps that there is a case for Bancolombia to make an offer for the shares of SURA or any other company in the conglomerate? Thank you very much.
Thank you, Carlos. Let me address your second and third points, and then José Roberto will elaborate on the expenses level. We are not considering any changes on our structure to facilitate the capital management. I think we are comfortable on how we are doing the structure that we have. At this point, we are not considering any evolution on our structure in the sense that you mentioned. Regarding your third question, the answer is no. We are not from the regulation and we are not allowed to do that. It's a category no. First point, José Roberto.
Yes. Carlos, the big deviation of the expenses in general terms, the 14% that you are seeing on the presentation, it explains 50% out of this 14% because of the labor cost. As I mentioned, this is mostly because of the bonus plan. Going back to your question, we are not foreseeing a big increase in terms of labor cost for this 2022 because it is now comparable with the 2021. You are not going to see a big change on that line.
Okay. That's very clear. By the way, thank you very much for the answer on SURA. I mean, that's a question we had to pose, and it's very clear on your side. When you mentioned regulation, would regulation allow a merger between you and another financial institution in Colombia, being that you're already the large one? I imagine you have approached them for any-
You know, the possible takeover target that has been in the market. Do you think it is reasonable to expect that, you know, a merger between Bancolombia and somebody else could be considered, or do you think it is more likely to be rejected? Thank you.
Carlos, yes, it is allowed by the regulation. We can merge with other financial institutions. There are two sides of your question. It is allowed, it is possible, it has happened in the past. It's part of regular business in the industry, as you know. Colombia, it's same thing. Now, the other side of that is that any possible merger or other form of allowing different institutions to work together goes through the financial regulator, but also the competition regulator. So, as you mentioned, we have around 26% of the Colombian market as a whole.
The competition authority, we will have to have a word on any potential. In any case, not just the one that we have been talking, but, and in any other form of acquisition or merger.
Very clear. Thank you so much.
You're very welcome, Carlos.
The next question is from Alonso García of Credit Suisse. Please go ahead.
Hi, good morning, everyone. Thank you for taking my question. I actually just have a follow-up on taxes. You are guiding for a range of 35%-36% in effective tax rate for this year. I just wanted to check if this is the same level you foresee for the mid to long term, or is there any particular reason why this year it might be a bit higher? I don't know if maybe in the coming years if we will see a more balanced mix in terms of earnings contribution from the different geographies which have a lower tax rate compared to Colombia, and maybe the tax rate in the future could be a bit lower for the group. I don't know if you could provide some color on that. Thank you very much.
Thank you, Alonso. As we mentioned, the tax reform in Colombia had now a statutory rate of 38% for financial institutions, and that's what we have now and we are forecasting our performance based on that statutory rate for Colombia. We don't expect any changes unless there are changes on the regulatory. Let me add something. That's a temporary increase for three years. After three years, it comes back to 35% statutory rate, so it's temporary. Next three years, we will have that statutory rate in Colombia. As you mentioned, there are different rates in the different countries in which we operate.
Of course, the performance of those operations in Central America will affect the tax rate. It's good to notice that Colombia is, as you know, 72% of the whole group. The effect will be marginal on the statutory or on the effective tax rate, Alonso.
Understood. Thank you very much.
You're very welcome, Alonso.
The next question is from José Cuenca of Citigroup. Please go ahead.
Hi, everyone. Thank you for taking my question. Just a couple of follow-ups. In terms of loan growth and loan performance in general, just wanted to get a sense from you of what you're currently seeing in terms of competition. Do you see like, for instance, let's say, the need to perhaps offer more competitive rates in order to foster loan growth? Any comment on that would be really helpful. The next question, just to...
I think you already commented, but in terms of NPLs, if I'm understanding correctly, it would be reasonable to expect like a normalization or an uptick towards the second half of 2022, given your growth in the consumer and SMEs books. In this sense, just wanted to get your opinion on what coverage level would you be feeling comfortable with? Thank you.
Thank you, José. Let me address your first question, and I pass your second one to Gilberto. Loan growth. We are foreseeing a loan growth between 7% and 9%. We think that's reasonable. We updated our GDP growth for Colombia for 2022 to 5.5%. With that level of growth, I think it's reasonable to expect a loan growth between 7% and 9%. In the other geographies, we are also seeing good dynamics in the economy. Competition is there, and it's strong competition in Colombia. New players are coming, but I firmly believe that Bancolombia is very well positioned to compete.
We have coverage, a very good network on Colombia. Our digital strategy, it's very clear, and it's producing the results. I don't expect that we have to affect our net income. I'm sorry, our net interest margin because of competition, and that's going to affect the volume. It could be an upside on loan growth depending on how strong and how the economies develop during 2022. Regarding your second question, let me pass that to José Alberto.
Thank you, Juan. José, yes, the seven percent that we are expecting, loan growth, 7%-9%, the main driver will be consumer at the top, with 10%, and the lower bracket will be commercial, 6%-7%. That's one of the reason we believe that the normalization, again, will be on the second half because there is no one specific main driver of the loan growth. There will be the three segments at the same pace. Yes, we are expecting to maintain the same level of coverage, meaning that for 30 days we will be on the area of 120%, and for 90 days we will expect our 180-200%, coverage.
Great. Thank you.
Thank you, José.
Thank you.
The last question is from Alonso Aramburu of BTG. Please go ahead.
Yes. Hi, good morning, and thank you for the call. I wanted to ask a little bit about Panama. It seems that that's the only geography where profitability really hasn't picked up in 2021. Can you comment what you expect in 2022 in Panama and if you can get potentially to double-digit ROEs in that country, which it hasn't been the case, I think, for a few years now? Thank you.
Thank you, Alonso. The answer to your last part of the question is yes, we expect to go back to or to go to double digits ROEs. It's good to notice that Panama, the release in Panama ended September 2021. Still we are seeing a lag in how the customers are performing. It's going to take within six months to really know what is the situation of those customers, how they are going to perform. But we are seeing very positive results or better than expected results so far. We are positive on the performance for 2022. Also, I would like to add that Banistmo is growing faster than the market in both deposits and loans.
I agree with you that the Banistmo is the operation in which it's behind the other operations in which we have a presence. We are positive that 2022 will evolve and Banistmo will have the results in line with our expectation, which is be close to that double-digit ROE that you mentioned, Alonso.
Great. Thank you very much.
You're very welcome.
Mr. Mora, I'll turn the conference back to you for any closing remarks.
Okay. Thank you all of you for attending this conference call. We are happy of the 2021 results. An ROE of 14% is in line with our midterm target of return on equity. I am or we are positive that 2022 will continue that line to giving those returns to our investors between 14% and 15%. We are confident that we are very well positioned to take advantage of the digital transformation that we are undertaking and that the results of Bancolombia during 2022 will be positive. Again, thank you very much for attending this call, and we hope to see you on the conference call results for the first quarter 2022.
Thank you very much.
This concludes today's conference. Thank you for participating. You may now disconnect. Thank you.