Good morning, ladies and gentlemen, and welcome to Bancolombia's third quarter 2021 earnings conference call. My name is Claudia, 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 touch-tone phone. Please note that this conference is being recorded. Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses, and credit losses. All forward-looking statements, whether made in this conference call, 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 targeted clients, changes in business strategy, and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Mauricio Rosillo, Chief Corporate Officer, Mr. José Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, Mr. Carlos Raad, 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 third quarter 2021. I hope all of you and your families are safe and healthy. The Colombian economy continues recovering at a pace better than expected. According to our latest estimates, GDP could grow close to 10% in 2021. For 2022, we expect a soft landing to a moderate expansion of around 3.6%. The main drivers behind this forecast are the resilient performance of internal demand, particularly private consumption, which will remain dynamic as more households, especially those with the highest incomes, return to pre-COVID spending levels. We also expect private investment to recover, exports to accelerate, and the sectors that were severely hit by the pandemic to go back to 2019 levels.
All this is partly compensated by the moderation in global growth and the gradual withdrawal of the fiscal and monetary stimulus. The main risks to our view are the uncertainty surrounding the electoral cycle and eventual new waves of COVID-19 cases. This positive trend of the economy is reflected in the bank's results, which we consider positive for the first quarter. Given that the trend of a better-than-expected economic recovery not only applies for Colombia, but in all the geographies where we have presence. Before getting to the details, I want to highlight some key topics. The loan book grew 3.3% compared with the previous quarter. NPLs grew 9% during the quarter. Common Equity Tier 1 on the full Basel III was 11.8%, and the net income for the quarter was COP 943 billion.
Provision charges for the quarter were COP 514 billion, down 18% when we compare with the second quarter 2021, mainly driven by better economic forecast and the end of relief program in Colombia and Panama. Our digital platforms, Nequi and Bancolombia A la Mano, continues to grow at a solid pace, adding those 14 million clients and COP 1.4 trillion in deposits. Digital transactions represents 85% of the total transactions, and digital sales 44% of total sales. We continue to grow in our ecosystem strategy after the first year of successful operations. It is already positioned as one of the most relevant in the country with more than eight million visits. 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 I will ask you to go to slide number three in the presentation. Let me start by saying that traditional analysis has failed to predict and measure accurately the effects that the pandemic has had on the economy. Instead, the development of new ways of understanding economic reality has gained momentum. Most of these advances are based on the use of data. At Bancolombia, we have been pioneers of this emerging trend in the local financial industry. Our proprietary analytical tools and our large sample of banking transactions allows us to have a comprehensive real-time picture of the state of the Colombian economy.
In the first place, our nowcasting tracker of overall activity, which follows closely DANE's official figures, points to a year-on-year growth in the third quarter of 14.1%, higher than the latest consensus estimate of 9.2%. A significant contributor to this growth is domestic demand, which according to Bancolombia's cardholder purchases, has been accelerating in the past few months. For instance, in the first 20 days of October, these transactions grew 20% compared to 2020 and 8% relative to 2019. Moreover, the graph at the bottom left shows that the volume of deposits to corporate banking accounts by sector and firm size relative to pre-pandemic levels. These figures are good at anticipating sectoral performance, and they are signaling that important contributors to GDP, such as retail, manufacturing, and agriculture sectors expanded at a strong pace in the third quarter.
Furthermore, SMEs revenues are recovering faster than those of large firms. Finally, the number of payrolls payments processed through Bancolombia's accounts, which is a proxy for formal labor demand, accelerated during the last quarter. This suggests that the labor market is already reacting to the rebounding economic activity. In turn, this would allow an employment rate to decline further towards the end of the year. All in all, our indicators point to a widespread and consistent improvement of the Colombian economy after the disruptions caused by the national strike and the reduction of COVID cases. This bodes well for full year 2021 growth expectations, which currently stand at 10%. Now let me turn the presentation back to Juan Carlos.
Thank you, Juan Pablo. Moving to slide four, 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 role in the number of clients, improved our offer of products and services, and strengthened our digital strategy. All this is clearly reflected in the performance of loans and deposits. The loan book continue showing a steady growth across the three main segments in a dynamic partially supported by the economic recovery that continues to be evident in disbursements. This trend confirms that the bank overcame the economic shock of the pandemic without relevant implications on its financial stability.
Since the beginning of the year, the retail and mortgage segments have shown positive trends, whereas the commercial segment started to improve since the second quarter.
Because of the expansionary monetary policy with historically low interest rates, the balance of time deposits decreased over the last 12 months, and these have been compensated with an increase in savings and checking accounts. This has allowed us to reduce the funding cost. However, as the central bank started last month a rate-hiking cycle and the loan book is growing at a better pace, we expect the balance in time deposits to rise again in the same direction as the funding costs. Moving to slide five, I'm going to elaborate on the evolution of digital sales and distribution channel. During the first nine months of the year, digital sales have represented 0.4% of all sold products. Digital sales have maintained a steady evolution despite the reactivation of traditional channels and the reopening of the economy.
This indicates that the customer experience evolution has accelerated during 2021 towards a permanent adoption of digital channels by many of our clients. I would like to point out one of our strengths, the share of processed transactions. On the lower right side chart of the slide, you can notice that Bancolombia processed 47% of all monetary transactions completed via web, and 62% of those processed via mobile phones out of all financial institutions in Colombia. Moving to slide six, I'm going to elaborate about Nequi. As you know, Nequi is our neobank, targeting primarily young people and focusing on the way they relate with banks. During this quarter, we added 1.5 million new clients, reaching 8.6 million with a very low acquisition cost.
Deposits are nearly COP 1 trillion, and net promoter score continue increasing with high levels of engagement.
Remember that we consider an active client the one interacting at least once a month throughout a monetary transaction. This is how we leverage the development of our profitability model, adding clients with a low acquisition cost and with a high active user ratio. Nequi cards are growing fast. We have more than doubled the number reported 12 months ago. Notice that we are not only issuing more plastics, the number of transactions and the volume of payments are increasing at a very solid pace, reaching almost three times the figures observed one year ago. Moving to slide seven, you can see some relevant figures of Bancolombia A la Mano. Unlike other countries in the region, the population in Colombia lives throughout the country in several large, medium, and small cities.
Bancolombia A la Mano targets low-income individuals. We are acting responsibly towards financial inclusion and education.
Through our financial inclusion initiatives, we provide mostly free financial services for people to access savings and create tools to become financially empowered and improve their quality of lives. Bancolombia A la Mano has reached almost six million clients. The income per client continues increasing. Transactions, especially in payrolls and subsidies, remain high, and loans disbursed have tripled over the last year. In slide eight, we present our ESG framework. Our purpose is to promote sustainable economic development to achieve everyone's well-being. Therefore, we provide financial and non-financial solutions to strengthen the productive network of our countries, create sustainable cities and communities, and promote financial inclusion. This commitment is aligned with the global agenda, which is to comply with the UN Sustainable Development Goals designed to achieve more prosperous societies and protect the planet.
Under these three fronts of action in which we believe we can promote our purpose, we have already disbursed during this year COP 26 trillion, which represents more than 20% of total disbursements. Now, I want to turn the presentation to José Humberto Acosta. José?
Thank you, Juan Carlos. Now turning to slide nine, I want to walk you through the evolution of the relief program. TDA reliefs continue decreasing. We are gradually returning to normal. This quarter, relief programs in Colombia and Panama finished. During the upcoming quarters, it will be key to follow the evolution of the deterioration, restructured loans, and charge-offs. Considering the geographies where the bank operates, our focus is Panama. The percentage of reliefs is decreasing gradually, but it is still 20% of the loan book, coming from 26% in the previous quarter. Unlike the other countries in where we operate, Panama maintained the relief program until September 30. This situation required Banistmo to allocate considerable resources to reach definitive agreements with clients that were under some relief scheme during this quarter.
As a result of this, at the end of September, only 5% of the loans under relief did not have a definitive arrangement. The other 15% of the loans under relief already have a structured solution, and if they meet the right conditions, they will be transferred to the normal loan portfolio. On this slide, you can notice not only the percentage of the loan book that it is under relief, but also its composition by segment and stages. On a consolidated basis, 6% of the loan book continues under relief. They are in turn subdivided into 50% for commercial, 21% for retail, and 29% for mortgages. Its composition by stages is as follows. 45% in Stage 1, 43% in Stage 2, and 12% in Stage 3.
In slide ten, we present the breakdown of provisions during the quarter. Provision charges for the third quarter were COP 514 billion. As we did in previous quarters, we want to explain the breakdown. This quarter has the lowest provision charges since the pandemic began, confirming the trend we observed in the first half of the year. As you can notice in the lower part of the slide, we made a zoom of COVID-19 and parameters obtained, which are the main drivers behind these results. With the end of the relief programs in Colombia and Panama and the expiration of the 94% of the reliefs we granted to our clients, we have been able to gather more and better information that allowed us to improve the methodologies under which we build provisions.
During this quarter, we have managed to reach final agreements with clients.
Therefore, as they comply with what has been agreed, we will release provisions. These together with a better forecast of economic parameters have generated a release of the balance of previous periods. Specific provisions grew during the quarter due to the default of corporate clients of the construction sector in Colombia. Moving to slide 11, we give you a snapshot of provisions and asset quality. Cost of risk for the quarter was 1% and for the last 12 months was 2.2%, reflecting the good pace of recovery of our clients. If this trend continues for the last quarter, it is possible that cost of risk for this year might be better than the guidance we gave in the second quarter of 2.3%. During this year, charge-offs have increased, exceeding the levels of 2020. It has two important impacts.
It reduces the balance of the loan portfolio, and second, it helps reduce the level of past-due loans. We maintain solid coverage levels for 30 and 90 days that allow us to handle the following periods of possible deterioration. On slide 12, we present the consolidated and standalone capital adequacy. Consolidated total solvency ratio stands at a level of 15.3%, while CET1 at 11.8% under full Basel III for the third quarter. These ratios are well above the minimum regulatory requirements, not only on a consolidated basis but in the standalone operation. The growth of the shareholders' equity takes place because of the good results of this year. We consider that the leverage of the bank is in optimal level, given the current balance sheet risk and asset growth expectations.
We have enough capital to support the loan book growth in the upcoming years. On slide 13, we present the liquidity position of the bank. On a consolidated basis, we continue operating with a sufficient level of liquidity. As of this quarter, savings and checking accounts represent 56% of funding structure. This increase has been compensated with a decrease in time deposits and credits with correspondent banks. As we have mentioned during the call, the economic activity and the loan book are showing better trends quarter by quarter, so we expect to gradually increase the balance in time deposits to support this growth. As a result, and with the expected hikes from the central bank, the cost of deposits may increase. On slide 14, we present a snapshot of our standalone operations.
In general terms, the trend throughout the different geographies operated by Bancolombia was similar. Stable margins, steady growth of the loan book, increase of expenses, and decrease in provision charges. Over the last years, the trend in the main metrics of the standalone operations is positive. The Central American operations represent 28% of assets, but 32% of net income. Now, I want to give you a quick overview of each of the Central American countries where we operate. Let us start with Banco Agrícola in El Salvador. This quarter, the growth of the portfolio was driven by the consumer portfolio, which reflects the bank's strategy to increase the share in the retail segment within the total portfolio mix. Commercial and mortgages also had a good performance during the quarter.
Provision charges showed a recovery thanks to the improvements in the rating commercial clients and in unspecified provisions.
Banco Agrícola in El Salvador continued consolidating the portfolio growth that is boosting margins recovery. On an accumulated basis, the portfolio grows both in retail and in commercial segments, responding to the dynam ics of economic recovery that the country is experiencing and which is also reflected in a solid recovery of fee income. Finally, Banistmo. The positive dynamics of loan disbursement evidenced during the second quarter maintained and consolidated in the third quarter, driven by retail loans and the reactivation of the demand from corporate clients. Banistmo has leveraged its deposit growth strategy in its renewed digital assets, making possible not only relevant increase, but also a change in the funding mix, where saving and checking accounts are gaining share, improving the funding cost.
The bank continues over-performing its local peers regarding loans and deposits growth. On slide 15, we see the evolution of margins and net interest income.
Net interest margin remains stable in the 5% area as we were expecting. The rate hiking cycle started in September, and we expect the reference rate to close 2022 in 4.25%. This is going to be positive for margins, but will be reflected in the first couple of quarters of next year. Net interest income continue with the steady pace of growth, gradually overcoming 2019 figures. This was mainly driven by the reduction in the funding cost. We continue using the liquidity in a more efficient way as the dynamic of disbursement improves. Slide 16 shows the evolution of expenses and efficiency. Personnel expenses, excluding variable compensation, increased 1% in accumulative figures year to date, whereas administrative expenses grew 5%. As a result, operating expenses as of September are 9% up when compared with the same period of 2020.
Another driver for expansion in expenses for 2021 is the pace of investment related to digital transformation. Slide 17 shows the evolution of fees. Net fees continue to be one of the most resilient lines of the P&L, growing over 10% year to date. Payments and collections, as well as banking services, have added to the 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. Slide 18 shows the profitability metrics. During the first three quarters of this year, we have delivered material year-on-year earnings growth, maintaining the pace of investments in digital transformation. Net income for the quarter was COP 943 billion and return on equity stood at a level of 12.7%.
Even though provision charges were the main driver of this result, I want to highlight the good performance of the other lines of the P&L in the middle of such challenging situation. Stable margins, steady growth of NII, and the fast recovery of the income. Finally, it is worth mentioning the impact of the tax reform in Colombia, which implies a recalculation of deferred tax by generating an additional provision of COP 149 billion. Now, I want to turn the presentation to Juan Carlos for the closing remarks. Juan.
Thank you, José. We are getting back to normal faster than expected. This quarter we were positively surprised with the bank's results. The country and its economy are doing better. Our clients too. Bancolombia is ready to support them with a strong balance sheet, liquidity, products and services. We are looking forward to seeing you all in our virtual investor day next week, where we will elaborate in a detailed way about our digital strategy. After elaborating on these two topics, we 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 yourself from the question queue, please press star then two. If you're using a speakerphone, you may need to pick up the handset before pressing any keys. Once again, if you have a question, please press star then one on your telephone. Our first question is from Yuri Fernandes with JP Morgan. Please go ahead.
Hello, good morning. Congrats on the results and thank you for the patience of asking questions. I have the first one regarding the asset quality outlook for 2022. You already provide some color in the call, but I guess the indicators they were good for the quarter, right? We were concerned with Panama. Panama data was okay. My question is, what should we expect for asset quality? Is it worse behind? Like what should be, you know, like the normalized level of losses for the next year? I have a second question regarding your digital initiatives. I guess Nequi is a very good platform, like when we look to the KPIs, number of users, ratings, Google Trends, you know, you name it.
We are starting to see some peers entering the Colombia market, like some FinTechs, some big ones. Just like a high-level view from you, how do you see this competition evolving in Colombia with some new players coming? What are the challenges in the market? What you are doing to prepare the company for those new guys? Thank you.
Thank you, Yuri, for your questions. Your first one regarding asset quality and what to expect for 2022. Let me start by saying that we are in the process of normalizing the provision charges. Third quarter was not normal, was very low. We expect the fourth quarter to have some non-recurring charges. We should end the cost of risk for 2021 around 2%-2.1%. As of 2022, we expect to go towards a long-term cost of risk for Bancolombia, which should be around 1.8%-1.9%.
You mentioned Panama Banistmo, but even though we expect the cycle of normalization in Panama to be a little bit longer, the other operations should perform more in line of what we expect is going to be the cost of risk, the long-term cost of risk, which, as I said, should be around 1.8%-1.9%. Your second question, digital strategy and new competitors entering to the Colombia market. We have been preparing for this for a long time. You mentioned Nequi. We started Nequi 2015. Now I think we have a platform that it's prepared to compete face to face with all new FinTech entrants to the market. It's not just Nequi.
What we have been doing in Bancolombia is preparing for this competition in terms of what are our products offerings and how we can develop and evolve our products to compete in the market. Remember that Colombia has regulated interest rates. We have a cap on interest rates, which is not the case in other countries. Competing in the Colombian market through interest rates it's difficult due to caps. To reach high risk individuals is not that easy because the interest rate caps does not allow that. On the other hand, we are also prepared to compete on the evolution of fees regarding particularly the process of credit cards.
As I mentioned, we have been preparing for this for a long time, diversifying our source of income. Competition is going to be hard. We have no doubts about it, but I think we have been preparing for this for a long time.
Thank you.
Our next question is.
Thank you.
Sorry. Our next question is from Andres Soto with Santander. Please go ahead.
Good morning. Thank you. Thank you for the presentation. My first question is a follow-up regarding cost of risk. I understand the guidance for the year is 2%-2.1%. That looks still pretty conservative considering that during the first nine months of the year you are at around 1.6%, so that this implies a 2.5% cost of risk for the fourth quarter. When I look at your numbers for this quarter, sorry, and I normalize the cost of risk by the provision releases that you had, apparently what you should have had is at around 1.5%. I would like to understand why are you still conservative about the cost of risk expectation for the rest of this year?
Thank you, Andres . Let me elaborate a little bit more on the cost of risk and what we are expecting. If we analyze the cost of risk for the last 12 months, it's 2.2%. I know we have the fourth quarter of 2020 in that calculation, which was pretty high. What we are expecting for the fourth quarter of 2021 is there are some issues that are going to release some provision. For example, we need to assess if we need to recalculate the growth of the economy in order to introduce that number to the models.
In a more normalized way, the third quarter is going to reflect the real situation of the economy in the sense of how its clients really are. We have also Panama. Remember that the moratorium ended September 30 in Panama. Fourth quarter is going to be probably higher provisions from Banistmo, which we need to incorporate on that balance sheet. The fourth quarter is going to be a mix of provision releases and also a need to add provisions. That's why we have been conservative in the sense that provision charges for, or the cost of risk, I'm sorry, for the whole year should be around 2%.
Could be less. It depends at the end on the performance of the clients during the fourth quarter, in which, as I said, it's more normalized and we start to see all those customers that we structure how are gonna pay. Maybe we are a little bit conservative, but that's because there's still uncertainty on how the fourth quarter is going to be in terms of payments of our banks.
Thank you, Juan Carlos. My second question is regarding your loan growth expectations for 2022. You say that you're expecting a GDP growth for Colombia of 3.6%. I would like to see what are your thoughts in terms of how this translates in terms of loan growth next year? Based on this and your current capitalization ratios, how do you feel about your current dividend distribution?
Sure, Andres. As you mentioned, we are expecting the GDP to grow around 3.6%-3.7% next year. That will allow us to have a loan growth around 10% for the year. Regarding distribution, we saw during the second half of this year a pickup in the growth of retail loans. Also, in the third quarter, commercial loans started to pick up again, or to grow. Regarding distribution, we are very focused on SMEs and we expect that segment to grow faster. Those are commercial loans, even though they perform more like retail loans in terms of risk, but also in terms of the income that they generate.
We don't expect a dramatic change in distribution of the loan book in terms of commercial and retail loans. Retail loans could grow a little bit higher, but as I said, it's not going to affect dramatically the distribution of the loan book.
Just to clarify, what I meant by distribution was dividend distribution. If you given your current distribution ratios, you expect-
Oh, I'm so sorry.
Yeah. Thank you.
I am so sorry, Andres. I am sorry. I thought you were talking about the distribution of how the. Oh, I'm sorry. I want to talk about dividends. Sorry. Dividends, let me say this. We have a clear policy of dividend distribution. Dividend distribution has been around 30%-50% during many years, and we are expecting that policy to continue. We will need to present a proposal first to the board of directors and then to the shareholders' meeting. We want. We will present a proposal that is going to be probably in line with our policy, long-term policy, which as I said, is between 30%-50% of the net income of Bancolombia usually, because that's the one that distributes dividend. That operation is the one that distributes dividends.
Great. Thank you for your answers, Juan Carlos, and congratulations on the results.
Thank you, Andres.
Our next question is from Jorge Kuri with Morgan Stanley. Please go ahead.
Hi, good morning, everyone. Thanks for the call. I hope everyone's doing great. I wanted to ask two questions. One is on expenses for the quarter. They were up a large quarter-over-quarter and year-over-year. Wanted to hear from you if there were some extraordinary items there or you brought forward some of expenses in the fourth quarter and what the expectation is for the full year and for next year. On net interest margins, you sort of like alluded to rising rates and that having a positive impact on margins. I wanted to see if you could maybe quantify where do you think your margins will be next year given the normalized level of benchmark interest rates. Thank you.
Yes. Thank you, Jorge. First one, expenses. To analyze expenses, we need to take into account several items. First, labor costs. Labor costs or expenses have grown around 1%, so they are pretty much under control. We have the bonuses, the variable compensation, which is growing a lot since we didn't have variable compensation or we didn't register variable compensation during 2020. So the comparison, it's showing a very high number on that. On general expenses, we have some extraordinary issues related to digital transformation, but also those depreciations related to our banking business. So for the year, we will see numbers close to the figure that we have now, 9% or 10% low. But let me tell you something else.
We have in Colombia an inflation that is close to 5%. Also we have the peso depreciation, which has been close to 11%. The pressure on the cost from that part is there and it's one-off in terms of that is affecting this quarter. We are not going to see a performance in terms of expenses that is going to be very good during this year due to those extraordinary issues. We will keep our program and cost control and the measures of what we are doing, and we expect that to take effect during 2022. Those are the explanation.
If we compare, for example, the 2019 expenses until September and the 2021 expenses, the growth is less than 7%. Still high because we have some issues regarding, as I mentioned to you, transformation. A more normalized way to 2020, it's a year that affects the changes in expenses during. It was a very strange year for us.
Hello?
Oh, okay. Regarding NIM, I will pass this question to José Humberto to elaborate on NIMs, and rates, and the effect on rate hikes on the NIM. José?
Thank you, Juan. Regarding NIM, Jorge, as you can see, we were able this year to sustain the NIM at a level of 5%, and this is basically and mostly because of the reducing of expenses of the interest rates because of our deposit base. Next year, our sensitivity is for every 100 basis points that change the central bank, our sensitivity will be at around eight basis points. That means that we are going to see an expansion of the NIM, beginning the second quarter of next year. Maybe we are going to, if the interest rates at the end of the year closes at a level of 4.5%-5%, maybe you are going to see an expansion of NIM in between 40-50 basis points, or even more in our NIM portfolio.
Remember that our NIM is composed by lending NIM for the portfolio, which is 5.6, and securities NIM, that is 0.8, and the proportion is 80/20%.
Thanks. Thanks, everyone. Bye-bye.
We will start seeing the effect on the tax on the rate increases during the next year. I think the second quarter, third quarter in next year.
Thanks again.
Our next question is from Ernesto Gabilondo with Bank of America. Please go ahead.
Hi, good morning, Juan Carlos, José Humberto, Carlos, and good morning to all your team. Thanks for the presentation and for the opportunity. I have three questions from my side. The first one is on the political landscape. We continue to see Petro leading the presidential polls. I would appreciate if you can share with us what have you been hearing from his proposals. I don't know what have you been hearing if he's wanting to implement higher taxes or banking fees. Anything from what you have heard, I think will be very helpful. And then my second question is on Nequi. We have seen the rest of the region developing digital banks and willing to do spin-offs at some point.
Considering that you already have a good number of clients and that you're starting to become profitable, what else do you need to consider for a potential spin-off and a listing of Nequi? And then my last question is on your effective tax rate. We think it was high during the quarter, considering the new tax reform. How should we think about effective tax rate for the last quarter next year? Thank you.
Thank you, Ernesto. I am going to take the first two questions, and I'm going to pass the one regarding effective tax rates to José Humberto. Political landscape, it's still early. We will have our first round on May and second round presidential elections. We have a lot of candidates. So the political landscape is not clear at this point. Regarding the candidate that is leading polls, well, he has been around for a long time. He was the mayor of Bogotá, so he has been known for a long time, as I mentioned. Regarding complete proposals, we haven't seen yet something concrete. There are some comments, some tweaks around some issues.
As I mentioned, it's still early to see what are the concrete proposals and what is going to be the platform in that he or any other candidate are gonna use to present his name to the voters. I would say, Ernesto, that would be to wait and see. As you know, we have two rounds in Colombia, so there is going to be the first one in which there is going to be probably some candidates, probably I don't know the number, but it will be a very high number. We will have the final race between two candidates. We will see.
I think we will need to wait until next year to see a clear view of the proposals they are going to present. Regarding Nequi, we are as you mentioned, we have a platform that is now growing at a very good pace. We have close to nine million users with a very good effective or clients that use the platform. What we are doing, we are considering when is the right time to start seeing and you know, we need to be sure that all the regulatory issues are covered. You know, what type of license are we going to apply for. There are many issues.
We are still in the early stages to analyze if that is a good move for us or not. The third question, I will pass it to José Humberto . José?
Thank you, Juan. Ernesto, as you mentioned, this is a one-off, and this is because of the recalculation of the deferred taxes. We are expecting at the end of the year, the taxation for Bancolombia for the entire group will be 32% at the end of the year. We are expecting next year, because of the tax reform, we are going to get the level of 34%-35%. The 32% of this year at the end of December, it is explained mainly because the main source of net income comes from the Bancolombia in which the, we have the higher statutory tax.
Our next question is from Tito Labarta with Goldman Sachs. Please go ahead.
Hi. Good morning, everyone. Thanks for taking my question. Just two quick follow-ups, actually. First, following up on the expenses, in terms of the efficiency ratio, you know, given the growth in expenses, right, picked up. How do we think about that efficiency, you know, going forward and given the investments you're doing? You know, could there be some cost savings with the digital initiatives, or is that the expense is gonna be sort of higher initially? Just help us think about the evolution of that efficiency ratio. Then just follow up quickly on the tax rate. Should the tax rate just go up, you know, roughly 5% for next year, given the new tax rate?
It should be like around 35% or so, I guess in Colombia, offset by the lower tax rates in the other countries. Just to confirm for next year how that tax rate should be. Thank you.
Thank you, Tito. Expenses and efficiency ratio. Efficiency ratio this year is going to be a little bit above 50%, which is out of our target. We expect the efficiency ratio to go below 50% next year. You mentioned our digital strategy and digital investments that should add efficiency to our operations. As I mentioned earlier, this is not a good year to analyze expenses since we have some extraordinary issues around the expenses. We expect next year to be more normal, and we will return to our path of having efficiency ratios below 50% and looking more to mid-40s in the midterm, which is our goal.
Regarding tax rates, the effective tax rate for 2021 for the whole group should be around 31%-32% as José Humberto Acosta mentioned. It's driven mainly by Colombia, in which, as you know we've had a tax reform. So we need to calculate the deferred taxes on goodwill. We have a special effect on 2021. After 2021 we will have the full effect of the tax reform, the Colombia tax reform that will increase our effective tax rate to or close to 34%, mainly driven again by Colombia. I don't know if José Humberto would like to add something to this answer.
No, Juan, that is very clear. Next year 30%-38% including the special tax that you mentioned. That is clear.
Okay. Just to clarify, so for next year around 34% in Colombia, and then I guess you have lower tax rates in the other countries, right?
No.
The consolidated tax rate-
No
Would be more or less or.
In Colombia, next year will be 35% plus the 3% additional that will be maintained until 2025. In Guatemala and Panama
Okay, 30.
The taxation will be 25%.
To clarify the effective tax rate for the whole group.
Okay, thank you.
On a consolidated basis for in 2022 should be around 34%.
Okay. Understood. Thank you very much.
Our next question is from Olavo Arthuzo with UBS. Please go ahead.
Thank you, José. Thank you, Carlos, and good morning, everybody. Before taking my question, I just wanted to understand more about the digital initiatives of the bank, I mean Nequi and A la Mano. In few words, I would like to know what is the profile of these clients? I mean, how much of them are low or high income? I know the focus of A la Mano is targeted to low income individuals. And how many have already a current account at Bancolombia? What are the main products or services these clients usually demand? It's basically it. Thank you.
Thank you, Olavo. I have some difficulties hearing you, but I will try to answer your questions. Regarding profile of Nequi and Bancolombia A la Mano clients, let me say this. The clients of Nequi are mainly young adults between 18 and 35, which are usually not clients of banks, so they are having their first banking relation with us. They are using Nequi as a savings account and also as a platform to do some payments, some transfers, and now we are introducing loans on the Nequi platform. Let me say that we have, in the case of Nequi, 40% of the clients of Nequi are also clients of Bancolombia.
60% are just clients of Nequi. That allow us to have a very good mix and to know and to understand very well its those clients. In the case of Bancolombia A la Mano, in which we have close to six million clients, those are more clients in rural areas where they have access to banking services through our platform and also use the banking agents that we have throughout the country, more than 21,000, to do the cash in and cash out. It's a way of covering a big part of the population with these two platforms. Those numbers add.
We have close to 9 million customers in Nequi and close to six million customers on Bancolombia A la Mano. It's total of 15 million customers in both platforms. A client cannot be in the two platforms. Either you are in Nequi or you are in Bancolombia A la Mano. In the case of Bancolombia A la Mano, now we have more than 300,000 clients that already has credit. Bancolombia A la Mano it's now a platform in which clients could access to credit, and those numbers will probably increase. That's how the clients of both platforms are.
Okay. Very clear. Just to follow up on this topic, I just wanted to hear from you, given the digital initiatives of other banks, what, in your view, is the main competitors of Bancolombia, just in terms of this digital initiatives?
Let me see if I got the question right. The digital competition, now we have a very different participants. We have some traditional banks that, as ourselves, move quickly to have a digital platform. We are competing, and we are really active in giving options to the clients and to the market, and we are gaining market share. Those are the traditional banks which are basically two. We are basically two banks to this strategy. Then we have FinTechs and other participants. We have some other platforms that are entering through a product, basically a credit card and sorry.
There are some offerings around credit cards on digital platforms. That market will increase competition during the next year for sure. There are other participants offering credit, but they are not very big now. What we think is that since we started six years ago now, and we now have an opening, we have a base of clients that is big enough, we can take advantage of that and keep offering new products to these clients. Competition will increase for sure, but we think we are very well prepared to take advantage of what we have in this market.
Okay. This was very clear. Thank you, José. Thank you, Carlos, again.
Thank you.
Our next question is from Jorg Friedemann with Citigroup. Please go ahead.
Thank you very much. Can you hear me well? Because I'm with earphones.
Yes, I can hear you well.
Thank you, José Humberto. Thank you, Juan. Hello, everyone. Yeah, congratulations on the results. I have just, you know, a couple of follow-ups as well. Initially, if you could just clarify and give us a bit more granularity about the reasons for the, you know, deferred tax readjustments causing a negative impact in this quarter. I explain why, you know, my question. The point is that when, you know, the taxation increased in Brazil, at least, we, you know, revaluated the tax credit stock, you know, appreciating that stock.
This caused actually a positive effect, extraordinary positive effect in the quarter, when the banks revalued upwards their stocks of tax credits. Not sure if in your case you had tax liabilities, and that was why you ended up having a higher deferred tax, not lower. This is the first question, just a clarification on what really caused the impact and if you had tax liabilities or tax credits, tax assets. This is the second question, you know, just a follow-up here, you know, on the digital initiatives. When I look into Nequi and A la Mano, it's interesting because you are evolving well in both but, you know, some of the KPIs differ quite substantially.
For instance, you are at 65% of active users in Nequi versus, you know, 55% one year ago. When you look into, you know, A la Mano, it's much lower. You know, just 41%, and this has not really increased versus last year, which was at 40%. The same happens to NPS. You know, Nequi has approximately 81. In the case A la Mano, you have 64. So, just wondering what you are seeing in terms of challenges for A la Mano for you not to achieve the same KPIs, you know, versus what you are achieving already at Nequi. Thank you.
Thank you, Jorg. Let me take your second question, and we will ask José Humberto Acosta to take your first one related to deferred taxes and what was the or why was the negative impact. Nequi and Bancolombia A la Mano are different platforms. Nequi it's a neobank, and it acts as a neobank. Even though it's under the umbrella of Bancolombia, it's in Bancolombia's books, it's separate in terms of how it relates with customers, with types of.
Pardon me. Just hold the line one moment while we reconnect.
I think Juan is having some issues regarding the call. Let me answer, Jorg, your second question meanwhile Juan is reconnected again. You are right, and in terms of deferred tax, when we recalculate deferred tax based on the new tax reform, we have three elements. The loan portfolio, the bonds. Both, as you mentioned, cause a positive effect on the deferred, but there is another element which is the goodwill. In the case of goodwill, because we have COP 8 billion in goodwill, it is the other way around, and that's the reason why it affect us, our taxation, and you can see the 38% taxation this quarter. This is because of the combination of these three factors.
The first two, loans and bonds, are positive as you mentioned, but the third element, which is bigger than the other two, it is affecting in a negative way. That explains why the tax increase.
Perfect. Very clear, José. Thank you very much.
No, no. My pleasure. Juan, you can continue with the question regarding the
I don't believe we have him back. Just one moment.
Okay. I think it's Juan having again some issues. Complementing the answer of Juan, as in the previous question, we have two different profiles in Nequi and A la Mano. There are big difference. First, Nequi is more oriented to people who lives in the cities, and A la Mano is more oriented to rural people who lives in small towns. We complement the offer. The challenge is how we are able to maintain the activity for the first 30 days. We feel proud saying that we have a very positive numbers in both. The reason is because we are using not only to receive, for example, in the case of low-income population, different subsidies, but also because they are actively using for transactional way.
Juan, you can continue with the answer. Now you are connected.
Thank you, José. I am sorry I disconnected from the call. I was saying answering Jorg. Those are different platforms, as I mentioned. Nequi is more neobank. It's not related to banks. It's different products. Bancolombia A la Mano is an offering from a bank, and targeting a lower income individuals with less education, so we have more challenges there. The 55 active users that you mentioned in Bancolombia A la Mano is not a bad number. I think it's actually pretty good compared with other platforms. We are measuring this as one-month activity. Activity is a monetary transaction.
It's not just entering the platform to consult the balance of the product. It's more like to use transaction. 55. In Nequi it's better because we have better results on Nequi. The NPS that you mentioned, 64 compared to 81. 64 is not bad. The point is that 81 is extraordinary good in case of Nequi. We have challenges to keep evolving the Bancolombia A la Mano platform, but we are very comfortable with those two strategies. As I mentioned and answered before, those clients are active.
It's a total of close to 15 million clients in these two platforms that are accessing financial products in a very simple way and accessing also the physical channels of Bancolombia, which is a big advantage. The customers of both platforms have access to the ATM network and Colombia's ATM network. Also, the banking agent network, which I mentioned, is more than 21,000 bank agents around the country.
That's perfect, Juan. Thank you very much for the answers.
Thank you, Jorg.
Our next question is from Carlos Gomez with HSBC New York. Please go ahead.
Thank you for taking the question and for extending the call. I want to come back to the tax issue, I know we are debating it to death. Just to clarify the last thing that you mentioned, you have the positive impact for loans and for bonds. You had a negative for goodwill. Coming back to what Jorg asked, if in the future we have a reduction in the effective tax rate, should we expect a negative impact in your results in the short term because of the reversal of what you did today?
The second is, when we go to next year or the year after, once we normalize your credit provisions, and given how your business is set up today and the tax rates that we have, what again is the sustainable ROE that you think the bank can produce? Thank you.
Thank you, Carlos. I will take the second question regarding the sustainable ROE. We think that the mid-term ROE of Bancolombia should be around 14%, between 13% and 15%. That's our target. We think we could achieve that in 2023. Still, 2022 will be a year in which we need to do some additional adjustments. It's going to be lower double digits ROE. The 2023 should be the year in which we reach that mid-term ROE closer to or between 13% and 15%. José, could you take Carlos' first question regarding clarification around taxes?
Yes, Juan. Yes, Carlos, as you mentioned, this is a one-off. It is affecting the third quarter tax. Again, at the end of the year, we will expect the 32%. Yes, next year we will expect the 32, 34%, 35% tax. Also, obviously, it will affect the profitability because we were not expecting that increase in taxation. Again, this is a one-off, and you are not going to see a recalculation of that next year, assuming the deferred tax will maintain the same 35%. I don't know if that answers the question, Carlos.
No, the question is if in the future there is yet another tax reform, you usually have one every two years, and this time the tax rate goes down. If the tax rate goes down, we should expect-
Right.
A one-off negative impact, right?
Correct. That's correct. If the taxation comes down, the recalculation of goodwill will affect in a different way, as you mentioned. That's correct.
Okay, thank you. If I can follow up on the ROE question. For this year, you had a very specific outlook when we were talking at the end of 2020. You were quite downbeat. You were expecting 6%-8%. In the end, you are going to report a much better number. Is it mostly the asset quality or are there other factors, now looking back at most of the year is gone, that have made this year better than you feared initially?
Carlos, it's mainly driven by asset quality that was better than we expected. I'd like to highlight that all lines except expenses of the bank are doing pretty well. Net interest income with the pressure that we had on margins and on interest rates we can handle that through the cost of funds. The fees are performing well. It's driven mainly by asset quality, which is going through or it's towards a normalized number. We had a very challenging period during 2020 and even 2021. The bank and fees and net interest margins net interest income perform well.
That's clear. Thank you so much.
Thank you.
Our next question is from Jason Mollin with Scotiabank. Please go ahead.
Hi. Thank you very much for the opportunity to ask questions. Juan Carlos, José Humberto. I have a follow-up on the digital efforts on Nequi and Bancolombia A la Mano. I mean, we're seeing this very rapid growth, for instance, in Nequi, the number of users in the quarter alone, from 7.1 million to 8.6 million. Then, on the Bancolombia A la Mano from 5.4 million to 5.7 million. You're showing, which is very interesting, the customer acquisition cost of $0.33 at Nequi and $0.36 at Bancolombia A la Mano. If you can talk a little bit about how you're driving this growth in clients and what is incorporated in that acquisition cost?
You know, is that something that, you know, in many ways, I think you could say it looks very low. Just how you view that, could it be lower? Could it be higher? How should we think of that going forward? Thank you.
Thank you. Thank you, Jason. As you mentioned, figures or numbers are very good on our digital platforms. The growth that we are seeing it's very positive. I like to highlight that growth is because what we are offering is really useful for the people that it's applying to this platform. It's very easy to be a client of one of these platforms. Once you are a client that you can just sign in in five minutes, and what you need is your identity number and two or three more data. So that explains why.
What is happening is that we are creating a network effect, which means that we already have the numbers and the connection with Bancolombia. People are really seeing that it's useful for them to have access to cash to do the cash in through our Bancolombia's network. At the end, it's a combination of a very good platform with easy-to-use products with the power of the Bancolombia's networks, ATMs and also banking agents, which allow cash in and cash out in a very easy way, a very convenient way, and all around the country. That's also a way to transfer money to do payments. We are also integrated in our QR strategy, QR payments strategy with Bancolombia.
You can use both platforms, Nequi and Bancolombia A la Mano, to do payments with a QR in a way that allows to use your money in a very convenient way. Regarding acquisition costs, we already invest in the technology and marketing around acquiring customers with this number of clients is also very efficient. We are including the direct cost of marketing and in that acquisition cost. We don't expect that number to go lower or higher. We think we are in a figure that is very good, and we will continue seeing that figure in the future.
Can you remind us again for Nequi and Bancolombia A la Mano, what percentage of the clients are new to the banking sector or are already clients of Bancolombia? Just to get a sense of, is that acquisition cost converting a client at Bancolombia into Nequi or how should we think about that?
Yes, Jason. 60% of the clients are new clients for Bancolombia in the case of Nequi. 40% are clients that are also clients of Bancolombia. 60% are new clients. And this also we are leveraging this because that 40% that are clients, common clients with Bancolombia, we have a lot of information about them. We're meaning that we can use analytics to really access those clients with loans offers. It's a combination. That 60% are new, that's the combination that we have. In the case of Bancolombia A la Mano, the overlap is a little bit higher.
Many of around 45% of the clients are new for the banking systems. They are using Bancolombia A la Mano as their main financial services platform.
Thank you. Very helpful.
Thank you, Jason.
This concludes the time allocated for questions on today's call. I would now like to turn the conference back over to management for any closing remarks.
Thank you everybody for your participation on the third quarter of Bancolombia's third quarter conference call. It has been a quarter in which we have good results. We will see how the year ends with the fourth quarter. We are positive that even though we will have some specific issues related provisions, it will be at the end a good 2021. Thank you everybody and I hope to see you on our next conference call in which we will present the 2021 results. Have a good day everybody.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.