Good morning, ladies and gentlemen, and welcome to Bancolombia's first quarter 2020 earnings conference call. My name is Anna, 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 SEC. With us today, 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. Jorge Humberto Hernandez, Chief Accounting Officer, Mr. Alejandro Mejía, Investor Relations Manager, and Mr. Juan Pablo Espinosa, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer of Bancolombia. Mr. Juan Carlos, you may begin.
Good morning, and welcome to our conference call for the first quarter of 2020. In these challenging times, we are all navigating through uncertainty for ourselves, our loved ones, and our communities. We hope you are staying healthy and safe. This is a very peculiar quarter. As the rest of the world, Colombia and the countries in Central America where we operate have experienced the effects of the spread of the virus with the collateral effects of the lockdowns and the consequential reduction on business activity. As a result, our business plan for 2020 will change in a significant way. At this time, we consider that in the second quarter, we could have a better understanding of what will be the 2020 results. During the quarter, we generated a net income of COP 336 billion, which is 60% lower than net income of the first quarter 2019.
In this call, we want to give you an overview of Bancolombia's situation and the actions that we are taking, as well as the results of the quarter, which were impacted by the COVID-19 outcomes. First, I want to make a quick mention of the macroeconomic environment and the government's and central bank's response to the COVID-19 situation, which we can see on slide number three. As of May 4th, Colombia has close to 8,000 confirmed COVID-19 cases and 350 deaths. The Colombian government declared a state of emergency on March 17th, and a quarantine has been in place since March 25th. Construction and manufacturing sectors were allowed to restart operations on April the 27th. Other measures to contain virus transmission have included travel bans, border closures, and a suspension of classes. The rest of the countries in which Bancolombia operates have implemented similar containment actions.
Colombian authorities have also announced several economic measures as part of the response to the COVID-19. On the fiscal side, first package equivalent to 1.4% of GDP for the control of the pandemic, containment and palliative measures. The government has also said that there is a total of 4.7% of the GDP to use in case of a necessity if the situation aggravates further. On the monetary side, measures include cuts in the reference rate totaling 100 basis points, the strengthening of liquidity provision mechanisms, purchases of public and private fixed income securities by the central bank, the reduction of reserve requirements, and establishment of additional FX hedging mechanisms. Second, we want to share with you the response from Bancolombia to face the COVID-19 situation.
Slide number four gives you some insights. During the last three years, we have created the remote working tools and platforms that allow us to run the business today with no significant disruption. To give you an idea, in Colombia, close to 90% of our employees are working from home, and in Panama, 60%. On the commercial front, we have enrolled more than 800,000 new customers in the last three months through Bancolombia A la Mano and Nequi platforms. Bancolombia has played a key role helping the government distribute financial support to low-income individuals. Our platform has been used to distribute subsidies from the central and local governments to more than 6,000 people. Also, we have taken actions to support our customers in different fronts. For 1.8 million mortgages and personal loans customers, we have granted a grace period of three months.
In the SME and corporate loans, we have opened the possibility to restructure credits and exempt grace periods. As of today, we have extended benefits to around 260,000 companies. In total, we have offered benefits to about COP 56 trillion worth of loans. Additionally, we have been active granting loans to existing customers with guarantees from the Fondo Nacional de Garantías, National Assurance Fund. These guaranteed loans aim to finance working capital and protect payrolls of a small business and cover up to 90% of the outstanding balance. On slide five, we present the current status of our channels in Colombia. A key point we want to highlight is the rapid adoption of digital channels during this period. Today, we are operating with 70% of our physical branches, while we are experiencing a big increase in the use of digital channels.
On slide six, you can see the rapid adoption of digital banking. The number of digital transactions has increased during the quarter, while the number of transactions through physical channels has decreased. This is an indication of what could happen with our customer attention model in the future. Similarly, our digital platforms, Bancolombia A la Mano and Nequi, have increased the number of active users at a rapid pace. Just in March and April, Bancolombia A la Mano added more than 700,000 new clients. That's three times the monthly average. Similarly, Nequi added 500,000 new customers. On the other hand, the Bancolombia mobile application has reached 4.5 million users. We expect these trends to continue while our customers adopt the broad offer of digital channels and products that we have developed.
This is a brief description of the challenges that we face with our customers, our employees, and our operating environment. In addition to the presentation of the first quarter numbers, we want to give you a point of view regarding liquidity, capital, and provisions. As you will understand, it's too early to provide a guidance for the 2020, as things are evolving rapidly in the middle of the COVID-19 development. Now, I want to turn the presentation to José Humberto Acosta, who will expand on these aspects. José?
Thank you, Juan Carlos. I want to continue this presentation elaborating more about three key topics: liquidity position, capital position, and credit risk. On slide number eight, we present the evolution of the two key aspects of the balance sheet, liquid assets and liabilities. Liquidity is one of the aspects that we are paying special attention to across all four geographies. During the quarter, we have put a special emphasis on increasing the amount of liquid assets and investment that can be easily converted into cash or used as a collateral with the central bank for borrowing purposes. In particular, the last weeks of March and April, we have been seeing a significant inflow of money into Bancolombia. We have gotten significant inflows from money that was in the money market accounts as customer preferred liquid products. We have experienced a flight to quality effect in all four geographies.
This liquidity has come through checking and savings accounts across all four geographies. We must mention that the increased level of liquidity is not going to be used to accelerate loan growth, but to maintain a caution during the current situation. On the liability side, we have been very active tapping lines of credit with international banks. This resource have been used to extend working capital and trade finance facilities to our customers in our international operation. Also, we have used lines of credit with the government second floor banks, which are intended to finance small and medium businesses with working capital and paycheck needs. The recent evolution of deposits and liabilities have permitted to reduce the funding cost. This strategy aims to have a liquid balance sheet in order to have more financial flexibility. We recognize that these are not normal levels of liquidity and deposits.
They are higher than regular levels, and eventually will return to normal levels. On slide number nine, we present the current capital situation of Bancolombia and subsidiaries. We currently have a solid capital position that permit us to face stress situations. As we see, our main operations run with capital well above minimum regulatory requirements. The same applies to the consolidated ratios. We want to emphasize three aspects to consider when looking at the current capital position. Over the last years, Bancolombia has accumulated capital organically by earnings retention and asset growth below 10% on a consolidated basis. In our capital structure, 44% of shareholders equity is in U.S. dollars, which help us to maintain capital ratios during periods of currency depreciation. The last liability management transaction conducted in December 2019 permit us to have a stable Tier 2 for at least the next five years.
The growth forecast for the next years indicates that our current capital position allows us to develop our business plan, including asset growth, provision charges, and the net income evolution. In general, the Colombian banking system is well capitalized, and the regulators have not indicated any restriction regarding dividend payments. The schedule for Basel III implementations remains for 2021. As you know, each year we present a dividend proposal to the annual general meeting. Shareholders decided what portion to pay as dividends and what portion to appropriate. This year, 2020, we are paying 36% of 2019 net income as a regular dividend and 14% as an extraordinary dividend. Last April, we paid the full amount of the extraordinary dividend and the first installment of the regular payment. On slide number 10, we present the breakdown of provisions during the quarter.
I want to point your attention to the impact that we had this quarter from the provision associated to update in parameters, including the deterioration in macroeconomic parameters as expectations related to COVID-19. Regarding provision charges associated to consumer loans, we must mention two drivers for the increase. One is the 29% nominal growth of the consumer loan portfolio between March 2019 and March 2020. This growth occurred mainly in personal loans. The second is the effect that exchange rate had on the nominal amount of provisions, which are bigger when dollar charges are converted to pesos. Additionally, we did COP 296 billion in provision associated to COVID-19 impact and change in parameters. Just to give you an idea, the most important parameters that deteriorated was GDP, inflation, and fiscal deficit. Finally, we did some specific provisions for corporate clients.
We expect to see a deterioration of the loan portfolio in the second and ongoing quarters as the economy suffers the impact of the lockdown. We don't know yet how much past-due loan formation we will have, and therefore, we have not a clear estimation of provision charges for 2020. On slide number 11, we give you a snapshot of our standalone operations. We want to highlight the growth in cash, equivalent, and investment in securities that we had across all four geographies. This effort has been coordinated across all balance sheets of the group and aims to provide safety and flexibility in each of our four operations. We must highlight the coverage ratios of past due loans are in between 120% and 225%, which will permit us to face potential deterioration in the coming quarters. In slide 12, we present the loan growth and the loan breakdown.
As we mentioned a few slides ago, it's key to highlight the composition of our assets as we increase the amount of cash and equivalents and investments in order to have a better liquidity profile. Loans grew 12% during the quarter, mainly due to the utilization of lines of credit in pesos by corporations and the depreciation of the pesos versus dollar. We do not expect this pace of growth will continue as the economy has slowed down. In the last weeks of the quarter, we started originated loans using the credit facilities designed by the Colombian second floor banks. We have originated COP 480 billion with these lines and have focused in loans with less than two years. Second, loans to SME with a guarantee provided by the Fondo Nacional de Garantías.
Until today, we have reserved COP 1.8 billion in loans with this feature, with tenors ranging from 12-36 months. Finally, loans to SMEs with our own resource accounting for around COP 1.1 trillion. Finally, I want to mention a few facts about our loan portfolio. One is the diversification across several sectors of the economy and the small exposure that we have to oil and gas, where we have less than 0.6% of our loans, and as an example, airlines and airports, where we have less than 0.5%. The second factor is the fact that the 44% of our loans have either warranties or collateral. On slide 13, we see the evolution of margins. Lending margins remained stable during the quarter, in line with the trend observed in the previous quarter of last year.
On the other hand, investment margin remains low as some securities in the portfolio lost value in the last weeks of the quarter. The Colombian Central Bank cut the interest rates twice in the last two meetings, 50 basis points each, setting the reference rate at a level of 3.25%. We could see a pressure on margins due to these actions, but so far, cost of funding has come down as well, thanks to the faster growth in checking and savings accounts. In the following slide, number 14, we see the net interest income and the evolution of the funding cost. Please note the reduction in deposit cost during the quarter. This is the result of the bigger share of checking and savings accounts. This trend contributed to the reduction of the loan-to-deposit ratio to a level of 104%.
The second component of the reduction in funding cost was the liability management conducted last December and January. We did one issuance of subordinated debt and another issuance on senior debt, which permitted to reduce the funding cost on these instruments by 140 basis points. In slide 15, we present provision charges. Complementing the explanation at the beginning of the presentation, we experienced an increase in the past due loan ratio to 3.04% for 90 days past due, with a coverage ratio of 188%. This coverage ratio is the result of our risk provisioning models based on expected losses. The next slide, number 16, shows the past due loan formation. New past due loans during the quarter increased in nominal terms due to three factors. First, early impacts of the general lockdown of Colombia and Central America.
Second, the depreciation of the peso versus dollar, which caused past due loans from Central America to represent more pesos. Finally, the deterioration of specific corporate clients. Slide 17 shows the evolution of expenses and efficiency. The largest impact in our OpEx is explained by the 20% depreciation of the current of the peso. Nevertheless, regarding COVID-19, we are reviewing the projects pipeline in order to postpone or cancel some, and we are reviewing also all the general expenses. Now, I want to turn the presentation to Juan Carlos in order to summarize the most relevant aspects. Juan Carlos?
Thank you, José. As a summary, I want to highlight that digital channels will play a relevant role on our strategy to be the pillar of our future developments. Loan growth will be difficult to forecast at this moment. But, we will continue assessing the developments of the economies in which we operate to see how credit demand is going to evolve. Fee income, which has a high correlation with economic activity, tend to be lower this year. Margins may have a compression and will be correlated to the Central Bank's monetary policy. Provisions will increase, but as we mentioned before, it is still difficult to predict its growth for the year. Finally, regarding expenses, we will face new challenges in this new operational environment, which will require us to be more selective with the projects that we undertake.
Expenses is going to be a big focus of our activity, of our strategy, in order to be very efficient on this front. With this, 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 touch-tone phone. If you wish to be removed 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 first before pressing the numbers. Please limit yourself to one question to be able to accommodate for other parties. Once again, if you have a question, please press star then one on your touch-tone phone. We have a question from Andres Soto from Santander. Please go ahead.
Good morning, gentlemen. I hope you and your families are doing well. Thank you for the additional details about your cost of risk in your presentation. I noticed that if I exclude the parameter update and the specific corporate provisions, your cost of risk would have been at 1.8%, which is what you have guided for earlier this year. I would like to understand first, what was the GDP assumption in your model update, and if we could expect additional updates in second Q or later this year due to further model adjustments. Second, regarding the specific corporate provisions, I would like to understand how many clients, what is the total exposure, and what are the current coverage for those cases. Thank you.
Thank you, Andres. Regarding your first question, we updated our parameters with the forecasted GDP of, decline of GDP of 2.7%. Further updates, I think will come once we have more data. Your analysis is correct. We have the parameters update, and other than that, the provisions are the one you mentioned. With this, I want to pass your second question to José Humberto.
Yes. Thank you, Juan Carlos. Regarding the exposure of corporate clients, we are basically talking about the two corporate clients here in Colombia that are already past due. That's the reason why the level of provisioning for corporates is mainly explained for these couple of corporate clients. Going back to your question of GDP, just to give you an idea, and that will change every quarter for complementing the answer of Juan Carlos. For example, for the Panamanian situation, we are assuming a GDP drop of -2.4%. That explains why the increase of the COVID-19 provisioning.
Our next question is from Ernesto Gabilondo from Bank of America. Please go ahead.
Hi. Good morning, Juan Carlos and José Humberto. Thanks for taking questions. My first question is on loan growth. We noticed that the peso-denominated portfolio came at double-digit growth. Can you elaborate what was behind that? Was it mainly explained from corporates and SMEs withdrawing credit lines and individuals requesting for more credit during the grace period? How should we think about loan growth in the next quarters? My second question is on provision charges and cost of risk. As you mentioned in your presentation, you have already created an impairment of COP 296 billion due to expected losses from COVID-19. However, when do you expect the peak of provisions, and how should we think about the cost of risk in the next quarters? Finally, my last question is on your capital ratio.
Your Common Equity Tier 1 ratio stood at 9.1%, while I believe that with Basel III, you could be around 10.5%. However, considering that Bancolombia is a systemic bank, don't you think that you will be complying just in the limit? Thank you.
Thank you, Ernesto, for your questions. I will take the first one regarding the loan growth, and I will pass the second and third questions to José Humberto. Loan growth. As you could imagine, once the pandemic was clear that was going to affect the economy and countries started to talk about lockdowns and the effects on the economy, corporate clients starting to ask for money. March was a month in which we have a big demand of corporates, mainly corporates, asking for money to provide for them to have enough liquidity to pass this period. The demand in March, as I mentioned, was very big, and that is the cause of the growth of the commercial loans on our portfolio. The economy was growing well in Colombia during the first two months, and we have demand, but in March, that demand was caused for the pandemic.
That create the loan growth to grow, the commercial loans to grow around 12% year-on-year. Basically was corporations looking for liquidity. With this, I want to pass your questions to José Humberto, and if you want to complement this answer, please go ahead, José.
Thank you, Juan. Yes. Just very clear, complementing the first question is, in terms of US dollar, the loan growth was close to $1%, and in terms of local currency was, as Juan mentioned, 10%. If the first wave of the first quarter was because of the corporate clients. On the next coming three quarters, maybe that will be impacted basically because of consumer loans and because of SMEs, nor because of corporates. Going back to your second question, yes, as we are modeling the COVID provisions under the model of expected losses, probably in the second quarter, you will see a materialization of the new numbers of GDP, new numbers on unemployment level, new numbers of fiscal deficit. Probably we will touch the highest point maybe on the second quarter, once we have better data to adjust the expected losses model.
Because on the second quarter, you'll realize how you are impacted the second half of this year. This is our perception. Regarding the capital ratio of the 9.1 that you mentioned, yes. If it were under Basel III, that number will jump 150 basis points. That's correct. I want you to highlight two factors. This year, we are not expecting to have a loan growth of the original that we planned of 10%. That would be a factor that support or maintain the level of solvency ratio under control. The second factor is the fact that the 44% of our equity is in US dollars. That will give us some comfort in terms of FX variations. Based on those calculations, based on the loan portfolio will be stable. We don't foresee any particular concern regarding the levels of Tier 1 and Tier 2 ratio.
Our next question is from Gabriel Noriega from Citibank. Please go ahead.
Hi, everyone. Good morning, and thank you for the opportunity to ask questions. I actually have two questions as follow-ups. The first one, regarding these two corporate cases which went delinquent this quarter, could you just maybe share with us what is your exposure there, and then what's your coverage levels as well? As for my second follow-up, it's actually on capital. I understand what you just said, maintaining these similar levels, but I wanted to ask about your payout ratio and what you're expecting for dividends being that you weren't going to grow, but at the same time, you could have a higher risk from higher RWAs as well. Thank you.
Thank you, Gabriel, for your questions. Let me pass them to José Humberto.
Yes, Gabriel. The most relevant case that we are having today is Bioenergy. It's a subsidiary of Ecopetrol that we are working with them. This is one of the most relevant, and we have another specific case regarding energy industry in Panama. Those were the most relevant cases that we are having today. Regarding your second question, we don't foresee, we are not sure about what will happen with the dividend payout ratio for next year because this is a clear message that it's happening in Colombia. Our net income is dropping 60% compared with the first quarter of last year. All depends on what we design for the second half, what will be our guidance in terms of loan growth, NIM, and in terms of cost of risk, that that deviation will be important.
Today, we don't have a clear position about the dividend payout for the next coming years or even for the next coming year. In terms of the Risk-Weighted Assets, just to give you an idea, again, the density will change. The composition is not changing a lot in terms of commercial and consumer loans. We believe that if Basel III will take place on January the 1st, our density will drop more than from 77%, 76% to at around 65%, releasing a kind of capital for solvency ratios.
Our next question is from Julián Ausique from Davivienda Corredores. Please go ahead.
Hi, everyone. I have three questions. The first one is related to the impact, if you can give us more impact on what happening on the equity method. The second one is about what is the expectation that you all have in the percentage of the total commission that are exposed mainly to the situation. The third one is that if you can give us a little bit more color about the losses model, which are the parameters that you have, the GDP, inflation rate, and exchange rates. Thank you.
Julián, in the second question, you refer to the fees, or could you repeat your second question, please?
Yeah. It's about the fees. In the total commission or the total fees, what are the, like the products that are more exposed? Because as you, we all know-
Okay.
Some of them are no longer charged.
Okay. Thank you, Julián. Let me take that question, and I will pass the other two to José Humberto. What we are seeing is a huge increase in the use of our digital channels. Our digital platforms, Bancolombia A la Mano, Nequi, the use of our app, mobile app, it's increasing a lot. That's good. We, as I mentioned, we expect that the fee growth is going to be impacted. On the other hand, since we are acquiring customers at a very very fast pace, that is going to help on fee income. In general, what we are doing is we are supporting our customers, with the, giving them grace periods on loans, but we are not waiving fees in general. We are waiving some fees on withdrawals. We are waiving some fees on some specific transactions. The gross amount, or the amount of fees, still we are charging them.
That could be changing in the future, we will try to maintain as much as possible the fee charges that we are charging to our customers. The growth, we still expect the growth on the year, but will be lower than the one we forecasted for this year. With this, I pass to José Humberto for answering your other two questions.
Thank you, Juan. Yes, regarding your question of the equity method, we have three impacts in the equity method. The first one is the joint venture that we have with Éxito, the credit card Tuya. The same reason of COVID-19, they have to adjust the models, and as a result, they drop the level of income that we have to register. The second one effect is what happened with Protección. They reduced the level of income, we have to adjust the numbers also on equity method. There is a third element. We have another JV of the Fondo Inmobiliario and Viva Mall, which is malls and real estate, that also because of the situation were affected. Those are the three main effects why the number drops.
Regarding your third question, the loss models, as we mentioned at the beginning, just to highlight, we have three elements for adjusting the models for provision: fiscal deficit, GDP, unemployment rate. Again, just to give you an idea, originally for Colombia, our GDP expected was 3.2, 3.3, and we reduced to minus 0.8. In Panama, we had, for example, a GDP originated at around three-point something. I don't remember exactly, 3.2, 3.3 as well. The new number for adjusting, it is minus 2.8%. Those are the most relevant data that affects the level of provisioning.
Our next question is from Carlos Rodríguez from Ultraserfinco. Please go ahead.
Good morning, everyone, and thank you, Juan Carlos and José Humberto for the presentation. I have two questions. The first one is regarding asset quality, and if you could give us more detail as of the close of April on how these COP 56 billion credit reliefs are affecting new past due loans and provision in April compared to March. My second question is related to Banco Agrícola and its solvency ratio, and if it's a concern to you, the current level, and if there is any plan to increase the solvency ratio. Thank you.
Thank you, Carlos. I will take your first question, and I will pass your second one to José Humberto. Regarding asset quality and what we are seeing, we have been very active providing support to our customers, so we are restructuring a lot of credits. Particularly to our retail customers, we proactively moved to give them additional time, grace period. The asset quality, we are seeing that the asset quality is behaving as we were expecting. We are receiving more payments than we were expecting. In general, what we see is a good behavior regarding payments and regarding asset quality, since we moved fast to provide those new terms to retail customers. Also, on the commercial side, we are working with our customers, and as I mentioned, we work with 260,000 customers, providing them new terms for their loans.
To summarize, the behavior we are seeing it's better than the one we expected. Let me pass your second question to José Humberto.
Thank you, Juan. Regarding, Carlos, your second question, Banco Agrícola, the situation in terms of solvency ratio. I have to remind you that Banco Agrícola is one of the better performers in our group. Just to give you an idea and to give you some comfort about the level of solvency that we have. Today, we have a coverage ratio of more than 280%, that it is a buffer that we are having. It is the most profitable operation. We are not seeing a huge deterioration of the loan portfolio, so we are maintaining a very good performance. The reason why the number drops is basically because the dividend policy, they generate 90%, 95% of the dividend, and we are accumulating that dividend in our Bancolombia Panamá operation.
Remember that we have in Bancolombia Panamá almost $1.9 billion. That is the result of the capital or the dividends that we are receiving from our subsidiaries. Again, we don't have any particular concern regarding capital. The reason why it drops is basically because the dividend.
Our next question is from Alonso García from Credit Suisse. Please go ahead.
Good morning, everyone. Thank you for taking my question. My question is again on cost of risk and asset quality. If we go back to 2007, you had a cost of risk of 1.8%, which is very similar to the 1.9% you reported last year. Then in 2008 and 2009, amid the subprime crisis, your cost of risk materially deteriorated. I just wanted to ask if you think or why you think this crisis could be reasonably expected to be better or worse in terms of cost of risk and provisions, compared to back then, based on the state of economy, but especially based on your portfolio mix and based on the current leverage in terms of households and corporates now compared to back then. My second question would be if you could discuss how your liquidity metrics performed during the quarter.
I noticed that your loans-to-deposit ratio actually declined during the quarter compared to 2019, which is of course positive. If you could discuss the performance of other metrics such as the liquidity coverage ratio or the net stable funding ratio, that would be great. Thank you very much.
Thank you, Alonso, for your questions. I will take the first one, and I will pass the second one to José Humberto. Cost of risk, that's key. Many of you have asked questions around cost of risk. You mentioned 2007 cost of risk of 1.8%. We were moving towards a normalized cost of credit of around 1.7%, [audio distortion] around 1.7%. Our cost of risk in 2019 was 1.9%. What can we expect regarding cost of risk? It is closely related to what is going to happen with economic activity mainly in Colombia. As I mentioned on my presentation, Colombia allowed some sectors to start working again one week ago. That's construction and manufacturing. Now, we have information that a good number of companies started to work and start moving towards a normalized activity. That's going to be key.
I think Colombia has done a very good job on controlling this situation, and now it's allowing the economy to start moving. On the other hand, we have been very proactive working with our customers. The key here is to anticipate to the difficulties that the customers are going to have, because they will have difficulties. We move proactively working with them. The cost of risk is going to increase, no doubt about it. How much it's going to be, we still don't know. It's going to be similar to the 2008 number or 2009. Remember, in our case, the effect of the 2009 crisis was different. We were not hit as hard as many other economies. Here, I think the effect is going to be higher in Colombia, because this crisis is different.
We think that we have all the tools to manage the situation with our customers. We are moving proactively. It's going to be an increase in cost of risk, no doubt about it. How much it's going to be, we will have a clearer picture probably on the second quarter of this year, when we know how much economic activity is going to be at that moment and how hard the economy is going to be hit. With this, let me pass your second question to José Humberto.
Thank you, Juan. Yes, regarding your question about liquidity. Yes, just to give you an idea, we double the size of the liquidity that we are having on a regular basis here in Colombia and also in the geographies. We have an internal way to measure that, which is the liquidity horizon. A liquidity horizon means the days that you are able to support all the liabilities and to disburse all the commitments. Usually, we manage that number between 45 - 60, 70 days. Today, we have more than 100 days of liquidity horizon. This is the best way to understand that we have right now double the size of the liquidity.
Again, as we mentioned in the script, we have not contemplated that extra liquidity as a general purpose for loan portfolio because we know that these inflows of liquidity, they will go back again, maybe to the asset under management or to the fiduciary. Today, in local currency, more than comfortable, as well as in US dollars. Also, in order to increase our level of liquidity in US dollars, we went to the market and we raised money through the international banks. That give us one of the pillars during these days, which is to maintain a high level of liquidity.
As a reminder, if you would please limit yourself to one question to be able to accommodate all parties on the line. Our next question is from Jason Mollin from Scotiabank. Please go ahead. Jason, your line is now open. Our next question is from Natalia Casas from Porvenir. Please go ahead.
Hi, thank you for the call. Well, according to your presentation, around 40% of the increase in the provision expenses was caused by COVID-19, which means that the remaining 60% increase was caused by the normal operation of the bank. According to my numbers, this brings to an ROE around 11%, which is not very good to me and to the history of the bank. I want to understand what's going on in Central America. What happened there? Which are those corporate clients that create this impact in your P&L? If you expect further provisions from this operation specific, without thinking about COVID and the current crisis. Thank you.
Thank you, Natalia, for your question. Let me pass your question to José Humberto. José? Okay. José Humberto is having some issues with the call. Let me answer your question. Provisions, we have, as you mentioned, several issues around provision. We have the effect of COVID-19 and the update of parameters. That's for the quarter, that's around COP 300 billion on provisions. Then we have some provisions related to our retail portfolio. As you know, we increased our portfolio of consumer loans last year. The portfolio was performing well until February. The expectations that we, on the vintages we were follow, were performing according to our expectations. Then, March, we got the hit of the COVID-19, and some customers that we didn't have enough time to work with them and restructure their credits were impacted and were past due. Specifically, Panama was hit bad by that.
Other than that, we have some effects on customer, on corporate clients. We mentioned Bioenergy, which is a petrol company. Then, in Panama, we have some other corporate customers that we have to provision. Those are the effects for the quarter. What we could expect for those clients, we will need to have additional provisions on them. The coverage ratio of many of them are close to 50%, 60%. We have been provisioning them, so we will need additional provision. We will have the effect of the COVID-19, which we had some in the first quarter, then we will see what is the effect in the future, and we still will have some effects from those corporate clients. Mainly in Central America, Panama mainly at this moment. We have provisions that cover them.
As I mentioned, cost of risk is going to increase, and we are taking into account in the cost of risk, not just the effects of the COVID-19, but also the effects of provisioning, of additional provisions on those corporate customers.
Our next question is from Yuri Fernandes from JP Morgan. Please go ahead.
Thank you, Germaine. Thank you, Juan Carlos, José Humberto. I have two questions. The first one is regarding the capital, the 44% capital in US dollars José Humberto mentioned. I remember this number being around 20% in the past, even in 2019. My question is if you move your long exposure to dollars this quarter, and also if you have any kind of sensitivity. If the peso depreciate, how much we could see on a benefit for your capital? I think about 30% of your assets, they are more or less in foreign currencies, right? Now I think you have a long dollar position. My second question is regarding the renegotiated loans, the 41% of your loans in Colombia. I would like to know if you have this number for Central America, so basically how Central America renegotiated loans are tracking.
Also if you have any kind of estimate of potential NPL for those renegotiated loans. Because I know it's not totally apples to apples, but in other countries, usually the renegotiated book runs with five times more delinquents than the average book. Just trying to get any color on how much losses can we get, because again, 41% of renegotiated loans, I totally get that's the right thing to do, but still, it's a high number, right? Thank you very much.
Thank you, Yuri. Let me pass your questions to José Humberto. Let's see if he reconnected to the call.
Yes, I'm here, Juan. Thank you very much. Yes, Yuri. Your first question, there are two reasons why the number went up in US dollar from 20%, as you mentioned, to 44%. The first one is when we decree dividends this year, that was 50% of the net income. All of these dividends were paid in peso. The number in peso drops, and the number in US dollar right now have a more portion. The second reason is because the net income of the last year of the international operation were positive. That also help us to increase the level of equity in our subsidiary, Bancolombia Panamá. Because of these two reasons, now the weight of the equity US dollar is heavier than we had a year ago.
Regarding your sensitivity, we made some calculations, Yuri, for every COP 100 of devaluation, it will be affected the solvency ratio around 4 - 5 basis points. That's the math. Again, remember that we have 37% of our assets is in U.S. dollars, we have the protection, a kind of protection on the equity side. Regarding your second question, the status of renegotiation in Central America is not at the same volumes as in Colombia. Juan mentioned that we are doing here a very good job, more than 40% of the loan portfolio within grace period. In Agrícola, we are doing less than that. Also in [audio distortion] in Banistmo, in Panama also, we are doing less than that. Of course, we are reacting as a first wave with individuals through mortgage and consumer, as a second wave with SMEs and corporates.
Relatively, the size of the volumes there are lower than you are seeing in Colombia. Regarding what happened with the deterioration with these grace period loans, remember that the under IFRS 3, I'm sorry, under IFRS, you have to update, no matter if you have a loan with a grace period, but if you belong to a sector with a huge deterioration, you have, the bank will have to do a provision level. No matter if the clients are right now with grace period, we will have to adjust every quarter based on market conditions, new provisions.
Our next question is from Sebastian Gallego from Credicorp Capital. Please go ahead.
Hi, good morning, everyone, thanks for the presentation. I have three questions. The first one, can you provide some color about the treatment on Risk-Weighted Assets coming from guaranteed loans, particularly the ones that have been announced in Colombia? Second question is regarding Central America. You have been focusing quite a lot in Colombia, but can you provide more details on your business strategy for the Central American operation under the current environment? Third question, going back to loan growth, you mentioned that you expect a deceleration of loan growth, but how does this contrast with the fact that the government is pushing for the initiatives with guaranteed loans? Thank you.
Thank you, Sebastian. Let me take your third question, and it's related to the first question, and then I will pass your other question to José Humberto. Loan growth. As I mentioned, we have a big demand for credit lines at the end of the quarter. That was due to the situation that emerged. What we are seeing is that the people are more cautious around asking for loans. We will maintain a prudent approach of awarding credit. That's important. That's what we are expecting, that the loan growth is not going to be very strong during this year. We will work a lot with client restructuring. We will give them some additional credit. The demand is not going to be very high, we think, because of the economic, the slowdown on economic activity.
Regarding the loans that the government is giving some guarantees, those loans are a small portion of our portfolio, really. The total lines that the government is offering at this moment is COP 12 trillion. That was the total, close to the total we disbursed in March. It's not a huge amount that is going to take a big effect. On the total loans in Colombia, which are, that those figures are not going to move significantly the numbers. In our case, we have disbursed around COP 250 billion of those lines with government guarantees. That number is going to increase, which is good, and it's good for the economy, and it's good for everybody. Again, the significance of those numbers in Bancolombia size is not very significant. It's not going to change dramatically the numbers.
We complement that with loans that we provide with funds from second-floor, government second-floor banks which provide us with liquidity. Those loans will continue growing but are not going to be significant. With this, I pass your other questions to José Humberto.
Thank you, Juan. Regarding your first question, the treatment of the risk-weighted assets, I have to highlight two parts. First, in the case, for example, of mortgage, our loan to value is below 40%. Today it's currently 39%. You can assume that the consumer capital is low, and under Basel III, it will be lower, less than or around 25%, and today it counts 50%. That gives you an idea what happened. The second number is 44% of our total loan portfolio, we have a guarantee. That also implies that we have lower consumer of risk-weighted assets, and under Basel III, if the corporate has a rating or if SME has a guarantee, we will reduce our consumer capital from 100% to maybe 80% or 60%. The idea is for 2021, because of Basel III, we will release capital because the density will change.
Regarding your second question, what we are doing in Central America, and I have to remind you our original plans. Our original plans were focused on consumer in those geographies, replicated the same experience that we are having in Colombia. Because with COVID-19, our main challenge right now is support our clients, give them facilities. Maybe at the end of the day, we will maintain the same composition that we are having in each geography. For example, in the case of Banco Agrícola, it's almost 45% consumer, 45% corporate. At the end of the year, we maybe will be at the same area, and the same will happen in the other operations. Recap is supporting the clients, offer them grace period, supporting them for working capital facilities, and we don't expect a major shift in the composition of the loan portfolio.
Thank you, ladies and gentlemen. I will now turn the call back, the presentation over to Mr. Mora, Chief Executive Officer of Bancolombia, for final remarks.
Thank you everybody for attending this call. I want to recap and highlight a couple of ideas. First, we took all the needed measures to protect our employees and our customers. We are operating normally at this moment. With close to 90% of our employees working from home in Colombia and with high figures also in the other countries, we are operating normally, protecting our employees and our customers in the four countries in which we have operations. Second, we took all the needed measures to have enough liquidity to affront this situation. We have been very successful on having that liquidity. Our deposits grew. We have funds from correspondent banks. Our liquidity position is comfortable and we have very good liquid assets at this moment. Third, regarding solvency, we are taking all the needed measures to work to have the solvency to go through this period.
We feel comfortable that the quality of our capital and the size of our capital is more than enough to support the situation that we are facing. Fourth, we are working very close with our customers to support them, to understand their needs, and to anticipate the situations that they are facing so we can work together to have the smallest effect possible on past-due loans and delinquency. We will have effects. They are going to be significant. I think with the measures that we are taking, we can handle them. With this, I sincerely hope that the situation in the world will improve soon. Take care for yourselves and stay healthy. See you on our conference for the second quarter 2020. Thank you.
This concludes today's conference. Thank you for participating. You may now disconnect.