Earnings Call: Q3 2019

Nov 7, 2019

Good morning, ladies and gentlemen, and welcome to Bancolombia's Third Quarter 2019 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. 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, addresses 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 is Mr. Juan Carlos Mora, Chief Executive Officer Mr. Jaime Velasquez, Chief Strategy and Finance Officer Mr. Mauricio Rosillo, Corporate Vice President Mr. Jose Umberto Acosta, Chief Financial Officer Mr. Rodrigo Prieto, Chief Risk Officer Mr. Jorge Humberto Hernandez, Chief Accounting Officer Mr. Alejandro Mejia, 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. [SPEAKER JOSE RAFAEL FERNANDEZ:] Good morning, and welcome to our conference call for the Q3 of 2019. During this quarter, we saw a confirmation of the trends observed during the first half of the year. I want to make a special mention to 3 factors. 1st is the consistent improvement of the credit portfolio. 2nd, the positive evolution of fee revenues driven by more volumes of transactions and finally, the positive effect of our digital strategy, which permits to grow the number of customers and transactions. Let me elaborate on these factors. Regarding the credit cycle, we continue seeing a consistent improvement in the quality of loan portfolio. And as a result, the quarterly provisions continue to drop down. The formation of past due loans during the quarter is the lowest of the year and indicated the vintages are performing in line with our expectations. During this quarter, we completed the required provisions for Ruta del Sol and Consortium Xpress. Today, we have a 90 day coverage ratio of 191%, which we consider very healthy to protect the balance sheet. This evolution lead us to estimate the cost of risk for 2019 is going to be between 1.8% and 1.9%. Now I want to elaborate on fee revenue. In recent months, we have seen a positive evolution of the number of transactions customers are increasing the activity and products like payments are evolving very well. And as a result, the income from debit and credit cards has been positively impacted. Asset management has benefit from higher assets under management and the promotion of mutual funds among retail clients. Bancassurance continues to be one of the leading fee lines since we have promoted that product as a key component of people financial welfare. The rapid growth in consumer loans benefits the evolution of premiums. Nevertheless, it is more frequent today that clients get a life insurance policy independently from whether they have a loan facility or not. Today, fee represents 20% of the revenues of the bank, and our goal is to continue promoting them by offering more value added products than create a comprehensive solution to our customers. Finally, regarding the business evolution, we see the digital strategy having an impact on all business units. The segment that is experiencing the largest transformation is consumer credit. Today, Bancolombia is hiring around 150,000 new clients every month. We are onboarding new users at a very little cost with our digital platforms like Neki and through our legacy systems. This space is not only possible, thanks to the simplification of processes, the new channels we are using and the use of analytics. The Consumer Credit segment has been a key component of our strategy in recent years. The good evolution of the portfolio has contributed in the improvement of profitability. On Slide number 3, we present a set of operational metrics that give you an idea of the materialization of our strategy. In particular, I want to highlight 3 factors. 1 is the accelerated growth of Niki and Bancolombia Alemano, which have combined a combined base of 3,200,000 customers. Our goal has been focused on promoting not only the acquisition of new customers, but also the utilization of the platforms. Today, we have a whole ecosystem around our digital and have started offering value added products like consumer loans, insurance among others. The second is the fact that out of 100 products that Bancolombia originates today, 16 are sold through online and mobile banking. This number improves month by month. Finally, please look at the rapid growth of transactions in mobile channels, which grew 53% over the last year, while the number of transactions through branches decreased. Also, the use of banking agents have been is having a positive impact in the way clients interact with the bank. With these elements in mind, I want to ask Jose Humberto Acosta to elaborate on the main topics that are driving the business today. Jose Humberto? [SPEAKER JOSE HUMBERTO ACOSTA MARTIN:] Thank you, Juan Carlos. For all of you following the presentation, at the end, you can find additional information that complements the bank's numbers. I want to start this presentation making a reference to the performance of the international operations, which you can see in slide number 4. We continue seeing positive trends across the Central American operation. In Banistmo, we continue expanding NIMs as a result of the loan portfolio repricing and stable funding cost. Also, efficiency has improved as expenses grew 0%. In Banco Agricola, we highlight the 6% growth of the loan book, the 7.5% reduction in provision charges, the improvement in efficiency and as a result, the 34% increase in net profit. In BAM, BAMCO ABLOOMI Cantil in Guatemala, we continue with our efforts to improve the efficiency. In order to do so, we have shut down 7% of the branches during the year and have reduced the headcount by 13%. Also, we increased the provisions for some corporate clients, which increased the coverage of past due loans. I would like to mention that the 8.5% depreciation of the peso versus the dollar during the quarter had a combined effect on the balance sheet and the results of the bank. In Slide 5, we present the loan growth. The portfolio expanded 12% over the last year, mainly driven by consumer loans. Out of this growth, 6% of explained by the 17% depreciation of the peso versus the dollar during the last year, which impacted 37% of the loans denominated in U. S. Dollars. In line with the trend observed over the last quarters, consumer loans continue expanding at a rapid pace of 31% year on year. This segment already represents 21% of the total loan portfolio. Commercial loans grew 6% and mortgages grew 12%. The contribution of the growth in consumer loans is very positive. As an example, during the last 12 months, the assets related to the consumer segment in Colombia grew 26% and the cumulative net income grew at around 51%, contributing to the better return on assets. These metrics indicated that the risk adjusted returns for the new loans are very positive and continue and contributed to the improvement of the overall returns of the bank, while using the capital in a more efficient way. Linked to the growth in consumer loans, it comes a greater number of transactions, utilization of credit and debit cards, more insurance policy attached to loans and more banking services. On the other hand, the commercial loan portfolio remains slow due weak demand from large corporates. We see this trend in line with the moderate economic growth, but at the same time, we see improvement in the credit quality of corporate customers and a healthy balance sheet. Now we look forward to 2020 when demand should pick up along with the faster GDP expansion. We reaffirm a loan growth at around 8% in 2019. That is excluding impacts of FX. On Slide 6, we see the evolution of margins. In the Q3 of this year, we saw a compression in margins due to two reasons. First, there is an IFRS 9 accounting effect, which caused a drop in recorded revenue associated to loans classified in Stage 3. These loans were accruing interest until June 2019. But due to a ruling of the IFRS Committee, these revenues should be reversed. As a result, we had a one off adjustments of COP 115,000,000,000 in interest, which represents 25 basis points drop in the lending NIM. This effect is compensated by the lower provisional charges sold. The net effect in the results of the period is neutral. The second reason is the reduction in margins generated from securities, which in general terms have had a positive year. In the Q2 of this year, there was a big appreciation of Colombia government securities and other investment income. Excluding this adjustment, the lending NIM remains stable and we forecast no variations for the rest of the year. Cost of funding remains stable as the Colombian Central Bank has kept interest rates at a level of 4.25% during the year. We are expecting a NIM at around 5.8% for the whole 2019. In slide 7, we present provision charges. In line with the trends of the first half of this year, we had a positive performance of cost of risk. All segments are performing very well and that implies lower provision charges. Despite this reduction, the coverage increases. 90 day coverage ratios increased as a result of the new of the low NPL formation and the restructuring of Consortio Xpress, the mass transportation company in Bogota. Also during this quarter, we made ARS 139,000,000,000 in provision charge for Rota del Sol, which reached 89% coverage. As we mentioned in the previous slide, during this quarter, we had an adjustment related to IFRS 9 and had a lower provision charges by COP 115,000,000,000. There is no effect of this adjustment in the net income. As we have seen during the last year, the rapid growth in the consumer loan portfolio has come along with a lower cost of risk for that segment. This is because the consumer loan portfolio and its NII have grown much faster than past due loans and cost of risk. The recent performance of the loan portfolio has lowered the cost of credit and lead us to forecast that digital metric will be in between $1,800,000,000 to $1,900,000,000 for the whole year. The next slide, number 8, shows the quality of the loan portfolio and the past due loan formation. In this slide, we can see the improvement in past due loans and coverage ratios. This reduction is the outcome of a slower pace of deterioration. We have experienced improvement in our commercial loans and completed the provision of large corporate clients. Also during this quarter, we restructured the loan to Consortium Express and that contributed to the low NPLs formation during the quarter. Again, we expect to maintain the recovery path in 2019. As we mentioned before, we forecast the cost of credit to be in between 1.8% to 1.9% for the whole year. Slide number 9 shows the evolution of fees. Fees continue growing during 2019. During the Q3, net fees showing an increase of 17% versus the same period in 2018, and they now represent close to 20% of the total operating income. Revenues in this line have evolved positively due to a greater level of transactionality. The bank reached 2,600,000 credit cards and 9,900,000 debit cards in Colombia, growing at a pace of 6% 10% respectively year over year. Regarding the fee cost structure, the bank has experienced higher expenses associated to the banking agents, which have expanded as one of the main transactional challenge. Currently 19%, 19% of the monetary transactions performed in Colombia are executed through banking agents. The fee growth forecast for 2019 will be at around 8% to 10%. Slide 10 shows the evolution of expenses and efficiency. The cumulative growth in operating expenses for 2019 has been 8%. This growth is explained by the following reasons. In labor cost, we posted higher provisions for bonus plan payments due to a higher return on equity. In general expenses, the 17% depreciation of the pesos versus the dollar was the main impact. We forecast to have a cost to income ratio at the end of the year at around 49%. And for the year, we are expecting an OpEx growth of around 6%, excluding effects of FX variations. Finally, I want to present the return on equity for the quarter, which was 13.4% as a result of the ARS 879,000,000,000 net profit. This result confirms the good trends that we have seen in recent quarters. I want to highlight the fact that this positive return on equity evolution is driven by the return on asset expansion, which sets the condition for further return on equity expansion as the loan portfolio starts growing again in 2020. Juan Carlos? [SPEAKER JUAN CARLOS ALVAREZ DE SOTO:] After seeing the results of this quarter, I want to address our expectations for the year. Growth will remain in line with our forecast for all geographies, reaching around 8% for the year. Regarding margins, we will continue optimizing the funding structure and promoting retail loans in the portfolio mix in order to maintain NIMs around 5.8%. Fees should maintain a positive trend given the growing number of transactions in Colombia and the launching of new products in other geographies. We forecast 8% to 10% fee growth. In 2019, we see a normalization of the cycle. The stock of past due loans is not growing and we forecast the cost of risk to be between 1.8% percent 1.9 percent as we see better performance of the loan portfolio. With this combination, our forecast ROE will be around 13.5%, which is higher than our estimates we had 1 quarter ago. After elaborating on these key topics, we want to open the line for questions. Thank you. We will now begin the question and answer session. And we have a question from Thiago Batista from UBS. Please go ahead. Hi, guys. Thanks for the opportunity. I have two questions. The first one about the decision of the Colombian constitutional court about the 4% surcharge on taxes. My question is how much you guys are expecting in terms of tax rate for next year? And if you see any kind of reversion on the tax in the 4Q because of this decision? And my second question is about the profitability. You already mentioned that we can see for the expansion the profitability, but what is the level that we can see in coming years? [SPEAKER JOSE HUMBERTO ACOSTA MARTIN:] Okay, Thiago. Regarding your first question, yes, the implications of the rule of the taxes, the impact you will be reflected in 4Q. And just to give you a number, assuming that we have to reverse the 4% of taxes, the number would be at around COP 70,000,000,000 in reduction of taxes. That implies that our taxation at the end of the year will be in between 27% to 29%. Regarding the profitability, you see that better performance of the return on equity this year. We are forecasting the return on equity for next year that will be at around 14.5%. And the key driver to reach that level will be loan growth and we are expecting a much better performance of the loan growth next year that will be around 10%. I would like to add, Thiago, that we are taking a conservative approach on taxes. We are reversing, as Humberto mentioned, the extra 4% according to the rule of the constitutional court for this year. But we are not affecting the taxes expected for 2020 until we know the result of the tax reform that was presented again to the Congress in the past weeks. So we are reversing what is certain, which is the reduction of the taxes, but we will expect the result of the tax reform on Congress to do the appropriate to have appropriate measures on taxes for 2020. Okay. Thank you, Andre. And we have a question from Jason Mollion from Scotiabank. Please go ahead. Yes, hi. I have two questions. My first question is related to the impressive 30% growth in the consumer book and that in combination with very controlled non performing loan data. Perhaps you can talk about what's driving this growth, what kind of clients, the percentage of clients that are new to the bank that are already part of Bancolombia. And really, if this is sustainable to show this kind of growth given the size of your business, we have no other bank with your kind of market share in Latin America that I know of anyway growing consumer at this kind of rate. How comfortable are you with the expectation that the NPLs will not start coming through? And is that is this kind of growth rate part of your 10% growth expectation in loans for next year? Is that sustainable on the consumer side? Thank you. [SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Jason. Let me elaborate a little bit on your topics that you mentioned. We developed a strategy 3 years ago to increase our market share on consumer loans. 3 years ago, our market share was well below our general market share in loans, was below 14%. Today, our market share in Colombia of consumer loans is around 19%, which is still lower than our market shares on other type of credits. For example, on commercial loans, our market share is above 30%, three-zero. So we are now leaders in market in consumer loans in Colombia, and the growth has been mainly on our current customers. Even though we are acquiring customers at a very good faith, our strategy was based on addressing our current customers, and we did that with a different approach using analytics and the information that we have on our current customers to offer them pre approved lines of credit. And based on that, we have improved our participation in the market. And that's and the result is that growth that you mentioned above 30%. Regarding your question, if that is sustainable, we think that those growths are not going to be at the same level in the future. We will continue focusing on consumer loans, but it's clear that after reaching close to 20% market share, we don't see that we will continue growing at the same pace. Regarding your question, if we consider that growth on our guidance of 8% and 10% loan growth, yes, we are considering that growth. But you will see a double digit growth, but more on teams than the figures that we are seeing at this moment. And we are confident that we are doing we are approaching these customers with in a way that NPLs are not going to suffer, And we have seen that so far. And that on top of a good performance of the Colombian economy. So overall, we are not going to see the same levels of growth, but still is going to have a healthy growth. We are confident that in the way we are doing the business or we are growing the loan the consumer loans, we have controlled the NPLs. And overall, these numbers on retail loans are incorporated on our forecast for the growth of the loan book. Our next question is from Nicolas Riva from Bank of America. Please go ahead. Yes, thanks very much. I have two questions. The first one on Panama. So last week, Aval announced that they are acquiring Multibank, that makes them the 2nd largest bank in Panama. In Panama, you already have Banistmo. Does this change in any way your strategy in Panama, which remains quite fragmented as a banking system? And then the second question on Consolce Express. So you say that you restructured the loan for COP 700,000,000 or about $200,000,000 Does this mean that you moved it back to performance status and that you extended maturities or lower interest rates? If you can give some color on what happened with this loan in the Q3? Thanks. [SPEAKER CANDIDO BOTELHO BRACHER:] Thank you, Nicolas, for your questions. Regarding Panama, we have a clear strategy in Panama. We have improving our performance in Panama with Panismo. We're keeping this in the same direction. The bank is improving its profitability, and we will continue on that trend. It's competition in Panama, it's high. We know that. But we are confident that with the incorporation of new products, digital products, our digital platforms, we are able to compete in that market. So we will continue in the way we are going. And our goal is to keep improving the profitability of Vanismu, and we are confident that we are on the right direction. Regarding Consortium Express, as you mentioned, the loan was restructured. We extended the tenure of the loan. But I want to highlight that we kept the provisions, the reserve associated with the loan. The loan is reserved now around 65%. It has a positive impact on passing loans, as Jose Humberto mentioned. But we are taking a conservative approach, and we will keep the reserves until we saw how it's going to be the performance of Consortio Express in the future. Our next question is from George Curry from Morgan Stanley. Please go ahead. Hello, George. Your line is open and unmuted. Hi, good morning, everyone. Congrats on the numbers. Two questions, if I may. The cost of risk, which has been better than expected in particular in later quarters, How does that shape up for 2020? Can you continue to see improvements or the fact that you're growing your consumer book at this rapid pace means higher provisions. And so where do you envision the cost of risk to end up in 2020? And then my second question is on capital. You're growing very rapidly. Your ROEs aren't improving as fast in order to self fund the growth. And so the Tier 1 ratio looks a bit on the low side. And so I just wanted to get your view about where do you feel comfortable with capital? How do you see that moving along? And to what extent there may be some additional capital needed in order to continue to capitalize on the growth opportunities that you see ahead? Thank you. [SPEAKER MARTIN PEREZ DE SOLAY:] Thank you, Jorge. Regarding your first question, cost of risk, we are confident that a level of 1.8 between 1.8 and 1.9 of cost of risk is achievable in 2020. Even with the growth that we are having on the retail portfolio. And let me elaborate a little bit. The cost of risk of the bank, the long term cost of risk of the bank in the past with a different distribution among the different type of loans was around 1 point 6%, between 1.5% and 1.6%. With a better credit cycle, with a better performance of the economy. And as I mentioned, with the origination that we are doing, we are confident that the 1.8%, 1.9% cost of risk is achievable. And as I mentioned, the cost of risk the long term cost of risk in the past was around 1.5%, 1.6%. So we are factoring that the fact that we have more consumer loans on our books, and we are incorporating that factor on our guidance. So we are confident that the better economic macroeconomic conditions in Colombia in the next years and with where we have originated the consumer loans, we will reach that level of cost of risk in 2020. Regarding capital, we don't foresee the need for additional capital. But let me ask Jose Humberto to elaborate a little bit more on that aspect. [SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Juan. As Juan mentioned, we feel comfortable with the capital that we are having today. Remember Jorge that for the next years, we will have 2 different factors. First, loan growth. In our math, the loan growth in between 10% to 15%, we are able to maintain the same capital level. And second, in 2021 that would be implemented asset 3. So you will see an adjustments basically in the risk weighted assets. So for today, we believe that the capital that we're having today is more than enough again to maintain us a healthy loan growth in between 10% to 15%. And on the Basel III, we will continue to maintain the level for maintaining that investment grade in front of the rating agencies. Our next question is from George Friedman from Citibank. Please go ahead. Thank you for the opportunity. I have also 2 questions. The first one on this point that you just mentioned, Jose Alberto, on Basel III. We are aware that Basel III implementation in Colombia is pointing towards probably the reduction of RWA and given that you are growing in some lines of retail, this could benefit the bank. So if you could give us an updated overview of guidance of where you believe Bancolombia could add in terms of quarter 1 as a result of the Basel III that would be very welcome. And my second question is with regards to taxation. I understood from the comments from Juan Carlos that he mentioned that for the next year, you are still waiting for Congress to decide upon what is happening to taxation. But just to be clear, if this year you are doing some reversals, and correct me if I'm wrong, but I understand that the COP 70,000,000,000 reversal is for the full year that you are just downwards by the removal of the tax surcharge of the 4%. Next year, are you still maintaining an expectation of a 3% tax surcharge? Or should we also work with the same level of final tax rate of this year between 27 percent 29 percent? Thank you. [SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Georg. Regarding your first question, yes, the big change of the capacity will be focused on RWA as you mentioned. And remember that in our case, our density will come from 76% that we are having today currently and on the capacity that will be at around 65%. That means in terms of Tier 1 that assuming the level that we are having today at around 10%, the new Tier 1 and the passenger rebate will be 11.5%. That means that we are releasing 150 basis points of Tier 1. Regarding taxation, yes, we are assuming the deferred tax for the next year would be assuming the 3% coming down the taxes. So that's the reason why we are not changing any particular deferred tax for next year waiting for the last resolution. So that means that taxation for this year will be 27% to 29% and next year will be of the 27% area. [SPEAKER JOSE RAFAEL FERNANDEZ:] Just to be clear, we are assuming that for Colombia next year the statutory tax is 37%. And we are going to wait for the ruling of the Congress regarding that. But today, we are not incorporating any changes on that assumption. So that section for next year is affected for that statutory tax of 37% in Colombia and waiting to see what's happening in Congress. Our next question is from Alonso Garcia from Credit Suisse. Please go ahead. Good morning, everyone. Thank you for taking my question. My question is regarding NIMs. I mean, you mentioned that excluding the impact from the adjustment on Stage 3 clients, the lending NIM is basically stable. But my question is, I mean, you are increasing the consumer portfolio is outperforming significantly the rest of the portfolio. So my question is what are the drivers behind this performance in NIM of stable NIM despite this better mix in the loan portfolio? So going forward, my question is how should we think of NIM considering these higher share of consumer in total loans, but at the same time considering that the margin on the debt securities portfolio should probably normalize to lower levels, one that the Colombian securities stop from repricing as we have seen recently. Are you seeing pressures in pricing from competition, either in any segment of your own portfolio or in funding? I'm happy to hear your thoughts on this. Thank you. [SPEAKER JOSE RAFAEL FERNANDEZ:] Okay, Alonso. Regarding your question, as Juan mentioned, our forecast of loan growth in consumer next year will be at around 15%. That implies that the loan growth will be almost aligned with the loan growth of the rest of our segments. That is one of the first and impact the NIM and to maintain the NIM at the level that we are saying that it is 5.8. Percent. The second thing is the cost of funding. We are assuming a very stable cost of funding. You see that the Central Bank interest rate is maintained the same level 4.25. So this is the other element that we are forecasting to sustain the NIM at a level of 5.8. And the 3rd factor, the 3rd element is in our forecast, the securities investment, the NIM of the securities investment, it is at around 1.5%. You see that the performance of the last 3 months or during the year, it's above expectations because of the repricing of the sovereign. So again, next year assuming NIM of the securities portfolio of 1.5, the result will be the combination of these three factors will be that the NIM will be stable. And elaborating a little bit on the Jose Humberto's answer, we are growing on consumer loans. It's clear. But we are seeing an increased pressure from competition on the retail book. So we are seeing that these factors are lead us to believe that we will maintain our NIM next year. You are right, this year was the performance of the NIMO investments was very good. And we don't expect that to continue next year. So as Humberto mentioned, a level of 1.5. So we and we will keep working on the cost of funding. We think that we have space to work on the cost of funding. So all of those forces lead us to believe that we will be able to maintain our NIM of around 6 5.8 during 2020. Our next question is from Ernesto Gabilondo from Bank of America. Please go ahead. Hi, good morning, Juan Carlos, Jose Humberto and good morning to all your team and congratulations in your results. A couple of questions from my side. The first one is a follow-up in loan growth. Just want to know, which could be the drivers that you are seeing for the loan portfolio growth of 10% next year, especially in the consumer segment? Would it be employment? Would it be economic growth? And how do you see the impact of the tax reform in this segment? And then for my second question is on your OpEx growth for next year. Do you still have room to reduce branches and personnel while migrating the clients to digital channels? And how has been your new initiative of attending clients through QR codes? Thank you. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Thank you, Ernesto. Regarding loan growth, we will continue, as we have mentioned a couple of times, the growth of the retail book will be around 15%. And your question regarding who are going to be what are going to be the drivers for plant growth, we think that the good economic performance of the economy will be the main driver. There is one aspect that we need to keep in mind that is unemployment in Colombia is presenting higher rates or higher ratios that we expected. So we need to watch that. So the unemployment will be a factor to watch. We need to be aware that the impact of the migrants from Venezuela, it is important on the positive and the negative is probably affecting that rate. But again, it's improving consumption in the country. So we need to watch that factors very, very carefully. But we still we believe that the performance of the economy will be the main driver next year. Regarding OpEx, we will continue to work hard on OpEx. We know that it is continuous task to work on expenses. We don't see a lot of space to keep reducing the number of branches. We will our efforts will be focused on improving our processes, the digitalization, being more efficient on onboarding clients, on how we serve them and that is going to help on expenses. And we will keep reviewing how it's going to be our channel strategy regarding the branch network, the banking agents will continue to be one of our main focus on improving our coverage of the countries. Let me say that we are having that strategy also in Panama and El Salvador, in Guatemala, in which we are pursuing that strategy of increasing the number of banking agents to serve our customers. So branches, not a lot of space. Digitalization will help efficiency, and we will continue to dilute the fixed costs that we have on a large number of customers, which is going to help us on efficiency. Our next question is from Joanna Castro from Aizobaba. Please go ahead. Joanna, your line is open and unmuted. Please go ahead. Our next question is from Lamar Sala from Barings. Please go ahead. Good morning, gentlemen. Thank you very much for taking my questions. I've got a few questions left. So the first question is with regards to your Stage 2 loans. Obviously, you do report your 30 days due and as well as 90 days due numbers. I'm just wondering when you look from 30 to 90 days, what is the Stage 2 loans as a percentage of total loans? Perhaps you could also elaborate on the coverage ratio. On the Stage 3 loans, I was just wondering whether you could give us a breakdown of the coverage ratio in terms of tangible assets as well as cash. So if you could elaborate on that. 3rd question is with respect to deferred acquisition costs. Obviously, you do have a bank insurance business model. I just want to understand the dynamics in the deferred acquisition costs for the insurance business. And I hope you'll be able to plug a number there. 4th question is with regards to the double leverage. Assuming, I mean, you do have a double leverage in the system as well, because you've got a bank insurance as well as the bank, the insurance as well as the bank. And I think that the bank insurance has could have potentially some of sponsorship in terms of injecting capital in one subsidiary, which is potentially debt for another subsidiary or holding company? And the 5th question, I mean, I'm just wondering in terms of NIMs, because you kept on, I mean, reiterating like NIMs probably will be flat 5.8%. So I think NIM when you look at the key metrics tools you have at your disposal at the moment, To improve NIMs, you either stretch your LDR, which I think has reached limit, because I mean, we look at the numbers 122%. So I don't think you might be able to improve that. 2nd one is increase the mismatch in your ALM gap. And the third one is basically reprice the book. So if you're able to reprice your book, which percentage of your book is due for re pricing within 1 year? Thank you. [SPEAKER JOSE RAFAEL FERNANDEZ:] Johann, Sreedhar, thank you for your questions. Let me elaborate on a couple of them. First, the loan to deposit ratio that you highlighted is 116,000,000 and this is structural because the way we are funding not only with the deposit customer deposit base, also we are using the capital markets. That explains the number. And instead of a reverse gap, which means that we have longer tenants on the liability side than the tenants on the asset side, which is a very orthodox approach to maintain a healthy loan growth. Regarding the NIM, again, the NIM is stable. We the securities, we are not expecting a major change in the next coming years. So we are able to sustain the NIM that we mentioned in the previous question that 1.5%. Stage 2, it is around 4.7% of the total loan portfolio and is showing a very healthy trend. In the past, we had a bigger proportion of that. In terms of the floating that we are having on the asset side, 70% of the loans are floating, but the remarkable thing is around 50% of the liability is floating as well. So we are reducing our asset sensitive condition. Regarding your other questions, if you agree, we will send you an e mail with the detailed information of Stage 3 and Stage 2. Thank you. Our next question is from Yuri Fernandes from JPMorgan. Please go ahead. Thank you, gentlemen. I have a follow-up on Alonso's question on cost to income. If you can provide any kind of guidance for 2020 or 2021 because the bank is running at 51 now. I think the year end target is 49, but this is still pretty high when you compare to other Latin America large banks, right? So I'm just willing to know if you have any focus on reducing cost to income to lower low 40s going ahead? And my second question is regarding fees. I understand that growing more on retail also benefit your fees. So if you can comment how you see fees evolutions for 2020? And also if there is any risk of regulation, if you can give an update on the regulations on fees, how those things are evolving in Colombia? Thank you. [SPEAKER JOSE RAFAEL FERNANDEZ:] Regarding cost to income, yes, the 49% is impacted again because FX. The volatility in Colombia is quite high. You see a big depreciation of the currency. We are focusing our efforts in the OpEx growth and the CapEx growth will be 100 bps above inflation for next year, which means that we will be on the range of 4% to 5%. And this year, we are expecting to close at a level of 6%. Our medium term target for efficiencies to reach the level of 46% in the next coming 2 years. And that would be a combination of the CapEx under control plus the fact that the NII will grow basically the main driver will be the loan growth. So if you combine those effects, loan growth of 10% and expenses growth of 4% to 5%, you'll get the 46% that we are expecting in 2 years. Regarding fees, our expectation next year is to reach a level of fee growth of around 10%. And again, this is because of the level of transactionality of all the things I'll explain Juan regarding consumer and our strong deposit base and customer base. What we expect in terms of regulation, you see there always there will be an issue regarding the economy. But we, then Colombia, we are offering to low income clients a bunch of products with 0 cost. We are promoting mechanization of the low income population with different products, with different channels. So we are at the end of the day helping us support the economy to put more people in the banking industry. But again, the regulation always will be there. [SPEAKER JOSE RAFAEL FERNANDEZ:] Yuri, and fee regulation is always a risk. What we are doing is we have a diversified source of fees. So what we are doing is we are improving the products that generates fees. So we have, as I mentioned, a diversified base of fee generating products. And we work hard through the Banking Association and to different on being very clear on what the banks are offering in Colombia. And as Jose Humberto mentioned, those products that are basic for the bankerization are most of them without fees. So we are aware that there is a risk of regulation, but we are approaching that risk with diversification and with providing our customers with a series of transactions that don't generate fees. Our next question is from Neha Agwala from HSBC. Please go ahead. Hi, thank you for taking my question. I have a clarification on your presentation. You mentioned digital sales and that it's at 16.6%. Is this the number of loans that are generated through digital channels or the value of the loans? My second question is on a follow-up again on cost of income. Do you have a target in mind for the next 3 years that you would like to achieve in terms of your cost to income ratio? And what part of the improvement in the cost to income would be driven by the digital channels and the digitalization of the bank in general? If you can give us any estimate, that will be helpful. And lastly, if you could give us an update on the competitive landscape in Colombia. If you see excessive competition in any particular product or any particular player being more aggressive, that would be very helpful. Thank you so much. [SPEAKER JOSE HUMBERTO ACOSTA MARTIN:] Thank you, Neha. As we mentioned before in the previous question, the cost to income ratio that we want to reach in 2 years is to get the level of 46%, again a combination of net income NII and a combination of OpEx control inflation plus 100 basis points. Regarding your first question, the 16.6% is the number of products, just to clarify your question. Thank you. [SPEAKER JOSE RAFAEL FERNANDEZ:] And regarding competition, we see a very healthy competition in Colombia. In general, banks are improving the offering to the customers, including digital offers, including different strategies. So at the end, this is going to benefit the financial customers in Colombia. But it's also giving us new opportunities. Bancoization is improving a lot in Colombia, It's which is very good in general for the economy, and it's a source of new business for us. So I see competition increasing, improving, but we are convinced that a strategy that we have, what we are doing is facing that competition and what shows that we are on a positive trend is that we are gaining in general market share. Our next question is from Rodrigo Sanchez from Viviena Corredores. Yes, good morning and gentlemen. Thank you for taking my question. Regarding the announcement of Bancolombia acquiring some office space in the Agio Torre Norte project in Bogota. I was wondering if you could give us some numbers about the amount you're expecting to spend on this acquisition and if the whole investment will be recorded during 2020? Thank you. [SPEAKER MARTIN PEREZ DE SOLAY:] Thank you, Rodrigo. As we announced to the market, that is an investment that we already recorded during this quarter or this year better. It's an acquisition of new offices in Bogota, which is in line with our strategy to improve and to have a better presence in that market that is very important for us. So it's not just that we will have a new corporate offices in Bogota, but it's also a way to pursue that strategy of serving the Bogota market. As we mentioned, the cost of the offices was around COP 350,000,000,000 that is all going to be recorded during this year. We have no further questions at this time. Thank you, ladies and gentlemen. I will now turn the call back to Mr. Moura, Chief Executive Officer of Bancolombia for final remarks. Thank you everybody for your interest on our conference call. We are very positive that the trends that we saw during the Q3 will continue during this year, so that the performance in the bank is in line with our expectations. We see very positive trends that are consolidating. The macro in Colombia, it's good. And the strategy that we are pursuing is producing the results that we are expecting. So we will hope to see you in our conference call that we present the results for the full year 2019. Thank you very much. This concludes today's conference. Thank you for participating. You may now disconnect.