Earnings Call: Q1 2018

May 16, 2018

Good morning, ladies and gentlemen, and welcome to Bancolombia's First Quarter 2018 Earnings Conference Call. My name is Sylvia, and I will be your coordinator for today. 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 and future filings and 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. Jaime Velasquez, Chief Strategy and Financial Officer Mr. Jose Humberto Acosta, Chief Financial Officer Mr. Rodrigo Pietro, Chief Risk Officer Jorge Humberto Hernandez, Chief Accounting Officer Mr. Alejandro Mejia, Investor Relations Manager and Mr. Juan Pablo Espinosa, Chief Economist. I would now like to turn the presentation over to Mr. Moura, Chief Executive Officer of Bancolombia. Please proceed, sir. Good morning, everybody. Welcome to our Q1 conference call. I wish to begin this call giving you an update of some relevant aspects that materialize our strategy. 1st, in line with the credit call that we are going through, we have done some adjustments and improvements to the collection process. The goal is to avoid loans reaching the state of delinquency and maximize the recovery of balance due loans. Also, we continue improving our underwriting standards to assure that we grow the loan portfolio without further deterioration. So far, the vintages show us that we are going on the right In the digital payments front, we have grown the number of transactions more than 13 times and reached $100,000,000 in contactless purchases over the last 12 months. Our Rolamano, our cornerstone channel for offering a simple transaction platform continues growing exponentially. We already have 900,000 active accounts, which performed more than 12,000,000 transactions last year. This is a very efficient tool to allow us to extend the capacity to perform transactions to people who do not have a formal relation with the financial sector. Also, digital sales continue growing. 2 of the most relevant products are savings accounts and credit cards. At this point, I would like to share with you some trends of this beginning of the year. First, let's remember that the next 27 May, the first round of presidential elections will take place in Colombia. The results will set the mood of private sector investment programs going forward. On the economic front, I would like to highlight that inflation is converging towards the 3% target set by the Central Bank. During the 1st months of the year, we have seen some improvements in consumer and private sector confidence. Unemployment rate has been stable and consumption has left behind the negative impact of increase of the VAT. The Central Bank has adopted a more expansive policy. Last April, the repo rate reached 4.25%. This should create conditions for a GDP acceleration in 2018 towards 2.5%. Credit demand has evolved according to our forecasts. In Colombia, we observed a trend in newer generations that led us to reaffirm that we will reach a consolidated growth of around 8%. In Central America, the growth has been in line with our expectations in both corporate and retail banking. The appreciation of the peso during the Q1 costs growth in pesos to be negative during the quarter. Year over year, the loan portfolio grows 4.1% despite a 3.6% appreciation of the peso over that period. Credit quality will continue being one of the most relevant topics for 2018 and we have concentrated our efforts on 3 aspects. As I mentioned, origination, increasing coverage for certain corporate clients and the collection process. We believe that we are near the peak of deterioration and charged $875,000,000,000 in provisions during the quarter, which represents a 2.2 percent cost of risk. We expect to have a charge of around 3,400,000,000,000 dollars in provisions during the year. As you may recall, starting January 1, 2018, we must adjust our provisioning models under IFRS 9, which means to use expected loss provisions instead of the current incurred loss approach. As a consequence of this adjustment, we increased allowances by ARS 600,000,000,000 or around 8%. We also stopped recognizing interest on delinquent loans with very low probability of recovery, those classified as bucket 3 loans. Later during this call, Finally, I wish to emphasize the efforts that we are putting on cost control. A strategy that put us in a cost to income of 49% this year. The optimization of the distribution channels, headcount reduction and automation are the elements that will permit us to achieve that goal. With these elements in mind, I want to ask Juan Pablo Espinosa, our Chief Economist, to give you an overview of the main macroeconomic topics to consider. Juan Pablo? Thank you, Juan Carlos. Now I will ask you to go to Slide 3 in the presentation. Recent indicators reveal a gradual pickup in activity and a more balanced macro framework for Colombia this year. During the Q1 of 2018, GDP grew 2.2%. This result was in line with our estimates and is 0.7% higher than 1Q 2017's reading. In this period, 9 out of 12 secondtors had a positive variation. The most dynamic were financial activities, public administration and retail. In contracts, there were contractions of 8.2% in construction, mining and 1.2% in manufacturing. We believe that the more sanguine performance of the economy this year is the result of a rebound in private spending, which is due to a positive variation in real disposable income as well as low and stable interest rates. In addition, more constructive macroeconomic and financial conditions should lead to a recovery of private investment. At the same time, the countries enjoying from global tailwinds such an increase in terms of trade and a higher growth of its trading partners. As a result, we confirm our 2.5% growth forecast for this year. We expect that after percent. In terms of prices, it is worth noting that HELLA inflation has moderated sharply from 4.1% last December to 3.1% last month. This correction has been widespread as both food and core inflation have been trading downwards. Going forward, we expect that in coming months, annual inflation will even fall below 3%. However, an acceleration of food prices will lead to a moderate increase of inflation in the second half of the year, so it will close at around 3.3% this year. Regarding monetary policy, we anticipate that after the 25 basis points cuts in January April, reference rate will remain at 4.25 percent for the remainder of the year. Only until 1Q 2019 economic conditions will lead the Central Bank to start a mild tightening cycle. On the external front, we expect the current account deficit to remain at 3.3% of GDP. This figure implies that the external imbalance is now similar to the levels seen before the fall in oil prices. Finally, we reinforce our view that this year, the central government will meet the deficit target of 3.1% and that the additional effort required to comply with 20 nineteen's new target of 2 point 4% is now less pronounced. After this overview of the economic environment, let me turn the presentation Jose Humberto Hossa, who will discuss the bank's results. Thank you, Juan Pablo. Before starting with the discussion of the results, I would like to call your attention to the fact that this quarter, Bancolombia started reporting numbers under IFRS 9. On Slide 4, we summarize these impacts. In the balance sheet, there is a reallocation of COP 599,000,000,000 from the line of cumulated other comprehensive income in the equity to the line of allowances for loan in the asset side. This is a one off impact effectively on January 1 of this year. On the income statement, there is a reduction in net interest income by COP 102,000,000,000 due to the non recognition of interest attributable to loans in bucket 3, which have a very low probability of recovery. Similarly, there is a reduction also by COP102,000,000,000 in the provision charges. The net impact in the net income is 0. Because of these impacts, some metrics and ratios are affected as well. Reported NIM will be lower as a result of loans in bucket 3, which will not accrued interest. The efficiency level will be affected due to the reduction of net interest income. Fee income as a percentage of revenues will increase because of lower NII revenues. It is important to highlight the fact that during 2018, we continue modeling and fine tuning these impacts during the year, we might have changed to the metrics I just mentioned. Now moving on, would like to give you a brief overview of the status of our operations across the region. Please go to Slide number 5, where we can the snapshot of our 4 main businesses. I would like to highlight in our operation in Panama, Banistmo, a significant improvement of efficiency due to cost controls programs and introduction of our new products and services. Also, Barismo has today the capacity to sell product through a digital channels. In Banco Agricole operation, the coverage ratio has increased to 2 26% and the NIM has also expanded as a result of better allocation of assets and more efficient strategy in the funding side. Fees have also performed very well for this operation and have grown 13% year over year. In BAM, in Guatemala, the increase in the coverage ratio and NIM expansion are the 2 most important metrics. Nonetheless, efforts in digital banking are also paying off and having a very relevant role. Today, insurance distribution through the online platform is the fastest growing product. And finally, in Bancolombia, Colombia, the efficiency continues improving due to the diversification of channels and cost control. In general terms, the international operations are providing an upside to the consolidated their composition. The composition of the loan portfolio by type of client remained relatively stable during the Q1. Nevertheless, the 7% appreciation of the peso against the dollar caused the peso denominated portfolio to represent a greater proportion that was represented in December. Today, pesos accounts for 68% of the total loans. This appreciation caused by the growth of loans in the original currencies to look smaller when converted to pesos. The year on year growth as of March is 4%. Regarding credit demand, we have seen corporations acting in a cautious way when undertaking new projects and demanding credit. This is the natural outcome of the uncertainty associated with the election associated to the election process and this trend we have forecasted in our budgets. In March, we saw some signals of recovery after a slow start of this year. We anticipate that this is sluggish demand and growth will continue until mid year when we finally know the outcome of the elections. We continue seeing a greater growth in consumer loans, although at a slower pace. Today, we confirm our estimation of loan growth for 2018 will be at around 8%. Moving on to Slide 7, we 30 day past due loans presented an increase due to the higher formation of new past due loans. This is a seasonal effect that we experienced every March. And this year, in particular, this low economic growth and the presidential elections accentuated the trend. 90 day party loans also posted a slight increase due to runoff of already deteriorated vintages. Nevertheless, the coverage ratio for these loans reach a level of 174%, and we intend to keep it at around that level. As we mentioned earlier, the adoption of IFRS 9 increased the coverage levels because we reclassified ARS 599,000,000,000 from equity to allowances. This is the main reason for the change in coverage in the Q1 of this year. Connecting with these in Slide number 8, we present the provision charges for the quarter, which totaled COP 875,000,000,000. In general, provision charges maintain a high level as we continue protecting the balance sheet from the new new party loans. These charge are mainly explained by commercial loans, mainly large corporates, which represent 40% of the new past due loans. SMEs that are increasing the number of pay in arrears, which represent 23% of the new past due A very important metric in this slide is the new past due loans of the quarter, which reflects the seasonal effect for the 1st months of this year. Again, we had an impact of IFRS 9 loans classified in bucket 3 with a very low probability of recovery do not require provisions. They do not accrue interest either. The new IFRS 9 methodology requires Bancolombia to estimate provisions based on expected losses, which tend to be more conservative, reaching a cost of credit of around 2% at the end of this year. Moving on to Slide number 9, we see the evolution of net interest income and the funding cost. NII declined 4% compared with the Q1 of last year impacted by the repricing of the loan portfolio due to lower interest rates of the Central Bank. To some extent, by the appreciation of the Colombian peso against the dollar in the same period. Additionally, the IFRS 9 adoption impacted NII by COP 102,000,000,000 due to the non accrual of loans classified in bucket 3. Our main strategy to defend NIMS and NII is to reduce funding cost as fast as possible. We have concentrated the efforts on reduce the cost on long term debt by rolling over the bonds and expiration of approximately COP 200,000,000,000 denominated bonds during the quarter promote savings accounts, which grew 11.5% versus growth of 2.4% in time deposits, reducing almost 8% the stock of funding with international banks. And finally, the reduction of the duration and cost of the certificates of deposits in Colombia. The combination of these factors has permitted to maintain the loan to deposit ratio at a level of 115%. For the rest of the year, probably we'll see another reduction of interest rates in case inflation continues declining. The re pricing of the loan portfolio will continue and the reduction in the funding cost will be marginal. In the next Slide number 10, we present the net interest margin. We estimate the impact of IFRS 9 was the reason for the 10 basis point compression in lending NIM during the quarter. So isolating this effect of this, lending NIM will have been stable during the quarter. So far, we have contained the impact of the interest rate cuts in Colombia on the lending activities of the bank. This has been combined effect of the change in mix towards consumer loans and the reduction of the funding cost. In the securities front, we experienced more volatility during the quarter and as a result, NIM came down to 0.5%. We expect the reference rate in Colombia to come down 25 basis points and an improvement in dollar margins due to the higher U. S. Rates. As a result of interest rate reduction in Colombia and the impact of IFRS 9 adoption, we estimate the NIM for 2018 to end at around 5 0.6%. And that is explained basically for 20 bps due to the interest rate cuts and 20 bps due to the IFRS 9. On Slide 11, we can see the evolution of fees. Fees continue presenting a good evolution despite the seasonal effect of the Q1 comparing them with the Q1 of last year, the 9% growth indicates the good trend. In particular, Credit Card C posted a solid performance due to the promotion of plastic as a method of payment and the marketing campaigns for the 1st months of the year. The World Cup and the fact that the Bancolombia sponsor of Colombian national teams contributed to these strategies. In Central America, we are also posting positive results, in particular Banco Agricola in El Salvador with fees growing at a pace of 13% year on year. Bancassurance and asset management are also relevant components of this strategy. Our forecast for fee growth in 2018 is to be around 10% to 12%. Now moving to Slide 12, we present the evolution of expenses. We must keep in mind that expenses for the Q4 last year were unusually low due to the certain adjustments for the full year 2017. Here, it is important to focus on the year on year growth in expenses, which declined 2% as compared to the Q1 of last year. For 2018, we expect to grow operating expenses between 4% 5% and the cost to income ratio to be at around 49%. Let's remember that this new guidance is the result of lower net interest income due to non performing loans classified as a bucket 3. In Slide 13, we present the evolution of the main channels. We continue increasing the share of online and mobile transactions as a way to gain efficiencies in distribution. As you can see at the bottom right pie, the interaction with clients have diversified to several channels. Today, through the app and the online, clients can open savings accounts without needing to go to the branch. We are launching a specially designed online platform for SMEs. This platform with allows us to reach more than 1,300,000 clients who will benefit from several developments implemented by Bancolombia. Through banking agents, we process more than 500,000 transactions on a daily basis. We will enhance in the offer of digital services to our clients, maintaining a strict cost control, continue rebalancing the existing network and focusing in optimization. For international operations, for example, we reduced the number of branches in Guatemala and we are using more digital channels. In Banistmo, we launched the mobile platform, which today processes more than 200,000 transactions on a daily basis. And in Banco Agricola, the network of agents reached 670 of them. Now let's move to Slide 14, where we present the evolution of the capital position of the bank, which ended at a level of 10.2 percent. As soon as we have more clarity on the Basel III implementation, we'll be providing you with estimations of the additional capital of buffers and the treatment of risk weighted assets that the regulator is contemplated for this year. Finally, we present the return on equity for the period, which was 9.2% for the first quarter. For the last 12 months, it was 11.4%. Our forecast is to gradually improve return on equity towards the 16% target that we have focused for 2020. In particular, we estimate that 2018, we should be in the range of 12% to 13%. In summary, the economic cycle in Colombia suggest low interest rates, inflation under control, stable unemployment levels and the second half of the year will be a faster economy activity. This combination of factors will impact our business with the growth of the loan portfolio according to our expectations. The bank will be focusing maintaining the cost of funding under control in a low rate environment. We maintain our estimation share during this call, NIM compression towards 5.6%, cost of rigs at around 2% and return on equity between 12% 13%. The main efforts will be concentrated, as Juan Carlos mentioned at the beginning of the presentation in risk management, basically in origination and enhancing the collection process in order to reduce the stock of past due loans. After presenting these slides and discussion of our Q1 results, I would like to invite your audience to ask any questions. Thank you. We will now begin the question and answer session. And our first question comes from Ernesto Gabilondo from Bank of America Merrill Lynch. Hi, good morning and thanks for taking my call. A couple of questions from my side. The first one is on the elections. Can you share with us any insight on the candidates leading the polls? And if you see, it could be a possibility to have only one round. Also if you can share any relevant proposals among the candidates that will my second question is on your NII. As you mentioned, it was affected by the IFRS implementation. So should we continue to see NII affected by COP 100,000,000,000 per quarter through the rest of the year? Thank you. Thank you, Ernesto. Let me answer first your second question regarding NII. Yes, correct. You have to take in consideration that every quarter, you see a decrease of ARS102,000,000,000 on NII. The other side of the story is that we are doing our efforts to reduce at the same pace the cost of funding, focusing our efforts on savings accounts and trying to reduce more from the lending business activities from international banks. But yes, you'll see in a very often 102 every quarter. And Ernesto, regarding your question about elections, this has been a very competitive process. Pulse at this time shows 1 leading candidate and others follow by a margin of around 10 points, the percentage points. So with polls that we have seen in the last years, it is high probability that is going to be a second round that will take place in June. Our next question comes from Jason Mollin from Scotiabank. My for this year. Maybe you can comment more in the long term. But in with this quarter, obviously, there were seasonal weaknesses. I guess, if we isolate the impact of IFRS 9, looking at both the net interest income and the provisions, as you suggested, there was no impact on net income. Your book value, however, was negatively impacted from the one time adjustment. So that actually would help the expectation going forward. So it seems like by maintaining the ROE expectation and having a lower book value with no impact on net income from IFRS 9 that actually the ROE should look better if we just make the denominator adjustment. But I also wanted to understand better what you just said about net interest income because, yes, it was negatively impacted, you suggested by ARS 100 1,000,000,000 and that, that will continue going forward because you won't be accruing interest for the bucket 3. But should we expect provisions going forward also? I mean, is this like a recurring event that provisions should also be that we saw now. So main question is ROE outlook 12% to 13% and longer term? And you did have this, I guess it was MXN 500,000,000,000 impact on book value? Thank you, Jason. Yes, let me put it on nominal terms. Originally, our plan were to set ARS 3,400,000,000 total in provisions. As you said, having in consideration IFRS 9, the VOCA 3, we will reduce ARS 400,000,000,000 at that number. So in regular terms, the final provision that will be COP 3,000,000,000 at the end of this year. That is correct and your is right. But what happened is the marginal provisions for the next coming quarters are toughest because the requirements of provisions on their expected losses is higher. So we have to increase provisions on the provision side. So if you do the math, yes, you have to deduct the $400,000,000 because of IFRS 9, but you have to adapt again the $400,000,000 because the standard for the next coming quarters will be increasing that number. So that's the reason why at the end of the day, the cost of credit is the same, 4% because it's a function of the assets of the loan portfolio, but the NII will drop. So as you said, the net income assuming the next coming quarters that will be reduced because of that. I don't know if this is clear, Jason. And in this opportunity, I have to permit them to do another question or to see if it is clear for you. Next question comes from George Curry from Morgan Stanley. Jorge the efficiency program, you delivered very strong year on year declining expenses in nominal and obviously in real terms. Where are we in that Are we mostly done? Are we half the way? Just wanted to Are we mostly done? Are we half the way? Just wanted to get a little bit more clarity on this year and maybe on a multiyear basis, how much more can efficiency improve? Thank you. Thank you, Jorge. Let's allow us 1 minute to answer Jason one topic of the question that he had before we answer your question. Okay. Jason, just to clarify, we were talking about what happened this year. How we are going to get the 16% that we are planning for the next 3 years? Assume that the real cost of credit of the bank based on the better economic cycle will be 1.8. So if you do the math and you adjust the cost credit for 2019 2020 at around 1.8, that will be the best way to reach the 16% of return on equity. Thank you. And Jorge, now going to your question. We keep in our program of efficiency and the program is based in reducing the cost associated with our distribution channels. So now we have a program of branch reduction in Guatemala. We are consolidating some of the physical branches that we have in Colombia. So we will keep moving on that direction. Also, we will keep the program of efficiency around having the optimal headcount to run our operation. To answer your question directly, we expect this year the expenses to grow around between 4% 5%, which in real terms is around 1% growth. So we will be benefit for the actions that we took last year, but also we will have to do some investments on the programs that we are running this year, looking to have the benefits towards or in the years 2019 2020, in which we are looking for an efficiency ratio of 47%. So this year, we will expect an improvement on the efficiency ratio, and we are targeting a 48%. And then the programs will consolidate their effects. And that will lead us to the 46% that we are looking in the midterm. Complementing the Juan Carlos answer, I have to say, just to give you an example, the corresponding agents, we reached the level of almost 10,000. So that's the best way to reduce our cost of operation. And we are replicated the same experience in Panama and in El Salvador. So that will help us a lot. The other good example is how to maintain the headcount under control. We are implementing in the last 2 years more than 200 robots that is helping to work 7/20 4 and it's helping to be more efficient, try to operate in a faster way, in a more efficient way. Our following question comes from Philip Finch from UBS. Good morning, gentlemen. Thank you for the presentation. A couple of questions from me. First of all, just in terms of Q1 numbers, I mean, our first take was that it was lower than what we're looking for. Given what you just presented, can we say Q1 was the worst quarter and it gets better from here, whether it's in loan growth or in terms of provisions, as you're alluding to? And the second question is a little bit more specific, and that's the tax rate. Still a bit of volatility in the quarter. What should we consider as a more sort of normalized level for tax rate for the course of this year? Thank you. Okay, Philippe. I have to say that usually the Q1 of every year maintains some weak trending in loan growth. This year will be exactly the same. Our expectations is to have a very solid 3rd and 4th quarter in order to reach the 8% loan growth that we are expecting. So yes, as you mentioned, probably these numbers will be the lowest level of numbers if you compare with the next quarters for this year. Regarding the tax rate, we are for the year, the whole year, we maintain the guidance that the tax rate will be between 33% 34% in total. Remember that the statutory tax in Colombia is 37%, but the taxes in Salvador, Guatemala and Panama is 25%. And the other offshore operation, which is relevant, it has 0% of tax. So if you combine those tax effects, the result is 33% to 34% at the end of the year. Our following question comes on Carlos Macedo from Goldman Sachs. My question is on your medium term guidance 16% target for ROE in 2020. You talked about responding to Jason's question, the cost of risk improving another 20 basis points from your target this year of 2% to 1.8%. Percent. Is there a risk that maybe your margins also reflect a slightly lower number? I mean that's really the question. You're targeting 5.6% this year, another 20 basis points down from where you are now. Is that the steady state margin? Is that what we should expect going forward? Is there a risk that that could be lower if rates don't go up or if rates come down or if mix changes? How should we think about the evolution of margin within the context of evolution of the cost of risk? Thank you, Carlos. There are many forces that helps the return on equity. And yes, the cost of credit will be 1. The second one will be efficiency level. We are foreseeing the future, the efficiency level reaching the level of 46% in 2020. And the third, it is the NIM as you are asking right now. We right now, we have a compression maybe in 2019 that will be more stable NIM. But as competitiveness, because of many banks trying to reach and to gain market share, we expect a compression of the NIM in the long term view. That will be in the range of 5.2 to 5.5 in the next coming 3 years, again, because of the competitive landscape and because of the upside is we are moving through consumer loans that it's helping to support the NIM. So that's the reason why since 2015, we changed and we are trying to change our mix in between corporate and consumer loans. So consumer will be one of the main drivers to sustain the NIM. Our following question comes from George Friedman from Citibank. Actually, I'd like to touch on 2 points. First, coming back to the short term ROE guidance of 12% to 13%. Of course, we also understand that the equity base, as Jason mentioned in his question, has been coming down because of the IFRS. Just wondering if you believe that additional impact on the equity basis due to the IFRS 9 could take place during the year or if the EUR 600,000,000,000 impact was a one off? And I'm asking that question because if it doesn't have another impact, I see I know for you to be able to get into the 12% to 13% target of ROE in significant acceleration of earnings throughout the year. So just wondering how comfortable you are with that or if we should expect additional hits on the equity? This was the first question. And my second release that you highlighted Amex losing ground in the period, both in terms of credit card billings and also in terms of credit card issuance. So what is going on, on AMEX? Are you incentivizing the issuance and usage of other labels? Or is this just natural competition? Okay, Jorg. Yes, regarding the provisioning that is affecting the equity, it is a one off. And same happens with we implemented IFRS 5 years ago. It is happening exactly the same. This is a one off situation and it's not affecting more the equity level that we are having right now. Regarding how we are going to get the 12% to 13%, yes, one of the main drivers will be a loan growth and that will take place, we hope, in the 3rd and the 4th quarter that help us to increase the NII in order to reach that level of 12% to 13%. But again, the COP 600,000,000,000 that is affecting equity, it is a one off situation. And regarding your question about credit cards, credit cards is a very important business for us. We keep growing and pushing the business. We are not leaders in number of plastics, but in any other metric, we are leaders in the usage of the cards. We represent or we sell the 3 main brands of credit cards, Visa, Mastercard and Amex. In the past, we had an exclusivity agreement with Amex and that agreement ended last year. So now we are pushing the 3 brands or the 3 main brands in equal terms. So that's why you are seeing a lower growth on Amex. But the credit card business is a very healthy, very dynamic business for us. It's providing very good revenues, fees and we keep pushing the business at this moment. Our following question comes from Rodrigo Sanchez from Ultraserfinco. Good morning, guys. Thanks for the presentation. I just have a question. Could you please provide details and comments about the exposure you have on the Colombian transportation system, including total exposure and coverage you have for the Q1? And what provisions level are you expecting to reach by the end of the year? And also, if you could please repeat the guidance on efficiency for 2018? Thanks. Yes, Rodrigo. The guidance for efficiency is to reach a level of 49% that remember that we are impacted this year because of NII drop of ARS 400,000,000,000 because IFRS 9. Regarding your first question in transportation system, we have an exposure in several companies of transportation, and we have a wide range of provisions in between 20% to 40%. And the reason why we are expecting the cost upgrade of 2%, it's assuming that probably in the next coming quarters, we have to increase those provisions basically in some of the companies. But again, today we have a very orthodox approach in terms of those provisions. They are 20% to 40% range of coverage. Our next question comes from Carlos Gomez from HSBC. Yes. Hi, good morning. First, in terms of transportation, I don't think you gave the exposure that you have, so it will be good to have. 2nd, a technical thing, the €59 €9,000,000,000 charge to equity, that's presumably after tax. And if you could tell us which tax rate you use, was it the corporate tax rate of 37 percent? Finally, and this is not a separate question, Basel III implementation, you said that you are waiting to hear what exactly are you waiting to hear and will you be affected by the new regulations on capital for conglomerates financial conglomerates? Thank you. Okay. There are 3 questions. I'm going to ask the second one very quickly. The definition why we are saying that the range of the 600, because we are adjusting the models still. We have right now, we are having conversation with the auditors trying to receive from them the check-in terms of those provision. We believe that the EUR 600,000,000,000 that we are adjusting on the provisions and on the equity, it's a 90% approach. We don't believe that, that will be a huge impact. Regarding your first question, in transportation system, in specifically in the company that you mentioned, our exposure, it's around $200,000,000 exposure or even a little bit more, dollars 220,000,000 And the provisions that we are having there, it is around 30% of that. Conglomerates? Regarding the Conglomerates regulation, that law was passed through Congress last year and now it's in the implementation process. The process is going forward well. We are having conversations and some comments on the proposed regulations coming from the government. And we don't see any material impacts coming forward for Bancolombia related to that regulation. Our following question comes from Daniel Duarte from Corficolombiana. Hello, it's Andres Duarte. Thank you. Does the significant decrease in the growth of the consumer loan portfolio with respect to 4Q implies the bank has reached its acceptable PDL level for the category? Or is this explained solely by seasonal effects? Thank you. Thank you, Andres. It's the last part that you mentioned. It's just seasonal effects. The consumer loan portfolio is growing 11% year on year. So it's healthy growth is the portfolio that is growing faster for us. So it's just seasonal effects. And remember that out of almost 20%, 30% of that consumer loans are represented in U. S. Dollar. And because of the appreciation, it is reducing to the level of 11%. Our following question comes from Sebastian Gallego from Credicorp Capital. Hi, good morning. Thanks for the presentation. Just a quick question on Electricaribe. Could you comment on the total coverage that you reached in Q1 2018? Thank you. Thank you, Sebastian. We reached a coverage of 63% on Electricaribe during the quarter. Our following question is from Alonso Aramburu from BTG Pactual. Hi, good morning and thank you for the call. A follow-up on the Electricaribe. Can you tell us how much of the provisions this quarter were related to Eletrekaribe or Ruta del Sol or these specific credits? And second, when you look at your ROE guidance for this year, can you just let us know how you look at this by country? First quarter, you had single digit ROE in every country except El Salvador. Do you expect a recovery in also in Panama and in Guatemala or the recovery should be mostly in Colombia? Thank you. The key driver of the recovery of the return on equity, as you mentioned, perfectly, will be Colombia. And that will be focused on basically because of efficiency and the loan growth. And the second one recovery of return on equity will be Banismo, because in Banismo, the loan growth is showing a strong path. So we believe that we will be able to sustain the return on equity at 2 digits in Banistmo. In the case of Banco Agricola, there will be a slight recovery of the return on equity and they will be basically driver or the main driver will be the efficiency. But again, Colombia will be the main driver and the second one will be Banistmo. Regarding the provisions and how much we that represented the total provisions we did during the quarter. These big corporates, especially Electricaribe, were around COP 150,000,000,000 on provisions. We have no further questions at this time. Would now like to turn the call over to Mr. Moura, Chief Executive Officer, Bancolombia for final remarks. Thank you everybody for your interest in this conference call. We definitely think that Colombia, especially, will improve their economic performance through the year and that the 2nd semester better economic environment. So we will better economic environment. So we will expect the Colombia results to improve gradually during the year. Again, thank you for your interest and see you in our next conference call for the second quarter 2019. Thank you very much. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.