Banco Bilbao Vizcaya Argentaria Colombia S.A. (BBVACOL.CL) Earnings Call Transcript & Summary

Good morning, good afternoon, and good evening to all our investors connected all around the world. You're welcome to our third quarter 2021 results event. My name is Laura Alejandra Peraza, and I'm part of the Legal Department BBVA Colombia. With us today are Alejandro Reyes, Principal Economist; and Juan Pablo Herrera, ALM Director, who will present the third quarter results. The corresponding documents were sent to you through e-mail, both in English and Spanish and will be available on our website in the section Investor Relations on the link agenda. We remind you that if you want to ask a question, you can use the chat or you can raise your hand button that can be found in the bottom right section of your screen. Without further ado, I will now turn over the call to Juan Pablo.

Thank you, Laura. Good morning, everyone, and thank you for joining us here for our third quarter fiscal year 2021 earnings call. We'll begin with a brief overview of the macroeconomic scenario. Alejandro will explain the highlights of our results for the quarter. First, I will start with our microeconomic outlook at Slide #5. The global economy recovered its ratings scores, especially in the U.S. and China, after a strong and steady growth linked to the economic reopening. Fees reflecting a downgrade for advanced economy due to the super disruptions and a strong inflationary pressures as a result of a mismatch between demand and supply. As vaccination campaigns progress and restrictions started to be lifted, the global economic growth is projected to keep expanding over the forecast horizon, achieving a growth rate of 5.9% in the U.S.A., 8% in China and 5.2% in the Eurozone. With the success of the vaccination campaigns and ease of restrictions, consumer spending balance and market demand started to stabilize in the third quarter with higher market volumes than those registered in the third quarter 2020. And then this scenario, it is important to remind the challenges that the economy will be facing in 2021 and in the first half of 2022, especially in inflationary terms. As it follows, the monetary policy needs to be soft enough to support economic recovery and hard enough to control the inflationary pressures, which should reach the pre-pandemic levels by mid-2022. In Colombia's case, the data available for the third quarter showed the strength of the economic activity driven by private consumption with a significant rebound in fixed investments. In the first case, consumer confidence returned to its pre-pandemic levels, showing optimistic expectations similar to those seen in 2018 when these countries economy recovery began to take shape after the oil prices fall and the inflationary shock on 2016. In addition, good levels of vehicle and home sales were maintained to increase in the goods and services space. In the second case, imports had an important boost due to external purchases of raw materials and capital groups, which are related to an increase of the activity in the national productive sectors, which have increased the rate of production to respond to the growing demand and to reveal the inventories. Continuing with Slide #6. The third quarter inflation accelerated for the seventh consecutive month standing at 4.51% due to upward pressure of food prices, which were affected in previous months. The reason why inflation is getting good in food prices remains at 2.54% annually, showing a slowdown for the first time in 8 months. Additionally, the Basel of Australia were goods maintained its upward trend, standing at 2.93% in annual terms, due to a greater general pass-through of the devaluation of the exchange rate home prices. BBVA results expecting inflation to remain relatively stable for the rest of the year, close in 2021, around 4.8%. But it accelerates again in the first quarter of 2022 due to the seasonal adjustment of certain rates that depends on the inflation of the previous year and increase in the minimum wage. Similarly, inflation is expected to begin to ease in mid-2022 with the appreciation of the exchange rate and the dissipation of bottlenecks closing 2022 with an annual inflation of 3.8%. Inflationary pressures on the strength of domestic demand mainly driven by private consumption and which has led to a widening of standard deficit, determine the beginning of the cycle of increase in the monetary policy rate in September. The first increase was 25 basis points, going from 1.75% to 2%. The interest rate is expected to end this year at 3% as a result of 2 additional increases of 50 basis points and to increase again by 150 basis points in 2022, closing at 4.50%. Despite these increases, the monetary policy rate will continue to be expansionary for the economic activity until the end of 2022. Now running to digital sales, BBVA's transforming to a digital business and continued a good pace. In Slide #8, I would like to share the latest statistics from the digital transformation. Market and society are changing at a greater speed, and we need to focus our time and paper on the most important part of our business, our customers. This is why we are working to build seamless digital experiences where we can create opportunities and improve the client experience by helping them migrate towards digital in the most secure way. Throughout the year, we have launched a new dynamic security called CVV in the BBVA mobile application, ensuring the safety of the digital transactions reached a record number of digital transactions having around 6 million of monetary transactions via the app and 1.6 million of the website in just 1 month and get them more of the 90% of the portfolio contracts are acquired digitally. Recently, the digital credit card requests grew near to 40% supporting our yearly award as the best innovative bank in payment methods in Colombia. As a result of our efforts in the third quarter of 2021, we have more than 1.5 million digital customers, 9% more compared to the same period of the previous year, which represents more than 60,000 of customers. Additionally, during the third quarter of the year, 87% of BBVA Colombia clients use the digital channels. We will keep the pace on the path to consolidate us as a digital bank, reinforcing our relations with our clients and generating high-value innovative solutions in order to improve the experience and strengthen the bank's results. Moving forward to the Slide #10, taking into account the challenges of a greener and fairer future. BBVA Colombia has achieved the carbon-neutral certificate granted by the clean CO2 after effectively reducing and offset the carbon footprint. To keep up with this behavior and to help our clients towards this transition, BBVA in the environmental and social framework took the decision to stop financing the thermal carbon. And this decision includes cutting out the exposure to the core clients by 2040 for countries like Colombia. These transitions will be gradual until the year of 2040 for which we will decisively accompany the financing of the conventional renewable energy projects aligned with the government's aim of having a participation of at least 15% of these technologies of the national energy metrics. Nevertheless, it's important to emphasize that BBVA is pledged to align its loan portfolio with the global warming targets of the Paris agreement and supports the need to achieve net zero carbon dioxide emission by 2050. At this moment, I would like to share the highlights of our 2021 third quarter results on Slide #12. As we see here the slide, the bank closed the 2021 third quarter with an annual growth of 83.8% in the net profit. This variation is mainly due to a higher profit before taxes and to favorable changes in the gross margin, which increased COP 130 billion due to a higher net interest income; with a positive COP 513 billion variation in the interest expenses had a decrease in the loan portfolio income of COP 398 billion. On the other hand, the efficiency ratio of 43.64%, which represents a decrease of 12 basis points compared to the same period in 2020. Having said that and checking our balance sheet, total assets increased by 1.5% compared to the last year and closed with COP 72.5 trillion balance. The gross loan portfolio registered an interannual growth of 6.2% with a COP 54 trillion balance. Similarly, customer deposits grew by 2% year-on-year, closing with COP 54 trillion balance. Regarding the risk indicators, we observed for August 2021 a 60 basis point reduction in our NPL ratio compared to August 2020. Furthermore, the cost of risk decreased by 82 basis points in the same period. Finally, we have maintained remarkable solvency levels about the minimum requirement by the regulation, closed in the second quarter of the year with a total solvency ratio of 13.45%. The decrease of 1 basis point compared to the second quarter of 2021 and a decrease of 171 basis points compared to the third quarter of 2020. In summary, we closed the third quarter of 2021, with proper performance both in activity and in the income statement. We will continue working on 3 fundamental aspects: growing portfolio share, improving our clients experience and continuing to grow in clients. Having this in mind, I will now present the results for the third quarter of 2021 in greater detail on Slide 13. The behavior of the bank's interest margin shows an internal increase of 5% in the third quarter of the year, equivalent to COP 115 billion. This growth is explained mainly by the expenses side where there was a reduction of 33.7% equivalent to COP 398 billion, which is mainly explained by a decrease in terms of deposit of COP 2.5 trillion. Similarly, interest income had a negative variation in the loan portfolio of COP 398 billion, mainly due to an increase in the loan portfolio of COP [ 3.1 ] trillion. The standing evolution of the efficiency ratio, which is 13 basis points lower than the ratio in the third quarter of 2021 can be explained by a moderate growth in expenses during the quarter. General expenses and other costs grew by 12.5% and 4.4%, respectively, compared to the same period of 2020, those translating into a higher operational cost of 4.8% or COP 60 billion. On the other hand, as the other operating income grew near 4%, the gross margin increased by [ 4.4% ]. The net income decreased by near 2%, which could be explained by the depreciation of fee expenses by the sales force. The behavior of the net income which increasing 83.8% where compared to the same period of 2020, which is significant improvement since the pandemic. Continue with BBVA economies proactive in management on Slide #14. BBVA Colombia's write-offs are aligned with Basel III policies that allow asset cancellation only where there is no viability of recovery. As shown in the upper right-hand corner graphic, BBVA's NPL ratio plus write-offs comparing very positively to this sector showing a 68 basis point reduction, exhibiting a higher quality of our portfolio. The NPL ratio stood at 2.89% in August 2021, which represents a decrease of 60 basis points compared to the previous year. Similarly, compared to August 2020, the cost risk stood at 2% with a decrease of 81 basis points. As of August 2021, we can see the NPL ratio for the customer and mortgage portfolio improved considerably compared to the data registered in the same period of the previous year, with a decrease in 16 basis points and 180 basis points, respectively. In addition, the commercial portfolio quality remains at a lower level than the sector average, given our low participation in [ problematic ] transactions. The [ NPF ] ratio at 222.7%, the behavior of the NPF ratio when compared to the sector is remarkable. It's effective management is a key factor to maintain the bank's profitability. Now turning to Slide #15. I would like to share the impact of the relief program of BBVA's Colombia's portfolio. During the third quarter of the year, [indiscernible] of the COVID-19 emergency period ended, the bank continued to monitor the debtor support program path through the inbound and outbound channels provided by the bank. Due to the COVID-19 phenomenon persistent and the need to keep generating financial condition to strengthen the process of reopening and economic reactivation, the government financial superintendents considered it necessary to extend the path application and its complementary measures in risk management trade until August 31, 2021, according to external circular 12. According to the above, it is possible to see the monetary scheme of the clients who adjusted to some type of relief on [indiscernible], having obligations of COP 17 trillion for the end of August, with nearly 84% of the deferred loans are already paid or canceled, showing an acceptable behavior. To other few details, we can see that the [ amortisized ] credits amounted COP 13.8 trillion worth, 40.9% corresponds to the portfolio of mortgages, 30.5% to the enterprises and SMEs and 28.5% corresponds to consumption. And the business scenarios in the loans we have for patents measured with a new alternative, those we classify as restricted in Stage 3. Here's more highlighting that less of 20% of the deferred loss would need to be restructured, foreclosed or litigated. Now we can find the consolidated income statement for the third quarter of 2021 on Slide 16. Now I would like to look at the main figures of our balance sheet and commercial activity. On Slide 18, I would like to sum up our business activity through the third quarter of 2021. Through the third quarter of 2021, there was an upward trend of the portfolio which was solid on a COP 3.2 trillion growth in the net loan portfolio equivalent to an increase of 6.8% compared to the third quarter of 2020, led by the recovery of the individuals portfolio, which stands out with a [ 72.2% ] growth in the consumer portfolio and 7.9% in the mortgage portfolio. As expected, due to the consumer dynamic, the portfolio with the highest concentration of the consumer portfolio, which grew COP 1.4 trillion. This growth is sustained principally in payroll loans, which grew 14.1% from the year-to-year followed by free consumption on vehicles. Similarly, the mortgage portfolio shows an annual COP 936 million growth, equal to 9%, which at the end of the third quarter of 2021, representing 25% of the gross loan portfolio. Finally, the commercial portfolio presenting a COP 820 billion growth is equal to 4.2% and the leasing portfolio decreased 3.2% with a COP 50 billion variation. As important as the business activity is following on Slide 19, we show the funding sources composition. During the third quarter of 2021, BBVA Colombia maintained a solid liquidity position where both commercial and institutional resources have increased. The strategy is to maintain the financing sources, diversification of the robustness of the financing structure. Customer funds increased by COP 887 billion, which represents a variation of 1.6%, closing the quarter at COP 56 trillion. The [indiscernible] represented 31.7% of the total resources 1% and elective variation of 12.3%, reaching a balance of COP 18 trillion. Checking accounts by positively 10.9%. This deposit represented at 64.1% of the total clients resources. The final investment securities regulation close at COP 2.4 trillion, representing a negative variation of 6.7% compared to 2020. This is associated with the resources of organization to adequately manage the financial margin, always taking into account the legal liquidity requirements. The decrease is also explained by the global pandemic situation that generated an economy with falling rates. On Slide 20, we can see the highlight of our business activity. The loan portfolio of BBVA economy remained in fourth place with market share of 12% -- of 10.21% at the end of August, which is 6 basis points lower than the same month of 2020 market share and a positive balance of COP 53.9 trillion. Outlining this, the individuals portfolio maintained a third place in the market with market share of 13.64%, which implies annual variation of 31 basis points. This outcome is in line with the consumers' portfolio, which stood in third place with market share of 12.47%, decreasing 24 basis points when compared to the 2020 August. In the same interval of time, the mortgage portfolio decreased by 127 basis points, reaching a market share of 14.97%, while the credit cards increased by 8 basis points with a market share of 7.16%. Furthermore, the commercial portfolio decreased 22 basis points in comparison with the same period of the previous year, maintaining safe place in the market. Additionally, BBVA Colombia ranked fourth in August 2021 regarding the customer deposits, where the market share decreased 46 basis points compared to August 2020 and stood at 10.39% in parallel with the outcome of customer deposits. The saving account market share decreased 34 basis points in the same period, reaching a result of [ 5.68% ]. On the other hand, the same interval between August 2020 and August 2021, current accounts and term deposits grew share by 7 basis points and 42 basis points, respectively, reaching 10.78% and 15.74%, respectively. Continuing with our solid levels of solvency and liquidity. On Slide 22, we can see that BBVA Colombia closed 2021 third quarter with a robust capital structure where Tier 1 capital represents [ 74 ] of regulatory capital which has been achieved due to the policy of increasing the legal reserve with the undistributed profit of this year, reminding that the bank balance payout remains at 50%. Based on the above considerations through the third quarter of 2021, the regulatory solvency ratio closed at 13.45%, considering the minimum regulatory indicator representing at 171 basis points and a decrease in the solvency ratio. This variation is mainly experience by an increase of 5.6% in risk-weighted assets in the corporate and household portfolio, an increase of 41.2% in market value at risk. Finally, our regulatory capital presented a variation of minus 6.3% closing at COP 6.4 trillion compared to the third quarter of 2020. This is primarily explained by an increase in Tier 1 capital of COP 240 billion and a decrease on Tier 2 capital of COP 671 billion. On Slide 22, we find our detailed balance sheet. As we bet on the transformation of the Colombian financial sector and the transition to a better and greener future, our aim is to accompany our customers on their way to reach their dreams by offering the best available solution to the market. We hope to continue growing and generating a greater contribution to our shareholders, employees and society in general. This concludes our prepared remarks for the third quarter 2021. Please, if you have any question you would like to ask, you can use the chat or you can use the raise your hand button that can be found at the bottom right section of the screen.

Since there are no questions, then we conclude our event. We appreciate your participation, and we hope you have an excellent day.