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

Good day, everyone, and welcome to BBVA Colombia's Third quarter 2022 Earnings Call. My name is Laura Alejandra Peraza. I am part of the Legal Department of BBVA Colombia. With us today, the ALM and Investor Relations leader, David de Iscar; and the Chief Economist, Juana Tellez. I'd like to remind you that today's presentations will be available for download on our website in the section, Investor Relations on the link agenda. Please note, this call is being recorded. [Operator Instructions] Without further ado, I will now turn over the call to David de Iscar.

Good morning, everyone. I have a technical problem with the beta microphone. Please wait 5 minutes. We have -- we are trying to solve the problem. Sorry about that.

I noticed microphone was not working. Thank you very much. Well, I will start with a brief overview of the macroeconomic scenario, followed by a few highlights of our financial performance and our recent achievement. First, I will start with our macroeconomic outlook on Slide #3. After [indiscernible] first half, the global growth has slowed. Commodity prices and supply constraints are decreasing, while gas prices in Europe have increased due to Russian supply restrictions reactions. Despite some signs of easing, inflation is still high and surprising to the upside, causing central banks to tighten monetary conditions faster than they had anticipated. This has increased financial productivity and [indiscernible] concerns about the coming recession. Given the likelihood of retail inflation, a longer-term tighter monetary policy and weaker-than-expected GDP, the picture is no more gloomy. The federal reserves created tightening [indiscernible] from the slower growth and most likely amid recession by mid-2023, with the likelihood of an increase in interest rates to 2.75% and high gas prices, the environment will be favorable for a modest decline in Eurozone GDP in the ensuing quarters and amid recession by mid-2023. Rates are anticipated to be increased by the European Central Bank to 2.75%, with -- along with rising cash cost [indiscernible] the way for a modest decline in GDP for the Eurozone in the issuing quarters. But a significant gas shortage would be avoided, thanks to inventories, cost-cutting initiatives and supplies from alternative sources. Global growth is expected to considerably slow down from 6.2% in 2021 to 3.2% in 2022 and 2.4% in 2023. Inflation will progressively diminish as demand falls, monetary conditions tightened and the effects of the recent stocks received, but it will remain excessive and far over target at least until 2024. In 2021 and 2022, Colombia's economy saw a robust and quick recovery expanding by 10.7% and 7.6%, respectively. Private consumption was the driving force behind this behavior, which was aided by significant improvement in the formal labor market and the nation's [indiscernible] strong dynamics in foreign remittances, more domestic grade and [indiscernible] of resources from the export of some goods with high international prices. Due to the rise in domestic demand and the overall improvement of non-primary exports, investment in machinery equipment also demonstrated a remarkable performance during the same period. Only the investment in constructions, which is still lagging and growing slowly is the exception to the positive result. In an effort to slow down the dynamics of domestic demand and inflation and steer growth toward better outcomes for the financial and standing of people and businesses, the Central Bank is ending the increased cycle on the international rate at 11%. The rate will stay the same until September 2023 when a slower economic growth, lower inflation and lower price expectations will give away to attempt to drop the cost of borrowing. Nonetheless, in the rate of inflation with [indiscernible] from 12.5% ratio for the end of this year to 7.3% in [ December 2023 ]. Overall, BBVA Research anticipates a slowdown in economic growth in the second half of 2022. This moderation will intensify in 2023, a year of low global growth and more upward monetary policies influence on consumer spending decisions. Plus, it is projected that GDP will grow by 0.7% in 2023, a rate that will, in any case, allow domestic demand to stay at historically high levels. The economy will then rise by 2.0% in 2024, indicating some signs of recovery. This growth path will result in better financial outcomes for families and businesses, increase the stock of savings in the economy and [indiscernible] to reacting the external deficit despite its low levels of expenses. Now I would like to emphasize a few key messages which are included on Slide #4. This quarter, BBVA Colombia reported a net income of COP 987 billion, which represents a growth of 60% year-over-year and led to a 1.3% return on assets and a 20.9% on return on equity with annual increases 14 basis points and 505 basis points respectively, while our efficiency ratio increased 48 basis points compared to the same period in 2021. The highlights for this quarter were marked by both customer activities and the strategy that has been addressed by the team, which has generated strong results despite the tightening of interest rates and local political uncertainties. As a result, our Tier 1 capital represents 69% of [ technical ] capital and increased by 40 basis points compared to the second quarter of 2022 and 10 basis points compared to 2022 first quarter, standing 316 basis points above its current minimum. The performance [indiscernible] to the BBVA transformation, where the main aim is to make the opportunities of this new era available to everyone, taking to meet the beta objectives of our customers being a driver of opportunities and have a positive impact on the [indiscernible] of people and on the business of companies, bearing into mind the 6 strategic priorities that helped to fulfill this vision. As part of this transformation, bearing in mind that the customer count starts in favor of improvement in their experience. On Slide 5, we can see the development of our digital culture. For the third quarter of 2022, near to 1.89 million customers were using our mobile channels while 1.93 million were using our digital channels. Regarding the latter, we can point out that our SME segment has been working on improving our digital sales and growth [indiscernible]. In this context of transformation, BBVA Colombia is looking forward to a sustainable future in both social and environmental matters. Respective sustainability continuing on Slide 6, BBVA updates its Sustainability General Policy by adding the General Policy on Corporate Social Responsibility and updating the group's sustainability goals. The three new objectives are increase the growth of the group's business through sustainability, achieve neutrality in greenhouse gas emission and to promote integrity in the relationship with the stakeholders. In addition, natural capital is incorporated as a focus of action to be prepared for the challenges ahead. BBVA wants to accompany the energy sector in its transition and it is committed to clean energy. The group is making progress in its commitment to be a carbon neutral entity in 2050, not only through its own activity, already achieved since 2020, but also through activity of the customers that it finances. Therefore, it has announced that it will be -- it will reduce the emission of its oil and gas portfolio by 30% before 2040. BBVA will align its balance sheet in the oil and gas sector according to the scenario of net zero emissions in 2050, following the absolute emission metric. This commitment is in addition to the group's 2021 targets in 4 other carbon-intensive sectors and the decision to stop financing coal companies in line with the zero net emissions banking alliance. In line with this objective, until September 2022, BBVA Colombia has closed financing deal with the International Finance Corporation for 3 and 5 years, totaling $240 million. These are intended to, among other things, encourage the funding and development of energy efficient buildings and lower CO2 emission. This is how, during this quarter, we managed to generate COP 36 billion in revenue from sustainability-related issues with COP 51 billion going to help climate change and COP 5 billion going to assist finance [indiscernible]. On the other hand, we are committed to its family that needs [indiscernible] to a businessman who require support to boost his business and to society in general with the aim of improving the living conditions of all Colombians. Moving forward to Slide #7, BBVA Colombia has financed COP 42 billion in mortgage loans, new to this initiative. 700 families acquired their own home for the first time, while assisting on the construction of 1,520 low income housing units, benefiting the same number of families in apartments [indiscernible] As mentioned before, I'm getting down to business. And on Slide #8, BBVA Group in Colombia achieved 78% higher net fee income and stood at COP 264 billion, while recurring income from banking continues to show an excellent performance with a growth of 17%. This is mainly supported by a higher interest rate environment. Simultaneously, the increase in operational costs of 6% can be mainly explained by inflationary environment. Moving forward on Slide #9, the funding management of BBVA Colombia, whose key element is to maintain an average volume of high-quality liquid assets [indiscernible] our lending activity. During this quarter, our retail growth in lending activity was shown compared to the growth in funds, noncompromising the liquidity [indiscernible] bank. Deposits totaled COP 58 trillion, representing 76.3% of the funding composition and growing by 21%. It is worthy to mention that term deposits represented 38% of total client resources and presented [indiscernible] reaching a balance of COP 25 trillion, while savings represented 46.3%, increased by 14% and stood at COP 30 trillion. Additionally, taking accounts represented 13%, increased 19% and stood at COP 8 trillion. Moreover, on Slide #10, the loan portfolio increased 23% in the first 9 months of 2022 and stood at COP 62 trillion, with a special performance of the [indiscernible] portfolio, which represents 74% of the gross loans and is composed by the commercial and the consumer portfolio, an increase in net to 57% on a year-to-year basis, while mortgage and leasing increased 7% and 10.5%, respectively. For this side -- for each side, the nonperforming loans decreased 5.9% and stood at COP 1.5 trillion. On Slide #11, in order to identify and mitigate the different risks to which the loan portfolio is exposed, BBVA Colombia's internal risk policy and current Colombian regulations are implemented through the development of models and tools that allow coordination of monitoring and control activities. As a result of this, we can see an annual decrease of 71 basis points in our annual nonperforming loans ratio, which stood at 2.22%, 64 basis points less than the sector. On the other hand, the write-off zone in the upper right corner are 3.27% below the sector, showing a 102 basis point reduction when compared to the same period in 2021. BBVA Colombia write-offs are aligned with basic 3 policies that allow asset cancellation only when there is not the ability of recovery, and that these results are due to the strict BBVA Colombia write-off policies. In addition to that, the cost of risk decreased by 100 basis points in the same period. Continuous monitoring is carried out verifying compliance with [indiscernible] established in the risk [ appetite ] framework with monitoring of core metrics for compliance with advanced objectives expressed in terms of solvency, liquidity and financing and profitability and recurring results. Moving into Slide 12. By the end of the third quarter, we obtained an average recovery efficiency of the [indiscernible] portfolio of 47%, representing an annual increase of 8%. The result in the mortgage [indiscernible] with an average efficiency of 103% is achieved in the quarter. The recovery of write-offs for 2022 third quarter of the year amounted to COP 28.6 billion, an increase of 30% compared to the second quarter, improving the rate of recovery for the group. Maintaining our focus on the containment of entries into the [indiscernible] portfolio and the recovery of past due accounts, all supported by our collection [indiscernible], highlighting the management carry out [indiscernible] external collection agencies, financial services marketers and risk anticipation executed through which we have increased customer contact and thus, [ grows ] the payment promises of our debtors. Continue with our equity and solvency metrics on Slide 13. We can see that BBVA Colombia closed the third quarter of 2022 with a robust capital structure. Taiwan Capital represented 69% of regulatory capital due to the policy of increasing the [indiscernible] results with the undistributed profits of each year. The group's stakeholders' equity represented a positive variation of 14.5%, and closed at COP 6.5 trillion. This increase is mainly explained by an increase in reserves of COP 449 billion, an increase of COP 370 billion in net income. Technical equity closed the third quarter of 2022 with a balance of COP 8 trillion and presented an annual variation of 28%. Based on our consideration during the third quarter of the fiscal year, the solvency ratio closed at 13.87%, exceeding the minimum regulatory indicator, presenting another increase of 42 basis points. This variation is mainly explained by an increase of 6.5% in risk-weighted assets and a decrease of 8.8% in market value at risk. Our planned remarks for the third quarter of 2022 are now complete. Please use the touch feature or the Raise Your Hand button in the bottom right corner of the screen to ask any questions you might have.

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