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

Good day, everyone, and welcome to BBVA Colombia's Second Quarter 2023 Earnings Call. My name is Diana Katherine Ruiz. I am part of the Legal Department of BBVA Colombia. With us today, the main economist, Alejandro Reyes and the ALM and Investor Relations leader, Mario Sanchez. I would like you to remind that today's presentation will be available for download on our website in the section relations on the link [ agenda ]. Please note, this call is being recorded. [Operator Instructions] Today's agenda includes the highlights of the quarter, a brief overview of the macroeconomic scenario, a brief description of our financial performance and our recent achievements. Without further ado, we'll now turn over the call to Mario Sanchez.

Thank you, Diana. Good morning, everyone. I am delighted to welcome you all to our earning result call today. where we will reflect on our achievements in what has undefinable have been a challenging economic environment. Let us begin on Slide 2. By highlighting our financial performance. Our net profit surged to a remarkable $163 billion, a testament to our teams unwavering dedication and strategic foresight despite the hurdles posted by a tough economy, we achieved an impressive 50% growth in net loans, showing the resilience of our commercial and consumer portfolios. It is worth mentioning that our operational efficiency remains a cornerstone of our success. With an efficiency ratio of 56%, we have managed to drive a staggering 56% increase in our operational income year-on-year. Moreover, our commitment to managing risk has paid off with the cost of risk at a commendable 2.02% and [ Acorda's ] ratio showing to 189.17%. I will now continue to our economic outlook on Slide 3. On a global scale, the synergy between robust demand driving but dynamic labor markets and the ongoing effects of post-pandemic reopening coupled with winning supply shops, will continue to fuel growth through 2023, while sign of deceleration are eminent developing countries unemployment rates have reached pre-pandemic levels or are even lower, supporting wage growth and sustaining high levels of household consumption, particularly in the Eurozone and the United States. China has emerged as a notable player this year, propelled by the removal of pandemic-related restrictions and surge in dynamic demand and supply. China's resilience has helped counterbalance the slowdown in the United States and Europe, while lower energy commodity prices have easily global productions bottlenecks. Despite inflation gradual decline, underlying inflationary pressures persist due to the recent high energy prices and continued labor market strength. Central banks remain steadfast in their commitment to convert inflation, maintaining interest rate hikes and liquidity withdrawal programs. This approach, combined with tighter credit conditions and potentially less expansionary fiscal policies could lead to reduced demand and prices. Nevertheless, secondary effects might keep inflation above target, leading central banks to potentially maintain restrictive interest rates longer than market expectation. Looking at the economic forecast, global growth in 2023 is project to surpass previous expectations, largely attributed to improved activity data. Yet China's moderation in post-pandemic recovery, restrictive monetary policies diminished fiscal [indiscernible] and financial volatility will contribute to general growth acceleration. The global growth rate is anticipated to drop from 3.4 in 2022 to 2.9% in 2023 and remains at 2.9% in 2024. While challenge persists, China infrastructure projects and pent-up consumer demand are expected to [indiscernible] its growth in 5.7% in 2023 and 4.8% in 2024. Shifting our focus to the main economy we observe a minor deceleration, while investment has been a sharper downturn, private consumption and exports continue to drive growth. The support from a rose labor market has sustained household consumption with real wage increases and solid job creation. Particularly in the service sector. However, consumption patterns have shifted towards nondurable goods, like services and food while spending on durable goods and [indiscernible] of Colombia's economic performance in 2023 and 2024 will hinge on a continuation of current trends, inflation patterns, ongoing restrictive monetary policies and the impact of slowing growth in developing countries. Despite this, the country growth in projects -- is projected at 1.2% in 2023 and 1.5% in 2024, led by the service sector and supported by government spending on education and health care. But the Colombian economy is navigating a controlled slowdown with consumption and exports playing futile roles as we address challenge and seek to close such economic gaps. It is imperative to size for opportunities, explore emerging sectors and align policies to foster investment and stability and capable development in the global economy. On Slide 4, our dedication to innovation has fueled remarkable outcomes, driving a growth of 3.6% in digital customers and 4.8% in mobile customers. It is not just the numbers, but it's also the impact this innovation have had on reshaping our customer interaction that truly matters. We are proud to reveal that a substantial 72% of our value clients are actively engaging with our digital channels, highlighting the deep trust they place in our tech offering. A testament to our efforts, it is a fact that 86% of the sales were seamlessly executed through the website and app, showcasing the easy and convenience we bring to our Tech savvy clients. This journey has been more than just about numbers. It is about our commitment to understanding and catering the evolving needs to our clients. We have harnessed the power of innovation to not only adapt but to drive in a digital-first landscape, our ability to provide [indiscernible] experienced and sophisticated our position as the financial partner of choice. Let us now address some key financial indicators on Slide 5. in the face of a formal challenge, such as 35% decline in net interest income and a substantial 77 million reduction in the net income year-on-year, our unwavering dedication to fortifying our core operation [ signed true ]. This challenge backdrop permitted a proactive 30% elevation in the net provisions accompanied by a notable 34% uptick in operational costs. Amidst these trials what is we're underlying in our remarkable ability to maintain a tight range of operational costs. These accomplishments within such demanding economic climate stands as a clear testament to our steadfast commitment to a disciplined and prudent approach. This measured strategy has enabled us to navigate a turbulent waters on the economy while at the same time focus on enhancing our operational resilience. Now marking our business activity of the group on Slide 6. The gross loan portfolio closed at an impressive balance of INR 74 trillion, reflecting a 50% year-on-year growth. What is even more inspiring is that the net loan portfolio achieved a growth of 14.5% reaching an encouraging balance of IDR 70 trillion despite the year-on-year growth moderating slightly. It is important to highlight that the progress made, especially in the commercial loan segment with a remarkable 22% growth and a noteworthy 10% growth in leasing. The positive trajectory of this segment can be attributed to the economic recovery that has unfolded during this period. The strategic focus of BBVA Colombia Group continues to center around the particular segments, which accounts for a substantial 56.7% of the gross loan portfolio as of June 2023. It is truly hurting the note that this segment has exceeded an impressive 11% year-on-year increase culminating in the balance of $42 billion during the second quarter of 2022. Our mortgage portfolio, representing 20% of the gross loan portfolio by the close of the second quarter of 2023 recorded a growth of 4.2%. This search is a testament of our adaptive approach in the current market scenario and a successful outcome of our strategic banking closure. This result in 14.5 increase in the total outstanding portfolio, aided by the [indiscernible] risk management by our teams and a remarkable resilience displayed by the economy in the surmounting the hurdles in this path. In summary, these accomplishments speak to the commitment of our teams and the strategic direction we have embraced. As we move forward, we remain dedicated to maintain this momentum and leveraging these positive trends to continue serving our clients with utmost diligence and care. On the other hand, on Slide 7. Our client resources have been managed with Precision, aligned with the bank's liquidity requirements, demonstrating our commitment to fostering a robust financial foundation. Total client resources surged by an impressive 5% culminating in an outstanding COP 73 trillion. Our remarkable highlight is a substantial 43% year-on-year search in terms deposits, a testament to the unwavering trust our clients place in us. This search further fulfilled the dynamic resources trajectory in parallel while transactional deposits, including demand and savings, experienced a 14.8 deep day closed June 2023 with a notable balance of COP 37 trillion. These transactional deposits continue to be cornerstone, representing a significant 52.8% of the total client resources. Turning to our investment securities despite an 8.9% variation compared to 2022, the circulation of investment securities stood at an impressive $2 trillion by the end of this quarter. This nuance trajectory reflects our proven approach to managing these assets in a rapidly changing economy landscape. Moving forward on Slide 8. Our group's commitment to prudent risk management is a cornerstone of our success. This approach empowers BBVA Colombia to sustain its commercial operation while holding strong indicators of portfolio quality and judicious risk profile. As of the close of June 2023, our portfolio quality indicators proudly stood at 2.74%. Furthermore, our delinquent portfolio coverage ratio reached an impressive 189.17% These achievements underscore our dedication to responsible banking, practice and an unwavering commitment to providing interim value to our clients and stakeholders. Moreover, on Slide 9, we have assumed the state of the deferred loans due to COVID '19 after the payment assistant period we swiftly resume recovery activity, embracing a spectrum of alternatives such as restructures, foreclosures and litigations, all aiming to ensuring the best outcome for our value clients. With these loans [indiscernible] fresh approach, we now restructure them in Stage 3, underline our proactive approach to adapt to evolving circumstances. In navigation, the challenge, esteemed from the pandemic inducted great relief, our resilience shines through. A commandable 42% of the granted reliefs have been successively amortized and an impressive 42% of our existing loans are maintaining their impeccable track record, a testament of the termination of our clients, while 10% are facing temporary obstacles of 5% have been written off. Our commitment to support and assist remains unwavering. Continue with Slide 10. BBVA Colombia has successfully completed the transition from [indiscernible] to solvency standards. This is a testament of our commitment to excellence. This strategic move place us in the prime position as a pivotal systemic institution underscored by a minimum total solvency ratio of 11.5%. These achievements speak volumes about our 45 capital position with not only surpassed regulatory requirements, but also empowers us to embrace our growth journey with confidence. Moving forward, Slide 11. BBVA Colombia actively distribute to both includes growth and climate action. This dedication is evident in our efforts to enhance the social well-being of Colombians. We allocate resources to bolsters infrastructure, inclusively entrepreneurship and housing. Simultaneously, our commitment to climate actions drive us to allocate resources to impactful initiatives that foster sustainable mobility, energy efficiency, renewable energy and the circular economy. Additionally, our unwavering commitment to innovation led us to partner with the International Finance Corporation IFC to announce the launch of Colombian's first-ever blue bond at the 2023 banking convention. This noteworthy USD $50 million bond will fund projects like water treatment plants, ocean preservation, more protection and Mangrove conservation. BBVA Colombia is steadfast in supporting our nation's ambitious environmental goals through the consistent promotion of sustainable financing, reflecting our dedication to sustainable development. This landmark operation is particularly significant considering Colombia's abundant water resources, positioning as one of the 5 nations we reached Marine Diversity, Colombia strategic geography span goes along 2 oceans. It is a quality ecosystem, including freshwater and marine coastal environments underscore the country's natural wealth. The presence of [indiscernible] forecast coring 9.6 million hectares plays a vital role in regulating water resources, benefit cities and communities with over 280,000 hectares of Mangroves contributing to carbon capture. This reflects our commitment to a sustainable future that values that protects our valuable natural resources. During the second quarter, BBVA Colombia continued its steadfast dedication to enhancing lives to a range of social investment initiatives. This effort positively affect over 90,000 individuals in education, environmental sustainability and SME support areas, resulting in a total aid of more than MXN 800 million. On Slide 12, we can see the highlights of the impact in Colombian society, volunteer involvement, a volunteer company engage 113 participants across 5 occasional institutions, delivering benefits to 7,412 [indiscernible]. Additionally, 46 volunteers participating in planting 250 native trees in La Calera. SME Empowerment. The successful conclusion of the second phase of the global leaders program in collaboration with the University of Los Andes leads to Certificate of 360 Micro business leaders, a partnership with the University of La Calera. For the circular economic project enhancing waste management practice for 43 SMEs, educational assistance the distribution of our 10,000 school kids nationwide supports students in their economic journey through the year. Scholarship programs provided opportunity for 21 young individuals to a transforming realities, [ indiscernible ], 5 Afro-descendants, yound women via [indiscernible] additionally nice schools underwent renovation benefiting 287 students, more conservation to collaboration with Bio Cuenca, significant streams were made in conserving, restoring and promoting sustainable production across these three [indiscernible], intervention in 46.5 productive hectares 19 conservation hectares and 50 restoration hectares approach the projects as goal by 96%, directly benefit 74 individuals and indirectly impacting our 700 thereby strengthening the regional water security. Our planned remarks for the second quarter of 2023 are now complete. We expect to continue to improve the bank's performance through our digital and sustainable transformation and to make the opportunities of this new era available to everyone seeking to meet the vital objectives of our customers being a driver of opportunities and having a positive impact on the lives of people and on the business of companies, bearing in mind the [indiscernible] strategic priorities that help to fulfill this vision. Please use the chat feature of raise your hand button in the bottom right corner on the screen to ask any questions you might have.

We have a question from Roberto. Profitability decline was mostly driven by higher funding costs. What is your mean sensitive to interest rates?

Thanks, Jefferson for your question, like. We have broader sources of resources -- so we are not only like -- we only -- we do not only finance our loans with term deposits. And we are really careful to not undermine like our funding with short-term term deposits. So we had been passive compliance for a long while now. So we were careful to have like a well diversified range of sources. In those investments, like we have a low sensitivity to interest rates despite the high peak that we experienced in the second quarter of this year.

Now we have a question from Thomas.

A simple question. So I just wanted to know if you have any plan of capital injection or measure that you have in view of increased solvency.

Thanks Thomas. we don't see like a specific like pressure in our capital. We just recently made a Tier 1 operation this year. For $200 million in order to improve this situation, we are, of course, paying close attention to this ratio. But I think that for what is worth this year and the first quarter of 2024, we don't see necessities of additional capital. So I think that like in the short term, we are not going to receive injections from the Matrix House because we don't believe is needed in this specific moment.

We have another question from Roberto. Capital seems tight. What is you CET1 target? And we have another question from [ Garo Rivera ]. What is the outlook from the NPL ratio and asset quality. If increase was the case with [peaks]. When do you expect to reach the [ peak ] and what level?

Sorry. Regarding the CET1 target, we will at least expect to be 100 basis points over the minimum regulatory threshold that will be like 8%. Next question will be what is the outlook of the NPL ratio and asset and asset quality. In this regard, I think that we are like one of the banks in the industry with [indiscernible] grade quality. So like we don't -- honestly, we don't have a forecast yet of this at the moment.

Sorry, Mario. I just would like to complement on an industry view from macroeconomic standpoint, we do expect NPLs to continue deteriorating in the next couple of quarters and reaching a peak around end of this year, start of 2024, that's for the whole industry. So there's a bit of a road ahead in terms of credit quality deterioration.

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