Banco Davivienda S.A. (PFDAVVNDA) Earnings Call Transcript & Summary

Good morning. My name is Nikki, and I will be your conference operator today. At this time, I would like to welcome everyone to the Davivienda Second Quarter 2020 Earnings Conference Call. [Operator Instruction] I will now turn the conference over to Rafael Borja, of i-advize Corporate Communications. Mr. Borja, please go ahead.

Thank you, and good morning, everyone. Welcome to Davivienda's Second Quarter 2020 Earnings Conference Call. Today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Joining us today from Bogotá, Colombia are Mr. Efraín Forero Fonseca, Chief Executive Officer; and Mr. Ricardo Leon Otero, Chief Risk Officer. They will be discussing the results from the press release issued by the company yesterday. If you have not yet received a copy of the earnings report, please visit www.davivienda.com on the Investor Relations section, where there is also a webcast presentation to accompany discussion during this call. If you need any assistance, please contact i-advize in New York at (212) 406-3693. I would like to remind you that any forward-looking statements made today by Davivienda's management are subject to various conditions and may differ materially. These conditions are outlined in the last page of the company's press release in the disclaimer and we ask that you refer to it for guidance. It is now my pleasure to turn the call over to Mr. Efraín Forero, Chief Executive Officer of Davivienda, who will begin the presentation. Mr. Forero, please go ahead.

Thank you. Good morning, and welcome to Davivienda's Second Quarter of 2020 Earnings Conference Call. I hope that you and your families are doing well and are safely adjusting to this new reality. The circumstance we are currently living in continue to be extremely challenging. However, we believe this is a unique environment to continue our path to innovation and seize the available opportunities. In today's presentation, we will comment on the bank's results and the measures we have taken to face the current situation. We will discuss the impacts in the economies where we operate and do our best to shed some light on our expectations. However, it is important to take into account that there is a persisting level of uncertainty. Moving on to Slide 3, I would like to comment on the bank's main results. During the second quarter of 2020, the various activities were impacted by the lockdown measures, especially in April and May, showing a moderate rebound during June. As a result, accumulated net profit for the first semester reached COP 346 billion, decreasing 54% compared to the same period of the previous year. Second quarter's net profit closed around COP 122 billion, decreasing 66% annually. These results were mainly affected by higher provisions due to forward-looking updates and additional measures, higher operation expenses related to our digital strategy and pandemic-related costs and lower operating income. This resulted in a return on average equity of 8.6% for the last 12 months. Due to lower economic activity, our gross loan portfolio remained relatively stable over the quarter, growing 20% year-on-year, explained by the dynamics of previous periods on the commercial and consumer portfolios. This double-digit growth is the result of a base effect that will correct in the coming quarters. The exchange rate devaluation account for 6% of the annual growth. As a consequence of the relief measure granted to our clients and regular write-offs, total PDL ratio closed at 3%, decreasing both on an annual and quarterly basis. Our NIM for the last 12 months was 6.29%, remaining on the same levels of the first quarter and compressing 23 basis points annually, affected by higher market volatility and lower interest rates. Consolidated cost-to-income ratio closed at 47.3%, increasing both over the quarter and the year as a result of the continuity in our digital transformation agenda, income deceleration, COVID-related expenses and foreign exchange evaluation. Among other relevant events, we acquired a $50 million subordinated loan with the OPEC funds for international development. These credits will be part of our Q2 capital while allowing us to fund women-owned SMEs, social housing and sustainable projects. Additionally, we issue senior bonds by $146 million in Costa Rica. Please continue to Slide 4. Despite the current circumstance, we continue to develop our sustainability strategy, aiming to create value for our stakeholders on the economic, social and environmental dimensions. As a result of the share-value approach, we have been able to grow our customer base at a 40% rate this year, thereby, reaching 16 million customers, allowing us to be coming to the Colombian bank with the most extensive customer base. Digital adoption continued to accelerate. Nowadays, 81% of our consolidated customers are digital versus 70% last year. In terms of risk, we continue to operate with adequate liquidity levels, keeping our liquidity coverage ratio by the close of the quarter around 1.55x the requirement. We increased our provision stock at 20% on an annual basis, and we remain with adequate levels of capital compared to the minimum requirement. From an environment point of view, we continue to support sustainable initiatives, reaching a green loans book of COP 1.49 trillion, growing at the rate of 8.7% compared to December last year. We continue our commitment with financial inclusion by allowing COP 3.5 million to the financial system for the first time through DaviPlata. Regarding our engagement with gender-gap reduction and human economic empowerment, we are proud to say that 62% of our employees are women. We recently became the first Colombian bank to join the Financial Alliance for Women through which we aim to build more capabilities to serve female customers better. As of today, we have acquired almost $500 million in credit to support women entrepreneurships, social housing and sustainable construction. Moving on to Slide 5. I would like to share some figures regarding the evolution of DaviPlata. By the end of June, our platform reached 10 million customers in Colombia, adding up 3.9 million this year. This represents a 62% increase over the end of 2019, resulting from our ability to capture customer from the base of the pyramid and bring competitors, clients into our platform. Accumulative monetary transactions to DaviPlata have reached over 47 million. This is 1.6x the number of transactions made by June 2019. We have also been able to increase our reach within the payment network in the current environment by enabling DaviPlata in 18% of total point of sales in Colombia. Additionally, we continue to improve access to digital payment methods where we have achieved 100% acceptance in national and international e-commerce platform. Our DaviPlata eCards have doubled during this year, reaching 850,000 active cards as of June. These are some of the milestones we have achieved in the journey to consolidate our native digital bank within Davivienda. We will continue placing effort to deepen our relationships with current customers and reach other segments by completing our portfolio of transactions, e-commerce, saving and insurance, among others. At the same time, we will also keep looking for strategies aligned and connecting to different ecosystem, aiming to integrate innovative solution for all. On Slide 6, I would like to comment on the evolution of the current situation. We continue to offer our customer financial support through relief measures and we have been observing good payment behavior across our portfolio. In this sense, the balance of deferred loans has decreased compared to what we saw at the beginning of the program. By the end of July, around 29% of Colombian's loan balance and about 44% of Central American's loan book has benefited from relief measures. The Colombian government continued to increase its support programs through the National Guarantee Funds and second floor banks by increasing allocated resources. By the end of July, we have disbursed COP 880 billion in credit lines backed by the National Guarantee Funds, participating with 60% of the system disbursements reaching over 33,000 customers. By utilizing the super intensive launched the debtor's relief program, which aims to recognize the new economic reality of debtor with recovery potential, allowing them to qualify for credit restructuring within each bank term. As a result, between August 1 and December 31 of this year, customers will be allowed to apply to this new set of relief. The bank will be able to decide on a case-by-case basis and depending on the customer affectation level, which measures will be implemented. Please continue to Slide 7 where I want to share with you a couple of figures regarding our operations. Around half of our employees continued working from home. Our contact center is operating with 2x original capacity and approximately 80% of our branches are open to the public. We have maintained our digital channels fully operational in order to keep our customer service at adequate levels. Transactions through our app, web and DaviPlata continue to grow compared to what used to be a regular monthly average. In July, transactions increased by 56% in our app, over 96% in our website and 100% in DaviPlata. Similar trends were observed in our Central America operation. Please continue to Slide 8. When looking at Colombia, we see the economic activity between April and May falling around 18.6% on average, although available information suggest that the drop is likely to moderate for June. This is the highest economy deceleration registered in Colombia's history. Under these circumstances, the Central Bank continued to decrease the monetary policy rate, taking it to level of 2.25% in the last meeting. The exchange rate appreciated 7% over this quarter but devaluated 17% during this year, reaching new historical highs during April. Additionally, oil price dropped sharply between April and June, in line with the slower economy behavior worldwide. Moving on to Slide 9, we can see the highlights of the macroeconomic situation in Central America. First COVID-19 case in the region were registered by March, leaving a negative balance for the first quarter of the year. The most affected GDP was the one of Honduras with a 1.5% annual decrease, followed by Panama with 0.4% growth, while Costa Rica and El Salvador grew 0.8%. Available ratio showed that annual contraction were higher during April and May, registering a 15.3% drop for El Salvador and 17.6% drop for Honduras. Meanwhile, there was a 7.1% decrease in Costa Rica where social distancing and mobility restrictions were not as strong. In line with this economic behavior, the region's inflation rate decreased, allowing the Costa Rica Central Bank to cut interest rates in June. In Honduras, the monetary policy rate remained stable through the quarter, but it was cut again in August. With all of this in mind and taking into account the current uncertainty, we believe Colombia's economy growth could locate between minus 6% to minus 10% for this year. Inflation should locate between 1% and 2% and interest rates could reach 2% as well. Regarding economic growth for the Central America countries where we operate, we believe that GDP growth will be between minus 4% and minus 8%. As a result, we believe that our total loan portfolio will grow around 5% to 8% this year, mainly driven by the commercial books supported by the existing government programs and the dynamics of that portfolio in previous quarters. Regarding PDL and due to the new way for relief measure, we believe we may start to see an impact by the end of this year and during the first half of 2021. As for credit risk management measure, we will continue monitoring our customer situation under payment behavior, but we believe we might continue with increased provision expenses during this year. We entered the second half of 2020 with a lot of challenges to overcome. However, we will keep managing through this environment in the best possible way to be there for our customers and to deliver to our stakeholders. We will continue placing special attention to risk management, engaging it as a tool for grasping opportunities and innovation, thereby, remaining a sustainable and robust organization. Now let me turn the call over to Mr. Ricardo Leon, our Executive Vice President of Risk, who will provide you with further details on the bank's financial results.

Thank you for the introduction, Mr. Forero. Good morning, everyone. Please move on to Slide #10 where we analyze the evolution of assets. Total assets grew 22.3% over the year. 6.6% of this growth is explained by the annual devaluation of exchange rates. As Mr. Forero mentioned before, our liquidity ratios remain at appropriate levels considering our internal stress test scenarios. In this sense, cash and investment portfolio increased in both periods, in line with our risk management measure. Our investing portfolio increased by 35.8% on an annual basis, where mandatory investments in Títulos de Solidaridad account for 11% of this growth. Gross loan portfolio reached 20% on a yearly basis but remained stable compared to the previous quarter. Regarding credit relief, our loan loss reserves reached COP 5.1 trillion, growing 20.3% on an annual basis and 9.6% quarterly, as we continue to increase provision across all segments. Colombia's assets showed an annual growth of 19.3% due to higher gross loans, investments and derivatives. Our international subsidiaries, which account for 25% of total assets, grew 12% over the year in dollar terms, mainly driven by the increase in cash, in [ turbine ] and investment. We continue to manage our business in a conservative way and we don't expect material changes in our structure. Move on to Slide 11, please. During the second quarter, we continue to offer financial support to our customers to help them through the pandemic, whereas mortgage portfolio growth was actually flat during the quarter. We observed good behavior in disposals in May and June compared to April, where we saw the most significant impact of the lockdown. In the international operation, mortgage grew mainly in Panama and Costa Rica. Consumer portfolio decreased compared to March, mainly explained by lower origination across most segments in Colombia. Most of the quarter's dynamics were concentrated on the commercial portfolio, both in the small and medium companies, supported by the National Guarantee Funds, second floor bank progress and corporate with low-risk profiles in Colombia. In Central America, this portfolio decreased as a result of lower economic activity. As a consequence, the loan portfolio grew 20% over the year. However, 6% of it is explained by foreign exchange devaluation. As for the commercial portfolio, most of the growth was generated in the first quarter of 2020. In the case of the consumer portfolio, growth is explained by the acceleration observed in the second half of 2019. As Mr. Forero mentioned before, loan book growth for this year could be between 5% to 8%. This growth is expected to be supported by the government programs and the dynamics of the commercial portfolio in the previous quarter. Please move on to Slide 12, where we can see the 90 days PDL ratio, cost of risk and loans by stages. Total PDL ratio grows at 3%, decreasing 68 basis points over the year and 45 basis points over the quarter, mainly explained by the effect of relief measures, write-offs and annual loan growth. 90 days PDL ratio for consumer and mortgage portfolio showed significant changes compared to the last quarter, although PDL for [ mortgage ] during the quarter remain unchanged. We continue to evaluate the performance of different segments to anticipate potential deterioration. 120 days mortgage PDL ratio increased as past due on over 60 days could not be covered by relief programs according to the regulation. Given the implementation of new debt relief program, we might start seeing increases in PDLs as relief measures end by the end of the year and the first half of 2021. Cost of risk for the last 12 months closed at 2.83%. The annualized quarter ratio closed at 3.58%, reflecting the provisions effort made during the last 2 quarters. Provision expenses during the quarter results from the following measures. We updated the sales classification of our customers based on the probability of becoming delinquent during the second half of the year. Thereby, our Stage 2 increase is 16% from 12.9% last quarter. We continue to adjust provision for meaningful corporate customers in the most affected sectors, and we abate our forward-looking parameters to reflect a deceleration in the countries where we operate along with a gradual recovery in 2021. We continue to review these measures every quarter, but we should expect provision expenses to remain at high levels, in line with the evolution of the economic situation. Total reserve coverage ratio closed around 184%. Now please move on to Slide #14 (sic) [ Side #13 ]. Funding sources grew 24.7% over the year and remains stable quarterly, in line with our loan portfolios behavior. The exchange rate devaluation explained around 6% of the annual growth. Demand deposits continued to increase, reaching 36.1% annual growth due to customer preference for liquid instruments. Bonds had an annual decrease of 18.3%, mainly explained by agencies in Colombia and Central America. In terms of credit, growth reached 47% over the year due to different transactions executed during the full semester with foreign entities and second floor bank. It's important to mention that the foreign exchange devaluation accounts for 14% of credits annual increase. Our funding structure continues to be stable with deposits representing 74% of total funding. Our loan to funding ratio closed at 91.8%, similar to the last quarter figure. I would like to invite you to Slide #15 (sic) [ Slide #14 ]. Total capital adequacy ratio closed the quarter at 11%. This is 200 basis points above the regulatory minimum. Since December last year, we have acquired $385 million in subordinated debt with foreign currency to diversify our funding and strengthen our categories. Total capital adequacy ratio decreased 29 basis points, explained by higher assets. Tier 1 ratio decreased 24 basis points over the quarter. Total equity increased 8.8% over the year and remain unchanged over the quarter. I would like to proceed to Slide #16 (sic) [ Slide #15 ]. Gross financial margin standard as our loan income has increased on the quarterly and accumulated figures on top of the appreciation of fixed income securities during the quarter. 12 months net interest margin ratio closed at 6.29%, contracting over the year and remaining on the same levels of the first quarter, mainly due to the growth pace of performing assets. In terms of margin, we should continue to see a compression due to decrease on investment income related to lower growth, change in asset mix and pressure in asset's interest rates in the coming quarters. Provision expenses for the second quarter reached COP 979 billion, increasing 10.6% compared to the last quarter. Accumulated provision expenses reached almost COP 1.9 trillion, increasing 55% over the same period in 2019. As a consequence, accumulated net financial margin had an annual decrease of 11.9%. Nonetheless, it increased by 14.6% on the quarter a little bit. Please continue to Slide #17 (sic) [ Slide #16 ]. Accumulated expenses grew 14.8%, impacted by the foreign exchange devaluation, which accounts for 5.5% of this growth. Expenses were also impacted by COVID-related costs, such as donation, increased contact center capacity and technology infrastructure to support our operation as well as digital transformation and personnel expenses. When excluding foreign exchange, COVID and digital transformation expenses, our accumulated OpEx growth 2.7%. 12 months cost-to-income ratio closed at 47.3%, increasing over the year and the quarter. Although we expect lower expense levels during the second half of the year, the cost-to-income ratio should increase as income is expected to be smaller. However, we will continue working our digital transformation and efficiency program and expect to see part of this benefit in 2021. To finish the presentation, I would like to go to Slide #18 (sic) [ Slide #17 ], where we can analyze the bank's profit. Net profit for the first half of the year closed at COP 346 billion, 54.2% lower than the first half of 2019. On a quarterly basis, net profit closed around COP 122 billion, decreasing 45.9% over the first quarter of the year. Accumulated operating income decreased by 9.6% compared to June last year. This was mainly explained by [ ways received ] on DaviPlata, debit card and transactions to which we aim to ease our customer financial costs and increase digital adoption. We expect operating income to remain pressured by lower economic activity. The effective tax rate decreased in line with the behavior of our results and the level of nontax income compared to the total revenue. Our return on average equity for the last 12 months closed at 8.6%, while the return on average assets was 0.84%. In general, these are the results we have prepared for you today. At this time, we can move on to the question-and-answer session. Thank you for your attention.

[Operator Instruction] And our first question comes from the line of Thiago Batista with UBS.

I have 2 questions. The first one related to DaviPlata. We saw an outstanding number of new clients at DaviPlata this quarter. But my question is, how do you see DaviPlata in the future in a couple of years? What will be DaviPlata? And is it possible to believe kind of split of DaviPlata's business or no? Do you believe that DaviPlata is better inside of Davivienda? So how do you see DaviPlata in the near future? And the second question is about the bank's capital position. I know that the Tier 1 of 7.9% is well above the regulatory level. But this is probably one of the lowest Tier 1 ratio among the listed banks in Latin America. So what is the target of Tier 1 range that the bank has? And how do you see the evolution of the bank's capital position?

Thank you, Thiago. I'm going to talk about DaviPlata. The result of DaviPlata in this term has been really outstanding. We have had close to 4 new -- 4 million of new customers in this period. And we are about in 10.5 million customers in Colombia of DaviPlata. And we [indiscernible] about them. We have about 1.2 million customers that are related with customers with the base of the pyramid. The other customers are customers that are related with customers that are in other institutions in our competitors and in Davivienda as well. So we have now this bank within the bank. And we have used DaviPlata as the best way to help government to pay all the subsidies that they have to pay to about 6 million families in the country. We have been paying through DaviPlata about 75% of those subsidies. It creates the opportunity to obviously include many people in the banking industry as well. So what we see in the future for DaviPlata, it is what we have been working for several years. We have a bank within the bank. We have a native digital bank with DaviPlata. We are working -- developing different types of alliances like [ Dravi ] and now with [ Civica ] with [ Medigene ] and the metro of [ Medigene ]. And we are working in other alliance that allow us to serve different type of customers in much better way, taking advantage of the ability to use the technology and the digital world. So if you ask me what we are doing, we are developing this bank, and obviously, it might be possible in the future that we might make a split. However, we will have to work hard in this year. And I think that even though this has been very hard for all the bank and the people, DaviPlata has become more strong. And we see that we have a much better future for DaviPlata in Davivienda.

Your question about the solvency ratio. We currently have more than 300 basis points on common equity Tier 1 ratio capital, above the minimum requirement. It's important to recall that the current capital standards in Colombia are more stricter than the region. This means that our risk-weight assets basically stands around 85%, 90% on average compared to 50% or 60% you may find in Mexico or Brazil. This is going to be adapted by the application of Basel III standards, which are expected for January 2021. But using the methodology and based on the preliminary estimation, our capital ratios could increase between or around 150 basis points, including the new operational relief charge. Continuing growth is expected to be low in the year, plus a significant increase in provision levels. Capital ratios toward the end of the year should remain relatively stable. In this sense, we believe these levels are adequate to support Davivienda's business growth. So we don't foresee capital needs in the medium term.

Your next question comes from the line of Carlos Gomez with HSBC New York.

I wanted to ask you first about activity at the bank and economic activity in general. Obviously, you are watching the numbers every day. In some of the countries, we have seen a recovery, then it has plateaued or it has actually declined again. What are you seeing on your daily numbers at the end of July, beginning of August? We know that there has been a continuous rebound of cases in Colombia. Has that been affecting economic activity? Or do you continue to see a recovery? And second, related to the capital earlier, your earnings this year, obviously, are going to be affected better than [indiscernible] definitely lower. But do you still expect to pay a dividend in 2021?

Thank you, Carlos. In general terms, we foresee that we will have a very slow recovery -- economic recovery for the coming months. We have had a very difficult time during April and May. We have a recovery in June and July. And we foresee in the semester a recovery in general terms. However, I would like to ask [ Andres Langeveck ] that maybe he can speak with us. No? Well, in general terms, what we see is that we will have a recovery in the coming months. I will have -- I would like to remark that I was looking at the number of the new loans for housing and social housing during June and July. And it's really very interesting to see that in July, the sales for social housing are the same. They are recovering at the level and they are the same as they were in February. So that number was given to me by the minister of housing and he was really very, very glad. It was also recovering very well, not at the level of March, for the nonsocial housing. But it is very interesting how the construction sector is recovering. I think it's going to be low, but we feel very optimistic about it.

Related to the dividend in 2021. For the dividend policy, considering the current situation, we must wait until the end of the year to analyze the result and sum it to consideration of the shareholders any possible action to be taken in this regard. But remember that we always try to protect the solvency of the company against any consideration.

If I can follow-up on the housing. Can you tell us how much of your corporate portfolio today is related to the housing or construction segment?

Good morning. It's Álvaro Carrillo. Our construction portfolio in housing is about COP 4 billion in Colombia. It is a very small portion of our portfolio but is an important segment for us.

Next, with Natalia Corfield with JPMorgan.

First of all, you have your bond, the W22s. And I believe this bond is already losing capital treatment. So my first question is related to if you -- thoughts that you have around this bond, if you think about tendering or in issuing a new subordinated loads, your thoughts on that. And secondly, looking at your results, I've seen like operating expenses have still been very high. And I want to know, what can we expect in terms of operating expenses going forward?

[indiscernible] This is something we've been [indiscernible] issues in the Tier 2 side of the equation, which [indiscernible]. We now have the balance sheet like $80 million, and we have [indiscernible] issue of an amount relatively equal to the second semester. So probably by the end of the year, we will increase the Q2 by an amount similar to the first semester. Next year, we have plans [indiscernible] the bonds that is [indiscernible] for the year 2022. So probably next year, we will have some plans that to replace them. So [indiscernible] tender offer or another operation [indiscernible] out of the market.

Yes. Thank you. Just to complement that part of the answer. It's important to recall that we have entered into some Tier 2 subordinated debt since December this -- last year. So far, we have included into the Tier 2 capital of the bank almost $385 million that we have obtained with the multilaterals.

Right. So I think I missed a little bit of the first answer. So I think -- did you say that you're going to tender the existing 2022?

In order to complement perhaps because [ Jaime Castañeda ] had some communication problems, we are analyzing that possibility, and it could be an option, depending on where the market stands. It could be an operation that we could carry out. But it's something that is under analysis. And if the moment comes and according to the market condition, it's possible that we could take that away.

And that -- would you replace it with a new one in the international markets? Or would you continue to go through local issues of -- or reform multilateral agencies?

Generally speaking, the bank has the mandate from the Board of Directors to try to have as diversified as possible the funding sources. So in that sense, we will always analyze all of the different situations and where we could obtain the best conditions for the bank in terms of cost and in terms of amounts. So it's a lot of possibility to go to the market as well to access any other possible funding sources.

Related to operating expenses, the project continued to grow as a result of the execution of our digital transformation plan. In order to manage future risk so customer effectively to rise and rise profitability to a sustainable level, it's important today into account the foreign exchange impact as well. Also, during the first semester, we had additional expenses related to the COVID-19, such as donation and an improvement in operational and infrastructural capacity to face this new reality. In this sense, we expect a moderated behavior in the second half of the year. However, cost-to-income ratio could deteriorate as a result of lower level of income. We will continue working toward improving efficiency and developing our digital transformation program and we expect to perceive some of the benefits during 2021. Thank you.

[Operator Instruction] At this time, we will take the webcast question. I will now turn the call over to i-advize.

Thank you, operator. We have some questions from the webcast. And the first one is coming from Santiago Petri from Templeton, "Hello. Could you please explain the impact of government-sponsored loans in NIM, if there's any?"

In general, in terms of interest rate, we are looking to play the resources on the market, lower interest rate and increased liquidity allow us to transfer part of the benefit to our customer. But we see that there will be a decrease in 10 to 20 basis points during the year.

There's some questions from Juan Dominguez from Onyx Equity Management, "We saw a stronger provision effort at Bancolombia and the large banking franchises in the region. Why does your cost of risk in this quarter was relatively lower than peers?" And the second one is, "We saw during the bad corporate cases of previous years that the cost of risk cycle at Davivienda takes several quarters to get dealt with. How long should we expect for the bank to clean the credit losses from COVID-19? How many quarters of pressure of cost of risk?

Thank you for the question. Our total reserve coverage closed around 184% due to increased asset allowance and equity reserves as well as relief granted to our customers. Comparing our provision reserve start to our gross loan portfolio, which a ratio that allows us to observe our total loan portfolio coverage isolating the effect of relief. This ratio closed declined at 5.5%, increasing over the year and the quarter. And something that is important is the structure of the portfolio. We have a commercial portfolio. And the more portfolio very important is our total portfolio, maybe other banks have another structure. So it's very important because our capacity mortgage is more than 220%. In other words, regardless of our PDL ratio, we have been increasing our commercial levels for the total portfolio. Consumer levels are aligned with -- over loan mix, and these are adequate levels for what we have been observing to lower models. Additionally, we have maintained through time our effort to cover for it, which result into a higher 12-month cost of risk compared to our peers and other banks in the region, okay? Thank you.

We have another question from Juan Dominguez, "Have your earnings power structurally changed due to COVID-19? How have your long-term goals in terms to our ROE evolved?"

Well, obviously, we have been affected. Our ROE has been affected because of the COVID-19 and it will be affected this year and maybe 2021. However, in terms of long term, we believe that we have to keep on working in our strategy. We have to become a more efficient bank and we will have to be able to be in new markets with higher participation. And we are expecting the medium-term level of 14 ROE, above 14 ROE or to 16, thanks mainly to our efficiency improvements.

At this time, we don't have more questions from the webcast. I will turn the call over to the operator.

We do have a follow-up coming from the line of Carlos Gomez with HSBC New York.

Given the Spanish conference call earlier, you disclosed in detail your coverage level for Stage 2 and Stage 3 numbers. I thought that was an interesting discussion. Would you be able to tell us again what the coverage is for each segment? And how do you expect it to evolve?

Thank you for your question. And in general, Stage 3 circles around 56%. In this stage, for example, commercial portfolio is -- the cover is close to 60%, retail portfolio is close to 68%, and mortgage portfolio is around 40%. In Stage 2, the general coverage is close to 12%. However, the consumer portfolio is around 15%; commercial portfolio, around 12%; mortgage portfolio, as I said, the loan term value is 45%, the coverage is 5.9%. [indiscernible], okay?

A follow-up from Natalia Corfield with JPMorgan.

And sorry if this was already answered, but how much of your portfolio is now related to loans that are in forbearance?

Natalia, thank you. At the end of June, our relief portfolio is close to 51%; lower in commercial portfolio, something like 18%; a little bit higher in consumer mortgage, around 88%, 89%. So before achieve level of 49%, however, during the last month, the consumer has been recovering his habit to pay their obligation.

Right. So the total portfolio, again, how much is it? Is it like 51% or 49%?

The total portfolio relief is 31% today, 31, 3-1 percent.

3-1, 3-1, all right. Okay.

There appears to be no further questions at this time. I would like to turn the floor back over to Mr. Forero for any closing remarks.

Thank you very much to everyone for being with us today. It is hard time for everyone around the world. And -- but we believe that we all working together are going to be able to get over these difficulties. And even though we will have a very hard semester, we believe that we finally will be able to overcome. We expect to be able to handle these difficulties according to our risk management policies. And we feel strong, and we will be working with innovation in -- with new solutions for the new problems. We expect to be able to overcome these difficulties. We thank you very much for being with us today, and we expect to see you very soon.

This concludes today's conference call. You may now disconnect.