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

Welcome to the Davivienda First Quarter 2022 Earnings Conference Call. My name is Hilda, and I will be your operator for today's call. Today's presentation is for investors and analysts only. Therefore, questions from the media will not be taken. Today, joining us from Bogota, Colombia is Mr. Javier Suarez, Chief Executive Officer; and Mr. Ricardo Leon Otero, Chief Risk Officer. During the call, they will be discussing in depth the quarterly results release. If you have not yet received a copy of the earnings report, please visit our investor kit or the Financial Information section at IR ir.davivienda.com. [Operator Instructions] Please note that this conference is being recorded. Afterwards, management will be available for a question-and-answer session. Before proceeding, let me mention that any forward-looking statements are being made under the safe harbor provided by the Securities Litigation Reform Act of 1995. Actual performance could differ materially from that anticipated in any forward-looking statements due to macroeconomic conditions, market risks and other factors beyond our control. It is now my pleasure to turn the call over to Mr. Javier Suarez, Chief Executive Officer.

Good morning, and welcome to Davivienda's First Quarter of 2022 Earnings Conference Call. Thank you very much for joining us today. During my presentation, I would like to comment on the main macroeconomic highlights, the main results of our business as well as updates on our sustainable and digital transformation strategy. Please move on to Slide 3, where we can see the macroeconomic performance in Colombia. Colombia's GDP for the first quarter closed at 8.5%, slightly decelerating from the 10.8% growth over the fourth quarter of 2021, but exceeding market expectations. This growth was mainly supported by commerce and the manufacturing industry as reflected by Davivienda's PMI performance, which reached an average of 52.2% for the first quarter of 2022, an increase to 54.4% in April. We continue to observe significant pressures in inflation with the annual ratio reaching 8.53% in March and 9.23% in April, mainly driven by the prices of food and fertilizers. Consequently and aiming to control inflation, the Central Bank decided to take the monetary policy rate to 5% in March and 6% in its last meeting at the beginning of May. The Colombian peso appreciated around 6% during the quarter and depreciated around 2% over the year. The main factors that affected the exchange rate behavior were higher commodities and oil prices and portfolio investment inflows during February and March. For 2022, we expect Colombia's GDP to increase around 4% to 5% and the inflation rate to reach levels of 8.5% to 9% and the monetize policy rate to close between 8.75% and 9%. Moving on to Central America on Slide 4. We can see that the region's economy continued to recover during the fourth quarter of 2021 with most countries performing over pre-pandemic levels. GDP closed the year at 8.9% for Costa Rica, 3.5% for El Salvador, 11.4% for Honduras and 16.3% for Panama. This behavior was explained by manufacturing and commerce dynamics, remittance of inflows and positive impacts of government support programs. However, when looking at the recent performance, there was a deceleration observed among all countries during the first 2 months of 2022. In this sense, we expect GDP growth for the region to reach between 3.5% and 4% by the end of this year, supported by the economic reactivation and for pressure related to the Russia-Ukraine conflict, prices continue to run in all countries. By the end of the quarter, annual inflation rates showed important increases compared to the end of year figures. As a result, Costa Rica's Central Bank took the monetary policy rate to 2.5% in March and 4% in April. Meanwhile, Honduras maintained its monetary policy rate at the historically low level of 3%. Regarding recent rating actions, Moody's downgraded El Salvador sovereign credit rating at the beginning of May from Caa1 to Caa3. This decision was attributed to a limited financing plan related to restricted market access. According to the agency, the sovereign continues to face funding pressures that could compromise its ability to service its debt commitments ahead of the upcoming bond redemptions in January 2023 and 2025. Finally, Panama's outlook was adjusted to stable by Fitch and Costa Rica's outlook was also improved to stable by Fitch and S&P. Moving on to Slide 5. I will briefly talk about the main results of our business. This quarter was one of the best in the bank's history in terms of profits, reflecting our ability to recover amidst a still volatile and uncertain economic and political environment. Our loan portfolio grew around 13% on an annual basis, mainly in the retail banking segment as we move towards a more profitable loan mix. This growth continued to be supported by our capital levels with the CET1 ratio closing at 11.19%. Our NIM, which includes our hedging strategy for interest rate risk and FX movements, closed at 6.38% expanding over the quarter and the year, supported by higher loan income given the assets reprice. Our cost of risk for the last 12 months continued to decrease, closing at 2.35% returning to levels below the ones we had in 2019. All of these results ended in a net profit for the quarter of COP 511 billion, reflecting a 12-month return on average equity of 12.2%. This leads us to believe that their bank could be returning to our midterm expectations of 12% to 14% return on average equity this year. In any case, we continue to monitor the potential impacts in our business of the high interest rates, inflation environment and changes in the political landscape. Moving on to other highlights. We're very proud to share that Davivienda was recognized with the Fintech Americas 2022 Award in the blockchain and crypto innovation category, being recognized as the main disruptor in these technologies in LatAm. This is a recognition of several years of work we have undertaken to be at the forefront of banking and use technology and innovation as tools for transformation and development and economic growth. Additionally, we continue to develop multiple initiatives to increase our positive impact in the world by joining important acts such as the IFC and Mastercard to pioneer in Latin America and Colombia, circular economy projects and environmental preservation initiatives. Finally, Davivienda was recognized with the Gallup Exceptional Workplace Award, which acknowledges organizations that maintain record employee engagement levels through these years of change and uncertainty. This result reflects our people's resilience and ability to adapt as well as our commitment to providing an engaging workplace and culture while enhancing our capacity to attract, train and retain the best talent. In Slide 6, we will review some results on the ESG front. Our sustainable loan portfolio reached COP 11.6 trillion, increasing 19.5% annually and representing 9.5% of our gross loans. Out of this COP 11.6 trillion, COP 2.6 trillion are dedicated to our green finance lines for renewable energy and sustainable infrastructure among others. In addition, COP 9 trillion are dedicated to social financing, supporting low-income housing and women entrepreneurs. We will continue to look for opportunities to reach and serve more people through our business model, while providing sustainable financial services that transform their lives and help them fulfill their dreams. Given recent management changes, the General Shareholders Meeting accepted the resignation of Daniel Cortez, McAllister and myself from the Board of Directors and approved the election of 2 new members, Maria Caludia Lacouture and Álvaro Carrillo. With these changes, women's representation on the Board will increase to close to 30%, while more than 70% of members will be independent. These changes demonstrate our commitment to keep adopting the best corporate governance practices. Moving on to Slide 7, I would like to elaborate on a recent synergy strategy we're developing jointly with DaviPlata, Davivienda and other companies of Grupo Bolivar, aiming to continue evolving our business models to address global sustainability challenges successfully. We have developed an ecosystem-based approach with farmers' markets in Colombia. As of today, we've reached 37 farmers' markets and 1,600 merchandise to provide them with access to financial services, financial literacy and digital sales training to leverage their business growth. This initiative has resulted in almost 200,000 monetary transactions for around COP 30 billion, which reflects increased digital adoption in nontraditional segments of the population. Additionally, we're starting to provide access to credit to these farmers and merchandisers, thereby supporting our cross-selling initiative between DaviPlata and Davivienda. We have conducted over 80 financial leaders training sessions to help these new customers to learn and build the financial basis to improve their business and personal economy. This internal shared value initiative demonstrates the incorporation of sustainable activities and strategies within our business model, in line with our higher products. We aim to continue developing these models to support our customers in different ecosystems. Moving on to Slide 8, I would like to highlight some results related to the bank's transformation. 63% of our sales and 56% of our monetary transactions in Colombia were performed through digital channels during the quarter. Additionally, our digital loans reached COP 11.9 trillion, almost 3x last year's outstanding balance and now account for 21% of Colombia's retail banking portfolio. Digital deposits also showed good results reaching COP 3.3 trillion, an increasing 51% over the year. We will continue working to be closer to our customers and deliver our unique experience, leveraged by technology and analytics. Moving on to Slide 9, I would like to share DaviPlata's results during this quarter. DaviPlata reached 14.3 million customers by the end of March, adding up 2.1 million over the year. When looking at the customer base mix, we can see clients share with Davivienda increased, which underlies our cross-selling initiative by DaviPlata acquiring customers at a low cost and Davivienda further monetizing them with additional products and services. DaviPlata's rating continued to increase, demonstrating our capacity to constantly improve the platform while incorporating new functionalities to cover multiple needs. When looking at the quarter's results, we observed some seasonal effects related to year-end performance. However, we see increases in deposits, e-cards, transactions and purchases on an annual basis. Transactional income over the quarter decreased due to the expiration of a 1 of the subsidy distribution agreements with the government. However, we continue to develop new functionalities to strengthen their revenue generation capacity of the platform. By the end of last year, we started to disburse small amounts of credits to DaviPlata customers. During the first quarter, we disbursed 17,000 credits for a total amount of COP 8 billion, reaching a total outstanding amount of COP 10.5 billion in these nano credits. With these initiatives and many more in which we are currently working, we will continue strengthening DaviPlata's ability to be present in people's lives while maintaining its transformation role in society and changing the way in which people handle their money. Now let me turn the call over to Mr. Ricardo Leon, our Risk Executive Vice President, to continue with the presentation.

Thank you, Javier. Good evening, everyone. Please move on to Slide #10, where we will analyze the assets evolution. Total assets reached almost COP 158 trillion, increasing around 16% annually with the Colombian peso depreciation explaining around 100 basis points of this growth. We continue to observe good dynamics in the loan portfolio in line with the economic momentum, which increased demand across the different segments. This growth is aligned with our risk appetite and is supported by our capital levels. In addition, the assets increase is explained by a higher balance in the Central Bank's account, money market operations and derivative positions. While looking at each of our operations, we observed Colombia's assets accelerating at an 18.5% increase rate and Central America at 4.6% rate in dollars. Please move on to Slide 11. We can accept that our loan portfolio continues this upward trend, showing a strong first quarter, mainly driven by the operation in Colombia. The consumer portfolio continued its acceleration growing 22.4%, mainly due to disbursement of unsecured personal loans as a result of the reactivation of the economy, better confidence levels and the increasing traction of our digital products. Mortgage continued to grow at a good pace, driven by leasing and low-income housing in line with the sector dynamics boosted by government subsidy programs. Finally, the commercial portfolio remained relatively stable over the quarter and grew 5.6% on an annual basis as the companies are expecting of the election results. In the international operation, the loan portfolio continued to grow at a stable rate of 3.5% during the year, mainly driven by consumer and mortgage loans with Honduras and El Salvador presenting the best dynamics. Given the observed growth dynamics, as of March 2022, the retail portfolio continues to gain share in the loan book accounting for 56% of the total loan portfolio. This change toward a more profitable mix support the expansion of our NIM and is aligned with our risk appetite. Moving on to Slide #12, we present an update of PDLs and cover ratios. As you can see on the top graph, total PDL over 90 days closed at 2.93%, show an improvement, both over the year and the quarter and below pre-pandemic's levels. The result from better payment behavior portfolio growth and so on write-off. In this sense, the total capital ratio increased above 153%. We have maintained [allowance] for loans losses at a level around COP 5.5 trillion despite a decrease in PDLs. This has increased our current coverage considering the business growth and the risk profile of its portfolio. We feel comfortable with our capital ratios across all segments. Please move on to Slide 13, where we can see the evolution of cost of risk, provision expenses and loan by cities. Provision expenses contracted around 15% over the quarter and 38.5% compared to the first quarter last year. In this sense, the cost of risk for the year decreased to 2.35%, close to the lower end of our last guidance and below pre-pandemic levels. Overall, by stages mix continues to improve, reaching almost 90% for the Stage 1 represented a reduction on Stage 2 and 3 for this quarter. We have maintained our coverage for Stage 1 and increased it for Stage 2 and 3 continuing the evolution of the portfolio. Now please move on to Slide #14. In order to support asset growth, liabilities increased by 16.8% over the year. Demand deposits continue growing, increasing the share in the total funding sources. This effect was compensated by a reduction in our term deposits, in line with strategy to expand our net interest margin, reducing funding costs. Bonds increased over the year due to $500 million AT1 issuance, which generates more than 171 basis points in the total consolidated capital adequacy ratio as of March 2022. In addition, assets in Colombia, Costa Rica and El Salvador had to [generate effect continuity] to the bonds increase. There was also an increase in short-term repurchase agreements in order to manage liquidity and take advantage of a valuable low-cost funding before annualized in interest rate. On the top right tables, we can see as our ability growing at a similar pace, contributing to maintain our balance structure. On the bottom right, we can see the stability in our funding ratios during the last year. I would like to move you to Slide #15 where you will see our capital structure. As you can see, we have comfortable capital levels to support our growth, in line with our expectations and remain among the best capitalized banks in the region. Our core equity Tier 1 ratio closed at 11.9%, mainly explained by the dividend distribution approved in the general shareholder meeting in March and the increase in risk-weighted assets in line with the loan growth and some particular operational risk requirements. Regarding the total capital adequacy ratio behavior is also explained by the exchange rate effect and the lower weight of subordinated debt in line with our expectations. Please move to Slide #16, where we present our margins. The gross financial margin expanded over the quarter and the year due to higher loan income in line with asset repricing amidst increases in the monetary policy rate, loan portfolio growth and changes in the loan mix toward more profitable segments. This behavior is reflected in overall need, which expanded around 11 basis points over the quarter and 28 basis point over the year. Regarding investment NIM performance, treasury income continues to be affected by upside moment in the market interest rate impacting the portfolio valuation. However, when looking at the bottom right side, we observed a pickup in our NIMs with traditional NIMs closing at 6.09% and NIM including the foreign exchange and derivatives income reaching 6.38%. The expansion in NIM is explained by the growth of the portfolio, the involvement of loan with higher interest rates and the repricing of assets. These impacts offset the expected contraction of 6 to 8 basis point due to the Central Bank increased interest rates. Please continue to Slide #17. The non-financial income increased by 29.9% on an annual basis due to the reactivation of some fees, higher sustainability, better performance in the insurance business as well as the income generated by our collection company. As a consequence, nonfinancial income increase is in total revenue from 14.41% to 17.15%. On an annual basis, OpEx increased by 19.2%, mainly explained by the exchange rate, which account from around 200 basis points of the total OpEx increase. Expenses from coverage asset data, the collection company acquired during the third quarter of the last year, this effects account from around 100 basis points. Another factor is inflation, increase wages as well as the higher commission paid to our commercial staff consuming better results. However, it's important to mention that expense has contracted 3.5% over the quarter. The 12-month cost-to-income ratio closed at 47.4%, increasing over the quarter and on a yearly basis. Please move on to Slide #18 to analyze the bank's profits. Net income reached COP 511 billion for the quarter, almost 5x the bank's profit for the first quarter of 2021. We slated into an annualized quarter's ROE of 14.5%, the highest in the last 4 years. This result is mainly explained by better on income, improved cost of rigs and good dynamics of nonfinancial income. In this sense, our 12-month return on average equity continued improving provision 12.17% in line with our expectation, consolidated our recovery path after the efforts carried out during the pandemic. To finish the presentation, please move on to Slide #19, where we will share our updated expectation for the end of the year. Contributing the recent developments in the countries where we operate with high interest rates and election coming up, we expect our consolidated loan book to grow between 11% to 12%. In the case of this segment, we are expecting a growth of 7% to 8% in the commercial portfolio, higher growth in the consumer segment between 18% and 19% and an increase between 11% to 12% in the mortgage book. The 90 days PDL ratio to grow this year between 2.9% to 3.3%. Our NIM should close between 6.1% to 6.4% by the end of this year, reflecting the repricing effects of higher interest rate and changes in the portfolio, as mentioned before. We expect our cost of risk to close 2022 between 2.1% to 2.4%, continuing its downward trend. Regarding nonfinancial income, it should end the year with an increase of around 15% as we continue to work to obtain new income sources through new alliance and services to our customers. We expect an OpEx growth from 11% to 13% by the end of the year, considering current and expected inflation levels and the foreign exchange rate. Finally, our return on average equity should to close between 12% to 14%, very close to our medium term costs. Thank you for your attention. At this time, we can move on to the question-and-answer session.

[Operator Instructions] We have a question from Nicolas Riva from Bank of America.

So I have 2 questions. The first one is one on Slide 12 and 13 on the presentation where you talk about asset quality. So I want to reconcile the number that you gave for the 90-plus day NPLs, the 2.9% and then the disclosure of the Stage 3 loans because Stage 3 is bigger than that 3.9%. And then on top of that, I have the Stage 2. So the question is, are you not including all the loans which are delinquent over 90 days in your Stage 3 market? Or what's the reason for the difference really between that Stage 3 bucket and the 90-plus day NPLs? That's the first question. And then the second question regarding bond maturities. So you have the $500 million Tier 2 maturity in July and then you have a global Colombian peso bond payable in dollars for the equivalent of $362 million in October. I remember that I believe you had said in prior earnings calls that the idea was to refinance these with a senior bond issuance in the international market. It seems that you -- I believe that you were even going to do a road show for that, that was canceled, I believe so if you want to talk about -- if you can talk about the plan to finance these 2 maturities for a combined almost $900 million that will be useful?

Nicolas, thank you for your question. I'm Ricardo Leon. I will explain the answer for your question. The first question related to the level of PDL -- 90-day PDL and Stage 3, so remember that the definition that we have in definition in Stage 3 in commercial and consumer, Stage 3 include the loans with more than 90 days, but also it's possible that in a Stage 3, we include different kind of loans that have more weakness for -- more problems or we see -- we observe in our internal analysis, specific possibility to improve loans. So we are moving different loans depending on the internal analysis, what kind of loans we have to move to Stage 3 or to Stage 2. Maybe in Stage 3, we can have some loans with an improvement during some periods. So they are explained mainly the difference between the 90 PDLs because in 90 PDLs, you never did more than only the past due ones over 90 days. So in the international -- in IFRS, we consider all the elements to [indiscernible] loans depend on our internal and specific analysis.

Ricardo, okay, so a follow-up there. So then -- so Stage 3 would be basically your 90-day NPLs plus, for example, restructured or refinanced as an example, right, could be some other loans. So then 1 follow-up question. You typically highlight the coverage of 90-day NPLs, right? But then probably it will be more useful to look at the coverage of Stage 3 loans, right, or Stage 2 plus Stage 3 loans. If I look at the coverage of just Stage 3 loans, it's just over 100%. And the coverage of Stage 2 and Stage 3 loans is well below 100%. So what -- you in management, what do you look at more now, the coverage of Stage 3, Stage 2 plus Stage 3 loans or the coverage that we typically have looked at in the past, which is just 90-plus NPLs?

Okay. In Stage 3 -- in the all stages, we consider the internal analysis to define the level of coverage. In the case of Stage 3, we have 58.7% in terms of coverage. In the -- for example, one year ago, the level of the coverage in Stage 3 was 59.4%. We reduced a little bit because we have some write-off in the quarter or in the last December. So that reduced the level of [indiscernible] total portfolio. But our regular level of coverage in the Stage 3 is close to 58% to 60%. And in the other, the -- always, we have to include the guarantees that we have in this portfolio. So in the case of this portfolio, we estimate the present value with different scenarios of the country where we are analyzing and depend on the GDP and employment rate and other elements, we established the possibility to recover that loans okay, considering the all elements that are included in funding and restructuring or other situation in each case. And in stage 2, we have a level of coverage close to 17%, 18%. And obviously, in the Stage 1, we have the portfolio with low risk. And even that, we include some portion of coverage in that portfolio located in low risk.

Ricardo, one last question on this, and then I want to move to the question about the bond maturity spread. So in Slide 13, at the bottom, when you mentioned the coverage by stages, are you -- because the way I calculate that is just the loan loss reserves, how much you have created in results on losses in the balance sheet. I keep that unchanged. And then I just divide by Stage 2 or Stage 3 II loans, but you seem to be doing something different than that in to calculate the coverage by stages, right. Because you have created a certain amount of reserves for loan losses, right, for your entire loan book.

Nicolas, this is David Pedraza, responsible for Investor Relations. Just to clarify that estimation, basically, what we make is we take the whole stock of provisions for the Stage 3 category and compare that to the total stock of loans that are categorized in that particular stage. So that's the coverage that we are showing. At the end of the day, perhaps to answer your question is we take into account all of the different elements or ratios that we measure for credit risk management, but provisions are made based on the categories of stages since we follow IFRS 9 and that methodology that we used to estimate provisions. I don't know if that clarifies a little bit.

No. It does, it does. okay. So you're taking the loan reserves for the Stage 3 loans specifically. Okay. That's very helpful. Thanks, David. And then moving to bond maturities.

Nicolas, this is Jaime Castañeda from the Treasury area. I want to mention that last year, we did some issues in the subordinated credit market and we did close to $900 million in issues. And we issue as well the AT1 on April for $500 million. So right now, we have an excess of liquidity in dollars, and we will use that liquidity to pay the bonding dollar that expire on July. Regarding to the global COP, which expired on October is already incorporated in our cash flow in pesos because that is a global COP. So we were going to use the cash flow in pesos to pay that bond. Regarding to our last roadshow and last intend to make an issue, I want to mention that we did the roadshow on Wednesday and Thursday of that week and the next one on Monday, we will price the deal. And we find out that the market had been moved against the investors with a high probability of adverse movement in the near future. So regarding to that, we decided just to wait until we find out a better market, not only for us but also for the investors. Today, we continue with the plans. And I think we're going to make the issue, hopefully, when we find out the right window and the right moment to do it. So we will continue with the plans.

Okay. So for now, you're not coming to market and you don't need to come to market to finance these 2 maturities? You [indiscernible] that AT1?

Right now, we have an excess of liquidity, as I already mentioned. So we have in the cash flow incorporated bonds, and we don't think we need this issue just to pay the issue that expired on July.

Our next question comes from Andres Soto from Santander.

Congratulations on the results. My first question is related to margins. We saw a positive performance this quarter, and when I look at the net interest income performance, I see some of these being explained by the growth in the mortgage segment, which is -- and not only affected by the new loan origination, but also by inflation. So I'm curious what is the sensitivity of your margins to Colombia inflation considering your mortgage portfolio? And overall, if you can remind us what is your overall sensitivity to both inflation and interest rates?

Andres, thank you for your question. In the first part of the answer, it's very important to explain the NIM did increase by the following reason. The mix of loans have been changing with more participation of retail portfolio. And obviously, we have higher loans, higher income in these portfolios. On the other side, we have been -- we have seen an improvement in the quality of loans during the last 6 months. The portfolio has been improving the risk profile. We have been increasing the disbursement in segment -- in the retail segment with higher margins. And as we have commented in some minutes ago, it's important to mention that part of our investment strategy is developed through derivatives, which means that NIM, including derivatives income growth at a higher pace. In that case, the NIM improved to 6.38%, 20 basis points already traditionally. And in terms of the sensibility, we have estimated that for each 100 basis point that the Central Bank increased the interest rate that represent around 6 to 8 basis points of reduction. However, the elements that I commented before, in the net effect, we have a positive impact in our NIM until now.

My second question is regarding your updated guidance, specifically in terms of our cost of risk. You have a midpoint of 2.3%, which, if I remember correctly, is what you believe is your medium-term ROE -- sorry, cost of risk expectation. I'm just curious to see your thoughts around this vis-a-vis the expected loan growth. As you mentioned, this is going to be driven by consumer loans. Consumer loans are very costly in terms of cost of risk in the year when they originated. So I'm again thinking that probably your structural cost of risk should be below that level. So what are your thoughts around that?

Thank you, Andres. Our forecast related to cost of risk is 2.1% to 2.4%, as you come in. We have growing our portfolio and good risk profiles focused on analytics -- internal analytics. So [indiscernible] to grow our loan portfolio have been focused in the better risk profiles of our customers. And even with other customers that are in the market, but we have good interesting risk profile. In terms of our guidance for the growth, we are estimating that it's possible to finish the year between 11% to 12% with a higher growth in consumer loans, 18% to 19%. But this growth is supported by a good quarter in term of growth. The first quarter was really -- has been really good. For the rest of the year, we see a good level of growth, but with a more moderated approach, reaching a growth in consumer portfolio between -- around 18%. But we are doing a cherry-picking of our customer and increasing the level of facilities. And so in the second -- in the total year, so we reduced to moderate the growth that we are expecting.

And my last question is regarding digital strategy. It was interesting to see that you are already using DaviPlata for originating new loans. I'm wondering if you have any estimate of what is the potential universe of DaviPlata clients that you can target with these new nano credits or in general terms, which of those 14 million clients, you believe could be potentially being added as Davivienda clients in the loan side?

Andres, this is Javier Suarez. In terms of DaviPlata and the opportunities that we see in loan originating, we announced last quarter that we were starting a pilot program with loans and the results that we are presenting today with more than 17,000 customers are in line with our expectations at the time because it is a pilot program. We're disbursing these loans to a targeted segment of DaviPlata customers, and we have -- we expect these numbers to go up to 40,000, and it will be ramping up once we understand the credit quality of this portfolio and then we fine-tune the strategy. And then after that, we expect that to be a significant higher number close to anywhere from 200,000 to 300,000 customers in the next 2 years. But there's also another source of credits that is not these nano credits, which is profundization or taking those DaviPlata customers and cross-selling them with loans through Davivienda. More than 320,000 DaviPlata customers, customers that came to the DaviPlata platform are now recipients of loans originated at Davivienda and that's already close to COP 2.5 trillion. So we have 2 sources of loans here. One is the one that is originated directly in the DaviPlata platform, which is the pilot program that I mentioned before. But another one is this cross-selling strategy that is already moving ahead with, as I mentioned, for more than 300,000 customers already getting loans from Davivienda. So we're very excited to see opportunities here with DaviPlata. We're starting with caution because we understand that we have to learn how to originate loans to the customers, the 17,000 customers that are low income customers, and we want to make sure that we get it right in terms of underwriting. But so far, we are very excited. We think the numbers are good, and we expect these numbers to keep growing.

The next question comes from Daniel Mora from CrediCorp Capital.

Congratulations for the results. I have a couple of questions. The first one is recent news have indicated that there are some problems in the market to comply with the net stable funding ratio under Basel III standards or [indiscernible] in Spanish. Do you see some pressures coming from this front, specifically for Davivienda? And might this leave you in a position to aggressively compete in the funding market? Actually, I would like to know what is the current net stable funding ratio for Davivienda? That will be my first question to better understand that. And the second one is regarding loan growth. We see a positive forecast between 11%, 12% and with the consumer segment growing around 18% to 19%. When do you feel that the current interest rate of the central bank will have a negative effect on loan demand? Are the current rates already having an impact on households and on loan demand and/or do you see a strong demand still during the -- in the short term? That will be my 2 questions. Thank you so much.

Hello. This is Carmen Anilsa, Financial Officer. I would like to ask the question about [indiscernible] stable fund ratio. Our level as of March of 2022 is 104%, and our expectation about the compliance, which this ratio is that the rest of this year, we will continue to taking new resources in a different composition than before. I mean that this compliance required to adjust the funding structure and to increase the retail and corporate funding and the duration of liability. To do that, we are growing faster in term deposit so well during this year with respect to continue doing that for the rest of the year, and we expect that we can go to the capital market, not at this moment because the market conditions are not good condition to go. But we expect that during the rest of the year, we can go to take additional if just the condition are good enough to go there. This -- reason is, of course, the government change. As March of 2023, we will [indiscernible] that comes from resources from financial institution short term, and we will have to get more resources from retail and corporate funding. But we expect that slowly during the year. It's not a pressure at this moment. About the question about the competition of the resources, we think that different bonds are more looking in the same situation. All the banks are complying with the same at this moment, and we expect that this will continue during the rest of the year.

Daniel, related to your second question, our forecast is to grow between 11% to 12% during the year. In consumer, our expectation is to be around 18% to 19% and mortgage between 11% to 12%, supported by the Colombian activity. In commercial portfolio is to be around 7% to 8%. In terms of how the loan market is affected by the inflation and the level of interest rate, our estimation is supported by that situation. We included in our estimation, the inflation that we have today and the interest rate expectation. In a normal environment of the loan portfolio should be able to grow around 200 basis points above the current guidance. So in our current estimation, we include the possibility that to reduce the activity in the demand of fronts. In terms of risk, it's possible that the level of -- the cost of risk will be additional between 5 to 10 basis points in term of the forecast that we have in cost of risk. However, this forecast to be between 2.1% to 2.4%, include that possibility that our own portfolio increased the risk profile or the cost of risk in 5 or 10 basis points.

And now we will proceed to read the web questions that we received. The first question was sent by Alejandro Ardila from Casa de Bolsa and his question reads, "Congrats on the results. Given the fact that consumer lands do you think you would have any pressure on PDL ratios in this segment for the next period? Finally, what's the commercial loan portion currently floating?"

Okay. What I said, we think that it's possible that the sensibility of the cost of rates will be 10 basis points and the PDL ratio maybe increased around 50 basis points between 3 to 10 basis points in terms of PDL. That is our expectation that we consider our portfolio can be affected by the economical condition of the interest rates by year end. The second question is related to the level of loan portfolio related to the floating interest rate. Our commercial portfolio is indexed to variable rate in 95% of the total portfolio. In consumer, this portion is 45%. However, the inflation of portfolio is lower than any other portfolio. And in mortgage, around 15% is related to the inflation or the UBR unit.

We also received a question from Sebastian from Ashmore. He sent 3 questions. And his questions read, congrats on results. Three questions. First one, DaviPlata showed key signs of slowdown on customers. DaviPlata only deposits, transactions income, et cetera. Was there any particular effect? Is the app losing momentum? Question #2, read, OpEx is running at 19%, is well below inflation and well above guidance even considering prior costs. Can you discuss cost control initiates? And number three -- question #3, despite the revision, raw guidance remains somewhat low relative to peers and overall cost of equity expectations. Why is the bank so conservative on your expectations?

Well, regarding the first question about DaviPlata, we don't see any sign of slowdown. What we have is some seasonality effects, one of them is based on the fact that the last quarter of any year is a highly transactional quarter and that's compared with this quarter by the -- if you compare year-to-year numbers, the app is actually increasing in almost every metric. There's a specific issue with loan -- with the subsidy disbursement paid by the government, which expired one of the contracts that we had expired and is not renewed in our case. So that's close to COP 10 trillion in lower transactional income. So that's why we have -- you see some numbers coming down. That's 1 specific contract that expired. But if you look at the other metrics, the numbers are numbers that imply growth such as transactional income and transactions growing at 14% year-over-year. E-cards are growing at 39% year-over-year purchases is 2.5 times higher than what we had 1 year before. So we're still gaining ground with DaviPlata, and we believe that, that will be the case in the coming months.

And -- okay, related to the question 2, relating to the OpEx, the operating expenses increased 19.2% on annual basis and the explanation are focus on the exchange rate, which account for 200 basis points. Our collection company that appear after the second part of the year, which account 100 basis points. Obviously, inflation and on the other side, the minimum wage increase in Colombia, which increased around 10%. As the sales have been increasing during this period, the sales force initiative have been increasing in a very strong way. So remember that last year, in the first quarter, the activity was really low in terms of the sales. So there are various effect in this growth. So we are expecting a fee operational expenses for the year between 11% to 15%, including the projects to support our digital transformation.

With regards to the return on the equity question, our guidance is going up. It's up to 12%, 14%, and this is a quarter in which guidance is a little bit challenging because we have several conditions that are changing in the market. First, internally, we're doing very well. The results for the last quarter were very, very good. So we have some tailwind that is actually helping us get these very good results. But we are aware that there are some external pressures such as the increase in interest rates that we've mentioned before as well as general uncertainties in the market. So we believe that those drivers will -- may have an impact on our numbers. So we prefer to be cautious with our guidance and recognizing that there are some uncertainties in the future. So it's actually -- this 12% to 14% is a mix of very good performance, internal performance that we're having. But at the same time, a recognition of market conditions are changing.

We also received a question from Andrea Atuesta from Bancolombia. Her question reads, "Good morning, thank you for the opportunity to ask. I would like to know if the reduction in provision expense will continue for the following quarters of 2022?"

Thank you, Andrea. The level of provision will be the reason of the improvement of our risk profile in our loan portfolio. So we -- our cost of rate will be between 2.1% to 2.4%, that is an important improvement. But it will be in the same region of our risk quality of portfolio.

And with regard to the second question in terms of demand on credit as changing with the interest rates going up, we expect that to happen soon. We've been increasing the interest rate on our new loans, and we're expecting in these coming months to have a lower growth in our portfolio. So that's why our guidance is a guidance that even though we're growing at 12.7%, we expect our guidance to be 11% to 12% because we expect impact on interest rate to be felt in the portfolio rather soon.

We also received a question from Rafael Elias from BancTrust Securities USA. His question reads, "Do you see any problems with the Colombian economy and corporate security markets being punished in the case of a potential victory by candidate Petro? Would this increase funding cost for your eventual future issues?

We will not comment on specific results on elections. But of course, we understand that this market is an uncertain market in terms of interest rates in general, not only because of internal uncertainties due to political process, but also because of international pressures on interest rates. So we will be, of course, looking at what happens with the markets going forward. And of course, we'll be letting you know how the market evolves, but that's -- our view is that we will be very carefully looking at the markets and see how the political uncertainties develop into the future.

And regarding to the increase of funding for an eventual future issues, I think the market is already incorporating the risk of having these candidates as the most preferable candidates for this election. So we already incorporated that in the corp, not only in the local market, but also in the international market.

At this moment, I don't see any other questions. I would like to turn the floor back over to our presenters for closing comments. Mr. Suarez, please proceed.

Thank you. This has been a very strong quarter. We're very happy with the results that we're presenting today in the general advancement of our strategy in [indiscernible] lines, as we mentioned before, is moving very well. So we expect that trend, this internal trend of improvement in our strategies and the deployment of new functionalities in our apps as well as new abilities to go digital and try to keep transforming the bank to keep moving forward. That in an environment that, as I mentioned before, is a challenging environment, and we will, of course, be moving forward in this challenging environment. But we believe that there's a strong base in our operation that will keep us in right in line with the expectations that we have. So the guidance that we're providing today is an improved guidance. We believe that the way that the bank is performing is actually giving us the opportunity to be rather optimistic about our expectations, even though the environment is a challenging one. So we expect to see you in the call for the next quarter in which we will probably give you some very good results also as that's what we're seeing in the coming 3 months. Thank you very much to everyone that joined the call, and thank you for the questions and have a good day.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.