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

Welcome to Davivienda's Second Quarter of 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 and presentation, please visit our investor kit or the Financial Information section at 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 statement 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 Second Quarter of 2022 Earnings Conference Call. Thank you very much for joining us today. In my presentation, I will comment on the macroeconomic evolution, the main results of our business, progress in our sustainable strategy as well as the evolution of our digital transformation and DaviPlata. Starting with Colombia's macroeconomics on Slide 3. Colombia's GDP for the second quarter closed at 12.6%, accelerating from the 8.6% growth over the first quarter of 2022. This behavior was mainly supported by commerce and the manufacturing industry in line with Davivienda's PMI, which showed a positive performance during the second quarter of the year, reaching an average of 54.7 of last quarter's figure. Inflation continued to be pressured by utility prices, agricultural input prices and La Niña phenomenon, which has impacted food supply. In this sense, annual inflation reached 9.7% in June and 10.2% in July. Consequently, the Central Bank decided to accelerate the monetary policy rate increases, with 100 and 150 basis points hikes, taking the interest rate to 9% at the end of July. During the second quarter, the Colombian peso registered a 10% devaluation over the quarter and the year. However, despite the devaluation trend, but due to be exchange rate to 4,275.5 maximum in July. Recent performance shows a continuous decrease in the exchange rate. Colombia's recent behavior led us to increase our expectations for 2022 main macro variables, with GDP growing between 6% and 7%; inflation closing between 10% and 11%, and the monetary policy rate between 9% and 10% by the end of the year. Moving on to Central America on Slide 4. We can see that the region's economy slightly decelerated compared to the fourth quarter of 2021, in line with our expectations, with GDP for the first quarter, reaching 2.4% for El Salvador, 6.1% for Honduras and 13.6% for Panama. In the case of Costa Rica, GDP growth was 7.6% for the first quarter and 5.6% for the second quarter. Lower activity in manufacturing, commerce and financial intermediation as well as decelerated growth of the United States and other Central American main trading partners explains growth moderation in the region. Inflation also reached historical highs in the region, pressured by food and fuel prices, despite efforts made in the different countries to control inflation. As a result, Costa Rica Central Bank continued increasing the monetary policy rate, taking it to 7.5% in July. Regarding our expectations for the region, we expect GDP growth to reach between 7% and 9% by the end of this year and still further pressure on inflation in the different countries. Moving on to the main results of our business on Slide 5. Davivienda had a very strong first half of the year, reaching accumulated profits of COP 1.17 trillion, the highest semester in the bank's history. Our loan portfolio grew around 7% in the quarter and close to 18% on an annual basis, mainly due to credit demand in retail, SMEs and corporate bank. This growth continued to be supported by our capital levels with the CET1 ratio closing at 11.06% and a total capital adequacy ratio of 16.44%. Cost of risk for the last 12 months continued its downward trend, closing at 2.16% below pre-pandemic levels. Our cost-to-income ratio closed at 46.6%, decreasing 78 basis points over the quarter, reflecting our income generation capacity with a similar expense base. Our NIM including our hedging strategy for interest rate risk and FX movements closed at 6.39%, expanding over the quarter and the year, despite our liability-sensitive structure amidst interest rate hikes. As a result of these behaviors, our 12-month return on average equity continued to improve, reaching 13.44%. Regarding other highlights, we are pleased to share that RappiPay obtained record time authorization to operate as a financing company in Colombia. This allows them to broaden their product and service portfolio, leveraged on their rapid ecosystem. RappiPay already has over 800,000 customers and over 150,000 issued credit cards. Additionally, as a result of our constant innovation process and technology efforts, we issued the first Blockchain Bond in Colombia within the regulators Sandbox along with BID Invest. The use of this technology transforms the role of actors in the capital markets and how bonds are issued and processed resulting in a more transparent, fast and secure market. This favors the reduction of cost and the complexity of issuances, allowing the entry of more and more participants. In this way, the success of this pilot means an opportunity to continue working for financial inclusion this time from the capital markets perspective. Regarding the ESG front, and in line with our commitment to increase social financing, we obtained a $150 million credit with JICA, a Japanese corporation agency, to promote SMEs and women SMEs growth and development in Colombia. Finally, Global Finance awarded us for our efforts to ensure adequate financing of ESG issues and recognized us as the most sustainable bank in Colombia. Continuing with more ESG results on Slide 6. Both sustainable loans and funding increased quarterly and annually, reflecting how we continue working to further incorporate sustainability criteria across our business model. Green financing increased mainly due to sustainable housing and construction in Colombia and renewable energy in Central America. Meanwhile, social financing growth was explained by a low-income housing and low-income housing for women. Finally, we highlight Honduras result with over 15% growth in their low-income housing portfolio and more than 3,000 households benefit. We are consciously allocating our resources helped by our social environmental risk management system, a methodology aligned with IFC standards and Equator Principles that allows us to identify and mitigate potential risks. As of June of 2022, COP 5.2 trillion have been evaluated with the system. Additionally, we support Colombia's agenda for achieving global environmental goals related to climate change issues, biodiversity, ecosystems conservation and water management. In this sense, Davivienda is developing a pilot in Colombia for green taxonomy implementation, aiming to ease other actors' efforts to mobilize resources to our green investments. As part of our shared value ecosystem strategy, we recently aligned with the national operation of Cocoa Producers in Colombia to offer them a full range of financial and nonfinancial services, through Grupo Bolívar capabilities, aiming to promote productivity and development across this sector of the economy. In this way, we are offering them an innovative insurance that protects them from climate change affectation as well as credit facilities, digital and premium charge payment means, financial literacy programs and medical services, among others. We initially aim to reach 8,000 cocoa producers with this initiative and expect to escalate this pilot to other economic activities. On Slide 7, we present the evolution of the bank's digital transformation. Our digital adoption metrics continue to demonstrate the consolidation of our transformational strategy, with 62% of our sales and 57% of our monetized transactions in Colombia being performed through digital channels. Digital loans and deposits keeps showing very good results, both in balance and number of products, rebuilding the success of our mobile offering and the leadership we maintain on this front by delivering unique experiences and high standards of service to our customers. Digital investment balance has been affected mainly by the interest rate environment. However, the number of digital investment products continued increasing, reaching a 14% growth year-on-year. We continue working to further complement our mobile portfolio. In Retail Banking, for instance, we completed our 100% digital set of products for retired people. We have developed new alliances to provide remittance and solutions and implemented even more functionalities in our app. In Commercial Banking, we are developing new technology and infrastructure capabilities while transforming our service model to serve our customers better. Moving on to Slide 8. I would like to share DaviPlata's results during this quarter. DaviPlata reached 14.8 million customers by the end of year, adding more than 440,000 customers in the quarter and 2.1 million during the year. The evolution of DaviPlata's customer base mix continues to reflect the platform's monetization potential as customers with products in the financial sector increased, enabling us to offer them products based on existing data and their behavior, while client's share with Davivienda also grow, showing the performance of our cross-selling initiatives. We are increasing our investment in customer analytics aiming to target new customers and deepen our relationship with current ones, which has impacted our CAC for the last 12 months. Regarding the progress of DaviPlata Nanocredit, we disbursed COP 4.5 billion during the second quarter of the year, reaching a total loan portfolio balance of COP 11.8 billion. The deceleration in disbursement is related to the pilot nature of this product as we analyze its credit risk evolution. Moving on to Slide 9. To observe our results of DaviPlata's, deposits, Ecards, transactions and purchases show a growing trend. And looking at total transactional income, we observed the first and second quarters were impacted by the expiration of one of our subsidy distribution agreements with the government. However, when excluding subsidies' income, the platform's revenue presents a sustained increase in trend quarter-on-quarter, supported by fees charged to companies, fees on payment methods and income from other functionalities. We are determined to strengthen other revenue sources, and we'll be sharing with you new strategies and product launches to support this goal. Additionally, we will continue working to enhance the technological architecture of the platform, aiming to increase its agility and capacity to serve more customers better. Generally speaking, we had a very good semester. However, the current economic environment poses challenges and some level of uncertainty for the second half of the year as we will see later in our business expectations. Nonetheless, we are in a strong position to seize the opportunities to come, and we will continue to do so going forward. Let me turn the call over to Mr. Ricardo Leon, our Risk Executive Vice President to continue with the presentation.

Thank you, Javier. Good morning, everyone. Please move on to Slide 10, where we will analyze the assets evolution. Total assets closed over COP 166 trillion, increasing around 19% annually with the Colombian peso depreciation explaining 430 basis points of this growth. We continue to observe good dynamics in the loan portfolio in line with the economic performance, having higher credit demand across the different segments. In addition, a higher balance in foreign accounts and derivatives explained the remaining assets increase. When looking at each of our operations, we observed Colombia's assets accelerating at 19.4% increase rate and Central America at 4.6% rate in dollars. Please move on to Slide 11. Our loan portfolio continues its upward trend, showing a strong second quarter, mainly driven by the operation in Colombia. The consumer portfolio continued its acceleration growing 32.7%, mainly due to disbursements of an unsecured personal loans, payroll loans and credit cards due to the reactivation of the economy and better confidence level. Mortgages continued to grow at a good pace, driven by residential housing, leasing and low income housing, mainly in Colombia, in line with the sector dynamics bolstered by the government subsidy programs. Finally, the commercial portfolio continued to accelerate, reaching an 8.9% annual increase as a result of higher disbursements in SMEs and construction segments. In the international operations, the loan portfolio grew 5.7% during the year. This is the highest growth since the beginning of the pandemic and as mainly explained by commercial and consumer loans with Honduras and Panama presenting the best dynamics. When observing the evolution of our loan mix, we see the consumer portfolio increasing its share from close to 28% one year ago to more than 31% by the end of the quarter. While the commercial portfolio decreased its share amount, the total book below 44%. Moving on to Slide 12. We present an update of PDLs and coverage ratios. As you can see on the top graph, total PDLs over 90 days closed at 2.96%, showing an improvement over the year and a slight increase over the quarter. When looking at PDL for each segment, we observe most of the ratios improving due to better payment behavior, loan growth and write-off. In the case of the consumer book, we observe PDLs normally increasing, in line with this portfolio growth. As a result, the total coverage ratio closed at 147% decreasing over the quarter but still higher than the coverage level of the second quarter of 2021 and well above pre-pandemic levels. We have maintained our allowance for loan losses at around COP 5.7 trillion and feel comfortable with our coverage ratios across all segments. Please move on to Slide 13, where we can see the evolution of cost of risk provision expenses and loans by stages. Provision expenses contracted around 5% over the quarter and closed to 26% compared to the first half of last year. In this sense, the cost of risk for the year decreased to 2.16%, close to the lower end of our last guidance and below pre-pandemic levels. When looking at our loans by stages, we observe a continuous decrease of our Stage 3. In contrast, Stage 1 and 2 increased as a result of new disbursements and better behavior of customers once classified as Stage 3. Coverage by stages behave in line with these changes, with a Stage 2 coverage increasing as the portfolio classified under this bucket is higher. Now please move on to Slide #14. In order to support asset growth, liabilities increased by around 20% over the year. Demand deposits grew during the quarter but reduced their share in total funding sources. This effect was compensated by term deposits, which increased their share during the quarter in line with the Central Bank's rate increase. Bonds grew 8.8% over year, mainly due to local issuances in Colombia and Central America during the last 12 months and the exchange rate effect. In addition, credits with entities grew around 17% compared to the second quarter of last year, mainly explained by higher relations with foreign entities. On the top right tables, we can see asset liability growing at a similar pace, contributing to maintaining our balanced structure. On the bottom right, we can see stability in our funding ratios during the last year. Please continue 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. Our core equity Tier 1 ratio closed at 11.06%, decreasing 13 basis points over the quarter, mainly explained by higher risk-weighted assets related to the consumer and commercial portfolios. Regarding the total capital adequacy ratio, the decrease is also explained by lower weight of [indiscernible] due to subordinated debt, partially compensated by the exchange rate effect. Please move on to Slide 16, where we present our margins. The gross financial margin expanded over the quarter and the year due to higher loan income aligned with asset repricing as a consequence of increases in the monetary policy rate, loan portfolio growth and changes in the loan mix to our more profitable segments. This behavior is reflected in our loan NIM, which expanded around 3 basis points over the quarter and 18 basis points over the year closing at 6.73%. As we have mentioned in previous calls, our investment income has been affected by market volatility and portfolio devaluation as can be seen in our investment NIM. However, this behavior is partially compensated by our FX changes and derivatives strategies as observed in our NIM including this income closing at 6.39%. The contraction in traditional NIM is explained by loan portfolio growth despite the gross financial margin increase. Please continue to Slide #17. The nonfinancial income increased 7% over the quarter and around 35% over the year due to higher transactionality, credit and debit card fees and activity, better performance in the insurance business as well as income generated by our brokerage and collection companies. As a consequence, nonfinancial income increased its share of total revenue from 15% to close to 18%. On accumulated basis, OpEx increased by 15.2%, mainly explained by the exchange rate, which accounts for around 320 basis points of this increase; expenses from coverage asset data; the collection company acquired during the third quarter of last year; this effect accounts for around 175 basis points; inflation; increasing wages and benefits as well as other expenses such as insurance, leases, software and marketing. However, the 12 months cost-to-income ratio closed at 46.6%, improving 80 basis points over the quarter, explained by higher income overall. Please move on to Slide 18 to analyze the bank's profits. Net profit reached COP 657 billion for the quarter, which translated into an annualized quarter ROE of 18.25%, the highest in the last 5 years. As we have seen in the presentation, this result is explained by better loan income, lower provision expenses and higher nonfinancial income. Our 12-month return on average equity continued improving, reaching 13.44%, in line with our expectation, consolidating our recovery after the effort 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. Despite the uncertainty for the second half of the year and higher interest rate, we expect our consolidated loan book to grow between 14% to 15% in 2022. In the case of each segment, we are expecting a growth of 8% to 9% in the commercial portfolio, higher growth in the consumer segment between 23% and 25% and an increase between 13% to 15% in the mortgage book. The 90-day PDL ratio should close this year between 2.9% to 3.3% considering potential headwinds of increasing interest rate and inflation. Our NIM to close between 6% to 6.3% by the end of this year, reflecting the repricing effect of higher interest rates and changes in the portfolio as well as some pressure in our funding costs. We expect our cost of risk to close 2022 between 2.1% to 2.4%, in line with the actual trend. Nonfinancial income should end the year with an increase of 18% to 20%. We expect an OpEx growth from 12% to 14% by the end of the year, considering the expectation for end of year inflation and FX behavior. Finally, our return on average equity should close between 13% to 15%, getting closer to our medium-term goals. Thank you for your attention. At this time, we can move on to the question-and-answer session.

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

I have 2 questions. The first one, if you can comment on the bond, which is denominated in pesos, but payable in dollars in October for $500 million. If you can discuss the plans to refinance it whether with an issuance either in the domestic or international market? So that's my first question. And then my second question on your perp, I know it's callable in 2031. So we still have a way to go, but I wanted to get your thoughts in terms of how do you look at the call option on the perp if you just focus on the economics and the difference between the coupon growth reset and the cost of issuing a new bond or are you also factoring the reputational risk associated with noncall?

Nicolas, thank you very much for your question. This is Jaime Castañeda, Vice President of Treasury. Regarding to the first question, regarding to the bond issued that expire in global COP in October, if we see the opportunity in the market to reissue that one, we will do it. Otherwise, we will pay that bond with our own liquidity. Remember that, that bond was issued in dollars, but is paid in pesos due to it is global COP. So we have both option, not only to reissue that bond in the international market but also to pay with our own liquidity in Colombia in pesos. Thanks for the question.

Jaime, then on my second question?

Yes, this is David Pedraza. Regarding your second question, well, first of all, due to regulation, we cannot create any expectation regarding the potential repurchase of the instrument in the period of being called, I mean, by 2031. However, as of that moment, we will have to consider all of the different situations, both economics and the reputation in order to make a decision if we should or not repurchase it. However, as I mentioned, we cannot create any kind of expectations in that sense. And what's most important at end of the day is that whatever we are able to do or think about doing, we have to get authorization from the Superintendents of Finance and depending on how capital levels are established as of that moment, that's what will drive the decision in order to decide if it is bought back or not.

The next question comes from Mr. Andres Soto from Santander.

Thank you for your presentation. Now my first question is related to recent comments made by the banking regulator regarding consumer loan growth in Colombia. He expressed some concern about the level of indebtedness at the household level in the country. Can you please share with us what is your view in this regard? How do you see your customers leverage at this point? And what are your plans or your expectations in terms of how much this asset quality would deteriorate in a more challenging environment than the one you are describing ahead.

This is Javier Suarez. We've seen a tremendous growth on the consumer loan book during the first half of the year, and that's basically -- there are several issues there. One is the fact that the base from last year is very low because of specific situations within the pandemic and social unrest that we have during the first half of last year. So in comparison, of course, the numbers are very high. And even beyond the base issue, where the capacity that the bank has had to grow on the consumer loans is significant. We've been able to put together our capabilities and analytics in digital as well as our branch network. And putting all those together, the results are very good in terms of growth. In terms of looking forward on the comments made by the superintendent in terms of the quality of the book, we are aware that the second half of this year and the following year will be very different environments, with the environments in which growth -- economic growth will decelerate inflation. We expect inflation to get to a peak and then start a downward trend and the level of debt from households has been increasing. But you also have to consider that with high inflation, we'll see high wages growth. The minimum wage will probably increase also. So when you consider those issues, even though households have increased their debt levels, in real terms, you have to factor in the fact that their income has -- is also growing, and we expect minimum wage growth for next year to be significant. So that's also a factor that will offset the debt levels that households have. We're being cautious with the growth for the second half. As you saw during the presentation, we're expecting growth for the loan portfolio at a lower level than the one that we're experiencing now, and that's because we expect a deceleration over the second half of the year because definitely, consumers will not have the ability to get the same level of debt at these interest rates. So in terms of quality, we'll expect the quality to deteriorate a little bit. We believe that that's something that we will be able to manage given the margin that those lines of credit have. So we'll -- our expectations are an increase in the quality of the loans on the past due loans numbers a little bit from what we have now in consumer that we will be actively managing, but it's something that we'll be able to manage within the whole portfolio. We're not extremely concerned with it. We are just aware that there's a change in conditions.

Perfect. My second question is regarding taxes. We've seen an increase in your tax burden and the country is also discussing a tax reform. Can you please share with us your expectation or what should we assume in terms of the sustainable tax rate for Davivienda and if you anticipate any direct impact from what is being the proposal that is being currently discussed in Congress.

This is Juan Carlos Hernández. I'm Taxes and Accounting Vice President. In relation with the long term, we estimate at the end of the 2022, the effective tax rate from 50% to 54% because it will necessary update the deferred tax with the long-term income tax rate that changed from 50% to 58% because the surtax of 3% will be upper-middle tax and this tax was expected to last until 2025. The chain impact effective rate about 300 basis points approximately. This is the adjust change for the tax report. And we don't have any change in other topics because we maintain the exception, deduction and discount. And the adjust change is related with the discount, the trade tax or the regional income tax because today it is a discount in 50% and change to deduction in 100%. That is no material impact in our effective rate and in our results.

Perfect. And that's regarding 2022. Do you have any expectation for what will be the tax rate -- the effective tax rate being next year?

For the 2023, our effective tax rate is between 31% to 32%, and I comment before, the adjust impact to the tariff fund is at the end of the 2022.

We have Mr. Daniel Mora from CrediCorp Capital on line with a question.

I have a couple of questions. The first one is a follow-on regarding asset quality indicators. You just showed in the presentation that you expect a slight deterioration to levels between 2.9% and 2.3% by the end of this year. But considering that in 2023, we will face a more challenging scenario, do you expect that these levels to maintain stable? Or do you see a higher deterioration in the next year? In the case that you're observing a higher deterioration, which sectors could be explained in this performance? And if these scenario can also translate into a higher cost of risk compared to the guidance that you gave for this year between 2.1% and 2.4%? That will be my first question. And my second question is regarding margins. You're expecting a margin between 6% and 6.3% in this year, considering with the performance of rates, but also the increase in the cost of funding, do you maintain this same level in 2023? Or can you benefit from the decrease in rates that we could observe in the second half of 2023? What are your thoughts on the next year?

Thank you, Daniel. This is Ricardo Leon. Related to the asset quality, first, obviously, by June 2022, we observe better dynamics in our PDLs with further improvement that initially expected. As of December 2022, we expect over 90 days PDL to close around 2.9% to 3.3%, with the slight deterioration mainly to the portfolio growth, higher interest rate and inflation. In terms of the write-off, we did some as we are considering the potential evolution of the economy. This could have an impact in terms of mortgage and consumer portfolio. For 2022, there are a lot of uncertainty whether we expect an additional deterioration close to 20 or 30 basis points. Related with the cost of risk, the cost of risk for the year, we think that should allocate between 2.1% to 2.4%, close to pre-pandemic levels. In midterm, it's possible that we could be operating a level of 2.2% to 2.4%. We will raise to maybe up 2.4%, 2.5%. However, it is still early to estimate a guidance to 2022 -- 2023, sorry, because there are a lot of uncertainties. Related to the margin, by the end of 2022, we expect our NIM to expand compared to 2021 and the closing on a level between 6% to 6.3% as a result of: first, changes in the portfolio mix with Personal Banking leading portfolio growth, asset repricing given the increase in the Central Bank interest rate. We expect the monetary policy rate to close 2022 between 9% to 10%. It's important to note that interest rates have increased at a faster pace than originally expected, therefore impacting our NIM expectation. However, if inflation is controlled this year and interest rates start to decrease, we could be seeing more improvement in our NIM at the end of 2023.

[Operator Instructions] At this point, we will take the questions from the webcast. [Operator Instructions] The first question came from Alejandro Ardila from Casa de Bolsa. His question reads: "Question number one, could you give us some color on what to expect the NIM's behavior for the next year? Question number two, do you think we are going to see more change-offs in the customer loans for the rest of this year and during 2023?

Thank you. Both of those questions were already addressed with the previous answers.

And we also received another phone question. It comes from Mr. Carlos Gomez.

My name is Carlos Gomez from HSBC. So I have 2 questions. The first one refers to your transactional income for Davivienda. I think it's on Page 12 of the presentation. There was a decline, which I believe you attributed to a regulatory change. If you could explain that, what is the reason for the lower monetization of the DaviPlata? And second, if you could refer to your Central American subsidiaries, I know it's only 6% of the loan portfolio, but we are seeing the possibility of fiscal problems in El Salvador, perhaps in some other countries. And how are you addressing those and what type of protection can you get?

Sorry, Carlos, could you repeat please the first question?

Yes. The first question is, you said that your transactional income at DaviPlata has decreased because of the regulatory impact and you showed how the subsidiary, it goes down. I guess that wasn't clear to us. Could you explain to us what happened there? Your transactional income goes down from COP 24.6 billion to COP 15 billion between the fourth quarter of last year and the second quarter of this year.

Carlos, this is Javier Suarez. Thank you for your question. We're referring to subsidies that -- a program of subsidies that the government pays to part of the population in Colombia, and that's a program that was very large during the pandemic and it's based on bids that players like DaviPlata go through with the government. And we no longer have one of those contracts, which are very large contracts that have a significant income. So what you see on the COP 24.6 billion going down to COP 15.1 billion is the fact that we didn't renew one of those contracts with the government to pay subsidies -- to these subsidies. The dotted line below that is the line that we -- where we show the transactional income without the benefit of having those contracts. So that's the more stable income that looking forward will be more significant in terms of the sustainability of the DaviPlata operation, the profitability. So if you look at the green line, it is affected by the fact that we don't have one of those contracts anymore. But if you look at the dotted line, you see a 47% growth on the sustainable and recurring income from the operation.

That's very clear. And presumably, those contracts will not come back. Those were COVID related, and you do not expect them in the future?

I'm sorry, could you repeat that?

Sorry, I said that presumably, those contracts will not come back. Those where COVID related, and we should not expect this type of business to return in the future.

Yes. That's a fair assumption, although there are still some of those programs that's still going on. And part of the idea of this government is to continue with some of those programs. So we'll probably have some opportunities there. But in the meantime, we're, of course, focusing on the recurring income that comes from sources different from those contracts.

Okay. My name is Reinaldo Romero. I am the International Vice President. First of all, I talk about the Salvador's economic activity. We have a good opinion about it, showing a positive result with a 2.4% growth in the first quarter. Given international pressure, the Central Bank of Salvador expects '22 growth to be around 2.6%. In January 2023, it has an important external debt amortization of $800 million. But there are different sources of resources like with CAF, CIBEA. The government has another sources like special driving rights, the resolution of boundary settlements, good tax collection in this moment is good. And it's possible to take a reform on the pension's table. And the President Bukele has announced recently that in the end of the July '22, the bonds maturing in 2023 and 2025 will be repurchased at market price. This announcement has possibility impacted in the price of these bonds. Additionally, our operation in El Salvador has a good result this year. Our NIM is 5.7% in this moment, a low-cost risk and our profits increased 33% in this year-to-year, near to $17 million in this period. In conclusion, we think we are positive to the evolution of economic in Salvador and our banks in El Salvador have a good performance. We don't think it concerns about the deterioration additional in our investment.

And we will pause for a second while we receive your questions. We received a question from the web from Lucas Reda from Compass Group. And his question reads: "Thanks for the presentation. Given the participation growth in the nonfinancial income, do you see any potential risk with the new government eliminating some fees? Can you guys give us your perspective?"

It's -- the nonfinancial income has been growing from several sources. One of them is fees from the services that we provide to our customers. Another one is also based on bancassurance programs that are also having a strong performance. We believe that those programs will be in place. What we've been discussing with the government and hearing from the government and from the President himself is the fact that he expects the banking industry to be more supportive of some economic activities like industry and agriculture. There's no mention on fees on -- or the structure of the business of the banking industry. So our focus now with the government is on working together on building solutions for segments of the population that haven't been able to get the benefit of the development of the country over many years. So we will be working hand-in-hand with the government and making sure that we are part of this transformation, the society that will give -- will provide financial products to people in marginal areas. There hasn't been any discussions on fees. But of course, we will be very -- looking to engage with the government in case there's a discussion on those fronts, explaining the importance of those services that we're providing and the cost structure that is behind it. So -- but for now, we don't foresee any changes on that front.

We have another web question from Andrea Atuesta from Bancolombia. Her question reads: "I have one question related to the loan growth expectations for 2023. Can you give us some color of what we could expect with loan growth dynamics for the next year by segment?"

Andrea, thank you for your question. With some uncertainty in a global and local scale for 2023, and in that sense, it's difficult to estimate the expected result for the next year. Growth will depend on the expectation of the economy based on the policy from the new government and the evolution of the global economy margin could improve given the expected decrease of the interest rate in the second half of the year 2023. For the rest of the elements, we will have to wait and see.

Thank you. And there does appear to be no further questions at this time. I would like to turn the floor back over to Mr. Suarez for any closing remarks.

Thank you very much to everyone for attending this conference. As you have seen, this has been a very strong quarter. We believe that the bank is in a very good position to look into the following quarters, even though we were aware that the market conditions are changing. There's a lot of uncertainty, and that's -- we tried to reflect that on our guidance in which there's a mix of very good performance of the bank. And at the same time, the understanding that the conditions are changing and the economic conditions in the market are changing. And that mix give us the guidance that we already mentioned before that it's still a strong guidance, and we're very positive in terms of the opportunities that will come into the future. We're excited to see that our pipeline in terms of digital transformation, in terms of digital assets, capabilities is strong. We'll see a second half of the year in which we will keep improving our digital platforms and the ability to provide better services to our customers, and at the same time, capture some of the benefits in terms of efficiency and lower costs. So we're very -- we're looking forward for the second half of the year, in which we'll see -- we're expecting good results regardless of the market conditions that we have in front of us. Thank you very much to everyone for attending this call, and we'll hope to see you next quarter.

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