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

Welcome to Davivienda's Fourth Quarter 2024 Earnings Conference Call. I'm Karen and I'll be your operator for today's call. Today's presentation is for investors and analysts only. Therefore, questions from the media will not be addressed. Today, Mr. Javier Suarez, Chief Executive Officer; and Mr. Álvaro Cobo, Chief Risk Officer, will join us to discuss the quarterly results that have been released. If you have not yet received a copy of the earnings report and presentation, please visit Davivienda's Investor kit or the Financial Information section at irdavivienda.com. [Operator Instructions] 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 anticipated in any forward-looking statement due to macroeconomic conditions, market risks and other factors beyond our control. I am now pleased to turn the call over to Mr. Javier Suarez, Chief Executive Officer. Mr. Suarez, the floor is yours.

Welcome, everyone, and thank you for joining us this morning for Davivienda's Fourth Quarter 2024 Earnings Conference Call. Although challenging 2024 was still a better year than 2023, positive trends during the second half reflect the consolidation of our efforts to deliver better results. While some challenges remain regarding interest rates and uncertainty in both the local and global scenarios, we expect to continue to see a recovery in 2025 with significantly improved results. We are committed to accelerating this progress while executing our long-term strategy to be our customers' primary bank. Looking ahead, we will continue looking for growth opportunities, increase operational efficiency, elevate our customer experience and prepare for the next steps of the Scotia transaction. On Slide 3, we have an overview of the macroeconomic environment in Colombia. Colombia's GDP growth for the year was 1.7%, an increase compared to the 0.7% observed in 2023 supported by the dynamism of the agricultural and livestock industry as well as the artistic and entertainment activities. Moreover, household consumption expanded by 1.6% during the year contributing to growth in domestic demand. During 2024, inflation figures began to normalize due to the decrease in food and nonalcoholic beverage prices. However, the pace at which the Central Bank reduced interest rates was lower than expected as a preventive measure against inflation, upward pressures on the exchange rate and a rather complex fiscal environment. As a result, since their peak, the annual inflation rate has decreased by 810 basis points, while the monetary policy rate has decreased only by 375 basis points. Regarding the exchange rate, the Colombian peso depreciated by 15% annually, explained by a significant drop in oil prices during June and increasing the country's risk levels and the result of the U.S. presidential election. Household confidence levels started to recover during the second half of the year due to a better perception of economic activity and more willingness to acquire financial obligations, thanks to interest rate cuts. For this year, we expect improved economic activity with a 2.6% GDP growth. We expect inflation to close at around 4.2% and the monetary policy rate to be around 6.5% by year-end. However, similarly to 2024, the international landscape and local fiscal and political uncertainty might generate some volatility during the year. Please move on to Slide 4, where we will see some figures of the Colombian financial system. The top left graph shows that the financial sector experienced an annual loan portfolio growth of 3.3% in 2024, mainly driven by the dynamism observed in the commercial and mortgage portfolios, mostly during the end of the year. Average loan rates have registered significant reductions, especially in the Consumer segment, influenced by the continued decline in the cap rate, which dropped 11.2% annually. This situation has been strongly driven by the methodological adjustments implemented by the superintendents of finance to a cap rate calculation. These adjustments have considerably changed operating conditions and pose challenges for credit establishments by limiting growth and margins while constraining financial inclusion. Finally, regarding asset quality, the total PDL ratio for the system increased around 20 basis points during 2024 mainly driven by additional pressure in commercial and mortgage credit, indicating that there is still room for stabilization in the country's credit side. Moving on to Central America on Slide 5. The region experienced an economic slowdown characterized by reduced external demand impacting the manufacturing industry and a deceleration of key activities such as construction in Salvador and the copper mine in Panama. However, inflation has continued to follow a positive trajectory due to measures taken by Central Banks, helping lower food and fuel prices in all countries. The Costa Rican colón appreciated against the dollar, thanks to the excess supply of dollars in the foreign exchange market. Both Costa Rica and El Salvador saw improvements in their sovereign ratings due to positive trends in public finances. However, Honduras and Panama experienced some negative rating changes associated with fiscal difficulties. Overall, our operations in Central America remained stable in 2024 and we're confident that they will continue to expand and positively contribute to our consolidated results despite exchange rate impacts. Moving on to our main financial results on Slide 6. Our loan portfolio closed around COP 145 trillion, increasing by 7% annually, primarily fueled by the performance of our commercial and mortgage books, which showed dynamism throughout the year. Our net interest margin showed a positive trajectory, closing at 5.65% and increasing by 17 basis points annually, mainly supported by our liabilities pricing and our interest rate risk strategies. Cost of risk closed at 3.57%, decreasing by 78 basis points during the year, mainly due to the considerable improvement in the risk profile of our consumer portfolio. As a result, profit for the quarter reached COP 163 billion, and our return on average equity for the year closed slightly negative at negative 0.58%. Our CET1 closed at 10.95%, supported by profits during the year second half and by our initiatives to increase capital efficiency. These efforts have strengthened our capital position and provide a solid foundation for future growth. In general, the second half of 2024 showed a clear recovery trend with consistent improvements across various key metrics compared to the figures reported in 2023. This trajectory underscores the effectiveness of our execution and our expectations of continued progress during 2025. Please move on to Slide 7. Despite the challenges we've faced in the last couple of years, we've never stopped working on increasing our digital capabilities, leveraging the innovation that's part of our essence and advancing towards the bank of the future we aim to build. In this sense, we continue to combine our robust banking offering with the best technology to deliver a world-class experience and a trust worthy friendly and frictionless service for our clients. In 2024, we consolidated our Super APP for Individuals, our main point of digital interaction with our customers. This app offers a comprehensive experience with more than 150 services from essential transactional functionalities to more complex service processes usually done on a branch. As a result, we have increased resolution, so our customers can solve their needs almost entirely through our app. Additionally, the Super APP has allowed us to broaden our business generation capacity. During 2024, we increased the number of our mobile accounts by 13%, mobile term deposits by 30% and and digital disbursements by 11%. We have been proactively working for many years on the bank's digital transformation and digital adoption has kept improving year-over-year. In Colombia and Central America, we've reached close to 93% and 72% of digital customers with increasing monetized transactions made through these channels. Please move on to Slide 8, where we can see DaviPlata's main results. The platform's evolution has been positive over the past years with transactional and monetization figures constantly improving. You can observe how customers deposits monetize transactions and purchases made through the platform kept growing, reflecting DaviPlata's positioning in Colombia as an easy day-to-day solution for various population segments. When looking at the platform's income, I'd like to highlight 2 things. First, we've successfully diversified income sources no longer depending on subsidy distribution income. In this sense, transactional income consistent increases with a 21% growth in 2024 and representing 44% of total income. Second, the 3% decrease in total income is explained by lower fund transfer pricing related to a downward interest rate cycle. When excluding this effect, total income would have grown by 14% in 2024. Going forward, we will continue leveraging our main differentiators, such as our reliable service, constant innovation and financial inclusion abilities to keep competing in the market with the added value of Davivienda's broad product offering and physical presence. We will explore opportunities to resume DaviPlata credit business, supported by our enhanced origination models and analytic capacities and will work on seizing the platform's potential to attract new customers, especially the younger generations. Please turn to Slide 9, where I will share the main results of our sustainable strategy. In line with our efforts to continue improving our ESG practices and delivering long-term value to our stakeholders, we were once again included in the Dow Jones Sustainability Index and the S&P Global Sustainability Yearbook. Furthermore, in 2024, we launched our new policy for our sustainable business strategy, which serves as a map of our path forward regarding financial inclusion and the assets or activities we want to support. Definition of this framework is aligned with the actions we've taken since long ago. Over the past 5 years, we've more than doubled our sustainable loan portfolio, which reached COP 24.7 trillion by the end of 2024. In 2025, we will work to deliver additional solutions that increased prosperity, inclusion and care for nation. Some of our focuses will be on supporting our most carbon-intensive clients in moving towards a lower carbon economy. Improving financial will be through diagnosis and action plans to help our customers better use financial services; and finally, continue to support the social and financial inclusion of vulnerable populations. Please move on to Slide 10 as I would like to share our main strategic focuses with you. Our primary goal at Davivienda is to deepen our customer relationships and solidify our position as their go-to bank. We aim to achieve this by leveraging our unique service model, which seamlessly blends our comprehensive suite of robust financial products and services with cutting-edge digital capabilities and a strong physical presence. As we look ahead to 2025, we're focused on delivering a best-in-class customer experience that sets the industry standard. We are committed to continuing to invest in innovation, ensuring a frictionless transition between the digital and hybrid worlds and further enhancing the resilience and stability of our platforms. Our growth strategy for the year centers on regaining dynamism in all of our business lines with a selective approach and by expanding our presence in the retail and SME segments. We will achieve this by strategically targeting customers with strong risk profiles. In addition, we recognize the importance of continuing to grow our transactional low-cost funding sources under the current operating and competitive landscape. Furthermore, we're dedicated to operating at the highest efficiency and productivity, simplifying technology and upskilling our talented workers, ensuring optimal cost control and process optimization. Our service model persists at the hallmark of our strategy, consistently serving as our unique selling proposition, primary differentiator and a cornerstone of our brand identity, leveraged by profitable growth, efficiency and innovation. We're confident that this path will guide us to our enhanced and sustainable performance. Please turn to Slide 11 as I would like to briefly summarize how the Scotiabank transaction fits into our long-term strategy. As we shared with the market at the beginning of the year, we entered into an agreement with Scotiabank Canada to integrate their operations in Colombia, Panama and Costa Rica into ours in exchange for around 20% ownership in the new combined operations. The rationale behind this transaction is connected with the strategic focuses that I just mentioned in the following ways: First, it helped us achieve our goal of increasing efficiency through operational leverage. In this sense, we will have a higher portfolio of customers with whom we'll be able to deepen relationships while grasping scalability opportunities. Additionally, the transaction helped us in our quest to provide an enriched offering since Scotia brings valuable knowledge and capacities to the table in investment banking and capital markets access to global services and enriched portfolio for corporates and credit card co-branding origination, among others. It supports the increase of our capabilities to develop businesses by having a stronger commercial network with increased expertise and know-how. And finally, it aligns with our aim of increasing shareholder value while maintaining healthy capital ratios to continue leveraging growth. We are in the process of obtaining the different regulatory approvals and expect to obtain them and close the transaction this year to start the integration process after that. We're confident in our capacity to materialize the value of this transaction by benefiting from an untapped potential of growth under our risk appetite framework, increasing the efficiency of the operation, supported by our current strategies and digital assets and in general, adding value to these operations, thanks to our experience and position in these markets. We are thrilled and committed to this new phase in our journey to become a leading regional franchise. Let me turn the call over to Álvaro to continue with the presentation.

Thank you, Javier. Good morning, everyone. Please move on to Slide 12, where we will analyze the evolution of assets. Our total assets closed at around COP 191 trillion, increasing by 4.9% quarterly and by 7.4% annually, driven by FX impact and long growth dynamics. During the quarter, cash increased by around 27% driven by liquidity management strategies in Colombia, including the reallocation of funds into higher-yielding alternatives. Net investment rose around 12% annually due to increased holding of Colombian treasury bonds and term deposits to benefit from market expectation of lower interest rates. Regarding geographies, Central America now represent a large share of our operations, increasing from around 25% in 2023 to around 30% now. This expansion aligned with our strategy of increasing diversification and expanding our client base in the region. Please move on to Slide 13. After the loan portfolio contraction in 2023, we increased dynamics in 2024 and closed with an annual growth rate of 7% at the higher end of our guidance. Our commercial book grew by around [ 50% ] annually due to our strategy to expand within our existing client base of corporate with a strong risk profiles. This growth appears high, partly due to a low base in 2023, explained by prepayments in the last quarter of the previous year. Mortgages expanded by around 9% annually, showing resilience despite the sector's headlines. Demand in the low-income housing segment and the easing of interest rates supported this goal. The Consumer segment contracted by nearly 8% annually, reflecting a conservative lending approach and low demand amid still challenging conditions for individuals. Over the last 2 years, these growth trends have increased mortgage and commercial shares of the total book. However, we will work to find growth opportunities under a very selective approach, gradually increasing consumer portfolio share in the total mix as long as our consumer portfolio asset quality has been significantly improving and new disbursements are within our risk appetite. Central America loan portfolio grew by around 8% in dollars during 2024, mainly led by the consumer and commercial segments with Panama and El Salvador leading performance. We continue enhancing our digital offering for individual clients and expanding functionalities for corporates. Moving on to Slide 14. We present an update on our PDLs and coverage ratios. After peaking by the end of 2023, asset quality has continued to improve, decreasing by 52 basis points during the year, mainly due to the performance of the consumer PDL which dropped 270 basis points. In this sense, total PDL closed at 4.4% within our guidance, and we expect this level to keep improving during 2025. Regarding the mortgage and commercial books, PDLs have shown the pressure when we're expecting as part of the cycle, and we are expecting them to stabilize throughout this year. Mortgage PDLs have increased due to customer affected by high interest disbursement rates. However, early vintages although lower are showing clear signs of improvement and we maintain constant monitoring to take timely measures and mitigate further adverse effects. The commercial portfolio's main impact was related to some sectors in the SME segment is still under pressure by long periods of increased interest rates, such as agriculture, retail and contractors linked to the construction sector. However, they have started to stabilize and we expect improvement to be reflected in the second half of the year. Please note that corporate and medium enterprises asset quality is within risk appetite. Regarding coverage levels, as shown in the bottom right graph, we have made significant effort to increase provision for all portfolios. However, this is not necessarily reflected in the total coverage ratio of 86% as the commercial book holds a larger share of the mix. In any case, we will continue rebuilding coverage and expect the total ratio to close above 90% in 2025. Please remember that when including collaterals, coverage increases to 139%, reducing potential negative impacts on our results. Please move on to Slide 15 where we show consumer portfolio mix management. We continue to see very good levels of early PDLs in recent consumer vintages and a consistent reduction in provision expenses. As a result, we were able to gradually increase disbursement, although at a slower pace than expected due to the still challenging economic conditions for individuals and the constraints we are starting to see related to reaching certain segments under a new reality of cap rate levels. We will continue working to grow selectively in the consumer segment, supported by the shift of the credit cycle and improving macroeconomic conditions. Please move on to Slide 16, where we will see the evolution of the cost of risk provision expenses and loans by stages. Provision expenses for the total book continued to decrease with the cost of risk for the quarter closing at 2.48%, and for the 12-month period at 3.57% within our guidance. Out of the provision expenses for 2024 around 80% were allocated to the consumer portfolio and the remaining to the commercial and mortgage books. This signals a significant improvement in the consumer portfolio cost of risk compared to 2023 levers when 90% of the expense was associated with the consumer segment. During the quarter, some customers in Stage 2 improved their risk profile and migrate to Stage 1, while Stage 3 remained stable. It is important to clarify that the coverage level in Stage 2 and Stage 3 decreased as new entries did not require additional provisions due to their collateral limits. Please move on to Slide 17. Funding sources increased by around 7% annually, reaching COP 164 trillion in line with the bank's overall growth. During the year, we continued working on our strategy to increase our low-cost funding base, and we're able to capture transactional deposits, such as payroll and self employed funds while also actively managing CD rates to help liability repricing. The level of our liquidity ratios remain comfortable, enable stability and growth. Please continue to Slide 18, where you will see our capital structure. Our CET1 ratio closed at around 11%, increasing by 58 basis points in the quarter and by 70 basis points in the year, supported by profits during the year second half. Additionally, during the fourth quarter, we received the regulator's approval to use our internal model for operational risks, thereby reducing risk-weighted assets and improving common equity Tier 1 by around 45 basis points. The AT1 and Tier 2 ratios increased to the peso depreciation. As a result, the total capital adequacy ratio closed at 15.57%. We feel comfortable with this capital levels and expect them to remain stable during the year based on our growth and profit expectations. Please move to Slide 19 where we present our margins. as shown in the lower right graph or 12-month NIM, including the FX and derivative strategy closed at 5.65%, improving by 17 basis points compared to 2023 positively supported by the liabilities repricing under a decreasing interest rate scenario. However, our NIM closed slightly below our guidance for the year as margins have not improved as much as we were expecting, limited by the followed situation. First, the conditions for growth in the consumer portfolio have not normalized. So the weight of commercial and mortgage loans in the total book was higher than expected, reflecting lower loan income. Second, the reality posed by the cap rate methodology constrains growth on clients with a slight higher risk profile and further requires the downward pricing of assets. And third, despite the intervention rate decrease, the pace has been slower than market expectations, delaying short-term liabilities faster repricing. Particularly for the quarter, we saw a decrease in investment income related to a devaluation of Colombia's treasury yield curves, partially compensated by our derivative strategies. Looking ahead to 2025, we remain focused on implementing strategies to maximize margins through low-cost deposit acquisition, interest rate risk strategies and enhanced pricing. However, we remain conservative about the possibility for further increasing NIM under current conditions. Please continue to Slide #20. During the quarter, nonfinancial income increased by 9.7%, mainly due to the seasonal effects of end of the year transactionally. Nonfinancial income increased by 9% during the year, in line with our guidance. This was driven by higher fee income mainly from acquiring transactional and Alliance businesses as well as higher nonrecurring income from assets received as payments. Expenses grew by 10.6% quarter-over-quarter, mainly due to higher professional fees, insurance and advertising expenses and some seasonality effects. On an accumulated basis, expenses grew 3.9% within our guidance, a rise significantly below the country's annual inflation and minimum wage increase. It is important to note that our cost control efforts are not yet fully reflected in efficiency ratios as margin and the operation growth have been more modest throughout the year. Please move on to Slide 21 to analyze the bank's results. Although our accumulated results were slightly negative in 2024. It is worth mentioning that in the last 2 quarters, we experienced a clear shift into a positive trend in the bank's profitability. In fact, in the fourth quarter of 2024, we reached COP 163 billion of profits equivalent to a currently annualized ROE of 4.1%. To finish the presentation, please move on to Slide 22, where we will share our expectations for 2025 on Davivienda's stand-alone business. We expect our consolidated loan book to grow between 6% and 8% this year, with the commercial and consumer portfolio growing by around 7% to 9% and the mortgage segment growing between 4% and 6%. We expect asset quality to keep improving with a total 90 days PDL ratio between 3.5% to 4% by year-end. Our net interest margin should close between 5.6% and 5.8%. And the cost of risk should significantly improve to levels of 2.4% and 2.6%. We expect nonfinancial income to grow between 4% and 6%, and OpEx between 5% and 6%. As a result, we expect our return on average equity to close between 5.5% and 7.5%, considerably improving compared to 2024 and 2023 figures. Regarding capital ratios, we expect to close with CET1 between 10.5% and 11% and a capital ratio around 14.5%. Thank you. And with this, we can move on to the Q&A.

[Operator Instructions]. Right now, we have our first question coming from Nicolas Riva from Bank of America.

I have a few questions. So the first one is -- so clearly, we have seen the improvement in results in the fourth quarter, improvement in NPLs, in loan loss provisions. Now I remember your guidance for the full year was ROE between 0% and 2%, and that implied net profits of $66 million in the fourth quarter. You came in below that number. And for the full year, you reported a loss of $28 million. So my question is, what do you think was below your expectations in the fourth quarter? And if that changes somehow the way you are thinking about the outlook for 2025, particularly in terms of your main drivers, be it net interest margins or loan loss provisions for NPLs? That's my first question. My second question is, if I recall correctly, last year, you didn't pay any dividends because of the loss you had reported in 2023. Given that in 2024, you also reported a loss for the full year, I would assume you're not going to be paying any dividends this year, but I want to confirm that, that you won't be paying any dividends this year. And then my third question, Javier, I think you alluded to this somehow earlier in your remarks about the -- your expectations in terms of timing for the completion of the acquisition of Scotiabank in Colombia, Costa Rica and Panama. I think you said you expect this by the end of the year. If you can just give us some updates in terms of where you are in terms of obtaining all the regulatory approvals for this transaction.

Nicolas, thank you for your questions. Going to the first one, in terms of the results of the last quarter and the full year results. You're right, we're below our expectations. And basically, the most important factor was the NIM. If you look at loan losses, we actually are ahead of our expectations. The quality of the portfolio is improving a little bit faster than what we were expecting. But in terms of NIM, we've had a different situation. NIM has been relatively stable and the reason why that's been the case is because the cap rate on the consumer loans has come down at a faster rate than we expected because of changes in regulations that has reduced the income on some of the portfolio on the consumer side. And because of that, we didn't grow at the speed that we were expecting on the consumer loan because we're being very careful as the cap rate comes down you have a double effect. You have the effect on NIM, on income. But you also have the effect on part of the market gets squeezed out because the maximum rate is not enough to cover the expected risk for some of those portfolios. So we've been growing at a slower rate on the consumer side. we are improving. We are actually recovering on the growth side on the consumer loan, but the rate at which we've been growing during the last year has been smaller. So when you combine those effects, that takes an impact on NIM. Also, we've been growing on the commercial side at a faster rate and that has somehow has put that complete loan growth of the bank at the right track. But those commercial loans have a smaller NIM. So at this time, we have a situation in which the mix of the portfolio has changed a little bit more towards commercial loans but we still have the tail of the losses of the old vintages on the consumer side that are still a little bit high. So the pictures that you take for the last quarter of last year is a picture in which the NIM is lower than expected because composition and the cap rate that I mentioned. And the loan losses, although they are improving very well, they still have some of the remnants of the bad performance of some vintages. When you combine all those factors, that explains why we came out below our expectations. Looking forward, we expect that to change because the consumer portfolio should grow a little bit faster than what it has been growing, although we still have the cap rate restrictions. We're also looking at alternative and design of products that -- for -- to serve those consumer customers, but we have the limitation of the cap rate. And the quality of the portfolio should keep improving. If you look at the guidance on the quality of the portfolio, we closed 2024 with 4.41% on PDLs and it's coming down to 3.5% to 4%. That's because of the mix that is changing towards more of a commercial in the meantime. But mostly because the old vintages of the consumer portfolio are actually being phased out. If you look at that in terms of cost of risk, cost of risk was still high. It was 3.57% for last year and it's coming down to 2.4% and 2.6%. So we see 2025 as a transition year in which the NIM is still going to be impacted while the cost of risk is still coming down. In terms of the dividends, yes, your assumption is right. We are not expecting to pay any dividends this year, and that's based on the fact that -- of the results of last year that we are still below the levels that we should have to be able to declare dividends. And also because on the verge of the consolidation of the Scotia transaction we want to remain with a level of capital that is high enough to absorb the new portfolios that are coming in. And in terms of the Scotiabank completion, the timing of the transaction, we're in the process with the regulators in the different jurisdictions. As you know, these are -- it's a 3-country transaction, but we also need approvals in other jurisdictions. And we're in that process and are expecting the transaction to close by the second half of this year. So far, the feedback that we've got from the regulators is a very positive feedback, but the process is still a complex process. So it will take us some time to close the transaction.

Now we have our second question coming from Mr. Carlos Gomez from HSBC.

A follow-up on the rate cap. Can you remind us where you expect interest rates to go down and where do you expect them to stabilize? And what will happen to the rate cap at that level? I mean, is it going to be 7%, 6%, 5%? And where will the rate cap be with the current formula. And second, you mentioned that you gained, I think, 37 basis points in capital through the approval of internal models. Any other changes that we should be aware of that could affect your capitalization ratio.

Carlos, for your questions. In terms of the cap rate and expectations of interest rates, we are expecting around 6.5% the monetary policy rate by the end of the year. There are elements of uncertainty there, but we're expecting that to be the level. And in terms of the cap rate, we're expecting the models that we have are projecting with the current regulations. Cap rate that could end by the end of the year, around 21%. That's lower than what we are having now. We're in the range of 24%, 25%. So we're still expecting a decrease in the cap rate, which is one of the reasons that explains the decrease on NIM, as I mentioned before. In terms of capital and internal models, what we're seeing is, as we mentioned in previous calls, we actually were able to get the approvals for the internal models and the operating risk side of the equity requirements. And also because of the profits of the last quarter, that took us to 10.95% of capital ratio. We're not expecting any significant changes. There's probably a change in regulation that should improve our level a little bit based on the capital requirements for payroll loans. If that happens, we should see a few basis points of increase in our capital levels, Carlos.

We will now move with the third question coming from Mr. Brian Flores from Citibank.

I wanted to doing a quick follow-up. I was having some issues here with my audio. So if you could repeat the part on dividends given the losses as Nicolas was saying, it would be great. And then my second question is a technical question on your Slide #8 in regard to DaviPlata. So regarding the funds transfer price and what you call FTP, this -- I understand is the revenue generated by DaviPlata as a result of the fund that is provided to Davivienda. So we see the second chart with low amount of deposits growing from DaviPlata, but the net PP is decreasing in the 4 charts in that slide. So just wanted to understand why does it happen? And then maybe a more strategic question is also, how are you thinking in terms of DaviPlata, right? Because you mentioned revenue sources are, of course, diversifying. How should we see this contribution by segments maybe 5 years from now, according to you?

Brian, thank you very much for your questions. Regarding to the dividends, as I mentioned in the previous question, the expectation is that we will not pay any dividends this year because of the results of the previous year and also because of the expectations of closing the transaction with Scotia during this year. So for the levels of capital that are the adequate levels for the combined transactions, we believe that's the right decision, the right call at this time. In terms of your question on the DaviPlata fund transfer pricing, basically, we allocate to DaviPlata and the income associated to the funds that are managed in DaviPlata accounts that are low-cost funds. There's an income associated which is the sale of those funds to the treasury of the bank to -- on other operations. That income is a function of the balance as well as the interest rate that we allocate for those funds. In terms of the balance, as you mentioned, and it's -- you can see that the top right graph, the balance is growing. It grew at a 15% rate year-over-year, and we expect that to continue to be the case. But the interest rate that we allocate to those funds is lower because of the environment in which interest rates are coming down. So the fact that the income allocated to DaviPlata is coming down is basically because the interest rates are coming down. So the value of that low income base is smaller regardless of the fact that the balance is higher. In terms of sources of income, future sources of income, there's one source of income that we haven't tapped yet on DaviPlata, which is a credit -- the credit portfolio. We have a very small credit portfolio that we've had under very close scrutiny because of the cycle on the credit business. And we are in the process of opening that up because we have already seen -- we're seeing an improvement in the credit cycle. We have all the capabilities that we've been developing for the bank. So we believe that this is the year in which DaviPlata will start growing on the credit side, which is a source of income that will be relevant. It's not relevant pretty much at all at this time, but will become relevant in the future. That's probably one of the most important changes. As we mentioned, we are less dependent on subsidy income, which is the income that comes from disbursement of subsidies from government programs. That was a source of income that was relevant for DaviPlata at the beginning, but it's now being replaced for transactional income for funding the FTP that I mentioned before, as well as the loan income that we expect to keep growing. So over the long run, we will see growth on those lines, which will be the most important ones on the income side of DaviPlata.

Perfect. Super clear. And then if I may, just a final follow-up. Your loan growth guidance is obviously marking around 7% in the midpoint. Can you just maybe elaborate a bit on the composition and which segments could decelerate and which ones could accelerate. I'm assuming consumer as you were mentioning you're seeing better conditions should be maybe a bit more up. But if you could give us like maybe a range or a notion of each of these lines, commercial, consumer mortgages would be great.

Yes. In terms of commercial and consumer, we expect them to be around 7% to 9%, both of them. Mortgage, the mortgage portfolio, we expect it to decelerate a little bit, and that's because of the cycle on the mortgage business and the housing business that is impacted by some government decisions in terms of subsidies for the low-income housing segment of the market. So we expect the mortgage business to grow at a slower rate around 4% to 6%. If you combine those numbers, we should be in the range of 6% to 8%.

We will now move on to our webcast questions. Our first question -- I'm sorry. Our first question comes from Mr. Olavo Arthuzo from UBS. He's got two questions. Question number one. I'd like to understand a little bit more on the credit mix of this year for the bank's slowdown to focus on consumer loans. Number two, this question is related to competition with fintechs. Yesterday, one big fintech in Latin America published its results and during the conference, the management mentioned they have reached if I'm not wrong, the five position in terms of deposits in Colombia. So how does Davivienda's see it's current competition in the country?

Thank you, Olavo, for your questions. Going to the first one. In terms of growth, I -- that's the exactly previous answer in terms of 6% to 8% on the overall growth with 7% to 9% on consumer and commercial and 4% to 6% on mortgages. In terms of our composition, we expect the composition to remain relatively stable with commercial loans at around 48% to 49% of the book. Consumer around 24% to 25% and mortgages around 27% to 28%. So basically, since the growth is quite similar among the 3 portfolios. We expect the composition of the bank to be around those numbers for next year. Looking at the question -- the second question in terms of competition with fintechs. What we're seeing is a competition that it's so far has been based on price, especially on the funding side. On the credit side, as I mentioned before, with the cap rate, there's actually a very high limitation to be very active on those markets with pricing that is very aggressive. So what we've seen is pricing on the funding side with some accounts paying interest rates at a level that are quite high that's an approach that we don't see that as a sustainable in the long run and actually has been changing. But more than that, what I would say is our view on competition is that we welcome competition from fintechs. We welcome competition because that implies that the consumer is better served. And on our side, we believe that the right approach to face the competition is through innovation. And as we see the value offer that we are having to our customers is very good in terms of the digital capabilities that the bank has. It has probably the most comprehensive solution, digital solution for customers in that space that want to relate on a digital basis with a bank. On efficiency, of course, on efficiency, we are doing very, very well in terms of improving the operating efficiency of the bank. If you look at the growth in our operating expenses is well below the growth in the portfolios. So we're improving that operating expenses margin. And on a marginal basis, since the offer to some segments of the market, is a digital offer, we can price very aggressively on that side. And the third one is service and service on the digital side, we believe that, as I mentioned before, the digital platforms that Davivienda has are very good, very capable of competing head-to-head to any digital bank. But we also have the benefit of having a service that goes beyond the digital platform. And we believe that for many businesses, many of our customers want to go beyond the digital platforms for the products that are high-value products. And in that front, we are also having very good ratings from our customers, and we're working on that on improving the service. So I would say, in terms of market shares, I will look at those numbers carefully because of the way that market has been gained by some other players. But more importantly, on our strategy on innovation and efficiency and services. We believe that we have the competitiveness to be there in the market and maintain our market share and actually enhance our market share. Thank you very much, Olavo.

Now we'll go with our second question coming from the webcast from Mr. [ Sebastián Gallego ] from Ashmore. He's got 3 different questions. Question number one, to have a better assessment of the Scotiabank deal, could you please share or remind us of the exit of multiple paid to former local shareholders of Scotia and Colombia? Question number two. Do you see any regulatory risk related to Scotiabank transaction specifically due to the market concentration? Is there any chance that the regulator could reject the integration of some products in Colombia? Question number three. Could you please discuss any funding-based competitive advantage from the deal with Scotia? How do you expect the funding base to change post or after the acquisition?

Sebastián, thank you very much for your questions. In terms of your first question regarding deals between Scotiabank and the former shareholders of Scotia I'm afraid we're not in a position to discuss any of those deals that are private between those parties. But I would -- to give some color to your question, we've previously -- in the previous call when we announced the transaction, we gave numbers that I believe are very relevant to your question. As we mentioned before, Scotia is representing -- the equity that Scotia is bringing to the transaction represents around 30% of the equity in the combined operation. And -- but they are getting 20% of the shares of the bank. So that implies that the existing shareholders of Davivienda will have around an 11% increase in the value of their equity because of the relative terms of the transaction. In terms of the -- your question on the regulatory risk related to Scotiabank transaction, as far as we've gone through a process, we are very confident that there are no issues with the competition as we -- as you know, in -- we will not be the leader in any of the markets in which we are participating. And we understand that these are very competitive environments. So we don't see any issues on that front. So we are actually moving through a process with the regulators in the different jurisdictions, and we are confident that we will be able to go through with the transaction. In terms of funding base, there's -- the acquisition is not based on the fact that Scotia brings to the table, lower funding cost. The rationale for the transaction is different is. It's based on revenue enhancements to growth on several segments of the market. It is also based on efficiencies, on marginal businesses that we're not capturing. So we -- basically, what we are seeing is a very similar funding composition and funding costs when we consolidate the transactions. And going -- and in that sense, I would stress that our focus is much more on enhancing revenues on the new operation with the abilities that Scotia brings to the table and also on a much better operating base for the combined operations. Thank you, Sebastián.

Our third question comes from Mr. Juan Fabregas from BBVA. How were you able to turn into profits in the second half of the year? Was it by reducing the consumer portfolio?

Thanks, Juan, for your question. Basically, that was in our forecast. We were expecting an improvement in the second half of last year, basically mostly explained by lower cost of risk and specifically on the consumer portfolio. Definitely, we've seen an improvement in the cost of risk. And as we see a trend into the future and we see in terms of comparison of our new vintages, the vintages that have been disbursed during 2024 and part of 2023, we see that the performance of those vintages is actually better than the performance of our peers. So those are the rationales behind an improvement over the second half of last year and also improvements for this year.

Our fourth question comes from Mr. Daniel Mora Ardila from CrediCorp Capital. He's got 3 different questions. Question number one, the NIM recovery is taking longer than initially expected, and the guidance for 2025 is still below the long-term target. In this sense, what conditions do you need to see to reach historical figures of NIM? And what interest rate and what loan mix? Question number two. Another question is what percentage of the consumer segment is directly exposed to the dynamic of the cap rate? And finally, question number three, nonfinancial income grew 16% in 2023, 9% in 2024, and it is expected to grow between 4% to 6% in 2025. What is the main factor explaining this lines deceleration?

Daniel, thank you for your question. Regarding the NIM, I mentioned that before, but I'm going to go over those reasons again. The main factors are the cap rate, the fact that the mix of the portfolio has changed towards more of a commercial -- the commercial book has higher participation in the book. It has a lower NIM. And the fact that the intervention rate decrease has been slower than expected. We expect the intervention rate to keep going forward. But probably in terms of the cap rate, there's still a challenge there. So that's why for the 2025 guidance, we're not expecting an improvement in the NIM as we would expect otherwise. So basically, one of the conditions is an improvement on the cap rate. Otherwise, these factors will have to be adjusted in the market with conditions such as a product on the credit card business. On the credit card business, we're going to see a shift towards fee-based products and other ways in which the market can somehow substitute the income that should come from interest -- from interest rates which is your second question. In terms of the consumer segment exposed to a cap rate is around 15% of the consumer portfolio. And part of it is credit cards and the part of it is credit cards has other sources of income, such as transactional and service fees. So we expect the market to be adjusting to the reality of the cap rate continues with the same trend. It's important to note that I mentioned in the previous question that we are expecting the cap rate coming down to close to 21%. That's already incorporated in our guidance, and that explains why our guidance in terms of NIM, it doesn't show the improvement that we would be expecting in a different environment. In terms of nonfinancial income, the 9% in 2024 has some nonrecurring items. If we exclude those nonrecurring items for the base of 2024. In 2025, we would be growing at a higher rate. We would be growing at around 8%. So the 4% to 6% guidance is somehow affected by the fact that there's a nonrecurring items last year. If you exclude those items, we would be expecting an 8% increase from the previous year.

Our next question comes from Mr. Sebastián [ Gallego ] from Ashmore. There are 2 questions from him. Question number one, could you please share the ARPAC and cost to serve at Davivienda? Also, how do you see these metrics evolving? Question number two. Could you please elaborate on NIM expectations ahead and key drivers that may explain a slower process of recovery during 2025, 2026?

Sebastián, thank you again for your questions. In terms of the NIM question, I've already covered that in the previous questions. In terms of the ARPAC and cost to serve, it's -- as we are a universal bank, we don't follow those metrics specifically on an average basis for the bank because there's very different cost to serve on low-income segments on segments of the market, in the affluent market on commercial markets. So we don't follow those metrics on average because we don't believe those metrics are the relevant metrics to follow, but I understand your question in terms of whether the we are actually gaining operational leverage in terms of getting revenues per customer higher than our expenses. And the question is, yes, on our [indiscernible] seen the revenue per customer as we increase the number of customers that use Davivienda as their primary bank. And the cost to service is actually improving also because of the capture of efficiencies. We will probably can give you more color and more detail on a specific call with some of the questions on these topics, but we don't have those numbers in the way that you are actually asking for them at this time, Sebastián.

Now our next question comes from Mrs. Maria [indiscernible] coming from T.Rowe Price. She's got 2 questions. Question number one, what is the main risk to achieve your cost of risk guidance for this year? Any particular parts of the portfolio that you are more concerned about? Question number two, are there any plans to issue debt post finalization of Scotia acquisition approval?

Maria, thank you for your question. In terms of the cost of risk guidance, of course, there's always uncertainty in these topics, but we are very confident that the most relevant component of cost of risk, which is the cost of risk on the consumer book is actually following a very stable trend for the last 15 months. So we believe that the guidance is a guidance that we're confident with that guidance. Of course, that's always open to some uncertainty, but we believe that we are in the right track. In terms of debt issuance, we are not looking at that issuance for the purpose of the acquisition per se. Debt issuance as management of the liability side of the bank is something that, of course, we are looking at. And as the market conditions improve and we are looking at different alternatives on the debt market, but not specifically tied to the approval or to a transaction just as the -- in the ordinary course of business of the bank, we're looking at the market opportunities on that side.

[Operator Instructions]. There seem to be no further questions at this time. So I want to turn the call over back to Mr. Javier Suarez for any closing remarks. Mr. Suarez, the floor is yours.

Well, as you've seen, we've completed the recovery phase during the fourth quarter of last year with the improvement in our results. We are looking forward to 2025 with the guidance that we mentioned before in which we will be in positive territory in the previous quarter. In 2024, we were on track with most of our guidance with the exception of NIM for the reasons that I mentioned before. For 2025, we see improvements in almost all of the drivers of profitability for the bank. So we expect 2025 to be a year in which recovery will be a solid recovery looking forward. We are -- we have the expectations of closing the Scotia transaction that will also enhance shareholder value through the reasons that I mentioned before. But in the meantime, the Davivienda team is, of course, focused on this selective growth strategy based on the environment in which we are moving now. On improving the experience on the day to day to our customers, that's a focus that is a very important focus on having primary relationships with our customers based on exceptional experiences on the digital side, but also on the personal side and the personal interactions and also working on low-cost funding in which the capabilities that Davivienda has give us the potential to improve the numbers on that front. We're excited to be on this track. We expect to meet with you again in a few months with the results for the first quarter in which our expectations are that we will continue to solidify the process of improvement of the numbers of the bank. Thank you very much to everyone for being part of this call.

Thank you very much, and thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect from the call.