Banco de Bogotá S.A. (BOGOTA) Earnings Call Transcript & Summary

Welcome to the Second Quarter 2021 Consolidated Results Conference Call. My name is Hilda, and I will be your operator during this conference call. [Operator Instructions] Please note that this conference is being recorded. We now ask that you take the time to read the disclaimer included on Page 2. When applicable, in this webcast, we refer to trillions as millions of millions and to billions as thousands of millions. Thank you for your attention. Mr. Alejandro Figueroa, CEO of Banco de Bogotá, will be the host and speaker today. Mr. Figueroa, you may begin your conference.

Good morning, ladies and gentlemen, and welcome to Banco de Bogotá's Q2 2021 Earnings Call. Thank you all for joining us today. We hope that you and your families have continued to stay safe. Second quarter performance led to remarkable results, paving the path to recovery and normalization of our operation, proving much more Banco de Bogotá's achievements. Overall economic activity both in Colombia and Central America for most of the quarter had led to [ better ] business dynamics and the recovery of our trade portfolio despite the challenging [ conflicts ] posed by new contagion rates and social unrest demonstrations in Colombia. Attributable net income for Q2 2021 was COP 863.4 billion, increasing 21.6% quarterly and more than double our results in Q2 2020. Profitability for the quarter [ resulted ] to 1.8% return on average assets and 16% return on average equity, surpassing our long-term profitability expectations. These results were supported by an increase in our net interest income, solid fee income contribution, continued normalization in our provision expenses and sustaining control in operating expenses. Regarding key performance ratios, I would like to highlight net interest margin increased 36 basis points in the quarter to 4.9% as a result of our stable lending NIM and positive market dynamics that are [ supported by investment ] evaluation. Fee income continues to stand above COP 1.2 trillion, leading to a 31.8% ratio for Q2 2021. Efficiency ratio came in at 49.8%, an annual improvement of more than 300 basis points, demonstrating our commitment to considerably enhance efficiency. Cost-to-asset ratio was stable at 3.4%. Regarding our balance sheet, gross loans totaled COP 145 trillion as of June 30, 2021, growing 2.9% annually and 2.2% quarterly. Isolating foreign exchange impact, growth was 3% and 1.2%, respectively. Deposits reached COP 158.9 trillion, presenting a 7.1% annual increase. Excluding foreign exchange, delivering [indiscernible] preference or demand deposits. As a result, our deposit to net loan ratio remains at 1.15x. In terms of credit quality, our 90 days past due loan ratio slightly increased 80 basis points to 3.3%, which is below our initial expectation after the expiration of the generation relief program. Net cost of risk decreased 24 basis points in the quarter to 2.2% during the [indiscernible] throughout 2020 has been important to feel to endure no deterioration while supporting cost of risk competitors to historical leverage. On capital [ equity ] total tier 1 ratio was 10.2% for the quarter, leading to a total services ratio of 12.5%, maintaining comfortable profit above regulatory minimum and supporting our healthy capital position. It is worth mentioning that with the recent announcement for consolidation, our solvency ratio will continue to strengthen in the following quarters. Finally, our guidance for 2021 is: for loan growth, we expect around 8% to 10%. Our net interest margin is around 5%. Cost of risk will be between 2.25% and 2.5%. Our fee income ratio will be close to 35%. Our efficiency ratio should be around 50%. And in terms of profitability, our return on assets and our return on equity should come in around 1.3% and 12%, respectively. Before I continue with our result presentation, I would like to take a moment to thank Mr. Julio Rojas Sarmiento for his many contributions along his 5-year tenure at Banco de Bogotá. He plays a pivotal role in our Banco de Bogotá transformation and in deciding and [ his succession ] of our business strategy, targeted [indiscernible] profitable and sustainable growth. Mr. Rojas will be stepping down from his Executive Vice President position at the end of this month. The Board of Directors and myself personally [indiscernible] wishing the best on his future endeavors. [indiscernible] Mr. Germán Salazar as Executive Vice President. Mr. Salazar [indiscernible] at Banco de Bogotá for more than 4 decades, more recently serving as International and Treasury Vice President. He also previously served as Vice President of Banco de Bogotá Trust Company in New York, and President of the First Bank of the Americas. To Germán, I extend my sincere congratulations. Now I will turn the presentation over to Germán to comment on the recent Porvenir shareholders' agreement and to provide an update on our digital strategy.

Thank you, Alejandro, and good morning to everyone who has joined our call today. I would like to start by providing an update of Porvenir recently signed shareholders' agreement, which provides the Banco de Bogotá its direct control to Grupo Aval and we no longer consolidate its operation on its financial statements. The rationale behind the agreement was to reinforce Grupo Aval's nature as a financial conglomerate while allowing Banco de Bogotá to focus on its banking operations as well as better reflecting the performance of its core business in the consolidated financial [ extent ]. Moreover, Porvenir's deconsolidation allows Banco de Bogotá to optimize its capital structure as I will explain in a few moments. It is important to highlight that, first, Porvenir's ownership structure will now change as a result of this agreement. And second, Banco de Bogotá's bottom line will continue to benefit from the business diversification provided by Porvenir and its resilient results will be accounted through equity method. Now let me address the main financial impact derived from this corporate transaction. As a consolidated subsidiary, starting of Q3 2021, our investment in Porvenir will be reflected as an investment in associates and joint venture, while our investment and trading assets will register a reduction related to the deconsolidation of Porvenir's portfolio and [ stabilization ] reserves, along with small variations on other accounts. Consequently, Porvenir's liabilities will also be deconsolidated, and the noncontrolling interest accounts in our equity will no longer reflect the stake of Porvenir that we do not own. As mentioned before, Porvenir's result will no longer be included on an account level basis, and the bottom line will be recognized via equity method in a proportion according to Banco de Bogotá's 46.9% ownership. Simultaneously, the operation will present a profit of COP 1.3 trillion that will enhance our equity and will lead to higher fees in one level. Our solvency ratios will improve from the transaction as one, it will add CET1 capital; two, we will have lower goodwill reduction; and three, reduce RWA. These factors will offset an increase in the deduction of unconsolidated investments leading to an estimated 96 basis point increase in our CET1 level to 9.9% and a total solvency ratio of 13.6%. Finally, I would like to add that this operation will also improve our capital metrics for most rating agencies, further solidifying our credit work. On Slide 5, we present our digital strategy results for this quarter. One of the pillars of our digital strategy is its permanent evolution as the nature of digitalization is ever changing. Our strategy expands over different dimensions, client-facing operations, core digital transformation and data analytics. In all of these, we hold key differentiating factors that support our consistent digital growth. From a strategy standpoint, our focus has been on continuously fine-tuning our digital portfolio to the changing preferences of our customers, which is not [indiscernible] 2020. We had a strong digital infrastructure and faced increasingly by digitalized operation. But we did not stop there as we continue to improve and provide the best customer experience possible. Just to mention a few examples. During Q2 2021, we upgraded digital components on our digital payroll loans, mortgages, microcredit products, as well as enhanced operations, banking platform for enterprise banking customers. Our digital portfolio is 100% cloud-based, [ easing ] continued enhancement of existing products and services while promoting testing and development of new ideas. Also, we strive to integrate our new product ideas with our ESG framework. Last May, we launched our Amazonía debit card, supporting reforestation efforts led by NGOs saving the Amazon. This card allows our customers to donate 1% of their purchases to support this purpose, complementing our previously launched initiative of financing the planting of one tree for each digital term deposit opened in Colombia. For every 2 trees planted with customer donations from the Amazonía debit card, Banco de Bogotá commits to finance the planting of an additional one. As I mentioned, digital transformation of our core operations has always been a priority. In fact, it is the cornerstone of our strategy. Cloud migration of our processes started a few years back, leading to 100% [ integration ] of our data platforms, positively impacting profit efficiency, market penetration and rapid reaction. Regarding a large dimension, data analytics, digitalized operations provide a way of information point regarding customer interaction with our channel, which informs clearer strategy focused towards the products and services more relevant to our clients. Increased digital adoption and profitable local relationships are only made possible by a thorough understanding of their needs, which we'll support through our data analytics team. In terms of results of our strategy, digital sales growth in Q2 2021 came in at 57.1% annual growth rate since 2019, proving that demand for digital solutions have steadily increased, positioning our digital strategies as the leading sales point. During the first half of 2021, we sold 891,000 digital units, 2.4x our 2019 first semester sales, leading to a 70% digital sales share of Colombia and close to 30% in Central America. With our traditional banking, our digital growth is based on its disciplined value creation focus where every segment is analyzed in their capacity to generate profitable business when comparing customer lifetime value with acquisition costs, thus ensuring that our digital strategy is profitable, scalable and sustainable. Our active digital clients at a consolidated level presented [ an end ] growth rate of 31% in Q2 2021 to a total of 2.7 million [indiscernible] 526 million digital transactions during the quarter, representing 86.3% share of total transactions. As digitalized operations become the new normal, we continue to streamline our physical footprint. By the end of June 2021, our storefront count was 757, down 21% from 2019 in order to support the [indiscernible] nature of our digital strategy by capturing digitalization cost benefits in our resource allocation. Progress on our digital transformation process has been instrumental in the execution of our corporate strategy. With our customers at the center, we continue to improve our NPS scores, reflecting increased satisfaction and evolving on our bank's perception. Also, digital results have consistently contributed to our sustainable growth, mainly increasing our customer and mortgage solutions. Such expansion is supported by improved risk management through inclusion of more and better data as well as it has reinforced our cost control efforts. In turn, we remain focused on positively impacting the communities where we operate through our innovative solutions developed to answer to customers' needs. Now I will turn the presentation over to our Head of Corporate Development, FP&A and IR, Diego Rosas, who will provide a macroeconomic overview as well as a review of our financial results in further detail.

Thank you, Germán, and good morning, everyone. I would like to start by providing a macro overview in Colombia presented on Slide 6. The Colombian economy faced multiple shocks during the second quarter. The third wave of the pandemic started in April and lasted for about 3 months, while social distancing measures were only implemented during April, thus minimizing economic impact. In May, economic activity was heavily affected by road blockades during the national strike. With this scenario, the economy slowed down significantly, but continued to show positive variations due to statistical base effects. Moreover, real-time indicators show that the greatest impact occurred in the first 2 weeks of May and the economy quickly showed signs of recovery, reversing the shock in June and July. For the second quarter, our economic research team projects an economic growth of 18.5% annually. For 2021, our economists reaffirmed their growth forecast of 7% but recognize favorable dynamics of the economy, which translated in an upward bias in the projection that could take activity to pre-pandemic levels at the end of the year. The rebound in the economy had surprised rating agencies and multilateral entities, which improved their 2021 growth forecast. However, the recovery of the economy has only partially benefited the labor market, which registered 20.5 million employees in May, recovering 70% of the jobs lost due to the pandemic. The seasonally adjusted unemployment rate in June was 15.1%, still above the level registered in the same month of 2019. Although the economy could return to pre-pandemic levels in 2021, the labor market will take longer at the current rate of improvement. Inflation began an upward trend in the second quarter, closing 4% in July after reaching the minimum for the year in March of 1.5%. Monthly results repeatedly surprised, causing an upward revision in market expectations and analyst consensus. The statistical base effect impacted prices, but road blockades also had an important effect more than doubling and [ also the ] inflation to 9.8%. The core measure, excluding food, remained below 3%, closing the quarter at 2.9%. Our economic research team expects inflation of 4% at the end of 2021. The Central Bank has continued with its interest rate stability policy at 1.75%. However, accelerating inflation and the recovery of the economy has adjusted consensus and market expectations with rate increases projected before year-end. Our economic research team forecast 325 basis point increases during the remainder of the year starting in September and closing 2021 at 2.5%. The recovery in coal and oil production has impacted the behavior of exports. Imports have benefited from investment goods, causing a recurring deterioration in the trade balance, which registered a 12-month deficit of more than $11 billion in May. The deterioration will continue in June with a trade deficit of almost $13 billion, the largest in 5 years. The pandemic caused an increase in public spending and a weakening in fiscal accounts, prompting the government to present a second alternative for a tax reform in July after its failed attempt in April. The Ministry of Finance presented a new reform with wider endorsement from businesses and political parties, which seeks to increase tax revenues by COP 15 trillion. The new tax reform focuses on corporate tax increases, austerity and the fight against tax evasion. Part of the resources will be directed to social programs that were created in the pandemic, such as subsidies for the vulnerable population and payroll subsidies for companies. The project also presented improvements to the fiscal rule, establishing a ceiling for public debt of 71% of GDP and a long-term target of 55% of GDP. The new tax reform has greater political support and is expected to be approved in Congress between August and September. In July, Fitch Ratings downgraded Colombia's rating from BBB- to BB+, adjusting the outlook from negative to stable. The decision was expected after Standard & Poor's move in May. Now 2 agencies have removed the investment grade from Colombia. Meanwhile, Moody's has mentioned that its decision on the sovereign rating will be made after the tax reform and budget for the 2022 term are approved. Local and external factors impacted the exchange rate in the second quarter, taking it to the highest level of the year. The extension of the roadblocks, social process and the downgrade of the sovereign rating generated an uptrend in the exchange rate to levels between COP 3,900 and COP 4,000. In addition, the expectation of an early normalization of monetary policy in the United States and the new variants of the coronavirus in the world negatively impacted risk assets, including emerging market currencies. The vaccination process in Colombia started slowly as in other emerging markets but accelerated in the second quarter. Additionally, private companies began the immunization process for the employees with 2.1 million doses. At the end of last week, the country has supplied over 31 million vaccines, which represent 60% of one-shot doses in relation to the size of the population, while 13.5 million people have completed their vaccination scheme, which means more than 1/5 of the population, positioning the country as one of the most dynamic in Latin America. Moving to Page 7. We present the economic outlook in Central America. The IMF forecasts that the Central American economy will grow 5.7% this year and 3.8% in 2022. The [ global ] recovery, the vaccination rollout in the region and the easing of the confinement measures support the improved outlook after the pandemic shock. The region benefits from the strong U.S. recovery, the region's main trade and investment partners as well as its main source of remittances. Activity performed favorably at the beginning of the year. In April of 2020, Central America activity shrunk minus 12% and latest figures show growth of 15% at a divergent pace among countries due to their own particularities. Last year, Panama, El Salvador and Honduras registered the largest activity contraction in the region due to their dependence on international trade. However, this now supports their strong recovery. Meanwhile, remittances quickly recovered. And in fact, today, their amount [ exists ] pre-pandemic levels in all countries. Most Central American countries have demonstrated economic reactivation. El Salvador revealed in April annual growth of 22%. And in May, Panama, Costa Rica, Guatemala, Honduras and Nicaragua show an annual activity surge of 19%, 7.9%, 11.8%, 9.6% and 5.4%, respectively. Growth drivers include remittances increase and dynamic government spending, which has generated reactivation in key sectors such as construction, manufacturing and exports. Furthermore, advances in vaccination programs that have allowed mobility normalization have also favored reactivation and consumption. Since 2020, when monetary policy was sharply relaxed in response to the global health emergency, all central banks in the region have maintained their [ expensive stance ]. This remains despite the fact that there are already several emerging economies that have begun to moderate that ultra-dovish stance. In line with the global perspective of a reversal of low inflation from the previous year, an inflationary rebound is registered in Central America that could pressure central banks to anticipate the normalization of their monetary policy. For the time being, Costa Rica, Guatemala and Honduras, which are the countries where the interest rate is the main instrument of monetary policy, has kept their interest rates stable with possible increases throughout the remainder of the year, in line with action from other central banks in the region. Rating agencies' outlooks continue to reflect the impacts of the pandemic in the region given persistent fiscal pressures and doubts and the ability to meet recovery forecast for 2021. Sustained recovery of fiscal metrics, public debt and fiscal deficit will support outlook stabilization in the midterm. In particular, Costa Rica's risk premium has moderated since the agreement with the IMF. The National Assembly has already approved the IMF loan, which in turn represents fiscal consolidation progress. Disbursement depend on the materialization of the macroeconomic plan, and fiscal evolution depends on Congress approval of a set of bills, including the reform of public employment. In El Salvador, authorities are holding conversations with the IMF to obtain financing for an additional $1.3 billion, which will certainly be subject to a fiscal and macroeconomic adjustment plan. Discussions include issues about financial stability and the implementation of the cryptocurrencies law. In conclusion, reactivation seem to be the common factor across the region, which we expect will contribute to strengthen the recuperation path of our operation in Colombia and Central America. Before moving into our results presentation, please keep in mind the following: First, as Porvenir's consolidation took place in July, our quarter 2 2021 results still include Porvenir's operation, and our guidance estimation reflect the operating balance sheet structure at the end of the quarter. And second, Multi Financial Group's contribution to our consolidated figures is no longer isolated for comparison purposes as the acquisition happened more than a year ago. Now on Slide 8, we present our balance sheet evolution during quarter 2 2021. Total assets amounted to COP 221.4 trillion, increasing 1.6% in annual terms and 1.7% on a quarterly basis. Isolating the FX effect, growth was 1.7% and 0.6%, respectively. Regarding asset structure, our loan portfolio leads with 63.1% of total assets, followed by other assets with 20.3% and fixed income and equity investment with 12.7% and 4%, respectively. Consolidated gross loan portfolio grew 2.9% annually and 2.2% quarterly to a total of COP 145.9 trillion. Without the effect of FX, increase were 3% and 1.2%. The structure of the gross loan portfolio in terms of economic sector has not changed significantly, maintaining a healthy diversification. In terms of loan mix, the commercial portfolio represents 57.4% of our consolidated loans as consumer and mortgage segment has slightly increased to 27.8% and 14.5%, respectively. Quarterly growth in the commercial portfolio was 1.3% or 0.5% excluding FX, reflecting increased market competition for high-quality borrowers. The retail portfolio presented healthy increases in line with our strategy of gaining market share in these segments. Consumer and mortgage loans grew 3.6% and 3.5%, respectively, during the quarter. Isolating the effect of foreign exchange, growth came in 2.4% and 2%, respectively. For 2021, we are returning to target loan growth between 8% and 10%, reflecting gradual recovery in consumer expectations, increased financing needs from our commercial customers, and positive mortgage market dynamics. On Slide 9, we present our consolidated loan portfolio quality metrics. On the top left, our 30 and 90 days PDL ratio for quarter 2 2021 came in at 4.8% and 3.3%, respectively, increasing 7 and 8 basis points in the quarter. Stability in our ratio signaled positive payment performance as economies continued to recover and clients have been able to resume payments. Net cost of risk for quarter 2 2021 was 2.2%, decreasing 24 basis points quarterly, equivalent to a net provision expense of COP 772.3 billion, reflecting its convergence to our historical levels. Pressures on provision expense have ceded as a result of our prudential and proactive reserves built up in 2020 and control deterioration on the loan portfolio. Results for the quarter support our 2021 guidance for cost of risk within a range of 2.25% and 2.5% with an optimistic bias toward the lower limit. We feel confident that our provisioning efforts in 2020, combined with economic reactivation, will lead to normalized cost of risk levels. Now moving to the bottom left. In quarter 2 2021, charge-offs were 0.64x our average 90 days PDLs, lower than our pre-pandemic historical average of 0.85x. The lower charge-off activities explained mainly by our Colombian operation as we continue to allocate previously constituted provisions to problem loans in our retail portfolio in order to charge off low recovery exposures in the future. Lastly, on the bottom right, we present our allowances coverage metrics, which remain robust at approximately 1.1x for 30 days PDLs and 1.6x for 90 days. In quarter 2 2021, we maintain our allowance coverage at 5.2% of total gross loans. A significant part of this coverage was supported by our qualitative provisioning expense in 2020 derived from COVID-19 impacts on our loan portfolio. Continuing on Slide 10, we present regional performance of our loan quality ratios. In Colombia, 30 days PDL ratio increased 30 basis points in the quarter, mainly from our commercial portfolio, while the 90 days ratio increased 41 basis points in quarter 2 2021 due to our unsecured consumer exposures. As explained before, loan quality deterioration is also explained by a reduction in our charge-off levels to 0.47x over nonperforming loans in the quarter, which is below our 0.6x historical average. We continue to update our recovery expectations on these deteriorated exposures in order to charge off loans with low recovery estimation. It is also important to note that our Avianca exposure continues to impact our quality ratios. At the end of quarter 2 2021, total claims were COP 642.4 billion, of which 73.8% is secured by ticket sales receivables in Central America, 17.2% is backed by the headquarters building in Bogotá and is currently performing and the remaining 9% is unsecured, on which we maintain adequate provisioning. Avianca's reorganization proceedings continued to move forward in U.S. courts, and we expect them to address creditors' claims in the upcoming resolution proposal. We feel optimistic about the final agreement, which will eventually positively impact our quality ratios. Regarding net cost of risk, we observed a 48 basis points reduction in the quarter to 2.5%. This is the result of provision expense contractions I mentioned before as well as the score improvement in some corporate clients. In terms of coverage, our allowances to gross loans ratio increased to 7.5%, while we maintain a 1.1x and 1.4x coverage over 30 days and 90 days PDLs, respectively. Moving to Central America. 30-day and 90-day delinquency ratios quarterly decreased 6 and 14 basis points, respectively, largely due to economic reactivation supporting loan normalization in the region, mainly in Guatemala and Honduras. Cost of risk remained stable at 1.9%, reflecting controlled PDL formation in most countries and reserve built up in Panama in line with expected loan performance after the expiration of remaining forbearances. Charge-off levels remained stable at 1.1x for quarter 2 2021 and represent 1.8% of average loans in the region. Regarding coverage metrics, 30 days PDL coverage remains at 1.1x, while 90 days has increased to approximately 2.1x. Allowances to gross loans coverage is 3.3% for quarter 2 2021. Moving to Slide 11, we show our consolidated loan portfolio quality by segment. Commercial portfolio presented stability on its 30 days PDLs at 4% for quarter 2 2021 and a slight quarterly increase of 5 basis points on its 90 days ratio, mainly from Colombia's portfolio. Consumer portfolio delinquency ratios quarterly increased 15 basis points for 30 days PDLs and 24 basis points for 90 days PDLs as a result of lower charge-off levels, coupled with increased delinquency in unsecured exposures both in Colombia and Central America. Mortgage loans' 30 days PDL presented 2 basis points increase in the quarter, while 90 days PDL shows an 11 basis point reduction to 2.6%. On Slide 12, we present an update on loan relief programs. At the end of quarter 2 2021, active forbearances were 4.3% of our consolidated loan portfolio, roughly half the level observed in quarter 4 2020. Active grace periods are explained by Panama where the local regulator has extended its relief program on 3 occasions, now ending in September 2021. It is important to highlight that each extension has increased application requirements and evidence of income reduction for applicants, thus allowing financial institutions greater autonomy to decide on relief approval. When analyzing Panama's loan portfolio, 20.7% of the loan balance continued with an active grace period in line with market levels and down from 32% 3 months ago. After forbearances expire in most of our operating countries, we implemented a second-generation relief program, which constitutes a renegotiation of credit terms adjusted to the updated payment capacity of borrowers. On a consolidated level, 10.6% of our loans have been renegotiated. Since August 2020, in Colombia, we started implementing the Programa de Acompañamiento a Deudores, PAD, whereby 7.9% of the Colombian portfolio has adjusted its loan terms. Regarding Central America, we have implemented a similar initiative leading to 12.8% of the loans in the region having been renegotiated, mainly in Costa Rica and Honduras. In Panama, we have started to offer this alternative to most impacted debtors coming off grace periods. As a reminder, the majority of second-generation reliefs do not constitute a forbearance. Hence, payment performance is adequately reflected on our quality metrics. At the bottom of the slide, you can observe that on a consolidated basis, our current loans have increased to 90.9% in quarter 2 2021 from 88.5% last quarter and from 87.1% registered in quarter 4 2020, reflecting payment trends continuing to perform better than initially expected. Moving on to Slide 13. We present our funding evolution in quarter 2 2021. The bank's total funding has remained stable, amounting to COP 191.4 trillion. Annual and quarterly growth rates were both 1.3%. When excluding FX, growth was 1.4% and 0.3%, respectively. Our funding structure breakdown is led by 83.1% from deposits, followed by 8.8% from banks and others and 7% from long-term bonds. We have also observed a reduction in interbank borrowings to 1.1%, in line with higher liquidity levels in the market. Deposits grew 7% year-over-year and 2.6% quarter-over-quarter to COP 188.9 trillion. Isolating the FX effect, growth was 7.1% and 1.5%, respectively. Time deposits contribute with 39.6%, presenting a small reduction, which has been transferred to saving accounts, which now have a 31.1% share on our deposit structure, while checking accounts and other deposits represent 29.1% and 0.3%, respectively. The deposits to net loans ratio remains at 1.15x as the increase in deposit has been matched with similar growth in the net loan portfolio. Turning to Slide 14, we present our equity and solvency levels. Total equity for quarter 2 2021 was COP 23.5 trillion, increasing 4.2% quarterly and 4.7% annually when excluding FX impact. Growth is explained by COP 863.4 billion in attributable net income for the quarter and a COP 294 billion increase in OCI. Consequently, our tangible common equity increased to COP 14.4 trillion, representing a 7.7% quarterly growth, leading to a 7.4% ratio of tangible assets. Moving to our capital ratios. We continued to present a solid positioning by maintaining our buffers above regulatory minimums, 400 basis points for CET1 requirement and close to 350 basis points for total solvency. Total Tier 1 capital and total solvency ratios decreased 21 basis points and 33 basis points in the quarter, respectively, due to, first, peso devaluation had an impact on higher goodwill deductions and higher risk-weighted assets from our U.S. denominated assets; and secondly, lower contribution from accounts related with the OCI as we revised the interpretation of the application of Basel III with the Colombian regulator. The above impact were partially mitigated by a quarterly attributable net income of COP 863.4 billion. As mentioned earlier, Porvenir's transaction improves Banco de Bogotá's capital use. On the bottom chart, we included a pro forma estimation of the impact on our quarter 2 2021 solvency ratios. Total Tier 1 and total solvency will increase to 11.2% and 13.6%, respectively, because of, first, a COP 1.3 trillion profit from the transaction; second, goodwill from Porvenir's acquisition for COP 436 billion are not longer deducted from our CET1; third, lower risk-weighted assets in COP 6 trillion mainly from reduction in market risk-weighted assets; and fourth, aforementioned positive factors more than compensate a higher deduction for unconsolidated equity investment of COP 800 billion. Turning to Slide 15, we present our net interest margin ratios. Net interest income in quarter 2 2021 was COP 2.1 trillion, growing 3.9% on a quarterly basis or 1.7% when excluding FX impact. Main drivers of growth were increased interest income in line with loan portfolio growth combined with interest expense reduction. Consolidated NIM for the quarter was 4.9% with a 36 basis points quarterly increase explained by stability in lending NIM at 5.6% and a rebound in investment NIM. Specifically, investment margin had a 186 basis point quarterly increase signaling recovery on Banco de Bogotá's and Porvenir's fixed income portfolios after a highly volatile quarter 1 2021. Lending NIM remained stable at 5.6% yield on loans presented at [ Slide -- 9 ] basis points contraction as a result of 2 factors: first, increased market competition for loan repurchases at lower rates; and second, our focus on growing in secured lending. We will continue defending our loan portfolio profitability despite increased competition. Average cost of funds for the quarter remained at 2.5% as we mitigated the impact of a low rate environment through a proactive management of our funding sources. In terms of guidance, we maintain our 2021 NIM figure around 5% as a result of increased lending activity for the remainder of the year. Now let's move on to Slide 16, where we present details on our fee and other income. Gross fee income for the quarter remained above COP 1.2 trillion, contracting 3.6% quarter-over-quarter and leading to a fee income ratio of 31.8% as a result of: first, quarter 1 2021 was seasonally benefited by Porvenir's severance business; and second, larger net interest income, coupled with improved net gains on investment and foreign exchange position increased the denominator side of the ratio. Regarding other operating income, we observed a 13.7% quarterly growth, mainly explained by an increase in investment gains, which came in at COP 77.1 billion for quarter 2 2021 compared to a COP 69.3 billion loss for quarter 1 2021. This was partially compensated by lower gains from sales of investments. Equity method was COP 187.3 billion for quarter 2 2021, presenting a small reduction due to lower dividend income from our other associates. We continue to expect a fee income ratio close to 35% for 2021. On Slide 17, we continue with our efficiency metrics. Total operating expenses increased 3.7% quarterly, 1.2% excluding FX, as a result of increased administrative expenses mainly due to larger marketing, technological and other personnel expense. Our efficiency ratio was 49.8% for quarter 2 2021, slightly increasing 43 basis points in the quarter while we continue to see stability on our cost-to-asset ratio at 3.4%. In spite of the small increase, we continue to abide by our target of efficiency close to 50% in the remainder of the year. Lastly, on Slide 18, we present our profitability returns for the quarter. Attributable net income was COP 863.4 billion in quarter 2 2021, representing a 21.6% quarterly increase as a result of a 4% increase in net interest income, a 9.8% reduction in net provision expense and from investment gains on our securities portfolio. Continuing to signal rebound on our operations, our bottom line led to a remarkable quarterly pickup on our return on assets to 1.8%, while return on equity came in at 16%, surpassing our long-term goals. I want to highlight that Banco de Bogotá's year-to-date ROAE was around 15%. These results are a tangible proof of our successful approach to overcoming the challenges imposed by the pandemic and reassurance as that our strategy is well cemented and aligned with the core attributes of our business. For the second half of 2021, we remain committed to providing the best financial solutions for our customers in a profitable, efficient and risk effective manner contributing to our business organic growth. In terms of guidance for 2021, we expect an ROAA of 1.3% and an ROAE of 12%. Before starting our Q&A session, our guidance for 2021, without including the impact of Porvenir transaction, is loan growth between 8% and 10%, consolidated NIM around 5%, cost of risk between 2.25% and 2.5% skewed towards the lower end of the range, fee income ratio close to 35%, efficiency ratio to be around 50% and regarding profitability, our ROAA and our ROAE should come in at around 1.3% and 12%, respectively. Considering that Porvenir's deconsolidation present a significant change in our balance sheet structure and P&L figures, the following ratios from our aforementioned 2021 guidance are subject to change. Fee income ratio will be impacted given that fee income generated by Porvenir expansion fund administration and severance business will no longer be consolidated. Starting on quarter 3 2021, Porvenir's result will be recognized through equity method in our P&L. In a similar way, efficiency ratio is expected to improve around 2 to 3 percentage points as Porvenir's OpEx will no longer be included on an account level basis. Provided that the transaction generates a profit of COP 1.3 trillion, our 2021 ROAA and our ROAE are expected to increase to 1.8% and 18%, respectively, also reflecting the transaction impact on our total assets and equity. And now we are open to questions.

[Operator Instructions] We have a question from Sebastián Gallego from CrediCorp Capital.

Congratulations on the results. I have 3 questions today. Can you comment on the expectations for charge-offs, particularly in Colombia in the second half of the year? And maybe if you can elaborate a bit more on the rationale to stay a bit lower than the historical levels, particularly during the second quarter. Second question is regarding cost of risk. You didn't change your guidance on cost of risk compared to the previous call, and I'm just wondering what is the rationale for that. We have seen better economic numbers. We have seen better customer payment behavior. So I'm just wondering why do you stand by with a conservative guidance on cost of risk? And maybe one final question on the guidance. Just to clarify, the 12% versus the 18% ROAE is just the extraordinary gain from the mark-to-market of the deconsolidation of Porvenir or if you can elaborate a little bit more on that will be useful as well.

Sebastián, thank you very much for your questions. And starting with the first one about the charge-offs and why they are below our historical levels is that we were expecting how the Colombian portfolio behaves after the relief measure expired at the end of last year and how this economy will evolve during this year, and we continue to build up those provisioning. So we are expecting that in a quarterly basis, we're going to be back in the second half to the historical levels of charge-offs in Colombia and with that, reaching our historical levels in charge-offs for the second half of the year. Regarding your second question about the cost of risk guidance and why we are maintaining our range, we are maintaining our range because we still have some expectations or we want to see what happened in Panama after the relief measures expired at the end of September. However, as I mentioned before during the call, we are expecting that our cost of risk will be skewed to the lower level of our guidance, so it will be something around 2.2%, 2.3% for the whole year. As you mentioned, things continued to be improving not only here in Colombia but in Central America as well, and things are behaving better than initially expected. And you are right regarding your ROAE question. The 12% does not include the nonrecurring profit of COP 1.3 trillion from the markup of Porvenir related to the deconsolidation that was signed during July of this year.