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

Welcome to the third 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 you to 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.

Thank you, Hilda. Good morning, ladies and gentlemen, and welcome to Banco de Bogotá's Q3 2021 earnings call. I would like to start by highlighting the strong and positive performance of the Colombian and Central American economy as most macroeconomic factors have reached the pandemic providing further expectations for the region. This shall result in our strongest quarter in recent years in terms of our core business with COP 2.2 trillion in net interest income. Attributable net income was COP 2 trillion, including an extraordinary gain generated from Porvenir’s deconsolidation, which added COP 1.3 trillion. Excluding this onetime effect, attributed net income have been COP 707 billion. Profitability ratios excluding the extraordinary income generated from Porvenir’s consolidation were 1.3% for return on assets and 12.2% for return on equity. Total NIM has slightly increased to 5% benefited by the unenhanced lending NIM, which grew up to 5.8% this quarter. Investment NIM [indiscernible] this increase is explained by the effect of excluding Porvenir’s investment portfolio. Fee income totaled COP 1 trillion in the quarter, reflecting a decrease in pension fee income from Porvenir due to fees deconsolidation. Starting this quarter, Porvenir’s net income will be recognized via equity method. When excluding the onetime income generated from Porvenir, efficiency was near 52% for the quarter. Our balance sheet performance this quarter is summarized as follows: Our gross loan portfolio amounted to COP 149 trillion. Deposits reached COP 158 trillion, remaining our main fund resources, we are 81.5% share. Our deposit to net loans ratio was 1.12x. Moving to credit quality. Our 90 days problem loan ratio was 2.9%, decreasing 40 basis points in the quarter as a result of improved payment performance, [ elevated ] economic activity normalization. In a similar way, the duration has reduced as well and that the duration leading to an annualized net cost of risk of 1.8% converging to historical operational levels. Lastly, capital adequacy ratio has increased around 100 basis points, reaching 11.1% for total Tier 1 and 13.5% for total solvency benefit from Porvenir’s deconsolidation. This effect improves our solid capital position. I would like to take a moment to address BAC Credomatic 75% spin-off to our shareholders. This transaction will resolve in a simple corporate structure and lowering management for Banco de Bogotá and BAC to focus on a strategy -- their strategic position. Banco de Bogota will maintain sufficient [ geographical representation ] as we will continue to consolidate our investment in Multi Financial Group, and we will retain a 25% stake in BAC. Consequently, complexities over the -- due to the additional operations should be largely reduced leading to less foreign [ exchange ] exposure on our financial statement and supporting a more efficient use of capital. Finally, I will summarize our guidance for 2021 and 2022. Figures for [indiscernible] on the current corporate structure that is including 100% of BAC as Banco de Bogotá [indiscernible] current shareholders will attain ownership of [indiscernible] entity after the spin-off. In terms of loan growth, we expect to close 2021 around 10% and 9% for 2022. Mean for 2021 is expected to close just below 5%, and we expect a rebound to around 5.3% for 2022, in line with market interest rate increase. Regarding the net cost of risk, we expect it to be around 2.1% for 2021, lower than our previously guided range between [ 20.25 ] and 2.5%. For 2022, we expect further reduction to 1.9%. Fee income ratio is expected to be around 28% for both years reflecting the impact of Porvenir’s deconsolidation. Efficiency ratio should be around 50% in the short term. Profitability for 2021 should be at 1.8% for return on assets and 18% for return on equity, including the onetime income from Porvenir. Excluding this impact, ratios will be around 1.3% and 12%, respectively. For 2022, we expect similar [indiscernible]. Now I will turn the presentation over to Germán Salazar, Executive Vice President.

Thank you, Alejandro, and good morning to everyone who have joined our call today. Starting on Slide 4, I would like to take a moment to address the main highlights of the corporate transaction announced on September 15, mainly our intention to a spin-off 75% of BAC Credomatic's shares to our shareholders. In a nutshell, the main purpose of the transaction is to transfer 75% of BAC Credomatic's ownership directly to Banco de Bogotá and Grupo Aval's shareholders. Consequently, BAC Holding Corporation, BAC Credomatic's controller will be listed in both the Colombian and Panamanian Stock Exchanges. Once listed, we will proceed with the spin-off of 75% of BAC Holding Corp. As a result of the operation, Banco de Bogotá will retain a 25% equity stake in BAC Holding Corp, and we'll continue to consolidate Multi Financial Group, which will not be part of their transaction. The rationale behind this operation is to allow Grupo Aval, Banco de Bogotá and BAC to improve their strategic positions and capture future growth opportunities. Additionally, a simplified corporate structure will provide shareholders with pure play investment options in either Colombia, Central America or both. Moreover, the operation will ease capital restrictions related to the consolidation of BAC Credomatic solidifying Banco de Bogota's capital position. The transaction is subject to regulatory approval, currently underway. Following the announcement, rating agencies have confirmed the limited implications from Banco de Bogotá's credit rating as we will maintain a strong cum diversified business position. All these rating services affirm a rating at Baa2 while for Fitch and Standard & Poor's, the operation did not trigger a rating actually, maintaining our BB+ level in line with Colombia's sovereign grade. Now moving to Slide 5. we present our digital strategy results for this quarter. Banco de Bogota's corporate strategy revolves around our clients and the added value we can provide to them and to our communities. Our utilization process is a great example of a positive impact in customer experience as we continuously focus on improving our digital platforms and adding new features to our digital product profile. During Q3 2021, we implemented 11 new transactions in our digital channels. I would like to highlight the integration of [indiscernible] app, which allows real-time money transfers to cell phone numbers. Additionally, we have improved our interface in order to facilitate product self-management, and we have emphasized financial planning features fostering program savings through our piggy bank product, which is available at our mobile application. This initiative mirrors the app recently launched in Central America by the name of [ Cash ]. It was fully developed by BAC Credomatic and is within the top 3 downloaded financial apps in Guatemala, Honduras and Costa Rica. Its implementation has led to exponential monthly growth in monetary transfers exceeding 500,000 since its release. In Q3 2021, we also focused on improving the digital sales experience by optimizing product onboarding times through fine-tuning loan request parameters and streamlining our application forms. We have also concentrated in increasing conversion rates of more than 10 digital products by enhancing our personal banking authenticator with biometric solutions. Furthermore, our existing digital portfolio has a life insurance option available, which can be customized according to our clients' coverage preferences. The aforementioned enhancements are supported on robust data analytics of our customer journey, which allows us to identify churn grade drivers and steer our digital strategy. As a result, we enjoy a highly competitive position to offer fast, relevant, 100% utilized solutions to our existing and potential client base. Our utilization efforts continue to support sustainable growth by attracting new customers increasing our point-of-sales financing presence across marketplaces and creating synergies with existing ecosystems in order to tap into different customer segments. Aggregated digital sales from Banco de Bogotá and BAC Credomatic for Q3 2021 doubled those from 1 year earlier, leading to more than 1.5 million products sold year-to-date, representing annual growth rate of 57% in the past 2 years. Increased digital adoption is also driving growth as more than 300,000 customers were digitalized in the past quarter, reaching over 3 million active digital clients across our digital platforms. Ever-growing adoption have foreign support to digital [ challenge ] as a leading sales point. Digital sales represent 70% in Colombia and 30% in Central America. Adoption is also reflected in higher digital transaction now surpassing COP 600 million, representing over 86% of total transactions. Lastly, regarding our omnichannel strategy, we are plateauing on storefront reductions as we are closer to reaching an optimal level of our physical presence. Instead, we have focused on increasing on-site digital features and have reached 48 digital branches with 9 additional locations currently under renovation in Colombia. Banco de Bogota as a strong digital leadership in the market was recently recognized by Global Finance, who named us the best digital bank in Colombia, in addition to the best consumer digital lending bank in Latin America. Continuing with our economic outlook, on Slide 6, representing macroeconomic environment overview in Colombia. During Q3 2021, the Colombian economy continued to surprise positively at [indiscernible] were repeatedly above pre-pandemic levels confirming that chokes experienced in the second quarter have been overcome. Wider sector reopening and reduction in contingent space supported greater economic recovery, reaching pre-pandemic levels earlier than expected. The economy grew 13.2% annually in the third quarter, maintaining a double-digit result for the second consecutive period. So our prices in activity caused an upward revision of growth projections. Our economic research team adjusted forecast to 9.7% annually for 2021 and 4% for 2022. Upward adjustments have been made by most analysts as well as by the Central Bank. Banco de la República expected GDP growth of 9.8% in 2021, 4.7% in 2022 and considers that the output gap will be closed next year. The IMF also adjusted its growth projection upwards to 7.6% from 5.1% for 2021. The labor market has also recovered but at lower level and those observed in the overall economy. Seasonally adjusted unemployment rate was 12.6% in September, while employed persons totaled 21.7 million. Both figures still not reaching pre-pandemic levels. By September, 90% of the jobs lost due to the pandemic have been recovered, completing 3 consecutive months of recovery. Lower active COVID cases and progress on vaccination rollout have increased sectorial reactivation. Industry business and commerce sectors registered the highest percentage of normalized operations reaching almost 100%, while construction presents the lowest percentage of normalization at 84%. Altogether, the contributing operations is at 96% and is expected to continue improving for Q4. Inflation has also surprised to the upside and has risen above the upper limit of the Central Bank's target range between 2% to 4%. In October, total inflation was 4.6%, driven mainly by food prices with annual inflation just below 14%. Core metrics performed better standing at 2.9% in October. Inflationary pressures has surprised market consensus. In addition, the Central Bank has constantly revised its inflation forecast upwards to 4.9% for 2021 and 3.6% for 2022, highlighting the upside risk is due to the multiple chokes that impacted prices. Our economic research team forecasted inflation of 4.8% in 2021 and 3.4% in 2022. The accelerated recovery of the economy and increasing inflation opened a benchmark rate increased cycle by the Central Bank in the third quarter. By the end of September, the bank decided on a 25 basis point rate increase and accelerated the pace in October with an additional 50 basis points, bringing the rate up to 2.5%. For the final part of the year, our economic research team expects an additional 50 basis points increase to 3% above market analytics expectations, a scenario that is also considered by the Central Bank. Current account deficit has widened, and our economic research team forecasted a deficit of 5% of GDP for 2021 above the 2020 deficit of 3.3%. Deterioration reflects the recovery of local demand, which boosted imports to a 12-month total of almost $49 billion. Meanwhile, exports have recovered at a slower pace reflecting the weakness in production volumes of coal and oil. 12 months exports totaled $35 billion, which resulted in a trade deficit of more than $13 billion or 4.5% of GDP. In the third quarter, a tax reform was approved, which supports fiscal income generation through an increased tax rate for companies. New tax collections are expected to be around COP 15 trillion for the next few years, providing a temporary solution to the country's fiscal situation. In 2021, better economic growth and positive numbers in tax collections suggests that the fiscal deficit will be close below the government's projections, including the medium-term fiscal framework at 8.6% of GDP. Our economic research team predicts that the fiscal deficit could fall to 7.6% of GDP improving when compared to 2020, 7.8% of GDP. By 2022, the higher price of oil and coal would also generate additional [ fiscal ] revenue from taxes, dividends and royalties. For 2022, the government expects a fiscal deficit of 7% of GDP. High utility growth and the approval of the tax reform led to Moody's change to the foreign output group in Colombia from negative to stable and reaffirmation of Fitch rate at Baa2, maintaining investment grade. [ With this sense ] itself from the decisions made by Standard & Poor's and Fitch rating, both of which have rated the country at BB+. In the third quarter, the government's dollar finally increased significantly with the sale of [indiscernible] from the Central Bank. This caused an increase in government sales of dollars in the FX market reaching figures of up to $2.2 billion per month. A more active government in the market closed downward pressures on the exchange rate to below COP 3,800. However, in November, expectations for earlier than expected monetary policy adjustments by the Federal Reserve caused upward pressure on the exchange rate, bringing it closer to COP 3,900. COVID-19 inflations -- infections and debt fell significantly in the third quarter, marking minimal since the first month of the pandemic indicators such as positivity and ICU occupation also decreased considerably supporting sustained economic recovery. Vaccination process continued to evolve, reaching over 55 million doses applied nationwide equivalent to 24 million people with a complete vaccination scheme as of Friday. Moving to Page 7. We present the economic outlook in Central America. Like other regions, Central America continues to recover as the virus' status improved and the reopening of activity continues, although there are differences between countries. In this context, the IMF adjusted upwards its growth forecast for the region and now foresee an advance of 6.7% in 2021 and 4.2% in 2022. In both cases, above the aggregate for Latin America and the Caribbean, 6.3% and 3%, respectively. Although the good performance of the United States continued to favor trade and remittance, now with oil prices on the rise, the energy bill becomes more onerous for an important region. After reaching maximum growth of almost 16% in May, driven largely by the base effect, but also by the reopening of activity and so forth, the Central American economy grew above 13%. This result is quite favorable considering that a year ago, the economy fell 10% and contracted more than 13% at the worst moment of the pandemic. The moderation in activity has been most generalized in recent months, with the exception of Costa Rica and Panama, which maintained relevant advances still do not show a change [indiscernible]. Furthermore, the reopening of these 2 economies has been the slowest and longest judging by mobility indicators, which also suggests that the growth could continue to be vigorous amid still pending reopening. Additionally, together with El Salvador, these 3 economies registered the best numbers in the vaccination process. Indeed, vaccination in Central American countries has been uneven. As of last week, in the regional aggregate, 38% of the population has a complete vaccination scheme with El Salvador, Costa Rica and Panama living with 62%, 51% and 55%, respectively. Nicaragua and Guatemala are the least dynamic countries with progress of 33% and 21%, respectively. The successful vaccination process will continue to be a differentiating factor in the recovery of the economies of the region also reducing the risk of new restrictions in the reopening process. The strength of remittance is continued to be a decisive factor in terms of activity in external financing since the economy for which these flows are relevant, El Salvador, 26% of GDP, Honduras, 23%, Guatemala 15% and Nicaragua 15% presetting annual growth in remittances of more than 25% on average. In 2019, before the pandemic, the average annual growth of these resources was only 5%. In terms of [indiscernible] the increase in remittances has represented an additional $6 billion so far this year for these group of countries or the equivalent of 4.2% of their GDP. This situation has been more evident for El Salvador with almost an additional $3 billion in 2021 or 11% of GDP. Inflation results also show some differentiation, although not as much as in the case of activity. Two groups of [indiscernible] identified those that are polarized and those that are not. In the first case, Panama and El Salvador have seen an acceleration in inflation in recent months, although Panama, the annual variation is still contained at 2.5%, while in El Salvador, it has already reached 5%. The group of countries, which follow shows a more stable inflation behavior in recent months, which results from 2.5% and 4.7%. Although it is not yet evident in all countries, the rebound in oil prices will end up being passed on to local prices, which would soon be reflected in regional inflation. For now, inflation in Central America was 3.3% in September, a little more than double than a year ago and well above the minimum level of 0.3% registered a few months after the beginning of the pandemic. To the extent that inflation is not yet as much of a problem, the central banks of the region that have an independent management of monetary policy kept their interest rates unchanged. Consequently, Costa Rica and Guatemala completed 16 months without changes in the interest rates at 0.75% and 1.75%, respectively. While [ undue those have ] remained almost a year with this reference rate at 3% as in the rest of the emerging economies, the macroeconomic balance has changed and with growth that has recovered well, rates increase could be approachable. Now I will hand over the presentation to our Head of Corporate Development, Financial Planning and Investor Relationship, Mr. Diego Rosas, who will provide details on our financial results for the quarter.

Thank you, Germán, and good morning, everyone. I would like to start on Slide 8, which presents the consolidated asset structure in Q3 2021. Total assets grew 2.1% on an annual basis and 1.3% quarterly, reaching COP 224 trillion. Excluding the FX effect, growth was 2.8% and 0.4%, respectively. Asset structure is led by the net loan portfolio with 63.8% of total assets, followed by other assets with 20% and fixed income and equity investments with 12% and 4.2%, respectively. Participation of fixed income investments decreased 68 basis points given the effect of the exclusion of Porvenir's portfolio from our balance sheet. Zooming in on our consolidated loan portfolio, it increased 4.1% annually and 2.5% quarterly to a total of COP 149.5 trillion. Without the effect of FX, increases were 4.9% and 1.6%. In terms of diversification, we continue to maintain a healthy balance across economic activities, favoring secured exposures such as mortgage, payroll and vehicle loans, all of which slightly increased their share during the quarter. Breaking down our loan book by segment, the commercial portfolio leads with 57% of our consolidated loans. In Q3 2021, consumer and mortgage loans continued increasing their share to 28.1% and 14.7%, respectively, targeting a more balanced portfolio between corporate and retail clients. Excluding FX impact, the commercial portfolio grew 2.5% and 1% annually and quarterly, reflecting a slower reactivation than in retail segments. This is also the result of our preference for long-term profitable business instead of engaging in aggressive pricing strategies. On the other hand, demand for consumer and mortgage loans retains momentum, as shown by dynamic annual growth rates of 8.8% and 7.6%, respectively, when isolating FX impacts. Quarterly growth without the effect of FX came in at 2.5% for consumer lending and 2.2% for the mortgage portfolio. For 2021, we are targeting loan growth around 10%, leveraged on strong retail lending demand and increased financing needs from the corporate book. On Slide 9, we present our consolidated loan portfolio quality metrics. Starting with quality ratios, both 30-day and 90-day PDLs decreased 40 basis points during Q3 2021 to 4.4% and 2.9%, respectively. Improved performance echoes economic reactivation, which has supported payment resumption. Additionally, they incorporate the effect of Avianca's exposure normalization. To elaborate further, Banco de Bogotá and Avianca reached an agreement regarding outstanding credit exposure. At the end of Q3 2021, consolidated loan exposure to this name was COP 619 billion as follows: 16.2% of the exposure is [ collateralized ] by the company's headquarters and is recognized as 100% secured. This loan has always been performing as the trust owns the building and the loan is serviced by Avianca's rental payments. 74.3% of the exposure relates to a syndicated loan granted by Banco de Bogota, Banco de Occidente and BAC Credomatic, which is guaranteed by ticket sales receivables in Central America. 90% of this exposure was recognized as secured, while 10% will be paid in kind with frequent travel miles. A payment close to $5.8 million was received in September when authorization was granted to use funds held in the reserve account for debt service. An additional 7.2% will receive the same settlement as a syndicated loan in terms of secured recognition and guarantees. The remaining 2.3% of the exposure is unsecured and will be repaid with Avianca's shares. This exposure is fully provisioned. On the top right, we observed a quarterly reduction of 41 basis points in our net cost of risk to 1.8%. This represents a 15.7% net provision expense contraction to COP 651 billion. Cost of risk evolution reflects limited pressures on provision expense as a loan portfolio continues to recover and our reserve buildup in 2020 has proved adequate to support non-deterioration materialized in 2021. Year-to-date, net cost of risk is 2%, which is in line with our 2021 guidance for cost of risk of 2.1%, converging to historical levels. Charge-offs reached 0.74x of average 90-day PDLs in Q3 2021 as a result of charge-off activity returning to normalized levels. They now represent 2.3% of average loans. Charge of activity was mainly on the unsecured retail portfolio, namely credit cards and personal loans. As a result of improved loan quality on our consolidated loan portfolio, coverage metrics increased to 1.16x over 30-day PDLs and 1.73x over 90-day PDLs. For Q3 2021, allowances represent 5.1% of gross loan balance. We consider these levels to be atypical as provisions related to recently normalized exposures are being evaluated. As a reminder, our rule of thumb is to be around 1x consolidated coverage over 30-day PDLs and 1.5x over 90 days. Continuing on Slide 10, we present regional performance of our loan quality ratios. Starting with Colombia. Both 30- and 90-day PDL ratios improved quarterly contracting 109 and 68 basis points, respectively. This is explained by the commercial and consumer portfolios. The first partly supported by Avianca's syndicated loan returning to performing status and the latter in line with increased charge-off activity on secured exposures. Furthermore, better payment performance than initially expected also contributed to improvement in delinquency ratios. Net cost of risk for the Colombian operation remained at 2.5% as loan deterioration is improving and pressure to increase reserves has eased. As noted earlier, charge-off activity picked up pace in Q3 2021 with ratios of 0.64x over 90-day PDLs and 3.1% over average loans, very much in line with historical averages and pre-pandemic levels. Regarding coverage, allowances in Colombia reached 1.24x over 30-day PDLs and 1.6x of our nonperforming loans, resulting in 7.2% of the gross loan book. Now moving to Central America. 30-day PDLs increased 23 basis points in the quarter, mainly due to the end of relief measures in Panama. We are already seeing positive results from our strategies to restore payment culture in that marketplace. 90 days PDL ratio remained at 1.6%, contracting 22 basis points annually, illustrating a stability on PDL formation in line with normalized economic activity levels. Net cost of risk stands at 1.9%, supported by improved loan quality ratios and repressed provision expense. Charge-offs ratio for Q3 2021 decreased to 1x, representing 1.6% of average loans. Coverage over 30-day PDLs converged to 1x due to the aforementioned increase of delinquent loans in Panama's retail portfolio. Coverage over 90-day PDLs continues above 2x, while allowances as a percentage of Central American loan portfolio presented no variations, closed in the quarter at 3.3%. Moving to Slide 11. We show our consolidated loan portfolio quality by segments. Starting with commercial portfolio, 30-day PDL ratio improved 71 basis points quarterly to 3.3%, while it's 90-day PDL ratio reached 2.8%, a reduction of 62 basis points in Q3 2021. 30-day and 90-day PDL ratios for the consumer portfolio registered at 17 and 18 basis points quarterly contraction respectively. Improved performance in Colombia was offset by delinquency increases in Central America, mainly in Panama, as previously explained. Mortgage loans, 30-day PDLs increased 37 basis points in the quarter as a result of Panama's relief expirations, while 90-day PDL ratio continued at 2.6%. On Slide 12, we present an update on loan relief programs. Q3 2021 marks the last quarter when borrowers could apply for our relief measure in Colombia and in Panama, which ended their relief programs in August and September, respectively. As for the remaining countries, programs ended throughout the first half of the year. As a result, active forbearances represented 2% of our consolidated loan portfolio at the end of the quarter, down from 4.3% as of June 30. Loans with current grace periods are all from our Panamanian portfolio, accounting for 8.9% of its total loan balance. Regarding structural agreements or second relief measures, these were 10.3% of our consolidated portfolio contracting from 10.6% at Q2 2021. Reduction is explained by the end of the application period as well as loan amortization, given that loans under these agreements have an active payment schedule. Presented at the bottom half of the slide, consolidated current loans are 93.6% of the total portfolio, increasing from 90.9% in Q2 2021 as borrowers resume loan payments either after forbearance expiration or being under a credit renegotiation. This speaks to the adequacy of the relief measures, which are leading to suitable loan performance from those most impacted by the pandemic. On Slide 13, our funding evolution in Q3 2021 is presented. Total funding reached COP 194.2 trillion, increasing 2% and 1.5% in annual and quarterly terms. Excluding the FX effect, growth was 2.8% and 0.6%, respectively. Our prevailing funding source is deposits with an 81.5% share of consolidated funds. This is slightly contracted from 83.1% level at Q2 2021 as interbank borrowings increased their participation by 180 basis points in the quarter due to market conditions in Colombia. Additional sources such as banks and others and long-term bonds represent 8.5% and 7.1% of total funding, respectively. Deposits amounted to COP 15.4 trillion growing 4.3% annually and a slightly decreasing quarterly by 0.4%. Isolating FX impact, annual growth was 5.1% while we observed a quarterly contraction of 1.3% as economic reactivation has led to liquidity usage. In terms of deposit composition, time deposits increased 98 basis points quarterly, their share of total deposits to 40.6%, counterbalancing a decrease in saving accounts to 29.3%. Checking accounts contribute with the remaining 29.9% of the deposit mix. The deposits to net loans ratio was 1.12x, decreasing 3.4 percentage points as a combination of quarterly loan growth and deposits construction. Turning to Slide 14, we present our equity and solvency levels. Total equity for Q3 2021 was COP 24.5 trillion, increasing 4.3% quarterly and 5.6% annually. Quarterly reduction of our noncontrolling interests to COP 71.5 billion was offset by the effect of the COP 1.3 trillion extraordinary gain from Porvenir's deconsolidation in attributable net income. Consequently, equity growth is explained by quarterly net income from continued operations as well as a 14.8% quarterly increase in our comprehensive income to COP 1.9 trillion. Accordingly, our tangible common equity increased to COP 17 trillion, representing an 18.3% quarterly growth, explained by the aforementioned increase in attributable equity and also benefited from lower goodwill deductions related to Porvenir's transaction. Tangible capital ratio in Q3 2021 increased to 7.9%. As we shared in our last earnings call, Porvenir's deconsolidation further strengthened capital adequacy ratios increasing to 13.5% for total solvency and 11.1% for Tier 1, in line with the previously guided increase of approximately 100 basis points. Besides the effect from the 1.3 extraordinary income and lower goodwill reduction ratios to keen the effect of lower RWAs from Porvenir's market assets. A stronger capital position contributes to maintain solid buffers above regulatory minimums. Before turning to our P&L figures, I would like to note that in order to maintain comparability with previous quarter's financial results, we have included a scenario as if Porvenir's deconsolidation had not occurred. In the presentation, this is shown as 3Q '21 pre. Now turning to Slide 15, we present our net interest margin ratios. In Q3 2021, total NIM came in at 5% and supported by 18 basis points quarterly increase in lending NIM to 5.8%. Conversely, investment NIM decreased to 1.3% as a result of volatile market dynamics, which mainly affected sovereign fixed income securities. Yield on loans increased 17 basis points as a result of growth in higher-yielding products in the consolidated consumer and mortgage portfolios. Taking into account recent Central Bank rate increases for a total of 75 basis points as of October, we expect market rate adjustments to positively impact our lendings as our variable rate index loan portfolio reprices to the upside. As mentioned earlier, reduction on fixed income returns is driven by lower valuations on those investments as well as by the impact on Porvenir deconsolidation. Regarding our cost of funds in Q3 2021, we registered a 2 basis point reduction to 2.4%. Going forward, we expect interest-bearing funding to increase in tandem with market interest rate movements. In terms of guidance for 2021, we expect to close the year with a NIM near 5%. Now let's move on to Slide 16, where we present details on our fee and other income. Fee income for Q3 2021 was COP 1 trillion, which took in the effect of Porvenir's deconsolidation, resulting in a fee income ratio of 28.9%. Quarterly reduction comes mainly from the effect of pension fees not being consolidated. Consequently, our fee income distribution changed to 91.8% coming from banking fees, 1.4% from pension fees from our Central America operation, 3.7% from fiduciary activities and 3.2% from other fees. Now moving to our other operating income. In Q3 2021, it reached COP 1.7 trillion, close to COP 1.3 trillion come from Porvenir's investment valuation update to its fair value as a result of the deconsolidation process. Derivatives and investment income were impacted by the effect of no longer consolidating Porvenir's investments. Equity method income for the quarter was COP 54.5 billion, mainly affected by Corficolombiana's results. As a consequence of the recently approved tax reform, deferred taxes needed to be recalculated at the new rate, which increased 4 percentage points. In turn, this onetime event impacted net profits for the quarter, leading to a lower contribution. Isolating this impact, we would have reached an equity method income of COP 193.5 billion for the quarter. Furthermore, starting on Q3 2021, we are including Porvenir's results in our equity method, which contributed COP 47.3 billion, driven by market volatility that affect return on assets under management. For 2021, we expect our fee income ratio to come in around 28%, reflecting the impact of Porvenir's deconsolidation. On Slide 17, we continue with our efficiency metrics. Efficiency for Q3 2021 was benefited by the onetime income from Porvenir's deconsolidation, which led to a ratio of 39.7%. Excluding this effect as well as the impact from Corficolombiana's deferred tax adjustment, our efficiency would have been 52.2% presenting an increase of 241 basis points in the quarter. Quarterly growth is explained by increased operational expense related to higher core operation, in line with economic reactivation. This includes advertisement campaigns, variable compensation to our sales force and investments in software development, among others. Regarding our cost to asset ratio, we observed a 7 basis point increase as a result of the aforementioned. Our efficiency guidance for 2021 is around 50%. Lastly, on Slide 18, we present our profitability returns for the quarter. Attributable net income for Q3 2021 is COP 2 trillion, COP 1.3 trillion comes from Porvenir's deconsolidation as explained earlier and COP 709.9 billion comes from our quarterly performance. If we isolate Corficolombiana's deferred tax adjustment, attributable net income would have been COP 848.9 billion. Net income was supported by a 6.2% quarterly increase in our NII as well as a 15.7% reduction in our net provision expense and solid fee income contribution. On the other hand, headwinds for the quarter came in from our equity method income, as mentioned previously. As a result, profitability for the quarter came in at 1.3% ROAA and continued with a double-digit ROAE at 12.2%, reflecting our strong business fundamentals, which has led to solid results. Excluding Corficolombiana's impact, returns would have been 1.6% and 14.6%, respectively. Before starting our Q&A session, I would like to summarize our guidance for 2021 and 2022, both of which reflect our current corporate structure. In terms of loan growth, we expect to close 2021 around 10% and 9% for 2022. NIM for 2021 is expected to close just below 5%, and we expect a rebound to around 5.3% for 2022, in line with market interest rate increases. Regarding net cost of risk, we expect to be around 2.1% for 2021, lower than our previously guided range between 2.25% and 2.5%. For 2022, we expect further reductions to 1.9%. Fee income ratio is expected to be around 28% for both years, reflecting the impact of Porvenir's deconsolidation. Efficiency ratio should be around 50% in the short term. Profitability for 2021 should be at 1.8% for ROAA and 18% for ROAE, including the onetime income from Porvenir. Excluding this impact, ratios would be around 1.3% and 12%, respectively. For 2022, we expect similar levels. And now we are open to questions.

[Operator Instructions] We have a question from Julian Ausique from Davivienda Corredores.

I have 2 questions, and the first one is about the shares issuance about Grupo Aval and Banco de Bogota for the next year. I would like to confirm if Bogota and Grupo Aval will be -- will do the issuance or just Grupo Aval and what is the expected day that -- for the transaction? And my second question is about a little bit of more color about the view that you have in Central America, specifically in Panama?

Julian, thank you so much for your questions. And I would like to tell you that at this moment in time, there's no issuance insight for Banco de Bogota. If you would refer into the fixed income transaction, and that's something that will be contemplated as time flows by depending on market conditions and our need to do any particular liability operation. In connection with our viewing in Panama, what I could tell you is that there are like a 2-part story. One is in connection with Panama being the country, which waited until the latest in the year to change these programs -- relief programs adopted out of the pandemic. So that definitely convey, on one hand, let's say, a little delay in the way that, that of course began repaying their transactions. And that's why we are achieving, let's say, higher loans and a little -- and some additional time to normalize a good portion of those consumer lending, not much commercial. But in recent weeks, out of the collection process we have begun, we're beginning to see quite peculiar reaction from debtors and ratios are definitely improving. What also happened in the country is that they took a little longer to apply vaccinations on one hand to maintain the economy closed for longer than others, and that definitely had an impact in whole activity. Recent data is showing a good recovery in most sectors of the economy. The inflation rate is behaving. The income from, let's say, services is also improving. And we are favorable and positive in what is going to happen next year. It's one of the countries where we are not having any political or electoral news. So that is why we are positive in what is going to happen towards 2022 and thereafter.

[Operator Instructions] The next question comes from Rodrigo from PineBridge Investments.

So I have a couple of questions related to the transactions. First, maybe the focus would be more on the rationale and the transparency behind first on the Porvenir divestment. I understand that the valuation was done by a third party and the approach might be conservative given that a write-off in the future will be detrimental for your future capitalization rate. So nevertheless, this was also a recurrent source of fees. So my view of the transaction is that it is a positive one-off for recurring non-beneficial or nonstakeholder beneficial effect on the fees of the bank. So I was thinking maybe this could be mitigated by the upstream of dividends in the future. I don't know if we should expect upstream of dividends from Porvenir this and next year? And also maybe how recurring will this dividend be? Maybe also just to flag, there are very quick back-of-the-envelope calculation looking to the free cash flow, I understand that there might be several considerations here, but the multiple for these seems quite a little bit high. So I would appreciate maybe not now, but maybe in the future, if we could have more information about this transaction?

Thank you for your question. Well, about Porvenir, as you know, our share in Porvenir is going to stay the same, 46%. So we're still going to benefit from that diversification. As you mentioned, there was a benefit for us in terms of solvency and capital of around 100 basis points. And you know our fee income ratio is going to be a little bit lower, but we think we still are going to be benefited by that diversification. In terms of valuation, yes, we can get a deep dive on that later. But we had an independent valuator that established that there was a COP 1.3 trillion upside against what we had in our books.

We have a follow-up question from Julian Ausique from Davivienda Corredores.

Sorry for asking again, but I was in my first question, it was regarding about the share issuance to the strength at Banco de Bogota capital structure because I -- as I already know, the next transaction that will happen is maybe Banco de Bogotá or Grupo Aval, I just want to confirm which of those will do the shares issuance? And also, I would like to understand the rationale of -- to list in the Colombian and the Panamanian Stock Exchange, the shares of backhauling international?

Okay. Julian, sorry if I misunderstood the question. So first of all, there is no decision being made as to capitalization of Banco de Bogotá beginning with Aval and then Banco de Bogotá that an alternative which is being [ constantly ] engaged, but no decision has been made so far in that regard. In connection with your second question, the idea to list the shares of Banco, the new -- after the new transaction, the new BAC Holding International Corp., which is going to issue shares to the new shareholders, which is going to base on 1 share of Banco de Bogota that we have at the moment for any shareholder is going to be an issuance of 1 share of this company in Panama is to have the possibility that, number one, a shareholder who would own other which shares of Banco de Bogotá here in Colombia or have shares of BAC Holding International in Panama, which is going to be holding the whole [ BAC ] operation, which is the bank in Central America. That will be the first bank in Central America with the possibility of having shares listed in the case of Panama, the Panamanian Stock Exchange; in the case of Colombia, the Colombian Stock Exchange. So that will provide quite a flexible option to shareholders to own either one, the other or both of them, which we believe are going to be very attractive in general terms.

We have a follow-up question from Rodrigo from PineBridge Investments.

Again, not my intention to make any value judgment or beating at the doors here. So now on Central America and maybe on corporate governance, the Porvenir divestment was announced 1 day after the resignation of the CFO. So I know it might not very well be the explanation of all the transactions that were made, but the story being told about the bank was different a year ago. So just want to understand, maybe if you could provide more color on what guarantees do you give to the stakeholders in the bank in the future? And maybe share some of the main discrepancies that management or the Board has at the time. I understand that there is [ 81 ] that the holding company has on like -- and that might be one thing, right? But I just want to have more clarity on this topic, if you could provide any color it would be very helpful.

Well, first of all, that's a mere coincidence because those 2 events that you're mentioning are not related at all. We have a very strong corporate governance here in Banco de Bogotá and also at BAC Credomatic. And you know that, that decision was made at all levels. And we didn't see anyone saying opposite to that. So as I mentioned, that's only a coincidence.

[Operator Instructions] We have no further questions at this time. And now I will turn the call over to Mr. Figueroa for closing remarks.

Thank you very much for attending our meeting, and we will be ready to any question in the next meeting. Thank you very much, again.

Thank you. This concludes today's conference. Thank you very much for your assistance. You may now disconnect.