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

Good morning. Welcome to Banco de Bogota's Q4 2023 Consolidated Results Conference Call. My name is Diana, and I will be your operator for today's conference call. [Operator Instructions] Please note that this conference is being recorded. We also advise you to read our disclaimer available on Slide #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. Cesar Prado, CEO of Banco de Bogota, will be the host and speaker today. Mr. Prado, the floor is yours.

Thank you, Diana. Good morning, everyone, and welcome to Banco de Bogota's fourth quarter 2023 earnings call. Thank you all for joining us today. This was yet again another difficult quarter at the end of a challenging year for the banking system in Colombia amidst deteriorating macroeconomic conditions. 2023 was marked by high inflation, which has been trending downwards since March, although decreasing slower than expected. Central bank rates have remained high, although their much anticipated reduction began in December with a further decrease in January. However, rates remained well above our estimates. For the banking system in general, there were 2 elements which impacted profits in 2023. On the one hand, margins contracted as the cost of funds was more sensitive than the loan yield to interest rate increases. On the other hand, the macroeconomic environment caused loan deterioration, which mostly impacted consumer loans. These 2 effects impacted most institutions to different degrees. Net income for Banco de Bogota for 2023 stood at COP 954 billion, representing a return on equity of 6.1% and a return on assets of 0.7%. Even though these profitability stands below our targets, it was obtained during the challenging year where Banco de Bogota stood amongst the most profitable banks having the second highest net income in Colombia. The loan portfolio suffered greater than expected quality deterioration throughout the year. Indeed, as inflation and higher interest rates impacted households, our consumer portfolio quality showed an annual increase of 113 basis points in 90-day PDLs from 2.7% to 3.8% with a net cost of risk of 10.3%. Fortunately, we saw some signs of recovery in this segment in the fourth quarter of 2023 with the 90-day PDL ratio improving quarterly by 14 basis points, while Stage 3 consumer loans as a percentage of total consumer portfolio also decreased by 14 basis points. Annual peso revaluation at 20.5% impacted loan growth figures. Loans grew 3% year-on-year in 2023, reaching COP 99 trillion. Without the effect of FX movements, growth was 7.1%. As previously announced, Banco Popular began consolidating Corficolombiana after a shareholders' agreement was signed in November 2023. Consequently, as prescribed in applicable regulation, Banco de Bogota no longer has to deduct its investment in Corficolombiana from its CET1 capital. Therefore, this quarter, you will observe an important increase in capital adequacy, which we will explain further during the presentation. And now, let me switch to a different topic. Currently, we are in the process of concluding our strategic plan for the next 3 to 5 years and we expect to start implementation in the second quarter. We will inform you of further advancements in due time. Regarding governance, there were 2 changes in the senior management team in the fourth quarter. Marcela Villegas was appointed as CRO and Sergio Sandoval as CFO. These organizational changes will strengthen our risk management approach as well as the finance function as a whole. Finally, this quarter, there was a one-off tax event as a consequence of the sale of the remaining shares of BAC Holding International in March 2023. This event impacted results by COP 114 billion in the last quarter, causing an abnormally high effective tax rate for the year. Now let me summarize the bank's consolidated fourth quarter results. Profitability was low this quarter with an attributable net income of COP 37.7 billion, which resulted in annualized profitability ratios of 1% for return on average equity and 0.1% for return on average assets. Quarterly net interest margin decreased 13 basis points to 4.3% due to both higher cost of funds and lower investment yields. For the full year, NIM remained stable at 4.5%. Fee income ratio decreased by 1.5 percentage points in the quarter to 27.6% as income increased at a higher base than fees. However, for the entire year, fee income ratio improved by 2.3 percentage points to 27.1%. Efficiency, measured as cost to income, increased to 56% this quarter as this variable is usually higher than average in the fourth quarter. For the year, cost to income stood at 50.9%. Cost to assets ratio stands at 2.9% for the quarter and 2.7% for the entire 2023. As I mentioned before, consolidated gross loans amounted to COP 99 trillion with the Colombian portfolio increasing 8.8% year-on-year and representing 86% of the total gross loan portfolio. Deposits totaled COP 91.1 trillion this quarter, a 0.2% quarterly decrease affected by the peso revaluation. When excluding FX movements, deposits show a 0.7% quarterly growth. The ratio of deposits to net loans remains at a similar level of 0.98x. Deposits increased their share of funding, reaching 78.1% as total funding decreased 2.1% this quarter, mainly due to FX effects. Loan quality showed a slight deterioration this quarter, having 30-day PDLs increased by 8 basis points and 90-day PDLs by 17 basis points to 5.7% and 4.2% respectively. Net cost of risk improved this quarter to 2.6%, while the entire year's cost of risk stands at 2.3% in line with our past guidance. Now I will turn the presentation over to German Salazar, Banco de Bogota's, Executive Vice President.

Thank you, Cesar, and good morning, all. Let's move to Slide 4 where we present highlights regarding our digital strategy. In the fourth quarter of 2023, we had significant achievements on multiple fronts. We are strengthening our digital offering by the corporate business. We extended advantages of digitization to new product releases and improvements. And we advance on agile methodologies for traditional products, ensuring a holistic and innovative approach across the entire product range. In our corporate business, we maintained a continuous growth in digital disbursements, while also successfully launching new, highly efficient products. During the quarter, our digital business loans grew 46% for a total of COP 183 billion, which means that 55% of the loans of less than COP 500 million for SMEs, opening with digital promissory notes. We increased paperless authorization adoption in an approval flow. 92% of these approvals resulted in immediate disbursements. We launched specialized digital loans to pay employee social benefits and working capital loans, making the first disbursement of COP 242 million in the pilot phase. Regarding consumer products, throughout the quarter, we introduced new and improved digital experiences of which I want to highlight the following. Our digital savings account reported for the fourth quarter 138,000 new accounts, representing a balance of COP 135 billion in deposits and a quarterly growth of 9%, partly as a result of the campaign for documenting payroll accounts. We also launched a campaign for the new Mi Trabajo savings account, which is a payroll account product without a payroll agreement. This initiative achieved the acquisition of over 2,000 accounts. In the fourth quarter, we successfully sold more than 15,000 digital time deposits. Despite the decrease in rates, we obtained a balance of COP 777 billion with a 45% year-on-year growth. Furthermore, improvements on digital time deposit renewal resulted in 6,800 time deposits that would not have been renewed otherwise. This was achieved due to effectively communicating reinvestment options, streamlining processes and enhancing overall user experience. We reached over 1,000 digital checking accounts. The adoption of this product has improved the commercial team's productivity from a traditional 30-minute flow to a 7-minute digital flow. It's noteworthy that our digital approach has led to annual increase of 71% of sales with a digital share of 67%. We sold over 81,000 digital credit cards for the balance of COP 1.3 billion, which represents a quarterly increase of 3%, mainly due to a strategic shift towards inclusiveness by targeting diverse market segments. We successfully launched our PIN-free credit card, Cero Rollo, and we introduced a new credit card called [ ON ] for technology discounts as part of our strategy to capture additional market segments. During the quarter, our digital mortgage product demonstrated remarkable performance with more 1,200 disbursements. Despite the challenges of 2023, this product represented 14% of total bank's mortgage balance at the end of the quarter. Also, as we introduced our end-to-end 100% digital product, we achieved our first digital disbursement, strengthening our digital capabilities and extending our offerings in collaboration with allies. Thanks to the adoption of agile methodologies, our recent initiatives have yielded remarkable results across a range of products and services from the incorporation of new financial services to the improvement of user experience. To that end, we undertook the following initiatives. We launched the first pilot for [indiscernible] new digital overdraft line for corporate clients. We achieved a total of 107 disbursements for COP 125 billion. With this product, we seek to reduce commercial times, providing customers a more efficient experience and greater traceability of information. During this quarter, the Finagro Integrador product targeted to SME with [indiscernible] resulted in 1,700 disbursements for a total of COP 137 billion. Regarding factoring and confirming, we reached COP 249 billion in disbursements, an annual growth of 85%. We created a more efficient digital documentation process for factoring transactions, which led to efficiency in remote access and better monitoring and auditing of the information. Digital channels registered a total 2.5 million users as of December 2023, which is a 67.5% rate of digital adoption. Notable highlight, the fourth quarter include the ongoing enhancement of our customer experience through QR code transactions, person-to-person, operations through Transfiya and Cel2Cel and the newly available self-manageable help bottom among other initiatives. As a result, our monetary transactions reached a total of 23.4 million transactions in Q4, a growth of 17% year-over-year. We would like to highlight that 79% of all transactions in this quarter were performed through digital channels, representing a growth of 4% from the previous quarter. Now moving on to Slide 5, we present our sustainability highlights. At the end of 2023, we received 2 recognitions, which reflect our commitment to the sustainability strategy. First, Banco de Bogota was included for the fourth consecutive year in the S&P Global Sustainability Yearbook, thanks to our score in the Dow Jones Sustainability World Index. This means that we remain as well the most sustainable bank in the world, placing us in the 93 percentile of 722 SAS banks. Second, we obtained a B rating in the first review by the carbon disclosure project, placing us well above the industry in carbon emission reduction, portfolio impact and risk management processes. In the strategic front, regarding climate action, the bank achieved the following. The bank placed COP 2.6 trillion in re-loans, having increased this product placement by 8.7x in the last 3 years. We conducted 402 analysis through the environmental and social risk management system for a total value of COP 31 trillion. Also, we strengthened the sustainable construction value proposition by partnering with SUMAC and IFC to promote EDGE ADVANCE certified projects. We maintained Icontec's carbon neutral certification and continue to move forward in the user renewable energy in 40 facilities, reducing the carbon footprint by 44% in Scope 1 emissions and 22% in the Scope 2 emissions. The bank was recognized by Latin Trade One Day for the Amazon for its support of reforestation through the Amazonia debit card, an initiative that has reforested 1,500 hectares of tropical rain forest and has benefited 600 families and 160 indigenous communities. As part of the bank's commitment to preserve biodiversity in Colombia and to improve the quality of life those in need, we have joined the Amazon Finance Network Initiative created by the IDB Invest and by the IFC. Regarding the social dimension, the bank financed COP 10.8 trillion in social loans through 182,000 credits. Of these, 51,000 were credits to vulnerable populations and 113,000 were loans for small and medium-sized enterprises. Of the SME credits, 35% were granted to women. The bank has financed COP 3.1 trillion in social housing under the government subsidy program, Mi Casa Ya, for priority and social house. Over 3.3 million people have benefited since 2012 under the bank's financial education program, reaching over 354,000 people in 259s throughout Colombia. The bank has funded COP 4.1 billion in social and environmental actions, which helped paved the development and well-being of populations through women's entrepreneur programs, financial and education, employability and rain forest restoration such as Mujeres Cambiando la Moda, [ Mujeres Ruphe ] and the digital talent program Juan Maria Robledo among others. Moving on to Slide 6, let me summarize the local macroeconomic overview. Colombia's economy registered an economic slowdown in 2023. Activity moderated its growth to 0.6% below the potential growth that economic research team estimates close to 3%. The weakness of the sectors that are traditionally the driving force of the Colombian economy explains the lower dynamics. These declines in commerce 2.8%, manufacturing, 3.5% and construction 4.2%, were partially offset by the positive performance of services. The higher rates by Banco de la Republica, the lower levels of confidence of both households and companies and high inflation had an impact on the decisions to consume the level of goods and investment, which limited the dynamics of the sectors already mentioned. For 2024, GDP growth projection is 1% considering the large effect of monetary policy, they need to adjust fast expanding expenses and the uncertainty of fiscal policy mainly. Meanwhile, inflation surprised downwards in the first stretch of 2023 and ended at 9.3% below expectations. After being one of the components that explain the upward trend in prices in 2021 and 2022, food prices dropped total inflation downward by going from an annual growth in prices of 27.8% at the end of 2022 to 5% in 2023. This improvement was explained by the lower price of supplies, the appreciation of the Colombian peso and the improvement of weather conditions in the second semester. The other segment that also contributed to the result was final goods, which went from an annual variation of 15% to 7.1% between 2022 and 2023 with the lower cost of imported goods due to the improvement in the exchange rate added to the low demand from households. On the contrary, regulated prices put upward pressure on inflation during the year due to the rise in gasoline prices and indexation. Despite the return of inflation to single-digit levels, it is still far from Banco de la Republica's goal of 3% plus minus 1 percentage point. For 2024, our economic research team anticipates inflation below 6% affected by the effect of El Nino phenomenon on food prices and energy rates, the possible increase in price of diesel fuel and increase in the healthy tax on food, but above all, the inertia of prices due to indexation to pass inflation and the minimum wage. The economy has slowed down at the beginning of the inflation moderation trend led Banco de la Republica to begin the phase of interest rate cuts at its last meeting of the last year. After reaching a maximum of 13.25% in April and remaining at this level for most of the year, in December, the Central bank cut its rate by 25 basis points to end the year at 13%. For 2024, the macroeconomic balance will continue to support the cycle of cuts that would last until 2025. Our economic research team expects the reference rate to end the year close to 8.25%. Turning to the exchange rate. 2023 was a year of appreciation of the Colombian peso against the dollar to such an extent that the local currency was the best performer among the main emerging economies, specifically, the exchange rate went from COP 4,810 at the end of 2022 to COP 3,822 on the last date of 2023, a revaluation of 21%. The dynamic was explained by the weakening of the dollar globally, the significant correction of the country's external imbalance and the lower perception of country risk where the 5-year CDS tightened from 274 basis points to 176 basis points between 2022 and 2023. In particular, in the fourth quarter 2023, the current account deficit was 2.3% of GDP, having increased from the third quarter by 0.6% to GDP due to a higher trade deficit, partially offset by lower expenses in factor income and higher income from transfers. For the year 2023, the current account deficit was 2.7% of GDP, an improvement against 2022 6.2% figure due to a lower balance of trade deficit and lower net expenses from factor income. Finally, the National General Budget for 2024 was approved for COP 503 trillion, 19% more than that of 2023, a relevant increase. With this, the primary deficit of 0.9% of GDP and the fiscal deficit of 5.3% of GDP are expected for the Central National Government in 2024 according to the medium-term fiscal framework. Although compliance with the fiscal rule is planned in 2024, there are challenges on the revenue side, which the Ministry of Finance itself has indicated, could be faced with spending adjustment. Moving on to Slide 7, let me summarize Panama's macroeconomic overview. As observed in most economies in the world, in 2023, Panama's economy experienced a process of a slowdown after the large growth rates observed in 2021 and 2022 of 15.8% and 10.8% respectively. So far in 2023 until September, GDP showed a real growth of 8.9%. And in the absence of the publication of the fourth quarter data, entities such as International Monetary Fund estimate that the economy grew around 6% in the year. Until the third quarter of the year, construction, transportation, mining and commerce explained the positive performance of the Panamanian economy. Construction activity took an important role in economic growth by experiencing the year to the advance of 24.5% as a result of greater investment flows due to public projects such as the Metro in Panama City, modifications to the Panama Canal and construction of gas and energy plants. Regarding commerce, dynamics were sustained by the resilience of private consumption, which despite its slowdown, continued to grow at double-digit rates. In relation to transportation, the greatest contribution came from Air Transportation segment, which was favored by an annual increase of more than 80% in tourism, which compensated the lower maritime transportation activity to shift draft limitations as lower rainfall has affected Lake Gatun's depth. However, despite the lower moving containers, the increase in freight rates favored the increase in all revenues. In the last quarter of the year, Panama went through a complex, social and rare situation after the renewal of copper exploitation contract. Ultimately, Panama's Supreme Court declared the extension of the contract unconstitutional and ordered the closure of the copper mine, which will generate gradual impact in the country's productive activity. Taking the above into account Moody's Investor Service lowered the country's credit risk rating from Baa2 to Baa3 at the limit of investment grade. In turn, the other 2 rating agencies, S&P and Fitch, went from stable to negative outlook in the country's risk rating, BBB and BBB- respectively. Turning to prices. In Panama, there was a rapid inflationary process that was justified by the freezing of fluid and food prices by the government, in particular, after reaching its maximum of 5.2% in June 2022 in line with the global trend and influenced by local policies, the country's inflation show a significant reduction in 2023 with a brief deflation in the middle of the year from which it headed an upward trend until consolidating close to 2% in the last months of the year. This rebound occur once some subsidies of the price of public services, fuel and certain foods were left behind. Inflation was 1.9% for 2023, having increased the most in housing and public services and having diminished both in clothing and furniture and communications. The IMF projects inflation at the end of 2024 at 2.2%. We will closely monitor the upcoming elections on May the 5th, where the President, Vice President and several legislative bodies will be elected. Now I will hand over the presentation to Javier Dorich, Head of Investor Relations and Corporate Development, who will provide details on our financial results for the quarter and the full year.

Thank you, German, and good morning, everyone. Starting on Slide 8, we present our balance sheet evolution during Q4 2023. Consolidated assets totaled COP 137.5 trillion at the end of Q4 2023, representing an annual increase of 3.6% and 0% quarterly when excluding FX fluctuations. The net loan portfolio continues to be the main asset, representing 68.1%. Other assets follow with 12.7%, while fixed income and equity investment portfolios represent 11.3% and 7.9% respectively. The gross loan portfolio closed at COP 99 trillion in Q4 2023, decreasing 1% in the quarter and increasing 3% yearly. Quarterly decrease is mostly explained by the 5.7% peso appreciation. Excluding FX, loans grew 7.1% year-on-year and decreased 0.2% this quarter. Quarterly reduction comes mainly from the Panamanian portfolio. Regarding loan mix, the commercial portfolio represents 64.1% of consolidated loans, while consumer and mortgage segments represent 23.3% and 12.3% respectively. Mortgages gained share in the loan mix this quarter as real estate is beginning to become attractive as a cycle of rate cuts is anticipated. Commercial loans amounted to COP 63.4 trillion, decreasing 1.1% in the quarter and increasing 5% annually when excluding FX. General purpose loans decreased the most in absolute terms during the quarter, both in Colombia and in Panama. Consumer loans increased 0.2% quarterly without FX, reaching COP 23.1 trillion. Growth was led by credit cards and vehicle loans, which increased by 2.9% and 2.4% respectively when excluding FX. Mortgages increased 2.5% this quarter to COP 12.2 trillion or 4.2% when excluding FX. In Colombia, this segment increased 6.1% as government subsidies have positively impacted this segment in the past 2 quarters. In Panama, mortgages diminished by 1% in dollar terms. Finally, microcredits increased by only COP 5 billion to COP 275 billion, a growth of 1.9% in the quarter and remained a small component of the total loan portfolio. We expect loan growth to be between 7% and 8% for 2024. Moving on to Slide 9, we present loan quality ratios. Starting with delinquency ratios, 30-day PDL ratio increased from 5.6% to 5.7% this quarter, mostly from an 11 basis point increase in the Colombian portfolio. Panama's 30-day PDL continued to decrease for a total of 24 basis points in the quarter and 38 basis points during the year to 3.5%. On the bottom left, the 30-day PDLs improved in the consumer segment by 33 basis points this quarter to 7.2%. Conversely, commercial and mortgage loans deteriorated by 20 and 16 basis points respectively to 4.9% and 6.4%. As for the 90-day PDL ratio, it reached 4.2%, an increase of 17 and 68 basis points quarterly and year-on-year. The increase came from the Colombian portfolio with a 20 basis points increment to a ratio of 4.5%, while the Panamanian portfolio continued to improve. Panama's 90-day PDL ratio was 2.5%, the lowest level since Q3 2022. Breaking down 90-day PDLs, the consumer segment had an improvement of 14 basis points this quarter, led by personal loans, credit cards and financial leases. This slight improvement in the most deteriorated segment is a sign that tighter credit policy is starting to pay off. Commercial 90-day PDLs increased 26 basis points this quarter and 46 basis points in the year where all products, except financial leases, saw some deterioration. Mortgages deteriorated as well, reaching a 3.7% 90-day PDL ratio and deteriorating 34 basis points. Colombia's Central Bank began decreasing rates later than expected. This may have contributed to this quarter's slight deterioration in delinquency. We maintain our positive outlook for 2024 where lower inflation and rates will most likely lead towards better portfolio quality. In Slide 10, we present the total gross loan mix by stages, which may be more aligned with allowances and provision loss, thus better explaining coverage ratios and cost of risk. On the top, one can observe that Stage 1 loans, which in Q4 2023 represented 87.9% of the portfolio, have maintained a similar level throughout previous quarters. Stage 1 decreased in the loan mix by 42 basis points this quarter, migrating by 36 basis points to Stage 2 loans and by only 6 basis points to Stage 3 loans. Stage 3 loans, which imply high grade risk, have maintained a level between 7.7% and 7.2% in the last 2 years and remained at 7.2% at the end of 2023, 20 basis points lower than a year ago. In the bottom graph, we present coverage by stage or the percentage of each stage gross loans that is provisioned. This ratio seems more stable than coverage of gross loans or PDLs as allowances are calculated based on stages under IFRS 9. It is worth noting the stability of coverage by stages throughout the past quarters. On Slide 11, we present coverage ratios. On the top left, our coverage ratio of 30-day PDLs remained at 1x this quarter. The Colombia 30-day PDL coverage was 1.05x and the Panamanian figure was 0.46x, both being relatively stable. Panama's lower coverage is due to lower expected losses given higher levels of collaterals in this geography. On the top right, we observe consolidated coverage for 90-day PDLs diminishing 4 percentage points to 1.35x. For Colombia, this ratio decreased to 1.42x. While in Panama, this ratio increased of 0.65x. As I mentioned before, coverage ratio for PDLs has come down as loan quality deterioration has been faster in PDLs than in loan stages. Allowances over gross loans increased 9 basis points this quarter to a level of 5.7%, increasing in all segments. On Slide 12, we present our net cost of risk and charge-off ratios. Net cost of risk was within the expected range. 4 quarters annualized, net cost of risk was 2.6%, 27 basis points lower than the previous quarter. Colombia's figure improved 32 basis points to 2.9% and Panama's figure improved 15 basis points to 0.8%. On a yearly basis, net cost of risk was 2.3% as projected in our last guidance. Commercial net cost of risk diminished 66 basis points this quarter to 0.2%. Most of the improvement has been in financial leases, credit cards and general purpose loans. Consumer cost of risk increased 74 basis points to 10.3%. Personal loans and credit cards increased their cost of risk, while payroll loans, overdrafts and financial leases saw improvements. Mortgage cost of risk improved by 36 basis points this quarter, reaching a 0.6%, having most of its improvement in the Colombian portfolio. Finally, microcredit experienced an increase of 47 basis points, reaching a cost of risk of 11.9%, the highest since Q2 2021. Nevertheless, the microcredit portfolio represents only 0.3% of the total gross portfolio and its deterioration plays a small role in overall results. For 2024, we expect net cost of risk to be around 2.1%. For the consolidated portfolio, the ratio of charge-offs over 90-day PDLs stands at 68%. In Colombia, it is 71%, having increased by 15 percentage points quarterly. And in Panama, it is 39%, decreasing by 29 percentage points this quarter. Charge-offs over average loans increased 54 basis points quarterly and 8% this quarter. The Colombian figure increased 79 basis points and the Panamanian figure decreased by 93 basis points. Moving on to Slide 13, we present our liability structure. Total funding reached COP 116.7 trillion, decreasing 1.4% year-on-year and 2.1% this quarter. Excluding the peso revaluation effect, funding increased 2.6% this year and decreased 1.3% this quarter. The largest decrease was in banks and others as only funding from deposits increased when excluding FX movements. Deposits are the main source of funding, representing 78.1%, followed by banks and others with 10.6%, long-term bonds with 7.7% and interbank borrowings with 3.6%. Deposits totaled COP 91.1 trillion, decreasing 0.2% in the quarter and increasing 3.5% annually. Isolating the FX effect, growth was 7.1% in the year and 0.7% in the quarter respectively. In terms of deposit mix, time deposits remain the largest source, although decreasing their participation to 50.5%, while saving accounts increased their share by 33.3%. Checking accounts represent 15.9% of deposits. Time deposits markets seem more stable and deposit mix seems to be tilting towards a more typical composition. On the bottom right, we show the evolution of the liquidity coverage ratio or IRL in Spanish, which closed the quarter at 130.5%, while the net stable funding ratio or CFEN in Spanish was 108.6% close to the previous quarter's figure. Deposit to net loans ratio remained close to the one-time target at 0.98x in Q4 2023. Let's continue with Slide 14 where we present our equity and capital adequacy levels. Total equity was COP 15.8 trillion in Q4 2023, increasing 1.3% quarterly and decreasing 0.3% annually, explained by dividends and an appreciated peso. Tangible common equity increased by 1.1% quarterly, COP 14.3 trillion. The tangible common equity ratio increased from 10.3% to 10.5%. Likewise, leverage measured as equity over assets, increased from 11.2% to 11.5% this quarter. Common equity Tier 1 capital largely increased in the quarter as Banco Popular is now consolidating Corficolombiana. Even though there was no actual change of Corficolombiana's shareholding structure, our shareholders' agreement was reached between Grupo Aval, Banco de Bogota, Banco de Occidente and Banco Popular, whereby they agreed for Banco Popular to directly consolidate Corficolombiana. We previously had deduct our investment in Corficolombiana from the CET1 capital as it was consolidated directly by Grupo Aval, which is not considered as an entity supervised by the Colombian Financial Superintendency. Now we no longer need to deduct Corficolombiana as its consolidated entity is indeed a supervised financial institution. And that Banco de Bogota's equity stake is not considered in the minority interest of Banco Popular's consolidated capital. This effect positively impacted CET1 capital approximately COP 3 trillion. There were also other contributions of a larger CET1 capital, such as higher OCI and lesser deductions from corporate taxes. Common equity Tier 1 ratio and basic solvency ratios stand at 12.9% this quarter. Tier 2 capital decreased by 9% quarterly or COP 131 billion, mainly explained by the peso revaluation. Total capital adequacy was therefore 15.4%, explained by a strong increase in the CET1 ratio, slightly compensated by the revaluation effect on the Tier 2 ratio. Tier 1 ratio and total solvency ratios are [indiscernible] percentage points above regulatory minimum. Now let's move to our P&L performance ratios, starting with net interest margin on Slide 15. Net interest income for Q4 2023 was COP 1.2 trillion, showing a quarterly decrease of 3.5%, explained by the cost of funds increasing more than interest income. Loan yield stood at 13.8%, increasing 8 and 235 basis points quarterly and annually respectively. Mortgage yields increased by 30 basis points this quarter and commercial yields increased by 11 basis points, while consumer yields decreased 13 basis points and microcredits decreased by 4 basis points. Investment yields were 13 basis points lower this quarter, mainly due to higher investments available for sale for COP 183 billion and COP 159 billion higher held-to-maturity investments. Investment yields for 2023 were 8.2%. Cost of funds increased by 26 basis points this quarter, showing signs of deceleration. Saving accounts decreased their cost of funds by 30 basis points and time deposits remained close to the previous quarter's levels. Consequently, long NIM decreased 53% as the cost of funds increased more than loan yields. 5.3% is also the lending NIM for 2022 and 2023. Investment NIM remained negative this quarter. Investment yield was 7.2% and the cost of funds was 9.2%, rendering a minus 1.3% investment NIM. For 2023, investment NIM is 0.3%. Finally, total NIM explained by all these factors was 4.3%, experiencing a 13 basis point quarterly reduction. For 2023, NIM was 4.5%, the same figure as in 2022 and in line with our guidance. We expect NIM to increase slightly this year as Banco de la Republica has already begun its downward rate cycle, which is expected to last well into 2025. We expect to take advantage of becoming slightly liability sensitive and our NIM is expected to increase as macroeconomic policy rates decrease. We expect NIM for 2024 around 4.6%. On Slide 16, we present fee income structure and details on other income. Gross fee income in Q4 2023 increased by 2.4% in quarterly terms and COP 504 billion. Banking services and credit and debit card fees amount to 84% of total gross fees, while 9% is explained by fiduciary activities from Fidubogota. Card fees and banking services fees increased quarterly by 5.1% and 3.1% respectively in line with year-end seasonality. Fee income ratio was 27.6% for the quarter, while for the entire 2023, it stood at 27.1%, 3 percentage points above 2022's ratio. Other operating income stood at COP 204.5 billion this quarter coming from, first, COP 131.5 billion from other income, a slightly below average figure. Second, equity method and dividend income, which came in at COP 150.2 billion, a 383% quarter-on-quarter increase and 170% year-on-year increase. This quarter's figure is mostly explained by Porvenir's positive results in a context of favorable market conditions. Corficolombiana increased contribution as well, yet it remains lower than the historical average for the past 3 years. Income from net investment activities was COP 45.3 billion, a 78% quarterly increase. Finally, the derivatives and FX position had a net expense of COP 122.4 billion in line with past figures. Fee income ratio should be in the 27% area in 2024. Slide 17 presents efficiency ratios measured by cost to income and cost to assets. Total income for the quarter was COP 1.8 billion, 2.2% higher than in Q3 2023. For 2023, total income was COP 7.3 billion, 11.2% higher than in 2022 when excluding extraordinary income, mostly explained by higher interest income. Operating expenses reached COP 1 trillion this quarter, increasing 8% year-on-year and 13% quarter-on-quarter. This is not rare as one can usually observe some seasonality in fourth quarter expenses. For 2023, operating expenses amounted to COP 3.7 trillion, a 14.2% yearly increase, led by general administrative expenses, which increased by 26.1%. Consequently, cost to income stood at 56% for the quarter, 28 basis points below Q4 2022's figure. For 2023, cost to income stood at 50.9% within past ranges. Total average assets increased by COP 676 billion or 0.5% this quarter. Therefore, cost-to-assets ratio increased by 32 basis points this quarter to the level of 2.9%. Cost to assets reached 2.7% for the entire year within past figures. We expect cost to income ratio to be around 49% in 2024. Finally, on Slide 18, our profitability ratios are shown. In March 2023, the remainder of BAC Holding International's shares in Banco de Bogota's books were sold at book value or COP 520 billion. This triggered a one-off tax event, which amounted to COP 114 billion. This expense was accrued in the last quarter as the expectation that it could be extended during the year did not materialize. A high cost of risk, a slightly lower NIM and the mentioned one-off tax event are the main drivers behind the result of COP 37.7 billion quarterly net income attributable to shareholders. Excluding the aforementioned COP 114 billion in additional tax expense, net income would been over COP 150 billion, similar to third quarter's results. For the entire year, net income attributable to shareholders was COP 954.1 billion. Annualized profitability metrics were 0.1% for ROAA and 1% or ROAE in Q4 2023. For the entire 2023 ROAA stood at 0.7% and ROAE stood at 6.1%. These ratios result from a combination of factors that we have mentioned on the call and we will work towards improvement as surrounding circumstances also improved. Before moving on to the Q&A session, I'd like to summarize our general guidance for 2024. Loan growth is expected to be between 7% and 8%. Net interest margin is expected around 4.6%. Net cost of risk is expected to be around 2.1%. Fee income ratio should come in around 27%. Cost to income ratio around 49%. And return on average equity should be around 8%. And now, we are open to your questions.

[Operator Instructions] We will begin with the written questions through our Q&A chat box. The first question is from Julian Ausique from Corredores Davivienda. And the question is, could you sum up the 2024 expectations?

Julian, thank you for your question. Regarding that, I will repeat the guidance. Loan growth is expected to be between 7% and 8%. Net interest margin, NIM, is expected around 4.6%. Net cost of risk is expected to be around 2.1%. Fee income ratio should come in around 27%. Cost to income ratio around 49%. And return on average equity, ROE, should be around 8%.

We have another question from Julian Ausique from Corredores Davivienda. I would like to know how the market share has evolved, especially in the consumer and mortgage segments?

Thank you for the question, Julian. I could tell you that we had close to 80 basis points gain in market share in the consumer loans, reaching that percentage to close to 10%, 9.9%. And in the case of mortgage loans, that was about 75 basis points gain in market share, bringing that percentage up to 8 point factors.

Nikolai Dimitrov from Morgan Stanley Investment Management asks, can you explain in more detail why Corficolombiana's shareholder mix didn't change, but all of a sudden, it won't be deducted from Banco de Bogota's capital? Is this adjustment unique to Colombia?

Thank you, Nikolai, for your question. Even though Colombia follows Basel standards very closely, indeed, there is a peculiarity in our retention regulation which allows that treatment. In our view, the previous situation was not reasonable because it was equivalent to accept that Corficolombiana, which as you know, is a leading merchant bank in our country didn't have any value whatsoever for any of the financial institutions within the conglomerate with states in that company. From that perspective, the shareholders' agreement seeks to optimize capital within the Group now.

We have another question from Daniel Mora from CrediCorp. The question is, can you explain what would be the drivers to reach a loan growth between 7% and 8%? If possible, can you give the guidance by segment? Any strategy to change the loan mix?

Thank you, Daniel, for your question. First of all, the logic behind the loan growth between 7% and 8%, and it is worth mentioning that nominal GDP is expected to grow around 7% this year given a GDP growth of 1% and an inflation between 5.5% and 6%. So in that sense, our forecast is consistent with -- just with nominal GDP and a low growth in real terms. And in terms of breakdown, is the following; between 8% and 9% for commercial loans and between 6% and 7% for retail loans.

There seem to be no further questions. Now we will proceed with the live questions through the web. [Operator Instructions] It seems like we have no questions at this time. And we'll proceed now with the final remarks from Mr. Cesar Prado. It seems we have a new question here.

Go ahead, please.

Yes. We have a new question in this moment. Could you please talk about the strategic plan for the next 3 to 5 years? What could be the new to the story? Should we expect M&A? Could you discuss the competitive landscape in the digital space? How to catch up with the market leader and potential digital new players?

Thank you for your question, Sebastian. What we could tell you based on what was included in the presentation is that we are going through a deep process of evaluating our strategy towards the following years that you mentioned in your question between the 3 to 5 years. And we do expect to have in future calls more detail in our response, while we are fully -- we have fully decided which are going to be the main elements. What is important to mention, I mean, it also goes through your digital part, is that a great deal of our vision continues to be supported in technology and vehicle propositions. We feel quite encouraged by having a 67% of digital adoption, having about 2.5 million customers using digital tools and means it comes from 2 million customers a year ago. We also believe that the fact of having 2.3 million transactions in Q4, growth of close to 20% compared to the previous year and almost 80% of all the transactions performed through digital channels with a conversion of about 70%, basically, #1 restates the success that the bank is having in this particular effort, effort that began with the Digital Lab about 7 years ago with 2 products only, credit cards and savings accounts. And now we have the full array of bank financial products already in digital means. So there is going to be an area where continued investment is going to be focused. And we believe we have enough competitive strength to really compete with new entrants in this market. At this moment, we cannot really predict form of any M&A activity. And again, hopefully, in next calls, we could go in further detail about the strategy of what it means for different propositions in the different commercial areas, including the technology field.

We received another question from [ Carolina Tashiguano. ] We know that there are at least 2 banking operations for sale in Colombia. Is the bank interested in growing inorganically?

Thank you, Carolina, for your question. Even though we have an important share in the local market, especially if you take into account the numbers of the whole conglomerate. What I can say is that we are always open to analyze the opportunities that may arise.

There seem to be no further questions. Now we will proceed with the live questions through the web. [Operator Instructions] It seems like we have no further questions at this time, and we'll proceed with now with the final remarks from Mr. Cesar Prado.

Thank you, Diana. As we have mentioned during the call, this quarter's results combine a slight contraction in need with a high respective cost of risk and a one-off tax expense that negatively impacted profitability. We will continue to improve upon high control on risk and expenses. Thank you for attending today's meeting, and I hope you will join us for our next conference call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.