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

Good morning. Welcome to Banco de Bogotá's Second Quarter 2026 Consolidated Results Conference Call. My name is Karen, and I'll be your operator for today's conference call. [Operator Instructions] Please note that this conference is being recorded. We also advise you to read the disclaimer available on Slide #3. 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. Juan Carlos Echeverry, CEO of Banco Bogota, will be the host and speaker today. Mr. Sergio Sandoval, CFO; and Javier Dorich, Head of Investor Relations and Corporate -- sorry, Development will join him. Mr. Echeverry, the floor is yours.

Thank you, Karen. Good morning, and welcome. Colombia suffered devastating quick earthquake last week with huge consequences to human life and infrastructure. At Banco de Bogotá deeply moved by this tragedy. The government has organized an effective response with the local authorities and the private sector. Blue Paal is already implementing plans to bring to the affected population through donation channels. Paul will also help affect the clients and we will review each client case by case to support them in their time of need. In the second quarter, Colombia conducted its presidential elections, the new government led by Abelardo de la Espriella on August 7, as you all know. We're being confident in pressing the SP's ability to stuordination in a constructive direction by appointing proven technocrats access to critical government roles and policy leadership positions. We also believe this administration will prioritize responsible, sustainable decision-making that supports long-term stability and growth. The economy is currently at a pivotal jnture. Economic growth, as measured by GDP is driven primarily by government and consumer spending. Inflation is expected to decline in 2020. In this context, the Colombian Central Bank is likely to raise rates to 12.5% before the year-end. The peso has appreciated against the dollar to levels not since in 2019, driven by the economy's high interest rates and a change in the political environment. This macroeconomic environment presents challenges for banks. There is a growing concern that high interest rates, inflation unappreciating peso and the recent minimum wage increases may adversely affect certain sectors. Fortunately, at Banco Ota, our position is predominantly NIM neuro, and we anticipate that interest rate increases will not adversely affect our results. We will monitor specific sectors, particularly labor-intensive export sectors subject to combined impact of wage increases and the peso appreciation. As part of the group's strategic realignment efforts, we undertook a specific operation this quarter regarding the Corficolombiana shares held by Grupo Aval and its banks. Copal Banco Goa, Bancocenteo and Cupola transferred the Confiance to Vicente Panama entity. Each institution now retains an ownership interest in Corficolombiana through into and its intrinsic investment in Corficomala remains unchanged. Presento now holds 52.8% of Corficolombiana's shares. Following this transaction, Banco what has book value for this investment decreased by COP 2.2 trillion as the asset value of incent was realigned with Corficolombiana. This transaction was reflected as a reduction in retained earnings. Javier will provide further insights on this matter. The following are the second quarter's highlights. Net income attributable to shareholders was COP 390 billion, resulting in a return on equity of 10%. NIM was 5% and the net cost of risk was 2.1% on Loans reached COP 100 trillion, increasing by 3.2% this quarter. Deposits reached COP 104 trillion. Cost to assets remain at 2.7%. On August 1, Banco Lula completed its acquisition of Banco Tau's retail banking loans and deposits, a key transaction to strengthen its universal banking strategy. Javier will expand on this in more detail. On the next slide, we present the size of the local banking sector and Banco Botas market share. These figures are standalone. By the end of May, banks in Colombia held COP 770 trillion in deposits and COP 755 trillion in gross loans. The bank had a market share of 13.4% in deposits and 12.7% in gross loans during that period. The bank has a bias toward commercial loans where it holds a 15.1% market share. In terms of funding, the bank stands out in checking account will hold 19.1% of this deposit type. Market share has been stable so far this year, but we will strive to increase these types of financial figures, both organically and inorganically, namely Ita's transaction in the second half of this year. Now Serena, Banco Otas CFO, will continue with digital transformation. Sergio please proceed.

Thank you, Juan Carlos. Let's move on to digital transformation. We advanced our instant payment strategy as a simultaneous driver of deposit growth and transactional fee income, enabling interoperable QR codes for individuals, and extending this capability to the corporate segment through Brake key transfers from the business mobile banking platform, customers now receive real-time payments autonomously which increases transactional activity accelerates the turnover of funds and strengthens account balances, turning the payment experience into a stable source of funding. Regarding customers, digital origination is now the main growth vehicle, its share of total personal loan disbursements growth from 75% in the first quarter to 80%, confirming that improvements in customer experience translates into higher conversion, greater commercial efficiency and sustain migration of the business towards digital channels. Digitalization is also generating value beyond origination. The self-service collections consolidated its role as a key to for loan normalization, enabling the recovery of COP 120 billion in provisions so far in 2026 with simultaneous improvements in customer experience, operational efficiency and portfolio quality. In partnership with Visa, we developed a new scheme for large commercial banking transactions with preferential pricing, allowing us to compete for flow that previously faced cost barriers in electronic payments. In parallel, we advanced toward the final phase of the launch of the group's new acquiring processor that will reduce the cost per transaction by up to 35%, a structural improvement in the profitability of the business. In cash management, we transformed corporate collections with Bebe QR codes, a solution already used by 1,500 active companies that allows them to receive instant payments from any financial institution, a solution that reduces operating costs compared to physical channels. End customers pay in seconds with no additional steps while companies gain greater control over their liquidity and cash flow. We complemented our offering with a new digital treasury suite for businesses, leveraging cooperation with fintechs. This integration allows companies to manage their payments, payroll and liquidity from a single ecosystem, expanding our reach in the segment, deepening relationships with SMEs, and turning treasury operations into a new source of transactional activity, deposits and customer engagement while positioning the bank as a strategic partner in the growth of Colombian businesses. Turning to sustainability. The second quarter saw continued solid progress in our sustainable finance strategy. Let me highlight some key achievements. First, the continued growth of our sustainable loan portfolio. As of the end of the second quarter, our total sustainable portfolio reached COP 2.5 trillion. The green portfolio amounted to COP 7.5 trillion, representing a 16.7% growth so far this year. Meanwhile, the social portfolio exceeded COP 17 trillion. A key highlight was our women's SME portfolio, which reached COP 4.8 trillion and now accounts for over 41% of our total SME portfolio. Second, we executed strategic transactions that further strengthen our leadership in sustainable financing. During the quarter, in partnership with IFC, we announced financing of up to $150 million to support the energy transition, strengthen SMEs and promote sustainable construction in Colombia. This transaction represents the first transition loan in the region and received independent verification from S&P regarding the framework governing the use of proceeds. In addition, we finance an energy infrastructure project worth COP 120 billion that enabled the complete replacement of gas transportation through a direct connection to the distribution network. As a result, the project is expected to eliminate the consumption of around 150,000 liters of diesel per year, reducing emissions improving operational efficiency and lowering the logistical risk associated with fuel supply. Third, on the social front, we expanded our financial education and entrepreneurship initiatives, reaching more than 2,000 people during the quarter. We also completed Ecotec's third cohort program and launched a fourth moving closer to our goal of supporting 100 ventures by 2026. Finally, we joined with finance Code Colombia, an initiative led by Asobancaria, and bit Invest in partnership with Colombia's National Financial Inclusion Program Core Women and Colombia's Banking and Securities regulator. We aim to expand access to financing for women-led businesses by addressing gender gaps improving the use of information, strengthening capabilities and fostering collaboration among key stakeholders across the financial sector. On the next slide, let's summarize the local macroeconomic context. In the second quarter of 2026, growth, while positive, was supported by temporary factors. The first of this is the increased household spending associated with the 2026 FIFA World Cup. This event boosted economic activity through greater dynamism in commerce, clothing, entertainment, restaurants and sports betting. Likewise, the public administration continued to support economic activity due to increased personnel to handle the local elections as well as higher budget execution, which reached a 4-year high, significantly contributing to the growth of national activity. Another sector that performed well was utilities, driven by the increased energy demand from households due to the intensive use of air conditioning and refrigeration systems given the high temperatures experienced in several cities across the country. In contrast to these sectors, agriculture, mining, manufacturing and construction continued to exhibit weak or negative results. in agriculture, the weather and high input costs were detrimental. In construction, high interest rates and the slow execution of major infrastructure projects weaken the sector. In Mining, decline is structural and in manufacturing, the appreciation of the peso has harmed the sector's competitiveness. This suggests that the economic recovery maintains a pattern in which some sectors improve while others continue to lag. For the remainder of the year, tighter local financial conditions the diminishing effects of transitory factors, the impact of the war in the Middle East, the arrival of droughts and the expectation of fiscal adjustments are projected to lead the Colombian economy to register economic growth of only 2.5% throughout 2026. Turning to prices. Inflation rose from 5.6% at the end of March, to 6.1% in June 2026, its highest level since July 2024 before moderating slightly to 6% in July. Services depending on the minimum wage saw a variation exceeding 9%, while rents maintained an inflation close to 5%, more evidence of the indexation problem. Meanwhile, inflation in regulated goods accelerated due to higher fuel prices resulting from the war in the Middle East. Additionally, energy and gas prices increased as a result of greater use of thermal power plants for electricity generation as a precaution against the arrival of drops. In the food sector, fertilizer prices and weather conditions also exerted upward pressure. For the remainder of the year, the upward trend in inflation is expected to continue given the intensification of the aforementioned factors, ending the year at 6.8%. On the fiscal front, the government finalized the total return swap, or TRS, operation in May and updated the medium-term fiscal framework in June with the closure of the TRS and other debt management operations during the quarter, the government carried out a significant swap of external debt for domestic debt. As of June, the share of external debt in total debt was 22.9%, the lowest in the 21st century, also supported by the appreciation of the peso. Regarding the fiscal framework while the revenue forecast for 2026 is reasonable, the expense forecast is not. Higher spending pressures are expected, leading to a total fiscal deficit of 6.7% of GDP in 2026, above the target of 5.3% of GDP. Given this outlook with high inflation, inflation expectations and a still vulnerable fiscal situation. The Colombian Central Bank raised its policy rate by 75 basis points in June and left them at 12% in July and will remain at 12% at least until September. The Central Bank may continue raising rates as it seeks to bring inflation back to our target after 6 consecutive years of overshooting it with a scenario of higher domestic interest rates and a favorable reading of the elections which confirm a change in government, the local exchange rate extended its downward trend, reaching levels around COP 3,100 per dollar following the election results the country's risk premium fell to 150 basis points, near its lowest level since 2021. This lower premium reflects investors' expectations that under the new government, Colombia will implement macro prudential measures contain the fiscal deficit, oversee negotiated minimum wage increases and promote investment incentives among other policies that foster a better business environment and strengthen the local currency. However, passing reforms in a highly divided Congress,will be crucial to meeting these expectations and their corresponding impact on the economy and local assets. Now I will turn over the presentation to Javier Deric Head of Investor Relations and Corporate Development.

Thank you, Sergio, and good morning, everyone. As we mentioned on previous calls, the banks have been negotiating with Banco Itau to acquire its retail banking loans as well as deposits and clients both in Colombia and in Panama. We are glad to announce that this transaction took place on August 1. Financial statements in this call do not include this transaction as it happened after the second quarter's closure. Please note that the figures for this transaction are estimates as of now, and final figures may vary slightly. In Colombia, Banco de Bogota received COP 6.4 trillion in assets, mainly consumer loans and mortgages. The bank also received COP 4.5 trillion in liabilities. In Panama, the bank received $4.8 million in assets and $103.4 million in deposits. The bank has been focused on making this transition for Ita clients as smooth as possible. We work hard to ensure clients had a warm welcome into Banco de Bogota with as few inconveniences as possible. These types of operations are challenging and behind this one, there is a great effort on our part. We are now working on keeping the new clients and fulfilling their level of expectation for our products and services. On the next slide, we present an operation related to Coffee Colombia's ownership. In June 2026, Grupo Aval, Banco de Bogota, Banco Doxidente and Banco Popular transferred all the common shares of Corporacion Financiera Colombian or Corficolombiana to Corporacion Financiera Central American or Central, a member of the above financial conglomerate. Banco Popular will continue to act as the consolidated entity for Corficolombiana by consolidating Vicent pursuant to a shareholders voting agreement among the contributing entities. Grupo Aval and its banks now hold 100% of Vicente's capital. Banco de Bogota transferred its entire equity stake in Corficolombiana to Vicente. In return, the bank received shares in Ficentro, representing 65.76% of Vicente's outstanding equity, thereby indirectly maintaining the same ownership of Corficolombian. This transaction primarily aims to simplify Corficolombiana's ownership structure by consolidating the stake into a single jointly controlled vehicle within Grupo Aval. From an accounting perspective, the current amount of the investment in Corficolombiana before the transaction was COP 6.9 trillion. However, the investment in Ficentrom must be recognized at Corficolombiana's book value of COP 4.7 trillion. The resulting difference of COP 2.2 trillion is recognized as a reduction in equity reflected in return earnings. This transaction lowered total capital adequacy by 200 basis points as it affects both common equity Tier 1 capital and credit risk-weighted assets. Turning to assets. Let us review the bank's balance sheet performance for the second quarter of 2026. Total assets stood at COP 141 trillion, reflecting a 0.8% quarter-over-quarter decline and a 7.9% decrease from the same period last year. The quarter-over-quarter decrease is mainly explained by Corficolombiana's share transaction and maturity of the May 2026 subordinated notes. The loan portfolio remains the bank's principal asset category, constituting 67.9% of total assets on a net basis, followed by fixed income investments at 13.4%, other assets at 11.6% and equity investments at 7.2%. Gross loans totaled COP 10.4 trillion, representing a growth of 3.3% during the quarter and 10.2% year-over-year. This growth was driven by broad-based expansion across segments with the mortgage portfolio increasing by 3.6% and the commercial portfolio growing by 3.3% equivalent to COP 2 trillion and the consumer portfolio rising by 3.1%. Our guidance for loan growth in 2026 is in the 14% range, including inorganic growth. On the next slide, we present the bank's funding. Total funding reached COP 122 trillion, up 0.1% during the quarter. Deposits continued to grow as a share of total funding, accounting for 85.3%, followed by banks and other funding sources at 6.8% and interbank borrowings at 5.3% and bonds at 2.6%. In May, the bank's subordinated international bonds issued in 2016 matured. It is worth remembering that in the first quarter, the bank repurchased a total of $487 million, demonstrating an active approach to liability management. strengthening its maturity profile and optimizing funding structure in line with his financial and liquidity strategy. In the local market, the bank also issued COP 250 billion bond further supporting its funding diversification and long-term funding goals. Total deposits stood at COP 104 trillion, increasing 0.7% quarter-over-quarter. Savings accounts and time deposits grew solidly during the period, while checking accounts declined by 6%. The deposit to net loans ratio reached 1.09x, remaining above our target level despite loan growth outpacing deposit growth during the quarter. Let's move on to equity and capital adequacy. In the top left, total equity and shareholders' equity decreased by COP 1.7 trillion this quarter. This effect is mainly due to the previously mentioned operation involved in Corficolombiana shares, which reduced book value by COP 2.2 trillion. The periods results were COP 392 billion and OCI improved by COP 148 billion this quarter, partially offsetting the effects of the Corficolombiana's share operation. In the top right, we show the tangible capital ratio and the equity-to-assets ratio. Both variables decreased by around 110 basis points this quarter. In the bottom left, we present the consolidated capital adequacy, which reached its peak in the first quarter of 2026. Then in the second quarter declined to levels similar to those of December 2025. The first quarter peak was due to the sale of multi-financial group or MFG, which reduced credit risk-weighted assets without significantly affecting CET1 capital. This quarter, with the operation regarding Corficolombiana shares, CET1 capital decreased in MXN 1.5 billion. Therefore, CET1 capital stood at COP 13.3 trillion, down 9.9% quarter-on-quarter, even after offsetting profits and improvements in OCI. Tier 2 capital fell this quarter, mainly due to the peso appreciation against the U.S. dollar to COP 02 billion. Risk-weighted assets remained relatively stable this quarter. Credit risk-weighted assets increased by 0.4%. Market risk-weighted assets decreased by 0.3% and operating risk-weighted assets increased by 1.6% this quarter for a total increase of 0.5%. CET1 and Tier 1 ratios were 14%, while total capital adequacy was 14.9%. These figures are 5.5 percentage points and 3.4 percentage points above regulatory minimums, including buffers. Finally, in the bottom right corner, we observed the bank's stand-alone capital adequacy. CET1 capital stood at COP 12.2 trillion at quarter end. Meanwhile, Tier 2 capital totaled COP 946 billion. In addition, total risk-weighted assets decreased slightly by 1% quarter-over-quarter. As a result, the CET1 and Tier 1 ratios in the stand-alone scenario reached 13.6%, while the total capital ratio stood at 14.7%. The stand-alone capital position remains comfortably above regulatory requirements. Specifically, the Tier 1 ratio is 5.1 percentage points above the regulatory minimum, including buffers, and total capital adequacy is 3.2 percentage points above regulatory minimums. Now let's move to our P&L performance ratios, starting with the net interest margin. The Central Bank rate increased 75 basis points during the second quarter. Consequently, the bank cost of funds increased by 67 basis points to 7.3%, and driven by higher cost on time deposits, savings accounts and obligation with other banks. The yield on loans increased by 105 basis points this quarter to 12.7%. And driven primarily by higher interest rates on consumer and commercial loans and, to a lesser extent, mortgages. The yield on investments increased to 10.9% this quarter, up 67 basis points from the first quarter, driven by higher net gains on trading investments, partly due to presidential election results. Loan NIM increased by 44 basis points this quarter to 5% as loan yield increased more than the cost of funds. Investment NIM was 3.4%, up 6 basis points from the previous quarter due to some trading investments mentioned earlier. Therefore, total NIM came in at 5%, up 38 basis points from the previous quarter and 25 basis points from the previous year. We expect total NIM to be around 4.7% for 2026. On the next slide, we present the loan portfolio quality by segments as well as PDL formation and coverage. 90-day PDLs remained stable at 3.6% while 30-day PDLs increased 21 basis points this quarter to a level of 5.1%. In the Commercial segment, loan quality improved by 9 basis points this quarter in 90-day PDLs and deteriorated 9 basis points in 38 PDLs. Overdrafts showed the most improvement in both metrics, while financial leases and commercial credit cards showed the highest deterioration. In consumer loans, 30-day PDLs deteriorated 47 basis points and 90-day PDLs curated 19 basis points. Personal loans, credit cards and payroll loans deteriorated in both metrics. Vehicle loans and overdrafts improved in quality on both metrics this quarter. On mortgages, 30-day PDLs increased by 35 basis points this quarter to 6.8%. And for 90-day PDLs, this segment deteriorated by 6 basis points to 4%. In the bottom left, we observed that new 30-day PDL formation was higher than in previous quarters as higher inflation and interest rates, especially affected consumer loans. New 90-day PDL formation was also slightly above the past year's average. On the next slide, we present gross loans by stages and segments, along with their coverage ratios. In general terms, there was a slight deterioration in quality as Stage 1 loans decreased their share by 28 basis points this quarter, while Stage 2 increased its share by 24 basis points, and Stage 3 increased by 4 basis points. As you may observe in all segments, there was a slight decrease in Stage 1 loan share, while Stage 2 and 3 increased or maintained their share. In the bottom left, overall coverage decreased by 5 basis points to 4.6%. Stage 1 coverage decreased by 7 basis points to 1.1% and while stages 2 and 3 decreased coverage by 59 and 48 basis points, respectively. Moving on to the next slide, we present the net cost of risk and charge-off ratios. At the top, one can observe that the net cost of risk was 2.1% this quarter, up from 1.6% last quarter. It is worth noting that our guidance was around 2% in the last calls, and the previous quarter net cost of risk was an outlier. The commercial segment's net cost of risk increased 60 basis points to 0.9% as cost of risk increased for most products excluding credit cards and overdrafts. The consumer cost of risk increased 38 basis points to 5.8%. Deterioration was most notable in personal loans and credit cards which tend to carry the highest credit risk and no collateral. Nevertheless, the increase in the cost of risk for these products are slight compared with 2 years ago and are expected given the macroeconomic environment. In mortgages, net cost of risk decreased by 23 basis points this quarter to a level of 0.9%. We expect the net cost of risk to be in the 2% range for all of 2 Charge-offs increased this quarter relative to average loans and 90-day PDLs. The first quarter's charge-offs were abnormally low, and this quarter's charge-offs are in line with those of recent periods. On the next slide, we present the fee income structure and details on other income. Gross fees for the quarter amounted to COP 405 billion, a 4% decrease from the first quarter, the decrease came from lower banking, credit cards and logistics fees, each down by similar amounts. As we mentioned in our previous call, fiduciary fees are no longer consolidated as of this year as Vivot transferred its fiduciary business to Avalara, a company we don't consolidate, but rather hold as an associate and received its profits through equity method income. Total income decreased by 4.9% this quarter with an increase in assets and liabilities held for sale. As a result, the fee income ratio came in at 20.7%, slightly below our 21% guidance for the year. We expect the fee income ratio to be around 21% in 2026. Other income came in at COP 501 billion, up 63% from the first quarter of 2026, mainly due to higher net investment profits. Equity method income came in at COP 189 billion, above last quarter and net derivatives and FX was also higher than in the past quarters and positive. Moving forward, we present efficiency ratios measured as cost to income and cost to asset ratios. Total expenses for the quarter came in at COP 955 billion down 6.4% from the previous quarter and 2.7% above a year ago. The lower expenses were mainly from general and administrative expenses. Total income came in at COP 1.9 trillion, decreasing by 4% this quarter, mainly due to higher interest expense and lower other income. As a result, cost-to-income for the quarter was 51.3%. The cost-to-asset ratio decreased by 4 basis points this quarter and remained at 2.7% as the 6.4% reduction in operating expenses was offset by lower average assets. We expect the cost-to-income ratio to be in the 52% to 53% range and cost to assets to be around the 2.7% area for 2026. The next slide shows the bank's profitability. The increase in NIM to 5% was partially offset by a higher net cost of risk of 2.1% and lower gross fees of COP 17 billion. These variables resulted in net income of COP 392 billion for the quarter and net income attributable to shareholders of COP 390 billion. Therefore, the quarter's return on assets was 1.1% and return on equity was 10%. This is the first quarter in which we reached a double-digit ROE since the second quarter of 2025 and the first time since 2023 without an extraordinary event. We would have reached these levels last quarter had it not been for the impact of the equity tax. For the entire 2026, we expect return on equity in the 7% to 8% range. Our guidance for ROE decreased by 0.5 percentage points due to higher expected expenses from integrating Itau retail clients and products. We will continue striving to improve our results and place the bank as the best option for Colombians. Finally, we present the guidance for 2026. Loan growth is expected to be in the 14% area, including inorganic growth of around 7%. Net interest margin is expected around 4.7%. And Net cost of risk is expected to be in the 2% area. Fee income ratio should come in close to 21%. Cost-to-income ratio is expected between 52% and 53%, and cost to assets should come in, in the 2.7% area. And finally, return on average equity should be between 7% and 8%. And now we are open to your questions.

[Operator Instructions] Mr. Santiago Zarate from Citi. His question is what financial impact do you envision given the latest interest rate increase.

Santiago, this is Javier. Thank you for your question. You may be referring to what happened in June where Banco Laraculeca increased rates by 75 basis points taken them to 12%. Since then, the interest rate has remained at that level, and we'll do so at least until September. Our economic research team foresee that rates could increase a little more to 12.5%. About the financial impact, our balance sheet is mostly NIM neutral, meaning that neither an increase or a decrease in interest rates affect materially our NIM Anyway, what we could see is a slight moderation in credit demand, but this could take some time to materialize. For now, growth is robust and healthy, and we have not seen a material deterioration in our quality indicators. Thank you.

Our second question comes from Mr. Simon from Bancolombia. Could you briefly explain the main drivers behind the increase in provisions and the higher COR also do you expect provisions to rise materially with the integration of the Itau portfolio?

Simon, and thank you for your question. Regarding the first part, the thing is that if you see Slide 18. In the first quarter, commercial cost of risk was typically low at 0.3% and the second quarter stabilized at a level that is still below 1%. So that is, most of the explanation of the increase in cost of risk, of course, you also see an increase in consumer cost of risk, namely credit cards and personal loans going from 5.5% to 5.8%. Regarding the second part of your question, the answer is no. We do not expect a deterioration regarding the to portfolio. In fact, the credit quality in that portfolio is slightly better than the 1 we already have in the bank. Thank you.

Thank you very much. Our third question comes from Mr. Alejandro Rojas from Citibank Colombia. He says, thanks for the presentation. Could you elaborate on the factors that make Banco Bogota loan NIM relatively neutral to interest rate increases in Colombia?

Yes, Alejandra, of course, and thank you for your question. A key there is our balance sheet structural breakdown in terms of our loan portfolio. If you see Slide #12, you can see that around 63% of our loan portfolio are commercial loans, which are mostly in variable rates, namely IVR. So in a scenario of increasing rates that is a natural hedge for us compared to the other side of the balance sheet in terms of the funding. So we are mostly hedged in that matter. So in a scenario of increasing rates that is a cushion for us.

Thank you very much. We'll move on now to our on-stage questions. Our first question comes from Mr. Daniel Mora. Mr. Mora the floor is yours, from CrediCorp Capital. Mr. Mora, the floor is yours. [Operator Instructions]

Thank you for the presentation. Can you hear me? .

Yes.

Perfect. I have a couple of questions. The first one is, can you provide further color or information about the onetime impacts that you expect due to the consolidation of the retail business of Itau. Specifically, I would like to know if you will need to record a onetime expense of provision expenses related to the total portfolio that you will receive from Itau. And that will be my first question, if I may, the second one, I will do it after.

Can you hear me?

Yes.