Grupo Cibest S.A. (CIBEST) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Bancolombia's Third Quarter 2024 Earnings Conference Call. My name is Matt, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. Also, please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses, and credit losses. All forward-looking statements, whether made in this conference call or future filings in the press release or verbally, address matters that involve risks and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including the changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Mauricio Botero Wolff, Chief Strategy and Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mrs. Catalina Tobón, Investor Relations and Capital Markets Director; and Mrs. Laura Clavijo, Chief Economist. I'd now like to turn the conference over to Mr. Juan Carlos Mora, Chief Executive Officer. Thank you. You may begin.

Good morning, and welcome to the Bancolombia's Third Quarter Results Conference Call. Please turn to Slide 2. As we advance through the year, we are observing increasingly positive indicators with the economic landscape and credit cycle. Inflation rates have persistently declined, enabling the Colombia's Central Bank to reduce interest rates. This environment supports lower credit deterioration and encourages domestic spending. Despite a modest expansion of our credit portfolio and a decline in interest income, the third quarter reported a consecutive improvement marked by a net income of COP 1.5 trillion. This represents a 4.3% growth quarter-over-quarter and a 1% increase year-over-year, resulting in a 15% return on equity. This performance is attributed to the good performance of our investment portfolio, reduced provisioning charges and operating expenses that have grown well below the inflation rate as we will further elaborate. I would also like to underscore that despite increased competition for deposits in Colombia, Bancolombia has maintained its robust capacity to attract resources from retail, commercial and institutional clients. During the quarter, total deposit growth surpasses loan growth, ensuring our low funding costs and mitigating the compression of interest margins. On an additional front, on October 30, we announced our decision to evolve our corporate structure by establishing a new holding company, Grupo Cibest, which will serve as the parent entity for all Bancolombia's lines of business while preserving all assets within the current group perimeter. The primary rationale for this decision is that Bancolombia currently functions simultaneously as a bank and a holding company, resulting in financial inefficiencies, regulatory complexities, and operational constraints due to the rigorous regulatory framework governing banking entities. This proposed corporate evolution aims to address these challenges by providing us with greater flexibility for corporate development and enabling more efficient capital allocation. Additionally, it will isolate goodwill from the Colombian regulated entities' capital and reduce its sensitivity to foreign exchange volatility, also allowing us to implement share repurchase programs as a novel method of distributing value to our shareholders. Subject to obtain the necessary regulatory and shareholder approvals, we anticipate concluding this transaction by mid-2025. We will provide timely updates as we progress through the key milestones. Also, following the successful issuance of new subordinated notes due 2034, which contributed 115 basis points to our Tier 2 capital as of the third quarter, on October 24, we announced our decision to redeem the subordinated notes due 2029, effective on the call date of December 18. Furthermore, we have decided to redeem the remaining senior notes due 2025 as a prudent measure to eliminate refinancing risk early next year. Lastly, we are pleased to announce that Bancolombia has been recognized for the 10th consecutive year by Merco as the company with the best reputation in the country for its contribution to economic, environmental, ethical and social matters among other aspects. I will now hand over the presentation to Laura Clavijo, our Chief Economist, who will provide a more in-depth analysis of the macroeconomic environment. Laura?

Thank you, Juan Carlos. If you could please turn to Slide 3. The economic outlook for Colombia remains cautiously optimistic with improving financial conditions beginning to channel through to some sectors and spurring demand. Consequently, we have revised upward our end of year growth forecast to 1.8% from a previous 1.3% and to 2.6% for 2025. However, economic growth remains uneven across sectors and below long-run potential of 3% according to our medium-term outlook. Currently, economic growth is being mostly led by exceptional output from the agriculture sector, which is expected to grow 7% this year and a sustained expansion from public administration expanding at an annual rate of close to 5%. Moving forward, amidst the scenario of amounting fiscal challenges, this public sector growth driver should begin to lose relevance, whereas private sector growth should begin to pick up. Even though we are currently at an early stage in the economic recovery, there are timid signs of an uptick in internal demand as financial strains on households and businesses begin to ease. Many central banks of the Latin American region acted early in raising interest rates, successfully controlling inflation, and easing its monetary stance well before many developed economies. Colombia, although a little behind on the curve, has also managed to cool inflation from its peak of 13% in March 2023 to 5.8% during September this year, moving closer to our end of year forecast of 5.7%. These past few months have been especially consistent for the disinflation process of core inflation metrics. However, the well-known effect of indexation and inflation is still tangible and will remain at the center of the minimum wage discussion for 2025 to take place before year-end. As a result, the Central Bank continued cutting its policy rate at the ongoing pace of 50 basis points, closing the third quarter at a repo rate of 10.25%. Even though receding inflation, a closing output gap and the beginning of the easing cycle by the Federal Reserve might have given way to a scenario of accelerated interest rate cuts, fiscal pressures and uncertainty moving forward has motivated a cautionary approach from the Central Bank. Finally, pressures on the fiscal front have escalated recently as tax revenues have consistently underperformed, interest payments have amounted, and social expenditure goals are pursued. The presentation of fiscal measures in Congress, including a failed 2025 budget now to be passed by decree, a tax reform and a decentralization bill have put the fiscal discussion at the forefront once again. Now let me turn back to Juan Carlos.

Thank you, Laura. Please proceed to Slide 4. I would now like to provide an overview of Nequi evolution. And I want to start by highlighting that Nequi is more than just a digital wallet. It is our digital neobank and it has leveraged technology and data to provide financial and nonfinancial services through different partnerships, transforming the way Colombians manage and interact with money. With this intuitive and user-friendly value proposition, Nequi facilitates digital payments and transfers, cross-border incoming payments, remittances, collections, bill payments and mobile top-ups in a straightforward and secure manner such that we are proud to see Nequi's presence throughout the country, visible in many corner stores and small businesses. Moreover, its digital footprint is complemented by physical access points, including 5,100 Bancolombia's ATMs and over 28,000 banking agents, which significantly increase user engagement and transaction volume. As a result, Nequi has reached more than 20 million clients, out of which 72% are active users measured in a 30-day period and 68% of them are using products that generate income and most important, with low levels of churn rates. Also important, as of September, Nequi reached close to 1.3 billion transactions, a 17% quarter-over-quarter and 65% year-over-year growth with an average of 27 transactions a month per active user. This significant growth in transactions has fueled deposit growth that ended with a balance of COP 3.2 trillion, representing a 45% year-over-year increase. Please proceed to Slide 5. The loan portfolio continues to grow at a solid pace and has more than doubled its balance, reaching COP 406 billion, representing a 62% quarter-over-quarter and 187% year-over-year increase. The significant volume of transactional information from customers and their behavior with app usage and activity provides a great opportunity to leverage loan originations as a powerful source towards Nequi's path to profitability. We have also grown our income significantly with a 45% year-over-year growth, driving an increase in ARPAC as a result of portfolio growth and the adoption of valuable services by Nequi users, resulting in fee growing by 76% year-over-year. We strongly believe that Nequi possesses the scalability necessary to continue developing a competitive advantage of low-cost financial services as it continues evolving its digital engagement, consumer retention and credit offering thus allowing it to dilute acquisition, funding, and risk costs unlike other competitors. All in all, Nequi plays a vital role in Bancolombia's ecosystem, supporting strategic alliances and interoperability initiatives, positioning itself for continued growth and paving the way to profitability. I will now hand over the presentation to Mauricio Botero, who will provide further insights into the third quarter 2024 results. Mauricio?

Thank you, Juan Carlos. Please go to Slide 6. Our regional operations in Central America continue to provide diversifications in terms of credit risk and currency exposure. It is noteworthy that Banco Agromercantil demonstrated positive loan origination dynamics, achieving a 3.6% expansion in its loan portfolio. Conversely, Banistmo and Banco Agricola experienced a contraction in their credit portfolios, primarily due to a decreased demand for commercial loans. Also, Banco Agricola achieved higher net income and return on equity, supported by an increase in interest income and a decrease in provisioning charges, whereas BAM and Banistmo reported a reduction in net income over the quarter. Let's now proceed to Slide 7. In the sluggish economic cycle observed during the first 3 quarters of the year, we have experienced a modest yet consistent increase in our credit portfolio, reversing the declining trend of 2023. Our consolidated loan book expanded by 0.5% during the quarter and 4.6% over the year. When adjusted for foreign exchange, growth for the quarter was 0.3%, aligned with nominal growth due to a more stable FX rate during the period and 3.5% over the year as FX appreciated by nearly 10% over the past 12 months. Commercial loans presented modest growth of 0.5% over the quarter. While we continue to offer special credit lines to stimulate demand, the pace of growth remains subdued due to the still weak macro backdrop and expectation of further interest rate cuts. However, on an annual basis, the commercial portfolio recorded a 5.8% growth. Conversely, the consumer segment continues to contract, decreasing by 0.4% during the quarter and 2.3% over the year, explained by our still stringent origination standards. Breaking down by category, mortgage loans have continued to lead growth with a 2.1% increase during the quarter and a 9.3% rise over the year, primarily driven by operations in Colombia. The rate reduction program we launched in July has resulted in a significant uptick in credit disbursements, which coupled with social housing subsidies provided by the government has further stimulated demand. Please go to Slide 8. During the quarter, deposits grew by 0.7% and by 6.4% during the year, outpacing the performance of loan origination and underscoring the bank's robust ability to attract and retain low-cost deposits. Sight deposits exhibited mixed performance during the quarter with savings accounts growing by 0.5%, while checking accounts decreased by 1.8%, primarily due to lower balances across all Central American operations. Conversely, time deposits increased by 1.6% during the quarter and 6.8% over the year, partially offsetting the reduced net balance in sight deposits. This growth is largely attributed to operations in Colombia and relies heavily on retail customers, particularly short-term online time deposits, which have increased their share within the total balance. Our diverse range of funding sources and advanced technological capabilities enable us to offer products specifically tailored to meet the distinct needs of our clients. Overall, savings accounts remain our primary funding source, comprising 38% of our funding mix and largely explain our stable and low-cost funding structure. From a funding cost perspective, the total cost of deposits fell by 19 basis points during the quarter, led by a 35-basis-point reduction in time deposits and a 17-basis-point reduction in savings accounts, in line with reference rate cuts. Our effective diversification and flexibility in our funding structure allow us to shift between sources based on interest rate cycles and client demand. Please proceed to Slide 9. Total interest income from loans and financial leases decreased by 3.5% during the quarter and 6.9% during the year. This decline is primarily attributed to a relatively stable loan portfolio with lower yields as the loan book was repriced at reduced rates. However, interest expenses continue to decline, in line with our strategic initiatives aimed at achieving rapid cost reduction, complemented by the prepayment of loans with correspondent banks. These measures effectively offset the increase in interest expenses associated with bonds. It is important to highlight the significant performance of interest and valuation income from financial instruments during the third quarter, which posted an impressive increase of 41% over the quarter and 81% over the year. Additionally, our derivatives portfolio and repurchase agreements contributed positively to these results. All in all, net interest income decreased slightly during the quarter as the contraction in interest expenses didn't fully offset the reduction in loan yields. The net interest margin for the quarter was 6.8%, reflecting a 22-basis-point compression driven by a 53-basis-point reduction in the lending margin despite improved investment performance. We will continue to manage the sensitivity and maturity profile of our assets and liabilities to mitigate NIM contraction. For example, in insurance, swift repricing of time deposits as 67% of total balance is set to mature within the next 12 months. Please proceed to Slide 10. Fee income had a mixed performance on the quarterly analysis when looking at each component. Banking services, debit and credit cards, payments and collections grew in the quarter and sustained an increasing trend during the year. This growth was fueled by an increase in transaction volumes, a strong client engagement and expanded utilization of our distribution network. Additionally, asset management contributed to fee income from fiduciary services, fueled by an increase of assets under management from individual clients. Conversely, bancassurance decreased in the quarter due to a one-off income accrual recorded in the previous quarter, which affected total fee income this quarter. Meanwhile, fee expenses decreased by 4.6% during the quarter, attributed to an anticipated expense accrual in the previous quarter. However, on a year-over-year basis, fee expenses have increased by 12%, outpacing the growth in fee income. As a result, net fee income decreased slightly during the quarter, leading to a fee income ratio of 19% as other sources of operating income grew more during the quarter. Please go to Slide 11. For the second consecutive quarter, there was a decline in past due loan formation with a notable decrease in consumer loan deterioration as we had anticipated. Delinquency ratios are beginning to reflect improved asset quality with loans 30 days past due decreasing to 5.1%, while maintaining a coverage ratio of 112%. Loans 90 days past due have stabilized at 3.4% quarterly, supported by an increased volume of charge-offs to sustain a healthy balance sheet with a robust coverage ratio of 165%. Moreover, net provision expense for the quarter amounted to COP 1.6 trillion, marking a 2% decrease quarter-over-quarter and a 1.3% decline year-over-year, attributed to improved loan performance. Notably, there was a reduction of COP 265 billion in consumer loan provision charges and COP 142 billion in SME provisions, which were the primary drivers for a lower cost of risk. Furthermore, there was a provision release of COP 218 billion, mainly explained by model parameter updates, which reflected better credit behavior from customers. Conversely, commercial loans and some nonsector-related large exposure demanded higher provisions in the third quarter. Overall, the quarterly annualized cost of risk improved to 2.4%, reflecting the enhanced performance of new vintages and an improved collection process. From an expected loss perspective, Stage 3 increased due to the actual deterioration of specific corporate clients, as previously mentioned, while Stage 2 experienced an incremental volume in response to a preventive assessment of certain customer segments. We remain confident in the continued positive evolution of asset quality as lower interest rate will contribute to alleviating pressure on our clients' payment capacities. However, we will continue to closely monitor potential loan deterioration among SMEs associated with specific economic sectors. Please go to Slide 12. Focusing on our Colombian operations, we have observed a continued downward trend in loan deterioration as measured by the past due loan delta, which has improved from 7.8% to 6.7% during the quarter. This reduction in delinquency formation underscores the effectiveness of our collection strategies and the adjustment of our credit risk appetite for this segment. Progress is evident across all products within the consumer segment. Personal loans, auto loans and credit cards have demonstrated lower past due ratios on a quarterly basis, while further deterioration has been successfully contained in payroll loans. Overall, the consumer segment has seen a reduction in its 90 days past due loan ratio from 5.4% to 4.9% alongside a significant improvement in the cost of risk, which decreased from 8.7% last quarter to 7.2%. As we anticipate improved macroeconomic conditions moving forward, we expect to reactivate credit originations at a faster pace in the upcoming quarters, adhering to our risk-adjusted parameters while ensuring asset quality remains under control. Please proceed to Slide #13. Operating expenses increased 1.4% over the quarter and 3.2% over the year, remaining well below Colombia's inflation rate for the past 12 months. This outcome clearly reflects the success of our ongoing expense reduction program. Regarding personnel expenses, there was a 4.7% quarterly increase and a 5.8% annual increase, both significantly below the annual wage growth in Colombia. Additionally, administrative expenses contracted by 0.8% during the quarter, primarily due to lower VAT provisions related to reduced general and fees expenses while expanding only 1.4% over the year, thanks to our effective cost control measures. As a result, the cost-to-income ratio improved during the quarter, decreasing from 49% to 48%, thereby demonstrating the efficiency gains achieved through these initiatives. Please proceed to Slide 14. Net income for the quarter reached COP 1.5 trillion, representing a 4% increase from the previous quarter. Despite the ongoing reduction in net interest income from our lending business due to the prevailing interest rate cycle, the quarter's improved results were driven by a lower cost of risk, a stronger investment performance and a base effect from the second quarter related to a onetime impairment charge associated with a joint venture. The return on equity for the quarter was 15%, which if adjusted for goodwill, translates to a return on tangible equity of 20%, underscoring the operation's robust profitability. Furthermore, an attractive and consistent dividend payout to shareholders enhances the total value return on the investment. Now please proceed to Slide 15. Shareholders' equity rose by 4.3% quarter-over-quarter and 9% over the year, primarily driven by net income generation, coupled with the effects of FX depreciation. Consistently, core equity Tier 1 ratio ended at 11.58%, a 60-basis-point increase over the quarter, proving our sound organic capital generation capacity. On the other hand, total capital adequacy ratio increased 175 basis points quarter-over-quarter up to 14.4% because of the $800 million subordinated bonds issued in late June, contributing 115 basis points of Tier 2 capital. With this, I will now hand the presentation back to Juan Carlos for the final remarks. Juan Carlos?

Thank you, Mauricio. Please proceed to Slide 16. Regarding our sustainability strategy, we have successfully originated over COP 32 trillion in 2024, contributed to a cumulative total of COP 173 trillion since 2020. On the other hand, we continued advancing in our emerging rural system, which aims to promote inclusion and financial education across various municipalities in the southern region of the country, positively impacting over 8,000 individuals to date. Please go to Slide 17. Lastly, I will share our year-end 2024 and a preliminary 2025 guidance. Based on the current data and our updated macroeconomic forecast, we expect to close 2024 with a loan growth of 6.5%, broken down in a 2.8% growth on peso-denominated loans and 6.8% in dollar-denominated loans. NIM around 6.8%, cost of risk around 2.2% and efficiency ratio in the 50% area. ROE around 15% and core equity Tier 1 ratio around 11.7%. Furthermore, on a very preliminary stage for 2025, we expect a loan growth of 7.2% in pesos and 1.3% in dollar-denominated loans. NIM around 6% at the end of the year, cost of risk of around 2%, efficiency close to 51% and ROE between 13% and 14%. With this, we conclude our third quarter results remarks. Now we will take any questions you may have. Thank you.

[Operator Instructions] Our first question here is from Ernesto Gabilondo from Bank of America.

I have 3 topics from my side. The first one -- my first question will be on your investment securities on the NII. We noticed they were abnormally high during this quarter. So just wanted like to understand what was behind that gain. And looking to your guidance, we are looking to NIM pressure of around 80 basis points. So I just wanted to double check if probably you are expecting these security gains not to be recurring, and that's why you're assuming NIM pressure for the next year. My second question is on your net income growth expectations for next year, assuming that you're expecting an ROE of around 14%. So what should imply in terms of earnings growth or contraction next year? And what do you think will be the key metrics to understand this deceleration of the ROE? Would that be just the NIM? Or what else are you seeing? And my last question is on your new corporate structure. So looking to the subsidiaries, Panama is showing kind of weak results. Guatemala's numbers are gradually improving, and El Salvador is posting strong results. So considering this new structure that probably could allow you to have more flexibility on your decisions, would it make sense to sell or give maybe, I don't know, Panama to a third-party to unlock value for Bancolombia's ROE? Just wanted to hear your thoughts if this could be a possibility considering this new holding structure.

Thank you, Ernesto. Let me start with your second question, and I develop also the third. And I'm going to pass your first question to Mauricio, that one regarding the investment security NIM and if it's a onetime NIM or is going to be recurrent. As we mentioned, we are expecting an ROE of around 14% for 2025. And that ROE is very well related with, of course, the cost of risk that we expect to be around 2% for 2025. But NIM is going to play a big role on the results of 2025. And as you mentioned, we are expecting the NIM to compress due to market rates going down during the year. And the speed of that decline on interest rates is going to also play a key role. So what we are expecting is that the Central Bank in Colombia is going to look for -- to have inflation under control and under the range that they determine to be the target between 2% and 4%. So depending on how the inflation is behaving, the speed of the monetary policy is going to be key for us. So to your question, key for 2025 results, NIM and cost of risk. Also, we have to work on expenses, but we think that is something that we can manage. The other are more market conditions. Additionally, how the volume behaves, meaning how the loan growth is going to be is also important. So with all of that, our expectations of around 14% consider a loan growth of 7% and a NIM going down to 6%. So those are key. And regarding your third question, yes, the new corporate structure is going to give us flexibility and it's going to give us options to develop different strategies. But now we are focused on finishing all the steps needed to have the corporate structure. After that, we will consider the alternatives that we may have. So now our focus is to have the structure that, again, give us flexibility. And then we will develop further the strategies regarding improving our financial results. And regarding your first comment, I'm going to pass to Mauricio to comment on that, Ernesto.

Ernesto, as you very well mentioned, we had significant interest income from investments in the quarter. And I would like to divide the answer in 2 parts. One is in terms of volume investment -- the investment portfolio grew 17% quarter-over-quarter and 32% year-over-year. That's abnormally high. We should not expect to see an investment portfolio that high, but it is supposed to decrease for one hand, because of the investment we did to prepare for the call of the 29s that we announced to the market. And on the other hand, is because if we see an increase in demand of credit that we are expecting, you should see how we divest some of that debt portfolio investment and move it into credit, which, of course, has better margins. So that's in terms of volume. In terms of margin, which was your specific question, that was, in fact, abnormally high at 4.6%. You shouldn't expect that margin to be sustainable. The long-term sustainable margin for the debt investment portfolio should be somewhere between 2.5% and 3%. 4.6% -- it was too high, and it responds to basically a rally we had in interest rates -- market interest rates in the quarter.

Perfect. Now super helpful, Juan Carlos and Mauricio. Just a follow-up in terms of the net income growth expectations for next year. So you were saying the 2 key variables will be NIM and cost of risk. But considering your guidance and an ROE of 14%, how should we think about the earnings relatively flat, small contraction? How are you seeing them?

Yes, Ernesto, with the numbers that we are giving as a guidance, the net income should be a little bit lower or flat. And the upside will come from better-than-expected loan growth and the -- as I mentioned, the speed on NIM reductions. But to your specific question, we are expecting lower -- a little bit lower net income or flat, no more than that.

The next question is from Yuri Fernandes from JPMorgan.

I would like to explore a little bit more the margins from the guidance. I understood a 6% NIM consolidated for 2025. It's now running at 6.8%, and I totally get that it makes sense for some compression given lower rates in Colombia. But I would like to understand if this is the average NIM for the year or if this is the year-end NIM. So this continues to slow down like 6.8% going to 6.6%, 6.4% and then ending the year at 6% or if this is the average for the year? And then I can ask a second question.

Thank you, Yuri. Let me pass your question to Mauricio.

Yuri, that's the figure we're having for the whole year. Now it's important to take into account that the interest rate policy that the Central Bank is having is going slower than expected. So that's basically where the upside could come from. We're running simulations with the expectations that are in the market as of today. But if the speed of decline is slower than expected the impact in the net interest margin would be lower.

No, super clear. And to compensate that, how should we think about cost of risk moving down? I see that this quarter, you had a specific case in Panama. I think this should help and your cost of risk should move lower. But what is the pace of the decrease in cost of risk to compensate lower margins?

Yes, Yuri. What we expect is that cost of risk should continue improving. And 2025, we'll have a cost of risk around 2%. And we are coming from, remember, 2.6%, even higher than 2.4% and for the quarter, it's 2.2%. So for next year, it's 2% cost of risk, what we expect, and that compensates some of the decrease on NIM. Also, it's important to take into account volume, as I already mentioned, it is different if interest rates go down and margin goes down also, but the amount of our loan book, it is important. And we have seen some acceleration on the demand by the end of the year. So that will create a base that is going to help us somehow for the 2025, Yuri.

No, it's pretty clear. So the message is the following, like NIMs will go down this 80 bps, whatever, and then you have cost of risk decreasing some 6. So you have a compression on risk-adjusted margin, but you have higher volumes. And part of it you compensate with efficiency, right? That is part of your message in the presentation.

Yes, that is correct. Yes.

The next question is from Andres Soto from Santander Mexico.

I have a question regarding Nequi. Actually, I want to congratulate you guys not only in the results, but the increased visibility that you are providing with these new numbers that you are sharing. I would like to understand what is the role that Nequi -- well, the first question will be, when you look at Nequi going ahead, now fee income and financial income are split 50-50 in terms of the revenue contribution. How do you see that split evolving? Do you expect any acceleration in lending? When I look at the numbers, Nequi already represents 2% of your deposits in Colombia, but 1/10 of that in terms of loans. So you see some room for accelerating there and disconnecting with the idea that you are more optimistic about volumes in 2025. Is it Nequi a driver for that? Or the main driver is going to be commercial loans or traditional consumer loans?

Thank you, Andres. As you see, and you mentioned, the deposits on Nequi are around COP 3 billion -- COP 3.2 billion, and our loan book in Nequi is now COP 400 billion. So there is a room to increase our loan book. And the resources that are not on the loan book are at this time, getting interest rates at the market rate. And so there is a space -- a big space to improvement on the income -- interest income on Nequi, but we need to go on a pace that allow us to increase the volume, but also take into account risk. But there is a big upside there since the interest rate changes a lot between what is the loan interest rates and what is the market rate for in interbank deposits or interbank money. So there is a space there, and we are expecting to keep growing our loan book, again, taking into account risk. And to your comment, in general, we expect consumer loans to behave better during 2025. Nequi is going to be part of that, but not just Nequi, also Bancolombia, we expect to improve the growth on consumer loan. And that's also going to be positive on our loan mix. Since 2024, we saw -- we are seeing a decrease on consumer loan -- in consumer loans and commercial loans are growing. So that's also affecting the NIM. If we change that dynamic and consumer loans start growing better, and that's our expectation, that could also have some positive impact on NIM. And let me pass Mauricio for additional comments on this topic, Andres.

Andres, yes, as you can see, Nequi's dynamic has been very, very positive. We expect disbursements to maintain that dynamic. As you can see, this pace of growth in loans is pretty high. The loan-to-deposit ratio as of today is close to 13% -- and what we expect for year-end next year, it's a growth of deposits of somewhere between 15% and 17%, but loans are expected to grow -- and I'm talking specifically about Nequi, loans are expected to grow 100%. So we expect to have a loan book in Nequi at year-end in 2025 of COP 1.2 billion.

And do you have any medium-term expectation of how much could Nequi represent of your total loan book or represent of your consolidated revenue?

I guess, Andres, more than having an expectation specifically for Nequi's figures, which, of course, are positive and growing, as we mentioned, is the way Nequi might evolve and combine that growth with a coordination of a corporate strategy with Bancolombia. So the way we look at it is we look, analyze Nequi's figures in a stand-alone basis. But after all, what we are aiming at is a growth of the general pie of Grupo Bancolombia.

And let me complement that, Andres. Nequi give us flexibility and allow us to go to the market with much more flexibility and better margins. But still, the consumer book in Bancolombia is much bigger than the consumer loan in Nequi. Just to give you a figure, in consumer loan in Bancolombia is around COP 50 billion. And as Mauricio mentioned, our expectation is to go to COP EUR 1 billion. So still, it's not that big, but give us a lot of flexibility, allow us to go to the market with a much more flexibility and tools to compete in a market that is every day more competitive.

Our next question is from Eric Ito from Bradesco BBI.

I have 2 questions here from my side. The first one would be a follow-up on your new corporate structure. I just want to get more color on the rationale here. You mentioned there are some opportunities under the new structure. Just want to see if there is any specific strategy that you guys are looking for at the moment, any specific initiative. I think Mauricio already mentioned the allowance of potential share repurchases. But I just want to get a bit more color what could be the synergies that we could expect to capture here for maybe 2025 or 2026? And then my second question is specific on the efficiency ratio for 2025, your preliminary guidance, which is around 51%. Just want to get a bit color from you what you guys are expecting for operating expenses growth and fee income for 2025.

Thank you, Eric. Regarding your first question about the -- our new proposed corporate structure, let me first start saying that we are in the process of getting the approval from supervisors in the different jurisdictions, also from our shareholders. And that's going to take place probably by the first half of the year. So we will have in place our corporate structure for the second semester. So the impact -- you will see the full impact of our new corporate structure in 2026. So 2025 is a transition year. And regarding advantages, you mentioned stock repurchases, that's going to give us a lot of -- much more flexibility in terms of how we can manage that return to investors. But also, it will allow us to manage much more efficiency capital and also give us flexibility on that regard. And FX also, we can manage much, much better the effects on -- and effects on capital and goodwill -- also improve our ability to manage goodwill. So on all, what allows this corporate structure is much efficiency use of capital -- more efficient use of capital, but also, as I mentioned, corporate flexibility. But our main focus now is getting those advantages on the short term, those that I mentioned. And then from there, we will see what else we can do looking to improve the return of Grupo Cibest in this case. And regarding your second question about efficiency, let me pass your question to Mauricio.

What we are expecting in the efficiency ratio for next year is something closer to 50%, 51%, but that's because of the NIM compression that we mentioned. So the deterioration of the ratio would come from the decrease in income because the way we are seeing 2025 in general expense growth is somewhere between 4% and 4.5%. We are expecting to grow expenses at a rate lower than inflation, which is something that we are achieving this year, and we expect that to be the case next year also. Now you also asked about fees. We're expecting fee income -- net fee income to grow at around 8% next year, and that's partially going to offset the NIM compression that we mentioned before.

Very clear. Just a quick follow-up, if I may, on the first question. You mentioned the full impact on the -- of the new corporate structure will be in 2026. Is there any preliminary calculations that you guys did? Or is it too soon to ask about it?

Let me go over the timeline so that we can get the complete picture. We're expecting approvals from both regulators and shareholders to come in the first quarter and the execution of the approvals to take place in the second quarter of next year. What you should expect for the second half of the year is basically a capital structure optimization through the buyback program, but you shouldn't see significant differences in the income statement. And in 2025, because of what I just explained, it's important to bear in mind that the company that will be paying dividends, it's Grupo Bancolombia. And the company that will pay dividends in 2026 will be Grupo Cibest. So just to bear in mind when the changes will come.

Our next question is from Tito Labarta from Goldman Sachs.

This is Lindsey Shema on for Tito Labarta. You mentioned consumer loans driving 2025 loan growth. So we were just wondering how reliant is your guidance on improvement in the economy? And if you could provide some additional color on loan growth within the other segments? And then on that note, is there room for commercial loan growth to pick up if consumer loan growth is weaker than expected?

I don't want to be sure that I hear correctly is regarding loan growth. And your question on loan growth in 2024 was low or is going -- is low at this moment, and we expect a little acceleration by the last quarter. So loan growth is going to be this year on average around 6.5%. What we expect for loan growth for 2025, it's a little acceleration and it's going to be around 7.2%. Let me just add that we are expecting in Colombia, a GDP growth for 2025 of around 2.6%. And in 2024, growth should be around 1.8%. So there is an acceleration -- an expected acceleration on an economic growth for Colombia. And on top of that, we expect the demand for credit to grow. And regarding the mix, in 2024, loan growth on consumer book was -- actually was a decrease on loan book. On commercial, there were some growth. Mortgages grew -- are growing on a healthy pace, even more than 10%. So in 2025, we expect a more -- an acceleration on commercial -- I'm sorry, on consumer loans. So we expect the mix to be more balanced in terms of growth in commercial and consumer. And that also is going to help our NIM due to the mix. I don't know, Mauricio, if you want to complement something there.

Yes. On the breakdown of the expected growth, it would be reasonable to expect commercial loans to grow at 5.8%, consumer loans to grow somewhere between 11% and 12%. And we're basically going to have an inflection point in the fourth quarter of this year. So the base is low, positive for growth. And mortgage loans should grow between 7% and 8% to maintain the positive dynamic it's been having this year.

Our next question here is from Olavo Arthuzo from UBS.

I have 2. And the first one is just to confirm that the guidance for the next year of 14% does not incorporate the corporate structure because I think the bank is waiting for the total approvals. So just to confirm if the guidance does not incorporate the corporate structure. And the follow-up question related to this is that if not, what would be the ROE for the next year in the new corporate structure of the bank? And my second question, just like switching topics to Nequi again. I would like to know in terms of breakeven, if you guys could provide us an update in terms of -- if it would be like the next year or 2026, when do you guys expect for Nequi to reach the breakeven?

Thank you, Olavo. Let me confirm that the guidance that we are giving for 2025 does not include the new corporate structure. So all the guidance is under the current corporate structure. Even though we expect that, as Mauricio explained, that we will have by midyear 2025, the corporate structure in place, the effects we will see it on 2026. So just to confirm that the guidance that we are giving is under our current corporate structure, including the -- around 14% ROE expectations for 2025. I'm going to -- regarding Nequi, as you see in the information that we are providing, Nequi has a very good trend, but still, we need a way to go. So our expectations are that the Nequi could be profitable in 2026. Improvements will continue during 2025. And the company, it's -- or Nequi, it's developing its strategy that is complementing income from different sources. The loan growth -- the loan book is going to grow, as Mauricio mentioned. So the expectations are continuous improvement, but we will expect to be profitable by 2026. Mauricio, can you complement something about these 2 questions of Olavo?

Yes. Olavo, you might see an improvement in ROE after we execute the new corporate structure, but it will all depend basically on the buyback program and the optimization of the capital structure that we're going to be able to have. So regarding the ROE, I think it's going to be interesting to look at every single bank's ROE after the structure takes place. And after all, looking at the holding and the group's ROE. So it's going to be a breakdown that is going to be interesting to get the details after we get it done.

This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Thank you very much, everybody, to -- for participating on the third quarter results. We expect the year-end to -- for the year of 2024 to continue on a good pace, and we will see what happens. So we expect you to see you on our conference call for the end of the year results next year. Thank you, everybody, and have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.