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

Good morning, ladies and gentlemen, and welcome to Bancolombia's First Quarter 2025 Earnings Conference Call. My name is Zico,and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. 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, in future filings, in press releases or verbally, address matters that involve risk and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by the 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; Mrs. Catalina Tobon, Investor Relations and Capital Markets Director; and Mrs. Laura Clavijo, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.

Good morning. Welcome to Bancolombia's First Quarter Results call. Please go to Slide 2. During the first quarter of the year, the Colombian economy experienced some recovery with an increase in investment and domestic demand despite global trade tensions. Inflation rates remained stable for most of the quarter, resulting in unchanged interest rates. Additionally, increased public spending paired with decreased tax collection continued to impact on the fiscal situation, which will be discussed further. I would like to bring attention to some key issues of the quarter. The quarterly net income was COP 1.7 trillion, reflecting a 4.5% growth both on a quarterly and annual basis. A robust NIM of over 6.4%, coupled with strong performance in other income and expenses resulted in an ROE of 16.3%. The loan portfolio decreased slightly this quarter, but grew 7% annually. Deposits fell by 1% in the quarter, yet increased almost 13% annually, demonstrating our ability to secure funding and competition without raising costs. We have achieved positive results in asset quality across the group due to our effective models, technical expertise and precise credit policy. Due to consistently lower delinquency rates across all banks and positive trends in all segments, the cost of risk for the period was 1.6%. Banistmo saw a significant drop in provision expenses due to measures taken to reduce loan deterioration. Both 30-day and 90-day consolidated NPLs ratios reflect improved performance as we will explain further. Our capital remains strong with a total solvency ratio of nearly 13% and a core equity Tier 1 ratio of 11% following our recent ordinary dividend distribution. We are pleased with shareholders' approval of our evolution into Grupo Cibest, allowing us to distribute more volume, including an extraordinary dividend of COP 624 per share, resulting in a 69% total dividend payout for the year. Since approval, we have been completing legal steps to reorganize the entities under the holding structure with closing expected on May 16. Changes to Colombian operations will appear in May's financial statements. On August 6, we will release Grupo Cibest's second quarter consolidated results, including a new accounting structure and performance overview of key subsidiaries. This is Bancolombia's last earnings call. Future calls will be focused on Grupo Cibest's financial performance. We are planning a share buyback program for approval at an upcoming extraordinary shareholders meeting. We recently transitioned our banking application to Mi Bancolombia app, enhancing customer experience and saving IT costs. To date, 8.5 million users have migrated with a 93% activity rate over 30 days. I will now hand over to Laura Clavijo, Chief Economist, for a summary of the macroeconomic landscape. Laura?

Thank you, Juan Carlos. If you could please turn to Slide 3. The beginning of 2025 has been characterized by a turbulent international financial context, nonetheless, increasing macro strength for the Colombian economy. The environment of global growth uncertainty, tariff-led pressure on inflation and monetary policy has triggered high volatility in financial markets and a widespread trend of risk aversion. For Colombia, according to preliminary analysis, the ongoing global trade debate would not pose a significant shock to its external position or the economic recovery. In fact, there are potential opportunities to exploit in terms of relative competitiveness in different sectors such as agriculture and manufacturing, in addition to gains from a weakening exchange rate. Thus, we maintain our view that economic growth will continue to gain ground as inflation continues converting towards its target. Consequently, we maintain our expectation of 2.6% GDP growth this year and a slight upsurge to 3% in 2026, but we will continue to monitor closely the economic consequences of lower-than-expected growth for key trade partners such as the United States. Global risk aversion has impacted investor sentiment towards emerging markets and sets an uncertain financial backdrop, which at the outset of Colombia's fragile fiscal position has led to local assets being more severely impacted than regional peers. This has been particularly tangible for the exchange rate, which depreciated up to 8% during the second half of March, but is also reflected in higher country risk, resulting in a 100 basis point increase in Colombia's CDS spread compared to the end of 2024. Consequently, this volatile scenario brings additional pressure to an already challenging fiscal situation and limits the course of action in terms of monetary policy. Indeed, the Central Bank kept policy rates unaltered during its January and March meetings despite some apparent rules to continue easing, at least from an inflation perspective. The disinflationary process continued its course during the first quarter, especially in terms of core inflation, but at a higher-than-expected minimum wage poses pressure on regulated goods, which supports our revision of end year forecast from 4% to 4.4% inflation. Accordingly, we increased our end-of-year policy rate forecast from 6.5% to 7.5% in the wake of these developments. Finally, it is worth mentioning the recent suspension of access to the IMF flexible credit line, a loan facility that has been available to Colombia since 2009 and is conditional on meeting sound max prudential policy target. Even though recent announcements suggest that this does not imply a total cancellation to the fund's facility, it clearly sets additional pressure for the government to develop a credible and adequate fiscal plan to address prevailing risks to Colombia's fiscal sustainability. Now please let me turn the presentation back to Juan Carlos, who will present Bancolombia's quarterly performance.

Thank you, Laura. Please proceed to Slide 4. After 12 years of promoting financial inclusion in Colombia, Bancolombia a la Mano has merged with Nequi. Bancolombia a la Mano provided banking services for adults without access to financial products, while Nequi focused on helping young underbanked individuals manage their money. With 94% of Colombia's population now banked, our new goal is to meet the evolving technological and financial needs of our clients, a challenge Nequi is well equipped for. After the merger, Nequi will add around 2.1 million users, reaching 23.5 million to whom it will start offering digital and physical debit cards, consumer credit, a broad portfolio of bill payments and top-ups, mobility services, among others. Additionally, former a la Mano customers will now be able to register their keys to move their money instantly and free of charge between participating entities enabled through [indiscernible]. Also, by centralizing operations in one single platform, we will capture operational efficiencies in avoiding duplicated efforts and in turn, increase Nequi's scalability and revenue generation, contributing to its profitability potential. As a matter of fact, after the merger, Nequi will increase its deposits by nearly COP 700 billion and forecasts an incremental credit portfolio of COP 130 billion by the end of 2025. This, coupled with an outstanding portfolio that grew over 4x in the last year and a low loan-to-deposit ratio will enable Nequi to threefold its portfolio balance for year-end, reaching close to COP 1.5 trillion by the end of 2025. This move certainly contributes to achieving Nequi's breakeven in the first quarter of 2026, driven by a reduction in the cost to serve and the increase in [indiscernible] on the back of a broader base of users adopting value-added services under an enhanced financial inclusion proposal. Now please proceed to Slide 5. Additionally, I would like to present some market metrics that illustrate the progress of our performance in various business lines with the retail segment following the pandemic. First, regarding deposits, Bancolombia's market share in savings accounts and time deposits has increased by 110 basis points as of February 2025 compared to December 2021, outperforming the growth of our peers, some of whom have lost market share with the entry of new participants. This demonstrates our well-defined strategy under our universal banking model to attract and retain granular deposits, which explain our low funding costs and a strong market position. Also, I would like to highlight that Nequi's deposits have also experienced significant growth with a 70% year-over-year increase contributing to the overall growth. Regarding credit card loans, our market share increased by 20 basis points during a period of high interest rates and competition without compromising portfolio quality. With a 16.5% share of outstanding balances, we represent nearly 30% of the transaction value, which raises to 37.7% when debit card transactions are included as of February 2025. We firmly believe that this well-defined strategy, combined with our solid market presence, equip us to effectively navigate new competitors and regulatory changes. I will now hand over the presentation to Mauricio Botero, who will provide further insights into 2025 first quarter results. Mauricio?

Thank you, Juan Carlos. Please go to Slide #6. Let's start with an overview of our Central American operations. Banco Agricola en El Salvador had another strong quarter with increasing profitability. Higher net interest income on the back of a growing loan portfolio, coupled with lower operating expenses compensated for an increase in provisions driven by loan growth in higher-risk segments. Net income for Banistmo in Panama increased 11.5% this quarter, highlighting a recovery in asset quality, driving its cost of risk to 0.2%, mainly by an improvement in the performance of its retail portfolio, more effective collection strategies and better risk segmentation. BAM in Guatemala had a modest quarterly improvement. And despite recording a 12% decrease in provision expenses for the period, deterioration on consumer loans remains a concern, and so the bank is implementing a program focused on improving collections by reinforcing controls in the credit origination process. All in all, Banco Agricola recorded an ROE of almost 23%, Banistmo of 7% and BAM 4%. Let's now proceed to Slide 7. Given a 5% peso appreciation during the quarter, the loan portfolio slightly declined on nominal terms, while posting a 7% annual expansion. Net of FX, the loan book grew 1.3% in the quarter and 4.1% annually. Mortgages continued with positive momentum, growing at the fastest pace, both quarterly and annually, driven mainly by the operation in Colombia, where more competitive interest rates have stimulated credit demand and helped increase our market share. Commercial loans grew across all geographies at a moderate pace, both quarterly and annually, led once again by Colombia after an effective commercial strategy focused on corporate clients that boosted demand. On the other hand, the consumer loan book experienced a contraction during the quarter as the pace of originations was offset with maturities given its short-term nature. Please go to Slide 8. Consistent with the loan portfolio performance, deposits slightly decreased in the quarter, yet year-over-year deposits delivered a strong 12% growth outpacing loan growth, which reflects our ability to attract and retain funding. In breaking down by type of deposit, the aggregate balance of site deposits outpaced time deposits, mainly attributed to the performance across our Central American operations, whereas in Colombia, online time deposits maintained a solid growth, gradually overcoming institutional deposit taking activity, ensuring a more stable and costly efficient source of funding. As a matter of fact, the cost of deposits fell 37 basis points during the quarter, a remarkable achievement given that the repo rate remained unchanged during the period, reflecting our effective funding strategy even under a more competitive environment. All in all, savings accounts and time deposits increased their respective share on the funding mix on a quarterly and an annual basis at the expense of interbank loans and long-term debt, further contributing to reducing the overall cost of funding as illustrated in the table. Please proceed to Slide 9. Interest income fell by almost 3% in the quarter, driven by a combination of lower yielding loans and securities as per the current monetary easing cycle and a smaller investment portfolio. However, this was more than offset with a 7.6% drop on interest expense, such that the lending NIM bounced back to 7% in the quarter, resulting in a 1% net interest income growth. Consistently, the NIM remained at a solid 6.4%, underscoring our ability to manage margin sensitivity effectively throughout interest rate cycles and market competitive dynamics. Moreover, we continue to adapt our asset and liabilities strategies to mitigate NIM compression on the current easing cycle. As shown on the upper right-hand side graph, during the quarter, we further decreased the net sensitivity to interest rates, driven by a reduction in nonsensitive to interest rate liabilities, in other words, current and savings accounts as previously discussed. Please proceed to Slide 10. Fee income fell almost 8% over the quarter, explained by lower credit and debit card fees as per the seasonal effect related to year-end, coupled with a slower pace of originations in consumer loans that led to a drop on Bancassurance fees. However, fee income increased 9.7% on an annual basis, given the positive aggregate performance of fee income sources derived on a higher volume of transactions and digital adoptions. On the other hand, fee expenses decreased almost 10% on the quarter, also explained by seasonality, yet increased by 22% year-over-year due to higher credit and debit card royalties, third-party collections and increased banking agent costs. Therefore, net fee income was almost flat over the year, accounting for a fee income ratio of 17.1% in the quarter. Please go to Slide #11. Building on the positive trend from last year, asset quality continued to improve in the quarter as evidenced by the consistent slower pace of past due loan formation and consequently lower expected losses. As a matter of fact, the positive performance expected for all segments and the incorporation of improved macroeconomic data into our risk models led to a net provision charge of COP 1.1 trillion. This figure represents a 16% year-over-year drop in an annualized cost of risk of 1.6%. Moreover, delinquency ratios registered declines over the quarter and over the year, both on a 30- and 90-day basis, reflecting the better performance of vintages in an overall healthier loan portfolio. Coverage for 30-day past due loans stayed almost flat at 111%, whereas the coverage for 90-day past due loans increased to 162%. Breakdown by stages confirms the better outlook, as you can see Stage 1 loans now representing 88.1%. Also, the coverage ratio for Stage 2 and Stage 3 loans maintained at 41%, ensuring adequate loan loss reserves. Our improved results on asset quality reflect our efforts on developing robust credit risk models and predictive capabilities leveraged on analytics to support decision-making throughout the credit cycle. Please go to Slide 12. Operating expenses decreased 7.7% compared to the previous quarter, mainly attributable to a seasonal effect as expense related to business transformation tend to gradually increase towards year-end. Personnel expenses, on the other hand, increased due to the annual wage adjustment in Colombia and inflation index items, whereas variable bonuses declined. Seen from an annual perspective, operating expenses grew 9.8%, largely explained by IT-related costs, annual wage increase and a base effect on bonus plan provision given the low provision accrued 1 year ago. When measured in terms of cost to income, the efficiency ratio fell to 49.6%. Please proceed to Slide 13. All in all, net income reached COP 1.7 trillion in the period, marking a quarterly and an annual increase of 4.5%. This represents a return on equity for the quarter of 16.3% and a return on tangible equity of 20.4%, demonstrating the robust operational and financial performance in the beginning of the year. Now please proceed to Slide 14. Shareholders' equity fell 6.7% quarter-over-quarter provided the COP 3.8 trillion dividend payout that was approved at our Annual Shareholders' Meeting. Year-over-year, it grew 11.4%. Consistently, the core equity Tier 1 ratio ended at 11.2%, a 73-basis-point decrease over the quarter given the dividend payout, yet increased 71 basis points during the year on the back of organic capital generation. On the other hand, total solvency stood at 12.9%, both ratios well above Basel III total requirements. 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 15. We originated over COP 13 trillion under our business with purpose strategy this quarter, reaching a total of COP 210 trillion towards our 2030 goal. We financed more than COP 5 trillion to support the transition to a low-carbon economy through renewable energy and sustainable transport. We were recognized by Merco as Colombia's top ESG company for the sixth consecutive year, reaffirming our leadership in sustainability and corporate governance. Please refer to Slide 16. Finally, I would like to present our revised guidance for 2025. Following our latest macroeconomic update for year-end, which reflects an increased inflation forecast of 4.4% and Central Bank interest rates of 7.5%, we anticipate a loan growth of approximately 5%. We expect the net interest margin to be around 6.2% with the cost of risk decreasing to a range of 1.8% to 2%, attributed to strong loan performance in Colombia. Furthermore, we project the efficiency ratio to be approximately 51% and the return on equity to be between 14.5% and 15%. This concludes our presentation of the first quarter results. We are now ready to address any questions you may have.

[Operator Instructions] Our first question comes from Yuri Fernandes from JPMorgan.

Congrats on the quarter, everyone. I have a question regarding your bonus line, your cost line. When we go to personnel expenses, it is tracking above inflation, well above inflation. But I know bonus can be volatile, right, during the year. So just checking what should we expect in that line? Was the first quarter higher because of some reasons. So if you can explain that line, that would be interesting. And then I have a second question regarding margins. I think you have been doing a good job on the funding cost, but I believe there is a limit, right? How much optimization you can have? We see a somewhat competitive environment for funding in Colombia. So just trying to understand if your guidance for NIM, this 20 bps decrease that you are forecasting for the year versus the first Q, if this implies that you are calling for funding optimization to be less pronounced going forward?

Yuri, I'm going to address your second question, and I'm going to ask Mauricio to address your first one regarding the cost line. Margins, as you said, we have been working very hard on the cost and the results are there. I mean the cost of funds due to our diversification, the mix we have among the different instruments, savings accounts, CDs allow us to manage the cost. So on that front, I think we have been doing a good job, and we'll continue even though the space there -- it's limited due to what we can do because of the level of interest rates. On the income side, our expectations were that the Central Bank was going to lower the interest rate rates faster. And what we are seeing is that the speed in which they are addressing the -- or applying the monetary policy is less than we were expecting. In the last meeting, the Central Bank lowered the repo rate 25 basis points. And our expectations today are that the reference rate will end the year around 7.5%. But there, we think there is a risk that is not 7.5%, but could be more 8%, even the Central Bank is talking about that right now. If that is the case, that means that we could defend the interest income due to what is going to be the interest rate in the economy. So we are confident that the guidance that we are giving around NIM around 6.2% is achievable due to what are we seeing is the behavior of the interest rates in the economy and what we are doing in the cost front. Mauricio, about the cost line?

Yuri, as you mentioned, we have a significant increase in operating expenses regarding labor expenses, and that's due mainly to bonuses. And that's because at the first quarter of 2024, our expectations for net income for the year were lower so the provisions for bonuses were lower. And if you remember, we had a pickup in net income in the fourth quarter of the year so provisions for bonuses in the fourth quarter of the year were higher. So this year, we are expecting better net income for the year. Provisions for bonuses started significantly higher from the beginning of the year. So that's the comparison we're going to have throughout the year, and it's only going to match in the fourth quarter.

Super clear, Mauricio. If I may, just a follow-up to Juan Carlos on the NIM. Juan Carlos, can you remind us the sensitivity for rates? I remember it was something closer to 20 bps, but you have been changing your liability sensitive on the funding [indiscernible]. So what is the current sensitivity for 100 bps change on rates?

Yuri, our sensitivity is still the same, between 20 and 22 basis points for every 100 basis points in the Central Bank rate. But taking into account that, that's the average repo rate.

We have Ernesto Gabilondo with Bank of America on the line for a question.

I have three from my side. The first one will be on the political and economic outlook. We have seen recent polls such as in [indiscernible] and Eco Analytica showing that Gustavo Bolivar is leading the polls. On the other hand, the recent suspension of the IMF agreement indicates there are some fiscal challenges for the country. So I would appreciate your thoughts on both topics. And if you think the fiscal situation of the country would be the key challenge to be addressed by the new government next year. Then I have a second question related to the subsidiaries. We continue to see El Salvador with very strong ROE levels. But on the other hand, Panama, I believe it posted something around 7% and Guatemala around 4% ROE. So I would like to hear what could be your potential ROE targets among your subsidiaries? And my last question will be on your net income per quarter or what you have said about your guidance. So this quarter, it came at COP 1.7 trillion. As you mentioned, an ROE of 16.5%. And you have guided an ROE of around 14.5%, 15% for the year. So when making the numbers, would it be reasonable to expect a net income per quarter below the COP 1.7 trillion in the next quarters? Or how should we think about it?

Ernesto, regarding the political environment in Colombia, as you mentioned, there are several polls that show Gustavo Bolivar leading the polls. But I think it's too early to have a clear view of what is going to be the situation next year. Remember that in Colombia, we will have Congress election in March and the first round of presidential elections in May. I think that we will start seeing a clearer picture by the end of this year who will definitely is going to run. At this moment, there are too many candidates or people with intentions to run, but those are just intentions. By the end of the year, I think October, November, we will have a clear picture, as I mentioned, who is going to run for which party, who is going to go as an independent candidate and a clear picture of who is running we will have at the beginning of next year. And at that moment, I think pulse will give us a good information of who is really having a chance to go into the first round of presidential elections with opportunities to move to the runoff. So it's too early is my conclusion. In terms of your second question about the fiscal situation in Colombia, definitely, the fiscal situation is the biggest challenge that the Colombian economy has right now. The fiscal deficit that the government presented for last year was too high. So it's something that definitely the government needs to work in. And let me pass Laura Clavijo to give you additional color regarding the SMA line of credit.

Yes. Thank you. Well, indeed, the fiscal situation is the main weakness in terms of our macro outlook. We revised to 5.9% of GDP expected fiscal deficit for end of this year. And let me say that this is a base case scenario given also recent international turmoil that has, of course, impacted to some extent, the FX rate has expanded kind of the spreads on risk premium. And given kind of the levels of oil prices may impact further some of the fiscal expectations that this government presented back in February. So it's still kind of an uncertain landscape for the fiscal situation. And of course, a significant budget cut is needed somewhere between COP 30 billion or COP 40 billion or COP 46 billion, depending on kind of the stress scenario. So definitely something to put all eyes on. And I would just add that we're very expected to see what the government will present in the medium-term fiscal outlook, which should be presented somewhere end of June. So all expectations on how budget cuts can be performed, of course, given some flexibility. On the IMF decision to constrain access to the flexible credit line, this is, of course, still in a discussion in terms of kind of the facility as a whole. But as of today, the access has been blocked on account of giving far more reasonable messages on the fiscal outlook. And again, come June, we should have somewhere a more grounded scenario of how the government expects to address these many challenges.

Regarding your second question about the subsidiaries ROE, as you mentioned, the performance is not the same in all countries. Banco Agricola in El Salvador is doing very, very well. I mean -- and this year, what we see is that, that performance will continue and ROEs in El Salvador will be above 20%. In the case of Banistmo in Panama, it's notable the recovery of the ROE, remember that we are coming from an ROE for year-end 2024 of 4.3%. Now this first quarter was 7%. And we think that this recovery will continue, and we are targeting an ROE above 10% for Banistmo. And in the case of BAM, it's low for the quarter and also, we are expecting the BAM to have a better performance. It's in the middle of a recovery and the full potential ROE is not going to be delivered this year. We are targeting more 2025, and we are expecting BAM to deliver an ROE close to 14%, 15%. So the outlook, I think, is positive in terms of what Banco Agricola is delivering and the trend that the other 2 operations in Central America are having. Regarding net income, as you mentioned, COP 1.7 trillion for the quarter is the highest figure for the last 2 years. So the average is more close to COP 1.5 trillion. And since there are still some uncertainties regarding the macro performance of the different countries, what is happening in the global economy so we prefer to be cautious, and that's why we are talking about an ROE between 14.5% to 15%, even though the ROE for the first quarter was 16%, as you mentioned. Is there an upside potential? I think so, but all depends on external factors, I think the performance of the economies in which we are and how the global tensions, the geopolitics and the global economy is going to behave. So we want to remain cautious in terms of our guidance for the full year, Ernesto.

We have Andres Soto with Santander on the line with a question.

Congratulations on another strong set of results. My question is probably more related to macro. First quarter of 2025 was a good quarter for Colombia, but conditions materially deteriorated in the second quarter, what it have been with oil prices at $60, $62. This is $10 lower than what the government expected for the full year. So I would like to understand how these lower oil prices trickle down into your GDP forecast and fiscal forecast? And if you expect to make any revisions, any update to your provisioning model considering this new environment?

Andres, let me pass your question to Laura. And once she elaborates on the answer, I will take the part of the provisions.

Yes. So indeed, we maintained during our first quarter, our 2.6% expectation of GDP growth for this year. This was prior to kind of the whole Trump trade volatility as well as more recent events on the fiscal side. We will have a revision again mid-June, where we expect to incorporate whatever the government brings to the table on the fiscal outlook as well as kind of the settling of some of these international variables, especially considering oil prices, as you mentioned. It will impact revenues expected. I believe the fiscal plan as to date looked at prices more in the $65 and $70 per barrel range, whereas we are now closer to $60. So definitely something to look at from that perspective. So the fiscal outlook could impact, especially government expenditures that have been one of the leading sectors in the economy. On the flip side and the reason perhaps why we feel kind of comfortable to this extent on the 2.6% GDP growth end of year, which is also what the Central Bank published yesterday, emphasizing that same estimated growth is the fact that we are seeing far more resilience on internal demand. Consumer households are exhibiting quite -- resilience coming from remittances, other types of spending. We are seeing an upswing also in consumption of more durable goods and leading sectors such as entertainment and agriculture are faring relatively well in addition to kind of these new sectors also bringing some dynamics to the table. So 2 kind of counter effects that lead us to some extent to feel comfortable around this 2.6%. Nonetheless, a revision will come midyear.

And regarding the effect of this macroeconomic outlook in our numbers and particularly the cost of risk, Andres, that's why we are cautious about the guidance of the cost of risk. Even though we have had 2 very strong quarters in terms of cost of risk, we remain cautious, and that's why our guidance of the cost of risk is between 1.8% and 2%. Even though the cost of risk for the first quarter this year was 1.6% and the cost of risk for the last year even was better. So that's why we remain cautious because there are some risks associated to the macro environment that we are considering in our guidance, Andres.

And if I may follow up on Laura's answer. What will be the solution for the government to fix at least temporarily the big budget challenges that they have for this year? Do you see a possibility for some of the measures that have been proposed such as bringing forward tax payments for companies to be the solution? And what other solutions can the government implement to patch the hole that is being created and is growing as every day passes?

Well, our base case scenario of 5.9% of GDP fiscal deficit suggests breaking the fiscal rule again this year. So it's already a stress scenario, which kind of incorporates some space to endure expenditure cuts. But of course, there is a lack of flexibility and maybe also lack of willingness in a pre-electoral year. So I think it would have to be a combination of many things, as you mentioned, kind of delaying some budget execution in effect, cutting expenditure to some extent and kind of all these different initiatives that are ongoing. But it is a scenario that, in any case, our base case scenario is not compliance of the fiscal rule and especially, given kind of those very high expenditure objectives.

Our next question comes from Brian Flores with Citi.

Congratulations on the results. Two questions here on my side. The first one is I wanted to understand how should we think of provisions, right, and the relationship with growth? You reduced your guidance in terms of both items slightly quarter-over-quarter. So I just wanted to confirm if you are expecting lower growth, particularly in consumer. And also if you could expand your guidance by segment, I think that would be really helpful. And then my second question is you made very interesting comments on Nequi and Bancolombia a la Mano. Just wanted to confirm if you said 2 things: One, you're reaching breakeven in the first quarter of 2026 and if you will reach COP 1.5 trillion in loans also by the end of this year. I just wanted to confirm those data points. And then maybe a derivative of this question, right, you're seeing more transactions increasing the LDR. Can you say or quantify if BRE-B is having an impact or should have an impact on fees and this is already incorporated in your guidance?

Thank you, Brian, for your question. Let me address your second question regarding Nequi. As you mentioned, we decided at the beginning of this year to merge Bancolombia a la Mano and Nequi, and that's undergoing. And by the end of May, we are expecting to finish the clients of Bancolombia a la Mano moving to Nequi. That will give Nequi a considerable size. We expect Nequi to end May with around 24.5 million clients. And I would like to highlight that of those, the level of activity is very high. I mean 78% of the clients of Nequi are active at least once a month moving money. That's very, very, very high. That means that Nequi is used on a very -- very frequently by Nequi users. And as you mentioned, we are very happy with the development of the loan portfolio. And you said that we were expecting to have COP 1.5 trillion in loans by the end of the year. The figure at the end of April is COP 1.2 trillion. So we are in line and our expectation is that we are going to have a better performance in terms of loans for Nequi. And those are loans of average of $500. So it's small amount credit. And the performance, as I said, is very good. And this is to ratify that we are expecting Nequi to reach the breakeven point by the beginning of, maybe, the next year. And that's a very, very important milestone for Nequi. We are very, very happy with the performance, the development, how the loan portfolio is behaving, not just in terms of volume, but in terms of quality. It's very much in line with our expectations, even better than our expectations. So we are very positive and very optimistic about the performance of Nequi. Let me pass your first question to Mauricio, the one regarding provisions.

Brian. Regarding provisions, as we mentioned before, it was a very positive quarter in terms of cost of risk, 1.6%. But the good thing I would like to highlight is how we got there. And it's basically the deterioration of the different segments was better than expected. So if you take a look at the different metrics regarding asset quality, they are looking good. We don't have any one-offs in the quarter that would explain the 1.6%. So provisions looking good in the quarter, looking good for the year, but we still need to be prudent because of the macro scenario that we have mentioned before. Now in terms of guidance, the breakdown of the guidance is commercial loans growing at 4%, mortgage loans growing at 4.5% and consumer loans growing at 8%.

No, that is very helpful. And then just a quick follow-up on the first answer. I think we did not discuss the impacts of BRE-B, do you think BRE-B could present any downside risk to maybe your fees in the coming quarters?

Brian, I'm sorry that I didn't address that part. Yes, I mean, BRE-B is going to have an impact in terms of how people are moving money. But let me say that we are expecting that, that impact is going to be mild. We, in January, opened the Bancolombia and Nequi platforms to have free immediate transactions among several banks. So today, it is possible to move money among several, I mean, more than 10, probably 15 banks in Colombia without fees and costs and immediately. So there will be some effect definitely, but we are very well prepared to manage that effect. And as I mentioned, we moved forward and we didn't wait for BRE-B to be ready, and we made available for our customers the possibility to move money freely among banks. So I think at the end, the effect will be positive in terms of how money is going to move in Colombia. And we think we are very well positioned to take advantage of that possibility, Brian.

Our next question comes from Tito Labarta with Goldman Sachs.

A couple of follow-ups, if I may. First, Juan Carlos, on the margin, because you kept the margin guidance the same. But you also mentioned that you expect the policy rate to be higher than what you were initially expecting at 7.5%. I think you had mentioned initially 6.5% with the risk that it can be even 8%. And you said the sensitivity to rates didn't really change. So just to understand why you kept the NIM guidance the same, even though it looks like rates could be higher than initially expected? Or is there just some conservativeness and potential upside here? And then my second question, following up on the loan growth a little bit, because it's a bit lower than guidance, even though asset quality is doing well. There's still a little bit of uncertainty on the economy. So just to think, like is there some more downside risk to the loan growth? When can that inflect and maybe see some upside? Just to get a sense because you have some good asset quality trends, but some uncertainty on the economy, just to think about the maybe longer-term outlook for loan growth.

Tito, let me give you some color on your two questions, and I will pass to Mauricio to see if he wants to add something. Margin, we were more -- what we saw at the end of last year and probably before is that this year 2025, the interest rates will go down faster and our expectations at that moment was even the NIM was going to be close to 6% or even below 6%. With the behavior of the inflation and what the Central Bank, the Banco de la Republica is doing regarding that inflation and the speed on which they are applying the monetary policy, that's why we are talking about 6.2% of NIM for the full year. And we ended this quarter in 6.3%. So what we're seeing is 100 basis points reduction. And the interest rate is -- the reference interest rate at this morning is 9.25%. And we mentioned that could be 7.5%, but the risk that it could be 8%. So that's 125 basis points or 175 basis points reduction. So that's why in that sensitivity, it's where we are moving regarding the margin. But definitely, what we see is that if there is a risk now, it's a positive risk that we can defend the margin in terms of what the speed of which the interest rate is going down in Colombia. So we are on the conservative side. It is possible, depends on how the interest rates move in the economy, but definitely could be a positive risk in terms of that the interest rates remain higher for longer, and that will allow us to maintain the NIM for longer also, increasing the interest income. Loan growth, loan growth definitely is a challenge. Let me put it this way. The economy -- what we have seen in the economy is that the economy is performing pretty well. I mean the asset quality is good. Demand is affected for the political uncertainty and what we see in terms of what is happening globally. So there are some uncertainties. But in terms of consumption, it's strong. So what we are seeing is and what we mentioned on the terms of loan growth and divided in the different segments is that consumption or consumer loans could grow a little bit faster. What we are seeing is that there is demand. And I mentioned Nequi, which is now performing very, very well, even better than what we were expecting. Also disbursements in terms of consumption or consumer loans are improving. Commercial loans, I think, will depend on projects that due to expectations of the new government will start demanding some credit. And the performance on mortgages is very good. It's really, really good. So it will depend at the end on macro and expectations regarding the political environment. Mauricio, I don't know if you want, no. Okay. That's our point of view regarding your questions, Tito.

Okay. No, that's very clear, Juan Carlos. So just to be clear, on the NIM guidance, it sounds like there could be maybe some upside risk there, but the trend is still -- should be coming down as rates come down, but with some potential upside given the rates may be coming down slower than expected.

That's correct.

Our next question comes from Carlos Gomez with HSBC.

Two brief ones. One, you have modified slightly your guidance. We have gone through different elements. But I see that the CET1 that you had between 11% to 11.5% is no longer part of the guidance. And I was wondering if you want to have more flexibility as to how much capital you want to hold. Second question is, once you have Grupo Cibest set up, is your priority still to do the buyback for $300 million? Or what else do you think you can do immediately that you couldn't do as Bancolombia?

Carlos. Let me address your second question, and I will pass your first one to Mauricio. Definitely, we are in the way of setting up Grupo Cibest. Our expectation is by the end of May, we will have everything in place. And we will have a Cibest shareholders meeting in June. And our idea is to present to that shareholder meeting the buyback program. And as you mentioned, we are planning to present a $300 million equivalent in peso, of course, of $300 million program of buybacks at that first Cibest shareholder meeting that, as I mentioned, we are expecting to take place in June.

Carlos. Yes, complementing that Grupo Cibest, as we mentioned, give us a lot of options and that optionality is going to be targeted in parallel ways in the different options, as we say, capital allocation, corporate development, more flexibility and I guess, the simplicity to understand the operations. So one of them is capital structure, and we already had a distribution of an extraordinary dividend, which is the result of that optimization of the capital structure. So the buyback is another thing and things will keep going on. Then regarding the guidance for core equity Tier 1. The reason why we didn't include it is because the guidance is going to be basically Cibest guidance. At the end of the year, we're going to be presenting Cibest's results. And for Cibest, CET1 will not be a metric to take into account. That would be a metric to take into account in the operational companies. So Bancolombia's CET1 will still have a target between 11% and 11.5%, but Cibest will not. So I guess the metric that we will be including would be double leverage starting from second quarter.

Our next question comes from Olavo Arthuzo with UBS.

Actually, I have just one. It's related to the profitability of the bank because I just wanted to understand what would be the leverage for the ROE to increase again and return to that high-teens figures that we used to see in the past? Because I totally understand the top-down elements, which is they are key in this process. But what could you share with us in terms of bottom-up initiatives? I just want to understand the focus of the bank on the in-house efforts and trying to do some analysis here. And also in this context, if possible, of course, could you remind us or update about the long-term ROE of the bank, which the bank is targeting for the long term?

Thanks for the question. I'm going to start from the end. Our long-term ROE goal is to reach 16%. Maybe you have ROE figures from a couple of years ago when margins were significantly higher, and we reached ROEs of even higher than 20%. Those are not sustainable, but we do believe we can reach 16% ROE going forward. And the way to think about that in terms of upside would be with the initiation of Cibest managing the capital structure, taking advantage of the possibilities Cibest give us along with a transition in terms of macro and economics that allow us to grow the loan book faster than it is growing now. That would push fees also and give us or take us to a more sustainable long-term cost of risk of around 1.8%. If we reach that in the long term, ROE could be higher than 16%, maybe reaching 17% or so. But long term, you should think about 16% in a sustainable way.

Our next question comes from Nicolas Riva with Bank of America.

I have two questions. One, it's a follow-up from the question that I think Carlos Gomez-Lopez had asked on capital. But if you can give us your thoughts regarding plans to raise additional capital basically because I look at the buffer over the minimum requirement for total capital, it looks a bit on the thin side for a bank of your size. So I think total capital was 12.9% at the end of March, which is about 140 basis points above the minimum. So if you can give us some thoughts regarding your plans, if I need to raise additional capital. And then second question, also a follow-up regarding the creation of the new holding company, Cibest. If you are thinking of using that new vehicle in a way to raise funding, senior debt, but also to raise capital in the sense that you could raise senior debt out of Cibest, the new holding company and then downstream it as capital to the bank, to the Colombian bank?

Nicolas, thank you for the questions. First, regarding the capital position, we have used -- in order to distribute dividends, we have used a year-end target of 11%. Last year, for example, when we distributed dividends, it dropped to 10.5% as expected and came up above 11% at year-end. This year, after distributing dividends, it only went down to 11.2% basic capital. So the figures that you mentioned give us comfort. We have run all the stress tests. We have run all the scenarios. We're very conservative. We keep in touch with risk rating agencies, and we feel comfortable with the capital levels we have at this time. And regarding...

Mauricio, if I can do a follow-up there because I see, as you said, at the CET1 level, you have quite some buffer, I think, over 400 basis points. But if I look at total capital, given that the '27 -- well, so you're about 2 years away from maturity and they are losing capital treatment. So that's why I'm thinking more regarding Tier 2 capital, if there are any plans to replace the capital you're going to be losing with the '27? And again, given that the buffer on total capital looks a bit thinner.

Right. Right. Yes, that was your second question that I was going to address. And the answer is, Nicolas, in the short term, that means 2025, we're not planning any capital or any issuances of different instruments. But of course, that's going to be an optionality that Cibest will bring us both at the holding company and at the operating company level. So we might be tapping the market for Tier 2 instruments in 2026, but we can also do AT1s at the holding company. We don't know. It's not a short-term need, but we do know the options are there and the market is asking about that.

Okay. Go ahead, please. Go ahead.

No, I was going to say one last follow-up. Yes, sorry to interrupt, Juan Carlos. One last follow-up question for Mauricio on that. I would imagine that, as you said, the holding company doesn't have capital requirements other than perhaps like double leverage. So I would assume that you would either issue senior debt at the holding company level at Cibest and then downstream that as an equity injection to the bank or you could raise AT1 or Tier 2 capital at the Colombian bank level because that's the entity that has the capital requirements. Is that kind of fair?

It is fair enough, Nicolas. And I just want to highlight what you just mentioned. The evolution of our corporate structure will give us flexibility. And as you described, we can look for additional resources at the holding level, at the Cibest level, the level of double leverage that we have at Cibest is very comfortable. So we have a space there. But also we can look for additional instruments at the subsidiaries level. So we have the flexibility to tap the market depending on what are our requirements, the interest. So we have that flexibility. But I want to emphasize what Mauricio said is this year, we feel comfortable with the level of capital that we have on both levels at the holding company at Cibest or at the operational banks in the different geographies. But now we have the flexibility, again, to go to the market with any of the operations to go for resources if we need additional capital in any of the operations, Nicolas.

We have no further questions at this time. I would like to hand the conference over to Mr. Juan Carlos for closing remarks.

Thank you, everybody, for attending this conference call. Our next conference call, we will present the results of Cibest. So the results for the second quarter will be Cibest results due to our corporate evolution, as I mentioned. So again, thank you very much, and hope to see you in our next conference call. Thank you very much, everybody, and have a good day.

Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.