Jose Humberto Acosta: Thank you, Yuri for your questions. Let me add your first point regarding the cost of risk and asset quality. Let me start by saying that, the quarter was a good quarter regarding asset quality and kind of so price is on the positive side. But we need to read carefully that quarter. As you mentioned, past due loans, 30-day past due loans ended higher. That’s something that we need to take into consideration, but it’s controlling in the sense that the end of the month was Sunday at the end of Easter week. So it’s something that is — and many people didn’t pay that — the loans that week, but the week after, but we need to be careful on the development of what is going to happen in April. But the quarter was good.
We — on that sense, we are — our guidance is that the cost of risk could improve during the year, but I want to highlight something. This is a year with high volatility in which we need to be very careful regarding how the Colombian economy particularly is going to behave. So we have — on the consumer side, we see a good performance. Provisions are lower than we were expecting and that’s because we started changing our origination process at the end of 2022. And during all 2023, we have a tighter consumer loan origination. What we need to be careful is how SMEs are going to perform during this year. We are looking very careful how those — that particular segment is going to behave. So, let me summarize, better quarter than expected in terms of cost of risk that could lead to a better year, but we are not very — we are not sure that that’s going to be the way the year is going to behave, mainly because of — we are not clear, how SMEs are going to perform during the year.
With that let me go to – so we still – we think that we can have a better than we expected at the beginning of the year cost of risk that we – our guidance was 2.6%. That’s what we are saying that we can move to 2.4% but there is a lot of uncertainty regarding that. Expenses, the quarter was very good, mainly because of some measures that we took but also because the devaluation or revaluation of the peso better. So that helped us. In past quarters, devaluation of the peso affected us in this quarter revaluation was in favor of our expense. Still due to the performance of the interest income, we believe that efficiency is going to be – the efficiency ratio is going to be close to 50%, which is a deterioration of our index or the figure that we had at the end of 2023.
With all of that still, the ROE, we think that we could be probably on the 14 – higher 14 product close to 15% ROE with a lot of uncertainty that’s why we prefer to stay closer to the 14% guidance and waiting for the development of the year view.
Yuri Fernandes: So quickly if I may, just a follow-up on asset quality. The impression I have is that the situation is still a little bit uncertain on the credit cycle in Colombia for sure it’s improving but maybe it’s improving faster for you than other peers. Do you agree with that statement like from these moving parts?
Juan Carlos Mora: Completely. Completely. The economic environment is uncertain. GDP growth in Colombia is going to be close to 1%, which is low. So there is a lot of uncertainty as you mentioned. So I completely agree with your statement Yuri.
Yuri Fernandes: Okay. No, perfect. Thanks very much.
Juan Carlos Mora: Thank you.
Operator: Thank you. Our next question is coming from the line of Julian Ausique with Davivienda Corredores. Please proceed with your questions.
Julian Ausique: Hi, everyone and thank you for taking my question. I have two questions and the first one is regarding again the efficiency, and I know I already explained but I can’t get it. I have sorry interference in my call. So I would like to understand why you’re expecting a deterioration from the efficiency rate from the first 14% or 45% as you report to 50%. My other question is regarding the NIM. I would like to understand why widening of the loans they deteriorated a little bit even with the better performance of the cost of funding like why are you – what are you seeing in terms of collecting or the income firmed loans. And the third question is regarding the ROE. I would like to know, I know you have the – your guidance is 14% but like the – I think because I think that I’ve heard is that the 14% is like the base case scenario but which will be the best scenario and maybe the worse scenario or maybe the 14% is also the worst scenario in terms of the ROE.
Thank you.
Juan Carlos Mora: Thank you, Julian. Sound quality was poor. So I’m going to try to address your – what I understood of your question and all your questions. I’m going to start for the last one regarding ROE. And regarding the answer that we gave Yuri. There is a lot of uncertainty of the performance of the economy, particularly in Colombia, how interest rates are going to behave. So why – that’s why we prepare to give a guidance of 14%, which is the base guidance. It could be an upside. And we could reach 15%, one-five, ROE. But with the uncertainty that there is on the Colombian economy we prefer to say on the 14%. Regarding NIM, we also elaborated on how we expect the interest rates to behave. And we are managing our cost of funds.
But at the end the Central Bank is probably going to reduce the reference rate of around 300 basis points, but the effect — we will see the full effect of those reductions in 2025. Some at the end of the year, at the last quarter of the year, but mainly we can manage our cost of funds and the interest income in a way that we just expect a reduction to 6.8% of our net interest margin. So we will see probably the full effect of the — main part of the effect of interest rate reduction during 2025. Regarding efficiency with the increase in — with inflation that we are having still in Colombia, inflation is around 7%. So the cost will continue to increase, labor cost increase in a very important manner during the last three years. So managing the cost is a priority for us.
But still because of the statistical or the comparison of figures, we still think that our efficiency ratio will be closer to 50%. I’m going to ask Jose Hamberto something to add to these comments.
Jose Humberto Acosta: Thank you, Juan. Just to highlight the part regarding your second question, why did it compress a little bit in the first Q, there is a combination of two factors. First, the reduction on savings accounts because obviously people shift from savings accounts to time deposits. So we increased a little bit more time deposits. But the good news is 67% of the time deposits is less than a year. So the repricing of the liability will be at the same pace of the repricing of the assets. That’s the main reason why you see more contraction of the NIM this first quarter.
Operator: Thank you. Our next questions come from the line of Andres Soto with Santander. Please proceed with your question.
Andres Soto: Good morning, Jose Humberto and Juan Carlos. Thank you so much for the presentation. My first question is related to expenses. Juan Carlos, you were mentioning about this plan with medium-term targets for efficiency improvement. I understand this is going to be — 2024 is going to be a challenging year, because of the indexation of inflation in Colombia. But looking forward, what we can expect in terms of expenses and efficiency you are currently running at a cost to assets of 4.4%. Do you have any number in mind of what could be attainable over the medium-term based on this plan?
Juan Carlos Mora: Thank you, Andreas. As you mentioned 2024 is a challenging year regarding the expenses, we still maintain our mid-term target of 45% efficiency ratio. I think, it’s achievable. Now, I mean the first quarter and last year, we will help because of income. Net interest income, because of higher interest rates and better margin increase. So our efficiency ratio improved because of that part. Now that interest rates are going down, we need to work on expenses. So the pressure on the efficiency ratio indicator is big. But we still believe that the 45% is achievable next year. So our inflation year forecast for the end of the year is 5.7%, during 2024. But the average — average — so that’s year-end, but the average inflation is going to be closer to 7% probably.
So there is a pressure. And I want to remind you that labor costs in general, during the for 2024, increased 12% on top of 16% that was the figure at the labor cost increase in 2022. And before that, that was 10%. So if you do the compound rate of 10 16 and 12, is a big pressure on labor costs. So we are carrying that during this year. So, we need to work on that for 2024 and the results we will see in 2025
Andres Soto: Thank you, Juan Carlos. My second question is regarding these mandatory loans, that the government is proposing as part of the package to rate an IT economy. And this in the context of — you already mentioned — you have a target of COP 500 trillion in loans or sustainable or ESG factors. So, how do you see those discussions evolving? Do you think that with these targets that you have for this loan portfolio will be sufficient for what the government wants to achieve in terms of mandatory investments? Or do you expect any additional pressure from the government in terms of, where you have to put the money on?
Juan Carlos Mora: Andres, the president mentioned mandatory investments for financial institutions. But still, we don’t have sufficient details to have a view that we can elaborate on. So at this moment, we are engaging conversations, with officials from the government through the Banking Association to have the details of what is the government thinking about this mandatory investment. Let me say, that we — in Colombia, we have already on mandatory investments that are focused on agricultural investment and in the past that we have done in Colombia and the results were very, very poor. So that’s, what we that’s the conversations that we are having with the government at this moment — at this moment to have more details and to see how are their planning or what are their planning and on are their views regarding this mandatory investments.
And your second part that you mentioned our ESG strategy, we do that loans because we are convinced that that’s the way to go. We are dedicating funds to clean energy, renewable energy, mobility, green construction. So those are loans that we are — lines of credit that we are building because we are convinced that that’s the way we can help for say the economies in which we operate to be to tackle climate change. It will be ideal, if we can — and we think that all those initiatives could easily be regarding or close to what the government is thinking. Also, we are dedicating big efforts to agricultural loans and mainly to main — two small producers. So those are in lines of what the government is thinking, construction, agriculture and we already have a big portfolio on those loans.
But still Andres, we don’t have enough information to see if those are going to confide or not.
Andres Soto: Understood. Thank you, Juan Carlos and congratulations on the results.
Juan Carlos Mora: Thank you very much, Andres.
Operator: Thank you. Our next questions come from the line of Nicolas Riva with Bank of America. Please proceed with your questions.
