Nicolas Riva

Nicolas Riva from Bank of America asked about the announced call of two AT1 instruments, questioning if they would be replaced and seeking clarification on why the announcement mentioned an impact on Tier 2 capital.

Answer

CFO & Member of Executive Committee Gabriel Amado de Moura clarified there is no impact on Tier 2 capital from calling the AT1s. He explained the move was a liability management exercise, enabled by successful local AT1 issuances. He stated there are no short-term plans for new international AT1 issuance, as the bank is comfortable with its AT1 ratio converging to around 1.3%, below the 1.5% regulatory cap.

Though unable to connect, Nicolas Riva from Bank of America was expected to ask about the bank's strategy for exercising calls on its Tier 1 and Tier 2 debt instruments.

Answer

CEO Milton Maluhy Filho pre-emptively answered, stating that decisions to exercise calls on subordinated debt are made on a case-by-case basis, considering the economic aspects of each specific tranche. He confirmed that the bank has exercised calls on some instruments but not others, and will announce future decisions as they are made.

Nicolas Riva asked for the bank's intentions regarding the upcoming call options on its Tier 2 bonds in November and its AT1 bonds, which are callable at each coupon date.

Answer

CEO Milton Maluhy Filho stated that for the AT1 bonds, the decision remains economic; it would cost at least 100 basis points more to issue new debt, so the call is not being exercised. For the Tier 2 bonds, he clarified that a final decision has not been made. The bank is analyzing market conditions for a potential new issue and is mindful that the bonds lose capital treatment if not called.

Nicolas Riva from Bank of America asked about Interbank's plans for the call option on its 2030 Tier 2 bonds, especially in light of the recent issuance of new 2035 bonds.

Answer

Executive Luis Castellanos López-Torres provided a direct confirmation, stating that the company plans to execute the call on the 2030 bonds and that this was the intended use of proceeds from the new issuance.

Nicolas Riva from Bank of America asked about the company's refinancing plans for BCP's callable Tier 2 bonds due in 2030 and Credicorp's holding company bond maturing in June.

Answer

CFO Alejandro Perez-Reyes stated that the company plans to let the $500 million holding company bond mature without refinancing it, as there is no current need for that debt. Regarding BCP's Tier 2 bonds, he mentioned that the company is currently assessing its capital management options and will announce a decision to the market in due course.

Asked about the bank's AT1 capital levels, noting that calling a bond in June would reduce the ratio. He questioned if the bank is comfortable with the resulting lower level or if it plans to issue more AT1 capital.

Answer

The bank has a plan to issue new domestic AT1 instruments throughout 2024. This new issuance is intended to replace the capital from the bond being called in June. Therefore, they expect their Tier 1 BIS ratio to remain stable, as the reduction will be offset by these new domestic issuances.

Inquired about AT1 capital, asking for details on a recent BRL 2 billion issuance and the bank's plans for the remaining $1.3 billion of its 9% perpetual bond, specifically if they plan to call it next year and replace it with domestic issuances.

Answer

The decision to call or reset the perpetual bonds next year will depend on market conditions. They recently did a tender offer for the 9% bond but only bought back about $750 million as many bondholders preferred to hold. They have been actively using the domestic market to raise AT1-equivalent capital (financial letters) as it is currently much cheaper than issuing new AT1 bonds internationally. They also noted that the implementation of new Basel III rules will be phased over four years, lessening the immediate capital impact.

The analyst inquired about the bank's large net long dollar position, its composition, the potential impact of a major currency devaluation, and the source of funds for the Itau acquisition.

Answer

The CFO clarified that the long dollar exposure is not from spot FX but from peso-denominated, dollar-linked securities, within regulatory limits. A devaluation would impact the value of these securities, not create a direct gain on the reported net long position. The bank has the necessary US dollars on hand to complete the Itau acquisition.

Nicolas Riva from Bank of America inquired about the likelihood of additional fines in Colombia related to the Ruta del Sol case following the US settlement, and also questioned the company's policy on a $300 million loan provided to its controlling shareholder.

Answer

CEO Luis Carlos Sarmiento Gutierrez stated that following a final ruling from the Consejo de Estado, the legal matters in Colombia are considered resolved and no further fines are expected. He confirmed a past fine paid by subsidiary Corficolombiana. Regarding the related-party loan, CFO Diego Fernando Solano Saravia explained that the loan underwent full internal and regulatory approval, was placed at a rate beneficial to the company, and is strongly supported by guarantees.

Nicolas Rivia of Bank of America asked about the holding company's double leverage ratio exceeding the 120% threshold and plans to reduce it, including potential bond buybacks. He also questioned the impact of the new net stable funding ratio (NSFR) on the bank's net interest margins.

Answer

CEO Luis Carlos Sarmiento Gutierrez confirmed the goal is to return the double leverage ratio to the 120% target through equity buildup and a future AT1 bond call. Regarding the NSFR, he explained that its implementation caused a significant, temporary distortion in the cost of funds by driving up time deposit rates and shifting the deposit mix, which compressed margins.

Nicolas Riva of Citi questioned the slower growth in the commercial loan book compared to peers and asked for an outlook on the effective income tax rate, considering the proposed tax reform and the potential loss of tax benefits from goodwill amortization.

Answer

President and CEO Luis Carlos Sarmiento explained that slower commercial loan growth stemmed from reduced demand as companies delayed investments due to tax reform uncertainty and a shift away from dollar-denominated loans. He also stated that the loss of goodwill amortization benefits would have a minimal impact, as the company had not been able to effectively utilize them. He projected a significant positive impact on the effective tax rate as the Colombian corporate rate, affecting two-thirds of their operation, is set to decrease from 40% to 32%.