Bancolombia - Earnings Call - Q2 2025

Transcript

Speaker 2

Good morning, ladies and gentlemen, and welcome to Grupo Cebes Bancolombia's second quarter 2025 earnings conference call. My name is Christine, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. During the question and answer session, if you have a question, please press star then one on your touch-tone phone. Please note 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 risks and uncertainties.

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 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 will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.

Speaker 0

Good morning. Welcome to Grupo Cebes' second quarter results conference call. Please go to slide three. I am pleased to share our first results as Grupo Cebes, our new holding company. Our formation involved legal transactions, asset transfers, and mergers that led Bancolombia to transfer Banistmo, Banco Agrícola, BAM, NEKI, Trentin, UENIA, WOMPI, and other investments to Grupo Cebes. This transformation did not impact our operations, asset portfolio, debt structure, or revenue generation capacity. Therefore, the consolidated financial results reported under Grupo Cebes correspond to those that Grupo Bancolombia would have achieved if the corporate changes implemented on May 16 had not occurred.

Our main goal is to optimize capital allocation, increase corporate flexibility, and boost value creation and distribution, such as through our ongoing share repurchase program launched on July 17, with the goal to buy up to COP 1.3 trillion in a combination of common, preferred, and ADRs until June 24, 2026. As of July 31, 5.2% of the total shares had been repurchased. Now, please proceed to slide four. With the creation of Grupo Cebes, we consolidate our position as a solid regional financial group with a strong footprint. We offer an integrated, client-focused value proposition by delivering customized financial solutions to a wide range of clients in our operating countries. Our approach adapts to local market trends while drawing on regional strengths, promoting diversification, and supporting sustainable long-term growth.

Additionally, the corporate structure supports efficient capital allocation for both organic and inorganic growth, as well as various organizational developments, with the aim of creating value for stakeholders. In addition, our ability to expand complementary businesses supported by customer insights and data access contributes to our value proposition and competitive advantages. Now, please proceed to slide five. We offer a wide range of financial services covering banking intermediation, transactional and banking services, asset management, treasury, and capital markets, amongst others throughout Colombia and Central America. As of the second quarter of 2025, we serve over 33 million clients. Colombia remains our core market in which Bancolombia leads the financial sector with over 18 million clients and a market share of 28% in loans and 26% in deposits. At a consolidated level, Bancolombia integrates fiduciary, brokerage, investment banking, real estate fund, and offshore banking services.

Our Central American operations offer valuable diversification. Banco Agrícola leads in El Salvador, Banistmo is second in Panama, and BAM ranks fourth in Guatemala, each with growth potential in their markets. In addition to our traditional banking services, we are continuously enhancing our digital and transactional ecosystem. NEKI, our digital bank, now serves more than 25 million clients with an activity ratio approaching 80%. WOMPI, our payments platform, facilitates both pay-ins and payouts for small and medium-sized enterprises. Furthermore, UENIA is strengthening our presence in the digital asset sector throughout initiatives such as COPW, a stablecoin backed by the Colombian peso. Now, please proceed to slide six. From a capital allocation standpoint, Grupo Cebes' principal entities are its four banks: Bancolombia stands alone, accounts for 48% of the holdings' equity and 66% of the total assets as of June, while Banistmo, BAM, and Banco Agrícola comprise the remaining portions.

Moreover, returns over capital are mixed. Bancolombia stands alone recorded a 26% pro forma ROE in the second quarter, calculated over the average equity of the first and second quarters, assuming the transaction had been executed by ERN 2024, which implies a lower amount as per the capital deconsolidation that took place. What this metric clearly reflects is the merits of the corporate evolution, demonstrating more efficient capital allocation on the main operational entity, thereby driving value creation for shareholders. On the other hand, Banco Agrícola continues to deliver high returns that significantly exceed its relative size, outperforming both Banistmo and BAM. Now, please proceed to slide seven. In the second quarter of 2025, we achieved robust financial performance, aligned with our long-term corporate strategy and supported by our operational strengths.

Return on equity increased to 17.5%, primarily due to strong net income resulting from an improved net interest margin and reduced provision expenses. Notably, the net interest margin rebounded to 6.6%, driven by growth in both loans and investments, which will be discussed in further detail. Cost of risk of 1.6% and declining non-performing loans ratios highlight the ongoing enhancement of our asset quality. It is also noteworthy that deposits continue to exceed loan growth on both quarterly and annual basis, maintaining a notably low cost despite increased competition. The double leverage ratio for Grupo Cebes is at 105%, indicating solid creditworthiness and providing capacity for further expansion. Furthermore, NEKI reported loans totaling COP 1.1 trillion, reflecting a substantial 4.7% increase over the previous year. This growth has also driven further cost efficiency, which will be discussed in more detail later.

I now hand over to Laura Clavijo, Chief Economist, for a summary of the macroeconomic landscape. Laura.

Speaker 3

Thank you, Juan Carlos. If you could please turn to slide nine. The Colombian economy continued to gain momentum during the second quarter, driven by strong domestic demand, household consumption, and a modest recovery in investment. The ISC, a monthly indicator of economic activity, expanded at an annual rate of 2.7% in May. Meanwhile, our now CAS Bancolombia, based on transactional data, suggests the economy grew by 2.9% during the first half of 2025. As a result, we maintain our GDP growth forecast of 2.6% for this year and 3% for 2026. Key macro indicators, including inflation, unemployment, and consumer confidence, have continued to stabilize and have thus far mitigated the impact of a volatile global environment and broad-based risk aversion. Nonetheless, both monetary and fiscal policy face significant challenges ahead. The central bank has adopted a cautious stance throughout much of 2025.

Despite inflation falling to 4.8% year-over-year in June, the monetary authority has kept the policy rate unchanged at 9.25%. These decisions reflect the need to anchor inflation expectations, anticipate potential price pressure from a higher-than-expected minimum wage in 2026, and prevent second-round effects. We expect inflation to end the year above 5%, with interest rates maintaining a predominantly restrictive posture. On the fiscal front, Colombia faces mounting challenges in both the short and medium term. In recent years, the fiscal deficit has deteriorated, widening from 4.2% of GDP in 2023 to 6.7% in 2024 and is projected to exceed 7% in 2025. Overly optimistic revenue projections, high interest payments, rigid budget structures, and reluctance to implement necessary spending cuts led to the activation of the escape clause of the fiscal rule for the 2025-28 period. Furthermore, the generous 2026 budget proposal underscores ongoing concerns about fiscal sustainability.

As a consequence, credit rating agencies Moody's and S&P recently downgraded Colombia's sovereign rating, a move that had largely been priced into sovereign assets, which have weakened in line with increased risk premium. Nevertheless, Colombia continues to enjoy a strong reputation in financial markets, with a solid track record of debt repayment and credibility that compares favorably to other countries in the region. Please turn to slide ten. Turning to Central America, most countries are closely monitoring slower-than-expected U.S. growth, new tariff announcements, and potential policy shifts that could affect remittance flows. El Salvador is expected to grow by approximately 2.2%, supported by low inflation and robust investment in infrastructure and tourism. Country risk has improved significantly in recent years, and a newly signed IMF agreement has placed fiscal consolidation at the forefront of policy.

Guatemala, known for its macroeconomic stability, is projected to grow 3.6% this year, driven by strong domestic demand that could help cushion a potential slowdown in exports. Finally, Panama is gradually recovering from the 2024 copper plant shutdown and disruptions to its Panama operations. Growth is expected to reach 3.7% in 2025, underpinned by increased infrastructure investment and solid tourism activity. I will now hand over the presentation to Mauricio Botero Wolff, who will provide further insights into the 2025 second quarter results. Mauricio?

Speaker 1

Thank you, Laura. Please go to slide number 12. As of the end of June, the loan portfolio represented 75% of our total assets. It was almost flat during the quarter, partially explained by a peso appreciation of 2.9%. However, this result represents a 4.4% growth over the year. The commercial loan portfolio remained almost flat over the quarter, as demand remains weak. On the flip side, consumer loans regained momentum, primarily driven by our operation in Colombia, tied to NEKI's exponential loan growth and a continued positive trend in credit card and payrolls. Mortgages remain as the fastest growing segment on a quarterly and an annual basis, fueled by the rate cut program launched a year ago. Please go to slide number 13.

As of the end of June, our loan portfolio in Central American banks represents 25% of our total loan book in pesos, providing valuable diversification across markets and currency exposure. This, combined with the commercial loan book from our offshore operations in Panama and Puerto Rico, brings the overall loan book in U.S. dollars to 31% when converted into pesos. When analyzing by operations, Bancolombia and Banco Agrícola continue to lead loan growth, whereas BAM and Banistmo experience lower activity in different segments. Please go to slide number 14. Deposits grew 2.4% in the quarter, accumulating a 9.6% expansion during the year, outpacing loan growth. Such growth is especially positive in savings accounts, which was 4% over the quarter and 16% over the year, driven by Bancolombia and Banco Agrícola, where our reach and client engagement are particularly strong.

Time deposits were almost flat during the quarter, but grew 4% over the year, and checking accounts kept on growing steadily. This ability to attract and retain stable low-cost deposits remains a key competitive advantage, even as new competitors emerge. Furthermore, it provides ample room for loan origination going forward. Please go to slide 15. It's encouraging to see the evolution of the funding mix, with savings accounts representing now 42%, which has a very positive effect in overall cost. Most of those accounts are very transactional, which provide a stable and low cost of funding. Interestingly as well is the fact that within time deposits, online time deposits continue outpacing institutional time deposits, contributing not only to a more stable but also cost-efficient funding base, as these allow a faster repricing.

Thus, cost of deposits remained very competitive at 4.2%, recording a slight increase over the quarter, but remains well below Colombia's industry average and central bank's reference rate. Also of note, the cost of other liabilities fell due to the maturity of loans with banks and long-term debt. Please go to slide 16. Net interest income increased by 2.5% during the quarter, driven by growth in loans and investments. In the case of loans, despite mild overall growth, the expansion of the consumer segment offset the impact of lower interest rates, resulting in a 1.8% increase in interest income from loans. On the other hand, given the ample liquidity kept during the quarter, we held an enlarged investment portfolio that generated incremental yields, recording a 12.2% interest and valuation income growth in the quarter.

This positive performance on interest income, coupled with a very competitive funding cost, explains the rebound in NIM up to 6.6%, reflecting our effective asset and liability management. When broken down by entity, Banco Agrícola and Banistmo posted higher NIMs, driven by robust loan growth in the case of Banco Agrícola and higher reference rates in the case of Banistmo. In contrast, NIM at BAM remained flat, as loan expansion was concentrated in the commercial segment, which carries lower yields. Please proceed to slide 17. Revenues from fees increased over the quarter and over the year. The positive performance in the quarter is mainly explained by an increase in transactional volumes, particularly in credit and debit cards, and higher revenues generated through wealth management services, brokerage, trust, and investment banking.

Also of note, bancassurance resumed its growth in the period, and despite the year-over-year deceleration, we're confident that as we increase consumer loan originations, this income source will increase accordingly. Fee-related expenses increased as well during the quarter, driven by higher royalties on credit and debit cards, on third-party collection costs, and on banking agent transactions. Please go to slide 18. Moreover, I want to comment about the significant progress we're making in developing and scaling other complementary businesses within the group, which play a critical role in strengthening our competitive advantages in terms of low cost of funding, access to transactional data, and fee income generation. For example, WOMPI has built a robust, scalable payment gateway for small and mid-sized merchants that has achieved sustained growth in active users and transactional volumes through payments, disbursements, and an array of other value-added services.

In the case of UENIA, we have seen promising client engagement and a growing volume of digital asset operations in its earliest stage. As more users join the ecosystem and scale their transactional activity, we anticipate sustained revenue growth in the medium and long term, driven by increasing fee generation. Finally, NEKI has proven its ability to attract and retain users by scaling up the digital neobank platform, as we will discuss later. Please go to slide 19. In line with the positive momentum observed in the last 18 months, asset quality showed further improvement in the second quarter, as all geographies exhibited good performance in general, with the exception of the retail portfolio in BAM. Consistently, the 30-day NPL ratio declined, while the 90-day remained flat, both displaying comfortable coverage levels.

Notably, consumer loans continue recovering, which is particularly relevant as we plan to continue growing in this segment, especially in Colombia. The sustained improvement in credit performance is particularly evident when analyzing the loan book by stages. Over the past year, the share of loans classified in stage one has consistently increased, indicating a healthier portfolio. Consistently, the shares of loans in stages two and three have steadily declined, mainly associated to retail segments in Colombia and in Panama, where we have made significant progress in the recovery of non-performing loans. Please go to slide 20. Moreover, net provision expenses came in at COP 1.1 trillion, recording a 32% annual drop. This was explained by a better-than-expected performance across all segments, along with a specific provision release that offset an increase driven by revisions to macroeconomic forecasts and updates to model parameters.

Thus, the quarterly annualized cost of risk was 1.6%, flat to the previous quarter. When broken down by entities, the trend of cost of risk is mixed, reflecting diverse macroeconomic and portfolio dynamics. In Colombia, the bank continues to benefit from predictive tools, resulting in healthier advantages. In the case of Banistmo, the better performance observed during the quarter on consumer and mortgage resulted in lower provisions on retail. However, compared to the first quarter, provision expenses increased due to higher expected credit losses for specific corporate clients and a base effect stemming from a parameter update implemented in Q1. On the flip side, Banco Agrícola and BAM increased provision charges in the quarter, driven by an increase in consumer loan origination, seeking to boost risk-adjusted returns.

All in all, the consistent better performance exhibited during the last year is a clear example of our disciplined approach to risk management, leveraged by robust underwriting models and predictive analytics, which support smarter, faster decision-making through the credit cycle. Please go to slide 21. Operating expenses grew 5.7% during the quarter, mainly driven by administrative expenses such as financial transaction taxes related to the payment of ordinary and extraordinary dividends, legal fees tied to the incorporation of Grupo Cebes, and technology-related costs supporting transactional channels, amongst others. Thus, the efficiency ratio increased to 51%. On a yearly basis, expenses are growing 11.8%, primarily explained by an increase in other taxes and a base effect on bonus client provision, aligned with stronger projected year-end results. Net of FX effects, annual operating expense growth would have been 10.1%.

As the year progresses, we anticipate that the annual growth figure will moderate, influenced by seasonal patterns and base effects. It is worth mentioning the efficiency gains across our Central American operations, where we expect to sustain a gradual improvement on our cost-to-income ratio, as we remain committed to operational excellence and regional scalability. Please proceed to slide 22. Net income increased by 3% quarter over quarter, driven by the rebound in NIM, consistent growth in other income sources, and lower provision expenses, bringing the year-over-year growth to a strong 24%. Consistently, ROE jumped to 17.5% and ROTE to 21%, reflecting the strong operational performance. Bancolombia remained as the primary contributor, with close to 78% of total net income, outpacing its share of assets and capital, respectively. Now, please proceed to slide 23.

Shareholders' equity for Grupo Cebes increased 1.6% quarter over quarter, mainly driven by net income generation, despite the payment of extraordinary dividends. Tier one ratio for Bancolombia stands alone as of June closed at 11%, which, if compared with the previous quarter on a pro forma basis, it grew 43 basis points over the quarter and 75 basis points over the year, reflecting the organic capital generation. Consistently, Bancolombia's total solvency reached 13.5%, growing 22 basis points during the quarter and 92 basis points during the year on a pro forma basis. Now, please proceed to slide 24. NEKI continues making good progress towards reaching break-even. Performance over the last year has been remarkable. Deposits have grown over 77%, reaching nearly COP 6 trillion. Loans have grown nearly five times.

Its activity ratio is now close to 80%, and its total income has increased 90%, contributing to significant cost dilution and robust ARPAC load. We're very optimistic with NEKI's business model, its scalability, and long-term value generation potential. With this, I will now hand the presentation to Juan Carlos. Juan Carlos?

Speaker 0

Thank you, Mauricio. Please proceed to slide 25. Year to date, Grupo Cebes originated COP 35 trillion as part of its business with purpose strategy, achieving a total of COP 324 trillion. The organization's objective for 2030 is to disburse COP 716 trillion throughout initiatives aimed at supporting sustainable communities, advancing financial inclusion, and enhancing the country's productive capacities. Regarding Bancolombia, additional accomplishments in this period include the validation of its emission reduction targets by the Science-Based Targets Initiative (SBTI), as well as achieving the top ranking as the best company to work for, according to Merco. Please refer to slide 27. Finally, I would like to present our revised guidance for 2025. According to recent market dynamics and updated macroeconomic forecast for the year-end, loan growth has been adjusted to approximately 5.4% and net interest margin to about 6.3%, reflecting changes in net income and loan volume.

Cost of risk is now projected to range from 1.6% to 1.8% due to ongoing improvements in asset quality. Consequently, return on equity has been revised to approximately 16%. Please proceed to slide 28. The transition to Grupo Cebes represents a significant advancement in our strategy to enhance shareholder value. NEKI is steadily progressing toward its goal of achieving break-even by the first quarter of 2026, demonstrating disciplined growth and operational efficiency. The improvement in our asset quality supports expansion into higher-yielding consumer loan segments, thereby strengthening our profitability prospects. With a solid balance sheet and stable liquidity, we are well positioned to capitalize on growth opportunities and adaptively manage the complexities of the current macroeconomic landscape. This concludes our presentation of the second quarter results. At this time, we welcome any questions you may have.

Speaker 2

Thank you. We will now be conducting a question and answer session. If you have a question, please press star, then one on your touch-tone phone. If you wish to be removed from the queue, please press star, then two. If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then one on your touch-tone phone. Our first question comes from a line of Ernesto Gabilondo with Bank of America. Please proceed with your question.

Thank you. Hi, good morning, Juan Carlos, Mauricio, Catalina, and good morning to all your team. Congrats on your results and the revised guidance, and thanks for taking my call. My first question is if you can provide any update on the political landscape ahead of the presidential elections, and what do you think are the key dates that we should be monitoring? The second question will be on your NIM expectations. Just wondering, what do you see NIMs normalizing after more stable interest rates over the next years? We have been seeing silent rates in this year. How do you see NIMs evolving next year? Should we expect more pressure? On the other hand, what would be the strategy to protect NIMs? I don't know if with a better loan mix. When I look to consumer loans, do they represent 20% of total loans?

I noted that in the last years, they represented around 22% of total loans. I don't know if that could be one of the solutions to protect NIMs in the next years. I have a question of cost of risk. It performed much better than expected. As you mentioned, it could be around 1.6% to 1.8% in year. What do you see as a sustainable level for the cost of risk over the next years, especially if you start to resume consumer loan growth if you have better economic prospects? Thank you.

Speaker 0

Thank you. Thank you, Ernesto. Thank you for your questions. Let me address some of them, and I am going to ask Mauricio to help me with some of the answers. I am also going to ask Laura to provide additional color on the macro situation because it's clearly related to what is going to happen with our NIMs in the coming year. Let's start with your first question. Political landscape in Colombia, it's with a lot of issues. I mean, a lot of polarization in the country. We just yesterday started the last year of the current government, meaning that already we have three years of this government. All the electoral noise started very early in Colombia, and it will continue to be an issue in the coming months.

Still, it's a little bit early to try to understand how it's going to be that environment and who is going to be or who is going to take the lead on this electoral process. I think by October, there are some primaries in some political parties that will start adding some clarity of who are going to run. By the beginning of next year, we will have, I think, clarity on who are going to run. Remember that we have Congress elections in March, and that's a key point because also there are going to be primaries at that moment that will select candidates to run for presidency, and the first round of presidential elections will be in May.

A lot of issues, a lot of noise around the political situation, opposition and government and candidates speaking, but still too much noise and not a lot of clarity on the political landscape. We will see more clarity by the end of the year, beginning of next year. Regarding NIM, it is clearly correlated with how the central bank in Colombia is going to move its interest rates. In the last meeting, the central bank left the rates unchanged at 9.25%. The market was expecting a reduction of a quarter point. What that means is that they are seeing risk on inflation. For us, what is going to happen is that we will continue defending our margin.

As I mentioned, it's very related with the market rates, but our expectations are that since inflation remains a risk and is not yet in the target of the central bank, that will probably delay the reduction of interest rates next year. We will have a better margin than expected in the coming year. By the end of the year, probably we will reach around 6% NIM. At this point, I will ask Laura to give us some more color about how we see inflation and how it's going to be the posture of the central bank related to that inflation trends.

Speaker 3

Thank you, Juan Carlos. To complement a bit, we are seeing good dynamics in terms of economic activity. Our NAUCAS Bancolombia, with information towards July, is showing a three moving month average of 3.2% growth. This is kind of a precursor to what we might expect of GDP growth moving forward. We are seeing robust activity, mainly driven by consumer, the commerce sector, and we still see the agricultural sector quite strong, as well as services coming from the entertainment business. This, in line also with the inflation expectation, is something that also the central bank noted as possible pressures going forward because demand, internal demand, is in fact expanding at a higher rate as expected. Perhaps the space that the central bank had previously in terms of kind of economic output to lower rates is not so clear now moving forward.

Perhaps the balance is moving more towards the risks, as were mentioned, fiscal pressure moving forward on 2026 and onwards, as the debilitating situation in the fiscal deficit. We also see an international setting of a Fed that will also have some doubts regarding when to lower rates, given inflation pressures. In general sense, that's why we still maintain our 5.1% inflation forecast for this year and 3.9% next year. We will be revising these issues as soon as we come around September. We also anticipate a minimum wage that will be packed for 2026 that is announced may come also at a high rate as in previous years.

In some, these pressures to inflation lead us to believe that the central bank will continue with a more cautionary approach, even though, of course, inflation will continue its descent and rates will come to a trend of cuts, but at a lower pace.

Speaker 0

Thank you, Laura. With this, Ernesto, we will continue seeing some pressure on NIM, but probably delay on time, and that will help our results. As you mentioned, and that is going to be the case, we will continue adding more consumer loans that also will help on maintaining our margin, adding some pressure on provisions, since the origination of consumer loans will add some provisions. With all of these elements, we think that we can manage that reduction that is going to happen on time, and we will adapt very well to that trend. Regarding cost of risk, as you mentioned, our guidance is between 1.6% and 1.8% for this year. We think that due to the last results and what Laura mentioned about the economic performance of the Colombian economy, we see positive trends.

We are optimistic that we can continue managing the cost of risk, and we could be more around 1.6% by the end of the year. Our sustainable level is more around 1.8%, 1.9%. This year, due to what I mentioned, economic activity, the level could be more around 1.6%. I don't know, Mauricio, if you want to add something about NIM or cost of risk.

Speaker 1

No, Juan, that's very clear. Thanks.

Yeah, no, super helpful. Thank you very much.

Speaker 0

You are welcome, Ernesto.

Speaker 2

Our next question comes from a line of Yuri Fernandes with JPMorgan. Please proceed with your question.

Thank you all, and congrats. Very good quarter here. I think the funding on the margin side is pretty good. I have just one clarification regarding the Bancolombia unit ROE. I see on your slide 35 about 16.5% ROE for Bancolombia standalone. On your press release, I also see 25% ROE for Bancolombia standalone. I'm just trying to understand, because I know with the group there were some moving parts on goodwill and some intangibles reclassification. I'm just trying to understand here the earnings power of the Colombia unit, what is the ROE you are seeing in the Colombia unit? I have a follow-up regarding NEKI. You're already discussing the presentation, and I think the ARPAC versus cost to service slide is a pretty nice one. If you can comment a little bit on your views for break-even, I think the message has been always for 2026.

I know the cost to serve, they don't include CAC and some other expenses, but just trying to understand what is your view for NEKI in the coming, like, could we see a break-even sooner for 2025, that kind of message? Thank you very much.

Speaker 0

Thank you, Yuri. Let me take your question about NEKI, and then Mauricio will address your question about the ROE. Let me start by saying that we are very happy with the developments at NEKI. The activity is very positive in terms of number of users, active users, the level of deposits, the integration of Bancolombia La Mano has been very, very successful. Trends are very positive. Particularly, we are very happy with how the loan book is performing and its behavior. We continue adding loans on NEKI. Now we are at the level of, by the end of the semester, $1.2 billion and continue adding more loans with a good performance, which is key. We will continue, we're thinking that is that trend. Additional services also are positive and are generating fees.

On top of this performance, we are seeing that NEKI is very close to bridge the level in which we are at break-even. That could happen this year, and we are optimistic that with the trends that we are seeing, NEKI, we will reach probably that level by the end of this year. As I mentioned, activity is good. We will continue adding additional services. We have plans to continue adding services to our customers. NEKI in Colombia is today used for more than 21 million clients. Also, we are starting adding clients in El Salvador and Guatemala. Very positive trends. Break-even, we will think we can reach that in the second semester, if not at the latest in the first quarter of next year, Yuri. Regarding ROE, Mauricio will take your question.

Hi, Yuri. Before I go to your question about ROE, I would just like to comment on the measure we have for NEKI. As you know, most of the fintechs in the market are measured by ARPAC minus CPS. When we think about break-even, we like to think about net income break-even, and that includes operational expenses and cost of risk. Our measure is more stringent, and that's why we don't believe we have reached break-even yet, but we're very close. In terms of ROE, the ROE that you see in the mid-20s, it's a pro forma ROE for the Colombian operation. If you calculate the ROE with the average of the last 12 months of equity, you're going to see that the equity of Bancolombia was significantly higher pre-Cebes. That's why you see the 16.5%. The pro forma ROE is the one you should be looking at.

Any calculation that you do on the ROE of the Colombian operation is going to be above 20%. Bear in mind, we're going to work with pro formas until we build the 12-month history.

No, super clear, Mauricio. Thank you, Juan Carlos, for the comments.

Thank you, Yuri.

Speaker 2

Our next question comes from a line of Lindsay Shima with Goldman Sachs. Please proceed with your question.

Hi. Good morning, and thank you for taking my question. Congrats on the updated guidance. I was just wondering, in particular, with the faster loan growth guidance, it sounds like it's mostly on stronger consumer, but could you break it down particularly by segment? You mentioned you also were seeing some weaker commercials, so maybe you could elaborate on that as well. My second question is, the updated ROE guidance is around that kind of sustainable 16% ROE you've mentioned in the past, but it sounds like there should be some cost of risk pressure and some NIM pressure going forward. I just wanted to hear the pathway to kind of maintain that 16% going forward. Thank you.

Hi, Lindsay. Let me break down the guidance for the loan book. We're thinking about 5.4% overall, and the breakdown is commercial loans growing at 4.2%, consumer loans growing at 7%, and mortgage loans growing at 7.5%. Now, regarding your second question, it's about the sustainability of the ROE, right?

Speaker 0

Yep.

The way we're thinking about ROE going forward is managing both operational-wise. The banks, as you can tell, were delivering better results not only in Colombia, but also in Panama and in El Salvador. We're having a particular retail segment asset quality situation in BAM, but that's going to be looking better next year. Operational-wise, looking better in terms of the capital structure, the way we're thinking about buybacks, and the way we're thinking about the double leverage ratio and the different capital ratios, that allows us to think about sustainable ROEs of 16% going forward.

Speaker 2

Does that complete your question?

Yes, thank you.

Our next question comes from a line of Andres Soto with Santander. Please proceed with your question.

Good morning, Juan Carlos. Mauricio, thank you for the presentation and the opportunity for asking questions. My question is regarding your comments on NEKI. I would like to understand a little bit about the economics of lending in NEKI. What is the type of cost of risk that you are getting there? What are the margins that you are seeing? What is the average loan? How scalable is that business considering the restrictions for interest rates in Colombia? What is the potential market within your large customer base? How many of those really can get a loan considering the gap that you have on the loan yield?

Speaker 0

Thank you, Andres. Let me give you some additional information about the loan book in NEKI. As I mentioned, the level or the volume of the loan book at the end of the semester is $1.2 billion. The average loan, it's around $2.5 million pesos, so meaning that we have around 600,000 clients now with loans. The interest rate, it's very close to the highest rate that we can charge, so it's around 25%. Remember that the cost of funds of NEKI, it's very low. We have a financial margin that is good in terms of that allows us to absorb risk. Regarding risk, the level of past due loans on a 30-day basis is around 5%. The cost of risk of those loans, it's around 9-10%. With all that economics, that loans are profitable. I want to emphasize something about your question. It's the potential.

As I mentioned, we now have around 600,000 clients with loans, but we have a total number of users of 25 million, 20 million active. We continue evaluating the creditworthiness of these clients and the potential. We will continue adding loans, taking care of risk, because for us, that's the key part. I mean, we have the potential. We have the customer base. They are now recurrent users of NEKI, but we need to continue building on how the risk is performing. So far, we are doing very well in that regard. It's into the parameters that we estimated. As I mentioned, we will continue adding loans on that book. The perspectives are, in our view, very positive, Andres.

Thank you very much, Juan Carlos. Very helpful. You mentioned the average loan. What is the duration of that loan on average? As you scale up the business, are you expecting to extend duration, or is it going to be the same type of product that you are offering now just being offered to a broader base of customers? Hi, Andres. The average ticket in NEKI is around $500, and the duration is up to five years, but the average is 28 months.

We will continue with that product. I mean, we are not expecting to move. As Mauricio mentioned, it's 28 months. We are an average of $500,000 to $200,000 pesos. Around 20 to 25 months will be the average duration of the loans.

That's very helpful. Just one final question. How many new disbursements do you guys conduct per quarter, or however you measure that?

We are averaging around COP 150,000. That's around COP 40 million a month with an average of 500. In the first semester, that adds around COP 600,000, COP 600 million to the loan book. The dynamic is very positive, and every month, we are adding around something like 50,000 new customers to that book.

Perfect. That's very clear. Thank you, Juan Carlos, and Mauricio, and congratulations on the results.

Thank you, Andres.

Speaker 2

Our next question comes from a line of Brian Flores with Citi. Please proceed with your question.

Hi, team. Good morning. Thanks for the opportunity. I wanted to ask you on your efforts in cost of funding, particularly in Colombia. We see very stable as a percentage of the reference rate, right, around 50%. I just wanted to ask you if you think this is sustainable, and if you could elaborate a bit on the efforts you're doing, how sustainable they are to see this, I would say, very controlled cost of funding in Colombia. I have a question. Maybe it's a follow-up on capital distributions. You mentioned about the buybacks. Would you be accelerating this mechanism at the current levels, given the price action? I think it would be great to understand. Thank you.

Speaker 0

Hi, Brian. Regarding cost of funds, we're focusing more than in a rate per se. We're focusing more on the value proposition we have for our customers, making that value proposition interesting enough to keep the principality of our customers, maintaining transactionality as the focus of our strategy, allowing us to maintain very stable low cost of funding. That's the way you see savings accounts growing significantly, even though the cost of funds for those savings accounts is 2.3%. Now, we're growing savings accounts, we're growing checking accounts, and in time deposits, we're not only growing, but we're also changing the mix, evolving from institutional investors' time deposits to retail digital investors' time deposits, allowing us to have lower rates and allowing us to reprice faster those time deposits. Overall, a very positive trend on funding costs, which allows us to manage the margin compression that we mentioned before.

Now, going back to your capital distribution and the buybacks.

Yes.

Capital distribution. The way you should think about capital distribution, Brian, is in terms of solvency ratios in the different operating banks. Remember, we used to think about 11% Core Equity Tier 1 Ratio for Bancolombia as the trigger for dividend distribution. That's going to be the same way going forward. The buybacks are going to allow us to maintain those distribution levels because of the double leverage ratio we're having. As you can see, the 105% double leverage ratio is an under-leveraged capital structure. With the dividends coming from the operational entities plus the liquidity getting in the holding company, that's going to give us ample space to continue doing both buybacks and dividend distribution that can grow in real terms.

Perfect. Super clear. If I may, just a very quick follow-up on Lindsay's question. You mentioned structural cost of risk around 1.8%, 1.9%. Is this already including the acceleration in NEKI?

Yes, Brian.Yes.

Speaker 2

That considers the dynamic in consumer loans, including NEKI.

Speaker 0

Super clear. Thank you.

Speaker 3

Thank you, Brian.

Speaker 1

Our next question comes from a client of Carlos Gomez with HSBC. Please proceed with your question.

Speaker 0

Hello, and good morning, and thank you for extending the call and taking all the questions. First, I wanted to congratulate you because I think you just celebrated your 30th anniversary listed in the New York Stock Exchange. Many more to come. We have a time in which you are changing your structure. Sura, your main shareholder, is also changing in the structure. Do you see, and we have asked this before, but it's worth checking again, do you see any change coming from the restructuring at their level that could affect you or any change in the relationship between the two companies in the near or mid-term future? Thank you.

Speaker 3

Hi, Carlos. As you mentioned, we are very happy with the evolution that we are having. Particularly, the creation of Grupo Cebes for us was a great success and is showing positive results. That is going to give us additional possibilities in terms of corporate development. It's a more clear structure in which all our stakeholders could evaluate our performance, the performance of the bank. We will continue adding new businesses that complement our financial services offerings in the different geographies. The structure allows us flexibility and future developments at the same time that it's very clear to our stakeholders. Regarding future developments in terms of shareholders, that depends on them.

Particularly, we have a structure in which we have pension funds, we have our ADR program, we have our shareholders in Colombia, and Sura, which is our main shareholder, now is concentrated on financial services, and their main investment is Bancolombia. It's a listed company with all the benefits of a public company that reports to the public markets and with a very solid base of shareholders. We are very happy with the structure that we built and with the flexibility that adds in our corporate developments. We are the main investment of Sura that now is a financial services. I think that will consolidate that relationship.

Speaker 0

Okay. Now, one thing that we notice is that both companies have important international operations, but there's limited overlap, right? They are in Chile, they're in Peru, they're in Mexico, you are in Central America. Do you see that changing in either direction in the future?

Speaker 3

As I mentioned, now our new corporate structure gives us a lot of flexibility and adds possibilities. We will explore any option that is good for the evolution of Grupo Cebes and that would add value to our stakeholders. With this new structure, we will continue exploring new avenues of growth, and we will explore them and we will take them if they make sense for our shareholders.

Speaker 0

Thank you very much, Juan Carlos. Congratulations on the results and on the creation of the structure. Thank you.

Speaker 3

Thank you, Carlos.

Speaker 1

Thank you. We have reached the end of the question and answer session. I'd now like to turn the floor back over to Mr. Juan Carlos Mora for closing comments.

Speaker 3

Thank you for joining our second-quarter results conference call. We look forward to welcoming you on our third-quarter call. Have a good day, everybody.

Speaker 1

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.