Bancolombia - Earnings Call - Q3 2025

Transcript

Speaker 2

Good morning, ladies and gentlemen, and welcome to the Grupo Bancolombia third quarter 2025 earnings conference call. My name is LaTonya, and I will 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 the one on your touchtone keypad. Please note that this conference is being recorded.

Please note that with the 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 and future filings and press releases, or verbally address matters that invoke 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 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 filing with the SEC. With us today is Juan Carlos Mora, Chief Executive Officer; Mr. Mauricio Botero Wolff, Chief Strategy and Financial Officer; Mr. Rodrigo Prieto, Chief Risk 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. Thank you. Mr. Juan Carlos, you may begin.

Speaker 0

Good morning. Welcome to Grupo Bancolombia third quarter results conference call. To begin, please go to slide two. Grupo Bancolombia third quarter results demonstrate strong operational execution and highlight the company's capacity to navigate an increasingly competitive market within a complex macroeconomic context. Net income grew nearly 20% in the quarter and 43% year over year, driven by resilient margins and a sharp decline in provision charges. This reflects continued improvements in asset quality and the effectiveness of our credit risk policy, as we will further elaborate. Nominal loan growth was flat during the quarter, impacted by a nearly 4% peso appreciation. Adjusting for effects, loan growth would have reached 1.2% quarter over quarter. Notably, consumer loans continue gaining traction, paving the way for higher yields ahead. Furthermore, I am pleased to report that Nequi achieved a positive net income in September, reflecting robust operational performance.

Although it is premature to confirm breakeven at this stage, this development represents an important milestone in Nequi's path towards sustained profitability, which we anticipate will be reached by the first quarter of next year. Also, the share buyback program we launched in mid-July is making good progress, enhancing ROE performance and boosting key valuation metrics, as we will further discuss. Overall, ROE expanded by 288 basis points during the period, reaching a solid 20.4% on the back of improving trends in all four geographies. Also of note, Grupo Bancolombia's standalone double leverage ratio was 106%, which implies not only strong creditworthiness but also room for further leverage. Overall, these results demonstrate the effectiveness of our business model and robust operational capabilities. Together with the new corporate structure under the holding company, we are well positioned to deliver sustained value creation for our shareholders. Now, please proceed to slide three.

The execution of our share buyback program has been very successful. Soon after obtaining shareholders' approval in early June to buy up to COP 1.35 trillion in a one-year period, we started executing on July 17, underscoring our commitment to delivering results. As of September 30, approximately 27% of the total authorized repurchase amount was completed. This includes around 7.3 million shares, which is close to 1% of the total shares outstanding. Of the shares repurchased, 50.4% were preferred shares, 41.6% were ADRs, and 8% were common shares. We saw a strong positive price reaction throughout the quarter, along with higher price-to-book and price-to-earnings ratios for both common and preferred shares, indicating the market value is aligned more closely with fundamentals.

The execution of the program remains fully aligned with our capital allocation strategy and with the capacity of each type of shares to absorb volume in line with its liquidity. Please proceed to slide four. The recent increase in the price of the company's share shows that a consistent upward trend began following the announcement of the new holding company in October of last year. Since then, the common share has increased by 69%, the preferred share by 65%, and the ADR by 86%. This performance indicates the market's assessment of the value creation potential in our new corporate structure and its expectations regarding our capacity to maintain earnings growth and manage capital to achieve total returns for shareholders. Now, please proceed to slide five. The launch of Breve was completed smoothly, and Bancolombia and Nequi now account for 52% of all digital keys registered in Breve.

Additionally, 68% of system participants are clients of Grupo Bancolombia, reflecting ongoing efforts to secure a significant position in the market. In the first two weeks of operation, approximately 70 million transactions were processed, amounting to COP 7.2 trillion in flows within Grupo Bancolombia, with a net positive cash flow reported between inflows and outflows throughout the BV ecosystem. These results follow a recent pilot conducted on a private hub via Redeban, which facilitated client preparation and early adoption of digital keys, a step in transitioning to BV. Despite the brief period since its launch, initial operational outcomes under the new interoperable BV framework suggest potential indicators of Grupo Bancolombia's position in the sector. I will now turn the presentation over to Laura Clavijo, Chief Economist, who will provide an overview of the macroeconomic landscape. Laura?

Speaker 1

Thank you, Juan Carlos. Now, please turn to slide seven. Emerging markets, particularly those in Latin America, are increasingly positioning themselves as a gravitational hub for foreign capital amid global volatility and trade tensions. Capital inflows into the region are being driven by attractive real interest rate differentials, profitable carry trade opportunities, and the front-loading of remittances. Overall, the region's proven macroeconomic stability, characterized by solid demand, declining inflation, and lower unemployment, has outweighed fiscal concerns. Nevertheless, fiscal consolidation remains a key challenge for many countries in the region. The Colombian economy sustained its recovery through the third quarter, supported by robust domestic demand, improving household confidence, and a resilient labor market. Economic activity likely expanded at an annual rate of 2.4% during the third quarter, consistent with our full-year GDP forecast of 2.6% and our 3% growth projection for 2026.

Leading sectors such as entertainment, agriculture, and retail continue to contribute to overall growth, while construction is expected to gradually strengthen in the coming months. Growth momentum appears resilient despite global volatility and domestic uncertainty, both on the fiscal and political fronts. On the monetary side, convergence toward the inflation target has proven more challenging than anticipated, with inflation holding steady above 5%, driven by rising housing and utility costs. Risks to price convergence are mounting due to higher minimum wage expectations for 2026, potential demand-side pressure, and growing fiscal dominance. Consequently, we expect the central bank to keep rates on hold through the remainder of the year and to resume monetary easing in 2026, reaching an estimated end-of-year policy rate of 8.25%. In the coming months, we will closely monitor inflation data and minimum wage negotiations, maintaining a bias toward persistent inflation and therefore higher-for-longer interest rates.

Now, please turn to slide eight. Turning to Central America, economic activity has demonstrated notable resilience despite headwinds from potential remittance slowdowns and global trade tensions. El Salvador is expected to grow 2.2% this year, supported by household consumption, foreign investment, and tourism. Guatemala is projected to expand 3.6%, driven by robust domestic demand and stronger export performance. Finally, we have revised upward our Panama growth forecast to 4.1% for 2025, with the economy poised to benefit from continued investment in infrastructure, tourism, and global supply chain logistics. I will now hand over the presentation to Mauricio Botero, who will provide further insights into the 2025 third quarter results. Mauricio?

Speaker 0

Thank you, Laura. Please go to slide 10. During the third quarter, our loan portfolio experienced a slight deceleration in nominal terms, partly due to a 3.6% appreciation of the Colombian peso. Adjusting for FX, loan growth would have reached 1.2% quarterly and 5.9% annually, demonstrating resilience despite the slow economic environment across our markets. Consumer loans were the main driver of growth during the quarter, underscoring the effectiveness of our targeted strategy to reactivate originations among the higher-risk profiles. Notably, marketing campaigns designed to stimulate demand contributed to robust growth in credit card usage, complemented by Nequi's dynamic performance in credit origination. Meanwhile, mortgages registered another quarter of strong growth, which represents an annual growth of 11%. Please go to slide 11. Our Central American operations continue to play a key role in diversifying both credit risk and currency exposure across the loan portfolio.

At the end of the quarter, credit portfolio in US dollars represented 31%. When analyzing by operations on a currency-neutral basis, Bancolombia leads nominal loan growth, followed by BAM and Banco Agrícola. BAM has focused its growth strategy on commercial loans, making good progress throughout the year, while growth in mortgage and retail has been moderate. Banco Agrícola has maintained steady expansion with balanced performance this quarter across corporate and retail segments, the latter driven by personal loans and credit cards and supported by solid asset quality. In contrast, Banistmo reported a slight quarterly contraction, mainly due to risk appetite adjustments on mortgages. Please go to slide 12. Our deposits posted a nominal 0.5% contraction in the quarter, equivalent to a 0.7% increase when excluding FX. On an annual basis, nominal growth was 8.3%.

I would like to highlight the 16% annual growth of savings accounts because of its impact on total cost of funding. From a loans-to-deposit ratio perspective, all operations have room to fund loan growth with their own resources, except for Banistmo that has efficiently diversified its funding sources different from deposits. Please proceed to slide 13. From a funding mix perspective, time deposits keep yielding share to savings accounts, further enhancing our competitive cost of funding. As a matter of fact, even though reference rates in Colombia have remained unchanged since April, we were able to decrease our cost of deposits during the quarter by 13 basis points to around 4%, which, coupled with a decreasing cost of other sources of funding, contributed to the overall decrease in the cost of liabilities.

Looking ahead, we expect to maintain a low cost of funding supported by our ability to attract granular, stable deposits and the execution of a set of tools to manage interest rate exposure, as we will discuss next. Please go to slide number 14. Given our asset-sensitive position, we have implemented a threefold strategy to manage interest rate exposure on our deposit base in Colombia, aimed at mitigating the impact of future rate cuts on our NIM to preserve overall profitability. First, we have significantly increased the share of retail client deposits driven by growth in online time deposits. As shown in the upper-left chart, over the year, the share of institutional deposits was nearly offset with online time deposits, which carry lower interest rates and have shorter tenors.

As a result, over the last year, we have been able to reduce tenors in such a way that over 20% of total time deposits mature within 90 days and more than 70% within 12 months. That is 11 percentage points more than a year ago, clearly enabling a faster repricing across a balance that accounts for 35% of our total funding mix. Third, we recently started executing a series of interest rate swaps in order to hedge interest rate risk by converting fixed-rate deposits into floating, further increasing our balance of sensitive-to-interest-rate liabilities. As shown on the lower-left chart, as of September, 21% of former fixed-rate deposits have been hedged. Moreover, from an income perspective, we designed a successful portfolio strategy to allocate the liquidity surpluses we have been running with over the past year, with a return that has offset some of the pressure on the lending NIM.

Please go to slide 15. As a matter of fact, net interest income rose by 1.5% during the quarter, primarily driven by a 12.5% increase in interest and valuation income. This strong performance was supported by the appreciation of our securities portfolio, effective liquidity management in short-term money market instruments, and higher income from derivative sales and distribution activities. On the other hand, a 2.3% decline in interest expense partially offset the 1.2% contraction in interest income from loans, despite a marginal increase in overall loan balances. This was primarily due to lower mortgage yields, which are indexed to floating rates. As a result, the NIM remained stable at 6.6%, underscoring the strength of our competitive advantage in low-cost deposits, which continue to offset the impact of lower loan yields, as previously discussed.

When broken down by entity, Banco Agrícola stands out with an increased margin from higher lending and investment yields, coupled with lower funding costs. On the other hand, BAM maintains a stable NIM performance, whereas Banistmo interest expenses increased this quarter due to a base effect from the previous quarter related to an adjustment on interest expenses on a real estate lease agreement. Please proceed to slide 16. Net fee income increased 3.3% over the quarter, mainly explained by the positive trend observed throughout the year in investment banking and trust services related to the execution of financing projects with corporate clients and larger volume of assets under management, particularly in collective investment schemes and private equity funds. To a lesser extent, collection services, credit and debit cards, payments, and banking services contributed to the quarterly growth as per an increase in transactional volumes.

In bancassurance, we recently strengthened our alliance with SURA to enhance the distribution of insurance policies. This initiative is expected to drive fee income growth going forward. Please proceed to slide 17. Furthermore, I'd like to refer to the good progress we continue achieving in scaling our complementary businesses, which are key to reinforcing our competitive advantage. OneP delivered an outstanding quarter in terms of active user engagement, growing 42% during the quarter and achieving a 61% increase year over year. We are encouraged by the progress in transaction value and average revenue per active customer, which reflects the product's successful market penetration and its growth potential. Similarly, Wompi is gaining traction with its digital assets value proposal, growing close to 50% on active users and 63% in transactions during the quarter.

On the other hand, Nequi continued to demonstrate strong momentum, adding 1.2 million active users and a steady increase in transaction volumes in the quarter. This reinforces its leadership in digital engagement and supports its trend towards profitability, as we will discuss next. Please go to slide 18. On the back of this strong client engagement, Nequi achieved an activity ratio of over 80%, measured in terms of users that make at least one transaction within a one-month period. Also of note is the rising adoption of Nequi among small entrepreneurs, alongside individual users to support their business operations. These clients typically generate a higher volume of monetary transactions, which translates into consistent growth in both the number and average tickets across the platform.

Consistently, free income further increased, achieving 65% annual growth, adding to financial income that accumulates 77% annual growth explained, in turn, by an impressive 2.3 times expansion of its loan book. On the other hand, it maintains a sound deposit balance of COP 5.5 trillion, slightly below last quarter because of seasonality effects. Bancolombia's strong operating performance continues to drive a sustained increase in RPAC, which in turn enables a steady cost dilution, explaining the positive bottom line outcome for September. Thus, we remain confident that Bancolombia will consolidate this trend in the coming months, reaching its first full breakeven quarter by Q1 of 2026. Please go to slide 19. In line with the positive trend observed throughout the year, asset quality continued to improve during the quarter across all key indicators.

From a new past due loan perspective, the balance of loans that became delinquent during the quarter had a significant reduction compared to the average of previous quarters. Moreover, all loan categories showed improvements in both 30-day and 90-day past due loan ratios, except for commercial loans, which experienced a slight increase in the 90-day ratio compared to the same period last year. These ratios improved even as the loan portfolio remained flat during the quarter, meaning there was no diluted effect. Consistently, the breakdown by stages continues to reflect a positive trend, with a sustained increase in stage one loans and a corresponding decline in stage three loans over the past 12 months. Please go to slide 20. Furthermore, from an expected loss perspective, net provisions amounted to COP 800 billion, a 24% quarterly drop and close to 48% annual contraction.

The reduction was primarily driven by two key factors: the solid performance of the retail and SMEs portfolios in Colombia and a provision release of COP 266 billion resulting from updates to parameters and macroeconomic variables. These positive developments more than offset the increase observed in the corporate segment, which was impacted by two non-sector-related clients. As a result, the quarterly analyzed cost of risk declined to 1.2%, marking its lowest level in the past year. When broken down by entities, only Banco Agrícola posted a higher cost of risk during the quarter, explained by its deliberate strategy to grow on consumer loans, which contributes to higher returns adjusted by risk. All other individual operations reported a stable or declining cost of risk, driven by overall improvements in asset quality and the release of provisions following updates to risk parameters. Please go to slide 21.

Operating expenses decreased 2.4% during the quarter, explained by a combination of efficiency strategies. For the first time in the last year, labor expenses posted a decline during a quarter. This effort was primarily focused on salaries and benefits, even as bonus provisions increased in line with the financial forecast for year-end. On a yearly basis, expenses are growing at 7.6%, primarily driven by IT-related costs, the seasonal effect related to last year's bonus provision, and a rise in other taxes. We continue to achieve efficiency gains at the consolidated level, with cost-to-income improvements across all geographies driven by revenue growth outpacing operating expenses, except for BAM, which was impacted by a one-off reinsurer claim recorded last quarter. Please proceed to slide 22.

Net income posted a strong 20% growth quarterly and 43% growth annually, driven by an overall good operational performance across all geographies, mainly underpinned on resilient margins, higher fees, and lower cost of risk. As a result, this quarter's ROE increased to 20.4%, primarily supported by Bancolombia's strong standalone return of 26.6%, as the operation represents 48% of Grupo Bancolombia's equity. Moreover, ROE in Banistmo had a strong rebound, posting a 15.2% for the period, accounting for 12% of total equity. BAM, which accounts for 8% of total equity, recorded an ROE expansion of 7.3%. Meanwhile, Banco Agrícola, representing 7% of total equity, further improved its ROE to 20.1% during the quarter, reaffirming its sustained capacity for value creation. Now, please proceed to slide 23.

Grupo Bancolombia's shareholders' equity rose 2.6% over the quarter, mainly driven by net income generation, which more than offset the reduction in appropriated reserves from the share buyback program. On the other hand, tier one ratio for Bancolombia standalone as of September closed at 11.8%, a 90 basis points increase over the quarter and 148 basis points over the year on a pro forma basis, reflecting a strong organic capital generation. Consistently, Bancolombia's total solvency reached 14.1%, growing 68 basis points during the quarter and 110 basis points during the year on a pro forma basis. With this, I will now hand the presentation back to Juan Carlos. Juan. Thank you, Mauricio. Please proceed to slide 24.

Year to date, Grupo Bancolombia has originated COP 55 trillion as part of its business with purpose strategy, bringing a cumulative total of COP 344 trillion since 2020 toward the COP 716 trillion goal set for 2030. Additionally, Bancolombia financed the second phase of the Túnel de Oriente through a sustainable infrastructure loan. Banistmo marked a milestone by issuing the first sustainable bond in Panama's local securities market, with IDB Invest serving as the anchor investor for up to $75 million. This initiative is intended to drive meaningful progress in climate action and enhance financial inclusion for women entrepreneurs. Please refer to slide 26. For the 2025 year-end outlook, loan growth has been revised to approximately 3.5%, primarily due to reduced commercial lending activity and updated foreign exchange assumptions reflecting an anticipated lower rate. Net of FX, year-over-year loan growth will be around 6%.

With interest rates currently exceeding previous projections, the net interest margin is estimated at 6.5%. The cost of risk is expected to be in the range of 1.5-1.7%, indicating continued improvements in asset quality. Operational efficiency is projected to be around 50%, while the return on equity has been adjusted to around 17%. Preliminary projections for 2026 indicate loan growth of approximately 7%, with the net interest margin expected between 6.3-6.5%. The cost of risk is anticipated to be within the 1.6-1.8% range. Operational efficiency is forecast at roughly 50%, and return on equity is projected to be between 16%-17%. Please proceed to slide 27. To conclude, I would like to emphasize three primary takeaways. First, Grupo Bancolombia's successful launch of Nequi demonstrates our capacity to anticipate market trends, adapt effectively, and remain competitive in a dynamic environment.

Second, our comprehensive interest rate risk management continues to be instrumental in mitigating the effects of lower interest rates. Lastly, the initial progress of our share buyback strategy underscores our enduring commitment to delivering long-term value to our shareholders. This brings us to the end of our third quarter results presentation. We are now available to address any questions you may have. Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star 2 if you would like to remove yourself from the queue. Once again, press star 1 to ask a question at this time. One moment while we pull for our first question. Our first question comes from Brian Flores with Citibank. Please proceed.

Hi team, good morning. Thank you for the opportunity and also congratulations on the results. I wanted to ask you on the sustainability on the funding side, right? You seem to be reducing your costs consistently. Also, it seems to us that you have done so while gaining market share. If you could guide us through what initiatives are driving these, if they are sustainable, and then also because it seems like it is sustainable, if we could see maybe upward revisions to the sustainable ROE levels that you have been guiding, given that also across not only Colombia but other regions, we seem to be seeing better levels of ROE. Thank you. Thank you, Brian. Let me give you an overview on your two questions, and then I pass to Mauricio to give you more details.

Regarding the sustainability of our cost of funds, I want to emphasize that we have been building a structural advantage, particularly in the Colombian market, but we have been replicating the model in the other markets. We have been developing a very robust digital offer, but also we have a physical presence through a network of branches and also banking agents that allow us to have a deposit base that is very dispersed with a small amount, so we can manage and handle the cost of funds much better. We have been working very hard on having that diverse source of funding. Also, we have been working on being the platform for many Colombians in the case of Bancolombia and in other markets.

We firmly believe that it's a structural advantage that we have been building through now more than 10 years with our different approach that is a hybrid between a strong digital offer and physical presence. Just to give you a sense, we now have presence with banking agents in around 30,000 points in general as Grupo Bancolombia in the different countries. That's an advantage that we have. Before I pass the question to Mauricio, just to give you additional regarding your second question about ROE, we have been improving the guidance on ROE now for 2025. We are around 17%, and also for 2026, we are between 16-17%. We will continue working on improving our profitability, but we think that that guidance is achievable. It's based on, as I mentioned, some structural position that we have.

We will work always to have an upside possibility of increasing that ROE, but I think that due to current conditions, that's an ROE that we can achieve. Mauricio, any additional comments? Brian, as Juan Carlos mentioned, we have been working and investing a lot in our value proposition in order to keep the flows within our ecosystem to maintain transactional, stable, and low-cost funding. That should be sustainable. Now, what you see in the decrease in the cost of funding gradually, that may come to a limit because we have been defending the margin, the decrease in interest rates and its effects in the asset side while lowering the cost of funding, but that's going to get to a limit. Now, total cost of deposits is 4%, and that level should remain around those levels going forward. Perfect. Super clear. Thank you. Thank you, team. Thank you, Brian.

The next question comes from Tito Labarta with Goldman Sachs. Please proceed. Hi, good morning, Juan Carlos, Mauricio. Thank you for the call. I'm taking my question. Two questions, if I can. One, just as we get closer to the presidential elections next year, just give us an update on kind of latest expectations on the elections, kind of where things stand, and any visibility. I know it's still a little bit early, but I think as we get closer, there'll probably be more and more questions about that. Then second question, and congrats on the strong results. On your efficiency guidance for next year, you mentioned around 50%. You're a little bit better than that this quarter. I mean, good performance on expenses.

Just in, I know NIM is coming down a little bit next year as rates come down, so there is potentially some pressure from that. Just on expense growth, further potential improvements in efficiency as NIM normalizes, just to help us think about where there can still be some efficiency gains. Thank you. Thank you, Tito. Politics. I mean, even though now there is a lot of conversations and a lot of noise around politics in Colombia, still we think that particularly presidential elections, which the first round will be in May, are still far away. Still, we need to, a lot of things are going to happen between now and probably January. In January, we will know better how to, or to read much better who are really the candidates that are well-positioned to be or to have possibilities on that first round.

What has happened in the past month is that the leftist parties, they had their primaries and they elected a candidate. In that sector, they have now a figure that if we see it now, probably he will run until the first round. Other than that, there is not a lot of clarity on who are going to be those candidates that will have a chance on a first round. Just to emphasize, I mean, we need to wait to see how the different candidates will be positioned. January will be a good moment to assess how those candidates are positioning. March will be a checking point. March we will have elections for Congress, and it is probable there will be another primaries at that moment that will pick candidates.

We will look for January and March as the dates in which we will have more clarity on how the first round or who are the candidates with more possibilities to pass to the runoff round. Regarding efficiency, yeah, our guidance for 2026 is around 50%. We are committed to improve that, but there are some structural issues that we need to solve. I am going to pass to Mauricio to give you more detail on that, Tito. Yeah. Hi, Tito. Before commenting on efficiency, I would like to go back to your comment on NIM. Our guidance for NIM is in a range between 6.3%-6.5%. Our baseline is to maintain the levels of NIM now that the market is incorporating the fact that the central bank may not decrease interest rates as expected.

The range incorporates that reality, whether the central bank decreases interest rates or not. Now, the effect of that in efficiency levels is, as Juan mentioned, we are guiding for 50%. That is not the level we feel comfortable with. We would like to see a ratio of 45% approximately. Just to give you more color on how to reach that level, we have created a project inside the bank with different tracks trying to optimize expenses. We have a track of channels. We have a track of operations. We are working on means of payments. We are working on the productivity, automation, the whole structure of collections. We are really taking it seriously, but there are some structural facts that we have in the country that may not allow us to go to levels around 40% or figures that you may see in other countries. Okay.

No, that's super helpful. Thank you, Mauricio and Juan Carlos. Thank you, Tito. The next question comes from Daniel Vaz with Safra. Please proceed. Hi everyone. Thanks for the opportunity to make some questions. Super helpful. Also the preliminary guidance. I want to touch base on the loan growth of 7%. If you could just detail a bit more where it could be better than another, for example, breakdown between Colombia and other regions, and also if it's more relevant in the division, maybe commercial, consumer, or mortgage. That's the first question. The second one on your new PDL, very, very good job there. Could you detail a bit more what could be a more healthy or a more sustainable level for the new PDL going forward? I think you recorded almost like 50% drop quarter over quarter.

Working our models here to understand the sustainable level to work going forward, it would be very grateful to hear about what has changed and what could be this level. Thank you. Thank you, Daniel. Loan growth for 2026, our guidance is 7%. We are foreseeing, particularly in Colombia, a better economic activity. If we break down in Colombia, I mean, I'm sorry, in Cibes, the total growth of 7% in the different loan books, we are expecting commercial loans to grow around 6.2%, consumer to be around 10%. We will continue seeing a demand on consumer loans and mortgages around 6.2%. Before passing your question to Mauricio, let me give you some color regarding the PDLs.

Definitely, the credit risk has been behaving better than we were expecting in 2025, and that in part explains the good results that we are having, particularly in the third quarter. The levels that we have today are not levels that are far away from what we consider the mid-long-term level. If we translate that into the cost of risk, the cost of risk for the quarter was particularly low. For us, we think it is clear achievable to have a cost of risk in 2026 with around 1.6, 1.7. Our range is 1.6-1.8. With that, we can have the profitabilities that we are foreseeing. The levels are coming down because of better behavior, in particular in Colombia and in other countries also.

The only case is El Salvador, in which we have higher NPLs, but we were expecting that because we are now growing more on consumer loans in El Salvador, and the equation between profitability and risk is going to add value. We were looking for that. In Panama, we do not see much growth. Guatemala is also dynamic. I will pass your question to Mauricio to give you additional color on that. Hi. I would say Bancolombia is a very good proxy of what is going to happen with loan growth in Grupo Bancolombia. Commercial loans in Colombia, we are expecting pretty much the same figure for Colombia and Grupo Bancolombia, which is around 6.2-6.3. In mortgages, Colombia is pushing the number upward because Colombia is expected to grow above 10%. Some of the countries in Central America are not supposed to be as dynamic.

In consumer loans, something that you should take into account is that we are already considering in our base numbers the spin-off of Nequi that we announced last night. Nequi is, of course, going to be much more dynamic than the different banks. The loan growth figure, the guidance for Nequi for next year is more than 50%. We're working with 56%. That's why consumer loans in Bancolombia would grow 5%, whereas Grupo Bancolombia's consumer loans will grow at 10%. Super clear. Thanks for the answer. Thank you, Daniel. The next question comes from Carlos Gomez with HSBC. Please proceed. Hello, good morning. Congratulations and thanks for taking my question. I wanted to ask about the model recalibration that you did. The COP 266 million or a billion Colombian pesos in reversal of reserves that you have as a consequence.

Can you tell us if it is only in Colombia or it applied also to Panama? Because we see that the provisions in Panama are negative. Could you tell us what tax rate you apply to both Colombia or whatever other geographies that you have been applying? That would be our first question. We want to get a grasp about how much this represented for your earnings. The second is a broader question. I mean, we see that there have been some movements in the Colombian banking system: mergers, acquisitions, disposals, transfers. You now have a more flexible structure, which has been imitated. I guess that shows how good it is. You can do more things. Are you going to do more things and are you a more willing buyer or seller of assets depending on geography or depending on pricing? Thank you. Thank you, Carlos.

It is important to notice that the model recalibration, it's something that we do on a regular basis. I mean, it's something that at least every year we recalibrate models. The idea is that the models reflect the risk situation of the different portfolios. It's not something that we did this time for a particular reason other than we do it regularly, as I mentioned, at least once a year. That process is for the whole Grupo Bancolombia. It's not just Bancolombia. It's in all banks. It reflects the current situation of the loan books, which have improved basically in all countries. What the models are reflecting is that improvement on credit risk. The tax rate that we have as Grupo Bancolombia is around 28%. That differs in the countries. The statutory rates are very different in different countries.

Maybe Mauricio could give you more color in a moment. Go ahead, Mauricio. Yeah. The tax framework for every country is very different. I would say if you want to model Colombian results with a tax rate of around 30%, El Salvador maybe 22%, Guatemala around 10%, Banistmo with 16%, that would do it. The most important thing is that overall, the tax rate for Grupo Bancolombia should be modeled at around 28%. Regarding your question about our new corporate structure, as we mentioned several times, we have the motivations that we had to evolve to this holding structure was a more efficient use and capital management. Also, the clarity of the structure with the holding company and the different institutions, one supervised and regulated by entities, other not, and the flexibility that adds our structure. We created this structure precisely to have that flexibility.

To your question, if we are buyers or sellers, we will continuously assess opportunities. In that sense, we will undertake whatever is better for the future of Grupo Bancolombia in terms of profitability, new businesses. We will be buyers and sellers. In the future, in the midterm, we will add businesses and we will improve our structure or cuts. Okay. Thank you for that. Going back to the taxes, sorry. I understand that the effective tax rate for each of the countries is this. In terms of the remodeling, I mean, the remodeling in Colombia, for instance, you have a marginal tax rate of 40%, presumably. When you had changes in the provisions, that goes at the 40% rate. Could you tell us more or less how much of this COP 266 million in reversal went to Colombia and went to the other countries? Okay.

Give us a few seconds. We will take a look at the specific numbers and we'll get back to you later. I appreciate it. Thank you so much. Let me say this, Carlos. The tax effect of the provision expenses is marginal on the results of Grupo Bancolombia. It's not something that changed materially the results. There are provisions. We have provisions every quarter. The tax treatment of each country is different. In the case of Colombia, for example, for tax purposes, they have some deductions and other deductions of those provisions. That charge or what happened around the recalibration of the models and the provisions resulting from that recalibration does not have a material effect on taxes. Mauricio has now some additional information, Carlos. Yeah.

The exact numbers is out of those 266, 75 are from the countries in Central America, which accounts for approximately 28%. So it's a good proxy of how the general revenue of Grupo Bancolombia is. Very clear. Thank you. Thank you, Carlos. The next question comes from Yuri Fernandes with JPMorgan. Please proceed. Thank you. Hello, Carlos, Mauricio, and team. Congrats also on the results. Two questions on my side here. The first is regarding the buyback, right? You have been very active. The shares have rebounded lately. I just wanted to understand how do you see this? Are you fully committed to deliver the missing, I do not know, 75% that is missing? Or now that the shares are a little bit higher, maybe it is more about dividends, a little bit less about buyback?

Just trying to understand how do you feel like buybacks versus valuation and opportunity of cash on that. Also on the buybacks, I think it's related to Carlos' questions on inorganic M&A. Now you have a stronger currency, right? We may discuss your ROE, if the shares are fair value or not, but the shares are worth more. Just trying to understand how do you see your shares as a vehicle for M&A. In the past, when you did the Central America acquisitions, can you remind us if those were cash or if you used shares back then? Just trying to understand a little bit how do you see your own shares as an option for consolidation in Colombia eventually. Then a second question regarding Nequi and Brevi.

I think we did not explore much in the call yet, but Nequi breakeven in the month, I think that is very good news. I would like to understand a little bit how do you see the profitability roadmap for Nequi? Any metrics you can share on how big this can be on the group, ROEs, or anything like this? How would you think about Wompi? Because I like a lot of the market share you have on payments. I think that is a very nice number. If you can talk a little bit how Nequi, Wompi, they talk to each other, I think that is also a topic that we can learn more from you. Thank you. Thank you, Yuri. We are very satisfied with the results of our buyback program. I think it has been evolving very well. Mauricio will give you in a moment more information about that.

Again, we evolved. We now create a structure that is more flexible that allows us to evolve as an organization in different paths. We will continue exploring opportunities in the sense of if it makes sense, we will have leverage capacity, we will have liquidity, we have the stocks, and our shares could be sold. We have big flexibility to evolve. What is clear for us is that we created this structure I mentioned with several goals, but one of them was giving us flexibility to grow. That growth will come from different aspects in different regions. We will be continuing. Now we have all the flexibility, all the tools, all the possibilities, and we think the strategic clarity on which ways we should go. Some words about Nequi. We are very, very, very pleased with the evolution of Nequi.

Nequi is having a very good performance, particularly on the loan book of Nequi is growing at a very dynamic pace. You saw that now our RPAC is continuing growing. The CTS is declining. We are adding more possibilities of profitability. We are very confident that now that we had a breakeven in the past September, we will continue in that trend and we will continue adding profitability. For Nequi, will come a new milestone. Nequi, we will separate next year from Bancolombia, and we will operate as a standalone entity. That will happen the second semester of next year. We are confident that with the evolution that we have in the numbers that Nequi is achieving, the number of active users that we have, the level of deposits, how the loan book is performing, we will be profitable in 2026 for sure.

Regarding BV, the introduction of BV, I think it's a good leverage for Nequi. Nequi now is leading the transactions in the BV system. What is better for us is that we are net positive in terms of flows. It is more money coming into Nequi than the money that is going out. That shows the power of Nequi as a platform that more than 22 million Colombians use today. We are confident that the introduction of BV will add capabilities and possibilities to our customers in Nequi. So far, we are very happy with the developments around BV. I do not know, Mauricio, if you want to add something regarding the first question or the other questions that Yuri had. Yeah. Hi, Yuri.

Regarding your question about buybacks, just to remind everybody that one of the things that came with the creation of Grupo Cibes was the need and the opportunity to optimize capital. We have been working in both fronts very firmly, both the operational front and the capital optimization front. In that front specifically, we have the buyback program. As you know, we have an approval to execute in one year up to COP 1.35 trillion. That is a cap. It is not a commitment for us to execute the whole program because that will have to do specifically with market conditions. We are not in the day-to-day operation of the buyback program. We have hired two specific entities to execute that, one in the international markets and one in the local markets.

They have the framework to execute, and they go and tap the market according to market conditions, to pricing conditions. Thank you, Mauricio. Thank you, Juan Carlos. Congrats again, I guess, committed to shareholder return, your dominance on payments, many good things in addition to discussing cost of risk being low or not. I like some of the trends here. Congrats again. Thank you. Thank you. Thank you, Yuri. The next question comes from Andres Soto with Santander. Please proceed. Good morning, Juan Carlos. Mauricio, thank you for the presentation. I want to go a little bit deeper on the discussion about Nequi revenue and the role of lending. When I see your slide 18, I see that pretty much at this point, what you have is 50% financial income, 50% fee income.

I would like to understand out of this financial income, how much of that is represented by floating, the money that you keep via transactions, and how much is actually coming from interest income from lending? If you can help us understand a little bit, what are the economics of that lending? Be that in terms of research, just a name, or give us a sense of what is the average loan yield and the average cost of risk that you are expecting to have now that this is going to be a relevant factor for Bancolombia growth in 2026. Thank you, Andrés. Again, we are very satisfied with the evolution of Nequi, and particularly, we started lending Nequi at the beginning of 2024 and the evolution. Now we have close to 600,000 customers that are taking loans. The average loan, it's around COP 2,500.

The interest rate that we are charging on those loans is very close to the maximum rate that we can charge, which is around 25%. It is a little bit lower than that, but it is at that range. Before we pass your question to Mauricio, I want to emphasize that what we are expecting is that the portion of financial income will increase. Now, as you notice, it is 162 and 81. Since we will continue growing our loan book, that financial income will continue to grow. The deposit base of Nequi is relevant. We have more than COP 5 trillion, actually, on deposits, and it is pretty stable, that level of deposits, and growing. As I mentioned in the question of Yuri about Brevi, it is even growing in this new competitive environment. Mauricio, could you add some more color to Andres' question? Yeah.

Andrés, as you can see, total revenue for Nequi is pretty much split between fee income and financial income. If you double-click on financial income, you will see that approximately half of that is from the investment portfolio, and half of that is from the loan portfolio. That is basically because the loan-to-deposit ratio is still at very low levels. It is around 24-25%. What you should expect to see is a higher portion of loans as a percentage of total deposits, and the total revenue mix will change, having financial income more weight every time and a mix and evolution between income from investments and income from loans.

What we plan to do is, once we report the fourth quarter figures, we will have more color on the plans for Nequi in 2026 in terms of the spin-off, and we will have a better breakdown in guidance for Nequi and how the year is going to look like. Be aware of that. Yeah, that will be very helpful, Mauricio. The question regarding the economics in lending, I was going to also want to get a sense of what is the cost of risk that you are expecting from these loans. Okay. Yeah. Sorry that we did not address that part. I mean, the past due loans now are behaving better than expected. We follow very closely, of course, the performance of the portfolio in terms of risk. Past due loans, on a 30-day basis, it is around 7%-6%.

The cost of risk that we are expecting is below 5%. We are inside those parameters, even better. We continue recalibrating our models, and our growth rate will be determined by how we will be or how we evaluate the performance of the vintages. What we are seeing is that even the new vintages are performing better than the older vintages. With that economics, I mean, with an interest rate around 25% or 24%, the cost of funds that is very low, the funds—I remind you that the funds in Nequi come totally from savings accounts with a very, very, very low cost of funds. With that cost of risk, we can have a good profitability on this business. That is very helpful. You mentioned currently 600,000 customers with loans in Nequi.

In your expectation for 2026, how much that number is going to grow? Andrés, that's a very interesting picture that we will share with market when we present the fourth quarter results. Very nice. Thank you, Mauricio. Thank you, Juan Carlos, and congratulations on the results. No, thank you, Andrés. Thank you. At this time, I would like to turn the call back over to Mr. Juan Carlos Mora for closing comments. Thank you, everyone, for participating in this third quarter call results. We are happy with the results. I mean, we have a strong net income and return on equity that it's improving. Consumer loans are gaining traction, which is positive for our NIM. We continue defending the NIM. The milestone of Nequi achieving breakeven point is very important.

From there, we think that we can develop even more this platform in which we believe we have big, big opportunities. The solid progress of our share buybacks is very good. We will continue in this direction, and we expect that the end-of-the-year results will continue in this trend. Again, thank you very much for participating in this call, and I hope to see you on our fourth quarter conference call results. Thank you very much, and have a good day. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.