Bancolombia - Q4 2022
February 24, 2023
Transcript
Operator (participant)
Good morning, ladies and gentlemen. Welcome to Bancolombia's Q4 2022 earnings conference call. My name is Sachi, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Following the prepared remarks, there will be a question and answer session. During this question and answer session, if you have a question, please press star then one on your touchtone phone. Please note that this conference is being recorded. Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses, and credit losses. All forward-looking statements, whether made in this conference call, in future filings, in press releases, or verbally address matters that involve risk and uncertainty.
Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by 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 Rosillo, Chief Corporate Officer, Mr. José Humberto Acosta, Chief Financial Officer, Mrs. Catalina Tobon, Investor Relations and Capital Markets Director, and Mr. Juan Pablo Espinosa, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.
Juan Carlos Mora (CEO)
Good morning and welcome to Bancolombia's Q4 results conference call. We are very pleased to share with you our results for 2022, a year in which we delivered a strong performance and moved forward in our pursuit for sustainable development in the countries where we operate. Net income was COP 6.8 trillion for the year, attributable to the combined effect of a positive economic background, the spike in interest rates as per a contractionary policy stance, and the good operational performance of the bank. Due to inflationary pressures, the central bank rose the reference rate 900 basis points during the year. Despite this sharp increase, the loan book grew 3.8% quarter-over-quarter and 22.5% for the year. A significant expansion, albeit a slowdown in demand in the Q4.
Loan growth during the year was even amongst segments, aligned with the overall improvement in economic activity. Meanwhile, deposits grew 5.6% during the quarter and 19.3% year-over-year, reaching an 85% share of the total funding mix as a reflection of the bank's capacity to attract competitive low-cost resources to fulfill its growing funding needs, even under more challenging market conditions. As a result, the NIM expanded to 6.8% for the year-end as interest income generation outpaced interest expenses driven by loan growth, higher interest rates, and our asset-sensitive condition. This, without any doubt, is one of the key competitive advantages of the bank and one of the drivers for ROE expansion last year.
Provisions for credit losses for the last 12 months were COP 3.7 trillion, equivalent to a cost of risk of 1.6%, an increase of 56%, and is basically explained by a loan growth and the low base of comparison versus 2021. Provision for credit losses for the quarter were COP 1.7 trillion, equivalent to a cost of risk of 2.6%. This represents an increase of 49% quarter-over-quarter, driven by a combination of loan deterioration during the period, mainly in consumer segment. Expected credit losses as the economy slows down and rates remain elevated, and consumer-related parameters and less favorable macro inputs.
As per year-end, allowances represents 5.5% of total loans, a coverage of 254% for 90 days past due, whilst Basel III Common Equity Tier 1 ratio stood at 10% and the total capital at 12.5%, well above the minimum regulatory capital. Higher income generation and our efforts in cost control initiatives contributed to offset the overall increase in expenses, posting an ROE of 19.8% year-end. However, less favorable macroeconomic conditions globally and locally, coupled with political uncertainty in the countries where we operate, make us more cautious with regards to this year's performance. Factors such as persisting inflation, interest rates, and unemployment, so as the potential economic and social impact arising from government's ambitious reform agenda may impair economic activity.
For further detail on the macro outlook, I will turn the presentation to Juan Pablo Espinosa, our Chief Economist. Juan Pablo?
Juan Pablo Espinosa (Chief Economist)
Thank you, Juan Carlos. Please go to slide number three in the presentation. Latest data indicate that the moderation in economic activity that we anticipated a few months ago has already begun. GDP for the last quarter of 2022 surprised on the downside, with a year-over-year growth rate of 2.8%, that full year 2022 print was 7.5%, lower than our 7.8% estimation. This performance was mainly driven by a slowdown in consumption, which had expanded at double digits by six consecutive quarters and grew just 2.2% year-over-year in the Q4 of 2022. On the other hand, investment was the most dynamic component of demand with a growth rate of 10.3%, in absolute terms it is still below pre-COVID levels.
For 2023, we keep our view that the Colombian economy will land to a growth rate close to 1% as internal demand cools off in a context of high inflation and interest rates, the stringent financial conditions, and continued uncertainty. Factors that recovered sharply after the pandemic, including retail, manufacturing, construction, and services, will decelerate more than the rest of the economy. This scenario will lead to a deterioration in the labor market, in which average unemployment rate will increase from 11.4% in 2022 to 12.1% in 2023. With respect to interest rates and prices, we anticipate that the central bank will finish soon the current hiking cycle with a terminal rate of 13.25.
This is consistent with an inflation that will reach its peak this quarter at 14.3%, and then will moderate gradually to close the year at 9.3%. Given that this number would be well above Banrep's target, we foresee that the monetary policy stance will remain contractionary for a long time. We forecast that the reference rate by the end of this year will be at 12.5%. Regarding the exchange rate, we forecast an average USD COP rate of 4,930 for 2023, up from 4,808 in 2022. This means that factors supporting Colombian peso weakness, including tight financial conditions, a large current account deficit, and uncertainty regarding the reform agenda will remain relevant. The depreciation would exert significant pressure on core inflation.
Finally, on the fiscal side, we expect central government deficit to reduce from 5.6% of GDP in 2022 to 4.2% of GDP in 2023, a number that incorporates the additional collection from the latest tax reform, as well as higher revenues by the oil sector. Actually, this will allow the government to meet with the fiscal rule targets and at the same time increase spending, as is contemplated by the amendment of the public budget that was submitted to Congress a few days ago. After this economic overview, let me turn the presentation back to Juan Carlos. Juan?
Juan Carlos Mora (CEO)
Thank you, Juan Pablo. Moving to slide four, I would like to highlight three key elements that have contributed significantly to our positive performance. In the first place, an extraordinary growth in clients. We have seen a consistent uptrend in the last years in all segments, and in 2022 we reached more than 29 million clients. We deem this progress as a result of a well-articulated strategy in channels, products, and investments in technology that has become a competitive advantage leveraged on the bank's network's footprint and product offer. Nequi, Bancolombia A la Mano, and banking agents are just a few good examples of this broad strategy. As you may see in the slide, in the case of Colombia, we have compounded annual growth rate for the last four years of around 9% in retail and SMEs, and around 5% in corporates.
Nowadays, we are adding around 300,000 new clients per month. This significant growth in terms of new clients has been a catalyst for further growth in deposits and asset origination, as we will discuss in the following slides. Moving to slide number five, you see the strong growth in terms of loans and deposits on a group level, posting at 22.5% for loans and 19.3% for deposits for the year. Peso-denominated loans grew 18%, whilst US dollar-denominated loans grew 8%. Nominal growth net of e-FX was 15% for loans and 11% for deposits. Such difference is explained by the sharp Peso depreciation amounting to 20.8% during the year. There was uneven growth among segments during the year.
In the case of commercial loans, we must highlight the growth in corporate loans, which benefits the overall portfolio quality as it entails lower credit risk. In the case of consumer loans, annual growth was driven by personal loans. In the Q4, this segment grew less than in previous quarters, consistent with higher interest rates. The current 24% share of consumer loans as the total loan portfolio is the result of a deliberate strategy implemented in 2014 to capture higher risk-adjusted returns that contribute to broader income generation, as we will discuss later. The growth in time deposits stands out with 46.5% increase for the year with a twofold drivers: Large funding needs to meet loan growth coupled with clients' preferences for these type of instruments given the higher rates environment.
Savings accounts also grew albeit more modestly, up 11.3% and reflecting the bank's strength to attract low cost funding as we referred to previously. In slide six, I will elaborate on the second key element consisting on the pre-approved and automated loan strategy that has been another of the catalyst of growth in loans and risk-adjusted returns, while it also provides management flexibility to adjust originations according to performance and risk appetite. The strategy started in Colombia in 2014 on the consumer segment, leveraged on the richness of transactional information and investments on data analytics and automation. It has reached interesting effectiveness ratios and in terms of disbursements and clients.
More recently, it was extended to SMEs, corporates, and subsidiaries in Central America as it certainly provides value as to preserving asset quality with enriched and more precise risk model based on transactional flows data. Moving on to slide number seven, I will touch upon the third and last key element to highlight for this period, which is the evolution and leadership in terms of digitalization. This result is leveraged as well on the channel, product, and technology strategy that we already referred, and allows the bank to adjust to our clients' needs and preferences for an enhanced experience. Bancolombia currently process around 71% of the market's digital transaction and around 43% of online transactions. The growth in customers' volume of transactions and activity per user has been exponential.
As an example, Nequi today has more than 1.4 million active users per day, close to 10 million active users per month, and 1.3 million off card users. This, in addition to being a driver for growth and efficiency, is also a tool for financial inclusion. The total number of Nequi users represents 29% of the Colombian population, and out of these, 1.7 million are Nequi exclusive, meaning they do not use other entities. In slide eight, you can see how digital channels reshaped the transactional space in terms of volume and amount, and exhibit an upward trend in terms of digital adoption, reaching more than 77%. This in turn has increased digital sales, certainly boosted by the pandemic.
It is important to highlight as well that in Colombia, cash is still important and close to 37% of transactions on a value basis are still processed through physical channels, for which the bank has an important advantage given its network and complementary with other cost-efficient channels as banking agencies. This interoperability has been certainly one of the drivers of Nequi transactional success as user can easily cash out through the physical channels. Going forward, we will keep investing in digital transformation for our customers' convenience and further efficiency. Last, in slide number nine, I want to refer to progress on our ESG strategy in which we continue delivering on our goal of reaching COP 103 trillion pesos of sustainable loans originated in the last three years, related to agribusiness, SMEs, housing, climate change, and financial inclusion amongst others.
We also launched the first sustainable derivative in local market, providing rate coverage to companies that comply with sustainable indicators. Last, I want to highlight the most recent Dow Jones Sustainability Index assessment in which Bancolombia was ranked as part of the best 5% banks in the world at the global ESG score. The only Colombian bank within the top 5%, standing out in dimensions such as sustainability finance, labor practices, and climate change strategy. We celebrate this achievement and stand to our commitment to deliver on our purpose. After this general business update, I want to turn now the presentation to José Acosta, who will further elaborate on our Q4 and 2022 year-end results. José?
José Humberto Acosta (CFO)
Thank you, Juan Carlos. In slide 10, you can see an overview of Colombia and Central America's operations. In 2022, Central America represented 29% of the total loan portfolio, increasing due to FX. These graphs reflects how all the banks had similar trends in the last years, contributing to the overall group performance in terms of growth and pickup in margins post-COVID, where Colombia stand out due to a higher growth rates, market rates, and its asset-sensitive condition. Second, asset quality, all posting ample 90-days coverage. Third, progress in efficiency with falling cost-to-income ratios. It's worth to highlight Bancagrícola's and Banco Agromercantil positive performance as source of growth and profitability, and Banistmo with potential to further capture efficiency.
Now, moving to slide 11, you can see how liquidity encompass loan growth during the year, closing at a loan to deposit ratio above 101%. During the Q4, time deposits grew the most, reaching 30% in the deposit mix, just above pre-COVID-19 levels. This growth was mainly driven by the net stable funding ratio requirements and a larger demand as clients seek for higher returns. Despite savings accounts yielded to time deposits in the mix, its share is significantly higher compared to pre-COVID-19 levels, reflecting the bank's strength to attract flows and keep deposits, all of which accounted for 85% for the year-end in 2022.
It is worth highlighting as well the capacity that Bancolombia and Banistmo had to access credit loans to pay for the respective bonds maturity for a total amount of $1.5 billion in a moment in which capital markets were closed. This explains why there is a shift between long-term debt and loans with banks within the funding mix, which by the way, contributed to reduced interest expenses. Also important was the issuance of the first sustainable living bond for a financial institution in the region, fully subscribed by the IDB and LAGreen under a private placement with a competitive terms and conditions. Moving into slide 12, we will talk you through NII and NIM performance. In the upper part, you will find Colombian NIM's evolution correlated to the market rates.
During 2022, the reference rate increased 900 basis points, closing at a level of 12%. The steepest curve displayed by the NIM since the Q3 of 2021 reflects the bank's capability to capture a higher margin even as interest expenses goes up. This is explained by its asset sensitive condition, given that 66% of the loan portfolio is floating, whereas 38% of deposits are floating. Also, it's worth highlighting that 55% of term deposits mature in less than one year, providing some margin protection where rates are going down. This structure certainly represents a competitive advantage as it allows the bank to capture higher margins when rates are going up whilst adjusting relatively fast to cuts in interest rates.
In the lower part of the slide, you can see the significant increase in NII at the group level growing at a pace of 7.4% quarter-over-quarter and 55% year-over-year due to higher market rates, loan growth and interest and valuation income from investment securities and overnight funds held on the portfolio. As a result, NIM increased to 6.8%, expanding more than 170 basis points from the recorded in 2021. It's worth mentioning the contribution of investment portfolio as well that reach a NIM of 4.1% for the period, well above the past performance. In the short term, we expect NIM to remain stable as the average rate of the central bank that determines reference rate IBR will be higher versus 2022.
In the long term, NIM should be at around 5.5% area. Moving to slide 13, we provide a snapshot of fees. Fees grew 10% during the year, exhibiting increases of around 20% in almost all categories. Colombia provided the largest contribution to the fee income given the increase in volume of transactions as per higher retail activity, as well as an important growth in the number of clients. The incremental demand in consumer loans and credit cards outstanding also added to the positive performance in fees related to these products. Bank assurance performance was noticeable during the year, growing 27% explained by a continued growth on distributed products, largely associated to disbursement of retail loans. Banking service, in turn, grew as a result of the growth in transactional products and use of digital channels.
The income ratio slightly drops as a result of higher net income growth relative to net fee income growth. Moving into slide 14, we present the evolution of provisions and asset quality. Provision for credit losses for the quarter were COP 1.7 trillion, equivalent to a cost of risk of 2.6%. These represent an increase of 49% quarter-over-quarter, out of which COP 450 billion are due to updates on consumer-related parameters and macro inputs, whilst the remaining balance is due to loan origination and deterioration. As opposed to the Q3, there were no overlay releases during the Q4. Furthermore, provisions for credit losses for the last 12 months were COP 3.7 trillion, equivalent to a cost of risk of 1.6%.
An increase of 56% year-over-year is basically explained by the loan growth and the low base of comparison versus 2021. The 90-day past due loan ratio for the year-end in 2022 was 2.2%, down from 3% in 2021, reflecting a healthier balance and driven by a better payment behavior and improvement in the collection process. Charge-offs increased 65% year-over-year, associated mainly with reliefs granted during the COVID-19 crisis. We continue committed to responsible growth. Our allowances as a percentage of loans remains strong and represents a coverage 90-day past due loans of 254%. Going forward, we forecast a cost of risk of at around 1.8% for 2023. Moving on to slide 15, we present our operating expenses and efficiency ratio.
Operating expenses grew 18.8% in 2022, driven by a combination of FX depreciation and inflation, as well as higher taxes and investment in technology. As a result of the positive overall income performance delivered during the year and coupled with several cost control initiatives, the cost-to-income ratio of Bancolombia for 2022 was 44.6%. Notwithstanding this good result, going forward, we expect a more sustainable ratio at a level of 45% aligned with the normalized income generation. Moving into slide 16, we present the profitability metrics. As mentioned before, there was a strong income generation during 2022 that drove margin expansion and diluted cost. As a result, net income for the year was COP 6.8 trillion and delivered a return equity of 19.8%.
Going forward, as global and local economic conditions deteriorate, we forecast a sharp moderation in loan growth, fee income, and higher expenses related to provisions and operations. The effective tax rate for the year-end in 2022 was 28%, and as a result of the recent tax reform, we forecast a tax rate of 32% area for 2023. Finally, on slide 17, we present a snapshot of the bank's capital. The bank's capital adequacy ratio on a consolidated basis stood at a level of 12.79% by year-end under full Basel III. Strong profitability boosted Common Equity Tier 1 generation in 284 basis points during the year.
Comparatively, there was a total of 439 basis points reduction, mainly associated with the strong organic growth, coupled with a significant COP depreciation that increased the value of Colombian pesos of dollar-denominated loans and equity. Going forward, we expect a loan growth of 5% and Common Equity Tier 1 up at around 11% at the end of 2023. I will hand over the presentation back to Juan Carlos for some final remarks. Juan?
Juan Carlos Mora (CEO)
Thank you, José Humberto. 2023 will be a challenging year. We acknowledge that the world has changed in many ways, and it's having an impact in the countries in where we operate, such as economic slowdown, persistent high inflation, high interest rates, higher unemployment, among others.
However, we are confident that our strategy and our competitive advantages will allow us to better handle the tougher conditions while we continue to pursue on our long-term strategy. We will continue supporting our clients with a special focus in asset quality, proactively assisting them to find solutions to avoid loan deterioration and leveraging more on data analytics to monitor the payment capacity to preserve a health balance sheet. Meanwhile, based on our estimations, our loan growth will be around 5%, cost of risk around 1.8% area, and NIM around 6.5%. We forecast our Common Equity Tier 1 ratio for the year-end 2023 will be around 11%.
Yesterday we announced the dividend proposal to be discussed in the annual shareholders meeting in March, consisting of a 50% dividend payout equivalent to COP 3.4 trillion, payable in four quarterly installments of COP 884 per share during the year. Finally, our long-term ROE should stand around 15% area. With this, I will invite you to ask any questions you may have.
Operator (participant)
We will now begin the question-and-answer session. We ask that you please limit yourselves to one question each. 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 two. If you're using a speakerphone, you may need to pick up your handset before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. The first question is from Ernesto Gabilondo from Bank of America. Please go ahead.
Ernesto Gabilondo (Stock Analyst)
Hi. Good morning, Juan Carlos, José Humberto, Catalina, good morning to all your team. Thank you for your presentation and for the opportunity. My first question is on NIMs. Just wondering where do you see NIMs for this year? I was looking to your chief economist comments, he's actually expecting higher rates in 2023. Just wondering how do you see the NIM evolution this year? My second question is on asset quality. During the quarter, we saw higher provisions and write-offs, considering a weaker macro outlook in Colombia and some of the subsidiaries. Just also wanted to hear your thoughts on the cost of risk for this year. Thank you.
Juan Carlos Mora (CEO)
Thank you, Ernesto. Regarding NIM, as you know, inflation remains high in Colombia, and still there will be inflation pressures. With that, we foresee that the Central Bank, the Colombian Central Bank, it's probably going to increase the reference rates in the next session. Could be 50 basis points, could be even 75. With that, interest rates will continue increasing. As you know, that has an effect on our, on our NIM. What we see is that the NIM will remain and probably will expand a little during this year. We mentioned that the NIM should be around 6.7, 6.5, between 6.5 and 6.7, because of interest rates will remain high. We don't expect that the inflationary pressures will cease soon.
Because of that, probably the central bank will remain interest rates high for the remaining of the year or will start decreasing interest rates by the end of the year. What we expect, as I said already, is that with that condition, our NIM should be around the one that we have today, even a little bit high. Regarding asset quality, for me, that's the variable to watch during this year. It's going to be key how the loan book is going to perform, particularly the consumer book. What we see is that the coverage is going to normalize, and we will have some additional pressures. What we are seeing now is that the cost of risk should return during this year to 1.8% area.
Could be a little bit more, depending on the pressure, as I mentioned, particularly on the retail side. Definitely that's the variable that we need to watch. What we are doing is what we are anticipating that situation, and we are working with our customers, with our clients, understanding the current cash flow situation. Working with them and not waiting for to have issues with their loans. We are anticipating, and other thing that we are doing is this year, we are not going to push for growth. We will be concentrated on asset quality emphasis.
Ernesto Gabilondo (Stock Analyst)
Perfect. Super helpful, Juan Carlos. Thank you very much.
Juan Carlos Mora (CEO)
Thank you.
Operator (participant)
The next question is from Yuri Fernandes from JPMorgan. Please go ahead.
Yuri Fernandes (Stock Analyst)
Hi, guys. Thank you for the opportunity of asking questions. One regarding G&A outlook, how do you see, you know, non-interest expenses growing? This year it was, you know, a high growth, growing closer to 20% year-over-year, I think FX, you know, explain parts of it. Even Colombia, that should be more normalized, like, had a higher, you know, G&A year. I know you have a lot of, you know, IT investments. Inflation is high. Any guidance for 2023 is welcome here. I have a second question regarding our equity evolution. This was a very good quarter for your capital, right? Your shareholders equity decrease almost 2 times your net income generation. I'd like to understand the moving parts here.
Looking to your balance sheet, it seems to be more OCI driven, like. I would like to understand this. Like, what is driving, you know, like, your equity to move up? We can expect, like, volatility here. Is this effects driven? Is this rates? Like, what is driving all this good behavior, for capital for you? Thank you.
Juan Carlos Mora (CEO)
Thank you, Yuri. I am going to give you some comments around your two points and then I will pass your question to Jose Humberto to. He will give you more details. Expenses. As you mentioned, there are pressures from effects, also from inflation, and investments. We foresee or we are forecasting that expenses will grow a little bit above inflation, Colombian inflation. We are, as I said, investing on technology. Those investments we plan to continue, but we need to work on other expenses and find space for those investments on technology. That's a focus.
What we are seeing and how are we handling this is we are targeting a 45% efficiency ratio. With that, we will be managing expenses. We think that with a 45% efficiency ratio target, we can deliver the ROE that we are expecting. With that, as I said, expenses will grow a little above inflation. With this, I will pass your questions to José Humberto.
José Humberto Acosta (CFO)
Thank you, Juan. Yes, Yuri. Remember that part of our expenses are highly correlated with the level of transactionality that the bank has in the different channels. That also explains, this is the fourth element that explains why we are expecting an CapEx and OpEx increasing a little bit above inflation for 2023. Yes, regarding your second question, the equity evolution. Yes, there is one element that will impact the sufficiency ratio at the end of the year. That would be FX. Our forecast for FX 2023 will be less volatile than the FX that we had in 2022. We are assuming to reaching the level of 11% of Q1 based on loan growth of 5%, cost of risk of 1.8%, and an FX rate on average of COP 4,900.
That explains why our rationale to maintain on average during the year, the 10.5, but at the end of the year, the 11%.
Yuri Fernandes (Stock Analyst)
Thank you, guys.
Juan Carlos Mora (CEO)
Thank you, Yuri.
José Humberto Acosta (CFO)
Thank you.
Operator (participant)
The next question is from Andrés Soto from Santander. Please go ahead.
Andrés Soto (Financial Analyst)
Good morning to all of you, and thank you for the presentation. I have a few questions. The first one related to margins. I'm curious to see that you are forecasting stable margins for 2023 even and as you expect higher interest rates from the central bank, and you have had a such a great performance in terms of the funding structure. What will be the risk for margins not to continue to move in tandem to with higher Colombia rates? That would be my first question.
Juan Carlos Mora (CEO)
Thank you. Thank you, Andres. With margins, I think we will keep moving, as you said, in tandem with the rates, with the reference rates. As you know, we have a very diversified cost of funds. We will have some additional pressures from the cost side of cost of funds. We are able to manage, I think, the price in a way that we maintain the margin. You could notice that we are not forecasting a big increase, additional increases on margin. That allow us to manage what is coming. We are confident that the forecast that or the guidance that we are giving around NIMs will. It's accurate.
I don't know, José Humberto, if you want to add something.
José Humberto Acosta (CFO)
Yes, Juan, thank you. We have Andrés two elements. On the loan portfolio, we are not expecting to grow in consumer loans, that you know that this is a source of net income, of NII. We are potentially maintain the same volumes of consumer loans during the whole year for the group. This is the first element of the asset side. On the funding side, we are having a very big portion of our deposits in savings accounts. Because of the interest rate is quite high, people will shift from savings accounts and checking accounts to time deposits. The product for the Colombian banking industry during 2023 will be time deposits. You are going to see an increase in our funding costs because of that.
When the interest rates are high, there is not a point of indifference in between having the money on savings or time deposits. Time deposits will be the main driver for the liquidity. Those are the two elements that give us the explanation why we are able to sustain the NIM during the year.
Andrés Soto (Financial Analyst)
Thank you, Juan Carlos. My second question is regarding cost of risk. You say that you expect that to be at 1.8%. To me, that sounds a little bit optimistic. I remember in the past you mentioned that the structural cost of risk for Bancolombia should be around 1.9%. 1.8% in a year which, we see so many uncertainties and, you know, all the banks were growing at such a fast pace in 2022, particularly in consumer lending. As those loans come due, we may see some pressure there, right? What will be, sort of a range that you may expect in a more challenging environment?
What to what level you see cost of risk going? Naturally the 2.6% that you posted this quarter, it should be the reference. What will be the first scenario that we can use in our projections?
Juan Carlos Mora (CEO)
Andrés, as we mentioned, cost of risk is the variable to watch during this year. As today, we are seeing a 1.8% area, you are right. That could be a little bit higher. It depends how the economic conditions in Colombia evolve. You ask how high could go. It could be around 1.9% if the deterioration is higher than we are expecting. If you want to do some sensibility, it could be 1.8% as a mid scenario and could go up to 1.9%. It depends on, as I said, how things evolve in Colombia.
That's the variable again to watch. That variable will be the driver of Bancolombia results during 2023.
Andrés Soto (Financial Analyst)
Thank you, Juan Carlos.
Operator (participant)
The next question is from Carlos Gomez from HSBC. Please go ahead.
Carlos Gomez (Stock Analyst)
Hello, good morning, congratulations on the results. Going back to questions that have already been asked, I was wondering, you have a very conservative view of 2023. You expect less than 1% growth, you don't want to lend too much. I contrast that with the fact that at the same time you are increasing the dividend. You are going for a 50% payout when traditionally the company has had around 30%-35%. Why is that? Wouldn't this be the right moment to accumulate capital just in case, since, you know, at a point you may not be able to have the luxury? Would you consider...
I mean, do, would you want to, do you want to stay with that 11%, or would you want perhaps to go a bit farther in terms of accumulating capital, again, at this time when you have high profitability? Thank you so much.
Juan Carlos Mora (CEO)
Thank you, Carlos. As you said, the payout that the board is proposing to the shareholders meeting, it's 50%. Our average has been around 47% with some viability during the years. We feel comfortable that with 50% payout, we can manage a healthy level of equity that we forecast to be at the end of the year around 11%. Since growth is not going to be present during this year, and there is not going to be pressure from loan growth. We will be, as I said, around 11%. We feel that that's a level in which it's comfortable, it's enough. Accumulated too much capital, I think, is...
We need to find the right level, and the right level for us is, it's that 11% capital.
Carlos Gomez (Stock Analyst)
If I can, again, if I can push back a little. I mean, historically, excess capital has not been a problem for Bancolombia. Again, since you are conservative at this point in time, and you have a high profitability, I, you know, I wonder why this would not be the right time to accumulate more. Of course, it is the decision of the management, and you have to do what you think is best.
Juan Carlos Mora (CEO)
Thank you, Carlos.
Operator (participant)
The next question is from Tito Labarta from Goldman Sachs. Please go ahead.
Tito Labarta (Stock Analyst)
Hi, Juan Carlos, and everyone. Thank you for the time and for taking my question. First on the political environment in Colombia, how are you monitoring that situation? Maybe what are you watching there, and maybe specifically more on the tax rate or any other worries in terms of political environment in Colombia. Second, just on the expectations for fee and then for fee growth next year in 2023. Thank you.
Juan Carlos Mora (CEO)
Thank you, Nicholas. The political environment this year is focused on three big reforms that the government is submitting to Congress. The health system reform that was already presented and is started to being discussed. They announced that we'll be presenting soon the labor reform and also the pension system reform. Last year, as you know, the tax reform increased the statutory rates for financial institutions to 40% also. That's now it's incorporated on our forecast and on our guidance. As of today, we don't see any particular re-regulation regarding financial institutions. There will be or the discussions in Congress will be around these three big reforms, and that's what we are expecting now.
We need to be watching the evolution of any other variables or any other issues that the government is raising. With our conversations with the government, they are not looking to introduce big reforms. What is going to happen, and they are working on that, is they are going to work on having more strong public banks, government banks, which they are saying are going to complement what private banks or commercial banks are doing. That's something that they announced, and they are working on that. Regarding fees, we think that the fee level or fee growth should be also around 8% this year.
The introduction of new services, transactionality, it's important for us since we are growing in the number of clients on a very healthy way, will help us to maintain a growth on fees, Nicholas.
Tito Labarta (Stock Analyst)
Great. Thank you.
Juan Carlos Mora (CEO)
Thank you.
Operator (participant)
The next question is from Daniel Mora from Credicorp Capital. Please go ahead.
Daniel Mora (Research Analyst)
Hi, good morning, everyone, and thank you for the presentation. I have to ask one question regarding the NIM. You already mentioned that the guidance for this year is between 6.5% and 6.7%, but I would like to understand what is your base case scenario of the path of the NIM during the year. Because if we see the last couple of quarters, we saw a NIM above 7%. It means that you believe that this could be maintained at least in the first half of the year, as we are not expecting a decrease in interest rates. Then I would like to understand what will be the NIM in the second half of the year, considering this scenario and that you are maintaining an interest rate above 12%.
I think that it will help also to understand what will be the outlook of the cost of deposits to better know or to better incorporate the guidance of the 6.5%-6.7% ratio of the NIM. Thank you so much.
Juan Carlos Mora (CEO)
Thank you, Daniel. I am going to give you some general comments, and José Humberto will give you some more details. It is important to take into account that the interest income will continue to be healthy because of volume that we built during 2022 and because rates are going to continue to be high. There is volatility on the treasury business margin. The treasury business during last quarter, particularly during December, had a very good performance. That's not going to be the case, we think, during the year. That margin has more volatility.
You have to take into account what part it's related to loans and what part is related to the treasury business. As I said, the interest rate income will continue being in a level that is the current level or even an increasing level. Regarding the cost of funds, let me pass that to José Humberto. He will give you more details on that.
José Humberto Acosta (CFO)
Again, the structure of funding costs for the bank will shift during this year from checking and savings accounts to time deposits. That explains why you are going to see an increase in our funding costs, no matter if we are only growing 5%, as Juan mentioned, and it's not growing on consumers. That would be the key element that support our thesis of the NIM will be stable. Going back to the treasury business, also you have to take in consideration that our portfolio is less than 8% of the total assets. If you compare both elements, we are talking about 79% of our asset size are loan portfolio and 8% securities portfolio.
If you do the math, as you combine both effects, you are going to see a stable NIM for the whole year.
Daniel Mora (Research Analyst)
Perfect. Thank you so much.
José Humberto Acosta (CFO)
Mm-hmm.
Juan Carlos Mora (CEO)
Thank you, Daniel.
Operator (participant)
The next question is from Julián Ausique, from Davivienda Corredores. Please go ahead.
Julián Ausique (Equity Analyst)
Hi, everyone, thank you for having my question. I would like to ask about the net stable funding ratio. As you mentioned, you are expecting that you will have to change your funding sources from saving accounts to time deposits. I would like to know if you are now having the requirements that the regulation is suited for the net stable funding ratio, or you are having some pressure on that, and what are your expectations for this year about this ratio? Thank you.
José Humberto Acosta (CFO)
Thank you, Julián. Fortunately, our net stable funding ratio is under control. Currently, we are talking about at around 105%. There is 1 reason why we have a very strong funding structure: because of the level of transactionality, because of the time deposits, and because of the savings accounts that we receive from our clients. For the whole year, this year, we have enough space, enough room to move into the corporate deposits and institutional deposits. We don't feel particular pressure. The other parties, we are not having pressure because we are not seeing a loan growth that we saw last year.
Julián Ausique (Equity Analyst)
Okay. My second question I would like to ask you about the loan portfolio. You mentioned that you are expecting a 5% of loan growth. Can you give us more color about which segments are you expecting the best growth for 2023? If you can remind me the expectation of ROE for the year. Thank you.
José Humberto Acosta (CFO)
Okay. Regarding your first question, on the low side of the loan growth will be consumer, as we mentioned previously, 0%-2% loan growth consumer. On the upper side will be commercial correlated with the GDP growth, in the middle you are going to see the mortgage business. The combination will be the 5% that we mentioned. Our return on equity for 2023, we are expecting a return on equity clearly at around 16%-17%, and the main driver will be the NII generation because interest rates will remain high, assuming, as Juan mentioned, the cost of risk of 1.8%.
Julián Ausique (Equity Analyst)
Thank you.
José Humberto Acosta (CFO)
Mm-hmm.
Operator (participant)
The next question.
José Humberto Acosta (CFO)
Thank you, Julián.
Operator (participant)
Next question is from Jason Mollin from Scotiabank. Please go ahead.
Jason Mollin (Stock Analyst)
Hi. Good morning, and thank you for taking my question. My question, in this context of high rates and slowing economic growth, we have seen some peers in the region make material changes to their digital initiatives. You have delivered so far strong growth use in user and strong engagement in your digital platforms. In this context, can you talk about how the higher rates and the slower economic growth
... impact Bancolombia's digital initiatives, particularly Nequi and Bancolombia A la Mano. Thank you.
Juan Carlos Mora (CEO)
Thank you, Juan. Yes, that's very important. We continue seeing a very healthy growth on our digital platforms. Nequi continues its path, growing around 300,000 new clients a month. We are at this point, reaching 15.5 million clients. The usage continue to be very good, around 67%, so that's more than or close to 10 million active users a month. Also we see that same trend or similar trend on Bancolombia, on Bancolombia A la Mano. Particularly Colombians now are using the digital tools, the financial digital tools for their everyday life. That is creating a base of...
a very important base of clients that are giving us a lot of information of how they behave, how they use money. That information will allow us to increase our penetration with different products. Not just financial products, but other products. It's giving also information for loans, for how to originate loans to this group. We currently are doing pilots or moving on the direction of leveraging that information for loan growth. That will take some time. It's something that is not going to materially affect positively the results of Bancolombia, for the future will be very, very important. Total base of clients of Bancolombia, it's around 28 million, including all countries.
Particularly in Colombia, we reach close to half of the population of Colombia already, or half of the population of Colombia, has a protocol relationship with Bancolombia. That's very important in terms of how we can engage them with different strategies and different platforms, and that's an important base for growth. Juan.
Ernesto Gabilondo (Stock Analyst)
Thank you for the comments of that, Juan Carlos.
Operator (participant)
This concludes the question-and-answer session. I would now like to turn the call back over to Mr. Juan Carlos Mora for closing comments.
Juan Carlos Mora (CEO)
Thank you everybody for participating in this conference call. I want to apologize for the technical difficulties that we had at the beginning of this call. We know that 2023 will be a challenging year. It's a different year. The conditions are going to be more challenging, as I said. Credit risk will be key and. We are confident that with the tools that we have, the origination that we are or the origination process that we have in place will help us to manage that situation or what we are going to face during 2023.
Additionally, we are moving in a direction to be more proactive or to be proactive with our clients, trying to anticipate to any situation that they may have in mind, and be able or be willing to restructure or to work with them in a way that we can handle the any issue they may have. That it's what is allowing us to be optimistic about how we can handle that credit risk. Credit risk could go higher than we expect, but as of today and with the information that we have, that will be very important. With this, again, I would like to thank you.
We expect to be with you again when we report the Q1 of 2023. Thank you very much. Have a good day.