Grupo Cibest S.A. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Economic Landscape: Inflation rates declined, allowing the Colombia Central Bank to cut interest rates, supporting lower credit deterioration and domestic spending. Economic growth in Colombia was revised upward, with agriculture and public administration driving growth, but fiscal pressures remained.
• Corporate Structure: Announced the establishment of Grupo Cibest as a new holding company to address inefficiencies, regulatory complexities, and operational constraints, expected to be completed by mid-2025.
• Nequi Evolution: Nequi, a digital neobank, reached over 20 million clients, with strong transaction growth and deposit/loan portfolio expansion, leveraging technology and partnerships for financial and non-financial services.
• Financial Results: Net income grew, ROE was 15%, cost of risk improved, operating expenses grew below inflation, and core equity Tier I ratio increased.
• Macroeconomics: Colombia's economic growth outlook improved, inflation cooled, Central Bank continued rate cuts, but fiscal pressures from underperforming tax revenues and rising interest payments persisted.

Segment Performance

• Overall Bank Performance: Third quarter reported net income of COP1.5 trillion, a 4.3% quarter-over-quarter growth and 1% year-over-year increase, with a 15% return on equity. This was driven by a good investment portfolio performance, reduced provision charges, and operating expenses growing below inflation.
• Nequi: Reached over 20 million clients, with 72% active users in a 30-day period. As of September, Nequi had close to 1.3 billion transactions, a 17% quarter-over-quarter and 65% year-over-year growth. Deposits reached COP3.2 trillion, a 45% year-over-year increase, and the loan portfolio was COP406 billion, a 62% quarter-over-quarter and 187% year-over-year increase.
• Regional Operations: Central America had mixed loan portfolio dynamics; Colombia's loan portfolio saw mortgage growth, deposits outpaced loan origination, interest income had changes, fee income was mixed, and asset quality improved with lower past due loan formation.

Guidance

• 2024: Expected loan growth of 6.5% (2.8% peso-denominated, 6.8% dollar-denominated), NIM around 6.8%, cost of risk around 2.2%, efficiency ratio in the 50% area, ROE around 15%, and core equity Tier I ratio around 11.7%.
• 2025: Preliminary guidance includes loan growth of 7.2% (7.2% peso-denominated, 1.3% dollar-denominated), NIM around 6%, cost of risk around 2%, efficiency close to 51%, and ROE between 13% and 14%.

Risks

• Changes in general economic and business conditions.
• Fluctuations in currency exchange rates and interest rates.
• Intense competition from other companies.
• Lack of acceptance of new products or services by targeted clients.
• Potential changes in business strategy and other factors described in SEC reports.

Question and Answer

• Q: On investment securities and NIM pressure. A: Mauricio explained the investment portfolio grew abnormally high, with security gains not expected to be recurring, and NIM pressure due to market rate declines.
• Q: On 2025 net income and ROE. A: Juan Carlos discussed NIM and cost of risk as key variables affecting net income and ROE.
• Q: On Nequi and loan growth. A: Mauricio and Juan Carlos discussed Nequi's growth potential, with expectations of significant loan book expansion and its role in overall loan growth.
• Q: On corporate structure and efficiency. A: Juan Carlos and Mauricio discussed the timeline for the new corporate structure and its expected impacts on efficiency and capital management.
• Q: On Nequi breakeven. A: Juan Carlos stated Nequi was expected to reach breakeven by 2026, with continuous improvement in its financial performance.