Grupo Cibest S.A. Q4 FY2024 earnings call

Economic Landscape

• 2024 in Colombia ended with positive economic trend, moderate growth aided by decreasing inflation and rate cuts boosting household consumption.

Financial Results

• Q4 net income was 1.7 trillion pesos, up 11% due to resumed loan growth and reduced provision expenses, with a quarterly annualized cost of risk as low as 1.35%. Year-end net income was 6.3 trillion pesos, a 2.5% increase, with ROE for the quarter at 15.7% and year-end at 15.8%.

Dividend

• Proposed dividend of approximately 3.8 trillion pesos, a 10.3% y-o-y increase, 60% payout ratio, to be paid in one installment of 3,900 pesos per share on April 1, 2025.

Corporate Evolution

• Progress on Grupo Sura holding company, with approvals from Central American regulators and continuing process with Colombian regulator, goal to complete by Q2 2025.

Digital Strategy

• Launched Tuz Jabbas program for instant fee-free money transfers, invested in multichannel platform serving 6 out of 10 Colombians, managing 33% of payrolls, 90% of interoperable QR payments, etc.

In Colombia, Bancolombia S.A. holds strong positions in loan portfolio and deposits. It leads in commercial and consumer loan segments and is second in mortgages, with a 15% y-o-y expansion in mortgage portfolio. It holds over a quarter of total deposits in Colombia and leads in transaction volumes. In Central America, Banco Agricola in El Salvador had an ROE close to 21% due to increased consumer loan volume and lower funding costs. BAM in Guatemala saw net income growth with an 8.1% ROE. Banistmo in Panama had a net income drop of 56% with a 4.5% ROE.

• 2025 consolidated loan growth forecast at 5.6%, slightly below previous due to Q4 loan growth.
• Net interest margin expected to be approximately 6.2% contingent on central bank rate cuts.
• Cost of risk projected between 1.9% and 2.1%, efficiency ratio around 51%, ROE around 14%, core equity tier one ratio ranging from 11% to 11.5%.

• Factors such as 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 targeted clients, changes in business strategy, and various other factors described in reports filed with the SEC.

Q: Hi, team. Good morning, and congratulations on the results. I wanted to expand a bit and ask you about how capital will be utilized with the new holding structure. So first, I know there is some perhaps core equity tier one that could be utilized. I wanted to ask you if you can remind us how this can happen. And then a second question is on your payout ratio. Do you have a higher valuation right now? And we know you announced plans to maybe start a buyback program within this new structure. So just wanted to check with you if the new evaluation levels modify naturally with the new payout ratio modify your plans on the buyback program. Thank you very much.

A: Thank you, Brian. Let me address your two questions and then I will pass your question to Mauricio to see if he has any additional comments. Regarding capital, it's important to have in mind that the evolution of our corporate structure allows us to manage capital much more efficiently. The holding structure allows us to assign the right capital for the different operations. Banks will have to comply with the requirements of capital pack. The holding company is not subject to those requirements, so it allows us to manage our capital very efficiently. What we have in mind is once we have this structure in place, we will assign the needed capital with the buffers that we consider reasonable but optimize the use of capital. That allows us to have better returns on equity. And that's related to your second question, the payout ratio and the current valuation of the stock. What is happening in the market is not going to modify what we have in mind regarding the ability that we will have with the evolution of our corporate structure to buy back our shares. So on that, with the valuation that we have now, we still, once we have the structure in place, we will propose to the shareholders meeting a buyback program. Mauricio, I don't know if you have any additional comments on Brian's questions.

Q: Hi, everyone. Good morning. I have two questions on my side. The first one is regarding loan growth. So your guidance is for loan growth around 5.6% this year, which is a bit lower than Colombian nominal GDP. I would like to know if that is mostly explained by either lower demand or by lower growth in the Central American countries where you operate. And if you expect loan growth to catch up to nominal GDP growth at some point. And my second question is regarding NECC. So you had good performance there in 4Q, you know, almost one million new active users, good loan portfolio growth in NECC, and ARPA surpassing one dollar. If you could give us any color on the strategy, how it's going, what are your plans to increase monetization, and also when you expect the operation to be profitable.

A: Thank you, Beatriz, for your questions. The first one regarding loan growth, we are cautious on loan growth. We need to balance our risk appetite, so we need to be careful with the current conditions. The GDP, as you mentioned, will grow a little bit higher during 2025. We estimate that growth to be around 2.6%. And in real terms, as you mentioned, it's close to probably 6%, 6.5%. And our loan growth with the combined loan books is around 5.2%. We are expecting the commercial book to grow a little lower, and we expect mortgages to moderate a little bit the growth. So we are on the conservative side regarding loan growth, and we are going to focus on quality. We are forecasting, well, we are seeing the cost of risk in the vicinity of 2%, around 2.1%. So we will prefer to be cautious regarding loan growth. That's why our guidance looks lower in terms of nominal GDP. Regarding NECC, your second question, as you mentioned, NECC continues to perform very well. It continues growing. We are now close to 22 million customers. One figure that I like a lot is that of those, 23% are active customers. So they use NECC for their day-to-day operations. So that shows that NECC is really useful for those customers. So we continue growing, as you mentioned, we continue including or growing our loan book, and NECC is growing in a healthy way, even though we need to be careful also with risk, but it continues to grow. So what we see is that we will have, during this year, a development in continued loan growth, our income will continue to grow with different fees coming from different products. And we still or we continue thinking that we will reach our profitability or at least we will be in a level in which our income and our expenses are going to be in similar magnitudes at the beginning of 2025. So 2026, I'm sorry. 2026, beginning of 2026. So we are very happy with the development of NECC, how it's evolving, and its presence in the market is very good, Beatriz.

Q: Yes. Hi. Good morning, and thank you for the call. Yeah. So two questions. So just a follow-up on your recent comment about NECC. Can you give us some color as to where the fee is coming from? Based on the presentation, I think roughly about 40% of income comes from fees. And second, can you just comment as well on the performance in Panama? ROE has been in the mid-single digits now for a few years. What are your expectations for turning around that and potentially getting it higher? Thank you.

A: Thank you, Alonso. Fees in NECC are coming from different sources. We have different services, including some regarding transportation, but also in assurance, but also remittances. So they come from different sources, the part of fees. But the main income in the future of NECC is going to come from interest income. That's what we are doing, building a loan book. So we continue adding new services on the marketplace of NECC. But we will move to October profitability will be our long book, complemented by the fee income that we will continue to grow. So it's a mix of remittances, FX, transportation fees coming from transportation services, insurance, bancassurance. So it's a diversified source of income. Regarding your second question, Mauricio?

Q: Hi, everyone, and thank you for having my question. I have two questions. The first is regarding the dividend. I would like to know the rationale to change the statement of the dividend. In previous years, you paid the remaining during every quarter, and now you are paying in one installment. And if there is something related to Grupo Sura or your main shareholder in terms of the dividend. And the second question is regarding the information that will be available after the creation of Grupo Sura. I mean, you do the evaluation through some of the parts. So I would like to know if we will have information related to the Colombian operation we already have in the Superintendency, but for example, Central America or even NECC won't be to have a more precise value of Bancolombia S.A. in terms of projections and everything else. Thank you so much.

A: Thank you, Julian. Regarding your first question, we are paying the dividend in one installment, which we don't usually do in that way, just because we are in the process of evolving as a new corporate structure. So you have to understand that Bancolombia S.A., as we know it today, is the company that distributes dividends. And we will have our shareholders meeting in March. Then we will create a new entity that is going to be the listed company. So we are in that transition. So if we are going to pay the dividend in different installments, it will be in a different structure. So that's why we are doing that in one installment in April when Bancolombia S.A. still is the listed company and the holding company. Then we will evolve very soon in the next month to a new structure where we will be Grupo Sura, and we will now operate under that corporate structure. So it's not regarding any particular investor of Bancolombia S.A. It doesn't have any relation with any condition. It's because we are evolving. We are having a new corporate structure in which the current company that is listed and is the holding company is going to evolve to be a commercial bank, and we will have a new holding company that will now operate. That's the only reason why we are just paying the dividend in one installment. Second question, also?

A: Yeah. Hi, Julian. And just to follow up on that, you should not think about that way of distributing ordinary dividends going forward. What we plan to do next year is to go back as soon as it starts distributing dividends, it will go back to the quarterly installment. Now regarding your second question, the way we are going to disclose the numbers, the results, is going to start in the second quarter of the year if everything comes out as planned. Second quarter results will be Grupo Sura results, and you're going to be able to see each of the countries with all the businesses that they are responsible for. So Colombia will not only be Bancolombia S.A., it will be the consolidated operations in Colombia, including capital market subsidiaries and also the offshore subsidiaries. That's going to be Colombia, and then the same for the other countries. We will disclose figures for each of them so that you can do some of the parts evaluation for the whole deal.