Grupo Cibest S.A.

Good morning, ladies and gentlemen, and welcome to Bancolombia's second quarter 2021 earnings conference call. My name is Ariel, 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 1 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 Ruzio, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Preto, Chief Risk Officer, Mr. Carlos Rad, Investor Relations Director, and Mr. Juan Pablo Espinoza, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.

Good morning and welcome to our conference call for the second quarter of 2021. I hope All of you and your families are safe and healthy. Despite a challenging context during the quarter due to the national strike and the third wave of the pandemic in Colombia, the economy continued to perform well. The Colombian economic activity has benefited from both external and internal factors. The expected improvement of the global economy has consolidated, accelerating external demand and supporting the increase in commodity prices. Locally, both monetary and fiscal policies are in expansive territory and the country has adapted to operate in this unusual context of the pandemic. Finally, In recent weeks, the progress in the vaccination plan has materially improved. Before getting to the details of the results, I want to highlight some key topics. The loan book grew more than 3% compared with the previous quarter. Deposits grew almost 3% during the quarter, and we continue lowering the funding cost. Core equity tier one on the full Basel III was 11.5%, and the net income was 1.2 trillion pesos. Provision charges for the quarter were 626 billion pesos, down 51% when compared with the first quarter of 2021, mainly driven by a better economic forecast and the fine tuning of our risk model as we have gathered more and better information on the situation of our clients with reliefs. Our client base continues growing. In the last five years, it has grown over 10% per year. During the first semester of this year, we added more than 2.5 million new clients. After seven months of successful operations, our housing and mobility marketplaces are already positioned as one of the most relevant in the country with more than 2.5 million visits generating loans for 46 billion pesos. At this point, I want to turn the presentation to Juan Pablo Espinoza. who will further elaborate on the performance of the Colombian economy. Juan Pablo.

Thank you, Juan Carlos.

Now, I will ask you to go to slide number three in the presentation. After starting this year at a solid pace during the second quarter of 2021, economic activity in Colombia continued to perform well, despite the disruptions caused by the national strike that took place in May. We expect that this positive trend will consolidate during the second half of the year. Therefore, we forecast that GDP growth of 8% in 2021. This is due to both external and local factors. What we'll tell wins include higher terms of trade and a stronger demand for Colombian exports. Internally, monetary and fiscal policy are in expansionary territory and will remain there for a while. But more importantly, economic agents have adapted to operate amid the unusual circumstances of the pandemic. Moreover, in recent weeks, the progress of the vaccination plan has accelerated, which reduces the likelihood of strict lockdowns in the coming months. The growth that we are experiencing is being supported by a rebound in consumption which will close this year above pre-COVID levels. We also anticipate a double-digit advance in capital formation. Meanwhile, we foresee that the largest sectoral contributors to growth in 2021 will be retail, construction, and manufacturing. After this sharp recovery, we anticipate that from 2022 onwards, our economy will advance at a moderate pace of around 3% per year. This will reflect a stabilization of global growth and commodity prices, as well as a gradual reduction of economic stimulus and the effects of the pandemic on potential growth. Regarding Narbonne unemployment, we predict a yearly average of 16.4% in 2021, and 14.2% in 2022, as the pace of job creation lacks the expected increase in labor participation, thus leading unemployment to remain higher than pre-COVID levels. Meanwhile, we predict that inflation will close 2021 at 3.6%, and then will moderate to 3.3% by December 2022. Furthermore, we expect that the central bank will start a smooth hiking cycle next September. Specifically, we pencil in two rate hikes of 25 basis points in the second half of the year. In terms of the FX rate, we expect that from its current lows, the Colombian peso will gain some ground and will go back to the range between $3,600 and to 3,700 by the end of the year. Finally, we expect that the revised fiscal reform that the government submitted to Congress last month will be approved during this semester. Even though this reform is a necessary step in the fiscal consolidation process after the pandemic, in order to reduce public debt, we think that further increases in tax collection will be required in the coming years. Now, let me turn the presentation back to Juan Carlos. Thank you, Juan Pablo. Moving to slide four, I want to continue this presentation by explaining our business strategy. Our business continues moving forward supporting our clients in the different segments where we operate. Under our mobility solution, during this first semester of the year, we have already disbursed 2.7 trillion pesos, almost the same amount disbursed during the full year 2020, when it totaled 2.9 trillion. Our real estate solution is also performing much better than last year, reaching 4.2 trillion pesos disbursed during the first six months of the year, versus 6.2 trillion during 2020. Although it has been a challenging year for bank assurance due to the slow growth of the loan book and the increase in the claims ratio, I want to highlight a new channel of insurance sales, our ATM network. We have now more than 1,000 ATMs enabled to sell insurance, reaching almost 250,000 clients. In investment solutions, we have advanced in our digital offer. Our e-trading platform has increased 385% the trading volume since 2019, and we have 49% of market share in online trading in Colombia. We have implemented Invesbot, a virtual investment advisor, and Inversi, a virtual managed funds tool. in which we have the goal of reaching 35,000 clients and one trillion pesos on their management for 2023. Moving to slide five, I'm going to elaborate in the evolution of our payment services. One of the bank's strengths is the level of process transactions. As you can observe on the slide, Credit and debit cards transaction volume is almost reaching pre-COVID levels, while the net fees have already exceeded pre-COVID videos. Despite outstanding credit cards have decreased in line with the market and due to new credit criteria, outstanding debit cards have increased in recent quarters, with very positive results in purchase volume and POS adoptions. thanks, among others, to the release of the debit card used for e-commerce. I want to highlight that Bancolombia continues to have a higher market share in credit card volume of transactions than outstanding cards, which translates into higher generation of fees and reflects the quality of our clients. Moving to slide six, I'm going to elaborate in our digital platforms. The total volume of transactions with Bancolombia's QR code is over 1.5 trillion pesos through more than 840,000 businesses distributed throughout the country, having 100% coverage of Colombian municipalities. During the quarter, Neki and Bancolombia Alamano continue to grow and maintain the strong positive trend. Having both, they reach 12.5 million clients, up 33% when compared with 2020 closing figures. Activity levels continue growing and the churn rate is low, less than 4% for both platforms. Deposits, including the two platforms, reach 1.2 trillion pesos. Moving to slide seven, you can see some relevant figures of MECI and Bancolombia a la mano. These two platforms complement each other by targeting diverse niche markets. MECI targets young people and Bancolombia a la mano low-income individuals. Both platforms are showing very positive trends. Volume of transactions continue growing at a steady pace, and the income continues to grow quarter by quarter. NETI cards are growing fast. We have more than doubled the number reported 12 months ago, and first opportunity lows disbursed by Alamanno grew 66% when compared with the first quarter. I want to highlight the high level of NPS, 82% for Neki and 69% for Alamano, and the low customer acquisition cost for both platforms, around $30 cents. On slide eight, we present our ESG framework. We have disbursed more than 12 trillion pesos in sustainable agriculture, and gender lines. From the liability side, we have issued thematic bonds from Colombia and Panama operations, and we have negotiated special credit lines with sustainable use of funds for Guatemala and El Salvador. In the asset management front, we plan to close the year with almost two trillion pesos under ESG criteria, and we'll continue growing until reaching 90% of assets for 2024. Finally, I want to highlight that this year we have disbursed more than 1 trillion pesos in sustainable loans linked with climate change, gender, cybersecurity, and water consumption. Now, I want to turn the presentation to José Humberto Acosta. José? Thank you, Juan Carlos. Now turning to slide nine, I want to walk you through the evolution of the relief program. Trade reliefs continue decreasing, reaching 7% of the consolidated loan book. It's important to note that of this percentage, all are structural solutions except for the reliefs we still have in Panismo. In Colombia, 4.4% of their loans are under PATH program. That was extended by the regulator until August. Considering the geographies where the bank operates, our focus is Panama. The percentage of reliefs is decreasing rapidly, but the relief program was also extended until September, which implies that the uncertainty regarding the loan book is going to continue. In Banismo, we kept 26% of the total loan book on the relief, coming down from 35% in the previous quarter. Despite this high percentage of reliefs, Banismo has an adequate coverage, which is evident in the 50% increase in allowances between June of 2020 and June of 2021, reaching a level of 228%. In the slide 10, we present the breakdown of provisions during the quarter. Provision charges for the second quarter were 626 billion pesos. As we did in previous quarters, we want to explain the breakdown. This quarter has the lowest provision charges since the pandemic began, confirming the trend we observed in the first quarter of the year. The main drivers behind these results are First, a better forecast of macro-variables. Second, improvements in the models and methodologies under which we build provisions. And third, less portfolio deterioration in Colombia. Moving to slide 11, we give you a snapshot of provisions and asset quality. Cost of risk for the quarter was 1.2% and for the last 12 months was 2.8%. Allowances for loan losses represented 8% of total loans. 98% of loan ratios increased during the quarter when compared with the previous one. Charge-offs during the quarter are explained mainly by weekly claims. As the weekly leads continue facing down, we expect these metrics to reach their highest levels during the second half of this year. The coverage ratio increased to 227% that should start decreasing as credit relief ends. On slide 12, we present the consolidated and standalone capital adequacy. Consolidated total solvency ratio stands at a level of 15%, while CET1 at a level of 11.5% under 4.3 for the second quarter. These ratios are well above the minimum regulatory requirements, not only in a consolidated basis, but also in the standalone operations. We consider that the leverage of the bank is in optimal levels. given the current balance sheet risk and asset growth expectations. On slide 13, we present the liquidity position of the bank. In a consolidated basis, we continue operating with sufficient levels of liquidity. We have also reduced the balance of time deposits and credits with corresponding banks, and these have been compensated with an increase in saving and checking accounts. This has allowed us to keep reducing the funding cost. As the loan book begins growing at a better pace, we expect that the balance in time deposits will rise again. On slide 14, we present a snapshot of our standalone operations. In general terms, the trend throughout the different geographies operated by Ban Colombia was similar. stable margins, moderate growth of the loan book, positive evolution of efficiency, and a solid position in terms of capital and liquidity. Over the last few years, the trend, the new metrics of the time and loan operations is positive. The Central American operations represent 29% of the total assets, but 33% of the total net income. Now, I want to give you a quick overview of each of the Central American countries where we operate. Let's start with Banco Almercantil in Guatemala. This quarter, the pace of the dispersion in the recent turning was positive, reflecting the strong economic recovery of the country. This, together with the reduction of the funding costs, have helped maintain the margins even in a tougher competitive landscape. The forecast of the macro variables has improved, and this combined with the fact that Guatemala was one of the least impacted countries in the region during the pandemic, have had a positive impact in television charges for the year. Banco Agricola in El Salvador has managed to capitalize on its leading position in the system, recovering long road. moderating excess liquidity, and as a result, increasing NIR. It has also increased the construction volume that is reflected in the increase in income, exceeding the levels seen in 2019. I want to refer to the Salvadorian government announcement regarding the law that enables Bitcoin as a legal currency. The first point I want to clarify is that the accounting system will be kept in dollars, and the government will create a trust to guarantee automatic and instant convertibility when Bitcoin is received. For the corporate offices, we are carrying out the necessary implementations to comply with the provisions of the law, which implies accepting payments from our clients to their obligations in Bitcoin. which we will immediately convert to dollars, so we don't have any exposure in Bitcoin. It is important to mention that the opening of buying accounts or deposits in Bitcoin has not been enabled. In addition, we are waiting for the details of implementation of the law issued by the regulators. Finally, banishment. We still have high levels of uncertainty due to the extension of the relief program until September and the high percentage of the loan book that is still under relief. The trend in the growth of the loan portfolio in the retail segment has been very positive so far in 2021, exceeding the performance of the financial system, gaining market share. Even though the corporate segment is decreasing in absence of infrastructure projects in Panama, but its most fall is less than the one of its peers, also gaining market share in this segment.

On slide 15, we see the evolution of margins and net interest income.

Net interest margin remains stable in the 5% area as we were expecting. We are expecting two-day hikes of 25 basis points for this semester, but this will be reflected in margins until next year in 2022. Net interest income showed a better performance as we continue reducing funding costs. I want to highlight that one of the positive impacts during the quarter on the NII was the good performance of the interest-generating assets, which allowed us to make a more efficient use of the liquidity. The net investment income has had a good performance over the year due to the results of the sales and trading team.

The slide 16 shows the evolution of expenses and efficiency.

We continue our focus in cost control. The operating expenses of the first semester showed a positive performance when compared with the first semester of the past year, growing 2%. On the other hand, the expenses of the second quarter of 2021 increased when compared with the same quarter of last year, mainly due to the provisions of the employee's compensation plan, which, as you may recall, was canceled during the second quarter of last year. We expect expenses to grow over inflation this year as we continue expanding in digital transformation to keep the bank competitive and to support our more than 20 million clients and to close our employees' compensation plan as we expect better results for this year.

Slide 17 shows the evolution of tools.

NetEase continues to be one of the most resilient lines of the P&L. overcoming challenging events as the national strike on the third peak of inclusions of the pandemic. The high correlation between the fee and committed transaction levels continues, which is representing the volume of fees from debit and credit card transactions.

Finally, slide number 18 shows the profitability metrics.

Net income for the quarter was 1.2 trillion pesos, up 113% when compared with the first quarter of 2021. This is mainly explained by lower provision charges, stable net interest income, fee growth, and controlled operational expenses. The results of the first semester of the year were better than expected. reflecting that the strategy used by the bank to face a pandemic and the way it supported its clients is paying off.

Now, I want to turn the presentation to Juan Carlos for the closing remarks.

Juan. Despite a very challenging situation, the first half of this year left us a positive surprise. The bank's results closed better than we expected at the beginning of the year. The reality exceeded the forecast. The environment of uncertainty persists due to the end of releasing Colombia and Panama, the evolution of the pandemic, and the political situation. I want to close the call giving you an update of our guidance for the year-end figures. As you know, the variable that is setting the volatility on results is provision charges. After what we observed in the two first quarters of the year, we have updated our cost of risk guidance and we expect to close the year in the 2.3% area. We are expecting the loan book to grow between 7% and 9%. Fifth, around 7%, net interest margins should maintain in the 5% area. And finally, the ROE aligned with the cost of risk should end the year between 8% and 10%. After elaborating on these key topics, we want to open the line for questions.

Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then 1 on your touchtone phone. Andrew Soto is online with a question.

Please go ahead.

Andres, your line is live.

Thank you. Good morning, everybody. Thanks for the presentation and congratulations on the results. My question is regarding expenses. When I look at your numbers and I compare the expense in the second quarter of this year with your pre-pandemic levels, I see a 5% increase in this two-year period. And when I look at the drivers for this, I see that even though your branch network has been reduced by 7%, I still see that your headcount has remained virtually unchanged over this period, even as you have significantly increased in your digital penetration. Can you please share with us what are your targets in terms of efficiency, looking into a more medium-term perspective, and if that efficiency can become a driver for improved profitability over the medium term.

Thank you, Andres, for your question. As you mentioned, the right way to analyze expenses is taking a longer period because 2020 is a year with a lot of issues around expenses starting for bonuses. So, as you are analyzing, that two-year period is a good way to see it. You are right, we have reviewed the number of branches and we will continue optimizing the branch network as we move forward because we think that's important in terms of efficiency. What we are doing is that we are investing heavily on digital, and also we are acquiring clients, as we mentioned, in a very fast pace. So we keep investing on digital, on providing new services, and on servicing those clients that are coming that in the last year are more than 3 million. In terms of guidance, this year we are expecting, due to comparison levels with this year, to grow above inflation. And that change is going to be, I think, relevant. But we keep having a target to be on the 50% range of efficiency. could not happen probably in 2021 due to these adjustments that we will have during this year, but I will keep focusing on being below and we target 46% in the three years ahead. I don't know, Jose, if you want to compliment me with something else. Thank you, Juan Carlos. Andres, yes, in terms of there is some specific item that will grow this year in a very important way, which is the compensation plan. Remember that last year we removed that number because of the results, and this year because of the performance of the bank. You are going to see an increase in this compensation plan. This is one of the most relevant items that deviate the level of expenses increasing more than inflation, as Juan Carlos mentioned.

Thank you, Juan Carlos. Thank you, Andres. Thank you.

Our next question comes from Ernesto Gabinonvo of Bank of America. Please go ahead.

Hi, good morning, Juan Carlos and José Humberto, and good morning to all your team, and thanks for the opportunity. My first question is on your new cost-to-risk guidance you were saying in the 2.3 average. Would that be for the full year? If that is right, should we expect the cost of risk to be around 2.6% on average during the second half of the year? And then my second question is on your effective tax rate. I think you're expecting 27%. Is that for the full year or for the second half of the year? And my last question is on how should we think about the earnings evolution in the second half of the year? So we should expect better revenue generation, but I don't know, maybe higher provision charges and effective tax rates. Just wondering on how are you seeing earnings in the second half you think could be lower when compared to the first half? as you will not have the benefit of the lower provisions in the second quarter?

Thank you. Thank you, Ernesto, for your questions.

Regarding the cost of risk, as I mentioned during the introduction to this call, that's the main driver of our results. And we updated our guidance to 2.3. for the full year, so cost of risk around 2.3%. That could have upside and downside risks. The upside risk comes, as we mentioned, from the end of the reliefs in Panama and Colombia. Particularly in Panama, we don't know how the loan book is going to perform after the end of the moratorium. So there are uncertainties there. In Columbus still we have some relief and we are expecting to have also to see how the second semester is going to perform. What could happen to that figure, the 2.3 a cost of risk for the full year to be better, it's that that loan book on the reliefs perform better than we expect, and also the macro environment in the rest of the countries. So we still have a level of uncertainty. You mentioned that we need to have or to record a 2.6 level of cost of credit, that's right. So still there are uncertainties, so there are upside risks and downside risks. I want to remind you that the long-term cost of risk for Bancolombia is around 1.9%. So we are going towards our long-term cost of risk, and particularly we are optimistic that the loan book is going to perform as we expect or better. So that's regarding your first question. Tax rate, that's a question that, as you know, there is a tax reform going through Congress at this moment in Colombia. It was presented with a statutory tax rate for corporates of 35%. and an extra rate for financial institutions of 3%. That's a total 38% statutory rate for financial institutions. That will take effect for the 2022 results. So that's one of the taxes that we will pay over the 2022 results. But there are some effects on 2022. One, and it depends on how the reform finally ends in Congress, but the 27% could increase this year a little because of deferred taxes, depending on what is the final statutory rate. So there are a little some uncertainty regarding effective tax rates for Bancolombia during 2021 that could increase. We expect going to point, and it depends, I repeat, on how the tax reform ends in Congress. For the next year, again, depends on the final statutory rates for financial institutions, but it will increase also probably to be around 30 to 31 percent in future years. And your third question regarding earnings, we see a healthy economic dynamic in all countries, particularly Colombia. It's performing well. We are seeing demand for credit for corporate consumer loans also are on demand and the non-performing loans are performing as we mentioned already in line or better than our projections so we are positive on the second semester earnings and we think that we can end the year with results

in line or better than we were expecting and with the guidance that we are giving you perfect very helpful thank you very much Juan Carlos just a follow-up in this last point so you're thinking that the second half of this year will be higher than the first half that include the release of, well, you have lower provisions in the second quarter. So even including that, you can expect a higher second half of earnings this year.

Ernesto, it is all related with your first question about cost of risk. You mentioned, and we agree with that number that you mentioned, the 2.6%. The commercial performance of the bank, fee income, the net interest income, the demand, the loan book is growing and performing well. So it's all related with cost of risk. With 2.6%, the cost, the end results of the bank will not be better for the second semester. It will be, we think, good, but not higher than the first semester, at least. Just to complement Ernesto, the main driver of profitability, the second half, is a combination of better long portfolio, long growth, sustain the NIM, we are expected to maintain the NIM at the same level, and the third element is free income growth. So you don't expect the same amount of provisions that you are seeing on the first half of this year. As Juan Carlos mentioned, the level will be higher because of BANIGO and because of deterioration and because of the model. So the level of meaning for the second half of the year will be lower than what you are seeing here in the first half of the year.

Perfect. Thank you very much, Juan Carlos Casamberto.

Thank you, Ernesto.

Our next question comes from Yuri Fernandez of J.P. Morgan. Please go ahead.

Hi, all. Thank you, and congrats on the results.

I have a follow-up on asset quality. I understood, like, cost of risk will likely be higher in the second half. You have Panama ending the reliefs. Also, charge-offs may appear a little bit more. But what about 2022? Because 2.3 cost of risk for the full year is not much different than the, I would say, historical 1.8%, 2%, you had on a pre-pandemic level. So my question, I know maybe it's too early, but should we see 2022 already as a normal year for you guys? Like economic is improving, like this should be, you know, like 2021 may be a transition year. So what is the message? Like you have a lot of provisions, you have high coverage, high allowances to loans. So I guess, okay, you're going to consume the coverage of 2021. But what about 2022? What should we expect here for your asset quality? And I have a second question regarding your compensation plan. I understood this is the main difference on expenses, the bonus program. And I guess we should compare versus 2019. But the results in 2021 still will be below 2019, right? Potentially the guidance will provide the 8% to 10% ROE. They are below 2019. So my question is, Regarding the bonus program, should we expect a lower number as we are seeing now versus 2019, like still tracking 20% below 2019? Or no, should we see the second half an acceleration in the bonus program?

Thank you.

Thank you, Judy. I want to complement the answer that I gave to Ernesto and regarding your question. And I'm going to focus first on on 2021. We did an important adjustment on the models with the macro input, and that benefited provision chargers during the second quarter. But that happened during that quarter. That is not going to happen again unless there is a big change on macro or macro forecast with what we don't think is going to happen. So second semester will be more, the provisions will be tied to the performance of the loan books. And we have, as we mentioned already, the end of reliefs in Panama and Colombia and the loan book starts to normalize, and that will be the main driver of provision charges during the second semester. Regarding 2022, we expect the trend to continue to a normalized cost of risk. As I have already mentioned, it's around 1.9%, between 1.8% and 1.9%. So we expect 2022 to be around 2% cost of risk. We already, as you mentioned, also are going to consume some of the provisions that we already have in our books. So that will lead to that cost of risk around 2% for 2022. Regarding your second question, I'm going to pass that second question to José Miguel. Thank you, Juan. Yuri, regarding the compensation plan, you're right. And the way it works is every single quarter, we will calculate the bonus plan based on the new forecast. So this quarter, we are seeing a better performance of the bank. So expect for the next coming two quarters, higher provisions for compensation plan because, again, we are recalculating based on the forecasting. So it is not going to be the same amount of money for provisions that we are having that will be higher because of the performance of the guidance.

Okay. Thank you, guys, and congrats on the results. Thank you, David.

Our next question comes from Thiago Batista of UBS. Please go ahead.

Hi, guys. Thanks for the opportunity and congrats for the stronger earnings. I have two questions. The first one may be a little bit early to ask about 2022, but can you mention what is the level of long growth that we can expect for next year and also if profitability is possible to be in the low double-digit level next year? And my second question is about capital position. The bank posted probably the highest level of capital in the last years. So my question is about the bank's internal target. So what's the level that you believe is your internal target? And if you see any area that an acquisition would make sense for Bancolombia in Colombia or abroad, or if M&A is not in the radar right now. So only to see if M&A is an opportunity when I compare with your capital.

And so this is my second question. Thank you, Tiago.

I want to start for your last point. Acquisitions, as we see it, it's now more regarding moving on certain niche or acquiring certain capabilities more than big acquisitions on new markets. Of course, we are always looking and analyzing where are opportunities, but at this point we are focused on the geographies in which we operate. making those operations as profitable as possible. And regarding acquisitions and M&A activity, it's going to be more what we see in opportunities around syntax or investing in some type of technology or capabilities, as I mentioned, that could complement what we are doing and increasing our improving our digital capabilities and how we can reach better the market in which we operate. Those are going to be the focus. And I'm just going to comment on capital. The level of capital, of course, or capital adequacy is related with how the growth is going to be, of course. We expect 2022 to perform better as the economies are going towards a more normalized way of behaving. And at this point, we feel very comfortable with the level of capital that we have. We will generate capital and it depends, again, on the level of growth of the loan book. Also, I want to emphasize that we have a very stable and long-term policy of dividend payout that we will stay there. And again, I'm going to ask Jose Humberto to give you more details on those other topics that we will mention. Thank you, Juan. Tiago, our loan growth this year, again, revealed the area of 7% to 9% based on the assumption that GDP growth this here will occur mostly in the second half of the year. Next year, because of the GDP growth, our chief economist, as he mentioned during the speech, will be at around 2.7% area. We are expecting a long road at around 10% to 12% for 2022. So for this year, 7% to 9%, for next year, 10% to 12%, because the economy will be sluggish, the level of GDP growth. And regarding capital, as Juan mentioned, we feel comfortable, and our internal guidance is to maintain a T1 ratio at around 11% area. Obviously, all of these will be a function of the GDP growth, a function of the loan growth, and a function of the cost of risk as well.

Very clear. Thanks, Juan. Thank you, Juan. Thank you, Pierre.

Our next question comes from Jason Mullen of Scotiabank. Please go ahead.

Hello. Thank you. My question is a bigger picture term of the guidance and especially the outlook for return on equity that now, given the strong first half, you're looking for eight to 10% up from five to six previously. And I remember pre-COVID, I guess after the fourth quarter of last year, that management was discussing longer-term ROEs. I guess for 2023, it was a specific number of 12% to 14%. How is the bank thinking about longer-term ROEs? I mean, we've seen, obviously, even though rates are going up, they're still at very low levels. And you were just mentioning that we need to see details on on taxes, but it feels like banks will pay more taxes going forward. Do you still believe that this 12% to 14% for the longer term? I don't know if this moves out to 24% or if you can provide some color. And my second question is on the impressive digital numbers that you're showing, especially in terms of growth of clients at Banco Colombia La Mano and NICI. I am trying to understand, and you do give us some details on the fee income. Is that a gross fee income you're giving us for these two entities? I guess it would be around $47 billion, the combination, Colombian pesos. And, you know, relative, can we compare that to the net fee income, or that's a gross number, so it would be even a smaller percentage, and maybe some color on how you think these businesses could start to impact the bottom line at the overall group. Thank you.

Thank you, Jason.

Regarding your first point about ROE, and I think it's a key point, you mentioned that we said at the end of last year that our guidance was around between 12% and 14%. We still believe that that's the target for 2023. We have challenges, as you mentioned. Taxes are going to be higher. That's going to happen. We don't know yet how, as I mentioned, The low is going to be, but taxes are going to be higher, so that's one. Although it's a level of capital, we will need to perform probably on a level of capital that is higher, so that's challenging also. But we are very confident that what we are doing on digital, on the transformation of the bank, the efficiencies that we are getting, the number of clients that are coming to the bank are very important and that's creating a base. Also, in our digital strategy and our own ecosystem that we mentioned, we are very confident that that's going to add additional income to the bank. All in all, we are confident that we can reach that level that we mentioned before. There are challenges, we know, but we think that we can perform as we mentioned before. And that connects with your second question around digital and particularly what is happening around the digital platforms that we have at Bancolombia. We have two platforms. One is inside the bank, it's Bancolombia La Manu, which is targeting low-income individuals and it's performing very well and it's growing in terms of new clients but also what the transactions that they are doing with the platform and we are starting to move on credit and the numbers to start to show good results. And Neki is a platform targeting more young individuals performing very well. We are adding a significant number of new customers every month. doing more transactions, the level of activity very well. So in line with that, things are growing in the numbers that you mentioned, which are very impressive, but still, those two platforms are platforms that are developing and are growing. And we are investing in them because they will have a positive impact in the total results of the bank, but that's going to take some time. They will be more relevant on the numbers of the bank, but I think that it will take us probably a couple of more years for those numbers to be significant on the numbers of Bancolombia as a whole. But what we are doing is investing, and we are ready now to move more aggressively into loans with those two platforms, which at the end it's where numbers of all the income a significant income is going to come and adding other services also is going to be important so we are very confident numbers are performing very well things are growing but still we need to move and to keep investing in these platforms to monetize that impressive number of clients that we already have, but it will take us some time to impact significantly the numbers of Juan Colombia as a whole.

Thank you very much. Appreciate that. Congratulations on the good quarter. Thank you, Jason.

Our next question comes from Alonso Garcia of Credit Suisse. Please go ahead.

Good morning, everyone. Thank you for taking my question. My question is on the margin side. I mean, despite having a much more normalized contribution from the securities portfolio, the overall NIM was quite resilient at 5%, given improvements in cost of funds, acceleration in loan growth. So my question is, what should we expect going forward? I mean, looking to 2022, what should we expect in terms of margin, as you expect long-growth to continue to be very healthy, also interest rates going up starting this year. So I don't know if you could give us some color on your expectations for margin next year, and also in that sense, if you could provide your sensitivity of the need to higher interest rates in Colombia. Thank you.

Thank you, Alonso.

As you mentioned, our margin is around 5%, and we expect that margin to remain at that level. We think that we are at the bottom of the margin, and as Juan Pablo was mentioning, we think that Colombian central banks, Banco de la Republica, probably will increase its reference rate at the end of the year, starting a path of interest rates increase, and that will benefit our margin. As you know, we are asset sensitive, so those increase will improve our margin. We already incorporated all the interest rate to the margin so it's already incorporated so we won't serve for the pressure pressure on on on on the margins so that we will for the future we will expect probably a better performance of the margin due to tax rates uh i'm sorry doing these rates uh increases uh jose could you give alonso a sense of of our sensitivity Yes, Juan, and also our sensitivity based on the structure of funding and the structure of loan portfolio that we have. It is for 100 basis points that change the interest rates. Our mean will compress or expand in eight to nine basis points.

Very clear. Thank you. Thank you, Alex. Thank you, Alex.

This concludes the question and answer session. I would like to hand the call back over to Mr. Mora for any closing remarks.

I want to thank all of you for participating on this conference call. We had a very good first semester. We expect the band to keep performing well. We already discussed the main points that are going to drive our results for 2021. that, as I mentioned, so far are performing better than we expected, and we think it will continue that way. And for the years to come, we all expect the bank to reach that level that we already mentioned. So again, thank you for participating on the call, and we expect to see you on the conference call for the third quarter results. Thank you very much and have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.