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Edited Transcript of BOGOTA.BG earnings conference call or presentation 20-Mar-20 2:00pm GMT

Q4 2019 Banco de Bogota SA Earnings Call

Mar 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Banco de Bogota SA earnings conference call or presentation Friday, March 20, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alejandro Augusto Figueroa Jaramillo

Banco de Bogotá S.A. - President & CEO

* Julio Rojas Sarmiento

Banco de Bogotá S.A. - CFO

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Conference Call Participants

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* Carlos Enrique Rodríguez

Ultraserfinco S.A. Comisionista de Bolsa, Research Division - Director of Equity Research

* Johanna Castro Castro

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Juan Nicolás Pardo Ayala

* Julian Felipe Amaya Restrepo

Corredores Davivienda S.A., Research Division - Equity Research Analyst

* Natalia Corfield de Melo Monteiro

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Presentation

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Operator [1]

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Welcome to the fourth quarter 2019 consolidated results conference call. My name is Hilda, and I will be your operator during this conference call. (Operator Instructions) Please note that this conference is being recorded. We now ask that you take the time to read the disclaimer included on Page 2. When applicable, in this webcast, we refer to trillions as millions of millions and to billions as thousands of millions. Thank you for your attention. Mr. Alejandro Figueroa, CEO of Banco de Bogotá, will be the host and speaker today. Mr. Figueroa, you may begin your conference.

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Alejandro Augusto Figueroa Jaramillo, Banco de Bogotá S.A. - President & CEO [2]

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Thank you, Hilda. Good morning, ladies and gentlemen, and welcome to Banco de Bogotá Q4 2019 Results Call. Before proceeding to our results, I hope everyone is staying safe during these very challenging times. I cannot overstate the concerns that we have with what is occurring globally and believe it is imperative for everyone to contribute in the cautioning or the impact of this on the population as a whole. In particular, what we have done this week is announce significant factors of relief measures for our clients that may find this service in moments of illiquidity as a result of these force majeures. The relief package, includes among others, an up to 120-day grace period on the payment of principal for trade to help our independent workers and small and medium enterprises with this payment being deferred as corresponding maturity expenses. 100% free transfer via our online and mobile banking platform. 100 free transactions via our call center. Participation in West Coast in (inaudible) to seize trade lines for small and medium enterprises and discounted interest rates or credit card purchases in establishment for medical supplies and food.

As one of the leading banks in Colombia and Central America, we have most contributed and taken steps to help ensure that the broad economics impact of this crisis is as contained as possible and we are proud to be leading that effort with complete steps such as the ones described above.

From a financial perspective, and this is still a developing situation, the guidance we will be sharing with you has not been adjusted to incorporate the impact of COVID-19, nor the significant lower prices of oil. Nobody, including us, has any idea for how this situation will last. As (inaudible) provides a better sense over how this evolves, we will certainly share the impact that we are foreseeing.

Moving to our Q4 numbers, attributed net income for the last quarter of 2019 grew 16% on a quarterly basis, reaching COP 722.6 million adding to a yearly total of COP 2.77 trillion. This is all translating into a geared return on average assets of 1.8% and a return on average equity of 14.4%. In order to compare our 2019 results to the previous year, we need to take into account the impact of the following onetime income earnings in 2018; first, the sale-leaseback transaction of several real estate assets; and second, the positive accretion related to Corficolombiana's capitalization.

Adjusting for the previous events, attributed net income for 2019 would have been 0.4% higher than the normalized 2018 net income of COP 2.53 billion. Our results in 2019 were driven by a net interest margin of 5.9%, which increased 27 basis points versus 2018, in line in our -- with our previous guidance. A net cost of risk of 2.3%, gross fee income annual growth of 13.7% and an efficiency ratio of 50.8%.

Moving to our balance sheet, loan growth for the full year came in at 6.3%, in line in -- with our previous guidance. Gross loan totaled COP 116.5 trillion while deposits were COP 117.8 trillion. We continue to see a roughly a matched net loan book to deposits, in line with our strategy of maintaining core deposits as our primary source of funding.

From a credit standpoint, we -- while our cost of risk decreased 7 basis points, our past due loans peaked slightly upward by 24 basis points. Regarding capital equity, our Tier 1 ratio was 9.1% for Q4 2019, while total servicing reached 12.8%. Both ratios were above regulatory requirements.

Finally, I would like to highlight the positive results we are seeing in the consolidation of our digital strategy. At year's end, between 60% and 70% of our total savings accounts, credit cards and consumer loan sales were completely digital. Our bet, all the digital transformations fully embed into the current operation of the bank, is our best tool to continue expanding our client bases, appealing to a new target segment and assuming growth over the medium and long term.

Now to provide more details of our performance, I will hand over the presentation to Mr. Julio Rojas Sarmiento, Banco de Bogotá Chief Financial Officer.

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [3]

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Thank you, Alejandro, and good morning, everyone. On Slide 4, you can see the performance of the Colombian economy, which grew 3.3% in 2019. Not only was this above market expectations, but it was the country's best performance in the last 5 years. The most dynamic sectors were commerce, 4.9%; and financial services growing 5.7%. The former benefited from factors such as workers' remittances growth, interest rates on consumer loans at historic lows, migratory flows from Venezuela and the gain in household purchasing power from the minimum wage increase. These factors compensated the weakness of the labor market, where the average urban unemployment rate was 11.2% last year, increasing 40 basis points annually and deteriorating for the fourth consecutive year.

That said, over the last few months, we started to observe some improvement in the unemployment rate for the first time in many quarters, in line with the accumulation of higher growth. The financial sector's dynamism reflected an outstanding performance of consumer loans, while corporate credit stabilized after the quality problems it experienced in previous years related to the energy and urban transport sectors. Contrastingly, GDP growth was weighed down by the decline in the construction sector, dropping 1.7%, which was impacted by weakness in high-end residential construction. This assumed the uptick that was observed in infrastructure due to the continuation of the 4G projects.

On the external front, the wider current account deficit of 4.3% of GDP in 2019 was one of the explanations for the devaluation of the exchange rate last year. The average exchange rate was COP 3,283 per dollar, improving 11% against the dollar. The pressure was accentuated in the second half of the year, and particularly in the last quarter when the FX rate reached what was then a new historical high above 3,500 bases. Besides external accounts, the devaluation was mainly explained by trade tensions between China and the United States. Monthly dollar purchases by the Ministry of Finance and the Central Bank until May and protests in the last 2 months of 2019. That said, the end-of-period rate ended up being very similar to the end-of-period rate of 2018 due to certain fund inflows.

Devaluation of the exchange rate and higher food prices pushed consumer inflation upwards in 2019, which closed the year at 3.8%. While this was above 2018 levels, 2019 was the second consecutive year within the target range of the Central Bank between 2% and 4%. The rebound in inflation vis-à-vis a negative output gap were the main arguments for the Central Bank to hold the benchmark rate stable during the year at 4.25%. As of March, the Central Bank has now held its policy rate constant for 23 consecutive months.

Finally, the Colombian sovereigns credit rating remained unchanged during the year. Standard & Poor's affirmed with sovereign rating at BBB- with a stable outlook. Meanwhile, Fitch Ratings and Moody's affirmed their ratings 2 notches above investment grade at BBB, but their outlook is different. Fitch reduced its outlook from stable to negative, while Moody's changed its outlook from negative to stable.

Moving to Central America on Slide 5. While final figures for GDP growth in 2019 have yet to be released, the IMF is projecting a decrease from 2.8% in 2018 to 2.5% in 2019. This is the result of both lower global growth and the extended consequences of local shocks that emerged in 2018. The latter was particularly notorious during the first half of 2019, evidenced by the fact the region experienced an increase in growth during the second semester. In fact, while the region grew 2.6% in the first half of the year, excluding Nicaragua due to a lack of information, it accelerated to 3.0% in the third quarter. Guatemala was the best performer in the region in 2019, with activity growth of 3.8% as of November, when measured by the monthly activity indicator, EMI. This compares to GDP growth of 3.1% in 2018. Despite political uncertainty linked to the presidential election in which Mr. Giammattei was elected, the economy showed a continuous acceleration along the year.

Panama's economy decelerated to 2.9% in the first 9 months of 2019 after growing 3.7% in 2018. However, it gained momentum in the second half of the year, due not only to the dilution of the prolonged impact of the construction stretch shock of 2018, but also the operation of the new copper mine, Cobre Panama, and the progress on those infrastructure projects. The November EMI showed annual activity expansion of 3.8%. Honduras' economy also showed moderation throughout the year. After growing 3.7% in 2018, activity lost momentum and grew 2.5% in November according to the EMI. Its performance reflected the weakening of the agricultural sector because of the Almunia climate shock and lower prices of coffee and bananas, relevant to export items.

In Costa Rica, the slowdown of the first semester was explained by the uncertainty based on the fiscal reform, the weakened trade with Nicaragua and the impact of Almunia climate shock and agricultural production. Since, activity has recovered, and by November, it had grown 3.0%, above GDP growth of 2.7% in 2018.

El Salvador displayed a modest slowdown as activity grew 2.3% in October, just below the 2.5% of 2018. With artificial data in Nicaragua, the IMF projected an economic contraction of 5.7% in 2019, reflecting the extended impact of political and social unrest, which began in April 2018. Nevertheless, if our business performance in Nicaragua is any indication, the situation has gradually been stabilizing and improving in September of last year, which should start to reflect in better GDP numbers.

With regards to prices, inflation rose by 20 basis points to 2.0% in 2019, still very much in a reasonable range. Monetary policy was adjusted accordingly to each economy's need. Costa Rican Central Bank having no inflationary risks, cut its interest rate to support economic expansion. The rate reduction amounted to 250 basis points or 2.75% in 2019. Since then, it has cut another 50 basis points.

Although the Honduran Central Bank raised its interest rate by 25 basis points at the beginning of the year, it reversed the adjustment at the end of 2019, maintaining the rate of 5.5%, taking advantage of the expansionary monetary space generated by lower interest rates around the world. Honduras has also cut an additional 25 basis points in 2020 so far. In Guatemala, given the temporary nature of the shock on food prices, the Central Bank decided to keep the interest rate stable at 2.75%.

Before moving to our financial performance, let me briefly share with you our view on the global crisis we are living here today. The global economy has been hit by 2 distinct shocks, the coronavirus and the oil war. Both of them are affecting supply and demand worldwide. And both point to a lower growth this year. As the markets try to cope with the consequences of these events, volatility and uncertainty have risen, tightening financial conditions across the board. The first responses of economic authorities have been interest rate cuts, more liquidity, and now more recently, fiscal stimulus to solve the public health issue. Our coordinated effort is needed to stabilize markets, recover confidence and support the economy. Local economic authorities have been proactive with fluent communication and decisions taken to ease market tension and strengthen the provision of liquidity in pesos and dollars. The Central Bank, the Ministry of Finance and the financial regulators have been monitoring the solvency and liquidity of the financial system, which thankfully comes to the situation from a solid position.

Furthermore, the Central Bank has a policy dilemma regarding interest rates. If it lowers rates, it will benefit the economy but put pressure on foreign capital flows. If it increases rates, it could help ease FX pressures but negatively impact the economy. While there is no certainty in which direction it will move, the Central Bank may ultimately decide to lower rates in lockstep with other central banks in the region and globally.

Meanwhile, the government has taken measures to stop the virus from spreading, including the prohibition of public events, the closure of boarding to nonresidents and the screening and quarantining of Colombians arriving from aborad. The government has also declared a state of emergency, which allows the president to legislate by decree. Until Wednesday morning, Columbia had 95 confirmed cases of COVID-19. While that number is small on a global scale, if other regions are any indication, of course, it will continue to increase in the coming weeks.

The government is also already devising targeted programs to aid sectors that are most affected by this crisis, such as tourism and aviation, and it's pledged to continue to monitor the situation. It is still too early to assess the depth and duration of the oil shock. But the impact to Columbia would be felt mainly through the exchange rate, exports of oil and the fiscal account.

Compared to the 2014-2015 oil price collapse, the country has reduced, but not eliminated its oil dependencies. For example, oil accounted for almost 60% of total exports in 2014, while now they are 40%. Additionally, government income stemming from taxes to oil companies and dividend payments in the state oil company were more than 20% of total government revenue at its peak, while now it amounts to 10%. In Central America, the cases of coronavirus have been relatively limited as well. But authorities have already taken strict measures to confront the pandemic, such as quarantine and travel restrictions. As of March 18, Central America had 151 cases in 4 countries. Mainly focused in Panama and Costa Rica. An economic impact from the closure of borders and the quarantine in some countries is expected, as well as an impact arising from the difficult situation affecting the United States, the main trading partner and originator of remittances in the region. However, cheaper oil is significantly helpful for the region's external accounts. And as a dollarized economy, it doesn't have the same concerns as Colombia with regards to currency fluctuations. In this way, Central America works as a great natural hedge to Columbia.

Moving to Slide 6, we can turn to a discussion of the bank's performance. Consolidated assets grew to COP 175 trillion at Q4 2019, showing a quarterly increase of 1% and an annual increase of 7.2%. Our asset breakdown at the bottom of the page shows a predominantly similar composition of our balance sheet at the close of 2019, with investment in other assets contributing slightly more. From a geographical standpoint, our Colombian operations, driven by a reactivation of commercial loans, solid performance of the consumer portfolio and greater fixed income investments, created 52.6% of our overall mix, up from 31.9% in Q4 2018.

On Slide 7, you can see our loan portfolio growth across business segments. Consolidated gross loans increased 6.3% annually to a total of COP 116.5 trillion. Quarterly growth was impacted by the Colombian peso revaluation registered in this period. Isolating the effect of the exchange rate, quarterly growth was 2.4%, while our adjusted annual increase was 5.9%.

Overall, loan growth was led by the Colombian operation. Our successful retail strategy, leveraging our investment in digital transformation and analytics, has resulted in a yearly growth of 16.4% and 12.1% in the mortgage and consumer segments, respectively. Our commercial portfolio also showed signs of reactivation, gaining market share across the course of the year, particularly in the second half by expanding 6.2%. In total, our Colombian book grew 8.0%. Our loan portfolio in Central America grew 4.6% annually. However, if you exclude Nicaragua, where we have purposely continued to mute growth, the loan book would have expanded 6.2%. Growth in the commercial, consumer and mortgage portfolios was fairly even, with each increasing 4.7%, 4.4% and 4.8%, respectively.

From a country-by-country perspective, expansion was led by Honduras, Guatemala and Costa Rica at 10.5%, 9.4% and 5.7%, respectively. In terms of guidance, without incorporating the impact of the crisis that is currently unfolding, we expect the loan book to grow between 8% and 10%.

Turning to Slide 8. We'll move to our consolidated loan portfolio quality. On the top left, you can see on a quarterly basis, our 30-day PDLs improved 14 basis points, driven by commercial recoveries in Panama and Honduras as well as continued positive trends in the consumer book in Colombia. Our 90-day PDL ratio demonstrated a slight deterioration of 5 basis points. Cost of risk, shown on the top right, evidenced a material improvement. On a quarterly basis, cost of risk decreased by 78 basis points. The primary driver of this improvement in Q4 was a material reduction in provisions required for CRDS. However, even when you isolate that impact, you can still see an underlying cost of risk that improved by 39 basis points. It is very important to highlight that by the end of Q4 2019, we had both Electricaribe and CRDS provisioned at 100%. On the bottom left, you can see that our charge-off ratio increased to 1.3x. This was due predominantly to the fact that we charged off Electricaribe in Q4. When adjusting the ratio for this exposure, we reached a result of 0.81x, in line with previous quarter's levels.

When looking at charge-offs as a percentage of the average loans, we are maintaining a level close to 2% when excluding Electricaribe's exposure. Coverage ratios in 4Q 2019 decreased as a result of the Electricaribe charge-off. Analyzing our allowance-to-gross loans ratio adjusted for Electricaribe and CRDS, you can see that our levels remain at around 4%. For 2020, without incorporating the impact of the COVID-19 crisis, we expect the net cost of risk between 2.2% and 2.3%.

Slide 9 shows our asset quality metrics split between Colombia and Central America. In Colombia, the economic recovery that the country experienced in 2019 was evident in the consumer book, which showed materially better ratios. For example, our 90-day PDL ratio in the consumer portfolio decreased from 4% in Q4 2018 to 3.6% at the end of year 2019. On the other hand, however, the commercial and mortgage books continued to show a slightly more affected trend, and as a result, our 30-day PDL ratio deteriorated by 10 basis points in 2018 to 2019. On a full year cost of risk basis, you can see a reduction of 10 basis points, driven primarily by the consumer book. Charge-offs in Colombia remained in line with previous quarters when isolating Electricaribe, which, as previously mentioned, was charged off in Q4. Similarly, the decrease in coverage ratios was due to the charging off of Electricaribe.

Regarding Central America, PDL ratios evidence of deterioration versus 2018. Costa Rica as the main driver for this increase, partially offset by Guatemala and Honduras. However, it is very important to highlight that on a quarterly basis, central and managing PDLs actually improved more than 30 basis points. And this improvement was seen across all Central American countries. This is in line with the accelerating economy in the region, particularly in the second half of the year. Net cost of risk improved slightly as a result of better performance from Guatemala, Honduras and Nicaragua. Charge-off to 90-day PDLs and allowance ratios slightly deteriorated as a result of higher PDLs as compared to year-end 2018. Slide 10 presents loan portfolio quality ratios broken down by segments. On a quarterly basis, commercial and consumer loans demonstrated a 20 basis point reduction in the 30-day PDL ratio. The mortgage portfolio deteriorated 18 basis points on a quarterly basis as a result mainly of Panama. Microcredit, which accounts for less than 0.5 percentage point of our loan book experienced a moderate decline. Even so, this continues to be a profitable business line given the income associated with it.

Moving to Slide 11, you can find details of our funding structure. Total funding grew 7.4% on an annual basis and 0.5% on a quarterly basis. Adjusting for FX, these figures were 7% and 3.3%, respectively. Our total funding amounted to COP 147.2 trillion at the close of 2019.

Funding breakdown by type presents slight variations that don't materially change overall individual contribution. Deposits grew 3.7% to COP 117.8 trillion in the last quarter, accounting for 80% of total funding, and marking a yearly growth rate of 8.2% when adjusting for FX fluctuations. Savings accounts continued their trend of increasing share, closing 2019 at 29.5% of total deposits, approximately 80 basis points higher than 4Q 2018. Time deposits decreased slightly from 41.7% to 41.4%. Our deposits to net loans ratio closed at 1.06x, combining with our strategy of maintaining deposit growth roughly matched with our net loan book.

Moving to equity and capital adequacy. On Slide 12, you can see that our total equity as of December 2019 was COP 21.9 trillion, showing a quarterly increase of 2.6% and an annual growth rate of 11.1%. The main driver of this growth was the net profit generated by the bank. Over this period, our tangible capital ratio increased to 9.0%.

Regarding our solvency ratios, our Tier 1 was 9.1% and our total capital ratio was 12.8%. As a reminder, current government regulation does not permit net income for the period to be included in Tier 1 cap. This can only be included post our annual shareholder meeting, which occurs next week. For now, only 30% of current period net income is included in our Tier 2.

Moving to Slide 13. You can see that our net interest income increased by 9.2% on an annual basis, and that our net interest margin expanded 27 basis points year-over-year. This increase was driven by our NIM on investments, which closed 2019 at 3.2%, rebounding from 0.7% in 2018. Favorable market conditions supported higher net gains, both at the bank level and from Porvenir's stabilization fund.

Our NIM on loans decreased 12 basis points in 2019 versus 2018. When breaking this down geographically, Central America, mainly in Costa Rica and Guatemala, saw an increase in lending NIM as a result primarily of the consumer and mortgage books, offset by a decrease in lending NIM in Colombia. For 2020, without taking into account the COVID-19 crisis, our consolidated NIM is expected to be around 5.7%.

Slide 14 illustrates that gross fee income increased 13.7% from 2018 to 2019, totaling COP 1.35 trillion. The largest contributor in 2019 continued to be banking fees, which in Q4 completed 73.3% of the total pie.

Our fee income ratio for the year expanded slightly from 34.8% last year to 35.6% in 2019. Other operating income decreased 11.5% when compared to 2018. However, when comparing this on an adjusted basis, it actually grew by 12.6%. The 2 events that must be isolated from 2018's other income are the gain related to the sale-leaseback transaction from a portion of the bank's real estate assets as well as the gain associated with Corficolombiana's capitalization transaction. On a normalized basis,

other operating income increased primarily as a result of gains in sales of securities from our investment book, both in Colombia and Central America as a result of favorable market conditions. This is partially counterbalanced by lower equity method income contributed by Corficolombiana.

Slide 15 presents efficiency metrics measured as percentage of income and of average total assets. These efficiency metrics must be understood with the following adjustments: first, as previously discussed, it is important to isolate the 2 significant onetime income items from 2018; second, it is important to remove 2 nonrecurring expense aspects from 2019. A, expenses related to reserves established for legal proceedings by Porvenir, which totaled COP 87.4 billion; and b, the early amortization of the buyout contract related to Credivesa, which amounted to COP 18.1 billion. With these adjustments, operating expenses for 2019 totaled approximately COP 7.0 trillion against the total income of COP 13.8 trillion. Adjusting growth rate by foreign exchange fluctuations, income growth surpassed other expenses at 5.0% versus 4.7%. With this, our commitment to control our expenses is clearly evident. Our efficiency ratio, without taking into account the COVID-19 crisis, is expected to be around 50% in 2020.

Turning to Slide 16. You can see the results generated by the implementation of our digital strategy. In 2019, we strengthened our digital sales channel, which offers principally, savings accounts, credit cards and consumer loans. This resulted in a 287% annual increase of digital sales, with 447,000 more units being sold this year than in 2018. In 2020, we are expanding this product fleet by adding, among others, 100% digital insurance products, payroll advance loans and certificate of deposits. Supporting our omnichannel vision, we continue to transform the experience of our branch network. 100% of our branch network is now corporate tablets, thus enhancing the sales and service experience by reducing rate time and dramatically improving our time to get and time to cash. Our share of digital sales as a percent of total consumer product sales reached 60% for savings account, 65% for consumer loans and 70% for credit cards. Thus, cementing our digital channel as the main source of origination for the bank and Banco de Bogotá as a leader in digital transformation.

Our innovative online and mobile banking platforms have been widely adopted by both retail and corporate customers as we continue to strengthen the products and services we're offering. During Q4, 45% of our client base used our digital channels. In Central America, BAC presented very strong results of its digital strategy as well. It reached 1.4 million digital customers with over 812,000 digital transactions and 270,000 digital sales in 2019. For 2020, our objective for our BAC franchise includes: first, implementing a full digital onboarding of new clients; second, streamlining product origination processes; and third, continuing to enhance our clients' online and mobile banking experience.

On Slide '17, you can see our main profitability indicators. Total net income for 2019 was COP 2.77 trillion, which translated into an ROAA of 1.8% and an ROAE of 14.4%. As compared to 2018, post isolating the one-off income items related to the sale-leaseback transaction and Corficolombiana's capitalization, net income grew 9.4% versus the 2018 normalized figure of COP 2.53 trillion. On a quarterly basis, Q4 2019 net income was COP 722.6 billion, which represented a 16% increase over the COP 622.8 billion generated in Q3 of this year.

Finally, and before moving to Q&A, I'll recap our guidance for 2020 before taking into consideration the COVID-19's crisis. We expect loan growth to come in at around 8% to 10%. Our deposit to net loan book ratio is expected to remain roughly matched. Consolidated NIM in 2020 is expected to be around 5.7%. Our net cost of risk is expected to be around 2.2% to 2.3%. Our fee income ratio should be around 35%. Our efficiency ratio is expected to be approximately 50%. And our ROAA should be around 1.9% and our ROAE should be approximately 14.5%.

And with that, we're now open to move to the Q&A portion of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Carlos Rodríguez from Ultraserfinco.

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Carlos Enrique Rodríguez, Ultraserfinco S.A. Comisionista de Bolsa, Research Division - Director of Equity Research [2]

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I have one question, and I want to know, based on the experience of Mr. Figueroa, how do you see this upcoming crisis? And the final outcomes that we should expect? And how it's compared to the crisis that you lived in the '80s and in the '90s here in Colombia?

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [3]

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Alejandro, do you want to take this one?

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Alejandro Augusto Figueroa Jaramillo, Banco de Bogotá S.A. - President & CEO [4]

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Julio will take it. Do you want to take it?

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [5]

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Okay. Carlos, obviously, with Alejandro, we've been analyzing this and trying to understand based on past experiences where this could lead. I think the reality is it's still very early days. I think it would be premature at this point to be able to project where this is going. I think the reality is the world hasn't lived a crisis of this nature before. Obviously, there have been ups and downs from economic and financial standpoints in the past. But not a global, and truly global in the sense of all countries being affected, helped crisis of this nature. As Alejandro mentioned, what we're doing in the first place is a focus on the health and safety of our employees, focused on the health and safety of our clients and hoping to be helpful in these times and managing all of the bank operations as smoothly as possible. As of now, thankfully, everything's under control from a bank standpoint. And I think at this point, it's wait and see.

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Operator [6]

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Our next question comes from Natalia Corfield from JPMorgan.

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Natalia Corfield de Melo Monteiro, [7]

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My question is related to FX and the impact on your capitalization. I'm wondering if you have any sensitivity analysis of how much this -- the moving in FX impact your capitalization based on what happened in the past?

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [8]

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Natalia, thank you for your question. Under Basel II, under the current capital regulation, our regulatory capital is hedged against any movement in FX. The increase in risk-weighted assets and the increase in our dollar-denominated goodwill when we express to pesos has a counterbalancing account in our Tier 1, which is the FX adjustment line item. So our capital is, for the most part, hedged under Basel II. Basel III is a different story. It's still an open conversation at this point with the superintendency. So it hasn't actually been finalized as to what or how that treatment will be taken, and particularly because there's still even open questions around, under Colombian regulation, what percentage of the investment you can uncover to have a hedged regulatory capital ratio? So we don't have a number to share at this point because it's still open, and we'll see where that evolves.

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Operator [9]

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Our next question comes from Julian [Felipe] from Corredores Davivienda.

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Julian Felipe Amaya Restrepo, Corredores Davivienda S.A., Research Division - Equity Research Analyst [10]

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And I want to congratulate for the results. My question goes, first of all, for the commissions. I would like to know if you have any sensibility about how much the bank will be safe to receive monthly? Because of the benefits that you are giving to your clients, the free benefit that you are giving. So how this is going to impact the commission income from the bank?

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [11]

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Yes. The way that we've quantified that to now with the announcement that we've made is that, that will be a couple of million dollars. At this point, I think the reality is, again, we're going to have to see how this continues to evolve and whether these measures are sufficient or whether we should be implementing more. But we think it's certainly -- it's a manageable number. Obviously, when you think about our total fee income, but it's also a meaningful contribution to our clients and it's a helpful respite particularly when you think about the ability to make any transfers free from online or mobile banking, all transactions free on -- that are done in the call center and several other relief measures that we've passed at this point.

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Operator [12]

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Our next question comes from Juan Pardo from SURA Investment Management.

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Juan Nicolás Pardo Ayala, [13]

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I have a question regarding the exposition of the bank to the airline sector, specifically to Avianca, that perhaps is going to have some trouble to meet their obligations. And besides that, if you can give us some detail on your exposition of small and medium enterprises within your overall portfolio?

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [14]

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Juan, starting with Avianca, as we have disclosed in the past, our overall exposure to Avianca is approximately $180 million. That $180 million, the significant majority is in a trust secured by credit card receivables. Obviously, to the extent that flights are grounded for a long period of time, that income or that coverage for that trust will start to be affected. That's roughly $130 million, close to that in that structure. We've got another little under $30 million in a leasing transaction on Avianca's headquarters, which is a super prime building based in Bogotá, and the small remaining portion is unsecured. For what it's worth, Avianca made their interest payment that was due a few days ago on time. We know management is very focused on taking all of the necessary and drastic measures that are required at a point like this. And we're in very close communication with them, not just to ensure the payback of our loan, but also to ensure that we're helpful in a time like this for an airline that is the national airline in a way to Colombia and a lot of countries in Central America. So it's kind of -- we're going to have to see how that evolves over time.

In SME lending, our commercial book and SME lending is several billion dollars. It's a segment where we've seen a healthy growth in the past. We think there's actually still an opportunity for us to be larger players in SME lending and are gradually -- we're gradually gaining market share and would look to do so at a normalized period upcoming. But for now, that's obviously a sector that we're going to see, again, how it's impacted by this crisis, how we can be helpful for our clients and how we can continue to accompany them through what may be some challenging times.

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Operator [15]

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Our next question comes from Johanna Castro from Itaú BBA.

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Johanna Castro Castro, Itaú Corretora de Valores S.A., Research Division - Research Analyst [16]

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I missed a couple of minutes of the beginning of the conference call. Maybe you announced this before, but I wanted to know if there is anything thought by the management or by the Board of Directors about changing the dividend proposal that was going to be approved in next week's shareholder meeting because of more -- of a more prudent approach into the liquidity situation looking forward? I just wanted to know if you have been thinking about it, taking into account that in the U.S. several companies have changed their dividend policy as well?

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [17]

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Johanna, thank you for the question. At this point, no change, but obviously, this is something that's going to continue to be evaluated, as said by management and by the Board of Directors. Our shareholder meeting is next week, and at that point, we'll obviously be taking a final decision.

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Operator [18]

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Our next question comes from Julian Felipe from Corredores Davivienda.

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Julian Felipe Amaya Restrepo, Corredores Davivienda S.A., Research Division - Equity Research Analyst [19]

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This is my second questions. And I would like to know if you have any information about the measures that the governments in Central America have made, such as the 1 that Colombia made here-in. If you have any information about that measures?

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [20]

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Julian, each country is taking specific measures that differ 1 from the other. There are obviously some trends that are developing, not just in Central America, but I think in the whole world as countries are seeing what measures have been effective in reducing the spread of the virus in other countries. So things related to reducing travel, quarantines, general health safety practices, I think you're seeing the governments in Central America, similar to Colombia, understand the importance of liquidity in these situations and understanding the importance of likely having to utilize not only monetary policy for the countries in Central America that have central banks, but also fiscal stimulus directed at certain sectors that will be the most affected. That seems to be the playbook that most governments across the world are taking and Central America is keeping an eye on that. I think the only other thing I'd say about Central America is there are certain countries that are more dependent on tourism that obviously are going to see their economy hit by the lack of travel and by less circulation. But on the flip side, Central America, as a whole, is a net oil importer. So what I think you're going to see is some alleviation on fiscal spending coming from the much lower price of oil that we're seeing. And do keep in mind that the Central America is a dollarized economy. And as a dollarized economy, obviously, it doesn't have to deal with the reverberations of FX fluctuations. And in addition to that, ultimately serves as somewhat of a natural hedge when you think about our earnings with respects to pesos.

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Operator [21]

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At this moment, we show no other questions.

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Julio Rojas Sarmiento, Banco de Bogotá S.A. - CFO [22]

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Okay. Well, thank you very much for everyone for joining. These are obviously difficult times. Everyone please stay safe. And please know that in Iran, we're doing everything to continue to be there for our clients and to run the operation as smoothly as possible. Thank you very much, and look forward to speaking to you all again on our next quarterly call.

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Operator [23]

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Thank you very much for your assistance. You may now disconnect.