Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) Q4 2023 Earnings Call Transcript
Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) Q4 2023 Earnings Call Transcript March 5, 2024
Grupo Aval Acciones y Valores S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to Grupo Aval's 4Q 2023 Consolidated Results Conference call. My name is Mandeep and I will be your operator for today's call. Grupo Aval Acciones y Valores S.A. is an issuer of securities in Colombia and in the United States. As such, it is subject to compliance with securities regulations in Colombia and applicable US securities regulation. Grupo Aval is also subject to the inspection and supervision of Superintendency of Finance as holding company of the Aval financial conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of the calculations of non-IFRS measures, such as ROAA and ROAE, among others, are explained when required in this report.
Banco de Bogota executed a spin-off of a 75% equity stake in BAC Holding's International Corp to its shareholders and Grupo Aval subsequently spun off its equity interest to its shareholders on March 29, 2022. On December 19, 2022, Banco de Bogota sold 20.89% of the outstanding investment of BHI through a tender offer. As of December 31, 2022, Banco de Bogota held 4.11% of BHI. This investment is reflected as an investment at fair value through other comprehensive income. Following the sale, the equity method recognized under the share of profit of equity accounted investees, net of tax between April and November, was reclassified to discontinued operations. For comparability purposes of this presentation, we have reclassified BHI's equity method for the second and third quarter of 2022 to net income from discontinued operations.
Banco de Bogota remaining 4.11% interest in BHI was disposed of in March 2023. This report includes forward-looking statements. In some cases, you can identify these statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of changes in general economic and business conditions, changes in interest and currency rates and other risks described from time-to-time in our filings with the Registro Nacional de Valores y Emisores and the SEC. Recipients of this documents are responsible for the assessment and use of the information provided herein.
Matters described in the presentation and our knowledge of them may change extensively and materially over time. But we expressly disclaim any obligation to review, update or correct the information provided in this report, including any forward-looking statements, and do not intend to provide any update for such material developments prior to our next earnings report. The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description. When applicable in this document, we refer to billions as thousands of millions. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer session. I will now turn the call over to Mr. Luis Carlos Sarmiento Gutierrez, Chief Executive Officer.
Mr. Luis Carlos Sarmiento Gutierrez, you may begin.
Luis Carlos Sarmiento Gutierrez: Good morning. And thank you all for joining our fourth quarter 2023 conference call. Before Diego provides a detailed look at our numbers, I will provide an overview of Colombia's macro scenario and of our digital initiatives and our ESG efforts. I will finish with some highlights of our financial performance and our overall view for 2024. Although, the global context surpassed positively 2023, this was not the case for Colombia. In fact, during 2023, the global economy surpassed expectations with an expected growth rate of 3.1% exceeding the initial forecast of 2.7%. This growth was largely driven by the robust performance of the US economy. US GDP growth during 2023, which outperformed analysts projections, is estimated at 2.5% versus 1.9% during 2022.
US inflation, as measured by the consumer price index, came in at 3.4% during 2023, a material drop when compared to 2022 but still somewhat distant to the 2% target. This led the Federal Reserve to prolong its hawkish stance, maintaining higher interest rates. In Europe, the European Central Bank has kept its rates unchanged since August of last year and will probably move towards reducing its marginal lending rate before the Federal Reserve, considering that even though two years have passed since Russia invaded Ukraine, European natural gas futures are trading at their lowest levels since 2021, supported on mild weather, high storage volumes and ample LNG supplies, also to reactivate the relatively weak economic outlook. Moving to the local context.
As you will probably remember, at the end of 2022, we called your attention to unabated inflation in Colombia with no foreseeable regions to subside. What preoccupied us even more was that high inflation was occurring while GDP growth was materially slowing down. The central bank consequently responded with a rapid unprecedented series of repo rate hikes, which increased rates by more than a 1,000 basis points in approximately 12 months. Obviously, marginal costs of funds followed the same trend but were affected beyond the central bank's increases as new liquidity regulation was introduced, which led banks to scramble for certificates of deposit of longer tenures. Asset repricing, on the other hand, did not keep up with cost of funds, especially so in banks with lending portfolios skewed towards consumer lending.
As a byproduct of this situation, 2023 was the most challenging year in recent history for the Colombian economy. GDP grew an underwhelming 0.6% when compared to growth of 7.3% during 2022 as the fourth quarter, GDP grew only 0.3% when compared to the fourth quarter of 2022. This result was the weakest since the beginning of this century, excluding contraction in 2020 during the COVID-19 pandemic. Economic slowdown during 2023 was mainly driven by moderation of household demand and a collapse of investment. According to experts, the absence of a rebound in investment levels will compromise the country's potential future growth, jeopardizing fiscal sustainability. On the production side, the manufacturing and commerce sectors completed three consecutive quarters of year-on-year contraction while construction completed five consecutive quarters of contraction.
These sectors generate high levels of employment. Conversely, the financial and insurance activity sector recorded a 7.9% annual growth driven by the strong results of asset managers, such as pension fund and trust managers. Domestic demand decreased 3.8% in 2023 as gross capital formation contracted 24.8%, while household consumption and government spending modestly increased 1.1% and 0.9% respectively. The trade balance benefited from a 14.7% drop in imports well above the 3.1% increase in exports. We expect that the road ahead will remain challenging in 2024 as we anticipate GDP growth to be in the 0.75% to 1.25% range, reflecting sluggish consumption and investment dynamics and less favorable external contributions. A softer labor market consistent with low economic growth can be expected to constrain household consumption.
Investment levels are expected to remain below pre-pandemic levels. Regulatory uncertainties, the government’s urge to get several reforms through Congress and high capital costs further complicate the economic landscape. Inflation trended downward steadily since March 2023, decreasing from its peak of 13.34% to 9.28% in December 2023 and 8.35% in January 2024. Notwithstanding, inflation remains high, still doubling the average seen across Latin America and well above the central bank’s target range of 2% to 4%. The deceleration in inflation has been driven by lower food inflation and by a softer demand for goods. However, the indexation processes and the desubsidizing of local gasoline prices pressed the services and regulated components.
Our estimates now point to a 5.75% to 6% annual inflation during 2024. Moving on to monetary policy. The current high inflation environment limits the speed at which the central bank intervention rate will return to historic levels. In the meantime, higher borrowing rates impose financial burdens on consumers and firms, particularly those with higher financial leverage. In any case, the central bank shyly reduced its intervention rate by 25 basis points in December 2023, and again in January 2024, taking the rate from 13.25% to 12.75%. These cuts fell short of those expected by economic analysts and capital market participants. Given the downward trend in inflation, which has largely exceeded the repo rate decrease, real interest rates are becoming increasingly contractionary, which does not bode well for GDP growth.
To reach the end of 2024 with real interest rates of less than 2.5%, the magnitude of rate cuts needs to increase over the course of the following monetary policy meetings. Our estimations continue to point to a rate of approximately 8% by year end as the central bank continues its monetary policy normalization through 2024 and extend it into 2025. Although, unemployment continued to improve during 2023, sustained by employment generated through government spending, we saw initial signs of deterioration in job formations in January. The average 2023 unemployment rate fell to 10.2%, improving from 11.2% in 2022. We expect average annual unemployment to deteriorate to 11% in 2024. Regarding the exchange rate, a 20.5% yearly appreciation took the exchange rate at year end down to 3,822 pesos per dollar, its lowest level during 2023, correcting the distortion of the Colombian peso relative to Latin American currencies.
This performance was driven by a weaker dollar, the correction of the Colombia's external imbalance and a lower risk perception of the country as evidenced by its CDS. In the last few weeks, we have seen depreciation of the peso as the exchange rate has fluctuated between 3,900 and 4,000 pesos per dollar. Our view incorporates further depreciation of the peso in the coming months, resulting from a strengthening of the dollar, which will add to lower interest carry opportunities, as Colombia will cut rates faster than the US. Current account deficit ended the year at 2.7% of GDP, a marked improvement versus the 6.2% deficit during 2022 due to lower domestic demand and continued correction of the trade balance. Finally, on the fiscal front, the 2023 fiscal deficit is estimated to be close to 4.2% of GDP, an improvement versus the 5.3% recorded in 2022.
However, the fiscal deficit for 2024 is projected at 5.3% of GDP, nearing the limit stipulated by the fiscal rule and ranking among the highest in the region. Government revenues are expected to fall short of the targets set in the medium term fiscal framework and government spending is foreseeing to have an even greater lag as the government continues to show a marked inability to execute the nation's budget. In fact, public spending is anticipated to increase only slightly versus 2023 to 1.1% of GDP in 2024. And now let me share some figures regarding Aval's digital strategy during 2023. Digital customers of Aval's bank now exceed 6.1 million. Our banks sold 1.9 million digital products reaching a 31.5% compounded annual growth rate since 2020.
Dale! our digital wallet, now has over 2 million users and 253,000 affiliated merchant establishments. Dale! continues to be an integral piece of our payments ecosystem. Dale!'s mission is to not only focus on customer acquisition but also to design and pursue deeper usage and customer relationships. Digital transactions represented almost 83.7% of total transactions and increased by 15.6% over the year. Transactions conducted in our branches decreased approximately 3.8% over the same period. Metrocuadrado, our housing ecosystem, generated more than 5.5 million average monthly visits in the fourth quarter of 2023 with more than 2.3 million users per month. Through this platform, in 2023, we received more than COP446 billion in credit applications for home purchases.
Carroyá, our mobility ecosystem, generated more than 300,000 leads to Aval banks, which even in the difficult context of the automotive sector in Colombia, managed a conversion to disbursement close to 1%. In 2023, Carroyá acquired FacilPass, a provider of payment services through tag devices installed in vehicles. During 2023, we integrated more than 40% of the country's tolls to FacilPass. Now let’s move on to ESG. During 2023, we continued strengthening our strategy in line with our conviction that compassion towards the environment, social relevance and strong governance standards, are paramount to a successful business. To further reflect this, we recently updated our mission, vision and strategic pillars with a deeper focus on ESG.
These are a few of our ESG milestones during the year. We obtained a rating of 49 points in the Dow Jones Sustainability Index, DJSI, improving 6 points compared to the previous year, making progress in all dimensions. Banco de Bogota and Corficolombiana were once again included in the yearbook. We reaffirmed our adhesion to the United Nations Global Pact, and along with our banks, we remain members of the financial initiative UNEP FI. We launched an ambitious project, which has been baptized Misión La Guajira. La Guajira is Colombia's most vulnerable department with the highest neonatal mortality rate, the highest death rate due to malnutrition, the lowest rate of access to drinking water and one of the highest poverty indices. We are working together with several of government agencies and ministries to find structural solutions to Guajira’s lack of access to energy solutions, portable water supply and food security, and to design solutions that are sustainable in time.
So far, we are the only economic group in the country that has tried to work hand-in-hand in a philanthropic project with Colombia's public sector and to prove that as long as we agree on the objectives, it is possible to work with any form of government. We are very hopeful that very soon our efforts will start to bear fruit and that other economic groups in the country will follow suit with regard to other forgotten regions in Colombia. In 2023, the holding company saw a reduction of 49% in our carbon footprint when compared to 2019. Aval and its subsidiaries established road maps to adopt the recommendations of the task force on climate related financial disclosures and of the sustainability accounting standards board. Banco de Bogotá issued Colombia's first international sustainable subordinated bond and is one of the country's largest lenders to renewable energy projects.
Finally, in 2023, the CTIC Cancer Treatment and Research Center began operations and attended approximately 7,500 patients. Regarding our financial results, Diego will refer next in detail to our financial performance during 2023. However, I would highlight the following. As I mentioned at the beginning of today's call, a steep contractionary monetary policy exacerbated by changes in regulations related to banks' liquidity positions and specifically to the net stable funding ratio resulted in an increase of marginal costs of funds, well in excess of the repo rate increase of more than 1,100 basis points in the span of a year and a half. Furthermore, banks that specialize in consumer lending as is the case with our own Banco Popular and Banco AV Villas, suffered larger net interest rate margin compressions than banks that concentrated their lending portfolios in commercial loans.
The sharp slowdown of the economy has not helped either. Consequently, 2023 was a subpar year in terms of attributable net income, which amounted to COP739 billion with a return on average assets of 0.7% and a return on average equity of 4.5%, down from a last 2022 attributable net income of continuing operations of COP1.9 trillion. Despite the challenging environment for our banking activity, we did, however, achieved a 61 basis points market share gain in total loans. We advanced our market share in 86 basis points in commercial loans, 102 basis points in consumer loans and 24 basis points in mortgages. This performance was achieved despite stricter credit origination policies than those in effect a year ago. And other good news is that we fared better than the banking system in the negative quality credit cycle experienced during 2023, particularly in consumer loans, mostly due to the structure of our credit portfolio.
Specifically, our focus on payroll lending allowed us to better weather this situation, thus, experiencing a milder deterioration of PDLs in our own consumer portfolios. As we anticipated through guidance, the contribution of our non-financial sector to our net income decreased versus 2022, albeit less than we had forecasted, consistent with our toll road concessions approaching the end of their construction phase. This was driven by the completion of the construction of the Andina concession Bogotá-Villavicencio and the slower construction pace of the Conexión Pacifico 1 and the Oriente concessions. This was partially mitigated by the energy and gas companies, which experienced stable performances versus 2022. Finally, the profits from our hotel operations increased by 19%, achieving a record performance.
[Indiscernible] also accomplish its highest net income ever driven by record high AUMs, commissions for mandatory pension contributions and the strong performance of its stabilization reserve. The pension fund sector remains very attentive to the proposals filed before Congress to reform the industry. For 2024, we expect to see the results of many revenue enhancing initiatives and the other cost cutting initiatives, which will focus on reducing operating costs but not at the expense of reducing sales forces. Additionally, we have begun to see a recovery of the margin on loans and expect this to continue as the central bank maintains its rate cut cycle throughout this year. Finally, we expect that during 2024, we will almost double our 2023 return on equity and that by 2025, we will return to acceptable profitability metrics.
I thank you for your attention. And now I'll pass on the presentation to Diego, who will explain in detail our business results and provide guidance for 2024.
Diego Fernando Solano Saravia: Thank you, Luis Carlos. I will now move to the consolidated results of Groupo Aval under IFRS. Starting on Page 8, assets grew 1.9% during 2023 and 0.8% in the quarter to COP301 trillion. The year marked a 20.5% year-on-year and 5.7% quarter-on-quarter appreciation of the Colombian peso that had a negative effect on year end growth metrics, particularly of net loans and leases. This partially explains a slight shift in mix of our assets over the year in favor of fixed income investments and other assets that are predominantly peso denominated. Moving to Page 9, Loans grew 1.9% over the year and contracted 0.4% during the quarter. Our peso denominated loans increased 5.6% and 0.1% respectively, while US dollar denominated loans grew 8.7% and 3.1% respectively in dollar terms.
Despite having tightened our origination policies we have through our peers in all loan categories resulting in year-on-year market share gains of 61 basis points in total loans, 86 basis points in commercial, 102 basis points in consumer and 24 basis points in mortgages. Commercial loans grew 2.2% year-on-year and contracted 0.4% over the quarter. Peso denominated commercial loans grew 7.2% and 0.1% year-on-year and quarter-on-quarter, while US dollar denominated commercial loans grew 10.6% and 3.9% in dollar terms respectively. Consumer loans grew 1% year-on-year and fell 1% over the quarter. Peso denominated consumer loans grew 2.3% and contracted 0.9% year-on-year and quarter-on-quarter, while US dollar denominated consumer loans grew 4.6% and 1.9% in dollar terms respectively.
The high interest rate environment, slow economic activity and softer macro outlook continued to underpin the sluggish dynamics of consumer loans. Moving in to different sorts of consumer loans. Payroll loans account for 55% of our consumer portfolio, followed by personal loans, credit cards and auto loans that account for 24%, 13% and 9% respectively. Payroll loans contracted 2.1% over the quarter and year-on-year. Demand for this product was softer as interest rates and new disbursements peaked during the last quarter of 2023. We're now seeing recovery in demand as rates have begun to trend downward. Credit cards grew 8.2% year-on-year and 1.5% quarter-on-quarter, while automobile loans increased 1.6% year-on-year and grew 0.2% quarter-on-quarter.
Personal loans increased 6% over the year and contracted 0.5% during the quarter. Finally, mortgages grew 3.4% year-on-year and 2% over the quarter. Peso denominated loans grew 10.2% and 4% respectively while US dollar denominated mortgage loans grew 0.2% and decreased 0.1% respectively in dollar terms. We expect our 2024 loan growth to exceed that of the banking system albeit remaining soft across products and segments. This will fall largely in line with the sluggish domestic demand and investment dynamics. Loan volumes will evolve accordingly with the normalization of monetary policy and positive effect on GDP growth. On Pages 10 and 11 represent several loan portfolio quality ratios. The quality of our loan portfolios improved year-on-year, measured by stages and slightly deteriorated over the quarter.
30 day PDLs closed at 5.5% and 20 basis points deterioration over three months and 112 basis points of the year, while 90 day PDLs closed at 3.98% and 19 basis points deterioration over three months and 73 basis points over 12 months. After an improvement in 30 day PDLs formation during the second third quarters, we experienced an uptick in delinquency during October and November, especially some consumer lending products deteriorated. This demanded an additional timing of our underwriting process and additional provision expenses during fourth quarter. We have since observed an improvement in new [vintages]. The 30 day PDL formations for the second half of the year was 20% lower than for the first half of the year, following the progressive tightening of our origination policies.
The higher 30 day PDL formation during this quarter was driven by two main effects. First, a more challenging than anticipated macro environment that continues to underpin our consumers’ payment capacity. Second, on October 10, 2023, Law 2300 of 2023 became effective limiting the bank's ability to execute traditional collecting procedures. This new law prohibits repetitive calls and short messages to clients justified by its promoters and a consumer rights protection argument. Unfortunately, the law failed to differentiate between collections of delinquent clients and outbound calls. This well intended but ill conceived law reduced our ability to lend at better prices to some riskier customer buckets. Cost of risk net of recoveries for the year was 2.3%, up from 1.5% a year earlier.
Our quarterly cost of risk net of recoveries increased 13 basis points quarter-on-quarter to 2.7%. We expect that our product mix which are in lower risk products and segments will continue to support our lower cost of risk than that of our main peers. However, we expect our cost of risk to remain high during the following quarters as the weaker vintages in personal loans and credit cards complete their deterioration are fully impaired and ultimately charged off. Finally, the ratio of charge offs to average 90 day PDLs was 0.67 times for the quarter and 0.63 times for 2023. On Page 12, we present funding and deposit evolution. Funding increased 0.8% year-on-year and contracted 0.5% during the quarter. As a result, our deposit to net loans ratio remained high at 103%.
Peso denominated funding grew 11.3% year-on-year and 1.3% during the quarter. US denominated funding decreased 2.9% and 0.2% in dollar terms during this periods. Contraction in US denominated funding was driven by the maturity of Banco de Bogotá’s 2023 $0.5 billion subordinated bond that was partially replaced with a $230 million sustainability subordinated bond. The share of deposits in our funding mix increased to 273.5%, partially explained by the appreciation of the Colombian peso. In addition, our banks have issued long term time deposits as a substitute for some peso bond maturities. Deposits grew 5% year-on-year and 0.9% during the quarter. Time deposits increased weight in our mix triggered by the changes in net stable funding ratio that had started to recede by then.
Peso denominated deposits increased 9% year-on-year and 1.6% quarter-on-quarter. US denominated deposits increased 9% and 3.2% respectively in dollar terms. On Page 13, we present the evolution of our total capitalization, our attributable shareholders equity, and the capital adequacy ratios of our banks. Our total equity increased 2.3% over the year and 2.5% over the quarter. Our attributable equity increased 1.9% and 2.4% respectively. On November 22, 2023, Grupo Aval, Banco de Bogotá, Banco de Occidente and Banco Popular, entered into a shareholders' agreement that designated Banco Popular as a controlling entity of Corporación Financiera Corficolombiana CORFICOLCF under the terms of articles 260 and 261 of the Colombian Commerce Code.
Some adjustments to our governance and control model were triggered by this agreement. This change had a positive effect on regulatory capital and the solvency ratios of Banco Popular during this quarter. In addition, it allowed Banco de Bogotá, Banco de Occidente to improve their regulatory capital and solvency ratios as well. On Page 14, we present our yield and loans, cost of funds, spreads and NIM. The year end benchmark in Colombia peaked at 13.25% in May falling to 13% late in December 2023. This implied a [hefty] [583] basis points annual increase in average intervention rate to 13.03%. The sharp increase in the reference rate hurt our retail banking portfolios that carried predominantly fixed rates and thus repriced slowly in a falling interest rate environment in contrast of commercial banking portfolios that are mainly priced using floating rates based on IVR benefit in this environment.
The overall pressure on margins was exacerbated by changes in the net stable funding ratio that is supported deposit rates during most of the year, widening the spread between deposit costs and sovereign rates. In addition, our merchant banking segment, which mainly uses funding to generate non-financial income rather than interest income further pressed our interest expense and our total NIM. Total full year NIM ended at 3.44%, down from 3.68% in 2022. This resulted from a 67 basis points decrease in our NIM on loans to 4% and 131 basis points increase in our NIM on investments to 1.2%. The quarterly improvement was driven by a favorable result of our NIM and investments. Our full year total NIM and loans was 4%, down from 4.7% for 2022. The NIM on commercial loans increased 42 basis points to 3.9%, while the NIM on retail loans contracted 214 basis points to 4.21%.
The full year total NIM of our banking segment contracted 30 basis points to 4.2% with NIM on loans contracting 44 basis points to 4.8% and NIM on investments increasing 44 basis points to 0.9%. Fourth quarter NIM on loans was 4.99%, 3 basis points higher that quarter earlier and 52 basis points higher than the lowest point in the year in first quarter 2023. We have seen the cost of funds come down since mid-December as the central bank rate cut cycle became imminent. The spreads between time deposits and sovereign rates started to turn back to their historic levels. On Page 15, we present net fees and other income. Annual gross fees and net fees income grew 12.4% and 15.5% respectively. Gross and net fee income for the quarter increased 7.9% and 2.3% year-on-year and fell 2.6% and 10.8% respectively quarter-on-quarter.
Fee income reflects a substantial annual improvement in banking, trust and pension and severance fees. Banking fees for the year reflect a recovery of bank assurance merchant acquiring, debit and credit card fees. Annual net pension and severance fees grew 26.3%, mainly due to higher performance based fees in line with favorable capital market conditions. The expectation of a normalization in the level of global interest and an improvement in Colombia’s country risk premium drove strong valuations in the global and local fixed income and equity markets. This boosted the profitability of assets under management and therefore, performance based fees. In addition, a historically high increasing minimum wage in 2023 led to higher fees for collection of mandatory pension contributions.
Income from the non-financial sector was strong during 2023 despite an anticipated decrease of 29.2% relative to 2022. As mentioned in past calls, our infrastructure sector, that is the largest contributor to our non-financial income, entered the final stages of construction of its current toll road concessions. Consequently, its non-financial income fell 33.9%. Energy and gas companies slightly increased their contribution by 5.2% in comparison to particularly strong construction progress of Promigas projects in Peru during 2022. Strong gas distribution volumes of industrial and residential clients helped mitigate this effect. Hospitality business had a record high performance as [indiscernible] [food] prices benefited from inflation and strong occupancy rates.
Finally, on the bottom of the page, other income in 2023 was higher than a year earlier. Profit taking on fixed income investments valued at fair value to OCI implied COP244 billion increase net gain on sales of investments and OCI realization, better optimization of property, plant and equipment resulted in higher income through other income operations of COP219 billion. On Page 16, we present some efficiency ratios. All of our business units continued implementing cost contention initiatives during 2023. Total OpEx grew 12.6% in 2023, well below the 16% increase in minimum wage and the price indexation based on 2022 inflation of 13.12%. Personnel, depreciation and amortization and general and administrative expenses grew year-on-year 7.8%, 3.8% and 17.9% respectively.
Of the steep increase in general and administrative expenses 9.3 percentage points are explained by a 39.4% increase in operating taxes and 2.5 percentage points are explained by a 23.3% increase in deposit insurance. These two items constitute 39% of total general and administrative expenses in 2023. In Colombia, the industry and tax commerce called ICA is based on gross income. As such, the base for tax increased significantly in a high interest rate environment where interest income is higher. In addition, this tax is set by regional administration, some of which enacted substantial rate increases during the year. Quarterly OpEx grew 3.6% year-on-year, of which 3.3 percentage points are driven by taxes and deposit insurance. Quarter-on-quarter growth was 8.7%, of which 3.1 percentage points are driven by marketing expenses and other seasonal expenses.
Cost to assets for 2023 was 2.8%, up from 2.7% in 2022. Cost to income was 52.1%, up from 45.8% a year earlier. The deterioration in cost to income was mainly driven by the contraction and the increased income from the non-financial sector. Finally, on page 17, we present our net income and profitability ratio. Attributable net income for 2023 was COP739 billion or COP31.1 per share. During the quarter, attributable net income was COP83 billion. Finally, our return on average assets and return on average equity for the year were 0.7% and 4.5% respectively. These ratios were 0.5% and 2% for the quarter. Before moving into questions-and-answers, I will now summarize our general guidance for 2024; we expect loan growth between 8% and 8.5% with commercial loans growing between 8.5% and 10% and retail loans growing between 6.5% and 7%; NIM in the 4% area with NIM on loans in the 4.75 area; NIM of our banking segment in the 4.75 area with NIM on loans between 5.25% and 5.5%; cost of risk net of recoveries in the 2.1% area; cost to assets in the 2.7% area; income from the non-financial sector of 70% of that portfolio for 2023; our fee income ratio between 20% and 25%; finally, we expect our 2024 return on average equity to be in the 8 and 8.5 range.
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