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BanColombia SAÂ (NYSE: CIB)
Q2Â 2021 Earnings Call
Aug 12, 2021, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and welcome to Bancolombia 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. [Operator Instructions] 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 and future filings and 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 Rosillo, Chief Corporate Officer; Mr. Jose Humberto Acosta, Chief Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mr. Carlos Raad, Investor Relations Director; and Mr. Juan Pablo Espinosa, Chief Economist.
I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.
Juan Carlos Mora Uribe -- Chief Executive Officer
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 previous quarter. Deposits grew almost 3% during the quarter, and we continued lowering the funding cost. Core equity Tier 1 under full Basel III was 11.5% and the net income was COP1.2 trillion.
Provision charges for the quarter was COP626 billion, 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 COP46 billion.
At this point, I want to turn the presentation to Juan Pablo Espinosa, who will further elaborate on the performance of the Colombian economy. Juan Pablo?
Juan Pablo Espinosa -- Chief Economist
Thank you, Juan Carlos. Now I will ask you to go to Slide number 3 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 GDP growth of 8% in 2021. This is due to both external and local factors. Global tailwinds include higher terms of trade and a stronger demand for Colombian exports. Internally, monetary and fiscal policies are in expansionary territory and will remain there for a while. But more importantly, economic cadence has adapted to operate amid the unusual circumstances of the pandemic.
Moreover, in recent weeks, the progress of the vaccination plan has accelerated, which will assess the likelihood of a 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 that 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 the sharp recovery, we anticipate that from 2022 onwards, our economy will advance at a moderate pace of around 3% per year. This will reflect the stabilization of global growth and commodity prices, as well as a gradual reduction of the economic stimulus and the effects of the pandemic on potential growth.
Regarding urban unemployment, we project our 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 its move to hiking cycle next September. Specifically, we [Indecipherable] 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 COP3,600 to COP3,700 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.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you, Juan Pablo. Moving to Slide 4, I want to continue this presentation by explaining our business strategy. Our business continued 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 COP2.7 trillion, almost the same amount disbursed during the full-year 2020 when it toppled[Phonetic] COP2.9 trillion. Our real estate solution is also performing much better than last year, reaching COP4.2 trillion disbursed during the first six months of the year versus COP6.2 trillion during 2020.
Although it has been a challenging year for Bancassurance 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 no more than 1,000 ATMs enabled to sell insurance, reaching almost 250,000 clients.
In investment solutions, we have a balance 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 Investbot, a virtual investment advice tool, and Inversi, a virtual managed funds tool, in which we have the goal of reaching 35,000 clients and COP1 trillion on the management for 2023.
Moving to Slide 5, 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 figures.
Despite our standard 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, due to the release of debit card use 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 6, I'm going to elaborate in our digital platforms. The total volume of transactions with Bancolombia's QR code is over COP1.5 trillion through more than 840,000 businesses distributed throughout the country, having 100% coverage of Colombian municipalities. During the quarter, Nequi and Bancolombia a la Mano continued to grow and maintain the strong positive trend, having both reach 12.5 million clients, up 33% when compared with 2020 closing figures. Activity levels continued growing and the churn rate is low, less than 4% for both platforms. Deposits, including the two platforms, reached COP1.2 trillion.
Moving to Slide 7, you can see some relevant figures of Nequi and Bancolombia a la Mano. These two card firms complement each other by targeting diverse niche markets. Nequi targets young people Bancolombia a la Mano low-income individuals. Both platforms are showing very positive trends. Volume of transactions continues growing at a steady pace and fee income continues to grow quarter-by-quarter. Nequi cards are growing fast. We have more than doubled the number reported 12 months ago. And first opportunity loans disbursed by a la Mano grew 66% when compared with the first quarter.
I want to highlight the high level of NPAs, 80% for Nequi and 69% for a la Mano, and a low customer acquisition cost for both platforms around $30 trends.
On Slide 8, we present our ESG framework. We have disbursed more than COP12 trillion in sustainable, agriculture and gender lines. From the liability side, we have issued the market bonds from Colombia and Panama operations, and we have negotiated special credit lines with sustainable use of funds for Guatemala and El Salvador. On the asset management front, we plan to close the year with almost COP2 trillion on the 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 COP1 trillion in sustainable loans linked with climate change, gender, cyber security and water consumption.
Now I want to turn the presentation Jose Humberto Acosta. Jose?
Jose Humberto Acosta Martin -- Chief Financial Officer
Thank you, Juan Carlos. Now turning to Slide 9, I want to walk you through the evolution of the relief program. Credit reliefs continued decreasing, reaching 7% of the consolidated loan book. It's important to note that these -- that of these percentage, all our structural solutions, except for the reliefs, will still have in Banistmo. In Colombia 4.4% of the loans are under that 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 Banistmo, we kept 26% of the loan book on the relief, coming down from 35% in the previous quarter. Despite this high percentage of the reliefs, Banistmo has an adequate coverage, which is evidenced in the 50% increase in allowances, which in June of 2020 and June of 2021 reaching a level of 228%.
In Slide 10, we present the breakdown of provisions during the quarter. Provision charges for the second quarter was COP626 billion. 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, net portfolio deterioration in Colombia.
Moving to Slide 11, we present 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 were 7.8% of total loans. 90-day past due loan ratios decreased during the quarter when compared with the previous one. Charge-offs during the quarter are explained mainly by rate returns. As provision rates continue facing down, we expect this metric to reach the target levels during the second half of this year. Coverage ratio increased to 227%, that should start decreasing as credit reliefs gain.
On Slide 12, we present the consolidated and the stand-alone capital adequacy. Consolidated total solvency ratio stands at a level of 15%, while quite CET1 at a level of 11.5% under full Basel III for the second quarter. These ratios are well above the minimum regulatory requirements, not only in a consolidated basis, but also in the stand-alone 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 savings in 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.
On Slide 15, we present a snapshot of our stand-alone operations. In general terms, the trend throughout the different geographies operated by Bancolombia were 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 of NIM increase of the stand-alone operations is positive. Our 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 Agromercantil in Guatemala. This quarter, the pace of the disbursement in the retail segment 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 total 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 provision charges for the year.
Banco Agricola in El Salvador has managed to capitalize on its leading position in the system, recurring loan growth, moderating excess liquidity and [Indecipherable] increase in NII. It has also increased the transaction volume that is reflected in the increase in fixed income exceeding the levels seen in 2019. I want to refer to the Salvadorian government announcement regarding the law that renewables deployment as a leader in bitcoin. The first point I want to clarify is that the accounting systems will be kept in dollars and the government will create a trust to guarantee automatic and new spend convertibility when bitcoin is received. For the corporate offices, we are carrying out the necessary presentations to comply with the provisions of the law, which implies a certain payments from our clients to their obligations in bitcoin, which we will immediately compare to dollars. So we don't have any exposure in bitcoin. It is important to mention that the opening of paying accounts or deposits in bitcoin has not been enabled. In addition, we are waiting for the details of implementation of the loan issued by the regulators.
Finally, Banistmo. We still have high levels of uncertainty due to the extension of the relief program until September on the high percentage of the loan book that is still on the relief. The trend in the growth of the loan portfolio in the retail segment are very, 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, Banistmo's 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 remained stable in the 5% area, as we were expecting. We are expecting [Indecipherable] of 25 basis points for the semester, but this will be reflected in margins until next year in 2022. Net investment income showed a better performance as we continued reducing funding cost. I want to highlight the one of the positive feedbacks during the quarter on the NII while the group performance of the interest-earning assets, which are lower that 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.
And 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 employees' compensation plan, which as you may recall was canceled during the second quarter of last year.
We expect expenses to grow over inflation BTU, as we continue expanding digital transformation to keep the bank competitive and to support our more than 20 million clients and plus our employees' compensation plan as we expect better results for this deal.
And Slide 17 shows the evolution of fees. Net fees continued to be one of the most resilient lines of the P&L, overcoming challenging events as the national strike and third peak of the inflation of the pandemic. The high correlation within the two complemented transaction levels continues, which is still reflecting the volume of fees from debit and credit card transactions.
Finally Slide number 18 shows the profitability metrics. Net income for the quarter was COP1.2 trillion, up 113 % when compared with the first quarter of 2021. This is mainly explained by lower provision charges, a stable net interest income, fee growth and controlled operation expenses. The results for the first semester of the year were better than expected, reflecting that the strategy used by the bank to face the 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?
Juan Carlos Mora Uribe -- Chief Executive Officer
Despite a very challenging situation in the first half of this year, results were positive so far. 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 reliefs in 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 variables that exerting the volatility on results is probably [Indecipherable]. After what we observed in the two first quarters of the year, we have updated our cost of risk items and we expect that to close the year in the 2.3% area. We are expecting the loan book to grow between 7% and 9%, fees 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.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Andres Soto is online with a question. Please go ahead. Andres, your line is live.
Andres Soto -- Santander Investment Securities -- Analyst
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 these, I see that you -- 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 a significant increase 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?
Juan Carlos Mora Uribe -- Chief Executive Officer
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 annualizing that two-year period is a good way to see. You are right. We are -- we will -- we have reviewed the number of branches and we will continue optimizing the branch network as we look 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 the 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 if that change is going to be, I think, relevant, that we keep having a target to have -- to be on the 50% range of efficiency that 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 complement me with something?
Jose Humberto Acosta Martin -- Chief Financial Officer
Thank you, Juan Carlos. Andres, yes, in terms of recent specific item that we 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. We 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.
Andres Soto -- Santander Investment Securities -- Analyst
Okay. Thank you, Juan Carlos and Jose.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you, Andres.
Jose Humberto Acosta Martin -- Chief Financial Officer
Thank you.
Operator
Our next question comes from Ernesto Gabilondo of Bank of America. Please go ahead.
Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst
Hi. Good morning, Juan Carlos and Jose Humberto, and good morning to all your team. And thanks for the opportunity. My first question is on your new cost of risk guidance. You were saying in the 2.3% average. Will that be for the full year? And 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 are 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 rate. 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.
Juan Carlos Mora Uribe -- Chief Executive Officer
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 update 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 ban of the reliefs in Panama and Colombia. Particularly in Panama, we will know how the loan book is going to perform after the end of the moratorium, so there are uncertainties there. In Colombia, still we have some relief and we are expecting to have also -- to see how the second semester is going to perform.
The -- what could happen to those -- that figure, the 2.3% cost of risk for the full year to be better. The loan book on the reliefs perform better than we expect and also the macro environment in the different countries. So we still have a level of uncertainty. We -- you mentioned that we need to have -- to record occupancy level of cost -- the cost upgrade. That's right. So still there are uncertainties, so there are upside risk and downside risk.
I want to remind you that the long-term cost of risk for Bancolombia is around 1.9%. So we are going toward 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 up, but the question that -- as you know, there is a tax reform going through Congress at this moment in Colombia. We have presented with a statutory tax rate for corporate of 35% and an extra rate for financial institutions of 3%. That is -- that's a total 38% statutory rate for financial institutions. That will take effect for the 2022 results. So that will be taxes that we would pay over the '22 results. But there are some effects on '21 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 -- there is some uncertainty regarding effective tax rate for Bancolombia during '21 that could increase, we expect, growing 0.2 points[Phonetic], and it depends on how the tax reform ends in Congress. For the next year, again the final statutory rates for financial institutions, but it will increase also probably to be around 30% to 31% in future years.
And your third question regarding earnings. We see a healthy economic dynamic in all countries. Particularly Colombia is performing well. We are seeing a demand for credit, for corporates, consumer loans also are demand. And the non -- 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 on the end with the guidance that we are giving you.
Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst
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 includes the reliefs of -- well, you have lower provisions in the second quarter, so even including that you can expect higher second half earnings this year?
Juan Carlos Mora Uribe -- Chief Executive Officer
Ernesto, it is all related with your first question about cost of risk. You mentioned and we agree with the number that you mentioned, the 2.6%. So the commercial performance of the bank fee income, the interest -- net interest income, the demand, the loan book are growing, are performing well. So it's all related with cost of risk with 2.6% because the end results of the bank will not be better for the second semester, will be -- we think grow, but not higher than the first semester.
Jose Humberto Acosta Martin -- Chief Financial Officer
And just to complement, Ernesto, the main driver of profitability in the second half is a combination of better loan portfolio, loan growth, sustained NIM, we are expecting to maintain the NIM at the same level, and that [Indecipherable] fee 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 levels will be higher because of Banistmo, because of deterioration and because of the volume. So the level of net income for the second half of this year will be lower than what you are seeing here in the first half of the year.
Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst
Thanks. Perfect. Thank you very much, Juan Carlos, Jose Humberto.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you very much.
Operator
Our next question comes from Yuri Fernandes of J.P. Morgan. Please go ahead.
Yuri Fernandes -- J.P. Morgan -- Analyst
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 and NPLs be 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 swirly, but should we see 2022 already as a normal year for you guys like economically improving, like this should be like, 2021 maybe a transition year? So what is the message? Like you have a lot of provisions, you had high coverage, high allowances to loans. So I guess, OK, you're going to consume the coverages 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 '21 is still below [Indecipherable] potentially the guidance you provided, 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 '19, like still track 20% below '19 or low? Should we see in the second half an acceleration in your bonus program? Thank you.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you, Yuri. I want to complement the answers that I gave to Ernesto and regarding your question, and I'm going to focus first on 2021. We did an important adjustment on the models with the macro inputs, and that benefit provision charges 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 forecast with what we didn't think is going to happen. So second semester will be more -- the provisions will be tied to the performance of the loan book, 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 that the trends to continue through a normalized cost of risk, as I've already mentioned is around 1.9% -- between 1.8% and 1.9%. So we expect 2020 to be around 2% cost of risk. We already, as you mentioned, also I want to consume some of the provisions, and we already have in our books. And that -- so that will lead to that cost of risk around 2% for 2022.
Regarding your second question, I want to leave -- to pass that second question to Jose Humberto.
Jose Humberto Acosta Martin -- Chief Financial Officer
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 have seen a better performance of the bank. So expect for the next coming two quarters higher provisions for compensation plan because again we have recalculated based on the forecasting. So it is not going to be the same amount of money for provisions that we are having that would be higher because of the performance of the bank.
Yuri Fernandes -- J.P. Morgan -- Analyst
Okay. Thank you, guys, and congrats on the results.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you, Yuri.
Jose Humberto Acosta Martin -- Chief Financial Officer
Thank you.
Operator
Our next question comes from Thiago Batista of UBS. Please go ahead.
Thiago Bovolenta Batista -- UBS -- Analyst
Yeah. Hi guys. Thanks for the opportunity, and congrats for the strong earnings. I have two questions. The first one, maybe it is a little bit early to ask about '22, but can you mention what is the level of loan 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 two years. So my question is about the bank's internal target. So what's the level that you believe is the -- is our 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 our capital? And so this is my second question.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you, Thiago. 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 funding capability more than big acquisitions on new markets. Of course, we are always looking and analyzing our opportunities. But at this point, we are focused on the geographies in which we operate and making those operations as profitable as possible. And regarding acquisitions and M&A activity is going to be more what we see opportunities around fintech for investing in some type of technology, for capabilities, as I mentioned, that could complement what we are doing on increasing our or improving our digital capabilities and how we can reach better the markets 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, our capital adequacy is related with how the loan growth is going to be. Of course, we expect 2022 to perform better as the economies are going toward 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.
And also I want to emphasize that we have a very stable non-current policy of dividend payout that will stay there. And I am now going to turn to Jose Humberto to give you more details on those other topics that you mentioned.
Jose Humberto Acosta Martin -- Chief Financial Officer
Thank you, Juan. Thiago, our loan this year, again, will be on the area of 7% to 9% based on the assumption that GDP growth this year will occur mostly in the second half of this year. Next year, because of the GDP growth, our Chief Economist, as he mentioned during his speech will be at around 2.7% area. We are expecting a loan growth 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 flattish the level of GDP growth.
And regarding capital, as Juan mentioned, we feel comfortable. And on our internal guidance, we shared to maintain a Tier 1 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.
Thiago Bovolenta Batista -- UBS -- Analyst
Very clear. Thanks for the answers.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you, Thiago.
Jose Humberto Acosta Martin -- Chief Financial Officer
Thank you, Thiago.
Operator
Our next question comes from Jason Mollin of Scotiabank. Please go ahead.
Jason Mollin -- Scotiabank GBM -- Analyst
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 8% to 10% up from 5% to 6% 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 with the 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 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 '23 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 Bancolombia a la Mano and Nequi. 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 COP47 billion the combination Colombian pesos. And 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 this could start -- these businesses to start to impact the bottom line at the overall Group? Thank you.
Juan Carlos Mora Uribe -- Chief Executive Officer
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 or between 12% and 14%. We last year -- we still believe that that's the target ROE for 2023. We have challenges as you mentioned, taxes are going to be higher and that's where -- that's going to happen. We don't know yet how that, as I mentioned, the low is going to be, but taxes are going to be higher. So that's a point. Although it's 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 the 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 [Indecipherable] also in our digital strategy and our own ecosystems that we mentioned. We are very confident that that's going to add additional income to the bank.
So we -- although 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 platform -- the digital platforms that we have at Bancolombia. We have two platforms. One, it's inside the bank, Bancolombia a la Mano, which is targeting low-income individuals and its performing very well and growing and saw a new client. But also what -- the transactions that they are doing with the platform and we are starting to move on credit and the numbers will start to show good results.
And Nequi, it's a platform targeting more young individuals, performing very well. We are adding significant number of new customers every month, doing more transactions, the level of activity very well. So in line with that, fees are growing in the numbers that you mentioned, which are very interesting. But still those two platforms are processing, they 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 will take us probably couple of more years that 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 launch with those two platforms, which at the end is where numbers of all the income -- significant incomes going to come and adding other services also is going to be important. So we are very confident, the numbers are performing very well. It's fees 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 Bancolombia as a whole.
Jason Mollin -- Scotiabank GBM -- Analyst
Thank you very much. Appreciate that. Congratulations on the good quarter.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you, Jason.
Operator
Our next question comes from Alonso Garcia of Credit Suisse. Please go ahead.
Alonso Garcia -- Credit Suisse -- Analyst
Hi, 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 loan 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 your NIM to higher interest rates in Colombia? Thank you.
Juan Carlos Mora Uribe -- Chief Executive Officer
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 margins. And as Juan Pablo has mentioned, we think that Colombian Central Bank, Banco de la Republica, probably will increase its reference rate at the end of the year, starting a path of interest rate increase and that will benefit our margin. As you know we are asset sensitive, so those increases will improve our margin. We already incorporated all the interest rate to the margin, so it's already incorporated. So we won't search for the pressure[Phonetic] on the margins. So that for the future, we will expect probably a better performance of the margin due to tax rates -- I am sorry, to interest rate increases. Jose, could you give Alonso a sense of our sensitivity?
Jose Humberto Acosta Martin -- Chief Financial Officer
Yes, Juan. Alonso, our sensitivity based on the structure of funding and the structure of loan portfolio that we have, it is for a 100 basis point of change in the interest rates, our NIM will compress or expand in 9 -- 8 basis points to 9 basis points.
Alonso Garcia -- Credit Suisse -- Analyst
Very clear. Thank you.
Juan Carlos Mora Uribe -- Chief Executive Officer
Thank you, Alonso.
Jose Humberto Acosta Martin -- Chief Financial Officer
Thank you, Alonso.
Operator
This concludes the question-and-answer session. I would like to hand the call back over to Mr. Mora for any closing remarks.
Juan Carlos Mora Uribe -- Chief Executive Officer
I want to thank you all of you for participating on this conference call. We had a very good first semester. We expect the bank to keep performing well. We already discussed the main points that are going to drive of 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 also expect the bank to keep 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.
Operator
[Operator Closing Remarks]
Duration: 63 minutes
Call participants:
Juan Carlos Mora Uribe -- Chief Executive Officer
Juan Pablo Espinosa -- Chief Economist
Jose Humberto Acosta Martin -- Chief Financial Officer
Andres Soto -- Santander Investment Securities -- Analyst
Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst
Yuri Fernandes -- J.P. Morgan -- Analyst
Thiago Bovolenta Batista -- UBS -- Analyst
Jason Mollin -- Scotiabank GBM -- Analyst
Alonso Garcia -- Credit Suisse -- Analyst
