BanColombia SA (CIB) Q3 2021 Earnings Call Transcript

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BanColombia SA (CIB 0.18%)
Q3 2021 Earnings Call
Nov 3, 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's Third Quarter 2021 Earnings Conference Call. My name is Claudia, and I will be your operator for today's call. [Operator Instructions]

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, in press releases or verbally, address matters that involve risk and uncertainty.

Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Mauricio 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 -- President & Chief Executive Office

Good morning, and welcome to our conference call for the third quarter 2021. I hope all of you and your families are safe and healthy. The Colombian economy continues recovering at the pace better than expected. According to our latest estimates, GDP could grow close to 20% in 2021. And for 2022, we expect a soft landing to a moderate expansion of around 3.6%. The main drivers behind this forecast are the resilient performance of internal demand, particularly private consumption, which will remain dynamic as more house port, especially those with the highest incomes returning to pre-COVID spending levels. We also expect private investment to recover. Exports to accelerate on the sectors that were severely seeped by the pandemic to go back to 2019 levels. All these were partly compensated by the moderation in global growth and a gradual recover of the fiscal unmonetized series. The main risk to our view are the uncertainties surrounding the electrolyte cycle and eventual new rates of COVID-19 cases.

This positive trend of the economy is reflected in the bank's results, which we consider positive for the first quarter. Given that -- the trend of a better-than-expected economic recovery not only applies for Colombia, but in all the geographies where we have presence. Before getting to the details, I want to highlight some key topics. The loan book grew 3.3% compared with the previous quarter. Net fees grew 9% during the quarter. Core equity Tier one on the full Basel III was 11.8%, and the net income for the quarter was COP943 billion. Provision charges for the quarter were COP514 billion, down 18% compared -- when we compare with the second quarter 2021, mainly driven by a better economic forecast and the end of relief program in Colombia and Panama. Our digital platforms, Nequi and Bancolombia A La Mano continued to grow at a solid pace, adding both 14 million clients and COP1.4 trillion in deposits. Digital transactions represents 85% of the total transactions and digital sales were 4% of total sales, continue to grow in our ecosystem side after the first year of successful operations. It is already positioned as one of the most relevant in the country with more than eight million visits. At this point, I want to join the presentation to Juan Pablo Espinosa, who will further elaborate on the performance of the Colombian economy. Juan Pablo?

Juan Pablo Espinosa Arango -- Research Division-Head of Economic Research

Thank you, Juan Carlos. Now I will ask you to go to slide number three in the presentation. Let me start by saying that traditional analysis has failed to predict and measure accurately the effects that the pandemic has had on the economy. Instead, the development of new ways of understanding economic reality has gained momentum. Most of these advances are based on the use of data. At Bancolombia, we have been pioneers of this emerging trend in the local financial industry. Our proprietary analytical tools and our large sample of banking transactions allows us to have a comprehensive real-time picture of the state of the Colombian economy. In the first place, our now casting tracker of overall activity, which follows closely Bancolombia's official figures points to a year-end growth in the third quarter of 14.1% higher than latest consensus estimate of 9.2%.

A significant contributor to this growth is domestic demand, which according to Bancolombia's cardholder purchases has been accelerating in the past few months. For instance, in the first 20 days of October, these transactions grew 20% compared to 2020 and 8% relative to 2019. Moreover, the graph at the bottom left shows that the volume of deposits to corporate banking accounts by sector and firm size relative to pre-pandemic levels. These figures are good at anticipating sectoral performance and they are signaling that important contributors to GDP, such as retail manufacturing and agriculture sectors expanded at a strong pace in the third quarter. Furthermore, SMEs' revenues are recovering faster than those of large firms. Finally, the number of payrolls, payments processed through Bancolombia's accounts, which is a proxy for formal labor demand accelerated during the last quarter. This suggests that the labor market is already reacting to the rebound in economic activity. In turn, this would allow unemployment rate to decline further toward the end of the year. All in all, our indicators point to a widespread and consistent improvement of the Colombian economy after the disruptions caused by the national strike and the reduction of COVID cases. This bots well for full year 2021 growth expectations, which currently stands at 10%. Now let me turn the presentation back to Juan Carlos.

Juan Carlos Mora Uribe -- President & Chief Executive Office

Thank you, Juan Pablo. Moving to slide four. I want to continue this presentation by explaining the loans and deposits performance. The recovery of the economy has resulted in significant progress in our business. We have experienced an important goal in the number of clients, improved our offer of products and services and strengthen our digital strategy. All this is clearly reflected in the performance of loans and deposits. The loan book continued showing a steady growth across the three main sectors: in a dynamic, partially supported by the economic recovery that continues to be evident in these disbursements. This trend confirms that the bank overcame the economic shock of the pandemic without relevant implications on its financial stability. Since the beginning of the year, the retail and mortgage segments have shown positive trends, whereas the commercial segment started to improve since the second quarter. Because of the expansionary monetary policy with historically low interest rate -- rates, the balance of time deposits decreased over the last 12 months.

And these have been compensated with an increase in savings and checking accounts. This has allowed us to reduce the funding cost. However, as the Central bank started last month a rate hike in cycle and the loan book is growing at a better pace, we expect the balance in time deposits to raise again in the same direction of the funding costs. Moving to slide five. I'm going to elaborate in the evolution of digital sales and distribution channel. During the first nine months of the year, digital sales have represented 0.4% of all sold products. Digital sales have maintained a steady evolution despite the reactivation of traditional channels and of -- the reopening of the economy. This indicates that the customer experience evolution has accelerated during 2021 toward a pertinent adoption of digital channels by many of our clients. I would like to point out one of our strengths, the share of processed transactions. On the lower right side chart of the slide, you can notice that Bancolombia preserves 47% of all monetary transactions completed via web and 62% of those processed via mobile phones out of all financial institutions in Colombia. Moving to slide six.

I'm going to elaborate about Nequi. As you know, Nequi is our neo bank, targeting primary young people and focusing on the way they relate with banks. During this quarter, we added 1.5 million new clients reaching 8.6 million with a very low acquisition cost. Deposits are nearly COP1 trillion, and Net Promoter Score continue increasing with higher levels of engagement. Remember that we consider an active client, the one interacted at least once a month throughout a monetary transaction, and this is how we leverage the development of our profitability model. Adding clients with a low acquisition costs and with a high active user ratio. Nequi cards are growing fast. We have more than doubled the number reported 12 months ago. Noticed that we are not only issuing more plastics, the number of transactions and the volume of payments are increasing at a very solid pace, reaching almost 3 times the figure observed one year ago. Moving to slide seven, you can see some relevant figures of Bancolombia A La Mano. Unlike other countries in the region, the population in Colombia leads throughout the country in several large, medium and small cities. Bancolombia A La Mano targets low-income individuals. We are acting responsibly toward financial inclusion and education.

Through our financial inclusion initiatives, we provide mostly pre-financial services for people to access savings and create tools to become financially empowered and improve their quality of lives. Bancolombia A La Mano have reached almost six million clients. The income per client continue increasing. Transactions, especially in payrolls and subsidies remain high and loans disbursed have tripled over the last year. On slide eight, we present our ESG framework. Our purpose is to promote sustainable economic development to achieve everyone's wellbeing. Therefore, we provide financial and nonfinancial solutions with strengthening the productive network of our countries, create sustainable cities and communities and promote financial inclusion. This commitment is aligned with the global agenda, which is to comply with the year-end sustainable development goals designed to achieve more prosperous societies and protect the planet. Under these three fronts of action in which we believe we can promote our focus. We have already disbursed during this year COP26 trillion, which represents more than 20% of total disbursement. Now I want to turn the presentation to Jose Humberto Acosta. Jose?

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

Thank you, Juan Carlos. Now turning to slide nine. I want to walk you through the evolution of the relief program. Trade reliefs continue decreasing. We are gradually returning to normal. This quarter, relief programs in Colombia and Panama finished. During the upcoming quarters, it will be key to follow the evolution of deterioration, restructured loans and charge-offs. Considering the geographies where the bank operates, our focus is Panama. The percentage of relief is decreasing gradually, but it is still 20% of the loan book coming from 26% in the previous quarter. Unlike the other countries in where we operate, Panama maintains the relief program until September 30. This situation required Banistmo to allocate considerable resource to reach the critic agreements with clients that were under some relief scheme during this quarter.

As a result of this, at the end of September, only 5% of the loans under relief did not have a definitive arrangement. The other 15% of the loans and the relief already has a structural solution, and if they need the rate conditions that will be transferred to the normal loan portfolio. On this slide, you can notice, not only the percentage of the loan book that it is under relief, but also its composition by segment and stages. On a consolidated basis, 6% of the loan book continues under relief. They are, in turn, subdivided into 50% for commercial, 21% for retail and 29% for mortgages. Its composition by its stages is as follows: 45% in stage 1, 43% in Stage two and 12% in Stage three. In slide 10, we present the breakdown of provisions during the quarter. Provision charges for the third quarter were COP514 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 half of this year.

As you can notice, in the lower part of the slide, we need to assume of COVID-19 and parameters obtained, which are the main drivers behind these results. The begin of the relief programs in Colombia and Panama and the expiration of the 94% of the beliefs we granted to our clients, we have been able to gather more and better information that allowed us to improve the methodologies under which we build provisions. During this quarter, we have managed to reach final agreements with clients, therefore, a big compliance with what has been agreed. We will release provisions. This together with a better forecast of economic parameters have generated a relief of the balance of previous periods. Specific provisions grew during the quarter due to the recall of corporate clients of the construction sector in Colombia. Moving to slide 11, we give you a snapshot of provisions and asset quality. Cost of risk for the quarter was 1% and for the last 12 months was 2.2%, reflecting the good pace of recovery of our clients. If this trend continues for the last quarter, it is possible that cost of risk for this year might be better than the guidance we paid in the second quarter of 2.3%. During this year, charge-offs have increased, exceeding the levels of 2020. This has two important impacts. First, it reduces the balance of the loan portfolio; and second, it helps to reduce the level of past due loans. We maintained solid coverage revenues for 30 and 90 days that allow us to handle the following periods of possible deterioration. On slide 12, we present the consolidated and stand-alone capital adequacy.

Consolidated total solvency ratio stands at a level of 15.3%, while CET1 at 11.8% under full Basel III for the third quarter. These ratios are well above the minimum regulatory requirements, not only in a consolidated basis, but in the stand-alone operation. The growth of the shareholders' equity takes place because of the good results of this year. We consider that the leverage of the bank is in optimal level, given the current balance sheet risk and asset growth expectations. We have enough capital to support the loan book growth in the upcoming years. On slide 13, we present the liquidity position of the bank. In a consolidated basis, we continue operating with a sufficient level of liquidity. As of this course, saving and checking accounts represent 56% of funding structure. This increase has been compensated with a decrease in tax deposits and credits with corresponding banks. As we have mentioned during the call, the economic activity and the loan book are showing better trends quarter-by-quarter. So we expect to gradually increase the balance in time deposits to support this growth.

As a result, with the expected hikes from the Central Bank, the cost of deposits may increase. On slide 14, we present a snapshot of our stand-alone operations. In general terms, the trend throughout the different geographies operated by Bancolombia was similar, stable margins, steady growth of the loan book, increase of expenses and decrease in provision charges. Over the last years, the trend in the main metrics of the stand-alone operations is positive. Central American operations represent 28% of assets, but 32% of net income. Now I want to give you a quick overview of each of the Central American countries where we operate. Let me start with Banco Agromercantil de in Guatemala.

This quarter, the growth of the portfolio was driven by the consumer portfolio, which reflects the bank's strategy to increase the share in the retail segment within the total portfolio mix. Commercial and mortgages also had a good performance during the quarter. Provision charges showed a recovery, thanks to the improvements in the rating commercial clients and in specific provisions. Banco Agricola in El Salvador continued consolidated the portfolio growth that is boosting margins recovery. At an accumulated basis, the portfolio grows, both in retail and in commercial segment, responding to the dynamics of economic recovery that the country is experiencing and which is also reflected in a solid recovery of fee income. Finally, Banistmo. The positive dynamics of long disbursement evidenced during the second quarter '19 and consolidated in the third quarter, driven by retail loans and the reactivation of the demand for -- from corporate clients.

Banistmo has leveraged a deposit growth strategy in its renewed digital assets, making it possible not only relevant increase, but also a change in the funding mix, where saving and checking accounts again share, improving the funding cost. The bank continues overperforming with local peers regarding loans and deposits growth. 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. The rate hiking cycle started in September, and we expect the reference rate to close 2022 in 4.25%. This is going to be positive for margins, but will be reflecting in the first couple of quarters of next year. Net interest income continued with a steady pace of growth, gradually overcoming 2019 figures. This was mainly driven by the reduction in the funding cost. We continue using the liquidity in a more efficient way as the dynamic of this version improves. slide 16 shows the evolution of expenses and efficiency.

Personnel expenses, excluding variable compensation, increased 1% in accumulative figures year-to-date, whereas administrative expenses grew 5%. As a result, operating expenses as of September as 9% up when compared with the same period of 2020. The other driver for expansion in expenses for 2021 is the pace of investment related to digital transformation. slide 17 shows the evolution of fees. Net fees continue to be one of the most resilient lines of the P&L, growing over 10% year-to-date. Payments and collections as well as banking services have added to the strong performance, although fees from debit -- credit cards and commercial establishments is delinked with the largest contribution, thanks to increasing the volume of transactions and the use of digital channels. slide 18 shows the profitability metrics.

During the three first quarter of this year, we have delivered material year-on-year earnings growth, maintaining the pace of investments in digital transformation. Net income for the quarter was COP943 billion, and return on equity stood at a level of 12.7%. Even though provision charges were the main driver of this result, I want to highlight the good performance of the other lines of the P&L in the middle of such a challenging situation, stable margins, steady growth of NII and the fast recovery of fee income. Finally, it is worth mentioning the impact of the tax reform in Colombia, which implies as the calculation of deferred tax by generating an additional provision of COP149 billion. Now I want to turn the presentation to Juan Carlos for the closing remarks. Juan?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Thank you, Jose. We are getting back to normal faster than expected. This quarter, we were positively surprised with defined results. The country and its economy are doing better, our clients too. Bancolombia is ready to support them with a strong balance sheet, liquidity, products and services. We are looking forward to seeing you all in our virtual Investor Day next week, where we will elaborate in a detailed way about our digital strategy. After elaborating on these key topics, we want to open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Yuri Fernandes with JP Morgan.

Yuri Fernandes -- JP Morgan -- Analyst

Hello, good morning. Congrats on the result and thank you for the opportunity of asking question. I have the first one regarding the asset quality outlook for 2022. You already provided some color in the call. But I guess the indicators they were good for the quarter, right? And we were concerned with Panama. Panama data was OK. So my question is, what should we expect for asset quality? Is the worst behind? Like what should be like the normalized level of losses for the next year? And I have a second question regarding your digital initiatives. I guess, Nequi is a very good platform, like when we look to the KPIs, number of users, ratings, Google trends, you name it. But we are starting to see some peers entering the Colombia market like some Fintechs, some big ones. So just like a high-level view from you, how do you see this competition evolving in Colombia with some new players coming? What are the challenges in the market? What you are doing to prepare the company for those new guys?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Yuri, your first one regarding asset quality, and we like to expect for 2022. Let me start by saying that we are in the process of normalizing the provision charges. So the third quarter was not normal, it was very low. We expect the fourth quarter to have some nonrecurring charges. So we wouldn't chip in the cost of risk for 2021 around 2% and 2.1%. As of 2022, we expect to go toward long-term cost of risk for Bancolombia, which should be around 1.8% to 1.9%. You mentioned Panama Banistmo. But even though that we expect the cycle of normalization in Panama to be a little bit longer, the other operations should perform more in line of what we expect is going to be because of risk -- the long-term cost of risk, which, as I said, should be around 1.8%, 1.9%. Your second question, digital strategy and new competitors enter into the Colombian market. We have been preparing for this for a long time. You mentioned Nequi.

We started Nequi in 2015. And now I think we are -- we have a platform that it's prepared to compete face-to-face with for you since its entrance to the market. But it's not just Nequi, what we have been doing in Bancolombia is preparing for this competition in terms of what our products offerings and how we can depend upon and evolve our products to compete in the market. Remember that Colombia has regulated interest rates. We have the cap on interest rates, which is not the case in other countries. So competing in the Colombian market through interest rates is going -- it's difficult due to cap and to reach individuals is not that easy because the interest rate caps has not allowed that. On the other hand, we are also prepared to compete on the evolution of cess regarding particularly the process of credit cards. As I mentioned, we have been preferring for this for a long time, diversifying our source of income. Competition is going to be hard -- we have no doubts about it. But I think we have been prepared for this for a long time.

Operator

Our next question is from Andres Soto with Santander.

Andres Soto -- Santander -- Analyst

Good morning. Thank you for the presentation. My first question is a follow-up regarding cost of risk. I understand the guidance for the year is 2% and 2.1%, and that looks still pretty conservative considering that during the first nine months of the year, you're at about around 1.6%. So that this implies 2.5% cost of risk for the fourth quarter. And when I look at your numbers for this year -- the quarter, sorry. And I normalize the cost of risk by the provision releases that you had apparently, what you still have had is at around 1.5%. So I would like to understand why are you still conservative about the cost of risk expectation for the rest of this year?

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

Andres. Let me elaborate a little bit more on the cost of risk and what we all expect. If we analyze the cost of risk for the last 12 months, it's 2.2%. And I know we have today is the fourth quarter of 2020 that calculation, which was pretty high. But what we are expecting for 20 -- I'm sorry -- for the fourth quarter of 2021, it's -- there are some issues that are going to release some provision. For example, we need to assess if we need to recalculate the growth of the economy in order to introduce that number with the models, but also in a more normalized way, the far quarter is going to reflect the real situation of the of the economy in the sense of how clients are really up.

We have also Panama. Remember that the moratorium ended September three in Panama. So fourth quarter is going to be probably higher provisions on Banistmo, which we will incorporate on that balance sheet. So the fourth quarter is going to be a mix of provision releases and also we need to add provisions. So that's why we have been conservative in the sense that provision charges for -- or the cost of risk -- I'm sorry, for the whole year should be around 2%. It could be less. It depends at the end in the performance of the plannings during the fourth quarter, in which, as I said, if it's more normalized, and we start to see all those customers that we restructure how are going to pay. So maybe we are a little bit conservative, but that's because there is still uncertainty on how the fourth quarter is growing -- is going to be in terms of payments of our banks.

Andres Soto -- Santander -- Analyst

Carlos. My second question is regarding your loan growth expectations for 2022. You say that you're expecting a GDP growth for Colombia of 3.6%. So I would like to see what are your thoughts in terms of how this translates in terms of loan growth next year? And based on this and your current capitalization ratios, how do you feel about your current dividend distribution?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Yes, sure, Anders. As you mentioned, we are expecting GDP growth to grow around 3.6% next year. So that will allow us to have a loan growth around 10% for the year. And regarding distribution, we saw the second half of this year pick up with the growth of retail loans. And also, in the third quarter, commercial loans started to pick up -- again out to grow. So regarding distribution, we are very focused on SMEs and we expect that segment to grow faster. And that -- those are commercial loans, even though they perform more returns in terms of risk, but also in terms of the income that they generate. So we don't expect a dramatic change in distribution of the loan book in terms of commercial and retail. Retail loans could grow a little bit higher. But as I said, it's not going to affect dramatically to distribution of the loan book.

Andres Soto -- Santander -- Analyst

Just to clarify, what I meant by the solution was dividend distribution. If you -- given your current isolation ratios, you expect. Yes.

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

I thought that you were talking about the distribution of how the...

Juan Carlos Mora Uribe -- President & Chief Executive Office

I'm sorry, I want to talk about the dividends -- sorry. Dividends, let me say it -- we have a clear policy of dividend distribution. Given the distribution has been around 30% to 50% during many years, and we are expecting that policy to continue. With 80% proposals through -- first to the Board of Directors and then to the shareholders' meeting, but we want -- we will represent the proposal that is going to be probably in line with our policy -- our long term policy, which, as I said, is variant of 50% of the net income of Colombia, usually because that's the one that distribute dividend -- that operation is on the distribution. Juan Carlos, congratulations on the results. Thank you, Andres.

Operator

Our next question is from Jorge Kuri with Morgan Stanley.

Jorge Kuri -- Morgan Stanley -- Analyst

Hi, good morning everyone. Thanks for the call I hope everyone's doing great. I wanted to ask two questions. One is on expenses for the quarter. They were up a lot quarter-on-quarter and year-on-year. And wanted to hear from you if there were some extraordinary items there or you brought forward some of expenses in the fourth quarter and what the expectation is for the full year and for next year? And then on net interest margins, you sort of like alluded to rising rates and that having a positive impact on margins. I wanted to see if you could maybe quantify where do you think your margins will be next year given the normalized level of benchmark interest rates?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Jorge, first one expenses. The -- to analyze expenses, we need to take into account several items. First, labor costs or spaces are growing at around 1%. So they are pretty much on the control. We have the balance sheet on the viable compensation, which is growing a lot since we didn't have viable compensation or given registered by percentage in 2020. So the comparison, it's showing a very high number on that. On general expenses, we have some extraordinary issues related to digital transformation, but also those depreciations related to our 20 basis. So for the year, we will see numbers close to the figure that we have now, 9% or 10% low. But let me tell you something else.

We have in Colombia, inflation, that is close to 5%. Also, we have depreciation, which is -- has been close to 11%. So the pressure on the cost from that part, it's there and it's one-off in terms of that is affecting this quarter. So we are not going to see a performance in terms of expenses that is going to be very good in this year due to those extraordinary missions. We will keep our program and cost control and the measures or what we are doing, and we expect that to effect during 2022. So those are the explanation. If we compare, for example, the '19 expenses until September and the '21 expenses, the growth is less than 7% still side because we have some issues regarding, as I mentioned, digital transformation, but a more normalized way, the 2020 is a year that affects the changes in expenses, it was a very strange year. And regarding me, I will pass this question to Jose Humberto to elaborate on NIMs and rates are currently stable on rates pace on the NIM.

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

Thank you, Juan. Regarding NIM, Jorge, as you can see, we were able this year to sustain the NIM at a level of 5%, and this is basically and mostly because of the reducing of expenses of the interest rates because of our deposit base. Next year, our sensitivity is for every 100 basis points have changed the Central bank, our sensitivity will be at around eight bps. That means that we are going to see an expansion of the NIM beginning in the second quarter of next year. And maybe we are going to -- if the interest rates at the end of the year closes at a level of 4.5% to 5%, maybe you are going to see an expansion of NIM in between 40 to 50 basis points or even more in our NIM portfolio. Remember that our NIM is composed or lending needs for the portfolio, which is 5.6 and securities NIM that is 0.8 as the proportion is 80%, 20%.

Juan Carlos Mora Uribe -- President & Chief Executive Office

And you will start seeing the effect on the impact on the rates increase during the next year, [Indecipherable] the second quarter, the third quarter next year.

Operator

Our next question is from Ernesto Gabilondo with Bank of America.

Ernesto Gabilondo -- Bank of America -- Analyst

Hi, good morning. Thanks for the presentation and the opportunity. I have three questions from my side. The first one is on the political landscape. We continue to see petrol leading in the presidential polls. So I would appreciate if you can share with us what have you been hearing from his proposals? I don't know what have you been hearing if he is wanting to implement higher taxes or banking fees. Anything from what you have shared, I think, will be very helpful. And then my second question is on Nequi. We have seen the rest of the region developing digital banks and willing to do spin-offs at some point of those. Considering that you already have a good number of clients and you're starting to become profitable, what else do you need to consider from a potential spin-off and a listing of Nequi and then my last question is on your effective tax rate. We think it was high during the quarter, considering the new tax reform. So how should we think about the effective tax rate for the last quarter and next year?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Thank you, Ernesto. I'm going to take the first two questions, and I'm going to pass the payroll money providing effective tax rate to invest. In political landscape, it's still early. We will have our first round in May, less on presidential election. And we have a lot of candidates. So that the political landscape is not clear at this point. Regarding in the candidates, that is meeting follows. We -- the prospect has been around for a long time for possible Mayor of Bogota. So he has been known for a long time, as I mentioned. Regarding concrete proposals, we haven't seen yet something concrete. There are some comments, some figs around some issues. But as I mentioned, it's still early to see what are the concrete proposals and what is going to be the platform that he or any other candidate are going to use to present this May to the voters.

So I would say, let's the value be to wait and see. As you know, we have two bonds in Colombia. So as there is going to be the first one, which is going to be probably some candidates. I don't know the number, but we will be -- sorry, high number. And then we will have the finance rates between two and we will see -- I think we will need to wait until next year to see a clear view of the proportions that we are going to see. Regarding Nequi, we are, as you mentioned, we have a platform that is now growing at a very good pace. We have close to nine million users with a very good effective clients that use platform. So what we are doing, we are considering the -- when it's the right time to start seeing any cumulative issues that all the regulatory issues are covered or in a type of license, are you going to apply for. So there are many issues. We are still in any stages to analyze it, that is a good move for us. On a better question, I will pass over to Jose Humberto. Jose?

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

Thank you, Juan. Ernesto, as you mentioned, this is a one-off, and this is because of your recalculation of the deferred taxes. And we are expecting at the end of the year, the taxation for Bancolombia for the entire group will be 32% at the end of the year. We are expecting next year because of the tax reform, we are going to get the level of 34%, 35%. And the 32% of this year at the end of December, it is explained mainly because the main source of net income comes from the Bancolombia, in which we have the higher statutory caps.

Operator

Our next question is from Tito Labarta with Goldman Sachs.

Tito Labarta -- Goldman Sachs -- Analyst

Hi, good morning everyone. Thanks for taking my questions. Just two quick follow-ups, actually. First, following up on the expenses. In terms of the efficiency ratio, given the growth in expenses right picked up, how do we think about that efficiency going forward and given the investments you're doing, could it be some cost savings with the digital initiatives? Or is that the expense is going to be sort of higher initially? Just help to think about the evolution of that efficiency ratio. And then just follow-up quickly on the tax rate. The tax rate just go up roughly 5% for next year, given the new tax rate, so it should be like around 35% or so, I guess, in Colombia, offset by the lower tax rates in the other countries. Just to confirm for next year, how that actually should be?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Tito, expenses and efficiency ratio. The efficiency ratio this year is going to be a little bit above 50%, which is solid to our target. So we expect the efficiency ratio to go below 50 next year. And you mentioned our digital strategy and digital investments that should add efficiency to our operations. So as I mentioned earlier, this is not a good year to analyze expenses since we have some extraordinary issues around the expenses. So we expect next year to be more normal, and we will return to our path of having efficiency ratios below 50 and looking more to mid-40s in the midterm, which is our our goal. Regarding tax rate, the effect of tax rate for 2021 for the all group should be around 22%, that's for -- that I mentioned. And is [Indecipherable] by Colombia, in which, as you know, we had a tax report. So we need to calculate the deferral taxes on this year, and we have a special effect in 2021. After 2021, we will have the full effect of the tax reform -- the Colombia tax reform that will increase our tax -- effective tax rate grew close to 24%, mainly driven again by Colombia. I don't know if Jose Humberto would like to add something to this answer

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

No Juan, that is very clear. Next year, 30% to 38%, including the special tax that you mentioned. That is clear.

Tito Labarta -- Goldman Sachs -- Analyst

Okay. So just to clarify, so for next year, around 34% in Colombia. And then, I guess, you have lower tax rates in the other countries, right? So with the consolidated tax rate will be more or less...

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

In Colombia, next year will be 35%, plus the 3% additional that will be maintained until 2025. In Guatemala and El Salvador, the taxation will be 25%.

Juan Carlos Mora Uribe -- President & Chief Executive Office

So Tito, to clarify, the effective tax rate for the full group on a consolidated basis for 2022 should be around 34%.

Operator

Our next question is from Olavo Arthuzo with UBS.

Olavo Arthuzo -- UBS -- Analyst

I just wanted to understand more about the digital initiative of the bank in Nequi in La Mano. So in few words, I would like to know what is the profile of this client. I mean, how much of them are low or high income. I know the focus of La Mano is part to lower individuals. The had already accounts at Bancolombia. What are the products or services they usually demand.

Juan Carlos Mora Uribe -- President & Chief Executive Office

Olavo, I have some difficulties this year here, but I was trying to answer your questions. Regarding profile of Nequi and Bancolombia A La Mano clients, let me maybe say this. Nequi -- the demands of Nequi are mainly young adults between 18 and 35, which are usually not clients of banks. So they are having their first banking relation with us. And they are using Nequi as the savings account and also as a platform to do some payments, some transfers. And now we are introducing loads on the Nequi platform. So it's -- and let me say that we have, in the case of Nequi, 40% of the clients of Nequi are also clients of Bancolombia, 60% are clients of Nequi. And that allows us to have a very good mix and to know, to understand very well those clients.

In the case of Bancolombia A La Mano, in which we have close to six million clients, those are more clients on rural areas in where they have access to banking services through our platform and also use the banking agents that we have throughout the country, more than 21,000 to do the cash-in and cash-out. So it's a way of covering the -- with these two platforms, a big part of the population. And those numbers are -- so we have close to nine million customers in Nequi and close to six million customers on Bancolombia A La Mano, so a total of 15 million customers in both platforms. And again, it has not been in the two platforms. Either you are in Nequi or you are Bancolombia A La Mano. In the case of Bancolombia A La Mano, now only have more than 300,000 clients that already as a credit. So Bancolombia A La Mano is now a platform in which clients could assess to create and both numbers will increase. So that's how the clients of both platforms are.

Olavo Arthuzo -- UBS -- Analyst

Very clear. But just a follow-up on the static. I just wanted to hear from you giving the of other banks. I just wanted to hear from you what is the main competitors of Bancolombia just in terms of these digital initiatives?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Yes. Let me see if I got the question right. The digital competition, now we have a very different participants. We have some traditional banks that let us ourselves move quickly to have a digital platform, and we are competing and we are really absolutely giving options to the clients and to the market, and we are gaining the market share. Those are the traditional banks, which are basically true. We are basically two banks to do this strategy. And then we have intake some other participants. We have some other tele forms that are entering through [Technical Issues] -- sorry. And there are some offerings around the credit cards on the digital platforms and that market will increase competition during the next year for sure. And there are other participants offering credit, but they are not basic now. So what we think is that since we started six years ago now and we know how to have a base of clients that we're speaking off, we can take advantage of that and keep offering new products to those clients. So competition will increase for sure, but we think we are very well prepared to take advantage of what we have in this market.

Operator

Our next question is from Jorg Friedemann with Citibank.

Jorg Friedemann -- Citibank -- Analyst

Thank you very much. Can you here me well because I'm using my phone. Congratulations on the results. And I have just a couple of follow-ups as well. Initially, if you could just clarify and give us a bit more granularity about the reasons for the deferred tax readjustments causing a negative impact in this quarter. And I explain why -- my question -- the point is that when the taxation increased in Brazil, at least, we revaluated the tax credit stock appreciating that stock, and this caused actually a positive effect -- extraordinary positive effect in the quarter when the banks revaluated upwards their stocks of tax credits, not sure if in your case, you had tax liabilities, and that was why you ended up having a higher deferred tax, not lower.

So this is the first question, just a clarification on what really caused the impact that if you had tax liabilities, the tax credits, tax assets? And the second question, just a follow-up here on the digital initiatives. When I look into Nequi and A La Mano, it's interesting because you are evolving well in both. But some of the KPIs differ quite substantially. For instance, you are at 65% of active users in Nequi versus 55% one year ago. When you look into A La Mano, it's much lower, just 41%, and this has not really increased versus last year, which was at 40%. The same happens to NPS. Nequi has approximately 81%. In the case of La Mano, you have 64%. So just wondering what you were seeing in terms of challenges for A La Mano for you not to achieve the same KPIs versus what you are achieving already at Nequi.

Juan Carlos Mora Uribe -- President & Chief Executive Office

Jorg, let me take your second question and we will ask consumer to take your first one if they are related to deferral taxes and what was -- why was [Indecipherable]. Nequi and Bancolombia A La Mano are different platforms. And Nequi, it's a neo bank and even though it's under the umbrella of Bancolombia's boat it's separate in terms of how it relates to customers.

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

I think Juan is having some issues regarding the call. Let me answer, Jorg, your second question. Meanwhile, Juan is reconnected again. You are right. And in terms of deferred tax, when we recalculate deferred tax based on the new tax reform, we have three elements: The loan portfolio, the bonds, both, as you mentioned, caused a positive effect on the deferred, but there is another element, which is the goodwill. In the case of goodwill because we have eight billion places in goodwill. It is the other way around. And that's the reason why it affects us our taxation, and you can see the 38% taxation this quarter, but this is because of the combination of these three factors.

The first 2, loans and bonds are positive, as you mentioned. But the third element, which is bigger than the other 2, it is affecting in a negative way. That explains why the tax increase. Complementing the answer of Juan, as in the previous question, we have two different profiles in Nequi and La Mano and they are big differences. First, Nequi is more oriented to people who lives in the cities and A La Mano is more oriented to people of rural who lives in small towns. So we complement the offer. The challenge is how we are able to maintain the activity for the first 30 days. And we feel proud saying that we have a very positive numbers in both. And the reason is because we are using not only to receive, for example, in the case of low-income population, different subsidies, but also because they are actively using for transactional way. Juan, you can continue with the answer.

2 I was answering, Jorg. And those are our different platforms, as I mentioned. So Nequi is small neo bank, it's not related to banks. It's different products. And Bancolombia A La Mano is offering from a bank and targeting a lower income individuals with less education, so we have more challenges there. I -- the 55 active users that you mentioned in Bancolombia A La Mano is not a bad number. I think it's actually pretty good compared with other platforms. And we are measuring this as one month activity. An activity is a monetary transaction is not just entering the platform to consult the balance of the product. It's more like to use transaction, so 55%. In Nequi, it is better because we have a better results on Nequi. And the NPS that you mentioned, 65 -- 64 compared to 81, 64 is not bad. The point is that 81 is extraordinarily good in case of Nequi. So we have challenges to keep evolving the Bancolombia A La Mano platform, but we are very comfortable to those two strategies. And as I mentioned in an answer before, those clients are picking. So it's total of close to 50 million clients in these two platforms that are accessing financial products in a very simple way and accessing also the physical challenge of Bancolombia, which is a big advantage. So those -- the customers of both platforms have access to the ATM network -- Colombia ATM network, also the banking agent network, which I mentioned is more than 21,000 bank agents on the contrary.

Operator

Our next question is from Carlos Gomez with HSBC New York.

Carlos Gomez -- HSBC New York -- Analyst

Thank you for taking my question and extending the call. I now to come back to the tax issue, I know we are degrading to that. But just to clarify the last thing that you mentioned, you have the positive impact for loans and for bonds, you had a negative for goodwill. But coming back to what your -- asked if in the future, we have a reduction in the effective tax rate, should we expect a negative impact in your results in the short-term because of the reversal of what you did today? And the second is when we go to next year or the year after, once we normalize your credit provisions and given how your business is set up today and the tax rates that we have, what, again, is the sustainable ROE that you think the bank can produce?

Juan Carlos Mora Uribe -- President & Chief Executive Office

I will take the second question regarding the sustainable ROE. We think that the midterm ROE on Colombia should be around 14%, 13% and 15%. That's our target. And we think we could achieve that in 2023. Still 2022 will be a year we need to do some additional adjustments. It's going to be lower double-digit ROE, and the 2023 should be the year in which we reach that midterm ROE closer to -- or between 13% and 15%. Jose, could you take Carlos' first question regarding certification around taxes?

Carlos Gomez -- HSBC New York -- Analyst

No, the question is, in the future, there is yet another tax reform, you usually have one every two years. And this time, the tax rate goes down. If the tax rate goes down, we should expect a one-off negative impact, right?

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

Correct. That's correct. If the taxation comes down, the recalculation of goodwill will affect in a different way, as you mentioned, that's correct.

Juan Carlos Mora Uribe -- President & Chief Executive Office

Okay. And if I can follow-up on the ROE question. For this year, you had a very specific outlook when we were talking at the end of 2020, and you were quite down, but you were expecting 6% to 8%. In the end, you are going to report a much better number. Is it mostly the asset quality or other factors now looking back at most of the year has gone? Are there other factors that have made this year better than you feared initially?

Operator

Our next question is from Jason Mollin with Scotia Bank.

Jason Mollin -- Scotia Bank -- Analyst

Hi, Thank you very much for the questions. I have a follow-up on the digital efforts on Nequi and Bancolombia A La Mano. I mean we're seeing this very rapid growth, for instance, in Nequi, the number of users in the quarter alone from 7.1 million to 8.6 million. And then on the Bancolombia A La Mano from 5.4 million 5.7 million. And you're showing, which is very interesting, the customer acquisition cost of COP0.33 at Nequi and COP0.36 at Bancolombia A La Mano. If you can talk a little bit about how you're driving this growth in clients and what is incorporated in that acquisition cost? And is that something that, in many ways, I think you could say it looks very low, but just how you view that? Could it be lower? Could it be higher? How should we think of that going forward?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Jason, as you mentioned, figures or numbers are very good on our digital products. And the growth that we are seeing is very positive. And I'd like to highlight that growth is because what we are offering is really useful or the people that each supply to this platform to -- it's very easy to be a client of one of these platforms. And once you are a client that you can just sign in five minutes. And what you need is your identity number, two or more or three more data. And so is that displays why. And what is happening is that we are creating a network pack, which means that we already have the numbers and the connection with Bancolombia. So people are really seeing that it's useful for them to have access to cash -- to do the cash-in through our Bancolombia's network.

So at the end, it's the combination of a very good platform with easy to use products with the power of the Bancolombia's networks, ATMs and also banking agents, which allow cash-in and cash-out in a very, very easy way, a very convenient way and all around the country. So as also -- so a way to transfer money, to do payments. We are also integrated in our QR strategy, our payment strategy with Bancolombia. So you can use both platforms in Nequi and Bancolombia A La Mano to do payments with QR in a way that allow to use your money in a very convenient way. Regarding acquisition costs, we already invest in the technology. We want to yield and marketing around acquiring the customers -- in this number of clients is also very efficient. So we are including the direct cost of marketing and in that acquisition costs. We don't expect that number to go lower or higher. We think we are in the figure that is -- it's very good, and we will continue seeing that figure in the future.

Jason Mollin -- Scotia Bank -- Analyst

Can you remind us again for Nequi and Bancolombia A La Mano, like what percentage of the clients are new to the banking sector or new -- or already clients of Bancolombia, just to get a sense of is it converting? Is that acquisition cost converting a client at Bancolombia into Nequi or how should we think about that?

Juan Carlos Mora Uribe -- President & Chief Executive Office

Yes, Jason. 60% of the clients are new clients for Bancolombia in the case of Nequi, 40% for CO are clients that are also clients of Bancolombia. So 60% are new clients. And this also, we are leveraging this because that 40% that are clients -- common clients with Bancolombia, we have a lot of information about them, meaning that we can use analytics to really access those clients with loans offers. So it's a combination. And that 60% are new. So that's the combination that we have in the case of Bancolombia A La Mano, the overlap is a little bit higher. But many, many of -- around 45% of the plants are new for the banking systems. So they are using Bancolombia A La Mano as their main financial services platform.

Operator

This concludes the time allocated for questions on today's call. I would now like to turn the conference back over to management for any closing remarks.

Unidentified Speaker

Thank you, everybody, for your participation on the third quarter of -- Bancolombia's third quarter conference call. It has been a quarter in which we have good results. We will see how the year ends. But with the fourth quarter, we are positive even though we will have some specific issues related provisions, it will be at the end of good 2021. So thank you, everybody, and I hope to see you on our next conference call in which we will present the 2021 results. Have a good day.

Operator

This concludes the time allocated for questions on today's call. I would now like to turn the conference back over to management for any closing remarks.

Juan Carlos Mora Uribe -- President & Chief Executive Office

Thank you, everybody, for your participation on the third quarter of -- Bancolombia's third quarter conference call. It has been a quarter in which we have good results. We will see how the year ends. But with the fourth quarter, we are positive even though we will have some specific issues related provisions, it will be at the end of good 2021. So thank you, everybody, and I hope to see you on our next conference call in which we will present the 2021 results. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 86 minutes

Call participants:

Juan Carlos Mora Uribe -- President & Chief Executive Office

Juan Pablo Espinosa Arango -- Research Division-Head of Economic Research

Jose Humberto Acosta Martin -- Chief Finance Officer & Vice President of Finance

Unidentified Speaker

Yuri Fernandes -- JP Morgan -- Analyst

Andres Soto -- Santander -- Analyst

Jorge Kuri -- Morgan Stanley -- Analyst

Ernesto Gabilondo -- Bank of America -- Analyst

Tito Labarta -- Goldman Sachs -- Analyst

Olavo Arthuzo -- UBS -- Analyst

Jorg Friedemann -- Citibank -- Analyst

Carlos Gomez -- HSBC New York -- Analyst

Jason Mollin -- Scotia Bank -- Analyst

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