Mar 5, 2013
Executives
Carlos Raul Yepes Jimenez – Chief Executive Officer Sergio Restrepo Isaza – Vice Presidents of Capital Markets Jose Humberto Acosta – Vice President of Finance Juan Carlos Mora – Vice President of Corporate Services
Analysts
Thiago Bovolenta Batista – Itaú BBA Jose Barria – Bank of America Merrill Lynch Mariel Santiago – HSBC Securities USA, Inc. Natalia Corfield – Deutsche Bank Securities, Inc.
Luis Guzman – Santander
Operator
Good day ladies and gentlemen and welcome to Bancolombia’s Fourth Quarter 2012 Earnings Conference Call. My name is Sandra and I will be your coordinator for today.
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 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.
Carlos Raul Yepes, Chief Executive Officer; Mr. Sergio Restrepo, Vice President of Capital Markets; Mr.
Jose Humberto Acosta, Vice President of Finance; and Mr. Juan Carlos Mora, Vice President of Corporate Services.
I would now like to turn the presentation over to Mr. Carlos Raul Yepes.
Please proceed, sir.
Carlos Raul Yepes Jimenez
Okay, thank you very much. Good morning everyone and welcome to our fourth quarter 2012 results conference call.
It’s a great pleasure to be with all of you who follows closely our operations and results. Let’s start with a brief discussion on the main topics that impacted our business in this period.
First, I would like to present the net income for the quarter COP 468 billion, which represents an annualized ROE of 16.5%. For the whole year 2012, Bancolombia posted a net income of COP1.7 trillion, which represents ROE of 16% and an increase of 2.8% compared to 2011.
During this quarter, we saw a pickup in credit demand in Colombia. After a slow first half of the year, Corporations are (inaudible) started demanding credit again.
This impacted positively our loan growth during the quarter, coupled with that growth became an improvement in the quality of the loan portfolio. This strict credit underwriting standard that we implemented since the beginning of the year are paying off on the proportion of DDL’s to total loans declined to 2.6%.
The balance sheet remains strong and the capital adequacy is in a good shape to allow the growth that we forecast for Bancolombia in the near future and the commitments to acquire assets in Central America. We keep our efforts on beginning down the cost to income and efficiency ratio, salaries and administrative expenses present as year-on-year growth in line with our estimations and efficiency ratio ended the fourth quarter 2012 at 65%.
I would also like to recall at this time, the transaction that we had announced two weeks ago regarding the acquisition of HSBC’s Panama operation. Certainly, it is a big milestone for Bancolombia’s history as we become the largest financial institution in Central America and assets outside Colombia will represent about 30% of total assets.
This acquisition complemented our existing presence in Panama and provides our corporate clients with banking platform to do business in several jurisdictions that have become more integrated. We also intend to serve better our entire clients where we operate.
Finally, I would like to mention the outcome of our general shareholders meeting that we hosted yesterday; during that meeting, a dividend of COP 754 per share per ADR was approved, which represents an increase of 6.5% compared to the dividend declared one year ago. The total dividend amount will be COP 652 billion and will be paid in four installments beginning on April 1, 2015.
The portion of the net income the bank will reinvest allow to maintain a solid capital position. Also the shareholders granted permission to the Board of Directors for issuing up to about 148 million preferred shares.
The purpose of this approval is to advance in any potential follow on process that Bancolombia to the survey needed in the future. Nevertheless, we do not plan to reach a churn in the near future and do not believe that Bancolombia will need additional capital or liquidity to support the recent acquisition of HSBC Panama.
Having said this, we would like to continue with a brief discussion regarding the macroeconomic environment. Let me turn the presentation to Juan Carlos Mora, who will share our views of this matter up to date, Sergio Restrepo will elaborate more of the banks results.
Juan Carlos.
Juan Carlos Mora
Thank you, Carlos Raúl. As usual, we have our slide presentation in our investor relations website.
Let me start with the Slide number 2, Columbia Central Bank cut in February its benchmark intervention rate by another 25 basis points to 3.75%. Its sixth rate cut since July, showing the economy it’s still growing below potential.
Inflation for the last 12 months ended in January is at 2%. This is at the low-end of the Central Bank target range of 2% to 4%.
We expect the REPO rate to end 2013 at between 3.5% and 4% and inflations to be within the mentioned range of 2% to 4%. Regarding Colombia’s GDP growth, it is lowered to 2.1% year-over-year in the third quarter from 4.9% in the second quarter of 2012.
To a large extent, this is due to a drop in cost structure. Nevertheless, consumption remains healthy, although it is growing at a lower pace than one year ago.
The 9.6% unemployment rate reported in December, which is low for Columbian historical standard shows the economy is in a good shape. We expect the Columbia’s GDP to grow between 4% and 4.5% in 2013.
During the quarter, we continued seeing an appreciation of Columbian treasuries supported by sustained foreign direct investments inflows and low foreign indebtedness of the government. During the quarter, the Columbia peso appreciated 2% versus the dollar.
The Columbian’s real sector remains solid and expert in particular commodities are performing well. Although, its pace of expansion is lower than one year ago.
To conclude, even though there are some signs showing that the economy is slowing down. We believe that the indebtedness of households is still in low levels and the fact that the loan quality for the system is improving led us to believe that the economy remains strong.
After this quick review of economic environment, let me turn the presentation to Sergio Restrepo, who will discuss in detail the bank’s results. Sergio?
Sergio Restrepo Isaza
Thank you, Juan Carlos and thank you Carlos. And welcome to everyone to this conference call.
I would like to expand on the Mr. Carlos Yepes highlights and if you let me drive you to Slide number 3, we will start with total assets and loan volume.
As you can see total assets grew 5% over the quarter, up 15% over the year. Loans grew in a very healthy 8% over the quarter, 14% over the year, and when you split it into pesos and dollars, the growth was 20% year-over-year and the pesos and nominal loans and the 5% in the U.S.
dollar portfolio. when you convert the U.S.
dollar portfolio into pesos, you end up basically with a 4% decline in terms of U.S. dollar portfolio.
Nevertheless, the final outcome was as I said 14% growth year-over-year. Out of these portfolios 76% is Colombian pesos and 24% is U.S.
dollar. We’re expecting a 14% growth for 2013, and I would say that probably evenly split it us as it was during the last year, probably not as dynamic as we saw in 2012 in pesos, and probably a little bit more dynamic in dollars than what we saw in 2012.
Now Slide number 4, net provision charges, the charges in the quarter are basically explained in a 44% by counter-cyclical provisions due to the new loans as I explained results I mean 8% growth had a counter-cyclical provision embedded, therefore COP 150 billion out of this COP 335 billion was basically due to the growth, and COP 185 billion which is 56% is based on the deterioration on the loan portfolio. The deposit loan maintains an improvement trend over the year.
This is the third quarter in a row with reductions continuing for the first quarter of 2012 up to the fourth quarter 2012, there is a clear reduction on the new past due loans. The cost of credit over the year was like roughly 1.7% of the gross average loans and we expect the cost of credit for 2013 to be roughly 1.5% based on gross average loans.
On Slide number 5, asset quality and the coverage ratios; out of this 2.6% compared to 4.6% allowances to total loans, 39% of the provisions which is equal to COP1.3 billion are due to full performing loans rated A, means, again is in line what we saw in the loss of late has to do with these countercyclical provisions. Based on the pesos and the dollars per category, as you can see all the categories improved over the Board and probably a couple of you stated on the reports that we saw yesterday night and this morning that micro lending is the only one that shows that on the slight deterioration, but micro lending is less down 50 basis points of total loan portfolio, therefore weak business stated on that graph.
But as an overall, as I said, there is a clear improvement in the whole categories. if we move to Slide number 6, net interest income, it grew just 1% over the quarter, but a very healthy 22% over the year.
This is basically due to the growth that we have had over the year, and it is a very important supporting scenario for what we’re going to see in 2013. There is a light decrease in cost of funds in trend with the Central Bank approach of decreasing interest rates since mid year of last year.
Certainly, we’ve been able to decrease the costs, but we’re going to see that in the last quarter last year, we had a slight reduction on the NIM, basically again for the compression of the reduction on the Central Bank rates, and therefore the compression on the NIM. Certainly, if there is a clear dynamic and savings deposits, the bank has had a clear strategy of growing our deposits on the lowest cost of funds.
And you can see, I mean we grew from 38% to 42% of savings deposits and with just a slight decrease in their cost, whereas time deposits remain basically flat in terms of costs. In Slide number 7, in NIMs, we have a slight change, the years to calculate the NIM and is basically explained, but we are excluding the operating leases and the net income attributable to those leases.
The reason for that is that the magnitude of those leases right now is 2.24% of the total assets and the treadmill of the depreciation was great in distortion on the pure financial NIM. Therefore, we are going to see this new approach as I said on the pure financial.
What happened on the fourth quarter 2012 was a loss of 30 basis points under NIM from 6.2 to 6.3 was basically 20 bps based on the loan NIM and 10 bps on the weighted average NIM due to securities. Based on the new calculation we expect to have a NIM of 6.5 for 2013 which is equivalent to 6.2 that we had in the old way.
If we move to the Slide number 8, on the net fees and income from services and the composition of fees, there is a 8.3 euro year-over-year and a good and healthy 10% quarter-over-quarter. Today, fees accounts for almost 30% of the total income.
We believe that it’s healthy but we’ve been loosing some ground due to the more aggressive regulatory environment and as we discussed in other conference before, we have to be careful in terms of increasing fees and even we have to wave some of them in order not to have the regular more aggressively taking the fees or intervening the fees. If me move to Slide number 9, operating expenses and efficiency, basically the increase in the total OpEx was explained by a low level in the fourth quarter 2011 due to lower advisory expenses and some provisions were reinstated as real cost were lower than expected.
In terms of our higher OpEx, we’re driven basically by depreciation on leases, as we mentioned before and some other rents and maintenance expenses. One thing that is important to mention is the stable personal expenses, as you can see basically the third quarter, and fourth quarter were basically flat.
There was a very slight increase when you compare with last year costs. In Slide number 10, Deposits & Liquidity, basically we went back again to loan to deposit ratio below 100%.
Today we are running at 99%, which as we said before this is probably where we were like to be more towards a 100%. But it doesn’t mean that has the significant impact when we saw these 104% and 105%.
Capitalized equity ratio today is 15.8%, 10.4% in Tier 1 and 5.4%, Tier 2. This capital adequacy probably – you to leave to next slide, one we would like to discuss about the behavior of the ratio and the two are most important events that will happen during 2013.
So if we move to Slide number 11, we can see that the first event that we are anticipating is that new regulation on Basel III in Colombia that we have, it will imply a decrease in total ratio from 16.8% to 14.3% Basel’s ratios will decrease, but specifically the Tier 1 will go down from 11.8% to 9.4%. Basically, it is due to the way how cumulative net profits and profits from past periods are accounted.
So you are going to see this decrease, but we cannot discuss how it will go back to a little bit higher later on. And secondly, it is two acquisitions, first of all is the investment in bond in Guatemala.
It will have a negative impact in Tier 1 of 40 basis points. The risk weighted assets from the acquisition in Panama will decrease the Tier 1 in 90 basis points and the Tier 2 in 50 basis points, total 1.4.
And the goodwill from the acquisition of Panama, would have a negative input on 2.3 in Tier 1, as of in Colombia the new Basel III regulations states that whatever goodwill that you pay after August 2012 will be deducted before 2012 will ramp the formal regulation that will be amortized over 20 years period. That will end up as of September 30; we have Tier 1 plus Tier 2, 10.1%.
Based on this one, this is why we stated that we do not really need a capital issuance in the short-term. The few administrative efforts – administrative actions that we can take and it could be some movements on the reserves that we have in some of the affiliates; we can move the reserves into capital that will increase Tier 1.
And secondly, as I mentioned that the ongoing profits do not account for Tier 1, we could consider having a semi annual closing of vote that where we can use the ongoing profits and we can put it into Tier 1. So again, this is a clear view, I would like to emphasize about the disclosure about future numbers.
I mean those are just the idea that we have. Those are not promises and those are not, there is nothing that we can commit with specifically because of the dynamics of economy and how we’re going to grow on the bank, but certainly this is how we sit today.
This is what we discussed two weeks before when we were discussing about the HSBC acquisition in Panama and the bank acquisition. And again, the reason for that is to explain and to give you the idea that the authorization that the General Shareholders meeting gave to the Board of Directors is basically to have a reserve available for future issuance when the Board of Directors can see that it is suitable for the financials of the bank.
And secondly the amount, it doesn’t mean there has to be that amount if we decide to go to the market. It doesn’t mean that it is exactly the amount that we’re going to do.
In the past, we had an authorization of 80 million shares, and we went to the market with just 64. Therefore, again, this is the way of being more expedite in terms of when we need a new capital issuance and nothing else than that.
Finally, the return on equity, we end up with, as Carlos Raúl said, with a return on equity of 16 and a better performance in the fourth quarter than in the third quarter. Part of the expected use of the last year’s new capital that we issue, this $914 million that we had in February, we have to leverage it in order to return to the high tenths in return on equity.
So we can see that this acquisition is a very good way of growing the assets and leveraging the – that we already have in our books. Finally, again, I have to emphasize that we have the liquidity and the solvency for these acquisitions.
Finally, I would like to go again to – that we have a very good credit quality, 2.6%, the solvency and the liquidity of the bank to serve this new acquisitions that is strong enough and due to the not aggressive growth that we are seeing in 2013 due to macro conditions, that will allow the firm to retain capital and to fund growth. The payout ratio detailed on the yesterday’s shareholders meeting was 38%, therefore we can’t say something like 62% of the profits of the last year.
So this is basically the presentation of Bancolombia’s fourth quarter results, so we would like to open for questions. Thanks.
Operator
Thank you. (Operator Instructions) The first question is from Thiago Batista from Itau.
Please go ahead.
Thiago Bovolenta Batista – Itaú BBA
Hi, guys. Thanks for the opportunity.
I have two questions. First question is regarding loan growth.
How much you’re expecting to spend it for 12 this year, and are you expecting any change in the banks mix for value. And my second question is regarding the efficiency ratio of the bank, are you expecting any improvement in efficiency ratio during this year, and if you could give us an update of the Innova project.
Sergio Restrepo Isaza
Thiago, thank you for the questions, I would say that the loan growth, we are expecting something like 14% for the year, and we believe that that would be probably with more emphasis on retail than on corporate side, kind of in line with what happened in 2012, we didn’t see a significant change in that. So if you can use that number probably it would be something like 16, 18, we think in consumer and 10-12 in corporate or commercial loans.
Efficiency ratio close to 55 certainly we need to decrease probably, we have to go up to 50, and it will take probably two or three years, so we are expecting that this year will be something like 53%, 54%. Regarding the Innova project, basically we are almost done with most of the software, one of them is the savings accounts, check in accounts, we would like to spread it over the next years in order to reduce the risks on implementation, right now the whole Innova project is working in Panama and in the offshore companies except in South Africa, of course, but I would say that the number of employees devoted right now is like almost 400 that will be reduced to a number like 250 over the next few months.
And finally, the credit card business will be in place before year-end. I would like to ask Juan Carlos Mora, which is the present charge of the project to give just a more color on the project context.
Juan Carlos Mora Uribe
Thank you, Sergio, I’d like to expand a little bit on what Sergio commented, the Innova Project, it’s a long-term project that already have a lot of achievements in the banks, Sergio mentioned all the treasury business is already running on the new applications, the offshore operations are running completely on the new IP architecture, all the administrative process of the bank are now running on the new ERP which is SAP. So there are many achievements of this project, for the future as Sergio mentioned we’re planning to go live with the credit card application this year.
This is going to be a significant milestone for the project, seeing it’s an application that is going to give the bank tools to compete on the market barriers, very important for us which is the credit card business. On the other hand we continue the implementation of the core banking system, all-our trade operations on international payments are now running on the new application for Colombia and Panama and we are reviewing the strategy to continue the implementation of the core banking system in the future, this is an effort that is going to continue for another years in order to complete the modernization of the IT architecture of the Bank.
Thiago Bovolenta Batista – Itaú BBA
Thanks and perfect for the answers.
Operator
(Operator Instructions) And the next question is from (inaudible). Please go ahead.
Unidentified Analyst
Good morning, thanks for hosting this conference. I have three questions, first, I wonder if you could give us a breakdown of the commercial loan growth in the fourth quarter and was there a large syndicated loan we should know about or this growth is explained by several disbursements?
Secondly in the estimation of Q1 and Q2 ratios that you presented, is the legal reserve of probably $370 million that was approved yesterday in the shareholders meeting is included in this exercise? And finally, if you could give us a broad estimation of how much of the Tier 1 or Tier 2 ratios those administrative actions you will take – include that to the indicator?
Thank you.
Unidentified Company Representative
Thank you [Hwan]. What is basically – when you compare the individual numbers with the consolidated numbers, you probably going to see a shift in growth?
Basically we changed some of the bookings of some of the Guatemalan loans from Panama to Colombia. It was basically for withholding tax we were having in Guatemala basically because we had loans rented from Panama.
But beyond that was basically across the boarder growth, most of the companies and Corporations grew and I cannot really recall a significant loan that will make difference in this one. In regarding the Tier I and Tier II, probably I will ask Alberto to give more color on this one and that were probably the – what’s the significant changes and the potential unused introductions that we can have.
Jaime Alberto Velásquez Botero
Thank you, basically what will happen in September is we will have to remove our profits of these Tier from the Q1. That must go back again in March of next year.
So you will see us dropping at around 60 bps to 70 bps this year in Q1 because of that. And then you will go back again to the same level, I mean below 6% of March next year.
And the second question is the administrative measures, now we’re taking, right now as we’re moving from reserves to (inaudible). We are doing that not only by Columbia, also by subsidiaries.
So you will see for the next couple of quarters how the numbers that will increase because of that.
Unidentified Analyst
Okay. Just a follow up on the first question, the change in the composition of loans across country is due to these intra-operative changes from what (inaudible) to Columbia.
I mean we use to see a 45%, loans in Colombia and now we saw 57% loans in Colombia.
Carlos Raul Yepes Jimenez
Again, if you look at the individual results, you’re going to see that, but I invite you to look at other consolidated results. Therefore the consolidated results you won’t see any change at all because those are internal changes from one company to the other one.
So the important thing here is the consolidated loan. And regarding to your first question about the cyclical, sorry…
Unidentified Analyst
(Inaudible).
Unidentified Company Representative
You asked if you now are exercising a pro forma, exercise about capital. If we have included any of these amounts that the shareholders meeting authorize and particularly we say, no.
This exercise is not taking into account any amount from the authorization that we received yesterday or that the Board of Directors received yesterday from the shareholders meeting. This excise is running the bank with no issue of new capital.
Unidentified Analyst
Okay. Thank you.
Operator
(Operator Instructions) The next question is from Jose Barria from Bank of America. Please go ahead.
Jose Barria – Bank of America Merrill Lynch
Hi, good morning gentlemen thank you for taking my question. I just wanted to know if there is any sort of color that you can provide with regards to the expected earnings that you can expect to generate from the HSBC Panama acquisition in the next two years.
Anything you could provide would be great. And my second question would be with regards to asset quality, I just wanted to know what your expectation is for loan operations to average loans running in 2013?
Thank you very much.
Carlos Raul Yepes Jimenez
Thank you, Jose. I’ll give you some hints of the first question and I will ask you to repeat the second question, because I kind of (inaudible).
Thinking about the Panama operation as you saw in the presentation, we bought this bank with a return equity of 17%, 18%, probably what we get into is to adopt some of the provisions over in the next two to three years to be on our standards, which as you know are really, really more stringent that almost everywhere else. But we prefer to run the banks this way.
Secondly, what we did when we went to (inaudible) although the credit quality was okay, we have just adopted to Colombia standards. Beyond that there will be some IT implementations, but we don’t expect a significant change in that, saying that if you do the math based on the 70%, based on 700 tangible equity, that’s basically what we expect to put in our notes over the next years.
Regarding the second question, would you mind repeating that, because I kind of missed a portion?
Jose Barria – Bank of America Merrill Lynch
Sure, with regards to asset quality, I just wanted to get an idea of what is sort of recurring level of loan operations to average loans that you are expecting to run the banking in 2013. I think the past you’ve stayed somewhere around 1.7%, but in the quarter, it was a little bit higher.
So I wanted to know what we should be thinking about in terms of what the recurring level is.
Carlos Raul Yepes Jimenez
Certainly, we expect to run 13 on 1.5% approx. Even though I mean your point is right about the provisions of the forth quarter last year.
But as I said, a portion of the – I mean 44% of that was basically due to the dynamic growth. We grew the books at 8% this quarter; therefore we have this countercyclical provisions based on new loans.
So all in all again, the number will be more like 1.5% where as in 2012 it was like 1.7%.
Jose Barria – Bank of America Merrill Lynch
Okay. Thank you very much.
Carlos Raul Yepes Jimenez
Thank you, Jose.
Operator
(Operator Instructions) The next question is from Mariel Santiago from HSBC. Please go ahead.
Mariel Santiago – HSBC Securities USA, Inc.
Hi, thank you for taking my question. Can you repeat what are your expectations for loan growth for this year?
And on the asset quality, your ratio right now stands at 2.6% at the end of 2012. Could you tell us where do you see this ratio by the end of 2013?
Carlos Raul Yepes Jimenez
Thank you, Mariel. The 14% growth will be expected to grow for 2013.
This 14% would be probably more towards consumer and consumer would be probably higher than 16%, 17%, whereas the corporate could be an even lower. That’s basically based on the dynamics that we are seeing on the economy today.
Regarding the credit quality 2.6%, we don’t see any changes over the years probably the number will be in 10 basis points up or down, but basically we prefer to remain on that numbers like a 2.6% will be a reasonable number to run 2013.
Mariel Santiago – HSBC Securities USA, Inc.
Okay. Thank you.
Operator
Thank you. And the next question is from (inaudible) from JPMorgan.
Please go ahead.
Unidentified Analyst
Hi, good morning, everyone. Just a quick question; I know you guys mentioned the recent rate decreases.
I just kind of wanted to get a sense of how you see that impacting your NIMs and your NII growth. I know historically, you guys have mentioned, it really didn’t have as much of an impact, but it looks like it did have kind of a meaningful impact this quarter, so just kind of want to get a sense of have you see that evolving in 2013.
Jose Humberto Acosta Martín
Thank you, Chris. You very answered the question I mean we don’t see a significant impact certainly our discussion with the rating agencies have been about the liquidity and about the solvency for the new acquisition, and all in one was to do which was around a month, month and a half ago was the new (inaudible) model, but not in the short-term probably the only thing that we saw was when we came from investment grade to sub-investment grade that we saw a significant ups and lower right, but immediately it cannot settle down based on the returns of the debt, but certainly no significant impact.
Unidentified Analyst
So do you see net interest margin staying flat for the year, so where it is now or where do you see it going.
Jose Humberto Acosta Martín
I would say that it will – we would expect it flat, probably not what we saw in the fourth quarter because the fourth quarter was negatively impacted by the securities portfolio, but we cannot ignore that the Central Bank has been very aggressive reducing interest rates, so right now we have like 100% basis points down. It seems there is still room to wrote down if that’s the case probably we will see a compression on the NIM.
We hope not significantly we have been able to kind of balance our abilities and not being very sensitive to changes right now, but I will suggest to run numbers with the earnings that we have today.
Unidentified Analyst
Okay. Great.
Thank you.
Unidentified Company Representative
Thank you, Chris.
Operator
(Operator Instructions) And the next question is from Natalia Corfield from Deutsche Bank. Please go ahead.
Natalia Corfield – Deutsche Bank Securities, Inc.
Hi thank you for the question. My question is with regards to your strategy in terms of acquisition.
We just saw now your acquisition of HSBC Panama and I’d like know what are their next steps? Thank you.
Unidentified Company Representative
Thank you, Natalia. I would say the strategy has to do with our long-term view.
I mean, few years ago, we decided Central America was the region we will like to be, and (inaudible) that we will like to have very well managed institutions significantly relevant for the country, and countries that we believe that have potential. So to say that for the reason been in Panama, for the reason been in Guatemala and of this business of expansion is far away them and the most important part is strategy but the second probably is the opportunity and opportunities are not all the times therefore we have to balance one on the other one.
Natalia Corfield – Deutsche Bank Securities, Inc.
All right, and but do you see more acquisition going forward.
Unidentified Company Representative
Yeah. Well, who knows, the last we have was five years ago, six years ago and we have these two opportunities recently the Guatemala and the Panama; they came in a very short period of time.
We think that we will like to digest and to let them really put to work before doing something new. (Inaudible) it will take another five years or not, but we prefer to do things carefully and make sure they execute properly before just buying – just for the sake of growth.
Natalia Corfield – Deutsche Bank Securities, Inc.
Okay, thank you.
Unidentified Company Representative
Thank you, Natalia.
Operator
Thank you. And the next question is from Luis Guzman from Santander.
Please go ahead.
Luis Guzman – Santander
Hello, good morning. Thank you for the call and thank you for taking my question.
I have a couple of questions. First, you mentioned in doing a number of strategies to incentive to increase the capital ratio so have you done an internal studies about that to quantity these impact besides there are the number strategies you mentioned and you also mentioned the coverage raised from and in the coverage ratio, I wanted to ask you, if there are target that you want to point out for the next year, so what should we look in at the miniature target is taken in Tier I of 6%, which is a way to what is happen to your slide, do you still comfortable with this Tier I and that’s my question.
Thank you.
Carlos Raúl Yepes Jiménez
Okay thank you. I’m going to begin with your second question, do you still feel comfortable with the level of 5.6, 5.8 of Tier I?
The situation with the new regulations, if you want to understand the performance of the capital of a bank in Colombia you have to see 15 months, you have to see the coming year, and you have to see the first quarter of next year, that what’s happen with Bancolombia. Again our minimum level will be at around 5.6 but you’ll see go back to the level of 6.6 6.5 on March next year, and this is because of relation of the profits of this year you’ll take account of the capital only for the first quarter of next year.
This is what happened right now with the level of Tier 1. What kind of measures we’re taking meanwhile reinvest first 6 months of the year, we will move again some reserves from to lead ourselves, in these new regulation the only way to account a 100% of [DBOs] or few one if you account that’s a league of reserves.
So if that’s the movement that we’re doing right now. So if that’s the reason why we’re explaining to all international communities that we’re not expecting to roll the markets because between 5.5% and 6.5% of Q1 will be a very comfortable number.
You have to take consideration as well then today if we have 7% of Tier I under this regulation its different from the 6% that one we get under the new regulation because the new regulation is a pure Tier I. So you can compare and you can at the end of day set down we are maintaining the same strong level.
The other number is obviously ratio as a whole. We’re maintaining in every single quarter, two digits of solvency ratio.
So our minimum level could be at around 10%, but we are expecting to maintain the level of 11% to 12% of solvency ratio.
Luis Guzman – Santander
Okay and regarding the coverage ratio?
Carlos Raúl Yepes Jiménez
The coverage is above 177 that we have today. Probably the number will run at a similar level.
As we said that we will expect to have this 2.6 past dues and coverage of 4.5. We tend to believe that the number will be kind of the same.
Some quarters it will go down but basically it won’t change the real strength that is to have this enough coverage based on the actual regulation.
Luis Guzman – Santander
Okay, very clear thank you.
Carlos Raúl Yepes Jiménez
You’re welcome.
Operator
Thank you, and at this time we have no further questions. I will turn the conference back over to our speakers for any closing remarks.
Carlos Raul Yepes Jimenez
Okay, so again we would like to thank you for attending the meeting. We appreciate your questions and your interest in the bank, and again we believe that, while we have emphasized several times today, and at our other conference calls, we do not really need, new capital for this acquisition, we have the solvency and the liquidity to do it.
What we got yesterday on the shareholders meeting was their authorization to do it when the Board of Directors consider it appropriate to do it, but in the meantime, we believe that we will be able to maintain the actual capital, the expected economy it’s kind of normal. I mean we don’t see any significant change in the economic normal growth of 14%, in terms of the loan books, and while we expect this year is to execute these two acquisitions that we announced recently.
Thank you again and we expect to see you in the first quarter conference results. Thanks.
Operator
Thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating.
You may now disconnect.