Aug 14, 2015
Executives
Jaime Velásquez - Chief Financial Strategy and Financial Officer José Humberto Acosta - CFO Rodrigo Prieto - CRO Alejandro Mejia - IR Manager Juan Pablo Espinosa - Chief Economist
Analysts
Tito Labarta - Deutsche Bank Saúl Martínez - JPMorgan Natalia Casas - Serfinco Boris Molina - Santander Fred de Mariz - UBS Victor Galliano - Barclays
Operator
Good day, ladies and gentlemen. And welcome to Bancolombia Second Quarter 2015 Earnings Conference Call.
My name is Lorraine, 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 uncertainties. Consequently, these 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 the 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. Jaime Velásquez, Chief Financial Strategy and Financial Officer; Mr.
José Humberto Acosta, Chief Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mr.
Alejandro Mejia, Investor Relations Manager; and Mr. Juan Pablo Espinosa, Chief Economist.
I’d now like to turn the presentation over to Mr. Acosta, Chief Financial Officer of Bancolombia.
Please proceed, sir.
José Humberto Acosta
Thank you very much. Good morning.
And welcome to our second quarter 2015 results conference call. It is a pleasure to be with you, who follow the evolution of the Bank.
Let’s just start with a brief discussion of the main topics that impacted our business in this period. You can follow the slide presentation available at our Investor Relations Web site.
We want to start this conference call mentioning the fact that the last year we entered into an agreement to sell a 50% stake in Tuya S.A. our subsidiary specialized in retail financing through private label credit cards.
Let’s remember that this company has an agreement with Éxito, the Colombia’s largest retailer. It was established in 2010 and today it serves of around 1.8 million clients.
Today, Bancolombia has the 100% ownership of the capital of the company and pays royalty to Éxito in a way that the economic benefits are a split 50-50. With the proposed transaction we will continue receiving 50% of the economic benefits of their entity but we will stop consolidating it.
This will have a positive impact in some operating metrics such as credit quality and expenses. As I now talk of the sale agreement, we have started treating Tuya as a discounted operation and therefore we did not consolidate it but presented in a couple of lines in our second quarter financial statements and numbers.
We expect to close the deal before the year-end. With that remark in mind, we move on to operation.
The good operation performance of Bancolombia which we can summarize in four fronts; first, a good performance of the net interest margin; second, greater bonds loans and asset allocation more focused on the lending business; third, good evolution of fees; and four, cost control that it is reflecting in the efficiency levels than today we are getting below 50%. Despite greater competition in the Colombian marketplace, we have been able to maintain the lending needs at around 6% during the last 12 months.
At the same time, we have reshaped the maturity profile of our significant portion of our liabilities, extended the tenure of the stock of CDs and issuing long-term debt in a record low rate environment. Coupled with the evolution of needs, we have also grown the size of our local volume.
Net loans grew 22% over the last year or at around 12% if we exclude the impact of the depreciation of the Columbian peso against the U.S. dollar.
These greater volume of loans have caused the net interest income to grow 19% when we compare the first half of this year against the first half of last year. Additionally fees are growing in a very positive way, as a result of our efforts to promote the usage of credit cards for more transactions, the distribution of insurance policies through our net over branch.
Finally costs are growing in line with our expectations, despite the fact that they have been negatively impacted by the strengthening of the U.S. dollars.
The cumulative growth of our expenses for the first six months of this year is 11%. The top line is therefore growing faster than the operating expenses and the results have been a positive contribution to efficiency at the bottom line.
Slide Number 3 summarizes these ideas. Income before taxes for the first six months of this year grew 18% and beside the higher tax cordon that Bancolombia is subject in this year net income is growing at a healthy pace.
Let's remember that the first quarter of this year we paid a wealth tax which we did not have in the second quarter. The result is we had growth of 11% quarter over quarter in the net income line.
All in all we are proud about the performance of the bank in this first half of the year because first the operating trends are going in the right direction at net interest income it's growing in all the billings. Second revenues are growing faster than expenses, which is reflected in the efficiency level.
And third we are getting the level of return equity at around 15%. We remain cautious with the economic outlook and constantly make decisions to prevent any risks from materializing with focusing the efficiency and profitability.
Now we would like to continue with a brief description about the economic environment. For this purpose we have Juan Pablo Espinosa, Bancolombia’s Chief Economist who will elaborate more on these models.
Juan Pablo?
Juan Pablo Espinosa
Thank you, Jose. We'll ask to go to Slide 4 in the presentation.
José Humberto Acosta
Juan? Are you on the line?
Juan Pablo Espinosa
Yes.
José Humberto Acosta
Go ahead, please.
Juan Pablo Espinosa
Okay, okay now I'm going to start again. I will ask you go to Slide Number 4 in the presentation.
As we have mentioned in our previous calls, since last year the Columbian economy is adjusting to an increasingly uncertain and challenging context. The expense and the speed of adjustments have been paced fast during the past few months.
Thus we have made several revisions to our forecast. In terms of economic activity our baseline growth estimates for 2015 and 2016 is 3.1%, a rate which is lower than the 4.4 average seen in the last decade.
This deceleration reflects the effect of lower commodity prices on the value of Columbian exports as well as the reaction of internal demand for decrease in national income. This year rather than consumption and investment we’re up to most of these adjustments while next year the moderation will be centered on public demand since the fall in dollar related revenues will force the government to reduce expenditures in order to comply with the provisions of the fiscal rule.
Our growth forecast from 2.6% to 3.4% this year and from 2.4% to 3.4% next year. Regarding prices we have revised upwards our inflation forecast for this year from 3.8% to 4.4% and for next year from 3.1% to 3.7%.
Inflation will remain this year above the Central stock bank targets range because of the increasing price pressures coming from the fast growth of currency depreciation and the implication of Romania phenomenon on food and energy prices. However an economy expanding the work potential will act as counterforce against these factors and will ultimately lead to a convergence of inflation to the three fairs in March.
This process though will take longer than initially expected and will likely conclude in 2017. This represents a very complex session for the central bank.
Our call for a monetary positive for the foreseeable future is that repo rate will remain at 4.5%. Nevertheless this scenario tells the risk adjustable an additional the duration of inflation expectations.
Therefore as these expectations rise in the short term the Central Bank will embark on a 50 basis point hiking cycle before the end of the year. In the external sector the lumpy commodity prices will to lead to widening of the current account deficit from 5.2% of GDP in 2014 to 6.2% in 2015.
The combination of a weak peso and our reduced demand for inputs were gradually correct this deficit during the remainder of this year and also next year. However, we think that this process will be a low even that oil prices will remain under pressure.
As a result in our base scenario the current account deficit next year will be around 5.3% of GDP. Regarding the exchange rate our view is that the Colombian currency is structurally adjusting to a new reality in which terms of trade and external flows will return to level seen before the boom in commodities.
As a result we believe that the medium term trend for the peso is of continued weakness. This will coordinate highly volatile market conditions.
Accordingly our range of forecast for the end of this year is between 2,820 and 3,000 with a point estimate of 2,960. Let me conclude this section by saying that Colombia as well as other emerging countries is not only facing more acute global headwinds but is also driven with the second line effects that the initial shocking commodity prices dropped through the economy.
This will translate into a more uncertain macro context and a less constructing growth and inflation mix, fortunately we have confidence and grit to navigate to the tremble turbulent waters and we will be able to grow well above the region’s average. After this review of the economic environment, let me turn the presentation to Jorge Humberto who will discuss the Bank’s results.
José Humberto Acosta
Thank you, Juan Pablo. Moving on to Slide 5, which is evolution of assets and its composition.
We want to highlight the fact that during the last year, we have increased the proportion of the loan portfolio to 75% of total assets. This means that we are allocating more capital to our core business, which is the lending business.
At the same time we have been reducing the proportion of our securities portfolio to only 8% today. The duration of the securities portfolio remains low at a level of 24.2 months.
We continue originating loans with the three underwriting standards in order to maintain the high credit quality of the loan portfolio especially in the consumer segment. The loan growth in Colombia pesos reached 2.3% during the quarter driven mainly by commercial and mortgage loans.
We focused our growth in the less risky products as we want to maintain a very healthy balance sheet. Regarding currency composition, today loans denominated in dollars represent 36% of the total loan book.
This year’s dollar denominated loans fell 0.4% during the quarter. Looking at our increasing assets in the quarter and year is explained by organic growth as well as a significant depreciation of the Colombian pesos versus the U.S.
dollar which was 38.1% during the last 12 months. Also let’s keep in mind that the Colombia balance sheet is fully matched in terms of currency which reduces impacts of expirations on the shareholders equity.
We would like to emphasize the fact that the net interest income after provision expenses grew 19% when compared with the second quarter of last year, which is the result of the growth of the loan portfolio coupled with a stable means. Going back to the loan portfolio, we are proceeding the first half of this year a deceleration of the loan growth.
The first half only grew 6.9% and we believe that at the end of the year the loan growth portfolio will be at around 10% and that would be 15% including the position of the Colombian peso. And based on the presentation of Juan Pablo we believe that the loan growth for 2016 will be below that.
We are contemplating a guidance of loan growth for 2016 at around 8%. Now, on Slide 6, we present a snapshot of the credit quality at the end of the quarter.
In general we see a healthy loan portfolio, well covered by allowance and the past due loan is under control. The 30 day past due loans to total loans ended the quarter at 3.1% slightly higher than the December ratio of the 30 day coverage ratio is also decreased to 119 %.
We forecast to have a steady base coverage ratio of at around 120% in the medium term which we believe is more than enough to absorb potential credit losses. Similarly past due loans should represent between 3% to 3.2% of gross loans.
At the bottom of the table we confirm 30 day past due loans which is the Colombian standard and 90 day past due loans which is the better indicator of credit quality as we have a significant portion of our assets in countries that use direct standards. 90 day past due loans have been very stable over the last two years as a result of our growth good credit origination process.
They represent 1.8% of those loans after June of this year with a excellent coverage ratio of 236%. Slide Number 7 shows the provision charges which were COP416 billion during the quarter.
They represented 1.4% of average gross loans when annualized. In the shaded row of the table at the bottom we present the amount of loans that became 10 day past due during the quarter.
The COP446 billion new party loans is in line with seasonal factors as we were expecting a deduction compared with the first quarter of this year. The pace of deterioration shows our highly standard and great determination.
The new past due loans came mainly from retail clients and SMEs. Let's remember that the numbers presented in this slide do not include the Tuya operations.
One of the outcomes of not consolidated Tuya is a lower number for common loans formation and higher credit quality. The most important thing regarding loan quality is that the bank that is originated over the last year present today a very good performance as a result of the quick trade underwriting standards and they should not present abnormality deteriorations in the coming months.
As we mentioned before the growth in the second quarter of this year was driven by commercial loans and mortgages which are the more reliable products in our portfolio. We feel comfortable with the evolution of the loan portfolio and forecast to have the recent charges of at around 1.4% to 1.6% of gross loans during this year.
At this point it is important to remember the environment which we are operating. The Columbian economy is growing less and we should see the impact in the next coming quarters.
By that we mean that impact of growth will be lowered and we will see an increase in the number of delinquencies. As of today we have not seen evidence of this trend but we are taking initiatives to prevent any negative impact in the next coming quarters.
Moving on to Slide Number 8, we see the evolution of the net interest income and funding cost along with funding composition. NII for the second quarter of this year was COP1.8 trillion, 90% greater than the same quarter of the previous year, driven by higher loan volumes and strong means.
Bancolombia's funding cost was pressured upwards by changing market conditions and lower liquidity which fuelled competition among banks of the proceeds. A total funding cost increased by 8 basis points although the integration rate of the Columbian central bank remains stable at a very low 4.5%.
During this year we focused our efforts not only keeping the funding cost as low as possible but also an increase in the average time to maturity of the stock of liabilities. In particular term deposits and long term debt.
Our funding proposition continues to emphasize short term, cheaper credit and 11% of funding. Our goal is to keep funding cost as low as possible while maintaining a conservative approach to liquidity risk management, in an effort to defend or expand the need and grow NII.
We have seen our stable the asset sensitive condition of our balance sheet which is beneficial for spinning. Slide Number 9 shows the evolution of the net interest margin.
During the second quarter of this year we saw stability in our loans interest margin. A slight loss in our net investments margin, which reflects of the 10 basis points decrease of the NIM, the NIM from securities was negative 0.5% due to the depreciation of the government, Columbian government securities.
Just to give you an idea the test 2024 reprising 27 basis points during the second quarter, that affects our NIM in our securities portfolio. But we are talking just at around 8% of our total assets.
The central bank will raise rates in the near term, in the near to medium term since we know that that is likely to hike rates before the year end. The gradual rise in rates is a good predictor of higher NIMs as we move into the end of this year at the beginning of next year.
Fees are presented in Slide Number 10. During the second net fees increased by 8% compared to last quarter.
We are experiencing a sustained growth in credit card growth and usage in Columbia, due to rising wage and ample credit availability. We continue to see more credit and debit card transactions in this year, as a result of our commitment to promote the use of cards for in store transactions.
In addition we are tapping into the new business segments when it comes to promoting and to reducing numerous entities. In addition we saw a higher level of insurance distribution fee which generated COP69 billion during the second quarter of this year.
We forecast a fee growth of at around 10% this year. In Slide 11 we present the evolution of expenses.
The efficiency improved during the last 12 months currently at 40.8, 6.7, our long term goal is to be at around 46% to 48%. Total operating expenses grew 12% year-by-year partially explained by the depreciation of the Colombian pesos versus the U.S.
dollar. Operating expenses consisted primarily of personnel expenses and administrative expenses which have been kept under control.
Today Bancolombia show interest score developing channels with legal marginal cost and growing expenses in line with nominal GDP. Our guidance for this year is an increase of expenses 8% to 10%.
Moving to Slide 12, we see the evolution of the net loans to deposit ratio which ended the quarter at 114% as a result of the loan growth. The proportion of loans that we do not fund with deposits, are funded to long term debt in order to have similar duration both sides of the balance sheet.
This is expectation reduces the volatility on the net income and shareholders’ equity. It makes more sense to us to fund long term loans with long term liabilities and that’s why the 114% is settled to deliver confirm about the liquidity position of the Bank.
The liquidity and capital levels on Bancolombia present to-date are optimal for the business plan that we have designed. Regarding capital, on the bottom right hand side, we present the capital adequacy ratio the Q1 ended at the level of 8.2%, 266 basis points above the regulatory minimum of 4.5%.
The tangible capital ratio defined as shareholders’ equity minus goodwill and intangible assets divided by tangible assets was 8.4% at the end of this quarter. As we have said before, this is the level of tier 1 optimal for the operation of the Bank and we intend to keep it between 8% to 9%.
For the tier 2 ratio we ended the second quarter at a level of 5.5% for overall BIS ratio of 13.7%. The Slide 13 shows the return on assets and return on equity of the Bank.
Cumulative return on our equity as at the second quarter of this year was 15.02% a number that is in line with our expectations. Cumulative return on assets was 1.7%.
We expect to continue growing net income while maintaining solid prudential indicators for the rates of this year. As a conclusion, for the first half of this year we can conclude that Bancolombia maintains solid and stable loan and gross margins based on the strategy of funding cost and pricing control.
Second, expenses remain under control and according to our projections, deriving in improving efficiency levels. Third, the impact of the exchange rate are reflected in the balance sheet increasing the size of the loan portfolio and consuming capital and in the income statement increasing the earnings when profits comes from foreign operations are converted to Colombian pesos.
Finally we don’t see a relevant loan deterioration in the different segments. For the second half of this year in general terms the market shows as Juan Pablo mentioned high volatility, lower growth forecast, high inflation, possibility of rate hikes.
Consequently credit growth should begin to slowdown which we anticipate will translate into 10% annual growth for this year. We’d like to remind everyone that the bank is asset sensitive so if any increase in interest rates will positively affect needs.
Our funding cost will more than likely feel the pressure of reduced liquidity. We also expect to see a loan portfolio deterioration in some specific cases and sectors.
We continue to strive for efficiency and we believe total expenses will not grow more than 10% this year. And the Bank’s return on equity should be around 15.5% at the end of this year.
For 2016, we probably feel the impact of everything that’s happening this year including the challenging macroeconomic environment. We will continue to closely monitor this developments this year in order to shed more light on 2016 as we move through the second half of this year.
After presenting this slide through the second quarter numbers to you I would like to invite our audience to ask any questions that you may have. Thank you.
Operator
Thank you. We will now begin the question-and-answer session.
[Operator Instructions] We ask that you please limit yourselves to one question. [Operator Instructions] And our first question comes from Tito Labarta from Deutsche Bank.
Please go ahead.
Tito Labarta
My question is on provisioning levels, you mentioned with this lower growth you expect maybe some modest deterioration, you said provision to be between 1.4% to 1.6% for the end of the year, so just a follow up on that if you think about 2016 do you think it's going to remain around that 1.4 to 1.6 or would you expect it to be maybe more at the higher end if you do see some deterioration? And then just a little further on that if provisions end up closer to higher end how comfortable are you to reach that 15.5% ROE you said by the end of the year given ROE would probably need to at least remain stable, but if provisions are rising maybe a bit difficult to achieve that, so I just want to understand a little bit of that better and how that's going to impact your profitability?
Thank you.
José Humberto Acosta
Regarding your first question, yes we believe that we will be able to sustain the level of 1.6 of cost of credit in 2016 and this is the cost we've maintained in control of our credit standards, we're maintaining our -- we're seeing again the interest rates remain under control, so we believe that we're able to maintain the number at the same level. And regarding your second question, that's true, probably the lower provisions would be increased because of the situation.
But also one of the highlights of our performance is the cost control, you see that we're reducing the cost and we're almost growing the heart of the pesos in NII, so we'll maintain the same trend. The last year we have been very focused on cost control and the results you see very clearly.
So again, based on the assumption that the provisions will be a little bit more obviously we have under our control, cost control. So we will be able to get this 0.5%.
Tito Labarta
Just a follow-up, you mentioned 1.6% for next year, so would you think it would then be at the higher end of that 1.4 to 1.6 because I think the guess if you're closer to 1.6, it could make a big difference in terms of your profitability being the 1.4, so just want to get a sense that are you saying you should be at the higher end of the range in terms of provisioning because of some potential deterioration?
José Humberto Acosta
It is hard to affirm then the target would be 1.6%, but again the loan growth is right now below 10%. We expect next year below 10% so based on that consideration, we see us subsiding 1.6, but we don't know exactly what will happen first half of next year.
We have to see at certain level of the inflation, certain level of exchange rate, certain level of cool down of the economy to send you a strong message about the cost of credit for next year.
Operator
Thank you. And our next question comes from Saúl Martínez from JPMorgan.
Please go ahead.
Saúl Martínez
Thank you for the presentation and thank you for -- and I appreciate the caution and the acknowledgement of a more cautious landscape. I guess what I want to get at is how do you think about downside risks and downside case scenarios because if you're sitting here in New York looking at the macro oil is at $40 barrel.
And according to any outlook isn't very positive, you're current account deficit for Bancolombia is 6% which is GDP which is very-very wide to apply this in the region, your fiscal headwind, you have China devaluing, you have a fed missed off at some point, so is the cross currency notably negative and Colombia has been growing 4% to 5% year or for a lot years on average, how do you think about I know you've pointed the base case is x and maybe it could be a little bit worse little bit better, but it seems to me like there is the risk that you see a multiyear period in which Colombia grows below its potential as some of these imbalances get worked out potentially growing even 2% a year or few years. How do you think about the probability of some scenario that's much worse than the base case scenario playing out and how do you prepare the bank to sustain profitability in this scenario?
José Humberto Acosta
Thank you, Saúl, yes. As you hear from Pablo, obviously we are very cautious about the future, the downside could be unemployment debit that could raised probably, the downside could be the fiscal feasibility impart because of the oil price, but there is an upside in the economy for next year that the infrastructure for example that will boost the economy or boost at least the loan portfolio for banks, and at the end of the year, you'll see pros and cons and again we need more data to understand what will happen.
But again we foresee and a specific deterioration making some efforts that's true that will be impacting the provisional side. The 8% that we're talking about the loan growth is ACP and because infrastructure and some of the consumer brackets of the population then steel will remain very solid.
How we're preparing that first because of our structural capital you see that Q1 8% to 9% is a very solid level of Q1 of capital. Second, the liquidity if you check our profile of the liability side, we are extended the tenures of those funding side just to prevent any particular deterioration of increase of the cost of funding.
So we expect next year just to be definite here a return on equity at around 15% to 16% and that is because again and I want to emphasize the fact that the cost control is one of the tools now we have in our hands to raise the return on equity.
Saúl Martínez
I think just quick follow up. What was your tier -- do you know what your tier 1 would be if you were to adjust for retained earnings this quarter?
José Humberto Acosta
Yes Saúl based on the assumption that we maintain the same dividend policy including or adding some inflation, we will add up today an extra 60 basis points to the Q1 from 8.2% to 8.8%. Remember that our dividend policy, it is a factor of not the level of profit it’s a factor of the previous dividend.
So this year because we will have a very good level of profit, we will be able to capitalize the Bank at around 120 bps extra at the end of this year which means the first quarter once we will have a general advantage.
Saúl Martínez
So you would expect your next year the first quarter of ’16 you capitalize your earnings, you retained earnings you expect to have between 9% to 9.5% tier 1, is that right?
José Humberto Acosta
That would be at the lower level of 9% because obviously we will grow the second half of this year that consumes capital as well so the number would be at around 9%.
Operator
And our next question comes from Natalia Casas from Serfinco. Please go ahead.
Natalia Casas
I would like to know I have three questions, the first is do you have in the last conference you said that you expect 10% or 12% increase in the loan portfolio in Central America. Do you still have this guidance or are you going to change it?
The second one is regarding the expenses, the operating expenses growth increase was almost twice the increase in the revenues. So do you have any plans to control these increases?
And the third one is can you translate into numbers the infrastructure projects for the Bank please?
José Humberto Acosta
First, for Central America in our previous conference call we talked about specifically the pace of Banistmo and in Banistmo we are expecting to maintain our growth at around 10% at least for the next two years, that’s the guidance and we think that the message that we send you to all the investor community. And regarding the operation in Salvador we are expecting to grow at around 3% to 4% this year so that would be a combination of 10%, Panama 4% Salvador and maybe at around 8% to 10% in Colombia.
Regarding your second question, I would say Natalia it’s the other way around. I mean our trend is we are growing half of the pace expenses that are income and that is reflected in improving the efficiency level.
So we are growing at a hard pace the expenses against income. And your third question, can you remind me your third question please?
[Multiple Speakers]
Natalia Casas
Again on the second one, do you see an quarter-over-quarter basis you see that the efficiency is deteriorating and if you have the net interest income it increased 2.2% sorry and the operating expenses expanded by 4.2%. So, there is a difference there.
I was asking about that.
José Humberto Acosta
That is true on the quarterly basis view but we are talking about on the semi-annual basis view we have a annual volatility of expenses you probably know at operation we have to register the real expenses that we are doing so that is the reason why you see a volatility there. But on a semi-annual basis we look much better because we are growing less in terms of expense.
And third regarding infrastructure obviously with infrastructure we want to be very active on this market you probably hear it on the news and all the banks are -- we want to participate on that, this is the first round so we believe in the next coming years we’ll be very active in this market and we would probably maintain the same market share than we have today which is at around 20% of the market share in terms of loans for infrastructure.
Operator
Thank you. And our next question comes from Juan Domínguez from Credicorp Capital.
Please go ahead.
Juan Camilo
I have a couple of questions. First as you mentioned that you have improved the duration of your liability side and also in the previous question you just said that you were pretty interested on participating actively on the infrastructure projects, from a liquidity stance and from an asset liability management standpoint, how is your balance sheet structure now prepared for this long-term disbursements, I mean if you see, are you seeing some requirements of new bond issuances in this new scenario of lower liquidity, I wonder if you can give some color on that side?
And my second question is on the effective tax rate, if you can provide us some color of what this figure will look like when the amortization goodwill for taxable process and probably 2019-2020? Thank you.
José Humberto Acosta
Thank you, Juan Camilo. Regarding your second question tax rate, remember that the taxation you paid not on IFRS financial statement it's based on the Columbian GAAP financial statements that’s the reason why you see another of below 25%.
Like the guidance for the end of the year is to have that tax rate based at around 26% to 28%. Regarding your first question, yes, we have been preparing since last year we've began to increase our tenures in our funding strategy, remember the last year we touched the market with our super delivery test in local currency.
And just to give you an idea, six weeks ago we raised our CDs for 3 to 5 and 7 years and we raised at around $300 million and that is preparing for the next future. I would say that the banks we have to focus the year for on the funding side trying to raise money for the long-term.
So we're doing our job in our previous transactions as I mentioned, and of course providing the next future we have to touch the market probably in local currency and probably for longer tenures, but all depends on the structure of the project that we're seeing on infrastructure.
Juan Camilo
Just follow-up on effective tax rate, as you mentioned that the bank is paying taxes according the Colombian, the defiance accounting policies. And right now you're having our material tax benefit from a goodwill amortization which was kept for a more taxable purpose, I wonder if you can provide us how much these tax benefits are worth?
José Humberto Acosta
We don't have here the numbers internally but just to give you an idea, last year amortization of goodwill was very important our previous acquisition of Banistmo, we decided to reduce the amortization plan from 20 years to 10 years and that is the benefit that we're driving for tax purposes. So remember that we had a goodwill amortization of at around $1.4 billion for 20 years we can use to 10 years, so if you do the math you will realize what was the benefit for us.
Operator
Thank you. And our next question comes from Victor Galliano from Barclays.
Please go ahead.
Victor Galliano
Could you just give us in terms of credit quality, I mean, my questions have been asked and answered, but in terms of Tuya, if you do a kind of like-for-like comparison on credit quality, what would the trends look like or have you already adjusted for those in the previous quarters and 2Q14? And in terms of IFRS and incurred credit loss methodology and it looks to me like the provisioning seemed relatively high in the second quarter, and would you expect to continue along at level as a percentage of loans in quarters to come?
Thank you.
José Humberto Acosta
Thank you, Victor, regarding your first question, yes, Tuya, we did it for last year so it's comparable the financial statement that we have presented to you eliminating Tuya from interest income, from expenses, from fees and only putting in one line at the end of the P&L, so it's completely comparable. Regarding your second question, yes, we have at very high level at second quarter but we want to highlight that the provisions that we had in the first half of last year was very low, so we have just its a catching up process in terms of provisions.
So we believe that we will maintain under control at least for the next two quarters the level of Banistmo. Again as I said before because of the emphasis now we're analyzing and we're expanding we don't see any specific concern.
What will happen next coming quarters probably in some cases in some specific sectors, we have to adjust the level of provision, but as a trend for this year because again we need more data to talk about '16, but for this year we don't foresee any specific concern regarding any specific segment.
Victor Galliano
A quick follow-up on Central America if I may, what was the contribution you had to the bottom line from Banistmo and Banco Del Istmo [ph]?
José Humberto Acosta
Yes the national operation give us at around 20% of the total net income, 30% of the total assets and around 18% of our total expenses.
Operator
Thank you. And our next question comes from Boris Molina from Santander.
Please go ahead.
Boris Molina
Yes I have two questions, the first one is could you give us a little bit of what is the total size of issuance that you would need to do over the next let’s say three years in order to fund the growth in longer term lending associated with the infrastructure plans. Means it appears that many banks like yourself including Banco Del Istmo [ph] and Bancolombia suppose are planning to do significant additions also.
So have you looked at the size of the potential demand and where this is going to be able to absorbed by the long haul pension fund community et cetera, et cetera so just to get an idea of how much you would be expecting fruition probably maybe 30% with the whole market issuance for infrastructure bank? And my second question is just a small detail about the other asset in terms of CLP47 billion in the second quarter was relatively high versus the previous quarters.
What type of assets in terms that you pass through this line so that is related to loan portfolio?
José Humberto Acosta
Yes Boris regarding your first question obviously it’s a very complex answer because that depends of each transaction the way we are facing for this is it’s basically tailor made transaction we’ll see every single transaction when we see how to fund it. Obviously in our view we have to fund it in a very straight funding composition I mean if we need to lend for 15 years we want to maintain a very solid funding behind us so at the end of the day each transaction we probably we have today a bunch of funding we have a very longer tenures but it’s very quite complex to give you a number, because we don’t know exactly when we are going to participate very actively in the first wage of infrastructure or in the second one, so the capital markets in Colombia is quite deep that offer us opportunities to do the pension funds with insurance company.
So we are for sure doing at the same level as we participate on business we would go to the market with not only bonds also with the CDs because the market right now is moving to CDs for longer tenures. Last year we did a successful transaction for CDs for 12 years for a specific pension fund and that was very successful.
So think about that the way we will get funding is with agency yes bonds but also time deposit of CDs.
Boris Molina
But it appears that you were talking about several billions of dollars for each bank, so do you foresee that your loan to deposit ratio is going to go up to 120% or higher or do you think that the lower growth environment is going to like keep it more or less constant at current levels?
José Humberto Acosta
The ideal situation Boris is to maintain the level down we are maintaining right now. Because 114 it is as we explained it is healthy because we are covering the gap with longer tenure debt which is there.
So we believe that the 120 would be the number for the next coming years.
Boris Molina
And about the impairment charge?
José Humberto Acosta
The impairment charge are from the -- for closed assets and guarantees.
Operator
Thank you. And our next question comes from Fred de Mariz from UBS.
Please go ahead.
Fred de Mariz
Just a couple of follow-ups and answer to the question that you’ve answered, the first one is would you mind just repeating your guidance on the tax rate I am not sure I got sure those for this year next year? And the second question is more general on the sector, how do you see the other banks how different is the competition and the competitive landscape right now in Colombia and do you feel that Bancolombia is losing market share or you’re able continuing a deceleration obviously maintaining your market share?
Thank you.
José Humberto Acosta
So the guidance for tax rate effectively this year will be 26% and next year will be at around the same level because we don’t foresee any specific change on the taxation for corporate in Colombia so we will maintain the same number. Regarding your second question the competitive landscape is we are competing for funding and that will be the main competition landscape will be basically on the funding side.
We see the other banks in general terms with a good level of capitalization we see in our case for example because of the growth the capital that we have now is enough to absorb loan growth of 10% to 15% at least the next two years the competition also will be in corporate loans of course. But the competition has some very interesting characteristics the competition will be local currency.
So all of the banks would have to compete under the same circumstances, which is the funding cost. Regarding market share if you double check our track record the last three years we have been gaining consistently market share.
Today, we have a very comfortable level of market share in every single business line and the purpose of above our goal is to maintain the same level of market share. So we're not trying to gain neither to lose.
Operator
Thank you. And our next question comes from Victor Galliano form Barclays.
Please go ahead.
Victor Galliano
Could you in terms of the costs, I mean, clearly there is a huge emphasis on this going forward and perhaps we will see, you'll see less top line driven growth so you're going to need it coming through on the cost side, can you put a bit of flesh on the bones of the idea of how you're reducing your cost base and perhaps give us some examples of the initiatives you have in place going forward to bring that cost to income ratio down to around 48%?
José Humberto Acosta
Yes, and you're right, the tools that we have right now for the next at least 2 years is the cost control. We're just to give you some examples very easy, branches, in the past we used to grow 6 to 7 branches per year and the branches are the point of course.
Today we're around we're reducing the number of branches and we're moving different section levels to different channels. So we're promoting the different channels of our Web site, the app.
And we're right now trying to move the people to these channels and I will say that more than 92% of the daily transactions today are processed with through these channels. So this is a very good example.
The second one is a tougher project that we're facing in the bank, in the past we used to have up around an average 100 projects for improving the banking products, process. Today we are exceeding of 50 projects, and we put to complete the projects each other because it's limited space for that.
The other good example is we maintain all most gross in the labor cost and this is try to people for example in the branches to shift people from cashiers or tellers to people from sales. So we're right now re-circulating the salesforce and that give us some flexibility on the cost control.
I will say that those are the three good three examples how we're facing the cost control in the bank.
Operator
Thank you. And I'll now turn the call over to José Acosta for closing remarks.
José Humberto Acosta
Thank you very much. Thank you for your questions and I hope to you see in the next conference call in three months.
Thanks again.
Operator
Thank you. And thank you, ladies and gentlemen this concludes today’s conference.
Thank you for participating. You may now disconnect.