May 9, 2021
Operator
Good morning, ladies and gentlemen and welcome to Bancolombia's First Quarter 2021 Earnings Conference Call. My name is Claudia and I'll be your operator for today's call.
At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session.
[Operator Instructions] Please note that this conference is being recorded. Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses and credit losses.
All forward-looking statements, whether made in this conference call and future filings and press releases or verbally, address matters that involve risk and uncertainty. Consequently, 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 competing products by other companies, lack of acceptance to new products or services by our targeted clients, changes in business strategy, and various other factors that we describe in our reports filed with 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 of Bancolombia. Mr.
Juan Carlos, you may begin.
Juan Carlos Mora
Good morning and welcome to our conference call for the first quarter 2021. I hope all of you and your families are safe and healthy.
After a slow start of the year due to the second wave of the pandemic in Colombia, economic activity rebound in February and March. Data shows that the economic activity is almost reaching pre-pandemic levels.
Unfortunately, we continue on the high levels of uncertainty. Currently, Colombia is going through a third wave of the pandemic.
So, the major cities in the country are dealing with a new round of restrictions. The pace of the economic recovery depends on the COVID-19 infection rate, the speed of the vaccination plan and the discussion of the fiscal reform.
Before get into the details of the results, I want to highlight some key topics. The loan book grew 3% compared with the previous quarter.
Deposits grew 2% during the quarter, and we continue lowering the funding cost. Core equity Tier 1 on the full Basel III was 11.2% and the net income was COP543 billion.
Provision charges for the quarter were COP1.3 trillion, mainly driven by COVID-19 impact in our clients. These provisioning level takes the bank to a cover ratio of 222% and allowances for loan losses represents 8.1% of total loans.
Our business areas supported by more than 20 million clients continued to evolve. The marketplaces of our ecosystem strategy with only a few months in the market have become relevant for our customers.
The mobility marketplace has had 1.5 million online visits and the housing marketplace 1.7 million. These interactions that has to preapprove and disburse credits for COP20 billion.
At this point, I want to turn the presentation to Juan Pablo Espinosa who will further elaborate on the performance of the Colombian economy. Juan Pablo?
Juan Pablo Espinosa
During the first quarter of 2021, the Colombian economy displayed two contrasting trends. In January, the adoption of sanitary restrictions due to the second wave of the pandemic led to a downturn in economic activity and employment.
Nevertheless, while these measures were lifted in early February, the economy recovered fast, thus erasing most of the initial negative response. As a result, we estimate that GDP in terms of year-on-year variation in the first quarter was around minus 0.4%, which is higher than our initial forecast of minus 3%.
This reduction as well as the base effect and discretionary stance of both monetary and fiscal policies will translate into a full year 2021 growth expectation of 5.5%. It is worth mentioning that this forecast incorporates the recent acceleration of COVID-19 cases and fatalities and a low probability of reaching herd immunity this year.
In terms of prices, the last 12 months inflation rate was 1.5%, almost half of the Central Bank's target. However, there is evidence of some upward pressures in their from CPA components, such as food, housing costs and regulated items.
This confirms our perspective that inflation will accelerate in the next month and we close 2021 around 2.5%. Against this backdrop, we predict that the Central Bank will start a hiking cycle in the second half of the year, although at a more moderate pace than the current market's expectation.
We anticipate that reference rate will be at 2% at the end of this year and 3.25% by December, 2022. At the same time, the sovereign yield curve has steepened due to movements in U.S.
treasury market, as well as EDS inquiry factors. We expect this pressure as well as peso weakness to continue in the short-term, given the discussion about the reform to public finances.
Finally, as we mentioned in our previous conference call, the approval of a fiscal reform will be key to rating agencies decisions about Columbia this year. Recently the governments submitted to Congress a proposal which intended not only to talk about some of the fiscal challenges that arose from the pandemic, but also to strengthen the subsidies that the most vulnerable households receive.
Although, these first drafts were just withdrawn by the government, it is reasonable to expect that a watered down version of the reform will be ultimately approved, which would in turn reduce the odds of sovereign downgrade. Now, I want to turn the presentation back to Juan Carlos.
Juan?
Juan Carlos Mora
Thank you, Juan Pablo. Moving to slide four, I want to continue this presentation by explaining our business evolution.
The bank keeps moving forward. As an example of this, is the change we recently launched of our corporate image.
The evolution of our image is a symbol of the commitment to deliver our best efforts to more than 20 million clients. This evolution is a declaration of principles to reflect the purpose of Bancolombia in each action.
It was not a simple change of image. This change implies new ways of working, new ways of relating to our customers, a new way of doing business.
In this slide, you can observe how our main segments continue growing despite the situation. Based a new risk criteria, picking the best credit profiles, we have pre-approved COP57 trillion for almost 2 million retail clients.
During this quarter, we were the bank with the highest amount disbursed in loans for low income housing with government subsidies. And we were the first bank with a hundred percent housing transfer deed.
One out of every two SMEs in the country is our client. We want to provide financial and non-financial services that ensure that the economic reactivation occurs in all sectors in an accelerated and sustainable way.
We have pre-approved COP13.5 trillion for 400,000 SMEs to accompany their recovery. In the corporate business, we are structuring credit lines tied to sustainable performance.
Recently, we announced the first loan granted to Grupo Argos for COP392 billion, which may obtain a reduction in rate, but by reporting its annual progress based on a fulfillment of previously defined goals in terms of gender equality and climate change. Moving to slide five.
I'm going to elaborate in our digital platform's evolution. During the quarter, Nequi and Bancolombia La Mano continue to grow and maintain the positive trend experienced during the last year.
Between the both they reached 11 million clients, almost three times the amount reported at the beginning of 2020. But in addition to the number of clients, we want to highlight the high level of activity and the increase in transactions and deposits.
The activity in the payrolls for Nequi is 59% and 40% for Bancolombia La Mano. With Bancolombia's QR code more than COP1 trillion have already been digitalized in more than 700,000 merchants and deposits between the two platforms, which almost COP1 trillion.
We are adding clients at a fast pace. They are using our platforms not only for transactional purposes, but also saving.
All these elements are giving us accurate information that [indiscernible] know them better. I introduced them to the credit business.
Moving to slide six. You can see some relevant figures of Nequi and Bancolombia La Mano.
These two card firms compliment each other by targeting diverse niche markets. Nequi target young people and Bancolombia La Mano the base of the population.
While Nequi is stronger in payments and recharges, Bancolombia La Mano is stronger in payrolls and subsidies, both are showing a positive trend in their fee income and in the number of processed transactions. Nequi cards are growing fast.
We have tripled the number reported 12 months ago. For Bancolombia La Mano, we estimate that for every peso we invest in the platform will have a social impact of COP8.
In the slide seven, we present our ESG framework. For 2021, we plan to allocate COP30 trillion through financial services to strength the country's economy.
The construction of sustainable cities and financial inclusion and for 2030, we have the goal to increase this amount to COP500 trillion. We also plan to avoid 9.3 tons of carbon dioxide and run our direct operations with 100% renewable energy.
Finally, I want to highlight that this year we have disbursed COP2.2 trillion in special credit lines for women, and COP1.9 trillion in special lines for agricultural sector. Now, I want to turn the presentation to Jose Humberto Acosta.
Jose?
Jose Humberto Acosta
Thank you, Juan Carlos. Now turning to slide seven.
I want to walk you through the evolution of the relief program. Credit reliefs continue to decrease during the first quarter of the year, reaching 10% of the consolidated loan book.
It is important to highlight that this 10% includes structural solutions that we are giving to our clients in Columbia, Panama, and in Salvador. In Columbia 5.6% of total loans are still on the relief, almost all of these reliefs are under PAT program.
Considering the geography where the bank operates, our focus is Panama. The relief program we will apply at least until June.
In Banistmo, we take 35% of the total loan book and the relief. You can notice a better trends when compare with the last year figures, because despite the reliefs were extended, these are non-mandatory as they were last year.
Besides that clients need to prove that they were affected by the pandemic in order to apply for the relief. In slide eight, we present the breakdown operations during the quarter.
Provision charges for the first quarter were COP1.3 trillion, as we did in previous quarters, explain the breakdown. Provisions associated to the update of macro scenarios on COVID-19 account for 66% of the quarter charges.
We want to highlight that in this quarter, there is an important difference with the previous ones. As the expectations for micro variables are better for this year, the main drivers of these provision charges, structural solutions in Colombia and in Salvador, reliefs in Panama and the deterioration of the loan book quality related to the impact of COVID-19.
Recently, deliveries to various clients have started to request more reliefs, which implies higher provision expenses. Moving to slide nine.
We give you a snapshot of the competition by the stages and the converge. During the quarter, there was an important increasing stage two, while stage three remained relatively stable.
The increasing stage two was explained by a change in the profile of clients, applying to relief some structural solutions. As the pandemic has continued, better rated clients have asked for support and were moved to stage two.
At the right side of the slide, you can observe the total balance in the stage two and three, as the percentage covered by the allowances. This shows that depending on how the pandemic and the economic recovery evolves, there is still space for provision charges in upcoming quarters.
In slide 10, we present provision charges and allowances. Cost of risk for the quarter was 2.6% and for the last 12 months was 3.7%.
Cost of risk without COVID-19 effect last year 4.1% [ph] forth quarter and 1.7% for the last 12 months. After result of our provisioning models, the level of allowances have remained high as a proportion of total loan portfolio.
This is a sign of the strength of our balance sheet, so taking it in an environment that's still uncertain. For the first quarter of 2021, allowances for loan losses represented 8.1% of total loans coming from 5.7% one year ago.
Although, the performance of provision charges for the quarter showed the lowest levels since the pandemic began, it is still too early to confirm that those will -- the trend continue throughout the year. Levels of uncertainty are still high.
The recovery will depend on the evolution of the COVID-19 and the vaccination plan. And the real impact in our client is not visible, while there are under reliefs.
We are expected to close this year with a cost of risk within the 3% area. Slide 11 shows the past due loan formation and coverage.
You bought your loans. New past due loans during the quarter increased because of higher charge-offs.
The increase in charge-offs is explained by the recent clients that became 90 days past due in the second half of last year. And in this quarter were written-off and also were impacted by a corporate client.
This increasing charge-off impacted non-performing loans, describing the reduction when compared with the previous quarter. Non-performing loans will continue rising in line with the end of the credit reliefs.
We expect these metrics to reach their target during the second half of 2021. The consumer segment represent the highest deterioration.
Remember then when a client request a relief and increasing the provision takes place, but the client is still performing. That's why we expect non-performing loans to increase as reliefs end, but not necessarily the same effect for provision charges, as we have already in group in the expenses.
The coverage ratio increased to 222%, [indiscernible] as credit reliefs end. Moving to slide 12, we want to present you the assets and loans breakdown.
This year we started with that low dynamic in the loan book, which grew 3% when compared with the fourth quarter of 2020, mainly explained by the depreciation of Columbian pesos versus U.S. dollars.
We are expecting the loan book to grow faster in the second half of this year.
,
On the slide 13, we present the consolidated and standalone capital adequacy. Consolidated total solvency ratio stands up 14.8%, while CET1 at 11.2% level on the full Basel III for the first quarter, well above the minimum regulatory requirements.
These levels placed the bank in the high range of our solvency target. As you can observe the standalone operation also present levels above the minimal requirements of each geography.
On the slide 14, we present the liquidity position of the bank. In a consolidated basis, we are expecting liquidity leverage to maintain at least for the first half of this year and a stable interest rate at least until the third quarter of this year.
We continue reducing the funding costs, basically because clients have shifted the balance in bank deposits to savings accounts due to the low rates. On the slide 15, we present a snapshot of our standalone operations.
In general terms, the trend throughout the different geographies operated by Bancolombia was similar; margins under pressure, fees recovering as economies started to reactivate, slight [ph] growth of the loan book, positive evolution of efficiency and a solid position in terms of capital and liquidity. I want to give you a quick overview of each of the Central American countries, which we operate.
Let's start with BAM Guatemala. This quarter, the pace of the deterioration in corporate segment was possibly.
The forecast of macro variables passing through and this combined with the fact that Guatemala was of the least impacted countries in the region during the pandemic has a positive impact in our provision charges for this year. Banco Agricola, it's one of our most profitable operation.
It had a good performance over the first quarter, with positive operation on metrics. We are expecting a better performance of margins as we continue reducing the funding costs and control levels of cost of risk due to a better performance of all our clients.
Finally, Banistmo. Panama is one of the most impacted countries in the region by the pandemic.
Although, we still have 35% of the loan under relief, the recovery is material when compared with the fourth quarter of 2020. Since February, the business performance has been showing a better trend.
It's important to highlight the Banistmo restored its loan book and growing more than the system, gaining market share On slide 16, we see the evolution of margins and net interest income. After closing 2020 under pressure, net interest margins was down to the 5% area that where we are expecting.
As we mentioned, margins will continue under pressure this year because of the low interest rates, the impacts of the relief programs and increase of [indiscernible] clients with the end of credit reliefs. Net interest income shows a better performance as we continue reducing funding costs and increasing the duration of the loan portfolio.
And slide 17 shows the evolution of expenses and efficiency. We continue with our focus in cost control.
During the first quarter of the year, the bank showed the contraction in operating expenses of 8% when compared with the first quarter of 2020. Personnel expenses were down 11% and administrative expenses down 5% when compared with the same quarter of last year.
Even though, these are positive results, we expect the real growth of the expense for this year. The two main drivers of this growth will be investments in digital transformation to keep the bank competitive and to support our 20 million clients, and also in 2021, we are expecting to have a better results, which will mean the return of our employees compensation plan.
Slide 17 showed the evolution of fees. Net fees continued to be one of the most resilient lines of the P&L.
In the first half of the quarter, fees were impacted by the lockdown measures, but quickly recover once the restrictions finished. The high correlation between the two transaction levels continues, which is still reflecting the volume of fees from debit and credit card transactions.
We expect fees to grow at around 5% for this year. Finally, the slide number 18 shows the profitability metrics.
Net income for the quarter was COP543 billion, up 60% when compared with the first quarter of 2020. This is mainly explained by lower provision charges and lower operational expenses.
As we have mentioned over the conference uncertainty is still high. And it is too early to affirm that these trends going to be maintained in the upcoming quarters.
Now, I want to turn the presentation to Juan Carlos for the closing remarks. Juan?
Juan Carlos Mora
Thank you, Jose Humberto. As we mentioned, last quarter for us 2021 a year of transition, in which we are not going to return to pre-pandemic levels in our main indicators, but spite the big challenges we are facing, results are going to be better than last year.
And Columbia is moving forward. We have a stronger balance sheet, a better cost structure, a more diversified portfolio of products and services, leveraged by our robust digital strategy with a positive evolution of digital platforms.
These combined with more than 20 million clients and new business strategies will help us to recover from the impacts of the pandemic. Before ending this call, I want to give a quick update of what we are expecting for a year in fees.
We are respecting the loan book to grow between 6% to 8%; net interest margin should close in the year in the 5% area; fees growing 5% and cost of risk in the 3% area. After elaborating on these key topics, I want to open the line for questions.
Operator
Thank you. We will now begin the question-and-answer session.
[Operator Instructions] Our first question is from Brian Flores with Citibank. Please go ahead.
Brian Flores
Hi. Good morning for -- thank you for the presentation and for the opportunity to ask questions.
Two quick questions. The first one is, we're accompanying the difficulty of the fiscal consolidation in the country.
I mean, this third wave of COVID-19 in Colombia, in this sense, how comfortable are you with regards to the regulatory income taxes for the banking system? Are there any thoughts at the moment to extend a surcharge of income taxes for longer?
And my second question is, you delivered high ROE of 8% in this quarter. These also came with cost of risk of 2.6% compared to what you just recently noted for the year or about 2%, the head cost, which declined 8% year-on-year versus your guidance of going higher than inflation for the year.
So, would it be reasonable in these contexts to say that most of, like the upcoming quarters of 2021 will bring ROE lower when compared to your first quarter. Thank you very much.
Juan Carlos Mora
Thank you, Brian, for you questions. Regarding your first point, there have been some conversations around regulations -- additional regulations for the banking system.
The Congress is looking at some measures or discussing some additional measures. I -- it’s stepping, I think, in almost everywhere.
We are confident that the regulation in Columbia is strong. We have a very good supervisory body.
And that the performance of the banking system is key for the economic recovery of country. So, we are positive, but the discussions are going to lead to have -- even better financial system.
Regarding taxes, there are some conversations around a surcharge for banks. Let me remind you that we already have a surcharge of 3% on our income tax rate.
It's already in place. So, we will need to know how it's going to evolve the discussions around the fiscal reform that is going to be presented to the Congress after the withdrawal of the original proposal presented for the government or by government, sorry.
Regarding the second question, we had a good quarter. ROE was, as you mentioned, close to 8% or 8%.
We want to be cautious around how the next year is going to develop. So, we need to wait.
We had a good cost of risk during the quarter as you mentioned 2.6%. We are expecting between 2.8% and 3% for the whole year, as we expected that some clients evolve and they will have -- we don't know how the performance is going to be.
So we would prefer to be cautious. So, the year, as I mentioned, is going to be better than the 2020.
But first quarter was good quarter. We will wait and see how things evolve, and we will continue evaluating the situation.
But I think the core -- the whole year is not going to perform as well as the first quarter.
Brian Flores
Very clear. Thank you.
Operator
Our next question is from Ernesto Gabilondo with Bank of America. Please go ahead.
Ernesto Gabilondo
Hi. Good morning, Juan Carlos, Jose Humberto and Carlos and good morning, everyone.
Thanks for the presentation. My first question is on net interest income.
We know this quarter was good because of lower funding costs, but also by the interest on investment securities due to the performance of the derivatives loan book. So, how would you could see this performance of the derivatives portfolio and how should we think about high growth in year when compared to loan growth?
Juan Carlos Mora
Thank you, Ernesto. Let me give you some comments and I'll pass the question to Jose Humberto to elaborate.
As we mentioned, the NIM was around 5%. As you mentioned, also was, the performance of the securities income was good.
We still think that the NIM will be around or between 4.8% and 5% during the year or at the end of the year. So, we'll have been working on the funding cost and that's allow us to manage the margin.
So we still think that the NIM is going to be around the 5%, but let me pass your question to Jose Humberto to elaborate on it.
Jose Humberto Acosta
Thank you, Juan Carlos. Thank you, Ernesto.
Yes, regarding NII, as Juan mentioned, our -- the loan book we grow 6% to 8%. We are expecting that the NII will grow at around 4% to 5% for the whole year.
And the reason is -- specific reason why it is because we are going to see increasing the loan book maybe in the second half of the year. And that's the reason why the NII grows slower than the loan book grows.
Regarding your question within business security derivative, yes, the first quarter -- it is a remarkable performance and this is basically because of the volatility that the derivative book performance -- it's quite well, but we don't think that that will be sustainable. We are, as Juan mentioned at the beginning, we are cautious about the forecasting of this performance of the securities portfolio.
In our forecast, we always try to identify an structural NIM for the securities portfolio at around 1%. This first quarter was 1.7% again, because of the volatility.
So, we don't expect much more for the next coming quarters. And also remember that our loan book accounts almost 80% of our total assets.
Meanwhile, the securities portfolio accounts only 10%.
Ernesto Gabilondo
Perfect. Very helpful.
Just allow me to make a -- another couple of questions. The second one is a follow-up on cost of risk.
As you mentioned, first quarter -- we love your guidance, but you're regenerating your cost of risk of 3% for the year. So, can you elaborate -- if this is explained also by the potential tax reform that could tackle high income individuals and corporates?
And as you mentioned, it will be also explained by some of the relief programs that will show higher yields in the next quarters. Then my last question is on Nequi.
We have seen in your presentation that Nequi has riched, close to 6 million users from which 59% are active users. So, it has been a very positive evolution.
So, when do you think we can start to see financial statements related to Nequi in your press release and when you expected USP [ph] now for Nequi. Thank you.
Juan Carlos Mora
Thank you. Let me elaborate on your two points.
As regard tax reform, I think we need to wait and see. As I mentioned, the government would do their proposal of fiscal reform that they presented to the Congress.
So, at this moment there are conversations around a new tax reform. And my view is this tax reform is going to be a transition reform, or it's going to be probably a bridge to help support the fiscal situation of the country during these next two years.
And then we will start talking about a more structural performance. Due to the current situation I think it's -- what should happen and I see the government going on that direction.
As you probably know, there is a new minister of finance and he's -- she's talking about that. And she's talking with the political forces with the different parties to have the consensus and moving forward on that -- on that direction.
So, I am optimistic that this consensus will allow to have a fiscal position for the country that will help to maintain the social programs that the government has in place, and also will help reach the situation until I think couple of years ahead. Regarding Nequi, we are very happy with the performance of Nequi.
As you mentioned, we supposed to have 6 million clients. They are active.
They are using the platform. We are producing loans.
We now have close to 600,000 cards, visa cards activity is very well -- very good. So, we will start giving more information about the performance of Nequi during or in the following in our reports to tell you how are we evolving.
Regarding a spin-off, Nequi was set as a separate unit Bancolombia. is part of Bancolombia as Pablo said, originally as a separate unit.
It has separate technology. It's operating on cloud or on different on platform from Bancolombia.
So, that possibility is there and we will go in that direction when is the right time to do it.
Ernesto Gabilondo
Perfect. Thank you very much.
Operator
Our next question is from Jason Mollin with Scotiabank. Please go ahead.
Jason Mollin
Hello everyone. I have two questions.
My first is on the evolution of loan loss provisions. We saw the material declines boosted the bottom line.
Can you help us understand and looking at the income statement balance sheet, if we saw a reversal of some provisions in the quarter or consuming some provisions and what could drive that, that helped create the lower level of provisioning and cost of risk in the quarter? And my second question is on the movements in shareholders' equity.
We're faced with this whenever we have the volatility in the FX. And in the first three months of 2021, we saw a depreciation of the currency of 7%, and you have your investments in Central America in dollars.
So, if you can help us quantify the impact on the consolidated level of the movement in FX on shareholders' equity, that would be helpful. Thank you.
Juan Carlos Mora
Thank you, Jason for your questions. Let me pass them to Jose Humberto.
Jose?
Jose Humberto Acosta
Thank you, Juan Carlos. Yes.
Jason, just to characterize the provisions, the drivers from the provisions are basically three main drivers, the microeconomic numbers, the COVID-19 and the deterioration of the loan portfolio. As you probably saw in the first quarter, the main driver, why the probations in the Central America operation came down was basically because of the macro environment.
That's the main cause, why we suggest that the provision coming down. But the other two drivers, which means the COVID-19, there still we are having loans under relief and the second one, the deterioration of the loan portfolio.
These two drivers will push maybe the provisions against one thing -- a certain level. That is why we believe that the -- for the next coming three quarters, you are going to see an increase in a level of provisioning because of COVID, that we are still having 150 of our portfolio under relief.
And because the deterioration of the loan portfolio. You are seeing a deterioration not only 30 days, also 90 days.
So, what's going to happen in the next coming three quarters is not only in Colombia, also in our operation in Panama, you are going to see a deterioration in this line. Regarding your second question, I have to highlight the fact that this chapter of the asset side of the bank is 35% in US dollar.
And this chapter that we have on the equity side, we have around 35% of our equity is in US dollars. This 35% of equity, it is allocated in the three operations that we have in Guatemala, Panama.
It's about last operation that we have offshore in Panama. So, once there is an effect on volatility, even the valuation or appreciation, you -- both sides of the equation moves at the same time, the assets side and the equity side.
So, we are able to maintain the same level of solvency ratio and the same level of Tier 1 ratio because of that. This is a natural protection that we are having on the equity side.
Jason Mollin
Let me ask a follow-up on that. But you have your assets in Central America in dollars, and then you have your liabilities in dollars and then the net of your assets and liabilities is your equity.
So isn't the -- unless you're hedging the equity investment in dollars in Central America, isn't that exposed to movements in the currency? And then as a follow-up for the provisions in Central America, moving on, I guess, on the macro outlook, did that -- I mean, I guess they're better than they were the expectations, is that what you're suggesting?
And were they -- were you able to -- actually would you characterize it as reversing provisions in Central America, that you had already made based on tougher expectations for the outlook?
Jose Humberto Acosta
Jason, regarding your second question, that was because what happened in the first quarter, but again, not only in Columbia, also in the international operation, you are going to see a deterioration of the loan portfolio. So we are going to see an increasing the level of provisioning in the international operation.
The only one factor that affects was in the first quarter, and that was because of the macro. Right now, we are not going to be affected anymore because of the macro, but we are going to be affected because of COVID-19 that generates provisions and because also the deterioration of the loan portfolio in all of our four geographies.
And regarding your first question, yes, we increase our level of equity because of FX. If there is evaluation, our equity increase and at the same level of the asset increase.
Maybe the thing that I'm suggest maybe we have to call with you just to clarify the movements that there is on the equity accounts internally, just to make clear how it moves depends of FX variations, Jason.
Jason Mollin
That would be great. Yeah.
If we could get a statement of changes in equity. I know you guys typically send that in a few weeks.
That would be helpful after the results. So, we could understand that.
Thank you very much.
Juan Carlos Mora
Thank you, Jason.
Jose Humberto Acosta
Thank you, Jason.
Operator
Our next question is from Sebastian Gallego with Credicorp Capital. Please go ahead.
Sebastian Gallego
Yes. Hello.
Good morning everyone and thank you for the presentation. I have two questions today.
The first one on Panama. If you could go a little bit deeper on the evolution of the economy, even now during the second quarter?
And how do you expect the customer payment behavior to evolve? We understand that there is still a moratorium law in place, but how -- are you perceiving customer payment behavior during the second quarter, will be helpful.
Alongside with some comments on the macro side. And the second question is, is probably a follow-up on ROE.
You have mentioned some guidance, but you're seemed to be reluctant to mention ROE guidance. Last quarter you mentioned, a 4% to 5% ROE expectation for 2021.
Could you provide some range and how do you see ROE evolving over the next years given current conditions? Thank you.
Juan Carlos Mora
Thank you, Sebastian. Let me elaborate a little bit on credit situation in Panama.
And then I will ask Juan Pablo Espinosa to give you some color about Panama. And I will also answer your question about ROE.
In Panama, as you mentioned, still there is a moratorium that goes on until June, so we will need to wait until June and after that, we will know how it's going to be the -- how the customers or the clients are going to behave in terms of payments. What we have seen so far is better performance that we were expecting.
The -- many clients are a pain. They are still on the moratorium, but they are paying their obligation.
So, we are seeing a better performance of what we were expecting. But we need to be cautious because still there are a lot of clients under the moratorium.
So, we are cautious and we will need to wait until the second semester to see how it's going to be the performance. But so far, the behavior is better.
We were expecting. Also the demand for loans is behaving better than we were expecting.
So, first quarter -- even though we are cautious about the evolution for the rest of the year, especially the second half of the year, the performance so far is better than expected. Regarding ROE, before I pass to Juan Pablo for some comments from the macro aspect of Panama.
Yeah. We still think that our ROE for the whole year is going to be around 5% to 6%.
We had a better performance during the first quarter, but we prefer to be cautious. As you all know, the cost of risk is going to be key.
The first quarter has a very good behavior, much better than we were expected, but we need to wait and see how the pandemic is going to evolve and how the economic activity is also evolving. So, we want -- we prefer to be cautious and maintain our expectations of ROE around 6% Juan Pablo, I don't know if you have any comments on the macro situation of Panama.
Juan Pablo Espinosa
Yes, Juan Carlos. I would say that in general, three indicators, see your point to a better performance after the sharp contraction that we saw last year.
And actually that has translated into an expectation of recovery of GDP this year in the -- almost in the two digit area. For example, our latest forecast by the IMF is 12% for the year from the World Bank 9.9%, the latest official estimate is 9%.
So all the these three years point to a recovery that will not put the country this year again, in pre-COVID levels, but will surely be a better outcome and to start a recovery process that we would expect to gain traction as the year passes. One additional thing, I would like to comment is that in Panama as well as in Columbia, the evolution of the pandemic vaccination plan is going to be key for the outlook this year.
And what I would like to highlight is that Panama is doing a better Bancolombia in terms of vaccination at this moment around the almost 12% of total population in Panama has got at least one dose of COVID-19 vaccines which is double of the -- of Columbia's figure. So, with vaccination plans, we would be optimistic, especially for the second half of the year in terms of Panama's activity gaining more traction.
Sebastian Gallego
Very clear. Thank you very much.
Juan Carlos Mora
Thank you, Sebastian.
Operator
Our next question is from Alonso Garcia with Credit Suisse. Please go ahead.
Alonso Garcia
Hi. Good morning, everyone.
Thank you for taking my question. My question is actually a follow-up on Nequi and Bancolombia La Mano.
I don’t know if you could please comment on how you see the competitive landscape in terms of fintechs and interbanking in Columbia, who are you competing mainly with? How is the market behavior -- behaving in terms of competition in that segment?
That would be my questions. Thank you.
Juan Carlos Mora
Thank you, Alonso. Different from other markets in Columbia the banks, we started to develop a platform for financial inclusion years ago.
In our case, we started in 2015, as well as all the other banks. So, we started to develop these platforms and now I think, those platforms are the leaders of the market.
Fintechs are coming, of course, us -- in other markets, but the leading platforms are around by banks. We -- and another bank, which is very peculiar of the Colombian market on the shoulders of these platforms, bankization is improving very well.
People now is having access to financial services on a very convenient way with possibilities of doing digital banking everywhere in the country. So, I think competition is going to increase.
the Colombian market has, as you know, a cap on interest rates, which is a different landscape than other markets in Latin America, like Brazil or Mexico in which new commerce could charge very, very high interest rates. In our case, we are operating this market for long time.
We know how to operate with a cap rate. Also we are allowing our new clients to access, not just digital platforms, but the networks of the traditional channels of the bank, just to mention ATM, so that leverage our ability to compete.
Of course, as I mentioned, competition is going to increase, but I think we are very well-positioned to continue increasing our presence in the market. Our clients are using our services and we are adding new features to the platforms.
Payments are going very well. People are using the platform to pay and to transfer money.
They are using the cards. So, we are very positive that the trend that we are seeing will continue, Alonso.
Alonso Garcia
That was very good. Thank you very much.
Juan Carlos Mora
Thank you.
Operator
Our next question is from Carlos Gomez with HSBC. Please go ahead.
Carlos Gomez
Hello. Good morning and thank you for taking the questions.
I wanted to ask you specifically Guatemala, maybe you commented on this earlier in the call. There was almost no provisions there.
So I wanted to know exactly why that was the case. Second, in general, about Central America.
I mean, with the changes that we see from the pandemic and your experience over the years, you operate in three different markets. Do you feel the need to expand or contract in any of these markets?
Do you see opportunities with the pandemic for you perhaps to take over retail institution that's something that we could expect? And finally, have you considered the issuance of 81 paper like [indiscernible].
Thank you.
Juan Carlos Mora
Thank you, Carlos. Let me take your second question about Central America.
I will pass the others to Jose Humberto. We see opportunities in Central America.
We see markets that are developing and we see an opportunity to develop some of the tools on platforms that we are implementing in Colombia in those markets. As was mentioned, Guatemala was or has been one of the countries less impacted by the pandemic.
Economic activity is recovering fast. And we are introducing new ways of serving our clients in that market that we are optimistic that will allow us to gain market share.
In Salvador, we have a very good performance there. The bank is performing well, is strong.
The behavior of economically -- economy -- I'm sorry -- it's in reasonable condition. So, we see opportunities there, but more on bringing to those markets the new platforms, the digital channels, digital sales to reach much more customers.
There is a big, big room for bankization in Guatemala and in Salvador. And we see an opportunity there and we will take that opportunity.
Panama, it's a different situation. We see more opportunities in Panama once the economic -- the economy of the world recovers and international trade improve.
So, Panama will play a key role there. And Jose, could take the other two questions, please.
Jose Humberto Acosta
Yes, Juan. And thank you, Carlos.
Regarding your first question, Guatemala. Guatemala operation is a combination of positive factors.
First, we are seeing a positive loan growth, both in corporate and retail. We are seeing also a very good performance in terms of efficiency, in terms of expenses.
And we are seeing a very good outlook of the country, and that is the main reason why the provisioning level came down because of the updating of the macroeconomic outlook. Of course, for the next coming quarters, we are going to see how the performance of the loan book behave.
Today, we don't have any particular -- we have 0% of under reliefs in Guatemala. So we are going to see maybe an increase in provisioning, but basically because of the deterioration of the loan portfolio.
Regarding your last question, the 81, 81 it's a possibility for banks to increase the Tier 1 ratio. And that was a very opportunistic transaction.
And I will say that this is a -- that was a very good opportunity to take advantage of the market.
Carlos Gomez
Surely, understand that that is something that you might …
Jose Humberto Acosta
Excurse me, Carlos.
Carlos Gomez
Yeah. Really understand what the 81 is that -- [indiscernible] that could be interesting for you.
Jose Humberto Acosta
What happened right now with the equity that we are having and the solvency ratio, you see [indiscernible], we are above 14% and Tier 1 ratio above 11%. The main driver would be the -- of the treated event will be the loan growth.
We are expecting the loan growth, again, 6% to 8%. So, we don't see in the near future, in the short term, opportunity to 81, but again, that will be a possibility for all banking industry to go to the market.
In our case, the level of capital that we are having today, we are -- we feel comfortable with that.
Carlos Gomez
Thank you very much.
Operator
Our next question is from Yuri Fernandes with JPMorgan. Please go ahead.
Yuri Fernandes
Hi, everybody. Good morning.
A very quick hear on expenses, I guess, FX similar for other lines. There was a big impact on the FX for the quarterly G&A growth here.
So kind of just give update on what is expectation for the year? How do you see the expense line normalizing, excluding FX?
And I guess the point here would be a little bit more color on the bonus program, right? Because in previous years, sometimes this line can be [indiscernible].
So, like first, what is expectations for G&A? And second, how do you see the bonus line behaving in the year?
Thank you.
Juan Carlos Mora
Thank you, Yuri. Let me pass first to Juan Pablo Espinosa to give us some his views on the FX rate.
And then Jose Humberto on the effect of bank that he already mentioned that -- on your question regarding bonus. So, Juan Pablo?
Juan Pablo Espinosa
Yes, Juan Carlos. What I would say regarding the FX rate is that on the past few weeks we have seen pressure coming from -- early discussions around being the fiscal reform in Columbia and reason that is.
But also because the last -- there has been a change in global financial conditions for the market. So, in that sense, the movement of Columbia peso is consistent in terms of the trends, we've seen in other currencies in the region.
We expect that there will be some correction for the remainder of the year, because in our opinion, current levels contain an overreaction to recent events. We would expect that as the reform goes to the Congress and is at the end approved, there will be some relief in the next few months.
So, we expect that our expectation for the year of being around in the 3,600 to 3,700 is feasible for Columbia. And, of course, if conditions worsen in the country, maybe we could go to another type of scenario, but our baseline is that that's going to be the case.
Juan Carlos Mora
Thank you, Juan Pablo. Just to give you a general view on expenses that you mentioned.
The first quarter, the behavior of expenses was very good. I want you to take into account that the first quarter of 2020 was a normal quarter.
So, the performance of the expenses -- the base that we are using to compare, it's normal. So, we could expect that during the next half of the year, expenses will grow since the base that we are going to use, is going to be lower.
Since, we didn't have viable conversations in three quarters the follow -- the first one of 2020. So, our expectations -- our own expenses are they are going to grow because of that comparison base, but also because we will continue on our transformation program, evolving our platforms.
So, we are expecting that expenses will grow in the next quarter. Jose, would you like to do -- want to elaborate a little bit on that and also on the bond question that Yuri asked.
Jose Humberto Acosta
Thank you, Juan Carlos. No.
The question -- I think it’s very clear that the explanation about the forecasting, and then outlook for the expenses for the whole year. Regarding your question, Yuri, the bonus program, what happened is, last year in the first quarter, we were considering our bonus plan, assuming that the year will behave very well.
As the pandemic happens in March and April, rest of the three quarters, we not considering that time, the bonus plan. Meanwhile, this year, in the first quarter, we are considering our bonus plan, but the deeper insights now we expected a year ago, that explains why the labor cost drops, because the first quarter of last year, the bonus plan were on a normal basis and the bonus plan, this quarter is not abnormal basis, which means try to recover a certain level of net income.
That explains why. And our outlook for the next three quarters, regarding bonus plan is to maintain the same trend that you are seeing in the first quarter.
Obviously, all depends on the results and the net income of the bank. That is the main explanation why we see a change in the bonus plan comparison 2020, again, in 2021.
Yuri Fernandes
Thank you, everybody. Super clear.
Thank you very much.
Jose Humberto Acosta
Thank you, Yuri.
Juan Carlos Mora
Thank you, Yuri.
Operator
Our next question is from Julian Ausique with Davivienda Corredores. Please go ahead.
Julian Ausique
Hi. Good morning, everyone.
I would like to ask few questions. The first one is regarding the expectation that you have about the growth of -- loan portfolio.
And you said that you expect further because this year growth between -- some 8% [ph] that if we felt this is hearsay, and in the first quarter, we just saw an increase of 0.3% in developing Colombia. In the foreign operations, I would like to know how -- what is the rate of the expectation of their loans?
And my other question is regarding the provision. You already mentioned that you expected that provision grow a little bit, but I would like to know this growth would be -- you're expected that you will be during the second quarter -- second half of the year, or it starts the next quarter?
Thanks.
Juan Carlos Mora
Thank you, Julian. Let me pass your questions to Jose Humberto.
Jose Humberto Acosta
Thank you, Juan Carlos. Yes, Julian.
The loan growth is divided in three different buckets. The first one is commercial that we are expecting a loan growth aligned with the growth of the economy, that will be around 5% to 6%.
In consumer, we are expecting around 6% and in mortgage, we are seeing a positive trend during the last three quarters. So we are expecting that loan growth of around 8% to 10% in the mortgage business.
But all this growth, we are foreseeing that will happen in the second half of the year. As you probably mentioned, the first quarter, you have not seen any particular change, but in the last weeks we are seeing a particular change in trend.
So, probably that will happen third and four quarter, the loan growth. Regarding your question about provisions, that will be -- I don't know if it -- that will begin next quarter.
Next quarter, why? Because you are going to see some of relief program ending.
And what happened with the relief program in which you are going to see some deterioration. That explains why our view about provisions that in the second and third quarter clearly, you are going to see a higher provisions that you saw here in the first quarter.
And the main explanation is deterioration of the loan portfolio because of the reliefs and deterioration of the loan portfolio, because of the economic situation that we are having this year.
Julian Ausique
If I may, I would like to know -- thanks a lot to the first question. your expected [indiscernible] more devaluation of the Colombian peso because I don’t know, like -- I know that the numbers you gave out and the trends loan portfolio are there that you are expected something like the trend between Bancolombia and Central America and depends on the cost?
Jose Humberto Acosta
Right. When we talk about 6% to 8%, it's assuming interest rate at the end of the year, around 3,600, but obviously FX variations will change.
And going back to your question, we are seeing all the four groups Bancolombia -- in Columbia, Guatemala, El Salvador and Panama, all of the four groups are growing and the expectation is that will happen in the second half of the year. Maybe in Guatemala, we are seeing an economic activity right now and increasing the loan book, that will be the only one operation, which we have seen an important economic activity reflected in the loan book.
Julian Ausique
Okay. Thank you.
Juan Carlos Mora
Thank you, Julian.
Operator
There are no further questions registered at this time.
Juan Carlos Mora
Thank you everybody for attending this conference call. We appreciate very much your time.
We had a very -- a good first quarter. We have a strong balance sheet.
We are prepared to face what is coming for the next of the year. We want to be cautious and wait how things are developing, but the bank is well-prepared.
We are well-prepared for what's coming. We are optimistic that the situation could improve in the future, but we need to wait the next quarter, the second quarter to see how the pandemic is going to evolve and if the economic recovery, it's going on -- or it's going strong.
So, we will see you, I hope, in the presentation of our results for the second quarter of the year. Thank you very much.
Operator
This concludes today's conference call. You may disconnect your lines.
Thank you for participating, and have a pleasant day.