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BanColombia S.A. (CIB) Q4 2019 Earnings Call Transcript

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BanColombia S.A. (NYSE: CIB)
Q4 2019 Earnings Call
Feb 21, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to Bancolombia's Fourth Quarter 2019 Earnings Conference Call. My name is Jackie, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. [Operator Instructions]

Please note that this conference will include looking forward -- 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 the conference call, in future filings and press releases or verbally, addresses matters that involve risks and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC.

With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Mauricio Rosillo, Chief Corporate Officer; Mr. Jose Humberto Acosta, Chief Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mr. Jorge Humberto Hernandez, Chief Accounting Officer; Mr. Alejandro Mejia, Investor Relations Manager; and Mr. Juan Pablo Espinosa, Chief Economist.

I will now like to turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer of Bancolombia. Mr. Juan Carlos, you may begin.

Juan Carlos Mora Uribe -- Chief Executive Officer

Good morning, everybody, and welcome to our conference call for the fourth quarter of 2019. The net income to our 2019 was COP$3.1 trillion. This result represents a 17% increase versus 2018. The results of the year were in line with our expectations at the beginning of the year, although in the fourth quarter we saw provision charges and expenses growing faster than forecasted. During 2019, we saw how the Colombian economy had signals of recovery and remained resilient against global turbulence. We consolidated Bancolombia's strategy as the leading bank in Colombia, increased the customer base and continued positioning for growing earnings.

I would like to elaborate on some key points to understand our business today. First, macroeconomic environment and a poor performance in most Latin America, the countries in which Bancolombia operates, presented positive trends. Columbia's GDP accelerated from 2.5% in 2018 to 3.3%. This is the highest rate of growth in the past five years, and it is well above the average of the region.

Activity was driven by internal demand, particularly, private consumption and investment due to the combination of low and stable interest rates, ample financing conditions, and tax incentives for capital accumulation. Guatemala expanded at an estimated rate of 3.5%; that's 0.4% more than 2018 figure, due to the dynamism of services, construction, and retail. Meanwhile economic activity moderated in Panama to an estimate of 3.3%. This is explained by lower performance of sectors, such as construction and retail. El Salvador grew 2.5%, which is higher than the average growth of the past decade.

Looking ahead, economic perspectives are normally promising. We expect Colombian GDP to keep on growing steadily at 3.3% in 2020, driven by consumption and private investment. We expect manufacturing and construction to recover, while retail, the financial sector and infrastructure will be the fastest growing sectors. We expect Panama to expand between 3.5% and 4%, Guatemala 3.5% and El Salvador 2.4%. Despite some upward pressure in the first half of the year, we expect inflation in Colombia to remain within the Central Bank's target range allowing interest rates to remain stable during 2020.

Regarding trade demand, during the fourth quarter, we saw mixed trends in the loan portfolio, on one hand commercial loans grew slowly and were impacted by the appreciation of the Banistmo and some prepayments from corporate clients at the end of the year. On the other hand, consumer loans kept the positive trend served during the year, consolidating our strategy of rebalancing the portfolio. We have gained market share in Colombia and today we have 19%.

For 2020, we foresee improvement in commercial trade demand as a result of better economic conditions. We expect the consumer loans should moderate the base of expansion in line with the rebalancing of the demand components of the economy. Our expectations for growth in Latin America are also positive, and we expect the portfolio to expand between 5% to 7%. On a consolidated basis, we are expecting loan portfolio growth between 8% to 10% in 2020.

Regarding credit cycle evolution, I wish to emphasize the fact that during 2019, we had the provision charges that we forecasted at the beginning of the year. Cost of risk for 2019 was 1.9% in line with our expectations. Provisions were 11% lower than charges recorded in 2018, which indicates improvement in the portfolio quality and reduction in new past-due loan formation. During the year, we saw positive [Technical Issues].

Hello, Jackie.

Operator

[Foreign Speech]

Juan Carlos Mora Uribe -- Chief Executive Officer

[Foreign Speech]

Operator

[Foreign Speech]

Juan Carlos Mora Uribe -- Chief Executive Officer

Hey, sorry for the interruption. Yes, I will continue with general remarks. During 2019, we saw a positive evolution in credit quality, nevertheless in the fourth quarter, we had an increase in provision expenses mainly explained by two factors; provision charges associated to some corporate cases in Central America and the updated parameters for our expected loss models in Guatemala. The portfolio of SMEs and customer loans presented a consistent positive performance during the year, due to the provisions we made that coverage ratio ended at 194% at the end of the year.

Regarding expense evolution, during 2019, expenses had a negative evolution a deviation versus our estimations. During the fourth quarter, we had three main reasons that impacted expenses. Average FX was higher during the quarter and the year. There was an increase in expenses associated to foreclosed assets due to our strategy to improve the collection process. And personnel expenses increased because of adjustments to bonus plan payments due to higher earnings generated during the year.

Now I am going to talk about the business evolution, and I would like to share with you some of the aspects that explain the performance of Bancolombia. 2019 was a year of many achievements, and we are pleased with the positive evolution of our business. I want to highlight the success of the commercial strategy. During the year, we added 2.6 million new customers reaching more than 15 million in total. Out of this figure, 4 million customers are in our digital platforms Nequi and Bancolombia La Mano. Bancolombia's digital channels are generating about 20% of the new product sales, which has improved customer experience and simplified the on-boarding process.

Finally, we reached 16,000 banking agents. This is a channel that increases the bank's popularity and permit us to be more flexible and tackle market changes. We have this new channel in Guatemala and Panama with very positive results in these operations. Thanks to this strategy, Bancolombia has more than 40% market share of transactions in the Colombian financial system, which brings the benefits of a stable and diversified funding base and a large customer universe.

With these elements in mind, I want to turn the presentation to Jose Humberto, who will expand on the results of Bancolombia. Jose Humberto?

Jose Humberto Acosta Martin -- Chief Financial Officer

Thank you, Juan Carlos. I want to make a reference to the performance of international operations, which you can see in Slide Number 5. I would like to highlight a couple of general trends presenting all of them. First, we have managed to achieve the coverage ratios between 150% and 270% strengthening our balance sheet. Second, the fee income has been growing between 7% to 18%, driven by the promotion and utilization of debit cards and services related to our retail business, as well as bank assurance.

Finally, I would like to point your attention to the loan portfolio breakdown for each geography. When we see the large proportion of commercial loans in Colombia and Panama, we can explain better the slow growth of the portfolio as these segment did not expand in 2019. We expect to maintain these positive trends across our operations in 2020.

In the Slide 6, we present the loan growth. During 2020, the loan growth -- During 2019, the loan growth expanded below our expectations and grew 5%. We experienced mixed trends in credit demand. By currency, we had an 8.7% growth in pesos, mainly explained by the consumer portfolio, while in dollars there was a 4% decrease, mainly due to the low credit appetite and prepayments. On one hand, commercial loans, which represent the largest proportion of our portfolio did not grow during the year as a result of weak demand from large corporations and prepayments at the end of this year.

Consumer loan demand was strong across all geographies, and grew 23% during this year. As a result, we have reached a 22% share of our portfolio in line with our expectations and helping NIMs and profitability. For 2020, we expect the consumer loan growth at around 15% and our commercial loan growth at around 6% for the total growth of at around 8%.

On Slide 7, we see the evolution of margins. The annual compression from 5.8% to 5.7% is the result of the combined effect of two new accounting standards adopted by Bancolombia. IFRS 9 reduced the revenue generated by the loan portfolio due to this stop of accruing of loans classified as Bucket 3. IFRS 16 increased the interest expenses associated to the assets on leasing agreements. The evolution of securities NIM during the year was positive because of the reduction in deal of Colombia sovereign bonds. The proportion of securities is 7% of the total assets. We expect to maintain an investment NIM of around 100 basis points for our securities portfolio, which is the spread between our securities portfolio yield and the funding cost. For 2020, we are expecting a stable total NIMs of around 5.7%.

In the following Slide Number 8, we see the net interest income and the evolution of the funding cost. In line with the evolution of assets, net interest income grew 7% during the year. This performance was the result of our growth of the consumer loan portfolio and our effort of bringing down the funding cost by promoting savings and checking accounts. We must highlight the consolidation of savings account as the main funding vehicle with a 35% share of total funding and reducing the cost by 7 basis points. Net loans to deposit decreased to 109% coming from 116% during the quarter, impacted by basically two factors; the loan portfolio decreased 1% in the last quarter of the year and deposit grew 5% in the same quarter. Looking forward into 2020, we don't expect change in the Colombian revenues rates in the near term and therefore, we expect stability in funding cost.

In this Slide Number 9, we present the provision charges. 2019 was a year of improvement in the credit cycle. Provision charges were 11% lower than 2018. The cost of risk for the deal was 1.9%, which was in line with our expectations. As Juan mentioned at the beginning of the presentation, the increase in provision expenses in the last quarter was mainly driven by two factors; the provision charges associated to some corporate cases in Banistmo and the update in parameters for our expected loss models in Guatemala. The coverage ratios increased to 134% for a 30-day past due and 194% for 90-day past due. For 2020, we see an improvement in the quality of the loan portfolio as a result of better conditions of the economy and the performance of the vintage originated in 2018 and 2019. We forecast that the cost of risk will be at around 1.8% at the end of this year.

The next Slide Number 10 shows the past-due loan formation. The COP730 billion new past-due loan formation is mainly explained by Ruta del Sol, where we have an exposure of COP330 billion and was not past due in September. Other segments like commercial and consumer loans deteriorated in line with our forecast. We expect to maintain the recovery path in 2020, and as we mentioned before, we forecast the cost of credit to be at around 1.8% in a macroeconomic environment, where inflation and interest rates will remain stable.

Slide Number 11 shows the evolution of fees. Fees continue growing during 2019 and expanded at a level of 9% for the full year. We had a very positive evolution of fees associated to payments with debit cards, bancassurance and cash management, and expect that these products will continue, leading the growth this year. Our key driver for this evolution is our strategy to acquire more customers and promote utilization of our services across all geographies. Our international operations also posted a good performance of fees, BancoAgricola grew 13% and Banco Agromercantil grew 19%. The fee growth forecast for 2020 will be between 8% to 10%.

Slide Number 12 shows the evolution of expenses and efficiency. This is the point where we had an important deviation from our forecast for the year, as opex grew 10% during the year 2019. As we explained at the beginning of the presentation, there are several factors that affect that number. The FX volatility during that year represented COP97 billion in expenses above our budget. This amount contributed with 2.2% out of the 10% growth. As a result of our initiatives to normalize some loans in default, we increased the amount of foreclosed assets, which required additional charges of COP94 billion. Nonetheless, this strategy has had a positive impact in the quality of the loan portfolio. This amount contributed with 1.3% out of the 10% growth, and the main impact occurred in the fourth quarter of this year.

Finally, the 60% growth in net income in Colombia was the main contributor to increase in charge of bonus payments. This amount contributed with 1.2% out of the 10% growth. As you can see those three effects accounts for 4.7% out of the 10% growth in opex for 2019.

On Slide 13, we see the evolution of equity and capital ratios. Bancolombia's capital ratios today are at a comfortable level and we intend to maintain Tier 1 ratio levels between 9% and 10%. In the last quarter, Bancolombia executed a liability management transaction that not only enhance the Tier 2 ratio levels in approximately 50 basis points, but also improve the capital quality since the new bond is Basel III compliant. The cost of this new capital was phrased at a historical low levels.

Finally, I want to present the return on equity for the year, which was 12.1%. I want to highlight a positive evolution of return on assets, which are starting to grow from the bottom of 2018. Leverage today is lower and as the loan portfolio starts growing faster, we should see a return on equity expansion as well.

Juan?

Juan Carlos Mora Uribe -- Chief Executive Officer

I want to end these remarks telling you that we are happy with the results of the 2019. 17% increase in net income is a good result. Last, the fourth quarter, we saw some results that were not in line with our expectations as we mentioned, particularly provisions and expenses. But although those results, we can affirm that the results of 2019 were good. Related 2020, we are expecting a growth in the loan portfolio of around 8% to 10%. We will continue undertaking our commercial strategy, which has been very successful so far. Adding new customers will allow us to do additional business with them.

Regarding NIMs, we are expecting them to be around 5.7%. Fee growth will be between 8% to 10%. And we are expecting an improvement on the credit conditions, so we are foreseeing 1.8% cost of risk for 2020. With all of these numbers, we are targeting an ROE for 2020 between 13% and 13.5%.

After this information, I would like to open the line for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from Brian Flores with Citibank. Please go ahead.

Brian Flores -- Citibank -- Analyst

Hi. Thank you for the opportunity. Just a quick question or follow-up in the topic of provisions. How recurrent are these or is this more of a front-loading of the expected loss model in Guatemala and [Indecipherable] that we will see going forward? And just a second question, in terms of net income growth, what are your expectations for 2020? Thank you.

Juan Carlos Mora Uribe -- Chief Executive Officer

Thank you, Brian. The case is -- the second one that you mentioned, it's just a one-time adjustment to the models in Guatemala, due to the behavior of the -- basically, credit cards and consumer loans in that country. So it's more -- but we are adjusting our models to the behavior of those loans -- of those portfolios in Guatemala. Regarding net income...

Jose Humberto Acosta Martin -- Chief Financial Officer

Regarding NII assuming that as Juan mentioned in his presentation that the loan growth will be 8% to 10%, we are aligned the NII growth at the same level. And the main rational because -- it is because we are not expecting a big change in interest rates. So we are expecting to maintain the NIM. So at the end of the day, NII will grow in line with loan growth.

Operator

Our next question comes from Andres Soto with Santander. Please go ahead.

Andres Soto -- Santander -- Analyst

Good morning, Juan Carlos and Jose Humberto. Thank you for the presentation. My question is, maybe a follow-up on the topic of cost of risk. I understand that they are recurring and non-recurring factors in the 2.5% that you reported in the fourth quarter. So it will be helpful for me to split up between those two and understand what is the recurring cost of risk for the fourth quarter. So I have a key number to compare with a 1.6% that you reported last quarter and the 1.8% that you reported in 2020. And my second question is regarding your guidance. I'm not sure you provided any guidance in terms of expenses, in terms of expense growth or efficiency. So if you can please give me that number, it will be helpful as well. Thank you.

Jose Humberto Acosta Martin -- Chief Financial Officer

Regarding cost of risk, yes, Andres, our -- remember that our new standard in terms of cost of risk for the new -- for the 2020 would be 1.8%. What happened again in the fourth quarter as a result of the change of models in Guatemala, you see the numbers and the answer of Juan. And what's happening in Banistmo, specifically, was up a couple of corporate cases in which with the level of provisioning that we are registering in this quarter we perceive that we don't need to increase those provisions for the whole year, basically because the level of warrantees that we have with those clients. So again, the big deviation was mainly driven by those geographies in Colombia, we are having a very, very good performance of the loan portfolio. We have had some cases that increases the provision but nothing out of the range. So again the normal cost of risk will be 1.8%.

Regarding your second question, our guidance for expenses for the next year would be -- to be at around 6%. Let me elaborate why we are planning to be in the range of 6%. Basically because if you double check the expenses of the last year, most of them are related to IT, related to new investments in technology to develop new products. So we are continuing, and you see that the answer, and the results of that is what Juan mentioned, increasing our customer base, improving -- implementing more perks, we are investing in our geographies as well. So that's the reason why we have to maintain this part of growth and the main driver will be IT and the development of new products.

Juan Carlos Mora Uribe -- Chief Executive Officer

I just want to compliment, Andres, plus Humberto's answer. We are seeing a very good commercial dynamic, and the transformation of the bank is going ahead with a lot of new developments. So we will keep our eyes on expenses growth is important and efficiency is important, but we need to balance the growth of the business and how to maintain expenses under control. So we will be balancing both. So what we are saying is, we will keep investing on some expenses, particularly in IT, and business transformation will be there. That is probably the main driver around the expectations of expenses growth around 6%. But we will keep working on expenses. We are not saying that this is not a focus of the management, and that we need to keep improving. So we will be keeping a balance between transformation and expenses.

Operator

Thank you. [Operator Instructions] Our next question comes from Ernesto Gabilondo with Bank of America. Please go ahead.

Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning, Juan Carlos and Jose Humberto and good morning, everybody. Thanks for the opportunity to my questions. My question is a follow-up in expenses. I agree opex could normalize if we have a more stable FX and if there are no longer expenses related to foreclosed assets. So, are you evaluating to negotiate IT or advisory contracts denominated in dollars since the beginning of the year to reduce the FX volatility?

I don't know if you have calculated how much is a sensitivity in expenses for a 1% depreciation of the Colombian peso against the dollar? Any color will be very helpful. And then, only just one last question, I heard that it's only one, but if loan growth accelerates and if provision charges and opex normalize from last quarter, can we continue to see the same pace of net income growth that we saw in 2019? Thank you.

Jose Humberto Acosta Martin -- Chief Financial Officer

Thank you, Ernesto. Beginning from your last question, yes, loan growth and NII, as we mentioned in the previous question, it will grow at the same level, meaning 8% to 10% NII. And we are able to sustain them, we will be able to maintain that trend. Regarding the opex and the normalization, you are right. We had a spike in terms of certain expenses. We, internally, in the bank, we have our coverage, we have our derivative for the local expenses related to U.S. dollars.

So, we are maintaining a strict control in those expenses tied to U.S. dollar. But, again, remember that the 30% of our operation has expenses and they have also a natural coverage because of NII as well. So, to give you some idea, inflation is not affecting the performance of the bank because as increased the expenses also is increasing the net interest income coming from the U.S. dollar operations. So, at the end of the day the impact is flat.

Juan Carlos Mora Uribe -- Chief Executive Officer

It's the FX not inflation.

Jose Humberto Acosta Martin -- Chief Financial Officer

The FX, not inflation, sorry. The FX, I was talking about FX. I'm sorry about that. And our sensitivity for the evaluation, obviously is -- it is not as important as you probably see. Because, again, we have a natural coverage for the international operation.

Juan Carlos Mora Uribe -- Chief Executive Officer

Ernesto, and I want to elaborate a little bit more on your second question and remark. I think that we have been building a very strong balance sheet. We are having coverage of quasi loans that is very strong. So, for us, I think 2020 is a year that we see as a positive year in which we are going to consolidate many of the actions that we took during 2019.

Also, remember that during the last two years, we have had a lot of accounting changes related to new accounting rules. And those are going to be -- in 2020 we will not have many of them. So, we see 2020 as a positive view.

Operator

Thank you. Our next question comes from Thiago Batista with UBS. Please go ahead.

Thiago Batista -- UBS -- Analyst

Hi, guys, thanks for the opportunity. I have one question about the Colombia's -- if you can talk a little bit about your strategy to expand the use of the digital platform, especially Nequi? And how big Nequi can become? Looking to the number of clients it already achieved more or less -- little bit more than 10% of total Bancolombia's clients. So, if you can talk a little bit about your strategy to expand the Nequi?

And just a small follow-up about margins. You already mentioned that in 2020 the most likely scenario is a flattish earning. But when I look at your loan mix with a much stronger loan growth in consumer segment and also with no pressure from the cost on the funding side, so why not a more especially in margins considering this change in mix and without any kind of funding pressure?

Juan Carlos Mora Uribe -- Chief Executive Officer

Thank you, Thiago. Related Nequi, we are seeing a very positive trend and a very positive growth of our digital perform Nequi. Today, we have 2 million customers in that platform. We are growing at a pace of close to 100,000 new customers a month. We are adding new features to the platform. Since last year we are offering credits through this platform, also we are offering different products and services. So, the platform is stronger and it's becoming very popular among a segment that use it on an everyday basis.

So, we are very positive. We will continue developing the platform and adding new features especially related with credit products. And the trend that we are seeing allow us to think that we will continue growing at a very good pace.

As I mentioned, we have in total, in Bancolombia, around 15 million customers. Out of those 15 million, 4 million are in our digital platforms. We have two digital platform; one is Bancolombia la Mano, which is our banking inclusion platform and Nequi, which is more, it's targeting young people that are on their bank basically.

So, to just summarize, we are very positive. We see very good trends and we will continue adding features to the platforms that allow us to think that it will continue growing on a very healthy base.

Jose Humberto Acosta Martin -- Chief Financial Officer

Thiago, regarding your question of NIM, we have three different forces. And at the end of the day, the impact will be almost flat and that's the reason why we are seeing to maintain the same NIM. The first one is on the upside, the consumer loan growth, yes, we are expecting loan growth this year 2020 at around 15%, that will give us certain level of increase of the NIM, but we have also the sign up loan growth in commercial of around 6% and you know that these kind of loans have a tighter NIM and tighter spread.

So, combined those effects, I would say that in terms of income, interest income coming from the loan portfolio, that would be the same.

There are another force, which is the funding side. Yes, because we have had a strong coverage of our retail business. We are grabbing the liquidity from the market in terms of checking accounts and savings accounts more than 45% of the liquidity of the country. And we have an additional strong funding base, which is the capital markets.

We are very active on the local and the national capital markets and we are able to grab the liquidity from those markets at a very competitive interest rate. So those are the rationale why we believe that the NIM will be sustainable in our environment of our flat rate of the Central Bank.

Juan Carlos Mora Uribe -- Chief Executive Officer

And related, the loan mix that you mentioned, we declared a couple of years ago that we want to add more consumer loans to our books. And that's what we have been doing during these two years. We expect that trend to slow down. We need to take into account market conditions. In 2020, as Jose Humberto mentioned, consumer loans are going to grow around 15%. That's less than the growth that they had during 2020, but commercial loans are going to grow around 10%. So, still we will add some more consumer loans than commercial loans. But we are feeling now much more comfortable with the loan mix that we have in our books on the relationship between consumer and commercial loans is reaching the point in which we feel comfortable.

Operator

Thank you. Our next question comes from Rodrigo Sanchez with Davivienda Corredores. Please go ahead.

Rodrigo Sanchez -- Davivienda Corredores S.A. -- Analyst

Yes, good morning, and thank you for taking my questions. The first one is, could you repeat or maybe expand a little bit on the higher provisions incorporating Panama? And is this something that we could expect to see again going forward? And also, could you please give us your guidance on growth for the mortgage portfolio for 2020? Thank you.

Jose Humberto Acosta Martin -- Chief Financial Officer

Rodrigo, the provision is explained mainly in some corporates in two sectors. The first one is the energy and the second one is the real estate sector. And the level of provisions as we mentioned during this -- the level of provision is, we believe that's enough because the level of warranties that those clients have in our loan book. So, we don't expect more iteration in the Banistmo operation regarding those specific cases.

Regarding your second question, regarding mortgages, the loan growth in mortgages this year 2019 was 5%. Obviously, the key driver here is what happened in Colombia. And for the next year, we are expecting mortgage loan growth at around 8% to 10%, basically, because we are perceiving a rebound in the mortgage business here in Columbia. The main driver will be the Colombian operation.

Operator

Thank you. Our next question comes from Alonso Garcia with Credit Suisse. Please go ahead.

Alonso Garcia -- Credit Suisse -- Analyst

Good morning, everyone, and thank you for taking my question. I would like to follow-up on expenses. So, this year 2020, you are expecting 6% growth. So, my question is after stage of heavy investments, should we expect a convergence of opex levels to inflation levels in the foreseeable future? And what is the level of efficiency that you see from here? Thank you.

Juan Carlos Mora Uribe -- Chief Executive Officer

Thank you, Alonso. Heavy investments, yes, we are investing and improving our -- the way we reach the market. And as I mentioned, commercial strategy has been very successful. Our target is to converge to inflation. As I mentioned in one answer before, that is not easy because we need to balance how to grow, how we are more efficient, how we compete in the market with expenses. So, we will continue working on that direction. That's what we want.

Definitely, this year, we don't see that we are going to converge to inflation in terms of how expenses are going to expand, but we will continue in that direction. We will see how the competitive environment develops, but that's our target.

Related efficiency ratio, we are targeting to be below 50. It has been difficult to go below 48%, 49% in Bancolombia because of the reasons that I mentioned.

So, what I can assure you is that we will continue working on being more efficient, but we need to balance how the banks become competitive in the market and transform itself and add more digital features and expenses. So, we'll continue balancing both aspects, but be sure that expense is a focus of the management and we need to keep working on that direction.

Operator

Thank you. Our next question comes from Sebastian Gallego with Credicorp Capital. Please go ahead.

Sebastian Gallego -- Creditcorp Capital -- Analyst

Yes. Hi. Good morning, everyone. Thanks for the presentation. Just have an additional follow up on opex. Can you provide some more color about what kind of investments are you doing in IT in terms of the amount and how does that compare to previous years? Thank you.

Juan Carlos Mora Uribe -- Chief Executive Officer

Sebastian, the investment in this business is not anymore an investment that you do one-time and you wait 10 or 15 years for the next investment. Digital transformation and adding new features, it's something that you do on a continuous way. That means how you transform your processes to digital, how you add robotics, how you add cloud features to your IT infrastructure. So, I cannot say that we are at the peak of the investments. We will continue investing in the following years at a pace similar as the one -- at the pace that have invested in the last three or four years.

And just to give you an idea in what we call transformation and investments, we are doing around $120 million to $150 million a year in transformation, and that will continue because we cannot just say that we are done with IT investments. That will continue because its transformation from legacy systems to new ones and also adding new capabilities and new features to compete in the market.

Operator

Our next question comes from Yuri Fernandes with JPMorgan. Please go ahead.

Yuri Fernandes -- J.P. Morgan -- Analyst

Thank you, gentlemen. I have a follow-up on ROEs. I remember the transformation ROEs this year to be around 14%, 14.5% and maybe moving to 50% to 60% in 2021. But now I guess the guidance you provided is like around 13% to 13.5%. So I, would like to ask what has changed here, it's basically the compound effect from high expenses? Why ROEs should be on those 13% level? That the first one.

And my second one is regarding G&A. I know many people explored this topic already. But if I look here on -- and again, I understand the FX effect, I understand the foreclosure and your investments on digital transformation. But the main line that caught my attention here was personnel expenses. It was up like 12% year-over-year in the full year and mainly driven by bonus, up like 27%?

So, my question is, what explains it? Like, how is this related to the digital transformation, and how should we expect personnel expenses line to behave in the future? Because if I look at the number of employees, it has been mostly flat year-over-year. Thank you.

Jose Humberto Acosta Martin -- Chief Financial Officer

Okay, Yuri. Regarding the reason why the return on equity we are moving the guidance is, there is a specific line in our balance sheet that grew more than the other lines, which is capital.

If you double check our last three years, we have been growing below 10%. And we have been increasing our capital about 13% on average. That means that we are grabbing more capital and that's one of the reasons why the return on equity is coming down because our strong level of capital that we are having today.

Remember that every time that we grow more than 12% to 15%, we begin to increase and to use the capital and that will be the rationale. When the bank, again go back to the path of growth 10% to 15%, you'll see a much better return on equity. And that's finally the reason why we are talking about around 13.5% at the end of this year, because the main driver will be loan growth and that would be, again 8% to 10%.

Regarding your second question, what we expect in terms of bonus plan for Bancolombia in the next coming years, that was up big 27% of this year, because again the most profitable operation in in Colombia was -- in Bancolombia was Colombia. But we are touching almost a ceiling in terms of bonus plan. Remember that we have a cap, which is the top would be -- or the cap would be six-month salaries per year as a bonus plan. So you are not going to see a huge deviation in terms of bonus plan for the next coming years, because we are assuming that the range today is under a very good performance of the bank in Colombia.

And in expenses, yes, it is a pickup in the fourth quarter. Right now, we are doing some adjustments for the next coming three quarters in order to avoid that volatility regarding some issues or regarding some expenses. So you will see the next coming quarters are flattering in terms of the expenses growth and try to reach as Juan mentioned the 6% level.

Operator

Our next question comes from Gabriel Nobrega with Citi. Please go ahead.

Gabriel Nobrega -- Citi -- Analyst

Hi, everyone. Thanks for the opportunity to ask a question on our side as well. So just a quick follow-up on the ROE question. I just wanted to maybe understand what is your sustainable ROE being that we have already seen levels of around 16% in the past couple of years. So if you could just maybe elaborate a bit more on what are the main levers that you will be working on to expand ROEs? And when do you believe that we could reach maybe levels of 16% again. Thank you.

Jose Humberto Acosta Martin -- Chief Financial Officer

Regarding ROE, we are foreseeing on how we are going to get the 15% to 16% return on equity, and we see that if you discern under the numbers of the bank, we have to maintain cost of risk level of 1.8%, we have to maintain our NIM at around 5.5% area, we have to maintain a loan growth 10% to 15%, we have to maintain expenses in between -- the expenses growth 4% to 6%. So those will be the numbers that we are designing for the next coming three years in order to reach that level of 15%.

Remember that today, the NIMs have been compressing, interest rates are very low. So there are some macro conditions also that getting the 16% was very complex. We had a 20% many, many years ago, because inflation at that time was different. Interest rates was very different. So if you calculate assuming the macro environment, the 15% would be reachable in two years or three years based on the numbers that we told you.

Operator

Our next question comes from Carlos Gomez with HSBC. Please go ahead.

Carlos Gomez -- HSBC -- Analyst

Yes, thank you very much. I would like to ask you what your expectation is for the tax rate in 2020 and 2021? And this is not the question, but I think before you were asked several times about your expectation for net income growth for the bottom line rather than just NII, perhaps you want to elaborate on that? Thank you.

Jose Humberto Acosta Martin -- Chief Financial Officer

Regarding -- thank you, Carlos. Regarding your circle question NII growth...

Carlos Gomez -- HSBC -- Analyst

No, not NII. Net Income.

Jose Humberto Acosta Martin -- Chief Financial Officer

Net income. The Net income -- we are expecting to get a net income at around in between COP3.4 billion, COP3.5 billion at the end of this year. And the main driver will be again loan growth and assuming NIM, assuming cost of risk as we design, and most important, assuming an opex growth in between 5.5% to 6%. So that would be the number that we are designing. Obviously, in the middle will be the volatility of FX that this year or last year affected us in a very important way.

Regarding taxation, we believe that this year 2020, this tax would be in between 28% to 30%. And remember that the positive numbers comes from the operation that has the highest level of the statutory tax, which is Colombia, and the numbers of the international operation, if they are lower than expected the tax at the end of the day in a consolidated basis would be 28% to 30%.

Carlos Gomez -- HSBC -- Analyst

[Indecipherable]

Jose Humberto Acosta Martin -- Chief Financial Officer

And the Tier 1 you asked Carlos. I'm sorry. Hello. If you ask for Tier 1, the Tier 1 our range, so we design based on the conditions of loan growth and macro conditions is to be the branch of 9% to 10%. If that was your question, Carlos. We couldn't hear you. Sorry.

Operator

And our next question comes from Nicolas Alfonso with Compass Group.

Okay, the line closed there. And at this time, we have no further questions.

Juan Carlos Mora Uribe -- Chief Executive Officer

Thank you, everybody for your interest on our conference call. I want to reaffirm that we are happy with the results of 2019. There were two items that were not in line -- or in the fourth quarter were not in line with our expectations. But for the year, we think, other than expenses, we were in line with our expectations and guidance, and reassure that we are positive on our views -- on our view for 2020. We are acquiring new customers. We are adding new products and services to serve those customers. The commercial dynamic case is very good. We foresee an economic environment that is going to help our strategy. So we remain positive for 2020. We will consolidate many of the changes that we have been doing for the last three years during this year. So we will expect to deliver the results that we are telling you that we will deliver. So we will be following this during the year.

And we hope to see you for the presentations for the results of the first quarter. Thank you very much and have a good day.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Juan Carlos Mora Uribe -- Chief Executive Officer

Jose Humberto Acosta Martin -- Chief Financial Officer

Brian Flores -- Citibank -- Analyst

Andres Soto -- Santander -- Analyst

Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst

Thiago Batista -- UBS -- Analyst

Rodrigo Sanchez -- Davivienda Corredores S.A. -- Analyst

Alonso Garcia -- Credit Suisse -- Analyst

Sebastian Gallego -- Creditcorp Capital -- Analyst

Yuri Fernandes -- J.P. Morgan -- Analyst

Gabriel Nobrega -- Citi -- Analyst

Carlos Gomez -- HSBC -- Analyst

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