Grupo Cibest S.A. (CIB) Q3 2018 Earnings Report, Transcript and Summary

Good morning, everybody, and welcome to the conference call for the third quarter. Before presenting information about the Bank, let me do a quick reference of our view of the current macro situation. In Colombia, we have seen a more dynamic economic growth during the quarter. Through this year, GDP has expanded at a higher rate with respect to those seen in 2017, thanks to a recovery in general demand and a two digit growth in exports. For third quarter 2018, our growth estimate is 2.5% and for the whole 2018, it's 2.6%. There is a scope for further acceleration in 2019, which will be driven by investment leading to a growth of 3.2%. Over the past few months, inflation has remained within the central bank's target range. As a result, interest rates have been stable as well. We forecast two hikes towards the second-half of 2019 when the economy will be growing closer to its potential. We have seen progress in the government's effort to address the fiscal deficit. Last week, the administration submitted to the Congress a law proposal to modify the tax code. According to our estimate, this initiative will allow the central government to meet next years deficit goal. It will also introduce measures that will reduce the tax burden for private companies. The initiate also contemplates adjustments to the VIP, which will exert a temporary pressure on inflation and a short-term deceleration of private consumption. Despite these effects, this proposal is a necessary step in the process of fiscal consolidation to which Colombian authorities are fully committed. Finally, in the external front, we have seen a positive evolution in the trade balance. The current account deficit will remain close to 3.4% of GDP and current oil prices are supportive of this trend. Despite recent volatility in financial markets, our analysis show that the Colombian economy can address the further tightening of global financial condition. Having said this, I want to share with you the plans that we have implemented to execute our strategy and improve profitability. We have defined the following pillars: grow faster in consumer loans and new product sales; increase consumer base to generate new revenues and improved profitability; reduce the cost of the bank especially those related to transactions, on boarding, and operations; adopt digitalization as a lever to integrate all the strategies and the three pillars I just mentioned. Let me elaborate about these elements. Regarding growth in consumers loans, we want to be more convenient and focus our initiatives around clients, transactions, and products. This will permit to increase the profitability of the bank by growing faster in retail and selling more products to existing customers. Digitalization plays a key role in this imitative as the adoption by customers is getting more relevant. Currently 50% out of the 10 million customers in Colombia have digital presence. 12% of new sales of retail products are conducted via digital channels. Currently we are opening our savings account in 7 minutes, before it took us 35 minutes. Also 14% of new personal loans are originated by digital channels. 75% of the total monetary transactions that Colombia performs are done through digital channels. We are creating new revenue streams, delivering products faster to the clients and reducing operational expenses. Regarding the growth of the consumer base, we want to offer a complete financial solution through high service standards, this include offering digital experiences to customers without paperwork and very low marginal cost for us. Today more than 3 million individuals use Bancolombia's mobile platform and conduct about 200,000 transactions per day. Also, more than 14,000 SMEs perform daily transactions with the SMEs app. There are two key components connected with this goal. First, to make the on boarding process faster and easier. Today we have more than 9 million personal clients in Colombia and the number is growing 10% per year. Also, we have more than 1.5 million SMEs, and the number grows 15% per year. We want to bring as many clients to the Bank as possible in a profitable way. Our digital platforms, Nequi and Ahorro a la Mano, have now more than 1.5 million clients. These channels grow rapidly in number of users, more than 50,000 per month and are a great way to bring onbank individuals to Bancolombia with very low on boarding cost. Second, to use data and analytics to make – predict payment capacity of clients, potential trouble loans, allocate resources to better risk adjusted plans. This has permitted to grow from 1.7 million pre-approved loans in 2015 to 2.5 million today, which represents new loans of 1.9 trillion pesos. Regarding cost control initiatives, we want to implement processes and leading technology to provide a comprehensive platform to our clients with lower margin costs. The main elements to do so are a robust process automation strategy. Today we have more than 300 processes intervene, ranging from collections to reporting and underwriting. Similarly at the desktop level the use of automation has permitted to reduce execution time of some client facing processes by 60%. These robots have liberated 300,000 man-hours per year and have tangible benefits like reducing - reductions in costs by $7 million per year and improving the collection process which has prevented the deterioration of COP 180 billion in loans. The second element is to focus on more efficient channels like mobile, internet, and banking agents. The number of monthly monetary transactions in Bancolombia grew 12% over last year. Nevertheless transactions in branches declined 12%, while transactions through mobile grew 31% and through banking agents grew 40% in the same period. I want to make a special reference to the network of banking agents which permits to offer clients an easier ways to do transactions and leverage pressure from the network of branches. This is the fastest growing channel in terms of transactions and permits to turn fixed cost into variable cost. Today, we have more than 11,000 agents that conduct 18% of the total monetary transactions of the bank. This is more than 500,000 per day. This is a great achievement that give us a unique competitive advantage in Colombia, where the population is spread and still uses a lot of paper of cash. No other bank in Colombia has a network of this size and currently we are replacing this initiative in our operations in Central America. A tangible benefit of the cost control initiatives is the evolution of expenses in the last year, decreasing 1.3% for the first nine months. We expect, to the end of 2018, we have an OpEx growth of 12% and sustained pace in 2019, helping the cost to income to converge to our target of 45% to 46%. In summary, we continue developing our strategy around digitalization to change the loan mix and grow faster our consumer base and pace the funding strength and reducing expenses. Our goal is to improve margins efficiency and to achieve the target profitability of 16%. With this element in mind, I want to ask José Humberto to give you an overview of the main topics that are driving our business today. José? José Humberto Acosta Martin: Thank you, Juan Carlos. After hearing this presentation about the strategy, I want to present the results of the bank. The net income of the third quarter was COP 543 billion. We assess the overall performance of the quarter as positive. We were able to maintain the NIM and keep expenses under control. The most relevant event during the quarter was the anticipated review of the allowances related to three large corporate plans, and as a result the coverage increased in a significant way. Having said this, let me elaborate briefly about the three main topics that drove the results of the bank during the quarter: first, the loan growth; second, evolution of NIM; and third, a provision level and the coverage. Moving on to Slide 8, regarding the loan growth, the portfolio presents a similar trend to the one-off charge during the first half of this year, that is a slow pace of expansion due to a weak demand from the corporate sector. We continue our strategy to grow faster in consumer loans, still targeting low risk clients with better risk adjusted returns. As a result, consumer loans represent today 18% share of the overall consolidated portfolio. What is important here is the fact that the consumer loans present a good quality evolution and there is no deviation from the initial forecast. On a consolidated basis, the Bank has grown 11.5% consumer loans over the last year and 1.8% commercial loans. The pace of growth is different among the different countries and it is correlated to the economic cycle. For example, Colombia's operations have grown faster in consumer loans at a level of 16.2% year-on-year, and Banco Agricola in El Salvador follows the 4.1%. Regarding commercial loans, Banco Agricola presented fastest growth with 7.4% year-on-year. In October in Colombia, we saw a positive evolution of loan growth in both business clients, commercial and consumer. For the year 2018, we estimate the total loan growth of around 5% and in 2019 the growth should accelerate to reach levels to 8% to 10%. In Slide 9, regarding interest revenue and NIM, we have seen the top line of the bank evolving in line with volumes rather margins. Loan volumes growth is mainly the result of lack of investments from corporate's and SMEs. This means that maintaining the NIM is the key, and has been a key focus of our strategy in 2018. During the third quarter, we saw stability in margins and we concentrate efforts in attaining the cost of funding in low records. In order to do so, we focused on growing fast in savings and checking accounts and reducing the duration of the time deposits and lower the cost. The NIMs per geography are the following: in Colombia 6.23%; in Banistmo, Panama, 3.92%; in Banco Agricola in El Salvador, 6.83%; and in BAM in Guatemala 5.43%. The NIM expansion in Banistmo and Banco Agricola is influenced by the interest rates hike in the U.S. and the fact that these banks operate in dollarized economies. Also the change in mix as a greater proportion of consumer loans has permitted to contain higher asset yields and contribute to the NIM stability. The current liquidity conditions in the market have permitted to increase our funding base from checking and savings accounts. We believe that we are reaching unclaimed in the repricing of the balance sheet and therefore we don't expect big movements in NIMs in the coming couple of quarters. For the year 2018, we estimated the NIM at around 5.7% to 5.8%. Third, provisions and coverage, on Slide 10. This is a key topic during this year, as you know, certain corporate defaults drove up the cost of risk during the last year. The assessment that we did about Electricaribe, Ruta del Sol [indiscernible] Bogota, led us to do provisions that impacted the bottom line. The rationale of these decision is to reach the coverage target of these clients and open the way for 2019, when we expect to have a lower cost of risk. In Electricaribe we went from 62% of coverage in June to 84% in September. In Ruta del Sol we went from 19% coverage in June to 26% in September; and in Consorcio Express, the massive transportation system, the most relevant company, we went from 36% coverage in June to 54% in September. Out of that COP1 trillion in provision charges during the quarter COP312 billion were attributable to these three cases. In other words, out of the 2.5% cost of risk of the quarter, 80 basis points were due to them. On a cumulative basis, out of the 2.4% cost of risk, 80 basis points are explained by these corporate cases. For this we have charged COP540 billion in provisions during the whole year. As a result of the provisioning level, we increased the coverage ratio for 30 days past due loans to 112%, and [indiscernible] to 151%. From our return-on-equity standpoint, if we normalize the provision charges, we find that return would have been close to 13%. A direct outcome of this acceleration in provisions is in fact that now we will exit the 2019 without the impact of these clients and net income will normalize. That implies that Bancolombia will be posting double-digit growth in net income next year. Regarding the general trends of portfolio, the pace of deterioration has declined and we have elements to believe that we are in the turning point of the credit cycle. NPL formation for the quarter was COP 847 billion, 13% lower than the previous quarter and 12% lower than the 3Q of 2017. SME deterioration has decelerated in recent months because of normalization of conditions for our clients. Similarly consumer loans have performed within the risk standard and we have not experienced any deviations from our forecast in this business line. As a result, the NPL ratio started to present an improvement and progressive ratio also increased. We expect to finish 2018 with a reported total cost of risk of 2.4% and a normalized cost of risk of 1.9% that is taking out of the top three corporate cases. The relevant forecast for 2019 are: first, loan growth around 8% to 10%; NIMs, at around 5.6% to 5.8%; fee growth 2019 will be at around 8%; expenses will grow in between 3% to 4%; cost of risk, we are expecting 2%; and efficiency ratio at around 48% to 48.5%. In summary, four items are key to understand the financial performance of Bancolombia: first, evolution of volumes of loans and change in mix, which we have been seeing moderating in 2018 but expect to accelerate in 2019. Second, the evolution of NIMs which are stable due to control of funding cost and a greater proportion of consumer loans. Third, normalization of the credit cycle and lower NPL combination which opens the way for a better profitability in 2019. And finally, the very successful cost control strategy that also prefers the bank for a reduction in the cost to income in 2019, and eventually double-digit growth in net income. After elaborating these key topics, we want to open the line for questions. Thank you.

[Operator Instructions] And our first question comes from Jason Mollin from Scotiabank. Please go ahead.

My question is on the strategic objective of focusing on the consumer. And now, with consumer loans at 18% and the importance I think to maintain the NIM both by changing the mix in the loans and keeping funding costs down. Can you talk about how you see that mix in the consumer and retail funding going forward? And as part of that I guess this is part of the objective of getting your long-term ROE to I guess you just said 16%. So if you normalize the quarter for these provisions that you talked about, you would be 12% to 13%, how quickly can you get to this 16% and incorporating this change in the consumer outlook and mix outlook? José Humberto Acosta Martin: As you said, we are growing faster in consumer and we are gaining market share. That process began two years ago when we decided to understand much better our current customer base and we have been growing at that pace as you mentioned. For the next coming years we are expecting again to gain more market share. Based on the same strategy we are expecting, for example, to give anything on that consolidated basis to increase our loan portfolio in consumer at around [4%]. That assures to maintain that NIM. What we expect in the next coming two to three years to maintain that composition of the assets in between 16% to 19% in total assets in consumer. But obviously, all of that depends on the economic cycle in the different geographies. The key pillar for consumer loan growth is Colombia, but also we are doing a very good job in El Salvador, for example, that we are growing at a very good pace. And maybe in the next coming two years you'll see an increase in the loan book in both in consumer in our operation in [indiscernible]. That's the strategy for the medium-term view. How we are going to get the 15% as you mentioned, because of combination of three factors. The first one is: loan growth. We expect the next coming two-three years to grow at double-digit. The second is to sustain the NIM or to maintain same level. The third is to maintain the cost of risk in between 2% next year and 1.8% in 2020. So if you combine those elements, you will find that we will be able to reach the 14% to 15% return on equity. Also the fact that the expenses from these, growing at a pace of inflation plus 100 basis points, that also assure that level of return on equity.

And Jason, let me complement the answer that José Humberto just gave, that's from the loan book perspective. But if we see it from the funding cost, also the strategy. And have in mind that Bancolombia has a big popularity and we have our strength on our branch network and on our presence in the country. So growing our base of retail customers on the liability side, allow us to manage the cost of funding in a way that we can also look for the NIM that we are targeting. So the combination of growing our business on the loan side and also our ability to reach big number of retail customer allow us to manage the cost and also the NIM, which at the end it's in line with our target ROE of 16%.

Our next question online comes from Carlos Macedo from Goldman Sachs. Please go ahead.

So first question - thank you for giving some outlook for 2019. Talk about the 2% cost of risk, you're at 2.5% now [1.7%] [indiscernible]. How do you get there? Is that a process where all of a sudden those two cases are just going to stop demanding provisions and you're down to 1.7% and ROE jumps to 14% and after that or is it going to be more of a gradual process as you go – as you move along? Second question, if you - you talked a lot about the digital platform. Thank you for giving us details, it's apparently very deep transformation and a lot about the expenses. What about the fee side, have you seen any spark there? Obviously a lot of transactions coming in, but anything that you can talk about how you expect that to help your efficiency ratio improve given that growth has been pretty weak on 4% year-over-year? José Humberto Acosta Martin: Regarding your first question, how we are going to get 1.8% at the end of next year basically because, as was mentioned in the presentation, the vintages are behaving much better in SMEs and consumer loans. So we are forecasting in the next coming quarters that probably the level of provision there will drop a little bit. And also if we have increased our provisions in the three cases or any other corporate cases, we will have enough room to increase that provisions because that will be offsetting because of the lower level - or lower level of provision in consumer and SMEs also. And also you have to consider the fact that we are expecting to grow 8% to 10% loans. That means that definitely the number will be dilute. That's the reason why we are convinced that we will get the level of 2% cost of risk at the end of next year. And the 1.8% let me tell you in this way, it is a normalized cost of risk of the bank, assuming that, again, our consumer loans will be 18% of the total assets and maintain the risk the same mix. Regarding your second question, why the fee growth this year is weak or below expectations. Basically because of the level of [transactionality] during the first-half of the year was very low. But again, if the economy reacts as Juan mentioned at the beginning of the presentation, we believe that that would be reachable and that would be feasible the fee income growth of around 8% next year. If you double check the numbers in our different geographies, you'll see a much better performance in some of our operations outside of fee growth. The combination of those operations we had passed to maintain the 8% fee growth for 2019.

Let me add a comment on the digital platforms. We are really happy with the development of these platforms. The acceptance of our customers is very good, and we keep growing on that platform. And that allow us to reach a number of customers in a very efficient way and also going to help us in fee generation in the future. So the development of the digital platforms and since we are adding new functionalities and new features to these platforms, we are very positive that this is going to really lever us the growth of the banking in the future.

Thank you. Our next question online comes from Thiago Batista from ITAÚ BBA. Please go ahead.

I had just two questions, the first one about the IFRS 9, can you comment about the refining that the bank did in the IFRS 9 this quarter and what is the cause of this and the main impact and this was somehow related to the special case that you mentioned during the presentation - the Electricaribe presentation, et center. And the second one about the loan growth, you had mentioned loan growth of 8%, 9% next year, which lines do you believe will lead this expansion? José Humberto Acosta Martin: Regarding your first question, yes, we have been modeling the IFRS 9, and we have been fine tuning processing these first nine months. So as a total, we increased the provisions from the 600 billion that we contemplated the gain of six years, to almost 1 billion this third quarter. And again, this is a fine tuning process with the auditors, how we get the methodology. So we don't expect to increase that number - and remember that those provisions the 1 billion that I mentioned, it is against the equities not affecting the P&L. Regarding your second question: next year, we expect our key driver or the main driver of the loan growth will be, again, consumer, and the consumer will be at around 13% to 14%, but it's important to highlight that the commercial loans were expected to grow in between 9% to 10%, that will be - if you combine those numbers the loan growth will be, again, 8% to 10% next year.

Our next question online comes from Andrés Soto from Santander. Please go ahead. Andrés Soto: My question is related to the cost of risk this quarter. Thank you so much for breaking up the number between the recurrent cost of risk and the extraordinary cases. I understand that among the extraordinary cases you are only including Consorcio Express, but if I'm not wrong you are also exposed to [Masivo Capital], I know mass transit companies outside Bogota. I would like to understand what is your provision level for these sort of cases and how confident you feel about your coverage at this point in the cycle? And more generally speaking, when I look at the so called the current cost of risk of 1.7%, it sounds to me it was surprisingly low to me, so I would like to understand what can go wrong going forward regarding your structural portfolio? What if we can see surprises that could deviate from the guidance that you have given both for 1.9% 2018 and 2% for 2019?

Andre, we are showing the most relevant transaction which is Consorcio Express. You're right, it is 54%. But the other exposures that we have in different companies, the level of provisioning is about that. There is another exposure that we have almost 80% of provisioning. So we are showing you the most relevant transaction or the amount of provisions, and the most important case of massive transportation system. The main subsidiary, we increase in all the five other companies their level of provisioning, but we are not showing a breakdown here. And again, our view is if we have to increase the provision in those corporate cases, we will have enough room made here because of the combination of loan growth and because probably we have to reduce provisions in SMEs and consumer loans. The reason why 1.7% looks low this quarter is basically because, again, the behavior of consumer and SMEs reflect a slower pace of growth in provisions. So that's a combination, but definitely at end of this year the normalized cost of risk will be 1.9% to 2%. José Humberto Acosta Martin: Andres, that's an important point and you touched it. Cost of risk on a mid-term for Bancolombia should be around 1.71. In the past and in a positive economy cycle, the cost of risk if you take a series – a long-term series of around 7 to 10 years, you can see that the cost of risk for Bancolombia has been around 1.5% to 1.6% in that long series. We are forecasting or we are seeing a little bit higher long-term cost of risk because we are adding more consumer loans to our books. So we are confident that the cost of risk of around 1.7%, 1.8% for mid-term for Bancolombia is the right number. Have in mind that now we are in a cycle – in economic cycle that has been touch and we have started seeing much better conditions in the coming years that will lead us to reach that cost of risk of around 1.7%, 1.8%.

Our next question online comes from George Friedman from Citibank. Please go ahead.

I have two questions. The first one related to net interest margins. I appreciate the fact that you have been very good in managing both credit and funding mix. But I was noting in the press release that the net interest income for Bancolombia in Colombia continues to come down and particularly in this quarter. Net interest income was also supported by the good contribution in the other subsidiaries in Panama, El Salvador, and Guatemala. So my first question is, how much comfortable are you or how comfortable are you with net interest margin resilience going forward particularly related to this contribution in other subsidiaries if they are already closed to the most that they can contribute? This is the first question. And the second question is related exactly to these subsidiaries. I note that Banistmo is showing good results but not growing that much and the other two subsidiaries are observing a significant decline or in provisions or in other revenue lines. So if could just provide a bit more color about the positives and the challenges for the subsidiaries and how much they could contribute for the results next year and in a more normalized basis? I would appreciate. José Humberto Acosta Martin: Regarding your first point, you have to consider that the interest rate of the Central Bank drops 100 basis points in the same period as you mentioned. And this is very important because remember that 70% of our loan portfolio in Colombia is asset sensitive, it's floating. So that explains why the compressions were a little bit. But for the long run we're in a very good position. You're asking if we feel comfortable. Remember that we are expecting that if inflation sparks in the second or third quarter or next year, probably interest rates will go up again 50 basis points to 75 basis points. That implies that next year we have negatives and positives for regarding NIM. The first-half of the year the challenge will be to maintain but the second half of the year probably it will help us to increase little bit the NIM in the operation in Colombia. Regarding the international operation, just an example, in Banco Agricola we expand the NIM because we took a transactional fee, the hike of interest rate in the U.S. And we are maintaining the NIM in the operation in Panama and in Guatemala. So if you combine those elements, we feel comfortable saying that the NIM will be between 5.6 to 5.8, the whole year the next year. Regarding your second question, subsidiaries, I have to say that Banco Agricola combines all the positives of the group, which means a very healthy loan growth more than 5%, which means a very under control efficiency level that would be at around 50%, fee income growth also is at a level of more than 6% to 8%. The cost of risk there is very low, 1.2%. So if you combine those factors, this is by far the most problemless and relevant operation. What happened in Panama is a economy cycle. At the beginning of this year we felt that the GDP will grow 4% to 5%, and today country probably will grow at the mid-range of 3% to 4%, and also already they are impacted the operation in Banistmo. I don't know, Juan, if you want to add something?

Yes, George. We are very happy with the developments in Panama, and it's more – it's really on a trend as we see very positive, that's what Humberto mentioned. The economic growth in Panama has been lower than we expected and I think everybody expected. But the development of the Bank is very positive. We have challenges in Panama around improving our technology there and we have a project and program to improve that technology and that will allow us to server better that market and also to improve our efficiency in Panama. So we are very happy with the developments in Panama. Regarding the El Salvador and Guatemala, El Salvador for us, the Banco Agricola is performing very well. The key measures of the Bank are positive, even though the economy is not growing very fast or it's not growing at a good pace, we are growing and we foresee that we – economy of El Salvador is going to perform better in the coming years. So we will – I think we are ready to take advantage of those opportunities. We keep working on efficiency in El Salvador and there is room to improve our efficiency there. We are also pursuing our digital strategy and we are leading that strategy in the Salvadorian market, and we think we can take advantage of that position. Regarding Guatemala, there we keep improving our presence in the market. As you know, our market position there is different than the other markets. We are fourth in the market, so we are pursuing strategy to gain additional volumes in market, the consumer loan book is growing fast at around 30%, which is very good and shows that what we are doing there it's showing positive results. We need to keep working on modernizing the Bank in it's structure and also with some investments in technology. Guatemala is facing election process in the next year, that could have some effects on the performance of the economy and of the Bank, but overall I see that the Central American operations are in a good way developing well and are adding positive results to Bancolombia.

Our next question online comes Carlos Gómez from HSBC New York. Please go ahead. Carlos Gómez: I have two brief questions. First one is the, you can give us an update on the implementation of Basel III and if you have an estimate about the impact that it will have on your capital ratios positive or negative? And the second one is if you can give us some guidance for your expected tax rate for the coming two years now that you have a bit more clarity about the tax policies of the incoming administration?

Thank you, Carlos. Yes, regarding Basel III, remember, the Basel III's focus on two factors: change in the risk weighted assets and then in putting place on buffers. The first one, the density of the Bank. Assuming Basel III forecast of June the density will come down from 76% to 65% of density, that will obviously help. And the implementing of buffers at the end of the day the Tier 1 capital will come from 10% and it is currently been 10.2% to almost 11.8%. So the [indiscernible] series Basel III will help to the bank in terms of the capital structure will improve at least around 150 to 180 basis points. Regarding your second question, the tax guidance, for this year we are expecting a tax at around 31% at the end of this year and next year because of the statutory tax in Colombia will drop from 37% to 33%, the tax for next year will be in between 29% to 30%. Remember that our operations, the breakdown of tax, the statutory tax in Colombia, 37%, next year 33%. In El Salvador, Guatemala, and Panama for local positions it is 25%, and our offshore operation is 0%, and the offshore operation accounts are around 7% of the total book.

Our next question online comes from Sebastián Gallego from CrediCorp Capital. Please go ahead. Sebastián Gallego Betancur: I have two follow up questions, the first one on the cases, I know you mentioned the coverage that you have conducted in the three cases, but can you give us a guidance what to expect for 2019 in terms of the additional coverage you expect in these three cases? And the second question is regarding OpEx once again, and particularly branches. You reached almost 1,000 at the end of third quarter and I just want to know if you have a particular target for branches going forward particularly in Guatemala where you had a plan or you commented the pervious call that you had a plan to reduce branches?

Regarding your first question about how we feel the coverage that we reached on these cases that you mentioned, we feel comfortable that at this level of coverage we are not expecting surprises. So we could need additional coverage but that coverage will be margin and will not have material respect on provisions. So with the level of coverage, again, we feel comfortable. Regarding branches, we have been optimizing our branch network in particularly in Colombia and as we mentioned Guatemala. In Colombia I think we reached a level, at this point we feel comfortable and any changes in a number of branches in Colombia will be marginal. In the case of BAM in Guatemala, we will keep reducing the number of branches and we are expecting to close around 27 branches this year that will help a lot on the efficiency ratio of BAM going forward.

And our last question comes from Yuri Fernandes from JPMorgan. Please go ahead.

I have just a question on funding. You have been dynamic shift towards checking and savings account lately. This quarter was slightly lower on savings but it's still -- this has been the trend in the previous quarters. My question is going on like you are talking about growing loan book back to double digits. And when you look to loan-to-deposit ratio, it is running high just historical levels 126. So how do you see funding on that? Like do you plan to continue growing on savings, checking or time deposits accelerating next year to help on your loan growth?

Yes, regarding your question, funding, if you break down the operation, the loan-to-deposit ratio in Colombia is below 100%. Our strong customer base as we mentioned, our way to touch the clients with different channels, has shown us that we would maintain the same loan-to-deposit ratio. I mean, there would be a line to loan growth with the deposit customer base growth as well in Colombia. What happened in the other geographies is, we at the beginning of the process, we use the capital markets to support the funding in those operations. You know that we have loans in the three geographies in Guatemala, El Salvador and Panama, as a first stage. Today, because we have replicated the same experience in Colombia with the deposit base, with the technology, with the channels, we are expecting to, again, align the loan growth in those geographies with the liability side as well. So we don't foresee any specific concern about loan-to-deposit ratio and the way we are funding is basically with a strong customer base.

And thank you ladies and gentlemen. I will now turn the call over to Mora, Chief Executive Officer of Bancolombia, for final remarks.

Thank you everybody for your interest in Bancolombia, and for attending this conference call. We remain positive for the next year. The signs that we are seeing for this last quarter are positive from the front of loan growth and we expect that 2019 will consolidate a good year on the economic side that will allow us to take opportunity of all the strategies that we are pursuing. Again, thank you so much for you interest and see you in the next conference call in which we will present the results for 2018. Have a good day.

This concludes today's conference. Thank you for participating. You may now disconnect.