Grupo Aval Acciones y Valores S.A.
Q3 2019 Earnings Call Transcript

Published: 19 Nov 2019

[Operator:]

Welcome to Grupo Aval's Third Quarter 2019 Consolidated Results Conference Call. My name is Sylvia and I'll be operator for today's call. Grupo Aval Acciones y Valores S.A. Grupo Aval is an issuer of securities in Colombia and in the United States, registered with Colombia's National Registry of shares and issuers Registro Nacional de Valores y Emisores and The United States' Securities and Exchange Commission, SEC. As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulation.All of our bank subsidiaries, Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas, Porvenir and Corficolombiana, are subject to inspection and supervision as financial institutions by the Superintendency of Finance. Grupo Aval is now also subject to the inspection and supervision of the Superintendency of Finance as a result of Law 1870 of 2017, also known as the Law of Financial Conglomerates, which came in effect on February 6, 2019.Grupo Aval, as the holding company of its financial conglomerate, is responsible for the compliance with capital adequacy requirements, corporate governance standards, risk management and internal control and criteria for identifying, managing and revealing conflicts of interest applicable to its financial conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB.Details of the calculations of non-GAAP measures, such as ROAA and ROAE, among others, are explained when required in this report. Grupo Aval has adopted IFRS 16 retrospectively from January 1, 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognized in the opening condensed consolidated statement of financial position on January 1, 2019. Consequently, quarterly results for 2019 are not fully comparable to previous periods.IFRS 16 introduced a single on-balance sheet accounting model for lessees. As a result, Grupo Aval as a lessee has recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments.Lessor accounting remains similar to previous accounting policies. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined or the group's incremental borrowing rate.This report includes forward-looking statements. In some cases, you can identify these forward-looking statements by words such as, may, will, should, expects, plans, anticipates, believes, estimates and predicts, potential or continue or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of exchanges in general, economic and business conditions, changes in interest and currency rates and other risks described from time to time in our filings with the Registro Nacional de Valores y Emisores and the SEC.Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review, update or correct the information provided in this report, including any forward-looking statements and do not intend to provide any update for such material development prior to our next earnings report.The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description. When applicable, in this document we refer to billions as thousands of millions.At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.I will now turn the call over to Mr. Luis Carlos Sarmiento Gutiérrez, Chief Executive Officer. Mr. Luis Carlos Sarmiento Gutiérrez, you may begin.

[Luis Carlos Sarmiento Gutiérrez:]

Good morning, Sylvia, and thank you. Apologizing in advance, because I'm getting rid of a cold, so I'm most stuffed up. But here we go. Good morning all and thank you for joining us in our third quarter 2019 conference call. Once again, it is my pleasure to share with you our strong financial results for the quarter that ended on September 30.Today I will cover the following subjects

[Diego Fernando Solano Saravia:]

Thank you, Luis Carlos. I will now move to the consolidated results of Grupo Aval under IFRS and wrap up with our guidance for 2019 and 2020. Third quarter 2019 was a strong quarter for Grupo Aval and taking into account that we recorded Ps. 148 billion impact on attributable net income of Ruta del Sol provisions.The sound performance was driven by a strong pickup of our loan dynamics during the quarter in Colombia and Central America, in particular that of our corporate portfolio. Improving cost of risk aside of Ruta del Sol alone, solid performance of our fixed income portfolio and a sustained contribution from our non-financial sector investments.Starting on Page 9, assets grew 13.4% over the year and 3.5% during the quarter. Colombian assets grew by 9.8% over the year and 1.2% during the quarter, driven by cash, net loans and intangibles and financial assets from our concessions and right-of-use assets.Despite of our annual and quarterly contraction of 14.8% and 4.4% of Nicaraguan assets, Central America delivered a 4.5% and 0.5% 12-month and 3-month growth in dollar terms.Moving to Page 10, loans excluding repos grew 10.8% for the year and increased 5% during the quarter. Loan dynamics in Colombia posted solid growth and Central America picked up from the lackluster activity evidenced throughout the first half of the year.As anticipated our Colombian corporate loan portfolio growth accelerated to 2.6% over the quarter and 4% over the year. Our Colombian retail portfolios posted strong growth with consumer and mortgage businesses expanding 9.8% and 15.7%, respectively over the 12 months. Quarterly growth was 2.2% and 3.8% respectively.Our Central American operations excluding Nicaragua expanded 5.9% in dollar terms over the year and 2.6% during the quarter. Nicaragua which weighs approximately 5% of our Central American loans contracted 26.7% and 5.6% during the quarter.On Pages 11 and 12, we present several loan portfolio quality ratios. Overall 30 and 90 days PDLs remained relatively stable. Commercial loan portfolios showed a mild deterioration during the quarter. We recorded a 13 basis point increase in 30 days commercial PDLs and 12 basis points in 90-day PDLs in Colombia.In Central America 30-day and 90-day commercial PDLs showed some deterioration with 30 days PDLs increasing 7 basis points and 90 days, 11 basis points. As mentioned by Luis Carlos, we substantially increased our provision for Ruta del Sol this quarter recording Ps. 295 billion provision expense reaching an 86% coverage. We expect to fully provision the remaining Ps. 102 billion of Ruta del Sol during the fourth quarter of 2019.Our coverage for SITP companies stood at 40% at the end of the quarter. Delinquency ratios for consumer loans continued improving during the quarter. In Colombia improving trend in delinquency of consumers loans persisted with 30 days past due loans falling 13 basis points to 4.9% accumulating a reduction of 112 basis points since peak in first quarter 2018.The 90 days past due loans improved 2 basis points to 3% relative to second quarter 2019 and were 36 basis points lower than a year earlier. In Central America 30 days PDLs for consumer loans increased 5 basis points to 4.9%, while 90 days PDLs increased 8 basis points to 2.1%.Our mortgage PDLs increased during the quarter driven by Central America, both 30 and 90 days new PDL formation improving both geographies when excluding FX movements, our new 30-day past due loans formation in absence of FX movements was Ps. 1.2 trillion during the quarter Ps. 122 billion lower than the previous period.Our cost of risk was 2.5% with quarterly increase of 26 basis points driven by commercial loans in Colombia, stability in Central America and improvement in Colombian consumer loans. The Ruta del Sol provisions accounted for 68 basis points of cost of risk during the quarter. PDL coverage for 90-day PDLs was stable at 1.53 times.On Page 13 we represent funding and deposit evolution. Funding dynamics were consistent with loan growth. Our funding structure remained materially stable with deposits representing 76% of total funding and our deposits-to-net loans ratio stable at 1 times.Our liquidity position continues to be strong with cash-to-deposit ratio at 16%. Deposits increased 4.8% in the quarter and 13.6% over the last 12 months. During the quarter Colombia grew at 2.3% and Central America grew at 2% in dollar terms. For the 12-month period Colombia grew at 9%, while Central America grew 6.6% in dollar terms.On page 14, we present the evolution of our total capitalization, our attributable shareholders' equity and the capital adequacy ratio of our banks. Our total and attributable equity increased during the quarter mainly driven by our net income. Attributable equity increased by Ps. 1 trillion while our total equity increased by Ps. 1.8 trillion. OCI also contributed to our equity during the quarter. As of third quarter 2019, our banks shows a profit in Tier 1 and total solvency ratios.On page 15, we present our yield on loans, cost of funds, spread and net interest margin. Our net interest margin increased 17 basis points to 5.7%, mainly driven by a tighter net interest margin on loans in Colombia. Our NIM and investments continued to be particularly strong at 2.3%.As anticipated, pricing in Colombia became more aggressive during the quarter, due to the improvements in consumer loan quality and a better outlook of the corporate portfolio resulting from stronger GDP. We continue to expect some pressure on our NIM and loans growth as growth increases and the share of newly priced loans enters our mix.On page 16 we present net fees and other income. Gross fee income grew 13.7% when compared to a year earlier and was slightly higher than that of a particularly strong second quarter. Gross fee increased 10.1% in Colombia and 5.7% in dollar terms in Central America compared to third quarter 2018.In addition, our non-financial sector continues to be a strong contributor to our income adding 10% more than in the previous quarter. Finally, our other operating income was particularly strong this quarter as our banks realized gains and fixed income investments taking advantage of the current interest rate environment.On page 17, we present some efficiency ratios. Year-to-date personnel and general and administrative expenses increased 6.3% with a 2.1% increase in Colombia and a 1.2% increase in Central America in dollar terms. FX fluctuations explain the remainder of this growth. Year-to-date personnel expenses increased 6.8% with 2.1% increase in Colombia affected by termination expenses and a 1.2% increase in Central America in dollar terms.Year-to-date general and administrative expenses increased 5.9%. When adding IFRS 16 related depreciation and amortization to administrative expenses, the figure was 7.9% in Colombia and 8.2% in Central America in dollar terms. Certain non-recurring expenses increased our Colombian expenses while Central America incorporated the introduction of VAT and services in Costa Rica as a temporary increase in marketing expenses.Non-recurring events that affected our expense during this quarter include first a Ps. 63 billion non-income tax expense recorded as a general and administrative expense was incurred in order to raise the fiscal cost of certain fixed assets which will enable us to sell them in the future with lower income tax expense. This charge was offset by deferred income tax recoveries of Ps. 99 billion resulting in a Ps. 29 billion positive net effect on attributable net income.Second, we recorded Ps.18 billion of termination expenses in Banco Popular. Year-to-date total dollar expenses that include personnel, general and administrative, depreciation and amortization and other expenses grew 9.6% relative to a year earlier. Total expenses grew 5% in Colombia and 4.8% in Central America in dollar terms during this period. FX fluctuations explain the remainder of this growth.Finally, on page 18, we present our net income and profitability ratios. Attributable net income for the third quarter 2019 was Ps. 743 billion or Ps. 33 per share. Year-to-date attributable net income was Ps. 2,319 billion or Ps. 104 per share. Return on average equity and return on average assets for the quarter were 15.8% and 2% respectively. This incorporates 314 basis points of negative impact of Ruta del Sol provisions and return on average equity.Before we move into questions and answers, I will now summarize our general guidance for the remainder of 2019 and for 2020. We expect loan growth to be in the 9% area in 2019 and picking up to 10% to 12% in 2020. We expect our cost of risk net of recoveries to be in the 2.2% area in 2019 falling to 1.9% area in 2020. We expect full year net interest margin to be in the 5.7% area in 2019 contracting to 5.6% in 2020. Finally, we expect a return on average equity to be in the 16.25% area in 2019 and in the 15.75% area in the 2020 year.Now I will open it to questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Jason Mollin from Scotiabank.

[Jason Mollin:]

Hi. Hello, everyone. My first question is related to the recent announcement of the acquisition of Multibank Panama. You talked about the strategic rationale for doing this. Can you give us some color on what financing options Aval is considering and potential implications for capital at Aval and/or subsidiaries such as Banco de Bogotá? And my second question is on the outlook for provisions. You've mentioned guidance for cost of risk in the 1.9% range. I – should we be considering provisions for Ruta del Sol something of the past now? And are there any other specific cases that we should be aware of that could come up in the upcoming quarters? Thank you.

[Luis Carlos Sarmiento Gutiérrez:]

Sure, Jason. Thank you. Regarding your first, I'll take the Multibank question and Diego can take the provisions question. Regarding Multibank, well, the good news is that we are now sure that we won't need any new capital or capital influxes to pay for the bank. And we are considering several types of funding options Jason, we really have a whole array of options available to us, including maybe up-streaming some dividends from BAC to its holding company leasing Bogotá Panama, which is the company that we've selected to buy the bank and markets has already been preparing for that event. It just did an issue of credit card receivables and where it – just that issue alone would pay bank at about 2.7% after tax cost of funds. So as I said, we are considering several alternatives we will probably put together a package of funding and obviously we'll do it in a way that the acquisition is accretive for the – for our share and for the intra bank level. With that, go ahead Diego.

[Diego Fernando Solano Saravia:]

Regarding the provisions, I didn't highlight it during the presentation, but I need to point out that, we've actually reduced our guidance for this year of cost of risk from 2.3% to 2.2% including fully provisioning Ruta del Sol. At this point, the larger cases that we have been discussing over the past couple of years are pretty much done with Electricaribe many quarters ago Ruta del Sol will be done by year-end. And then SITP the one we needed to provision we've already provisioned. And by the way as of October we have already written off. The other companies of SITP are performing actually much better than expected. Therefore, we are not foreseeing a more provisions there.In 2020, I think there is two sorts of provisions some are good to have and some are bad to have. The good to have are those that are related to growth. And the bad to have are the bad case. At this point, we feel that we're moving into more of the first kind of provisions related to growth rather than expecting negative surprises. That applies for Colombia and also for Central America, where the troubling countries are all improving as we have highlighted before.

[Jason Mollin:]

Thank you very much. Very helpful both of you.

[Operator:]

Our next question comes from Gabriel Nóbrega from Citibank.

[Gabriel Nóbrega:]

Hi, everyone. Thank you for the opportunity to asking questions. So my first question, it's actually in follow-up on the MFG agreement of acquisition. When we look at the numbers from the Panamanian superintendence we actually see that the profitability of this bank has been reducing over the past few years. So, if you could just give us a bit more color on what are your strategies for increasing the ROE of this bank once again? And as for my second question, it's actually on your NIM guidance I see that you're expecting a NIM contraction of around 10 bps in 2020. I just wanted to understand, if this is the fruit of maybe higher competition, or if it's still going to be fruit from the higher and the faster growth of term deposits which have actually been pressuring your funding cost? Thank you.

[Luis Carlos Sarmiento Gutiérrez:]

Yeah, I'm willing to take your first and I'll be happy to do that. But I missed a part of it. I'm sorry, if you would just mention again what have you said has been reducing over the last few years in MFG? I'm sorry I didn't catch that.

[Gabriel Nóbrega:]

Yes sorry. The ROE of the bank has been reducing over the past few years.

[Luis Carlos Sarmiento Gutiérrez:]

Okay. I'm sorry. All right, fine. Well, listen yeah, the bank has grown very fast and there's probably some contraction of margins and some additional expenses. Actually, we have a nice plan in place to do a good work on ROE, specifically through very important synergies in the running of the bank in conjunction with our shared services center in Costa Rica out of which we run the six banks in Central America. We will be putting that plan in place quickly. And I think that over the next 12 months we'll see very significant improvements in efficiency in the acquired bank.Also, we should be able to extend to the bank some of our cost of funding better rates. And also, some of the treasury that we do in our own banks we should be able to extend to the new bank. And all-in-all, we expect that after obviously going through some acquisition expenses, as we implement all these new changes, it will come out being a much, much more robust bank.

[Diego Fernando Solano Saravia:]

Now regarding net interest margin contraction, it's a combination of a few things. The first one is more of arithmetic effect of the changes we have already seen throughout this quarter on net interest margin. As you pointed out, part of that is related to higher competition, higher competition that is related to stronger growth and a better outlook for the quality of the portfolio.So in our net interest margin, we're including that as an effect that we'll add up to what happens next year on the NIM and loans side. On the other hand, the net interest margin and investments has also been quite strong throughout this year. This is related to the overall interest rate environment that we've seen globally. And we believe that part of that will not continue into next year, we should migrate to slightly lower more similar to historical average net interest margin and investments.

[Gabriel Nóbrega:]

Perfectly clear. Thank you so much.

[Operator:]

Our next question comes from [indiscernible] from CrediCorp.

[Unidentified Analyst:]

Hi. Thank you for the question. I have a couple of questions. I wanted to know more about the NPL ratio of Central America, if you could give me more details on that, because we saw an increase -- an important increase in the NPL ratio of Central America. And if you could explain me a bit more on the Episol case, I got a bit lost over there. Thank you.

[Diego Fernando Solano Saravia:]

Okay. Let me take the first one. Regarding NPLs in Central America, you're right, in the past we had experienced some NPLs, particularly in two countries that we have highlighted in the past calls. One is Nicaragua and the other one was Costa Rica, both for very different reasons.In the case of Nicaragua this was a political unrest, disrupted how the country was performing. And in the case of Costa Rica, we had a high or still have high fiscal deficit, but actions were taken. What we see is changing trends in both countries.In the case of Nicaragua, even though it's not yet over. The cycle has started to improve, the contraction has started to decelerate and we've seen an improvement in some of the segments of our business there that should impact an improvement in PDLs.And the Costa Rican side, we've seen some positive events there. The fiscal reform, even though not enough to solve long-term the fiscal deficit problem in Costa Rica, has reduced pressure and rates throughout the country. And then we see as a very positive evolution, the new Minister of Finance who's at least at this point verbally pointing in exactly, what the right actions should be. Therefore this cycle that we've seen in Central America we are quite positive on how it should be evolving into the future.

[Luis Carlos Sarmiento Gutiérrez:]

Okay. Let me try to give you a very quick response if at all possible regarding your second question. Sometime ago [indiscernible] of Columbia brought a class action suit against about 20 or 20-something defendants, all related to the CRDS scandal. That class action suit was ruled against those defendants and first instance by the Tribunal Administrativo de Cundinamarca where it was being considered.The ruling had two effects

[Operator:]

Our next question comes from Sebastián Gallego from CrediCorp Capital.

[Sebastián Gallego:]

Hi, good morning everyone. Thanks for the opportunity. I have two questions. The first one, can you provide a bit more color on growth expectations within the Central American operation? And the second question is related to OpEx. Can you just provide further explanation on growth on OpEx excluding the FX? And what are your guidance, what is your guidance for OpEx growth going forward?

[Diego Fernando Solano Saravia:]

Regarding growth expectations, we've seen Central America picking up over the past quarter. As mentioned, this has happened in the corporate segment and it has also happened broadly throughout the region, except Nicaragua. In the case of Nicaragua, the changes, the contraction is happening at a much lower pace.Part of what we will be working throughout next year at some point is the integration of MFG that will provide us some in organic growth there. And in the rest of the country is also working on organic growth as we usually do.Regarding expenses, I need to say we were not that happy with our expense performance during the quarter. And the action has been taken particularly in Central America, where some of the expenses could become recurrent to adjust them down and work is being done throughout the region to attend that area.Colombia has been performing pretty well. As mentioned in the past, it's been a combination of discipline plus some of the results from the digital strategy that are helping us contain costs. What we expect to see into next year is cost growth in the order of 6% -- 5% to 6% that should be short of what we're pointing out for asset growth and for loan growth, therefore we should see some improvement in that front.

[Operator:]

Our next question comes from Carlos Rodriguez from Ultraserfinco.

[Carlos Rodriguez:]

Good morning, everyone. Thank you for the conference call. I have two questions. The first one is, could you give us more detail in the increase of the trading assets in the balance sheet and if this trend will continue in the coming quarters? And my second question is just a follow-up on the OpEx. If you could share with us your medium and long-term target inefficiency in Central America and in Colombia, how much you can push the efficiency in Colombia? Thank you.

[Diego Fernando Solano Saravia:]

I'm not sure I got your question right. For the first one, I believe you were referring to the trends in assets. Trading assets, I'm sorry. Regarding the trading assets, what we saw this year was a particularly a healthy return on the portfolio. Part of the reason why we're guiding into a slightly shorter return on equity for next year compared to this year is we do not see this kind of returns being maintained for the long term.We do expect to see positive results on the trading side, however not as solid as this year. On the efficiency front -- and on your second question regarding the efficiency short and medium-term targets. I think that what we've been working on and when -- and it's still too early to say exactly how much we will be able to improve our efficiency but we have, as I mentioned briefly, just recently inaugurated the Central -- shared services center in Costa Rica, where we are in the process of moving all those services that we can share for the six banks and now it's seven banks in Central America.And we should start seeing results very soon with that. That shared service center is also located in the duty-free zone and that obviously will help with the fiscal situation. And in Colombia, we are in the process of moving in the same direction. It's still too early to tell. We're starting all the consultancy work that is required. But we will be putting together a similar shared services center in the next few years and we'll keep you abreast of that.

[Operator:]

Our next question comes from Julian Amaya from Davivienda Corredores.

[Julian Amaya:]

Good morning. Thank you for the presentation. I have two questions. During this quarter, the effective tax rate was way below of other quarters. Could you explain a little bit what are these results? And also regarding the elimination of the 4% sort of charge tax it would be -- would there be any impact on the fourth quarter? Thank you.

[Diego Fernando Solano Saravia:]

Okay. Regarding the low-income tax. I mentioned that we went through our process of raising the fiscal cost of some fixed assets I mentioned that that generated an expense but also said that it had generated Ps. 99 billion positive income impact on deferred income taxes. So the reason why you see that low number during this quarter is that we had that positive effect on taxes, as I mentioned the net effect of both of those were around Ps. 29 billion. Regarding the elimination of the surcharge, there is two different sort of effects. One, regarding the surcharge and the other part regarding what the fiscal reform could look like.Regarding the first one, what we see in our initial numbers is we could have around Ps. 60 billion positive impact from that surcharge. This is in the makings at this point because we need to see how the new fiscal reform comes out and what the impact on deferred taxes looks like. So our preliminary numbers are looking more into what the current tax effect would be. But there should be a deferred tax effect that at this point it's too soon to tell because we have no clue on how the final fiscal reform would look like.

[Operator:]

Our next question comes from [indiscernible].

[Unidentified Analyst:]

Thank you very much for taking for taking my questions. I've got two questions. So basically two topics. So the first one is on the NPL? And the second one is on capital and kick off with the NPL number. So in a country where you have an unemployment of roughly 11%. I'm just wondering what is your unique selling point in terms of I mean not underwriting more toxic assets because I mean it is I think I mean I think I mean it is quite unique to have a stable NPL across the cycle. And I was also just wondering when you look at your NPLs number which is 4.5%. I'm just wondering which portion of that has been carried forward over -- longer than a year? So basically, I want to understand your write-off strategy. Whether you're going to write-off any NPLs in one year or 180 days. So if you could give color on that.And on the capital, I'm just wondering like I mean ahead of Basel III implementation. What is your capital planning for next year, because it seems like you might be a bit low on capital assuming moving to a Basel III framework. And also in terms of I mean in your capital stack your equity. I just want to understand which portion is tangible and which portion is intangible? Thank you.

[Diego Fernando Solano Saravia:]

Okay. Let me take the first one regarding NPLs. Just to make sure that I understood your question you said that you hadn't seen a strong variation of NPLs throughout the cycle. I need to say that, we actually did have a quite strong or a visible effect of the cycle. We used to run at a cost of risk that was between 1.5% and 1.8% pre-cycle. This went-up to the kind of numbers that we've mentioned recently and that we had last year. And at this point, we are returning to something that is below 2% for next year.The driver of this cycle was at first what was happening with the consumer portfolio that came first into deteriorating. And then, what's first to cover and then with some lag of around two to three quarters we saw the corporate portfolio particularly on the commercial side starting to deteriorate. At this point, we see the process passing. We haven't yet seen the improvement in the cycle. But given that, we are forecasting GDP growth above 3% and growth picking up so the denominator should be improving we should see also some movement in that front.Regarding your write-offs, perhaps the only relevant loan that has been provisioned already for some time that is still on our books and hasn't been written-off is Electricaribe, which we're actually looking into – if it's the right time to write it off. The reason not to write it off is there has been uncertainty and potential recovery on that debt and that has deferred our decisions, but we're in the point of looking at that decision now.

[Luis Carlos Sarmiento Gutiérrez:]

Thanks, Diego. And regarding your question on capital, well, let me state to start with we have informed the superintendency of banks that we will be early adopters of Basel III. We expect that to happen within the first two quarters of next year. As we adopt Basel III as you probably know, our first calculation is that our risk-weighted assets will drop substantially based on Basel III. And on the other hand, we will have some additions to Tier 1 that – which we don't count now. In terms of regulatory capital, for example, all the OCI account will come towards regulatory capital as well as all the earnings generated within a period, which they don't actually. So at least in three of our banks Banco de Occidente, Banco Popular and Banco AV Villas we will see a substantial increase in regulatory capital.When we talked about Banco de Bogotá, there are many more things happening when we adopt Basel III. On the one hand, we will have a decrease in Tier 1 capital due to the fact that, because we were grandfathered by regulation of some years ago, the goodwill that we generated when we purchased BAC, which was about $1 billion has not counted towards a reduction in Tier 1 capital and it will from the moment that we adopt Basel III. But on the other hand with OCI with earnings coming part of – becoming part of the regulatory capital as well as with the way that Banco de Bogotá will account for its investment in Corficolombiana, with respect to regulatory capital. We're now under Basel II discount from its Tier 1 regulatory capital the full of its investment in Corficolombiana, which is about $1 billion, it will not have to discount all of the Ps. 3.4 billion -- yes Ps. 3.4 trillion or $1 billion in Corficolombiana's -- in Banco that's Corficolombiana investment in Corficolombiana.So, one thing we'll tend to offset the other, we will have to discount regulatory capital for the goodwill booked when we purchased BAC, but it will recover in a way the $1 billion more or less that is now discounting of a Tier one regulatory capital with respect to the investment it has Banco de Bogotá has in Corficolombiana. And it also expects that, its risk-weighted assets will have -- will all in all probably decrease except that we're waiting for -- to hear what exactly the superintendency in Colombia wants Banco de Bogotá and its consolidated balance sheet to account in terms of regulatory risk-weighted assets for the assets that he has in Central America.

[Operator:]

We have no further questions.

[Luis Carlos Sarmiento Gutiérrez:]

Great. Well Sylvia, thank you very much and thank you all for attending this call. And we certainly hope to keep producing the results that you expect us to and we'll see you in our next call.

[Operator:]

Thank you, ladies and gentlemen. I will now -- this concludes today's conference. Thank you for participating. You may now disconnect.