Banco Davivienda S.A. (PFDAVVNDA) Earnings Call Transcript

Welcome to Davivienda's Second Quarter of 2025 Earnings Conference Call. I'm Karen, and I'll be your operator for today's call. Today's presentation is for investors and analysts only. Therefore, questions from the media will not be addressed. Today, Mr. Javier Suarez, Chief Executive Officer; and Mr. Alvaro Cobo, Chief Risk Officer, will join us to discuss the quarterly results that have been released. If you haven't received a copy of the earnings report and presentation, please visit Davivienda's investor kit or the Financial Information section at ir.davivienda.com. [Operator Instructions] Please note that this conference is being recorded. [Operator Instructions] Before proceeding, let me mention that any forward-looking statements are being made under the safe harbor provided by the Securities Litigation Reform Act of 1995. Actual performance could differ materially from anticipated in any forward-looking statements due to macroeconomic conditions, market risks and other factors beyond our control. [Operator Instructions] With this, I'm now pleased to turn the call over to Mr. Javier Suarez, Chief Executive Officer. Mr. Suarez, the floor is yours.

Good morning, everyone, and thank you for joining us today for Davivienda's second quarter earnings conference call. We are pleased to present the financial results for the second quarter of 2025, which confirm the solid progress we have achieved across our core business. These results reflect effective risk and cost management, along with particularly strong performance in some lines of our P&L. We expect 2025 to continue demonstrating the successful execution of our strategies and the strength of the capabilities we built, showing a consistent path toward Davivienda's potential for growth and value creation even amidst an uncertain environment that continues to present mixed signals, both globally and locally. On Slide 3, we have an overview of the macroeconomic environment in Colombia. During the second quarter, the global economy continued to show signs of deceleration. Rising trade tensions are prompting a reconfiguration of global supply chains and leading many countries to adopt more protectionist policies. Turning to Colombia. Recent data confirms the gradual recovery of domestic economic activity. According to the economic activity indicator, ISE, the economy grew by 2% year-over-year in April and May, supported by strong performance in sectors such as commerce, transportation and financial services. Inflation continued its downward trend. As of June, annual inflation stood at 4.82%, its lowest level since late 2021. This decline has been driven mainly by lower regulated prices and a continued slowdown in food inflation. From a fiscal standpoint, the updated Medium-Term Fiscal Framework confirm the activation of the fiscal rules escape clause for the next 3 years. This decision reflects the structural rigidity of public spending and lower-than-expected tax revenues. Consequently, Colombia's sovereign credit rating was downgraded by Moody's to BAA3 and by S&P to BB. In this context, the Central Bank has maintained a conservative approach, decreasing the monetary policy rate by 25 basis points in its April meeting and keeping it unchanged at 9.25% in July. This is aimed at preserving monetary stability in the current environment, which still presents both domestic and international risks. Regarding consumer sentiment between March and June, consumer confidence showed a moderate decline. However, the perception that it is a good time to take on financial obligations remain relatively high, highlighting a stable credit sentiment. In terms of the exchange rate, the Colombian peso appreciated by 3% quarter-over-quarter supported by the global weakness of the U.S. dollar. Despite the current uncertain context, we expect GDP to grow around 2.5% in 2025, still supported by higher government spending and employment levels. We anticipate annual inflation closing the year in the 4.7% to 4.8% range and the monetary policy rate reaching 8.75% by year-end. Looking ahead to 2026, uncertainty remains mainly related to the pursuit of a fiscal consolidation process and the upcoming electoral cycle. Please move on to Slide 4, where we will see some figures for the Colombian financial system. During the second quarter, gross loans in the Colombian financial system grew by 4.8% year-over-year supported by higher disbursements across all segments. The consumer portfolio returned to positive territory with an annual growth of 1% after 19 consecutive months of contraction. In terms of credit quality, credit risk indicators continued to improve. As of May, the 90-day PDL ratio for the system dropped to 3.3%, the lowest since March 2023 driven by lower past due loan formation and stronger performance in consumer lending. The cap rate for June was set at 25.6% with lower levels during April and May and increases in June, reflecting higher volatility since the methodology change. Lending rates in Colombia continued to trend downward across most segments during the second quarter. The most significant decrease was seen in consumer rates influenced by the cap rate. Commercial mortgage loan rates declined slightly due to competitive pressures seen across the system. However, the rebound in long-term rates and higher consumer disbursements suggests limited room for material declines in the cap rate going forward. Moving on to Slide 5. During the second quarter of 2025, Central America maintained a moderate pace of growth with some signs of deceleration across countries. Inflationary pressures remained mostly contained while monetary authorities kept their policy rates stable or made marginal adjustments in response to external and local conditions. Looking at specific countries. In Costa Rica, GDP grew by 4% in the first quarter 2025, slightly below the first quarter. Inflation remain in negative territory at negative 0.2% and the Central Bank lowered its policy rate to 3.75% in July. The exchange rate depreciated slightly during the quarter, and credit rating agencies maintained their ratings with positive outlooks. In El Salvador, GDP grew 2.3% in the first quarter, slowing compared to year-end 2024. Inflation stayed negative and the IMF approved annual disbursement under its program, reflecting ongoing progress in macroeconomic management. In Honduras, GDP grew by 5.3% in the first quarter with higher inflation at 4.7%. The Central Bank maintained its policy rate at 5.75% and the lempira continued its gradual depreciation. The IMF approved annual disbursement aimed at increasing macro stability. Finally, in Panama, GDP grew 5.2% in the first quarter, but monthly indicators showed a slowdown to 3.5% in April, May. Inflation remained in negative territory for the 10th straight month mainly due to lower fuel prices. Looking ahead, we expect the countries in which we operate to maintain similar growth levels in 2025 while inflation will likely face upward pressure due to stronger domestic demand and rising external costs. Now let's move on to the quarter's main financial results on Slide 6. Our loan book grew by 1% during the quarter and close to 4% annually, demonstrating solid growth in commercial and mortgage loans alongside a continued recovery in the consumer segment. Most lines in our P&L continued to reflect positive trends. The net interest margin including FX and derivatives, expanded to 5.83% this quarter, supported by a particularly strong performance of the investment portfolio and our FX strategy. Our cost of risk for the quarter closed at 2.7%, in line with our efforts to strengthen coverage across the book. Additionally, the bottom line also improved due to a lower income tax primarily explained by the application of tax-exempt income. These combined effects led to profits of COP 434 billion, translating into an annualized ROE of 10.65%. Our CET1 reached a solid 11.38%, improving 21 basis points quarterly and 125 basis points annually. This reflects capital replenishment supported by positive results over the past 12 months. In early July, we successfully issued $500 million in Tier 2 subordinated debt in the international market. We are very pleased with the outcome. The transaction received strong demand with a 3x oversubscription and participation from investors in our 24 countries. Although the issuance will be reflected in July's financial statements, pro forma figures show an increase of 159 basis points in our Tier 2 capital ratio and total capital ratio. These even stronger capital levels provide us solid foundation to continue supporting our growth strategy and anticipated future Tier 2 maturities. Please move on to Slide 7 to see DaviPlata's main results. We continue to observe positive results in DaviPlata's dynamics with average deposits increasing by 5% quarterly and 18% annually. This reflects the platform's potential as a low-cost funding source. Additionally, the strategies we have implemented have allowed us to expand our credit business, aiming to gradually transform it into an interesting source of income. Moreover, we continued to observe positive trends in DaviPlata transactional income, which has increased consistently quarter after quarter. This performance reflects strong dynamics in both purchases and transactions, reinforcing our confidence in the sustainability of this income stream. Beyond its financial performance DaviPlata plays a key role in our strategy to move money across the ecosystem, one of our main strategic focuses over the past few years. In this sense, DaviPlata reinforces Davivienda's position in the payments front by contributing to debit card issuance and purchases, acting as an authorizer in payment gateways, interoperable codes or physical terminals across both consumer and merchant channels. DaviPlata also acts as a pivotal collection channel within the bank, facilitating digital payments for public and private utilities, mobile top-ups, fines and taxes. Most importantly, DaviPlata anchors on outflows by retaining payroll, supplier payments, subsidies and P2P transfers within the Davivienda ecosystem. This strengthens internal liquidity flows and supports the growth of stable low-cost funding for the organization. Now I'll hand it over to Alvaro to go into more detail on our financial performance during the quarter.

Thank you, Javier. Please move on to Slide 8. where we will analyze the evolution of assets. Our total assets reached COP 189.5 trillion as of June 2025, slightly decreasing by 0.2%. However, excluding FX impacts, assets will have increased by 1.1%. Annually, total assets grew by 3.4%, primarily driven by the credit and investment portfolio. Cash and interbank balances decreased by 10.1% during the quarter, given lower foreign currency balance, partially offset by increased activity in the local money market. The investment portfolio totaled COP 23.1 trillion, decreasing by 2.1% compared to the previous quarter due to the maturities of fixed income instruments, particularly in Colombia. Annually, the investment portfolio expanded by 8.4%, driven by higher position in local and international sovereign bonds anticipating positive performance. By the end of June, Colombia's operations represent approximately 74% of our consolidated assets with Central America accounting for the remaining 26%. Please let's turn to Slide 9. Our gross loan portfolio closed at approximately COP 145 trillion, expanding by 1% quarterly and 3.9% annually. This performance reflects continued growth in the commercial and mortgage segments, although at a more moderate pace than in previous quarter. The consumer portfolio has shown signs of stabilization, supported by our credit model, which has consistently enabled increased disbursements as we will see later in the presentation. Analyzing each region's performance. The loan book in Colombia grew 2.1% quarterly and 4.4% annually, driven by a stronger disbursement in the construction, industrial, energy and hydrocarbon sectors; and positive credit demand for mortgage, primarily in non-low-income housing. In Central America, gross loans in dollars increased by approximately 1% quarterly and 4.2% annually, mainly due to mortgage loans. Costa Rica and El Salvador have demonstrated the highest growth basis, reflecting positive macroeconomic trends in both markets. On Slide 10, we will review our past due loans and coverage ratios. The total PDL ratio stood at 4.46%, remaining relatively stable compared to the first quarter and decreasing by 20 basis points during the year. The commercial PDL increased by 14 basis points, primarily due to some specific clients in Colombia in sectors such as services, residential, construction and agriculture. Despite the temporary pressure on the ratio, we expect the commercial PDL to improve during the second half of the year, supported by the stabilization signs we are already observing among SMEs and a reinforced monitoring coupled with early management measures and client reviews. Consumer PDL slightly increased by 4 basis points compared to the previous quarter, explained by some pressure in Central America's ratio due to adjustments on write-off policy in Costa Rica and some deterioration in El Salvador and Honduras. However, we have been taking the respective corrective measures and expect the ratios to adjust in the remainder of the year. It is important to enter that asset quality in Colombia continues to improve as new disbursements maintained sound risk profiles as we will see in the following slide. The mortgage portfolio continued to show improvements. Both 90 and 120 days PDLs decreased during the quarter reflecting better credit quality in recent vintages as well as some write-offs. The consolidated coverage remained stable compared to the first quarter, reflecting the continued efforts we have made to strengthen the ratio, which are particularly evident in the consumer portfolio where coverage has been increasing for over 18 months. Despite some temporary impact on commercial and mortgage coverage during the quarter, the underlying trend signals a gradual improvement. We remain focused on rebuilding these levels and expected the total coverage ratio to exceed 90% by year-end. Please note that when including collaterals, coverage reaches 140%. Now let's look at Slide 11. Consumer disbursements in Colombia increased during the quarter, supported by our analytics capabilities to reach customers within risk appetite under current interest rate limits while tapping into opportunities in our existing customer base. This approach has been gaining momentum over the past months, and we continue to observe healthy early delinquency indicators across recent vintages. We are expecting to continue on this track, which should gradually translate into a higher share of consumer loans within our total portfolio. Please move on to Slide 12. Provision expenses for the quarter totaled COP 982 billion, reflecting a cost of risk 2.71%. For the remainder of the year, we will continue working to improve coverage while meeting our full year guidance for cost of risk, which ranges between 2.4% and 2.6%. In addition, we continue to see improvement in the risk profile of the total portfolio with Stage 1 increasing to represent over 89% of the book and Stage 2 decreasing to 5.7%. Let's turn to Slide 13. Our total funding sources reached over COP 163 trillion, slightly decreasing during the quarter due to seasonal effects on demand deposits and maturity of bonds and credits. However, liquidity ratio remained at solid levels and are aligned with our internal frameworks. We have been working for some time in optimizing our funding mix to improve our cost of funds and have positively advanced on that goal. In terms of demand deposits, we have seen an increase in low-cost funds in Colombia of about COP 1.5 trillion in the quarter and close to COP 6 trillion in year as reflected in Colombia's funding mix breakdown. Additionally, we have been carefully managing institutional funds, term deposit renewals and their tenors to guarantee an efficient repricing of liabilities. In this sense, despite increased CDs, their average cost continued to improve. We are also advancing in our efforts to strengthen our position in the transactional ecosystem for individuals and companies. We believe that our enhanced capabilities in payments and transfers, along with the industry progress on instant payments, will continue to support our strategy and help us further optimize our funding costs over the medium term. As Bre-B becomes fully operational, we are deploying complementary strategies to strengthen all 5 verticals of our [ modeling ] strategy: buying, selling, paying, collecting and transferring. While this unlocks enormous potential to reach a higher transactional base of individuals, we are also developing new capabilities to serve businesses through Bre-B. We are ready to scale our ecosystem even further, fully aligned with the future of digital payments in Colombia. On Slide 14, we will review our capital structure. Our CET1 ratio closed at 11.38%, increasing by 21 basis points during the quarter, supported by profits and lower risk-weighted assets, particularly in market and operational risk components. The annual trend underscores capital replenishment. Additional Tier 1 capital decreased due to the peso appreciation against the U.S. dollar and Tier 2 capital due to the lower weight of subordinated bonds and FX. As a result, our total capital adequacy ratio reached 15.58%. Additionally, the leverage ratio stood at 8.2% and risk-weighted asset density declined to 67.4%, which represent around 520 basis points of annual improvement mainly explained by lower operational risk. Please move to 15, where we present our margins. Our currently annualized NIM, including FX and derivatives stood at 5.83%, 15 basis points up from the previous quarter. This performance was supported by strong results from both our investment portfolio and FX and derivatives, coupled with lower financial expenses, which outpaced lower loan income. Treasury income was particularly high for the quarter, benefiting from an increased valuation of fixed income securities. FX and derivatives also had a good performance driven by the Costa Rican colon depreciation as well as our FX strategy in Colombia. Financial expenses decreased by 2.1%, supported by our active management of cost of funds, the natural repricing of liabilities and maturities across bonds and credits. Please continue to Slide #16. During the second quarter, nonfinancial income reached COP 597 billion, decreasing by 3.7% compared to the previous quarter due to a base effect related to dividends from noncontrolled entities received in the first quarter. However, fee income grew by 2.4%, mainly driven by higher revenues from insurance sales and increased transactional activity. Operating expenses decreased by 1.1% compared to the previous quarter. Personnel expenses declined by 1.3%, mainly due to the base effect related to performance bonuses paid in the first quarter. And operating and other expenses fell by 1%, driven by lower insurance renewal costs and a reduction in fees. The quarter's cost-to-income ratio was 52.9%, decreasing by 239 basis points versus the previous quarter. Let's turn to Slide 17 to analyze the bank's results. Net profit for the quarter reached COP 434 billion, increasing by 49.2% compared to the first quarter supported by the recovery trend of our core business, some abnormally high treasury and derivatives income and lower taxes related to higher tax-exempt income from low-income housing. As a result, our return on average equity for the quarter was 10.65%. Colombia contributed 83% of the quarter's consolidated profit and Central America with the remaining 17%. Please move on to Slide 18, where we will share our expectations for 2025 on Banco Davivienda's consolidated business. In light of the results from the first half of the year and considering updated macroeconomic assumption and a still uncertain environment, we have updated our guidance for this year. We continue to expect our consolidated loan book to grow between 6% and 8% with commercial and mortgage portfolios as the main drivers growing by around 7% to 9%, followed by the consumer portfolio expanding between 4% and 6%. We continue to expect asset quality to gradually improve with the 90-day PDL ratio closing between 3.5% and 4%. Our net interest margin, including FX and derivatives is expected to close between 5.6% to 5.8%, while the cost of risk is expected to range between 2.4% and 2.6%. We anticipate nonfinancial income growth between 3% and 5% and operating expenses to increase by 4% to 5%, reflecting continued cost discipline and efficiency initiatives. As a result, we now expect our return on average equity to close between 7% and 8.5%, which reflects the continued consolidation of our recovery track. Finally, on capital ratios, we expect stability in our CET1 closing the year at around 11% and a total capital adequacy ratio of 16.5% incorporating the effect of the recently issued Tier 2 subordinated bond. Now I will hand it back to Javier to go over the most recent developments in our corporate structure.

Thank you, Alvaro. Now please move on to Slide 19. I'll start by explaining the main steps of our corporate structure transformation. As we shared in late June, our Board of Directors has approved Davivienda Group to be the new holding company for up to 100% of Banco Davivienda. This important step marks the beginning of a new stage in our evolution aimed at enabling greater flexibility for the future and allowing us to integrate BNS operations. Davivienda Group has already been established in Panama by Grupo Bolivar and some of its companies and will have its effective administration in Colombia. Therefore, it will comply with Colombia's tax regime. It will be part of Grupo Bolivar's financial conglomerate, which is supervised by Colombia's Superintendents of Finance. The first step is to receive the regulators' approvals for the defined structure and the BNS transaction, which are progressing in line with the expectations we shared during previous communications of having all of them during this year. We have already received authorizations, no objections from Panama and El Salvador and are in the process of obtaining the remaining regulatory approvals. Once we are authorized, we can begin the structure's implementation process, which includes the following main steps. Davivienda Group's common and preferred shares will be listed on Colombia's national registry and Davivienda Group's preferred shares will also be listed on Colombia's stock exchange. After that, and with the corresponding authorization from the Superintendents of Finance, Davivienda Group will launch public share offerings for both common and preferred shares, allowing Banco Davivienda shareholders to become Davivienda Group shareholders by paying with their current shares on a one-to-one basis. At that time, we will officially invite our shareholders to participate in the offering and we'll be able to disclose further information on ownership rights, pro forma figures for the new structure and expectations for Davivienda Group. Through this process, current Banco Davivienda shareholders who decide to participate in the offerings will be able to get the benefits of the new structure by becoming Davivienda Group shareholders. After the share issuance process, Davivienda Group will effectively become the new holding company for all of Davivienda's businesses. Please move on to Slide 20. Both Davivienda and BNS will need to execute some steps to prepare their structures to continue with the process. Once both structures are ready, BNS will contribute its operations in Colombia, Costa Rica and Panama to the structure in exchange for around a 20% stake in the Davivienda Group. This will be a combination of newly issued preferred and common shares whose final mix is still to be defined. This step will represent the closing of the BNS transaction. As a result, Banco Davivienda in Colombia will consolidate BNS operations in Panama and Costa Rica through Holding Davivienda Internacional. Meanwhile, BNS operations in Colombia will be consolidated directly by Davivienda Group. Additionally, given BNS contribution of the Costa Rica and Panama operations, Davivienda Group will have a direct participation in Holding Davivienda Internacional, HDI, and therefore, Banco Davivienda will dilute its share participation in HDI. It is important to mention that Banco Davivienda will maintain a controlling position in HDI and the value of its investment will remain the same as a result of its participation in a larger business. As we have shared with previously in the first stage, the entities in Colombia and Costa Rica will operate independently. This intermediate step will allow us to begin to materialize synergies, evaluate next steps for the structure and align best practices while ensuring business continuity and quality service for our customers. In Panama's case, Davivienda Panama will receive BNS assets and liabilities in the country, immediately integrating the operations on the legal day 1. Let's now discuss the benefit unlocked by the creation of Davivienda Group. This new structure allows us to anticipate the benefits of integrating the Scotiabank's operations into Davivienda by gaining slide control early on without the requirement of an immediate merger. By managing both banks under unified holding company, we can align governance and operational processes from the outset, reducing execution risk and accelerating the captured value. This structure also gives us the possibility to evaluate the next phases of the integration in an orderly and strategic way and to plan on effective execution of synergies. Furthermore, the holding company allows us to adopt best practices from both worlds while preserving their individual strengths. This includes implementing the necessary adjustments to the operating model, harmonizing risk and compliance frameworks, integrating technology platforms and leveraging complementary capabilities in retail, corporate and investment banking. Davivienda Group will also enhance capital efficiency. As a holding company, it will centralize capital decisions, optimize allocation and channel resources to their subsidiaries and business lines where they generate the highest return. It will also broaden our access to debt or capital at the holding level and allow us to eventually deploy strategic tools such as share buybacks. Another key benefit is the increased flexibility we will gain in the long term. By having shareholders above Banco Davivienda in the group, they can participate directly in the value generated by our subsidiaries, both current and future. Additionally, this design makes it easier to incorporate new businesses, jurisdictions or partnerships without complex restructurings and to adapt our corporate structure to future needs while protecting shareholder value. Finally, the group structure strengthens our ability to capture synergies across regions, align long-term business planning and manage risk holistically. This is particularly relevant as we integrate new markets and operations into a single vision, enhancing our operational resilience and our capacity to respond quickly to changes in the economic and regulatory environment. Davivienda Group will have a solid financial profile and healthy capital levels reflected in leverage and indebtedness levels within the adequate ranges for holding companies. We're very excited about this process, which is a transformational step for the bank. We believe it will give us the flexibility to execute our strategy and advance toward our long-term vision while creating value for all our stakeholders. Thank you. We can now move on to the Q&A.

[Operator Instructions] Right now, we have Mr. Nicolas Riva from Bank of America.

I have 2 questions. The first one on the Tier 2 that you issued in July, the $500 million. So I think you show in the slides your capital ratio pro forma for that, total capital ratio of 17.2%. My question is what's the use of proceeds of the $500 million because it seems to be that you're going to have quite a level of excess capital after that compared to the minimum requirement of 11.5%. Talking use of proceeds of the $500 million, if you consider making any acquisition with that money? And then the second question on the corporate structure after consolidating the Scotiabank assets, which you have in Slide 20. My question is if you can confirm that all of the Central American assets are going to be under the Colombian bank, under Banco Davivienda, because there's been other Colombian banks such as Bancolombia, for example, that have spun off their Central American assets and now they have a cleaner just Colombia-only bank with a balance sheet basically all in Colombian pesos. So if you can clarify whether the Central American assets are going to be all under Banco Davivienda. And also, what was the reason why you are separating the Scotiabank Colombia assets from the rest of Banco Davivienda.

Nicolas, thank you very much for your questions. Let me start by the Tier 2 question. As you mentioned, we're getting to a very comfortable capital position with north of 17% on total equity ratio. You have to take into account that we will have some maturing Tier 2 instruments in the coming months and years. So we wanted to take care of that in advance, make sure that we have a strong capital position. And that's -- from the capital position point of view, we wanted to have the certainty that we had a very good position. So we see -- we have trend of lowering that capital ratio during the next couple of years due to how the old Tier 2 that were issued many years ago are going to mature. So it's just management of -- on the capital side, it's management of the Tier 2 portfolio. Let me be clear that we are not looking for any more acquisitions at this time. We have our hands full. We believe that our focus has to be on making sure that we capture all the synergies with the Scotiabank transaction. So the use of in proceeds in terms of capital is to maintain the position and be in a strong position to take advantage of the opportunities of growth -- organic growth with the operations once we have them consolidated. We believe the consolidation of the operations will give us the opportunity to grow with a stronger presence in the markets in which we will be operating. With respect to the second question on corporate structure. As you can see on the Slide 19 -- actually Slide 20, which is the post-integration structure, you can see that Holding Davivienda Internacional, it's a subsidiary that is -- has 2 shareholders. One is Banco Davivienda and the other one is Davivienda Group. That's going to happen because Banco Davivienda is today the controlling shareholder, it's actually the only shareholder of Holding Davivienda Internacional with 100% of our current investments in Central America. What is going to happen is that the operations of Scotiabank both in Panama and Costa Rica will be part of Holding Davivienda Internacional, and they will be included in the transaction through the Davivienda Group. They will not be included through Banco Davivienda. So the new Holding Davivienda Internacional will have an increase in capital due to what Scotiabank is bringing us to the transaction. With those numbers, still more than 50% of Holding Davivienda Internacional will be controlled by Banco Davivienda. And for that reason, those numbers will be part of Banco Davivienda Colombia numbers. They will consolidate under Banco Davivienda Colombia. We are looking at this as an intermediate step. We are focusing on the transaction with Scotia. We don't want to go into the spin-offs at the Davivienda -- Banco Davivienda structure. The complexity of the transaction with the 3 countries in which we have to integrate the operations is significant. So we want to focus on making sure that the execution is the right one. So we are looking for new steps. Once we finish the consolidation of the transaction, we might come back and look into a cleaner version of this structure in which eventually some of those assets could come out of Banco Davivienda. But for the coming months, we're focusing on the transaction, making it smooth the transition from the Scotia operations to Banco Davivienda. So that's why, in the meantime, we are not thinking of spinning off those operations. But the structure, having the Davivienda Group give us the option to do that at a later stage. In terms of...

So then the Central American assets are going to be more than 50% owned and consolidated by Banco Davivienda by the Colombian bank?

Yes. the Existing Central American assets are larger than the ones that Scotia is bringing to the transaction.

Our second call comes from Mr. Brian Flores from Citibank.

I have 2, they are a bit related. Just wanted to understand your guidance a bit because you reiterated most of the lines to increase or change your expectations in nonfinancial income and you also changed operating expenses. However, ROE -- the level of ROE switched importantly. So I just wanted to understand if the main driver of this is what you could achieve in terms of controlling expenses because that seems to be the case. And I just wanted to clarify if that is the case or if you are seeing something better because, again, the rest of the lines were not revised upwards. And then on that front, if you could also elaborate on what in your vision is the bank's sustainable ROE?

Thank you, Brian, for your questions. We're actually updating the ROE, as you mentioned, to that 7% to 8.5% range. That's supported by the expectation that we have of better operating expenses -- better management of operating expenses. . But also even though we haven't changed the other lines on the guidance, we believe some improvements within those ranges. In some of them, we will be a little bit better than what we were. That you may not see changes specifically in any of the lines, but internally within those guidances, we believe that we will have a better performance in some of them. And the ROE guidance that we had before had an expectation on taxes also that were higher. We're expecting taxes to be lower and that's also part of the reason why we are improving our ROE. And let me take on the question on taxes. And the reason is that for the first quarter, for the guidance that we gave at the first quarter call, we had the expectation of not necessarily being capable of using 100% of the tax exemption for low-income housing portfolio. So we were being quite conservative on our assumptions on taxes. What we saw during the first quarter and especially during the second quarter is stronger profits along those 2 quarters that gave us a high degree of certainty of our ability to use the tax exemption for the full year. So that's why you see a decrease in taxes in the second quarter as compared to the first quarter. And that's because we were actually using the tax exemption for both the first and second quarter during the second quarter. So it was kind of a catch-up. And for the third and fourth quarter, we're expecting the ability to use the average tax exemption for those quarters. So when you factor that in, the fact that we were catching up to the tax exemption of the first quarter with the second quarter and also that we will have the expected tax exemption for the third and fourth quarter, that give us room also for improvement on the ROE expectations. In terms of sustainable ROE, we are moving upwards. So we're expecting to be in double digits for next year. And we have an expectation of range of 14% to 16% once we go through the process of integrating the Scotiabank operations and we have the integration costs behind us as well as the synergies. So sustainable ROE is in around those 14% to 16% ROEs.

No, very clear. Just wanted to maybe clarify. So in terms of the, I would say, the working assumption for 2025 effective tax rate, should we be looking at -- do you have a range or a certain expectation?

Yes. It's actually the average of the tax rates that we've had for the first and the second quarter. What we expect for this year is an effective tax rate around 25%. If you look at the first quarter, it was very high and then the second quarter was close to 0. So on average, what is coming up is to around 25%. And that's our expectation also for the third and fourth quarter.

Our next question comes from Mr. Andres Soto from Banco de Santander.

Just a follow-up on the tax issue. Thanks for the clarification that this is related to affordable housing mortgages. Do you guys also have any tax credit related to the losses that the company posted over the past year? Or how do you expect the effective tax rate to be in 2026? Is it going to be the same 25% that you are expecting in the second half of the year? Or there is any room for improvement based on those previous losses?

Thank you, Andres, for your questions. We're expecting actually a little bit higher tax rate for next year, around 29% to 30%. That's because the -- as we see a trend in the results of the bank, low-income housing will have a lower share of the profits on the total bank. So we will have profits that will be taxed at a marginal rate. So our average rate will go up to 29%, 30%. In terms of tax credits, yes, we do have tax credits from the last couple of years. But from an accounting perspective, what we see is the -- we're actually expecting taxes to be cost at the rates that are that I just mentioned because we took the benefit of those tax credits during the last couple of years. So in terms of our P&L, we will see the tax rates that are the ones in the code with the exemption that I just mentioned. The benefit that we're seeing is -- that's in accounting terms. In terms of cash flow, what we're seeing is actually we are not having to pay any taxes because we can use the tax credits in terms of payments of taxes to the tax administration. So actually, we're using the tax credit that is on our balance sheet as an asset is becoming actually cash as we don't have to have a cash disbursement to pay for taxes for this year and in the coming years.