Grupo Aval Acciones y Valores SA (NYSE:AVAL) Q1 2016 Earnings Conference Call May 27, 2016 10:00 AM ET
Luis Carlos Sarmiento Gutierrez - CEO
Diego Solano - CFO
Tatiana Uribe - IR
Domingos Falavina - JP Morgan
Carlos Rivera - Citi
Grupo Aval Acciones y Valores SA is an issuer of securities in Colombia and in the United States, registered with Colombia's National Registry of Shares and Issuers, and the United States Securities and Exchange Commission. As such, it is subject to the control of the Superintendency of Finance and Compliance with applicable U.S. securities regulation as a foreign private issuer under Rule 405 of the U.S. Securities Act of 1933.
Grupo Aval is not a financial institution and is not supervised or regulated as a financial institution in Colombia, as an issuer of securities of Colombia Grupo Aval is required to comply with periodic reporting requirements and corporate governance. However, it is not regulated as a financial institution or as a holding company of banking subsidiaries and thus does not require to comply with capital adequacy regulation applicable to banks and other financial institutions. All of our banking subsidiaries, Banco de Bogotá, Banco de Occidente, Banco Popular, Banco AV Villas and their respective Colombian financial subsidiaries including Porvenir and Corficolombiana, are subject to inspection and surveillance as financial institutions by the Superintendency of Finance.
Although we are not a financial institution until December 31, 2014, we prepared the audited consolidated financial information included in our quarterly reports with accordance with the regulations of the Superintendency of Finance for financial institutions and Generally Accepted Accounting Principles for banks to operate in Colombia, also known as Colombian Banking GAAP because we believe that presentation on that basis most appropriately reflected our activities as a holding company of a group of banks and other financial institutions.
However, in 2009 the Colombian Congress enacted Law 1314 establishing the implementation of IFRS in Colombia. As a result, since January 1, 2015, financial entities and Colombian issuers of publicly traded securities, such as Grupo Aval, must prepare financial statements in accordance with IFRS. IFRS is applicable under Colombian regulations differs in certain aspects for IFRS as currently issued by the IASB.
The unaudited consolidated financial information included in this webcast is presented in accordance with IFRS as currently issued by the IASB. Details for the calculations of non-GAAP measures such as ROAA and ROAE among others are explained or required in this report. Because of our recent migration to IFRS and recent implementations of IFRS accounting principles, the unaudited consolidated financial information for the first quarter 2016 and the comparative information for the relevant unaudited consolidated periods of 2015 presented herein may be subject to further amendments.
This report may include forward-looking statements, but actual results may vary from those stated herein as a consequence of changes in general economic and business conditions, changes in interest and currency rates, and other risk factors are evidenced in our Form 20-F, available at the SEC's webpage. Recipients of this documents are responsible for the assessment and use of the information provided herein. Grupo Aval will not have any obligation to update the information herein and should not be responsible for any decisions taken by investors in connection with those documents. The content of this document and unaudited figures include herein are not intended to provide a full disclosures and Grupo Aval or its affiliates. When applicable on this webcast we refer to billions as thousands of millions.
Today, the call will be conducted by Mr. Luis Carlos Sarmiento Gutierrez, Chief Executive Officer of Grupo Aval; Mr. Diego Solano, Chief Financial Officer of Grupo Aval; and Mrs. Tatiana Uribe, the Investor Relations Officer of Grupo Aval.
I will now turn the call over to Mr. Luis Carlos Sarmiento. Mr. Sarmiento, you may begin.
Luis Carlos Sarmiento Gutierrez
Thank you, Cilia. Thank you very much. Good morning and thank you for joining our call. It's my pleasure to report and in line with our expectations Aval had a good first quarter. In the next few minutes I will highlight a few of our results and later on in the call Diego will address these and other points in detail.
But first, let me start by addressing an issue that has been made -- on the minds of some of the analyst that follow us and obviously one of high importance to us. I'm referring to the capital structure of Banco de Bogotá. For background, recently Moody's downgraded Banco de Bogotá standalone baseline credit assessment as well as its long-term denominated, subordinated debt and both rate into lowered under the investment grade threshold. Furthermore in accordance with Moody's rating system, Grupo was rating of its long-term senior foreign denominated debt was also downgraded, as a result of the action taken on Banco de Bogotá.
The mentioned downgrades were accompanied by negative outlooks from Moody's, to address those negative outlooks, we agreed to present the plan to Moody's before their June meeting, consequently over the past month, we've been working on a plan which we’re confident, will get this rating agency to remove the negative outlook on the different debt instruments of Banco de Bogotá and hopefully to upgrade these ratings.
Over the past two weeks, we have discussed this plan with regulators, accountants and lawyers all whom have cleared at least one of two major initiatives. We expect to present our plan to Moody's in early June, as soon as we iron out the details, we will announce that components of our plan to the market. In the meantime, as you will see later on in the presentation Banco de Bogotá Tier 1 in total solvency ratios under Colombian regulation were significantly boosted as a result of discussions with Superintendence of Finance in which it became evident that the bank's calculation of its solvency ratios had omitted the inclusion of an existing OCI account in its regulatory capital. The good news is that as a result of including this OCI account in the calculation of regulatory capital, the bank's Tier 1 and total solvency ratios were boosted by close to 200 and 300 basis points respectively.
And now let me refer briefly to Colombia's current macroeconomic landscape. In the midst of our inflation and a contractionary monetary policy, Colombia's economy continues to slow down, analyst now expect that real GDP growth for 2016 will only reach 2.3%, we expect it to be somewhat higher and are current estimating it somewhere between 2.5% and 2.75%, as we expect that the Central Bank's monetary policy will be effective in continuing [ph] inflation during this year's second semester which should give way to our reversal in the current trend in the conscious economic growth.
We remain confident that next year's growth will rise on extended local manufacturing as well as on the positive impact that the 4G infrastructure program will have on the economy, once new road start to be built during 2017. We however remain attentive to the announced tax reform that the government is determine to pass before year’s end. Our hope is that the tax reform will lighten the tax burden for businesses without unduly taxing dividend while raising value added taxes. We have been positively surprised so far by the steadiness of employment numbers, unemployment has only mildly deteriorated and remains manageable at level of 10%.
Current account and trade balance deficit numbers continues to reflect the effect of oil prices, but have steadied as the price of these commodities seems to have stabilized in the $45 to $50 range as of lately, as I mentioned before and as we had expected inflation continues to show high numbers and reached on a last 12 month basis, a level closed to 8%. The Central Bank in keeping with its mandate has taken the discount rate up to 7% and the DTF as follows, allowing a favorable reprising of the vast majority as the loans in the bank's commercial loan portfolios. This positive effect will continue over the next few months as more loans are due for reprising.
The exchange rate although still somewhat volatile, seems to have reach the level of relative calmness in the 3,050 to 3,075 peso per dollar area. Oil prices don't seems to be the principal driver in the exchange rate anymore, as it has held steady even with the latest price hikes of this commodity to over $50 per barrel. With respect to our other major market, Central America continues to benefit by the U.S. economic comeback and relatively low prices of oil. As a result, the international monetary fund expected of regions growth will near 4% during 2015 and we expect a similar behavior this year.
Finally, the country has started to prepare for the end of the conflict with the FARC guerrilla. Reportedly conversations are now also taking place with the other guerrilla factions in Colombia that the ELN. We celebrated and expected that the economy will benefit for us.
Now turning to overall financial results, these are the main highlights. Diego will refer to each of these in more detail following in my summary. Attributable net income for the period excluding the wealth tax effect was COP645 billion or COP29 per share showing 19% increased versus the same period last year, when we showed a results of COP543 billion or COP24 per share.
Consolidated gross loan portfolio grew by 16.7% in the last 12 months and show the slight decrease of 0.3% during the first quarter of 2016. However in absence of the revaluation of the pesos during the first quarter, the loan portfolio would have grown 1.1%. Exclusively as a reference to illustrate these points converted to dollars and due to the revaluation of the peso. During the first quarter, the loan portfolio would have grown 4.7%.
Deposits outgrew loans and increased by 0.7% in the quarter. As a result, the ratio of deposits to net loans improved from 96% to 98% between December 2015 and March 2016. In absence of the revaluation of the peso during the first quarter, the deposits would have grown 2.1%. Reflecting the rise in the DTF and as a result of our pricing strategy, average yield on loans showed an 80 basis points increased between the fourth quarter of 2015 and this year’s first quarter closing at 10.9% as of March 31st.
In line with the increases in the Central Bank rate. During the first quarter of this year cost of funds increased by approximately 50 basis points to 4.1% from 3.6% in the last quarter of 2015. As a result, the spread between the average yield on loans and the average cost of total funds improved by 30 basis points when comparing this quarter versus the previous one closing at 6.8% as of March 31st.
As we had anticipated NIM on loans improved by 27 basis points when compared to last year’s fourth quarter reaching 6.5%. NIM on total investments was 1.3% showing a slight deterioration versus the 1.4% reported in the fourth quarter of 2015 and total NIM improved by 24 basis points versus last year’s fourth quarter reaching 5.7% as of March 31, 2016.
During the first quarter of this year, non-recurrent provisions had to be made to reserve for specific events such as Pacific Rubiales default. As a result, customer cost of risk during the quarter rose to 2% before recoveries of provisions and 1.9% after such recoveries. In absence of the Pacific Rubiales provision expense the cost of risk of the quarter would have been 1.8% before recoveries and 1.7% after recoveries. When compared to last year’s fourth quarter, efficiency improved both on a cost to income basis and on a cost to asset basis.
During the quarter, efficiency ratios were 44.1% and 3.4% respectively. As of March 31, 2016, our banks showed strong regulatory capital ratios. In fact, the range of Tier 1 for all of our banks was between approximately 10% and 11% and the range for total solvency for our banks was between approximately 11% and 14%. Finally, during the first quarter of this year, the return on assets excluding the wealth tax payment was 2% and the return on equity was 17.8%.
I will now pass on the presentation to Diego, who will expand on the highlights that I just shared with you. Thank you and you have a good day.
Thank you, Luis Carlos. I will now start with the evaluation of our macroeconomic environment. Starting on page five, we present the evolution of some key macro drivers of our industry. Market consensus and real GDP growth as reported by Bloomberg had a slight downward provision since our last call now standing at 2.3% for 2016 and 3% for 2017. Return to market consensus and as Luis Carlos mentioned we have a slight positive bias expecting 2016 growth to be in the 2.5 and 3 quarters area.
As discussed before, we have a positive view on the impact of a more competitive peso and the contribution of the Cartagena Refinery to GDP. In addition, we expect to see a minor contribution of the fourth generation consensus and private public initiatives during the last month of this year in a more relevant manner during 2017. We have also seen some recovery of international oil prices that is permanent which is beneficial for growth. Downside risk will continue to come from oil prices and lower government spending and certain fee and GDP growth also comes from the potentially impact, our terms of the tax report.
Regarding an impairment, we have started to observe the mild deterioration that we have been expecting for some time. The last data point, our renewal is that for March 2016 with the figure of 10.1% up from 8.9% reported a year earlier for the same month. Finally, fourth quarter data on current account [indiscernible] saw some improvement compared to the previous quarter. Nevertheless, absolute numbers continue to be fragile on this front.
Moving to Page 6, represent inflation and some interest rate benchmarks, 12 month inflation has slightly improved since our last call. The last data point available is that for April 2016, the figure reported was 7.9 doubling the Central Bank’s upper limit of 4%, market expectations on inflation continues to be high, influenced by recent performance. However, we expect inflation to be lower than in the latter part of the year as we experienced lower transference of the currency appreciation to inflation as the effect of the Central Bank recent adoption feeding into the economy. We expect year-end 12 month inflation to trend down towards 6%.
Consistent with the recent inflation data the Central Bank has continued to raise its rates with the last monthly meetings, accumulating 275 basis points since August 2015, now reaching 7%. We believe that the rate increase cycle could be close to an end. With inflation close to 8% currency the Central Bank continues to have a negative real interest rate. Our DTF or benchmark rate has closely tracked the REPO rate, it remains as well in a negative territory. Even though we have been cautious on the possibility of DTFs spread expansion over the REPO rate, given last year’s performance, we continue to believe that the changes in global and local liquidity could favor an improvement on this front.
On Page 7 we present all prices effect on foreign exchange. Colombian peso-U.S. dollar exchange rate ended March at 300 pesos, close to 5% stronger than 3 months earlier and 16% weaker than a year earlier. First quarter average exchange rate was 3,263; 6.6% weaker than the previous quarter and 32% weaker than the same quarter a year earlier. We’ve seen a recent decoupling of the peso and U.S. dollar. Colombian peso performance as well as that of many other currencies has resulted from a strengthening of the U.S. dollar driven by expectations of a faster increase in rate spend than previously expected and an overall improvement in the perception of the strength of the U.S. economy.
On Page 8 we present our chart on Central America and macro drivers with no major changes compared to our previous calls. We expect lower oil prices to affect positively the Central American region as countries are net importers of oil. Central American GDP growth is correlated to the U.S. economy rather than to the Colombian economy. Therefore, we expect our operation in Central America to continue to be a positive diversification factor to our business, particularly now given the improvement in expectations on the future U.S. economy performance.
I will now move to Grupo Aval’s results, starting on Page 9, with our asset evolution. Before I start, I want to highlight that our balance sheet and P&L accounts that you find in this report reflect the presentation standard used on our 20F recently reported to the SEC. We’ll adopt these reporting standards on our quarterly releases starting today. Total assets grew 12.5% during the last 12 months, presented a slight decrease of 0.8% in the last quarter. In absence of the effect of the Colombian peso fluctuations in Central America FX would have grown 8.2% and 0.6% respectively.
Consolidated balance sheet structure was similar to that in place at the end of March and December 2015 with our net loans accounting for 65% of our assets at materially the same level three months earlier and up from 63.3%, 12 months before. Fixed income investments have compensated the slight increase in our accounting for 11.5% of assets, down from 14% one year ago. Colombian assets account for close to 72% of our balance sheet, slightly higher than the 70% reported three months ago. Central American assets have increased their weight over the 12 months moving from 26% to 28%. Both changes are mainly due to the Colombian peso fluctuations.
On Page 10 we present our loan portfolio evolution. Gross loans increased by 16.7% over the past 12 months. In absence of the effect of the peso fluctuation on Central America 12 months close [ph] we would have been 12.3%. This change resulted from our Colombian growing at 12.4% and Central America at 29.2%. This is 11.9 in dollar terms. Mortgage continues to be our most dynamic portfolio growing at 26.1% over the last 12 months. Consumer and commercial loans grew at 19 and 14.3 respectively during the same period. Broken down by regions, mortgage loans grew 30.2% in Colombia and 7.1% in U.S. dollar terms in Central America. Consumer loans grew 13.1% in Colombia and 14.3% in dollar terms in Central America. Commercial loans grew 11.1% in Colombia and 12.3% in dollar terms in Central America.
In the first quarter 2016 gross loans slightly increased by 0.3% in absence of the effect of the peso appreciation in Central America three months growth would have been 1.1%. This growth resulted from the Colombian operations growing at 1.6% and the Central American operation, decreasing at 4.9%, this is 0.2% growth in dollar terms. The structure of our gross loan portfolio remains stable when compared to the previous quarter, commercial loans account for 60.3% of our portfolio while consumer and mortgage loans account for 29.9% and 9.5% respectively. Columbia accounted for 72% of our loan portfolio, up from 71% three months earlier and down from 75% a year ago. The increasing weight of Central American operation has been mainly due to our Columbian peso exchange rate fluctuation.
On Page 11, we present several loan portfolio quality ratios, on the top left of the page you'll find the evolution of our past due loans more than 30-days and of our NPLs, both as a percentage of total loans excluding interest account receivables. In this quarter our delinquency ratio measured at 30-days PDLs to total loans deteriorated from 2.4% to 2.7%. Delinquency measured as NPLs to total loans increased by 15 basis points from 1.6 in the fourth quarter or at the end of the fourth quarter to 1.8 at the end of the first quarter of 2016.
Moving to right, analyzing net provision expense, net of recoveries of charged-off assets for the quarter was 1.9% of average loans, up from 1.6 recorded three months earlier and from 1.3 recorded a year before. However it's important to mention that the first quarter includes ADPs in peso in provision expense related to Pacific Rubiales, excluding these events the cost of risk net of charged-off assets for the quarter would have been 1.7.
The bottom left you'll find the annualized ratio of charge-offs as a share of average NPLs, this ratio was 0.9 times during the first quarter of 2016. Finally on the bottom right you'll see several loan loss reserve coverage ratios, our allowance are 2.7 of total loans and cover 1.5 of NPLs and one times 30-days PDLs.
Page 12, you'll find further detail on the quality of our loan portfolio. This page you'll see evolution of our loans passing more than 30-days and of our NPLs as a percentage of total loans. We'll also reaffirm to 90-days PDLs even though not included on this chart. During this quarter our delinquency ratio deteriorated from the measured at 30-days PDLs of total loans from 2.4 to 2.7. During the quarter our 90-days PDLs to total loans increased by 14 basis points to 1.6 and our NPLs increased by 15 basis points to 1.8%. All ratios calculated as a percentage of total loans excluding interest accounts receivables.
Broken down by type of loan, commercial loans deteriorated from the quarter from 1.6% to 2% when measured as 30-days PDLs and from 1.2 to 1.4 when measured at 90-days PDLs and 1.2 to 1.4 when measured as NPLs. Service providers to oil industries are partially responsible for this deterioration. Consumer loans deteriorated from 3.8 to 4.1 when measured as 30-days PDLs and remained stabled at 1.9 when measured at 90-days PDLs. They increased as well from 2.6 to 2.7 on NPLs. Mortgage loans deteriorated from 2.7 to 2.9 when measured as 30-days PDLs and from 1.1 to 1.2 when measured based on NPL.
Moving to Page 13, you'll find funding and deposit evolution. Total funding grew at 13.4 over the last 12 months and decreased 1.1 during the last quarter. In absence of the effect of the Columbian peso exchange rate fluctuations in Central America, 12 months and three months gross would have been 9.1% and 0.2% respectively. Broken down by geography, Columbia funding grew at 10.7 over the last 12 months and 0.8 during the last quarter. Central American funding grew at 21.3 in Columbian peso terms or 5% in dollar terms over the last 12 months. The first quarter of 2016 Central American funding decreased 5.9% in peso terms or 1.3% in U.S. dollar terms.
Deposits increased at 12.6 during the last 12 months and 0.7 during the last quarter. In absence of the effect of the peso depreciation in Central America 12 months and three months gross would have been 8.5% and 2.1% respectively. Broken down by geography, Columbia accounted for 71% of total deposits. Columbian deposits grew 8.5 over the last 12 months and 2.7 during the quarter. Central American deposits grew 25.5% in Columbian peso terms or 8.7 in dollar terms over the last 12 months. Over the quarter Central American deposits decreased by 4.4 in peso terms which is equivalent to increase in 0.3 in dollar terms.
Our funding and deposit structure slightly strengthened during the quarter. Our deposits accounted for 75.6 of our total funding at the end of period, up from 74.2 three month earlier. Our deposits cover 98% of our net loans, up from 96% three months earlier.
On Page 14, we present the evolution of our total capitalization. Our attributable shareholders equity and the capital equity ratios of our banks, our total equity is defined as attributable equity plus minority interest was COP22.9 trillion as of the end of first quarter 2016. This implies an 8.7 increase over the last 12 months and 0.1 decrease in the last quarter. Attributable equity accounted for 62.8% of total equity as of March 2016. Attributable equity was COP14.4 trillion at the end of March. This implies 7.4 growth during the last 12 months, and 1.3 increase during the last quarter. Equity increase mainly resulted from dividend payments during the quarter.
This chart, we also show the consolidated solvency of our banks. Solvency at the end of period was 13.7 at Banco De Bogota, 11.2 at Banco De Occidente, 11.4 at Banco Popular, and 10.7 at AV Villas. As mentioned by Mr. Sarmiento, Banco De Bogota's in solvency -- December solvency was restated as a result of discussions with Superintendency of Finance.
During the quarter, the appreciation as a Colombian peso benefited Banco De Bogota solvency ratio. Page 15, we present our net interest margins. Our NIM was -- had a strong recovery during the first quarter of 2016, reaching 5.7% up from 5.5%, reporting the previous quarter, mainly driven by the increase in net interest margin and loans. The NIM on fixed income investment was 1.3 down from 1.4, a quarter earlier. The NIM on loans increased 27 basis points and 6.5 during the first quarter from 6.3 in first quarter of 2015. In spite of the continued pressure on the funding cost resulting from an increase of the Central Bank rates, the banks were able to transfer cost of pricing with higher cost of lending. Partly, net interest income grew 20.5%, increasing from COP1.9 trillion in first quarter of 2015 to COP2.3 trillion in the first quarter of 2016.
Moving to Page 16, we present net fees and other income. Fee income is presented on the top of the page. Gross fee income grew 20.2% compared to the same period a year earlier, and 0.9% to those received during the fourth quarter of 2015. On the bottom of the page, we present other income for comparative reasons with previous calls we include income from derivative currency reported as part of the net trading income. Other income was materially at the same level as the previous quarter.
On Page 17, we present Efficiency Ratio. This page, we present our operating expense as a share of total income and as a share of average assets. Efficiency measured as operating expenses divided by average assets show an improvement from 3.5% in the fourth quarter of 2015 to 3.4% in the first quarter of 2015. In Colombia this ratio improved 28 basis points to 2.7%, in Central America this ratio deteriorated 37 basis points from 4.5% to 4.9% in peso terms. Our efficiency measured as operating expenses divided by total income was 44.1% during the quarter, improving from 47.1% reported during the previous quarter. In Colombia this ratio improved from 44.3% during the fourth quarter to 38.5% during this quarter, due to NIM expansion. In Central America this ratio deteriorated from 52.8 to 55.4 in peso terms.
On Page 18, we present our net income and profitability ratios. Attributable net income for the quarter was COP466 billion or COP20.9 per share, in absence of the wealth tax or attributable net income for the quarter would have been COP645 billion or COP29 per share. Return on average assets and return on average equity for this quarter were 1.5% and 12.9% respectively, in absence of the wealth tax this ratios would have been 2% and 17.8%.
Before we'll move to Q&A, we'll give you some general guidance on 2016. Growth on loans and asset in absence of FX movements will be in the 10% area, we expect similar growth for our Colombian and Central American operations, the quality of loans might show some additional deterioration driven by weaker GDP and a softer internal demand, this could negatively affect cost of risk in the 20 to 25 basis points relative in 2015, incorporates the impact of the economic cycle and consumer and SMEs and someone time events in our corporate portfolios such as Pacific Rubiales.
We expect the net interest margins and loans to increase if the currency interest rate and liquidity scenario prevails we expect full year NIM on loans to be similar or slightly higher than that reported for this quarter, our previously mentioned short-term -- as previously mentioned short-term increases in yields are more likely in our corporate loans given the payroll evolution of DTF. The performance of our total net interest margin will depend on the performance of our investment portfolio, we are now more positive on these front versus our previous guidance given the reduction in expected phase, of increases in the U.S. interest rates compared to those prevailing last year.
On the other hand successfully anchoring the long-term inflation expectations by the Central Bank will be key to these results. Regarding efficiency ratios, we will continue to work to improve on these front and gaining back part of what we lost in 2015, due to the impact of the peso depreciation, what it had on our mix, given the less efficient Central American operations. Finally, we expect to improve slightly our ROE during 2016, trending forward 15% by the end of the year.
With these, I open up to questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Domingos Falavina from JP Morgan.
I have two questions, actually my first one is related to Pacific Rubiales. You mentioned in factor NPLs, but is even provide a lot of detail, we noticed [indiscernible] taking different business lines on NPLs, as well on macro credit, as well as on large corporates. Just wanted to get a better sense like what would have been the total NPLs if not for Pacific Rubiales and which one of the loan lines here was most impacted, was it the commercial, did it spill over to micro credit, seeing how you guys think about that?
I got one question, Pacific Rubiales question. What would have been the rate in absence of the facility deterioration and you had another question on the quality of portfolio. Domingos?
Yes. Like which line for Pacific Rubiales probably impact when we look at the NPL per loan products?
Okay, okay. Pacific is corporate therefore it affected our corporate numbers. In affected roughly around 10 basis points might have been this type of Pacific Rubiales deterioration and our index. As I mentioned it’s not only affected the way we’ve created our loans, but it affected our cost of risks. If the setup cost of risk is stripped out, would have been or the cost of risk is stripped out Pacific would have been of around 1.7% comparable to what we had during the last quarter of last year.
So perhaps expanding and the guidance, we slightly increased our guidance and cost of risks and the reason for increasing this guidance is particularly the Pacific Rubiales event and some deterioration, additional deterioration in the service providers to the oil industry. Pacific to give you a feel of what to expect for the remainder of the year, it might have around COP70 billion left of provisioning part of that has already been put during the quarter and we expect to complete that during the second quarter of this year.
Your question on the quality of the portfolio, if I understood it right. We expect to see some slight deterioration on consumer and SMEs. This is based more on our expectation and what macro could impact the ratios rather than actually substantial deterioration perceived throughout the past months. Guide [ph] you on how to read our numbers, you might have seen some deterioration during the quarter compared to the last quarter of last year. However, if you compare it to the first quarter of 2015 numbers haven’t fully changed a lot. Numbers for consumer at the end of the first quarter of ’15 was 4% and it moved up to 4.1% based on PDLs -- on 30-days PDLs. And based on NPLs, the number was quite flat. Therefore, we might see some more deterioration there, but as we have said in our past calls, it will be a mild deterioration, it will however impact some expansion in your costs of risks.
And the next question comes from Carlos Rivera from Citi.
Yes, thanks. Diego so I want to ask you about capital. The first one is as you mentioned there was some big statement in the Tier 1 ratio of Banco de Bogota for December up 290 basis points. So first of all really what was this restatement about, I mean you talked about that now you’re including our compensated income in the Tier 1 capital, but if you can be more specific?
Also second question on capital also, I estimate based on the risk weighted assets that Banco de Bogotá [ph] reported as of the end of December. That the impact of this in the Tier 1 capital was about $1.1 billion. So if you can confirm, if my estimate is more or less correct because these are big capitalization really that you are leading Banco de Bogota?
And the third one is, if I look at the Tier 1 ratio Banco de Bogota now 10% at the end of March. And that number looks to be fine, its significant higher than other banks in Colombia, Bancolombia Liena, it’s in line with the Tier 1 ratio of your other subsidiaries of [indiscernible]. So if that’s the case, the Tier 1 ratio right now is 10%. Why these things have the need to work on a capital client, why are you saying that you’re going to be submitting a capital plans to move this and specific to my question, is there any probability that you will have to undo this capital increase that you have or issue a statement that you have really done for Banco de Bogota. Thank you.
Luis Carlos Sarmiento Gutierrez
This is Luis Carlos Sarmiento. Let me try to answer your questions. With respect to what happened. Well, first of all you’re right the increase in Colombia’s regulatory capital was about $1 billion. Why? It is simple and as complicated as this. We had several meetings with the Superintendence of banks because we weren’t quite sure why it was that banks similar to ours, like Bancolombia Liena we’re not suffering the same effects as we were in our regulatory capital after a devaluation of the peso. It seemed that we were being -- that we were suffering more the consequences of devaluation in our regulatory capital for Colombian standards that these other two banks were suffering.
So we sat down with Superintendents and we asked them to go line-by-line over the extensive calculation that is put in place to come up with regulatory capital in Colombia. What we found out in that meeting as we went down line-by-line and comparing it to the calculations that our competitor banks do was that there was some devaluation effects that count towards regulatory capital and some don’t. We had been netting all these effects in one line, the Superintendents asked us to detail the line, to open up the line where we’ve been netting all these effects.
When we did so, the Superintendents pointed out that netting the results of devaluation on things like assets on the one hand and derivative on the liability sides on the other hand was done maybe conservatively, but in all trueness, incorrectly. So, when they noticed that and they quantified the line, immediately they asked us to report with that line as part of regulatory capital and to restate December going back to what that line had been in December. It was already part of capital bear that in mind, it was not capitalization, it was not a line that went to augment the book value of the bank. It was just regulatory capital that had not been counted as such.
So that is the long-end end of it, that’s what happened. As I said the good news is that yes as you mentioned it did more fairly reflect our real capital position because what we have been doing to ourselves was misrepresenting the adequate amount of capital that we have on our books. However, as you’ve very fairly pointed out your question is, then why would you do Moody’s. Well, the reason that we would do Moody’s is because Moody’s measures capital in a way that is pretty different than what regulatory capital is measured around the world and in Colombia.
What Moody’s does is that it starts with a book value, the consolidated book value of capital and starts subtracting a lot of lines. So as you can see for Moody’s and given that the regulatory the book value of capital in the bank did not increase only the regulatory capital for Colombian standards, then for Moody’s calculation nothing has changed in reality. I will advance that we have had a lot of conversations with Moody’s we dove into Moody’s way of calculating capital and we did find out that there might be a slight omission on their side on how they had been calculating capital for Banco de Bogotá.
Specifically around issues like what they deduct in terms of intangibles and the fact that they had been deducting 100% of the intangibles booked on the consolidated balance sheet of Banco de Bogotá and not just as they themselves report on how they audited the attributable intangibles of Banco de Bogotá. So, just with that that measurement will change, but we do have a couple of plans as I mentioned during my short presentation that we’ll in fact pick up significantly Moody’s own calculations or at least we expected to do such, we will meet with them in June and that will be the end of it. And obviously I can’t advance much more than that because of that, because we will have to meet with them.
Once we get our plan in place and ready to go and looked at by everybody concerned we will advance it to the market at that point we will, as your third question seem to be, we will have to revisit all the calculations obviously, our regulatory capital is calculated in Columbia, Moody's capital is calculated and we will come up with new numbers. My feeling is that everybody should be happy.
We have no further questions. I'll turn the call back over to Mr. Sarmiento for closing remarks.
Luis Carlos Sarmiento Gutierrez
I just wanted to thank everybody for being on the call and all those that are always on our calls and I also wanted to -- this is my first call where I get a chance to listen to the new analysts from JP Morgan and Citi and welcome to the bunch and hopefully we'll have many more of these discussions going forward. Thank you very much and have a great day.
Thank you ladies and gentlemen. This concludes today's conference, thank you for participating, you may now disconnect.
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