Juan Carlos Mora - Chief Executive Officer Mauricio Rosillo - Chief Corporate Officer José Humberto Acosta - Chief Financial Officer Rodrigo Prieto - Chief Risk Officer Carlos Raad - Investor Relations Director Juan Pablo Espinosa - Chief Economist

Good morning, ladies and gentlemen, and welcome to Bancolombia’s Third Quarter 2021 Earnings Conference Call. My name is Claudia, and I’ll be your operator for today’s call. At this time all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. [Operator Instructions]. Please note that this conference is being recorded. Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses and credit losses. All forward-looking statements whether made in this conference call, in future filings, in press releases or verbally, address matters that involve risks and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general, economic and business conditions, changes in currency, exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Mauricio Rosillo, Chief Corporate Officer; Mr. José Humberto Acosta, Chief Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mr. Carlos Raad, Investor Relations Director; and Mr. Juan Pablo Espinosa, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.

Good morning. And welcome to our conference call for the third quarter 2021. I hope all of you and your families are safe and healthy. The Colombian economy continues recovering at the pace better than expected. According to our latest estimates, GDP could grow close to 10% in 2021. And for 2022, we expect a soft landing to a moderate expansion of around 3.6%. The main drivers behind this forecast are the resilient performance of internal demand, particularly private consumption, which will remain dynamic as more household, especially those with the highest incomes retune to pre-COVID spending levels. We also expect private investments to recover, exports to accelerate and the sectors that were severely hit by the pandemic to go back to 2019 levels. All these were partly compensated by the moderation in global growth, and a gradual recovery of the fiscal unmonetized deals. In many ways to our view are the uncertainties surrounding the economy cycle and eventual new waves for COVID-19 cases? This positive trend of the economy is reflected in the bank’s results, which we consider positive for the first quarter. Given that trend of a better than expected economic recovery, not only applies for Colombia, but in all the geographies where we have presence. Before getting to the details, I want to highlight some key topics. The loan book grew 3.3% compared with the previous quarter. Net fees grew 9% during the quarter. Core equity Tier 1 on the full Basel III was 11.8%, and the net income for the quarter was COP943 billion. Provision charges for the quarter were COP514 billion, down 18% when we compare with the second quarter 2021, mainly driven by a better economic forecast and the end of relief program in Colombia and Panama. Our digital platforms, Nequi and Bancolombia A La Mano continued to grow at a solid pace, adding both 14 million clients and COP1.4 trillion in deposits. Digital transactions represents 85% of the total transactions and digital sales were only 4% of total sales, continue to grow in our ecosystem side, after the first year of successful operations. It is already positioned as one of the most relevant in the country with more than eight million visits. At this point, I want to turn the presentation to Juan Pablo Espinosa, who will further elaborate on the performance of the Colombian economy. Juan Pablo.

Thank you, Juan Carlos. Now, I will ask you to go to Slide 3, in the presentation. Let me start by saying that traditional analysis has failed to predict and measure accurately the effects that the pandemic has had on the economy. Instead, the development of new ways of understanding the economic reality has gained momentum. Most of these advances are based on the use of data. At Bancolombia we have been pioneers of this emerging trend in the local financial industry. Our proprietary analytical tools and our large sample of banking transactions allow us to have a comprehensive real-time picture of the state of the Colombian economy. In the first place, our forecasting tracker of overall activity, which follows closely than its official figures, points to a year-end growth in the third quarter of 14.1% higher than latest consensus estimate of 9.2%. A significant contributor to this growth is domestic demand, which according to Bancolombia’s cardholder purchases has been accelerating in the past few months. For instance, in the first 20 days of October, these transactions grew 20%, compared to 2020 and 8% relative to 2019. Moreover, the graph at the bottom left shows that the volume of deposits to corporate banking accounts by sector and firm size, relative to pre-pandemic levels. These figures are good at anticipating sectoral performance, and they are signaling that important contributors to GDP, such as retail manufacturing and agriculture sectors expanded at a strong pace in the third quarter. Furthermore, SMEs’ revenues are recovering faster than those of large firms. Finally, the number of payrolls, payments processed through Bancolombia’s accounts, which is a proxy for formal labor demand accelerated during the last quarter. This suggests that the labor market is already reacting to the rebounding economic activity. In turn, this would allow unemployment rate to decline further toward the end of the year. All in all, our indicators point to a widespread and consistent an improvement of the Colombian economy after the disruptions caused by the national strike and the reduction of COVID cases. This bodes well for full year 2021 growth expectations, which currently stands at 10%. Now let me turn the presentation back to Juan Carlos.

Thank you, Juan Pablo. Moving to Slide 4, I want to continue this presentation by explaining the loans and deposits performance. The recovery of the economy has resulted in significant progress in our business. We have experienced an important growth in the number of clients, we improved our offer of products and services and strengthen our digital strategy. All this, is clearly reflected in the performance of loans and deposits. The loan book continued showing a steady growth across the three main sectors. In our dynamics, it partially supported by the economic recovery that continues to be evident in the [Inaudible]. This trend confirms that the bank overcame the economic shock of the pandemic without relevant implications on its financial stability. Since the beginning of the year, the retail and mortgage segments have shown positive trends, whereas the commercial segment started to improve since the second quarter. Because of the expansionary monetary policy with historically low interest rates, the balance of time deposits decreased over the last 12 months. And these have been compensated with an increase in savings and checking accounts. This has allowed us to reduce the funding cost. However, as the Central Bank had started last month a rate hike in cycle and the loan book is growing at a better pace, we expect the balance in time deposits to raise again in the same direction of the funding costs. Moving to Slide 5. I’m going to elaborate in the evolution of digital sales and distribution channel. During the first nine months of the year, digital sales have represented 0.4% of all sold products. Digital sales have maintained a steady evolution despite the reactivation of traditional channels and the reopening of the economy. This indicates that the customer experience evolution has accelerated during 2021 towards a pertinent…

Thank you, Jose. We are getting back to normal faster than expected. This quarter, we were positively surprised with banks results. The country and its economy are doing better, our clients too. Bancolombia is ready to support them with a strong balance sheet, liquidity, products and services. We are looking forward to seeing you all in our virtual Investor Day next week, where we will elaborate in a detailed way about our digital strategy. After elaborating on these key topics, we want to open the line for questions.

Thank you. [Operator Instructions]. Our first question is from Yuri Fernandes with JP Morgan. Please go ahead.

Hello! Good morning. Congrats on the result and thank you for the opportunity of asking question. I have, a first one regarding the asset quality outlook for 2022. You already provided some color in the call, but I guess, the indicators they were good for the quarter, right. And we were concerned with Panama. Panama data was okay. So my question is, what should we expect for asset quality? Is the worst behind, like what should be, you know like the normalized level of losses for the next year? And I have a second question regarding your digital initiatives, I guess, Nequi is a very good platform, like when we look to the KPIs, number of users, ratings, Google Trends, and you name it. But we are starting to see some peers entering the Colombia market like some Fintechs, some big ones. So just like a high level view from you, how do you see this competition evolving in Colombia with some new players coming, What are the challenges in the market, what you are doing to prepare the company for those new guys? Thank you.

Thank you, Yuri for your questions. And then you’re first one regarding asset quality, and what to expect for 2022. Let me start by saying that we are in the process of normalizing the provision charges. So, the third quarter was not normal, it was very low and we expect the fourth quarter to have some nonrecurring charges. So, we would expect the cost of risk for 2021 around 2% and 2.1%. As of 2022, we expect to go toward long term cost of risk for Bancolombia, which should be around 1.8% to 1.9%. You mentioned Panama, Banistmo. But, even though that we expect the cycle of normalization in Panama to be a little bit longer, the other operations should perform more in line of what we expect is going to be because of the long-term cost of risk, which, as I said, should be around 1.8%, 1.9%. Your second question, digital strategy and new competitors enter into the Colombian market. We have been preparing for this for a long time. You mentioned Nequi, we started Nequi in 2015, and now I think we have a platform that it’s prepared to compete face to face with all new since its entrance to the market. But it’s not just Nequi, what we have been doing in Bancolombia is preparing for this competition in terms of what our products offerings and how we can depend upon and evolve our products to compete in the market. Remember that Colombia has regulated interest rates. We have the cap on interest rates, which is not the case in other countries. So, competing in the Colombian market through interest rates is difficult due to cap and to reach individuals is not that easy because the interest rate caps has not allowed that. On the other hand, we are also prepared to compete on the evolution of fees regarding particularly the process of credit cards. As I mentioned, we have been perpetrating for this a long time, diversifying our source of income. Competition is going to be hard, we will have no doubts about it, but I think we have been prepared for this for a long time.

Thank you.

Thank you, Yuri.

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

Good morning. Thank you for the presentation. My first question is a follow-up regarding cost of risk. I understand the guidance for the year is 2% and 2.1%, and that looks still pretty conservative considering that during the first nine months of the year, you’re at about around 1.6%, so, this implies 2.5% cost of risk for the full quarter. And when I, look at your numbers for this quarter. And I normalize the cost of risk by the provision releases that you had apparently, what you still have had is at around 1.5%. So, I would like to understand why are you still conservative about the cost of risk expectation for the rest of this year? José Humberto Acosta: Thank you, Andres. Let me elaborate a little bit more on the cost of risk and what we all expecting. If we analyze the cost of risk for the last 12 months, its 2.2%, and I know we have, its fourth quarter of 2020 in that calculation, which was pretty high. But, what we are expecting for the fourth quarter of 2021, there are some issues that are going to release some provision. For example, we need to assess if we need to recalculate the growth of the economy in order to introduce that number to the models, but also in a more normalized way, the fourth quarter is going to reflect the real situation of the economy in the sense of how clients are really are. We have also Panama, remember that the moratorium ended September 30 in Panama. So, fourth quarter is going to be probably higher provisions on Banistmo, which we will incorporate on that balance sheet. So, the fourth quarter is going to be a mix of provision releases and also we need to add provisions. So, that’s why we have been conservative in the sense that provision charges for – or the cost of risk, I’m sorry, for the whole year should be around 2%. It could be less, it depends at the end in the performance of the client during the fourth quarter, in which, as I said, if it’s more normalized, and we start to see all those customers be structural how are going to think. So, maybe we are a little bit conservative, but that’s because there is still uncertainty on how the fourth quarter is going to again, so in terms of payments of our banks.

Juan Carlos, my second question is regarding your loan growth expectations for 2022. You say that you’re expecting a GDP growth for Colombia of 3.6%. So, I would like to see what are your thoughts in terms of how this translates in terms of loan growth next year? And based on this and your current capitalization ratios, how do you feel about your current dividend distribution?

Yes, sure, Anders. As you mentioned, we are expecting GDP to grow around 3.6%, 3.7% next year. So, that will allow us to have a loan growth around 10% for the year. And regarding distribution, we saw the second half of this year pick up with the growth of retail loans, and also, in the third quarter, commercial loans started to pick up and begin to grow. So regarding distribution, we are very focused on SMEs and we expect that segment to grow faster, and in fact those are commercial loans, even though they perform more region, in terms of risk, but also in terms of the income that they generate. So, we don’t expect a dramatic change in distribution of the loan book in terms of commercial and retail loans. Retail loans could grow a little bit higher, but as I said, it’s not going to affect dramatically to distribution of the loan book.

That’s okay, my question was dividend distribution. Given your current ratios you expect – yes, thank you.

I’m so sorry. I’m so sorry, I thought that you were talking about the distribution of how the – I’m sorry, I’m going to talk about the dividends, sorry. Dividends, let me say, we have a clear policy of dividend distribution. Given the distribution has been around 30% to 50% during many years, and we are expecting that policy to continue. We are in the 80% proposals through the first, though the Board of Directors and then to the Shareholders Meeting, but we will present the proposal that is going to be probably in line with our policy, long term policy, which, as I said, is variant of 50% of the net income of Colombia, usually, because that’s the one that distribute dividend, that operation is on that distribution.

Great! Thank you for your answers Carlos and congratulations on the results.

Thank you, Andres.

Our next question is from Jorge Kuri with Morgan Stanley. Please go ahead.

Hi! Good morning everyone. Thanks for the call. I hope everyone's doing great. I wanted to ask two questions. One is, on expenses for the quarter. They were up a lot quarter-on-quarter and year-on-year and wanted to hear from you if there were some extraordinary items there or you brought forward some of expenses in the fourth quarter and what the expectation is for the full year and for next year? And then on net interest margins, you sort of like alluded to rising rates and that having a positive impact on margins. I wanted to see if you could maybe quantify where do you think your margins will be next year given the normalized level of benchmark interest rates? Thank you.

Thank you, Jorge. First one, expenses. To analyze expenses, we need to take into account several items. First, labor costs or spaces are growing at around 1%. So they are pretty much under control. We have the balance sheet, the viable compensation which is growing a lot, since we didn't have viable compensation or we’ve given registered by percent in 2020. So in comparison, it's showing a very high number of that. On general expenses, we have some extraordinary issues related to digital transformation, but also those depreciations related to our 20 bps. So for the year we will see numbers close to the figure that we have now, 9% or 10% low, but let me tell you something else. We have in Colombia inflation that is close to 5%. Also we have depreciation, which has been close to 11%. So the pressure on the cost from that part it's there and it's one-off in terms of that affecting this quarter. So we are not going to see a performance in terms of expenses that is going to be very good this year due to those extraordinary issues. We will keep our program and cost control and the measures or what we are doing, and we expect that to take effect during 2022. So those are the explanation. If we compare, for example, the ‘19 expenses until September and the ‘21 expenses, the growth is less than 7% still, because we have some issues regarding as I mentioned to you digital transformation, but in a more normalized way the 2020 is a year that affects the changes in expenses, it was a very strange year.

Hello!

Regarding this, I will pass this question to Jose Humberto to elaborate on NIMs and rates are currently stable on rates pacts on the NIM. Jose?

Thank you, Juan. Regarding NIM Jorge, as you can see, we were able this year to sustain the NIM at a level of 5%, and this is basically and mostly because of the reducing of expenses of the interest rates because of our deposit base. Next year our sensitivity is for every 100 basis points have changed the Central bank. Our sensitivity will be at around 8 bps. That means that we are going to see an expansion of the NIM beginning in the second quarter of next year and maybe we are going to – if the interest rates at the end of this year closes at a level of 4.5% to 5%, maybe you are going to see an expansion of NIM in between 40 to 50 basis points or even more in our NIM portfolio. Remember that our NIM is composed of our lending needs for the portfolio, which is 5.6 and securities NIM that is 0.8 as the proportion is 80% to 20%.

Thanks, thanks everyone. Bye-bye.

And you will start seeing the effect on the impacts on the rates. This is during the next year, from the second quarter, the third quarter next year.

Thanks again.

Our next question is from Ernesto Gabilondo with Bank of America. Please go ahead.

Hi, good morning Carlos, José Humberto and good morning to all your team. Thanks for the presentation and the opportunity. I have three questions from my side. The first one is on the political landscape. We continue to see petrol leading in the presidential polls. So I would appreciate if you can share with us what have you been hearing from his proposals? I don't know, what have you been hearing if he is wanting to implement higher taxes or banking fees. Anything from what you have shared I think will be very helpful. And then my second question is on Nequi. We have seen the rest of the region developing digital banks and willing to do spin-off at some point of those. Considering that you already have a good number of clients and you're starting to become profitable, what else do you need to consider from a potential spin-off and a listing of Nequi. And then my last question is on your effective tax rate. We think it was high during the quarter considering the new tax reform. So how should we think about effective tax rate for the last quarter and next year?

Thank you, Ernesto. I'm going to take the first two questions, and I'm going to pass the payroll money providing effective tax rate to José Humberto. The political landscape, it's still early. We will have our first round on May 11 on one presidential election and we have a lot of candidates. So the political landscape is not clear at this point. Regarding in the candidates that is leading for us, he has been around for a long time, for possible [inaudible] Bogota. So he has been known for a long time as I mentioned. Regarding concrete proposals, we haven't seen yet something concrete. There are some comments, some figs around some issues, but as I mentioned, it's still early to see what are the concrete proposals and what is going to be the platform that he or any other candidate are going to use to present his name to the voters. So I would say, let the value be to wait and see. As you know, we have two bonds in Colombia, so there is going to be – the first one is going to be from the candidates probably, I don't know. The number probably will be a very high number and then we will have the final rates between two and we will see. I think we need to wait until next year to see a clear view of the proportions they are going to send. Regarding Nequi, we are as you mentioned, we have a platform that is now growing at a very good pace. We have close to nine million users with a very good effective clients that use the platform. So what we are doing, we are considering when is the right time to start seeing in our field any cumulative issues, that all the regulatory issues are covered or you know what type of license you are going to apply for, so there are many issues. We are still in the early stages to analyze if that is a good move for us. The debtor question, I will pass over to Jose Humberto. Jose?

Thank you, Juan. Ernesto, as you mentioned, this is a one-off and this is because of your recalculation of the deferred taxes, and we are expecting at the end of the year the taxation for Bancolombia for the entire group will be 32% at the end of this year. We are expecting next year because of the tax reform, we are going to get the level of 34%, 35%. And the 32% of this year at the end of December, it is explained mainly because the main source of net income comes from the Bancolombia, in which we have the higher statutory tax.

Our next question is from Tito Labarta with Goldman Sachs. Please go ahead.

Hi, good morning everyone. Thanks for taking my questions. Just two quick follow-ups, actually. First, following up on the expenses. In terms of the efficiency ratio, given the growth in expenses rates picked up, how do we think about that efficiency going forward and given the investments you're doing, could it be some cost savings with the digital initiatives or is that the expense is going to be sort of higher initially? Just help us think about the evolution of that efficiency ratio. And then just following-up quickly on the tax rate, did the tax rate just go up roughly 5% for next year given the new tax rate, so it should be like around 35% or so, I guess in Colombia, offset by the lower tax rates in the other countries. Just to confirm for next year, how that actually should be? Thank you.

Thank you, Tito. Expenses and efficiency ratio. The efficiency ratio this year is going to be a little bit above 50%, which is solid to our target, so we expect the efficiency ratio to go below 50 next year. And you mentioned our digital strategy and digital investments that should add efficiency to our operations. So as I mentioned earlier, this is not a good year to analyze expenses since we have some extraordinary issues around expenses. So we expect next year to be more normal, and we will return to our path of having efficiency ratios below 50 and looking more to mid-40s in the midterm, which is our goal. Regarding tax rate, the effective of the tax rate for 2021 for the fall group should be around 21%, 22%, that's what we mentioned, that’s what Humberto mentioned. And its values are substituted by Colombia, in which as you know we had a tax report. So we need to calculate the deferral taxes from this year and we have a special effect on 2021. After 2021, we will have the full effect of the tax reform, the Colombia tax reform that will increase our tax. Our effective tax rate grew close to 24%, mainly driven again by Colombia. I don't know if Jose Humberto would like to add something to this answer.

No Juan, that is very clear. Next year 30% to 38%, including the special tax that you mentioned, that is clear.

Okay. So just to clarify, so for next year around 34% in Colombia and then I guess you have lower tax rates in the other countries, right? So will the consolidated tax rate will be more or less...

In Colombia next year will be 35%, plus the 3% additional that will always be maintained until 2025. In Guatemala the taxation would be 25%.

So Tito to clarify, the effective tax rate for the fall group on a consolidated basis for 2022 should be around 34%.

Okay, understood. Thank you very much.

Our next question is from Olavo Arthuzo with UBS. Please go ahead.

Thank you Jose, thank you Carlos and good morning everybody. To go to my question, I just wanted to understand more about the digital initiative of the bank in Nequi, La Mano. So a few words, I would like to know what is the profile of this client? I mean, how much of them are low or high income. I know the focus of La Mano is part to lower [inaudible]. So how many have already opened accounts at Bancolombia. What are the products or services the clients they usually demand? Thank you.

Thank you, Olavo. I have some difficulties hearing you but I will try to answer your questions. Regarding profile of Nequi and Bancolombia A La Mano clients, let me say this. Nequi, the clients of Nequi are mainly young adults between 18 and 35, which are usually not clients of banks. So they are having their first banking relation with us and they are using Nequi as the savings account and also as a platform to do some payments, some transfers, and now we are introducing loans on the Nequi platform. So it's – let me say that we have in the case of Nequi 40% of the clients of Nequi are also clients of Bancolombia, 60% are just clients of Nequi and that allows us to have a very good mix and to know and to understand very well those clients. In the case of Bancolombia A La Mano, in which we have close to 6 million clients, those are more clients in the rural areas where they have access to banking services through our platform and also use the banking agents that we have throughout the country, more than 21,000 to do the cash-in and cash-out. So it's a way of covering the – with these two platforms, a big part of the population and those numbers are high. So we have close to 9 million customers in Nequi and close to 6 million customers on Bancolombia A La Mano, so a total of 15 million customers in both platforms. And again, it has not been in the two platforms. Either you are in Nequi or you are Bancolombia A La Mano. In the case of Bancolombia A La Mano, now we have more than 300,000 clients that already have credit. So Bancolombia A La Mano is now a platform in which clients could add to its access to create and both numbers will increase. So that's how the clients of both platforms are.

Okay, very clear. But just a follow-up on the starting, I just wanted to hear from you giving the [inaudible] for our banks. I just wanted to hear from you, what is the main competitors of Bancolombia, just in terms of these digital initiatives?

Let me see if I got the question right. The digital competition, now we have very different participants. We have some traditional banks that let us ourselves move quickly to have a digital platform, and we are competing and we are really absolutely giving options to the clients and to the market and we are gaining market share. Those are the traditional banks, which are basically true. We are basically two banks to do this strategy. And then we have intake from other, some other participants. We have some other client forms that are entering through [technical difficulty] sorry, and there are some offerings around the credit cards on the digital platforms and that market will increase competition during the next year for sure. And there are other participants offering credit, but they are not basic now. So what we think is that since we started six years ago now and we know how we have a base of clients that we're speaking off, we can take advantage of that and keep offering new products to those clients. So competition will increase for sure, but we think we are well prepared to take advantage of what we have in this market.

Okay, this was very clear. Thank you José, thank you Carlos again.

Thank you, Olavo.

Our next question is from Jorg Friedemann with Citibank. Please go ahead.

Thank you very much. Can you hear me well, because I'm with earphones.

Yes, I can hear you well. Yes, I can.

Thank you, Humberto, thank you Juan. So hello everyone! Congratulations on the results, and I have just a couple of follow-ups as well. Initially, if you could just clarify and give us a bit more granularity about the reasons for the deferred tax readjustments causing a negative impact in this quarter. And I explained why, you know my question. The point is that when the taxation increased, in Brazil at least, we revaluated the tax credit stock appreciating that stock, and this caused actually a positive effect, extraordinary positive effect in the quarter when the banks revaluated upwards their stocks of tax credits. Not sure if in your case, you had tax liabilities, and that was why you ended up having a higher deferred tax, not lower, so this is the first question, just a clarification on what really caused the impact that you had tax liabilities or tax credits, tax assets? And the second question, you know just a follow-up here on the digital initiatives. When I look into Nequi and A La Mano, it's interesting because you are evolving well in both. But some of the KPIs differ quite substantially. For instance, you are at 65% of active users in Nequi versus 55% one year ago. When you look into A La Mano, it's much lower, just 41%, and this has not really increased versus last year, which was at 40%. The same happens to NPS. Nequi has approximately 81%; in the case of La Mano, you have 64%. So just wondering what you are seeing in terms of challenges for A La Mano for you not to achieve the same KPIs versus what you are achieving already at Nequi. Thank you.

Thank you, Jorg. Let me take your second question and we will ask Humberto to take your first one if they are related to deferral taxes and what was or why was the mega tax impact? Nequi and Bancolombia A La Mano are different platforms and Nequi, it's a neo bank and it has some new banks and even though it's under the umbrella of Bancolombia's boat, it's separated in terms of how it relates to customers.

Why don’t we just hold the line one moment while we reconnect.

I think Juan is having some issues regarding the call. Let me answer Jorg, your second question. Meanwhile Juan is reconnected again. You are right and in terms of deferred tax, when we recalculate deferred tax based on the new tax reform, we have three elements: The loan portfolio, the bonds, both as you mentioned, caused a positive effect on the deferred, but there is another element, which is the goodwill. In the case of goodwill, because we have eight billion places in goodwill, it is the only way around, and that's the reason why it affects us our taxation, and you can see the 38% taxation this quarter, but this is because of the combination of these three factors. The first two, loans and bonds are positive as you mentioned, but the third element which is bigger than the other two it is affecting in a negative way. That explains why the tax increased.

Perfect! Very clear Jose, thank you very much.

My pleasure. Juan, you can continue with the question regarding this.

I don’t believe we have invite. Just one moment.

Okay, I think Juan’s having again some issues. Complementing the answer of Juan, as in the previous question, we have two different profiles in Nequi and La Mano and they are big differences. First, Nequi is more oriented to people who lives in the cities and A La Mano is more oriented to people of rural who lives in small towns. So we complement the offer. The challenge is how we are able to maintain the activity for the first 30 days and we feel proud saying that we have very positive numbers in both and the reason is because we are using not only to receive for example in the case of low-income population different subsidies, but also because they are actively using for transactional way. Juan, you can continue with the answer. Now you are connected.

Thank you, Jose. I am sorry, I disconnected from the call. I was telling, answering Jorg and those are different platforms as I mentioned. So Nequi is small yield bank, it's not related to banks, its different products. And Bancolombia A La Mano is offering from a bank and targeting a lower income individuals with less education, so we have more challenges there. The 55 active users that you mentioned in Bancolombia A La Mano is not a bad number. I think it's actually pretty good compared with other platforms and we are measuring this as one month activity. An activity is a monetary transaction. It’s not just entering the platform to consult the balance of the product. It's more like to use transaction, so 55%. In Nequi, it is better because we have a better result on Nequi and the NPS that you mentioned, 65% -- 64% is not bad, but that 81% is extraordinary good. In case of Nequi, so we have challenges to keep evolving the Bancolombia A La Mano platform, but we are very comfortable with those two strategies. And as I mentioned in an answer before, those clients are in, so it's a total of close to 15 million clients in these two platforms that are accessing financial products in a very simple way and accessing also the physical challenge of Bancolombia, which is a big advantage. So those, the customers of both platforms have access to the ATM network, Colombia’s ATM network. Also the banking agent network, which I mentioned is more than 21,000 bank agents around the country.

Well, that’s perfect Juan. Thank you very much for the answers.

Thank you, Jorg.

Our next question is from Carlos Gomez with HSBC New York. Please go ahead.

Thank you for taking the question and for extending the call. I want to come back to the tax issue. I know we are taking it to risk, but just to clarify the last thing that you mentioned, you have the positive impact for loans and for bonds, you had a negative for goodwill. But coming back to what Jorg asked. If in the future we have a reduction in the effective tax rate, should we expect a negative impact in your results in the short-term because of the reversal of what you did today? And the second is when we go to next year or the year after, once we normalize your credit provisions and given how your business is set up today and the tax rates that we have, what again is the sustainable ROE that you think the bank can produce? Thank you.

Thank you, Carlos. I will take the second question regarding the sustainable ROE. We think that the midterm ROE on Colombia should be around 14%, 13% and 15%, that's our target and we think we could achieve that in 2023. Still 2022 will be a year we need to do some additional adjustments. It's going to be lower double-digit ROE, and the 2023 should be the year in which we reach that midterm ROE closer to or between 13% and 15%. Jose, could you take Carlos' first question regarding clarification around taxes?

Yes Juan. Yes Carlos, as you mentioned, this is a one-off. It is affecting the third quarter tax and again at the end of the day we would like to take the 32% and yes, next year we will expect the 34%, 35% tax and obviously it will affect the profitability because we were not expecting that increase in the taxation. But again, this is one-off and you are not going to see a recalculation of that next year as you mean the deferred tax we’re not getting the same 35%. I don’t know if that answers the question Carlos.

No, the question is, in the future there is yet another tax reform, you usually have one every two years and this time the tax rate goes down. If the tax rate goes down, we should expect a one-off negative impact, right?

Correct, that's correct. If the taxation comes down, the recalculation of goodwill will affect in a different way as you mentioned, that's correct.

Okay, thank you. And if I can follow-up on the ROE question. For this year, you had a very specific outlook when we were talking at the end of 2020, and you were quite down, but you were expecting 6% to 8%. In the end you are going to report a much better number. Is it mostly the asset quality or other factors, now looking back at most of the year that’s gone? Are there other factors that have made this year better than you feared initially?

Carlos, it’s mainly driven by asset quality that was better than we expected. But I will like to highlight that all lines, except expenses of the bank are a bit up. The net interest income with the pressure that we had on margins and on interest rates, we can handle that with the cost of funds. Then the keys are performing well. So it’s driven mainly by asset quality which is going through or its start to normalize number. But we had a very challenging period during the 2020 and even 2021 with the bank and keys and net interest margins, net interest income from where we’re at.

That’s okay. Thank you so much.

Thank you.

Our next question is from Jason Mollin with Scotia Bank. Please go ahead.

Hi, thank you very much for the opportunity to ask questions Juan Carlos, José Humberto. I have a follow-up on the digital efforts on Nequi and Bancolombia A La Mano. I mean we're seeing this very rapid growth for instance in Nequi, the number of users in the quarter alone from 7.1 million to 8.6 million. And then on the Bancolombia A La Mano from 5.4 million to 5.7 million. And you're showing, which is very interesting, the customer acquisition cost of COP 0.33 at Nequi and COP 0.36 at Bancolombia A La Mano. If you can talk a little bit about how you're driving this growth in clients and what is incorporated in that acquisition cost, and is that something that – in many ways I think you could say it looks very low, but just how you view that? Could it be lower? Could it be higher? How should we think of that going forward?

Thank you, Jason. As you mentioned figures or numbers are very good on our digital products and the growth that we are seeing is very positive. I'd like to highlight that growth is because what we are offering is really useful or the people that each supply to this platform – it's very easy to be a client of one of these platforms and once you are a client that you can just sign in in five minutes. And what you need is your identity number, two or more or three more data and so that explains why. And what is happening is that we are creating a network that which means that we already have the numbers and the connection with Bancolombia. So people are really seeing that it's useful for them to have access to cash – to do the cash-in through our Bancolombia's network. So at the end, it's the combination of a very good platform with easy to use products with the power of the Bancolombia's networks, ATMs and also banking agents, which allow cash-in and cash-out in a very, very easy way, a very convenient way and all around the country, so as also – so a way to transfer money to do payments. We are also integrated in our QR strategy, our payment strategy with Bancolombia. So you can use both platforms in Nequi and Bancolombia A La Mano to do payments with QR in a way that allow to use your money in a very convenient way. Regarding acquisition costs, we already invest in the technology. We want to yield and marketing around acquiring the customers and this number of clients is also very efficient. So we are including the direct cost of marketing and in that acquisition costs. We don't expect that number to go lower or higher. We think we are in a figure that is, it's very good and we will continue seeing that figure in the future.

Can you remind us again for Nequi and Bancolombia A La Mano, like what percentage of the clients are new to the banking sector or new or already clients of Bancolombia, just to get a sense of is it converting? Is that acquisition cost converting a client at Bancolombia into Nequi or how should we think about that?

Yes Jason, 60% of the clients are new clients for Bancolombia in the case of Nequi, 40% are clients that are also clients of Bancolombia, so 60% are new clients. And this also, we are leveraging this because that 40% that are clients, common clients with Bancolombia, we have a lot of information about them, meaning that we can use analytics to really access those clients with loans offers, so it's a combination and that 60% are new. So that's the combination that we have. In the case of Bancolombia A La Mano the overlap is a little bit higher, but many, many of around 45% of the banks are new for the banking systems. So they are using Bancolombia A La Mano as their main financial services platform.

Thank you. Very helpful.

Thank you, Jason. [End of Q&A]:

This concludes the time allocated for questions on today's call. I would now like to turn the conference back over to management for any closing remarks.

Thank you, everybody, for your participation on the third quarter of Bancolombia's third quarter conference call. It has been a quarter in which we have good results. We will see how the year ends. But with the fourth quarter we are positive, even though we will have some specific issues related provisions, it will be at the end a good 2021. So thank you everybody and I hope to see you on our next conference call in which we will present the 2021 results. Have a good day everyone!

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day!