Inflexible Banking Will Buckle As Fintech Challengers Squeeze Margins

Key Takeaways

• Slow digital transformation and dependence on legacy systems hinder operational scalability and margin expansion amid agile fintech competition.
  
• Reliance on traditional lending and branch-based models increases vulnerability to disruptive platforms, economic shocks, and rising compliance pressures.
  
• Digital banking expansion, strong deposit growth, improved asset quality, geographic diversification, and disciplined capital management position the company for sustained earnings and shareholder value growth.

Catalysts

Provides banking products and services in Colombia and internationally.

• Intensifying competition from digital-first fintechs and non-bank platforms is expected to accelerate in core markets, eroding Grupo Cibest's traditional banking model and threatening both fee-based and net interest income by diverting younger, less brand-loyal consumers to alternative providers.
  
• The company's slow pace of full digital transformation relative to agile neobank entrants exposes inflexible cost structures and legacy IT systems, which will constrain long-term margin expansion and operational scalability despite short-term efficiency gains.
  
• Increased regulatory and societal demands for stringent ESG compliance are likely to drive up compliance costs and capital expenditure requirements, resulting in margin compression and pressuring long-term earnings growth across the group.
  
• Heavy reliance on conventional lending and a branch-based model, particularly in Colombia, increases the company's exposure to macroeconomic shocks and consumer credit cycle volatility, raising long-term credit loss provisions that will weigh on future return on equity and net income.
  
• Ongoing growth of alternative lending, peer-to-peer, and DeFi platforms will diminish Grupo Cibest's loan origination opportunities and non-interest income streams, undermining the sustainability of its projected revenue and profit growth trajectory.

Grupo Cibest Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Grupo Cibest compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Grupo Cibest's revenue will grow by 13.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 28.4% today to 18.0% in 3 years time.
• The bearish analysts expect earnings to reach COP 6136.4 billion (and earnings per share of COP 7116.49) by about September 2028, down from COP 6693.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, down from 8.6x today. This future PE is lower than the current PE for the US Banks industry at 8.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.1%, as per the Simply Wall St company report.

Grupo Cibest Future Earnings Per Share Growth

Risks

• The significant digital transformation and scaling of businesses like Nequi and Wompi are driving rapid growth in lower-cost, digital banking, payments, and fee-based services, positioning Grupo Cibest to benefit from long-term digital adoption trends that can boost both revenue and net margins.
  
• The group's proven ability to attract and retain deposits at a low cost, particularly through transactional savings and digital time deposits, supports sustainable net interest margins and provides a stable funding base, potentially leading to strong net interest income and higher earnings even in a competitive environment.
  
• Continuous improvements in asset quality, as demonstrated by a declining non-performing loan ratio and reduced provision expenses, combined with disciplined risk management and advanced predictive analytics, suggest a foundation for more resilient and stable earnings over the long term.
  
• The company's geographic diversification across Colombia and key Central American markets-where operations such as Banco Agricola and Banistmo are leaders-reduces concentration risk and opens pathways for organic and inorganic (acquisitive) growth, supporting revenue stability and future profit growth.
  
• The robust capital position, conservative leverage, ongoing share repurchase program, and strategic focus on optimizing capital allocation all indicate a management team committed to enhancing shareholder returns and ensuring the company can pursue growth initiatives, directly lifting potential earnings per share and return on equity.

Valuation

• The assumed bearish price target for Grupo Cibest is COP30604.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Grupo Cibest's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of COP177522.4, and the most bearish reporting a price target of just COP30604.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be COP34158.5 billion, earnings will come to COP6136.4 billion, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 18.1%.
  
• Given the current share price of COP60180.0, the bearish analyst price target of COP30604.0 is 96.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.