Banco del Bajio SA Institucion de Banca Multiple

BMV:BBAJIOO

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, everyone, and welcome to Banco del Bajio Third Quarter 2022 Results Conference Call. My name is Sophia Fraser, and I will be your coordinator today. [Operator Instructions]

Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance and financial results. These statements are subject to a number of risks and uncertainties.

Joining us today from BanBajio is Mr. Carlos de la Cerda, Executive Vice Chairman of the Board of Directors; Mr. Edgardo del Rincon, Chief Executive Officer; Mr. Joaquin Dominguez, Chief Financial Officer; and Mr. Luis Quiroz, Investor Relations Officer. As a reminder, this video conference is being recorded.

For opening remarks and introductions, I'd now like to turn the call over to Mr. Luis Quiroz. Mr. Quiroz, you may begin.

[Luis Quiroz Hernandez, executive]

Good morning to everyone, and welcome to Banco del Bajio's conference call for the third quarter of 2022.

As most of you already know, the industry is undergoing some accounting changes, mainly related with adoption of IFRS 9. As such, we have incorporated those effects and their impact to improve the comparability with 2021. All the information of the industry used on the presentation is from CNBV data as of August, which is the most recent publicly available information. Without any further ado, let us start the presentation.

On Slide 3, we would like to briefly describe some key ratios recorded in the quarter under trends. First off, the quarterly net income was MXN 2.1 billion, an increase of 69% year-over-year. The ROE for the quarter stood at 23.8%. Revenues accounted for MXN 4.8 billion, an increase of 42% year-over-year. The NIM reached 6.1%, increasing by 176 basis points against the third quarter of 2021. The efficiency ratio stood at 37.2%, improving by 10.7 percentage points against last year as reported. The loan portfolio expanded by 8% with company loans expanding by 8.7%. Total deposits grew by 10.2% with demand deposits continue outperforming other sources of funding. The asset quality remains at very sound levels with the NPL ratio at 1.2% and the coverage ratio at more than 1.8x. The preliminary capitalization ratio stood at 14.8% by September end.

Moving on to Slide 4. We would like to emphasize some key indicators from our digital transformation strategy. Monthly active users of our digital platforms are growing by 30% year-over-year with individuals growing by 43%. In terms of transactions, our clients are growing the total number of transactions by 34% with the mobile channel being the most dynamic, growing by 52%. We're seeing strong growth from companies through the mobile channel of more than 200% on both the money volume and the number of transactions as we have been adding more functionalities to the app. As of now, 73% of the transactions at BanBajio are done through self-service channels. We expect the investments in digital to continue yielding results, attracting new clients to the Bank, increasing the engagement with existing ones and providing the intelligence to accelerate the expansion of loans in individual and parametric SMEs.

On Slide 5, our total loan portfolio reached MXN 212 billion, an increase of 8% compared to the third quarter of 2021. We have been able to attract growth from 2 initiatives: gaining market share in Mexico City metropolitan area and being more aggressive with a group of selected customers, which we believe we can further engage with the Bank to expand the whole relationship. Moreover, we have maintained the sound growth of the consumer loan portfolio growing by 29.4%. We expect the current dynamics to continue yielding results in the coming quarters as we see a robust pipeline of companies that will help us resume the growth in the portfolio.

Total deposits stood at MXN 201 billion, an increase of 10.2% compared to the third quarter of 2021. We would like to highlight how deposits have continued to show strong growth, which ultimately is providing efficiencies in the funding structure. We're going to provide more information on this topic on Slide 7 as it continues to be an important driver for the expansion in margins beyond asset sensitivity.

In Slide 6, we would like to highlight BanBajio's outstanding asset quality. As you can see on the upper left chart, the NPLs have stood on a very sound level of 1.19%, which compares lower to the industry's most recent data point of 2.22%. In the upper right chart, we can see the NPL ratio adjusted by write-offs, which has improved consistently as stands at one of its lowest levels since the peak of the COVID crisis. The chart on the bottom right shows the evolution of the cost of risk, which stood at 59 basis points for the quarter. We have managed to maintain a cost of risk at historically low levels while maintaining the coverage ratio elevated at 1.8x, which remained higher than the industry ratio at 1.5x. We continue to hold an important balance of additional reserves, which reflects the management cautious stance with a possible recession in coming quarters. As we stated previously, the guidance for cost of risk does not consider a release of additional reserves, maintaining the compromise to have a coverage ratio above 1.5x by the end of the year.

Moving on to Slide 7. We can observe the evolution of our funding structure, which has been a key driver on the improved profitability profile of the Bank. We have been successful on continuing to attract demand deposits to the bank, especially those at 0 cost, which are provided mainly by individuals and SMEs. Our STAR DDA account, Cuenta Conecta, continues to grow at double digits at 14.6% against September of 2021. On the chart above, we can see how we have been able to increase consistently the share of demand deposits in the mix of our funding, particularly those at 0 cost, growing 5 percentage points in the last 2 years.

As of now, our CASA ratio stands strong at 50%. Moreover, we have been successful in improving the cost relative to [ TA ] for our most sensible sources of funding, as shown in both the cost for time deposits and interbank loans.

As a result, our total cost of funds as a percentage of TA continues to improve at 53% of TA. We continue to close the gap in the cost of funds for larger peers in the industry. Going forward, we intend to grow the deposit franchise of Banco del Bajio as much as possible. However, the share of deposits against the total funding will also depend on the prospects for loan growth.

In Slide 8, you will see the performance of BanBajio's revenues, which grew 42.4% compared to the third quarter of last year, adjusted by the [ EPA ] fee reclassification. Net interest income expanded by 50.6% and noninterest income decreased by 3.6%, which is explained by the fees deferred due to the change in the accounting standards. As you can see on the bottom right chart, the accounting changes had a negative impact of MXN 139 million which are transitory. If we normalize for this effect, noninterest income will have grown by 24%.

We continue to see good performance of several business lines in noninterest income. FX trading is growing at 31% against last year, boosted by digital transactions done through Bajionet FX, which accounts now for 40% of the revenues of this business line. On the same note, we continue to see good performance of other businesses such as the POS and interchange fees growing at 30%, appraisals also growing by 30% and trusts growing by 15% year-over-year.

On Slide 9, we can observe the evolution of our margins, which stood in the third quarter at 6.11%, representing an increase of 176 basis points year-over-year. The expansion comes from the improvement in the mix of assets and liabilities, which accounted for 45 basis points of the improvement as well as the reprice of rate hikes that accounted for 131 basis points of the improvement. Going forward, we expect an additional 100-basis point increase in the Banxico rate ending 2022 at 10.25%. Our estimate stands 20 basis points below the consensus of analysts that follow the Mexican economy. We estimate our extensive sensibility to rates considering the current mix of assets and liabilities to be around 32 basis points of NIM per every 100 basis point change in the benchmark rate, which will represent an increase in inflow of around MXN 880 million of revenues and MXN 554 million of net income for a full year. We are currently evaluating strategies to reduce the sensibility and protect our margins in an eventual reduction of interest rates. In coming quarters, we will release more information about this topic.

Moving on to Slide 10, you will see the evolution of the profitability metrics of BanBajio. As shown in the chart, the quarterly ROA stood at 2.8% and the quarterly ROE at 23.8%. Both metrics reached their highest level since the IPO as a consequence of the strong results and in the case of the ROE, a more adequate capital position after the dividend payment made during this last quarter.

On a per share basis, the third quarter EPS stood at MXN 1.77, which represents an annualized earnings yield of 15.4% computed with the average stock price for the third quarter.

In Slide 11, we can see the performance of our efficiency ratio. It came in at 37.2% for the third quarter of 2022, improving by 10.7 percentage points year-over-year as reported and by 740 basis points when adjusted by the EPA fee reclassification. Our current ratio stands as best-in-class in both the Mexican system and among international standards. Expenses grew by 18.8% with the comparable base of the third quarter of 2021. We continue to see the same dynamics where recurring expenses such as wages, rents, IT maintenance and other administrative expenses are growing close to inflation. However, expenses tied to higher revenues or accounting changes are the fastest growing, for example, variable compensation, cross-sell campaigns and the profit sharing for employees.

On Slide 12, we can see the preliminary capitalization ratio as of September of 2022 of 14.8%, of which almost all is Tier 1 capital. The capitalization level decreased against last quarters as a result of the dividend payment of MXN 4.6 billion or MXN 3.87 per share that we distributed during August, and also as a result of the strong portfolio expansion in past months. We've maintained the expectation to be above 15% by year-end given the current level of earnings accumulation and loan growth expectation.

In Slide 13, we update our guidance for 2022, given the results up to September, the new expectation for growth in loans and deposits and the updated macroeconomic assumptions. We maintain our economic expectations for growth and inflation with no change. We only adjust the monetary policy rate at upward to an average Banxico rate of 7.90%, which is consistent with a policy rate of 10.25% by the end of 2022.

We have increased our expectations for loan growth to 6% to 8% and deposits growth from 8% to 10%. We increased the guidance for net interest margin to 5.9%, consistent with a better mix in assets and liabilities and a more hawkish stance from the Central Bank. Consequently, we have also revised upward the NII growth to be from 44% to 45% and total revenues to 37% to 39%, which account also for the fees deferred.

Also, mostly because of the increase in revenues, we revised expense growth to 17% to 18% against the base of 2021 without the EPA fee, and improved the resulting efficiency to be below 40%. We maintain asset quality and leverage expectations with no change, as you can see in the guidance for cost of risk, NPLs, coverage and capitalization ratio. Lastly, we increased the net income guidance to MXN 7.7 billion to MXN 7.85 billion, an increase of 60% to 63% against 2021, which represents an ROA of 2.7% and an ROE of 20% to 21%.

In summary, the results for the third quarter continue to show the improving profitability and the sound fundamentals of Banco del Bajio. We are turning more optimistic on the prospects for loan growth coming from the current initiatives we have in place. We will continue with the strategy of BanBajio towards 2025 with focus on creating value for all stakeholders.

With this, I conclude my presentation, and we can open the call to the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from the line of Ernesto Gabilondo.

[Ernesto María Gabilondo Márquez, analyst]

Ernesto Gabilondo from Bank of America. Carlos, Edgardo, Joaquin, and Luis, congratulations on your strong third quarter results, on your new guidance and impressive that you are leading the Mexican banks with the highest ROE. So I have a couple of questions.

The first one will be on the potential reshoring opportunities. I just wanted to hear from you if you're already seeing some companies increasing their idle capacity or within an expansion plan in the Bajio region. Can you elaborate how you see Bajio positioning towards these reshoring opportunities?

And then my second question is on your sustainable ROE. It seems your ROE could remain above the 21% all next year. So just wondering, if at some point, we start to see lower rates in 2024, where does Bajio see the sustainable ROE? And what could be the measures that you can implement to reduce the sensitivity to lower rates?

[Edgardo del Rincón Gutiérrez, executive]

Regarding your first question about reshoring, yes, we are seeing some demand actually for several months already. Actually, we have already around MXN 10 billion in industrial real estate. And that demand what we are seeing is that will continue. In terms of geography, this is concentrated mainly in the Bajio region, but also in the north of the country and also in several places close to the metropolitan area. Also, we have been seeing in the recent months, several CapEx commitments from large corporations, names like Nissan, Michelin, Volkswagen, Samsung, Pirelli and several others, mainly CapEx commitment in the Bajio region. And of course, we will try to capture that opportunity. We think that we are very well positioned to capture that opportunity and that demand for sure will continue.

Regarding your second question about return on equity, as you saw in the presentation in the report, we continue to improve cost of funds, and that trend will continue in the following quarters. Demand deposits are growing very well. Cuenta Conecta is attracting new customers, both in individuals and SMEs at very low cost. And that trend will continue. Also, the asset mix is also improving. You saw SMEs growing very well. In the Agro business, we are growing more than 10%, and that part is coming in a large part from SMEs as well. And also, of course, consumer credit growing almost 30%. So the asset mix is improving and as well and for us, it's very important, nonfinancial income, actually, it's performance better than we expected, growing 24%, coming mainly from our strategy that we have been implementing already for the last 18 months of cash management, both for SMEs and for medium and large corporations. So that part, we are really happy with those results.

And so with that and with the levels of capital that we have today and that we will continue to try to improve that level of capitalization, we now see our sustainable ROE around 21%.

[Joaquín Domínguez Cuenca, executive]

Hello, this is Joaquin Dominguez. Regarding to the sensitivity, we have the option right now to use some asset liability management to reduce sensitivity. One of this is increase the duration of the investment securities given that right now, we have virtually no duration in the portfolio. The other one is to do some hedges with derivatives. We are going to disclose more information on this topic on coming quarters. Right now, we are in the process of analysis. But for the long term, what is important is what Edgardo mentioned is to continue expanding noninterest income and high rate yielding portfolio and customer loans with fixed rate.

[Operator]

Our next question comes from the line of Thiago Batista.

[Thiago Bovolenta Batista, analyst]

It's Thiago Batista from UBS. Congratulations for the results, good results. I have 2 questions. One about the cost of funding. And you already mentioned you already showed the cost of funding of BanBajio is declining quarter-over-quarter. So how important is Cuenta Conecta in this strategy? And how much more we can see this cost of funding declining? You guys are already very close to 50% of the TA. So it's possible to see this below this threshold?

And my second question is about if you guys can give us some indication about potential of loan growth for 2023. I know that you don't have formal guidance, but only some soft indication of this loan growth potential for next year.

[Edgardo del Rincón Gutiérrez, executive]

Cost of funds is very important for any bank. So having this ability to attract and grow in customers is really important. So we implement a new strategy at the beginning of 2020. And we have been doing a very good review, continuous review of the account opening process and also improving the value proposition for Cuenta Conecta.

And we decided to concentrate all the efforts to attract customers in one single account that is this one that is Cuenta Conecta. Before that, we used to have several DDA accounts for different purposes. And now we are very concentrated in a simple but very good value proposition to our customers. So we are opening today about 25% more accounts than in 2021. But in 2021, we opened about 50% more than in 2020. And in 2020, we doubled the number of accounts we opened in 2019.

So the performance has been really very good. Because of this, Banco del Bajio is growing about 11% in customers, in active customers, about today, 18% in total transactions. And that comes not only with better cost of funds, but also because of the number of transactions, more fees and more complete relationship with those customers.

So our strategy is to continue improving cost of funds. To what level will depend on the level of TA that we have now. But at the level of 53, we think we have a space to continue improving that level. And that is part of the strategy going forward. So yes, this comes together with all the digital transformation we have been performing. You saw in the presentation that total transactions are growing, as I said, 18%, but digital transactions are growing very well, about 34%. So yes, the strategy is to continue with that and continue attracting new customers. That is also more lending opportunities with the cross-sell campaigns that we have been performing with a lot of success.

Regarding loan growth, we have a good recovery during this third quarter. So we are seeing good momentum in loan growth, and we expect to continue at these same levels for the rest of the year. For 2023, with the levels of expected GDP growth for the country, for sure, the loan growth for the system will be in single digit, and we expect to be around the same levels we are today for 2023, outperforming the market.

[Operator]

Our next question comes from the line of Ricardo Buchpiguel.

[Ricardo Buchpiguel, analyst]

Ricardo Buchpiguel from BTG Pactual here. Congrats for the good results. Following up on the previous question, I wanted to understand a little bit more on what new features you plan to launch on Cuenta Conecta to continue attracting more clients? And how do you see this account today comparing with other incumbent banks and even fintechs Nubank in Mexico?

[Edgardo del Rincón Gutiérrez, executive]

Cuenta Conecta, when we performed that value proposition improvement that I was mentioning before, we made very clear our target market that we are trying to get. So the average balance that we are asking customers to maintain in that account is around MXN 5,000 and is a name for DDA account. That means that it doesn't have any limit in balances, in deposits and number of transactions. And with that level, the customer can access to perform several transactions and transfers without any cost. So that is important. So what we are seeing in different fintechs mainly is an [ N2 ] account with very important limits and normally with average balances that are lower to the levels we are asking. So that is I think one of the reasons why we are growing in balances with zero cost because we are attracting customers with very good quality that we can lend different products, having that experience and having the transactions with us and also customers that are really using our digital platforms. So that is, I think, one of the reasons for that performance.

[Carlos De la Cerda Serrano, executive]

Ricardo, this is Carlos de la Cerda. I'd like to add to what Edgardo just said that besides all that he mentioned, we also, the Cuenta Conecta, the large amount of growth that we have been seeing is in companies, transaction, operational accounts. And we have made a strategic shift in our strategy towards companies because today, we link the amount of credit lines the cost of the credit lines with all the relations that that company has with the bank and Cuenta Conecta, the operational account is very important to us. So this has been very successful because the companies love the way they can negotiate with the bank better prices for their loans in exchange to manage with the bank, all of the rest of their needs in financial services, especially the reciprocity via Cuenta Conecta but also in foreign exchange, trust and many other services that the company may need. So we are very confident that the Cuenta Conecta will remain growing very healthily in the bank.

[Ricardo Buchpiguel, analyst]

Very clear. And just a quick follow-up. How much of these Cuenta Conecta clients came from your existing clients? And do you believe there is still room from clients that don't have the Cuenta Conecta and not clients for you in other ways to open the account or the strategy is mainly going to completely new clients?

[Edgardo del Rincón Gutiérrez, executive]

I mean, mostly is new customers. About 80% of the openings that we are having are new customers. And as Carlos said, this is a combination of individuals and MSMEs and companies. But in terms of balances, obviously, the balances coming from SMEs are very important compared to individuals. So it's a very healthy growth and also the main door for new customers for the Bank.

[Operator]

Our next question comes from the line of Luis Yance.

[Luis Yance, analyst]

Luis Yance from Compass. Congrats on the results. A couple of questions from my side. I guess the first one on credit quality. I mean it's been well behaved this year. So just wondering, as we look into next year, what sort of levels do you kind of expect both NPLs and cost of risk, how much additional reserves you still have there that could compensate if we see a spike there? And what sort of levels would turn on the alarms a little bit from an origination standpoint, perhaps you getting a little bit more cautious. And I guess related to that is, with those additional reserves, you haven't released them. Just wondering if that's kind of what we should assume going forward that you would just use them to balance any potential spikes, so how do we think about that? That will be my first question.

[Edgardo del Rincón Gutiérrez, executive]

The levels of cost of risk for this year have been really low, as you saw. We think that we should reach the levels that we have been saying in past quarters, there are the regular levels for Banco del Bajio to be around between 0.6% and 0.8%, and the levels of NPLs that we have been seeing are really very, very good, one of the best in the marketplace.

So today, we don't see any potential increase in any portfolio. SMEs, the agro business, companies, medium and large performing very well. And also, all the consumer lending portfolio, having NPLs even below the average in the system. So we don't see any spike today. But yes, we have additional reserves. And the strategy is exactly what you said, if we saw in 2023, an increase, any spike, we could use those additional reserves for those cases, as we had been doing in recent months, but also maintaining a good level of additional reserves that we feel confident at the level of at least 1.5x.

We have been higher than that. But the idea is to maintain reserve at conservative stance thinking that in 2023, with a possible slowdown in the economy, a possible recession in the U.S. that could impact a few sectors of the economy in Mexico. But it's exactly what you said. In those cases, we could use those additional reserves but having a good balance and maintaining the bank very solid regarding capital, but also additional reserves.

[Carlos De la Cerda Serrano, executive]

I would like to add to what Edgardo just mentioned that the general idea is that every quarter, every month, actually, we will create new reserves that are normal to the operation. I mean, new reserves because of the loan growth or a slight deterioration among [ EtaPauno and EtaParos ] portfolios, which we consider to be normal. We will be creating those new reserves to service those situations. We would only use additional reserves in case of extraordinary happenings, some important cases that could go wrong. We don't see any today, but that's what the additional reserves are for. So we will use that same criteria.

Now in terms of when would we turn the alarms on if we see a deterioration in the economy, it would be if our NPL ratio goes above the systems. If we would reach the system NPL ratio, we would be very alarmed. Traditionally, we have had a much better NPL ratio than the system. So if we saw a deterioration so that our NPL ratio would grow towards systems, that could turn the alarms on in the bank.

[Luis Yance, analyst]

Could you remind us how much additional reserves you currently have at the moment?

[Carlos De la Cerda Serrano, executive]

MXN 1.6 billion.

[Luis Yance, analyst]

That's still quite high. A lot of bad things need to happen before...

[Edgardo del Rincón Gutiérrez, executive]

That's right.

[Luis Yance, analyst]

You guys get in trouble. That's great to hear. My second question is on the NIM side. I mean, you mentioned you're going to be closer to 6% by year-end, 5.9% or 6.1%. But that's with a TA that you mentioned around 7.9, let's call it, 8% on average for this year, right? If I assume and I guess everyone has their own assumptions, but if I assume 10.5% average TA for next year could be even higher, I think, but just for argument sake, 10.5%, that's 250 basis points extra. So with the kind of sensitivity you have, seems that you could get another perhaps 70 basis points or so of NIM expansion. But if you keep doing this improvement in cost of funds and the mix improvement, I'm guessing you could get to 100 basis points. So am I being crazy to think that perhaps NIMs in the 7% zone are doable under those circumstances?

[Edgardo del Rincón Gutiérrez, executive]

Luis. You know very well the bank. The NIM that we are reporting for the quarter doesn't consider yet the increase at the end of September, of course. And you saw in the presentation that we are expecting the Banxico rate to reach 10.25%. And we think that, that a scenario of high interest rates for Mexico will continue during the following quarters. suggest we think that the NIM for 2023 will be around 7%.

[Luis Yance, analyst]

Great to hear. And I guess my last one has to do more with capital allocation and the impact on ROEs. I mean, you've done a decent amount of optimizing the balance sheet as you pay the dividends and bring down the capitalization ratio. So just wondering, as we look into next year, what sort of payout over 2022 net income should we expect? Is it reasonable to think that the kind of 50% payout? Or how are you guys thinking perhaps is even more because you still feel that that you still have room to optimize even further that? And a related question comes with the ROEs. I mean, it's great to hear that you guys are thinking sustainable ROE is around 21%. But again, with NIMs in the 7% zone, it seems to me that you're going to be above that, assuming everything else constant, right? So as we think about going into next year, even though the sustainable ROE might be in the 21%, perhaps mid-20s in terms of ROE seems reasonable or how do you think about that?

[Carlos De la Cerda Serrano, executive]

This is Carlos again. We have said in the past that we feel very comfortable with the capitalization rate of around 14%. Remember that BanBajio's capitalization rate is almost 100% Tier 1. So we feel very comfortable with that level of capitalization. For next year, with the net profit that we are projecting, I think we will propose to the stockholders' meeting dividend payout ratio between 50% and 60%. And our capitalization rate will be around 15% or above that with that dividend payout. So yes, we are planning to propose a large dividend for next year. And with all the things that you have been said with the dividend that we will pay out and the expected NIM and the loan growth that we are foreseeing, yes, we think that our ROE will be higher, well, probably higher than the average of this year.

[Operator]

Our next question comes from the line of Neha Agarwala.

[Neha Agarwala, analyst]

This is Neha Agarwala from HSBC. Most of my questions are answered, but very quickly, are there any key concerns in your mind regarding asset quality? Is there any exposure to any particular sector of the economy that you might be concerned with or any particular region? What could lead to a deterioration next year in terms of asset quality? And is there any other risks that you foresee for the business, meaningful slowdown in loan growth or significant worsening in asset quality requiring much higher provisions than anticipated. What are the key risks that you anticipate for the business for 2023? Congratulations on the results.

[Edgardo del Rincón Gutiérrez, executive]

As I said, we don't see any concern today in any portfolio. But of course, we've seen that in the following quarters, we should reach the cost of risk that I said, that is the regular cost of rate for the bank, the quality of especially of the first and second quarter was really, really very good. So today, we don't see we have been improving our underwriting process in all the portfolios is really very good.

But something that is, let's say, new for us is mainly what we have been growing in consumer lending and also in parametric loans for SMEs. But as well, we have been taking all the measures to have all the technology and the talent to really have a very good process with very good quality. And also we have been improving our technology as well and the talent in collections with very good results and improving recovery as well, both for consumer lending and for SMEs.

So on that regard, we don't have any concern. Of course, the performance of the economy and all the international factors could impact some sector of the economy. We will be monitoring everything as we have been doing always. But we don't see today any concern in any portfolio, Neha.

[Carlos De la Cerda Serrano, executive]

I would like to add a little bit to expand a little bit on what Edgardo just mentioned. We have a matrix of the different economic activities and regions. And we monitor that on a monthly basis. For instance, on a specific city can be saturated in terms of housing, low-income housing. But a difference yet in other parts of the country is not. So what we do is we micromanage the risk in any activity and in any specific geography of the country. And I think that's one of the reasons why our asset quality remains to be so good through the years because we micromanage the risks, and of course, what Edgardo said, we don't have a general worry about any sector in general. We do that process starting the sectors and the geographies. And we find that those are very different risks, and that's how we manage the credit risk, the loan risk.

[Operator]

Our next question comes from the line of Tejkiran Kannaluri.

[Tejkiran Kannaluri Magesh;WhiteOak Capital, analyst]

I'm Tej from WhiteOak Capital. I wanted to understand your outlook for expansion in terms of regions. So how much loan growth and deposit growth that you're expecting out of the Bajio region and how much are you expecting over rest of Mexico. And in that sense, are you investing in the physical infrastructure in terms of branches or in terms of hiring relationship managers, just how you're planning for growth across different regions of Mexico?

[Edgardo del Rincón Gutiérrez, executive]

Yes, we are seeing already, and we expect to continue with that trend with very good loan demand in the Bajio region in which we are, of course, very well positioned to capture that opportunity, but also in the north and in the northwest of the country. and as well with several changes that we did in the metropolitan area in terms of organization, that is important to comment about that. So we decided at the beginning of this year to reinforce our organization in the metropolitan area. That includes also a new regional director based in Toluca to manage [indiscernible] spates in which we have a very good opportunity to grow because our presence today is very small. So the organization, that organization is already in place, and we expect to grow faster than the market in that important geography. So yes, we are very well positioned in terms of geography already in the Bajio region in the north, but we are seeing good loan demand also in the northwest of the country, and we expect as well to capture the opportunity we have in the metropolitan area that you know is very important for the financial system already.

[Tejkiran Kannaluri Magesh;WhiteOak Capital, analyst]

And just to follow up on that. For investing in this growth, is most of the investment coming from the digital infrastructure? Or are you still investing in branches or relationship managers hiring them in the other regions outside of Bajio?

[Edgardo del Rincón Gutiérrez, executive]

Yes, we're growing this year about 12 branches and we will continue growing in the following years at that level more or less in number of branches. In terms of people, yes, we are growing not only because of the branches also. What I mentioned about the organization that we are reinforcing in the metropolitan area comes with more people in different areas, in SMEs in what we call [indiscernible] but as well in branches. So yes, we are doing that. Here in Leon, we're investing as well in areas like technology and data science.

[Operator]

We have not received any further questions at this point. So that concludes your question-and-answer session. Thank you. I would now like to hand the call back over for some closing remarks.

[Luis Quiroz Hernandez, executive]

Thank you very much all. See you in January when we report the results for the fourth quarter.

[Operator]

This concludes today's call. You may now disconnect.