Banco del Bajio SA Institucion de Banca Multiple

BMV:BBAJIOO

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, everyone, and welcome to Banbajio's Fourth Quarter 2020 Earnings Conference Call. My name is Nkiki, and I will be your conference operator today. Yesterday, Banbajio issued its quarterly report. For a copy of the earnings report or the webcast presentation that accompanies this call, please do not hesitate to contact us in New York City at [phone].

Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference 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 BanBajío is Mr. Edgardo del Rincón, Chief Executive Officer; Mr. Joaquín Domínguez, Chief Financial Officer; and Mr. Luis Quiroz, Investor Officer.

And now I will turn the call to Mr. Quiroz. Sir, please begin.

[Luis Quiroz Hernandez, executive]

Good morning and happy new year to everyone. We hope that you and your families are doing well. 2020 has been a year of challenges and opportunities for Banco del Bajío. As demonstrated throughout the year, the management team has committed to navigate the crisis with focus on the asset quality and maintaining a sound balance sheet.

And we will continue to do so as long as the crisis continues, given the lack of visibility on possible impacts to the portfolio as new restrictions are imposed within the country.

The results that we achieved for 2020 reflect the tremendous effort that all our employees are putting forth to maintain a resilient financial position and ensure healthy growth going forward.

I would like to start the presentation in Slide 3 by briefly commenting on some key ratios recorded in the quarter compared to those of the system.

As of November, which is the most recent publicly available information. On the asset quality side, we posted an NPL ratio of 1.05%, below the 2.46% recorded for the system.

Furthermore, our NPL adjusted ratio was 1.7%, also well below from 4.67% recorded for the system. We posted a coverage ratio of 205.4% as a result of the substantial increase in the creation of additional reserves. Our cost of risk for the quarter was 1.2%, which continues to be above our historical average of around 0.6% to 0.7%.

In terms of liquidity, we continue to maintain a solid liquidity position with the liquidity coverage Coefficient of 150%.

Our capitalization ratio on a preliminary basis as of December was 16.88%, and our Tier 1 was 16.81%. The stock of provisions that we have in our balance sheet as of December, accounted for MXN 4.3 billion, of which MXN 1.3 billion are additional reserves.

On Slide 4, we compare the 2020 results against the guidance, and we are glad to announce that we have met and even surpassed most of the lines we provide in the guidance earlier last year.

The growth of both loans and deposits of 10.7% and 21%, surpassed the upper part of the guidance of 7% and 12%, respectively. Our interest revenues fell less than the guidance, even though interest rates fell below the 4.5% we estimated for year-end.

As we grew the stock of productive assets more than expected and improved our cost of funding. In the case of our operating expenses, we stood at the lower bound of the guidance with a growth of 0.10%, which helped us maintain the efficiency ratio at 47.8%.

Our net income for the year was MXN 3.4 billion, above the high end of the guidance. Likewise, our ROE stood at 10.3%, above the 8% to 10% range. The cost of risk was 1.4% for the whole year, within the guidance and above our history as previously mentioned.

In terms of capitalization, we posted a ratio of 16.9%. These numbers reflect the conservative profile that the bank has adopted against the ongoing crisis.

On Slide 5, we will see updated figures for the relief program, which consists of the deferral of interest and principal payments for up to 6 months with no impact in the customers' credit growth.

At its highest point in September, the program represented MXN 47 billion or 26.4% of the total portfolio at that point in time. As of December, 97.6% of the clients that joined the program have resumed their payment schedule. Of those clients, 98% are making payments and 2%, or put it in another way, MXN 928 million, are not making payments.

When we zoom in by type of credit, we observed a better performance of company loans, 98.3% payment; followed by mortgages, 95.5% payment; and consumer credit, with 90.8% payment.

Moving on to Slide 6. Our total loan portfolio reached almost MXN 200 billion, an increase of 10.7% compared to 2019, reaffirming our target of outpacing the systems growth.

Company loans that are the bulk of the portfolio grew 5.8%, with Agro business growing at 14.4%. Government loans grew 77.4%. Also, total deposit reached almost MXN 190 billion, an increase of 21% when compared to 2019, also outpacing the system. We will also like to highlight the growth of 27.4% achieved on demand deposits.

On Slide 7, we would like to highlight Banco del Bajío outstanding asset quality. As you can see on the upper chart, the NPL and the NPL adjusted stood at the end of 2020 at 1.05% and 1.7%, which compared lower to those of the industry at 2.46% and 4.67%, respectively.

The chart in the bottom right shows the evolution of the cost of risk as you can see, the level for the fourth quarter was 1.2%, more than 2x the reserve from the same quarter last year and above 3x when compared to full year figures.

As a result of the prevented reserves created for the crisis. Hence, the coverage ratio on the bottom left chart increased to 205% from 155% in 2019.

On Slide 8, you will see that we were able to reduce our cost of funding by 177 basis points, from 5.05%, down to 3.28%. It is important to highlight the improvement registered in the mix.

We increased the mix of demand deposits from 33% to 36%, while we reduced the share of interbank loans from 22% to 19% and time deposits from 41% to 40%. Furthermore, we reduced the cost of demand deposits from 1.97% to 1.13%. The increase in volume allow us to improve our liquid assets by 33.7%.

On Slide 9, we can see the preliminary capitalization ratio as of December 2020 of 16.88%, of which 99.6% is Tier 1 capital. The figure for 2020 stood above the ratios of 2018 and 2019 of 16.65% and 16.13%, respectively.

It is important to mention that as part of the preventive measures undertook for the crisis and the recommendation from the CNBV, the bank did not make dividend payments during 2020.

On Slide 10, we can see the performance of our efficiency ratio. It came in at 51.9% in the fourth quarter and 47.8% for the whole year, which is higher when compared to previous quarters, at the revenue compressed. However, it compares favorably against our peers that posted an efficiency of 55.5% for the October, November period.

For 2021, we will maintain close control of expenses for recurring expenses such as wages, rent and administrative expenses, we are expecting growth below inflation.

However, expenses related to the investment we have made in technology and digital platforms in the past few years are going to have an impact of the maintenance and amortization increase for the current year. Additionally, we expend some costs that are linked to revenue sources to increase for 2021.

This year, we continue to be cautious. Fortunately, the resilience of the portfolio has exceeded our expectations so far. However, the pandemic is an ongoing concern.

Daily deaths and new infections are at record levels, and there are some states that have imposed new restrictions to mobility. Also, in 2021, we will have midterm elections, and that could bring some volatility to the economic outlook. Bearing this in mind, we are confident that we have prepared appropriately for the current scenario.

On Slide 11, we are introducing our new guidance for 2021. The macroeconomic assumptions used are the following: overnight rate of 3.75% to 4%, GDP growth of 3.8%, inflation of 3.6% and an average FX rate of 20.27%. We are forecasting loan growth to be from 6% to 8%, deposit growth from 7% to 10%, net interest margin from 3.9% to 4%, noninterest income growth from 12% to 15%, expenses growing from 6.2% to 7.6%, efficiency ratio below 52%, cost of risk from 60 to 80 basis points, net income from MXN 3.65 billion to MXN 3.8 billion, ROE of 9.9% to 10.5%, NPLs below 1.8%, coverage ratio above 120% and capitalization above 16%.

These guidance do not incorporate a possible dividend payment. In summary, the fourth quarter and the full year results reinstate the sound fundamentals for the bank and the solid balance sheet.

We will continue the current strategy for the time being, given priority to the asset quality until we have better visibility for the impact of the portfolio and the economic recovery.

We are pleased to announce that we have met and even surpass our targets for last year, and we maintain our compromise to deliver on the guidance that we provide for 2021.

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

[Operator]

[Operator Instructions] And our first question comes from the line of Ernesto Gabilondo with Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

I have 3 questions from my side. The first question is on your expectations for the NPL ratio. We noticed that you closed with an NPL ratio of 1%, but you are guiding an NPL ratio below 1.8%. So when do you see the pickup the NPL ratio? And should that be around 1.7% and then normalizing in the second half? Or do you see the 1.7% for year-end?

Then my second question is on dividends. I believe you would like to maintain minimum common equity Tier 1 ratio of 14% for the long term.

So if we do the numbers, I think you have a capital expense of MXN 5.5 billion. Is that the number that we can expect for dividend payments during the second half of the year once you have more visibility with the economy and with the midterm elections?

And then lastly, I would like to ask you on your expectations for noncredit-related revenues, in which you have guided a growth between 12% to 15% year-over-year. But can you elaborate on the assumptions behind the growth received, market-related revenues and other income?

[Edgardo del Rincón Gutiérrez, executive]

Thank you, Ernesto, and good morning, everyone. Let me start with the first one about NPL loan. It is true, there is still uncertainty in that market, but we've seen -- with the performance we are seeing in the portfolio and how we end December, and you saw the presentation, I believe it's a very good performance, actually better than we expected, Ernesto.

I think the NPL could behave between 1.3% and 1.6%, but there is still uncertainty in the market. That's why we posted in the guidance the maximum of 1.8%, that actually the range, the -- let's say, the lower part of the range in net income is with the other scenario.

So there is still a lot of uncertainty, additional lockdowns, reflections in mobility, et cetera, that will imply, impact to different sectors of the economy, and we are still concerned about that.

But I think within that range, and hopefully, the vaccine that is still -- is a challenge for Mexico, not only getting the vaccines, but also the logistics behind the success of the complete process. I mean we believe that still the first semester of the year, we could see additional NPLs.

Let me go to the dividends, and I think I will complement part of the answer of the first one as well. Since the beginning of the crisis, Ernesto, and all, we said that for BanBajío, the first priority will be asset quality.

And as I said, the results of the MXN 47 billion that were part of the release program in BanBajío, a big portion of the portfolio are really very good, actually better than expected. And from what we have seen from other banks, I believe we are having the best performance in the market.

Since the beginning, however, we said last year, that the NPLs will come at the end of 2020, really, but in reality in 2021. So that's why we decided last year to increase reserves and to create the coverage ratio you are seeing in our report.

What you should expect from BanBajío is to reach the best asset quality in the market, is -- I mean that is something that has been an important characteristic of BanBajío for many years and will continue to do so, I believe is a reflection of the quality in the origination process we have in all the portfolios.

As I said, in Mexico, we have seen additional lockdowns and restrictions to mobility, and there is still a lot of uncertainty about what is going to happen in the following months.

With that, we think that at the end of the second quarter, as you said, we will be in the position to define a dividend payment. If the performance of the next couple of quarters continue as positive as the performance you saw in the presentation, we will propose to the assembly an important dividend.

Within -- I mean we have today a capitalization index close to 17%. We feel that with a level of 14%, is a very good level, a very good position to continue growing and gaining market share.

Let me finish my comments in that paying dividend has been important and will continue to be important for BanBajío.

It is fair to our stockholders and will also bring an important improvement in return on capital. Regarding your last questions about noninterest income and fees, et cetera, I think that is an important source of revenue.

What we are seeing in the third and fourth quarter is an important recovery coming from a second quarter that because of the important lockdown in the economy we saw an important decrease.

So we saw a recovery in the second part of the year in several businesses. For example, trading income that you saw in our report, but also, I mean, in trading income, especially FX, but also double-digit growth in fees coming from the credit activity, the acquiring business, insurance, interchange and retail fees in general. So we are confident that we can get that growth of at least 12% to 15% that you see in the guidance.

Also, we saw an important improvement in our deposits. If you remember, in our conference, we report the third quarter we talked about the launch of a new checking account that is Cuenta Conecta with a new and improved value proposition, new technology, digital capabilities, et cetera. And we are very happy with the results because we saw in that account an improve in deposits year-over-year, December to December of 29%.

That is more than MXN 7 billion at zero cost. And that is -- that results even with the pandemia. So we think we are going to be able to improve our mix, our cost on funding going forward, but also, importantly, improved noninterest income.

[Operator]

Thiago Batista with UBS.

[Thiago Bovolenta Batista, analyst]

I have 2 questions and both of them on the guidance. The first one on the loan growth of 6% to 8%, can you comment a little bit more on the main line?

So how much you guys are expecting to see the expansion of commercial, consumer, mortgage environment. So how is the mix expected to change in '21?

And the second question is about the margins. And maybe the answer to this question is linked to the first one, but can you talk a little bit more on, I can say the sizable margin compression that you guys are expecting for 2021? So my questions are on the loan growth and also on the margins.

[Edgardo del Rincón Gutiérrez, executive]

Sure. Let me comment on loan growth, and then Joaquín will talk about the margin. What we are seeing in what we call Banca Empresarial, say, medium and large companies, is to continue growing above the markets. Actually, the market as of November, in total, the credit portfolio is decreasing 0.8%, and we posted a 10% increase.

But for 2021, we're seeing growing our main core business, at least 6%, but we are seeing an important opportunity in SMEs. So that portfolio, we are planning to grow double digits. We are releasing new capabilities in credit analysis.

Remember that one of the pillars of the investment we are doing in technologies regarding having the right pools for risk management. So we are launching several initiatives about new products for SMEs. So we are expecting an SMEs to grow double digit.

Also, in consumer, we are planning to grow actually high double digits since the beginning of January, we launched a cross-sell campaign that had very good results in 2020, and we are planning to be, with active cross-sell campaigns the whole year, taking opportunity of the potential we have in credit penetration in our own customers. So that is an important piece.

Agro business that is having a very good quality is something that we have been growing. We still see demand in the market. We are very happy with the results. We grew more than 14% last year.

Actually, we improve our penetration with FIRA importantly. We're #1 on that regard, and we will continue doing so.

In mortgages it's -- in that portfolio, we are seeing a small digit growth. Actually, the idea is to continue with the same size of the portfolio and post a small growth below 5%. So I believe that can give you a good sense of the loan growth we are planning to do in 2021.

Regarding the second question, Joaquín.

[Joaquín Domínguez Cuenca, executive]

Hello, everybody. It's a pleasure to say hello. Well, the compression margin comes with a good new. The success we have in the deposit side allow us to have a lot of liquidity that we strategically decide to canalize that liquidity to high-quality assets.

We increased the investment on government bonds with a -- which has a low interest rate, but it's a very secure investment. And also, the mix in the loan growth was a mix with very high-quality of loans, but with lower interest rates.

For the future, the answer that provide Edgardo, means that we will improve the mix of the loan assets with higher spread in the loan size, and the success also increasing demand deposits, reduced the sensibility of the liabilities to the reduce of the interest rate.

However, we are seeing that we are just close in this year to the bottom of the reduction of the interest rate. So there is no more space or we are not expecting more than 50 basis points, and it is included in the guidance, no more than 50 basis points in reduction on the interest rate.

So we are seeing that we have a very strong portfolio also in loans and deposits that will be an accelerator of the net interest margin as we will be able to increase the volume of loans and deposits and also very well prepared for an increase -- a future increase in the interest rate. So we see that we have a very good position forward. In addition of that, in the last questions you made, we are considering also in the guidance, the performance we are delivering in noninterest income will support the potential reduction in the interest rate.

So we feel that we have a very good news for the next year and forward in terms of this change of our balance sheet.

[Edgardo del Rincón Gutiérrez, executive]

Let me give a complement the answer from Joaquín saying that we will offset completely the impact in margin coming from a reduction in the reference rate from BanBajío with noninterest income. Let me give you a couple of -- pieces of information that are important also regarding this.

In 2020, we grew new accounts. That means deposit accounts in 48% compared to 2019. So even with the pandemia and having during almost 3 months, 1 Tier, more than 100 branches closed, even with that and also restrictions in the walk-in to our branches, as you know, we were able to improve because of the new value proposition, improvement in the process, digital capabilities, et cetera.

We grew 48% more, new accounts, and those accounts are coming mainly from SMEs. And also our total customers in the bank in 2020, we grew 10%, reaching 1,040,000 total customers, active customers.

So I think all the cross-sell capabilities that I was talking about, the growth in new customers brings huge opportunity and fees and also all the noninterest strategies that I talk about.

Can we continue, operator.

[Operator]

Brian Flores with Citibank.

[Brian Flores, analyst]

Just wanted to discuss with you, if you can give us an update on the recovery rates you're seeing on foreclosure assets? And also on the degree of guarantees and collaterals that your portfolio has?

[Joaquín Domínguez Cuenca, executive]

This is Joaquín Domínguez. Yes, 2020, due to the crisis, was not the best year on recovery for foreclosures. It was all the real estate segment, it was more difficult to sell of the real estate. However, it wasn't a battle. So we had a reduction in comparison with 2019, and I don't have the ratio exactly. The ratio, we would provide it later.

But in terms of the context we had, the result was a good result. We are expecting, and we have an inventory of disclosure assets that could be an important contribution is not considerate in the guidance so because it's very difficult to estimate or forecast if we will be able to sell and what percentage of that, but we have a good quality of closures assets, and we are hoping that we will bring good news in the future.

[Edgardo del Rincón Gutiérrez, executive]

Also complementing, Brian, one of the characteristics of our portfolio, and one of the reasons why the asset quality is so good is the high level of collateral guarantees from development banks and physical guarantees. So more than 90% of the portfolio, especially with companies in Banca Empresarial and SMEs, we do have collateral, an important collateral.

So that is an important characteristic of our credit quality. So we feel confident that, that will continue helping our performance during the following years.

[Brian Flores, analyst]

Thank you, Edgardo. And just a quick follow-up. Have you seen more openness to increase the guarantees by government branches or nothing, for example?

[Edgardo del Rincón Gutiérrez, executive]

We continue to use actively guarantees coming from NAFIN and Bancomext. That is something that the bank has been doing for years, and we will continue to do so. So it's part of the process, and we have important guarantees from development banks as well as guarantees provided by the customers.

[Operator]

[Operator Instructions] And we will move next with Juan Ricalde with Scotiabank.

[Juan Recalde, analyst]

My first question is related to the sensitivity to changes in rate. Could you provide us with a number with your sensitivity -- the sensitivity of NII to changes in 100 basis points in the reference rate?

And the second question is related to tax rate. What's the tax rate that is implied in your 2021 guidance?

[Joaquín Domínguez Cuenca, executive]

Yes. We're -- in complementing the last question of Thiago, with the change of the mix of the asset portfolio, we are estimating a sensitivity of 32 basis points for each 100 basis of change in this year.

And what was the second question? For the guidance -- for the tax, we are considering 23% of effective tax.

[Operator]

[Operator Instructions] And we have a follow-up from Neha Agarwala with HSBC.

[Neha Agarwala, analyst]

I have a few clarifications. So on the NIM compression, you've mentioned your sensitivity is now 32 basis points, 200 basis points change in rates?

[Edgardo del Rincón Gutiérrez, executive]

Yes, Neha. Let me...

[Neha Agarwala, analyst]

It has increased from 25.

[Edgardo del Rincón Gutiérrez, executive]

Can you repeat that, Neha, please?

[Neha Agarwala, analyst]

It has increased from 25 basis points to 32 basis points.

[Luis Quiroz Hernandez, executive]

Yes. Let me take that. The sensibility that we gave on prior times, it was 25 basis points, as you are mentioning, however, the change in the mix of the portfolio and the mix of the liability side have increased a little, the sensibility. Why -- that's why now it's 32.

[Neha Agarwala, analyst]

Okay. Great. The NIM compression that your guidance states is about 50 basis point compression during 2021. Now the NIM already was down almost 100 basis points during 2020. So it seems a little on the higher side to me as to a 50 basis point compression again in 2021. You expect a 50 basis point rate cut. So given the 32 basis point sensitivity, that should have a negative impact of, say, 15, 16 basis points.

So what is driving the additional 35 basis point decline in NIM for this year, especially given -- having in mind the good growth in the funding days that you've had, which reduce your funding cost?

[Luis Quiroz Hernandez, executive]

Yes, Neha, let me take that question. As Joaquín mentioned on Thiago's questions, the export sensibility that we showed during 2020 have to do with the change in mix from the productive assets and also the change in mix from the credit portfolio.

As you saw, we had an important growth in government loans that are lower-yielding type of loans. So that the change in the mix of the portfolio had to do something with that.

Additionally, the increased liquidity in the bank that is invested in securities that have lower yield than the portfolio, around 300 basis points less, that changed that sensibility, right?

So it is not that the bank is more sensible to the interest rate, the sensibility that we compute is that sensibility. However, this change in mix are affecting the net interest margin.

Now going forward, the interest margin that you saw for the fourth quarter actually is very similar to what we are providing in the guidance, and we are forecasting up to 50 basis points rate cut.

So that's -- it's not that we are guiding a higher decline in the interest margin is considering the worst-case scenario with a 50 basis point decline and the sensibility that we have now incorporated -- all these changes in the mix are already incorporated in the guidance. That's what we are seeing.

[Neha Agarwala, analyst]

Understood. It does seem a little conservative to me, and that's why I wanted to understand it better.

The next topic is dividends. So if you are allowed by the regulator, should we expect a dividend in the first half, which will be on 2019 earnings and another dividend in the second half of this year, pertaining to the 2020 earnings? Is that something that at BanBajío how you're thinking about this?

[Edgardo del Rincón Gutiérrez, executive]

Yes. I gave an answer at the beginning of the conference, but no, the idea is to analyze the situation of the portfolio at the end of the second quarter, Neha.

And if we decided to pay a dividend to propose both to the assembly of the bank and also to our regulator because the recommendation, the regulator gain last year is still in place.

So we will propose to both the regulator and the governance of the bank the dividend at the end of the second quarter, beginning of the third quarter, so the payment will be in the second part of that year, if we decided to give a dividend.

[Neha Agarwala, analyst]

Okay. So only one dividend and in the second half?

[Edgardo del Rincón Gutiérrez, executive]

Only 1 dividend in the second half.

[Neha Agarwala, analyst]

Okay, okay. Great. And should we expect about 40%, this is what you've been saying over the past few years? Or could we expect a higher payout given the strong capital accumulation?

[Edgardo del Rincón Gutiérrez, executive]

Well, I mean, considering that we didn't pay dividends in 2019, and the results we are seeing in the portfolio, what you should consider is that we've seen for the long term, in normal circumstances, a capitalization ratio of 14% for the bank. I mean we are close to 17%. I think with that, you can make the numbers easily.

[Neha Agarwala, analyst]

Okay. Perfect. And last question is on your retail and your digital transformation. So what are the strategies that the bank is adopting to have a more retail presence?

And what are the changes that you are making to have -- to improve your digital presence in front of your clients?

[Edgardo del Rincón Gutiérrez, executive]

Thank you. Yes, we are making very good progress, and we are very happy with that. We talk about those pillars in the previous conferences. In our digital transformation, actually, as I said in previous conferences, we are developing a new electronic banking and new capabilities in the mobile app.

We release the new electronic banking for individuals at the end of September, and we are very happy because we already migrate close to 70% of individuals to that new platform.

And we developed, I mean, a lot of capabilities in the mobile app that we think that today, we have a mobile app that is completely competitive in the market, and we will continue releasing new capabilities going forward.

So -- and during 2021, what we are developing at this moment is all the capabilities for companies. Actually, we are launching our pilot, Freinds & Family next month, and we are planning to start migrating companies to the new platform starting in May to finish at the end of the third quarter, beginning of the fourth quarter.

So very happy with that. And I'm happy to share with you that, for example, the number of transactions in the mobile app in 2020 compared to 2019, we had a grew of 70%, 7-0 percent. So we are very happy, and the customer experience that we are seeing and the feedback from customers is great.

One additional pillar that is important to cheer what we are doing in data science and data analytics. So in the middle of 2020, we took a decision to have an alliance with 2 vendors Stratio and MicroStrategy.

And we are developing all the platform for data analytics, but I can tell you that today, the bank is having much better information and much more precise information than before.

That is allowing us to improve, for example, in collections in credit origination, et cetera. And we are going to release several products from that group of data analytics in the following couple of months.

One of those is, for example, what we call internally in Spanish [Foreign Language]. That is it will provide to all the bankers, all the relationship and the P&L, but as well the opportunities we have with all the companies we are serving. And the idea is to continue releasing new products from that group going forward.

And the other pillar of the transformation is what we are doing in consumer credit. So we are developing many tools. I told you before that we've made an alliance with FICO with [indiscernible] maybe is the most important company worldwide regarding these tools, and we are starting this quarter with several products using those capabilities with credit cards and payroll loans, and we will continue in the second quarter with the rest of the products.

So that will give us confidence, and we will try to have as good asset quality in the consumer portfolio as we do in the rest of the portfolio. So those are the pillars in which we are investing.

And that is why you see the OpEx growing. As Luis said in the presentation, the recurrent expenses are in complete control. Actually, what we are forecasting for 2020 in the proposal, in the budget to the Board yesterday that -- is that recurring payments, that is 75% of total payments, is growing 1.4%, so much lower than inflation in 2021.

And the expectation in growing expenses, that is the range of 6.2% and 7.6% in the guidance is because of the initiatives that comes with additional revenue.

For example, the cross-sell campaigns that I talked about and also the -- I mean, the future of the bank, that is really the technology investments in those pillars that we have been investing for the last couple of years, and we will continue to do so.

[Neha Agarwala, analyst]

Perfect. That's very clear. One last thing. Given that the performance of the portfolio has been quite good and you have a significant provision buffer, should we expect reversals maybe in the second half of 2021, if everything stays in control?

[Edgardo del Rincón Gutiérrez, executive]

We hope so. That will depend in the performance of the portfolio, the credit quality. But I think that the performance continues to do as we saw in the presentation. Hopefully, yes.

That's why we posted a cost of risk much lower than 2020 because of the additional process we have and the performance we are having.

So it's a range of 0.6% to 0.8%, that is in the lower part, very similar to the historical cost of risk of the bank.

So we are -- as I said before, we are positive and naturally more optimistic than at the beginning of the pandemia. But still during the following 2 quarters, we believe there is a lot of uncertainty still in the marketplace.

[Operator]

No further questions at this time. I would now like to turn the program back to Mr. Luis Quiroz for any closing remarks.

[Luis Quiroz Hernandez, executive]

Thank you and thank you all very much for joining us in this call. We hope that you are doing very well, and we will see you on the next quarter. Please feel free to reach us if you have any more questions.

[Operator]

[Audio Gap] today's conference. Thank you for your participation, and you may disconnect at any time.