Financiera Independencia SAB de CV SOFOM ENR
BMV:FINDEP
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Good morning, everyone, and welcome to Financiera Independencia's 2020 First Quarter Results Conference Call. My name is Kelly Ann, and I'll be your coordinator for today. [Operator Instructions]
As a reminder, this conference call is being recorded.
For opening remarks and introductions, I would like to turn the call over to Mr. Mario Govea, Investor Relations Officer at Financiera Independencia. Mr. Govea, you may begin.
Thank you. Good morning, everyone. Thank you for joining FINDEP's 2020 First Quarter Results Conference Call. With me today are Mr. Eduardo Messmacher, our Chief Executive Officer; and Mr. Enrique Brockmann, our Chief Financial Officer.
We published our results press release on Friday 17, which is available in our Investor Relations web page at findep.mx.
Let me remind you that the contents that we will share during this conference call may include forward-looking statements, and as such, are subject to assumptions, uncertainties, risks and other factors that could cause actual results to differ materially from those described, including risks that may be beyond the company's control.
Now I would like to turn the call over Eduardo Messmacher.
Thanks, Mario, and good morning, everyone. Given the context of COVID-19 outbreak, we will change the format of this conference call, focusing first on the first quarter results and then detailing some of the actions that we have taken to face this unprecedented circumstance.
Starting with the first quarter results highlights. The company had a good performance in the first quarter of 2020 as we focused on the strategy of portfolio growth with a proper balance of risk, improved efficiency and market diversification. Net income was MXN 69.2 million, 10% higher year-over-year, which makes it the first -- the best first quarter results since 2015, leading to a return on equity of 6.1% and a return on tangible equity of 9.4%.
Our loan portfolio grew 11.3% year-over-year and reached almost MXN 9.1 billion, with loans to the formal segment increasing 17.6% year-over-year to over MXN 6.5 billion. Loans to the formal segment now represent 71.8% of total loans. Overall, NPL ratio was 5.3%, 60 basis points lower than the fourth quarter '19 and 30% -- 30 basis points lower than the first quarter '19, which is consistent with our strategy of growing with risk control.
Let me now provide some highlights of our subsidiaries during the first quarter.
Starting with Independencia, it serves over 263,000 clients, 16% fewer clients than a year ago, focusing on clients with higher average loans that are also more efficient to serve. The loan portfolio remained at MXN 3.4 billion, but the mix has moved to payroll loans, which grew 21% year-over-year and now represent 29% of Independencia's portfolio and 11% of the company's total. NPLs for payroll loans have been steadily going down from 1.8% in the first quarter '19 to 1.4% today. Independencia earned a net income of MXN 35 million during the first quarter, a 2.3% increase year-over-year.
Following is AEF. It serves 130,000 clients, 8% less than a year ago, and its loan portfolio increased 6% year-over-year and now represents 30% of FINDEP's total portfolio. NPLs have also decreased year-over-year from 7% to 6.5%. AEF's net income of MXN 31 million during the first quarter is 150% higher year-over-year.
Following is Finsol, which serves over 129,000 clients, 96,000 in Mexico and 36,000 (sic) [ 33,000 ] in Brazil, providing group lending products.
Finsol Mexico decreased its loan portfolio by 0.7% year-over-year to MXN 767 million, while Finsol Brasil reduced its portfolio 14% to MXN 357 million. It represents 12% of the company's total portfolio. Finsol's NPLs are 6.1% above the company's average of 5.3%.
Our California-based subsidiary, AFI, grew its loan portfolio to $114 million, 21% growth year-over-year. And during that period, the peso depreciated 21% against the dollar. So in pesos, AFI's portfolio grew 47%, reaching nearly MXN 2.7 billion, representing 30% of the company's loan portfolio. AFI's NPLs are at 3.3%, 70 basis points higher than the first quarter '19, derived from the maturity of the 2019 businesses and also slight effect of the last 15 days of March affected by the shelter-in-place orders in California.
I will now turn the call over to Enrique, so that he can take you through our first quarter financials. Go ahead, Enrique.
Thank you, Eduardo, and good morning, everyone. Our 1Q '20 financial highlights are as following:
Interest income increased 5.1% year-on-year to roughly MXN 1.4 billion. Interest income was MXN 217 million, a MXN 26.6 million increase relative to first quarter '19.
The provision for loan losses in 1Q '20 was MXN 354 million, 8.8% higher than the first quarter of '19, but 7.5% lower than fourth quarter '19. The provision for loan losses includes MXN 35 million of loan recoveries.
Net interest income after provision for loan losses was MXN 803 million, a 1.5% increase with respect to first quarter '19. This figure considers the effect of the expansion of the loan portfolio within a risk-controlled framework.
Other operating income was MXN 68 million and includes MXN 30 million of a tax return.
Net operating revenue was MXN 960 million in first quarter '20, a 4% increase versus first quarter '19.
Noninterest expense was MXN 900 million, and includes MXN 56 million of a fiscal contingency position -- provision related to Finsol S.A. If that effect is isolated, noninterest expense increased 2% year-over-year with respect to first quarter '19.
Net income after tax was MXN 69 million, a 10% increase versus first quarter '19. This result includes MXN 37 million from a revaluation on a minority investment that the company holds in one of the subsidiaries of Casanueva Pérez and Interprotección, Agente de Seguros y Fianzas.
I will turn the call over to Eduardo.
Thank you, Enrique. I will now share some highlights of the specific actions that we took regarding the COVID-19 pandemic. The focus of the actions taken by the company is to mitigate short-term impact on business, while ensuring long-term viability by, first of all: promoting liquidity and cash flow generation; and secondly, protecting the health of our employees, ensuring their well-being and guaranteeing business continuity.
Regarding liquidity and cash flow generation, we made the following adjustments: The company increased the resources allocated to collections, such as refocusing some of the loan advisers to this function. The company implemented stricter risk management policies, particularly regarding the criteria for admitting new clients and renewals, which have significantly reduced the rate of credit origination.
We implemented austerity measures to reduce consolidated monthly spending by approximately 16% starting in April. These savings affect wages, variable payments, operating expenses and CapEx.
The company strengthened communication with clients in order to understand with greater anticipation the challenges they face to offer specific solutions that include term extensions to reduce the clients' periodic payment and principal payment deferral schemes, among others.
We implemented the following actions to preserve the health of managers and collaborators. Our headquarters have operated remotely since mid-March. To recognize work, we developed and enabled technological options in places where there is a mobility restriction that affects branches. We have also kept several alternative payment channels open for customers.
We purchased a specific insurance policy against COVID-19, which covers all of our personnel in Mexico. Likewise, we are constantly monitoring the health and well-being of our employees.
Employees older than 60 years of age as well as those with pre-existing conditions that put them at higher risk were granted paid leave of absence from work in compliance with official regulations.
Hygiene and prevention measures, such as special cleaning antibacterial gel, face masks and physical barriers in [indiscernible] were implemented thereby protecting the health and safety of our workers.
Based on all these actions and our analysis of stressed collection scenarios, we are convinced that we will face our financial obligations and maintain a positive cash position.
With that, I would like to open the call for questions. Operator, please do so.
[Operator Instructions]
We'll hear first today from Nicolas Riva with Bank of America.
My first question is on the bank loans that you have. So you have about $40 million in bank loans which are coming due this year. If you can talk to us a bit about how your discussions are going to roll over these bank loans? If you expect these loans to be rolled over? Or if you are seeing the banks are a bit more cautious in terms of rolling over the loans given the challenging environment? That's my first question.
My second question is, have you run any stress test to see where your NPL ratios could go this year? How much they could increase to in a worst-case scenario? And how do you see your liquidity levels under this stressed scenario? Because you talked about some measures that you are taking to mitigate the impact of COVID-19 and on the long term and what's going on in the economy. So if you can talk about some stress test that probably you have run for this year.
And then my third question, one of the measures that you mentioned is that you are cutting consolidated spending by 16% starting in April. Does this mean that in the second quarter, then we could expect your operating expenses to be down, like, 16% year-on-year, assuming that the lockdown in Mexico continues through June? And if you can talk about what you're doing if you are reducing headcount, cutting wages, et cetera?
Okay. Let me start with the first one. We have not had -- I mean, we have had conversations with banks, and we don't have currently an indication that there's going to be any problem [ rolling ] over the period of payment that we have with banks over the course of the year. That, of course, is our best knowledge to date that there shouldn't be a problem with that. That will depend on the risk appetite of banks, but up till now, we don't see a problem renewing our lines.
In terms of stress scenarios, what -- the type of scenarios that we have run have a larger impact on collections for the second quarter. So the -- what we have run is having a drop in collections of 65% in the second quarter and a drop of collections of around 40% in the third quarter and a drop in collections of around 25% in the fourth quarter. So in these scenarios in order to maintain a positive cash position, what we have done is to limit loan originations. And we limit loan originations by looking at collections, seeing and subtracting originations and expenses and making sure that we have a positive figure after that. In these scenarios, we have decreased loan originations to 80% in the second quarter, 50% in the third quarter and 20% in the fourth quarter. As you mentioned correctly, we also implemented a savings plan running from April to July. And we have made the assumptions that the operations with banks maintain a regular fashion now, as we have seen so far. We are also considering to make payments on our liabilities. In particular, we have payments of our bonds in June, and we will comply with them. And under these scenarios, we see a positive cash flow -- a positive -- sorry, a positive cash position for the year. Now from here to August and then from August to December. And this is a very highly stressed scenario.
Now what we have seen in other crisis, and this could be our benchmark. If we go back to '08 to '09, and we have that information in our web page, if you want to reconstruct the finances, but loan loss reserve, that is income statement loan loss reserves, increased between 2008 and 2009 around 50%. Now if you normalize that with the size of the portfolio that is losses divided by our total portfolio, it actually increased around 27%. So it's a less stressful scenario than what we have described, what we have seen in other crisis. Now even an increase of loan loss reserve, even the extreme case of 50% would require a cost reduction of around 20% to compensate. Since we have already implemented measures to decrease costs by around 16%, we believe we still have initiatives that we could be implementing to reach that 20% to compensate that increase in loan loss reserves.
So up to now, obviously, we're cautious. We know there is very high uncertainties in the situation. But given the situation that we have today, we are positive on our ability to continue with positive cash position.
Okay. [indiscernible] from there. So -- I'm sorry, maybe you were going to talk about my third question. But before that, in this stress test, so you said you stress test with a big decline in cash collections and also in originations and also in OpEx. Can you tell us your loan growth, if I see the collect -- the originations network collections, in this stress scenario, what was the loan growth that you assumed net for this year? So your loan growth, negative loan growth, what was the number that you assumed?
Is this the negative loan growth?
Yes.
Okay. Do you have a figure for how much your loan book will contract in this scenario on a percentage basis?
So we would -- the contraction, it depends on how long this -- let's say, the contraction in origination lasts. As Enrique was saying, the scenario was considering the contraction of origination for around 3 to 4 months. Now with that in mind, we would have reductions in our portfolio between 10% and 15% depending on the operation. Now it also depends a lot on the type of support that we give to our customers. The more aggressive the support programs are, the less are loans amortized and therefore, the less is decrease in our loan portfolio.
On that...
And of course, this would also have negative implications on cash collections for 2021 for the recovery phase. The fact that you're contracting your loan, even if you are -- the scenario where you're able to withstand this year, then there will be a negative impact on cash collective next year, of course, with a smaller loan book.
That is correct. And that will have to be compensated by continuous management of cost. And we believe we have proven good track record in these years of being able to contain and manage the costs.
I just want to complement Eduardo's response. You were -- he was referring to a more stressed scenario. On our base projections, taking into account what we are observing in April, we see our loan portfolios contracting between 4% and 11% between March and August. So we may see a smaller contraction on the portfolio than on a more stressed scenario.
Okay. One more thing. In the stress scenario, where do your NPL ratios go to? So right now, just over 5%. I saw that in 2008-'09, it went over to -- around 12% NPLs. In this case, what are you projecting in terms of worst-case scenario?
Well, NPL evolution will depend on various factors. Related to the market is the speed of a recovery of the customer segments that we serve. There are also accounting factors that will affect the evolution of NPLs, both ours and the market's. In our current scenario, NPLs may not increase substantially given that some of the programs that we are giving the customers the relief during this period will change the flows of credit in the delinquency buckets. Additionally, the more stressed the collection are, the faster the flow of the higher buckets to write-off. And therefore, that's why we tend to give you more information on loan loss reserves rather than NPLs.
Okay. And one thing there because you mentioned that in the past, if I understood correctly, you said that in the past, one variable to adjust was loan loss reserves. I would assume that you would still want to have a coverage ratio of NPLs of at least 100%, even if your NPL ratio improved significantly?
That's correct. And let me separate loan loss reserves in the balance and in the income statement. Unfortunately, in Mexican accounting, they have exactly the same name, which is
[Foreign Language] Those are -- have the same name, one is in the balance and the other flows through the income statement. The increase that I talked about was about the one that is flowing through the income statement. Obviously, the loan loss reserves that we have in the balance, the [Foreign Language] we will still keep it at the levels derived from the model that we currently have, which has a factor based on expected losses. And yes, it has been more than 100% over the past couple of years, and we expect it would still be above 100%.
Okay. And then my last question and then I'll let other people ask. My last question is if you can explain because the decrease in operating expenses is quite significant, the 16% you're talking about, 25% in the worst-case scenario. If you can talk about what you're doing there? If you're actually reducing headcount, reducing wages significantly, if you can talk about the measures that you're taking there?
So let me start by saying we are reducing headcount. And we have a very high turnover in the branches. So the way, the first way that we used to reduce headcount was to decrease the rate at which we hired new collaborators to the branches during the month of March and April. Additionally, we have a number of collaborators that are on temporary contract basis. The first few months with the company are on temporary basis. And we are not renewing contracts based on performance specifically for a higher percentage of our collaborators. Additionally, we are -- we do see the investments that we have on the changing IT systems. We are also reducing and renegotiating with our suppliers. For example, one of our big expenses is rent, and we are currently in the program of renegotiating rent conditions with some of our counterparts.
So we are exploring every single way that we can save money. And additionally, let me remind you that in our branch network, a proportion depends on the company, but it's usually -- an important proportion of compensation are bonuses, and we expect those bonuses to be reduced based on a decreased sales effort and also a decreased general activity in the branches of other types of activities. So we expect all of that to contribute. Our first calculation was around 16%. And you can expect the cost to go down. It depends on how long this situation extends and the more it extends, the more aggressive measures we will be taking with costs.
We'll hear next from Nik Dimitrov with Morgan Stanley.
A lot of my questions are related to what Nick asked before me. And so I was looking at your cost of risk and your write-off rate, and it seems like they've been kind of moving in sync and they've been kind of at the fairly same level. So I was wondering under your stress test scenarios, where do you see cost of risk going in the coming 2 quarters?
Thank you. So let me go back to an analysis that we do with the credit bureau prior to this crisis and regarding the 2008-2009 crisis. What we saw there is that the risk of companies like ours, although the base level is higher than banks, the volatility during crisis tends to be smaller than banks. And I understand that this is a new type of crisis, but let's say, we're referring back to [ what we might ]. Specifically, the increasing risk that they saw in this analysis for the type of companies that we have was around 50%, whereas in banks, it was much higher. So at the end of the day, loan loss reserves reflect eventually our write-offs. So even in the very stressed or in the stress test scenario taking the basis of 2008-2009, we would be seeing an increase of, say, between 30% and 50% in our loan loss reserves. And that's why we are preventively taking measures from costs to address this increase in risk. And that proportionately, you will see an increase in write-offs at that same level. The scenario that we did was essentially focused on cash flow. We did not estimate the write-offs, given that write-offs are a noncash item, and therefore, we couldn't give you equivalence of write-offs in that scenario.
Okay. So I'm kind of looking at my spreadsheet. And if I take the numbers that you gave in consideration, and let me know whether I'm right or wrong, but based on your pre-provision earnings as a percentage of gross loans, and then its factoring an increase in the cost of risk anywhere from 30% to 40%, is it fair to assume that the next couple of quarters, you're going to book losses?
So I would call your attention to the size of the loan loss reserves or [Foreign Language] in Spanish to costs. And costs are much higher than our losses. That is something that is quite different from a bank-based consumer lending operation. And therefore, that would be true, if we are not able to compensate part of those -- that into an increase in loan loss reserves with compensations in costs. Now I also want to point out that all of the programs that we have with customers may help us not have such a big increase in loan loss reserves.
Okay. So just sticking with the same point. Let's say, if you restructure a loan, this restructuring will not necessarily require additional provisioning, is this what you're saying?
So it depends on the expected loss of that loan, but it could be the case that it doesn't require additional provisioning. And it depends on where in the buckets is the loan that we restructure, given that the reserve factors increase as the loan flows in the buckets.
Okay. Understood. So if it's kind of a loan that's already in some form of delinquency, obviously, there's going to be additional provisioning, if it is -- it was a loan in good standing, and you have to restructure it because of the outbreak, then that necessarily doesn't trigger additional provisions, right?
That's correct, yes.
Okay. And I looked at your Q1 numbers, and I was wondering -- because you mentioned that looking at your cost of risk, right, at your provision expense, there is a forward-looking element. I have to say most of the financial institutions that I looked at that have already reported Q1 numbers, I saw a very sharp increase in provisions, which is kind of very intuitive considering the fact that there -- a lot of these institutions are trying to kind of factor in the effect of the outbreak. But in your case, actually, on a quarter-over-quarter basis, cost of risk or the provision expense declined.
So a couple of comments there. What we have is an expected loss model for provision. So it really depends on where the -- in which bucket or how many days past due the loan has at the moment of reporting. It is something that we build based on history, and it calculates the expected loss on each days past due, depending on the company, depending on the type of loan, et cetera. So essentially, what you're seeing is the result of that model. We have not put any detrimental changes in the factors nor have we put any detrimental changes in our loan loss reserve calculation. Any increase or decrease that you see is based on where our loans are landing at the end of the observation period and the associated reserve that they have based on the number of days past due.
Now I do have to say that there's always -- there's never a big moment for crisis, but we had a very good fourth quarter in terms of collections, and we were having a very good first quarter -- we have been having a very good first quarter in terms of collections also. So we are starting this crisis in a very good shape in terms of our collection capabilities.
Understood. In terms of your book -- and I think I know the answer, but I was just curious to hear your opinion here, which part of the book are you the most concerned about?
Sorry, again?
Which part of the book value...
Which part of the book are you most concerned about? Where do you expect kind of the most issues to come from?
So the first one would be our group lending business. Essentially, a good proportion of group lending goals to self-employed, micro businesses, et cetera. And that would be the first one we would be more concerned about. And the one -- I mean in the U.S., we, frankly, are seeing less of an impact than what we're seeing in our group lending. And we are less concerned. Obviously, it's not an ideal situation, but we're seeing less of an impact in the U.S. based on the source of income for customers first. And secondly, all of the money that is flowing to support individuals in the U.S., that is flowing much faster than Mexico. So if I have to give the two extremes, it would be our group lending, where we expect a bigger impact, and the lesser impact we expect that at least in the short-term in the U.S. Now it will depend on the recovery and the speed of recovery of that economy.
Okay. So it's interesting because the U.S. has been the area, obviously, where you've been growing. But at the same time, this is a book that hasn't been tested before. So it's going to be interesting how it's going to hold up. Okay. I think you answered my questions.
Thank you. And again, I think we are going to have increases in loan loss reserves in all of the businesses. I do want to make that clear. And we are working on cost, all of them.
And from Invesco, we'll hear next from Adrian Garcia.
Let me start with asking the percentage of customers that have the ability to pay over the Internet as opposed to going to a branch. My concern is that just given that your exposure to informal sector, that probably don't have access to digital platforms, and taking into account the lockdowns, how is that affecting the ability of customers even if they're willing to make payments to actually make the payments because of their inability to go to a branch?
Thank you. So payments through Internet is not something that is considerable in our portfolio. However, we do have a significant number of alternative payment channels that would be open even if we are forced to not operate our branches, which is not the case right now. So let me start with the U.S. With the U.S., we have worked with a company called PayNearMe, which enables payments to the network of 7-Eleven. In Mexico, currently we work through the network of OXXO, which currently has, I believe, somewhere around 20 -- close to 20,000 points where customers could pay.
Therefore, even in the event of our branches totally closing, we still would have a very big number of payment points. Additionally, in Mexico, customers can pay through banks and can pay through certain ATMs that are able to receive money. In Brazil, most of our collections are through bank tickets. So the collections are already made off the branch. So while Internet is not a big channel for us, we do see this as an opportunity to foster clients to use more of the alternative channels, and eventually maybe move some of our clients to more of a direct debit type of payment.
Okay. Moving on to another question, it's regarding the collection that you were talking about in the stress scenarios. Before this crisis was broke out, what was your expectation in terms of collections or amortization profile from your loan book that you were expecting to collect? And what is it now under that stress scenario that you mentioned of 65%, 40% and 20% decrease over the course of the year? Can you give me a peso number, that would be helpful.
So the average collections that we saw in the first quarter of this year, that is, which would be our base scenario in that regard, were around MXN 1.2 billion per month, more or less. So that's the base from which we are building the rest of the scenario. So that -- I think that's the first part of the question, what was the second?
So how much were you expecting to collect over the year?
Well, I mean over the year, I would say that we would be around that figure. We were -- our plan was to grow our portfolio close to 10% through the year, so the collections would increase from the level I gave you in regards to the growth of the portfolio.
Okay. But I'm trying -- I mean, let's say you were standing on December 31, and as you were looking for 2020, the collections were expected to be x number, and now that we know what happened this year, these first few months, the collections are expected to be another number. I'm trying to get a sense of what were the expected collections when you started the year? Were those MXN 12 billion per year? And what are the expectations now?
Well, what we saw in the first quarter was collections that were slightly above what we saw in the fourth quarter. So that would be -- I mean, if I were standing in December 31, what I would -- December 31 last year, I will expect collections to increase in the first quarter, which it is what happened.
Now that we're starting the second quarter, we are, so far, not seeing a drop in collections as high as we have modeled in our scenarios. As I said, we modeled a drop of 65% in the second quarter. What we're seeing in April is more on the range of 20%, and we have to make the point that April also has Holy Week. So it -- so we're seeing lower collections given the situation, and also given what we saw -- that we have Holy Week. I do not know if this answers your question.
Sure. I guess I can play with the numbers. I was just trying to get a sense, like, when you started the year, you're expecting to collect MXN 12 billion. And now that collection, maybe, is going to be MXN 10 billion, to give you an example. I was trying to get a sense of all the expect collections before and after the COVID-19 broke out for the year.
Yes. I think -- yes, I think, so far, looking at the information that we have for April, we are seeing a reduction in collections of around 20%.
Okay. A separate question is, you touched upon the discounts that you're offering clients. Can you elaborate on what are the -- are you offering every -- all the clients certain products? Are you approaching them directly? Or do you wait for them to approach you? How is that working?
So in general, we wait for customers to approach us. We don't want a one size fits all type of solution. There are customers that are more affected and customers that are less affected. And so far what we see is customers that want to keep their good credit standing and their ability to use their credit. And they keep on doing the payments. You got to remember that in these first couple of weeks in April, we had the Semana Santa, the Holy Week, which already reduces the number of days of collection. And therefore, I think we are much better served by doing a tailored approach per customer rather than offering a blanket type of solution.
And what's the type of discounts that you're offering?
So we have offered skip payments, definitely to the most affected customers. But the product that we like the most is a increase in the loan tenure and, therefore, a reduction in the monthly payment. That is the type of product that has helped us in the previous crisis. And that is the one that we are more proactively giving the option to our customers.
And typically, how many payments are you offering to skip? Or how long -- how many more months do you extend the loan -- the terms of the loan?
So in terms of -- remember that we have loans of very different duration. In the most extreme case, which is our group lending, what we have been offering so far is the reduction of payment of 4 amortizations that means one month because those are weekly amortizations.
In other cases, what we are -- we're increasing the tenure of the loans. The payment is reduced, and that is for the life of the loan. That means maybe a loan that has amortized 25% or 50% can be rebooked or be, let's say, rebooked with the customer to its original tenure, and therefore, the payment may be reduced 30%, 40%.
Perfect. Last question from me is, have you seen any interest from the -- or are you in touch with either the government or some of the development banks to get more access to liquidity? Will the government be ready to step in and provide you with more some sort of liquidity or guarantees to boost the liquidity of institutions like yours? It seems like -- and my question is coming, we're seeing some relief for regulated entities coming from the CNBV, allowing them not to book, delay NPLs, or some sort of relief. So is there any possibility or -- that the administration or they'll provide some sort of help to entities like yours via guarantees or additional liquidity lines from development banks?
So far, frankly, we have not -- but we have not actively looked for any type of support. What we see in our stress test scenarios and what we see in our availability of lines from banks and our amortization schedule is that we are -- I mean we've been fine so far. So we have not looked for any type of support type of program. In terms of -- nothing has communicated a possible support program, but frankly, we have not been in the situation where we would need to adhere to that program. So I don't know if that answers your question, but we have not been offered other than nothing in support type of program, and we have not looked for it, actually.
We'll hear next from Anakaren Nava with GBM.
I have 2 questions. The first one is, should we expect similar income amount related to the commercial alliance with Casanueva Pérez, and Interprotección in the following quarters?
And the second one is, could you give us more color about the MXN 56 million provision for the fiscal contingency related to Finsol? And should we expect something similar in the coming months?
Absolutely. So in terms of Casanueva, no, that is a one-off. And also fiscal contingency, we consider it really a one-off. And we essentially watch each other. So the fiscal contingency comes from the year in which Finsol was actually acquired. Finsol S.A. is no longer an operating company. I mean just it's a company that doesn't have any more operations, even though it shares the name with our operations in Brazil and with our operations in Mexico, it doesn't have any operations. And it has been a review of the accounting practices prior to our acquisition and during our acquisition. And even though we -- I mean we have been progressing the discussions with the authority and being prudent in building the reserves for this. We will have to wait for some time to understand the final figures on this case given that we are still in the very early stages of getting to a number with the authorities, and there are still instances ahead which would be available for us should we not agree with what the authority impose.
[Operator Instructions] We'll move next to Barclays’ Carlos Rivera.
I've got questions. If you could share with us the percentage of the loan portfolio that has been going under this program that you allow them to skip some payments or extend the term of the loan? And in that line, is that something that -- for people or your clients that want to take any of these advantages, is there any time line? Like, I know, for example, for the banks, CNBV have said that clients should be registering during April. Are you also subject to this constraint? Or can you extend these programs during May and further if necessary, and also take advantage of delay in the loan loss provisions on your side? That will be my first question.
Okay. So in terms of the special support provided, Independencia and AEF, it's very small. In Independencia, it's less than 1%. And AEF is around 0.5%. And Finsol Brasil is less than 2%. And where we have larger numbers would be in AFI, where we have provided support to around 7% of total clients. And in Finsol, we have provided some kind of support to around 60% of the portfolio. And those are the numbers. Note that really for our biggest portfolios, which are Independencia and AEF, the number is less than 1%.
And now on the second question. If these programs will only be available during April or they have to register in April? We do not have such rules, and we will continue doing the support ad hoc and trying to keep the best customers, pretty sure that we'll have them with us when the crisis solves.
Okay. And my second question, people that get to these programs then you have to book the provisions. What about the recognition of income? Do you continue to accrue interest on these clients even though you don't book the provision? Or do you also stop revenue recognition?
So the type of -- the bigger type of our support program is our program where we decrease payments, but still customers make a payment. So it's not a skipped payment, but rather a reduction in the payment. And therefore, interest are still accrued.
And we'll take a follow-up question from Nick Dimitrov with Morgan Stanley.
Yes, apologies, I was on mute. So I just want to clarify something. The stress test that you provided where collections declined by 65%, 40% in Q3 and 25% in Q4. Are these cumulative numbers or cumulative percentages? Or the percentages of decline off of the Q1 collections?
The decline was not in terms of Qs nor it was in terms of various months.
No, it was in terms of Qs. In terms of quarters, the numbers I gave, and they are relative to the average collection scenario -- to the average collections that we saw in the first quarter of this year.
Okay. So they're not cumulative. Okay. All right.
We'll hear next from [ Alexis Tanton ] with Stifel.
I have one basic one. Most of my questions have been answered, but one simple question. When I look at your financials, and these are small issues, but I just want to clarify this. You have a MXN 37 million minority interest gain on the bottom line, and then you add that back again on the cash flow statement. Can you just clarify why it's booked similarly twice, please?
I understand that it's booked only once. It's within minority interest. And so my understanding is only that we only take it into account at the end of the income statement. In particular, in the participation in the results of associates, that's where we recognize that amount.
Yes, but it's -- the reason why you have a -- so of your MXN 69 million earnings, you have to -- it includes MXN 37 million. And then when I go to the cash flow statement, you start with MXN 69 million, and then you add MXN 37 million back to that again. It's -- I'm just curious. It's not a big number, I was just curious.
Yes. Well, yes, so let me -- I will review the income statement, if that's okay. So net interest income for the quarter was MXN 1.2 billion. Provision for loan losses, MXN 354 million, and net interest income after provision for loan losses is MXN 803 million. Then we have a commission and fees collected and paid, market-related income, and other operating income. That takes us to MXN 960 million.
Then we have the noninterest expense of MXN 900 million, and a net operating income of MXN 60 million, okay, and that compares to MXN 95 million the first quarter of last year. We need to take into account here that we have the impact of Finsol S.A. in our expenses, that's a 56% -- MXN 56 million effect. And we also have the positive tax effect in the other operating income line.
Had we not had those effects, we would have MXN 844 million of -- sorry, we would have MXN 86 million in operating income, okay? Then we have the tax line, and then we add back the participation in the results of associates of MXN 37 million, and that takes us to the MXN 69.2 million in net income.
Well, yes, I totally understand. I'm just saying when I go to the bottom page, you then add it back again on the cash flow statement. Again, it's not a big number, I'm just curious as to maybe...
Okay. So I'll...
It's okay, we can take it off-line after the call.
Okay. It's a noncash item, that I can say. But yes, let's...
And we have no other questions at this time.
Very good. Thank you very much for your time and interest in Financiera Independencia. If you have any further questions, please don't hesitate to contact me. My contact information is in our webpage, findep.mx. Have a good day, everyone. Thank you.
And that does conclude today's conference. Again, thank you all for joining us.