Financiera Independencia SAB de CV SOFOM ENR
BMV:FINDEP
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Good day, everyone, and welcome to the Financiera Independencia Fourth Quarter 2020 Earnings Call. My name is April, and I will be the coordinator for today's call. [Operator Instructions] As a reminder, this call is being recorded.
And now for opening remarks and introductions, I would like to turn the call over to Mr. Iván Barona, Investor Relations Officer at Financiera Independencia. Mr. Barona, you may begin.
Good morning. Thank you for joining FINDEP's 2020 fourth 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 yesterday, which is available in our Investor Relations web page at findep.mx. Let me remind you that the content 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 to Eduardo Messmacher.
Thank you, Iván. Good morning, everyone. We will start by sharing highlights of the company's -- apologies. Thank you, Iván, and good morning, everyone. I will start by sharing highlights of the company's performance during the fourth quarter of 2020. Enrique will go through the details of the financials, and after that, I will comment on the sale of our payroll loans business announced on December 23, which is still underway and subject to regulatory approval.
I'll first share a summary of the strategy that we implemented since '20 to address the COVID-19 pandemic. The first element of the strategy was to reduce originations to preserve our liquidity and reduce the risk of our portfolio. This allowed us to generate an important amount of cash, which we used to reduce our liabilities. We reduced liabilities in certain assets at a discounted price. We generated a profit that enabled us to create potential reserves to address expected losses in our portfolio brought by the pandemic.
At the same time, we provided relief products to our customers. We did this in a targeted fashion, providing support to only around 18% of our portfolio and with products of short duration of around 4 to 6 weeks. This allowed us to recognize much faster the impact of the pandemic in our P&L and balance sheet. Additionally, we executed the sale process of our payroll and group loans businesses, which enables us to focus on our individual loans business, which is the most distinctive operation and where we see the greatest potential. The sale of these businesses also enhances liquidity.
As a result of this strategy to tackle COVID-19 risk, in the fourth quarter of 2020, we reported not only the continued stabilization of our loan portfolio for a healthy financial position based on strong collections and quality originations and the reduction of debt, a higher solvency ratio and market specialization, amongst other positive indicators that we will review in this call.
It is important to clarify that our fourth quarter '20 results are impacted within the calculated and expected margin by the sale of Finsol Mexico's loan portfolio. In addition to this, at the end of December, we signed an agreement to sell Fisofo, the company in FINDEP that provides payroll loans. This transaction is being reviewed by COFECE, Mexico's antitrust agency. However, during the fourth quarter of '20, we recognized some expenses and provisions related to this transaction. We will provide further detail and the benefits for the company of this transaction in the quarter.
The total loan portfolio closed the year with MXN 7 billion balance, a 10% contraction with respect to the previous quarter. This includes the sale of Finsol Mexico with a portfolio of MXN 588 million. If we take out this effect, the quarterly portfolio contraction in fourth quarter '20 was 3%, less than 5% reduction reported between the second and the third quarter. In the fourth quarter of '20, we increased the loan origination base on our main 4 subsidiaries: FISA, AEF, AFI and Finsol Brasil to 112% of pre-COVID levels of January to March 2020.
Loan collections during the fourth quarter continued to remain well. Cash collections for FISA and AEF increased into the fourth quarter 2020, reaching pre-COVID levels. Collections in AFI also remained strong, close to the pre-COVID levels but below the third quarter '20 that was above historic levels. During the fourth quarter, we controlled the NPL increase that was observed in the previous quarter associated to the relief programs offered to some of our clients. The consolidated NPL ratio in the fourth quarter 2020 was 5.1%, 210 basis points below the 7.2% observed in the third quarter, 80 basis points below the 5.9% reported 12 months ago.
The NPL ratio for the unsecured individual loans in Mexico conducted by FISA and AEF was 6.7% in the fourth quarter 2020, a 320 basis point decrease with respect to 9.9% observed in the third quarter '20. The NPL ratio in Apoyo Financiero company was 4.2% in the fourth quarter of 2020, a 130 basis point decrease with respect to 5.5% reported in the third quarter 2020.
And finally, the NPL ratio in Finsol Brasil was 1.5% in the fourth quarter, a 20 basis points reduction from the 1.7% reported in the third quarter of 2020. These positive results were achieved thanks to the adherence to a strategy that focused on collections and quality of originations.
At the close of the fourth quarter of 2020, we maintained a high coverage ratio of 191%, well above the 111% observed in the fourth quarter '19. As to the financial results, we posted a consolidated net loss of MXN 396 million in the fourth quarter, a 12-month net loss of MXN 413 million in 2020. These annual results include a MXN 91 million net loss in Finsol Mexico plus a nonrecurring negative effect on intangible assets of MXN 450 million related to the sale of Finsol Mexico loans portfolio and expense provisions for the same process of our payroll loan business.
If we exclude these effects, we can reach pro forma net results in the fourth quarter 2020 of MXN 83 million, the second best quarter result in the last 10 years. Doing a similar analysis on the 12 months of 2020, we get a pro forma consolidated net income of MXN 144 million. These results are consistent with the strategy that we have followed in the COVID-19 pandemic and reflect the adjustments that we made to account for a smaller loan portfolio and reduced income base.
In the fourth quarter, we continue to reduce liabilities and strengthen our financial position. Year-on-year, we reduced 18% of long-term debt and 28% of bank loans. We maintained a solvency ratio of 37.7% in the fourth quarter, greater than the 34.5% observed 12 months earlier. We ended 2020 with cash and cash equivalents of MXN 859 million, 90% greater than MXN 452 million observed in the fourth quarter of '19. This is explained by the proceeds from the sales of Finsol's portfolio and by operating cash flow accumulation by keeping good collections, controlling the loan origination pace and reducing costs.
Now let me share some highlights of each of our subsidiaries in the fourth quarter. Independencia closed 2020 with a loan portfolio of roughly MXN 3 billion and a client base of over 217,000 people. Personal and secured loans represent 30% of the total portfolio of FINDEP and payroll loans 12%. Apoyo Economico Familiar closed the fourth quarter with a loan portfolio of MXN 1.7 billion and a client base of under 93,000 people. AEF's loan portfolio represents 24% of the company's total.
Apoyo Financiero, our California-based company, closed the fourth quarter with a loan portfolio of roughly MXN 2 billion and a client base of over 24,000 people. AFI's loan portfolio represents 29% of the company's total. During the quarter, AFI increased its origination pace near to pre-COVID levels, as we are preparing for a strong takeoff while the condition will allow us to. Finsol Brasil closed 2020 with a loan portfolio of MXN 336 million and a client base of over 29,000 people, showing a good recovery during the fourth quarter. Finsol Brasil's loan portfolio represents 5% of the company's total.
With respect to the company's digital transformation process, we finished 2020 with strengthened capabilities that will bring us more benefits than in just factoring the challenges of constrained mobility and social distancing during the COVID-19 pandemic. These digital capabilities will enable us to reach renewed service standards from which we will support our future program.
I will turn the call over to Enrique, so he can provide details of our fourth quarter financials. Go ahead, Enrique.
Thank you, Eduardo. In 4Q '20, interest income was MXN 1 billion, a decrease of 26% year-on-year as a consequence of the reduced loan portfolio, including the sale of Finsol Mexico's portfolio. Interest expense was MXN 153 million, an 8% contraction relative to 3Q '20, and a 30% decline versus 4Q '19.
Net interest income was MXN 880 million, 25% lower than 4Q '19. The provision for loan losses in 4Q '20 was MXN 279 million, 20% lower than 3Q '20 and 4Q '19. The coverage ratio of nonperforming loans stands at 191%. Net interest income after provisions for loan losses was MXN 601 million in 4Q '20, a 24% decrease with respect to 4Q '19. Net operating revenue was MXN 867 million in 4Q '20, a 10% decrease versus 4Q '19, explained by loan origination slowdown in the previous quarters of 2020.
Net operating revenue includes MXN 195 million related to the sale of Finsol Mexico's portfolio. Noninterest expense was MXN 1.2 billion and includes MXN 450 million of intangibles related to the sale of Finsol Mexico's portfolio, MXN 86 million of accelerated depreciation with Finsol Mexico and transaction costs worth MXN 22 million related to the sale of Fisofo. If we exclude these nonrecurring items, expenses in 4Q '20 are 18% below 4Q '19. Fewer operating and personnel expenses have allowed us to adjust to a smaller loan portfolio.
With all the above explained, we posted a net loss after tax of MXN 396 million in the fourth quarter. The net loss for the 12-month period is MXN 413 million. As Eduardo mentioned, excluding Finsol Mexico, its impact of intangibles and the cost related to the sales process of Fisofo, we have a net profit in the fourth quarter of '20 of MXN 23 million and a net profit in 2020 of MXN 144 million. The corporate strategy took our company to a strong financial position at the end of 2020 with a liquidity buffer that represents 80% of the total asset and a high solvency ratio.
During the fourth quarter, we continued to reduce liabilities. At fourth quarter '20, they were MXN 6.6 billion, which represents a 20% decrease with respect to 4Q '19, consistent with the loan portfolio reduction. The solvency ratio is 37.7%, 3.2 percentage points greater than 4Q '19. The solvency ratio, excluding intangible assets is 30%, 5 percentage points greater than 4Q '19. Overall, the company's financial health is good and in a stronger position to keep facing the pandemic.
With that, I will turn the call back to Eduardo so he can share some comments about the sale of our payroll loan business.
Thank you, Enrique. Now let me highlight the context and benefits of the sale of the payroll loans business. Financiera Independencia started to grant payroll loans in 2011. For over 9 years, we originated more than 300,000 payroll loans to working and retired people of more than 4 institutions of the Mexican public sector.
The payroll loans segment in our portfolio fostered growth over the past years and represents 12% of the company's loan portfolio in the fourth quarter '20. Even when payroll loans have provided a steady income flow, contribution to FINDEP's total annual revenue is no more than 6.5%. In that sense, payroll loans provide diversifications but are not at the center of the company's income source.
The decision to sell this business is driven by our determination of helping FINDEP's future course of action based on strength, scale, competitive advantage and specialized knowledge. Payroll loans is not part of that. We [indiscernible] we're interested in growing this business, and we agreed on a convenient commercial terms for both parties. The transaction is being reviewed by COFECE, the Mexican authority that regulates competition. And we expect to have a favorable result by the end of March at the latest.
Let me now turn to Enrique who will provide more detail on the payroll loan business sale.
Thank you, Eduardo. I will start by clarifying that given that we have not executed the sale of our payroll business, the 4Q '20 results are only impacted by some expense provisions related to that sale. The sale will close when we receive a favorable response from COFECE. Thus, we are still the owners of the payroll portfolio and are still operating it to present date and will continue to operate it until we get COFECE's resolution about the transaction.
The sale of our payroll business includes the sale of the loan portfolio as well as the company Fisofo, who owns that portfolio. The sale was closed at book value and it will not have any effects on intangible assets. The funds that we'll receive from the sale will be used to: one, pay down liabilities, including banks and other liabilities; and two, fund portfolio growth.
Now I would like to open the call to questions. Operator, please do so.
[Operator Instructions]
And we'll hear from [ Alexis Stanton ] at Stifel.
Just a couple of questions. First is with respect to the sale of Finsol. In your income statement -- sorry, in your press release, you mentioned you received income of -- or nonrecurring income of MXN 196 million for the sale. When you released the announce -- when you announced the transaction, you mentioned it was at book value. Obviously, MXN 196 million is significantly below the loan portfolio, which was, I think, MXN 588 million and also significantly below the book value of Finsol Mexico, which was MXN 350 million.
So could you explain, please, the difference between the MXN 196 million gain, so a little bit less than $10 million equivalent and those 2 sort of -- those 2 numbers, whether it's assets or whether it's the book value of Finsol Mexico?
And the other question I have is just sort of if I can understand a little bit better your NPL calculation methodology. I know you have an internal methodology. But your number is significantly lower than the consumer portfolios of, say, Santander or Bancomer or some of the other large commercial banks. You obviously saw a huge spike in the fourth quarter. So it's somewhat counterintuitive that your ratio improves when the large commercial banks have deteriorated. So that's my 2 questions.
Okay. Alex, it's nice to hear from you. So I'll address your first question. The -- as we explained, the portfolio of Finsol was worth around MXN 580 million at the close of September. And we mentioned that we closed that transaction in a fashion that we were able to recuperate the equity in the company. The other income figure, the MXN 195 million is related to the difference between the net value of the portfolio and what was paid for the portfolio. So that's only the portion of the profit for the sale of the portfolio. I hope this is clear.
Not really, sorry. So how much did you so -- how much did you actually receive in total cash proceeds for the sale of Finsol at the end of the day, rather than the difference?
Again, so the sale comprised the sale of the portfolio and other assets. That figure, the MXN 195 million is the, let's say, the profit that we got from the sale of the other assets, not in Finsol. The actual cash figure that we received was consistent with the portfolio of Finsol, and that allows us to recuperate the capital that we have in that business.
So the portfolio was sold at a discount and other assets were valued, such as the addition between the discount given for the portfolio and the profit obtained for the additional assets adding up to book value.
Can you sort of give us an idea of what the discount to book value was for the assets?
For the portfolio?
So your question, Alex, is what, sorry?
You mentioned the discount to the book value of the assets. So if you could -- it would be helpful if we could know that, given you have further sales coming up of assets.
Yes. At the end of the day, the agreement was to sell the company at book value. Now how to, let's say, allocate the value was an optimization decision in terms of what was most convenient for the buyer. And it was a discount, most of the current portfolio of around 20%, if I recall correctly, although it was kept depending on the days past due of the loans. And then a premium on some other assets, on some other intangible assets, like brand, et cetera.
But at the end of the day, the sale of a company with the addition of the [indiscernible] let's say, of the transaction was very similar to book value.
Correct.
And regarding your second question, I have been also reviewing the numbers of the banks and, quite frankly, very proud of our performance. Let me try explaining it in the following way. First of all, the type of support products that we give to our customers were much less generalized and of much shorter duration than banks. Therefore, the effect of bad loans derived from the pandemic show in our balance sheet much faster than what banks did. Banks gave some support programs that lasted for months, whereas our longest support programs lasted for maybe 6 weeks.
So that means that as soon as those support programs tendered on our side, the accrual of interest, the collection, everything came back to normal. Therefore, what happened is that the bad loans started flowing into buckets and getting to the point of being nonperforming loans faster than what happened in the bank.
Actually, if you see some of the more -- some of the larger institutions in Mexico, you would see a very small impact in NPLs in the first month of the pandemic, whereas you can see an increase in our nonperforming loans in the first month of the pandemic. Now as those loans started flowing into buckets, they were also [indiscernible] faster than what they did in the banks. And therefore, our NPLs show the effect of the fact that we gave support programs to a smaller amount of customers for a shorter time versus what the banks did.
Also, I do have to say that we are quite good in managing unsecured personal loans. And actually, if you see our income statement, our risk-adjusted revenue is much, much better than anything you see in the banking sector. Granted, our rates are higher because we go through a higher-risk segment, but even our risk-adjusted revenues carried on the banks. We are very good at that. And what we're working on and we keep on working is on doing this business as good as we do it but much more efficiently.
Okay. That makes sense. I have one just quick housekeeping question. This came up, I think, on one of the newswires. With respect to the sale of Finsol and Payroll, as guarantors of the 2024 notes, do you require a waiver? I'm not clear. It's not a big deal. I'm just curious as to whether that's necessary.
So the indenture allows us to conduct both the sales of Fisofo and Finsol. The way we conducted the sale is consistent with the rules that this indenture has. So yes, we are fine with the sale.
Next, we'll hear from Nicolas Riva from Bank of America.
I have 2 questions. The first one, given that -- I mean, you clearly booked a number of nonrecurring losses in the fourth quarter, but you haven't disclosed the sale of the payroll lending business. Once this happens and, let's say, this happens in the first quarter, should we expect more nonrecurring losses to be booked as a result of this? Or given that, I understand that the sale was at book value, there shouldn't be any nonrecurring losses.
And then my second question, on NPLs, there was an improvement in the NPL ratio this quarter and that was positive. I wanted to ask if that was mainly related to the sale of Finsol Mexico because my understanding was that was the NPL ratio of Finsol Mexico was not really materially higher than your NPL ratio overall. So I was surprised to see the improvement in -- I mean, the material improvement in the NPL ratio.
And then also, as you sell the payroll lending business, what should be the impact on the NPL ratio or what's the outlook for the NPL ratio this year?
So let me have this first nonrecurrent -- your question on nonrecurring impacts. Obviously, we will have some cost of the transaction, and we have provisioned some of those costs already in 2020. There could be a few more costs but they are not significant.
Let's just remember that the nonrecurring impact of the sale of Finsol came from goodwill. That was the biggest nonrecurrent impact. It was a business that we bought and in the acquisition process, we booked goodwill. And with the sale of the portfolio, we had to write off that goodwill. In the case of Fisofo, it is a company that we created from scratch. It was organic totally. There is no goodwill booked. So we do not see any impact similar to Finsol's sale in the future. I do want to remind you that the write-off or the impact of the goodwill is a noncash item. Obviously, it's an accounting item but not a -- noncash item, but we do not see any impact of this nature happening with the sale of Fisofo.
On your second question, Finsol's NPL was roughly, let's say, the average of the group. So the sale of Finsol did not have any significant impact on the NPLs. The most important defect came from actually the fact that, first of all, the bad loans, let's say, that was generated due to the pandemic, were already flowing and were being written off in the last quarter of last year. We did just natural write-offs. No -- there was no, let's say, special write-off policy. It was just the natural flow of loans to 100-plus days past due.
The natural flow decreased the late buckets. And frankly, what we saw very early in the pandemic was that the portfolio started separating quite nicely in terms of the good customers remaining good, and obviously, the bad customers flowing to write-off. So that good behavior of the good customers enabled us to not keep filling the higher buckets of days past due. And therefore, as the bad loans started writing off. The size of those buckets were not replenished by flow of earlier buckets. And therefore, our NPLs were reduced. And we saw this effect first in Brazil, that was the first company to see their NPLs reducing and then in Mexico and the U.S. in the fourth quarter of this year. Regarding NPLs when we sell Finsol...
Fisofo.
Fisofo, sorry. So when we sell Fisofo, our payroll loans business, it linked our subsidiary with the lowest NPLs. It is at 1.7% currently. And -- but it only represents 12% of our total portfolio. So we will see an increase in NPLs, but not something super material.
[ Nick Dimitrov ] of Morgan Stanley has our next question.
I have a few questions. So the first one is, obviously, Q4 was particularly challenging because of the goodwill write-down. In the prior quarters, we had elevated provisioning because of COVID-19. When do you believe that FINDEP will return to profitability?
So on a pro forma basis, fourth quarter was already profitable, and it was actually a very good quarter, eliminating the nonrecurring items. And if things continue as are going, we will return to profitability in the first quarter of 2021 on a reported basis without the pro forma adjustments. And we will continue being profitable during this year.
I do want to highlight that, as you all know, it's quite still, there's a lot of uncertainties on how the COVID pandemic will evolve. But we are quite positive that we will continue on this path to profitability as we are seeing it today. Even on the new lockdowns in California that were just relaxed a few weeks ago, we did quite well. So we believe we have adjusted to the new normality quite well, and we expect to continue profitability. But still, I do have to highlight the uncertainties that you ask everyone in this market very well.
Sure. Makes sense. And a more general question. You sold Finsol Mexico. I know that eventually, you want to get out of Finsol Brasil. You are in the process of selling the payroll business. What kind of fees that you want to eventually see? Because if I kind of go back a year ago and I look at the [indiscernible] profitability was a bit of an issue. It was relatively steady but [indiscernible] were fairly low in the kind of 5%, 6%, 7% area. Efficiency was always a problem.
Do you believe that these dispositions will kind of address some of these challenges? And ultimately, we're going to end up with a [indiscernible] that's going to be better than the old one? And if that is the case, why do you believe that -- do you think that would be better than the old one?
Absolutely. So if you analyze our income statement and you go down to this adjusted revenue, you're going to see that we have very good margins. And the biggest issue is always cost. So the logic of our concentration on a single type of business with multiple customer segments being served, which is unsecured personal lending, that could be for micro businesses, could be for small companies or could be for individuals, gives us the ability to start building efficiency.
We don't require separate head offices for each one of the businesses. We don't require separate systems for each one of the businesses. And also, remember that we are in a very [indiscernible] journey to digitalization. What we expect is to reduce our customer acquisition cost, which is, quite frankly right now, our biggest issue. And as you start concentrating in a single type of business, you can leverage much better the digital marketing capabilities, you can leverage much better the ability to do 100% digital lending and concentrate on reducing our customer acquisition cost, which is the biggest part that we want to address.
We will also reduce our footprint, obviously, because we will only have -- we will have much fewer branches. And we see the growth of our business going to a type of business where a branch has less to do with the physical space and much more to do with a group of people actually administering a portfolio. So we believe this is going to bring efficiency and also the growth in the U.S., which is a much more efficient business granted with lower risk-adjusted margins will also bring efficiency to our business.
Okay. Okay. Makes sense. So you did mention that the payroll business didn't contribute much but it served as a good diversifier. And I was wondering -- I know the rating agencies are obviously big sticklers about diversification and now you're simplifying the business. I was wondering whether you've had discussions with the rating agencies regarding all of these dispositions and whether there is any rating implications that could be in the pipeline because of this.
Yes. Not for the moment. Yes, we have had discussions with the credit rating agencies. And of course, they -- let's say, they like our old model in the sense that it was more diversified than what we currently have or currently working on. But we're working with them so they understand their current strategy, as Eduardo explained.
And what we are also developing with them is a different way to diversify. As within the individual loan segment, there are several segments. And there are also several ways with which we can provide credit, where we can use the branches, we can use a digital path. We can -- and we can use several channels to conduct our business. So going forward, the diversification is going to come from that side.
Additionally, we will increase our profitability, given that we will work in our cost structure, which is the most important, let's say, drag in our P&L. So we are currently having that discussion and that review of strategy with the credit agencies.
There is an explanation on diversification of risks that we want to highlight. Of course, one of our very important risks is credit risk. And that part, for sure, payroll business has helped us diversify. And it is something where we will lose diversification.
Now there are other types of risks. Of course, the operational risks, we're being more concentrated in a single type of business which will help us address much better the operational risk. And the payroll business brings a particular type of risk, which is the counterparty risk as many -- most of the origination comes from agreements with employers. And therefore, we have counterparty risk that we will eliminate, if you want to call it that way, from our risk profile.
So we believe on the balance, the more we concentrate on a single type of ability, a single type of operation, we are more able to balance the risks. And I do want to highlight, if you see, again, our risk-adjusted revenue and the margins that we get from a portfolio risk-adjusted, we are very good at managing that. We have to manage much better the cost of doing it. And we recognize that and have been working very hard on doing it. And this is a step in the right direction also.
Understood. One question regarding the sales of payroll business. You did say that it's not going to trigger any further goodwill impairments. It was not clear to me, are you going to book a gain or there's going to be a loss on the sale? I would assume by now you would have probably negotiated a price.
So it's -- what we expected is to be neutral to the company, it is going to be at book value. Of course, the cost of transaction that will be, some of them or most of them have already been provisioned in the last year, but there could be some other transaction costs. But in terms of the actual sale, let's say, the transaction, it will be at book value. So there shouldn't be any major impact, neither positive nor negative, none.
Okay. Okay. And at Finsol Mexico, I think you've sold the loan book. But I was looking at the balance sheet position of Mexico in your earnings statement, and I saw that there's still MXN 605 million of assets left. What are those assets? Are they mostly receivables? Or what's still there?
There are 2 main items there. One is deferred taxes and the other one is accounts receivable, some of them related to the sale. So that's what lies in the balance sheet in December in Finsol Mexico.
Okay. Okay. Okay. Got it. And one last question. So I was looking at your cash and cash equivalents. Obviously, the position kind of increased or doubled year-over-year, currently accounts for about 8% of total assets. What is your plan to kind of deploy the money? And do you have any plans to continue kind of buying back the FINDEP24?
So regarding the acquisition of FINDEP24, we do not have a structural program. We do not have a plan. All of the purchases that we have made have been made based on the opportunity and somebody offering them and us taking the opportunity. So we do not have a program and we do not expect to have a program.
The cash and cash equivalents for us, I mean, it's not a very good idea to have very high cash and cash equivalents. Actually, if you remember the same call some years ago, the discussion was why did you [indiscernible] cash and cash equivalent? So there were some, say, natural uncertainties in the market and the renewals of the line. There was natural uncertainties on the availability of funding. But we believe we're coming back to a much more stable situation where we will be able to reduce that line of cash and cash equivalents, which, by the way, just cost us. I mean, remember that the only thing that we sell [indiscernible] and that is inventory that we have that is not sold.
Okay. And apologies, just one last thing. I was wondering whether we should be worried about any potential kind of charges or costs related to Finsol Mexico. I was thinking, you mentioned that you closed 130 branches. Were they really closed or they were transferred to the acquirer? And whether there's any out contingencies that could potentially come back to bite us?
So in terms of the operational people of the operation, let's say, the people in the branches, most of them were offered the opportunity to work for the counterpart, and most of them accepted that offer. So in terms of, let's say, labor liability, we have already taken the heat, whatever it was, but it was quite small.
In terms of the actual real estate, again, it was transferred to the counterpart. And they will decide which ones to close and which ones to keep, but that's totally outside of the agreement. That's part of what they got from us, where the locations, the branches and they assume the liabilities of those locations and branches.
So I mean, there's always space for misunderstanding in one of these transactions. But the way that we see it right now is that we do not see any major liabilities from that sales coming forward.
[Operator Instructions] [ Alexis Stanton ] has a follow-up.
Quick follow-up. I've got an e-mail from one of your competitors' Investor Relations. I wasn't aware of this but there was currently a proposed bill was approved yesterday by the Mexican Senate to regulate the payroll deduction loan sector. Obviously, you're exiting that, but I was wondering whether you have any opinion on that. Just curious sort of to understand some of the potential implications of that potential bill going through the sale -- being -- hoping, ultimately approved.
So frankly, we have not been able to review this with our legal advisers. I was actually not even aware of what you're mentioning, so I wouldn't be able to comment on that specific item.
In the past, there have been some deals presented, but there was -- there has never been a lot of traction, especially because the payroll loans are one of the most attractive for the payment customer and the rates are usually quite good and the availability is also quite good. So I wouldn't have an opinion right now of a specific bill. I do expect the future of the payroll business to continue being important in Mexico as it is very good for the customer.
And it appears there are no further questions at this time.
Well, 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 website, findep.mx. Have a good day.
That does conclude today's conference. Thank you all for your participation. You may now disconnect.