Gentera SAB de CV
BMV:GENTERA
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Gentera SAB de CV
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Good morning, and welcome to the First Quarter 2023 Gentera Conference Call. Now I would like to turn the call over to Mr. Enrique Barrera, Investor Relations Officer of the company. Sir, you may begin.
Good day to everyone. Thank you all for joining us and for your continued interest in Gentera. I'm Enrique Barrera, the company's Investor Relations Officer. I'm very pleased to introduce our management team. With us today are Mr. Enrique Majos, Gentera's Chief Executive Officer; Mr. Patricio Diez de Bonilla, Banco Compartamos' Chief Executive Officer; and Mr. Mario Langarica, Gentera's Chief Financial Officer. Enrique Majos and Mario Langarica will present Gentera results for the first quarter 2023 as per the report that was issued yesterday. And Patricio De Bonilla, along with Enrique and Mario, will actively participate in the Q&A session of this conference call.
Please note that during this presentation, Gentera may make forward-looking statements. These do not account for future economic circumstances, industry conditions, company performance or financial results. Additional information on forward-looking statements can be found in the disclaimer located in our earnings release. If you did not receive a copy of the release or if you have any questions, please do not hesitate to contact our Investor Relations department in Mexico City. If you are a member of the media, we ask you to contact us directly.
I would now like to turn the call over to Mr. Enrique Majos for his presentation. Enrique, please go ahead.
Thank you, Enrique. Good morning, Mario, Patricio, and hello to everyone. We are very happy to get in touch with you once again in our regular quarterly report. It is also encouraging to have the opportunity to talk about another quarter of good news, just in line with our guidance and expected results.
Let me start by pointing out that even when we are still facing uncertain times, Gentera is performing with solid results and in line with our guidance and expectations for the plan we have for 2023. We are growing strong in terms of portfolio and client. And additionally, the quality of our portfolio is good and in line with our plan.
Net income grew above our own expectations at Gentera. We accumulated MXN 1,326 million, which represents a 31% growth on a yearly basis. And by the way, net income is the best figure for the first quarter in Gentera's history. Portfolio grew 10% compared with the first quarter 2022, and we drove the MXN 54 billion mark, which take us to the larger portfolio in Gentera's history.
Our main engines in Gentera, which are Compartamos Banco, Compartamos Financiera and ConCrédito are growing strong. On a yearly basis, Compartamos Banco grew 12.8% Compartamos Financiera in Peru grew 4.7% in pesos, but 17% in soles, which is the local currency, and ConCrédito grew 15.8%. Gentera's customer base grew 7.5% on a yearly basis, and we already reached 4.46 million clients if we consider ConCrédito's final users. And it is also very relevant to mention that Peru reached out an outstanding 19% growth in clients.
The quality of Gentera's portfolio in all our subsidiaries are good. NPLs is as expected in 3.6%. In our business plan for 2023, we expect NPLs to keep within the 3.5% and the 4.4%. So we are within the expected range. And cost of risk is also as expected at 10.5%. And finally, our ROE is above 20%, and we expect to continue above this 20% in the future quarters too.
Let me now provide you some specific information regarding our main subsidiaries, especially those with relevant progress since our last call. As you can remember, ConCrédito's portfolio quality needed to be addressed since NPLs increased during the second half of last year. I am very glad to confirm you that after the actions taken by the management team since the fourth quarter of last year, portfolio quality is improving as expected. As you remember, in the third quarter of last year, NPLs were at 1.9%. By the end of the fourth quarter, NPLs reached 3.0%. And now, as of today, ConCrédito's back to a 2.0% of NPLs and improving. In ConCrédito, this year we are keeping our attention on our portfolio quality and still, we expect to grow the portfolio in around 10%.
Net income in ConCrédito was MXN 131 million this quarter, which is above expectations.
With full results, banco Compartamos grew 12.8% in our portfolio and 5.1% in clients compared with the first quarter 2022, and the quality of its portfolio is 3.4%, also within the limits we have defined. Banco Compartamos operation is solid, and our presence in the market is growing strong.
Compartamos Financiera in Peru grew 19% in clients and 17% in portfolio if we measure it in local currency. And even when we know that we have to look closely to the quality of the portfolio, we still feel comfortable with the current level. As mentioned in our last call, in Peru we are already operating with processes supported by digital technology in the individual lending methodology, and we are in the process to implement the same tools for group lending methodology. Customer experience is in very good shape in both operations, Mexico and Peru. In Peru, we have a customer experience index of 78%. And in Mexico, we reached 90% of satisfaction. Both results are outstanding for their own markets and industry and trends are positive.
Yastas closed in the first quarter with 7,000 transactional points which represents a 9% yearly growth. And also, Yastas reached 6.2 million transactions during this first quarter. And finally, ATERNA grew 4% in active policies versus the first quarter of 2022, reaching 9.6 million insurance policies. It is relevant to mention that as of this quarter, 92% of Banco Compartamos clients had at least one insurance products.
And talking about the future. In Gentera, when we refer to our transformation journey, we are talking about the evolution towards better ways to serve our customers, we are talking about the improvement of the experience of the customers, the modernization of our operations and processes, and also the efficiencies and synergies across our different subsidiaries. This journey implies that we are executing a plan that includes different initiatives to improve the way Gentera subsidiaries operate, including, of course, digital transformation initiatives.
These initiatives are already having a relevant contribution to our bottom line results. We will continue to drive our performance through the strong execution of our strategy, providing top class customer experience and generating value for all our stakeholders.
Let me finish by saying that we feel proud about the results we are delivering this quarter. And we also feel very proud of the consistency that we have shown for a number of years now. This is the result of having a high qualified team, and I really want to recognize the hard work and commitment of more than 22,000 colleagues here in Gentera.
Now let's give Mario the opportunity to share with you an overview of our financial results. And then we will be happy to answer your questions with Patricio Diez de Bonilla in our traditional Q&A session. And please go ahead, Mario. Thank you.
Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in Gentera. As Enrique signaled in his remarks, we're very excited about Gentera's first quarter results with what we have achieved in the past couple of years and mostly with our future opportunities.
As I do in every conference call, I will focus my remarks on the following concepts: one, our net income generation and profitability; two, our portfolio growth and the performance of our margins; three, our asset quality, including cost of risk allowances, NPLs and coverage ratios; four, our net fees evolution; five, operational expenses; six, liquidity and capitalization levels; and at last, some final remarks.
Number one, net income and profitability. First Q '23 net income amounted to MXN 1.32 billion, the best figure for any start of a year in our history. Gentera's controlling participation amounted to MXN 1.28 billion, representing an EPS of MXN 0.8 (sic) [ 0.81 ] a 31.6% growth compared to the EPS reached in first Q '22. We are also very enthusiastic about Gentera's first Q '23 controlling ROE reaching 21.3%, which is slightly above of what we were originally expecting for the quarter. Total ROE amounted to 20.4%.
Also important to note that Banco Compartamos, our largest subsidiary, continued with very strong levels of profitability in first Q '23 with an ROE of 30.9% and an ROA of 10.3%, better than those reached in first Q of '22.
Two, portfolio growth and margins. As Enrique mentioned, Gentera finalized the quarter again with a historic loan portfolio of over MXN 54 billion, growing 10.1% compared to last year. We have double-digit growth in our 3 credit subsidiaries. Banco Compartamos grew 12.8% compared to 15.8%, and Compartamos Financiera, 17.6% in local currency. Following this portfolio growth, net interest income for the quarter amounted to MXN 6.3 billion, growing 6.2% compared to last year. These results were driven by a strong 14.2% growth in interest income reaching MXN 7.5 billion, representing a MXN 932 million growth compared to first Q '22. This solid performance was enough to more than compensate the increase in MXN 564 million in financing and originating expenses.
The net effect resulted in a NIM of 39.9%, slightly better than 39.5% in the first quarter of last year. Provision for loan losses amounted to MXN 1.42 billion, 23% higher than first Q '22, this higher level of provision is mainly explained by the strong growth of the portfolio in our subsidiaries and higher but normal level -- normalized levels of NPLs, which demand normalized provisions. Growth in provision was compensated by NII growth, resulting in net interest income after provisions of MXN 4.87 billion, a 2% growth compared to first Q '22. And in first quarter '23, NIM after provisions stood at stable 30.9% compared to 31.8% in the first Q '22 and 30% in the 4Q '22. For year -- for the full year, we expect NIM before provisions to move around 39% and NIM after provisions around 30% as previously guided in our first call of the year.
Three, asset quality. Cost of risk in 4Q -- first Q '23 amounted to 10.5%, in line with our guidance for the year. NPL formation stood at 11%, even more consider core NPLs and guidance over the last 12 months divided by total loan portfolio write-off, stood at 11%. Allowances amounted to MXN 4.4 billion on a consolidated level. NPLs, now Stage 3 loan portfolio, stood at 3.6%, which is in line with our expected range for NPLs of the year, which is between 3.5% and 4%. Finally, our current coverage ratio amounted to 239.5%, which is solid and adequate.
Fourth, net fees growth. Regarding the solid evolution in net fees that we have seen in the past quarter and with no exception in this first quarter, which stood at MXN 700 million, representing a 1.22% growth compared to net fees in first quarter '22, I can tell you that this progress has been mainly the result of solid contributions of the fee income line, which at the completion of this quarter stood at MXN 822 million, mostly explained by insurance fees and also supported by other fees generated at the different subsidiaries.
Meanwhile, commissions and fee expenses have been well under control, finalizing the quarter at MXN 122 million. It is important to highlight that at first Q '23, around 73% of the credit disbursement process of Banco Compartamos is now being executed through Yastas and Banco Compartamos branches, and 41% of the credit collection process is happening in these channels. Net fees will grow double digits this year, that is to grow around 15%, slightly above the growth of our loan portfolio guidance.
So as you can see, net fees will continue contributions to the P&L line of Gentera, which is mainly explained by the cross-sell of insurance products and some other fees generated in different subsidiaries and a much larger use of our network, Banco Compartamos branches and Yastas.
Five, regarding operational expenses, it stood for the first quarter '23 at MXN 3.98 billion, which was 8.9% above the level reached in first Q '22. And in general, it's in line with our expectations for the first quarter. It is important to say that we will see an acceleration of [indiscernible] in the following quarters, in line with the plan that we have ahead. And as we have mentioned in the previous conference call, the full year expense growth should be around 11.5%, mostly explained by the fact of continued investing in our transformational initiatives and adjustment of the inflationary impacts. For the following years, our objective is to return to single-digit growth in expense levels.
Six, liquidity, funding and capitalization. We continue to maintain healthy liquidity, strong access to funding and robust capitalization metals . Our liquidity positions amount to almost MXN 10 billion, and by the end of the first quarter, Gentera's capital to assets ratio amounted to 35.9%. Banco Compartamos' capital adequacy ratio, ICAP amounted to 39.5%. Compartamos Financiera solvency level amounted to 19.4% (sic) [ 17.8% ], and ConCrédito's capital-to-assets ratio to 57.1%. Regarding forming and as we have seen before, we have strong access to different investment funding sources for the holding company and its subsidiaries. And we have kept a healthy balance in the composition of our liabilities in short term, long terms, tenors and fixed approving rates.
Worth highlighting is that during the first quarter, Banco Compartamos has reduced part of the extraordinary liquidity, and at the same time, we have improved our debt profile by refinancing liabilities that we're going to mature this year and taking them again, but with maturity dates beyond 2025 and onwards. Our access to funding sources are solid and sufficient to fund the bond, and are strong to take advantages of the opportunities that the year present and the future.
Seven, final remarks. As Enrique mentioned before, during our Annual Shareholders Meeting held on April 14 a dividend distribution of up to 40% of the net income generated by the controlling company in '22 was approved. The dividend amounts to MXN 1.8 billion and will be paid in 2 installments. The first one is going to be paid -- is being paid today, and the second will be paid no later than November 23.
To conclude my presentation, as you can see, it was a very good start of the year, even considering all the external challenges, which we will continue monitoring and making prudent decisions with the clear objective of mitigating most of those. The good results achieved make us feel very enthusiastic with the opportunities that lie ahead in this and the future years. We delivered a strong first quarter, and we are moving in line with expectations to deliver another strong year in Gentera's history.
We will continue working hard in servicing millions of clients and with all different financial needs, and at the same time, generating share value for all. Thank you very much. That is helpful in my remarks. And we would like to move forward to the Q&A session.
[Operator Instructions] The first question is from Ernesto Gabilondo of Bank of America.
Enrique, Patricio, Mario. Congratulations in your first quarter results. My question would be on Peru. We saw that during February, the Yaku cyclone affected the north of the country. So I just wanted to know what is your imprint to the north of Peru, and how many of your clients have been restructured.
And also, we continue to see that there is a risk of a potential formation of El Nino. So I just wanted to hear if you are preparing for that. Or considering that you have already built provisions related to the social unrest and that it already has cooled down, do you think those provisions will be enough in case of a weather phenomenon of El Nino? Also related to this, can you remind us how was your last experience with El Nino in terms of Peru's loan growth and NPLs?
And then just a last question on ConCrédito. We saw the ROE was roughly at 17.6% this quarter. So what do you expect ConCrédito's ROE to be again at the 20% or above it? And what will be the triggers behind it, considering that you are implementing a more selective lending?
Ernesto, this is Patricio. Let me jump into the Peruvian question. As you know, every year meteorological, I mean, effects, we have not only in Peru but also in Mexico. We face severe storms, [ aluminum ] in Peru and also hurricanes in Mexico. So we are very well prepared for such phenomenon.
The reality is that, yes, this start of the year, 7% of our portfolio was in the area affected by the heavy rains and floods, notwithstanding, not -- the 100% of such portfolio would be affected. But some deterioration and restructuring process we've been through in affected customers. So as you can see in the February and March results for the Peruvian operation, we already have control of such events. We will continue doing the operations in these areas.
We are also prepared for further rains affect the country. But as you said, the reality is that we have already provisioned in excess and the expected losses for such events are already registered in the results.
In terms of the social unrest, as you said, only 2% of the offices were in the areas affected by the latest events. Again, as you said, also those events already cooled down, and we don't expect them to get bigger back again in the coming months. So in a nutshell, both events are already registered, and we are very well prepared for in case something else happened for, not only weather but social unrest in the coming months.
Okay. Regarding ConCrédito, Ernesto, we are aiming to reach a full 20% ROE for ConCrédito this year.
Patricio and Mario, just a follow-up in the second one. What will be the triggers behind improving the ROE of ConCredito? It will be improving costs or normalizing the cost of risk?
Number one is to restart the growth of the portfolio with a very controlled cost of risk. The aim of the first quarter was to do exactly that, to take care of the NPLs that have been achieved. So now we are going to restart growing slowly, moderately but start growing again and obviously controlling expenses.
The next question is from Juan Recalde of Scotiabank.
Congratulations on the results. My question is related to the Peruvian operations as well. So we saw a strong profitability improvement in Compartamos Financiera. So I was wondering what profitability trends do you expect for the rest of the year? Can we see upside to 13% ROE that we saw in the first quarter?
Yes. I'm sorry, sorry. Go ahead, Mario, go ahead.
No. As you know, last year was very important for the recovery of Peru. So now for Peru, we also have strong growth plans. We are planning to continue expanding for the rest of the year, mostly -- we're thinking to open more than 10 new offices and continued expansion. We need to make sure that we take control of NPLs, as Patricio explained in the previous question.
And it's important to note that this year, we will have a little higher expenses because we are expanding our network. That will bring future income. So we expect to, again, recover profitability in Peru. And we also, as we have mentioned, for all the 3 subsidiaries, our next level is to bring Peru back to ROE levels of above 20%.
Next question is from Carlos Gomez of HSBC.
Congratulations on the good results. My question is more for the future. Where do you see the potential for the market in which you operate, Mexico and Peru? And right now, you have 2.6 million clients in Compartamos, 764,000 in Financiera Compartamos in Peru. Those are growing fast at 19%, but how much bigger can we get? What is the potential size of the business in Peru and the potential size of Compartamos? And how much also from ConCrédito become as a percentage of your total business?
Carlos, as you can see by any financial inclusion metric, the -- both countries are still underserved in terms of financial products and services. So the market is relatively large in not only in Mexico but also in Peru.
The reality is that in the C- to B- segments in both countries, we have still -- I mean, in Mexico, more than 40 million people, in Peru another 20 million. And the reality is that the competitive landscape, it's a relatively weak to address that market. So we have a large market with weaker competitors. So the possibility of reaching 3 million customers in Mexico, 1 million customers in Peru, it's right in front of us, and we will aim to reach as fast as possible.
Yes. And just to add on Patricio's comments. Obviously, when we talk about Mexico, we are also talking not only of Banco Compartamos growth but also ConCrédito's growth. And so -- and since we serve the same segment with different products and different channels, that the segment is still growing, as Patricio was explaining.
And the second thing that helps ConCrédito to grow, and we see that potential for the future, is the referral program that we have been implementing between ConCréditos Empresaria and Compartamos' group members. Up to now, we have around 40% of the Empresarios ConCredito that are coming from the Banco Compartamos client. So we have this synergy and cross referral program that also will be part of the growth of ConCrédito in the future.
And a natural follow-up on my question. You mentioned the weak competitive environment. Would you give us much sense about the market share -- in Mexico on the market share in Peru with the business in which you operate?
Yes. When I'm talking about the weaker competitive landscape is after the pandemic, most of our competitors, direct ones, got operational issues as well as funding issues. So they've been not only growing slow or shrinking in their operations.
So in Mexico, we have around 55% of the group lending methodology, which is the bulk of what we do, and you can see that in [ Progress Arroyo ]. In Peru, we are by far, the largest players as a player in group lending. And as a microfinance institution we are, in Peru, the largest in number of customers served, and #3 in terms of portfolio.
The next question is from Andres Soto of Santander.
My question is regarding your ROE targets for Peru. I would like to understand when are you expecting to see above 20% level? And why is it still required for you to be there? Is it some matter of the scale? It's a matter of still fine-tuning the model to achieve more efficiency? Or what is needed here to see Peru at a closer level to the one that you have in Mexico?
Well, number one, we should achieve that probably next year. What needs to happen, we need to increase the average portfolio with all the investments in expenses -- of growth expenses, as I mentioned previously. So it's a matter of getting the value extracted from the investment that we have already done in the country.
So we believe that it's very achievable. We have seen strong growth. As I mentioned before, compared to last year, we grew almost 18%. We think that the growth opportunities for Peru are there, and we're investing for that. So it's a matter of making sure that this expansion brings the value that we expect to generate.
[Operator Instructions] The next question is from Gilberto Garcia of Barclays.
I had a couple of questions regarding your top line trends. After 9 consecutive quarters of improvement, your yields saw a slight contraction this quarter. Clearly, it was a rather impressive recovery, but we are still not back to historical levels.
So I was wondering if you could give us some color on what we should expect in the coming quarters? Are you passing rate increases for now? Could they be reactivated later? And I guess related to that, could you reduce your cash levels further to help with interest expenses?
And secondly, on fees, apologies if you mentioned this before on your remarks, I had some technical difficulties over here. You had a very strong result this quarter. Is this a sustainable level? Were there any extraordinary impacts that helped this quarter? Or should we see this as sort of the new normal going forward?
Okay, perfect. Well, regarding yields, well, we will -- first, on the interest income, we will continue growing at the levels that we have expected related to the growth portfolio that we have guided. We think that at this point, we will keep prices more or less at the same level that they are. We have already done some repricing in Peru. But in Mexico, we didn't change the prices. So that should be normalized based on those assumptions.
And then on interest expenses, we have always said that interest expenses represent around 10% of interest income. So now at this point, we are a little higher than that, obviously, because of the growth on the interest rates in both countries. But again, we expect that -- those limits, those high limits are well controlled under the 11.5% and around 6% assumptions that we put in our projections. And we think that at some point, probably next year rates will start coming down. we may see an additional improvement in the margin. And regarding cost of risk, we should keep it under control and at the levels that we have already mentioned of around 10.5.
Regarding fees, well, for the full year, net fees should grow a little better than the portfolio, value between 15%, 16% -- in my speech said that we expect to be around 15%. So this quarter, it was not that there was like an extraordinary event. It's more a commercial agreement that we have with the insurance company that at this point, in this quarter, we had this onetime yearly payment of around MXN 130 million that made this effect on the growth of net fees. But it's normal. It's under the plan. And the way we propose you to see that during the full year, net fees should grow around 16%.
Very clear. And just a quick follow-up on the interest expenses item. What -- what would be the -- like the minimum cash level that you would be comfortable with?
Well, -- we are -- we -- at this point, we think that given the new risk in that is on banks -- and what has happened in the U.S., et cetera. I think that we should stay at the liquidity levels that we have, maybe reduce them a little bit, but we think that we need to be prudent we are not seeing any risk from our funding sources. But again, you know that there's a lot of noise every week regarding banks all around the world. And we prefer to send a message that we have strong liquidity and strong capitalization levels.
The next question is a follow-up from Ernesto Gabilondo of Bank of America.
Just a question on the NIM sensitivity. So can you remind us what is the sensitivity for every change of 100 basis points in the interest rate in millions of pesos after taxes?
Well, for Mexico, if you take that we have a portfolio let's say, it should be -- around MXN 300 million.
Ernesto, this is Enrique. I should be -- I mean, remember that 70% of our liabilities in Mexico is floating rate. Currently, we have slightly below MXN 20 billion in liabilities. So the impact will be only on the floating rate, which would be like MXN 140 million for full year, if the interest rates start to happen since January 1. So it's less than MXN 140 million.
MXN 140 million after taxes. And for Peru?
For Peru, I mean, the current interest rates that we have is moving slightly below 8%. 60% of our liabilities are in -- I mean, repricing this year. So the impact also will be not that large as the one that we are already seeing.
In fact, this week, we issued a new 1-year bond in Peru. And it was around 6 or 7 basis points below the last issuance. So we're already seeing a repricing in Peru going down.
There are no other questions in queue. I will now hand it over to Mr. [indiscernible] for the webcast questions.
Yuri Fernandez from JPMorgan. What drove strong fee growth? Is it insurance, volumes? How should we think about fees during the year? Should it keep this good 1Q '23 trends?
Yes, Yuri. As I explained in the previous question, we should expect a growth in net fees of around 15%, 16%. And the growth in this quarter was mainly driven by payments that are on the commercial agreement that we have with the insurance company, that represented a 1-year payment of around MXN 170 million. So that's why you see that jump in the quarter. But for the full year, net fees should grow around 15% to 16%.
The other question was from Daniel Vaz from Credit Suisse. Could you please give more color on what would be a cumin level of fees per quarter given the spike we saw in this line compared to last results? And also what was the magnitude of the one-off adjustment at UVI that helped it?
It's what we have said. I guess, we think that the insurance business is going very well, and it's very aligned with the growth of the loan portfolio. So we should assume that for this year and going forward, the growth in fees mostly related to the insurance business, which the main driver will continue growing a little bit above the loan portfolio growth.
The final one is from Naro Medina of JPMorgan, follow up on Peru. Looking at [indiscernible] data with pricing seems to be happening, but we didn't see NIM expansion in Peru. When do you expect benefits in NIM to kick in, in Peru?
About Peru or -- go ahead, go ahead.
No. As we mentioned, we expect that to continue happening during the year. our expectations for growth this year of the portfolio are high, and that should start coming into the income statement going forward.
That concludes the question-and-answer session. I would like to turn the call back over to management for closing remarks.
Okay. Well, thank you, operator. And well, thank you all. As you can see, we are looking forward to a solid 2023. The context is still complex in Peru as well as in Mexico. But we feel very comfortable with the outstanding team that we have. And also with a clear strategy and execution plan that we have.
So we will deliver results in line with our guidance for this year. I'm sure that next quarters will have also good results. And thank you for the time, the call and the interest in Gentera's operation.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.