Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2019-Q2

[Operator]

Good morning and welcome to the Second Quarter 2019 Gentera's 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.

[Enrique Barrera, executive]

Thank you. Good morning and 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 Majós, Gentera's Chief Executive Officer; Mr. Patricio Diez de Bonilla, Banco Compartamos' Chief Executive Officer; and Mr. Mario Langarica, Gentera's Chief Financial Officer. They will review the results for Gentera for the second quarter period as per the report that was issued yesterday.

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.

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.

I would now like to turn the call over to Mr. Enrique Majós for his presentation. Enrique, please go ahead.

[Enrique Majós Ramírez, executive]

Thank you and good morning, everyone. Thank you for joining our second quarter results conference call.

I am quite happy of our progress and proud of the results that Gentera's team has achieved so far. Not without recognizing the continuous challenges that we face, I feel energized and enthusiastic about the future. The delivery of results is a testament to our capacity to deliver in the future. So let me be more specific on what I mean. First, as we finished the first half of the year, Gentera results are in line with our guidance. Additionally, today, I feel enthusiastic about the progress we're having on our digital transformation strategy. So during my highlights today, I will start by providing a general overview of our business results as of the second quarter of the year. And afterwards, I will update you with some key decision and strategic initiatives we are making towards the future.

We are especially happy with the customer and portfolio growth we are having. But let me provide you some specific on this. At the end of this quarter, Gentera's consolidated loan portfolio balance reached a new historic high by reaching MXN 37 billion. The yearly growth of the portfolio was 14%, and the NPLs remained as low as 3%. Clients grew 10% in the last 12 months, the major growth for the last -- of the last 3 years. At the beginning of the year, I made a trust commitment to have a positive income-to-expense ratio. As of today, I am happy to report that while annual net income growth stands at 6.5%, expenses only grew by 3.3%. And we will maintain the same trends for the rest of the year.

Net income stood at MXN 720 million for this second quarter, 12% below the same quarter of 2018. However, there are 2 relevant considerations here. As we explained at that time, last year, we had nonrecurrent positive impact since we released some legal provisions and deferred taxes. Isolating those events, recurrent earnings for this quarter grew 14% versus the same quarter last year. Considering this and the provisions that we estimate for the rest of the year, we feel very comfortable that we will close the year as we expected, and EPS will be within our guidance.

Regarding Yastás, through a network of over 3,600 transactional points, this business unit continues to move forward with its consolidation as one of the best alternatives to handle both financial transactions and bill payments. During the quarter, Yastás executed close to 4.3 million transactions, which represents a 19% yearly growth. We are also proud to inform that this quarter, we signed our partnership agreement with Banorte to make Yastás the first multibank correspondent network in Mexico. As we have always said, Yastás is aimed to become an open-transactional platform. Now our more than 3,000 Yastás locations are an additional transactional option for Banorte's clients.

ATERNA ended the quarter with over 6.8 million insurance policies, which represents a 36% growth in a year basis. And Internet processed over MXN 7.2 billion in remittances payments, representing a 2% year-on-year growth.

Another highlight for the quarter is a MXN 2 billion bonds issued by the bank in May with a tenor of 5 years and interest rate of plus 45 basis points. This issuance was successfully oversubscribed by 1.8x.

Given these results and our expectations for the future, we are maintaining our guidance for the year. The market opportunity is still big, and we are capturing it. As you will know, Mexico is experiencing a lower economic activity, and we recognize a slight slowdown in the growth of our portfolio due to the macroeconomic conditions in Mexico. However, it is not the first time that we face a slowdown in the economy. And in the past, we have been able to transform the circumstances into opportunities. Following our methodology with discipline, having the financial funding capacity and being the leader in the market would definitely provide us the opportunity to continue growing our customer base and portfolio with quality.

Now talking about the future. It is always a key challenge for every large company, which additionally has a successful running business, to wisely balance the growth of the present business with innovation and transformation required to evolve towards the new business models. Only being able to balance present and future, Gentera will successfully remain relevant to its clients.

In line with this, we want to announce some recent and relevant structural changes that we just implemented last month in order to have a more efficient organization to better face our future challenges. As you well know, Patricio Diez de Bonilla has been responsible for the business operation in Mexico as CEO of Banco Compartamos in addition to the business operations in Guatemala. Starting this June, Patricio was appointed as the responsible of the business operation in the 3 countries in which we operate in the position of Head of Financial Services for Gentera. Ralph Guerra continue to be our CEO for Peru operations as well as Adolfo Peniche as CEO of Compartamos Guatemala. And both of them will directly report to Patricio who will also remain in his role of CEO of Banco Compartamos. Under Patricio's leadership, this new strategic position will allow Gentera to conduct our present operations in a more efficient manner. At the same time, these changes will allow me to put more attention, effort and resources to build our future business model in a more agile way.

Let me explain. Going back, Gentera's strategic plan, you may recall from our previous conference call that we are building our strategy based on the following pillars. The first pillar is to make sure that we maintain a solid performance of our current operation based on our still strong and active traditional business model. The second pillar is based on our -- on new technologies and the redesign of processes, we will develop and deploy front- and back-office solutions to improve our customers' experience as well as to capture all possible efficiencies to improve the cost of our operations. These first 2 pillars will continue to be strong addressed by Patricio and his team. And his new role will help us to better address the present opportunities and challenge. At the same time, the new structure will allow me to dedicate more attention to work in the future.

So let me continue explaining the third pillar of our strategic plan. The third pillar is the development of new digital solutions for our customers from digital product to more efficient payment and transactional methods. As you all know, this is a journey that started several years ago with the creation of Fiinlab, our financial inclusion innovation lab, and other innovation initiatives developed by Gentera's different teams.

This third pillar can be explained from the perspective of our digital strategy, which is based on the following 4 key elements that, by the way, have a chronologic order. The first key element of our digital strategy is build digital capabilities, which not only includes IT capabilities, but more important, IT human talent and expertise. The second key element is build digital processes in the front and back office to capture efficiencies, increasing productivity and improving customer experience. The third key element is to capture a large and relevant digital information from our customers containing demographic, transactional and behavioral data. And the fourth key element is to capture the value from that digital information in the benefit of customers and in the benefit also of Gentera itself. Data mining, digital segmentation, digital marketing, artificial intelligence are only some of the enormous benefits that we will extract from the digital information that is being captured.

And to be more explicit, let me provide you with some examples of the product -- of the progress that we are having on the digital strategy pieces that I just mentioned. Fiinlab projects are becoming relevant on the integration of the new digital channel for our present and future customers. In previous reports, we have talked about group L digital or group lending digital platform, which, in a pilot stage, allow us to manage group lending products by providing to more than 2,000 customers a digital tool to interact with the other members of the group, and with a loan officer. At the same time, loan officers are being 40% more productive in this pilot. Customer satisfaction, productivity and portfolio qualities results are looking good. We still have several hypotheses to prove that things are looking quite promising.

Another Fiinlab project is our telco fintech financial services platform. This project is in a first stage of testing. However, it has great potential to provide us cross-selling possibilities and at the same time, will enable us to offer a combination of telco and fintech solution for our customers, including loans and payments. This project started to be tested last year. And after a few trial cycles, we have now 400 Compartamos customers with our trademark mobile phone line. And we expect to end the year with 10,000 users in order to continue testing capabilities, service standards and of course, financial solutions. In 2016, we deployed and developed our mobile banking platform, which allows customers to manage their Compartamos savings and credit accounts from their mobile phone, including payments and money transfers. Today, we have 10,000 customers that are regular users of the platform. And we have proof that this is a tool that operates with high customer satisfaction and high security standards.

And closely related with the use of our mobile banking platform, we have more than 1.7 million debit card accounts. Digital money, transactional accounts, integrated with a mobile banking platform and our more than 3,000 Yastás correspondent agencies represent the entrance door to incorporate our customers to the world of the digital transactional solutions.

Also, in Peru, we have BIM, that stands for [ digitera ] mobile or e-wallet. BIM is a digital open-payment platform owned by several banks in the Peruvian banking system, including Financiera Compartamos. Up to now, 110,000 customers of Financiera Compartamos are heavy and happy users of the platform since it provides them convenience and security to their regular credit transactions.

And similar to the solution in Peru of BIM, we have here in Mexico, CoDi, which is the Banco de México digital transaction platform, and we will be implementing this platform in September this year.

As I said, these are just some examples of innovations initiatives in which we have been working. There is still a lot of work to be done regarding the creation of our new digital products and channels. Integrating these tools and initiatives into complete and compelling end-to-end customer solutions is clearly our main challenge. We expect to gradually start deploying pieces of these new digital products and channels, and we believe we will start scaling up some of them to the next year.

Let me also update you on ConCrédito. As we explained last year, ConCrédito is one of our most promising strategic investments since it provides us alternative ways to distribute credit to people needing working capital funding using the natural direct sales structure that already exists in the communities in which our clients live. Members of Gentera's management team have been closely involved in the Board meetings and decision of ConCrédito through the last year. And as you know, by the end -- by mid-2020, we will be able to obtain a major participation in the company. ConCrédito expected business results are being achieved, and we feel happy with the performance of the company.

And before giving the floor to Patricio, who will provide you with specifics of our operations in Mexico, Peru and Guatemala, let me just point out that we recently were honored with the second place in the Great Place to Work ranking for companies with more than 5,000 employees. As you know, we have been participating on this ranking for 13 years now.

[Technical Difficulty]

[Operator]

Ladies and gentlemen, thank you, just 1 moment. Please continue to hold on the line while we reestablish connection with our speakers.

Ladies and gentlemen, again, thank you for your patience in holding. Please continue holding when we establish connection with our speakers.

[Enrique Majós Ramírez, executive]

Sorry about that. We had a problem with the main line here, but we are connected again. So I was telling you about the Great Place to Work ranking and the second place we obtained this year. So as I was saying, we have been participating on this ranking for 13 years now. And we have been within the first 3 places for the last 9 years in a row. So this speaks about our consistency and profound foundational social and human values. And personally, I feel very grateful and honored to be part of this amazing team. So I want to offer a special thanks to all our staff for your commitment with our corporate values and the social impact that we generate.

Let me now turn the call to Patricio, and then Mario will provide the traditional financial statistics that you required. And afterwards, of course, we will have our Q&A session. So please, Patricio, go ahead.

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in Gentera. I will review the business results of Gentera financial subsidiaries, Banco Compartamos in Mexico, Compartamos Financiera in Peru and Compartamos Guatemala. And Mario Langarica will review Gentera's financials.

Let me start sharing with you that at the end of the second quarter, we served over 3.6 million customers in 3 countries, which represents a 10.2% growth in the last 12 months. This reflects the strong demand that exists for productive loans in the region and the attractiveness of our product offering in the 3 countries. Customer growth leads to a solid performance of Gentera's total portfolio at the end of second quarter of 2019, growing 14.2% compared with the portfolio reach at the end of the second quarter of last year. This growth is very much in line with our expectation for the quarter and leave us in good position to reach the 17% level growth for this year. It's important to highlight that the total loan portfolio for Gentera is the largest in close to 29 years of operation.

With regards to asset quality, NPL stood at 3% in second quarter 2019, a relatively stable figure compared with the 2.9% recorded in the second quarter last year and compared with the 3.04% compare -- with the previous quarter. The NPL level presented is due to the enhancement of the origination processes, improvement in the customer service and adequate monitoring of customer performance. Growth with quality has been the focus of our operation and will continue to be so going forward.

Let me go in more details in the performance of the Mexican, Peruvian and Guatemalan financial subsidiaries of Gentera. I will start talking about Banco Compartamos in Mexico. As you can see in the results that we presented yesterday, the strategies that we followed during 2018 continued to show positive results. We are witnessing better dynamics in most operational and financial metrics. These results are encouraging and continue proving a better performance in the bank. We grew again in the number of customer share, finalizing the quarter with over 2.5% -- 2.5 million customers, which represents 7.3% growth when compared with the previous year. This year is the stronger -- the strongest growth in number of customers since 2016. This is a reflection of the customers' sentiment about the changes we've made in the product offering and service. It's indeed encouraging in the sense that our strategies and efforts are paying up, and customers are becoming -- are coming back to the bank. It has been 1 year now with consecutive quarter-over-quarter growth, which, in accurate way, represented 176,000 new customers in Mexico. Customer retention rate continued in very solid levels, and now we kept it at 85%, which is the same level compare with the previous quarter.

In the second quarter, loan portfolio grew close to 10% compared with last year and 3.4% sequential growth compared with the previous quarter. The result obtained in the second quarter continued to be a reflection of an improved operation and better value proposition for our customers, supported by the commercial and strategic decisions made. Crédito Mujer presented a solid growth of close to 15% in its portfolio on a year-on-year comparison, thanks to our focus in providing better service and more convenience to our customers.

And asset quality was below 2%, which is the same level presented in the first quarter of this year. It's important to highlight that the ticket demanded by customers have been slightly below what we were anticipating. This could be a consequence of a client that is becoming more prudent in the management of their credit or that is adapting to the current context. What really motivate us is that we keep retaining and attracting customers as we are doing that. We could be offering them a higher credit size according to their needs and their credit history that could propel growth of the portfolio in the future quarters.

NPL stood at 2.9%, a slight improvement compared with the 3% level reached in the previous quarter and similar to the level of 2.9% presented a year ago. The level presented this quarter is very much in line with our expectations for the quarter, and we'll probably present a slight deterioration by year-end because of a larger portfolio and a larger base of new customers, which normally are weaker than existing ones.

With regards to write-offs in this quarter, Compartamos Mexico, it represented MXN 536 million or 34.3% lower compare with last year, highlighting again the current performance of Crédito [ Merceria ] and Crédito Comerciante and considering that in second quarter, Banco Compartamos wrote off in aggregate for both products MXN 347 million, which is 36% smaller compare with last year.

Employee turnover also showed positive trends, finalizing this quarter in an historic low level again in 24%, which is a better figure than the one reported in previous quarter and at the end of December 2018. This is the best ratio ever seen in close to 29 years of history of the company. As in the previous 2 quarters, this is a reflection of a positive work environment for our more than 16,000 employees in Mexico. In addition to our lower turnaround of employees, as we have said in the past, we can be more effective on the service side with customers as we have more experienced personnel in front of them.

Now let me move and talk briefly about our Peruvian and Guatemalan subsidiaries. Compartamos Financiera in Peru represented 35% of Gentera's loan portfolio and 18% of its net income at the end of second quarter. Its loan portfolio is growing at 27.7% on a year-on-year basis, and we have close to 650,000 active customers. At the end of this quarter, 72% of the customers we serve in Peru came from the group lending methodology. And this methodology represents only 21% of Compartamos Financiera loan portfolio.

In addition, the quality of our portfolio in Peru is very good and stable. NPL stood at 3% at the end of 2000 -- at the end of the second quarter in comparison with the 2.8% 1 year ago. Another very important highlight in Compartamos Financiera in its efforts to have a more efficient and digital operation is a solid progress that we are having in the acceptance or -- and use of the electronic wallet. At the end of the second quarter, more than 110,000 customers in the group methodology use this wallet as a more convenient alternative to make their payments. We're very excited with the progress seen so far in this subsidiary, and we -- with the potential market that Peru represents for the group lending methodology, which give us an -- give us the opportunity to achieve greater financial inclusion in the geography. We've been growing in a very solid mode since we enter to the Peruvian market, and especially through the group lending product, Crédito Súper Mujer, which has led us to be among the top 3 largest microfinance institutions in Peru in terms of number of customers.

In Guatemala, as of this quarter, we have more than 98,000 active customers and a portfolio of MXN 595 million, which grew 3.6% or 9.2% in its local currency compare with last year. Guatemala presented net income of MXN 14 million compare with MXN 3 million loss in the same period last year.

With regards to asset quality, NPL stood at 5.5% in the second quarter even though with a larger ratio compare to the 3.5% level presented last year as we're now entering better performance in the early NPL. So it gives us confidence that there will be a stabilization process in the coming months.

All in all, considering the progress achieved in the past months, now we have a more motivated team in these 3 countries where we are present, working hard every day in improving the service and product offering that our customers with a clear purpose in helping them to achieve their dreams. We are sure that by maintaining an inspired team, we will reach our goals of servicing much more customers in the coming quarters and years.

Thank you for your attention. That is all for my remarks. I will now turn the call over to Mario Langarica to review Gentera's financial.

[Mario Langarica Ávila, executive]

Thank you, Enrique and Patricio, and good day to everyone.

As in previous conference calls, I will start talking about the interest income generated in second Q '19, which stood at MXN 5.56 billion, representing an 8.8% increase compared to second Q 2018. This is very relevant as this is the third consecutive quarter with positive growth after 4 straight quarters annual contractions. This result was mainly driven by a 14.2% larger loan portfolio and a higher contribution of Compartamos Financiera in Gentera's consolidated interest income. Interest expenses grew 37.4% compared to second Q '18. This increase is mainly driven by the increase in Banco Compartamos total loan portfolio, the extra liquidity that we have maintained in Banco Compartamos since November 2018, the 75 basis points increase in the reference rate in Mexico over the period and the 24% increase in Compartamos Financiera portfolio.

Net interest income showed a 6.5% increase compared to second Q '18, whereas net interest margin stood at 45.8%, representing a contraction to the 50.2% achieved in second quarter '18. This new contraction comes mainly from Banco Compartamos extra liquidity, a smaller mix of the Mexican subsidiary in Gentera consolidated credit portfolio, which represented 63.7% versus 66.3% at the end of second Q '18. If Gentera hadn't had the additional liquidity describable in -- and in previous calls, NIM before provisions for 2Q '19 should have stood around 48.3%, 2.5% of points above the level report. As we already mentioned, asset quality has been stable. However, as the loan portfolio has been growing faster in this past month, it has required an increasing level of provisioning, which for the quarter increased 16.5% compared to second Q '18.

Net interest margin after provisions stood at 38.8%, which is below the 43.2% ratio obtained in second Q '18. However, as explained before, NIM -- the NIM before provisions was also affected by the extra liquidity that Banco Compartamos have had since November. If Banco Compartamos hadn't had the extra liquidity, NIM after provisions for Gentera in second Q '19 should have stood around 41%.

Cost of debt for the quarter stood at 8.5%, which is in line with our expectations for the full range, between 8% and 8.5%. Considering the provisions in the first semester, the cost of risk for this period is 7.8%.

Fee income during the quarter increased 13% to reach MXN 37 million compared to second Q '18. This increase is mainly explained by fees generated by the sale of the reference product at Banco Compartamos, which grew more than 50% on a year-to-year comparison and to a larger contribution in the fees generated at Compartamos Financiera Peru, which in 2000 -- which in this second quarter was 27.5% compared to second Q '18.

Fee expenses increased 16.3% mainly due to the flexibility that we were getting back to our clients in Banco Compartamos to use third-party infrastructure to execute their credit disbursements and payments at their convenience.

And that also due to the growth in the number of clients and those transactions in Peru.

Net commissions showed a positive 11.4% growth compared to the net figure reached at the end of second Q '18. Operating expenses grew 2.1% compared to second Q '18 and is within our year- to year-end objective below 8%. For the full semester, the number is 3.3%. This increase on a year-on-year basis was mainly driven by: one, expenses associated to infrastructure, in which we have a permanent plan to make our use -- the use of our infrastructure more efficient, service office at some branches; two, marketing campaigns, commercial initiatives to attract and reward good customer performance; and three, other strategic initiatives and technology.

The efficiency ratio for the quarter stood at 77.7% compared to 76.3% in second Q. It's important to say that in this quarter, growth in expenses again was lower than our year-end objective around 8%. Here, we're doing a very, very large effort to become more efficient in the management of operating expense.

Gentera closed the second quarter of the year with a consolidated net income of MXN 720 million, representing a 13.5% growth compared to the recurrent earnings reached in second Q as stated before by Enrique. Here, you may recall that during that conference call of the second Q '18, we communicated in our remarks that -- in that part, we have these 2 nonrecurrent events: one was the cancellation of MXN 165 million legal reserve in Banco Compartamos; and two, was the release of MXN 71 million defer asset reserve linked to accumulated losses of Gentera. And excluding those events, net income for the second quarter of '18 should have amounted MXN 635 million.

In second Q '19, our return on equity stood at 15.2% and our return on assets at 5.5%. And for the semester, ROE stood at 16.7% and ROA at 6.6%, which are in line with our expectation for the year of finalizing with our return on equity around 16% and a return on assets around 6%.

Finally, in other remarks, as mentioned by Enrique, on May 28, Banco Compartamos issued long-term debt in the Mexican debt capital market. This issuance was for an amount of MXN 2,000 million with a term of 5 years and a floating rate ETF plus a spread of 45 basis points. The demand was for more than MXN 3,700 million. Two, another dividend payment equivalent to MXN 593 million will be distributed among the outstanding shares on July 31, 2019. This dividend will be paid according to the authorization obtained at the Annual Shareholders' Meeting last April.

And finally, in more recent events, on Monday, July 22, according to the authorization obtained by the Shareholders' Meeting of Compartamos Financiera and aligned with our strategy in strengthening this fast-growing subsidiary, Gentera made a capitalization for $10 million, PEN 33.69 million, with the aim of continuing growing [ publicly ] their loan portfolio and maintaining robust levels of capitalization at Compartamos Financiera.

Congratulations to Compartamos Financiera for the strong results achieved in the past years and the ones we're certain it will achieve in the future.

Thank you all. That is all for our presentation, operator. And we can now move to the Q&A session.

[Operator]

[Operator Instructions] Our first question will come from Alonso Garcia, Credit Suisse.

[Ricardo Garcia, analyst]

My first question would be regarding OpEx. I mean congratulations there, you are running at 3% growth year-over-year during the first 6 months of the year. I remember, you were guiding previously for growth over the year of 7% to 8%. So I just wanted to hear what has surprised you to the upside year-to-date and if you believe you will be able to close the year considerably below the initial guidance of 10% to 8% or what would drive the pick up to that 7% to 8% by the end of the year.

And my second question would be on your loan growth guidance. I just wanted to check how comfortable do you feel with the 17% to 19% target considering the growth so far this year. If I'm correct to reach the low end of the guidance, you will need to grow around 6.5% quarter-over-quarter in both 3Q and 4Q. So I just want to check how comfortable you feel with that target.

[Mario Langarica Ávila, executive]

Okay. Thank you very much, Alonso. This is Mario. For the OpEx question, we expect to be below 8% guidance for expenses during the year. We're making a strong effort. As you can see, what -- the 3% of the first semester, it's very good. But you also have to take into consideration that we launched the campaigns in April, and those campaigns are very, very successful. And part of the expenses are linked to the variable compensation related to the performance of those specific strategies. So yes, we are happy with the way we have been controlling expenses so far. We expect to be a little below 8%. And I hope that answers your question.

[Patricio De Bonilla Garcia Vallejo, executive]

And on the portfolio growth, Alonso, in -- as you've seen, 14.2% growth for Gentera. It's relatively lower than the 17% expectation. As I highlighted during my remarks. In Mexico, we've seen some pressure of the ticket size of our customer base. More so, new customers tend to enter with the smaller ticket sizes as well. So a new customer enter with smaller ticket size and existing customers reduce the size of their portfolio. This is why we are relatively lower than our initial expectation. However, the second quarter -- the second semester is normally where we see most of the demand. As you've seen, we've grown very much in Crédito Mujer in Mexico, but Credito Crédito Comerciante in the individual credit have not grown as much. So for the second part of the year in Mexico, we expect not only growth in Crédito Mujer, but in the trade products and products related to additional loans to those customers. And the dynamism that Peru is having will continue for the coming months. So we expect to be maybe at the lower end of the guidance, but still, it's something that we think is doable.

[Ricardo Garcia, analyst]

And then just one follow-up on the last question. Do you think this pressure on ticket size, could that be related to transfers from the government to your segment market? Or do you think it's mainly -- could be more of a -- related to people being cautious because of the current macro scenario?

[Mario Langarica Ávila, executive]

Yes. I mean we've been talking with customers every day. And the reality that the slowdown in the economy is normally felt in our customer base. As you know, our micro entrepreneurs -- our customers are micro entrepreneurs, that adapt to the reality, the economic dynamics of their community. As the slowdowns hits their community, they normally tend to moderate their ticket size in order to avoid overindebtedness. So it's also -- I mean what we've seen in previous contractions or recessions is that this is a normal trend for the customers. And we don't want to put pressure in their ticket sizes because that could eventually transform in NPL. So we are more focusing in growing with quality, be close to the customer to monitor their needs. But yes, they are feeling the deceleration of the economy, and this is why they are adjusting to be prudent in their credit decisions.

[Enrique Majós Ramírez, executive]

And Armando (sic) [ Alonso ], this is Enrique. Let me elaborate a little bit more about this. And as Patricio was saying, we have faced similar conditions in the past. And in our experience, even if the average ticket per client does not grow that much, the number of clients in this kind of conditions grow faster due to an increase of people that moved from being employed to become self-employed and initiating their own businesses. So maybe that's also the explanation of the growth that we are having in the number of clients. And at the end, net-net, we feel comfortable with the market opportunity that we have ahead.

[Operator]

Our next question will come from Juan Dominguez, Onyx.

[Juan Dominguez;Onyx Equity Management;Equity Analyst, analyst]

I have a follow-up question on your ticket size growth. What we have seen is that you're -- pretty much your marginal growth is coming from the low ticket group lending while your high ticket in digital lending is pretty much flat year-over-year and quarter-over-quarter. I guess -- I wonder if you can provide us some color on how the tickets per segment are evolving. And also, what were your initial goals were when you launched the strategy? Because the numbers that I'm getting is that at the end, your ticket size in Crédito Mujer is growing at 7% year-over-year, which is not that bad. And also, if you can share, given that you are growing 15% in your Crédito Mujer alone, how is competition reacting to such growth?

[Mario Langarica Ávila, executive]

Okay. First, I'll go to the macro question. In terms of the competitive landscape, as you know, we compete with a lot of players throughout Mexico. In this deceleration, what we've seen is that their operations have been weakened a bit. Access to funds is something that hurts them a lot because the liquidity that there is in the market, it's not widely available. So financing their portfolios has been challenging for them. And that represents also an opportunity to us, right? Because some of the competitors are facing troubles operationally due to the lack of funding or in higher provisioning, the profitability of those institutions are being hurt. So we don't see a competitive pressure in this semester. On the other hand, what we see is that this weakness could represent a good opportunity to continue growing for Banco Compartamos.

In terms of the ticket size, if you see the 170,000 customers that we grew last year, half of it, more so, are new customers. As you know, the rule to enter Compartamos is that the first loan that you get is the smaller. And once you pay us back, you can get additional money as we feel comfortable with the relationship with each customer. So if you see per product now, the growth of each segment, Crédito Mujer, as you said, it's growing 14%; Credito Commerciente is growing at/or above 7%; and the individual lending, it's more or less flat. So the opportunities that we see for the coming months is to grow in 3 products, not only Crédito Mujer because again, there's an opportunity in Credito Commerciante, which, as you know, are smaller groups with more flexibility, if you will, and on the individual side. And that's the strategy that we have now in place since July to cope with the demand that we expect for the second part of the year.

[Operator]

[Operator Instructions] Our next question will come from Neha Agarwala, HRBC (sic) [ HSBC ].

[Neha Agarwala, analyst]

My first question is on Peru. Peru is almost 1/3 of your book now. Where do you see it in the next 2, 3 years? Do you have a level in mind that you want to reach? My second question is on the digital initiatives that you just mentioned at the beginning of the call. How should we think about these from a cost-to-income perspective in the sense that should we see higher cost growth, given these numerous initiatives? And in terms of revenue generation, what kind of estimates that you have that these initiatives can bring in?

[Mario Langarica Ávila, executive]

I'll talk about Peru, Neha. The reality is that as you've seen, Peru was a mature market for microfinance on the individual lending side. The product that we have in Peru, it's more rural, Crédito Mujer. The growth that we've seen mostly comes from Crédito Mujer customers. And the expectation is to continue to take advantage of this methodology in the local market. As you might be aware, financial inclusion, it's still a challenge in the Peruvian market now with 60% of the Peruvians without access to formal financial products and services. So we do think that there's an opportunity to maintain the growth momentum that we've seen, around 15% to 20%, for the coming at least 2 to 3 years because if there's an opportunity, we will continue to invest. This is why -- as we see this opportunity, this is why we approved the capitalization for Peru because we do think that there's an opportunity to tapping that local market.

So with all that said, today, it's 1/3 of the portfolio. We do -- we really think that with this growth momentum, it will remain around 30% to 40% for the coming years because we do think that in Mexico, we can grow still with positive numbers. So in order to build share, you need to grow above Mexico. And that's where it becomes challenging for the coming years to gain participation in Gentera's portfolio. But all in all, we are confident. As you've seen, only 20% of the portfolio in Peru is related to Crédito Mujer. We expect that this composition also changes, more Crédito Mujer portfolio will be lent in the Peruvian market. So the dynamism there, it's encouraging. And we'll continue to grow in that market

[Neha Agarwala, analyst]

If I can follow up on that. Do you see any other players in Peru now replicating your group lending model?

[Mario Langarica Ávila, executive]

In Peru, as in Mexico, group lending methodologies mostly come or are present with smaller NGO-ish kind of players with no financial strength. So there are some players here and there, but nothing relevant still. And this is why we want to maintain the growth momentum to take advantage of this good opportunity that we see in that market.

[Patricio De Bonilla Garcia Vallejo, executive]

And Neha, on the efficiency question. And I would tell you that we have like 2 main efforts on efficiency. One is a permanent exercise of looking for efficiencies at the cost base on a business-as-usual basis. There, as we have said, our main objective is to keep costs below 8% that we explained before. And hopefully, this year, we would be below that number. That's part of the permanent exercise. We're trying to keep in the long run below 2 digits, with Mexico below inflation and with maintaining positive costs going forward. And the second part has to do with transformational efforts that has to do with what Enrique was explaining at the beginning of all of these digitalization strategy, et cetera, we think that we can find efficiencies that will contribute to the efficiency ratio in the medium term.

[Neha Agarwala, analyst]

If I can ask, of your total expense fees, how much would you say is your -- to your IT budget? And of that, how much percentage is allocated to this new initiative, the digitalization of the bank? Any rough estimate would be fine.

[Patricio De Bonilla Garcia Vallejo, executive]

Around 14.8% is related to strategic initiatives.

[Neha Agarwala, analyst]

14.8% of strategic initiative.

[Patricio De Bonilla Garcia Vallejo, executive]

Of operating expenses, yes.

[Neha Agarwala, analyst]

And this -- but this includes the IT and everything in marketing, all of that.

[Patricio De Bonilla Garcia Vallejo, executive]

Yes. Well, yes.

[Neha Agarwala, analyst]

Okay. But just to IT and digitalization?

[Patricio De Bonilla Garcia Vallejo, executive]

Marketing is 6.2%. The strategic initiatives is 14.8% and wages and benefits around 60%.

[Neha Agarwala, analyst]

Okay. That's fine.

[Patricio De Bonilla Garcia Vallejo, executive]

This is in the press release. In Page 5 in the press release there, it said there...

[Neha Agarwala, analyst]

Yes. I have this. And what I was actually looking at is that if you have an IT budget for the year, how much do you spend in the digitalization of the bank? All...

[Patricio De Bonilla Garcia Vallejo, executive]

In line with those percentages. Yes.

[Operator]

Our next question will come from David Soto, Santander.

[David Soto, analyst]

Just one question from my side. We want to know if you could give us any color related to the NPL in Peru due to its -- due to the NPL increase during this quarter. Could you give us any color what we should expect on the following quarters?

[Patricio De Bonilla Garcia Vallejo, executive]

Yes. In Peru, what we see is a stable figure. Crédito Mujer, again, it's what has been grown a lot. And this has a lower NPL than the individual portfolio. So as the portfolio in Crédito Mujer gain share in the entire Peruvian operation, this will bring the consolidated for Peru NPL down. But I would say that both individual and group lending methodologies will remain within the ranges that we've seen, and there's nothing that worries us at this time.

[Enrique Majós Ramírez, executive]

Yes. And just complementing on that. Yes. If you look at the figures in the group lending methodology in Peru, you can notice a very slight increase in NPLs. But however, this is a very natural cycle in which first, you grow and then you control and then you grow again. So the slight increase is very, very natural of the dynamic of this business. And as Patricio is saying, I would consider that NPLs are very and will remain very stable in Peru.

[David Soto, analyst]

Just a follow-up question. It -- the NPL should be around 2%, 2% or below 3%?

[Patricio De Bonilla Garcia Vallejo, executive]

I mean in Crédito Mujer, around 2%. And the individual lending has moved around 4%, 4.5%. So those ranges are adequate for those methodologies.

[Operator]

[Operator Instructions] With no questions in the queue, the question-and-answer session concludes. I will now hand the call over to management of the company for any final remarks.

[Enrique Majós Ramírez, executive]

Thank you. And as always, thank you for your interest in this call. As you can see, we feel very enthusiastic about the present results and also about our plan on the future digital models that we are developing. And for us, it will always be very appreciated your interest every quarter. So thank you again and have a nice day.

[Operator]

Thank you very much. Ladies and gentlemen, at this time, this now concludes our conference. You may disconnect your phone lines and have a great rest of the week. Thank you.