Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, and welcome to the Second Quarter 2021 Gentera's Conference Call.

Now I would like to turn the call over to Mr. Enrique Barrera, Investor Relations Officer for the company. Sir, you may begin.

[Enrique Barrera, executive]

Thank you. Good morning. 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 Mario Langarica, Gentera's Chief Financial Officer. They will review the results as per the report that was issued yesterday.

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.

[Enrique Majós Ramírez, executive]

Thank you. Good morning or good afternoon to everyone, and thank you for being with us in this second quarter 2021 Gentera's report. Welcome, and it's always a pleasure to be here with you.

In our last call, we shared with you the first signs of positive results after a year of dealing with one of the most important global crisis ever. And as we said last quarter, the first half of the year was going to be about controlling and consolidating our operations. Today, we are proud to say that we are delivering. Net income for the second quarter of 2021 was MXN 653 million. This means a net improvement of MXN 1,383 million from the second quarter 2020 and 72% growth compared with last quarter.

ROE is back to double digit in 11.4%. So because of our good results at this point of the year, we have good news for you. We will increase our guidance for the year in this call.

In summary, Mexico is showing outstanding results. And at the same time, we are also aware of the uncertain social, political and health environment that we are living, especially in Peru, and we will talk about this. However, we are confident that we are doing what we need to do to control and manage these challenges. We know that the context will continue to be complicated for everyone. However, last year, we had a much more uncertain context, and we made it through successfully.

We have the team, and we have the strategy to keep on growing and improving our value proposition in the current environment. So if I had to deliver just a single message today, I will say that we have control of the difficult context we are facing. And at the same time, we are putting our eyes on a promising future with very good perspectives.

In this call, I will briefly talk about 3 things. The first one, our performance during the first half of the year. The second one, our expectations for the second half of the year. And third, we will talk about an update on our digital transformation strategy and initiatives.

So let me start by talking about the status of the business as of the end of the first half of the year. Results for Gentera are beyond expectations. In Mexico, we have good results and good perspective for the rest of the year. Now NPLs is in 1.5% as of the second quarter 2021, which is an outstanding NPLs level. Customer base has grown close to 4% in the last quarter, which also shows an increase in market share from 40% we had last year to 42% that we have now. In the last weeks, origination of new clients has been 20% higher than in 2019, which, as you know, was an outstanding year. And Patricio will provide more detailed information about this.

So let me now go to Peru. In Peru, we know the situation is complicated. We are proactively controlling and managing the business with good results, however. We reinforced our commitment in Peru with a capitalization of MXN 500 million that will help us face any stress scenario. We believe we have a clear strategy to face the challenges of the current Peruvian context.

And speaking about Guatemala. As we communicated recently, we are selling our Guatemala's operations to Fundación Genesis Empresarial, an important NGO with long experience in our business. For the last couple of years, we have been working to transfer our Guatemala's operations to a third-party institution. We wanted to focus on our efforts on the main business that we have in Mexico and Peru. It is important to mention that Guatemala represented a very small 1.5% of Gentera's portfolio. In this move, the main challenge was to preserve the value that Gentera has created in Guatemala for the last 10 years. And I'm talking not only about value in terms of number of clients but also in terms of job creation.

We now are proud to tell you that with this transaction and the way that we have it executed, we accomplished this challenge. From now on, we are going to be able to increase our focus in our strategy in Mexico and Peru without losing the value that we created for the people in Guatemala along the past 10 years.

Now what can we expect for the second half of the year? In summary, our strategy for the second half of the year can be explained in 4 points. First, we will keep focused on growth and portfolio quality in Mexico. Second, we will focus on the quality of the portfolio in Peru to successfully address the challenges that we are facing there. Third, we will accelerate our digital transformation process to gradually capture value starting on the fourth quarter of this year. And fourth, we will keep our expenses under control.

So talking about the expected results for the year, and even when we are reducing our expectations on Peru's results for this year, our outstanding results in Mexico will more than compensate our overall Gentera's results. Therefore, based on the first and second quarter results, we are changing our 2021 guidance.

We are increasing our guidance. Earnings per share was 0.85% to 0.95 -- no, sorry, not percent. MXN 0.85 to MXN 0.95. And our new EPS will be from MXN 1 to MXN 1.10. Portfolio growth will be at 13% to 15%. So it remains as it was before. So as you can see, EPS improvement comes mainly from better expectations on the quality of our portfolio, better margins and the close control of expenses.

Now looking forward, and talking about the digital transformation process. As I mentioned in our last conference call, Gentera has to continue evolving to a more convenient and more efficient business model based on the tools that digital technology provide us. We have been in the digital transformation journey for a while now. More specifically, when we created Fiinlab in 2016. Every company at any industry talks about digital transformation. However, the relevance of digital transformation is to use technology to really improve results for the customer and for the company. I feel very close to capture the value that this work will create for our customers at the same time that Gentera achieves much better financial results. So let me provide some specific updates on the progress of our main digital transformation initiatives.

Our digital credit management platform, which, as you know, will allow us in Mexico, Compartamos Banco, to better control our processes; have a better segmentation of our customer base; and at the end, improve the productivity of our loan officers; will roll out in the first quarter 2022. So we estimate that with this platform, the following 24 months, we'll be gradually improving our loan officers' productivity by at least 25%.

Regarding Yastás, we continue improving our digital capabilities. We are migrating our core transactional platform from a traditional POS terminal to a mobile application. We expect to implement our new core by the first quarter 2022. And by the second half of the year, our Yastás representatives will increase their productivity by 2x, and functionality for our agents will improve in terms of their user experience.

Talking about ConCrédito, we are also having great progress on the transformation of its operations into a more digital business. As of this quarter, ConCrédito has successfully implemented a 100% branchless model, operating in more than 143 cities and 22 -- 23 states in Mexico. And this really is a great achievement. This changes in addition to the growth of CrediTienda, which, as you know, is ConCrédito's marketplace platform, will allow us to increase our efficiency by 25% in terms of our customer growth in 2022.

To guarantee the success of our digital transformation plan, I am proud to say that we have partnered with McKinsey to help us implementing our transformation business strategy. We have been working with McKinsey together for the last 3 months now, and we expect to work together through this year and the next one.

We are looking very good results from this partnership. By working together with the support of McKinsey's methodology, planning and execution internal processes have clearly improved in only a few weeks. I feel very confident that their support will give us great effectiveness on the implementation and results of Gentera's strategy.

And just to finish, let me share with you my overall thoughts about the times we are living in Gentera. We can face any crisis on a survivor mode, which means being defensive, or we can face it as an opportunity to grow and be proactive. In Gentera, we choose to be proactive. We proactively manage the business and control it by challenging the situations and facing them with courage.

However, we are putting our eyes not only on the challenges of the present but on a promising future, we really believe we have great growth opportunities ahead. As I always said, we have the best team ever. People is the most valuable asset for any company, and our people is the most reliable guarantee to assure that we will successfully achieve our plans. So thank you for staying with us and supporting us with your trust.

I will now pass the call to Patricio and Mario, and then we will be happy to take your questions. Thank you so much.

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in Gentera. It's now over a year since the pandemic was declared. And since that moment, we have been very active implementing different plans to support our clients in these challenging times and giving them alternatives to reactivate their businesses. After 15 months of operating in a different manner and adapting our processes to face the reality of the sanitary contingency, I can tell you that after the consolidation process that we started at the end of last year, the business dynamics have improved significantly.

As you could see in our second quarter 2021 results, Gentera financial subsidiaries presented very solid numbers and metrics. And in the case of our largest subsidiary, Banco Compartamos, some of the financial and operational metrics reached in this quarter were even better of prepandemic levels.

To highlight some of the achievements in this subsidiary are: first, we have delivered 6 months of continued customer growth, attracting over 160,000 clients in this first semester, which took us to conclude the quarter serving 2.3 million customers. With the most recent figures published by [indiscernible] Microfinance Network, Banco Compartamos holds 42% of the market share in number of customers and 40% in terms of portfolio, an improvement from a year ago where we had 40% and 38%, respectively.

Second, as we cleaned up the portfolio, which at the end of the second quarter of '21 stood at MXN 21.5 billion in micro loans, we delivered NPLs at 1.57%, which is the best level in the past 13 years. Customers value their good access to credit in Banco Compartamos. A clear proof of better dynamics in the portfolio is the cost of risk, which, for the first semester, ended at 4.5% in Banco Compartamos.

Third, now the portfolio is stable and with strong asset quality, we're ready to grow. In this month of July, the loan origination is 20% higher than July 2019. We believe that this month alone will represent the most important in terms of loan origination in our 30 years of history. The previous record was reached in March '21 when we disbursed MXN 10.3 billion in 1 month alone. This reflects the strong demand for credit in the market.

Fourth, because of better mix performance between performing loans and nonperforming loans, it has contributed to generate a larger interest income and lower levels of provisions compared to what we originally anticipated and thus improving margins.

Fifth, these dynamics along other improvements in net commissions and cost control initiatives that Mario will address in his remarks have supported to deliver a very strong second quarter, reaching a net income of MXN 895 million in Banco Compartamos, representing 291% recovery compared to the second quarter and our best result for any given quarter over 4 years. Another important metric to highlight is the excellent figure reached in the turnover rate in our employees, which stood at a record low of 14.5% for the last 12 months.

This is very relevant for us at this and this is a proof of the good and safe work environment that Gentera and Compartamos promote and generate for their employees. But it more also is very important for us because as we retain employees, we have a more experienced loan officers that will serve in a better way to current and future clients. So as you can see, Banco Compartamos is experiencing very solid performance, and our expectation is to keep this good momentum in the following months and with no doubt in the coming years. Let me briefly jump to the Peruvian and Guatemalan financial subsidiaries. In the case of Peru, Compartamos Financiera is still facing challenges related to the impacts of the economic activity generated by COVID-19. Because of this, we have taken different actions to support these operations. Our biggest concern locally has been the quality of the portfolio.

To deal with this risk, we have taken different actions. First, we restructured loans to those customers in need. We have now 88% of the portfolio paying on time. Second, to those customers delinquent, we also offer discounts to keep them motivated to pay on time. And third, we reinforced these actions with a strong incentive program for our loan officers. Despite these actions, NPL for the quarter stood at 4.6%. The remaining 7.7% still has between 1 and 90 days behind the schedule, and it's our focus for collection.

Now that we have this clear visibility at the end of the quarter, Gentera capitalized MXN 500 million in Compartamos Financiera to generate additional reserves to absorb potential losses while maintaining a strong capitalization locally. Other risks that we dealt recently was the interest rate cap that was imposed at 83.4% on July 1, 2021. Such regulation affects exclusively the group lending portfolio, which represents 21.4% of the loan book in Peru.

To mitigate the impact, we have taken different actions. First, we have increased the minimum ticket by 30%. This will allow us to generate larger interest income despite the smaller rate. Second, the length of the loan was increased by 1 month or 25%. This measure allow us to reduce the cost of the renewal process. Third, we have reduced our staff by 14% in this portfolio and closed 4 branches that were not productive and the potential market was not large enough to maintain them. Fourth, we started a fee-related income for the product to generate other income with the same customers.

All these actions will allow us to have an impact of MXN 60 million in this portfolio this year, and we expect back -- to go back to profitability in 2022. After the actions taken this semester in Peru, we believe that the worst, operationally speaking, for this subsidiary is behind us. We need to maintain our efforts in understanding the customer needs, developing alternatives to meet and maintain a strong team in the country to manage the volatile environment that we are facing. We are confident and committed to our Peruvian customers and team because Compartamos will make a difference locally.

Regarding our Guatemalan operation, on July 5, we formalized the transfer of our loan portfolio, business and operations to Fundación Genesis Empresarial in the country. This decision was aligned with the strategy and priorities that we have outlined for the following years where we will focus our efforts and resources to better serve our clients in Mexico and Peru. Gentera found, in Fundación Genesis Empresarial, a great ally to give continuity to the service and attention of the client served to Compartamos. As a result of this decision, this was the last quarter in which Compartamos Guatemala will be consolidated in Gentera's financials. I want to take this opportunity to recognize and thank all the contribution, passion and commitment that the Compartamos Guatemala team had in our 10 years of history in the country, helping us to adapt the group lending model in Guatemala and bring credit taxes to the underserved population in this country.

To finalize my remarks, it's important to highlight that even with the current challenges, the implementation and execution of the plan followed in the past month is paying up as we continue with a very strong financial position and a strong operational performance. All of this has been supported by our team, who is fully committed to serve more clients in this year and in more efficient, ambitious digital manner in the future.

The size of the financially underserved market in Peru and Mexico is still very large. And we are certain that we will capture the opportunities that arrive in these and following years. And in this way, being the best financial provider in our segment. Once again, many thanks for your continued support to Gentera and for your interest in following our transformation process to become the best and most convenient financial option for the low-income segment of the population. For now, we will keep working hard on supporting our clients in their path of economic recovery and fulfillment of their dreams. I will now hand the conference to Mario Langarica, who will review Gentera's second quarter financials. Thank you all. Mario, please go ahead.

[Mario Langarica Ávila, executive]

Thank you, Enrique and Patricio, and good day to everyone. I hope that you and your families remain safe and healthy. I would like to focus my second Q '21 presentation in the following remarks: one, the improvement of our margins; two, the adequate level of allowances and healthy NPL cost of risk and coverage ratios; three, the continued growth of our net income; fourth, the trend of our liquidity funding and capitalization positions; and five, a quick note on 2 corporate events recently announced.

One, our margins have kept improving. As mentioned before, Gentera's total loan portfolio amounted to MXN 39.1 billion in second Q '21, a 1.9% contraction compared to the figure reported in first Q '21 and 3.9% smaller compared to second Q '20. It is important to note that this contraction -- the contraction of this quarter was mainly driven by the FX consolidation effects of Compartamos Financiera Peru seems at local currency, we observed that all performing loan portfolios grew quarter-to-quarter. Interest income grew 8.7% compared to the previous quarter, mainly driven by better performing quality at Banco's Compartamos portfolio.

We have also been able to reduce 7% interest expenses through active liability management. This result in net interest income growth of 10.5% quarter-on-quarter and in improving to 35.2% in second Q '21 compared to 32.1% in first Q '21 and 29% in 4Q '20, showing a consistent recovery trend. Provision for loan losses at Gentera amounted to MXN 1.16 billion, representing a MXN 440 million increase compared to first Q '21 after a prudential provision of MXN 304 million in Compartamos Peru to cover for potential losses in its loan portfolio through the pandemic.

Even after these additional provisions in Peru and supported by the outstanding risk dynamics in the loan portfolio of Banco Compartamos, net interest income after provisions amounted to MXN 3.948 billion, resulting in a NIM after provisions of 27.2%, slightly above to the one reaching first Q '21, but more than double to the one presented in second Q '20 of 13.5%. It is important to highlight that we expect to see NIM before and after provisions moving closer to 40% and 30%, respectively, by the end of the year. So we should expect further improvement in these ratios.

Cost of risk stood at 11.7% in second Q '21 and 9.4% for the first half of the year, thus moving below the low end of the range guided for the year at 10.5%. Net commissions also showed an improvement, mainly driven by our insurance business and other fee collections. Operational expenses had a 6.7% contraction compared to first Q '21. Considering the first semester of this year, expenses amounted to MXN 6.9 billion, representing a 5.9% growth compared to the same period of 2020. We are maintaining our 10% guidance growth area of expenses for the year, mainly driven by planned increases in expenses, some inflationary adjustments and the effects of the consolidation of ConCrédito, as mentioned in the past.

Second, we have sufficient allowances based on the observed trends, sound asset quality and improving NPLs. Allowances amounted to MXN 3.2 billion on a consolidated level with a coverage ratio of 280.5%, above 228% presented last quarter. NPLs amounted to 2.96%, improving compared to the 3.74% and 3.79% of first Q '21 and second Q '20. As we have mentioned before, most of the original pandemic impact has already been reflected and absorbed in our income statement and capital base.

Three, net income has kept growing, maintaining a positive trend. Gentera's second quarter '21 net income amounted to MXN 653 million, 72.8% above first Q '21 with Banco Compartamos showing an impressive growth compared to the previous quarter of 186%. The controlling company participation in net income amounted to MXN 595 million, resulting in the equivalent of MXN 0.37 EPS.

Four, we maintain strong liquidity, funding and capital positions. Gentera concluded second Q '21 with a very robust liquidity position amounting to MXN 20 million. Liquidity levels at each subsidiary are solid and sufficient to fund our expected growth for the rest of the year and are strong to face additional challenges and/or opportunities in each local market. Access to funding continued strong, and we keep working hard on maintaining excellent communication with all our relationships to maintain this.

Gentera's strong capital-to-assets ratio amounted to 33% in second Q '21. And Banco Compartamos concluded the quarter with a 36.9% pickup. Compartamos Financiera with a solvency level of 17.7% and ConCrédito with a capital asset -- capital-to-asset ratio of 59%.

Finally, I would like to inform you about 2 important events that happened at the end of the second quarter and at the beginning of July that have already been presented above. First, on June 25, Gentera made a MXN 500 million, PEN 99 million transfer to Compartamos Financiera in Peru to increase its capital reserves and to strengthen its capital position. This, to support the additional provisions of MXN 304 million mentioned before.

Second, on July 5, Gentera announced the transfer of Compartamos S.A., a Guatemala's loan portfolio business and operations to Fundación Genesis Empresarial. This transition process will be concluded during the third quarter of this year. So it's important to note that the potential expenses of this transfer have already been reflected in Gentera's second quarter '21 income statement, amounting to MXN 207 million. What Compartamos Guatemala loan portfolio and other lines related to the balance sheet will be out of the consolidated balance sheet in the next quarter.

Finally, and recognizing that we still are facing a challenging environment, we're very proud and enthusiastic about the results delivered so far. Particularly, Banco Compartamos and ConCrédito have already delivered ROEs above 20% for the first semester of 2021.

We are very motivated with the plan for the second half of the year. We have 3 objectives that should drive revenues that along with a normalized and monitored cost of risk and adequate expense control will allow us for additional improvement in margin and profitability levels.

Thank you all for your attention. This is all for my presentation, and we can now move forward to the Q&A session.

[Operator]

[Operator Instructions]

Our first question comes from Ernesto Gabilondo with Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

Congratulations on your Mexico's operation. My first question is on your sensitivity to interest rates. Can you remind us what is the potential impact from an increase in interest rates of 100 basis points in 12 months? My second question is on competition. We have seen a lot of competitors looking to attend the low-income segment, such as new digital banks like Banorte, Nubank, Walmart, Coppel and other fintechs. I believe the expansion of the Mexican digital banks will be rational. However, Nubank and other fintechs tend to take market share and then worry about profitability in the long term. So considering your experience with Azteca in 2010, that they enter aggressively in the market enforce you now to grow for a couple of years. How are you preparing against competition and for a potential indebtedness in the sector?

And finally, my last question is related to cap rates in Peru and in Mexico. In the case of Peru, Castillo will appoint the new Head of the Central Bank, plus 3 new members out of 7, the current deal that is already implemented by Velarde who opposed to the cap rate and establish it as a double with the industry. We will have more news on this until next September. But how are you positioning from an eventual tougher cap rate in Peru?

And then for Mexico, specifically about a potential usury rate in Mexico, do you think this could be a problem for one of your products? I think for the traditional business of Gentera, I see no concern. Well, for example, when looking to ConCrédito, we're seeing that the final client is having an interest rate of 120%, while in the online market, there's an average interest rate of 100%. I believe you still have a remaining stake to acquire in ConCrédito. So how are you seeing the potential risk of this usury rate in Mexico? And now that you have been taking a lot of utilization, are you expecting to lower rates in order to align ConCrédito's interest rates with the traditional Gentera's products?

[Mario Langarica Ávila, executive]

Thank you very much, Ernesto. I'll answer the first one, and then Enrique will continue. As you know, we have been, during the years, having a very active liability management strategy. So regarding a potential increase in interest rates in Mexico particularly, we already have part of that potential increase in our projections. But also, as you know, we have flexibility in moving between fixed rate and variable rates, and we have already started positioning for that potential scenario. And also reminding -- remembering that we still have a large funding position with the liquidity in our balance sheet that we think that we can also manage in order to maintain our expenses level in an adequate level.

[Enrique Majós Ramírez, executive]

Ernesto, this is Enrique. Let me talk a little bit about competition, fintech and the concerns that you put it in the table. I will start by saying that, yes, I believe that new fintech players will definitely become more and more relevant. And I think that in any case, and this is our experience since we started our innovation lab in Fiinlab. The more critical challenge that we are all facing, all the players that are -- that we are trying to do something in the digital world is the risk assessment model. I think that technology give us a lot of benefits in terms of customer experience and even cross-selling and the segmentation, et cetera. But the really, really big challenge that we have there is in risk assessment model.

So as you are saying, the major risk for upgrading or upscaling any of these models is to be very careful with the delinquency. That's the reason we believe that our strategy is the right strategy to go through. And I mean we are -- as you can see in my explanation, what we are doing is we are culminating the digital touch with customers with a human touch. We are culminating what the technology provide us to do a better risk assessment model through algorithms and artificial intelligence. But we are also doing it on top of our traditional operation. That's the case of our digital platform to assess the credit that I talked about. So we have to be very careful with delinquency, but I do believe we have the winner form of last year because we are going to be very close not only to provide the customers more convenience in the way we deliver the products, but also in the way we assess the risk with these new technologies which I -- as I said, I think is the main challenge that we are all facing. And when I say we, I refer to all the new fintech players.

So yes, I think there's a great opportunity there, and we have to go with a very clear strategy to capture that opportunity. And let me put together my answer with your question around ConCrédito. And yes, I think that what -- ConCrédito is very powerful. And the reason we believe it's a very strategic business for Compartamos is for -- I mean for Gentera is because it offer us mainly 2 strategic advantages. The first one is that we are providing new products, new consumer products, and that's increasing our product offer. And on the other hand, it gives us a new strategic distribution channel with more than 50,000 [indiscernible]. So -- and I know we all understand it and the concern comes more in terms of the interest rates. But as I said, we are making a lot of progress on digitalizing and putting in digital technology. The operations, we are operating -- we are capable now to operate branchless. So that will bring us efficiencies. And eventually, we think that we can capture those efficiencies and bring down, as far as we can, the interest rates to customers.

Just to complement on this thing, it is also worth to remember that in Mexico, we don't have interest cap initiative. What we have is an initiative that Monreal put it, and it's related with the same mandate that Banco de México had before in terms of regulating rates and commissions. So we don't see, in the short run, a threat in terms of interest cap rates in Mexico. So well, I believe that can answer your question. And I think Patricio has the answer for the third one.

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Ernesto. As you know, the interest rate gap risk has always been there, and we actually actively manage the risk. In Peru, as you know, the 83.4% is now in place. As I mentioned during my remarks, we've taken actions to increase the ticket size to reduce the operational cost, and we will continue to work to find ways for productivity to make this product work despite the fact of this cap rate. Again, as you mentioned, this might be revised over time. But again, the message here is that for financial inclusion, having such caps are not necessarily good, and there's data that prove this information.

So we, as any other administration, need to go and talk with the new government in Peru, see and talk as we've done in the past about the -- why the cost is where it is. And this is a process that we normally do, not only in Peru, we also manage the risk in Mexico. Again, what we can do today is talking with regulators. In Mexico, also, we will have a new Congress by September. And again, we need to go through the process and talk with these legislators in case the deal is again proposed.

But what we could do in the meantime is what Enrique mentioned of our digital transformation and try to have a lean process, efficient model, digitized processes to be able to reduce the cost and be able to also reduce the rates as we get economies of scale. Again, this is -- as I said, a risk that has always been there. We manage it. And we don't think that it's a higher risk today in Mexico than it has been in the past. And in Peru, again, we -- with the actions we've taken, the impact is today small. And we expect that with the actions that we've taken, the profitability of the product will return in 2022. I hope this answers your question.

[Ernesto María Gabilondo Márquez, analyst]

Very helpful. Yes.

[Operator]

Our next question comes from Juan Recalde with Scotiabank.

[Juan Recalde, analyst]

My question would be related to ConCrédito. So we saw the clients rising around, I think, 17% quarter-on-quarter. The portfolio rose 13% quarter-on-quarter, and the ROE was close to 19%. So things are looking quite good there. So I was wondering how big can this business become? And what portion of your earnings could be generated from ConCrédito in the mid- to long term?

[Enrique Majós Ramírez, executive]

Juan, thank you for your questions. Yes, ConCrédito is looking very good, and we are very excited with the results and the perspective that it has in the future. As you said, the growth is being quite good. And we expect that with all the transformation that we're making on the operation with this platform, digital platform that I talked about, we are going to continue on this path. Now we are looking at a growth of around 13%, 15%. And we believe that for the next month -- maybe the next 12 months, we could see growth around 20% or even a little bit above 20%. So that looks good. And yes, the other thing that is worth to explain is that as you can see, the net income for ConCrédito this quarter was less than the previous one. And it was because -- and we made some regulatory reserves on May related to the change in our insurance company. So we just made those reserves. And if we discount that effect, we would have had an additional MXN 37 million net income. So it is looking good. It is looking good, and we are very excited about what we are doing with ConCrédito.

[Operator]

Our next question comes from Ricardo Buchpiguel with BTG Pactual.

[Ricardo Buchpiguel, analyst]

Congrats on the very strong results. I first just want to confirm your 2021 guidance of MXN 1 to MXN 1.1. And just to understand if you analyze the EPS for the Q2 quarter, we'll be talking about around MXN 1.5 again. So probably this guidance is saying that we should see some acceleration on earnings for the second half of the year compared to the -- only to the second Q of 2021. And mainly wanted to understand if this is the case, is this mainly related to top line in dynamics or perhaps some effects on the Peruvian subsidiary. And for my second question, I wanted to understand a little bit more. What is the rationale for the operation expenses that you book in terms of the exit to the Guatemala branch, right? So just to have a bit more light on what premises was used to reach this around MXN 270 million (sic) [ MXN 277 million ] for the quarter.

[Mario Langarica Ávila, executive]

Yes. Thank you very much. Yes, as you mentioned, we guided MXN 1 to MXN 1.10 for EPS for the rest of the year. We still think that we have some wins on the environment. We need to be very careful about the next quarter, we have -- the next semester. We're very confident on the growth. So that's why we clearly believe that our results are going to be very positive. But we still need to see how the rest of the year develops, mainly in Peru.

And also, as I mentioned in my remarks, there are some operational expenses that are expected to happen in the second semester related to increases in some expenses, mostly driven by inflation. So that's why we are putting our guidance in those levels.

Regarding the MXN 277 million of expenses booked at the Guatemala subsidiary, that is the net effect of the transaction. So considering all of the effect that will result in the transfer of the portfolio, and some of our colleagues moving to Fundación Genesis, the net effect of the transaction represents those MXN 277 million, and that's the rationale behind it.

[Ricardo Buchpiguel, analyst]

Very clear. Just one quick follow-up. You mentioned the higher operation expenses would lead to -- would impact earnings for the second half, like, and there is still uncertainty on Peru. But this will also reflect a bid in the NII and fee income estimates, right? So we should expect maybe something a lower NII or lower fee income for -- when compared to the second Q 2021, which was very, very strong, right?

[Mario Langarica Ávila, executive]

No. NII, as I mentioned before, the margins will improve. It's more related to the provision -- part of the provision, but we expect both the NIM before provisions and after provisions to reach the levels that I mentioned, around 40% and 30%, and the operation expenses will come at the lower line.

[Operator]

Our next question comes from Yuri Fernandes with JPMorgan.

[Yuri Fernandes, analyst]

Again, congratulations on the results. I have a first question regarding the consolidated earnings, the MXN 650 million. When we look to the subsidiaries, right, when we try to add Mexico, Peru, Guatemala ConCrédito and even the data that we report for the first half. I guess we just had the first half for ATERNA and the other nonbank business you have there is still like a portion of the earnings that I cannot know where it's coming from and all like I thought it was related to the nonbank business, but still I don't -- I can't get. I guess my point is, for the MXN 650 million, like, where is these other earnings coming from? Because historically, when we look, the main subsidiaries, they were about 90% of the earnings, right? And this quarter, they were about 80% of the earnings. So I don't know if the holding is helping. I thought the holding would be cost center, not like providing earnings. But I don't know, like the first question is more to understand where the portion of the earnings are coming from to help along the MXN 650 million.

And my second question is regarding the asset quality for Mexico. It has been great, and I guess you did a very good work charging off bad clients, originating just like for the sectors that you think are better during COVID. But still the cost of risk, they are below 4%. And historically, in Mexico, the cost of risk were 8%, 10%. So my point is do you think because of this better origination, you can keep the cost of risk low for this year, and maybe just in '22, we start to see cost of risk in Mexico perhaps moving back to the normal levels? Or no, we should start to see cost of risk in Mexico start to increase because, again, 4% seems to be a very -- pretty good number? I guess my point is how sustainable the cost of risk in Mexico is? And how long should we continue to see this level of provisions in Mexico?

[Mario Langarica Ávila, executive]

Thank you very much for your question. Yes, most of the earnings have come from Mexico, as we have already explained. Compartamos is a very important driver. ConCrédito is a very important driver. But also Yastás and ATERNA have kept contributing to better performance. So all the 4 subsidiaries in Mexico are performing well and contributing to the earnings.

[Yuri Fernandes, analyst]

Yes, but you reported earnings of ATERNA and Yastás, right? You report in the release, the earnings for the first half of the year, not the second Q. And even adding this, there are still like MXN 100 million that I don't know where they're coming from.

[Mario Langarica Ávila, executive]

Yes. Well, we don't -- also Compartamos Servicios that we don't give the disclosure. So if you want, we can have a conference call to go through the details of each one.

[Yuri Fernandes, analyst]

Okay. That would be great.

[Patricio De Bonilla Garcia Vallejo, executive]

And in terms of asset quality during -- yes, it's a number that it's even better than the one we were expecting. And this is for many reasons, right? Of course, origination has been key. The monitoring process that we follow with the customers throughout the length of the credit is also helping. And also, as I said during my remarks, given the fact that the competition needs getting weaker as Compartamos has become one of the most reliable sources of funding, customers are trying to keep a good credit history with us. So they are paying us back on time.

Again, this is the best NPL that we've had for the last 13 years. But again, today, we have not been growing much, the portfolio. The portfolio has been stable for this semester. This second part of the year, it will be more of growth. We aim to grow double digit for the year. And we are flat as of June. So as you know, as we accelerate, we increase new customers who tend to be riskier at the beginning. And once they see some -- we see some of the customers throughout the cycles, they become more -- much better customers and a more stable asset quality.

So to resume, yes, today, it's a very low point. We expect some deterioration as we grow, but this will be seen on the first half of next year. And -- but our aim is to keep the cost of credit as low as possible. Again, thinking about a sustainable one, 8% is the one we had in the past. We aim to have something around there for 2022. But it's not something that you will see in this year.

[Operator]

Our next question comes from Jorge Henderson with Santander.

[Jorge Henderson Cubillas, analyst]

Also, congratulations for the results, and just one question. This is regarding asset quality in Peru. So when do you expect to see the NPL ratio peaking on the Peruvian subsidiary? And also at what level do you see the NPL ratio peaking? That would be my only question.

[Mario Langarica Ávila, executive]

And regardless of the -- as we did in Mexico, you remember that back in September, we provisioned the potential losses that we were expecting in Mexico, generating losses during the third quarter of last year. Once we took the hit, even though the asset quality deteriorated in October and November. The reality is that the expense for provisioning didn't move along. So you shouldn't be worried at NPL increases in Peru because we have now provisioned most of the expected losses that we have for this subsidiary.

So as you know, our write-off policy in the group is to write off loans of 180 days of arrears. So we provision today what we expect to lose for the coming quarters. And you might see a spike in NPLs, but don't necessarily a higher provision cost for this subsidiary. So if it moves to 7%, 8% and then will be written up those loans, that's the normal process that we did in Mexico and we expect to happen in Peru. The good news is that we already generated the provisioning. We have still the strong capitalization. And this is not now a concern that it was a couple of months ago. Now we have a clear visibility on what you should expect for the coming quarters.

[Operator]

Our next question comes from Carlos Legarreta with GBM.

[Carlos de Legarreta Diaz, analyst]

Just regarding the credit portfolio growth of 13%. That is for the entire year, for the entire company, right? Does this include the movement of, say, deconsolidating Guatemala versus consolidating only ConCrédito for half of last year? Just -- I mean I think that puts a little noise into it. So perhaps you could comment on Mexico, particularly in Compartamos what was the expectation in terms of portfolio growth.

[Mario Langarica Ávila, executive]

Yes. The growth is -- we're maintaining the guidance that we gave at the beginning of the year. And most of the growth will come from Mexico. And we also expect to see some additional growth from Peru. But the main driver will be Mexico. And as we have already mentioned before, Guatemala will be out of the consolidated numbers in the next quarter.

[Carlos de Legarreta Diaz, analyst]

And I apologize for this. I did miss the sensitivity to interest rates that you provided. I think earlier there are questions. Could you repeat that for us, please?

[Mario Langarica Ávila, executive]

Yes. Sure. Sure. What I said is that we, as most of the market expect some growth in the reference rate of Mexico. So we have part of that considered in our projections. And as I mentioned before, we have a liability management tools in order to mitigate the potential effect on the interest expenses, we have a part of the portfolio in fixed rate. We have the ability to move from variable to fixed. And our variable levels are very, very cheap at this point. I mean it makes sense to stay with variable rate at some point. And the last point that I mentioned before was that we have this excess funding that we can also reduce it in order to mitigate the potential growing expenses.

[Enrique Majós Ramírez, executive]

And just to add, Carlos, to your question about the portfolio in Mexico. Just remember that in Mexico, we will have now and it's becoming more relevant the combination not only of the portfolio in Banco Compartamos, but also the portfolio of ConCrédito. So the result in the growth of portfolio in Mexico will be the combination of those 2 businesses.

[Operator]

Our next question comes from [ Reto Benavides ] with HSBC.

[Unknown Analyst]

My question has been answered.

[Operator]

Our next question comes from Gilberto Garcia with Barclays.

[Gilberto Garcia, analyst]

Even the fairly consistent improvement and positive trends, do you -- would you be able to provide a rough guidance of what your expectations are for 2022? And following the departure from Central America -- I know that Peru is significantly larger for your overall portfolio. But would you consider divesting Peru to just focus on Mexico?

[Mario Langarica Ávila, executive]

Regarding '22, obviously, we will provide the guidance by year-end. But what we mentioned in the past is that we expect that in '22, we will be able to reach earnings above 2019. That's what we have said in the past. But the specific guidance will obviously -- we will give it at year-end or year start.

[Enrique Majós Ramírez, executive]

Gilberto, and regarding your second question, the divesting in Guatemala, as I explained, is for a very clear and strategic reason. We wanted to focus on the businesses in Mexico and Peru because we see great growth opportunities, and because we see that if we transform into a more efficient company through technology, we have a lot to take out of -- talking about value in Mexico and Peru. So in the short run, we will concentrate in Mexico and Peru. Maybe in the future, we will be talking about any other expansion, but not at this point, not for the following at least 2 years.

[Operator]

There are no further questions. I would now like to hand the call back over to management for any final comments.

[Enrique Majós Ramírez, executive]

Well, thank you all for staying with us in this call. It was a pleasure, again. And just to point out to maybe 2 or 3 takeaways. The first one is, I believe it is clear that we are proactively managing and controlling the challenges and the difficult situation that we are living all over the region. And -- but well, we feel comfortable about the way we are controlling the situation.

The second thing is that, as you can see, we expect very good results for the second half of the year. So I think we have the elements. We have the strategy. And mostly, we have the team to execute a very good second semester. And third, that we are very excited about the value that we will capture through our digital transformation initiatives. And we are preparing ourselves to have a very good 2022 year in terms of capturing value through new technologies, through improvements in the way we serve our clients and through the efficiencies that we will capture through technology.

So thank you so much for staying with us. Thank you for your interest, for the follow-up and for the support that we always received from you, and have a nice day.

[Operator]

Thank you for your participation in today's conference call. You may now disconnect. Have a wonderful weekend.