Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, and welcome to the Second Quarter 2022 GENTERA's Conference Call.

Now I would like to turn the call over to Mr. Enrique Barrera, Investor Relations Officer of the company.

[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 Majos, GENTERA's Chief Executive Officer; Mr. Patricio Diez De Bonilla, Banco Compartamos, Chief Executive Officer; and Mr. Mario Langarica, GENTERA's Chief Financial Officer. Enrique Majos and Mario Langarica will present entire results for the second quarter and first semester 2022 as per the report that was issued yesterday. And Patricio Diez De Bonilla along with Enrique and Mario will actively participate in the Q&A session of this conference call.

Please note that during this presentation, GENTERA may make forward-looking statements. These do not account for future economic circumstances, industry conditions, company performance or financial results. Additional information on forward-looking statements can be found in the disclaimer located in our earnings release. If you did not receive a copy of the release or if you have any questions, please do not hesitate to contact our Investor Relations department in Mexico City. If you are a member of the media, we ask you to contact us directly.

I would now like to turn the call over to Mr. Enrique Majos for his presentation.

[Enrique Majós Ramírez, executive]

Thank you, and good morning to everyone and good evening for some of you.

And before I start with my initial remarks, let me just talk a little bit about what we were talking about a few minutes ago here with the team. And I would like to describe you the spirit of our management team today. And as you have seen in our report that was distributed yesterday, we are excited about the results we had in this quarter. But more importantly, we are very, very excited for the promising future we'll look ahead for the following year. So that's the spirit of the team. And I think that that's something that encourage us to keep on working hard on the services we provide to our customers and for the company.

So let me start with the initial remarks. And I will start by saying that despite the complicated level in local economic conditions, we feel very proud to announce that GENTERA's second quarter results are not only as expected, but in many ways, we are delivering results above expectations. Actually, one year ago, we commented that 2022 was going to be the year in which we were getting back to the financial results we had before the COVID prices hit. And as of today, we can definitely say that this year, we will deliver above 2019 results, which by the way, was one of the best years in GENTERA's history.

Today, the main 3 economic engines of GENTERA are up and running at very good pace. The 3 engines that I want to refer to are; the first one, Banco Compartamos in Mexico, which is clearly showing a solid and healthy growth. The second one is Financiera Compartamos in Peru, which portfolios and NPLs are already showing a strong recovery dynamic after the COVID social and economic constraints. And the third one is ConCredito, which is also growing based on the branchless geographic expansion strategy and the synergies that we have now in place with Banco Compartamos.

As of the end of the first half of the year, GENTERA's results look solid and consistent with the strategy we have been following. In fact, as you know, we recently upgraded our guidance in June. And today, our expectation is that we will end the year close to the high end of the value ranges that we provided last month in our new guidance. Portfolio continues to show solid growth, not only versus the previous year, which shows a growth of 30%, but we are growing also consistently quarter-by-quarter and we expect to continue with this trend for the rest of the year.

Additionally and very important for our business, portfolio quality is remarkable. GENTERA continues having a consolidated 2.5% NPLs. And despite the global inflation conditions and a context of economic slowdown, GENTERA has disbursed over MXN 80 billion in the first 6 months of the year. Putting this number in perspective, this is the highest disbursed portfolio in the history of GENTERA.

One of the main benefits of having solid results is that we are being able to accelerate the initiatives related with the evolution of GENTERA towards a more convenient and efficient digital operation in favor of our customers and the rest of our stakeholders. Therefore, our transformation strategy continues showing relevant progress and we are on time with our plan in calendar.

As we have explained before, the 3 most relevant digital transformation initiatives are the following. The first one, the implementation of our digital platform to manage our credit process. The second one, the upgrade of our digital payment platform that will improve our YASTAS network and transactional capabilities of GENTERA. And the third one, the upscale of the ConCredito business model and the synergies between ConCredito and Banco Compartamos as well with other GENTERA subsidiaries.

So let me give you a quick update on these 3 strategic initiatives. Regarding our digital credit platform, let me remind you that this platform will allow us to manage not only the credit process, but even more important, the relationship with our customers. In Mexico, by the end of this year, we will have around 2/3 of our customer base operating on our digital credit platform. And by the second quarter 2023, we will be fully operating under this platform. And in Peru, 100% of our digital credit customers are already being served by our loan officers with a digital credit platform. This is one of the reasons that support the good results we are having in Financiera Compartamos in Peru. Once we have our entire credit operation under this platform, we expect at least 30% increase in our loan officer productivity.

Now talking about our YASTAS digital payment platform, we expect to migrate to our new core transactional system by the end of the present year. The new core system will allow us to be more efficient on including more financial and payment providers into our platform and this will make YASTAS a more robust and complete platform to compete in the payments ecosystem of our customers. In addition, we are building a more robust offer for our YASTAS agent by providing them access to ConCredito and Compartamos products. As you can tell, for GENTERA, this means one important thing; portfolio credit growth.

And before providing some details on ConCredito, let me point out that ConCredito operates without physical branches and fully based on digital platforms. Even the funding and credit process runs 100% on digital platforms as well as a relationship with our 67,000 empresarios. So the way we see it, ConCredito is, in fact, GENTERA's fintech business model.

Our ConCredito business model is already giving us the opportunity to diversify our credit distribution channel and to expand our credit offer from only working capital loans to a more complete offer, including consumer loans. Synergies between ConCredito and Compartamos is now a reality. As of the end of the second quarter, 19,000 Compartamos Group leaders became Empresarios ConCredito with very good results. These numbers represent almost 30% of the Empresarios of ConCredito.

As I mentioned in our last call, with all this in mind, our growth expectation for ConCredito's portfolio is above 30% for the following years. And CrediTienda, which is, as you know, our consumer goods e-platform, now with more than 30 consumer -- 30,000 consumer goods, has reached a loan portfolio of MXN 393 million.

So as you can see, as the first half of the year, we are in a very good position to continue delivering the results we have. And in addition, we are preparing GENTERA for a promising future in terms of growth and profitability. And by the way, an update on our board of directors composition. Yesterday, we welcomed Ignacio Echevarria and Juan Carlos Torres as the 2 new members of GENTERA's board. Ignacio is CIO of Coca-Cola FEMSA and he has an outstanding experience in technology and corporate transformation processes. And Juan Carlos, with a growth experience in the financial sector, is Founder and President of the Board of ConCredito. With this incorporations, we are bringing to GENTERA even stronger experience to continue evolving to a promising future.

To give you more context of GENTERA position today, let me pass the call to Mario, who will explain more about our recent financial results and our expectations for the rest of the year. And after his remarks, Patricio Diez De Bonilla and Mario and myself will be happy to take your questions. Go ahead, Mario. Thank you.

[Mario Langarica Ávila, executive]

Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in GENTERA. As in previous conference calls, I will focus my remarks on the following concepts. One, our strong and improving net income generation and profitability. Second, our liquidity and capital position. Third, our portfolio growth and the performance of our margins. Fourth, our asset quality, including cost of risk, allowances, NPLs and coverage ratios. 5, our operational expenses. And 6, our expectations for year-end.

In these remarks, we will compare first half results and metrics to the 2021 comparable. But more important, we will compare some to 2019 that was the last full year before the pandemic started, and here when we achieved our second largest historic net income. It will be very illustrative to see how first half of '22 looks very strong compared to pre-pandemic levels.

Now let me start. One, net income continues growing well above pre-pandemic levels. GENTERA's first half net income amounted to MXN 2.14 billion, a very strong result, representing 2.2x growth compared to first half '21, but more important, 48% higher than first half 2019 net income. We want to highlight that GENTERA's second quarter 2020 income amounting to MXN 1.3 billion is our best quarter ever. GENTERA's controlling participation in second quarter '22 amounted to MXN 1.24 billion, representing an EPS of MXN 0.78.

As you can see, after this strong result, GENTERA continues delivering positive business and financial dynamics, well above 2019 and with clear opportunities going forward. GENTERA's ROE for the first semester stood at 18.2%. And this quarter, we reached 20.4%. This semester's ROE is above first half of 2019 of 16.7%. It is important to highlight that Banco Compartamos, our largest subsidiary, reached very strong levels of ROE of 30.8% and ROA of 9.7% even considering its strong capital position. Our expectation for GENTERA is to finalize the year with the highest historic net income with an ROE moving around 17% and an ROA around 6%.

2, we maintained our strong liquidity, funding and capital position. GENTERA concluded the first semester with a very healthy liquidity position amounting to MXN 10.6 billion. Liquidity levels at each subsidiary are solid and sufficient to fuel growth and are strong to face the opportunity that this year and the next will bring. As we have mentioned in different conference calls, we have strong access to different and incremental funding options for the whole company and for the financial subsidiaries. And we have kept a healthy balance in the composition of our liabilities in short and long tenors and in hits and plus closing rates. GENTERA's strong capital to asset ratio amounted 36%. Banco Compartamos concluded the quarter with a 38.6% ICAP. Compartamos Financiera with an 18.9% solvency ratio. And ConCredito with a capital to asset ratio of 53%.

3, our portfolio has kept growing to reach a new historical high and our margins have continued improving. As mentioned by Enrique, GENTERA's second half loan portfolio reached a new historic level of MXN 50.8 billion, growing 29.8% compared to second quarter '21 and 37.9% compared to second quarter '19. This semester performance make us believe that we will finalize the year with a portfolio growth around 70% at the high end of the range guidance for '22, expecting our highest historic portfolio ever.

We have also observed continuous improvement in our margin. Accumulated net interest income for the first half of the year was 22.8%, higher than first semester '21 and 19.7% higher than in the first semester of 2019, representing a 39.8% NIM. These results were mainly driven by a 24.2% growth of accumulated interest income compared to first half '21, coming from the portfolio growth of 39.5% in Banco Compartamos and 20.2% in Peru.

It is important to remember that the expenses associated to credit origination and leasing agreements have been reclassified from 2022 onwards in the interest expense line according to Financial Reporting Standards in Mexico and IFRS. In the first half of the year, these expenses represented MXN 265 million, around 19% of the total MXN 1,405 million reported. Excluding these impacts, interest expense as service of our funding grew 12% on a year-to-year comparison, below the 24.2% growth in interest income.

Accumulated first half of the year provisions for loan losses amounted to MXN 2.3 billion, a higher level compared to the MXN 1.88 billion registered in the first half of '21. This high level of provisions is explained by; one, the portfolio growth of all subsidiaries. And 2, by some changes in the company's cost provision. Growing provision was more than positively compensated but by NII growth, resulting in a 6 months accumulated NIM after provisions of MXN 9.6 billion, 22.8% higher compared to first half '21 and 12.4% higher than first half '19, resulting in a first semester NIM after provisions of 32.1%. It is important to say that even considering the reclassification impact in the interest expense line described above, NIM after provisions reached 32.1% in second quarter '22, the best level since the pandemic started. For the end of the year, we expect NIM to close around 39% and NIM after provisions around 31.5%.

4, regarding asset quality. Cost of risk in first half of the year stood at 9.4%, better than 10.5% guidance for the year. Allowance has amounted to MXN 2.7 billion on a consolidated level. As of today, we still maintain around MXN 160 million in additional resources in Compartamos Peru. NPLs stood at 2.52%, an improvement compared to 2.96% in the second quarter '21 and 3.01% in second quarter '19. And worth highlighting is that Banco Compartamos and Peru continued showing very solid and stable asset quality performance. Our coverage ratio in second quarter '22 amounted to 292%, superior to the last quarter.

5, operational expenses. Operational expenses for the semester stood at MXN 7.3 billion, representing a 5.8% compared to first half '21 and 7.8% above first half '19. Once again, it is very important to note that deferred expenses linked to credit origination and leasing agreements are now reflected in the interest line instead of operating expenses. And at the bank level, the past fees are now reflected in other expenses. Considering all these changes, we expect to grow operational expenses around 9% compared to 2021. And it is important to note that we are expecting to incur a proportionally higher expense level in the next 2 quarters compared to the first semester, mainly driven by the acceleration of expenses and investment in transformational initiatives and other items that we have told you before.

So [indiscernible] we expect for the second half of the year to see continuous improving operational dynamics with strong margins and higher both control and forecasted operational expenses. With these dynamics, we feel very confident that we will reach the high end of both our loan portfolio growth guidance around 17% and our EPS guidance around MXN 2.55, and we are moving in the right direction to reach our medium-term objective of an ROE of 20%.

Thank you very much for your attention. That is all from our presentation, and we can now move forward to the Q&A session.

[Operator]

[Operator Instructions] Our first question is coming from Ernesto Gabilondo of Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

Enrique, Mario and Patricio, congratulations on your historical and record high quarter and your ROE again at the 22%. My first question is on your loan growth expectations. And now you have been seeing that we are going to higher rates and there could be the risks of a potential economic recession in Mexico next year. So if considering agility contracting around 1% next year, how should we think about the loan growth? Do you think you will be able to maintain double-digit growth next year? I would like to see like your first impressions and also to know how would be your strategy with ConCredito under that scenario?

And then for my second question is related to asset quality and also considering this scenario of a potential economic recession, how should we think about asset quality and which do you think is the resale products?

[Patricio De Bonilla Garcia Vallejo, executive]

Ernesto, this is Patricio. On the portfolio growth, as you know, the underserved market, both in Mexico and Peru, is still very large. On top of that, most of our competitors are still facing or struggling the challenges of the pandemic in their operations. Therefore, we are in a very good position to still growing the portfolio, both in Mexico and Peru, at the double-digit level, not only in this 2022, but in 2023 as well. So we think that we are in a healthy position to continue gaining market share in both countries. And as I said, given the fact that the market is large, the competition is relatively weakened and we are executing the strategy better than ever.

And on the asset quality side, there have been structural changes in how we originate loans. Of course, Credito Mujer, Comerciante are still depending on the group gathering and methodology set. But the individual lending piece as well as the cross-selling opportunities that we see are more based on a data-driven analysis. We've been using business intelligence to sell offers to the customers. And this is why the cross-selling in every product have been performing better than in the past.

So with that scenario in mind, we -- even in this recessionary world, we don't see a spike or something that worries us on the asset quality in the short to medium-term. Of course, we need to execute to continue being very conservative and very diligent in how we structure the loans, but we still see that the asset quality will perform well at it has been in the past.

[Enrique Majós Ramírez, executive]

Ernesto, this is Enrique. Nice to hear you. And let me answer the question regarding ConCredito. Yes, as we have said before, we look at ConCredito as a high growth potential company. And as Patricio was saying, for the entire Group, we believe we can grow double-digits for the following year. But in the case of ConCredito, we have a higher growth potential. We believe we are going to be growing around 30% for the following maybe 2 years. And this is following a very specific strategy, which has 3 elements. The first one, ConCredito have this geographic expansion through digital platform without branches. There's a lot of market potential that we have to capture geographically even. So that's a source of growth which is important.

The second one is the synergies with Compartamos Banco, but also with some other subsidiaries. At this point, we have 19,000 from the 57,000 empresarios that come from the Groups of Compartamos. So 30% of empresarios in ConCredito are from the Group in Compartamos. This group of empresarios having very good results, not only in terms of growth, but also in terms of the quality of the portfolio in ConCredito and the portfolio in Compartamos in their groups. So that's the second line of action that we are taking that is being very successful.

And the third one -- the third part of the strategy of ConCredito is CrediTienda, which as you know, this e-commerce goods platform will allow us to grow in terms of credit through the selling of this product. And we believe that, that is the third piece of the growth that we are looking, which by the way, is completely digital. So that's also very important.

[Operator]

Your next question is coming from Jason Mollin of Scotiabank.

[Jason Mollin, analyst]

My question is if you can talk more about the competitive environment in both Mexico and Peru. How do you see the industry's level of capital as well as the supply and dynamics in each market? And more specifically related to your operations, have you assessed GENTERA's competitive position in these markets, maybe in terms of market share of loans and earnings? And how do you see the market share in these lines developing in the upcoming years?

[Patricio De Bonilla Garcia Vallejo, executive]

Jason, this is Patricio. In terms of competition in Mexico, the underserved of the bottom of the term segment is being addressed, as you know, by different players, traditional banks, niche banks, microfinance institutions and some fintechs, right? Those microfinance institutions that we compete for working capital loans and they are gathered in ProDesarrollo, we held like 58% market share as of the first quarter of 2022. This has increased from 50% in the previous year and it's clearly Compartamos, the leading player in such segment.

In terms of how they've been affected, of course, the rest of the players are facing operational difficulties after the pandemic, both on their asset quality, but most importantly, in how they fund their business. The access to credit to continue growing has been limited. They have -- they do not have such a broader financial alternatives such as we do. Therefore, we really believe that going forward we will continue gaining market share in Mexico as we are very well positioned to do so.

On the Peruvian side, Jason, the same kind of dynamics. The individual world -- the individual lending world is, as you know, competed with larger players. But Compartamos Financiera is also very well positioned where one of the best capitalized institutions, we have a strong funding alternatives. And we have a product that is not facing competition, such as the group lending piece of what we do there.

So again, also in Peru, the market is fragmented. The competitors are also facing difficulties operationally. And we think that we have a clear competitive advantage, not only on the financial side, but most importantly, on the market segments that we are focused on in such countries. So in a nutshell, Jason, we really think that with the numbers that we've presented and the strategy that we have in both countries, we will continue gaining market share both in Mexico and Peru.

[Jason Mollin, analyst]

Maybe one thing that investors have been asking me a lot about in all of our markets is the evolution of the use of cash. Can you speak to that? Do you see cash usage declining? Do you see specifically Mexico CoDi usage is increasing, decreasing or flat? And maybe just some comments on what do you think it will take for Mexicans, and for that matter, Peruvians to reduce their use of cash?

[Patricio De Bonilla Garcia Vallejo, executive]

In Mexico, unfortunately, we're still a cash-based economy. Over 90% of the transactions in the Mexican market are cash-based. This is why initiatives such as YASTAS in Mexico play a key role for financial inclusion. You need to have cash in and cash out infrastructure in order to make financial products available and convenient for the low end of the segment. So of course, CoDi has not been adopted as we would like, and we still rely heavily on the cash in Mexico. But going forward, we really think that there's a path to continue moving our customers to the digital world and being able to develop products in order to have a more digital economy in the lower incomes. That's Mexico, Jason.

In terms of Peru, as you know, there are several wallets. Peru has Compartamos Financiera. It's owner of one of the largest ones, called [ BIM ]. And in Peru, the use of this wallet have been very good. Actually, on the group lending methodology, most of our customers do electronic transactions in order to pay their loans using our own wallet. So the adoption of such 2 have been very good. And in Peru, we have not only awarded, but the correspondent agents that several banks have available to the lower incomes made the entire puzzle available to the customers. And this is why the adoption is better than it is in Mexico. But again, we do think that we have the correct thesis in order to continue moving ourselves and the market to reduce of use of cash in the years to come.

[Operator]

Your next question is coming from Thiago Batista of UBS.

[Thiago Bovolenta Batista, analyst]

I have too many questions. The first one, a follow-up on competition. You discussed a little bit about competition, but when we look for Mexico, we have seen new banks trying to become much bigger in Mexico. Do you see any relevant overlap between GENTERA's clients and the focus of newcomers like the bank? Do you see them as a potential competitor in there?

The second question is about the 2022 indication, I would not call guidance, but I know that you have not provided any strong figures [indiscernible]. But clearly, the market has not, including myself, to be honest, have not assumed an ROE of 20% for next year. Can you comment how comfortable you guys are with this 20% ROE for 2023? And how much loan growth -- loan should expand next year?

[Patricio De Bonilla Garcia Vallejo, executive]

In regards to competition, you need to bear in mind that in Mexico, only 3 out of 10 Mexicans have access to formal regulated access to credit. So of course, there's an opportunity in the Mexican market as it is in Peru to develop different credit alternatives to serve the still underserved market. As I said before, there are several different initiatives on the fintech side, the new banks, niche banks, et cetera, that try to tackle the pain points of the end user. There, we know that our customers have other financing with different banks for different purposes, consumer lending, et cetera.

So there's certainly an overlap, but the reality is that we need as an industry to develop -- we need to develop products to try to address a broader piece of the market, which is still underserved. So we welcome competitors. We welcome the new models because there's clearly a need in the market for better regulated and digital products that serve the under share, as I said, not only in Mexico, but also in Peru.

[Mario Langarica Ávila, executive]

Regarding guidance for '23, as you mentioned, we have not provided it yet and we are just working on the plan for '23. As I mentioned in my remarks, the net income of this year will be the historic record and well above 2019. So based on that, we are doing the projections for next year. But what I can tell you right now and what we have said in the last call is that we expect to have double-digit growth both in the loan portfolio and the EPS.

And regarding your question on ROE, well, we're very happy of the acceleration of the results. In the first call of the year, we said that we were expecting 18 months to reach 20% ROE. This quarter, we reached an ROE of 20.4% and reducing as base the total capital. So for the year, as I said in my remarks, we expect to be around 17%. But for next year, we feel very comfortable we will be reaching our 20% ROE objective.

[Enrique Majós Ramírez, executive]

Thiago, just let me give you a little bit more information about how do we see or we analyze competition in GENTERA. And I would like to share with you that every time we analyze competition, we analyze it in 3 groups of competitors. The first one is the traditional MFI, microfinance institutions. The second one is niche banks. And the third one are the fintechs. And then what we do and we recommend to do is that we have to analyze each competitor, not only in terms of the acquisition of customers' capacity, but also in terms of the loan collection capacity.

So I just wanted to share with you how do we track competition and how are we trying to measure ourselves against competition. And there are places that are doing very good work there and a very complete work in terms of not only acquisition of new customers, but also the collection capabilities. And there are others that lack of one of these 2 pieces, mostly the second piece, which is very hard to have, and we believe it's our strategic advantage, which is the capacity or the capability of collect the loans. So that's the way we hear and I just wanted to share it with you because maybe that will be helpful for your analysis.

[Operator]

Your next question is coming from Alonso Garcia of Credit Suisse.

[Ricardo Garcia, analyst]

My first question is regarding your capital position. I know you have a very strong plan for growth this year and next and that you still have some capital commitments left regarding ConCredito. But you have a very solid capital position across your key subsidiaries, mainly a 39% Tier 1 ratio in Mexico. Your ROE is going higher at 20% year-to-date. So my question is, how you are thinking in terms of capital going forward? What do you think should be the optimized level of capitalization of the bank considering the current mix of funding? And how do you think you could get there through dividends or what tools do you think could take your capital to that optimized level?

And my second and last question is on growth in Mexico. I mean, we have seen so far growth being mainly led by the individual portfolio. So I just wanted to check, you believe this will continue to be the case in the coming quarters, especially as we enter into an environment of lower economic growth?

[Mario Langarica Ávila, executive]

Well, yes, as you have said, our capital position is very strong. And we are very, very, I could say, proud with humility that we have reached these levels even after through the pandemic, we were not able to generate a big portion of capital. So yes, #1, we will use part of this capital to conclude in August the acquisition of ConCredito, as you know. After that, the ratio will still be very, very solid.

As we mentioned in the past calls, we plan to come back to the 40% payout ratio. So dividends will surely grow if everything goes as expected. And then we are also thinking of what we should do, we still have additional capital. We need to be comfortable on having sufficient capital for future growth, as you said, and for opportunities. But we think that we still can make some decisions going forward that we need to analyze in the next quarters.

What is the right capital level? Well, as you know, we have a limit for each subsidiary. For the bank it's 25%, but we think that something around 30% should be sufficient. And for Peru, we have an 18%. And also at ConCredito, we have a very strong capital position and we also have some internal limit. So yes, we think that we will raise the payout, for sure. And then in the future quarters, we can provide more detail on what we expect for the next year.

And in terms of growth in Mexico alone, so as you know, we have 3 different engines for growth; the group lending methodology, both in Credito Mujer and Credito Comerciante, which have been growing nicely through the years, and we expect that we can still grow the fees of the portfolio given the fact that we are gaining market share from competitors and that we are gaining market share within each customer that we serve.

The strategy going forward, Alonso, has been how we can make individual loans to grow faster. There's a huge opportunity in higher ticket as we see in Peru. We have revamped this product in the last years. And this is why we've been growing very fast the individual lending. So you should expect that individual lending will continue to outpace the group lending methodology because we are expanding geographically and we are borrow or lending higher tickets to more established micro entrepreneurs.

Having said that, the 3 different products, as I said before, Mujer, Comerciante and Individual, they have cross-sell opportunities that we are originating using their credit scoring with us and elsewhere. So again, all the avenues for growth are growing fast and you should expect that this will continue in the coming year.

[Operator]

Your next question is coming from Jorge Henderson with Santander.

[Jorge Henderson Cubillas, analyst]

Congrats for the results. I have a question on ConCredito. I was wondering if you have a medium-term or long-term indicators that you can share with us like targets, cost of risk, NIM, efficiency ratio, ROE for ConCredito? And hoping if you can talk about the potential market for the subsidiary? And do you have also a target for a number of clients or a specific amount of loan book for the next years?

[Enrique Majós Ramírez, executive]

Let me start by the potential market and then I will let Mario to answer the other side of the question. But yes, as I said, that the strategy of ConCredito comes -- the growth strategy for ConCredito comes from 3 main pieces, which is the geographic expansion, the [indiscernible] with Compartamos and the growth of CrediTienda.

Having said this, I think that the most important thing to understand here is that ConCredito is more like a consumer credit provider. And that's very important because in the consumer credit -- we have always been traditionally in the working capital loans, I mean, Banco Compartamos specifically. And with CrediTienda, as I said, we have 2 additional strategic advantages in GENTERA, which is we have a new distribution channel for credit and we have a new product which is the consumer loan. So that's where we see the potential.

Actually, we know and we have always talked about around 20 million people in Mexico, only in Mexico, that have a need of a working capital loan, but we have around 50 million people in Mexico with the need of a consumer loan. So that's the opportunity and that's the growth potential that we see in ConCredito.

[Mario Langarica Ávila, executive]

Yes. And some indicators of -- we are not giving indicators for subsidiary, but we have already mentioned some. As Enrique said, we expect that the portfolio of ConCredito will keep growing above 30%. Cost of risk should go converging to 20% in the next 18 months. And ROE, as you know, ROE today for ConCredito is very high and we think that it will continue to be high because of the structural nature of the income statement. And we expect to keep maintaining higher ROE at ConCredito, above -- obviously, above 20%, but in the higher range.

[Jorge Henderson Cubillas, analyst]

I have another question as a follow-up for the previous question before my participation. You mentioned that individual lending has been facing good lending and that you're expanding geographically. So I just wanted to ask in which part are you expanding geographically in Banco Compartamos in Mexico?

[Mario Langarica Ávila, executive]

The individual lending product was in few of our branches or service offices in Mexico. We are taking this product to a much broader set of offices. We are taking it to over 250 offices out of the 500 that we have. As you know, this product is more urban focused given the fact that the customers are more established micro entrepreneurs. Therefore, there's no need for individual lending. There's no market in very rural parts of the country.

Having said that, again, as I said before, what we are taking is best practices of what we see on the individual side from Peru to Mexico in order to originate to monitor customers. And as I mentioned during my remarks, the reality is that we are using better the information that these customers have, both on our internal growth as well as the external growth that we monitor to disburse loans. So the growth for this product will continue to be fast paced in 2023. And we expect to be a larger piece of our portfolio in Mexico as it gains share from Credito Mujer and Comerciante in the years to come.

[Jorge Henderson Cubillas, analyst]

So you're growing in the same base of office that you already have?

[Mario Langarica Ávila, executive]

Correct.

[Operator]

Your next question is coming from Yuri Fernandes of JPMorgan.

[Yuri Fernandes, analyst]

Congrats on the strong quarter. I have a question regarding fees. It was very strong, 70% plus year-over-year. So just checking if there was any kind of reconciliation, accounting change or like what explained this very strong fees? And I have a second question regarding Peru. Very glad to see Peru back to high-teens ROE. So just to double check, like what is the trend there? Should we continue to see the Peruvian units delivering strong results? Just some color on the trends there.

[Mario Langarica Ávila, executive]

Well, fees have 2 main components, if you want. One is the normal growth, which has been very solid, almost 20% in the growth of insurance fees, YASTAS, et cetera. So that we have kept very, very good results compared to last year and mainly driven by the good performance of the bank, which could drive mainly Aterna and YASTAS fees. And the other one is also the reclassification of insurance fees of ConCredito. So before those were at the other income line and now they have been reclassified to fees. But mostly, it is the good performance of the insurance business and YASTAS.

[Enrique Majós Ramírez, executive]

And let me give you a little bit more information about the growth we expect in Peru, as you were asking. And I think that here, first of all, and we explained that last quarter, what we are looking in Peru is the same story we have had in Mexico, the recovery and growth story. But with, let's say, 6 to 9 months of delay because of the nature of the portfolio there, which is a more long-term portfolio and because of the, let's say, economic constraints that the government put in place in Peru. So -- but we feel very comfortable with what we are looking at in Peru now. We are growing and we are growing very healthy.

And one thing that I described in my initial remarks and I want to point out now is that maybe one of the main reasons of the trends that we are looking in Peru is because of the digital platform that we already have in place to -- that helps the loan officers to manage their portfolio. So what this platform is giving us is a better control of the portfolio. We are growing with more control. And we have a market need in Peru for working capital that we believe we could serve in a very, let's say, mindful way with the data analytics and with a better business intelligence capacity.

[Operator]

Your next question is coming from Brian Flores of ASA Investments.

[Brian Flores, analyst]

Congratulations on the results. I have 2 questions. The first one is a follow-up on Yuri's question. You mentioned good trends in Aterna and YASTAS, just wanted to see and gauge if you think these are recurring in nature? And then the second question is that, based on your comments, based on what you said on loan growth that is going to be on the higher range of the guidance. Doing a very brief calculation here, your net income would need to be around MXN 920 million on the next quarters, the third and the fourth of this year, which might look very achievable based on the cyclicality of your business. So my question is, what is creating this caution or what is worrying you that does not enable you to revise the guidance now?

[Enrique Majós Ramírez, executive]

Let me go to Aterna and YASTAS. As you know, Aterna is a micro insurance broker. Actually, it's one of the largest not only in Latin America but elsewhere. We've sold 20 million insurance policies in the first 6 months of this year. So if this trend continues, we will end up the year with 40 million insurance policies sold through Aterna in the different subsidiaries of GENTERA.

Aterna has been very successful because we have developed different products for insurance, healthcare is one of them, life insurance is other, security insurance is other, automotive and model insurance is another pilot that we have there. So as we develop new insurance product through Aterna [Technical Issue] [58:50]

[Operator]

It appears that Enrique's line has dropped. Just bear with us just a second. We are back in the conference.

[Enrique Majós Ramírez, executive]

Sorry, we got disconnected. I was trying to answer Aterna's question. And as I was saying, the Aterna has been very successful because we have developed different micro insurance products and we sold them to the different subsidiaries of GENTERA. Banco Compartamos being one of them, but also through YASTAS, ConCredito and also Peru. So the trends will continue to be attractive on the insurance side as we, again, not only develop new products, but we continue to grow on the customer attraction front.

In terms of YASTAS, YASTAS has been very good at servicing Compartamos customers. But for the -- not only for loan disbursements, but for collecting loan payments. That has been the core of YASTAS through the years. But now that we have infrastructure, we've been using it for -- with other financial institutions, Banco del Bienestar using this network, other large banks are also part of this network. And as we grow in Compartamos customers bought in attracting other financial institutions to use the YASTAS network, we expect that YASTAS will continue their growth in the years to come. We have now 6,700 outlets out there. And we expect to continue growing the YASTAS infrastructure for the year-end and also in 2023 and onwards.

[Mario Langarica Ávila, executive]

Brian, for the guidance, as we said, we think that we are going to be reaching the MXN 2.55 EPS of the guidance easily. The thing that we are not raising that number today is, as said in my remarks, margins will be continuing performing very well, but operating expenses will be higher in the second half than in the first half because that's where we are expecting the investments and some non-recurring expenses that we mentioned in the beginning of the year. And that's basically why not -- we are not increasing it at this moment.

[Operator]

Ladies and gentlemen, your next question is coming from Carlos Gomez of HSBC.

[Carlos Gomez-Lopez, analyst]

I have a question regarding the interest rate caps in Peru. We would like to know what percentage of the portfolio, if any, has been affected so far and whether that has had any kind of impact on your earnings as well? Second, what would happen in those interest rates sort of been very high, 86%, whereas at 60% or 40%, do you think you could also handle it at those levels? And finally, given that you now have the experience of operating in an environment with interest rate caps, would that allow you to reduce it [indiscernible] countries that already have interest rate caps like Colombia or Chile?

[Mario Langarica Ávila, executive]

In terms of the interest rate caps in Peru, as you know, interest rate cap is at 83% in the Peruvian market. And with such regulation we took actions, both actions actually last year in order to mitigate the impact on this regulation. We increased the minimum balance for the group lending portfolio from PEN1,000 to PEN1,300. We had to close non-productive offices that had this product, because again, at 83%, we were not able to maintain if you don't have certain volume. And finally, we also work on the productivity side for our loan officers.

So those actions have allowed us to maintain profitability in this piece of the portfolio. As you know, in Peru, it's around 15% of what we do in such market. And to be honest, the reality is that as we grow with infrastructure that we already have implemented in that country, we will gain productivities, we will grow the ticket per customer and we expect that profitability will continue to grow in Peru on the group lending side. That was the deal that got affected for such regulation.

What happens if the cap rate goes below that? Of course, we would need to take similar actions, but more aggressive actions. As you know, the rate -- the ticket size that we lend is relatively correlated to the rate that we lend at. So we would need to increase the ticket size if we have a lower cap rate, excluding from credit, such customers that can only afford smaller tickets. So to be completely frank here, the reality is that such regulations harm financial inclusion. And we think that with the levels that we have, we are okay for now in Peru. And we are not considering entering in some other countries such as Colombia because the cap rate actually in such country is much lower than 83%.

[Enrique Majós Ramírez, executive]

And Carlos, I understand your question regarding the possibility of expanding to other countries. And what I say here is, as we said, we see a huge opportunity to grow in Mexico and Peru. So we want to concentrate on this. And so at this point, we are not looking not for this reason because of the experience we're having in the interest rate cap environment. We would look to new or to expand to other countries.

However, as we have always said, we understand the current contact may bring opportunities of expansion. We also are aware that we have the equity and the access to corresponding. And we are open to have always a late opportunity as far as they are aligned to our strategy. So we are not closed. At this point, we are not looking to any other opportunity in other countries. If we see the opportunity, we will evaluate it. But believe me, the opportunity we see in Mexico and Peru now is very big and we believe we have to concentrate on that.

[Operator]

With no more questions in the queue, the question-and-answer session has now concluded. I will hand back over to the management of the company for final remarks.

[Enrique Majós Ramírez, executive]

Thank you. Let me just bring another maybe thing that we would like to talk about because we know that the -- maybe the elephant in the room is the complicated economic outlook that we have, not only in Mexico and Peru, but also globally in this 2022 and maybe 2023.

So we know that the context is complex, but we want you to know that this is not the first crisis we faced in GENTERA along our 30 years of history. I would invite you to look at the -- maybe the last one, global crisis, which was in 2008 and how we performed in 2009. I think that we know how to deal with this kind of environment. And we promise that we will go through this 2022 and 2023 with very good results and as consistent as we have been up to now.

So -- and just to close, I would also like to point out what I said at the beginning of our remarks, we promised that this year in 2022, results will be above or at least as we had it in 2019, which by the way, were record results in the history of GENTERA 2019. And we can say that 2022 we will deliver results above 2019 and we will establish a new record for GENTERA.

Why do we see this growth expectations for the future? Well, we have a high market demand in Mexico and Peru, not only in working capital, but also in consumer lending market. We believe we have a strong competitive position. And we also know that we have a close relationship with our customers' faith on the data and digital technology that we have and the experience that we have through the COVID crisis, which made us closer to our customers. And also, we look at our financials and we see an increasing efficiency and profitability. So that's what have us confident about the future.

And I will only say that thank you for your attention, and I hope we keep in touch for the following report. Thank you.

[Operator]

Thank you all for participating in today's conference call. You may disconnect your lines at this time. Thank you.