Gentera SAB de CV
BMV:GENTERA
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Gentera SAB de CV
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Good morning, and welcome to the Second Quarter 2023 Gentera's Conference Call. Now I would like to turn the call over to Mr. Enrique Barrera, Investor Relations Officer of the company. Sir, you may begin.
Thank you. Good morning, and thank you all for joining us and for your continued interest in Gentera. Enrique Barrera the company's Investor Relations Officer. I'm very pleased to introduce our management team. With us today are Mr. Enrique Majos Ramirez, Gentera's Chief Executive Officer; Mr. Patricio Diez De Bonilla; Banco Compartamos Chief Executive Officer; and Mr. Mario Langarica, Gentera Chief Financial Officer. Enrique Majos and Mario Langarica will present Gentera's results for the second quarter of 2023 as per the report that was issued yesterday. And Patricio Diez De Bonilla, along with Enrique and Majos [Audio Gap] 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 have to contact all directly.
I would now like to turn the call over to Mr. Enrique Majos for his presentation. Enrique, please go ahead.
Hello, everyone, and thank you, Enrique. Thank you for your interest in our call in the remarks that we have prepared for you today. Let me start by saying that even when we are living hectic and turbulent times, Gentera's operations continues with good and solid results. We are delivering results as defined by our guidance, and we will continue growing through each of our business units. We feel very excited about the opportunities we look ahead.
Let me begin by pointing out the main messages that I want to deliver today, and then I will elaborate more on each of them. One, we are delivering good results, and we will end this year in line with our guidance. 2, we see great opportunity to keep growing and increasing our market share in an environment that has been implicated for most of our competitors. 3, the quality of our portfolio remains at very healthy numbers, and this reinforces the growth opportunity that we have.
4, each one of our business units are growing. And 5, as you have seen, our operating expenses increased this quarter. Mario will provide more detail on this. However, I can tell you in advance that it only has to do with the capture of market opportunities and expansion strategy that we are putting in place in order to accelerate our growth rate during the second half of the year.
Now let me give you some specifics on this. Gentera grew 8% in clients and 13.7% in portfolio on a yearly basis. For 7 consecutive quarters, we have been growing our portfolio with record figures quarter-by-quarter, reaching out MXN 7.7 billion at the end of June. Cost of risk is at 10.2%, which is below our 10.5% guidance, and the quality of the portfolio continues to improve and stands at 3.2% at the end of this period.
As you remember, we have said that our goal is to maintain NPLs between 3.5% and 4%. So we look even better than expected. Net income for this quarter is MXN 1,144 million, a figure that is below previous quarter results. I understand that there will be questions regarding this. However, let us address this more deeply in a moment. And for now, let me tell you that we feel comfortable with this result, and we are certain that we are not compromising our guidance for this year.
So what is our expectation in business strategies for the rest of the year. In fact, we see a great market opportunity in Mexico as well as in Peru. Our operation is strong, and we have the financial position to address a growing market demand. At the same time, many of our competitors are struggling with funding and some times with operational challenges as well. We believe we are in a privileged position to take the opportunity. This market transitions gives the chance of growing our client base and portfolio even faster.
Actually, in the last 12 months, in Mexico, we increased our market share, specifically in group lending portfolio market from 58% to 60%. In the individual lending portfolio, we increased our share from 14% to 20%. And even in Peru, market share increased from 7% to 8%, and we are already the #2 player in terms of number of clients only after Milan. So considering all this, I am happy to announce that we are creating our portfolio guidance for this year.
Originally, we guided a portfolio growth between 12% and 14%. After the first half of this year, we expect our portfolio to grow between 14% to 16%. In order to continue capturing this growth opportunity, we have been making investments in our infrastructure to increase our capacity to address potential markets. And this is the main reason why our operating expenses are higher this quarter. These investments that we are making are mostly in the new loan officers hiring as well as in sales incentive expenses in Mexico.
Increasing our sales for capacity will not only allow us to grow our portfolio and capture more market share. At the same time, we will also be able to maintain the productivity of our loan officers. Another investment that is included in the operational expenses is that 12 new branches will recently opened in Peru in order to have a better presence in places with high growth potential. Business strategy will allow us to increase our portfolio guidance for this year while maintaining our guidance in terms of EPS and our ROE above 20%. In 2023, Gentera will deliver again.
So as you can see, we have a promising second half of 2023, and we move forward for an even better 2024. We Closing this year, as I'm describing will give us a higher portfolio since the beginning of next year, which will allow us to have a double-digit growth in portfolio and net income. If we combine this with operating expenses growth below 10% with a low cost of risk and a potential over cost of funds, 2024 looks really promising.
Regarding our digitalization and modernization initiatives, we feel excited and encouraged by the results we are having up to now. As I described in previous calls, the use of digital data has given us the possibility to add more to our customers through cross-selling. And in Mexico, we are recently improving processes related with our operational model, specifically in our loan officers journey.
At the end, our goal should always be to provide a more convenient offer to our customers and at the same time to obtain a higher productivity and become more efficient as a company. Peru has relevant progress on its digital platform for the credit process. In the digital lending side, we already had 100% of our loan officers operating with a platform that gives them the autonomy to process clients in a more centralized way and a more efficient way.
And in the group lending side, we already have 50% of our goods disbursing their loans through BIM, which is our electronic wallet. As you know, competitor continues slowing with a branch-led channel strategy through digital platforms that allow Empresaria to operate more efficiently. And by the way, I want to point out that [indiscernible] continues improving the quality of its portfolio. We can say that NPLs are under control, and we are about to see solid growth again during the second half of the year.
As we have said before, a balance between growth and control is the name of the game in the microcredit business, and our team has proved the experience they have in managing this cycle. Talking about the rest of our subsidiaries, I will get into details since this information is already in our press release. However, let me just tell you that [indiscernible] continue operating with very good results.
Well, thank you for your interest in my remarks. And now let me open the stage to Mario who will provide specific financial remarks that we hope will help you with your analysis. And after that, we will also have Patricio in the call to answer any questions you may have. Thank you, and go ahead, Mario.
Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in there. As Enrique signal in his remarks, we're very excited with the results in the past quarters and in the first semester of 23, and we are very enthusiastic with the current opportunities and the future expected performances for Gentera and [indiscernible].
I will open my remarks in the following concepts: #1, net income and profitability. Net income for the first semester of 23 amounted to MXN 2.7 billion, the best figure for any semester in our history. Gentera controlling participation amounted to MXN 2.35 billion, representing EPS of around 1.49% and a 6% growth compared to the EPS reached in the same period of last year. It's important to remember the seasonality of our portfolio, highlighting that typically the second semester takes to be stronger [indiscernible] the tends to be stronger in terms of credit demand and do in the generation of stronger net income.
As a consequence of this, we expect to see an acceleration of net income compared to what we have achieved in the first semester of the year. And with this, finalizing the year on the EPS range guided for '22. As of first semester turned to Gentera controlling ROE reached 19.6%, which is on track to meet the expected clinical objectives for the year. Important to note that Banco Compartamos, our largest subsidiary, continued with very strong levels of profitability. We presented in the first half of the year, an ROE of 26% and an ROE of 8.5%.
[indiscernible] ROE for first half 2023 stood at 7.2%, about 16.9% last year, and [indiscernible] ROE improved to 19.9% from 50.6% last year. #2, portfolio road margins. As Enrique mentioned, Gentera finalized a quarter again with a historic loan portfolio over MXN 57 billion, growing 13.7% compared to second Q '22. Given the strong dynamics that we saw in this first half of the year and the market opportunity that we see going forward, we decided to increase the guidance for the loan portfolio growth. It is important to signal that we expect to have double-digit growth in our departing by the end of the year.
Following this portfolio growth, net interest income for the first semester of the year amounted to MXN 12.8 billion, representing a growth of 7.4% compared to the same period last year. These results were driven by a strong 4.6% old interest income, amounting to MXN 15.3 billion, with a representing close to MXN 2 billion growth compared to first semester last year. This solid performance was strong enough to compensate and increasing MXN 786 million in financing expenses.
For portfolio convenience representing the separate effects of financing expenses and origination and leasing agreement line so you can identify the movements more it in the press release. The net effect resulted in a net of 40.8% and 40.1% for the first semester, both of them slightly better than the 39.7% and 39.8%, which is the respective quarters.
Provisions for loan losses for [indiscernible] amounted to MXN 1.42 million, 24.6% higher than second Q '22. This higher level of origins is mainly explained by the strong growth portfolio in all of our subsidiaries. Growth in provision was compensated by NII growth resulted in net interest income after provisions of MXN 5 billion, a 4.7% growth compared to second Q '22. In second 23, neater provisions stood at stable 21.8% compared to 72.9% in 2022.
Now considering NIM for the 6-month period of the year, it stood at 31.2% compared to 32.1% in the same period of last year. For '23, we expect [indiscernible] to move around 4% and impact or provisions around 31%, a little higher than originally expected at the beginning of the year.
#3, asset quality. Cost of range in the first half of the year amounted to 7.3%, which is better compared to our guidance for this year and where we expect to move around 1.5%. EPS is still at 21, which is better again for our expected range for the year, which increased 3.4%. Allowances amounted to MXN 4.4 billion after consolidated metal and our core so for the quarter amounted to 239.6%, which is a very solid and omega level.
4, net fee growth. And we can action other conference calls, we have seen a strong evolution in fees in the past 8 quarters. This quarter was not exceptional. We had a net effect of MXN 591 million, representing 15% annual growth. Considering the full semester, the net effect was MXN 1.3 million. I can tell you that this product has been mainly the result of the solid contribution of the insurance business within commissions and fee income line and also supported by different fees generated at Compartamos Financiera compared to [indiscernible] in bank.
Considering in the first semester of the year, commutes and fee income stood at MXN 1.5 billion. Meanwhile, provisions and fixed expenses in the same period have been well under control, finalizing in the first half of the year, MXN 253 million. It is important to note that also the second quarter of 75% of our over discount transactions have already been executed to just that and Banco Compartamos branches. And 41% of the credit collection transactions are happening in those channels. And very important, now more frequently to our mobile banking app around 6% of the transaction.
Given the strong evolution in the first half of the year, our expectation for more fees have moved upwards, and now we anticipate a lot around 30%. So as you can see, net income continues contribution to the P&L of Gentera, which is mainly explained by the cross-sale of insurance in Poland as we tried before and the larger use of our internal network.
5, operational expenses. Operational expenses for the first -- the second quarter stood at MXN 4.17 billion, representing a 13% growth compared to the same level last year -- in the same quarter last year. As you can see and as we anticipated in previous in previous calls, our expenses are accelerating. It is important to say that these growing expenses is mainly explained by the very strong load opportunity we're seeing both in Mexico and Peru that implied hiring around 2,500 employees in the first half of the year. 75% of these employees are a sales force.
Incremental are compensation is also an important part of this growth. And obviously, [indiscernible] happens mostly on the origination of clients and credit. And the second source of growth in centers is the strategic investments that we are executing for the modernization of our operation that we can explain in the past. These investments will include operational expenses above our original guidance for the year, around 13% over 11.5%. But it's very important to say that these initiatives will allow us to capture the strong market opportunities and an important part of the revenue will be generated in the first quarters of 24 and going forward.
Having said this, our expectations in that operation expense will grow around 13% of the year, but bringing these growth back to single digit in '24. 6, liquidity funding capitalization. We continue maintaining healthy strong access to funding and robust accentuation metals. Our liquidity position amounts to MXN 9.8 million, and by the end of the second quarter, Gentera's capital to asset amounted to 33.3% and [indiscernible] amounted to 75.6% of Compartamos Financiera solvency levels to 19.5% and preparing those capital plus 20% to 58%.
Regarding funding, we continue strong access to defer incremental home resources for the holding company and our subsidiaries. And we have kept a healthy balance in the composition of our liabilities to ensure a long tenor with big and coating rates. Our access to follow so are robust and sufficient to fund growth and also open the advantage of the opportunity that a next year will increase. And we expect that for 24 range will start reducing. So that will also add an improvement to our bottom line.
Final remarks. To conclude my presentation, as you can see, it was a very good first semester, and we have a clear objective to deliver another strong year in which can sell portfolio which, again, is various figure ever. And the portfolio at our utility ratio will be again strong, leading ROE above 20%.
For 2024, we expect assets, a very good combination of a strong average portfolio, generating incremental interest income with reduced interest expenses, [indiscernible] cost of risk and operational expenses under control that should allow us to keep ROE above 20%. The good results achieved so far, we consider very excited with the opportunity that we are seeing for weeks and 5 years. All the team is strongly belated to continue working hard in certain of banks different financial needs, and at the same time, keep generating shared value for all. That's all for my remarks. Thank you for your attention, and we can now move forward to the Q&A session.
Operator, can we move on to the Q&A session, please.
[Operator Instructions] The first question comes from the line of Ernesto Gabilondo with Bank of America.
My first question is on the outlook. Could you provide us some update on what could be the potential impact of El Nino? And also, we have seen some demonstrations that are taking place in the country, asking to remove the President and to call for early elections. So any update that you can give us an outlook for the country will be very careful.
My second question is on ConCrédito. We continue to see your privileging asset quality over loan growth. As you mentioned that probably you can accelerate in the second half from creditors ROE is back to 22% each quarter. So what would be the ROE that you are targeting for this next year compared.
And then my last question is on your expectations for earnings and ROE next year, thinking that you can keep double-digit loan growth with your new branch openings and new hirings, might benefit from lower rates. And as you mentioned, OpEx role can return to the single digit. So how are you thinking about the earnings growth and the ROE when compared to 2023?
Let me talk about Peru for a moment. Peru, as you said before, has been not only social arrest demonstration throughout the country. We expect to see them frequently per region of our states. We still in the months to come. However, we haven't seen demonstrations that affect a nationwide operation, the nationwide operation. So we will monitor how these social movement evolve and take able to maintain the operation of Compartamos [indiscernible].
On the other front, climate events are not new, both for Peru or Mexico. We have dealt in the past with hurricanes and in events in the country. We expect that the NIM will have an impact by year-end and starting next. And we will take the reaction to take a conservative approach to monitor on the operation, but the active one of our portfolio. As you have seen in our figures, we have already created additional reserves to deal with such potential impact. And we increase see something even further, we will take again every action to maintain operation while maintaining asset quality.
So the expectations for Peru are still positive. We will continue gaming for the 1 million customers a milestone in the country, and we are, as you know, one of the biggest institutions in the micro finance landscape in Peru, and we will continue focus in delivering good results in the country. So again, something that we should be careful of but we are taking every action to maintain the operation with positive outcome for next year as well.
And regarding your second question on creditor. We are happy that competitor is really back to a very healthy portfolio quality, which will allow us to start booking again. The strategy that we implemented has worked. And I believe that the 2 key factors to succeed on this happened that we slowed down the growth to be closer and have a better control of our presales. And at the same time, we improved our selection and risk assessment algos. So all this brings us the results that we are looking at the half of the year, and we are expecting the second half, which will start growing again. And the ROE that we expect for the following months and maybe the following year is around 23%. We will maintain the same level, maybe a little bit higher, as I am describing them.
Ernesto, for your third question, as I mentioned before, we are doing this very strong investment and that implies the growth in operation expenses for the year -- but as you mentioned, we are expecting to normalize OpEx next year and our objective is to be below single-digit growth. The combination of that for 24 together with the increase in the portfolio with increased interest income and expectation of lower interest rates, a controlled cost of risk and this to expenses should allow us to have a narrowing for 24% above 20%.
Next question comes from the line of Juan Recalde with Scotiabank.
My plan is related to short-term profit and EP outlook of the main subsidiaries. So your guidance implies some profitability improvement in the coming quarters. So I was wondering what subsidiaries will drive this profitability improvement. You already mentioned the expectation for ConCrédito. So I'm wondering more about the Banco Compartamos and Compartamos Financiera.
Well, yes, it's pretty simple [indiscernible] follow more or less the same dynamic that I just described. The broad portfolio should push interest income. The control of expenses in Mexico should help us improve the margin. Then cost of risk is well under control and expenses should stay a little bit there, but we expect to see improved ROE for the bank this year and mostly next year. And regarding Peru, as you have seen, we have already seen an improvement in our release, we are following exactly the same dynamic of growth in portfolio control cost of risk and expenses. And we are gating to bring Peru a to 20%, probably in the first half of next year.
Next question comes from the line of Luis Yance with private investor.
It's Luis Yance from Santander Asset Management. Congrats on the results. 2 questions on my side. I got the first one on the OpEx side. I mean, if you could talk a little bit about that more in the Intel. I mean, you mentioned for this year, you're expecting OpEx growth of around 13%, given what we've seen that on the second half, OpEx will grow around 15%. So just wondering how much of that growth is just stuff that you're already having in terms of employees, et cetera, it's just higher base that will contribute to the growth or for in other words, are you always done with the increase in employees that have been quite remarkable. And as you mentioned, for preparations for higher growth going forward? Or is there more to come in that front in the second half. So that will be my first question.
The first taint the details of percentage. Let me talk about the rational in the growth in the sales force. As you might be aware, boding Mexico, the underserved market is still very large. And we saw that most of our competitors are facing operational difficulties due to lack of funding mostly. And therefore, we decided to tap into this opportunity. And in order to grow faster, we needed to bring sales reps to the company, both in Mexico and Peru. And as you have seen, first, as you know, you first hire people than you train them. And after that process, they will start bringing customers.
So that's a time lag between the hiring and the time they become productive. And this is what you've seen already. We have already the sales or the team that we will require to meet the growth expectations that we said before but we should expect a faster growth in employees either or in Peru or the Mexican bank. So again, we are ready to grow in the second half of the year, and we will set the foundation for our very strong 249 million.
On NPLs, as you mentioned, you're very comfortable levels of 3.2% below where you're kind of comfortable that train to. But if I look into Peru, in particular, that seems to be the area where NPLs actually got a bit worse sequentially and they're actually higher than that kind of desire level. If that's at a concern, is that something you think is tamper -- and if they were to stay in this 4.8%, 4.9% where we saw them in the second quarter in Peru specifically, could that promo to perhaps decelerate the growth in Peru or within this desire level at the consolidated level that you've mentioned before, the 3.5% to 4%, you're willing to tolerate Peru being much higher than that.
And in terms of NPLs, we have said that after fast growth, always new customers bring more risk to the table. As you have seen in Peru in the last 12 months after the dynamic, we've grown the customer base very rapidly. We have developed or deployed the group lending methodology into newer states. We've opened 12 new offices in Peru that are growing fast as well. So it's normal that after such period, NPL delinquency started to pick up. On total flat closes, we saw and we social demostrations and whether I mean, all the climate events that we saw in the northern part of the country. So that has put the risk in certain areas of all our levels and the focus for us is for the coming months, it's to bring asset quality under control for the [indiscernible] operation. We don't think that this should decelerate the growth both on portfolio or customers, but certainly, it's something that we are looking at a top priority in the country.
And my last question is, I mean, when I look at the liquidity levels and capitalization ratios, as you mentioned in your prepared remarks, there quite of, especially when compared to competitors and a lot of that liquidity. I understand you will use to continue to growing the best so. However, based on your remarks, the guidance for this year and the qualitative guidance you sort of gave for next year. It looks like you're going to have very strong growth in front of our ROEs in the 20s or so. It looks like a pretty promising outlook. And when I look at the stock frustrating at 1.1, 1.2x price to book.
So just wondering how buyback have become a more frequent part of the conversation internally? And if so, how do you balance the use of liquidity to go into buybacks, which at this level seems a pretty attractive proposition with the fact that you also want to grow organically and take advantage of what you say, dislocation in the market in first of weak competitors. So how do you guys balance those 2? And what should we expect on buyback front?
Well, we have very clear the first use of get capital and liquidity, the growth, the funding of the lowdown of the portfolio. And then, as you know, we have a program that we have been using. We have some windows in the use of it, but we can't use it, but it's not something that we're going to be actively and strongly using. We are going to focus on the growth of the company.
Next question comes from the line of Yuri Fernandes with JPMorgan.
Congrats on the results. Just on the guidance, on the TS guidance remaining and so moving parts, right? So basically, you have more loan growth, right, we bit the level of guidance. And one, I think in your remarks, mentioned that you now expect 20% and then offsetting the new 13% per unit. So just understanding if I heard correctly, so basically long on one side and fees versus G&A, just checking this information.
And I have a second question regarding your client growth. They are growing. For sure, they are not growing maybe as quickly as employees, but they should grow. And I'd like to understand like the impact of this client growth because maybe one investor could argue that adding new customers, you are adding more risk that can be potentially negative for your cost of risk. But also other could argue that in addition to growth, it also can mean higher spread, right, because it's like your rate depends on the cycles and if you have a customer really the rates are higher. So how do you see like this location here, right? Like for sure, you are willing to grow our opportunity here. But how do you balance this like potential higher rates would make sense with higher potential higher cost of risk.
And let me jump into the customer growth. Again, as I said before, the market in both is still very large. We depend on our sales reps to go and best the customers and bring them or offering our product in order to grow the portfolio, right? So as I said before this semester, we hired such personnel. They are already not only higher for trains, and we expect them to become productive in the coming months. So they will -- as you saw the product per loan marketer increased in the semester. And we expect to pick proactivity back up in the coming months.
So this should drive customer growth. And as you said, new customers tend to be riskier because they are new to the methodology. However, there are different factors first asset quality to be very strong. So we are ready to grow faster.
Secondly, the pricing for new customers is different than for renewal customers. So the risk associated to new customers is already right in, in our products. So it shouldn't be a concern for investors, actually, very positive news that we expect to and grow fast the customer base. And what happens with customer base, again, with the new customers, is that new customers bring smaller decades, not a base customer tickets. And this is why the growth in portfolio, you will see it by year-end. So income is not necessarily beneficial or the income will be seen for 204 because the portfolio will be grown in the second way of 2023. So again, you should be -- I mean, we are very excited about the opportunities. We are very excited about the team that we already have, and we will stage you to the opportunity to grow both in customers as well as portfolio.
And regarding the guidance to reconciliation, just checking, it's 30%, right, the 6 you are expecting for this year?
Yes.
Thank you, guys and congrats. Yes, it looks like 2024. As Patricio said, you have a potential tailwind on the loan growth, right? The coal book should be higher. So congrats on that. Thank you.
The next question comes from the line of Jitendra Singh with HSBC.
So this is in from Congress on retail. So I have 2 questions. Maybe one on new rates. So rates are expected to come down in the coming quarters. So could you provide some sense as on your action. Or were each notate line, and you speak over more precise because the line very well.
So my question was on your rate activity. So rates are expected to come down in coming quarters. So could you provide some sensitivity to your ability to wait on your bottom line or on financial expenses? And my second question is on capital. So you have managed to improve the capital level for the growth in the last few years, which is coming. So my question is, what is your tariff level of capital for the growth, where you want to be in coming years?
Interest rate sensitivity in a very simple number is for every 100 bps at the current level of liabilities at floating rate represents around MXN 35 million of interest. Obviously, you're moving to multiply by 70%, to be around MXN 250 million at the bottom line. So obviously, that's at the current level of liability. And regarding capital, well, we have our plans to keep the new levels of capital at each subsidiary and our holding. Again, the minimum metal at the bank is 25% EDA. We are around 35%. For Peru, our solvency level, we will have a and the capital level is at credit it's above 50%. So our objective is to maintain all of those levels and keep a very strong capitalization going forward.
[Operator Instructions] With no questions in queue, the question-and-answer session concludes. I will now hand the call over to management of the company for final remarks.
Thank you. Well, again, thank you for your interest in this call and the news that we have for you. And just to summarize what we have been talking about, I guess, we all see great opportunities for Gentera, not only for the second half of the year, but also for next year, we are strong and we are growing faster the second half, even faster than how we grew in the first half. We are excited for the opportunities that we are looking only in the market and this increase our market share that we'll will to have, but also with the progress that we are having in our modernization and digitalization projects that will give us a better position for the future. And we are aware that we are facing challenges.
We know that we need to watch closely some of them to manage our portfolio under a complex context, especially in Peru. But I think that all in all, we have a very strong position, and we are very excited for what we can expect for the following months and even next year. So thank you for your attention. Thank you for your interest, and we'll talk in the next quarter, hopefully.
Thank you for participating in today's conference call. Now you may disconnect.