Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2020-Q3

[Operator]

Greetings, and welcome to the Gentera 2020 Third Quarter Conference Call. Now I would like to turn the call over to Mr. Enrique Barrera, Investor Relations Officer. Thank you, sir. You may begin.

[Enrique Barrera, executive]

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, Banco Compartamos' Executive Officer; and Mr. Mario Langarica, Gentera's Chief Financial Officer.

They will review the results for Gentera for the third quarter period as per the report that was issued yesterday. If you did not receive a copy of the release or if you have any questions, please do not hesitate to contact our Investor Relations department in Mexico City. If you are a member of the media, we ask you to contact us directly.

Please note that during this presentation, Gentera may make forward-looking statements. These do not account for future economic circumstances, industry conditions, company performance or financial results. Additional information on forward-looking statements can be found in the disclaimer located in our earnings release.

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

[Enrique Majós Ramírez, executive]

Thank you, and good morning to everyone. Thank you for being with us today, and thank you for your support through the challenging times we are all living. We know we all -- we have all a huge responsibility on healing the impact of the health economic crisis we are facing. And at the same time, we are amazed about the magnitude of the opportunity this crisis will bring to us, personally and as a company.

Since the global crisis started to show its impact in March, we have been working in a nonstop process of analyzing the situation, defining action plans and implementing and adjusting our strategy to the present conditions, week-by-week and day-by-day. On one hand, we decisively focus on keeping safe our people from getting impacted. On the other hand, we took strategic actions to make sure Gentera has the resources to navigate through the crisis and stand strong for the recovery process, which, as we all know, it will take some time. In other words, we have also been preparing Gentera for the future challenges and opportunities.

And before we start providing you more specific information, let me say that during this call, we want to be very, very clear about 3 specific things: the first one, we want to tell you what we are expecting for the rest of the year in terms of business results; the second one, despite the huge uncertain times we are all living globally, we want to point out the opportunities we are starting to identify for the following year; and the third one, we want to make clear that we have specific facts that make us believe we will get through the crisis strong and with encouraging perspectives.

So let us get started. At the end of the third quarter, Gentera had a staff of over 23,400 employees and a network of 900 offices and branches. Considering Banco Compartamos in Mexico, Financiera Compartamos (sic) [ Compartamos Financiera ] in Peru, Compartamos Guatemala and ConCrédito in Mexico, our loan portfolio stands on MXN 40.8 billion. In this quarter, our liquidity position has improved gradually, reaching more than MXN 24 billion in cash and other investments, which is 10x larger than the liquidity that we have had at any given year in the past.

Our capital position remains very robust in Banco Compartamos at 31%, and we expect to end the year around 28%. As you already recognized in our results, this capitalization index is way above regulation and the average of the industry. In Financiera Compartamos in Peru, we have a capitalization index of 22%, one of the most solid capitalization levels among the financial institutions in Peru.

And before providing you some information about our credit portfolio and its quality, let me just step back and remember some fundamentals of our business model. This is something very important we want to be very clear on. First of all, we believe the markets are still very nervous around the results of many companies and industries, and we understand this is a general, natural and even real feeling. Governments and financial systems are still working on special payment plans for customers and for the portfolio of the financial institutions. Without any doubt, this is the right thing to do.

However, these payment plans usually reduce the capacity and visibility to identify and understand the real impact of the crisis on the quality of our portfolios, and many financial institutions have not been able to show the real impact of the crisis due to the effect of these programs. In our case, in the case of Gentera, it is important to recognize that in our business model and the dynamic of our portfolio, it is a fact that we renew all our loans every 4 months. This means 3 times a year. Therefore, in Gentera's case, any impact become material very fast.

Any action and solution has been implemented also very fast, but also the positive impact of the solutions implemented will also appear sooner. So very, very important. In our case, we are already having the -- this ability to identify the impact of the crisis in our portfolio. And therefore, we have been taking actions to face the crisis more effectively since at least 6 months ago.

One specific and clear example is the amount of provisions we have been able to book based on the reliable information we have about the behavior of our portfolio under the present conditions. So having said that, let me point out that in the case of Banco Compartamos, 70%, 7-0 percent, of our current portfolio has been generated after the pandemic crisis arrived. For these credits, the current product conditions are aligned to the current situation of the customer. And this is reflected on the quality of these loans.

For the loans originated after March, we had a 97% of our portfolio paying on time, a very similar figure of the quality of the portfolio in a regular basis. For the remaining 30% of the portfolio in Banco Compartamos, which was generated before March, we have been implementing new payment plans and options for our customers. Without any doubt, this is our main priority, and we estimate that we will be able to find options for most of those customers.

Patricio will give you more specific information about these plans and actions and the things we are making to make the payment easier for our customers. So having a better understanding of the impact of the COVID crisis in our portfolio and in line with what I just explained, during this quarter, we booked MXN 1.5 billion in additional provisions, which we believe will keep us in good shape to start the next year in a strong position.

Let me now tell you about some specific actions we are taking related with efficiencies and digital transformation. As we have already mentioned in our previous reports, we have been eliminating any expenses that are considered not essential for today's business operations. At the same time, we understand very clearly that the greater opportunities for capturing efficiencies will come from the digital transformation initiatives in our business model.

So let me describe you some of the most relevant actions and learnings of the recent months. As you all know, from April to June, we offered our customers a 10-week grace period. During these weeks, no meetings or loan officer visits were held. It was until August that our loan officers started to visit some group members again, but groups are still not having meetings today, since the pandemic situation requires social distancing from all of us. Despite these changes in our operation, the contact with our customer has been as close as always. The only difference is that now we have developed digital contact in a more efficient way.

The benefits and effectiveness of this digital contact is paying off, since our portfolio is under control and we are being able to execute the different pieces of our action plan dynamically. If we combine the digital-transformation initiatives that we have been working through the last years such as Yastás, the Fiinlab main projects, our mobile banking and digital payment systems, et cetera, with the recent experience from the 6 months that we have been living such as the communication with our customers via WhatsApp and -- among other actions, we can tell we are creating the foundation for a new model in the relationship with customers, which, by the way, will always combine human touch with digital touch.

Looking forward, we are convinced that our main challenge will be to keep Gentera strong, to stand up for our customers and have the capacity to adjust our products to the moving situation and the context that we are living. As you could see in this quarter results, we will continue our focus on defensive liquidity management and with very robust capitalization levels at Gentera and its subsidiaries. At the same time, we can now confirm that we will end the year with a cost of risk of around 18%. The good news is that this figure considers most of the provisions that we believe we will require to book all the negative impact of the COVID on our portfolio for the rest of the year.

Worthy in highlighting is that even with the estimated losses that I just mentioned, our capitalization levels in Gentera as a whole will be around 30% by the end of the year. Also, I can share with you, with the visibility that we have at this point, that next year, we will return to profitability during the first semester, and we will definitely have positive income for the entire 2021 year. Let me finish by saying that our strategy has always been a long-term strategy, and we are taking all the actions to serve our customers and keep us strong for the long run.

So thank you for your attention. And now I will turn the call to Patricio Diez De Bonilla, who will provide specific information about our action plan and business expectations. Thank you, and go ahead, Patricio.

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in Gentera. As we mentioned in our previous conference call, after finalizing the regulatory benefits for the customers and our financials, the impact of the pandemic fully impacted the third quarter results. The strategy that we followed had different -- 3 different stages. The first stage that started in the second quarter, we basically contained customers, offering deferral alternatives that were in place until the third quarter.

The second stage was to restructure customers, and we have been focused on restructuring them since June. We are certain that with the actions taken on the field, the commercial solutions and value proposition that we have put in place in the market will be key in helping us to alleviate many of the social and economic challenges that our clients are facing. As a result of these solutions, we are certain that we will continue to come out first of this sanitary contingency, well positioned in the market to start the third stage of our strategy, which is to reactivate credit to be able to reignite the economic activity in the communities where we are present.

Let me review the latest actions in Mexico leaded by Banco Compartamos. After having 64% of our portfolio deferred, on June 5, collections were reactivated, and we started the second stage, which was focused on giving additional support to clients that needed to restructure credit and additional flexibility to deal with a weaker economy. The alternatives that we were offering to the clients during the third quarter were: first, pay on a normal basis if your economic activities allow you to pay in a steady manner; second, extend the tenor of the loans to reduce the weekly, monthly or biweekly installments; and third, additional grace periods for those customers who would not -- who could not afford to make their payments.

After having implemented those alternatives, during the third quarter, we have clear visibility of the real performance of the loan portfolio in Mexico and the impact of the social-distancing measures that were present in the country that affected the businesses of our customers. The fact is that there are still customers that have been [ infected ] and cannot restart their business and make their payments. As a result of this, this quarter, we decided to look MXN 1.5 billion in extra provisions to limit the impact of this first stage of the strategy this quarter.

As such, the potential losses related to the COVID are already registered, and we are ready now to continue supporting the customers in their business to reactivate their economy. Since late July, considering the sanitary measures, we are now physically visiting our clients. We need to be close to them to explain and give additional alternatives to maintain their credit on time. During this fourth quarter of the year, the restructuring process and the efforts in implementing additional solutions for our customers will continue. We still expect that these actions will help us to recover past-due customers.

The positive news is that the new credit origination is performing adequately. A growing customer base with lower ticket is expected, since the market has expanded but the economic activity is relatively weak. As such, the average ticket is getting smaller, but asset quality is under control in similar pre-COVID levels. This gives us clarity that most of the impact related to the COVID-19 is already registered in our financials.

Now let me briefly jump to our Peruvian and Guatemalan financial subsidiaries. For Compartamos Financiera in Peru, the number of clients that, at the end of the third quarter, was 692,000 with MXN 16.9 billion in loan portfolio. Due to the long tenor of the loan portfolio, we still have 22% of the portfolio that is currently deferred. Good news is that, as of today, we know that 85.6% of the clients that should be paying us in October are complying with the payments on a normal basis. This percentage gives us a good explanation about the future performance for this subsidiary.

As has happened in Mexico, the impact has been more relevant on the group-lending methodology. However, for Peru, it's a small portion of the local book. I also want to highlight that liquidity provisioning, high capital and access to different funding alternatives for Compartamos Financiera is strong and stable. As such, we believe that we are in a strong position to capitalize the market opportunity that is present in the Peruvian market.

With regards to our Guatemalan operation, we recognized that the lockdowns and movement restrictions in this country were more strict compared to our other operations. As a result, the impact in the economy, the business of our customers and Compartamos in Guatemala has been significant. We will take every action needed to minimize the potential losses in the subsidiary and reduce the size of the company as a result. Our strong capital levels and our strong coverage ratio will help us to navigate these complex times in this subsidiary. Compartamos Guatemala serves 103,000 clients, with a MXN 7,000 average ticket that, in aggregate, represents MXN 730 million in loan portfolio, representing less than 2% of Gentera's loan portfolio.

We can see now an interesting opportunity in the 3 countries where we operate as the market has expanded and competition is getting weaker. Therefore, we will keep working hard reactivating rating customers and try to gain market share in the following months. More than ever, it is very important to keep providing clients with credit in order to maintain their businesses running, which opens the door for future portfolio growth. We're in a strong position to capitalize this opportunity, and we will definitely do so.

I will now hand the conference to Mario Langarica, who will review Gentera's third quarter financials. 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 are well through this sanitary contingency. In my remarks, I would like to highlight the following themes for this quarter: one, our strong capital, funding and liquidity position; second, the provisions and allowances booked during the quarter; and third, a description of the principal lines and metric coming from the income statement and the balance sheet of Gentera.

It is also important to note that we have started to consolidate ConCrédito's financials. We are presenting you the balance sheet as of September 30 and the income statement of the third quarter '20. You must consider that the consolidation is only for the months of August and September.

One, regarding capitalization, Gentera closed third quarter '20 with a very solid capital amounting to MXN 22.345 million and a capital-to-assets ratio of 30.9%, highlighting that Banco Compartamos concluded the quarter with an ICAP of 31.1% and Compartamos Financiera with a solvency ratio above 22%, both ratios well above the system and local regulatory limits in both countries. We expect that all our subsidiaries will finish 2020 with capitalization levels above our internal limits. In particular, as mentioned by Enrique, we expect that Compartamos will close 2020 with an ICAP above 27% and Compartamos Financiera above 17%.

As mentioned before, these strong capitalization levels have allowed us to keep strong operation and ample access to funding alternatives during these times of uncertainty. During the year, we have been able to access all our traditional sources of funding: Deposits, commercial bank loans, development bank loans and capital markets. In particular, we have been able to successfully issue debt in the capital markets, both in Mexico and Peru.

One example of this is the issuance executed last week in Peru, where we issued 1-year 100 million soles with a 2.9x demand and a historic low 1.66% interest rate. We have also been very active in Mexico, improving our debt maturity curve and exploring additional sources of fund. For 2021, in Banco Compartamos, we have basically prepaid all liabilities expected to mature next year and then obtained longer-tenor funding, which basically implies that we do not have any major amortization of debt until first Q '22, only the renewals of the short-term banking lines.

All of these have allowed us to accumulate a strong liquidity in the amount of more than MXN 24 billion, more than 2.6x the amount in 3Q '19. In Banco Compartamos and Banco -- and Compartamos Financiera, we have finalized the quarter with liquidity levels above 3.1x and 2.1x, respectively, of the third quarter '19. This liquidity has allowed us to develop and implement the deferral and refinancing programs for our clients during the contingency and secure liquidity for future growth.

Two, provisions and allowances. Regarding provisions and given the short-term profile of our portfolio, we believe that we have enough visibility of the impact of the pandemic up to date. Therefore, we believe that the provision that we're presenting to cover for 2020 expected losses are sufficient. Having said this, and as mentioned before by Enrique and Patricio, we decided to book additional provisions in Mexico and Guatemala for an amount of MXN 1.576 billion.

And what we're basically doing is provisioning most of the portfolio that was growing in March 2020 and/or was restructured and has more than 30 days past due. In Peru, we believe that the 3Q '20 levels for provisions are appropriate, according to the current performance and visibility of the portfolio. Finally, Gentera's financial statements consolidated for the first time ConCrédito provisions, which amount to around MXN 160 million for August and September, in accordance with Mexican accounting principles and CNBV requirements.

At Gentera level, provision for loan losses increased more than 300% compared to 3Q '19 for a total amount of MXN 3.4 billion. With these provisions booked and considering the nonperforming loans that we already had at the conclusion of the third quarter, the coverage ratio for Gentera stood at 240.6%.

Regarding the principal lines and metrics of the income statement and balance sheet, Gentera's total loan portfolio for Gentera, including ConCrédito, amounted to MXN 40.8 billion, which represents 3.6% increase compared to 3Q '19: MXN 20.8 billion in Banco Compartamos, MXN 16.9 billion in Compartamos Financiera Peru, MXN 2.4 billion in ConCrédito and MXN 730 million in Compartamos Guatemala. ConCrédito portfolio was not included in 3Q '19 figures -- or previous figures of 3Q '20.

Looking at the income statement for the third quarter, interest income decreased 28.5%, mainly driven by the reduction in the Mexican portfolio and the effect of the deferral programs in our financial subsidiaries as well as the reduction in active interest rates for those clients that kept paying during the contingency and some additional benefits. Interest expense grew 24%. This growth is mostly explained by the increase in funding required to increase liquidity for the different initiatives at the operating units.

Operational expenses reflect a 3.6% contraction for the quarter. This continued improvement was in line with the action plans that we had announced at the beginning of the sanitary contingency. And we expect to continue maintaining a strict discipline in the management of expenses of our different subsidiaries, depending on their specific strategies going forward. All of this resulted in a MXN 1.983 billion loss for the quarter compared to MXN 948 million in 3Q '19. This 3Q '20 result is mostly explained by the additional provision generated during the period described above and the impact generated by COVID. Controlling company participation in this report was MXN 1.939 billion in losses, and loss per outstanding share for the controlling company stood at minus MXN 1.22.

Let me conclude signaling that we feel confident that, with the plan that we described in previous conference calls and in this one and supported by our strong capital and liquidity positions and the commitment of our staff, we will navigate these volatile times with solid steps. We are certain that we will return to margins, before and after provisions, that we had before this contingency started. And at the same time, we will be capitalizing all the efficiencies found from the operational perspective. This is with much more control in operational expenses, and therefore, return to profitability metrics, ROE and ROA that we were achieving before the pandemic as soon as possible.

Thank you for your attention. This is all for our presentation. And then 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]

My first question is on when do you expect to reach the breakeven point. And what could be the main risk that could be delaying it? Clearly, the lockdown has affected the microfinance segment. So if some Mexican states go again from the orange color to the red color, employing mandatory lockdown of some businesses, do you think that could delay the recovery?

Then my second question is on how are you seeing the credit capacity of your new clients. We have seen that the low-income segment has been using their resources on a daily basis and have not been able to increase their savings for launching again their businesses. As such, are you willing to help them to launch their businesses 100% with debt and no capital or savings? I will appreciate your thoughts.

And then my last question is on the potential banking deal to regulate interest rates that is being analyzed by the Mexican banks and the Mexican Banking Association. Given that this is the first time that a banking bill is considering to regulate interest rates and that this is coming from Senator Monreal from MORENA's party, do you think financial institutions with high interest rates could be the first ones to be in the loop in case this regulation is approved? Can you remind us what is the maximum interest rate that you are charging in Compartamos and in ConCrédito?

[Mario Langarica Ávila, executive]

Thank you very much, Ernesto. I'll start with question number one . As mentioned by Enrique and Patricio, we expect that for the next year, we will have a profitable year. We expect that the breakeven point will be somewhere between the second and the third quarter, given the fact that we have this delay in building the asset portfolio that we need to have to get a strong results coming back.

[Patricio De Bonilla Garcia Vallejo, executive]

Your second question, Ernesto -- this is Patricio. In terms of the credit capacity, what we've seen in previous economic contractions, for example, 2009, is that the market expands, the addressable market grows as the unemployment rises. So more people coming into the informal sector. So there's a huge demand for credit. However, a ticket per customer reduces, right? So what you should expect going forward is that we continue growing the customer base, but with smaller tickets as they adequate their businesses to the economic reality that is present in the marketplace.

In terms of credit capacity, also mentioned by Mario, as you've seen in the segment, there has been a contraction in the credit activity, given the fact that most of our creditors are facing operational difficulties due to higher provisioning, weaker portfolios and weaker capitalization levels. That led us to lack of fund -- led them to lack of funding, right?

So there's more customers in the market with fewer players out there. So that what encourage us to say that there's a market opportunity that we want to tap on. However, even though the customer base expands, the ticket per customers might reduce a little bit. And this is something that you'll see in the coming quarters.

In terms of the bill that you just mentioned, as you've seen in this administration, different bills have come into discussion. The fees bill was one of them. Now it's another one coming from the same party. And again, those kind of initiatives, what lead to is to have a conversation on what's good or not in terms of the cost for financial products and services.

So at the end of the day, what you see is that discussions between the banking association and the different -- the Ministry of Finance, the legislative power will happen. And it's something that, of course, we will be present in those discussions in order to have something that is good for the -- for an industry that needs to be regulated and that needs to be transparent to the customer about the cost that you are paying for different financial products and services.

It's something that will happen in the coming months. It's something that will unfold during the last quarter and maybe the first quarter of next year, and this is something that we will be constantly communicating to the market, right? But again, it's something that, as you've seen during this administration, these kind of proposals come and goes. And the reality is that, simply put, the people aim to discuss them. And I hope that something beneficial for the segment will happen.

[Ernesto María Gabilondo Márquez, analyst]

Super helpful. Just can you remind us what is the maximum interest rate that you are charging in Compartamos and in ConCrédito?

[Mario Langarica Ávila, executive]

The yield of the portfolio for Compartamos, it's around 74%, right? Depending on -- as you know, depending on the ticket size, depending on how new or not you are as a customer, is the charge that we charge customers, no? New customers with smaller tickets have a higher cost than long-standing customers with higher ticket. So this is a combined, something that represents a yield of around 74%.

[Ernesto María Gabilondo Márquez, analyst]

And in ConCrédito?

[Enrique Majós Ramírez, executive]

Yes. In ConCrédito, Ernesto, we have interest rates above -- a little bit above 100%. It's a different product with different terms and it's for different purposes also. And the structure of the business, the cost structure is different. But in any case, we know that this is something we have to be very aware of. And we also -- what I'm telling you is the total cost, so this is commissions, this is interest rate. And as Patricio was describing, the discussion is around how to balance the different costs of providing credit with the different ways the customer or any other piece of the value chain will pay those costs.

[Operator]

Our next question comes from Jason Mollin with Scotiabank.

[Jason Mollin, analyst]

I wanted to focus a little bit on the Peruvian operations, which are now, I think, as of the end of the third quarter, around 40-something percent of the total MXN 40.8 billion at loan book at Gentera. You did give us some data that was interesting that obviously the mix is very different in Peru with the reversal of the individual methodology versus the group methodology compared to Mexico. But you said that 70% of the Compartamos portfolio in Mexico was originated after corona in March and 97% we're paying.

Can you give us some similar statistics for Peru? And obviously, I guess, the duration is longer with the individual methodology. And how are the payments going there? And what should we be expecting in terms of losses from these -- the 22% that have been restructured or reprofiled?

[Enrique Majós Ramírez, executive]

Sure, Jason. Thank you. I will give you some additional information, and then I will let Patricio give you more color about the specific operation in Peru.

But yes, the 70% that, in Mexico, was originated after March, after the COVID impacted, that figure in Guatemala is 94%. And as you already described, in Peru, we have terms -- more large terms for our credits, it's more individual portfolio. So that 30% of the portfolio in Peru has been originated after March. And it has a very good quality, too. That 30% has a quality of 98% of the portfolio paying on time. So as you can see, that's good news because we are looking that we are understanding how to manage the portfolio, the condition of the portfolio and our products in our -- in this new context and supporting our clients.

And I will let Patricio to give you more color about Peru with the second part of your question.

[Patricio De Bonilla Garcia Vallejo, executive]

Yes, Jason. In terms of Peru, as you know, 80% of the portfolio is individual lending, right, with longer tenors as Enrique just said. The mobility restrictions in Peru were more -- stricter than in Mexico. So the deferral period for the Peruvian operation was longer than it was in Mexico. In Mexico, we finalized the deferral process on June 5. In Peru, we finalized it at the end of August; September, in some cases. So we are starting again the process of reprogramming and restructuring loans on the individual-lending front. As I said in my remarks, close to 80% of the customers have now been restructured and are paying on time, right?

Again, on the other 20% of the portfolio, which is group lending, it seems the dynamics are expected for this portfolio, right, given the fact that during 1 month, you have 4 installments to be paid, so the process is faster than it is in Mexico. But again, it's 20% of the portfolio. And if you extrapolate what has happened in Mexico, which is around 10% of the portfolio delinquent, it's just a fraction of the Peruvian operation to -- I mean to eventually be provisioned and write off. So a little bit of those dynamics on the individual-lending front. We are focused on asset quality rather than growth.

And on the group-lending methodology, as Enrique said, we are originating with good asset quality, and this is something that we will continue doing so, right? We see a market opportunity. As you remember, we expanded our infrastructure in Peru to expand the group-lending methodology because there's a market opportunity out there, right? So on the individual-lending front, we will focus on asset quality rather than growth. And on group-lending methodology, now we can go back to growth with the infrastructure that we have already in place to do so.

I don't know if that answers your question, Jason, but it's how we view the dynamics.

[Jason Mollin, analyst]

Maybe just a comment on the operating environment in Peru. You were just mentioning potential Congressional proposals to cap interest rates in Mexico. We've seen that discussion actually has been quite fervent in Peru. Any comments there and how you -- if you think that is a very large risk to your operation?

[Patricio De Bonilla Garcia Vallejo, executive]

In terms of -- I think, actually, in Mexico, due to the economic crisis in both countries and given the fact that 2021 is an electoral year in both countries as well, these kinds of discussions are politically very profitable, right? So it's something that different legislators are proposing. But we expect that after we get involved in those discussions, the regulators, both in Peru and in Mexico, understand clearly the dynamics of group-lending methodologies as well as the microfinance world.

So what we expect is that, yes, these deals will continue to be put forward, but we are certain that, at the end of the day, the technical discussions are the ones that will be prevalent in order to get them approved. Because as you know, today, now, a lot of people is losing their jobs. They are moving into the informal sector. And having access to credit, regardless of the cost, it's very important in this context because this is a way that they can restart one specific business and generate income that will boost economic activity, both in Mexico and Peru.

So it's something that will unfold in the coming months. Of course, we will continue constantly communicating with you if something changes about what we just mentioned. But it's something that we are taking it as top priority as we have always done in the past.

[Operator]

Our next question comes from Thiago Batista with UBS.

[Thiago Bovolenta Batista, analyst]

Yes. I have 2 questions. The first one about cost of risk. In the press release, there's a phrase that says something like cost of risk, we'll stabilize it in the beginning of next year. Like my question is, is this cost of risk including the additional provisions or not? So is this cost of risk that should stabilize it? Or in a different way, what about the cost of risk in the coming quarters, more close to the second Q or more close to the third Q?

And my second question is about margins. The bank's NII used to be about MXN 6 billion, and now it's around MXN 4 billion. You mentioned that about 70% of the loan book is already, let's say, a new loan. So how can we think about the NII dynamics, considering that the vast majority of your loan book is already new? So when will you see NII -- again, not sure if returning to the previous level, but in a more kind of normal level?

[Mario Langarica Ávila, executive]

Thank you very much for your questions. Regarding cost of risk, we expect, as Enrique said at the beginning, to close full year at Gentera level around 18%, which is double the normal. And that includes obviously all the cost of the impact of the pandemic. And for next year, we would expect -- and we will provide guidance probably in the next conference. But we would expect to have cost of risk returning to historical levels, previous to the pandemic and similar to what we guided at the beginning of the year.

Regarding margins, well, obviously, at this point, margins are very affected. We also have this recovery plan that is basically based on getting to profitability back next year. And we would also expect to -- margins, both NIM and NIM after provisions, to normalize going forward and probably returning to a level similar to '19 and '20 by the second semester of 2021. That's our objective.

[Enrique Majós Ramírez, executive]

Yes. And this is something that I think applies to many of, maybe, of the questions you have. So I think that what just Mario described, it's very important. We believe that the future is still uncertain, and I think that, that's something that we all understand. And there's a lot of things happening around not only the COVID crisis but also economic challenges everywhere. So it is pretty uncertain.

But what we can see for next year is that -- and talking about margins, as Mario was saying, we might see more customers because we believe we will have the capacity and the funding to serve our customers and even customers from other institutions that won't have that capacity, but also the ticket will be smaller. So those are still some pieces of uncertainty that might not let us see as clear as any other year what is going to happen. But at least we, directionally, know that we might have more customers, smaller tickets. And yes, cost of risk is going to return to more normal levels.

[Operator]

Our next question comes from Carlos Gomez with HSBC.

[Carlos Gomez-Lopez, analyst]

First, on the NIM, you mentioned going back to normal levels. Again, what is normal? And you said normal levels for 2020, I think you meant 2019.

Second, on the acquisition of ConCrédito, I mean you have already announced it, you have completed it, and now you have 51% of the company. You are right in that capital levels at Compartamos and each of the subsidiaries are fine. But at the holding-company level, when I look at your tangible equity, it has almost -- tangible equity to asset, you have almost halved over the last year. Do you still look for other opportunities for acquisitions? Or at this point in time, you are completely focused on your business, and you will not consider further purchases, including the minorities of ConCrédito?

[Mario Langarica Ávila, executive]

Yes. No, I meant normal levels of NIM of 2019. And the numbers for cost of risk should be around 18%. And for next year, hopefully, between 9% and 10%. But again, we will provide guidance in the next conference call of what we expect for next year.

[Enrique Majós Ramírez, executive]

Yes. Thank you. And thank you for asking about -- sorry, was something missing, Mario?

[Mario Langarica Ávila, executive]

No, no.

[Enrique Majós Ramírez, executive]

Okay. So thank you for asking for ConCrédito because, yes, I think it's very relevant now that we have the majority of the company. ConCrédito, since the beginning, 2 years ago, is one of the most relevant investments we have done. And we really, really believe it's a very strong competitive advantage for the future in Gentera. In Gentera, our competitive advantage is to provide credit to the underserved segment. I could say that we do that like very few institutions can do it.

So how ConCrédito matches here? First of all, ConCrédito provides Gentera an additional distribution channel. It's an additional distribution channel because it has 41,000 distribuidores, which are direct salespeople that live in the community. And that channel allow us or allows ConCrédito provide a product that is more a consumer loan. So it's another product that we can add to the traditional Compartamos and Gentera product offer. So we are more now in the consumer loan business, thanks to the investment of ConCrédito.

And ConCrédito has 3 very relevant elements. The first one is what I mentioned, a direct sales network of 41,000 distribuidores. The second one, it has a marketplace with CrediTienda. And CrediTienda is a marketplace that provides products -- consumer products and provides the credit to buy those products. And the third one is that the operation of ConCrédito is based in digital platforms, which make very efficient, the way they operate. And we believe in Gentera that we can create a lot of synergies and learn a lot about digital transformation from the experience of more of 10 years of ConCrédito. So I think that, yes, talking about the future, we see ConCrédito very relevant, today and next year and for the future, definitely.

I don't know if that answers your question.

[Carlos Gomez-Lopez, analyst]

Thank you for the information on ConCrédito. And I think at some point, I think the market will appreciate knowing more about the business and having more history and numbers. But it was more about the capital allocation and the fact that you are well capitalized, but obviously you are having losses right now. You have to deal with a catastrophe. And therefore, that capital is also being used to deal with us. So I wanted some reassurance to the market that you are not planning to do any further acquisitions.

[Enrique Majós Ramírez, executive]

At this point, we do not have any plans for that. Right. And one of the reasons also is that we are -- we know that liquidity is very, very important to keep on facing the challenges that this crisis is bringing to our door. So yes, we -- this is a very important investment we've made, and we started 2 years ago. But for the future, I think that -- now, we don't have any other acquisition on sight. And as we have been doing since the beginning of the year, we are putting as our first priority the liquidity that we might have to face the challenges in the next months.

[Operator]

Our next question comes from Piedad Alessandri with Credicorp Capital.

[Piedad Cuevas, analyst]

I wanted to ask, first of all, if there was any segment of the portfolio, either in Mexico, Colombia or Guatemala, that remained under grace period. Is there -- or if the portfolio was due today, every client should be starting paying or reprogramming their loan right now? Or if there was any deferrals pending to end? And I will ask my second question later.

[Enrique Majós Ramírez, executive]

Thank you for your question. In Mexico, 100% of the portfolio and also in Guatemala has no deferral benefits already, right? It's either nonperforming or [ recurrent ], correct? On the Peruvian side, only 22% of the portfolio is still under deferral, given the fact that, as I mentioned in my remarks, the social-distancing measures were stricter than in Mexico and deferral benefits took longer than it happened in Mexico. So only 22% of the Peruvian operation remain deferred, and that's something that we'll finalize in the -- during this 2020. Aside from that specific piece, the rest of the portfolio is either current or nonperforming.

[Piedad Cuevas, analyst]

Okay. Then my second question is considering that 1/5 of the Peruvian portfolio remains deferred, when do you expect NPLs, or nonperforming loans, overall to peak? Do you expect them to peak on first Q 2021, this year? What would be your expectations?

[Enrique Majós Ramírez, executive]

The reality is that we're more concerned, and this is why we provisioned so much this quarter because the NPL, what brings us is a higher cost of credit, right? So the impact -- the expected losses that we see in the coming quarters were already registered. So even though in October, November, December, until we write off those loans, the NPL should trend upwards. The reality is that the cost of such trend, it's already in our financials.

So again, as you know, we write off loans with 180 days of arrears. Delinquent customers started their payments on June 12. And 6 months later, if they didn't make their payments, it will be written off. So this is something that will happen by the end of this year and early next, the write-off of such portfolio that will bring NPLs back down. But the reality is that, again, provisioning expenses are already in our financials and reflect the future losses that we expect of those customers that defer their loans and were not able to repay back them to us.

[Operator]

Our next question comes from Yuri Fernandes with JPMorgan.

[Yuri Fernandes, analyst]

I have a follow-up on Peru. Regarding the behavior of the portfolio, right, if you look in local currency, the portfolio was stable in Peru. And I would like to understand why. It's basically the reliefs. I know you mentioned now it's 22%, but maybe during the quarter, a big portion of the portfolio was under relief and you had no amortization in that book. Or is it, basically, disbursement? Are you being able to provide government programs in Peru? Basically, what is the rationale? Because we are seeing very different dynamics, right? Like in Mexico, big decreases in the portfolio. And this kind of stable portfolio in Peru. So if you can comment a little bit, that would be nice.

And my second question is a follow-up on Carlos' on capital for the company itself. I know that Basel III in Mexico is for individual companies who don't have financial conglomerate capital ratios. But do you have any kind of estimates for your financial conglomerates? The point here is that the bank is really capitalized, right, 31% Tier 1 ratio. But if you look on a consolidated level, given the much higher goodwill you generated this quarter, I don't know, like it seems the ratio for the group should be much lower, right? So my question is do you have any kind of estimates for the group as a whole, like Peru, Guatemala, everything together?

[Patricio De Bonilla Garcia Vallejo, executive]

Let me jump to Peru during -- thank you for your question. The reality is that the regulatory benefits in Peru were longer and were extended for longer periods than in Mexico. So what you see in Peru is that the portfolio was, let's say, put on hold for that period of time. This is why customers and the portfolio didn't contract. And now that we are finalizing the deferrals, again, the customers started to repay us back, right?

So what you should expect, as I said in my previous answer, is that on the individual portfolio, given the fact that we are focused on asset quality, the individual portfolio should start to reduce as customers finalize their deferral and repay their loans to us, and we will be more cautious on the originations front or piece of the portfolio. And this is, on the group-lending methodology, something that can be absorbed. So by the end of the year, the contraction in the individual portfolio will be, let's say, moderated by the growth in group-lending methodology given a relatively more stable portfolio than you have in Mexico. And this is a little bit of the dynamic of how the Peruvian business will evolve.

Mario?

[Mario Langarica Ávila, executive]

Yes. Thank you very much. Regarding capital, as we have mentioned many times in the past, the first objective is to have the internal limits for our regulated subsidiaries above the levels that we have always told you, that's 17% of solvency ratio in Peru and 25% of ICAP level at the bank. So our first objective is to keep those levels above our internal limits, which, as you know, are above the regulatory levels. At Gentera, obviously the objective is to keep the consolidated number at a number that is above those 2 combined. And as mentioned by Enrique at the beginning, the objective is to be above 30% this year.

[Operator]

Our next question comes from Juan Dominguez with Onyx.

[Juan Dominguez, analyst]

Can you hear me?

[Mario Langarica Ávila, executive]

Yes.

[Enrique Majós Ramírez, executive]

Yes, clearly. Yes.

[Juan Dominguez, analyst]

Perfect. I have a couple of questions. First, any -- I mean, until very recently, you were collecting more than what you were originating, but apparently that changed in September, right? And I just wonder if you can provide us a guidance on -- in each of the main subsidiaries, right, in Banco Compartamos Mexico and in Compartamos Financiera in Peru. How much are you originating compared to your pre-COVID levels? And also if that origination is already considering part of the third stage of kind of going after new clients?

And my second question relates to competition. I was very surprised by the announcement of Te Creemos buying -- acquiring the Finsol Mexico portfolio of Financiera Independencia, right. Because I mean at this point of time, I mean, it seems like a pretty risky proposition. And I wonder, how do you see the financial health of your competitors at this point of time?

[Mario Langarica Ávila, executive]

Okay. Thank you very much. So for the first one, disbursements. In Mexico, disbursements have reached at the normal point, levels of around 80% compared to historic numbers. And collections are also above 80% with levels around 80%, 88%. So we still have more collections than disbursements on Mexico. And in Peru, it's the same, but it's -- we're still, based on the deferral process, a little bit behind. And disbursements are well into our forecast, but still at levels around 47%, and collections are around 75%.

[Enrique Majós Ramírez, executive]

And that's a very important question, Juan. Gracias. Thank you for the question because one of the things that has enabled us to manage the liquidity of the company is that our -- the behavior of our customers in terms of disbursements and collections has been very stable and very, let's say, around the healthy and normal dynamics with smaller tickets and with a smaller portfolio. But in terms of how to manage the liquidity, this is something that has helped us and, I believe, will help us in the future because we have under -- we are understanding how the dynamic is being and how it could be in the following months.

[Patricio De Bonilla Garcia Vallejo, executive]

And in terms of competition, Juan, I will tell you about the dynamic that we've seen during this quarter. Some of our competitors or most of them are shrinking in terms of their portfolios. Therefore, they are firing personnel to reduce their operations as their portfolio gets smaller. So that's something that, as a trend, it's happening in the marketplace. As such, we've been able to reduce the turnover of our employees to the lower point in our history. That's good because you have more skilled personnel in front of customers that provides better service to the customers. So the first dynamic is contraction. And therefore, reduction on their labor force.

The second piece is in terms of consolidation during this quarter, ourselves, but the majority in ConCrédito. And again, as you said, some other competitors are trying to build their businesses by acquiring different loan books. Again, is that risky or not, that is something that is under -- over our reach. But at the end of the day, a consolidation of weaker customers might happen in the coming months and not only because someone will buy those institutions, but because as the competitors shrink, some other competitors at us can bring those customers and gain market share, and that's the opportunity that we've been talking about. So consolidation, it's another dynamic.

And third, of -- it's what we've seen some other customers -- competitors that are simply closing and trying to change their value proposition, increasing prices to reflect the new economic reality in their businesses. So those are the 3 different dynamic that we've seen: Contraction or closing, consolidation, and they are trying to adapt to the new reality with -- not -- I wouldn't say technology because I don't see investments in that field, but certainly trying to tweak their models kind a little bit in order to respond to the economic reality that is present in Mexico.

And I would jump also to Peru. In Peru, Compartamos Financiera, it's one of the strongest players in the microfinance industry, best liquidity, provisioning and capital, with a product that is not present in the market. So as the casas or some other players are facing difficulties in the marketplace, we are still seeing an opportunity to grow on the group-lending methodologies because there are no competitors out there, and there is a need for such product. So I hope that, that responds to your question. And thank you for it.

[Juan Dominguez, analyst]

Yes, it does. If I may have a follow-up. When we look at your margin -- or your new originations, are you using the same price matrix that you used to have before COVID? Or do you have a different pricing?

[Patricio De Bonilla Garcia Vallejo, executive]

Yes. We also analyze our pricing structure of Peru, and we are tweaking it, again, trying to reflect the new reality, making a little bit more expensive, the new loans for new customers, are trying to benefit those long-standing customers that, through the years, have been with us, trying to alleviate a little bit the -- I mean, the difficult times that they are facing. So at the end, what you should expect is that the yield of the portfolio, as I just said, it was around 74% in Mexico. It might increase a little bit for the coming year, but with a balance of new to long-standing customers, trying to keep them with us for longer periods.

[Operator]

Our next question comes from Carlos Gomez with HSBC.

[Carlos Gomez-Lopez, analyst]

I wanted to follow up on the Peruvian interest rate cap proposal. You already answered, but I think it was mostly about Mexico. Do you know exactly where we are with the proposal and how, in your understanding, it could affect your business? What level of rates are they proposing to cap at? What type of loans could it affect? Who would have the faculty to determine that? Where are we in that debate? And when do you expect to have a resolution?

[Enrique Majós Ramírez, executive]

Thank you, Carlos. How it works is that any legislator can propose that kind of bill. And that bill needs to get, first, analyzed by the specific committees, financial committees that will analyze the viability of the financial proposal. So in that field, it's today, the discussion. After -- if it happens that the specific financial committee gets approved or approved the deal, it will go to the legislative power to be discussed in the Congress, lower and upper house.

And this is something that, normally, these kind of bills, when you discuss them with technical people in the committees, you see the viability or not of such proposal. And we expect that during those conversations, again, at the end of the day, what they want to achieve is giving access to more people. And capping interest rates is certainly completely on the other side of the coin. So we expect that the conversations with the technical people in the communities are structured in a way that if it doesn't make sense, will not go to the Congress to get even discussed.

And this is where we are now. At the end of the day, what you should expect that these discussions will go through the coming months. And again, as I said before, it's something that we are actually taking it as we've always done, very seriously with our external affairs office, both in Mexico and Peru.

[Carlos Gomez-Lopez, analyst]

We understand the process, but the fact is that one such committee, the Consumer Protection Committee, has already approved 6 pieces of legislation that could potentially go to the plenary. So that was my question. Have you analyzed those? How would those affect you? And what terms are you discussing? Because, again, from the information we have, and we could be wrong, that can already go to the plenary, that could be approved by Congress. Is that the case? Or do you have different information?

[Enrique Majós Ramírez, executive]

Yes. I mean, for certain products, that's the case. The reality is that for microfinance, specific microfinance and low tickets, this is not something that, at this point, worries us. Let's see how those discussions unfold, and we'll keep you posted.

[Operator]

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

[Enrique Majós Ramírez, executive]

Yes. Thank you very much. Let me close by saying that we really appreciate your questions and the opportunity to answer them. I hope we have been clear enough for you. And as I mentioned, our strategy has always been a long-term strategy, and we are taking all the actions to assure our permanence and strong for the long run. So we will remain committed to deliver the best service to our clients, helping them overcome the challenges they continue facing with this COVID-19 crisis. We are staying true with our principle and values, and we will continue to put our clients in the center of all our decisions.

And let me finish just by saying that I'm counting on the strong passion and commitment of our team members, whom I profoundly thankful for the enormous hard work in the past months. So thank you very much for them, too. And thank you all for being with us today, and we will be in touch in our next conference call. Thank you. Have a nice day.

[Operator]

Thank you. This concludes today's call. All parties may disconnect. Have a good day.