Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, and welcome to the Third Quarter 2021 Gentera's Conference Call. Now I would like to turn the call over to Mr. Enrique Barrera, Investor Relations Officer of the company. Sir, you may begin.

[Enrique Barrera, executive]

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

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

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

[Enrique Majós Ramírez, executive]

Thank you, and good morning to everyone. As always, your presence and interest in our call is encouraging for us. Let me start by saying that for 4 quarters in a row, Gentera has been showing remarkable resilience. And we have achieved very good results, demonstrating a solid recovery path after more than 1 year of complicated context. Talking about our business results during the third quarter, Gentera's overall net margin looks really good. and we will definitely deliver the results we promised starting this year.

As you can see in yesterday's press release, due to the positive performance of our business, we are increasing our guidance for the second time this year. From the original $0.85 to $0.95 EPS. Now we believe we will end the year in the range of $1.15 to $1.25 EPS, which means 35% above our original estimation. Financial results are a consequence of customer satisfaction and a strong business operations. That's why we feel proud to say that our performance during this year has been very good.

Clients and portfolio looked stable compared with the third quarter 2020. However, it is important to consider that these results were impacted by 3 main factors: First, the loss of clients and portfolio as a consequence of selling our Guatemala operation, which, as you know, was a strategic business decision explained in our last conference call. Second, a 19% devaluation of the Caribbean currency. And third, the pandemic brought us extraordinary write-offs in Mexico and in Peru.

Even after this negative effect, Gentera's portfolio remained stable on a yearly basis, increasing 3.3% during the last quarter. And by the way, Peru has shown good growth portfolio trends. Especially during August and September, the loan disbursement amount has been historically high and portfolio quality is looking better. At Gentera's level, cost of risk is improving, and we are now close to 9% and consistently decreasing. I want to point out that Compartamos Banco has the best NPL numbers in the last 13 years.

We have seen this number -- we haven't seen these numbers since 2008, which is an incredible milestone for us, especially under the present conditions. And in Peru, we are looking at good NPL trends while we continue stabilizing the payment condition for our customers' base. Patricio will give you more color of our operations in Peru, but I can anticipate you that we are turning around the complicated situation we have had in Financiera Compartamos along the year. Finally, accumulated expenses for the year are under control and in line with our budget.

We expect to end the year around 9% of expenses growth and future quarters look equally posited. With such good results in our business operations, our digital transformation process is also having very good progress. Our management team all across the company is giving strong attention to our transformation initiatives. So let me point out some of them.

This quarter, we started testing our end-to-end digital credit process, and we plan to roll it out by the end of the first quarter 2022. We are strictly focusing on improving customer experience and loan officers' productivity, and we will gradually start to capture efficiencies during the 4 quarters of the 2022 year.

Our digital payment platform is also being transformed. Yastas is developing its new core system. This technological platform will include more digital features and mobile capabilities for better experience for agents and end users. And ConCrédito creditor is also showing very good results.

Financially speaking, portfolio increased more than 10% compared to last quarter and 20% on a yearly basis. Net margin increased 28% compared with last quarter. And by the end of this year, ConCredito will represent more than 25% of Gentera's net margin. But maybe the most relevant update in ConCredito is the fact that its operation has evolved from a branch-based operation to a fully digital operation without physical branches.

Today, ConCredito Empresaria canceled their transactions and support with -- without having to go to a branch. This has allowed ConCredito to increase its presence by 40% nationwide. ConCredito has presence in 139 cities and 40 of them are branchless.

Finally, I want to recognize the support and trust from all of you, our shareholders and investors. As you know, this year, our Board decided not to pay dividends until it was clear that we have succeeded on overcoming the impact of the pandemic. And I want to thank you for being truly patient for the last few years on this. As management, we operate under some basic principles.

First, our obligation is to keep Gentera's financial strength in order to guarantee the services we provide to our customers. Second, we have always had a long-term strategy and [Audio Gap]

[Unknown Attendee]

I am shown we have Enrique's line still connected.

[Mario Langarica Ávila, executive]

Do you hear me? It's Mario.

[Enrique Majós Ramírez, executive]

Yes, Mario. I can hear you.

[Mario Langarica Ávila, executive]

I think we lost Enrique. So Patricio, you want to continue with the speech of Enrique.

[Patricio De Bonilla Garcia Vallejo, executive]

Perfect. Yes. He was talking about the long-term strategy that we have, and we believe that investing in the future will be always strategic. And third, management we are focused on customer satisfaction and business profitability. We always be on top of our priorities. Having these principles in mind and being grateful for your continuous and long-term support. I want to announce that yesterday, we proposed to our Board the payout of a 10% dividend once we deliver this year expected results.

The Board agrees and will propose the dividend to the Annual Shareholders' Meeting next April. Our equity and cash flow requirements for 2022 is still a restriction for us to get back to the traditional dividend levels. However, we feel comfortable that by 2023, we will be back to our regular payout dividend.

Let me finish it by saying that we are aware that we still have challenges to face. We will always have. And as well, we will always have opportunities to capture. Transformation is a never-ending journey. Bottom line, I will feel very proud about the way we have faced the huge challenges from the pandemic. And in Gentera, I see a great team that will take the company and our customers' experience to the next level.

Let me follow personally my remarks and talk about a little bit what happened in the third quarter of 2020 . We decided to recognize the impact of the pandemic in our financials in Mexico. As such, we reported our first loss in 30 years of history in the third quarter of 2020. Such decision was indeed relevant, but necessary to set the foundations for a steady recovery of the business, 12 months after we have consolidated the business and presenting strong operational figures, which allow us to make us think that the future is promising.

As you could see in our third quarter '21 results, banco Compartamo's operational metrics are even better to pre-pandemic levels. To highlight some of the achievements in this subsidiary, let me share the following. First, we've grown the customer base every month in this 2021, attracting over 250,000 clients since January.

This represents 11.6% growth year-to-date. We serve more than 2.4 million customers in Mexico. It's important to mention that the fifth largest MFI that reports to [indiscernible] in Mexico serves less than 250,000 clients. Banco Compartamos keeps gaining share, a number of customers served and holds 43% of the market in number of customers versus 40% last year.

The microcredit loan portfolio at the end of the third quarter stood at MXN 22.7 billion, a 9.4% growth versus third quarter of 2021, and we presented NPLs at 1.6%. As Enrique said, this continues to be one of the best levels in the past 13 years of history. Third, credit demand remained strong. July represented the most important month in terms of loan origination in our 31 years of history, disbursing more than MXN 11 billion this month alone. Our expectation is to conclude the year with loan growth in Mexico around 15%. Fourth, the churn of our employees remains under control. We expect to finalize the year in 16%. This allows us to have experienced personnel in front of the customers, which translates in better service.

As a consequence, the net promoting score for the bank is 92%. As a reference, the net promoting score for the banking industry is around 65%. Profitability has been established due to a better mix between performing and nonperforming loans. Margins have been improving steadily and have contributed to generate larger margin after provisions. These strong dynamics have supported to turn around the business, and we have generated profits for the last 12 months. As such, in this quarter alone, we reached a net income of MXN 396 million in Banco Compartamos, representing a net improvement of more than MXN 2.1 billion in our net income this quarter alone.

So as you can see in Banco Compartamos, it is experiencing very solid performance, and our expectation is to keep this good momentum for year-end and with no doubt for the future years. Let me jump to our Peruvian operation. In the case of Peru, we follow the same strategy that we implemented in Mexico. We provisioned the expected credit losses for the pandemic last quarter, and we are pleased to announce that Compartamos Financiera started to show much better dynamics in this third quarter, as you can see in our results.

The actions taken in the past months to mitigate the challenges related to the impact in the economic activity generated by COVID-19, an impact related to the interest rate regulation are starting to pay out. Our top priority in Peru was to control asset quality of the portfolio. To deal with it, we restructured loans, we offered discounts as an incentive for the customers to pay on time, and we implemented an incentive program for loan officers to reach their goals.

Regarding interest rates, gap that was in Peru was at 83%, which affects exclusively to the group lending portfolio. As you might recall, we took actions to diminish the impact coming from this regulation. Among these actions are: First, we have increased the minimum ticket in the renewal process. This allows us to generate larger interest income despite the smaller rate.

Second, we are gradually increasing the length of new loans to 5 or 6 months from the previous 4 months. This measure will allow us to reduce the cost of renewal process. Third, we are moving some credit payments from a bi-weekly standard to a monthly payment with reducing transactional costs.

Additionally, we reduced some operational costs associated to the business methodology such as closing branches that were not productive. All these measures allowed us to maintain profitability in the product despite the rate cap. Let me highlight some of the achievements in Compartamos Financiera this quarter compared with the second quarter of 2021.

Number of customers served started to grow again, now serving 617,000. In this third quarter, we reached an inflection point, and we are growing again. Second, portfolio growth, the portfolio grew 2.2% in local currency. The progress in the portfolio is even better growing 5.8% quarter-on-quarter.

And NPL stood at 4.3%, representing an improvement compared with 4.6%. Our expectation is to improve or maintain NPL reach this quarter for the following months. And finally, after 5 quarters of operational losses, we are now generating net income in the third quarter of 2021.

Net income of MXN 84 million, representing at MXN 232 million in net improvement compared to the losses in the third quarter of 2020. With these results and all the measures and current dynamics that we are witnessing in the Peruvian market we believe that the worst for [ the ] subsidiary is behind us. We will keep working hard in understanding the customer needs, developing alternatives to meet their needs and maintain a strong team in the country to manage the company.

We are confident and committed to our Peruvian customers as well as our local team. I also want to take this opportunity to thank all the passion and dedication of our teams in Mexico and Peru, who are fully committed to serve more clients in this year and a more efficient and digital manner in the future.

As we have stated in the past, the size of the financially underserved market in Peru and Mexico is very large. And we are certain that we will capture all the opportunities that arise in the and following years. I will now hand the conference to Mario Langarica, who will review Gentera's third quarter financials. Thank you all. Mario, please go ahead.

[Mario Langarica Ávila, executive]

Thank you, Enrique, Patricio, and good day to everyone. I hope that you and your families remain safe and healthy. I would like to focus my 3Q '21 presentation in the following remarks: One, the improvement of our margins; second, the adequate and healthy level of allowances, NPLs, cost of risk and coverage ratios; third, the continued growth of our net income; and fourth, the strength of our liquidity, funding and capitalization positions.

Number one, our margins have kept improving. As mentioned before, Gentera's total loan portfolio amounted to MXN 40.4 billion in 3Q '21, a 3.3% increase compared to the figure reported in second Q '21 and a 1% contraction compared to 3Q '20. It is very important to note again, that this contraction was mainly driven by a MXN 3.5 billion FX depreciation effect on the consolidation of Compartamos Financiera in Peru. In local currency, our loan portfolios have grown 9.4% in Banco Compartamos, 8.1% in Peru and 20.9% in ConCrédito versus 3Q '20. It is also important to note that the consolidation of 87,000 clients and MXN [ 530 million ] of Compartamos Guatemala from Gentera's financials since July '21.

We have observed positive performance on the 3 lines of margin even after the FX impact in Peru and the consolidation of Guatemala. During the first months -- the first 9 months of '21, interest income grew 12.9% compared to the same period in 2020, mainly driven by Banco Compartamos and a better mix of its performing loans in the portfolio. For the same period, we have also been able to reduce by 13.3% interest expenses through active liability management, including a reduction of our extra liquidity positions. This affects result in a growth in net interest income of 16.5% as of September '21.

The performance of 3Q '21 compared to 2Q '21 was very similar for these items, resulting in NIM for the first 9 months of the year of 34.5% and 35.7% for 3Q 21, continuing the recovery trend. For this quarter, provisions for loan losses amounted to MXN 909 million, represented a MXN [ 170 million ] decrease compared to second Q '21.

Net interest income after provisions amounted to MXN 4.19 billion in 3Q '21, resulting in a NIM after provisions of 29.4%, above 27.2% last quarter. And for the 9 months of the year, NIM after provisions amounted to 28%, almost doubling the level reached in the same period of 2020. It is important to highlight that we expect to see NIM before and after provisions moving above 40% and 30% soon.

Cost of risk stood at 9.1% in 3Q '21 and 9.3% for the first 9 months of the year, thus moving below the 10.5% minimum level guided for the year. Operational expenses had an 11.2% growth compared to second Q '21. And for the 9 months of the year, a 9% growth compared to the 2020 period. It's important to note that this quarter growth was mainly driven by an increase in incentives and loyalty rewards related to the excellent risk performance of the portfolio in Banco Compartamos.

Second, some inflation-related adjustment in wages; and third, some expenses related to the implementation of the new outsourcing law in Mexico. We expect to close 2021 under the 10% growth guidance that we gave at around 9%. Two, we have sufficient allowances, historical low NPLs and healthy coverage ratios. Allowances amounted to MXN 3.29 billion on a consolidated level in 3Q '21. And as of today, we still maintain MXN [ 1.9 billion ] in additional reserves compared to the MXN 330 million that we kept in the second quarter of '21.

Our coverage ratio amounted to 269%, superior to 241% in 3Q '20. NPLs amounted to 3.03% compared to 2.96% in second Q '21 and a large improvement compared to the 6.94% in 3Q '20.

As mentioned by Patricio, NPLs at Banco Compartamos are at 1.61%, which are among the lowest in our history. We want to reinforce the message that most of the pandemic impact has already been reflected in our financial statements and absorbed by our strong capital base. Three, net income has kept growing, maintaining a positive recovery trend. Gentera's 3Q '21 net income amounted to MXN 657 million, a very strong recovery compared to the losses of MXN 1.983 billion presented in 3Q '20.

The cumulative net income in the 9-month period of the year was MXN 168 -- [ MXN 188 million ] representing a MXN 3.6 billion recovery compared to the MXN 1.926 billion loss in the same period of 2020. As of September 1, GENTERA's controlling participation amounted to MXN 1.504 billion, representing an accumulated EPS of MXN $0.95. As mentioned above, we are increasing our EPS guidance for 2021 to a range between $1.15 to $1.25. Also, a very relevant point to highlight is the fact that Compartamos Financiera in Peru is already back in quite a positive net income, which makes us feel very [ interested ] about this year and the prospects for next year.

Four, we maintain strong liquidity, funding and capital positions. Gentera concluded 3Q '21 with a very healthy liquidity position amounting to MXN 17 billion. Liquidity levels at each our subsidiary are very solid and sufficient to fund our expected growth and are strong to face opportunities in each local market. It's important to note that due to the open and solid access to different funding sources, Banco Compartamos has already decreased over MXN 5 billion in extra liquidity since 3Q '20.

In the following months, we will keep optimizing the level of liquidity, always considering the market conditions. We have recently announced a MXN 2 billion to MXN 2.5 billion, 3 to 5 years bond that we expect to place in the market in November.

It will be the first bond to officially have a formal social denomination level, which has always been very consistent with our historical social objectives. Gentera's strong capital to assets ratio amounted to 35% in 3Q '21. Banco Compartamos concluded the quarter with 34.1% ECAP or capital adequacy ratio. Compartamos Financiera with a solvency level of 18.1% and ConCrédito with a capital to asset ratio of 66%.

Important to say that even considering this strong capital position, Banco Compartamos and ConCrédito were able to reach strong levels of ROE in the 9 months period of the year. Banco Compartamos reached a cumulative ROE of 19.5% and ConCrédito of 21.7% in the same period.

Finally, and recognizing that we and our clients have adapted to the new environment and dynamics of the markets, we are very pleased about the results we have presented -- we're presenting and excited about future opportunities. The size of the addressable market is large in Peru and Mexico.

And certainly, we will be there to offer financial product services that our clients need to achieve their objectives. We're strongly motivated with the current dynamics with the new EPS guidance provided for '21 and with the objective to initiate our dividend distribution after approval of our shareholders' meeting.

This is a proof of the sound performance of the group in this year and our expectations that the best is just yet to come. Thank you very much for your attention. And now we can open and move forward to Q&A session.

[Operator]

[Operator Instructions] Your first question for today is coming from Ernesto Gabilondo. Please announce your affiliation, then pose your question.

[Ernesto María Gabilondo Márquez, analyst]

This is Ernesto Gabilondo from Bank of America. Congratulations on your results and your improved guidance. My first question is on your ConCrédito contribution to the other income. We noticed that during the quarter, that line generated almost MXN 400 million. So just wondering what should we expect for that line in the next quarters?

Then my second question is on asset quality. I believe you were guiding a cost of risk between 10.5% and 11.5%. But after the 9 months, it seems that it could be below your guidance. So how are you seeing the [ customer base ] evolving? And once you start growing again, the loan portfolio, what should be the normalized cost of risk?

And then for my last question is related to the competitive landscape and the digital transformation. I would like to hear from you, who you see as most aggressive fintech or potential digital banks going into your segment. We have seen, for example, Nubank has been growing rapidly. So I don't know if that is one of them. And on the other hand, can you share with us some of your digital initiatives to face potential new competition?

[Patricio De Bonilla Garcia Vallejo, executive]

Excellent, Ernesto. Well, regarding your first question on other income related to the CrediTienda income that we book at other income. The amount is MXN 96 million for 3Q '21. The rest of the amount that you mentioned relates to the accounting movements that we did in order to finally register the impact of the Guatemala des consolidation, which now you can look at it at the discontinued operations line that amounts to MXN 153 million. So the contribution of ConCrédito in the quarter was MXN 96 million -- of CrediTienda was MXN 96 million.

[Mario Langarica Ávila, executive]

Okay. And in terms of cost of risk, Ernesto, I mean As you know, we're always focused on loan origination and the quality of such process. As you've seen the asset quality for Mexico this year has been coming down. Also, the cost of risk for this year was not necessarily something to compare with because we provision a lot in 2020, which reduced the amount of money that we needed to provision in 2020. Therefore, we will maintain good asset quality, and you should expect to see the cost of risk moving around 8%, 9% for next year on a consolidated basis once it's normalized the origination and the provisioning level for the full year.

[Operator]

Your next...

[Patricio De Bonilla Garcia Vallejo, executive]

Sorry, I think we're missing one part of the strategic question on the competition landscape. I don't know if Majos is on the line.

[Mario Langarica Ávila, executive]

I think he disconnected. As for the fintech landscape, Ernesto, of course, there are many new entrants, many players not only financial institution, also retailers and so forth coming in. Of course, there's a lot of money flowing into this segment. And we are looking at every newcomer to see what's the value proposition for this segment.

Again, as Enrique mentioned before, the reality is we are very focused on our digital transformation. We think that we have strong capabilities there to, not only originate, but understand better the customers use of data and with such data, start to deploy new products that could be easier, faster and cheaper for the segment. And again, of course, there's a lot that is going on right now. But I would mention one thing [ clear ] but the dynamic is very intense as you've seen in the latest news.

[Enrique Majós Ramírez, executive]

Thank you, Patricio. Do you hear me there? This is Enrique.

[Patricio De Bonilla Garcia Vallejo, executive]

Yes. Perfect.

[Enrique Majós Ramírez, executive]

Yes. And I'm sorry, I'm having problems with my connection, but sorry about that. And just to continue with Patricio's explanation, Ernesto, and your question about fintech. What we see is that we are all fintechs and the traditional financial institutions looking for digital tools basically on 3 things. The first one is how can you make better customer acquisition more efficiently, digitally, at a low cost.

The second one is, how can you assess the risk better with algorithms and digital intelligence. And third, how can you make your back office processes more efficient. And I think that we are all working on that. Actually, the initiatives that we have in the transformation process are focused mostly on those 3 things.

So at the end, I think that fintechs and ourselves are working on that. And I think that we are also looking that we are not strictly competing. We are in some point. But we are also collaborating on developing these tools, and we are working with some fintechs to help us to bring those capabilities to Gentera.

So yes, it's a very interesting moment in -- not only in the financial world, all over the world with all the digital initiatives and innovations. And we believe we are doing good progress collaborating with other fintechs. And we are very excited about the progress we are making on basically those 3 things that I mentioned.

[Ernesto María Gabilondo Márquez, analyst]

Enrique. And just a follow-up on this. I think that you get as you already have like a very good presence in the low-income segment related to payments. And I don't know if you are trying to replicate some of what we have seen in Brazil, like trying to bring software to small merchants in order to build the relationship with Gentera. I don't know if something related to that are you exploring?

[Enrique Majós Ramírez, executive]

Yes, sure. What I mentioned in my last intervention was that we are developing a new core system for at Yastás. This is a specific digital payment platform core system. And that system is aimed basically to bring better mobile capabilities. So we are putting in the hands of our agents and our end users, platforms, apps that will allow them to make better and more convenient transactions from their mobile phones. So yes, we are working specifically on what you're mentioning now.

[Operator]

Your next question is coming from Jose [ Centura ]. Enrique, what factors contributed to a lower effective tax rate during the 3Q '21?

[Patricio De Bonilla Garcia Vallejo, executive]

Okay. It's just a seasonal effect. In reality, the corporate rate is 30%. All of our subsidiaries pay their taxes every month, applying taxable income minus deductions times 30%. So for the full year, it's expected to be around 30%. But in this quarter, we have some effects of the de-consolidation of Guatemala that showed this percentage but we should always expect it to be around -- between 27% and 30% since the corporate rate is 30%.

[Operator]

Your next question is coming from Jason Mollin. Please announce your affiliation, then pose your question.

[Jason Mollin, analyst]

This is Jason Mollin from Scotiabank. My question is related to the Peruvian operations. If you can talk to or about the operating environment in Peru, for Compartamos Financiera, the subsidiary there. And it was indeed encouraging to see the number of clients tick up quarter-on-quarter a little bit, but it would be valuable to hear how Gentera is managing the operating environment there, given the interest rate cap. And how that's impacting the business and how you see that if it is impacting the business going forward or will impact the business?

[Patricio De Bonilla Garcia Vallejo, executive]

Jason. This is Patricio. In Peru, as you know, we have 2 different portfolios. The largest piece of business is the individual lending portfolio. Individual lending portfolio represents 80% of what we do there. This is not impacted by the regulation and the focus on this portfolio was on asset quality. As you know, the lockdowns in Peru were present, even in this 2021 January, February is still very strict in terms of mobility. Things are getting back to normal as vaccination plans are being rolled out.

But the reality is that the economic environment is still a little bit sluggish even though the GDP for Peru will grow. The reality is that some of our competitors are facing strong operational challenges and that represents an opportunity for Compartamos Financiera.

We think that after -- as you see, after we recognize the expected losses for credit losses last quarter, the progress of the new originations have been adequate. So we are confident that this piece of the portfolio will regain momentum. The micro entrepreneurs in Peru will require financing.

Also, July for the Peruvian operation was one of the most important months in their history in terms of loan origination. So we are confident that the -- what we implemented there to tackle credit quality for that piece of the portfolio will -- it's paying off now and we'll continue to regain growth in customers and portfolio for the coming quarter and years.

And there's a market for this product in Peru, no questions asked. In terms of the group lending methodology, as I said, this is indeed impacted by the regulation. We are now seeing July 1, operating at 83%, which is the maximum rate.

And as I said, we did some adjustments to the product offering to increase the volumes and to reduce some operational costs associated to the methodology having implemented such actions allowed us to still have profit in this portfolio. So we are confident that for the coming quarter and months, the reality is that these actions will keep the group lending methodology alive in Peru.

And this is a product that we face very low competition. So as we -- with the infrastructure that we have already gained productivity, profitability will regain -- will be regained in the coming quarter and year. So having said that, we are confident that, as I said in my remarks, the worst for the Peruvian operation, the impact of the economic slowdown as well as the pandemic is behind us, and we see good opportunities for the subsidiary in the coming years.

[Operator]

Your next question is coming from Ricardo Buchpiguel.

[Ricardo Buchpiguel, analyst]

This is Ricardo Buchpiguel from BTG Pactual. I have 2 questions. First, considering the long-tail market that has likely expanded due to the pandemic our competitors probably have struggled in the period and Gentera has a very sound capital and included position. Should we expect Gentera maybe buying some competitors and increasing consolidation in this market? And can you clarify a little bit what kind of opportunity you could see in this scenario?

And also, could you please comment on the main trends you expect for next year in each of [ Gantera's subsidiaries ]?

[Mario Langarica Ávila, executive]

I couldn't hear your second question. Could you repeat it back, please?

[Ricardo Buchpiguel, analyst]

Sure. Yes. I just want to have a sense on what are the main trends you expect for 2022 in each of Gentera's [ subsidiaries ]

[Mario Langarica Ávila, executive]

Of course. Thank you. And in terms of competition, yes, even though we have a very strong position financially speaking, the reality is that next year, we will increase our share in ConCredito. As you know, ConCredito, it's now 51% owned by Gentera. Next year, we plan to move to 75%, and that will require capital from the group allocated to the subsidiary.

We believe that the acquisition of ConCredito will allow us to strengthen the footprint of Gentera in the Mexican market because we serve different needs of this segment with both subsidiaries. We don't see our plan before next year other acquisition.

Of course, we are open to the dynamics, but you should not expect further capital allocation for M&A activities next year. And then your second question was in terms of trends. Of course, the dynamics, Mexico is doing well. I'm talking about the Banco Compartamos. We really think that we'll deliver 2021 results, as we mentioned in our remarks. And we think that, that will set strong foundations to keep this growth momentum for the coming year. And a double-digit growth for the Mexican subsidiary can be expected. However, we won't provide guidance until February.

For ConCredito, it's still in a growth -- a fast growth phase. As you know, ConCredito, it's more on the Northeast -- Northwest of the country. There is a possibility of taking the model to other states where ConCredito is not present. So the growth for this subsidiary should be faster than what you see for Banco Compartamos.

Peru, again, will regain momentum and growth is expected. So altogether, we see a very positive outlook for 2022 as we move the growth of the business as well as we capture efficiencies from all the digital initiatives that we are implementing next year.

[Operator]

Your next question is coming from Thiago Batista, please announce your affilation then pose your question.

[Thiago Bovolenta Batista, analyst]

It's Thiago Batista from UBS. I have a follow-up about Compartamos Peru as a follow-up about -- on Jason questions. with all the change that we saw in Peru, the cap, the political changes, the change that Compartamos did, what is the level of profitability that is feasible for this operation in the long term. This quarter, the bank achieved very close to 10% of ROE. But if you went back a couple of years, this used to be close to 20%. What is the level of ROE that Peru can deliver, the present operation can deliver in the medium term?

[Mario Langarica Ávila, executive]

Thank you very much, Thiago. The objective, as we have said in the past is to get back to ROEs above 20%. As you remember, in the last quarters of 2019, we were there, and we believe that we have a lot of opportunity to bring back Peru to those levels.

We are, as Patricio and Enrique have explained in detail in the process of rebuilding the financials in Peru, but we have been observing very positive trends in that direction.

[Operator]

Your next question is coming from Jorge Henderson.

[Jorge Henderson Cubillas, analyst]

Yes, this is Jorge Henderson from Santander. I have 2 questions. And my first question is on Banco Compartamos. So we're still 9% below the number of prices we had in Mexico in '19. But you're growing your number of clients 11% [indiscernible] so my question is on the detail of this recovery, are these customers new ones, new customers? Or are these previous customers that are coming back to Banco Compartamos?

Also, my second question is on ConCrédito. Could you provide us more detail on what was behind this quarter's [indiscernible] ConCrédito loan book? Also, can you remind us of the duration of the loans of the segment on the number of [indiscernible].

[Patricio De Bonilla Garcia Vallejo, executive]

Jorge, yes. This is Patricio. Indeed, the growth in customers has been very good this year in Mexico, 250,000 new customers for Banco Compartamos, 11% growth in 9 months. So this is a reflection of the demand that exists for credit in the Mexican market. The new customers that we attracted are -- half of them existing customers that we basically left or they went away, paid out their credit last year and waited for new credit until the pandemic went away and they are coming back to us.

And the other thing is, it's new customers to Banco Compartamos. So it's a combination of both, and we expect to maintain this growth momentum for the year-end.

[Mario Langarica Ávila, executive]

Jorge, thank you for your question. And for the second question, can you repeat it because we didn't hear clearly. So I know it's about ConCredito and the customer base growth. but I didn't get the entire question, please.

[Jorge Henderson Cubillas, analyst]

Yes. So my question is on the -- I mean, actually, there was another question also. So the first one is, I was asking if you could provide more detail on what was had the quarter -- this quarter's increase on ConCrédito's loan book. I think that's very good. And also, if you could share with us the ratio of these loans and the number of [ empresarios ] that you have in the segment?

[Mario Langarica Ávila, executive]

Yes, sure. We have in ConCrédito around 60,000 [ empresarios ]. And we are growing that number, as Patricio explained before, maybe the most important part of the growth in ConCredito will come from geographical expansion that we're having, which by the way, it's a branchless expansion, which is more efficient. And we are having very good results on serving our customers in a digital way.

And we are also -- since we are expanding geographically we are going into places in which we don't have necessarily that much experience in the [ empresarios ] on providing credit. So that's also a challenge for us. But it's an opportunity because we are opening the number of [ empresarios ] that we can get to expand our network.

So that's why Patricio was explaining that looking forward, we look that ConCredito has enormous potential and because you combine geographical expansion with digital capabilities.

[Jorge Henderson Cubillas, analyst]

Okay. One follow-up question. I didn't get a percentage of ownership of ConCredito you plan to get next year. Could you repeat the share please?

[Mario Langarica Ávila, executive]

Yes. As you know, we have now the 51% of the company, and we have the right to increase that participation. So we are in the process of going there. We are talking with our partners. So as soon as we have more specific details on this, we will communicate them.

[Operator]

Okay. Your next question is coming from Alonso Garcia.

[Alonso Garcia, analyst]

This is Alonso Garcia from Credit Suisse. My first question is actually a follow-up on ConCrédito. In part, it was answered with the previous question. I was wondering about the deterioration in asset quality in this subsidiary. Based on your previous answer, I guess, this is due to the geographic expansion and the, let's say, lack of experience of your new [indiscernible]. But if that's the case, I just wanted to ask, I mean, what are the levels of NPL ratio and cost of risk that you feel comfortable with for the subsidiary.

And my second question would be on your outlook for OpEx growth for next year. I think you are guiding for 9% OpEx below this year, but I was wondering what are you expecting for next year and what should be the main drivers.

[Enrique Majós Ramírez, executive]

Thank you, Alonso. Yes, as you said for your first question, you are right. Basically, the reasons why we are looking on NPLs that are slightly going up is because those 2 factors, the geographical expansion and the expansion of the profile of the [ empresarios ] to increase our network. Although we know that is -- we have been observing these trends very carefully for the last months, even a whole year. And we feel that we have this under control.

So we don't expect NPLs to go further. We think that we are getting into the maximum NPLs that we will get. And now we are going to start looking a bit going down.

[Mario Langarica Ávila, executive]

And also, for your question regarding OpEx, as you said, again, we expect to be below 10%, around 9% this year. For next year, we're not providing guidance yet. But as Enrique has explained, we are also in the process of reviewing the investment that we need to make for this strategic initiatives that we have already described. So we will provide details on our OpEx guidance in the next quarter as soon as we have the full 2022 plan.

[Operator]

Your next question is coming from Carlos Gomez.

[Carlos Gomez Hernandez, analyst]

Carlos Gomez from HSBC. I want to know how you are looking at your capital position. You mentioned earlier that you have to disburse for the acquisition of the extra 25% -- of 24% of ConCredito. What capital ratios are you focusing on? And should we be looking at and what levels do you want to maintain?

[Mario Langarica Ávila, executive]

Yes. I'm sorry, let me see. If I'm -- okay, sorry, I thought I was on mute. Okay, as we have always mentioned, our key capital ratios that we are always taking care of are, one, the bank. As you -- as we have communicated, we have a 25% minimum [ ECAP ] at the bank. So any use of capital should take into consideration that we need to be [ above that ] and that's permanent.

And regarding Peru, it needs to be the solvency level above 17%. Having said this, the plans that we have for next year, including ConCredito and including what we just said about the dividend of at least 10% when the assembly, the shareholders' meeting approved it. consider that we need to be above this capital internal limits. So we will be above our limits during the year.

[Carlos Gomez Hernandez, analyst]

Okay. And for Gentera Holding, do you have any particular ratio or you are focusing on the subsidiaries?

[Mario Langarica Ávila, executive]

We focus on the subsidiaries. So that's where we keep the controls at the capital and equity levels.

[Operator]

Your next question is coming from Gilberto Garcia.

[Gilberto Garcia, analyst]

This is Gil Garcia from Barclays. I had a follow-up on the operating expenses, just to understand because you mentioned in the press release that the increase in the quarter had a -- was partly to do with extraordinary bonuses to loan officers above the budget and so on.

But if you will be at around 9% for the full year that implies that the fourth quarter number will also be significantly up compared to the first half of the year. So I just wanted to understand if there were continued extraordinary items here if they include any sort of special projects that you discuss a little bit for next year.

[Mario Langarica Ávila, executive]

Yes, thank you. We -- every year, we budget a specific amount of incentives to be paid. But obviously, if the performance is superior, we need to honor that incentive to our loan officers force. So that's basically what has happened this year, and that's a very good message because that expense comes with a multiplier at the income level.

So well, yes, it has increased the expenses over the budgeted number. But again, as we have mentioned for Gentera for the full year, it will be below our guidance. Next year, we will adjust the hurdles of the incentives, and we will reach the bar for our loan officers in order to meet a more productive and higher levels. So this should be communicated the amount of expenses, as I mentioned in the previous question about what we expect for OpEx next year.

[Operator]

Your next question is coming from Yuri Fernandes.

[Yuri Fernandes, analyst]

It's Yuri Fernandes from JPMorgan. And first of all, congrats on the turnaround of the business. 2020 was a challenging year, so happy you are being able to provide better figures. I have just a follow-up on ConCrédito to -- you already touched these 2 times, but can you explore from the business, which one is driving those higher NPLs? Because when we look to the new NPL formation, look to your charge-offs and like all the moving pieces, this is the third quarter that we are seeing higher new NPLs in ConCrédito. So my question is, are you seeing like -- you talked a little bit about the experience of the sales force.

There seems to be this is more like the traditional ConCrédito or this can be related to CrediTienda. And if you can explore a little bit the CrediTienda model, how asset quality is tracking for that product? I understand that you buy the product from the distributor and receive that installment. So my question is like, how is the asset quality -- is something that you are seeing a [ deterioration ]?

And regarding my second question on expenses. You mentioned a lot about digital transformation. But when we look to your number of investments, the strategic investments, right? And there, you have other expenses like ConCredito, there are a lot of things there. How much are you really investing in digital transformation? And here, I'm talking more about on Compartamos in Mexico. Like how big is your budget? And do you think this is enough? Do you plan to increase the digital transformation budget for 2022? Any color would be interesting.

[Enrique Majós Ramírez, executive]

Okay. Thank you, Yuri. I will answer your first and your last question. And yes, you're reading well. The reason why we are experimenting this NPL growth in ConCredito. Let me get a little bit more specific on this. But yes, we have these 2 factors, the geographic expansion and the expansion on the profile of the [ empresaria ] to extend the network.

The bigger impact comes from the change or the expansion of the profile. Traditionally ConCredito has enrolled [ empresaria ] from markets, specifically more in the northwest of the country where they have a lot of experience providing this kind of, what we call, Vale Dinero, which is loans through this mechanism. So they had experience with other businesses. For instance, selling shoes traditionally on those -- that region of the country has been through this kind of mechanism. So they had a lot of experience there.

That doesn't mean that new people cannot get this experience. They will get it, and we know how to train them to get that experience. But getting new people with no previous experience on this brings us into a more long learning curve. And that's why we are looking at these NPLs going up.

But as I told you, we have this under control. We have a very good digital online information about how these clients are behaving, that something very good from ConCrédito's model because they have a lot of digital information in real time.

So we feel very comfortable that we are looking closely to this behavior, and we have it under control. And for your last question in terms of investment, what we are looking to the future, well, we have been investing a lot on technology and innovation since a few years ago. Not only through the FiinLab innovation lab, but even before when we started with Yastas, which is also part -- a very important part of the digital transaction platforms and payment platforms. Our investment in competitors also classified as an innovation digital investment.

And for the future, we think that we are going to invest around on MXN 1,500 million in the following 1 to 2 years on innovation online with the transformation initiatives that we have already in place and that we will develop through the next 12 to 18 months.

So that's what I can tell you about your -- these 2 questions you had. And I will let, I think, Mario to answer the second one.

[Mario Langarica Ávila, executive]

No, it's basically -- you have already answered it. We will provide detail on the expenses and the investments in the next quarter. So you have a better number and a precise number of what we expect to do. So we're finishing, as we mentioned before, the plan, there are these strategic initiatives that Enrique has just described, and we will provide the numbers in the next quarter.

[Yuri Fernandes, analyst]

Guys, just a follow-up regarding the first question, maybe a positive way to think about this challenging in asset quality in ConCrédito like the challenges we are seeing today, maybe that's a sign that is not that easy to originate and collect money digitally, right? So that could be an issue for disruptors and other guys going to your market, right? Do you think it's fair to think about this?

[Enrique Majós Ramírez, executive]

Yes, I don't know if I get your question clearly, but what I can tell you is that we have the advantage of combine the experience of ConCrédito with experience of Compartamos Banco and the group lending clients. And what we are doing is that we are creating synergies to have those two credit assessment and collection processes, creating synergies to have a stronger model that may be the ones some other fintechs can have without this group lending methodology and clients that we do.

[Operator]

[Operator Instructions] There are no questions in queue. I would now like to hand the call over to the management team for closing remarks.

[Enrique Majós Ramírez, executive]

Thank you so much. First of all, I want to apologize for my connection problems. I have already solved them, so sorry about that. And I would like to make emphasis in a couple of things now that I have a good connection. And first of all, thank you for all your questions. I believe that they are because you are very interested on what we are doing and you're looking that we are having good progress. So thank you that, as I said in the beginning, encourages us.

And second, I want to really be grateful with you for your continuous and long-term support. I hope that the dividend that we are planning to do next year and the plans that we have for the next ones, we will make up to you. And the other thing is that we are aware that we still have challenges to face. And we know that's how it will be in the future, and that's how it will always be. That's why we do what we do because we want to solve and give and provide our customers better conditions, and we have to solve all the challenges that we face in that journey.

So we feel comfortable, and I feel very comfortable with the team that we have, and we will continue facing and solving those challenges. As well, we will always have opportunities in the future. And I believe that we have a lot of opportunities looking mostly on our transformation initiatives, which is, by the way, a never ending journey. So I believe that learning how to work and to get progress on this new innovation, digital environment will give us a lot of opportunities, and we will capture them.

But bottom line, I feel very, very proud about the way we are facing the huge challenges and the way we face the huge challenge that we had specifically last year with the pandemic. And I believe that in Gentera, we have a great team that will take the company and our customers' experience to the next level. So thank you so much to you for your interest and attention.

Thank you to all the management team and the team that is working very hard for our customers. Thank you to our Board members. And thank you all for your attention today. And I hope we will see you in the next conference call looking forward.

[Operator]

Thank you all for participating in today's conference call. You may now disconnect, and have a nice day.