Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2017-Q4

[Enrique Barrera, executive]

Good day to everyone, and thank you for joining us and for your continued interest in Gentera. I'm Enrique Barrera, the company's Investors Relations Officer. I'm very pleased to introduce our management team who will review the results of Gentera for the fourth quarter period and full year 2017 as per the report that was issued yesterday. With us today are Mr. Enrique Majos, Gentera's Chief Executive Officer, who will present a detailed analysis of business dynamics; Mr. Patricio Diez de Bonilla, Banco Compartamos' Chief Executive Officer, who will actively participate during the Q&A section of this conference call; and Mr. Mario Langarica, Gentera's Chief Financial Officer, who will review the financial results of the company.

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 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, Enrique. Good morning to everyone. We appreciate your time and interest in our quarterly report. As always, let me point out the main topics I will take you through in my report today. First, I will talk about Gentera's 2017 results; second, I will update you about the action plan and strategy that we are executing and that we explained in our last call 3 months ago. Finally, I will explain our 2018 plans and our guidance for the year and some relevant points about our capital structure.

So let me start by talking about 2017. As a reminder, last quarter we explained that we had some customer service issues originated mainly because of a reduction in our sales force staff and some internal decisions that affected our processes and service. As a consequence, we affected our credit process across the board in the origination, the renewal, and the portfolio quality management. Therefore, we immediately started taking action in 3 main directions. The first one, we concentrated on getting back to our high levels of customer service by having the roster of loan officers at full capacity. Second, we improved the quality of our portfolio mainly in Credito Comerciante product, bisecting our origination process and having a stronger discipline in our methodology. Third, we worked on simplifying our projects and priorities looking for efficiencies.

2017 results closed in line with what we communicated in our last call. For the first time in our history, we reduced our number of customers and portfolio. We are fully aware of the critical situation and we have a clear action plan in place to address it. From the beginning, we knew that the recovery process was going to be slow but solid. We feel confident about the steps that we are taking. The challenges that we are facing represents a great opportunity to fix and improve our operations, making it more convenient for our customers and also more efficient, financially speaking. In fact, we already have seen some operational early indicators that show that we are in the right track.

Let me first talk about Gentera's overall results. We closed the year with 3.5 million clients and a total portfolio of MXN 32 billion. On a year-to-year basis, customer base of the year came down by 3.4% and portfolio decreased by 4.3%. Within this period, NPLs total portfolio went from 4.22% in December 2016 to 3.26% at the end of 2017. Compartamos Banco had the greatest impact on this result with a contraction of 15.6% on clients and 12.6% on total portfolio. The good news is that due to the early actions that we have taken, we have some early indicators that show how our operations are already improving. For instance, overall NPLs since September have improved in Mexico from 4.37% to 3.28% and specifically, Credito Comerciante's NPLs, which was our main concern, went from 7.5% to 2.1% also in this quarter. It is true that write-offs are included in this number. However, if we take [ 8 to 90 days ] past due delinquency for Credito Comerciante, which not includes write-off's, we have had an important improvement, especially in January. That's an important piece of evidence of the quality of our portfolio that will result in a reduction of our cost of provisions. So this improvement is really relevant.

Another early indicator is the time that we take in disbursement of the loans to our customers. On-time disbursement has improved dramatically from 30% in last September, which by the way was a really bad number to 49% as of December 2017 and over 70% in January 2018, definitely not enough, but a big improvement in our service. These results are in many ways thanks to the fact that we again had a full loan officer roster and turnover of loan officers has improved from 42% in September to 38% in last December.

Let me now talk about other 2017 business results. As you have seen, our growth trend in Banco Compartamos saving accounts was outstanding during the year. We started last year with 500,000 accounts and as of December, we ended the year with 1.6 million saving accounts with a total balance of [ MXN 1.7 billion ]. It is important to mention that for 2018 and in order to concentrate on recovering the growth and quality of our credit business operation, our saving strategy will be to maintain nearly flat our customer base during the year to then we take aggressive growth in 2019.

ATERNA, YASTAS, and INTERMEX continued to show growth and good performance. ATERNA concluded the fourth quarter with around 4.8 million active life insurance policies. YASTAS increased its financial transactions by 28% compared with the 2016, reaching 7.3 million transactions during the year. And INTERMEX processed over MXN 23 billion in payments over the year, which represents an 11% growth compared to 2016.

Peru and Guatemala results have been very positive and their contribution to Gentera customer base and portfolio is becoming more relevant. In particular, Peru grew its customer base by 24% and its portfolio by 22%. Peru group lending products, grew 38% in customers, which confirms its potential and supports our strategy of taking the group lending methodology to other latitudes. It is also very important to point out that the portfolio quality in Peru has been outstanding at NPLs of 3%. This is thanks to the implementation of stronger risk control processes with better predictive and segmentation tools.

In terms of M&A and as we explained a couple months ago, the investment in ConCredito will be closed once we get the formal approval from the Mexican Antitrust Commission. We believe there will be no showstoppers for this approval. I am aware of the fact that questions remain regarding our investment in ConCredito and how it fits on our strategy. So let me explain further. Allow me to remind you of the 3 pillars of every business model and of course 3 pillars that also applies to our operations. The first pillar is market and customers, the second one, products and the third one is distribution channels. The ConCredito business models fits with this 3 pillars. First, market, customer, and product fit our strategy since ConCredito provides financial services to the segment of the population that Gentera serves. Therefore, ConCredito brings additional approaches to address growth and quality portfolio.

Second and very relevant, ConCredito brings us a new distribution channel, which should help us to boost our growth. The ConCredito methodology uses people of the community as a third-party distribution channel for financial products. In the same way, these distributors are also responsible for the collection of the loans. As you can see, this model has the potential to transform 200,000 of our best clients into product distributors. You can imagine that this can be a tremendous opportunity to improve and transform our distribution capacities. Not now, but in a couple of years, we expect to see the benefits of this partnership and the innovation that we can take from it. As you can see, ConCredito is a relevant investment for the evolution of our model.

Let me now update you about the action plan and strategy that we are executing and that we shared with you during our last call in October. As you know, after 2 years of leading FIINLAB, our Financial Inclusion Innovation Lab, last September, I came back as CEO of Gentera. [ These 3 months has ] been really inspiring to me since we have found great opportunities to improve our customer experience and to be more efficient by re-thinking our priorities, projects, processes and organizational structure. I am fully aware that in the following quarters you are expecting evidence that our recovery plan is working. I believe that's a reasonable position and we will deliver.

In order to show you the road map we are following, let me start by taking you through some of the most relevant actions we have implemented during this quarter. Number one, concentration on priorities. Based on this, we reduced from 31 to 18 our strategic projects. By concentrating on our most important priorities, we will make sure that they will be well executed. Number two, reduction in expenses. As a result of the concentration on our business priorities, for the first time in our history, we reduced our headquarters headcount by 17%, which sadly represents a downsizing of our headquarters staff [ in 260 ] people. This optimization plan was concluded just last week. Number three, product improvement. We have been reviewing our product offer and service processes in order to improve them and we are about to implement the most relevant adjustments in product features and policies this March. This will allow us to maintain our leadership position in the market. Number four, growth. We have reviewing our incentives plan for our sales force as well as the commercial campaigns, which will help us to attract new customers and increase our renewal rate. Number five, customer service. Since the beginning of the third quarter of 2017, we took immediate actions to fix the most important customer service issues. As I explained just before, some early indicators are already showing improvements.

It is time now to look into 2018 plans and challenges. As we have been saying, we see 2018 as a re-constructive and transitional year. Our main goal is to stop losing customers and start growing again in the second semester. 2018 will be a year in which we will build solid foundations to have a strong 2019 bringing Gentera back to a double-digit growth pace. I believe it is important to mention our top 3 priorities for this year. Number one, we will rebuild our operational capacities and competitive advantages specifically regarding our product, processes, and customer service. Second, we will recover our customer growth capacity with a high-quality portfolio by the second half of the year. And three, we will improve our efficiency and show a positive relation between income and expenses growth. In addition, we are aware of the importance of keep on moving towards the transformation of the digital services and [ tools ]. So we will keep the basic transformation projects and digital initiatives through our innovation lab and the synergies with the bank.

Let me finish by giving you our guidance for 2018. As I mentioned before, portfolio in Mexico will remain flat during 2018 and in the case of Guatemala and Peru, we will basically see the same trends we have been observing in the last year. Therefore, Gentera's portfolio growth will be between 0% and 4% and earnings per share will be between [ MXN 1.51 and MXN 1.64 ]. Finally, in the next days, we are taking to our board the following 2 points in order for them to take them to the shareholders' meeting. The first one to increase our stocks buyback program up to 2x of what we have today. And the second one, we are proposing to maintain our usual dividend payment of 37%, which is the same percentage of dividend paid in 2017.

We are motivated by the challenges we are facing this year since we truly believe they are giving us the opportunity to make big improvements to the value proposition we offer to our customers as well as improvements in our efficiencies. Just as we have said before, first half of the year will be a reconstruction period and by the second half of the year, we will be able to show you new positive trends. We have always been a company that looks into the long-term benefits for customers and all our stakeholders and that will continue to be our obsession. Let me now turn the call to Mario Langarica, our CFO to get into the financial specifics. Mario, please go ahead.

[Mario Langarica, executive]

Thank you, Enrique, and good day to everyone. Let me start talking about P&L dynamics for the full year. In 2017, Gentera interest income amounted to MXN 20,889 million, which is 4.4% higher than the interest income generated in 2016. Part of this increase was driven by Compartamos Banco repricing strategy. Interest expenses grew [ 28% ] compared to 2016. This growth considers the increase in the Mexican reference interest rate. [ PA amounted in average at 7.14 compared to 4.47 ] during 2016.

We want to highlight that during 2017, our Peruvian subsidiary obtained access to better interest rates and credit conditions. Net interest margin during 2017, it stood at 53.8%, slightly below the 54.5% reached in 2016. This movement was mainly driven by a larger participation of Compartamos Financiera, our Peruvian subsidiary in the consolidated portfolio. As you know, Compartamos Financiera has a larger share in individual credit, which given the industry and product dynamics implies a lower active rate. Loan portfolio provisions reached MXN 3,640 million, a 12.4% increase compared to 2016. Thus, net interest margin after provisions for the full year stood at 43.7% compared to 45.1% reached in the previous year. During 2017, the cost of risk amounted to 11.3%. Commissions and fee income increased 0.7% to reach MXN 1,412 million during 2017 while expenses decreased 40% due to the incremental use of our proprietary network to disburse and collect our credit versus third-party infrastructure. As a result, net fee income increased 40% to amount MXN 999 million compared to MXN 711 million in 2016.

Operating expenses grew 13% compared to 2016. This is mainly explained by the opening and transformation of service offices and bank branches, which represents proprietary network of 890 points by the end of 2017 compared to 820 in 2016. Also the further investments in IT and other strategic initiatives such as a strategy to capture deposits, YASTAS investments -- and YASTAS strategy and FIINLAB investment. And third, our loyalty program in Mexico in which we invested [ MXN 505 million ]. I've mentioned before, the reduction of the loan portfolio in Banco Compartamos during 2017 impacted interest income growth that together with operating expenses brought our efficiency ratio for the full year to 75.9%, above 69.4% in 2016. Due to transition process described before, we still expect 2018 efficiency ratio to be above 70%, which is still above our mid-term objective. At the end of 2017, Gentera reported net income of MXN 2,937 million, which represents a 13.9% contraction compared to the MXN 3,410 million reached in 2016. In terms of profitability, the return on average equity and return on average assets for the year stood at 17.7% and 7% respectively compared to 2016, when these results represented 22.8% ROE and 8.6% ROA.

Finally, I would like to highlight that during December 2017, Banco Compartamos booked a provision of MXN 140 million linked to the corporate restructure process described before and that we executed in the first quarter of [ 2018 and an extraordinary write-off of 76,000 client loans, amounting to MXN 320 million ] of our Credito Comerciante portfolio. These provisions and write-offs have already been reflected in our 2017 results. Thank you very much. Operator, could we move on to the Q&A session, please?

[Operator]

[Operator Instructions] Our first question will come Frederic De Mariz, UBS.

[Frederic De Mariz, analyst]

I have a couple of questions. The first one on the cost of risk [ or ] the asset quality. So we understand there were a few moving parts, in particular, you booked some of the write-offs against the equity in the past quarter. How do you think of the cost of risk not just in 2018, but longer term, when you think of the operation, where should it stabilize? Do you think 12% is a reasonable level? And together with this, what is the sustainable ROE of the operation once you go through the transition? That's my first question and then let me come back with a second question.

[Enrique Majós Ramírez, executive]

Okay, we expect for 2018 our cost of risk to be around 10.5% with an objective of having a longer-term cost of risk of between 11% and 12%. For ROE, this year 2018, we expect to have return on equity between 14% and 16% and obviously going forward, our objective is to bring it back to levels above 20% as explained in previous conference calls.

[Frederic De Mariz, analyst]

Okay, great. And I imagine, so that goes to my second question, I imagine that longer-term ROE guidance or objectives, maybe not guidance, but a target that includes no change or that implies no change in your equity and so my second question is what happens to your balance sheet once you include ConCredito, what happens to your equity to assets in particular.

[Enrique Majós Ramírez, executive]

Okay, for the bank, which is the relevant entity in terms of funding, we expect to have a capital to asset level of above 30% for 2018 and for Gentera, around 36%.

[Frederic De Mariz, analyst]

So including -- what -- even once you digest ConCredito, the equity to asset for Gentera will be around 30%?

[Enrique Majós Ramírez, executive]

Yes, 36% for Gentera in 2018.

[Operator]

Our next question will come from the Carlos Rivera, Citi.

[Carlos Rivera Zermeno, analyst]

My first question just to follow up on the prior question about the level of sustainable ROE. The level that you mentioned, capital to assets for the bank. If we think of that in terms of capitalization ratio, [ Basel III ] regulation and all of that, what would be your assumption there in terms of the long term and if under that you see any room to increase the payout ratio. And my second question would be, a little bit more color on the ConCredito distribution model. It's basically a different thing from what you have right now. Just wondering if any of your other competitors are trying this distribution model, has it worked or is it working in some other geography? Just a little bit more color on that.

[Carlos Cendoya, executive]

Okay, first on the ICAP for the bank. Our objective in the long term is to have an ICAP above 25% and probably closer to the levels of 27%. For ConCredito, Enrique will probably --

[Enrique Majós Ramírez, executive]

Thank you, Carlos. And giving a little bit more color on ConCredito. Yes, we don't have the knowledge of some similar model. Actually, that's why we believe this is a very innovative way to see a new challenge -- channel, I mean, and that's what I was explaining that the main contribution that we believe from ConCredito is that we are starting and creating new channels, which up to now for Compartamos, the loan officer has been mainly the only channel to distribute the loans and the financial products now that we are also distributing saving accounts and insurance. So having a new and innovative distribution channel in which the loan officers are now transformed to distributors and they are not actually in our cost of -- in our expenses and cost of -- structure costs, I believe that's something that is going to give an advantage once we prove the model in a couple of years.

[Carlos Rivera Zermeno, analyst]

Okay and just a quick follow-up on that. What is the cost of risk currently that ConCredito has and any tools that you are thinking of providing to these new agents to help them evaluate and assess credit risk?

[Enrique Majós Ramírez, executive]

As of today, it's around 9%, but obviously, when we integrate the operation to -- and consolidate to the group, we will need to have levels similar to the bank. That's the result -- that is that as of today, it's not a regulated entity, but when we integrate it to operation, we will have to have similar levels to the bank at the point when we integrate them.

[Operator]

Our next question will come from Carlos Macedo, Goldman Sachs.

[Carlos Macedo, analyst]

I have a couple of questions. First question, you talked about asset quality improving and it will improve during the year. Just asking a question of when the inflection point takes place, obviously the write-offs helped Credito Comerciante, Credito Mujer on the other hand, asset quality did, the NPL ratio did weaken in the fourth quarter. I appreciate you giving us all the different things that you are doing in order to improve that and the fact that earnings are going to be flat this year, sorry, loan growth will be flat this year and earnings lower, when does an inflection takes place for asset quality in Credito Mujer? Are you thinking about doing a write-off, is there room to do a write-off? I mean, obviously the NPL ratio isn't as high as Comerciante. A similar question on the loan side, as you said, loan growth around -- up to 4%, but strengthening towards the end of the year. Does that mean that we should still see loans contracting over the next couple of quarters? Do you still mean that clients will probably come down over the next couple of quarters?

[Enrique Majós Ramírez, executive]

Thank you, Carlos. Joining us is Patricio Diez de Bonilla, the CEO of Compartamos Banco. So let me pass the question to him.

[Patricio Diez de Bonilla, executive]

Thank you, Carlo, and I will jump to the loan side first. As Enrique said during his presentation, all the actions that we've been taking have to do with improving the actual operation, not only on the service that we provide in how we deploy the products with the sales force, but also how we simplify the processes to get, not only Credito Mujer, but Comerciante and individual lending. All those improvements will be nationwide during March fully deployed, right. So the first quarter of 2018, it's exactly the [ thing ] which everything what we've been doing for the -- during the [ third ] quarter goes nationwide, right. We'll start the origination during the second quarter of this 2018 and this is why until the renewal of the products which normally happen 4 months after during the third and fourth quarter is where we expect an improvement in the loan growth in comparison with the previous year. So it simply the steps that need to take due to the type of products that we offer and how we deploy those. So in terms of loan side that's the road map for the year and this is why growth will be more skewed towards the end of the year. In terms of asset quality, of course, we identified and during the analysis that we did during 2017, we emphasize that the biggest problem for asset quality was related to Credito Comerciante, right. Again there are many details about what we could do better and all those details are included in the improvements that again are taking place this March to strengthening the operation in Credito Comerciante. Having said that, again what you see you for -- you'll see the results of January next week and you should expect stable asset quality per product getting rid of the write-off that we did last year. Of course, we did that write-off at the end of 2017 because we understood that those credits originated in 2017 were not originated as we think they should be. So there is -- we do not expect further write-off -- extraordinary write-off [ these ] years, we are more focused on originating loans well. The sales force that its currently under a thorough training processes. So again the inflection point, I would say that January figures, you'll see what the real NPL per product would be and should remain within those ranges for 2018.

[Carlos Macedo, analyst]

Just another question generally then, the restructuring charge you took this quarter, do you have, do you anticipate needing to take another restructuring charge in 2018?

[Patricio Diez de Bonilla, executive]

The restructuring charges as Enrique said were related to laid off of [ 200 ] and something people here in the headquarters. We do not expect further restructuring charges for 2018.

[Operator]

Our next question will come Alonso Garcia, Credit Suisse.

[Alonso Garcia, analyst]

My first question is regarding efficiency. You mentioned around mid-70s or above that for this year, but I wanted to ask what is the target or the mid-term level of efficiency that you see and that is embedded in this [ 20% ] or slightly above sustainable ROE guidance. And I mean, my question is currently your expenses are being pressured by all these strategies trying to improve customer service. So for how long do you expect these expenses to pressure or why is the new -- the efficiency of this new sort of business model? And my second question just a follow-up on the ROE level that you see as sustainable, when do you expect to reach this level. I mean is this a 1-year, 2-year recovery or turnaround story?

[Enrique Majós Ramírez, executive]

Perfect. So yes, we still expect this year to have levels of efficiency ratio around 75% and that's mainly because we need again to restore income and to control expenses. So during 2018, as mentioned before, will be a transition year with the full objective to become -- to return to double-digit growth at clients, at loan portfolio with a higher growth of income and a lower growth of expenses to come back to growth in our net income of 2-digit numbers by 2019. That will put us in the track to come back to levels of efficiency [ below 70% ] medium-term objective to be below 65% our long-term objective, but that will probably occur [ until 2020 ]. So we need to change all of this slopes if you will in the different main drivers to get to our objectives. And Alonso, just to be clear, I mean we've been doing a lot of efforts on the cost side, the relevant feature here it's on the income side, once we have deployed the improvements that we talked about -- about the simplified product offering, most importantly in Mexico, of course income will grow and cost shouldn't be really a concern, we are operating today as efficient as we have ever done. The thing here is how we can get back together to improving the income side of the equation.

[Alonso Garcia, analyst]

Perfect. So I guess that you think you will be closer to this 20% ROE target by 2020 rather than next year. Correct?

[Enrique Majós Ramírez, executive]

Correct.

[Operator]

Our next question will come from Tito Labarta, Deutsche Bank.

[Tito Labarta, analyst]

Couple of questions also. I guess just following up a little bit on the efficiency to understand it with the guidance for loan growth of 0% to 4% and you expect efficiency to be relatively stable this year. Does that mean your expense growth for this year will be in sort of that low-single-digit range or just trying to understand how you maintaining stable given all the growth in branches and I would expect expenses may be growing faster than revenues again a bit this year? And then I have another question after that.

[Enrique Majós Ramírez, executive]

Yes, this year we are making a very, very a big effort to control our expenses. So we expect the expenses to grow around 5% this year compared to 2017.

[Tito Labarta, analyst]

Okay, so then does that imply that your margins should remain relatively stable. I think they are still -- what would be the impact of any additional interest rate increases? Are you able to offset that by better pricing or just I guess some color on your margin outlook for this year?

[Enrique Majós Ramírez, executive]

Our objective is to have a net interest margin after provision between 43% and 45% considering all what you mentioned.

[Tito Labarta, analyst]

Okay, great and then just one other follow-up question on your capital, just to make sure I understood, you said you expect to be at around 36% capital ratio, the longer-term objective is to be around 27%, if I understood correctly. So just given that, why not increase the dividend more? You said you are going to keep it stable at 37%, but it seems like there could be some room to increase that given the target that you mention?

[Enrique Majós Ramírez, executive]

Yes, well, first, the 27% objective is for the bank and we believe that's a good level of capitalization mostly related to our debt structure. Yes, and regarding the dividend, what we are proposing to our board to be proposed our assembly is that we duplicate our buyback program. So that's the way we are going to bring it from [ MXN 700 million to MXN 1,400 million ]. That's the objective.

[Operator]

Our next question will come from Yuri Fernandes from JP Morgan.

[Yuri Fernandes, analyst]

Just a follow-up there on margins, if you look at like before provisions, what's the level of margin you are awaiting? I mean actually what's the level of reference rates you are [ working ] in Mexico. If rates continue to increase, do you think like your EPS reflects that or no? What's the level of reference rates you are working on your guidance?

[Enrique Majós Ramírez, executive]

On net interest margin, we are taking around 52% to 54% and if an increase in rates happen, what we are expecting also is that asset quality is what will protect the margins in this coming year. As you've seen in our results, despite the fact that we contracted the portfolio by 4% in Gentera, our net interest after provision actually grew for last year. So that reflects the strength of the margins and again, if further hikes in interest rates happen during this 2018, we would, we would expect with the improvement in the product offering and lower level of provisioning to maintain relatively stable, the margins in the ranges that Mario just talked about. And just to compliment in the last couple of years, we have a more fixed rate debt compared to variable rate debt, which allows us to have some rule to cover for those increases and another important point is that some of the bonds that have the higher spreads are maturing in the next year or couple of years.

[Tito Labarta, analyst]

Just to be sure here like -- you are meaning that like today you are working with flat rates, but if the rates go up, you believe you'll be able to keep the margins -- provisions kind of the same [ 43% to 44% ] because you believe cost of risk will go down. Is that correct?

[Enrique Majós Ramírez, executive]

Yes.

[Tito Labarta, analyst]

But like with higher rates should not you increase your prices, should not you increase your rates like the increase should actually be worse than that?

[Enrique Majós Ramírez, executive]

As I mentioned just a moment ago, we already have around 40% of our that portfolio in fixed rate.

[Tito Labarta, analyst]

Okay and about repricing, do you believe there is still room for repricing on the portfolio, I mean how pricing [ safety value clients they ], do you believe you can continue passing higher rates to them or no you are close to the limit of the clients?

[Enrique Majós Ramírez, executive]

To be honest, in terms of pricing, we want to have a much better pricing structure for the customer. The price entrance for our customers going forward should come down and in order to do so, of course, we need to be more efficient, right. It's not necessarily a margin pitch, but how we can be more efficient on the cost side to be able to reduce the rate as we move along.

[Operator]

Our next question comes from [indiscernible].

[Unknown Analyst]

Quite frankly, I had a question related to the NPLs and the write-off policy and to -- for you guys to elaborate but it was a question that was already asked by our colleagues from Credit Suisse earlier on. So thank you.

[Enrique Barrera, executive]

Okay, thank you.

[Enrique Majós Ramírez, executive]

Thank you, [ Jorge ].

[Enrique Barrera, executive]

Is there any other question remaining?

[Operator]

Yes, thank you, and last question will come from Claudia Benavente, Santander.

[Claudia Benavente, analyst]

I have 2 questions, first, I was wondering, which is the level of customer per loan officer you feel comfortable with? Seemingly, loan officers today are attending less people versus 2 years ago, so I was wondering which is the target you feel comfortable with and my second question is, can you please remind us, which is the level of expenses related to allowing your customers use other banks branches and what should we expect in 2018 and looking forward?

[Enrique Majós Ramírez, executive]

Okay, in terms of customer productivity or loan officer productivity, it depends of course in the type of product that they serve. In Credito Mujer for example, adequate levels of 300, 350 customers are okay with us. Some experienced loan officers can go up to 450 and do well in terms of service and customer retention. So that's on the Credito Mujer side. In Credito Comerciante of course, again, as we said due to the [ low rounding ] growth and write-off of customers, you see that productivity has deteriorated somehow. The reality is that we think that we can improve productivity in Credito Comerciante by double-digit this year with no problem. And in terms of individual lending, today, we also have a low productivity as you know, we've been working in re-vamping the individual lending product we have now the product established in 100 plus branches throughout Mexico, but the reality is that once we have the infrastructure created, once we have the methodology and the origination process in place, we really think that the sales force that we have available to service the customers is adequate and we can gain efficiencies in every product as we move along. Your second question was related to expenses? So Claudia, in our press release, you will see that commission and fee expenses decreased 25.2% compared to [ 4Q 2016 ] and that represents of those MXN 113 million, 23% relates to payments to other channels mostly third-party banks and also 32.7% relates to alternative locations. So the total amount, it's around 55% of the total commissions that were paid to third-party channels.

[Operator]

Our last question will come from Gabriel Nobrega, UBS.

[Gabriel da Nóbrega, analyst]

During the quarter, we saw your effective tax rate going down to levels around 15%, which is really different from other quarters and I just want to get more color on what happened and if we should expect any similar movements in 2018?

[Enrique Majós Ramírez, executive]

Yes, thank you. The effect that you saw on taxes relates to the methodology required by law to calculate and apply inflation. So based on the composition that we have in assets, we have this effect during 2017 and we do not expect that effect to continue unless inflation continues to be very high. The normal would be to return to levels of around 30%.

[Operator]

Thank you very much. Ladies and gentlemen, with have no further questions in the queue, the question and answer session has concluded for today. Thank you all for being in today's conference call. You may now disconnect.

[Enrique Barrera, executive]

Thank you. Just let me point some message at the end. Thank you, operator. And just to tell you, as you all know, 2017 was a complicated year for us and since last semester, we knew that 2018 was going to be a year of hard work. So the good news is that we have a plan and we feel comfortable with the early results that we are having this year. So we just look forward to talk to you in our next call with a promising update. So thank you very much and have a nice day.

[Operator]

Thank you very much. Ladies and gentlemen, this call is now concluded. You may now disconnect your phone lines, and have a great rest of the week. Thank you.