Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, and welcome to the Fourth Quarter 2019 GENTERA Conference Call. Now I would like to turn the conference 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 Majós GENTERA's Chief Executive Officer; Mr. Patricio Diez De Bonilla, Banco Compartamos' Chief Executive Officer; and Mr. Mario Langarica, GENTERA's Chief Financial Officer. They will review the results for GENTERA for the fourth quarter period after 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 Majós for his presentation. Enrique, please go ahead.

[Enrique Majós Ramírez, executive]

Thank you. Good morning, everyone. We always appreciate to have you here attending our quarterly report. Let me start by saying that 2019 represents a strong year for GENTERA, and we delivered to the expectations that we set at the beginning of the year. The improvements in service and incremental value for our customers allowed us to conclude the year with a consolidated new record portfolio of MXN 41 billion, growing at a robust rate of 16% and serving over 3.8 million clients in Mexico, Peru and Guatemala.

We really feel proud about what we have accomplished, and we recognize that 2019 is the result of overcoming a crisis that started in 2017. At that time, we recognized the urgent need of fixing some operational problems, and we concentrated our efforts and so on bringing back our attention to our customers and their needs. As you remember, by the end of 2017, we followed 3 steps in our strategy: the first one, to have a profound and honest diagnosis of the customer service problems that we were facing; second, we worked to put in place a strategic plan to overcome each of the specific problems that we identified; and finally, we started to execute our plan and work on through the next 2 years. The whole process took us more than 1 year before seeing the first results. And we can tell you that this experience has been one of the most valuable ones in our history in terms of learnings and a reminder of the importance of our most profound purpose and mission, our clients.

Today, we are back strong and in the right track with a solid business operation and with very good perspective for the future. To all of you, thank you for your patience and support along this couple of years.

Let me now highlight some of the most relevant business results as of the first quarter of 2019. All of GENTERA subsidiaries reached great results during the year. As I already mentioned, if we consolidate our 3 Compartamos financial subsidiaries, we reached the largest portfolio in our history. Also ATERNA, our insurance subsidiary, grew more than 40% in 2019. We concluded the year with more than 8.4 million active insurance policies. And during the full year, we allocated more than 27 million policies. Yastás reached close to 18 million operations during 2019, 13% more compared with 2018 and concluded the year with a network of 4,600 affiliates, 42% more than what we had at the end of the previous year.

Our partnership with ConCrédito continues up and running as expected, and we are looking forward to increase our participation by June 2020.

In terms of innovation and digital transformation journey, this year, we have automated several front- and back-office processes through the use of bots in different areas, such as sales force, operations, finance and human talent. Also, as we already reported in the previous quarter, we were pioneers in the implementation of CoDi, the payment platform of Banco de México. And this, we did it with excellent results. And Fiinlab, our innovation lab, continues working on strategic projects that, in some cases, are already creating synergies and adding value to Compartamos customers.

We feel enthusiastic with the results achieved in 2019. I am especially proud of our team who have concentrated really hard on delivering a remarkable service to our clients and who is working every day for a more efficient operation.

And moving the conversation to the future, 2020 looks full of opportunities, not without mentioning some challenges mainly associated with the macroeconomic context. So in 2 words, I can tell you that we feel cautiously optimistic, and let me elaborate a little bit more around this. On one hand, we identified several opportunities. We have a solid and healthy operation after 2 years of working hard on our customer service, product offer and internal processes. We are recognized as leaders in our industry with 3.8 million customers in the 3 countries in which we operate. We also have a strong financial position, which, by the way, is outstanding if compared with most of our competitors. Our purpose, which implies providing more and better opportunities for the people we serve, is strongly in line with the priorities of the actual government in Mexico, which reveals lots of opportunities to collaborate together. Our operation in Peru is successfully growing strong and solid. This gives GENTERA the advantage of becoming a more diversified business. So as we can see, we have a lot of opportunities to leverage from.

On the other hand, we recognize some challenges, which look very similar to what we faced last year. It looks like we will face a macroeconomic context with very little growth for the consumption activity. And we also recognize that even when we have a healthy portfolio, we will have to be especially cautious in taking care of our customers and their capacity to take debt.

Now based on what we expect for the year ahead and feeling really optimistic about it, our guidance for this year is to grow GENTERA's consolidated portfolio between 12% and 14%, and EPS will be between MXN 2.20 and MXN 2.25.

At the same time, let me share with you an agreement from yesterday's GENTERA's Board meeting. Yesterday, our Board approved to propose an ordinary dividend payment of 20% to be paid no later than June 30, 2020. This proposal will be taken to the shareholders' meeting to be held in April.

Finally, it is important to mention that we are in the process of selling our remittances business INTERMEX. INTERMEX has added great value to our customer base. And since we acquired the company in 2015, we have been able to grow the business in around 24% in terms of number of transactions paid. By selling the company, GENTERA will be able to concentrate its strategy on our core business and at the same time, INTERMEX will be able to achieve its goals under TransNetwork LLC's management.

To provide you with additional information about this transaction, I can tell you that we agreed to sell INTERMEX for MXN 241 million, which includes 100% of the shares of Pagos Intermex and 31 of its branches. We expect to close the transactions with the -- within the following months.

As I said, we feel proud of the results achieved last year, and we feel really optimistic about the year ahead. Our purpose is to support our clients to fulfill their personal dreams and to create more and better opportunities for everyone in the communities that we have to honor to serve. This is what profoundly moves us.

And let me now turn the call to Patricio who will provide interesting and more specific information regarding our operations in our different business units and subsidiaries.

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in GENTERA. I will review the business results of GENTERA's financial subsidiaries in Mexico, Peru and Guatemala. At the end of the year, we served close to 3.8 million customers, a 10.7% growth versus 2018, representing the highest number of clients served in our history.

This reflects the demand that exists for productive loans and financial services in the 3 countries where we are present. This growth in number of clients leaded to a solid performance in GENTERA's loan -- total loan portfolio. At the end of year 2019, finalizing with MXN 41.6 billion, representing a 16.7% growth compared to the portfolio reach at the end of 2018. It's important to highlight that the total loan portfolio for GENTERA reached at the conclusion of the year also was the largest in our close to 30 years of operations.

With regards to asset quality, consolidated NPL stood at 2.8% compared to the 2.9% in the previous quarter and is relatively stable compared to the 2.7% NPL percentage at the end of 2018. We will keep working hard to maintain good asset quality, relying on stronger origination processes, improvement in customer service and adequate monitoring of customer performance. The latter step always help us to react rapidly if we detect any deterioration. Asset quality has been the focus of our operation and will continue to be so going forward.

Now let me go into more details in the performance of the Mexican, Peruvian and Guatemalan financial subsidiaries. I will start talking about Banco Compartamos in Mexico. The results that we published yesterday were achieved, thanks to the strategy that we implemented since 2018 and also supported by different marketing initiatives and additional benefits for customers launched last year. The results presented are encouraging and continue motivating us to provide every time additional benefits and financial solutions to help our customers in the fulfillment of their dreams.

In the fourth quarter, we grew again in the number of customers served, finalizing the year in Mexico with over 2.6 million that represented our 7% growth when compared with last year. Considering the past 18 months, since we touched the bottom in number of customers served, at the end of the second quarter of 2018, we have attracted more than 260,000 customers, while customer retention rate continued in very solid levels at the end of the year. The results obtained continue reflecting the attractiveness of the different credit products that we offer at the bank. An example of this was the robust growth of 15.6% presented in Crédito Mujer portfolio on a year-on-year comparison. This was possible, thanks to our focus on providing better service and additional benefits to our customers. Regarding its asset quality, it stood at 2.2%, remaining at a very healthy level during the year.

At the end of 2019, we saw an acceleration in the pickup demanded by our clients, basically, in line with what we were expecting for the end of the year, growing 6.1% on a year-on-year basis compared with a 4.7% annual growth presented in the third quarter of 2019.

NPLs in Banco Compartamos stood at 3.19%, which is slightly higher compared to the 2.9% presented in the previous quarter. The level reached in this fourth quarter is very much in line with our expectation for the period as we communicated in our third quarter conference call.

Employee turnover also continued to show positive trends, maintaining, again, a very good level, finalizing the year in 25%. During 2019, we kept the most solid employee turnover ratio in close to 30 years of history, moving in a range between 24% and 26%. This kept reflecting a positive work environment for our more than 16,000 employees in Mexico.

Now let me talk briefly about our Peruvian and Guatemalan subsidiaries, Compartamos Financiera and Compartamos S.A., respectively. At the end of 2019, Compartamos Financiera in Peru represented 35% in GENTERA loan portfolio and 14.8% of the net income generated during the fourth quarter. Its loan portfolio grew 24% in the last 12 months, considering the impacts of the FX and 8.8% sequential growth compared with the previous quarter, finalizing the quarter with over 720,000 active customers at the end of the quarter. 71.9% of the customers we serve in Peru came from the group-lending methodology. And this methodology represented only 21.8% of the portfolio. In addition, the quality of our portfolio in Peru is very good and stable. NPL has improved substantially to 2% at the end of the year versus 2.9% 1 year ago and 2.7% in the previous quarter.

Another very important point to highlight in Compartamos Financiera was its efforts to have a more efficient and digital operation, in which we showed again the important progress in the acceptance of the use of electronic wallet called BIM, the ATERNA model in the country. At the end of the year, more than 227,000 clients in the Crédito Mujer methodology used this electronic wallet as a more convenient alternative to execute their payments, making the operation of this methodology more efficient compared to the traditional cash service.

We are very excited with the progress achieved so far in the subsidiary and with the potential market that Peru keeps representing for the group-lending methodology, which give us the opportunity to achieve greater financial inclusion in this geography. We have been growing in very solid mode since we entered the Peruvian market in 2011 with a compounded annual growth of more than 20% per year until now.

Also, worth highlighting is that at the end of 2019, we served 8x more clients, the number of customers served when we acquired the company in 2011.

Now let me jump to the operation in Guatemala, which [ included ] the year with over 105,000 active customers and portfolio of MXN 670 million, remaining at the same level compared to the portfolio reached at the end of 2018. Considering the growth in local currency, it grew 3.6% the -- in the year. In this quarter, Compartamos Guatemala presented an income of MXN 55.6 million during 2019, representing 8.9% growth compared with 2018.

With regards to asset quality, NPL stood at 4.2% at the end of 2019. Even though it's a larger ratio compared to the 3.6% level presented at the end of 2018, it's a slightly better level compared to the 4.4% represented in the previous quarter. We're working hard with expectation to have a better NPL levels in the future.

It's also worth highlighting that Guatemala was named -- won the second Best Place to Work in Central America for the full year, and we are very proud of this result.

As you can see, with the results achieved, we're very excited with the progress seen during 2019, having more positive and motivated teams in the geographies in which we operate. We will keep working hard to serve more clients with new and improved financial services with a clear goal of helping them in the part of fulfilling their dreams.

Thank you for your attention. That's it for my remarks. I will turn the call over to Mario to review GENTERA's financials for the quarter. Thank you.

[Mario Langarica Ávila, executive]

Thank you, Enrique and Patricio, and good day to everyone. As in previous conference calls, I will focus my remarks in the most relevant lines of GENTERA's income statement and some financial metrics for 4Q '19 and for full year 2019.

Interest income amounted to MXN 6 billion in 4Q '19, representing a 7.7% increase compared to 4Q '18. This is the fifth consecutive quarter with positive year-on-year growth. This result was mainly driven by a 16.7% larger loan portfolio and a larger contribution of Compartamos Financiera in GENTERA's consolidated interest income. Interest expenses grew 2.4% compared to 4Q '18. This result mainly explained by: one, the growth in GENTERA's loan portfolio; two, the reduction in extra liquidity that Banco Compartamos had in this period that started the quarter in MXN 870 million and ended in MXN 690 million. Reminding that at the end of 4Q '18, Banco Compartamos had MXN 3 billion in extra liquidity; and three, the 100 basis points and 50 basis points improvement in the referring interest rates in Mexico and Peru during 2019.

Net interest income showed an 8.2% increase compared to 4Q '18, whereas net interest margin stood at 46%, representing a contraction compared to the 49.7% achieved in 4Q '18. This contraction is explained by: one, the reduction in the active interest rate; two, a smaller contribution of the Mexican subsidiary in GENTERA's consolidated credit portfolio, which represented 63% versus 64.7% in 4Q '18; and a lower actual liquidity in Banco Compartamos during the period. As Patricio already signaled in his remarks, asset quality has been stable. However, as the loan portfolio has been growing faster, it has required an increasing level of provisioning, which, for this quarter, grew 23.6% compared to 4Q '18.

Net interest margin after provisions stood at 38.2%, which is below 42.3% ratio obtained 4Q '18. As explained before, if this ratio hasn't been affected by the extra liquidity, then NIM after provisions should have stood around 38.9%, 70 basis points above the level reported in 4Q.

The cost of risk for the quarter stood at 9.1%. And considering the full year, it stood at 8.36%, which was within the range guided for the year. Fee income during the quarter contracted 47.1%, which is MXN 194 million compared to 4Q '18. This contraction is largely explained by the deconsolidation effect of the selling process of INTERMEX, which was announced at the end of the year. Fee income also decreased at the bank due to better performance in credit payments and, therefore, a smaller amount in late payment fees.

Worth highlighting is the contribution that the insurance [ has been making ] in this line at the bank level, representing around 69% and more than 50% at GENTERA level for the full year. Fee expenses also contracted, in this case, 52%. And the reason is also explained by the deconsolidation effect of the selling process of INTERMEX.

Operating expenses amounted to MXN 3,635 million, a 37 -- a 3.7% contraction compared to 4Q '18. Worth highlighting is that for the full year, expenses stood at MXN 13,800 million, which represented only a 0.3% increase compared to 2018. This expense control was result of the realignment of all projects and expenses related to the revised strategic focus in GENTERA. These efforts reduced the rate of expenses at GENTERA.

In Banco Compartamos, operation expenses contracted 3.4%, considering the full year comparison. We will continue working hard to obtain additional permanent improvements in our cost base, always aligned to our strategy. At the same time, for the following years, we will also need to invest to support this strategy. So the level of growth expected for the operation expenses line for 2020 will be moving around 8%.

The efficient ratio for -- the efficiency ratio for the quarter stood at 77.2%, an improvement compared to the 81% in 4Q '18. And for the full year, it stood at 75%. GENTERA concluded the year with a consolidated net income of MXN 3,309 million, representing a 10.7% growth compared to net income reached in 2018. In 4Q '19, ROE stood at 15.9% and ROE (sic) [ ROA ] at 5.7%, which were almost the same [ profitability of 6% ] in the fourth quarter 2018. For the full year, ROE stood at 17.1% and ROA at 6.1%, which also remained at the same levels of those presented in 2018.

Thank you very much for your attention. This is all for our presentation, and we can move forward to the Q&A session. Operator, please call -- can you open the line for questions?

[Operator]

[Operator Instructions] We'll take our first question, and that is from Ernesto Gabilondo with Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

My first question is on your loan growth expectations and especially in group loans. We have seen you have been able to regain market share by giving more flexibility to your clients by having the flexibility to pay the credit and by offering lower interest rates. However, when you go to the field, we have seen some group members and new clients asking to migrate to individual loans. So what would be the strategy with group loans? Are you expecting lower interest rates to continue? Are you expecting to gradually migrate to individual loans? Or are you exploring to introduce new products in the group loans? And then my second question is in terms of expenses, we saw GENTERA's cost control discipline in 2019. I think this was key to improve the profitability despite offering lower interest rates. But how do you see the OpEx growth for this year? And then my last question is on your 2020 guidance. So I think you are guiding earnings per share of MXN 2.2 and MXN 2.25. So this implies a recurring earnings growth of around 2% to 10%. Is that correct? And your full ROEs in the mid-range implies [16.5%], correct? And is this including [ competitor ]? If not, do you know how much can it be adding to your earnings per share guidance?

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Ernesto. Let me jump to the loan expectation. As you can see in our guidance, the portfolio should grow between 12% to 14% this year. And let me divide the conversation. First, on the Peruvian side, Peru will remain its momentum. The growth that you are seeing in group lending will continue, and that will drive, again, a solid year for the Peruvian operation, not only because the demand in existing offices is still strong, but because we are opening new branches to go further into a national strategy for the Peruvian operations. So again, first, the growth of Peru will continue to be solid, and that will keep us with a good foundation for the growth of the entire portfolio. As you have seen, Peru now represents over 30% of the portfolio. So that provide us with a strong foundation for this year.

On the Mexican side, there's -- there are many factors here. First, the competitive landscape, right? It is volatile times and stringent liquidity. Most of our competitors are facing troubles to finance their growth, right? So in this context, due to the strength of our financial structure, we can tap the competitive landscape and [ lean ] customers from the competition. On top of that, the group-lending methodology, again, is the best financing alternative in this market. So this is something and this is why you've seen that the customers are coming back to us, not only because of the rates but because of the service and the other products that we offer to our customer base because products such as savings and insurance. So that has provided to the customer base a strong financial proposition that is appealing enough in order to come to Banco Compartamos on the group-lending side.

On the other side, the individual lending, of course, we see an opportunity there. As you saw last year, we grew over 15% that piece of the portfolio as well. And there's a niche in Mexico of higher tickets with individual methodologies, and we are trying to tap into that market as well. The average ticket in Mexico for individual lending is around $1,000. With the same kind of methodologies in Peru, Peru has threefold that amount lent to their customers in individual-lending side. So there's an opportunity there, and we think that we have the right capabilities to tap into that market. So the growth in Mexico, of course, will be sound and strong in Crédito Mujer and Comerciante, but it will also be complemented by the strategy that we are following individual lending.

All those things combined is what make us think that there's growth in portfolio despite the volatility and the deceleration of the economy, it's doable in this 2020, and we commit to that 12% to 14% growth for the year.

[Mario Langarica Ávila, executive]

This is Mario. Regarding expenses, as we have explained before, in the last couple of years, we made a deep review of all the expense base in order to have an expense base aligned to our strategy. And during this year, we were able, as you have seen, to achieve a significant reductions in the expense rate, considering that the expenses that we kept grew in Mexico at inflation rates and also today indexed contracts that we have for mostly IT. And it also grew 25% in Peru, including those growths that are permanent growth in the expenses, we were able to achieve these reductions in the base.

For this year, what we are giving our guidance is, again, that 8% that is built up exactly with the same drivers, these 2 drivers, which are inflation in Mexico and 25% expenses in Peru. And that's what the slope of the [ growth ] of expenses looks like. Even though we are -- as Enrique and Patricio have described in our strategy, we're making big efforts to improve the operations, and we still believe that there are opportunities to be more efficient going forward. As these efficiencies materialize, we will be communicating them to you.

Regarding EPS, the guidance that we just provided, which is an EPS between MXN 2.2 and MXN 2.25, represent a growth in net income between 6% and 8%. That would give you more or less ROE around 17% for the full year. And regarding the earnings of ConCredito, we expect ConCredito to contribute with a little growth compared to last year, and that's excluding the incremental 14% position that we will take for the second half of the semester.

[Operator]

We will turn to our next question and that is from Jason Mollin with Scotiabank.

[Jason Mollin, analyst]

I have 2 questions. My first is on the expectations for this MXN 2.2 to MXN 2.25 EPS and the 20% expected dividend payout policy. That would be equivalent to around a 16% ROE at the midpoint on our calculation. How do you view that versus long-term profitability levels for GENTERA? Should we see that improve? Can we see more adjustments on the capital strategy -- capital allocation strategy going forward? And my second question is a bit -- you've been talking a bit about ConCredito and this transaction that we expect in the middle of the year. Can you just give us an update on how that business is going and how you see the dynamics of the operating trends there?

[Mario Langarica Ávila, executive]

Yes. Well, let me start with, again, the rationale for the 20% dividend payout. What we have is a 3- to 5-year plan that -- where we're expecting to have significant growth, including part of the use of the flows is the remaining acquisition of ConCredito this year. So based on that and the expected growth for the future years, that's why we have decided, since last year, to reduce our payout to 20%. We are also putting in our medium-term plans to bring back ROE levels above 17%. What is good at this point is that both the largest subsidiaries, which are Banco Compartamos and Compartamos Financiera in Peru, both at local currency are with levels of profitability above 20%. And that's basically where we are on that regard.

On ConCredito?

[Enrique Majós Ramírez, executive]

Yes. Jason, this is Enrique. Yes. As we have said, ConCredito is really strategic partnership that we have, and we are excited about it. As we explained since the beginning, ConCredito offers us the opportunity to reach customers with a different methodology in terms of the risk assessment methodology. And also, it's a different delivery channel to reach a wider market segment and group of clients. So yes, we are very excited about the performance we have had and the work we have been doing with our partners. I think that we are getting the growth that it was expected. And we are also putting together the synergies that we were planning to have in this first phase of the integration. So also, I can tell you we're working hard and with good results to get to the date of June 2020, which you know we have agreed to acquire a major participation. So everything looks as expected, and we feel happy about it.

[Operator]

We'll move on to our next question and that is from Alonso Garcia with Crédit Suisse.

[Ricardo Garcia, analyst]

I would like to touch base on a couple of lines of your guidance given that the 6% to 8% EPS growth seems a bit conservative considering 12% to 14% portfolio growth and 8% OpEx growth. So I would like to touch base first on margins. What do you expect in terms of your margin evolution after a contraction in 2019? I mean should we expect similar reductions in your loan yield? And as such, what should we expect from margins considering also the lower interest rates? And the other line is cost of risk. Should we expect an increase in the cost of risk this year considering the strong growth we have seen over the past 12 months? Basically, that's my question.

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Alonso. This is Patricio. I mean you need to bear in mind the context in which we are operating now. There's a deceleration going on in the economy, not only in Mexico but Peru and Guatemala as well. The consumption levels are declining. And the guidance for the year has, as you said, a little bit of -- it's a little bit conservative, if you will. But we need to bear in mind that in this context, NPLs might feel some pressure, not only because of the context but also because we are a growing fast portfolio. And that brings new customers, which tend to be a higher risk than existing ones, right? So all of this together has put in in our models and make us think that the 6% to 8% EPS growth is doable despite the fact that we might feel some pressure on the NPL.

And you need also bear in mind that the pricing strategy that we started in 2018 will continue. So existing customers with higher tickets, lower [ LPLs ] are getting better rates as they mature their relationship with us. So that also put pressure in the active rate of Banco Compartamos mostly. And this is why, again, even though the portfolio growth is 12% to 14%, the EPS it's growing slower, basically, because of this impact in margins as well as the impact in the expenses that Mario just mentioned.

[Ricardo Garcia, analyst]

Okay. So I mean, I think, I believe last year, the guidance for reduction in loan yield was from 300 to 500 basis points. Should we expect something similar or probably a steeper decline [ this time ]?

[Patricio De Bonilla Garcia Vallejo, executive]

No. A little bit is lower, around 200 basis points for the year.

[Ricardo Garcia, analyst]

And in terms of cost of risk, I mean, is a level of around 9.5% reasonable in your view for this year after 8.4% in 2019?

[Enrique Majós Ramírez, executive]

It would be around 9%, considering what Patricio said.

[Operator]

We will take our next question and that is from Thiago Batista with UBS.

[Thiago Bovolenta Batista, analyst]

I have just a follow-up about the medium-term ROE. You mentioned that it should be above 17%. So what are the main drivers that you see for this possible expansion? And what is the feasible level for ROE in a couple of years?

[Mario Langarica Ávila, executive]

Okay. Well, the main drivers are, obviously, the expected growth that we are planning to have in our portfolio for the next 3 to 5 years with all the strategic focus that Enrique and Patricio explained. So there, we explained -- we expect to have a growth in the interest income line. We will be very careful about making sure that the cost of risk is adequate for that. And an important component also for that would be to keep this focus on keeping -- improving the efficiency in our operations, which is more or less following what we just said about the improvements in the base of expenses as I described in the previous question. So for the medium term, we would expect to be above 20%, as I said before, and that's where we're targeting the full strategy.

[Enrique Majós Ramírez, executive]

And just to add up a little bit on that and how we -- why we think it's possible. It's because not only at the bank level, but the group and also in Peru, we're investing still heavily in IT, and this is, I think, most of our credit processes, the origination, the management of our sales force in Mexico, in Peru. So with that improvement in technology, we aim to have higher productivity per loan officer that will allow us to grow the customer base without growing the expense line in the same manner. So this is why, again, all the investments that are made in Mexico and Peru mostly are related to getting more efficiencies every time and bringing their ROEs to higher levels than the ones we already have.

[Operator]

We will take our next question and that is from Carlos Gomez with HSBC.

[Carlos Gomez-Lopez, analyst]

I have a technical question regarding the sale of INTERMEX. You disclosed that there is a reduction in your fee income of, I calculate, MXN 83 million net. I imagine that is a reversal of what you have had in the previous 3 quarters. Can you also tell us if the sale also affects the expenses? Have the expenses also been reduced through the sale? And is the sale recorded in the -- in 2019 or 2020 because we understand it's going to be closed later? Second, on ConCredito. When you look at results from associates, we understand that the result is flat, about MXN 57 million. You mentioned that the business is growing, but are the earnings stagnant? Or should we [ lead ] anything else from these results?

[Mario Langarica Ávila, executive]

Okay. Carlos, this is Mario. Yes. Well, as you mentioned, for the INTERMEX details, there's a specific note on the notes to the financial statements, it's note Number 10. And there you can see the detailed effects of the deconsolidation. But focusing on your 2 questions, fees collected are an equivalent of MXN 190 million; fees paid, MXN 72 million. So the difference is the net fees that you were describing. And yes, there was a reduction also on the expenses, which is around MXN 35 million. But there are additional concepts that, if you wish, we can have a conference later to go into the detail, but there's a specific note on the audited financial statements, it's note Number 10.

Regarding ConCredito, comparing numbers to numbers, the contribution at that level of net income per unconsolidated subsidiaries was around MXN 200 million for 2019. There we expect, based on that participation, an increase of more or less 30% during the year. And that's without the incremental income that will come from the additional 14%.

[Operator]

[Operator Instructions] We will take our next question, that is from Yuri Fernandes with JPMorgan.

[Yuri Fernandes, analyst]

I have a follow-up in expenses, actually, the marketing campaign expenses. This line was one of the main contributors. I know it's a small line, but it was down 20%, 25% year-over-year this year. And usually, from what I recall, is when GENTERA is growing, usually these expenses is higher. So my question is, why marketing campaign was much lower in 2018? And what should we expect in 2020? And my second question is regarding capital allocation. From what I understood, the plan is not to increase the dividend payout but to consolidate. Congrats that you finished the acquisition. But for the future, what should we expect for payout? Or should we expect more inorganic growth? Or what is the mindset on capital allocation?

[Patricio De Bonilla Garcia Vallejo, executive]

On the expenses for the bank, Yuri, this is Patricio. Again, you need to bear in mind that the bank is a more consolidated institution that, for example, Peru, which is growing and expanding, or Guatemala, which has similar dynamics. At the bank level, we are focused even -- I mean, we are not growing in terms of offices. We are actually trying to be more productive on an office-per-office basis. So we are even trying to merge some offices locally to have a smaller but more productive service offices network. Same thing, I mean, we did adjustments also in how we structure people on the ground last year. And this is why we didn't grow much. Actually, we shrank the expenses for the bank in 2019. Again, with the implementation of the new technologies that I mentioned in my previous answer, we want to get more productivity with the infrastructure that we have.

As you know, labor infrastructure and IT are our biggest cost expenses, and we are always looking to further improvements on these cost items as we grow bigger or implement new technologies. So for this year, as Mario mentioned, there are some initiatives going on to keep the bank's expenses at a strong control and getting some productivities through the year that will be reflected in the 2021 financials. So again, at the bank level, we are always looking for getting technology and greater efficiencies as we get bigger and gain economies of scale, and this will continue to be the case for this 2020 and going forward, not only at the bank level but also Guatemala and Peru.

And for the -- your second question, in terms of the payout yesterday, it got approved at 20% payout. Again, this is something that needs to get approved by the shareholder meeting in April. As Mario said, the payout takes into consideration the use of capital that we will require for the further acquisition of ConCredito and some other corporate issues. And this is why, again, we want to keep a strong balance sheet to have a good access to funds in volatile times, such as the ones we are living in. So again, the -- what you should expect is this 20% payout. And as we move along, we will communicate further if that is the case.

[Mario Langarica Ávila, executive]

Yes, just to complement that. As you remember, when we proposed to the Board and then to the shareholder meetings, this reduction 1 year ago was based mostly on our growth expectations. So additional to what Patricio said, for the next years, we are also expecting growth in the portfolio, which will obviously require sufficient capital to support it. So that's the main rationale.

[Operator]

We will take our next question and that is from Carlos Gomez with HSBC.

[Carlos Gomez-Lopez, analyst]

Yes. Following up on the capital question. Can you clarify how much capital do you expect to consume from the acquisition of the extra 14% of ConCredito? And once you consolidate it, how will that affect your Tier 1 capital?

[Mario Langarica Ávila, executive]

Yes. The remaining amount that we still have to pay by midyear is around MXN 500 million. And that will give us [income] level for the bank by the end of the year of around -- between 28% and 30%.

[Carlos Gomez-Lopez, analyst]

So the net impact is how much?

[Mario Langarica Ávila, executive]

The use of capital that we will have is MXN 500 million, the original amount that we will use for the acquisition.

[Carlos Gomez-Lopez, analyst]

Okay. And by the end of the year, again, to reiterate, you will be consolidating the ConCredito loan portfolio. Is that correct?

[Mario Langarica Ávila, executive]

Yes, we will consolidate. We will give you the numbers on the consolidation in second Q on how it will look, and we will consolidate the full company.

[Carlos Gomez-Lopez, analyst]

And that 28%, 30% that you mentioned is including the consolidation personally.

[Mario Langarica Ávila, executive]

Well, yes, it's a part of the participation. It's the 51% that we will have at that point. But the consolidated numbers will include the full net income of ConCredito because of accounting purposes. But at that point, we will show the line that includes the participation of the holding to that share of the net income, and we will show separate what's the share of that income for our partners. We will talk that in the second Q or...

[Carlos Gomez-Lopez, analyst]

Okay. And then one last question, so...

[Mario Langarica Ávila, executive]

The numbers that I gave you before are the -- based on our participation. So it will be the MXN 200 million with an increase of around 30%, plus the additional 14% that we will acquire in June.

[Carlos Gomez-Lopez, analyst]

Okay. And finally, you said this before. So you expect that for the year as a whole, the consolidation of ConCredito will be accretive or will generate more production in the EPS after you are projecting it today?

[Mario Langarica Ávila, executive]

No, credit accretive, of course.

[Operator]

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

[Enrique Majós Ramírez, executive]

Well, thank you for your interest and attention you always have on GENTERA, and we look forward to work together into this 2020 journey, which, as you can see, looks both promising and interesting. So thank you very much, and have a nice day.

[Operator]

Thank you all for participating in today's conference call. You may now disconnect.