Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2020-Q4

[Operator]

Very good morning, and welcome to the Fourth Quarter 2020 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]

Good morning. Thank you all for joining us and for your continued interest in Gentera. I'm Enrique Barrera, the company's Investor Relations Officer. I'm very pleased to introduce our management team. With us today are Mr. Enrique Majos, Gentera's Chief Executive Officer; Mr. Patricio Diez De Bonilla, Banco Compartamos' Chief Executive Officer; and Mr. Mario Langarica, Gentera's Chief Financial Officer. They will review the results of Gentera for the fourth quarter period.

If you did not receive a copy of the release or if you have any questions, please do not hesitate to contact our Investor Relations department in Mexico City. If you are a member of the media, we ask you to contact us directly.

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

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

[Enrique Majós Ramírez, executive]

Thank you. Good morning, everyone. I'm glad to be here with you in this Fourth Quarter 2020 Gentera's report, and I hope you and your family are healthy and safe.

Let me start my initial remarks by talking a little bit about the last 12 months. After almost 12 months operating under the global pandemic conditions, we feel proud to say that we have been dealing successfully with the challenges that this new situation and this new world has presented to all of us. As you already saw in our press release, we closed the year with financial results above expectations. In the fourth quarter, net margin was positive again with MXN 291 million profit. Net margin for the total year closed with MXN 1.6 billion loss, which, by the way, is better than we all expected. And the loans that we have disbursed post-March 2020 have an outstanding quality, so these are very good news.

It is also worth to highlight that for almost 1 year, we have been operating remotely with our customers, encouraging our own clients not to meet and maintain social distancing. This is important since, as you know, we have a methodology that's required before to meet every week with all the groups that we serve. Even under these conditions, results have been successful and encouraging.

At the same time, we have been instructing our loan officers to follow strong protocols to stay safe, not only at work but also at home. Therefore, we had very low numbers of people impacted by COVID-19. As you know, we are around 22,000 employees in Mexico, Guatemala and Peru, and we keep daily and very detailed tracking on the health of our people. Round numbers are that 3,600 employees have been infected alone the last year. From these people, fortunately, 3,200 had been recovered and 400 people are currently infected and in the process of healing.

Even when it's a small number, we are very sad to say that 25 colleagues had passed away during the pandemic. Our condolences to their families, and let me tell you that we have been close to support them on this difficult moments.

Now how are we dealing with the fact that we are working remotely? For staff members working at our head offices, home office has become a regular and very effective way of working. Our teams are communicating and delivering results as if they were working in our premises. And speaking about our field staff members and operations, as we have been informing along the year, we adjusted our products and processes, and we have been able to successfully adapt our operation to our customer needs and conditions in this new world.

So as a result of this, we have good news. More than 90% of our current portfolio has been disbursed post-March 2020, and its quality is remarkable. 97% of this portfolio has 0 days past due, which are numbers fully comparable with our outstanding portfolio quality during 2019, which, as you know, was a very good year. The additional reserves that we have been creating along the year were sufficient. And at some point, we have even been able to reduce them.

Another good news is that due to the actions taken and the nature of our short business cycle that, as you know, is 4 months for most of our customers, we believe that we have 100% of visibility of the impact of the pandemic in Mexico and Guatemala. And in Peru, we estimate we have close to 80% of visibility since, as you know, in Peru, our business cycle is mostly defined by the individual lending methodology, which is a larger business cycle.

As we explained in our last conference call, because of this short dynamic cycle, we received the impact of the pandemic faster than anyone else. However, we were able to take immediate actions also faster and the recovery curve has been showing good results as expected very fast. So as you can see, we have been able to pass through the negative effect of the pandemic, and our present business operation is up and running with strong and healthy dynamics.

Let me now look forward and speak a little bit about 2021. We feel proud to say that we have started this year in a unique strong situation. On one hand, we have a solid financial position; and on the other hand, we have a healthy business operation always very close to our customers. We really see great opportunities for 2021. We have always been a relevant player in the role of helping clients and their economic recovery from this crisis and for other crisis in the past, and 2021 won't be the exception.

Talking about our guidance. Gentera's total portfolio growth in 2021 will remain within 13% and 15%, and EPS will be between MXN 0.85 and MXN 0.95. I can tell you that we start looking at clear path to recovery by the third and fourth quarter of this year, and we will get back to the 2019 financial performance levels within the next 12 to 18 months. So I believe this is -- these are good news for everyone.

Now let me talk about our business strategy for 2021 and 2022. Our business strategy for the following years is based basically on 2 things: focus and consolidation. Our strategic advantage which, as you know, is to provide credit to the underbanked population, will remain at the core of our strategy. In addition to this, our business strategy includes specific digital transformation initiatives to build digital platforms and to use digital data as a business driver. These elements will allow us to maintain our outstanding customer experience, and at the same time, will bring Gentera efficiencies to maintain our leadership in the market. Our digital transformation initiatives will allow us not only to get back to 2019 performance levels, but to maintain double-digit growth rates for the following years.

Let me give you some examples of specific and relevant moves that we have been deploying towards our strategy and digital business transformation. In the first place, and as I mentioned before, in the last 12 months, in the context of the pandemic, we have been operating the business and the relationship with our customers remotely and successfully with good business outcomes: growth, quality and efficiency. As we speak, we are designing and implementing innovative ways of working in the field and with our customers based on digital platform.

I'm talking about what we internally call our credit management digital platform project. That, by the way, this initiative was born in Fiinlab, our innovation lab a couple of years ago, and it has been maturing as we have been deploying it into our business as usual. So by the second half of 2021, we will continue working remotely with our customers, but now with better and stronger digital platforms and tools, which will allow us to capture relevant efficiencies along the front and back-office operations.

Another example is the following: starting in February this year, 100% of our loan officers' selection process in Mexico started taking place with artificial intelligence and machine learning technology. It is important to point out that 2,000 loan officers are hired just in Mexico each year, so this is a high-impact and high-value transformation opportunity for Gentera.

And a third interesting example is the fact that we are already using more than 50 different robots, or bots as we call them, to support back and front office operations. This is allowing us to operate with more efficient processes, such as information for potential customers about our product offer, customer service problem-solving and even support services for our own staff.

These are only some examples of many initiatives that we already have on track. As you can see, digital transformation is becoming part of our business as usual, and we will continue having technology as an essential element of our strategic plan for the future. Technology and digital transformation are a must for Gentera.

Let me close my initial remarks by pointing out 2 relevant events that took place during 2020. As you know, in June we sold INTERMEX, our remittances business; and in August, we increased our participation in ConCrédito up to 51%. These were also key moves fully aligned with our strategy, which is to concentrate on being the best credit provider to our segment of customers through digital platforms and based on digital data. So as I said before, focus and consolidation is present in all the pieces of our strategy.

Well, let me now jump to Patricio's report. He will provide more specific information about the business results and the performance of our operations. So hello, Patricio, and thank you. Please go ahead.

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in Gentera.

To deal with the pandemic, the first stage of our strategy happened in the fourth quarter after the restructuring process that took place in the third quarter of 2020. In the last months of the year, we were very active disbursing loans to reactivate the businesses of our customers, and we closed the year with optimism in the performance of our Mexican operations.

Banco Compartamos reflected much better operational dynamics. Consequently, the financial results improved rapidly. We grew the portfolio 6.3% in the fourth quarter. In addition, during December, we recovered the pace seen in 2019 with more than MXN 9 billion in new loans generated in this month alone, which is the best -- one of the best months in disbursements in our 30 years of operations.

At year-end, more than 95% of the customers have been either restructured or written off. In December, we rolled off 205,000 customers and MXN 1.5 billion of delinquent portfolio, with more than 150 days arrears, which allowed us to reduce the NPLs to 5.6% for the year. The performance of the loans generated after the referrals is even better than what we saw in 2019 before the COVID impacted the operation. As such, we are confident that we finalized 2020 in a solid position to capitalize the opportunities that are present in the market.

In this 2021, we have clear objectives: We need to consolidate the operation and be focused on our customers to reactivate the economy activity in rural communities and the outskirts of the cities where our clients are present. Moreover, we've seen competitors getting weaker fast and losing customers, which also translates in future growth.

This fourth quarter marked our return to positive figures in Banco Compartamos, concluding the quarter with MXN 396 million in net income, which helped us to maintain our capitalization above 30%. The positive result achieved in the quarter and the good dynamics presented in the portfolio and its asset quality, even considering the most recent lockdowns in some states in Mexico, gives us clarity that most of the impact related to COVID is already registered in our financials in Mexico. Therefore, we expect to maintain profitability during 2021.

Now let me briefly jump to our Peruvian and Guatemalan financial subsidiaries. For Compartamos Financiera in Peru, the number of clients at the end of the quarter was 677,000, with MXN 15.6 billion in loan portfolio, representing nearly 6% annual growth. At the conclusion of the quarter, 19% of the loan portfolio was still deferred, this because of the longer tenor of the loan portfolio in Peru, and due to new deferral programs that were still active in the fourth quarter due to recent lockdowns.

The good news is that at the conclusion of the fourth quarter and considering the different programs implemented in Peru, 91% of the portfolio in Peru is paying on time. This percentage gives us expectation about future performance for this subsidiary. As has happened in Mexico, the impact has been more relevant on the group lending methodology. However, in Peru, it represents a smaller proportion of Compartamos' loan portfolio moving around 24%.

As we did in Mexico, we also provisioned above the requirement and we were very careful in our liquidity. These conservative decisions allowed us to finalize the year with strong provisioning, capitalization and liquidity in the country. In addition, the good access to different funding alternatives for Compartamos Financiera and financial position will also allow us to be able to react to the opportunities that are present in the local market as well.

With regards to our Guatemalan operation, as we previously announced in our past conference call, we recognized that the lockdowns and the movement restriction in the country has had a large impact in the economy and the small businesses of our customers. As a consequence, the impact in Compartamos Guatemala has been significant. We will take a reaction needed to minimize the potential losses in this subsidiary. Nonetheless, the challenges that we are witnesses in the subsidiary, our strong capital levels and the strong coverage ratio will help us to navigate these complex times in Guatemala. Compartamos Guatemala serves 105,000 customers with MXN 7,000 average ticket that in aggregate represent approximately MXN 724 million in loan portfolio. This represents 1.8% of Gentera's loan book.

2020 was indeed a very challenging year. The strategy and actions taken in the 3 countries are paying up. And with a strong financial position, brand recognition, employee satisfaction and the size of the unattended market in these countries, we're certain that there are plenty of opportunities. Therefore, we will keep working hard on reactivating customers and try to gain again market share in this 2021 and aiming to grow faster in the years to come.

I will now hand over the conference to Mario Langarica, who will review Gentera's fourth quarter financials. Mario, please go ahead.

[Mario Langarica Ávila, executive]

Thank you, Enrique and Patricio, and good day to everyone. I hope that you and your families are well and healthy.

I will focus my 4Q '20 remarks in: Number one, the positive progress of the portfolio and the margins in the last quarter; second, the status of the allowances, NPLs and write-offs at year-end; third, net results of the quarter and the year; and fourth, the strength of our liquidity funding and capitalization positions. I will also give direction on some additional key financial indicators for 2021.

It's important to remind you that since August 20, as Enrique said, we started to consolidate ConCrédito's figures in Gentera financial statements being 4Q '20 the first fully consolidated quarter.

Now let me start. Regarding portfolio and margins, while the pandemic impact left us with a smaller base of clients and loans compared to 2019, we observed a positive recovery in the last quarter. As Enrique and Patricio have already explained, Gentera closed 4Q '20 at MXN 40.689 billion, with a total loan portfolio, which was minus 2.4% reduction compared to 2019. For the bank, after MXN 1.537 billion write-offs in December, we observed a net solid growth above 10% in our loan portfolio compared to 3Q '20, showing a positive recovery trend.

Margins also improved in 4Q '20. Net interest income improved 23.9% in the last quarter, mainly driven by an 18.8% increase in interest income and a minus 8.7% reduction in interest expenses. This happened mainly due to the growth of the performing portfolio of Banco Compartamos and better cost of funding.

NIM amounted to 29% in 4Q '20 from a 22.3% in 3Q, showing the recovery trend. For the full year, net interest income decreased 17.8%, and NIM had a reduction from 2019, 46%, mainly driven by the impact of the pandemic.

Net interest income after provisions improved significantly in the last quarter when compared to 2020 when we move MXN 1.576 billion prudential provision for Mexico and Guatemala. Having said that, in 4Q '20, we continued to serve very good and improved delinquency levels that allowed us to liberate some of the additional reserves.

In Peru, the government implemented new allowance and provision rules in 4Q '20. But given the fact that in the past, we have created voluntary additional reserves and basically, since the consolidated numbers account for Mexican regulation on Mexican GAAP, the impact of provisions and allowances at the consolidated level were marginal quarter-to-quarter. It's important also to note that on the Peruvian methodology, some of these provisions are registered in the local book as an impact in capital. While at the consolidated level, we registered them in the income statement following Mexican GAAPs. Any details on all of these adjustments, please feel free to contact our Investors Relations team during the week.

Net interest income after provisions for the full year showed a reduction of 42.7% versus 2019, with an excess in provisions of MXN 3.816 billion that mostly represent the impact of the pandemic in the portfolio. NIM after provisions amounted to 25.2% in 4Q '20, recovering significantly from 3Q '20 and below 2019 levels but will end with a positive recovery trend.

We also maintained the discipline of full year operational expenses amounting to MXN 13.4 billion showing a 2.8% contraction compared to 2019, even after the incremental ConCrédito consolidation. This amount is below 2018 nominal numbers, showing our commitment to keep expenses under control, but always in line with the strategy of its subsidiary.

In the case of Banco Compartamos, the reduction in expenses for the full year was minus 8.1%, mostly varied from permanent efficiencies that we have implemented in our operations. For 2021, we expect to keep strong focus on efficiency. But given the full consolidation of ConCrédito, the growth of this line will be around 10%.

We stabilized asset quality after a peaking 3Q '20 and we have sufficient allowances, improving NPLs, write-offs and cost of risk. At the end of 2020, we have sufficient allowances for all our subsidiaries amounting to MXN 4.178 billion which includes additional -- still additional reserve of around MXN 650 million. As mentioned before, in December '20, we decided to apply an extraordinary write-off in the bank and in Guatemala. Most of it, the portfolio impacted in the early stages of the pandemic where these loans had a new probability of recovery.

Coverage ratio amounted to 189.1% at the consolidated numbers by year-end. NPLs closed at 5.43% and are showing an improvement trend continuing to normalize in the following quarters after its peak in 3Q '20. During 2020, we broke off MXN 4.902 billion in total, which represented a 78% growth compared to 2019 write-offs. Most of the pandemic impact has already been reflected and absorbed in our income statement and capital base.

Cost of risk for the full year closed at 16.7%, also showing an improving trend after its peak in 3Q '20 and it will continue to improve during 2021, where we expect it to close around -- between 10.5% and 11.5% by the end of 2021, similar to what we have observed in some years in the past.

Regarding net income 4Q '20, we showed a positive recovery trend. After the positive results in the portfolio described above and after applying the extraordinary provisions and write-offs, Gentera posted a positive MXN 291 million net income in 4Q '20, reversing the negative trends observed in 2Q '20 and 3Q '20.

Controlling company participation in 2020 report was MXN 288 million. Earnings per outstanding share from controlling company in 4Q '20 stood at MXN 0.18. For the full year, Gentera had a minus MXN 1.635 billion loss. And as mentioned before, for 2021, we expect a significant recovery of the bottom line for an expected EPS of MXN 0.85 to MXN 0.95 by the end of the year.

We closed 2020 and started 2021 with very strong liquidity, funding and capital position. Gentera closed 2020 with a very robust liquidity position amounting to MXN 18.481 billion. Liquidity levels at each subsidiary are solid and sufficient to fund our expected growth for 2021.

During a very tough year for the economy and the markets, we were able to maintain and to expand our sources of funding, reduce our cost of funding and improve conditions and tenors of our liability.

Regarding capitalization and after the first ever loss of 2020, Gentera closed 4Q '20 with a very strong capital-to-assets ratio of 32.3%, amounting to MXN 22.282 billion, highlighting that Banco Compartamos concluded the year with an ICAP of 3.4% and Compartamos Financiera with a solvency level about 19%, both ratios about the system and the local regulatory limits.

As we have explained -- as we have anticipated in previous conference calls, we met our expectation of closing 2020 above internal capital ratio limits. Having said this, our Board is not recommending any dividend payment for the year, given the fact that we posted losses in the year.

We will continue navigating these challenging times with discipline in capital risk management, recognizing that as happened in the past, the solid capital level that we have had have allowed us to keep a strong operation and access to different funding alternatives, allowing the business to face very challenging and uncertain times.

Let me conclude by mentioning that while recognizing that 2020 was a very challenging year, we feel confident and optimistic with the plan for 2021. We have ambitious but feasible portfolio objectives that will bring revenues that together with a normalized cost of risk and adequate expense control will allow for the gradual returns of margins and profitability levels by the end of 2021. All of this with strong capital and liquidity positions.

Thank you for your attention. That is all for our presentation, and we can now move forward to the Q&A session.

[Operator]

[Operator Instructions] Our first question has come from the line of Ernesto Gabilondo with Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

Congratulations on your inflection point. My first question is on NIMs. Considering that you are now originating new portfolio with better spreads, how should we think about the NIM evolution this year? And when do you expect to return to pre-COVID levels?

Then my second question is, is the potential risks on cap rates in Peru and Mexico are included in your earnings per share guidance? And what have been your strategies to mitigate those impacts, especially for the group portfolio in Peru with interest rates around 105%; and ConCrédito in Mexico with interest rates over 100%.

And then my last question is also related to your guidance. Just wanted to double check, including your earnings per share guidance of MNX 0.85 or to MNX 0.95 implies an ROE of around 7%, 8% this year?

[Mario Langarica Ávila, executive]

Okay. So thank you very much. Regarding NIMs, yes, as mentioned, we have a relevant impact in NIMs for the year. And as you have seen, they have started recovering. And 2020 will be a year where we will start the recovery of NIMs during all the year. We will be in the trend of normalizing our NIMs but it will take all the year to do so. And we would expect that by the last months of the year, we will be approaching 2019 levels, but probably we will reach 2019 levels until 2022.

[Enrique Majós Ramírez, executive]

Ernesto, this is Enrique. Regarding your question on the potential risks on the interest rate caps in Mexico and Peru, I will let Patricio to talk in more detail about Peru. Let me start with Mexico.

And let me tell you that we are fully aware that since 2009, Banco de México has the mandate to regulate rates and commissions. So we are not talking about something entirely new. In 2020 in December, Senator Monreal issued a document to add some concepts with the spirit to improve financial inclusion efforts. And the documents intention is not to modify Banco de Mexico's mandate. Up to now, there is not such thing in Mexico as a proposal or initiative to cap interest rates. But in any case, the strategy should be to prevent us to have one, and we are clear about that. Our stronger argument is to preserve and continue fostering financial inclusion, pointing out that price control will only reduce options and will mostly affect to customers.

In any case, we are having conversation in Mexico individually and through the industry's associations, with different players and regulators, including Senator Monreal. We are following up very closely this concern. And if we see further evolution of it, we will continue acting consequence. Maybe our main takeaways from the possibility of having interest rate caps will always be that we have to keep on improving and having a more efficient operation, which, in the long run, will allow us to operate with lower interest rates. This is why digital transformation initiatives are so relevant in our business model. So that's the situation in Mexico. And Patricio, maybe you can talk about Peru.

[Patricio De Bonilla Garcia Vallejo, executive]

Of course, in Peru, the discussions are taking place as we speak. As you know, a proposal was voted, and the government decided to make comments on that bill. So it's now under review by the technical instances that if they see that this is something that is economically viable and it's not preventing a free market, could be go to the Congress and bring, again, voted for its approval. Again, these discussions, as I said, are taking place these days.

Of course, there are arguments that make us think that the risk even though is still there, it's -- again, it makes no sense for the free commercial market. But again, if it do gets approved, there are legal instances that financial institutions can even go through in order to stop that or such regulation.

So having said that, the process is still going on. And we will -- we are on top of it. In case something happens or changes from what are we just talking, of course, we will let you know.

[Mario Langarica Ávila, executive]

And regarding ROE, Ernesto, we expect that during the year, we will still have a lower ROE levels than 2019. But for the last quarter of the year, we expect ROE to be above 10%.

[Operator]

Our next question is coming from the line of Jason Mollin with Scotiabank.

[Jason Mollin, analyst]

I was very interested -- I thought it was very positive in the fourth quarter that we saw the growth in the lending book at Banco Compartamos in Mexico. And if we exclude the clients related to the early write-off of loans, we calculate that there even was a meaningful increase in clients, if we assume about 200,000 clients had those -- that loan book that was written off early, then it looks like we have about an 80,000 client increase quarter-on-quarter. How do you see the progression of that? And if you can give us some color on these clients in terms of were they prior clients of Compartamos? Are they new clients? What's the demand for the group lending products now? And how do you see that evolution going forward?

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Jason. This is Patricio. Of course, we knew that the market would be demanding credit at year-end as normally happens. More so in a year where competitors were not so active on the lending side.

Having said that, we recognize that the market is very large still -- it's very large. The underserved market in Mexico, it's growing also because, again, we've talked in the past that in contraction phases of the economy, people from the formal sector moves to the informal sector and that trend expands the market opportunity. So the market is large.

The competitive landscape is getting weaker. Our competitors, due to the lack of funding, are shrinking their portfolios, are shrinking also their operation and are having operational difficulties. So in a large market with fewer players, we think that we are very well positioned. And as you mentioned, the fourth quarter, we grew over 11% the portfolio in the last 3 months of the year. From October till December, the growth in 3 months was certainly a rebound from what we saw in September. And again, it's a more restrictive market in 2020. And a clear need for credit, not only in Mexico, I would say that also in Peru, it's something that we are seeing. Micro entrepreneurs more than ever need access to working capital loans. And this is why even though 2020 was a challenging year, we look with optimism this 2021 because there are market opportunities that we intend to tap on.

So -- and again, the guidance that we provided again a double-digit growth, not only in portfolio but also in customers is relevant. And those are customers that were customers of Compartamos, and we might have losing them in the past, but more importantly, customers that are or were with some competitors and are jumping into Banco Compartamos, and we expect to maintain that trend in the months to come.

[Jason Mollin, analyst]

That's very helpful. Maybe as a follow-up, any color on the size of the market or your market share gain in the last 3 months of the year, given what you just described is happening with your competitors, particularly on the funding side?

[Patricio De Bonilla Garcia Vallejo, executive]

Yes, the thing -- we just have financials of our competition as of the third quarter. So the fourth quarter financials of the rest of the players will be released during March. So in the next conference call, I promise you that we'll tell you how much we gained in market share. But certainly, there's an improvement from our end at the year-end of 2020.

[Operator]

Our next questions come from the line of Brian Flores with Citibank.

[Brian Flores, analyst]

Two questions. The first one is with the efforts that you're doing in technology, how do we -- or how we should think on efficiency, how do you think this will impact OpEx going forward? And the second one is on ConCrédito. It seems that the sales of goods that are sold in ConCrédito is affecting other operating income. So just to be very clear, are you carrying inventory in ConCrédito or can you provide guidance on how to think about the accounting mechanisms here for ConCrédito?

[Mario Langarica Ávila, executive]

Okay, thank you very much. Regarding operational expenses, as Enrique said in the beginning, we have a big opportunity to capture efficiencies in the next years using technology. We learned a lot in the pandemic, and we have many initiatives already in track to capture all of these efficiencies.

During this year, we will have a particular effect. As I mentioned, operational expenses will probably grow a little bit lower than 10%, and that's basically most -- half of it is mainly because of the consolidation of the numbers of ConCrédito. But we expect to keep strong control on operational expenses and gain efficiencies going forward.

[Enrique Majós Ramírez, executive]

Mario, if I can jump in here just to give some additional information. But as I was saying in the opening remarks, the first example that I gave around the initiatives that we are deploying in digital transformation is the digital platform to manage our credit. And I believe that, that one specifically, will bring us a lot of opportunity to be more efficient in the field, in the back office. So yes, I'm very excited about what we will be accomplishing in the following months and years.

Maybe the way these projects are deploying is that we are working and doing everything, to have in the first semester the project built, the system programming and the work that we have to do in our systems done during the first semester. Maybe by the third or more for the fourth quarter of this year, we will start with the rolling out. And 2022 will bring these efficiencies and these new ways of operating microfinance in the individual and in the group lending methodology.

I will also jump to the ConCrédito question, just to give you some very general numbers, but I believe that Mario can give you more specifics around your specific question. But yes, as just -- and you have this in the press release, but we had around 42,000 credit distributors or empresarios in ConCrédito that they provide credit to more than 500,000 end clients. And yes, the results at the end of the year were good because they were positive, MXN 97 million, but mostly because the trend was good. The losses in the third quarter were MXN 60 million. The losses in the fourth quarter were just MXN 2.9 million, and I think we are in the right track. And yes, as you said, we have accounting back there that has to be understand. So I don't know, Mario, if you want to comment on this.

[Mario Langarica Ávila, executive]

Just as you said, Enrique, we have this quarter consolidated numbers. And any specifics that you want to go in detail, we can arrange a specific meeting to talk about. But ConCrédito has showed a good year. We are only showing the 5 months that's consolidating our numbers.

[Operator]

Our next questions come from the line of Thiago Batista with UBS.

[Thiago Bovolenta Batista, analyst]

I have 2 questions. The first one, I know that the earnings in this quarter were much better. But Peru is still posting losses in the 4Q. Is it possible to see Peru achieving the breakeven in coming quarters?

And my second question is about the digital transformation that you mentioned. What is the main target with this transformation, is to, let's say, to reduce the costs or the OpEx of the bank and consequently, be able to achieve a smaller ticket is to, let's say, to provide digital tools for the final clients? So what's the bank is targeting with this digital transformation?

[Mario Langarica Ávila, executive]

Okay. Regarding your third question, yes, for Peru, for 2021, we have the objective to come back to positive numbers. I don't know, Patricio, do you want to answer the second?

[Patricio De Bonilla Garcia Vallejo, executive]

Yes, of course. The thing with Peru is that, as we did in Mexico, we've been provisioning in excess of the requirements from local authorities. So we decided to be as conservative as possible, not only on the liquidity side, but most importantly, on the provisioning side, taking into consideration, as I talked during my remarks, that some of the portfolio is still deferred, and we need to go after these deferrals through the restructuring process.

So -- but most of the impact that we see as of December 2020 was registered in the financial. And this is why the fourth quarter we incurred in such losses because the provisioning levels were well above their requirements because we wanted, as we said as a strategy for the group, to leave most of the pandemic-related financial impact in the 2020 financial results. So as Mario said, the strategy for the year is to keep on growing in individual. Of course, we will be writing off customers of Crédito Mujer in Peru. But the idea is to return to profitability in this 2021. And during the following quarters, you should expect seeing such positive results for the Peruvian operation.

[Enrique Majós Ramírez, executive]

Thank you, Patricio. Thiago, let me jump into the second question about the OpEx reduction. And well, here we have several things that I would like to point out. The first one is that, yes, this year, we reduced the OpEx, and I believe that was a good thing that was driven by the need of facing the pandemic. But obviously, what we are expecting for the future and with the help of technology is to have much better efficiencies to capture. So yes, cost reduction is something that -- it is a priority for us. And I believe that from those cost reductions that we will have, mainly because of the big digital transformation initiatives, we will capture those efficiencies as a company. And we will also give our customer better conditions. I think that provide our services at a lower cost is also something that we want to do.

Regarding maintaining or lowering the ticket, I could tell you that in general, we are not thinking about lowering the ticket, we are mostly thinking about reducing the cost. But we do have initiatives around how can we provide digital credits that will have much better conditions, lower interest rates. And that's the way we look that we should compete in the future in the market with credits that are 100% or fully digital. And those are also part of the project that we are deploying.

[Thiago Bovolenta Batista, analyst]

No, very clear. Can I do one very small follow-up. It was mentioned a couple of minutes ago about the ROE for '21. I didn't get the number. So was 10% the expected ROE for 2021?

[Mario Langarica Ávila, executive]

No. What I said was that it should be above 10% for the last quarter. For the full year, it will be still below 10%, mostly because we will be building the net income during the year. And -- but we expect that the last quarter will be above 10%.

[Operator]

Our next questions come from the line of Alonso Garcia with Crédit Suisse.

[Ricardo Garcia, analyst]

I wanted to touch base on provisions for the year. And what's your cost of risk assumption behind this MXN 0.85 to MXN 0.95 EPS guidance. And specifically on Mexico, I mean, probably -- I don't know if you're expecting to release, if there is room to release more additional provisions in the first quarter of this year? Or if in our case, you are expecting a normalized cost of risk for 2021 in Mexico already this year.

And in the case of Peru, that is like going behind Mexico, given the nature of the portfolio with longer tenures, I don't know if you anticipate the new probably additional provisions in the first half of this year or similar to what Mexico did in the fourth quarter, if you see room for potential reversal of provisions in Peru?

[Mario Langarica Ávila, executive]

Okay. Alonso, thank you very much. Well, regarding allowances, we have a year-end or to start '21 MXN 4.178 billion of allowances. Of that, around 600 -- above MXN 650 million, more than 15% are still additional reserves. We still have additional reserves both in Mexico and in Peru.

So what we are guiding, as I said in my remarks, the cost of risk, it should be something between 10.5% and 11.5%. And will be -- will there be more reversals? We don't know yet. But what we're seeing is still a good recovery of what we had already reserved in the past. But at this point, we're keeping those additional reserves until we're able to see if more reversals could occur. But at this point, we feel very comfortable with those levels. And these additional reserves allow us an extra caution. And as I said before, Peru also has around MXN 200 million of additional reserves in the total amount that we show in the balance sheet.

[Operator]

Our next questions come from the line of Claudia Benavente with Santander.

[Claudia Benavente, analyst]

I only wanted to know like the patterns of growth for income should be driven mainly -- like if I expect for supply increase at the average ticket, it would be driven by growth on the lending side, like loans itself? Or maybe by the number of customers? And I understand that you see a big potential because probably of an increase on the informal market. But when should we see like this pickups in demand? Any color there would be appreciated.

[Patricio De Bonilla Garcia Vallejo, executive]

Claudia, this is Patricio. Of course, the income is generated by the portfolio for Gentera. The main drivers for the year, as you remember, in Mexico, we were not very active on the lending side for 6 months, second and third quarter. So as we are fully disbursing loans throughout 2021, the growth in loan portfolio will be constant, not only for -- because of the ticket size, which will have regained its participation, but also because we will be growing customers, as I said, given the market opportunity that is present in the marketplace.

We have now all the products available to the consumer in Mexico: Group lending, individual lending and the additional credits related to those products. So the full product on the credit side will be available throughout 2021. That's one driver for growth, of course, the customer base.

The Peruvian operation, the piece of the portfolio that will grow faster is the individual lending, which is the bulk of what they do in Peru. And also growth, relevant growth should be expected for the ConCrédito operation. So all those 3 components together will gradually rebuild the portfolio towards the end of the year to 2019 levels, which, as Mario said, will allow us to start next year with a strong balance sheet position to regain the income at pre-pandemic levels for 2022.

I don't know if this was helpful enough, Claudia, to answer your question.

[Claudia Benavente, analyst]

Yes, very helpful. Thanks, Patricio.

[Enrique Majós Ramírez, executive]

And I would just add and -- I will divide this in 2 things: The short term and the medium and long run. And in the short term, as Patricio said, ticket size will increase, but it will increase as the economy recovers. I think that's the responsible thing to do. But as Patricio also said, we have cross-selling in some products that we didn't offer aggressively last year. So -- and yes, we will -- we are expecting more customers because there's more people underserved.

And as Patricio also explained, in the long run, we -- the strategy as a high level for Gentera, is to continue growing loans and credit through all our business units. So yes, ConCrédito is becoming a very relevant part of our income and our strategy for the future. But we will also, well, starting to provide and disburse loans through other channels like our Yastás correspondent network. So I'm talking more for, let's say, the following 2 to 3 years. That's where the growth will continue because we are focusing ourselves on providing loans through all the business units that we have.

[Operator]

[Operator Instructions] With no questions in the queue, the question-and-answer session has concluded. I will now hand the call back over to Enrique Majos for any closing comments.

[Enrique Majós Ramírez, executive]

Thank you. Thank you, operator. And yes, I would like to make some final remarks. Let me share with you a message that I consider relevant. And it is that overall, our main goal is to emerge stronger from this crisis, after what we have seen and accomplished in the last 3 quarters, let's say, we can say that we are now in the right track, as you can see. The return to positive income in this fourth quarter was, financially speaking, maybe the most relevant highlight. And it was possible, thanks to the successful process of defining and implementing our plan effectively. But obviously, also in addition to the work and trust of our customers and the passion and commitment of our team, I really feel very proud of not only our management team, which is a very strong and capable team, but also of our 22,000 colleagues.

In summary, we are very excited to recognize at this point that we are in a privileged position as industry players. First of all, because our products will be highly demanded in the following years, and there will be years of recovery for our customers and years of recovery of our economies. Second, because we have a strong and solid position, financially speaking, that will enable us to preserve our relevance in the market. And third, because we have a strong and solid operation that guarantees that we will be side-by-side with our customers to satisfy their needs, we will keep on being relevant for our customers in the short and long run. And this means that we will continue committed with our social and business purposes.

As we always remind ourselves, our mission is to support our customers to accomplish their dreams. And this, translated in terms of business execution, has a very simple rationale. If we take care of our customers and colleagues, then we are taking care of the company. And if we take care of the company, we take care of our shareholders.

So thank you for believing in Gentera and for your support along the way, and we will keep in touch during this challenging and exciting new year. Thank you so much, and have a nice day.

[Operator]

Thank you for your participation in today's Gentera's Conference Call. You may now disconnect.