Gentera SAB de CV

BMV:GENTERA

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to the Fourth Quarter 2021 Gentera's Conference Call.

Now I would like to turn the floor over to Mr. Enrique Barrera, Investor Relations Officer of the company. Sir, you may begin.

[Enrique Barrera, executive]

Thank you. Good morning, and 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; 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.

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

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

[Enrique Majós Ramírez, executive]

Thank you, Enrique, and good morning, everyone. Thank you for being with us in this first call of the year in which we will report Gentera's Fourth Quarter 2021 Results.

Let me start by expressing our sympathy for all the people of Ukraine, our souls, our hearts are with them, and of course, we pray for a solution of this conflict in the short term as soon as possible.

Well, today, we have the following highlights that we would like to address. In the first place, we would like to talk about a few quick overview of Gentera's results for the closing year. Second, we will talk about Gentera's digital transformation journey, and I will give you an update on this. And third, we will talk about our expectations for 2022, which, by the way, looks as a very promising year, including our Gentera's 2022 guidance. By the way, we also have very good news regarding our 2021 EPS and the potential dividend payout in case our proposal is authorized by the shareholders' meeting next April.

Let me start by expressing my gratitude to all the members of the management team, our staff members and, of course, the members of our Board. Along Gentera's history, we have faced several crises. And each of them, we have been made the best of it. Every time we have faced a difficult time, we have come back very strong and with a stronger institution. This crisis has not been the exception. And at the same time, we are sure it won't be the last one. However, we feel very confident that we will successfully overcome any future crisis because we have a world-class management team and the fully supportive and very professional Board of Directors.

So let me start by talking about 2021. For Gentera, 2021 can be defined as the year of the resilience and the recovery. Not only the recovery for Gentera, but in the first place, the recovery year for our customers. It has been a great comeback after 2 years period, a very complicated situation for everyone, not only locally but globally. Despite the difficult conditions, total Gentera portfolio is at the highest point historically, reaching more than MXN 46 billion. In terms of client base, which, by the way, is one of the most relevant indicators to show potential future growth, we grew close to 200,000 credit clients in 2021. This is an outstanding net growth if we consider that during 2021 we let go close to 100,000 customers in Guatemala and writeoffs close to -- were close to 300,000 customers in Mexico during the year.

And our cost of risk is in very good shape, even better than expected. NPLs ended in 2.8%, and cost of risk was 9.4% at the end of the year. In such complicated years, having basically the same NPLs compared to 2019 on pre-COVID conditions, is a clear demonstration of the capacity of our staff to support and stand by our customer needs, especially during hard times.

As you have also read in our press release, we delivered above our guidance. Gentera's net income in 2021 was MXN 2,625 million, which represents an EPS of MXN 1.48. As you remember, at the beginning of 2021, we guided MXN 0.85 to MXN 0.95 EPS. Finally, we ended more than 50% above our estimation. And overall, we have very solid numbers in terms of capitalization and liquidity.

Let me give you now a quick overview of each of our subsidiaries. And Patricio and Mario will give you more details after my intervention. Banco Compartamos operation in Mexico is having outstanding results. In many ways, results are even better than in 2019 which, by the way, was the year in which we accomplished several historic results. In Peru, we have positive signs of recovery, even if the recovery process is being slower compared to Mexico. This can be explained by the larger terms of the Peruvian loan portfolio and the differences in the regulation rules imposed by the Peruvian regulators.

In ConCrédito, we ended the year with a net income of MXN 543 million. This means we are back to the same levels we had in 2019 on pre-pandemic regular conditions. And portfolio reached close to MXN 3 billion which, by the way, already represents more than 6% of Gentera's portfolio. Yastás reached historic levels of transactions in 2021, reaching 40 -- 24 million transactions, 12% growth compared with 2020 and 33% growth compared with 2019. Aterna ended the quarter with 9.3 million active policies, which represents a 34% growth compared with the previous year. And Fundación Compartamos continues generating social and human impact in Mexico and in Peru. Through our foundation, Gentera benefited more than 150,000 people in the last year through several education and social support programs to face different contingencies that we had in the year. In one of the most difficult years of our history, we feel strong to continue capturing the opportunities that we see in our future.

So let me now talk about 2022 and what are we expecting for Gentera's future. Gentera today's strong position is based on 2 things: one, a profound knowledge of our customers and their needs and our clients' and staff resilience when facing difficult times; and second, we have a clear strategy that combines short- and long-term initiatives and continues the digital transformation process and evolution.

So let me summarize our status in terms of digital transformation. Our transformation strategy is aimed to accomplish basically 2 things: the first one, to provide increasing convenience to our customers; and the second, to make Gentera a more efficient and profitable company. Aligned to these pillars, it is that we have been working on several strategic initiatives. The most important ones have been explained in our previous calls. So let me now give you a quick update.

As promised, at the end of the last year, we concluded building the first version of our credit management digital platform. As we have explained in the past, this platform will give our group and individual lending customers a better experience and will provide also to our loan officers easier and efficient process to originate and manage their customers and their portfolio. Now that the platform is built, we have been testing it. And in the past, we have had very good results. During the second quarter of the present year, we will roll out. And by the second half of the year, we will be operating fully with this digital platform.

As we explained in the past, ConCrédito's business model and digital tools are strategic on our digital transformation process. ConCrédito is not only Gentera's incursion into the consumer credit market. It is also providing us a new product distribution channel with a large growth potential and based on digital platforms. So in a few words, ConCrédito will provide us access to new markets with new products, exponential growth through new distribution channels, including digital distribution platforms. And maybe more important for the long term, ConCrédito provides Gentera the FinTech mindset we need to continue the evolution of our operations.

In other initiatives, such as Yastás electronic payment capacity, the digital platform loan officers in Peru or the new loan officers selection platform based on artificial intelligence, we are also having good progress. By the way, last quarter, we obtained the CNBV, the Comisión Nacional Bancaria y de Valores, the first authorization given to a Mexican bank to operate using the cloud technology. This is another milestone towards our evolution to new technologies. And in Peru, we are also in the process of migrating to a much more solid and flexible core banking system which will allow us to continue deploying new technologies in favor of our customers and Gentera's efficiency. So as you can tell, we are very, very excited about the promising future for the following years.

So now let me finish my remarks by setting our expectations for 2022. Our guidance for 2022 is to grow Gentera's loan portfolio in a range of 13% to 15%. This represents an EPS from MXN 2.05 to MXN 2.15, a 38% to 45% growth compared to the EPS reached in 2021. As you can see, in 2022, we will be back to 2019 pre-pandemic results. 2022 guidance shows a promising growth even considering our investment and transformation initiatives, which, by the way, are already included in our numbers. And 2023 and '24 are also expected to be years of solid growth.

In addition, yesterday, we proposed to the Board meeting a 20% dividend payout to be considered in Gentera's Shareholders' Meeting to be held this April. As you remember, we initially announced a 10% dividend proposal in our last call. However, we believe that the good results obtained in 2021 and our strong level of capital allow us to increase this payout to 20%. The Board decided to take this proposal to Gentera's Shareholders' Meeting to look for their authorization and if accepted, the payment will be made this May.

Well, this is my initial remarks. And now I would like to pass the call to Patricio because he will give you more specific information about our operations. So thank you, Patricio, and go ahead.

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in Gentera. As Enrique said, 2021 will be remembered as the recovery year for our operations after the pandemic. We are very enthusiastic about the solid results that we had at year-end in Mexico and Peru. The operational dynamics show positive trends in most business metrics and are a strong foundation for the coming years. These results show us that the future is promising as we capitalize the lessons learned over the last 2 years.

In Mexico, Banco Compartamos metrics are better than pre-pandemic levels. To emphasize some of the achievements in the subsidiary, let me share the following. First, at the year-end 2021, we grew the customer base every month attracting over 320,000 clients during the year. This represented a 15% growth and is the largest number of customers attracted in a year in the last 9 years. We finalized the year serving 2.5 million customers in Mexico. To give you a little bit more context, the 320,000 customers attracted by Compartamos in 2021 is really the size of the third largest player that reported [indiscernible] which at the end of the third quarter of 2021 was servicing 348,000 clients.

Banco Compartamos keeps gaining market share in number of customers served and holds 45% of the market in number of customers compared to 39% last year. The micro credit loan portfolio at the year-end stood solid at MXN 26.8 billion, a strong 21% growth when compared to 2020 and above what we originally anticipated for the year. As you see, credit demand remained strong beginning of the year. November represented the most important month in terms of loan origination in our history, disbursing more than MXN 12 billion in this month alone. For the full year, Compartamos Mexico disbursed more than MXN 96 billion. Strong growth was obtained in solid asset quality, representing in December NPLs at 2.1%, which is the best in the year presented at the end of the year for the past 10 years.

Cost of risk for the year was 6.5%, a large improvement compared to 2020, and the best cost of risk seen in the last 8 years. Margin and profitability improved due to the high-quality book that we have. Also, productivity per loan officer improved by 18% at the year-end 2021 compared to the number of customers served at the year 2020 and a 6.6% increase compared to December 2019. The decisions made in 2020 and the strong demand seen in 2021 have supported the solid performance of the business, generating this fourth quarter a net income of MXN 681 million, representing 17% growth compared with the fourth quarter of 2020. For the full year, the net income stood at MXN 2.3 billion, representing a net improvement of more than MXN 3.6 billion compared to the losses presented in 2020 and is nearly the total net income result of 2019. So what you can see is Banco Compartamos is experiencing a very robust performance, and our expectation is to keep this good momentum for the years in the future.

Now let me jump to the Peruvian operations. In the case of Peru, as I have signaled before, we have followed the same strategy that we implemented in Mexico. We provisioned the expected credit losses for the pandemic in the second quarter of 2021. We took actions to mitigate the challenges related to the impact in the economic activity generated by COVID-19 and impacts related to the interest rate regulation and market volatility. All the strategic operational and commercial decisions made in the past started to pay off since the third quarter 2021. And in this fourth quarter 2021, we continue seeing very good dynamics, as you could see in our results.

With the results achieved at the year-end, we presented 2 continuous quarters of net income and we expect to continue those dynamics in 2020. This year, we already expect to see positive net income contribution for the full year in Compartamos in next year.

Now let me highlight some of the achievements in Compartamos Financiera quarter and the year. First, the number of customers started to grow since the third quarter of 2021. At the year-end, we served 634,000 customers in Peru. During the quarter, the loan portfolio grew 5.7% in local currency and 13% year-on-year. NPL stood at 3.7%, which is an improvement compared to 4.3% in the previous quarter. We are presenting 2 consecutive quarters with positive net income contribution. This came after 5 quarters of operational losses.

Compartamos Financiera will come back to profitability in 2022. As we have said in our previous conference calls, the worst for Compartamos Financiera we leave behind us. We will keep working hard in serving the financial needs of our customers in this country by developing alternatives that support our clients in the fulfillment of their goals and dreams, and thus achieving further financial decision. We are confident and committed to our Peruvian customers and our core local team. We're assured that in the medium term, we will return to a strong dynamics that we were seeing in the subsidiary before the beginning of the sanitary contingency and of the challenges originated by COVID-19.

Lastly, I want to thank one more time on the passion and responsibility of our teams in Mexico and Peru, who have been fully committed to serve our clients in harsh times. I'm looking forward to serve even more in 2022. We are moving fast to serve more clients in a more efficient manner in the future, supported by digital platforms. We are certain that digital transformation process that started in 2021 will gain additional momentum this year. And in this way, we will capture all the opportunities that arise in this and following years.

Thank you all for your attention. I will now hand over the conference to Mario Langarica, who will review Gentera's Fourth Quarter's 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 family remain safe and healthy.

I would like to focus my presentation on the following concepts: one, our portfolio performance and the improvement of our margins; two, the healthy level of our cost of risk including allowances, NPLs and coverage ratios; third, our control of operational expenses under our 2021 guidance; four, our strong and improving net income generation and profitability; five, our liquidity funding and capital position; six, our expectations for 2022; and seven, some comments regarding IFRS implementation 2020 onwards.

Regarding our portfolio growth and margins, they have kept improving. As mentioned before, Gentera's total loan portfolio amounted to MXN 46.2 billion in 2021, the largest portfolio in our history, growing 13.6% compared to 4Q '20 and 10.9% above 4Q '19. This annual growth was in line with what was guided for the year. In local currency, for each credit subsidiary, loan portfolio grew 21% in Banco Compartamos; 13.6% (sic) [ 5.7% ] in Compartamos Peru; and 31% in ConCrédito versus 4Q '20.

We have also observed improved performance in all margin lines. Interest income grew 16% compared to 2020, mainly driven by the Mexican subsidiary growth in the portfolio and a healthy portfolio mix. Interest expenses decreased 14.6%, mainly by active liability management and a reduction of our extra liquidity institutions. This effect resulted in a growth net interest income of 20% for the full year, reaching 35.5% in '21 compared to 29.7% in 2020. On a quarter-to-quarter basis, dynamics were even better with a 39.3% in 4Q '21, about 29% in 4Q '20 and 35.7% in 3Q '21.

Provisions for loan losses amounted to MXN 3.882 billion, a strong improvement compared to the MXN 6.9 billion in provisions registered in 2020. Net interest income after provisions amounted to MXN 16.6 billion compared to MXN 10 billion in 2020, a 65% growth that resulted in NIM after provisions of 28.8% compared to 17.5% in 2020. For 4Q '21, NIM after provisions stood at 31.7% compared to 25.2% in 2020. The NIM after provisions in 4Q '21 was the best level that we have seen since the pandemic started.

Regarding risk levels. Cost of risk in 2021 closed at 9.4%, better than the 10.5% minimum guided for the year. Allowances amounted to MXN 3.47 billion on a consolidated level. As of today, we still maintain MXN 147 million in extraordinary reserve for Compartamos Peru. NPL stood at 2.82%, an improvement compared to 3.03% in 3Q '21 and a large improvement compared to a 5.43% in 4Q '20. In particular, Banco Compartamos portfolio showed excellent asset quality during 2021. Our coverage ratio in 4Q '21 amounted to 267%, superior to 189% in 4Q '20.

Operational expenses. Operational expenses for the year had a 9.3% growth compared to 2020, which was below the guidance that we made at the beginning of the year. Even after larger-than-expected incentives for loan officers and other rewards to the clients, relentless to the excellent performance of the portfolio in Banco Compartamos, some inflation adjustments in wagers and suppliers, there is incorporation expenses of our Guatemala subsidiary, the implementation of strategic initiatives and the implementation of the new outsourcing law costs.

For 2022, we expect to grow operational expenses between 12% and 13%, mainly driven by the implementation of strategic and digital transformation projects, as the one described by Enrique previously; two, marketing and campaigns for projects; and three some additional inflation adjustments for the year. Important to say that this double-digit growth expected for the year, we will return back to single-digit growth in 2022 since part of the 2022 expenses will not be recurring. And we expect to start capturing efficiencies of all the digital processes described before during 2023.

Also worth highlighting is that due to the implementation of IFRS, this year, there will be a reclassification of around MXN 1.2 billion of some trade origination expenses that will move from the traditional operational expenses line to financial expenses at minimum level. Having said this, the IFRS operational expenses will grow around 5%, and we will have the rest of the guided growth reflected on the financial expenses line. In the following quarters, we will give you the details on both types of expenses, origination and operation, to have comparable numbers going forward.

Fourth, net income has kept growing, maintaining a positive recovery trend. Gentera's 4Q '21 net income amounted to MXN 937 million, a very strong 222% growth compared to the net income reached in 2020. The cumulative net income for the year was MXN 2.25 billion, representing more than MXN 4.2 billion recovery compared to the losses of MXN 1.65 million reported in 2020. Gentera controlling participation amounted to MXN 2.37 billion, representing an accumulated EPS of MXN 1.48, finalizing well above our original expectations for the year. Gentera's year-end ROE amounted to 11.3% and ROA to 2.8% with improvements in 4Q '21. For 2021, ROE amounted to 20.7% in Banco Compartamos and 24% in ConCrédito, either after the strong capital position of Gentera's subsidiaries. We expect the Peruvian Gentera's recovery during 2022.

Five. We must maintain our strong liquidity, funding and capital position. And I mentioned before, Gentera concluded 4Q '21 with a very healthy liquidity position amounting to MXN 13.8 billion. Liquidity levels at each subsidiary are solid and sufficient for our growth and are strong to face opportunities in each local market. As mentioned in previous conference call, we have strong access to different incremental funding alternatives for the holding company and our credit subsidiary. We issued successful debt transactions in the market for all our subsidiaries, including a very successful Banco Compartamo's first formal social bond.

Gentera's strong capital to assets ratio amounted to 35%. Banco Compartamos concluded the quarter with 37% in cash. Compartamos Financiera with a solvency level above 18% and ConCrédito with capital to asset ratio above 50%. As Enrique mentioned, our Board will propose a 20% dividend payout at our annual shareholders meeting to be held in April. And again, if this is approved, we will distribute the dividend in May.

Six. Lastly, we are very pleased about the results we are presenting and excited about our plan for 2022. As as Enrique already signaled, loan portfolio will grow in a range between 13% to 15%, and EPS will be in the range of MXN 2.05 to MXN 2.15, representing a 38% to 45% growth. With these results, we expect to reach an ROE in 2022 between 14% and 15% and an ROA around 5%. As you can see, we are moving in the right direction to reach our medium-term goal of an ROE above 20%.

Just a note before closing and as mentioned before, we will stop publishing our financial statements under IFRS this year. We do not expect major effects in the balance sheet nor the income statement. Operating portfolio will be remained, but NPLs will still be calculated about 90 days past due. Individual methodology does not significantly affect our own product and even though operational expenses will be classified, as I explained ago, net income will have minor effects. Once we publish our first Q '22 results under IFRS, we will give you additional details of these effects under the new rules.

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

[Operator]

[Operator Instructions] Your first question is coming from Ernesto Gabilondo with Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

Congratulations on your fourth quarter results. And also in your guidance for this year, it seems to be the highest earnings among Mexican banks and probably in the region. I have 3 questions. The first one will be on NIMs. What are you expecting in terms of NIMs for the year? I think there will be a lot of moving parts. As you mentioned, there will be an accounting reclassification from operating expenses to interest expenses of roughly MXN 1.2 billion. But what about the rest of the parts? How much do you think could be related to ConCrédito? How much do you think would be the impact of the new originations returning to pre-pandemic rates? And what do you think could be the impact of an increase in interest rates of 125 basis points in the year under NIM's expectations?

And then my second question is on noninterest expenses. So after this reclassification, interest expenses, I don't know if you said you're expecting a 5% growth for this year. Just wanted to double check. And how much additional room do you have to create synergies at branches? How much of the OpEx growth would be related to the digital transformation?

Then my last question is on your ROE expectations. When putting together your guidance, is it reasonable to expect between 14.5% and 15% ROE this year? And what do you think will be the sustainable ROE?

[Mario Langarica Ávila, executive]

Thank you very much, Ernesto. Well, we would expect after this new reclassification of expenses to have a NIM at around 38% and NIM after provisions around 30%. We expect to still see a continued improvement at all the margin line during the year, in all subsidiaries. But a combined effect, together with the newer classification of financial expenses, should give us a number of moves around the range that I just told you. Interest expenses will grow, as we know. And we have already considered a 6.75% reference rate for the year-end in Mexico and around 4% in Peru. That -- those numbers are already included in the projections that we gave.

Regarding noninterest expenses, well, the total number again of a growth that we're guiding around between 12% and 13%, as I mentioned before and we will be following that total number, and we will be separating going forward what goes in the operating line and what goes in the financial expenses line. As I mentioned, right now, we expect that around 1.2% is going to be the classification. And that would give us an operating expense of 95%. But remember that the rest is originating expenses. We keep also operational expenses. But given IFRS definitions, we will have to bring it up to financial expenses line.

Regarding ROE, yes, we expect to have an ROE of around 14% to 15%. Again, as we mentioned before, we have the objective to have an ROE above 20%. That's the next hurdle that we want to reach. This year, the recovery of Peru will help us to be around this range that I just gave you. Hopefully, in 2023, we would be able to reach that medium-term level objective of ROE above 20%.

[Operator]

Your next question is coming from Jason Mollin with Scotiabank.

[Jason Mollin, analyst]

Thinking about Gentera's future growth outlook, can you talk about the addressable market for clients and loans in your business in both Mexico and Peru? How the recent years in the pandemic and digital transformation and technological innovation has potentially changed that? It would be valuable to hear your sense on the current market share and outlook. Patricio already mentioned, the current market share in Mexico has grown versus the prior year, I guess, that was. Can you talk about the perspective for the market and [indiscernible] market share going forward on the same?

And a second question, more general. Just about some of the comments that were made about managing through the pandemic and the challenges for Gentera's client. What were some of the lessons learned? What were the better decisions? And what would manage differently based on what we know today?

[Patricio De Bonilla Garcia Vallejo, executive]

Thank you, Jason. And I'll jump in the first question regarding the market size. As you know, both in Mexico and Peru, the addressable market is still very large. People without financial services, it's still the largest part of the market, more so in the rural communities. So we think that this is still a large addressable market that requires not only financing for working capital, but for other types of credit, consumer and some other product categories which we are developing. So the addressable market is large. As I said during my remarks, given the pandemic, most of our competitors faced not only operational but also financial difficulties, and they dealt strongly quite a bit to keep their operations going. So in a large market with a weakened competitive landscape, in some cases, we think that there is an opportunity, and you can see that in our guidance to keep gaining market share both in Mexico and Peru.

Again, in Mexico, we now hold 45% of the market in comparison with the 39% we hold prior to the pandemic. And in Peru, even though the individual lending piece of our portfolio which represents like 80% of what we do in Peru, it's more competed. Also the competition there got hit hard by the pandemic, and we have a very strong position locally. But the product that is growing faster and where we see more opportunities is in the good lending piece of the portfolio. As you remember, previous to the pandemic, the growth in Credito Mujer in Peru was doing very well. And after the adjustments that we made to absorb the cap in interest rates, we think that we are ready to go back to growth in Credito Mujer as well. So in a nutshell, the market is still very large. The financial inclusion efforts still require a lot of layers entering into the market to set better the segment. But we do think that there's still a large opportunity that we will be able to address, not only with the existing products but with different products that we are developing on this transformation.

And the second piece of your question was the lessons learned. And I think that during this pandemic we have enforced our values. During the harsh times, we took advantage of the strong financial position that we have. And we looked after, first, our employees; and secondly, our customer base. And we developed products and offered services to deal in harsh times with difficulties of being out there in the marketplace. So the biggest lesson for us was the importance to look after your personnel, your customer base because after 2020, which, I mean, had a huge impact in the decisions in our financials, but the 2021 did rebound, that we saw. And I'm 100% sure that it's because the team is committed with what we do and the customers value what we did for them during difficult times, Jason. So I think that, that's like the biggest lesson for us, keep always in mind your personnel and your customer base as -- to take decisions towards them.

[Enrique Majós Ramírez, executive]

Thank you, Pat. And Jason, let me jump also. I think your questions are very interesting and very relevant. And just to point out on the first one, as Patricio said, on one hand, we have great potential market and we have the demand there. But I think that you also asked about the relationship between that growth and the digital transformation we are having. And let me tell you that in addition to that potential market that we have there as an opportunity, our digital transformation is aimed to do several things. And as I said, we want to make our product offer more convenient for our customers and make Gentera more efficient.

When you ground this concept, what you see is that, first, we have to start by capturing information, capturing a lot of information and data that we always have had because we have always been with a large, large number of clients. We have a large customer base and we visit them very often frequently, but we didn't capture that information into our platforms. And now we are developing the digital platform and we are -- those platforms are allowing us in the first place to capture that data. And that data is going to be the raw material for the growth in the future. There, we will have much more information and much more communication online with our customers in real time. And that way we know that having this, for instance, credit management platform that we are just rolling out, we are going to have a lot of resources to continue growing.

So this double-digit growth that we are expecting for this year and the following in Banco Compartamos and in Gentera, as you know, is based on that. And if we go more specifically like in the case of ConCrédito, we are expecting growth between 20% and 30% in the following years because of that information that we are capturing and because of the platforms -- the digital platforms that will allow us to make a more efficient and more convenient relationship with our customers.

[Operator]

Your next question is coming from Thiago Batista at UBS.

[Thiago Bovolenta Batista, analyst]

Congratulations on the results, very strong numbers. I would say that there's only maybe 1 negative surprise in the earnings. That was the ROE of the Peruvian operation. Can you comment a bit on what level we can see ROE in Peru? And also, if it's possible to see the ROE operation back to the pre-COVID level, I think it was high teens or [indiscernible]. So if this is possible in the near term?

And just a follow-up on your last question about the changes of Gentera during the COVID period. But in my perception, one of the main change was the way that the bank is talking with the clients. So in the past, you used to need a lot of group meetings. Since that now you guys are using more the digital ways, do you believe that this -- well, -- the first one is this a real change? And do you believe that this changed on the way that we are contacting our clients have rechanged going forward? Or this change was not permanent?

[Mario Langarica Ávila, executive]

Okay. Thank you very much. Regarding ROE, yes, as we have explained in the past, Peru lagged a little bit on the results given the nature of the portfolio that is longer term than Mexico's. But obviously, this is going to be a year of recovery for Peru, as we mentioned. In fact, the last 3 quarters have been improving, and we expect that Peru will see recovery for the full year. And even though we may not reach the same level of ROE for Peru in '22, we are sure that we will do it by '23. And again, I have mentioned in the past, the first objective is to have are 3 main subsidiaries, the credit subsidiaries above 20% ROE annually. And then Peru is obviously our next objective. And then having them above 20%, we will be able to reach 30% that I was talking about in the first question.

For the second question, I think that Patricio or Enrique will continue.

[Patricio De Bonilla Garcia Vallejo, executive]

Yes. And I -- talking about how you are dealing with the communication and contacts with the customers. The reality is that we have been using more the technology to deal with our customer base. During the last 2 years, we could have not only worked on the digital side in which we now collaborate with our groups, both personally and physically. And together, we use technology to do the group and weekly meetings. On top of that, now we have more information about our customer base, thanks to the digitization of our processes. And with that, we've been able also to offer better product offerings individually to our customer base. And this is why, for example, other products for cross-selling have been in momentum over the last 8 months. So again, going forward, we think that more so the groups will be held and our team will use more technology, which will allow us to be more productive and to reach more customers with the same infrastructure that we have today. And that's encouraging because that helps a lot to have a broader reach without increasing largely our cost base.

[Enrique Majós Ramírez, executive]

Yes. Thiago, and this is maybe more anecdotic, but I would invite you and all the people in the call to visit us in our social media accounts in which we communicate with our customers. It's very enlightening how everyone is moving to this digital world and they are the first ones who like and use on a regular basis to communicate with it. We have videos. They put videos and they upload the video. So at the end, I think that we are all globally changing, and I think that our customers are even teaching us how to do this because that's the way it works better for them.

[Operator]

Your next question is coming from Yuri Fernandes with JPMorgan.

[Yuri Fernandes, analyst]

And also congratulations on the results. I have a follow-up on G&A. I guess you mentioned about 12% growth. So just checking that this excludes the MXN 1.2 billion reclassification to NII. So basically looking to the same kind of apples to apples, you are growing G&A about 20%. But given we are removing the MXN 1.2 billion, it's just 12%. And regarding a second point, like you are talking about digitalization. I think it's the right pathway. I think you must evolve in that direction. But how do you see the anti-barriers for the industry? Because one of the name -- for sure, you have like underwriting, you have the brand, you have a lot of good things. But one of the anti-barriers, I think is the very heavy, personal intensive way for you to operate the business model, right? So if the micro finance in Mexico and Peru is moving towards new stabilization, what you think new competitors or old competitors may also close the gap of an advantage that Gentera has today?

[Mario Langarica Ávila, executive]

Okay. Thank you very much. Now the total growth of operational expenses will be 12 -- between 12% and 13%. Of that, around MXN 1.2 billion will be moved from the traditional operating expenses line to financial expenses. So what we will see under IFRS is that at the operational expenses level, we will have a growth of around 5.5% and the rest to get to the 12.3% will be reflected in financial expenses. So the growth -- total growth of operational expenses, as we have seen them in the past, is going to be between 12% and 13%.

[Yuri Fernandes, analyst]

Super clear, Mario.

[Patricio De Bonilla Garcia Vallejo, executive]

In the second question, talking about how we will deal with digitization, the reality is that we know that the infrastructure, the traditional infrastructure to be close to the customers is very heavy. As you know, we visit our customers every single week in order to see how the groups are doing, to analyze whether we will lend them more money. And that was previous to the pandemic. The reality is, as I said during my previous answer, is that we are taking advantage of the technologies to instead of visiting physically our customer base, we will use certain technology to be able to monitor the progress of the groups without being in-person with each individual every single week.

That will allow us, again, to be more productive, to be able to serve more customers with the same team that we have today, which will allow us to be, again, more productive going forward. But we will certainly need a balance between the human touch and the technology-driven methodology that we are now implementing on the ground. But again, once our customers feel comfortable dealing with technology in the years to come, we will certainly be more skewed on the technology base kind of dealing with customers. But the first step to do so is again, trying to leverage our infrastructure -- physical infrastructure with technology to be able to broaden our reach in this 2022 and going forward.

[Enrique Majós Ramírez, executive]

Yes. And by the way, we believe that this hybrid model in which we are operating and relating with our customers not only physically but digitally -- or not only digitally but physically, it's a great competitive advantage. And I think that we have the benefit of being with our customers when they need that physical contact. And we are hoping and they are also asking that those points of contact can be -- may be more efficient. And we are taking out all the friction that they historically could have been feeling on a very, very human-intensive model because now we are putting in place a lot of technology that will allow us to be much more efficient in both ways. So as I said, what Patricio explained for me is that we have a great competitive advantage there.

[Operator]

Your next question is coming from Alonso Garcia with Crédit Suisse.

[Ricardo Garcia, analyst]

My first question is actually a follow-up on the previous point. I mean, given this balance that you seek to maintain between digital and the human touch, I mean, you mentioned that you saw loan officer productivity increase of 18% year-over-year in 2021. So if you could remind us where you are right now in terms of productivity and where -- what's your like mid- to long-term goal? And what you think you can achieve already in 2022?

And my second question is if you could provide some color on the cost of risk that you are incorporating in your EPS guidance, and specifically, in the subsidiaries of Mexico and ConCrédito? In the case of Mexico, my question is how -- I mean, in the pace of normalization in cost of risk towards a pre-pandemic level, is that to happen? And in the case of ConCrédito, well, we don't have much history on that company. If you could provide some color on the level of cost of risk that you expect?

[Enrique Majós Ramírez, executive]

Sure, Alonso. Thank you for your question. And in terms of our productivity, I can tell you that the most relevant increase in productivity is yet to come. And we are more or less at the same levels that we were in 2021. But what I explained in my initial remarks around the credit management digital platform that, as I said, we ended building it with all the operational and technological elements in December, and we started to test it in -- during January and February. We are rolling out for the rest of the year this platform, and that's the platform that will really give us a relevant jump in terms of our productivity. So it is still something that we need to finish to understand because, obviously, we have a learning curve there, not only from our loan officers but also from our customers, but definitely, we will see that those productivity that we already improved in 2021 are going to increase during this year.

[Mario Langarica Ávila, executive]

Yes. And regarding cost of risk, the guidance that we're giving for the year is around 10.5% for Gentera. We do not provide details of cost of risk for each subsidiary. But what we can tell you is that the lowest is for Peru, the highest is for ConCrédito and then we have the bank in the middle. But the guidance that we're giving is around 10.5%, and EPS that we guided includes that -- those calculations. And the ROE for ConCrédito will be above 20%, even including the cost of risk.

[Operator]

Your next question is coming from Jorge Henderson with Santander.

[Jorge Henderson Cubillas, analyst]

Congratulations for the very strong results. My first question is related to loan growth. I understand ConCrédito is one of the role pillars ahead. So I understand we have to increase the rate of ConCrédito loan portfolio. I think you just mentioned that you expect a 20% to 30% loan growth for ConCrédito this year. Do you see a similar growth for [indiscernible]? And also, what percentage of the total portfolio do you expect ConCrédito to be present in the midterm? Do you have a target for this?

And my second question is on Peru. You mentioned you're adjusting your risk models and operational model. And as you said, you have been securing under the context where the Central Bank has set the cap rate at 33%. Considering all this, what is the difference in terms of profitability, say, ROE between individual lending and book lending in Peru? Also, how much room for improvement are you seeing in the book lending business based on your operational adjustments?

[Enrique Majós Ramírez, executive]

Thank you, Jorge. And as I said, overall, we are expecting not only for 2022, but maybe for the next year, couple of years, a double-digit growth. And that's based on what we have been talking about, the strategic transformation initiative that will give us better technological and digital capacity. And that will allow us to overall, as a group grows at that rate. And yes, as you said, I mentioned that ConCrédito is especially a great growth opportunity for Gentera. Last year, we grew 30%, and the initiatives that we have in ConCrédito, that mainly are related not only to improve the product offer but also to expand the distribution and origination channels, we believe that will give us higher growth in ConCrédito. So I think that, as I said, around 20% -- a little bit above 20% is what we are expecting there.

[Patricio De Bonilla Garcia Vallejo, executive]

In the case of Peru, Jorge, first, the cap in interest rates only affected the group lending piece of the portfolio. Again, to deal with such cap, we took actions, first, increasing the minimum balances for the product by 30%. That mitigated a bit the interest income generation due to larger volumes. And secondly, we also took some productivity actions in terms of the infrastructure required to serve customers in rural Peru. So we closed certain offices that, due to the cap rate, were not profitable going forward or the market size was not large enough in order to maintain them. So those actions, both on the income side and on the cost side, have allowed us to maintain profitability in Credito Mujer.

And on the individual side, the biggest hit that we took last couple of years were due to larger NPL formation. Again, during 2021, we still have to restructure some loans during the first half of the year. And some of those delinquent loans will be just enough for the first half of 2022. Again, those loans are already provisioned. We are still provisioning in Peru in excess to deal with potential losses ahead. But the reality is that even though we will be profitably in Peru in 2022, the full proportion of the Peruvian operation will be achieved in 2023, when we expect to go back to prepandemic levels in terms of returns for the subsidiary. So I hope this answers your questions.

[Enrique Majós Ramírez, executive]

And Jorge, let me go back to ConCrédito question because I realized that for the last calls, you have been -- all of you have been very interested on ConCrédito. Maybe we should give a little bit more of color of that business and the potential it has. So as I said, ConCrédito has different strategic elements for Gentera. One of them is that they haven't innovated. It's a company that was born more digitally and have innovation and fintech mindset. But on the other hand, this growth we are talking about is based on a very specific thing. First of all, ConCrédito is in the process of geographic expansion. During 2021, they grew from 121 cities to 143 cities.

So now we are starting the year with more cities. And on the other hand, they had in the past only 1 distribution and origination channels, which was the traditional [Foreign Language]. And now we are adding to that distribution channel 2 more channels. One of them is that we noticed that the Compartamos clients, the group leaders especially, has a big potential to be also distributors of the product that ConCrédito offers. So that gets ConCrédito an expansion in terms of the distribution channel. And the other one that we have talked about is CrediTienda, which is this e-commerce platform, that at the end, it becomes another distribution and transactional channel for expanding the business. So that's the rationale behind our enthusiasm around ConCrédito. So I hope this will give you a little bit more information about that very relevant and strategic investment we have made.

[Operator]

Your next question is coming from Carlos Gomez with HSBC.

[Carlos Gomez-Lopez, analyst]

My apologies, I was muted. Congratulations on the result. Two questions. On the medium term, you said that your current 14%, 15% ROE is something that you want to bring to 20%. Besides the profitability -- the high profitability in Peru, what else do you think is going to make a difference for your profitability? Second question on your capital level. Where do you want to go and which indicators are you focusing on in particular? And finally, we have seen some stress in the wholesale funded companies in Mexico, with a couple of noted defaults of bonds. if I'm, in fact, providing you with opportunities, would you consider expanding your activities to the area that maybe these players are going to leave open for you?

[Mario Langarica Ávila, executive]

Carlos. Well, yes, again, in order to get the objective of ROE above 20%, we will rely on, one, in the ROEs of the bank and ConCrédito and Peru, but also in the combined strength of our other subsidiary. Yastás and Aterna are continuously bringing value to the firm. So we think that with the combination of all of our subsidiaries performing well and with the good management of the rest of the supporting entities, we will be able to achieve that objective of 20%.

Regarding capital levels, the first very important capital level that we keep sharp are for the bank, which, as you know, is about 25% our internal minimum level. And for Peru, we aim to be above 17%. So those are the 2 main capital lines that we need to cover. But obviously, we look at the capitalization of the rest of the entities including the holding company. But the ones that specifically are very important to keep above the hurdles are for the bank and for Peru. And the third, I think -- you asked about the funding risks, right?

[Carlos Gomez-Lopez, analyst]

Well, I asked about the fact that other companies have had funding risk and have actually run into difficulties because of inability to roll over the funding. That is not your case. You are a bank. You have never had any problem with that. Again, that open opportunities, would you be tempted perhaps to move into areas where you have not operated before like payroll loans?

[Mario Langarica Ávila, executive]

Well, yes. So as you said, in terms of funding, we have had for many years an expansion of our funding base. And the pandemic was a very strong crisis where we were able to test this. And the outcome is that we increased our funding sources. We have more access. We just did the issuances in all the 3 subsidiaries and were very successful. I mean, we know that this might bring some noise to the industry. But I think that the debt investors clearly very in shape now, our model versus the others. And it was very clear in the last social bond for the bank, which we obtained in variable rate the best spread ever. So obviously, that's a competitive advantage. And that allows us to compete both in volume, but also to have access to that liquidity that allows us to bring to our client. That liquidity is an added competitive advantage, of course.

[Operator]

Your next question is coming from Jose [indiscernible] at Citigroup.

[Unknown Analyst]

Congratulations with the results. Just have 2 quick follow-up regarding ConCrédito. Just to confirm on additional [indiscernible]. So ConCrédito, just wanted to confirm, if even saw -- even though we saw very good loan growth year-over-year, above 20%, I just wanted to understand a little bit. I think quarter-over-quarter, it was relatively low, around 1.8%. If I had color, could you just confirm you expect solid double-digit growth on ConCrédito 20%. Just wanted to get a sense of what was like the trend of growth on the quarter-over-quarter basis, not only with loans or loan rate, but also for other operating income in terms of CrediTienda, I believe, which, again, year-over-year, I think there was an increase, but quarter-over-quarter it's a little bit low. So that would be my first question for ConCrédito.

And for Peru, I know you said that you don't give guidance numbers on cost of risk for Peru. But just wanted to get a sense, if it would be safe to assume -- that in terms of cost of risk, by leaving the data collecting for Peru, would it be safe to assume that the worst is over for cost of risk?

[Enrique Majós Ramírez, executive]

Thank you, Jose. Well, just confirming, yes, we are talking now that we expect to have between 20% and 30% growth in the following years in ConCrédito. And last year, it was a very special year for all our business units. And obviously, we were dealing with the portfolio that we managed during the pandemic. And we are -- we were making also another -- a couple of adjustments and innovations in our distribution channels. Maybe as you remember, during last year, we also became branchless in ConCrédito. And that means that we have the loan officers there in the places where the customers have their business and they live and we have presence with them.

100% or let's say 80% of the relationship with the customer is now digital through very efficient digital platforms. So we are branchless in terms that we don't have a branch, physical branch on those places. So that allow us to grow in terms of number of cities in which we have presence. At the same time, in 2021, we grew from 45,000 entrepreneurs to 62,000 entrepreneurs, which means a growth close to 50%. And yes, CrediTienda also a very important initiative. CrediTienda is now offering products to the clients of the entrepreneurs. And that's the way we are maturing the platform. But for the future, definitely, it's the high potential growth channel for ConCrédito.

[Mario Langarica Ávila, executive]

And regarding cost of risk from Peru, obviously, our objective is to bring back cost of risk in Peru to the pre-pandemic levels. In 2019, the level of cost of risk for Peru was around 5%. And in 2018, it was around 7%. So obviously, our objective is to bring back cost of risk in Peru to somewhere between those levels as soon as possible.

[Patricio De Bonilla Garcia Vallejo, executive]

And yes, in terms of the portfolio for Peru, it got affected due to the actions that we needed to take to deal with the pandemic. Those actions, deferrals, et cetera, made us have certain losses that are already provisioned. Therefore, even though the market is still volatile, the reality is that we don't think that provisions as the ones we saw during 2020 and 2021 will be seen in the coming years. Those were specific to the actions that we took for the pandemic. Therefore, yes, the worst for cost of risk in Peru is behind us, and we will move forward towards the levels of pre-pandemic cost of risk, as Mario said.

[Enrique Barrera, executive]

Well, the next question comes from [indiscernible] from Bradesco. And that's the question. Congratulations on the strong results. Can we expect further impacts from your anti-laundering money strategy in 2022? Any time frame for additional ConCrédito acquisition, okay?

[Mario Langarica Ávila, executive]

Yes. Asset liability management strategy, I think, was the question. And regarding that, yes, we will keep managing our asset liability as we have done in the past, actively managing the liabilities to minimize the impact of rate increases. And in particular, we will keep managing liquidity to levels that are more normal. We still have some additional liquidity, but in our projections we will still reduce it a little bit. Even though we want to keep at a level in order to protect for potential contingencies, unfortunately, the news today about Ukraine obviously is not good news for the market. So we think that having some additional liquidity is safe. And regarding the dates for ConCrédito, we expect to continue the remaining acquisition up to the 74.9% that we have already said in August.

[Enrique Majós Ramírez, executive]

And we don't have any other relevant investment on sight. I think that we have a lot to do. We have huge opportunities with what we have in hand. It's challenging, but very high opportunity that we have in the following years with all the initiatives that we have explained. So yes, for the moment, we don't have any other additional investments on site.

[Operator]

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

[Enrique Majós Ramírez, executive]

Well, thank you so much. As you can see, we are very happy and we are very encouraging to really put in place what we are planning and we are now already executing. And we hope we will contribute for a better future for our customers in a world that we know that needs this kind of support. So we hope we are going to put our part on this. And just I would like to end up just thanking again and expressing my gratitude to all the management team and their resilience, and of course, to all our customers. I think that what we have been doing together in the last 2 years it's outstanding, and we have a lot to do looking forward. So thank you for your attention, and we will talk in the next quarter. Thank you.

[Operator]

Thank you all for participating in today's conference call. You may disconnect your phone lines at this time.