Regional SAB de CV
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Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to Regional's First Quarter 2019 Conference Call. [Operator Instructions] Mr. Manuel Rivero Zambrano, Banregio's CEO, you may begin your conference.
Hello, and good morning. Welcome to our conference call for Regional's first quarter results of 2019.
Our net income grew 17% and our NIM total loans was 6.9%. The ROE and the ROA was 20.1% and 2.7%, respectively. Our efficiency ratio was 42.9%. The performing loan portfolio plus leasing grew 14% and demand deposits and time deposits grew 20% and 16% year-on-year, respectively. The nonperforming loans ratio was 1.8% and the cost of risk was 0.7%.
As of February 2019, the capitalization ratio of Banco Regional was 13.7%. In the income statement, you can see that financial margin showed a 14% growth year-on-year and our nonfinancial income grew 20%.
As for the noninterest expenses, they grew 14% year-on-year. And that, resulting in a 17% growth in our net income year-on-year. In terms of nonfinancial income, we can see that the leasing fees generated 17% growth, commissions and fees grew 19% and insurance and FX increased 31% year-on-year.
In order to facilitate the understanding of Regional financial and strategic information, we will present information of 2 main businesses: our wholesale and our retail businesses. The wholesale banking unit includes all the companies with all the products and loans, greater than MXN 30 million, our core deposits above MXN 8 million. As for our retail banking unit, it is divided in 2 segments; small business banking and preferred banking.
In the small business segment, companies with loans up to MXN 30 million and deposits up to MXN 8 million. In the preferred banking unit, includes all the individuals with any consumer loan, auto, mortgage and credit card as of deposits -- time and demand deposits.
So following, I will highlight some items our -- of our wholesale unit. Our demand deposits grew 22% year-on-year, our time deposits grew 14% and our performing loan portfolio plus leasing grew 14%. As of the cost of risk of our wholesale unit, we have 0.3% plus 2 months cost of risk and NPL ratio of 1%.
The growth by region, we can see at Nuevo León, grew 19%, Jalisco 0.6% -- Mexico City 0.6%, Jalisco 9% and in total, the remaining locations grew 18%.
As of our retail business unit, our small business loan portfolio grew 11%, our auto portfolio, consumer and mortgage portfolio grew 30%, 31% and 13%, respectively. The small business demand and time deposits grew 29% and 37% year-on-year, respectively, showing great growth and our preferred banking unit demand and time deposits grew 12% and 15% year-on-year, respectively.
As of the cost of risk, it was 1.6%. The commercial NPL 4.8%, auto 0.7%, mortgage 2.0% and consumer 2.7%. Per region, Nuevo León grew its total loan portfolio by 11%, Mexico City 16%, Jalisco 14% and the remaining locations, 17%.
Thank you. We appreciate any questions.
[Operator Instructions] Your first question comes from the line of Ernesto Gabilondo from Bank of America.
Manuel, congrats on your results. Three questions from my side. So my first question is to hear from you how has been your strategy for not fully repricing your loan portfolio in order to improve volume growth and maintain asset quality. And my second question is on NIMs. As you have mentioned before, Regional's NIM could be more resilient to a lower interest rate environment as you have increased your term deposit growth, hedged the forming of mortgage loans and do not fully reprice loans. So can you remind us the sensitivity to net income to a potential reduction in interest rates of 100 basis points. And then have you evaluated to increase a little bit your exposure in the consumer segment in your loan mix with the digital transformation as an element to improve NIMs? And then, my last question is in noncredit related revenues. I believe some lines such as fees, leasing and FX came a little bit lower than expected. So do you attribute these to business seasonality? And what would be the drivers for these segments in the next quarters?
Thank you, Ernesto. Thank you for your questions. Can you repeat again the first question? I just want to make sure I just understand it correctly.
Yes. The first question is just to know your -- to hear from you how has been your strategy for not fully repricing your loan portfolio, which I believe has helped to improve volume growth and maintain asset quality.
Yes. Well, in terms of -- I mean, we've had a great quarter, I think, in terms of most of the lines. In terms of credit growth, in terms of growing volume, we have been able to grow most of the segments in most of the geographies, which is something that we're very happy about. We've not lowered our prices. We've been able to maintain our credit policies, our pricing, at the same pace that we had last year. So we're not changing the risk appetite, we're not changing the price in our loans. So in that sense, I think we've not -- I mean, we've repriced it in a good manner. So it's -- I think it's nothing different from last year. We've -- we had a great quarter in terms of loan growth and we attribute it to working with the same clients we have had in the past. So it's not new risks. So I think we're happy with the risk/reward that we're receiving right now.
In terms of consumer segment, I mean, it's only 5% of our portfolio. We're very comfortable in growing a little bit more. I mean, it's not -- I mean, our main essence has been SME banking and obviously, we're very -- I mean, I'm fairly optimistic about our small business segment and our medium-size business segment. They're growing at a very good rate and nonfinancial income in those services are growing at a very fast pace. So we're very happy with our SME and I think it's going to be a main driver in the near term.
In terms of consumer, I think, we've been able to cross-sell a lot of product which you can see, has been able to produce great asset quality. We want to continue that further and digital being a way to deploy the product in a very productive and efficient way. I mean, a click and buy credit card, cross-selling to our depositor base is something very productive and it obviously helps to continue growing our depositor base and to have it more sticky. More sticky deposits is something Banregio obviously wants and cherishes.
In terms of nonfinancial income, there's a seasonality, definitely. There's a seasonality in most of our financial parts we serve and in the fourth quarter, normally it's a bit higher. So yes, I think in a sense that is mostly explained. We're very happy about how we've been able to grow our nonfinancial income. I think that tells you how good of a brand we have and how we've been able to cross-sell the product in order to achieve higher margins or higher revenue from our clients, not only in terms of interest rates, in terms of financial margin, but obviously, giving them services, high -- which is obviously very well received as you can see.
Perfect. So just a follow-up on NIMs. Can you remind us the sensitivity to net income to a potential reduction in interest rates of 100 basis points?
This is Enrique Navarro. In 16 basis points per 100 basis points, around, between 14 to 16 basis points. As you well mentioned, we have changed our mix to more time deposits that reprices down and we have hedged our mortgage and part of our fixed-rate in leasing and loans and that explains basically why -- the impact in both ways has been producing in the last 2 years.
Terrific. And can you provide the guidance or the sensitivity not only in basis points but in terms of pesos?
At this moment, I don't have it with me, but I will send it to you as soon as we finish the conference, Ernesto.
[Operator Instructions] Your next question comes from the line of Gabriel Nóbrega from Citibank.
During the quarter, we saw a slight deterioration of around 10 bps in your NPL ratio. And from what I understand looking at your presentation, it was actually due to your mortgage portfolio. So could you maybe just give us more color on what you were seeing in terms of asset quality and if there are any segments of your loan book that are maybe worrying you given that we have seen a lower GDP growth in Mexico? And I'll make a second question afterwards.
Thank you, Gabriel. In terms of asset quality, yes, we had a little bit of pickup in mortgage, but nothing that it is a trend. We're not -- we're comfortable with the risk of our mortgage portfolio. We only -- we generate quality products, quality assets, quality loan book in terms of mortgage and auto. We're always concentrating on the higher class clients in those categories. We have a bigger ticket compared to our -- compared to the most banks to compare to our systems. So we concentrate on higher assets quality than the rest. So we're not -- we're comfortable with the risk we're taking. We've -- we don't -- we haven't seen a pickup in terms of NPLs in mortgage loans and in our medium size businesses. I think it's -- we're very comfortable with the risk right now. This quarter was particularly good, I think, compared to fourth quarter of 2018. We've not seen any pickup in terms of the industry, that it's really a huge concern. I think the industry is performing, again, well. We don't -- we think that the interest rates, it's a bit higher. I think we should think there's a little bit of room to lower. Obviously, it will depend on many things. But I think that's one of the main constraints of credit growth right now is a high interest rate. I don't see that -- yes, I don't see the interest rate -- I mean, we haven't seen it push clients to MPL formation in terms of, for example, small business loans. They have been very resilient, and so I think it's a good sign. We wouldn't like to see it higher for sure.
All right. And this actually goes into my second question regarding loan growth. I see that you're actually being able to grow well above what the market has been growing at. And so could you just maybe tell us where you're seeing this loan demand coming from? And if this could also entail any revisions to your guidance for 2019.
Yes, we don't see -- I mean, I think most of our clients are still cautious about how they manage their investments. We've seen a bit of more demand this year than the year before, but nothing to really change our guidance. We think -- I mean, 10 to 15, which is our guidance is, I think, it's for now, it's -- we're comfortable with that range.
[Operator Instructions] Your next question comes from the line of Yuri Fernandes from JPMorgan.
Actually, I have just 2 follow-ups here, and the first one is on the margins. Even we saw some interest rate hikes in the 4Q. I'm not sure if all the pricing took effect in the first Q. So my point is, should we still see some margin expansion before the interest rate, if any, cycle starts in Mexico? I mean, should margin slightly go up before it starting trending down? And the second one is a followup also on asset quality. You mentioned you are super confident with your asset quality standards, but are you seeing any industry, like we heard from some competitors that maybe auto loans are showing some signs of weakness and also real estate. So my question is, how are you seeing because I understand there are different regions in Mexico, so perhaps the regions you are more focused at, they are not suffering that much, but how do you see in particular those 2 industries, auto and real estate?
Thank you, Yuri. When you say real estate, you say mortgage or you say...
No, I mean, home builders and the like annexed to construction.
Home builder. Okay. Yes. Well, in terms of NIMs, we do expect a bit more of a pickup, I mean, just a bit, nothing that really, I mean, nothing that serious, nothing that big to further reprice. I wouldn't think it would be a huge pickup. So we think that our NIMs should be stable for the year. In terms of auto and we do think there's definitely some big players that have been able -- I mean, there's a slowdown in auto loans for the biggest players. Our main geographies where we're concentrated are mostly in the north, more high-end auto loans. So in a sense, we haven't seen a slowdown there. We have not changed our credit standards. I mean, we're as strict as we have been ever in the past. So we are comfortable in terms of how we are performing. I think for the industry, there should be a moderate growth in auto loans in the sense, I think, we should continue to grow our loan book there in a very good manner because of the geographies we're concentrating in. In terms of homebuilder loans, we still see a very good rate of growth there. We've been seeing that mortgages have been able to be in a good price for most clients. We see the demand for housing is still very good. We've seen, I think, a bit of confidence in terms of how homebuilder portfolio has been demanding loans in a very good manner. I think it shouldn't change for the year. I think, in a sense, we can say that there's, I wouldn't say, strong demand for loans in the homebuilder sector, but still the momentum, I think, is still there and it should remain for the next part of the year.
There are no further questions at this time. Mr. Zambrano, I turn the call back over to you.
Well, thank you very much for participating in this conference call. We're very happy for the results of the bank. And anything, please let us know. Thank you.
This concludes today's conference call. You may now disconnect.