Regional SAB de CV
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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Regional's Second Quarter '22 Earnings Conference Call. We're joined today by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramirez, Chief Financial Officer; and Alejandro Lobeira, Planning and Investor Relations Officer. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Manuel Rivero Zambrano. Thank you, and please go ahead.
Good morning, everyone. We appreciate everyone's participation today. We are proud of Regional results for the second quarter as we continue to see improvement of our asset quality and loan growth. We continue to increase both nonfinancial income as well as financial margin, the latest mainly driven by our growth in demand deposits and an increase in the policy rate.
Regional generated MXN 1,155 million of net income during the second quarter. This represents a 21% improvement year-on-year, achieving a quarterly ROE of 20.9% and an ROA of 2.6%. The financial margin for the second quarter was MXN 2,251 million and expanded for the fourth consecutive quarter with a 28% year-on-year variation. The strong upside trend in the financial margin is a result of higher policy rate, higher margin loans and our successful strategies to maintain double-digit growth in demand deposits.
The NIM was 5.4% and the NIM of total loans was 6.5%. The low NIM expansion is explained by our growth in the repo business, which grew 32% year-on-year and has lower margins than our loans. Our loan-to-deposit ratio continued to improve, crossing the 100 threshold for the first time as well our CASA ratio improved to all-time high of 61%. During the quarter, our asset quality showed further improvements with the NPL contracting 21 basis points to reach 1.3%. On the other hand, the cost of risk improved to 0.22% from 0.42% in the second quarter of 2021.
During the second quarter, MXN 66 million of provisions were created and the coverage ratio stood at 171%. As a result of our nonfinancial income, we keeps improving at double-digit pace, presenting an increase of 13% year-on-year. [indiscernible] our merchant acquiring business led the expansion in nonfinancial income with merchant acquiring fees growing at 78% year-on-year, and our card fees 48%. Likewise, FX fees increased 19%. All of these factors generated a total net income of MXN 2,854 million, which is 16% higher than the second quarter of 2021.
On the other hand, operating expenses amounted to MXN 1,316 million, a 16% year-on-year growth. In general, expenses, the growth is explained by an increase in marketing expenses that has helped us growing and attract new customers at a very competitive cost of acquisition at MXN 106. Additionally, expenses related to our high-end transactionally in credit card business as well as in the payment business that both have an income associated with. As we continue to grow our active customers in a productive and profitable manner, we will continue to see this expense line to grow as well.
The salaries and benefits expense growth is mainly explained by our technology expenses related to hiring of more developers, a higher head count in services areas and the current inflationary environment. We are confident that we have already the correct size and the capabilities of our tech and design teams. So we expect this line of expenses to flatten over the next quarters. The expansion of our technology team is part of our plan to improve key technology, not only in the customer experience, but in the 6 different dimensions that we are working simultaneously onboarding, new products and features and services, analytic capabilities and automation of our post sale, Hey Banco -- Hey Pago, excuse me and Banking as a Service. And finally, all of the separation processes for Hey Banco to be able to operate soon.
Despite the dividend payment we did this year, Regional capitalization ratio remained solid, standing at 14.7% as of May 2022, which generates an excess of capital 271 basis points compared to an internal limit of 12%. During the quarter, the total loan portfolio of Regional delivered 8% growth, which was led by the wholesale and consumer portfolios, which keep growing at a double-digit rate. Even though we expect a relative soft credit demand in the next 18 months, we see industries like home developers, industrial warehouse builders, commerce agro business and manufacturing that are expanding at a very fast pace and demanding more loan growth.
Moreover, foreign direct investment in Mexico still is presenting a very positive trend, focusing on industries and manufacturing and commerce, which have led the economic recoveries in COVID crisis, especially on the north and the central north regions of the country. Furthermore, the total exposure to export activities represents less than 10% of our portfolio. We continue -- we are continuously assessing the behavior of our portfolio and regions that we are locating aiming to serve industries with better dynamics improving the profitability and the quality of our loan portfolio.
For Banregio, the wholesale portfolio had a loan growth of 6%. Deposits continued to outpace our expectations and we can anticipate this trend will continue, which will allow Regional to further improve its margins. Regarding Hey, it keeps attracting new clients at a very fast pace as our commercial strategies are delivering high-quality growth. This quarter, as we successfully integrate our payment linked solutions and an improved yield for our promissory notes, a better offering of our insurance products and our new client referral program as of the second quarter of 2022, Hey surpassed 480,000 active customers with 1.7 products per customer and an NPS of 61%, a cost of acquisition of MXN 191 and a lifetime value of MXN 2,831 and lifetime value over cost of acquisition of 14.8%.
Continuous innovation and data intelligence keeps strengthening our capabilities and user engagement. Our product offering is constantly enhanced to lever [ or tailor ] an attractive products for customers of any size and sectors, targeting a better cross-selling index that will lead to higher customer lifetime value. Our extensive investments in technology and development to build our digital bank have led us to innovate and ratifying traditional banking methodologies that will with exceptional results for Hey Banco. Consequentially as we seek to improve and simplify our financial services, we launched Hey Tech, a technology service company that will commercialize our digital banking platform. This platform will enable other business to integrate digital solutions such as digital onboarding, one click buy offers, outsourcing for risk, commercial collections and fraud preventing intelligence, among others.
In the following year, this company will start provided Banregio, an integral solution to digitalize customers onboarding, aiming to expand its abuse and transactionality with a new tool that will reinforce the customer engagement, increase the wallet share penetration and improve customer satisfaction. We aim to unleash a great potential in Banregio's customer service and customer base. Our objective will be able to achieve better KPIs as we have been able to see in Hey, but with larger volume customers. As the digital environment keeps gaining relevance on digital transactions, we see an improvement in the amortization of our proprietary technology that will make banking processes more efficient while accelerate in Regional's revenue generation.
To sum up, our efforts have been reflecting into a higher financial margin, solid deposit growth and even better asset quality, consistent growth in nonfinancial income and the accelerated expansion of our digital solutions. We are confident to achieve this objective stated in our guidance as our business and risk management initiatives keep the delivering satisfying results, a higher customer satisfaction and an ample and personalized offering that will allow us to keep redefining financial services and continue to be one of the leading financial institutions in Mexico.
Thank you very much. We appreciate any questions.
[Operator Instructions]. Our first question comes from Ernesto Gabilondo.
Manuel, Enrique and Alex, congrats on your results and especially in your annualized ROE for the quarter, which is again at 21%. I have a couple of questions from my side. The first one is on your expectations for loan growth for the second half and maybe some insight for the next year. We are hearing of a potential GDP contraction next year. So considering that scenario, how do you see loan growth next year? I don't know if you would be able to maintain the same levels we have seen this year, although you think it could be lower.
And also related to this one, I would appreciate how much do you expect Hey Banco to contribute for the loan growth this -- next year. And also related to this, how much of your portfolio has direct and indirect exposure to the U.S.? And then my second question is on asset quality. We continue to see sound asset quality trends. However, considering again an scenario of a potential GDP contraction in Mexico next year, where do you see the cost of risk?
Thank you, Ernesto. Thank you for your question. Well, yes, definitely, if we experience a slowdown in U.S., mainly in the manufacturing basis, we were going to see that slowdown in Mexico for sure. We don't expect it to be obviously as hard as the pandemic, and we don't expect it to be in very direct to, for example, internal secular trends, for example, consumer dynamics. So in a sense it will impact some of industries, for example, that will depend on the demand in -- of the products in the U.S. But then you're going to see -- you're going to be able to see, for example, in the auto business, still strong demand and a very good labor for us and still attracting new customers, for example, in Nuevo Leon that we are delivering to the new Tesla plant in Austin, Texas, and we are having like -- we received already good investment from the providers of Tesla.
So you continue to see this trend on the north region and you're definitely going to continue the trend on the [ Baja ] region. So I think that trend will continue. That will obviously allow us to continue the secular trend of homebuilders, continue to -- you can see the mortgages business is growing at very good rates, even in the pandemic. It grew at a very fast pace. And we will see that trend continue. We expect to continue. So in a sense, the tourism, I think it will continue as well. So demand in housing for those segments will continue. So definitely, the slowdown will impact for sure. We don't see a huge impact in terms of a shock. We don't see it in terms of liquidity as we see that both our segments in terms of individuals and businesses are with a very high liquidity levels.
And in a sense, we're very prepared as we -- as you have seen our capitalization ratio is recovering at a very fast pace post dividends. We have an ample of growth in our nonfinancial income. So definitely very good to generate more income in a environment that may be or slowdowns in a very next year, right? So we'll -- I think we're still lagging, for sure, as we normally do in Mexico. So our economic activity will lag a bit. So you're going to be -- we're not seeing that trend right now. So that the amount of loans to this date has been much larger than it was 6 months ago than it was 12 months ago. So I think in the near term, this loan growth will continue.
And definitely, as we are going to see the presidential elections coming up soon and with everything hiking up, I think, investment prone policies will come in, in more states. So I think that's going to be able to show more growth in local communities. So in a sense, I think we're going to be able to see mixed things in types of industries and localities. Our home state continues to grow at a very good fast pace and the last quarter was one of the most biggest in terms of foreign direct investments. So in a sense, I think we have very positive things going on and very secular things in terms of consumer trends, right?
Obviously, our cost -- we think that our cost to risk right now, it's a very -- in a very low rate. And we think that we are at a normal rate of 0.8, right? So that's what we normally have. And I think that's where we're going to be able to see in the next year. We right now have this good cost of risk because of our good quality. And I think in a sense, you could see that a good coverage ratio and a very -- in terms of loans to reserves at a very good rate. So you right now are seeing the healthiest portfolio that we have had in probably the last 5 years. You're seeing a very good trend in the short term in terms of loan growth. You are seeing a growth in loans that have larger margins like small businesses, individuals, and we're doing it so with a very productive manner. So in a sense, I think that we're going to be able to continue growing at a very good rate.
Obviously, we're normally -- we don't -- we're long-term investments, so we don't push [indiscernible] so we don't grow in a quarter for [indiscernible] irrelevant, right? So in a sense, the growth you're seeing is pretty much the demand of the market and us being as prudent as always. So in a sense, I think if that continues, you're going to be able to see good trends still.
Yes. No, perfect. Perfect. Very helpful. Just a follow-up and the last question. When are you seeing the reshoring opportunities could start to take place? And then the other one is on your net income guidance. When we annualize the net income for the first half of the year, it implies earnings growth close to 30% year-over-year. So I think that's well above your 17% to 20% earnings guidance. So how should we think about your earnings guidance? And where do you see the upside risk?
Well, we're not changing our guidance yet. But definitely, we think we're going to be able to have and deliver what you're expecting. I think -- I mean we are not seeing a shock in terms of -- in the economy as we see a slowdown in more than a shock. And we see ample liquidity, and we're not -- in terms of leverage, you can see that we have a very low leverage in Banregio. So I don't expect it to be as hard to be able to get to those numbers that you already said, but still not being -- we're not changing our guidance yet.
Okay. Perfect. And then you see -- so upside risk could be in terms of NIMs or fees or cost of risk? And also, wanted to hear your thoughts on this reshoring opportunities. When you think it could start to take place?
The nearshoring opportunities, you said?
Yes. The reshoring opportunities.
Well, I think the nearshoring already happened. I mean, yes, I mean the Nuevo Leon or Chihuahua, for example, are the second and the fourth most important states in terms of foreign direct investment. So we're still having -- we're still seeing that trend. And I think each year continues to be one that we're seeing more and more companies arriving to Mexico. Obviously, would still -- I mean, we continue to be -- I mean, we're not very good at designing, but definitely, we're very good at manufacturing. So I think that we'll obviously continue. So yes, I don't think it's stopped in a sense.
I mean, if we talked with our clients in terms of our wholesale -- well, in terms of logistics, they're already seeing a lot of good demand in terms of more warehouses built and more and more demand on those fronts. So I think that we'll continue to be able to see that even in the -- even if there's a slowdown, in the U.S., manufacturing business continues. We see that the exports of U.S. to Mexico are at all-time high, and we see that the exports to U.S. from Mexico are at an all-time high. So I think we are very confident that, that trend will continue as things have already been able to set more certainty for investment. So yes.
Our next question comes from Ricardo Buchpiguel.
Congrats on the good results. I have 3 questions on my side. First, we have been seeing NPL sitting at historical low levels. So I wonder if you believe this is a structural change or if you should see a normalization eventually. And if so, when this normalization should happen? And for my second question, should we expect sequential improvements on NIM, similarly as we saw in Q2, given the higher interest rate in Mexico? And for my final, final questions, which are the main products that Hey Tech should form in terms of growth for Banregio? And why it should be more clear on numbers and in the P&L for the group? And also should we expect any pressure on OpEx for the entire group because of these and other initiatives that Hey has been working on?
Thank you, Ric. Your questions, just to recapitulate. The first question was on what, sorry, we lost you in just the first part.
Okay. Is -- the first question I wanted to check with you if you do believe there will be a normalization in terms of NPLs because NPLs are at historical low levels.
Yes, yes. Yes. As we said that, I think with the cost of risk will remain at the 0.8% that we normally have.
And when do you believe this -- the normalization in terms of NPL should happen?
Within the next 12 months definitely. I mean, we're not seeing right now anything that's pressing in terms of -- we have nothing in terms of -- all of our portfolios are very healthy in terms of -- we don't see any huge problems in the short term in our wholesale business, in the small business loans in -- I mean you can see Hey Banco's NPL ratio at the lowest. So we don't see it incrementing abruptly soon, right? So that's where I'm pretty sure 12 months to get to our normal level would be expected. In terms of the second quarter -- the second -- I don't remember, the second quarter was NIM, right?
Yes. The second question was in terms of NIM. And why did you -- if you believe there should be a sequential expansion on NIM? And if it should be similar as we saw in Q2?
Well, in terms of the financial margin, you see a 28% year-on-year growth, which is pretty awesome. And we think that we will continue to increase -- not at the same pace, obviously, but definitely at a very fast rate. In terms of the NIM, as we said, you are not seeing the huge -- you're not seeing the full effect on the NIM, the full effect of the financial margin increase because of our assets that are bearing very low margins, which are our repo business. So we're implementing our repo business and those assets are producing low margins. Obviously, they have very low risk, I mean, Mexico risk. And that's where you're seeing a NIM that's not growing as well as the financial margin. Right.
That makes sense.
And then in a sense, we're -- I mean one of the -- not only the policy rate, but obviously, we're growing demand deposits at a very huge rate. So this is creating a very good cushion in terms of the increment on the policy rate. So that's to allowing us to increase our margin substantially, right? So very good trends, and we're very happy with the creation of the increase of the financial margin. And in terms of OpEx, as we said, we don't -- we already have 800 developers and designers that are working fully on the full scope of creating a modern bank, right, from end to finish, and that will allow us to be very efficient and very able to continue building all the solutions that we need.
We don't expect those rate under the [ policy ] to increase in terms of size and typical number. We don't think -- we think that the capabilities that we need are already here. So we've built all the analytic capabilities needed, for example, right? So we've been very able to have all those capabilities, for example, in designing all the UX and UI needed. All those teams already set in, and we're not expecting it to be a further increase, right? So we're pretty confident that those levels and that line of expense will flatten over the next quarters.
In terms of that service that we're aiming to give to Banregio, so Banregio will be able to have a completely paperless system in which they're going to be able to -- we're going to be able to give Banregio the most, in a sense, modern and sophisticated way of attracting and serving our customers. And in a sense, being able to cross-sell the customer base at a very fast pace. If you see the customer base of Banregio, we have huge potential in terms of being able to cross-sell clients through the same technology that we're using in Hey Banco. So that is going to be much efficient and it's going to create in the short term, very positive trends in fees, in loan growth and with very low risk because it's mainly cross-selling, right?
So -- and not only cross-selling, but cross-selling to a very high volume type of customers, right? So Hey Banco's customers are 1/3 in size, in their demand deposits that Banregio's lowest customer segment. So you can see that we have still a huge gap there. And in a sense, Banregio, it's going to be pretty able to reach all the 500,000 cloud customers that have and being pretty able to give all of them. I mean, to give you an idea, we do have 70,000 customers, SME customers in Banregio. We only have 200 RMs for those customers. So it is pretty difficult to be able to achieve a cross-selling for those 70,000, only thinking about those 200 RMs. So being able to have a app that has a communication 24/7 with customers has allowed Hey Banco to cross-sell at a very fast pace, as you can see. And that will be -- Banregio is going to be able to do that next year.
And now for then on further, we will continue to develop our app, so others can use it. So right now, the app still is in line with our core. So only our core can use our app. But in the future, in the next year, we are expecting to be able to sell this solution to others, not only banks but nonfinancial companies like car [ railing ] companies or others that already have not the [ darn ] doors and looking for services for their customers. So we are not still there yet in terms of regulation. But next year, regulation for banking as a service will happen, and we are the one -- the only ones in Mexico probably that will have the full scope of solution, and we are going to be able to be in a position to cherry-pick our customers and to be able to have the best customers in the region, for sure.
So those are aims in terms of our technological investments. We already, as I said, have all the team needed to be able to achieve this. We have -- the plans are already made. Everything is well budgeted for this year and next year. So we're pretty happy with those plans. And as well as our separation plan for Hey Banco that we are working as right now, we're aiming to separate it pre-authorization. So we're going to be pretty much being able to just -- when the authorization will happen, we're going to be very swift on that transition. So right now, you're seeing the scope of those of the expense related to the separation and the creation of Hey Banco. So what I'm trying to say is, you're going to be able to see a hump in that line of expenses and more flattened for the next following quarters.
Our next question comes from Olavo Arthuzo.
I have 2 questions, and they are basically focused on Hey Banco. But the first one, actually, I wanted to understand the NPL ratio for the credit card loans within Hey Banco's balance sheet. So I just -- we just saw -- we just had the opportunity to see the credit card loans at Hey Banco surpassed MXN 30 billion this quarter. So being very straight to the point, could you share with us the current delinquency ratio? And if not, at what levels you believe it should be as a sustainable measure to gauge this delinquency specifically talking about the credit card loans of Hey Banco? And if you please could add on this answer the profile of the customers by age, just for us to compare to one of your competitors in Mexico. And then I'll make the second question.
Yes. Thank you. Well, in terms of risk, as we stated in the past, we are not aiming for high-risk customers. So we are very motivated to have the best prices for our customers. So we've developed our products to be directed into high-quality customers. So for example, in our credit card business, we have the guaranteed credit card and the unguaranteed credit card. So for those customers that we think that we're not -- that we don't have enough information to be able to assess the risk that we're taking, we give them a guaranteed credit card. Or if we assess and if they have a pretty bad credit bureau, we're going to give them the guaranteed credit card. For those customers that have a very good and well stated credit bureau and payments with our other banks, we're giving them a very good and very attractive line of credit with a much higher quality product in terms of rewards, in terms of many other features that we've designed and we are developing.
And those customers are pretty -- I mean the -- they have around 6 transactions per customer. They're very high quality. And I'll say that the average volume -- the average -- yes. So for those unguaranteed are MXN 33,000 per card. And for the guaranteed is 2 -- MXN 5,000. So different spectrums, different segments, all of them pretty productive, all of them. And obviously, when you behave well in the guaranteed, we'll graduate them into a unguaranteed credit card. So in a sense, it's -- I wouldn't say that this is similar to others in terms of how we are approaching because what we're aiming for is to care for our brand in terms of being able to be perceived as having very good rates for both deposits and credit and fees.
So that's why we're not aiming for those customers that I mean, that -- I think you're talking about one of our main competitors and the average rate that they have is 70%. And that's not our aim for sure, different aim. In terms of the age that we have in Hey Banco future is around 35. And most of our clients are in Mexico City and [indiscernible] Mexico. And then we have Monterrey and Guadalajara to give you an example in the geographic print.
We do have [indiscernible] that we're not working with. We have many [indiscernible] that we aim to work with. So we do have a very well set up in terms of geographic footprint that we have. Even if we don't have a -- it's funny because even if you don't have a branch network, you can still be very selective on the geographies that you cover.
No. Okay. Okay. But I don't want to really…
In terms of -- so in terms of NPLs, we're going to -- I think we're going to be in terms of NPLs, the credit card business will expand to a normalized level, I think. I think right now, still it's pretty -- I mean, the portfolio is still new and it's still creating. And I think you're going to be -- I mean still not revolving. I mean it's amazing how most of our clients are nonrevolving, so we're still working on revolving. And so I think you're going to be -- you're saying you're going to be able to see higher NPLs of our credit cards in the next following quarters but nothing that will be shocking and nothing that will be quite expansive because we are not aiming for customers that have bad experience with other banks.
So we're being very prudent and very, very careful in terms of what we're aiming for because I mean we could be very able to cherry pick in that sense. In terms of auto loans, in terms of mortgages right now, they have 0% NPL ratio. So I think you're going to be -- I mean, we don't expect that to be -- the level that we're going to be able to run for the next -- yes, yes. But I mean, obviously, right now at 0%. It's amazing that we're happy, but that doesn't tell you much because obviously, in the next 12 to 24 months, obviously, you're going to see a normalized level. But you're going to be able to see the same levels that we've seen right now in Banregio because we've not changed the threshold and the risk that we're taking.
If not so, we've been more careful on being able to detect fraud more rapidly. So I think in a sense, we've been more keen on trying to be able to control our assets better. So I think you're going to be able to see the same levels, if not better, than what we have in Banregio in terms of mortgages and auto loans. But then you're going to be seeing a higher NPLs at the 0% that we are because of obvious reasons.
Okay. Okay. And just another very quick question about Hey Banco. I just wanted to hear [indiscernible] that the demand deposits over the total increased this year in comparing to the last year. And if I'm not wrong, according to my calculations, it's reached more than 60% of the total deposits. So I just wanted to understand if there is more room for this ratio to increase. Or do you believe that it should stabilize at this current level?
Yes. So the rate that we have for our customers is for the Hey Pro customers that have -- that do say 6 transactions in their debit or credit card. So you do have to do your 6 transactions in your debit and credit card for us to give you the 8%. If not, you're going to be receiving any 5%, right? So I mean it's a good rate, but it's still much lower. So what I'm trying to say is for the 8%, we're not giving it to the 100% for customers. So that's why we're pretty able to withstand that attractive rate for those customers. And we don't -- I mean, we're very comfortable at this level, and we think we don't have to hike it anymore. So yes.
Our next question comes from Neha Agarwala.
Congratulation on the results. Just very quickly, again, on the credit card with Hey Banco. Could you give us a sense of what percentage of your Hey Banco users do have a credit card with you? And a bit more on the auto loans that you show on the Hey Banco portfolio. What is Hey Banco doing differently in auto loans versus what an universal bank would do while providing auto loans? Just to get a sense of what is different with the Hey Banco product.
Yes. So 21% of our customers in Hey Banco have a credit card.
Is that…
Sorry, I didn't -- sorry, I didn't say Hi. Sorry, Neha. Sorry. Sorry. Sorry, you were saying?
So on the credit cards, you have mentioned 21% have a credit card with you. Do you find that low? Or is it a good level? And where do you aim to be? Do you want to be more aggressive providing credit cards so that you can get more transactionality? What are your thoughts there? And then we can move to the auto loans question.
Yes. So I mean, it's pretty high. It's pretty high in a sense, because we're growing clients at a very fast rate. So 7 -- when -- we've seen the information in 7 months after a client opens an account, around 30% of customers have a credit card in Hey Banco. So that number for Banregio is 5%. So only 5% of clients in Banregio have a credit card 7 months after opening an account compared to 30% of those of Hey Banco. So that's what we're pretty enthusiastic about being able to cross-sell to those customers of Banregio, much more products in a very fast manner.
We obviously think that the 21% will increase to 30% for sure. We don't think -- I mean, there's the best of the best in terms of cross-selling credit cards in Mexico is BBVA. I mean they have 60% of their customer base has a good credit card. I mean it is a good aim. But definitely, I don't think that we're going to be able to reach that level in a sense that we are not very keen on generating more information or new information for the credit bureau other than the -- than our guaranteed credit card, which is attractive, but not so much than the unguaranteed one. So in a sense, that's why we don't think -- we'll not be able to cross-sell to that amount of 60% like BBPA has been able to do, so with all those years of trying to do so.
But definitely, I think being able to do 30% will be a walk in the park. And from then on, it will continue. It will depend on how much we can better the information that we have from our customers. And that leads to the second -- this is your second inquiry about what's the main difference from our auto business that the other has. And this has to be with the information that we have from our customers and the amount of interaction that we have with our customers. So most of our other solutions, they're in the street. Most of them are pretty good and pretty automated and I mean they're pretty fast. And they give good rates and in a sense, they are pretty profitable.
But they'd lead a lot of business behind and mainly do so because they don't have a process that takes more information in from the customers, and they don't allow any conversations to happen between or between the credit assessment team and the customer. And that definitely has been pretty good at delivering pretty good results in a very productive manner. And obviously, you can see it in the NPL ratio. And you can see it in the increase in the auto loan portfolio. I mean definitely, you're seeing a huge shortage on new cars. So that is a hassle to continue to grow. So as you can see, we've been pretty good on doing so.
And in the last 12 months, we've been pretty able to create a completely robust system for -- all our credits are not only auto, but mortgages and SME loans. And we're pretty confident that, that will allow us to be able to continue growing at a very fast pace and not because of our risk appetite because not -- but because of we're pretty productive and pretty good at picking the risk that we're taking. That's been the case for many years, and that's what we are reinforcing with technology to be able to do it in a more massive manner.
Okay. Understood. If I can ask one more question. You currently have about 500,000 customers at Hey Banco. And you mentioned your target is about 1 million by the end of the year. Does it look a bit ambitious? Or do you plan to accelerate this in some manner to reach the 1 million target? And alongside, we talked about previously about maybe having a strategic partner for your backbone. Is there any update on that side that would help for us to know?
Thank you, Neha. Yes. Well, in terms of the strategic partner, no news yet. So we're pretty happy growing right now at the plans that we have right now. Still, I mean, we talk with the Board for this respect yesterday, and we're still open, and we're still pretty open on receiving any offer that really gives us something rather than just money because money we do still have to continue to grow in [indiscernible] about diluting ourselves, right? So we're pretty heavy right now. But if the opportunity becomes, definitely, we will definitely consider it.
The 1 million customers. Yes, definitely, we don't think we're going to be able to get there. Yes, I mean we think we're going to be able to have 650,000 at this pace that we're going at right now. We're pretty -- I mean, we're pretty happy with in terms of the customer acquisition, the lifetime value, the cross-selling. But still, we are tweaking the onboarding and tweaking the service so much so that we are not confident in to increment our expense in marketing. So I mean we could definitely double our expense in marketing.
And I mean, we do have the unit economics. We do have a 14.3% in terms of lifetime value over customer acquisition, which is pretty awesome, pretty healthy, pretty amazing. And it tells you that we could expand much more of our marketing expense, but we're not doing so because we want to make sure that the experience is as we want it to be. As you see right now, the NPS is at 61%. And we did had a problem in terms of customer service for an abrupt change that we made for -- to be very prudent in terms of security measures that we wanted to cover in a very swift manner. So that resulted sadly in terms of NPS, in terms of bad service.
So we still want to make sure that we'd see that we have the best experience for our customers. I mean the sad thing about digital banks is that we don't have any room for RMs to do their job and so then any bad customer experience that they had with their digital channel. So customers are very -- no, not overreact, but they're pretty -- I'm going to say aggressive, but very -- I won't say intense, but they will give service or the [ app with very bad ] if they review -- if they see a, for example, a decline in their credit card process. So that gives you in a sense on how customers understand services and how things -- how customers react to the things you do commercially.
So we're pretty happy on how the cross-selling for our Hey Pro customers is going. We have a very rapid growth in our Hey Pro customers, which are the ones that are transacting 6 or more transactions in the debit or credit account. And those have a much bigger cross-selling index than those are not Hey Pro. So what -- and those customers of Hey Pro have a more outstanding in their loans and in the deposits. So you are seeing -- I think the thesis of a digital bank in terms of being able to give a large volume of clients a very excessive product in terms of pricing, in terms of low fees, in terms of service is already there. So I think Hey Banco has already proven that the digital banking model has worked.
So in a sense, for that reason, we're pretty happy. Obviously, the 1 million customers is still our goal, and we're aiming for that. And we're going to be very happy when that number -- when that threshold is reached. But our main goal is to continue to be able to give value to our customers and being able to do so with the smallest volume segments, not the smallest because it's one above [indiscernible] and one above the -- no, no. Yes, couple. So -- but definitely being pretty able to give those customers a service as good as our preferred banking customers. I mean you see that our preferred banking customers in Banregio have a cross-selling index, a very high cross-selling index.
This is because we have an RM assigned for those customers. And -- but we don't -- but we can't do that for every customer, right? So I mean, we could, but it wouldn't be profitable. And I mean, to give you an example, we do have in Banregio 120,000 customers of nominal of payroll that we are only serving them with a debit account. Then we can't cross-sell a credit product to those customers because we don't have all the information needed for them to receive a credit, we have to -- they have to come to a branch in Banregio to be able to process that. And obviously doing it with massively, and we don't want our branches to be overwhelmed with payroll clients.
And having a platform like Hey Banco will be able to do it in a very easy manner. So that's what we're focusing on, and that's where we're aiming to, so creating value for those customers and being able to achieve that. And I think as a result, when we achieve the 1 million mark, the 1 million mark will be very profitable, not just customers that are brought here with commercial or marketing schemes that not provide any value over time, right? So I mean, we are building it. We're building this technology for the future. We're building it with the long term, and I see, I think you're already accustomed to this way of ours to continue and invest even in the bad times like in the pandemic.
And right now, when margins are good, I think we're still going to continue our efforts. And I think it will continue to do pretty good results. And sooner than later, we're going to see those 1 million customers for sure. We still don't have a guidance, a new guidance for those 1 million customers. We still need a little bit more. I think the next quarter will be -- we're going to be more able to have more color. And I mean, we just finished notes of our onboarding processes. Most of our onboarding is already monoline. So you can access a credit card from Google, for example, a credit card application from Google or from Facebook or from TikTok. So we've been pretty able to do a monoline attractive for most products, and that will, I think, allow us to continue growing in a very productive manner. So yes.
Our next question comes from Jorge Henderson.
Manuel, thanks for the space for Q&A and congratulations for the results. Let me ask the asset quality question in a different manner. And as already commented, there's a big chance of a recession in the U.S. and there's chance of which signals a possible recession in Mexico as well. So my question is, if you perform any stress scenario tests and what would be growth levels have you considered these stress scenarios? And what cost of risk levels does your model return to your different GDP scenarios? I have another question, but I'll ask you after this one.
Yes. We currently we run the stress test that we do with the regulator every year, not specifically for the recession. We do a stress regularly every year. And basically, we have modeled even 3% NPL that we have never seen ever. Now that we are expecting that level and a 0 growth, that is our worst-case scenario up to now. And we are still very profitable in the stress test. That's basically…
Sorry, this represent actual level what GDP growth in place -- I'm sorry. I didn't catch it.
Implies 0 GDP growth. Okay. Okay. Yes, it's a model, obviously to stress the balance and to have the results for the authorities. Of course, it's not directly related. It's not a linear correlation between the growth. And as you saw during the pandemic, the growth of the GDP was minus 8%, and we didn't have NPLs above 2%. This and the stress test has that.
Yes, of course, I understand.
Yes. In the 2008 crisis, we did experience more in the north and the NPL ratio reached a 2.3%. 2.8%, sorry.
2.8%.
Yes, yes.
In the 2008. That used to be our previous stress test, the 2008, 2009 crisis, where we reached 2.8% as our maximum ever NPL ratio for Banregio, for Regional.
Of course. And my second question is on NIM and changing the subject a little bit. So we noticed that while your quarterly net interest margin expanded 24 basis points sequentially, your NIM and loans contracted 2 basis points in the quarter. Could you please expand on quarter of this evolution?
As we mentioned in the call, the NIM is affected by -- impacted by the repo business. There are assets that are paying less than the loans -- and the proportion of the -- well, the securities investment, that is the repo business, the contract part of the repo business has grown from 8% in the share of the productive assets to 16%, then that is not helping to grow the NIM as fast as we could like. And also, there is also an effect on the repricing. The repricing of the loans takes sometimes longer than some of the deposits. Then most of the time deposits are repricing very fast.
Of course, just a clarification, you still -- I mean my question was on NIM and loans, but you mentioned the repo business. You [ mentioned ] repos on the NIM and loans? Or are you referring to the consolidated net interest margin?
No, we don't include -- sorry, we don't include the repos on the NIM of total loans.
Okay. So I'm sorry, just expanding the question. So this would imply that your sensitivities is not positive through the rate hikes?
No. It's slower. As I mentioned, the cost of -- and you can see in the income statement, the interest spend cost increased. Basically, we are growing in all the segments, but in part, we are growing in the government segment, where we pay higher rates than -- that's part of the explanation. And as I mentioned, the repricing of the loans is not automatically. It could take even 2 months because it's on the average balance, on the average tier of the last month, then it could take up to 2 months to reprice. We will make an analysis with the CNBV data that is public and send you the impact.
Also remember that NIM that you're looking at is last 12 months?
Yes.
So it takes 1 year to reprice with the new rate?
Yes. Let's do the calculation with the monthly one and the quarterly one. Or in the presentation, we can update the presentation, please? We will do it with the quarterly one because the last 12 months is not always capturing the reality at this moment.
Sure. Okay. And I'm sorry to expand that much but I haven't. And the last question, very quick, and it's very precise. I mean it's very punctual. It's on Hey Banco. So, yes. In your presentation, you mentioned that the net commission income coming from Hey Payments already amounted MXN 299 million on a year-to-date basis. But if we compare this to the cards and merchant fees line in the P&L for the group, you only reported MXN 282 million year-to-date as of June. So my question is in which line do you consider this net commission income of Hey payments? And why is it lower than what you report from the P&L?
Yes. The -- you're seeing commission and fees in Page 4. Under the 373, if I understood right the question. Or in the quarterly report. It's on the page -- let -- give me a sec.
I think it's on Page 8 now.
In the Page 8. Yes. In the Page 8, some of cards and merchant acquiring business that is basically Hey Pago. But I couldn't really understand where is the difference? Can you repeat?
Yes, no, no, it's just that in the presentation.
The short answer is in [ Page 8 ].
Just that in the presentation, then you have MXN 299 million. You say that the income from Hey payment is MXN 299 million. I was wondering if we should find that in the cars and merchant fees. And in that case, almost all of it of that line would be Hey payments, right?
Yes. Yes, that's correct.
Our next question comes from Jose Cuenca.
Just wanted to follow up on asset quality. I didn't understand really well the greatest figure that was reported. We were looking at write-offs during the last 5 years. They have represented something around 0.12, more or less, of gross loans. But this quarter, write-offs as a percentage of gross loans were something around 0.26%, a little bit higher than the average historical leverage. So we just wanted -- so just wanted to understand what led to higher write-offs and if possible, get some sense of what segments of your loan book -- from which segments of your loan book is this -- are these higher write-ups coming from?
Thank you to you, Jose. In -- if you see in the Page 11, basically the highest amount, it comes, well, in the average from commercial. Basically, it's along that reach a single loan that MXN 120 million that we wrote off. It has been in the NPLs for the last 18 months. And finally, it reached 540 days that we have as a policy to write-off after complying with all the regulation of demonstrating the non-viability to collect. That's the main explanation. It's not that the whole segment of wholesale, it's impacted. It was just one single loan by the size it impacted on the quarter results.
Okay. Just couldn't hear. What is your policy for write-offs? 130 days, sorry, if I heard correctly?
No. 18 months, 18 months. 540 days.
Our next question comes from Marlon Medina.
Manuel and Enrique, couple of follow-ups here on my side. And the first one on consolidated loan growth. And here, you have mentioned, I think that not a material impact in the short term, but some deceleration coming from the U.S. slowdown in the future. But at the same time, you also mentioned other opportunities that you could tap like nearshoring, growing more in Mexico City. So just wanted to get a sense on what would be a reasonable assumption for 2023 and the coming years considering everything. Like should loan growth decelerate, accelerate? We see double digits in 2023? Or what are your thoughts here for the coming years?
And the second follow-up is on expenses. I know you mentioned your developers should stay around the current levels or the current size, and this should help. But I also wanted to get a sense of further alliance like what portion of your expenses are linked to inflation. And in general, what do you expect for total D&A going forward?
Yes. I will start with the second question in terms of expenses. We -- as Manuel mentioned in the beginning, in terms of general expenses, the growth is based on marketing, marketing expenses year-on-year on the comparison. And we don't expect it to grow above. Also, Manuel already mentioned on the Neha's question that right now, we don't feel comfortable doubling or increasing our marketing expense. And also, all the transactional expense that is related to the Hey Pago and credit card and debit cards because it's all the card transactions. The expense is reported under the expense and the income in commissions.
Then in terms of other employees and benefits, all the lines are growing around 14%, 15%. You asked specifically what proportion of inflation is impacting. It is around the 7% directly to the payroll. Then the other 7% to the average of 14%, 15% in the increase of employees. Our new employees, mainly on the call center and collections. Due to the increase of customers, we have -- we increased that teams. In terms of loan growth, we are still -- between the 8% to 12%, we feel comfortable. We believe the [ double ] digit growth is achievable. As Jorge said, even though we have some shades of recession, also we see some opportunities in terms of nearshoring and the growth that the foreign investment is increasing in the north and in the center, mainly in the north. And industrial parks growth that is part of our business.
Then we feel comfortable that we can manage to grow 8% to 10%. And to maintain the smaller portfolios, but with better margins like auto, mortgage, and small and medium businesses, more than 10% of growth. Our challenge is to grow the wholesale business. Yes, we feel comfortable with the official guidance is 8% to 12%. Yes. Right now, we don't have an official guidance for 2023, but we believe we can maintain the same pace for the next year if you mix all these different macro situations.
Our next question comes from Gilberto Garcia.
I had a couple of questions on Hey's loan growth. You have been growing at about MXN 1 billion per quarter over the last few quarters. Is this a pace that you're comfortable with? Or do you expect to accelerate in the coming quarters? And also the expansion in Hey has been faster than the overall consumer books, which implies that you are decreasing the consumer portfolio at the legacy bank. Have you stopped origination there? Are you transferring clients from the legacy bank to Hey? What can you comment on that trend?
Yes. The -- I will be by parts -- answering by parts. By the last question, we transferred one business, but not a customer, a channel, one channel. We transfer the channel of auto dealerships. Auto dealerships that used to be in Banregio brand, but we didn't transfer a single customer. It's just the new origination on that channel that was transferred. And as Manuel mentioned, we are improving the whole process. Then I will shift to the second part of the question. Right now, we are growing, as you mentioned, at MXN 1 billion per quarter, and we expect to continue that rate and that pace for this year. But for the next year, once we finish to improve these processes for mortgage and for auto, we expect to grow at MXN 2 billion per quarter.
You are right. It's a little bit of offsetting. We didn't close the product in Banregio. In fact, we are doing a lot of campaigns with cross-selling to our current base on Banregio. But again, the channel was moved to Hey. And it's only that channel that was changed. I don't know if both questions were answered.
Next question comes from Carlos Legarreta.
Within Hey, I mean, obviously, growth is going very well. But I was surprised to see a decline in NPS. So I was wondering if you'd talk about what is behind this. And secondly, about Hey Tech, who are your potential customers? And what more or less is the size of your addressable market?
For the first question, as I said, the NPS decreased this quarter because of -- we identified a vulnerability in some processes, and we change them broadly resulting sadly in customer service that we didn't expect. We changed things rapidly again. And but sadly, the effect was already there. So we -- that's part of the explanation, we still are investing on the experience to be as good as we want it to be. I think we're pretty close and everything. We're pretty much there. I think this year, this following 2 quarters, we are focusing on customer service and customer experience, being able to do a app, which is much more intuitive and much more easy to use. So that's going to be, I think, pretty well received.
And then on forward, I think we're going to be able to increase our marketing expense with much more confidence in being able to attract much more customers. So as we said, the customer acquisition is pretty good. The lifetime margin is pretty good. It's expanding. We have 14.3x lifetime value over tax. So definitely, we could hike right now, but we just don't want to at the moment we have in terms of experience that we are having. That said, when customers have only the digital channels, they are more -- no, not more responsible, but more aggressive in their comments and more aggressive in their comments and their reviews.
So we see that when they have a branch that we could go, we see that the NPS, it's much better. So definitely, the NPS is something that we think we're going to be able to hike again to the levels that we are aiming for. And that will resolve easily. In terms of the Banking as a Service platform, we cannot say how big is it going to be because we don't know the full scope. We'll see a lot of demand in nonfinancial players, but a lot of demand. Like there's 20 prospects that are knocking on our doors. We cannot serve 20 at the same time for sure. We're not going to be -- we have to be very selective. And for the financial institutions, the addressable market again, it is pretty big. I mean, at first, we're selling it to Banregio because Banregio has the same core business.
But next year, we're going to be able to do so for other core solutions like Temenos or SAP, which we have already talked to both of them and have received good retro on being able to connect our solution to their core and being able to sell that solution for others that run in their core banking solutions. So definitely, I cannot tell you the addressable market at the moment. But for sure, I think it's going to be pretty well received. And I think we are pretty well ahead on being able to produce a experience of auto service completely productive and paperless and producing pretty good results.
So I think -- I mean, it's pretty early for me to say how big the market is. I don't want to say how any objectives or any comments about it. But I think the demand will be big next year and on forward.
But your vision is to have, I guess, to become a provider not just the financial services, but as a platform now, including, of course, payments, but software. I mean, I imagine that's the vision that you guys have for this product, for this service?
Yes. So software as a service and business process outsourcing services. So for example, we have one prospect right now that is -- they want us to process and outsource their credit for SME customers. So the only thing they're looking for is our solution to assess the risk that they're taking, and they want for us to give service to that portfolio for collections and wholesale customer service. But the loans are in their book. They're -- and this is an institution that is one of the 500 biggest in U.S. So definitely, there's a lot of good clients out there. They're looking for good services.
They know that we have the technology. We are still developing it. We are investing in it, and we think we're going to be the ones that are going to be able to gather in the profit from the regulation that it's underway this -- at this moment. I think the regulation for Banking as a Service will provide a huge opportunity growth for those who are ready. And I think Hey Banco is at the forefront for sure.
Our next question comes from Brian Flores.
Just expanding on Gilberto's question here. So the potential clients for the technology segment, are there more on the front end, meaning the application? Or are there on the back end, as you said, maybe the risk engine, et cetera, just because I think his question was very good. And I just didn't capture the profile of the client that you're looking for. If you could give like maybe a short definition of what a client is looking for would be really helpful. And also complementing this, where would you book this revenue? Is it in fees? Where is it booked going forward?
Yes. So in Hey Controladora and in Hey Tech. So Hey Tech is going to be a subsidiary of Hey Controladora, and Hey Controladora is a subsidiary of Regional, which is a sister of Banregio [indiscernible] whatever.
So the software. So there's 2 parts of this. Software as a Service and the banking business process outsourcing, right? So the Software as a Service is the mobile app, the web electronic banking, the text of service, the onboarding service, the cross-selling. And in terms of the processes, we're talking about business intelligence outsourcing, the credit risk assessing, fraud mitigation. So much more on the side of value-added, right? So in terms of the front part of the equation and in terms of high-value processes -- and the thing is that we are aiming to -- the pricing will depend on our cross-selling capabilities, right?
So we're -- we are aiming to charge a fee to have the platform. And then on -- our fees will depend on our ability to cross-sell more products. So in a sense, we're aligning with every -- with any institution. So we have both the same drivers. In terms of where we are doing that business, as I said, is completely out of the financial group. So it is a fee service business wholly, right. The owner of the technology is still -- it's going to be still Hey Banco, but Hey Tech is going to be -- has a -- the rights to sell and [ execute ] the technology for others.
What Hey Banco will have is that technology for free, right? So as they're -- Hey Bank with the owner of the technology. Hey Banco has no charge for that technology, and Hey Tech has the ability to have the profit from exploiting and selling and executing those transactions. So Hey Banco's will have the best cost because they don't have a cost, right? So Hey Banco don't has any costs whatsoever. And that obviously permits for Hey Banco to continue to do a full digital attraction for customers because when you have a charge on what you do, you cannot -- I mean if one bank comes here and wants to buy the solution and wants to do so for a digital bank, they're going to have to put a lot of money on the table because that's not going to be for them, right?
So it's not going to be easy for those to achieve profitability, having a cost per account and having to pay for every product that the customers vie. So in terms of pricing, obviously, Hey Banco will remain with the best edge. And for those who buy the technology, they will have a very good price. But they need a good customer base, as Banregio has to be able to profit from this technology investment.
There are no more questions. On behalf of our senior management, I would like to thank everyone for joining the call. We look forward to speaking with many of you in the coming weeks. If additional questions arise, please do not hesitate to reach Alejandro on our Investor Relations team. Thank you for your interest in Regional, and have a good day.
Thank you very much. I appreciate everyone's participation. Any further questions, please let us know. Thank you.