Regional SAB de CV
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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Regional's Second Quarter 2023 Earnings Conference Call. Today, we are joined by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramírez, Chief Financial Officer; and Alejandro Lobeira, Head of Strategy and Planning and Investor Relations Officer. [Operator Instructions] Please be advised that today's conference is being recorded.
I will now hand the conference over to your speaker today, Manuel Rivero Zambrano. Thank you, and please go ahead.
Good morning, everyone. I hope you and your families are healthy and well. We appreciate everyone's participation today.
We're very satisfied with Regional's second quarter results as we believe we are harnessing the opportunities offered by Mexico's economic expansion as nearshoring and demographic dividend present us with the unique window of opportunity to achieve sustainable growth further increase our operating leverage and boost our profitability. As you know, Regional is well positioned to penetrate from the growth as our geographic footprint, superior capabilities, extraordinary service and knowledge of the market are continued to yield an outstanding performance across all businesses and segments, resulting in an increase of our expanded financial margin of 30% and a net income of 13%.
The continued growth of the economy has translated in an overall credit demand and together with our strategies a gain in market share, resulting in an increase of the individuals portfolio of 39% and the SME portfolio by 22% year-on-year. We continue growing the number of clients reaching 1.2 million as we have been able to serve them with more products resulting in the growth of our cross-selling index. This has resulted in an increase in our nonfinancial income by 20% with insurance and income surging 27%; trust business, 28%; cards and merchant fees income by 16%; as well as an incrementing the core deposits by 20%. Our efficiency ratio has improved to 42.6%. This expense growth of 16% is mainly related to the inflation as well as Banregio's infrastructure expansion plan as well as the staff of Hey Banco. Going forward, we expect expenses to reduce to a low-teen number further enhancing our profitability.
Now let's move to the performance of our individual platforms. We're very satisfied with Banregio's overall performance as we continue to consolidate our geographic expansion and continue expanding our commercial infrastructure without compromising our consumer experience and profitability. This has resulted in an increase in the number of clients by 8% and an expansion of core deposits by 20%, as well as growth in consumer usage reflected in a surge of credit and debit card transactions by 11% and 17%, respectively. Furthermore, we have intensified our cross-selling strategies, growing our consumer loan portfolio by 22% and the commercial loan portfolio about [ 12% ]. As we continue to gain market share, we remain confident in our commercial infrastructure expansion plan that aims not only to create simple yet effective branches but also to grow deposits, lower the cost of funds and achieve higher margins. The bank aims to achieve this by focusing on quality customers and cross-selling credits.
The bank's biggest differentiator is the quality of service, which is reflected in the net [indiscernible] score of 75, which is the highest in the industry by far. Banregio's unique 360-degree strategy allows a bank, the same bank to oversee both business and individual needs furthering and deepening the tailor need solutions for clients.
In terms of our financial results, Banregio's financial margin had an increase of 27% with a NIM of 6%, an expansion of 50 basis points year-on-year. Operating expenses grew 9%, achieving an efficiency ratio of 37.1%. We expect the expansion plan to maintain expense growth for Banregio's between 9% and 12%. Moving forward, we expect NIM to remain resilient in the upcoming quarters due to the improved loan mix with the growth of SME and consumer loans across Banregio as well as an optimized funding mix by reducing high-cost deposits, nearly government checking accounts and finally, maximizing the securities portfolio yield.
We had an excellent performance in asset quality, maintaining an NPL of 1.3% and a cost of risk at 0.5%. We expect these levels of credit quality to and risk of credit to continue during the next quarters. Banregio continues to have strong credit demand due to the positive effects of reassuring, and we expect this trend to continue and show its full effect during the next years. Up to now, we have been growing in loans for home and industrial developers manufacturing, agri business services and as well as small and medium company loans.
Banregio has increased its penetration in the digital customers both in app as well as web-based electronic banking, in the later part of the year, we'll continue to roll out the program that incorporates the use of Hey Banco's technology within our Banregio's products. This integration will enable Banregio's customers to utilize a single app for both individual and business requirements. This approach will provide faster access to Banregio's products, enhanced features and dedicated customer service assistance. Additionally, this strategy will aid in an increase of our cross-selling index as well as improving our Net Promoter Score.
Moving on to Hey Banco. We're very excited to announce a major development. On July 14, Grupo Financiero Banregio received the authorization from the Comisión Nacional Bancaria y de Valores to establish Hey Banco as a new banking institution. We expect to operate as an independent bank in the next 12 to 14 months. As you know, we distinguished ourselves by our sustainable growth culture, superior capabilities and customer experience that has resulted in a steady growth and outperforming profitability. For this manner, we have put forward initiatives that translate to a lower number of low-value clients and focusing even more on quality customers, particularly employees and formal and experienced small business. We have an increased emphasis on client usage, higher cross-selling indexes and lower customer churn. This refined strategy promised enhanced profitability as it translates to lower customer acquisition costs, lower operating costs and higher volume of loans and deposits, such as increasing the customer lifetime value.
We aim to maintain a healthy depositor base and comply with our regulations and exceed in AML practices as we implemented our latest machine learning model into detecting possible fraudulent accounts. We canceled more than 70,000 accounts. And going forward, we don't expect the sharp declines as we are running this model now on a regular basis. Despite the decrease in active clients, our consumer engagement has grown impressively. We had an increase in debit and credit transactions by 70% and 142% year-on-year. We are aiming to finish the year with 750,000 clients as we have caught the majority of ads on digital platforms as our cost of ads related to digital banks have risen with the competitive landscape and then brings low and it brings very low income level accounts. We are convinced that our client growth will be more productive with its organic and motivated by our content creation as well as below the line initiatives as we have rolled out a more attractive referral program and Hey Coins, which aims to incentivize product usage and activations through gifts and gamification activities.
Due to the growth of our loan book, financial margin has shown an impressive growth of 99%, reaching MXN 191 million and a NIM of 7.2%. Optimized market expenses have led to a decrease in acquisition cost of MXN 99, yield an impressive lifetime value over cost of acquisition of 58% and an NPS of 65. We expect the CAD to lower even in the next months. While total expenses grew 56%, the efficiency ratio improved to 80%. We maintained our efficiency initiatives that will lead to lesser growth costs during the next quarters improving our cost-to-income ratio even further.
As we continue to expand, we've secured our position as a sixth larger merchant acquiring nationwide. Hey Pago continues growing at an accelerated pace with an average monthly billing almost reaching MXN 10,000 million and a 15% year-on-year increase in POS -- in the number of POS. Hey Media, on the other hand, has not only expanded but deepen in the connection with our communities massing a formal community over 1.4 million followers across all platforms. More impressingly, these followers are actively engaging, leading to 1.7 million monthly interactions.
Looking ahead, we have exciting new features lineup, adding a membership with cost to access the refer, the rewards program and adding benefits, helping to increase our fee income. We're also proud to announce the rollout of [ Hey FPT ] and [ AL power chatbot ] designed to provide customer with information, financial advisory, loan quotes and unparalleled client services and assistance. This aligns with our goal of controlling services team growth, automating repetitive tasks and enhancing customer service and interactions and further our commitment to digitalization.
As for guidance, for Regional, we maintain the one provided on the January conference call. As we fortunately had, we remain committed to referring our operations and exploring new opportunities across all our entities. Always driving for a superior customer service and shareholder value.
Thank you very much. We appreciate any questions.
[Operator Instructions] Our first question comes from Ernesto Gabilondo.
Manuel, Enrique and Alex. Thanks for the opportunity to ask questions. My first one is on your guidance expectations. You mentioned you are maintaining your guidance. But when looking to the loan growth, it has been behaving above your current guidance of 10% to 15%. So just wondering if we could expect the high end of the range? And also in terms of earnings growth, we can also expect the high end. And also, if you are willing to pay another 25% ordinary dividend payout ratio in the second half?
Then my second question is on your NIMs expectations. We saw NIMs didn't expand quarter-over-quarter, although we saw an important NII expansion. So can you elaborate on what limited the NIM expansion? Was it related to an increase in term deposits? And maybe, well, you're having higher funding costs today, but maybe next year on an easing cycle, we can expect our funding costs? And also, how would be Hey's role next year related on the strategy to protect the consolidated NIM?
Thank you, Ernesto. Thank you for your questions. I didn't hear the second one in terms of the guidance. You said net income, right?
Loan growth and net income, if we can expect the high end?
So yes, we do expect the high end. And as for dividend, we've already talked to the board about it. And it seems like if everything is going to place the -- there is going to be a proposal from management to the board in the next meeting. So we will definitely give you more color as we continue on the development of these initiatives.
Excellent. And can we expect it for the last quarter or?
Yes, I think it will be at the end of the year. Yes, yes.
And for NIM expectations, we mainly the part that didn't -- hinder that the growth in this quarter was the securities investment NIMs that we have at the moment. So as there's a good amount of it that matures in the short term, those are going to be repriced at larger -- at better rates, so providing further NIM in the upcoming months.
Then at what we're seeing in the loan mix going forward, we see a better loan mix on -- by our cross-selling strategies on consumer loans and individuals and definitely small businesses. And for sure, that's been able to create an expansion of the NIM. And we think that, that's a trend that will continue going forward.
And for the next year?
Yes. So for next year, definitely, Hey Banco will continue to expand but we're more interested in growing auto loans and SME loans in that sense, we don't expect a huge increase, right? So we do expect a good increase in terms of NIM, but not -- we're not aiming to increment our consumer loan book by that much. As we said already that we stopped advertising on the open market for the credit card as the first product with Hey Banco, so in that sense, we will see a good increase, but not definitely -- not to that extent, right? So yes.
And at a consolidated level, at regional level, considering that it is likely to have an easing cycle next year, how should we expect about NIM should be stable?
Well, as you know, we have a sensibility, Ernesto. And we are not -- if your question is about we are hedging on the opposite, we are not hedging. We have increased our fixed rate portfolio, and we have, obviously, the cost 0 demand deposits, then we expect it to reduce as the rates reduce and at the pace that we reprice our assets and liabilities. But in a specific strategy in terms of hedging or buying any type of interest rate swap, we are not pursuing right now. We right now only have the interest rate swaps for mortgage, and it's a very small portion of the whole loan book.
And yes sensitivity, Ernesto, if you remember, is on the NIM of total loans, not total NIM. Obviously, as demand start growing, we can move the -- our repo business, reduce our repo business and change it to the loan mix, and that would improve then the total NIM, but the NIM of total loans is, as Enrique mentioned, is sensitive to the rate.
That's important because as the repo business has increased to close to MXN 60 billion. And as Manuel mentioned, we are renewing every month, the proportion that is -- that finish, we are renewing at higher rates that will be a natural protection for the next year. It will be a protection of the NIM as right now is avoiding that we capture more expansion of the NIM. I don't know if I was clear.
Yes. No, I just want to just double check for next year, if you're expecting NIMs to be stable at a consolidated level? I understand that Banregio could suffer Hey can help to have modest expansion. So at the end, should we expect stable NIMs at a consolidated level?
Yes.
Okay. Perfect. Understood. And just a last question, may I on the digital bank. You said you have obtained a banking license from the regulator. So I don't know if I heard correctly that it should take you like 12, 14 months to pass everything to the digital bank. I just wanted to check on that. And also, as you mentioned, Hey reported lower sequential active users but also you are seeing a strong engagement and a nice improvement in the acquisition cost. So would you continue to see that Hey Bank can deliver MXN 100 million this year? And how much are you targeting for the next years?
In terms of the banking license, we have to request for many approvals. We will start next week with all the protocols and it's not only that we have to get the approval and certification for the initiation of operations. That's the more important one, but we have to get approval from Hey Banco de Mexico to have this pay, all the alliances that we have we don't and 7/11. There are many, many approvals that we have to do in parallel and especially the approval to move the customers from Banregio to Hey Banco, from Banco Regional to Hey Banco. That's why we expect around 12 months all the approvals that we have to get from different authorities. That's in terms of the timing.
In terms of the Hey Banco strategy. Yes, we are aiming for a lower number of customers, but more profitable and with a lower cost of acquisition, we have reduced almost to 0 all the marketing expenses or the advertisement expenses to be more precise. And that's what drives a lower cost of acquisition. We are implementing a very attractive referral programs in order to increase the referral new customers or referred new customers.
Excellent. And just to the numbers that you have mentioned in the past that this year could be delivering MXN 100 million next year. I don't know. Are you targeting a number or?
For this year, we see it challenging, the MXN 100 million. We have had more expenses and more provisions than originally budgeted but it still will be a positive number. Around MXN 50 million.
Okay. Perfect. And for the next couple of years, are you targeting an amount of?
Not yet. Around MXN 200 million for '24.
Next question comes from Olavo Arthuzo.
Manuel, Enrique, Alejandro. I wanted to understand a little bit more about the consumer loans of the bank on a consolidated basis. Because this quarter, the growth rate was of 7% at quarter if I'm not wrong. And I just wanted to understand how much responsible the digital bank -- I mean Hey Banco was in this performance? And then what could we expect as growth rate for this portfolio this year and also for 2024?
And my second question here. I also wanted to understand the provisioning policy going forward because considering in light of this expansion consumer loans, the high cost of risk was not enough to maintain the coverage ratio stable this quarter. So my second question here is, should we expect this coverage to continue decreasing given the guidance for the cost of risk between 0.7 and 0.9? Or this dynamic could put some pressure on the guidance for the cost of risk at the bank and at the upper level?
In terms of the dynamics, we will see lower growth of consumer loans specifically on credit cards for the next quarters. Banregio will maintain the pace around 20% growth but in Hey Banco, as you saw, we have close to 200%, 179% increase. In the consumer side, that is what is driving the provisions up. And we decided to close the criteria -- the adoption criteria or the acceptance criteria in our credit scoring models. We are only accepting right now employees that we have demonstrated that there are employees with experience in the credit growth. And in time, we will see an improvement on the credit quality of the Hey Banco digital initiative customers and also a very similar growth to Banregio, both of them around 20% year-on-year on the next quarters. And that should drive down the provisions not for the next quarter but for the last quarter of the year and the next full '24.
In terms of the whole Regional guidance. We will maintain it in 0.7, 0.9 because even is an increase on provisions for consumers considering the size -- the relative size, it doesn't move the whole cost of risk. And as I mentioned, it will improve in the next 2 quarters.
Okay. That's perfect. But just a follow-up on Hey Banco. Very quick here. What drove the quarterly job in the number of active clients just to make the link here to the consumer loans? Because I just wanted to understand that this drop in the number of active clients here, it's more related to a first competition from some income banks or new comers or it was related to some other aspects like lowering the risk and be more selective, et cetera?
Yes. So more of the second. So in terms of the -- yes, so we installed a machine learning model in order to get fraudulent accounts out of the bank and we canceled 70,000 client accounts this quarter. So that's the main part of it. We don't expect that further, sharp declines as we are implementing them in a regular basis. And as well as we decreased our ad spending dramatically focusing on organic growth, this -- because the typical client that comes from the digital platforms, it's the income of those accounts are very small, and it's very difficult to loan with our quality risk that we are comfortable with. And in that sense, making an investment in ads doesn't work for us anymore. So as we are experiencing good organic growth, and we've been able to cross-sell more and more products to our existing customers.
As you can see, Hey Pro customers growing at a faster pace. And in that sense, that's what we're aiming for and being able to produce a more profitable with clients with substantial more income and being able to generate a very productive outcome for next year.
Next question comes from Ricardo Buchpiguel.
I have 2 questions here on my side, if I may. So first of all, the nearshore has clearly been helping Mexican banks grow the portfolio. So in the recent quarters, especially in the real estate development segment. But there are still some doubts whether we should see this effect more deeply in the other sectors and also in the following years. So if you were to take the nearshoring effect out of the equation, could you also please explain what would be the main drivers for loan growth in the following years? And how optimistic will it be with loan growth dynamics without this near-shoring effect?
And for a second question related to Hey, could also comment a little bit on the slight deterioration we saw in unit economics for the bank. So we saw a slightly lower [indiscernible] and higher cost to serve, even though you are growing a little bit less your client base. So can you explain a little bit more what drove that?
And finally, if you could also provide more color on the levels of NPLs for Hey, it would also be helpful.
In terms of -- so you're asking what would be the loan growth without near shoring...
I wanted to understand a little bit more about the drivers of loan growth excluding the near shoring, what would be drivers for loan growth in the following years, not taking this effect into consideration?
Yes. So I think one of the moments that we have in the economy when Trump got into office and then [indiscernible] came in. I think in that environment, we saw a quite decrease on foreign direct investment and loans in the industry did definitely lower. For us, we were doing around 10%. So in that sense, I think the local market would definitely need more demand for loans. As there a very positive trends in terms of a demographic dividend, which obviously translates into a more dynamic local markets, right? So in that sense, I think it would be probably around 10%.
But obviously, it's hard to tell in terms of -- I mean, this NAFTA started in 1994, foreign direct investment to Mexico has been one of the top 10 worldwide. Our home state in [indiscernible] is obviously the second city in Mexico to get more investment. So in that sense, it's difficult to get that out of the question, right? So as we're seeing the consumer trends in the U.S. and we're seeing the industrial production in the U.S. and how it's evolving.
And we see how that's impacting the demand here for many consumer goods and services and obviously, for manufacturing and obviously, you can see that in the unemployment index, which is pretty low and obviously creates more usage of loans, consumer loans, et cetera, right? So in that sense, it's difficult to get that part of the equation. So in that sense, I think I hopefully answered your question.
No, I understand. It makes sense. And also I believe that in terms of a decrease in interest rate also kind of help a little bit interest rate or loan growth, at least in the following couple of years or not?
No, definitely. For sure, we think right now the rate credit growth and evolving in the next years as interest rates continue receding definitely we'll see more demand in loans. I don't think in consumer loans per se, but I think definitely on medium to large companies, which are more correlated to other increments in the interest rates. So consumer loans are not that co-related.
And in terms of the unit economics and NPLs of Hey?
NPLs? The unit economics in general, as you mentioned, we saw a decrease in the customer acquisition cost. A little bit of increase if we separate Hey individuals on the cost to serve. That is related more than the number of customers were reduced more than an increase on expenses.
The other one that increases is the cost to serve in Hey Pago or Hey Payments basically is related to more payments to the services. We have outsourced the service and higher payments to the vendors. We have started remunerating and incentivizing some of the vendors, both in Hey Banco as well as in Banregio with fees to maintain the relationship, not to attract new POSs.
I don't know if there is -- in terms of NPLs is what I was talking, we have an increase of NPLs in credit card. The other 3 portfolios are really healthy, below even than Banregio. Auto is 0.5%, mortgage is 0%, 0% of past due loans or NPLs and a small and medium businesses is less than 1% is the bad credit card moved from 3.5% to 5%. That's what drives off the [indiscernible] Hey Banco from -- to [ 1.39 ], I guess I'm looking to the...
Yes. That's the reason. It's basically the credit card. As I mentioned in the previous question, all the efforts that we are doing to improve the quality of that portfolio from one side to collect, obviously, to collect all the -- more than 200% or close to 200% of increase of growth that brought also an increase in past due loans of the same -- of a similar proportion.
Our next question comes from Yuri Fernandes.
I would like to follow up on Ernesto's question regarding margins. I understood if I'm not wrong, that you're calling for maybe stable consolidated NIMs in 2024, which maybe the margins at the bank level decreasing, but your investment yield like repos kind of offsetting this. So I just would like to confirm if that is a message, if we should expect NII to grow mostly in line into the loan growth for the next year? And also the sensitivity, like the classic 100 bps sensitivity. I think like in the previous calls, this was 50 bps, 60 bps. So just confirming where is this sensitivity now? So that's the first question, like basically margins outlook.
And I have a second one regarding cost of risk. You already discussed a lot, Hey Banco increasing cost of risk but we also noted an increase in Stage 2. In no Stage 2, they are still performing, maybe a little bit more risky kind of loan, but for sure not a Stage 3, yet. What we saw, I guess, a 15% quarter-over-quarter increase on this bucket. So can you clarify what are those Stage 3 loans? If there is a risk to Stage 2 loans eventually becoming a Stage 3? Because your message on the guidance, it seems pretty sound, like remain, which is 0.7% to 0.9%. But I just would like to double check if this Stage 2 could not be a risk in the coming quarters?
Yes. In terms of margins, yes, the sensibility is similar. It's 15, as the fixed rate loans increased like mortgage, auto and now the financial leasing. It will vary a little bit lower because we will have more fixed rates that will benefit from a down reduction on the policy rate.
But remember, Yuri, that is on the NIM of total loans. It's not the total NIM. That sensitivity that Enrique is talking about.
The -- as the investment securities portfolio is more than a third, it's a large proportion of the whole assets of the total assets that should be considered, and that's why we say as a consolidated level, we should expect a very stable NIM for the next year and answering directly to your question, yes, should grow the net interest income in line with the growth of the loans. That -- and also will depend on the rates, on the pace of the reduction of the policy rate. I don't know if I was clear enough.
Super clear, Enrique. Also I think Manuel. And regarding Stage 2, what is -- I know it's still very small, but it was something that...
Yes. As I mentioned, credit cards in Hey is increasing Stage 3. And in the commercial Stage 2 is from Banregio's, some medium to large customers. We don't expect them to go all the way to Stage 3. Obviously, the team, the collections team is working with them in any type of solution then we are not worried about that. We are working on that. But as you can see, the Stage 2 came mainly from commercial more than consumers, the growth in the last quarter.
Can you remind us, Enrique, what is the percentage of your commercial book that has collaterals?
Any type of collateral is 96%. Real estate collateral is 54% of the loan book from commercial.
Next question comes from Cuenca Gonzalez.
Just 2 quick follow-ups here. With regards to the last question in terms of what was being described in Stage 2. If you could just comment a little bit more when we talk about the commercial, what kind of sectors or industries are using this trend of migrating to Stage 2? If you could provide a little bit of additional color on that.
And my second question is just to confirm, from what I understood on Hey Banco, it seems that cost of risk would be relatively under control, under -- over a relatively short period of time, if I understood correctly. But I just wanted to confirm, some time horizon where we could expect more stable cost-to-income ratio for Hey and more stable provision or cost of risk.
In terms of the Stage 2, there is not any specific sector is in the same proportion of all the sectors as we have a higher proportion in construction and real estate loans the larger number are in there, but there are also some manufacturing and services then is -- is not really a sector...
Similar to the proportion of our portfolio. It's nothing...
And are very specific cases like someone that has a problem with insurance and there are specific cases, not a sector risk or neither a region. They are not -- neither concentrated in a region.
In terms of Hey Banco both cost of risk, provisions and then the cost-to-income efficiency ratio. In terms of provisions, we could see a more stable quarter until the last quarter of the year. The next quarter, we will be still high as we are -- have you see the trend? But as the new vintages from April are very clean and very high-quality vintages. Then for the last quarter and for the whole of next year, we will see a lower and stable cost of risk for Hey.
In terms of cost to income, as we are, as Manuel mentioned, on the -- we are doing some initiatives to maintain the cost in Hey not to increase it more than we should expect an improvement quarter-by-quarter as we expect to increase the income and maintain the cost and expenses.
Next question comes from [indiscernible].
My question is around the different levels of loan growth we see in different regions. So when we hear about the commentary on your showing in the media, what we frequently read is how you and your [ Monitory ] are benefiting a lot? But when we see our core wholesale loan book, the growth in Mexico City and other regions has been faster than the loan book growth we see in [indiscernible]. So what are the different trends and demand drivers you're seeing for credit in different regions?
And I have a second question which, maybe I can get after this.
Yes. So -- we, in the last 12 months, we experienced more loan growth in [indiscernible] than anywhere else. And right now, we're seeing more on other regions, for example, the [indiscernible] and other parts of the Northwest. And Mexico [ CD ] finally, we've seen a development in terms of their economic growth. So we've seen that we're regaining growth in that region in that sense, that's where we see -- you see a more dynamic growth. So I wouldn't say that it's because of the impact on nearshoring under -- on a region basis. So in that sense, it depends on last year's growth tool as well.
I think going forward, I think -- obviously, the North and the [indiscernible] part will be definitely more attracting more and more foreign direct investment than the central part of Mexico, right? So -- and obviously, tourism in some places, which definitely is one of our main industry. So definitely, there is some aspects in the South as well. For short, near shoring, will be more prominent on North, Northeast and [indiscernible] part.
Understood. So the contribution only on to the portfolio in both the retail and wholesale segments. So in the next, let's say, near term, 3 to 5 years, do you expect any change to the portfolio composition, including, let's say, excluding the impact of Hey because Hey is coming from middle cities ?
No, I think the proportions would be similar there right now in the next, I think, 12 to 24 months.
Got it. My second question is around a bit more long term, if we see, I think for the past 3, 4 quarters, we've been seeing that the -- the segments of the loan book, which used to be smaller, are growing at a faster rate, like consumer loans, for example. So as we see in terms of mix, value on a consolidated basis, where would you -- where would you the core wholesale loan business trend in the next few years? And if you put -- and still these are relatively smaller segments that are becoming bigger, if you could also let us know how the underwriting takes place for these kind of [indiscernible] because of the different risk profile and what kind of risk calls you take? And where do your models fitting over here? That will be helpful. That's my last question.
Well, definitely, you've seen an increment on consumer loans. We looked at it at loans for individuals, which are mortgages, auto and consumer loans. And well, it definitely is a fact on focusing on cross-selling rather than going for open market strategies, which differentiate our NPL ratio compared to that of the system. So that's our main objective and to continue doing it. So it translates to good growth in terms of being able to do it in a profitable manner. So we're taking advantage of our depositive base. So I think that's the main aspect of the strategy, and this obviously translates into a more clean and lean operation and definitely, we're very happy for the development so far.
And we're not aiming to grow outside of our risk tolerance. As you know, we are -- in Mexico, there's a good need to go -- to have collectors if you want to go to a lower income and more riskier loans in terms of consumer credit. So those are 2 segments that we're not aiming to do so. So in that sense, the same orientation of quality as you can see in other portfolios, that's our aim in the consumer and the individual parts.
So we're aiming to do a relationship for the long term. We are looking to lower our churn. And in that sense, we're aiming to do a long-term approach and strategy and be able to do it in a very steady manner.
And just if I could follow up on a very small detail on that. So these new -- I mean, these consumer loans versus the wholesale loans. Would the fee income profit of these loans be any different when you write a new loan, when you disburse a new loan or over the course of the tenure? How would the fee income propel off these 2 compared with each other?
How the fees would relate?
Yes, the processing fee of a new loan, we write or over the course of late payment charges, everything put together, would we expect the traditional book to have higher fee income for the loans or would the ratio be higher for the consumer loans?
I didn't get the question, sorry.
As the loan book changes to more consumer loans, should we expect higher fee income? Or should we expect to be same.
Yes. Yes. Yes. Sorry, sorry, sorry.
Sorry. Finally loans have higher fees.
Understood. It's very helpful. Congrats on a strong quarter and all the best.
Our next question comes from Ananth Bhavani.
My first question is around Hey Banco client number. Now while we reduced the client by 70,000 on this new number, what is the eventual goal? We spoke about 1 million clients about 3, 4 quarters ago. So what is the new kind of target in terms of number of clients on Hey over, let's say, next 3, 4 quarters?
Yes, we -- as we said, we're going to go for 750,000 at the end of this year. We'll definitely reach the 1 million mark at the beginning of next year.
Okay. And the accounts that were discontinued. Can you give us a sense of how much credit cost came from those accounts?
I don't have any specific number at the moment.
Okay. But any ballpark figure as to how much we had to write down as we close those accounts? Were there any loans given to those accounts?
No. Well, those accounts. We canceled, didn't have any loans on them. So they just had deposits on them, very low deposits.
So we didn't -- we didn't have to under -- yes.
No, it's not related to the credit card issue -- is the 70,000 accounts that were canceled basically, they didn't finish all the process of identification, the fully verification and identification, identity verification, sorry and they were potentially being used for other purposes.
So we don't loan if you don't have a biometric authentication with the national...
Election.
Election cards. So you definitely need another level. Those accounts that we canceled where Level 2 accounts that didn't have a lot of deposits on them. So that's the only thing that they were.
And about Hey Banco's separation from the parent. At this point in time, how are you thinking about it? Would it be a spin-off with shares being given to existing shareholders? Or would it be in some other way? What is the thought process?
So yes, right now, we're focusing on getting the license up and running. And what it does is going to be under the umbrella of the financial group, which is a company of Regional. So Hey Banco would be under the umbrella of [indiscernible] is under Regional. If Hey Banco continues growing at a faster pace and continues development in a well manner, and it gains the necessity to -- if it gains a necessity to need more capital, we will definitely look to the idea of getting out of [indiscernible], Banregio, Hey Banco and put it in place in order to allow that spin offs to happen, right? So we're at -- not at the moment at the time. So the plans for right now, our aim to make Hey Banco up and running under Banregio Grupo [indiscernible] umbrella. And for that is our objective in the short term.
Got it. And one last question, if I may. You had some plans to sell the technology that you developed for Hey Banco to other banks and other financial institutions. Any update around that? That's my last question.
Yes. So what our first client is going to be Banregio which for sure they're going to -- we're going to be able to profit from that relationship. But at that moment, the regulator has not allowed any Banking as a Service platform to happen. So we're waiting for that piece of regulation in order to continue developing. So we're -- as we're obviously on the same Grupo Financiero, we are able to do so. And obviously, that's going to be very productive in order to produce the solution even further.
Thank you, all the best.
Our next question comes from [indiscernible].
Just very quickly on competition in terms of the digital players. We believe that there's more players in the market like now, but not they have the issue bank renew. And you have new bank [indiscernible] the space as well. Do you see that competition in the past few months maybe have picked up? And has that had any impact first in terms of your [indiscernible] or in terms of your -- the quality of the customers that you're able to attract? Have you seen any changes in that regard because of competition?
Thank you, [indiscernible]. So definitely, we've seen a good fair competition. And it will depend on the product. I think the main differentiator that we have in Hey Bank is that we are multi-product, multi-segment, so in that sense, we're going to be more resilient in order to produce a profitability aspect in a per client basis compared to others for sure. So in that sense, we're aiming to do a more organic growth and not being dependent on platforms in order for that issue of more competition for the same search words not to impact our cost of acquisition, right? So that's -- that's our main objective as for right now to continue to produce the capabilities needed in order to produce -- and the strategy is needed in order to produce a more organic growth and being able to just don't care about how many people invest in ads in Google and Facebook, which right now seems a bit too crowded and for sure.
In the next 12 to 18 months, it's going to be much, much more, right? So you have [indiscernible] bank just starting in 12 months. And we now in the next -- at the beginning of next year. So definitely, they're going to be more focusing on ads, and we're going to be past that, right? So in that sense, we -- that's our objective. And in that sense, we don't think that the impact will be significant in the cost of acquisition.
Since 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 don't hesitate to reach out to Alejandro and our Investor Relations team. Thank you for your interest in Regional, and have a good day.
Thank you very much to everyone. Hope to see you soon. Thanks.