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Ladies and gentlemen, thank you for standing by and welcome to Regional's Third Quarter 2019 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Manuel Rivero, CEO of Banco Regional. Thank you, please go ahead.
Hello, and good morning. Welcome to our conference call for Regional's Third Quarter Results of 2019. Following, I will highlight the most relevant results and indicators. Our net income grew 33% and the NIM of total loans was 6.8%. The ROE and the ROA was 20.5% and 2.7%, respectively.
Our efficiency ratio was 42.7%. And as of growth, the total performing loans grew 17%, and the time deposits and the demand deposits grew 19% and 14% year-on-year, respectively. And as of risk, the nonperforming loans ratio was 1.6%, and the cost of risk last 12 months was 0.7%. As of August 2019, the capitalization ratio for Banco Regional was 13.3%.
In the income statement, we can see that the financial margins showed a 14% year-on-year growth. And total expense increased 12% year-on-year. The net income shows a 13 -- a 33% growth year-on-year. And the non-financial income as a whole grew 31% year-on-year. The nonfinancial income in terms of leasing, we grew 51% year-on-year, and insurance and FX fees increased 21% year-on-year. Commissions and fees grew 20%.
Following, I will highlight some financial indicators for our segments. In terms of our wholesale business segment, our year-on-year growth for demand deposits was 16%; time deposits, 30%; and the performing loan portfolio plus leasing was 18%. In terms of risk, the cost of risk was 0.4% and the NPL ratio on 0.8%. By region, we can see that Nuevo León grew its total loan portfolio 24%; Mexico City, 8%; Jalisco, 16%; and in total, the remaining locations 20%.
For retail banking segment, our SME loan portfolio grew 12%, and for the auto, consumer, and mortgage portfolio grew 27%, 34%, and 9%, respectively. SMEs demand and time deposits grew 17% and 40% year-on-year. Preferred banking time and demand deposits grew 14% and 8% year-on-year, respectively. And as of risk, cost of risk was 1.6%; and the SME NPL ratio was 4.5%; auto 1%; consumer 2.9%; and mortgage 2.0%. By region, Nuevo León grew 11%; Mexico City, 18%; Jalisco, 22%; and in total, the remaining locations grew 10%.
Thank you. I will appreciate any questions.
[Operator Instructions] Our first question comes from Ernesto Gabilondo from Bank of America.
Manuel and Enrique, congratulations on your result and thanks for the opportunity. My first question will be to know from your point of view how are you seeing the macroeconomic conditions in Mexico. I don't know if you think that the worst part is already behind and we should start to see gradual economic recovery in the next months. So how do you see a low interest rate environment in your business? You think this could help to improve the credit for the SME segment? And I don't know, if reaching that USMCA agreement, do you think it could improve business confidence and attract the requisite demand for CapEx. And then on my second question, your ROE reached a historical high of roughly 23% in this quarter. So [ just ] wanted to know your view on how you're seeing your sustainable ROE in the medium term?
Ernesto, thank you for your question. On the macro view, definitely I think the economy should remain around -- we don't think there's many drivers to get the economy pumped up in the short term -- probably a bit better. In that sense, we've been guiding a slower loan growth, slower loan growth for this year, probably, for the next quarter and for the next year. We do think we're going to be on low teens for next year. So we do think there's going to be a bit of weaker growth; probably a better GDP because of the base of this year. But in this sense, I think the economy should remain a bit weak.
In terms of -- in some regions, definitely, I think they're going to be good, I think the North still has a lot of potential, [ the Bahia ], I think a lot of [ tour ] -- and then tourism in both the Baja and the Peninsula Yucatán, I think, will remain within a very dynamic pace, but some parts are still going to be suffering from a weak infrastructure spending by the government. And then -- and the second question, I didn't understand it, the impact of the interest rates on loan growth? Is that it?
Yes, especially for the SME segment, do you think a low interest rate environment should especially help the SME segment?
I do definitely think that this is going to be very helpful. I think this -- I don't know how much demand that will create, but definitely, it will help the interest payments of small companies. [ And probably ] NPL ratio I think, for sure, the cost of risk. And the ROE, -- thank you. I think it was a very good result this quarter. We had definitely very good results. And in terms of the ROE, we do think we have a sustainable ROE between 19%, 20%. And that's what we think it's going to be next year around.
Okay. Understood. And in terms of reaching that USMCA agreement, do you think the country could favor from that?
Well, definitely that would help. Definitely, that's going to help in the medium term for sure. For sure, that's very helpful. And we do think that gives certainty to companies to continue to invest and that would be very helpful in the medium term for sure.
[Operator Instructions] Your next question comes from Enrique Mendoza from Actinver.
Gentlemen, congratulations for your results. In case of interest rates going down 100 basis points next year, how much of an interest income can we expect from the swap derivatives that you already have, in the ballpark figures?
Enrique, this is Enrique Navarro. In ballpark figures, the swaps, we already have [ 2 ] type of swaps. The IRS for the mortgage portfolio, it's around MXN 8,000 million, the average is 7.4%, then still we have room to work positive interest. The other portion, there are MXN 3,000 million in the short term, 2 to 5 years. They are on 8.20 % -- 8.27%. And obviously, we are paying more right now than the tier. It's MXN 3,000 million, you can do the math: 8.27% versus a tier that is 8%, then it's 27 basis points. It's MXN 3,000 million but they are going down very quickly. It's 2 years, 2 years in duration. In 2 years, it will be gone. I don't know if I was clear.
I'm not sure if I am taking those figures right. It's MXN 800 million at an average rate of 7.4% and MXN 300 million at an average rate of 827%? Both of them with a maturity of 3 years from now.
No. MXN 8,000 million.
MXN 8,000 million?
MXN 8,000 million. Not MXN 800 million. MXN 8,000 million.
Okay. Okay. No. That's very good. MXN 8,000 million, [ this was a deliberate ]...
And I am [indiscernible] that is 7.77%, that's the [ hoisted ] average. It's not 7.4%., 7.77%. And then the other one is MXN 3,000 million, average 8.27%.
8.27%. Okay. Okay. And both have a maturity for about 3 years from now, is that correct?
The large one's in 2 years. The other one is longer because it's mortgage. It's like 7 years average, because we'll do duration -- we'll hedge on duration, not on the long term.
Yes. That's very, very helpful. And it makes me question if, considering the low teens growth in the loan portfolio for the next year, and 100 basis points of lower interest rates with the help of the efficiencies and with the help of the noninterest income growing above the loan portfolio, and also with the help of these interest rate swaps, is it possible to achieve double-digit growth in profits during next year?
Definitely, yes. We do think we're going to be able to achieve, I would say, low teens in terms of net income growth in next year.
Your next question comes from Carlos Aranda from Evercore.
Congratulations on the results. My question is regarding consumer portfolio. We saw a huge growth in your consumer growth, 34% year-on-year and 8% quarter-on-quarter. But we also saw a growing number from your loan ratio, 42 basis points and 23 basis points quarter-on-quarter. So my question is did you just change this strategy during this quarter? And should we expect, for example, this kind of level for then following quarters?
So yes, we've been cross-selling very good products to our depositor base. As you know, we've been with that strategy for a very long time. We do think one of our main objective is to continue to grow our checking accounts. In order to do so, we've been producing a bundle of products, which include definitely the credit card. And that's why you see that hike. And you see that -- you can see the NPL ratio, it's very controlled. And there's a hike definitely, but it's quite normal for the growth cycle and it's way below what the market has, because our customers that are -- a bit higher ticket than average of the industry, and -- well, it's not much as a percentage of our portfolio and of our assets. So in that sense, we're very enthusiastic about how the portfolio has been able to manage and how clientele are receiving the product. And we think that's -- that will help in order to maintain a good growth in checking accounts, which is a very good part of our strategy to continue to further the experience our customers in all the segments that we produce. So that's why we think that's very good results for how things are going. And that reflects the confidence the market has.
Okay. That's very helpful. And I would like to know if you're also bundling auto products. It also grew significantly in the quarter.
I did not understand the product you said. Which product did you say it was?
Auto.
The auto loan portfolio.
Yes. The auto loan portfolio.
Yes. We do think -- for the next year, we do think the auto loan portfolio is going to grow a bit weaker. So we didn't have a good quarter. And I think that it was part of the result [ of ], as I said, and we've been cross-selling a lot of product to our small business -- in our small business units. So we've been cross-selling auto loans for small companies and for our customers, too. So I think it's a very good result for this year. I don't think we're going to be able to maintain that growth for next year. But still, it's going to be a little bit more dynamic.
[Operator Instructions] Our next question comes from Gilberto Garcia from Barclays.
We saw a rather significant increase in administrative expenses. Was that related to the growth in the consumer portfolio? Or will the -- also significant growth in the point-of-sale terminals that you reported.
Yes. Thank you, Gilberto. Definitely, our -- there's many products and lines that are growing well above the market. We've seen, for example, insurance, definitely the merchant acquiring business is growing at a very fast pace. So expenses they are growing at the same -- or [ a little bit ] at the same pace. So that explains probably a lot. You can see we have had very good results commercially. So we've been -- had to hike bonuses for our employees.
So there's a lot going on in terms of cross-selling noninterest income products. And those are creating a very good growth and are creating a very good results, and we think that explains most of our expense. And the other would be the investments we've been able to do in technology in terms of cybersecurity, in terms of creating a very good experience online, which has all been able to produce very good results now. And we think -- for next year, we don't think we're going to have that [ dynamism ] for the next year in terms of expense growth. We think it's going to be a bit lower. It's still going to be -- we're still going to do have investments. We're very positive on some investments that we're doing and that are producing very good results in terms of productivity, in terms of commercial growth. But we do think most of the investments that we have to do in order to create new capabilities have already been done so. So definitely, we do think next year would be a more controlled and -- not controlled, more, I would say, low teens in terms of expense growth.
Your next question comes from Thomas Peredo from BTG.
Just one question on your business loans portfolio, we saw that the year-over-year evolution accelerated from 15% to 17% in this quarter, while the quarter-over-quarter evolution decelerated from 4% to 2% in the third Q. Did you have -- did you see any one-off impact in this portfolio? Or is this has to do more with the exchange rate variation impacting the international parts of the portfolio?
Yes, thank you, Thomas. It's not due to the exchange rates, for sure. We did have one part of the portfolio in this year, in the quarter, a one-off [indiscernible]. We do think next quarter would be a weaker result. We do -- it's going to be, I think, in the midteens. But still -- in fact, as I said, for next year, we think it's going to be a bit weaker, still in the teens, probably a little bit in the low teens. I don't know if I gave you enough color on this.
[Operator Instructions] Our next question comes from Neha Agarwala from HSBC.
I'm sorry, I joined you late, so sorry if I make you repeat any of the answers. I wanted to ask about leasing. The leasing business saw a very good growth this quarter. What should we expect as a recurring level for leasing? What was the reason for the strong growth this quarter? And my second question is on the capital ratio. Your capital ratio is at a very strong level, it's 13.3% for Tier 1, so should we expect any extraordinary dividends or you would like to maintain a high capital ratio?
Thank you, Neha. Definitely -- I will start with the second question -- definitely, we think we're going to be -- we're analyzing that option and we're going to give you more color later on. But yes, that's a very good observation. And for the second part, leasing, we do -- we did have some one-offs, not that relevant. But we do still think that the leasing unit will create very good results. And we do think it's going to be in the mid -- probably midteens, maybe around 14%, 15%, 13%. But yes, probably around that.
Sorry, you mentioned midteens on year-on-year growth for leasing?
Yes.
All right. One last question, you're having very strong loan growth, 17%. Is there a reason why -- I mean when you compare it to your peers or for the system in general, it's a lot stronger than what we see for your peers or for the system. Are you -- have you loosened your underwriting standards a bit? Or do you see demand among your customers? What is the reason for the strong loan growth?
Yes. We've been doing business as usual. We haven't changed anything in terms -- we've been very cautious for a long time. Last year, growth was weaker than what we had this year. So that probably explains the base part of the equation. So we do -- as I said, we do think loan growth is going to be weaker for the next quarters. And we've been very cautious about -- but there's still a lot -- a good demand for good clients. And as you know, we've been very well positioned in quality clients. So that's part of -- that we would continue to have confidence in our clients. And clients enable to execute good products -- good results and that's why you see that good growth in most of the regions. You can see how [ Nuevo Leon grew ], which is -- it was a very good result and with very good quality clients. And we do think that's a very good results.
Well, thank you very much for your questions. Anything further, please contact us. And hopefully, we'll see you soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.