Regional SAB de CV
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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Regional's Third Quarter 2021 Earnings Conference Call.
So today, we're joined by Manuel Rivero Zambrano, CEO of Regional; Enrique Navarro Ramirez, CFO; and Alejandro Lobeira, IRO.
[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. I hope you and your families are healthy and well. We appreciate everyone's participation today.
The third quarter saw strong results and achieved solid financial indicators, mainly driven by good asset quality, adequate expense control and a more dynamic growth for SME and consumer spending, which resulted in a higher demand for consumer credit.
During the quarter, Regional reported a net income of MXN 868 million, presenting an increase of 12% year-on-year, resulting in an ROE of 13.9% and an ROA of 2.0%. In this period, Regional generated a financial margin of MXN 1,887 million mainly due to our growth on higher-margin loans and an increase in demand deposits. The NIM was 5.3% and the NIM of total loans 5.8%. The margin contraction is linked to the past reductions of the reference rate, having a sensitivity of 16 basis points for each 100 basis points of variation.
We had a great performance of our asset quality. We reached a quarterly cost of risk of 0.8%. And during the third quarter, MXN 238 million of provisions were created, which is 8% lower that of last year's. Nonfinancial income reached MXN 716 million, a 10% growth year-on-year, mainly driven by card fees, FX fees and merger and acquiring business, which expanded 49%, 19% and 18%, respectively. All of these factors generated a total accumulated income of MXN 2,334 million.
We still see the benefit of our cost control initiatives, resulting in an operating expense growing at 6% year-on-year and reaching an efficiency ratio of 47.2%.
We continue our digitalization and automation efforts seeking constantly to improve our productivity without sacrificing profitability and customer experience. For example, this quarter, we opened 191,000 fully digital accounts. [ As of that ] ratio, the total loan increased 3%, mainly due to lack of demand on the wholesale business. However, other portfolios like SME and consumer loans, especially auto are presenting a more dynamic and solid growth. We continually improve our customer experience, which is why we had such a great performance in our core deposit growth, boosting our liquidity and lowering our cost of funding.
Demand deposits grew 31% in all of our segments, explained by our strategy of attracting new SME customers and our POS volume growth. Additionally, time deposits increased 8% year-on-year. Regarding the performance of our business segments in the wholesale portfolio, we had a loan growth of 2%. Among the regions, Nuevo Leon stands out with an increase of 8%. Moreover, the cost of risk of the portfolio stood at 0.5% and the NPL ratio at 0.9%.
We are very pleased with our retail banking performance. We achieved a great commercial loan quality and growth. The SME portfolio grew 10%. Meanwhile, Auto, Consumer and Mortgage portfolio grew 8%, 12% and 0%, respectively. We had an amazing demand deposits growth, both in SMEs and individuals. We had an impressive 36% growth in SMEs and 20% growth in individuals. As for asset quality in the retail loans, it remained very healthy in every product, always much better than that of the system. For SMEs, the NPL was 5.3; auto, 1.3; consumer, 2.3; and mortgages, 2.7%.
As of Hey Banco, we continue to see exponential growth, concentrating our efforts in maximizing our value offered to clients, being able to grow and cross-sell financial products in a very productive manner. Core deposits for individuals reached MXN 5.5 billion, a 44x growth and likewise in active customers as they grew 171% year-on-year, reaching the mark of 290,000 customers.
During the last quarter, more than 181,000 new accounts were opened. Our credit card had very good acceptance, adding more than 16,000 credit cards to our portfolio, increasing the penetration from 9.8% to 13.3% of our active users that have a credit card. Transactions have an increase in average from 3.8 to 4 and an increase in the average ticket from MXN 530 to MXN 570.
Overall, credit and debit transactions reached 8.8 million in the quarter with an annual growth of 253% and a quarter growth of 27%. The total amount transacted was MXN 13,000 million. Loans reached MXN 900 million in the third quarter of 2021. Loan portfolio composition is 65% auto loan, 21% credit cards and 14% home loans. As of September 2021, the monthly income per active user is MXN 76.5 and the cost to serve is MXN 12.9, which gives us a projected lifetime value of MXN 3,816. While the acquisition cost per user was MXN 100, setting the lifetime value over cost of acquisition ratio at 38.2x, allowing us to invest heavily in customer acquisition strategies, which are already underway.
As of September 2021, the monthly income per active user is MXN 76.5, and the cost to serve is MXN 12.9, which gives us a projected lifetime value of MXN 3,816. While the acquisition cost per active user is MXN 100, setting the lifetime value over cost of acquisition ratio at 38.2x, allowing us to invest heavily in customer acquisition strategies, which are already underway.
The cross-selling index as of September is 1.56, with an extraordinary evolution since the 1.4 that we had in December. Also, the NPS was 71, which has remained stable in recent weeks. The cross-selling index as of September is 1.56, with an extraordinary evolution from 1.4 that we had in December. Also, the NPS was 71%, much better than that of the system.
During the quarter, we will launch a new version of Hey Banco's app. It will feature a much better UI, more functionality and products as well as allowing sole proprietors and small businesses to access and open an account. This launch will allow us to increase and simplify the cross-selling processes as well as to reduce the time to open an account. This new version will include also stock trading features that will allow our customers to have full range of options to plan and execute a diversified investment portfolio from savings, time deposits, mutual funds and exposure to debt and international stock index, and finally, individual stocks and ETFs, both from the Mexican market as well as more than 1,000 stocks and ETFs from the international markets.
We will also add an immediate savings function that will allow to customize the percentage of savings for each type of transaction. As of Hey Banco's business segments, we continue growing in a very accelerated manner, reaching 29,000 merchants with an annual growth of 9% and a quarter growth of 7%, with an average payment volume per merchant in the last 12 months of MXN 181,000.
We had 23 million transactions in the third quarter of 2021 with an annual growth of 98%. The amount transaction during the third quarter reached 19,000 compared to that of the previous quarter at 16,000, maintaining us as the 6th largest acquiring bank in Mexico. As of September 2021, the year-to-date, we had MXN 247 million of net commissions income, MXN 89 million from last quarter alone, presenting a 33% growth year-on-year. We continue developing our capacity to increase value and differentiate our offer in different segments based on size, sectors and special needs, always taking in consideration and increasing customer lifetime value through cross-selling and other banking products.
During the fourth quarter, we will deploy the account opening for businesses as well as sole proprietors. And additionally, we'll expand our payment and collection solutions, allowing both individuals as well as businesses to generate collection links.
In conclusion, we are pleased with Regional's third quarter results, highlighting our standing asset quality with the NPL ratio reaching 1.7. The capitalization ratio remained very strong with 15.5 as of August 2021, which generates an excess of capital of more than MXN 5 billion compared to our internal limit of 12.5%.
In terms of liquidity, we have a buffer of MXN 31,000 million and we have the capability of adding MXN 22,000 more. Our efforts have been reflected on our asset quality, higher deposits that allow us to operate with excellent liquidity levels and continue to grow on nonfinancial income and excellent results over the digitalization efforts. We will maintain our efforts to promote financial wellness and become the main bank for our customers.
Thank you very much. We appreciate any questions.
[Operator Instructions] Our first question comes from Ernesto Gabilondo.
Thanks for the opportunity. I have 3 questions from my side. The first one is on your expectations for the net income growth of the year -- If we analyze the third quarter numbers, we saw an implied earnings growth of 19% for the year. And I think you were guiding something around 6% to 10%. So how should we think about the 2020 earnings? Should we expect something around 19%? Or do you think earnings could moderate in the last quarter?
And then my second and third questions are related to Hey Bank. We noticed that in the quarter, you almost reached the 300,000 clients. And I think this is one quarter before your expectations. So I just wanted to double check if this is right or if we are missing something in the number.
And then my second question is on the acquisition costs, which I believe increased by 5x when compared to the previous quarter. So I just want to know what was behind that growth and how does the MXN 100 compared to other digital banks in the region.
Thank you, Ernesto. Thank you for your questions. Yes, definitely we had a very good income through the year, more so than we expected. We think we're going to be able to have a little bit above MXN 3,300 million. That's how we're seeing the next quarter. We think that the cost of risk next quarter should be 0.7, 0.8. So that should be in turn, giving us around MXN 800-plus million in net income in the next quarter. So in that sense, definitely, we think we're going to be able to have a very good result in terms of net income this year.
In terms of the reclassification of clients that we have, we wanted to make sure that in order to have a better control of our cross-selling strategies, we have a better definition of who's actively using our tools. So we changed the definition in order to have a better understanding of the efficiency of these cross-selling strategies. So we changed the amount of time that we're giving clients in order to have their first transaction. We previously had a definition where you have to do it within the first month. So in order to have that understanding of clients how they're coming in, which changed the definition.
So around 30% of our customers with the previous definition regain activity. So we want to make sure that those clients are in the bucket that represents our cross-selling strategy, so to active customers, no to inactive customers. With the previous definition, we had new customers coming in, opening an account, and they were considered inactive because they didn't transact within the first month. So that's why we changed the definition, and we're giving clients now 3 months in order to start transacting with our products.
And another thing that we changed is before if you didn't have a balance above MXN 500, you wouldn't be considered an active customer. So in order to be more inclusive, we changed that to above MXN 100 to better reflect those customers that not necessarily are the most profitable, but definitely customers that are using their tool. So there is -- there were customers that were using the tool that had a balance below MXN 500. And obviously, this translated into more customers, not many, but more.
So how that's going to change in the future? I think it's going to be pretty interesting because next -- I mean, we're planning to open the first quarter of next year, the children's account, which is going to be pretty interesting. I think it's going to be pretty massive. And obviously, that's going to change the amount of clients that we have. And we have to understand, we're going to be their economics to consider them active in the -- in our platform.
So definitely, we're going to be on the lookout on how things are going to change and how things are evolving and changing the definition in order to understand and to have a good strategy in order to cross-sell products in a very efficient manner, which is our main goal right now, right? So yeah, as we have more color within how, for example, things change with this children's account in the future, we're going to give you more information on that, and we're going to have a full transparency on how we consider the different buckets of clients.
I think we're going to change -- we're going to finish this year around 330,000 clients or above. We're seeing a lot of demand. We're opening around 2,700 accounts per day, which is much better than what we have previous -- we had like 1,500 in the previous quarter. So we would definitely see a much better trend. And I think for the end of the year, we're going to see a much better trend. We're allowing now customers to have a very simple and very -- not expensive in terms of data consuming, in terms of allowing customers that have to do an on-boarding in the streets where there is not enough data coverage.
So we think we're going to be able to really have a much better control of the funnel and having much more customers coming in and using the platform. So I think that that's going to be a trend that we're going to see within next year having more than 2,700 accounts opening per day.
In terms of the cost of acquisition, yes, we made -- as we said in the previous conference call, we wanted to make sure that we have a very productive investment in media. So we've invested in social media and traditional media. And we've seen very positive results. I mean the lifetime value of our cost of acquisition is 38x, which is amazing, and we're pretty excited about that. And we think we'll still have ample room to have a more dynamic investment probably in marketing expenditure within next year, right?
So we -- I think we're going to see a more dynamic growth. We're going to start seeing different investments that we're going to make in terms of branding, for example, and making sure that we have a more broad segments to come into using the platform. So for example, we're rolling out this December, the bundle for small businesses and sole proprietors.
So this is going to be pretty interesting in how the dynamics of the -- of customer growth. And obviously, they have much bigger volumes in their debit and the needs of credit. So we're going to see probably a lift on lifetime value. But definitely, we're going to probably see more investment in terms of marketing. So we're going to see a more dynamic growth within those 2 variables, right? So it's going to be pretty interesting. We're very excited. I think this definitely is going to be a good -- we're understanding how to cater different segments, and they're going to be, I think, very happy with what we're creating for them. I mean no one has an account that you can open within 5 minutes for a small company. It's quite complex to do that. So I think we're going to be able to have a lot of volume coming up from there.
Very helpful, Manuel.
Just a follow-up in the acquisition cost. How should we think about the MXN 100? Do you think they should be trending up, Is there a target for the acquisition cost? And how do they compare to other digital banks in the region?
No, I think we're going to go up to MXN 200. We're planning to do that. I mean, we don't -- we think we're going to be -- it is still good, I think we're still pretty awesome. I don't know what's the customer acquisition of other banks because other banks have pretty different offerings. I mean, all the wallets, for example, that have -- opening a [ Walla ], for example, they're opening thousands of accounts per day. They're pretty small in amounts of volume. I mean, I don't really know what's their customer acquisition. No, at [ Newbank ], for example, I think they have a pretty good customer acquisition here in Mexico because obviously, lending is pretty easy. And everyone wants a credit card, so it's pretty easy to have a very small customer acquisition. Collecting, it's another thing that's more complex, right? But definitely in customer acquisition, we could see better results, for example, in credit cards.
So I would say -- I mean, for us, MXN 150, MXN 200 works just fine. It is pretty efficient. We're incrementing credit volumes, and that should make a much robust lifetime value. And I think going forward, we're pretty excited about how things are evolving.
Our next comes from Thiago Batista.
I also have 2 questions and one of them about Banco Hey. So I will start with -- sorry, it's Hey Banco, not Banco Hey. But I will start on Hey Banco. Just a follow-up about the acquisition cost of Hey Banco. With this increase in acquisition costs, have you guys seen any change in the profile of the new clients that are on-boarding on the bank?
And if you look into your monthly income per user that achieved MXN 76 per month. How much -- or how is your -- the target of the bank, how much this monthly income can increase in the long term? What's the target of monthly income per user?
The second question about Regional itself. When I look for the loan growth in Mexico, not about Regional, the sector as a whole, the number seems to be at that point a little bit. I know that you don't have guidance yet for next year, but what's your sense about the loan growth dynamics next year?
Thank you, Thiago.
For the second question, definitely, loans have been pretty bad here in Mexico, but obviously, all over the world. There's a lot of liquidity, as you can see in our balance sheet where we have record amounts of liquidity where there's such much more than we have to get it off our balance sheet with our money market.
So definitely, we think it's going to be a challenge to recover loan growth in our most important segment, which is the wholesale business, right, in terms of Regional. We think it's going to be slow recovery still for the next year. But we do see drivers, a lot of drivers. I mean you can see, for example, the amount of loans that we've been able to grow here in Nuevo Leon, which was 8%. And that was mainly due because there is a lot on demand of industrial needs and manufacturing. And we're going to -- I think we're going to see much, much more of that within all parts of the regions of the north and probably the center part of Mexico, as it would depend, obviously, in the center part, more on the cheapened inventories because there's a lot of auto manufacturing that's going on in the center part of Mexico.
So we think that's going to probably be a very good driver, and that's not incorporated into our budget of next year. So that could be a very good surprise, I think, going further than going through next year, seeing that effect that we're seeing right now in our home state of Nuevo Leon being a more dynamic growth in other regions as well. There is, I think, still a recovery that still needs to happen, for example, in our -- in tourism, which we're not directly in, but we're indirectly in, which we operate in regions where tourism is one of the biggest industries. And obviously, I think that's going to be a recovery we're going to see gradually within next year as we have a rollout of the vaccines at 100% and et cetera, et cetera, we see it, right?
So I think that loan growth is still going to be pretty weak in the industry. I think it's going to be still a thing that we need to really make sure that we have all the tools to give clients. But right now, the demand, it's not there. And hopefully, within the drivers, for example, of the new treaty that we have and that is [ implementing ] more and more in terms of manufacturing and industrial investments that we're seeing here in Nuevo Leon, hopefully, that's going to be more so within the next quarters, in order for us to be more positive on the wholesale business.
Now we have other portfolios that are growing at a very fast pace. Obviously, there -- we're gaining market share, and that's why we have a much better growth than in the wholesale business, which is much bigger and is much dependent on the industry rather than us gaining market share.
And in your first question, we don't have a -- as we said, we're still implementing a lot of things that we don't have a correct understanding of the average ticket that we're going to have. So the average volume that we have in Banregio are much more. And if we consider those, we're not going to be really able to have an understanding of the impacts of what we're rolling out commercially and how that's going to impact the lifetime value. For example, obviously, everything that we're doing for sole proprietors and small businesses is going to be pretty good because -- to the lifetime value and even cost of acquisition because we're going to see a larger volumes and smaller amount of clients. But then again, we're going to have the children's account -- it's not a children's account, it's a dependent account because we're -- you can have -- not -- you can have a dependent adult, for example, so any dependent. So those accounts are going to be much smaller in volume. So that's going to impact the lifetime value because they're not as profitable, for example, as a fully working adult, right?
So definitely, the dynamics of how growth is going to impact the lifetime value and the cost to serve is going to be pretty interesting in terms of how those are going to impact. I think it's going to be -- they're going to be -- it's going to be much richer. I think it's going to be much robust, as I said, because we're going to incorporate more loans into the equation because we're going to have loans for businesses, we're going to have more auto loans, we're going to have more mortgages. And those, obviously, are going to be pretty good to lifetime value.
I mean, we're so happy that we have a lot of products. I mean, we have right now 11 products our customers can buy. So this creates the perfect conditions to have profitable clients, happy clients, and with this cost of acquisition, I think we have a very ample room to continue growing our market expenditure and creating a more dynamic growth for sure. And just in a sense, I think that we're just seeing -- in a sense, I think we're just starting to see a much more exponential growth than we've -- than what we have experienced.
Just the last follow-up here. With the increase in the CAC, has the profile of the new clients changed? Or they are pretty much the same?
Yes, yes, yes. So it did change a little bit definitely. They're in volume because when we were growing organically, most of our customers were very functional. Now we have clients that are eager to see what's new and definitely -- probably. And that's -- customers are not taking the 100% of the experience fully from the beginning. So yes, we've seen that customers are with lower volumes, but not to that extent that we consider them pretty different. With the children's account, I think that's going to be very much different because that's going to happen on the first quarter of next year, and that's going to change the profile of clients definitely.
And the good thing is about this dependent customers -- I mean, this children's account, if you will, the father has to open it. So it is pretty interesting how we're going to have 2 x 1 because you have 2 customers for 1 market expenditure, right? So it is going to be pretty interesting. And those -- I mean, for sure, customers are younger than any other bank. And being able to cater parents with larger volumes, I think it's going to be quite interesting. I mean even customers with much higher volumes, are going to be pretty willing to open an account for their children because they're going to be able to know where they're transacting. They can set limits, et cetera. So it is going to be very interesting.
Our next question comes Ricardo Buchpiguel.
Thank you for the opportunity. I have a couple of questions mainly on Hey. But first, can you please talk a little bit about the difference in employee profile between Hey and Banregio. And has it been challenging to find the right personnel to grow Hey and how the bank has been dealing with that? Also, does Hey now think about completing spinning off Hey as a different bank, potentially having different shareholders in the future in a completely separate structure. In that sense, do you expect the regulator to foment fintech developments with some incentives like we have seen in countries like Brazil, potentially benefiting Hey if it is completely spinned off?
And finally, could you please give us an update on CoDi in Mexico, the instant payment initiative? I believe it hasn't picked up much yet, but do you guys think it will and how do you see impacting Regional in the future?
Thank you, Ricardo. Just one, can I make sure I have all your questions. One is -- The last one was CoDi, for sure. And then your first one was, I didn't make sure I don't -- the profile of clients between, I think you said, Hey and Banregio was that?
Sorry. The employee profile difference in terms of personnel from Hey and Regional and the traditional. And if you are seeing that growing the universal base from Hey is being challenging as well.
The growth in talent in Hey, is it challenging? That's a question you said?
Yes, that's another question.
Got it. Got it. Okay. Okay. Perfect. Well -- and the spinoff, right, okay. So in terms of the employees that we have, obviously, here in Hey, there's designers and developers, most of it, and obviously, our product managers and marketers, but that's it, right? So most of it is pretty different from what Banregio had original, right? So most of it is people in branches, right?
There's a lot of RMs in the business model that Banregio has. And obviously, here in Hey Banco, we don't have anything. CoDi has not been as successful as we thought definitely. But that is because we already had Swift SPEI. SPEI is of the technology that we use here in Mexico, and it's pretty efficient. I mean, you can have a transfer -- immediate transfer into any account. And it is very used. I mean the amount of space that we've grow in Regional in the last 12 months.
I don't have the figure. Probably, Enrique has it -- but doubled, 100% increase, in 2 years, Yes. So it is quite massive. It is quite massive the use that we have of SPEI. CoDi is just a QR. So it's just [ a usage ] of the same technology that is SPEI. So in a sense when people say they don't use CoDi, it doesn't mean that we don't use that we don't need immediate transfers, we do it. We just don't use a QR. Why? It is, I think, something that there's probably no need to do for customers and customers think that they don't need to enroll in CoDi. So they think it's fine with using their typical transfer service that we have. It is very easy. You just copy a sequence of numbers. And you just transfer the money in a very easy manner.
You can use your mobile phone.
Yes, you can use your mobile phone -- the number of your mobile phone and that's linked to your accounts. So I think it's -- as transfers were already pre-efficient, the QR just didn't make much sense to use.
In terms of talent, we've been pretty blessed to have 3 great -- 4 great universities here in Mexico Monterrey, which are pretty good at having the best talent in terms of developers in Mexico. It is quite good, and we're pretty happy about that. And the cost to develop is much, much, much more efficient, for example, than in the United States for -- the cost per hour here is around $25 in United States, that's probably $110, at least. So we think that probably it's going to change in the future. I think that's going to -- we're going to see more and more pressure because of companies allowing employees to work from everywhere. So I think that's going to be challenging. I mean, the good -- the thing that we have is that people don't speak English, so it's very difficult for them to work in the United States, if you don't have at least the basic understanding of English.
But still, we think that we have to grow more on other cities outside of our home state and even other countries. And we're hiring a lot of people. And the good thing is in the industry, we have one of the most recognized places to work as a developer. People are very happy here in working there. We have one of the, I think, most flexible and dynamic workforce. And I think that's one of our most important assets, and we are going to continue to invest in that.
In terms of the spinoff, we've -- definitely, it's an option. As the stories diverge, it's going to be much more easy for you guys to understand the 2 stories and to have ample time to discuss the results and more transparency. Right now, what it's underway is a full license for Hey Banco to have a different operation. So in order -- in 2 teams, one working fully on Banregio, one fully working on Hey Banco, which is completely in different structures -- corporate structures. And that's going to allow us to have different options. One of them definitely is going to be a spinoff.
Yes. Yes, that would -- I mean that depends obviously on how Hey Banco imprints in value in Regional. For us, I think, well, in my sense, personally, I think in the stock price right now, there is, I think, 0 value of Hey. I think if you buy it right now, the stock of Regional, you're paying 0 for Hey Banco, for sure. I mean, Hey could be one of the biggest retail banks in Mexico within the next 10 years, and that's not even in the MXN 120 you're paying into the stock. I know it's difficult for -- to get that into a model and doing it in a more traditional manner. And I mean that's where we're pretty patient. And we are going to make sure that you have more information in order to incorporate more and more data. And hopefully, and that's our aim, to have a much bigger operation, and that's going to translate in a better volume, in a better value. And when that happens, a spinoff would be very natural. But right now, there's no room to do that because the value that we see in the stock price right now, it's quite -- I think, more catered to the traditional bank. So right now, what the stock price reflects is a traditional bank?
Great. All that makes a lot of sense. Just a quick follow-up. We see in Brazil that a regulator has been very open to [ foment ] competition in new entrants, mainly digital banks, right? Do you see a similar movement happening in Mexico in the future like the regulator trying to work in new laws and new infrastructure to help digital banks to develop, in the sense helping Hey as well?
Well, I think -- I mean, here in Mexico, at least we're 3 years behind Brazil in terms of regulation. I've talked with the regulators about this, and they've been quite eager to have a better understanding of what it is needed in order to companies grow. I think things are going in a very good direction, not at the pace that we will want it to. For example, in terms of APIs, we'll still need more definition from our regulators to have a more confidence in giving clients that service, for example, bank as a service or open banking. And there's no understanding about it in terms of regulation, there's still a lot of gray areas. And that's because there's -- the regulator right now is understaffed as you might know. And this, in turn, creates a more lagging in terms of things and how things roll out. But the direction is quite positive. The direction is, I think, pretty good. The regulator has very -- has been very willing to allowing customers open accounts fully digitally.
Now we're going to have the biometrics of our electoral voting agency, which is going to be -- that's going to allow us to fully identify customers and this is going to be quite good in order to have a fully digital service for every product in the market. So that's going to start on January -- in the first quarter of this year and for all banks that use it. And we're going to be one of the main users definitely. So I think things are going in a good way, but not necessarily in terms of timing, sadly.
Next question comes from Jorge Henderson.
I have 3 questions. My first is related to loan growth. I was wondering if we can go more into depth on loan growth by segment, especially on the consumer loans segment, which grew 6% on a quarter-to-quarter basis. Do you expect consumer loans driving overall loan growth in the next quarters? And I was also wondering if some of this growth could be coming from Hey Banco.
And my other 2 questions are about Hey Banco. So my first question is, I mean you shared the cost to serve and the monthly income per active user of the digital bank. So dividing the cost to serve to income per active user, you get an implicit cost to income of 17%, which of course, does not include any acquisition cost. So my question is, first, if this calculation is correct if it is? And second, what would be your expectations ahead for the cost to income of digital bank? And what would be the main drivers here?
And my second question on Hey Banco is about deposits. So you divided total deposits between the total accounts opened, you get an average deposit of about MXN 6,500. So I was wondering if you could share with us whether this deposit growth that you've seen in the last quarter is more fueled on a few high-value accounts or if you are seeing a more homogeneous deposit growth among active users? That will be my question.
The second question, I didn't fully get it.
Yes. So yes, it's more on the detail on deposits. So I don't know if the deposits...
Sorry, sorry, sorry, the first.
The first on Hey.
Yes, the first on Hey. The second one on revenue.
Yes. So you shared with us the monthly income per active user and the cost to serve. So if you divide this, you get a cost-to-income of 17%. And so my first -- the question is if this is a fair calculation. I mean, I'm not taking into account the acquisition cost, of course. But I think it would be useful to use this like to see the efficiency of the Hey Banco business. So I was wondering if -- I mean, first, if you think this is correct. And second, what will be your expectations on this cost to income? Do you think it should go -- should increase or decrease on the following years.
Yes. Well, it's a good proxy. But in the cost to serve, we are only including all the costs that are directly related to the service and to the operation. In the previous question or we were talking about the talent and the programmers, all this base is not included in the cost to serve. It's not the total cost -- operation cost or the total cost of the company. That will be my only concern. It will be a cost-to-income only on the variable part. And the income is almost totally all the income. That's the only or the main concern that I have to use it as a proxy of a cost doing from that perspective.
In terms to increase, yes, the cost to serve will increase as we have more customers who are increasing the operations department and call center and collections and all the directly related to the transactions. But again, it's not included all the programmers and developers, software developers in this cost to serve. Say that, yes, it's a good proxy. And it -- as Manuel mentioned in the previous question, we expect also the cost -- the revenue by customer to increase as we manage to grant more loans in [ K ]. I don't know if that was clear for you, Jorge.
Yes, yes. Very clear. So in the other question, in terms of total deposits is not concentrated.
We have an upper limit.
An upper limit within deposits. So there's we have an upper limit. So no, definitely, there's not a complete. There's a lot of, I think -- sorry, I have my mask on. I want to I think there's a lot of capillarity in our deposits. There is definitely more active users. We have a definition that we call Hey Pro, which are the most active users. And definitely, we have a large concentration of our volume in those customers, but that's definitely how I think everyone has. Our aim is to have more clients of Hey Pro. It is a pretty good offer. I mean if you don't -- if you're not Hey Pro customer, you cannot have the highest yield. We're going to give them for free the -- all the trades in our trading platform. So there's a lot of things we're adding to Hey Pro benefits. And those are, I think, going to be very well received and creating more and more clients that are more and more active. The only thing you have to be -- to do in order to have -- to be Hey Pro is transact 6x with your debit or credit account and that unlocks all the benefits that you have.
In terms of the loan growth, we're going to see more growth in Hey Banco for sure. We're going to see more growth in auto and loans and mortgages. We're going to see more growth on credit card for sure, for individuals, and we're going to see more on the credit card for businesses and sole proprietors. The thing that we're going to convey is that the -- we, right now, are not very eager to open a lot our risk assessment. So we're going to be quite tight. Yes, we're going to be very -- we're still very tight, and we're going to continue to be tight. [indiscernible], but we're not catering customers that have a medium credit score.
So in a sense, you're going to see good volume not as huge as you might see in other new banks or other fintechs or whatever, but the quality is going to be there. And that's where we want to make sure. I mean we have ample growth, ample market to gain. And if we continue in a sense with very quality loans, it's going to produce a much better brand awareness, it is going to produce more goodwill from the market, it's going to produce a more lean operation, and we want to stay that way. We want to stay with quality loans. That doesn't mean small or big. I mean it could be a very small loan, but it could be pretty good. So I'm not talking about the amount. I'm talking about the quality of the kind that we're serving. Obviously, that doesn't mean that we're not going to serve customers that don't have good scorecards, we're giving them a guaranteed credit card. Even for businesses, we're rolling out a guaranteed credit card for those customers that don't have a good credit score or have a bad credit score.
So that allows customers to regain a more -- regaining more financial wellness, and then we're going to give them a traditional credit card. But in a sense, those customers, we want to care them with a more clean product that allows them to have a financial wellness and not just trying to lend a lot of credit cards and then just write off 50% of the portfolio, which doesn't make sense for us and for the brand. I mean we want to be the most relevant brand for retail bank in Mexico, and catering customers that have a bad credit, it is -- it doesn't make much sense in order to create that. It doesn't make much sense. So loan growth, definitely, we're going to see more consumer growth and -- but I want to make sure that I convey that it's going to be pretty good quality.
Just a follow-up on that question. So my question is more on what happened last quarter. There was a very, very interesting growth on consumer loans. Is this coming from Hey Banco? Or what is the product that the main product here that grew?
No. Banregio is still growing too definitely. We still have ample growth in Banregio to cross sell to a lot of clients. So I still -- I think we have a long way to go in Banregio. But in the next year, most of our growth on consumer lending being mortgages, auto loans or credit cards or personal loans are going to are mainly coming from Hey.
Our next question comes from Neha Agarwala.
Congratulations on the results. Just wanted to confirm, in terms of the active clients, now your definition is 90 days. So anybody who's made a transaction in the last 90 days, is an active client, whether that is revenue generating or not? Is that right, Manuel?
That's one of the criteria. It is active with at least one transaction in the last 90 days and so -- that's important or it has a balance above MXN 100.
So last definition, you had to have a transaction within the first month, and it has had a balance above MXN 500. So it was pretty constructive. So we looked about the figure of how many inactive customers were becoming active again, and that's 30%. So it didn't make sense in that definition. So we want to make sure that we -- when we make strategies to cross-sell clients, we cater those active customers that we're not doing in the past. Yes.
Manuel, did you mention that it was 30% of total clients. So your active customers were almost 30% of the total customers that you had?
No.
No, no. 30% of the clients that we considered inactive with the previous definition regain activity -- in an Ongoing basis. So that's what we're saying. There's -- that cannot be. There's a lot of clients that are regaining. We want to make sure we want to make what's happening, what's going on? Why are they regaining activity if we consider them inactive already. So we found out that the definition was pretty constructed and obviously constrictive and didn't make sense in terms of our cross-selling strategies.
Perfect. You also mentioned that the CAC, which already doubled in the last quarter, is probably going to go up to almost 200. And you are going to invest more in media and marketing. What does that mean for the overall cost growth for Banregio because although the LTV to CAC is quite high, a lot of that lifetime value is going to be achieved in the coming years, whereas you incur all the costs today. So in the short run for next year as you plan to ramp up to 1 million users by next year, that means you will have high CAC for 2022 as well. So what does that mean for the overall profitability of Regional and the cost growth?
Yes. Well, I mean, although in -- It is a large investment for Hey. For Regional, it's not that much. So Banregio is not investing right now a lot of advertising because we're concentrating our efforts in cross-selling the clients that we already have. As I said, we have a lot of liquidity in Banregio. We have a lot of customers, and we have a lot of ample growth just cross-selling more credit products to customers. So in a sense, we've blessed in Hey, if you will, that Banregio is not spending money in terms of advertisement and the amount of advertising that we're spending, I mean, even if we double it, it's still pretty manageable. And we're spending right now around $150,000, $200,000 per month. We could easily grow $400,000 and still there's not going to be a huge impact on the results of Regional. So we can even multiply it by 3 and still have good results next year.
Okay. And my last question is on future growth. So you were looking for a strategic partner previously. Is that still on? Are you close to having any partnerships? And you mentioned that next year, you're also going to launch your investment platform. Is that something that you've developed on your own? Or are you thinking of buying a small platform and integrating that into Hey Banco or are you partnering with somebody? So what is the strategy for the investment platform and then about the strategic partner that you were looking for?
Thank you. Well, we're definitely, we've been having a lot of discussions with different players. Right now, we don't have something to communicate to you guys. Still, we're in talks with many of them. But -- If we do something, it has to be something that translates into a much better perspective than we have already for Hey. We will make sure that we tell you as soon as we can.
In terms of trading platform, No, no, no, no. We -- I mean, we have to have a partner to connect to the stock exchange. We have a partner, and we are rolling out the platform within the app this coming December -- December 6, actually. I have a bet that I'm using it already. Have already -- I bought Regional's stock at first. So it is working very good. It is working pretty. I mean, you can buy any stock from the Mexican Stock Exchange and make a 1,000 international stock and ETFs in a very efficient manner. We're giving up the service for free for Hey [ Bro ] customers. So anyone who is Hey Pro is going to be very willing to change their business from other platforms to charge them to something that's going to be free.
So I think it's going to be quite good received. It is going to be pretty efficient in terms of the way, user experience, the user interface, which is pretty simple and pretty straightforward. We're not considering to have a lot of income generated through there. We don't consider to be our main source of income. And we want to complement the offer. So customers can make a portfolio, right, and have a very -- the best tools in a very convenient manner and doing it probably for free.
Okay. Understood. One last question, if I may. How do you see the digital banking landscape in Mexico? Who are the main competitors that you're monitoring or who could be challenges to Hey Banco? And how do you think Hey Banco is positioned versus these numerous competitors out there?
Thank you, Neha. Yes. Well, what we see here is -- I mean, there's a lot of fintechs that only have mono products like only a wallet or probably a very simple account. Obviously, we don't compare us to that because it is -- I mean it is a very rich offer that we have compared to those offerings. We -- We see a lot of specialization in some fintechs, which we like. I mean, we see, for example, [ Canfield ] has a good trend in terms of small company loans. For sure, we think we're going to have the better edge because we have a bundle of products for small businesses and just like the credit. So we're going to have much more information from customers.
And in terms of banks, well definitely BBVA is most dynamic for sure. But what the BBVA is doing, I think it's -- it's just the digital offer it complements the whole offer that they have as a bank. It's not their best offer. And here in Hey, obviously, is the best offer that you can have, right? So it is pretty different products that the offering is not the same. The value proposition is pretty different. I think BBVA and the big banks, most of what they're doing is to lower the cost of serve in some segments of their base or they're doing the digital part because of their expenditures, right, to be more productive, right?
So I think in a sense, when you do a product and you have that in mind, the value proposition is quite different from us that we want to be a more relevant value and obviously being -- gaining market share. So pretty different approaches and pretty different values. I think Banorte when they make a different bank that could be pretty huge. I mean that could be pretty awesome because they're a big bank and where it -- there is -- how they're going to be working between Banorte and the digital bank. With us, it was very easy because Banregio caters pretty different clients that what we do in Hey Banco and in a sense, it complemented the strategy for Regional. And for Banorte, you have -- you're making a competitor in yourself, that's pretty challenging.
Obviously, Nubank, I mean, Nubank is, I think, I think it's going to be the most relevant offer in the next 3 years, for sure. And now we're with the IPO, they have a huge amount of money to invest. And we're very happy about that because I mean that's pretty good for the digital banking industry, if you will, right? So it is pretty good for customers to understand that they have all their offers that are not the traditional ones. And I think that's translates into better growth even for us. I mean, as they invest more, more customers are going to be more willing to have a digital offering. And Nubank only has a credit card right now here in Mexico, and we have 11 different products. And if you compare that, it's pretty different. It is pretty different, right? So it's not the same to unlock the credit cards to unlock 11 products that you can have.
Our next question comes from Juan Ponce.
Regarding the Electricity Bill currently in the Lower House. I mean I would like to gauge your thoughts on the potential impact on your business, what are clients saying, how much exposure does your loan book have to energy-intensive industries?
Well, not directly, for sure. We don't have any clients that have a direct impact. No, we don't have anything on it. As you know, Banregio has been very careful on lending to suppliers of government subsidiaries. So in a sense, that's mainly the reason that the impact is not direct. Obviously, there's going to be indirect consequences probably the increment in electric prices in some regions. And definitely, that would impact the country as a whole, but not directly in it.
Our next question comes from Marlon Medina.
Just a quick one. I think that we are constantly discussing the opportunities in the retail business where, for sure, there are several for you given the chance to gaining share. But what about the SME bank? And what are you doing to protect this part of the business? And in particular, we are seeing players like simply moving to Mexico. And while there are still small today, they seem to be doing a good job. So just asking if you are doing something to prepare, to defend from this new type of competitors.
And also a follow-up on the question on competition and CAC, customer acquisition cost at Hey. Was there like now that you are calling for higher CAC, and we understand that LTV to CAC is great. But just want to understand if this is answering to this higher competition [indiscernible], Nubank players that you mentioned entering and likely becoming more aggressive in the country.
Thank you. Marlon, in terms of the SME competition, Well, we had huge growth on, for example, in Banregio, there's -- we grew checking accounts in the SMEs at 30%. We grew our portfolio around 10% last 12 months. Last year, we grew 15% in our SME portfolio as a whole in small companies. Larger companies as I said, have a different dynamic competition there right now, it's pretty lacking for some sort of -- I don't know why, but larger banks are pretty passive right now, and they're not catering clients in a very aggressive manner. So in a sense, competition right now, it's in -- larger tickets, it's pretty weak.
In terms of very small loans, obviously, we're pretty interested in that in Hey Banco. As I said, we're rolling out the check-in account for small proprietors and small companies. the credit card for small companies, that guaranteed credit card for small companies, a simple line of credit and then a revolving line of credit. So everything is going to -- and obviously, the payment solutions with a click-and-buy from a very small device that we can give to a much complex and robust solution for small companies. That's going to be pretty good, and that's going to be, I think, very well received, and that's going to be producing pretty good results for small companies.
So I think we have the best stance right now in all of our history. I think right now, we are pretty ready to gain more and more market share. for small companies and been for medium and large.
That was helpful.
And in terms of what we're seeing in terms of the competition, as I said, there's -- The cost of acquisition did an increment because we are seeing more competition. It incremented because we started spending money on marketing. We -- prior to that, we invested this year 0, so -- or very small amounts. So that's what you saw. And the clients that were gaining were most of it organic. Right now, we have a probably around 60% -- 40% of our customers are organic and 60% are not. So we see a more a combination of both. So no, it didn't increment it because of competition. I think competition -- I mean, Citibanamex, Santander, Banorte and especially HSBC here in Mexico, the service that they have is pretty lacking. It is pretty easy to gain market share when big banks have such bad service. And I think that that's going to maintain in the next years. I don't see a trend changing there for bad service in big banks.
So there's ample grot on to do market -- gaining market share and having -- and doing it in a very productive manner.
Our next question comes from Rodrigo Ortega.
Thanks for the opportunity to ask my question. Just a follow-up on what you've been discussing about Hey's costs. I wanted to know if these costs the ones that you provided are completely independent from Regional. Would they look like that if Hey were to be spun off today. My question goes to try to determine if the notable efficiency indicators of Hey would be sustainable if a spinoff were to take place in the future? Or if you would need to develop an independent core for Hey or maybe a service agreement between Regional and Hey or something like that. So any thoughts would be much appreciated.
Yes, Rodrigo. As I mentioned the cost -- the variable cost will continue being a very good one. Obviously, when we do the spinoff or we managed to get the approval from the authorities for the full license. We will have a more robust structure and then the efficiency cost at the beginning will be higher than in Banco Regional. But within time, we'll go to a very low level. We're even aiming to 30s, low 30s, [ 3-0-3-3 ] something like that. Cost to income yes. But right now, as I mentioned in the previous question, we are not including the, let's call, the fixed cost of the payroll of developers that because for us, that is investment, even though we treat it in the accounting books as investment. But we're in time, that investment got depreciation, then that is not being included in the cost to serve.
Our next question comes from Jose Cuenca.
The first is just to understand a little bit more in terms of asset quality. When we saw the breakdown of the NPL ratio per segment, we see overall a quarter-over-quarter improvement across the board, except for SMEs, where we see both quarter-over-quarter and year-over-year increase. So with regards to the first question, I would like to understand what are the dynamics that you guys are seeing there? What could be the driver behind that deterioration in NPL. What does this mean for the cost of risk going forward, not only year-end, but also looking or getting a glimpse into 2022 cost of risk. That would be my first question.
And the second question would be with regards to commissions and fees. We see overall a good performance, but just wanted to get a little bit more insight with the behavior of cards and merchant fees. We saw a slight decline both quarter-over-quarter and year in year-over-year terms. So we just wanted to understand now that the bank is -- that Regional is focusing on relaying a lot of emphasis in cross-selling. What could be the dynamics that drove the slight weakness in cards and merchant fees.
About the first question, in terms of SMEs, the cost of risk do -- we are seeing it already. As you know, we haven't yet changed the methodology for provisions. And then all these customers on the SMEs, they have already been reserved. We expect that proportion to be maintained, the 5.3%, very similar. Most of these are customers where in the last year, they were on their some program, these relief programs that we had from April to August, and they finished it in February, then if you do the math from February to July, it's the time when they became past due.
The good news is that after July or even August or September, there is the third quarter, there are no new formation due to that -- to the pandemic or to the -- how do you say the close the -- the quarantine, the quarantine, quarantine that we have 1 year ago, said that we are right now on day-to-day business, it could be new NPL formation, but it's more -- it's not related to that matter. But the increase is directly related to that to all the customers that after they finished their programs, they were not able to regain the current payments every month.
In terms of the transactions, let me see -- well, I'll move to the questions. In terms of -- it's not related to the fact that in Banco Regional, we are very focused on cross-selling. As Manuel mentioned, we are focused on cross-selling because we don't want to do advertising to bring more deposits. We have enough deposits then we are cross-selling to that more than 500,000 customers that we have in Banregio to cross-sell credit or services then that's not the reason. In terms of the merchant and card transactions, we're looking for the data to do the split, but what I can tell you is that the merchant income grew quarter-to-quarter. Let me review and I will go back to you with the transaction fee.
Our next question comes from Scarlet Galindo. Please go ahead.
I don't know if you already talked about dividends. It is that, I lost my connection. So if you can give us a follow-up about it. How are you expecting to distribute it next year or even in the last quarter of this year? And what are the expectations for the distribution?
Yes. Thank you, Scarlet. We are seeing this year that the regulators are not that welcoming in changing the rule and the restrictions that we have. So next year, what we're seeing is that we're going to pay out the dividend that is that we cannot pay and the ones that we're going to have pay this year. So we're going to have probably 2 twice the dividend that we had this year, next year. We don't see a lot of demand in loans. We still -- I mean, the amount of capital right now above 12.5 is around MXN 5,000 million, so by MXN 5,000 million that we have of capital excess of above the 12.5% internal capitalization ratio as of this quarter. So going forward, we're going to see that be more so. And definitely, we will have the next assembly that's going to happen in the second quarter. We're going to see a larger dividend than we have this year. We think it's going to be twice as big.
Just 1 second, we have just to finish up the question. Do you have the information on, okay?
No, the thing is -- okay, could you give us all the series?
Well, we will do the change and send to you the correct information in merchant and card transactions once we clarify the number.
So what you're saying is we don't have the information that we gave them was not as ...
It was not correct.
Yes. Because what we're seeing is an increment.
Yes, we are seeing an increment on the ...
On both card fees and merchant acquiring business. So we're going to make sure that you have the correct figures.
Okay. Well, if there's no more questions, thank you very much. Thank you for participating. We see anything you want more about Hey or Banregio or Regional, please contact us, we will make sure that we have all the information that you guys need. Thank you very much.