Regional SAB de CV
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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Regional's Third Quarter 2022 Earnings Conference Call. We're joined today by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramirez, Chief Financial Officer; and Alejandro Lobeira, Head of Strategy and Planning and Investor Relations. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Manuel Rivero Zambrano. Thank you, and please go ahead.
Thanks. Good morning, everyone. We appreciate everyone's participation today. Regional achieved outstanding results during the third quarter with our portfolio maintaining the positive trend versus a system and maintaining an outstanding asset quality. Our commercial loan portfolio has grown at a compound rate of 8.3% during the last 5 years compared to the 4.7% of the banking system. Our financial margin and nonfinancial income keeps expanding rapidly as a result of higher policy rates, a solid expansion in our profitable business segments and a strong growth in trend deposits. Regional reported MXN 1,303 million of net income during the third quarter. This represents a 50% improvement year-on-year, achieving a quarterly ROE of 22.4% and an ROA of 2.8%.
The financial margin expanded for the fifth consecutive quarter, reaching MXN 2,522 million with a 34% year-on-year variation. The strong upside trend in the financial margin is a result of our successful strategy is to maintain double-digit growth in deposits, higher-margin loans and higher deposit rates. The NIM for the third quarter was 5.9% and the NIM of total loans was 7.0%. Our loan-to-deposit ratio continues to improve on a year-on-year basis, reaching 100%, while our CASA ratio stood at 57%. Regarding our asset quality, our portfolio keeps showing an outstanding behavior with the NPL contacting 35 basis points against the third quarter of 2021, standing at 1.3%.
Furthermore, the cost of risk declined 17 basis points year-on-year, reaching 0.67%. During the third quarter, MXN 207 million of provisions were created and the coverage ratio stood at 173%. The nonfinancial income keeps showing a very accelerated growth, presenting an increase of 26%. The main growth driver for the line was merchant acquiring business, fees growing at a 69% year-on-year and insurance income growing 55%. Likewise, FX fees increased 21%. Total revenues for the quarter amounted to MXN 3,001 million, which is 29% higher than the third quarter of 2021.
On the other hand, operating expenses amounted to MXN 1,306 million and 11% year-on-year growth. The increase in general expenses were driven by our customer acquisition strategies that had led to higher marketing expenses. Additionally, expenses related to the volume of expansion of our cards and payment business, which are presenting double-digit growth. Since this expenses are income associated, we will continue to see this item growing as we keep expanding our active customer base.
Salaries and benefits amounted to MXN 763 million. The growth is explained by technology expenses related to the hiring of more developers, higher headcount in services areas and the core inflationary trends. Even though we're satisfied with the size and capabilities of tech teams, the approval of banking license could lead us to increase the headcount, especially for our minister areas. Despite the dividend payments, we -- this year, Regional's capitalization ratio remained solid, standing at 15.2% as of August 2022, which generates an excess of capital of 316 basis points compared to the original limit of 12%. During the quarter, the total loan portfolio or Regional delivered 9% growth, which was led by the SMEs and consumer portfolios, which keep growing at double-digit rates.
For the next quarters, we are optimistic for loan growth as we are confident that the growth pacing for indirect investment in Mexico remains at a potential benefit for trade demand, particularly in the north and the North Central regions of the country, which industries like manufacturing, industrial or house builders, commerce and agriculture are growing at a very fast pace. We are continuously evaluating the behavior of our portfolio as well as the market conditions to seize opportunities where we are able to serve industries with better dynamics that improve our profitability and asset quality. For Banregio, the whole sale portfolio had a loan growth of 6%, while deposits keep increasing at a double-digit pace, expanding and 80% year-on-year. We expect the trend in the past to continue during the next quarters, which will benefit Regional to further improve its margins.
Regarding Hey, it keeps attracting new clients as our customer strategies are delivering care quality growth. This quarter, we successfully migrated clients to a new independent technology infrastructure, and this will allow us to cater at least 5x more active customers than we have right now. [ Conceptually ], this past quarter, we had to pause a social media marketing expenses, which center customer growth and client satisfaction. As -- and in the third quarter of 2022, Hey passed 517,000 active clients, which stood at 1.8 products per client, an NPS of 62, a cost of acquisition of MXN 132, a lifetime value of 3,877 and a lifetime value over cost of acquisition of $29.4 million and an ARPC of MXN 119. Our emergence business continues showing an excellent result with the transaction of Boeing growing – showing an average monthly billing for the quarter of MXN 1,139 million, a 55% increase versus the third quarter of 2021. The number of POS increased 20% to reach 39,202. As of Hey Tech, we are enthusiastic to have our first client, Banregio, which next year will be running on the same digital solutions of Hey Banco.
This will allow us to communicate faster enabled better customer service and more efficiency and higher cross-selling rates. Our main objective is a Hey Banco achieved similar KPIs to Hey with larger volume clients, which will accelerate regional revenue streams and customer engagement. We are convinced that we are building a solid leading platform. We are at least 3 years ahead of the digital alternative of banks in Mexico in which we have launched 3 versions of the app, while at the same time, we have continued to refine all our processes and proprietary technology. This has enabled us to achieve a highly efficient and effective operation as well as a deep understanding of the market dynamics, allowing us to continually enhance our product offering while strengthening our user experience. We will continue to use innovation and data intelligence to serve our customers of any size and sector, always aiming to expand our cross-selling capabilities that will resort in higher customer lifetime value.
Lastly, we are updating our guidance for 2022, given the results of the third quarter -- last 3 quarters of the year. We updated the market conditions. The new guidance for net income are for this year, it's growing at 30% to 35% compared to the previous range of 13% to 17%. And we expect the ROE over the last 12 months to be from 18% to 20% versus 17% to 18% range that the previous guidance that we had before.
To summarize, our strategies have resulted in higher margins, a consistent increase in nonfinancial income and continued double-digit growth in deposits and even better asset quality and accelerated expansion of our digital channels. We remain confident to achieve the objectives stated in our guidance as our commercial and risk management strategy is keep delivering satisfying results. A distinguished customer service and an ample offering would lead it to a better customer satisfaction, which we consider as the key pillar to keep refining the financial service industry and maintain regional as one of the leading financial institutions in Mexico.
Thank you very much. We appreciate any questions.
[Operator Instructions]. Our first question comes from Ricardo Buchpiguel.
Congrats on the good results. I have 2 questions. First, we see the NPLs are still in historical low at around 1.3%. So I wanted to understand what is your view on how NPL should behave in the short term. And what that means in terms of cost of risk, especially also considering that coverage ratio is that also historical highs? And for my second question, if you could please talk a little bit about your perspective for loan growth and NIM for next year will be helpful.
Thank you, Ricardo. In terms of what we're expecting on the cost of risk, we do have our guidance in 0.7, 0.8. We definitely think that we're going to be with a better result this year than we expected. So I have a sense that we can achieve a similar result that we have had this quarter as we don't see a pickup trend in terms of collections in all of our lines of portfolio.
In terms of last -- next year's guidance, I don't want to do a formal guidance, but we are seeing a positive trend in many lines in terms of continuing our growth in terms of loans, and we're satisfied to continue seeing more and more positive trends in our wholesale business in the north-central part of Mexico, which has been a positive trend in terms of foreign direct investment. So in a sense, we see difficulties in terms of growing with a high rate, growing loans at a higher rate. So it is difficult to say that we have clear wins ahead in terms of growing loans. So we think that we have right now a positive trend, which will continue to serve for growth in the next following quarters. But definitely, we're keeping an eye on how the interest rate hike pull the economy further and in terms intergrowth in terms of loans.
We have not seen that at the moment. We have not seen that in most of the lines even in the wholesale portfolio, which is more volatile in that sense. But definitely, we will keep an eye on that and keep you informed as we see that line of customer of growing. We definitely see a very good results in terms of cross-selling our retail products, and that will deliver customer growth in the consumer portfolios, which will allow us to continue expanding our NIM. And the good thing about it is customers that we know.
So these customers that we serve in their checking accounts, customers that we serve in their deposits. So in a sense, we have a lot of knowledge of those customers and have a very good relationship with them. And we think that we are going to be able to continue growing those portfolios at a very good rate and with achieving very good results as we have had in the last 3 quarters. So it's definitely positive in those parts of the balance sheet. So I think it will depend on how the impact of the hike of interest rates has on the local community and -- but definitely, foreign direct investment is helping a lot to drive more demand as we've seen in the short term. Hope I gave you more color.
Our next question comes from Ernesto Gabilondo.
Congratulations on your results in both your strong earnings growth and your high ROE. So I have some questions. Let me start with a follow-up in your new guidance. So basically, where you see the improvements is on NIM expansion on higher rates and cost of risk. Can you elaborate on your NIM expansion? Where are you seeing rates for this and for next year? And in the terms of cost of risk, so actually, as you mentioned, could be below the 0.7%, 0.8% for the year.
In terms of NIM expansion, basically, what we see is the rate will continue growing. We expect around 10% to 10.5% at the most the policy rate, the very close 25 basis points above. We will see the NIM expansion will continue as we increase the price or adjust the price in the variable rates. As you know, more than 70% of our portfolio is variable, then it will automatically increase. And as Manuel mentioned, we are increasing the consumer lending, mainly credit cards and auto that the new cards and the new auto loans have a better margin than the one in the portfolio.
Then we expect the NIM expansion to continue basically in both portfolios in the wholesale because it's mainly variable rate and in consumer because we have adjusted auto loans and credit card is variable. In terms of cost of risk, as Manuel mentioned, we are maintaining our guidance of 0.7%, 0.9%. It will be not reached for the whole year. But if you see this quarter, stand-alone were around 0.66. And we believe we are reaching a stable level of cost of risk. And starting next year will be very, very similar as we will have absorbed all the impact of the new quality scoring for the loans. I don't know if I was clear.
Yes, super helpful, Enrique. So let me go to my second question on the potential regionalization and reshoring opportunities. We see that almost half of the loan book is located in the north of the country. And also, you have a very nice exposure to the center states of the country. So how are you preparing to take advantage of those opportunities? Can you elaborate in which subsectors is Regional planning to participate in the next years?
Basically, Ernesto, we are in both sensors, we are expanding our infrastructure. We are hiring a larger number of bankers, not only in the north, also in the center of the country. After during the COVID lockdown, we did some layoffs of bankers, obviously, the worst ones are the ones that were not delivering results. And right now, we are growing back in the center. And in the north, we are reinforcing the infrastructure, the number of bankers, the number of branches either or also, then that's basically what we are doing. We have not changed our credit approval policies because we never changed it neither during the pandemic.
And we are very open to new loans. We are very strong, as you can see in our balance or in the sector slide. in the conference call presentation about in more real estate. And within real estate, one big proportion is home building, but also another big one is industrial property. And we will continue lending to the industrial property market that is very saturated in the north. I guess you have seen the reports from the FIBRAS, especially the FIBRAS that are in the northern are in the industrial rental property. There are no new properties to rent a viable right now. They are constructing new ones and also in the Bajio. The Bajio zone is gaining more on the Creta than in Leon that used to be the more growth. But all the Bajio is growing, both Queretaro and Guanajuato state and Jalisco. And we are reinforcing our infrastructure also there basically is what we are doing.
Very helpful. And then just my last question is on Hey to Digital Bank. We have seen recently that Banorte got the digital banking license. So just wanted to know from you, when are you expecting to get your license. And also related to Hey, is Hey already profitable is feeding your strategy, profitability versus client growth? And if that is the case, where do you see the medium-term ROE target for Hey.
Well, in terms of what we're seeing in -- well, definitely good in terms of more competition in the digital arena. I think more investments there will continue to further the conscience of the customer base in terms of adding more value in the digital products, being able to achieve better efficiencies and being able to give customers better rates and smaller fees. So it is good that in that sense, more and more competitors are entering and giving a more dynamic environment. In terms of time to market, I think definitely we are way past the process that Banorte is right now. We are way ahead in terms of understanding the market in terms of getting to know the complexities and being able to achieve growth in a very profitable manner. So yes, we are profitable in our Hey You, in our credit card business, in Hey. All our merchant acquiring business, which is [ Hey Pro ] is very profitable. So yes, our aim is to continue growing at a profitable manner. So we are not looking to grow just for growth.
So we're going to understand the customer dynamics and understanding the value, and that's how we're adding more and more value to regional and aiming to have a more massive customer growth without hindering the customer service, which is obviously quite complex. So right now, between Banregio and Hey Banco, we have above 1 million customers very enthusiastic about next year's growth. We definitely think that we're going to be able to achieve the 1 million customer mark for Hey and we are very positive for Banregio too in terms of customer growth as we are going to be able to, for example, go for our payroll lending, which we didn't want in the past because we didn't want to have that business in our more high-end branches.
So we, with technology, we're going to be able to cater those clients and being able to serve them and being able to cross-sell more. So in a sense, we are very positive in terms of customer growth for next year, both in both marks. In terms of being independent in -- we're expecting hopefully, this January to receive the approval from the authorities. And I think we're going to be able to have an independent operation in the second part of next year.
Excellent. Just a follow-up on this. So in the past, Banorte has mentioned that the Digital Bank should have a cost-to-income level of around 25%. Do you agree on that? Are you close to that? And again, I think it's still soon to think about the target for the ROE, but this is something that probably you will start to provide in the future.
Well, we definitely -- in the model, we see very positive trends with obviously, this is not a guidance, and we don't want to give in a sense, an official guidance in terms of it. But what we're seeing in terms of ROEs is definitely very high ROEs above 30% and cost of income definitely at those ranges.
The thing is about -- the most impressive thing about, Hey, is being able to achieve quality customer growth. I mean, right now, we have MXN 10,000 million in deposits, which is completely grown digitally. It's amazing how customer engagement has been reaching those levels. I mean we only have MXN 5,000 million in loans. So in a sense, we have a very liquid bank, which is going to be profitable since day 1 and growing at a very fast pace. We think that most of the investment in terms of technology has already been impacted. So we don't think that we're going to be hiring many more developers as we are reaching a level of understanding and a level of satisfaction in terms of the app and the onboarding technology. And those developers in a sense will continue to have a good positive trend in terms of operating leverage.
Our next question comes from Jorge Henderson.
Congratulations for the results. My question is on asset quality. Hey Banco has increased its share in your asset mix. It now represents about 5% of your total portfolio. You mentioned this portfolio has a higher yield and that you should benefit – your NIM should be a benefit because of this. But what should we expect in terms of asset quality? How different is Hey Banco's cost of risk versus Banregio's cost of risk? And should we expect a permanent change in your stable cost of risk?
Well, in a sense, the models of credit assessments are as prudent as Banregio. So the customer -- I mean, sorry, costs should be very similar in terms of comparing portfolio per portfolio. So in that sense, it is quite the same. Now in a matter of the portfolio that Hey will grow sadly, credit cards require a lot of reserves. And so in that sense, growing credit cards, it's a very costly business in terms of reserves, which obviously is just a financial costs. But we are catering clients which are already banked in terms of credit. In terms of deposits, obviously, we're carrying everyone. But in terms of credit right now, we're only catering customers that already have a relationship with another company. So that's why we love new bank, right, because they're giving more color to the system.
So in a sense, that's why we will have in a portfolio-compared basis, very similar cost of risk than Banregio catering customers of high creditworthiness has given us a very good edge in terms of operating expenses, and that's why we love it, and that's why we are aiming to better and better customer satisfaction in order to gain more and more traction in those customer bases that we see that in other banks have very bad service in a sense, we think that we will continue growing.
And in that sense, we will continue doing reserves sadly because that's how the law requires to do a lot of reserves either or that you didn't have the expense of write-offs. As of right now, as -- for example, in our credit card business in Hey Banco, we have write-offs below what Banregio has at the moment, even though we have the same number of credit cards. I mean, obviously, the outstanding loans are much higher in Banregio that had a loan portfolio, which is much more -- which is older. But what I'm trying to say is the aim is on quality customers. So in that sense, we will continue to have very low cost of risk in those portfolios compared, obviously.
Of course, I'm sorry, just a follow-up question there. So you're expecting Hey Banco to post the cost of risk of 0.8%, which is what you expect for the...
No. I'm saying compared to the portfolio -- sorry, not to the whole portfolio. I was saying as Hey Banco has more credit cards and more consumer and more small business, it will have a cost of risk higher. But if you compare the cost of risk of the portfolio of credit cards, of Hey Banco and of Banregio, it will be very similar in the long term. Right now, Hey Banco is below, but it will catch up to the similar levels of Banregio. In that sense, the same is true in terms of mortgages. The same is true in terms of SMEs and in terms of auto loans. So compare between the portfolios, it should be the same cost of risk. But in terms of the added the cost of risk of Hey Banco will be higher as we've -- we need more reserves in the credit card portfolio and consumer portfolio and the small business portfolio, which that's how sadly the law is written in Mexico.
We think it's not good because it the sense... It doesn't drive banks to lower prices in terms of needing to do reserves that probably will know. Obviously, that model is calibrated for banks that have a very high cost of risk, for example, Coppel or Azteca or BBVA or Dynamics, which is very big portfolios that have all types of clients and normally have higher cost of risk. We are not aiming for those customers at the moment. And we definitely see that we have a lot of potential growing. As you can see, our customers in Hey Pro which are the most engaged customers, give you an idea on how credit growth will be growing at a very fast pace, but definitely with very good quality.
Okay. I have a second question, very quick. I'm sorry -- it's about your cost of funds and also related to Hey Banco, we're seeing that Hey Banco deposits already amount 4% of total deposits. And these deposits are costlier than regular and ratios and deposits. So my question is, how do you expect this trend to affect cost of funds? And what do you expect in general to be the main drivers of cost of funds ahead as interest rates reach peak and start to decrease in the future?
We only give that high rate customers of Hey Banco. So those are the ones that are receiving that high rates. The others are receiving a much lower rate. So if you don't -- that's part of the marketing strategy and it's helping to not hiring -- I mean, not impacting the cost of funds but growing at a very fast pace. And we are -- you have to have 6 transactions, so you have to have an operating checking account.
So in that sense, that's how we're growing the checking accounts and lowering the cost of risk even further. So it is a marketing scheme in the order of having a high rate, and we are giving that higher rate. It's not something that we're not doing. And it is something that we've been able to do because we can invest those funds very easily in the market at very short-term bonds and having a yield at the moment, a very positive trend. So that is a thing that we can do right now, and that's how we are keeping up for that growth. Obviously, we will love to grow loans at a faster pace.
But definitely, as you already know, we're very prudent in that sense. And we're catching up, I think, probably in the next 2 or 3 years. So in a sense, we are very able to give those rates to those customers because we don't have all the management in terms of branches and cash management in that sense. So I think that we will be very able to continue. And this is not only because we are a digital bank. So it's how the offering it is structured. So it is a very particular thing, Hey Pro and that's yielding very good results, and we're being very able to cross-sell more and more customers.
So in a sense, the 2.7 products per customer that we have in Hey Pro more than outstands the yield that we're giving those customers. As you can see, the lifetime value of the Hey Pro is outstanding. I don't -- I haven't seen any documents in the world and yielding those lifetime values in the digital arena and growing at that pace. So we're very positive there. So that's how we will continue to being able to easily give a very good rate on those deposits.
The average cost is 66% of [ TI ]. In Banregio around 60%. That is not that far above. As Manuel mentioned, we have the mix, and we are -- we started last quarter to gather deposits from businesses and it's mainly checking account from businesses. But all the mix is around -- not around 66% of TI with the current value of the TAR.
Our next question comes from Gustavo Schroden.
My question is still on Hey Banco. Sorry about that. But can you -- my question is about the client profile. If you could give us an update of a client profile, especially as you are growing in -- if you could tell us in which regions are you growing faster in Hey Banco, what type of clients in terms of income in terms of age? So any color on that would be great. And also, as you mentioned about Banregio, I think that we discussed about competition versus Banorte. But how do you see the competition versus Banregio, for example? Are you fighting for the same type of clients or different clients in different regions? So any color on that would be great.
Thank you, Gustavo, for your question. The customer base of Hey Banco is pretty different from the Banregio. Mexico City and Estado de México, both of them have 25 -- between -- it's 30% almost. 30% of the customer base, 16% is in our home state and 7% in Jalisco and 48% in those -- and 6,000 customers in the US. That's a good thing. And we think that -- I mean with the customer, obviously, it's younger than Banregio. It is between 30, 35 years old. It is not 20 years old.
We do have 20-year-old accounts, but -- and children account, but the average will be 30 to 35. And in -- compared to Banregio, for example, the average deposited and or checking account, it's 3x less. So you can imagine that we have a lot of room to grow there in terms of adding new customers without overlapping [indiscernible] in any manner. And in a sense, there's a huge potential, we think, for those clients that are served through branches in other banks that have very bad service and being able to give them a much better service. Compared to the credit card that Banregio has, we're definitely well above that. I mean we -- our average credit card is aligned of MXN 50,000 compared to that of new that's 2,000. So it is very different. We do have a product for those customers, but it is a guaranteed credit card with a rate of 15%, 18%, very different from the unguaranteed credit card of Banregio at 70%.
Good thing that we have more and more color on customers as we see that new has been growing at a very fast pace, and that's giving us more color and allowing us to go for customers that have a new card and are looking for a better deal in terms of a much-valued card with points and a lot of things that are very different from just monoline credit card business. It will be, I think, more similar than the high yield -- the high-end product that you have.
And I think -- I mean, it's a good -- from the beginning, we always thought that it will be better if we start from the top and go all the way to the bottom compared to going to the bottom and all the way to the top because obviously, it creates a brand that has a perception of lower prices. So in the long term, it will deliver, I think, a better perception in terms of being able to be a bank that has much better customer service and obviously, pretty good rates and being able to have that all the way through as we continue furthering down and being able to reach those clients. So we're very happy for new that's investing a lot of money on getting more color in the data in the view and the credit bureau data. So positive there.
Our next question comes from Thiago Batista.
I have a question and it's basically a follow-up of Gustavo's questions. But I'm focused more on the park of Regional. So if I look for the park of individuals on Banco Hey, the [ Moncler ] Park is about $2. If I look for Hey Pro, the [ mantra ] is something close to $5. And if I look to Regional's individuals, we're talking about $13.
So can you comment the main difference in their part of those categories? If this is more the engagement of the clients or the difference in the offering of products, demographics or even the maturation of the client base? And also in the medium term, what level do you believe the park of individuals in Banco Hey can achieve?
Hello, Thiago. I will start with the current level is growing because we are growing the loan base in the -- both in individuals and Hey Pro. One clarification, the Hey Pro is a subset of individuals. We will present next time separated in order to see the rest of the individuals. Right now, Hey Pro is included in individuals. Say that, we see that it will continue growing the lifetime value and ARPA, there is the base for the lifetime value in Hey, difference of Banregio. But what is included is all the revenues or the interest plus all the commissions, we are collecting a lot of fees and commissions in both portfolios. And the Hey Pro, as you can see, they have a higher cross-sell index, mainly in auto. And obviously, credit card, as Manuel mentioned, most of the customers on Hey Pro they came for the time deposit. They came to invest their money in Hey Banco for the 9% that we paid to Hey Pro.
We only paid the 9% to Hey Pro, then you could see 20% of the customers is not for everyone, but we cross-sell the credit card for them, and that's why we have a pretty good cross-selling index because most of them have the checking account plus the investment or time deposit plus the credit card. In Banregio, basically, we are -- it's an average of all the customers from our referent customers all the way to the small segment of payrolls that we have within Banregio. And in the small businesses, it's higher because it is mainly loans. There is a lot of customers with loans and also there is a lot of customers only with the checking account that being the cost that checking account 0%, we allocate a revenue to them. How far it could go? At least twice as we continue growing the credit, the lending. If you do -- it's just basically we are projecting what will happen if we manage to match the deposits and the loans, it will double the ARPA for individuals in Hey Bank.
Our next question comes from Yuri Fernandes.
Congrats on the quarter. I have a question regarding loan growth is a follow-up from Ernesto's questions before. We see a lot of tailwinds for you, the nearshore in the north. I remember you have been improving the Mexico City operation, higher new officers. I guess there were some changes in the senior management there as well. But my question is regarding loan growth. You're growing loans by 90% more or less. This is industry base. But given you are more exposed to the north that historically has been growing faster than the average GDP in the country. Why not growing faster?
Are you more somewhat more concerned, I guess, Manuel already touched be more selective here. So why not growing more? And once we see all those wins helping the company, how much faster in the industry can grow? Like can you provide us some more color on what is the growth you are pushing for the coming years, considering Hey, considering nearshoring, how much more growth can we see for you? And I have a second question regarding fees. It has been very strong year-over-year. I guess the base you get tougher for 2023. So my question is how much more can we see fees growing. When we look to quarter-over-quarter, the growth was around 2%. So this is an annualized run rate of 8% to 9% up to 10%. So my question is, should we continue to see fees growing at those 40% pace as we see? Or given the tough comps, we should see fees growing closer to teens, like for the next year?
Well, that's what we -- in the sense -- thank you for your comments and thank you for congrats. In the sense that our credit, if you see the cost -- the CAGR over the last 5 years, we've been able to achieve a much better growth than that of the system. That's why you can see that -- well, banks started lending much later than we did. So that's why you see banks starting to in these last 12 months, and that's how you see those growth in the system not compared to us because we've been growing since the last 2 years. So in a sense, they're in a sense, catching up to our growth. We definitely are, as we said, investing in more infrastructure and more talent in the commercial part, so we can be able to cater that demand. We definitely are very well positioned. We're not changing our credit processes or a credit risk assessment. So in a sense, we do think that we're going to be growing at a faster pace than the -- our competitors for sure. Even without Hey Banco. So Banregio alone should continue to grow at a better rate because of its obviously smaller size compared to that of the system.
So we still are a very small part of the system. And our market share here, for example, in our home states in the wholesale business, it's like 20%. In Jalisco, it's only 5%. And in Mexico City, it's only 1.6%. So you can see how the potential is outstanding in the sense, just completing the geographic expansion that Banregio has been able to continue growing in the last 15 years, right? So in terms of Hey Banco, it will definitely add a new line of growth.
We do expect growth to be in Banregio in a delta much like around, you can imagine, between MXN 8 billion and MXN 10 million next year. And Hey, we're aiming to do between MXN 60,000 and COP 7,000 million. We are still behind in terms of Banregio's production, but we think that 2023 -- I'm sorry, 2024 and 2025 will probably be a similar amount. So you could definitely see an impact on loan growth 2024, 2025. So adding a new line of growth that will continue to be -- to deliver much better results than that of the system, for sure. And I mean with quality because we could still do a lot of cherry-picking, and that's what we're doing in all of our portfolios and trying to go for those customers that have good margins and good trade worthiness.
Yes, that's it, like growing with the same risk-adjusted margins. And regarding fees, what is the speed for the next year?
Well, definitely... I think will normalize to a level. I mean, we're still growing the transactional fees at a very good rate. Credit cards and merger and acquiring business should continue growing at a very good rate, more than teens, I think, definitely in the 20s. The fees on the FX will build a bit more on the volatility, but we still have ample growth there. So I think it will be positive. Insurance, I think, was going to be slower for next year and practically there, I think. So I think a lower dynamic in terms compared to last 12 months because, obviously, we've seen a very good pickup in terms of the economy, in terms of the amount of transactions per customer that we see, the amount of transactions we see in the merchant acquiring business is growing at a very fast pace. So in the sense, we're very capable on continue growing at those basis.
Our next question comes from Gilberto Garcia.
We saw a very significant increase in the NIM for loans quarter-on-quarter. Was there some sort of adjustment or catch-up in addition to the increase that we have seen in reference rates?
No. It was more a catch up of the adjustments in the previous months, the last 2 75 increases Basically, that's it. As I mentioned previously, we haven't changed our prices on the variable rate, then it's just the adjusting of the variable rate up after 1 or 2 months, depending how the contract is arranged with the customer. It's not immediate, then it's more the catchup.
Okay. And we also saw a fairly significant increase in your holdings of other securities is that something that we should continue to see you growing the securities in your balance sheet?
Yes, a similar amount, we are gathering deposits as we don't -- we have an excess of deposits. We sell the customer where it's falling Spanish, Mesa de Dinero that is the repurchase agreements. We -- for some time, we were booking them selling what we call repurpose from other banks that you could see, well, only if you look at in the quarterly reports out of balance, then we're moving back to balance that deposits. But it's basically deposits from customers in the repurchase agreements that we are acquiring securities is mainly government, government bonds, all the securities book.
Our next question comes from Neha Agarwala.
Very quickly, for next year, what are the biggest risks that you see for the business? Are you concerned about growth or asset quality? Or anything else that is -- that could be a concern for next year's earnings?
Thank you, Neha. Well, we are very in communication with our clients at the moment, and we've been very proactive in having conversations prior to them having a problem and being able to solve it in a very effective manner. We've seen -- we've not seen anything at the moment. But definitely, we're as always, very prudent and determining the risk that our customers are seeing at the moment. So definitely, we are keeping a watchful eye. And definitely, that could be one of those risks. And the other will be definitely not being able to grow the wholesale business because of projects not being able to generate the returns because of the high cost of loans. We don't -- as we said, in the very short term, our pipeline of the wholesale business has not been hindered and continues to pile up and continues to be positive. So we're not seeing it at the moment, but definitely, again, will a watchful eye in that sense.
And in terms of dividends, what can we expect for next year?
In dividends, what we are is not a formal guidance. Basically, we do our budget with 50% of payout ratio -- then that will be around. We have to consider the capitalization of Hey Banco once we got the license, then the -- at least the minimum, the MXN 700 million, then we will be additional to that dividend for the investors around 2 million -- MXN 2 billion.
The MXN 2 billion in total in terms of dividends for next year. So roughly 50% payout is expected.
Yes.
Our next question comes from Jose Cuenca.
Congratulations for the strong quarter. Just a very quick one on Hey Individuals and the NPA that was reported for the quarter. I just wanted to get some color and update on what do you think has been keeping the score at low 60s? And what factors could eventually drive the NPS higher over the coming quarters?
Definitely, we're very sad for that part of it in this quarter. We've -- as I said, we changed successfully the infrastructure platform, sale impacted in terms of credit acceptance in some days and then tendered the NPS that we did this quarter. We don't -- what we expect for the following quarters, it is to continue further in that line. We are focusing on it very heavily.
And the first part of Hey obviously was emphasized on gathering customers, not in the post-customer service. Right now, definitely our focus is there, and we will continue to further on there for this year, and we're going to be very able to have a very good next year without any changes or in terms of infrastructure or anything that hinders service in that manner. So we will continue to see a better NPS. It is something that we are pretty eager to do so. And now customers in Banregio are much well catered because they have a relationship manager. And normally, when they do that, when they have that, they're more -- they're more benevolent in their comments in terms of the NPS in terms of the digital services, for example.
So we do think that technology delivers very good customer services as we are lowering the amount of communication that happens outside the app. And those conversations are delivering good results in most of our customers. And in that sadly some, as we said, some aspects of our operating in terms of being an independent infrastructure. Obviously, it's outside our parameter side. So we think that NPS will continue. And in the sense, it is very different, and you consider the NPS of a bank of a checking account, it is much difficult to have as a credit card business. In the credit card business, the NPS normally is much better because the amount of things that can go bad are much more some vert to resolve. So we think that the SPS is good, but definitely, we will strive to do a much better job in doing things that are above 75% at least.
Our next question comes from [ Anand Bhavani ].
My first question is on our digital bank license. Do we have any sense of when we may get it?
As we said, we think that the license should be approved in January, and we're going to be able to start independent operations around June, July.
And my second question is about our deposits. Now in wholesale business, I see that our demand deposit has risen, but time deposits have fallen on a year-on-year basis. So what's the reason for this sharp rise in demand deposits, they have come up from second quarter level. So it's quite volatile, if you can help us understand the reason for this.
We do cater some -- I mean we -- as you know, we don't do government lending, but we do have a good operations in terms of the treasury management for governments. So we've seen -- I mean, those demand deposits are high yield, so they're not very profitable, but they're a good source. I mean they're at a good yield sometimes. In the last 12 months, we've seen a sharp increase in the cost of those funds. So we've been not very eager to continue our operations with those customers. So that's where you see the sharp decrease. So it's not a sharp decrease in terms of customers going outside. It's us not wanting to further cater those clients and need a very higher rate to operate. So that's why you see that volatility in the checking accounts.
Sure. And lastly, a question on retail banking. If I were to look at the NPLs in the SME portfolio, it has come down to 3.6% in market portfolio, it continues to be relatively sticky at 2.5. And in auto, it's on. So how should we think of these NPL numbers like mortgage, which is secure seems to be having higher NPLs and consumer portfolio and auto portfolio. So what drives this?
Sorry, can you clarify the question? Yes. Mortgage is 2 parts of the answer. One is the maturity of the portfolio and also in more gas, we do not write off after 4 years, then it's more stable the number of NPLs. What is good is that in both portfolios, the formation of new NPLs is very low. What improves the data is that we do some write-offs in NPLs portfolio, as you can see in the quarterly report. But in mortgage, it takes longer to collect, be judicial process. or to write off either of the outcomes on the collection. And the mix is more dynamic, not only in the write-off, but also on the positive side, the restructuring and the negotiation usually is faster in the SMEs. That's the different dynamics.
Last question comes from [ Kiran Kanaluri ].
Just looking at the loan portfolio. And you had touched upon some industrial property portfolio not growing in [indiscernible]. But even on an overall basis, our wholesale and retail loans in a have stagnated while it has been growing better at Mexico City. So what is the outlook in the medium term in terms of the regional composition that you're looking at?
Well, we think definitely that the North will have a more dynamic growth in the short term for sure. Now as we said, we still have a very small market share in Mexico City. So that, in a sense, creates a good growth there, too. So -- but in terms of the system, I will definitely think that the North will continue a very positive trend. And Mexico City still lagging a little bit more because of government spending that's not being obviously a -- I mean for good reasons, a thing that this government has done, right? So that's why you don't see a very dynamic growth in terms of the economy in Mexico City.
My final question is on the repo portfolio. So the -- across business lines, you see that we have the time deposits reducing in share. And at the same time, we have report increasing in share. So while the structure of funding changes, how -- what is the freedom with which you can use this funding? So can the funding received via the repo portfolio be used to lend freely? Or does it come with more restrictions that.
Yes, sir. That's pretty -- that's right on the money. Yes, that's -- we can be very able to change those deposits to a normal CD deposit or time deposit and we could lend that money.
Okay. [indiscernible] restrictions. The portfolio can be converted freely to the other types of deposits?
Yes.
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 Alejandro and our Investor Relations team. Thank you for your interest in Regional, and have a good day. Thank you, everyone.