Regional SAB de CV
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Hello. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Regional's Fourth Quarter 2018 Conference Call. [Operator Instructions] I would now like to turn the call over to Manuel Rivero, CEO. Please go ahead.
Hello, and good morning. Welcome to our conference call for Regional's fourth quarter results of 2018.
Our financial margin grew 13.7%, and our NIM was 6.5%. The efficiency ratio was 42.8%. The last 12 months' return on average equity was 19.8%. Our total loan portfolio and our core deposits grew 11.3% and 13.2% year-on-year, respectively. The nonperforming loans ratio was 1.7%.
Our financial highlights. The net income at the end of the fourth quarter 2018 was MXN 3,197 million, and the NIM of total loans was 6.8%. The ROAA was 2.7% and a 12 basis growth year-on-year.
Our time and demand deposits grew 16.4% and 8.7% year-on-year, respectively. And our shareholders' equity grew 14.7%.
As of November 2018, the capitalization ratio of Banco Regional was 13.9%.
Following, I will highlight some items of the fourth quarter of 2018 financial statement. In the balance sheet, you can see the operational leasing increased 10.9% compared to last year, and the coverage ratio was 1.3x the nonperforming loans. The consumer loan portfolio increased 30%, and mortgages grew 13%. Deposits -- core deposits increased 13% year-on-year.
In the income statement, you can see the financial margin shown 14% year-on-year growth; and commissions and fees, 15%. Insurance and FX fees grew 31%, and the noninterest expense increased 16% year-on-year.
On total loans by region, Nuevo León grew its loan portfolio by 15%; Mexico City, 1.1%; and Jalisco, 8.5%; and in total, the remaining locations grew 12.7%.
As for asset quality, our commercial loan portfolio had a nonperforming loan ratio of 1.7%; and mortgage's NPL ratio was 1.8%; and auto, 0.6%. Our consumer loans' NPL ratio was 2.7%.
As for capitalization, Banco Regional had a 13.9%; and Start Banregio, 15.3% as of November 2018. Banregio had a better performance against the system. Banregio's ROE was 20.1% as of September 2018, superior to that of the system of 16.4%. The cost of core deposits was 4.9% versus 4.1% of the system. The NPL ratio of Banco Regional as of June 2018 was 1.9% versus 2.2% in the system.
As of guidance, we're looking for 2019 to grow our total loan portfolio between 10% and 15%, our core deposits growth at the same pace of between 10% and 15%; our NIM, between 6.5% and 7%; the total net profit growth, between 12% and 16%; ROE, between 19% and 20%; NPL ratio, between 1.6% and 2%; and the efficiency ratio, below 45%.
Thank you very much. We appreciate any questions.
[Operator Instructions] Your first question comes from Ernesto Gabilondo from Bank of America Merrill Lynch.
Three questions from my side. The first one is on your total NIM guidance. You usually provide a range for NIMs, and I'm seeing they are likely to remain stable this year. But also your guidance range implies lower NIM. So just to know if this lower NIM is related to a potential drop in interest rates, and if you can elaborate more on this NIM guidance and your expectations for rates this year. And my second question is regarding your OpEx growth. Last year, this line was 16% growth. So do you expect it could be lower this year? And finally, about your dividend payout ratio. Are you willing to increase the payout ratio this year?
Yes. Thank you, Ernesto. Thank you for your comments. As for guidance in terms of NIM, in my point of view, we're not going to see any changes in Mexico's interest rate. We don't think there is enough room for it, again, to go down, so in a sense, we are expecting to be at the same levels in this year. So I think NIMs should be very similar to what we expect that we had last year. Just a range, our expected NIM -- our total NIM is very similar to what we had just last year. In terms of OpEx, we do expect a bit lower expenses this year than last year, and we are very confident we can maintain our efficiency level both in remunerations and noninterest expenses. Both of them, I think, are going to be a bit lower this full year. As for the payouts, we're expecting something similar that we did last year, so in terms of what we have been doing, definitely a bigger number. So yes, very similar that we had last year.
Your next question comes from Yuri Fernandes from JPMorgan.
I had questions on your loan growth guidance, and especially on your fourth Q acceleration on volumes. So my question is, did you increase your risk appetite for 2019? Because it seems the economy should decelerate a little bit versus 2018, but even though, the high end of your guidance is pointing to a higher growth than what you had in 2018. So that's my first question, on your loan growth. I want to know if want to take more risk. And my second question is regarding Hey Banco. If you can share with us any figures on the bank, how many accounts do you have, how much it is growing. Anything kind of revenue contribution would be very helpful.
Well, thank you for your question, Yuri. As for loan growth, we are expecting something similar that we had last year. The range is -- I mean, if we see something different, we want to -- we do want to have the room to grow. We did have a very good pickup at the end of the year. We have a good pipeline, so in a sense, that we feel confident about that range. I mean, it's worth -- we grew last year at approximately MXN 10,000 million. We're expecting at least to be at that number, probably a bit more. Probably the mid-range would be something -- a good number if things turn out right. We are not expecting the economy to grow to be any different from last year. We're expecting a growth similar that we had, probably a bit lower. This is probably in terms of the [ juggling ] problems we have had but nothing that serious with this year. So our loan growth, I think, is well sustained, is well -- it's a good number, and I think it's a very comfortable number as for right now. If things change, obviously, we're going to tell you in advance. So Hey is a -- as you know, it's a digital bank. We've been rolling out new products in the app. We've been rolling out credit card, which is this January; deposits, payments. We're giving the insurance at the end of this semester. So we're adding a lot of new features, and we're, I think, making great progress in terms of growth. In terms of growth, it's still very small. We've not added any ads, so this is mainly at a test level. We have 20,000 users at the moment, which are giving us a little color. We feel we have a lot of room to grow. There's a huge potential there. In terms of what we're going to expect in terms of our business, I think what we're going to see more, it's about -- the account level, it's about MXN 1,500 per account, so it's a very small contribution to our margins, but still we're seeing that the unit economics that we're projecting through the cross-selling, that we think is very positive. We will gladly give you more color when things go our way.
Great. And also quickly here, just coming back to the first question. Can you provide some more color on the segments, like how much you expect for consumer, like the mix shift between the main lines?
Yes. Well, medium and small business loans are growing at around -- I mean, we're expecting it to grow around 10% to 12%. A bit more for the small companies, a bit less for medium-sized, so just around 10% to 12%. We're not growing -- we're growing around 10%. We hiked prices a bit to have better margins. Auto loans, around 20%; and consumer, around 25%. We're seeing around 10% to 12%, and that's it.
Your next question comes from Thiago Kapulskis from BTG Pactual.
I also have a couple of questions. The first one, still on next year. How do you see the tax rate for next year? Is there any benefit or impact from higher inflation? And how do you see that? That's the first question. And the second one is still on your OpEx and on your efficiency ratio. The guidance indicates a number below 45. You're running at something closer to 44. How do you see that evolving along the year? Would you say there's a chance that it can be closer to what we saw this year, or you'd see a higher number as more likely?
Thiago, this is Enrique Navarro. About the tax, we expect a little bit of benefit, as you mentioned, from inflation, on the reduction on the previous month's inflation. But it is very little that we don't think -- year-on-year, we won't see a lot of improvement. We saw an improvement last year versus 2017, and we expect a very similar situation on the rest of the year. There are border type of taxes going forward. Border tax, as you know, our headquarters are in Monterrey, and we are not considered to be border just for the [ 365 kilometers ]. And the rules are very clear that even if we move -- if we are going to move the headquarters to the border, it's not considered part of the benefit. And we see a very similar, around 27% net, similar to the last quarter or largely to be more or less seasonal.
Okay, sounds clear. What about the efficiency ratio? How do you see that evolving during the year?
We expect around 43 -- below 43. As mentioned in the previous question with Ernesto, we expect the growth of both OpEx and salaries and benefits. We're at least 200 basis points less just for inflation. There is some productivity and, of course, negotiation as well with some lenders. And we expect around 14% -- within 13% to 14% increase in OpEx and salaries, and that will help into a little bit the cost-to-income ratio, the efficiency ratio. Around 43 is [ roughly ] to be [ with the total ] range. And that's [ it ].
The next question comes from Gilberto Garcia from Barclays.
We see that your growth accelerated, particularly in Nuevo León. Was that a strategic decision on your part or more related to the natural environment? And for this year, are you expecting your home state to continue to be the main driver of growth?
I didn't hear the last part. What is it that you said about -- will it continue to be a driver of growth?
Yes. So do you expect your growth to continue to be concentrated in Nuevo León for this year?
I got it. Okay, I got it. Look, it wasn't Nuevo León or anything in particular. I think we have good prospects around the country. I mean, Nuevo León has always a very dynamic economy and very efficient, so we do not [ upgrade it ]. In that sense, no. We don't expect anything should change. We think Mexico, in a sense, it should grow in terms of volume in every region. I mean, in Mexico City, I think we're seeing good backlog. So in a sense, if things are well, we'll see more economic growth.
Your next question comes from Gabriel da Nóbrega from Citibank.
We keep seeing that the bank continues to grow very rapidly in the consumer space. And so I just wanted to maybe get a further understanding of what is your end goal growing in this space. And also, maybe thinking of things further down the road. Could you maybe expect, perhaps, to make more provisions given that you are growing faster in this segment? And just the less [ voucher ] here on the same point. Is this really contemplated in your NPL ratio guidance? And I'll make the second question afterwards.
Thank you, Gabriel. We think it's -- consumer lending for us, we've been doing it quite sometimes only, but we're doing it mainly cross-selling the product to our depositors. So as what you'd see, the NPLs are low compared to that of the system. I mean, it's -- I'm going to give you -- we'll give you -- I can give you a better rate and a better service, so in terms -- that's why we're growing the loans in terms of consumer lending. But it's not something that we're doing outside of our branches. It's not something we're doing outside of our clients. We're very comfortable about the risks we're taking. In terms of the NPL ratio and guidance, it involves everything, and we're not seeing a pickup in terms of consumer lending in NPLs. We're -- I mean, completely very different from what is the system. The system is very different, and they have a very different dynamic. We are playing the quality game. As you know, our main strategy is to have in our book quality loans in every segment that we are participating. So in this sense, that's what we're aiming at. For us, it's very important to get the deposits and the checking accounts. And for sure, we know that in order to have that in the future, we have to have a full offer for them and really achieve to be the main bank for our customers. So that's what we're aiming at, and I think we're getting it -- or as you're already seeing, we're growing at a very good rate in terms of checking accounts with individuals. And that's why we're growing at a very good pace and we have very good quality in terms of consumer lending.
All right. That's very clear. And as for my second question, I ask you once again maybe more feedback of what you are seeing in terms of competition. Do you maybe feel that the smaller Mexican banks are attempting to get a bit more aggressive? Or could the competition even be coming from larger banks?
Well, for sure -- I mean, our main competitors are the larger banks -- BBVA, Santander and Scotiabank now are a bit more definitely. Well, Santander, well, it's been a player for the last 10 years. But nothing new, obviously. There's nothing at all -- I mean, no new players.
All right. And just to follow up here, if I may. Do any of these larger competitors worry you at the moment? Are you maybe planning any strategies since they are coming to compete with you?
No. Well, we see that -- I mean, they're guiding [ towards that ] and I see that as a good policy. I mean, most of my competitors were aiming at better, bigger growth last year, and that didn't happen, or sometimes they would have multiple incidents. So I think with their guidance, it's more prudent and more in line than with what we have had in the past. So I think, in that term, we're not going to see more and more -- much more competition or pressure in prices.
[Operator Instructions] Your next question comes from Lawrence Rosenberg from MacKay Shields.
I was just wondering, to start with, can you indicate, given the acceleration in your loan growth and kind of the greater sense of optimism looking out into 2019, how much of the growth in the quarter and then looking out do you expect to come from new customers versus existing customers?
Sure. So as for the word optimism, I mean, we're still in a very prudent manner. We're not -- I mean, we're not overly optimistic about what others are doing. We're very confident that things -- I mean, that our pipeline is very solid. That's what we're guiding. But still, we are in a very prudent manner. I mean, we're not changing the risk appetite. We're not changing any particular policies, should [ we ] have more risk. But generally, we have more appetite for our customers, and it's easier for us to serve the customers we know. In a sense, most of the new credit comes even from existing clients.
And that's still the case?
Yes, that's still the case.
Okay. And then in terms of investing back in the business, it's great to see some of the new kind of technological and other capabilities that you've introduced in the last year or 2. Looking out into 2019, what are the areas or capabilities that you are investing in most for 2019 and perhaps 2020?
Well, the main -- for us, the main one we're doing right now is to give the best tool for our medium-sized companies to manage their treasury fully. So we're investing a lot in trying to -- even from the back-end and the front-end. Everything, we're changing. We are overhauling a lot that channel. And for sure, that's one of our -- I think one of the most profitable in terms of what we can cross-sell to our clients, to become their main bank, not only in credit, but in their treasury management. So that's one of the main aspects. Definitely, everything we're doing for the consumer. Our app is very -- is changing every 15 days. We are getting more and more service and payments. We're growing at around 30% annually in terms of new users in the app, so I think it looks growing. I think [ this ] is particularly the trend that we're going to look out the most in order to have a great app, so customers obviously don't use just the service, but we're giving them checking account. We're obviously -- and the things we're doing in terms of the app we have. In terms of what we're looking for, we're looking for more convenience for our customers, so that's our main focus in terms. And you can see that most of our technology investments have been for -- to gather more checking accounts, more deposits, so that's very [ true ]. So we're looking to grow as much as we can the channels and building our app as the best in class. And I think we're going to be one of the reference, for sure. I mean, we are right now -- we are referenced in terms of our -- even for individuals, and we're going to continue that path. And we're very confident that where we've invested, as we can do a good business.
Okay, great. And just lastly, it seems like as we enter 2019, the environment is a bit more positive than it was a year ago when we were entering 2018. What are the risks that are most top of mind for senior management as you think forward into 2019?
Well, I think that -- I mean, there's obviously -- I mean, we are probably at the end of a [ what I call probably ] cycle. I mean, we're probably -- that's just obviously something we have to manage. It will have further deceleration in 2020, 2021. That's one of the main topics, for sure. I think the second thing would be the execution of this government. I think most of the - I mean, office stuff has settled down in terms of the key people appointed in the government. And I think we feel comfortable, for example, in our bank regulators. We see that the people are -- the new team is very good, and we're confident they have the knowledge and they have the drive to continue to further develop the Mexican financial system. I think that's good in terms. I think the most we're worried about is execution. In some areas of the government, it's been questioned, some of the appointees. So I think that's one of the main areas that we cannot see a good execution. We even see any controlled business policies at the moment. Definitely, some price -- controlled prices, but nothing that [ anti-focus ] business policies, not at the moment, no. So I think one of the main risks could be something like execution. And as you can see, only that way we can manage, and obviously, that's part of the risks we have to manage.
I have no further questions in queue. I'll turn the call back over to the presenters for closing remarks.
Well, thank you very much for your participation. And everything else, please let us know. Have a good day. Thank you.
Thank you, everyone. This will conclude today's conference call. You may now disconnect.