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Ladies and gentlemen, thank you for standing by, and welcome to Regional's Fourth Quarter 2020 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Manuel Rivero Zambrano, CEO of Regional Credit Union. Thank you, and please go ahead.
Good morning, everyone. Welcome to our conference call for Regional's fourth quarter results of 2020. I hope you and your family are healthy and well. We appreciate everyone's participation today. Despite the financial crisis, we achieved good financial indicators, which demonstrates the resilience of the bank, and we are satisfied with 2020 results. The quality of our loan book performed as guided, with achieving a 1.4% NPL ratio, 37 basis points lower than the previous year. Loan loss reserves increased 46%. 20 of those were created as a prudent measure for specific clients. And even better, our growth in demand deposits achieved a 21% increase. This resulted in a healthy margin of 5.7%, a contraction of only 55 basis points year-on-year versus the decrease of 300 basis points of the reference rate.
We continue to grow our nonfinancial income at a very good pace of [indiscernible] and our plan is to keep strengthening our strategy for nonfinancial businesses, improving our integrated offer of financial solutions and expanding our customer base to specialized channels.
We also had good results managing our expenses, cutting growth over 500 basis points to 11% growth year-on-year over. This resulted as a -- as the optimization of our sales channel. Furthermore, we also had a strong capital position. We have Tier 1 capital pension ratio of 15.9% as of November 2020 and expect 16.0% for March 2021, resulting in an ample room to Regional to increase dividend.
In terms of liquidity, as mentioned, we had a great growth in customer deposits, having a buffer of MXN 20.1 billion. As a result of segment, we can see that the wholesale segment grew demand deposits at 12%, and the cost of risk at 1% and the NPL ratio at 0.6%. The loan portfolio didn't grow much during 2020 with similar behaviors across these different regions. And in 2021, we think we're going to start growing again in markets like Mexico City and Jalisco and other regions where we still have a very low market penetration and do have a robust sales force to achieve double-digit growth. Additionally, we will continue to leverage our relationships, cross-selling much more nonfinancial income-related solutions to our customers.
And for the retail segment, we can see that the SME portfolio grew 10% while the auto consumer mortgages grew 12%, 6% and 1%, respectively. The portfolio in Mexico City and Jalisco stand out, growing 10% and 9%, respectively. SME demand deposits grew 28% while -- and individuals grew 20%. The NPL ratio for retail segment was 4.5% for SME, 3.9% for cost consumer, 2.9% for mortgages and 1.3% for auto.
Additionally, we are very happy with our digitalization efforts, opening 75% of our checking accounts through our digital channels. For the retail banking, we expect our double-digit growth to persist, and we will continue to innovate on our traditional channels to make them much more efficient. Adding a banking concierge, that will allow customers to be served in their banking needs as well as their investment needs.
Our constant focus on service has allowed us to achieve an NPS of 74, which is the best rating in the banking sector, reaching these results for our original culture of constant improvement. So we will continue to maintain this high level of service through continued communications with our clients. This will allow us to continue to grow the consumer and the SME portfolio at double-digit growth.
Regarding Hey, we continue to develop a full banking, insurance and investment experience for our customers. This will continue to fuel our depositor client base and allow us to cross-sell more solutions and credit products to our customers in a very efficient manner. Hey focuses on 2 segments that we call Hey Yields and Hey Biz. Hey Yields aims at individuals in Hey Biz aims at businesses.
Individuals, we offer checking accounts savings as well as credit products like credit cards and personal loans. And we will soon add our in-app stock trading tool and more credit products like auto and mortgages. In the short term, we will be rolling out our insurance bundle that we -- and our payroll solution for customers. And for Hey Biz, the merchant acquiring business is growing at a very fast pace in all the segments that we're serving.
We will be focusing on creating a more robust sales experience for the retail customers. At the end of 2020, Hey had more than 100,000 active users and an outstanding growth for deposits and loan portfolio with 3 -- 23x and 35x, respectively. Moreover, for the merchant acquiring business, we grew 12% the POS and 60% growth on the total payment volume.
We enter 2021 in a position of strength. 2020 was a year with a lot of challenges with, once again, regional showed with strength, delivering above-system results, especially on risk and profitability. With that, we still have ample room for growth, and we have a solid capital position and a good buffer liquidity, and we are prepared to do so as soon as demand arises. Furthermore, as we improve our margins, expand our cross-selling with nonfinancial products, continue investing in technology and consolidating our geographic footprint will allow us to expand our profitability even further.
In conclusion, all these initiatives will translate for 2021 in a loan portfolio growth between 4% and 8%. Core deposits growth between 8% and 12%, generating a net interest margin between 5.5% and 5.8%. The efficiency ratio below 49%. For profitability, we expect net income growth between 6% and 10%, resulting in an ROA between 14% and 17%, considering we pay dividend. Regarding, we expect a nonperforming loans ratio of around 1.9% and a cost of risk between 0.8% and 1.1%. Thank you very much. We appreciate any questions.
[Operator Instructions] Our first question comes from Ernesto Gabilondo with Bank of America.
My question is on your expectations for operating expenses. How should we think about this line considering that OpEx came much higher than expected in fourth quarter, especially when compared to the large-cap banks that get OpEx at single-digit growth? Do you expect to follow now the trends of the large-cap banks? Or do you continue to see double-digit growth at Regional, considering your investments in the digital platform and in Hey Banco?
Another question on Hey Banco is when are you planning to do the spinoff of this business? And I don't know if you know, Banco entering Brazil. Are you looking to do something similar with Hey Banco?
And then my last question is on NIM. I just want to know where are you seeing the reference rate for Mexico in 2021. And how does the higher contribution from the retail portfolio could help NIMs in 2021?
Thank you, Ernesto. One second please.
Hello, Ernesto. This is Enrique Navarro. Thank you for your questions. I will go with the last one, that is the reference rate for Mexico. Our budget and our expectation is at least one more cut. In fact, our base case is that one. We have another scenario with a second cut, but our modulation is just one more cut that we expect either in February or June. Then say that, we don't expect more contraction on the NIM. As you can see, our NIM contraction was almost exactly 8 basis points per 50 basis points as it was reduced at 50 basis points out of 300 of reductions.
In terms of OpEx, what can we expect? We can expect some of the items to continue growing double digit, basically, the ones that are linked to the businesses that are growing 15%, 17%or even like POSs and exchange rate fees that are growing faster. All their related expenses are growing at that pace as well as all the related transactional ones. We have seen an increase on transactions, number of transactions mainly on digital channels or electronic, not only in retail, but also all the electronics. Then we can expect for the next year. About this last quarter, the growth is mainly in expenses. We don't see it as a recurrent number. We had some severance payments during the year. And especially in the last quarter, we let go a group of bankers and the staff executives with a lot of tenure within the company that implemented a lot the severance payments. And that...
Did you know the amount of the severance payments?
It was MXN 58 million in the whole year and it was MXN 55 million in the last quarter.
Perfect.
And also, we were expecting lower results in the bonuses from the sales force. But as we change during the year, with the crisis, not exactly the pandemic, with the crisis, we decided to change with the closures. We decided to change the bonus to focus on asset quality and demand deposits. And as you can see, we overachieved better results than expected.
And then the bonuses for the year will be much higher-than-expected at the -- when we did the calculations or the expected results. That amount should be considered part of the business. Yes, it's one-off for this year. But in the next quarters, we expect to continue making more efficiencies. But remember that at the same time, we are increasing the -- our IT capacity for some of the projects that we have, then we expect still a growth in expenses, a single-digit growth in expenses and a double-digit low double-digit growth, 10%, 12% in administrative expenses.
I know that Manuel will explore more on Hey Banco. But considering that other banks are providing 2020 guidance, can you give us some expectations for loan growth, cost of risk, expenses, bottom line growth and how you're seeing the ROE for this year and if you are considering dividend payments behind that ROE assumption?
Sorry, Ernesto. We didn't get the last?
Yes. The guidance that you can provide for this year in terms of loan growth, cost of risk, expenses, bottom line growth and how are you seeing the ROE for this year, if it is considering dividend payments or not? Anything will be helpful.
Yes, definitely. Well, in terms of our guidance, as we said, loan growth, we're seeing it about 4% to 8%. We're going to try to aim higher, definitely because we think realistically, I think that's portending how the -- and then it goes in this first part of the year. We're expecting bank fees to come out from Russia and China in the next months. But still, we still see a weak start of the year in terms of demand of loans.
So we are cautious about that guidance between 4% and 8%. Growth of the GDP by the effect [indiscernible] and the Central Bank are between 3% and 4% of the economy this year. So later on, we might -- we are expecting more demand investment. I think having a good similar package as in the United States will be positive for manufacturer, agriculture. There's -- And there's a lot of industry attached to a good recovery in the United States. So when that happens, I think that's going to be a boost up in demand.
In terms of what you're seeing with ROE, I mean, there's a lot of capital, but we're not putting into work. Definitely, there's between -- I think we're going to be able to reach around MXN 6,000 million in March above the capital needed legally. So there is -- I feel a lot of them that we can have dividends or if growth continues to -- or if growth accelerates, we have enough capital to fuel that.
We don't see any demand of loans. So I think, huge demand definitely will be -- we're going to be more eager to have more dividend for sure. Just -- we want to make sure that the first part of the year, we could see like a good recovery, right? So that's what we're aiming for. But yes, we do have a very strong capital position. We're ready to growth or anything that comes along. And if there is no use, definitely, dividends [indiscernible] the -- will go out and have an ROE that has -- that reflects the profitability of the bank.
We're -- we have -- we think we do have -- and I think an increase this year between, let's say, 5% to 8%. It will depend obviously on the -- if there's a cut or not in the interest rates. And then for sure, in 2022, we will continue to trend to a more positive NIM when the opportunity arises, so the Central Bank can, again, hike the interest rate to a more stable level of around, I don't know, 6% in -- towards the year, right? So I think right now, you're seeing the bottom part of the NIM move or probably just 1 quarter prior to that. And then follow-on, I think our expectations are going. And now we changed our prices too. The last quarter, we changed our prices. We hiked 50 basis point in our prices in loans or more in many of the lines of credit. So it's definitely that's -- that helped us this year. And the loan mix has changed a little bit more having a rhythm of -- for auto, small, but it's not -- it adds to a bit more NIM, not drastically that the loan mix also to that -- as to that trend.
In terms of -- you said well, in terms of risk, we definitely think the worst is over. We already finished, so we're going to give you more information. I think I can have a slide on that on more information about how the programs rolled out. And we're very positive how those things roll out. And in terms of risk, we already did MXN 200 million more reserve this quarter. Based on specific clients that we really want to make sure they had more reserve than we really required and make sure we had a buffer in that sense.
So for this year, we expect the cost of it to be lower than the 2020. Only probably this quarter is still going to be a little bit more hike on past due loans, but nothing that we don't have already localized. It's very -- it's 2 or 3 clients that we know for sure needs to restructure. And if they don't, we're going to probably dissolve that -- those lines are probably 20% to 40% of their reserve and we've already comfortable.
So in a sense, we might see a pickup not in reserves, not much in reserves because we accelerated the reserve that we made, and we accelerated the write-offs of loans. So we write off more loans in the last 2 quarters. So that's going to help us in this year. So in a sense, we're starting the year with a very strong capital position. A lot of liquidity. We grew our checking accounts massively, demand deposits to repos or the -- or regular additional fleet grew at a very fast pace, too. So we do think we have an ample room to grow. We still have a lot of room to grow in terms of loans, which the main challenge will be loan growth, for sure, I think, this year.
So we see that gradually, banks are more easier to lend. And we see that companies are more eager to start new projects. It's still not at the same pace as we had prior to the pandemic. So that's what we're aiming for, 4% to 8% in terms of growth. And we're being very prudent in that matter, right?
So with all this information, could you able to provide guidance for net income this year?
Yes. As Manuel say at the beginning, we're expecting -- sorry. I don't want to give you by memory if I have, we think net profitability, 6% to 10%.
6% to 10%. And ROE of?
14% to 17%.
Okay. And the 14% to 17% will depend on the dividend yield, right?
Yes. Depending on the dividend that we...
Depending on the dividend amount, exactly. Yes.
Perfect. Perfect. And then I will...
we're aiming for 3,300 or 3,300. That's what we're aiming for, the net income that were aiming -- our personnel aim. And we're going to make sure that happens. But the guidance we're doing officially, it's the numbers that we are very good on.
Perfect. And then Manuel, can you please talk a little bit about Hey Banco? I mean, when do you expect to spin off that business? If you are following Banco and you said it has similar structure than yours, but you had a more starting stage. So anything around that would be helpful.
Yes. Well, we don't -- Banco's story is very compelling. Definitely, I think that the [indiscernible] quite different. So I think something might be different, but some not. Our aim is to grow Hey Banco in terms of deposits and cross-sell products, solutions, services and credit products to our customers. We're not aiming to be a sub-prime lender. We're not aiming to be huge on credit card. We set a plan or we plan that don't have a experienced prior streams to go. We're not aiming for those.
We're aiming for those -- the deposits definitely, and we're going to give them more solutions in order for them to have a lifetime value that is competent. So we're rolling out -- well rolled out this stream today, our insurance bundle that we're cross-selling with [ street ] [indiscernible] because it's very quick and you buy 3 coverages, one for life, one for the fraud and all other offering. And we have a very simple solution and those are the things that we're rolling out, which are going to make more commissions, more business, right? We do -- we are cross-selling credit cards, but we're -- we don't think -- it's not going to be a huge demand deposit. So we're not aiming to grow 30 or 40x the credit card in case, for sure.
We did see a spike in our NPL ratio in the credit card portfolio in Hey because we did some tests with some clients that were very risky. And we were not very happy with the results. And we just were redoing that, a guaranteed credit card for those clients where you have to put on the pocket to gain a credit card. It's going to be a very low interest rate of 20%. That's low in Mexico compared to the 60% of Hey Banco. But the new ones really are not going ask for a guarantee. So we're going to ask for a guarantee to have -- to be able to get a lower rate and for us to have a lower risk.
For the high-end customers in Hey, we're going to give a good credit card because they have a good credit score. If they have a good history with payment in another banks, we're going to make sure they have a good offer. But if it's -- it -- we're not aiming against the high-risk clients. One thing we're aiming for, payroll then -- payroll services. So we're cross-selling Hey solution to the business customers of Hey so they can have the payroll done through Hey solutions. So their employees are going to have a Hey account, one completed digitally. So it's going to be, obviously, the best solution in the market for -- that is going to be the only completely digital solution for payroll. I think it's going to be quite efficient, and that's going to give us a good market that we didn't serve in the past.
Now we didn't serve this in deposits because we didn't want those customers in our branches. As you know, our branches are more for our preferred and high-end customers, and we like them to keep it that way. So for the digital and the -- for the mass market, we're doing it completely different to Hey Banco. So I think that's going to be a good source of growth of customers now. And then we're rolling out to capital equity market. So we're going to be able to sell spots to both Hey Banco and Banco. It will go up to our customers. And I think that's going to be very well received by our customers. They like the solution very much, and I think they're going to be -- that's going to generate a lot of revenue in terms of [ our ] financial income.
We're going to do mortgages, too, in Hey and not alone. So we're aiming for everything that's gone outside of branches. So for example, all the loans that we will benefit from, generate of autos from the car dealerships. We're doing it this year through Hey. We're starting it small, and we're deploying the solution this quarter. So we're aiming to better the productivity in that sense. Now we're not lowering our credit acceptance. We have the same credit acceptance. But what we're aiming for is being much more productive, the same with payment infrastructure, just putting everything together the technology and having everything out of it. So we're going to -- we're seeing good results there. And we think, this year, we can generate a good portfolio for Hey there. And also in mortgages that we see, that still there is a good opportunity in that sense. And as we continue to cross-sell more products to those customers that are right now who actively using Hey.
So we have 100,000 clients that are now actively using Hey. We are going -- we are growing at around 8,000 customers. Sorry. There's a lot of noise. Sorry. We're growing at about 8% -- 8,000 customers per week. So you can imagine here that the job there is quite big. And we're not -- the strength thing is we're not actually spending a lot on marketing. They're doing it. Everything is organic before downloading the app and doing them by themselves. So we're not heavily investing in advertising anymore. So those plans are organic, and we're very happy with that. And I think Hey Banco this year will be the best digital offer for sure in the, I'll say, between fintech and big banks, for sure, and growth should be very stable. It should be very, well, localized and aiming, as always, with quality, quality from the depositor side and quality for the loan growth.
In terms of -- and in terms of the merchant acquiring business that is in Hey, the main purpose why it is in Hey is because it's a very intensive, intuitive technology, and we're investing a lot. We've been investing a lot in the merchant acquiring business. So you can see that we're growing total sales volume around 60%. So that's pretty amazing. It's based more on our wholesale client that we have -- that we rolled out acquisition in the second part of the year and that will be fueled growth.
We think we're going to be able to continue growing. And the main objective this year is to grow the most traditional part of the market, which is going to be like small companies needing a merchant for in-service. We're going to do that in a very sufficient manner completely remotely, very different from other banks and solutions out there. And we think that's going to be very well accepted, and that's going to be a good part of the -- of growth in that business.
And our next question is from Yuri Fernandes with JPMorgan.
I have a first question regarding operating expenses. The quality was not great. So maybe I got the number wrongly. I understood that the increase in personnel expenses this quarter was not really related to increasing number of employees, but regarding this average package, like a reduction in the name -- in the number of senior bankers, right? And I guess, the amount was 60 more -- MXN 54 million, the impact. But still, if we take that out, personnel expenses, we're still growing like 35%, 36%.
And I guess the bottom line here was that operating expenses should grow 10% to 12%. So I just wanted to consolidate things, like why expenses were growing, like personnel expenses were growing that much in such a tough year and if 10% to 12% is the growth for 2021. My second question is regarding Hey, and Manuel was very clear explanation. So basically, the strategy should grow Hey. You don't plan to do mass marketing, mass media.
It's going to be word of mouth, so basically customers passing the message to other customers and more organic growth. But my question is, it's more provocation, right? Because usually, we see those new banks as a very quick race. Everybody is going for the retail. So maybe you -- if the management never thought about maybe paying less dividends and investing more in Hey, so you can grow faster and if that would be a possibility or if you don't think that's a good strategy.
And my third and last question is regarding asset quality. If I'm not mistaken, the guidance you provided in the beginning of the call was cost of risk from 0.8% to 1.1%. I would like to confirm that those are the numbers. And also, if you can provide an update on the credit relief, like what's the amount of your portfolio that is under relief. And the situation in Nuevo Leon. Like I know the lockdowns are more selective. But if you can provide us like some update on how the portfolio is behaving.
Okay. Thank you, Yuri. Enrique Navarro. In terms of operational expenses in salaries and related, yes, part is the severance and retirement packages that we did, not only to this group of very seasoned bankers, but also we did a general reduction in the commercial and industrial businesses. And you are right, as I mentioned to Ernesto, the other part is that we'll provision very low in the second and third quarter for bonuses. And once we were close to finish, we decided to make a higher provision, around MXN 60 million additional of provision for bonuses as we overachieve in some of the main metrics that the bonuses are paid from fees to pay exchange POSs.
And as I mentioned previously, also all the checking accounts, 50% of the bonus of all the bankers is related to checking accounts, demand deposits. We exceeded the -- more than 100%, the whole. I don't know if I was clear on the 2 main -- and there are another small, say, annually for fourth quarter adjustment that we do, but these are the 2 very large part. The provisioning, well, it's part of the businesses. The severance and retirement packages is not -- are not -- we expect more reductions, not of the same size, but we expect more reductions this year. But -- and again, we expect a very low growth in expenses, salaries, expenses related to salaries for this year, for '21, where we are still expecting a growth of 2 digits is in the administrative expenses. I don't know if it's more clear.
No, it's more clear. So basically, personnel is a big chunk. It's more than 50% of total expenses or noncredit rate expenses. So administrative expenses growing 10% to 12%, personnel growing less because you probably [ reduced ] your head count this quarter. So maybe total G&A growing, I don't know 6%, 7%. That's the bottom line, right, like from those 2 moving parts?
Yes. Yes. We expect -- our expectation, not really our budget, our guidance. Let me open the budget here in my...
And those expenses are not related to Hey, right? Because I was checking CNBV data and the number of employees of the bank has been very stable since last year, right? It has not, changing a lot.
No, no.
So it's not related to Hey. It's the legacy bank.
It is. The reduction is in the legacy bank. The increase is in both sides, in the technology side. We are reducing bankers and doing efficiencies on the operations departments, but we're still increasing the innovation and technology department. Then you will see a lower number. We -- the number is public through the CNBV.
You will see a reduction, but then an increase in the last quarters and in this quarter. We don't disclose by department but that, the behavior. Our reduction in all the -- I'll rightfully say, an increase. I won't like to say only on Hey because the technology and innovation departments serve to both brands right now.
No. That question is super clear. You need to -- it makes a lot of sense.
In terms of asset quality. Yes, we're confirming the number. We guided 0.8% to 1.1% cost of risk. And in terms of the credit relief programs, if you remember, it was around MXN 27,000 million, the -- MXN 129 million. Out of that, 90% has already finished the program. Out of that 90%, only 3.2% is not paying or has not made a payment at all.
And that amounts around MXN 774 million. And this -- we have provisions about 30%, and we have the collaterals in around -- another 30%, then we are expecting a deterioration of around 40% out of this 3.2% out of this 27%, sorry, for all the percentages, but it's in that way. We have seen a better-than-expected results. We are going back to similar numbers than reduce to the programs.
Perfect. And regarding the Hey strategy to grow, lately, what we saw was you not paying more for the deposits, right? You're paying like 5.5%, 6%, like it was an okay deposit yield. And my question was why not invest more in mass media? Why not reducing the dividend payout and investing more in the Hey so you can grow quicker on the retail? Like it's more on that regard. More to understand the rationale, the strategy behind the growth in that business.
Manuel?
Okay. Sorry. Sorry. So I'll continue with that. Yes. For Hey, what we're aiming for is to be profitable, first, in a client basis. So we're aiming to be -- to have a positive lifetime value per client. So that's our main goal right now prior to growing at a very fast pace. So definitely, if we invest more in advertising, we'll grow more. But I don't think right now that is needed at all. What we're aiming for is to be profitable. We want to make sure that we will be profitable on a per-client basis. And these things are going to be really able to do that at the end of this first half of the year. Because with all the things we're rolling out, we're going to make sure that, that's going to happen.
So those new banks that are only one-off product, that's going to be a huge challenge to -- I don't know how they're going to be able to do that. We're very blessed that we have a lot of products already above it. And obviously, we have to add this digital experience over here to be good in enrolling and when digitalizing the whole experience, customer service, customer care, everything that's needed to be efficient. So I think if we don't have the right products to make that happen, I think -- I don't think that's going to be possible in the future. So throughout, the main goal is to be profitable in the lifetime value of the customer and from then on growing at a much faster pace for sure. So basically what we're -- in terms of the deposits -- the deposit costs, we're lowering, we've already lowered the cost of the rate.
Still, it's a very good rate, and we can do that because we won't have any [ financials ]. So we can have -- we can pay around 255 -- 250 basis points more, and we will be as efficient as a new branch of Banco de México. So we are going to be able to give clients a better rate and still be very efficient. Obviously, this rate comes to that price because it's completely out of service. So you're not going to have the same infrastructure as the intention. So it's not for everyone. Actually, the clients that we're gaining right now are -- were not -- don't have any strategy [indiscernible] banking to get to this time because they are too small to go for the banker. But for sure, having the auto service in Hey Banco, they're going to be happy with the rate and they're going to be very efficient in terms of operating costs and services.
We're managing our costs. We're -- right now, we're going to start to charge per card. So if you want physical card, you have to pay for that. So we're lowering our expenses. And we want to make sure that we're going to be the most efficient bank in Mexico for the retail business, prior to volume.
Our next question is from Brian Flores with Citibank.
Just I wanted to ask about the behavior of the SME portfolio in particular. You -- as you mentioned, it was better than expected for your gain. I think for other competitors, it has been the case, too. So just wanted to have a quick overview from your side on why is this happening. Why is this better than expected? And if you think like this is homogeneous across the wholeness in this segment? Or is it mostly because of write origination on -- and prudence on your side?
Yes. So we're happy with the results for sure. I think it will depend on who we cater, which clients we cater and how you -- how those bonds were originated. In our way of originating for small company loans, we did it more traditional. I think the big banks overdid the SME portfolio in some ways, doing it more like consumer loans with very small tickets, where they've had the government guarantee for sure. Indeed, that helps fuel the growth. But I think in that sense, those branches are going to have a bit more trouble collecting that we -- that -- refer to what we have done.
The SME portfolio is around 30 -- MXN 13,000 million, but only MXN 8,000 million will be more the revolving line and the simple lines of credit. The others are going to be auto and leasing. So those are more -- would be more -- that part of the portfolio is much more resilient. And the other part, the other MXN 1,000 million are the ones that are -- have the 50% guarantee of the government, and it's -- which have been good as well. So we're happy with the results. We're -- we grew the portfolio 10%. And I think that's mainly so because of the government guarantee that hiked from 50% to 75% with the help of the local governments and that we took advantage of that, and that's part of the explanation for growth there, and that's continuing this year. So this growth is continuing this year. And I think we're going to be happy with that demand.
I mean, it's still -- I mean, compared to other part of our portfolio is not huge, but this is heading pretty well.
Okay. And just as a quick follow-up. Would you expect the same or double-digit growth for this particular portfolio this year? Would you lower it down a little bit?
No. I think it's going to be -- I think the trend is going to continue. I mean there's a lot of tuning on the checking accounts for small businesses. Small business checking accounts grew 26% in the last 12 months. That's staggering growth. So they have an ample liquidity in their checking accounts. So I don't know how much demand is it going to have in the first half of the year. But hopefully, when the -- that will arrive and then you start getting back to normal. They're going to demand really more credit. So I think aiming for 10% is -- for the year, I think it's feasible.
Our next question is from Neha Agarwala with HSBC.
I have a few clarifications as well. First, your efficiency guidance is below 49%. You have around about 47.6% in 2020. So we probably see some deterioration with slightly weaker revenue growth versus higher single-digit OpEx growth. Is that right?
I don't know if I understood you well, Neha. But yes, we still expect a little bit of deterioration on the cost-to-income ratio. We -- and we expect it to improve in the next years, but in 2021 or similar or a little bit higher.
Okay. Then on the reprogram portfolio, you mentioned that MXN 774 million is the amount of the reprogram loans that has not paid at all. Of this, you mentioned the collateral is 30%. And what were the other numbers? I'm sorry, I did not catch them.
30%, we have already provisions. 3%, we have collateral, and 40% is what we expect that we will do either provisions or collect. We are working -- obviously, we are working to collect, restructure or foreclose all the loans. But up to now, that is the results.
And the cost of your guidance of 80 basis points to 110 basis points for this year, this is taking into consideration only the MXN 774 million of loans that have not paid? There is a chance that if...
No, it's -- sorry, no, it's for the full portfolio, sorry to interrupt, Neha. Or I didn't understood your question. Sorry to interrupt you.
So you see risk in the MXN 774 million of portfolio that have not paid anything. But if suppose the restructuring required is more for the other loans or the dynamic worsens and you have to extend more relief programs to other parts of your portfolio, that could increase the cost of risk of your -- beyond the guidance.
Beyond the guidance, I don't think so even. We believe that the MXN 1.1 billion was a little bit higher. But considering that situation that you mentioned, we see that as the worst scenario. We will be talking in MXN 1.1 billion, around MXN 1,200,000 million -- MXN 1,200 million that helps. [Foreign Language] MXN 1.2 billion.
MXN 1.2 billion, yes. That is the worst case for you?
That is -- yes. That's including all the portfolio, not only the 27% of the ones that were in the relief programs. But obviously, most of it will go to the ones that were already due before the relief program. Then some of them are going back to review after the relief program, and we keep working with them.
And in terms of rate, you said that you expect another rate cut. Do you expect a 25 basis point rate cut? So the expectation is 3.75% for the end of the year, as if?
No. Our expectation is 4%.
It is 1/4 from 4.25% that is right now to 4%.
Okay. So you expect 4% for your rate?
At that [ context ] -- yes. We acknowledge that most of the analysts expect a second one to 3.75%. But it -- we believe that it will depend on inflation and also on the GDP growth. But in...
And the NIM sensitivity...
Internal one -- sorry?
And the NIM sensitivity is the 14 to 16 basis points, 200 basis points change in rates?
Yes. This is still a -- will be a little bit lower as we had a growth in demand deposits, but not significantly. It will be like 8 basis points per 50, or right now, as we're expecting only 25. It will be 4 basis points per 25.
Okay. Perfect. Then on dividends, in the first quarter, you mentioned that you have about -- you were going to pay about MXN 2 billion on the 2019 earnings, but that has been deferred. So is that already put aside? And is that reflected on your CET1 ratio? Or is the MXN 2 billion on the 2019 earnings included in the CET1 ratio that you show?
Right now, it's included in the CET in the capitalization ratio. Yes.
Okay. So it's at the bank and included.
Yes, it's included in the bank. Then -- and in the bank and in start, both companies are very well capitalized. And, yes, we will propose that amount to the general assembly and to the authorities in March and April, depending when is the general assembly.
So you will -- once the regulator allows you to pay dividends, you will pay the MXN 2 billion in 2019 earnings plus additional amounts on the 2020 earnings. Both will be paid in '21?
That's our expectation. But for the second one, we prefer to wait and see how the loan growth and the situation evolves. Right now, we are looking one-by-one.
So is the early guidance...
That assumes we have ample -- the guidance of ROE is only considering the initial one.
Okay. Perfect. Okay. And my last question is on Hey Banco. You said you were looking for a strategic partner for Hey Banco. Any progress on that front?
On what?
On Hey Banco. You were looking for a strategic partner?
[indiscernible]
For Hey Bank?
I'm sorry, I'm having trouble with my audio. What -- I'm not answering as much. It depends.
If we are looking for an additional partner, that's the question?
Yes, yes.
A partner, an external partner. No. No. [indiscernible]
Not yet. We're still open definitely. So open -- we don't have a process open right now. We put that on hold because of the pandemic. And we're going to wait until this half of the year to see and to see if we can start doing it. It will depend obviously much. What we're aiming for is to have a more -- a bigger volume in the business to be more robust. And so we can choose who we go for. So we're going to wait for that. We're still open to talk -- I mean, there's -- we have more than conversations. I'm going to have one next week with someone, but more in an informal way than a formal process.
Our next question is from Thiago Batista with UBS.
I have one question and one very small follow-up. But on the question side, on Banco Hey, you showed in the slide the level of NPL of the consumer business of Banco Hey.
What -- if I'm not wrong, the level is about 12% of NPL of this consumer portfolio. What is the level of delinquency ratio that you believe should be a kind of more normalized level of this portfolio when this portfolio is more mature? So if this 12% is a good number or it should be much lower than that?
And as we're aiming to do.
Yes. No, no, no. Go ahead. Go ahead, I can do the follow-up after. Go ahead, sorry.
No, we're aiming that -- we're aiming to have the same quality as Banregio has in the credit card portfolio. So it's the same level of risk assessment that we're aiming from now -- from this quarter from now on. We -- that hike was made because of a portfolio we did prior to the pandemic. In the first part of the year. We did with 2 tests with high-risk clients and others that did may -- that did well, but we have a couple of the portfolios that didn't do well.
And obviously, combined with the pandemic, they've got worst. So we're not aiming for those clients. So we're going to have -- we're aiming to have the same NPL ratio in Hey Banco credit card portfolio as one basis. And the higher-risk customers, we're doing a credit card with a guaranteed -- liquid guarantees or if we have to make an investment, so we can they a credit card. That's not going to be very popular for sure, but I think it's going to be there is much more soft for the customers and a product that is going to be able to allow them to go to set up a guarantee in the future. For sure, we're going to have banks or I think we're going to do the fast credit cards with no guarantees and probably we're going to take a lot of losses. So we're not aiming for that. No.
Perfect. And very short follow-up on the dividends, so only to see if I got the right message. So basically, the bank is trying to pay the dividend for '19 in, let's say, you guys are trying to approve this in April or something close to that. And then if possible, we -- the bank were trying to pay part of the earnings of 2020 probably in the second half. This is -- right, it is the idea?
Yes.
Okay. Okay. And do you believe the regulators are okay now to the banks or to the -- to Regional to return the dividend payments? Or they are still uncomfortable with this -- those payments? Do you have any sense?
With this -- what? Sorry, I didn't heart that part too well.
Now if the regulators are okay that the banks should resume their payments.
Initially, yes, but we haven't made a specific process of approval with an amount. We have been talking in terms of if we can resume. If you remember, they made a statement that we have to communicate to them in advance. Once we have an estimated amount, and we have all the calculations of the capitalization index, we will do during the next month, the formal approach. Then we are expecting that they approve as we have a very high tier 1 level of capitalization. But we don't know it's still there -- what will be the answer because it will be our proposal. But we expect that is approved -- to be approved, but we don't know what will be the answer.
Okay. No, very clear. Yes. But in terms of room, I mean, in terms of room, we do have that possibility to do one for 2019 and another for 2020 because of -- I mean, the loan growth that we're aiming for, for example, is we aim for 10%, that would need around MXN 1,200 million of capital for those loans.
And the rest, we don't have any use. So we don't have -- we don't like to have extra capital sitting there and not producing. So it's much better to pay [ dividends ]. So we're going to see it, how the year goes. We didn't feel -- we didn't see a huge demand. We don't see any complications with the recovery, definitely another thing -- another dividend is more probable, right?
Our next question is from Ricardo Borgerth with BTG Pactual.
I couldn't hear in the beginning of the call. Could you please repeat the guidance for 2021?
Yes.
Should we -- you didn't hear the -- sorry?
[indiscernible]
Yes, yes, yes. For loan portfolio growth, we are expecting between 5% and 8%. Obviously, we are aiming an open when the money is back, but that is right now our guidance with the demand that we see right now. Core deposit growth is 8% to 12%, NIM between 5.5...
8% to...
8% to 12%. We still expect to see growth in deposits 8%to 12%. NIM, net interest margin, 5.5% to 5.8%. And efficiency ratio below 49% or around 49%. We expect a growth of the net profit of 6% to 10%. The ROE, considering the payment that we were talking right now, will be between 14% and 17%. Obviously, if we don't pay dividends, it will be lower. And then finally, the nonperforming loan ratio around 1.9%. That's similar to where it was before, and cost of risk between 0.8% to 1.1%.
And our last question is from Jorge Henderson with Santander.
I have a couple of questions regarding Hey Banco. You already commented on the partnership. Could you remind us what do you seek in a partnership? Or what would be your main objective? Also, what are your [ competitiveness ] in the Mexican market right now? How those have [indiscernible] differentiated from that?
Also, I would like to see if you could give us some color on what's your view in the medium term or the rate of payback in the Regional financial group.
Okay. I couldn't understand the question, sorry. Can you repeat yourself, Jorge?
So okay. So my question was related to -- so what's your objective on -- what do you seek in a -- as a big partnership for Hey Banco? And the second question was, it would be -- like what -- or compared with the Mexican market for Hey Banco? How do you differentiate yourself? And then that will be the first question. The third thing was about if you could give some color on Hey Banco in the sense it rate in the Regional financial group in the medium term.
Okay. Manuel? Go ahead, Manuel, or do you want me to answer?
Like what percent of the portfolio is comparable?
Okay. If we have a comparable in -- of Hey Banco and what is our advantage.
And what's our advantage? Okay. So we're -- for a partnership, what we're looking for is, one, to help us grow in a more exponential way that we're not in that part of this as we are right now. So we can think of having a huge opportunity to become a relevant player in the retail part of the business. So having a partner will allow us to make that objective feasible. So right now, our objective in the short term, as I said, is being profitable in a lifetime value of the customer.
So each experience should be profitable by its own, and that's our aim in the short term, not necessarily grow. So that's where we're helping a little bit the partnership and trying to figure that out and rolling the solutions and the products that we're working on to make sure that happens and later on see how we can extend this solution to a greater extent, right? So that's what we're aiming for.
And how -- I think the second question about -- was about how we differentiate ourselves with the competition, right?
Yes.
Okay. So in terms of we're being digital is not our advantage, and that's not something we're bragging about. What we're aiming for is really being more relevant to a customer, giving them solutions that are -- that cater both specific clients. So there's not many products that are really catered for those very small customers. The big banks have just generic products that try to push for all the segments, right? So this is a solution catering to those specific clients and really making sure that those products are friendly for them, right?
So it's, not only having the product, but always converting those products to be for that specific segment. So obviously, if they receive right now a pretty bad service, a pretty bad deposit or interest rate, they receive not many offerings from the bank outside credit cards or personal loans. And we want to make sure that they have all the available products that a typical customer has as a retail experience with a bank and making sure we have the ability to cross-sell those products in a very easy manner.
I mean, I think next quarter, you're going to see, hopefully, good results in terms of insurance. So that was a very easy deployment. I mean it's compared to the experience, but it's easy for the customer's size, and I think that's going to generate in terms of noninterest income, right? So that's -- well our aim is to, as I said, continue to make profitable those relationships that we have right now.
So compared to our traditional banks, you're going to have a much better service, like an NPS of 75 compared to an EBITDA of 50 or 60 or sometimes, they are 40 or 30. So that's a huge gap that we have in customer service. So in terms of how we differentiate ourselves, better pricing, better service and products and solutions that are completely made for those customers, right? And the other thing is that we're learning. I mean, this is a very different part of the business that we're aiming for. I mean what we were normally very comfortable with our bankers and then doing the tough part of the business. And now we have to do everything with auto service, and that's very complex, right, to manufacture.
We're happy that we already get -- we're past that, and customers are happy with the solution and now are very happy with it. And that -- I think that trend is going to continue more and more. We're learning. Every 15 days, we're changing the app. Every 15 days, we're getting new things and new things and learning from our customers and transforming those things that they don't like into a better experience. So I think that's main part of the strategy is trying to have -- gaining a momentum in order to have a 15-day relief that continues in bettering that experience for those customers that the banking sector are not caring in their journey, right? So I think it's going to be much better and better and making sure that every 15 days, we have better in the solution.
Okay. And for -- my first question was the medium term places with [indiscernible] I asked this question because I did not have -- to have more color on what -- and if Hey Banco also a real, or a separate bank or if it's going to be inside like [indiscernible] I mean you're saying you're...
Yes.
have like you have a short-term objective of gaining more users and [indiscernible] But is there any insight on that?
Well, I think if things go very well, that is going to -- is a thing that must happen. I mean, if things go very well. I think some stories are very good together, but they do not have an independence because of their different structure of cost and income. So you guys have more color. And I think it's going to be much more transparent. So if the operation becomes too big to handle in one entity, it's much better if we do so in 2.
So it's going to be -- it's going to depend on the volume growth that we generate. If we generate a lot of volume and a lot of growth, I think the best thing is to have a more clean balance sheet for the legacy bank, if you recall it, and maybe more and another for Hey Banco. There is no challenges outside just the regulatory one. And so in a sense, we -- it could be -- it can be done very easily right now. So that's what we did for rental.
And our next question is from Federico Galassi with PAAMCO.
Two questions, if I may. In this environment, what do you -- or -- and if the regulator allows you to pay dividends, how is your view or what do you believe that will be the capital ratio after the payment of dividend? Do you believe that 14% is okay or you can go below that number? And the second one is how is your view for 2021 in the operational leasing business and in tax rate?
Yes. In terms of if we get the approval, that is a big question, and we managed to pay the MXN 2 billion, we will move from the current 15.9%, 16% capital ratio to 14.1%, 14.2%, assuming we grow the loans. Obviously, we maintain the very low growth. It will be higher. But the assumption is that we regain growth. Then we'll be a little bit above 14%.
As Manuel mentioned, we have still ample room all the way to -- we have an internal threshold that is 12% that we consider is a prudent one that we are not crossing. And also, well, the regulatory one is 10.5%. Then you see the 14.1%, 14.2% is still far from the -- from both limits. I don't know if I answered it, Federico.
And in the side of operational leasing business tax rate, what do you expect for this year?
The operational leasing business has been very stable, almost no growth, neither in assets nor in income. We're expecting to grow back again, but we don't have big expectations. So it's very similar to what we guided, 4% to 8%. Also as well as in the loan book. But definitively, this year -- as the year was low or very similar to the last year, we expect a growth in revenues in that range.
And ladies and gentlemen, there are no more questions at this time. I'll now turn the call back to Manuel for closing remarks.
Well, thank you very much for your participation today. We appreciate any further questions that you have. We're happy with the results this 2020. It was a tough year. There's still challenges ahead. We still have -- we have an ample position in terms of capital and liquidity.
And when demand grows and then we have a stronger demand, I think we're going to be very ready for that to happen. And hopefully, we can continue our digitalization efforts and being more productive and planning to make sure that we stay safe. Thank you very much. Bye-bye.
Ladies and gentlemen, this does conclude today's conference call, and you may now disconnect.