Regional SAB de CV
BMV:RA
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Good morning, ladies and gentleman. Welcome to Regional's Fourth Quarter 2022 Earnings Call. Today, we are joined by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramírez, Chief Financial Officer; and Alejandro Lobeira, Head of Strategy and Planning and Investor Relations. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Manuel Rivero Zambrano. Thank you, and please go ahead.
Good morning, everyone. I hope you and your family is healthy and well. We appreciate everyone's participation today. We're very pleased with the outstanding results that Regional achieved during last year. We saw strong bottom line and improved financial indicators, mainly driven by a great funding base. Excellent results in our nonfinancial income strategies and a solid performance across all of our portfolios. // We would like to highlight our commercial loan portfolio, which grew at a compound rate of 8.5% during the last 5 years compared to that of system of 5.4%.
Regional reported a net income of MXN 1,336 million during the last quarter, representing an increase of 45% year-on-year, resulting in an expansion of our ROAE and ROAA. It is important to mention that due towards the adoption of IFRS standards, we reclassified MXN 5,400 million from our pure leasing portfolio to our loan portfolio. This reclassification had a positive effect in our equity of MXN 19 million. Thus, income formally recorded as nonfinancial income is now recognized as interest income having a full year impact of additionally MXN 467 million in financial margin and a reduction of nonfinancial income for the same amount.
The net income was not impacted by this classification. The financial margin expanded for the sixth consecutive quarter, reaching MXN 3,166 million with a 57% year-on-year variation. This strong upside and trend is as a result of the financial margin with a higher policy rates and higher growth loans. Our successful strategy is to maintain double-digit growth in deposits plus the recognition of additional financial margin due to reclassification previously explained.
Without considering the leasing reclassification, the financial margin had grew 34% year-on-year.
The NIM for the last quarter of 2022 was 6.8%, and the NIM of total loans was 8.9%, and our loan-to-deposit ratio continues to improving on a year-on-year basis, reaching [ 189% ] where our CASA ratio stood at 57%. We had a great performance of our asset quality, reaching the NPL ratio at 1.3% and a quarterly cost of risk at 0.6%.
During the fourth quarter, MXN 193 million provisions were created, which is 26% lower than last year. The nonfinancial income keeps expanding at an accelerated pace. Our metro and acquiring business income expanded by 56% year-on-year while growth of insurance and fees grew 26%. We are considering this reclassification, the nonfinancial income grew 20% year-on-year.
Total revenues for the quarter amounted to MXN 3,193 million, representing a year-on-year expansion of 27%. Operating expenses grew at 9%, reaching MXN 1,491 million (sic) [ MXN 1,481 million ], mainly driven by our customer acquisition strategies that translated to higher margin marketing expenses and the volume expansion of our of cards and payment business. Salaries and benefits amounted to MXN 847 million as a result of higher headcount of developers commercial and service areas as we have been staffing as a result of our client growth. Therefore, the efficiency ratio for the quarter stood at 43.7%, showing a contraction of [ 519 ] basis points.
The capitalization ratio remained very strong at 15.2% as of November 2022, which generates excess capital of [ 316 ] basis points compared to our internal limit of 12%. During the quarter, the total loan portfolio original delivered 16% growth, which was led by the SME consumer portfolios, which kept growing at a double-digit rate and the reclassification of our leasing operations. The northern western regions of the country have experienced higher income activity due to the foreign direct investment inflows. These regions have led the demand in our loan portfolio, presenting an 11% and 18% growth, respectively.
Our commercial efforts have shown extra results from for Banregio the SME portfolio increasing 25%. Demand deposits from Levo Leon and Mexico City expansion of 13% and 26%, respectively.
On the other hand, the wholesale portfolio, a loan growth of 8%, highlighting Jalisco, which grew 23%. Demand deposits, which keeps increases in double-digit pace, expanding at 17% year-on-year. We expect this trend in deposit to continue during the next quarters, which we will benefit regional for further improving margins. We're confident that the year ahead represents a great opportunity for loan growth as the regions where we have more presence in the north, west and central regions have always positioned to have strong credit demand due to the positive effects of near shoring.
Even though we have been seeing loan growth driven by near shoring, we expect this trend to continue to this full effect for the next several years. demand will led by sectors manufacturing, industrial [indiscernible] commerce, logistics and agro business. We will continue seizing opportunities in the industries to foster portfolio growth without compromising asset quality.
In the coming years ahead, we will focus on expansion of our infrastructure in the key regions with the objective of return our maximum potential of infrastructure of the segments we want to serve and increase significant market share. As part of Banregio's 5-year plan, we will accelerate our branch growth, executives and ATMs.
In other regions of Mexico, we will where we are already been serving our customers. During the 2022, Banregio will adopt Hey's platform to continue bettering our customer experience, improving cross-selling capabilities and unlocking customer engagement and growth.
Regarding Hey Banco, it keeps attracting new clients as our commercial strategies are delivering high-quality growth. This quarter, we added 2 important functionalities of our customers throughout alliance with OXXO for cash withdrawers, in our partnership with Google Pay to keep expanding our payment alternatives.
As of the fourth quarter, Hey surpassed 582,000 active clients, reaching MXN 10,240 million in core deposits and MXN 6,990 million in loans. 30% of our customer base have an active credit card with an average transactions of 4.14 transactions per client. We're very successful at rolling out new products, furthering our cross-selling index at 1.8 products per regular client and 2.54 products per client of our Hey Pro clients.
We're bettering our NPS. It stood at 61, and we expect this trend to continue as we advance our capabilities to serving our customers, and we continue bearing our cost of acquisition. As a result of the efforts to add more value to our offer and bettering our alliances with our social media partners and the original content creator throughout our Hey Media brand reaching 1.2 million followers on our social media accounts.
We're focusing on adding more value to our Hey Pro clients, which grew faster than our client base, furthering our cross-selling and productivity. We continue bettering our lifetime value of our customer acquisition on both individuals and small business as we have been able to cross-sell loans at a faster pace with a very good efficiency, quality and pricing.
During the quarter, Hey [ Banco ] kept showing excellent results. The transaction volume had an average monthly billing in the quarter of MXN 10,086 million, a 17% increase versus the fourth quarter 2022.
The number of active POS reached 40,969 increasing 16%. Our objective is to further expand our customer lifetime value through our differentiated offer and based on size, sectors and special needs that will result into even better cross-selling results.
In conclusion, we are very proud with Regional's 2022 results. Our efforts have been reflected in an enhanced profitability and asset quality and an outstanding deposit base that allow us to operate with excellent quality liquidity levels, solid growing growth, great performance of our nonfinancial income line and performing results in our digitalization efforts. We are optimistic for the upcoming year, and we will maintain distinguished customer service and an ample offering as key pillars to keep redefining the financial service industry in maintaining regional as the leading financial institution in Mexico.
At last, we would like to show you the next year financial objectives throughout our guidance. Total loan growth between 10% and 15%; core deposit growth between 10% and 15%; NIM between 5.8% and 6.2%; net income growth between 10% and 12%; ROAE between 20% and 22%; NPL ratio below 2%; cost of risk between 0.7% and 0.9%; and the efficiency ratio between 43% and 45%.
Regarding both brands and the Banregio loan growth should stay between 9,700 and 14,200. Hey Banco between MXN 4,800 million and MXN 6,400 million. Core deposits between, I'm going to say, [ 8.7% ] and 3.8%; and Hey Banco 4.4% and 5.2%.
The NPL ratio would stand at 1.3% and 1.6% in both banks. And cost risk base between 0.7 and 0.9 and in Hey Banco between 2% and 4%.
Thank you very much. We appreciate any questions.
[Operator Instructions] Our first question comes from Olavo Arthuzo.
I just wanted to understand a little bit more on Hey Banco. Just an update on the case. First, I would like to understand about the asset quality among the 3 types of loans, the credit card, auto and mortgages. So how has been their behavior along the last year? And what the bank sees going forward for this year? And will we need to pay more attention, some segment-specific or Hey Banco? And the second question is just for you guys to remind us what is the goal in terms of clients for this year?
Thank you, Olavo, for your question. In terms of the asset quality, we have improved in Hey in -- from -- in credit card, we have NPLs of 3%. But in auto and mortgage is -- in mortgage is 0% of NPL and in business loans also. Let's stop there.
In credit card, it's 1.9% at the end of December. And auto is only 0.3%. As you can see, it's a very good NPL ratio, and we are reporting the total for Hey is 0.7%.
Okay. And I understand that this is because of the early stage growth company, so the next question on this, and then if I may do a follow-up on the guidance. But -- can you just remind us on the goal for Hey Banco in number of clients for this year? What do you expect?
Yes, Olavo. And I will further your conclusion in terms of why our NPL ratio is so low. And I'll say that the main aspect of it is that we are targeting quality customers. So that tells you that the number of clients that are delinquent in the first 90 days are pretty low. So in that sense, that tells you the type of strategy we're aiming at. It's not high tickets that we're aiming, but high-quality customers. So in that sense, that's the main reason why NPLs are at that point.
Obviously, as you said, the portfolio is still small and it's growing. And it should obviously translate into higher NPL ratio as we go on further. But in the sense, I don't want to take you -- I mean, you should -- the thing I want you to get out of this is that we're focusing on quality customers. So -- and in terms of the customer growth, definitely, we're aiming at a 1 million customer for this year, for this 2022. Our main objective is to grow our loan base and our -- in our car deposits at the pace that we're aiming. We were wishing for 1 million customers for December of this year, we didn't get it, but we got our objective in terms of our deposits, our core deposit that grew very good rates.
So we've been able to grow with very good tickets per average customer, which obviously translates into better lifetime value over cost of acquisition. So we're very happy of the type of plan that we are catering as we said, Hey Pro customers have 2.54 products per client, which is pretty awesome. And 30% of our customer base have a credit card active with us. So it is -- it tells you that we have a great offering and it translates into a customer that is very profitable for us and with a cost of operation that is pretty manageable and it has been, I think, a pretty much a very good experience for our customers, and we will see further on, I think, as we continue bettering our offer, we will continue seeing our customer acquisition cost lowering, hopefully, and translating into a higher customer growth. we could definitely hike up our ad spending. And that will translate into higher customer growth very immediately.
But we just want to wait a little bit more and understand our capabilities more and see later on the year if we hike our budget even further than we've been able to do so. We are rolling out pretty good promotions that is part of the first part of the year. So we are adding more value to our paper customers. Those are our main objective for growth. We grew more our Hey Pro customers that are regular customers. So in a sense that tells you of the type of customers that we're catering. So high-quality growth, highly transactional, very engaged customers.
Okay. That was very helpful. And if I may, I just wanted to shift to another topic to make my second question regarding the guidance for the year. It's a very quick one. Just to understand the drivers. I mean, on the NPL guidance for this year, how do you guys expect to be the dynamics among SME, auto, consumer, mortgage portfolios. So which segment we should pay more attention that will have a larger impact on the trend that you guys just provided of 2.0 at the top, the maximum.
Basically, as you know, we are on 1.3 in average. As you saw in the presentation that we have, basically, the large accounts, what we call the wholesale is less than 1% of NPLs. In mortgage, we have been decreasing and recovering the NPLs from the last year. And the only portfolio that has increased its credit cards and personal loans. But all the other ones are improving. Then that's the reason -- it's not that we see a deterioration when we talk about moving from 1.3% to 2% is just below 2%, we feel comfortable. In fact, if you saw the last slide, we are guiding 1.3 to 1.6 as the -- we go back to normal operations.
Okay. So the base case would be like a normalization or a normal increase following the risk of the credit portfolio. Is that correct?
Can you repeat, sorry?
Yes. So you're just mentioning that you guys like expect a potential increase on NPLs, just following the credit risk of the credit portfolio. Is that correct?
Yes.
Our next question comes from Ricardo Buchpiguel.
Congrats on the solid results. I have 2 questions here. First, I wanted to understand the rationale for the lower NIM expansion in beginning the guidance. it's around like are flat or growing 30 bps in this year. Considering that NIM in Q4 was already at much higher levels and we still see higher average interest rate expected for the following quarters. I imagine you have been more -- have been allocating more liquidity and less profitable securities like ripples and other instruments like that.
But I thought this would change as you increase your loan demand. And also with Hey reaching a higher scale in several different products, what should be the role in impacting the group's profitability for this year and should be more near 0? Or should already reach a positive impact in the profitability?
So the first question, sorry, Ricardo...
[indiscernible] expansion, the first question. You're right, is basically that we are capturing most of the NIM expansion in this year, we are guiding just a slight increase. And it's also the mix on the repo business on the securities investment. As you know, in the securities investment, we have a margin between 15 to 20 bps. That's why we usually split the NIM and the NIM for total loans.
In NIM for total loans, we believe we can capture a larger margin increase. Let me see if I have in the notes, the projections. And later on during the call, we will clarify for total loans. But for the total NIM is because the repos because we have captured most of it already, except for the last December increase because it takes like 2 months for our loans to reprice and around -- between 2 and 3 months for all the liabilities or all the term deposits to reprice.
Very clear. And just a quick follow-up on that matter. The reason you are growing more in repos are mainly because you have been accessing more liquidity with higher deposits growth or any -- and stuff like that?
Yes, we have more liquidity, more deposits from customers. And basically, what they are looking is a high interest rate, and then we can switch from time deposits or -- yes, [Foreign Language] in Spanish to repo to government bonds. And in that way, the customer still received the higher rate that they are looking for their money. And we don't have a launch to -- too much. That's why we match with repos with securities investments.
And in terms of the net income of Hey Banco, there is around MXN 100 million to MXN 150 million of net income that we're expecting for this year around and mainly because the creation of reserves in the consumer credit portfolios are very demanding. So in that sense, even that it's good quality customer. We had to do a lot of reserves. And in that sense, that's why most of our income goes in that line. So you will see a more impact on 2024.
And the other part of your question is that we are expecting the banking license at the end of this year to be fully operational. So we are needed to do a staffing out the necessities that we have to have the license. It's not much, but in a sense that is impactful in the second part of the year. And we will continue to see a further loan growth in 2024, and we expect to continue adding obviously more nonfinancial income. So we definitely will see a much more profitable operation in 2024.
Very clear. Just, could you please repeat the net income for Hey Banco this year? And also what is the comparison compared to 2022?
No, it's very marginal. I think we're expecting between MXN 100 million and MXN 150 million. So compared to that of Banregio between 5,500 -- 5,400, 5,300. So that's 300. Yes.
Very clear. And for my final question, could you please comment what is the funding cost or pricing strategy for your deposits?
In the cost of deposits of Hey Banco, it's around 6.6 and the cost of Banregio it's around 5.4.
Our next question comes from Marlon Medina.
Manuel, Enrique, Alejandro, it's Yuri Fernandes here. I have a question regarding fees, it grew a lot this year. It was 38% and credit cards it grew a lot, and you have some slides showing Hey payments doing very well on TPV like doubling TPV.
So my first question is, what should we expect for fees for 2022? Should we continue to see fees growing those super sound numbers should decelerate because the base is getting tougher. So that's the first one. And I have a second one regarding G&A, regarding expenses, you provide some color on your presentation, and I think a lot of those expenses, they are investments, right, that are necessary for your coming years growth. But how much should we see expenses growing this year? Because on your cost-to-income guidance on your efficiency guidance, you have mostly flattish cost to income, right, 43 to 45. So basically, this implies a very high G&A growth. And I just want to check with you guys how much you're thinking about this [indiscernible]? Congrats on the quarter.
In terms -- I will start with the last one. In terms of expenses, yes, we are expecting a growth of total expenses around mid-teens, we [indiscernible].
I would repeat again. We're expecting mid-teens, that will be the answer for expenses, both in operational expenses that will be a little bit higher and then I will move because they are related to the POS income or the merchant acquiring business income. As we'll continue growing, and we expect to continue growing the income from merchant acquiring and from credit cards and fees. Also the related cost will be increased.
We maintain, as Manuel mentioned, the goal to increase our customers in Hey to reaching some point of time during this year to the 1 million customers. Then that implies costs, obviously, on the cards in the merchant acquiring business also there are related costs.
In terms of personnel, we are, as Alejandro has mentioned, we are expanding our branch network in Banregio. And also we're expanding our bankers mainly in the North but also in Mexico City. And as for Hey, as we continue growing the customers, we keep growing the people for service and for collections and all these departments that grow with the number of customers. That will be the main explanation of the growth.
And I will conclude saying that we expect mid-teens is -- yes, it's a double digit. In other expenses, we start within [ 80% ] of inflation, then that's -- it's difficult to have a lower increase.
No, that's super clear and detailed. And regarding fees?
Regarding fees, as I mentioned, in POS, our merchant acquiring business, we expect at least 30% -- 30% to 35% of growth. And also in the credit card and debit card fine fees from 50% to 70% as we are -- as I mentioned, continue growing the number of customers.
Clear. And considering credit cards and acquire, they are about 40% of total fees should be a very good year, right, for fees for you?
Yes.
Next question comes from [indiscernible]
I was wondering if you had any thoughts on the announcement last week from Banorte about the very significant increase in the number of bankers as they seek to capture some of the growth opportunities from nearshoring, and I guess also with the issues that [indiscernible] trying to capture market share, do you expect that to significantly alter competitive dynamics? Do you plan to respond? I guess you just mentioned that you might also increase the number of your own bankers. So any color you could provide on that would be very appreciated.
Yes, definitely. I mean, Banorte has been a very good competitor. And then I think -- I mean, their procedures. And I think they -- it's a good thing that they're pushing in a more aggressive growth. In terms of SME growth, we normally share the risk in -- all banks share the risk or in the sense Banorte has been a very good competitor. And I think in that sense, it's a good thing.
In terms of our objectives in terms of expansion of our infrastructure, we are restarting our growth in being able to saturate the markets that we are serving in the segments that we cater not only in the North, but definitely on the Banregio region and the center part in Mexico City, which is a pretty important part of the market share.
So in the sense that we are going in a 5-year plan to continue growing our number of branches and a number of executives and being able to translate into having a market share similar that we have in most of the regions that we cover, right? So for example, in our home state, we have -- in terms of SME lending, we have a participation of 20% in terms of market share. So it is a pretty strong market share. In that sense, we are very able to have a stronger presence in most of the regions that we already have.
Definitely, the last 3 years, we did not expand, and we're focused on other objectives, as you know. And in that sense, right now, we think that we have the right environment to expand our infrastructure and have a better infrastructure to serve our clients. So in that sense, we -- I mean we have the best NPS in all Mexico. We have -- I mean, the NPS of Banregio, it's at 80%, which is outstanding. And that tells you that we have a pretty good offering that clients are pretty eager to continue further in their relationship with us in that sense. We're very confident that as we grow the infrastructure, it would be in a very productive manner and resulting in pretty good results in loan growth and revenues from fees.
So definitely very -- I think the trend in terms of expansion, I mean, as Banorte tells us, it's -- we're seeing it, too. So in that sense, we are pretty happy for the evolution of the economy as we see all the trends turning to a positive thing.
Okay. No, that's good. Just as a follow-up, do you believe that there will be enough credit demand to go around for all players to achieve these ambitious goals? Or could it also potentially result in tighter spreads? And I guess we just from increased competition. What are your thoughts on that?
No. Well, I think competition has -- I mean we're not afraid of competition. Competition has been very strong for many years. And I mean, we have pretty good players [ MVVA ], Santander, Banorte, they're pretty good players in the sense -- so we think that they're very professional and very -- they don't -- I mean, they're good partners and in some -- in many of our clients in a sense, we can weave.
And definitely, if the trend of reinvestment and doing more infrastructure, it is something that tells you the market expanding and the economy is growing and the customer base is doing the same. And in that sense, more infrastructure is needed. I mean, if you see any measure of infrastructure in the banking system in Mexico is one of the worst. And in terms of margins, it's one of the best. And so that tells you -- and definitely an increasing population in terms of economic growing workforce, and definitely, that translates into a more demand in the infrastructure in many ways, right?
So Hey Banco, obviously, it's a result of being able to capture that customers that do not need a cash management and they need a more decent service products and offerings. And that's why we think that the continue and expansion of infrastructure, it is needed, obviously, more intelligent than in the past, but definitely a more efficient but definitely something that is needed to continue furthering our customer growth. I mean, the Regional has right now more than 1 million customers, and we right now see that growth in customer base. It is one of the easiest things that we've done in the past and more as a result of our capabilities of serving retail clients and being able to translate for digital platforms for our SME customers that is translating into a growth in checking accounts at a very fast pace and, obviously, translating into better results and margin because of our cost of acquisition so low and our cost of funds are at a very good rate.
Next question comes from Carlos Gomez-Lopez.
Congratulations on the results. Can I go back to your outlook for [ PC ] for coming years? I don't think I have heard you this optimistic in the last 5 or 6 years. And it's peculiar because, in general, the market expects a recession or correction this year. Is that because the revenues are high because rates are higher? Or because you actually think that economy is going to do better and what perhaps the market is anticipated.
And my second question refers to the license for Hey Banco. I was wondering if -- as you said, you are going to have higher expenses because you have the new license would you reconsider it whether that is really necessary or you can continue to work as you are today?
Thank you, Carlos, for your question. In terms of what we expect in terms of the economy, what we're seeing right now, it's a better demand. We've seen that the SME loans have picked up more demand last quarter. We definitely are in our communication with our customers and seeing how the hike in interest rates are affecting their operations. So we are definitely very cautiously and very -- as always has been the case with our strategies that being very close and in communication with them.
So right now, we feel that there is a strong demand even though that the interest rate is at the point that it is right now. We have not seen the NPL ratio even from our smaller clients get out of the same levels that we had at the beginning of the year. So definitely something that we're looking for, and we've not seen the case of worsening the -- in our customer base. But definitely, as you know, we are managing in a per quarter basis, and we could definitely do a different approach if we see the conditions change.
We've not changed our way of working, and we are as you know, always focusing on customer clients, and that's why we had such great results even in during the pandemic. And you see all the force of our loan book and the relationship we have with our clients. And definitely, those are -- those customers that we're looking for. But definitely, we see a very good demand, for example, in the agro business, in the manufacturing business that in the housing business. And it's a demand that we know how to serve, know how to do it, know the pricing, know the customers. And we will definitely be very happy to continue serving them in the conditions that we are right now.
We have a lot of liquidity. We have a lot of capital to continue to do so in a very competitive manner. So there is no operation that any bank with any force has the ability to win the operation in price for us, so we have all the capabilities needed. So in that sense, we feel that we have a very positive outlook in the short term.
But definitely, we will -- I mean, the near shoring part of the trend, it is something that will continue for the next years. It's not something that it is a short-term thing, and we see that trend we will be able to continue. I mean we see the economy growing our home state at a very fast pace. And we see more investments, for example, like many in manufacturing in the auto business. So if something changes in that sense, we will definitely tell you so. But right now, the demand and the optimistic from our customers, it is pretty good. And I think even though the interest rate is at the point that is right now. So it's pretty amazing.
In terms of the cost for Hey Banco, I mean the operations need more people, definitely. I mean, we've been able to do customer service at a very productive manner and recollections at a very productive manner, but more staffing is needed even though -- even the license, the banking license. So it is a very marginal cost that we think it is needed to translate into an operations that you guys have much more information that the market has much more transparency in how things are going and being able to generate a culture with different set of values in that sense.
We've -- I mean, innovating at the edge of the company has as many -- the charter has been produced in that manner. I think it is resulting in a very positive outlook for the company in terms of being able to cater more clients in a very productive manner and having a cross-selling index that it really translates into having a lifetime value increasing lifetime value and translating into a better cost of acquisition and better service. I mean, customers right now are pretty engaged with the MD app. And this obviously helps us mitigate any operational risk because customers are on top of their information every day, every minute of the day. So in that sense, it is pretty important to continue furthering that.
In terms of Hey Banco, I think this -- the way of separating the bank and the operations, we will continue to have better results in terms of profitability and productivity. Capital will definitely be needed, but the operation right now is profitable. So as we've always conveyed that we are focusing on growing at a fast pace, but not compromising on profitability. So that's why you don't see the 1 million customers because we are focusing on doing it in a very productive manner.
So when we reach the 1 million mark, profitability will be there as it is right now. So we're pretty serious about that, pretty professional, and we don't care about the -- the millions that we don't care about -- we care about the profitability, and we care about having a very unique operation focusing on high-quality customers. and being able to produce our results for the next 10 years. So very optimistic for that.
And to clarify, in the spinoff, you still expect to include the payments business in Hey Banco or that idea...
Yes. So the acquiring business is going to be on the umbrella of Hey. It is a nonbank acquiring business, so it can cater many banks. So right now, we're focusing on being able to cater Hey Banco and Hey -- and Banregio's clients, but it can cater other banks. So definitely, it is something that finishing those capabilities we will be looking for much more clients in that sense. So that's the reason that we're spinning out that part, too. It is a very important part of the equation.
Next question comes from [indiscernible].
My question is regarding the loan and deposit dynamics. I think Q-o-Q, we saw a strong growth in advances, especially in business loans and consumer loans. But in deposits, the growth has been in low single digits, and that has pushed up our loan-to-deposit ratio greater than 100%. So was this -- what sort of loan-to-deposit ratio are we looking at going forward in 2023? And once this ratio goes above 100, are we facing higher costs for borrowing in the market to fund these loans. So how are you expecting to fund the increased demand in loans that we're experiencing right now?
Yes, the increase in loans, as you saw, it was a growth of 12% plus the reclassification of the pure leasing contracts. And then the -- we were at levels of 100% and right now we are at 110 -- 108%. The funding we have, as we have talked about the repo business, we can convert repos to time deposits. Just informing the customer of the new rate, but we have durability with that type of products, investment products for customers.
In terms of the cost of funding, should not be largely affected as the cost for these time deposits, is similar to other time deposits within the bank. We don't have any need to go to the markets or any need to request loans from government banks from development banks is just the way to switch the excess of liquidity that we have on the repo business to the core deposits.
Understood. And to convert a repo to a term deposit, does it have to go through the consent of a customer? Or can you do it automatically?
No. We can do it automatically at the renewal or at the end of the term. The contract already stipulates that.
Understood. Understood. Just a follow-up on a point you had made that the conversion of pure leasing to sort of a lending product, would that have affected the 8% to 9% growth we saw in business loans. Would that be a part of it? The reclassification?
Sorry, I just want to understand if it affects in '23 as the guidance or if it affected in '22? It affected in '22 quarter.
Yes, yes.
In '22, if you see only the loans line, it increased 16%. And without that, it's around 12%. And for the next year, it's including the leasing, the growth in loans is above the final number.
Understood. And we saw a surprise growth -- a surprise for me at least in 23% in Jalisco specific region. So could you throw more light on what sort of demand we are seeing in Jalisco? And do you think if it is sustainable? That's my last question.
Yes. We have seen 3 different industrials. It's mainly all what it has to do with real estate Jalisco as well as Nuevo Leon, but Jalisco is growing a lot in home development and also commercial developments and industrial developments. Also from Jalisco, we source loans for a big part of the -- what we call the Bajio, the Western zone of Mexico for agro industries.
And that's basically -- and Jalisco has a lot of merchandising and commerce also is -- these are the 3 types that we have seen. And we believe it's sustainable. Yes, in demand, maybe not the same percentage this year. But we continue -- the way we monitor it is through our credit committees and the new request for loans, and we have seen the demand has been sustained.
Got it. Congratulations on the results and all the best for 2023.
Next question comes from Rodrigo Ortega.
I'm Rodrigo Ortega. A quick question on the leasing business that you mentioned. You mentioned that leasing represents about -- or would have represented about MXN 467 million as additional leasing that you booked under [ NII ]. Just to clarify, is this a full year impact? Or is this just what was booked in the fourth quarter? And you have also been mentioning that this was a reclassification or accounting change. Is this just that? Or did you sell the assets under lease and provided a credit to the customer.
And in any case, what would be the strategy in leasing going forward? And this should leave the other income line pretty clean, so to speak, will only be bad legal expenses and charges related to foreclosure of assets. Is that correct?
Well, I will answer the first one, and I couldn't understand the second. The impact in the reclassification from interest is no alone or -- well, it became a financial lease that is within the loan portfolio is for the full year as the change on the accounting rule, the IFRS 16 and IFRS 9 that are the NIF 5 basically, N-I-F 5. It took place in January starting the year, while that all the changes it took for all longer because we had to evaluate one lease by one lease, one contract by one contract and all the systems and -- well, it was a lot of work. That's why it took us all the year. But yes, the impact is for the full year is one time. In terms of the second question, can you repeat?
I think, Enrique, you just answered it. Basically, you changed from pure leasing to financial leasing. There is no credit involved. So it's the leasing business, just changed from [indiscernible] to financial leasing, right?
Exactly. Yes.
And the second part was whether the other income line is now as clean as it gets in the sense that it now will only show the [ path] fees, legal expenses and charges related to foreclosure of assets. I mean you have removed everything that could make some noise in that line. Is that correct?
Yes, we still have like MXN 1,000 million in the recent expansion or [ 1 billion ] of pure leasing, and we are evaluating still if we will convert them also to financial leasing. But once we finish that, yes, we'll be clear and mainly is the foreclosure or the sale or whatever we charge related to the leasing like taxes and insurance and but this pure fee business. Yes.
And just one last question, if I may, regarding OpEx. To what extent can we think that the high OpEx that you're forecasting for this year is a step up or front-loading? I mean if we look beyond 2023, can we say that from 2024 onwards, we are over the hump and expense should grow more in line with inflation plus? Or is this -- or this will take longer to normalize?
As long as we can see for the type of expenses that we are growing, we can expect a 24% more normalized as you mentioned, inflation plus expecting the inflation to be lower than this year around [indiscernible]?
Yes. So basically mid- to high single digits in the over the medium-term?
For the '24, yes. Because for Hey will be most of the -- well, we call investment because we are investing in people, but in the account and its expense. And for Banregio, we will continue growing the branch network but that goes through investment that doesn't go directly to expense. And it's not that relevant in -- for '24.
Our next question comes from Sylvia [ Mehul ].
Yes. Can everybody hear me?
Yes.
Okay. Perfect. I have 2 questions. One is -- and I apologize because I connected very late, so I don't know if you guys discussed this before, but I wanted to get your thoughts on the Chapter 11 filings from [indiscernible]. I mean in all we've seen 4 financial institutions in Mexico getting to trouble, 2 of which are much more related to what you do. So first, I wanted to get your perspective on what happened there? Is there any read across for the health of the SMEs. Can you take advantage of these competitive dynamics and you buy parts of the portfolio, et cetera? And the second question, I'll wait for your answer first.
Well, thank you, Sylvia. So in terms of interest in -- we're not -- at the moment, we're in talks with when representation of [indiscernible] but nothing serious. I mean we're not interested in buying their operations in the sense that we don't cater those types of clients that they had. Our leasing operation is based much more on assets that we -- we have a good capability on reselling them at a profit. So that's why we are mainly focusing on leasing, for example, in the logistics business or auto business so that we are very able. And as you know, we bought the General Motors pure leasing company back in 2011.
So in that sense, that's been our main driver, and it's been our main focus, and it continues to do so. Many of these companies had operations in that type of asset. So definitely, in the last part of the year, we saw a hike in terms of obviously having a competitor setting that is pretty disfavoring for them. We definitely see that the product -- the pure leasing product and the leasing product, it is very good. It's very needed. It is something that translates into good fiscal capabilities for our customers.
But definitely, we are mainly focusing on assets that we could repossess quite easily, and we can resell them pretty easily and a profit, right? So that's why we are not eager to do anything about buying them or doing anything about their type of clients that they cater someone will definitely cater them. I mean there's a company called Engine that was part of the GE divestment strategy about 5 years ago. And I mean those are the types of, I think, competitors that will take advantage of the situation.
And definitely, I mean, we have no relationship with them. So in that sense, we don't have any repercussions whatsoever of their operations at the moment.
Any positive repercussions in the sense of a better competitive dynamic or we're talking about a completely different sector and...
Yes, I think -- I mean, we're expecting this year to grow pure leasing 11%. Probably, we could grow faster than we were expecting, depending on the -- on how things go on, but we see less competition right now at the moment. But there's pretty big leasing companies here in Mexico that operate throughout -- I mean, one German company that's pretty big.
So one Canadian companies. So we do have good competitors in that sense. So we should see a better but not that much, right? So -- and -- it depends on the asset that you're focusing on. So that's the main thing.
Got it. And then the second question is a follow-up to Carlos' question. Up until now, I think the speech from you guys and many of your peers has been that the demand for loans is more for working capital, not so much from CapEx. And of course [indiscernible] have changed [indiscernible] agro a in major boom, right?
So my question is, are you seeing demand for loans for CapEx, particularly from domestic [indiscernible] you're talking about just working capital. I mean I'm just trying to understand how much the outlook has changed with nearshoring and all the great things that are going on in Mexico.
No, definitely -- we definitely are seeing more CapEx. I mean we do -- I mean definitely, depending on the size of the company you're catering. I mean, at the lowest point, definitely more working capital. I mean very small companies. That's how they work. But definitely, at the higher end, we see a much more expanding in CapEx, depending on the industries, but definitely something that we see an expansion of.
Great. And is that demand for CapEx more for export-oriented companies and other companies? Or would you say that the domestic-oriented companies are also more winning ...
I mean both of them, definitely because the consumer -- I mean, the customers right now are very healthy. I mean, the wages have grown at a very good pace in the lowest income levels, which is pretty positive. It is -- I mean, the -- we don't -- there's no leverage in the family. So in the sense, we've seen -- we will see in both of them, right.
Next question comes from Ernesto Gabilondo.
Congrats on your results. Sorry, I entered late to the call, so apologies if they have already asked you these questions. So my first one is on how do you see the interest rates this year. I just want to hear from you if you are fully repricing the higher rate to the client. And when do you expect to start reducing the NIM sensitivity if we start to see a potential easing cycle at some point. Do you think that could be in the second half of this year?
And then my second question is on Hey. Do you think Hey could help to protect in on the [indiscernible] cycle considering that there will be a higher contribution into retail in 2024?
Well, the first question, we did our projections and our budget. And obviously, the result is the guidance, considering that there are still 2 more increases to 25 bps increases on the policy rate. And then we expect it will maintain that level for the rest of the year or most of the year?
Then the second part of the question that you asked, Ernesto is, we don't expect the NIM reduction this year, but we expect it in the '24 -- during 2024 at the same pace. We have not finished to reprice all the increases, but there is not much still missing as the last one was on December. For February, most of the loans will be repriced.
Yes, we transfer it to the customers in the variable rates because basically, that's how it is agreed [indiscernible]. And in the liabilities, even though it's not part in that way, we move with the market. As a percentage of [indiscernible] is very close to -- that will be in terms of pricing.
In terms of Hey helping to maintain the rates, yes. As you saw we are growing on loans that are fixed rate like auto mortgage and also loans with a higher margin like credit cards and personal loans, yes, it will help. That will be the short answer.
So just a follow-up on this. So lower rates will affect Banregio's NIM. But then if you add Hey, I will have to protect the NIM on the easing cycle because of rates will be with higher margins. Is that correct?
Yes. Yes, that's correct.
Perfect. And then just a last question on dividends. Should we expect a dividend policy of 50% in this year?
Yes, yes. And sorry to hesitate. We are already talking with the CMV about that because we're in the process of the license request, the license approval for Hey, which should fund Hey loss, pay dividends. But yes, we are talking, if not 50%, at least 40%. But our aim is to pay 50% of profit that will be MXN 2.5 billion. We get the approval plus what we need to capitalize Hey Banco that is around MXN 700 million.
Our next question comes from Andres Soto.
My question is regarding the profitability outlook for Hey Banco it's really helpful that you guys are already providing more detailed information in terms of cost of risk. And when I compare Hey Banco to Banregio, there is a significant gap. I imagine some of that is going to be covered or is covered actually by NIM but the key variable, I imagine for Hey profitability is efficiency.
So my question is, do you have any number in mind in terms of what is the ROE potential for Hey Banco? And how -- when you expect to reach this level?
As we've been focusing on profitability and being able to be productive as a per client basis, we will definitely see a very healthy operation. And as of the mix, it is a mix that is more on SMEs and on consumer business, but more on loans that are -- that have a guarantee in terms of mortgages and autos that have a physical guarantee.
In the SMEs, we have a government guarantee of the 50%. So it is a good mix, and it will definitely produce good results if we continue following we've been doing so with good clients and being able to cater customers that have a need of loans and the need of a bank that has more products and being able to buy them in a very easy manner.
So we see the potential for Hey to continue growing at a very fast pace and continue furthering our loan growth. So definitely being, I think, much able to produce an ROE higher than Banregio because of how we are managing the infrastructure and how we're managing and how we've been very able to capture deposits at a very fast pace.
We have very good cost. So that will definitely -- and being able to have a very neat operation as we are catering good quality customers. You have the possibility to have a very neat operation, very tight in terms of expenses. And obviously, as we finish the infrastructure needed in Hey Banco.
There is no further increase for infrastructure from '24 on forward. So in that sense, all growth will result in a very positive return as the operating leverage expands fully throughout the next years. So in that sense, the ROE that we expect in the efficiency ratio is much better than Banregio.
As you -- something that is very good to understand is customers that are in need of cash management, so if your operation, it is very cash oriented. As in Mexico, still we have a very high use of cash even in this administration, we've seen a hike in more use of cash. So if you're a customer that has a need of more cash management, the offering of Banregio is much more attractive to you. If you are someone that needs a tailor-made offer, Banregio is much more well suited for you. If you are a customer that is more digital native and more oriented to digital transactions and more in -- no need of cash management or a very small need of cash management, Hey Banco will be much better for you. So in that sense, we have these 2 franchises that definitely will help us gain more market share and being able to generate pretty good results in terms of service.
As you know, that's our main attraction, and we work very hard to have the NPS that we have right now, for example, in Banregio at 80, which is amazing. And it is the best in class and we have that upper hand. So in that sense, we will have a very productive expansion and doing it at the best moment in terms of interest rates will help us gather more profitability in the future. So both offerings are pretty good and definitely will be gaining market share as we continue even investing more on having an offering that is much more compelling.
Absolutely. You mentioned that you expect Hey to exceed the profitability of Banregio. And when I look at the numbers based on the comments I made before, the ROAE currently or Hey, it's less than 2% for 2023. So when do you expect -- how long will it take for Hey to catch up with the profitability of Banregio.
No, I think -- and '24 -- and '24 probably at the end of '24 will be in that point.
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. Thank you -- for any further questions, please let us know.