Unifin Financiera SAB de CV
BMV:UNIFINA
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Unifin Financiera SAB de CV
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Good morning, and welcome to UNIFIN's Second Quarter 2018 Conference Call. [Operator Instructions] .
It is now my pleasure to turn the call over to Rafael Borja of i-advize Corporate Communications. Sir, you may begin.
Thank you, and good morning, everyone. I'm very pleased to welcome you to UNIFIN Financiera's Earnings Call.
This morning, UNIFIN's senior management team will discuss the company's second quarter 2018 consolidated results per the press release issued yesterday. If you have not yet received a copy of the earnings release, please contact Investor Relations team at UNIFIN or i-advize in New York at (212) 406-3691 to obtain a copy immediately.
Prior to introducing our management, I would like to remind you that forward-looking statements may be made during this conference call. These do not account for economic circumstances, industry conditions, the company's performance or financial results. As such, these forward-looking statements are based on several assumptions or factor that could change, causing actual results to materially differ from the current expectations. Thus, we ask that you refer to disclaimer located in the earnings release prior to making any investment decision.
We are very pleased to have with us today from UNIFIN, Mr. Sergio Camacho, Chief Financial Officer; and Mr. David Pernas, Head of IR and Corporate Finance.
Thank you for your attention. At this time, I would like to turn the call over to Mr. Sergio Camacho for his presentation. Sergio, please go ahead.
Thank you, Rafael. Hi, everybody. Good morning. Thank you for joining us today. The first half of 2018 was marked by uncertainty and volatility, partially due to the ongoing NAFTA negotiations and the presidential elections. The differences between the political platforms and the postponement in a resolution of our current trade agreement continue to cause economic and political uncertainty. Given such a scenario, we experienced a significant slowdown in the decision-making process of our clients, which impacted our originations during the first half of the year.
In light of the aforementioned uncertainty, the company further applied its conservative risk management approach, and during the quarter, cover its financial performance from any potential credit crunch. For these measures, UNIFIN borrowed a significant amount of cash from various credit facilities which directly impacted its interest expense, and consequently, the financial margin and net income generation.
The elections held on July 1 favored Morena's candidate, Andrés Manuel López Obrador. Election results aside, we believe this process demonstrated that Mexico has a true democratic system, and we celebrate the decision made by millions of voters. We wait to see what policies will be really implemented by the new government and identify potential opportunities that may arise. At UNIFIN, we are optimistic that the second half of the year will be more dynamic in terms of economic activity, and we will focus on delivering solid results.
Our total revenues increased 21.5% in the second quarter to MXN 4.5 billion compared to MXN 3.7 billion in the second quarter of last year. This encompasses a 26.2% operating lease income growth versus last year. And interest income reached MXN 567 million while other lease benefits were MXN 399 million in the second quarter, a 30% increase.
The depreciation of assets under operating lease represented MXN 1.9 billion in the second quarter, which is directly related to our leasing portfolio growth.
Interest expense rose 36.6% during the second quarter to MXN 1.3 billion. The increase was explained by the larger base of our financial liabilities in addition to our corporate decision to borrow cash in order to -- liquidity and sales, given the high-uncertainty environment. As a consequence, at the end of June 30, 86% of our outstanding debt was denominated in fixed rates.
Our nominal financial margin rose 6.7% year-over-year as increased interest expense offset margin revenue growth. Our growth was mainly impacted by a slowdown in the backlog conversion and a delay in the decision-making process from our customers. Our financial margin as a percentage of total revenues was 19.6% at the close of the period.
Administrative and promotional expenses increased to MXN 280 million in the second quarter, representing 6.3% of total revenues, an improvement when compared to 6.7% in the second quarter of last year.
Operating income reached MXN 499 million, which represented a 5% decrease compared to the second quarter of last year. As previously mentioned, the result is explained by the deceleration in decision-making process in the Mexican economy that resulted in a slowdown in the conversion process of our backlog and increase in our extra interest expense during the quarter.
UNIFIN reached a consolidated net income of MXN 406 million in the quarter.
On our operations side, leasing origination stood at MXN 6.3 billion, while the operating lease portfolio balance reached MXN 26.8 billion in the first half of 2018. Factoring portfolio balance stood at MXN 2.6 billion as a result of a more conservative approach towards new originations. Our loans and other loan portfolio balance grew 25.5% to MXN 1.8 billion at the close of the period.
In terms of the balance sheet, the total loan portfolio experienced a 36% year-over-year increase to MXN 48 billion in the second quarter. The company's past due loan portfolio reached MXN 403 million and the NPL ratio was 0.84%. The increased allowance for loan losses coverage improved to 109.8%.
This increase in our allowance for NPLs is a result of our decision to further adhere to the industry best practices and is in full compliance with the Mexican Banking and Securities Commission's regulations which suggested a new methodology for provisioning expected losses. This adjustment is a onetime-off. Going forward, our allowance for NPL growth will grow at the same pace we have shown before.
As of June 30, total assets increased 47%, mainly as a result of the growth in the net portfolio, net fixed assets and cash and cash equivalents. On the other hand, financial liabilities rose by 39.6% due to the increased borrowing as previously mentioned.
UNIFIN's debt maturity profile was at 53 months while 86% of the debt is denominated in fixed rates. The company's stockholders' equity stood at a strong number of MXN 13 billion in the quarter with an [ enhanced ] capitalization ratio for the first half of 2018 of 18.8%. Adjusted capitalization, which excludes effects of mark-to-market of the hedging derivative, was 17.3%.
Return on average assets at the close of business second quarter was at 3.4%, while return on average equity slightly dropped to 21%. The decrease of the return on equity is due to the capital enhancements made by the company at the beginning of the year for MXN 4.5 billion.
UNIFIN financial leverage ratio was 2.6x at the close of the second quarter for a company total leverage ratio improved to 3x compared to 5x the second quarter of 2017.
At the close of the second quarter, UNIFIN continued to have a healthy portfolio. The company has close to 8,000 clients with insignificant diversification across economic sectors and geographic zones and virtually no exposure to any single client as the average ticket price is MXN 8 million.
So wrapping up. UNIFIN results for the second quarter were driven by the successful execution of the business strategy and a resilient SME sector. Notwithstanding a volatile domestic and global environment caused by political economic uncertainty, UNIFIN once again managed to achieve solid results and we expect growth to resume towards the second half of the year.
We have also continued to prioritize our sound financial health as we have shielded our balance sheet from any one activity. Our aim is to ensure that we make the soundest strategic decisions possible for the long-term financial health and benefit of our company and its shareholders. At the [indiscernible] , we remain optimistic about the company's future by identifying new opportunities that may arise with the new government. We will keep working towards greater results supported by the knowledge of our market and our desire and strategy to maximize our platform through constant evolution.
Thank you for joining us today. We will now proceed to answer your questions. So operator, please proceed to the Q&A session.
[Operator Instructions] We'll take our first question from Gabriel Nóbrega of UBS.
During the quarter, we saw that your margins compressed as you took on more cash from financial institutions. Going forward and then taking into consideration that 86% of your debt is in fixed rates and that the T/A has also increased over the past few months, I'm just wondering how fast are you able to reprice your own assets? And also in that sense, what are you seeing in terms of the margins? And I'll make a second question after this.
Yes, we took that decision as a very prudent one in order to have liquidity. Honestly, we didn't know what to expect on the elections and we decide to be very, very prudent. Want to say that we have the option to actually prepay those lines. We are on the results analysis. But as you know, the expectation for the second half of the year are better than what we had in the first half. Despite that we will continue with uncertainty regarding NAFTA negotiations, now there's a view on who won the elections, and basically, his main policies, what are and how he wants to implement those policies. In that regards, we're positive because he has focused a lot on supporting the middle class and supporting basically the SME sector, which, for us, is very good. However, we will continue to be cautious. Getting back to the impact on the cost, the decision that we took had an impact in -- a negative impact on our margin of 120 bps in the quarter. That was the cost of doing this prudent decision. But if we start to improve our conversion on the backlog, we will deploy that capital very, very, very soon. So those are the analysis that we are currently having regarding further negative impacts on the cost and, basically, with the T/A. As you saw 86% of our debt is fixed, and whatever decision we took further for liquidity or so, we will have a fixed component on that decision.
Okay, that's very clear. And also in this regard, you have been saying that we might see an improvement in the second half also as we have passed Mexican elections. Do you believe it is reasonable to expect that you will begin to reduce the amounts of measures that you have been taking to shield your balance sheets?
Not necessarily because the decision for shielding our balance sheet is a decision on the long to medium and long term. As we have said many, many times, UNIFIN is here for the long term. So we will continue with the prudence in which we have been working. But of course, depending on macro, we will decide to relax or to switch our fixed to floating rate, depending on how -- what is -- are the expectations on rates. What happened on the first half is that we have, look, what I would say, a perfect storm in terms of uncertainty. On the economic side, you have NAFTA; and on the political side, you have elections, so that, of course, caused a delay on the decision-process-making of our clients. Despite they have this approved lines or the approved credit with us, they decided to defer a little bit the -- getting into the operation.
We'll take our next question from Marcelo Telles of Crédit Suisse.
I have 2 questions, the first one regarding your expectation of improvement in the second half of the year. I mean, could you please quantify what sort of improvement you're talking about? I mean, this, the first half, we saw there was a decline, especially in the second quarter, in loan originations vis-à-vis the same period of last year. When you talk about recovery second half, do you expect, let's say, originations for leasing factoring to actually go up vis-à-vis the second half of the year? Just to try to understand what sort of recovery you're talking about. And my other question is regarding your provisioning expenses. We saw cost of risk doubling, right, from the first to the second quarter, if I'm not wrong, I think from 0.4% to 0.8%. And the -- and you mentioned that you are now kind of adhering to the CNBV provision requirements. So I'd like to understand what is the motivation behind that. Why now? And if you are thinking of, once you are doing to this provision requirements, if it makes sense for you to start tapping more, the local markets, for -- in terms of your liability strategy.
Okay, Marcelo. Let me start first with the allowance for the NPL. The decision was based on the fact that the CNBV changed a little bit their way how to estimate the allowance, incorporating expected loss. In the past, just to give you an example, we had a track record with one client, and based on that, we provided probability of payment. This new methodology incorporates a scenarios in which you need to analyze the credit bureau of these clients with some other financial institutions and incorporate, let's say, an additional variables to the probability of payments based on the track record that he have with other clients. We checked the credit bureau on the first day when we analyze the credit. But after that, we do not need to comply with that. So those are like some changes that can be very easily understood by you guys in the sense of what really changed. As I said, this was a onetime-off. Going forward, we will generate or increase our allowance at the same rate that we have done in the past. However, we decide to adopt this approach based on the fact that, of course, it's a more conservative approach to work with, but also because we see the local markets as our main source for funding. It's our most efficient way of doing so. Even though there was no correlation between adopting this to fund in the local market, we want to be very clear and transparent to the market. That's the way that we have always worked. That's within our corporate culture, to be very transparent and clear to the market, and that's why we decided to adopt that. We believe it's in the best interest of everybody. Getting back to the expectation on the second half of the year, it's very difficult to quantify that because, on talking about uncertainty that we have, there's one event that has already clear, which was the election, but we continue to be uncertainty on NAFTA. Unfortunately, one day, we hear something, and the next day, it's the total opposite. However, we know that the negotiation on NAFTA will start soon, and we are positive that we may get into an arrangement with the U.S. and Canada for establishing a new trade agreement. Our view has to do more with that social programs and all the incentives that López Obrador wants to implement, once again, to the middle class and to the SME sector, will have a positive impact. However, once again, it's very difficult to quantify.
Just one follow-up on the cost of risk. When you say you're going to -- your provisions are going to grow more in line with what's before, but when we think about cost of risk, like, you had a 0.8% cost of risk in the quarter, the provision expenses due to troubled loans, is that kind of the new normal going forward? Or are you saying that you're going to go back to the 0.4%? So how should we think about that down the road?
One second, Marcelo, please.
Yes, I mean, I will say working with the 0.8% will, I mean, can be the new standard.
Okay, I see. And just one additional follow up. Sorry, too many questions. But when you mentioned about the impact that the elections and NAFTA had, when you look at some of the other of your competitors, of course, looking at the banks, I mean, we have seen, I think, the performance on the commercial side hasn't been bad at all. So is there something for the type of customer or the size or the type of business for customer that you think it's more exposed to that overall macro concern vis-à-vis your peers? If you look just at the niche that is more comparable to yours? Just to understand why in your case, these concerns seems to be -- weigh more for you than your competitors?
Marcelo, and I want to say that this is very respectful. I mean, we consider, I mean, growing 21.5% of our revenues to continue to be a very good number. However, if we are comparing ourselves to the traditional banking. I think that the nature of the business are different. We are focusing on investments and productive assets. And that, of course, has a deeper analysis rather than lending for consumption or for working capital or so. So in that sense, we continue to believe that we are posting good results in our revenue growth. But of course, the dynamics on the decision making from the customers, it's a little bit different.
[Operator Instructions] We'll move next to Chelsea Colón of AEGON.
My first question is about the liquidity. I recognize that you guys drew down on some of your bank facilities ahead of the election, and as a result, your available facilities have gone down significantly. If the second half plays out as you expected and you deploy a lot of those funds, should we expect that you would contract more facilities to have more available once again as the business continues to grow? How should we just think about the amount of liquidity that you're comfortable with keeping?
I think that the amount of liquidity that we feel comfortable has to do with what we historically have shown, I will say in the range of MXN 2 billion in cash. However, as we have explained, we access very, very significant amount of money on -- by the end of the quarter. Going forward, we will continue going into our market securitization scheme for funding the company. And of course, that will be coupled with international emissions or issuances as well as having the access for the short term on the banking facilities.
Okay. And then somewhat related to that, I noticed that your derivatives with hedging purposes in the short term went up very significantly quarter-over-quarter, and I know there's some valuation impact there, but it seems to be even beyond what the revaluation would probably be. Is there something else going on there?
No. No. Actually, only the mark-to-market movements that we have, the change on both the currency and the curves on rate.
Okay, got it. And just, sorry, my last question is regarding your dollar deck. Can you just confirm that all of it is hedged to peso?
All of that is fully hedged to pesos.
Our next question is from Jason Mollin of Scotiabank.
I have 2 questions. My first is related to asset quality and the change in provisioning. So we did see, as you report, the NPL ratio, as you talked about already, going up. You have discussed in the past that your nonperforming ratio only includes installments past due and not the full balance of the loan. You have talked to some market participants, rating agencies, about what that would be if you adjusted the NPL to include the full balance owed by clients that are delinquent. And the numbers that we worked with in the past was the 0.7%, reported nonperforming loan would be approximately 3.6%. This was as of September of last year. And then, clearly, if you do that, your coverage is very low on that metric. So that's why -- and we understand that this is a leasing business, but we wanted to try and think about how this new provisioning, is it -- it's not related to that kind of calculation. And what would the calculation be at the current -- at the end of the current -- the last quarter in terms of NPL?
Yes, what happened, Jason, is that, as also, we have many, many times explained, you cannot compare ourselves to a bank because we have the asset. So we have a collateral, a physical collateral in our books. But what I can tell you is that, that drop from 0.7% to 0.8%. does not really change the other methodology or the other number that you have seen of around 3.5% analyzing as if we were a bank. Once again, that number does not include the value of the assets.
No, we understand that, and we know -- I mean, right now, things look okay. And clearly, if there were to be a deep turn -- a downturn in the economy, we've seen in other leasing companies that those asset values can be impaired, right? But I think my question is more about this is not like -- we shouldn't -- this change in the provisioning is not -- is complying with the change that the regulator would suggest, this was your own decision. This is not about moving towards being a regulated entity in that now your provisions would comply if you were regulated, correct?
Yes. It was a suggestion of the regulator, and we decided on our own to adopt it.
Okay. And my second question is related to the growth function and the -- I do agree that perhaps growth is much slower than it has been, but it's still pretty robust. And I think we saw the portfolio year-on-year still up around 36%. Is it fair to say, though, that given what we've seen, that we should be expecting, at least for this year, a slower than we have seen in the past? I mean, the growth is decelerating because of all the market factors that you described. So I mean, if we were looking for 40% growth in portfolio year-on-year at the end of the year, given your backlog, is that now, given what we're experiencing, based on what we were talking about the end of last year, that, that may be too aggressive?
I think it's aggressive because the catch up would need to be very, very, very important. And despite our positive outlook on the new government, of course, there is a lot of things that needs to be implemented, and many of those, just based on the change of government, are going to delay some things. If you ask, for example, to whatever macro analyzed in the market, they are going to be very cautious, for example, on public spending for next year just because of the change of the government. That's it. The change of staff, and basically a lot of things that López Obrador and his team has announced regarding the public sector. So we are optimistic, but of course, we're going to be very, very, very close to the market to, once again, identify the opportunities. But once again, we still have NAFTA negotiation out there, and that, of course, post, I will say, an important variable in the process, decision-making, from the entrepreneurs.
[Operator Instructions] We'll move next to Luis Adaime of Newfoundland Capital Management.
I'm sorry if you've already discussed this, but just concerning the workforce. We've seen in the past you did a lot of hiring and then you sort of stopped for a while and there was operational leverage related to that. Was some of that going on now? How would you assess your level of hiring and investing in regional, local branches? Is that at the same level? Is it below the usual level? Above the usual level? And how should we see the operating leverage going forward in terms of revenue per employee, et cetera?
Thanks a lot for your question. We had, I would say, perhaps, a significant hike in the first half of the year because, basically, we are putting a lot of effort on our business strategy and business intelligence teams. We are doing a lot of innovation internally that we believe is going to post very, very good results in the medium term. But also on the other side, we have been very cautious on cost containment programs, and that's why you see that our OpEx as a percentage of revenues has improved year-over-year. We do not
[Audio Gap]
significant increase on our headcount or so because we believe that with the current levels that we are working with are optimal and are efficient. But once again, I mean, the increase has to do with improving our -- and doing a lot of internal innovation in terms of business intelligence and business analytics.
Maybe could ask another way, given your current structure, how much more could you grow without having to invest in hiring and in branches? And also, you had that calculation in the past of the room that you had to grow in your clients, like, demand for your clients that you hadn't met yet. What does that number look like nowadays?
No. I mean, Yes. No. I think that if we analyze this on a -- I will say, on a medium term, the opportunities continue to be there. The penetration of leasing in Mexico continues to be very, very low when compared to other Latin American countries, not say anything against the U.S. So the opportunities are there. However, we just go through this, I would say, perfect storm in Mexico in our business. But going forward, we are very, very optimistic about the UNIFIN platform. We're very optimistic about the potential for growth of the company. We believe that we have improved significantly, for example, in our balance sheet, in acquiring best practices that are going to be more robust going forward. And trying to answer the question, the -- I will say, the future headcount that we will need to have for gain and complying with the expected growth is going to be marginal. We do not expect a significant increase neither on our headcount nor on our operating expenses.
We'll move next to [ John Hough ] of Morgan Stanley.
Just most of my question's been answered. But I wanted to ask about, as equipment, leased equipment, comes off these assigned leases and you have the asset. Do you -- 2 parts to this question. Do you -- do the clients come in -- and are they still coming in and saying, "Hey, we want to extend the lease?" Or are you able to pass along the lease to the -- sell the equipment back to the customer at a discount? Or are clients -- and this is the question I'm more concerned about, is are you being left with the asset at this point and some clients are taking a wait-and-see mode? And maybe the residual values you have of these assets kind of shrinking a bit?
No, no. What has happened or what is happening right now is we continue to have very high, high number on clients buying the asset, as that number goes almost 98%, 99%. Now the deferral would have to do with more, like, getting into getting a new lease now or a new client coming into us and doing a lease. The beauty of the way that we originate in UNIFIN has to do with visibility. So the client that did a lease or start a lease 3 or 4 years ago has perfect visibility on what is the residual value. So on this sense, no matter what the conditions or the macroeconomic situation of the country or whatever it is, they had -- they have a assigned value on it. So they can exercise that purchase at the value or at the amount that was agreed at the beginning of the lease.
Okay. I was just wondering if anything had changed. I know that it was very -- like you said, was 99%.
Yes, on that [indiscernible].
All right. And just one more quick follow-up. Since you have such explosive growth measures in a number of metrics over the last few years, and this is talking about the second half. Will -- we know it's going to potentially be slower until the new administration comes in, et cetera, and then the NAFTA concerns. But could we expect just maybe numbers, comparatively speaking, year-over-year, look more flattish in the second half versus last year?
Yes, because if you recall, we have a terrific second half of 2017. So the comparisons are going to be very, very challenged. So however, I mean, once again, we're going to do our best to improve that.
Our next question is from Gabriel Nóbrega.
Actually, this is Frederic De Mariz from UBS. Just a couple of follow-up. On the backlog, is it still something that you follow? And would you be able to share the latest backlog that you have for your clients? Just coming back from the previous question. And the second question, more on the margins. So we understand the prudence that you showed in the balance sheet with the high cash position and so on. I was wondering if you could comment a little bit on the asset side, if you feel there's more room to increase the yields on new contracts? Or if you feel that you already reached a good level.
Yes. No. Our backlog continues to be very, very strong. Very solid. That's why we highlight during the call that was really hurt was the conversion rate of the backlog. We continue to have, I will say, a backlog in excess of MXN 60 billion. However, the conversion was low. Getting back to the yields, of course, it's going to be a market condition, despite the way that the lease operates, it's a little bit different, we need to be a very, very, very cautious and very clear that there is competition out there. So in that regard, whenever we find the opportunity to increase rates, we're going to do it. As we speak, we are also on a wait-and-see on that front to see if we can increase or not. That will, of course, will have to do with the fact on how many T/A increases we see in the rest of the year. And that, of course, will have also -- have to do with the U.S. rate, to see how was the correlation between Mexico and the U.S. rates. But once again, I mean, we are working and we will be working in the second half of the year trying to increase our profitability based on pushing on higher yields.
Our next question is from Joe Kogan of Scotiabank.
Someone answered my questions already but maybe I could ask for a few more details. On the cash measures you've taken, were there particular events, liquidity events, you were worried about? Was there some local maturities upcoming? Were you worried that the securitization market locally would dry up? And how have you seen that actually evolve over the past 6 months? That's my first question. And then my second question is you mentioned backlog a couple of times and the MXN 60 billion. Can you explain how that's measured? Like, what the definition of it is and how that measure has evolved over the last, I don't know, 12 months? Just so we can get a sense of the amount of projects that have been delayed.
Yes. No. On the cash measures, we run with senior management as well as with the Board of Directors, through different scenarios of what can be the outcome of the election, and we run to very optimistic one, and that optimistic one was to have a very clear winner. No matter who won, but to have a clear winner. And the order was on a very close result and getting now into the courts. And I mean, we saw that 12 years ago or 6 years ago, we have people in the streets or so. And that somehow posed some risk in the terms of banks or so delaying or restricting a little bit of the lending. And that's why we took that decision. On the backlog, I'm going to pass the word to David so he can provide with a very clear explanation on what is it and how do we calculate that.
Joe. Look, I mean, in terms of the backlog, generally speaking, there's, within the backlog which we disclosed earlier in the year that was roughly around MXN 60 billion, we have 2, let's say, different connotations. One would be 50% roughly, representing clients, which have an approved or preapproved line of credit. And we are in the process of converting that backlog and in the process of what the client basically dispersing the line of credit. And then 50%, roughly, 50%, the remainder 50% would account for prospects, prospects which are constantly increasing in the backlog or constantly putting into the CRM. And then by the means of [indiscernible] of that CRM, are sent as leads to the sales representatives to establish meetings and start gathering information for the clients in order for us to be able to pre-approve, again, a line of credit. So it's like a well-oiled machinery in which you can put the clients in constantly and then keep on converting all together. What happened, and as previously discussed through the call, was that within that process, we have, let's say, a bigger amount of clients which have approved a line of credit, and we have scheduled or we have originally scheduled certain dispersals from those lines of credit. But the decision process of the client may opt for a delay on that conversion.
And would you have any quantitative measure of those effects, both approved lines of credit that the clients then asked to delay, and say, the change in prospects? Has that part of it fallen at all?
Give me one second, please. No, in reality, it's hard to estimate because there's a lot of sensibility. One day, for instance, and just to give you some additional, I guess, insight in the process in how our decision-making rationale on the client is. These guys are relatively sensitive to, let's say, macroeconomic variables, such as the FX rate. So if at a certain point, they were looking to disperse a line of credit and purchase an asset which was or is denominated in U.S. dollars, but at that particular point in time, the U.S. dollar is, let's say, more expensive than what was originally expected, then the client would probably wait for a moment to see if there's an adjustment on the FX. And that effect can be -- can change abruptly, given the high volatility on the FX that we've experienced in the past, let's say, year. So that's a constant on the considerations for the clients, and that's why there's a lot of deferral on the decision-making process. More specifically -- and I mean, that's why it's very hard to give you an estimation on -- or on our metric per se.
And our next question is from Nick Dimitrov.
Follow up from the previous question. You did talk about the elevated uncertainty and to the fact that this is impacting your business. Can you share with us your observations regarding what's happening on the leasing origination side? What do you see -- kind of the competition remaining rational? Whether you're able to pass some of that uncertainty through higher leasing rates? The reason why I'm asking is because I was looking at your financial margin and we've seen very gradual erosion over the years. And now it's dipped below 20%. I understand that a lot of this is driven by the higher cost of funding. I was wondering at what point you're going to be able to start passing that higher cost on the asset side. And how do you think about the financial margin? Is there a certain number that you're targeting? Are we going to continue to see compression there? Like, what is your outlook?
Nick. Yes, we start pushing and passing that increases, I will say, perhaps 18 months ago or 24 months ago. What happened is that it takes time because you're starting originations that were done 4 years or 3 years ago, so within the revenue equation, you still have originations that were on a lower rate, and the impact on the cost was immediately. That's part of the rationale was we decided to go and enter into more fixed rate. The other thing has to do with that, at higher rates, even though you kept the same gap between your active and your passive rates, the profitability is going to be lower, no matter if you kept the same gap. That's a mathematical thing. But once again, we are working on different fronts to try to, of course, pushing for higher yields on the origination side and also trying to do -- and you're aware of that, trying to do our best to lower the cost of funding. We have done our job on the operations side lowering the OpEx as a percentage of sales. But of course, that loan, that has a limit. I will say that going forward, we will focus even more on profitability, and we will do whatever we can do to increase that.
Okay. And another quick question regarding your NPL coverage ratio. So historically, you would kind of keep it around 100%. Now we have a new kind of provision and methodology, and it went up to, like, 110%. Is this kind of the new level that you're going to keep it at going forward?
I will say yes.
And it appears that we have no further questions at this time. I'd like to turn the call over to Mr. Camacho for any concluding remarks.
Well, thanks a lot for being here today. We appreciate your interest and your trust in UNIFIN and your participation in this call. Please do not hesitate in contacting us for any follow-up questions to David and his team. Thanks a lot, and have a good weekend.
Thank you. This does conclude today's conference. You may now disconnect your lines. And everyone, have a great day.