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Unifin Financiera SAB de CV
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Good morning, and welcome to UNIFIN's Third Quarter 2020 Conference Call. [Operator Instructions]
For opening remarks and introductions, I would like to turn the call over to Mr. David Pernas, Head of Corporate Finance and Investor Relations at UNIFIN. Sir, you may begin.
Thank you. Good morning to all, and thank you all for joining us. In today's agenda, we will start our presentation with a business update, then we will provide an update on our COVID-19 support program. And we will finalize with our financial results for the quarter. Afterwards, we will open remarks for our Q&A session.
If you have not received a copy of the earnings release, please contact the Investor Relations team. You will also find a copy on our website. I want to remind you that forward-looking statements may be made during this conference call. These do not necessarily consider challenging economic circumstances, industry conditions, the company's performance or financial results. These forward-looking statements are based on several assumptions and factors that could change causing actual results to differ from current expectations materially. Therefore, we ask you to refer to our disclaimer located in the earnings release prior to making an investment decision.
Now I would like to turn over the call to Sergio Camacho, our Chief Executive Officer.
Thank you, David. Good morning, everyone. And once again, thank you for joining us in this challenging time. We appreciate your time and interest in UNIFIN. 2020 has been atypical year to say the least. In this scenario, UNIFIN's solid results can be explained by our defined strategy, our business model and our ability to adapt to the unexpected circumstances. Our client-centric culture drove us to contact our entire client base, and we were able to provide tailor-made support programs over the past 6 months to more than 1,200 clients providing capital relief and strategic support to their business models. An important driver for the success of our business model is explained by our asset-backed lending platform, which is complemented by additional guarantees, a strong legal framework and operational robustness renders a solid balance sheet.
Our agile platform is now providing our clients with the necessary tools to improve their digital presence, so relevant in these current times. And our conservative risk management approach, our strict financial discipline and our capital market track record has provided us with a very solid financial position to navigate through this difficult environment.
The successful capital raise we carried out this quarter is a clear reflect of the aforementioned. We successfully completed the capital increase for the full amount of MXN 2.5 billion through the subscription and payment for all 140 million new shares. The subscription was anchored by the controlling shareholder group, the free float and new institutional and strategic investors. This increased the company's capitalization ratio from 18.2% in the third quarter 2019 to 19.9% during the third quarter of this year, bolstering the company's financial position, excluding our mark-to-market, this ratio was at 24.1%.
This capital raise reflects the company willingness and ability to continue sending strong signals to the market as part of our counter-cyclical culture and strategy and highlights the trust and commitment that our shareholders place in the company, it's strategy and the team who runs it.
Looking at the balance sheet, nonperforming loans as a percentage of the total loan portfolio fell by 80 basis points from 7.5% in the second quarter to 4.9% in the third quarter of the year. This reflects the robustness of our credit risk scorecard, and this accentuates the strength of leasing as a funding alternative in the context of the Mexican economy.
In terms of coverage, the loan loss reserve portfolio for the third quarter increased by 6x to MXN 395 million versus MXN 65 million in the same period of last year. As a result of the above, the coverage ratio has significantly improved from 47% in the third quarter of last year to 70% as of the close of the third quarter of this year. We will continue supporting SMEs in Mexico, especially with the current challenging market dynamics and we must ensure that we are in a strong position to do so both now and when we emerge from these pandemic conditions.
So looking into the future, this strong decision will support recovery whilst generating attractive returns. We will continue maintaining a healthy diversification of the portfolio, and our exposure to those clients who supply to the USMCA. We have also identified significant opportunities in diverse industries across Mexico economy amongst which we waiver off, agriculture, manufacturing, health care, media and telecom, logistics and e-commerce.
In this unexpected economic scenario, our promising future is based on a very clear vision, being a digitalized one stop shop. Uniclick is our new product incubator and our point of entry for a significantly broader and more dynamic market with a decreasing client acquisition cost, which is currently 8.3x lower than from UNIFIN. The platform powers big data and artificial intelligence capabilities serving as another source for UNIFIN financial services.
Our extended product lineup now offers broader innovative financial solutions and business services to the ever dynamic SME segment, and we'll continue to cross up and sell across our integral product portfolio. We are undertaking the path to develop our client digitalization. SMEs that use the Internet as a primary source of business can increase sales by around 35%, which is explained by the fact that 66% of Mexican Internet users prefer to buy products or services from an enterprise with its own web page. 64% of customers use a global search engine as the main source of information on buying a product or service, yet 54% of small companies in Mexico do not have a website. Because the lack of knowledge or not having the necessary tools, thus presenting an enormous opportunity for providers of advisory services.
Through UNIFIN digital accelerator, we can help our clients to complete this necessary digital transformation, providing them with the necessary tools of knowledge to access a larger market, reach more clients and grow their businesses. The specialized webinars and consultancy and specialized marketing plans, automated campaign creation on Google, building their own website, improve their branding position, customer acquisition and development of their own marketing capabilities as well as enabling them to develop online sales, all in a single tool and without the need for programming knowledge. The benefit for the company are that it reduces risk of nonpayment by clients as it gives them an additional sales source. It helps UNIFIN to identify potential new products as we have access to our clients business results and it generates brand loyalty.
In addition, UNIFIN clients have exclusive access to the Academia Digital UNIFIN, which offers a comprehensive online digital training program with experts from Google. These digital tools empower current business, allowing them to speed up their digital transformation and enhance their digital awareness in order to adapt quickly to the new normal we are facing, which will be the key to a faster economic recovery.
Now we move on to our COVID-19 update. As we mentioned last quarter, the company proactively reached out to its entire client base to evaluate their situation. These efforts allow us to define a framework to cater their individual needs. The analysis included individual risk assessments, sector outlook and client performance. Therefore, our client support plan consisted in general terms of delaying their payments to allow them to manage their low liquidity and use our cash flow due to lower productivity.
In line with figures for the country, we saw gradual a economic recovery beginning in June. We saw a significant improvement in figures across the board for our client support program, in both client number and standing balance terms. Total across the board was [indiscernible]. The original outstanding balance decreased from MXN 8 billion to MXN 3.8 billion in the second relief program implemented during the quarter. As a percentage of total portfolio, this represents a recovery in asset quality from the original program, which started at 13% in the second quarter to the outstanding 5.8%.
The sectors most in need of the support program in the quarter were industrial, manufacturing and services, together amounting to half of the clients in the support programs followed by transportation and commerce which serve another 1/3 of the program. Towards the end of the third quarter, 657 clients or 55% of those on the support program have recovered and are now making timely payments again. And 548 clients remain on the program, which was implemented by the second quarter and asked for further relief by the third. Additionally, 20 clients having recently joined the support program.
Let's move to our end of the quarter results. Slow originations and rollovers, despite the crisis, increased the total loan portfolio by 19% compared to the first 9 months of 2020, reaching MXN 65 million. The total nonperforming loan ratio decreased to 4.9% in the third quarter of this year compared to a 5.7% in the second quarter of 2020. Of the total loan portfolio, leasing continues to account for the majority representing 75% of the portfolio, the remaining 25% is distributed between factoring, which accounts for 3%, auto loans 4% and structural leasing and other loans, 18%.
The company maintains a solid financial discipline with a healthy maturity profile having a weighted average term of [ 3 ] months in the portfolio versus 31 months for the total liabilities. The loan loss reserve increased by 120% at the end of the quarter to MXN 2.3 billion consistent with the current market conditions and the company's strategy for the COVID-19 pandemic. Despite the pandemic conditions, 80% of the leasing portfolio, 89% of factoring and 97% of the auto and other loan portfolio fall in the current 0 to 30 days buckets. We have 100% coverage of the factoring and auto loans business lines as well as 66% coverage of the larger leasing portfolios, totaling an overall 70% coverage ratio.
About our funding, the financial leverage ratio was 4.6x, and excluding mark-to-market, it stopped at 3.8x. Financial liabilities at the end of September 2020, were MXN 69 billion, an increase of 16% compared to MXN 60 billion in 2019, attributed mainly to portfolio growth and the depreciation of the Mexican peso. During the quarter, the company repurchased and canceled USD 14 million of our outstanding international notes. The company maintains a steady liability maturity profile with a weighted average term of 41 months versus 30 months for a total portfolio.
Fixed rate debt for the quarter account for 81% of the total debt, while variable debt was 18% of the total. Unsecured debt made up approximately 3 quarters and secured debt 1 quarter of total debt. Most of the total debt was denominated in U.S. dollars, but fully hedged, with the remaining 29% denominated in Mexican pesos.
During the quarter, the weighted average funding cost, including the perpetual bonds, decreased to 10.1% as a result of quantitive leasing policies and strategic financial activities, including bond repurchases conducted over the last 12 months.
The annualized NIM contracted by 84 basis points to 6.8% in the quarter when compared to the same period of 2019. This is explained by the slowdown of our business as a result of current market conditions. This decrease came mainly from lowering our exposures in our businesses due to operational presence in the face of the challenging macroeconomic environment and softening demand for financial services in Mexico. In addition to the increase in the outstanding balance of the portfolio due to the implementation of our COVID-19 support program.
Administrative expenses consisting of investments in marketing and promotion, administrative services, legal and professional fees, our other administrative expenses increased by 18% year-over-year. This increase is mainly attributable to associated costs of reducing our headcount by 5% and the company's substantial efforts related to our business intelligence and Uniclick business branches. OpEx, as a percentage of revenue, increased by 320 bps year-over-year. However, when compared to the second quarter figures, we maintained a steady number.
Moving on the financial metrics. The return on assets was at 1.9% at the end of the quarter, while the return on equity was 13.7%, but excluding the perpetual bond, the return on equity closed at 22.4%.
As always, I would like to reiterate our commitment to Mexico and our stakeholders. We will continue focusing on generating long-term value and overcoming this challenging environment, and we are confident that we will emerge a stronger company. Thank you for listening. And now I would like to begin with our Q&A session.
[Operator Instructions] Our first question comes from the line of Jason Mollin with Scotia Bank.
My first question is about the restructured credits. And you mentioned that in the quarter, 5.8% of credits had been -- the deadlines have been extended. And that looks like -- that's an improvement vis-à-vis the conversation we had after the last quarter conference call, where it was about 13%. If you can give us some more color, you mentioned in your opening remarks that I think that, that represented about 1,200 clients. So were those mostly in leasing or were they in all the products? If you can just provide some color on how this process has been going?
Jason, this is David. Thank you for your question. So I think to provide the total context on this support program, we want to highlight that the total amount of clients that have been supported by the company, both in the first and the second relief programs, amount for 1.2 thousand clients, okay, or [ 1,225 ] clients to be precise, of which 548 remain outstanding and requested an additional relief program. Only 20 where new clients incorporated into the program. So in general terms, 55% of the clients exited the first program and are now in compliance or let's say, in due payment of their obligations. And the second relief program accounts for 45% of clients, which include previous clients that were involved in the former program, but asked for an additional relief, okay.
If you recall, the original relief of the top 100 clients that we were mentioning, accounted for -- the deferred payments accounted for MXN 1.2 billion, okay? With the second relief program, the total amount of payments that have been delayed or that have been refinanced to the clients amount for MXN 1.8 billion in total. I don't know if that's clarifying a little bit the information.
Very helpful. I mean, I guess, is it better -- I mean my just follow-up on that would just be, is this better than you had been anticipating? Is this kind of in line with your expectations? How should we think about the evolution in the third quarter?
I think that somehow it's better, considering the overall environment we face. And this also is a consequence on our strategy. If you recall, we decided after for in the third quarter of 2018, after the cancellation of the airport, we started focus our efforts in originating through the supply chain that goes to the new NAFTA deal. Because one message that we received very clear from this new administration that the new NAFTA was a priority for them. So we anticipated in that. And basically, we start almost ordinating in all the states, geographies, sectors that were embedded into the supply chain. So currently, with 30% of our portfolio being within that umbrella, is how we have been able to manage a faster recovery when compared to other financial institutions or when compared to the overall sector in Mexico.
It also become a little bit better than expected because as we speak, that the lockdown in Mexico continues to be very tough for some industries and some services and geographies. And now we may be seeing a second wave in the country that will derive in a tough, I would say, lockdown policies across the board. So yes, I mean, it was planned. Of course, when we plan these, we will not consider in the product. We will just consider the dynamics, the dynamism on the economy. So I mean, it has been better than expected, but it has some strategy behind that.
That's very helpful. Second question, on the perpetual bond, I just wanted to make sure that we're tracking the accounting correctly. We see you show the return on equity, including and excluding the perpetual bond, which I think was -- is in the books at around MXN 4.5 billion. How -- what was the implications, I guess, the interest expense, as usual, was booked in equity correct?
That's correct.
And what -- if you can quantify that? And then the hedging of the coupon is also reflected in equity, is the cost there? And I guess it's a smaller percentage of perpetual now that you've raised this MXN 2.5 billion, of course. But I understand the financial implications in the quarter. And if the ROE you're showing, when you exclude it, are you just taking that out of the value of the shareholders' equity? Or are you also trying to incorporate the cost into interest expense?
Yes. Let's say, the payment on the coupon, on the perpetual bond, is deducted from return of earnings. It's around MXN 240 million from the quarter. I mean, when you do the math, you're going to see there. The rest of the calculations and metrics is just to put some perspective on how do we calculate internally, and that's basically all.
And that calculation is just removing the perpetual from the denominator from the equity? It's not -- there's nothing on the earnings side that you're adjusting, correct?
I would assume, Jason, but let us check and then confirm. That is excluded from the -- or is adjusted on the earnings side of the calculation. But we'll provide a follow-up, and we'll give you, if you want, the numbers behind the metric that we calculate on the P&L.
Our next question comes from the line of Nicolas Riva with Bank of America.
I'm going to do a follow-up on the release programs, but maybe ask it in a different way. And thanks for giving so much color about this. Can you tell us what -- so right now, you guys told us, the number of clients that have received relief programs -- the first and the second relief programs. What percentage of your loan book now -- your total loan and leasing book would be subject to any kind of debt relief measures? And also if you can give us an idea of how that percentage has evolved since March since you started with all of this since the pandemic began. And also, are the leases subject to the relief program still part of your performing loan book? And does that explain why the NPL ratio improved quite significantly in the quarter? So that's my first question on the debt relief program.
And then my second question, there's a table that you always show in the press release talking about the recovery values. And what would be the breakeven level which you could sell your leased assets without having a loss on -- and impact on capital or an earnings loss? And has there like -- now given that we have been going through all this crisis since March, can you tell us roughly -- can you give us an idea if there's been a pickup in terms of repossession of assets during all this crisis? And at what percentage of that recovery value you have been able to sell or monetize these assets, if that happened to be the case?
Nicolas. I'm going to start answering the second question, and then I will move to David to answer the first one. Yes. I mean, we haven't seen a pickup in repossession so far. However, we are very, very close and very cautious on what can be a second wave of COVID in the country. On that front, we have enhanced internally our asset management team to in the event that we see a situation in which we're going to see some of our clients definitely to either broke or close their respective businesses to be very, very, very close to them and repossess as faster as we can.
In that event, we have also enhanced internally our legal department to do so. So if we compare, for example, year-over-year, the coverage ratio or even the numbers that we presented in the second quarter of the year, we have seen a significant improvement of our breakdown of the recovery vis-à-vis our reserves. And that goes in line with our strategy of enhancing our reserves and, of course, being more conservative in that approach.
If you recall, from the previous quarter, second quarter of this year, our breakdown basically was around 60%, now on the recovery to start recording a loss. That breakdown has reduced to 40% so far. That's because the creation of the reserves. The sale of the requisite assets continue to be slightly above 80% of the commercial value, which in our case, in our view, it's a very, very high number and a very positive number. That goes in line over the origination process in which one of the key metrics that we evaluate for making a lease is the secondary value of the asset. And that's part of our origination process and somehow it's part of the strength of this company. And on that front, we feel very comfortable on the way that we have been tackling this issue.
I will say that for providing you with a very good picture on how this is going to be ending, we will need to see what are the dynamics on the economy on U.S. election that is going to have an impact on Mexican economy, but most important, to see if there is a significant second wave of COVID and the correspondent lockdown. Now getting back to your -- I don't know if that answers the second question, but...
Yes, it did.
Perfect. Now let's turn to David so he can answer the first one.
Sorry, Nicolas. So again, I will try to be precise. So the total amount of price that the company has supported over the first and second stages of the support program are now 4 in total, 1,225 clients in total, okay, which represents roughly 16% of the outstanding number of 5, okay? The full outstanding balance of the support program, both in the 2 stages, amounts for a little over MXN 8 billion. However, the ones that remain in the new program, okay, only account for MXN 3.8 billion.
So it's over a 60% reduction from the original program. In addition to that, the deferred payment, the original amount of deferred payments for those clients or for that total supported clients in the first stage of the program amounted for MXN 1.2 billion. On the -- including the payments that were deferred for both clients from the first stage and the second stage or the ones that entered -- the 25 that entered into the second stage of the program, now account for MXN 1.8 billion, meaning that the total refinance amount of the book, the outstanding amount of the book that has been with refinanced accounts for MXN 1.8 billion. These are rough numbers, and we can provide the exact figures for you later on a follow-up [indiscernible].
Our next question comes from the line of [ Carlos Rivera ] with Doubleline.
A follow-up on asset quality, on the question from Nicolas. We see a decline in the number of NPLs for leasing going from MXN 3.2 billion to MXN 2.8 billion. So my understanding was that the people that were -- the clients that were under the relief program were not counted as NPLs. So this improvement in NPLs, would that mean that the clients that you thought would be in much trouble actually did not get in that much trouble and were able to become current, is that a fair interpretation of the number? And if you could provide us any color of, I don't know, if that's driven by any specific clients, any specific sector this better behavior on the leasing portfolio? And I'll ask my second question after.
Thank you, Carlos. So in general terms, yes, the restructured program or the clients subject to the support program, do not account for NPLs. If you were able to look at the figures, even the aging balances of the company improved a little bit, meaning that we did see a much better performance across the board in the different products of the company in terms of payment behavior by the clients. In general terms, and you might recall, we're mentioning this to a few of you guys either on direct calls or on open forums. The collections -- the expected collections for the third quarter were better than for the first -- sorry, than for the second quarter of the year. And we believe that the factors that drove an improvement in collections were mostly in terms of sentiment, how the perception of the clients was, in general terms, is improving a little bit. And they were able to plan a little ahead for cash flow.
Secondly, we are seeing an economic recovery, and that, of course, helps improve in terms of metrics. And thirdly, and we believe this is also very important. As you might recall, over the second quarter of the year, all of the judicial system in Mexico, basically the court system and legal system in Mexico, was basically put at a halt. And this was not something that, to my knowledge, was specific to Mexico. This was something that probably happened across the world. So filing a claim or repossessing an asset or doing extra judicial tasks for repossessing was, over the second quarter, a little bit more complex because you could not do anything on a formal basis.
For the third quarter and after July, this started to get back on track and also created the proper incentives for the clients or the -- and portability in a way for us to pursue a little bit better, our normal schedule on collections. This was mostly towards the months of August and September, but we continuously seeing this pattern happening in October too. I don't know with that I answered your question.
Yes. Just a quick follow-up on that. I mean, we see an improvement in the final number of NPLs. Just to confirm, I mean, I think there were no write-offs to confirm that. And maybe you can give a little bit of color there, if you saw any new NPL formation, just to get additional color on the behavior of the final number?
So just an improved performance across the board, no specific write-offs. I think there was a factoring account that was right -- written off in the second quarter, sorry, to be precise. But other than that, nothing in the numbers of the third quarter. And yes. I mean in general terms, of course, the allowance did increase or the loan loss reserve. And the loan loss reserve increased because of the methodology of -- because of IFRS methodology, which is consistent with payment behavior, with economic circumstances and so on. So in a scenario or an environment in which you have different payment behavior or economic circumstances accounting for a more deteriorated, expected collection performance that accounts or that makes you need to create additional allowances. And for that reason, you see a better coverage ratio over the quarter.
Okay. And the second question I had was regarding capitalization and especially on dividends. I know it might be a little bit early to define the policy for this year. But if you can give us a little bit of color how you're thinking about it. I mean, I believe there are no provisions on your bylaws that guarantee a minimum dividend payment, but what are you thinking in that regard? And in the past, I believe you've paid MXN 1 per share as dividend, which, given the outlook for earnings this year, would be a higher payout ratio compared to the prior year. So if you can just give us a color how you're thinking about dividends and buybacks, that would be very helpful.
Yes. We still have not get into that discussion. You are correct saying that our bylaws do not say that we need to pay a cent. We do not have any limitation on that. And the priority of the company is going to be to maintain a very healthy balance sheet. So for the moment, we haven't entered into that discussion. And let's see. Let's see how does the fourth quarter end, and then we will start that discussion with our Board.
Okay. And what about share buybacks? Are you -- do you still have on the -- either on your plans or allowed by the prior shareholders meeting? What is the status on that?
Yes, I mean -- yes, we still have a room on the approval side for the share buybacks. However, considering the current conditions, and seeing how has the stock has traded, we do not anticipate to participate in a very, I would say, solid basis on share buybacks.
And our next question comes from the line of Joe Kogan with Scotiabank.
I had a question on the structure of the aging balance. So looking roughly at the third quarter, you have around 80% collections in the 0 to 30-day category. And the rest, roughly evenly distributed among the other buckets that you have of up to 60 days, 90 days and over 90 days. And then comparing that to the second quarter, I see something similar, kind of also 80% and then more or less even buckets in the other categories. So tell me if I'm interpreting this correctly. It's not getting worse, which means that people are paying, but they still kind of owe a couple of months. So with the easing of restrictions, they have been making kind of older payments, but people seem still behind a couple of months. So that's my first question.
And then a related question is you mentioned how there could be a second wave and a lockdown. So can you talk a little bit more about the restrictions that you've seen in Mexico for the sectors in which you lend? How those restrictions have affected certain SMEs and their ability to pay and whether you see those same restrictions coming back after the second wave and leading to more difficulties in payments?
I think it's different from within the states in Mexico. And I'm answering the second part of your question on the second wave and COVID. For example, now we are hearing that in some northern states, particularly in the State of Chihuahua, they are mentioning that they may enter into red light, which is basically a full lockdown on industries. And the same happens with one of the middle states, I think, Aguascalientes and some others. So we need to check which one is going to enter into that. I mean, those are like the recent views that we have seen on the newspaper and basically their daily conference -- press conference that the President has in Mexico.
However -- and that's part of our conservative risk management approach. We kept very, very close to those clients which are in those states to see what is going to be their impact. And that's why I have been mentioning that we need to see what happens, once that we see a second wave, depending if it's going to be very bad or not. And, of course, the natural impact that it will have on the businesses of our clients. And that's part of it. It's not that we have some, let's say, privilege information on when [indiscernible]. So it's just basically on what we saw or reading on the news and hearing from the government.
As to the first question, sorry, I think -- I mean, you're right. In terms of leasing, the distribution across buckets is fairly even. And this is because -- and we believe this is the case. People try to appoint lever as much as they can under these economic circumstances on their cash flow. So -- but they also don't want to get to the point in which enforceability and collections become an issue for them.
Remember that our asset, specifically, is in most cases, the essential asset for their productive cycle. So in a way, if we start doing or enforcing collections too strongly or if we get to repossess the asset because of the relationship is basically broken with the client in a way, they jeopardize a lot in their businesses. So what we try to do is have, of course, always friendly communications with our clients and a strong link in terms of relationship. But they also know that to the point in which after 90 days, they continue delinquent, we are much more stronger in terms of collection efforts. And I think that's part of the reason, and that explains a lot why some clients shift from one point to another, and they maybe get behind 45 days or maybe 65 or something but eventually get back on track. And then -- so it's almost like a revolver pocket between the 31-day and the 90-day bracket for the clients under these economic circumstances.
Thank you. I think that explains the structure. So then would it be fair to explain -- to expect kind of under the uncertain and difficult pandemic conditions for that this structure to stay the same, at least, for the next quarter-or-so for your SME clients to continue doing roughly the same thing?
I would think so. And that is also in line with the idea behind the relief programs that we have provided because it's a hit on the cash flow. That's specifically the matter. If you analyze most of the clients and most of the industries that are being impacted, the reason why this is happening is not because they're taking wrong managerial decisions or because they have committed cross or any other things. The pandemic, in general terms, has impacted significantly the efficiencies that the companies can have on their operational platforms. So instead of having sales at maybe the -- sorry, equillibrium, they might have a significant reduction over sales of maybe even 75% or something. So what we are trying to provide is specifically a hit on that specific cash flow so that they can manage with the productivity that they can today perform. And that's more or less the rationale behind both the relief programs and the behavior on aging balances. We continue anticipating that this is -- we continue believing that this is going to be happening probably in the next couple of quarters up until the point in which we start seeing now a formal, formal, formal recovery.
And just to add on that, I mean, I'm getting back to my explanation on the second part of your question. That's why we are very active on our economic analysis team to really be very, very close so the dynamics that we may see within the different states in Mexico and try to adapt faster our strategy on origination and on collections because it goes both ways. It's not that we are, let's say, waiting for and not doing anything if there's a second wave. It's just like that we are anticipating to whatever it may happen and try to adapt our strategy as fast as we can. And that's basically the way of thinking behind everything that we have said on the second wave.
Our next question comes from the line of [ Alexis Panton ] with Stifel.
I have a couple of questions. First one is on your lending yields, they are starting to come down on average very rapidly, about 500 basis points year-over-year. In other words, your interest income is down nearly 10% year-over-year, whereas your performing loan book is up nearly 20%. So there's a big mismatch between interest income, which suggests [indiscernible] ask if you're actually putting this income payments on to the balance sheet, which is sort of the mathematical explanation for that versus just an overall reduction in lending yields to all your customers.
Second question is on your cash position. You raised MXN 2.5 billion, but your cash went down by MXN 1.5 billion quarter-over-quarter. It seems that you paid about MXN 2.5 billion to banks. I was wondering why you paid banks rather than preserve liquidity and whether those banks were not willing to refinance you?
And then the third question is on your drillship. Can you sort of give a confirmation that the valuation of the third-party appraisal is still roughly the same as this brings out 40% of equity, given Pemex risk premiums having increased, given the decline in oil prices this year. And obviously, a lot of talk with respect to Pemex, renegotiating a lot of its contracts. Can you sort of confirm the status of the drillship with respect to the valuation on the contract? And also, can you explain why your derivative position fell by MXN 5 billion quarter-over-quarter?
[ Alexis ], yes. I mean the section that you see on the interest payment has to do with, of course, the reduction on the rates that we are paying -- the variable rates that we're paying on some parts of our debt in addition to the repurchase of the bonds, which, of course, has a negative -- or a positive, on our view, impact on the interest payments.
Sorry, I'm talking with respect your yields, your lending yields. I'm talking about interest...
Yes. On the yields, of course, has to do with a reduction on the originations in -- across the different businesses that we are -- particularly impacting...
Your loans are up 20% year-over-year. I imagine you've originated MXN 10 billion of new loans and your interest income is down.
Yes, but you have to consider that the aging balances have deteriorated year-over-year, and that accounts for a less productive portfolio overall. And in addition to that, we have restructured MXN 1.8 billion of payment, which is -- which are not being accrued or generating any interest income. So that explains the impact in the yield.
In addition to the reduction on the other businesses, I mean I'm basically going in line with David's answer. The decision to pay some of our debt during the quarter has to do with the conditions on some of our lenders for rolling over those who are not attractive to the company. And that's why we decided to somehow pay some of our debt in that point.
Which do not account at any point for any refinancings on the revolving part of the debt, that was entirely done by the company. We were scheduled to pay both 2-term facilities, and that's why we decided to repay some of that debt originally. And some part of it was actually also refinanced and sent forward to 2021. It's part of the process and the liability management efforts that the company has carried out. That also allowed the company to reduce interest expense, and we will continue analyzing different alternatives to try to make the profitability of the business sustainable under an economic environment in which there's tougher liquidity to access and -- but manageable with our own cash flows and manageable with the capital enhancements and manageable with our contributions to the equity norm.
And the last part has to do with something regarding Pemex, now on some contract renegotiations, if I am correct.
Yes, correct. Yes, just curious, you see a lot of news these days with respect to Pemex, obviously, not paying suppliers and renegotiating contracts with private operators. So I just wanted to get an update on the situation. Obviously, it's an important part of your asset base with respect to the contract. And the other question was just why your derivative book fell MXN 5 billion when the exchange rate is not too different quarter-over-quarter?
Well, on Pemex, what we have heard and what we have basically talked to them, it's not a renegotiation of the contract. It has to do more with deferral of payments. And that's basically what they are putting with all their different supplies across the board. On the case of our platform, it's a signed contract with signed authorities on our platform. That platform, as we have said in the past, is on a strategic platform for Pemex. And the latest talk that I had with the guys of Pemex is that actually, they want to even enhance the contract and extend the maturity of it because it is strategic for them.
For the -- sorry, to explain the decrease in the mark-to-market, it has several considerations. First and foremost, there was a depreciation of the U.S. dollar vis-à-vis the Mexican peso. That's an important variable to take into consideration. But in addition to that, reference rates, both on the basis swap, which are variables embedded in the derivatives that we have hired have been shifting. The curves have been moving, and that accounts for a depreciated value on the mark-to-market across the derivative portfolio.
Additionally to that, we did terminate anticipated being some of the derivatives because they were hedging notes or debt that we repurchased or repaid. So you see a lower debt and that was -- or included mark-to-market that was hedging that debt. And since we don't have that debt anymore, we took some of that benefit to the company. And that's basically the explanation behind the reduction on the mark-to-market across the balance sheet.
Our next question comes from the line of [ Rafael Olius ] with [indiscernible]
A couple of questions. I would like to see if you could give us a guidance on how many companies have you been buying over the last year and how accretive they have been to the business, number one. And number two, if you have been engaging in any factoring transactions with delinquent loans. And if you have not done this, what would the NPL ratio be if these delinquent loans had been on your -- had stayed in your portfolio, please?
Rafael, this is David. Sorry, I don't think we were able to hear properly the first question. Can you repeat it, please?
Yes. If you have been making any acquisitions over the last year or so and if they have been accretive to the results of the company?
No. We haven't done any acquisitions. We haven't taken any -- we haven't bought anything on a historical perspective in terms of that. In terms of -- in terms of the second question, no, we haven't done any factoring to restructure any portion of the book either. The refinancing have come in the shape of either extending the maturities on the leasing book by providing an additional leasing contract or working capital facility for the client. But -- and that's part of the MXN 1.8 billion that you see in the increase in the outstanding balance of the book that was discussed on the relief program. But aside from that, nothing different.
And one last thing, I know this is difficult to estimate, but do you have any idea or have you drawn any scenarios on what could be impact of a second wave, could impact the company?
No. I think it's still too early to say. But I mean if it came to the context of what we saw in the second quarter or at the beginning of the year. I think we might expect something in terms similar, but it's too early to anticipate in reality. And like we were saying before, it would also account or depend a lot on not only Mexico's performance, but our overall relationship with the U.S., the U.S. performance or maybe some -- even at some point with some European and other nations because a lot of our clients have direct exposure to the client agreements that Mexico has celebrated with different measures. And we believe that's part of the strength that the company has.
I know this was difficult to estimate at this point, but just wanted to ask. Congratulations for the sequential improvements.
Our next question comes from the line of Jamie Nicholson with Crédit Suisse.
Most of them have been answered already, but I have a couple of questions relating to your maturity profile chart that you show on Page 11 of your press release. And specifically, you show that 43% of your total portfolio is maturing in 0 to 12 months. And I just want to confirm that, if the data reflected on this chart shows after the extensions, in other words, that if you've extended any of this portfolio, the chart shows it after the extension? That's my first question.
And then relating to the banking lines, the MXN 15 billion that are in the short-term financial debt, how much of that do you expect to roll over or refinance? Is it just the revolving debt portion or are you seeing better banking terms to get more financing and liquidity?
And then finally, I have a question on the 13.9 million of bonds that you repurchased, if you can provide more detail on what maturities and if you expect to opportunistically continue to repurchase bonds in the market in the future?
Jamie, thank you for your questions. In relation to your first one for the maturity profile of the portfolio, yes, it does account for the portfolio that has been renegotiated. But I have to mention that it's, in a way, evenly distributed in the different buckets or in the different maturities because it depends a lot on the particular tenure that the contracts have outstanding with each individual client. So I guess we can try to follow up a little on the distribution on the renegotiated payments, but they're distributed throughout the entire bucket of maturities.
I'm sorry, the second question in terms of basically taking out the opportunistic approach in terms of repurchasing bonds or doing some other repayments. Yes, we -- I think we will continue doing so. But the main priority of the company at this point and it has always been -- or it has been the outstanding philosophy that we have adopted in the company for this period is to prioritize cash. So we have done so for the first 9 months of the year. We did increase the capital through the second quarter, and that provided us with additional funding to analyze the possibility of doing some additional repurchases. And I think that could potentially be something that we would like to consider going forward. It's going to depend a lot on how we find liquidity and how we find the current and accretive pricing that we're trying to -- at which we're trying to buy, because we're not trying to put the bonds at par, not necessarily. We would like better to have the financial benefit from that. But also letting you know that we're also trying to stabilize the pricing of the bonds. We do not consider that with the current liquidity, the price of the curve is justified at this point. But so that -- I mean that's a little -- the rationale behind the definitions that the company has been taking.
Okay. Yes, understood. And then regarding those repurchases, did you focus on any particular issue? Was it like the 23? Can you give a breakdown of what...
It was across the curve. And the reality is the rationale of buying at the cheapest possible level that we could find because in some cases, we were trying to buy or execute some orders, and we were buying at a significant premium. And of course, we want to see our bonds trading at par, but not necessarily with the possibility of having such little liquidity that they will be brought back down again. And we believe most investors are definitely not comfortable at the current pricing, and would like to see the bonds trading better.
In addition to that, Jamie, I mean -- and this is a view of the company. When we analyze the performance of our bonds vis-à-vis some of our peers, we do not see any fundamental reason why they are trading at the levels that they are trading. And that's part of the rationale that when we decided to start repurchasing some of the bonds. However, as David mentioned, one that we started and, of course, we did not do directly. We start to see a significant increase with very, very low volume, confirming our thesis that there was no structural situation why bonds were trading at those levels. In the future, we will continue tracking them, I would say, on a daily basis to see if there is an opportunity to participate or not. But our view is that they have been unfairly valued, and I believe that the third quarter results basically proved that.
Understood. Okay. And then just my previous question regarding your banking lines. You have like MXN 15 billion of short-term financial debt, MXN 8.7 million of which is revolving debt, do you expect to pay down the other banking lines? Or are you in the process of renegotiating and drawing on banking lines? If you could just update us, you mentioned in response to Alexis' question that you paid down a lot of debt because you didn't like the terms. Are you seeing better terms for refinancing some of this short-term debt? Or how are you looking at regarding your comfort level on liquidity?
Yes. We have a very close and very frequent communication with basically our lenders across the board. On that front, of course, as long as we start presenting some improvements in our numbers, it's going to be more easy to them to -- let's say, to justify within their credit committees to do some rollovers. We are under those discussions as we speak. Of course, some of them were waiting to see what were the numbers on the third quarter and so far from some -- WhatsApp and messages that I have received from some senior officers, from those banks, they're very happy with the numbers that we released. They are very confident on the track record and on the performance of the company through these difficult times, and we are working on that. Let me just end it with that. Now we are working on rollover in all of the liabilities that we have for the next 12 months.
For the other revolving facilities, we basically -- I mean, of course, these are not committed lines, but I mean we're certainly confident that this is going to be an ongoing mechanism. And we don't see any change in circumstances on that front. As to the term facilities that have been repaid, it's because we believe that we have the possibility to access cheaper or more efficient sources of funding. And that's why we have decided at a point to lever down a little on those that can be a little bit more constructive in terms of pricing or in terms of terms and conditions, but that we have had the availability to access others like the lines that were approved along the second quarter and some others that we're working on today to access, that can be much more efficient vis-à-vis the ones that we decided to repay. And that's basically the rationale behind it.
Our next question comes from the line of Natalia Corfield with JPMorgan.
I have some follow-ups. I will start with asset quality just to get everything very clear. We have this decline on the number of NPLs from 3.6 to around 2.2 in the quarter --quarter-over-quarter. So I understand there's no charge-off there. So just to be sure that this -- there's no renegotiations of the existing NPLs, that this was really an improvement on clients that were not paying and then were able to pay. So that's one thing that I would like to confirm.
The second one also regarding the loans that they are not accruing interest. I'd like to know how much they represent of your total portfolio. I understand that you renegotiated 5.8% of the portfolio in this quarter, but I'd like to know how much right now are those loans that are not accruing interest represent of your portfolio?
And on the buyback of the bonds, you have a one-off result of, I think, MXN 8 million, MXN 9 million and also there is something related to the derivatives. In total, how much is the one-off related to those -- to this buyback?
And lastly, sorry for so many questions, collections in this quarter, if you have the number, would be very helpful. And if you had the number in the second quarter, the number in the third quarter, that would be helpful as well. Sorry for so many questions.
Natalia, first of all, I mean, one of the precedent conditions that we established for putting some of our clients within the COVID program is that they were only to be current under payments. So the improvement that you see is not that we are just like putting people that was due, and then we decided just to sign them in the COVID to somehow fix their situation, it's not that case at all. So on that, it's a real recovery what we are seeing on the numbers that we have posted both on NPLs and on the reduction on clients that are within the COVID program. On the other questions, David, if you can answer please?
Yes. The percentage of the book that is not actually accruing would be consistent, I would say, with the 5.8 or that be -- okay, let me try to be more precise. The portion of the book that did not accrue any interest through the third quarter would be consistent with the 5.8 of the restructured loans in addition to the NPL. So it's the sum of both numbers.
And then finally, in terms of the buyback of the bonds, yes, we did have approximately MXN 400 million, sorry, from financial results that benefited the P&L of the company, which are explained -- in terms of foreign exchange profit or loss accounts for MXN 329 million, which 1/3 of that, more or less, a little shy of 1/3 of that is the benefit from the line from the derivatives that were basically backing off the debt that we repaid or we bought back through the third quarter. And the rest is basically efficiencies across the hedging derivative portfolio in general terms. That would be the case, Natalia.
So would be MXN 8 million to MXN 9 million plus how much relative to the derivatives?
Plus MXN 100 million.
MXN 100 million. So it's MXN 108 million or MXN 109 million?
Yes, that's correct.
Okay. Okay. And lastly on the collections?
And lastly, on the -- can you repeat that question, please?
No, I just wanted to know if you could provide the number of collections in the quarter?
Okay. The average -- okay, sorry, the -- as you recall, the average collections for the second quarter was 82% roughly from the expected collections of the period. For the third quarter, in average, considering July, August and September, it was closer to 85%. But for the month of August and September, as we disclosed, it was closer to 87%. So the beginning of the quarter, in July, it was still somewhere along the line of 81%, 82%. But through the end of the period, it did improve a little bit. So the weighted average or the average for the entire quarter was closer to 85%.
Right. David, do you have the number itself, like...
Sorry. I don't have it available here with me. I'll follow-up on that with you for the nominal amount. Sorry, Natalia.
Our next question comes from the line of Alejandro Isaza with SURA.
I have one quick question, is regarding the expenses, administrative expenses. In the third quarter, we saw an increase in general administrative expenses of around 17%. And until June, we had an increase of around 10%. So I wanted to know what's the explanation of that pickup in expenses, please?
Yes. The explanation of the increase in expenses year-over-year has to do with some costs associated with the reduction on headcount of around 5% on UNIFIN. And the increased expenses on legal fees to, as I said at the beginning of the call, to enhance our legal department and prepare for whatever we need to do in the event of a worsening on the economic environment, that's basically the explanation. If you see our expenses quarter-over-quarter, they remain very, very steady.
Okay. One quick second question is regarding the comprehensive financial results. I wanted to know if only the gains are related to FX gains or how are they composed?
FX gains, again, the lines from the repurchase of notes and the lines related to debt that was repaid through the quarter, mostly.
Our next question comes from the line of Christian Juarez with Santander Asset Management.
One quick question related on provisions for loan losses. Given these better collection levels and your conservative approach in the reserves, what can we expect for the next 2 quarters, given these scenarios that you gave us?
We do not anticipate a significant increase in the coming quarters because basically, what we have created on our point of view, it's very -- on a very healthy level. And that's what I can tell you because I think that no one has a crystal ball on how it's going to be evolving the economy. And as I said, if there's a second wave of pandemic that will hurt the performance of our clients, and that's basically the answer as of today.
Cost of risk in general terms should stabilize. I guess its performance across the portfolio is still behaving consistently like we saw in the third quarter. Cost of risk should remain relatively stable in terms of behavior. I -- and yes, of course, this do not account definitely for economic circumstances that can change materially the performance on the book. But if things remain relatively constant, I think we are likely to see a stabilization on cost of risk.
Remember that in general terms, the rationale behind the allowance and the methodology behind it is based on payment behavior and again, economic circumstances and so on. But in an important way, because of payment behavior. So if you see the aging balances, this remain in similar terms that what we have right now, the cost of risk should be constant and similar. If it improves, then it means that the allowance should decrease as well in a way. And if it deteriorates, it means also that you need to create further additional allowances on that perspective. I mean this is a very broad and general definition, but that's something that might give you some guidance.
Our next question comes from the line of Guillermo Diego with Santander.
Sure. Just wondering, we have seen the strong performance of the bonds, as you mentioned, going from maybe MXN 0.60, MXN 0.70, MXN 0.80, MXN 0.85. And maybe as you were mentioning, because 40% of the debt is 6 years or after and maybe 40% of the loan book is going to be recorded in the next 12 months. So I was wondering, does the same reasoning apply for the equity? I mean we have already discussed a lot the provisions and going from MXN 8 billion to MXN 3 billion and maybe watching a [indiscernible] issue, the MXN 1.8 billion, but at the end of the day, when you see the stock price going at MXN 18, it seems like the market is paying you 2/3 of the equity or is basically disappearing MXN 4 billion plus MXN 2 billion that this vehicle generates, so assuming I hit maybe MXN 6 billion to the equity. So would it be better just to get rid of that topic and maybe just take the complete hit of the MXN 1.8 billion that you're watching [indiscernible] issue straight to the capital and maybe going from the -- you have one of the highest capital ratios in the financial industries in Mexico going from 19 to 16, 15, whatever the number you want. And maybe just moving away. And as you said, when the federal districts open and you can recover some of the part, maybe reverse the provisions or what is the strategy in the short term to move along from this topic of the provisions because it seems that the market is more focused on MXN 1.8 billion rather than watching the -- maybe the funding issues or the long-term active rate and just taking a [indiscernible].
And then -- and maybe on the second part, on a long-term basis, what is your view on that part? Maybe the biggest competition in the market comes from the big banks from the leasing divisions. And we have seen that part to maybe shrink in the last 2, 3 quarters. So are you assuming any changes for the long-term active interest rate that you're watching in the leasing industry, coupled with the current funding level now close to 10%?
It's going to take a little bit long to answer the whole idea that you're placing, and thank you for answering this. I think that -- I mean if we analyze the performance of the bonds and, of course, the performance of the equity, I think that there is a misperception on the company across the board. When we analyze them, and we try to be very clear on the webcast that we did today on what is the future of UNIFIN considering our digital platform, all of our initiatives on artificial intelligence. The JV or I don't know how you like to name it with Google which is unique in the Mexican context. I think that there's some perception on the potential of the company going forward.
On the numbers that we have posted on the COVID support, of course, those numbers does not include the associated asset that we have within all those contracts. And of course, we have had the temptation to do more write-offs and on for like reducing those numbers now that we have the reserves. But we want to finally have, I will say, a very clear view on the performance and the future performance of those clients that are within that situation and to, of course, see how quickly and how fast we can repossess the assets and what can be the resale price for those.
So I mean, of course, we are aware of everything that you have said. We are very close in those analysis and maybe we can follow-up to continue further discussion on that. But the view on the company, based on the trading levels that we are currently trading at, it's some misperception on all the fundamentals, the track record and the proven -- I will say, now the proven resilience model that we have, in addition to everything that I just said, on the digital world and our artificial intelligence lab that, I would say, maybe in a couple of quarters, we're going to be in the position to fully disclose everything that we have internally. And trust me that there's going to be a lot of people that are going to be surprised on the level of sophistication that we're putting in our operations in addition to the intrinsic value that those efforts are going to have in the market.
And just to add a couple [indiscernible] on what Sergio was saying, of course, the company's view is placed on a longer-term vision. And on that context, I think -- or we believe as a company that is still too preliminary to assume that a write-off of an account that we have the clear knowledge that we believe we're going to be collecting eventually and writing it off is not necessarily the proper way to address both P&L and balance sheet at this point. Probably some time in the future, when we start seeing a recovery, it might indicate that the over allowance that we have at a point in the future because of improvements in economic circumstances and so on, can allow us to do something by them. But for the time being, we want to be conservative and prudent for that -- for those purposes.
Our next question comes from the line of Natalia Corfield with JPMorgan.
Sorry, I have one more question. In terms of methodology of your -- of the calculation of your NPLs, did you have any change from the second quarter to the third quarter?
Sorry, Natalia. Did we have a change in the calculation?
Yes, like -- for instance, in the auto loans. It seemed to me that before it was over like 30 days, and now you're looking at it over 90 days.
Yes. I mean, on leasing, the policy continues to be the same. One that we saw the -- some documents that the Banking Association and Banco de México has released over some easing in the calculations that the banks need to have on reserves and so forth so on. And since we do not apply to those, we decided to go with the rest of our peers and the competition and start recording the -- [indiscernible] loans and factoring to 90 days, it's the same as all of our competition does. However, and getting back to the comparisons, if we get back to considering factoring and [indiscernible] loans on 30 days, you will also see an improvement from 5.7, I think, to 5.3 or 5.4. So it's also an improvement there. But somehow we try to balance the support that some of the banks have right now under these circumstances to [indiscernible] because -- I mean we are compared with the whole entire banking system without having the benefits of that. And we check that with our external auditors, and they agree on that. And that's basically what we did. It's not a significant change. It's just going into line with the rest of our peers.
All right. No, understood. So -- but in any case, if you were to use the methodology of the second quarter, the ratio per se would have been higher, would be like this 5.70%.
Yes.
Okay. So a little bit of the decline from 5.7% to the 4.9% was due to this change.
A little bit of that, yes.
Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. David Pernas for closing remarks.
Thank you all for joining the call today. And as always, if you want to follow-up on any questions, we are more than happy and open to take any of your questions. We hope you have received as much information as expected, and we hope to see you again the next quarter. Have a great day.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great rest of your day.