Unifin Financiera SAB de CV

BMV:UNIFINA

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, and welcome to UNIFIN's Third Quarter 2021 Conference Call. [Operator Instructions] If you have not yet received a copy of the earnings release, You can find it on UNIFIN's website at www.unifin.com.mx, or please feel free to contact the Investor Relations team at [e-mail], and they will provide you with a copy immediately.

Forward-looking statements may be made during the conference call. These do not necessarily take into consideration changing 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 casual actual results to differ from current expectations materially. Therefore, UNIFIN ask that you refer to the disclaimer located in the earnings release before making any investment decisions.

At this time, I would like to introduce Mr. Sergio Camacho, Chief Executive Officer. He will discuss the third quarter's 2021 results. Mr. Camacho, you may begin.

[Sergio Camacho Carmona, executive]

Thank you, and good morning, everyone. Today here with me are Sergio Cancino, Chief Financial Officer; David Pernas, Head of Corporate Finance and Investor Relations; and Nayeli Robles, Head of Economic Analysis and Strategy. After our third quarter 2021 results discussions, we will open our usual Q&A session.

In Mexico, the economic recovery continued during the third quarter of this year, boosted by the positive performance of the U.S. economy. The 2022 Mexico economic package was in line with expectations, which provides certainty to investors. Also, demand for goods and services continued strong in the U.S. favoring agricultural and manufacturing exports. Likewise, fiscal support packages continue to boost foreign indices, which in turn support domestic consumption. Like the rest of the world, inflation in Mexico has been outside of the Central Bank target for 7 consecutive months. In response, Banxico raised its reference rate 3 times by 25 basis points up to 4.75%. Going forward, we expect the economic recovery to continue and GDP to register its highest growth in 2 decades, closing 2025 at 6.2%, driven by the export and domestic consumption.

UNIFIN commercial strategy focuses on 2 main objectives: targeting our prospecting efforts on the strategic economic sectors that have high growth potential and low risk and developing new prospective channels through strategic alliances. As a result of the above, in the third quarter, 80% of new credit was allocated in these strategic industries, such as transportation, utilities and services. Compared to 74% in the second quarter of the year, we increased our footprint nationwide through specialized master routers, a network of qualified referral agents, leasing, working capital and factoring continue to be the most relevant business lines in our portfolio, representing 83% of total origination. At the end of the third quarter, we reached 9,170 active clients, having increased our client base by 1,545 year-over-year, a 20% increase, boosted by 735 new clients in Uniclick.

We are very satisfied with the third quarter results overall. We continue to demonstrate the resiliency of our business model, which was strengthened by the consolidation of our artificial intelligence lab initiatives that are beginning to generate value. As such, our quality portfolio has been the product of our substantial credit risk monitoring process and the progressive positive trends in collections and originations, which have consistently improved the overall asset quality.

As a result of the above, originations were 63% up during the quarter. Considering the fundamental importance of that availability, we have been focusing on enhancing our artificial intelligence lab. Based on state-of-the-art technology, the lab serves as a data source for all of our UNIFIN financial services. Each product was developed to fulfill a specific function to gather information, analyze it and offer other client experience. Clarivia is an SME primary information quality service. Literata interprets and synthesize the data contained in images automating format and file creation, which allow us to increase the assertiveness and completeness of the client information.

Lenia is an interpreter based on natural language processing that allow us to identify the need and intention of our prospects and clients. Robina is an intelligent interface that collects a great amount of information from multiple sources and formats with an independent, reliable and automatic process. Casia is a credit score model that increases credit placements with nontraditional models and variables without compromising the quality of the portfolio. The goal is to offer innovative digital financial solutions to the dynamic SME segment, which has historically been underserved by traditional banks, but much faster and a lower cost. Furthermore, the platform expect to contribute to UNIFIN one-stop shop strategy while leveraging cross-selling opportunities with existing new clients. In summary, our strategic goal is to transform UNIFIN to digital.

Our strong digitalization strategy has transformed our business into a data-driven and customer-focused model. In line with this, we leverage on a great infrastructure and know-how to launch Uniclick, our 100% multi-asset digital leasing platform. All of our technology is proprietary and managed in-house, optimizing costs and warranting information security.

Our digital process and artificial intelligence also make the client acquisition process more efficient. We can truly analyze our prospect information and into the data to our risk metrics together with credit score in minutes. We are confident that this path will increase the value of all of our stakeholders and set the first tangible step on our digitalization process.

Uniclick continues to outperform. The customer base closed the quarter at 872. Originations increased by 28.6% to MXN 485 million versus the second quarter of this year, and the total portfolio grew 26.7% to MXN 952 million. Uniclick represents 1% of our total portfolio and 6% of the quarterly origination. Asset quality is sequentially improving due to the ongoing enhancement of the parametric risk model.

Uniclick first portfolio vintage from January to March 2020 impact the NPL ratio significantly, totaling 9.5% by the end of the third quarter of this year basically due to COVID. Excluding this vintage, the NPL for the 2021 vintage is 3.4%, resulting from the improvements in the parametric risk model and better economic conditions. Uniclick, as planned, is our digital incubator and also is quickly becoming increasingly relevant to our portfolio and business strategy.

Turning to our portfolio, Leasing remains our most significant business line with 6.9% increase compared to the second quarter of this year. The total loan portfolio reached MXN 70.6 billion in the third quarter, an 8% increase compared to MXN 65.3 billion in the third quarter of last year, driven by growth origination practically in all portfolio segments. We remain well diversified across economic sectors and type of assets, with industrial supply chain and transportation leading the way, respectively. Collections have also maintained a positive trend, closing at MXN 6.6 billion, a 44.5% increase compared to the same period of last year and an 8.7% increase versus the second quarter of this year, driven by the economic recovery, asset improvement and risk monitoring.

Aging balances in general improved when compared to the second quarter of this year. Factoring working capital and structural finance improved with over 90 days as these categories remaining under 2% or less of the total business line.

Moving now to asset quality. Nonperforming loans fell by 50 basis points compared to the third quarter of last year, closing at 4.4%, a 20% basis points over those presented in the second quarter of this year, showing a sequential improvement since the beginning of the pandemic. The NPL coverage ratio for the third quarter closed at 85% versus 70.3% in the third quarter of last year. Loan loss reserves for the quarter were MXN 2,670 million, 18.5% higher than the same quarter of last year, explained by the higher provisions in Uniclick and working capital segments as originations peak.

Split by business lines, auto loans, factoring and structured finance, working capital and Uniclick business lines are 100% covered. Our largest business line, Leasing, has a coverage ratio of 75.2%, above our historical recovery value of 80%, complying with IFRS reserve guidelines.

During the quarter, the Mexican Central Bank announced 25 basis points increase in the interest rate to 4.75% as a response to rising expectations for overall inflation. We do not anticipate any major impact on our funding cost because our funding profile remains well diversified between international notes, revolving credit facilities, term loans and securitizations, mostly at fixed rates.

Total financial liabilities closed at MXN 74 billion, an increase of 6.9% compared to MXN 69 billion in the third quarter of last year. Average maturity was 47 months and the total average rate was 10.3%. Our fixed rate financial liabilities increased to 86% from 80.7% in the third quarter of last year, with floating rates falling from -- to 14% from 18.2% in the same period of 2020. For the third quarter 2021, there were no interest rates, which were capped at 7.5%. Unsecured loans stood at 77.7% and secured loans account for 22.3% of the total at the end of the quarter.

UNIFIN financial liabilities are slated in U.S. dollars and Mexican pesos, 75.6% and 24.4%, respectively. We have covered 91.5% of our annual financial budget by adding new for credit loans for a total amount of $165 million with the following breakdown. $100 million with Bladex, which was subscribed by and invoked the participation of several Latin American, European, Asian and American institutions. USD 13.8 million credit line extension with Nomura, $6 million with Blue Orchard. And the company's first sustainable credit lines with the Eco-Business Fund for $45 million. This demonstrates our solid financial position and access to funding to continue helping Mexican SMEs reach their full potential.

The capitalization ratio stood at 19% in the third quarter, a 90 basis point improvement versus 19.9%. The leverage ratio rose to 5x from 4x in the third quarter of last year due to higher average FX and increased debt servicing. Additionally, we will fully amortize one of our public securitization for MXN 1.5 billion next Monday.

Interest income increased by 15.2% versus the third quarter of last year to MXN 2.9 billion driving sequential growth on leasing, a 10% increase at Uniclick and 7.3x growth in structured finance business lines. The portfolio yield stood at 17.9%, a 28 basis point increase when compared to the second quarter of last year -- of this year. This was mainly driven by higher interest income and overall improvement in the portfolio asset quality.

The financial margin for the third quarter closed at MXN 955 million, a 5% increase compared to the third quarter of last year due to higher originations, enhanced profitability and improved asset quality. Interest costs increased 20.5% to MXN 2 billion. During the quarter, we made some changes to the company's debt composition to prioritize a stronger cash position.

NIM remained stable at 5.8% for the quarter due to negative carry from the cash held in treasury as a precautionary measure to preserve liquidity. OpEx as a percentage of sales improved by 134 basis points to 12.8% versus 14.2% in the third quarter of last year due to our strict administrative expense control measures, which reflect the operating efficiency the company achieved during the year.

Net income for the quarter increased 12.6% versus the same quarter in last year to MXN 433 million, driven by higher interest income, lower provision and a strict expense control. Return on assets closed at 1.6%, explained by the portfolio growth during the quarter. Return on equity increased 30 basis points when compared to the second quarter of this year, driven by higher net income.

During the quarter, we signed a senior unsecured 5-year term loan for $45 million with the impact investment fund, Eco-Business Fund. This is our first sustainable financing line and [indiscernible] our commitment to sustainability and maintaining a strong liquidity position.

We also became signatories of the United Nations Global Compact through which we will support the sustainable development goals and commit to actively participate in best practices for human rights, labor, environment and anticorruption. We will continue strengthening our corporate sustainability strategy, convinced of the relevance that ESG modules have to capitalize, change and create value for all of our stakeholders.

We expect to see further recovery of profitability as our business dynamics continue to improve. We are optimistic about the end of this year, and we will continue to work to support small and medium-sized enterprises in Mexico.

Thank you for listening. We will now like to begin our Q&A session.

[Operator]

[Operator Instructions] Our first question comes from the line of Nicolas Riva with Bank of America.

[Nicolas Riva, analyst]

I have 3 questions. The first one on funding. Now that your 2021 funding budget is basically fully done, I wanted to ask about funding needs for next year. So I see that you have $200 million due from the private placement and about -- I calculate about $300 million in bank loans maturing next year. Can you discuss what's the idea regarding those funding needs? And if you consider prefunding some of that before the end of this year. That's my first question.

Second question on leverage. So the debt to tangible equity increased to 7.3x at the end of this quarter. Is there a threshold that you wouldn't want to exceed before making another equity injection into the company? That's the second question. And then the third question, thanks very much for providing the number of cash collections on the loan portfolio, the MXN 6.6 billion. I was trying to reconcile collections, loan originations and the balance of the loan portfolio. So you originated MXN 7.7 billion in new loans, right, MXN 7.7 billion. You collected on MXN 6.6 billion. So that tells me before write-offs, the loan book should be growing about MXN 1.1 billion. But I see that the balance of the loan book grew a lot more than that, MXN 3.8 billion. What would be the difference really? And the only thing I was thinking of is probably FX translation on dollar loans.

[Sergio Camacho Carmona, executive]

Nicolas, on the first question, yes, I mean, what has been the conservative, let me put it this way, risk management approach that the company has had in terms of their funding needs. Yes, I mean, we are considering to see if the conditions are there to perform our need for next year. Now as I said, this is something that we have done in the past. It's part of our policy on building this issue. And if conditions are there, yes, we may go and access or tap the market if necessary. Now I'll pass to David so he can answer the second and the third question.

[David Sánchez, executive]

Yes. Just to complement, Nicolas -- to complement a little what Sergio was mentioning about the first question, you're right. The maturities that are coming due next year amount for approximately $500 million. And we are -- that's basically the reason why we would consider if market conditions are positive to do some prefunding for next year at some point either later this year or at the beginning of next. We will be, of course, looking out to how the reaction on the different prices of the curve behave. And I think that will give us an indication on where to proceed. And a probable liability management component in the transaction is, of course, under review.

As to the second question with regards to leverage, I think that we're in the moment -- something that has been happening over the course of the last few quarters is that we have maintained a substantial amount of cash in hand that is generating some negative carry and some incremental leverage. But this is just for a proactive and conservative measure in the midst of, say, choppy markets with respect specifically to emerging market activity in Mexico. We believe that eventually, this should materialize also in higher originations and as higher originations generate more earnings. And we pick up with some more productivity in our -- and profitability in our books and maintain a strict control -- expense control in our numbers, the contribution of earnings or net income to the equity of the company will probably help us ease that leverage increase. And the other thing to consider is that we have added negative mark-to-market to the equity of the company.

Given the hiring of new hedging derivatives that, of course, given FX fluctuation principally, but also by the differentials in rates that we have been seeing both in U.S. dollars and Mexican pesos this create some a lot of pressure. I would say, nontangible pressure on the equity portion of the company. This will normalize. And if you actually substract that effect from the equity, the leverage is relatively stable, all things considered.

So I mean, as you know, we are a company that proactively is measuring its leverage and capitalization. We have an open dialogue with rating agencies, and this is something that we definitely are looking into, but we don't think that the company will need any equity enhancements in addition to what we did last year, by the way, the MXN 2.5 billion that we raised as a counter-cyclical measure with what's happening in the market. We don't think that there's any other needs for raising equity at least in the next 18, 24 months, I would say, more or less.

[Nicolas Riva, analyst]

David?

[David Sánchez, executive]

Yes.

[Nicolas Riva, analyst]

One question. Do you have kind of a target for the tangible leverage that you don't want to exceed?

[David Sánchez, executive]

I think that it's a particular dialogue with rating agencies because, of course, we maintain their particular metrics in mind. So today, the leverage is under control with rating agency methodology, and we believe that it's under the threshold that puts pressure on the rating. And that's going to be the priority for us. So in the context of, again, giving some color on that, we hope to keep it below 7x in accordance to, say, Fitch's methodology.

[Sergio Camacho Carmona, executive]

I will basically conclude on this that we are not going to jeopardize, by any means, our rating because of this type of issue. So our rating is something -- a priority for the administration of this company.

[David Sánchez, executive]

And as to your last question, Nicolas, with regards to cash collection and the consolidation of the company's cash flow, it's -- I would say it's a little -- as you know, the cash flow that the company posts is under the format that we have to incorporate the numbers to the XBRL format of Mexican Banxico. The conciliation is -- I mean the -- I would say the missing incremental balance on the book is rather explained by the effect on FX, both on assets and liabilities. We had an increase in liabilities of approximately MXN 2 billion just from FX depreciation without considering -- so there's really no cash flow movement there. It's just the precision on the -- sorry, on the liability side. And on the asset side, there's also an effect with regards to U.S.-denominated receivables that we have generated with some of our clients. Adding up those effects, the cash flow, of course, adds to 0. We -- if you will, we will have a follow-up conversation with you with regards to how all the numbers add up.

[Operator]

Our next question comes from the line of Chelsea Colón with Aegon.

[Chelsea Colón, analyst]

I just had 2 questions this time being. You mentioned that your cash balance has been maintained pretty high through the pandemic, but your cash balance did come down quarter-over-quarter to levels that seem to be in line, if not lower than what they have been historically, unless is there something in the balance sheet or some line items that also includes the cash equivalent that's not specifically stated as cash that I'm missing here. And can you just comment on the reason for the cash balance coming down when your collections are higher and your -- it looks like generally speaking, there's been an improvement overall in the business? That's my main question.

And then separately, can you comment on the NPLs at Uniclick? I believe in the press release, it was mentioned that those are vintages from early 2020. So where do you expect the NPL ratio at that business to ultimately stabilize and when?

[Sergio Camacho Carmona, executive]

Chelsea, let me answer first on the Uniclick question. Yes, I mean, that increase that was on the early originations of 2020 was negatively affected by the COVID situation. The usual client of Uniclick is a smaller SME within the Mexican SME sector. Some of them were basically broken. I mean they closed because of the pandemic. And that's why you see that number of 9.4%. On the originations that we had that we start this year, the number is significantly low because of this because there is no pandemic anymore on the country. And I mean basically, the economy is open. So that somehow is the true number that we had in our model. The rates with which Uniclick is lending money are considering an increase in NPL of 12%. So we are far beyond -- far below that number, somehow demonstrate our track record of lending money in the country. We expect the number of NPLs at Uniclick to remain below 5%. And on the first question, let me pass on to David.

[David Sánchez, executive]

Yes. Chelsea, as to the cash balance, I think there's 2 explanations behind the fluctuation on the cash balance or there's 2 points or arguments to make with regards to the cash balance. When we say that we have maintained average higher cash balance over the last few quarters is because that, in a way, explains the interest cost that we have reflected and those impacting the net financial -- or the -- sorry, the net interest margin of the company because it's a trading top down analysis so you have to take the average cash balance over the last few quarters. With respect to this particular quarter, there's been, of course, a normalization and a decline in the cash balance that the company held and that is explained basically by the increase in originations that we have pursued over this particular quarter.

So that, in a way, would explain the normalization of our cash balance but we're still carrying out the cumulative effect of the last few quarters with respect to the impact in profitability across net interest margin and the yields of the business. Now that we are expecting cash balances to normalize in a way and that originations will pick up, we maintain or reiterate the expectations and the guidance that the company has provided with regards to an improvement in ROA in the foreseeable future.

[Chelsea Colón, analyst]

So is there like a minimum cash balance that you would not want to go below to continue to manage the business?

[David Sánchez, executive]

Yes. As I would say, a definition that we have taken upon our risk committees in the company, the minimum cash balance that the company decided to maintain is approximately MXN 2.5 billion. And in addition to that, we also have to consider that we have approximately MXN 8 billion in available facilities that have been approved from local banks, both development, commercial, among other facilities that are available for the company to basically be able to manage liquidity and if the occasion should arise or for short-term maturity if capital market activity wasn't attractive.

[Operator]

Our next question comes from the line of Juan Ponce with Bradesco.

[Juan Ponce, analyst]

Regarding the electricity bill that's currently in the lower house, what are your thoughts on the potential impact on your business? I mean, what are clients saying? How much exposure do you have to energy-intensive industries? And finally, what percent of your expenses is electricity? And how much is actually sourced from private producers?

[Sergio Camacho Carmona, executive]

I think it's basically too early to see what is going to be the final outcome on the electricity bill since we are cutting a lot of noise on the newspaper, but nothing on the legislative agenda. But besides that, I mean, our exposure to electricity it's around 2% to 3% of the portfolio. We haven't heard anything from our clients in terms of, I would say, a real concern because once again, I mean, it's too early to discuss that. But we will keep an eye and I'll be very close to whatever the outcome of this electricity deal is. So that's what I can answer as of today.

[David Sánchez, executive]

I mean, if I may add a little. I think one of Unifin's strength with respect to its business model is action diversification across many regions and many sectors of the economy. And that has allowed for the company over time to maintain a very healthy portfolio in that context. So that's definitely one of the strengths. And like Sergio was saying, we definitely have no, I would say, important or material exposure to the electricity specifically to the electric sector in Mexico.

[Operator]

Our next question comes from the line of Martín Lara with Miranda Global Research.

[Martín Lara, analyst]

Congratulations for the results. I have 2 questions. The first one is what is the growth that you expect in at Uniclick next year? And the second one is if you could explain the 10.8% increase in expenses? And also, where do you see the OpEx ratio in the future?

[Sergio Camacho Carmona, executive]

Martin, thank you for your question. And we are basically expecting Uniclick to end the year, let's say, 2022, with a portfolio of around MXN 3 billion. That's somehow the expectation that we have on this business. It's growing as expected. As I mentioned before, the NPL is healthier than expected, which once again confirms our parametric and credit score card. And that's what I can say on Uniclick. The second question...

[David Sánchez, executive]

With regards to OpEx, I think, Martin, that it also adds up to Uniclick strategy and the contribution of Unilease also and the digital means to the overall strategy. The very thorough investments that we have pursued in the digital strategy and in artificial intelligence labs will definitely materialize over the OpEx structure of the company. Our ideal OpEx is basically to maintain a ratio in the low double-digit spectrum, similar to levels that you see today. But we still expect some slight operational efficiencies that could cause that OpEx ratio to continue normalizing a little bit and, of course, generating more profitability. So I would say that low double-digit is the target.

[Operator]

Our next question comes from the line of Walid Bellaha with GAM.

[Walid Bellaha, analyst]

And I apologize in advance if the questions have been already asked or already presented as I joined the call a little bit late. Just in terms of funding, I think as we approach the next maturity, I just wanted to understand, first, whether you need to raise any debt just for -- with regards to your growth? And in terms of your refinancing plan, have you already started to prepare sort of -- what could be sort of the channels that you could use for refinancing?

[Sergio Camacho Carmona, executive]

Walid, yes, I mean, what we said earlier on the call is basically that we are going to be ready if the market is open for tapping it. As what has been our policy, a very conservative policy, we try always to perform in advance our need for -- in this case for next year. We have different alternatives, which are under analysis as we speak. I guess, that's what I can tell you for now.

As we put on the presentation and on our press release, we have accessed different sources of our funding this year, entering also in ESG initiatives that somehow opened another door for financing our needs. So we are always going and analyzing on a, I would say, an extend analysis the different alternatives that we have. But once again, I mean, if the conditions are there, we will add to the market.

[Walid Bellaha, analyst]

Okay. Understood. But just to understand in terms of your growth objectives, do you plan to raise debt again at the end of this year or beginning of next year?

[Sergio Camacho Carmona, executive]

Yes, yes. We are going to do that.

[David Sánchez, executive]

We will -- we're looking at the probable windows of execution. And like we said, it's -- I mean, we could either look out in the market for the fourth quarter window or perhaps something along the line of the first quarter. There's no rush. I think the company to a point is proactive, but also taking care or hoping to take care of our -- of the yields and the pricing of these transactions. Also, we are expecting to see what will happen. And in terms of budget, I think that as you could probably observe in our results, we are already basically at 91.5% of the financing budget of this year. And the budget for next year is going to be in similar terms to this one.

[Sergio Camacho Carmona, executive]

And of course, it will have implicitly a liability management approach. If we try to cut the market, it's definitely is going to have that. So we are going to see and analyze based on an opportunity that we find.

[Walid Bellaha, analyst]

When you say liability management, are you referring to possible tenders at the same time, the issuance? Or...

[Sergio Camacho Carmona, executive]

It will depend -- let's put it this way. It will depend on the feedback that we receive from guys like you.

[Operator]

Our next question comes from the line of Nick Dimitrov with Morgan Stanley.

[Nick Dimitrov, analyst]

I have 3 brief questions. So the first one is, when -- I was looking at your revenues, and I noticed that investment interest jumped to MXN 119 million from MXN 20 million in the second quarter. What is driving that increase?

[David Sánchez, executive]

Nick, sorry for that. Yes. So basically, the increase in the MXN 119 million investments is literally the revaluation from cash investments that the company has done over the last few quarters, in -- I mean, in proactive treasury policies. That's clearly the reason over the revaluation in the MXN 119 million that you see there.

[Nick Dimitrov, analyst]

That's more like trading gains. Is this the right way to...

[David Sánchez, executive]

No, no, no. Not at all. We are not speculating, and we don't maintain any speculative positions in the treasury. It's literally some long-term investments that the company has placed in different funds and so on that -- I mean they're available at any point for the company's needs, but we put the money to basically to work.

[Nick Dimitrov, analyst]

Yes. Okay. Okay. Got it. So my next question is going to be on margins. So I was looking at your net interest margin in the third quarter and how it compares versus the second quarter. And despite the momentum on the origination side, and I would argue, a fairly large part of it is probably higher yielding type of origination. Your net interest margin kind of counterintuitively actually compressed by about 30 basis points. So as per my calculations, it's roughly 5.9%. It was 6.1% in the second quarter, but you're still not close to the 7.5%, which was your net interest margin prior to COVID-19.

So considering the fact that you're getting traction on the origination side and a lot of it is unsecured lending and probably higher yielding. We are also in an interest rate rising environment. Your liabilities are mostly fixed. Your assets are fixed, but they are shorter tenor, which means that there's going to be some repricing. I'm just kind of waiting to see that recovery on the margin side and it's still not happening.

[David Sánchez, executive]

Sure. So I mean, you have to consider though that the -- so out of the $7 billion of originations that were placed in this particular quarter, the vast majority of the originations are coming from Leasing, from our core business. This is first, and I want to make the clarification, secured lending by all means. We also had an increase in working capital, specifically also in Uniclick, and that's a different venture, that's unsecured lending from the point that is not based upon a tangible collateral. But there's personal guarantees on the owners of this -- or sorry, on the clients for this product. But going back to -- I guess, to the originations, most of the originations are done in -- for the Leasing on a nominal perspective. The largest contribution is -- or remains to be leasing, which will -- or have a deferral effect, not an instant effect on the originations.

And lastly, there's still a lag on the amount originated vis-a-vis the revenues that it generates because most of the originations tend to remain or tend to be done or executed towards the end of the quarter. So you don't get to see yet the full amount of revenues, for instance, for the 3 revenues -- sorry, for the 3 months of the quarter, you only get to see one or maybe not even one because the originations are because of, I guess, natural effects that we would definitely like to be more -- a little bit more efficient, but this is just like natural trends of business. Things tend to be done towards the end of the quarter.

Now -- like we said, Uniclick remains to be just 1% of the company's overall revenues. And that, of course, will eventually pick up as Uniclick has higher yields and drive higher profitability to the business. To summarize a little, we were -- we are still hoping that the profitability of the portfolio in the yields, in the overall yields, will continue to set up a nicer trend or a growth trend, not only 30 basis points like you saw consequently quarter-over-quarter. But we are continuing to see that recovery sequentially. And the key here is going to be how the interest cost plays out. That's why we're hoping to proactively tap the markets and analyze potential liability management and see how that behaves. And also, finally, the average cash balance once it comes down, it should also mean more linear cost structure driving higher profitability in the means of net interest margin. We are hoping that you will continue seeing the reflective trend on these efficiencies over the next couple of quarters for sure.

[Nick Dimitrov, analyst]

Okay. Okay. Yes. I'm going to be looking forward to it. And then the last question is going to be on cost of risk. So cost of risk has been fallen. As for my calculations, it's slightly inside of 80 basis points in the quarter. And again, considering the fact that you're growing the unsecured part of the book, apart from the securities, we already mentioned Leasing, right, but Uniclick is unsecured. I didn't realize that working capital was secured. You said it's secured by personal guarantees. But what I'm trying to figure out here is that as the unsecured part of the book becomes a more material portion of the total portfolio, how do you think about cost of risk? And where do you think that it will eventually go into the future, right? Because if I kind of go back prior to COVID-19, the cost of risk in your case was roughly 40, 50 basis points, right? So 80 bps is still kind of relatively elevated versus historic pre-COVID levels, but that being said, the loan mix itself is changing.

[David Sánchez, executive]

Yes. I would say, though, that the effect on cost of risk -- so hold on, every single product, except for leasing has a coverage of 100%. So as you see more and more growth in working capital facilities, basically, you will continue seeing that there's -- I mean there's going to be 100% coverage on those businesses. That's just the expectation of the company, and that's basically the ruling on accounting that we follow. Leasing is the one because of the largest contribution and because it's the largest section of the business, representing 70% of the loan portfolio book, is the one that drives the coverage ratio, although it was down. But remember that this is only because we have a tangible collateral that we can exercise in terms of recovery.

Cost of risk will normalize because there's an improved trend in asset quality. We have been seeing improved collections. We are seeing payment behavior of the clients definitely picking up. And that, of course, is a very important variable in the context of creating provisions and cost of risk overall. But just to -- I guess, to finalize the argument, the cost of risk will definitely adapt to the unsecured portion of the loan book in accordance to the 100% coverage that we have.

[Nick Dimitrov, analyst]

I just wanted to make sure you guys are going to provision accordingly because, obviously, that book is going fast and it's unseasoned as well.

[Operator]

Our next question comes from the line of Gilberto Garcia with Barclays.

[Gilberto Garcia, analyst]

I had a similar question on the financial margin evolution. And I guess you have answer most of it regarding the timing of the originations. I just want to confirm, you mentioned in the press release that you are now using more brokers and other channels that this is -- that the growth is not being achieved at the expense of slightly lower margins that going forward, the margin -- the financial margin should improve the average portfolio rises. Is that the case?

[Sergio Camacho Carmona, executive]

I mean, I -- no, the -- what we stated on our quarter, it's somehow linked to trying to reach -- I mean, the brokers that we're working with are brokers in which physically, we do not have an office in a certain city or in a certain state. It's not significant. It's just part of our strategy to try to tap the whole Mexican Republic. And that said, I mean we are -- we do not anticipate that this source of origination will become relevant. It's not our business model. So it's just like trying to capture the whole value of the opportunity that we see out there.

[Gilberto Garcia, analyst]

Okay. So you're not lowering your rates or anything of the like to achieve growth because the origination in the quarter was a positive surprise, particularly since you are growing at a much faster pace than the banking sector, certainly.

[Sergio Camacho Carmona, executive]

Let me build a little bit more on that. We have made a significant change in our commercial department. We are somehow evolutioning to a more diverse, with more capabilities, commercial force. In that regard, basically, what we have created with Unilease. It's the first, I will say, tangible step towards digitalization of the company. It's basically removing some of our -- of these taboos that we have internally that the leasing cannot be massified because the date, I mean, we are -- as we said on the presentation, we are reducing a period of approval from 48 hours to 20 minutes.

So those are like the key drivers for the growth of the company. In addition, I will definitely say based on what the public information available that we are gaining share. As we said at the first conference call of this year, part of our strategy is to grow our number of clients, and we think that we are achieving that. The universe or the market that we are -- that we have identified, it's close to 240,000 SMEs in Mexico. So there's a lot of potential for growth in our case, again in our first and main business line, which is leasing, which we have been doing this for 28 years. So our goals, the management goals are also related to the number of clients to gaining share. But by any means, this growth is intended to jeopardize the financial health of the company, and we are not also sacrifice margins just because of the sake of growth. It's not within the strategy that I have.

[Gilberto Garcia, analyst]

That's very clear. And just on a different subject, just to make sure we are understanding correctly, can you comment on what sort of guarantees you have in the business lines other than some leasing? Like do you have other physical collateral in the other businesses? Or it's just -- is it just personal guarantees from the owners of those businesses? And what are those personal guarantees that you ask for?

[Sergio Camacho Carmona, executive]

Yes, there are -- definitely, there are personal guarantees. In some cases, there are real guarantees for the different business lines. Of course, within the digital platform with Uniclick, because of the size of the ticket, they are only personal guarantees, but in factoring, in leasing besides the real guarantee that the sole asset represents, we have additional guarantees. I don't have the breakdown here to say how many. I estimate that roughly 80% of our portfolio may have an additional guarantee.

[Operator]

Our next question comes from the line of Alexis Panton with Stifel.

[Alexis Panton, analyst]

Sort of one major question, obviously, at the beginning of this call, you mentioned that you don't foresee a need for equity capitalization in the next year or 2. But -- if I look at your adjusted equity, it would seem you actually might need it sooner than that. Just roughly round numbers, your stated shareholders' equity is about MXN 13 billion. If I subtract the junior sub notes of 5.2%, the capitalization from last year of 2.5%, the drillship markup of 3.4%, and if I add some sort of provision to take you above 100%, your sort of adjusted capitalization is basically 0. I also noticed on your earnings release that your -- after 25 years of operations, your retained earnings stroke income is only the equivalent of $80 million. So it seems the core business is not generating huge amounts of capital or equity for investors. So to me, we see one way to address that would be for a significant capital increase -- equity increase. So I was wondering if you could just sort of address that question.

[Sergio Camacho Carmona, executive]

I mean, we have, in our stakeholders' equity, what we are allowed to do to have there. As we did last year, when needed, we have a broad base of investors that are willing to participate in the company or increase our participation of the company. We do not forecast -- we have these needs on, I would say, in the next 18 to 24 months. What is needed, there's going to be people willing to invest in this business. That's what I can tell you for now.

[Alexis Panton, analyst]

Okay. Second question, just my last and second question. You mentioned potentially coming to the market maybe this year or early next year. And obviously, your 29s are trading above 10%. Would you be prepared to do a 9- or 10-year maturity with 12%, 13% type coupons? Is that something you would be happy -- would you consider acceptable in the context of your overall cost of funding?

[Sergio Camacho Carmona, executive]

We aren't running those analysis. We hadn't set yet on a specific target. As we said, this is something that we are starting to analyze. Of course, as we said, we are very cautious on the rates and deals that we will be paying and what we're paying right now, always trying to maximize the profitability for the overall business. But sorry for not being more specific, but those are like the current analysis that we're working with.

[Operator]

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. Sergio Camacho for closing remarks.

[Sergio Camacho Carmona, executive]

Well, thank you, everyone, for listening to our conference call. As we said during the whole presentation, we will continue our path to make Unifin digital. We are expecting to have a strong close of the year. And we will see you next year, seasons greetings and a happy new year for all of you now. Thank you very much.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.