Q3 2021 Banco Santander Mexico SA Institucion de Banca Multiple Grupo Financiero Santander Mexico Earnings Call
Yes.
Good day everyone.
Welcome to Banco Santander, Mexico's third quarter 2021 earnings conference call today's call is being recorded.
Following the Speakers' remarks, there'll be a question and answer session.
Now, let's turn the conference over to Mr. Hector Chavez, managing director and head of Investor Relations, who will make some opening remarks introduce and introduces other speakers. Please go ahead.
Thank you operator, good day and welcome to our third quarter 2021 earnings Conference call. We appreciate everyone's participation today by now you should have access to our earnings press release and the presentation for today's call both of which were distributed yesterday after the market close and can be found on our debt.
Your relations website.
But thank you on our call today will be at midnight our CFO.
But before we begin our formal remarks allow me to remind you that certain statements made during the course of the discussion may constitute forward looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties, including the COVID-19 pandemic that could cause actual.
Our results to materially differ including factors that could be beyond the company's control.
Explanation of these risks please refer to our filings with the SEC and the Mexican stock exchange.
Please go ahead. Thank you Victor good morning, everyone and good afternoon to those of you participating from Europe.
Hope you and your families are managing just take healthy and safe during this quarter, we continue advancing on our strategic priorities, while maintaining a strong balance sheet and liquidity position.
Loan volumes continue lagging mostly affected by commercial loans in line with market trends and still soft demand conditions. However, we are optimistic as we have started to see a slight sequential upturn in certain segments.
Individual loans, we continue outpacing the market supported by sustained market share gains in mortgages and auto loans in consumer and SME.
No we're seeing signs of a gradual sequential recovery as economic activity starts to gather speed coupled with our higher risk appetite in these segments.
For the third consecutive quarter deposits remained relatively stable sequentially. The high liquidity has allow us to focus on improving our deposit mix by favoring demand deposits overturned the passage.
In fact, our current deposit mix with 74% demand and 26% is the best mix, we have ever had.
Both our individual and corporate demand deposits continue expanding at low double digit rates year on year underscoring the success of our loyalty and customer acquisition strategies as well as our focus on lowering our cost of funds.
In terms of asset quality Npls continue falling supported by improving economic conditions in the country, along with our sound portfolio, which reflects a polling for risk management.
Approaching a normalized level of provisions as we continue moving towards a healthier operating environment.
Besides our cost of risk has declined to the lowest level in the last five quarters and we expect it to continue converging gradually to pre pandemic levels.
Before moving on to review our performance for the quarter. Please note that today in the early morning, our parent company launched a voluntary tender offer for cash to acquire all of the series B shares and Adr's Santander, Mexico, not already held by Banco Santander, which represents.
Approximately 827% of Santander Mexico's share capital.
The offering price is 26 pesos and 50 cents per.
For sure and the U S dollar equivalent of.
132, and 50 pesos per ADR.
For more details about the offer please refer to 1% in their press release that was issued today.
The charts on the slide four show the continuous improvement in GDP expectations, which are based on prospects for continued solid economic performance in the U S. Coupled with a gradual recovery in domestic demand.
September was the best month in terms of annual growth in job creations.
Since March 2017.
As of now 98% of the jobs lost during the pandemic have been recovered.
I create demand has also shown better performance.
Most of its components newly achieving pre pandemic levels exports exceeded pre crisis levels with a slight fall in August while private consumption has been recovering gradually.
By contrast investment have been lagging due to low visibility. Therefore, the combination of a rebound in economic growth and a gradual recovery in employment seems to indicate that the worst is behind us.
Additionally, with inflation remaining high and Banco de Mexico, Starwood range, we forecast inflation of six 4% for 2021 and three 7% for 2022, we're expecting a reference rate of 5% for 2021 and 525% for 2022.
We are more optimistic about the outlook for the remainder of the remainder of 2021 and for the coming year, while remaining well positioned to contribute to the turnaround of the economy supporting our customers whose loan demand is anticipated to.
Going forward.
On slide five you can see that system loan volumes remained stagnant at a level similar to the past three quarters and contracted 3% year on year.
Those system loan demand remains sluggish as nitric worry is beginning to occur as contractions are becoming less dramatic year on year decline continues to be driven by commercial loans, particularly corporates that are still posting soft demand.
On the bright side consumer loans have started to show a marginal sequential recovery can be can with economic rebound.
System deposits continue showing a cap it rebound growing 2% year over year with demand deposit growth at 9% year on year.
Please turn to slide six where we would like to give you an update on our growth strategy.
Our strategic priority remains the same provide the best customer experience in the financial services sector in Mexico, leveraging the latest digital tools and improving processes to accelerate our technological transformation well, we continue positioning the bank as a market leader in value added products.
That attract and retain additional loyal clients.
As we continue to working on the transformation of the bank statements athletes from bottlenecks. This quarter, we acquired 70% of our strategic technology partner M. I D.
Taking a look here.
This acquisition will allow <unk> to establish itself as a payment platform with the largest functionality in Mexico, adding more value to corporates and Smes by offering improved technological solutions.
Alert to their collection neat.
It might be set technology payments company with over 35000 customers.
125000 points of sale in Mexico, which allows it to process 31 million payments a month.
He is chair of the Mexican merchant payments market is 10% and its products and services includes B O F E Commerce smartphone payments call center and direct debit.
As technology and merchant payment services providers M I T and getting it Mexico's value proposition in Mexico is both competitive and you know what to you.
In addition in early September we launch our new and innovative credit card like you do.
This car is 100% digital one of the safety in the market and the same for any type of customer, allowing each client to tailor the guards. According to their preferences. In fact like you. It's the first card in Mexico with a concept on financial demand, which means that the customer.
Only base for what benefits they need.
Our goal is to place 1 million of these cards in the next 12 months among our customer base, we're quite happy with the results. So far since its launch a month and a half ago. We have issued over 177000 like your cards breaking our own expectations.
Digital compression is crucial to our goal of seamlessly serving customers anytime and anywhere and becoming a more customer focused bank.
Progress on these fronts is very important for us.
Digital sales, representing 53% of total sales.
Up from 39% a year ago, we also had more than 5 million digital clients.
September increasing 10% year on year.
Our focus on secured lending, particularly in mortgages and other loans is delivering excellent resorts. These products are strategic for us due to their potential to attract and retain a loyal customers.
Total loans, we continue expanding our business both organically and rapidly.
The market share of 10% as a focused increasing the portfolio three times compared to a year ago.
These results are fueled.
By our alliances with leading automakers in the country.
We're the fourth largest player in the market originating a monthly average of around one 8 billion pesos.
This trend continues we expect to move up the rankings and B.
Top three players within the next 12 months.
Our medium term goals remains reaching our natural market share of around 13% to 13, 5%.
And mortgages.
Strong performance reflects the successful products it will take a close and it will take a free as well as already part they can line platform and the redesign of the customer's journey.
We eliminated significant pain points in the application and approval processes.
These are strong results support our position as one of the top mortgage originations originators in the market achieving the highest absolute last 12 month growth in the market for two consecutive quarters.
Our solid performance in auto and mortgage loans has allowed us to increase our individual loans market share by 70 basis points.
Compared to a year ago.
In terms of the bus at the mix of our individual deposits to total demand deposits increased by 245 basis points over the last two years to 33, 3%.
System with our strategy of attracting more retail customers.
This brings us closer to our medium term goal of achieving a more balanced deposit mix in line with the best in class peers.
These better mix is contributing to lower funding costs over time. In addition, our discipline and profitability focus when pricing corporate demand deposits.
This allows us to be one of the banks that has lowered its cost of deposits. The most compared to the system and two main peers.
Turning to slide seven.
Total loans contract contracted 3% year on year in line with the system and posting a slight increase sequentially.
Selecting the sustained performance shown in the retail portfolio and upset by the still difficult comparison base of the commercial book.
Going forward, we expect to start seeing a better trend as we're increasing our risk appetite, particularly in credit cards and SME loans.
And our ongoing efforts in mortgage and auto loans in.
In addition, commercial loans are anticipated to strengthen driven by the expected improvement in the economic environment and are supported by an easier basis for comparison.
All in all we expect to start seeing an upturn in higher margin segments, while keeping an eye on maintaining sound and sustainable asset quality, reflecting a portfolio that exhibit good behavior.
On slide eight you can see that individual loans are growing close to 10% year on year on tobacco for mortgages and other consumer products, especially auto loans.
Great cards on payroll loans remain weak.
Mortgages not only have proven defensive during the last quarter, but have also shown on future growth.
Our mortgage portfolio expanded 19% year on year organically double the market growth during the third quarter around 57% of originations came from our reported GAAP loss product.
Which helps drive cross selling of other products as well as building customer loyalty.
Or do you tell them boarding platform for mortgages, but they can line has been a game changer I think helps streamline processes and eliminate the need to be seen a branch.
During this quarter, 96% of our mortgages were processed through these digital platforms.
By contrast credit cards personal and payroll loans are still affected by weak demand conditions.
Reflect our cautious approach however, as I mentioned before we expect better conditions from now on I think it seems we have left the negative impact of the pandemic behind US September credit card usage grew 20% year on year.
With this encouraging performance and the launch of like you are a new credit card, we anticipate seeing the start of a sequential growth in credit card balances going forward.
In fact, just in the last seven weeks after being lunch, we already have issued more than 177000 like your cards and reached a balance of <unk>.
813 million pesos, our target is to issue 1 million cards in 12 months. These you know what the product includes enhanced security features making it one of the safest in the market with a digital and integrated experience zero annual fee and the possibility of accessing temporary.
Benefits and insurance coverage.
100% customized for each customer.
This credit card is the first in Mexico based on D on financial demand conflict.
In terms of digital experience like UEC should I, 100% digitally with a dynamic digital security code to protect our paint while the physical card is in for Les to help prevent exports into customers' personal data.
Besides it takes a maximum of five maintenance for for a customer to be able to start using their digital cards and if the customer decides to ask for the physical card in a matter of five days. They will receive it will receive made at a branch or at their home.
Currently 90% of like you've cardholders remain 100% digital.
While 54% have also requested the plastic pressure illustrating the higher adoption level of a digital product.
So these new payment and create value offering we're confident we will acquire a significant number of users with a customer base, allowing us to grow steadily and organically in this market segment and without compromising preventive risk management.
Turning to slide nine solid expansion in loyal and digital customers continues achieving year on year growth of 10% in both cases.
<unk> maintained our focus on digital conversion, while increasing digital transactions on the table.
During the third quarter of this year product sales via our digital channels accounted for 53% of total sales a significant increase compared to 39% a year ago.
Do you get the monetary transactions also had a sharp increase.
<unk>, 42% of our.
Total with mobile transactions accounting for 96% of total digital transactions. In addition, mobile clients grew 13% over the past 12 months to over 5 million driven by our promotional campaigns and incentives through digital channels.
As shown on the slide 10, commercial loans decreased 10% year on year still affected by lower corporate and middle market loans.
As is well known last year company's true under committed lines of credit in the face of uncertainty caused by the pandemic. Therefore, we won't see a full recovery in corporate loans until investment levels get back to what they were in 2019.
Loans to government and financial entities increased six 2% year on year and six 7% on a sequential basis.
Mid market companies, and particularly larger corpus rates turn notably year on year contractions, although both posted an uptick of one 2% and four 2% on a sequential basis secondly, a turning point that we expect can be fueled further by a stronger economy in coming quarters.
SME loans registered their first sequential increase after eight consecutive quarterly contractions, we expect to see better performance going forward, reflecting a greater risk appetite in this segment as we are more confident about housing recovery in SME loan demand as economic conditions continue to improve.
Yeah.
Moving on to funding on slide 11.
Total deposits decreased 1% year on year.
As in previous quarters, there continues to be a shift between demand and time deposits due to the still low interest rate environment that favors the former coupled with our efforts to improve our funding mix.
In fact do you hear me.
4% demand deposit weight in total deposits.
You saw our highest ever.
Demand deposit growth from individuals increased 10% year on year supported by ongoing efforts to attract these types of deposits.
We have been able to reduce the cost of our demand deposits by 77 basis points year on year, beating the market cost decrease.
Although we are satisfied with this result, we continue working to further reduce our funding costs as we make additional headway toward improving our deposit mix, while lowering the cost of our commercial deposits as well supported by our strategy of focusing on prioritizing individual deposits and forgoing certain expensive Corp.
Deposits.
Turning to slide 12, we have maintained very strong capital and liquidity positions, our liquidity coverage ratio stands at 330%, representing a substantial buffer and well above the regulatory threshold.
Well September 15th the bank issue $700 million of subordinated notes, which were offered entirely to Banco Santander, our parent company through a private placement. These notes followed bathroom three guidelines and comply with local regulations to be consider as part of our tier one capital.
Got it.
The execution gave us the opportunity to capitalize capitalized on favorable market conditions, and we widen the alternatives to manage our capital base and funding going forward.
Following the issuance our core tier one and capitalization ratios as of September 30, our 14 points to 86% and.
And 21 point, 46% respectively.
In addition to these new several hundred million dollar notes. The bank also has $500 million of 81 notes issued back in 2016.
The first call date of our 2016 notes will take place on January 2020 seconds.
I think the past decision to exercise or not the option to call such instruments.
We'll be driven completely by both economic factors and regulatory capital requirements at the moment.
Our net loans to deposits ratio was above 90%, reflecting our strong structural liquidity position.
We also remain very comfortable with our debt profile, given how manageable our debt maturities are.
As you can see on slide 13, our net interest income decreased 250 basis points year on year, reflecting a combination of lower rates and a contraction of high margin loans, partially compensated by lower deposit costs.
In contrast, net interest margin expanded 14 basis points year on year on tobacco for lower average balance of investment securities.
Please turn to slide 14, net commissions and fees decreased five 2% year on year, particularly affected by lower net credit card fees as we recognized in 2020 extraordinary income from the renewal of a contract with one of our partners.
Insurance fees were also lower as we faced a fee adjustment as part of our annual review with our insurance partner as well as lower renewals from certain large group policies.
Let me highlight that charge fees are up 16% year on year due to increase in transactional. It. This increase was mainly driven by debit cards Atms and installment purchases.
Turning to slide 15, gross operating income declined 2% year on year, mainly due to the fee adjustments mentioned previously and to the soft net interest income.
This was partially offset by solid performance in market related income as our markets team was able to capitalize from rising interest rates.
Coupled with exchange rate volatility.
On a community basis gross operating income decreased 5% year over year.
The higher base of market related income and lower net interest income.
Moving on to asset quality on slide 16, you can see that our NPL ratio decreased two basis points sequentially to 285%.
Year on year, the NPL ratio increased 76 basis points, reflecting the artistry artificially low base in 2020 does why is related to the customer relief program.
Going forward, we expect Mpls would remain stable as we start to grow the loan portfolio.
Provisions in the quarter declined 14% sequentially and almost 5% year on year as we continue moving toward a more normal operating environment.
Moving forward, we expect to keep provision was at a more normalized level, despite having a greater risk appetite and credit cards and SME.
Our loan portfolio continues to perform well with our coastal free standing at $2 75 per cent.
38 basis points year on year decrease and you're starting to converge to pre pandemic levels that were in the neighborhood of two six to two 7%.
Looking ahead, we anticipate cost of risk remained stable with a gradual downward trend in the coming quarters.
Turning to costs on slide 17.
He studied and promotional expenses increased 3% year on year well below inflation.
It was mainly driven by higher personnel related expenses.
Higher amortization costs related to our investment program also contributed to the increase.
We remain focused on digitizing more for services and reinforcing our cyber security assets among other ongoing technology investments.
The increase in personnel expenses West the main factor of four 8% increase quarter over quarter caused by the hiring of employees that were previously outsourced and by the general salary increase we made in September in line with inflation.
These increases were partially offset by lower administrative expenses as a sourcing providers, where console together with lower <unk> related costs.
The combination of a contraction in gross income and an increase in administrative and promotional expenses, resulting any deterioration of our efficiency ratio, which now stands at 50 point, 97%.
We're optimistic about the dynamics of the business.
That we expect that will result in improvements in the ratio going forward.
Turning to profitability on a sliding team.
Net income decreased 337% year on year to $4 8 billion pesos, mainly due to the lower fees and higher expenses, partially offset by solid growth in market related income and lower provisions.
Return on average equity was 12% 191 basis points below the year ago level, we're accumulating capital the regulators recommendation to limit the pay out.
Of 2019, and 2020 earnings in this regard.
On November 5th we will pay the remaining dividend amount associated with this restriction imposed by the CFPB.
These represent 28 cents per share for a total of approximately one 9 billion pesos.
Before going into the Q&A session, let me share with you some closing thoughts and perspectives.
Although domestic and global economic conditions are improving.
They will likely remain uneven and challenging.
Nevertheless, our strategy will continue to focus on strengthening client loyalty and increasing digitalization keeping.
Keeping intact, our ambition to become the bank, providing the best customer experience in Mexico.
We continue to working on growth initiatives by leveraging new digital tools and methodologies and by further enhancing our internal operating processes. Accordingly, we will continue making new investments in the bank's transformation, mainly in AP and the utilization while seeking efficiencies in other business lines.
And maintaining tight cost controls both of which also support our bottom line.
This concludes our remarks, we're now ready to take your questions. Operator, Please open the call for the Q&A session.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue.
You May press star two if he would like to remove your question from the queue.
We also ask that you please limit to two questions per participant.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question is from Jason Marlin with Scotiabank. Please proceed.
Hello, Good morning, everyone.
My first question is on the competitive environment in Mexico, and the Mexican financial system, we've seen.
Lots of announcements of new entrance numbers that they have provided not necessarily that we see in the banking Commission numbers, but can you talk about the especially in the credit card market. We've seen lots of new players or are they going after your clients.
Are you seeing them as as a meaningful competitors at this point in time.
And the second question would be in the context of the economic outlook for Mexico. What are you looking for for loan growth in the medium term.
And how quickly can that accelerate and is it.
Really an increase in the penetration of the Unbanked that can drive this or is it those that are increasing their balances.
Of those that are in the system already thank you.
Yeah, Hi, Jason you know I think that you are.
Uh huh.
Great question about the competitive environment and before talking about some specifics.
Specifics, let me share with you you know three trends that I see with certain concern that you know already building not only in Mexico, but in certain key markets by Keybanc markets.
You know the first two trains you have to do with it.
If you know that somehow.
Yeah.
We're losing certain competitive advantages you know and the first one is associated with it.
Raising capital.
Not only in in in a certain amount, but also in terms and conditions you know historically incumbents.
It had the benefit of it.
Accessing capital and assessing it in better terms than new entrants and what we've seen these days is that the you know there is enough capital.
And that is being provided for new entrants.
Our evaluation that I'd say.
No more compelling for new insurance that then for incumbents and just to add.
To put a particular example.
Novak.
In the latest stage capital that they raised.
The implied valuation is $30 billion.
That valuation Ah you know there the price to book value is 100.
Times book.
I as you as you know we were trading at one times book, Okay. So for the same project.
And you know that your you know that they are there are they already operate in Mexico.
If they're going after a specific project here in the Mexican market and we both want to invest and we want to raise capital for that.
They are.
In a much greater position then yeah, we are.
That's a totally new we had some comment.
We always had.
The competitive advantage of raising capital and raising it in better terms and conditions.
That's no longer the case.
The second trend that I see that it's a concern you know.
Incumbents also had the benefits of economies of scale.
These wise you know mainly.
Let it to.
You know when when we.
Retain it.
Certain.
Inputs okay.
The most critical input that we have these days you know other than talent is technology.
And nowadays and you don't have upfront costs. If you went out and built that data center.
You no longer need the you know a multimillion dollar investment in.
In hard passage, you only need to acquire.
No a provider for that.
And in all of those providers.
Offer exactly the same conditions to incumbents in two new entrants.
So we no longer have that okay and the third the trend is about the you know how your customer expectations you know in terms of user experience.
So I think that the pandemic.
Has the strengthening at this point that we all as consumers.
Consumers are expecting things to go for less.
To be very simple Oh, we expect the companies to do.
We use the information that they have in us to offer better solutions more targeted products.
And they I think that the.
The incumbents are at a certain disadvantage to new entrants because of the focus and because they leverage on existing technology and they they they don't have to you know.
Carey.
The costs are.
And.
No probably culture about the legacy assets okay.
So all the TSA three things three.
Trends in my opinion will create a significant pressure for incumbents.
It's up to US you know what to do in order to.
And you know obviously recognize these trains.
Okay now.
Do you you asked about new entrants and I'm, particularly on the credit card market I.
I would say that with information that we have.
You know they are.
We are gaining traction.
You know probably the two largest players in this space.
Have slightly less than 800000, okay.
Cards.
No.
Around the same credit cards.
Yeah.
You know one of them about the same credit cards that we were able to ensure the seven weeks or.
So Joe just to put things in perspective.
I don't think that they represent a minimum.
Full competition right now.
But I think that if investors that are supporting these business models.
You know continue being patient.
And providing enough capital and supporting I would say good management teams.
I think it would be a matter of time that they they they become.
Real play Youre seeing in the market now and the benefit of incumbents you know there's enough room for everybody. Okay, and we are in one of the.
Hey, Pat.
Most underpenetrated the banking systems in the world and.
And probably moving onto your second question I think that.
Loan growth would be supported not only by current clients that are already bank, but also from a bank and I think that the we were still at the banking system.
Not done enough to fulfill the needs of bank population and I think you know one of the initiatives that they.
That we have is two <unk>.
Develop or customized.
Our value proposition for low income individuals you know the vast majority of Mexicans you know yeah.
Our low income individuals and if we want to make a significant contribution in terms of financial inclusion and also in terms of providing more services to the vast majority of the population in Mexico.
We need to come up with a different day.
The value proposition for this segment.
I think that we still will face some.
Some headwinds.
In the short term.
Associated with the pandemic and also associated with the lack of visibility in terms of business environment in in Mexico. You know the there are several examples that I.
I would say reduce business companies.
The so my my my expectation in the short term.
Is that loan growth should be around.
Around 5% to 10% growth.
And as long as.
There is more visibility in terms of fab.
Yeah, you know.
More full of law.
And clear rules in the country.
Expect you no.
Loan growth too.
To go back to the levels that we were seeing.
In prior years, you know close to 10% to 15%.
The loan growth.
Yeah.
Thank you.
Our next question is from Carlos Gomez with HSBC. Please proceed.
Hi, good morning, and thank you for the presentation.
I've got two specific questions. One is about the need to issue 81 paper subordinated debt that you had.
With the balance.
You, obviously kind of a bundled cook at home. So it is not clear and you have no longer months old. So once the flush them out to two east to resume an instrument like that up.
And second you are building your retail franchise quite successfully hasso explained to us in mortgages and individuals.
Hum you have always had a fairly nudge SME franchise.
But even this but then you have to reduce the loan portfolio quite significantly.
Do you think that as I said, good times with your clients and you're saying that you will be able to rebuild back to the market share that you had before thank you.
Yeah, Hi, Carlos regarding the D 81 issuance that we made you know.
We we should backing in 2016.
$500 million.
Hey, the subordinated notes okay.
So.
We are somehow anticipating.
The code that we have you know at the beginning of next year.
We did it for a larger amount.
As we have more room for these instruments to compute in our capital.
And as mentioned in our remarks.
We will make the decision to exercise the call.
So in January you know, we're taking into account market conditions and all of US looking at the you know the position of our you know our our capital position. So that that was the restaurant now behind you know it's it's basically.
Tending the maturity.
On your question on on Smes.
These you know the our cautious approach is not only associated with it with the pandemic okay.
Goes back you know five to five years ago when.
Trump want the U S elections, we started.
Starting at very closely.
And you know the critical risks that we're facing we pay them.
Well corporate clients.
Great.
And then we.
We started visiting.
Both large corporate mid market companies and it took me to understand the exposure not only in terms of interest rates, but also in terms of ethics and that you know created.
A good understanding of where we were.
We're position okay.
And then when the change in administration came here in Mexico.
They're they're sold ways.
No. Some some friction associated with a change in government that Oh, four for Smes that work with it.
With the federal government. So we were somehow.
So in that respect okay.
And then finally, you know when the pandemic came we all saw.
You know understanding that they typically are the segments that suffered the most in a downturn.
We were somehow cautious as well.
We think that the we are in a position to recover the stance that we have and let me share with you the Halloween.
And data.
That it's it's quite encouraging.
Look at the <unk>.
Average monthly origination.
And that we're making in Smes.
During the first five months of this year. It was one 7 billion pesos okay.
Now if we take the average of the of you know from June to September.
It's roughly 3 billion pesos.
Okay, we'll do it on a quarterly basis.
The.
Average monthly origination in Smes in the first quarter was almost 1.5 billion pesos in the second quarter 1.8, and in the third quarter 3 billion pesos.
So.
When when we compare these volumes you know the sort of quad relative to the first quarter is twice as large okay.
So so yes, we're confident that the.
We're well positioned that we will continue.
Supporting these the segment and that the you know the the inflection point.
Yeah.
It always is happening you know with these dynamic we think that the.
And you know loan growth in this segment is coming in in the next quarters.
Thank you.
Our next question is from Ernesto <unk> with Bank of America. Please proceed.
Hi, good morning.
Thanks for your presentation for the opportunity.
I have a couple of questions. My first question is from the voluntary tender offer.
Can you provide us some color on what is the current smoking you know why.
Loaded required to remain listed.
For my second question is on getting that.
Oh, that's interesting to see that getting that in Brazil.
And I believe getting up in Mexico.
I haven't seen their market share.
So I don't know if you have plans in the future.
Please get that Mexico Oh.
Stand up away from some low in Mexico, but I don't know if it could be a possibility to believe the U S. Thank.
Thank you.
Hey, how are you.
Regarding the voluntary tender offer.
You know it was announced that early this morning.
He would represent Sac you know close to 14% premium to the market say close of yesterday, including.
The dividend will be paid on November 5th.
In terms of you know how.
How concentrated is the float you know I would say that top 10 investors represent close to 62% of the entire float.
So it's highly concentrated okay. What's the minimum requirements to remain listed you know according to the securities markets law, it's 12%.
So.
We're already below that okay.
Yeah.
And the you know D. C. This is a voluntary tender offer.
It's not that daily thing than Theyre up okay.
I'm now on getting it.
No I think that.
What we're seeing is that the D C market and investors.
You know have different valuation metrics when you look at it.
Companies that are associated with a with babies.
And I think that the.
The group no he's fully aware of that.
And I think that they what they what they did in Brazil.
Is somehow a way to.
Capitalize from that you know.
I think that the that that's clearly.
An alternative for what we can do in Mexico.
It differently, we will explore that.
That alternative going forward, it's not something that there's a there's a plan for that.
Frankly, it could be an alternative okay.
Yeah.
Yeah.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the queue.
Our next question is from Yuri Fernandes with JP Morgan. Please proceed.
I did act or good morning, tangible political Attunity I have a question regarding a release on basically to see if those little things are kind of the bottom for 2020 Chew like basically what you see.
How do we think about the IRA lease for the next two years right. I guess, we are in a depressive level parades rates are moving up as you said like the low mix are still a little bit depressed with credit cards down, but hopefully improving ah. So basically to understand you know like how do you see your.
We get to versus peers involving like it and if you can provide any any numbers would be would be great and I have a second question regarding funding you did a good job in creating demand deposits time deposits, but as you accelerate again loan growth. My question is how do you see funding right. Because you are growing your number of loyal.
<unk>.
But inflation adjusted like real real terms.
The average balance for their loyal customer and demand deposits are decreasing and yard time deposits are materially shrink and and I totally understand the ear like your your your rationale to defend margins, but my take is.
Funding is a problem for growth or it's easy for you to adjust any credit deposits if needed. Thank you.
Hey, Judy.
Regarding our ROE you know the first thing that we need to take into account is that the.
There are.
T V's a recommendation.
We are accumulating capital you know does it limit to only pay.
Hey.
No more than 25% of earnings of 2019 in 'twenty 'twenty has passed us and the system in very very strong.
Epic acquisitions, you know we were fairly advance we the now former president of the seem to be in terms of I'll say providing arguments for.
For them to feel comfortable about that.
Yeah.
That restriction away.
But now we have as of yesterday at new pressing it shouldn't be beats or we have to probably started from scratch there, but you know their concern is the following.
And they they think that the bank's payout dividends, we will not support our loan.
Loan growth and economic growth in the country.
And even though it's a valid concern and always you look at.
The systems data you know what.
The current profitability di system past that it's around 12% I E.
You know the system could grow at a level of 12%.
And still keep the same capital ratio once we currently have.
So there is in my opinion a significant boom.
And to make a dividend payment and continue having a very strong capital ratio.
In our case, if you if you compare.
Our our O N E.
And if George just stick to the capital ratio that we had in in the third quarter of 2019 two years ago.
ROE you would expand 190 basis points.
So literally but you know we reported 12% so it's basically 14% adjusted for normalized.
Our capital levels, Okay now.
Now if if our base is 14%.
Think that there's there's upside on.
On that number.
For several reasons you know first.
Our high margin loans have been contracting you know basically Smes and credit cards, and we were seeing a turning point in those two products.
Products and segments.
So we think that there that will contribute to.
To a higher profitability also the discipline that we have in terms of our cost of funds will continue paying out you know and the.
Are these.
Strategy about attracting and retaining retail clients.
I think that this is working and is impacting through a lower cost of funds. So I think that there's upside for for our O N E.
And I would see it once the regulators allow us to.
To go go back to the capital ratios that we had pre pandemic.
So I've always probably in the short term.
Going from 15% to 16% and you know ever since we announced the investment in plant you know five years ago. We mentioned that we were aiming at I've always seen the neighborhood of 20%.
And I still think that those are achievable you know with the <unk>.
The different initiatives that we.
We have been executing.
As you probably are aware these takes time.
And we are in a competitive environment that is it is quite fierce.
No I think that the competitors are doing a great job.
So it has not been easy, but I think that that we have for late Nobel.
Strong foundations for profitability to be a stronger.
And more defensive.
Now in terms of and your your big question associated with funding.
You know, we we don't see any issue at all you know are not only through our let's say a funding through our customers.
That's the structural.
Are they you know.
Given that we have if for any reason.
Loan demand would be to accelerate at a level that.
At hour basis, you know what the you know deposit growth.
You know there are several things that we can do you know.
You know just just just to give you. An example, you know that's probably the big.
Why don't they last alternatives that we have.
But we.
We were the first dishware indeed.
Independent make.
In Latin America, we issue an international bank.
There and it was a stressful conditions in the market with low visibility.
And we were able to raise $1 $7 billion.
But for that the the capital markets remain wide open here in Mexico in the international markets.
And if a if.
If we wanted to tool.
To raise more of the buses.
So the pricing we can definitely do that you know and it's quite easy we have a very strong.
Relationship with Eh, we've carpets in Mexico.
And corporates are very sensitive to price.
So we have those relationships.
It's just literally a matter of E L.
And signaling to our corporate clients.
We're willing to pay a higher rate.
Great for their deposits and actually that's why also we did you know back when the pandemic started then we had a significant loan growth associated with the committed lines of credit and Patrick you know it was quite.
Remarkable the way that.
We were able to tap into.
But deposits from former corporate clients. So are we.
We don't see any issue at all associated with funding Judy.
Okay.
Yeah.
Yeah.
Thank you.
If there are no further questions I'd like to turn the floor back to Mr. Hector Chavez for any closing comments.
Thank you operator, and thanks, everyone. Once again for joining Santander, Mexico on this call as always we wish to maintain an open dialogue with all of you and the financial community.
Do you have any additional questions. Please don't hesitate to call or email us correctly until the next earnings call. They see a great day. Thank you.
Yeah.
This concludes today's conference call you may disconnect. Your lines at this time. Thank you again for your participation.