Q2 2022 Banco Santander Mexico SA Institucion de Banca Multiple Grupo Financiero Santander Mexico Earnings Call
[music].
Good day, everyone and welcome to Banco Santander, Mexico's second quarter 2022 earnings conference call. Today's call is being recorded following the Speakers' prepared remarks, there will be a question and answer session.
I'd now like to turn the conference over to Mr. Hector Chavez, managing director and head of Investor Relations, who will make some opening remarks and introduce today's other speakers. Please go ahead.
Thank you operator, good day and welcome to our second quarter 2022 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 market close and can be found on our.
Our Investor Relations website, presenting on today's call will be three pickups, yet our recently appointed CEO of Banco Santander, Mexico, Andy <unk>, Vice President of administration and finance.
Before we begin our formal remarks I would like to mention that last week. The board of directors approved name for <unk>.
<unk> new <unk>.
Geo of Max symptoms that Mexico, starting January 2023, Philippa brings more than 25 years of banking experience, having held leadership positions handheld sorry.
<unk> positions in credit Suisse, and Goldman Sachs Philippe served as head of <unk>.
CIB here at the bank.
Allow me to also remind you that certain statements made during the course of this 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 results to materially differ including factors that.
Could be beyond the company's control for an explanation of these risks please refer to our filings with the SEC and the Mexican stock exchange.
Please go ahead.
Thanks, a lot.
Morning, everyone. It is an honor to have the opportunity to talk with you all.
First of all I want to thank equals E vehicles, although not let it and it will be on the board in Mexico for this so basically opportunity.
100, and committed to continue with the outstanding job that they put on the team have made during the past few years.
So until that Mexico has a much stronger bank and the one that it was before we started our transformation plan back in 2016.
<unk> increased by almost 50% the number of total customers, while active customers have grown more than 25%.
Digitalization has been key during this year's.
Digital customers have grown more than four times, while penetration of digital to active customers more than tripled.
We have been able to grow organically, our loan portfolio at solid and healthy rate.
In fact during this quarter, we had the lowest cost of risk in the history of the bank.
We have improved our exposure to the individuals in both loans and deposits closing the gap versus our main peers.
We started two businesses that did not exist a couple of years ago. Those are out alone visit on our financial inclusion program.
All of these efforts have allowed us to have an ROE above 20% when adjusting for capital et cetera.
<unk> ROE is the highest since 2015.
In terms of cultural transformation will improve gender diversity within the organization, but mainly among our board members.
It is going to be my responsibility to continue with this excellent result.
Physicians onto little Mexico at the forefront and customer proximity innovation in our product quality and of course and very important aspects such as sustainable banking on our accredited tests as responsible banking.
It is going to be a pleasure to share with you the progress made every quarter.
Now I will turn the presentation to Libya.
Ill go over the results of this quarter.
Please go ahead.
Thank you Philippe good morning, everyone and good afternoon to those of you participating from Europe .
Second quarter, we maintained very strong momentum in our core businesses.
Gaining market share in both individual and commercial loans together words trunk origination rates.
<unk>, we're now in a healthier operating environment as reflected solid growth in consumer products, helping us expand our loan portfolio without compromising asset quality.
Total loans grew 10, 3% year on year with strong performance across our entire portfolio and individual loans. We continue outpacing the market supported by sustained market share gains in mortgages auto loans and credit cards to renewed growth in credit cards was due to the continued market acceptance and solid performance of our later.
Credit card <unk>.
The growth of these unique products speaks for itself.
It's also due to the promotional efforts, we have been making within our commercial network as well as sort of campaigns to keep positioning effectively among our clients.
Shining in other loans, we are now the number two player in the market, reaching 14, 2% converting to our market share in loans to individuals of 14, 9% as of May 2022.
Our strength in this business, thanks to our attractive commercial offering.
These alliances we have with leading automakers.
Together June westar.
Secretive mone, gaining market share across our portfolio the sixth consecutive month, increasing market share in both individual and commercial loans.
The 26th consecutive month, gaining market share in loans to individuals and the <unk>.
We continue growing them at a solid pace, while carefully managing funding costs by improving our deposit mix. It is also worth noting that the contribution of individuals has increased casino considerably in both categories of deposits putting things in perspective in the first quarter of 2016 deposits.
The region contributed only 24% of total deposits, while they currently contribute 37%.
A result, we have reduced the gap.
The cost of funding versus our main competitors.
Also in today's higher rate environment time deposits continue increasing among both individuals and commercial clients.
Four 5% and 10, 2% year on year, respectively.
Regarding asset quality, our portfolio remains healthy despite our increased risk appetite in certain business lines.
This is due to our outstanding risk management.
<unk> seen an improvement in both the cost of risk down 69 basis points year on year, and our NPL ratio down, 23%, sorry, 23 basis points year on year in.
In fact, the two.
Two points here.
6% cost of risk this quarter is the lowest level in the history of the bank.
In terms of profitability.
Row shows the strong performance being the highest ROE over the past 12 quarters.
And the feeling from the strategies, we have implemented rates loan volumes, mainly in the individual portfolio and from normalized provisions and more normalized capital level.
Going forward, we expect profitability to continue expanding.
Also during the quarter, we maintain a strong balance sheet as reflective reflected in our solid capital ratio and liquidity position.
The charts on the slide for sure still challenging outlook for Mexico.
GDP remains below pre pandemic level with a slow recovery underway this year.
Regarding inflation the market expects it to remain temporarily Cai.
Banco de Mexico's target range.
However, a gradual decrease is forecasted to where the end of the year, reaching seven 6% by year and consequently, there has been a tightening of monetary policy in response to writing and creature.
These conditions the market expects additional rate hikes in 2022.
Reaching 95% by year end.
According to the Mexican Institute of social security more than 448000, new jokes were registered during the first semester of the year reached.
Which 80% were permanent jobs.
Macro indicators have also shown better performance in fact private consumption no higher than before the pandemic.
By contrast in business and industrial activity has been lagging due to lower confidence levels within the business sector.
Although the operating environment.
Marked by complexity and uncertainty or what petition to continue contributing towards Mexico economy growth supporting both our individual customers.
Loan demand has been solid and our corporate clients, whose loan demand is strengthening.
Also on slide five you can see that system loan volumes in may continued to improve increasing more than 9% year over year, the highest growth rate since March 2020.
This growth was mainly driven by improvements in consumer loans, which increased low double digits, partially offset by corporate demand levels, which are still soft.
System deposits continue their strong rebound growing more than 10% year over year with demand deposits, increasing close to 11%.
Please turn to slide six where I would like to give you an update on our strategic and growth initiatives.
Our strategic priority is to provide the best customer experience in Mexico's financial services sector with.
With the aim of becoming a more customer centric bank.
To accomplish this we continue leveraging the latest digital tools and accelerating our technological transformation.
Simplified processes and operations in order to transform our service model.
At the same time, we continue to position the bank as a market leader in value added products that attract and retain clients to improve our balance sheet.
With that in mind, I would like to point out some important milestones we achieved during the first half of this year.
In other loans, we continued to rapidly expand our business Skinny type contract 62 basis points during the last 12 months and achieving the 14, 2% market share.
Light area.
It means we're close to achieve our goal to reach the market share that we have in loans to individuals which stands at 14, 9%.
Again, this gets us into the number three position in the market.
And while we're proud of this significant accomplishment.
I'll be looking to keep moving up soon.
In addition to our alliances with leading automakers in Mexico.
<unk> and market share gains were driven by a super adult Santander platform.
Integrate the commercial insurance offering.
Thanks.
The utilization of our products and services remains a top priority.
While we continue investing in technology, even though we have made significant.
Progress in transforming the bank.
2016 were still far from where we want to be.
Want to know our clients better creating profiles based on their behaviors.
Relying on data analytics to offer tailored solutions and maintain the best service model.
How do you tell the pollution includes collaborating between fixed and I'll, let's take companies to introduce faster and more convenient digital tools and functionality.
Advancing on these fronts is very important for us digital sales now representing 61% of total sales up from 50% a year ago.
We also kept $5 7 million as of June increasing.
<unk> percent year on year.
And our loyal customers now over $4 1 million, an increase of more than 10% year on year.
In mortgages, our strong performance reflects the success of already put pickup plus any particular food products.
Well I will take that online platform a complete redesign of.
The customer's journey.
The redesign has eliminated significant pain points and the application and approval process.
Strong results support our position as one of the top mortgage originators in Mexico.
In addition, as we expand the range of products with our latest mortgage product quality picking picking up for not reaching the segment of the population that was underserved.
New mortgage product recognizes the total income of families.
Fixed and variable.
They can take it offers an interest rate of 11, 5% as well as property insurance.
Which covers the total value of the properties of our customers and unemployment insurance for up to nine months.
With the launch of these new and attractive offer we're confident that we will keep gaining market share in this sector.
In fact as of May we closed the gap with the second player in the market from 159 basis points a year ago a.
55 basis points.
10 months ago, we launched like you.
Since its launch we have issued over 635000 like you Cox exceeding our own expectations.
Currently 95% of like you cardholders have activated their car.
So far we're pleased with the results and the market is strong acceptance of our innovative credit card.
Given the product success in late September we will launch an aggressive campaign to.
Tapping to the open market with the aim of maintaining the solid growth in this business segment and to offer our like your credit card to every Mexican so stay tuned.
In addition to help support inclusive growth for financial empowerment, and education that increased financials and future, we offer financial products and services to more than 343000 low income customers through Google.
We have grown our clients by 52% year on year. In addition, these customers have access to an online savings accounts opened remotely back agents, helping users both mobile and online banking tools.
Also her medical support services and I'm glad to share that 21% of our clients.
Two at <unk> for the first time ever.
<unk> contributed to our culture of prevention, and facilitating customer access to a specialist doctors dentists and laboratories.
That's another reference to the positive social impact that I would like to point out that the tanks to these loans.
87%. These claims experience improvement in their lives and personnel and economic terms.
Note, 55% have increased the number of employees and their businesses.
76% of our clients that are women now make spending decisions at home since they have a credit.
Two you're empowering them.
Santander is a leader in Microfinance in Latin America will help more than a million and carpenters, each year to establish or grow their businesses.
The two youll ampere standing up programs. This is quite antimony named sometime that the best banks in the world for financial inclusion for the second consecutive year.
Turning to slide seven our total loans increased more than 10% year on year.
Facing the system and posting a sequential increase of almost 2% highlighting our solid performance in individuals.
On the commercial front loan demand is also improving in mid market companies, increasing by low double digits together with loans to corporate governance and financial entities.
With this segment growing in the high single digits year on year.
Well you know we expect to continue seeing an upturn intaglio G&P segment.
Rich.
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And good luck with you.
So as long as I can work on leverage.
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Let me joining.
I'm, sorry, I I got disconnected and you hear me now.
Yes, we can go ahead.
So all in all we expect to continue to seen an upturning higher yielding techniques, which coupled with higher interest rates should support margin expansion, while also maintaining town and sustainable asset quality.
On slide eight you can see that individual loans are growing close to 13% year on year <unk> growth level since February 2016.
Our mortgage portfolio continuously expanding at a solid pace of 11% year on year and 50% year on year organically.
During the quarter more than 50% of originations came from our April pickup loss product, which also helps drive cross selling of other products and build customer loyalty as well. In addition to Republic online have been able to process, 96% of our mortgages completely digitally.
Resulting in a much better customer experience, reducing response times and simplifying processes as I noted before.
At the same time credit cards are expanding a solid 13% year on year and 6% quarter over quarter decent.
This encouraging performance is driven by our latest credit card launch like you currently 12% of total data comes from like your credit cards.
It is also worth pointing out that May was our best month during the quarter in terms of billing thanks to the hot sale in Mexico, increasing 18% month over month and 15% year on year.
There are new payment and credit card value offering we're confident we will acquire a significant number of new like you users within our customer base lunching discredit car in the open market by the second half of the year will enable us to keep growing steadily and organically in the business line and do so with.
Compromising prudent risk management.
The same thing.
Within customer consumer products auto loans continue showing strong growth since March we position ourselves as the top three competitor in the market starting from scratch just four years ago.
The balance of our auto business is $21 5 million pesos.
Also with the aim of increasing our market, particularly in the auto market and expanding the business, Florida. We're now very active in the used car segment given the recovery of domestic sales of new cars 60 made it onto 2024.
These recent ingredient years banks have accelerated financing in the used car segment as of today. The used cars portfolio represents 5% of our total portfolio and we're targeting a 20% level in the medium to long term.
Payroll loans wholesale delivered solid performance, increasing close to 12% year on year, and 5% sequentially offsetting a 4% year on year contraction in personal hurdles that said personal loans are starting to show positive performance increasing 5%.
<unk> over quarter.
Turning to slide nine solid expansion Florian and detailed customer continued.
Achieving double digit growth year on year of 10% and 12% respectively.
In this highly competitive environment, we continue advancing our digital transformation.
We are reinforcing digital communication through campaigns and tutorials with the goal of further expanding digital customers and promoting our digital channels.
The ratio of familial customers also continues to grow with these clients now representing 43% effective banks compared with 40% in the same quarter of last year. The evolution of this ratio has been positive throughout the last five plus years in 2016 duration stood at around 24%. This clearly reflects.
Consistent improvement across our products and services as we aim to be top of mind among our clients.
During the quarter product sales via digital channels accounted for 61% of total sales a substantial increase compared to 50% a year ago.
Digital monetary transactions also maintained an upward trend, reaching 47% of our total with mobile transactions accounting for 97% of total D type transactions.
Slightly from 96% a year ago.
In addition, mobile clients grew 13% over the past year to over $5 5 million driven by a promotional campaign and the incentives we offer through digital channels.
As we show on slide 10, commercial loans increased eight 5% year on year, driven by a double digit pickup in market loans, which grew 12, 6% year on year and a high single digit growth in corporates, which increased nine 1% year on year.
Note that these types of businesses are being more active with loan demand versus last year.
Slowing their pace versus the first quarter of the year given the complex economic environment, we're facing.
Loans to government and financial entities had a 6.8% year on year increase brasov contraction of <unk>, 5% on a sequential basis.
SME loans remain affected by weak economic conditions, and low credit demand decreasing 4% year on year and 3% on a sequential basis. However, it is worth mentioning that this is the slowest on traction.
Over the past nine quarters.
Moving on to funding on slide 11, total deposits increased three points.
Yeah.
Unlike previous quarters deposits were driven by term deposits, increasing seven 9% year on year due to the higher interest rate environment and the same great demand deposits are starting to slow their pace, increasing one 4% year on year, mainly due to a 2.2% drop in corporate.
As we continue forgoing certain expensive corporate deposits in order to lower the cost of our deposits.
Demand deposits from individuals increased eight 6% year on year supported by our promotional campaigns as a result without being able to show greater resilience to the rate hikes, increasing our cost of deposits by only five basis points year over year, while the market increased 12 basis points.
Also continue working towards our funding costs further as we make additional headway toward improving our deposit mix one that prioritizes individual deposits.
Result of this strategy our total deposits from individuals have increased considerably during the last five years, while demand in term deposits.
They stand at 36% and 40%, respectively, together make up 37% of the contribution made by individuals to our total deposit base.
Turning to slide 12, we still maintain very strong capital and liquidity positions our liquidity coverage ratio stands at 181, 7%.
Timna substantial bulker and its still far above the regulatory threshold.
Our core.
And equity tier one ratio and capitalization ratio as of June 13, 84% and 19, 28% respectively.
Difficult to get above the minimum requirement established for systemically important financial institutions like ours.
In addition, it is worth mentioning that on June 28, we made have you been in payment of 9 billion pesos and yesterday. We also made our second dividend payment of $8 8 billion pesos.
We have exhausted the capacity to keep paying dividends given the administration defined by a regulator or a floor.
For for this year.
We also maintain a sound funding position with our net loans to deposit ratio of 96, 2% for the quarter.
Liquidity management is one of the core components of our operations as a retail bank on top of horsepower base of deposits. We aim to keep a diversified source of funds and a prudent bank joined the profile, we're constantly evaluating different currency markets to match, our liquidity requirement secured financing and support the growth of our business grow.
In an efficient and profitable way a.
On July 14th we issued four years floating senior unsecured bond for 5 billion pesos in the domestic capital market deals represented our third issuance over the year.
On our first day using the annual.
Brooklyn is rate benchmark for coupons calculation.
We are one of the principally shirts into domestic market, reaching a broad base of investors that have said, they're comprehensive in our management and business prospects.
As you can see on the slide 13, our net interest income had a solid increase of nine 6% year on year, and five 2% quarter on quarter, mainly driven by both higher retail volumes from loans and deposits as well as higher interest rates as a result, our net interest margin expanded 80 basis points year on year to $4.
70% for the quarter.
Please turn to slide 14, net commissions and fees had a strong increase of eight 2% on both a year on year and sequential basis.
Our solid performance was mainly driven by credit cards, which increased 17, 2% year on year due to the hot sale in May and the excellent performance of our like your credit card.
Growth was also driven by a 14% increase in insurance fees.
Going forward, we expect a good performance in credit card fees to be sustained that's on a beach house for the like your credit card or to continue increasing average monthly billings, while achieving a better composition of field.
Turning to slide 15, gross operating income increased 10, 1% year on year due to growth in net interest income.
Growth was driven by the performance of both our individual loans and deposit interest rate increases the good performance in credit cards and insurance and our solid trading income result that was above our historical average.
Moving on to asset quality on slide 16, our NPL ratio improved 31 basis points year on year, and 23 basis points sequentially, driven mainly by a good performance in our commercial portfolio, especially in SME as well as in our mortgage book.
Provisions in the quarter declined 26, 3% sequentially at 43, 6% year on year, mainly driven by the additional provisions that we booked in the second quarter of 2021 to address market conditions related to the pandemic is creating provisions was also due to better than expected performance in our retail portfolio.
Going forward, we expect to maintain provisions that are more similar to pre pandemic levels, even though we're increasing our risk levels and credit cards and consumer loans, our loan portfolio continues to perform well in terms of cost of risk.
<unk> stood at 2.0% to 6% or 69 basis.
Year on year decrease and down 35 basis points sequentially.
Looking ahead, we do not see any duration increased levels that would impact any of our loan portfolio segments. So cost of risk stroke remain around 2%.
Turning to costs on slide 17, administrative and promotional expenses increased one 7% year on year and 12, 4% when excluding the reclassification.
Sequential basis expenses increased 7%, mainly driven by administrative expenses and higher inflation increased our supply costs or expenses also rose due to.
Publicity related to our sponsorship or permanent one and two the assumption of employee travel.
Kieran.
Our solid revenue growth and strict cost controls, we managed to improve our efficiency ratio by 63 basis points year over year to 46, 7% at the end of the quarter and we accomplished this despite inflationary pressures.
We feel confident about the dynamics of the business and our disciplined cost control. However, we expect costs to increase around 7% by yearend slightly below inflation as we continue investing in strengthening our digital capabilities with inflation graduate per system.
Turning to profitability on slide 18, net income increased 46, 4% year on year to $6 9 billion pesos.
Mainly due to the solid increase in net interest income and fees along with the lower provisions profit before taxes was up 54% year on year for the quarter and 31, 6% sequentially, reflecting the strong performance of our core business.
Turn on average equity was 16, 9% 510 basis points higher than the year ago level and the highest in the last 12 quarters.
Adjusting for the excess capital, we would reach a narrow slightly above 20%.
And this is the highest since extra leaves he became CEO of Santander Mexico.
The other hand, the effective tax rate stands at 22, 8%.
212 basis points higher than a year ago.
We anticipate line between 23 and 24% by the year end.
Just on the steel high inflation rate rate expected for 2020.
Before going into the Q&A session, let me share with you. Some brief closing thoughts and a couple of new adjustments to our full year performance outlook.
Given that expectations for economic growth have deteriorated significantly and with the goal of maintaining healthy asset quality. So prudent originations were adjusting our growth for the loan portfolio to a range of 7% to 9% in <unk>.
So Patrick quality, considering the excellent results, we have achieved to date.
The cost of freight trauma, two six to two eight range to below two 4%.
It's a very positive sign considering the challenging environment, we have been operating and.
During this year.
On expenses due to persistently high inflation.
I expect expenses to increase between six and 8% as far as the tax rate, we're expecting it to lie between 23 and 24%.
Which is a bit better than the previous range considering the high inflation rates expected for 2022, I think noted before.
Lastly, we now forecast net income to grow north of 30%.
These adjustments and consistent with our ongoing efforts to keep delivering strong results.
In summary, we continue successfully advancing our strategic priorities strengthening our position in value added products, while developing and implementing new growth initiatives.
We're currently developing a more robust product offering and servicing model for mass market clients.
Further we have made additional progress to our goal of being a customer focused bank as we continue to work on simplifying processes and operations in order to transform and enhance our service model.
Our ambition to become the bank known for superior customer experience in Mexico remains.
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 would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue. You may ask two questions and then re queue for a follow up for participants using speaker equipment and may be necessary to pick up your handset before pressing the starkey.
Our first question comes from the line of Jason Marlin with Scotia Bank.
Hello, Thanks for the opportunity to ask questions. My first question is on the announcements that center.
There is no longer going to participate in the sale of the Citi Banamex franchise.
Provide some color.
What drove that decision.
And the second question would just be on the competitive environment.
How relevant do you consider the impact of new entrants.
In fact, and what you.
And how many competitors are doing.
Give me some color on the credit card business would be helpful.
And then lastly, if you can provide an update on Samsung Theres plan to bring the digital bank open banking to Mexico. Thank you.
Hey, Jason.
Regarding the announcements.
Made by the parent company a few days ago.
We understand that the parent company submitted a nonbinding offer.
And and the M. A C. The group decided not to give sometime very good book than it is to continue participating and in the process. So with that let's say of wildfire as close as we have it.
<unk> mentioned several times and Youre my priority for this I was trying to use not dependent on making acquisitions. We are very disciplined in terms of what are the strategic and financial impact of any day.
Inorganic growth opportunity and.
You know these continues to be the case, okay. So so I think that you know.
And as our global CEO made reference to in the conference call.
With industrials yesterday.
Hum.
You know there might be an opportunity to gain market share while another competitor.
A.
Completes the accuracy churn all afraid of CD burner mix. Okay. So at that time of course first the question or your second question and you know we have a <unk>.
Obviously provided an update on how we see if index.
Competing in the Mexican market so.
You don't see a significant impact.
Hum.
[noise] remains shrunk.
Yeah.
Our last quarter's call.
We saw last year and impressive.
Yes.
Capital raising activity by indexing in Mexico last year.
Closer to $8 billion.
We went to the shareholders' equity.
27, it's one of the smallest banks in the system. So that that's quite a material, but it's a C N U S Europe property notice.
The market has been the why the severely impacted in terms of additional.
Additional capital racing in these types of businesses.
A significant capital raising Saturday a degree.
So we've seen that them.
This will provide an opportunity for us to consolidate.
Consolidate the market or to partner up with them.
You know those businesses that they might be in a weak position in terms of continuing and financing [noise] growth.
You ask specifically specifically.
For credit cards, and we have seen some competitors it takes.
And Oh entering this market.
Quite aggressive.
And in some cases and I think that there.
We will wait and see.
To protect the results that they have in terms of asset quality that that would be my my main concern.
So far.
And in case.
You know, obviously, noting that they have made significant progress in reducing certain pain points that they are our.
Our customers have.
I think it is quite easy to originate loans is not that easy to collect loans okay.
We have seen several examples over the last two to three Vacates in Mexico.
And none of those.
Yeah.
Prior attempts have been successful.
When you say it with scale and with a strong asset quality okay. So.
We will remain expectant, you'll see you know how they use the new commerce performed you know those that have gained a certain scale.
And obviously the market environment is it's complicated so we'll wait and see.
Regarding our open bank.
We continue to work on those plants and.
The previously.
Noted.
The things that we're gonna be ready next year for launching the.
European Bank.
Services for the Mexican market.
Thank you Didier congratulations on the good quarter and particularly on the.
Improved guidance for net income.
Next question.
Our Nashville Leoni bank of.
Erica.
Hi, good morning.
I'm actually glad to your question the results.
I have a couple of questions from my side. The first one is on <unk>.
Follow up on <unk> bottlenecks.
What do you think what are the aspects some of the challenges that may be something there.
Not to go further.
I don't know.
Something related to that in the next technology.
The government announcing that massive fires.
Anything on that would be helpful.
And then my second question you talked about potential the least you can do something there.
Continuing the slowly is less than 4%.
Again, you are no longer in the buying process whereby the Max.
It wouldn't be the natural step request for a mandatory ugly.
And what are you seeing idea advantages or disadvantages.
Maintained leads to their company, Florida plays on 12%. Thank you.
Thank you Scott.
Regarding your first question.
I mentioned earlier.
It was say citigroup to ones that decided not the for us to continue the process. So so you know I have nothing more to add on that regard with regarding the you know the the listing.
And I think that the group has made a decision.
The weather tool.
Complete the delisting.
Probably a bit.
It's something that makes sense given the interest at the group has manifested in two prior tender offers.
But I think that there hasnt been made a final decision on that.
If if there is any any update on that that will differently shared with the market. Okay.
Thank you Josh.
Okay.
We have another question related to <unk>.
You want to hear your expectations.
Considering the higher wage them now.
Really describing when economic recession in Mexico next year.
How should we think about the loan growth we have seen this quarter lots of double digits. So considering next year.
And we are seeing in should be normalizing to a single digit growth.
We'd like to see them I guess two questions.
And also related to these can you remind us what is your direct.
Exposure to the U S economy.
Sorry, I couldn't hear you your last question the parts our exposure to what sorry.
Back to the U S economy directly and indirectly.
Okay.
<unk>.
Regarding the the impact that they you know the current environment there are.
Could have on you know potential economic recession, and I think that the we have analyzed.
Analyzed so far east is a slower growth rather than in a recession Bob.
And it's probably worth noting that the the you know over the last few months, that's been consistently revisions or downward revisions of economic growth.
We are monitoring closely what's happening.
In the U S.
And obviously there is a.
They are very close link between the Mexican GDP growth and the U S. GDP growth. So so ive, the USA and bumps yeah.
In a recession.
I think that the likelihood that Mexico will follow is high but so far we are not the C in a well.
We're not expecting that.
But that could be a possibility.
I don't know like Deutsche Obviously, you do have the numbers with you in terms of the exposure that we have in terms of.
Our corporate loan book associated with businesses that have a direct.
Exposure to the U S economy.
No no I don't have them available, but I just wanted to remind us.
It means that all of our loan book is.
Focus on Mexico as a region, we don't have to cross border.
Our books and the Mexican economy is.
35% of GDP, alright, so there.
It's a.
A close link to.
Two exploration companies and it is not easy to calculate the indirect effect you have to do it by certain sectors. So we can discuss that but.
The numbers are not that easy to.
To pinpoint.
And just a couple of them.
It's just a rough number of the of exposure because obviously I think you mentioned it is not that easy to see.
Sure.
Say that the.
The exposure that we have right now it's around 5%, which is below the market system that is around 65%, but again it is not.
I believe the risk exposure.
Okay understood. Thank you very much and just a last question we saw in the media that Santander, Mexico has exposure to go down so I don't know anything that you can.
Give us some color on that.
The exposure that we have to create a rally is non material and 10 basis points of our total loan portfolio.
And we have made the parisian save or for that.
And the loans that you see getting close to 80% of the provisions for it for the Scotiabank cost so I'd say, absolutely not material okay.
Okay perfect. Thank you very much and again congrats on your results I mean, given your guidance.
Thank you I'm going to talk next question Jorge Kuri with Morgan Stanley .
Hi, good morning, everyone.
Just wanted to start by congratulating our aggregate AC four she's a appointment in Spain, all the best of raw backdoor.
And congratulate and also Philippe and <unk>.
Or and if yes, sorry for their new roles in Mexico also wishing the best of luck.
Most of my questions have been answered I just wanted to add something.
I wanted to ask you something a bit technical which is.
When you put in your bids for.
Banamex was them information on.
That.
Yeah, we're not going to be allowed to fire people. According to the commentary that ambarella made recently in the press was that already known at the time of the bid.
And to what extent the bid.
<unk> the ability to fire people on how and what is there an opportunity for you to change your bid after that information came out thank you.
Yeah.
Hi, Jorge it's a great talking to you a long time no speak. Thank you very much again I'll pause to your message total director the.
Yeah.
I think that there seem to be getting over the process.
Government and the prescient, particularly has been sending.
Sending messages about Keith desire.
What the you know what the value of.
Excuse me if I may say.
And they could look like okay. Obviously.
Those things are important to consider but I wouldn't say that those were.
Uh huh.
The hard stop restrictions in certain pro proud when you put the ore the group put together an offer okay.
And I think that the.
The person has also stated that this is a.
Transaction that is.
Between the.
You know private parties and that he's Josh Baer expedite thank his willingness.
So clearly you know.
He has there been manifested that he would like.
The new owner not to fire individuals.
I think that that sop for the buyer to decide whether it makes sense or not.
To run some efficiencies you know so all in all I would say that the comments made by the president and the government.
We are them.
I don't think that they were.
Great color in how the group put together a proposal four.
Before the pandemic.
Okay.
Great. Thanks for the color and again congrats to everyone on their new roles.
Thank you very much Jorge.
From you.
Next question can you tell a background with Goldman Sachs.
Hi, Good morning, Thank you for the call and taking my questions two.
Two questions.
First one on your dividend DDA, you mentioned that you paid another $8 8 billion a day yesterday.
In the past you've mentioned that you had a.
Two I think it was 11% core tier one if I estimate correctly, you still have you have $12 billion to $18 billion in excess capital.
I think you said you all say exhausted your dividend for this year. So should we expect that you know roughly 13 billion in excess capital to be paid out next year any color you can provide.
And the cost of risk as you mentioned the guidance to be below two 4% and then you should normalize to pre pandemic levels, but it.
Do you expect to normalize next quarter, I mean that would imply a big increase in provisions or can you give some color on how long that normalization with eight given that your asset quality seems to be holding up fairly well.
Any color on when mpls can begin to increase thank.
Thank you.
Hey, Hi, Tito.
And your first question on I'll give you that.
You may recall that the new <unk>.
<unk> that the CFPB provided for this year taking into account.
The.
Sensitivities that beach Bank are provided at the beginning of the year in terms of the impact that has in your capital ratios certain stress scenarios. Okay.
So it's not it's not a sensitivity chose for one year, but takes into account.
That's how the bank might look like during the following years and also how each bank would need to comply with.
With Iraq, Okay. So so your dividend payment shoulder compromised, obviously you're a.
Regulatory capital.
Requirements, but also the fact that for those systemic banks that have the requirement that you comply with the with the facing as provided by regulation. So.
In our case thing.
What we submitted at the beginning.
End of the year, let's say basically 17.9 billion pesos that for what we.
Cool.
This year and not compromise on.
They're a stress case scenario our capacity to be you know.
Above minimum regulatory capital ratios and to have certain buffer and also and not compromising our.
The lack of.
Complaint okay.
Wow.
We are.
Starting to consider is and you know.
By the beginning of next year, we'll have to provide the new version of the same.
Sensitivity for stress cases.
And we.
We will discuss that with the regulators during the Halloween months.
You know clearly in advance.
Headlines that there is a two on.
On January of next year.
So, but we have a better understanding in terms of whether that will continue to be the restriction that they will impose or if they will just move.
For a more.
Terrific way of looking at it.
Sounds of excess capital as a so you know where the capital ratios that we.
We currently have okay, but you are right in the sense that we continue to have excess capital.
And you know taking into account the capital the people and paper yesterday, it's more close to 10.5 billion pounds. Okay.
Capital relative to to a core tier one ratio that gave us I would say you know they have been quite a good comfort.
In a crossing in Mexico, Okay. So that's on on dividends I would say that probably go into the next thing.
The quarterly.
Paul we might provide you an update if we havent Brady.
We are fine with the CFPB and discuss.
Brands that we have for the following years. So so to give you a better understanding of the timing and magnitude of dividend payments okay.
And regarding <unk>.
Asset quality.
You know us as noted.
During our remarks, we have been positively surprised by the performance so far.
Hey, Ben.
Retail portfolio.
As we have seen.
And you know are the loan.
Loan growth has been quite robust over the last eight quarters.
And then.
Carry costs are.
Performance hold so mortgages and asset quality has been quite strong.
And then you know you're right things have so we.
We don't expect the cost of risk.
Ooh jumped to pre pandemic levels in next quarter, but still.
Remain.
Fairly close to where we are standing right now.
But the you know trending up given the change in the loan portfolio that we are witnessing with higher growth in <unk>.
In loans to individuals okay.
Yeah.
Great. Thank you did hear that that's helpful. If I can ask just one follow up on the dividend.
So is there a core tier one ratio that we should consider as your minimum I think in the past you had mentioned 11, but given some of the changes I'm not sure. If that's the right one and just to confirm that there will be there will be no more dividends. This year, that's correct right.
Yes.
There will be no more dividends this year, you'll be the recommendation made by the C N B B E.
Oh yeah.
You know the the one day the restriction is.
Is what you or what each bank consider India sensitivity.
Exercises and we have exhausted that okay.
The the core tier one ratio that we.
We have created to in the past is 11, 3%, that's where we're seeing today, we would feel comfortable.
Okay perfect. Thank you Denise and also congratulation to you and call you back on Europe .
Thank you people.
Next question Alonso Garcia with credit Suisse.
Good morning, everyone, Lisa, particularly my question. My first question is on loan growth I mean, the revisions to our loan growth guidance wise.
Slight reduction to our 7% to 9% range, but still sort.
Sort of implies a slightly softer second half of the year. So just wanted to check the rationale for that reduction.
Mainly given did you see a cool down in the mountains music and hard work.
Moreover, if it's coming more from the supply side, if you are getting a bit more.
Could keep our concern about the given the challenging macro outlook ahead and my second question is.
On the NII.
You had a nice performance this quarter up 5% sequentially just wanted to check on the outlook for NII growth in the coming quarters, and how much you are being able and willing to pass through to clients. The highest the high reference rates. Thank you.
Hey, how long until you know what I think that the you know.
Both questions are related.
As I will elaborate.
We are.
Yeah, well starting to pass certain.
Greece's interest rates to our customers and then.
Particularly in mortgages.
He has been one of the banks and that has increased.
The most interest rates during the year, okay and.
Yeah.
We will continuously monitor.
Interest rates on.
They are in the market appetite.
The price that product.
They are the best.
Best way to reflect it.
Current.
Environment and also.
To reflect the ban you know, where we think interest rates will end up in near term okay.
So that mortgages, if you look at year on year growth you can see you know.
Contributed.
Close to 20% 27%.
[noise] or total loan growth.
And we think that and with interest rates that we have increased and we have passed to our customers.
There might be the case that there there there could be a slowdown in mortgages.
And if you.
Add to that.
Certain.
The reduction in loan demand because all right.
The current market environment, I think that that's what led us.
To reduce our loan growth guidance for the year I would say that those are the two key.
Contributors in terms of net interest income you know Brett.
We will continue to see you know quite good momentum during the second half.
And we expect them and a guy to to.
To grow it.
I'll add double digit for this year okay.
Thank you very clear and congratulations again to you won't believe it when your appointment.
But I just also.
Next question Olivia.
Yes.
Yes, hi, good morning, everybody and thank you for taking my question actually I had two.
And the first one it's related to the club maybe smaller base. So I just wanted to hear.
What could we expect for the rest of the year.
Related to the credit of the bank in regards to the cole slaw, the mortgage and the commercial portfolio.
And also if you could remind us.
CBD for.
Or did they move off the bank for Ya Chu 100 B talk.
Conversely, I would appreciate it and then I'll go to my my second question.
Yeah.
Hi.
Regarding our loan mix.
You know we have been growing quite steadily in terms of our loans to individuals. You know you can look at it and probably be in a couple of ways.
Ways you know.
Why don't we look at it in high margin segments.
Relative to low margin segment.
So in this quarter.
We reach.
One of the highest the.
Okay.
Contributions or quite marching segments over the last few quarters.
Sorry.
0.5% so far.
Total loans.
And if you look at the breakdown within within those high margin segments and you have market companies in credit cards. We expect those two to continue growing at a quite strong pace in the low margin segments, you have their mortgages and as mentioned, we think that there could be out there slide page.
Down that regard so so.
We think that high margin segment.
And it continues.
Growing its contribution probably north of 50.
3%.
If you look at the you know.
Loans to individuals.
It's slightly above 42, 43% that has continue increasing and we.
We would expect that the two either remain stable or gained slightly.
Because of the combination of a potential slowdown in mortgage loan growth, but we.
You know that might be compensated by the strong performance that we're having in.
Credit cards okay.
You know when you look at it.
Over the last few years a long.
<unk> continued.
To increase their share in our total loan portfolio, having said that we've seen that there's still potential to house it.
You know more exposure to two individuals that's one of the core strategies that we are.
Pursuing and we think there's there's a potential to class I would say probably a contribution of loans to individuals north of 45%.
The loan portfolio were currently at 42%.
At some point, we were below 40% area.
Over the last few years okay.
Okay.
Okay.
Uh huh.
You are talking about this topic.
Sure well you should just share the sensitivity.
Alteon niche to each one of them did you try to monetize honestly.
Oh, yes, sorry.
H I G. Because right now it's close to 500 million pets the impact there.
A parallel increase or a year of E Bay and monetary policy rate okay.
Okay. Thank you very much for these things if I may pose much second question.
Regarding to the low tonnage assumptions of the bank.
I just wanted to understand what each of those.
You off the page for the sustainable ROA of the bank at least you could edge up or what is your assumption that you guys are using for the cost of equity for the banks today I would appreciate it.
Okay.
In terms of a <unk> you know I think that.
We're aiming that.
Having a bank.
ROE of 20%.
In the medium to long term okay.
This quarter, we reached that if you take into account the X.
Yes got it okay.
The way we are.
Think that we'd be but a higher exposure to.
So individuals.
We which means that there there there might be an opportunity for a fever roe's.
They are 20% or higher on a sustainable basis, but let me be very clear on that.
We are not there yet okay.
They I think that we have benefited from.
Strong NII.
And.
Strong asset quality do you see a quarter and I think that for four days.
Having a 20% ROE on a sustainable basis, we need to continue making progress both on our gaming exposure to the individuals and also the.
The continuing.
And making progress on our digitalization efforts okay.
Okay.
Okay. Thank you very much for this.
Okay.
Next question Yuri Fernandes with Jpmorgan.
Thank you Lydia for him and congrats on the quarter I had my first one on the liability side on your deposits, we are seeing deposits growing slightly lesser more than the other those wouldnt equate if mutual new ratios.
LDR remains below 100%, but if you can provide some color here on your deposit funding throughout the remainder of the beds you you'll have something they love and you would be trying to attract more retail funding. So what is the plan here again I don't think of an issue of you're calling for loan growth to decelerate a little bit but.
Understand a little bit to the funding side of things.
And I have a second question.
Like you.
It has been great at 12%.
Really it's a lot, but we are seeing acceleration on your words right I guess at the beginning in the first quarter. When you launched it in September you added about 400000 customers in about 334 months and now we are seeing 100000 150000 net adds.
Required for <unk>. So my question is what is your view of years, we'll have any number like opening these to the open market. How this can help you.
You used to target like lower income clients. What is the target here is like the Unbanked population in the open market. These customers from other banks just some some color I know like you talked to him because it's getting bigger and would be would be great and if I may a third and last one just on a follow up on that is listing on the potential delisting.
I understood you have not made a decision and can they stay has has not made a decision yet.
But can you there was the process like if they decided to leave the company.
Logan Disney take why are the process.
Within each cohort shareholder assembly paint that offer you know like just a quick summary, and what would it be the steps there. Thank you very much.
Hi, Judy.
Regarding our deposit strategy.
And we continue to make emphasis I would say two things you know try to gather as much in.
Individuals.
Sam.
And I think that the.
The contribution that the individuals have they.
Provided in terms of deposits.
Perfect.
Has been quite strong over the last five years.
The evolution is.
Is there you know property if you look at it on a more.
More recent.
He says you know.
Poverty BBVA has have done a great job.
Terms of attracting a significant number of individuals.
Thank <unk> that their strategy in terms of salt right utilization, making processes simpler for the clients.
He's paying off quite well so.
We've seen.
Productive slowdown in our.
Our capacity to attract tamp.
Individuals.
And with a strong performance.
From BBVA.
Yeah.
We are working as we have stated.
On simplifying things for our clients on.
Updating our up and we think that with those two things.
We're going to have the capacity to compete relative to BBVA.
<unk> created the opportunity to convenience clients that we are the best thing.
Yeah.
Bank for example to make there.
Deposits.
The second thing that I would like to stress.
The fact that there.
We have been pursuing a strategy.
To the.
<unk> coal those deposits are more expensive. So when you look at the.
The dealer market share of the north of the deposit growth that we have.
Corporate deposits that reflect that.
Okay.
We continue to have a much larger market share in terms of deposits.
From a corporate card that people throw deposits from individuals okay.
And that's why we have a higher cost of funds than our peers.
The only way to.
To make this a consistent and sustainable target is to be a front event.
To have a relevant value proposition.
For individuals and I.
I think that we have made some progress on that and are.
Given how competitive the Mexican market I think that we need to.
We're making a significant effort for us to provide the best possible.
Value offering for our clients. So that's on on deposits on.
Thank you.
Cause you know.
One of the things that is a quite interesting.
Hum.
When you.
Break break it down.
By H.
So.
45% of the like you credit cards.
We've seen 18 to 30 years old.
Where apparel clients are okay, if you compare that.
Oh.
The credit card portfolio, excluding like you that's 21%.
So clearly the like U K card.
I've been extremely well received.
I don't population in Mexico.
And you know that.
Mexico has a quite general population so.
You could frame this as.
And bank, yet or not that bank.
And so so we feel encouraged with the growth that we have experienced within our customer base.
So are we seeing that it's about time.
And to the European market and see the reaction there we think that there's there's a significant potential there.
Okay. So that's that's basically it.
Just try to keep that we're following and the like.
Your car.
The worse the target population.
We're aiming at.
Regarding the orange on the on the on the like you are on the open market what is the thought there you'd like clients from other banks.
Like Unbanked people wonder what would be I understood like the younger people focus, but presumably the unbanked banking kind of plant.
Yeah.
It is the combination of voluntary Judy.
I think that the Bam.
We will have the capacity to offer for you know clients that would be their first bank credit card all clients that have already great cards greenhill their banks okay.
And so that's a that's an on like you know the potential listing process.
But as I've mentioned before group.
<unk> may has not made a decision yet.
To win.
Or if they see something that they will pursue.
In the short term.
He needs to follow.
Our process.
That has to you now.
Perfect when it has to be put in place there needs to be.
Mandatory.
This thing offer.
Reed you know, obviously the shareholders assembly needs too.
To meet the D C MPV units too.
Improve the document for the transaction.
And in terms of pricing.
Pricing is it has to be.
The highest value for the last Oh.
Right Brittany.
Business as you know the weighted average of the pricing of the stock.
So.
I think that all in all a.
It will probably take.
In my opinion.
Close to 120 250 days too.
To execute a transaction at the leasing transaction plant announced okay.
No news Super Super helpful. I appreciate and again congrats.
It's.
A very good quarter for our company trades at a very discomfort of emulation that seems that liquidity is a matter here, but congrats guy northern has a job. Thank you.
Thank you Judy.
Thank you as there are no further questions I would like to turn the floor back to Mr. Hector Chavez for any closing comments.
Thank you operator, and thanks to everyone. Once again for joining Santander, Mexico on this call always we wish to maintain an open dialogue with all of you in the financial community. So you have any additional questions. Please don't hesitate to call or email us directly.
Until next meeting please stay safe thank you.
This concludes today's conference call you may disconnect. Your lines at this time. Thank you again for your participation.
Yeah.
[music].