Q1 2023 Banco Santander Mexico SA Institucion De Banca Multiple Grupo Financiero Santander Mexico Earnings Call

Okay.

Good day, everyone and welcome to the Banco.

Santander Mexico's first quarter 2023 earnings conference call.

Today's call is being recorded by <unk>.

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 good day and welcome to our first quarter 2023 earnings Conference call. We appreciate everyone's participation today right 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 closed and can be found in our investor relations website presenting.

On our call today would be the minimum vice president of administration and finance.

We also remind you that certain statements made during the course of discussion may constitute forward looking statements, which are based on management's current expectations and beliefs.

Subject to a number of risks and uncertainties, including COVID-19, pandemic that could cause actual results to materially differ including factors that could be used in young company's control for an explanation of these risks please refer to our filings with SEC and.

And the Mexican stock exchange UBS. Please go ahead.

Good morning, everyone and good afternoon tableau, so few participating in Europe .

Before reviewing our first quarter results I would like to inform you that the tender offer being executed.

Santander group had a very high level of participation in Santander group was able to repurchase 96% of the total charge that were still spending, thereby increasing Banco Santander.

In Mexico from 96, 2% to 99 point, 84% further.

Eastern processes globally. This trend, we expect that the Las Vegas trade, even before ADR. So the New York, New York Stock Exchange.

B C on may 4th while the de listing from the Mexican stock exchange should of course in the subsequent week wafer for retention from the Mexican regulator.

Moving onto our first quarter performance I'm pleased to share with you that we started the year with very strong results with net income of seven 6 billion pesos growing slightly more than 49% year over year and demonstrating the earnings power of our strategy.

Total loans grew more than 5% year on year with strong performance across our entire loan book.

Individual loans, we had a solid increase compared to last year, mainly due to double digit growth in credit cards payroll another node.

In fact February was our 10th consecutive month.

Growth in payroll loans and credit cards.

We also reached a market share of keeping four 2%.

In auto loans, keeping us Germany in third position in the auto segment.

Well the other hand, we're starting to see a gradual and slow down these mortgages due to higher interest rates.

With regards to the positives, we achieved solid growth of 14, 6% compared to the first quarter of last year.

That was mainly due to good performance from term deposits, which grew close to 52% year on year. Thanks to our strategy focus on increasing returns are important for new customers and higher interest rates that have practically doubled in this period I would mean opportunity continues to be increasing our market share in individual demand deposits.

Which stood at nine 8% in February 20 basis point decrease compared to last year.

Also worth noting that although we have increased the contribution of deposits from individuals.

The closet from 24% in 2016% to 40% the contribution share of demand deposits to total.

Bookings fell to 64% in the first quarter of this year from 73% in the first quarter of last year.

Due to strong growth in terms of cost.

During the first quarter asset quality remains excellent levels. Despite the solid growth of consumer loans the <unk>.

MPL ratio stood at 192% improvement 83 basis points compared to the first quarter of last year, what are the cost of risk improved 79 basis points to one <unk>.

Perfect.

These results underscore our Portland.

Management strategy that has been consistently executed by our risk equalization with all business units.

In terms of profitability, our first quarter performance reflects solid quality of individuals both in.

Great.

As well as the excellent risk management that I just read it accordingly, we achieved.

Our return on equity of nearly 18%.

<unk> hundred 60 basis points higher than a year ago.

Thanks to our solid revenue growth and strict cost controls. We also managed to improve our efficiency ratio by 644 basis points year on year.

Which stood at 48% at the end of the first quarter.

Noteworthy that we accomplish.

In a high inflation environment.

Moreover, we continue to maintain a strong balance sheet is reflected in our solid capital ratios and liquidity position well above regulatory requirements proxy statement Banco foresight.

At the end of the first quarter.

Total capital ratio was 20.

Four 1%, while our liquidity coverage ratio was 212%.

Before we open the call for the Q&A session I would like to briefly summarize the quarter the healthy growth of achieving greater loans, coupled with a reduction of cost of risk and effective cost controls. We have maintained generated solid net income growth, beating on various initiatives to consistently deliver strong results.

We will continue executing our many growth initiatives and advancing our bank's transformation hand in hand, with our strategy focused on further strengthening customer loyalty by increasing the utilization of our programs and operations.

Innovation and market, leading digital advancements will enable us to continually enhance the value of our products and digital offerings. All you know.

Our goal of building a much stronger franchise.

The best Bank in customer experience for all of our customers.

Our top priority.

This concludes our prepared remarks, we're now ready to take your questions Burrito. Please open the call for questions.

Yeah.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Our first question comes from Nicholas.

Riva with Bank of America. Please go ahead.

Thanks, very much Philippe touched on that last question a few questions. The first one if you can comment give us an update on the 20th 28.

Bonds I remember last earnings call you mentioned.

Did you ask for approval from the bunker regulator I believe to call. This bond you.

In October if you can.

Confirm.

Well, what's the plan for the affordable regarding the call option in October of that bond. If you plan to issue a new tier two bond, which would be majority subscribed by the by their parent company is funding in the past. So that's my first question on the 28.

Question, if you can explain a bit more.

The driver for that big jump in the CET one ratio this quarter to 17, 7%.

I think up from I believe 13, 9% or so last quarter.

And also so that's sort of second question third question.

Of course, you you know the parent company the tender offer on the shares I think the ownership has increased to 99, 8%.

Can you give us an update in terms of when you expect that at least from a stock exchange to be a to be completed I know so the nice thing. It would mean that you wouldn't be able to issue in the future 80 ones, which are convertible into shares.

I'll stand out in the past or if you could still do that because D 80 ones in the past have been fully bought by their parent company instead of going to the market.

Thanks very much.

Okay.

Good to hear from you.

Regarding.

Your first question you know.

I think that the we have the fiduciary responsibility to do works.

For our shareholders. So.

We have.

Sorry to SBB.

Page four.

<unk> doing what would be best.

For our shareholders. So it could be it could be issuing.

Nuance so.

The approval process before the central bank to take some time. So we are proving that we already started that.

We will make a decision as to why that's what it's based a floor for the company. Okay. So we will remain weak all our options open.

Okay.

And one thing if I can just sorry, just ask a follow up question there.

You were at least can you say if you wanted to call that.

These bonds in October in that case would you replace them with a new tier two bond with the same structure 10 year non callable five can you say anything about that or not.

What I can tell you that we will analyze all the options available at that time I will make the best decision.

That's what we'll do.

Okay understood. Thank you.

Yes.

And regarding your second question D G.

John you know.

We used to have a finance company assets from CRE of the bank.

We learnt stack so.

Yes.

In the past as it was.

So <unk> you.

<unk> got to deduct the capital invested in debt Finance company.

Hum.

If you want.

So <unk> you all.

Increased actually.

So that's obviously retained earnings also contributed for the.

The increase E. One.

We haven't paid dividends. So we are steadily accumulating capital so that say on your second question and I'm.

Im sorry, Im sorry, Im sorry to interrupt one second just to clarify. So then there was a merger between Banco Santander, Mexico on the consumer finance subsidiary Santander consumer So I mean, what's the name.

Because you because the bank no longer needs to do that that investment in your subsidy already been because of that you've heard on increasing in the CET one.

Absolutely.

Right.

Okay. Thanks.

Then regarding your third question.

<unk> you know we expect that.

We will be de listed from the expected change on May 4th we're still in the process of getting regulatory approval.

The Mexican banking.

Michelle towards at least in Mexico. So we expect that to happen soon because all conditions to the list.

Have you been mic, so that will happen I would guesstimate Docomo, Inc.

A week now.

<unk>.

<unk> do not prevent dose do we should you know 40 screen HD ones that used to be a restriction.

You know in a law.

Nation.

He was change back in 2019 and favorite goldstrike.

Yes.

In the past year, and EBITDA was not able to issue. These you've convinced you know the central bank when they put in place these conditions.

Great and incentive for banks in Mexico, two leased their shares.

And then from issuing capital Securities Okay.

But.

Sometimes they change their mind and they are now you know they actually.

In my opinion, they made the right call because this is something that the market shifting.

Either you know what.

They either use related to convert into shares and the bank is not leased at Wynn.

That's an issue that investors should pay.

Taking into consideration that week.

Obviously, there so of ways that you can value.

Back you've seen alternative metals and not only.

It might be.

Okay. So we.

We have been one of the banks they've most active.

Capital Securities and we will continue to do so going forward.

Well so the COO.

Chinese you believe that in the future you would be able to continue issuing 81 that are convertible into shares despite not being listed.

Yes.

And if I could call Greg the current regulation.

It has the option of not only comparing what also writing down.

The 81, so yes.

But that's somewhere under that.

Actually no.

The investors you know you all depending on <unk>.

Conditions are worried.

In our prospectus and you've got a passion for that okay. Okay. Okay. So basically you could continue or do you want someone maybe instead of being converted into shares.

We've got a right on feature okay.

Question I only has to be used in the last earnings call, assuming there's something listing goes through our R&D may These would be your last earnings call right.

You gave some words thanking you and.

Everybody.

Very helpful to us throughout the process.

We continue to believe that you know there was an extension in the tender offer.

The timeline.

So that's why we still are at least it so we haven't obligation.

Before you that we are honoring and.

But yes.

The following week, we are formerly the mistake then get these would be our last earnings call. We will continue providing.

The information.

Required by regulators.

Regulation, and obviously, if they're starting to see that you need.

From US we you know for two weeks.

Awesome, Thanks very much.

Thanks, a lot.

Thank you. Thank you.

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 Aeromexico on this call probably can have addition, you have additional questions. Please don't hesitate to call or E Mail us directly have a great day.

This concludes today's conference call you may disconnect. Your lines at this time. Thank you again for your participation.