Earnings call transcript: Regional Bank’s Q2 2025 earnings show steady growth

Published 29/07/2025, 19:14
 Earnings call transcript: Regional Bank’s Q2 2025 earnings show steady growth

Regional Bank reported its financial results for the second quarter of 2025, demonstrating steady growth despite challenging market conditions. The company achieved a 2% year-on-year increase in net income, reaching MXN $1.639 billion. The stock, with a market capitalization of $730 million, currently trades at $13.21, near its 52-week high of $13.77. According to InvestingPro, the stock has delivered a solid 14% return over the past year.

Key Takeaways

  • Net income increased by 2% year-on-year, reaching MXN $1.639 billion.
  • Loan portfolio expanded by 10% year-on-year.
  • Stock price dropped by 1.73% to MXN $98.56.
  • Return on Average Equity (ROE) decreased by 228 basis points to 20.1%.
  • Non-Performing Loan (NPL) ratio increased to 1.5%.

Company Performance

Regional Bank’s performance in Q2 2025 was marked by growth in both its loan portfolio and deposits, despite a challenging macroeconomic environment. The bank’s loan portfolio grew by 10% year-on-year, while total deposits saw a 14% increase. InvestingPro’s Financial Health Score rates the company as "FAIR" with a score of 2.08, suggesting balanced operational performance. The ROE contracted by 228 basis points to 20.1%, reflecting the bank’s cautious approach in a volatile market.

Financial Highlights

  • Net income: MXN $1.639 billion, a 2% increase year-on-year.
  • Loan portfolio growth: 10% year-on-year.
  • Core deposits (CASA) growth: 7% year-on-year.
  • Total deposits growth: 14%.
  • Operating expenses increased by 11% year-on-year.
  • Efficiency ratio rose to 40.8%.

Outlook & Guidance

Regional Bank has adjusted its loan growth guidance to 7-10%, down from a previous forecast of 10-15%. The bank continues to maintain its Net Interest Margin (NIM) guidance between 6-6.5%. Despite the adjustments, the bank expects two-digit earnings growth primarily in Q4, with a focus on profitability over pure growth.

Executive Commentary

Manuel Riveros Sanbrano, CEO of Regional Bank, stated, "We are taking a more prudent approach to provisioning," highlighting the bank’s cautious stance in the current economic climate. He also emphasized the bank’s commitment to diversifying income streams and maintaining efficiency around 40%.

Risks and Challenges

  • Increased Non-Performing Loan (NPL) ratio, particularly in the construction and rental property sectors.
  • Rising cost of risk, now at 1%.
  • Uncertain macroeconomic environment with slowing GDP growth and trade policy uncertainties.
  • Moderate demand for new investments, impacting future growth prospects.

Q&A

During the earnings call, analysts raised questions about the bank’s NPL issues, particularly in the construction and rental property sectors. Discussions also focused on the bank’s margin sensitivity to interest rate changes, its provisioning strategy, and capital allocation. The bank addressed concerns about competitive dynamics and fee income expectations, reinforcing its conservative underwriting standards and collateral-backed loan book.

Full transcript - Regional SAB de CV (RA) Q2 2025:

Conference Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Regional’s second quarter twenty twenty five earnings conference call. We are joined today by Manuel Riveros Sanbrano, Chief Executive Officer of Procional Enrique Navarro Ramirez, Chief Financial Officer and Alejandro Loera, Head of Strategy Planning and Investor Relations.

At this moment, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press the raise hand button. Please be advised that today’s conference call is being recorded. I will now like to hand the conference over to your speaker, Manuel Rivaros Ambrano.

Thank you, and please go ahead.

Manuel Riveros Sanbrano, Chief Executive Officer, Regional: Good morning, everyone. I hope you and your families are doing well. We’re presenting our second quarter results, which reflect our disciplined execution and operating focus. We are operating in uncertain environment with GDP’s growth having slowed and with uncertainty around trade policies. Our commercial strategies continue to focus our expanding our presence in key regions while maintaining risk cost control and credit underwriting discipline.

We remain focused on diversifying our income streams, through nonfinancial revenue growth and the increase in fixed rate loans, which provide some compensation from margin pressures. Net income from the quarter reached MXN $1,639,000,000, a 2% year on year increase. Our return on average equity contracted 228 basis points year on year to 20.1. While this represents a decline from pure periods, it remains at healthy levels and reflects our focus on maintaining asset quality and profitability as priorities. Our consolidated NPL ratio increased to 1.5%, up from 1.3% a year ago.

Our cost of risk rose to 1% while the remain it remains at manageable levels. We are closely monitoring credit trends and maintaining conservative underwriting standards. Regional posted a solid year on year loan growth with 10% fueled by sustained commercial activity, particularly in high performing regions such as Jalisco. On the funding side, core deposits, CASA grew 7% year on year, while the total deposits increased by a strong 14%, highlighting the continued trust and engagement from our clients. This dynamic growth in both lending and deposits contributed to a 9% expansion in the financial market supported by higher volumes and disciplined pricing strategies.

Our densification efforts continue showed progress with card merchant fees growing at 19% and insurance fees growing 25% year on year. Nonfinancial income posted 8% year on year increase providing some offset to margin pressures we anticipate in the future periods. Operating expenses grew 11% year on year driven by technology expense, strategic investments in geographic expansion and our commercial workforce as well as inflationary pressures and operating costs. This resulted in our in our efficiency ratio increasing to 40.8%, reflecting a 188 basis points year on year increase. While we expect some stabilization in expense growth, we acknowledge the inflationary environment continues to present and pressures as we actively manage expenses.

The wholesale loan portfolio grew 10% year on year, while particularly strengthening Jalisco at 18% growth. However, we are seeing some moderation in demand and business adopt a more cautious stance. We anticipate that loan demand may remain subdued until the greater clarity on trade policies and economic direction. We maintain a cautious approach to risk management given current uncertainties, while our direct exposure to cross border dynamics represent only of our total loan portfolio and having 10% indirect ties to United States. We’re closely monitoring potential impacts from trade policies.

Wholesale banking demand deposits increased 23% year on year, while CALPA ratio to 37.1%. Retail banking continues to show healthy momentum and demand deposit grew 11% and time deposits grew 1115%, reflecting solid client engagement and trusts. Our branch network continues to expand in a disciplined manner, focused on high potential locations and aligned with the following customer needs. Notably, individual checking accounts rose 19% year on year, an indicator of growth client acquisition and deepening relationships, though we anticipate a normalization of this space going forward. Our asset quality remains a key strength with non performing loans ratio at healthy levels across all segments, SME and conservative portfolio with state of the art NPLs with 2.9 and auto loans with points 5%, and mortgages adjust 1.3%.

These figures reflect the effectiveness of underwriting standards and the resilience of our customer base. While we remain digital in shifting macroeconomic environments, we are well positioned to navigate potential challenges, thanks for proactive risk management and diversified portfolio strategy. Hebanco continues advancing its strategic shift towards profitability over pure growth, prioritizing higher quality customers over volume expansion. This disciplined approach is yielding results. Individual deposits grew 22 year on year, while our loan portfolio reached our business loan portfolio reached MXN 4,215 million, and in present 23% increase, demonstrating solid traction in target segments.

Hebanco reported an financial margin of MXN $229,000,000 with an interest margin of 8.5%, a notable increase of 130 basis points year on year, reflecting improved asset yields and a more profitable customer mix. Our efficiency ratio improved to 69.9%, reflecting the progress in cost containing even as we continue investing in automation and digital capabilities to mitigate structural cost pressures. Our active customer base now reaches 508,000 customers fully aligned with our strategy to prioritize quality over scale. We reduce our cost of risk by 160 basis points to 6.1, though we remain vigilant about credit trends in the current environment. The spin off process remains on course for completion this semester.

Following the two quarters following the the the next two quarters of performing below following the two quarters of performance below our original budget, we are updating the market guidance by the remaining of the year. We anticipate loan growth moderation over the next quarters due to macroeconomic uncertainty. Given these conditions, we are adjusting our loan growth expectations between 710%, down from previous 10% to 15% guidance. Our loan diversification strategy continues maintaining focus on high quality customers across regional operating sectors. The new OneRajio app designed consistently with the Heibanco will drive cross selling opportunities, especially in consumer credit products.

This diversification approach helps mitigate NIM pressures by leveraging our proven credit risk management capabilities. We’re maintaining our NIM guidance between six percent and six point five percent, reflecting the stability of our core generation capabilities. Similarity similarly, our deposit growth expectations are being adjusted between 710% from previous 10% to 15% range, aligning with a more conservative credit environment with strong capital and liquidity positions. We continue investing in regional’s future through infrastructure expansion and operational modernization. Our automation initiatives proven successful at Hebanco will be implemented at Banrejio delivering enhanced results at scale.

Advance in machine learning and generative AI present compelling alternatives to workforce dependent solutions. While primarily benefits will materialize in 2076, we expect initial results in the upcoming quarters. By developing proprietary technology capabilities, regional eliminates, intermediates, captures full execution advantages. We expect to maintain efficiency around 40% below 40% offsetting potential income or expense pressures, evolving developing platforms, reduce coding requirements while accelerating infrastructure develop deployment. This acknowledging development support our optimistic outlook.

As we navigate the environment, we are taking a more prudent approach to provisioning our cost of risk guidance moving from 0.8% to 1% from the period’s 0.7% to 0.9% range. This conservative position ensures we maintain strong asset quality standards with our NPL target remaining as previous guidance. This reinforced our commitment to operation excellence and customer service, strengthening security capabilities and market reach. The combination of these factors leads to adjust our net income growth expectations between five percent to 10%, down from our previous 10% to 15% guidance, primarily reflecting expected margin normalization as interest rates decline. Consequently, our ROE target moves from 2019 to 2020 from the previous 2020 to 2021 range, still representing healthy profitable levels that reflect our disciplinary approach to delivering consistent results in the current environment.

We believe this updated guidance provides a realistic foundation for the remainder of 2025 while maintaining our strategic focus on long term value creation and operating excellence. Thank you. We appreciate any questions.

Conference Operator: Our first question comes from Brian Flores from Citi.

Brian Flores, Analyst, Citi: Hi, team. Thank you for the opportunity to ask questions. Maybe a quick question on the guidance updates you just made. The NPL ratio remains stable. As you mentioned, you want to be a bit more maybe aggressive on provisioning, more cautious, if you will.

Can you explain if what you’re seeing is an increase on isolated cases? Is this generalized? Just any a bit more color on that would be helpful. And then a second question on the other line, which is growth that you revised. You mentioned lower demand.

Is this also coming in particular states, particular segments of the economy? Any color here would be really helpful. Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Yes, Brian. Thanks. In in terms of NPLs and cost of risk, we expect a very similar next two quarters in general, but specifically in these two lines. NPL, as we have mentioned, we’re very sensible for specific large loans. They are not concentrated.

Obviously, as almost half of our loan book is related to real estate, and the largest loans that we have are real estate related, may mainly homebuilders or rental for commercial and industrial properties. The largest cases in in past due loans are there. There is not a concentration in geography or even the type of builders, home builders are specific cases. And most of them, as we have the real estate collateral, will be solved in time. It’s just a matter we have just finished two large foreclosures, then we have to to sell all the flats.

These two specific cases are flats in Mexico City. But for the rest are diversified, some agro, a couple of agro business, a couple of manufacturing from the last ones. In terms of cost of risk and provisioning, as Manuel mentioned, we are being very prudent. We are following the CMBB methodology with no no exceptions. And some of the changes to a stage two that you can see in the in the report also generate provisions.

We don’t expect a large deterioration or or or to increase a lot of NPLs. I don’t know if if that was clear about NPLs and cost of risk.

Brian Flores, Analyst, Citi: Yeah. No. Super clear. So just following this up, should we we should we expect maybe better NPL creation trends, right, from going forward? This is basically to to match the numbers you put in the guidance.

No?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Maybe not better, the the guidance. Can you put it back, please? We maintain it in 1.8. It’s not because we we believe we can reach that. It’s maybe 1.5, 1.6 at most for the whole year as some of them will be wrote off, others will be collected.

Then there are new entrants and and some exits.

Brian Flores, Analyst, Citi: Okay. Perfect. Understood. And and on loan growth?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: On loan growth, basically, yes, we have seen due to the uncertainty, we have seen less demand in general, in particular, in industrial parks. We haven’t seen any vacancy or any aggressive cancellation, but what we have seen is is less demand for new industrial parks in general in the North, mainly Nobologna and Coahuila states. But the lack of demand for new investments, We see a lot of demand to increase the lines for working capital, but not for CapEx. CapEx. Yes.

Capital expenditure. Some of the customers or businessmen, they explained that they are waiting until all these tariffs and trade are resolved or to see some clarity to new investments. And some of the other customers that have liquidity are paying that that also affects the growth on loans. It’s it’s not only the demand for new loans, but also, and it’s not that they are moving to other bank or competition or some sort of that type of effect. It’s they have liquidity.

They prefer just to prepay their loans.

Brian Flores, Analyst, Citi: No. Super clear. Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Thank you to you, Brian.

Conference Operator: Our next question comes from Olavuartuso with UBS.

Olavuartuso, Analyst, UBS: Hi, guys. Thank you very much for taking my question. Actually, I have two. And the first one, it’s related to your margins and the NII that you guys presented, and we are in the midst of easing monetary policy cycle in the country. So just wanna to hear from you an update on the sensitivity to your margins or NII to 100 bps change in the policy rate?

And my second question, it’s related to the payout strategy because I just wanted to understand what is the target for capital of the bank because it stood at around 14.1% this quarter. And I was just trying to understand at what levels should we work with for our capital ratio going forward. Thank you very much, guys.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: In the in terms of the margin, we still maintain the same sensibility. We we have been projecting 13 to 14. What we have seen in reality in the last two hundred and fifty, reduction of the policy rate is fourteen fourteen basis points. It’s showing as we show the, the NIM is last twelve months, it looks like it it doesn’t move. But if you do the calculation for the quarterly or even with the CMBB with the monthly, you can see year on year, month of month.

The last one available is May. That that is basically 14 basis points per 100. Then once he’s finished all the reductions, it should be around that that stable. In terms of a capitalization index or a capital strategy, our Our risk appetite, our level internal level, for the board and for the risk committee is twelve point point five. That’s our own internal minimum considering with and without enhancers.

Then we should not expect in any future close time to to reach that level. Above, in order to decide the dividend. If you remember, we have decided to split the dividend in two payments, one in April with the general assembly for the results, and then another one in October, November after the the board. Then at that moment, we will decide if it still is, as we are planning, above 14%, there is still ample room to do it. And, also, remember that this level is only for regional bank, Banco Procional, already being capitalized, Hey, Banco.

Then once the migration of customers is approved, it will increase for Banco Regional, the capitalization index.

Olavuartuso, Analyst, UBS: That that was my follow-up, but you already answered. So that’s very, very clear. Thank you very much, guys.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Thank you,

Conference Operator: Our next question comes from Ricardo Buczpiel from BTG.

Ricardo Buczpiel, Analyst, BTG: Hi, everyone, and thank you for the opportunity of making questions. I have Shu here on my side. So during the quarter, I understand that regional NIM faced two headwinds. Right? So you had a change in asset mix because of the increase in repo’s portfolio and also had a reduction in reference interest rates, and you are have the the sensitivity that you just mentioned about changes in the reference rate.

Right? Still, we saw that NIM remain flat quarter over quarter. So I wanted to understand what tailwinds help to support NIM during this quarter and whether we can expect that going forward. And also could also provide an update on what we should expect in terms of growth and profitability for HAY in the coming quarters. Thank you very much.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: In terms of, the NIM, as you mentioned, we have been renewing in advance or buying in advance securities investments. Basically, what we are acquiring our portfolio is basically two year setters. Then the the securities investments has helped the NIM and will continue helping to protect the NIM. It’s not a hedge. It’s basically that we decided to to increase the repo business and to do some of the renewals in advance.

That’s the main reason, but still the sensibility that that I mentioned is is very similar once all the reductions finish. By the way, one of the main changes or reasons, as Manuel mentioned, to change the the guidance is in margin as we, if you remember, we were expecting, 8.5 policy rate at the end of the year when we did the budget and when we did the guidance. And right now, we are expecting a 7.25%. But that’s the reason. And, also, it helps the mix.

We have been growing, especially autos and leasing. Leasing, not so much in this quarter, but the previous quarters has been above 20%. This quarter is slow down. But auto is continue about 16%, and it’s only fixed rate.

Ricardo Buczpiel, Analyst, BTG: Oh, very clear. And about HEY?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: About HEY, we will continue growing the the loans to small businesses, also auto. Basically, if you see the the long road is coming, we we have made a and a split of auto to differentiate auto for individuals, from auto for companies. Then in the business section, you can see the auto for companies. In general, auto for businesses and commercial loans, as we call in in Mexico. There are business loans in general, both simple lines or working capital or revolving lines.

Both of them are growing. That’s our main focus on loans. In individuals, we are growing back credit card, but, not as aggressive as we did two years ago, mainly focused also in auto and personal loans. In terms of number of customers, as we have been mentioning, we are not focused to do a very large growth, but more profitable growth, both asset quality as well as balance better balances in deposits.

Ricardo Buczpiel, Analyst, BTG: Thank you. And just a quick follow-up. We saw that, hey. Bottom line, decreased a little bit quarter over quarter, and, the cost of risk also went down. So if you could comment what drove this slight reduction in in in the bottom line and, if you can expect, like, a a recovery in the the bottom line more towards the second half of the year as you keep growing in this, more, less risky credit lines and and and grow the the portfolio?

Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: It was, partially provisions as well as expenses in between first quarter and second quarter. Yes. Expenses on marketing on the second quarter. We it’s seasonal, and we are doing an alliance with Sami Rivers. There is a very well known influencer in Mexico.

And, also, we are sponsoring again some music festivals. That’s that’s the main difference. And, also, in provisions, even though the the cost of risk year of year or quarter over quarter reduces, which would publish the quarterly one to see the the difference, but, it was higher provisions, mainly in credit card and small businesses. What changes? To be more concrete on the answer, yes, we expect it to recover.

As Manuel mentioned, we’re doing a lot of efficiencies and a lot of automation in Heybanco, then later on, we will do in in Banrejio. But in Reybanco, we’ll be showing this, next two quarters, the efficiencies.

Ricardo Buczpiel, Analyst, BTG: Very clear. Thank you.

Conference Operator: Our next question comes from Ernesto Gabilondo with Bank of America.

Ernesto Gabilondo, Analyst, Bank of America: Thank you. Hi. Good morning, Manuel, Enrique and Alex. Thanks for the opportunity. I have three questions from my side.

The first one is a follow-up on your NIM expectations. So you mentioned that you’re expecting interest rates to be at 7.25 by the 2025. Where do you see the interest rates next year? Where do you see the interest rates normalizing? And my last my second question is on OpEx.

I believe you didn’t mention anything related to OpEx. You have mentioned in the past to be around the double digit. So if you can give us some color if you still want to open some branches in the second half. Also, if you can talk a little bit about the promotions that you’re doing at HAY, how much of the OpEx is related to that? Any color on OpEx will be very helpful.

And my last question is on your net income growth guidance. Just wondering how do you see the trends for the earnings growth in the second half. We have seen first half practically flat. So just wondering if we can start to see the double digit earnings growth in the third quarter? Or do you think it’s something that it will more likely to come in the last quarter when you have a better lending seasonality and when it tends to be the highest quarter?

Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: In terms of the expectation for the tea, even though we we haven’t started the budget for next year, we expect, in general, around 6.25 or 6% at at most, and we believe that will be unstable rate. And we maintain the sensibility, Maybe for the investment securities I already mentioned, if the rate goes down faster, we’ll help to defend the margin temporarily for a couple of quarters. Then that’s about normalizing the or policy rate. In terms of OpEx is, yes, we expect, as we mentioned since the last quarter, to converge between 10% to 12% growth, the full OpEx line, including both salaries and general operative expenses, then that will be we usually don’t guide, but it’s what we expect between 10 to 12% of growth for the end of the year. Branches, yes.

We we will open maybe not the 20 during the next six months, but at least we have more than 10 in process. And and the team is focused on on do the the 20 focusing, as Manuel mentioned, on profitability and location where it makes sense. We we are not opening branches just for the sake to fulfill a a budget is where it makes sense, where we forecast that we’ll be more profitable every point, every single point. Maybe for October, we will have a more precise number. But right now, we’re working on 12, and we have eight more on the line.

Then if everything happens legally in contracts and as well as in adaptations and construction in time, maybe we could end up with the 20, maybe sixteen, eighteen. But we are not stopping. That will be the summary. We are not stopping the the opening of branches, but also we are not rushing. We are selecting very carefully the each location.

And in terms of OpEx of HAY, as I mentioned, some of the promotions and some of the marketing investment that is not marketing digital marketing is, as I mentioned, sponsorship and alliances and some promotions in terms of what we call super cashbacks. We are giving for a short period of time higher cashbacks, 10% in selected, merchants, then, yes, is is in included in the OpEx, but it’s not the the the main reason of the increase. The main reasons are still the branches, the new branches, plus, as we mentioned last time, all the technology investments that were made in the last two years that we are amortizing in these quarters.

Ernesto Gabilondo, Analyst, Bank of America: Excellent, Enrique. And did you ask the last question?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Yes. Let me I will open my file. Your question is

Ernesto Gabilondo, Analyst, Bank of America: About the trend.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Level. Two two two two digits, but barely two two digit, we see it for the fourth quarter. But it will depend on seasonality as you will say it. As you know, the the last quarter is a lot of transactions and a lot of loans, but it it will be the only one where we see two digit growth, and I don’t have the the projection for the next year.

Ernesto Gabilondo, Analyst, Bank of America: No. Super helpful. Thank you very much, Enrique.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Thank you to you.

Conference Operator: Our next question comes from Neha from HSBC.

Neha, Analyst, HSBC: Hi. Thank you for taking my question. Could you tell us what is your exposure to the real estate sector, agribusiness, and to the exporters?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Okay. Sorry. Let me open my And conference quality can okay. Yes. Sorry.

To to construction, for the whole loan book is 23% construction And rental property that we consider also real estate because the collateral is a real estate is 11%, then should be 33%. I mentioned a couple of questions, a different proportion because I was thinking only on the business loans side. Once you put all the individuals plus pay, plus auto, plus mortgage, is $33.33 percent to real estate in general, including construction 22 and rental property 11. And for agro is 7%, 6.9%. And exporters?

Exporters is direct exporters, only 2%, and indirects, add another 4%.

Neha, Analyst, HSBC: Okay. And these are the segments where you’re seeing most of the pressure from tariffs from the macro environment?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Mainly in construction and partially in rental property.

Neha, Analyst, HSBC: Okay. And are most of the problems in your view kind of identified and all new originations in the past few months have been more cautiously, or do you believe that in the coming months, we could see more problems come up with some of the loans that have been given out already?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Sorry. I couldn’t understand it.

Neha, Analyst, HSBC: Sorry for the background noise. Identified most of the issues in this segment, or do you think more problems, one off cases could come up in the coming months?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Well, not not as big as the ones that we have been talking in these first two quarters. There is always customers in the stage two that can move to stage three, but not a specific one that we can identify right now.

Neha, Analyst, HSBC: For Hebanco, previously, I think we talked about loan growth being more than 20%. You just mentioned that you’re focusing more on quality versus growth. What kind of loan growth can we expect for Hebanco for this year, and what will be the main drivers for that?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: It’s around 15 to 20 what we expect, and it’s mainly on auto and SMEs. Small and and well, it’s mainly small because the the largest loan in in Haybank was 20,000,000 pesos. And the drivers is basically our bankers and all the efficiencies that we have done in the credit process. We are automating fully automating the credit process. The bankers are more for selling, for contacting the customers, for fraud prevention to ensure that the customer exists and it sells what it says, what it sells.

And but after that, all the process is being automated, streamlined. Then that’s why we are focusing more on SMEs, and and that’s it.

Neha, Analyst, HSBC: Last question from my side. You just revised the guidance slightly downwards. Where do you see the most risk of not meeting the new guidance provided? Thank you so much, Enrique and Manuel.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: In total loan growth, that that will be loan growth is where where where there is the highest risk. As I mentioned, if there is still prepayments or the demand doesn’t pick up as we expect, seasonally, the second semester is always better. That that will be the more challenging part because cost of risk is right now is point 91 or 93 should remain around, then it’s already included in the new guidance. And as we have been mentioning, expenses should, compare to below 12%, 10 to 12%, then, everything else is is in place, and and the name already considers the policy freight, then the only one that is, at least from my point of view, is total loan growth.

Neha, Analyst, HSBC: Very clear, Enrique. Thank you so much, all of you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Thank you too.

Conference Operator: Our next question comes from Pablo Ordonez from GBM.

Pablo Ordonez, Analyst, GBM: Good morning, Manuel, Enrique and Alejandro. Thanks for taking my question. I have a follow-up on your guidance for loan growth. With this new range of 7% to 10%, what are you expecting in terms of the wholesale and the retail banking loan growth? Should we expect a slowdown in the consumer and the auto loans from the double digit growth rates that we have observed in the previous quarters?

And also, can you comment on competitive dynamics that you are observing? Some other banks are mentioning that they are looking to grow their portfolio by taking market share. So what, how are you seeing the the competitive dynamics? Are you seeing some pressure, some of your spreads from the commercial looks? Any color on that would be very helpful.

Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Well, as I answered to Neha, basically, main concern is in wholesale. Wholesale, we expect exactly what what it says the total loan growth, seven to 10. And this as and as is the largest portfolio, we is the one that will drive the whole growth. For businesses, small businesses, and in general consumer, we still expect mid teens between 15 to 20 growth. We see a lot of demand.

And in terms of competition, we haven’t seen any change in any way. It’s not like in other situations than some banks are more cautious or reduce their risk appetite. We haven’t seen that, but we haven’t seen the opposite. Nobody is more aggressive either on growth or price. There are some exceptions in some regions, but it’s mainly the drive of the local managers.

It’s not like a whole bank pushing faster. But at the same time, we haven’t seen well, maybe the only exception is Vanamex that for natural reasons, they were in a in a spin off last year. This year, they are more active, but nothing irrational or that would impact the market.

Pablo Ordonez, Analyst, GBM: Very clear. Thank you. Thanks a lot.

Conference Operator: Our next question comes from Tito Labarta from Goldman Sachs.

Tito Labarta, Analyst, Goldman Sachs: A couple of questions, if I can. One, I guess, I’ll follow-up a little bit on margins. But just to understand the dynamic between loan growth since you have the slower loan growth, but you maintained the NIM guidance. Should the slower loan growth impact NIM in any way? I mean, is that offset just because deposits will also grow less or also because you have the higher repos that kind of potentially offsets any pressure on NIM from slower loan growth?

Just to understand the if we isolate the impact of loan growth on NIM and any impact that can have. And then my second question, just on fees. Fee growth has remained fairly healthy growing double digits year over year. Do you think that trend sort of continues? Would that be impacted at all from the slower loan growth?

So if give give any color on on the outlook for fee income. Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Yes. In terms of long road impact on on NIM, yes, it affects, but affects positively in terms of the mix. As I mentioned, we still expect mid teens for small businesses and consumer that are higher margins. And even though proportionally are still less than 20% of the loan book, they they help to increase or to protect a little bit the the NIM. And the one that is growing slower than we expected that is wholesale are the portfolios that are mainly indexed to TI.

It helps a little bit, this change, but not that much. It’s not to change the 14 basis points of of impact. Not. In terms of the repo business and deposits, if we don’t see the growth as we usually do when we have excess of liquidity, we channel that to the repo business and and to buy more investment securities. That that could affect a little bit the the NIM as the margin is is lower.

But as I mentioned, we have acquired in advance some of the for the next two years investment securities, basically set this, then that should help to to to not be affected for that not growth and change the the deposits from time deposits to to the repo business.

Tito Labarta, Analyst, Goldman Sachs: Okay. That’s very clear. And on the the fee income?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: In terms of fee income, as as you can see in the quarterly report where we split the the growth, basically, there are some impact on the foreign exchange, mainly because the the price reduction of the of the peso or the the exchange rate peso dollar. We weren’t expecting the the reduction right now is below 19 pesos that that affected and has stayed there for the last almost six months. Then the this this pre the spread has been reduced and the volume also. Then that’s one line that where we don’t see a a very big increase. We we were expecting more than 15%.

Right now, we’re expecting around 10%. And the other one is you see, like, is mix. We will split it for future quarters. Is mix the it says merchant, and in that line is included both the the cards, the credit card fees that we charge plus the acquiring business. The acquiring business is growing very well, and we expect that to be maintained more than 20% year on year.

But the credit card, specifically in has decreased the transactionality. And, also, we have some impact on the exchange rate as the cost of the credit card is in is in dollar is denominated in dollars. In general, we we expect still double digit, but not the above 15 that we were expecting at the beginning of the year. All the other lines are in line of our expectations.

Tito Labarta, Analyst, Goldman Sachs: Okay. No. That’s clear. Very helpful. Maybe just one on the insurance income, which was down a bit in the quarter, but still very strong year over year.

Should that trend continue also?

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Yes. If you remember last year, around November, we signed a ten year renewal of our alliances with CHOP and Qualitas. And we have improved our conditions, and, also, we’re improving the the new sale of insurance, which should see an improvement. There are months that are better because some quarters we have what we call profit sharing, but more than profit sharing release that we meet some goals, and we have annual incentives. We cannot disclose every single incentive of the deals, but what we can say is that we don’t have as used to be the previous agreement just once in a year.

But every every quarter, we review, some goals, and we have extra incentives. And the base is still very, very strong. It’s mainly, as we have say, related to loans, auto loans. As long as auto loans grows 20%, 18% that that is growing right now, will continue the auto insurance plus the self buy in the in the branches. And in life, we are growing also pretty fast.

Tito Labarta, Analyst, Goldman Sachs: Okay. That’s very clear. Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Thank you.

Conference Operator: Our next question comes from Daniele Miranda from Santander.

Manuel Riveros Sanbrano, Chief Executive Officer, Regional0: Good morning, everyone. Thanks for taking my question. Just a quick one from my side. We noticed your coverage ratio decreased to 140 from over one sixty last year, and you also mentioned some real real estate collaterals. So just wondering how would your coverage look would look like including those collaterals.

And, also, is this new a 140 a level you’re comfortable with going forward? Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Sorry. I I I don’t have the measure including the the the collaterals we can calculate, but what we can say is that 97% of our loan book has any type of collateral. And out of that, 50% have real estate collateral. Usually, we request 1.5 to one in in real estate related loans. But an exact number of plus collaterals, I I don’t have it.

In terms of feeling comfortable, yes, anything above one one time is good. But as you remember, we follow very strictly the CMBB rules for provisioning. Well, for a credit rating and then after the rating, the provisioning, then we we don’t have anymore as we used to have a goal for a coverage ratio. We feel comfortable with 1.4. Yes.

And as soon as we solve some of these loans, large loans that we are negotiating or foreclosing, either way or restructuring, we expect that to to go back at least at 1.5 times the the NPLs.

Manuel Riveros Sanbrano, Chief Executive Officer, Regional0: Perfect. Very clear. Thank you.

Enrique Navarro Ramirez, Chief Financial Officer, Regional: Thank you, Daniel.

Conference Operator: Since there are no more questions on behalf of our senior management, I would like to thank everyone for joining the call, and we look forward to speaking with many of you in the coming weeks.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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