Banco Santander Mexico, S.A.

Good day, everyone, and welcome to Banco Santander, Mexico's first quarter 2020 earnings conference call. Today's call is being recorded. Following the speaker's 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. He'll make some opening remarks and introduce today's other speakers. Please go ahead.

Thank you. Good morning and welcome to our first quarter 2020 earnings conference call. We appreciate everyone's participation today. By now, everyone should have access to our earnings press release and the presentation for today's call, both of which were distributed after the market closed yesterday and can be found on our investor relations website. Presenting on our call today will be Hector Grissi, Executive President and CEO, Villar Mena, our CFO, and Rodrigo Brand, Executive General Director of Public Affairs. We will begin with a discussion of the actions that we have taken to help mitigate the risks related to the COVID pandemic. Next, we will briefly review our first quarter results, and then we will be happy to answer your questions during the Q&A session. Before we begin our formal remarks, allow me to 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 COVID-19, 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. Hector, please go ahead.

Thank you, Hector. Good morning, everyone, and good afternoon to those of you in Europe. Thank you for joining our earnings call this morning. I hope you and your families are healthy and safe. We're entering an unprecedented times, a moment that is testing our flexibility and ability to act swiftly in every aspect of our business. During this call, we would like to spend most of the time discussing the actions we have taken to address and mitigate the impact of COVID-19 pandemic on our business. However, We will also give you a brief summary of the most important trends and metrics of the quarter. The materials that we usually present every quarter that will not be covered during our call can be found in the annex of this presentation. Should you have any questions associated with those materials, we can address it during the Q&A session. Over the past six weeks, we have been implementing a series of measures to help protect the health and safety of our employees, the well-being of our customers, as well as maintain business continuity. Before discussing in more detail these protective measures, let me underscore our conviction that Santa Fe, Mexico is well positioned against the current and growing impact of the COVID-19 pandemic. Our agile and experienced management and operational teams, our conservative origination standards, and our prudent financial management have allowed us to build a very strong balance sheet in recent years. Once again, We ended another quarter with stable asset quality and low levels of cost of risk and MPLs, thanks to our prudent growth strategy and strict origination criteria. In addition, the successful execution of our medium-term strategy that investments we have made in IT and digitalization over the past three years have enhanced our ability to serve our customers at a time when social distancing is required nationwide. Turning to our financial results, we delivered a very solid first quarter with no material impact from the COVID-19 pandemic in our P&L. However, not surprisingly, loan and deposit volumes began reacting to the new environment. Until mid-March, retail and commercial loans, as well as deposits, behaved very much in line with past trends. However, during the last two weeks of the month, when the stricter lockdown measures were implemented to mitigate the pandemic, commercial loans registered a significant spike, resulting in 12% year-over-year growth in our total loan portfolio at the end of the quarter. In turn, due to this activity among our corporate customers, commercial deposits increased significantly, expanding total deposits by 15%. Despite the sudden increase in loan demand, our capital and liquidity positions at the end of the quarter remained at high levels, underscoring the strength and resilience of our values. Please turn to slide four to review the recent actions we have taken to address the current health crisis. Since late February, we have been focused on three key priorities. First, warranting the health and safety of our employees. Second, ensuring the well-being of our customers. And finally, strengthening business continuity. Very early during this COVID-19 pandemic, we began implementing a business continuity plan that triggered global and local protocols to help prevent the spread of the coronavirus by halting non-essential travel, limiting the number of people at gatherings and group events, guaranteeing service from critical suppliers, and enhancing sanitization measures at branches, corporate offices, ATMs, and contact centers. We established work-from-home protocols and divided and assigned teams to alternate workers' schedules at our sites. Branch employees were separated into teams, with 50% of them alternating between the branch and home. These protocols will remain in place for as long as the current health emergency continues. Further, additional IT resources have been channeled into remote operating tools, taking cybersecurity into consideration. As of today, approximately 90% of corporate employees are working from home, while only essential personnel are working on-site. Approximately 93% of the bank branches are open, and 91% of our ATMs are working normally. In turn, the bank's digital channels and contact centers have been operating normally and are servicing our customers well. We have been also actively promoting customers the use of digital channels with very successful results. To support our customers, we launched a debt relief program offering deferred payments for individuals and SMEs. I will elaborate on this program in a moment. Also, together with two other financial institutions, we will participate in the federal government's small business support program. We will leverage the expertise we have developed through our financial inclusion program, TUYO, to assist the government in distributing the funds at no cost for the beneficiaries. In addition, we are offering our customers zero interest payments for purchases at online supermarkets, pharmacies, laboratories, and hospitals, while our health insurance products offer coverage for COVID-19. On slide five, we outline the details of our debt support program or individuals and SMEs that I've mentioned before. Since the program was launched on March 26, March 26, over 400,000 customers have registered in the program. The breakdown of clients that have enrolled in the program by product is as follows. 5% are SMEs, 10% are mortgage clients, 40% are personal, payroll, and auto loans clients, and 60% are credit card clients. As of Monday, April 27, The total loan book under this program has reached 122 billion pesos. Through this program, we expect to help customers who encounter liquidity problems by deferring the payment of the loan installments for up to six months without any penalty or cost. Now, turn to slide six for an overview of the measures taken by the federal government to support the debtors and Mexico's financial system. First, in order for banks to continue supporting loan demand, the authorities have put in place temporary measures that, one, allow banks that fall below the minimum regulatory liquidity ratio level of 100% not to have consequences, and, two, exclude the impact of the volatility experienced in March from the liquidity ratio. This will provide financial institutions more flexibility in managing their liquidity and avoid generating distortions in the financial markets, while servicing customers more swiftly. In our case, our LCR reached 136% at the end of the first Q in 20, well above the regulatory minimum, and it is anticipated to increase when taking into account the benefit of the senior notes that we issued a couple of weeks ago. Second, to support banks' capital, the regulator recommended banks to preserve capital but not pay in dividends associated with 2019 and 2020 results. In our shareholders' meeting held on April the 28th, shareholders obtained to approve the dividend payment for as long as there is a lack of visibility into the impact of the pandemic on the bank. The decision will be revisited in October of this year, taking into consideration the situation prevailing on such date. Also, banks will be able to use their capital conservation buffer of 2.5% without triggering any corrective regulatory measure. These two actions will allow banks to continue supporting loan demand with greater comfort. Third, the CNBB issued temporary accounting rules allowing banks to offer retail borrowers and SMEs a grace period of four to six months on their loans. This is intended to help clients recover their cash flows and avoid default. Clients that enroll on the relief program will not be reported to the credit bureau And these restructured loans will not require provisions nor will be considered non-performing during the grace period. Fourth, the central bank announced ten actions to provide liquidity to the financial markets for up to 750 billion pesos. Most of these actions have focused on enhanced liquidity in the secondary market and allow banks to monetize certain assets in order for them to increase lending to SMEs. The central bank is expected to release soon the rules of this program. In addition to these measures, the federal government has announced very limited fiscal support for the economy in order to mitigate the impact of the pandemic, focusing its efforts on granting loans to a large number of small businesses. This support program is significantly smaller than those of which other developed and emerging economies have been implementing to speed the recovery from this pandemic. Please turn to slide seven for details on the actions we are taking to support our community, which are focused on awareness, support, and funding campaigns. The bank has launched continuous communications campaigns to update our employees on the pandemic and encourage people to stay at home, together with an appreciation of campaigns aimed at healthcare professionals. More than 55 million from our Santander Universidades program have been channeled to support digital learning platforms, scholarships, and emerging research initiatives. Finally, the bank has launched a fund to collect employee donations to aid those in need, and will double the amount collected to make the donations of medical equipment. To conclude, I wish to emphasize again that we are operating from a position of strength as we enter in the crisis period, given our strong liquidity and capital position and healthy asset quality. Also, the step we have taken to protect our employees and the robust digital platform that we now have in place will ensure that we continue delivering the high levels of customer service that distinguish our rank. Further, our aim is to emerge from this crisis as a stronger organization. Now, let me turn the call to Didier, who will review the most important trends and metrics of the quarter. Thank you very much.