Banco Del Bajio Shs Of Bk

Good morning and welcome to Banco del Bajio's fourth quarter and full year 2025 results conference call. My name is Ana and I will be your coordinator today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance, and financial results. These statements are subject to a number of risks and uncertainties. Please note that this video conference is being recorded. Joining us today from Ban Bajio are Mr. Carlos de la Cerda, Executive Vice Chairman of the Board of Directors. Mr. Edgardo del Rincón, Chief Executive Officer. Mr. Joaquin Domínguez, Chief Financial Officer. And Mr. Rodrigo Marimón, Investor Relations Officer. They will be available to answer your questions during the Q&A session. For opening remarks and introductions, I would now like to turn the call over to Mr. Rodrigo Marimón. Mr. Marimón, you may begin.

Good morning, everyone. Thank you for joining us to discuss Bambagio's results for the fourth quarter and full fiscal year 2035. Today, we will review our quarterly and annual performance, analyze the key drivers and financial trends, and share our strategic outlook for 2036. The industry data cited today throughout the presentation is based on CNBB's information as of November 2035, which is the most recent publicly available data. Without any further ado, let's start with the presentation. Starting on slide 3 with a look at our key financial highlights for the quarter and full year 2025, it was a year of solid execution despite the challenging operating environment, with stagnant GDP growth and a lower interest rate. Turning to credit performance, the total loan portfolio expanded by 4.6% year-over-year. This was primarily driven by the company loans portfolio, which grew at a rate of 5.2%. On the funding side, total deficits saw a robust increase of 10.5% compared to the previous year. Regarding asset quality, our NPL ratio improved significantly to the end of the year, at 1.49%, supported by a strong coverage ratio of 126.5%. This trend also drove an improvement in our risk profile, with the cost of risk for the full year at 0.96%, while in the fourth quarter it decreased further to 0.75%. In terms of profitability, we achieved an efficiency ratio of 39.8% for the full year and 43.5% for the fourth quarter. Our return on average equity stood at 19.4% for the 12-month period and 18.1% for the quarter, while the return on average assets was 2.4% and 2.2% respectively. Net income for the full year 2025 reached 9.1 billion pesos, with the fourth quarter contributing 2.2 billion pesos. Finally, our preliminary capitalization ratio as of December 2025 stands at a solid 15.5%, composed entirely of Common Equity Tier 1 capital. Moving to slide 4, we examine our 2025 performance against the guidance provided to the market. We are very proud to report that Bambagio met or outperformed most of the targets established for the year. Starting with our banner sheet, Longwood stood slightly below our range, reflecting disciplined growth in a challenging year. Conversely, Deposits outperformed expectations with a 10.5% increase, well above our 6-9% target. Our net interest margin landed right on target at 6%, while non-interest income, the combinations of fees and trading income, grew by 4.4%. Operating expenses grew 8.2%, close to the bottom of the guided range, reflecting our ongoing commitment to cost control. This led to an efficiency ratio of 39.8%, outperforming our 40% to 42% guidance. The significant improvement in our portfolio mentioned earlier resulted in a cost of risk that bet our target range of 1% to 1.1%. As for our bottom line results, the delivered net income of 9.1 billion pesos significantly exceeded the high end of our guided range. This drove a strong return on average equity, which reached the upper bound of our target. Finally, regarding our asset quality and solvency, we exceeded our guidance for the NPL's coverage and capitalization ratios. Moving to our loan portfolio growth details, on slide 5, the total loan portfolio reached 278 billion pesos at the end of the fourth quarter, leading to the mentioned year-over-year expansion of 4.6%. This growth was primarily driven by our core business, company loans, which include both corporate and SME segments, increasing by 5.2% and now representing 86% of our total loan book. Consumer loans continued with a double-digit growth trend reported in the past quarters, growing 11.4% year-over-year. The 12.1% expansion in the government portfolio was driven by a specific exposure originated in December with good levels of interest margins, an opportunity aligned with our focus on profitable growth. This trend, coupled with the 11.4% contraction in financial institutions, underscores our strategic relocation of capital towards our higher margin business lines. On slide 6, I want to highlight the strategic evolution of our sales force as we move into 2026. This initiative is an enhancement of our existing business model and our competitive edges, designed to further accelerate loan growth by deepening our segment specialization and sharpening our operational agility. We are reinforcing this through three strategic pillars. First, we are optimizing our credit process to ensure we improve our speed and responsiveness. Second, we are increasing our regional presence in major cities, with an important growth in our sales force and executive bankers. This allows our bankers to focus exclusively on the specific needs of their respective segments, ensuring a higher level of expertise and tailored service. Third, we are scaling our successful SME centers. We recently opened a new hub in Mexico City, and we have three more scheduled for the next quarters in Querétaro, Guadalajara, and a third location in Mexico City. We expect to conclude 2036 with 11 specialized centers, keeping us on our path to 20 centers by 2030. Turning now to slide 7, let's examine our asset quality and risk profile. Notably, our NPL ratio improved significantly to 1.49%. This performance significantly widened the gap with the system's average of 2.25%. Similarly, our adjusted NPL ratio stood at 2.84% compared to the system's 4.45%. This marked improvements in portfolio health allowed us to optimize the cost of risk to 0.75% for the fourth quarter. Regarding coverage, we maintain a prudent ratio of 126.5%, and as of December 2035, we continue to hold 330 million pesos in additional reserves, which we plan to absorb over the next six months. These improvements allow us to enter 2026 with a healthier loan portfolio, ensuring Banbajillo's position to support a more active lending environment in the upcoming year. Turning to the funding side, on slide 8, total deposits reached 273 billion pesos in the fourth quarter, representing a robust 10.5% year-over-year increase. This performance was underpinned by an 11.6% rise in demand deposits and a 9.4% increase in time deposits. Over the last four years, we have maintained a resilient 10% compound animal growth rate in total deposits, a track record that remarks the strength of our franchise and the deepening of our core customer relationships. On slide 9, our current funding breakdown shows that demand deposits remain the core of our strategy, representing 40% of our total funding mix. Notably, Zero-cost deposits saw significant increase during the period, now accounting for 19% of the total breakdown. This robust growth in non-interest-bearing funding was the primary driver behind the market increase in our overall cost of funds in the quarter. This highlights the reversal of the upward trend observed in Q3 2025 and the widening of the gap with the reference rate. Our cost of funds for the fourth quarter reached 4.94%. 169 basis point decrease compared to the same period last year and 50 basis points below the previous quarter. Likewise, our cost of funds as a percentage of TIE dropped to 64.7% in the quarter, a positive divergence from the system's average that saw funding costs climbing closer to the reference rate. Moving to slide 10, the net interest margin for the fourth quarter was 5.77%. This represents 100 basis points contraction year over year, primarily driven by the lower interest rate environment, which contributed 68 basis points to the decline, and changes in the portfolio mix, which accounted for the remaining 32 basis points. Through active balance sheet management, we maintain rate sensitivity at around 20 basis points throughout 2025. effectively cushioning the impact of the accelerated rate cycle on our margin. While our expansion into zero-cost deposits drove a temporary uptick in sensitivity during the final quarter, we have already seen a normalization in early 2026, and we expect this stability to prevail throughout the year. You will see the overall stable performance of Almagiro's revenues on slide 11. Total revenues for 2025 stood at 25 billion pesos, a minor 2.6% decrease despite the significant pressure on margins. This stability was underpinned by the successful execution of our diversification strategy, as normalized non-interest income grew a robust 26.2% for the full year. Net fees and commissions increased 16.3% year-over-year, driven by a 39.8% surge in cash management fees and a 38.4% increase in revenues from our digital platform, Baggionet. Additionally, normalized trading income rose 18.2% during the same period. These results validate our intentions to grow recurring fee-based income. limiting the impact of economic and interest rate cycles on our long-run performance. Moving to slide 12, our efficiency ratio for the full year 2025 stood at 39.8%, successfully outperforming our guidance range. For the fourth quarter, the ratio was 43.5%. Despite this quarterly uptick, Bambagio continues to be one of the most efficient banks in the industry, maintaining a significant gap against the system's average takeoff of 46.3%, and demonstrates the operational discipline and strict cost control that we have been anticipating to the market. Turning to profitability on slide 13, it is important to highlight that despite the quarterly compression seen throughout the year, we successfully exceeded the upper end of our net income 2025 guidance. This performance drove a robust full-year return on average equity of 19.4%, effectively reaching the top of our target range, where return on average assets stood at a sound 2.4%. Finally, on slide 14, we closed 2025 with a preliminary capital adequacy ratio of 15.5%. This level stands significantly above our 14% commitment and well exceeds regulatory requirements. Our robust capital position provides the bank with substantial flexibility to continue with the sound levels of return of value to our shareholders, while supporting our growth objectives. Lastly, on slide 15, we introduce our guidance for the 2026 fiscal year. Beginning with macroeconomic assumptions, we estimate GDP growth at 1.3%, stable inflation at 4%, and a 50 basis point decrease in the reference rate from current 7% to 6.5% by the end of 2026. Based on these drivers, we are forecasting loan growth between 8% and 10%, and deposit growth from 10% to 11%. We target net interest margin between 5.4% and 5.5%, and we expect fee and trading income to continue to grow at a sound pace of 13% to 15%. Our cost control efforts will prevail, and operating expenses are projected to increase between 7% and 9%, maintaining our efficiency ratio within a 43% to 45% range. We forecast that these factors will lead us to a net income of 8.25 to 9 billion pesos and a return on average equity between 16.5 to 18%. This guidance reflects a transition towards a more normalized interest rate environment while maintaining our revenue diversification strategy and top-tier cost efficiency. Regarding our risk profile, we anticipate a cost of risk between 80 and 100 basis points, while keeping our NPL ratio below 1.7% and a coverage ratio above 1.1 times. Furthermore, we maintain our commitment to a capitalization ratio above 14%. In summary, our fourth quarter and full year results reinforce Banbajillo's sun fundamentals and solid balance sheet. We are pleased to have met most of our targets for the past year. I remain fully committed to delivering on the guidance provided for 2026. With this, I conclude my presentation, and we can open the call for the Q&A session.

We will now conduct a Q&A session. If you would like to ask a question, please press the raise your hand button located at the bottom of the screen. If you're connected via telephone, please dial star nine. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be given permission to speak. You will then be able to unmute yourself and ask your question. Our first question comes from the line of Ernesto Gabilondo. Please state your company name and ask your question.