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Grupo Fin Banorte Ord
1/29/2025
Good morning, everyone. This is Tomás Lozano, Head of Investor Relations, Corporate Development, Financial Planning, and ESG. Welcome to Grupo Financieros Van Orter Four Quarter Earnings Poll. Our CEO, Marco Ramirez, will begin today's call by presenting the main results of the quarter and the year. He will comment on our capital allocation as well as our macro expectations for the year. Then Rafael Arana, our COO, will go over the financial highlights of the group, providing details on the margin evolution and rate sensitivity, asset quality, as well as expenses for the quarter. He will conclude presenting our 2025 guidance. Please note that today's presentation may include forward-looking statements that are subject to risk and uncertainties, which may cause actual results to differ materially. On page two of our conference call deck, you will find our full disclaimer regarding forward-looking statements. Thank you. Marcos, please go ahead.
Thank you, Tomás. Good morning, everyone. I wish you all the best in this new year. And thank you, as always, for joining us today. We are pleased to share with you the results achieved both in the quarter and throughout 2024, delivering on our commitments to the market a year ago, despite the challenging second half of the year with clear signs of economic slowdown and increasing uncertainties regarding the transition period of the new government of Mexico and the presidential elections in the U.S. On the macro front, GDP growth in 2024 is expected to reach 1.6%. Domestic demand remains resilient throughout the year, driven by a strong labor market, with increasing wages and improving working conditions, a solid stream of remittances reaching historical maximums, and a dynamic investment activity. Altogether, this led to a stronger internal demand, which partially offset a weaker external sector. For 2025, we expect GDP growth to slightly decline to 1%, giving the effects of the fiscal consolidation, lower inertia momentum, and different headwinds from the international environment. Nonetheless, for this year, we anticipate a still resilient private consumption dynamic supported by healthy consumer fundamentals and the tailwind from the initial stages of the new administration, so-called Mexico Plan, which intends to boost the country's economic growth with a stronger technological edge. Annual headline inflation stood at 4.2% in 2024, improving versus the 4.7% PBR in 2023. For this year, we expect additional declines to materialize, anticipating a year-end pre-war of 4%. In this sense, and in line with our expectation, the Mexican Central Bank reduced its reference rate to 10% at the end of 2024. And for this year, we foresee additional decreases of 150 basis points to 8.5% by the end of 2025, which should be positive for credit demand. On the political front, the president recently announced the achievements of the first 100 days of current administration, expressing, among other topics, the continuity of series of constitutional reforms, including the judicial one and the approval of the economic package for 2025, highlighting fiscal consolation efforts, a strategy to maintain the sustainability of public accounts and higher inflows for social programs. The President also announced her long-term National Development Plan, which focuses on infrastructure projects that will drive connectivity and economic development across all regions of the country. These plans involve the capitalization of natural resources, creation of specialized workforces in strategic sectors, relocation of supply chains, and enhancement of public-private associations guaranteeing agility and transparency for investments. Finally, we will closely monitor any changes in public policies and additional announcements made by President Trump that could potentially impact the Mexican economy. We maintain our constructive view regarding the upcoming trade negotiations, supporting further integration between Mexico and the United States in the long term, especially for the auto, tech, and electronic industries. However, we anticipate a volatile short-term environment given the challenges around tariffs, immigration, and security. The Mexican currency ended 2024 at 20.82 pesos per dollar, its weakest level since 2008. For 2025, we forecast a level close to 21.40 as we anticipate macro uncertainties to wait on the exchange rate. Now, shifting gears to the group's overall performance on slide number three. The quarter displayed solid operating trends with expanding lending dynamics and P-activity, both driven by some private consumption and higher seasonal transaction volumes. Margin performance was supported by a daily imbalance of selective lending, top-level asset quality, and optimized funding costs. N&I's sensitivity in local currency reached 90 million pesos from every 100 basis point change in the reference rate. Capital generation remains strong, ending the year with a 21.8% capital adequacy ratio and a CEP1 of 13.2%, gradually converting to our management target for this indicator. We will discuss our capital allocation strategy in more detail later. Starting off with profitability, that's the slide number four, reported net income for the quarter amounted to 13.7 billion pesos, a minus 4% decline quarter over quarter, mainly driven by our annual expense management strategy. We leveraged the sound income generation of the last quarter to advance different personnel, administrative, and operating expenses, impacting net income figures. Nevertheless, with accumulated figures, net income for 2024 reached 56.2 billion pesos within the guidance provided for the year, an increase in 7% versus 2023, driven by a solid performance across all our business lines. ROE rose 20 basis points compared to the fourth quarter of 2023, reaching 21.6%, accounting for the share buyback operation and the distribution of extraordinary dividends during the quarter. ROE slightly declined year-on-year and versus the last quarter, giving an acceleration in long growth towards the end of the quarter. Analyzing the results by subsidiary, the bank reported net income of 10.7 billion pesos in the quarter and 44.1 billion pesos in 2024, with some core banking operations driven by a higher-quality lending activity, controlled cost of funds, and strong fee revenue, which enabled the opportunity to advance expenses for this year. Altogether, these results yielded an ROE for the bank of 21.9% for 2024, 146 basis points higher versus 2023. The insurance business grew 14% sequentially and 26% versus 2023 on the back of higher business generation, despite an increase in the fee scheme between the insurance company and the bank during the fourth quarter. The annuity's business was 14% higher in the quarter and versus 2023, giving a normalized operation of the industry, following the reactivation of the resolutions issued by the Social Security Institutes, along with lower reserves Constitution during their quarter. The pension fund business had a sequential decline driven by lower yields and financial products. With accumulated figures, it grew 8%, derived from higher business volume. It is worth mentioning that starting this January, we had an additional reduction in fees from 0.57% to 0.55%. We anticipate this reduction to have an impact on the financials of this year, but will be gradually mitigated by the higher asset under management. Finally, the brokerage sector reported double-digit growth with accumulated figures boosted by larger transaction fees. On slide number six, loan expansion continues to pose double-digit growth across most of the portfolios. The corporate and commercial book grew an outstanding 24% and 18% year-on-year, respectively, giving the continuous demand for companies requiring higher working capital to expand their productive capacities and the benefit from the FX variation in the dollar loan book that today accounts for 16% of the total portfolio. For this year, we anticipate a slight deceleration in these books as the new investment pipeline is on hold until uncertainties around the trade negotiations dissipate. Nevertheless, we still perceive good dynamics in real estate, financial services, and industrial parks, supported by the development plan set forth by the new administration for the following years. Moreover, our government book rose 70% in the year, giving the resuming activity following the federal, state, and the municipal elections. There is opportunity for this book to expand further once the potential public-private associations for infrastructure projects start to materialize. Turning to slide number seven, overall consumer lending maintained double-digit growth of 11% in the year, mainly supported by solid employment levels and improving labor conditions, as well as the scaling of our hyper-personalization business model. The combination of these factors has allowed us to reap the benefits of stronger consumer dynamics, enabling a more assertive cross-sell mechanism based on our clients' needs and desires. The mortgage portfolio remains as one of the main growth drivers despite the mild decelerations and the end of the year. This portfolio grew 19.6 billion pesos in 2024. Even with a more restrictive risk approach, prioritizing high-quality, low leverage clients. We anticipate this product to benefit from lower trades throughout the year. Auto loans reported a solid 25% growth in the year, supported by our commercial alliances with different car dealerships and greater overall business activity in the sector. We continue working on building a sound network that guarantees the availability of our offering with the best-selling brands. Regarding credit cards, this business rose 18% year-on-year driven mainly by the production of innovative products that addresses specific needs of our younger and lower income clientele. It is worth mentioning that credit card use has gained relevance as our current payment method, which has had a positive impact in new client acquisition and balances. Finally, payroll loans also show a good credit dynamics, growing 10% annually, reflecting a revamped offering with different products that address our customers' short-term liquidity needs. Slide number eight. We preserve top-level asset quality with an NPL ratio of 0.9% at year-end. Despite our continued growth across our portfolios, especially in the consumer segment, cost of risk stood at 1.8% in the quarter and the year, given the dynamic recalibration of internal models. It is worth mentioning that so far, there are no signs of sectorial or geographical deterioration in our books. Fees, on slide number 9, show expanding trends. Net fees grew 18% year-on-year in the quarter, with core banking fees increasing 15% in the same period. As I mentioned before, the evolution was mainly driven by the increasing transaction volume of consumer products and POS. Changing gears to ESG, slide number 10. We continue to make progress on the different projects announced at the beginning of the year. The resources from our sustainable fund issuance are well advanced, with over 70% of the funds already allocated to various green and social projects with our clients. We continue the internal capacity building efforts required to grow our sustainable finance penetration. And towards the end of 2024, we announced an ambition long-term commitment to grow and preserve 1 million trees by the year 2030. working together with One Trillion Fees Initiative and local associations in Mexico. At the end of next month, we will publish our 2024 Integrated Annual Report, which will provide in-depth information regarding our sustainability practices. Finally, before moving into the financial highlights of the quarter by Rafa, I would like to cover four additional topics. The first one, I will take a moment to expand a little further into the capabilities that Banorte has today. We were recently recognized as Bank of the Year in Mexico by the banker. This award was not only a great way to say farewell to a successful 2024, but a way to highlight the remarkable transformation of the bank in these last 125 years. These awards acknowledge our efforts in strengthening our digital banking offering via innovation, deep customer understanding to continue investments in technology, resulting in a significant improvement in customer experience and giving us a competitive edge in the market. Second topic, we have received many questions regarding the direction of our digital strategy. In this regard, we are certain that there is a market of young and tech-savvy individuals looking for convenient, simple, and reliable banking solutions, as well as a digital driver to increase financial inclusion. As a financial group, we have the technological and human capabilities to address this market. And I want to assure you that we are finalizing our value proposition by consolidating efforts and leveraging the scale and strength of the group. I will be communicating it to you in our next quarterly call in April. Third topic. Regarding the possible implications for banks of the recent executive order of the Trump administration to designate Trump cartels as foreign terrorist organizations, in this regard, I would like to stress that Banorte has a robust AML policy that has been strengthened by continuous investment in governance structures human, technological, and operational resources that enable us to not only comply with the local regulations but exceed our surveillance capabilities of our clients' operations. Our compliance program is supervised by the National Banking and Securities Commission to supervisory basis or information required and in some respect related to different payment systems, channels like SPAY and SPID by the Mexican Central Bank and by our internal audit division and an annual basis. Moreover, Uniteler has robust anti-money laundering protocols that are supervised by the corresponding American authorities. Nevertheless, we welcome all the processes that strengthen the security of banking compliance systems, with which we have both hand in hand. Lastly, topic number four, regarding our capital allocation strategy. As you know, our internal capital generation remains strong, enabling high-value returns to our shareholders. In 2024, we delivered an 89% payout ratio, comprised by an ordinary dividend that accounted for 50%, an extraordinary dividend that added an additional 19%, and the cancellation of 70.3 million reported shares during the quarter, representing an additional 19%. I would like to stress that we continue evaluating all the different alternatives to return value to you while being mindful of the operating environment and organic load needs. As such, we anticipate our CET1 target ranging between 13% and 13.5% in the year. Now, I will pass the word to Rafa to cover the main financial results, as well as to discuss our expectations for the year. Rafa, please go ahead.
Thank you, Marcos, and thank you all for attending the conference. As Marcos has mentioned, and I will just stress, the balance sheet continues to be quite a strong position of Banorte. As you know, we have been basically put on our balance sheet very close to neutral. There was a small pickup on the quarter based upon the movements that we need to do in the treasury, but it's still almost neutral for the sensitivity and more than ready for the lowering trend that we see on the interest rates. Return on equity continues to be a very important piece of information for the market and for us a key metrics that we follow the profitability of the bank and the evolution of the bank. The group is evolving in the fourth quarter to 21.6, about 22% for the year. And the bank is reaching on the fourth quarter 27.8% return on equity, about 28% for the year. Pretty strong number. Also take into account the strong capital base that the bank continues to hold. The transformation, we continue to accelerate more and more and enhance the digital offering that we have. Artificial intelligence is becoming part of a natural evolution for most of our processes. As you know, we have an artificial intelligent avatar that can do transactions and help our clients to evolve and do transactions that they in some cases are stuck in the process, they can really see this avatar as a very important piece of how they can continue to be on a digital instead of going into the branches to sort it out any of the evolutions. The net interest margin for the quarter continues to evolve at the group level, five basis points to reach the 6.5%. And Banolto Bank continues to evolve in the quarter to 6.8, 19 basis points on a global basis. So this is the result of this structural change. balancing the position of our balance sheet and also giving us the right trend on the mix, on the group, and the results is easy to see on the evolution of the margin. Some of our investors were concerned about the reduction on the fees, on the interest rates, and how that's going to affect the evolution of the margin for us. So we have been working in position to balance sheet for the last two years. I think we're in a good position to keep straining the net interest margin for the time. Cost income ratio, 36.9. It's a number that we know is high for Banorte. There's a lot of efforts coming into place that are already being rolled out on the shared services initiative, you will see also, and there were some concerns from some analysts and investors that there was a strong pickup on the expense ratio at the end of the year. That strong pickup, as Mark has mentioned, has to do with severance payments, the result of the productivity that we do every year. But in addition to that, you have to take into account that all that is the shared services evolution also is coming with an important reduction in the HRPs, and that also is part of the severance payment. And we also anticipate, based upon the currency movement, some software and IT expenses that will be beneficial for us in 2020. They would say, yeah, Banorte usually always advance expenses for the year. Yes, but this was an extraordinary, a much more aggressive number coming into that. When we look at the capital ratio, the capital ratio is 21.8. As you know, we We went into the market for an AP1 that proved to be very, I would say, very opportunistic, like Van Otis always goes into the market when the window is open. It was an open window. We used that window, and we positioned ourselves in a very good position for the feedback or any evolution that we see on the capital base. And for the first time in many, I would say in many months, you see the core tier one at 13.2%. that is very close to our commitment to the market from 13 to 13.5. But you will see in the first quarter is that 13.2 going up again above the 13.5 on this part. So these are the basic key metrics. Now if we move to the NII, NII proved to be also a very good story. And basically, if you go to the NII on loan and to deposits, 13% growth on a year-to-year basis compared to the same quarter and on a year-to-year basis on a 7%. This is the result, basically, of lowering funding costs plus a very important increase in the asset side that you saw through the year that we reached the 14% long growth. So we start to see a very good combination of good growth on the asset side plus a reduction on the funding side that is giving us pretty good numbers on the NNI. Not interesting overall for the year. It was up 28%. Net fees, as was mentioned before, 18% for the year. Premium, as you will see, there were some comments about the insurance business. The insurance business had a very good quarter basically on the medical part due to a very large policy that was issued on that part. So that was the result of increasing the premium part. The other thing that is relevant on the NII and is coming now, is becoming more and more, I would say, useful for the, For the market, difficult to understand the evolution of the inflation related to the annuitous business, but I think by now we know that this is basically related. You reduce the margin, but at the same time, you reduce the technical reserve, so net income basically stays the same. The only case that that's not exactly what happens is if you grow the business in an important way. So I would say relevant numbers on the NNI basis. And I will also try to to express there were some concerns about what was the effect of the buyback and what was the effect of the extraordinary dividend for the NII. I would say that $565 million was the total effect of the NNI plus the buyback and the extraordinary dividend that we gave to the market. The extraordinary dividend was $36.7 million, and the buyback program was $528 million. That was extracted from the margin from the bank to really serve our commitments to our shareholders. On the next slide, you see that A very sound evolution is coming on the banking ratios. I would like to call attention to the net fees of another bank that is growing 22% year-on-year. That's a result, basically, of a lot of activity that is happening in every single channel of the bank, the mobile channel, The branches, ATMs, everything is really increasing the activity in a very important way. In this graph, you also see the evolution of the net interest margin for the bank that reaches the 6.8 at the end of the year. The result of that reduction on the funding cost plus a very important inflow of demand deposits and non-interest-bearing deposits. So that's basically what's coming on the core banking ratios, fees, margin. And we will move into more indexes in a minute. If we go next to the net interest income sensitivity evolution, there was some comments that it jumped from the third quarter to 36 million to 90 million. as a result to taking positions that that will allow us also you will see that working again in the in the first quarter on that part but it's basically a neutral a neutral balance sheet i think that's a a very positive uh position that we are to face the imminent uh reduction rates that our economies thinks that will be a little more aggressive than the market thinks uh If you move to how the other key metrics of the bank are evolving, you see the next one. If you go to the ROA, you see it was a slight reduction on the ROA. That's a result basically that it was a very strong pickup on the loan origination at the end of the year. So you will see the... the returns of those originations coming and flowing into the next month of the year. Net income of Banorte, you see a reduction, and that has called the attention of some of our analysts, and I think it's right that they have some concern here, but you have to see that the net income of the third quarter was basically affected by strong advance on the cost side that you will see on that one. But basically, the basic generation of the bank, of the net income basis, that is the The asset side, the funding side, and the fee side, and the risk side, all are perfectly aligned to continue to deliver a continuous net income growth. There were a lot of adjustments on the fourth quarter to prepare on the expense side. Basically, the fund for the coming year will go in a minute more into the expense side. The return on equity for Banorte Bank, which is on the third quarter, 31% in the fourth quarter, 27.8% an average for the year above the 28%. uh if we go to the next that's the managerial name to take into account the effect of the annuities um i think that that by now since we have so many ups and down on inflation this has become more familiar to our investor base i would like to move to the next one slide that is really something that you know we have been chasing for for for some time the reduction on the funding cost based upon the high pace of growth on the loan book. There was pressure on the funding side on 23. We started to normalize that on 24. And finally, we are now reaching the trends that we'd like to see. We reached the 46.6 on the funding side. That is really pushing up along with the sensitivity of the balance sheet, the net interest margin, along with a very positive generation on the asset side. So what was the story? And I would say that there was some basically loan-to-deposit ratio, we are not reaching still the 100%. We are still at 104, and that gives you some imbalance on the asset-to-laborability side that is easily compensated by a position that we can do on the market as needed. And another important thing is the cost of the market funds also are coming down. in an important way. You see that non-interest-bearing deposits, demand deposits grew on a year-to-year basis 8%. That's quite a number because this is really non-interest-bearing deposits basically delivered by the payroll base that we have that is growing in an important way. And the activity of the new accounts that are coming into the bank also We are becoming more and more active on the remittances side, and the remittances have been proving to be a very important source of funds also on the cheap end of the funding cost. The interest-bearing demand deposits, you saw the increase on the quarter of close to 6%, and that's good news because we are substituting non-interest-bearing deposits with interest-bearing deposits on demand deposits. That shows the quality and the potential of the distribution capacity that Banorte has in every single of the banks that deliver commercial, corporate, government, retail. Time deposits continue to be a balance, some very good growth on the time deposit base, 16% year on year, with lowering trend on the funding cost on the time deposits also. If we go now to some of the, I would say, the key elements that Granolte has in a way that we compete in the market. That is basically the quality on the asset book. You see that the cost of risk, and there was some concern that, oh, the cost of risk jumped a bit. Yes, it jumped a bit because we originate a lot in the fourth quarter in the government book that required provisions on day zero, and they will come back in the coming months. And also credit cards, the mortgage book, car loans, all the book really pick up a very strong growth on the end of the year. And that was accompanied by the initial provisions, not because there was a lack of quality of the book, because it's mandatory in the way we have to provide the provisions based upon the norm that we have to comply with. But we continue to see a very strong asset quality. Let's take a peek on that. If you go to the car book, 0.6% NPLs. You go to the mortgage book, 0.9 NPLs. If you go to the to the SME that is sometimes of concerns, 1.8. That is the same level that we have on the commercial and corporate. Corporate, 0.1. Government, 0. So overall, below 1% MPLs and very strong cost of waste, below what we got in the market at the beginning of the year. And there have been some concerns about what are Banorte doing in order to keep the group. Basically what we started five, six years ago to be very diligent, very, very active on evolving into more and more analytical tools in order to provide the necessary information to have the right onboarding policies that we have. And that has been proven that all the investment and all the quality of the people that we have on the risk side, on the collection side, and the discipline that the banks that all the people that do lending at the bank, that's in his mind, is what he's giving. The write-off rate, some people say write-off in Banorte is really a very stable line. That is also something very relevant about Banorte. We don't go up and down thin in the books. So we don't go into the market, grow it in the market at any price, and then kill the book by cleaning the book. This is a very disciplined evolution of the right of wage. If we go to the expense line, and I would like to spend some time here on the expense line, you saw a very strong pickup on the book. If you go on the fourth quarter of 23 to the fourth quarter of 24, you saw a valuation of 14.8 to 16.2. This is basically what we have been mentioned. We advanced a lot of payments. the severance payments, the evolution that we have on the shared services that unfortunately comes with a reduction on the HR numbers. And that effort will continue in a very active way through the year. But most of the severance has been already advanced in place for the quarter. So that's the result of that PICO. If you try to to split up the expense growth of Banorte, and I think this is quite important for the market to notice, is the recurring expenses of Banorte at 7.4%. If you add Bineo and Tarjeta del Futuro, it's 5% more. So that puts you on the 12.4%. So the whole idea right now, and Marco's already touch on that and mention on that, is that we have to converge, not on this year, but I'm sure in the next year, to the recurring expenses that Banorte has. So there will be an aggressive reduction on the expense line that has already started in 24 and will continue into 25. What's going to be the result of that on the net income basis? Our goal is, as you know, on a permanent basis to be at least at the 34%. We know we are above that, 36.9%. There's a strong effort for the next year, as you will see on the guidance in a minute. But be aware that we are very conscious of the expense line, and we are taking actions of that. La Norte doesn't feel comfortable on a cost income ratio of 36 points. The bank and liquidity ratios, the liquidity ratio continues to be right on line where we like the liquidity ratio to be. And the capital adequacy ratio, as I mentioned, is 21.8, well above the requirements of the TLAC. And on the courtier one, for the first time in many, many quarters, we are on the range that we promised the market of 13.2%. I have already touched on the capital return, but I think it's relevant to mention that. How was the payback to the investors this last year? 50% was the initial payout that we gave, and then comes the buybacks. And then comes the extraordinary dividends. There has been some questions about how active is going to be the buyback program. The buyback program is active. And it's active until we go to the assembly on May to renew the buyback amount that we have. Currently, we have close to 22 billion pesos to be used as needed on the buyback. Some people have said, why haven't you been more aggressive based upon the share price? Because the world is not quiet and we like to be, as always, conservative and conservative. and ready to do whatever we need to do in order to really reflect the real price of the share in the market. Now, I would like to go first to the 2024 results on the guidance. Long growth, we promised the market 10 to 12. We reached 14%. Strong growth at the end of the year. Net interest margin, we promised at the group level 6.1 to 6.4. We reached 6.3. Net interest margin of the bank, we promised 6.3, 6.5. We reached 6.5. Recurrent expense growth, 7.4. Total expense growth, we promised the market from 13 to 14. We reached 12.5. 12.4 is below what we promised the market, but we are not comfortable with that number, and all actions have been taken in order to continue the reduction of that. Efficiency, we promised the market from 36 to 37. We reached 37. Cost of risk, 1.7 to 1.9. We end at 1.8, so we comply. Tax rate, And let me touch on the tax rate, because there was some concern that we produced a very low number compared to the usual numbers. When you look at the tax rate, you have to look at when, if you go to the first quarter, the tax rate was 30%. Why was it 30%? Because there were some provisions that we needed to do. There was some evolution coming on the inflation rate. So we basically have to look at the tax rate on an annual basis, because if you go to a quarter to quarter, many adjustments come based upon inflation, based upon many issues that come from that part. So our commitment for the tax rate was 26, from 27 to 28. 25 to 27, we end at 26. That is right on line with what we promised the market. If you see the evolution of the tax rate on a quarter to quarter basis, obviously a big drop on the fourth quarter, but a big jump on the first quarter. So when you see everything is balancing that out, we are not playing the game of adjusting the net income based on the tax rate. It's based upon the evolution of what we see on inflation, on all the issues that are needed to comply with the tax authorities. Net income, 56 to 56.8. We ended up at 56.2. If you add what we take from the buyback and from the external dividend, you see that that number was very close to the high end of the run. The return on equity, 21.5 to 22.5 for the group. We ended at 22.4. Return on equity for the bank, we promised 27.5 to 29. We ended at 29.1. And ROA for 2024 was 2.3 to 2.4. We ended at 2.3%. So we comply with every single line of the guidance that we commit the market to be. Now I will go to the guidance for the year. And just to put everything in context, if 24 was a challenging year, 25 is another challenging year, based upon many, many issues that are going in Mexico, in the US, and in the world. So based upon the information that we have right now, this is the guidance that we are committing as we speak. Loan growth, we see potential loan growth from 8% to 11%. We will attend to the double-digit growth. Net interest margin holding for the group from 6.1% to 6.4%. For the bank, 6.4% to 6.6%. Recurrent expense growth, we are lowering now to the range of 6% to 7%. Total expense growth to 9% to 10.5%. with a big effort to be on single digit numbers for the year. Efficiency from 36 to 37.5. Cost of risk 1.8 from 2%. Tax rate 26 to 28. Net income 59.6 to 62.1%. Sorry, sorry, billion, not percent, sorry. Return on equity for the group, 21.5 to 23, and return on equity for the bank from 28 to 30%, ROA from 2.2 to 2.4, with a GDP of 0.7 to 1.3, an inflation rate from 4 to 5, and Banxico, 8.5% by year-end on interest rates. If we split the loan growth, let me go on a line-by-line basis because that's an information that you always look for. Commercial will be growing 11%, consumer 11%, the mortgage group 10%, credit card 13%, car loan 16%. payroll 11%, corporate 9%, and government 7%. If you see the adjustment is basically on the corporate to see basically the evolution of how all the issues concerning trade and things coming into place in the next few days, we will have a lot more information. With this, I end. And I will also, another question that usually comes to to us that if house investment in technology, if the investment in technology continues to hold at 13.1 of total revenue, that has been the norm, and we will continue to have that investment in technology. With that, I end my participation. Thank you, Rafa.
Thank you. Now we will move to our Q&A session. As always, we can't do ask you to present only your most relevant question, and we will be happy to take any other questions anytime after the call. Questions will be ordered on a first-come, first-served basis. Please raise your hand on the platform, and we will unmute you when your turn comes. Jose Luis and myself will be calling the name of the person that is next on the line. If there are any technical difficulties, please let us know by using the chat. Thank you. We're now ready to start. We'll start with Tito Labarta from Goldman. Tito, please go ahead.
Hi. Good morning, Marcos. Thank you for the call and taking my question. Okay, there. I guess just on the guidance, because you mentioned, Rafa, you expect another challenging year in 2025. Just to think, where could you be or what would have you be more optimistic on the guidance where you reach maybe the higher end or maybe there's even upside to that? And what would make you be more pessimistic where you would be at the lower end, meaning I mean, this talks about tariffs from the U.S., you know, slowdown in Mexico, you have the reform. So just help us to contextualize the guidance with all of the uncertainties that are happening, Mexico, U.S., globally. And then I just have a second question on the capital return. Do you think this sort of 90 percent payout? in some form of dividend buybacks. Is that a consistent number that we could expect also for 2025? And what could change that either higher or lower? Thank you.
I will start for the second one. We don't want to call it consistent. It's 50% in the number that should be the normal one. And depending on what's going on and the different alternatives that we will have in the future, obviously putting risk. but we maintain the 50% payout dividend policy. And then we will see, and obviously we will do that in the best way for the investors, but we want to have some discretion there to do the best.
Talking about the number one, Rafa will start and then... Yeah, and I will jump then to Alejandro Padilla, that is our chief economist. If you ask me, that is already being contained on the guidance. If you see last year, corporate grew 24 percent, commercial grew 18 percent. We are adjusting that as we see today because it's basically a wait and see for the U.S. and for Mexico to prove more on the investment side concerning the exports. the export side, the nearshoring side on that part. So if you see where I could see a pickup on that, if we see a good evolution on the foreign direct investment that we see that the right policies coming into place, corporate could evolve. not to the 24. We are putting a nine on that, but could also move into double digit. So that would be a good pickup. And it's already adjusting on the low end. Let me say that. So I would say that a conservative view on the corporate. If you go to the government book, The government book finally started to pick up by the end of the year, and the possibility of much more aggressive policies concerning the private and public sector working together, that could also give us a pickup on the loan side, on the government book. And in addition to a lot more business that is coming with the government book, The other potential growth that we can see is we are putting the mortgage book at 10%. But based upon all the evolution that we have seen on the process that we do and the latest numbers that we close the year on the mortgage book, maybe that's the potential pickup of that to move from the 10 to 12 on that part. So We see a potential movement on the loan book, basically, potentially on the corporate, good on the government book. On the consumer, there's still resilience. The labor part of the economy continues to be quite resilient. If that continues to be the case, there's potential pick up on that. What I would like to convey to you is that we are putting This is going to be a tough one, but maybe they meet to the low end on the guidance on the loan book growth. That's what we are committing on that. That also will be compensated. When you look at the numbers on the margin, the margin is picking up also because the funding side will continue to go down. I would say there's potential pickups. The corporate The government book, the mortgage book also. I think potentially the car lending part could be a good one. The funding side will be a good story. The expenses will be a good story that we are not reflecting the fool in that because we have to execute. And that's on us on that part. So... When I say challenging, I'm not saying bad. I'm saying challenging. And challenging means executing. And I think we are very good and execute.
Great. I know that's very...
This is Alejandro Padilla, a Czech economist. Let me just quickly walk you through our forecast of 1% of GDP. The main drivers that we are considering for this year are consumption and exports. For consumption, we think that they can grow around 2% from the almost 3.5% that we observed last year. And in terms of exports, last year the contribution was less than 1%, and we think that they will increase by almost 3%. Thinking about the upside risks, I think that the upside risks are coming from investment, in which if the tariffs are delayed and President Trump starts like... the negotiations with Mexico about the USMCA in this year, and we don't have a significant increase in tariffs, then I think that we might see a positive effect in exports. Why? Because the French will try to front-load all of the inventories that they will require in the US and that will boost exports. And the second one is investment in which maybe some of the programs coming from Plan Mexico can take place. The present Shane Baum has already mentioned that she wants to put a very interesting program in which the private sector will be accompanying the government to develop the infrastructure that Mexico requires, and this can boost investment also in 2025. That, I think, could be an upside risk. And from the other side, the downside risks are coming basically from the trade policies that President Trump can implement in the next days, and also whatever that we might see in terms of the deceleration of the global economy.
Great. No, that's very clear. Thank you all for that. One quick follow-up. Rafa, you mentioned earlier that the core tier one ratio should increase in one Q. Any color as to how much it can increase?
Yeah, it will be above the 30.5. It will be coming close to the 13.6. What is important, and going back to what Marcos mentioned on the dividend policy, Barnote continues to be a very strong capital generation company. And we will continue to do that based upon the discipline that we have in the risk and how we take care of the capital. So that will allow us to see the potential evolution of, as Marcos mentioned, on how we can remunerate our investors in the best possible way.
Okay, perfect. Great. Thanks, Rafa. Thanks, everyone.
We will now go with Gustavo Schroeden from Citi. Gustavo, go ahead.
Hi, good morning, everybody. I have two questions. The first one is regarding Binel. You gave some color about the potential news in the first quarter, but I'd like to get your sense because Binel reported another loss in the quarter, something about 325 million pesos. It was 31% worse than last quarter. And it's almost 1 billion pesos losses in the year. So do you have an idea of when BNEL could reach a breakeven point to share with us? And also, how optimistic are you with BNEL and the strategy? I'm asking this because we have this experience in Brazil when we saw large banks, incumbent banks like Banorte, but here in Brazil, like Itaú and Bradesco, they had the same strategy. And then at the end of the day, they decided to unify the digital platform within the retail business. So I just wanted to understand how do you see VNEO and about the strategy going forward. And my second question is regarding the the sensitivity to interest rates, we could observe that the bank has significantly reduced the sensitivity, despite this small increase in the fourth quarter versus the third quarter. You commented a little bit during the call, but just to be clear here, what is the strategy? Is the bank planning to be neutral on rates or is just a short-term adjusting the sensitivity? How should we think on it for 2025 onwards? Thank you.
I will start for the second one. In pesos, the strategy is to be neutral the whole 2025. machinery because it's a dynamic process, but that's the strategy to be neutral. And the first one, as I said, first, there is a market of young and tech-savvy individuals looking for, as I said, convenient, simple, and reliable banking solution. As well, we need to move to the financial inclusion. So the The Veneo idea is there and so far is working according to plan, according to the business plan. But yes, we realize that we need to move faster and we realize that we need to do something specific for us and for Mexico. And that's why we will launch in this project We will move all the pieces that we have and we will come with a new piece that is going to be stronger and different. And that's all I can tell you so far. I don't know if you want to say something else, but that's the idea. And it's going to be a movement in the pieces.
I just I will add that. Banorte has evolved a lot in the digital world. As you know, the bank can manage policy and things. So it allows, based upon the learning experience that we have with the RAPI and with BINEO, we have a very clear... way to move forward in a very fast way that you will see, as Marcos mentioned, in the next investor conference that we have, you will have a very detailed plan or already executed movement toward this, I would say, potential financial inclusion and financial adherence of some people that would like to just live on the digital. I think we have all the pieces now. We have all the learning experience and we now understand what we need to do on this part in a very important way that will reduce the losses, reduce the cost, and be quite aggressive in the market in a good way, not in a sorry for the way, in a stupid way.
Yeah, no, no, I got you. And just to follow up on Binel, have you seen any different pressure from newcomers, especially digital players, that could be impacting Binel's performance? It is something related to the, I would say, potentially stronger competition from newcomers and digital players?
No, no, no. So far, we have the same permission that you have and it's not moving any faster than everybody's expecting. So no, the answer is no.
When I say the words stupid is that we don't like to compete just on price like some people are competing. And that's it. We think we have all the potential to really deliver value. for any different type of clients that like to do business with us based upon the hyper-personalization that we have. We don't like to play the game of high interest paying on the investment side and killing on the asset side, the clients, because the amount of people that are being sent to the credit bureau based upon that policy is not good for Mexico, is not good for financial inclusion, and we are not in that game.
No, super clear. Thank you very much and congrats for another great year. Thank you. Thank you, Gustavo.
Thank you. Now we will continue with Eric Ito from Bradesco. Eric, please go ahead.
Hi, Marcos, Rafa and Tomas. Thank you for the opportunity of asking questions. I have two here from my side as well. The first one is regarding the guidance for 2025 on your NIM. You have a guidance of 6.1 to 6.4 and you will finish the year at 6.3%. So I just want to understand what would be the reason that could make you reach the low end of the guidance for 2025. Because when we look at the performance, you have a broadly neutral sensitivity to interest rates. And then when you commented about loan growth between the lines, we still feel faster acceleration on credit cards and auto loans compared to the portfolio. And I think funding continues to be strong. So what would make you reach the lowest end of the guidance for NIMS? And then my second question is regarding cost of risk. I think you increased the expectations to 1.8 to 2%. So I just want to understand, just want to confirm if that's basically because of the higher loan origination or are you seeing any deterioration on the portfolio for 2025? Thank you.
Regarding the first one, you have two names. The first one that includes annuities, and you are right, is between 6.1 and 6.4. But the name for the bank, which is the second that we gave, is between 6.4 and 6.6. That's why, you know, that's explanation of why it's lower, because the annuities is there. And talking about the second, the cost of risk, Dr. Salazar is going to answer that.
Yeah, but I will say a risk at this time, Eric, is that if we move to a proactive risk management practice in consumer lending, we think this growth into higher margin part of the loan book will contribute to interest rate margins, but also it will increase provisions. Provisions are going to increase in 2025 due to no problems in asset quality. What I will tell you is that what we are foreseeing is that we are going to perform in 2025 with a strong loan growth leading to front-loaded provisions, and such increase will not mean materialization of loan defaults. And also, as loans season and perform well, provision may normalize, bringing cost of risk down again. I think we're going to see that throughout the year. But initially, the guidance that you just saw between 1.8% to 2% is the reasonable thing to do in order for us to be sure that we are ensuring provisions aligned with real and observable credit risks. That's more or less the thing or the factor regarding cost of risk looking forward to 2025. Thank you, Marcelo.
Thank you, very clear.
Thank you, Eric. We will now go with Ricardo Buchbichel from BTG. Go ahead, Ricardo.
Hi, everyone, and thank you for the opportunity of making questions. I have two here on my side. So, for follow-up on the discussion we had on long growth, so if you could talk about how much of Banarge portfolio is connected to sectors that are highly dependent on exports to the US and And then it would be negatively impacted by the increase in tariffs. And for my second question, if you could also provide more color on what has been driving this growth of non-interest-bearing deposits that has been helping to reduce the cost of funding in Q4 and what we should expect for 2025, right? If, for instance, a competition with new competitors could eventually pressure a little bit the cost of funding or the idea is to have the same kind of a, policies in terms of pricing and mainly having some fluctuation depending on the mix on interest bearing and non-interest bearing deposits. Thank you.
The first one is around 4.1. We want to elaborate, but it's around that. And the second one, Rafa, please go ahead.
No, I think when you talk about the second one, I think Banorte has never competed in a way. If you look at the overall information that the CNBB provides, you know that you can see the implicit rate that Banorte charged on the books. You will see that Banorte is always on the mid to the low end of the pricing issue. But when you look at the MPLs that Boots provides, we always are at the really low, low end. So that combination of really low cost of risk with a very sensible pricing on the market that usually is on the mid to the low end, allow us to have on a risk adjusted basis a pretty sound numbers coming into the income statement. So when you say that that's the way we do compete, we don't chase the market. We don't go on a price, raising the price to try to kill the risk in a way that could eventually provide for the provision. No, we are very disciplined on how we do compete in the market. If we like the risk, we like to be aggressive on the price. If we don't like the risk, we don't even touch the client. And that's what provides us in a very sensible risk adjusted margin that is evolving every single day. And so I would say that's the way Banorte competes. It's not that we chase the market and we play the game of high rates in order to compensate the losses. No, no, no, no, no. We don't do that. We have been doing that for the last five years, and we will continue to be very, very disciplined on that. Thank you, Rafa.
And Ricardo, just on the first point, the 4% is to total exports to U.S. is around three-quarters of that, so around 3% of the book only. Exactly. Thank you.
Very clear. Thank you.
Thank you. Now we'll continue with Ernesto Gabilondo from Bank of America. Ernesto, please go ahead.
Thank you, Tomas. Good morning, Marcos and Rafa. Good morning to all your team and everybody. And thanks for the opportunity to ask questions. So my first question will be on Europex growth. You have been opening branches, hiring commercial bankers to benefit eventually from the near sharing opportunities. However, given the noise that could take place during the Trump's administration, the massive deportations, is management evaluating to put on hold maybe some of these hiring of commercial bankers, opening new branches, or maybe delaying some technology investments, I don't know, in Rappi or in other platforms? because we have seen that OPEX has been growing at a double-digit pace in the last couple of years. So I'm just wondering, when do you expect OPEX growth to be again in line with inflation or modestly above inflation? And then for my second question, President Sheinbaum has been saying in several occasions Her willingness to work more closely with the private sector to be more open in renewable energy and in creating public-private associations. So can you give us, if you already have visibility on this, is this already happening? Thank you.
The first one, no, we're not going back. We will continue with the investments. We know what happened in Trump 1.0. We expect Trump 2.0, at least at the beginning, that is going to be uh some kind of the same so uh obviously we will be very cautious and that doesn't mean that we can change if something happened but so far the idea right now is is to go ahead and and to compete and and to uh and to uh be there with the market and and And we are willing to take a little bit more of a piece of the market in the future. So we will be very competitive and we will be fighting with other banks and we will be investing. And it's going to be around, I think, a little bit above the inflation rate. the expenses that we are putting on that. And the second point, yes, we have been in meetings with this Mexico plan, and we are with a lot of investors, potential investors, the usual ones in Mexico, and we are working with them. So we see a pipeline there and we will go for it. So yes, something is coming there and we need something to materialize, but we see some future there. I don't know. It's not true.
Thank you Ernesto, thank you Marcos. Well, I think that we have to take into account that the government will try to implement an important effort of fiscal consolidation in 2025. And they will not have enough money to continue with some infrastructure projects that they require. So that's why they have been opening the space for the private sector to jump in and do some public and private associations to deploy that infrastructure. Indeed, when President Sheinbaum released the Plan Mexico, well, she said that this plan was a pillar of the entire national development plan, and within those areas, There are some actions that they already mentioned that will take place between January and April of this year. For example, the relocation decree for accelerated depreciation of new investment. They will try to launch the development bank fund for SMEs as well. They will try to pursue mixed investment schemes for infrastructure projects in which the private sector will take an important role. They will try to tender in 2025 projects that will require at least 100 billion of private investment. And indeed, this morning in her daily conference call, she mentioned that next week they will release some of the details within the energy plan. And she's willing to open for the private sector to be part of this development of infrastructure. So, so far, that's what we have, Ernesto.
No, thank you very much.
So, let me just guide you through the way we have been investing. The most of the of the bankers were done last year. OK, so that that investment is already in place. It's already been quite productive. The new ones will be basically related to new SME, a specific number of bankers that could reach around 100 bankers more because we continue to see good demand on SME. If you go to the recurring expenses, and this is very important, please, recurring expenses for the bank is already at 7.4%. That is basically inflation plus the way we would like to see. The additional 5.9% that we have is coming from Tarjeta Futuro and Bineo. Obviously, now that we have been learning a lot and we have been developing most of and deploying most of the issues, we can also go aggressive on the cost side on that part. The idea for this year is to be single digit on expense growth. It's not going to be above inflation like we usually are, 150 basis points above inflation. but we will be on single digit this year. And then next year, we will be very close to inflation for 150 based on that. Why we continue to open some branches? Because believe me, Our friends of BBVA continue to be very aggressive on the market, and we see potential business to be done. If we see demand, we will cover that demand. If we don't see demand, we will not wait for the demand to happen. jump into the market if we see the demand already there. And we can deploy pretty fast the resources to touch the demand because of all the analytics and digital that we have. So that's the story of the expense. We are not happy with expense line, and we are working hard in order to reduce expense line to single digit and then back again on 26 to inflation for 150 basis. We will continue with the shared services.
benefited, but we will talk there.
Oh, super helpful, Rafa and Marcos. Just to follow up in terms of long road expectations, so if we really see these public-private associations and this pipeline, maybe we have room to have the double-digit long road in this year. Is that the assumption correct?
Yes, yeah, correct. And this is going to be in the second semester, yes.
Okay, perfect. Thank you very much.
Thank you. We will now go with Yuri from JP Morgan. Go ahead, Yuri Fernandez.
Thank you, Rafa, Marcos, Tomás, everyone. I have a more balanced sheet question here. Maybe Rafa can help me. We noted some OCI changes and some changes for your health to maturity portfolio, especially on the banking unit. And I think in the presentation, Rafa, you mentioned some 60 bps capital headwind from health maturity unrealized losses. So just trying to understand the moving parts here, what is driving the OCI? And I think there was also a line of defined employee benefits, hurting a little bit the shareholders' equity. Is this the facts? Is this rates? Like just trying to understand, because this was a quarter that this was a a negative hit, but trying to understand when should we see, you know, like this, this part of your act to recovering at some point, just trying to understand like the moving parts on the capital. Thank you.
I can chip in. Remember that with IFRS, we needed to add the comprehensive net income line. So remember you have three categories for the instruments. The first one that goes against the results. The second one that the valuation goes against the capital. This is the one that is affecting that line. So basically with the rates moving up as it happened in the last weeks of the year, you had a negative impact that doesn't go to the P&L, it goes to the capital. And thirdly, you have the instruments that are to maturity and they go directly to the capital. Those are the 50 basis points you mentioned.
Okay. So basically, and regarding the how to maturity, was there was a higher growth on how to maturity this quarter?
No, I think it was a valuation effect, basically. So in the three lines, you had a negative, let me not pull it like that, because of the increase in rates. One that affected the P&L, one that affected the comprehensive income, and one that affected the capital. If rates go down, then you will see the opposite next quarter.
Thank you. And just a final one on loan growth. I think it was a good quarter and a good guidance for the year. You know, like high single digits, low teens is pretty good for Latam nowadays. But we also see FX loans growing a little bit faster than local currency loans. And I think you mentioned like loans to exporters. They are some 3% to 4% of total loans. when we go to foreign currency loans, we get to a number closer to 15%, 16%. Who else are you lending in US dollars? What are the industries, orders, and exporters? I would assume you are only lending to companies with revenues in dollars, but just trying to understand who else are within this segment of FX loans.
Thank you.
Thank you. What I will tell you is that if you look at our credit portfolio, we do dollar loans or loans denominated in U.S. currency in some other parts of the economy, one of them being tourism. Tourism activities like hospitalities, like any kind related to that supply chain, it is related to dollars. And you're right. Your assumption is right. We don't lend dollars to non-income generating entities. So that's as far as we go. If you look at some other contracts, real estate contracts are mainly U.S. denominated contracts. So if you look at two sectors of the economy, they are not export-related sectors, but you can lend them dollars with no FX risk. involved in that type of loan origination.
No, it's perfect and clear. Thank you very much and congrats for another good year.
Thank you. Thank you, Yuri.
Thank you. Now we'll continue with Carlos Gomez from HSBC. Carlos, please go ahead.
I'm not hearing you.
Yeah, sorry. I'm muted. Thank you so much. And thank you for the results and taking the question. A very specific question on the auto loan segment is growing now 25%. But even for the sector as a whole, it's growing more than 20%. Is that something that at some point starts to worry you or you still see room for further expansion? And a tiny little one on the dividend, you are going to pay the 50% very well. Since you intend to keep the capital between 13 and 13.5% and you're already there, I mean, when I do numbers, I don't get that you can pay much more than 60% next year, either through buybacks or through extraordinary dividends. Am I doing something wrong or do you think that the range is higher than that? Thank you.
The first one, remember, is a mathematical thing. We didn't have cars two years ago, so that's why the growing was too fast, no? So now to normalize a part. Please, doctor.
Yeah, please, Carlos Salazar, Chief Risk and Credit Officer of the Financial Group. I will tell you that in the case of cars, Carlos, the total portfolio for the quarter indeed was up 6.8% quarter over quarter. and an outstanding 24.9% year-over-year. That's a very high growth, being once again the product with the strongest growth. As Van Orte partnerships with some other brands, we remained with solid alliances today, accounting with nearly 20% of total origination. But on the same note, contributing with portfolio expansion is a role out of the internal model update, which boosted approval rates, enhancing origination, and regarding asset quality, which is your main concern, within the auto loan book is the strongest among retail products and the best in the industry. posting an impressive 0.55% level in past two loans, flat quarter over quarter, and improving seven basis points year over year. Going forward, we will continue to focus on our commercial alliances, campaigns, as well as pre-authorized credits, and we believe the strong asset quality will prevail given the rollout of the new origination strategy. We remain very confident in this part of the loan book.
Let me push back a little bit because you have changed your model, you have boosted originations just as the sector as a whole is growing. Because it's not only you, I think, when we look at the aggregate numbers, we also see growth more than 20%. When do you think the cycle will turn and do you think you'll be able to turn in time?
Yeah, I will emphasize, Carlos, that this was a mere calibration of the model. That's not a structural change within the loan origination scores that we have within this loan segment. And that's very important. Regarding managing the cycle, eventually we are very keen looking for early warning signs in order for us to adjust the loan portfolio origination strategy, playing with some debt-to-income ratios scores in order to accrue the loans and so forth. But regarding 2025, I think this sector is going to keep growing as we have seen it in the last years.
Remember, Carlos, that the Chinese manufacturing companies have been very aggressive and are creating a market that is lowering the price in the market for the benefit of the consumer. So we are reducing the pace of growth of the car loan books, not because we don't see the market, because we like to see if this is permanent, you know, if this is really ongoing. That's why we are being, in a way, conservative on the pace of growth. But I mean, we have expedited our process to give loans on the car loan market in a very efficient way. I mean, our process on the digital side is also very, very strong. So it's a lot of things together. It's the origination, it's the process, it's the market, it's the alliances, it's the competition that is lowering the prices. A lot of good things are happening in the car market. So the clients are getting advantage of that and we are getting advantage of those clients. And as Gerardo mentioned, since we have the lowest MPL in the market, we can also be some kind of aggressive on the price if we like to risk on the clients and we are getting pretty good clients coming into us.
Talking about the dividend, the ordinary 50%. We may have a little bit of room because, you know, we have the subsidiaries. They are pumping up the dividends to the financial group. So we may have something. But the idea is we have a policy of 50% and then we will decide what's best for you guys, for investors.
And Carlos, just one comment. On page 24 of the report, we made a disclosure that on December 27, we upstream 11 billion additional from the bank to the group that is already embedded in the capital numbers that you mentioned. So at the group, as you can see in the balance sheet, we have around 16 billion pesos that has been already streamed from the subsidiaries, including the bank.
Yeah, the 13.2 is really after that we put the money up to the group. uh and when we talking about going up again uh very close to the 14 14.1 14.2 please take into account that we already found a lot that evidence to the group on that part okay that's clear thank you so much thank you the next question is from andres soto from santander go ahead andres
Good morning to all, and thank you for the opportunity to ask questions. My question is regarding potential M&A opportunities. Two years ago, we were discussing the possibility of you guys taking part in the Monomix transaction. That transaction is apparently going through an IPO, and we don't know yet about timing, but It looks challenging, to say the least, that they can get that money through an IPO. So I imagine that an anchor investor will be needed. The question will be, are you willing to be that anchor investor? And same question for HSBC, which is also reorganizing its international operations and they are thinking about exiting all the retail markets where Mexico is one of the biggest operations in their non-core markets. So will you be also interested in taking part in a potential transaction to acquire HSBC retail operations?
Thank you, Andrés. It will sound like always, but it's our duty to see what's in the market and to see all the scope and to see all the opportunities and then bring it to the assembly and then to the side with the investors if they want to do it or not. But our duty is just to see what's going in the market and to see all the opportunities and to measure all that and to see if... It's a good fit for us or not. Sorry, but that's the idea.
Fair enough, Marcos. Thank you.
Thank you, Andres. Thank you. Now we'll continue with Renato Meloni from Autonomous. Renato, please go ahead.
Hi, everyone. Thanks here for the questions. I have two on the guidance. So first on the bank NIM, I'm just thinking here, what's your assumption for cost of funding to get to these numbers? And in that sense, do you expect to continue growing your non-interest bearing deposits at the same rate? as your loan book. And secondly, here is on cost of risk. So there is an implied increasing cost of risk here. So I'm wondering if this embeds some deterioration in asset quality or if that's something else.
Thank you. Yeah, thank you, Bernardo. As of the full year, cost of funds we're assuming is to get to around 44, 45 of to get to that level. As of the growth in the deposits, I would tend to think similar trends to what you have seen in the last quarter. Rafael, I don't know if you want to.
No, I think, as you saw, the pace of growth of deposits on the funding side was very rich. And also, the cost was where we want it to be. As Thomas says, we will be from the 44-45 to reach the number that we'd like to see. But, I mean, when you look at the asset side that we have on the fixed rate part of the group and the funding rates going down, that's also what is sustaining the margin, plus the evolution of assets. a pretty good growth also on the variable rate part with a good funding. I mean, the most important thing for Banote was to break the cycle of growing funding costs because of a very high demand on the asset side. Now we are able to match that almost one-to-one. So we can lower the funding costs and at the same time grow the asset side in a very important way.
Thank you, Rafa. I'm thinking on cost of risk.
Cost of risk will continue 1.8 to 2%, as we mentioned. So consumer will continue to evolve, but nothing on the horizon that shows bad, bad, bad, bad lots coming into the book.
Maybe Rafa can talk about that. It's more a matter of mix than that's causing the increase.
Yeah, Renato, you're right. The mix explains everything. It is good recent provisioning going forward. You are projecting riskier segments, but higher yielding segments. And those are provision-intensive segments. loan segments. So they will require more provisioning and eventually they will contribute to higher interest margins at the same time. So this kind of provisioning and cost of risk increasing is explained by good reasons. We are not seeing any threat, any problem going forward.
That's clear. Thank you very much. Thank you, Renato.
And the last question comes from Edson Murguia from Sumacap. Go ahead, Edson.
Hi, good morning. Thank you for taking my questions. I have two of them. The first one is related to Banorte Conmigo, which is the new credit card. I was trying to understand the value proposition because you mentioned in their initial release that it's a low-income segment product. But low-income segment products are expensive. related to high risk. So I'm trying to figure out what is the rationale behind this. And my second question is related to the AI investment. You mentioned, Rafa, that 31% of the total revenue is invested in technology. So I was wondering, how much money are you investing only in artificial intelligence? Thank you.
Yeah, the first one is, you will see pretty soon an important launch on that. Sorry, but I would not like to disclose the The strategy of that product, because it's going to be a very revolutionary product that could be balancing out the more risky part of the customer base with a product that is perfectly aligned in a way that we can develop those clients in the risk cycle. So sorry, but you have to wait for a month until we see the big launch of the product. The second one that you mentioned was basically related. The problem is if I try to quantify AI technology developed, I mean, in every single of the new issues that we do in analytics, AI is a way of life. Machine learning, the same. In economics, the same. It's already put in place on that. everything related, like for instance, there's a big push in technology that all the knowledge that the technology has, the people in technology in developing new architecture and developing new softwares and things is being integrated into a huge customer base that the AI, the generative AI and the agents could eventually substitute much more of the interaction when you are trying to design a product based upon what you have already embedded in the knowledge of the technology. That's a big push on that. The avatar that we have is fully loaded with artificial intelligence. RISC is also using a lot in that part. So it's all over the place. The way we operate technology, a lot of AI is embedded in the way we operate technology, in the way you detect risk, cyber attacks, and many of those things. So it's going to be difficult because it's already part of the development of any software that we do on that part. So I would say that it's already a way of life in Banorte AI. That's what I would say.
Okay, thank you so much and congrats for a fantastic 2024.
Thank you, thank you. Thank you. With this, we conclude our presentation. Thank you very much for the interesting manner. Goodbye.