Grupo Financiero Banorte (GFNORTEO.MX), one of Mexico's largest financial groups, reported a robust first quarter with a 9% increase in net income and a 134 basis point improvement in return on equity (ROE). The bank's management discussed the positive momentum of the Mexican economy, driven by domestic demand, and a moderate inflation climate that allowed for a recent rate cut by the central bank.
Despite global uncertainties, including upcoming elections in Mexico and the US, Banorte sees a strong Mexican peso in the first half of the year, although it anticipates potential volatility around the US elections. The bank's newly launched digital bank, Bineo, is in its initial phase and is expected to contribute to the bank's growth with innovative financial products in the latter half of the year.
Key Takeaways
- Banorte projects a 2.4% GDP growth for Mexico in 2023, with stronger performance in the first half.
- A 25 basis point rate cut by the Mexican central bank in March reflects a moderately calm inflation environment.
- The bank's net income and ROE saw significant sequential increases, with loan portfolios growing in double digits.
- Bineo, Banorte's digital bank, is in the early stages, focusing on customer behavior and platform optimization.
- Banorte's insurance business experienced strong growth, and the bank continues to invest in technology and AI.
Company Outlook
- Banorte expects a 20-25% increase in net income by year-end, driven by credit portfolio growth, especially in retail.
- The bank's sustainable bond issuance and increased environmental and social disclosures reflect its commitment to sustainability.
- Executives maintain a positive outlook for the insurance business, with anticipated growth through cross-selling with credit products.
Bearish Highlights
- The strong Mexican peso has negatively impacted the balance sheet.
- High charge-offs in the Rappi business were necessary for portfolio cleaning and additional provisions.
Bullish Highlights
- Asset quality is improving, with non-performing loans (NPLs) slightly better at 0.93%.
- The insurance business is expected to improve its total contribution in 2024 compared to 2023.
Misses
- Despite controlled expenses and a cost-income ratio below 34%, the margin was affected by loan book growth and funding costs.
Q&A Highlights
- Banorte is considering the issuance of AT1 or Tier 2 bonds, with a disciplined approach to funding needs.
- The bank expects its tax burden to normalize over the year after facing a higher tax rate in the current quarter.
- Bineo and Rappi are seen as strategic initiatives to grow the consumer base, with Bineo expected to have half a million clients by year-end.
Banorte's executives remain focused on maintaining a balanced universal bank, with Bineo and Rappi expected to accelerate consumer growth. The bank's strong analytical base and investment in technology, including AI, are seen as key drivers for future success across all sectors, including corporate, commercial, SME, and consumer banking.
Full transcript - None (GBOOF) Q1 2024:
Operator: Good morning. I'm Tomas Lozano, Head of Corporate Development, Investor Relations and ESG. Welcome to Grupo Financiero Banorte First Quarter Earnings Call. I would like to start by thanking our investors for their feedback throughout the year, which has helped us to consistently improve our recently launched 2023 annual report. This year we added a supporting document which will help you to measure the Group's progress across the main financial and non-financial indicators. We will begin today's presentation with our CEO, Marcos Ramirez, who will provide a brief context of the macroeconomic environment that contributed to the results of the quarter, followed by the main results of the bank and the subsidiaries, including Rappi and [Bineo] (ph), ending with an update on sustainability. Then Rafael Arana, our COO, will provide details on the NIM evolution, the continued efforts to reduce balance sheet sensitivity, as well as a positive result regarding asset quality and efficiency for the group, among other relevant updates. 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 2 of our conference call deck, you will find our full disclaimer regarding forward-looking statements. Thank you. Marcos, please go ahead.
Marcos Ramirez: Thank you, Tomas. Good morning and thank you for joining us today. The first quarter of the year evolved with good overall dynamics in our core businesses and solid performance across all the subsidiaries. Well within the guidance ranges that we announced at the beginning of the deal. Despite a more cautious business environment brought by the electoral periods in Mexico and the US, we see a good economic momentum driven by domestic demand. Investments are still supported by ongoing government spending and private investment related to mutual, whereas high-frequency data for private consumption show a dynamic economy in the first quarter of the year, supported by remittances still at historical highs, better employment figures, and a dynamic lending activity. Under these conditions, we hold a positive view of the Mexican economy, maintaining our GDP growth expectation for the year at 2.4%, with a stronger first half of the year followed by a softer second semester with some headwinds, such as lower government spending and potentially weaker external demand from a deceleration in the global economy. Annual headline inflation continues to show a moderately climate, despite a still challenging price output. Our year end forecast for inflation stands at 4.3%, still far from the Central Bank's target of 3%. So we expect tight monetary conditions for the rest of 2024. As widely anticipated, the Mexican Central Bank carried out its first 25 [indiscernible] rate cut in March, reaching 11%. We anticipate a pause in rate cuts in the following meeting, resuming with more traction towards the second half of 2024. However, given the Fed's less obstructive narrative and the foreign dynamics of inflation, we are increasing our [indiscernible] reference rate expectation to 10% before we have 9.25%. Regarding the Mexican peso, it is expected to remain strong, at least in the first half of 2024, followed by some volatility as we approach the U.S. election in November, reaching close to MXN17.7 per $1 by year end. Moving to the business operations, Slide number 3, metrics evolved in line with our expectation for the quarter. Our balance sheet sensitivity continues its downward trend, reaching MXN375 million in NII reduction for every 100 basis point change in the reference rate, down from MXN582 million last quarter. Net fees show a positive evolution driven by an expanding loan portfolio and a strong internal demand, despite the higher seasonal activity during the fourth quarter. Asset quality is consistently evolving ahead of expectations and internal capital generations remains strong, ending the quarter at 21.3%. Profitability, Slide number 4, shows a solid 9% sequential increase in the net income, amounting to MXN14.2 billion. ROE improved 134 basis points in the quarter, driven by solid performance across most business aligns, especially the insurance company which had its seasonal treatment renewals during the quarter, also reporting a strong return on assets evolution. Analyzing the quarterly results by subsidiary, Slide number 5, we see a solid 26.4% ROE for the bank, despite some seasonal headwinds which were offset by lower expenses in the quarter. The insurance company had some business fundamentals along the positive effect of seasonal premiums renewals during the first quarter of the year. The annuities business decreased in the quarter given higher technical reserves. As for the Afore, the sequential decline is sustained by lower yield on financial products. Loan portfolios, Slide number 6, continues to accelerate with basically focused on asset quality and a diligent balance of lending activity with funding costs. Loan expansion displayed double digital annual growth across most of the portfolios. Corporate and commercial loans continue to benefit our near-shoring gradual materialization. Driving loan demand for small and mid-sized enterprises. Nevertheless, FX variations have impacted the dollar loan book, currently representing around 12% of our loan total portfolio. The [indiscernible] book displayed a mild reduction in the year, and we are anticipating this portfolio to remain flat for the remainder of 2024. The consumer book on Slide number 7 remains the fastest growing segment within our portfolio, reflecting our strategic approach to optimize the customer lifetime value of high value customers. The year-over-year evolution of heavy cars has been driven by good consumption dynamics and further boosted by the adoption of our self-service offerings despite being sequentially affected by seasonal factors in transaction volumes. Payroll loans are performing as expected, with a more prudent approach as we get closer to a new government administration. Lastly, our loans continue to benefit from our commercial alliances with different dealerships and positive dynamics in the sector overall. Slide number 8. As I have mentioned before, asset quality continues to perform ahead of our expectations, with NPLs slightly improving to 93% in the quarter, despite higher growth in our consumer and commercial books. This is the result of an intensified risk-oriented origination process that started in the second half of 2023 and continues as our top priority. The quarter increase in the cost of risk is a natural result of origination volume and mix, together with the normalization effect from the reserves released from last quarter, as well as the incorporation of Tarjetas del Futuro, which is Rappi, into our credit card portfolio as the intrinsic risk of this product naturally requires higher reserves. On a separate note, I would like to comment on how Banorte is dealing with customer centricity and customer metrics. Our main difference is our culture. We have over 2,000 working sales, which warrant that whenever we acknowledge that our service or products are not complying with our customer's expectations or that one of our competitors is doing something better than us, we can quickly react, adapt and execute. This is not only reflected in our overall NPS, but on the performance of our channel which continues to have an upward trend. Before moving into a group operation with Rafael Arana, let me give you an update on the first two months of operation of Bineo, our newly launched digital bank. During this period, we have been working on their, what you could call friends and family in the upper market mode, focusing or learning more about our customers' behavior and profiles, fine-tuning our platform, launching new and improved versions of our app, and stabilizing our production environments as we gradually gain scale. We are working on our product and service deployment strategy for the second half of the year. We expect to bring to the market a rapid rollout of innovative financial products and services and fulfill our aspiration of providing a comprehensive value proposition. A one-stop shop for all our clients' financial needs, including loans, insurance, and wealth management products to improve their safety and financial well-being, among others. During this initial phase, it has been of utmost importance to guarantee the best experience for our customers, taking careful and quick corrective actions before embarking on significant clients acquisition costs when we launch our full product offering. Soon we will be shifting our brand campaigns from building awareness to building scale and attracting new customers. Let's recall that we want to deliver on our promise of being profitable within the first three operating years and that requires discipline since day number one. Regarding Rappi evolution, we are now operating with the proper risk metrics in place. We are taking us into our desired -- taking us to the desired direction. We are presenting positive unit economics and are getting closer to breakeven within the following months. Rafael will go into more detail later in this presentation. Finally, on the sustainability front, we are happy to announce the successful issuance of our first sustainable bond in February, a relevant milestone for the bank, which will fund important green and social projects for many of our clients. Moreover, at the end of March, we published our 2023 integrated annual report, which showcases the result of our medium-term strategic plan. And thanks to valuable feedback from our investors and other stakeholders, we incorporate more disclosure regarding environmental, social, and diversity metrics, to name a few. This time, we also publish a historical database that will help measure progress across our main financial and non-financial indicators. Now I will leave you with Rafael Arana who will walk you through our main financial indicators for the quarter, [indiscernible] in our balance sheet sensitivity reduction and next steps for our digital study for Banorte, Bineo and Rappi.
Rafael Arana: Thank you very much. Good morning to all. As Marcos mentioned, the first quarter started with good momentum. We really anticipated the beginning, a slow beginning of the year. I think we were quite surprised by continuous strong momentum in most of the business of the group. And I would like to go in more detail in that. As you can see on the slide, the return on equity of the group continues to grow on a very strong pace, 134 basis points quarter-on-quarter. Now we are reaching above our initial guidance that was close to 22, we are at 22.2. On the bank, even though you see a reduction on a quarter-to-quarter 7 basis points continues to be very strong. And this is also due because of the buildup of the capital at the bank, but has been as always at a very, very strong pace. I will go into more detail on the transformation of Banorte, because, as we have met with many of you, you were concerned about what was the strategy of Banorte if Banorte was not taken into consideration the evolution of the new fintechs or new banks that come into the marketplace. And you will see that Banorte was very serious addressing that issue since 2018. I will be going into much more detail in a minute. The net interest margin of the group continues to grow to 6.5%, 1 basis point on a quarter-to-quarter basis, and the bank is 6.4%. You see a reduction on our quarterly basis. That's on two things, you see a very large inflow in the fourth quarter of very low cost demand deposit that really help us to boost the margin up. Now that we enter the normal cycle of the year, as you know, the first three months of the year, usually we see an outflow of those big inflow of deposits that come on at the end of the year. But you will see in a minute in a graph that we are really starting now to push the cost of funds slowly but surely to the desired numbers that we would like to develop. You remember that by the end of the year, we have a strong reduction on the funding cost that really pushed the margin for the bank up. Now you see that margin was, I would say, affected by this additional growth on the loan book and also the funding cost that usually grows in the first three months of the year. I will go in detail in a moment. Expenses, we advise you that expenses was going to be a very important point of control for us, cost income ratio is below 34, it's 33.99, 49 basis points compared to on a year-to-year basis. Even you remember that we anticipate an important part of expenses in the HR side and also in the amortization and depreciation for the group at the end of the last year, but also the evolution of our shared service and centralized operations initiative is already bringing good results on this. So I think the first part of the year, the first quarter of the year was also benefited by a strong insurance growth. As you see that usually the evolution on the first quarter of the year, the insurance business basically booked most of the premiums for the years and then they go through the years. This year there's a difference on also why the number is so -- I would say, it's a normal number because last year we split the first quarter with the two quarter, the big volume of the high premiums that we booked through the years. This year is a normalization of that. That moves everything to the first quarter. So that shows you a very big, I would say, jump on the revenues of the insurance business. But it's fair to say that the insurance business is in full recovery, growing, and at very good pace, and also looking at a lot of initiatives to keep increasing and growing the business. So capital continues to be, as we mentioned, at a fast paced on the growth side. The total capital of the deposit ratio is 21.3% and the Core Tier 1 is 15.5%. This has to do also with the slight reduction that you have saw on the return on equity of the bank based upon the [indiscernible] capital at the bank level. If I now move to the NII, Net Interest and Non-Interest Income growth. NII on a quarter-to-quarter basis grew 2% and 10% on a year-to-year basis. If we go just only for the loan deposits growth, it was 1% growth on a quarter-to-quarter basis. This is also important because we are facing, as we have mentioned to many of you, an equilibrium with the funding costs and the pace of growth on the asset side. So I think we are reaching that point where we can continue to grow the loan book with a very, I would say, not conservative with the word, but very aligned funding cost with the asset growth. So NII continues to expand, also the loans to deposit at a lower pace. And this also has to do that 82% of the loan book on the commercial and corporate side isn't a variable rate part. So since the rate has paused for many months now, the variable rate part of the book has stayed put. And the fixed rate part of the book just barely are getting there. The last reduction on the rates to 25 basis points that would be fully addressed in the second quarter. So I think to have an expansion on the NII based upon those considerations, I think is positive for us on that part. If I move now to the core banking fees that Marcos also mentioned, the bank continues to be at a very active pace on all that is related to services and fees, opening of accounts, the opening of accounts has accelerated in a very important way in the digital channels and also in the branches, in the physical channels. As you know, the balances coming from the branches are a much higher number than the ones that are coming from the digital, but the digital is allowing us to also incorporate clients that in the past was difficult for the bank to address those clients because of the profitability that was needed for us to really address those clients. So core banking fees continue to be a good story, 14% year-on-year, Mobile, POS, merchant business, everything at the bank level, is actively transactional banking, cash management, everything related to the commercial corporate government is providing a continuous source of growth for the net fees. If I now move to a specific metrics there of Banorte. Banorte net income grew 2% quarter-on-quarter and on a year-to-year basis also 2%. The return on equity is 26.4%, as I told you before, and the ROA is at 2.4%. The net income of the bank, as I mentioned, reached the MXN10.47 billion. And we see a steady numbers coming to the ROA and the return on equity of the bank as the bank starts to move also part of the capital to the group in order to prepare for the dividend outflow, you will continue to see the group on the return on the bank aligned with an increased profitability of the operation of the bank. We already addressed a part of the NIM, that 6.4%. The 6.4%, as you know, we are basically facing not a liquidity issue in the market because we have enough liquidity, but the funding costs continues to be there. And since the fact of the variable rate part of the group and the very important growth that we have on the fixed rate part of the group to prepare the balance sheet for the downward trend on the rates is taking us around the 6.4%, that is perfectly aligned of what we guide you at the beginning of the year. And we continue to see a slight evolution on the funding costs that will continue through the year. And that will allow us to keep the margin on the numbers that we [indiscernible] at the beginning of the year. So the name is in the right pace. Fees are growing nicely on that part. NII, helped also by the insurance business, is giving us a pretty good start of the year. If I move now to the next one, I think we need to try to explain what is going on on the funding costs. The funding costs, as you see, have dropped at the end of the year. There was a large inflow that basically comes with the bonuses that has to be paid for the payrolls that we serve. But the important thing is that the slight reduction that you see on the 47.9%, that is really now trending in the right direction after the seasonality of the margin flow of the demand deposits. But also it's important to notice that the high cost of funds diminish from MXN158 million in the fourth quarter of 2023 to MXN153 million in the first quarter of 2024. And you will continue to see that evolution of really releasing the high cost fund that we needed to support [indiscernible] of the balance sheet last year. If I now move to the asset quality, and I think that we'll start to also make the separation of what's the normal trend with the bank and what's the incorporation of Rappi that we now to control in the month of November. Really the cost of risk continued to be very solid, very, very solid numbers. As you can see, the cost of risk was 1.84% at the end of the first quarter of 2024. But if you take away the target of Banorte, that is Rappi, is really 1.71%. That is a very, very strong number. And you see how steady that evolution on the cost of risk is. That doesn't mean that Rappi is not being addressed now fully that we have control of the operation to change all the necessary measures to continue to lower the cost of risk. If you see the NPLs of Rappu, it's around 4.8%, the cost of -- the NPLs of Rappi. The cost of risk continues to be high, and we need to trend that funding cost to a number very close to the 12%. Right now what you see is a very accelerated write-off in order to clean up the book. That was part of why we took control of that because we consider that we have a very reasonable market fit with the clients that we would like to put on the book. So now we know how to grow in that business, how to make that business great given, as Marcos mentioned, in the following months and what's the potential size of the business in order for us to address that market that is completely different from the market that usually Banorte serves. If I move to the write-off rate, you see the write-off rate steady at 0.45% if we take away Tarjetas del Futuro. So we continue to see very good numbers, as Marcos mentioned, an NPL that is below 1%, 0.9%. And if you take away Tarjetas del Futuro below 9%. So we continue to see very solid numbers coming from the risk portfolio. And that has to do with the strategy that we really like to keep the health of the book as we have been keeping for the last years. As we mentioned, we are not chasing market share. Last year, we outpaced the market in most of the products on a year-to-year basis, but at the same time, we were able to do so with very, very strong risk norms. And that's the way we will continue to grow. If we like the risk, we will grow. If we don't like the risk, we will not address the growth on that part. That has been positive for Banorte for many years and has to do a lot of how the risk unit works with the commercial units and with the recovery [indiscernible]. So now if I move, some of you have some questions about the net interest income evolution and how we prepare the balance sheet on this part. Now the balance sheet, we have a graph that shows the local sensitivity against the NII on pesos and the dollar book. You see that for the group, the sensitivity has gone down to 0.2%, 0.3% for the bank, coming down from 0.7%. And you can see that some people could say that we anticipate too much the decrease in the rates. But I think that's a prudent way to address the way we see the market. The 25 basis points was really something that we anticipated. Now we see a slower trend or the downward trend of the rates, but we will continue to see a reduction in the rates on the coming months. And the MXN2 billion that we used last year to really put the balance sheet in the way that we like the balance sheet to be, now we will start to recover as our rates start to go down. Another important part that we didn't mention on the [indiscernible] that has to do in a way of how the balance sheet is prepared and how the balance sheet is affected is that, because of the strong currency that we have been facing in Mexico, that has also affected us around MXN656 million because of the strength of the currency. We now see a more reasonable trend on the currency, so that also will ease that part of the effect that we have on the margin. So we have a balance sheet that is very strong on solvency and liquidity, very strong growth on the capital numbers, very well prepared for the downward trend. Obviously, that in a way, put pressure on the margin on a temporary basis, but will fully recover when the downward trend starts to [indiscernible]. So, if we now move to the expense and the cost income ratio, the expenses for the quarter were down 14% percentage points based upon all that we anticipate at the end of the year. And the expense including the Rappi and Bineo is 13%. If you exclude those two, you barely reach the 8% year-on-year for the bank. So we will continue to push the numbers below the 13% on the cost basis based upon the shares service initiatives. And you can see that it was a very strong number to be below the 34% cost income ratio. And it's based upon all the initiatives that we are taking. And also that the revenue growth was a little above 14% for me. I would say that if I go to a graph that some of you has instructed to show the market, you see that the historical expense by category has been very positive. You see the graph on the left that we have gone down from 70% to expenses to net income to 46% expenses to net income. And when you strip those on where we are putting the expenses, we basically are putting where we produce revenue on the HR side and also on the IT side that allow us to serve the client better and also to reduce the operating costs and also the administrative costs that you have dropped in a very important way through the years. The graph under here show a different view that you see IT grow 3.4 times compared to the net income. You see that net income has grown 3 times since 2016. So some people say, well, you are investing a lot in technology. Yes, because that's the way we see the business. We see the business, an analytical business, a technology-driven business. And also when people are concerned about how advanced Banorte is on their artificial intelligence, we have to remember the market that we first -- the first one alone with eight other banks in many parts of the world that we embark on the Watson adventure. Watson has been a learning process for us, but now it's fully embedded on the mobile application, on the transaction driven parts, and many initiatives with Microsoft (NASDAQ:MSFT), with Google (NASDAQ:GOOGL), that allow us to really be on the forefront of the uses of artificial intelligence. Analytics has been heavy users of artificial intelligence, risk factors, and the users of those for many years. And we will continue to be on the forefront of that because we'll see a lot of advantage because all that we are doing in the hyper personalization move that will really address on a client by client basis, everything is based upon artificial intelligence. So we see a pretty good trend on the cost basis. We know that HR spike, because we needed bankers to serve the near-shore initiatives and also the high growth that we have on the SME side. But this blue line that spiked to 1.9 is producing strong revenue already as you saw on the numbers. Now I'm moving to the capital ratios. The capital ratios for the bank now is at 15.5%, the Core Tier 1, 21.3 total cap, well above the TLAC requirements. Liquidity is 178%. We know that liquidity so high, cost of some on the margin, but we like to be prudent about this. So, strong capital growth, strong numbers on the risk side, reasonable growth on a year-to-year basis, and reasonable growth on sustaining the margin. And also, the most important thing is that, we are growing with a very, very good credit quality. So I will now will address some of the issues that you also consider every year. What will now be the dividend policy? The dividend policy last year was 83% of net income. This year we will go to the board and ask for -- to continue on the policy that we have from 16% to 50%. We will ask for the 50% dividend retribution to our shareholders. And as we see fit through the year, as Marcos also mentioned, we'll see the potential additional dividend by the fourth quarter of the year in order to emulate what happened last year, because we will continue to see very good growth on the capital. Now I would like to address those concerns that people. The first one was that, Banorte was not fully addressing the evolution of the new entrants in the financial markets. The second one was, if it's not going to be a confusion about Bineo, Rappi, and Banorte. Let me go back to 2018. That's when the decision were made about to have three different strategies to really face what was going in the market. And when you take this path, that doesn't mean that you're going to be perfectly -- exactly what you want those initiatives to be. But the most important thing is, what you learn from those initiatives and how those initiatives allows you to be a much better fit on the market based upon the new evolutions that we see on that space. So the strategic initiatives in 2018 was basically to link with a company that was not a financial company that was very, very useful, especially for the young people, and was very easy for them to use. And they were very pleased with the application, that was the Rappi joint venture that we defined with them on a 50-50 basis to grow a credit card business, very similar in some parts, not exactly, but in some parts of what Nubank was really trying to bring into the Mexican market and what we learned about Nubank coming from the learning process in Brazil. So basically the Rappi initiative that is in the midst part of the graph has been evolving, I would say in an evolution of a high growth business, because basically you are addressing clients that were not banking clients, that were new to the bank, that were jumping into the trade cycle. And we experienced a very high growth at the beginning, but also very heavy losses. So we define that was not a strategy that we like to grow. The risk people from Banorte start to take control. We changed the CEO, the head of analytics for Banorte was sent to run the CEO of Rappi. And now after the control that we pay in November to have full control of the operation, we now see that we are very comfortable to reach the breakeven point on a monthly basis in the next two months. And also the most important part that based upon analytics and a very aggressive segmentation on a very detailed basis, we now understand which clients to put on the book and which clients would be profitable for us and we could really grow with them and have a reasonable return from the relationship with them. So, Rappi now is reaching a breaking point on a monthly basis without good market feed. NPS is very high. It's even higher than what you find in the market. And also, the usage of the card now is very satisfying for the clients. It's very easy for the clients to use the card. The app is very convenient. NPS is quite high. So I think we now understand the market. We know how to manage the market. We know how to manage the company and how to make that company profitable. The second initiative was to really accelerate the full transformation of Banorte to become a digital bank [indiscernible] that I think we are in a very good trend. Last year World Finance recognized that Banorte has the best digital app in the market and also that Banorte was the best digital bank in the market. So now the model that we have that Banorte is a bank in minutes is based upon all the digital process that we have put all through the bank in the commercial side, corporate side and also on the retail side. And you will continue to see a very strong evolution on the digital participation of every single part of the bank will move into that. And we will continue to have our branches because our branches continue to be a very important source of cheap funding for us. And also on the near-shoring part, the presence is needed, so we will continue to open 45 branches this year that is already put on the cost base that we anticipate to you. The last one is Bineo. Bineo, the idea of Bineo was, we know that the battle for the banks in the near future will be cost, analytics, technology, and how can you really deal with applying based upon all those things. So we needed to have the experience and also to really try to move into a full digital bank. We know that the onboarding process on the digital side on Banorte is very cheap, very, very low cost when you strip all the cost -- the structural costs. So we needed to transform that into a new operation. That was the idea of Bineo. And Bineo will be a full retail bank, a full value proposition from check-in accounts, debit accounts, everything will be on digital and also up to mortgages, wealth management products that you will see that evolution through the year. The most important thing about also of Bineo is that, when we decide that Bineo will have a shared services on the back offices and operations and things in order to lower the cost more, but on the service side and also on the technology side, we will also implement the new technology that was basically cloud-driven since the beginning. The evolution from the traditional banks to the cloud, you need to move it from on-premises to the cloud so that you can get a cost. So we needed to have a full digital bank that was cloud driven since the beginning and see how the evolution on the cost base could be that eventually that will allow us to move part of the technology that we have on the traditional Banorte to a much more costly -- less costly technology driven platforms. So that's also a very important part of Bineo. So Bineo has many strategic initiatives for us. First, to have a full value proposition on the retail offering on a digital base, a low cost space, because we need to achieve 20% cost income ratio in this platform. And as Marcos mentioned, we need to put this bank in breakeven in three years. So the value proposition that you see in the market right now is very limited because we are on a friend and family base and testing the frontiers that we could have on the evolution of the technology on that part. But now that you will see as the year goes by, a full value proposition will be in place with the traditional values of Bineo, customer centricity, personalization, low cost to operate and high NPS for the market. So with this, I conclude my remarks and I move into Q&A.
A - Tomas Lozano: Thank you, Rafael. Now we will continue with our Q&A session. Always we kindly ask you to present only your most relevant question, and we will be happy to take any other questions any time after the call. Questions will be ordered on a first come first serve basis. Please raise your hand on the platform and we will unmute you when your turn comes. José Luis and myself be calling the name of the person that is next on the line. If there any technical difficulty, please let us know by using the chat. Thank you. We are now ready to start the Q&A session. We'll take the first question from Yuri Fernandes from JP Morgan. Yuri, please go ahead.
Yuri Fernandes: Hi, all. Thank you very much, and congrats on the quarter. I will stay with Bineo, if I may have. I understood you are still on friends and family here. The numbers are still low, right, on deposits. So my question to you is, if you can share any metric on deposits, loan, number of clients, anything that we could see maybe one year from now? And I understand from past meetings with you that you should not overpay on deposits or be super aggressive on those kind of things. So if you can also give us a little bit on the strategy for Bineo. And what would you say to investors that maybe this will be a lot of investments for a lot of uncertainty on returns? What would you tell those investors like, oh, we believe in Bineo, I don't know, it can help on cost efficiency in the future? Like, what is the speech here for more bearish investors? Thank you very much.
Marcos Ramirez: Good morning, Yuri. Rafael will cover it.
Rafael Arana: Yuri, as I mentioned, what we see in Bineo, and I can give you a very basic note, that's why friends and family, 10,000 clients are the numbers that we have now. The value proposition is very limited. That's the way we needed to launch because first once you get the goal from the authorities, you have one month to launch and that's what we did on that part. What you will see is that, basically the full motion will start also with financial inclusion. You will -- in a very short period of time, you will see that remittances will be also an important part of this. Then we will move into the credit card, then we'll move into the payroll, then we'll move into the payroll loans, then we'll move into the wealth management process, then we'll move into the into the mortgage group. So what you can tell the market and that's our commitment, at least we need to be very close to the half a million clients by the end of the year on this, on the Bineo platform. We will addressed in this value proposition that I mentioned to you. I think we can achieve that based upon what we saw on the -- when we launched the positioning campaign because it was not a campaign really to address any value propositions. If you saw the campaign, it was basically the positioning the brand. The brand has been well positioned now. Now we have to put content on the brand on that part. And I think that's the number that you can see. And you will see that the evolution based upon the shared services philosophy that we have, we have a huge advantage because we will be sharing the cost base of Banorte with the scale that we have on the Banorte cost base with Bineo and also with Rappi, not just with Bineo, with Rappi. And that will be a huge advantage to accelerate the reduction in the cost income ratio. But the numbers that you should see is that -- what you are looking is not what Bineo is. What you are looking at this point in time is an initial launch on a very friends and family initiative that needs to be strengthened a lot in the coming months. You will see a full value proposition by the end of the year and on a month by month basis we will continue that evolution. But a number around five -- half a million clients is possible to have at the end of the first year.
Yuri Fernandes: Thank you, Rafe. Good luck with that and congrats again for the quarter.
Tomas Lozano: Thank you, Yuri. We'll now go with Thiago Batista from UBS. Thiago, go ahead.
Thiago Batista: Thanks, Tomas. Thanks, Jose Marcos, Rafael. My question is on the funding costs. There's a lot of new players in Mexico that are paying a very high yield, up to 15% per year versus, let's say, 5.6% of Banorte or the other traditional banks. I know that those guys are still very small, but do you see a risk of higher deposits, higher cost of deposits over time for Banorte? And just to follow up on Yuri questions, we'll be now also trying to attract clients paying those, let's say, very high yield on the deposits.
Marcos Ramirez: Yes, thank you for your question, Thiago. Yes, it's not a lot of competitors, [indiscernible]. First, it's not a bank. That's the first difference. We're a bank and we have different rules and things of doing things, but Rafael, please [indiscernible]
Rafael Arana: Yes. Thiago, I think, and this has to also to complement what you mentioned, we don't follow that. We didn't follow that. Other banks didn't follow on that because we are based upon relationship. We are not based on a transactional base with the clients. If we were based upon a transactional base, I think we could really raise the cost and fill up the clients. Just give me an example about that. When we launched Rappi, and that has to do also with the question, and I will combine Yuri and your question is, we grew a million cards on a year basis. I mean, to grow fast in that market is easy, it's very easy. To be profitable and really deal with the client in the way that you have to really to a client, not to push very high interest rates, to try to really extract all the value from the client, no matter what is going to happen for the client after three or four months. I think that's not our strategy. So the funding cost has to be related to the service that you provide on a relationship basis. And that's the way we compete in the market. And when we showed that initial -- that figure on the slide, that you see a slight downward trend on the funding costs, because it was a big drop at the end of the year. That offer was already on the market. So I think some people will choose to go and test the 15% or whatever, but most of the people will stay on a relationship base. Because remember, that we see the client on a lifetime basis. We don't see and we don't price the product based upon the product by the client. We really price the relationship based upon the value of the client. And in some cases, that will give the client a better funding return than the normal rate that we have in the market. And in many cases, not because they will have a better advantage on the mortgage group or on the credit card or on the payroll on things. That's the way we compete. We don't compete on a product by product basis at all. That's the whole idea of personalization on that part. That's related to the funding costs. And the other thing that you mentioned, Thiago, sorry, was it related to...
Thiago Batista: Cost of Bineo.
Rafael Arana: No, I think like -- Let me just give you an example that you will -- and this is very important. If we go to the remittances market, the remittances market currently is a market that has been served based upon the fees that they pay to the banks. There's no relationship with the clients. They just come and withdraw the money and walk away. What we really now want to try is to make those clients part of the of the -- of Banorte and part of Bineo with a very, very strong value proposition that will allow us to start building [no-tax] (ph) relationship with those clients. And those clients, believe me, are very, very big numbers coming on those front. So, no, we don't compete on price, we compete based upon the whole relationship that we produce to the client. I'm sure the market was shaped by the 15%. Some went with them, many stayed with us. We honestly didn't see any reduction at all in the relationship that we've got with our clients on this part. But it's a way to compete and I respect that. We don't compete in that way.
Thiago Batista: Very clear, Rafael, and congrats for the results.
Tomas Lozano: Thank you. Now we'll continue with Renato Meloni from Autonomous. Renato, please go ahead. Renato? I think we can come back with him. We can go with Beatriz Abreu from Goldman Sachs. Beatriz, please go ahead.
Beatriz Abreu: Yes. Hi. Good morning, everyone. Thank you for taking my question. My question is on insurance. So you delivered very good results this quarter and it was very clear that it was mostly on seasonality, right? A premium renewals that happens in the start of the year. But I was wondering if you could give a little more color on your expectations for insurance for the full year. What sort of growth rate are you expecting from premiums this year? And if you think that total insurance contribution should improve in 2024 when compared to 2023? Thank you.
Marcos Ramirez: Thank you, Beatriz. Regarding this insurance, let me pass to Fernando Soberon. Are you there?
Fernando Soberon: Yes, Marcos, I'm here. Yes, we had a very good, as was mentioned by both Marcos and Rafa, due to the seasonality of the premiums. And in this year, one very large policy was fully paid in the first quarter and not split between the first and the second quarter as happened last year. Having said that, and despite that, premium growth is going to be strong. Remember that the most profitable products are those in which we cross sell products with credits. So what will happen at the year-end will be very much affected by the way in which we grow the credit portfolio. So given the outlook that we have and also, of course, some other efficiencies that we have been implementing also by -- seeing very strong increases in some products that we are going to start selling that we have not been yet doing that. So I would say it's very easy. I'm going to be -- let me put it this way, I'm very optimistic that we will definitely have a better number than last year. It's going to be a very strong number. Of course, we will not end with a 65% increase in net income 2024 versus 2023. But I would say that perhaps we will be somewhere around 20% to 25% at the end of the year. It will, and I will make this very clear, it will depend of course on how we grow in the credit portfolio, particularly in the retail portfolio. That's what I would say.
Marcos Ramirez: Thank you Fernando. Thank you, Beatriz.
Beatriz Abreu: Thank you, very clear.
Tomas Lozano: We'll now go with Renato Meloni from Autonomous. Go ahead, Renato.
Renato Meloni: Hi everyone, can you guys hear me now?
Marcos Ramirez: Yes.
Renato Meloni: Okay. Sorry for earlier. Congrats on the results, I think pretty solid trends everywhere. I have a question here on Rappi. Charge drops were pretty high this quarter, about 10% of low imbalances. So I wonder if you expect this to be the recurring level there or if that's going to improve now that you've taken more control on the JV? And also related to this, if the earnings that came out of minority interests were all related to the consolidation of Rappi, so about those MXN200 million of net loss they were coming out of Rappi? Thank you.
Marcos Ramirez: Thank you. I'm going to pass this to [indiscernible]
José Francisco Martha González: Thank you, Renato. The charge-offs were high because, as Rafael mentioned, at the beginning, we finished now cleaning the portfolio and we are creating some additional provisions. You are not going to see anything additional like that. We will start growing again with the right numbers and with the right criteria as Rafael mentioned.
Marcos Ramirez: [indiscernible]
Rafael Arana: Thank you, Marcos. I will add to what Francisco just said is that, a high level of cost of risk does not necessarily implies a worsening loan portfolio quality. And certainly, that is not our expectation going forward. As all of us know, the cost of risk refers to expenses associated with potential credit losses within Banorte’s loan portfolio. They include provisions from loan losses, charge-offs, and other credit-related costs. The increase in the cost of risk often indicates higher anticipated credit losses, but it does not necessarily imply a worsening credit quality of its own because of mainly three factors. Factor number one is the portfolio composition. The cost of risk varies depending on the composition on Banorte loan portfolio and its exposure to different sectors, industries, or geographic regions. Even if the credit quality remains stable or improves within certain segments of the portfolio, changes in the overall mix of loans or shifts in the risk concentrations can impact the cost of risk. The second factor is timing and recognition of losses, Banorte may choose to accelerate the recognition of potential losses, which is the case, talking about Rappi. And also with it, so in anticipation of future period losses. But we do not expect that to be repeated in the short term, not even the medium term. And their factor is the cyclical nature of risk. The great risk is inherently cyclical with periods of expansion and contraction in credit quality driven by economic cycles and market dynamics. An increase in the cost of risk may reflect a natural adjustment in response to changing risk conditions rather than a permanent or irreversible deterioration in credit quality. So we are not associating even more provisioning, not a higher cost of risk with lower loan portfolio quality. And that's a very important statement to make.
Marcos Ramirez: And if I may just state Renato, The evolution on the recovery unit concerning Rappi has been very, very positive. If you go to the roll rates and the evolution from zero to one, Rappi is now reaching very similar numbers to the credit card portfolio of Banorte. So I think the reason that we really took control of the company was really to put and implement all the methodology that we run Banorte with. And the key part was risk and also recovery. I think the commercial part of Rappi and the analytical part of Rappi is very strong. So we just needed to clean up that part, control the recovery unit, put all the metrics of risk in place. And now that's why we see now a very, very, I would say short period of time where we will become break even on a monthly basis, maybe in two or at the most three months on that. And believe me, that is a very, very good thing. Taking into consideration the market that we are addressing.
Renato Meloni: I think that's very, very clear. And just like last year on the minority interest line, so everything that moved out of it was due to the current results from Rappi, correct?
Marcos Ramirez: Exactly. So what you see on the margin side, there will be an [indiscernible] report on the margin side, then you fully report all the things on a line-to-line basis. And at the end, you subtract that and go to the additional interest that we have in the company, it's only the 4% part. So on the cost side is less than MXN50 million on the cost side. And on the risk side is around MXN284 million. So [MXN332] (ph) million on the risk side. If you strip that from the risk side, then the Tarjetas del Futuro is adding to the overall cost of risk from MXN171 million to MXN184 million. That's the increase in the cost of risk of Tarjetas del Futuro in the way that we really consolidate based upon the accounting rules that we have. But the NPLs of Tarjetas del Futuro was 4.8%. So I think you are looking at a number of 4.8%. Obviously, the numbers in Banorte are lower than that. So I think the trend is right.
Renato Meloni: Got it. Very clear. Thank you very much.
Marcos Ramirez: Believe me, it's a different market.
Renato Meloni: Thanks.
Tomas Lozano: Thank you. Now we'll continue with Nicolas Riva from Bank of America.
Nicolas Riva: Thanks very much, Tomas, Rafael and Marcos for the chance to ask questions. I have two questions. The first one is, you mentioned in your earlier remarks that the holding company GFNorte issued a sustainable bond in Mexico for MXN13 million. I imagine the proceeds of the bond are going to be used to finance social and/or green projects. My question is, why the decision to really issue out of the whole cover rather than out of the bank directly? I assume that the loans are going to be provided by the bank. And in general, if you can discuss your senior funding needs, particularly in dollars, it seems that you do not expect your dollar loan book to grow for the rest of the year, but if you can discuss senior funding needs in dollars and a preference to issue out of the holdco or out of the bank in the senior format. And then second question, the call date for the six and three quarter for the purpose coming up in September, if you can give us an update in terms of your preference for replacing their capital with Tier 2 with an AT1 or not issuing at all. I think you have made pretty clear the most likely you're going to be calling the six and three quarters in September. Thanks.
Marcos Ramirez: Thank you, Nicolas. As you know, we cannot say that we are going to call it, but we can say that in the past, we have always paid? That's what we can say. And regarding the preference, it's very easy. It doesn't depend on us, it depends on the market. We will see the windows and we will be there. So we want to be open and see what's going on on those days, it's very volatile right now the market and something will come up and you will see us going for the best option on that day. Regarding the first one [indiscernible]
Rafael Arana: Yeah. Nicolas, just to clear that the bond was issued at the bank level, not at the holding company level. So just wanted to clear that it's the same as all the other bonds that have been issued by the bank.
Nicolas Riva: Okay. Understood. Okay. I thought I read in the press release, GFNorte, so I thought it was the holding company, but I understood and that makes more sense. And then also, and that was in pesos, but if you can discuss senior funding needs in dollars for the rest of the year.
Marcos Ramirez: Rafael, please.
Rafael Arana: Nicolas, as we have mentioned, based upon the activity that the countries are having in the flow of dollars and Banorte participates in a very important way on the dollar book funding in the corporate and commercial. We have increased in a very important way our funding in dollars. They're not there. So it's not just a peso because in the past we issued the AT-1s to be able to compete on the dollar book. But now in addition to the AT1s that we still hold, we now have a very important flow of funds on the dollar side. So that doesn't really restrict us to continue to be very present on the dollar funding part. The AT1s that we have, that we will -- that we will, as Marcos says, we cannot say that we will call, but we always call, is that we don't have any call coming over the next year. So we have a very, I would say, opportunistic view of when to go into the market. We have just been in Asia and some people were saying, while you don't go into the market, we will jump into the, yes, at 5/6/25 we will jump into the market, but not at the current price that we have. So, what we can I say is that, we are very well prepared for the funding side on dollars. The AT1s have very well programmed to be called when they need to be called based upon our policy of hedge to call that we have since day one. So, Nicolas, what I can tell you is that, we have a very, very disciplined way to address the funding needs of Banorte always. And the schedule that we have on the AT1s give us not just this year, but also the next year to be ready when the window is there.
Nicolas Riva: Understood. Thanks very much. Rafael, Marcos and Tomás.
Tomas Lozano: Thank you. We'll now go with Carlos Gomez-Lopez from HSBC. Go ahead, Carlos.
Carlos Gomez-Lopez: Hi, good morning and thank you for taking my call. I wanted to go back to the insurance business. I understand what you said about the premium being collected in the first quarter as opposed to between two quarters. Could you quantify what that amount is? Second, have you been affected by the increase in auto insurance premiums in Mexico like in the rest of the world? And finally, still in this segment, can you tell us if you expect any impact from the proposed legislation regarding the authorities and the concentration of unclaimed funds to a public one? Thank you.
Marcos Ramirez: Thank you, Carlos. I will start on the third one and then I will pass to Fernando Soberon. Regarding the authority initiative mentioned by the government, we are respectful of the process that they are following and in case it went through, we estimate that it will not have a material effect in the business results. There are around 2,000 -- thousand hundred initiative accounts amounting around, let's say, MXN4 billion, which represents if you do the math 0.3% of the total assets under management of the authority and we have MXN1.2 trillion in the Afore. Therefore we anticipate no material impact.
Carlos Gomez-Lopez: This is very much for you, not for the system, right?
Marcos Ramirez: Yes, we're talking about the [indiscernible]. We have a 40 [indiscernible]. And the first -- yes, Fernando [indiscernible] with the first one.
Fernando Soberon: Yes, of course. Well, I mean the business that was behaving differently is the one that is regarding the largest life insurance policy in the Mexican market. That is the policy that is protecting all the workers of the Federal Government. That's a policy that we experienced a huge difference this year with respect to last year. Last year in the first quarter we were paid around MXN1,200 million and this year we were paid in the first quarter MXN5,860 million. That's the difference in that. Now with respect to the -- Can you repeat about the -- I'm not quite sure I understood your question about the car insurance.
Carlos Gomez-Lopez: Yeah, I was wondering if the increase in car insurance rate, again, in Mexico, as in the US and other countries, had an impact on your results? Although it seems small compared to this particular premium. You said 5.86 for this quarter. That's obviously a premium. Would you be able to quantify how much that represented in terms of net income or [indiscernible] for you.
Fernando Soberon: Yes, no problem. Let me go back to this one. Yes, in the previous quarter, net income due to this policy was MXN132 million, and in this quarter we have MXN657 million. That would be the net result due to the fact of this policy. I should mention that we have been growing strongly in other lines of businesses. So despite this, the results of the insurance company are very strong. That's something that should be mentioned. But of course, we have this distortion due to the way in which we were paid last year and this year. Okay? That's one thing.
Carlos Gomez-Lopez: Okay. And again, to understand, that means that in the second quarter, since you will not have this, there has to be a lower result.
Fernando Soberon: That's exactly the way it's going to be. Actually what we're expecting, for instance, let me put you not the level, but in terms of the distribution or the share of the profits between quarters. I would say, for instance, that perhaps this means that it's given our forecast of the results as of today that perhaps 44% of the results will be explained by this quarter versus like last year it was like 32%, 33%. Of course the level will be larger, but the distribution of these results will shift accordingly, as I just mentioned. Is that clear?
Carlos Gomez-Lopez: That's very clear, thank you.
Fernando Soberon: Yes, but I should emphasize that the business insurance is doing quite well in all these lines of businesses. And hopefully we will see a very strong loan portfolio and that will also push results further into the future. We will have just to wait and see. And regarding the question of the auto insurance, I would say that for us, we are not expecting the -- on the opposite, we have been growing because it also explained because of the loan portfolio in the car businesses because we grew 27% between one year and the other. So despite that there has been some increases in the premiums, as you just mentioned, not only in Mexico, but also in some other parts of the world, we have been benefiting, taking into account all the effects. We have not seen -- actually we have seen more growth in the business, regardless of the behaviour of prices.
Carlos Gomez-Lopez: Very clear. Thank you so much.
Fernando Soberon: No problem.
Marcos Ramirez: Thank you, Carlos.
Operator: Thank you. Now we'll continue with Andres Soto from Santander (BME:SAN). Andres, please go ahead.
Andres Soto: Thank you very much and congratulations on the results. My question is related to taxes. We saw a significant increase in the tax burden this quarter, close to 30%. You usually pay around, let's say, 26%. I would like to understand what is behind this. Is the different contribution from the non-banking business or is it related to some non-deductible expenses or maybe the losses from your other Bineo and the non-profitable units? So I would like to understand what to expect on the coming quarters regarding taxes. Thank you.
Marcos Ramirez: Thank you, Andres. Rafael will [indiscernible]
Rafael Arana: Yes, Andres, as you mentioned, yes, what you will see is a normalization through the year to reach the 26%, 26.1% tax numbers. What we usually do is that, based upon some projections that we see on some legal issues, some other type of potential tax provisions. We like to put those provisions first in the first quarter and start really releasing those through the year as we finalize those initiatives that we have. We are very confident that by the end of the year, then you will see a number very close to the 26.1%, 26.2%. So this is, as you mentioned, an extraordinary number that is 400 basis points above the normal levels that we need to have on the tax issues that will be released through the years as we finalize the initiatives that we have on the legal side and on the other sides.
Andres Soto: That's very clear. Thank you, Rafael.
Rafael Arana: Thank you.
Marcos Ramirez: Thanks, Andres.
Tomas Lozano: We'll now go with Natalia Corfield from JP Morgan. Go ahead, Natalia.
Natalia Corfield: Hi, everybody. Thank you for taking my question. I'll actually go back a little bit to the point of AT1s and issuance. I totally get it that the market's not there right now and your monitoring how the market develops. But if you had a window now, I think I would like to know what would be your preference, to issue an AT1 or to issue a Tier 2?
Marcos Ramirez: Let's suppose that we have all windows available. Rafael?
Rafael Arana: No, I think, Natalia, I think we discussed this. It looks that the T2 is more convenient when you see from outside the bank. For the AT1 really provide us on the liquidity side on many other things on the accounting base a much better fit for us on that part. But that doesn't mean that we are not reviewing every single day if there's an arbitrage that we could do among those that is in benefit of the other we will issue, but it's more benefit for the bank on that part. Ao we are not saying no to any one of those.
Natalia Corfield: Okay. I get it. I just mentioned that I'm sure you know in the past your AT1 curve underperform AT1 curves of other banks in the region. And I believe part of that was because you have too many AT1s. So perhaps issuing a Tier 2 might not be the most ideal, but could help in your AT1 curve in the future. Of course, right now, the bonds perform super well. But I am thinking ahead, it might help you on your AT1 cost for future if you don't have too many of them in the market.
Rafael Arana: Natalia, what you say is I think is the correct way to say that. I mean, Banorte was not present in the market for many years. We started to issue the AT1s. We become very present in the market. And now we are so present that people say, well, you have a lot of AT1s on that part. So what you will see is a more active Banorte in the markets as the window start to open. So I will not say just about T2 or maybe senior will be a possibility. We are active now on the green bonds. So we are open to everything. I mean, and the Treasury is always doing what we have to be very careful with not to have arbitrage against us. That's the most important part.
Natalia Corfield: Okay. Thank you very much, Rafael.
Rafael Arana: Thank you, Natalia.
Tomas Lozano: Thank you. Now we will continue with Edson Murguia from SummaCap, Edson, please go ahead.
Edson Murguia: Good afternoon. Thank you for taking my question. I was just trying to understand if you see a value added from the [GD] (ph) with the Tarjetas del Futuro. I know that in November you took control, but if it's a consumer credit card business, I mean at the bank level, you are doing pretty well. So I just want to understand if you see any value added from the Tarjetas del Futuro? And my second question is regarding on Bineo. I know that you already explained that you expected to have 500,000 clients by the end of 2024. But I'm curious about the operational level. There is a different type of technology. I know that you already mentioned that in the back office, you're a share part of the digital bank with Bineo. So I was trying to understand that on operational level, what will be the differences between the digital bank, Banorte and Bineo. Thank you.
Marcos Ramirez: Rafael, please.
Rafael Arana: Thank you, Edson. Edson, first, remember the strategic initiatives. We needed to understand perfectly the market that was coming with the ideas of the new bank, of the Wallace, of those coming to the market. And we also need to understand the behavior of young clients that were very heavy users of super apps on that part. That's what we did a joint venture with Rappi and I said it has been a very beneficial for us in the way that we have now a very good market fit about how to address this type of market. So I think that's very valuable for us. So I think the word market fit is critical here. To have a market fit with a company and the clients that you serve in a completely different landscape that you mentioned because it's completely different. And you say, what's the value? The value is that you need to address every single part of the market. Maybe you will decide how strong you will participate in each of those parts of the market, but you need to understand every single part of the market. You cannot be surprised by anyone or any competitor in the market. That was the idea on that. And I think we are very pleased about the evolution of Rappi concerning that we have a very good market fit, a very, very strong analytical base to deal with the clients and the evolution of our credit base in just in the way we manage the credit card, I think it's completely different from what you can find in the market. And that has been a very important learning process for us. The technology that you see on Bineo. Bineo has a full independent technology base from Banorte. So that's completely, completely different because that was the main idea to test the new technologies available to see the frontiers and limits of those technologies compared to the evolution of the technologies that the banks has, because Banorte has a lot of things on the cloud and goes into the latest technology that we run, how do we run Banorte with. But remember, legacy is still there. When you are born on a digital platform, the legacy is fully digital. That's the big difference on this. And that should driven the cost base down in an important way. So that's the difference, Edson.
Edson Murguia: Okay. Thank you so much.
Tomas Lozano: We'll now go with the last question from Tejkiran Kannaluri from White Oak Capital. Please go ahead.
Tejkiran Kannaluri: Hi. Thank you for taking my question. You know, if we see from a three to five year perspective, all the investments, let's say in the increased control of Rappi and Bineo, should we expect to see Banorte as a more retail bank? What -- could you help us understand if you are thinking of a higher mix of, let's say, retail loans or a higher mix of profits coming from the retail bank over the commercial bank?
Marcos Ramirez: You yourself as a universal bank, so I know Rafael you want to add something else.
Rafael Arana: No, I think your question is quite important because if you see the evolution of what's happening in other parts in Brazil is that, it seems that the new banks are eating part of the retail base of the large banks on that part. No, I think Banorte is very clear. We are very happy with our commercial and corporate growth. I think we are -- last year we outpaced the market in corporate and commercial and also in SMEs. So that's a very important part of business for us. But Banorte was underweight on the consumer. So Banorte now is starting to reach the potential that we have on the consumer. That was not the case five years ago. So we still have a long run to go on the commercial and corporate and also on SMEs and also on the consumer, you will see a very balanced growth for Banorte, because the base like for instance corporate grew 20% last year, commercial 12% last year, SME 32% last year, compared to car loan 30%, credit card 16%, mortgages 11%, payroll 6%. So you see very strong pace of growth overall the bank. And when we install technology, we install technology for the whole bank, not just for a part of the bank. Now you will continue to see, as Marcos says, a very, very strong universal bank. That's the way you should see Banorte. The things that we are doing in Bineo and also in Rappi is just to accelerate and catch up on the consumer base. But that doesn't mean that we are not growing fast in other parts of the business.
Tejkiran Kannaluri: Very clear. Thank you.
Tomas Lozano: Thank you very much for your interest in Banorte. With this we conclude our presentation. Thank you.
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