Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Grupo Financiero Banorte SAB de CV (GBOOF, Financial) reported a 7% year-on-year increase in net income to MXN14.2 billion, driven by expansion in the loan portfolio and resilient margins.
- The company's capital adequacy ratio stands strong at 19.2%, indicating a robust capital position.
- Asset quality remains solid with non-performing loans stable at 1% and cost of risk slightly down to 1.6%, reflecting effective risk management.
- The insurance business saw a 28% growth in cumulative comparison, driven by greater premium growth in corporate and government sectors.
- Digital transactions are increasing, with a 11% growth in digital active clients compared to the third quarter of 2023, showcasing successful digital transformation efforts.
Negative Points
- Grupo Financiero Banorte SAB de CV (GBOOF) adjusted its GDP growth expectation for 2024 to 1.3% due to signs of economic slowdown.
- Despite a decrease in core inflation, headline inflation remains above the central bank's target, posing a challenge for monetary policy.
- Volatility in the Mexican currency is expected to persist, influenced by uncertainties regarding upcoming US elections.
- The company's government loan book experienced a 2% decline due to prepayments, impacting overall loan growth.
- The cost of funding saw an unexpected increase, attributed to the lag in time deposit renewals, which could affect future margins.
Q & A Highlights
Q: With a GDP growth forecast of 1% for next year, what could lead to single-digit loan growth, and would you consider returning more capital in such a scenario?
A: Rafael Arana De La Garza, CFO, stated that employment stability is crucial for achieving close to double-digit growth. If employment weakens, loan growth might drop to 7-9%. CEO Jose Ramirez Miguel added that if they can't find investment opportunities, they would consider returning more capital to shareholders.
Q: Can you elaborate on the performance and future expectations for your subsidiaries, particularly in terms of ROE?
A: Rafael Arana De La Garza, CFO, highlighted opportunities for growth in the insurance sector, particularly in bancassurance. He noted that while trading had a strong quarter, the focus remains on expanding the insurance business through the bank's distribution channels.
Q: How does the recent judicial reform in Mexico impact your lending practices and risk management?
A: Gerardo Viezca, Chief Risk Management and Credit Officer, explained that Banorte is implementing contractual risk mitigants, such as collateralization and third-party guarantees, to protect against potential impacts. They are also using more SPVs and escrow accounts to manage risks.
Q: What is the strategy behind the recent call of the $600 million AT1 without a capital replacement, and are there plans to issue more capital?
A: CEO Jose Ramirez Miguel confirmed plans to raise more capital, preferring AT1 instruments due to their suitability for the bank's balance sheet. They are monitoring market conditions to decide on future issuances.
Q: What are the reasons behind the recent increase in cost of funding, and how do you see it evolving with expected rate cuts?
A: Rafael Arana De La Garza, CFO, attributed the increase to a lag in the adjustment of time deposits to lower rates. He expects the cost of funding to align more closely with market rates by the end of the year as deposits renew at lower rates.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
