Good morning. I'm Tomás Lozano, Head of Corporate Development, Investor Relations, and ESG. Welcome to Grupo Financiero Banorte's First Quarter Earnings Call. Our CEO, Marco Ramírez, will provide the main macroeconomic highlights of this first month of the year, and will walk us through the most relevant results for the group, including the performance of the loan portfolio, positive asset quality, the gradual recovery of the insurance business, as well as some of the most relevant additions to our annual report, which was released at the end of March. I would like to mention that in addition to the 2021 annual report, we also published our first TCFD report on climate-related risks and opportunities, which reiterates our strong commitment to increased disclosure and integrates sustainability into the core of our strategy.
After our CEO's presentation, Rafael Arana, our COO and CFO, will provide a quick summary of the main changes in our financial reports from the adoption of the new accounting standards for the banking system in Mexico. Later on, he will provide details on the main financial results of the group, including sensitivity to rates, improvements on cost control, and the main changes to our updated guidance, which raises our net income expectations for the year. We will then proceed with the Q&A session. Please note that today's presentation may include forward-looking statements that are subject to risks and uncertainties, which may cause actual results to differ materially. Thank you. Marcos, please go ahead.
Thank you, Tomás. Good morning, everyone. Thank you for joining our call. The first quarter of the year started with good overall results for the financial group, despite some evident headwinds in our operating environment. COVID-19 has been gradually receding. However, it is still present in Mexico and unfortunately worsening in some countries in the world, still presenting a potential disruption in supply chains. GDP recovery in Mexico has been mild. Our economic analysis teams estimates annual growth of approximately 2% linked to the positive momentum of the U.S. economy, despite disruptions from the war in Ukraine. Annual inflation has reached 7.45% in March, and is expected to gradually decline during the second half of the year, reaching 6.7% by year-end.
Therefore, we still anticipate a more restricted monetary policy in the months ahead, with rates expected to end the year around 8.5. On the political front, we will continue to monitor the legislative agenda after the president's electricity bill failed to pass the Lower House last Sunday, in addition to local election next June for six state governorships. Moving on to the bank's operation, after postponing our hybrid return to our offices in January due to the Omicron wave, we are happy to announce that since early March, we have started working on the office mode, while still observing strict sanitary protocols for closed spaces and running random COVID test populations to ensure the safety and well-being of all our teams.
Before diving into the financial results, I would like to highlight that since January, we have adopted new accounting principles from the local regulator aligning with the IFRS standards. In order to facilitate quarterly and annual comparisons, we have restated our 2021 figures throughout this document, as well as our quarterly financial reports. Later on, Rafael Arana will provide more color on some of the most relevant effects of these changes in our financials. Looking at our quarterly results, the solid performance of the group is supported by improving NII, strong fee activity, contained expenses, healthy asset quality, and a shielded balance sheet pointing in the right direction for the remainder of the year. Starting off with profitability, slide 4, ROE improved more than 200 basis points since last quarter on the back of solid business performance.
Nevertheless, it continues to be pressured by unpaid dividends and insurance results. We will discuss about the dividends in a few moments. We chart slightly trending down in COVID-19-related claims. However, they are still above pre-pandemic figures. We are holding our expectation of normalized claims during the second half of the year. As we will see later on, ROE of the bank, when affected by these factors, is already above 20%, driven by better NII, solid asset quality, efficient expenses, and growth in fees. On slide 5, NII from the loan portfolio increased 2% quarter-over-quarter, and it's already incorporated most of the effects of reference rate increases up to December of last year. Non-interest income had an outstanding favorable result, driven by higher trading income and the seasonal effect of insurance premium renewals during the first quarter of the year.
One of the most relevant IFRS changes can be seen in insurance premiums, which are now registered under non-interest income and no longer accounted in the interest income line. Fees, on slide number six, were slightly lower during the quarter due to the seasonal effect of higher transactionality in the fourth quarter from the holiday season, but looking at monthly results, we are already seeing a relevant recovery during March, both in POS and mobile transactions. Compared to last year, increases in core banking fees were driven by higher origination fees in consumer mortgages and commercial portfolios as a result of better dynamics in economic activity. Mobile adoption has been increasing, underpinned by the more powerful and intuitive version of our mobile app, which was recently launched. Loan growth on slide number seven shows moderate quarterly expansion in the consumer portfolio, driven by payroll loans.
However, there is a good performance in corporate and government portfolios. Compared to last year, the consumer portfolio was a clear growth leader, primarily driven by payroll, credit card, and mortgage loans. As for the commercial and corporate books, we see encouraging trends for the rest of the year. On slide 8, asset quality continues to perform ahead of our expectations. NPLs remain at 1% in the quarter, with improvements across most of our portfolios. Analyzing the results by subsidiary, slide 9, the bank continues to expand on the bank consolidated NII, asset quality and expense control, showing ROE above 20%. The insurance business posted positive results driven by seasonality in policy renewals during the quarter and gradual improvements in claims for the life portfolio. However, results are still below pre-pandemic levels.
The brokerage sector shows solid results due to higher interest income and inflation premiums in asset valuations. For the annuities business, while there is growth in business generation, it was undermined by higher reserves on inflationary adjustments. In the quarter, the Afore business was impacted in two fronts. The first one, as you know, in fees due to the cap imposed by recent regulatory mandates effective at the beginning of the year. The second one, in valuation of financial products on the back of higher rates impacting the Afores long-term investments. Slide number 10, we provide greater detail into the insurance business, showing seasonal quarterly growth in premium origination and consequently a gradual recovery in net income, which is expected to continue towards second half of the year. Switching gears to Banorte working culture on slide number 11.
In our daily operations, customer experience is permanently at the core of our strategy. We began by listening to our customers' feedback, identify pain points, learn more about their needs and expectations, and thus began transforming processes and experiences. As a result, our NPS score has been increasing across all channels. Moving on to slide number 12, please. We are aware that there are many questions regarding the status of the sale of Citi Banamex assets, and I want to reiterate, we'll be analyzing this or any potential transaction, but we want to be very clear about our main focus, which is the accretion for our shareholders. If we find a price and a structure that is significantly accretive and adjusted by the execution risk and the potential loss of value of the franchise, then we will present a proposal to our board and to our shareholders.
I would also like to stress that for any potential transaction, our capital position will not be compromised. We will maintain our CET1 at a minimum of 11.4%, and we will have a strong commitment to get it back to at least our corporate threshold of 12% to 12.5% shortly after. On slide 13, I would like to reiterate that regardless of this or any other M&A transaction, Banorte has a life on its own, with a very clear commitment to continue executing its strong corporate strategy. The three pillars of our digital strategy are leading us to where we want to be, and that is to become the best financial group for our clients, our investors, and our employees. Shifting gears to ESG on slide 14.
I am happy to communicate that in late March, we released our most recent integrated annual report, which underscores the importance of ESG as a fundamental part of our core strategy. Following international best corporate practices, in this report, we have included, first, greater disclosure in our sustainable initiatives. Second, our gender equality agenda. Third, improvements in customer data protections. And fourth, greater detail in our board composition and skill set in line with our overall corporate strategy. In addition to this, we have also released our first TCFD report on climate-related risks and opportunities, which sets the first step towards meeting our commitments for a safer, greener, and lower impact operation for Banorte.
With this, I conclude my remarks, and now Rafa Arana will give you additional details in the main accounting impacts for our alignment with IFRS, will walk you through the financial results for the first quarter of the year, and will provide an update of our three digital strategies and discuss a little bit about the dividends also. Please go ahead, Rafa.
Yeah. Thank you. Thank you, Marcos, and thank you all for attending the call. I think it's quite important to notice that we have provided a very clear information concerning the IFRS changes, as you can see on the slide. Through the report, you can see a very detailed cohesiveness on how the numbers used to be and now how we need to present the numbers. Any more detailed information that you need about the specific issues related to the numbers and that you think that we need to go deeper on the explanation of any, please feel free to call us. I don't want to get into a very detailed information about this. I think a lot of information has already been provided.
Basically, if you would like to do a very quick analysis of exactly what happened. If you look on the asset side, basically, the loan portfolio now is broken into stage one, stage two, and stage three. The non-performing loans is stage one and two. That created some issues concerning that some adjustments were taken against capital. As you know, that every time there's a regulatory change, those goes against the capital numbers. That, when you do add up the group and the bank, you end up with a number close to MXN 1.2 billion that was adjusted against capital.
That is, in a way, is part of the increase that you see in the coverage ratio that the bank provides now on the numbers for the quarter. On the asset side also, the repos now are not netted. This used to be netted before. You will see the repo side on the asset side and the repo on the liability side in that part. Those basic moves basically affect indicators, the ROA, because you have more on the banking side. The net interest margin also, NPLs and cost to income.
It's fair to say that the numbers concerning net income, net interest margin for the bank, when you go to pesos, are exactly the numbers that used to be and prove exactly what the level of growth is for the operation. I think it is better if we concentrate on those numbers, the growth numbers, and if you need any more detailed explanation, happy to go as detailed as you want on a one-to-one basis with you. If we move to the next slide, basically we continue to provide a very strong focus on the balance sheet. The balance sheet continues to be extremely fortified by two things. On the solvency part and also on the liquidity side.
The balance sheet also is providing us enough possibilities if we like to compete as we are starting to do in the market for specific clients and loans that we would like to have. We have the balance sheet to do so, we have the capital to do so, and we have the liquidity to do so. Now we're starting to move much more aggressively into that part, as you can see in the following quarters. On the expense side, I think it's relevant to say that we have been controlling the expenses below inflation. As you know, we front-load part of expense line on the fourth quarter, and that has proved to be a very important measure in order to keep controlling the expense line.
That has to do a lot, when we go to the numbers, about the cost income ratio. You will see a very important reduction in the cost income ratio because revenue growth has by far outpaced the growth in the expense line. We won't go in detail on the expense, but just for you to be close to that numbers. On the digital transformation of the bank, Marcos has just mentioned, we continue aggressively to move for Banorte to be more and more on a self-service bank, on a bank in minutes as we defined that. As Marcos already show you the numbers that Banorte is advancing aggressively into the two other strategies that we have. The Rappi one that later on through we will ask about that.
We are basically in alignment of all the milestones that we commit to our board and to the market about the number of cards, the quality of the cards, the quality of the operation, how we are reducing the acquisition costs, and how we are penetrating the market and finding exactly where the positioning of this product is gonna be at the market. The digital bank is ready to go live as soon as we get the licenses.
It's gonna be an important surprise the way we plan to launch the digital bank concerning that basically it's gonna be an evolution from some of the already existing clients on Banorte that could be served on a much better way on the digital bank, and also for clients that would like to come to the digital bank to want to be served by basically a digital operation and not an infrastructure operation. More detail will be given later on that part. The NIM of the group, based upon some changes on the IFRS, you will see a big drop on the NIM of the group to 6%. The bank NIM seems that it's gonna be a reduction on the NIM of the bank.
That's basically what we mentioned about the repos, but that's an expansion on the margin of 18 basis points. That will continue to do so, because as we will see, the cost of funds continue to go down, and the mix continues to be in the right direction. Also, a very important thing on the loan side is that the quality of the group allow us to have, on a risk-adjusted basis, a much better numbers than that we used to have. Compared in the market, in the risk-adjusted market. In cost of funds, I already mentioned to that.
On the capital numbers and basically we continue to grow the capital base, 25.9% our total cap, and the core Tier-1 that we have is 16.3%. This, I think it's time that we can now jump into the dividend policy. We asked the board yesterday for approval to pay 50% of their net income of 2021 for their dividends. We will need to present this to the assembly, and as soon as the assembly approves that, we will release those dividends to our shareholders. That has been a concern from our shareholders, when we're gonna be able...
There's a question why we are not releasing the 25% of 25% of 2019 and 2020, because we haven't get the agreement to do so. We are moving basically on 50% of 2021. That is a number basically around MXN 6.07 per share, the dividend that we will be releasing into the market as soon as we get the approval from the assembly in that part. Moving into the next page, I think, moving to the bank that I think is, as you know, the main driver of the operation of the group. The return on equity of the bank continues to evolve in a positive way. Now we are reaching the 20.88%.
We ended the year slightly above the 20%, but now we are consolidating the number of 20.8% on that part. A very important growth compared to the fourth quarter of last year. We see this as a continuous trend evolving into the next quarters because of the quality of the group, because of the funding cost, because of the quality of the results that Banorte is providing. The net income of the bank also has a very good expansion on that. It reaches at MXN 7.6 billion on that part.
All the numbers concerning the bank, the net income growth, the return on equity of the bank, and the net interest margin of the bank, when you go on similar numbers, the numbers that you should be seeing before the IFRS changes will be above 6.3% for the net interest income of the bank. When you adjust by IFRS, it's at 5.2%, but that 5.2% is 18 basis points on a sequential basis. The net interest margin of the bank will continue to grow in a positive way because of the funding cost and because of the mix and the quality of the group that we have. If we move into the next one.
The NIM expansion on the group has to do also because there's a better performance of the on the insurance company have been reducing the net interest margin of the bank and also because of the IFRS changes that basically are not netting the reinsurance then you have a benefit and also for the changes of the insurance company you have a benefit on the margin of the group that now jump from a number of 5.2% to 6.0%. When you go and when looking to the numbers of the peso margin for the bank and the peso margin for the group I think those numbers stay exactly the same and doesn't affect the net income of the group.
The asset quality continues to be on the right track and in the right trend. This is allowing us to keep on balancing out the lack of growth in the group. There have been some concern about the lack of growth of the loan group. I think the loan group is starting to move in the right direction. We have seen some good signs of that. Obviously, there's concerns in the market about inflation, about the interest rates. When we go into the guidance, you will see some adjustment there.
What is important to notice is that we are compensating the lack of growth because of the quality of the group and the relationships that we are getting from our clients, not just on the lending side, but also on the fee side, on the transactional banking side. That is providing, on the net interest income pipeline, a continuous growth on that number. I don't think it's fair just to look at the loan growth. We have to look at how all those relationships are paying off by giving us funding, by giving us fees, by giving us penetration into the services, payrolls that we provide to the company. We are more and more become service bank for our clients.
We have different levers to apply when the loan growth is constrained by market conditions. We are pretty happy about the penetration on the products per client that we have, especially on the commercial and on the corporate and on the government book. The credit provisions continue to be in line. It is fair to say that we haven't used the MXN 1.8 billion of provision that were ready to be released last December, but we didn't release those because of COVID. Now we don't have any need to release those. We will be releasing those as needed, when we need it, as always, on a precautionary basis.
If we move into the next, I think this is something that you know we are chasing the market. Banorte is reducing the cost of funds on a permanent basis. We need to achieve a number below the current 37 that we have. We think we can do that because if you look at the growth on the funding side, non-interest bearing deposits without cost grew 12% year-on-year, and non-interest bearing deposits with a small cost, we have a reduction of close to -2% for the year. We are shifting demand deposits with cost to demand deposits without cost. That is helping us.
That has to do with a lot of the good work from the retail branches, from the commercial, from the corporate, from the government, from all the businesses of the bank. We still have the space to lower that cost of funds, and we will continue to do so in the coming months on that part. If we move now to another of your questions, the margin sensitivity of the balance sheet. As you can see on the graph, it's reaching 1.1 on the peso book and 800 on the dollar book. The balance sheet is exactly where we want it to be.
A positive gap on the very sensitive asset side. We are in the right direction. Relevant to mention is that the results that we obtain on the trading gains that were pretty strong results are not the result of gambling the treasury book. It's a result of the effect of the inflationary premiums that we collect, and also on the services that we provide our clients on the derivatives business that we provide them to cover any potential risk on the rate side. We are very close to our clients.
They are seeing us more and more as a bank that can provide a full service in any way to provide any protection that they need on the derivative side, on the dollar side, on the peso side. We are moving into that. When you see the trading gains, it's not that everything is related to clients on that part. On the expense side, I think it's relevant to notice that we continue to see that we can end the year below inflation. If inflation reaches 7.8%-7.9% that is expected to see, we will be below inflation as we promised the market on our guidance.
If you look at the breakdown on the cost side, on the personal expenses now are quite under control, even though we already signed the agreement with the union on that part. That already is embedded on that part. Professional fees are down. Administrative and promotionals are down. So you see that strong control of expenses is taking place. Rents and depreciation and amortization is growing 13%, but in the coming months you will see an important reduction on the rent side. So that number will continue to go down on that part when we finalize and close some of the initiatives that we have on the renting side.
The profit sharing, as you know, there was a change last year because of the labor reform. Now it's gonna be something that is staying there on that part. Another big part on the expense side is the IPAB. Now the IPAB is also moved into other operating income instead of just being on the last part of the lines on the that you will consider part of the expense here of the expense side. Strong control on the expense side. I think we are on the right track to be below inflation on that part.
There will be some improvement on the net side, but I think we are right on track where we want it to be. Cost income ratio is going now to 37.7%, obviously because of revenue growth from that part. It's a number that we would like to always be below 40%, as you know. There was a big expansion in the fourth quarter because what we did on the front-loading of expenses, but now we are back on track of the numbers that we would like to show the market about the cost and expense control. On the capital ratios and liquidity is also picking up to 222% on liquidity.
Strong liquidity that will allow us to serve our clients that we choose and select to do so on a important way. Also the capital ratio, as we mentioned before. 25.9 , and 16.3 in core Tier 1. Once we pay the dividend, this is important to notice, there will be a reduction of 130 basis points on the core Tier 1, so we will still be above 50%. By the time that we pay the dividend, that number will be above the 50%, okay? The leverage ratio continues to be one of the lowest, if not the lowest in the market, compared to the systemic banks.
Really the least leveraged bank with a very strong capital base, with a strong liquidity base, and with strong results in the return on equity, in the ROA, in the net interest margin, in the cost income ratio, in the cost of risk, in the NPL ratio. Basically, even though the lack of growth is present in the market, we are compensating that by far by all the services that we are providing to our clients and how we are serving them and taking advantage of every single business line that we have. At the same time, accelerating during the transformation of Banorte and going deep into the digital world as one of the key players on that part.
As we mentioned at the beginning, there will be a change on the guidance based upon the results on the third quarter, and as needed, the guidance will be adjusted. The loan growth, we are reducing from 7%-9% to 5%-7% because there have been a reduction on the GDP. As I mentioned before, even if you see a reduction in the loan growth, the service line and the funding line, and all that is related to relations with our clients will more than compensate our lack of flow. The NIM expansion on the IFRS, 25-35 basis points. The NIM expansion of the bank, 50-70 basis points. The expense growth is exactly the same, 7%-7.6%.
The efficiency ratio now is moving from 41%-42% to 38%-39%. Cost of risk, basically, reduction from 1.6% to 1.4% and 1.7%. Tax rate 25-26%. There have been some comments about there was a high tax rate in the first quarter. Yes, because there was some provision taken then, but it would be as the year go by, we will compensate those provision with the tax rate of the quarter. Net income now is moving from MXN 39.5 billion to MXN 41 billion, or MXN 40.5 billion to MXN 42 billion. Return on equity for the group to 18.5%. ROA basically 2%-2.2%, taking into consideration all the changes that happened on the IFRS.
GDP, it's a reduction of from 3%-1.5%. Inflation rate is also up from 6%-7.6%. The reference rate of Banxico from 6.42%-7.21%. Relevant to say that the numbers on the rate, on the average rate that we are using on the budget is 6.5%. With this, I conclude the comments. I'm happy to take any questions.
Thank you, Marcos and Rafael. Now we will continue with our Q&A session. Please raise your hand on the platform, and we will unmute you when your turn comes. We encourage you to please limit to one or two questions so that we can address all questions during this call. Questions will be ordered on a first come, first serve basis. José 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 the Q&A session.
Thank you. We'll take the first question from Geoffrey Elliott from Autonomous. Geoffrey, please go ahead.
Oh, hello. Thanks very much for taking the question. Clearly it's a very different set of accounting standards this time as you converge towards IFRS. What are the remaining differences between the financial reporting standards that you're using and IFRS? Is there a timeline for further convergence? Then specifically, in future, could you potentially have to start recognizing the cost of the subordinated debt in the P&L? Are you able to comment on IFRS 17 and what that would mean for the insurance, pensions, and annuities businesses? Thank you.
Thank you, Geoffrey. Good question. Rafael, please go ahead.
Yeah, Geoffrey, I will be at fault if I can't give you an exact date of the full conversion to IFRS. What you will see is now on the way that we are presenting the numbers, because usually we will disclose some of the questions that you raised related to the capital numbers and the positions of some of the Tier 1 especially, and things like that affect the capital base. As you know, we used to report and disclose those without the IFRS 9 on page 37 of the report that has all the movements on the capital basis.
As you can see now on the report, we are presenting the net income and all the numbers that affect the capital that in a way that is in some way, some of the conversion that you are talking about, some of the metrics about capital. On the insurance side, we don't have exact dates, but we will converge to that, yes, sir. You have a sense of what that would mean for numbers if you did converge on IFRS 17? No, not. What was the effect for like, for instance, for? Because basically what has been happening in Mexico is slowly, every year, there's a conversion, even if it's not a big bank like this one, every year there's a conversion to IFRS.
Like, for instance, the conversion this time cost us MXN 1.2 billion against capital, and that was the full cost of the conversion of this part.
All right. Thanks very much.
Thank you.
Tito Labarta from Goldman Sachs. Tito, please go ahead.
Hi, good morning, everyone. Thank you for taking my question. Two questions, if I can. Just first on the NIM guidance, just to understand why it's a little bit lower. Is that mainly because you're no longer excluding the insurance results? And should we compare that to the restated 2021 numbers? Right. So that 25-35 basis increase is based off the new numbers, correct? And then my second question, just to clarify on the dividend, because you said you're still waiting approval on the 25% related to 2019 and 2020, but now you're proposing 50% of 2021. So do you need approval from the regulator for this? Just to understand why do you think you can pay the 2021 but not the 2019 and 2020.
Just related to that, do you think you would then maybe keep some of this for a potential Banamex acquisition just to understand the full payout picture once you have approval for everything?
Thank you, Tito. The first one, you are right, it's not comparable. The IFRS is different. So you will see that's why it's lower and it's gonna be. No, but it's good, but it's not comparable. The second one, you're right. We are very cautious, and we need the permission of the CNBV, and we are waiting for it. That's it. As soon as we get it, we will go with the process. Now that we go out to the assembly all this, and we will release it. The third one, Tito, about it. The third one, and let's. I think this has to be now very clear.
Concerning any information related to the Citi potential transaction, we will be really in a very cautious mode about sharing any information. We can share anything related to the bank, but nothing related to the transaction because the process is ready to start. NDAs are in place now. Please forgive us if we sound kind of rude on this, but we cannot now say anything related to the transaction. When we have something to say, we will say it.
Okay. No, I completely understand. If I could just clarify, just coming back on the dividend. Do you need CNBV approval for both the 2021 and the 2019 and 2020? Because it seems like you're ready to pay the 2021, but not the 2019 and 2020. Just to understand what exact approvals you need to be able to pay everything.
It's difficult to understand, Tito, but it's exactly what it is.
Okay. You don't need approval from CNBV for 2021 or you do? Maybe to make it simpler question.
No, we don't need.
You're waiting for approval from CNBV only for 2020 and 2019?
Exactly right, Tito.
Okay. Sorry, just one last point. When do you think you could pay the 2021? Do you have a timing? When does the assembly?
The assembly is happening today. Today it will be presented to the assembly for approval. As soon as we get the approval, the usual process, it usually takes 3-4 weeks.
Okay. That could happen this quarter. All right, perfect. Thanks for all the follow-ups. I appreciate that.
Thank you. Thank you for your question because it helped us to clarify to all what's the situation about that very strange 2019, 2020 and 2021.
Okay, great. Appreciate it. Thank you.
Thank you. We'll take our next question from Ernesto Gabilondo from Bank of America. Ernesto, go ahead.
Hi. Good morning, Marcos, Rafa, and good morning to all your team. Congratulations on your results. My first question is on Citi Banamex. Do you know when they will be opening the data room to initiate the due diligence process? My second question is on the insurance revenues at group level. We noticed they were negative by MXN 3.2 billion. You mentioned that you're expecting a gradual recovery. How should we think of the net insurance revenues at group level in the next quarters? Considering that in 2021, after your restatements, the net insurance revenues were negative by MXN 50 billion, what should be the pre-pandemic level? My last question is on your comprehensive net income.
We noticed the key difference against the reported net income is evaluation of some securities that I believe are impacting or were impacting equity. Can you elaborate on that? Would the comprehensive net income be now the base for the dividend payout ratio? Thank you.
Thank you, Ernesto. We will start for the third one. Rafa?
No, it has nothing to do with the dividend, Ernesto. The comprehensive results have already been in place now that the fact is, now they are presented below the net income line. If you look at the way we have disclosed the capital movements in the past and the available for sale and trading activity parts and the effect on the results and the capital, those numbers have already been in place for years. There's no impact on that.
When we do the capital numbers for the dividend, we already take into consideration all these movements because they are reflected when we go to the core Tier-1. Those numbers reflect exactly all those movements that you referred to, especially the capital ones.
Perfect. The 50% will be from the MXN 35 billion reported in 2021, right?
That's right.
Perfect.
Going to the second one, the insurance revenues of the group level, Rafael. Tomas?
Sure. Yes. I think it's important to look at two sides of the equation. To understand the full impact on the revenue for the insurance business, as you can see on the slide, it has been recovery. However, the number that you are mentioning, it really includes insurance and the annuities part that is the technical result that now move from the margin. You need to also match that with the part that is in the margin for interest income. When you look at both sides of the equation, you will see this slow recovery that we're having in the insurance.
Basically, to give you a guidance for the technical result would be hard for us because of the inflation. As you know, the annuities part have a direct impact from inflation. I would say that it should be slightly less negative than what you are seeing now. No?
Thank you, Tomás. The first one, Ernesto, thank you. As Rafael said, as of today, we will say anything about Citi until something happens. Remember, this process take months, a lot of months. If something happens that you should know, we will say it, and if not, means that there is nothing there.
Oh, understood. Thank you very much.
Okay.
Thank you. Now we will go with, Jorge Henderson from Santander. Jorge, please go ahead.
Hi, good morning. Hi, José Marcos, Rafael, and the whole Banorte team.
Hi, Jorge.
Congratulations for the strong results. We noticed that the Afore XXI Banorte results were weak during the first quarter, which was in some measure expected by the reduction of fees related to the pension system reform. However, it surprised us that the Afore XXI Banorte earnings attributable to Banorte were half of what we expected. We understand that there is an impact on valuation due to higher rates, but what seems a little bit surprising for us is the impact you attribute to the reduction of fees, which is negative MXN 450 million according to your earnings release. While we expect the net income will only fall around 30% in tandem with the fee reductions, which fell from around 0.9% to 0.57%.
I guess my question is if there were any other factors in the story, such as seasonality, expenses, or taxes affecting the results, and also on how do you expect Afore will close 2022? Thanks.
Thank you, Jorge. You said it perfectly. You have the whole picture. We have nothing more to say. If you cannot count on the income, you should count on doing something with the cost. That's what we are going to do, to control and to see what's going on in the future and to work and scale economies and all this that you know that we should do. Your appreciation is perfectly clear, and you have the whole picture.
Okay. I mean, it was strange because you reported the net income, I mean, attributed to Banorte of, I think it was around MXN 150 million, but I don't know if you see that, like, the reduction of the fee. It was from 0.9%-0.57%, as I said, and that was only around 30%. What we expected was that it would fall 30%, so
Yes.
I don't know.
Perhaps let me jump in and clarify the numbers. I mean, first of all, the reduction was not from 0.9%-0.57%. The previous commission was from 0.8%-0.57%. That was one of the things. That's a permanent thing. We also have an impact due to mark-to-market valuation. And that affects not only from the reduction in the commissions but also from the asset side. We are receiving less money because of that as well in the commission part. We started to reduce expenses. One of the expenses that we are tackling is the expenses on sales force.
Now, let me give you the numbers that might help. Everything is before taxes. The combined things of the market valuation and the reduction in the commission, that means that in terms of income from commission, it was a reduction of MXN 490 million. The liquidation costs we have to pay for the sales men that we let go. It was around MXN 162 million. The other issue is the authority has to invest in the same way as we. A certain percentage of the funds, more or less 0.7%, we have to invest in the same way as we're investing the money of our clients.
Due to the reduction because of the market valuation of the assets, we also have a reduction in income in this part, mainly a bit sorry, around MXN 168 million. Those are the impacts. Of course, the first one is permanent and others, I mean, going forward, as we're saying, we'll see how much more we can reduce expenses. Our biggest expense is sales force. We have to also observe what is happening in the market, and according to what we see, then we will decide the speed and to see how much more we can reduce the costs. Of course, what will happen on the valuation of the assets.
That will depend on how things will come forward in terms of the markets. Sorry for jumping in. Thank you.
No, that was very clear. Thanks a lot for the
Just remember that when we define and go into exactly what has been said by Fernando, remember that we anticipated an effect close to MXN 800 million for the Afore with all the effects of the reduction in the fees and the reduction in the expense line that will be the cost of the severance. What Fernando says, this is work in progress. We are looking at every single line of cost to do so. That valuation piece that we had not anticipated, in how aggressive the rates have been moving on that part, but some of that was already anticipated to the market.
Okay. No, thanks a lot. That was very useful.
Thank you, Jorge.
We will now go with Arturo Langa from Itaú BBA. Arturo, please go ahead.
Hi. Good morning. Good morning, everyone. José Marcos and Rafael, Tomás and team, everybody else. Congratulations on the results. I have just one question, and sorry if it's a bit long-winded, but if I were to annualize the first quarter results, you know, usually it's around 23% of full year income. You know, that gets you something already to something like MXN 47 billion. When I look at your guidance, you're improving on a lot of lines, the guidance, you know, efficiency, cost of risk, etc. Moreover, you're gonna have this impact from the lower taxes throughout the year. Is there something I'm missing from this, or can you help me understand better, how to bridge those two things?
A much better outlook, but not such, you know. The net income guidance looks a little bit low in my opinion. Just to help me better understand that would be helpful. Thank you.
Arturo, what do you want me to tell you? I hope you're right. We are not so optimistic as you are. We are cautious here. Remember the pandemic, the COVID, the Ukraine situation, the rates going up, the inflation factor, the political risk, all these that you keep saying and saying. We think that we are cautious. We think we will make it 42, but talking about 47, it sounds like it's too optimistic. I hope you are right. That's all I want to say. Rafael?
No, I think, Arturo, as we mentioned at the beginning, that we adjust the guidance for this quarter, and as we see fit, we will be adjusting the guidance if there's something relevant that needs to be changed.
Your predictions are correct, but I think what Marcos mentioned is really something that has to be taken into account. I mean, what is going on with inflation, with the war, with the supply chains, with many things. I think it's better to be cautious on that. It's not that we are holding back anything, it's that we are taking into account all the elements, as in any scenario, there's a probability that all things could happen in a different way, and that has a reduction on the potential net income for the group. As Marcos mentioned, it's a cautionary issue.
Remember, Banorte has life in its own, no? That's our statement. We need to invest. We are not only running the bank, we are also changing the bank. If you want to see the future of Banorte, and if you want to see us in five and ten years the best bank always, we need to be there and we need to invest. That's why also we need to be cautious and give you a long-term view instead of a good view and that's it, you know.
No, that's very clear. Thank you. Just to round out, so basically, you know, the main risk would be more from the political and the macro and what's going on in the U.S. potentially.
No.
Not anything specific to.
No.
Okay.
Exactly.
Perfect. Thank you very much.
Thank you.
Thank you. From UBS, Thiago.
Hello. Can you hear me?
Yes. Yes.
Hi, guys. Regarding my first quarter results, I have basically two questions. The first one regarding the level of the delinquency ratio. Clearly the delinquency ratio of Banorte is well below the peak level. Do you see any strong motivation for this low level of delinquency ratio? Or in a different way, do you see this returning to peak level? Or have Banorte changed materially the loan book, the credit standards, to maintain a delinquency ratio at a much lower level than the past? My second question is about the JV with Rappi. When do we believe that this should achieve the break-even?
If you see the number of credit cards issued by the JV becoming bigger than the number of credit card on the bank in the medium term.
Thank you, Thiago. I will start with the second one with Rappi's here.
Can you? Thanks. Thank you.
Break-even and being bigger. Thank you, Thiago. Leveraging. That's one. The second one: Having all the information from the customers and having a lot of data, not only from the demographic perspective of the data, but also from the behavior perspective. We're able to exploit all that information, and you can see that in the number of transactions. We are expecting to keep the number of new customers every month and keep expanding the number of credit cards. In respect of the break-even, we're seeing the numbers maybe for the first quarter of 2024 or the last quarter of 2023 to reach the break-even position.
Now, consider that we're looking also for the banking license, and that can change in some way the numbers and the expectations.
Yeah, first one, Rafa, please.
I'll start, and Carlos can comment on this, but we don't have any motivation to keep NPLs at a certain level. It's a result of an extraordinary work from the risk people on the modeling side, on the onboarding side. What it gives us is that risk-adjusted margin for us is a key metric that we follow very closely. If we see a client that is worth taking into the bank, we will go for it. Not only on the consumer, but also on the commercial. You have to be always careful about the NPLs, not as a way that is a motive for us to have a 1% NPL ratio.
It's a result of many, many actions that the bank has taken to improve their onboarding, the modeling, the way we treat the clients, the recovery unit, and things like that. It's giving us 1%, but it could give us 1.3%, 1.4%. What we like to have is always the best numbers in the banking system that allow us to keep the risk-adjusted margin at the levels that we want them to have. Because we don't want to grow at the expense of risk. We want to grow with the right risk and with the right returns for the shareholders. That is something very important, especially during this time that everybody forgets about the pandemic now. But supply chains are clogged. The war is coming.
There's a lot of issues coming on here, and the bank keeps performing extremely well on the risk side, on the risk-adjusted margin, on the margin side, on the cost and funding side. Because of this big evolution that the bank started seven years ago on the risk side to take into account the modeling, the way we relate to the businesses, what kind of businesses we want to have, and all the relationship-based model that we have at the bank. I don't know, Carlos, if you would like to.
Well, you said it perfectly well, Rafa. What I would like to complement is just that, we have a tremendous high quality in origination, in loan origination. We are very well aware of the quality necessary to make a good recovery. When we make collections, what we're doing is the convergence of so many teams within the bank. You're talking about geographic sectors, you're talking about different loan products. You're talking about so many people that are very well coordinated within a cell structure, structured teams. Of course, we will be very motivated to be the best in asset quality regarding credit and all of our assets.
That's a variable that we can control up to a point, but we cannot be discretionary about that. We are amazed about this very high quality, and we are amazed because even with IFRS, with the adoption of some prudent accounting rules, we're seeing that credit quality is re-expressed at the same level that we had before.
No, very clear. Thanks for the answers.
Thank you.
Thank you. We'll take our next question from Jason Mollin from Scotiabank. Jason, go ahead.
Hi. Thank you, Marcos, Rafael, Tomás, José Luis, and team. I have two questions. My first is related to the regulatory environment that you're seeing now. Do you believe there is an even playing field for startups? Do you think that the regulatory outlook could continue to change? Does this put incumbent banks at a disadvantage? And do you expect, you know, in that context, other changes in how the business needs to be managed? We talked about the fees for Afores coming down. Are there any other projects that you see in the pipeline? And my second question is related to the sensitivity of your income statement and balance sheet to changes in interest rates.
You talked about the sensitivity in pesos for NII and dollars, but can you talk about the sensitivity of the movements of the mark to market on your balance sheet? How are you approaching that? You know, we did see something related to the IFRS 9, but mark to market has been volatile in the past or we've seen some volatility. Can you talk about how the group is managing that volatility on the balance sheet side? Thank you.
Thank you, Jason. I will start with the second one, the sensitivity. Tomas, who has this?
Yes. No, I think we can start on the third one, can come later.
Look, the sensitivity, as you know, we have been managing the balance sheet because we have natural hedges that we are taking full advantage of those on the funding side related to the variable rate on the funding side and the fixed rate on the lending side. That's perfect, and those are the numbers that you saw. On the other thing that you mentioned about the capital movements, those have always been there for us.
Now, the fact is that how we are managing those. Remember that a big volatility comes from the UMS, from the Pemex books on that part, because we haven't been allowed to put in a way that is basically not affecting the result, but affecting the capital side. I think that's the only one that we cannot control, because we have been applying to be able to move those papers to a fact that allows for you especially not to have those big jumps on the volatility. Everything else is more than controlled. We hardly have any movements on the valuation on the papers that we have.
The only ones that really move a lot are the ones that I just mentioned to you. I don't know if you want to.
Yes, Jason, I will tell you very briefly about this is that the balance sheet structure reflects an effective positive gap of MXN 135 billion. I'm talking about the peso gap. This accounts for an increase of MXN 19 billion when contrasted to the balance sheet structure of the end of the last year. Loans, which accounts for the 44% of local currency banking book assets and which is represented by the 36% local book of assets, is the main driver of this behavior. We're taking advantage of this upward movement in interest rates because we have a balance sheet configuration which was prepared months and quarters before that. Everyone was expecting what is just happening now.
The surprise is by how much interest rate has been increasing, at what velocity and what pace. I would also see that in the liability side, the main interest rate sensitivity realization driver comes from term deposits. This represents 26% of total liabilities. The second most sensitivity inhibitor is high yield accounts. What I tell you regarding the consumer loans portfolio, this is a fixed rate asset, so there's no contribution on that regard. I will tell you that in the dollar gap and the peso gap, we're long, we're positive, and we are prepared to be around with these two currencies combined to have a MXN 2 billion sensitivity that Rafa was mentioning.
Regarding the first one, Jason, it is pretty interesting. As you know, we're moving to the digital arena, and we will compete with anyone. We want to be the best, and we could do it. Yes, sometimes it's not fair. You know, you can find arbitrage. We need a playing field there, and we are fighting, let's say, that word for it, with authorities. Because in the future, you cannot have two worlds, no? One of banks and another of this arena. Everybody should move to the arena, but everybody should have the same rules, and we're fighting for that. I am sure that it's a matter of time because this, I don't know how to call it, this.
A better way to do things happens, everyone could suffer, you know? That's what we think. If we see a major change in the authorities like the Afore or all these in any major threats, and we don't see it, if we have something to say, we will say it first with you, because we want to be very open and very clear. So far, we don't see any threats regarding that matter.
Yes, Jason, I would just like to complement, because I think that also you wanted more detail on what Rafael discussed now about the securities. The securities that Rafael discussed, we have very little duration of the portfolio because of the floating rates. You can find the detail on page 62 of the report. It's important to mention that for every 100 basis points, let's say that part of the book now of the securities has a sensitivity of around, I would say, $40 million. It's nothing. Basically, this is because of the floating rate, you know, so this is important.
The other thing is that it did react to the markets that they already are discounting a big hike in rates, and that's why we don't see any material changes that Rafael discussed now.
Very helpful. Thank you.
We'll take the next question from Ricardo Alonso García from Credit Suisse. Ricardo, go ahead.
Hi. Thank you for taking my question and good morning to everyone. I have actually a follow-up on Rappi. As you highlighted, yes, there was a nice increase in the average billing of 10% compared to the previous quarter, although growth in the number of new cards in absolute terms slowed down compared to the fourth quarter. First, could you remind us what is your guidance for new cards this year? If you see the soft start related to seasonality in the first quarter of every year, or could it be related to some increasing competition in the segment or a more cautious approach on your side?
Finally, also on Rappi, if there is any color you can provide at this point regarding the credit quality performance of this book? Thank you.
Thank you, Alonso.
You're welcome.
Yes. This is Francisco Martha. Thank you, Alonso. On the first one, as you mentioned, the increase in the billing, it's we keep treating the customers as I mentioned before, by taking advantage of being in a super app, so getting a constant communication with them. The number of new accounts that you see, it's mainly because of seasonality. We are seeing now how it's being increased in March and more than that in April, even although the Easter week and all the vacations, at least here in Mexico. We're confident that we're going to be able to reach the 1 million cards by the end of the year.
The quality of the book, I think it's too early to tell. As you know, the credit cards require some time to mature. We can tell you that we feel comfortable in how the numbers are moving. We don't see any challenging or any particular concern on the quality of the book.
Perfect. Just to follow up, the 1 million is total cards or new cards during 2022?
Thank you, Alonso. Now we will go with Nicolas Riva from BofA. Nicolas, please go ahead.
Thanks very much, Tomás, Rafa, and Marcos, for the chance to ask questions. I have a few questions. The first one, well, thanks very much for providing the detail about the stage two loans. I wanted to ask you how you are defining these different groups. I guess it's based on the number of delinquency days. I guess for the stage three loans, you are defining them as overdue more than 90 days. If you can say specifically the number of delinquency days for the stage two loans.
This is also, more broadly, you know, when you think about your coverage of delinquent loans, I mean, if I look at the stage three bucket, what you called before the NPLs, we still see a high coverage, 211%. But if I look at the coverage of the stage two and stage three loans combined, then I get, of course, a much lower number, which is 114%. When you are thinking about managing, you know, the risk in your loan book, how do you think about that coverage? Is there a target for the coverage of both stage two and stage three loans that you have in mind? That's my second question.
Third, on Banamex, what I wanted to ask you here is, and I know that you cannot talk much about that potential transaction, but in the event, in the case that you were to acquire Banamex, do you see a need to issue more AT1 bonds? My guess, looking at how much you have in AT1 bonds outstanding, is that you wouldn't need to issue more AT1 capital, but I wanted to hear your thoughts. Finally, if you can once again remind us, you know, your commitment to calling the PERPs you have, a perpetual bond which is callable in July, if you can talk once again about that commitment to calling the PERPs. Thanks very much.
Nicolas, before we go, sorry, we just received a message saying that Paco's answer at the last part couldn't be heard correctly, so we will repeat that.
Sorry, Alonso. The number is 1 million cards at the end of the year. It's the 400,000 that we produced in 2021, plus 600,000 that we are planning to produce in 2022.
Thank you. Now moving again, back to Nicolas.
Yes. The 41, the commitment to call it a perpetual, yes. It's a yes. The third one, talking about Banamex and again, we still don't have any number. We still don't have any structure, so we cannot answer that. Sorry. The first one and the second one, I will pass it to Gerardo Salazar, because yes, a lot of things.
Marcos-
Yes.
Marcos, sorry to interrupt, but just—I mean, again, if I look at how much, I'm talking about the potential Banamex transaction, and I'm not talking about the transaction itself, but just thinking about how to finance any transaction of that magnitude. If I look at how much you have in AT1 bonds outstanding, it really seems that such a transaction would need to be funded mostly by equity, especially if you are committed to keeping a CET1 of at least 11%. Is that a fair assumption that you would basically fund it with equity and perhaps senior debt if needed, but that there shouldn't be a need to issue more AT1 capital, even if you were to acquire Banamex? Is that a fair assumption?
Rafa.
Nicolas, let me be very clear about what you're saying. What you're saying is right, but there's one very important missing point. If we are really interested and the transaction could go forward, the structure of this transaction is not just on AT1s or anything. I mean, there are many pieces that have to be together to be clarified before that. Whatever I can tell you that it will be not exactly the way it's gonna happen or could happen. Please, bear with us the fact that we cannot really say anything about something that we don't know what is exactly the potential value of that part.
That's why we are so committed to not say anything until we have really something to say.
Understood, Rafa. Okay, thanks.
Thank you, Nicolas.
Just moving to the stage.
Yes.
Yeah.
Stages 1, 2, and 3 are dismissed.
Thank you. Marcos, what I tell you, Nicolas, is that when you consider the loan book, any credit product at stage one is because there is a 0-30 days delinquency at most. If you go on to the stage two, you will have to consider that a delinquency of 31-89 days. The buck stops there, so there is no other consideration for stage two. For stage three, as you correctly said, is 90 days onward or forward. There is no problem with that classification. What you will see as a main difference regarding some credit products and loan products is that revolvers, such as credit card loans, were considered past due in 60 days in the prior methodology.
Nowadays, you consider them past due in a 90 days timeframe. You will see that revolvers could expose some variation regarding past due loans ratios if you take that into consideration. Regarding commercial loans, for example, you will see that SME loans excluded from commercial loans will increase very slightly because the same payment performance in the prior methodology was 90 days above 60 days delinquency. Nowadays, it's 90 days additional to a 90 days delinquency. When you make those considerations regarding different loan products or paid products, you will come up with some things affecting you in a positive way and some things that affect you in a negative way.
You can see that in Marcos' presentation on page 8, that if you consider everything constant for the fourth quarter of 2021, without and with IFRS, we are more or less the same regarding PDL ratios. The last part, as regarding the coverage ratio, we would love to have the usual 135, 140 coverage ratio. We are well above that because of all the changes that happened in the methodology and the IFRS and things like that. The usual number that by modeling give us is 140, 145.
Understood, Rafa. Just one question there, because you are much higher than that number of coverage if I look at this coverage of stage three loans. Again, if I look at the coverage of stage two and stage three, then you are at 114%. You know, as management, are you now looking more when managing the bank at that coverage of stage two and stage three combined? And is there a target that you would have in mind for that coverage?
The fact, Nicolas, is that you have to go and look at product by product, because each different product requires different levels of coverage. I think we need to. When we give the 130-140, it's mixing everything together. Some of them have a coverage ratio of 190-210. You have to go on a product by product basis.
Okay, fair enough. Thanks very much, Rafael, Marcos and Tomás. Thanks.
Thank you, Nicolas.
Thank you. We'll go now with Luis Yance from Compass. Luis, go ahead.
Hi, guys. Thank you for taking my questions and congratulations on the great results. Just two clarifications. The first one on the dividend. I know you mentioned you're still waiting approval to pay the remaining portion of net income for 2019, 2020. Just wanted to confirm that once you get the approval, you will go ahead and pay it all this year or is there a chance that you might keep some? So that's my question. Also, on your embedded guidance of ROEs between 17.5%-18.5%, what are you assuming there? That you just pay the 50% of last year's earnings, or you're assuming that you pay the whole thing? A related question to that, we've seen other banks actually going ahead and getting the approvals to pay it all.
Just wondering, why is it taking so long for you? Do you think it has to do with the fact that you're a systemically more important bank, or it's just different processes and you've been unlucky on that part? That's my first question. I'm gonna ask the second one.
As we said, it's a funny situation and we are trapped there. As soon as we get out of this situation, we will find out what to do, no? We will have a happy situation and we will tell you what to do, no? Talking about the ROE, Rafael?
The ROE guidance that you are getting, the 18.5%, is considering that we cannot pay the dividends, that we are fully loaded on the capital at the group. Because we are moving also, we ask also the board to allow us to move dividends from the bank to the group to be ready to have those dividends of the group by the results of 2022. You will see that a continuous evolution of more position on the at the group level of capital. There will be a reduction, as I mentioned to you, of 130 basis points at the bank level. No, we are not. 18.5% is considering that we don't pay those dividends.
Okay, great. The other question I had was on NIMs. I know that the base is kind of different because of the IFRS changes, but it seems to me that, you know, the base to compare NIMs is around 5.5% for last year, right? If I take the midpoint of your range on the NIM expansion, I get to, like, 5.8% or so for this year. Number one, is that a correct assumption?
Two, given that you already did 6% in the first quarter, isn't it too conservative to kind of head down on a full year basis, given that you still haven't felt all the positive effects from the recent increase in interest rates and the coming interest rates that are expected to come in the future also, you know, the improvements in the insurance business? Just trying to reconcile your guidance with what's going on going forward and to get a sense of whether within your guidance, that seems to be the line that potentially has more upside risk. Is that fair to assume?
The answer is that I'm saying that something relevant is changing. In the next quarter, we will release more information and we will open, maybe, we will give you good news, no? The way we see things now, we want to keep it this way, no? Maybe that's the right answer.
Okay, great. Thanks a lot, guys.
Bye. Thank you.
Thank you. We will take the next question from Carlos Gomez-Lopez from HSBC. Carlos, go ahead. We can't hear you, Carlos. You can unmute.
My apologies. I'm unmuted now. Thank you for taking the question, and sorry for the delay. The first thing, thank you very much for all the disclosure you have given and the clarity in showing how the accounting change affects the different items in the balance sheet and the income statement. I think it's very good work, so thank you to all for that. Second, I don't know if you have mentioned what your expectation for rates are. I think you said 8% for this year, but is that the peak, or do you expect it to go further? And also related to that, I guess I'm joining the other analysts who are questioning, you know, why not assume a bigger margin expansion if you are expecting much higher rates?
The last question is on the new presentation of comprehensive income. If I understand correctly, everything that is changing in shareholders' equity is included there, with the exception of the interest on the AT1 paper that continues to be excluded. Can you confirm that? Thank you.
Yes. I will start for the third one. Go ahead.
The third one, you're right. Yeah, that's the only one that is not included on that.
Okay, thank you.
The first one, yes, it's gonna be continuous hiking movement. We have 8.5 for the end of the year. Maybe the next year is gonna continue 9. We don't know. So far, we are talking about this year and picking up to 8%. Why not assume a bigger margin expansion? We will discuss that in the next conference call. I guess if we see some room for improvement there.
All right. Again, the 8.25% is your forecast for the end of the year, but not necessarily the peaking rates. It could go higher.
Yes, but in the next year, because it's gonna be up and up and never down. We're going up.
Mm-hmm. Thank you very much.
Hello, this is Alejandro Padilla, Chief Economist.
Okay.
Just to follow on from your previous question about Banco de México. Well, our expectation in a 12-month horizon is that the reference rates will reach 9.25%. Eight and one quarter will be by the end of this year, but 12 months ahead, it's 9.25%. This tells you that there's still a lot of room for the central bank to keep on hiking rates. This 9.25% is gonna be the terminal rate of this tightening cycle from Banco de México.
All right. That's very clear. I guess that means that you will have to discuss further how high the margin will go. Thank you so much.
Thank you.
With Yuri Fernandes. Yuri, please go-
Hi, guys. Thank you, Marcos, Rafa, Tomás, José Luis. Congrats for the quarter. I have a quick one on loan growth. First, just try to understand why you are cutting the guidance. We had high inflation. I know you sound a bit more cautious on the message here, but shouldn't inflation help a little bit on growth for volumes? And what do you see the trends for products? And more importantly, on loan growth, like Marcos discussed in 2022, this should discuss like the sustainable loan growth for Mexico, right? Because I was checking here the multipliers to nominal GDP, and from 2010 to 2020, Mexican banks used to grow at 1.5 times nominal GDP.
Since 2018, Mexican banks they have been growing at 0.4, 0.5 multiplier, and in some years, even negative. My question is, what needs to happen for Mexican banks to recover like this multiplier? You know, start growing above nominal GDP again. Like, what is your view here? If I may, a second follow-up. I know everybody already asked this a lot, but you delivered almost MXN 11 billion in profits this quarter, right? And usually, when you track historically, Q1s are seasonally weaker than other quarters. My question is why just MXN 40.5 billion-MXN 42 billion, given you have lower rate, you have higher rates, you have potentially lower effective tax rate? Don't you think this earnings guidance is too conservative given the MXN 11 billion you already delivered this quarter?
Thank you, and congrats again.
Thank you, Yuri. I will start for the second one because it's interesting how things move and how fast and how short memories we have. Sometimes we are very high, and sometimes we are very low. We want to maintain, you know, we don't want to be schizophrenic, you know, going up and down. Yes, it's cautious, but something could happen in a change of play. Something could happen in the background. We still don't know. We want to be conservative. Yes, maybe there is room for improvement, as I said, and maybe in the next quarter, let's hope we have more good news for you. You know, it's very good news because it's not in the models.
The first number that we have talking about the GDP was above 3%, and now it's below 2%. It's let's make it half of the growth that we were expecting. You are right. The banks, we are multiple in Mexico of the GDP. But if it goes half that we said, it's a lot. That's why inflation comes upwards, you are right, but it's not enough. The best way to say it is not with models, it's with our work.
We see and we hear the clients, and we know the pipeline that is there, and there is no way that they are going to grow a lot. We want to be cautious because you will see that Mexico is not going to grow. No, it is not because of the models, it's because of the reality that we are talking with our clients, and we don't see any big movement there. We want to be cautious in the lending, because you know that you can lose the bank if you lend in the wrong direction, no? That's why that's the answer.
Yuri, I think it's important to go on the different types of loans that we have.
If you look at the credit card business, the credit card business is gonna have a very good year. The payroll loan's the same. Car loans, we have been severely affected by the lack of inventory in the dealers. It's not that we don't have the capacity to grow, but I think as the inventory starts to grow, we will be gonna be able to grow again.
The mortgage book, there have been a very fierce competition and I think we have had a good year on the mortgage book. You say, well, why you reduce NIM 7-9? There's a reason for that. As Marco said, there's many things that take into account when inflation goes up, the mentality of all the people is to hold cash because they need to have the cash on hand because you never know where the prices are gonna go. But the bank has a very strong possibility that we could outpace the market. That has to do with all the.
What we have been doing on the digital space by reducing the onboarding costs and the servicing costs, that we could have a better deal on the expected loss of some of the clients that we currently are not lending to, clients that are clients of Banorte already, that we don't need to go to the market on that part. If that continues to evolve in the same way that has been evolving, maybe we will change the guidance, not because of GDP, because as Marco says, it's a horrible number, but because of the capacity that we have to expand the level of loans that we have with our own clients.
We have been doing a lot of work in that space, and I think we could provide to you around the third quarter the effect of all the things that we are doing. That could really move the loan growth, again, not because of the GDP, but because of what we have been doing with our clients.
José Cuenca from Citi. José, please go ahead.
Hi, everyone. Good morning, and thank you for taking my question. Just very quickly, wanted to confirm. I heard you reference about your strong capital position and how this would allow you to serve or tackle certain clients or carry out certain initiatives. Just wondering what kind of segments, clients, or industries are you looking to serve or deepen your market share? Any comment on that would be appreciated.
Luis. I don't know. We call it the model of la nadadora. We go for everything. As soon as it's good, we take it. We don't want to grow in a segment that it diminishes another one. We want to go for everything as soon as it's good. That's why we have not only the bank. That's our thesis of having a group of subsidiaries with subsidiaries, no? Wherever the business is, we want to be there. We want to be in Mexico. That's why also we want to use all types of channels, no? Because we want to be with our clients wherever they are. We don't have any specific goal of a specific segment.
We want to go for everything as good as it's good.
Thank you.
Thank you. We have two more questions. The next one is from Carlos.
Hi. Thank you. Good morning, gentlemen. This is Carlos Legarreta from GBM. I have two very brief ones, actually. The first one is regarding non-interest-bearing demand deposits. Those were 12% up year-over-year, and they represent 65% of your demand deposits. Honestly, that's an incredible feat considering the inflationary environment that we have. Can you help us understand what is the driver behind this dynamic? I think, Rafael, you already hinted at something like that, but if you have anything else to add, that would be great.
No, I think, Carlos, it's what you mentioned. I think by being a relationship bank, when we do deal with our clients, we take into account the full relationship with them, the lending part, the service part, the funding part. What we take into consideration is the value of the client. That has allow us to really be more and more the preferred bank for those clients. That one is helping us bringing up all that funding. The other thing is that once the activity in the branches is coming back, the activity in the branches is giving us a lot of good numbers on the account openings, and that's account openings is building up this funding base that we're talking about. The SME source is a very powerful source of funds.
All the relationships that we do on the commercial and the corporate and the government is what is giving us, along with the payrolls, this increasing, big, drive on the funding numbers. It's a full relationship based bank that we do.
Great. Thank you. Just to clarify your comment on the dividend proposal for 2021. The shareholders' meeting is today, like you said. Are you including that particular proposal in this meeting, or are you having a separate shareholders' meeting for that one?
No, it is going to be a separate one. It will happen around, I would say 20-30 days, no?
Okay. Thank you very much.
Yes.
We'll take the next question from Edson Murguia. Edson, please go ahead.
Hi, thank you for taking my questions. The first one is related to a couple comments that Rafa said about the expenses. You mentioned that on the following quarters, you're expecting to reduce specifically on the rents and depreciation amortization. I was wondering if you could give us a little bit more details about the strategies that you have been doing so far on the rents of the spaces. The second one is related to the trading income. It gave my attention that this quarter was really good. And specifically on the derivative side, it's got my attention. It's almost around MXN 1,354 million. I was wondering if you could give us more details about this, or it's related this good performance on the change methodology of Asigna.
Thank you.
On the second one is because we have two bigger payments of inflationary premiums or rates, I don't know how to call it. That's why it was a very good quarter. Nothing to do with the new accounting. It was real money, but it's not forever. It's what we do. It's only for this quarter, unfortunately. That's the reason. It depends on the rents, Rafa, please.
No, yeah. I would love to give you more color on that, but take into account that there are people that's gonna be affected on this, so we don't want to go deep into this. Concerning the other part of what Marco mentioned about the inflationary businesses, the relationship banking, again, on the derivative side, is giving us the capacity to serve our clients and to protect them from the hike in the interest rates. That has been extremely active. We have the balance sheet, we have the technology to support that and the relationship managers to do so. We are becoming more and more important in that area in the banking space. Banorte now is, in some cases, some of the leaders in that space.
Okay. Thank you so much, Marcos and Rafa.
Eric Ito from Bradesco. Eric, please go ahead.
Hi, Marcos, Rafael, Tomás, thanks for taking my question, and congratulations on the results. I have a quick follow-up on the questions regarding your loan growth. If you could just give us some color on the breakdown and expectations for commercial loans, SMEs and government loans for the year would help. Thank you.
Sure, Rafa.
Please consider this is a preliminary based upon what we see. Credit card will be in the range 7%-9% growth. Payroll will be in the 6%-8% growth. The mortgage book will be from 8%-10%. Car loans will be barely 3% positive. Commercial, including the SME, will be around 5%. Corporate around 2%-3%, and the government book around 2%-3%.
Great. Thank you.
Thank you. With this, we conclude our call. Thank you very much.
Thank you, all of you.