Good morning. I am Tomás Lozano, Head of Investor Relations, Financial Intelligence, and M&A. I would like to welcome you to Grupo Financiero Banorte first quarter earnings call for 2021. I want to take this opportunity to thank you once again for your participation in our conference call survey. We have reviewed your comments and recommendations from the last call, and they help us to improve for you. 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.
Our CEO, Marco Ramírez, will provide highlights for the first three months of the year, which show early signs of economic recovery in Mexico and the impact for the group. He will guide us through the main financial results for the quarter and will provide an update on the main ESG initiatives. Later on, Rafael Arana, our COO and CFO, will provide further detail on asset quality and other relevant financial and operating results. We will conclude our call with a Q&A session. Thank you. Marcos, please go ahead.
Thank you, Tomas. Good morning, everyone. Thank you for joining our call. The first quarter of the year started with great uncertainty regarding the growth and depth of the second wave of the COVID-19 pandemic in Mexico and around the world. There was a regrettable surge in the number of new cases and death tolls. New lockdowns were announced across different states in the country. However, after peaking in late January, new cases gradually declined during February and March. This enabled the government to resume economic activity earlier than originally anticipated. The COVID-19 vaccination program in Mexico also contributed to lowering contagion rates, as the most vulnerable sectors of the population, such as elderly citizens and medical staff, received their first dose in February and March. As of today, more than 14 million doses have been applied.
Another key driver of this less severe impact was the fact that essential industries such as manufacturing, construction, and mining did not stop operations, and this was instrumental to preventing a deeper impact to economic activity. Mexico's commercial ties with the United States have also contributed to higher manufacturing and trade activity. The strong fiscal stimulus programs recently announced by our neighbor country helped fuel external demand, while also boosting remittances, which are expected to reach another all-time high this year after peaking in 2020. In light of these factors, GDP estimates for 2021 have been recently revised upward. A market consensus is set to 4.6%. Inflation is also expected to rebound to 4.7%, mainly driven by non-core components, specifically energy. The central bank is expected to maintain rates at their current 4% level for the rest of the year, with potential room for a first hike in December.
The guidance provided at the beginning of the year, which assumed a 4% average rate, still holds. Midterm elections will take place on June 6th, the most important election in history of Mexico, with more than 20,000 positions open for election, including all 500 seats of the lower house and 15 state governorships. The outcome will certainly have a relevant influence on the ruling party's participation in the lower house and on the course of the second half of the presidential term. At Banorte, we have remained close to our customers and employees. The bank is fully operational, with the majority of our administrative personnel still working remotely. At our branches, we continue to observe strict health protocols. All the consumer and SME support programs for our customers have come to an end. As we have been communicating, the results were better than anticipated.
Less than 1% of our loan portfolio has not resumed payment, and we have dedicated teams to provide personalized attention and offer flexible solutions to normalize their payment status. Moving on to the slide number four, our provisioning levels are back to the normal methodology, with no extraordinary provisions required during the quarter. We have taken proper measures to write off specific portfolios in advance. Therefore, cost of risk is gradually returning to its pre-pandemic average. The effects of these are also evident on the net income for the group on the slide number five. After the extraordinary provisions booked in December, net income in January had a relevant rebound, and March numbers are already at pre-COVID-19 levels, despite a lower rate environment almost 300 basis points below that of March of 2020.
ROE is also showing a strong recovery driven by lower operating expenses and the expected seasonality in the insurance business, brought by premium renewals during the first quarter of the year. Capital accumulation at the group level is still hurting the ROE. As we continue to hold the unpaid 2019 dividend, we have recently received authorization from the regulator to distribute 25% of the 2019 and 2020 net income results, and we will continue our efforts to obtain authorization to distribute the rest as early as possible. Taking a closer look at our revenue lines in slide number six, net interest income was pressured by the lower rate environment. However, it was partially offset by insurance premium seasonality.
During this quarter, there was a relevant increase in COVID-19 related claims. This also reflected the NII of the quarter. On slide number seven, lower activity in bank and debit cards brought slightly lower fees charge, while fees paid are still higher as we rely more on external sales forces to originate mortgages and auto loans. As you can see also on slide number seven, mobile adoption and online transactions have redefined customer behavior for good. On slide number eight, loan growth was primarily driven by consumers, specifically mortgages and payroll loans. Auto loans have remained stable, although new car sales have not yet recovered. We continue with a prudent approach on credit card origination, prioritizing asset quality.
I would like to emphasize that the increase in NPLs is the result of a gradual return to pre-pandemic average as the consumer and SME portfolios resume their normal operation after all relief programs have come to an end. Our non-banking subsidiaries, that's on slide number nine, showed solid results in the brokerage sector due to higher interest income and trading gains. While our annuity business was flat, mainly from higher expenses associated to new projects and investments. The insurance business on slide number 10 showed a seasonal increase driven by premium renewals during the quarter. However, we saw an unfortunate increase in claims in the life and health insurance portfolios from COVID-19 related cases, which explains the relevant annual decline in its net income. Switching gears to ESG on slide number 11.
I'm happy to announce that earlier this month, we have published our 2020 integrated annual report, which this year incorporates a greater disclosure of our ESG initiatives. This is our first year to report under the SASB standards, and you will also find an updated materiality matrix among other additions to our report. As in the previous quarters, we have included supplementary ESG information in the conference call presentation for your review. As a final comment, over the past months, we have been designing our medium-term strategic plan, which is centered around our next decisive steps into the digital world.
We are preparing an investor day, where we will provide specific details, financial metrics, and detailed timelines for different projects in the pipeline. We will be sending the invitation over the next few months, and we look forward to seeing you there. With this, I conclude my remarks, and now Rafael Arana will give you additional details on the main operating and financial updates for the group. Rafa, please go ahead.
Yes. Thank you very much. Everybody for attending the call. I will try to concentrate on the main issues for the quarter. As you can see on the slide, we continue to be very prudent on the balance sheets. That continues to be solid as standard slide. I think it's becoming the capital strength of the bank. The liquidity purposes of the bank continue to be very strong in order to be able to cope with any unexpected issues in the market. Expenses, as you know, we did in December, an extraordinary around MXN 500 million in December that really put a tick on the cost-income ratio and deteriorated the cost-income ratio. Basically, was to clean up all the efficiency process that we did in part in December and January. Now expenses are under control and even below guidance on this part.
The net interest margin of the portfolio continues to do well. I think when you look at the net interest margin, we will see that in a minute, of the bank around the 5.8%, that has been very stable and steady. This has to do with the cost of funds and also with a better mix. I will talk a minute related to the characteristics of the cycle. The capital numbers, just to give you, is 21.7% and Core Tier 1 is 15%. As Marcos mentioned, now we have the go for the 25% of the net income of 2019, and in the coming months, we are also being approved to pay 25% of net income of 2020. In the year for sure, we will be paying the 2019, 25%, and the 2020, 25%. Okay? That's what we have been approved to do. Okay?
On the next slide, what you see, the NIM, and I think that's a critical piece for the evolution of the bank. The NIM continues to be very resilient, as you can see on the graph. It stays at the same level that we have in October, September, November on that part, even with a strong reduction in the interest rates, close to 300 basis points. I think the NIM of the bank continues to be resilient. The trend in the cost of funds continues to go down and the level of the accumulation of deposits and the mix on demand deposits continues to improve. Now we are above the 70% in demand deposits. That is really helping us to put the cost of funds down, and with a very good growth year-on-year, close to 12% when you add also the time deposit piece.
The margin sensitivity evolution continues to do well. I think when we eliminate the fixed-rate liabilities that we have, we have been very flexible and accommodate any issues on the market, but the sensitivity stays at the same level that we have been able to cope with all these ups and downs in rates and currencies. The expense line, I would like also to take a minute to go through the expense line, because there have been some concerns about how fast the expense line is going to go down in Banorte. I think in this graph you can easily see that after the December extraordinary provisions that we put on the expense line, now personal expenses are growing year-on-year 2%.
Professional fees, that has to do also with the evolution of all the recovery units and also the mortgage and car loans linked to that, and also the corporate and commercial. It's going up. It's good because it shows the activity that we have on that part, on the credit lines. All in all, we see an increase year-on-year around 4% for this. As you know, we said inflation + 150 basis points. I think, at this point in time, we are confident that we will be below that part of the guidance. When we have more information, we will put that in the new part of the guidance. The capital ratios of the bank, as you can see, that continues to be quite strong.
We are net providers of capital because of the structure of the group, how the subsidiaries and the bank continues to evolve to a much more strong capital base on a month-by-month basis. Relevant to say that we haven't needed any release of the waivers that the CNBV allowed the banks to have. I think Banorte is way above those numbers. The same that in the liquidity part, as you can see in the next graph, liquidity continues to be very strong. Obviously, liquidity has a price. It's very low on the net interest margin. You will start to see this number trending more to a normalized level around 160 in the coming months. That will also help us on the margin line.
I think during the pandemic, you can see on the graph how fast Banorte was able to immediately put a service on the liquidity for any issues that were related to the pandemic. This shows how fast and how efficient and flexible the structure of Banorte is. At this point in time, there has been some good questions from investors and analysts that if we are going to change the guidance. We would like to wait at least on the next quarter to see if we see a change in this. Obviously, the market is starting to refresh itself, to grow again.
What is very important for Banorte in the long road is that under this environment that is just starting to move ahead and coming back to pre-pandemic levels, Banorte has been able to gain market share at a very considerable pace. On the overall loan book, we gained 112 basis points on a year-over-year basis. If we go on a piece by piece, on the corporate and commercial, 132 basis points in the market share. On the mortgage book, 34 basis points. In credit cards, 35 basis points. Even though credit cards reduces its growth, it loses a lot less than the market. In car loans, we grew 147 basis points.
In payroll, that is becoming, again, a natural product for us on the growth line, on the margin and on the loan book, is also growing 131 basis points. This is in what is considered a weak environment. What is relevant about this is that we are taking advantage of this to gain market share, to grow our loan book in a very safe and secure way, as you saw when Marcos presented the numbers on the credit numbers, much better than expected, and at the same time continue to expand and grow the market share. With this, I conclude my remarks.
Thank you, Marcos and Rafael. Now we will continue with our Q&A section. Please raise your hand on the platform, and we will unmute you when your turn comes. Questions will be ordered automatically on a first come, first served basis. Jose Luis and myself will be calling the name of the person that is next on the line. If there are any technical difficulties, please let us know by using the chat. Thank you. We are now ready to start the Q&A session. Thank you. We will take our 1st question from Thiago Batista from UBS. Thiago, good morning. Please go ahead.
Good morning. Thanks, José Marcos. Thanks, Rafael. Thanks, everyone. I have two questions. You guys have discussed a bit the dividend strategy. After the approval of CNBV of the 25% of earnings of 2019 and 2020, how much dividends we can expect? I know that up to now, the banks can only pay this amount, but it's possible to believe that, let's say, a new round of payments should be possible in the second half. This is the first one, and the second question is about the margin evolution. When we look to your NIM this quarter, we saw a decline in the NIMs of the bank, but an increase in the overall margins. What we can expect for the bank's margins going forward?
Thank you, Thiago. The dividends, as soon as we can, we will pay up to 50% as we were paying in the past. It depends on the regulators, the companies, we see that in near future, I guess. Talking about the margin evolution, Rafa, please go ahead.
Yeah, the margin, Thiago. What you should be looking at, and I think we are going to start to see an evolution of the rates on an upward trend. If we continue to be at the same level of rates that we have, you should be looking at a margin around 5.6%, 5.65%. With a trend that we expect, you should be also accelerating that number to above the 5.8%, if what we expect that the rates will start to pick up. With a scenario like the current one that we have, this 5.65% is what we think that we can sustain the margin for the bank.
Okay, we will take our next question from Ernesto Gabilondo from Bank of America. Ernesto, please go ahead.
Hi, good morning, Marcos, Rafa, Tomás, good morning, everyone. Thanks for the opportunity. My 1st question is on asset quality and provision charges. As you mentioned in your starting remarks, today less than 1% of the loan book has not resumed payments. After this first quarter, how much of the delayed portfolio was restructured? Can you share how has been the cleanup of the portfolio? I remember you were starting with a credit card portfolio, in the next quarters, you will continue with SMEs. If you can provide more color on this, I think will be very helpful. Also, we have seen very positive asset quality trends in the quarter.
How should we think about your cost of risk guidance of 2.1%-2.3%? Do you think it could be more in the low range? I remember you saying the possibility to release provision charges at some point. What could be the amount that you can release, and what do you need to see in terms of asset quality in order to do this? What should be the NPL ratio and cost of risk to release the provision charges? Thank you.
Thank you, Ernesto. Interesting, the three questions. I will start the asset quality with Rafa and then also Gerardo Salazar. Go ahead.
The asset quality, Ernesto, as you said and Marcos mentioned, better than expected. All the programs have finalized. Now we have a very clear view about how many of the clients were in issues that needed to do a restructuring or tailor-made programs for them. That's, as you mentioned, less than 1%, around 8,000 clients that are of the 632,000. 8,000 clients are already in a one-to-one basis with the recovery unit, and I think we have been received very positive feedback from how the clients are evolution.
Let me just give you an example of how we are dealing with this. Clients that have been paying their mortgage for five, seven, six years, and suddenly they have a reduction in their salary, and they have to accommodate a different type of payments. We set up a specific tailor-made type of loan, well, not a loan, a relationship with them. We are doing that in a one-to-one basis. The recovery unit, along with the product and the risk guys, are doing an extremely very positive work with this.
We are very confident that this number will continue to go down as time evolves. I would say that's in a nutshell, that we are getting all the advantage of having, as you know, the best recovery unit for many years at the bank, aligned with a very specific product for the clients. We don't see additional deterioration of that. What I see is that this part of the loan book will continue to improve based upon these tailor-made products that we are providing the market with. On that, I will then go to Gerardo, and then I go back to some of the others.
Okay. Thank you, Rafael, Marcos. Regarding your question, Ernesto, let me provide you some color about the loan book trade practices. I will say that there are four main drivers of what we have done regarding asset quality within the financial group. The first driver is that we have adjusted the loan portfolio strategy to prevent an increase in P&L volatility. That's very important for us. The second driver is that we have reformed trade management practices to prevent exposures from deteriorating. We have acted in a preemptive manner. I will say that these first two drivers have provided a good market segmentation, a good deal origination, and also I will add a third driver, which comes from our retail and wholesale bankers that initiated a process of rethinking deal origination to reflect changes in risk appetite under the pandemic scenario.
That has been very important because we are not just doing proactive collection about that loans, but we are also doing some preventive practices regarding the loan book, and that continues to be very important. The fourth driver regarding asset quality is that from an institutional point of view, we have provided and made sure that new training and incentives to personnel strengthen the commercial network in a risk-based performance evaluation. That continues to be a very important value within our trade culture in order to protect our asset quality. There are, regarding these loan book trade policies, these four main drivers. What have been the results so far? You have seen those, and I will just say three things. NPLs, regarding the mix at the financial group level, are below budget, charge-offs are below budget, and provisions are below budget.
Those three things are very important to know because what you see in our first quarter report comes from the things that we have mentioned. The P&L mix continues to perform better than expected, given that credit and collection processes are multifactorial and also of an holistic nature, as you may know. I can just, for the quarter effects regarding asset quality, add three or four main characteristics. We have evaluated custom-made solutions for our customers. We have provided dynamic and adaptable credit collection policies. They change over time and are reviewed weekly.
Second, I would also add that we have frequent communications with our customers and quick and easy debt settlements with our customers. Also, there are faculties in place in order to empower our employees and all the account executives in charge with billing collections with the necessary faculties in order to proceed and be successful. We are very pleased about the evolution of those things because, as we have mentioned several times, we expected worse, and that hasn't happened.
Yeah. Concerning in addition to what Gerardo just mentioned, the potential release of provisions, if it will happen, it will happen at the end of the third quarter. That's where we will have much more clarity about the things. As we see things up to today, we see that we have enough provisions to cover different stress scenarios, and we see a real possibility to release. I cannot say how many, because it's too soon, but we see possibility to release on that part.
The other thing that I think is worth mentioning about your question about this is when are we going to be ready for the release of provisions or what will be the key trigger of the release of provisions? Marcos mentioned that the evolution of the NPLs will now be trending to the natural level of the bank that we have been running the bank in the past, from 1.8%-2.0%, the cost of risk from 1.8%-2.1%. We see already a good trend on that, and we are surprised in some of the portfolios because it seems that they will be below the normal trend of the bank.
When we see that that materializes on a continuous basis, it's when we will really start to releasing the provisions that we think could happen, if it happens, at the end of the third quarter and for sure in the fourth quarter. The credit card book that you see a pickup on the NPLs, now we start to do the charge-off on the credit card that will normalize in the second quarter, and that will be like an example of the most risky part of the portfolio, how fast it will trend to the normal business. In the mortgage book, in the car loan book, in the payroll books, and even in the SME book, the numbers from NPLs are well below the usual trend that the bank has.
Even though of the provision that we create and the write-off, as you know, the MXN 7.2 billion, it seems to us that up to today, we have only used 25% of those provisions because we have been very disciplined to say, "These are COVID-related provisions, then we use COVID-related provisions." We have only needed to use only 25% of those provisions. With most of the portfolios are now ended, it seems that could make a good projection for the remaining of the year. We continue to be very vigilant.
We are not saying that this is over at all. I think the recovery unit and risk and products are all taking very good care of this. Up to today, the surprise is very positive for us about the behavior of the clients, how good the products for the banks have been in order to sort out the situation, and at the same time, how fast we can really decide on a one-to-one basis in order for the clients to be fully at ease with us, and that we will pass this bad timing together.
Yeah. I will also add, without being cocky, and I underline that, without being cocky, overall, restructurings in a wholesale banking part of the business have occurred in the cases, sectors, projects, and geographies we have foreseen. Up to now, there have not been any negative surprises or nothing that we have not been expected prior to that.
This is super helpful. Thank you very much. Let me make you a last question. Which do you think are the potential tailwinds for Banorte? Is it upside risks to GDP and long road? Is it the potential release of provisions or a potential hiking cycle benefiting NIMs or your potential digital transformation?
I would say that the last one, because that's forever. The others, they will come and go. We need to find something for the future, or really have a tailwind forever, and we will go. That's why we will release our digital plan and our new, it's called 123. This is the new 2020 that we will release, I don't know, in a few months, and you will be invited.
If I may add, Ernesto, we continue to see a good evolution on the margin, on the pricing side, a good evolution on the risk side. Expenses will be under control. I think the market share that we're gaining, I think it's quite remarkable. I think our BBVA and our CERCA are really gaining market share on this based upon their liquidity and capital position and also the origination models and how attractive the bank has been in releasing their digital origination processes on this. We see, in a weak environment, because the environment continues to be weak, we have been able to really go for the clients that we want, grow with the clients that we want. I think the cost of funds will be another tailwind that we will have also in this.
We will normalize the fee side because, as you know, the fee side has been impacted by the payments that we need to do for the external set of forces. That will go and trend down based upon all the digital origination process. When you see the regain of growth of the fee side, on the transactional side, and also on the electronic fee part of the bank, I think it's remarkable. We are growing 100% in some cases on that, and really down from the very low end of the pandemic. The tailwind is really coming based upon how fast we see that the group is moving from January to February, from February to March. This is moving by the month, and it's moving in the right direction. Why we are not more optimistic in some of the ways?
Still there's a vaccination process going on, because it's still a possibility of another wave. I think we have to be prudent. We are very happy that we can release 25% of the dividends on 2019 right now, and we will release 25% of the 2020. We are very pleased with that, and we will push, as Marcos said, in order to be able to pay more in the remainder of the year once we get the approval for that. The tailwinds are not strong, but there is tailwinds for Banorte, yes.
Perfect. Thank you so much.
Thank you.
Thank you, Ernesto. Now we will take a question from Jason Mollin from Scotiabank. Jason, please go ahead.
Hello, can you hear me?
Yes.
Thanks, Tomás, Marcos, Rafael. Appreciate the presentation. One thing, clearly, the trends in asset quality were very encouraging, and you just mentioned some other encouraging trends, but some of the pain from the pandemic this quarter we saw in the insurance subsidiary with a large, you disclosed, I think it was MXN 1.8 billion in claims and damages. Can you talk about that, and is that something that should be going down as well and actually helpful in upcoming quarters, or there are still more claims you expect in the future? My second question is more about the guidance. When you reiterate the guidance, you say, I think correctly, it's prudent to see how things are going. It also showed me, I think, the diversification of your earnings this quarter. The bank was already close to 18% ROE.
That's the low end of your target for the year. The broker-dealer, you mentioned, had some good trading gains. It's set to 26% ROE along with mutual funds. Insurance, even with that claim, was above 30%. The Afore seems on the lower side, I guess maybe you could talk about that if there's upside to that 13% ROE. I think the diversification is also something that differentiates Banorte from some of your peers. If you can talk about that, I guess we'll hear more about the digital side and the new ventures, I guess, that could lead to more diversification in the future. If you can touch on those subjects, that would be helpful.
Thank you, Jason. I will look first for the insurance question. I have also is with us, Fer Solis. Please, Fred, please go ahead.
Yes. Thank you, Marcos. Hello, Jason and everybody. Well, yes, as was mentioned, we experienced very important number of claims, and the frequency was very high in January and February. It has become lower in the past month, and hopefully, it will keep coming down. Actually, what we observed in January and February, it was much higher than the previous months of last year. Of course, that year, the first quarter, we didn't have COVID and an impact in insurance due to COVID. This quarter, we experienced a very important, a very severe impact because of what I have just mentioned. Now, it's very important to say that the net income of insurance company would have been 8% higher than the previous year without this impact.
Also, it's very important to say that as usual, as you know, we are always very conservative in respect to the provisions that we do make for the future. Since there's not much experience in the markets of pandemics of this size, as you know, the last one, the important one took place like 100 years ago. We are using very conservative models to create provisions. Hopefully, those provisions will not only be enough. Hopefully, if the trend keeps going down and if we do not experience a third wave, and hopefully the vaccination process accelerates and, of course, as more people have been vaccinated, the less likely that the impact will go up.
Hopefully, we will keep seeing this trend to go down, and hopefully, we will not have to pay as much as we have been doing in life mainly, but also in medical expenses. Although our exposure to the life book is higher than the one that we have in medical expenses. Hopefully, we will not be paying as much as we did in this last quarter, and hopefully, we will not keep increasing the incurred but not reported reserve.
As I just mentioned, using actuarial criteria because we do not have experience on this before. Therefore, we will see if that's the case, that even maybe we will look to release some of these provisions by the end of the year. As Rafael Arana mentioned, for other things of the bank, I think that we will have to wait and see at least to the third quarter of this year to see what happens. That's what I would say about the insurance book.
Talking about the diversification, yes, for each it's key to go the way we want to be here in Mexico. Yes, we have the insurance, the Afore, we have the call center, the branches, the ATMs, the digital project, the corresponsales. Everything is set in place, it doesn't matter how the market moves, we will be there. The idea is to be where the market is going to be, that's why the digital program for us is so important. I would ask Francisco Martha to give you some color on that, please.
Thank you, Marcos. Thank you, Jason. As a continuing of the 2020 strategy, we start defining the next steps a couple of years ago, and we're working in three different streamlines. One, and I think the most important of the three, is to accelerate the digital transformation of Banorte. We are working not only on the mobile bank and the mobile application, but we will launch a new release in a couple of months. We are working also with the acquiring business, as Rafa mentioned, growing tremendously in the number of transactions. We are creating a marketplace for SMEs where they can show off their products, and some other different strategies and projects within the Banorte digital transformation. We are also working, as you know, in the joint venture with Rappi. We have now more than 100,000 credit cards approved. 86% of them are already making transactions.
We are planning to have close to 400,000 by the end of the year. That's moving very properly. The main driver of that joint venture and that success is taking advantage of the large amount of data that we have from the customers that are using the Rappi application, where they can ask for groceries or for food, meals, et cetera. Also being on the first page of the cellphone. That's the second streamline, and the third is the digital bank that is going to be created. We are working in the desktop stage, but we already know the strategy, how it's going to work. It's a bank that will be completely directed to the personalization of the services and products. We're thinking that it needs to be aligned to the emotions of the customers.
We want the customer to really love the bank, love the experience of the bank. Obviously, it has to provide journeys that are completely flawless and very aligned with what the customer is experiencing in the moment. Very aligned with the context of each of the customers. In that digital bank, we are going to start working with a debit account, personal loan, a payroll loan. Three months later, we are pretending to launch credit cards, and three months later, an investment account.
We are planning to have a friends and family by the end of maybe July, August. And it will be a friends and family within a very close loop of persons, because we don't have the authority's approval yet. We're pretending to have that by the end of the year, but the last four months of the year, we are going to run and run tests to be sure that we are completely aligned to what we believe is going to impact positively the customers.
If I may just add to the Afore question. I would also, Jason, like to go about what Fernando mentioned about this prudent way. If you look at premiums, retain insurance premiums, we have a growth in the insurance premiums of 26% year-over-year. Premiums grew very strong. Obviously, technical reserves, as Fernando mentioned, grew 37%, and damages and claims 77%. If you say about a potential tailwind, this will go and turn to normal. Now concerning the return on equity of the insurance business that, as you say, is above the 30%, the annuities business above the 20%, and the bank also remarkably in March rebounded to 19.8% on return on equity, saying that what we have been saying before, that we see the bank close to the 19%-20% return on equity on a steady basis.
The Afore, remember, that holds a big portion of goodwill. If you strip the goodwill portion and you go to tangible, the returns on the Afore is around 40% return on equity. I think that's also relevant to say, but the architecture of the group, as you may say, Jason, help us to really form capital on a continued basis for the group, leaving the bank, create, generating its own capital. Also, it's relevant to say that we haven't moved capital from the subsidiaries to the group, so you see also an effect on that on the return on equity. Once we start with moving capital again to the group, the subsidiaries will show also an improvement in the return on equity.
We will take our next question from Jorge Kuri from Morgan Stanley. Jorge, please go ahead.
Hi, good morning, everyone. I have two questions and just a quick clarification. On your number of guidance, I get it that it's a slow recovery on this year on the back of a very complicated 2020. 6%-8% seems to be in line with what the macro environment calls for. Given the improvement in your liquidity, given the improvement in delinquency and risk appetite and, hopefully on economic recovery going forward, you also mentioned taking market share, what do you think would be a more normalized level of growth for Banorte if we think about 2022 and 2023? I also understand that the macro in Mexico has changed given the new policies on foreign investment and government investment, et cetera. Wanted to see what you think is the new normal for credit growth if we think about 2022, 2023.
My second question is on the digital bank. How do we think about this digital bank that's in the works? Is it a different brand to a different segment of the population? Does it substitute your current digital platform at Banorte and this is the way your Banorte clients are going to access the bank? Is it just competition with the current digital? Just help us understand where the digital bank fits within Banorte and its own digital strategies. The clarification is just on the dividend. The dividend payment, is there a specific month that has been determined for that? Thank you.
Thank you, Jorge. Let me start. I will ask Gabriel Casillas to give us some color on the economic growth of the country, then we will discuss how many times we can uptake this growth in the credit growth of the bank. Gabriel, please give us a color, what you think about the 2021, 2022, and 2023, please.
Thank you very much, Marcos, and thanks, Jorge, for your question. As you know, I think the economic prospects for the world has been improving. In Mexico is no exception. As you know, we are also going to be quite benefited from the U.S. stimulus packages that have been approved recently that joined to the other five fiscal stimulus packages approved last year. In this context, we recently revised our forecast on the economic analysis area from 4.1% that we had to 5.3%. We did it about two months ago. One of the main differences is exactly the latest fiscal stimulus package approved in the U.S. In our view, those $1.9 trillion will help the Mexican economy with 130 basis points of GDP growth. That's the main thing.
This year and next year, Mexico will be benefiting from two things, the rebound from the big decline last year of 8.2%, and the second, all this boost in fiscal stimulus package in the U.S. Moreover, we're not taking into account the probable approval of the new infrastructure project in the U.S. Infrastructure program, sorry. In this context, definitely these two years, I think they're going to be benefiting from that. For next year, it's highly likely that we'll be growing around 3%, or even slightly more, towards 4%. The big question is to 2023, whether the Mexican economy, now that it's no longer going to benefit from the U.S. fiscal stimulus packages and probably the Fed will be starting to hike or starting announcing that they will hike interest rates, and the arithmetic component of growth after the big decline will not be present.
The big question is going to be whether we're going to be able to reflect the historical growth rate of 2.3% in the past. As you were mentioning, Jorge, there have been many changes here. The changes that the government is doing, as you know, are mainly on energy laws, not another. Of course, there's some spillover effect, and the private sector is not investing a lot. People and firms, particularly local firms, are realizing that if you're not in the energy sector, pretty much you can invest and you won't have any problems. It's taking longer for them to realize this, but you start to see some investment, some pent-up investment that has been in the pipeline starting to happen. This in terms of local firms. In terms of foreign firms, actually, we're seeing several important investments of companies based upon two things.
Number one, they want to diversify the China risk. As you know, the tension between the U.S. and China is not over with the exit of Trump. Continues to happen. It's there. The second one, it's after the pandemic, called the nearshoring thing. In which, as you know, companies want to have their suppliers closer to the consumption centers. Actually, this has benefited Mexico. In this context, we're very close to the U.S. economically and geographically, as you know. We benefit from that, despite the things that have been happening in Mexico that, as you know, President López Obrador, AMLO, he's doing the things exactly by his book. It's a by-the-book man.
He's been doing the things he said he will do. The social programs, the infrastructure projects, being respectful with the central bank autonomy, and fiscal responsible. Number four, the undo policies. Those are the ones that he's trying to pursue right now. He already, as you know, he undid the educational reform, and now he wants to revert all the energy reform. I think that's it, and we are quite optimistic about this in this context. Tomas? Thanks, Marcos. Thanks. Jorge?
Well, having said that, we are thinking, I will go directly to the point, to grow this year six to eight, to grow in 2022 from 10-12, and also in 2023 to 10-12. We have the tools, and we will go for that growth in the market. Talking about the dividends, this year we will pay, this time, we will pay the 2019, 75% of the 2019. We will call for an assembly soon, and we will pay another 25% of the 2020. We will work with the authorities to go for the rest of the dividends. Is that clear or no? Jorge?
Sorry, the clarification I wanted is the timing of it. If you have any guidance on what quarter will those dividends hit?
Yeah. The second quarter. The first one goes in the second quarter, Jorge.
Okay.
The next one, we will try to go for the third quarter, but that's when it will happen in this. We have an assembly today, to be presented to the assembly. Once we have the go for the assembly, we will set up the date, the exact date for that. I would say that second and third quarter will be our goal.
If the assembly approves, Jorge, the first part that Rafael mentioned will be paid on the 4th of May.
Okay.
At the assembly today.
Great. Thanks. Just my second question on the digital bank, if you will. Thank you.
Thank you, Jorge. This is Francisco Marta. We now learn that the financial services is not that the customers are going to come to us, but we have to go and serve them where they are, when they want, and so on. I want to remark that this digital bank strategy is not affected by the pandemic. We have been thinking and we have been defining it at the end. We start defining it at the end of 2018. It's going to be a completely different organization, a completely different brand.
You can guess that it will have a last name that's powered by Banorte, but it will be a different brand with different products. At the end, it will be a competition for Banorte, of course. We believe or we are convinced that considering the cost-to-income ratio that we will have in the digital bank, we will be able to serve a lot of other type of customers that we are not serving currently in Banorte.
Thank you.
Thank you. We'll take our next question from Ricardo from BTG. Ricardo, please go ahead.
Hi, everyone. Thank you for the opportunity to make questions. First, I want to understand a little bit how you're seeing the competitive landscape in terms of Fintechs. We see that Nubank, which is a large fintech player here in Brazil, is talking about entering the Mexican market. How you see that, how you're preparing, you mentioned your digital strategy, but if you could elaborate on how the competition is doing, how you're preparing to deal with that. Also, if I may, if you could please repeat what you were saying about the growth of the portfolio that you're expecting, considering this improving GDP scenario for Mexico would also be helpful. Thank you.
You want to take that one?
Okay, no problem. Ricardo, let me just give you an idea about the fintech and the landscape and the competitive landscape. What we saw in the pandemic, Banorte has been evolving a lot in the digital transformation. Even though now you can originate most of the products on a digital space, as Paco mentioned, I think this is key to understand the strategic motive that we have. If you are a digital client, a digital customer, that you are very comfortable being on the digital space, maybe you are not willing to pay any more for infrastructure that you don't use, like a very large set of branches or whatever you want to put in the physical structure.
That puts the clients of your bank, in a way, at a risk, because if somebody comes with an offer that really takes away the cost of that physical infrastructure really puts you in a disadvantage of that. The first thing about the digital bank and the new banks, and they're coming to us, even if we have to be better than they are in the user experience, in the process than they are, but also you have a lot of the strength of the Financial Group in that part. In a way, you are as fast and as nimble as they are, but with all the strength of the Financial Group and the expertise of the Financial Group. This is, in a way, a tactical movement to protect your own clients.
If they want to move to the digital bank, they will move to SOFIN, because they will get benefits on the cost side and data analytics that will be very rich on that. I think in order to really compensate for the potential entrance of banks like this, we needed to be better than they, and faster than they are, with all the strength of the Banorte group on site. You have a very nimble bank with very specific goals on cost-to-income ratio, and simplicity, and user experience, and Paco mentioned. This is obviously an aggressive movement from Banorte to capture the digital space, but also a defensive move in order to protect the Banorte clients.
Thank you, Ricardo. I don't know if that was good enough for your question, or you want us to explain perhaps a little bit more? Okay. We'll take our next question from Brian Foran from Citi. Brian, please go ahead.
Hi. Thank you. Just to confirm, can you hear me now?
Yes, perfectly.
Thank you. Rafa and team, thank you for the opportunity. Just a quick follow-up. I wanted to expand on asset quality. Do you have any early delinquency rates that you're monitoring? Just to understand, when are you anticipating the peaks of NPL during 2021?
In SMEs? Sorry, Brian, in SMEs? Or just in portfolio?
If you can speak about SMEs.
Brian, you saw the peak in credit cards in the first quarter. You will continue to see peak on payroll loans to the second quarter. On the third quarter, you will start to see some of the initial SMEs getting into that. At the end, I would say all this process will go to the first quarter of 2022. I think the peak on that, you have to understand that you have the peak, then you apply the charge-offs, and then you go back to the normal levels that we anticipated, and it has been running Banorte. There were some questions about SMEs. In SMEs, we are very surprised about the resilience of the SME world. Clients are really struggling, but paying and being very close to Banorte, and we have been very close to them.
Remember that we have a very important part of NAFIN guarantees on SMEs, that we have been using in order to clean the portfolio. SMEs also has been extremely good surprise. If you are looking at NPLs, 3.8% NPLs, when we used to run the book around 7.1%. Still a lot of room for improvement there. That's another very important surprise. It says a lot about the entrepreneurship characteristics of the Mexican entrepreneur. These guys have been extremely resilient. Remember that they didn't receive any help from the authorities at all. Everything was coming from the bank. They have been extremely responsible on this, and more than willing to keep on going and going and going. They adapt immediately to the new norm, and very surprisingly, a very good performance on the NPLs.
Okay. Thank you very much. I just wanted to confirm, Rafa and team, are you confirming your guidance for the growth of the book in every segment as you did in the previous quarter?
Yes.
Okay. Taking the next question from Edson Murguia from Dinamics. Please go ahead.
Hi. Good morning. Do you hear me?
Yes.
Thank you, Marcos and Rafa, and everyone else. Just I want to ask two questions. The first one is related to this regulatory framework from the Mexican authorities that has been sent and then pulled back from the CNBV regarding to this passive orders, and it's been said a lot. I was wondering if you can give us your thoughts and color about this specific topic, and if you are considering a new, I don't want to say regulation, but a new framework regarding this. The second one is regarding to your net zero effort or strategy to 2050. If you can give us more detail about and if you can share with us the details about this net zero effort.
Okay. I will ask Gabriel Casillas to start with the net zero effort first. Go, Rafael.
Thank you, Marcos. Thanks for the question. Actually, we are very happy that we were able to join this banking alliance. Really, all these ESG efforts are coming from top down. As you know, a year and a half ago, our chairman, Carlos Hank, and Marcos, went to the UN in New York to sign as founding members of the Principles for Responsible Banking. I think this is part of following up these commitments that now we have. The thing is, in order to be net zero for 2050, we would have to set up some objectives for 2030, some for 2040. In this context, we'll start to, of course, to move away at a very gradual pace from all the credit part in our loan book of things that have big emissions. This is going to be a gradual effort. It's 2050.
It's going to be quite gradual. The circumstances in the country right now, as you know, with the current administration that are benefiting more fossil fuels and everything, will not allow us to move very fast at the beginning. Instead of thinking about, let's say, a logarithmic approximation to this net zero, I think it's going to be more on the exponential side, in which we start very gradual at the beginning. As we move forward towards 2030, we are going to be able to go faster. I think this is the main idea. We just signed this agreement, and we're about to work on the shorter-term and medium-term goals. I think that that's the most important.
Thank you, Rafael. Going to your question, number one, the regulatory framework, I didn't get it very well.
What was it? Actually, if you could repeat that first one, because we have some noise in the line. If you could repeat it exactly, what specific regulatory issue you referring to?
Yes. In the past week, it's on our knowledge that, I think it was the Minister of Finance sent this regulatory framework to the broker-dealers to pass this 30% passive order to the other stock exchange. It's been said a lot. Even Mexican Stock Exchange this week mentioned in the call that it was an effort, but it didn't pass through because on the broker-dealer side, they didn't feel comfortable with this. I was wondering if you are expecting another intent from the Mexican authority to pursue this, or maybe they're going to change the law on the future?
I will ask Rodal to answer that question. Go ahead, Armando.
Thank you, Marcos. We're working with the authority and also with all the colleagues from the other brokerages to find a way to encourage the competition. Right now, we are working in this process. This is the job we're working right now. We're not sure when it's going to be the end of this initiative.
Okay.
Have some info a little bit, but thank you.
Okay. Thank you.
Thank you. We'll take our next question from Claudia Valencia from Santander. Claudia, please go ahead. Hello, Claudia? Claudia, we can hear you. Please unmute yourself. Now you have permission to do so.
Hi. This is me now?
Yes. Perfect. Thank you, Claudia.
Hi, Claudia.
No, I just have a follow-up question regarding the potential reserve reversal. Are this included in the guidance or not?
They are not included. We still don't know. We are hoping for the best, we still don't know if the third wave is coming or something like that. We think that we will see with clarity for the next conference call, we will discuss that with you.
I have just one more question. I know that you will provide on investor day way more color on the digital banking side. If we're talking about an entire new digital bank, I believe that probably you are going to leverage to the current Banorte franchise in order to have access to, I don't know, lower fixed costs so that you can offer this more attractive or appealing cost-income ratio, right? Would it be that, the vehicle that we see the potential improvement from this technological side?
Yes, we will share services on that.
Thank you, Claudia. Obviously, we will leverage Banorte's capabilities with shared services wherever they are needed. The processes that are related to customer service will be supported by process owned by the Nubank. We will leverage as much as we can from Banorte's expertise and Banorte's shared services.
Thanks so much.
We'll Jorge from Santander. Sorry, from Carlos Gomez-Lopez from HSBC. Go ahead, Carlos. Carlos, we can't hear you. Please unmute yourself.
Okay. Hello, can you hear me?
Thank you. Perfect.
Thank you very much for extending the call and taking every question. Two brief ones from me. The 1st one is, do you expect any impact from the recently approved outsourcing law in Mexico? I would imagine that you have a number of activities that could perhaps be covered by it. 2nd, in your changes in shareholders' equity, there is an item about the cash flow hedges. That's why the equity didn't grow quite as much this quarter. Can you explain a little bit what the purpose of that cash flow hedge is? Thank you.
Thank you, Carlos. We don't see too much impact in the outsourcing law. For us, it's almost zero. Obviously, there is a little bit, but nothing to change our guidance or anything. The second one is the shareholders' equity, cash flow hedging.
Yeah. Carlos, could you explain a little bit more the second one, please?
Sure. If you go to your changes in shareholders' equity, you have, I think it's about MXN 1.3 billion decline from securities, which is normal, and also another MXN 1.3 billion or so from, I guess, adjustment of cash flow hedges. That's how it is described there. Result from valuation of instruments of cash flow hedges, MXN 1.37 billion.
Yeah. This is quite normal, and that's why we leave that information as much as we can. As you know, we have different positions for sale, available for sales, hold to maturity, valuations, we have a currency. I think if you go and go back on a month by month basis, on a quarter by quarter basis, you will see that we have been, in some quarters, moments around MXN 3 billion- MXN 5.8 billion. Now that the volatility is going down, I think it's much more stable.
This is a number that you will continue to see on a quarter-to-quarter basis. I think the volatility has been reduced substantially, but that's the way the balance sheet is being structured. You have some go against capital, some go against the P&L. Honestly, nothing relevant for us, Carlos. I will go deep into that. Nothing really brought any issues to me. I will go deep into the numbers. If there is something abnormal, I immediately let you know.
No, there's nothing abnormal. Actually, if you look year on year and your equity grows very nicely. There's nothing. I was just wondering what the cash flow hedge is because, it's not clear to me what the intention is there, but it is really unimportant. Sorry for taking your time. One last final call.
Oh, no.
Final thing. You are showing here, and thank you for the disclosure, your monthly numbers. We did see this big decline in NII in the second quarter. In the second month of the year, in February, was there anything specific that happened there for the NII to move so much in that particular month?
It's basically that you are missing three days compared to the usual month, because the number of days in February, that was basically what happened in the second month. Nothing much. Usually you are measuring 31 days- 28 days, so that was basically the reason for it.
I see. Thank you so much.
To add to the cash flow, they are totally symmetric, so you have the other part of the view in the balance. This is totally symmetric, and there's no effect from the cash flow into capital.
Okay. All right. Thanks a lot.
Okay. We will take our next question from Yuri Fernandes from JPMorgan.
Hi, everyone. Good morning. I will limit myself to one question. I guess everybody's tired now. Regarding capital and credit risk, first, congratulations. I guess 15% Core Tier 1, it's pretty sound. Looking to the risk-weighted assets, we see about 10% decrease versus the 4Q on risk-weighted. You mentioned there were adjustments to your internal risk model. I just would like to ask, what were those adjustments, and if this is an anticipation to what Minister Herrera has been commenting on lower density for credit issuance, kind of implemented this already. Basically, why your RWAs are decreasing in the quarter? What were those adjustments? Thank you.
It's a tough question. Rafael.
Yuri, yeah, I think if you look at risk-weighted assets for the quarter, 6%, the risk-weighted assets on this. We have strong prepayment from the federal entities that we have. Usually, it's a slow start of the month. As you know, we finished last year with very strong growth in commercial and corporate. We're above 12% on both of those. Things are normalizing. People are now much at ease with the liquidity purposes that they need the money for. I think the pipeline will start to mount again. We don't see anything. Usually, the first quarter and up to the second quarter are slow months for this, especially right now that we are going into the election process. I think it's to be expected. Honestly, nothing that we see extraordinary or anything like that. No adjustment.
We've been very cautious always with the risk appetite with the companies that we want to be cautious. We have been, as you can see in the market, when you look at the market share of the corporate and commercial on a year-to-year basis, 132 basis points of gain. It shows that the risk appetite is there for the companies that we want. The same goes in the consumer side. No, it's not that risk is becoming a gatekeeper at all. No. On the contrary, I think more and more risk is coming. We know exactly which companies we want to do business with.
Yeah. Adding to that, the main answer has already been provided by Rafael. RWA, risk-weighted assets, came down because of the federal entities prepayments. Also, I will add three factors which will from the analytic point of view just get to the whole answer you're looking for. One of these is our internal models, particularly with the sticky deposits that decrease the necessary capital for the calculation of liquidity coverage ratios. Also, the derivatives portfolio used less capital in the first quarter. Also, I will say that CVAs or counterparty risks are less because of the trend that interest rates have taken.
We'll take our last question from Jorge from Santander. Jorge, please go ahead.
Hello. Thank you very much for taking my question. Just a quick question on the Rappi alliance. I was wondering if you have any updates on the Rappi card. How many cards have been distributed so far? Do you have any data on asset quality or average ticket as of today? Just that. Thank you.
Thank you, Jorge. It goes very well. Far, we have been delivering, I don't know, say 100,000 credit cards in this year. The problem is to get close to 400,000. We are on the track of that, and the track of issuing more cards than that.
Thank you, Jorge. As Marcos mentioned, as of yesterday, we have 100,000 credit cards. From those, 86,000 are already in use. We're planning to close the year with 400,000 cards. We are seeing the average balance of the cards are between MXN 6,000-MXN 7,000 per card. Obviously, there's no delinquency as today, and knocking on wood, we will stay on that way. We are being very careful with the credit approval, so we are not expecting anything on that side.
Thank you very much.
Thank you.
Thank you. With this, we conclude our presentation. Thank you very much.
Thank you.