Good morning. I am Tomás Lozano, Head of Investor Relations, Financial Intelligence, and M&A. My best wishes to all of you in this new year. Welcome to Grupo Financiero Banorte's fourth quarter earnings call. Today's presentation may include forward-looking statements that are subject to risks and uncertainties, which may cause actual results to differ materially. We ask you to take these into consideration. I would like to thank you for answering the survey. The information you provided is very useful for us in order to improve our presentation and information. We are adopting this new platform for a more efficient communication. Our CEO will provide highlights of the second partial lockdown in Mexico and the measures that have been implemented at the group to face this new challenge. He will guide us through the main financial results and will provide an update on our main ESG initiatives.
Later on, Rafael Arana, our CFO, will go into the details for further details on quality and will provide financial and operating results. Thank you. Marcos, please go ahead.
Thank you, Tomás. Good morning, everyone. I wish you all a safe and prosperous 2021, and thank you for joining our call. The fourth quarter of 2020 was marked by recovery, as different sectors in the economy adapted to the new normal, and by optimism and hope as the COVID-19 vaccines proved to be successful, and mass distribution was put into action. Unfortunately, this increased activity unleashed a new wave of contagion, and partial lockdowns were once again announced in Mexico City and in other states of the country during the last weeks of December. The daily number of new cases has surged, and death tolls have sadly reached a new high. Hospitals in red-light states are at full capacity, forcing activity to take a step backwards. However, this does not mean that we're back to where we started in March of 2020.
We are definitely better prepared than before to cope with this situation, both as a society and definitely as a financial group. Businesses across different industries have come up with new and creative ways to stay afloat. Some reinventing their business model and some others skillfully adapting to this new normal. Restaurants have increased home delivery and adapted their menus to make them takeout-friendly. Many of them have enrolled into digital apps such as Rappi and Uber Eats, enabling them to take online orders to their growing customer base. Many retailers have strengthened their online shopping facilities and now offer in-store or pickup services. At home, most of us have overcome the learning curve and are now well-versed in video calls and remote teamwork. Therefore, productivity will not be compromised again for most businesses.
At Banorte, we have also become stronger and have remained closer to our customers through enhancements in our mobile app, which provide more ways for our customers to fulfill most of their banking needs with less dependence on our branch network and promoting the use of our digital channels to new and existing customers alike. Rafael will provide more details on our digital initiatives in a few moments. On the macro level, on slide number four, there are also several counterweights that will help Mexico and Banorte to weather this continued challenge and foster growth. Our most recent GDP growth estimates point to a 4% recovery in 2021. The new fiscal stimuli announced by the US government is expected to fuel its economic recovery and also of its closest commercial partners.
Manufacturing supply chains linked to the newly revised North American Trade Agreement will ensure a steady export demand for this sector. Moreover, the US nearshoring strategy has brought increased foreign investors into Mexico and away from China. Stronger US economy will consequently translate into stronger remittances, which fortunately did not stop during 2020 and are a key driver of economic activity for our country. On the domestic front, Mexico's central bank has sufficient leeway to increase monetary stimulus if required. Our economic analysis team forecasts a 50-basis cut in the reference rates during the second half of 2021. Furthermore, the government has announced a 15% minimum wage increase in 2021, which should also fuel economic activity during the year. Altogether, these measures should outweigh the challenges brought by the second wave of contagion and by other relevant events during this year.
In June, Mexico will go through midterm elections for Congress and several state governments. This is why we have heard and will continue to expect regulatory noise as different political players try to stand out throughout their political race. As of today, some regulatory initiatives have been postponed, such as the one related to the US dollar buybacks by the central bank, and some others have not gained traction whatsoever, such as some isolated efforts to lower fees or regulate interest rates for financial institutions. From the bank perspective, we have also implemented immediate actions to tackle these new challenges. In order to guarantee a safe environment for our customers and employees, we have instructed that all business areas that have been working from home to continue to do so until further notice.
Constant communication regarding preventive measures and close monitoring from our medical staff has ensured timely treatment and isolation of suspicious and confirmed cases. In light of the new lockdowns, we will make a more efficient use of our branch network in the most affected cities, increasing the number of shifts and lowering the staff in our branches. We will also temporarily close a reduced number of branches in locations where all other nearby branches may absorb customer traffic without compromising availability and compromising operation. Moving to slide five. From a balance sheet perspective, we decided to shield it from the effects of the COVID-19 by announcing, as you know, an additional MXN 2.4 billion provision charge, totaling MXN 7.3 billion in additional provisions during 2020.
Similar to what we did in the second quarter of 2020, out of the MXN 2.4 billion that were created in December, MXN 2 billion were booked as additional loan loss provisions and MXN 0.4 billion were used to fully write off certain commercial and credit card portfolios that were already partially provisioned. With these measures, we intended to concentrate the effects of the pandemic in our 2020 results and to have a stronger balance sheet and a normalized cost of risk during 2021. Had we not used part of our additional provisions to write off existing portfolios, the total amount of provisions would have been close to MXN 25 billion, well above their three-year average. Moving on to slide number six.
In order to better understand the sufficiency of our loan loss provision space, I would like to show you the breakdown of our loan portfolio and the degree of expected loss associated to each segment. As you can see, our largest portfolios have a relatively low expected loss, and our consumer portfolio, which naturally entails a higher risk, is well-diversified by product type, with credit cards accounting for roughly 1/3 of this portfolio. Our commercial and corporate portfolios have a similar profile with SME customers, which carry the highest expected loss within this portfolio, accounting for 11.2% of the total commercial and corporate segment, or 4.7% of the total loans portfolio. Last but not least, our government portfolio, which accounts for 20% of our total loan book, has historically had the lowest expected loss.
On slide number seven, net income for the quarter totaled MXN 30.5 billion, which includes the effect of the additional provisions booked during the fourth quarter. Excluding this effect, recurring net income amounted to MXN 35.6 billion, up 1% versus our 2019 results. Regarding profitability indicators, these were consequently affected by provisions. The group's ROE totaled 14.8% for the year, and with recurring results, 17.1%. ROE for the bank totaled 16.7% and 20.6% when using recurring results. On slide number eight, we look at the main revenue lines for the group, where I would like to highlight the solid net interest income growth during the year, despite a 300 basis points decline in the reference rate during the period and the adverse conditions brought by the pandemic. Fees, on slide number nine, have relevant quarterly rebounds driven by a more dynamic economic activity.
Holiday shopping and seasonal sales during El Buen Fin boosted transactions during the quarter, with POS and mobile leading growth and getting to a solid 16% quarterly increase in net service fees. Regarding loan growth in slide number 10, despite a more conservative risk policy across our portfolio, the main growth drivers for the quarter and the year were mortgage loans and auto loans. Our commercial and corporate portfolios also had a solid performance as several customers used liquidity lines to overcome the stagnant dynamics in many relevant sectors during the low months of the pandemic. At the end of 2020, the vast majority of our relief programs came to an end with better-than-expected results. Rafael will provide more detail on these programs.
Regarding asset quality, NPL numbers were temporarily low during the life of the relief programs, and as expected, they have already started a gradual increase towards the normal, the average pre-COVID-19 level. However, cost of risk is not expected to peak during 2021, as all the impact of additional provisions was registered in 2020. On slide number 11, we can see the loan growth effects on market share by product through 2020. Market share gains for our total loan portfolio were driven by sound performance in commercial and corporate as customers in these segments use liquidity lines to meet their operating needs. As mentioned before, mortgage loans and auto loans were also essential components of our growth strategy with a more selective risk criteria in our own secure products, such as credit cards and payroll loans.
On slide number 12, I would like to highlight the benefits of businesses diversification within the financial group. Our non-banking subsidiaries accounted for over 34% of the group's net income during the quarter, and accumulated results for the year were also relevant. The insurance business was impacted by higher claims in the life and health portfolios during the fourth quarter. However, it benefited from lower auto claims as traffic reduced during the lockdowns. The sound performance of the annuities portfolio was primarily driven by the acquisition of the SURA portfolio, as well as by a diligent cost control strategy implemented during the year. The Afore business benefited from the market effects in its assets valuations. Moreover, it increased its assets under management by 4% during the quarter and by 15% over the year.
As mentioned during our last conference call, on slide number 13, you will find the most relevant updates regarding our ESG initiatives for the group. On the environmental side, Banorte received awards for its collaboration with one of the most relevant reforestation projects in the country, called Reforestamos México, as well as for its participation in a sustainable mobility initiative in Mexico City and Monterrey. On the social arena, we are proud of our participation in more than 68 financial education workshops to over 6,500 beneficiaries across 15 states, covering relevant topics such as financial awareness, family finances, savings, digital banking, and investments. We have added an ESG appendix at the end of this presentation with additional details on the quarterly evolution of our sustainable finance loan book evaluation and our project evaluation under the Equator Principles.
With this, I conclude my remarks, and now Rafael Arana will provide further insight into our loan relief programs, NIM evolution, and will walk us through our 2021 guidance. Please, Rafael, go ahead.
Yes. Thank you very much, Marcos, and thank you all for being on the call. I would like to run through some specific issues that have been of concern to our investors and analysts about what exactly the situation that we are facing concerning the relief programs, the clients that are out of the relief programs, and all the initiatives that we are taking in order to guarantee what we provide as a guidance for you. As you can see on the slide that we're providing, we basically are under very specific actions to continue to provide the sufficient strength to our balance sheet, to our income statement, and also to be quite prudent on the loan growth, but at the same time, to have a reasonable loan growth.
The loan growth, as you can see, and Marcos just provided you the information, we were able also to gain market share in most of the products. The net interest margin on the book, as we can see in a minute, continued to be quite resilient. The capital numbers continued to grow and be as strong as they can be, well above our peers also on quantity and quality of the capital. Expenses are well under control, and I will run you into some specific issues about expenses that we did in the fourth quarter of 2020. Overall, I would say that the balance sheet continues to be as strong as it can be. The capital base continued to grow.
Expenses are under control, and the provisioning and all the relief programs that are mostly done by now confirm us what we basically did on the second quarter of 2020 about the additional provisions that were more than enough at that time. What we really consider when we see the second wave hitting especially Mexico City and other parts of the country, is that it would be prudent for us to raise another number of provisions. Not because we saw that there was an immediate need to do so, but we need to manage risk, and at that point in time, we see that the risk was increasing. Especially, we expect to have some layoff on some of the companies in January and February, so we anticipate that based upon the second wave.
Moving into the next space, I would say that the relief programs are really behaving much better than expected. As you can see now on the numbers that we have basically done on the relief programs. The initial numbers of 630,000 clients that joined the programs, 99% of those have finished the programs. Of the non-paying accounts, and I'm talking about accounts, it's around 10%-12%. What is relevant to see is what this really means compared to balances and what this really means compared to the overall size of the loan book of Banorte. If we compare this 10%-12% against the balances, it's 6% of the balance of the clients that joined the program. If you transfer that into balances, it's only 6%. If you consider this 6% compared to the overall size of the loan book, it's 1%.
The relief programs proved to be quite efficient to temper out the deterioration of the pandemic and also to support our clients through the cycle. This is mostly done, and now we are basically working with that 6% balances that we need to keep working with them through the collection department. I think we are doing a pretty good job also there, providing the right relief to our clients and also building up the additional provisions that we need to do so. There were some concerns about what we needed to raise additional provisions was basically as a precaution, not because of the provision that we built on the second quarter was not good enough based upon the information that we currently got. I think it's better for us based upon that we don't know exactly the lockdown on some of the cities will stay.
What we found also is what Marcos mentioned, that the second lockdown is, in a way, much better managed by companies, by clients, by everything. Activity has also obviously reduced a bit, but not as in the first one. We are quite surprised about SMEs, the behavior of SMEs. Basically, the main deterioration that we have seen, and it was expected, and that was the way that we did build the provisions on the second quarter, was related to basically credit cards. That, as you know, is usually the product that you share with other banks and where the risk could increase easily through the cycle. Very good numbers on the relief programs, the 1% to the total loan book, 6% of balances, and 10%-12% on number of clients.
Another issue that we have been following very closely with our investors and analysts is, what's the behavior of the margin, and also what's the increase of the margin on the loan book, and what's the behavior of the cost of funds compared to our peers. As you can see in the graphs to the left on the blue lines, basically, we continue to drop the cost of funds at a faster pace than our peers. I think we still have room to go further down on this, and we will push down in 2021 to continue to reduce the cost of funds at least around 20 basis points. When you see the net interest margin of the loan portfolio has moved from 8.2%- 8%, compared to a decrease in rates of close to 242 basis points.
I think has been a resilient portfolio based upon the fact that we have close to MXN 300 billion in a fixed rate portfolio that has been behaving quite strongly through the cycle. As you can see also on the graph to the right, we continue to manage the pricing and the yield on the portfolio quite efficiently. If you compare the decrease in the rates from 11.9%, that was the peak, to 9.3%, we have increased also the yield of the portfolio compared to the reference rate, almost 206 basis points. I think that has been, in a way, the results where you see the NIM of the portfolio. This is because of the managing of the pricing of the portfolio and also on the fixed rate part of the book.
We have been separating the NIM of the group and the NIM and the net interest margin of the bank. I think the reference rate, as I mentioned to you before, is dropped in 260 basis points. The group NIM reduced from 5.6%- 5.3%, where you have the insurance, the pension company, the annuities. When you look at the bank's NIM, that is really our main concern when you see the effect on the rates and how you are really managing your pricing on the yields. The bank's NIMs continue to be extremely resilient at 5.8% in the second quarter, in the third quarter and in the fourth quarter, based upon what I just mentioned in the past slide. The NIM continues to be steady.
We will talk about a bit in a minute about what's our projections for the next year. It's important to separate the NIM of the group and the NIM of the bank. Another good story is the reduction in the sensitivity on the balance sheet due to the extremely good work about the treasury, the risk people, the market guys, and everything related to planning and accounting. We have been reducing the sensitivity from 100 basis points, that was close to MXN 1 billion at a point in time to close to MXN 0.5 billion in the fourth quarter of 2020. We continue to work on that, and I think we continue to see good potential and continue to reduce the sensitivity of the balance sheet. The expense line, and I would like to be very clear about what happened on the expense line through the year.
As you know, we commit the expense line to be around 4.8% by the year-end. Based upon the issues that we saw on the market and that we would like to accelerate what we usually do every year in January, we accelerate the productivity process that we have every year that usually goes around 5% of our personal expenses. We started that in December. We increased the cost line by MXN 460 million. That is basically for the severance payments that are going to happen through last December and through January. Expenses control, we consider that's going to be a key element in 2021. We also see that the personal expenses, where you see the drop to 4.1%, is basically due for what I just mentioned about that increase in anticipation of the severance payments.
The remaining are related to basically all the expenses related to the operation of the bank. Nothing relevant. We also are reducing a lot of the expenses related to physical assets that we have, that also will have an impact for this year in the reduction of expenses in rents and occupancy rates in many of the buildings. The capital of the bank continues to be quite strong. You see a reduction from the third quarter to the fourth quarter from 21.1% - 20.2%. Basically, it's the effect that we have on the extraordinary provisions. As you see, the core capital of the bank continues to grow nicely to 13.7%- 13.9%. We are not leveraging the capital at all, of the company at all. We are the least leveraged bank in the market.
Compared to the regulatory ratios, we are well above those, and we are not taking any waivers or temporary waivers concerning our capitals. The dividends that we have mentioned in the past for 2019 are fully funded at the group level. That is hurting us in a way, the return on equity at the group. We expect to be able to pay the dividends of 2019 in the first semester of 2020. We need to work with the authorities in that, and I think we have proved that we have enough capital and we continue to grow our capital base. If possible, we will also like to pay a portion of the profit of 2020 in this same year.
The payout ratio, as you know, for 2019 was 50%, and the payout ratio, as we were going to present to the assembly for 2020, also will be around 50%. The liquidity ratio that has also, in a point in time, we always have a concern about liquidity ratio because we know it's expensive to have high liquidity ratios, but we needed to rise that because of the conditions of the economy. We raised that to 194%. I honestly think it's too high. Now that we have all the liquidity lines in place and the economy is becoming much more stable, you will see in the coming quarters our reductions to normal to the liquidity ratio. That will be on the ranges from 135%-145%. That also will help our net interest margin in the coming months. Now, I would like to move into the guidance.
I know that there has been some concern about it, in this time of a difficult process, what's the issue to grant a guidance. I think we commit to the board yesterday our budget for the year, I think since we committed to the board, now we have to commit to the market at the same level. The loan growth, we expect to have a loan growth around 6%-8%. We continue to see good growth in the mortgage loans, in the car loans. credit cards will regain its growth from a -8%, it will regain its growth to 3%. We continue to see good growth in the payroll loans, now that we know exactly which companies are going to be more stable. That's going to be a growth around 4%.
Commercial will be around 6%, the corporate around 2%, and the government book will grow 2% for an overall growth of 6%-8%, with a good mix, with a solid growth, and taking good care about the origination. The NIM contraction that we are talking here basically, is concerning the bank. We basically see a potential reduction of 15 basis- 30 basis points. As you know, we have been telling the market that our goal was 585 and then ongoing to have around 565- 570 on the net interest margin. I think it would be achievable because of all the issues that we are taking and all the actions taken to reduce the cost of funds.
A very good issue also on the NIM, is that the strong growth that we have in demand deposits for last year also help us to accelerate the drop in the cost of funds and to sustain our margin for 2021. Expense growth, we see 3.5%-4.2% with inflation rate around 4%. As I mentioned to you, part of this expense growth is based upon the advances that we did in the fourth quarter for the expense lines to have a clean start for the year. We're also working in a very diligent plan to have shared services integrated some of the back offices that were not fully integrated into the central teams that will allow us to have an additional reductions through the year. The cost of risk, we see 2.1%-2.3%, going back to normal.
On the cost of risk, it's very important to note that you will see through the year ups and down on the cost of risk based upon the sequence where you see the growth in the NPLs, then you start applying the charge-offs to level up the numbers. Also, you will see a reduction in the coverage ratio that right now is at record levels based upon all the additional provisions. That number should go down again to the 135%. Please bear with us through the year that you will see ups and downs on this number. The number that we're talking here is a number that you should see tending through the cycle and by the end of the year.
You will see right now, for instance, in credit cards, you can see NPLs jumping around 7.8%, then you will start doing the charge offs through the first quarter and turn that number down again to the 5.8%, the usual number. This is quite important because when you see that our cost of risk is 0.8% and then jumps to 1.1%, then there are some concerns with some analysts that say, "Well, your cost of risk jumped 27%." I don't think that's the right way to see it, because what you have to compare is to the normal, and the normal is 2.2%. This is basically, in a way, tainted by all the relief programs and things like that and all of the additional provisions. What we are talking here is going back to the normal on the cost of risk, through the cycle and through the year.
Tax rate will stay as we have been, 26%-27%. Net income number, MXN 33.5 billion-MXN 35 billion. Return on equity for the group, from 15%-16%. This is considering already the paying of the dividends. This is quite important to note. The return on equity for the bank is from 18%-19%. GDP, we are considering a rate of growth of 3%-4%, inflation 4%, and the reference rate stay at 4%. If we see any drastic changes in any of the basic numbers like the reference rate or inflation, we immediately will go to the market and advise any movement that we see on each of the guidance that we are giving to you.
I think not many people are comfortable for us to give a guidance, but I think it's our duty to, once we present to the board, to have the same information that the board, to the market.
Thank you, Rafael. With this, we conclude our presentation, and now we're ready for Q&A. Let me quickly give you some comments on the logistics. Please raise your hand on the platform and we will unmute your audio. Questions will be automatically ordered on a first come, first served basis. Jose Luis and myself will be calling the name of the person whose turn is next. 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. We will start with Ernesto Gabilondo from Bank of America. Ernesto, please go ahead. Ernesto, you have received an unmute.
Can you hear me now?
Perfect. Thank you, Ernesto.
Thank you. Thank you, Tomás. Hi, good morning, Marcos, Rafael, and good morning to everyone. Thanks for your presentation and the opportunity. My question is on asset quality. We saw the NPL ratio that went up as relief programs started to impact the 90-days past due. In the last conference call, you were expecting the NPL ratio to deteriorate to around 2.2% in the second quarter of this year. Given the NPL deterioration of the quarter and the potential impacts of the second wave, do you continue to see the peak at those levels, or do you think it could be higher? Do you expect the reserve coverage ratio returning to the 135% that you mentioned in the second quarter? Thank you.
Thank you, Ernesto. We feel very comfortable with our numbers now and up to date. I will ask Rafael to answer.
Yeah, I'll start, and I will ask Gerardo to go on. I think to be precise about if it's going to be on the second or the third quarter, Ernesto, based upon the last events, it will be, I think a lot to ask about, to be precise. What we can really commit is that the NPL ratio will be around the numbers that were just mentioned to you, and the cost of risk will be exactly on the guidance that we are giving. I think there will be some movements based upon this lag that we have seen based upon the second wave. It's going to be on the second quarter or the third quarter. We don't see that will have any effect of the final number that we are committing to you.
Thank you for your question because I think I need to go back again to this to say, look, there's moving parts here. I think the overall trend that we see on the NPL and on the cost of risk is exactly what we anticipated on this. We have created additional buffer on the latest provisions that we did. We are confident to reach the numbers that we just give to you. I don't know if it's going to be exactly in the second quarter or on the third quarter, but that will be the number for the year. I don't know, Gerardo, you want to add?
Yeah. Sure, Rafael. Hi, Ernesto. I will say that we are, as always, acting on metrics as much as we can. We have been following such factors as the GDP decline, the duration of the economic downturn, the peak of the unemployment rate, and so many factors, among others. We strongly believe that we are committed to a long-term perspective. However, some significant wild cards remain, such as the re-emergence of the second wave, as you know, and the size of this second wave, the lockdown duration, the containment strategy successes, the impact of the fiscal or monetary stimulus, and also the therapeutic drugs and vaccine deployment advances. If you take that into consideration, what we have tried to do with general provisions and with the level of the NPL ratio, is to do a smooth transition between expected losses and unexpected losses.
Regarding expected losses, they are already budgeted for 2021. Regarding or with respect to the unexpected losses, we know we have enough capital to encounter tail risks, such as a black swan type of risk. If you take into consideration the expected losses, we see that the probability of default has increased, as you all know. Exposure at default is the same, and loss given default remains to be seen, but we expect it to be a bit higher than before. All the loan portfolio has performed so very well as Rafael and Marcos have said, regarding, for example, mortgage portfolios, autos or car loans and payroll loans, et cetera, that we remain very confident that the NPL ratio will perform within the interval that Rafael mentioned for cost of risk, for example.
I will tell that this rationale behind the general provisions that we made on December is to provide clarity and visibility to all stockholders and stakeholders, both, everyone involved in the Banorte's business model. In a nutshell, what we're trying to do is to be prudent, cautious, and sensible with respect to the situation we're seeing. We are providing clarity and a market signal to the market regarding these general provisions and the future behavior of the NPL ratio and the cost of risk. We are very confident that we are performing within the interval that Rafael just mentioned.
In addition to that, Ernesto, of what Gerardo says, looking at the numbers that of the January numbers that we see on a collection on a daily basis, what we are looking at collections for January 2021 is the numbers that we are looking at the collection that we were having before the pandemic. It's clear to us that the portfolio is leveling out exactly as we have before the pandemic. It seems that all the relief that was provided to our clients and now the level of activity that we are seeing in the market is really providing us the confidence to give you the numbers of the cost of risk. Some people said about the extraordinary provisions in December. Let me tell you that basically what that part of the provisions are is to assure you that those numbers will be achieved.
Thank you very much, Marcos, Rafael, and Gerardo.
Thank you.
Thanks.
Thank you, Ernesto.
Thank you.
Now we will take our next question from Thiago Batista from UBS. Thiago, please go ahead.
Hi, guys. Thanks for the opportunity. I have two questions. The first one about the guidance of ROE. When you look to your ROE guidance, seems that you are considering a lot of payments of dividends. I know that Rafael already talked a bit about dividends in 2021, but can you comment on what are you expecting? When do you believe it will be possible to pay dividends? Sorry. When will you believe will be possible to resume the dividend payment? If it's only the payment of the earnings of 2019, or if you can assume that some of the 2020 earnings should also be paid. If you can talk a little bit more about on dividends. And the second question about the 6% of loans of the credit relief program that not resume the payments.
Those loans are already in the NPL ratio, or are you guys renegotiating those loans? How you are approaching the clients that has not resumed the payments on the credit relief program?
Thiago, the first one, to be honest, we still don't know, but we are pushing and talking with the authority. We are getting closer. It seems that it's going to be, I hope, during this first semester, but we still don't know. It seems that we're getting closer. It's going to be soon, but we cannot be sure. No? The second one, please, Rafael.
Yeah. Thiago, as Marcos says, we know that the US banks and some European banks are now being allowed to do a dividend pay, and also buybacks will be announced pretty soon. I think based upon the capital numbers that we have, I think we have a good story to go to the authorities and have those payments of dividends to happen on the first semester of 2020. We still need confirmation from the authorities, as Marcos says. We will ask also to be able to pay, if not all, a portion of the net income of 2020 in the same year of 2021. That will be our goal because we are just building up capital, and that is just sitting there on that part.
The other thing that you mentioned about the relief, that is quite important to notice, is that that 6% that you see is being actively managed by our recovery unit. I think long before those clients start to become non-current, we start to work with them really on a very preventive basis once we see the flaws on their accounts or their usage of the credit card. What we do basically on those restructuring is we build up the provisions, we put on down the provisions, and we start working with them in order to be able to provide to them enough space for clients that they just need only space and time to regain and be back on their feet. Let me give you an example.
If you have a client that has a mortgage that has been paying for eight years and suddenly have an issue because they've had a reduction on the payroll, we work with them on them and try to keep them current in a way. We restructure the loan. We extend the payment loans. We put down the provisions. We are working actively in that 6%. That 6% is not a loss. That's very important to consider. Okay?
I will also add to what Rafael is saying, is that we have several restructuring schemes. We also take into consideration several risk segments. That makes a tremendous difference regarding what the solution for those loans is going to be, like payment discounts, like interest payment elimination, interest payment reduction, interest payment deferment, term increases, and so forth. We do not have one-size-fits-all type of restructuring here, even though this is retail credit. Please take that into consideration.
Also, I would like, and this could sound a little cocky about this, but we have by far the best collections unit in the market. We have been proving that for the last 23 years. The way these people have anticipated in working with the risk people, with the product people, in order to provide to each client the specific program that they need, I think has been outstanding.
Very clear. Thank you for that.
Thank you, Thiago.
Okay. We will take our next question from Geoffrey Elliott from Autonomous. Geoffrey, please go ahead. Maybe you're on mute.
Yes.
Thank you. Thanks for telling me.
No worries.
Maybe just very quickly on the dividend to clear that up, and then I've got a more detailed one. Can you tell us what assumption you put into the ROE outlook? I guess the ROE is in part a function of what dividend you're going to pay out.
Rafael.
The payout ratio that we have been saying for 2019 is 50%. The payout ratio for 2020 is 50% also. There could be space for also an extraordinary place if it's feasible for that. That's the assumptions that we are putting here.
Got it. Thank you. On the productivity initiative and the charges that you took in 4Q, can you give us some more detail on what the changes that you're making there, how you're going to improve efficiency going forward by taking these charges?
Yeah, happy to do so. Let me give you exactly what we are doing. As you know, Banorte is a very well-diversified financial group. We have the annuities company, the insurance company, also the leasing and factoring. In a way, we have been working a lot at the bank level to integrate and reduce costs. Now we are moving also into those companies by integrating all the back office functions to the already existing functions at the bank. All the HR are coming into one unit. Basically HR, everything security. Some of the issues in technology are also coming into the central units. Fraud prevention. Everything is coming to a centralized unit.
We are integrating everything into a shared service type of operations, that I think we can move from the current 5% reduction in expenses that we gained through that MXN 460 million on December. I think we could rise that to maybe two percentage points more based upon these shared service initiatives.
Thanks very much.
Welcome.
Thank you. We will take our next question from Jorge Kuri from Morgan Stanley. Jorge, please go ahead.
Hi, good morning, everyone. Thanks for the detailed guidance. Very helpful, especially in these volatile times. Hope everyone's doing well. My first question is on the margin sensitivity. In your slide 19, it shows that on a quarter-on-quarter basis, it's been increasing from 428 in the second quarter to 561 in the fourth quarter. What explains that increase over time, and how will you reduce that number going forward? How much of this is just hedges that expire, and then eventually you get the full impact? Just trying to understand your comments that you can actually get that number to come down further. That's my first question. Second question is on fees. If I can ask, what's your view on fees, which was not included in the guidance?
They were down last year, evidently, because of what happened. How rapidly do you think they can recover, and what level is a mid to high single digit reasonable number for this year? Thank you.
Thank you, Jorge. Rafael, please go ahead.
Yeah. Jorge, I think it's quite important, the question that you asked about the sensitivity. The number that you see basically has to do with valuations and with the movement on some of the positions that we have in pesos or US dollars. I think the number that you should be looking at is a sensitivity around MXN 500 million. That number should be there. There's a potential improvement on that number because the funding part. As you know, the deposit sides basically are a part of a natural hedge that we have. Since last year, we have a very strong growth in demand deposits. As you saw, 22% overall growth in funding was 13%, but demand deposits grew close to 22%.
As you know, you provide that information to the authorities based upon how sticky your deposits are, and based upon specific models that we have in different tranches that considers and becoming a natural hedge. The more we increase that numbers in each of the buckets, we have an additional natural coverage on that. Also, as you mentioned, the cost of hedges has gone down quite substantially on that. The number that we think that we should aim, based upon the size of the balance sheet and based upon the speed of the potential decrease in rates, is around MXN 500 million. I think that would be a very good number to achieve. Maybe we can reduce that based upon this funding strategy that I just mentioned to you. I think that would be the number for it to go.
The other thing that you asked about, the fees. If you remember the graph that Marcos shows you on the fee side, we see already a recovery in the fourth quarter on the fees. The fees that you should look for this year is from 7%-9% fee growth, based upon the numbers that we have on the last quarter. I think the most important part on the fourth quarter and the third quarter was that we finally recover from the decrease that we have in the first semester, and we have a very strong recovery. If you look on a quarter-to-quarter basis, it goes up to close to 16% growth on the fee side. This digitalization of the economy and the position that we have by being the number one acquirer on digital transaction is allowing us to keep pushing fees up.
I would say that's basically it. I can give you also how efficient we are doing the balance sheet coverage with cost on the hedging, cost of the balance sheet. When we were talking, for instance, in 2016, it was around 16% of the balance sheet was hedged with cost. Now we have 2% of the balance sheet hedging with cost. I think what you can see, and I'm happy to provide to you and to all this table, we have been able to really manage the balance sheet in an extremely efficient way. Not just because of the cost of hedging the balance sheet and the sensitivity, but also the margin for the balance sheet that we have in 2016 was 11.2% of the margin on the balance sheet.
The margin that we currently have on the balance sheet in 2020, based upon all the reduction in rates and things, is 11.3%. I think we have been doing a very good job in managing the balance sheet about this and the sensitivity on the balance sheet.
Thanks, Rafael, for the detailed responses. I may add a follow-on question, sorry. Your year-end reference rate forecast 4%, if we end up at 3.5% or 3% for the end of the year, how much can you still manage the balance sheet so that you get maybe closer to that - 30 basis points? You would really have to rethink the NIM contraction to higher levels than what you have?
I think that's the million-dollar question. I think the fact that the reduction in the funding side will also be quite aggressive, and the size of our fixed rate portfolio, Jorge, I think we can stick to the number that I Even though if we see an additional reduction in that. I think the reduction will happen in the second quarter of the year, in the second semester of the year. On average, I think we will be close to the 4%.
Great. Thanks again, Rafael. Thank you.
No, thank you, Jorge.
Now we will take our next question from Jason Mollin from Scotiabank. Jason, please go ahead.
Hello. Thank you. Marcos and Rafael, again, thanks for the presentation, the Q&A session. Again, on dividends, you mentioned 50% payout ratios on 2019 earnings and 50% on 2020 earnings, which is not far from our estimate in the 40% range. In the guidance, you also mentioned you incorporated these payments for the 2021 ROE. I'm imagining at that, probably the timing of that, do you have both of those payments in the first semester? Or are they spread out more evenly during the year in this calculation?
No, I think the first one, Jason, the 2019 payout, we expect to happen on the first semester, as soon as the regulator allows us to happen. The second one, the portion of 2020, in the third or maybe at the beginning of the fourth quarter.
That's helpful. Also, on the regulatory front, how does Banorte assess the risk and impact of potential interest rate caps and fee limitations? Do you think this will be part of the discussion during the midterm elections?
Rafael, you got it.
Okay. I think noise will continue to be there because I think it's a very popular thing to talk about interest rates caps. The fact is that there's a very simple way and a discussion about that that really has been turning down all these initiatives. Competition in Mexico is extremely aggressive, and I think you can see that on the mortgage book, on the car loan book, how aggressive the market is. You can also easily see that on the government book, how the spreads have been going down on the government book. The same happens on the corporate and the commercial. I think that if they try to do anything compared to the interest rates, they will eventually disappear, the midsize banks that doesn't have a strong funding base.
I think that would be very bad for already an extremely aggressive competition in the market. On the fee side, there has always been the saying that Mexico charges more than other parts of the world. We have presented those numbers to the authority, and those numbers are well below when you compare us to any developing market and also on developed markets. I think that noise is quite popular. It will come a lot based upon the elections. Reality is that competition shows that interest rates are where they need to be, and fees are moving down based upon the fact that the digital economy is taking over and you are basically changing physical fees by digital fees that are already below the physical ones. I honestly don't see any reason for that.
Believe me, that will put a lot of pressure for some of the mid-size banks based upon the funding base of those.
Having said that, we will hear and we will continue to expect regulatory noise though, because the political players try to stand out for their political race. Gabriel Casillas wants to talk about this. Gabriel, go ahead, please.
Thank you, Marcos. I believe that what Marcos and Rafael mentioned, Jason, it's the most important part. Competition is the key factor. Let me just mention again, remember that we have been talking about how AMLO, our president, has been sticking to what he wrote in his books. In the book he wrote before the elections, "The Exit," that's the title, and the other one, "Towards a Moral Economy." He has been sticking to that all the time. Even during the worst recession since 1932 last year, he sticks to a plan. Fiscal austerity, social programs, the infrastructure programs he has envisioned. In this context, we do not expect him to really separate from what he has pointed out in his books. He didn't mention anything about putting any caps on interest rates. I think we're back again on what we have been saying.
That we can hear a lot of noise, as Marcos and Rafael mentioned, from legislators, but none of these initiatives will go through as long as they are not part of AMLO's program. I think this is one thing that despite the noise, you could be very comfortable with. Thank you.
Thank you very much, gentlemen.
Thank you. We will take our next question from Alonso Garcia from Credit Suisse. Alonso, please go ahead.
Good morning. Thank you for taking my question. My first question is on quality and provisions. You have a 6% overdue ratio in your reprofiled portfolio, only 1% of total loans. You mentioned in your report that in the fourth quarter, you have only used 14% of the MXN 5 billion operational provisions that you have created. I'm just wondering if you could be overly conservative on this front, and if you think that at some point in the year, a release of provisions could be probable, or if that's completely out of the question in your view. I know it's early to probably, just want to hear your thoughts on that point. My second question is, if you could comment on your sustainable ROE for the group and what would be the timing for converging to that level. Thank you.
Thank you, Alonso. Rafael, please go ahead.
Alonso, as you saw, and this happens in the U.S., when you saw the reports of the large banks in the U.S., that they start releasing the provisions that they anticipated on that. I think that the way we have been working on this, and this is working with the recovery units and with risk, is that we are just using the provisions, the extraordinary provisions for the COVID deterioration of program. Up to today, as you say, it's just a portion of that. If the portfolios continue to perform in the way they have been performing up to today, we see that maybe we did more than enough and a potential release of provisions could happen through the cycle.
I don't know exactly what would be the number or when that will happen. I think based upon what we are looking at and based upon what we see on January on the collections department, I think that's a possibility, yes. Basically, what we did on the MXN 7 billion provisions and charge-offs that we anticipated is to pay upfront the cost of risk for 2021 in order not to taint 2021 with any remains of 2020 and COVID. That's a possibility. Yes, Alonso, that's a possibility. The sustainable ROE for the group. I think you'll see that we will release our new guidance for 2021- 2023. That will be coming pretty soon. I can anticipate you that we see the bank on a sustainable ROE around 2023, from 19%-20%.
I think the group should be from 17.5%-18.5% recurrent ROE around that point in time.
Thank you very much, Rafael.
Thank you, Alonso.
Now we'll take our next question from Yuri Fernandes from JPMorgan. Yuri, please go ahead.
Good morning, everyone. Thank you for the opportunity. I also have two questions. First one on expenses. You mentioned during the call, Rafael, that part of the increase in personal expenses was related to some severance packages that you should implement in December and January. My question is if you're anticipating major decrease in branches, employees, like what is the call for 2021? I'm pretty sure this is in the expense guidance, but just on these more qualitative discussions. If you can discuss on expenses for the quarter. We saw professional fees, rents, and amortization growing very quickly on a quarter-over-quarter and year-over-year basis. If you can provide some more color why that happened, that would be interesting as well. My second question is regarding fees. It's clear, the guidance for 2021, the 7%-8% you mentioned.
For the quarter specifically, we saw the interchange fee, cost line, so the fees you pay, growing very quickly, like 25% year-over-year. It's not clear for me what is the line on the revenues that is offsetting those costs. I guess electronic banking services maybe is the line that should be reflecting the increase on your cards transactions. My point is, was any change on interchange fees in Mexico? Why expenses are growing slightly higher than revenues? Thank you.
Yeah. Let me go to the last one because I think it's quite important. What we have in the fourth quarter is basically a very strong pickup on the car loans and the mortgage loans. On that, you have to pay fees based upon that origination process, because many of those happen right at the dealers and right where the houses and buildings happen. Because there was a very low activity in the second quarter, you see a big pickup on the third and a very important pickup on the fourth. Also, most of the payments that were due also, and that will move into 2021, we are already paying 2020 in advance for that in that part. That's basically You see that offset on the origination fees based upon basically on the mortgage side and on the car loan side.
That was basically where those two numbers move. It's basically when you get that on the returns on the margin that you get on that part and on some of the fees that you collect from the clients on the mortgage side and on the car loan side. The fact is that we never anticipate such a large pickup on that part, and we also anticipate some of the payments that we see on the trends that we usually pay in 30 days or 45 days, we anticipated in December. That's the first one.
In the fees, if you go down into the fees, you will see that a very strong pickup on the fees, what we call the transactional fees that are coming basically from the digital POS and some from the physical POS and from the activity on the credit and the debit card, and also on the transactional banking on fees coming from remittances. I think we have a strong pickup on that part. On the cost side, it's basically that pickup in the origination that happened at the end of the year and some anticipation that we have. On the branch network, as you know, we haven't had any growth in the branch network for the last three years, and we will relocate 32 branches this year, but we will close 32 branches also.
Where we see a reduction in expenses is on physical assets, rents that we used to have. I mean, the size of the occupancy rates for our buildings is going down at least 40%. That will be a part of the expense reduction that you will see through the year. We are also looking at, as you know, we did a lease back on some of our buildings in the past. We are also looking to see if we repurchase those because of the price that we see now on the market and the benefit for us based upon when we leased back those buildings. That's basically it. I don't see that happens in the branches. The professional fees basically has to do related to all origination, collections, restructuring that happened in the fourth quarter.
Remember that usually in the fourth quarter, you end up closing all of the books. There were, because of also on the pandemic, a delay in some of the collections and some of the invoice presentations that happened through the year. I think the fourth quarter it was a strange quarter on those lines. What I can say you is that, on the fee page, it was based upon the activity that we have on the car loans and on the mortgage, and also on the credit and debit cards, but basically for building up the business. We anticipate also some of those payments to the dealers and to the brokers in the mortgage houses to anticipate some of the payments in January.
I guess the bottom line here, Rafael, if I may summarize, is that you anticipate a lot of expenses. It is not only about loan loss provisions, but on the fee side, on the expense sides, things have been much more behaved in 2021.
Exactly right. Yeah. I think we wanted to clean as much as we can in 2020 for 2021.
Thank you.
You're welcome.
We will take our next question from Carlos Gomez-Lopez from HSBC. Carlos, please go ahead.
Hello?
Yes.
You can hear me, okay. Again, I wanted to thank you. Second, on the NPLs, on page 53 of the press release, we can see that without the COVID support measures, the total NPLs would be 1.4% of the total loan portfolio instead of 1.1%. When do these support measures expire, and when would these two numbers converge? I realize it's a minor thing, but we wanted to be clear on it. Second, could you give us an update on the Rappi alliance? Thank you.
What is in the first one?
The first one, basically, and I'm thankful for the question, Carlos, because as I told some of your colleagues, it's difficult to see the exact conversions of the numbers. What you should see is when we are trending to the normal, and the normal is the 2%- 2.1%, 2.2%. I think you will see that on trending to that number. When you see that the NPLs go to 1.8%, don't think that we are double the deterioration of the portfolio, is basically we are going back to the normal numbers that Banorte has been running for the last four years. I think that's the key message from your question.
No, that is clear. Actually, first, your normal should be a bit lower because now your collection period, sorry, your provisioning period is shorter. You did that earlier. Your write-off is faster. I imagine that we would expect a normal NPL, which is a bit lower than in the past. Again, no, I completely understand that 1.4% is temporary, and it will come from the measure. We just wanted to know how long the Central Bank or the National Banking Commission has given you these allowances.
No, it doesn't have to do with the allowances from the Central Bank or the CNBV. I think it's just the dynamics of the loan book that is showing, Carlos. I think you will see in the second quarter a lot of conversions to these numbers on this part. What you mentioned about that we reduced the charge-off process, we reduced that only for the SMEs, that we reduced that from the 19 months to the 9 months. That already happened in the second quarter of 2020. Now the SME will not be any bubbles building up on the balance sheet. This is quite important to remind all of you, is that we are not using any relief programs from the regulators.
We are providing very specific programs for our clients, for each of our clients, but based upon the numbers that we have, because we would like to have provisions where we need to put down the provisions and not, in a way, delay the build-up of provisions. We are basically using our own models and our own policies to build up the provisions and the NPLs and the charge-offs.
Carlos, talking about the Rappi association, we are very happy. They have 15 million clients. Actually, they have nine million clients that they make at least three transactions per month. I will ask Paco Martha is online to give us more color about that. Paco, please go ahead.
Thank you, Marcos. Gladly. Thank you, Carlos. Yeah, we are moving forward with the Rappi alliance. As you may be aware, in December, we launched the waiting list for the credit card, and as of yesterday, we had 120,000 customers looking for the credit card, and we will open it to the market next week before the end of the month. Obviously, we will process and simultaneously these 120,000 applications. In parallel, we also launched last week a program that we called Rappi Contigo, Rappi With You, to help the small restaurants and the dark kitchens that are having some troubles during the pandemic within Rappi. It's a loan program with MXN 250 million in loans. As yesterday, we had 310 restaurants or applications in the waiting list, and we will process them also during next week and the following weeks.
We are moving forward with those two products as today, and we will be integrating more products as we move forward. Thank you.
Thank you very much.
Thank you. We will take our next question from Luis Yance from Compass Investments. Luis, please go ahead.
Thank you, and hi, guys. Happy New Year. Thanks for taking my questions. Most of them have been answered, but I guess two follow-ups on something you guys mentioned. The first one is on the sustainable ROE for the group that you mentioned, perhaps in the 18% range. When I compared that with what you plan to achieve this year, the 15%-16%, it's almost 300 basis points improvement over the past three years that you're expecting. Just wanted to understand, broadly speaking, what would be the drivers for that improvement? Because based on what you've said, on the OPEX side, you seem to be pretty efficient, and you're going to get some additional rewards this year, but going forward, whether it's coming from that direction, is it just because you're expecting interest rates to normalize much higher?
If you can share with us what's the assumption behind there, and perhaps it's just an improvement on that side. Is it on the fee side? Just to get a sense of how should we think about the biggest drivers for that improvement in the medium term.
Thank you, Luis. Rafael, please go ahead.
Yeah. Luis, I think your question is key to understand the evolution. As you know, when we launched the 2020, we basically said that we will double the net income, that we did that in two years before. There were specific numbers for ROE. That was 20%, that we achieved that in 2019, before the 2020. Basically, a lot of those were related to efficiency, investing in technology, and also increasing the value per client. I think the key element that we see by pushing forward the numbers is that the value per client that we increased on this five-year program that was at 2020, we more than doubled the value per client.
Now that we have all the analytics in place and the multi-channel and the evolution of the digital plus the linkage with Rappi and the new evolution that we're having on the digital, and also with our strong position that we have now in corporate and commercial, I think we will continue to expand the value per client at a very fast pace. That's one of the main levers. The other one is, as you can see this year on the guidance, revenue is growing below the expense line. The expense line, that is well controlled at 4%, but the revenue that we have basically projected for 2021 is close to 2%. We have an imbalance there that we have to correct that pretty quick.
We would like to really push that forward through this year in order to regain, again, the rate of growth well above the expense line. Most of the businesses and the evolution of the mix of the portfolio is providing us a sustainable rise on the profitability. Also, I would like to guide you to the numbers of the architecture of the group. If you see how the annuities business is behaving, like growing net income 51% for the year, and with a very strong return on equity around 25%. You see insurance business around return on equity of 40%, even though they had a tough year because of the pandemic and the provisions that they needed to build to cover those costs. The Afore is staying around 15%. I think it's going to be tough for the pension company to go above the 15%.
I think the annuities company, if you look at the annuities company, is coming close to be at the same size of the pension company. That's a pretty good story because we are growing that business pretty fast, and we can increase the return on equity on that. Also, the broker-dealer is above the number that I just mentioned on a recurring basis. If you look at what happened with the bank last year, when we build up the provisions and we reduced the return on equity for the bank drastically in the next month after we did the provisions, we see a very strong pickup in the third quarter for the bank that was already close to 19%. We don't see any issues at the bank because we will continue to grow the client base, the profitability of the clients.
Distribution are becoming much more less expensive based upon digital. We can reach a lot of new clients now on a very efficient way. Also, I would say that the bank and also the businesses that I just mentioned to you is where we see this evolution of the sustainable return on equity for the group. The main issue that you see at the group level is the goodwill that we have been with the Afore, that is a very large goodwill that is with just sitting there. If you go to tangible, we are already there. We don't see really that we have any issue to really regain that number based upon the size of the business, the quality of the business, and also how fast we can really continue to increase the profitability on a client-by-client basis.
Thanks a lot, Rafael. That was very helpful. Let me ask you last question, it's on provisions. When you did the first round of additional provisions in the second quarter, the thought was that was enough, right? Then we get this second wave, and you decided that it was prudent to add a little bit more. I just wonder, as we go through this year, there's still clearly uncertainties around, is there going to be a third wave? Are we going to have a much longer lockdown period in the center of the country than what you have projected there? Just wondering how much cushion right now you do have to accommodate, let's say, if the lockdowns take a month longer than you expected, or if GDP growth is not 3%-4%, it's 2.5%.
Not major deviations, but a little bit here and there. Would that probably require another round of additional provisions, or you think for those small deviations from what you're expecting, you're comfortable with what you have, and you have enough cushion to maintain what you're seeing as a more normal cost of risk for the year?
Luis, I think we feel comfortable with this number. What is important about your question is what Alonso also was mentioning about if there's going to be a release of these extraordinary provisions. If things get longer, the lockdown or the second wave stays longer than it is, I think the issue is that we will consume more than anticipated the extraordinary provisions. I don't see, honestly, any need to build up more provisions by now. I think the fact is how much we can release, not if the size of the provision is good enough.
Right. That's very helpful. Thanks, guys.
Thank you.
Thank you. We'll take our next question from Edson Murguia. Edson, please go ahead.
Hi. Good morning. Do you hear me?
Yes, perfect. We hear you.
Thank you for taking my question, Marcos and Rafael. I have two of them. The first one is related to your guidance on the loan portfolio, because yesterday, an event from Fitch. Fitch is expecting that consumer loan as an overall in Mexico will grow around 5%. I was wondering if you can give us more color about if you are in the same way as Fitch, or are you going to be more careful about this consumer growth portfolio for 2021? The second one is related that historically, from not only in the U.S. but in Mexico, when this crisis used to occur, there is a consolidation in the industry. I was wondering if you are expecting to buy, I don't know, a portfolio from another institution, or if you are watching opportunities in the market.
I will start for the second one, Edson. We may see a consolidation in the industry the way we see in the world, and it's going to happen in Mexico. Our duty is to watch what's going on and then go to the board and to all the instances, and if it makes sense to provoke a meeting. It's not in our main driver. Only we need to be careful and to see what's going on, and that's our duty. Our objective now for the year 2023 is to go along and to give you these numbers. Talking about the first one, the guidance of the loan portfolio, Rafael, it is 5% to grow.
Yeah. I can in a way dissect the growth that we see on the consumer. We see on the consumer, on the mortgage book, 10%, maybe a little bit higher than that, but 10%. We see on the car loans 7%. We see on the payroll loans a rate of 4%. Credit cards also 4%. Corporate and commercial will be around 3%, and the government book will be 2%. If you see this, we are, in a way, above what Fitch is mentioning in some of the portfolios. What has to be considered is when they say 5%, and let me put you an example about credit cards. Last year, credit cards was down close to 6%. When we say 4% growth this year, it's really a big push for the year.
We see the economy moving, I would say slowly, but in the right direction. It's unfortunate what is going on because of all the issues concerning the pandemic and the plateau, that the COVID plateau has reached in Mexico. Honestly, the country is moving. There's a lot of will to keep on moving on this. Really the main issues are happening outside the banking sector, because as you know, the banking sector really basically deals with formal employment and informal employment companies have to try to keep as much as they can, the number of employees of things. On the informal economy, the hit has been very hard. This is really happening outside the banking system.
The banking system, in a way, if you look at the numbers last year, minus 10% GDP growth, and you see a loan book for Banorte close, if you take away the government book above the 8%, is quite difficult to understand. Also when you see the revenue growth and everything. The fact is that the formal sector continues to be diligent and trying to overcome the situation the best that we can. On the informal economy, the hit has been very hard.
Okay. Thank you. It was really helpful.
Thank you.
Now we'll take our next question from Jorge Henderson from Santander. Jorge, please go ahead.
Good morning. Thank you very much for the presentation and for the opportunity to ask questions. I have two questions. The first, you already provided guidance on loan growth by segment. I see it right now, and you mentioned some growth will be coming from mortgage and auto loans and the rebound on credit cards. What I would like to get is a more in-depth detail on your target asset mix, a bit on the rationale on this for 2021 and also for the medium term. Do you target to gain or lose loan exposure on specific segments? The second question, you mentioned on your press release that during 2020, mobile transactions in your mobile app increased 44% year-on-year. Do you see this trend accelerating even more for 2021 and on? Could you share what yearly growth do you expect on this? Thank you.
Who will start for the second one, the mobile transactions? I will ask again, Paco Martha to give us more color about that. Paco, go ahead, please.
Thank you, Marcos. Yeah. Well, the mobile transactions, we had a ramp-up during the year, about more than 70% increase in the transactions. As you may be aware, we moved, we created or we enabled more functions and more services in the mobile app. We were able to let the customers to stay safe and stay in their houses. We saw the transactions moving towards the digital channels. The web channels stayed the same way. The transactions all around the bank increased, mainly the mobile ones were increasing more than 50%.
Thank you, Rafael. Anything else, Paco?
No, thank you.
Okay. Rafael, the loan growth, please.
Jorge, I think if you look at the loan growth and it has to do with what Marcos mentioned, and has to do also with the size of provisionings, is that the current mix, that it looks in a way weak on the consumer side because 50% of the total book is on the consumer and is only 15%. It's proven at this point in time, not because we would love our goal to the consumer is to go around 18%-20%. That would be a very balanced loan book when we reach that number on the consumer. I would say that the mortgage book will stay around the 20% as we see. I think we will see a bit of increase on the corporate, on the commercial, not a lot more because we are very close to our fair market share there.
That is the 16%. Where we see a continuous evolution and reaching out to the fair market shares in the credit card that we gained market share last year, and we have been gaining market share, but we are well below the position that BBVA has, close to 30%, or is it around 26%-27%. We are reaching the 11%. The move that we are aiming to grow when I talk about numbers in the consumer from 18%-20%, is to keep increasing the payroll loans portfolio. That is a portfolio that we can continue to grow easily for the coming years. The credit card that we have right now is a very loaded card with benefit services, digital origination, everything. We see an increase in market share there. We already gained market share last year, but not at a very fast pace.
The fast pace will come from car loans, payroll loans on this part. Basically, that would be the big pusher on the acceleration of that. Also on the mortgage side, that is separated from the consumer, I think we will stay at around the 20%, 21% of the overall mix. The key fact is that the payroll loans and the car loans and the credit card will continue to push us up to the 18%-20%. That is our desired number on the consumer.
Thank you very much.
Welcome.
Thank you. We will take our next question from Gil Garcia from Barclays. Gil, please go ahead.
Hi. Good morning. Thank you for the call. Can you give us any guidance on your expectations for the insurance technical results for the year, which have been rather volatile over the past quarters? Thank you.
Thank you. I will ask Fernando Solís to answer about that. Fernando, please go ahead.
Fernando, please go ahead. I think he's having some technical difficulties. I think we can give.
I think I can.
Thank you.
Yes. Go ahead.
Okay. Thank you. Yes, what we have been seeing in the past year, the change in the results, as you mentioned, were due to technical results and mainly due to the loss ratio. Actually, what happened with the book is that we experienced, due to COVID, after taxes, an increase in losses due to COVID in life and in medical expenses, around MXN 1,433 million. That was a very important hit. It was partially compensated in the loss ratio in car insurance. There, we have benefit of MXN 635 million. If you take those things into account, plus the fact that we also have non-recurrent income due to the fact that we did not pay dividends either, actually the book would have grown, in terms of net income, 15% from 2019- 2020. Actually, those are extraordinary effects that COVID put on this book.
Those are the main explanation. Otherwise, due to normal terms, if you take out these extraordinary effects, we would have experienced a 15% increase in net income. What will happen this year? Of course, this year, we are also expecting that COVID will prevail. Actually, we're thinking that perhaps the range will be that. As you know, what will happen will depend on how fast the vaccination takes place in the Mexican population. We do not see that we will have enough people being vaccinated, 65%, 70% from the first three quarters or perhaps not for the full year. This year, in terms of COVID, we believe that the impact will be even higher. Of course, this is something that hopefully will eventually pass, and we will recover our normal rate of growth in net earnings after that. That's explained mainly due to this fact.
Thank you.
Thank you. Just a quick reminder that we have time for three more questions. Please, in the interest of time. The next question will come from Tito Labarta from Goldman Sachs. Go ahead, Tito.
Hi. Good morning, everyone. Thanks for taking my question. Just a follow-up on your margin, and perhaps it's related to the last question also on the impact that the insurance has on the margin. On the guidance that you gave, the 15 basis points-30 basis points reduction, is that at the bank level? I just want to understand at the group level. Margin fell 30 basis points and has been steadily falling on a quarterly basis. Just to get, I guess at the group level, do you think that margin has bottomed now? If it falls another 30 basis points, the year-over-year reduction would be a lot greater than the 15 basis points-30 basis points guidance you gave.
Just want to be able to reconcile the bank margin and the group margin and how that should evolve, particularly, I guess, on a quarterly basis, to get to that full-year guidance. Thank you.
Thank you, Tito. Rafael, please go ahead.
I think, Tito, thanks for the question. The number that we have mentioned is related to the bank.
Okay.
I think the group, as you mentioned, has bottomed up already. I think that number is going to be there on that front. It's basically the bank.
Thank you, Tito. We'll take our next question from Victor Galliano from Barclays. Victor, please go ahead.
Thank you very much for the call and the opportunity to ask questions. Just a quick one from me on the margin again. Looking at that slide 17, really, you've done a tremendous job on your cost of funds versus your main peers, but it looks like that's now largely done. Do you think there's any risk? Thinking glass half full for 2021, certainly the second half of it, as the economy recovers and as demand grows, that you'll see your main competitors beginning to compete more aggressively for deposits and core funding. Where do you see the risks aside from, obviously, your hedging to this, to your margin from the liabilities side?
Rafael. Thank you, Victor. Rafael.
Yeah. I think, why do we still have room for this? The way we have been evolving on the funding side is that first we needed to take away all the required market funding that we needed in order to fund the Interacciones assets. That was done in the third quarter of last year. As you say, that was a big portion of that. Still, we have for specific accounts that are related to two things, because we needed to build up liquidity fast. We also pay for some accounts close to reference rate or below reference rate, well below market funding, but we needed that to immediately increase the liquidity at that part. That liquidity is not needed anymore. That will be also a fact of how can we also continue to reduce the cost of funds.
Also, as you saw last year, our growth on time deposit was slower than the market because we let go some of those funds because our demand deposits were growing 22%. We don't expect 22% growth this year on funding. We expect 11% growth. 7%, we expect in demand deposits without costs on that part. When you see the compression on the reference rate, that is also taking away some of the big numbers that were in the past when the rates were around 7%, that everybody was looking for the 7%, 7.5%. When you are dealing in a world that reference rate is getting close to 4%, 3.5%, I think sensitivity also goes down, and it's more related to efficiency, ease of use, location, when you can get the benefit of funding.
The payrolls, we continue to grow payrolls pretty fast, and that's a very important source of funding at a very low cost. Even though that was a, as you say, a big push on the funding side, we still see room for going down on the cost of funds around 20 basis points more. That's our goal for the year.
Great. Thank you very much.
Our last question will come from Brian Flores from Citi. Go ahead, Brian.
Hi. Thank you for the opportunity to ask questions. Rafael, you mentioned that you saw positive surprises in the performance of the SME portfolio. Can you elaborate on why do you think this is happening, and how do you see this going forward? The second is a quick follow-up on the guidance you provided for the growth in segments. I only caught up the last two portions, and I don't know if you could repeat this. Thank you.
Yeah. Why we are on the SME. The first issue is that, you know it's 4.7% of the total book. The second issue is that 47% of those are under NAFIN guarantees. The third most important one is that, of the 420,000 SME clients, 29,000 of those have a loan with us. Of those, we have contact every single one of those. We know exactly what's the position of the company, if they close, if they are in a slow movement stage, if they are regaining its growth, they expect to regain its growth. We have talked to every single one of them and know the situation. We have visited them on a one-to-one basis. You see on the SME what is the key element of the SME. The entrepreneurial vision of these people and the resilience of these people.
Basically, what they need, most of them, is just a little more time to go back on their feet, but they are more than willing to keep on pushing forward. That's where Gerardo was mentioning about going on a one-to-one basis and creating a specific program for them. We continue to see, obviously, 12% of the SME that reached the relief programs are not paying because they are either closed or they are back on that. That was expected on that. We were expecting a much important number on that. 12% is for us good enough based upon the size of the crisis. I think the resilience of the entrepreneurs, the support that the bank is providing them, the NAFIN guarantees, the size of the SME portfolio. We are not in SMEs related to tourism or things like that, or restaurants.
Our exposure there is extremely low on that part. It's basically SMEs that are linked to either supply chains or other type of business. I'm very positive and surprised about the behavior of the SME. On the guidance, I will repeat on the mortgage book, 10%, the car loans, 7%, the payroll loans, 4%, the same as the credit card on that. The corporate and commercial around 3%, and government book around 2%. You can get a range on that of ±1% on those.
That is perfect. Thank you.
Welcome.
Thank you very much for your interest in Banorte. With this, we will conclude our presentation. Thank you.
Thank you very much.