Hello, welcome to Virtual Investor Conferences. My name is Bob Tower, and on behalf of OTC Markets, we're very pleased you've joined us for our next presentation from Banorte. Before I introduce our speaker, a few points to note. Please submit your questions in the questions box below the slides. Once the Q&A session is ended, don't log out. You'll automatically be transferred into the Banorte booth, where you can continue to ask questions via chat and access shareholder materials. On a final note, all of today's presentations will be recorded and available for 24/7 replay. At this point, I'm very pleased to welcome Ursula Wilhelm, Executive Director of Investor Relations of Grupo Financiero Banorte, which trades on the OTCQX Best Market under the symbol GBOOY and on the BMV under the symbol GFNORTEO. Welcome back, Ursula.
Bob, thank you very much for inviting us to participate in the virtual conference. Thank you, OTCQX, and everybody who is joining us this afternoon to hear a little bit about what we are doing. I'd like to say that our quote in OTCQX is GBOOY. It's easy to remember. Just remember about GBOOY. It's Grupo Financiero Banorte in Mexico. I have a deck of information that I want to share with you this morning. I will go through it, and after that, I will then look up the questions that we have received and will be providing answers to those. I will start with just a few numbers on the macro environment. As you see elsewhere in the world, Mexico has been affected by this COVID pandemic and crisis, and the outlook for the economy has changed from where we were back in January.
Our current projections in terms of the macro environment are, as you can see on the screen. We are projecting a contraction in GDP of 7.8%, with the largest decline in GDP happening in the second quarter of this year, expected to be around 16%. From there, smaller contractions in Q3 and Q4, for an overall decline in the economic activity of around 8%. This projection is pretty much in the middle of where most economists and consensus is. The most optimistic economists project a GDP contraction of -6%, and the most pessimistic economists project a contraction of -12%. At Banorte, we are more or less in the middle of it. We are also expecting inflation to decline by the end of the year. As you can see in the charts, by December, inflation should be at the 3% range, which is the target of inflation.
I mean, at 3.5%, which is getting close to the target of inflation by the central bank. Inflation is not really a major issue this year as is economic activity. In terms of interest rates, we are also projecting a decline in interest rates. In the chart here, we are showing at the e nd of the year, rates at 6.50%. This is our previous forecast. Our current forecast is 4.75%. The current rate is already at 5.5%. We are expecting the central bank to reduce rates from the level that they are today by another 175 basis points between June and September. By the end of the year, the exchange rate in Mexico will be at around 4.75%.
These are the general macro numbers, and I will give you more color of what is going on in the economy as we go through some of the other slides that I have prepared for this presentation. I just want to remind you a little bit about Banorte. We are a solid financial institution, one of the largest in Mexico and a very profitable franchise. We have a very nice business mix, which is probably we are the most diversified financial group in Mexico, with operations in various areas of the financial spectrum. The company enjoys very strong financial fundamentals, and this is key because even though the COVID crisis is something that we have not seen in the world, and we have not lived through it. We are entering into this crisis with very strong fundamentals, and we expect that these are going to support us.
They will provide a cushion for the potential problems that we overcome, especially on the asset quality side, that we overcome in the next several months. We have a strong corporate governance. We have an independent board member. We have an independent, solid governance structure that has been tested in different times in the past. Grupo Financiero Banorte is also one of the most public companies in Mexico. Close to 85%-87% of the shares of the group float in the market and are held by institutional investors across the globe. We are not just a very public company, but in terms of ownership, very diverse. In terms of the business, Banorte is the result of the collection of many mergers and acquisitions that took place in the past. In the last five years, we have focused entirely on organic growth.
All of the transformation that we have done has been within the retail bank. We have basically moved from a product-driven organization to a customer-centric organization. IT has been the fundamental element that has driven this change. This transformation has led into a very solid financial profile and also a stronger position in the Mexican market. You can see in the following slide, the diversification of the businesses of the group is very strong. We have the bank, which accounts for 62% of the profits of the group. The insurance company, of which half of the business comes from bancassurance and the other half comes from regular insurance, the traditional insurance market, accounts for 21% of the profits of the group. We have a pension fund, which manages the retirement savings within the Mexican private pension system.
It is the largest one in terms of assets under management, with close to 25% of assets under management. It accounts for 4% of the profits of the group because we only own 50% of this company. We only account for 50% of the profits. The owner of the other 50% is the Mexican Social Security Institute. We have a number of other smaller finance companies that provide leasing, factoring, warehousing, brokerage services, and so on, that complement the business of the group. As you can see, the subsidiar ies also are quite profitable, all of them with very strong return on equity. The bank, in particular, maintains a very strong return on equity that has been increasing over the last five years, as you will see later.
In terms of market penetration, you can see here that we are the third largest in terms of deposits and the second largest in terms of the loan book. This position has been increasing over time. Banorte was a very small bank. There was a time when its market share was close to less than 5%, and currently, we are the second largest in the institution. Moving now to what we have been doing through this pandemic in terms of our operations and in terms of our customers. First of all, let m e show you, in terms of our operations, we clearly took action in mid-March and with several initiatives. Most employees are doing home office, like has happened elsewhere. You can see here at the corporate level, it says 75%, but at the moment it's close to 85% of employees are in home office.
At branches, we are only having branches staffed at 50% capacity, and every two weeks we are rotating the branch personnel. In the ops and IT area, we also have a large portion of employees doing home office. We clearly took health and sanitary precautions in all of our b uildings, not just for our employees, but also for our customers. We have been managing the branch network with these health measures to maintain a safety environment for everybody. We have 1,200 branches. Of these, only around 210 branches are closed because of the location where they are. For example, if they are located at a shopping mall and shopping malls are closed, then the branches are also closed. We have close to 210 branches closed. The rest are opening or functioning only at 50% capacity.
One of the issues with this pandemic was the fact that the economy is closed poses significant to everybody in terms of employment, in terms of businesses, in terms of revenues, and so on. We were the first bank in Mexico that on March 24, we announced a relief program to support our customers with consumer credit and also our SME customers. This program was open from March 24th until April 30th. Basically, customers had to apply for the program, and they received a four-month grace period in the payments of capital and interest on their loans. The only two considerations were that customers had to have their loans with Banorte and that the loans had to be current at the end of February. You can see in the screen that close to 35% of the consumer and the SME book applied for the program.
For example, mortgage was the one that got the largest application, with 37% of the balances of mortgages entered into this program. The program is now up and running, customers are not paying their installments from April until July. From an accounting point of view, this program will have the following effects. Principal and interest payments will be deferred for four months. The amortization schedule of capital of the loans will be extended for four months. At month five, installments will be reactivated, so customers will start to have to pay normally. We will recognize the accrued but unpaid interest in the P&L against an interest receivable account on the asset side. We will start collecting on the accrued but unpaid interest starting in the month five.
We also, on the wholesale portfolio, we have been providing liquidity assistance to our customers in the form of working capital and liquidity lines that are available for one year. We have been doing this since April until now. We expect to enter into a renegotiation process within the wholesale portfolio that will be very intense and will start probably around September, when the economy is still at a more normalized level, if we can call it that way, and customers have a clearer picture of what their future cash flows are going to be. This process, we believe, is going to be open from between September and probably until the end of the first quarter of next year. In the next slides, I have some financial information on our last reported results, which were as of the first quarter. I will not comment on them a lot.
What I can tell you is that we posted a very strong quarter considering the circumstances. We withdrew the guidance that we had given to the market back in January, and we will provide a new guidance probably when we report our second quarter numbers. What I can tell you is that we are going to anticipate some of the loan loss provisions that we expect will be required for the deterioration of the portfolio. We are going to anticipate them starting in June. You will see an increase in loan loss provisions in the second quarter and in the third quarter, mainly. That will be covering for expected losses that might appear between the third quarter of the year and until June 2021, which is the time where we expect the peak of the NPL deterioration to start showing.
Earnings will depend upon how much additional loan loss provisions we bring to the P&L. Around for the month of June, we are expecting between MXN 4 billion-MXN 5 billion in additional provisions to the provisions that we'll be making for the regular performance of the portfolio. Just so that you have an idea, for this year, our expectation of loan loss provisions ranges at around MXN 18 billion. This number does not incorporate COVID's impact. In addition to the MXN 18 billion, we will have more provisions to cover for COVID impact. In terms of costs, you can see here, cost of risk and NPL, it's still at normalized levels. As I mentioned, we will see an increase in cost of risk this year as we anticipate provisions. On funding costs, we have had a very strong few months despite the difficulties.
Deposits have been growing very nicely at a rate of around 9%. First quarter was 7%. It's accelerated. The funding costs have been declining. In the first quarter, we were at a 45% of the reference rate. We are currently approaching 42%. There has been a positive performance of deposits and funding costs in this second quarter of the year. In terms of capital, the capital ratio of the banks, it remains very strong. The CET1 ratio that we reported in the first quarter was 12.2%. We expect this ratio to strengthen further in the next few months. We do not anticipate a major impact on capital. Our worst-case scenario that we have run projects that CET1 ratio would drop to a level of 11% if NPLs increase significantly. We maintain very solid ratios.
I also would point out that the regulator in Mexico, the central bank, reduced the minimum regulatory requirements for one year, that is from March 20- March 21, by close to 200 basis points. You have in the slide what the new minimums are for Banorte. As I mentioned, we do not expect to get there at any time. No, it's clearly been ruled out. In terms of support from the regulatory authorities, the central bank has been providing monetary support to the financial markets and to the banking system. This monetary support has been in the form of liquidity and also credit facilities to provide loans to SMEs, corporates, and mid-market companies. All of the supports that the central bank has provided is equivalent to close to 3.5% of GDP.
Additionally, the capital ratios were relaxed, as I already mentioned, and also the liquidity ratios of the banking system were relaxed. The minimum liquidity ratio was 100%, and currently it stands at 85%. Finally, some credit exposures that are relevant, you can see on the screen. In the oil industry, we have 5% of the book. In tourism, we have 5% of the book. We don't have exposure to airlines. We have a very small exposure to airports. As I said, we expect that some of these exposures, and we will start a workout and restructuring process within our wholesale portfolio to support our customers. Finally, one comment on what has been the digital behavior. As expected, digital is becoming the new way to do banking, as customers have now been using it constantly and accepting it.
Most of our digital operations, half of the transactions happen in the mobile and in the internet, only a very small portion of 4% are happening at the branches. We also have digital products that can be onboarded digitally without need to have a person-to-person presence. We have been marketing those very successfully in these two months of confinement, we have seen a very important growth in those. With this final comment, I close the presentation, now I will turn to the questions to see if you have any questions for me. The first question is very simple. When will we see the second quarter numbers? At the end of July, probably the third week of July, around the 24th, 25th of July. That's when we will have the release.
Another question is, can you speak about the actions that the Mexican government is taking to assist the economy during this pandemic? Yes. Unfortunately, the support of the Mexican government to the economy has been quite limited. There has been a resistance on the part of the federal government to provide supports to the private sector. Basically, the government announced that it would continue to invest in its flagship infrastructure projects as a way to support the economy and to produce employment. It's very limited. On the other hand, the central bank has provided support equivalent to 3.5% of GDP in the form of credits that can be placed in the economy, and that has been really exceptional and has been supporting the banking system. We do not expect any additional support from the Mexican government. That's to be said. I have another question here about dividends.
Have you been paying a dividend, and if so, do you expect Banorte to continue to pay dividends? This has been a recurring question. We have not paid yet the dividend related to the 2019 profit. We announced when we released our first quarter results that we would defer the dividend decision to a later date once we had a clearer idea of what the environment was like and what was the impact of the COVID situation in our operations. I expect that we will have a decision made about the dividend. Traditionally, Banorte has paid dividends every year. Our current dividend policy is a maximum payout ratio of 50% of net profits. We believe that it's very likely that we will pay a dividend in 2019. The only decision that needs to be made is the amount and the date of payment. That will follow.
Finally, I have another question here. Can you speak to market share in Mexico and if you have operations outside of Mexico? Yes. First, no, we don't have operations outside of Mexico. We are a Mexican institution that only operates in Mexico, and our goal through time has been to strengthen our position in Mexico. We are currently the second-largest financial group with a market share of around 15% in assets. We expect to continue to grow that market share. If we look at different businesses, we have been growing strongly on the consumer side. We were a distant player in consumer credit five to seven years ago, and we have been gaining share both in credit cards, in auto loans, in mortgages, and in general in the consumer landscape.
Our market share here, for example, in credit card, has increased from a low 6% to currently close to 10%. In mortgages, we have a market share that is approaching 20% of the market. I have one final question, given that we are getting close to the end of the conference. How is your digital strategy help you grow your consumer business? Digital has been a fundamental element of growing the consumer. Over the last three years, most of the investment in IT, and in the business has been moving to digital. We are currently a full digital bank in terms of onboarding, of operation, and even service. I think that what this COVID crisis provides us with the opportunity to make great changes in the future, that will bring about further improvements in efficiency.
All of this is because we are now a full operating digital bank. Our current efficiency ratio runs between 38%-40%. As you can see, it's quite low. I think that with the tests that we have had of home office work and the fact that customers have now completely adopted digital operations, there's a possibility to further improve efficiency in the future by making some changes to the way we work on a day-to-day basis, basically. Thank you for taking the time to listen to Banorte and to listen to our operations and to our story. Thank you for the questions. At this point, I don't have any more comments. Bob, thank you for the time.