Banco del Bajio SA Institucion de Banca Multiple Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brian Flores - Citi - Analyst : Good morning, team. This is Brian Flores from Citibank. I have two quick questions. So the first one is on asset quality. We saw the NPLs picking up. So I just wanted to see if you could elaborate a bit on what is happening. Is it an isolated case? Is this a specific sector of the economy that is being affected? And then how should we think about this going forward? Luis just mentioned you're maintaining your guidance. But do you see pressures here on the cost of risk? And then the second one is on NII sensitivity. I think on slide 9, you mentioned as of December, this was around 20 bps per 100 bps change in tier. This is about MXN465 millions in net income. Just wanted to know if this has changed over the first four months of the year. Because I know your guidance was prepared with perhaps higher rates than what we could be seeing in year end. Thank you very much. Edgardo Del Rincon Gutierrez - Banco del Bajio SA Institucion de Banca Multiple - Chief Executive Officer, Executive Director Hello Brian. And good morning, everyone. Regarding asset quality, Brian, we saw a better trend during the first quarter. We continue to have a few cases, of course. But we are seeing, let's say, a better trend. It's still above the regular level that we used to have during the first semester of '24, for REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, BBAJIOO.MX - Q1 2025 Banco del Bajio SA Institucion de Banca Multiple Earnings Call example, or before that. Also, the mix of the portfolio is improving little by little as we gain an additional mix in consumer portfolio. So the new level of cost of risk will be higher than the previous one. Of course, asset quality remains as a top priority for us, especially in this environment of uncertainty. During the first quarter, we asked our bankers to personally visit every client with loan exposures above MXN100 million, $5 million. We are talking about more than 700 customers. It was a very good exercise. We gained insight into their plans for the year. But also with perceptions and views at that moment on potential tariffs and how they are planning to manage such scenarios. These conversations not only allow us to provide timely support to our clients, but also help us to identify new business opportunities. We are clearly also being more prudent in origination. And we are focused on structuring deals with a stronger collateral schemes to ensure more certainty going forward. So given all the above, we maintain our expectation to remain within guidance for asset quality. Luis will answer the question about sensitivity.

Question: Brian Flores - Citi - Analyst : Perfect. Very clear. So also the guidance range for NIM, so far, is maintained? This is what I understood. Right? Edgardo Del Rincon Gutierrez - Banco del Bajio SA Institucion de Banca Multiple - Chief Executive Officer, Executive Director We are maintaining the guidance, Brian. But we are also clear that the consensus of the analyst is today at lower rates than the original plan. Our plan was built with a GDP growth of between 1% to 1.5% and rates coming down to 8.25% at the end of this year. And the new scenario is more close to GDP growth close to zero to 0.5%. And rates coming down to 7.75%. Under that scenario, I mean, the latest reading of inflation was higher than expected. So we have doubts about -- we believe that there is no clarity about the following decisions of the central bank. But even that scenario, the NIM would be a little bit lower than today, getting to 6.1%.

Question: Ernesto Gabilondo - BofA Global Research - Analyst : Thank you. Good morning, Carlos, Edgardo, Joaquin, and Luis. Thanks for the opportunity to ask questions. My first question will be a follow-up on this NIM and NII growth expectation. As you were saying, market is already expecting more interest rate cuts than originally expected. Some already are assuming a 7% interest rate by the end of 2026. So how should we think about this on your NII growth and NIM evolving during this and next year? And what will be your assumptions, the ones that you are working in your model, for the interest rate for this and next year? And then I have a second question in terms of expenses. In your remarks, you were mentioning that this year, focus would be in cost control discipline. But also you mentioned, you will still do some investments related to branch opening and infrastructure. However, given the potential economic slowdown in Mexico, can you elaborate where you can see some room to mitigate part of the impact by reducing expenses? Thank you. Edgardo Del Rincon Gutierrez - Banco del Bajio SA Institucion de Banca Multiple - Chief Executive Officer, Executive Director Thank you, Ernesto. Of course, the current environment of declining interest rate, it's natural to see some pressures on margins. What we expect for this year, I mean, we are with the market, with a market consensus to be around 7.75% at the end of this year and get to 7% at the end of '26. We made an exercise, even look to scenarios for '26 and for '27, heclining the Banxico rate in '27 lower than 7%, even getting to 6%. Under that scenario and let's say, with a reasonable behavior of the drivers, I mean, growing a little bit more the loan portfolio because normally, under that scenario of lower rates, credit demand improve. We can see under those scenarios that in all cases, our ROE is in high teens. We are very glad with that scenario. And we feel that profitability of the bank will continue to be very, very good compared with (inaudible). That is what we are expecting. I believe there is still a lot of uncertainty both in Mexico and globally. The interest rate outlook, we believe, is still unclear. But in this context, we believe that it's prudent to maintain our current guidance, as Luis was mentioning during the presentation. We have some positive trends and we know we will have some pressures on margins. But still, the outlook and the geopolitical behavior could change at any moment. So given that uncertainty, we decided to maintain the guidance and wait a little bit to have more clarity about those.

Question: Ernesto Gabilondo - BofA Global Research - Analyst : Perfect. Thank you very much, Edgardo and Luis.

Question: Tito Labarta - Goldman Sachs - Analyst : Hi. It's Tito from Goldman Sachs. Thanks for the call, and taking my question. My question, I guess on your loan growth and just sort of the the overall outlook. I mean, I understand all the uncertainty from some tariffs and everything, and, but I mean, the economy has already kind of slowed yet. I mean, you still see yourselves and even the system still growing at a fairly healthy pace and, I understand the need for caution just given the again the global uncertainty, everything going on. But I guess, why do you think things have been so resilient and if maybe some of this uncertainty settles down a little bit. I mean, do you think the train, the trends can continue to be as healthy as they've been, or is it just a matter of time for the trends to catch up to sort of some of this uncertainty and things should slow down significantly, just to get a sense of like how much of this uncertainty has actually materialized and how much is still sort of waiting to happen, it would be interesting to get your thoughts. Thank you. Edgardo Del Rincon Gutierrez - Banco del Bajio SA Institucion de Banca Multiple - Chief Executive Officer, Executive Director Thank you. To be honest, we are surprised by the continuous trend in credit demand during the first quarter, and that continued in April. So we are in the upper end of the guidance range, no, given the outlook for very low or even flat GDP growth, one would normally expect credit demand to weaken. However, a declining interest rate environment would help to sustain, or even boost the activity. So we feel until today we feel comfortable with the guidance and we expect to maintain a very healthy and disciplined long growth. To provide you with more, a little bit more detail, the growth, that we're having year over year is, driven. Mainly by new clients. So over the last 12 months, we added 970 new commercial borrowers, which account for MXN18.6 billion. That is an average long size, slightly below MXN20 million. So the ability to attract new and high quality customers and relationships is very important for us, and that is supporting a lot of that growth. So, I mean, we are growing year over year a little bit more than MXN26 billion. So this 18.6% of new borrowers is a, is an important percentage of that growth. So that I mean, we are growing but not with the same costs. We are adding more costs that are mainly coming from our competition.

Question: Tito Labarta - Goldman Sachs - Analyst : Okay. Perfect. Thank you, Edgardo.

Question: Ricardo Buchpiguel - Banco BTG Pactual S.A. - Analyst : Hi everyone. Ricardo Bushpigo from BTG here. Thank you for the opportunity of making questions. First, on non-interest income, could you please comment what has been driving your strong trade income in Q1 and what should we expect going forward? I want to have a sense if there was anyone off that particularly helped Q1 and we should exclude that moving forward. And you also mentioned your previous question that you have been doing more on new clients to drive the year over year performance on your own portfolio. Can you comment more about the profile of these new clients if they are coming from any particular region where you have been putting up more branches, which type of bank have you been stealing these clients if it's more incumbent banks and which one in particular and any information on that would be helpful. Thank you.

Question: Ricardo Buchpiguel - Banco BTG Pactual S.A. - Analyst : Very clear. Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, BBAJIOO.MX - Q1 2025 Banco del Bajio SA Institucion de Banca Multiple Earnings Call

Question: Marlon Robles - JPMorgan - Analyst : Hello everyone. Thank you for the opportunity of asking questions. This is Marlon from J.P. Morgan. My first question is on the line of the other operating expenses, and here, we saw that there was a sequential decline and looking to the table, it seems to be related to a recovery of legal expenses. So I don't know if you could dive a little bit deeper on on that. What is it related, et cetera? And my second question is a follow up on loan growth. You mentioned it's growing well across all regions, but are there any specific segments or industries where you are seeing better demand or like alternatively any industries where you are seeing a deceleration? Thank you.

Question: Marlon Robles - JPMorgan - Analyst : Okay. Perfect. Thank you.

Question: Brian Flores - Citi - Analyst : I think, just another quick one here on dividends, as you mentioned, you approved a 50% payout on 24, 2024 net income. However, this is a decrease, right, from the 60% payout you saw last year, of course, we're in different parts of the Cycle, but I just wanted to understand if you could elaborate a bit on the logic behind this decrease on the payout ratio.

Question: Brian Flores - Citi - Analyst : Super clear, Carlos. Thank you.

Question: Anand Bhavnani - WhiteOak Capital Management Consultants LLP - Analyst : I am from WhiteOak. Thank you for the opportunity. When we think of the credit cost, do you believe there is a risk to the upside or downside from the current levels? Edgardo Del Rincon Gutierrez - Banco del Bajio SA Institucion de Banca Multiple - Chief Executive Officer, Executive Director Not really no, and thank you for your question. We feel comfortable with that, with the level that we have today and with the guidance that we provide, to the market. Of course, we have been monitoring, a lot the portfolio. And also, as I mentioned, we decided to visit. All the customers, more than 700 customers with exposure above MXN100 million pesos. And that was a very good exercise and and provide us with very good insights from customers. So, we are monitoring that and. And it's very, possible that we will visit them again in the middle of the year. So we continue very close to our customers to be ready to support them. So, with the, with all the information we have today from the portfolio and customers, we feel good about the guidance.