Banco del Bajio SA Institucion de Banca Multiple Q4 2024 Earnings Call Transcript

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

Question: Brian Flores - Citigroup Inc. - Analyst : I'm from Citibank. Two questions here, Carlos De la Cerda and Joaquin. The first one is on cost of risk because we saw last year, you revised it upwards, and it showed some pressure maybe on the asset quality. So just wanted to ask you, I mean we have one month of 2025 already here. Can you expand a bit on how are you seeing the health of your clients activity? I'm wondering if this is perhaps the point where we could have some upside risks, meaning we see maybe the cost of risk going a bit higher in 2025. And I'll ask my second question later. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 4:00PM, BBAJIOO.MX - Q4 2024 Banco del Bajio SA Institucion de Banca Multiple Earnings Call

Question: Brian Flores - Citigroup Inc. - Analyst : Perfect. Super clear. And then my second question is on capital because as you mentioned in your presentation, you have been accumulating capital, paying very solid dividends. So do you think maybe should we see a similar level in terms of dividends, even if the midpoint of guidance suggests an 11% decrease in earnings year-over-year? And also, in that sense, would any buybacks or extraordinary dividends would be considered? And then maybe just to summarize everything here. I know your ROE is coming down, but can you remind us of the normalized levels of ROE that we should see for the bank? I think that would be very much appreciated.

Question: Ricardo Buchpiguel - Banco BTG Pactual S.A., - Analyst : This is Ricardo, BTG Pactual. I have two here on my side. So first, in the past months, we saw that sell-off of Mexican assets, which basically reflects investors' lower appetite to invest in the region after the Mexican -- the US election. So I wanted to hear what are you seeing. If you're seeing something similar happening as well with companies' appetite to invest in our business, which would reflect in lower loan demand? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 4:00PM, BBAJIOO.MX - Q4 2024 Banco del Bajio SA Institucion de Banca Multiple Earnings Call And for my second question, in the guidance, as you're assuming loan growth should accelerate, I wanted to understand a bit more the rationale for why fees and trade income would accelerate when we exclude the benefit from the asset sales, right? As you mentioned in the call, will imply a 15% to 18% growth on a recurring basis?

Question: Ricardo Buchpiguel - Banco BTG Pactual S.A., - Analyst : And just a follow-up here. You mentioned in the previous questions, uncertainty regarding the market, which could affect NPLs. In this regard, what do you believe is the main event or variable to look at? Would it be a potential evolution in the discussion with Trump and increase in tariff? Is mainly GDP growth that would be a variable to look at for asset quality and NPLs? What would be the main uncertainty regarding the asset quality equation?

Question: Ernesto Marfa Gabilondo Mßrquez - BofA Securities - Analyst : Thank you. Ernesto Gabilondo from Bank of America. My first question will be on your earnings expectations for '25. So we noticed that you are guiding important earnings contraction for the year. You mentioned that this could be explained because of the expectations that the Central Bank would probably cut more in the first half or the costs to happen in the first half and then to be at that level in the second half. So I believe this scenario seems reasonable from what I also have been hearing from Central Bank members. But also, I would like to hear your view on what are you hearing on this on the movement from interest rates? And then my second question is on development banks and guarantees from NAFIN and FIRA. Can you remind us how much of Bajio's portfolio is backed by those type of guarantees? We detect the new government wants to originate more loans to the SME segment by using the balance sheets of the development banks directly. So just wondering if there could be like any risk on loan growth because of potentially tougher competition from the development banks? Any color on this would be very helpful.

Question: Ernesto Marfa Gabilondo Mßrquez - BofA Securities - Analyst : Perfect. So just two comments. We agree with a 50 basis points cut in February as a house, we have that call. And then in terms of the SMEs competition, just a follow-up if, I don't know, at some point, NAFIN or other development banks or FIRA will be working with, for example, Banco del Bienestar and use the infrastructure that they have been building in the last years. Do you think that could be a possibility or we can discuss that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 4:00PM, BBAJIOO.MX - Q4 2024 Banco del Bajio SA Institucion de Banca Multiple Earnings Call

Question: Tito Labarta - Goldman Sachs - Analyst : It's Tito from Goldman Sachs. My question, following up on the loan growth guidance that you gave of the 8% to 11%, just I mean, GDP growth is slowing, right? You have 1% with 4% inflation. So yes, at the high end, you'd be growing almost 2 times nominal GDP. Just to understand why you may not expect a bigger slowdown in 2025? Or what gives you comfort that you can continue to grow at that high single digit, low double-digit pace in the current environment? And then my second question is on your expense growth. It is moderating a bit, but if growth is slower from the economy from loan growth, if there's more uncertainty with tariffs or nearshoring, could you control that expenses a bit more and maybe grow a bit less on expenses? Just to think about where there could be some cost savings, if you can deliver any?

Question: Marlon Robles - JPMorgan Chase & Co - Analyst : This is Marlon from JPMorgan. My question is a follow-up basically on asset quality. And here, because your cost of risk guidance at 0.8% to 1% is above the historical levels and also like NPLs below or around 1.6%, it's also above historical levels, so my question is like considering the mix and that you're growing faster in consumers, should this be a new normal for cost of risk and NPLs? Or are you rather anticipating some more challenging trends in any segment for 2025? And then we should see a normalization into 2026? Just trying to understand how much of it is kind of like a new normal or more of a 2025 increase in cost of risk.

Question: Andres Soto - Santander Investment Securities Inc - Analyst : This is Andres Soto from Santander. My question is a follow-up on capital and dividends. When I go through your numbers and I look at the expected evolution of the capital ratio, I believe it's possible that you are going to be even at 15% core equity tier 1. So my question would be, will you consider extraordinary dividends or doing buybacks? And to this point of buybacks, have you considered this alternative rather than this reading extraordinary events, doing some buybacks considering the low valuation of the stock?

Question: Alejandro Lavin - Santander Asset Management - Analyst : This is Alejandro Lavin from Santander Asset Management. Congrats on the results. My question is on taxes. So there have been, as we have talked before, several mentions about the possibility of the fiscal authority changing the fiscal rules for banks. Well, obviously, nothing has happened, right? And looking at your guidance with an effective tax rate of 26.5%, I mean it seems that you are just doing business as usual. And I guess that makes sense because there is so much uncertainty. So I just want to touch on that details and see what your views are on this decision.