Grupo Financiero Banorte, S.A.B. de C.V.

Good morning, everyone. This is Tomas Lozano, Head of Investor Relations, Corporate Development, Commercial Planning and ESG.

Welcome to Grupo Financiero Banorte First Quarter Earnings Call for 2025. Our CEO, Marcos Ramirez, will begin today's call by presenting the main results of the quarter and will address the redefinition of next steps of Banorte's digital strategy as promised in our previous conference call back in January.

He will also comment on the items proposed for voting at our upcoming Annual Shareholders Meeting. Then Rafael Arana, our COO, will go over the financial highlights of the group, providing details on the NIM evolution, asset quality, capital allocation as well as expenses for the quarter.

Please note that today's presentation may include forward-looking statements that are subject to risks and uncertainties, which may cause actual results to differ materially. On Page 2 of our conference call deck, you will find our full disclaimer regarding forward-looking statements.

Thank you. Marcos, please go ahead.

Thank you, Tomas. Good morning, everyone.

Thank you for joining our call. The first quarter of the year was driven by strong business dynamics and solid performance across our subsidiaries despite the complex economic environment.

The uncertainty surrounding the new global trade paid order continues to pose additional headwinds for the country. Although Mexico has so far managed to contain the immediate risk of tariffs, the narrative of potential fluctuation in the United States and other countries has gained traction.

Therefore, our economic analysis team has revised downwards its GDP growth estimate for the year to 0.5% to reflect a weaker business confidence translated into increasing challenges for investments and a more cautious consumer. In our view, Tiendas targeting Mexico will remain sporadic and will lay the groundwork for an earlier-than-expected revision of the USMCA in the second half of 2025.

Domestically, industrial activities and investments -- and investments continue to face a strong headwinds and private consumption, while showing initial signs of deceleration, remains resilient, supported by 3 key factors: continuity in remittance growth, social programs and a still dynamic labor market. On the monetary front, inflation continues trending down, approaching Banxico's target.

This evolution, along with a softer economic activity has resulted in a 100 basis points reduction in the reference rate this year, and we anticipate a further 125 basis points cut to reach 7.75% by year-end. On the fiscal side, the government is expected to continue its efforts towards fiscal consolidation following a coordinated strategy between the public and private sectors to drive infrastructure investment.

Moreover, on the political front, President Claudia Sheinbaum announced the continuity of the Mexico plant agenda, highlighting efforts to improve sales efficiency in key industries such as the automotive, chemical, textile and pharmaceutical. Finally, regarding the exchange rate, we estimate a range of MXN 19.80 to MXN 20.4 per dollar for the year.

I would like to stress that despite this lower economic growth expectation, we are maintaining our guidance given the operating dynamics we are seeing as of today. If anything in our forecast changes, we will advise the market accordingly.

Shifting gears to the business performance on Slide #3. Net income for the quarter reached MXN 15.3 billion, increasing 11% sequentially and 8% year-over-year, supported by the sound performance of the banking business, reflecting an expanding loan portfolio and a shielded balance sheet that has neutralized its dependence to rate cycles and relies heavily in our business volume.

Results were further benefited by a seasonal performance of the insurance company. ROE increased 185 basis points in the quarter, reaching 23.4%.

Whereas ROA expanded 20 basis points, standing at 2.4%, driven by a diversified income generation. Analyzing results by subsidiary on Slide #4.

The bank net income reached MXN 11 billion in the quarter, increasing 7% year-over-year driven by greater loan origination and expanding margins, net fees and trading income. These results generated an ROE for the bank of 28% for the first quarter of 2025, 182 basis points higher than average versus the first quarter of 2024.

The insurance business expanded 123% sequentially, up 14% in the year on the back of a strong business activities and the positive effect of seasonal policy renewals of the quarter, offsetting an additional increase in the fees time paid to the bank for the operation of the bancassurance model. Annuities grew 2% year-over-year driven by the business expansion despite the highly competitive margin.

And the pension funds increased 12% in the year, supported by a higher yields in financial instruments and a larger base asset under management, which offset lower regulatory fees. The brokerage sector grew 136% versus the first quarter of 2024 due to greater transactional and trading income.

On Slide #5, loan expansion performed above guidance, increased 13% in the year and reported annual double-digit growth across most of the portfolios. The corporate commercial books expanded 26% and 16%, respectively, in the year, supported by working capital demands.

These portfolios were further benefited by FX variations in the dollar book, which currently represents 16% of the total loan book. It is worth mentioning that our full year guidance assumes a deceleration in our corporate lending as business sentiment is still priority.

Thus, we anticipate higher requirements for working capital and a more cautious approach in resuming CapEx investments. This deceleration is already observed in the quarterly evolution of the group.

Moreover, our government book rose 1% in the year given the base effect of government spending prior to the elections period last year. We feel comfortable with our current exposure to this portfolio, primarily focusing in developing comprehensive relationships to boost profitability.

Turning to Slide #6. Consumer lending played a resilient behavior, increasing 12% year-over-year driven by a sound employment levels and labor conditions as well as the scaling of our hyper-personalization business model.

This -- the mortgage portfolio grew 8% in the year, reflecting an improved time to market for loan origination, personalized offerings and retention efforts to keep high-quality clients. Auto loans rose 28% in the year given a combination of existing commercial alliances and the overall business activity in the sector.

We are currently negotiating additional commercial alliances to increase availability in the market. Regarding credit cards, the portfolio increased 19% year-over-year, driven mainly by greater activity from our high-value existing clients, especially as this product is gaining relevance as a recurring [indiscernible] method.

In addition, the evolution of this product has been supported by different commercial campaigns, incentivized revolving usage. We continue to monitor the adoption of our segment-driven offering and will report the evolution as they gain traction.

Finally, payroll loans grew 11% in the year mainly due to the incorporation of new products that enable comprehensive relationships with our customers. On slide #7, asset quality continues to evolve ahead of our expectations.

The NPL ratio remained stable at 0.9% in the quarter and the cost of risk slightly increased to 1.8% due to the volume and mix of loan origination. Fees, on Slide #8, grew 2% year-over-year driven by higher transaction volumes in the acquiring business and consumer products, supported by a still strong internal demand.

On the other hand, higher origination to the external sales force weighted on [indiscernible] in the period, offsetting the positive evolution of charge fees. In the quarter, net fees declined in line with the seasonal operation of the third quarter.

Moving on to sustainability. I'm happy to share that during the quarter, we published 2 rare event reports for our investor community.

Our 2024 is the rated annual report in which we show progress and incorporate valuable feedback from our stakeholders across environmental, social and governance periods. We also published our fourth climate risk and opportunities report, where we identified potential climate-related risks and branch network and loan portfolio, confirming our commitment to transparent and timely disclosure for the financial group.

Finally, as I committed to during our last earnings call, I will address our updated digital strategy as well as comment on our Annual Shareholders Meeting that will take place later today, as you know. As you may recall, 5 years ago, we anticipated a big disruption coming into our industry.

We're not certain about the best direction for Banorte in this new era. And therefore, we look forward with 3 simultaneous pathways.

First, we accelerated the digital transformation of Banorte, the traditional bank, enabling a banking event with a hyperpersonalized operation, leveraging the significant investment in technology and talent. Second, we signed a strategic alliance with Rappi that enabled our firsthand experience in the fintech industry, where we built a tool from scratch to serve a younger clientele based on analytics and data.

And the third one, we created a full digital bank from zero with a state of their technology in models, data and infrastructure. Let me be very clear.

At that point in time, we were not sure about the solution, but we knew one thing, we needed to guarantee our success. Today, after years of testing and learning, the exploration phase is over.

Now I assure you that the best path for Banorte is to consolidate our efforts, leveraging the business scale and technological capabilities achieved through our digital journey, focusing on increasing profitability through our cross-selling potential and cost efficiencies powered by a hyperpersonalized business model. Currently, we are focused on the execution of a comprehensive strategy that is founded on the learnings and tools acquired from each of the 3 ventures that we developed to increase our availability, our ability for a sustainable competitive servicing and multisegment and multi-demographic market.

It was time to choose from the different harvest that we planted years ago and built a plan that consists of: one, continue investing heavily in Banorte; two, acquire 100% of the joint venture with Rappi, as announced last week, signed a long-term exclusive commercial agreement for distribution Rappi's ecosystem. We have created a tool for credit cards that customers lost, and it's a clear winner in that market, but we have reached the profitability limit.

We need to use our scale and increase the value from cross-selling Banorte's products in these customers. In other words, we are transforming the entity from a mono-product into a multiproduct business to boost profitability.

Three, integrate the new learnings and strategic components of its infrastructure, which we are confident will add value to this new consolidated strategy while we analyze the possibility of selling the entity knowing it has an important value in today's market; and fourth, launch a new digital proposition for younger individuals focused on budget proposition that prioritize functionality and ease to -- ease of use, combining our acquired tools, products and learnings. Finally, this robust strategy, obviously, will only consume a fraction of the cost, supporting our efforts to improve efficiencies.

Now regarding our upcoming Annual Shareholders Meeting, we are proposing the distribution of a cash dividend or 50% of the net profit of 2024, equivalent to MXN 9.99 per share and the constitution of a share buyback fund for the same amount authorized last year of MXN 32.3 billion for the following 12 months. Both are also aligned with our focus on total return to our shareholders.

With this, I conclude my remarks. And now Rafa will cover the new financial results of the group.

Thank you, and please, Rafa, go ahead.

Okay. Thank you very much all for attending the conference call.

I will now move to a more specific which is concerning what just Marcos mentioned about. The first one goes to the -- how the net interest income or NII is working for the bank.

NII, as you saw, is growing 4% on a year-to-year basis. What is important is that NII of the loans and deposits is growing 16% year-on-year basis based upon the strong growth that we have in the loan book and also the continuous downward trend on the funding cost.

Net noninterest income, 99%, basically driven by the first quarter, very good results of the insurance company that compared to the last year really outperformed the results. Net fees, 2% year-on-year on a group basis.

That's basically because when the incremental growth that we have had in the lending part, especially in the car loans and also on the mortgage part, is aligned with a more broker fees that we have to pay for the -- for getting the business. And so it's onetime investment and you get the total results for the life of the loan.

Premium income, very good results, 17% year-on-year and so continues a pretty strong result from the foundational business that I mentioned. Before trading income, we have a very good quarter for the trading income.

As you know, usually, trading income, we are kind of flattish for the -- for that operation this year based upon the positions that we hold and how we position ourselves. And also, the business that we do with clients, the trading income grew 104% on a year-to-year basis.

So pretty good results on NII, on the loan side, NII on the insurance side and also on the trading side. If we go now to the bank, the bank continues to perform with very good numbers.

The NIM of the bank is steady at 6.5%. There were some concerns on the why the NIM dropped from 6.8% to 6.5%.

Basically, if you saw the growth in the asset book, the asset group grew basically 3.2% for the quarter. So it was a very strong growth for the quarter on the asset group.

It's also there will be a company in the coming months because the funding cost will continue to go down. Now we are building again at a very good pace portfolio on the loan book.

Net fees for the bank, 9% year-on-year and the NII for the bank is 9% year-on-year. If you go at the margin numbers on the peso numbers, the margin is growing 9% also.

So we are really having a pretty good results on the margin. And also, we have to take in consideration that more and more, the fixed rate part of the group is playing an important role for sustaining the margins.

So if we move now to the net interest income and sensitivity evolution. As you know, we have been also for a long time to position the balance sheet in the way we -- you saw today, that is basically no issues concerning the effect on the downward trend for the rates.

So the sensitivity right now is sitting at 93 per 100 basis points on that part. So the more the rates come down, it's a much better transition for the bank based upon the mix on the loan book and also the continuous downward trend on the funding costs.

This has been a slow downward trend but a continuous downward trend that will accelerate in the coming months. This is basically due to a very active ALCO that in many, many parts of the organization take part in this management of the ALCO.

We got treasury leading dynamics of the risk team. The portfolio continues to pretty sound.

So that also on the dollar book, you see that we continue to see -- have a much more careful view about the sensitivity of the dollar book because we don't have a clear view exactly where the rates are going to be. If you look at the whole NII sensitivity, it's less than 0.1% for the book.

If we go to the more numbers of the bank, the ROA of the bank is just 2.4%. Basically, the net income of the bank continues to grow 7% on a year-to-year basis.

The return on equity of the bank is sitting at 28%, around 82 basis points, as Marcos mentioned before. Basically, the key metrics of the bank concerning the profitability and the management of the bank is in a good trend.

And also, what is important to notice about this metric is that -- are basically in a very strong activity that is basically facing the bank in the consumer side and also in part of the commercial side and on the SME side. There's also a graph that we also predict about the managerial need to try to balance out the effect of the annuities company.

As you see, we are basically -- we're on a steady basis. We know that we are controlling our margin pretty well.

And the evolution that we see for the coming months will also be, we think, a good story about this. On the cost of funds, you see a very kind of a small downward track take on the graph that we are presenting to you.

But if you see at the pace of growth on the noninterest-bearing demand deposits on a year-to-year basis, it's growing 5%. Considering there is still a lot of offers in the market that really pays higher for the funding.

We have had no effect on that issue at all. Interest-bearing demand deposits growing 24%.

So basically, we continue to see very good activity at all the banks of the commercial, the corporate, the government, the retail really providing the source of funds that we know. And one thing that is quite important is that sticky deposits is 99% of the base.

So I think Banorte is in very well position. It's evolving pretty sound on a downward trend on the funding cost.

And that also will criticize the margin as we said before. Time deposits continue to be a good story, 13% on the retail side.

So overall, the funding is growing at 10%. We really think based upon the pace of the first 3 months that this trend will continue in the coming quarters.

If we now move to the asset quality that I think has been a very solid story for the last 5 years. Credit provisions grew 5% quarter-on-quarter.

Why? Because basically, the loan book on the consumer side and apart from the commercial and corporate outpaced the -- what we expected for the quarter.

So basically, the credit provisions are more good provisions that you have to put on the group on day 1. So the cost of risk staying at 1.8%, and Marcos mentioned to of this, if UX [indiscernible] is 1.7%.

And the write-off ratio that I think is something that we consider a lot where we do manage the bank, these are very steady line that we don't play around with, with write-offs and things in order to provide steady numbers from the on cost of risk. Another very -- another good story is the expense line.

The expense line, as you know, we don't load a lot of expenses in the fourth quarter. There were some concerns about some of our investors and analysts, but was basically to prepare the bank for a downward trend on the expense line.

The downward trend is providing us a cost-income ratio of 34.5%. That is below what we expect for the year.

Let me very clear about this. We will continue to be very aggressive on the results on the cost side, but this number will have a slight pickup to be what we guide the market to be.

Maybe we can continue to do based upon now that we decide the issue about Bineo and Tarjetas del Futuro that we have more opportunity to be close to this number by the end of the year. But we have to be very clear: this is not what we expect as this for the end of the year.

It will be a good number. It's not going to be this number.

And the graph that you see on the growth revenue and the expense revenue is a graph that Banorte likes to see, and we will continue to see that graph based upon the good trend on the growing side and are very managerial based on the deco side. But we move to capital, and I think this will be coming some questions about capital.

Capital, as you know, by the end of the year was below. But we basically like to manage the bank around 13.5.

It was very close to 13.2. Now we are back again to the 14.4 based upon the strong basically generation of capital for the group.

So the capital base is still and continue to be a solid part of how do we manage the bank. There are always some concerns about while lower more the core Tier 1.

I think based upon what's going on in the world right now, it's a good position to be, the number that we have on the core Tier 1. On the graph, you also can see that now on the TLAC basis, we fully comply with TLAC, 17.9%.

We are 22.9% on this part. So the liquidity ratio continues to be very strong, around 183%.

So I think the solvency and liquidity of the bank on the organization continues to be something that we need to keep very good care of that based upon everything that is going on, but at the same time, providing very strong profitability on the return that we give to the investors with a 28% at the time and 22 or 23 at the good level. So solid capital foundation, solid liquidity, solid risk numbers, very good growth on the loan book and very good trend on the funding growth.

I will say that, that will be the -- Marcos was very emphasized this at the beginning of the call. We are not changing the guidance, but peno GDP.

Now the GDP, we see our GDP more on the range that around 0 to 0.7%. That's where we think that the GDP will see based upon our our economist -- our Chief Economist going to see that.

So that's the only part of the guidance that we are moving. Some people are considering that probably we are not more conservative about the guidance because we don't have a discount in time based upon the activity of the bank, the results of the bank, the penetration that we have in the market and how we are delivering the products and services to our clients that we continue to see pretty reasonable demand that we don't like to change the guidance at this point in time.

Let me be very clear about one thing. We know that the market could be in a stress position for some months or maybe for a longer period of time.

But Banorte is fully prepared to take advantage of demand. I think we can offer products and services to our clients that most banks can offer at launch.

So that's the way we're going to compete. And where we are competing and the way we are delivering the numbers on the loan growth on the profitability side.

So with that, I close my remarks. Thank you very much.

Thank you. Now we will move to our Q&A session.

As always, we kindly ask you to present only your most relevant question, and we will be happy to take any questions any time after the call. As you know, today, we have our shareholders' meeting.

So besides taking only one question, we would possibly ask you to disconnect before and take questions later any time after the call. [Operator Instructions] If there are any technical difficulties, please let us know by using the chat.

Thank you. We are now ready to start the Q&A session.

We will start with Renato Meloni from Autonomous.

So just looking at the revision for GDP growth at the same time that you didn't revise your loan growth, right? So it's a wide range that you have from 0 to 0.7% on GDP.

So what's the GDP estimate that's embedded on the 8% lower end of your guidance? And what downside risks you see to that?

Thank you, Renato. Alex?

Yes. Thank you.

This is Alejandro Padilla, Chief Economist. Well, first of all, let's see that the Mexico's economy contracted by 0.6% in the fourth quarter of 2024, and we anticipate a 0.4% decline in the first quarter of 2025.

If this is confirmed, 2 consecutive quarters of decline would meet the definition some use for technical recession. However, even under this scenario, our full growth -- our full year growth forecast for 2025 remains positive at 0.5%.

And this is because we continue to see on a sectoral basis, more resilient private consumption, taking into account of private consumption and have booked for 2/3 of total GDP. By sectors, the main risks are concentrated, obviously, in investment and exports, both highly exposed to both conditions and political uncertainty, particularly stemming from present drought.

Primary consumption has shown some resilience, as I mentioned before, though early signs of slowdown are emerging, especially among middle- and lower-income households. And this is important because when you see the loan book, you can note that on a sectoral basis and on a regional basis, the exposure of Banorte is located in areas of the economy that have been portraying a more resilient performance.

And that's why you see these numbers. On the other side, services remain the most solid component of the economy like tourism, for example.

And some goods like automobiles have performed surprisingly well. Just to put an example, auto sales in Mexico in the first quarter of 2025 increased 3.3% on an annual basis.

And this is suggesting that there are some pockets of strength that may help cushion the broader loan of the economy.

Thank you, Alex. Alex, do you also ask about the rationale about -- or Renato, you also asked about the rationale about why we are holding off the guidance of the loan book before?

Correct, yes.

We continue to see very strong demand, but we are not weakening in any way the onboarding risk profiles that we have, the FICO scores in any way. But the fact is that the more we evolve on the digital evolution, our process are much more convenient for our clients.

We can -- we are really taking market promoter participants in the banking sector. So that's -- it's not that the market is going to disappear.

The market is going to shrink, but I think we will get some of the best parts of that market. That's why we are still holding the guidance for the 8% to 10% loan growth.

A little bit of a follow-up to Renato's question on the guidance, but more taking a more optimistic view because I mean, you already saw a slowdown in 4Q and 1Q as you mentioned. You're still growing the loan book 13%.

You're still not seeing any asset quality issues. Could there be upside risk to the guidance?

I don't know if it's loan growth or NIM or maybe cost of risk. And I know it's still early in the year, but where could upside risk come from if there's less uncertainty about tariffs?

I mean, I know there's been a lot of noise about that, but maybe they don't materialize in the way that is expected currently or given -- as you mentioned, private consumption is still very resilient in Mexico. Could there be some upside risk somewhere in the guidance?

Or what would you need to see to maybe get more comfortable on the outlook for Mexico and for the bank?

Thank you, Tito. Gerardo, please go ahead.

This is Gerardo Salazar, Chief Risk and Credit Officer. Tito, as you are mentioning, Banorte up to now has experienced loan growth with high credit quality and low nonperforming loans ratio despite the elevated uncertainty from tariffs or trade tensions.

There are 6 reasons in order to maintain our expectations regarding the credit outlook for Banorte. The first one is we are practicing rigorous risk-based lending approach.

We are in the game of selective lending. We're focusing on resilient sectors, and that's exposed to global supply chain disruptions.

We also are doing granular resegmentation, sector risk scoring, factoring insensitivity to tariffs and supply chains and exposure to avoid vulnerable borrowers. The second reason is that we maintain strong trade underwriting and monitoring that is tied on the rating standards, early working systems and regular stress testing.

Up to now, it is a blessing to have a very well-capitalized balance sheet. The third reason is for portfolio diversification.

Banorte performs sectoral diversification, geographical focus and also client mix in the wholesale part of the lending book. The fourth reason is strong client relationships and advisory.

This is very important in the wholesale market that we are turning to. The fifth reason is to focus on creditworthy segments with high-quality borrower targeting and data-driven credit scoring or making an emphasis in the consumer loan book.

And the last reason I can provide to you, Tito, is that we are still practicing prudent growth strategy, that is disciplined growth over aggressive lending, the result of market share gains. As Rafa was telling you, we are in the game of gaining market share and growing above the system's average or above some of our peers.

And also, we are focusing on relationship lending, standing with existing clients that have proven creditworthiness. So we are still maintaining our prudent approach to loan granting and also for the management of the credit process end to end.

And just to say when do we see the need to change the guidance in the upside risk, I think if you look at all the reports from the U.S. banks and from the -- from most of the European banks that they say you have to wait for the 90 days that is like -- I think that we will have a very clear view about how the group continues to perform on the growth side around maybe August that, for sure, we can have a lot more information to change the guidance.

Right now, we're sticking with the guidance. But as you mentioned, the bank is extremely active and we are penetrating the -- pretty well the market, as we say.

As I said, our forecast changes without the market uncertainty.

Now we'll continue with Brian Flores from Citi.

Wanted to understand better the NIM dynamics that we are seeing. You mentioned in the report, you basically decreased the NIM on lower repo income, some effects due to FX and inflation.

Just wanted to understand, could you elaborate a bit on how recurring these effects could be going forward?

I mean, as you see, the currency right now is sitting at 9 60 that I think it's too low. That has an effect, obviously, on the corporate book that we have a portion of the corporate book relating to the golar book.

That's one thing. The other thing about the repo, this year, we -- last quarter, we took advantage and we break a little bit our discipline about that, but we will go back to that part.

So there will be no issue in that part. And I would say that the margin -- if you look at the margin and really the composition of the margin and you see the growth of the asset book, that was the key part, the 3.2% growth on the asset book, that was the case that really eat a little bit our margin that we will be delivering the margin in the coming quarters.

So honestly, we don't see any issue on the margin side that is really related to any weakness or anything on the loan portfolio on the funding cost that is a trade that we will decrease the margin in the coming months. I think, honestly, it's a pretty good story for us that the asset side grew 3.2%.

And we have a reduction on the margin on that part. And another portion was the FX, and the other portion was basically, as I mentioned to you, that we overshoot a little bit on the position that we have on the trading.

But all those things are not structural to our margin numbers.

Congratulations on the results. I have a follow-up on Jose's comments in the beginning about the digital strategy of Banorte.

If I was wrong, Banorte has now 2 or maybe 3 digital brands, maybe I can call del Futuro, Robin and maybe Banorte. After that vision of Tarjeta, are we expecting to consolidate all the brands in just one app?

This is the first part of the question. The second one, when you look for your digital strategy, who are your main competitors right now?

Do you see Bangalore, Banamex, et cetera, or the newcomers like No MecadoPagoala? So who are you guys competing in your digital side?

Good question, Thiago. We are competing with BBDA mostly is the one that is -- has scale.

And we -- as you know, we have a the Net Promoter Score, the NPS, and we are hoping always this guide. So that's the main competitor and it's a good one on.

And regarding the apps, we are not saying that we will concentrate everything in the app of Banorte because we want to have some margin to see what's going in market and to see if we need to calibrate something to have more products for our clients. So we will say that we will keep everything in Banorte, but we're very versatile.

I don't know what to say is how we manage our apps. The idea is to concentrate everything in this highway and from both here to see all the customers and to see what they need and approach technologies, either their way back.

We are not proposing the clients are proposing to us what they want, and we will deliver to them. That's the idea.

Now we'll continue with Yuri Fernandes from JPMorgan.

Congrats on the results. Just one question here on the trading gains.

If you can comment a little bit on this, like how sustainable are those gains? Any kind of, I don't know, overview in this line?

Very important because the rates, as you know, we were positioned that the base will go down, and they went down. So everything is there already.

And maybe we have more trading with our customers than we planned. But talking our positions, we have the position.

So that's why it was so big. So instead of going to the whole year, the market decided to go in the 1 quarter, no.

And that is -- and now we start from 0 in our positions. And maybe in the future, we will see more, but not in the same amount.

And to give you some color, Yuri, as you know, the trading income, as Marcos mentioned, was around MXN 2.1 billion this quarter. And as you know, it's not an official guidance, but the recurrent level should be MXN 0.8 billion and MXN 1.2 billion, so lower than this.

Super clear. And I guess this is somewhat, I don't want to say a hedge, but part of your NIM pressure that you discussed in the previous question was somewhat offset by these trading gains, right?

Like thinking together makes some sense, right?

Exactly right.

Yes, Yuri.

Marcos and Rafa, I'm sorry about my voice. My question is on expenses.

So we noticed OpEx came at a double-digit growth. However, considering potential economic recession impacting potentially loan and NII growth, would it be reasonable to expect softer OpEx growth?

And then just a quick question on Banamex because all of investors are always asking about it. Banorte became the second, third largest bank in Mexico through acquisitions.

So if you acquire Banamex, I believe Banorte will be close to the size of BBBA in the retail side. So wanted to ask you, would you be interested to take a look into Banamex if the government allows to do cost synergies?

Let me start by the second one. We have been saying the same arm, no.

But our duty is to see whatever is in the market and analyze it. And then our Board will decide and you guys, the owners of the top, were deciding the assembly.

So that -- we see everything that is moving here, and there is a lot of moving pieces all the day. So we will watch closely what's going on and propose.

And that's our deep. And the first one is about the expenses and the OpEx.

Rafa, go ahead.

On the expense line, as I -- as we mentioned, we front-load a lot on the fourth quarter. Now we'll see a much more balance on the first quarter, and that gave us a cost income of 34.5%.

One key issue that has to be considered is that now that we have integrated the operation of Bineo and Tarjetas del Futuro inside Banorte, that also will allow us to continue to cut expenses in a very important way. And also, we will not stop the investment in technology.

I mean the good thing about the investment in technology is that it's becoming more and more on specific issues and not to build up a very, very strong seed shop. Now we are really looking at the accelerators from the analytics, the accelerator of artificial intelligence on that.

Those are not cheap also, but are not the same amount of money when you are building the whole infrastructure over time. So I think you will continue to see not a acetic on the first quarter, but a continued strength on the lowering of expenses through the year.

That will consolidate, and let me be very clear, at the end of the year. That was most of the actions that we are taking now will really crystallize at the end of -- on the fourth quarter.

That's when you will see a big drop on the expense line.

Look at the annually, no, [indiscernible]. For the year, it should be between 9% and 10.5% expansion.

Also about the digital strategy going forward. Can you please give more color on how Neo fit in this plan?

You mentioned you could eventually spin off the operation while transferring some part of the technology to Banorte and integrating, if I'm not mistaken. But how challenging it should there given Banorte potential legacy systems, right?

How can you -- I think it's relatively ready for you to transfer this technology. Or are there still some investments in which you do in order to both technologies of each banks to run well together?

For the technology, I think it's the experience, no? We know now the market.

We know what's going on. Everybody can get the technology but not the experience.

Rafa, we will have color on that?

Yes. I think what Marcos mentioned is key.

I mean we are basically moving the Neo base upon, we tested a lot of technology on the Neo, the latest technology on the digital -- on the cloud, on digital, on everything. And when people think about Banorte, they think like a very legacy bank that is really tied up to all the legacy.

We have been delivering the legacy system for Banorte for the last 6 years. So the issue that we are moving Neo here is that Banorte really is now fully functional on digital in anything that you want to take Banorte with.

It has to do with cloud, anything that goes on the cloud, on the analytics plet, how fast we can go into microcomponents, in containers and everything. So Banorte is really a state-of-the-art shop on the technology side.

The legacy system is basically now -- basically, the posting of the transaction, but all the functionality has been delayering in many, many different layers on the -- up to the client mix. So no, when people think about that Banorte is really the whole data, no, no.

That's why we are integrating Banorte [indiscernible] because when Banorte says that we have a bank in maintenance and digital application that Banorte has has been rewarded as the best digital application in the market, it's because really Banorte has really outpaced the market and not just the Mexican market, in many ways about analytics, technology and how do we now develop the solutions to the client in a very, very, I would say, not as fast that we would like to be much faster than we used to do.

Now we'll continue with Carlos Gomez-Lopez from HSBC.

Again, congratulations on the results. A question on the margin.

Last year, arguably, you hedged perhaps even too much, you'll have money on the table. This year, those hedges are working very well.

As you said, you were able to reap the reward in 1 quarter or something, that you expect it to accrue over the next year. How does it look into 2026 and beyond?

Because the expectation that you have on interest rate is now lower than it was a quarter ago. You haven't disclosed here, but I imagine that you have what you expect in 2026-2027.

At some point, the hedges that you have today will have to run off. So what would be the sustainable level of margin?

Perhaps you want to keep it without annuities. You have 6.0 now.

Where should we expect it to be in 2026-2027?

The ALCO is not working for 2025. As you can see, the loan rates that we are giving to the market is for -- is several years.

We are not worried about 2026. But you are right, someday, they will repeat those, in 2029, I don't know.

I mean so...

What's the duration of the ALCO? What's the duration of your -- the average duration of your hedge?

It's 4 years, 4.5.

4.5, okay?

Yes, 4.5. Gerardo, you want to say something?

Yes, yes. Thank you, Marcos.

I will add that the ALCO work is very dynamic. And we base our work in 4 main pillars.

One is to also explain our forecast immunization to duration and repricing matching. The second pillar is about emphasizing proactive liability management, which is -- or has been very important in the deposit side in our liabilities.

The third pillar is to highlight dynamic asset pricing and portfolio mix strategy. That has worked very well with -- in our loan book, in the consumer side of the loan book and partially in the wholesale side also.

That makes a very good contribution to that. The fourth pillar is using hedging and derivative strategies whenever there is needed.

That's more of a tactical approach, not -- is not part of the strategy. But I will say, overall, Carlos, that our balance sheet is designed to preserve earnings across rate cycles by optimizing the mix of fixed and variable instruments, also managing liability repricing lags and selectively using hedging instruments.

We have insulated to a big part our mean from the impact of falling reference rates, demonstrating strong interest rate risk management and pricing discipline, and that's the everyday playbook in the outlook.

If I may add, Carlos, just what Gerardo and Marcos mentioned that I think Gerardo explained it and Marcos pretty well is that if you look at the mix how much money you are getting from the volume of the loan book and how much money you are taking on the margin side from the effect of the rates, more and more is based upon on the volume side. But -- so what I can say to you is that Banorte used to be years ago, very dependent on the rates.

If rates were going up, the margins were going up. Now if rates go down, based upon all everything that Gerardo was mentioned and based upon the mix that we have on the balance sheet, Banorte is really now dependent on itself to keep on the growth on the group side and really stabilize the very steady funding costs, the result that you see on the market.

So if you -- and I will maybe get burnt because of this, but our recovery is to keep the margin from 6.2% to 6.4% through the cycles. That's what we would like to target.

Please target.

Yes, yes.

Okay. Thank you for taking the risk of giving the forecast.

And if I can ask, I have noticed that your dollar book has increased considerably, now 16% of total loans. Should it increase any further?

Or has it reached the limit?

Part of this is that the dollar increase, and that's when you see the proportion changes and now it's [indiscernible], no? Now that it went down, it will go down.

Part of it is that, no? And the other part is that, yes, the clients are -- they need that asset, and we are providing them, no?

We don't ask them. They just ask for us, no?

Regarding your GDP expectations, not only for this year, but if you look ahead over the next few years and what do you expect for Mexico, I'm a little bit baffled by your expectations for cost of risk. If I remember from the 2015 to 2019 period, your cost of risk used to be at around 2.2%.

So it's hard to me to reconcile how you can achieve between 1.8% and 2% in a significantly deteriorated market environment. I understand the asset quality is pretty solid.

But at some point, you will need to update your model to reflect that you are originating loans in a not-so-supportive macro environment. So I would like to understand what are the key factors that you will take into account when -- and if you need to revisit your risk provisioning model.

Thank you. I will ask Alex and Gerardo to answer the question.

Alex, please.

Thank you, Marcos. Thank you, Andres.

Just to put a bit of context on on our expectations on GDP beyond 2025, in 2026, we're expecting a 2% growth. And this is explained by 3 main things.

The first one has to do with any type of recovery that we might see, especially the effect of declining interest rates and also that the government will not continue the consolidation process of the fiscal accounts that we are serving in 2025. The second one is that in 2026, we expect that there will be more visibility of what's going to happen with the trade deal with the U.S.

And I think it is important to take into account that even though we have rates of tariffs right now in Mexico, in relative terms, Mexico is better positioned than other countries. And I think it's also relevant to take into account that our baseline scenario that we outlined since President Trump won the election last November remains unchanged.

We anticipate that the tariffs were going to be intermittent but that ahead, there was a big chance that the revision of the USMCA will be forward to the second half of 2025. So this will give a boost of confidence to enterprises or firms to continue their investment strategy once we have the agreement in 2026.

So that's the second thing. And the third one is that we are accounting for something between 20 to 30 basis points on GDP based on the World Cup, the effect of consumption given that this event, even though we will not have the largest amount of games or matches in Mexico, well, this will boost also tourism in 2026.

So that's the explanation behind our expectation for 2026.

Yes. And regarding the loan book and the behavior about credit, there are 7 main factors that give us some optimism regarding what we are conveying to you as of now.

But let me start with one very special tenant. There is no trade-off in Banorte between market share and risk taking.

And that's very important for you to understand because we will never change market risk in order to grow our loan book, and that's what we will see as a starting point. The 7 main factors, Andres, that give us this stance is that, one, we have a deep understanding of credit behavior and segments.

We do segmentation by credit product but mainly by customer profile, which is very important for hyper personalization. The second factor is that we do data quality and enrichment.

We are constantly occupied on cleaning and being consistent with the data completeness in our models in the retail side of the book. The third factor is model sophistication with explainability.

We do use some advanced techniques, but we keep always in mind that we have to explain and also make predictable results. The fourth factor is robust validation and back testing.

We use champion challenger testing all the time and also back testing across trade cycles. The fifth factor is dynamic and granular risk calibration, that is dynamic scoreboards and granular proactive default and loss given default models.

The sixth factor is macroeconomics sensitivity and scenario adjustments. That's the thing you were talking about GDP expectations, but just this is 1 of 7 factors.

And the last factor is portfolio monitoring and feedback loops. That's what keeps Banorte learning all the time.

I will say this as a base in order to have those expectations that Marcos was telling you about and Rafael has just mentioned.

And those macro variables, is there any particular one that we need to pay attention to for when you will need to do a model update?

Well, the risk factor is tariffs, risk and term risk. But we are constantly making scenarios and changing parameters in order to adjust our models in case it is necessary.

We don't have a central scenario which we are providing strong behavior to predict Trump's behavior. And given our strong balance sheet, we are very confident that we can withstand any type of prices being COVID-like, being tequila-like and being 2008 prices like.

That will cost us in our capital adequacy ratio, no more than 80 to 100 basis points. And those are the kinds of scenario analysis that we have done and gives us the confidence to go forward and not to get a break without putting risk taking on the land.

We call it internally the tariff volatility.

Now we'll continue with Edson Murguia from Summa Cap.

A follow-up on the digital strategy. My first question regarding on this is, what did you learn from starting a new bank?

I know that you, Marcos, explained that you are -- right now, it's part of the execution. So what did you learn what would happen with the clients at Bineo?

And my second question is, with these acquisitions or the 50% of Steeper Del Futuro, this multiproduct channel at Rappi, it means that you are using the infrastructure that you built from Bineo. Or what is the strategy between interconnection between the 3 pillars that you mentioned in your remarks?

Rafa, please go ahead.

Edson, you're not going to like what I'm going to say to you, but you're asking me to deliver the whole strategy on how we're going to compete. So I cannot do that.

Let's wait until we will see how do we deliver the strategy into the market, no? We learned a lot of things from Bineo, we learned a lot of things of the.

But you will those implemented in the when we go into the market with the offer that we'd like to deliver into the pros. Thank you.

Just a quick follow-up. Regarding on the expenses or the cost of the Bineo, looking ahead for the end of 2025, it means that it's going to be a lower number if we compare quarter-to-quarter?

You will see that going through the year as we continue to do the efficiencies and integrating the technologies and all things and how we rationalize the -- all the infrastructure. You will see those flowing through the year, not on a specific month or day for the year.

But you will see all this happening in this year.

My question is regarding your point deposit dynamics. As you show in your presentation, your cost of deposits has been rising at around 48% [indiscernible].

And now with interest rates coming down and apparently competition [indiscernible] the interest rates that they offer. Do you see a scenario in which the cost of funds could improve further in the coming quarters?

We see -- Rafa, please go ahead.

No. Yes.

As you can see, the -- you have to take into account that Banorte has a sensible portion of the funding side on the demand deposits without interest and some demand deposits with interest but also on the time deposit part. Those time deposit basically hold steady 60 or 90 days.

Some goes all the way to 120. So you have to see those repricing flowing through the funding costs.

So yes, you will continue to see a pretty good evolution on the funding cost as we speak in the coming months. I think by, I would say, by the month of July -- August, July, you will see an accelerating trend, one that the compound effect of those low-end rates take into full effect on the old funding base, especially on the time deposit base.

That's very helpful. And if I may, a second question on your net fees.

Can you comment on what should we expect net fees are growing only 2% year-over-year, but core banking fees continue to grow strongly at 11%. So what should we expect for the year in this revenue line?

I think what you should expect for the year on the fee side is basically to go above the loan book. I think a number to be expected around our 12% to 14% will be a very reasonable number for the future.

Remember that on fees, we are very active in the car loans and on the mortgage side that you also have to take fees for that. That will be some effect on that but will be compensated by the volume that we are getting from those 2 province.

Thank you very much for your interest in Banorte. With this, we conclude our call.

Thank you very much.

Thank you.