Good morning, everyone. Thank you for standing by. Welcome to Regional's Q1 2023 earnings conference call. We're joined today by Manuel Rivero Zambrano, CEO of Regional, Enrique Navarro Ramírez, CFO of Regional, and Alejandro Lobeira, Strategy and Planning and Investor Relations Officer of Regional. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Manuel Rivero Zambrano. Thank you, and please go ahead. Good morning, everyone. I hope you and your family is in healthy and well. We appreciate everyone's participation today. We're satisfied with the results of Regional for the Q1 of 2023. Our results were mainly driven by a stronger credit demand, better loan mix, solid growth of our non-financial income, particularly performance of fees related to cards in our merchant acquiring business, which continues with its expansion. As well as the increase in our deposit base, both digitally and in our and through our branches. Our commercial portfolio has kept outpacing the system, growing at a compound rate of 9% during the last five years, compared to the system of 4.7. We expect this trend to persist in the following years. Our footprint is well-poised to benefit from the recent rise of foreign direct investment in the region. Regional's net income for the Q1 reached MXN 1,187 million, delivering an ROE of 20.9% and an ROA of 2.5%. The financial margin expanded for the seventh consecutive quarter, reaching MXN 2,904 million with a 20% year-on-year variation. The margin was mainly driven by a higher policy rate expansion in our higher margin loans and our successful strategies to maintain double- digit growth in our deposits. The NIM for the Q1 was 5.7%, and the NIM of total loans was 7.5%. Our loan-to-deposit ratio reached 105%, while our CASA ratio stood at 54%. Our portfolio keeps showing outstanding quality, maintaining an NPL below historic levels at 1.2% and a quarterly cost of risk of 0.8%. As a result of the normalized in provisions, we were abnormally low in the Q1 of 2022, with a release of MXN 49 million. Non-financial income keeps expanding at an accelerated rate, with our merchant acquiring business expanding 32% year-on-year, and on the other hand, the growth of the income from insurance grew 17%. Without leasing, non-financial grew 15% year-on-year. Total revenues for the quarter amounted to MXN 3,083 million, presenting a year-on-year expansion of 9%. Operating expenses grew 19%, reaching MXN 1,585 million, mainly driven by greater headcount, technology investments, and Banregio's expansion, which is allowing us to serve a broader client base through our new branches, executives, and ATMs. The volume of our cards and payments business keeps growing at a fast pace, which drives related to expenses. The efficiency ratio for the Q1 stood at 44.4% for Regional, showing a year-on-year contraction of 111 basis points. We maintain a very strong capitalization ratio at 15.3% as of February 2023, generating an excess of capital 329 basis points compared to our internal limit of 12%. During the quarter, the total loan portfolio Regional delivered an 18% growth, which was led by SMEs and consumer portfolios, which keeps growing at double-digit rates. The North and Western regions of the country have experienced higher economic activity due to the foreign direct investment inflows, as well as to rate six zones that are expected to keep expanding in the following years. These regions have led the demand in our loan portfolio presenting great growth. Our commercial efforts have shown excellent results in Banregio. The SME portfolio increased 35%. Credit demand in Mexico City and Nuevo Leon led the expansion growth with 52% and 19% respectively. Within this segment, time deposits expanded and on the other hand, the wholesale portfolio had a long growth of 15%. Deposits keep increasing at double-digit pace, expanding 13% year-on-year, while time deposits grew 6%. We are certainly experiencing the benefits of ensuring in our credit demand as the regions where we have a greater presence, the North, the Western, and Central regions of Mexico, are well-poised to experience stronger credit demand. We expect this trend to foster foreign investment and credit expansion in Mexico for the next 10-15 years, the main industries that have led demand so far are real estate developments, logistics, construction services, as well as consumer credit driven by growing workforce as well as higher income growth. We will continue to seize opportunities by proactively analyzing market trends and new businesses verticals while maintaining a permanent assessment on quantification of the potential risks. On the other hand, our technological approach is key differentiator of our business model as we seek to redesign the customer experience through online and offline integrations. It is important to mention that we are partnering with Apple and Microsoft to strengthen the development of team capabilities, which will result in increased functionalities and customer engagement for the long term, helping us leverage our operations even more as well as continue to automate repetitive work or work consumers and customers interact that are very demanding. Hey keeps attracting new clients as our acquisition strategies keep delivering high quality growth. This quarter, we improved our investment yield for key customers. We launched the Multired alliance of ATMs with more than 9,000 ATMs where our customers can transact without costs. Moreover, I am proud to announce HeyGPT, an AI-powered chatbot with the objective of providing customer information about our products, financial advisory and loan quotes, as well as customer assistance. This, we think over time, will generate great results for customer engaging, cross-selling index, and a better NPS. As we surpass 684,000 active clients and deposits reaching MXN 10,290 million, and an outstanding growth in loans at MXN 8,462 million. Our cross-selling resulted in 1.8 products per client, the cost of acquisition stood at MXN 210, the lifetime value was MXN 5,977, with a lifetime value over cost of acquisition of 28x and a better NPS at 66. Hey Pago maintains an accelerated growth. The transaction volume and an average monthly billing for the quarter one was MXN 9,186 million, the number of POS reached 42,403, increasing 70% year-on-year, allowing us to capture a solid base of deposits as well as a high volume of data that will reflect into a more efficient operation. Our focus on Hey is to capture highly profitable clients more than number only client growth, allowing us to accelerate the company's profitability, at the same time building a solid customer base for the long term. The best example is our Hey Pro clients, which now account 80% of our total active users. These clients have a lifetime value 4x higher than traditional customers and 2.6 cross-selling index. Our objective is to keep strengthening our long-term capabilities, expanding our customer lifetime value through our differentiated offer, which while reinventing the retail experience, we are rolling out our personal loans as well as a payroll service for our SME businesses, which will further and accelerate both client growth and lifetime value. As the credit demand has increased significantly during the Q1, the country keeps attracting new investments. We are dividing the dividend into two payments during the year, with the first part being paid in May and the second part being evaluated based on the credit demand in the second and the Q4 of this year. Our intention is to maintain the flexibility to handle the accelerated growth pace, and we are expecting during 2023 and the upcoming years, without compromising capitalization levels while ensuring a sustainable growth. To further clarify on the impacts of the reclassification of leasing loans, there was a non-recurrent income of MXN 608 million, and it's comparable to the non-recurrent loss of fees generated through our leasing line, which decreased by the same amount, affecting the calculation only of the NIM. Additionally, due to the best practices, we had decided to open the line debit type balance from the repurchase agreements before it was expressed in the memorandum accounts under collateral receipts and net balance. Now is expressed on the balance sheet in the asset with the asset and the liability both affecting the same proportion. In conclusion, we are proud of Regional's Q1 2023 results. Our efforts have been reflected in strong loan growth and asset quality, outstanding growth in core deposits, and that has allowed us to constantly assess our growth opportunities, the great performance of our non-financial income line, and promising results in our digitalization efforts. We are confident in delivering results consistent with our guidance of 2023, and we will be able to scale our capabilities while the country is well-positioned to be of years of foreign investment inflows, and a distinguished customer service will maintain Regional as a leading financial institution in Mexico. Thank you very much. We appreciate any question. Ladies and gentlemen, we will now start our Q&A session. To ask a question, you will need to press the Raise Hand button. To withdraw your question, please press the lower hand button. Please wait while we compile our Q&A roster. The first question comes from Ricardo Buchpiguel. Please go ahead. Good morning. Thank you for the opportunity of making questions. I have two topics I wanted to ask. First, since the beginning of the year, we saw a 75 basis points increase in the reference interest rates. Why we didn't see a major pickup on NIM, as we saw in your presentation? In fact, NII grew less than the portfolio even looking quarter-over-quarter. I wanted to understand what are the other factors involved here that would explain this trend. Like, I understand that there is factors like the mix of interest and is the timing of portfolio repricing. If you could provide more color here, it would be helpful. Also connected to this topic, I wanted to ask what's your expectations to the NIM evolution in the following quarters, right? If you should see like a more linear improvement towards the guidance that you sent in the Q4 or a spike in a specific quarter, right? Also in another topic, we understand that nearshoring looks like a big opportunity here for Regional. It's still hard for us to tangibilize how big it is and for how long it affects you less. If it's a conversation about more long demand for the next couple of years or we could be talking about like in the next 10 years, right? If possible, if you could provide an update on that view with more tangible data that you have been gathering as you have been seeing the effects of nearshoring, it will be helpful. Thank you. Thank you, Ricardo. About the interest expenses, basically there are two effects. One, as you mentioned, is the mix in cost. If you see some customers have moved taking advantage of the rates from checking accounts or to plus or to time deposits. That obviously is a little bit more expensive. Also, in order to retain some customers, we have improved the rates. As Manuel mentioned in one of the slides, we increased the time deposits in Hey to 10%, to pay 10% to the Hey Pro. Also, there is an impact on the repo business that we are recognizing these MXN 13,000 million, additional MXN 1 million, of part of the repo business that used to be presented net and in the memorandum accounts, and that is affecting the NIM. That's basically the factors that have impacted the interest expense in the Q1. In the second question, we are expecting an improvement in the margin, in the total NIM, as we are, first of all, we are renewing part of the repo business. All the securities investments that are right now, we are renewing every. Well, they are invested around one year. Every year we are rolling up all the securities investment with a new pricing, then that will improve the NIM. We are changing positively in the interest income, the mix. As you can see, we are growing 40%, more than 40%, consumer lending, and we are growing auto lending that have better margins and better interest income, and small businesses term also. Further in the next quarters, we will see an expansion of the NIM along the next three quarters. In the second question, what we think about the trend, for sure it's a trend of the long term. It's a long-term cycle that was halted from Trump renegotiating the treaty. When AMLO reached the presidency, we did have the halt there. Right now we do see that as investors see the classification, the clarification of the treaty and things done, you know, in a very efficient way, we think this trend will continue and the integration between United States, Mexico and Canada will be more so in the future. We've seen the type of companies reaching here, our home state, for example, in Nuevo Leon, which are the best of the best, and that for sure has created a very different ecosystem and providing more and more attractiveness to our region and for sure integrating more with the South States of the United States for sure. Texas, California for sure are our main partners and will integrate, I think, even more so in the future. This trend for sure will continue. I mean, we've seen this since 1994 when the first treaty came upon and you can see the trend since then and it's been very positive. I mean, Mexico right now escalated to places in the international foreign direct investment charts. That for sure it trends, tells you how, we can see that in the future. We had that phase before, and I think now we're gonna be able to maintain that level. Very clear. Just a quick follow-up here. Related to the nearshoring, how you guys have been determining the right levels of investments and personnel and et cetera, for this opportunity, as it happens? You'll see mainly more loan demand and you naturally hire more accordingly or it's something more planned previously based on an estimation or something like that? I mean, we have all the workforce needed. I mean, we're incrementing our workforce for sure in some areas that we see more demand. In other industries, for example, that we're investing more in terms of agribusiness, right? Bankers more related to that segment that have more knowledge and more reach. The amount of personnel that we have, it is for sure the right needed to continue the demand. It is not a demand that I think it's pretty aggressive, right? It's not something that is volatile, right? It's compounding, right? We're not expecting a 30% growth in loans, right? We're expecting a moderate, obviously, growth, but a good, solid long-term one that obviously, depends more on long-term drivers rather than short-term ones. In that sense, that's how you see the balance sheet. You see how checking accounts are decreasing. Because people are more efficient with their money and getting it into on-demand deposits. In the sense, obviously, you should see a decrease on loans, and you're not seeing that. You're seeing an increase on loans. Outside of that, okay, Banregio is achieving this growth because of that reason, because you're seeing the inflow of foreign direct investment that is impacting many of the industries and the regions where we already were invested. That's where you see the pass-through most immediately, right? More so that we are not in government lending, and we're not in corporate lending. You see that in the medium-sized businesses that you see in the medium and the big, where you see most of the growth. Obviously, the consumer part, which obviously has been pretty hot market here in terms of the lowest levels of unemployment. And obviously, that's been, that's fueled by all the remittances. Remittances. Remittances that hadn't been obviously growing at a very good pace because of the overheated market in the United States too. That's creating a pretty positive effect in consumer trends, and obviously, that creates a more demand on consumer credit. I think that will remain so, as we have a positive flow of people in into the workforce, right? We have around a 3%, 2.5% increase of people into the workforce per year, and obviously, that generates a good positive trend there. Very clear. Thank you. Our next question comes from Olavo Arthuzo. Please go ahead. Yes. Hi. Good morning, everybody. Thank you for taking my question. Actually, I have a quick one. I really wanted to understand and basically have your updated view on the sustainable ROE for Regional on a consolidated basis. I also would like to hear your opinion about further dividend distribution given the current Tier 1 ratio above 15%. You mentioned the schedule for distribution this year. Thinking about a share buyback program or even a higher payout ratio for the next year, I just wanted to hear your thoughts on this linking to the sustainable ROE that you're expecting. Thank you very much. Yeah. As I said in the conference call presentation, we're dividing the dividends in two instances to further understand how the market is moving. If we see a further increase on demand of loans, we for sure will benefit that driver and continue investing our excess of capital there. We're hopefully having that loan growth that we're expecting. If not, as we said, we are evaluating a second dividend, which obviously will translate into the same payout ratio that we have this year. In a sense, what we're trying to make is it's a different approach and being able to smooth out the impact on the capitalization ratio and for sure making the right decision in terms of the loan growth that we are probably expecting to have, right? I think it's not a bad thing. It is a thing that we obviously would love to continue to invest our money into further out our reach with clients and having a greater market share that we think that we are able to do so. Then again, if not, Then we will have the second dividend, and that obviously will impact the ROE, right? Now, in terms of net income growth, we're expecting, as we said, the guidance, the same guidance that we have. And we're maintaining that guidance, and we think that we're going to be very able to do so. I mean, we did have a pretty good loan growth and more as, like I said, in terms of consumer loans, auto loans, and mortgages and personal loans, which need in the rules of the CNBV, the amount of reserves that those portfolio need are more, are bigger than the typical commercial loan that we have. So in that sense, that what you see an increase in reserves and hindering our net income growth for this quarter, right? We don't think that we're gonna grow credit card loans at a faster pace for the following quarters. We did hinder a little bit more to the quality customer. We're aiming for a more quality customer in credit card. Probably we're gonna see a not the same increase in the portfolio in credit cards for the next quarters. It will have a good growth, but not at the same pace because we're aiming, as I said, to more quality customers. The reserves probably there in terms of that portfolio will not be as high. The other portfolios that we're growing at a faster pace, as I said, auto loans, which we love because it has a collateral, right, or mortgages, will generate more reserves. That will definitely something that it will impact the net income. It's not bad. As you see the NPL ratio, it's at the best that we have in many quarters. It is, it has an outstanding result. For sure, we're very proud for that because as we used on the pandemic, we are an institution that is well-focused on quality customers, and that's why we have a such a lean operation. In that sense, we want to maintain that strategy. Okay. Just to summarize, do you believe that the current level of your profitability, the ROE, is sustainable? Yes. In other words, yeah. I just wanted to understand what you could guide us as a sustainable ROE. Could we take this current level, or do you believe that? No, yeah. 20 would be something. Yeah, 20 seems pretty fair. Yeah. Okay. Okay. Thank you very much. For sure. Our next question comes from Ernesto Gabilondo. Please go ahead. Hi, good morning, Manuel, Enrique, and Alex. I have three questions from my side. My first question is also a follow-up in your net income guidance. It is running below your implied growth for the year. Just wanted to know how comfortable you feel to be more at the mid-high end of the range. I agree, you know, one potential key driver is loan growth and is likely to be supported by the nearshoring. What should be another line that could be improving in the next quarters? For example, OpEx came at a high growth. I understand that you are investing, but I don't know if there is some room to see also some deceleration in that line or in another line that could make us think that we can see the net income more at the mid to high end of the range. My second question is a follow-up on NIMS. We have seen other banks that are starting to reduce the sensitivity to rates. Can you remind us how much does a change of 100 basis points represent in million of pesos after taxes today? To what extent the sensitivity can be reduced and how long do you think it can take? My last question is on Hey. Just if you can give us some color on how much is Hey representing of Regional's net income, and how much should be representing for the full year. Thank you. Thank you, Ernesto. In terms of the net income, we are experiencing a decrease, I think, in expenses, in some of the lines of the expenses in terms of headcount for the next 18 months. In terms of developers, for example, we've already think that we have 100% of what we need. Probably in the next 24 months, that number will decrease because we've already invested most and we've-Change most of we love in terms of the experience customers have on the front-end part. In that sense, we will see some items going down, for example. Other thing would be in terms of digital marketing. Lowered our expenses almost in half, so that in terms of Hey Banco, that will definitely be a line that you will see impacted in the short term. As well as some of the rewards that we give clients, that we're only giving rewards to Hey Pro clients now, from now on. Sure that's some items of the expense that will continue going down. In terms of, for example, all the items related to more sales, for example, more POS investment in terms of the machines that we give clients or new cards that we give clients to, although that we charge it, you're gonna see it in expense though. You're gonna see the expense and the income. You will continue to see some items of the balance sheet growing at a faster pace because of the increase in the volume of transactions, right? That's why we wanted to divide the information and let you see how Banregio is achieving a great efficiency and Hey is lowering being more efficient quarter- to- quarter and being able to see the increase on the financial margin and obviously the expenses growing as well, right? Different points of both banks, that one is more in the consolidating part and one is starting and growing. In that sense, that's why you're seeing expenses growing at that phase. We expect to have a more leverage operation this year. For that part, and as you've seen, how we've been very successful in growing loans, and we think for that reason that we were gonna be profitable when Hey Banco has its license probably at the end of the year, right? It's not gonna generate a lot of profits in compared to Banregio. It's gonna read, we think, MXN 100 million, as we said in the past. And it's gonna reach in a very efficient manner. The number of clients we still have, we don't wanna change the guidance. We do have our... As we just rolled out the payroll services for our SME clients, and we are in talks with different Banking as a Service customers or that we have probably that will generate a greater growth there in terms of clients. Hey is growing more at a very organic pace. It is growing at a very good pace without investing on Google and Facebook, right? Huge investments there. We will continue to further the growth. The most important part for us in terms of Hey is being able to have a very profitable operation since the inception of the bank, and being able to generate great growth. I mean, as you can see, the financial margin grew in terms of pesos grew outstandingly. I mean, it almost grew 300%. For sure we want to continue, we will continue growing, I think in that sense, as we've reached a very stable loan-to-deposit ratio, right? In that sense, we're pretty happy with the result. I mean, we will prefer to have a profitable bank with X number of clients than not being able to reach that profitability because we have a lot of clients that are not producing great Lifetime Value. We wanna reach the 1 million customer mark with the best face possible, right? The best NPL, the best NPS, the best NIM, the best everything, right? As you know, we want to excel in every line, not only in just one that doesn't make much sense, anyways. Thank you. In, in terms of the next questions about the NIM sensitivity- Yeah. In terms of Hey. In terms of the numerical. Yes. Is after tax. Yeah. After tax will be around MXN 140 million per every 100 in the policy rate 100 movement up or down. We have a very similar sensitivity as the one that we have expressed of 16 basis points per 100 or 4 basis points per 25 bips movements. If your question is directly to if we are hedging in some way, not, we are not hedging. We maintain our swaps around just for the very limited portion of the mortgage, for the fixed loans, for the mortgage mainly. In terms of hedging on the opposite way, no, we are not doing hedging. We maintain our sensibility. As we mentioned, we are growing fixed rate loans like mortgage and auto That will help, a little bit to reduce the sensibility in the future. Yeah. Also, as you can see, Hey has a better NIM. As Hey start gaining more weight on Regional's portfolio, that will help us to support the NIM. Okay. Excellent. You were mentioning, you know, at the beginning that you have seen some of the clients moving from checking accounts to time deposits. I think that it's also like a natural hedge considering that those should benefit on the easing cycle, right? Yes. Yes. When the reduction of the rates came, we will adjust the rate that we pay to the time deposit customers. Perfect. Thank you. Just to follow up on this, today is MXN 140 million after tax for every 100 basis points. If we move before, like, we started to see this higher interest rate environment, how much was that sensitivity just to compare it to what was like a level of a more normalized interest rate? No. It has not moved a lot, Ernesto. Obviously in the amount as the asset base has changed, the amount of MXN 140 million could be less. It's not because the sensibility, because the mix has been maintained in terms of the proportion of checking and variable. The two main items that move this sensibility is the checking accounts with zero cost interest because that doesn't move either way, and the variable rate loans that hasn't changed a lot between 70%-72%, depending on the point of time that you measure it. Even though the loan book has grown more than 20% in the last two years, in the last 18 months, the proportion is maintained because again, also the auto, the leasing, and the mortgage has been growing at the same pace. Perfect. Excellent. Just last question on this. In SMEs, in corporates, the commercial loan book, you are charging TIIE plus certain basis points. Yeah. Are you fully repricing the. For example, I think in the past you decided not to transfer all of the basis points to the client and you helped them a little bit in terms of the basis points. Are you following the same strategy or not? Not. No. This time we are fully repricing, as is packed in the contracts. At the end of the month, we have two different types of repricing, but generally it's at the end of the month or at the end of the next two months, is repriced with the current year. Some customers we renegotiated the conditions, but it's case by case. It's the full contract. It is not the mechanics or methodology of repricing. Okay. Perfect. Understood. Thank you very much. Just on Hey, the last question, how much do you think can it represent into Regional's net income this year? How much could it represent in the next coming years? For this quarter, I'm sorry we didn't put it here. Hey's, including Hey Pago, results is negative, is MXN -59. You can calculate if you do all the mathematics in the slide that we are presenting from, margin loss, non-financial minus expenses. And for the full year, we expect to be still low with all the changes that Manuel presented. MXN 100 million. MXN 100 million out of MXN 5.5 billion. For the next year, we expect it could be more than 10% of the net income. Excellent. Thank you. The total of Regional. Okay. Excellent. Thank you very much. Thank you, Ernesto. Next question comes from Neha Agarwala. Please go ahead. Hi. Thank you for taking my questions. Can you hear me? No, we cannot hear you, Neha. Okay. Can you. Can you try again? Can you try again, please? Yeah. Can you hear me now? Yes. Yes. Perfect. Thank you for taking my question. Could I go back to the question on the guidance? I was not very clear about it. If you look at the first few numbers, do a run up for the year, even adjusting for seasonality, we are not reaching the, even the lower end of the guidance that you provided of about MXN 5.5 billion. What is going to change? I know you mentioned that NIM this quarter was a bit weaker, and that should expand in the coming quarters. How about provisions? Should provisions remain at these levels or that should increase? What would be the driver for you to reach the guidance that you provided apart from a slight NIM expansion in the coming quarters? My second question is on Hey Banco. I think the bank is doing quite well. You're now seeing more competition in Mexico. For instance, Nubank has been quite active in rolling out its credit card and is targeting more the younger population. Do you cross paths with players like Nubank? Or is it more with the clients of, say, a Banorte digital bank? What would be your digital competitor on the digital banking side in Mexico, and how are you positioned versus them? Thank you so much. Thanks, Neha. In terms of the guidance, if you remember, as I am seeing your report, we guided 10%-12% increase in profit for the full year. The main reason is because we knew that we had this release of provisions in the Q1. In our budget, that was included. Our guidance for provisions or for cost of risk is still 0.7-0.9. This quarter was 0.8. It's just in the middle. We expect to maintain that level of provisions around 0.7. We expect, obviously being optimistic, the lower range. The growth in the loans, as Manuel mentioned when he explained the dividend, and answering the question about Nearshoring, we expect higher growth in loans. We guided 10-15, we're expecting to be in the upper range of 15%. That mix and the NIM expansion that I explained with the renewal every quarter of the on the securities investment, that is the asset side of the repo business and the non-financial income. If you saw, this quarter was a very difficult quarter for FX. It is even split that we have a reduction of 5%. March you can see in the CNBV data. Well, you cannot see. You can see January and February, March was a much better month. We are opening new Exchange Banregio branches. We are increasing our activity on effects mainly. That will be other line that will improve. Manuel also mentioned some reduction, not reduction, but decrease in the increase or reduction on the pace of increase on the expenses. Something that we haven't mentioned, but in February and March are already impacted. We apply it a general increase for the for our employees. In average, it was a 6.4% of increase. That will not happen again. That already happened in February, and it will be maintained, that increase. The sum of all lines, and mainly that the Q4, as you know, by seasonality, is always bigger, both because the loans will be increasing along the year, but also as all the transactional and non-financial income that is collected or associated in the last quarter. Even with the El Buen Fin and Christmas. Yeah. Okay. Okay. Thank you. That will be in terms of why we expect at least the 10% to be achieved in the full year. Okay. Thank you so much, Enrique. For the second question in terms of competition for Hey Banco, we've definitely see a lot of movement in terms of digital offerings. I think this is a very positive thing in terms of client being conscious about and being able to have a more clear understanding on the digital offerings that the market has. I think that is a very positive trend. It helps us obviously in terms of gaining more reconnaissance from clients. That is, I think, one very positive thing. The negative part would be that the costs of the Google Ads in terms of Google and Facebook will clearly be more expensive. That's what we're shifting on, trying to be generating the client growth on organically. Completely organically or most of it organically, right? Trying to generate most of the organic growth. We already halted the expense on Google and Facebook. We've reduced it significantly. In that sense, we still are seeing good organic growth, better churn, better activation, quality customers in terms of loan applications. We are comfortable in this moment and being able to generate quality customer growth, not only customers that come and go, right? As we said, we're here for the long term. It is a very positive trend. We're seeing that as technology continues to develop, we see more opportunities to have an operating leverage for the near future. We see more and we see that we're gonna be more able to have more employees per customer per employee. That I think will be greater on in the future, more so that we expect, I think. I think that is a very positive thing. That's why as we continue to see that the advancement of the new banking license is about to reach, we want to get to that point in a very profitable manner. Perfect. Thank you so much, Manuel. In terms of what the offering is, it's something that we wanna clarify. Nubank mostly serves credit cards around 2,000 MXN average. Our average credit card is 50,000 MXN. It is pretty different. Our average client has around 35 years old, it is not 20. It's not. We're not investing in trying to give cards to people that are not in the system. Our main objective is clients that are pretty badly served in other banks, right? Underserved in BBVA or Banorte or something there that really obviously. The pricing for us is different. Obviously, the clients that we cater are digitally native and are pretty much more efficient in terms of their operations, and that's why we are gonna be as efficient as well, right? I wouldn't say that Nubank is our competitor. Obviously, they are our competitor in terms of debit cards. Their debit card just rolled out. Obviously, they don't have the infrastructure needed. For example, they cannot go to any ATMs without a cost, right? It is a different debit card for customers. For sure it is something that. It is moving. I mean, OXXO has already said that it's further expanding their financial products. In that sense, we see more strong competition. Again, I think that we have a great branding. We have a great customer understanding. We've already invested 100% of what we needed. For sure right now, we think we are the best to continue to execute and being able to gather all the efficiencies of the technology and being able to have a great NPS with our client customer base. I think the trend of us generating more market share will continue and we don't have to do that sacrificing NPL ratio. We don't want to sacrifice it, growing the OPEX without reason, right? We want to be, as you know as well, very prudent and very, very clear understanding on our profitability. That's, that is, as you know, our main driver, right? In that sense, we are happy for the competition that they're coming in. I think it is a very positive thing. And there's gonna be different impacts. But I think for us to continue growing at the pace that we are achieving, I think we're not that concerned really. Understood. I mean, we're finishing, and they're just starting. In that sense, we are in a very different pace. Understood. Thank you so much, Manuel. Thank you, Neha. Our next question comes from Yuri Fernandes. Please go ahead. Hi, Manuel, Enrique, Alejandro. I have a question regarding your cost of risk. I would like to understand how much is somewhat driven by loan growth, especially on Hey, right? You're growing Hey volumes by 2x versus last year. That's the first question. Also how NPLs will behave, because looking to the Hey NPL on this slide on relevant figures, we see Hey running with 0.7 NPLs. I think growth maybe is helping the NPL ratio here, but given the mix on auto loans, credit card, my question is: How do you expect the Hey NPL to move up in the future? What would be the level for this to stabilize? If you believe this such a low NPL is it's somewhat sustainable. That's the first one, like cost of risk and Hey NPLs. I have a follow-up on margins. I think there were many questions on margins and I think Enrique already explore like some explanations on funding, like maybe you reduce a little bit the spreads for some clients. Still, when we look to the NIMs, and we add up the leasing figures to the NII, because I think there was an important reclassification last quarter. When we add leasing to the NII, your NIM was somewhat down year-over-year or somewhat stable despite the mix and despite higher rates. Again, I would like to understand a little bit more, you know, like what drove this kind of NIM pressure this quarter? It was a pretty big drop. I still don't understand. I don't know, like funding, yes, it explained part of this, but the mix, because of Hey, is on your favor, right? I struggle to understand your NIM pressure this quarter. Thank you. First, in terms of NPLs on Hey, you are right. Is obviously increasing the loans and is not a stable portfolio. It will continue growing. As you can see, we grew the portfolio from MXN 3 billion to MXN 9 billion, MXN 9.4 billion. Mainly, we have that is pressing the cost of risk that also you can see here in the slide that we are presenting, that is 5% for Hey, 5.3%. It's mainly on the credit cards because as you know, the credit card generates provisions for the line, for the total line, independently of the usage of the line. That's what is explaining the increase in provisions in Hey as we are growing the loans. We don't expect a deterioration as time goes by. We have four main lines in Hey of growth. You, it's not in this slide, but you can see in the slides that we presented. The ones that are very healthy is the small businesses and mortgage is close to zero, or in fact is 0% of NPL right now. In auto, we have a lower NPL than in Banregio. By the growth, I understand that is the effect of the growth. Right now it's 0.3% of NPL. In credit card, it's around 2.6%. We are working to improve that level of NPLs for credit card. P robably will hike a little bit in credit cards. Yes. It will should go down. Exactly. It could go a little bit higher as we open to recalibrate the model. We recalibrated the model in this quarter. You will see that in the next quarters, but it will go down. In the other three products, we will maintain all the factors that have us this very good quality asset portfolio, both in the origination, the fraud prevention, and the collection. The three of them are very well put in, both in Hey as well as in Banregio. In terms of NIM, if, Luis Mario, if you move one. We try to explain with this slide, but it looks like it's not being self-explanatory. In the left side, we have the margin as it was reported every quarter of the Q4. What Manuel mentioned on the presentation, on the conference call presentation at the beginning of the call, it was the difference, the MXN 680 million that is netted between the increase in the interest income and the negative on the net leasing. On the right side, we are normalizing the income statement as if we had made the change prior on January 1, 2022. That's why we present different figures. The ones that you see on the left are the ones that are impacting, are presented in the previous reports. You are right. The movement of the MXN 6.5 billion from pure leasing to financial leasing or lending, because that then goes to the loans line in the financial statements, is improving the margin, because leasing has a better margin than most of the loans. Also, we have to consider something that I have already mentioned. The MXN 30 billion of repurchase agreements or collaterals, as is reported now for transparency, is increasing by 8% the asset. And these are a business that is a very low margin between the two lines. I don't know if that explains. No, that's super clear, Enrique. This slide is actually helpful for me. I guess I missed this slide. Just a final one. On Hey, do you plan to keep growing at this pace? I know it's very under-penetrated. You are investing there, like, but what is your expectations for the loan growth only in Hey? Thank you. Yeah. We definitely will see an increase. That's our plan. Our plan is to continue growing loans at this phase as we are rolling out personal loans this following month and payroll services on June. In that sense, we think that we will continue growing at a faster pace in a more profitable manner and being able to cross-sell more loans. The main aspect then is that we don't wanna be a credit first, right, in terms of consumer lending. In terms of personal loans and credit cards, we don't want be the first. We don't wanna reach them as credits first, right? We wanna try to be and to have a customer base that has more deposits, as that's what we started growing deposits first and then loans, being able to cross-sell more. Obviously in our terms of mortgages and small business loans and auto loans, the clients that we serve are credits first, but only customers that are already have a clear understanding of how to repay a loan. We're not serving what we call No-Hit or Thin File. No Thin File, no No-Hit, we're reaching clients that have already the experience of being able to understand the risk that they're taking and to understand the margins. Something that's really happening is, for example, Cardif, so the French company that they had huge operations here in Mexico, they're divesting. That's what I understand. I think other companies that we have that we understand that many are not growing at the same pace. We see many companies not growing at that pace because of probably some they don't have the same appetite, and we are growing at a very good pace. The non-financial entities here in Mexico are the ones that are. The big financial companies are not lending that much. I don't know why. In that sense, we are well poised to continue growing at a good pace. That's why we see a market share growth in terms of auto loans in the system. In that sense, I think with that trend will continue. Perfect. No, thank you very much. Our next question comes from Shane Matthews. Please go ahead. Hi, thank you for the opportunity. I just wanted to understand, in the normalized business audited financial statement, the slide that you showed, does that also normalize for the changes done in the accounting for the repos? Or does it only normalize for the change in leasing income accounting? It's only for the leasing- Okay. As the repo margin has already been included. The repo obviously the repo that is in That used to be always in the balance, that are the investment securities, and that's what we are trying to clarify, that part of the repo business is that we buy investment securities from government bonds and then we repo to our customers. In this case, it's someone else bought the security and is repo to us, and then we repo that repo. It's kind of confusing, but it's very similar with the difference that we don't have the original paper or the original bond in our balance. That's why we were being previously presenting net. The margin is already included. That's why you don't see a change in the margin for that reason. It's mainly the one that changed in the financial margin is the impact from the leasing business. Just so if I understand this correctly, the change in repo accounting does not affect the P&L. It only affects the gross and net margins in the balance sheet. Yes. Yes. Understood. It's the repo change is only in the balance sheet. Yes. Okay, understood. Just to understand the loan growth a little better. We see that the pace of interest income growth in absolute terms has slowed down a little bit. We see strong growth in the loans for the last two quarters. Did we have to reduce the pricing of the loans in the core business of wholesale loans in order to grow these loans? How was the interest rate pricing of the loans behaving? If you could also share, remind us the fixed versus variable rate loans and the repricing frequency of the fixed rate loans, that'd be great. Thank you. Yes. The pricing policy has not changed. Maybe the mix, I don't have the exact numbers between large companies and small companies. Is moving faster in percentage, but maybe not in weight, in average weight. Because as you know, we have two large businesses, wholesale and retail, wholesale is still pricing around TIIE + 3.5. We haven't changed the rate policy, maybe the mix in the growth is affecting. We will give more color. It's a good question to split by size and by active rate. In Hey, not. In Hey, basically, as we have mentioned is mortgage, small businesses and auto business. Understood. If you could also tell us about Which of these loans are fixed rate loans and which are variable rates? No. We haven't changed the proportion. Even though we are growing faster mortgage, auto, leasing, that are the three main lines that are fixed rate. We have also increased the growth in variable rate. It's around 70%-72%. Also, we will communicate in our page the exact proportion. Understood. My final question, if you, if I may, is, we saw some changes in accounting policy last two quarters. We saw leasing and, in Q4 last year and, report this quarter. Any other accounting change that is being contemplated that we might see in 2023? No. No, no. There is one that, in order to be very transparent, and I understand that we will publish next Friday, the annual report. Tomorrow we have the general assembly, and we will make public the results dictated by our auditors. There is MXN 40 million in the balance. That is, it is very small comparing MXN 145 billion. If you remember last year, we reclassify all the rents, with the IFRS 9, with the International Financial Norms. We had to recognize a liability for all the rents that we have signed, all the branches, and we rent every single building that we have. We don't own our own branches. In the during the process of the auditing, we recognized that we had to increase the liability by MXN 40 million. It's on a small disclosure. It's again, only on the balance. That will be all. That finish with all the change to IFRS 9. Understood. Thank you very much. Congratulations on the results. Thanks for taking my questions again. Thank you, Shane. Next question comes from Jose Cuenca. Please go ahead. Hi, everyone. Good morning, and thank you for the opportunity to ask a question. Really just a follow-up on the sensitivity. If you could just expand a little bit more on why you're deciding not to actively or more proactively hedge. Maybe, I don't know, maybe it's not economically feasible for you guys. Not really sure. We just wanted to understand that part because the other things have been already very clear, very a lot of details. Thank you for that. Just the rationale behind that decision to not hedge more actively. Thank you. Well, in a sense, the liquidity that we're have, the excess liquidity that we have, we invested in short term in order for us to further on being able to loan and being able to hedge that way, so hedge naturally through our loan and through our client base. That's what. We're a commercial bank, and that's how we, that's what we are aiming for, and that's what we do. In that sense, that's how you should be able to hedge in that sense. Being able to generate more long term loans, being able to generate more profitability with our clients and being able to cross-sell more loans that will generate more financial margin increase. In that sense, being able to withstand, as you being able to see our ROE, in low interest rates environment, we've been being able to reach good profitability levels. In that sense, we think that we will continue having a good profitability in terms of ROE when the environment in terms of interest rate changes, right? We're expecting we are not expecting a lot of hikes. We see like a more neutral level in terms of a further on the short term. Probably a lowering of the interest rate at a slower pace, and in that sense, being able to generate more financial margin growth, even so that the interest rate continues to go hiking down because we don't see it drastically coming down in the short term, right? It's gonna be a more gradual effect. We're gonna see a full year with high rates this year and probably going to continue to decrease on next year, right? We do have a lot of good positive things in terms of growing loans. We see that, as I said in the beginning of the conference, we see a long-term cycle that started probably 12 months ago or a bit more. We think that that trend will continue, as we talked in the past. In that sense, a profitability that will come probably from loan growth and being able to generate, more market share as we've well-poised to do so, right? So... I don't know if that gave you more color. No, yeah. Thank you. Thank you for the detail. Our next question comes from Gilberto Garcia. Please go ahead. Hi, good morning. Thank you for the call. I was going to ask about the sequential NIM trends, but the slide that you showed was helpful on understanding the extraordinary impact. I don't know if this was by design or it was a last-minute addition, but this slide is not in the presentation that you uploaded. Anyway, my question then is, like, looking ahead, looking forward, the, I guess the starting point from NIM should be what we saw this quarter, and I guess just being aware of the noise of the Q4 with the reclassification, this Q1 did not have any additional extraordinary reclassifications, right? Answer your question, Gilberto, and an apology. It was not by design. We decided to make public this slide in the night as we saw the reports yesterday and the questions. We thought originally that we had explained, obviously we didn't explain very clearly last quarter, because the main movement was done in December. Being very transparent, answering the second part of the question, yes, it was still during the audit process. As you know, we closed in December, we start all the auditing. We reclassified MXN 500 million more during the January of leasing. That's the only, the one that we have been mentioned about the repo. In terms of considering from now on is the Q1, as you see, the Q1 is not normalized. It's already normalized. It's including the MXN 6.4 billion of leasing in the lending side, in the loan portfolio. Should not be any more movements. We're already closed the audit. Tomorrow, as I mentioned after the general assembly, we will make public the report and the audit audited statements, financial statements. Understood. Thank you very much for the additional color. Then secondly on interest expenses, do you believe that following these increases in the rates that you pay, are you now on let's say, more competitive basis? Or do you believe or expect that there could be further increases on those deposits? We are very competitive right now. The only way there are further increases- I will split Banregio and Hey. In Hey, we will maintain the 10%, even though if there are further increases or if we decide to change, we will communicate, but that is fixed. Banregio is moving with the increases, the cost of funding in time deposits is a percentage of the TIIE or a percentage of the certificates that are treasury ones that are very close to TIIE. If the rate increase, the insurance rates, if the rate increase, the Banregio time deposits will increase in a proportion, but the Hey not. I don't know if I was clear. No, no, very clear. Thanks again. Thank you. Our next question comes from Andres Soto. Please go ahead. Hi, Manuel and Alejandro. Thanks for the presentation and the opportunity to ask questions. My question is a quick follow-up on the spin-off process for Hey Banco. I would like to understand. I understand this depends on the license, but in terms of the operational separation of the entities, how guys are you doing? Is all the additional costs already reflected in the Regional numbers? Should we expect additional cost pressures based on these synergies from this spin-off? Also, if you can remind us what is the capital levels that you intend to allocate to this subsidiary? Thank you. In terms of the capital that we expect to split, it is around MXN 1,500 million. It is the capital needed for the loans that we expect to have 18 months from now that we think that we're gonna be able to split the banks definitely. We expect to have the banking license approved this year, but then you have six months to begin operations. In that sense, that's what we expect around MXN 1,500 million of capital needed for those loans that we will have at that moment that will require that capitalization and that level of capital. In terms of the OPEX, we do have some hiring to do in terms of audits, of lawyers and compliance, but that's it. That's it should not be much. Definitely it will be something, but not much. In that sense, that would be the only part that we're missing out of the hiring. As I said, the developers that we have right now, for example, most of the headcount is already invested, we don't expect to grow even further. The only part that would grow is the commercial part and the ones that are only a set for compliance and regulatory purposes, right? Thank you, Manuel. Still on capital, but now talking about Regional. You mentioned the possibility of a 2nd installment for the dividend by November, depending on growth. I'd like to understand what is the metric that you are looking at? If you look at your guidance for loan growth, 10%-15% this year, at the high end of the range, will you be able to distribute dividends or what are your thoughts or what is the capital ratio that you see as a limit for deciding on this additional dividend? Yeah. It will not depend only on the capitalization ratio that we have at the moment. It will depend on how we see next year going on. If we see a further demand, and we see a further increase in dynamism, which we probably have, then definitely we would consider to allocate capital for loans, right? If not, if we don't see that effect, we'll definitely consider doing it. Not only looking, as I said, on the capitalization ratio, so trying to look a bit further. That's why we split into the dividends. We're gonna have more color in the future and being to allocate capital in a very efficient manner. If we don't have use for that capital, definitely, so we're gonna have that dividend going on, and if not, then it will be because we're seeing a more dynamic growth in terms of loans and in terms of the economic activity in the region. That's clear. Thank you, Manuel. Thank you. Since there are no more questions, on behalf of our senior management, I would like to thank everyone for joining the call. If additional questions arise, please don't hesitate to reach out to Alejandro and our investor relations team. Thank you, and have a good day. Thank you, everyone. Thank you for your participation.