Credito Real's net income for 1Q16 increased 24.4%

MEXICO CITY, April 27, 2016 /PRNewswire/ -- Crédito Real, S.A.B. de C.V. SOFOM, E.R. ("Crédito Real" or the "Company") (BMV: CREAL*) today announced its financial results for the first quarter of 2016. All figures presented throughout this document are expressed in nominal Mexican pesos (Ps.). All financial information has been prepared in accordance with the guidelines of the National Banking and Securities Commission ("CNBV") and the Mexican Stock Exchange ("BMV").

1Q16 Highlights

• Net income for 1Q16 increased 24.4% over 1Q15, reaching Ps. 406.2 million, compared to Ps. 326.7 million during 1Q15. ROE reached 22.8% in the quarter.
• Financial margin increased 41.5% to Ps. 1,016.5 million in 1Q16, compared to Ps. 718.4 million recorded during 1Q15.
• 1Q16 average cost of funds has been reduced to 6.6%, meaning an improvement of 10 bps when compared to 6.7% in 1Q15.
• Loan portfolio increased by 45.2% to reach Ps. 20,735.4 million at the end of 1Q16, compared to Ps. 14,280.3 million recorded at the end of 1Q15. Excluding the acquisition of Instacredit the loan portfolio increased 25.8%, driven by payroll and used car loans.
• Allowances for loan losses represented 145.2% of non-performing loan portfolio, compared to 143.7% in 1Q15; and the non-performing loan ratio increased from 2.2% to 2.7% at the end of 1Q16 when compared to 1Q15.
• The efficiency ratio increased to 51.0% from 34.1% reported in 1Q15; showing the effect of consolidating acquired new businesses such as Instacredit, Resuelve and AFS.
• As of February 22^nd Crédito Real acquired 70% of Instacredit; adding growth and regional diversification to Crédito Real's portfolio.

Message from the CEO

"We are starting 2016 off on the right foot. If I may summarize this quarter's result in three single figures, those would be the loan portfolio expansion of 45%, our earnings increasing 24% and ROE reaching 23%. The three figures are above our 2016 guidance.

Our loan portfolio growth was spurred by organic and inorganic activity. We estimate our organic growth was 18% approximately, and inorganic growth was approximately 27%. These estimates take into account the effects of Instacredit and AFS in our portfolio. All our lines of business showed a healthy growth, especially payroll, used-car and group loans operated by Contigo.

Step by step we have built a strong credit platform that today serves over 760,000 customers, 51% more than a year ago. We are able to serve customers overlooked by big financial institutions in Mexico, the USA, and Central America, with a multiple-product proposal, and with a robust customer-service process. Our overall growth perspective is based on building relations with partners who are specialists in the distribution and commercial side of the business; while we focus on the asset quality and adequate funding.

Payroll has decreased its participation in our portfolio as expected, from 78% to 64% year over year; however, it reported a strong 20% growth aided by the pensioners' market penetration. Meanwhile the used car loan business has increased its contribution from 3% to over 9% in the portfolio, helped by our increased business in the USA.

On February 22^nd, we announced the acquisition of 70% of the equity of Instacredit. We decided to invest in Instacredit to diversify into Central America; focusing on the same customer segment that we serve in Mexico, which is the middle to low-income segment underserved by the traditional banking system. Instacredit contributed over 19% to our loan book this quarter. Instacredit has a well-recognized brand with a multi-product platform, over 15 years of experience and more than 60 branches located in Costa Rica, Nicaragua and Panama with a large base of customers.

Our capitalization reached 36%, remaining solid after the recent acquisitions. Our funding cost for the quarter was 6.6%, indicating the effect of our new loan and the rise in interest rates. Our Debt to Equity ratio reached 2.9 times, still well below our 3.5 times target. This quarter our efficiency ratio increased to 51%, due to the consolidation effect of the Instacredit, Resuelve and AFS in our expenses.

Our long-term strategy consists of focusing our growth on business opportunities with ROA's of 5% or above. Overall, Crédito Real's business model emphasizes seeking market opportunities in Mexico or abroad for customers traditionally underserved by other financial institutions."

Results of Operation  

 

Interest Income during the 1Q16 reached Ps. 1,339.3 million, indicating an increase of 42.0% compared with Ps. 943.0 million reported for the 1Q15. The change was mainly due to the growth observed in the loan portfolio, spurred by Instacredit and AFS.

 

Interest expense increased 43.7% in 1Q16 to reach Ps. 322.8 million, compared to Ps. 224.6 million posted during 1Q15, while the company's debt increased 60.9% year over year, due to consolidating the liabilities of AFS and Instacredit. By comparison, this shows an improvement in the funding cost, as well as the recognition of mark-to-market of securities and derivative transactions.

Financial margin increased 41.5% during 1Q16, reaching Ps. 1,016.5 million, from Ps. 718.4 million posted during 1Q15, mainly driven by growth in interest income and improvements in the cost of funding.

Provisions for loan losses reached Ps. 47.3 million during 1Q16, 39.0% lower than the Ps. 77.6 million recorded during 1Q15. The allowances for loan losses represented 145.2% of non-performing loans, compared to the 143.7% reported in 1Q15.

Administrative expenses reached Ps. 563.8 million during 1Q16, showing a 137.7% increase over the Ps. 237.2 million reported in 1Q15. The increase is mainly driven by the consolidation of the expenses of AFS, Resuelve and Instacredit.

Participation in the results of associates and non-controlling participation reached Ps. (17.1) million in 1Q16, compared to Ps. 18.4 million recorded during 1Q15. The effect of Instacredit's, AFS & Resuelve earnings (non-controlling participation) offset the effect of earnings in associates, recognized under the equity method, resulting a negative figure in 1Q16.

Net income in 1Q16 increased 24.4%, reaching Ps. 406.2 million, compared to Ps. 326.7 million posted during 1Q15.

Balance Sheet

Total assets accounted for Ps. 30,958.1 million at the end of 1Q16, an increase of 50.6% over the Ps. 20,551.6 million registered at the end of 1Q15. The increase was mainly driven by loan portfolio expansion, and the recognition of assets from Instacredit, AFS, and Resuelve in Crédito Real's balance sheet.

Total loan portfolio reached Ps. 20,735.4 million at the end of 1Q16, an increase of 45.2% compared to Ps. 14,280.3 million at the end of 1Q15. The increase is mainly explained by the consolidation of Instacredit and AFS as well as the double-digit growth in payroll and used-car segments. The efforts carried out by payroll distributors and used cars partners continue to deliver loan book growth.

Non-performing loan portfolio as a percentage of the portfolio was 2.7% as of 1Q16, equivalent to Ps. 553.6 million, compared to a 2.2% ratio or Ps. 316.0 million as of 1Q15. The NPL is in line with the 2% to 3% long-term objective, as Crédito Real achieves greater diversification in its loan portfolio.

Allowance for loan losses as of 1Q16 was Ps. 803.6 million or 145.2% coverage ratio (allowance for loan losses as a percentage of total past-due loan portfolio), compared to Ps. 454.3 million or 143.7% coverage ratio reported in 1Q15. The allowance for loan losses increased in line with the non-performing loan increase.

Other accounts receivable increased to Ps. 3,002.0 million as of 1Q16, compared to Ps. 1,624.0 million posted as of 1Q15. The increase is mainly explained by the consolidation of the accounts receivable of Instacredit, AFS and Resuelve; this line item also includes a portion of income paid in advance to payroll distributors in accordance with agreements.

Total liabilities reached Ps. 23,402.0 million at the end of 1Q16, a 57.1% increase from the Ps. 14,892.1 million posted in 1Q15. Total debt reached Ps. 21,561.6 million as of 1Q16 compared to Ps. 13,402.6 million as of 1Q15.

• Senior notes and local notes reached Ps. 10,968.2 million as of 1Q16, representing an increase of 14.6% compared to the Ps. 9,567.4 million recorded as of 1Q15.
• Bank loans as of 1Q16 reached Ps. 10,593.4 million, reaching an increase of 176.2% compared to Ps. 3,835.1 million recorded as of 1Q15, as a result of the consolidation Instacredit, Resuelve and AFS's liabilities.

 

Stockholders' Equity increased to Ps. 7,556.2 million in 1Q16, compared to Ps. 5,659.5 million at the end of 1Q15, a 33.5% year-over-year increase. The earnings growth is the main driver for our Stockholders' Equity increase.

     As of 1Q16 the company has repurchased 405,265 shares under its buy-back program.

Financial ratios

The efficiency ratio increased to 51.0% during 1Q16 compared to the 34.1% ratio obtained in 1Q15. The increase is mainly driven by the consolidation of Instacredit, AFS and Resuelve in Crédito Real's expenses.

During 1Q16, Crédito Real experienced a Return on Average Assets ("ROAA") of 5.7%, compared to 6.5% in 1Q15. The ROAA decreased year over year because it reflects the effect of mark-to-market of securities and derivatives transactions and the inclusion of the assets of Instacredit, AFS and Resuelve. The company's Return on Average Equity ("ROAE") was 22.8% in 1Q16 compared to 23.7% in 1Q15.

The capitalization index decreased to 36.4% as of 1Q16, compared to 39.6% observed in 1Q15. Even after including the increased debt to finance our recent acquisitions, Crédito Real still has a capitalization ratio that is above the average of the financial sector.

 

Summary of Operations

 

 

 

Crédito Real Payroll loan portfolio rose to Ps. 13,265.8 million at the end of 1Q16, an increase of 19.6% when compared to Ps. 11,092.1 million recorded at the end of 1Q15. Nearly 85% of payroll loans originated during 1Q16 came from the three main distributors in which the company owns equity. During 1Q16 loan origination reached Ps. 1,187.0 million, showing a substantial increase of 31.8% against 1Q15. The non-performing loans reached 2.5% of the portfolio.

Crédito Real keeps supporting the portfolio growth with the pensioners segment; in 1Q16 this sector represented 18% of the payroll origination. The following charts show a breakdown by sector and region of Crédito Real's payroll portfolio.

 

 

Crédito Real Durable Goods loan portfolio reached Ps. 980.3 million as of 1Q16, a decrease of 4.6% over the Ps. 1,027.6 million recorded at the end of 1Q15, origination also showed an important decrease year over year. Non-performing loans of 2.5% in 1Q16 were above the 2.0% experienced in 1Q15 but still below the average percentage of the sector. This loan book and origination declines is explained by a decreasing number of distributors in the company's network as well as maintaining tight credit policies. Crédito Real's plan is to gradually exit from the traditional durable goods business.

Crédito Real Small Business loan portfolio totaled Ps. 1,434.5 million as of 1Q16, increasing 6.8% against 1Q15. Small business loan origination reached Ps. 933.8 million in 1Q16 compared to Ps. 546.9 million in 1Q15. The non-performing loan ratio reached 1.4%; this figure indicates a significant improvement when compared to last year's fourth quarter 3.9% NPL.

Crédito Real Group Loans portfolio of funding provided to distributors totaled Ps. 315.5 million at the end of 1Q16, compared to Ps. 357.2 million reached at the end of 1Q15. Crédito Real's loan portfolio records only the funding provided to its partners Contigo and SomosUno, in which it has minority equity participation. The loan portfolio of those partners reached Ps. 557.1 million at the end of 1Q16, increasing 38.5% year over year. Group loan origination reached Ps. 876.9 million in 1Q16, showing an increase of 27.1% when compared to 1Q15. The company's group loan partners continue to expand the number of customers maintaining strong portfolio performance metrics. As of 1Q16, the group loan network extends to 1,061 promoters serving 169,748 customers. The non-performing loan ratio of the group loan distributor portfolio was 1.1% in the quarter compared to 0.9% in 1Q15.

Crédito Real Used Car Loans portfolio totaled Ps. 1,963.6 million at the end of 1Q16, or 327.0% higher than 1Q15. Origination for the quarter amounted to Ps. 506.6 million, while the non-performing loan ratio was 3.3%, compared to 0.8% for the same period last year. The increase in both, the portfolio amount and the NPL ratio is explained by the expansion in our USA used-car business expansion in which NPLs are above those of the Mexico business. The portfolio increase was also driven by the growth of Don Carro as well as the consolidation of AFS in the United States.

Instacredit operations are consolidated in Crédito Real financial statements as of February 22^nd, 2016. As of 1Q16 Loan portfolio was Ps. 2,775.6 million, with NPL of 4.1%, and Ps. 174.5 million of origination. The effect of the Instacredit consolidation in 1Q16 results is displayed in the following table. The proforma financial statements show only the results of February 22^nd to March 31^st of 2016, that is only 39 days of the 91 days comprised in the quarter. The proforma financial statements also include the effect of the new Credit Suisse loan of 100 million USD issued by Credito Real to finance the acquisition of Instacredit. Consequently some of the ratios will not be fully comparable until the second quarter of 2016.

   

Interest income from Instacredit contributed to 12% of consolidated interest income, 12% of financial margin, and 13% of provisions. The financial expenses recognized in the "Instacredit effects" column include the interests paid to Credit Suisse for the 100 million dollars loan issued to finance the acquisition of Instacredit. After this effect, Instacredit net income contributed to 7% of Credito Real's consolidated earnings.

Average yield for Instacredit was 69% in the quarter, and NIM was 47%. Looking forward consolidated NIM for Credito Real is expected to increase after the consolidation of Instacredit. During this quarter Instacredit contributed with some 100 bps to the consolidated Yield and NIM respectively.

ROAE for Instacredit helped to improve consolidated Credito Real's ROAE by 90 bps approximately.

Efficiency ratio for Instacredit also contributed to a higher consolidated efficiency ratio, from 47% to 51%, this effect is mainly due to the interest expenses from the effect of the new Credit Suisse loan, as it decreased Instacredit's financial margin. Should we estimate the efficiency ratio excluding this effect it would have reached around 60 and 65% instead of 70%.

The coverage ratio increased from 107% to 145% after the effect of consolidating Instacredit. Finally the NPLs increased from 2.5% to 2.7% after consolidating the loans from Instacredit.

Analyst Coverage

Actinver Casa de Bolsa, S.A. de C.V. (Fixed Income)

Bank of America Merrill Lynch Global Research (Equity & Fixed Income)

Barclays Capital Casa de Bolsa, S.A. de C.V. (Equity)

Deutsche Securities, S.A. de C.V., Casa de Bolsa (Equity)

Intercam Casa de Bolsa, S.A. de C.V, Intercam Grupo Financiero (Equity)

IXE Casa de Bolsa S.A. de C.V, Grupo Financiero Banorte (Fixed Income & Equity)

J.P. Morgan Securities, LLC (Fixed Income)

Punto Casa de Bolsa, S.A. de C.V. (Equity)

Ve por más Casa de Bolsa, S.A. de C.V. (Equity)

About Crédito Real

Crédito Real is a leading financial institution in Mexico, with a focus on consumer lending with a diversified and scalable business platform oriented primarily on the following types of loans: payroll loans, durable goods loans, small business loans, group loans and used car loans. Crédito Real offers products mainly to the low and middle income segments of the population, which historically have been underserved by other financial institutions.

Crédito Real shares are listed on the Mexican Stock Exchange under the ticker symbol and Series "CREAL*". (Bloomberg identification number is CREAL* MM)

This document may contain certain forward-looking statements. These statements are non-historical facts, and they are based on the current vision of the Management of Crédito Real, S.A.B. de C.V., SOFOM, E.R. for future economic circumstances, the conditions of the industry, the performance of the Company and its financial results. The terms "anticipated", "believe", "estimate", "expect", "plan" and other similar terms related to the Company, are solely intended to identify estimates or predictions. The statements relating to the declaration or the payment of dividends, the implementation of the main operational and financial strategies and plans of investment of equity, the direction of future operations and the factors or trends that affect the financial condition, the liquidity or the operating results of the Company are examples of such statements. Such statements reflect the current expectations of the management and are subject to various risks and uncertainties. There is no guarantee that the expected events, trends or results will occur. The statements are based on several suppositions and factors, including economic general conditions and market conditions, industry conditions and various factors of operation. Any change in such suppositions or factors may cause the actual results to differ from expectations.

 

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SOURCE Credito Real, S.A.B. de C.V. SOFOM, E.R.