Credito Real's net income for 2Q16 increased 12.6%

MEXICO CITY, July 27, 2016 /PRNewswire/ — Credito Real S.A.B. de C.V. SOFOM E.R. (“Credito Real” or the “Company”) (BMV: CREAL*) today announced its financial results for the second 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”).

2Q16 Highlights

Message from the CEO

“Credito Real continues on the right path to achieve its 2016 guidance. For instance, we have expanded our loan portfolio by 50%, without sacrificing asset quality, since our non-performing loans have remained at a 2.3%. In terms of origination, we continue to diversify our loan portfolio: payroll loans represented 31%, and our less mature products, which are SME’s and used car loans, along with Instacredit reached almost 50% of total origination during the quarter. Our Return on Average Equity reached 19% while our net income increased 13% in the second quarter. Year to date figures of 21% for ROAE and 18% for net income growth support the guidance for this year.  

Our loan portfolio growth was spurred by organic and inorganic activity. Our organic growth was approximately 21%, and inorganic growth was approximately 29%. These estimates take into account the effects of Instacredit and AFS in our portfolio. Our payroll loans, used-car loans and group loans operated by Contigo each showed a healthy rate of growth.  

Recent acquisitions are performing in line with our expectations. During the quarter, Instacredit opened a new branch in Panama, for a total network of 55 branches in Costa Rica, 10 in Nicaragua and 2 in Panama operated by more than 440 promoters. Instacredit represents 14% of our total loan portfolio and in the long run should represent one important component of the total Credito Real loan portfolio. Regarding the business in the United States, one of the multiple strengths of our AFS partner, it’s the robust IT platform; AFS technological platform has begun servicing for our Don Carro business; in addition Don Carro signed an agreement with a well-known mechanical workshop that will allow us to improve the inventory turn-over. We believe these are the following steps for establishing a scalable business to serve the Hispanic market in the United States. Meanwhile, the Resuelve business strengthened the online network distribution by enhancing two additional distribution channels. Step by step we have built a strong credit platform that today serves over 750,000 customers, 42% more than a year ago.

With respect to our payroll business, our loan portfolio grew by 24% with a healthy 2.3% NPL ratio. Recently, Mexico has witnessed certain protests regarding the educational reform enacted in 2013; specifically the Coordinadora Nacional de Trabajadores de la Educación (CNTE) in the states of Oaxaca, Guerrero, Chiapas and Michoacán have staged protests to express their disagreement with the reform. According to our second quarter 2016 figures, payroll loans represent 64% of our total portfolio with 350,380 clients. The educational sector makes up 53% of our payroll loan portfolio consisting of 41% in federal education, 6% in state education and 6% in other educational entities. The portion of the Credito Real payroll loan portfolio attributable to the CNTE in the Oaxaca, Guerrero, Chiapas and Michoacán states is 3,512 clients; that represents approximately 1% of our payroll portfolio. We do not expect a material adverse effect in the near term in the asset quality, origination or performance of our loan portfolio. We have made significant diversification efforts, for example the pensioners market represents 28% of payroll origination and 17% of the portfolio for the quarter. We will continue with our origination procedures, diversification attempts and enlarging our presence in federal entities to continue having a healthy payroll loan portfolio.                                    

During July we issued U.S. $625 million Senior Notes due 2023.  This debt issuance allowed us to accomplish significant achievements by increasing our long term indebtedness and refinancing the major debt obligations of our Company. Our funding cost for the quarter was 7.6%, reflecting the effect of the loan used to acquire Instacredit, the rise in interest rates and the consolidation of Instacredit interest expenses that are higher in comparison with the ones of Credito Real. Our Debt to Equity ratio reached 2.8 times, still well below our 3.5 times target. Our capitalization decreased from 40% to 37% year over year, nevertheless it still remains solid after the recent acquisitions. This quarter our efficiency ratio increased to 59%, due to the used cars branch network expansion in the United States and the consolidation effect of the Instacredit, Resuelve and AFS entities in our expenses.

Nowadays 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 asset quality and adequate funding. Overall, Credito 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 2Q16 reached Ps. 1,654.7 million, indicating an increase of 69.5% compared with Ps. 976.2 million reported for the 2Q15. The change was mainly due to the growth observed in the loan portfolio, spurred by Instacredit and AFS. Year-to-date (YTD) June interest income reached Ps. 2,994.0 in 2016, increasing 56.0% when compared to Ps. 1,919.2 million for the same period in 2015.

Interest expense increased 76.0% in 2Q16 to reach Ps. 422.9 million, compared to Ps. 240.3 million posted during 2Q15. YTD interest expense reached Ps. 745.7 million in June 2016, an increase of 60.4% when compared to Ps. 464.9 million through June 2015. The increase in interest expense reflects the credit facility used to acquire Instacredit, the rise in reference rates, and the financial expenses of Instacredit, AFS and Resuelve due to consolidation effects.  

The cost of funds of Instacredit including the facility used to acquire Instacredit for the 2Q16 reached 15.5%, adding 140 bps to Credito Real’s cost of fund rate of 6.2% to end at a 7.6% consolidated rate. Meanwhile, YTD cost of funds of Instacredit showed a 14.2% rate, adding 90 bps to Credito Real’s cost of funds rate of 6.3% to end at a 7.2% consolidated rate. Since Instacredit now has the support of Credito Real, we expect the funding cost of our subsidiary to become more efficient in future quarters.

Financial margin increased 67.4% during 2Q16, reaching Ps. 1,231.8 million, from Ps. 735.9 million posted during 2Q15, driven by growth in interest income. YTD June financial margin rose to Ps. 2,248.3 million in 2016 compared to Ps. 1,454.3 million posted in 2015, reaching a 54.6% growth.

Provisions for loan losses reached Ps. 208.0 million during 2Q16, 254.0% higher than the Ps. 58.8 million recorded during 2Q15. The allowances for loan losses represented 159.9% of non-performing loans, compared to the 127.3% reported in 2Q15. YTD June provisions for loan losses reached Ps. 255.4 million, meaning an increase of 87.3% compared to Ps. 136.3 million through June 2015. The increase is mainly driven by the portfolio diversification and the consolidation of recent acquisitions. 

Administrative expenses reached Ps. 746.6 million during 2Q16, showing a 236.8% increase over the Ps. 221.6 million reported in 2Q15. YTD June administrative expenses increased 185.6% reaching Ps. 1,310.4 million in 2016 compared to Ps. 458.8 million for the same period in 2015. The increase is mainly driven by the consolidation of the expenses of AFS, Resuelve, Instacredit and Don Carro. Excluding these recent acquisitions the SG&A would have increased 13.4% and 7.9% for 2Q16 and YTD June respectively.

Participation in the results of associates and non-controlling participation reached Ps (13.8) million in 2Q16, compared to Ps. 16.6 million recorded during 2Q15. The YTD June figure was Ps. (30.9) in 2016 compared to Ps. 35.0 million posted in 2015, decreasing 188.3%. The effect of consolidating the earnings of Instacredit, Don Carro, AFS & Resuelve (as a non-controlling participation) offset the effect of earnings in associates, recognized under the equity method, resulting in a negative figure in both 2Q16 and YTD June.

Net income in 2Q16 increased 12.6%, reaching Ps. 374.9 million, compared to Ps. 333.1 million posted during 2Q15. YTD June net income increased 18.4%, reaching Ps. 781.1 million in 2016 compared to Ps. 659.8 million for YTD June 2015, that indicates we remain on the path of our 2016 guidance.

Balance Sheet

Total assets accounted for Ps. 33,080.8 million at the end of 2Q16, an increase of 52.6% over the Ps. 21,679.3 million registered at the end of 2Q15. The increase was mainly driven by loan portfolio expansion, and the recognition of assets from Instacredit, AFS, and Resuelve in Credito Real’s balance sheet and the increase in mark to market of financial derivatives.

Total loan portfolio reached Ps. 22,192.7 million at the end of 2Q16, an increase of 50.0% compared to Ps. 14,790.3 million at the end of 2Q15. 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. Excluding the acquisition of Instacredit the loan portfolio increased 28.9%. 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 2.3% as of 2Q16, equivalent to Ps. 516.2 million, compared to a 2.1% ratio or Ps. 307.7 million as of 2Q15. The NPL increased mainly in the used car business and Instacredit. The NPL is in line with the 2% to 3% long-term objective, as Credito Real achieves greater diversification in its loan portfolio.

Allowance for loan losses as of 2Q16 was Ps. 825.6 million or 159.9% coverage ratio (allowance for loan losses as a percentage of total past-due loan portfolio), compared to Ps. 391.7 million or 127.3% coverage ratio reported in 2Q15. The allowance for loan losses increased in line with the non-performing loan and loan portfolio increase.

Other accounts receivable increased to Ps. 3,368.5 million as of 2Q16, compared to Ps. 1,946.0 million posted as of 2Q15. 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. 24,896.5 million at the end of 2Q16, a 58.6% increase from the Ps. 15,693.0 million posted in 2Q15. Total debt reached Ps. 22,788.3 million as of 2Q16 compared to Ps. 14,221.0 million as of 2Q15.


Stockholders’ Equity increased to Ps. 8,184.3 million in 2Q16, compared to Ps. 5,986.3 million at the end of 2Q15, a 36.7% year-over-year increase. The earnings growth and the consolidation of the latest acquisitions are the main driver for the increase in Stockholders’ Equity. As of 2Q16 the company has repurchased 420,365 shares under its buy-back program.

Financial ratios

The efficiency ratio increased to 59.1% during 2Q16 compared to the 32.3% ratio obtained in 2Q15. The YTD June 2016 efficiency ratio reached 55.3% compared to 33.2% obtained in the same period of 2015. The increase is mainly driven by the consolidation of Instacredit, AFS, Don Carro and Resuelve in Credito Real’s expenses. Excluding such consolidation effect, efficiency ratio would have reached 37.0% for 2Q16 and 35.7% YTD June 2016. 

During 2Q16, Credito Real experienced a Return on Average Assets (“ROAA”) of 4.7%, compared to 6.3% in 2Q15. YTD June 2016 ROAA measured 5.2% compared to 6.4% during the same period of 2015. The ROAA decreased 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 19.1% in 2Q16 compared to 22.9% in 2Q15. YTD June ROAE 2016 reached 20.9% compared to 23.3% compared to the same period of 2015. 

The capitalization index decreased to 36.9% as of 2Q16, compared to 40.5% observed in 2Q15. Even after including the increased debt to finance our recent acquisitions, Credito Real still has a capitalization ratio that is above the average of the financial sector.


Summary of Operations

 Group loan Operators


Credito Real Payroll loan portfolio rose to Ps. 14,152.1 million at the end of 2Q16, an increase of 23.7% when compared to Ps. 11,438.7 million recorded at the end of 2Q15. Nearly 89% of payroll loans originated during 2Q16 came from the three main distributors in which the company owns equity. During 2Q16 loan origination reached Ps. 1,401.9 million, showing a substantial increase of 33.0% against 2Q15. The non-performing loans reached 2.3% of the portfolio.

Credito Real continues to support portfolio growth with the pensioners segment; in 2Q16 this sector represented 28% of the payroll origination and 17% of the payroll portfolio. The following charts show a breakdown by sector and region of Credito Real’s payroll portfolio.



Credito Real Durable Goods loan portfolio measured Ps. 848.0 million as of 2Q16, a decrease of 14.4% from the Ps. 991.1 million recorded at the end of 2Q15, origination also showed a significant decrease year over year. Non-performing loans of 3.0% in 2Q16 were above the 2.8% experienced in 2Q15 but still below the average percentage of the sector. These loan portfolio and origination declines are explained by a decreasing number of distributors in the company’s network as well as the maintenance of tight credit policies. Credito Real’s plan is to gradually exit from the traditional durable goods business.

Credito Real Small Business loan portfolio totaled Ps. 1,450.4 million as of 2Q16, decreasing 8.8% against 2Q15. The decrease is mainly explained by strict credit policies; however for the following quarters we expect to recover the growth trend in this business line. Small business loan origination reached Ps. 835.8 million in 2Q16 compared to Ps. 872.2 million in 2Q15. The non-performing loan ratio for 2Q16 was 1.9%; similar to last year’s second quarter NPL of 2.0%.

Credito Real Group Loans portfolio of funding provided to distributors totaled Ps. 253.2 million at the end of 2Q16, compared to Ps. 258.9 million reached at the end of 2Q15. Credito Real’s loan portfolio records only the funding provided to its partners Contigo and SomosUno, in which it has minority equity participations. The loan portfolio of those partners reached Ps. 607.0 million at the end of 2Q16, increasing 39.4% year over year. Group loan origination reached Ps. 982.5 million in 2Q16, showing an increase of 39.5% when compared to 2Q15. The Company’s group loan partners continue to expand their number of customers while maintaining strong portfolio performance metrics. As of 2Q16, the group loan network extended to 1,251 promoters serving 182,076 customers. The non-performing loan ratio of the group loan distributor portfolio was 1.0% in the quarter compared to 0.7% in 2Q15.

Credito Real Used Car Loans portfolio totaled Ps. 2,364.2 million at the end of 2Q16, or 362.8% higher than 2Q15. Excluding the acquisition of AFS, the loan portfolio experienced a growth rate of 122.6% year over year. Origination for the quarter amounted to Ps. 558.5 million, while the non-performing loan ratio was 2.4%, compared to 0.9% 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, a region in which NPL’s 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 have been consolidated in Credito Real financial statements since February 22nd, 2016. As of 2Q16, Instacredit loan portfolio was Ps. 3,124.8 million representing 14.1% of total loan portfolio, with NPL of 2.7%, and Ps. 729.7 million of origination or 16.0% of total origination during the quarter. The effect of the Instacredit consolidation in 2Q16 results is displayed in the following table. The proforma financial statements also include the effect of the new Credit Suisse loan of USD 100 million borrowed by Credito Real to finance the acquisition of Instacredit.


Interest income from Instacredit contributed to 27.7% of consolidated interest income during the 2Q16. YTD June 2016 Instacredit interest income contributed 20.8% of the total, mainly driven by Instacredit personal, car, and SME loans.

Instacredit interest expenses of Ps. 134.8 million include the interest paid to Credit Suisse for the USD 100 million loan used to finance the acquisition of Instacredit, adding 31.9% to the consolidated interest expenses of 2Q16. YTD 2016 June Instacredit financial expenses contributed 23.0% to the consolidated amount.

Financial margin of Instacredit reached Ps. 323.6 million contributing a 26.3% to the consolidated figure of 2Q16. YTD June 2016 Instacredit represented 20.0% of consolidated financial margin. Regarding Instacredit provisions for loan losses backed 25.8% during this quarter, the allowance for loan losses represented 440.6% of non-performing Instacredit loans.

Administrative expenses of Instacredit represented 36.9% of the consolidated SG&A for the 2Q16 while YTD June 2016 amount represented 29.2% of the consolidated administrative expenses.

Instacredit net income contributed to 10.9% of Credito Real’s consolidated earnings during the quarter and 8.7% of YTD June 2016 net income.

Average yield for Instacredit was 62.1% in the quarter, and 60.9% YTD June 2016, contributing 500 bps and 360 bps to the consolidated figures respectively. Instacredit Net Interest Margin was 43.9% for the 2Q16 and 44.1% YTD, contributing 340 bps and 260 bps respectively to the consolidated NIM.

Instacredit Return on average equity for 2Q16 reached 33.8%, supporting Credito Real’s consolidated ROAE growth by 100 bps. YTD June 2016 ROAE of Instacredit reached 40.4% contributing 100 bps to the consolidated ROAE of 20.9%

Average cost of funds of Instacredit for the 2Q16 was 15.5%, adding 140 bps to the consolidated COF. YTD June 2016 average cost of funds for Instacredit reached 14.2% contributing to a 90 bps growth in the consolidated amount.

80.1% efficiency ratio during this quarter for Instacredit also contributed to a higher consolidated efficiency ratio, from 51.3% to 59.1%. The efficiency ratio of Instacredit shows the effect of the interest expenses from the Credit Suisse loan, as it decreased Instacredit’s financial margin. Excluding this effect, the efficiency ratio of Instacredit for 2Q16 would be approximately 64.0%. Instacredit’s efficiency ratio for YTD June 2016 is 78.2%, and excluding the CS facility, that ratio would have reached 64.6%.   

Coverage ratio during the 2Q16 increased from 104.2% to 159.9% due to the effect of consolidating Instacredit, which added 55.7%. Meanwhile, NPLs of Instacredit reached 2.7% keeping a significant improvement compared to the 1Q16 4.1% NPL.

Analysts 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)
BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero (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)
Casa de Bolsa Banorte Ixe, 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 Credito Real

Credito 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. Credito Real offers products mainly to the low and middle income segments of the population, which historically have been underserved by other financial institutions.

Credito 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 Credito 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.






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

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