Regional S.A.B. de C.V. (RA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen and thank you for standing by. Welcome to Regional's Third Quarter Earnings Conference Call. We are joined today by Manuel Rivero Zambrano, Chief Executive Officer of Regional; Enrique Navarro Ramírez, Chief Financial Officer; and Alejandro Gálvez, Head of Strategy and Planning and Investor Relations. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Manuel Rivero Zambrano. Thank you, and please go ahead.

Good morning, and thank you for joining us. Today, I'll walk you through the third quarter results. In a mixed macro backdrop, we delivered resilient profitability and healthy growth and continued progress on our strategic priorities. The third line is disciplined execution, balancing selective growth, strong credit quality and a more diversified revenue mix. Mexico's growth has moderated and uncertainty around trade policy has increased. Against the backdrop, we stayed close to our clients and focused on the drivers we control, put it on and driving disciplined pricing and a more diversified balance of revenues. We continue to expand in high potential regions while keeping a tight rein on costs, and we increased the mix on fixed-rated loans and fees to cushion future margin normalization. Net income for the quarter reached MXN 1,531 million, a 5% year-on-year contraction. Our return on average equity contracted 248 basis points year-on-year to 19.3%. While this represents a decline from previous quarters, it remains at healthy levels and reflects our focus on maintaining asset quality and profitability as priorities. Our consolidated NPL ratio increased to 1.6% from 1.3% a year ago, and our cost of risk rose to 1%. While this remain at manageable levels, we continue to tighten early warning monitoring, maintain conservative underwriting standards and proactively manage exposures. Regional posted solid year-on-year growth -- loan growth of 9%, fueled by sustained commercial activity, particularly in higher-performing regions such as Jalisco. On the funding side, core deposits grew 9% year-on-year, while the total deposits increased by a strong 14%, highlighting the continued trust and engagement of our clients. This dynamic growth in both lending and deposits contributed to a 7% expansion in the financial margin, supported by higher volumes and disciplined pricing strategies. We continue to broaden our revenue mix through nonfinancial income. Card merchant fees increased 35% year-on-year and insurance fees 18% year-on-year. Overall, nonfinancial income grew 4% year-on-year. Operating expense grew 12% year-on-year, driven by technology expenses, strategic investments in geographic expansion as well as inflationary pressures on operating costs. This resulted in our efficiency ratio increasing to 41.7%, reflecting a 221 basis points year-on-year increase. We are prioritizing productivity levers, automation, process redesign and vendor optimization to stabilize expense growth while protecting client experience and risk capabilities. Wholesale loans grew 9% year-on-year, led by Jalisco with 23% growth. Demand deposits rose 29% year-on-year, bringing our CASA ratio to 44.6%. Our relationship banking model, coupled with disciplined pricing, continued to differentiate us. Retail banking continues to show healthy momentum with preferred banking time deposits growing 17%, reflecting solid client engagement and trust. Our branch network continued to expand in a disciplined manner, focusing on high potential locations that align with evolving customer needs. Notably, individual checking accounts rose 13% year-on-year, an indicator of growth client acquisition and deepening relationships. Though we remain -- we anticipate a normalization of this space going forward, the NPL ratio remained very healthy levels across the segments, like wholesale 1.4%, consumer at 2.8% and auto at 0.6% and mortgages at 1.3%. In wholesale, NPLs increased this quarter, reflecting a deterioration in a few specific cases rather than a systemic trend. Levels remain within the segment's historical range and exposures are well secured. We are executing fragmented workout and derisking actions, tightening early warning triggers and accelerating recoveries and are focused on bringing the ratio down over the coming quarters. We're enthusiastic at Hey Banco's results. We continue incrementing the profitability, prioritizing quality over volume. Individual deposits grew 23% year-on-year and the business loan portfolio reached MXN 4,443 million, up 26%, showing strong traction in targeted segments. Hey reported a financial margin of MXN 253 million and a NIM of 9.2%, up 234 basis points year-on-year, supported by improved asset yields and a better risk-adjusted client mix. The efficiency ratio improved 64.4%, even as we keep investing in automation and digital to mitigate structural costs. After customers reached 482,000, the cost of risk decreased 198 basis points to 5.7%, and we reduced our cost of risk by 188 basis points to 5.71%. Though we remain vigilant about credit trends in current environment, the spin-off process remains on course for completion this following semester. We are advancing our loan diversification strategy with emphasis on high-quality customers across regional core sectors. The new Banregio app design will consist with -- consistent experience to Hey Banco will enable deeper cross-selling, especially in consumer products. This helped mitigate the NIM pressure while leveraging our proven risk management capabilities. Wrapping up, I want to mention that the Board has approved the arrangement of a shareholders' meeting to request an approval for the second dividend payment, underscoring our underwing commitment to create sustainable value for our shareholders. Our results this quarter reinforces the strength of our core operations as consistency of our strategic priorities while continue to generate sustainable growth even amid a more challenging environment. Moving forward, we continue to enhance our operation and explore new opportunities fully committed to our strategic goals. We are confident that Regional will maintain strong financial performance in the upcoming years, ensuring superior profitability and asset quality than the system. Thank you very much. We appreciate any questions.

[Operator Instructions] Our first question comes from Brian Flores with Citi.

Just I have 2 questions. The first one is on the guidance, right? I just wanted to check with you if you have any updates, particularly as the implied needed fourth quarter would be or needs to be very strong to reach the midpoint of the guidance. So I just wanted to understand if you have any revisions, any adjustments, I think that would be very important to understand. And if you want after that, I'll ask my second question.

In terms of guidance, I guess that you are asking about net profit, obviously, that is the one that is challenging because on the other ones, we feel comfortable. I won't go for all of them, but total loan growth and core deposits, the NIM that is in range in 6.3%, even the quarterly. But about net income growth, yes, we know it's very challenging. We don't believe we will get it. We expect a very good fourth quarter, but not as good to reach the 5%. Then -- well, we are not changing the guidance is the last quarter, but we accept that we are doing everything to improve the profitability for the next quarters. We have been taking advantage of many of the automations we have been doing to reduce our staff, but the improvement in costs will be shown until the first quarter of 2026. Then in cost and managing the operating expenses, we have some improvements that will be reflected on the next quarter, mainly because all the severances that we paid this quarter will be shown -- will be balancing or netting with the savings. Say that again, and being concrete, yes, it's very challenging, and we believe we will be close but below.

Super helpful. And then my second question is on growth. I think you are one of the banks that maintains the double-digit growth. And as [ Joe ] just mentioned, it seems like you remain comfortable, right, with that level.

Well, we revised in July the total loan growth and the core deposits from 7% to 10%. And we believe we can still get is challenging also the 10%, but it looks more like 8% or 9% because the fourth quarter, if you see versus December is 6% already December to September, 5.7% to be more exact. Then we believe we can -- we have a good pipeline in loans, but what we cannot manage is prepayments. We don't know if we are going to receive some prepayments as many customers are very liquid right now. But yes, in that line, we are on guidance between 7% and 10%, and we feel very comfortable above the 7%.

Okay. No, I just wanted to understand if you see this trend with similar levels of GDP in 2026 as the base case right now from the median survey of [ Banxico ], do you think maybe this 7% to 8% is reasonable? And if you can explain a bit on the asset quality side, you are seeing any particular segment affected.

In the asset quality, if you see our conference call presentation in the -- it's basically the wholesale segment. We won't say any more specific cases. Obviously, there is always specific cases. What we were trying to say is that it's not general, but are different cases in different regions. It's not a generalized problem. But -- and it's mainly in the wholesale segment, if you see -- I don't have it. This one is -- it increased from 0.6 -- no 0.9 to 1.5 and is our loan book, the largest loan book, MXN 130 billion. That's what is increasing the whole deterioration. Also, we have seen some but not relevant in small businesses, both in Hey as well as in Banregio, but improvements in auto and mortgage, then we feel very comfortable in general. The only one that we are looking very closely for the size of the tickets of the loans, specific customers is in wholesale.

Super helpful...

And we -- going back guidance, we have explained that the guidance look very wide at the beginning of the year that we were on 1.2, 1.3. We guided below 1.8. For sure, we are sure that we are not crossing the 1.8. Right now, it's 1.6. It could go to 1.7 and then back. Reading some of the analysts yesterday, I agree that it's not -- it depends that we can collect or foreclose one of these large loans that we have been having during the year to go down. But even if we don't recover any of them, it won't cross the 1.8.

Our next question comes from Eric Ito from Bradesco BBI.

I have 2 here on my side as well. The first one, just a follow-up on your NPL ratio. I think you mentioned during your presentation that you're having some efforts to bring down, improve the collections. So I understand that will depend on the collection of some foreclose of the loans that had some issues in the quarter. But maybe looking at 2026 and thinking about your cost of risk, what do you think could be the sustainable one? I think during the revision of the guidance in the middle of the year, you increased from 0.7% to 0.9% to 0.9% to 1%. So just thinking if we could go back to those levels next year? And then my second question is on Hey Banco. I think a good recovery in profitability. Maybe we can annualize around MXN 150 million of net income for Hey Banco this year, which would represent 2% to 2.5% of your whole net income in 2025. So I just want to pick your brains here and understand if you could share some numbers on how much do you think it could represent of your total net income maybe in 2026 or maybe a longer term if you have a goal here? And also, lastly, if you could share latest updates on competition and most aggressive players with Hey would be great.

Well, I will go first to the first question that is about cost of risk. No, yes, we move, as you know, the guidance also to 0.9% to 1%, a more sustainable before not -- beyond '25 is 0.9. I would love to say that we will go back to 0.7% that was very stable for many years. But right now, we see 26%, at least that is the one that we have been budgeting already between 0.8% to 0.9%, a more stable number. In terms of Hey Banco, we believe in the next 2 years, it could be between 5% and 10% of the profitability of Regional. As you can see, we are growing and that will continue, both growing the loans, mainly SMEs but also continuing the efficiency, improving the cost efficiency ratio.

Okay. And on competition, if you could share the latest updates here?

No, no, no. We don't see any difference yet. We know that Revolut will start operation soon. Bineo already closed and was sold. No, we haven't were sent any impact from open bank or new bank recently. Obviously, we have some impact in December 2023, but not anymore. Let's see. And we know that Plata yesterday announced -- Revolut announced yesterday some different products and Plata is working on the starting of operations. We monitor all of them, but really, we continue believing that the largest competitors are still the incumbent banks like BBVA, Banorte, Santander and all of them, Banamex and HSBC.

And we're the only one out there that's really having all the products that clients need to consider our offer to be the main bank for those compared to any, we're very well ahead.

Okay. And just to confirm, this 5% to 10% profitability of Regional with Hey Banco, that would be what, like 3 years from now, 2027, 2028, something like that?

'27, '28. It won't be '26.

Our next question comes from Lindsey Shema from Goldman Sachs.

I have 2 questions on my end. The first is loan growth looks like it's going to be within your updated guidance of 7% to 10%. I was just wondering, I mean, you were originally expecting 10% to 15% for this year. Do you think it could accelerate back to that 10% to 15% in 2026? And if so, what are the main drivers you're looking at for loan growth next year? Is it the USMCA being renegotiated? Or is there any other kind of factors there? And then my second question is just a quick one. Other operating income, we saw a really big decrease down to negative MXN 110 million. Was that anything specific there?

Yes. Thank you, Lindsey. I will start with the second one because it's the easiest one to answer. Yes, in that line, I will refer to the table in the quarterly report on Page 8 that splits the other income that is in the income statement in 4 lines. There are all the asset sales for foreclosed assets that includes both the valuation plus the sale and profit if there is any on the sale of the foreclosed assets. And then I will move to the other 2 are very directly. Credit operation refers to all the cost of credit bureau plus all the development banks, all the premium or commissions that we pay to development banks. IPAB is also direct payment, the premium that we pay for the IPAB is type of the FDIC. And finally, the one that has this changed [ 110 ] negative. Basically, in that line, what we account for is many provisions and valuations of different parts of the balance. In this specific case, the provision that was made for expected losses for the securities investment portfolio. That's the largest one and some valuation of the swaps that we do with customers even though we -- every swap that we do with a customer, we have a counterpart with a larger bank. There is always a risk expected loss from the customer, obviously, not from the large bank. Then both parts of the balance are valuated and also our provisions for expected losses as we have been increasing the investment securities is more than MXN 50 billion right now, and we started around MXN 35 billion. That's what is presented there. We don't expect -- I will anticipate the next question, neither this next quarter or the next 3 quarters to increase that provision because we don't expect to increase more the securities investment, the portfolio on securities investment. We are comfortable with the number around MXN 55 billion. And as we have been explaining in previous conference calls, we didn't hedge against the reduction of the rate, but increasing the securities was part of our protection to protect our NIM. Then -- but also has this issue, let's call that you have to do the valuation and the expected losses provision. In balance, we have around MXN 105 million net that if you consider the MXN 52 billion portfolio is a very small 0.14 something like that percent of provision. That's the main line. And in that line, it goes up and down, positive and negative is because there are -- I won't say many, but different provisions mainly for operational risk in all the businesses, leasing, all of them and the main ones are leasing and acquiring. And we maintain a target. When we reach that target, we free some of these provisions, then the line go positive. And then when we create them, the line go negative. In terms of the second question for the loan growth, we expect to go back to double digit, but not 10% to 15%. Maybe we are not yet guiding, but we expect above 7%, but below 12%. And it will depend mainly on 2 main factors. One is the rate. Once the rate reached some levels below 7%, we believe the demand for loans will be increased, mainly some projects that has been postponed because of the cost of the funding. And also, as you mentioned, the more clarity, maybe not the final negotiation of the new USMCA, but at least some clarity that hearing the Secretary of Finance or the Ministry of Finance, [ Mr. Ebrard ] yesterday was saying that for April, maybe we will have more clarity, but any clarity will help. Any good signs will improve the demand of new projects and new loans.

Our next question comes from Ernesto Gabilondo with Bank of America Merrill Lynch.

My first question will be on operating expenses. As you mentioned, you have been taking efforts on saving costs and staff reduction. So how should we think about the OpEx growth next year? And then I have a follow-up in terms of taxes. Given that the banks will no longer have these tax deductions, you are posting an effective tax rate of 27% in this third quarter. So how should we think about the effective tax rate next year? And for my last question, 2025 has been very challenging for Regional, but it is also creating easy year-over-year comps. So -- would it be reasonable to expect earnings growing again at double digit next year? And what do you think will be the key drivers for that?

Yes. OpEx, as I mentioned, and you can see also in the same page on the Page 8, that is where we disaggregate the total expenses. In compensation and benefits, we will see an improvement on next quarter, not fourth quarter, but first quarter of 2027. And that's the main line because it's the highest one is where we are focusing. We are doing a lot of automation that will be seen first in Hey Banco, but then in Banregio also. Then we can expect a continuous improvement in that line along the next year. And about the question, what we can expect for next year, in total, we can expect very close to 10%, maybe a single digit. We still need to see the improvements during this final quarter, fourth quarter of 2025. But for 2026, it's very feasible to have finally 1 year of single digit, also considering that we expect the inflation to close below 4% this year. That is the one that impacts the expenses of next year. We are moderating the number of branches. We were opening 20 per year. This year, we will finish 10 and around 10 more for the next year. We will continue opening most of the ones that we have already selected and located, but not the 20s per year. That will also help on the cost. Tax. In terms of the deduction from the IPAB, as you can see in the line has been stable around MXN 180 million per quarter and the deduction being our rate 26% and what was approved by the Congress is the 75% will be nondeductible. We expect an impact around MXN 170 million on taxes, that implies around 1.5% more of effective rate. There are other parts moving, but that's the main impact. Then you could say 27%, 28% for the next year. About earnings double digit, that's very tricky, very close, still not yet finished the budget and obviously not the guidance. Probable or feasible, but not -- but challenging. Then we believe, as you said, it's a lower comparable, but also it depends on the questions that Lindsey made about loan growth, especially in wholesale, it will depend on the right economic situation.

Our next question comes from Yuri Fernandes with JPMorgan.

I would like to explore a little bit more Hey Banco. And I think it was clear that you expect this to become 5% to 10% of the earnings. But I remember in the past back, I think 2023, like you were calling for maybe MXN 200 million of earnings for Hey. I was just checking the regulatory data here, and I think you had like MXN 47 million in the first 8 months. So we are tracking light in 2025, not even 2024. Number of clients, I remember maybe 1 million, then 650,000, number of clients are decreasing. So if you can help us understand the road map, like why Hey will get there in this number of clients? And I know like clients is not a good example. You mentioned many, many times that you look more for profitability. But the way he is today, looking to the equity allocated, you would be making more money allocating the money on securities than on Hey, right, like the ROE implied is around like 4%, 5% nowadays on the Hey based on the regulatory data. And again, correct me if I'm wrong because maybe there are adjustments to be made in this data from [indiscernible]. But I want to understand because this has been a project for many years. I believe the bank like Banregio has a lot of opportunity, a lot of growth. And sometimes, I think maybe Hey can be a distraction. So if you can help me to understand a little bit more why Hey now can be much better in 3 years because the way we see it is very competitive in the market, right? And maybe you are seeing something that we are not. So if you can provide a little bit of more color on the road map for profitability, we would appreciate.

So there's -- BBVA has 2,000 branches. Out of those, around 350 branches are for the same segments that Banregio covers. So the rest, 1,650 branches are for the segment that we consider like very -- a massive retail segment. So regional continues to evolve. In 30 years, we've been expanding our segments that we're in. And this looks like a great opportunity. So there's a lot of people going into the economy, wages are growing. They're demanding a lot of credit, demanding a lot of financial services, both individuals, so proprietors and business segments. So I don't know where -- what are you missing? Do you see now the opportunity?

No, I see don't get me wrong...

Do you think that we need to -- I mean, it would be better to put on branches? Would it be like more intelligent? Just want to understand.

No, I'm just saying that you have been promising things on Hey and not executing, right? You said 1 million back in a day, 200 million. And I don't know why should we be confident that this time will be different that we're going to execute on the guidance of Hey because in the past years, this has not been the case.

No. I mean, definitely, we've had setbacks. Definitely, we have been understanding the segment. Definitely, we've been learning a lot, and you can see it in the progress. I mean there's a traction going on. I don't know how much confidence you need. But anyways, I mean, keep on watching, I guess.

No Great. And if I may, just a follow-up on asset quality. If you can provide a little bit of more outlook into 2026, if 2026 should be a better year for asset quality or not or another transition year. Just a little bit on Banregio per se. If with lower rates, maybe we could see a better -- a much better outlook for -- and Manuel, you already mentioned, we should not see 0.7% on cost of risk, but maybe if we could see a little bit better than 1% just checking on asset quality.

You're talking about Regional, I guess...

Yes, correct.

Yes, not specifically only Hey. About NPLs in Regional, as I mentioned, it could deteriorate a little bit more, but also it could improve with collections because not all the cases are customers that cannot pay anymore. We are doing day-to-day business in restructuring and collecting and foreclosing assets. As you know, we have a lot of collaterals, more than 50% of our loans, business loans have collaterals, then that's part of the business. But as I mentioned earlier, we are not crossing the 1.8 neither this year, and we don't see it either next year. And in terms of cost of risk, we expect an improvement, not for this quarter, for fourth quarter, but for the whole '26, going back around 0.9%, we don't see the 0.7% feasible at -- not in this environment. But the 0.9% is very feasible and very achievable for the next year.

Our next question comes from Ricardo Buchpiguel from BTG Pactual.

I have 2 questions here on my side. In recent years, we saw that Regional hasn't grown loan as much above the market like it did before 2017, but it still has a relatively small market share when you compare especially to incumbents, right? That said, can you comment what was the rationale for that change in performance? It was related mainly because Regional got too big and eventually, you got too big for the key regions where you operate and now you need to move to new ones. And can you comment if we should expect Regional to reaccelerate market share gains over the next, I don't know, 3 years and what exactly would support this? And for my second question, could you give us more color on NIM dynamics for next year? Should it be mainly driven by the interest rate sensitivity, which is correct me if I'm wrong, I believe it's close to 12 bps reduction for every 100 bps moving the interest rates? Or are there any other effects that we should incorporate in our projections?

I think the main aspect of the growth in loans has to be the environment, definitely. I mean it started with Trump first term, then came Lopez Salvador, then came the pandemic. So it's been a tough 5 years definitely. It's not -- confidence has not been as good, for example, when Peña Nieto with the Mexican moment, if we can remember that. But definitely, we're gaining market share. As you can see in Jalisco, for example, we're growing at a faster pace than our competitors. And that's the case most on the geographies that we've been. And we've not entered the big ticket. So we've not entered governments or government lending or corporate lending. So we've stick to our stories, stick to our core clients and being able to really have relationship -- long-term relationship with them. So it's -- in a sense, this is a demand that they're having and it will have, I think, it will need more confidence, more certainty on -- you can see that, for example, the investment rate has declined in the last 12 years. So definitely, we've seen the hit there. So in that manner, I think we're more prepared to gather up growth. I mean, definitely, we see ourselves as we can have more information than our competitors, and we've always been able to grow faster than them. But we don't have those handles like the government lending or the corporate lending that big banks use when loan growth, for example, right now is pretty weak, right? So I mean -- but definitely, you can see how we've been managing to increase our loan growth even in other segments and being able to cross-sell more, being able to really achieve better growth within complementary segments and that's helping a lot in terms of diversifying our income and diversifying our loan mix, right? So I think it's been very helpful. I mean we have the highest ROA out there. I mean we have a very healthy NPL ratio compared to any. So we've been able to really do a great job even so that we've not been able to grow at 15%, 20% per year as we've been, right? So the main message, I think it's we're pretty ready. I mean we're very well efficient. We are in the best manner. I mean, we have the greatest team. We have the exposure to all the geographies that we need. We have all the talent that we need. We have all the technology. We are very confident that we've been able to grab much more market share. I mean every big bank CEO always talks about Banregio, it's ridiculous. It's ridiculous. It's amazing how they really like our model. But sadly, they can't copy it because they're -- I mean, they're reporting to the corporate in London or Canada or whatever, and it's pretty difficult to really make decisions here as we do and making sure that we take advantage of those because definitely, it really makes a difference. And for next year, we definitely think that loan growth will be better. We've seen that the interest rate has ceded that will help, and it will continue helping for the next couple of years. And I think it will be easier for the big companies to be more confident in gaining or reallocating more capital to continue growth -- growing because there's a lot of -- I mean, the consumer segments are growing at a very fast pace. We have a lot of people entering into economy. As I said before, there's a lot of demand for new products and services. And in that sense, I think the economy will continue to evolve. There are headwinds definitely. I mean, we have the renegotiation of the treaty next year. That will be definitely an issue. So it would be very helpful to continue having more information on that. And definitely, as things continue to hopefully going in a good manner, right? So the U.S.-Mexico relationship has it been at the moment, I think that will be very helpful.

Very clear. And in terms of the NIM dynamics for next year, what is reason we should expect?

In terms of the NIM, we expect, as we have mentioned, once the rate -- the policy rate or the TA that is the one that we use remains stable to continue going back. It's the same sensibility that you mentioned, 12 to 14 bps is lower, is tending to 12 if you do the NIM for the whole assets -- for all the productive assets, including the investment securities portfolio. But it's 14, if you only consider the loans. Either way, as I mentioned, we have been increasing the portfolio of securities investment, but also the other consideration is that we have been increasing auto leasing that are fixed rates and with better margin than wholesale loans as well as small businesses. That's where we continue growing more than double digit, not in the whole loan book, but in the specific segments and loans with better margins and longer duration. Then we expect to maintain the margin above 6%, but it will continue growing -- decreasing -- sorry, decreasing as long as the rate decrease.

Our next question comes from Andres Soto with Santander.

Sorry to go again to the loan growth question. When I look at your loan growth in 2025, you guys were not affected by the decrease in government loans that we saw for the other banks. And yet the final results appears to be below your initial expectation. What was the main surprise for you guys in terms of credit demand this year or it was a matter of asset quality and you tightening your origination standards. What is in the end, what make you deliver loan growth in the, let's say, 10% instead of the 15% that you were expecting initially?

The main driver is prepayments. We are -- we have good new loans pipeline along the year. The demand was there, and we haven't changed our approval of loans policies or credit risk policies. It was mainly that some of the customers, they had liquidity, extra cash, and they decided not to invest it, but just to prepay their loans. And for our bankers was challenging not just to lend all the amortization plus the prepayments plus the growth, and that's the main reason.

And when you look into 2026, some of the other banks that have already reported mentioned they expect like a 2-phase year weak demand in the first half, strong demand in the second half. Is that the same type of pattern that you imagine for your loan growth next year?

For wholesale, yes. For small businesses and auto, it's more stable. We see a very good year for small businesses and auto, both in Banregio as well as in Hey. For wholesale business, yes. As I mentioned, we need to see more clarity on where are the negotiations of the USMCA trending about what will be the new level of tariffs, if any? Then I agree in that statement, but only for the wholesale, that is larger businesses, larger projects that requires more certainty. For the small businesses and auto and even for the small part of consumer lending that we have, we don't see they are as affected as the wholesale.

Understood. And what percentage will be wholesale versus SME in your total loan book?

Right now, it's 80% wholesale -- 80% is commercial. No, 71% is wholesale.

Perfect. And regarding the expansion plan, any changes to your expectation regarding branch openings and expansion into the central part of Mexico?

No, just the speed. We expect still to cover more than 280 branches in the next years. Right now, we are closing on [ 2,010 -- 2,200 -- 200 to 210 ], and we expect 280 at most. This year will be around 10 fully operating. We have another one in process. For the next year, will be 15 -- between 10 and 15. It depends on all the process of construction and opening, but that will be the split between 10 and 15 per year. That will be -- and what we have not changed is reinforcing the presence in the regions where we already have a presence. It's not going to new states and being more efficient is most -- at least 50% of the branches that we are opening this year and more than 70% of the branches of the next year are without tellers or physical cashiers. It's mainly ATMs and the commercial team, the advisers and the bankers.

But all in all, you will say expenses should continue growing in real terms next year.

Yes. But as I mentioned, expenses next year, we expect single digit, still high, close to 10%, but single digit.

Our next question comes from Pablo Ordóñez with GBM.

My question is related to dividends. Now that you're looking to slow down expenses on branch. Do you think that there is more room for dividends and to increase the payout relative to previous years? And also what level of capitalization do...

Yes. For this quarter, yesterday was approved a dividend of MXN 1.1 billion that is 40% in the whole year, 40% payout dividend. And for the next year, we expect a higher payout, at least MXN 3,000 million or MXN 3 billion that we expect to be around 40%, but it could be higher once we finish the spin-off of Hey Banco to Hey Banco new license that we are expecting to happen some point during the first quarter of next year.

And on the capitalization, what level do you think...

No, I couldn't understand your question, sorry.

Your capitalization level is currently at 14.6%.

No. Once we pay this dividend this year that we will be calling for an assembly -- shareholders' assembly today. Today, we will send the call for the next 2 weeks and will be paid. And during November, it will be 14%. And then again, we'll go up with the profits of the next quarter.

Our next question comes from Carlos Gomez-Lopez from HSBC.

Two minor things. First, you mentioned the high growth that you had in the region of Jalisco. Could you give us the reason for that? Is this a physical expansion or that part of the country is actually growing more? And what should we expect there for the coming year or 2 years? And second, in terms of asset quality in the auto portfolio, we have seen some trouble in the U.S., not so much in auto lending directly, but in business direct -- related to auto lending. Has there been any signs of concern? Is that something that you intend to continue to grow without any restriction?

In terms of Jalisco, yes. Basically, it is the region where we have increased more our presence. We went from 13 branches to 21 and still there are 2 more coming during the next year, then it is already being felt. And also, we have increased the number of bankers for wholesale banking. Then yes, it's directly related to the expansion. What we can expect at least double digit. I cannot say we expect another 23%, but still is the regions -- one of the regions where we are growing faster, and we have seen the economies also very well in general in the West side, not only in Jalisco state.

So is this for Jalisco or for the entire Jalisco and Bajio region?

No, the growth is for Jalisco and Bajio region, but the specific 23% is only Jalisco state. In terms of deterioration, well, we don't know what is happening in United States in auto, but not. We haven't seen that both in Hey as well as in Banregio, all the auto lending and also the leasing are the ones with the better NPLs because we are focused on quality customers, we are not doing subprime or something like that.

Since there are no more questions on behalf of our senior management, I would like to thank everyone for joining the call, and we look forward to speaking with many of you in the coming weeks. If additional questions arise, please don't hesitate to reach out to Alejandro and our Investor Relations team. Thank you for your interest in Regional, and have a good day.